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Morning Briefing for pub, restaurant and food wervice operators

Thu 24th Jul 2014 - M&B, Fuller’s and Marston’s trading updates
Mitchells & Butlers reports flat third quarter: Mitchells & Butlers has reported total sales growth in the third quarter was 3.8%, bringing growth in the first 42 weeks to 2.9%. It added: “Over the third quarter like-for-like food volumes continued to increase, although sales remained flat as we held prices and saw a decrease in food spend per head. This reflected a weak eating and drinking out market in the UK during May and June, exacerbated for restaurants by the impact of the football World Cup. In the last few weeks we have seen an improvement in demand, particularly for food, from these levels. Operating margins are slightly below last year.” Food sales were up 0.6% in the 14 weeks to 19 July but drinks sales were down 0.5%, producing a flat result overall. The company added: “We successfully acquired 173 outlets from the Orchid Group on 15 June 2014 and their results are included within total sales for the five weeks following this date. The acquisition is in line with our strategy to focus on long-term growth in the eating-out market and provides significant opportunity for sales and margin growth through both the conversion of selected sites to Mitchells & Butlers brands, and through cost synergies from the combination of support functions. Integration is progressing well and we remain confident that the acquisition will be immediately enhancing to adjusted earnings. Since the date of the half year financial statements (12 April 2014), there have been two significant balance sheet movements, both of which have been previously announced. Firstly, we reached agreement on the triennial valuation of the group pension schemes as at 31 March 2013, including a funding shortfall of £572m and a revised schedule of contributions. As a result net balance sheet pension liabilities under IAS 19 (revised) have increased by c£200m after tax. Secondly, net debt at the end of the third quarter has increased following the all cash purchase of Orchid for £266m. The substantial majority of this consideration was funded using existing cash resources in addition to putting in place unsecured facilities totalling £150m, provided by existing lenders. The new facilities have a maturity of three and a half years. In addition to the Orchid transaction we have opened 20 new sites and converted 8 sites so far this financial year.” Alistair Darby, chief executive, added: “Despite the slowdown in the UK eating and drinking out market during May and June, we remain confident in our well established strategy. We have continued to achieve growth in food volumes, further improvements in staff turnover and strong Net Promoter Score - all key lead indicators of long term success. This is an exciting time for our business as we start the integration of the high quality Orchid estate, which we believe will accelerate our growth and create significant value over the long term. We remain focused on our strategic priorities and are well-placed for future success.”

Marston’s reports “good progress”: Brewer and retailer Marston’s has reported good progress “in line with our expectations” in the 41 weeks to 19 July. The company said the impact of the World Cup was broadly neutral, with higher drinks sales offset by weaker food performance in our pubs, and strong sales growth in the off-trade. It added: “In Destination and Premium, like-for-like sales for the 41 week period were 4.1% ahead of last year, including like-for-like food sales growth of 4.2% and like-for-like wet sales growth of 3.5%. Operating margin is slightly above last year and we remain on track to complete 27 new-build pub restaurants in the current financial year. In Taverns, like-for-like sales for the 41-week period were 3.0% ahead of last year. Our franchise business continues to perform strongly and now operates in around 550 pubs. In Leased, like-for-like profits for the 41-week period are estimated to be up 3% compared to last year. In Brewing, own-brewed beer volumes were up around 1% compared to last year including 10% growth in off-trade volumes during the World Cup. Net debt and cash flow are in line with expectations.” Ralph Findlay, chief executive, added: “We have continued to make good progress in implementing our strategic priorities with our focus on investment in new pub-restaurants, the expansion of franchise and the continued development of our premium beer portfolio all contributing to our growth targets. We remain confident of achieving our expectations for the full year.”

Fuller’s to report managed like-for-likes up 7.3%: Fuller, Smith & Turner will report managed like-for-likes grew 7.3% in the 16 week period from 30 March to 19 July 2014 at its Annual General Meeting today. The company will state: “Trading has been strong across all divisions, with like-for-like sales in Managed Pubs and Hotels rising by 7.3% for the period and like-for-like profits in the Tenanted Division growing by 3%. Total beer and cider volumes in the Fuller’s Beer Company rose by 7%. Net debt as at 28 June 2014 was £145.2m and net debt to Ebitda remained at 2.5 times.” Simon Emeny, chief executive, said: “We’ve had a strong start to the new financial year with our core business performing well. We launched a number of new initiatives last year, particularly in the Beer Company, and these are beginning to bear fruit. In addition, we have an excellent pipeline of new openings – the three riverside pubs in Kew, Fulham and Greenwich will come on stream, a seventh Stable opens in Falmouth at the end of August and we will continue to look for new pub acquisitions that fit our style of operation. The year has started well and I look forward to building on this early progress.” The next report will be on 21 November 2014 when the company issues its half year results for the 26 weeks to 27 September 2014.

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