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Morning Briefing for pub, restaurant and food wervice operators

Wed 7th Jun 2023 - Update: City Pub Group lfls up 13%, Diageo CEO passes away, Hostmore lfl revenue down 3%, Adnams reports increase in FY revenue
City Pub Group lfls up 13%, completes Mosaic acquisition: City Pub Group, the owner and operator of premium pubs across southern England and Wales, has announced that its trading continued to be strong for the first 23 weeks ended 4 June 2023 with sales up 20% on 2022. It said that its like-for-like sales improved by 13% on 2022 and would have been higher if not for recent train strikes. The company said that the strong like-for-like performance is being driven by “our strategy to further premiumise the estate and a continuous focus on customer service”. It said that expects this trend to continue through H2 and that it will also benefit from the new openings from 2022 which have performed “well to date”. The company, which grows from 43 pubs to 52 after the completed addition of Mosaic Pub and Dining Group, said costs have remained in line with expectations and there is now “clear evidence of abatement in some areas”, although food inflation remains high. Additionally, it said it was benefitting from the disposal of the lower margin pubs sold in 2022. With net debt low at £8m and £25m undrawn on our existing RCF, the company said it has the financial flexibility to achieve its goals. It said: “Whilst we are looking at acquisition opportunities carefully, we still believe that in the short-term pub prices will fall and we are therefore in no rush to go out and acquire. We will continue to focus on organic growth from our existing estate. The board is also pleased to announce that the City Pub Group has now secured 52% of the shares in Mosaic Pub and Dining Group, through the acquisition of existing shares in The Galaxy (City) Pub Company Limited, The Pioneer (City) Pub Company Limited and The Sovereign (City) Pub Company Limited (the ‘Mosaic Companies’) for a total cash consideration of approximately £700,000, acquired by way of a tender offer from underlying shareholders in the Mosaic Companies comprised of a number of EIS holders. This transaction takes its total investment to £7m. For the year ended 27 March 2022, the Mosaic Companies recorded an audited aggregate loss before tax of £110k, with aggregated net assets as at 27 March 2022 of approximately £10m.” From 26 June 2023, the company will assume operational control of the pubs in the Mosaic estate which consists of nine pubs (seven freehold, two leasehold) in London and Birmingham. It said it was “very excited about adding these quality pubs to our existing estate”, with the integration set to be smooth, given its existing supplier crossover and synergies. Clive Watson, chairman of City Pub Group, said: “The strategy that we have pursued over that last couple of years is now manifesting itself in our out performance. We have an excellent estate of high-quality premium pubs, well invested, located well and trading strongly. We also have a more efficient business having streamlined the operating structure to meet our existing needs. Our estate is growing through cost effective acquisitions and we have reached a landmark moment for the City Pub Group as we now own and operate more than 50 premium -predominantly freehold – pubs in the south of England and Wales. City Pub Group is in good shape and we remain optimistic about the prospects of the company for the remainder of 2023 and beyond.”

Next edition of Propel Turnover & Profits Blue Book shows 736 largest sector companies turning over total of £46.2bn, up from £43.4bn last month: The next edition of the Propel Turnover & Profits Blue Book, which will be sent to Premium subscribers on Friday (9 June), shows 736 of the largest sector companies are turning over a total of £46.2bn – up from £43.4bn the previous month. A total of 493 companies are making a profit while 243 are making a loss. Sector companies are making a collective profit for the first time since covid. The Blue Book shows the total profit of the 736 companies in the list is £2,834,963,916 and losses are £2,774,327,505. The Blue Book is updated each month and ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Premium subscribers also receive access to four other databases: the Propel Multi-Site Database, produced in association with Virgate; the New Openings Database; the Who’s Who of UK Food and Beverage; and the UK Food and Beverage Franchisor Database. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email to upgrade your subscription. Premium subscribers are also to be given exclusive access to the recording and slides to Propel Multi-Club Conferences. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before; regular video content and regular exclusive columns from Propel group editor Mark Wingett.

