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Morning Briefing for pub, restaurant and food wervice operators

Thu 18th May 2017 - Marston’s buys Charles Wells brewery, issues new equity
Marston’s buys Charles Wells brewery: Charles Wells has agreed terms to sell its brewery and brand sales interests to Marston’s for a cash consideration of £55 million, plus working capital adjustments. The other Charles Wells assets – pubs in the UK and France, are not included in the sale. The Bedford brewery site is the home of leading ale brands Bombardier, Courage, and McEwan’s and the sale also includes the UK distribution rights for Kirin Lager, Estrella Damm, Erdinger and Founders and the exclusive global license of the Young’s brand. In addition, Cockburn & Campbell, the wine merchants, will also transfer. Charlie Wells and John Bull beers will remain part of Charles Wells. Employees at the brewery in production, national sales, and brands marketing will transfer to Marston’s. In the next couple of years Charles Wells will invest in a small new, Bedford based, brewery to supply beers to its pub customers in the UK and Europe, and brewing and supply agreements will be made with Marston’s for interim brewing and longer term exclusive pub distribution services. The Charles Wells pub estate will have the benefit of the wider beer and wine range available from Marston’s. The strategy of Charles Wells has been to develop specialty ale and lager brands and a high-quality pub estate which is either tenanted or managed according to location. Today’s announcement signals an exit from higher volume national sales in favour of a more local and smaller scale brewing future in Bedford. The key focus will become the expansion of the managed pub businesses in the UK and France through acquisition, alongside additional investment in the leased and tenanted estate. Justin Phillimore, chief executive of Charles Wells, said: “We are delighted to have reached an agreement with Marston’s to acquire our brewery and become a close trading partner. After a detailed review of our strategy we had decided to re-balance the company more towards retail investment and that meant finding a partner we could work with for the future. There are opportunities for both companies in this deal and we look forward to bringing them to life.” Ralph Findlay, chief executive, of Marston’s, said: “We are delighted to have agreed to acquire Charles Wells Brewing and Beer Business. It is a high quality brewing business offering us opportunities to extend our trading area in the South of England and Scotland, and brings a range of well-known and popular brands into our portfolio. We also aim to develop further our range of international licensed brands, and look forward to working with our new overseas partners, including Estrella Damm, Erdinger and Kirin. The acquisition of Charles Wells Brewing and Beer Business builds on Marston’s established brewing prowess and is a further step in our objective to develop the leading premium beer business in the UK market. We have demonstrated our ability to acquire, integrate and develop beer brands evidenced by the success of brands such as Hobgoblin, Wainwright, and Lancaster Bomber. We have also achieved success with international licensed brands including Shipyard, now the 2nd biggest craft beer in the UK on trade.”

Marston’s places shares to fund acquisitions: Marston’s has announced its intention to conduct a non-pre-emptive cash placing of approximately 57.6 million new ordinary shares in the company to institutional investors, which represents approximately 9.9% of the company’s issued share capital (excluding treasury shares). J.P. Morgan Securities PLC, which conducts its UK investment banking activities as J.P. Morgan Cazenove (“J.P. Morgan Cazenove”), and Numis Securities Limited (“Numis”) are acting as joint bookrunners (the “Bookrunners”). The company has also announced today that it has agreed to acquire the Charles Wells Brewing and Beer Business from the Charles Wells Group for a cash consideration of £55 million, plus working capital adjustments, representing 5.5x Ebitda post synergies. Based in Bedford, Charles Wells Brewing and Beer Business is an established high quality brewing business with a portfolio of more than 30 beers including leading brands such as Bombardier, Young’s and McEwan’s. In addition, the business has UK distribution rights for the Estrella Damm lager brand and other beers under license including Kirin and Erdinger. The company also announced today the agreement to acquire seven pubs in strong locations to enhance its Destination and Premium estate for a consideration of £13m with a refurbishment investment of £3m, representing 7.8x post investment Ebitda. Both of these acquisitions are expected to complete in June 2017. The acquisitions are expected to deliver a combined ROIC in excess of 15% in the first full year and to be EPS neutral in the first full year and accretive thereafter. Pro forma Net debt: Ebitda is expected to reduce by 0.3x post completion of the acquisitions.

