The Week Ahead: Updates due from Mitchells & Butlers, Marston’s, Greggs, Compass and SSE
TWO of the UK’s biggest pub chains will reveal next week whether April’s wash-out weather has dampened sales, while high street baker Greggs will be quizzed about how it plans to deal with the pasty tax.
Strong growth in emerging markets will help the world’s biggest caterer Compass Group shrug off rising food prices and tough conditions in the UK on Wednesday.
The company is responsible for catering at Wimbledon and the US and French Open tennis championships, as well as the Cheltenham Gold Cup, the official post Oscars ball, the Brit Awards and the O2 Arena in London.
And its Letheby & Christopher sports catering arm provides hospitality staff for events such as Henley Royal Regatta and venues including the Millennium Stadium in Cardiff and West Ham United Football Club.
The Surrey-based group has seen its shares rise 20% in the past half-year as it has benefited from the trend of companies and public sector organisations outsourcing catering to save money.
But it is battling hard times in the UK as the economic gloom forces people to eat out less.
Like-for-like volumes in Europe were lower in the half-year to the end of March, with the UK the worst hit.
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However, in North America, its biggest market, there are signs of a recovery, while it has seen double-digit growth in markets such as Latin America, Russia, India, China and Turkey. It said revenues are set to rise 8.5% in the half-year.
And it is dealing with stubbornly high food inflation by making changes to its menus and through greater efficiency in purchasing and logistics.
The City expects pre-tax profits to increase 9% to �581 million.
Kevin Lapwood, an analyst at Seymour Pierce, said: “The North American business is likely to be encouragingly strong and the prior year comparatives in Asia are easier, due to the impact of the Japanese tsunami.”
Greggs could face a grilling from shareholders and analysts on Wednesday about how much the proposed “pasty tax” will hurt it.
The chain, which is holding its annual general meeting, has been battling plans announced in the Budget to extend the 20% VAT tax to its hot takeaway food, including pasties and sausage rolls.
Chief executive Ken McMeikan helped deliver nearly half a million signatures to 10 Downing Street last month, claiming that the tax is unworkable, would hit the poor hardest and may further damage the high street.
Greggs already pays VAT on hot sandwiches, breakfast rolls, soup, coffee, and a selection of confectionery lines, accounting for some 20% of its sales, according to Clive Black, an analyst at Shore Capital.
He said the Government’s plans would hit Greggs’ savoury range, which accounts for about a third of its sales, and had previously been exempt because the products are left to cool after being cooked.
He said the challenge for Greggs will be trying to work out what proportion of its products are sold above room temperature and attract the tax.
He added: “In a tough consumer environment, where volumes are already under pressure, any increase in price would clearly not be good news for Greggs.
“However, the group would not be alone in applying the increase and we believe the impact could be more significant for some of the constrained regional bakers.”
The consultation period ends on Friday but the Government is not expected to back down. Shareholders will be keen to learn what else Greggs will do to fight the change and how much it thinks it will impact sales and profits.
The City will also be hoping that the publicity surrounding the pasty tax protests will have helped boost sales in recent weeks.
The Newcastle-based group reported a 1.8% fall in like-for-like sales in the 10 weeks to March 10 after decent growth in 2011, but said it was too early to say whether this was a one-off or was reflective of a longer-term slowdown on the high street.
The group recorded a 1.1% rise in underlying profits to �53.1 million in 2011, as its meal deals and breakfast baps proved popular with consumers and it sold a record 17.3 million cups of coffee.
Greggs has introduced a range of new deals in a third of its stores in some of the worst-hit parts of the UK, mainly in Scotland, the North-East and the Midlands, to drum up more trade.
These include two sausage rolls for �1 and a new range of baguettes that sell for �1 with fillings such as cheese and pickle.
SSE, which trades as Southern Electric, Swalec and Scottish Hydro, was supplying household energy at a loss for much of last year because of rising costs and a delay in increasing bills until September.
