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Morning Briefing Strap Line
Mon 17th Dec 2018 - Update: Admiral Taverns results, Patisserie Valerie, The Restaurant Group, Just Eat
Admiral Taverns reports trading in new financial year ‘ahead of expectations’ as full-year turnover and underlying Ebitda dips: Admiral Taverns has said trading in the early part of its new financial year has been “ahead of expectations” as it reported a slip dip in full-year turnover and Ebitda. The company saw turnover fall to £67.7m for the year ending 2 June 2018, compared with £69.2m the previous year. Underlying company Ebitda was down to £23.5m, compared with £25.1m the year before. Underlying Ebitda per pub up was up 4.2% compared to last year. The company increased investment in the estate to £8.5m from £8.2m the year before, which continues “to drive strong Ebitda per pub performance”. Like-for-like estate valuation increased to £260m from £252m the previous year. Chief executive Kevin Georgel said: “In summary, this has been a very significant year for Admiral Taverns. The successes achieved from corporate activity, operational and commercial improvements and pub investment, not only reflect the excellent progress we have made against our strategy to be a leading operator in our field, but are testament to our unwavering commitment to the tenanted sector and our passion for supporting licensees to run successful, sustainable community pubs. Testament to the success of its consistent and longstanding approach, December 2017 saw Admiral welcome new investment into the business through a joint venture between Proprium Capital Partners and C&C Group, who acquired the business alongside the existing Admiral management team. Our new investors support our growth ambitions and the year has seen us take significant strides forward in developing the quality of our estate and driving further improvements in the operational and commercial support we provide our licensees. In line with our ambitious plans to accelerate growth, in December 2017 the group announced the acquisition of 17 pubs from Star Pubs & Bars. Our team worked quickly to seamlessly integrate the pubs into our estate and we have been delighted with their performance to date with average annualised Ebitda per pub of more than £60,000 and several of the pubs identified for further investment in the new financial year. Over the course of the period we have continued to work with licensees to unlock growth opportunities across our estate, ensuring our pubs are better positioned to meet the changing needs of customers. The increased ambition within our investment programme has also seen us complete our largest pub investment of £375,000, at The Cock n Bull in Stourbridge, which is proving to be a great success. Our investment programme has continued to deliver returns in line with our expectations and underpin our growth, helping to drive an increase in Ebitda per pub of 4.2% and strengthening our ability to attract and retain high quality operators. As part of our ongoing focus on attracting new talent into the industry we have reviewed our business support agreement, culminating in its recent relaunch post the financial year end. This agreement is designed with first-time licensees in mind, offering comprehensive support through the crucial startup period and locking in licensee success for the long term. Along with increased business development manager support, we also provide licensees with external accounting and stocktaking expertise, ensuring that appropriate financial controls are in place from day one. The improved agreement also features tailored marketing and finance training. We are committed to continually monitoring and reviewing the quality of the relationships we have with our licensees and identifying how we can improve our support and assist them in optimising the potential of each pub business. The Pubs Code has now been in existence for more than two years and to date we have had no referrals to the Pubs Code Adjudicator. In addition, the vast majority of our licensees who have had an option to alter the terms of their commercial agreement and relationship with us as a result of the new legislation, have preferred to continue to work with us through the supported tied business model. The current political and macro-economic uncertainty is inevitably impacting consumer and wider business confidence. Against this backdrop we believe that consumers are looking for affordable, authentic local experiences and that well-invested community pubs offering great value, quality and service, stand to benefit. At the beginning of our new financial year we have continued to see a shift in the retail sales mix within our pubs with consumers increasingly choosing to premiumise their drinks experience. This is reflective of general trends seen across the wider market and is resulting in a higher quality revenue and profit stream for our business. During the summer months the UK experienced its first genuine heat wave since the 1970s and this, combined with the England football team’s World Cup campaign, created a fillip for drinks-led operators across the UK and underpinned strong summer trading across Admiral’s predominantly wet-led estate. As a result, we are pleased to report that trading in the early months of the group’s 2018/19 financial year has been ahead of the board’s expectations.”

