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
January Tracker, Coke, Cake, minimum pricing, FlyBMI & other:
A DAY IN THE LIFE:
Whilst ‘trim that hedge’ seems like a fairly innocuous request, if the hedge in question comprises half a dozen or more beech trees that are now twenty feet high with trunk diameters of 9” or more that have been hardened by decades of ‘trimming’, there’s more to the task than might first be imagined.
So, find the chainsaw.
Or rather find a chainsaw.
Or, more specifically, find a chainsaw that works because there are several gathering dust and attracting spiders in the shed as we’ve been here before, none of them work and it’s proved more viable in the past to buy a new one.
But no. Green credentials to the fore this year. Waste not, want not and, after having nipped out to buy some petrol (and then some oil), we got one to work, to not shed its chain every two minutes and to cut things but, as the ripping, tearing machine is intensely dangerous, we thought goggles might be a good idea and, two hours, another trip to the DIY store and a leisurely coffee later, we set to work.
And that’s when we fell out of a tree. On to the news:
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JANUARY PUB & RESTAURANT TRACKER:
• CGA Peach’s January pub & restaurant tracker has shown that LfL sales were down by 1.8% on the month (down c3.7% in real terms).
• Tracker shows pubs > restaurants and drink > food. These are all continuations of recent trends. London was a little worse than the provinces, something relatively new.
• January is always a quiet month. February is little better. Half term in February (staggered this year, this week & next) along with Valentine’s Day, usually provide a couple of bright spots.
• CGA says ‘after strong trading over the festive season, which saw sector like-for-like sales 4.1% up on 2017, operators will be disappointed that there has been no follow-through into January – even though the weather, and in particular the lack of snow early in the month, was better than last year.’
• CGA adds ‘this year Brexit is bringing more anxiety for the industry.’
• Pubs and restaurants were both negative. Pubs were down 1.4% and restaurants, where over-building has been more of an issue, were down 2.5%. Costs have been rising at a faster rate than inflation.
• London was down 1.9% overall with the provinces down 1.7%.
• London restaurants were down by a whopping 4.1% whilst London pubs were down by just 0.5%.
• CGA says ‘branded restaurant operators continue to have a tougher time than pubs, despite many closing under performing sites in the last year, and that is most marked inside the M25 where competition is more intense and consumers are more likely to look for, and find, somewhere new to try out.’
• This runs contrary to some property company and property agent comments that have suggested everything is rosy. Property company share prices have been signalling something rather different.
• Property agent Davis Coffer Lyons says ‘the strongest innovative operators who continue to exceed customer expectations in terms of service and value are trading well as indicated in Christmas trading statements.’
• Observers have pointed to ‘Dry January’ amongst other factors. Despite this, drink sales have remained relatively robust (down 0.7% in pubs versus down 2.0% for food).
• CGA says that ‘premiumisation’ remains key in driving drink sales. Langton has commented on price gouging on a number of occasions. Paying £5.50 for ‘normal’ beer in a City pub is now by no means uncommon. Price gouging tends to be finite and it may not survive a consumer slowdown.
• Sponsor RSM says ‘we expect discretionary spending on eating and drinking out to remain constrained as Brexit uncertainty continues to weigh on consumer sentiment.’
• Capacity increases continue to weigh on LfL trading as total sales were +1.2%. This is below inflation but some 3pps ahead of the LfL figure.
• Comment: January is a slow month. If you are going to have a pup, then that is the month to have it in. Feb will give us more of a clue as to what is going on. It should be buoyed by Valentine’s Day & Half Term (both annual events) but also by the lack of a Beast from the East.
• March is skewed by the timing of Easter (as is April) so, in some senses, May could be the first ‘normal’ month. The summer will be influenced by the lack of a World Cup this year (and the summer may be average) meaning that the year as a whole could be rather hard to read.
• The mood music is cautious.
PUBS & RESTAURANTS:
• The Daily Mail reports six people, including three junior staff members, are facing arrest due to the £40m hole in Patisserie Valerie’s accounts. The fraud under investigation includes the counting of voucher sales twice to inflate profits and failing to pay VAT bills of between £10m and £12m. Causeway Capital, the Irish firm who bought the bakery chain out of administration commented: ‘Patisserie Valerie is heritage brand, much loved by its loyal customers. This investment should mark the end of a turbulent period for customers and suppliers alike’.
