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Morning Briefing for pub, restaurant and food wervice operators

Thu 17th Mar 2022 - Update: Deliveroo, Cineworld, Rishi Sunak on tax system
Deliveroo reports strong year of growth, with UK & Ireland’s orders up 72%: Deliveroo has reported a year in 2021 with gross transaction value (GTV) in the UK and Ireland up 71% year-on-year to £3.57bn. The company said that year-on-year GTV growth slowed sequentially during the year, from 142% in Q1 2021 to 36% in Q4 2021, which it said reflected an increasingly tough comparison base in the prior year, as well as lifting of covid-related restrictions during the course of 2021. In 2021, orders grew by 72% to 147.7 million, primarily driven by a 64% increase in monthly active consumers, along with a slight increase in average order frequency. GTV per order was down 1% in constant currency to £24.2. The business said that UK and Ireland revenue grew 64% to £980.7m in 2021, primarily due to the increase in GTV. Gross profit was £330.3m in 2021 compared to £217.2m in 2020, an increase of 52%. Gross profit margin (as % of GTV) was 9.3% compared to 10.4% in 2020. The company said: “This decrease was driven by the reversal of benefits from higher basket sizes during covid-related lockdowns, as well as accelerated investments in consumer acquisition and retention to support future growth. Adjusted Ebitda was £91.1m in 2021, compared to £80.5m in 2020, as increased aggregate gross profit was partially offset by continued investments in growth, including marketing and headcount additions. Adjusted Ebitda was £55.3m in H1 2021 and £35.8m in H2 2021, with the sequential reduction primarily reflecting the phasing of growth investments and the reversal of benefits from higher basket sizes during covid-related lockdowns. During the period, Deliveroo continued to add differentiated content for consumers. UK&I restaurant selection was further expanded, and in 2021 the company added circa19,000 new sites, increasing the base of restaurants by 55%. The company also continued to roll out its grocery offering: at the end of the period, Deliveroo had approaching 6,000 grocery sites live in the UK&I across major partners and smaller independent partners, an increase of more than two-thirds compared to the end of 2020. Alongside achieving strong growth in 2021, Deliveroo made excellent progress in delivering its geographic expansion plan – planting the seeds for future growth. At the beginning of 2021, the company set out a goal to expand consumer population coverage to two-thirds of the UK population by year-end 2021, up from 53% at year-end 2020. As a result of strong operational execution, the UK expansion was well ahead of the original target, with 72% coverage of the UK population achieved at the end of June and 77% at the end of December.” Including its international business, Deliveroo said its overall revenues were up 57% to £1.8bn during the year, primarily due to the increase in GTV, while its pre-tax loss stood at £298m in 2021 compared to £213m in 2020. Will Shu, founder and chief executive of Deliveroo, said: “We have continued to make good progress in executing our strategy and I am proud of our performance in 2021. We grew rapidly across all of our markets, with 70% GTV growth in constant currency – at the top end of our previously-upgraded guidance range. Particularly encouraging to me was our performance in the UK and Ireland, where we continued to grow our market share and achieved profitability on an adjusted Ebitda basis in a competitive environment – highlighting the strength of our consumer value proposition. We are pleased to have strengthened our proposition for our marketplace in 2021, increasing choice for consumers, offering riders more security in the form of improved insurance, and giving our restaurant and grocery partners opportunities to grow their businesses. We are excited about the opportunities ahead and have today laid out our plans on our longer-term path to profitability. This is a key focus for the company this year and beyond. We aim to reach breakeven at some point during H2 2023-H1 2024 on an adjusted Ebitda basis. And by 2026, we aim to reach a 4%+ adjusted Ebitda margin, with further upside potential beyond 2026. At the same time, this year it is clear that all three sides of our marketplace in Europe will face headwinds due to inflationary pressures, the removal of economic stimulus and the broader geopolitical and economic impacts of the conflict in Ukraine. We will continue to monitor developments closely. Our 2022 guidance reflects our caution on these factors, but we are confident in our ability to adapt financially to a rapidly changing macroeconomic environment.” The rollout of the group’s Editions kitchens accelerated during the course of 2021, with over 100 kitchens added in the year of which approximately half opened in Q4, bringing brands like Dishoom, Five Guys, Shake Shack and Pho to new neighbourhoods.

Next edition of Turnover & Profits Blue Book to feature almost 550 companies: The next edition of Propel’s Turnover & Profits Blue Book, which is updated monthly for Premium subscribers, will see 12 companies added, taking the total number to 546. Among the companies being added are Big Mamma Holdings and Mortons Bar & Grill. Premium subscribers will receive the latest edition of the Blue Book, which is produced in association with Mapal Group, on Friday (18 March) at midday. The Blue Book shows the effects of the pandemic, with total losses of £7.6bn being reported by 348 companies. However, a further 198 sector companies are still reporting total profits of £828.9m. The Blue Book, which is updated every month, provides an insight into UK operator turnover and profitability over five years, profit conversion and directors’ earnings. Premium subscribers also receive the New Openings Database, produced in association with StarStock, and the Multi-Site Operators Database, produced in association with Virgate, which are also updated each month. Premium subscribers are also to be given exclusive access to a new database early next month. The UK Food and Beverage Franchisor Database will be an exhaustive guide to the companies offering a food and beverage franchise in the UK and be updated every two months. The first edition will feature more than 100 companies, providing insight on the offer, locations, cost and other key details. The first edition provides almost 25,000 words of content. 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 single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to upgrade your subscription. 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.

