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Morning Briefing Strap Line
Wed 26th May 2021 - Update: VAT cut, Revolution, C&C Group and Gym Group
Lord Smith calls for VAT cut for hospitality to be extended to March 2022: Lord Smith of Hindhead has called for an extension of reduced VAT for hospitality. In a House of Lords debate, he stated: “The government’s quick thinking and implementation of schemes such as the 2020 lockdown grants, the subsequent tier grants for closure and the current reopening grants – not to mention the furlough and Eat Out to Help Out schemes – have all made this past year just about manageable for a significant part of the hospitality industry. Together with business rates relief and the reduction of VAT to 5% as applied to goods and services in the hospitality, accommodation and attractions sector, the Chancellor has created a safety net that has been vital in supporting an industry which, pre covid, was the third-largest private sector employer. Over three million jobs were directly supported through UKHospitality – some 9% of all UK employees. However, in spite of this support, many establishments are in rent and loan debt, and are unable to contemplate the costs of reopening or bringing back staff post furlough. While I very much welcome the announcement that the reduction of VAT to 5% will continue until September this year, and thereafter will be at a transitional rate of 12.5% until March 2022, the hospitality industry would benefit hugely from the 5% rate being extended to April 2023, where significant savings could be made for the industry and consumers. This would be a lifeline to all sorts of businesses across the country, from pubs to restaurants and hotels to cinemas, providing breathing space for the sector to fully recover, saving businesses and jobs, and allowing the economy to bounce back faster. A society which socialises together is a stronger and healthier society. The UK’s pubs, clubs, bars and restaurants put that into practice every day. Hospitality has always provided social cohesion, but it is also an industry which brings so many people of different backgrounds and abilities together as a workforce, which benefits the UK on many different levels. I hope my noble friend the Minister will consider this suggestion.”

Just two days until Premium subscribers receive the updated database of multi-site businesses: The updated database of multi-site companies for May, which is available exclusively to Propel Premium subscribers, will be sent out in two days on Friday (28 May) at midday. It will include 108 new companies since its previous update in April – making a total of 1,823 listed businesses. Subscribers will not only receive the database as a PDF and an Excel spreadsheet, they will also be sent a 14,000-word report on the businesses added during May. The key themes covered in the latest update include companies with big growth potential entering the UK market such as US bakery Cinnabon and interactive football and entertainment concept Toca Social. Meanwhile, operators offering Italian cuisine are enjoying a strong showing, including Milan-based vegan burger brand Flower Burger and sandwich and bakery business Spianata. The UK’s love for coffee also continues with companies such as London-based Hermanos Colombian Coffee Roasters and coffee and brunch specialist Mule entering the database. The go-to database provides company names, the people in charge, how many sites each firm operates, its trading name and its registered name at Companies House if different. In a new feature this year, there is a synopsis of what the business does and significant news associated with it. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The regular single subscription rate of £395 plus VAT for operators and £495 plus VAT for suppliers remains the same. Premium subscribers are also to receive access to a second exclusive monthly database, The Propel Blue Book. This database will provide an insight into UK operator turnover and profitability over five years, profit conversion and directors’ earnings. It will be available on Friday, 4 June, at midday. Subscribers also receive access to Propel’s library of lockdown videos and Friday Wrap interviews and now also have access to a curated video library of the sector’s finest leaders and entrepreneurs, offering their insights on running outstanding businesses in the sector. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before our 6am send-out; regular video content and regular exclusive columns from Propel insights editor Mark Wingett. Email jo.charity@propelinfo.com to sign up.

Revolution raises £21m: Revolution Bars Group has successfully raised £21m, or £19.9m net of expenses, through a share placing. Chief executive Rob Pitcher said: “Thanks to the support of our shareholders and new investors, this successful fundraising will allow Revolution Bars to emerge from this period of disruption in a strong position with a fit for purpose balance sheet which provides us with ongoing financial flexibility and an excellent platform from which to deliver for all our shareholders. We now have the firepower to deliver strong proven returns from the refurbishment of the remainder of our uninvested bars and the ability to take advantage of opportunities that undoubtedly will arise from a very dislocated market. We have traded outstandingly since the initial restrictions have been lifted. We are now looking forward to the end of all restrictions and are excited about the next part of the journey delivering best in class entertainment and hospitality to our guests.”

Michelin Guide-listed restaurant Ka Pao to open at Edinburgh St James scheme: Glasgow-based, Michelin Guide-listed restaurant Ka Pao is to open its second site, at the Edinburgh St James scheme, Propel has learned. The South East Asian restaurant concept, which is from the team behind the awarding-winning Ox & Finch restaurant in Glasgow, will open a 3,400 sq ft site in the St James Quarter on level four, overlooking St James Square. The St James Quarter is set to open its first phase on 24 June 2021, with Ka Pao, which operates a site in Glasgow’s Vinicombe Street, due to open this autumn. Together with the recent announcement that The Gannet and Erpingham House will be joining Bonnie & Wild’s Scottish Marketplace within St James Quarter, the addition of Ka Pao, from the team behind Ox and Finch, will help provide St James Quarter with a diverse upscale dining offer. Jonathan MacDonald from Ka Pao said: “We are incredibly excited to be bringing Ka Pao to Edinburgh and we know that the restaurant’s fun, relaxed, party vibe will be an excellent fit alongside lots of other fantastic leisure, retail and restaurant businesses at St James Quarter. It is a great development to be a part of and we are delighted with our site, overlooking St James Square and the striking new W hotel. We are looking forward to working on a new project which will create around 35 new management, kitchen and front of house roles, as well as offering opportunities for career progression to our existing team who are absolutely central to everything that we do.” 

