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Tue 28th May 2013 - Luke Johnson, Raymond Blanc and mis-sold interest rate swaps

Story of the day:

Surrey hoteliers repaid £350,000 over mis-sold interest rate swap: A couple from Surrey is to be repaid nearly £350,000 after their bank mis-sold them an interest-rate swap arrangement. Terri and Stewart Flett, from Epsom, who own the Hotel Piccadilly in Bournemouth, signed up to the specialist insurance policy to offset any rise in their mortgage rate six years ago. But their bank did not make it clear that if interest rates fell, they would have to start repaying thousands of pounds each month. Speaking on the BBC Two documentary Bankers, the couple said the economic crash left them facing ruin. Former dance teacher Mrs Flett and her husband needed to borrow £1.75m to buy the hotel, which is known for its dancing courses and tea dances. The bank, which is not being named for legal reasons, helped them get a mortgage and also persuaded them to take a specialist insurance product, known as an interest rate swap, to offset any rise in their mortgage rate. But the Fletts said they did not realise that if interest rates fell, they would have to start paying the bank thousands of pounds every month. Mrs Flett said: “It was a disaster - the more the rate went down, the more we paid. We were paying about £6,500 a month, which was a huge amount of money to us, on a new business. Nobody told us that it would cost so much. If I’d have known that our business, our home, our marriage was at risk, I just wouldn’t sign it and nor would any other small business.”

Industry news:

Mintel – the pub industry faces a lost decade: Research company Mintel has forecast that the pub industry faces a lost decade – it will be 2017 before sales match the level of 2007. The UK pub industry turnover peaked at £26bn in 2007 before dropping to £21.6bn in 2012 as thousands of pubs across the UK shut their doors during the recession. The industry’s revenues are expected to recover to only £24.3bn by 2017, according to Mintel, the research group. Alistair Darby, chief executive at Mitchells & Butlers, told The Financial Times: “I can’t really see (a return to 2007 levels) happening and in many ways I hope it doesn’t. It was unreal. What we are experiencing now will be around for some time to come – the new normality,” he added. The drop in UK pub sales is linked to pub closures with 7,000 shutting their doors between 2007 and 2012.

Luke Johnson invests in Florida restaurant: Sector investor Luke Johnson has paid a reported $600,000 to buy the freehold of Bernard’s Surf restaurant in Cocoa Beach, Florida, where he also has a holiday home. Of his Florida acquisition, he wrote in Management Today: “This classic establishment is at the heart of Cocoa Beach’s downtown and opened in 1948, before there was even a town hall or traffic lights. It went bust because the most recent owners borrowed too much money from the bank, and I purchased it out of bankruptcy. Over Easter, I attended a meeting of several key downtown landlords, who all want to see this rather faded district revamped. City officials went too and indicated an extraordinary enthusiasm for any sensible development plans that will bring more life, jobs and investment to the area. It was a hugely encouraging experience and a reminder of why the US is such an entrepreneurial country. There, public servants appear to welcome private money and, rather than burden business with regulations and restrictions - as do planners in Britain - they try to do whatever they can to make improvements happen. Given the sunshine, the friendly locals, a reviving American economy, and the chance to help transform a whole neighbourhood, I am seriously considering doubling up my exposure and making The Surf the go-to venue in 2014 for cool Floridians.”

CBI – bars and restaurants see biggest rise in volumes since 2007: Business activity in the service sector improved over the three months to May and optimism rose, according to the CBI’s quarterly Service Sector Survey. Although business and professional services saw weaker growth than expected, consumer services experienced a sharp turnaround in business volumes. The business and professional service sector, which includes accountancy, legal and marketing firms, saw activity staying broadly flat over the quarter. But while overall profitability fell, optimism regarding the business situation rose at its fastest rate since February 2010, as expectations for the next quarter are somewhat brighter. In contrast, consumer services, such as hotels, bars, restaurants and the travel and leisure industries, saw business volumes rise at their fastest pace since August 2007.

