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Morning Briefing Strap Line
Tue 15th May 2018 - Update: Ei Group, Patisserie Valerie results
Ei Group reports like-for-like net income up 0.6% in first half: Ei Group, the largest owner and operator of pubs in the UK, has reported like-for-like income was up 0.6% (first-half 2017: up 1.6%) in its 3,856-strong Pub Partnership division for the six months ended 31 March 2018. Underlying Ebitda was £139m (first-half 2017: £14m), “in line with expectations and reflecting the impact of planned disposals”. Average annualised net income per pub in its Pub Partnership segment was up 4.3% to £80,900 (first-half 2017: £77,600). Its “commercial properties” division grew to 351 sites (first-half 2017: 279) generating net annualised rental income of £25m on assets valued at £289m, representing a yield on the freehold assets of 7.7%. Average annualised net income per property was up 8.2% to £68,600 (first-half 2017: £63,400). Its managed pubs saw like-for-like sales growth of 6.6% (first-half 2017: 3.8%). It reported “performance on track” with 276 (first-half 2017: 136) pubs trading within its 100% owned managed operations business; 223 (first-half 2017: 100) in its drinks-led Craft Union format; and 53 (first-half 2017: 36) in its Bermondsey format. Ei Group reported continued progress with 43 (first-half 2017: 22) “managed investment” joint venture pubs operating with ten specialist partners. Simon Townsend, chief executive, said: “We set out our strategic plan in 2015, and we have made strong progress. As we look to 2020 and beyond, our strategy continues to evolve, reflecting our successes to date, changes in the market place and our continuing drive to unlock embedded value within our estate. However, the core tenets of our strategy remain unchanged in that we aim to optimise the returns delivered from each of our assets by ensuring they trade in their optimal format and operating model. We are pleased to have maintained the growth momentum in our leased and tenanted estate during the first half of the year. This is despite challenging trading conditions for the sector as a whole, with inflationary pressures and some fragility in consumer spending compounded by particularly poor weather towards the end of the period. To have achieved overall growth in net income despite these headwinds underlines the benefits of our flexible business model and gives us confidence that we are on track to deliver positive like-for-like net income growth in our leased and tenanted business for the full year. Our managed operations continue to trade well, with good returns achieved upon conversion and we expect the financial contribution from such conversions to increase in the coming years, delivering long-term incremental value to the group. Our managed investments and commercial properties businesses are successfully building the value-enhancing characteristics of portfolio quality and scale, consistent with our objective to monetise their value over time. The continued positive trading momentum and cash generation of the business enabled us to complete a £20m share buyback programme during the first half of the year, demonstrating our commitment to deliver returns to shareholders when appropriate and to drive long-term growth in shareholder value.” Of current trading, the company stated: “Last year the Easter holiday period was in the first week of the second half of our financial year and as such presented a more challenging comparative period for the beginning of our current trading period. Despite this we are pleased with the trading in the first six weeks of the second half of the year, which has been in line with our expectations. We aim to continue our growth momentum and to deliver positive like-for-like net income growth in our leased, tenanted and commercial estates for the full year, which will, in part, benefit from enhanced trading expected in June and July during the FIFA World Cup finals. We remain encouraged by the trading performance of our expanding portfolio of managed pubs and we expect the financial contribution from these pubs to increase and deliver long-term sustainable value to the group.”

