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Morning Briefing Strap Line
Tue 11th Jun 2013 - McDonald’s, Punch and Spirit

Story of the day:

McDonald’s Europe sales up 2% led by the UK: McDonald’s has reported that global like-for-like sales increased by 2.6% in May, with sales up 2% in Europe, led by the UK. During May, US like-for-like sales rose 2.4% led by breakfast, a wider range of chicken options and a focus on everyday value. Sales were boosted in the US by the introduction of the Egg White Delight sandwich and Premium McWraps. Europe’s May like-for-likes rose 2% driven primarily by positive results in the UK and, to a lesser extent, Russia as both markets added summertime promotions featuring premium burgers and speciality menu options. Negative performance in Germany and France dampened the segment’s results. McDonald’s Europe is focused on enhancing its value and breakfast offerings. Chief executive officer Don Thompson said: “Our system is aligned behind providing great service to the 69 million customers who visit us daily. We are confident in our strategies and competitive advantages and will continue executing our customer-centric ‘Plan to Win’ to build market share and drive sustained profitable growth.” In May, Asia’s comparable sales increased 0.9% reflecting positive performance across a number of markets and relatively flat performance in Japan, partially offset by negative results in China, which were impacted by Avian influenza. The area’s priority remains improving performance by offering unique value platforms, expanding the breakfast day-part and providing compelling customer convenience. The overall global result was better compared with April, when like-for-like sales slipped 0.6%. During that month, an unexpected 0.7% gain in the US was offset by a 2.4% fall in Europe and a 2.9% drop in the Asian region. In China, McDonald’s plans to hire 75,000 new staff in a push to open 2,000 outlets by 2014 on top of the existing 90,000 staff working at 1,700 sites. The company is also introducing rice dishes for the first time in the Chinese market – two wraps and two meat-over-rice dishes.

Industry news:

Telegraph – investors fail to back Punch plan: The Daily Telegraph has claimed that Punch’s revised debt restructure plan has failed to win the support of key investors. The newspaper claimed that senior bondholder sources argue that Punch had not gone far enough to win the backing of investors. It added: “Senior bondholders rejected a restructuring package in February and there was disappointment yesterday that Punch had gone no further than to tweak the earlier debt programme.” (See company news for more Punch coverage).

Analysing the analysts – Douglas Jack comes top: It is the time of year when the Oscars are handed out among leisure analysts in the City. Yesterday’s Thomson Reuters Extel results have delivered a resounding victory for Numis, which was voted the top broker in the UK market by both companies and institutions based on mid and smallcap companies (with a market capitalisation below £3bn). In leisure, Douglas Jack was again voted the top analyst, followed by Simon French (2nd) and Patrick Coffey (3rd). In leisure, Numis is again the top broker, followed by Liberum (2nd) and Panmure Gordon (3rd). In the Pan-European large cap survey, Vikki Lee of Barclays was voted the top analyst and Morgan Stanley was the top broker.

Panera Bread to serve one million customers in its pay-what-you-want sites: Panera Bread, which reported a 28% rise in profits in the US last year, will serve one million people in its five pay-what-you-want cafes this year. Chief executive Ron Shaich told The Wall Street Journal: “20% of customers leave more than the suggested donation, 60% leave the suggested donation, and 20% leave what they can, but often significantly less.” Panera’s loyalty programme, launched in 2010, now has 14 million members, and represents roughly 45% of customer transactions. On the programme, Shaich said: “This was a major commitment. It cost tens of millions of dollars to get it up. There’s great benefit to a loyalty program; there is great benefit to being able to talk to your customer individually, but it requires a great deal of scale. So many people’s loyalty programmes are ‘buy ten sandwiches, get the 11th one free.’ That’s a discount program; that’s not a loyalty programme. To me, the loyalty programme is about being able to talk to you individually, and it’s about being able to get the information so I can understand what you’re doing individually. I’m not for discounting; I’m for learning.”

