I would like to say how much I enjoy the e-mails from Langton Capital on a daily basis. I use the newsletter as an ideal way of keeping me up to date with what is going on financially in the drinks industry.
Tenanted pub company
Deliveroo & Uber, Hawthorn Leisure, Carluccio & other:
A DAY IN THE LIFE:
Two deer jumped into our garden (a.k.a. a couple of unkempt fields full of trees, nettles and brambles) yesterday and commenced eating most things that we wanted to keep whilst trampling the rest of our green stuff into the mud.
The mummy deer then jumped back out and ran away leaving the hungry fawn, I think it’s a red deer and, whatever it is, it’s the size of a small donkey, to rampage around destroying things and scaring the dog.
And that, as far as I’m aware, is still how things stand because the vicious monster is pretty good at running away, hiding and / or fading into the scrubland and wooded areas and the dog can’t find it.
At least he hasn’t come running back from one of his forays covered in blood, bruises and hoof prints and I think that’s a pretty good sign.
Anyway, it’s time for the news but if you would like to come off this email list please simply hit the unsubscribe button above. Similarly, if you are getting it forwarded and would like to go on directly or if you would like to recommend it to one of your colleagues, please just hit the subscribe button and/or suggest that your colleague does too.
PUB, RESTAURANT & DRINK PRODUCERS:
• Carluccio’s CVA proposal shows a 6.9% decline in like-for-like sales across the group in FY17, with trading continuing to deteriorate in the first half of 2018. Last-12-month EBITDA was as low as £4.8m by March 2018, compared to £7.5m in August 2017. Carluccio’s warns that if current trends continue EBITDA will fall below £3m by the end of this calendar year, which is ‘insufficient to meet minimal maintenance capital requirements across the estate as well the financing charges’.
• Of the 62 sites opened by Carluccio’s since 2009, only two have been refurbished, and only six of the brand’s top performing 15 sites have been refurbished since 2012. The ‘Fresca’ turnaround programme, which is conditional on the CVA being approved, will address this with capital investment of up to £250,000 per site.
• Deliveroo has launched a purely internal £5m “innovation fund” to invest in UK restaurants. The delivery company wishes to fund restaurants and chefs with rollout potential. Deliveroo says ‘expanding our delivery-only sites, giving restaurants access to our super kitchens, Deliveroo will bring new, exciting brands to local areas.’
• Uber Eats is preparing for its next phase of expansion that will see it operating in 100 towns and cities across the UK and Ireland by the end of the year, per MCA.
• Commenting on experiential trends, investor Imbiba says ‘we at Imbiba are believers. Competitive Socialising is here to stay within the broad church of experiential leisure; a growing an exciting segment. As ever, the much harder question is who will be the winners and losers. What we can say with some certainty there will be both.’
• Imbiba comments on rents saying ‘some divisions of the leisure industry have clearly reached saturation, as evidenced by the recent malaise in the casual dining sector.’ It says that it is not convinced that operators have learned that they should not pay high rents and over-expand.
• Canadian coffee chain Tim Hortons will open its first site in Belfast, Northern Ireland on 25 May.
• Per Sunday Times, a growing number of retailers and restaurant chains are using CVAs to gain competitive advantage rather than protect from insolvency. One example was Prezzo taking a 25-year lease near Reading with annual rent of £70,000 in 2016 and recently using AlixPartners to write to the landlord informing they are going to close the site. Prezzo claimed an 8.1% fall in LfLs due to increased competition was a valid reason to close 94 out of 300 sites. Prezzo paid the rent on the unit at a reduced rate of 25% for eight weeks, then gave back the keys.
• UK obesity rate doubles during primary school years to 20%, above the US figure of 18.5% for 9-11 year olds. In the UK 11-15 year olds have an obesity rate of 23%, compared to America’s 20.6%.
• Remarkable Pubs acquires the freehold of the Boleyn Tavern on 1 Barking Road, London. The move takes the pub group to 15 predominantly freehold sites. Elton Mouna, MD at Remarkable, said ‘The Boleyn Tavern is an imposing Victorian Grade 2 listed corner pub fitting wonderfully in to our portfolio of quality heritage London pubs’.
• GBK has reported an operating loss of £7.8m in the year to 28 February, according to the group’s parent company, Famous Brands. The group made a £4.2m impairment of property, plant and equipment and a provision for property related expenses of £2m for GBK but said it remained ‘confident that the interventions being implemented in the business will ensure that GBK returns to profitability in the medium term.’
• Petrol prices are at a three-and-a-half year high, prompting many to cut back on car use or other spending, according to data from AA. AA president Edmund King said: ‘AA research has shown that nearly two in every five drivers are already cutting back on car use, non-fuel spending or both’.
• Intersnack has acquired Tyrells for an undisclosed sum.