Marston’s reports profit rise in H1 despite timing of Easter: Marston’s has reported sales up 3% to £440.8m in the 26 weeks ended 1 April 2017. Revenue and earnings growth despite Easter falling later this year in second half. Profit before tax was up 3% to £33.7m. Easter impact on profit before tax is estimated at £1.5 million. Statutory profit before tax was up 61% reflecting positive movement in valuation of swaps. Leverage is maintained at 5.0x, fixed charge cover improved to 2.6x. Average profit per pub was up 3% in first half year. Three lodges opened, taking estate to over 1,000 rooms. Destination and Premium like-for-like sales were up 1.6%; operating margins in line with last year. Taverns like-for-like sales were up 1.7%, Leased like-for-like profits up 2% Own-brewed beer volumes are up 2%. It is on track to open 23 pubs and bars and eight lodges in current financial year. Acquisition of three Pointing Dog Premium pubs in May and agreement to purchase seven Destination and Premium pubs. The Pointing Dog Group comprise three premium dining pubs in Sheffield, Cheadle Hulme and Bakewell which will be integrated into its Revere premium estate. Chief executive Ralph Findlay said: “Marston’s has been transformed over the last ten years by the consistent implementation of our established strategy. In that time, we have built around 200 pubs on new sites representing 60% of the Destination estate today, and we have developed a leading premium pubs and bars business. The Taverns estate has been repositioned, having sold around 1,000 pubs and introduced pioneering franchise-style agreements designed for community pubs. In Brewing, we lead the premium ale market and benefit from a growing contribution from craft beers and international licensed brands, including premium European lager brands. Our market position will be enhanced by the acquisition of Charles Wells Brewing and Beer Business and we remain confident our strategy will continue to create value for shareholders.”

Greggs updates ahead of AGM: In advance of the company’s AGM tomorrow, Greggs has provided an update on its business. Total sales were up 7.5% in first 19 weeks of 2017 (2016: 5.7%). Company-managed shop like-for-like sales in the first 19 weeks were up 3.6% (2016: 3.7%). A total of 87 shop refits were completed and 42 new shops opened, with 14 closures. It added: “Total sales for the 19 weeks to 13 May 2017 grew by 7.5 per cent and like-for-like sales in company-managed shops grew by 3.6 per cent over the same period. Customers increasingly recognise the quality and value of our £2 breakfast offer and we have invested further in capacity to meet this growing demand. Balanced Choice sales continue to grow and we have added lines to this range, including cold-pressed juice drinks and a new selection of freshly-prepared salads and wraps incorporating flavours such as ‘Coconut, Lime and Chilli Chicken’. In the first 19 weeks we completed 87 shop refurbishments and opened 42 new shops, including 20 franchised units in transport locations. We closed 14 shops, giving a total of 1,792 shops trading at 13 May (comprising 1,615 company-managed shops and 177 franchised units). New shop openings remain focused on new food-on-the-go locations, the relocation of existing shops and new catchments such as Northern Ireland and the south west of England. Our investment in new systems and process improvements continues apace. Central forecasting and replenishment is now operating in half of our shop estate, replacing the traditional ordering process. Initial signs are good – the system is popular with staff and is delivering improved product availability. We have also concluded the consultation process with staff affected by the planned consolidation of our manufacturing operations and now have a basis on which to commence the investment programme that will support further growth in shop numbers and improved quality and efficiency in manufacturing. We have made a good start to 2017 although the sales outlook remains uncertain in the context of slowing growth in disposable incomes. Input cost inflation is having a modest impact on margins in the first half of the year as expected, however we have increasing visibility of costs for the second half and anticipate this pressure to ease towards the end of the year. Whilst this pattern will constrain profit growth in the first half of the year we expect to make progress in line with our previous expectations for the year as a whole.”

SSP Group reports progress in H1: SSP Group, the operator of food and beverage outlets in travel locations worldwide, has announced its financial results for the first half of its 2017 financial year, covering the six months ended 31 March 2017. Underlying operating profit of £42.8m was up 24.7% at constant currency, and 38.5% at actual exchange rates. Revenue of £1,073m was up 8.1% at constant currency; 19.6% at actual exchange rates. Like-for-like sales was up 2.9%, driven by air passenger travel and retail initiatives. Underlying profit before tax was £34.7m, up 49.6%. Reported profit before tax of £33.0m Kate Swann, chief executive of SSP Group, said: “SSP has delivered another good performance in the first half of 2017 and we continue to make progress on our strategic initiatives. Constant currency operating profit was up 25% driven by good like-for-like sales growth and further operational improvements. We have had a particularly strong period of new contract openings, growing our presence across the world particularly in North America and the Asia Pacific region. The pipeline is robust and we are pleased with the new contracts won in the first half. Our Joint Venture in India has started well and we are encouraged by the progress we are making there. Looking forward, the second half has started in line with our expectations and whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to be well placed to benefit from the structural growth opportunities in our markets and our programme of operational improvements.”

Punch confirms new delivery service providers: Punch has confirmed Marston’s and KNDL as its new delivery service providers. The company needed to source a new distributor to take over its delivery requirements from the autumn following a decision last year by its current provider, Carlsberg, to withdraw from the provision of distribution services in the UK. Punch said it needed to secure arrangements that could facilitate the separation of the pubs that will transfer to Heineken when the sale of Punch is finalised, subject to the approval of the Competitions and Markets Authority. Delivery services for the pubs that will transfer to Heineken will be provided by KNDL, which is the incumbent distributor for Heineken’s Star Pubs & Bars business. Meanwhile, the distribution arm of Marston’s will provide the delivery services for the retained Punch pubs. Punch chief executive Duncan Garrood said: “We now progress to changing over our supply arrangements from Carlsberg to Marston’s and KNDL in an efficiently managed process to provide our publicans with the very best service.”

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