Phil Mellows – attitudes to drunk-driving have changed fundamentally: Senior industry commentator Phil Mellows has dismissed the “horror and forebodings of doom” in the mainstream media over the news that JD Wetherspoon is to open a pub at Beaconsfield motorway services. In his regular blog for CPL Training ( he states: “It seems that motorists who might pass dozens of pubs on a trip and manage to resist the temptation to stop off for a pint at each one will inevitably be seduced into drink-driving by the siren presence of a ‘Spoons’. The last three decades have seen a complete transformation in attitudes to drunk-driving in this country. Cases have shrivelled to a tiny minority of recidivists. It’s just not acceptable any more. And believe me, in the 1970s nobody thought twice about getting behind the wheel after a few pints. This represents a deep and resilient change in behaviour that’s not going to be unseated by pubs in service stations. Wetherspoon will do a good family business, led by food sales, thanks to its value-for-money offer and, hopefully, a nice, relaxed, ‘pubby’ atmosphere that will be a contrast to the impersonal functionality of the existing canteens. It could prove, if you’ll forgive me, a welcome break.”

Company news:

Competition Commission clears Britvic and AG Barr merger: The Competition Commission has provisionally cleared the proposed acquisition by AG Barr and Britvic. It has concluded that the proposed acquisition is not expected to result in a substantial lessening of competition and would not cause wholesale prices to increase significantly. Its assessment, and the views of most retailers and other customers of the merging companies, suggested that the two companies’ brands were not close competitors. The Competition Commission also did not consider that the increased size of the merged company would mean new entrants and smaller companies would be disadvantaged significantly in obtaining listings at retailers. Alasdair Smith, chairman of the Barr/Britvic Inquiry Group, said: “We have provisionally concluded that customers will not lose out from the merged Barr and Britvic. Given the size of this market and the number of consumers who could be potentially affected, it was important to examine the likely effects carefully. Carrying out a full investigation gave us the chance to look in detail at consumer preferences. These told us that most consumers tend to see Barr and Britvic brands as distinct products rather than as close substitutes for each other. Looking at consumer preferences and other evidence, we were able to conclude that the proposed merger was unlikely to substantially lessen competition.” Britvic’s chairman Gerald Corbett said: “Our company is in a different place to last summer when the terms of the merger were agreed. The cost savings from merging are less, we are performing better, we have new management and we have a new strategy to deliver good growth internationally as well as in the UK. These are among the issues the board will reflect on in August once the Competition Commission’s conclusions are known in order to ensure that it acts in the best interests of Britvic’s shareholders.”

Trish Corzine steps down from The Restaurant Group after two decades: Long-standing Restaurant Group board director Trish Corzine has stepped down as head of the company’s concessions business. Corzine is understood to be now working for the company two days a week in a consultancy role. She joined The Restaurant Group in 1993 as area manager for Garfunkel’s, which included the company’s airport concessions. In 1997 she was appointed brand director of Garfunkel’s and airports and in 1999 was promoted to operations director – concessions. In 2003, Corzine became managing director of concessions and joined the main board. Earlier in her career Corzine worked for Haagen-Dazs and managed the Atacama Restaurant Group. Last year, she earned £537,000, including a bonus of £252,000.

Famous jazz pub The Bulls Head in Barnes to convert to Geronimo Inns site: Geronimo Inns will take over the The Bull’s Head in Barnes, a Young’s tenanted site that has been hosting music since 1959, on 1 July. The venue will then close for up to four months while it undergoes a complete refurbishment. The current leaseholders, Dan and Liz Fleming will retire – they have run the pub and its famous music room since 1982. The music room will remain, and bookings for bands are currently being taken from 1 November. “Part of the deal is that the jazz will continue,” Dan Fleming said. Geronimo Inns is planning an open meeting at The Bull with customers and musicians to explain what is likely to happen. Geronimo managing director Ed Turner told Propel: “It will continue as a jazz venue - we have a small collection of music venues now and it will be beautiful, offer more dining and Geronimo!”

London’s first better burger delivery service launched: The first better burger delivery and takeaway offer will launch in Fulham in three weeks’ time. In what is believed to a UK first for the high-end takeaway market, the Chosen Bun will offer both delivery and takeaway options, as well as a small sit-in area close to The Broadway in Fulham Road. Fulham-based entrepreneurs Andy Shovel and Pete Sharman are behind the venture. London-based Deliverance offers burgers on its world cuisine menu, but it is thought Chosen Bun will become the country’s first dedicated gourmet delivery burger service. After more than a year of testing, tasting and research, the pair have come up with packaging they say keeps the product perfect for at least 30 minutes after cooking and, crucially, will withstand bumpy moped rides. Shovel said: “Everything will stay exactly as it leaves the kitchen. The triple-cooked chips will remain crunchy and the burgers will be as you would expect them to be if you were sitting in a restaurant.” The pair, who travelled around the US in search of the perfect recipe, expect high demand for delivery in an area of London they say is one of the most lucrative in the market because of its large population of ‘busy and affluent’ people. They claim the Fulham branch of Domino’s Pizza is the most profitable of the firm’s stores in Europe.

