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Thu 11th Jan 2018 - Update: Increasing sector divergence, Fever-Tree, Booker Christmas trading
Analyst Tim Barrett – cost pressures mean company performance will increasingly diverge: Numis leisure analyst Tim Barrett has issued a note arguing that “cost pressures mean company performance will increasingly diverge”. He said: “Cost pressures in the sector are well known and resulted in a 100bp fall in average sector margins last year. Within this, the range of outcomes was surprisingly wide, from Greene King -170bp (1H18) to JD Wetherspoon (+80bp). In this note we assess the margin outlook for FY18 and conclude that the gap between winners and losers is likely to widen. In the early years of the National Living Wage (NLW), some operators were able to minimise the financial impact though mitigation. However, from April the 4.4% increase to £7.83 will capture an increasing proportion of the workforce. ONS data show that the NLW is already equal to 100% of the median wage for bar and waiting staff and 31% of workers >25y are paid at the NLW. More importantly, differentials are being maintained meaning that the median wage for all sector workers grew at 4.2% last year. Market data shows that wet-led pubs have outperformed pub restaurants for each of the last four months, and by 2ppt on average. Net supply reductions in wet-led pubs and demand growth in craft beer and spirits have driven the outperformance, in contrast with the value food segment which remains oversupplied. We expect financial distress among certain private companies (e.g. Byron) to prompt gradual capacity withdrawals through the year. Mitchells & Butler has opted not to pay an interim dividend, preferring to decide on the basis of 12 month trading whether to make a payout and citing a high level of uncertainty. MAB earns 84% of its Ebitda from assets within its securitisation, and has only 6% headroom to the level where cash cannot be upstreamed. Across the sector we see an average of 19%. Most balance sheets now have a variety of funding sources and maturities, although GNK’s recent refinancing leaves c.£420m in relatively short term debt. We remain cautious on managed pubs given above average exposure to labour costs and high operational gearing (1% on like-for-like sales has a 10% EPS impact for JDW, 9% for MAB, 5% for GNK. Ei Group, Fuller’s and Marston’s, have self-help and more defensive models. We see pockets of value in the sector and prefer leased/tenanted exposure for the more defensive business model and recovering wet led sales. Our top picks are EI Group (39% discount to tangible NAV), Fuller’s and Marston’s.”

Fever-Tree adds two non-executive directors: Fever-Tree, the supplier of premium carbonated mixers, has hired Kevin Havelock and Jeff Popkin as non-executive directors of the company with immediate effect. Kevin Havelock (aged 60) has more than 25 years’ drinks industry experience and is currently global president, Refreshment at Unilever with responsibility for the group’s €10 billion revenue global beverages and ice cream business. Since joining Unilever in 1985, Kevin has held a wealth of senior leadership positions around the world, including Chairman for Unilever UK, Unilever France and Unilever Arabia as well as President, Unilever North America. He has been a member of the Unilever Executive Committee since 2011 and sits on the group’s Sustainability board. Kevin also co-chairs the Pepsi/Lipton tea joint venture and became a trustee of both the British Council and The Eden Project in 2017. Jeff Popkin (aged 53) has significant experience across the North American beverage industry gathered over almost 30 years with particular expertise in sales and distribution in the US. His experience spans the beer, spirits, premium non-alcoholic carbonated soft drink and health and wellness beverage categories for a range of global brands. His leadership roles have included chief executive of Red Bull Distribution, North America, President of Vita Coco and he is currently North American chief executive of Mast-Jägermeister. Bill Ronald, chairman of Fever-Tree, said: “On behalf of the board, I am delighted to welcome Kevin and Jeff to Fever-Tree. They both have highly impressive track records across the beverage sector and a breadth of relevant international experience that will bring valuable insight and additional perspective to the company.” 

