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Morning Briefing Strap Line
Tue 30th Nov 2021 - Update: Marston’s, Shaftesbury, JD Wetherspoon and cancellations
Marston’s reports managed like-for-like sales up 1.3%: Marston’s has reported that trading since its year end to 2 October “remains encouraging”, with total like-for-like sales in its managed and franchised pubs up 1.3% relative to 2019. The company said that October earnings were in line with its expectations and bookings for the Christmas period are “encouraging and building in momentum”. It said in its food-led business both for Christmas Day and Christmas Fayre bookings “are in line with 2019, albeit walk-in trade typically accounts for a significant proportion of overall sales over the Christmas trading period”. Total revenue for the 52 weeks ending 2 October 2021 was £424m, 48% below last year. Total pub revenue for the year was £402m, 22% below last year, reflecting the “significant disruption to trading as a consequence of the pandemic”. Pub outlet operating profit in the year was £34.8m (2020: £84.7m). Underlying Ebitda for the entire business was £35.3m (2020: £125.6m), and the total underlying operating loss was £7.4m (2020: £74m profit). The total underlying loss before tax was £100m (2020: £22m). The company said that since reopening on 12 April, it had seen an improving sales trend from 77% of 2019 levels on a like-for-like basis, during the period of outdoor trading only to a return to growth over 2019 levels, with sales 2% higher across its managed and franchised pubs from July. It said that overall, trading since 12 April has been at 94% of 2019 levels which includes the benefit of the temporary VAT reduction on food and non-alcoholic drink sales. The company said accommodation sales have been “very strong” in the period since reopening and benefited from the demand for UK staycations. Since fully reopening in July, these have been 38% higher than 2019. Net debt at the year-end stood at £1.23bn, a £97m reduction since 2020. The business said that its financial strategy was on track to reduce net debt to below £1bn by 2025. The company set out two corporate goals – “Better than the Rest” a continued outperformance of the Peach Market Tracker in both food-led and wet-led pubs outside the M25; and “Back to a Billion”, which encompasses two financial targets, achieving sales of £1bn by 2025 – this requires around £200m of sales growth from the pre-pandemic levels, including Brains over the next four years; and reducing net debt to below £1bn by 2025. It said: “Looking forward, we believe the worst of the pandemic is now behind us, albeit we will have to navigate through the coming winter months if any further government restrictions are put in place. Trading since April demonstrates that demand to visit the pub remains strong and we have clear plans in place to return Marston’s to sustainable pre-pandemic levels of profitability, evolving and adapting the business to ensure it is fit for long-term purpose and achieving our ‘Back to a Billion’ goals.” Chief executive Andrew Andrea said: “It is extremely encouraging that trading momentum has built well since reopening and trading is now exceeding FY2019 levels. We were delighted to fully reopen our estate in July, once restrictions were lifted, and welcome our guests and team members back into our pubs. While there are still some challenges to navigate over the months ahead, we believe the worst of the pandemic is now behind us and Marston’s has emerged a stronger, more focused business, which is in great shape. Importantly, consumer demand for the pub and the role which this great British institution plays, at the heart of communities up and down the country, has never been stronger. Over the last 18 months, the government provided much welcomed support to the hospitality industry, which has been so hard hit by the pandemic. We urge them to continue to assist the sector as it continues its recovery by maintaining VAT at 12.5%. Marston’s enters the year ahead as a focused pub business with a clear strategic plan, a profitable and cash generative business, a strong balance sheet and a 40% share in Carlsberg Marston’s Brewing Company, our partnership with Carlsberg, which has such exciting potential. Our debt reduction plans remain on track and our well-invested, predominantly freehold, suburban pub estate is well placed to benefit from many of the positive consumer dynamics and drivers post pandemic. While still early days, Christmas bookings look encouraging and we look to the future with renewed optimism.” In response to the changing market dynamics post pandemic, the company said it also conducted a detailed review of our pub estate. Following this review, it has decided to categorise its pubs into three core trading formats in its food business to reflect ‘changing consumer trends, thereby reducing our exposure to a pure mainstream offer synonymous with discounting and a focus on price over experience, and maximise the trading opportunity in each pub’. Conversion of the estate to these categories will take place over the next four years: “Community” – these are good value, local pubs at the heart of their community. We have both food-led and wet-led pubs in this category. “Signature” – in this format the company “elevate the everyday for our guests placing an emphasis on a warm, timeless country-pub atmosphere with food and drink provenance at the fore. We target a frequency of one to two visits per month, in suburban towns and villages where quality of food, a friendly welcome and familiarity are key drivers”; and “Revere” which is its “most aspirational offer”. It said: “Guests visiting these pubs have a higher level of disposable income, are well-travelled, eat out frequently and are willing to pay for an elevated experience. In addition, a Signature guest will trade up to a Revere pub or bar for a special occasion.”