Diageo CEO Sir Ivan Menezes passes away: Diageo has announced that its chief executive Sir Ivan Menezes has passed away following a brief illness, with his family at his side. Javier Ferrán, chairman, Diageo plc, said: “This is an incredibly sad day. Ivan was undoubtedly one of the finest leaders of his generation. Ivan was there at the creation of Diageo and over 25 years, shaped Diageo to become one of the best performing, most trusted and respected consumer companies. I saw first-hand his steadfast commitment to our people and to creating a culture that enabled everyone to thrive. He invested his time and energy in people at every level of the company and saw potential that others may have overlooked. This is one of many reasons why he was beloved by our employees, past and present. Ivan’s energy and his commitment to diversity created a truly inclusive business and enabled Diageo to have a positive impact on the communities we serve. His passion for our brands was second-to-none and in his heart, he remained the Johnnie Walker marketer from his early days. The desire to build the world’s best brands never left him. We are truly privileged to have had the opportunity to work alongside such a thoughtful and passionate colleague and friend – a true gentleman. He has built an extraordinary legacy. Ivan leaves behind many friends and a beloved family, and our thoughts are particularly with his wife, Shibani and his two children, Nikhil and Rohini. On behalf of the board, executive committee and all our employees, we extend our deepest sympathies to them.” Earlier this week, Diageo appointed Debra Crew as its interim chief executive, and said that Menezes was in hospital receiving treatment for medical conditions including a stomach ulcer. 

Hostmore lfl revenue down 3%: Hostmore, the owner of the TGI Fridays brand, has reported a 3% decline in like-for-like revenue for the first 22 weeks of the year ended 4 June 2023, with total revenue down 1% in the same period. The business said that like-for-like revenue declined 1% in the first 16 weeks of the year, with total revenue up 2%. It said that like-for-like revenue and total revenue for the first 22 weeks of the year, adjusted for the variance in the VAT rate on food sales between FY22 and FY23, remained “broadly consistent with the revenue performance for the first 16 weeks of the year announced on 28 April 2023”. It said that the cost reduction initiatives announced on 28 April and 2 May 2023 “are benefitting Ebitda in line with the quantums and timings as previously communicated”, and that further opportunities for savings are being evaluated and the details thereof will be announced following their implementation. The company said: “The previously announced utilities hedging programme commenced near the end of May 2023. Commodity spot prices have continued to decline and our decision to delay entering the hedging market has benefited the business with the locked-in rates being about 9%, or £1m, lower for the full year FY23 than expected on 28 April 2023. We have not hedged any of our remaining FY23 gas usage yet and 46% of our remaining electricity usage remains unhedged. We intend to begin hedging FY24 usage in due course. Pleasingly, the team’s focus on quality, relevance and simplicity continues to deliver a significant improvement in the Guest Opinion Score for TGI Fridays. This has increased from 68 at December 2021, to 74 at December 2022, 80 at March 2023 and 83 at 4 June 2023. In line with the revised capital allocation policy announced on 28 April 2023, the board’s focus remains on cash flow generation to repay group borrowings, following which there will be an evaluation of shareholder distributions.” Gavin Manson, Hostmore chairman, said: “The ongoing loyalty of our guests is welcome. I am extremely grateful to all our colleagues for their continued hard work and commitment, which has resulted in a further improvement in the Guest Opinion Scores for TGI Fridays. This is a great cornerstone to build upon. Our focus continues to be on implementing high ROI organic growth initiatives and extending the lifetime value of our guests by adding further to the guest experience through our three pillars of quality, relevance and simplicity. This is expected to increase the number of annual repeat visits by our customers. With the revision to our capital allocation policy, to prioritise debt repayment and shareholder distributions, I am confident that this will ensure a reduction in net debt and an ongoing improvement in profitability. As previously announced, I step down from the board today to focus on my executive commitment elsewhere. I am delighted that, as previously announced, Stephen Welker will step up to become the chairman and Julie McEwan and Helena Feltham will join the board at the conclusion of the Annual General Meeting later today. I am confident that the leadership of the group is in secure hands. I wish everyone at Hostmore every success for the future.”

