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Morning Briefing for pub, restaurant and food wervice operators

Wed 6th Sep 2023 - Update: TRG sees strong H1 trading, services sector, management training
TRG reports strong H1 trading: The Restaurant Group (TRG) has this morning reported strong like-for-like sales and adjusted Ebitda growth for the for the 26 weeks ended 2 July 2023, driven by the performance of its Wagamama, Pubs and Concessions businesses. It reported total revenue for the half year was up 10% to £467.4m (2022: £423.4m), while adjusted Ebitda increased by 15% to £36.3m on a pre-IFRS 16 basis versus the VAT adjusted basis of £31.4m in H1 2022. It said that total year-to-date like-for-like sales for Wagamama (VAT adjusted) were up 9%, with dine-in like-for-like sales (VAT adjusted) up 14%. Delivery and takeaway like-for-like sales for the brand were down 8%. Pubs like-for-likes sales for the year to date were up 10%, with Concessions up 31% but its Leisure division down 1%. It said FY23 costs were in line with previous expectations and medium-term cost outlook continues to improve. The company, which reported “strong current trading”, said the trading performance supports a “moderate increase in management’s FY23 adjusted Ebitda expectations”. The company said it was making “excellent early progress” in executing medium-term plans to deliver 250bps to 350bps of adjusted Ebitda margin accretion over a three-year time horizon; target net debt/adjusted Ebitda below 1.5x before the end of FY25 while supporting accelerated investment in Wagamama openings; and continue to actively explore strategic options to further accelerate margin accretion and deleveraging. The company said Wagamama has traded strongly throughout the year, with trading strengthening further in Q3 to “an exceptionally strong 16%, helped in part by the cool summer weather”. It said that Wagamama delivered like-for-like sales growth of 9% in Q2 & Q3 to date, representing a 2% outperformance versus the market. It said that the outperformance in “dine-in” sales has been “particularly pleasing at 5%”. The company opened 38 new full-service restaurants between 2016-2021. Within this, 33 of the sites opened were in ‘regional’ locations (i.e. outside central London and airport locations) and these delivered a ROIC in excess of 35% (rolling 12 months to June 2023) providing “strong financial returns, despite high food and energy inflation costs”. The company said: “These strong returns achieved by our regional openings gives us confidence to accelerate our expansion plans and we are now targeting to open between eight to ten sites per year from FY24 onwards. Our long-term ambitions include significant measured roll-out potential to expand in the UK to a targeted 200 to 220 restaurants (from an expected 161 sites at the end of FY23).” On Brunning & Price, the company said it had maintained a consistently strong performance from Q1 through to Q3, when normalising for weather comparisons over the summer. The business delivered like-for-like sales growth of 10% in Q2 and Q3 to date, representing a 1% outperformance versus the market. TRG said: “The B&P offer has proved timeless, and the business has consistently outperformed the market over the last nine years (between 2013 and 2022).  During this period, the business has opened 29 pub restaurants that have delivered a ROIC in excess of 20% (rolling 12 months to June 23), providing good financial returns, despite high food and energy inflation costs. Our pub restaurants benefit from high sales densities with a food mix typically in excess of 65%, and the significant investment in new sites means they then have low ongoing maintenance and refurbishments capital expenditure requirements, and therefore deliver strong free cash flow. We opened one new pub during the first half of the year, the Mytton and Mermaid in Shrewsbury, which has surpassed our expectations and is one of our most successful new pub openings. We aim to open between one to three high quality pubs per year from FY24 onwards.” The company said it was “very pleased” with the strong recovery of our Concessions business in 2023, which has exceeded management's expectations, with like-for-like sales growth of 27% in Q2 and Q3 to date versus 2022, which is an outperformance to the market of 12%. Year-to-date like-for-like sales for the 34 weeks are +29%. The business said its Leisure business traded more resiliently in Q3, with a strong recent cinema slate helping like-for-like sales to 6% in Q3. It said: “The business however has traded below the market and achieved a LFL sales decline of 2% in Q2 and Q3 to date, with year-to-date LFL sales being down 3%. The Leisure business has been impacted by a number of challenges, in particular the cost-of-living pressures on its core customer base. In response to these ongoing challenges, the business has accelerated the rationalisation of the trading estate from 116 at FY22 year-end to an expected circa 76 sites at FY 23 year-end, delivering the planned two-year rationalisation programme in 12 months. This will be achieved through exercising the lease expiry/break clause on 14 sites, which have a contractual expiry within the next 18 months; selling eight freehold sites with five expected to complete in Q4 2023 generating circa £5m of proceeds; converting three sites to Wagamama by the end of FY24; and accelerating the disposal of between 12 to 17 sites through mutual agreement with landlords/alternative tenants. The TRG property team has made good progress in efficiently managing the disposal programme and protecting net cash, and we expect to exit the vast majority of the lease obligations of the circa 40 closed sites by the end of FY24.” Andy Hornby, chief executive of TRG, said: “We are encouraged by the significant progress made in the first eight months of the year, delivering strong like-for-like sales growth despite the consumer backdrop. In light of the strong trading, we are increasing our expectations for FY23 adjusted Ebitda. We are making excellent progress on our medium-term plan and the board continues to actively explore strategic options to further accelerate margin accretion and deleveraging. A massive thanks to each and every one of our dedicated team members who have worked so hard to deliver these excellent results.”