Propel marks tenth birthday with £100 discount to unlimited Premium subscription: Propel is marking its tenth birthday by offering a £100 discount to companies signing up to have an unlimited number of people receive access to Propel Premium. For today (Tuesday, 30 November) only, the cost is £795 plus VAT – whether they are an operator or a supplier – instead of the normal £895 plus VAT. Existing Premium subscribers can also upgrade to have an unlimited number of people in their business receive access to Propel Premium. Propel will also launch its Premium Advent Calendar tomorrow (Wednesday, 1 December), giving subscribers access to a great video each day in December from our autumn conference series. Each day in December in the run-up to Christmas, Premium subscribers will be sent a video featuring some of the sector’s leading operators, who will share insights, advice and expertise. They include: Azzurri Group chief executive Steve Holmes, Itsu founder Julian Metcalfe, JD Wetherspoon chairman and founder Tim Martin, The Restaurant Group chief executive Andy Hornby, Corbin & King managing director Zuleika Fennell, Giggling Squid co-founder Andy Laurillard and Sarah Willingham, founder of Nightcap, acquirer of drinks-led businesses including London Cocktail Club and Adventure Bar. Premium subscribers will also receive the fifth edition of The New Openings Database, which is produced in association with StarStock, on Friday (3 December), at midday. The database will show the details of 366 newly announced site openings and upcoming launches. Premium subscribers also receive access to two other databases. The latest Propel Multi-Site Database, which is produced in association with Virgate, was sent to Premium subscribers on Friday (26 November). 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. Premium subscribers also receive the Turnover & Profits Blue Book, which is produced in association with Mapal Group. The Blue Book, which is also updated every month, provides an insight into UK operator turnover and profitability over five years, profit conversion and directors’ earnings. 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 group editor Mark Wingett. The regular single subscription rate of £395 plus VAT for operators and £495 plus VAT for suppliers remains the same. To subscribe, email jo.charity@propelinfo.com.

Operators report scores of cancellations in wake of new restrictions: Operators have reported scores of cancellations in the wake of new restrictions coming into force following the discovery of the Omicron variant of coronavirus. Damian Wawrzynia, who runs House of Eats in Peterborough, told the BBC: “We had 20 cancellations over the weekend, mostly for Christmas parties. Customers were phoning to tell us they weren’t sure what was going to happen in a few weeks so they’d rather cancel now.” The sector has been allowed to operate free from restrictions since 19 July, but there are fears customer confidence in eating and drinking out has taken a hit as restaurants and bars prepare for their busiest trading period of the year. Wawrzynia said: “Hospitality has been waiting for Christmas, and if it’s not what we were hoping for, there’s going to be some casualties across the industry, including my place We won’t be able to survive without that Christmas trade.” Sam Morgan, who owns the restaurants Craft and 8 in Birmingham, said his venues usually received up to 150 enquiries a day, but had only seen about ten in the last 48 hours. He also said there had been a number of cancellations. “People are just freezing and they are not doing anything and that’s all to do with consumer confidence,” said Morgan. He added he was “encouraged” the government had not implemented restrictions on hospitality but said he would be “naïve” to believe they may not return. He said his businesses relied on larger dining groups of six to 16 people, which would be affected if measures such as the “rule of six” returned. “It’s a challenge,” said Morgan. “We are fighting a losing battle. We are ladened with debt.” UKHospitality chief executive Kate Nicholls said the return of masks in shops and on public transport would “undoubtedly have an immediate impact on consumer confidence”, which she said was “fragile”.

