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Fri 3rd Apr 2020 - Propel Friday News Briefing

Story of the Day:

Pubcos sign declaration to protect certain tenant rights amid coronavirus emergency: The Pubs Code adjudicator (PCA) has announced the six regulated pub-owning businesses (POBs) have signed a formal declaration that serves to protect certain tenant rights during the coronavirus (covid-19) outbreak. It effectively stops the clock from 16 March on many code deadlines that apply to tenants making arbitration referrals during the emergency period, and provides safeguards relating to specific Market Rent Only (MRO) option rights. A statement from the PCA said: “The tied pub trade is coping with unprecedented challenges. Right now, the need to preserve the rights of regulated tenants is a priority. Pubs Code duties on the regulated POBs are not suspended, and indeed they provide protections to tied pub tenants that will be important throughout and after the covid-19 emergency. However, all regulated POBs have told us given the circumstances they do not expect to be able to comply with their Pubs Code duties to serve compliant rent proposals, rent assessment proposals and MRO full responses. These duties are vital in ensuring rents are fairly set, and tenants are no worse off than if they were free-of-tie. During this emergency we recognise the importance of measures to ensure the burden of preserving rights, including by bringing timely arbitration disputes to the PCA, should not fall on the tenants where this is not a practical or economic possibility. We are therefore pleased directors of all the regulated POBs have signed a formal declaration that serves to protect certain tenant rights in the current emergency. These arrangements provide additional protections and expressly do not prevent any tenant from taking any available code step to access their rights. We have consulted with tied pub tenant representative groups about these measures. We will continue to engage with the POBs to ensure they return to compliant processes as soon as possible, and tenants can continue to benefit from their code rights. As regulators, all our statutory enforcement powers continue to exist. We will be working tirelessly to promote and protect the code rights of tenants and will take further measures if these prove necessary.”
 

Industry News:

Mark Wingett talks to Matt Snell in latest Propel ‘navigating the coronavirus’ video interview: Propel insights editor Mark Wingett will talk to Matt Snell, chief executive of Italian casual dining group Gusto, in the latest of Propel's video interviews with leading operators on how they are navigating the coronavirus crisis. Snell talks about going from obsessing about guests and feedback to obsessing about every single pound; keeping motivated; staying in touch with staff; and why the government has to go further than “producing headline grabbing quotes” if it really wants to support the sector. The video will be released on Friday (3 April).

David Roberts to explore how EIS and SEIS could ride to sector’s rescue in latest Premium column: David Roberts, who is head of leisure at global law firm CMS and co-founder of skinny chops concept Blacklock, will explore how Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) could ride to the sector’s rescue in the latest Propel Premium column, which will be sent to subscribers on Friday (3 April) at 5pm. Meanwhile, Premium Diary will rummage through the rumour mill looking for nuggets of hope and inspiration. Subscribers will also receive an updated version of the database of multi-site companies next week. Another 100 businesses have been added to the list, taking the total to 1,600. The database features information such as number of sites, type of operation and key people at the business. Subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before our 6am send-out, discounts to attend Propel conferences and events, and regular columns from Propel insights editor Mark Wingett. An annual premium subscription costs £395 plus VAT for operators and £495 plus VAT for suppliers. Email anne.steele@propelinfo.com

OakNorth proposes several changes to CBILS to make it ‘more effective’: OakNorth Bank has proposed several changes to the Coronavirus Business Interruption Loan Scheme (CBILS) to make it “more effective”. Chancellor Rishi Sunak is set to unveil an overhaul of the government’s emergency aid scheme for small businesses amid warnings about a deluge of insolvencies as companies struggle to access funds from a banking system already overwhelmed by current demand in light of the coronavirus crisis. OakNorth has said the government should consider an emergency eight-week cash flow grant for previously viable businesses, as well as simplifying the CBILS. It said loans should be subordinated to any current lending with the maximum term increased from six to ten years. It argued the government should take first loss on the loans, with banks taking 10% of risk – to encourage banks on the scheme to move more quickly. OakNorth said the business turnover limit should be increased from £45m to £200m, and the maximum loan amount increased from £5m to £10m – to ensure medium-sized companies that are too small to apply for the Covid Corporate Financing Facility are protected. An OakNorth spokeswoman said: “Complex structures should be removed – the fact lenders need training by the British Business Bank to use the scheme illustrates the complexities. For example, to simplify credit decisions for banks and to speed funding for businesses, guarantees should be broadened and claims caps should be removed.” UKHospitality chief executive Kate Nicholls told Propel: “It is clear the CBILS rules are too cumbersome to get emergency cash to the businesses that need it most and with the sense of pace and urgency required. Anything that can be done to address that and give these businesses cash flow grants to support the payment of salaries and suppliers over the next eight weeks would be hugely welcomed by many within the sector. But if this is to be effective there would need to be changes also to some of the underlying rules around the scheme such as the size of company and the restriction on lending to companies with property assets or securitisation.”

