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Morning Briefing for pub, restaurant and food wervice operators

Thu 7th Mar 2019 - Update: Greggs results, Patisserie Valerie, C&C Group trading
Greggs reports profit jump as turnover passes £1bn for first time: Food-to-go retailer Greggs has reported pre-tax profit, excluding exceptional items, was up to £89.8m for the year ending 29 December 2018, compared with £81.8m the previous year. Actual pre-tax profit increased 14.8% to £82.6m, compared with £71.9m the year before. Total sales were up 7.2% to £1,029.3m, compared with £960.0m the previous year – the first time in the company’s history sales have passed the £1bn mark. As previously announced like-for-like sales were up 2.9% in 2018 while like-for-like sales for the seven weeks to 16 February 2019 increased 9.6%. The group said it had seen further improvements to its healthier options, hot drinks, breakfast and hot food with the “exceptional” start to 2019’s sales performance helped in part by publicity surrounding the launch of the vegan-friendly sausage roll. The company said it was now a significant way through its transformation programme, which is on plan and scheduled to complete in 2021. As previously announced, when the programme has completed the company will have the capacity to grow the estate to about 2,500 shops. As previously reported, during 2018, 149 new shops opened, while there were 50 closures and left the group with an estate of 1,953 shops trading at 29 December 2018, 262 of which are franchised. It completed 89 refurbishments and franchise partners refurbished a further 11 units. In the year ahead, it expects to refurbish about 60 sites. Greggs plans to open at least 100 shops in 2019, including about 50 with franchise partners. Chief executive Roger Whiteside said: “2018 was a year that tested the resilience of Greggs’ business model and demonstrated the benefits of our strategic investment programme. The first half was significantly impacted by extreme weather but once this returned to normal our underlying strengths helped us recover the lost ground and deliver results for the year that exceeded our expectations. While there are significant uncertainties in the months ahead, Greggs has started 2019 in great form, helped in part by the publicity surrounding the launch of our vegan-friendly sausage roll. We hope to continue benefiting from this strong momentum during the first half of 2019 before facing stronger comparatives later in the year. We have a strong financial position which we plan to use to invest in Greggs’ potential for further growth, whilst also delivering good returns for shareholders.” Meanwhile, Allison Kirkby has decided to step down as a non-executive director at the close of the company’s annual general meeting in May. Kirby, who was also chairman of the audit committee, had been with Greggs for six years. Greggs said a search for a replacement non-executive director and chairman of the audit committee has already commenced.

FT – Patisserie Valerie’s new owner insists it can rebuild company after firing management: Patisserie Valerie’s new owner has insisted it has the money and skill to rebuild the company despite sacking the cafe chain’s top management to save money just days into a buyout from administrators. Irish private equity firm Causeway Capital bought Patisserie Valerie in mid-February after a period of turmoil triggered by the discovery of accounting irregularities in October. Matt Scaife, a partner at Causeway, told the Financial Times that 96 cafes were trading profitably from day one of the deal, after the administrator closed 76 unprofitable outlets. But he added the fund was ready to invest more in the business, which has about £50m in revenues, to boost profits and growth. Scaife said: “We have an amount ring fenced for additional follow-on investment into Patisserie Valerie.” He brushed off questions about Causeway’s plans raised by Steve Francis, a turnaround specialist who was dismissed last week as Patisserie Valerie’s chief executive and is now taking legal action against the firm. Francis claimed Causeway planned only a brief period of ownership and appeared to want to reduce planned investment in the business. But Scaife said Causeway was committed to Patisserie Valerie and that it would not have invested “if we didn’t think there were sensible risk-adjusted returns to be made” in the medium term. The group aims for Patisserie Valerie to be “materially profitable” by the end of the year, he added, and “generating sufficient cash to be able to reinvest back into the business”. Causeway has appointed food and drink veteran Paolo Peretti as managing director of Patisserie Valerie’s retail business, in effect replacing commercial director Rhys Iley, who has also departed. Scaife said: “We think we’ve got finance, food production and the food service retail side of the business covered in terms of expertise and with a healthy dose of restructuring experience there, as well as business-building.”

