Langton Capital – 2015-09-22 – Mitchells + Butlers replaces CEO, AG Barr, Kuoni & other:
A Day in the Life:
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I think I eat my fair share of crisps.
Probably more than my fair share but, I have to say, I sometimes struggle to link the taste of the things to what it says they should taste like on the bag.
I mean salt, I’m OK with. And salt & vinegar crisps taste like, well, salt and vinegar but that’s about where it stops because I struggle to recognise the cheese (or the onion) in cheese & onion let alone taste anything like chicken in the chicken-flavoured crisps or the Caribbean Rum, Red Pepper & Raisin in whatever it is that Gary Lineker is trying to flog to us this week.
Not that I’m saying that’s bad, it just is what it is. And I’m the man who drank two cups of coffee at the weekend thinking they were tea so, before Pepsi, KP or whoever start to change their ways of thinking, let’s move on to the news:
Mitchells & Butlers – Replaces CEO, guides profits down:
Q4 update, CEO replaced:
Mitchells & Butlers has this morning updated on 50wks trading to 12 Sept and announced that CEO Alistair Darby is to leave the company. Our comments are set out below:
Mitchells & Butlers announces it is ‘pleased to announce today the appointment of Phil Urban as Chief Executive, from 27 September 2015’
It then goes on to say ‘as a consequence, Alistair Darby will step down as Chief Executive on 26 September 2015, and will retire from the Board and leave the Company on that date.’
M&B adds Phil Urban ‘joined Mitchells & Butlers in January 2015 as Chief Operating Officer, and was previously Managing Director at Grosvenor Casinos, a division of Rank Group and Chairman of the National Casino Forum.’
It adds ‘prior to that, he was Managing Director for Whitbread’s Pub Restaurant division, and for Scottish and Newcastle Retail’s Restaurants and Accommodation Division.’
Chairman Bob Ivell comments ‘the non-executive directors have considered the issue of the leadership of M&B very carefully and are delighted to announce Phil’s appointment. Phil is a strong leader with industry experience and a proven track record of operational delivery, who we are confident will build on the progress made under Alistair.’
He adds ‘the Board recognises the significant contribution made by Alistair as Chief Executive over the past three years, is grateful to him for bringing the business to a stronger position and wishes him well in the future.’
The Trading Update:
Whilst the news may be overshadowed by the replacement of its CEO, MAB has updated on trading
It turned in LfL sales growth of 1.3% for the first 43wks of the current financial year but sales in the 7wks to 12 Sept are down by 0.7%.
Current year numbers & other:
M+B reports ‘the UK eating and drinking out market has been subdued in the summer leading to a slight slowdown in the rate of sales growth, exacerbated by the wet weather.’
It says ‘despite this slow market seen in the past weeks, we are continuing our plans to reposition and enhance the business, focusing on offering quality guest experiences at great value, and remain confident in our ability to meet the challenges of high consumer expectations and forthcoming cost pressures.’
Nonetheless, it says ‘we expect results for the year to 26 September 2015 to show growth on last year although, on the basis of this recent trading, to be at the bottom end of the range of current market expectations.’
Re new openings, M&B says ‘so far this financial year we have opened 14 new sites and converted 48 sites. This includes 38 conversions of Orchid sites to core M&B brands – notably Toby Carvery, Ember Inns, Miller & Carter and Harvester – returns from which have been strong.’
The group adds ‘this programme will continue into next year with a further 40 conversions and the remainder of the sites being integrated into the Heartland estate.’
Langton Comment: Today’s RNS falls into two, distinct parts; the change in CEO and current trading. These are clearly linked.
Whilst the departure of Alistair Darby was not expected, neither is it altogether a surprise.
M&B is a large part of the Coffer Peach Tracker and, as such, it has been possible for some time to discern that its sales were likely lagging those of the wider market.
One has had a feeling that a giant has been pushing its foot down on the accelerator but the response of the vehicle, for whatever reason, has been sluggish. This is not likely to be down to the performance or lack of performance of any individual but rather to a number of factors including, perhaps, the fact operationally M&B had already set the bar high, the observation that elephants find it hard to jump and the fact that the market is teeming with new, innovative competitors.
With this in mind, forecasts will come down and the future, to be blunt, is somewhat unknown.
Phil Urban and Bob Ivell will update the market late November but, somehow, it feels as though we have been here before. In a sector offering a number of alternative investments, one does not have to own M&B shares. As we reported earlier in the year ‘whilst acknowledging the latent strength of M&B’s business and accepting that its shares are now cheap, we do not see MAB as a share that you must have and we would still be tempted to look for value elsewhere.’
