Whitbread, SSP, Fuller’s, Rank, Diageo & other:

A DAY IN THE LIFE:

Having been briefly replaced by Pokemon Go zombies, mobile phone zombies are back with a vengeance on the streets of London.

Because, if you try to take a stroll from Aldgate to St Paul’s to Holborn to Southwark & back to Holborn as we did (for reasons to be explained in later emails), you’ll find yourself blocked on the pavement numerous times by people who think the world has nothing better to do than to follow them around at about 1mph whilst they text friends or check their emails.

Which has led me, short of pushing said people into traffic, to suggest that the national deficit could be eliminated by levying a £30 per week charge on mobile phones. That’s £30 x 52 x c40 million gives about £62bn a year and job done, no more deficit.

And the pavements would be clear wouldn’t they?

But of course, the law of unintended consequences would kick in and mobile phone usage would collapse. Decisions like that can’t be made in a vacuum, other things will change. Perhaps something that the nation’s politicians should take note of from time to time. On to the news:

WHITBREAD Q3 TRADING UPDATE:

• Whitbread has this morning updated reported on trading for the period to 1 Dec 2016 and our comments are set out below:

• Q3 Trading Comments: 

• Whitbread reports it is ‘on track to deliver full year results in line with expectations’

• Premier Inn LfL sales are +1.8% in the 13wks to 1 December. Cumulative 39wk LfL sales are +2.2%

• Restaurants are minus 1.5% in the quarter and minus 0.2% in the 39wks

• Costa LfL sales are +4.3% in Q3 and are +3.0% in the year to date.

• Premier Inn & Restaurants: :

• In hotels & restaurants, CEO Alison Brittain reports ‘Premier Inn grew total sales in the quarter by 9.2%.’

• She says ‘we have opened 15 hotels in the UK since the start of the year, increasing the number of rooms available by 9.7%, whilst maintaining occupancy at a high level of 84.5%.’

• The CEO adds ‘Like for like sales grew by 1.8% benefitting from our hotel extension programme which, as expected, diluted our like for like revpar, which was down 1.3%.’

• London LfL REVPAR fell by 4.4% in Q3

• The group says ‘restaurants delivered total sales growth for the 39 weeks of 0.5% with like for like sales down 0.2%, slightly ahead of a soft pub restaurant market outside the M25.’

• Costa Coffee:

• Whitbread reports ‘in the quarter, Costa delivered total sales growth of 12.5% and good like for like sales growth of 4.3%.’

• It says ‘this performance was supported by its new advertising and promotional campaigns and benefitted from the timing of the quarter end, which included a strong start to the Christmas period. For the comparable period, to 26 November, excluding this timing benefit, Costa’s like for like sales growth was 2.9%.’

• Costa Enterprises grew system sales for the 39 weeks by 9.3% to £322 million

• International system sales increased by 21.4% to £287 million

• The group says ‘we remain committed to the long-term growth opportunities for Costa in China, despite a tougher near-term trading environment.’

• Debt, balance sheet & cash-flow:

• Whitbread says ‘our property strategy is to carry out a modest number of sale and lease back transactions in order to recycle capital into strong returning new growth opportunities and we successfully completed two such transactions in December.’

• The group adds ‘we now expect total sale proceeds for the year to be in the region of £200 million. These transactions highlight the strong asset backing to our balance sheet and are evidence of how we optimise our significant property portfolio.’

• The group reports it has opened 186 new stores worldwide & has added 1,266 Costa Express machines. This latter number exceeds FY targets. The group now expects to install ‘at least 1,500 new Costa Express machines this financial year.’

• Overall:

• Whitbread CEO Alison Brittain reports ‘we continue to make good progress against our three point strategic plan: to grow and innovate in our core UK businesses; to focus on our strengths to grow internationally; and to build the capability and platform to support future growth.’

• She says ‘we remain on track to open c.3,700 new UK Premier Inn rooms and our committed pipeline stands at around 14,000 UK hotel rooms. We have also recently signed two additional sites in Germany (Freiburg and Essen) taking our committed German pipeline to five hotels. We expect to open 230-250 net new Costa coffee shops worldwide and to install at least 1,500 new Costa Express machines, having already surpassed our previous guidance of 1,250 in the current financial year.’

