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Wed 12th Jul 2017 - JDW like-for-likes up 5.3%, Fulham Shore results
JD Wetherspoon reports like-for-likes up 5.3%: JD Wetherspoon has reported like-for-like sales increased by 5.3% in the 11 weeks to 9 July and total sales increased by 3.6%. In the year to date (50 weeks to 9 July 2017) like-for-like sales increased by 3.9% and total sales increased by 1.9%. The full-year operating margin before exceptional items and before a £1.6m gain on property is expected to be between 7.6% and 7.8% for the 53-week period, compared to 6.9% last year. The company has opened nine new pubs since the start of the financial year and has sold or closed 38. The company said: “We expect to open one more pub before the financial year end. There are expected to be around £24m of exceptional, non-cash losses in this financial year, which are mainly associated with pub disposals and closures. As previously announced, the company has increased capital expenditure in older pubs, which will be about £65m in the current year. Areas of expenditure include staff rooms, kitchen and garden upgrades, and IT improvements. We anticipate expenditure continuing at this, or a slightly higher, rate for the next few years. As previously announced, the company has bought the freeholds of a number of properties of which it was previously the tenant. We have spent £89.5 million on 44 of these freeholds in the year to date, and have spent £190.9 million on 102 freeholds since 2011.The company remains in a sound financial position. Net debt at the end of this financial year is currently expected to be around £715m. The company has bought back 3.4m shares, at a total cost of £31m, since the start of the financial year.” Chairman of Wetherspoon, Tim Martin, said: “Sales have been good in the last 11 weeks, probably helped by unusually good weather. As previously stated, the company anticipates that like-for-like sales of about 3 to 4% will be required to maintain profits at this year’s levels in our next financial year. As is the case for most public companies, shareholders and the media are interested in our views on the Brexit process. I have outlined my views in a few paragraphs on some of the issues, which can be found at the end of this statement. In general, it is my view that requests to the government, like the one last week from the FCA, for “clarity” and to “hammer out a post-Brexit transitional arrangement this year” are unrealistic and increase pressure to agree unfavourable terms. It also makes the FCA and similar organisations seem rather weak. Everyone knows that these sorts of deals aren’t within the government’s gift – and the City and businesses are supposed to be able to deal with uncertainty.” On Brexit negotiations, Martin said: “We’ll do well with or without a free trade deal, so stop tying the hands of our negotiators Don’t believe the media furore – an unprecedented political consensus has emerged on the main aspects of leaving the EU. However, it is not one most politicians or the media care to acknowledge. A consensus, especially between Labour and Conservatives, is just too embarrassing for our adversarial system – and is also barely newsworthy. The last parliament voted overwhelmingly to trigger Article 50, and the main manifestos, the basis for the election of about 85% of MPs, backed the referendum decision. Since Theresa May and Jeremy Corbyn each won more votes for their parties than many thought possible, helped by their upholding of the referendum result, thoughtful MPs and commentators realise that the UK star is irrevocably hitched to the Brexit caravan. This surreal unity of political purpose, disguised by handbags-at-dawn polemics, is reinforced by almost complete unanimity in favour of a free trade deal with the EU. The government has stated that it wants “a bold and ambitious free trade agreement” and shadow Brexit Secretary Keir Starmer agrees, saying in March that it was critical to hold the government to account on this pledge. The DUP, the SNP, Sinn Fein and Plaid Cymru all sing from a similar hymn-sheet. The media too seems united in this objective. The Times, the Guardian, the Financial Times, the Mail and Mirror, for example, are all free-traders now. Yet the cherished goal is at risk from the phoney war being waged in parliament and the media. As any buyer of a house or car knows, if you want something too badly, you will pay a very high price – especially if your desire is obvious to the counterparty. The basic principle of obtaining a good deal is that you need an alternative plan – necessity never makes a good bargain, as Benjamin Franklin said. So a viable alternative has be the cornerstone of the government’s position. Yet the unelected EU presidents, Jean Claude Juncker and Donald Tusk, have unfortunately become convinced of our desperation for a free trade deal, and are determined to extract a high price. Hence the early suggestions of a contribution to the EU of €50bn, or even €100bn, combined with a petulant and antagonistic negotiating stance. The UK’s viable alternative, the basis on which we and the EU trade with America, China, India and most of the world, is World Trade Organisation rules. EU tariffs, themselves subject to WTO rules, are relatively small, averaging about 3%, as many commentators have noted – and the EU, according to the rules, cannot impose higher tariffs on the UK than are charged to other non-EU countries. Since the majority of the UK’s trade is currently conducted on the basis of these rules, it is absurd to talk of cliff edges and an apocalypse if EU trade reverts to them in the future. The think tank Open Europe, neutral during the referendum campaign, estimates a likely difference to our 2030 GDP of less than 1%, plus or minus, from leaving the EU, depending on the deals that are struck and the policies that are pursued. Many dyed-in-the-wool remainers, especially economists, are currently engaged in a rerun of project fear, forecasting dire outcomes in the absence of a deal. However, the public can see that the recession, combined with increased unemployment and interest rates, predicted by many of the same economists for the immediate aftermath of a leave vote, did not materialise. They are deeply sceptical of apocalyptic warnings now from the same quarter. The majority of the public instinctively understands the government’s bargaining dilemma. Yet the supposedly sophisticated CBI, the Financial Times, the Times and the other usual suspects are vociferous in their forecasts of trouble in the absence of a free trade deal. As a result, they are loading the dice hugely in favour of EU negotiators. The public’s message to Carolyn “We’re all doomed” Fairbairn, head of the CBI, and other gloomsters is: put a sock in it. We’ll do well with or without a free trade deal, so stop tying the hands of our negotiators, who are doing their best to achieve a respectable outcome.”


