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Morning Briefing Strap Line
Thu 14th Jan 2021 - Update: PizzaExpress, Whitbread, Deliveroo, and Just Eat
PizzaExpress fell to £350m loss even before pandemic: PizzaExpress reported a £350m loss even before the pandemic restrictions impacted the businesses. In its accounts for 2019, the chain also warned that the coronavirus crisis had “a significant impact on the liquidity of the group” and that it was “very challenging” to assess how curbs would affect the business. Like many companies in the sector, it added that continuing restrictions and additional lockdowns would cast “significant doubt” on its ability to continue as a going concern Accounts published for the year to 29 December 2019 showed climbed steeply from £51m a year earlier, which the chain blamed on property and labour cost pressures and one-off charges totalling £286m. PizzaExpress said it had enough liquidity to see it through 18 months of low dine-in sales and some regional lockdowns. But in a worst-case scenario, in which they included a further month-long national lockdown and additional trading restrictions, it would have to cut capital expenditure and draw down £20m from a new debt facility in order to conserve cash. It forecasts sales will be 40% lower throughout 2021, with a slow recovery assumed in 2022. It also assumes delivery sales will remain stable, and then increase slightly over 2021. A second ‘severe but plausible’ scenario drawn up by the group assumes further sales reductions of 15%-20% in 2022, where additional funding would be required. Like many of its peers, PizzaExpress had been struggling before covid-19 as oversupply in the market was compounded by changes in consumer dining habits and increasing overhead costs. Revenues for the year to the end of December 2019 increased 1.1% to £548m, but stripping out the impact of opening new restaurants, takings were down 0.6%. Squeezed margins meant that Ebitda fell 11% to £71m, while interest charges of £92m and impairments on its balance sheet helped push it to a pre-tax loss of £348m. The company has cut circa 2,400 jobs since the crisis began and in September shut 73 restaurants after securing the approval of a company voluntary arrangement (CVA) from its landlords and other creditors. Since then, it has closed an additional 23 sites due to break rights being inserted into lease agreements that were compromised as part of the CVA, giving landlords the opportunity to terminate leases. It said that discussions with landlords were ongoing at a number of other sites. Last year, the business secured a restructuring deal that will reduce its total debt from £735m to £319m, and included the immediate injection of £40m of new capital. In addition, the chain has a further £90m of funds available from its bondholders, which took control of the business from its former Chinese owners Hony Capital.

Deliveroo picks banks to serve up float: Deliveroo has hired a quartet of investment banks to help it serve up what could be London’s biggest stock market flotation of 2021. Sky News reports that the delivery app has appointed Bank of America Merrill Lynch, Citi, Jefferies and Numis to work on listing that market sources expect to value it at well over £5bn. The four investment banks will work underneath Goldman Sachs and JP Morgan on Deliveroo’s initial public offering (IPO), which is expected to be launched in or around April. Sources said the surge in revenues that Deliveroo had seen since the start of the coronavirus pandemic was likely to prompt a sharp upward revision in its advisers’ expectations of the valuation it could now achieve. Based on publicly traded competitors in the US such as DoorDash, bankers are said to be preparing to pitch a valuation of well over £5bn and potentially as much as £8bn, according to market sources. Earlier this week, Deliveroo announced plans to expand into a further 100 towns and cities across the UK, enabling it to reach an additional four million people.

Just Eat pledges to “go all out” in London as it ups investment in courier network: Just Eat is going to war in London with its UK rivals Deliveroo and Uber Eats, as the Amsterdam-headquartered food delivery group increases investment in its own courier network. The FT reports that Jitse Groen, chief executive of Just Eat Takeaway, has pledged to “go all out” in London as it looks to surpass local rival Deliveroo, just as the Amazon-backed company is preparing to go public in the coming months. “We do whatever we can to make life very, very, very complicated for the competitors,” Groen said. “It’s either all or it is nothing and we are going to go for all in the UK.” Just Eat, which merged with European market leader last year, saw its UK orders jump by 58% in the fourth quarter of 2020, as renewed lockdown restrictions on restaurants coincided with the arrival of its fleet of orange-branded Scoober couriers in London. Deliveries made by Scoober increased by 387% in the UK, Just Eat said in a trading update on Wednesday, and now make up a quarter of total orders. Just Eat’s UK growth has been bolstered by the addition of hundreds of McDonald’s and Greggs outlets to its app in recent months. “We’re just at the beginning of what we are trying to accomplish in the UK,” Groen said on a call with analysts, as he promised to undercut the competition on delivery fees while expanding Scoober to other UK cities soon. Earlier this week, Deliveroo announced that it would launch in 100 new towns in the UK this year, putting four million people within reach of its network for the first time and expanding its coverage to two-thirds of the country. The London-based company said last month that it was profitable on an operating basis for much of 2020 as the pandemic accelerated demand for food delivery. Uber has said it is now available to 75% of the UK population, up from 50% a year ago, and saw 150% growth in delivery trips in the three months ending in September. But Groen said: “We are at 100% [coverage] and we are going to go after London. If somebody else wants to go after 100 hamlets, then by all means.”

