A Day in the Life:

Follow us on Twitter at either @langtoncapital or @brumbymark.

Go on, say it. It felt like Autumn out there this morning, didn’t it? Mist, five degrees centigrade, condensation, which looked initially like frost on the car’s windscreen and the heater on full for the first couple of minutes of the journey…

Anyway our daughter, who managed to remain awake for c36 hours through Tuesday & Wednesday – a period that included a 200 mile drive and a 7hr transatlantic flight – woke up at 3am yesterday morning and announced that she couldn’t possibly sleep another wink.

She was wide awake, apparently and, though the cockerel seems to have expired from natural causes whilst we were in North America and thus wasn’t crowing at the time, we were minded to believe her until she rolled over and promptly fell asleep for another 8hrs solid.

Which goes to show you that you shouldn’t necessarily take too seriously comments that emanate from certain quarters. That’s something that perhaps we should all try to bear in mind the next time we get a bubble and someone tries to sell us a garage in Kensington for £1m or eBay stock at 1,600 times annual revenues.

But that, for anyone who’s had to live through the trauma of seeing those around them make ridiculous investments and get rich, is more easily said than done. You find yourself looking into their sleepy blue eyes and a little bit of you is always minded to believe them; will we never learn? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• SSP has announced that it has agreed to acquire 32 bakery outlets in Germany from Wiener Feinbäckerei Heberer for £5m cash. It says ‘the outlets sell bakery products in travel locations in Germany, with 30 of them located in railway stations and two in airports.’ SSP adds ‘the acquisition of these outlets will further strengthen SSP’s presence in travel locations in Germany. The value of the gross assets being acquired is approximately £5m, and the profit attributable to the assets in 2014 was approximately £1 million.’

• M+C reports Vietnamese fast-casual operator Pho has secured £8m in new funding courtesy of Nat West. Group aims to add sites to total around 30 over next two to three years.

• Latest BDO High Street Sales Tracker suggests poor summer with sales growth worst for 6yrs. Sales down 1.1% in July. Sales are down now in each month since July. BDO reports ‘the political landscape is still settling down after the election and speculation over interest rate rises is creating uncertainty in the minds of retailers and consumers.’

• Drake + Morgan reports to end-March saying revenues rose 20% to £24.6m + adjusted EBITDA was +28% at £3.2m. PBT was £1.6m vs £139,000 in the prior 12mth period. Group says its eighth site, The Refinery at Regents Place, which opened in March 2015, is ‘performing ahead of the business case.’ D&M will open in Kings Cross late next month and says that ‘a strong pipeline is in place for new sites in London and other UK locations.’ It adds ‘the Group is actively pursuing further sites, predominantly in London’ and CFO James Sherrington concludes ‘this is a very positive set of numbers with turnover, EBITDA and Profit Before Tax all in strong growth. Our most recent investments are performing well, whilst the core business continues to grow.’ He concludes ‘the Group has a strong balance sheet and we have the financial and
operational capacity to accelerate our new opening pipeline over the next year’.

• Marston’s has invested in its warehousing network in Staffordshire to increase capacity by 45%. Commenting on the plans, Marston’s director of brewing Emma Gilleland said: ‘We’ve seen significant growth in the take-home market over the last couple of years. More people than ever before are enjoying a drink in the comfort of their own home, so we’ve moved to ensure supply keeps up with demand. ‘

• Lorries carrying fresh produce and livestock are to be given priority in the Calais migrant crisis and will be routed directly to the Channel Tunnel or the Port of Dover.

• McDonald’s is to start testing table service at a branch in Mottram, Greater Manchester, before rolling it out to 11 more locations. The burger chain is facing stiff competition from both Mexican fast food chains and gourmet and mainstream burger brands.

• Brew, the London tea pub, has surpassed its crowdfunding target by £49,000.

• European Coca-Cola bottlers CCE, CCEAG and CCIP are to merge into Coca-Cola European Partners (CCEP) to combat a fall in fizzy drinks sales. The resulting entity will generate some $12.6bn a year and aims to cut costs to the tune of $375m within three years.

