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Morning Briefing for pub, restaurant and food wervice operators

Tue 17th May 2022 - Update: C&C sells Admiral stake, Prezzo appoints new CEO, Bank governor warning, Wadworth results, Pret Index
C&C Group sells stake in Admiral Taverns: C&C Group has announced the sale of its 47% stake in Admiral Taverns to Proprium Capital Partners, with whom it originally invested into the circa 1,600-strong community pub operator in September 2017, for total gross aggregate cash consideration of €65.8m (£55m). The company said the sale of its shares will be completed and consideration will be paid in three tranches during FY2023. The company said: “We estimate the disposal represents an FY2023 Ebitda multiple of 10.9x. The aggregate proceeds receivable are expected to be used to reduce net debt and contribute to the delivery of our stated medium-term target Net debt/Ebitda multiple of less than 2.0x. As part of the divestment, C&C has negotiated a long-term supply agreement into the Admiral estate which includes our owned and agency brands.” C&C acquired its stake in Admiral for £37m in September 2017. Propel reported last October that C&C Group was considering a sale of its 47% stake in Admiral, which had then recently acquired community pub company Hawthorn in a £222.3m deal. For the year to 28 February 2022, the company delivered a net revenue increase of 87.8% to €1.4bn, with its performance driven by 207.8% growth in on-trade net revenue as a consequence of fewer trading restrictions in the year. There were 267 days of trading where the on-trade was open across Ireland and the UK, compared with 117 days in FY2021. It saw a strong off-trade performance despite the re-opening of the on-trade, with net revenues of €376.3m, down 3.4% vs FY2021. The company said: “FY2023 has started strongly with net revenue +12% of pre-covid (FY2020) levels for the two months to 30 April 2022 and 140% of FY2021. The benefit of no on-trade restrictions, easing of the pressures on supply chains and additional public holidays has created a more positive trading environment over recent months. Recently implemented price increases, hedged positions and cost savings programme have provided a degree of protection against cost inflation. However, additional input cost pressure, particularly at our manufacturing facilities, will likely necessitate further price increases. We plan to increase investment behind our brands and continue to execute efficiency improvement plans, primarily in our GB business unit, however we remain vigilant of the macro-economic backdrop and consumer environment with respect to the potential for reduced spending as the year progresses. Against this backdrop, we will target a leverage multiple of less than 2.0x.” David Forde, C&C group chief executive, said: “FY2022 finished with a robust return of the on-trade, and we are excited for the opportunities ahead. Looking forward, we are operating in an evolving and challenging inflationary cost environment and will continue to monitor this closely over FY2023 and beyond. We have already taken action to afford the business a degree of protection, nevertheless we are susceptible to further increases in our cost base which would necessitate further price increases. Despite the current positive sentiment in the hospitality sector post reopening, we are mindful of the pressures being faced by consumers and its potential impact on future demand. The group continues to play a key role in the UK and Ireland drinks market and is well positioned, with a market leading platform and a position of financial strength to drive sustainable growth and create long-term returns for our shareholders.”

Several chicken shop concepts among those added to second UK Food and Beverage Franchisor Database, released on Friday: Several chicken shop concepts expanding in the UK and abroad are among the 20 new franchisors featured in the second UK Food and Beverage Franchisor Database, which will be sent to Premium subscribers on Friday (20 May), at midday. The second edition will feature 120 companies and almost 47,000 words of content, providing insight on the offer, locations, cost and other key details. Among them is Pepe’s Piri Piri, which has circa 151 outlets in the UK, plus several more abroad, and has been franchising since 1967. Also featured is Korean friend chicken brand KoKoDoo, founded as a Korean restaurant by Joseph and Mary Yoon in 2006 before evolving into a street food concept in 2016. Wing Kingz, which launched its debut restaurant in Milton Keynes’ Xscape destination in October 2021 and looking to expand through franchising, is also featured. Premium subscribers also receive access to The New Openings Database, the Propel Multi-Site Database and the Turnover & Profits Blue Book. 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.

Prezzo promotes Dean Challenger to CEO: Prezzo, the Cain International-backed restaurant chain, has announced the appointment of Dean Challenger as its new chief executive alongside the promotion of Gwion Iwan as operations director. The company said that Karen Jones, executive chair and the “architect of this transition”, will continue to work closely with the management team on longer-term strategy, brand, design, and the development of Prezzo’s food and drink as well as supporting and coaching Prezzo’s senior team and others within the business. The company said the transition follows the build-out of the management team over the past year with the earlier appointments of Matt Prior as chief financial officer and Olly Smith as chief culinary officer. The company said it was seeing significant trading outperformance in 2022 vs 2019. Challenger was previously chief operating officer of the company having joined in 2018. He was initially appointed finance director before becoming chief operating officer in 2021. The company said: “Dean’s deep understanding of our customers and keen focus on our commercial proposition give the board great confidence in his capability to both build on our trading strength and spearhead the expansion of Prezzo. Further reinforcing the team is the appointment of Gwion Iwan whose track record of operational execution, care for Prezzo people and strong project implementation will continue to drive pace and energy in the delivery of Prezzo’s growth plans.” Jones said: “The development of talented Prezzo people is fast becoming a hallmark of our company. The promotion of Dean and Gwion, with whom I have worked so closely, gives me particular pleasure. Dean’s ability to mobilise the organisation behind our strategic priorities is already proven and Gwion is a dynamic and thoughtful operator who will enable us to continue our journey forward with confidence, energy and pace.” Challenger said: “I am very confident that we have the team in place to move fast and decisively to realise our ambitious plans. We are building a brand where the quality of our food and drink is at the heart of everything we do and where every member of our team is aligned behind delivering an experience that ensures every customer leaves wanting to return.” Jonathan Goldstein, chief executive and founder of Cain International, said: “Prezzo continues to grow from strength to strength as a leading UK hospitality brand. With a highly able and talented senior team and the ongoing guidance of Karen as executive chair, we look forward to supporting its future flourishing.”