Katy Moses joins BII as trustee: Katy Moses, managing director of KAM Media, has joined the British Institute of Innkeeping’s (BII) board of trustees. Moses has run bespoke and syndicated research programmes for pub companies and on-trade suppliers and also led other initiatives to support the industry. BII chief executive Steve Alton said: “The wealth of experience and insight Katy brings, as well as her drive and sense of humour will add another dimension to an already impressive team.” Moses added: "I have long known the BII to be an excellent support network for licensees and I look forward to working with Steve and the BII team to ensure we stay relevant and keep evolving to continue to meet the needs of our members, especially given the current crisis.”
KAM Media is a Propel BeatTheVirus campaign member

Job of the day: COREcruitment is working with a European restaurant concept as it looks to expand across the UK and the Middle East. With roll-out plans scheduled for late 2020 or early 2021, the investors are keen to appoint a UK-based managing director. The individual needs to have good experience of the fresh food grab-and-go sector, ideally also with experience in emerging trends and private equity-backed ventures. The salary will be in the region of £100,000 to £150,000, plus extensive benefits and long-term financial incentives. COREcruitment is short listing for the position and anyone interested can email Hollie@corecruitment.com with their CV.
COREcruitment is a Propel BeatTheVirus campaign member

Company News:

Leon to launch online delivery service offering essential groceries and ‘restaurant quality’ meals: Natural fast food brand Leon is to launch an online delivery service next week in its latest initiative to support people during the coronavirus crisis. The Feed Britain service will offer a range of boxes containing “essential grocery items as well as restaurant quality meals”. The service will initially be trialled within the M25 to help overcome “expected teething problems” before being launched countrywide “as soon as it is operationally possible”. Its restaurants have already been repurposed into shops in the past couple of weeks, stocking essential groceries and ready meals, although its restaurant menus are still available for delivery and takeaway. Leon emphasised the FeedNHS campaign, which aims to rise £1m to ensure at least one free hot meal a day for critical care NHS workers, “remained our priority”. Actors Damian Lewis, Helen McCrory and Matt Lucas are supporting the not-for-profit initiative along with operators including Wasabi, Tortilla, Peach Pubs, Rosa’s Thai, Hop, Pizza Pilgrims, Franco Manca, Farmer J, Tossed, Hache, Abokado and Nusa Kitchen. The campaign is initially working with Imperial College Healthcare NHS Trust and UCLH Healthcare NHS Trust to deliver 6,000 meals a day and aims to work with other hospital trusts and restaurant operators to bring more meals to NHS workers. Almost £600,000 has been raised so far. Leon stated: “To all of those people and businesses who have helped us do what we think is the right thing, we will be forever grateful.”

Massarella Gelaterie goes into administration: Massarella Gelaterie has gone into administration and closed all 32 of its cafes, which were housed in House of Fraser stores. Director Daniella Massarella said the administration came after the cafes, which employed circa 340 staff, closed on 20 March under government guidelines. She said staff wages, holiday pay and redundancy payments would be covered by the government. A spokesman for administrators Redman Nichols Butler said: “Regrettably due to the current health and economic crisis, Massarella Catering Group was left with no other option other than to appoint administrators over Massarella Gelaterie. Massarella Catering Group can confirm it and its remaining subsidiary companies are unaffected by this administration.” Massarella Catering Group is a family-run company that traces its origins to an ice cream business founded in 1864 by Italian émigrés to Sheffield. Prior to the coronavirus epidemic, the group operated more than 120 cafes and restaurants throughout the UK. Its other brands include Cafe Zest, Angelica’s Tea and Cake, and Caffe Botanico.

Beds and Bars launches accommodation scheme: Pan-European hostel and bar operator Beds and Bars, led by Keith Knowles, has launched a scheme called LifeHouse to support and protect its employees. LifeHouse, which has been set up by the directors of Beds and Bars, offers staff a place to live in its hostels until the company returns to some kind of stability and normality. To qualify, an employee must work for Beds and Bars or have recently worked for the company and took the decision to leave due to employment uncertainty. With more than 50 nationalities within the business, many of its team members are unable to return to their families given the recent travel restrictions. Almost 95% of the company’s employees are on furlough or the European equivalent and the company continues to engage with them using Facebook Live with activities including yoga and meditation, exercise classes, live DJ sets and games tournaments. Knowles said: “We are offering a bed with breakfast and a daily dinner in any of our hostels across the UK. During these difficult times, we have a responsibility to protect and support our incredible people who form the backbone of our business. We’re doing what we can to make their situation better and putting strict health and safety procedures in place at each venue, as recommended by the World Health Organisation.” Managing director Murray Roberts added: “We are very pleased to say we held out for as long as we financially could and did not lose any UK team members – only saying farewell to those that decided to head back home to stay with family if they could, while the storm passes. We are very grateful for the team's trust in us, and us in them.”