Pub, Restaurant & Drinks Producer News:
• AG Barr H1 numbers, turnover £130.3m v £135.7m, down 2.8% adj. for impact of discontinued business
• AG Barr h1: Adj. PBT up 3.3% at £17.8m, says ‘Funkin business is performing well against our pre-acquisition expectations’. CEO Roger White says ‘we have delivered a number of significant system, business process and operational improvement projects over the course of the last 6 months, which will ensure we can successfully deliver our long-term growth and efficiency ambitions. These important changes have been made against a challenging backdrop of stretching prior year comparatives, disappointing weather and tough market conditions.’ He continues ‘our focus in the coming months will be to build our sales momentum and continue our long-term brand investment strategy.’ Mr White says ‘market conditions across the first half have been difficult and are forecast to remain so’ and concludes ‘assuming a satisfactory trading performance
• Small ticket spending been under pressure from big-ticket rebound, cars, carpets, furniture, holidays etc. This should abate shortly. Whilst this is a hope rather than a certainty, big ticket spending, by its nature (new carpets, new car) tends to be lumpy and once it’s done, except in extreme circumstances, it’s done. Furthermore, J Sainsbury was brave enough to put its head above the parapet earlier in the year & say that the phenomenon should have run its course by the end of this financial year.
• NLW + small ticket spending: This should be a boost. PPI came in dollops was spent on large ticket, NLW will be a drip-feed.
• Stonegate’s full year sales increased by £87.4m to £557.7m thanks to the acquisition of 78 sites from Bramwell Pub Company, writes Propel. Pre-tax profits for the year to 28 September 2014 grew from £3.5m to £6.9m and the group sounded an optimistic note with regards to future trading, commenting: ‘The improved macro-economic environment seen during the financial period is expected by many to continue into 2015,” Companies House document stated. “A likely consequence of this will be improved consumer conﬁdence. The impact, in terms of volume and value, will be further seen when wage inflation is ahead of CPI. This occurred at the end of calendar year 2014 and is set to remain ahead during 2015. Our pubs and bars are well placed to take advantage of these trends.’
• Pub operator and brewer Brakspear has appointed Ed Turner, formerly managing director of Geronimo Inns, as a non-executive director. Turner has been tasked with helping its managed pub division. CEO Tom Davies said of the appointment: ‘Davies said, “We’re delighted that Ed has agreed to join us. I can’t think of anyone in the industry with better credentials for helping to develop a managed pub division, and the phenomenal success of Geronimo on his watch speaks for itself. He grasps our ambitions for the managed estate and appreciates its place in a predominantly tenanted estate. We’re confident he will contribute enormously to the continued development of the Brakspear brand.’
• CPL Online has introduced a host of new added value reporting and data analysis functions for its hospitality clients. The company specialises in bespoke digital services and products as well as e-learning training for the hospitality sector.
• Fullers is now selling its Frontier lager in cans and is supporting the launch with a new ‘Find Flavour’ campaign.
• Morrisons CEO David Potts and finance director Trevor Strain have between them bought 373,334 shares in the struggling retailer.
Holidays & Leisure Travel:
• Thomas Cook to update on Q4 Thurs. Various on-trade + general retailers have suggested more Brits were overseas in August. TCG + TUI should have benefitted from the flipside of this with the Lates markets (at least in the UK) selling out well.
• TCG: Strong pound, better UK economy, pretty drab August weather + general desire to get away from it all should have boosted Q4. The group operates in other European countries but, all things being equal, it should have room to be upbeat about trading when it reports Thurs.
• Kuoni signs CHF200m debt facility.
• IHG is reported to be finalising £1.9bn deal to buy Canadian hotel group Fairmont, having beaten rivals including Wyndham and Accor in the bidding process.
• Inmarsat and Deutsche Telekom are collaborating to bring high-speed internet access to European short-haul flights. The service, which will consist of a combined satellite and air-to-ground network, will be trialled by German airline Lufthansa in 2017.
• Virgin Holidays is to roll out a new range of concept stores in a bid to engage consumers.
• Time Warner Cable Inc’s shareholders have approved the company’s $56 billion takeover by Charter Communications Inc. The cash-and-stock deal that would make Charter the No. 2 U.S. Internet and cable co
Finance & Markets:
• BoE deputy governor Jon Cunliffe appears to have contradicted Andy Haldane’s recent comments that rates could go down. Speaking to a regional newspaper, Cunliffe said that the next interest rate move from the Bank of England is still likely to be up despite concerns over inflation.
• World markets: UK broadly unchanged yesterday, Europe up, US up later in day and Far East up in Tues trading
• Oil: Brent around $48.55 per barrel
• Fed Bank of Atlanta President Dennis Lockhart says he still sees Fed’s interest rates rising later this year
• Alexis Tsipras has said his ‘first crucial battle’ after winning the Greek election will be securing debt relief for the country. Syriza’s election manifesto identifies areas that can still be amended post-bailout negotiations, including labour reforms, pension cuts, and plans to address the non-performing loans that have held back Greece’s banks.
Retail Roundup from Nick Bubb:
John Lewis Sales Watch: We noted last Friday that the great High Street bellwether John Lewis had hoped to get a boost to Electricals sales last week from the launch of the Apple Watch in their stores and the overall comp remained soft, given the adverse impact of the “Indian Summer“ on Fashion sales a year ago. But we suspect that the fine weather on Saturday will have taken the edge of store footfall, so, ahead of Friday’s official figures for w/e Sept 19th, we would again pencil in c4%/5% LFL sales growth, ie decent but not earth-shattering trade.