• Ms Brittain concludes ‘in the quarter our brands continued to win market share growing total sales by 8.6% and like for like sales by 1.7%. Trading since the end of the quarter is such that we expect to deliver full year results in line with expectations.’

• Langton Comment: Whitbread has repeated that it believes full year results will be in line with expectations.

• Q3 was clearly difficult for hotels but there are some signs that the market improved in November and December and Christmas should have been good.

• Restaurants are finding the going heavy and, though Costa’s growth is moderating, it remains and engine for further expansion.

• Whitbread’s shares have recovered somewhat in recent weeks. They now trade on around 16.6x this year’s numbers and offer a yield of c2.4%.

• Overall, we believe that Whitbread has an attractive freehold base and international brands. This is something of a rarity across the leisure sector. The shares are not cheap per se but they are not as expensive as they have been in recent years. They represent solid value.

PUB, RESTAURANT & DRINKS PRODUCERS:

• Fuller’s updates on Q3 (and 43wk) trading saying that ‘trading over the important Christmas and New Year period has been strong’

• Fuller’s has great Xmas, reports LfL sales in Managed Pubs & Hotels for the last 10wks at +7.4%.

• Fuller’s reports tenanted inns’ profit rose by 2% over last 10wks & total beer & cider volumes were +1%.

• Fuller’s +3.7% in managed for 43wks, down 1% in tenanted & +4% in beer. CEO Simon Emeny reports ‘our strategy of sustained investment in our pubs, our brands and our people continues to drive the business forward. In the final quarter, we will be taking advantage of what will be a 53 week year to accelerate investment in our existing estate and reinforce our marketing programme for The Fuller’s Beer Company.’

• Fuller’s CEO Emeny says ‘in common with many other companies we are facing increasing cost pressures including a steep rise in business rates, an increase in the National Living Wage and the introduction of the Apprenticeship Levy, all set against an ever-changing global political and economic backdrop.’ He concludes, however, that ‘the last 10 weeks have been particularly strong, which is a credit to the whole Fuller’s team. We will next update the market on 9 June 2017, when we announce the Company’s full year results for the 53 weeks to 1 April 2017.’

• SSP has enjoyed a ‘good start to the year’ in its first quarter, spanning 1 October to 31 December 2016, with revenue up 4.3% on a constant currency basis and LfL sales growth of 2.4%. Net contract gains rose by 1.9% as the travel hub food and beverage operator took its first step in a joint venture with Travel Food Services (TFS) in India, which added 1.1% to sales. SSP expects to have acquired the initial 33% stake in TFS by the end of February. Like-for-like sales growth in the UK, Continental Europe, and North America have all been positive, while its Rest of the World division remains in line with management expectations.

• SSP guides that, with regards to currency moves (principally against the Euro, US Dollar, Swedish Krona and Norwegian Krone), the group stands to net a full year revenue increase of 7% should spot rates continue at current levels through the remainder of FY17. The group comments: ‘Whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to be well placed to benefit from the structural growth opportunities in our markets and our programme of operational improvements.’

• Diageo says performance has been ‘strong’ in the six months to 31 December 2016, thanks to organic net sales growth of 4.4% with 1.8% volume growth. Favourable exchanges boosted net sales growth to 14.5%. Operating margin improved by 339bps mainly driven by the comparison against the prior period exceptional charge, favourable exchange, the disposal of lower margin non-core assets and the net sales adjustment in Asia Pacific. The interim dividend is being increased by 5% to 23.7p per share.

• Regarding exchange rates, the group says: ‘Using exchange rates £1 = $1.24; £1 = €1.16, the exchange rate movement for the year ending 30 June 2017 is estimated to favourably impact net sales by approximately £1.4bn and operating profit by approximately £460m and have an adverse impact of approximately £36m on net interest. This is primarily driven by the strengthening of the US dollar and the euro.’

