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Fri 31st Aug 2018 - Whitbread to sell Costa to Coca-Cola for £3.9bn, Restaurant Group LfLs improve
Whitbread to sell Costa to Coca-Cola for £3.9bn: Whitbread has entered into an agreement for the sale of Costa to The Coca-Cola Company for an enterprise value of £3.9 billion. The sale of Costa for an enterprise value of £3.9 billion, representing a multiple of 16.4x Costa FY18 Ebitda. It recognises strategic value of Costa’s brand strength, multi-channel presence and international growth potential. The sale price is a “substantial premium to the value that would have been created through the previously announced demerger given the Coca-Cola system’s global product, distribution and vending platform. The transaction unanimously agreed by Whitbread board to be in the best interests of shareholders. The net cash proceeds expected to be approximately £3.8 billion at completion, after adjusting for estimated transaction costs and separation costs. A significant majority of net cash proceeds are intended to be returned to shareholders. Whitbread will also reduce financial indebtedness and make a contribution to the pension fund, which will both provide headroom for further expansion of Premier Inn in the UK and Germany. The Transaction is conditional upon agreement by Whitbread’s shareholders and various other approvals, including anti-trust approvals, and is expected to complete in the first half of 2019. Whitbread is to focus on the attractive structural growth opportunities for its leading hotel business, Premier Inn, in the UK and Germany.” Alison Brittain, Whitbread chief executive, said: “I am delighted that we have agreed the sale of Costa to Coca-Cola for £3.9 billion. This transaction is great news for shareholders as it recognises the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realisation of value for shareholders in cash. The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders. Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn. The sale of Costa to Coca-Cola is another successful landmark in the 276-year history of Whitbread. Whitbread acquired Costa in 1995, for £19 million when it had only 39 shops and successfully grew the business to be the UK’s favourite and largest coffee shop company. In more recent years, we have been focused on building Costa into a leading multi-channel, international coffee brand. This has resulted in this unique strategic opportunity to combine the Costa brand with Coca-Cola’s global scale, product and distribution capabilities. This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas. As a result of this strategic sale our teams, pensioners, suppliers, shareholders and other stakeholders will all have the opportunity to share in the benefits. Premier Inn, the UK’s leading hotel business, will continue to develop its highly successful and unique business model, with even greater focus and financial investment. Premier Inn will continue to take advantage of the considerable structural growth opportunities in the UK and accelerate its network expansion in Germany. This will deliver strong return on capital and significant value to shareholders over the long term.” James Quincey, Coca-Cola president and chief executive, added: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide. Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform. I’d like to welcome the team to Coca-Cola and look forward to working with them.”

Restaurant Group reports like-for-likes down 3.7% in First Half, up 2.4% in recent six weeks: The Restaurant Group has reported like-for-like sales down 3.7% in the 26 weeks ended 1 July 2018. Total sale were down 2.1% to £326.1m. Adjusted profit before tax was £20.1m (2017: £25.5m). The company reported ‘further progress to increase competitiveness of its brands by optimising digital channels and developing new ‘off-trade’ channels. Its pubs business (is) ‘outperforming the market and accelerated growth on track’. It reported ‘good momentum post the end of the World Cup with like-for-like sales up 2.4% for the six weeks to 26 August 2018’. It added: “We expect to deliver an adjusted PBT outcome for the full year broadly in-line with current market expectations given the impact of adverse weather and the World Cup.” Chief executive Andy McCue said: “Over the last six months we have delivered against our strategy, creating a more competitive and balanced business, more closely aligned to the growth segments of our market. The turnaround of our Leisure division continues to plan and shows further progress. This was despite the headwinds facing the sector as a whole and the adverse effects of extreme weather and the World Cup. Meanwhile our pubs and concessions businesses have traded strongly, with both businesses expected to deliver significant total sales growth this year. Our recent acquisition of Food & Fuel will further accelerate our growth at the premium end of the pub market. We remain focused on developing our offering to meet consumers’ evolving demands and behaviours. Over the last six months we have rolled out delivery and ‘Click-and-Collect’ across most of our Leisure estate and successfully trialled two delivery-only brands, ‘Burger Burger’ and ‘Kick-Ass Burrito’, both of which have been well received. Following a positive like-for-like sales performance in recent weeks, we remain on track to deliver an adjusted PBT outcome broadly in line with current market expectations for the full year.”

