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Morning Briefing for pub, restaurant and food wervice operators

Wed 23rd Mar 2022 - Stonegate reports strong trading across group since January with business in ‘great shape’
Stonegate reports strong trading across group since January with business in ‘great shape’: Stonegate Group has reported strong trading across the group since January with the business in “great shape” and a robust liquidity position. The company stated: “The group’s strategy following the acquisition of Ei Group in 2020 remains unchanged. Stonegate Group has access to a wide portfolio of properties and broad template of operating models which enable it to realise the greatest value from each site by applying the most suitable retail format and appropriate operating model, thereby creating optimal returns. In order to achieve that, Stonegate endeavours to attract, develop and retain the very best talent in terms of its publicans, operators and employees. The success of the vaccination programme has facilitated a roadmap to recovery as the country emerges from the pandemic and within that framework, the removal of restrictions across the UK hospitality sector over recent weeks was most welcome. Despite the extensive closure of the group’s pubs during the last financial year, Stonegate’s liquidity position remains robust. Since reopening, the group has experienced positive trading momentum and sales are now rebuilding well and returning to pre-pandemic levels as consumer confidence increases and a return to normal life is underway. These factors, together with the success of the managed pub conversions completed to date, have combined to underpin management’s confidence in recommencing its investment programme, executing its capital conversion plans and leveraging the future opportunities for the group. The Great British pub continues to survive and thrive and prove its unwavering resilience due to our fundamental need for social interaction and even though during the pandemic, pubs, bars and clubs have been mandatorily closed, the performance of the business post each period of re-opening has shown the British pub, bar and club remains at the heart of British community and culture. Stonegate has a clear vision to raise the bar on the British pub by being the best for its people, guests and communities. Despite all the challenges of the last two years, the group is in a strong position, with its high quality, predominantly freehold estate and range of different operating models and formats, to deliver on its strategic vision which remains unchanged.” The company said results for the group for the 52 weeks ended 26 September 2021 “continued to be significantly impacted by the covid-19 pandemic and various related trading restrictions during the period”. The company stated: “The group has managed its estate, opening and closing pubs and bars where necessary, through the government enforced curfew, tiering system, further full lockdown periods and outside opening only, before a full reopening of the estate was permitted from 19 July 2021. Initially, the group was restricted by the 10pm curfew across all hospitality venues and then the tiering system. Subsequent to both, hospitality was instructed to close for four weeks from 5 November 2020 to 2 December 2020 in the second national lockdown and to then close again from 20 December 2020 when the majority of the UK was placed under tier four restrictions; followed by the third national lockdown on 5 January 2021. In line with the government’s ‘roadmap out of lockdown’, the group was able to reopen those of its sites with outside trading space from 12 April 2021 in England and shortly afterwards, in Scotland and Wales. During the various closure periods, the group continued to access benefits available to it, such as the Coronavirus Job Retention Scheme, business rates relief and government grants. While restrictions continued across the hospitality sector, Stonegate took a prudent approach to capital expenditure in order to preserve liquidity and reduce its cost base where possible. The group also supported its publicans within the Pub Partners leased and tenanted business by offering £41m of rent concessions, as well as trade credits to the value of £16m (2020: £10m) to facilitate restocking ahead of reopening. Furthermore, the group successfully raised additional debt of £120m in December 2020 and £165m in August 2021 to further support its liquidity. In addition, the group disposed of 140 pubs and 11 non licensed properties in the period for net proceeds of £66m. This included the 40 of the 42 sites which Stonegate was required to dispose of to meet Competition and Markets Authority guidelines, following the acquisition of Ei Group in 2020. The group completed on the remaining two sites post the 26 September 2021 year end. At the 26 September 2021 year end, the group had 4,580 pubs (2020: 4,680). The results for the group for the 52 weeks ended 26 September 2021 naturally reflect the continued impact of covid-19 on trading, following the many and varied enforced restrictions outlined above. Revenue generated in the period was £714m (2020: £707m). Ebitda was £151m (2020: £74m). Loss before tax was £233m (2020: loss of £746m. The group is pleased to report that the final fourth quarter period, through to 26 September 2021, saw the removal of trading restrictions from 19 July through to the group’s September year end. Encouragingly, customers rapidly flocked back into the group’s pubs which delivered a significant uplift in revenue to £350m (2020: £246m). The managed estate and Craft Union pubs performed particularly well and the return to late night was strong post restrictions being lifted. Likewise, order levels from Stonegate’s leased and tenanted Pub Partners were also encouraging. Group adjusted Ebitda in the fourth quarter of FY21 was £88m (2020: £43m). As at 26 September 2021, the group had £333m of liquidity headroom (2020: £183m and total net debt pre IFRS16 of £2,998m. Stonegate Group’s estate is soundly asset-backed with 83% freehold pubs and the underlying property valuation of the business remains strong. The group is financed by predominantly long-term debt in the form of securitised debt and bank borrowings, denominated in both sterling and euros. During the period on 1 December 2020 and 5 August 2021, the group issued further senior secured notes of £120m and £165m respectively, the terms of which are consistent with the £950m existing senior secured notes, The gross proceeds from the offering of the new fixed rate notes will be used to finance capital expenditure in pubs owned by the group, for other general corporate purposes and to pay certain fees expenses and costs in connect with the offering. On 5 August 2021, the group also exchanged its euro senior term loan for euro floating rate notes for an aggregate amount equal to the principal amounts under the senior term facilities agreement. As a result, Stonegate ended the financial year with a robust liquidity position enabling management to focus on reopening and capitalise on revenue opportunities as the UK began to move out of restrictions, as well as restarting its capital investment programme.” Chief executive Simon Longbottom said: “We are extremely encouraged by the levels of customer demand we have experienced since reopening our pubs in January, which we are confident will signal a rapid return to growth. Trading has been strong across the group, the business is in great shape and we are now focussed on implementing our stated strategy. With a robust liquidity position, we are excited to have recommenced our capital investment programme and the pub conversions completed so far are delivering promising results. Whilst not immune to the cost inflation facing all businesses currently, we have plans in place to mitigate these where we can and our scale is beneficial in this regard. Our ambition for the enlarged Stonegate Group remains unabated.”

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