• The wording of the statement suggests that some people outside the company could also be arrested.
• Jokes (or rather lamentations) about the competence or lack of it shown by directors, advisors & auditors to one side, the maintenance of ‘thousands’ of fake transactions must have represented something of a cottage industry with more than just the CFO involved. We await further developments. There are still some smaller assets to be sold but it is likely that shareholders will not be in line for a payout from the administrators.
• Coca-Cola HBC has acquired the Serbian confectionery business, Bambi for €260m. Zoran Bogdanovic, CEO of Coca-Cola HBC, commented: ‘This acquisition represents an excellent opportunity to create additional value for Coca-Cola HBC, its customers and shareholders’.
• The Campaign for Real Ale has stated that bars are being crippled by high rates of duty, business rates and VAT. Camra boss Jackie Parker said: ‘A lower beer duty rate for pubs could be an absolute game-changer in keeping our pubs open as well as encouraging responsible drinking in a social setting’.
• The Telegraph has reported that industry figures are calling for the government to use Brexit as a ‘once-in-a-generation opportunity’ to ‘level the playing field’ between prices paid for alcohol in pubs and supermarkets. There is little, except the desire to please the crowd, to suggest that this will be government policy. See Roman policy towards Bread & Circuses to get an idea as to what might happen.
• The BBPA has responded to the Welsh Government’s decision to ‘press ahead’ with plans to introduce a 50p minimum unit price for alcohol in Wales, with Chief Executive Brigid Simmonds stating: ‘We look to the Welsh Government to provide clarity as to how and when MUP will be implemented. The BBPA has always been concerned about imposing conditions which penalise responsible drinkers and there is no denying that this decision will cause uncertainty, but what is important now, is that industry is given a break from any further blanket-regulations. This will also allow MUP to be properly assessed as a policy to reduce alcohol-related harm’.
• The 30-strong Giggling Squid has appointed advisors as the group considers its options for the next stage of its growth, Propel has reported.
• Chief Executive of UKHospitality, Kate Nicholls has responded to the Gambling Commission’s consultation on the National Responsible Gambling Strategy, stating: ‘The sector is being proactive in tackling issues around underage play and gambling-related harm. We take our responsibility seriously and we want to make sure that gambling takes place in a supervised environment. UKH regularly meets with other stakeholders, including the Gambling Commission, to work closely over shared areas of concern and develop best practice’.
• The French supermarket retailer Casino has been reducing its debt by selling assets and has announced that it has agreed to sell its contract catering business R2C to Compass Group.
• ONS figures have shown that retail sales have climbed 1% in January, following a 0.7% decline in December.
• Moody’s has reported that Premier Foods’ decision to withdraw from its intention to sell Ambrosia is credit negative. It says this is because the company ‘was intending to apply proceeds to reduce its debt and strengthen its balance sheet.’ Arguably understandably, the company had concluded that now was not the time to be selling assets.
HOLIDAYS & LEISURE TRAVEL:
• The European Travel Commission reports international tourist arrivals up 6% yoy in 2018, keeping Europe and the most visited region in the world. The report finds growth continues despite ongoing trade tensions, uncertainty surrounding Brexit and the economic slowdown in the Eurozone and China.
• CEO of Tui, Fritz Joussen, has bought nearly €1m of shares in the business after shares have fallen almost a third since it warned on profits.
• Flybmi has ceased operations and filed for administration blaming ‘recent spikes in fuel and carbon costs, the latter arising from the EU’s recent decision to exclude UK airlines from full participation in the Emissions Trading Scheme.’ The carrier operated 17 regional jets on routes to 25 European cities with 376 staff based in the UK, Germany, Sweden and Belgium. Around 1,000 passengers are understood to have been due to fly with the airline on Sunday.
• Although Flybmi is (was) a relatively small player, its demise will put upward pressure on flight prices. This could raise the cost of holidays over time but, in the short term, it could help Thomas Cook in its search for a buyer for its airline.