The Gym Group reports membership bounceback: The Gym Group, the no-contract, nationwide operator of 187 low-cost gyms, has reported trading since re-opening has outperformed the company’s expectations, reflecting strong demand for the return to gyms. Total membership has increased from 547,000 at the end of February 2021 to 729,000 by 24 May 2021 versus 794,000 in December 2019. All members are now paying, with the free freeze option having been removed upon re-opening. The company stated: “Member satisfaction scores are significantly higher than pre-covid levels reflecting positive feedback from members on safety and cleanliness protocols and the enthusiasm and friendliness of our gym colleagues. Gym visits have been strong with the average number of visits per member per week at 1.5 since re-opening compared with 1.1 for the comparative period in 2019. Our expectation is that over the next three months we will trade more in line with seasonal norms. The summer months are historically quieter times for gyms and as a result we tend to see limited net gains in overall membership levels during this period. Net debt at the end of April was £63.1 million, with outstanding deferred rent and VAT of a further £9.4 million, versus a total bank facility of £100.0 million. At current levels of membership, in May the company expects to be cash-flow positive pre-expansionary capex and therefore expects to generate cash flow towards its new site rollout. The company has opened four new gyms since 12 April 2021, in Chichester, York, Cambridge and London Sydenham, taking the total estate to 187. All four gyms are performing extremely well and have grown strong levels of membership despite a limited pre-sale marketing period.” Richard Darwin, chief executive of The Gym Group, said: “Our members are delighted to be working out in the gym once more with visits per member and new joiner sign-up rates at record levels. With membership levels growing strongly, we are building our pipeline of new gyms to take advantage of what we see as a unique opportunity to extend affordable fitness to even more locations across the UK.”

C&C Group reports 59.6m euros operating loss, to raise £151m through rights issue: C&C Group has reported net revenue of 736.9m euros in the year to 28 February 2021, a 56.1% decrease on the year before, delivering an operating loss of 59.6m euros as a direct result of the impact of covid-19. The company is to raise £151m through a fully underwritten rights issue. Chief executive David Forde said: “FY2021 has presented an extraordinary set of circumstances which have challenged our business, and our industry, at every level. With approximately 80% of C&C’s pre covid-19 net revenue derived from the hospitality sector, the pandemic has had an unprecedented impact on the group. Thanks to the prompt and decisive action of our team and our resilient business model, we have successfully navigated these challenges to date. We implemented responses to the near-term challenges to maximise liquidity, support customers, reduce costs and fulfill off-trade demand from the immediate change in consumption dynamics. Our top priority continues to be protecting all our stakeholders. Their health and wellbeing are of paramount importance to the success of C&C. As the hospitality sector recovers from covid-19, we will continue to be flexible in our approach and work with our customers who will face challenges as trade reopens and support them through collaboration with our suppliers and partners. Our business model was proven during FY2021 as, during the periods of on-trade restrictions easing, we returned to profit and cash generation. C&C’s brand strength was demonstrated by our core brands growing off-trade share, reflecting their special relationship to the consumers they serve. We will build on this as the hospitality sector reopens, targeting cider share growth and building our share in premium beer which we continue to see as a significant market opportunity. Development and evolution of our branded portfolio will remain key for growth and we will enhance our wider portfolio with new agencies or equity for growth brands. We will continue to optimise our system strength through cost streamlining and infrastructure consolidation, in addition to accelerating the adoption of technology and the efficiencies therein. We believe our brand and system strength will position us to grow market share, which will be delivered by engaged and inspired colleagues, committed to our sustainability agenda. We are confident in our business model and strategy for growth, the group continues to face uncertainty with the ongoing impact of covid-19 across the hospitality sector. Today we have also announced a Rights Issue to raise gross proceeds of approximately £151 million which will strengthen the balance sheet and ensure C&C is in a stronger position to achieve sustained growth and pursue its strategy as the hospitality sector emerges from the pandemic. We look to FY2022 with optimism and C&C continuing to play an integral role in the UK and Ireland drinks market with our brand and distribution assets appreciated by consumers, customers and brand owners alike. We are confident C&C will emerge from the pandemic stronger, more streamlined, and primed to deliver on our ambition to be the preeminent brand-led, final-mile, drinks distributor across our core markets which will ensure long term value for our shareholders.” 

Research shows sector employment challenge: Employees, rather than customers, are the biggest challenge facing hospitality businesses as the sector reopens. The majority of operators have experienced some team members refusing to return to work, according to new research by workforce management specialist Bizimply. Half of employers, 50%, say they lack enough trained or experienced staff to fully reopen. The new Reopening Expectations and Challenges survey of employers confirms that many operators are struggling to find enough experienced staff. The findings tally with the views of trade body UKHospitality, which has flagged up the challenge in terms of both the total number of available employees, after many EU citizens left the UK to return to their home countries, as well as skills shortages in specific areas. The Bizimply survey shows that the vast majority of operators, more than 90%, also expect some labour-intensive covid prevention measures, such as table-only service and social distancing, to be a requirement beyond the 21 June date set by the government. In addition, hospitality businesses are showing an increased reluctance to ‘police’ customers’ covid status on behalf of the authorities. Only 25% of businesses said they would welcome a proof-of-vaccine or vaccine passport scheme, compared to 53% who said they supported a scheme pre-opening, in a Bizimply survey in February. Bizimply chief executive Conor Shaw said: “Our survey shows that the scale of the employment challenge facing the UK hospitality sector shouldn’t be underestimated. Most customers have been in a forgiving mood in the early weeks of reopening, but they won’t accept poor or slow service for too long. Equally, the realities of day-to-day trading with covid measures in place has clearly hardened operators against the idea of a proof-of-vaccine scheme. The number who do not want to be required to check customers’ vaccine status has increased significantly since hospitality reopened.”

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