Greene King FY, more on WTB, Vianet & other:

A DAY IN THE LIFE:

Football alert. There is no football tomorrow. Repeat, there is no football tomorrow.

So, what are we going to do?

Well, we can talk about football. And we can swap Panini stickers (let us know your duplicates if you’d like to exchange) and we can prepare for England’s match on Monday or Tuesday.

Anyway, Greene King numbers shortly & meetings all day so, without further ado, let’s move on to the news:

GREENE KING FULL YEAR RESULTS – 52W TO 29 APRIL 2018:

Greene King has this morning reported full year numbers for the 52wk period to the 29th April 2018 and our comments are set out below:

Headline numbers:

• Greene King reports revenues of £2.18bn (down 1.8%) with adjusted PBT of £243.0m (down 11.2%)

• EPS is 62.7p on an adjusted basis, down 11.4% on last year. The dividend is 33.2p, unchanged on 2017.

• Pub Company LfL sales are down 1.2% ex the impact of the snow. Inclusive of the snow, they were down 1.7%. They are up 20bps in H2.

• Pub Partners total EBITDA was down 1.7% at £101.3m with the average number of pubs down 4.7% at 1,140

• Brewing & Brands revenue was up 7.4% at £215.1m but EBITDA was down by 0.6% at £36.0m. GNK’s own brewed beer volumes were down by 1.2%

• Re current trading, managed LfL sales are +2.2% over the last 8wks.

• Pub Partners is in line with expectations as is the Beer Company. The business is benefiting from the better weather & from the World Cup

Managed pubs:

• GNK says ’slower food sales was the main driver of the negative LFL sales, partially offset by positive drink and accommodation sales growth.’

• The group says ‘in response to the challenging environment and negative LFL sales performance in the first half of the year, we took the decision to invest £10m in improving our customer offer.’

• There has been some ‘strategic price investment in the value segment.’

• GNK says ‘we have an excellent quality estate in Pub Company, achieved through the active management of our portfolio, primarily selling pubs at the tail of our portfolio and opportunistically disposing of a small number of high-end pubs. We disposed of 38 managed pubs in the year, raising over £84m in proceeds, which was above expectations due to the sale of three high value leasehold pubs.’

Pub Partners:

• GNK says ‘Pub Partners revenue was down 2.5% to £193.9m due to the 4.7% decrease in the average number of pubs trading.’

• The group says ‘rental income grew and offset a decline in LFL beer volumes. Operating profit was down 1.5% but operating profit margin was up 0.4%pts at 47.1% benefiting from estate optimisation, an increase in turnover agreements and cost savings initiatives.’

• GNK reports ‘our support to licensees in driving footfall and maximising profit has resulted in average EBITDA per pub of £88.9k this year, an increase of 3.1%.’

Brewing & Brands:

• GNK says ‘we continue to win market share and contribute to Greene King’s strong returns and cash generation.’

• The group comments ‘own-brewed volumes (OBV) were down 1.2% with strong growth in free trade and exports offset by declines elsewhere in the on-trade. Greene King outperformed the total ale market which was down 3.7%, thereby increasing its share of the total ale market by 0.2%pts (source: BBPA).’

• GNK adds ‘operating profit was down 1.0% and operating profit margin was down 1.2%pts, driven by the increased cost of goods sold and changes in sales channel and customer mix, including the disposals made over the year across the estate.’

Outlook:

• GNK says ‘over the first eight weeks of the new financial year LFL sales in Pub Company were up 2.2%, benefiting from better weather and strong sporting fixtures as well as the investments we made in the second half of the year on value, service and quality for our customers.’

• The group says ‘we are continuing to see strong drink sales growth, achieving record Pub Company drink sales in May, and we are starting to see the benefits from the World Cup, as more than half of consumers expect to watch an England game at the pub. Pub Partners and Brewing & Brands are trading in line with expectations.’

• The group adds ‘for the new financial year we expect £45-50m cost inflation and we are targeting £30-35m cost savings and Pub Company LFL sales growth.’

• CEO Rooney Anand comments ‘we made good progress improving the performance of the business during the second half of the year, despite a challenging trading environment.’

• Mr Anands says ‘while it is still early days, this positive momentum has continued into the new financial year, aided by good weather and popular sporting events.’

• The group concludes ‘we expect the trading environment to remain challenging for some time, but we strongly believe people will continue to choose the great British pub as the place to enjoy time with friends and family.’

Langton Comment:

• Greene King has produced numbers in line with expectations and it has been able to reassure that, with the better weather & the World Cup helping wet-led outlets, trading has picked up over the last 8wks.

• Cost pressures remain, and the economic outlook is uncertain.