Douglas Jack issues ‘Buy’ note on Spirit shares: Numis Securities analyst Douglas Jack has issued a ‘Buy’ note on Spirit shares, with a target price of 85p, ahead of its third quarter results update on 19 June. Jack said: “Like-for-like sales should have accelerated since March, aided by easy weather-related comparatives, although we expect this update to include March (which was -4.1%) and exclude early June (which should have been strong). We believe the like-for-like sales and margins outlook for H2 should be strong and expect to hold forecasts after this statement. Managed pub like-for-like sales were up 0.6% as at the end of March, undermined by poor weather. Thus, our 2.3% full year assumption requires like-for-like sales to average 4.5% over the last five months, which we believe is achievable given the backdrop of easy weather-related comparatives, circa 110 major refurbishments this year and improvements to management, product range, pricing strategy, web-marketing and use of CRM. Despite offering one of the highest growth rates, Spirit has the lowest valuation in its sub-sector on most metrics (with or without the onerous lease provision), prior to considering its £80m of cash tax credits. Thus, we believe Spirit offers an attractive way in to the sector, given a low relative valuation, strong management team and improving prospects.”

Simon Emeny – we will increase capacity at Cornish Orchards: Fuller’s group managing director Simon Emeny has told Propel that the company plans to invest in the Cornish Orchards business, based in Duloe, Cornwall, it bought last week for £3.8m. He said: “(Cornish Orchards) has been struggling to keep up with demand. We’ll be investing further to increase capacity. The business has got its own sales team and is widely distributed in the south west. Craft cider is a premium niche and Cornish Orchards uses high quality English apples – it produces a very, very high quality product. It will never be brewed in London.”

Punch chairman - “we’ve had lots of contradictory feedback”: Punch chairman Stephen Billingham has reported that the company has had lots of “contradictory feedback” from stakeholders as it has attempted to renegotiate the terms of its complicated debt structure. He described the existing debt structure, involving 216 separate tranches of debt, as “unusual”. He said: “Punch is a big business with lots of stakeholders – we don’t want the company to end up in distress.” Under the new proposal Punch has committed to selling no more than 7% of its core estate per annum and investing £8,000 per annum in each of its core estate of pubs.

Simon Kosoff calls for open discussion on Carluccio’s plan for Harrogate: Carluccio’s boss Simon Kosoff has called for a public debate on plans for a new site in Harrogate rather than a decision being taken behind closed doors. Carluccio’s has applied to open a restaurant on the site of a former optician’s in Harrogate, which could create up to 35 jobs. Harrogate Borough Council has said any decision will be taken by its officers under delegated powers, meaning it will not be discussed at a planning committee meeting. Kossoff said he wanted it to be debated in public so “the arguments can be properly explained, examined and understood”. The company says the scheme would “bring new jobs and added vitality to the town”. The council says about 90% of planning applications are determined by delegated powers to prevent delays in the planning system.

Ladhar Leisure opens gin emporium in Newcastle: North east operator Ladhar Leisure has opened a gin emporium in central Newcastle. Pleased to Meet You, which is also styled as a “draft house”. It is on Newcastle’s High Bridge, just off Grey Street. The Grade II Listed building, formerly The Turks Head and The Lane pub, has been completely renovated. Ladhar Leisure’s other venues include Newcastle’s Lady Grey’s, and Redhouse. The opening of Pleased To Meet You has created 40 jobs.

Marston’s to open first new Pitcher & Piano in five years: Midlands-based brewer and retailer Marston’s is opening the first new Pitcher & Piano in five years – at a site in Hitchin, Hertfordshire. The first new Pitcher & Piano in half a decade follows on from four years of strong sales and profit growth in the core estate. The Hitchin site will open at the beginning of August, a conversion of the Que Pasa site in the Old Corn Exchange. Pitcher & Piano managing director Colin Sadler told Propel: “We are really excited about the opportunity to open a site in Hitchin. The town fits our site criteria, and the building is stunning. We can’t wait and we are looking at the market to identify further sites.” Marston’s chief executive Ralph Findlay’s recently argued that there is expansion potential for Pitcher & Piano.

