A Day in the Life:

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I had to get my coat out this morning.

Admittedly to keep off the rain rather than to keep out the cold but it does prompt the question, has autumn arrived?

The mist, the rain, the single-figure temperatures & the back to school frenzy / homework crises chez Brumby would suggest that it has and, as always, I’m disappointed with myself for ever really regarding August as a summer month because it feels as though the weather is often on the wane here in the UK from sometime around early June and I think there’s a case for putting the clocks back in August rather than in October.

But let’s not get downcast because you can have fun in the rain. Can’t you? And, even if that’s just what people who live in rainy countries tell themselves in order to retain their sanity, then the change in the weather at least prompts consumers to spend in the shops and to mind-shift from beer gardens to cosy log fires. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Greene King Leisure Tracker reports 2% y-o-y growth in spend in month to July, says wet sales down 4%

• GNK says ‘poor weather [in later July] failed to dampen the appetite for Eating Out among British households’, drink spend down. Says the ‘modest growth in overall leisure spending mirrors the ongoing resilience in consumer confidence despite underlying sources of uncertainty at home and abroad.’

• GNK looking forward to Rugby World Cup, says events ‘can galvanise the British public’, encourage pub visits etc. GNK’s Paul Flatters says ‘this month’s figures give us some indication of how the economic recovery is playing out across the nation. While the miserable July weather has hit other leisure spending, eating out, especially with kids continues to drive spending. Throughout a challenging economic period eating out has emerged as the affordable, family friendly occasion, and is now continuing into the recovery.’ He says ‘elsewhere we can see signs of returning consumer confidence, not least in consumers’ anticipation of the Rugby World Cup. More consumers expect to be watching the games in the pub than at a friend’s house – a small indication of returning confidence and affirmation of the pub’s role in connecting us during major sporting
events.’

• GNK Tracker details. The group says ‘Eating Out was the only activity to register growth in average household spend, while both Drinking Out and Other Leisure saw similar declines in spend in July.’ Month-on-month (comparing sales with a buoyant June), GNK reports ‘all leisure categories saw a decline in spend in July. Falling most acutely on this basis was Drinking Out, with the average British household reducing spend on this activity by £3 (7%).’

• GNK says ‘recent figures show wage growth to have slowed + unemployment to have increased in 3mths to June’. It says this is ‘leading to speculation that the jobs recovery is levelling off. If these figures prove to be indicative of a change in momentum in Britain’s economic recovery, the broadly upward trajectory in leisure spending seen over the last year may start to become more subdued. However, the falling cost of necessities in real terms continues to put money back into the pockets of households helping to maintain strength in consumer confidence.’

• GNK suggests ‘households in London + South East reduced leisure spending by £4 (2%) while elsewhere household spend increased by £7 (4%)’. It says nonetheless ‘despite a fall in spend among households in London and the South East, the trend in leisure spending remains largely positive in both areas. It will be interesting to see what impact, if any, the introduction of a 24 hour tube service has on the capital’s late night leisure economy following its launch in September.’

• Meat Liquor has secured a 2nd site in Singapore with more to open pre year end reports M+C. It quotes director Scott Collings as saying ‘the plan was to always do more than one but not this quick. A great number of agents and landlords have been clamouring to offer The Blind Group sites for more MEATliquors in other Asian countries as well as Singapore. This one at Clarke Quay was too good to turn down.’

• Heineken is reported to be looking to raise stake in United Breweries, India’s largest brewer, to over 50%

• Him Consultancy has reported that food-to-go is set to continue growing as a segment across the UK’s C-Stores

• TCG is to launch its 5th annual ‘Proud of Our Ale’ festival on 18 September

• Tesco has reportedly received 3 bids from PE houses for its South Korean business Homeplus, all c£3.7bn

• Kantar Worldpanel reports only Sainsbury increased sales across big 4 in quarter to August. Overall prices down 1.7%. It says ‘industry growth of around or below 1% has now persisted since summer 2014 and has become the new normal.’ It continues ‘despite the accelerating British economy like-for-like grocery prices are still falling, with a representative basket of everyday items now 1.7% cheaper than in 2014.’

