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Morning Briefing for pub, restaurant and food wervice operators

Thu 23rd May 2019 - Update: M&B and Young’s results, Merlin
M&B reports like-for-like sales up 4.1% in First Half: Mitchells & Butlers has reported like-for-like sales growth of 4.1% for the 28 weeks to 13 April. Adjusted operating profit was up £10m to £151m. Total revenue was £1,186m, up by £56m on the same period the year before. Profit before tax was £75m (H12018: £69m). Chief executive Phil Urban said: “This is a strong set of results, demonstrating that we continue to build momentum in the business, delivering sales growth, sustained market outperformance and a return to operating profit growth all while reducing leverage to below four times. This strong performance comes from the progress we continue to make in our three priority areas: building a more balanced business; instilling a more commercial culture; and driving an innovation agenda. Success in this highly competitive market is dependent on a continuous stream of improvements, and that is what we are delivering with many small advances at site level driving significant benefits in aggregate. We will maintain our focus on these initiatives which we believe are transforming the business.” The company added: “Our trading performance has strengthened with like-for-like sales continuing to outperform the market, which grew by c.1.0% in the period. Both our performance and that of the market benefits from the absence of snow which impacted the prior year and which is partly balanced by the movement of Easter into the second half this year. The net operating profit impact of these movements is a benefit of £5m. The drivers of our outperformance are the continued focus on enhancing the quality of our estate through investment and the Ignite 2 initiatives which have delivered improved trading performances across all of our brands. Enhancement in the quality of our estate through capital investment has bolstered like-for-like sales. The trading performance of sites improves following investment as we upgrade amenity levels and tailor the environment to appeal to the preferences of our guests in each of our brands. Brand environments are continuously evolving, and we use guest feedback and market research to enhance the effectiveness of our investment programme which we expect to continue to deliver value. Our uninvested estate, of 1,350 sites, which has not received investment in the last year has also performed well with like-for-like sales growth of 2.1% in the first half, demonstrating that capital investment is not the sole driver of improved trading performance. The broad-based improvement in trading across our brands has been influenced by a number of Ignite 2 workstreams. An example of one of these initiatives is a focus on each team member taking the opportunity to offer an additional item to guests such as a side dish, a dessert or an extra drink. We are able to track and monitor success by transaction and the combined effect of each of our guest-facing teams executing this initiative across our sites is powerful at the consolidated group level.” On delivery it stated: “Delivery continues to be a growth area of the industry and we now have over 170 sites live with Deliveroo and JustEat. As this market develops we continue to look for opportunities which fit our core business operations. We also have options for guests to pay via their mobile at all sites as well as our order at table facility which is being trialled in O’Neill’s. Our next focus is to create a data platform which will enable us to integrate quickly and smoothly with third party software, allowing us to be more nimble in our response to developments in the market place.” 

Young’s reports like-for-like up 5.1% in full year: London pub operator Young’s has reported total revenue up 8.7% to £303.7 million in the 52 weeks ended 1 April 2019. Total managed house revenues were up 9.0% to £290.3 million, underpinned by like-for-like sales growth of 5.1%. Adjusted managed operating profits were £61.5 million. Tenanted and leased operation The Ram Pub Company ‘performed strongly’ with like-for-like revenues up 5.0%. Profit before tax was up 5.1% to £39.1m. The company made a total investment of £67.1 million on acquisitions, including 15 Redcomb pubs, and upgrades to our existing estate. Managed house revenue in the last thirteen weeks was up 9.4% in total, and up 2.6% on a like-for-like basis, reflecting strong prior year comparatives. Patrick Dardis, chief executive of Young’s, said: “I am very pleased to announce such a strong set of results which are a testament to the quality of our incredible people who bring our premium positioned pubs to life. These results demonstrate that our strategy continues to deliver. The addition of the 15 Redcomb pubs complements the existing Young’s managed house estate and presents tremendous opportunities for future growth. We have continued to invest in our existing estate as well as upgrading our technology, and are excited to realise this potential. It has been a tough start to the year against very strong comparatives with the only good weather coming in the Easter bank holiday this year. Looking ahead, the amazing weather throughout the summer of 2018 and England’s World Cup success sets a high benchmark for the coming months. However, we remain confident that we will continue our strong growth story in the coming year.” On the outlook for the company, Dardis added: “We have welcomed a warm Easter and Varsity Boat Race, both falling in April this year, as we were up against a very positive start to last year when temperatures during April and the early May Bank Holiday reached 30 degrees. For the last thirteen weeks our total sales were up 9.4%, and like-for-like sales were up 2.6% reflecting the tough comparatives. The two new hotels added last year, the Park and the Bridge, are open and trading strongly following their recent investment. We will be investing in a number of the newly acquired Redcomb pubs over the course of the year, although the focus for now is on ensuring a smooth operational transition. Since the year-end we have opened the Depot (Kidbrooke Village) which is a roaring success with locals, another pub as part of our successful partnership with Berkeley Homes. In April, we transferred the New Inn (Ealing) from the Ram Pub Company into the managed house division; the true benefit of this will come later in the year following a planned refurbishment. Looking ahead, the amazing weather throughout the summer of 2018 and England’s World Cup success sets a high benchmark. It has been a busy period of acquisitions and investment in our estate, and we are excited about the opportunities to unlock that potential.” On drinks trends, it stated: “Total drinks sales were up 9.6% and up 6.5% on a like-for-like basis. Craft keg ale sales increased by 22.9%. At the start of the year we launched our latest gin campaign, ‘Spring into Gin’, and its success alongside ‘ginspired’ premium serve balloon glass led to sales rising by 35.2%, making it the sixth consecutive year with sales growth of over 20%. Our now established ‘Cocktail Collective’, has played a significant part in another year of outstanding cocktail growth, with sales up 32.1%. The most popular cocktail for a second successive year has been Aperol Spritz which has seen a boom of 70.0% (2018: 85.0%).Overall, spirit sales grew by 14.4%.”

