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Morning Briefing for pub, restaurant and food wervice operators

Tue 6th Dec 2022 - Update: Marston’s, SSP and Time Out results, fresh rail strikes announced
Marston’s like-for-like sales up 4% in final 10 weeks of FY22, sets out £1bn turnover target: Marston’s has reported that its like-for-like sales were up 3% versus 2019 and up 4% versus 2021 in final 10 weeks of FY2022, whilst current trading to the end of November has been positive. The company said that drink sales have outperformed food sales, once again demonstrating the trading resilience of its predominantly community pub estate. It said that like-for-like sales in its managed and franchised pubs are up 6.8% versus the same period last year, while October earnings were in line with its expectations. The company said that bookings for Christmas Day and Christmas Fayre “are encouraging and are building in momentum”. It said that total bookings for the Christmas period are “higher than in 2019 and in line with our plans, albeit walk-in trade typically accounts for a significant proportion of overall sales over the Christmas trading period”. For the first two England World Cup games, like-for-like drink sales on those days were circa +50% compared to 2021. The company said that revenue in the 52 weeks ended 1 October 2022 increased by 99% to £799.6m (2021: £401.7m from continuing operations), principally reflecting recovery from a period severely impacted by covid-19 and the significant restrictions to pub trading during the prior year. Pre-tax profit for the year stood at £163.4m against a loss of £171.1m in 2021. The company said: “As expected, given the significant impact of the Omicron variant during H1 and the important 2021 festive season, like-for-like retail sales for the year as a whole were 1% below 2019 levels, the last pre-pandemic trading year. However, like-for-like retail sales for the 10 weeks to 1 October 2022 were 3% up compared to 2019 and 4% up compared to 2021, showing encouraging recovery and the positive impact of our strategy. Drink sales have outperformed food sales, once again demonstrating the trading resilience of our predominantly community pub estate. We continue to have confidence that our pub strategy is beginning to deliver positive momentum, evidenced by the trading performance. Our strategy is centred upon delivering affordable pub experiences for our guests in a quality environment both inside and out in our well-invested pub gardens and outdoor trading areas. Underlying operating profit excluding income from associates was £115.4m (2021: £5.7m) with a margin of 14.4% (2021: 1.4%); H1 margin was 10.8% and H2 margin was 17.6%. Underlying operating profit, including income from associates, was £118.7m (2021: loss of £(8.8)m).” Total retail sales in the group's 1,198 managed and franchise pubs during the year increased by 100% to £734.1m (2021: £367.8m) and total outlet sales increased by 101% to £757.2m (2021: £376.3m). The business said: “Within our pub business we operated 267 pubs under the traditional tenanted and leased model generating revenues of £42.4m (2021: £25.4m). It is still our intention to convert the remainder of the tenanted and leased estate to turnover based models in the medium term. Accommodation sales of £33.1m show significant growth (2021: £17.2m), benefitting from the demand for UK staycations.” During the year, the business said it has taken the opportunity to reposition some elements of its portfolio that have become more challenged over time. It decided to accelerate the removal of its 74-strong Two for One estate from its portfolio and this was completed in September 2022. The business said that the conversion, which was implemented at a low capital cost, has proved successful, with a +5.1% improvement to spend per head and a 4% increase in guest satisfaction scores. At the same time, it said that its analysis concluded that most of its 37-strong Rotisserie pubs should convert to the group’s Signature format. The company said: “As such, we have replaced the Rotisserie menu with the Signature menu. As a consequence, we have decommissioned our Rotisserie ovens, which were inefficient: operationally, economically and environmentally. This was completed by the middle of October and is expected to deliver circa £1m of cost and margin benefit each year.” The company also set out plans to return to £1bn annual turnover by 2026. It said: “Our primary corporate goals are defined by two £1bn financial targets: Achieving sales of £1bn - this requires around £200m of sales growth from pre-pandemic levels. Reducing net debt excluding IFRS 16 lease liabilities to below £1bn - this is consistent with our previously stated financial strategy. We are making progress on our “Back to a Billion” targets. Taking into account the macroeconomic environment, we believe it is appropriate to rebase the net debt target date to 2026.” Andrew Andrea, chief executive of Marston’s, said: “I am pleased to report a strong performance over the last 12 months evidenced by a doubling of revenue growth, a return to profit and steady progress with our debt reduction strategy.  We have a clear and focused strategy which provides a strong platform for future growth, and it is encouraging to see the actions and initiatives which we have undertaken in 2022 beginning to deliver positive results. Demand for our predominantly community-based pubs continues to be encouraging despite ongoing macro uncertainty and our estate is well-placed to benefit from changing patterns in consumer behaviour. We are managing cost inflation well and remain confident that our commitment to continue to reduce the group’s debt and return sales back to £1bn will drive NAV and shareholder value. Current trading to the end of November has been positive with encouraging levels of Christmas bookings as we look forward to the first restriction-free festive period in three years. Additionally, the World Cup has benefited trading, delivering like-for-like drink sales of circa +50% for the home team games. Whilst uncertainty remains, Marston’s remains well-financed and in great shape to weather the challenges ahead with the right formula, the right strategy and the right team to continue to make progress and deliver shareholder value.”

