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Morning Briefing for pub, restaurant and food wervice operators

Thu 2nd Mar 2017 - Time Out to appeal Shoreditch plan rejection, The Restaurant Group
Time Out Group to appeal against decision to block Time Out Market in Shoreditch: Time Out Group has confirmed it will appeal against a decision by Tower Hamlets Council to reject plans for a 19,250 square foot market in Shoreditch. A spokesman said: “We are disappointed that our license application was rejected at the first hearing with the Tower Hamlets Licensing Sub Committee. Since our initial application, we have worked diligently to listen to the local community and to take their suggestions on board in order to agree on a way forward together. We intend to appeal the decision taken and in advance of this will continue to liaise with local residents and businesses in the area. We’d like to thank those in the local community who have supported our efforts, as well as those amongst our audience and high-profile London chefs who would love for the format come to life in London.” The plan was rejected by Tower Hamlets Council this week after residents branded the proposals “madness”. Time Out announced the planned opening of the venture in Shoreditch, close to Spitalfields market, in October last year and said customers would be able to visit the 17-restaurant venture seven days-a-week later this year. The market was proposed to open between 8am and 11.30pm Monday to Saturday and 10am to 10.30pm on Sunday and cater for 450 people across four floors at 106 Commerical Street. Organisers expected 2,000 people to visit the site, housed in former stables and nearby buildings, each day. Time Out Group already runs a similar attraction in Lisbon, Portugal. However, the council’s licensing sub committee voted against plans on Tuesday after receiving 70 objections. Objections were made amid fears of a spike in anti-social behaviour and concerns vulnerable people living in nearby almshouses would be affected. Following the decision The Spitalfields Society chair, Rupert Wheeler, claimed residents had “won a significant battle in their fight to preserve the unique character of their area against a rising tide of overdevelopment and mass proliferation of drinking establishments leading to increased crime and antisocial behaviour.” Jeremy Freedman, who also sits on the committee, branded the plans “madness”. He told the Guardian: “We are open to restaurants opening and creatives opening – it’s part of the dynamic of this area – but this would have allowed the largest drinking and eating establishment ever opened in London. It’s madness.”

Numis leisure analyst issues ‘Buy’ note on Restaurant Group shares: Numis leisure analyst Tim Barrett has issued a ‘Buy’ note on Restaurant Group shares, arguing its strategic review could be a catalyst to performance. He said: “The Restaurant Group has a well-established portfolio of units on high-footfall leisure/retail parks, complemented by 57 asset-backed pubs and 59 airport concessions sites (with high barriers to entry). Successive price increases and deteriorating service have driven an accelerating decline in covers meaning that like-for-like sales declined by -3.9% in FY16. This has resulted in consensus PBT forecasts being reduced by >20% over the last six months. Importantly, the FY results presentation on 8th March will be the first from the new CEO: he has promised an update on the proposition development in Frankie & Benny’s, strategic reviews of its other Leisure brands and the cost efficiency opportunities identified across the group. We expect the following priorities to be identified: Stabilise like-for-like sales via promotions, new menu rollout and enhanced digital marketing. The average customer visits 2-3 times pa, meaning that it will take time to communicate changes. Nonetheless we expect the combination of thorough data analysis (by OC&C) and enhanced retail skills to be highly effective in due course; Portfolio churn: RTN closed 33 sites in September 16 at a one-off cost of £25m (14 F&B, 11 Chiquito, 8 other). Now that it has completed a review of all leisure brands, it seems logical that more sites may be deemed non-core, and the programme extended, albeit with additional exit costs. Press articles suggest that 23 of the original sites were still on the market at the end of January when new agents were appointed; Efficiency savings: following new appointments in strategy, marketing and HR, RTN has reviewed its head office operations. In FY15 central overheads and admin were £65m in total, equivalent to 5.2% of turnover and £75k per site. The company performed well here in H1 (-11%) which helped minimise operational gearing in the interim results. For FY17 we assume a £1.7m overhead saving but see scope for the company to exceed this; Rollout: we assume 21 new openings in FY17 and would prefer to see a smaller number of higher quality openings in future. While the leisure brands have an existing pipeline of sites we would welcome RTN committing more capital to concessions and pubs; Balance sheet: in our view RTN’s balance sheet is unusually strong for a turnaround situation. We expect y/e net debt/Ebitda of 0.4x (2.6x lease adjusted). In FY17 we believe the company can cover maintenance capex of £30m (4% of revs) and a £35m dividend from internally generated CF, leaving c.£20m to fund new sites. Our forecasts currently show PBT of £57m, a net fall of £17m from 2016E (52w basis), with the drivers shown in figure 1 below. In summary, an assumed like-for-like decline of 4% reduces PBT by £19m and we expect £17m of external cost inflation. Offsetting this are £5m from site openings, £5m from the closure of unprofitable sites and £9m from efficiency. We also await more details from management on the latter point. RTN has invested in EPOS systems and introduced automated labour scheduling at the end of 2016. Given that RTN’s labour/sales ratio of 29% is above the industry average (c.26%) we believe the savings here could represent a material opportunity. We believe our forecasts accurately capture the known cost headwinds for FY17 and have an appropriately cautious assumption on lfl. The main unknown therefore relates to efficiency targets and any additional portfolio realignment. Overall, our analysis implies a FY17 Ebit margin of 8.5%, a 260bp reduction on FY16 and 440bp lower than the peak from FY15.”

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