City snapshot: Marston’s to cut up to 2,150 jobs amid new coronavirus restrictions

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Pub and brewing company Marston’s is to cut 2,150 roles after the coronavirus lockdown and ongoing restrictions have had a “material” impact on its trading.

Updating the market on its full year results, Marston’s said the enforced closure of pubs and restaurants from 20 March to 4 July was the primary driver of a 30% slump in group-wide sales to £821m.

Total pub sales for the year were £515 million, 34% below last year, principally reflecting the closure period and the impact of the disposal of 168 pubs for proceeds of £61m in the first half-year.

In Marston’s Beer Company, which is to form a joint venture with Carlsberg UK, sales for the year were down 22% to £306m.

It said off trade volumes for the year were up 23%, driven by exceptional demand during the period of pub closure, while on trade volumes (excluding the closure period) were 11% below last year.

Since 4 July, approximately 99% of its pubs have been re-opened by the year end, though a small number closed subsequently as revised regulations were introduced in Scotland. Managed and franchised like-for-like sales averaged 90% of last year over the 13-week period to 3 October, with sales down by 12% during September after a 5% uplift in August.

The group estimates that social distancing and other restrictions reduced average indoor capacity by approximately 30% in this period, although this was mitigated by the fact that most of its pubs have beer gardens.

Marston’s stated: “Consumer confidence increased steadily throughout July, August and into September, helped by guest reassurance from the safety measures adopted in our pubs, reduced VAT on sales of food and non-alcoholic drinks, the success of the Eat Out To Help Out campaign during August, and good weather in September.”

However, additional restrictions in September and October including curfews, and the introduction of the 3 Tier system has undone some of this sentiment, it said.

“The initial effect of these new rules has been to undermine consumer confidence and create uncertainty. Restoring confidence will only happen when UK Government and the devolved administrations are able to remove these restrictive measures, which they state are intended to be short term in nature.

“The introduction of these further restrictions and guidance affecting pubs is hugely disappointing in view of a lack of clear evidence tying pubs to the recent increase in infection levels, and our own data which suggests that pubs are effective in minimising risks.

“Very few incidences of COVID-19 infection have been reported in our pubs by employees or guests to date, supporting our view that socialising in pubs, where social distancing is enforced and hygiene standards are high, presents lower risks than in other non-regulated settings.”

It said these recent restrictions will impact jobs, and specifically cited the incoming restrictions for its conclusion that around 2,150 pub-based roles currently subject to furlough are going to be impacted.

CEO Ralph Findlay commented: “The additional restrictions which have been applied across the UK most recently present significant challenges to us and will make business more difficult for a period of time.

“I very much regret that the consequence of this is that the jobs of around 2,150 of our colleagues will be impacted, but it is an inevitable consequence of the limitations placed upon our business. We will be looking at our cost base further in the coming weeks.

“There is much uncertainty ahead, the majority of which is outside of our control, however we will continue to focus on the safety of our teams and guests. Looking beyond the immediate challenges, we look forward to our future as a focused pub operator, returning to growth when trading conditions allow and realising the opportunities which are open to us over the medium to longer term.”

Marston’s shares are down another 2.7% to 43.6p on the news, having trading at around 130p at the turn of the year.

Morning update

British American Tobacco has announced that Luc Jobin will succeed Richard Burrows as its chairman.

This will take effect from the conclusion of its AGM on 28 April 2021 and, in order to ensure an effective transition of the leadership of the Board, Jobin will be appointed as chairman designate of BAT effective 1 March 2021.

The BAT board praised Jobin’s experience of enterprise transformation, extensive North American knowledge and cross-industry credentials.

Jobin joined the BAT Board in 2017 as an independent non-executive director.

During his executive career, he was president and CEO of Canadian National Railway Company. Previously, Mr Jobin was Executive Vice President of Power Corporation of Canada (an international financial services company), and held the roles of CFO and, between 2003 and 2005, CEO of Imperial Tobacco Canada.

Burrows will step down as chairman and retire from the board at the end of the Company’s 2021 AGM.

Dimitri Panayotopoulos, senior independent director, commented: “The Board was clear that it was looking for a candidate with energy and personality to lead the Board while BAT embraces the strategic opportunities of our corporate transformation. His significant North American experience and his track record in consumer and customer businesses, set against a strong list of external and internal candidates, made Luc the ideal candidate.”

Burrows added: “Luc brings with him significant financial, regulatory and M&A experience. He has been an outstanding non-executive director over the last three years, providing consistent support, insight and constructive challenge through the development of strategy.”

Elsewhere, Domino’s Pizza Group has posted a strong uptick in orders in the third quarter as people eating at home during the coronavirus crisis has boosted demand.

UK & ROI system sales were up 18.7% to £342.1m in the 13 weeks to 29 September.

UK system sales were up 19.6%, with UK like-for-like growth, excluding stores in split territories, up 18.3%.

