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Morning Briefing for pub, restaurant and food wervice operators

Fri 11th Mar 2016 - Wetherspoon results, Krispy Kreme float
Wetherspoon reports LfLs risen to 3.7% in most recent six weeks: JD Wetherspoon has reported sales up 6.2% to £790.3m in the 26 weeks ended 24 January 2016. Profit before tax was down 3.9% to £36m with like-for-like sales up by 2.9%. Like-for-like sales have risen by 3.7% in the six weeks to 6 March. Chairman Tim Martin said: “As previously highlighted, the biggest danger to the pub industry is the continuing tax disparity between supermarkets and pubs. There is a growing realisation among politicians, the media and the public that pubs are overtaxed and that a level tax playing field will create more jobs and taxes for the country. In the six weeks to 6 March 2016, like-for-like sales increased by 3.7%, with total sales increasing by 5.7%. Sales comparisons in the second half of the financial year will be slightly more favourable, although further wage increases are due in April. As a number of pub companies have indicated, the pub and restaurant market is highly competitive, but we are aiming for a reasonable outcome for the financial year, before the impact of the £3.8m property gain referred to today. A wide debate is taking place as to whether the United Kingdom should leave the European Union. I have written an article on the subject, favouring withdrawal from the Union, since returning power to the national parliament will increase the level of democracy and accountability.” In his chairman’s statement, Martin added: “Like-for-like bar sales increased by 2.9% (2015: 1.5%), food by 2.9% (2015: 10.1%) and fruit/slot machines decreased by 2.9% (2015: increased by 1.1%). Like-for-like room sales at our hotels increased by 7.5% (2015: 11.8%). Bar sales were 59.2% of the total, food was 37.0%, fruit machines were 2.8% and room sales were 0.8%. Operating profit decreased by 10.8% to £49.4m (2015: £55.4m). The operating margin was 6.3% (2015: 7.4%). Profit before tax and exceptional items decreased by 3.9% to £36.0m (2015: £37.5m). The decline in operating margin was mainly due to a lower gross margin and higher rates of pay for pub staff. The reduction in PBT was partially offset by a property gain of £3.8m (2015: loss of £0.3m). Underlying earnings per share, before exceptional items, the property gain and the benefits of a deferred tax credit decreased by 16.6% to 19.1p (2015: 22.9p). The company paid taxes of £333.0m in the period under review, an increase of 9.4% compared with the £304.5m paid in the same period last year – and about 50% higher than five years ago (2011: £225.6m). Net interest was covered 3.1 times by profit before interest, tax and exceptional items (2015: 3.1 times). Total capital investment was £75.6m in the period (2015: £93.8m). £15.5m was spent on freehold reversions of properties where Wetherspoon was the tenant (2015: £12.8m), £17.4m was spent on existing pubs (2015: £21.4m) and £42.7m was spent on new pub openings and extensions (2015: £59.4m). Exceptional items before tax were £0.6m. A charge of £0.2m relates to the pub disposal programme and the company recognised a benefit of £0.8m resulting from a reduction in the onerous lease provision. Free cash flow, after capital investment of £17.4m on existing pubs and payments of tax and interest, increased to £55.7m (2015: £44.9m). Free cash flow per share was up by 28.2% at 46.8p (2015: 36.5p). The free cash flow increase in the period was mainly due to reduced expenditure on existing pubs and the timing of payables at the period end.”

Krispy Kreme owners eye UK flotation after Ebitda rises above £10m: The owners of Krispy Kreme’s British operation are eyeing a £100m plus flotation after the company turned highly profitable in the last couple of years. Alcuin Capital Partners, which has owned Krispy Kreme UK since 2011, has appointed Investec, the investment bank, to oversee the flotation. Sources suggested the float is likely to take place later this year. Alcuin acquired a big stake in Krispy Kreme UK, the maker of glazed doughnuts, as part of a management buyout in 2011. The company, which opened its first UK store in London in October 2003, has since opened dozens more, as well as hundreds of in-store cabinets with retail partners such as Tesco. The company sells more than 50 million doughnuts in Britain each year, even as many consumers migrate towards healthier eating habits. Krispy Kreme’s UK operation is under different ownership to its US-based business, which operates about 300 stores. Krispy Kreme reported pre-tax profit surged to £7,274,000 in the UK in the year to 1 February 2015, up from £3,166,000 the year before. Turnover was stable at £52,192,000 compared to £52,393,000 the year before – store numbers were static at 50. Adjusted Ebitda before exceptional costs was £10,281,000 (19.7% of sales), compared with £9,419,000 (18% of sales) in the previous year. Earlier this month, Propel reported Liz Phillips has left Mitchells and Butlers, where she was director of resourcing and employee relations, to take the post of interim human resources director at Krispy Kreme. 

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