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Fri 23rd Nov 2018 - Fuller's, CDG enters grab-and-go market, TRG/Wagamama deal questions, Crepeaffaire to make airport debut
Fuller’s expects another 65 weeks of closures in second half as it accelerates investment programme: Fuller’s chief executive Simon Emeny has told Propel he expects another 65 closure weeks in the second half of the financial year as the company accelerates its investment programme. The company had a total of 92 closure weeks in the first half and completed nine major refurbishment projects as it gears the business up for the long-term. Emeny said: “It is difficult to know where the country is going to be economically after our exit from the EU. We want to make sure the company is in the best possible shape for whatever 2019 brings by making sure our sites are in tip-top condition and our staff are motivated so we can gain market share. It’s about planning ahead for the long term.’ Fuller’s invested £45m in the first half of its financial year – including £25.9m on the acquisitions of Bel & the Dragon, four We Are Bar sites in London and Dark Star Brewing. Emeny said capital expenditure on projects in the second half would not be as high, since the schemes were on a smaller scale. Refurbishment projects planned for the second half include the revamp of the three remaining We Are Bar sites, which Emeny said had been a “very under-invested” estate. It follows the transformation of a former Jamie’s site in Creechurch Lane, central London, which has reopened as The Trinity Bell following a 12-week closure. The deal for six-strong gastro-pub chain Bel & the Dragon cost Fuller’s £18.5m and Emeny said: “I think it bought the business at a very sensible price. It’s a brilliant fit for us and we are exploring whether we expand in the future.” Emeny would not be drawn on potential acquisitions but said the company was currently focusing on its next batch of openings, including The Signal Box at Euston station in December and The Parcel Office in Liverpool Street station. Emeny also said there were no openings planned for 17-strong pizza, pie and cider brand The Stable, which Fuller’s now owns 100% of, given current conditions in the casual dining market. Of the company’s performance, he said: “I am delighted. All three of our divisions have strong revenue growth. What is also pleasing is the first seven weeks of the second half have been strong, which shows it’s not just the hot weather driving our performance. I’m supportive of what is on the table in terms of a Brexit deal. It gives us the opportunity to move forwards as a country, which is something we haven’t been able to do for the past two-and-a-half years.”

Casual Dining Group enters grab-and-go market with Warrens Bakery opening at Bristol airport, plans further sites in variety of formats: Casual Dining Group has entered the grab-and-go market after winning a tender to open a Warrens Bakery franchise store at Bristol airport, while it is planning further sites in a variety of formats. Warrens Bakery, which was founded in 1860, will take over a Soho Coffee site at the airport. The 84-cover venue will be landside and offer an all-day menu ranging from hand-made pasties, pastries and sandwiches to hot and cold drinks. Mark Nelson, managing director of concessions and franchising at Casual Dining Group, said: “We are delighted to be working with Warrens Bakery. It is a highly respected, quality brand with a strong heritage that allows us to enter the grab-and-go space. The look and feel of the site is rich and authentic, just like its food, and we’re confident it will be well received when we take it to the wider market. While this first partnership opening is at an airport, I see the opportunity to target other major transport hubs across the UK with Warrens Bakery sites.” Warrens Bakery chairman Mark Sullivan added: “We are a brand with an incredibly rich heritage and we want to find franchise partners we know will uphold and deliver our values and brand standards. In Casual Dining Group we have found the perfect partner and together we can take Warrens Bakery to new-profile destinations across the UK in a variety of formats, ranging from cafe to kiosk.”

