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Morning Briefing for pub, restaurant and food wervice operators

Fri 5th Jun 2015 - Update: JW Lees, M&B, Fuller's, Snug, sector saturation
JW Lees reports record turnover of £64m: At the company’s annual conference today, north west brewer and retailer JW Lees reported record turnover of £64m for the financial year ending 31st March 2015, up by 2% from £62.8m in the previous financial year. The successful result means, JW Lees will pay to team members a profit share pot of £440,942 which means that 439 qualifying team members will each receive an average pay-out of £1,004. JW Lees is committed to growing its business towards its next landmark target of £100m sales by 2020 principally by acquiring and developing new pubs. Managing director William Lees-Jones said: “JW Lees has had another record-breaking year and I would like to thank everyone in our team for their hard work and commitment that has made this happen. We are delivering on our business plan and it is a true privilege to be leading the team as we continue to grow our business.” Dr Steve Bull, Team GB psychologist and author of ‘The Game Plan’ addressed the conference, speaking about mental toughness and creating a winning mentality. The address highlighted coaching as the primary responsibility of every manager in every organisation, creating a mind-set to enable the team to thrive under pressure.

Jamie Rollo – Mitchells & Butlers says it lost 10% volume market share between 2010-2012 with ‘eye off the ball’: Morgan Stanley leisure analyst Jamie Rollo has issued his thoughts on Mitchells & Butlers in the wake of a field-trip this week in which management admitted that the company lost 10% volume market share between 2010 and 2012 as its ‘eye was off the ball’. He said: “Mitchells & Butlers hosted an “on trade field-trip” for analysts with senior management this week. The presentations were somewhat light on figures, but the mocktails and 30-day “tomahawk” aged beef we were served showed just how much these pub crawls and their owners have changed. In the last couple of years M&B has fixed its board structure, leverage, operations, and most recently its IT systems. Management sounded confident in continuing its recent return to industry-level like-for-like sales (having underperformed the previous few years), leaving just a dividend resumption as the final piece of the jigsaw (and the indications are this could come sooner than our assumption of 2016). Admittedly, the pub / restaurant market is tough, and management seems to be hiding their light under a bushel by playing things down, but the company does not need much like-for-like sales growth to deliver double digit EPS growth given gearing and the benefit of the Orchid deal still to come through. The 2016 estimates P/E of 10.5x appears paltry for a largely freehold pub and restaurant company with plenty of internal improvement potential in a consolidating market. We remain Overweight. Positive points: Confident its recent return to like-for-like volume growth can continue: H1 food volumes rose a healthy 3%, and group like-for-like sales of 1.7% were in line with the market, and have been at or above market more recently. The company reckons it lost circa 10% volume market share over 2012-14 as its eye was off the ball during the bid battle and protracted management changes, and it thinks it has plenty of catch up potential, such that like-for-like sales should grow at least in line with the market. We assume +1% like-for-likes this year (after 1.7% in H1); Confident in meeting FY consensus. Guidance for FY margin of -40bps means H2 margin needs to be flat, which looks tough given H1 was -80bps. However H2 will benefit from new summer menus (more upselling, modest price increases as duty drop has not been passed on), £3m Orchid central cost savings, and easier comps (World Cup and a poor August). Orchid progressing well: 40 pubs converted this year, another 40 next year, remaining 80 to join the Heartland estate in Sept/Oct. Gave a couple of examples of 30-40% ROIs, and the £6m cost saving figure sounds conservative; No comment on when a dividend could be resumed, but acknowledgement that it would signal the final tick in the box as M&B returns to normalcy, and we note that a FY working capital inflow and lower than expected expansion capex could provide a £30m FCF swing this year that means a dividend is resumed this year rather than next; Significant improvement in IT systems is improving staff efficiency and customer satisfaction. M&B delayed its new EPOS systems during the downturn, but now seems to have a late mover advantage with its systems (£30m capex), which include handheld iPod “iServe” devices (send orders straight to kitchen, reduces missed orders from bad handwriting, happier customers as drink order can arrive while food + drink order being placed, saves time as no need to manually input hand written order into a slave till and screens in kitchens to help chefs prioritise. Hardly rocket science, but it helps customer retention, and may explain some of the food volume growth (though hard to prove). Negative points: A tough market. The pub market has been weaker than everyone expected this year, which management put down to consumers trading up, spending more on high ticket items, and more restaurant competition. They are seeing a land-grab for new sites, particularly high street restaurant chains, which reminds management of the oversupply in high street bars in the late 90s. M&B is, if anything, slowing its rate of expansion; Conservatism: The presentations were very light on figures (and dealt mainly with IT, and Orchid), there was no Q+A (though plenty of time to catch up one on one on the tour), and management continue to adopt a conservative stance. We think the company could do more to educate the market on the value of its real estate, the potential catch-up potential from recovering like-for-like sales underperformance, and some of the strong growth stories in brands like Miller & Carter. There is no harm in being conservative, but after the scars of the last five years (six chairmen in four years, opco/propco failure, bid approach, sales underperformance), we think a more proactive approach would help attract new investors.”

