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Morning Briefing for pub, restaurant and food wervice operators

Wed 19th Jul 2023 - Update: TRG reports 5% rise in Wagamama lfls YTD, working with advisors to review strategic options
TRG reports 5% rise in Wagamama lfls YTD, working with advisors to review strategic options: The Restaurant Group (TRG) has reported a 5% increase in like-for-like sales at Wagamama for the year to date (up 8% VAT adjusted) versus the prior year, as it said it continued to review its wider strategic options with the assistance of independent advisors in “order to examine the potential to accelerate TRG’s deleveraging profile and further enhance Ebitda margin accretion”. For the years to date, the company said that dine-in like-for-like sales at Wagamama had grown 10% (up 13% VAT adjusted), versus a 10% decline in delivery like-for-like sales. Year to date, its pubs division had seen an 8% rise in like-for-like sales (up 11% VAT adjusted), its Concessions arm was up 28%, but that its Leisure arm has seen a 4% decline (down 2% VAT adjusted) versus the prior year. For the 13 weeks to 2 July 2023, Wagamama total like-for-like sales were up 5%, pubs up 13%, Leisure down 7%, and Concessions up 23%. For the two weeks to 16 July 2023, Wagamama total like-for-likes were up 21%, pubs up 7%, Leisure up 12% and Concessions up 34%. The company said that Wagamama has continued to trade strongly. It said: “Despite trading being temporarily impacted by the hot weather in late May and June, Wagamama still outperformed the market in Q2. Very encouragingly, dine-in covers are also in year-on-year growth. Our recent openings are trading ahead of expectations and we have confidence that our expansion plan will continue to deliver highly attractive returns for shareholders.” The business said that Brunning & Price Pubs (B&P) delivered “another exceptional trading performance” in the first half of the year, with dine-in covers in year-on-year growth. It said: “B&P has continued its long term trend of out-performing the market and the business has recently been recognised as the best Pub Group in the UK by the CGA PubTrack survey, further illustrating the core strength of the B&P proposition.” TRG said that despite its Leisure business being the most impacted by the current cost-of-living pressures, good progress has been made on further improving cash generation within the business, with “costs being well-managed through further operational efficiencies and the estate rationalisation plan progressing ahead of expectations”. The company said that Concessions trading has strengthened even further in recent weeks, benefitting from the rapid recovery of passenger volumes and strong operational delivery leading to exceptionally strong like-for-like sales vs 2022. It said: “The strength of the Concessions performance is further illustrated by comparing the trading run-rates against pre-covid levels, with like-for-like sales versus 2019 up 3% in Q1, up 10% in Q2 and up 15% in Q3.” As part of its previously announced Leisure estate rationalisation plan, the group will have closed approximately 35 sites by the end of this financial year. The 35 sites include eight freehold sites. The company said that it has made good progress in “efficiently managing the disposal programme and protecting net cash”. It said it had seen encouraging levels of interest across both the freehold and leasehold disposal sites across a variety of alternative potential tenants and expects to have exited or sold the majority of the 35 sites by the end of FY24. The freehold sales are expected to generate approximately £8m to £10m of cash proceeds. In the current financial year, the business has opened four new Wagamama sites and one pub restaurant. It said that the new Wagamama sites have enjoyed an “extremely strong start” and are trading ahead of expectations. TRG said it remained confident in its ability to deliver seven to eight new Wagamama openings annually from FY24 onwards, “capitalising on the favourable property market dynamics”. It said that its latest new pub, The Mytton and Mermaid in Shrewsbury, has been particularly successful and has delivered “our highest ever level of sales for a new opening”. At TRG’s full-year results presentation in March, the company set out the medium-term strategy for the group. The plan targets significant Ebitda margin accretion over the next three years as well as deleveraging to reduce net debt/Ebitda to below 1.5x by the end of FY25. The company said: “Since then, the group has made an excellent start in execution of the plan consisting of: Strong like-for-like trading performance in the first half of the year; incremental cost savings of £5m per annum, and the acceleration of both new Wagamama openings and the rationalisation of the Leisure estate. Whilst we are pleased with the progress being made in delivering these medium-term plans, the board has continued to review its wider strategic options with the assistance of independent advisors in order to examine the potential to accelerate TRG’s deleveraging profile and further enhance Ebitda margin accretion. In evaluating strategic options including potential disposals, the board remains mindful that any transaction must be at attractive levels for shareholders and must reflect both the strength of current trading and the long-term prospects of our businesses.” The company said that given the very encouraging trading performance in the first 28 weeks of the financial year, it is confident in delivering management’s expectations for FY23.