Shaftesbury reports rebound in occupier demand with footfall and trading recovering: West End landlord Shaftesbury has reported a rebound in occupier demand that is driving vacancy down to pre-pandemic levels with footfall and trading recovering. The company said footfall was currently back to 2019 levels at weekends and was at circa 80% on weekdays. Chief executive Brian Bickell said: “Freedom Day on 19 July marked the first time in 17 months that our 600-plus hospitality and retail occupiers, and businesses across the West End, could begin to trade normally. What followed has been a remarkable bounce back in activity, as domestic visitors and workers returned, with footfall and spending in our villages well on the way to returning to, or in some cases already exceeding, their pre-pandemic levels. Our response to the economic and social disruption caused by the pandemic has been to support our occupiers and community and to work with our fellow West End stakeholders. Its success has been rewarded by the speedy recovery in footfall and trading across our villages, which in turn has enhanced their appeal to new businesses and residents and restored our occupancy levels. It is also an endorsement of our credentials as a long-term, responsible, supportive landlord and partner. There has been great progress on Shaftesbury’s road to recovery in recent months. Although there is still further to travel before certainty and confidence fully returns, we believe that the combination of our exceptional and adaptable portfolio, and our culture, people and relationships will deliver a sustained return to growth and prosperity, and ensure we live up to the expectations of our shareholders and other stakeholders, for many years to come.” Shaftesbury said it had collected 52% of contracted rent collected in the first nine months of the year, rising to 75% in the final quarter as restrictions were removed fully and occupier support tapered. The business said 80% of October rent had been collected to date with further collections expected. Net property income in the year to 30 September 2021 was down 12.9% to £64.7m (2020: £74.3m) due to occupier support, reduced rent collections and increased vacancy, particularly in the first half of the financial year:

JD Wetherspoon – investors should ‘practice what they preach’ on corporate governance: JD Wetherspoon has said investors should “practice what they preach” and be “frank” about their corporate governance policy. The company stated: “In a recent press release, Wetherspoon said some investors and corporate governance advisers, including the fund manager Fidelity, were adopting a box-ticking approach to corporate governance, and were not adhering themselves to the rules they required of investees. In particular, Wetherspoon said that one Fidelity company, which owned shares in Wetherspoon, had voted against two of Wetherspoon’s non-executive directors (NEDs) on the basis that they had exceeded the ‘nine-year rule’. However, the UK corporate governance code emphasises the importance of ‘comply or explain’, so that individual company circumstances can be taken into account. Wetherspoon has fully explained the importance of experienced NEDs and the dangers inherent in the nine-year rule. One major Fidelity company, Fidelity Investments, a Wetherspoon shareholder, with more than $4tn of funds under management, does not appear to adhere to the nine-year rule itself. Another Fidelity company, Fidelity International, is also a Wetherspoon shareholder. It voted against the re-election of two Wetherspoon NEDs. Fidelity International has defended its position in the Telegraph, where a spokesman stated ‘a majority of the Fidelity International Limited board members joined the board within the past nine years’. However, it is impossible to verify the length of service of Fidelity International’s board members, because this information does not appear to be available on their website. Nor does there appear to be any statement of policy in the public documents about adherence to a nine-year rule. In addition, the statement that ‘a majority of the Fidelity International Limited board members joined the board within the past nine years’ does not infer compliance with the UK code, since the code requires a majority of independent non-executive directors – not that a majority of ‘board members joined the board within the past nine years’. The Fidelity spokesman has also argued Fidelity International, which voted against two Wetherspoon NEDs, and Fidelity Investments are ‘completely separate entities’. However, the chairman, chief executive and major shareholder of Fidelity Investments, Abigail Johnson, is also a director and appears to be a major shareholder of Fidelity International. It is therefore stretching a point for the spokesman to describe these Fidelity companies as completely separate entities. Inexplicably, whereas Fidelity International voted against two Wetherspoon NEDs, Fidelity Investments, without notice, voted against chairman Tim Martin and the company’s three executive directors – yet, with no apparent logic, they voted in favour of all NEDs, including the two NEDs opposed by Fidelity International.” Martin added: “Wetherspoon has been a plc since its flotation in 1992. During that time, relationships with shareholders have been generally harmonious. We recognise that sensible corporate governance is necessary and beneficial. However, an inflexible interpretation of the nine-year rule, and other rules, can result in perverse outcomes and has generally resulted in inexperienced and vulnerable boards of directors in the UK – with, for example, almost no NEDs on boards today who have had experience of the last recession (2008-10) at their current company. Wetherspoon has explained its position, and has had a generally favourable response from institutional shareholders to its approach. A strange fact is that corporate governance has almost never been raised as an issue in the thousands of shareholder meetings I and the management team have had since our flotation. These sorts of issues, for many plcs, seem to stem from the way in which the corporate governance personnel, who work for major institutions, cast their votes for annual general meetings. We believe it’s important for the future of our business, and for the UK economy, for the comply or explain aspect of the code to be more closely adhered to, in practice, by institutional investors – and for investors to practice what they preach.”