• But the above is common across the leisure sector and the economy as a whole and GNK is pulling the levers over which it has control.

• Sales, margins & profits will remain under some pressure.

• GNK’s shares have bounced strongly since they updated on FY trading back in April. They trade at around 10x earnings for this year and yield 5.2%.

• The shares are prima facie cheap, the group’s assets are very solid, and its brands are appreciated.

• That said, there is a lot of value around and, after the shares’ sharp rise, albeit to a not-very-demanding-rating, there may be some profit taking.

• Spirit integration indigestion will continue for some time and, whilst a good outcome to the World Cup would be appreciated, economic challenges to the consumer remain.

WHITBREAD Q1 CONFERENCE CALL:

Following its Q1 update this morning, Whitbread hosted a conference call for analysts and our comments are set out below:

Premier Inn:

• Co blurb. Market is ‘subdued’ with tough comps & over-building but Whitbread ‘is taking share’. London was worse than the regions. WTB sees the capital as an attractive market going forward. Regions ‘more robust’. F&B sales had ‘a tough quarter’. Weather didn’t help. Pipeline in Germany is 31 hotels.

• Q&A:

• What ‘market’ are you beating? PI down 0.3%. Says that was better than the market. Lots of numbers bandied about. Group is not referring to REVPAR (as this is depressed by extensions). Says extensions are low risk.

• Shouldn’t recent extensions & new builds be maturing and mitigate decline? Yes, the 4k rooms from one year ago, two years ago etc. are coming through. But mix change (more in London) means that there is still an overall negative.

• Premier uptick. Where from? Business bookings helped by new tools.

• Occupancy weak? Are prices too aggressive? Occupancy LfL down 1.7% with market down 0.5%. London occupancy down 2.0% (on capacity increases).

• Market shares? Regions c10%, London c7%.

Costa:

• Co blurb. Taking share but LfL sales down. Traditional stores in decline. Footfall down 3.5% in quarter. Co expects the weaker environment to persist over the year. It is ‘managing its tail’. China LfLs up. Costa Express sales positive LfL and more machines.

• Q&A:

• Footfall down 3.5%. Overall LfL sales down 2.0%. Says travel hubs, drive through etc. good so High Street must have been markedly worse. Short leases & can exit. It is ‘quite a tough retail trading environment’.

• Tweaks. Apps, more food etc. But Costa is dependent on wider footfall for its High St units.

• Any particularly weak trading period? Yes, afternoons. Breakfasts & lunch bundles doing OK.

• Refurbishments. New look & feel being trialled. Brighter, wider product mix. Will do 150 of these light refurbs this year. They will be closed for up to a week & will drag on LfLs.

• China. There is some churn re stores. Overall expansion.

• UK – is food still in growth? Yes.

• Hot weather in May? Not helpful.

• Current trading? Hot weather & the World Cup not helpful.

• Pricing? Says ‘we’re unlikely to do much.’ Not built into plan. Remains an option.

• Costa Express. Net opens flat. LfLs down. Overall sales up. No cold drink option. Canada not a success. Went in with Shell. Was ‘a test’.

• Rents. Costa is ‘having conversations’ with landlords re terms, exits, renewals etc. Tend to have 5yr breaks.

Corporate & other:

• Co blurb. Shorter term challenge but will hit expectations.

• Q&A:

• Demerger. On track but no detail. More to follow in October.

• In line with which expectations? Say will hit expectations as forward bookings are better and comps get easier.

Langton Comment:

• Whitbread’s conference call seemed longer than usual as the group had a complicated (market tough, we’re OK) message to get across.

• There may be downgrades but an element of this is in the price as the shares are little changed at the time of writing.

• Re ‘hitting targets’, it sounds as though there is ground to be made up. Should this not be achieved, then forecasts might need to be adjusted. June hot weather & the World Cup (not in these numbers) are not helpful for Costa.

• WTB has an impressive freehold estate, good brands and international ambitions but, with trading uncertain, the shares may remain under some pressure.

PUB, RESTAURANT & DRINK PRODUCERS:

• The latest CGA Alix Partners’ Market Growth Monitor shows that ‘amid fears of oversupply in the restaurant market…numbers are beginning to fall’.

• CGA says ‘the number of restaurants in Britain fell by 0.4% in the year to March’. It says ‘the decline comes amid fears among many operators of oversupply of sites in the market and is a sign of the challenges that are currently faced by casual dining operators, following a sustained period of new openings.’

• Restaurant numbers are nonetheless up by 15.6% since March 2013. But CGA says ‘planned site closures by several major brands have now helped to contribute to a fall over the last 12 months. The 0.4% decline is equivalent to nearly two net closures a week in the restaurant sector.’

