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Morning Briefing for pub, restaurant and food wervice operators

Tue 25th Sep 2018 - Hard Rock Cafe UK reports £30,000-a-week merchandise boost from weak pound
Hard Rock Cafe UK reports £30,000-a-week merchandise boost from weak pound: Hard Rock Cafe UK has reported a turnover and pre-tax profit boost with the weakening of the pound following the Brexit vote driving a record number of international visitors to its venues. The company sold circa £30,000 a week of extra merchandise thanks to more German and Italian tourists flocking to the UK – merchandise sales account for 42% of total turnover. European visitors also contributed to a 2% rise in average spend on food and drink and 5% in retail. The company, which operates three sites – in London, Manchester and Glasgow – saw turnover rise to £23,374,000 for the year ending 31 December 2017, compared with £21,776,000 the previous year. Pre-tax profit was up to £3,778,000, compared with £3,461,000 the previous year. Food and beverage sales increased marginally to £13,876,000 compared with £13,764,000 the previous year, while merchandise revenue was up by circa £1.5m to £9,498,000, compared with £8,012,000 the year before. Restaurant average spend increased to £26.08 from £25.56, while retail average spend rose to £32.65 from £31.10. Restaurant transactions fell to 537,770 from 548,286, while retail transactions increased to 298,831 from 266,226. Gross margin was 50.6% compared with 52.1% the year before. No dividend payment was proposed or distributed during the year to its immediate parent, Hard Rock International (2016: £14m). In their report accompanying the accounts, the directors stated: “The priority for Hard Rock Cafe in the UK is to continue investing in its core operations with few expansion opportunities being considered. At gross margin, the determining factor has been the increase in the retail cost due to the rise in cotton prices. During the year, the average global cotton prices increased 15% (previous year: 5% increase). Retail sales represent 42% of our revenue and about 75% of our retail items are cotton products. We continue to benefit from the weakening of the pound following the Brexit vote. The year 2017 saw a record number of international tourists in the UK (about 7% higher than the previous year). Higher spending in European groups such as German and Italian were experienced and contributed to the increase in retail average spend of 5%. In food and beverage, average spends increased 2% albeit through a lesser number of transactions. Management expects improved performance in both the retail and cafe in 2018 as a result of the fall of the pound after the Brexit referendum, which helped to make the UK an even more attractive destination for visitors.”

