A Day in the Life:

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So isn’t it worth commenting that what seems funny from one perspective doesn’t seem so amusing when viewed from another?

I mean when having a quiet beer in the local beer garden over a lunchtime, it may be amusing if a wasp lands in your colleagues glass but, were the nasty little insect to pollute your own drinking vessel, you would be nowhere near as pleased.

And isn’t it occasionally the same with shares. What you may describe as a one-dimensional, illiquid story stock when held by other people is your own diamond in the rough until, of course, you try to sell it, find that there’s no market and see the story on which the share’s recent strength has been based blow away in the wind. Then it’s not funny at all.

Not that that would happen to Langton, of course. We’re just saying. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Coffer Peach Tracker has LfL sales +1.1% in July, says has seen ‘strongest trading in branded restaurants outside M25’

• Tracker: Says ‘expanding casual dining brands are increasingly competing with pubs for out-of-home consumer spending’

• Tracker: Restaurants > pubs (former +4.3%), Provinces > London (in restaurants), drink sales > food sales (in pubs, esp. London).

• Tracker: says ‘while the overall eating and drinking out market continues to grow steadily, it is the growth of branded restaurant chains, especially outside of London that is driving the market.’ It says such chains ‘registered like-for-like growth of 4.3% last month – and 4.9% outside of London.’ Pubs and bars ‘had an essentially flat month against the same time last year, with food-led pubs, including pub restaurants, collectively seeing a fall in like-for-like sales.’ It would appear that a glut of sites in London may be holding back restaurant sales, at least on a LfL basis, in the capital.

• Tracker: Total sales in July, which include new openings, were +4.8%. Restaurants were +9.2% + restaurants outside M25 +12.3%

• Tracker: London pubs > provincial units. LfL sales at former +1.4% with drink led pubs actually performing more strongly. Peach’s Peter Martin says ‘in a highly competitive market, the public is being given more choice than ever, and appears to be happy to be tempted by the new and different.’ We have suggested for some time that new entrants are a problem – but that they are often more of a problem for incumbent operators than they are for themselves. Re property, Trevor Watson of Davis Coffer Lyons comments ‘the continuing strength of these results is being replicated in the property market with strong corporate demand for sites outside London. The central London market is equally strong, however. It is dominated by fast growing smaller independent operators, which are more difficult to track due to their size and emerging status. The health of the sector
is also clearly reflected in recent corporate activity as well.’

• The Tracker suggests ‘the impact of the National Living Wage on consumer spending and operating margins is not yet clear; while the impact on costs can be modelled with a degree of certainty, the effect of increased disposable income on spend in restaurants and pubs for those earning the National Living Wage is more difficult to predict at this stage.’ It may have a positive impact on sales over time (as would-be customers find that they have more cash in their pockets) but it could have a negative impact on pub/restaurant margins.

• Coca-Cola HBC reports H1 numbers, says ‘underlying volume growth gained momentum in the second quarter’ with H1 volumes therefore +3.8%. It says ‘excluding the 2.5% contribution from the four extra selling days in Q1, volumes grew by 1.3% ‘ and says volume in the Established markets was broadly unchanged from the prior-year period’.

• Coca Cola HBC: Group says the ‘developing segment turnaround continued, with all markets contributing to the 6.2% volume growth’. CEO Dimitris Lois concludes ‘we are pleased to have achieved strong results, with good volume growth and a significant improvement in margins.’ He says ‘our strategic initiatives are delivering, both through our commercial strategy designed to drive growth and ongoing efficiency improvements’ but cautions ‘difficult conditions remain in many of our markets, particularly in Russia’. He says overall ‘we have become more optimistic as the year has progressed and remain confident that 2015 will be a year of volume growth and progress on margins.’

• Technomic reports 57% of US consumers eat a burger at least once every week.

• Technomic says rising beef costs are driving innovation re burgers with non-beef proteins now commonly used. Technomic says ‘utilizing value beef cuts and incorporating non-beef proteins can help lower costs and broaden the range of need-states burgers can satisfy’. Technomic goes on to say ‘specialty ingredients like pretzel buns can enhance the value perception, and unique toppings and sauces, stuffed patties and premium sides can add to craveability and brand differentiation.’

• New Imbiba Partnership vehicle Wright + Bell is reported by M+C to have secured site at South Place in City for pre-Xmas opening. Wright + Bell aims to secure c6 sites in central London with a further site in the City already being targeted. Sister vehicle Darwin + Wallace earlier this week secured a third site, in Richmond.

• Poll by Hospitality GEM suggests that whilst 87% of disgruntled customers would not return to a site where they had suffered slow service, only 48% would complain on the spot.