SSP makes strong recovery and returns to profit as passenger demand increases: UK-based transport hub foodservice specialist SSP Group made a strong recovery in the year ending 30 September 2022, reporting a return to profit as passenger demand increased. It reported revenue of £2,185.4m (2021: £834.2m), which was up 162.0% versus 2021 and back to 78% of 2019 levels. Ebitda was £142.0m compared to an underlying Ebitda loss of £108.3m in 2021. It made a pre-tax profit of £25.2m (2021: £411.2m loss). The company said: “The continued improvement in our trading performance in recent months has been encouraging and has been driven by a further recovery of passenger numbers. The recovery is being led by domestic and leisure travel across both the air and rail sectors, with business and commuter travel also recovering, albeit more slowly. The new financial year has started well, with sales strengthening further to an average of 104% of 2019 levels in the first eight weeks, including revenues tracking above 2019 levels in North America, continental Europe and the rest of the world. In the UK, sales are at 84%, reflecting the higher rail to air mix of business, with the rail sector recovering more slowly. While we continue to face into a high level of macroeconomic uncertainty and ongoing cost inflation and labour availability challenges, we believe the travel food and beverage sector will remain structurally resilient to pressures on consumer spending, and that our flexible business model will enable us to actively manage and mitigate these impacts and to deliver further improvements in profitability as the travel sector recovers. As we look ahead to our 2023 and 2024 financial years, based on the current pace of the recovery of the travel sector, we are planning for a recovery in passenger numbers to between 85% and 90% of 2019 levels in 2023, and between 90% and 95% in 2024.  Revenues are expected to include the effect of accumulated inflation between 2019 and 2023 of circa 12% and between 2019 and 2024 of circa14%. In addition to this, we expect a benefit from net new contracts as we mobilise our secured pipeline. The overall pipeline of secured net contract gains is currently expected to add circa £550m to annualised revenue by 2025 (compared with 2019), when fully mobilised. Based on our planned opening programme, the pipeline will contribute cumulative net contract gains of circa £200m in 2023 and £350-400m in 2024 (compared with 2019). In total, we are planning for revenues to be in the region of £2.9-3.0bn in 2023 and in the region of £3.2-3.4bn in 2024, with a corresponding Ebitda in the region of £250-£280m in 2023 and £325-£375m in 2024. The recovery in passenger numbers has been led by strong leisure travel demand over the summer holiday season, which has continued well into the autumn. The new business pipeline continues to be mobilised at pace, with the opening programme expected to accelerate into the current financial year, increasing capital expenditure to circa £250m in 2023. Further new business won in H2, increasing the expected annual sales value of net gains since 2019 to circa £550m, once fully mobilised by 2025. We are well-placed to succeed in a challenging macroeconomic environment due to traveller resilience, our geographic diversification, flexible cost base, strong balance sheet and available liquidity.” Patrick Coveney, chief executive of SSP Group, said: “This has been a year of strong recovery for SSP, with momentum building strongly through the second half and into our new financial year. Group revenues are now tracking at 104% of 2019 levels, and as revenues have recovered, we have delivered good profits and robust cash flows. SSP is a fabulous business with strong foundations on which to build. The global air and rail travel sectors are set up for long-term structural growth, consumer demand for quality food offerings in travel locations remains strong, and we have significant head room for growth in multiple markets across the world. In particular, we see significant potential for further expansion in North America, a $6bn market in which we currently only have a 10% market share. North America is central to our growth plans, and we envisage it becoming a much bigger part of the group over the next few years. We are also rapidly building our presence in selected Asia-Pacific markets and continue to expand in a targeted way in the UK, Europe and the Middle East. The quality of our people, the resilience of our business model, the support of our client, brand and supply partners, and the structural growth in travel demand mean that, despite the current macroeconomic uncertainty, we remain confident in the future growth and returns prospects for SSP.” Meanwhile, SSP has entered the Icelandic market by securing a contract to open two new units at Keflavik International Airport in Reykjavik in spring 2023, which will extend SSP’s global presence to 36 countries once operational.