• Miller Coors reports underlying net income +9.3% in Q2, says growth driven by ‘lower brewing and packaging materials and fuel costs, as well as higher net pricing and supply chain cost savings.’ CEO Gavin Hattersley reports ‘despite challenging trading conditions, we delivered another successful financial quarter.’ He adds ‘we plan to significantly increase our investments in the second half of this year behind our Premium Light and Above Premium brands.’

• Journal of Alzheimer’s Association reports that red wine could slow the brain’s ageing process.

Leisure Travel:

• Air traffic controllers in Greece were on strike yesterday.

• London City airport is for sale. Vendors US investment firm Global Infrastructure Partners are said to be looking for £2bn

• Annual turnover at Southall Travel Group grew by 18% in the twelve months to March to £419m.

• The US hotel industry saw gains across its three key performance metrics for the week to 1 August according to STR. Occupancy increased 1.5% to 77.5%, while average daily rate for the week was up 4.6% to US$124.00. Revenue per available room increased 6.1% to US$96.09.

• The British Hospitality Association has warned that businesses are in for a ‘nightmare’ as a result of yesterday’s tube strikes. The BHA observed that restaurants, pubs and hotels will have suffered from staff shortages and varying customer footfall.

Other Leisure:

• William Hill H1. Says has made ‘good operational progress despite regulatory and tax headwinds’. PBT £78.7m v £121.8m last year

• William Hill H1. Revenues up to £808m from £805m. EPS 7.9p v 11.3p last year, dividend up 3% at 4.1p v 4.0p in 2014. CEO James Henderson reports ‘we have delivered a good operational performance in the past six months during a period of significant regulatory and taxation change for the industry. Whilst factors such as the Point of Consumption Tax and the increase in the Machine Games Duty rate have impacted our cost base as expected, we continue to progress our strategy and invest in our long-term growth drivers.’ He goes on to say ‘we are making excellent progress across our three strategic priorities’ and adds ‘I am particularly pleased with our move into the emerging online lotteries market, which will support our international diversification and gives us exposure to an exciting growth market in a gambling vertical which is new to us.’

• Wm Hill re outlook, says ‘Board is confident that the Group remains well positioned to gain share in key markets’. It adds ‘in UK Retail, we anticipate some further impact from the £50 journey during the second half.’

• William Hill announces purchase of 29.4% of NeoGames, a ‘leading online lottery software and services provider’ for US$25m. Says group’s ‘primary focus is currently on the US, where per capita spend on lotteries is the highest in the world. Following a clarification of US Federal Law in 2011, state lotteries are now permitted to sell lottery products over the internet. Total lottery sales in the US were $60bn in 2014. Four states have started selling online and others are expected to follow.’ William Hill has an option over the remainder of the company after either 3yrs or 5yrs. It says ‘the emergent online Lottery market is an exciting new opportunity in the gambling sector and NeoGames is a disruptive technology operator offering customers a great experience and lottery rights holders a compelling alternative to established retail lottery
operators. This agreement gives William Hill good optionality in a new market that is increasingly attractive to gambling customers.’

Finance & Markets:

• Bank of England votes 8-1 to leave rates at 0.5%. Will hold QE at £375bn. Minutes suggest no rate rise this year.

• Bank of England concedes June CPI inflation fell back to zero June, says c3/4 of deviation from 2% target due to low food + energy prices. Bank says ‘with some underutilised resources remaining in the economy and with inflation below the target, the Committee intends to set monetary policy in order to ensure that growth is sufficient to absorb the remaining economic slack so as to return inflation to the target within two years.’

• Bank’s Deputy Governor tells BBC it would be ‘foolish to pre-announce’ a date for an interest rate increase. Ben Broadbent went on to say ‘the economy clearly is recovering, but we had the most almighty financial crisis and there is still a bit of spare capacity left. There is not that much inflationary pressure at the moment, we expect that to build over time.’