Gail’s Bakery partners with The Conduit and Ralph Lauren launch food campaign to support NHS workers: Gail’s Bakery, which is backed by sector investor Luke Johnson, has partnered with London-based social enterprise The Conduit and lifestyle company Ralph Lauren to provide healthy meals to front line NHS health workers and their families. Almost 2,000 meals and more than 2,000 loaves of bread have already been delivered to NHS staff. Soon, Gail’s Bakery aims to be delivering 2,400 meals a week, including bread, fresh salads and other items such as sausage rolls. Over the next few weeks, the campaign aims to increase this number and support several hospitals across London, including Chelsea and Westminster Hospital NHS Foundation Trust. The Conduit will help co-ordinate the effort to deliver end-of-day meals for workers with Ralph Lauren providing financial support. The Conduit has also launched a fund-raising drive – #fuelforNHSheroes – on its website, with the aim of providing as many meals as possible to front line workers in the days ahead. Gail’s Bakery co-founder and chief executive Tom Molnar said: “Today, more than ever, we are reminded of our wider responsibility, our reason for getting up early every day. We are open and baking to stay true to our purpose of feeding people, supporting our producer partners, keeping people in jobs and getting food to those who need it most.” Paul van Zyl, co-founder and chief creative officer of The Conduit, added: “In the coming days and weeks, we will catalyse the power of our community to help deliver thousands of healthy meals to our NHS heroes.”

Shake Shack reports sales fall ‘dramatically’, draws down $50m revolving credit facility: Shake Shack has reported sales are down “dramatically" due to imposed restrictions amid the coronavirus pandemic and has drawn down its revolving credit facility of $50m . The company said compared with last year, excluding sites that are temporarily closed, sales across its US company-operated outlets are down between 50% and 90%, averaging about a 70% reduction in total. It said weighing heavily on the company was its high mix of “urban and premier shopping area” locations. In the UK and the Middle East, Shake Shacks are mostly closed or running on modified hours with delivery only. In Asia, outlets are closed in the Philippines, and sales are “deeply impacted” in Japan, Korea, and Singapore. However, business in Shanghai and Hong Kong begun to see a slow but steady rebound towards the end of March from its low points earlier in the quarter. Shake Shack is looking to boost its delivery business by integrating delivery partners Postmates, DoorDash, Caviar, UberEats and Grubhub to all locations where possible. As well as drawing down its revolving credit facility, the company said it has also taken steps to preserve cash by furloughing 20% of office staff, making salary reductions and freezing hiring.

Douglas Jack – all the pieces falling into place at Domino’s Pizza: Peel Hunt leisure analyst Douglas Jack has said all the pieces are falling into place at Domino’s Pizza. Issuing a ‘Buy’ note on the shares with a target price of 350p, Jack said: “We know Domino's is so busy it has been turning down business. Our experience is the available delivery distances have been reduced to meet the surge in demand. This demand is consistent with CGA's finding 53% of the population is either currently using, or planning to use, delivery as an alternative during the current crisis, with 13% getting delivery from a restaurant or takeaway either for the first time, or more often than usual. Effectively, that is a 30% increase in ordering activity, which is good for franchisee and company profitability, as well as cash flow. Some 72% of those that have either upped the use of delivery or had used it for the first time in March suggested they were likely to continue this behaviour, regardless of coronavirus. The recruitment process is now complete with chief executive Dominic Paul now joined by interim chief financial officer Neil Smith. He is joining a highly cash-generative business that has no bondholders. Its net debt was £232.6m as at 29 December 2019 versus £350m of committed facilities. Last year, its net debt/Ebitda was 2.3 times versus a 3.0 times covenant. With the suspension of the final dividend (worth £26m in total, by our estimates) and our assumption there will be no share buybacks, we forecast net debt to fall to £187m this year, reducing net debt/Ebitda to 1.6 times. In our view, the recruitment process has been successfully completed. The focus should now be on more innovation, better technology, working with franchisees with a clear future vision, and better capital discipline based on the successful UK and Ireland model. This should bring a healthy re-rating.”

Wagamama to launch online home cookery lessons: The Restaurant Group-owned Wagamama is launching online home cookery lessons. The wok from home initiative will see executive chef Steve Mangleshot help people prepare some of Wagamama’s classic dishes. The first videos will go live next Wednesday (8 April) and Friday (10 April) and will be hosted on Facebook, Instagram, IGTV and YouTube. On Wednesdays, Mangleshot will take viewers through a Wagmama dish recipe – starting with katsu curry – while the Friday episode will see him host a store cupboard cooking challenge to make new dishes with few ingredients. Mangleshot said: “This is the first time in 20 years that I’ve gone this long without cooking Wagamama food and to be honest I’m missing it. So, I thought I'd bring the Wagamama kitchen home so we can all get our Wagamama fix! I also want to create a sense of community through our food, just like we do in all our restaurants.”