Leisure Travel:

• Airbnb is reported to have signed up 500 companies to its business travel program within 24hrs of launch

• Eurostar broke monthly record in July with numbers up 5.1% y-o-y

• Trivago reports 75% of searches for Bank Holiday weekend holidays were for sites in the UK

Other Leisure:

• Paddy Power + Betfair announce possible merger, say they have agreed terms in principle.

• PAP + BET say merger ‘would create one of the world’s largest public online betting and gaming companies by revenue’

• PAP to own 52% of enlarged group, Betfair 48%. PAP to pay €80m special dividend, Gary McGann (PAP) Chair, Betfair’s Breon Corcoran CEO. Both groups go on to say ‘the structure of the Possible Merger is being finalised with a view to maximising benefits to shareholders and other stakeholders, and it is expected that the Combined Group will maintain a significant presence in Ireland and in the UK.’ They say it would see the ‘creation of one of the world’s largest public online betting and gaming companies with revenues of over £1.1 billion (€1.5 billion1) in their last financial years’ and adds ‘the Combined Group’s scale and capabilities would leave it better placed to compete in existing and new markets.’

• PAP H1 numbers, operating profit +33% or 68% under constant currencies + before new taxes, product fees

• PAP H1: Net revenues +25%, diluted EPS +31%, H1 dividend +20% at 60c. Says making ‘substantial strategic progress’.

• PAP says 2015 results will ‘be ahead of 2014 and the consensus market forecast.’ CEO Andy McCue reports ‘Paddy Power has delivered a very strong performance in the first half with net revenue up 25% in constant currency and operating profit up 33%. Underlying operating profit was up 68% excluding the impact of new taxes and product fees.’ He adds ‘we have made substantial progress implementing the strategy we set out in March, with further payback to come from new mobile product releases, refreshed marketing campaigns and efficiency gains. We now expect full year 2015 reported operating profit to be a mid to high single digit percentage above 2014 and the consensus market forecast.’

• Betfair reports on Q1, says revenues +15% against tough World Cup quarter last year. EBITDA +10% at £41m. CEO Breon Corcoran reports ‘these results represent another strong performance. Double-digit revenue growth against the period containing the World Cup last year is particularly encouraging and was ahead of our expectations.’ He adds ‘Betfair’s current momentum is strong and the business remains well placed to execute against our strategy and to continue to deliver profitable growth’ and adds ‘the proposed merger with Paddy Power is hugely exciting. It would create a truly global sports betting group with unmatched products and talent, and significantly enhanced scale.’

Finance & Markets:

• General market rebound. UK + Europe strongly higher yesterday but US down. Far East mostly up in Weds trade

• China cuts main interest rate by 25bps to 4.6% in order to boost growth. Markets positive

• FTSE100 breaks 10dy down run, stages biggest rally in 4yrs

• Oil prices down a little, major rally fails (yet) to materialise with Brent trading at around $43.10 per barrel

• US reports consumer confidence hit 7mth high in August. Home sales also rebound, will confuse interest rate watchers

• German business morale rose in August (pre events in China), outlook (ex-China, which is a big ex) looks good

Retail Roundup from Nick Bubb:

Kantar Watch:
The latest monthly grocery market share data from Kantar yesterday (for the 4 weeks to August 16th) wasn’t very inspiring for the overall industry, with the “Big 4” seeing combined gross sales down by 1.5% (with food price deflation edging up to 1.7%), whilst Aldi/Lidl combined growth picked up again, to +18.1%. Just to show that these figures are not the gospel truth (and to explain why Kantar focus on the 12 week moving trends in their press release), Waitrose was reported as being up by 3.1% in the 4 week period, even though the 4 weeks reported by Waitrose themselves showed +0.6%, +1.4%, +2.2% and +3.1% (which averages only +1.8%…). So the figures do need to be taken with a slight pinch of salt and will have to be weighed up with the rival Nielsen figures on Friday, but, for what they’re worth, Asda was again a big loser, albeit their -2.3%
performance was the same as Morrison’s, whilst Tesco was -1.7% and Sainsbury was actually +0.1% for the period. Remember that you have to knock off c1.5% from those figures to get at the LFL store sales trends…