• World markets: UK down a shade yesterday, Europe + US also down + Asia down in Friday trading

• Oil price still below $50 at $49.75. Up a shade in current trading.

• UK manufacturing production up 0.2% June on May. Industrial production on the other hand down 0.4% month on month

• NIESR has suggested that GDP rose by 0.7% in the May to July quarter. Rate of growth is same as the April-June quarter

• Halifax reports house prices down in July. Says prices down 0.6% in July v June. Expectations had been for 0.4% rise.

• US jobs claimant numbers rose 3k last week, a lower number than had been expected.

Leisure – The Week Ahead

Tui has its Q3 on the 13th.  The outlook for travel should look somewhat better given the stabilisation of the Greek situation and the oil price weakening in recent weeks.  The recent tragedy in Tunisia will likely put holidaymakers off North Africa, however capacity will likely move to the other Mediterranean destinations.

Ladbrokes reports H1 numbers on Tuesday 11th and Cineworld has its half year numbers also on the 13th. The group’s shares suffered following the departure of CFO Philip Bowcock back in June, however they’ve since recovered to all-time highs.  The summer film season is starting to wind down, but looks to have been one of the more successful in a long time, and investors will likely expect good numbers on Thursday.

UK unemployment data comes out on the 12th.  Last month saw the lowest unemployment rate since 2008, and with wages on the rise, the outlook for consumer facing stocks looks increasingly rosy.

Will Brumby – will.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

News Watch:
Traditionally, of course, the “dog days” of August are quiet in terms of Retail company news in the UK, although in recent years August has actually tended to be quite a busy month, what with one thing and another. The hard-working management of Poundland certainly won’t have much time for holidays this month, as in “mid to late August” the CMA is scheduled to issue its provisional findings and possible remedies (if required) on the proposed acquisition of the 99p Stores chain. In General Retailing, there are a few pre-close updates due, including those from the great rivals Card Factory and WH Smith, but one to look out for next week is Game Digital on Aug 11th, given the vibes about continued weak trading conditions in the industry. The BRC-KPMG Retail Sales figures for July are also out first thing on Tuesday morning. Looking into September,
Thursday Sept 10th is already shaping up to be yet another “Super Thursday” for news, with the Next interims, the Dixons Carphone Q1/AGM, the Carpetright AGM, the Morrison’s interims, the Home Retail Q2, the Dunelm finals and the John Lewis interims!

Weather Watch:
The heatwave of early July seems a long time ago now, as the month ended with a cold snap…but memories of “the weather” are notoriously short-term, so we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month “should” have affected the High Street. And they said that July was “Another cool and rainy month” that was challenging for sales of Summer Products. July started out on a highly positive note as the temperature hit 37.4 degrees C at Heathrow Airport on July 1st, but the heat didn’t last and it was all downhill for the rest of the month. The month ended up the 4th coldest of the past 55 years, around 1.8 degrees C cooler than normal and 2.4 degrees less than last year (which was the 7th warmest in the modern era), whilst it was also slightly wetter than last year. All in all,
Planalytics said that “weather driven demand” for T-shirts should have been 14% lower than in 2014 in July, other things being equal, with demand for garden furniture down by 27% and demand for barbecues down by 35%…

Yesterday’s Press and News:
Today is said to be “Super Thursday” for economists, with a raft of monetary data coming out at 9.30am, but in Retailing it is pretty quiet, apart from the fuss about the new Sunday trading local deregulation plans, with the Times flagging that the BRC and many retailers are unhappy with the “chaotic” nature of the proposals. The Times and the FT also flag that small business representatives have criticised Philip Green for his brutal treatment of suppliers via the margin demands made by Arcadia (as revealed in the Daily Mail yesterday). The Telegraph has a column about how the management team at Morrisons has been rebuilt (mostly with ex-Tesco executives) and must now deal with all the problems, whilst the Guardian highlights that Morrisons faces “a day of action” from milk farmers angry over milk price cuts. Finally, Dixons Carphone
published its 2014/15 Annual Report & Accounts yesterday and there are a few snippets about the news that the ebullient CEO Seb James could earn £4.9m next year (mostly in share awards) if performance targets are met.