Two units still vacant in Bath dining quarter scheme: A £12 million city-centre restaurant scheme remains part empty. The Vaults, next to Bath Spa railway station, was the final stage of the SouthGate development creating a new dining quarter for the city. Despite beginning a phased opening last autumn, with a collection of national chains and local independent names such as Graze, Nando’s, Gourmet Burger Kitchen, Jika Jika, The Bertinet Bakery, and Italian restaurant Prezzo due to open this summer, the development still has two units to fill. However, development managers Queensberry Real Estate remain optimistic that the Vaults will eventually be full. Stuart Harris, partner at Queensberry Real Estate, said: “To open fully let is nigh on unheard of in a regional scheme. We, along with Aviva Investors and Multi Development, are exceptionally proud of the SouthGate project.”

Household income at lowest for three years: Household spending power is at its lowest for three years. The average spare income for UK households was £155 a week last month – £10-a-week lower than three years ago. The average home has total income of £699 per week but pays £117 in taxes and spends £427 on housing, food, clothing, utility bills and transport.

Sector investor Jon Moulton supports crowd-funding business: Former sector investor Jon Moulton is to support a new crowd-funding business, InvestingZone. Moulton, who is the founder of Better Capital but who invested in TCG and Inventive Leisure when he was a partner at Alchemy, said he believes the market is ripe for crowd-sourcing funding because many businesses were having difficulty securing loans from the high street banks. He said: “A real opportunity for a new method of raising money at a sensible cost has appeared. Poor returns on savings coupled with great tax incentives, make unlisted equities an attractive proposition. Good UK prospects are going unfunded. InvestingZone can bridge the gap to connect investors and opportunities.” InvestingZone already has about a dozen businesses on its books and plans to sign up thousands of angel investors to provide funding.

One in five high street shops to shut in the next five years: The Centre for Retail Research has forecast that more than a fifth of the UK’s high street shops will close by 2018 as customers increasingly switch to internet shopping. In deprived areas of the UK such as Wales and the north west up to three in ten shops could close. Websites already take 12.7% of the UK’s retail spend but this figure is expected to surge to at least 22% by 2018. The report, Retail Futures 2018, forecasts that pharmacies, health and beauty stores are at risk of closure first followed by shops selling music, books, cards, stationery and gifts as well as DIY outlets.

Company news:

Raymond Blanc reports turnover passes £15m at Le Manoir Aux Quat’ Saisons: Revenue per available room at Raymond Blanc’s Le Manoir Aux Quat’ Saisons rose 3% to £418 in 2012 from £408 the year before. The company, which has 218 staff, sold 8,040 room nights out of a total of 11,712 available nights. Average daily rates increased by 10% to £609 in 2012 from £555 the year before. The restaurant operation saw turnover rise by £299,000 to £8,719,000 in 2012. Overall turnover rose to £15,122,000 in the year to 31 December 2012 from £14,669,000 the year before. Pre-tax profit dropped from £1,798,000 in 2011 to £1,456,000 in 2012. Raymond Blanc Cookery School income grew a little to £882,000 compared to £880,000 the year before. The restaurant is currently valued at £12.6m – its freehold and land were acquired for £2.1m in 1988.

Drinks wholesaler LWC reports turnover and profits up; buys Molson Coors stand-along wholesale division: Manchester-based drinks wholesaler Licensed Wholesale Company (LWC), which employs 393 staff, has reported turnover rose to £126.1m in the year to 30 September 2012, up from £108.4m the year before. Pre-tax profit rose to £3,591,692 from £3,137,541 the year before. The highest paid director earned £246,672, up from £220,234 the year before. The company has a contingent liability in respect of PAYE and NIC liabilities arising from transactions undertaken in previous periods. The company stated: “Although the directors do not believe any further liability should arise from the transactions, the taxation authorities are challenging the treatment of these transactions. If the taxation authorities are successful, a net liability of circa £1.4m together with interest, would result.” Meanwhile, LWC is to buy some of Molson Coors wholesale operation. Coors Wholesale, a separate business from Molson Coors’ independent on-trade wholesaling division, is to be taken over by LWC Drinks on 17 June. Molson Coors bought the business, which includes two depots in Hartlepool and Consett employing 35 people, from brewer Camerons in 2007. A spokesman for Molson Coors said: “The employees at both sites are currently undergoing consultation about their roles under the new management. Our customers will see no disruption as a result of this decision and we remain committed to offering the licensed trade a full wholesale service.”