• CGA also finds ‘broadly flat sales, rising food costs and modest but improving confidence among leaders of the out-of-home eating and drinking sectors.’ With inflation at over 2% (and restaurant cost inflation above that level) zero LfL growth will lead to declining margins.

• CGA says the number of food-led outlets in Leeds is +37.9% in 5yrs. Manchester is +33.6% and Liverpool is +31.9%.

• AlixPartners managing director Graeme Smith says ‘the total number of restaurants in the UK has fallen for the first time, and we expect the decline to continue over the short to medium term as larger chains manage their site portfolios. This presents an opportunity for younger, growing concepts to expand, potentially at preferential terms or in locations that were previously reserved for the larger chains, which could help kick start their next phase of growth.’

• Flight Club is organising new funding to open more sites and introduce a new concept called Electric Shuffle, per MCA. Private equity groups Piper and Lion Capital are thought to be interested in the two-strong operation, as is a high net worth individual. It is thought the new investment could come from an existing investor.

• UK hospitality businesses will surpass £100bn in turnover this year, up from £98bn in 2017, with ONS figures show steady growth of 6% a year for the past five years. The amount of firms providing accommodation and food services activities in the UK has grown by just under 20% in the last five years, having reached 202,060 – up from 169,235 in 2013.

• A study from Centre for Cities concludes that cities should leave their dependence on retail and evolve to house more offices, housing, public spaces and bars and restaurants. The study warns struggling high streets have too many shops – but not enough demand for commercial space from other businesses, and other uses such as housing and leisure.

• JD Wetherspoon has reported that a number of its bars are running out of beers and ciders as a result of the current shortage of CO2. Draught John Smiths and Strongbow are not being served at a number of outlets.

• Northern restaurant operator Ambiente Tapas, which has four sites in York, Leeds & Hull, has reported somewhat late, full year to April 2017, numbers to Companies House. The group reports an increase in accumulated profits of around £108k.

• Data and insight provider Vianet said in its AGM statement that the first two months’ trading in FY18/19 has been ‘broadly’ in line with the board’s expectations. While the group progresses with its Vendman acquisition, its Smart Zone division is ‘marginally’ behind last year due to ‘installation phasing’. Vianet will maintain its full year dividend at 4p per share.

• French start-up Ekim has created a pizzaiolo robot, which it hopes to install in a 24/7 autonomous restaurant. Chief Executive Philippe Goldman said: ‘The robot has three arms, can co-ordinate tasks and make several pizzas at once. So yes, making a pizza takes 4 minutes 30 seconds but we deliver one pizza every 30 seconds, which allows us to deliver 120 pizzas an hour when a pizzaiolo can only make 40 pizzas an hour.’

• Chipotle Mexican Grill will close 55 to 65 of its US restaurants over the next 30 days as part of its turnaround plan. These closures will cost the company roughly $115m to $135m.

• The John Lewis Partnership is facing a ‘substantially’ lower profits and is looking to reduce its presence on the high street. Instead of rolling out more stores, the group will focus on providing unique products and services.

• French bakery brand St Pierre has moved into the on-the-go snacking market with a nine-strong range including brioche rolls, cake bars and croissants.

• Grocemania and Quiqup partner is to offer one-hour grocery delivery in London.

• John Lewis has announced that its H1 profits will be ‘close to zero’.

• Booker is to begin rationing sales of beer and cider to its customers over growing concerns of a CO2 shortage across Europe. In a statement, Booker said: ‘Due to the international shortage of CO2, we are experiencing some supply issues on soft drinks and beer. We are currently working hard with our suppliers to minimise the impact for our customers and cannot comment further at this stage’.

HOLIDAYS & LEISURE TRAVEL:

• Airbnb is to partner with real estate firm Century 21 to solidify its presence in Paris.

• Shares in the African budget airline Fastjet have collapsed by two thirds after stating it could go bust without new funding.

• Trump’s travel ban was upheld by the US Supreme Court in a 5-4 conservative majority ruling. The ban effects five Muslim-majority countries, with Trump describing the judgement as a ‘tremendous success’.

• In the year to March, Gatwick handled a record 45.7m passengers, up 3.6% yoy. Revenue rose by 5.4% to £764.2 million, EBITDA increased by 10.1% to £411.2 million and  pre-tax profit of £233.7 million. Passenger growth was driven by an additional one million long-haul passengers.

• According to the UNWTO, international arrivals grew 6% yoy in the first four months of 2018, with growth being led by Asia and the Pacific (up 8%) and Europe (up 7%). Earlier this year, UNWTO’s forecast for 2018 was between four and five per cent.

