M&B – ‘we are now gathering momentum’: Mitchells & Butlers chief executive Alastair Darby has claimed the business is now gathering momentum as like-for-like sales rose 2.4% in the first eight weeks of its 2015 financial year. Total revenue was up 4% to £1,970m in the 52 weeks to 27 September, with like-for-like sales growth of 0.6%. Profit before tax was £123m (FY2013: £142m). The company reported strengthening food volume performance in its full year of 0.9% like-for-like growth (FY 2013: -4.3%). Operating margin was 15.9% and staff turnover was at an historical low of 78% with net promoter scores of 63% (FY 2013: 59%). Darby said: “In the last year we have made significant progress, investing in the business for future growth. We completed the acquisition of Orchid, accelerated remodel and expansionary capex and have made a substantial investment in our systems. At the same time we have maintained our focus on the delivery of our four key priorities. In the year ahead, we will continue these actions. The business is gathering momentum and we have made an encouraging start to the year. We expect to benefit further from these investments during this financial year.” Of food sales growth, the company added: “Our focus on guests is evident in the development of our food volume growth throughout FY 2014. Following several years of spend per head increases, we have concentrated on driving our food sales through volume rather than price growth. We aim to deliver consistently great value to our guests and to build trust in our brands. We remain committed to driving this volume growth by offering ongoing value through our menus rather than by short term promotional activity. Our focus on brands and value to meet our guests’ needs can be demonstrated with a number of examples: we offer consistently great value through Toby Carvery: a carvery meal during the week for £5.99, and unlimited breakfast for £3.99; we are innovating to drive the Harvester brand, by making significant changes to food and drink menus, the breakfast offer, branding, and design; we have evolved All Bar One’s food and drink offer with a clear focus on its target market of professionals and shown that it can be successful in a greater diversity of locations. Our remodel programme is aimed at enhancing our existing businesses, to ensure that they surpass our guests’ high standards. We have actively increased the pace and level of expenditure on remodels. 174 businesses were remodelled in FY 2014, compared with 97 in the prior year, generating returns in excess of 30%.”

Analyst: End of beer tie could be best thing for pubcos since Beer Orders: Leisure analyst Geof Collyer, issuing a strong ‘Buy’ note on Enterprise Inns, has argued last week’s vote to the House of Commons to introduce a free market rent options for licensees could be the best thing for tenanted pub companies since the Beer Orders. He stated: “Our analysis suggests that Enterprise Inns should be able to at least offset the negative impact of the ending of the tie by cutting costs, creating its own managed retail pub division, raising some rents, reducing other discounts and becoming a more overt commercial property owner. If the company can back up our analysis – which we believe it could – then the current 65% discount to Net Asset Value should narrow considerably. A 10% reduction alone is worth 25% on the share price. Furthermore, we envisage Enterprise carving out around one-third of its estate into a REIT that could be spun off; worth an extra circa 50p a share alone. If the market rent only (MRO) option voted through last week by MPs is not rejected by the House of Lords and the amendment is taken into law as indicated by the government, then the legally-enforced beer tie will end for major pubcos like Enterprise Inns and Punch Taverns, and the elephant in the room – for the past 20 years – will have been removed. We see the end of the seemingly archaic beer tie as an event that will fundamentally alter managements’ strategies for sustaining and creating shareholder value. The end of the beer tie will drag everyone kicking and screaming into the 21st century – companies, lobbyists and tenants alike. It may not seem like it after last week’s share price decline, but this could be the best thing that has happened to the tenanted and leased sector since the Beer Orders in 1989. Royal Assent should come through by end March 2015. The legislative process could take nearly two years before the new law makes it onto the statute books (early August 2016 is current best estimate), allowing pubcos some time to prepare for the brave new world. Whilst the pubs will have to wait to ask to go free of the tie, the companies can force that change whenever they like. There has been a broadly constant 148,000 licensed premises in the UK for the past 20 years whilst circa 20,000 pubs have closed, suggesting that it is market forces not the pubcos that have determined the shape of the industry (with a little help from government policy – higher excise duties, smoking ban, 20% VAT etc,). The property owners – past and present – have responded to these forces. Government policy is likely to extend this decline a little further – a fact highlighted by its own analysis. The shape of the industry will change once again, radically and permanently, but from here, there seems little more that the politicians can do. And this is why this is good news. It is also why we would expect the companies not to say anything about specific plans until they know whether the MRO has definitely received Royal Assent. Eventual outcome (is) not quite what the victors will have had in mind. There should be no triumphalism from those who have fought the decade-long campaign to end the tie. The kind of market forces that they claim to have unleashed will not all be those that they expect, nor will they be able to control – that’s why they are called market forces. More pubs will close, more jobs will be lost, and some perfectly good licensees could become collateral damage. Neither should there be any crocodile tears from the pub industry, which has consistently failed to produce a coherent, united, all-encompassing strategy against the anti-PubCo lobby that has just refused to go away, however hard the industry has tried to ignore it. Just because one party seems completely intransigent does not mean that the other side should adopt the same stance. The groups with fewer than 500 tenancies have been seemingly excluded, though we suspect that there will be some adjustments once the whole Bill becomes law. It is not practical to create an artificial two tier system, and smaller pub owning brewing groups tend to have much less choice for their licensees than the large groups. And in any case, if you are a tenant of a small family brewer, getting a limited product list and little or no discount, are you going to apply for the tenancy/lease of the Punch or Enterprise pub next door, where the gross margins are much higher? Well you might, or you might not, because if you are sensible, you will take a wide-ranging collection of factors into account in your decision-making process, not just the price list and the wide range of SKUs into account.”

 

Eclectic warns of difficult second quarter: Bar and nightclub operator Eclectic, led by Reuben Harley, has reported first quarter trading was in line with expectations but that, the second quarter, which includes the important October period when students return to university, is proving more difficult. The Company has experienced three main challenges which have negatively affected its result for this period: university undergraduates nationwide have been less active across the marketplace during the Freshers’ weeks and have been less predictable; there has been increased and intense competition in a number of specific locations; additionally, because of the above factors two of our new openings, Lola Lo in Derby and Dirty Blonde in Brighton, have not performed as projected. The company said trading is stabilising, albeit at a lower level than expected. The management team have undertaken various mitigating actions and are actively assessing the new trends and the cost base is being reduced to match demand, as appropriate. The company stated: “Despite this mitigating action and it being early in the company’s financial year, the Board now believes that the shortfall created over the last few months is unlikely to be recovered. The Board anticipates that, based on the trading year to date and provided that trading for the rest of the half year is in line with the Board’s revised expectations, the first half adjusted Ebitda is likely to be in the region of £1.1m (the equivalent adjusted Ebitda for the half year 2014 excluding discontinued operations was £1.4m). On a more positive note, bookings for Christmas and New Year are looking strong, in particular for Lowlander, Dirty Blonde and Manchester Lola Lo. Consequently, whilst acknowledging that Eclectic is a strong, well-financed business, profitable and highly cash generative, the Board has decided it would be prudent to reduce its aspirational roll out of two to three new openings in the current year to one to two. The previously announced dividend of 2.5p per share will be paid on 27 November. The Board will consider the payment of an annual dividend at the time of the final results in September 2015 dependent upon trading performance during the remainder of the financial year.”