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Thu 15th Oct 2020 - Update: Marston’s, Fulham Shore and Domino’s trading, Star Pubs & Bars gets £2m PCA fine
Marston’s reports like-for-likes at 90% of last year since reopening, additional restrictions see 2,150 pub staff facing redundancy: Marston’s has reported like-for-like sales since reopening are at 90% of last year’s levels since reopening but warned further restrictions now being imposed on the sector meant about 2,150 of its pub staff were facing redundancy. The company stated: “Pubs and restaurants were required to close from 20 March to 4 July as part of the general lock-down restrictions to contain covid-19. This 15-week period of enforced closure inevitably had a material impact on the results for the year. Group sales for the year were £821m, 30% below last year. Total pub sales for the year were £515m, 34% below last year, principally reflecting the closure period and the impact of the disposal of 168 pubs for proceeds of £61m in the first half-year. In Marston’s Beer Company, sales for the year were £306m, 22% below last year. Off-trade volumes for the year were up 23%, driven by exceptional demand during the period of pub closure. On trade volumes (excluding the closure period) were 11% below last year. Since 4 July, we had reopened about 99% of our pubs by the year end, though a small number closed subsequently as revised regulations were introduced in Scotland. Managed and franchised like-for-like sales averaged 90% of last year over the 13-week period to 3 October. This represents outperformance of approximately 7% relative to the UK pub sector (CGA Peach Tracker) over the 13-week period, principally reflecting the benefits of our balanced pub estate of wet-led and food-led pubs which are predominantly suburban, and community based, with limited exposure to city centres and only three pubs in central London. We estimate social distancing and other restrictions reduced average indoor capacity by about 30% in this period, although this was mitigated by the fact that most of our pubs have beer gardens. We are investing about £2m in ‘Inside-Out’ schemes including heated and weather-proofed structures to extend the use of outdoor space into the winter months, which will provide additional capacity of about 15,000 covers. Consumer confidence increased steadily throughout July, August and into September, helped by guest reassurance from the safety measures adopted in our pubs, reduced VAT on sales of food and non-alcoholic drinks, the success of the Eat Out To Help Out campaign during August, and good weather in September. However, the UK government and the devolved administrations subsequently introduced additional restrictions in September and October including curfews, full table service, a requirement for face masks to be worn by guests and employees, and, in Scotland, closures and limitations on service dependent upon location. On 12 October, the UK government introduced a ‘three tier’ system of guidance depending upon rates of infection and perceived risk in different parts of England. Within our estate, we have 21 pubs in Scotland, of which eight are currently closed, and we have 18 pubs in the ‘highest risk’ Liverpool region the majority of which serve food and under the existing guidelines are capable of remaining open. Throughout the pandemic we have offered continuous help to those tenants and lessees impacted by trading restrictions in the form of rental support and discounting, and we anticipate a continuation of this support in those pubs directly impacted. The initial effect of these new rules has been to undermine consumer confidence and create uncertainty. Restoring confidence will only happen when UK government and the devolved administrations are able to remove these restrictive measures, which they state are intended to be short term in nature. The introduction of these further restrictions and guidance affecting pubs is hugely disappointing in view of a lack of clear evidence tying pubs to the recent increase in infection levels, and our own data which suggests that pubs are effective in minimising risks. Very few incidences of covid-19 infection have been reported in our pubs by employees or guests to date, supporting our view that socialising in pubs, where social distancing is enforced and hygiene standards are high, presents lower risks than in other non-regulated settings. Unlike many other retail settings, we committed to collecting test and trace data from the moment we were able to open. Inevitably, and regrettably, recent restrictions will impact jobs. Since the start of the pandemic, our objectives have included protecting the health and livelihoods of our teams. Government support over the summer was vital, and about 10,000 colleagues have so far returned to work. However, because of the recent additional restrictions, we have reluctantly concluded about 2,150 pub-based roles currently subject to furlough are going to be impacted. Furthermore, we have initiated a full review of overhead costs which will be concluded by the end of December. These decisions are difficult but are necessary due to the restrictions placed upon our business at this time. Cash management during the lock-down period was exceptional. Net borrowings (excluding IFRS16 commitments) as at 3 October were £1,329m, £70m below last year, and representing a £50m reduction since the end of March. This improvement was helped by pub disposals in the first half-year, as well as government support in the form of the Job Retention Scheme and deferred VAT and duty payments. At the year end, we had £90m of headroom against our £360m bank facility and do not anticipate needing to utilise the additional £70m facility secured in May, which is due to expire in November. We expect the initial net proceeds from the sale of Marston’s Beer Company into the joint venture with Carlsberg will be about £230m. These proceeds will be used to further reduce the level of bank debt. Following the completion of the transaction, the bank facility, which is committed to 2024, will be reduced to £280m.” Chief executive Ralph Findlay added: “This year has been testing on many fronts, predominantly from having to navigate the consequences of covid-19. Despite this, we have also created an exciting new joint venture between Marston’s Beer Company and Carlsberg UK during the period. I am grateful to all at Marston’s for their support, resolve and commitment during this time. On reopening, we set ourselves three objectives: for pubs to be safe for our guests and our people, to retain pub ambience, and for our pubs to be financially viable. I believe we have met those