Time Out Market reports significant revenue growth: Time Out has reported significant revenue growth for the year ending 30 June 2022, with all seven markets “open with a restored curation of the best of the city”, leading to a return of footfall and strong trading. It has signed management agreements for Osaka and, post year-end, Cape Town, Vancouver and Riyadh, taking its number of open and contracted sites to 14. A significant pipeline of further management agreements are also in advanced negotiations. Chris Ohlund, chief executive of Time Out, said: “We are pleased to have reached a turning point for the Group in delivering positive group adjusted Ebitda, despite the impact of the pandemic during the financial year. This marks a return to our pre-pandemic trajectory and demonstrates that we are now in an even stronger position for future growth. We have invested in our strategy with ambitious measures in place to drive profitable growth and have made significant progress across both of our business divisions. Time Out Media's content that focuses on the best of the city has helped millions go out once again, attracting a growing digital audience and key brand partners advertising with us. Our seven existing Time Out Markets have seen footfall and sales return, with record days exceeding pre-pandemic levels. In addition, we have a strong pipeline of seven locations set to open between 2023 and 2027, six of which are management agreements which have associated contracted minimum levels of revenues secured for several years. Interest from landlords in our markets proposition has never been stronger as they seek to drive footfall to increase the value of their property. We are in advanced negotiations with real estate developers around the globe who wish to make Time Out Market the anchor of their properties as they consider our concept to be the world's leading food and cultural market.” The company said: “Time Out Market net revenue increased materially to £28.9m (2021 18m: £12.2m) and generated adjusted Ebitda of £2.2m (2021 18m: £8.4m adjusted Ebitda loss) as the hospitality sector emerged from the severe restrictions experienced for the majority of the comparative period, despite some restrictions still in place in the first few months of the financial year. The easing of international travel restrictions has seen tourists return to the cities in which we operate, and people going out once again, as well as returning to offices, have all helped drive this revenue growth and a return to steady trading. Operating expenses continue to be monitored to ensure optimal market profitability. Market central costs have increased as we further strengthened the Time Out Market team facilitating both growth in our existing Markets and to drive our global expansion. Alongside seven existing markets, as part of the global expansion plans there is a significant pipeline of new locations signed as well as several in advanced negotiations. This is a result of ongoing interest from landlords and real estate developers who value Time Out Market as a concept that can transform spaces and drive consumer footfall. Our engagement with landlords has continued, albeit with the conclusion of new management agreements being delayed due to pandemic-related restrictions earlier in the financial year. The opening of the markets in Montreal in 2019 and of Dubai in 2021 commenced the group’s first management agreements which offers further expansion opportunities. Under a management agreement, the real estate partner funds all capital and operational expenditure with the group receiving a pre-development fee and share of revenue and profit. This has grown as an important part of the portfolio mix as Time Out Market continues to its global expansion. Furthermore, we have evolved our systematic approach to sourcing new opportunities, designed to accelerate the rate of new signings. As a result, we expect to sign more management agreements in the year ahead and beyond as they represent a key focus area and growth engine, increasing the group’s recurring earnings stream, without the need for further capital expenditure. Between May and November 2022, four management agreements were signed: In May 2022, we announced that we have entered into an agreement with real estate developer Hankyu Hanshin Properties Corporation to open Time Out Market Osaka in 2025. An agreement with V&A Waterfront Holdings Ltd was signed in October 2022 to bring Time Out Market to Cape Town towards the end of 2023. In November 2022, agreements were signed with QuadReal Property Group and Westbank to open Time Out Market Vancouver at the end of 2024 and with Diriyah Gate Development Authority (DGDA) to open the new Time Out Market Riyadh at Diriyah Gate which is forecast to open in 2027. Furthermore, we have agreed head of terms for three locations with the initial feasibility costs being met by the prospective management agreement partner.” Group net revenue rose to £55,403m from £37,803m in 2021. Group adjusted Ebitda was £1,219m compared to minus £17,568m in 2021. Group gross profit was up to £44,583m from £30,170m in 2021.
Rail union announces fresh strike action over Christmas: Festive train travel has been thrown into further chaos after rail union RMT announced another round of strikes. The RMT said on Monday (5 December) night that a fresh series of strikes will take place from December 24 through to December 27. This is in addition to the strikes that were already due to take place on December 13 and 14, and again on Dec 16 and 17. More are scheduled for Jan 3, 4, 6 and 7. Transport secretary Mark Harper said the new strike dates are “incredibly disappointing” and accused the RMT of causing “harmful disruption” to passengers. It comes after rail unions rejected an 8% pay offer that would have averted debilitating strikes next week. Industry leaders have already warned that the strikes could cost hospitality businesses £1.5bn. Among those who would lose vital festive custom are Searcys champagne bar and restaurant chain, which has venues at the Gherkin and St Pancras International station. Paul Jackson, managing director of Searcys, told CityAM the business had seen a revenue dip of 30% in November due to train strikes and feared it would experience the same this month. Kamran Dehdashti, co-owner of house party-inspired bar and restaurant concept The Little Door & Co, said the walkouts “couldn’t come at a worse time for the hospitality industry,” and the firm’s four London venues had seen “multiple cancellations”. Jamie Hazeel, who also runs the chain, added: “We are losing significant revenue on our key trading period of the year – not to mention the difficulty of staffing the venues for those who can come.”

