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Wed 23rd Dec 2020 - Marston’s to take on SA Brain pub estate, pre-Christmas sector sales plunge, Whitbread and Tasty
Marston’s to take on SA Brain pub estate: Marston’s has exchanged on a deal to take over the operation of Welsh brewer and retailer SA Brain’s 156-strong pub estate. The deal will see the Ralph Findlay-led Marston’s operate 141 freehold pubs on a leasehold basis, with effect from February 2021, with rent chargeable from 1 April 2021. The majority of these will be on long lease agreements of 25 years. The outlet level Ebitda on a pre-covid basis is £14m and annual rent of £5.5m will be charged from April 2021. In addition, Marston's will operate the remaining 15 short-leasehold sites on a management contract basis for a period of two years. The circa 1,300 people currently employed in the pub business will transfer across to Marston's and an initial incremental central overhead of up to £2m will be required to operate the additional pubs. The Brain’s pub business comprises a freehold estate of 86 managed and 55 tenanted pubs, together with a leasehold estate of 15 managed pubs and bars. Marston’s currently operates 106 pubs in Wales. Marston’s, which was advised by Sapient Corporate Finance, said the agreement, which has the unanimous support of the Brains’ board and its lenders, was consistent with its “long-term strategy as a focused pub operator, post the recent disposal of its brewing assets, and strengthens the group's representation in south and west Wales”. It said the Brains' pub portfolio is “entirely complementary with the existing Marston's estate comprising a mix of well invested, high-quality, destination food and wet-led community pubs, as well as pubs with an accommodation offer providing more than 200 bedrooms, in prime locations”. Marston's intends to continue to operate these pubs under the Brains' brand and continue to offer Brains' beer in these pubs. It is anticipated the transaction will be earnings accretive in the first-year post completion. In addition, Marston's said it sees opportunities to further grow earnings in the medium term through conversion to franchise and additional investment opportunities in the estate. The transaction does not impact Marston's financial strategy to reduce borrowings to below £1bn by financial year 2024. Findlay said: “We have worked closely with the management team and the SA Brain family to collaborate on a mutually beneficial transaction that safeguards the future of Wales’ leading pub company, enabling these great pubs to have a stable and successful future, and securing 1,300 hospitality jobs in Wales. This transaction is entirely consistent with Marston's long-term strategy as a focused pub operator and strengthens our representation in south and west Wales, while protecting the heritage and independence of an iconic Welsh business. These high-quality pubs are a great fit with our existing estate and will benefit from Marston's scale and operational expertise to further unlock their excellent long-term potential. We look forward to the pub teams joining us and to welcoming guests and the communities which they serve, back into these pubs as the country emerges from the pandemic over the weeks and months ahead.” As a consequence of the challenges of covid, and in particular the recently announced more stringent additional trading restrictions in Wales, Brains’ business has been under significant financial pressure. In order to address Brains’ immediate funding requirements, Marston's said it entered into “collaborative discussions” with the company with a view to preserving the freehold capital value for its stakeholders, protecting “Brains strong, heritage brand name and, importantly, safeguarding the jobs of the pub teams within the business”. Brain’s brewery will remain an independent business. Brains chairman John Rhys said: “This agreement marks the formation of a lasting strategic relationship with Marston's, which secures the future of Brains’ pubs and 1,300 of our employees within them. We know and trust Marston's to be excellent custodians of our pubs and, while this is not a decision we have taken lightly, we are confident both our pubs – and our pubs teams – will thrive under their stewardship. Furthermore, this transaction enables Brains to recapitalise its balance sheet and continue its long heritage as an independent entity, preserving this great Welsh business for generations to come. We thank all our stakeholders and our advisers, Evercore, for their steadfast support which has enabled us to achieve this transaction in these unprecedented times.” The Alistair Darby-led Brains, which has been owned by the same family since it was founded in 1882, had put itself up for sale earlier this year after grappling with a slowdown in trading and rising costs. The company was working with Evercore in regards to its future funding options. At the start of December, Darby called new alcohol rules in Wales “closure by stealth” and announced more than 100 managed pubs would be closed from 4 December. Brains said the majority of its 1,500 staff would be put on furlough to cover 80% of their wages. Earlier this spring, the Welsh brewer and retailer announced it was looking to sell a quarter of its circa 160 pubs as part of “a three-year plan to significantly grow the profitability of our business and to future-proof it for the benefit of generations to come”.