objectives. Trading has been difficult, but to operate at 90% of last year on a like-for-like basis is better than our forecast, ahead of the market and a highly creditable result. In part, this is because most of our pubs are in suburban or community settings, and we have relatively few pubs in city centres which have been worst hit by changes in working habits. However, the additional restrictions which have been applied across the UK most recently present significant challenges to us and will make business more difficult for a period of time. I very much regret that the consequence of this is that the jobs of about 2,150 of our colleagues will be impacted, but it is an inevitable consequence of the limitations placed upon our business. We will be looking at our cost base further in the coming weeks. We have managed our cash flow very carefully and it is a credit to our teams that net debt is £70m below where it was at end of the financial year 2019 and £50m below the Interim 2020 level despite the 15 weeks of pubs closure. Strategically, the transformational deal with Carlsberg has highlighted the inherent appeal and value of Marston’s Beer Company and will contribute to a further reduction in net debt when it completes at the end of October. We look forward to seeing the Carlsberg Marston’s Beer Company grow, realising the significant benefits set out at the time the joint venture was announced. There is much uncertainty ahead, the majority of which is outside of our control, however we will continue to focus on the safety of our teams and guests. Looking beyond the immediate challenges, we look forward to our future as a focused pub operator, returning to growth when trading conditions allow and realising the opportunities which are open to us over the medium to longer term.”

Fulham Shore – ploughing the same old hackneyed furrow of formulaic me-too offerings won’t work anymore: David Page, chairman of Fulham Shore, the Franco Manca and The Real Greek operator, has said “ploughing the same old hackneyed furrow of formulaic me-too offerings won’t work anymore in the UK, especially in times of societal turmoil and economic upheaval”. Writing in the group’s full-year update, which saw it report revenue growth of 7% to £68.6m for the year to 29 March 2020, Page said: “Coronavirus has had an unprecedented impact on communities across the UK and, in turn, the UK restaurant sector. Your chairman started his restaurant career as a student dishwasher during the ‘miners strikes’ of 1973-74. During those times of social and economic unrest restaurants remained open, albeit with limited hours due to power shortages. However, even the significant challenges presented to our industry during that period do not compare to what we have experienced in recent months as a result of the coronavirus pandemic, including the complete shutdown of restaurants during the spring. I am pleased to report the company has emerged in robust shape from this critical period and in some locations is now serving more daily customers than ever before, despite reduced seating capacity in our restaurants. We believe that the restaurant market in the UK was heading for a correction well before the coronavirus outbreak. There were too many restaurant businesses with owners and managers convinced they could swim like Mark Spitz, but which were actually being kept afloat by some badly made rubber rings and various leaky flotation devices. They were driven to expand by historically cheap debt, supposed high exit multiples on sale of the businesses and run by management teams who had never experienced either a downturn in the UK economy or an oversupply in the restaurant sector. Successful restaurant businesses will continue to be those offering reasonably priced food, made with quality ingredients, served by motivated teams. At Fulham Shore we offer all these things. In addition, we operate from a well-positioned, carefully chosen, fairly rented estate.” Page said before the onset of the coronavirus the company’s busiest UK restaurants were those in the West End of London and metropolitan areas such as central Manchester. He said: “The suburbs of these large cities together with regional towns around the UK were very much distant cousins. Since 4 July this situation has completely reversed. We believe this will remain the case for the foreseeable future. Some of our regional and suburban restaurants are currently breaking trading records on a weekly basis. This is unprecedented in my 47 years in the restaurant industry. Fulham Shore’s estate is well positioned to benefit from these structural changes. Predicting the UK economy, and the restaurant sector within it, is probably more difficult now than at any time since 1945. Our experience over the past six months has shown that the restaurants that provide what customers want will thrive under the most difficult of circumstances. Ploughing the same old hackneyed furrow of formulaic me-too offerings won’t work anymore in the UK, especially in times of societal turmoil and economic upheaval. We believe the public want food sourcing that is trustworthy; they want to know that the owner of a restaurant knows the farm or vineyard that the food and wine on the menu comes from. Combine this with menu pricing that doesn’t leave them with bill shock and servers who are seen to be having a good time while working makes for a great atmosphere and, consequently, high customer numbers per site.” In terms of discussions with its landlords, more than 50% have worked with the company and have come to an arrangement where “we share the financial pain of the closure period”. Page said: “We are still negotiating with the remainder but astonishingly there are about 5% who cannot admit their world has changed and are demanding money with legal menaces. The tribulations of distressed UK businesses and their landlords has resulted in the group being offered more new sites than we can possibly view. These are ex retail shops, ex ground floor offices, ex chain restaurants, plus new build sites which were some years in the planning, but now have no tenants. We feel the longer we wait for even the best of these sites the lower the rents we can achieve. We believe this situation may last at least five years.” During the year to 29 March 2020, the company posted a pre-tax loss of £0.8m after adoption of IFRS 16 and a pre-tax profit of £0.4m before adoption of IFRS 16. Headline Ebitda stood at £15.2m after adoption of IFRS 16 and £8.3m before adoption of IFRS 16 (2019: £7.8m). The 70-strong group completed an equity fundraise for £2.25m since the year end, and extended its banking facilities to £25.75m from £15m.