• Ivan Menezes, CEO, said: ‘We have delivered a strong set of results with broad based improvement in both organic volume and top line growth and this positive momentum demonstrates continued effective execution of our strategy… Our expectations of delivering stronger financial performance this year are unchanged. We are confident of achieving our medium term objective of consistent mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending 30 June 2019.’

• Shares in Restaurant Group fell by 13% yesterday as the group once again disappointed on trading

• RTN has pointed out that sales prices will be cut whilst service levels will have to be improved. This will squeeze LfL numbers & margins

• RTN warns for the fourth time in a year. FT suggests group has ‘struggled in the face of falling high street footfall and increasing competition in recent years, but also acknowledged a number of problems of its own creation.’ The group has changed its CEO, CFO and chairman in the last 12mths.

• In the US, Chili’s Grill & Bar has announced that it will take a pre-tax charge of c$6m to cover redundancies. It says ‘the second quarter was really a mixed bag for us. We started off fairly strong. When we talked back in October, we were feeling pretty good. Then, the brand experienced a situation at one of our Chili’s restaurants on Veterans Day that played out extensively on social media, followed by a couple of very tough weeks.’

• Pub Governing Body chairman Sir Peter Luff reports ‘the introduction of the statutory legislation last year led to a situation whereby those companies affected and their tenants could no longer use the low-cost equitable method of resolving tied rent disputes provided by PIRRS.’ He says ‘following discussions with companies and tenants, we are pleased to announce the PIRRS procedure has been amended to allow the use of PIRRS to resolve tied rents on a case-by-case basis, if both parties mutually agree to use the system.’

• UK households’ disposable incomes rose 4.4% in December to an average of £202, per Asda’s income tracker, although spending on non-essentials is expected to come under pressure in 2017.

• Scotch Whisky adds £5bn a year to the UK economy reports the Scotch Whisky Association (SWA). The Industry supports 40,000 jobs throughout the UK and is a positive contributor to the nation’s balance of trade by almost £3.7bn. The SWA states the industry is growing well with seven distilleries set to open in Scotland this year.

• MCA reports that Franco Manca, the rapidly growing pizza chain, is to appoint Gillian Lambden as its first people director. Lambden has filled similar roles as people director and academy director of Itsu for the last six years. The Fulham shore-owned restaurant chain has been adding to its management team as it prepares to open a dozen new units this year.

• BBPA Chief Executive, Brigid Simmonds comments ‘it is encouraging to see that the rate of new enquiries appears to have fallen sharply’ on the Office of Pubs Code Adjudicator’s latest figures.

• Bob Whittle has succeeded Roger Thompson as President of the Association of Valuers of Licensed Property.

• Nick Bryan is to stand down as non-executive chairman of Young’s and will retire from the board at the end of the current financial year (3 April 2017). He will be succeeded by Stephen Goodyear and Nick Miller, previously CEO of Meantime Brewing Company, will also come in. Bryan, who joined the board of Young’s in 2006 and became non-exec chairman in 2011, said: ‘It has been a privilege to be Chairman of Young’s during a period when the Company has cemented itself as a leader in our sector.As a Board, we have been planning carefully for my succession and, having overseen Patrick Dardis assume the CEO role last July, I feel that this year is the right time for me to stand down.

• ‘There are few people with as much knowledge of, and passion for, our company and industry as Steve Goodyear.In the past seven months he has adapted very effectively to a non-executive role and I am delighted that, with the full support of the Board, he will be taking over as Chairman.’

• Arby’s Restaurant Group’s like for like sales grew by 3.8% in 2016, a 25th successive year of rising revenues. With 3,341 units across the USA, the CEO remarked ‘Our positioning in the market has proven to be the right thing for the brand’.

• Jose Cuervo, the Mexican tequila producer, will attempt to raise more than $700m in an IPO. 20% of the offer will be taken by Singapore’s Temasek Holdings Ltd; this is the third effort at an IPO, with the other two being put on hold due to ongoing events in the U.S. election with Donald Trump. Jose Cuervo will offer 476.6 million shares with a 30 to 34 pesos per share price tag.