C&C Group – Matthew Clark and Bibendum have ‘significant underlying momentum’: C&C Group, the manufacturer, marketer and distributor of branded cider, beer, wine and soft drinks, has said Matthew Clark and Bibendum have “significant underlying momentum”. The company now expects group Edit for the year ending 28 February 2019 to be towards the upper end of current market estimates. The company said operational delivery, customer service and the underlying cash contribution of both Matthew Clark and Bibendum in the second half have continued to improve. Consequently, group year-end net debt is now expected to be “well below” current market estimates, within a range of €305m to €312m. Full-year adjusted earnings per share growth is anticipated to be circa 20%. C&C Group stated: “Matthew Clark and Bibendum have significant underlying momentum, across key financial and performance measures, with good progress made on the identification of synergy benefits. In our Scottish and Irish and branded businesses, positive trading momentum continued. The sponsorship of next week’s Cheltenham Gold Cup by our Irish cider brands, Magners and Bulmers will build on this momentum and demonstrates the ambition we have for these brands. C&C will host a capital markets day with the announcement of its FY19 results on 22 May 2019, at which the group will provide its medium-term outlook together with the underlying assumptions.”

Just Eat interim boss rules out taking job permanently: Peter Duffy, the interim chief executive online food delivery business Just Eat, has decided not to go for the job on a permanent basis. Duffy, who is chief customer officer, has been temporary boss since the abrupt departure of Peter Plumb in January. “I am not even a candidate,” Duffy said in response to whether he was interested in staying on. “I’d love to do this job but for personal reasons it isn’t right at the moment.” Just Eat has been subjected to a barrage of criticism from US activist investor Cat Rock, which wants the company to be more profitable, sell off some of its divisions and consider a merger with one of its rivals. The activist investor, which owns 1.9% of Just Eat, has been calling for the company to pursue a merger with a rival such as, a Dutch group in which Cat Rock has a 4.9% stake, as an alternative to appointing another chief executive without relevant experience. In a statement, Cat Rock said: “We respect and appreciate Peter Duffy’s decision to withdraw from the chief executive search process, allowing the board to secure a leader with the appropriate online food delivery experience.”

Jamie Rollo – Germany could add £10 per share to Whitbread’s value: Morgan Stanley leisure analyst Jamie Rollo has argued the opportunity for Whitbread in Germany could add £10 per share to its value. Rollo said: “Compared with Whitbread’s domestic UK hotel market, only 9% of German hotel rooms are branded budget hotels (versus 23% in the UK) and the largest players are less than one quarter the size of Premier Inn UK. Whitbread’s decision to expand Premier Inn here therefore appears entirely logical, adding another dimension to a UK business facing saturation at some point. It currently has a pipeline of about 7,000 rooms, including the Foremost acquisition, nearly 10% the size of its UK operation, which would already make it the fifth largest budget operator. It targets 60,000 rooms over an unspecified timeframe. We have delved into Germany’s Bundesanzeiger (Federal Gazette) to look at the recent accounts for German budget hotel operators. We find Foremost, which owns the 13 hotels to be acquired by Whitbread for £300m in February 2020, generates surprisingly high revpar (€75 in 2016 versus budget market average of €57), and looks on track for €29m Ebitda next year, double the €14m we estimated in our original research. We also find encouraging data in the accounts of Motel One and B&B Germany, its closest budget operators. We think Premier Inn can get to 40,000 rooms over 20 years, and estimate that every 10,000 rooms is about £90m to Ebit at maturity. This suggests about £300m Ebit (post central costs) at current profitability, around half the UK business including its pipeline. Whitbread guides for Germany to lose about £12m in FY20 as it invests ahead of the Foremost deal completing later this year, and we forecast it to reach about £30m Ebit in FY23 as the business scales and pipeline matures, a 10% boost to FY20 earnings. We now explicitly separate out Germany from the UK, and assume a 40,000 room business, built over 20 years, which our discounted cash flow suggests is worth about £0.7bn net present value or £5 per share (post the cash return and share consolidation). Our bull case of 80,000 rooms values Germany at £10 per share, though this would take several decades.”

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