Star Pubs & Bars considers appeal after being fined £2m for ‘serious and repeated’ Pubs Code breaches: Heineken-owned Star Pubs & Bars has said it is considering an appeal after being fined £2m for “seriously and repeatedly breaching the Pubs Code over almost three years”. After completing her first investigation, Pubs Code adjudicator (PCA) Fiona Dickie said the nature and seriousness of the breaches she had uncovered merited a financial penalty. She added the fine would “act as a deterrent to Star Pubs & Bars and other pub-owning businesses she regulates from future non-compliance”. In her report Dickie said Star Pubs & Bars had persisted in forcing its tenants to sell “unreasonable levels” of Heineken beers and ciders when they requested to go free of tie. This was despite “repeated” regulatory interventions and clear arbitration rulings from the PCA. The PCA found the company had committed a total of 12 breaches with the result that it had “frustrated the principles of the Pubs Code”. As well as identifying how the company had offered stocking terms that had acted as a deterrent to tenants pursuing a free-of-tie tenancy, the PCA highlighted “systemic corporate failures” in its approach to compliance. During the investigation she found the company had included a responsibility in the job description of the company’s code compliance officer “to ensure the code is interpreted to the commercial benefit of Heineken UK”. In the report of the investigation the PCA described Star as a repeat offender and said the company had been given opportunities to set itself on a compliant path “but intentionally or negligently failed to do so”. Dickie said Star Pubs & Bars “failed to heed statutory advice”, and did not “engage frankly and transparently with its tenants or meet the standards required of a regulated business when engaging with the PCA”. Where it did change its approach, the efforts it made to comply were for the most part “inadequate and not credible”. Dickie’s investigation covered the period from 21 July 2016, when the Pubs Code came into effect, until 10 July 2019. She found multiple breaches by the company relating to stocking obligations. In particular, up to August 2018 96 tenants who requested a free-of-tie option were told that 100% of the keg beer they sold had to be Heineken brands. This was contrary to the legal requirement that stocking terms should not prohibit a publican selling competitor brands. As well imposing the fine, which by law is based on the turnover of the whole of Heineken UK, the PCA has also ordered Star Pubs & Bars to make all its free-of-tie tenancies Pubs Code compliant and to ensure future code compliance. Every free-of-tie tenancy agreed by Star Pubs & Bars must be audited and those tenants with non-compliant stocking requirements are to be assured that they will be made compliant or will not be enforced. All changes must be paid for by the company. Dickie has given the company six weeks to provide a detailed response to how it will implement her recommendations and she has ordered it to write to all its tenants explaining her findings, the measures Star Pubs & Bars is taking to respond to them and how these will affect tenants in practical terms. Star Pubs & Bars managing director Lawson Mountstevens said: “We are deeply disappointed and frustrated at the outcome of this investigation. There are many aspects of the report we fundamentally disagree with and we are actively considering an appeal. This penalty is unwarranted and disproportionate, and comes at a time when the entire sector is in serious financial crisis as we work around the clock to support our pubs and licensees to keep their businesses afloat. We are a responsible business that takes its regulatory obligations extremely seriously and strives to achieve the highest levels of professionalism. From the outset we have been transparent and repeatedly sought guidance from the regulator on the terms we were offering those licensees looking to take up the Market Rent Only option, but the PCA consistently declined to respond to those requests. Instead it chose to launch a long, costly and unnecessary investigation. We are dedicated to the Pubs Code in both word and spirit, and do not believe the outcome of this investigation accurately reflects the culture of our business or the good working relationship we have with the vast majority of our licensees. In our view there are flaws in the way the statutory framework is applied, and we call on the government to examine this as part of their statutory review.”