Propel to launch UK Food and Beverage Franchisee Database next month, sixth major database for Premium subscribers: Propel will next month launch the UK Food and Beverage Franchisee Database – the first time that profiles of 100 of the top food and beverage franchisees have been available in one place in the UK. The go-to database, which features many of the big franchise operators running Costa Coffee, McDonald’s and Domino’s sites, brings together a wealth of information on an increasingly important part of the market, and the first edition will feature more than 32,000 words of content. The sixth major database exclusive to Premium subscribers, it will be sent out bi-monthly, including new entries and updates to existing entries. The companies, listed in alphabetical order, will have their most recent results reported as well as broader information around the company’s background, site numbers and board make-up. It will complement Propel’s UK Food and Beverage Franchisor Database, which launched last year and now lists more than 200 franchisors already operating in or looking to expand into the UK. Propel managing director Paul Charity said: “Franchising is an ever-growing and increasingly important part of the food and beverage market, and it is the first time an invaluable guide to those companies which franchise with major brands has been available in the UK. It is the perfect complement to Propel’s UK Food and Beverage Franchisor Database, which focuses on those companies offering franchises, and which in its first year, doubled in size from an initial 100 listings. Together, they will provide the most detailed and insightful guide to the franchising market in the UK.” Premium subscribers also receive access to the Propel Turnover & Profits Blue Book; the Propel Multi-Site Database, produced in association with Virgate; the New Openings Database and the Who’s Who of UK Food & Beverage. The latest Who’s Who will feature 715 companies when it is released to Premium subscribers on Friday (21 July). This month’s edition includes 22 new companies and 75 updated entries as well as more than 187,000 words of content. The companies, listed in alphabetical order, will have their most recent results reported as well as broader information around Ebitda, plans and trading style available. The database merges Companies House information, interviews and other public information to provide an easy to reference and exhaustive guide to the sector.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 being given exclusive access to the recording and slides to Propel Multi-Club Conferences. They 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.

UK inflation falls as prices rise slower than expected: The rate of price rises has dropped from 8.7% to 7.9% in the year up to June, according to the latest official figures. The consumer price index measure of inflation showed a higher-than-expected fall, offering some relief to families struggling with the cost of living crisis. While prices are still rising, the Office for National Statistics (ONS) said the rate had “slowed substantially” to its lowest annual rate since March 2022. The ONS chief economist Grant Fitzner said it had been driven by price drops for motor fuels, while food inflation eases only slightly. “Food price inflation eased slightly this month, although it remains at very high levels,” he said. “Although costs facing manufacturers remain elevated, especially for construction materials and food items, the pace of growth has fallen across the last year, with the overall cost of raw materials falling for the first time since late 2020.” Ed Bignold, managing director with Alvarez & Marsal’s Corporate Transformation Services, said: “We are now entering one of the ‘golden periods’ of the year for hospitality, and a slight drop in the pace of increasing restaurant and hotel prices is a welcome development for both the sector and consumers. This follows yesterday’s news that in recent weeks, supermarkets have charted the most significant fall in checkout costs since grocery inflation peaked in March. As international travel becomes increasingly expensive, more Brits are expected to opt for staycations this summer. This may help sustain footfall in the UK’s restaurants, pubs and bars, and keep hotels at higher occupancy for longer. Nevertheless, the industry continues to be squeezed by input cost inflation and elevated wages, which show no signs of abating. Further pressure on consumers, particularly those facing rising mortgage costs, could dampen demand in the sector. With margins still under significant pressure, the coming months will be absolutely critical in ensuring the continued viability of many businesses in the sector.”

Pressure mounts on bosses as liquidation numbers soar: Company directors are increasingly calling time on their businesses as they become overwhelmed by higher interest rates, inflated energy costs and a pushback against unpaid tax from HM Revenue & Customs. The Times reports that the Insolvency Service found that the number of companies declared insolvent rose by 27% to 2,163 in June. The figures indicate the number of company insolvencies reached 6,403 in the second quarter, representing the worst quarter for insolvencies since the first three months of 2009. The corporate upheaval was primarily driven by directors shutting their own companies using creditors’ voluntary liquidations. The number of CVLs rose by 21% to 1,759. The coronavirus pandemic saw a period of calm for corporate distress, but the unwinding of government support schemes is now in full swing just as companies face higher costs in all areas of their businesses. Nicky Fisher, president of the restructuring trade body R3, said: “A sizeable number of directors are choosing to close their businesses while the choice is still theirs to make. Firms are trading in a time of cautious consumer spending and rising costs, which are hitting margins and profits hard. Directors expect costs and wages to rise further as the year goes on, and if these don’t translate into more demands for goods and services, it could be the final blow for those businesses just managing to survive.” However, directors were also increasingly forced to dissolve their companies to pay off debts to creditors, with the number of compulsory liquidations jumping by 77% to reach 260 in June. The Insolvency Service attributed the rise to an increase in winding-up petitions presented by the Revenue. The tax authority was banned from issuing winding-up petitions during the pandemic but has become more active since the ban was fully lifted in 2022. In addition, companies are starting to feel the impact of higher borrowing costs since the Bank of England began increasing base rates almost two years ago. Blair Nimmo, chief executive of restructuring firm Interpath, said that rate rises were “going to start causing some real pain”. He added: “The big issue at the moment is the interest rate rise and it hasn’t had time to feed through yet. We’ve had numerous rises over a fairly lengthy period and inflation is still stubbornly high. Corporates have not had to play in these conditions over the past 15 years.”

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