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Morning Briefing for pub, restaurant and food wervice operators

Thu 26th Nov 2020 - Update: Mitchells & Butlers, Fuller’s and Hawthorn
M&B reports loss of £123m in Full Year: Mitchells & Butlers has reported a £123m loss for the year to 26 September. The company stated: “This financial period has been dominated by the impact covid-19 has had on the organisation and the wider industry. Total sales of £1,475m declined by 34.1% reflecting the closure period from 20 March to 4 July. We continued to consistently outperform the market following the reopening in July, reflecting the benefit of our diversified portfolio of brands and progress previously made under our Ignite programme of work. We have also seen online feedback scores improve to an average of 4.3 out of five following reopening despite the new protocols in place. At brand level, our premium suburban brands traded very well, even with the covid secure protocols, with Miller & Carter and Premium Country Pubs leading the way. Conversely, our city centre wet led businesses, such as Nicholson’s, struggled with the restrictions, exacerbated by many offices remaining empty. However, covid-19 case numbers began to increase again during September resulting in the introduction of further restrictions by the UK Government and the devolved nations. The increased measures, including a 10pm curfew, full table service and mandatory mask wearing in England, caused a decline in consumer confidence and a reduction in the frequency of guest visits. Trade was further negatively impacted by the introduction of the regional tier system whereby household mixing restrictions came into place in some areas and full closure of businesses in others. Meanwhile, a full lockdown was put in place in Wales and Germany, and regional closure of businesses in Scotland. As a result, like-for-like sales began to deteriorate at the end of the period and worsened at the start of the new financial period as an increasing proportion of our estate fell into tier two or tier three areas in England or were subject to closure in other countries. Subsequently, a second lockdown began in England on 5 November requiring the closure of all pubs and restaurants, for which we were able to draw on learnings from the first period of closure to ensure the process was as efficient as possible. Like-for-like sales since the end of the financial period have declined by 26.5% reflecting the heightened restrictions. Total sales over the same period declined by 50.8% driven primarily by closure in England.” The company has made circa 1,300 redundancies following the end of the financial period. The company added: “The future will remain both challenging and highly uncertain with the duration and depth of the trading restrictions imposed on the hospitality sector in response to the covid-19 pandemic being, in the first instance, the primary determinant of our financial performance. Given this uncertainty, we continue to be unable to provide detailed guidance on expected forward financial performance, other than to say that we believe we are well placed to recover quickly, once restrictions are lifted. As at 25 November the group had cash balances on hand of £125m in addition to access to committed undrawn unsecured facilities of £100m, giving a total liquidity of £225m. During the current period of shutdown action has again been taken to limit costs such that the ongoing monthly cash burn is approximately £35m to £40m before payment of debt service costs (representing interest and amortisation) of £50m per quarter.” Chief executive Phil Urban added: “Throughout a very uncertain and challenging year our businesses and teams have adapted quickly, creating a safe environment for guests and putting us in a strong position to benefit when consumers are able to eat out again. We saw direct evidence of this from a strong trading period in July and August before further restrictions came into force. With our great estate, balanced portfolio of brands and proven management team, we remain optimistic that we will be able to regain the momentum previously built and continue to achieve sustained market outperformance, when the current operating restrictions are eased.”

Fuller’s Simon Emeny – it will be a tough winter but we are optimistic about the medium term: Fuller’s has reported a £22m loss in the 26 weeks to 26 September. The period saw mandated closure of the estate for 14 weeks of the 26 week trading period. During the final two months, with the majority of the estate open, the group made an operating profit of £2 million despite severe restrictions in place. Managed like-for-like sales outside of London were 92% of the prior year. Overall like-for-like sales were 75% including transport hubs and Central London pubs. Tight management of cash burn and recovery of working capital contributed to net debt only increasing by £9 million to £187 million. Chief executive Simon Emeny said: “The imminent roll out of a vaccine is excellent news for the future. The tightening of the tier system will present further challenges over the winter months, but we welcome the Prime Minister’s comments that we will see the need for restrictions fall away in the spring. Without doubt, a return to normality is in sight. When the current lockdown was announced, we acted swiftly to implement the lessons learned last time round and this latest closure has been made with minimal stock losses. We also immediately placed 98% of our team members – across our pubs, hotels and in our support functions – on furlough or flexi-furlough, thereby minimising our cash burn. The extension of the Coronavirus Job Retention Scheme until March 2021 provides a degree of breathing space and will allow us to apply a sensible and measured approach to costs as we reopen our estate, particularly at the most affected sites in our city centres. We entered this crisis in a position of strength, buoyed by the sale of the Fuller’s Beer Business. We have used the time and space created by the pandemic wisely – completing targeted investments in our estate, rightsizing our teams and utilising the support available to manage our cash reserves where possible. It has not been easy, but prudent financial management, an estate that is 92% freehold, and a strong Balance Sheet mean that we will be in the best possible position to get back on a growth trajectory. We know our customers want to come back, we know they trust us to look after them and provide a safe and sensible environment to enjoy a great Fuller’s experience and, over and above this, we have a dedicated and passionate team of people with the ability and desire to delight, surprise and welcome back those customers. We are optimistic about the future in the medium term and beyond, but there is no doubt that this will be a tough winter and a very different looking Christmas. We will start to reopen our estate in a measured way, navigating the tier system and the restrictions that come with it. However, it is important that we see beyond these obstacles and look at the bigger picture. The excellent news of successful vaccines gives us confidence where previously there was uncertainty, and with the sensible decisions we have taken during the pandemic, Fuller’s is well-placed for future success. This business is armed with a well-invested and well-balanced, freehold estate, excellent people, robust financial foundations, a clear and consistent strategy, and the drive and desire to lead the way out of this crisis. The long-term future for Fuller’s looks positive.” Chairman Michael Turner added: “The rollercoaster of emotions from closure, to reopening, through the well-designed and inspired Eat Out to Help Out scheme and then back down into a quagmire of increasingly onerous restrictions, tier alert levels and finally back to temporary closure, has been tough on our business and even tougher on our people. The government has been supportive and destructive in almost equal measure – but we are grateful for the recent extension of the furlough scheme. We urge the Chancellor to follow this with extensions to the business rates holiday and the VAT reduction. We know that our sector can lead the economic recovery – however we will need this longer-term support to rebuild our businesses and return to growth. In the short term, we need clarity of message and a clear roadmap out of the coronavirus crisis. We know we can play a major role and we relish the challenge of doing so. Should the Chancellor need any further encouragement, the net tax deficit from Fuller’s alone for the first six months of the year is over £70 million. The country needs pubs, restaurants and hotels fully open – and soon – for the financial contribution they make, the jobs they create, and the significant role they play in the emotional wellbeing of our customers and our teams.” 