Adnams – working “extremely hard” to mitigate inflation, control expenses, manage cash flows and serve customers well: Suffolk brewer and retailer Adnams has said it is working “extremely hard” to mitigate inflation, control expenses, manage cash flows and serve customers well, as it reported a £7m increase in revenue in 2022 to £64.2m. The company said that its revenue in 2022 benefitted from buoyant trading in the early months of the year, but would have been higher had demand not suffered as consumer confidence fell away. It said: “This, coupled with the impact of the war in Ukraine and rising inflation put significant pressure on our underlying cost base, requiring the business to manage cashflows tightly. The resultant Ebitda of £2.7m is evidence of our ability to continuously strive to make efficiencies in our processes and harness our IT systems technology.” It said that beer volumes grew 2.7% on 2021, while its net bank debt stood at £13.9m. Pre-tax loss for the year stood at £2.285m (2021: (£1.388m)). Jonathan Adnams, chairman, said: “As I prepared this report one year ago, I talked with some hope that the two years of pandemic were behind us and that the world for brewing, distilling and hospitality would enjoy a period of stability as markets returned to some normality and businesses in our sector would be able to rebuild their balance sheets. I wrote those words before the Russian invasion of Ukraine and all the implications this has brought to economies around the world with the widely reported knock-on effects for global energy and commodity prices. The UK economy was far from immune and has been profoundly impacted. This, along with the instability brought about by the autumn mini-budget, rising interest rates and industrial unrest, has led to consumer confidence levels being at their lowest for decades. It is no overstatement to suggest that, for the company and the wider brewing and hospitality sector, the business environment has been at least as challenging as during the covid-19 pandemic. In the final nine months of 2022, the business has had to absorb a £4.9m increase to its costs base driven by rising prices. The business has worked extremely hard during the year to mitigate inflation, control expenses, manage cash flows and serve customers well. However, it has had no alternative other than to pass most of the increased costs through to customers. The challenge for Adnams and the sector as a whole is to ensure that the increased costs of going out are met with an experience that the customer values and feels compelled to repeat even during a cost-of-living crisis. Our response has been, through our data, to know our customer better, to maintain quality in all that we do, and to seek to exceed their expectations. Related to this, as the company emerged from the pandemic, it needed to catch up on a property maintenance deficit and this has been the principal driver behind borrowing increasing by £2.9m to £13.9m as we invested in the long-term fabric of our buildings. It is against this backdrop and given continued uncertainty in the UK economy that the company is unable to recommend a final dividend this year. The board keeps this matter under regular review and wishes to return to its regular pattern of paying dividends as soon as practicable. During the year the business was able to rebuild sales to £64.2m and has generated an Ebitda, a proxy for cash flow, of £2.7m. When depreciation and interest are added, this leads to an operating loss of £1.2m (2021: £0.9m). In the early months of 2022, there were certainly signs of recovery as the beer market began its journey back to health, following a 55% fall in the previous two years, and customers were clearly pleased to be visiting pubs and bars again throughout our heartland and London. Our retail shops, hotels and pubs also enjoyed a good beginning to the year and we were able to pay an interim dividend in February of 156p per ‘B’ share and 39p per ‘A’ share reflecting strong trading in the summer of 2021 and the good start to 2022. By mid-year the impact of the conflict in Ukraine and its implications for the UK economy were being felt and this led to the beer market beginning to plateau and customer sentiment begin to move from a broadly positive stance to concerns about inflation and the cost of living. The long warm summer offset this to a certain extent and bookings in our well-located hotels, pubs and restaurants remained strong through this period. As we moved from summer to autumn, the mood began to change as the nation mourned the passing of the Queen and the mini-budget hit consumer confidence hard. Throughout all of this, the low and no alcohol sector has been enjoying continual growth and our Ghost Ship 0.5% beer has become the best-selling Lo/No Ale in the on-trade and, alongside its full-strength sibling Ghost Ship, it continues to secure further distribution in both the on- and off-trade. The outside world remains uncertain and volatile. Early in the year, we had looked forward to our markets returning to normal post pandemic. The start to the year promised this, then global events transpired and has led to the UK and the rest of the world facing many challenges from economic, social and environmental perspectives. Our response is that we continue to pursue our long-term strategy of building a premium beer, spirits and hospitality brand that attracts and grows its loyal customer base. We do this by continuing to invest in the fabric of our hotels, pubs, shops and online businesses, by exceeding customers, expectations in terms of service and product quality, and by using our data to better target offers towards customers to reward their loyalty. Simultaneously, we are digitally transforming our back office for better efficiency and effectiveness. Relationships in our supply chain remain strong and we remain committed to operating with care for the natural, built and social environment and to doing the right thing.”

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