Simon Emeny – we expect to invest circa £58m this financial year: Fuller’s chief executive Simon Emeny has told Propel that he expects the company to invest around the same amount of money in the estate this financial year as last year when a record £58m was spent. The company confirmed it now had a pipeline of six sites – Winchester, Whitechapel, Southampton, Cardiff, Exeter and Cheltenham – for expansion of it eight-strong Stable artisan pizza and cider business. The company stated: “(The Stable) had, at the time of our investment, six sites and we opened one more during the year – in Falmouth. In addition, we have opened a site in Plymouth, right on the Barbican waterfront, since the year end. While the concept appeals to a younger, more female demographic than our traditional estate, the commitment to quality, fresh ingredients and local produce is synonymous with our existing business. We have already helped to grow this brand by adding depth to the head office support team and using our property expertise to identify new sites. We now have agreed or completed deals on six sites in Winchester, Whitechapel, Southampton, Cardiff, Exeter and Cheltenham, as well as moving from our existing location to a larger and more prominent site in Bath. We believe The Stable is a logical step in Fuller’s evolution, following on from our acquisition of Cornish Orchards. The brand broadens our appeal and exposure to growing parts of the market in a way that is totally aligned to our commitment to authenticity and quality. It is also a fitting showcase for the Cornish Orchards’ brands and for Fuller’s brands such as Frontier Craft Lager. There has been some considerable upfront investment but the potential for The Stable to deliver good returns in the future offers a great opportunity.” The company also reported it is now selling 1.2 million hot beverages a year, growing 10% in the most recent year as more of its pubs open at 8am for breakfast. Emeny said the opening of a stand-alone coffee shop in Ealing, the Field, providing the company with a centre for coffee excellence, had proven a “great success, delighting the people of Ealing”. Emeny made special mention of “the outstanding year” at its tenanted division where like-for-like profits had risen by 5%, describing it as the best-performing tenanted business in the sector.

Admiral hires two senior business development managers: Leading community pub group Admiral Taverns has strengthened its team of business development managers (BDM) with two key appointments. The company has recruited two highly experienced operators, Karl Czinege and Alison Martinez, who between them, have almost 60 years’ experience and knowledge of working in the pub industry in a variety of management and field support roles. Head of people development Suzanne Smith said: “The BDM is the linchpin role within any leased and tenanted pub business – success lies entirely in the quality of the operators. As such, we are delighted to have appointed Karl and Alison to further strengthen our team. Both bring with them a wealth of knowledge, and their experience within the industry means we are confident they will make an immediate impact.” Czinege has worked in various roles at Marston’s and Greene King, while Martinez has held business development roles at Vianet Group, Punch Taverns and Young’s. Czinege was awarded the Orange Award for Bright Business at the National Business Awards in 2004 and was named ‘Employee of the Year’ on two occasions at Marston’s.

Snug Bars set to open seventh site in Ware: Home Counties multi-site operator Snug Bars, led by Giles Fry and Ashley Moore, opens its seventh site in Ware, Hertfordshire, next week (Thursday, 11 June). The company, which is celebrating its tenth birthday this year, is hosting a party to launch its latest iteration as a premium kitchen and cocktails venue, which is based in the High Street. Snug Bars started life in 2005 in Cambridge as a relaxed bar, catering to everyone, where you can order a flat white, a cask ale and a cosmopolitan at the same time, in a warm and welcoming social space. The company now has two venues in the city as well as sites in High Wycombe, St Albans, Hitchin and Hertford and plans to continue expanding in the next few years.

US restaurant like-for-likes rise 1.1% in May: US restaurant industry like-for-like sales rose 1.1% during May, representing a 0.8% drop from the growth rate reported for April, Nation’s Restaurant News has reported. Despite the softening sales growth during the month, the industry has now posted 11 consecutive months of positive like-for-like sales growth. The second quarter is poised to become the fourth consecutive quarter of positive growth in same-store sales, the first time in nearly three years, according to data reported by TDn2K’s Black Box Intelligence through The Restaurant Industry Snapshot for May, based on weekly sales from over 20,000 restaurant units representing $55 billion in annual revenue. The main concern since the recession has been the declining guest counts of the restaurant industry as a whole. Same-store traffic declined 2.3% in May, a 0.8% decrease from April. Instead, rising average checks are driving sales growth.

Local Data Company – leisure property market heading towards saturation: The leisure property market is heading toward saturation and “survival of the fittest”, according to the Local Data Company (LDC). While vacancy rates remained stable throughout UK retail sites at 13%, leisure vacancy rates increased from 11.6% in April to 11.7% in May. Matthew Hopkins, director at LDC, said: “This is a very fast growing market and as such is heading towards saturation, cannibalisation and ultimately survival of the fittest. With so many chain operators expanding so rapidly we are seeing an impact on the independents but we are also seeing the sustainable offer peak in certain locations with the profitability of all not being sustainable. At some point therefore we are likely to see some distressed operators which will in turn result in closures and a possible increase in this vacancy rate.” LDC visits more than 2,700 towns and cities, retail parks and shopping centres as part of its research, and records visited premises as occupied, vacant or demolished. Vacant units are those which did not possess a trading business on the day it was visited.

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