• Six Flags Entertainment reports revenue below expectations in Q4 at $270m but earnings above expectations at 93 cents per share. The mixed results saw the company’s share price fall more than 15% on Thursday.
• Amazon announces live-streaming platform Amazon Live, allowing marketplace traders to create video talks and demonstrations of their products.
FINANCE & ECONOMICS:
• Trade talks between the US and China have yet to make a breakthrough.
• Sterling up markedly at $1.2906 and €1.1411. Oil up a buck & a half at $66.45. UK 10yr gilt yield up 1bp at 1.16%. World markets all higher on Friday with Far East up in Monday trade.
• Brexit, politics etc.:
o Less than forty days to go. Mad Hatter’s Tea Party ongoing. Lions led by donkeys etc. There’s no fool like a rich fool. Bullying public school billionaire Brexiters get no feed back & the air’s very thin up there! Various promises that were made during the Brexit campaign are coming to nothing. Billionaires, even multi-millionaires are OK as they will retreat to their Monaco villas etc.
o CBI says ‘politicians must find a deal that protects our economy. Failure would be unforgivable.’
o Airbus will make ‘difficult decisions’ about its future in the UK in the case of a no-deal Brexit. Porsche has talked of surcharges.
PRIOR DAY LATER TWEETS:
• Later tweets: So, RIP Patisserie Holdings. The group announced yesterday that it is to be cancelled as a limited company on 25 February.
• For shareholders, CAKE has lost at least 97% & more likely 100% of its value. Talks of a ‘rescue’ perhaps misleading
• Lawyers crawling like flies on CAKE for ages because, as the FT points out, not everyone lost money on Pat Val over the years
• RTN needs to ‘get a new CEO’ & ‘execute on the biggest purchase in our history’. It could be something of a challenge.
START THE DAY WITH A SONG:
Last Friday’s song was Best of You by the foo Fighters, today who sang:
Thought of your future,
With one foot in the past, now, just how long will it last?
No, no, no, have you no ambition?
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News (1): The better than expected ONS Retail Sales figures for January got plenty of focus in the Saturday papers and, although the coverage was uncritical in tone, that was for once deserved (as the controversial ONS Small Retailers sales figures looked surprisingly sensible). We’ll leave the last word to the Guardian, whose headline was “Retailers buoyed up as January Sales draw shoppers- but it won’t last, analysts say”.
• Saturday Press and News (2): In terms of other Retail stories, the Times highlighted that the Tesco share price seemed to benefit from the assurance from the company on Friday that the new IFRS 16 accounting standard on lease liabilities would have no economic impact on the business. The Telegraph took advantage of the fashion model photo opportunity provided by the Sky News story that the owner of the LK Bennett fashion chain has brought in advisers to look at a potential sale. The Telegraph also flagged that Marks & Spencer has tied up with a new start-up company called ChargedUp to provide an instore system of hiring out phone chargers to customers.
• Saturday Press and News (3): In terms of features, the Times had an interview with the former Home Retail boss John Walden, who has been brought in by the private equity owners of the highly profitable health foods chain Holland & Barrett to be the Chairman, but noted in passing that the ill-fated Australian buyer of the Homebase DIY chain in 2016 was taking a lot of risks (“After his spot of DIY, the boss who sold Homebase is on a health kick”). The City Editor of the Daily Mail turned his attention to the upcoming CMA verdict on the Sainsbury/Asda merger, noting that “the widespread assumption is the CMA may well give the deal a tentative green light”, but thundering that “big mergers use buckets of management time, create huge cultural and systems dissonance and cast a shadow over the workforce”. Finally, the Daily Mail, inter alia, flagged on its News pages that the Online fashion giant Boohoo is to phase out the use of wool in its clothing, on animal welfare grounds (“You fashion knit-wits!”).
• Sunday Press and News (1): The upcoming CMA verdict on the Sainsbury/Asda merger was also in the spotlight in the Sunday papers, with the Sunday Times flagging that Sainsbury has gambled that it will get the go-ahead by already bringing in the management consultants Bain to work on integration plans, although the Mail on Sunday noted that the deal could be stopped in its tracks if the CMA orders the disposal of more than 170 stores.