Booker reports strong quarter with non-tobacco like-for-likes up 6.2%: Wholesaler Booker Group has reported group non-tobacco sales rose by 5.9% with non tobacco like-for-likes up 6.2% in the 16 weeks to 29 December. Group tobacco sales declined by 2.6% with tobacco like-for-likes down 2.1%. As a result, total sales were up 3.4% and like-for-likes were up 3.8%. The company stated: “Both the Catering and Retail sides of Booker Group made good progress. Premier continues to grow and Budgens and Londis are performing well. We are proud to have commenced the supply to Shell and MRH forecourt businesses in December 2017. Internet sales increased by 14% to £381m (excluding Budgens and Londis) and Booker India continues to make progress. On 27 January 2017 we announced the planned merger with Tesco plc. As a result of the proposed merger, we are in an offer period as defined in the Takeover Code and will not be making forward looking statements for the duration of the offer period. On 20 December 2017 the Competition and Markets Authority published its decision granting unconditional clearance of the merger. We anticipate that the shareholder vote to approve the merger will be towards the end of February 2018.” Charles Wilson, chief executive, said: “Booker Group had another good quarter with like-for-like non tobacco sales up 6.2%. We continue to Focus, Drive and Broaden our business to improve choice, prices and service for our customers. The proposed merger with Tesco is progressing as planned. We are very grateful for the support we have received from customers, suppliers, shareholders and colleagues during this process.”

Durham Distillery relocates to start expansion and produce first whisky in the north east: Durham Distillery, which produces Durham Gin and Durham Vodka, is relocating to Durham city centre as part of its expansion to launch a whisky brand. The first batches of Durham Whisky will be ready to drink in 2021. Owner Jon Chadwick told Insider Media: “We are gearing up for what will be a huge year for the business, moving from the outskirts of Durham to a larger city centre premises to begin producing the first whisky to be made in this region, alongside increased production of our gin and vodka. Our new home will not only give us additional operations and storage capacity but will enable us to become a visitor destination. The aim is to host guided tours daily, as well as private functions and corporate events, in addition to being a welcome space for local people to enjoy as a meeting place.” Durham Distillery was the first emerging business to secure investment from the Finance Durham Fund – a £20m pot set up by Business Durham, part of Durham County Council, to help businesses in the county grow. 

Handful of tickets left for Restaurant Marketer & Innovator series this month, largest sector marketing event in the UK by attendance: A handful of tickets are left for Restaurant Marketer & Innovator, the most comprehensive marketing series the sector has seen. The event has now become the best-attended marketing event in the UK with more than 600 people from nine different European countries booked to attend. Propel will stage the two-day event in partnership with Think Hospitality on Wednesday, 17 January and Thursday, 18 January at One Moorgate Place in London. An array of marketers from agencies and early-stage, growing and rejuvenating brands will take to the stage to share their strategies and winning tactics. Companies and brands attending include Novus, Signature Pubs, Cafe Rouge, Wagamama, Brasserie Bar Co, Las Iguanas, YO! Sushi, Fuller’s, ASK Italian, Mitchells & Butlers, G1 Group, Costa Coffee, Ei Group, Jamie Oliver Restaurant Group, Brewhouse & Kitchen, Stonegate Pub Company, Be At One, Revolution Bars Group, Cabana, Thai Leisure Group, New World Trading Company, Pho, Maxwell’s Group, Gather & Gather, Oakman Inns and Restaurants, The Breakfast Club, The Coaching Inn Group, Gail’s Bakery, Gordon Ramsay Restaurants, K10, Giggling Squid, San Carlo Group, Ennismore, TLC Inns, Polpo, FrogPubs, The Real Eating Company, Claus Meyer Holding, VIP Pizza, 200 Degrees, Coppa Club, Snug Bars, Albion & East, Pint Shop, True North Brew Co, Darwin & Wallace, Chit Chaat Chai, BabaBoom, Electric Star and Eat Poke. For full details of the two days, co-ordinated by James Hacon and Ann Elliott respectively, click here. Conference prices for two days are £525 plus VAT for operators and £795 plus VAT for suppliers. Companies buying two tickets will receive a third free. A one-day rate of £345 plus VAT is available to operators only. For more information and to book, call Jo Charity on 01444 810304 or email jo.charity@propelinfo.com or Anne Steele on 01444 817691 or anne.steele@propelinfo.com. Please note the Boot Camp on Tuesday, 16 January will now take place on the tenth floor of the Blue Fin Building in Southwark Street, London.


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