Of Frankie & Benny’s, it said: “The brand has undergone considerable change over the last two years, to re-establish its competitiveness. We have focussed on improving our value, product, brand and service proposition and the overall restaurant environment. In value, we invested significantly in price reductions in 2017 and remain cheaper than our peers. We also continue to extend our affiliate presence with, for example, Meerkat Meals, available through the brand. We have upgraded every menu in the brand, amplifying our core offering such as the kids menu which continues to be rated best in class in the market, as well as introducing a much improved range of healthier, vegan and vegetarian options via our ‘Feel Good’ range. Our people are core to our brand proposition and we have re-energised and retrained the team. Alongside this we have a new brand look and feel which is being delivered consistently through the business. That new brand appeal is best illustrated via our environment. In 2018, we have been trialling a capital refresh programme in ten sites. Early results are encouraging and we are currently investing in a further 10 sites. We remain disciplined in selecting sites, testing and learning and measuring progress.”

Of Chiquito, it said: “Building on the success of the new simplified core menu rolled out in January, we have continued to evolve our Chiquito offering through further menu developments, exciting value offers and investment in a stronger operational team. Our new core menu is delivering better value to our customers, supported by the latest external market data showing an improvement in value for money ratings against a competitor peer set. We rolled out a substantially improved kids menu this summer, a range of fresh and healthy summer specials, and introduced £1 Taco Tuesdays which have proven so popular, that we have replicated them on Thursdays! All of this has been underpinned by a focus on operational excellence, leveraging insights from our new at table feedback app. Our customers are recognising these improvements with the latest external market data showing improvement in quality of service scores against a competitor peer set.”

Of its other Leisure brands, it said: “The focus here remains on further developing our new proposition, Firejacks, which offers high quality flame-grilled steaks and burgers at highly competitive prices. Encouraged by the performance of the pilot site in Northampton, we have converted a further four Coast-to-Coast sites to Firejacks in recent weeks. These sites, in Solihull, Stevenage, Chester and Basildon, have all opened very strongly with promising early uplift in covers. Importantly the feedback from guests has been very positive with every one of the new sites delivering strong ratings on social media. We will continue to monitor the performance of these sites to determine the longer term scale of opportunity for the Firejacks brand.” 

Of its pubs business, it said: “Our pubs business continued to outperform the pub restaurant sector in the current year. A combination of a stable and attractive customer base and demographics, defensible and well-invested locations and a localised business model with strong operational execution leads to the business being fundamentally robust. During the year we broadened further our bespoke events such as our gin and prosecco festivals and optimised existing trading space via private dining rooms, function spaces and improved the amenities in some of our gardens and terraces. We anticipate additional revenue opportunities via accommodation and we are opening our first pub with accommodation in September. In May we acquired Ribble Valley Inns which consisted of four leasehold pubs, providing a good opportunity to expand further into the north-west of England, and we see clear scope for investment to enhance their performance. We have also recently completed the acquisition of Food & Fuel for £14.9m; consisting of 11 leasehold pubs and café-bars predominately situated in affluent London neighbourhoods and providing a premium offering tailored to local markets. The 11 sites generated Ebitda of £1.9m in their last full financial year. We expect there to be synergies from areas such as purchasing and central costs and an opportunity to continue to grow the business via data driven customer insights and sharing experience and learnings from the existing Brunning and Price operation. We expect to generate a mature company Ebitda run-rate of £2.3m for the 11 sites. With this scale of operation in London, we expect to exploit further expansion opportunities within London, including the possible conversion of some of our existing sites.” 

Of its concessions business, it said: “Our concessions business primarily operates in UK airports, an attractive market segment supported by strong levels of passenger growth in recent years, and where airport operators have increasingly invested in additional food and beverage capacity providing an increasingly diverse range of propositions. We are a market leader in this space having built a distinctive capability to develop and operate multiple formats and brands delivering high quality guest experiences while simultaneously managing the complexity of operating at high volumes with peak and seasonal load bursts. We have a strong track record of retention with 85% of our legacy sites having received a contract extension and the average extension adding 75% of the original concession term. So far in 2018 we have been successful in winning 17 new units and expect to add five new partners in UK travel hubs in FY18. These new openings are a mix of multiple brands and multiple categories showcasing our market-leading capability in introducing new brands alongside existing attractive propositions to our evolving market. As the new concessions launched this year reach maturity in 2019 we expect total sales to grow by over 10% next year.”

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