MPs request details of Patisserie Valerie’s payment practices as suppliers lose patience over delays: A Commons committee has requested details of Patisserie Valerie’s payment practices with suppliers amid concerns about lengthy delays. MPs on the business, energy and industrial strategy select committee have written to Steve Francis, the new chief executive of the company, after the company faced a series of winding up petitions from creditors. Patisserie Valerie and Stonebeach, a subsidiary, were challenged with at least four winding-up petitions in the High Court before the business revealed its financial crisis in October. The petitioners included HM Revenue & Customs (HMRC), Dairy Crest and Preston Council. The scrutiny comes as The Times learnt of allegations of how Patisserie Valerie made late payments to some of its suppliers on multiple occasions. One small photography business was paid only this month after a two-year wait. Patisserie Valerie operates about 200 outlets. It was floated on AIM in 2014. It was brought to the brink of collapse in October after the discovery of “significant, potentially fraudulent, accounting irregularities”. The emergence of a £40m black hole in its accounts led to the suspension of trading in its shares and the arrest of Chris Marsh, its chief financial officer. Marsh, who resigned in October, has been placed on bail and is being investigated by the Serious Fraud Office (SFO). Meanwhile, Paul May resigned as chief executive last month. The company revealed in October that it was sitting on debts of £9.8m rather than the cash position of £28.8m it had reported in May. It also revealed it had “become aware” of a winding up petition from HMRC over an unpaid tax bill of £1.14m, filed almost a month earlier. As well as the SFO investigation, the Financial Reporting Council is investigating the audit of the company’s accounts by Grant Thornton over three years. A rescue package has been put together, including £15.7m from shareholders and two £10m loans from executive chairman Luke Johnson. Francis, former boss of pork processor Tulip, has been parachuted into the company to lead the turnaround. In the letter to Francis from Rachel Reeves, chairwoman of the business committee, said: “I note you have yet to publish any reports on your payments practices.” She has asked for an explanation and for details of Patisserie Valerie’s treatment of suppliers, including its standard and longest payment terms, and how many invoices are paid later than agreed terms. The letter comes after the committee published correspondence with several big companies, including WH Smiths and Boots, on their payment practices. The committee has called on the government to introduce a tougher regime to tackle late payments. Catering supplier Brakes and wholesaler Booker, now owned by Tesco, both refused to provide goods to Patisserie Valerie for not keeping its credit account up to date, according to a source. In recent weeks Patisserie Valerie is understood to have started clearing a number of its debts to suppliers. Patisserie Valerie told The Times: “While the current board and new management were not made aware of these allegations, the current management team is reforming the company’s payment processes to ensure suppliers and other creditors are paid on time.”

The Restaurant Group one of most shorted shares: The Restaurant Group (TRG) is now among the most shorted stocks in London after hedge funds ramped up bets against it in the wake of its controversial £560m takeover of Wagamama. Almost a tenth of its shares are on loan to short sellers, including Luxembourg-based Cigogne Management, which increased its short position by a third to 0.9% on Tuesday (11 December), and Mayfair financier Crispin Odey, reports The Telegraph. The Wagamama deal will add hundreds of millions of net debt to TRG’s balance sheet, partly funded by £300m of new cash from shareholders, two fifths of whom voted against the acquisition last month. Some backers opposed the deal on the grounds that it was overpriced. Short sellers borrow shares and sell them on, hoping to cash in by buying them back and returning them after they fall in value. TRG’s stock is already down more than a third this year and recently touched its lowest level since the financial crisis. Chief executive Andy McCue has said buying the better-performing Wagamama will be a “transformative opportunity” to ramp up growth overseas. The rights issue went through on Friday (14 December).

Just Eat comes under attack from activist investor: A US hedge fund has criticised Just Eat for becoming “the worst-performing public equity in online food delivery”, urging it to shed assets, change pay incentives for senior executives and announce three-year financial targets in the next month. Cat Rock Capital, a Connecticut-based hedge fund, has built up a 2% stake in Just Eat over the past two years as the company faces tougher competition from rivals UberEats and Deliveroo. Cat Rock, which holds about 13 million shares in Just Eat, said in a letter to chairman Michael Evans and chief executive Peter Plumb that “unambitious targets and flawed incentive schemes have significantly damaged the value of the business and shareholder returns”, reports the Financial Times. “We believe the significant underperformance of Just Eat’s stock reflects shareholder frustration with management’s lack of accountability for delivering on the company’s potential for profitable growth,” wrote Alex Captain, Cat Rock founder and managing partner. “This frustration has been compounded by the very concerning changes made to Just Eat’s executive compensation plan for 2018, which now incentivises revenue growth without accounting for profits or capital efficiency.” Just Eat’s share price has declined by a quarter to £5.77 this year and the company recently fell out of the FTSE 100 index of the UK’s largest companies by market capitalisation. Cat Rock accused Plumb of creating targets that “have been remarkably undemanding and have created little accountability for management to execute”. Captain urged the board to create a three-year plan in line with the company’s potential, and to link management pay to achieving the plan. He also said the company should shed some “significant non-core assets that are a distraction to management”, including iFood, an online food delivery platform in Brazil, and possibly some of its other non-European assets. He stopped short of saying Just Eat should put itself up for sale, but hinted that could become an option. “If management fails to commit to, and deliver on, the three-year financial plan and targets, we strongly believe that the board should begin to consider strategic alternatives for the business,” he wrote. Captain, who was a portfolio manager at Tiger Global before starting Cat Rock, has shifted the firm towards more active engagement over its three-year tenure. The fund manages about $900m and its returns are up about 8% this year. Just Eat Group said the company had “a clear strategy in place to deliver long-term sustainable value for our shareholders”. It added: “As you would expect, the board engages closely with shareholders to ensure management have an appropriate long-term incentive programme aligned to the exciting and unique growth opportunities of the Just Eat Group.” 

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