It has also seen a slump in the consumption of gas, with usage for the nine months to December 31 down by 26.6% compared with a year ago because of the economic downturn and warmer conditions over the autumn.
The same weather trends continued over much of the first three months of 2012, meaning there could be further pressure on household margins.
It raised household gas prices by an average of 18% in September but a subsequent cut of 4.5% due to falls in wholesale prices did not come into force until March 26, five days before the end of its financial year.
The company has pledged to freeze prices until at least October but with rival Centrica warning that it is facing rising costs SSE will be under pressure to provide guidance on the outlook for tariffs this winter.
The company had 9.6 million electricity and gas accounts in the UK and Ireland at the end of 2011, slightly weaker than a year earlier.
Its adjusted profits on Wednesday are expected to show a similar level of growth to that seen in each of the last three years, suggesting a rise of around 2% to �1.33 billion, although this could be influenced by weather and lower consumption.
The company has already signalled that its dividend for shareholders will increase by at least 2% more than inflation.
It has invested at least �1.7 billion in commissioning new assets during the last financial year and needs the promise of a healthy dividend to ensure it is able to raise enough money to fund spending on its network.
SSE recently said its onshore wind farm capacity had exceeded conventional hydro electric capacity for the first time.
Strong sales of pub food will boost Pedigree and Hobgoblin brewer Marston’s on Thursday. The Pitcher & Piano and Tavern Table firm has already reported a 3.5% rise in like-for-like sales in the 23 weeks to March 10, while profits at its tenanted pubs were about 3% ahead of last year.
The Wolverhampton-based group, which employs 12,000 people and has an estate of 2,150 pubs, is expected to say the heatwave in March boosted its performance, giving it a strong finish to the end of the first half of its financial year.
Douglas Jack, an analyst at Numis expects pre-tax profits to rise 10% to �32 million in the six months to the end of March.
He believes April’s wash-out weather will have hit recent trading but the Diamond Jubilee, Olympics and Euro 2012 football championships will boost sales over the summer.
The company has said it is on track to open 25 new-build pubs in areas of high traffic flow such as retail parks this year, most of which will come in the current six months.
It has opened more than 50 new outlets over the past five years, with food now accounting for 42% of sales, up from 27% in 2004.
Mr Jack said the new-build pubs were generating better cash returns than had been hoped and would help drive profits higher this year.
Harvester owner Mitchells & Butlers will suffer a hangover from a cocktail of rising taxes and food costs when it reports half-year results on Friday.
The group, which also owns the All Bar One, Toby Carvery, O’Neill’s, Brown’s, and Sizzling Pubs brands, reported a resilient 4.4% sales increase in the 17 weeks to January 21, with pub grub driving the growth.
However, trading slowed in January and is expected to have remained subdued in February, although March’s heatwave should have provided a lift.
But the group, which has around 1,600 sites in the UK, has been struggling to pass on rising costs, including food and energy prices and hikes in alcohol duty, to customers.
Underlying earnings are expected to fall to between �135 million and �138 million in the six months to early April, compared to �141 million in the previous half-year.
Mitchells, which serves an estimated 125 million meals and 425 million drinks a year, previously said it is trying to offset some of the rising costs by growing sales and introducing ‘menu initiatives’ but it will be pressed on whether it is making progress.
And investors will also be hoping for an update on in its hunt for a chief executive to end to the boardroom turmoil that has plagued the group in recent times.
Shares have lost nearly a third of their value in the past year and some analysts fear the lack of stability at the top may be hurting its performance.
Executive chairman Bob Ivell is in temporary charge after Jeremy Blood and Adam Fowle left in quick succession, while the company also lost its chairman Simon Burke last year.
Mr Burke’s departure reportedly came after he fell out with billionaire activist investor and owner of Tottenham Hotspur football club Joe Lewis, who holds nearly a quarter of the shares in the company.
Mr Lewis recently tried to buy Mitchells but a second indicative bid worth �940 million was rejected as a “significant undervaluation” of the business.