Nick Bubb – nicholas_bubb@hotmail.com

Thursday Wrap:

This was produced for distribution yesterday afternoon: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following:

Thoughts on inflation, cost pressures etc. (re all operators):

• It’s a break to have a period of time away from the screens, at least on a minute by minute basis.

• An advantage is that some things, which may have occurred gradually over a period of time, leap out at you. We would highlight:

o The oil price has been weak. It was $57 a couple of weeks ago and, though it has (very) recently ‘strengthened’, it’s still now below $50.

o Sterling is unchanged in the short term against the US$.

o It has strengthened against the Euro – after slipping a bit on the Euro rally post the Greek (non) fix.

o The price of most metals prices is flat on its back.

o Wheat, corn, sugar, coffee ditto.

• Against this background – and the living wage notwithstanding – it is hard to see inflation taking off any time soon.

• The BRC-Nielsen comment that prices ‘rose’ by 0.1% last month (more a twitch) has to be taken in this context.

• The suggestion that rises in the price of bread and alcohol were behind this ‘rise’ may be more a case of having to say something rather than necessarily saying something important.

The Living Wage, tips etc. (re most operators):

• If taking 8% of the tips pool to cover admin costs can be called ‘skimming’ then we have to say that we’re surprised that operators don’t take more.

• Some do, of course, to cover till shorts, breakages, National Insurance etc. but this is hardly a crime.

• And it does serve to highlight the fact that many waiters/waitresses etc. earn nearer to £20 per hour than the minimum wage when tips are taken into account.

• Many tips are pooled, of course, but if a waiter covers 8 four person tables that are turned 5x a day with a £20 per head spend and a 12.5% ‘suggested’ gratuity, then some £400 in tips will be generated – admittedly over more than one shift.

• If this is over two 8hr shifts and each waiter ‘supports’ one person back of house, then all the individuals concerned will make £12.50 per hour in addition to their basic wage

• Pity the poor bar staff

Cost pressures, prices & price rises further down the line (re all operators):

• Whilst tomorrow never comes, there may be some pressures that build up over time.

• The Living Wage, as it will probably impact others earning more than but close to the minimum wage, is a feature.

• Also, baking in some cost increases (wages) at a time of benign input cost pressures is potentially a problem if 1) Sterling weakens, 2) interest rates rise and 3) commodity and energy prices also move off their recent lows.

• But, as mentioned and more so for politicians than for most others, tomorrow never comes.

Enterprise Inns’ Q3 update (re pub operators, thoughts on Punch etc.):

• 0.6% LfL income growth y-t-d isn’t knockout but it’s >0%.

• And to be able to announce 8 quarters of back to back LfL income rises is a distinct positive.

• Rents are stable and beer profits have risen – it has to be admitted that the latter could come under some pressure.

• The strategy is on track. The group is staffing up where it needs to staff up.

• This reminds us that Punch is yet to update on its strategy.

• That said, we would be surprised if it did not track that of Enterprise Inns relatively closely.

Thomas Cook & the oil price, a simple question:

• So, if the price of oil has cratered and the share prices of the scheduled airlines have been relatively strong, why is TCG so weak?

• Tunisia will cost and Greece is an issue but, even so, one would expect the core business to be performing well.

• Of course operators concede that perhaps 70% to 80% of any windfall cost reductions have to be passed on to consumers.

• But it’s the Teflon v Velcro issue. When costs rise, they are passed on quickly and when they fall, they tend to stick for a while in the hands of the operators.

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Housing stocks have been very strong.

• Miners have been extremely weak.

• Having just visited Canada (and last summer France, Belgium, Holland, Germany, Denmark & Sweden), one has to concede that Just Eat is operational and very visible in a large number of markets.

• Greece has not gone away.