Poundland:
Looking through the summary of the CMA’s provisional findings from its Phase 2 inquiry into the proposed acquisition by Poundland of the 99p Stores chain, we were intrigued by a couple of things. One was the revelation that it was back on 14 May 2014 (a couple of months after the Poundland IPO) that KPMG, acting on behalf of 99p Stores, first approached Poundland about a deal. But, “following a lengthy due diligence and negotiation process”, a sale and purchase agreement between the shareholders of 99p Stores and Poundland was not signed until 5 February 2015, so Poundland did well to keep that quiet for so long. Quite rightly, the CMA looked at what would have happened if the deal was called off and it basically concluded that 99p Stores would have limped along. The other thing that caught our eye was that a chain called Bargain Buys was mentioned as a
growing competitor, which is not a value retailer we were familiar with, but this is, of course, the multi-price/bigger store format owned by the Poundworld chain, with about 40 stores. 

Nick Bubb – nicholas_bubb@hotmail.com

Tuesday 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:

London’s first Pizza Festival:

• Planned for September in Borough Market it tends to suggest to us that there’s still a case to be made for the better mousetrap.

• Because entrepreneurs may feel that they need to pioneer Nigerian waffles or Eskimo tapas but the three majors (chicken, burgers, pizza) still have legs.

• Just ask Soho House, Meat Liquor or Franca Manca.

• You don’t need to reinvent the wheel. Just knock out the kinks and, if incumbents become fat, lazy, greedy, entitled, etc. then so much the better.

Tenanted pubs:

• Corporate finance house Sapient advised on Punch’s Monday disposal of 158 non-core pubs to New River Retail.

• Punch says that the marketing of the units ‘led to significant interest and a robust auction.’

• Sapient adds ‘the sale price of 7.3x pub EBIT is the highest price since 2007 for non-core tenanted pubs.’

• It adds ‘prices for tenanted pubs are rising, driven in part by new entrants attracted to the higher yields that pubs generate compared to other property assets’ and concludes ‘we expect further activity in light of the MRO legislation.’

• Certainly the bar is rising. What used to be non-core units pre-credit crunch would have been utterly dire.

• These have long-since gone, everything is relative and bottom end pubs just aren’t what they used to be.

• Enterprise has updated on strategy and Punch will comment on Q4 trading on 1 Sept.

London trading:

• So the Tube strikes have been pushed into a back-to-work week.

• More Tube staff will therefore take a day off (that they had not already booked) and more commuters will be impacted.

• It’s good that nothing’s going to disrupt this week but, if the City’s anything to go by, there are fewer workers around to breathe a sigh of relief.

• If the strike had taken place this week then tourists (the odd family from Michigan and guy from Newcastle bringing his grandkids down) would have been impacted and they’re presumably in London too infrequently to bother putting pressure on Tube bosses to sort the problem out.

• We’ve previously 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.

Slowdown, costs, interest rates & currency movements:

• There are interrelationships between all of the above.

• If China slows, commodity prices should fall. If that happens, inflationary pressures should abate. Hence interest rate rises (in the US & UK at least) should be postponed & currencies should react accordingly.

• However, whilst the causality may be understood in theory, the above doesn’t often work through as anticipated.

• Only this time it has hence, in a mangled version of what Hannibal Smith used to say, it’s great when a plan comes together.

The consumer in light of the above:

• Everything is lagged, confidence (or the lack of it) can make a mockery of theory and you’re often left comparing apples with oranges.

• But, if the above economics come to pass (weaker Sterling, no interest rate rises, benign cost environment), is the consumer better off or worse off?

• Well that depends.

• Savers will lose on what could have been a boost to their incomes. But, whilst there are more savers than there are borrowers, interest rate rises usually depress spending (unless there’s some sort of mania going on – and then the 16th or 17th rate rise, as Mr Greenspan found out in 2001, can set things tumbling down).

• Hence the absence (or the delaying) of a rate rise should help to buoy spending.

• The fact that lower rates means a weaker Sterling, higher import costs, costlier holidays overseas etc., is a problem that can be kicked into the long grass.

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

• World markets: Much more sanguine today about what’s going on in China – but has anything really changed? Answer: no.

• Interestingly the Dow moved through a 1,000 point range in yesterday’s trade.

• Oil price also bouncing a little.

• Unsafe drinking is not only the preserve of the young.

• Barclaycard says that holiday spending is up. What it means is that spending on plastic is up. The one probably follows the other, but it need not.