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Wed 6th Mar 2019 - Giraffe & Ed’s experienced “consistent decline in profitability”
Giraffe & Ed’s experienced “consistent decline in profitability”: Giraffe and Ed’s Easy Diner, the Boparan Restaurant Group-owned brands, which are set to undergo a Company Voluntary Arrangement (CVA), have been experiencing a consistent decline in profitability and management forecasts indicate that the company behind them would be unable to trade within the limits of its banking facilities after this month’s rent quarter date without significant new investment. In the CVA document put together by advisors KMPG, it states that: “Whilst from FY17 to FY18 there was a significant improvement in the level of like-for-like sales decline in both the Giraffe and Ed’s Easy Diner brands, despite continued investment from the shareholder, the business has been experiencing a consistent decline in profitability. Based on historic trends, this Ebitda trajectory will continue if further investment is not made in the core estate and this will, in turn, put further downward pressure on the business and result in the company continuing to have insufficient funds to continue to trade beyond 25 March 2019 without further debt or equity funding.” The document shows that for the FY17 the two brands generated turnover of £67.1m, but a negative Ebitda of c£3m. For FY18, turnover is set to have declined to £61.7m, whilst negative Ebitda is set to be c£3.63m. Earlier this week, the company said it would close 27 of the brands’ 87 restaurants under the proposed agreement with landlords, whilst rent reductions were being sought on a further 13 sites. It has obtained £6.5m of additional funding from a related undertaking of Boparan Group, Amber REI Holdings Ltd (AREIL), which has been committed subject only to obtaining the compromises and arrangements set out in the CVA Proposal. AREIL has, to date, provided approximately £27m of unsecured funding to cover initial acquisition costs, trading losses and capex requirements. The CVA document states that without this funding, the company would have been unable to make critical payments and to continue to trade as a going concern. It highlights a number of reasons for the company’s declining performance. It states: “In common with other businesses in the casual dining sector, the company has also seen its profitability impacted by substantial increases in operating costs, including the rising costs of rent, rates, the living wage and costs of sale. These factors, alongside a significant increase in the competitive landscape, with more and more restaurants opening in close proximity to the company’s sites, have prevented the business achieving a positive cashflow. The directors are of the view that the company needs to both reduce its costs, and invest in its brand, its facilities and its operating model, in order to differentiate itself from its competition and remedy its consistent sales decline.” It is understood that various budgets were presented to the company’s shareholders, but all required at least £6m of funding, and with the given the high level of loss-making sites, the associated risk to delivering these plans was deemed to be medium to high. The document states that the company approached its principal shareholder on a number of occasions in the last five months with requests for further funding to maintain its solvency. However, the shareholder declined to provide further inter-company funding on an open-ended basis, and indicated that further inter-company funding would only be available conditional upon a restructuring of the business. In light of the challenges faced by the business and an expected cash shortfall at the end of March 2019, KPMG was engaged in January 2019 to run an early options process to explore the sale, investment, refinancing and restructuring options available to the company. A teaser was sent out to 112 turnaround investors and in addition, 38 trade and other financial parties were contacted. Ten parties attended meetings with management. Following management meetings, the company received four indicative offers, two from trade parties and two from turnaround investors. However, none of the bids were made on a solvent basis. All bids were, instead, based on an acquisition of specific assets via an administration sale, most likely conducted by way of a pre-pack. The sales process also identified eight parties who were only interested in taking on individual sites. The document goes on to state that the management team believes that, with the benefit of the financial restructuring, it will be able to implement the changes necessary to drive the business forward. It states: “If the CVA is approved, the company intends to deliver a comprehensive turnaround based on the following initiatives a) making capex investment into core Giraffe sites to refresh the restaurants’ offerings and improve the current operating model including: i. Reducing the complexity of Giraffe kitchens and bar areas to reduce labour costs; ii. speeding up service, particularly at peak times, through means such as hand-held ordering; iii. raising overall guest satisfaction and value for money; and iv. providing an operational template that can be scaled in the UK where the market is appropriate; b) growing the global Giraffe franchise business in Europe, the Middle East and Australasia; c) converting a number of sites to Slim Chickens; and d) a broader restructuring of the group and other cost saving initiatives. The Giraffes earmarked for closure are in Aberdeen, Basingstoke, Blackheath, Bluewater, Brighton, Bromley, Bury St Edmunds, Castleford, Chelmsford, Eldon Square, Guildford, Holland Park, Lakeside, Manchester Trafford Centre, Milton Keynes – Kingston Centre, Milton Keynes – MK Centre, Norwich, Reading, Walton-on-Thames, Watford and York Monks Cross. Whilst the Ed’s Easy Diners earmarked for closure are in Bromley, Cambridge Extra services, Glasgow St Enoch, Mayfair and Peterborough Extra services.”

AB InBev chairman to step down: Anheuser-Busch InBev’s chairman Olivier Goudet said on Tuesday he was stepping down from the brewer’s board to devote more time to his job as chief executive of investment firm JAB Holdings. Goudet’s resignation was first reported by the Financial Times, which cited concerns among the brewer’s board about JAB’s acquisition activity. It quoted one source saying the board was concerned its beverage holdings had become too close to those of AB InBev, maker of Stella Artois and Budweiser beer. “I can confirm that I have decided to step down from my position on the board of AB InBev in order to devote more time to my growing responsibilities as Managing Partner and chief executive of JAB Holding Co,” Goudet said in a statement. 