• TravelClick reports North American hotel KPIs experience an uptick in Q2, up 2.5% in average daily rates (ADR), 1.4% in bookings and 4.0% in revenue per available room (RevPAR) yoy.

• Lyft Inc. has raised $600m in new funding. The funding round, led by Fidelity Management, doubled the ride-hailing firm’s valuation to $15.1bn in just over a year.

OTHER LEISURE:

• US regulators have cleared Walt Disney Co’s plan to buy most of 21st Century Fox, removing a final barrier to the $71.3bn (£54.2bn) deal. Fox’s regional sports network in the US will be sold to make the deal happen.

• Ticketmaster UK says malicious software on a customer support product hosted by an external supplier may have accessed customers’ personal or payment data.

FINANCE & MARKETS:

• Nationwide reports house price growth fell to 2% in the year to May.

• China has lifted its ban on the importation of British beef. At least we have something to thank Mr Trump for.

• Sterling $1.3109 and €1.1337

• Oil $77.5 & UK 10yr gilt 1.25%

• World markets. UK & Europe up, US down, Asia up Thursday.

• Brexit etc.:

o Bank of England warns of a financial crunch in the trading of derivatives unless the UK fixes a deal with the EU shortly.

o Bank of England says European banks may be unprepared for Brexit.

o Spanish foreign minister Josep Borrell says that France & Germany will block attempts by the UK to remain in the single market

o EU leaders are meeting today and tomorrow. Originally the UK was to have proposed exit terms today.

o Tony Blair says the UK should extend the period over which it leaves the EU.

PRIOR DAY TWEETS:

• Later tweets: Whitbread cautious & LfLs down. Shares rally on ‘not as bad as feared’ relief. Overbuilding etc. an issue. Costa disposal ‘on track’

• Whitbread missed the boat on Costa? That has to be the fear. Says travel hubs & machines OK, High Street not so much

• Plenty of discounts. Café Rouge 2-4-1 (50% off in our book), Prezzo 40% off, Bella Italia 30% off, Pizza Express 25% off

START THE DAY WITH A SONG:

Yesterday’s song was the classic Sunshine of Your Love by Cream. Today, more recently, who sang:

And at once I knew I was not magnificent,

Strayed above the highway aisle

(Jagged vacance, thick with ice)

I could see for miles, miles, miles

RETAIL NEWS WITH NICK BUBB:

• JD Sports: Given all the gloomy press headlines about John Lewis today, it is reassuring to hear that mighty JD Sports (£4.2bn market cap) is still on track. Ahead of today’s AGM, JD Sports has issued a brief update, with Executive Chairman Peter Cowgill saying, dryly, that “the Board stated on April 17th that it was satisfied with progress and remained confident about the prospects for the current financial year. This continues to be our view…The group continues to be on track to deliver a result for the full year in line with consensus market expectations”. There are no trading figures and that’s about it, apart from a plug for the fast rate of International store openings and the comment that “following the recent acquisition of the Finish Line business, we are excited by the opportunity ahead of us in the United States”.

• John Lewis Partnership: As expected, the end of the JLP Strategy update yesterday (which was presented to analysts at the impressive new Westfield White City John Lewis store at 8am) focused on how the business will harness the power of the partnership concept by renaming the stores “John Lewis & Partners” and “Waitrose & Partners” (with John Lewis Oxford Street the first to get the treatment in September). But the main revelation was that H1 group profits (£83m pre-exceptionals last year) will be wiped out by the impact of discounting on John Lewis and a big step-up in central IT revenue costs, which means that full-year group profits will be significantly down again. Interestingly, however, FD Patrick Lewis insisted that the profitability of both John Lewis and Waitrose still compares relatively well with its peers, after adjusting for pension benefits. And, amazingly,
Waitrose is an exception to the short-term gloom, as profits are expected to recover well this year, thanks to a strong bounce in margins, and MD Rob Collins is confident that operating margins can improve from 2.7% to 4% over the next three years!

• Philip Green: The much-awaited book about the embattled Philip Green (”Damaged Goods”) by Oliver Shah of the Sunday Times is officially published today, following last night’s launch party at Fortnum & Mason, but it is already selling well on Amazon. It is a great read and Oliver is to be admired for standing up to Philip’s bullying. And it is by no means just about the collapse of BHS, as Oliver goes into great detail on Philip’s unhappy time running a quoted company, Amber Day, in the early 1990’s and how he then made money out of pillaging the retail conglomerate Sears.  As for the decline of Arcadia, Oliver points to Philip’s failure to understand the Internet as a fatal flaw, but there is plenty more to be written by somebody about that…

• News Flow This Week: Tomorrow brings the overnight monthly GFK Consumer Confidence index.