• Japan’s beer imports dropped 2.6% in 2016 to 414.76 million cases, hitting a record low for the 12th straight year, per data provided by five major Japanese brewers. Asahi Breweries Ltd took boasts a 39% share of the market, followed by Kirin Brewery Co (32.4%), Suntory Beer Ltd (15.7%), Sapporo Brewries Ltd (12%) and Orion Breweries Ltd (0.9%)The decline in imports, according to Jiji Press, was affected by the country’s ageing society and economic weakness that caused people to dine out less. Growing demand for other alcohol products such as canned ‘chuhai’ spirits has also dampened consumers’ demand for beer

• Shop theft has increased annually by 5% according to the Office for National Statistics, the highest volume since the introduction of the National Crime Recording Standard in 2003. There were approximately 349,296 incidents of shop theft in the year ending September 2015, over 17,000 more than the previous year

LEISURE TRAVEL & HOTELS:

• Thomas Cook will resume holidays to The Gambia from next week after a deteriorating political situation forced holidaymakers to fly home last week. The Foreign and Commonwealth Office removed its travel ban on Monday following the departure of former president Yahya Jammeh, allowing operators to resume services.

• The US hotel industry is projected to see slower but steady growth in the coming year, although supply is expected to exceed demand. STR expects the U.S. hotel industry to report a 0.3% decrease in occupancy to 65.3% in the year to end 2017, with a 2.8% rise in average daily rate (ADR) to US$127.34 and a 2.5% increase in revenue per available room (RevPAR) to US$83.20. The following year could see the U.S. hotel industry report a 0.2% decrease in occupancy to 65.2%. STR forecasts continued increases in ADR (+2.8% to US$130.95) and RevPAR (+2.6% to US$85.36) though.

OTHER LEISURE:

• Rank reports H1 numbers, revenues +2% LfL with PBT at £35.4m (down 17%). EPS 7p, dividend +11% at 2p. Group CEO Henry Birch says ‘the first half of the Group’s financial year has seen challenging trading conditions for both our retail casino and bingo businesses, with strong comparable figures in the previous year.’

• Rank CEO Birch comments ‘despite increased inflationary and employment costs, we have detailed plans to improve H2 operating profit and remain confident that the Group will make good strategic progress in 2017.  As a result, the Board expects that the full year results will be in line with market forecasts.’

• Shares in casino operator Sands China fell 1.8% yesterday as it missed analysts’ expectations. The co has reported that it has had to focus on the mass market instead of high rollers as the crackdown on corruption in China has taken effect.

FINANCE & MARKETS:

• CBI reports business optimism has risen across London businesses over the last 6mths. A net 15% of firms are optimistic

• UK car production reached a 17yr high last year per the SMMT. Exports rose by 10.3% to 1.35m vehicles

• Brent little changed at around $55.55 per barrel

• Sterling up a touch at $1.2657. Up against Euro at 117.7c.

• UK 10yr gilt yield sharply higher at 1.47% (was 1.40%). US 30yr treasury yield up 5bps at 3.10%.

• The Dow Dow Jones Industrial Average breached 20,000 for the first time yesterday

• World markets: UK up yesterday with Europe also higher. US hit new records & Far East markets are mostly up in Thurs trade

TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS:

• Whitbread Q3. Says is ‘on track to deliver full year results in line with expectations’

• WTB Q3: Premier Inn LfL sales are +1.8% in the 13wks to 1 December. Cumulative 39wk LfL sales are +2.2%

• WTB Q3: Restaurants are minus 1.5% in the quarter and minus 0.2% in the 39wks. Costa LfL +4.3% in Q3, +3.0% in YtD.

• WTB Q3: CEO Alison Brittain reports ‘we continue to make good progress against our three point strategic plan’

• WTB Q3: Shares recovered somewhat in recent weeks. Now trade on around 16.6x this year’s numbers & offer a yield of c2.4%.

• Fuller’s updates on Q3 (and 43wk) trading saying that ‘trading over the important Christmas and New Year period has been strong’

• Fuller’s has great Xmas, reports LfL sales in Managed Pubs & Hotels for the last 10wks at +7.4%.

• Fuller’s reports tenanted inns’ profit rose by 2% over last 10wks & total beer & cider volumes were +1%.