Bank governor in ‘apocalyptic’ warning over rising food prices: The possibility of more rises in food prices is a “major worry” for the UK and other countries, the Bank of England governor has warned. Apologising for sounding “apocalyptic”, Andrew Bailey said the war in Ukraine was affecting food supplies. Bailey also defended the Bank’s performance following criticism it has not done enough to try to rein in rising prices. Inflation – the rate at which prices rise – is at a 30-year high. Bailey warned that a “very big income shock” from the increase in global goods prices would hit demand in the economy and push up unemployment. He also said that difficulties shipping out food supplies from Ukraine could hit world supplies of wheat and cooking oil. “There’s a lot of uncertainty around this situation,” Bailey said. “And that is a major, major worry and it’s not just I have to tell you a major worry for this country. There’s a major worry for the developing world as well. And so, if I had to sort of, sorry for being apocalyptic for a moment, but that is a major concern.” Bailey warned that price rises in food and energy would have a much bigger effect than any rise in interest rates.

Sales at Pret sites in London’s suburbs are about a quarter higher than they were before covid: Sales at Pret A Manger sites in London’s suburbs were about a quarter higher than they were before covid last week, as more people work from home for part of the week, according to the latest Bloomberg Pret Index. Pret has recently prioritised growth in suburban and regional areas as chief executive Pano Christou anticipates most employers will permanently offer hybrid home-and-office working arrangements to employees. The Index found that Pret’s transactions in London train stations are hovering around pre-crisis levels, while at the same time, the brand’s business in London’s airport terminals is approaching a pandemic high set in April. The chain is opening a new store at Heathrow in the coming weeks as business and leisure travel “roars back”. The Index showed that sales for Pret in London’s entertainment and shopping district were back above pre-pandemic levels last week. At the same time, the spread of the omicron subvariant throughout New York City is stalling Wall Street’s already sluggish return to the office, based on Pret’s coffee and sandwich sales in the financial district. The Index shows that the chain’s transactions last week in the cluster that includes the head offices of firms such as Goldman Sachs Group Inc. were the lowest since February. That’s as the seven-day average of new cases in New York reached the highest level since late January. Hospitalizations have also increased albeit by a smaller amount. Pret’s sales in downtown New York are back to less than half of what they were before the pandemic. Meanwhile, the chain’s business in London’s City and Canary Wharf financial districts has recovered twice as fast and is almost back to normal, with only Mondays and Fridays noticeably slower than other days of the week.

Wadworth concludes restructuring of pub estate; encouraged by the rebound from the slow start to 2022: Devizes-based brewer and retailer Wadworth has said it concluded the restructuring of its pub estate last year, and is encouraged by its rebound from the slow start to 2022. For the year to 1 January 2022, the company, which operates 19 managed houses and 132 tenanted pubs, posted turnover of £25.1m (15 months to 2 January 2021: £39.2m), with Ebitda of £1.64m (2021: (£4.15m)), and a pre-tax loss of £4.04m (2021: (£19.7m)). The company said: “This was another testing year for Wadworth but one in which much has been achieved to set the company up for the future. The steps we took in 2020 to restructure the business, reduce costs and limit our exposure to the impact of covid meant our losses in these early months of closure were considerably less than we saw in 2020. From May we started making positive Ebitda and this continued through to the end of the year resulting in a positive Ebitda of £1.6m. Nonetheless, even with the support of government grants and furlough, the impact of covid in the first half of the year considerably contributed to an operating loss of £1.3m for the year. 2021 saw the conclusion to the restructuring of the pub estate, with the sale of a further three properties. The total number of pubs in the portfolio is now 151 with 19 managed houses and 132 tenanted pubs. The tenanted division has had a strong set of results for the year. We continued to support our Business Partners with an additional £1.5m of rent concession over the first six months of 2021. This ensured that when pubs were able to reopen our Business Partners were in the strongest position possible to capitalise on profitable trade. We have introduced a new five-year tenancy agreement with annual rent reviews linked to CPI and made it possible for limited companies to take on a tenancy, as well as supporting Business Partners who have limited capital through a Fixture and Fittings rental facility. One of our major challenges throughout 2021 has been staff recruitment where, as with all hospitality businesses we have suffered from lack of staff and some of our pubs have not been able to open seven days a week due to recruitment issues. There is no doubting the cost pressures that we are seeing across the whole managed business from utilities to food and drink and these will filter further through to staff costs. We are working hard on mitigating these costs alongside keeping our quality. Our managed houses are an important contributor to the profitability of the company and it is vital we continue to drive the division strategically to deliver the profit needed. This year we took the first steps to deliver our strategy to build a new brewery. In the summer of 2021 we purchased a new site in Devizes which we are looking to convert into the brewery and offices. We have submitted a planning application for the change of use of the building and selected our brewery equipment manufacturing partner. The overall timeline for the development is 18 months from planning consent with a view to operating in the new site towards the end of 2023. The total project costs will be in the region of £8.5m but this project will benefit significantly from the government’s super tax deduction scheme for capital investment which will bring down the overall cash cost. We are however encouraged by the rebound from the slow start to 2022 and are very much looking ahead to a positive year. We have some big projects, which are key to reshaping the business and we are confident that this will set us in a good position for the future.”

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