Pub and restaurant sales plunge by almost two-thirds in run-up to Christmas: Pub and restaurant sales across Britain plunged by almost two-thirds after new covid restrictions were imposed in the crucial run-up to Christmas, sparking more fears of mass lay-offs and a huge wave of closures. Eight in ten venues across England have been forced to shut by the tough new rules – with 74,000 businesses now lying dormant according to CGA and UKHospitality. Trading has plummeted across the hospitality industry as a result, ruining what is traditionally a bumper period for businesses. Experts warned business failures and sweeping job losses are imminent, after the government’s chief scientific adviser said more areas of England were likely to join London and most of the south east in the highest level of tier four restrictions as a new strain of the virus spreads across the country. UKHospitality chief executive Kate Nicholls said up to half of firms could now be in danger of closing down. She told The Telegraph: “If the whole country goes into tier four that delays the recovery considerably and it also means more of the industry falls into the at-risk category.” Hospitality sales dropped 62% in the week from Sunday, 13 December to Saturday, 19 December compared with the same period a year earlier, the data revealed. The findings, based on trading from 5,000 outlets, came in the week London and the south east were placed into tier three – allowing pubs, cafes and restaurants to open as takeaway only. In the capital alone, trade fell by three-quarters following the new restrictions. Tier four rules were then imposed on Saturday (19 December), forcing non-essential shops to shut too. Nicholls urged the government to increase the financial support on offer to hospitality companies so they can ride out the tough winter months. She said: “These truly grim trading figures lay bare the state of hospitality in the run-up to Christmas, traditionally its bumper trading period. The signs are this period of closure and severe restrictions could yet be with us for months to come. Government now needs to urgently come forward with a serious financial support package to get us through this critical period or very soon we will see widespread business failures, job losses and scarring of communities all over the country.” Nicholls dismissed the pub grant scheme as “a drop in the ocean” and said businesses burned through an estimated £500m in November alone. Pubs that mostly serve alcohol rather than food are eligible for £3,000 a month from the Treasury, along with a £1,000 Christmas top-up, but many landlords have warned this is less than their takings can be on a single night during a normal December. The government must also extend a business rates holiday and VAT cut, which are due to end in March if there is to be any hope of recovery, Nicholls said.

Whitbread seeks 50% rent cut: Whitbread has asked its landlords for a 50% rent cut for the next three months. The company, which owns Premier Inn and restaurant brands including Beefeater and Brewers Fayre, said it experienced a “significant” net cash outflow in the first half of the year and expects government restrictions will continue to damage the sector’s performance. Whitbread has previously paid its rent in full during the crisis. However, in a letter sent this week to landlords, Whitbread said it was requesting support to help with the cost of the national lockdowns, continued tier restrictions and the investment needed to protect customers, which has included £9m for personal protective equipment. A Whitbread spokeswoman told The Times: “With ongoing government restrictions expected to result in subdued market demand into the first half of 2021, we are now asking our landlords to support us, as other stakeholders have during the pandemic, through a reduction in rent for the December quarter in recognition of the current environment.” Whitbread has more than 800 hotels in the UK and about 400 restaurants, mostly next door to its Premier Inns. It has furloughed 27,000 people during the crisis and announced more than 1,500 jobs cuts from its hotel and restaurant teams, alongside a 20% headcount reduction at its head office. It tapped existing shareholders for £1bn in June to strengthen its balance sheet and has withheld dividend payouts during the crisis. Despite cost-cutting measures, it reported a net cash outflow of £462m for the six months to the end of August. Whitbread said its hotels are trading “significantly ahead” of the market. However, market occupancy levels were about 25% in November, while total hospitality market sales were down 79% year-on-year. Whitbread told landlords it intends to deduct 50% from its quarterly rental payment, which is due on Christmas Day. The company said it made the decision to ask for a rent cut prior to the introduction of tighter covid restrictions at the weekend. Whitbread said Premier Inn’s strategy was “as relevant as ever”, having increased its market share from 7% to 10.5% since reopening its hotels in July. It added: “With our strong brand and market position we expect to gain market share and come out of this crisis as a winner in our sector. To ensure that Whitbread can fully execute on this strategy we want to ensure that our balance sheet strength is retained.”

Tasty announces board changes: Kaye Wildwood operator Tasty has announced Sam Kaye, joint chief executive, has become a non-executive director of the company and Jonny Plant, joint chief executive, has become sole chief executive officer with immediate effect. Tasty said this would allow Kaye to “devote more time to his other interests in these challenging times”. Non-executive chairman Keith Lassman said: “Sam has committed himself to the company for almost two decades and the board looks forward to continuing to benefit from Sam's input and experience in his new role.” Following these changes, Tasty said it would start the search for an additional independent non-executive director. 

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