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Morning Briefing for pub, restaurant and food wervice operators

Wed 7th Dec 2022 - Update: M&B sees encouraging start to new financial year with lfl sales growth of 6.5%
M&B sees encouraging start to new financial year with lfl sales growth of 6.5%: Mitchells & Butlers (M&B) has reported an encouraging start to its new financial year, with like-for-like sales growth of 6.5% in the last ten weeks (9.2% growth against 2019). The company said this equates to growth of 11.1%, excluding the VAT benefit in place last year. In the ten-week period since the end of its financial year on 24 September, it saw an increase in like-for-like food sales of 1.9% and like-for-like drink sales growth of 12.1%, with both in volume growth. Total sales in this period grew by 7.3%. For the 52 weeks to 24 September 2022, the business reported like-for-like sales of 1.1% against 2019, and said that excluding the impact of utilities, “profits broadly recovered to pre covid-19 levels” during the year. The like-for-like growth comprised an increase in like-for-like food sales of 5.2% and a decrease in like-for-like drink sales of 4.1%. It said sales growth in food was driven by premiumisation and other increases in spend per head, with the strongest performances in its premium, food-led brands. However, volumes for both food and drink were in double-digit decline against FY 2019. The company said: “Total sales across the period were £2,208m reflecting a 1.3% decline on FY2019, driven mainly by temporary covid-related sales reductions and closures in the first part of the year plus site disposals since FY2019. Despite this, adjusted operating profit of £240m reflects a strong return to profitability. Excluding the circa £70m increase in utility costs, profits would have been close to pre covid-19 levels, despite the impact during the year of the Omicron variant and inflationary cost pressures. Over the first half of the year, food sales continued to outperform drink, with food like-for-like sales growth of 6.9%, helped by the reduced rate of VAT. At this point, we started to observe an encouraging trend of recovery in city sites, as people began to return to offices and city centre destinations, albeit trading in some areas of London, such as The City, remained relatively subdued, particularly at the end of the week. Drink sales continued to be challenging across the sector and drink like-for-like sales declined by 6.9% in the first half, with suburban locations seeing the largest declines. VAT reverted from 12.5% to 20% on 1 April 2022, which contributed to a softening of sales in the third quarter, alongside industrial action and very hot weather, resulting in only modest like-for-like sales growth across the full quarter, with food continuing to be the main driver. Trading improved in the fourth quarter, despite an additional period of extreme heat as well as further rail strikes. Sales over the August bank holiday were encouraging, with strong like-for-like growth over the three-day weekend, before returning to levels consistent with the quarter as a whole. Growth continued to be driven by food sales with the strongest performances in our premium, food-led brands.” Pre-tax profit for the year stood at £124m (2021: minus £94m). Overall, for the current year, the business said it anticipates an inflationary cost headwind across its circa £1.8bn cost base in the region of 10-12% before mitigation. Inflationary cost headwinds against 2019 totalled circa £220m during 2022, over the three-year period, with energy cost increases contributing circa £70m, after consumption savings. It said: “The Energy Price Guarantee from the government for businesses for six months from 1 October 2022 was welcome, but energy costs are still expected to increase this year and significant uncertainty remains over the second half. At the current time, we have bought forward 45% of this financial year’s anticipated energy requirement.” During the year, the company completed 170 investment projects including 160 remodels, six conversions, the acquisition of the freehold of three sites that were previously leasehold and opened one new Alex site in Germany. It said it is continuing to see strong performances from its investment projects. The conversion programme includes the trial of Browns in suburbia, stretching the brand beyond its usual high street location. The first trial site opened in August in Beaconsfield and is “performing well”, and a second has just opened in Ruislip. Phil Urban, chief executive of M&B, said: “The trading environment remains highly challenging, with cost inflation continuing to put pressure on margins and we are ever mindful of the pressures that the UK consumer is facing.  However, we are encouraged by the strength of sales growth at the end of last financial year which has improved further into the early weeks of this year. We remain focused on the delivery of our Ignite programme with existing and new initiatives driving cost efficiencies and increased sales, alongside our capital investment programme. Combined with our diverse portfolio of well-known brands, value proposition, strong estate locations and talented people, we are well positioned to face both the challenges and opportunities ahead.”