Franco Manca operator Fulham Shore reports turnover and Ebitda growth, reports more restaurant space on the market than “in many a year”: Franca Manca operator Fulham Shore has reported sales for the year ended 26 March 2017 of £41,274,000 (2016: £29,251,000). Headline Ebitda for the year ended 26 March 2017 was £7,118,000 (2016: £5,232,000). Profit after taxation for the year ended 26 March 2017 was £969,000 (2016: £76,000). It opened 13 new Franco Manca pizzeria and three new The Real Greek sites during the year ended 26 March 2017 (2016: seven Franco Manca pizzeria and one The Real Greek). It launched click and collect takeaway service in both Franco Manca and The Real Greek. Since the year end, it opened a further six Franco Manca restaurants in the UK, the first franchised Franco Manca pizzeria in Salina and a further two The Real Greek restaurants. Chairman David Page said: “To date we have identified and are developing two great restaurant brands. The first is Franco Manca, which was started in Brixton, London in 2009 by Giuseppe Mascoli. This brand has experienced strong growth since it was acquired by the group in 2015 and we are now expanding outside London by opening and looking for new sites in cities such as Bristol, Oxford, Cambridge and Edinburgh. The second brand that has great prospects is The Real Greek. As we expand outside London, these new The Real Greek restaurants are performing as well if not better than a number of their London siblings. Both of these brands are very popular with customers and their food receives critical and social media acclaim. Both brands have scalable business models that combine great quality, high volumes and good value price points (typically £9 to £15 per head). I have been in the restaurant industry since 1976 and, during that time, the UK ‘eating out-of-home’ market has grown and continues to grow significantly. Nabil Mankarious, our Managing Director, has been operating UK restaurants since 1986, so we have both witnessed the expansion of the ‘eating out-of-home’ market and the UK restaurant industry. Recent years have seen unprecedented amounts of capital invested in the UK restaurant sector and, in recent months, more restaurant space has appeared on the market than for many a year. This is largely a function of larger businesses trying to sell poor performing locations, newly created developments and administrators selling sites for broken companies. Restaurant supply and demand often have a fractious relationship and, however quickly demand for eating out grows, there will always be a risk that restaurant supply may sometimes grow faster, either nationally or locally. In addition, we are entering a difficult forecasting period due to Brexit. Against this backdrop, some restaurant businesses will make the grade and others will not. We believe that operators with “me-too” offerings, over-rented sites, tails of unprofitable sites, dated menus, too much debt, poor concepts and unincentivised staff (or all of the above) will struggle. However, I am confident that Fulham Shore is well placed as a dynamic operator with strong brands and a good portfolio of sites. We believe that our businesses have significant growth potential across the UK underpinned, first and foremost, by the quality and value of their customer offerings. As a result, and despite the challenging backdrop, we are confident that the group will continue to perform well in the fast-growing casual dining market.”

Franco Manca – growth: Page said: “Since acquiring Franco Manca in 2015, we have more than trebled the number of our pizzeria in the UK from 12 to 38 (32 at the year-end). This has resulted in growing to serving over 60,000 pizzas per week, up from 25,000 just over two years ago. Core to the success and appeal of the Franco Manca brand is its continued emphasis on ingredients with proven provenance. We continue to source from the best UK and Italian producers and purchasing organic ingredients wherever possible. It is more important than ever to know your suppliers personally in these uncertain times and we pride ourselves on such relationships. Franco Manca further strengthened its ties with Italy by joining its founder, Giuseppe Mascoli, in opening a seasonal Franco Manca pizzeria by the sea, located on the island of Salina, north of Sicily, since the year end. Franco Manca’s growth to date has primarily been in London where we have focused on establishing the positive reputation of this young brand’s business. We have been building Franco Manca’s awareness by expanding in London ‘villages’ (e.g. in Richmond, Hackney and Bermondsey) but we also opened new restaurants in close proximity to established Franco Manca pizzeria, thereby strengthening the brand and giving customers their own local Franco Manca. Whilst this can have a near term impact on sales in the original pizzeria, we are confident that the increased brand recognition and the business the new restaurants generate will benefit overall sales in the longer term. We know from past experience that sales at the original pizzeria gravitate back to original levels after a period of time and this is demonstrated by the continued strong performances of the 12 Franco Manca pizzeria that the group originally acquired in 2015.In London, where the quality of our sourdough pizzas and great value prices are well known, our new pizzeria are busy straight away. However, as we open in other towns and cities throughout the UK, we expect that sales are more likely to build to capacity over the first three or four years of each restaurant’s life as the Franco Manca brand becomes better known regionally. We are encouraged by our expansion outside of London so far, in particular the openings in central Brighton and Reading, which are serving more customers per week than our average London pizzeria. This gives us confidence that the Franco Manca concept will continue to grow and flourish outside of the capital.”