On 15 July the UK government changed the rate of VAT on hot takeaway food from 20% to 5%. This change both helped franchisees mitigate costs and enabled them to pass savings on to our customers. For the weeks following the rate change, the VAT reduction benefitted UK reported system sales and like-for-like sales growth, however it has limited direct benefit to profitability.

Domino’s said it saw a benefit from staycations and the return of live sport on television during the period, although it also saw a headwind as competitors reopened following the national lockdown and, in September, it experienced weaker demand in university areas.

Collection orders were around 60% of the prior year level and it does not expect its collection business to fully recover to prior levels until normal consumer behaviour returns.

Because of the slump in collections, UK & ROI orders were actually down 6% in total, with 11.8% growth in delivery orders more than offset by a 41.5% decline in collection orders. However, items per order continued to see significant growth, and the product mix impact was also positive with the average item price up 12.6% due to the VAT change.

Online sales growth continued to be very strong at 35.6% for the UK and 18% for ROI.

Underlying group profit before tax is expected to remain in line with market consensus of between £93m to £98m.

CEO Dominic Paul commented: “I am delighted by the agility the Group and our franchisees have demonstrated in order to maintain our momentum.

“Working closely with our franchisees we continue to do everything we can to keep our people and customers safe, including wearing masks, the use of perspex screens, contact free delivery and collection and continued menu rationalisation. It is a privilege to stay open and serve our local communities, and we are confident that we have operational plans in place to adapt to different levels of lockdown that may arise in the coming months.

“We continue to work on a long-term strategic plan for the business. At the heart of our future plans is realignment with our franchisee partners and we are having detailed discussions to agree a sustainable way forward, although we continue to expect that these discussions will take some time. Despite the ongoing uncertain backdrop, we expect to report full year.”

AIM-listed spirits brand Distil has posted a 128% jump in first half sales as consumer demand shifted to the off trade and drinking at home.

Combined sales revenues increased 128% to £1.88m, with exports advancing 165% and UK sales increasing 121%.

It said brand mix was affected by Covid-19 related restrictions and many consumers staying home.

Blackwoods Gin sales improved by 74%, RedLeg Rum increased 139%, Blavod Vodka however, with its sales mainly through duty free and travel retail, fell by 70%.

It said overall spirits have performed well as consumers served their favourite cocktails at home during lockdown. Rum and gin categories continue to perform well, with UK market audit data for the 26 weeks to September suggesting flavoured rum grew 35% in value.

The Company achieved an Operating profit of £154k during the period compared to a £1k profit in the same period last year.

Production costs per unit increased mainly due to reduced line efficiencies through social distancing and other Covid-19 related measures. This has resulted in margins moving from 61% to 55% in the short term.

The group expects to exit 2020 in a stronger position. However, due to uncertainties regarding movement restrictions and sector closures relating to the Covid-19 pandemic it declined to provide full financial year to March 2021.

Exec chairman Don Goulding commented: “Our team responded well to both demand volatility and supply chain challenges during the first six months of this pandemic. We focused on providing customer support, and increased marketing investment together with greater flexibility. This has allowed us to adapt rapidly to market changes, customer needs, and ensure continuity of product supply throughout. Increased headcount and investment in new product development enabled the launch of new lines with more to follow.

“Lockdowns and imposed restrictions, particularly on the hospitality sector and international travel, means we have seen a significant short term shift in product mix and source of business away from the On Trade and Travel Retail toward Grocery and online retail channels as consumers stayed home.

“While the nature and speed of market recovery is uncertain we will remain responsive, flexible and efficient to ensure we exit this year in a stronger position.”

On the markets this morning, the FTSE 100 has slumped 1.8% to 5,826.6pts as fears over the second wave of coronavirus cases and UK restrictions have hit trading.

Heavy fallers so far include Domino’s, down 8% to 342.4p after this morning’s trading update, while foot to go players are down, with WH Smith down 5.5% to 935.5p, Greencore, down 4.7% to 99.5p and SSP Group, down 4.1% to 179.5p.

The few risers include Nichols, up 3.3% to 1,165p and McBride, up 0.3% to 61.2p.

Yesterday in the City

The FTSE 100 fell back 0.6% to 5,935pts yesterday as talk of a UK-wide short ‘circuit breaker’ lockdown in the UK persists.

Just Eat surged 6.4% to 9,404p after posting a 46% jump in third quarter sales.

Other rises included Devro, which was up 3.5% to 171p after appointing a new CFO, Coca Cola European Partners rose 3.2% to €34.70, WH Smith was up 3% to 990p, DS Smith rise 2.4% to 312p, Hilton Food Group closed up 2.3% to 1,176p and Greencore ended 1.6% up to 104.4p.

The day’s fallers were led by Greggs, which lost 4.5% to 1,301p.

Other fallers included Nichols, 2.6% to down 1,127.5p, Compass Group, down 2.3% to 1,187.5p, Associated British Foods, down 1.8% to 1,793.5p, British American Tobacco, down 1.8% to 2,666p and Ocado, down 1.7% to 2,420p.