• Sunday Press and News (2): The Mail on Sunday followed up its recent scoops about Ocado with the revelation that the company will not be using its own vans for its much-vaunted new Zoom one-hour delivery service, but will use a French-owned courier service instead (“It’s va va Zoom…as French speed up Ocado deliveries”). The Mail on Sunday also flagged that the City expects that ABF will announce an impressive 25% increase in Primark’s first half profits in its upcoming pre-close update. The Sunday Times noted that the Marks & Spencer website crashed, embarrassingly, on Saturday, due to over-running maintenance problems. The Sunday Times also had a feature interview with the former Debenhams Trading Director Suzanne Harlow, who is now trying to turnaround the struggling Jack Wills fashion chain (“The party’s over at Jack Wills”), whilst the Sunday Telegraph highlighted that the struggling private equity owned garden centre chain Wyevale has narrowly escaped financial default by scrambling to sell off a third of its stores.
• Sunday Press and News (3): The Sunday Telegraph also flagged that Philip Day, who rivals “Mad”Mike Ashley for the title of “the new King of the High Street”, is ramping up expansion plans for his Days Department Store venture and is in talks about parcels of stores from both M&S and House of Fraser. And the Observer had a surprisingly positive feature article on Sports Direct’s web of retail interests (“The Direct approach: why ailing UK retailers are turning to Ashley”), noting that Mike Ashley is one of the few players still willing to invest in the High Street and that Debenhams have recently opened its books to him, in an effort to get him to take part in its refinancing.
• McColl’s: In its pre-close update back on Dec 4th, the struggling convenience store chain McColl’s flagged that difficult trading and continued supply disruption would mean that adjusted EBITDA would be down from £44m to c£35m in y/e Nov and that cost/margin pressures would lead to only a modest recovery in the new financial year. So expectations were low ahead of today’s finals and although McColl’s has reported a sales improvement to +1.2% LFL for the first 11 weeks of the new year, it is sticking to its previous cautious guidance on EBITDA. Despite a big fall in net debt, the slump in EBITDA is worse at a PBT level (£18.4m down to £7.9m), but shareholders may not be pleased to see the final dividend slashed to nearly nothing, with the company electing to maintain a 50% payout ratio…
• Planet ONS Watch: We flagged on Friday that, in the real world, Retail Sales were quite good last month, helped by some calendar timing factors, as per the BRC-KPMG Retail Sales figures for January (the 4 weeks to Jan 26th). And, amazingly, “seasonally adjusted” life was also quite good on that mysterious parallel world, the Planet ONS (aka the Office of National Statistics), via Friday’s official Retail Sales figures for January…As usual, City economists swallowed at face value the 1.0% rise in month-on-month seasonally adjusted sales volume, which was better than expected. We focused, as usual, on the year-on-year non-seasonally adjusted sales value figures and the controversial split between Large and Small Businesses. Overall Retail Sales (ex-petrol) were said to up by 3.5% (after 2.4% growth in December, revised up from +2.1%), but the ONS reported 4.1% sales growth for Large Businesses and only 1.4% growth for Small Businesses (a huge reversal of the reported trends in December, when Large Retailers were up by a revised 1.0% and Small Retailers were up by a revised 8.3%)…Unaccountably, the wretched ONS yet again did not think the divergence between Large and Small businesses worthy of any comment, preferring to focus its limited energies on analysing the pick-up in Foodsales last month. The ONS has clearly been over-stating Small Businesses sales in recent months, but having swung from one extreme to the other, it would have been helpful to know why it believes, for example, that “Small” Department/Variety Stores delivered 25.5% sales growth in December, but were down by 3.3% last month!
• News Flow This Week: The provisional verdict of the CMA on the planned merger of Sainsbury and Asda is expected at some point this week, hopefully before the Wal-Mart/Asda Q4 results tomorrow afternoon. Otherwise, we get the much-awaited Intu Properties finals on Wednesday and the CBI Distributive Trades survey for “February” on Friday.