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Tue 30th Apr 2019 - Update: Whitbread, Greene King and Hop Stuff Brewery
Whitbread set to return £2bn to shareholders: Whitbread will launch a tender offer in June to return up to £2bn of sales proceeds arising from the sale of Costa Coffee to Coca-Cola in January. Meanwhile, the company reported UK accommodation sales saw a 0.9% like-for-like drop impacted by softer demand in Quarter Four. Underlying profit before tax was 1.2% to £438m. Alison Brittain, Whitbread chief executive, said: “The last year has been significant for Whitbread, with the sale of Costa to The Coca-Cola Company for £3.9 billion completing on 3 January 2019. We intend to return up to £2.5 billion of the net cash proceeds to shareholders, and we have repositioned Whitbread as a focused hotel business by delivering our three strategic priorities to grow and innovate in the UK; focus on our strengths to grow internationally; and to enhance the capabilities required to support long-term growth. During the year Premier Inn UK delivered total accommodation sales growth of 3.5% through further capacity addition. We have grown our UK network to over 76,000 rooms, with around 13,000 rooms in our committed UK pipeline. We announced a new runway of growth to 110,000 rooms at the Capital Markets Day in February and also see potential to extend the estate further with our two format innovations “hub” and “ZIP”. Alongside our 4,008 new room openings this year, we have maintained our high occupancy, with 97% direct bookings, and have delivered a strong return on capital. In Germany, we recently opened our second hotel, in Hamburg, and our pipeline is now almost 7,000 rooms, which is over 30% of our total pipeline for Whitbread. Our hotel in Frankfurt continues to perform well and has reached a mature level of market occupancy and average room rate, in line with expectations, whilst outperforming the competitor set on customer feedback scores. We have also made excellent progress on our efficiency programme, achieving our initial five-year target of £150 million in just three years mitigating significant inflationary pressure. We still have more work to do and in February we announced a new target of £220 million operating and capital efficiencies, to be delivered over the next three years. Our focus on efficiency remains important as industry cost inflation continues and there are ongoing signs of market weakness across both business and leisure, especially in the UK regions. In the fourth quarter, we saw a decline in business and leisure confidence, leading to weaker domestic hotel demand. This weakness has increased into March and April particularly in the regional business market, coinciding with an acute period of political and economic uncertainty in the UK. At this stage in the new financial year it is too early to know how business confidence and its impact on the market will evolve. However, it’s important to note that our strong balance sheet, ongoing efficiency programme and integrated operating model means we are likely to be more resilient in a weaker market than many of our competitors. In addition, our ability and willingness to continue to invest through this period will place us in an advantaged position in the future. Therefore, despite the short-term market challenges, our strong competitive position, ongoing disciplined allocation of capital and focus on executing our strategic plan will ensure we continue to win market share from the declining independent hotel sector in the UK and Germany. This will deliver sustainable growth in earnings and dividends, combined with our strong return on capital over the long-term.”

Greene King reports like-for-like sales growth of 2.9%: Greene King has reported managed pub sales saw 2.9% like-for-like growth for the 52 weeks to 28 April. The company said this reflected “the successful programmes in place to drive industry-leading value, service and quality for our customers”. The company added: “We saw good drink volume growth across Pub Company and, in particular, in our 1,000 drink-led Greene King local pubs, which recorded like-for-like sales up 4.6%. Like-for-like sales for the last 16 weeks were up 2.4%. Easter like-for-like sales were up 4.6% against last year’s Easter weekend, helped by the good weather and particularly strong trading from Chef & Brewer, which recorded like-for-like sales of 15.3%. Pub Partners like-for-like net income for the 52 weeks was up 1.6% while like-for-like profit was down 1.4%. In Brewing & Brands, total beer volumes were up 0.9% and own-brewed volumes were down 3.4% against a UK ale market down 4.2%. During the second half of the financial year, we made further progress on our debt refinancing plan. By the year end, we had repaid £393m, or 51% of the Spirit debenture, while we tapped the Greene King securitisation for £250m at 3.6%, creating headroom within our revolving credit facility for future bond repayments from the debenture. We expect to limit net cost inflation this year to between £10-20m and for full year profit before tax, non-underlying and exceptional items to be between £244m and £247m. We are broadly on track to deliver our disposals programme and new builds/single site acquisitions for the year.” Rooney Anand, chief executive officer, said: “We have traded strongly this year and have returned to market outperformance. As I hand over to my successor Nick Mackenzie, I believe that, with our strong pub and beer brands, talented and dedicated team and high-quality estate, Greene King is well positioned to make further progress and continue outperforming the market.”