Warning that 30% of trains could be cancelled on non-strike days over Christmas: Almost one in three trains face cancellation on non-strike days over Christmas as trade unions exploit a dependency on voluntary overtime. Up to 30% of train services are expected to be cancelled on non-strike days between 19 December and 3 January if workers stick to their hours. Talks between train operators and the RMT will restart this morning after the union not only refused to call off industrial action before this morning’s deadline but announced three additional days of strikes over Christmas. The RMT has announced an overtime ban alongside its formal notification of industrial action going ahead. Industry sources said initial estimates are that they will only be able to run 70-80% of normal capacity, reports The Telegraph, with officials still finalising their assessment of the impact. The new strike days – 24, 26 and 27 December – come in addition to walkouts on 13, 14, 16 and 17 December, as well as 3, 4, 6 and 7 January. UKHospitality have forecast the strikes will cost the industry £1.5bn in lost sales and said they have already caused 40% cancellation rates within the sector. Night Time Industries Association chief executive Michael Kill yesterday said further strike action will be the death knell for many night-time economy businesses, while British Beer and Pub Association chief executive Emma McClarkin said many pubs will struggle to make it through to the spring if December trade is decimated.

Bill’s clashes with Marston’s in High Court property dispute: Bill’s Restaurants has clashed with Marston’s in a High Court property dispute as the company battles to shore up its finances, reports the Daily Mail. The business has been the subject of a series of High Court actions by landlords and suppliers since 2021, having racked up £25m losses in just two years. Restaurant analyst Peter Backman said Bill’s was on a “knife edge”, given the brutal conditions in the wake of the pandemic, cost-of-living crisis and economic downturn. Although the dispute with Marston’s was settled after the newspaper approached the companies, Bill’s has taken out two HSBC debentures – a form of loan agreement – since 2021. In December 2021, Bill’s owner Richard Caring took control of the business after chief executive Baton Berisha left after only a year in the role. This after company accounts showed Bill’s had seen turnover slump by more than 50% during the pandemic. In 2019, Bill’s pulled in £127m, although it lost £8m that same year. But in the calendar year 2020, turnover plummeted to just £61m and losses doubled to nearly £17m. In 2017, it had 76 restaurants nationwide, but in 2021, it announced it had closed 14. The last set of accounts for Bill’s shows that it is the guarantor for a £42m revolving credit facility taken out by a connected company Bills Stores, which was due for repayment in September 2021. Backman said: “Bill’s is on a knife edge and that will be the reason for these High Court petitions.” A Marston’s spokesman said the two High Court actions were over a single site and had been resolved but was not willing to elaborate. A Bill’s spokesman refused to give details about the dispute and other High Court actions and whether it was in financial difficulty.

Energy boost for UK with US fracking deal: Rishi Sunak and Joe Biden will today announce a deal to avoid winter blackouts in the UK, using gas produced by fracking in the US. The prime minister and president have agreed a UK-US Energy Security and Affordability Partnership to further reduce dependence on Russia for gas and oil. As part of the major initiative, Downing Street said the US will aim to export at least nine to ten billion cubic metres of liquefied natural gas to UK terminals over the next year – more than double the amount exported in 2021 – reports the Daily Mail. Ahead of the announcement today, Sunak said last night: “Together, the UK and US will ensure the global price of energy and the security of our national supply can never again be manipulated by the whims of a failing regime. We have the natural resources, industry and innovative thinking we need to create a better, freer system and accelerate the clean energy transition. This partnership will bring down prices for British consumers and help end Europe’s dependence on Russian energy once and for all.” The ONS last month reported that more than a fifth of UK pubs, restaurants and cafes have cut their hours over the past three months in a bid to cut energy costs. The analysis showed food and drink service firms were more likely than any other sector to cut trading to deal with mammoth increases in energy bills. It found more than one in 20 businesses in the sector (6%) planned to stop trading for two or more additional days a week in the month. The same percentage of sector businesses said they had already done so in the last three months, which was among the highest of any group.
More food rationing to come without government support, says NFU: National Farmers’ Union (NFU) president Minette Batters has warned that food rationing could become an ever-increasing reality for British consumers without government support for farmers. The NFU yesterday warned that yields of tomatoes and other crops will likely slump to record lows this year, with potential supply problems ahead as already seen with eggs. Many growers in England and Wales have already cut production by as much as 30% in 2022, according to the NFU, with some saying they may be forced to completely stop producing fruit and vegetables. Ms Batters said: “I want to avoid a situation where consumers ever face any rationing again, ever face lack of choice. There are risks if we don’t act, if we don’t come together. It’s in the national interest that we do make sure we are producing the same amount of food as we are now. We’re going to have to think radically differently about how we work together if we’re going to keep producing the same number of tomatoes, peppers and cucumbers. Also, things like field veg, parsnips, potatoes.” The NFU has been urging the government to step in and provide aid for its members, and has also been calling for more “fairness” in the supply chain.

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