Vianet reports profit drop: Vianet, the provider of real time monitoring systems and data management services for the leisure sector, has reported a drop in pre-tax profit to £1.8m in the year ended 31 March from £2.3m the year before. Sales declined to £21.09m from £22.98m the year before. Executive chairman James Dickson said: “We announced on 22 February 2013 that our results for the year would not match original market expectations due to a combination of contract delays, further pressure in the leisure sector and the impact of increased investment in the US beer monitoring operation. The operating profit achieved has in fact slightly exceeded the revised forecasts and we remain pleased with much of our underlying performance and the impact of cost reduction programmes. We believe that we should make good progress in 2013/14 and, as a reflection of that and the continued strong cash generation of the group, we have maintained our progressive dividend policy.”

QHotels reports pre-tax loss: QHotels, the Leeds-based owner of The Queens Hotel and a host of luxury venues across the UK, has narrowed losses one year after a property write-down hit its performance. The business, which underwent a restructure at the start of the year, upped earnings and sales as it profited from events and the leisure market. In the year to 30 December 2012, QHotels Group posted a pre-tax loss of £3.3m, down from its £58.3m pre-tax loss in 2012, on sales that increased by 2.4%. Turnover at the business rose from £118.7m to £121.9, which translated into a 2.5% increase in EBITDA (earnings before interest, tax, depreciation and amortisation) to £29.4m. A focus on the events market helped to boost performance, but QHotels said the best performing market had been its leisure club and spa division.

Simon French – we are ‘Hold on Punch shares: Panmure Gordon leisure analyst Simon French has issued a ‘Hold’ note on Punch shares with a price target of 7p after yesterday’s revised debt restructuring proposals. He said: “The group’s capital structure update contains a number of revised restructuring proposals. From an equity perspective the most important of these is that improved covenant protection for creditors means there would be no ability to upstream excess cash out of the securitisations (save for £4m to meet on-going group costs and liabilities) compared to the previous proposal of 25% of Punch B cash being upstreamed. Although over time the equity proportion of the group’s EV should increase as the securitisations deleverage it is not clear how equity owners would be able to participate in this upside. As such we reiterate our 7p Target Price reflecting the group’s balance sheet value per share of its shareholding in Matthew Clark, the drink’s distribution business.”

Landmark Cockermouth hotel re-opens three years after it was hit by floods: A landmark Cockermouth hotel will reopen next Friday, three-and-a-half years after it was hit by floods. Peter and Helen Brown, owners of The Globe Hotel on Main Street, have spent £200,000 on revamping the hotel’s bar area. The kitchen has been moved upstairs to give them more ground-floor space. Mr Brown said it had taken so long to re-open because of takeover talks that took place with JD Wetherspoon in 2011. But the pub chain dropped its plans to open in Cockermouth, leaving Mr and Mrs Brown to go back to the drawing board. Mr Brown said: “Wetherspoon pulled out at the last minute.”

Cafe chain Apostrophe reports widening losses: Cafe operator chain Apostrophe has reported a pre-tax loss of £734,090 on turnover of £6,226,444 in the year to 31 August 2012. The company made a pre-tax loss of £284,516 on turnover of £6,158,622 the year before. The company stated: “Turnover increased by 5.2% during the year based on underlying sales, an impressive performance given that only one store and a small kiosk were opened during this period. Most stores achieved positive like-for-like performance, with above-inflation rates of growth at many stores. There is a one-off adjustment in respect of VAT assessment for £251,858 reducing turnover in the year. Despite continued food and payroll inflation, gross margins increased by 0.4%, resulting in a rise of 5.8% in gross profit versus last year. This was achieved by efficient planning of work sifts and the implementation of longer term purchasing agreements. Distribution costs increased by 8.6% primarily due to the effect of rent increases and rates escalation.” A total of £449,573 of debt was repaid meaning the company has no debt outstanding. In January the large private catering company CH&C acquired a 50% stake in Apostrophe. The company opened a site in Gresham Street and a kiosk at Broadgate Circle in the year. The Restaurant Group operates a site at Heathrow and two at Gatwick under franchise.

Rcapital – “we’ll make a decision on Little Chefs bids by the end of the summer”: Private equity firm Rcapital has reported that it make a decision on the bids received for the 78-strong Little Chef business by the end of the summer. The sale of the restaurant chain had attracted attention from bidders in the UK and internationally. Media reports have suggested private equity firm Hamilton Bradshaw, owned by entrepreneur James Caan, is poised to make the purchase. But a Rcapital spokesman said: “The sale process started in April and we have had a number of bids and are now waiting to get the final offers in. This will run to the end of the summer. I am not aware of any bid from James Caan.”