Hop Stuff Brewery founder sets out company’s position: Hop Stuff Brewery founder James Yeoman has written a letter setting out the company’s current position in the wake of a Sunday Times article which reported the company had ceased production over a dispute with HMRC and its landlord. Yeoman wrote: “I’d like to provide a response to the Sunday Times article recently published, and an update on our current position and importantly the positive solutions we’re working on to resolve the challenges Hop Stuff Brewery face today. The last couple of weeks have been some of the hardest I’ve faced, and the pressures the business has come under have been difficult to manage. To be transparent, I’ve found the guilt and distress so difficult I was hospitalised, which hasn’t exactly added communications, so for delays in reaching out I apologise In January 2019 Hop Stuff Brewery was forced to stop operations owing to an error at HMRC. When we moved into our new home we failed to update just one document which had meant Beer Duty was being paid incorrectly (but being paid!) from our old site on the Arsenal, as opposed to our new site 35.9 Cobalt. This fault resulted in a near 4 week loss of production and sales whilst HMRC updated their address book (yes, it was that simple!). Although this might seem wildly unnecessary it was the policy of HMRC to do this, and as a responsible business we adhered to the halt in production and sales. In February 2019 we returned to trading, albeit with a near £1-200,000 loss of income to carry. This loss of income hit us hard, and meant we were a little late in a rental payment due to the Landlord of our new Brewhouse. Owing to a fractious relationship since their purchase of the Freehold roughly six months after we moved in and completed works to make the new site our long-term home, the Landlord chose to use this as a foreclosure opportunity (or an opportunity to reset the relationship), which left us stranded. Hop Stuff Brewery were not notified prior to the foreclosure or had any prior warming of the landlords intent to take such drastic action to re-establish a more consistent rental payment structure (quarterly preferred over monthly for example!). The Landlord is requiring historic arrears (modest), but also this forwards full quarter rent, and a new rental deposit –  the balance of which is around £180,000. Because of the loss of income we saw earlier in the year because of the HMRC action, and the typically slow seasonal trading we did not have the cash reserves to resolve this immediately. A perfect storm of third party negative interactions with our otherwise rapidly growing business (c. 200% up in Q1 vs. 2018). We have been working with A shareholders, and appointed KPMG to establish a solution to this challenge that best suits the groups future and remain positive we can achieve this. We have established three options which are now being considered and we will aim to progress by Friday (3rd May) and complete by the following week, immediately returning to action. These are commercially sensitive so I won’t provide too much detail but range from whole company acquisitions with the continuation of team to existing shareholders alongside new investors recapitalising the business for not only this current challenge, but also to meet capex demands for a 40,000hl Brewhouse and fund two more bars for 2020. Terms have already been renegotiated with the landlord and we have a commitment from them to re- establish trading as son as possible, and continue Hop Stuff Brewery’s lease of our massive 22,000 sq ft facility at 35.9 Cobalt. Our new and long-term home. This certainty shows a willingness from them to work for a positive solution, and they have been understanding of necessary beer checks / lab checks that we need to do to ensure beer in tank is ready the second we resolve this unforeseen challenge. The Taprooms remain open and trading, and are unaffected by this dispute at HQ. Whilst we resolve the problems at HQ we ask fans to show support and flock to the Taprooms if they can (although they can’t drink our beer as its locked in the Cold Store!).Events like this weekend’s Deptford Craft Beer Feast are set to continue, and are unaffected also so please come down and enjoy this two-day event with us! It’s worth noting the support, and third party interest in the business has been significant, and with that in mind we must say how proud we are of the brand we’ve built to date. This has allowed us the luxury of choice as to how this is resolved and although we are somewhat handcuffed currently the team are positive we can not only return to trading but do so in a far stronger position than we had ever imagined. Our £6.5m forecast for 2019 is taking a hit, but with a larger capex reserve from a recapitalisation deal we can aggressively pursue rapid growth in H2 2019. I will once a solution is decided on reissue forecasts for 2019 and 2020. Between HMRC and the landlord issue we’re facing a loss of seven weeks from 17 trading weeks of this year, so it’s a sign of the resilience and strength of the business that we’ve not only survived these negative experiences but are able to seek a positive solution for the future. Thank you for your support, I’m sorry we’re here but strangely it has presented Hop Stuff Brewery an opportunity to secure its future, and potentially provide the growth capital we were already seeking ahead of a proposed 2021 AIM listing which remains the management plan despite recent setbacks.”

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