• SSP has enjoyed a ‘good start to the year’ in its first quarter, spanning 1 October to 31 December 2016, with revenue up 4.3%

• Diageo says performance has been ‘strong’ in the six months to 31 December 2016, thanks to organic net sales growth of 4.4%

• Shares in Restaurant Group fell by 13% yesterday as the group once again disappointed on trading

• RTN has pointed out that sales prices will be cut whilst service levels will have to be improved. This will squeeze LfL numbers & margins

• UK households’ disposable incomes rose 4.4% in December to an average of £202, per Asda’s income tracker

• Rank reports H1 numbers, revenues +2% LfL with PBT at £35.4m (down 17%). EPS 7p, dividend +11% at 2p.

• CBI reports business optimism has risen across London businesses over the last 6mths. A net 15% of firms are optimistic

• Interest rates on the rise. UK 10yr gilt yield sharply higher at 1.47% (was 1.40%). US 30yr treasury yield up 5bps at 3.10%.

• The Dow Dow Jones Industrial Average breached 20,000 for the first time yesterday

• World markets: UK up yesterday with Europe also higher. US hit new records & Far East markets are mostly up in Thurs trade

• Later tweets: WH Smith travel division does well. LfL +5% on +5% last year. No mention of whether volume or price. Could be price gouging?

• Price gouging: Restaurant Group shows the industry the way (not) to go. Retreating from high prices, margin to crumble?

• WHS positive read-across for SSP? Perhaps. But only if the growth was at least in part volume-inspired rather than price-gouging.

• Part WHS good sales down to adult colouring book craze. There’s another one I’ve studiously missed.

• Heineken doing its bit for inflation. Putting prices up by around 2.6%. Plenty of inflation-leaders out there with CPI just at 1.6%

• When is a profit not a profit? Perhaps when it’s been built by price rises layered on price rises etc. and gouging now needs to be reversed

RETAIL NEWS WITH NICK BUBB:

• Card Factory: Ahead of today’s Christmas trading update, the fear was that Card Factory might have to announce a first ever fall in LFL sales, but instead it has said that LFL store sales returned to growth within the historic range in the final quarter of the financial year and that “the Board is confident of delivering full year underlying profit before tax for the current financial year slightly ahead of analyst consensus”. That will reassure investors although they may be a bit concerned that long-serving FD Darren Bryant is to retire.

• WH Smith: We flagged yesterday that the WH Smith Travel Division delivered an impressive LFL +5% over the first 21 weeks of the year and with the big summer weeks still to come it is striking how confident management are about the outlook: Travel should represent c60% of group trading profits this year and c15% of Travel sales will come from the fast-growing International airport operation. The company doesn’t split its product category performance by Division, but the -3% LFL for Books overall was a fair representation of the High Street performance and although the Ladybird “spoof humour books” couldn’t quite make up for the collapse in adult colouring book sales against last year they were a high-margin product and overall Book gross margins were 100-120 bps up in the period. News/Impulse sales were 1% up LFL overall, with gross margins 110-150 bps. Stationery sales were 3% up LFL
overall, but gross margins were 50-90 bps down because of product sales mix issues. Overall LFL sales were 1% up with gross margins 70bps up.

• Today’s Press and News: The WH Smith trading update gets lots of coverage, focusing in the bumper sales of the Ladybird “spoof humour books” or what the FT calls “literary parodies”. Lombard column in the FT pens a piece headlined “WH Smith finds Christmas came early at high-margin Travel stores” in which he draws attention to the exorbitant 95p cost of a packet of Polos. The Daily Mail flags that three of French Connection’s largest investors have called for the veteran Chairman and chief executive Stephen Marks to step down and also notes that Nick Robertson, the founder of Asos, has sold £15.5m worth of shares in order to pay a tax bill. The Telegraph highlights that Aurum Holdings, the owner of Goldsmiths, Mappin & Webb, Watch Shop and Watches of Switzerland, has seen losses almost double in y/e May. Finally, the FT market report flags that Kingfisher was downgraded by Exane
yesterday because of their fears that the DIY market is fragmenting.

• News Flow This Week: The CBI Distributive Trades survey for “January” is out at 11am this morning.