Absurd Bird teams up with Kbox to offer food delivery boxes: Absurd Bird, the six-strong chicken concept, has teamed up with delivery brand Kbox to deliver food boxes and essential supplies. The business, which has remained open for delivery orders across its sites in London, Exeter, Bath, Leeds and Glasgow, has developed three Kbox Essentials boxes that the company said will last for up to 30 servings. The business said: “We’re starting off with our pasta and bean boxes, but there's more to come so watch this space.” Consumers can order Kbox Essentials from Absurd Bird via UberEats or the Kbox websites. The concept was previously part of Splendid Hospitality Group, which is led by the Boghani family. However, it is thought the Boghani family relinquished control of the business to the brand’s founder Salima Vellani and venture capitalist Hussein Kanji at the turn of the year. The latter, who is now listed as a non-executive director of the business, is a founding partner of Hoxton Ventures, the London-based early stage European venture capital firm and he represents its investments on the boards of Campanja and Deliveroo.

US analysts argue McDonald’s best placed to weather economic downturn and increase dividend payment: US analysts have argued McDonald’s is the best-placed foodservice company to weather the economic downturn caused by the coronavirus crisis – and increase its dividend payment. They said: “While (the share prices of) most of the companies similar to McDonald's were stable through the first two months of the year, there has been some drastic swings in prices since the start of March. McDonald's has had the lowest volatility in the group. McDonald’s has been successful at increasing its cash flow by shifting revenue to the higher margin revenue producer – franchise-owned restaurants. By re-franchising existing company operated locations to franchise-owned restaurants, it was able to drive expenses down and improve the cash flows. Over the past five years, revenues from franchise operated locations has increased by 20% – from 35% in 2015 to 55% in 2019. While overall revenues decline in this strategy, net operating profits after tax increases – at a 9% cumulative average growth rate. McDonald's is a company to own for income during this economic downturn. It is well capitalised with $868m cash in hand, and cash flows are improving due to a successful re-franchising strategy. Stock buybacks are ending, but the company announced the dividend was still being paid as analysts projected. The current dividend is 3% and should continue to grow. The dividend payout is low compared with others in the industry and can sustain the economic downturn. McDonald’s is a dividend aristocrat of 42 years and we do not anticipate any material change to the business after the global pandemic is over.”

Hollywood Bowl Group extends credit facility by £10m: Hollywood Bowl Group, the UK’s largest ten-pin bowling operator, has extended its revolving credit facility by £10m and secured waivers to its debt covenants. The company said: “Management has always adopted a prudent approach to its cost base and capital expenditure and, with the benefit of its cash generative business model, has maintained a strong financial position. As at 31 March 2020, Hollywood Bowl had approximately £15.6m of cash and £30.25m of debt, drawn from its £35m facility. This takes into account full rents paid to all landlords for the March quarter and team member salaries paid up to the end of March 2020. In addition to the management actions taken to preserve liquidity, the board does not intend to declare an interim ordinary dividend at the time of its interim results.” The group actioned the temporary closure of its centres on 20 March, in line with government guidance. It said: “The group has welcomed the one-year exemption granted from business rates and the VAT payments deferral announced by the government, which combined is expected to result in cash savings of £6m for the current financial year. A key priority for management is the welfare of its team members and with the support from the Coronavirus Job Retention Scheme, the group intends to keep its team members at full salary levels for as long as is practicable. Alongside this government support, management have taken several actions regarding capital and operational expenditure. These include the pausing of refurbishments and new centre fit outs as well as the renegotiation of supplier contracts and payment terms, which will reduce costs and conserve cash while the covid-19 situation continues. However, management remain confident in the long-term prospects of Hollywood Bowl and will ensure the group is well positioned for when it is appropriate to reopen centres.”

Hotel Chocolat cancels interim dividend: Hotel Chocolat has decided to cancel the proposed interim dividend to shareholders due to be paid this month. The company, which raised £22m last month in an oversubscribed share placing, said it was “more prudent to retain the cash in the business for deployment in service of long-term growth”. It added it intends to reinstate payment of dividends “when it is appropriate to do so”. Co-founder and chief executive Angus Thirlwell said: “We are committed to keeping the Hotel Chocolat family together during these challenging times. We also remain confident in the company's longer-term growth plans in the UK, the US and Japan, and want to ensure we maximise the resources available to the group to leverage these opportunities, as well as others which may develop when we all emerge from the current crisis."

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