Cineworld sees strong trading in Q4 supported by a strong film slate and pent-up demand: Cineworld has reported strong trading in the final three months of 2021 supported by a strong film slate and pent-up demand for affordable out-of-home entertainment. The company said that in the UK, box office revenue represented 60.3% of total revenue (2020: 64.6%). It said that admissions increased by 59.6% and box office revenue increased by 111.3% during the year. The company said: “Admission and box office trends reflect the respective periods of closure of cinemas due to lockdown restrictions in 2020 and 2021 and the film content available in each year. All of the group’s cinemas were closed until 19 May, when the estate was reopened. Performance improved gradually following reopening, until a significant improvement with the release of the ‘No Time to Die’ in October and ‘Spiderman: No Way Home’ in December. In the UK&I, the top three grossing movies were ‘No Time to Die’, ‘Spider-Man: No Way Home’ and ‘Dune’, which grossed $266.0m (source: Comscore). This compares to the top three titles in 2020 which were ‘1917’, ‘Sonic the Hedgehog’ and ‘Tenet’, which grossed $96.1m (source: Comscore). The average ticket price achieved in the UK&I increased by 32.3% to $11.54 (2020: $8.72). This increase was largely driven by the types of releases during the period that cinemas were open during 2020.” Total revenue in the UK for the year stood at £348.1m (2020: £153.9m). Group revenue for the year stood at $1.8bn (2020: $852.3m) and group adjusted Ebitda stood at $454.9m (2020: loss of $115.1m). Mooky Greidinger, chief executive of Cineworld Group, said: “Whilst our 2021 results still reflect the impacts of covid-19, particularly at the start of the financial year, we are encouraged by the recent strong trading performance throughout the final quarter. It is clear that our customers remain loyal and have missed the big screen experience as well as the sociability of watching a movie with others. Our strong final quarter performance reflects the pent-up demand for affordable out-of-home entertainment and the record-breaking film slate, including ‘Spider-Man: No Way Home’, which showcased the importance of cinematic releases. The business is well positioned to execute its strategy and capitalise on the highly anticipated movie schedule, which includes Avatar, Top Gun Maverick, Jurassic World: Dominion, Minions: The Rise of Gru, Doctor Strange in the Multiverse of Madness, Thor: Love and Thunder, Black Panther: Wakanda Forever, Bullet Train, Spider-Man: Across the Spider-Verse, Pixar’s Lightyear, Fantastic Beast, Elvis and many more.”

Sunak prepares big overhaul of UK corporate tax system: Chancellor Rishi Sunak will next week pave the way for a major overhaul of Britain’s corporate tax system, as he seeks to boost business investment and improve the UK’s weak economic growth prospects. The FT reports that Sunak’s spring statement on Wednesday will be overshadowed by the growing cost-of-living crisis, with pressure on the chancellor to offer immediate help to families, including through a cut in fuel duty. But Sunak’s allies said he will use the statement to warn the only sustainable way to protect and improve living standards is to boost growth, notably through increased business investment. After a post-covid spurt, the British economy is set to record weak annual increases in gross domestic product of a little over 1.5%, according to official forecasts. Employer groups such as the CBI have flagged that business confidence is waning, and raised concerns about the government’s plans to increase national insurance contributions and corporation tax. Sunak is due to use his spring statement to commit to reform of business taxation, setting the stage for detailed decisions in his autumn Budget, according to his allies. This is expected to lead to reform of the corporate tax system to encourage more capital spending by companies. Sunak is also likely to push ahead with reform of tax credits for research and development, which he believes are not delivering value for money, particularly in relation to small and medium-sized companies. The chancellor is preparing to use the spring statement to set out plans to improve the operation of the apprenticeship levy, to ensure it is incentivising employers to deliver the right kind of training to boost productivity. The statement will set the policy direction ahead of the autumn Budget, where ministers are considering options to provide incentives to investment by companies after the end of the super-deductor tax break in 2023.

Restaurants pressure diners to add Ukraine donations onto bills: Restaurants in London have started to automatically add donations to Ukraine to all customer bills, irking diners who have already made separate contributions to humanitarian charities. The Telegraph reports that in one case a customer said he was denied service when he asked for the extra charge to be removed from the bill. As many as 50 London eateries have joined an initiative called Cook For Ukraine, adding donations to Unicef directly to customers’ bills. However, the charity watchdog has reminded restaurants not to put diners under pressure to give money. Ted George, whose name has been changed, lives in France but was holidaying in London when he was hit with extra charges. George said he was shocked to be refused further service from one waitress at tapas restaurant Brindisa after he asked for the donation to be removed from his bill. George said he had already donated a sizeable amount to help the cause in Ukraine the week before, and had gifted more money during a collection on his flight to London. “The waitress refused to speak to me as soon as I asked her to remove the donation from the total. She didn’t even give me a chance to explain that I have already donated money, she stormed off and her colleague had to replace her,” he said. “I felt emotionally blackmailed into giving more. I am on holiday so I’ll be eating out every day. I don’t want to feel pressure to donate at every single meal and then be judged if I don’t.” Kelly Richardson, of Brindisa, said he was “deeply embarrassed” to hear about Mr George’s experience. He said: “We do not endorse this behaviour and it goes against company policy. We brought it in with great intentions and are very proud to be involved in the initiative. It is really disappointing and we respect anyone who doesn’t want to donate.” A spokesman for the Fundraising Regulator said individuals and businesses must never make people feel under undue pressure to donate. “The restaurant should advise diners of this before they pay their bill. The Code of Fundraising Practice is clear that fundraising should always be legal, open, honest and respectful,” he said.

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