Turnover and profits drop at Dorbiere: Pub and restaurant operator Dorbiere, which is owned by the directors of LWC and owns 15 freeholds, has reported turnover dropped to £12,003,222 in the year to 30 September 2012 compared to £14,070,527 the year before. Pre-tax profit was £483,740 compared to £885,858 the year before. A Companies House filing stated: “The directors are satisfied with the results for the period year-end balance sheet position. To date, current year results are line with budgeted expectations.” The company has a cash balance of £5,029,038.

Wagamama ends sushi trial: Japanese noodle chain Wagamama has dropped a trial of sushi that has been criticised by brand creator Alan Yau. The company began a trial of sushi at its London’s Mansion House site in April 2012 before extending the trial to new openings and extra London units. The menu offered single sushi dishes and sharing platters with prices ranging from £2.15 to £8.95. The trial was phased out in the weeks leading up to the launch of a new Spring and Summer menu last week. New additions to the menu include bean and glass noodle salad, beef lettuce wrap, beef summer rolls, chicken miso salad, chicken summer rolls, chicken tom yup soup and prawn tom yum soup.

M&B shares track real estate companies: Morgan Stanley leisure analyst James Rollo has produced a chart that shows shares in Mitchells & Butlers and hotel company Millennium & Copthorne track those of quoted property companies. He said: “Our chart shows the close correlation between the share prices of M&B and M&C and some of the UK’s leading real estate companies. M&B owns most of its pubs and reports as an internal propco, with annual rent of circa £210m. At a 6% rental yield, this implies capital value of £3.5bn, or £4 per share, net of £1.8bn debt. This implies that the opco is free, although this does ignore the pension deficit of over £1 per share. M&C owns freehold hotels with a 2003 book value of £7 per share, and has no debt. We estimate that a mark-to-market value is circa £9 per share, and any signs of it taking action on its property base, or releveraging, could drive the shares higher, we think. Both stocks have been tracking real estate companies.”

Hotel executive found to be very busy on TripAdvisor: A senior executive at one of the world’s largest hotel groups has admitted breaching TripAdvisor’s rules by posting dozens of glowing reviews about the firm’s properties. Peter Hook, who describes himself on Twitter as “director of propaganda” for Accor hotels in Asia and the Pacific, also published a number of critical reviews about the company’s rivals. The communications manager was caught out by the online reputation management firm Kwikchex following the introduction of TripAdvisor’s new Facebook app. Unlike the TripAdvisor website, where reviewers are identified only by their username, the app displays a name, photograph and location, taken from each user’s Facebook account. The picture of the Accor executive, which sits alongside the review, is identical to the one found on his LinkedIn profile.

Chimichanga lines up Kettering opening – next to sister brand Prezzo: Prezzo’s second brand, Chimichanga, has signed a lease to open in Kettering’s Market Place. The Chimichanga will be situated in Unit 1, Market Place Buildings, next to the Prezzo restaurant. Kettering Borough Council said the signing of the deal means the Market Place Buildings, part of Kettering town centre’s ongoing rejuvenation programme, are now fully occupied. Chimichanga operations director Peter Morrison said: “We are looking forward to opening our restaurant within Kettering’s Market Place. We believe that Chimichanga will appeal to people of all ages and be a great asset to the town’s social scene.” Coun Derek Zanger, Kettering Borough Council’s portfolio holder for regeneration said: “I am delighted that another major restaurant brand is coming to Kettering.” Meanwhile, Prezzo will open a Chimchanga in Southampton on 1 June, a £500,000 investment in the conversion of a former Poppadum Express outlet.

Best Place Inns invests in Paddington site with Spirit, employs first marketing manager: Best Place Inns, the London hostel and pub operator led by Ben Stackhouse, has invested £100,000 in its Greene Man site in Paddington in a joint scheme with freehold owner Spirit. Stackhouse said: “The investment has seen the introduction of a wider range of cask ales, premium beers, wines and spirits as well as a few craft beers in bottles. We are really happy with the finished product – it’s been a long time coming but is just as we planned. We will be opening up the kitchen later in the summer too”. The company has also employed Kelly Weaver as its first marketing manager - she was previously a marketing consultant in New Zealand. Meanwhile, the company has completed a kerb appeal project on The Crown in Clapham, its Enterprise Inns site, with a re-launch planned for Friday (31 May). The company is also working closely with Thwaites to promote cask ales. “Their support has been excellent,” said operations director Greg Mangham. Best Place has also formed a partnership with Stamp It to create new customer and team loyalty schemes.