Merlin board responds to call to go private: The board of Merlin has responsed to a call by a shareholder to go private. It stated: “Merlin notes the announcement made by ValueAct Capital. Merlin maintains an active dialogue with all its shareholders, including ValueAct Capital. Merlin has had recent discussions with ValueAct Capital, including their perspectives on the options for the company, and intends to continue the constructive dialogue that it has had to date. The board regularly considers all options for driving shareholder value and has concluded that it remains in the best interests of all its shareholders to continue to pursue its current strategy to create a high growth, high return, family entertainment company based upon strong brands and a global portfolio that is naturally balanced against the impact of external factors. As announced on 3 May 2019 in the trading update at the time of Merlin’s Annual General Meeting, trading during this seasonally quiet period of the year has been in line with management expectations and consistent with the guidance provided on 28 February 2019. Merlin has also made good strategic progress in the financial year with seven Midway attractions opened and 244 additional accommodation rooms opened. In addition, Merlin has completed the sale of its ski resort businesses. The board remains fully confident in the ongoing execution of Merlin’s strategy and that its successful delivery will create significant value for shareholders.”

Easyhotel pre-lets office accommodation: Easyhotel, the owner, developer and operator of super budget branded hotels, has pre-let all of the self-contained office accommodation (15,500 sq ft) at its property at its 80 Old Street, London refurbishment project to a single tenant. The offices have been pre-let on a ten-year FRI (fully repairing and insuring) lease at an annual rent of £59.50 per sq ft with an upward only rent review at year five. There is an initial rent-free period. The new tenant, Knotel, is a global flexible office operator that currently manages over three million sq ft of space across 200 locations spanning New York, San Francisco, Los Angeles, Sao Paolo, Berlin as well as London. The self-contained air-conditioned offices are on the upper floors (3rd – 5th floors) of the property and include a roof terrace. The offices have a dedicated reception area for which Knotel will pay an additional rent of £29.75 per sq ft. The group’s newly refurbished 89-bedroom hotel (Ground 1st and 2nd floors) is due to open in June 2019. At the end of September 2018, the net book value of 80 Old Street was £12.9m. Since that time the group has invested approximately £7m refurbishing the entire property. Based on preliminary advice, the board believes that on completion of the project and reopening of its London flagship hotel, this freehold property is likely to be valued (at the current year end) at substantially more than its current book value. Guy Parsons, chief executive of Easyhotel said: “With the office space now let and the newly refurbished hotel on track to open in June, both ahead of plan, we continue to be very pleased with the outcome of the redevelopment programme at Old Street. The recent preliminary valuation of the office space alone is also very encouraging, with the incremental increase in the value of the whole site already representing an immediate return on investment for shareholders.”

BigDish reports new locations: BigDish, a food technology company that operates a yield management platform for restaurants, has announced new locations as part of the expanded growth strategy. It stated: “The company is pleased to announce that Swindon is now live on the BigDish platform. Furthermore, Taunton is expected to go live on or around 28 May 2019. In reference to the announcement on 8th May 2019, it is now expected that a new location, Reading, will go live prior to Winchester. This is part of the company’s plan to expand into the London commuter towns.” Chief executive Sanj Naha said: “We are very pleased with the successful launch of Swindon on the BigDish platform. We are also excited to announce that Reading will launch in the near future as part of our plan to expand into the London commuter towns. Following successful launches in Exeter and Basingstoke at the beginning of May, it is hugely encouraging that the company is on track with its growth strategy. We look forward to updating the market next week on further significant plans regarding our roll out across the UK and a new partnership which will coincide with the launch in Brighton.”

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