• Property REIT NewRiver is said to be in advanced talks to acquire 300-strong Hawthorn Leisure for around £100m reports the MCA. Hawthorn is currently owned by Avenue Capital. NewRiver has previously bought 202 pubs from Marston’s and 158 pubs from Punch Taverns.
• IEA says that a quota system for immigration is not necessarily the way forward.
• Temper opens third site. Investor Imbiba has reported ‘the third restaurant from Neil Rankin and Sam Lee in Covent Garden will pivot toward pizza’.
HOLIDAYS & LEISURE TRAVEL:
• Hotelbeds, the leading Majorca-based B2B beds supplier, has stated that the group is considering an IPO. Joan Vilà, the group’s executive chairman, commented about intentions of their current owners: ‘In three years they may like to sell. I think we are a perfect business for an IPO (Initial Public Offering of shares). I think there’s a big chance that this might happen’.
• Blackston is to sell its remaining 15.8 million shares stake in Hilton in a privately negotiated transaction.
• Last week the US Geological Survey warned pilots to avoid a potentially damaging ash cloud above Hawaii, as Kilauea volcano erupts.
• The UK Foreign Office warned travellers ‘Terrorists are very likely to try to carry out attacks in Indonesia’ following a series of bombings in the city of Surabaya.
• Fritz Joussen, CEO of Tui Group, said ‘Putting the Nordics with the UK works, so does the Nordics with the Germans, and the Dutch with the British. They all work well, but it’s a little bit more difficult with the Germans and the British. It can be done, but you need to really balance it. If you had 10 English and one German, the balance would be wrong and so we have to be careful.’
• Joussen also said Brexit will not change much in the short-term but nationalism in the long-term will not bring peace to the world.
• Uber appealed to Brighton Magistrates Court on Friday over the stripping of its license over ‘fit and proper’ concerns. The Silicon Valley firm is also battling to keep its cars on the streets of London.
• Chelsea boss Roman Abramovich is reported to be facing delays in renewing his UK visa.
FINANCE & MARKETS:
• China and the US have halted their move towards tit-for-tat import tariffs. A trade war is said to be ‘on hold’.
• Rightmove reports the UK house price index moved forward in May. Prices rose 0.85 on the month.
• Eurozone trade surplus up to €21.2bn in March from €20.9bn in April.
• Sterling down at $1.3429 and €1.1426
• Oil down at $79.08
• UK 10yr gilt yield down 6bps at 1.50%
• World markets: UK, Europe & US down on Friday but Asia up in Monday dealings on reduced prospect of Sino-US trade war
• Brexit, politics etc.:
o General Election? Tory MPs are reported to be gearing up for an autumn election to ‘break the Brexit impasse’
o Same people who say another vote on Brexit is not warranted may be calling for another vote via an election
o Mrs May, her inner Cabinet, the whole Cabinet, the Tory party, the Commons and the country as a whole not sure what to do
o Outgoing CBI boss Paul Drechsler calls for clarity on trade. Or on anything. Says current (lack of a) position is negative for the economy, jobs etc.
o Bloomberg reports EU has given no assurances that any of the proposals re the Irish border will be acceptable
o Bloomberg says polls now show a majority of the country is against Brexit. Says numbers re too close to be sure what anybody really thinks
o House of Lords has imposed 15 defeats on Mrs May’s Brexit proposals
PRIOR DAY LATER TWEETS:
• Later tweets: So, are CVAs a sign that discounting and high rents are unsustainable? Or will they perpetuate it?
• CVAs. What are the unintended consequences? Could they drive up rents in some areas whilst bringing them down in others?
• Carluccio’s seeks to dump 34 bottom-end restaurants. MCA says restaurant numbers still rising
• Carpetright raises £60m of new equity. Basically 4 for one. New shareholders drown the old. That’s the price of a CVA
START THE DAY WITH A SONG:
Friday’s song was Perfect Day by Lou Reed. Today, who sang:
I am the son and heir,
Of nothing in particular
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News (1): There was plenty of Retail news for the Saturday papers to talk about, quite apart from the Carpetright £60m fund-raising, which sent its shares up by 11% on Friday: this was well covered in the Times and the Telegraph, with the Business editorial in the Times mocking the fact that if CEO Wilf Walsh had stayed as boss of Coral the bookmakers he would also have been closing lots of shops…The FT had an interesting feature on the rescue equity placings by the embattled Carpetright and Mothercare last week, noting the big bets made by the Meditor and Ora funds respectively (“Carpetright and Mothercare kept afloat by faith of two investors”). The FT also had a profile of Tim Steiner of Ocado after seeing his faith in the business totally vindicated by the share price jump on the back of the Kroger deal (“Ocado’s frontman shines after swapping Goldman for groceries”). Tim Steiner of Ocado was also profiled by the Daily Mail as its “Big Shot of the Week”.