Douglas Jack – more questions to be asked ahead of TRG shareholders vote on Wagamama deal: Peel Hunt leisure analyst Douglas Jack has said there are more questions to be asked ahead of a vote by The Restaurant Group (TRG) shareholders on Wednesday (28 November) to approve the £559m takeover of Wagamama. Earlier this month TRG announced a fully underwritten rights issue, which is intended to raise gross proceeds of about £315m, to be used to fund part of the cash payment for the acquisition. Issuing a ‘Hold’ note on TRG’s shares with a target price of 250p, Jack outlined some of the questions he felt still needed answering. He said: “TRG is paying 13.2 times EV/Ebitda for a 100% short-leasehold business in which 5% to 10% of leases expire over the next five years. We suspect these are the original (central London), more profitable leases among the 40% with no automatic right of renewal. What would be Ebitda and the acquisition multiple if these leases were rightly assumed to have expired? Why did Wagamama’s rent rise by 37% over the past two years versus a 10% rise in the average number of restaurants? Management is ‘excited’ by the potential delivery growth story, with the prospectus claiming labour is a semi-variable cost. If this is so, and delivery is meant to replace labour with delivery costs, why did Wagamama’s labour costs rise 37% between 2016 and 2018 versus 10% more outlets at a time when delivery was generating almost half its like-for-like sales growth? How are these labour costs to be managed in a fast-rising labour cost environment while allowing Wagamama to run autonomously? Were labour costs the main reason Wagamama’s adjusted Ebit fell 44% in the first half? What was the split in TRG’s minus 2.2% like-for-like sales year to date between delivery and in-store? According to haysmacintyre, 82% of restaurants claim delivery is loss-making or profit neutral. Does the claim it is slightly profitable account for in-store cannibalisation and the loss of alcohol sales due to the shift in the sales mix? What trading assumptions are behind the claim the deal/rights issue is only marginally dilutive in year one? We show how it is 33% dilutive even if Wagamama’s in-store like-for-like sales surpass 2018’s circa 4%, TRG’s like-for-like sales recover to +1.7%, synergy targets are hit, and no execution issues materialise. Management is forcing significant equity dilution and a strategy that is incompatible with the investment criteria of its value/income investors. The equity overhang could be substantial if this deal/rights issue proceeds.”

Crepeaffaire partners with TRG Concessions to launch at UK airports: Crepeaffaire, the UK’s leading crepe concept, has signed a partnership with The Restaurant Group (TRG) concessions. The deal will see Crepeaffaire open its debut airport site before the end of this year. TRG Concessions said the franchise partnership with Crepeaffaire added a “niche, fast-casual concept” to its portfolio, which has been serving UK air passengers for the past 12 years. Crepeaffaire’s all-day offering includes sweet and savoury crepes, waffles, coffee and smoothies to eat in or take away. Founded by Daniel Spinath in 2005 the brand operates on three continents, including 15 sites in the UK, while it plans to open its first locations in the US next year. TRG Concessions managing director Nick Ayerst said: “This is an exciting addition to the portfolio of brands we are able to offer UK airports. Crepeaffaire has a brilliant proposition and is a recognisable brand at home and internationally that will resonate with passengers and provide them with a fun, fresh and quality offer.” Spinath added: “We are delighted to have signed this master franchise agreement to develop our presence at UK airports. TRG’s expertise in managing airport operations combined with Crepeaffaire’s exciting all-day offer will undoubtedly resonate with a wide passenger base.”

UKHospitality backs healthy options exclusion from London transport advertising ban: UKHospitality has backed the exclusion of healthy options from the “junk food” advertising ban, which will come into effect across the entire Transport for London (TfL) network from 25 February. Mayor Sadiq Khan’s ruling follows a public consultation launched in May. The ban covers all adverts for food and non-alcoholic drinks that are high in fat, salt and/or sugar and considered “less healthy” under Public Health England guidelines. However, food and drinks brands, restaurants, takeaways and delivery services will be able to place adverts that promote healthier products. UKHospitality chief executive Kate Nicholls said: “Hospitality operators share the public’s support for calorie, salt and sugar reduction, and promoting healthy attitudes to food and drink, which is why the sector is working collaboratively with government, the mayor’s office and public health stakeholders to that end. The mayor has heeded our calls for the commercial right of hospitality businesses to advertise to promote the healthy options they are increasingly offering. We want to continue to play a part in delivering more healthy lifestyle choices for our customers.” Junk food restrictions will apply to advertisements on all transport controlled by TfL, including underground and overground trains, buses, trams and river services. Khan is due to publish his finalised London Food Strategy next month.

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