Greene King puts historic Grapes at Abingdon on the market: The historic Grapes pub in Abingdon town centre has been put up for sale by owners Greene King with an asking price of £325,000. Greene King said the decision to sell the Grade II listed property had been “difficult”. The company is the target of a campaign to save the town’s historic pub signs, and is also under fire for selling two other pubs – The Ox and The Fitzharris Arms, which became Tesco Express stores. Steve Lawrence, of the Campaign for Real Ale, said: “It’s hard to tell if anyone will take on The Grapes. It’s been quite a nice pub, but recently it has just become an evening pub. The nightclub isn’t at Coxeters anymore and it took over as the late-night drinking place.” A Greene King spokesman said: “As a leading pub operator and brewer, we are committed to running friendly, high-quality community pubs and operate a large number of popular pubs in Abingdon and Oxfordshire. To continue to invest in our pubs, from time to time we have to make the difficult decision to sell pubs.”

TGI Friday’s applies to extend host of restaurants: TGI Friday’s chief executive Karen Forrester has told Caterer magazine that the company is applying to extend many of its restaurants. She said: “We have just put extensions on three sites and we have got applications in for many more. We are putting on extensions in Basildon in Essex, Cribbs Causeway in Bristol and Teeside in the north east of England – arguably the most economically challenged area of the country – and that has been in growth now for five years. So there isn’t one part of the country where we are not seeing that growth.” The company plans to open six sites this year and eight in 2014. The company is exploring a brand extension as well that would see a smaller format TGI Friday’s to be developed in locations such as transport hubs.

Marston’s sale-and-leaseback freeholds revert to the company on lease expiry: The 45 new-build pub freeholds that Marston’s has sold in sale-and-leaseback deals revert back to Marston’s on lease expiry, it has been revealed. The deals - transacted over three phases – have involved the sale-and-leaseback of 18 new build public houses to Standard Life for £40.025m and 27 to Legal & General for £69.7m. Law firm Shoosmiths worked closely with Marston’s and DCLM Commercial Property to put together an innovative finance structure. Centered on and around a leaseback structure, it involves, amongst other aspects, the freeholds reverting to Marston’s at no cost at lease expiry. 

Little Chef bidders eye property possibilities: Bidders for the Little Chef business, put on the market by private equity owner RCapital earlier this year, are mostly focused on converting the sites to their own brand. Among those reportedly bidding for the brand’s 80 site are McDonald’s, Kentucky Fried Chicken and Costa Coffee. A spokesman for RCapital said: “The majority of the offers for Little Chef are from companies that may want to re-brand the estate.”

Hotel Chocolat owners consider unsolicited bids: The founder of Hotel Chocolat, Angus Thirlwell and Peter Harris, are considering unsolicited bids to take a minority stake in the business. The company made a pre-tax profit of £5.4m on turnover of £64m in its most recent financial year, valuing the business at around £100m. 

Harvester opens at Donington Park Services: The first licensed pub brand, a Harvester, opened under franchise last Tuesday at Donington Park Services on the M1. If it is successful, Moto plan to role out Harvester across its network to replace Eat & Drink Co.

McDonald’s major executives and shareholders face down smaller shareholder complaints – again: Shareholders of McDonald’s met last Thursday at the company’s Oak Brook, headquarters and rejected activist stakeholders’ calls for annual reports on executive compensation and the company’s impact on nutrition and human rights. The company’s leadership, including chief executive Don Thompson, chief financial officer Pete Bensen and chief operating officer Tim Fenton, detailed several key points from McDonald’s stated projections for system growth and the company’s ongoing Plan to Win. However, as is often the case with McDonald’s annual shareholder meeting, the brand’s executives spent much of the meeting defending the chain’s marketing practices and supply chain policies from the criticisms of certain shareholders.

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