Patisserie Valerie reports pre-tax profit up 14.2% as first-half revenue passes £60m: Patisserie Holdings has reported group revenue increased 9.1% to £60.5m in the six months to 31 March 2018 (2017: £55.5m). Gross profit was up 8.7% to £47.1m (2017: £43.3m). Gross margin was 77.8% (2017: 78.0%) and Ebitda was up 11.6% to £13.6m (2017: £12.2m). Pre-tax profit was up 14.2% to £11.1m (2017: £9.7m). It reported a strong balance sheet position with net cash of £28.8m (2017: £16.2m). Ten new stores have opened to date all funded from operating cash flow with a strong pipeline of further new sites – it is now trading from 206 stores. Interim dividend rose 20% to 1.44 pence per share (2017: 1.20 pence per share). Executive chairman Luke Johnson said: “The group has delivered a strong set of results in a sector that has well documented challenges. Our vertically integrated and flexible business model enables us to deliver consistent profits with our affordable treats remaining popular with our very diverse customer base. We remain focused on organic growth and with a strong balance sheet continue to assess acquisition opportunities which will have a strategic and cultural fit.” Chief executive Paul May added: “The period started well with a good build up to Christmas with our new festive range, including the limited edition Reindeer slice, selling well. Sales were slightly hampered by the adverse weather conditions. However thanks to our vertically integrated supply chain and the flexibility of our workforce we were able to limit the impact on profit. We finished the period strongly with a record Mother’s Day weekend and a good lead up to Easter. The group achieved strong sales from our website of £2.6m in the period, up £1.0m or 62.5% (2017: £1.6m). This was driven by our social media strategy and the relaunch of our website in February 2018, which provides customers with an enhanced user experience, including video imaging of our products, tablet/mobile compatibility and a streamlined checkout process. The revamped website is proving successful. We established a new product development team towards the end of the prior year and are currently trialling a number of initiatives in selected stores including a new menu, a new savoury range and in store bake-off of morning goods. In January we also launched Slice of the Month, which is proving popular. All of these new product initiatives are helping to drive incremental sales. Our partnership with Sainsbury’s continues. We have a supply only agreement for a limited Patisserie Valerie range to be sold at Patisserie Valerie branded counters within Sainsbury’s stores. We currently have counters in 31 Sainsbury’s stores in addition to 14 click and collect locations. We will shortly be entering a further ten Sainsbury’s stores. We continue to work hard to control our gross profit margin which remained at 77.8% (2017: 78.0%). We benefitted in the period from a number of contract renegotiations, and in some cases we switched suppliers to mitigate inflationary pressures, along with production efficiencies from investment in our bakeries in the prior year. We remain proactive in managing our cost base and in some cases we have seen a reduction in some of our core ingredient prices. Labour inflation now has the biggest impact on profit with National Minimum Wage, National Living Wage and Apprenticeship Levy costing an additional £0.3m in the period. Ongoing labour inflation is built into our budgets and is being absorbed as the group continues to grow. Staff retention and well-being is a key area of strategic focus for us and we are investing in training, rewards schemes and career planning for our employees. Rent and rates reviews added £0.2m of cost in the period and we have now had rent reviews at all of our key sites. We also made a number of smaller savings on various non-direct spends which had a cumulative positive impact of £0.4m. We have successfully opened ten stores to date and are on track to deliver the board’s annual target of 20 new openings. The openings included five new geographical locations at Basingstoke, Wigan, Cwmbran, Chesterfield and Carlisle. In addition we opened new stores in Glasgow, Liverpool, Cardiff, Milton Keynes and Sutton Coldfield. The new store in Glasgow is our 13th store in Scotland and the addition of stores in Cwmbran and Cardiff takes the number of stores in Wales to four. Our new openings are performing in line with management’s expectations. We currently have builders on site in three locations; Lancaster, Battersea and Belfast Forestside. These stores are expected to be open by the end of May. The Belfast Forestside opening will be our fifth store in Ireland and will be serviced from our bakery in Belfast. All of the Irish stores continue to perform strongly and provide management with growing confidence in the prospects for the region. In the period we closed two stores following lease expiries and we exited one concession arrangement. All of our new openings are profitable from the first week of trading and are all funded from operating cash flows. We have an exciting pipeline that is well developed. We remain confident in our ability to grow our estate and continue to believe that there is a large addressable market in the UK and Ireland.”