Just Eat reports ‘strong’ 2018 with four million new customers: Just Eat has reported revenue up 43% to £779.5m in the 12 months ended 31 December 2018. Profit before tax was £101.7m compared to a loss of £76m in the year before. Underlying Ebitda was up 6% to £173.9m. It reported 26 million active customers were driving strong order growth of 28% to 221 million. There was strong UK growth with orders up 17%; consolidated #1 UK position through successful integration of HungryHouse. A targeted roll-out of delivery in Australia and UK demonstrating a clear route to profitability. It stated: “(There was) significant strategic progress in FY18 enabling us to take advantage of £83 billion market opportunity. (We are) investing in the customer, partner and courier experience through technology and product with order frequency up 5%. (We are) partnering with all leading Quick Service Restaurants including McDonald’s, KFC, Tim Hortons, Hungry Jack’s and Subway. (The) acquisition of Flyt, a leading restaurant software platform which improves restaurant efficiency and customer experience. UK revenue (was) up 27% despite the impact of exceptionally hot weather in July and August. Canada revenue (is) up 186% at constant currency with launch of multilingual capabilities and new Branded Restaurants. In 2019, we will leverage the improvements we have made in our marketplace business to drive order and revenue growth, while we now also expect to grow marketplace uEbitda margins year on year. Furthermore, we anticipate 2019 will see our Canadian business, SkipTheDishes, report its first full year uEbitda profit, demonstrating the route to profitability for delivery. We will invest this increased profit in accelerating our other exciting delivery initiatives along the pathway towards profitability, principally in the UK and Australia. The targeted roll-out of delivery in key zones will allow us to increase our overall customer base and serve even more brilliant food moments. The board expects to report full year 2019 revenue in the range of £1.0 billion to £1.1 billion and uEbitda in the range of £185 million to £205 million (both excluding Brazil and Mexico).” Peter Duffy, interim chief executive, said: “Just Eat’s continued strong growth and strategic investments saw more than four million new customers join us in 2018. We are creating a leading hybrid offering founded on our unrivalled marketplace, combined with the targeted roll-out of delivery. This gives our growing customer base access to the greatest choice of restaurants and drives even more orders to our Restaurant Partners, ultimately strengthening the network effects of our business. We have a clear plan for the year ahead as our highly experienced team works hard to accelerate the execution of our strategy and we remain focused on long-term returns for shareholders.” Mike Evans, chairman, added: “The board is pleased to see that the strategy set out last year is working and already delivering strong results. Our experienced management team, led by Peter Duffy, is working to accelerate the implementation of that strategy. Our leading hybrid marketplace gives Just Eat a real competitive advantage and we are pleased with the speed at which this is now being rolled out. The board’s search to identify Just Eat’s next permanent chief executive is underway and we will provide a further update when a decision has been taken.”

Shepherd Neame reports outperformance in managed pubs, financing facilities provide flexibility to capitalise on future opportunities: Shepherd Neame, Britain’s Oldest Brewer and owner and operator of 322 high quality pubs in Kent and the South East, has reported underlying profit before tax up 1.4% to £5.9m for the 26 weeks ended 29 December 2018. The company stated: “We have incurred a one-off exceptional charge of £10.8m associated with the refinancing of the business and the cancellation of the previous swap contracts. As a consequence, statutory loss before tax is £4.1m (2017: profit £5.5m). Managed and tenanted pubs have continued to deliver a strong performance. Managed pubs account for nearly half of group revenue. Managed divisional turnover grew by +7.7% to £35.5m (2017: £32.9m). Managed pubs like-for-like sales grew by +4.1% (2017: +2.1%). Average Ebitdar per managed pub grew by +8.5% (2017: -3.5%). Despite ongoing cost inflation, underlying managed pub margin increased by 80 basis points to 15.1% (2017: 14.3%) Tenanted divisional turnover grew by +0.7% to £18.1m (2017: £18.0m). Like-for-like Ebitdar grew by +2.2% (2017: +2.1%) and average Ebitdar per tenanted pub grew by +4.0% (2017: +5.7%). Brewing and brands remains in transition following the termination of the Asahi contract and certain private label contracts including the Hatherwood range in Lidl. Own brand beer and cider volume reduced by 1.0%. Total volume of brewed beer is down -30.8% or 36,000 barrels in the period of which 32,000 barrels related to the Asahi and Lidl contracts. Due to these lower volumes turnover declined -31.4% to £22.2m. In October 2018 the company put in place a new financing structure with £107.5m of committed long-term facilities. The new financing structure provides certainty of funds, at a lower cost of debt and with an improved maturity profile, which allows the company to continue to invest for the long term.” Chief executive Jonathan Neame stated: “The business derives its long-term strength and resilience from its three operating divisions. The managed pub performance has been strong, offset by lower brewing and brands volumes. The tenanted pubs have continued their robust underlying performance. Our managed pubs are the principal area of investment and of growth. The quality of this part of the business continues to rise with recent acquisitions and developments. The tenanted division is a well-balanced and high quality business that continues to attract great operators for us to partner. Brewing and brands is still in a period of transition and we are pursuing a number of good opportunities for future growth. Since the half year, trade has continued to be good, with same outlet like-for-like managed pub sales up +3.7% for the 35 weeks to 2 March 2019, like-for-like tenanted pub Ebitda up +2.6% and own brand beer and cider volumes up +0.4%. The new financing package gives us the platform to capitalise on the significant infrastructure and population growth that is planned in our Kent heartland over the next decade. In spite of the risks associated with imminent departure from the EU, we remain confident that our long-term strategy positions the company well for the future.” 

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