Pasta Evangelists sold for £40m: A British-based pasta delivery start-up which counts Great British Bake-Off judge Prue Leith among its shareholders is being sold to a giant of Italy’s food industry. Sky News has reported that Pasta Evangelists has agreed a deal worth roughly £40m to be taken over by Barilla Group, a 133-year-old pasta and bakery company. Sky added: “Insiders said the deal would be announced on Thursday. The transaction will represent a triumph for British entrepreneurship, and crystallise a handsome payday for the company’s founders, including former banker Alessandro Savelli. Food delivery businesses have thrived during the pandemic, with takeaway and meal-kit assembly start-ups both seeing record sales amid soaring demand from locked-down consumers. Institutional investors in Pasta Evangelists including Guinness Asset Management and Pembroke VCT are expected to sell their shareholdings as part of the deal, while the current management team may retain part of their stakes under Barilla’s ownership. Pasta Evangelists was set up little more than five years ago, and has built a loyal following of customers who receive various forms of pasta and sauces through their letterboxes on a subscription basis.”

Whitbread reports market share gains: Whitbread has reported market share gains in the UK despite challenging market conditions in the 13 weeks to 26 November 2020, its Third Quarter. The company reported government covid-19 restrictions continued to create very challenging hotel market conditions. As a result, total UK accommodation sales were down 55.2% with occupancy at 49.3%. However, Whitbread claimed Premier Inn UK’s total market share grew 4.1pp to 11.4%.Whitbread said its German business has a pipeline now of 68 hotels. The company added: “Improved demand for business travel, and some leisure travel, resulted in the majority of our UK hotels remaining open during the first half of December, with demand levels falling as the government’s tier restrictions tightened in the second half of December and through into the New Year. Following the updated UK government restrictions announced on 4 January 2021, that only permit essential business and keyworker accommodation, around two-thirds of our hotels remain open, while all our restaurants are closed. With the increased restrictions, total UK accommodation sales were down 66.4% for the five weeks to 31 December 2020 with occupancy at 31.1%. Some 21 of our 29 operational hotels in Germany remained open but under severe restrictions, and therefore similar to the overall German hotel market, recorded low levels of occupancy. These restrictions have been extended until at least the end of January. The group’s balance sheet remains strong with a net cash position at 31 December 2020 of approximately £40.0m compared to £196.4m at the end of H1. Capital spend was £98.4m in the four months to 31 December 2020. The group also had cash on deposit of £814.9m and access to a £900.0m undrawn revolving credit facility, and up to £300.0m available under the government’s Covid Corporate Financing Facility (CCFF) scheme.” Chief executive Alison Brittain said: “Since the start of the covid crisis, we have responded quickly and robustly to the changing restrictions and have learnt to rapidly adapt our operations as required. This is testament to the efforts of our colleagues who continue to work tirelessly to maintain our very high operating standards, customer service and high levels of health and safety. This response has enabled us to continue to deliver strong market share gains in the UK, demonstrating the benefits of our strong brand, direct distribution, and our unique operating model. We expect the current travel restrictions in the UK and Germany to remain until at the very least the end of our financial year. With the vaccination programme underway, we look forward to the potential gradual relaxation of restrictions from the Spring, business and leisure confidence returning, and our market recovering over the rest of the year. We are well placed to continue to outperform the increasingly constrained budget branded and independent competitor sets, by leveraging the benefits of our unique operating model. We expect to see increasing opportunities to develop in both the UK and Germany and are pleased to have accelerated our growth in Germany with the recent acquisition of 13 hotels, taking the open and committed pipeline to 68 hotels, a major step on our path to achieving a nation-wide footprint with representation in most major towns and cities. We continue to protect our liquidity through the careful management of our cash position, and to take actions to ensure that we exit the crisis as a leaner, stronger and more resilient business. Our strong balance sheet also provides the opportunity to take full advantage of the enhanced structural opportunities that we are already seeing in the market.”

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