Diageo and Pernod Ricard push premium pre-mixed at-home range: Drinks company Diageo plans to reposition its premixed drinks portfolio as the “number one choice for the casual get together occasion”. The company is rolling out a £2m nationwide TV campaign to highlight the quality of the premixed varieties on offer from brands such as Gordon’s and Pimm’s. It is also tapping into the demand for “skinny spirits” – drinks with less calories – with a £2m marketing push for its new Parrot Bay range of frozen alcoholic cocktails in the hope of establishing a new sub-category within RTD cocktails. Pernod Ricard is launching Malibu branded cocktail bars in London, Liverpool, Birmingham and Manchester this summer to encourage people to sample its pre-mixed cans and purchase in-store. The company is also promoting its Jacob’s Creek range of wine cocktails around this month’s Wimbledon tennis tournament in order to broaden the appeal of the brand.

Company director spent £1.1m on Kings Road restaurant Sushinho: Company director Adrian Burford has had his assets frozen after he stole more than £12.5m from his own firm. He spent £1.1m of the money on Kings Road restaurant Sushinho in which he then owned shares.

Spirit’s Fayre and Square brand launches search for Wacky little heroes: Family pub brand Fayre & Square has launched a search for the UK’s Little Heroes. The campaign, which is supported by celebrity mum Michelle Heaton, asks parents, guardians or family members to nominate a child they think deserves the title of Little Hero 2013. Ten finalists will go through to a Facebook vote with Michelle picking the winner from the three children with the most votes. The winner will receive £1,000 holiday vouchers, a party at Fayre & Square and a Wacky Gold Card – entitling them to a year’s free play. Everyone who enters the competition, which is now live on the Fayre & Square and Wacky Warehouse Facebook pages, will be given a Kids Eat for £1 voucher, valid until one week after the nominations close on Friday 2 August 2013.

Charlie Bigham insures his senses: Charlie Bigham, founder of the upmarket ready meals firm of the same name, has insured his senses for £12m to protect his business. He has insured his sight, taste, touch and smell – the insurance would pay out if he no longer was able to carry out his role at the company, particularly the final taste test of new dishes. Sales in the most recent year to 31 August 2012 grew 19% to £23.4m with pre-tax profit increasing 60% to £1.56m. 

Loungers reports 41% rise in Ebitda to £4.42m: Loungers, the Bristol-based café and bar group led by Alex Reilley and Jake Bishop, has reported turnover for the 12 months to 30 April topped £22m from which the company saw a 41% rise in full-year pre-central EBITDA to £4.42m. The turnover and profit surge follows the opening of nine sites during the period, which included three Cosy Club openings in Salisbury, Cardiff and Exeter. Turnover increased 47% to £22.14m with company EBITDA (before exceptional and pre-opening costs) increasing to £2.91m (£2.1m FY12). Like-for-like sales for the period were +6.2% and the group also reported that LFL sales for May were a very healthy +9.6%. Loungers managing director Alex Reilley said: “We’re really pleased with the performance of the business and we’re particular pleased with how much we’ve grown having coming straight off the back of a private equity deal. Last year saw the roll-out begin to gain some significant momentum and moving straight into the new financial year we’ve really hit the ground running with two additional sites already open and a well-stocked pipeline of sites that should see us open at a rate of at least one a month going forward.” Loungers opened its 34th site, Vivo Lounge in Dorchester’s Brewery Square development, last week following a £450,000 investment. The 4,500 sq ft site, which is the group’s 28th Lounge, is located on the lower ground floor of a Grade II listed building within the scheme and comprises of 130 covers internally and a further 70 covers externally. Commenting on the new opening Reilley said: “We’re extremely pleased to have opened in what has fast become a very popular scheme, particularly as we’re in a building of significant character and we have the benefit of a fantastic terrace”. “There’s a lot of casual dining competition within the scheme but we believe the informal, flexible nature of our offer gives us a real point of difference and we have fairly high expectations of how we’ll trade there”. Next up for Loungers are two openings in July with Portivo Lounge in Gloucester Quays opening on the 6 July followed by Expo Lounge in Didsbury, Manchester two weeks later. It is understood that the group expects to open up to a further four sites in and around the Liverpool area before the end of 2013 as well as adding sites in the East Midlands and Cornwall.

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