• Craft beers are fast becoming a way for operators to differentiate their sites from the competition, leading Mike Benner, managing director of SIBA, to comment: ‘We’re delighted that a growing number of pubs are now making space on their bars for beers from British craft brewers, and will continue to work hard with operators to create more opportunities for our members to have their great beers listed in more pubs – to the benefit of brewer, retailer and the increasing number of drinkers looking for quality British beers.’

• Devon-based restaurant and café business ODE True Food is preparing to open a pizza restaurant within a holiday park next year. The new concept, called ODE&Co True Pizza, will serve sourdough pizza and pasta, and will open in South West Holiday Parks’ Coast View site in Shaldon next Easter.

• Tiny Rebel brewery’s Cwtch brew – a Welsh red ale – has been crowned the Best Beer in Britain at the Great British Beer Festival (GBBF). Kelburn Brewery won silver with its Jaguar drink, while Dancing Duck Brewery lifted bronze with Dark Drake.

• Novus Leisure has launched its first graduate placement scheme to help young adults enter the premium bar space.

• A report from Aviva Investors has highlighted the importance of casual dining chains to boosting high streets and shopping centres.

• PE house LDC has approached Zeus Capital with a view to floating D&D Restaurants –the restaurant business founded by Sir Terence Conran. The restaurant group, acquired by LDC in a £50m buyout in 2013, includes well known sites including the Bluebird in Chelsea and Quaglino’s in Mayfair.

• Accounts from the Companies House show D&D generated revenues of £6.2m for the year to the end of March 2014, up from £5.8m a year earlier. Pre-tax profits climbed to £1.1m from £947,000.

• Turkish authorities are launching an investigation into Mey Icki — Diageo’s raki business in the country. The country’s Competition Authority believes accusations of unfair market dominance practices are ‘serious and adequate’ enough to justify an inquiry, although the exact nature of allegations remain unclear.

• Consumer spending in the pubs and restaurants sector has accelerated in H1 2015 and is set to increase further throughout 2016 and 2017. The findings, which come from Capital Economics’ quarterly Consumer Analyst, show like-for-like spending grew by 0.9% in Q1 and by roughly 2% in Q2.

• Morrisons will launch a new ‘Morrisons Milk for Farmers’ brand this Autumn which will guarantee 10p of its retail price per litre will go straight to farmers. The new product will sell for around £1.13 and will sit alongside the supermarket’s own-brand milk.

TUI Q3 update:

• TUI updates on Q3 trading. Group says first off ‘the quarter was marked by the tragic events in Tunisia at the end of June.’

• TUI Q3: Sees ‘strong growth in underlying EBITA which reflects continued delivery of our strategy and resilience of our business model.’ It says ‘based on current trading we are confident of delivering underlying EBITA growth of 12.5 % to 15 % in the current financial year and at least 10 % underlying EBITA CAGR over the next three years’.

• TUI Q3: Q3 sales +6% at €5.1bn. EBITA +13% at €185m. Year to date sales +7% and EBITA +56%. Joint CEOs Friedrich Joussen and Peter Long comment on the tragedy in Tunisia and go on to say ‘recent weeks have also seen continued economic uncertainty in Greece. Within our business model there is an inherent assumption that we will face a level of disruption as a result of external events.’ They go on to say ‘we are continuing to deliver our growth strategy as the world’s leading tourism business. In spite of the events in Tunisia and Greece, we have continued to -deliver strong growth in underlying EBITA. This demonstrates the resilience of our integrated business model. Tourism earnings growth was driven by Cruise, Hotels & Resorts and a strong performance by the UK.’ They conclude ‘based on current trading we are confident of -delivering underlying
EBITA growth of 12.5 % to 15 % in the current financial year and at least 10 % underlying EBITA CAGR over the next three years’.

• TUI Q3: Group says it is ‘86 % sold to date for Summer 2015, in line with prior year, with bookings + average selling prices up 2%’ The group has seen capacity remixed from Tunisia to alternative destinations for Summer 2015 and adds ‘economic uncertainty in Greece adversely impacted trading to that destination at the end of June and in the first half of July; however, we have seen an improvement in bookings in more recent weeks and cumulative bookings remain ahead of prior year.’ It says ‘the situation in Greece has had a greater impact on late trading from Germany than from other source markets’.

• Putting Tunisia in context, TUI says ‘historically, Tunisia has accounted for approximately 3 % of our annual tour operator programme, and our Hotels & Resorts business manages and leases 24 properties there. The foreign offices of the UK, Belgium and Netherlands are currently advising against unnecessary travel to Tunisia. Our policy is to follow foreign office advice therefore we have cancelled flights from these source markets. To date, most customers who had booked holidays to Tunisia this Summer have rebooked with us for alternative destinations.’