Domino’s like-for-likes up 17.5% in third quarter: Domino’s Pizza Group has reported a 17.5% increase in its third-quarter like-for-like sales across its UK and Ireland estate, with system sales up 18.7% to £342.1m. The company opened five new stores in the UK during the quarter, of which all were franchised, and there was one planned closure. In total the store estate at the end of the quarter was 1,197 (UK: 1,143, Ireland: 54). The company said the covid-19 lock-down had accelerated its transformation to a digital business, “in terms of how we operate, how we communicate with our customers, and how customers interact with us”. It said online sales growth continued to be “very strong” at 35.6% for the UK and 18% for Ireland. It said: “In the UK, online now accounts for 95.1% of delivery sales. We have also seen the proportion of collection sales coming from online increase significantly since reopening this part of our business, with UK and Ireland online accounting for 68.6% of collection sales in the quarter, compared with 45.8% in FY2019. Our supply chain operations have maintained their very high service levels to stores, with 99.9% availability and accuracy. Construction on our new facility in Scotland is on track. We continue to expect about £2m of covid-19 related costs in our supply chain in the second half, which allows us to maintain social distancing through our operations.” Following a successful trial, it launched its new vegan friendly pizzas nationally in September, and said customer response had been “very encouraging”. Chief executive Dominic Paul said: “Working closely with our franchisees we continue to do everything we can to keep our people and customers safe, including wearing masks, the use of Perspex screens, contact free delivery and collection and continued menu rationalisation. It is a privilege to stay open and serve our local communities, and we are confident that we have operational plans in place to adapt to different levels of lock-down that may arise in the coming months. I would like to say a huge thank you to the Domino’s teams across our system for their dedication and hard work. We continue to work on a long-term strategic plan for the business. At the heart of our future plans is realignment with our franchisee partners and we are having detailed discussions to agree a sustainable way forward, although we continue to expect that these discussions will take some time. Despite the ongoing uncertain backdrop, we expect to report full year underlying group profit before tax in the range of £93m to £98m, in line with market consensus.”

Flat Iron completes £6.9m refinancing: Flat Iron, the nine-strong “single steak” dining concept backed by private equity firm Piper, has completed a £6.9m refinancing, Propel has learned. The company, which was founded by Charlie Carroll, completed the refinancing with incumbent lenders ThinCats. The group, which currently has eight of its nine London-based sites reopened, will open a new site at 42-44 James Street, Marylebone, early next month. The Jo Fleet-led group has yet to reopen its site in Bevis Marks. Flat Iron, in which Tom Byng is a non-executive director, secured £5m of funding from UK-based small and medium-sized enterprises lender ThinCats in January 2019 to fund its expansion plans.

Hollywood Bowl expects 38.7% decrease in year-on-year revenue: Hollywood Bowl Group, the UK’s largest ten-pin bowling operator, said it expects to report a 38.7% decrease in year-on-year revenue to £79.5m and “encouragingly still deliver a marginal profit for the financial year”, despite the impact of covid-19 related government measures. The company said its balance sheet remains strong, with net debt of £8.9m at year-end and management continues its “prudent approach to its cost base and capital expenditure”. As of 30 September 2020, all but one of the company’s centres were open and operating under these covid-secure measures. The group said initial trading since reopening had exceeded expectations at 68% of prior year revenue, although restricted capacity, 10pm curfews, localised lock-downs and smaller group sizes have significantly limited this performance. It said: “Despite this challenging environment we have experienced strong customer demand, at levels similar to last year for holiday and weekend periods, and the majority of centres have traded at maximum capacity levels (as permitted by government guidance).” Since reopening in mid-August, the group has been cash positive for both August and September. Three new Puttstars sites were launched in Leeds, York and Rochdale with all trading “very well and in line with our pre-covid expectations”. The group also opened its latest new Hollywood Bowl centre in York, which is trading in line with expectations, and takes its total number of bowling and Puttstars centres to 64. Chief executive Stephen Burns said: “I am very proud of the way our team has risen to the challenge of creating a safe environment which allows our customers to still enjoy the same fun filled experiences with us. The strong demand for bookings is very encouraging and the feedback we have received on our new covid-secure operations has been excellent. We continue to explore new ways of working to increase our capacity at peak times while maintaining a safe and compliant environment. Despite the ongoing uncertainty presented by the potential for local restrictions, we remain confident in the continued demand for a family focused, value for money and enjoyable experience. Our centre teams look forward to continuing to provide our unique entertainment experience safely for our customers.”

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