The Real Greek – growth: Page said: “The Real Greek has delivered steady growth over recent years, generating good profits to support both its own expansion and that of the group. The Real Greek presents an exciting opportunity for Fulham Shore as it shapes and defines the market for Greek food: it has little direct competition, serving delicious, good value sharing dishes and enjoying a very loyal customer base. The brand’s good performance and the availability of good sites encouraged us to open three new restaurants in the last year (including our first, smaller, Greek on the Street concept) which was more than we had originally planned. As a result, as at the year-end we operated 12 The Real Greek restaurants, with a further two opening since the year end, taking the total to 14. During the year, we opened The Real Greek in three towns outside of London in Southampton, Bournemouth and Reading. We are encouraged by their performances so far. Our recent opening in Bournemouth, combining a great location, a beautiful restaurant with a large outside terrace and all a short walk from the sea, deserves special mention as it recorded an exceptional 3,000 customers in its first week.”

Current trading and outlook: Page said: “Both Franco Manca and The Real Greek have performed well over the last year. We believe we will see this continuing, underpinned by great ambience, food quality and value of their customer offerings. We will be reviewing the progress of our third business, which is a single franchise of the Bukowski Grill brand in Soho, over the next few months. We believe that both of our key brands have significant further growth potential. We have a pipeline of locations where we would like to open either or both The Real Greek and/or a Franco Manca. We anticipate opening approximately 15 new locations in the current financial year. However, much of this will depend on our ability to secure sites that meet our return on capital criteria. This is critical to our success and we will not open new sites just to chase expansion numbers. We believe it is far better to wait for the right sites at the right rents than to chase short term targets. Trading during the current financial year has so far remained in line with our expectations. However, there are many uncertainties out there: another General Election would be unhelpful, terrorist incidents have always reduced London public confidence (and therefore restaurant visits) and the long-term Brexit impact is unknown; it is, however, already affecting the availability of skilled European restaurant staff. In addition, food costs are currently on the increase and there is some evidence of reducing consumer expenditure. Despite this, the UK dining out market continues to grow and as a nimble and agile operator with great restaurant brands we are confident of another year of good progress.”


SSP Group reports progress in Third Quarter: SSP Group, the operator of food and beverage outlets in travel locations worldwide, gas reported revenues for the period from 1 April 2017 to 30 June 2017 increased by 14.6%, with like-for-like sales growth of 3.6%, net contract gains of 7.6% and an additional 3.4% of revenue from Travel Food Services in India (TFS), compared with the same period last year. At actual exchange rates, given the weakening of Sterling against most currencies compared with the same period in the prior year, total group revenues for the period increased 21.7% year-on-year. The company stated: “Like-for-like sales in the third quarter increased by 3.6%, which included a positive benefit arising from the timing of Easter. Like-for-like sales growth in the air sector was driven by increased passenger numbers. Trading in the rail sector has remained softer. More recently, we have seen some further impact from the geopolitical activity in the UK and Continental Europe. Net contract gains in the third quarter were 7.6%. This performance benefited from the commencement of operations at Chicago Midway airport, ahead of plan. On a temporary basis we are running all the food and beverage operations in Midway until re-development commences. In addition to this, we have benefited from the deferral of some planned unit closures in the quarter. Looking forward, we expect net contract gains for the full year to be around 5.0% – 5.5%. The anticipated operating profit contribution from new unit openings will, as normal, include the impact of pre-opening costs. TFS has continued to perform well in the quarter, with strong sales, a little ahead of our expectations. For the nine month period from 1 October 2016 to 30 June 2017, total group revenues increased by 10.4% on a constant currency basis, including like-for-like sales growth of 3.2%, net contract gains of 4.8%, revenues from TFS of 2.8% and a negative impact of -0.4% arising from the additional leap year day in 2016. At actual exchange rates, total group revenues increased 20.4% year-on-year. Looking forward, whilst a degree of uncertainty always exists around passenger numbers in the short term, particularly in the current environment, we are well placed to continue to benefit from the structural growth opportunities in our markets and to create further shareholder value.”

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