Goodbody – outlook from M&B’s management will be key: Goodbody leisure analysts have said the outlook from Mitchells & Butlers’ (M&B) management will be key to its first-half results tomorrow (Wednesday, 16 May). Issuing a ‘Hold’ note on the shares with a target price of 275p, they said: “We forecast first-half revenue down 2.4% year-on-year to £1,096m and Ebit down 4.6% year-on-year to £142m. In terms of like-for-like sales, we expect +0.9% in the first half, which compares to the +1.1% reported for the first quarter. Poor weather in March is likely to be a headwind for the second quarter although this should be partially offset by (i) Easter falling in the first half this year; and (ii) the dilution of the impact of the extra week in the comparative period. It is important to note the average monthly Coffer Peach Business Tracker has been flat over the reporting period and therefore we expect a continued outperformance of the market from M&B. The key themes that should warrant investor attention in the results are as follows. An update on dividend policy – at the time of the full-year results are as follows – the group announced it did not expect to declare an interim dividend in FY18 but would make an assessment at the end of the financial year based on a full year of trading and the development of the sector outlook. Outlook and comments on environment – outlook commentary from management in recent M&B updates has been notably cautious, with references to unprecedented challenges and uncertainty for the sector due to cost headwinds, competition and a softening consumer environment. M&B’s turnaround in performance in recent years has been encouraging in difficult circumstances. The stock continues to trade at a low valuation (8.2% free cash flow yield and 1.3 times freehold net asset value). However, high leverage, cost headwinds and a softer consumer environment continue to pose substantial risks. The share price is very close to our fair value of 275p per share and we see better opportunities elsewhere in the sector at present.”
‘Marston’s growth in first half to be driven by Charles Wells brewery acquisition’: Goodbody leisure analysts have said Marston’s acquisition of Charles Wells’ brewery will drive its first-half growth but said underlying Destination & Premium performance would remain soft. They said ahead of its interim results tomorrow (Wednesday, 16 May): “We forecast group revenue of £493m, up 12% year-on-year and adjusted profit before tax of £37m, an increase of 10% year-on-year. The strong growth expected in both divisions is primarily due to the acquisition of Charles Wells Brewing & Beer Company, which was announced in May 2017. We forecast fully diluted adjusted earnings per share of 4.8p (FY17: 4.7p), up 2% year-on-year, due to the dilution of last year’s placing. In Destination & Premium, we expect like-for-like sales of -1% year-on-year, impacted by poor weather. In Taverns, we expect like-for-like sales up 2% year-on-year following on from a strong first quarter of +2.6%. In Leased we expect revenue growth of 3% and in Brewing we expect revenue growth of 45% as a result of the Charles Wells acquisition. Marston’s valuation has come under pressure in the past 12 months as a result of softer trading in the key Destination & Premium business. The stock now has a dividend yield of 7% and is close to our 105p target price. We continue to have concerns around the underlying cash conversion of the business and therefore we will use the results to review our cautious view on the stock.”

Elegant Hotels reports revenue up as Barbados high-end hotel market stabilises: Elegant Hotels Group, the owner and operator of seven upscale freehold hotels and a beachfront restaurant on the island of Barbados, in which investor Luke Johnson holds a stake, has reported revenue up 8% to $38.8m (H1 2017: $35.8m) in the six months ended 31 March 2018. Revpar up 5% to $292 (H1 2017: $279). Average daily rates up 2% to $433 (H1 2017: $425). Adjusted profit before tax down 7% to $11.4m (H1 2017: $12.2m). The company opened Treasure Beach hotel, a 35 suite hotel, in December 2017 resulting in a 6% increase in room count to 588 (H1 2017: 553). It established a centralised warehouse in order to increase operational efficiencies and take advantage of direct importation of food and beverage. Construction of Hodges Bay Resort in Antigua, the group’s first management contract and its first hotel outside Barbados, is nearing completion. Occupancy increased to 67% (H1 2017: 66%) Sunil Chatrani, chief executive of Elegant Hotels, said: “We are pleased to have delivered a solid financial and operational performance in the first half of the financial year. The high-end hotel market in Barbados appears to be stabilising after several challenging years, and we have a strong pipeline of bookings for the remainder of the financial year. As a result, we remain comfortable with the FY18 outlook versus market expectations and confident in the group’s longer term prospects.”

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