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Morning Briefing for pub, restaurant and food wervice operators

Wed 1st Mar 2017 - Time Out Market plan rejected, Shepherd Neame, Domino’s, AG Barr
Time Out Market plan for London rejected: An application to open a Time Out Market in the Commercial Street area of London’s Shoreditch has been turned down by Tower Hamlets council. A total of 60 local residents and residential associations objected and based on the local Cumulative Impact Policy, the application was refused. The company previously stated: “Time Out is setting up shop in the East End. London’s very own Time Out Market will open at 106 Commercial Street in the second half of 2017. The plans include 17 restaurants, a cooking academy, four bars, a shop and an art gallery, with everything picked out, tested and tasted by people who spend all day tracking down the best and newest that London has to offer: us. Time Out opened its first market in Lisbon in 2014, and it has quickly become one of the most popular spots in the Portuguese capital. Over the next year we’ll be turning the London site, a Victorian stable building opposite Old Spitalfields Market, into a new destination for anyone who’s hungry to discover our city. We’re going to tap into the creative energy of Shoreditch and the area’s fast-growing dining credentials. We’re going to give new food and cultural talents a platform to be seen by Londoners. In short, we’re going to serve up the best of the city under one roof.” Time Out, which listed on London’s junior market last year, has signed a lease to open its second market in Portugal, in the town of Porto, and is planning to open its first US markets in New York and Miami. In the first six months of last year, the Lisbon market reported revenue growth of 106% and had 1.3m visitors. London is seen as the ideal location for a flagship Time Out flagship market as it targets global expansion of the venues to offset struggling revenues from its traditional publishing business.

Shepherd Neame reports managed like-for-likes up 5.3% in First Half: Kent-based brewer and retailer Shepherd Neame has reported like-for-like sales in its managed division grew 5.3% in the 26 weeks ended 24 December 2016. The company described it as a ‘period of significant acquisition activity’ with investment in 13 new freehold pubs. Turnover for the period increased by 7.4% to £79.2m (2015: £73.7m). Underlying operating profit grew by 6.5% to £7.6m (2015: £7.2m). It reported a strong trading performance in all areas of the business. Managed estate like-for-like sales up 5.3% (2015: +6.5%), food up 3.3% and accommodation up 9.6%. Tenanted like-for-like Ebitdar grew by 1.7% (2015: +2.7%) and average Ebitdar per pub was up 4.9% (2015: +7.2%). Total own beer volumes excluding contract up 2.2%. Statutory profit before tax was £6.7m (2015: £8.7m), as profit on disposal of properties returned to more normal levels after the one-off sale of land in 2015. Underlying basic earnings per share up 12.4% to 30.0p (2015: 26.7p). Interim dividend increased to 5.62p (2015: 5.45p) per share. Net assets per share increased to £12.69 (2015: £12.36). Chief executive Jonathan Neame said: “I am delighted to report a strong performance and a period of significant acquisition activity. Our pub business has been driven by good like-for-like sales growth. It is also encouraging to note solid growth in own brand beer volume. We retain a cautious outlook as we are likely to be entering a period of increased cost inflation. However, I am confident that we have the right strategy and skills to deliver value for our shareholders for the long term.” At the half year end, the company operated 335 pubs, of which 261 were tenanted or leased, 67 are managed and seven were held as investment properties under commercial free of tie leases. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs. 

Douglas Jack issues ‘Add’ note on Domino’s Pizza shares: Peel Hunt leisure analyst Douglas Jack has issued an ‘Add’ note on Domino’s pizza shares ahead of full year result on 9 March. He said: “UK like-for-like sales should have improved in Q4 2016 and early 2017, from Q3 2016’s 3.9%, due to slightly easier comps (Q3 2015 14.9%; Q4 2015 11.4%; Q1 2016 10.5%), as well as strong television sponsorship and advertising campaigns, backed up by an attractive Winter Survival deal (which accounted for over 30% of sales in January 2016). We forecast 5% like-for-like sales in Q4 2016E. In H1, UK operating profit rose by 20%, with like-for-like sales rising by 10.9% (7.9% volume; 2.2% price; 0.8% mix) versus a 10.3% comp, and margins rising by 140bps. The growth in ecommerce sales is slowing (+25% H1 2016 vs +30% H1 2015), due largely to having now reached 81% of delivered sales, but ongoing digital innovation should support the migration to mobile devices (64% of delivered sales, with app downloads rising to 14.2m from 10.0m in Q1-3). UK franchisee profitability rose by 13% to £166,000 per mature store in H1 2016, by our estimates, with franchisee margins rising by 30bps, helped by £4m of food cost savings, offset by higher labour investment by franchisees. Food costs should have remained benign in H2, and the company should now have locked in as much of 2017E costs as possible. We expect overseas trading to have been strong, with sterling weakness boosting Republic of Ireland profits and, to a lesser extent, Swiss losses. These results will be an opportunity for Domino’s to provide guidance on the Nordics, with circa 30 stores, £24m of investment, and expansion underway. Domino’s has multiple competitive advantages, based on scale, brand, product range, delivery times, digital, franchise profitability and expansion. These should benefit from Domino’s opening 80 units pa (two-third store splits) in the UK for another eight years but, in return, one cannot expect like-for-like sales to grow by double-digits forever or for new stores’ average sales not to contract. On 9 March, we expect to at least hold our consensus-in-line forecasts (of 12% PBT growth in 2017E), which cautiously assume just 3% like-for-like sales growth and falling margins for the UK in 2017E. We expect the company to have minimal debt and strong excess cash generation, which should underpin ongoing share buybacks.” 

AG Barr makes commitment to accelerate sugar reduction plan: AG Barr, which produces and markets some of the UK’s leading soft drinks brands, including IRN-BRU, Rubicon and Strathmore, has announced its further commitment to reduce sugar across its soft drinks portfolio. It is accelerating its long-standing sugar reduction programme, over 90% of its company owned soft drinks portfolio by volume will contain less than 5g of total sugar per 100ml by the autumn of this year. This reformulation programme now includes the IRN-BRU brand, which will see its sugar content reduced in line with changing consumer tastes and preferences. Roger White, chief executive at AG Barr, said: “Evidence shows that consumers want to reduce their sugar intake while still enjoying great tasting drinks. We’ve responded by significantly reducing sugar across our portfolio in recent years, through reformulation and innovation. Today’s announcement builds on this progress and we are now expanding our successful sugar reduction plans to include our iconic IRN-BRU brand. We’ve worked hard to deliver IRN-BRU’s unique great taste, using more of the secret IRN-BRU flavour essence, but with less sugar. We have been making some of the nation’s favourite soft drinks for over 100 years. We will continue to respond to our consumers and adapt to their changing preferences, offering great tasting products that are right for this generation of consumers and the next.”

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