Omicron variant raises fears of a new pingdemic to stifle economy: New covid-19 restrictions announced by the prime minister to tackle the Omicron variant are unlikely to derail the economy, but they could trigger a pingdemic costing at least £2bn. The Times reports The Institute of Economic Affairs thinks while making face masks compulsory again in shops and public transport stops short of being “a game-changer”, the tightening of self-isolation rules will disrupt schools and businesses in the weeks to Christmas. Julian Jessop, the free market think tank’s economics fellow, said: “The pingdemic in July probably reduced UK GDP by about 0.5% that month.” He said the impact of a repeat could be greater in school term time and when labour shortages are a bigger problem and that “the new self-isolation rules could knock as much as 1% off GDP in December, costing the economy at least £2bn”. While the Omicron variant remains a largely unknown quantity, Bill Ackman, the billionaire hedge fund manager, drew comfort from early reports of data suggesting that while the variant is more transmissible than its predecessors, it causes “mild to moderate” symptoms. “If this turns out to be true, this is bullish not bearish for markets,” he tweeted. His comments helped to turn around market sentiment after Friday’s bloodbath, when the FTSE 100 suffered its biggest fall since late March 2020, losing 3.64%, or £72bn of its value, with travel companies and banks bearing the brunt. Yesterday (Monday, 29 November), the index of leading companies bounced by 65.92 points, or 0.94%, to 7,109.95 points, after hitting 7,161.91.

UK services industry sees record cost inflation: Costs are rising at the fastest rate in over 20 years for firms in Britain’s services sector, according to a business survey released on Tuesday (30 November), which shows why the Bank of England (BoE) may soon raise interest rates. Reuters reports the Confederation of British Industry (CBI) said its quarterly survey of the services sector showed the quickest growth in costs for both business and consumer services companies since the survey began in 1998. Separate data from Lloyds Bank showed a record 50% of businesses plan to raise prices and a quarter of them expect to raise pay by 3% or more over the next 12 months. “Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter,” CBI economist Charlotte Dendy said. Both surveys took place in the first half of November, before news of the Omicron variant of covid-19 dented the confidence of financial market investors, who now see a roughly 60% chance that the BoE will raise rates in December. British consumer price inflation hit a ten-year high of 4.2% in October and the BoE expects it to reach almost 5% next year.

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