JW Lees reports sales and Ebitda boost in new financial year, accelerates investment programme due to shortage of ‘quality sites’ for acquisitions: North west brewer and retailer JW Lees has reported sales for the five months to August 2018 are up 12.8%, with Ebitda increasing 33.7%. The company revealed its new financial year had “started well” and it remains in the market for “high-quality” acquisitions as it reported turnover increased 4.5% to £70.8m for the year ending 31 March 2018, while pre-tax profit fell 23.2% to £3.9m in a record year of investment. During the year, the company accelerated its investment programme due to a shortage of “quality sites” for acquisitions as it sat on more than £20m. Capital expenditure of £18.1m included the acquisition of the 52-bedroom Stanneyland’s Hotel in Wilmslow and 20-bedroom Bluebird Inn in Samlesbury. There were also major investments at The Alderley Edge Hotel, Belmore Hotel Sale, Groes Inn Conwy, Links Hotel Llandudno and Trearddur Bay Hotel. The 23% drop in profit was caused by the closure periods necessitated by the refurbishment programme, which means JW Lees has made net investments in its business of £58.7m since 2012. JW Lees paid £200,000 to team members through its profit-share scheme to recognise their achievement, hard work and commitment during the year. Managing director William Lees-Jones said: “2018 has been a transformational year for JW Lees and I want to take this opportunity to thank the JW Lees team for a year of really hard graft. At the end of 2017 we were sitting on over £20m in cash that had been earmarked for new pub acquisitions but, with a shortage of quality sites available, we decided to accelerate our investment programme in our existing estate. We invested in a total of 89 schemes in the year, which means two-thirds of the JW Lees pub estate benefited from improvement schemes of some form. We entered the MCA Tenant Track Survey for the first time in 2017 and were delighted to be ranked the second-best pub company overall in the survey. On 1 April 2018 we reorganised the pub business, separating our 291-bed managed hotels and inns business, headed by Tony Spencer, from our pubs business headed by Chris Moulson, with the pubs business encompassing both managed pubs and pub partners. We relaunched the JW Lees brand in November 2017 as the modern traditional brewery, with new packaging for our beer and new signage on our pubs, as well as the successful launch of Manchester Craft Lager and the subsequent opening of our small-batch brewery The Boilerhouse in July 2018. JW Lees is campaigning with other brewers in the Beer Duty Coalition Campaign to lobby the government to review Progressive Beer Duty since it is making brewers such as JW Lees uncompetitive in the market place. We are sandwiched between large international brewers with huge economies of scale and up-and-coming craft brewers who benefit from a tax subsidy and who only pay 50% of the duty on the beer they brew. Increases in beer duty over the 16 years since prime minister Gordon Brown introduced Progressive Beer Duty have made JW Lees increasingly uncompetitive as a brewer. It’s a complicated argument but Progressive Beer Duty was first introduced in 2002 and since then there has been an explosion of new brewers but actual UK beer volumes have fallen 24% in the same time period. It’s clearly not working and we are calling for a review in the chancellor’s Budget. Highlights of the current year so far include the launch of our latest beer, Cosmic Brew, in collaboration with Professor Brian Cox; signing a new contract with Marco Pierre White to brew and market Governor Ale and launch Governor Lager; and winning a Gold Medal and Best Show Garden at the RHS Flower Show at Tatton Park with the ‘From hop to glass’ garden that was created for JW Lees by designer Leon Davis and which now resides at The Golden Pheasant in Cheshire. We are also delighted to report we have recently exchanged contracts to build a pub at the Woodford Aerodrome site in Stockport as part of Redrow’s Woodford Garden Village 500-acre development of more than 1,000 homes. There is strong positive momentum at JW Lees focused around putting the brewery at the heart of the JW Lees business. We have some great pubs, run by great people and have big ambitions. 2018-19 has started well for us with total sales for the five months to August up 12.8% and Ebitda up 33.7%. JW Lees remains an active buyer of high-quality managed pubs, tenanted pubs, inns and hotels.”

Coffer Corporate Leisure sells freehold portfolio for circa £19.5m: Coffer Corporate Leisure has sold a leisure portfolio known as the Green Belt Portfolio, comprising eight high-quality freehold pub, restaurant and retail investment properties, for circa £19.5m to Kames Property Income Fund. Coffer Corporate Leisure advised the seller, a private UK investor who built the portfolio during 20 years, selectively purchasing and asset-managing landmark properties in affluent locations. Portfolio highlights include a high-end restaurant in St Albans that commenced trading as The Ivy Brasserie in May 2018 following a tenant investment thought to be in the region of £750,000; The White Horse pub in the affluent market town of Beaconsfield let to Brunning & Price; and table tennis-themed bar Smash/Coalition in central Reading. The locations of other assets include St Albans, Stratford-upon-Avon, Gerrards Cross and Reading, while the tenant line-up included a number of high-profile corporate operators such as JD Wetherspoon, Stonegate Pub Company, Brunning & Price (The Restaurant Group), Caprice Holdings (The Ivy) and Premium Dining Restaurants and Pubs (Greene King). Mark Sheehan, managing director of Coffer Corporate Leisure, said: “Appetite for exceptionally located properties remains very strong. It is no secret the best properties in the best locations are resilient to turbulence in macro or micro economies. For this reason, we are observing a “rush to quality”, where investors are competing for the best assets. This is contracting prime yields further and perpetuating the polarisation between prime and secondary assets. We were delighted with the depth of market interest in the portfolio, our client received numerous bids on the portfolio and individual assets.”  Lewis and Partners represented the purchaser.

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