Next Propel Turnover & Profits Blue Book shows sector companies’ profit outstripping losses by £1.34bn, up from £1.33bn last month: The next edition of the Propel Turnover & Profits Blue Book, which will be sent to Premium subscribers on Friday (8 September), shows the profit being made by sector companies is now outstripping losses by £1.34bn. The Blue Book shows the total profit of the 754 companies in the list is £3,471,432,286 and losses are £2,135,077,847. Last month, the Blue Book showed sector companies’ profit outstripping losses by £1.33bn. 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 five other databases: the Multi-Site Database, which is produced in association with Virgate; the New Openings Database; the UK Food and Beverage Franchisor Database; the Who’s Who of UK Food and Beverage; and the UK Food and Beverage Franchisee 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 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 services sector shrinks for first time since January: Britain’s services sector has contracted for the first time since January, a closely watched survey confirmed, although the slowdown was not as bad as initially feared. The Times reports S&P Global and the Chartered Institute of Procurement and Supply final purchasing managers’ index (PMI) for the services sector slipped to 49.5 in August from 51.5 in July. Although the reading is below the 50-point mark that separates growth and contraction, it was revised up from an earlier reading of 48.7, also topping analysts’ forecasts. Last month, higher interest rates and rising prices squeezed household finances and cooled spending. Stronger unemployment concerns also prompted consumers to exercise greater caution, the survey noted. Tim Moore, economics director at S&P Global Market Intelligence, said: “Service providers saw customer spending reverse course during August as higher borrowing costs, subdued business confidence and stretched household finances all acted to curtail sales opportunities.” The composite reading, which includes the manufacturing sector, was also bumped up to 48.6 from an initial estimate of 47.9. After the worse-than-expected flash PMIs were released last month, experts warned the UK was headed for a recession due to the services sector finally succumbing to the economy’s slowdown. It was just the second time in nearly three years the services PMI slipped into contraction territory. However, yesterday, economists cast doubt on those assumptions after the upgrades. “This is probably just another occasion when the composite PMI is giving a misleading read on the economy’s momentum,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. He said he expected GDP to grow 0.2% in the three months to September, taking an imminent recession risk off the table.
Business students prepare for hard-hit hospitality sector: Few sectors have suffered more in recent years than hospitality, from lockdown closures and staffing crises to inflation and crippling energy bills. “Every day feels like you’re walking uphill on glass, barefoot,” Michelin-starred chef Tom Kerridge said recently of the challenges. The Financial Times reports average costs incurred by restaurants and hotels have surged more than 80% in the past year, according to a survey carried out by four hospitality trade bodies in the UK, as bills for energy, rent, borrowing, food, insurance and even cleaning materials have soared. Continued homeworking means city and town centre footfall remains below pre-pandemic levels, a particular challenge for hotels and restaurants that rely on business customers. As a result, some young people see hospitality as a riskier career choice. Many businesses are struggling to recruit, with staff shortages reported globally, not least in Britain following post-Brexit restrictions on the movement of people from Europe. There have been consequences for specialised masters in hospitality business and management. Cohort sizes have only just returned to pre-covid levels, says Eric Vogler, director of the MSc in International Hospitality Management at EMLyon business school in France, where enrolments fell 10% in 2020 and 25% in 2021.  “Finding jobs or even internships for our 2019-20 and 2020-21 cohorts was a tough challenge,” Prof Vogler concedes. “We had to offer other ways to give students their six months’ professional experience, through research projects tutored by the Institut Paul Bocuse Research Center and entrepreneurial projects tutored by the incubator at EMLyon.” And while there has been some kind of return to normality, the post-pandemic landscape for hospitality businesses means students must be prepared for new challenges, says Vogler: less long-haul travel, more fragmented stays, greater mixing of work and leisure, and fewer business trips and events. In response, EMLyon student projects now include launching a real restaurant, starting a new hotel brand and running a consulting mission for a real hotel. Masters courses in hospitality business and management must not only prepare students for these new challenges, but also accommodate their changing tastes, says Kentia Gallet, director of the MSc in Hospitality Management at Essec Business School. “We’re seeing a growing interest in areas such as entrepreneurship and sustainability…Students want to have an impact on the world — and they are looking for professional opportunities in line with their values.”

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