• Saturday Press and News (2): The Times went big on the news that, as well as being overtaken by Ocado in market cap terms, Marks & Spencer is on the brink of getting relegated from the FTSE 100 index in the next quarterly review on May 30th (M&S is now only the 102nd biggest company), with the Business editorial in the Times mocking the fact that “Marks is heading for a significant fall”, despite the “Markle & Sparkle” PR hype: “a wedding will possibly be followed by a swift divorce from the blue-blood club”. The Times also had a feature on the crisis in the High Street (“High Street must change - or shut up shop”) and its main Leader column about “Retail therapy” thundered that “the closure of traditional shops is not a prescription for urban tumbleweed”. The market report in the Times led with the short squeeze in AO.com on Friday on the back of the big Ocado reverse for hedge funds, whilst its “Share of the Week” column looked in detail at Moss Bros after last week’s trading update and concluded that the shares are a Sell.
• Saturday Press and News (3): The big story in the Daily Mail was the scoop that Lidl may be planning to enter the Online Grocery market after registering the name “Lidl Digital Logistics” at Companies House. In other news, the appointment of Laura Carr as the next FD of Dunelm was picked up by the Times and the Telegraph, the pay cut for Mark Newton-Jones (the returning CEO of Mothercare) was noted by the Telegraph and the Daily Mail, the news that the CMA has started its preliminary look at the Sainsbury’s/Asda merger was flagged by the Times and the Telegraph and the news that Ikea has pulled out of a store development in Preston was highlighted by the Guardian and the Daily Mail. The Guardian also noted the copyright row between Hotel Chocolat and Waitrose and had a feature on the UK expansion of the Aussie stationery chain Smiggle. Finally, the FT Magazine had a big feature on the “dark factories” in the clothing industry in Leicester and the fact that workers are paid as little as £3.50 an hour because of the low prices forced on suppliers by the likes of Boohoo.com and other Online fashion retailers.
• Sunday Press and News (1): There was, inevitably, saturation coverage of yesterday’s Royal Wedding in sunny Windsor in the Sunday papers (ranging from 6 pages in the Observer to 47 pages in the Mail on Sunday), but the big Retail scoop was the news from Oliver Shah of the Sunday Times that mighty Next is now demanding rent cuts from landlords who help its rivals via the controversial CVA process and he followed up this front page Business story with a feature on CVA’s (“Can’t Pay? Won’t Pay!”), raising the suspicion that some retailers and restaurant chains are now using CVA’s to gain a competitive edge and musing whether landlords will soon take a stand and block a CVA. Oliver Shah of the Sunday Times also followed up his recent scoop that John Lewis Partnership turned down an approach for Waitrose from Amazon by flagging that Charlie Mayfield, the Chairman of JLP, faced another confidence vote at Staff Council last week (and saw his support improve from just under two-thirds in last year’s vote to just over three-quarters)
• Sunday Press and News (2): The Sunday Times also flagged that Marks & Spencer will announce more store closures (100 rather than 60) with the final results this week, but its Business editorial thundered that Archie Norman could add more sparkle to M&S by redeveloping its labyrinthine Marble Arch flagship store. The Sunday Telegraph flagged up the story that M&S could drop out of the FTSE 100 index and also reported that House of Fraser may try to close as many as 30 stores (rather than 20) in its CVA plan. The Business editorial in the Sunday Telegraph thundered that “Ocado is on course to be the UK’s next tech champion”, whilst the Sunday Times highlighted that Ocado CEO Tim Steiner is on course to collect £110m in share bonuses from Ocado and the Mail on Sunday noted that Ocado Chairman Stuart Rose made £3m last week on his share stake. The “Inside the City” investment column in the Sunday Times, however, said that “Ocado’s big deal may not deliver” and said it’s “time to take profits” in Ocado.
• Sunday Press and News (3): The main Business story in the Mail on Sunday was that the Food and Rural Affairs Committee of MP’s wants to launch its own investigation of the Sainsbury’s/Asda deal, because of its likely impact on farmers, whilst the Midas investment column in the Mail on Sunday looked at M&S and concluded that the shares are a Hold. Finally, the Sunday Times had snippets about the news that Stefan Persson, the Chairman of H&M, has been buying more shares (increasing the family stake in H&M to 44%) and that the new CEO of Halfords faces a big test this week via the final results.
• News Flow This Week: A busy week (ahead of the next Bank Holiday weekend) kicks off tomorrow with the Halfords finals, the Pets at Home finals and the Topps Tiles interims. The much-awaited Marks & Spencer finals are on Wednesday. Then Thursday brings the Kingfisher Q1, the Inchcape Q1 and the Shoe Zone interims, plus the ONS Retail Sales figures for April. And it is a sign that the “summer season” is now upon us that the Chelsea Flower Show starts today and that the Lords Test against Pakistan starts on Thursday.