Other Leisure:

• Cineworld H1 numbers: Revenues +22.5% at £329.1m, PBT +236.7% at £46.8m, adjusted EPS +45% at 11.6p + H1 dividend +31.6% at 5p.

• Cineworld H1: Seen UK + Ireland revenue growth of 11.0% on 26 v 26 same week pro forma basis. CEO Mooky Greidinger reports ‘we are pleased to announce gratifying first half results, with satisfactory increases in admissions, box office revenue and retail sales.’ The strongest releases included “Fifty Shades of Grey”, “Fast and Furious 7”, and “Jurassic World”. Greidinger reports ‘we have delivered on our expansion plans by opening nine new sites (93 screens), in the UK and abroad’ and says ‘the film release programme for the second half of the year is encouraging’ and concludes ‘overall, with the anticipated strength of the film line up in the second half, coupled with our solid first half performance, we are marginally ahead of our plans for the year as a whole.’

• Expedia has reported an increase in overseas searches for UK hotels. Lucky visitors face 4dys of tube disruption the week after next. Expedia nonetheless reports ‘our numbers paint a very encouraging picture for UK hotels in summer 2015 with emerging traveller markets combining with more established ones to give solid, year-on-year growth in interest.’

Finance & Markets:

• ONS data shows that unemployment rose by 25,000 in the three months to June. Commenting on the latest UK labour market statistics, David Kern, Chief Economist of the British Chambers of Commerce, said: ‘Overall, these figures are a timely reminder that the UK recovery is still in need of care and attention and we cannot take any unnecessary risks. With average earnings growth relatively stable and inflationary pressures subdued, it is clear that what British businesses need is a period of stability without any threat of interest rate increases for the time being.’

• Ousted Greek finance minister Yanis Varoufakis has said latest Greek bailout deal “is not going to work”. He told the BBC ‘the International Monetary Fund… is throwing up its hands collectively despairing at a programme that is simply founded on unsustainable debt… and yet this is a programme that everybody is working towards implementing.’

• Eurozone industrial production falls 0.4% in June v May. Suggests quarterly GDP estimate of 0.4% could be optimistic

• World markets: UK + Europe down yesterday on further China fears but US markets up. Asia mostly higher in Thurs trading

• Oil price up a shade at around $49.75 per barrel

• ONS reports average earnings rose 2.4% in the year to Q ended June (down from 3.2% in 3mths to end-May).

Leisure – The Week Ahead

Next week sees H1 numbers from Kuoni on the 21st. Thomas Cook has announced it will be buying the Indian and Hong Kong arms of Kuoni’s travel business. The travel sector has had a tough time in recent months as the tragedy in Tunisia drives capacity away from North Africa, and though this capacity can be put back on elsewhere around the Med, it will likely come at a cost to the travel companies. The Greek situation looks to have improved somewhat, though continued unrest in the country may continue to put off holidaymakers.

Carlsberg has H1 numbers on the 19th. At the group’s Q1 update the company saw organic net revenue up 4%, and 8% organic profit growth driven by a strong Western Europe and Asia. SAB however reported last month that trading in Europe has been challenging with SAB seeing its lager volumes down 8%. The weather has been slightly cooler than average this summer, though the heat wave in early July will likely have boosted beer sales in the UK.

Final numbers from Rank Group come out on the 20th. Last month saw the group lose its appeal against HMRC regarding overpaid VAT between 2002 and 2005.

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

Retail Roundup from Nick Bubb:

Waitrose Watch:
Having heard one of the participants in the “Retail Week” Twitter debate on Retail Sales on Tuesday lunchtime say, slightly fatuously, that “Waitrose is still doing well”, notwithstanding the general weakness in supermarket sales, we were prompted to look back at how Q2/H1 ended up for Waitrose last week. Waitrose did not, of course, do well in Q1, given the tough comps, with gross sales (ex-petrol) up by just 0.8%, despite all the new space that has been added, implying LFL sales down by 2.5%. To be fair, Q2 was a touch better and H1 gross sales overall ended up by 1.2%, but even if the new space factor diminished somewhat in Q2, after the anniversary of the Co-op stores acquisition in the spring of last year, LFL sales in H1 were probably down by c2%. That is not quite as bad as the experience of the “Big 4”, but it was hardly a triumph and
the comment of the estimable MD Mark Price, in his end of H1 overview last Friday, that “even in these brutal market conditions, we continue to outperform the industry on sales, win new customers and gain market share” seemed a bit OTT. We will find out on Sept 10th just how bad H1 operating profits were for Waitrose, given the pressure on margins…