Grocery Market Share Watch: The latest monthly Kantar Grocery data comes out at 9.30am today (for the 4 weeks and the 12 weeks to September 13th) and, on a line through the dull weekly sales trend at Waitrose, the news is likely to be pretty dreary for the “Big 4” (Waitrose total sales growth slowed to just under 1% in the 4 weeks to Sept 12th, about half the growth seen in the previous 4 weeks, with LFL sales probably c1% down). Word reaches us that the rival Nielsen Grocery market share figures will also be coming out this morning, rather than on Friday, and from now on the Nielsen figures will always come out on the same day as the Kantar figures…
Nick Bubb – firstname.lastname@example.org
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:
Casual Dining Group:
• Group suggests that, despite City suggestions that it was currently soliciting offers of help in issuing a £150m bond, it is not an IPO candidate.
• CEO Steve Richards told the Sunday Times ‘we are constantly evaluating options for our business in terms of the best way to grow it. However, we have not been exploring the option of a sale and have no plans to go to the public markets.’
• Apollo and York Capital took control of the group (from Blackstone) in Q1 last year and, though it may be a little early for them to be looking for an exit, this will be appropriate for them & their fund-holders in due course.
• CDG sold Strada last year and recently bought Las Iguanas and La Tasca. The group therefore offers pasta, French bistro, Spanish tapas and South American sharing platters but it has no chicken, burger or pizza offer.
• We are of the view that further restructuring and organic growth (and potentially acquisitive growth) is likely in the private arena before the group’s shareholders explore both resale opportunities (to other PE houses) and/or an IPO in tandem.
Restaurant capacity sharply higher:
• AlixPartners / Peach report that some 1,770 new restaurants opened in the last 12 months; this amounts to some 6.9% growth
• Saturation will be (and maybe already is in some markets) an issue.
• The 1,770 equates to 4x new Pizza Express-size chains having opened in the last year but 1) there will have been some closures, 2) wet-led pub numbers are down by 4.4% (so there is some evolution) and 3) new entrants will be causing more trouble for incumbents than they are for themselves.
• There has been an increase in the number of wine bars, café bars and food-led pubs – the latter increasing by 1.1% over the last 12 months.
• The survey suggests ‘branded food pubs saw a 9% growth in numbers – and the bulk of the overall growth in restaurants came from the, largely branded, chain restaurant market.’
• The evolution towards food (for the on-trade) and to take-home (for drinkers) looks to be continuing apace
• There may be issues upcoming for the market – any change is likely to generate losers as well as winners – but it’s difficult here to disaggregate what is good for an individual company (at the micro-level) from what is good for the industry (at the macro-level)
• Interestingly the survey places York in the top 10 growth towns. We can vouch for that.
Interest rates in the UK:
• Interesting to see Andy Haldane say that rates may go down.
• So it’s one thing to keep the markets guessing. It enhances your fire-power but what happened to ‘forward guidance’?
• Did it expire when Mr Carney said he would put rates up when unemployment fell below 7% only to see it fall below that figure almost immediately?
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Interesting to see US west coast operator MOD pizza, which has 70 units in its home market, say that it could have ‘hundreds’ in the UK. We would suggest that this demonstrates admirable ambition & it may be true. But 1) MOD will not be expanding into a vacuum and 2) it will not be expanding alone.
• Interesting to see Bath Ales introduce pizzas into a number of its pubs. Pizza Hut operated in a number of Whitbread pubs in the 80s and 90s but times change, perhaps it’s right to give it another go?
• Domino’s Pizza Poland: Looks as though all of the indicators are pointing in the right direction. And the macro-background looks OK so, if the co can continue ticking off its various targets over a series of short terms, then it’s going to be a good long term investment.
• C-stores: Morrison’s no longer a buyer but a seller. MRW removes itself as an asset-acquirer & at least partly sates the appetite of the co buying its sites. And BHS now entering the C-store market. Will be interesting to see which diametrically opposed view (MRW get out or SBRY/TSCO expand rapidly) ends up making most money (or losing the least) for shareholders.
• And what does the above mean for secondary & tertiary pub values? MARS, PUB, GNK & others have already made major disposals to Hawthorn Leisure, New River and others. Perhaps not such a bad move.
• Apparently there’s 1m square feet less supermarket space out there than there was a year ago (per Mail on Sunday).
• John Lewis, traditionally a liberal, staff-friendly outfit, has said that the National Living Wage will lead to job losses.
• World markets: Friday reaction to Fed interest rate decision somewhat churlish. Decision postponed, uncertainty remains. A case of it being scarier to travel than to arrive?
• UK markets: Was a risk-off day on Friday. Utilities, food retailers etc. performed better than miners, oils, financial companies etc.
• Markets hoping for more bids? Maybe but, when companies have to start buying each other in order to engineer growth, it may be a sign that the cycle – or at least this stage in the cycle – is maturing somewhat.