UK high streets feature more takeaways, cafes, pubs and bars than pre-pandemic, study shows: Britain’s high streets and shopping areas are evolving into more service and hospitality-based venues, with places to eat and drink growing since the pandemic, according to analysis by the BBC. Despite the restrictions of lockdowns and social distancing rules, eating and drinking establishments saw growth of almost 4% between March 2020 and March 2022, it said. The Ordnance Survey data found 700 more pubs and bars were operating after the pandemic, while there were also 2,000 more cafes or tea rooms and 4,600 more fast-food outlets. More than 300 more fish and chip shops were also operating in March this year than two years earlier, according to the study looking at the changing face of the high street. Not all hospitality thrived, however, as there were almost 150 fewer nightclubs post-pandemic, a fall of one in ten. Overall, fast food and takeaways were up 7.2% during the period, with cafes up 5.7% and pubs and bars up 1.6%, while nightclubs were down 9.4%.
North London brewery to extend four-day working week trial by a year: North London’s Pressure Drop Brewery is set to continue its four-day week trial for employees for another 12 months. The company, which operates a brewery and taproom in Tottenham, joined 60 other UK businesses in a trial allowing its workers a four-day week in June. Co-founder Sam Smith told the BBC it hasn’t always been easy to manage, but the benefits still outweigh the challenges. “We’re happy with how it’s gone,” he said. “The main issue we’ve had is that we haven’t really been able to stress test it properly in a full pelt environment...because the last six months haven’t been great economically in terms of the environment. We’re anticipating a difficult year next year. And that, kind of, frankly, is occupying our thoughts and attention a lot more than the four-day week is.” The experiment, overseen by researchers from Oxford and Cambridge Universities and Boston College, along with the think tank Autonomy, ends today. The full results are not expected to be published until February next year, but at the halfway point in September, 86% of companies taking part said the four-day week was working well and they were likely to keep it.
Long covid to blame for hundreds of thousands more UK working age people not in employment: More than 200,000 people outside the workforce reported being affected by long covid in the year to July, according to official figures. The number of economically inactive people who say they suffer from the condition increased by 217,000 in the 12-month period, data from the Office for National Statistics (ONS) show. It said this could partially explain why Britain’s labour force has shrunk so much since the pandemic began. Daniel Ayoubkhani, an analyst at the ONS, told The Telegraph: “Today’s analysis shows that working-age people are less likely to participate in the labour market after developing long covid symptoms than they were before being infected with coronavirus. [It] may therefore have contributed to the decreasing levels of participation seen in the UK labour market during the Coronavirus pandemic.” The UK’s employment rate remains 1.1% below its pre-pandemic level, making it an outlier among comparable countries. Half a million more people are out of the workforce because of long-term health issues. The ONS’s research implies that a surge in people with self-reported long Covid has contributed to this, but experts said that there is still a large degree of uncertainty around what’s causing the pool of workers to shrink. In total, 23.3% of people reporting a case of long covid were inactive in July, compared with 21.4% of those without. The inactivity rate among long covid-sufferers grew by 3.8 percentage points in the year to July, compared with just 0.4 points among other people. This means an extra 217,000 inactive Britons said they were still dealing with long-term symptoms after contracting the virus in the year to July. Over the same period, the total figure of inactive people grew by 237,000.

UK ‘sleepwalking’ into food supply crisis: The UK is “sleepwalking” into a food supply crisis and the government must step in to help farmers, the National Farmers Union (NFU) has warned. Yields of tomatoes and other crops will likely slump to record lows this year, it said, with potential supply problems ahead as already seen with eggs. Soaring fuel, fertiliser and feed costs were putting farmers under severe pressure, it added. Some supermarkets are rationing egg sales, but the NFU warned that food producers in other areas were now facing difficulties. It said yields of energy-intensive crops like tomatoes, cucumbers and pears were likely to hit their lowest level this year since records began in 1985. It also said milk prices were likely to fall below the cost of production, while beef farmers were considering reducing the number of cows they breed. NFU president Minette Batters said: “British food is under threat...I fear the country is sleepwalking into further food supply crises, with the future of British fruit and vegetable supplies in trouble.” But a Department for Environment, Food and Rural Affairs (Defra) spokesman said: “Our high degree of food security is built on supply from diverse sources; strong domestic production as well as imports through stable trade routes.” He added that the government is in touch regularly with farmers and that the food and farming minister will meet with businesses in the egg industry today (6 December).

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