Nick Bubb – nicholas_bubb@hotmail.com

Wednesday 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:

Evolution in eating out. You can’t keep it out of the news (re all operators etc.):

• Just this morning, further headlines suggesting that change remains the only constant and that standing still in leisure retailing is not an option:

o McDonald’s is to shrink the size of its US estate, apparently for the first time in at least 45yrs.

o English vineyards could have a bumper year.

o Billions of breweries are springing up in the UK every week.

o ABV is polarising. Craft beers can be 6.5% plus and stronger session drinks have slipped back from 5.2% to 5.0% to 4.8%.

o Reports that half pint glasses are becoming more widespread than full pint glasses.

• OK so there are more important ‘evolutionary’ trends in place. Food, family, female customers etc., the grey-market and so on.

• And pubs are moving into coffee & breakfasts, sandwich shops are staying open in the evening and food-to-go operators are flirting with alcohol.

• But the serious point remains that sitting on one’s laurels is not really an option.

• Perhaps this hasn’t escaped those legions of seemingly limitlessly-funded Private Equity houses out there. They seem to need to buy in their expertise as, whilst running businesses may be what they are good at, they arguably don’t shine when it comes to innovation.

Tube strikes & the London market (re most operators):

• So the various rail unions are going to ruin four days’ trade at the cost of only two days’ lost pay?

• The next two strikes will impact Tuesday 25th (evening), Wednesday 26th (all day), Thursday 27th (evening) and Friday 28th (all day).

• The strikers can then put their feet up for the three-day Bank Holiday weekend.

• Pretty ruinous for London trade, befuddling for tourists and annoying for those Langton employees dragging their way back from Vegas on the 28th.

• It may lead to concerted calls to put the army in as it doesn’t seem fair that a relatively small number of highly paid workers sitting atop billions of pounds worth of centuries old taxpayer-funded capital spending can hold London to ransom.

• But it is what it is.

• We had feedback suggesting that strike days coincided with c15% falls in trade in Zones 1 and 2 and this seems reasonable though a bit light, if anything.

• Suburban pubs may benefit but, overall, the strikes are bad news for the Capital where, in the hotel industry at least, the market is already past its best.

Consumer spending & the weather (re all operators):

• Barclaycard reports that consumer spending rose by 4.6% in July.

• But it was a month of two halves thanks to the weather

• High temperatures early in July filled shops & beer gardens (though it may have hurt cinemas & indoor attractions, Cineworld updates tomorrow but it is likely to tell us that Jurassic World dragged the punters in) whilst less good weather later in the month did little to help

• That said, wallet-fatigue would have set in at some point anyway as there is only so much spending that a man can do

• Online shopping picked up some of the slack in the second half of the month. Anything that persuades people to stay on the couch is borderline unhelpful

• Barclaycard reports that spending on leisure and entertainment was up 12.8% in July. Spending in pubs was up 15.5% (very weather-sensitive) and the credit card company reports that spending on takeaway food was up by more than 60% for some periods of the second half of the month

• So overall, July was good though it should be noted that trends towards plastic & away from cash may flatter these numbers somewhat

• Nonetheless, Chris Wood, managing director at Barclaycard, said ‘July was a prime example of how the weather impacts the way consumers spend their money. The heat wave that dominated the start of the month provided a lift to the high street – especially clothing and department stores – as consumers took to the shops to update their wardrobes. But as the weather deteriorated, winners emerged in different categories including cinema, which was also bolstered by summer blockbusters, and takeaways which consumers turned to avoid the damp and blustery conditions.’ He goes on to say ‘overall, the rise in discretionary spending in July echoes a six-month trend where consumers, supported by significant tailwinds such as zero inflation, rising wages and clear guidance on interest rates, feel more comfortable splashing out on the nice-to-haves.’

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

• Oil well below $50 & miners (non-precious metals) weak. Low oil price good for consumer (and pretty immediate) but also very helpful, albeit over time, for the tour operators.

• Sterling rallying a little. Also good for tour operators. TUI updates tomorrow morning.

• It’s worth a look at the cocoa chart. The price has been very high. This has contrasted with a weak coffee price but the price of the former has now come off the top a little.

• All markets now weak on this China devaluation. If it’s not one thing, it’s another.

• SCS furniture tells us that trading has picked up recently. It may be that spending on big-ticket items is still running ahead of that on affordable treats.

• Senior staff exit M&S. Is it just us or does M&S seem like rather a political environment? As in ancient Rome, a turned back attracts knives.