Hawthorn to rebrand as the “Community Pub Company”: Hawthorn Leisure, the 700-strong pub company operated by NewRiver Retail, is rebranding Hawthorn: The Community Pub Company. The company said its community and suburban pubs have proven to be very resilient and sustainable, bouncing back quickly after the first national lockdown. The business returned to profitability within four weeks of pubs reopening. Hawthorn provided £3.8m of rent support in the half year, with 97% of partners and operators saying Hawthorn has met or exceeded expectations. Hawthorn is investing £7.5m in CAPEX this year, and pulling its 2021 programme forwards, where possible. Chief executive Mark Davies said: “Despite the obstacles facing the hospitality sector, Hawthorn remains a strong and stable business: occupancy is high, our community and suburban pubs were well-placed to bounce back after reopening in July, and we remained profitable in the first half of our financial year. With further challenges imminent and in the shape of local lockdowns, our priority is to support and protect all of our people, protect the business and plan for the future. We will continue to support our pub partners and operators, and we will use the next three months to invest in the business so it’s stronger than ever when restrictions begin to lift in spring next year. Throughout the pandemic, our teams have been incredible, providing our pub partners and operators with support, reassurance and somebody to talk to. We’re enormously proud of our company culture, the community of people we work with and the pubs we operate. Our ambition is to be the number one community pub company, and next month we will rebrand to Hawthorn: The Community Pub Company, putting our purpose right at the heart of our business for everybody to see.” NewRiver chief executive Allan Lockhart added: “The first half of the year was a period of unprecedented disruption and yet our operational performance has proved to be resilient. We have seen a significant increase in leasing activity, with over half a million square feet of transactions completed, which has led to occupancy in our retail portfolio increasing to more than 96% during the period. This reflects both our affordable rents and focus on essential and convenience retail. We negotiated almost 300 revised payment agreements with our retail tenants, leading to overall rent collected or moved to alternative payments at 90% of that due. Once pubs were allowed to reopen, we saw a fast rate of revenue recovery over the summer months and we are confident that once lockdown restrictions are ended our pub business will return to growth. Cash holdings were up by almost £60m during the period and so we ended the first half in an even stronger financial position with £235m of available cash and liquidity. Our loan-to-value, increased by 1% to 48%, helped by our strong retail and pub revenue recovery, and the excellent progress we made with disposals which were ahead of our target with £50m completed. While our markets continue to be disrupted by covid-19 in the short term, given the resilient first-half operational performance and the confidence we have in our portfolio it is the board’s intention to reinstate a covered dividend at the full year.” Hawthorn pub occupancy was 98% at 30 September 2020 (31 March 2020: 97.0%). Like-for-like volumes for its leased and tenanted pubs (81% of Hawthorn) were down 8% versus a wider market down 18%. Like-for-like sales in its managed pubs since re-opening on 4 July was down 16% compared to the same period in 2019. This performance compared favourably to the wider market over the same period, with data from the Coffer Peach Business Tracker showing that pub like-for-like sales were down 18% over the same period. The company added: “Hawthorn has outperformed the wider market from the easing of lockdown restrictions on 4 July 2020, and returned to profitability swiftly within eight weeks of reopening. We are confident that with the experience gained from the first national lockdown period, the return to profitability will be even quicker once these latest restrictions are eased. In addition, November typically represents the lowest contribution of any month to Hawthorn’s Group Ebtida, which provides some mitigation of the impact of these closures.”

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