A Day in the Life:

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

Find previous emails at http://www.langtoncapital.co.uk/daily-notes/ 

So it’s the first of December today. You can open the first door on your Advent Calendar and, as our nine year old blithely tears open the cardboard door and hoovers up the Chocolate inside, it reminds me of my childhood.

When my mum would take last year’s advent calendar, wrap tiny pieces of chocolate in foil and shut the doors with sticky tape because waste not, want not and quite right too.

And we would have done the same but for the fact that the dog routinely destroys everything that he finds lying around and a second-hand, dog-chewed Advent Calendar might be somewhat lacking in appeal come the 2016 festivities.

Anyway, after what we’re told was the second wettest week in 50yrs in the North of England last night, I was wondering how the drought was coming on? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• A WDR analysis of official Met Office data finds that the mean UK temperature was at least 1°C colder than it was in 2014 in 9 out of 10 months this year. The Wilson Drinks Report’s Tim Wilson says ‘as global leaders congregate in Paris to debate global climate change at COP21, it is interesting to look at what actually happens a bit nearer home. Most drinks businesses include comments about the weather when either explaining upturns or declines in their performance. Our own research confirms that many key drinking occasions are directly impacted by the weather, so we like to keep an eye on the Met Office monthly data to see how changes in sunshine and mean temperature correlate to changes in drinks sales.’ Mr Wilson adds ‘this strong trend in lower temperatures in 2015 also applies to mean temperatures in England, which tend to be a bit higher than the UK
average. 9 out of the first 10 months in 2015 in England were at least 1°C colder than in 2014, the exception being August.’

• Greene King has recruited John Forrest, former chief operating officer of Premier Inn, as CFO of the company’s retail business. Forrest starts in January and will report directly to Greene King CEO Rooney Anand.

• Oakman Inns founder and CEO Peter Borg-Neal has urged the pub industry to cooperate in finding a way to tackle the high rate of VAT placed on pubs. Speaking to the PMA, Borg-Neals commented: ‘The way forward is to find a way to fund a tax cut, rather than just asking for it. The Government is working hard to balance stimulating business and cutting the deficit, so they haven’t got the money to hand out tax cuts.

• Oakman + VAT: ‘For me, one way would be to stop reducing duty on beer unless the breweries pass it on. Brewers decide the wholesale prices in February or March and then we get an announcement about duty being cut. But unless it is passed down we can’t cut prices. We actually need price inflation in the business right now, especially with the new national living wage coming in, but beer duty cuts stop prices going up because the public think they ought to be cheaper. There needs to be a different way of helping the industry.’ Cutting VAT to 5% for hospitality businesses could cost the Exchequer £10bn a year and would not generate enough economic growth.

• Britons spent £1.1bn shopping online on Black Friday, up 36%, according to estimates from Experian-IMRG. Amazon UK, John Lewis, and Dixons Carphone, all said Friday was their biggest-ever single day’s trade.

• Original Bowling Co has invested £500,000 in the refurbishment of its Hollywood Bowl Centre in Cardigan Fields Leisure Park, Leeds. CEO Steve Burns says ‘we have made significant investment in our existing estate in 2015 and our family, adult and corporate customers have all reacted very positively to the fantastic new environments we have created.’ He adds ‘we have a comprehensive investment schedule in place for 2016 and additionally are actively looking for opportunities to open new centres on a nationwide basis.’

• Cubitt House secures investment from private investors to fund expansion, advised by Sapient Corporate Finance. Sapient says ‘the transaction will result in Cubitt House benefiting from considerable growth capital from private investors, whilst continuing to ensure that the founding shareholders, Stefan Turnbull and Barry Hirst remain actively involved in the business.’

• Diageo has announced that together with Heineken, it has completed restructuring of their JV operations in South Africa + Namibia.

• The ALMR has suggested that a tax on sugary drinks might not be the most effective way of combatting obesity and could hurt pubs and bars. The on-trade has come on a long way in recent years, ensuring more informative alcohol labelling, more detailed menus and a general trend towards healthier eating and drinking.

• Chris Snowdon, of the IEA, has also reiterated his view that a new tax on sugary drinks would hit the poorest the hardest.

• Ask and Zizzi owner, the Azzurri Group, has hailed its 2015 as ‘transformational’ after reporting a 16.5% increase in EBITDA to £31.8m.

• Heineken is close to majority control of United Breweries, India’s market-leading brewery, after purchasing 425,000 shares for $5.9m to take its stake to 42.22%.

Travel & Hotels:

• An international bidding war is expected for the government’s 49% stake in the UK’s air traffic control network, National Air Traffic Services (Nats). Nats is responsible for overseeing air traffic control at 14 UK airports and the Chancellor wishes to sell the state’s stake as part of a package of disposals to raise £5bn. The stake in Nats could go for as much as £500m after pension fund USS paid £143m for a 21% stake in 2013.

• Pod hotel company Yotel has said that it has aggressive expansion plans + aims to have 50 new hotels in 5yrs. It currently has 8 in development including two airport sites at Charles de Gaulle in Paris and Changi in Singapore, and six in central New York, Miami, San Francisco, Boston, Dubai and Singapore.

• Accor has announced purchase of 3 hotel portfolios across Europe (29 hotels, 3,677 rooms), for a total of €284m. “Following the recent acquisition of 43 hotels from Foncière des Régions, these transactions once again demonstrate HotelInvest’s expertise in dynamically managing its real estate assets”, said John Ozinga, CEO at Hotel Invest. He adds ‘the transformation of HotelInvest is continuing at a fast pace, with close to €1.0 billion worth of real-estate transactions secured in 2015. We are on track with our roadmap and with the completion of our three-year plan to significantly increase Group’s performance.’

Other Leisure:

• Merlin updates pre-close, says trading since September ‘in line with expectations’. LfL growth at Legoland ‘remains strong’.

• MERL pre-close: FY results are ‘expected to be in line with previous guidance’. Lego been ‘enjoying an excellent Halloween period.’ It says ‘continued growth in RPC is expected to contribute to a strong margin performance for the Operating Group in 2015.’

• MERL ‘Midway Attractions LfL revenue growth has remained at lower levels’. Says challenging in London + Hong Kong’. This has been ‘partly offset by strong performances in the rest of Asia.’

• MERL. ‘Trading at Alton Towers has remained significantly < prior year.’ Adds ‘as expected, y-o-y declines have narrowed in recent weeks’. It says ‘outside of the UK day-visit market, the accommodation offerings across the estate continue to perform well, as do our two continental European resorts. The Operating Group remains on track to deliver underlying EBITDA in line with our previous guidance of £40-45 million.’

• MERL: ‘New attractions and accommodation opened across the Group this year, and in 2014, have continued to perform well.’ It says ‘the outlook for New Business Development more broadly remains positive.’

• MERL concludes ‘whilst some significant trading days remain, including peak season trading for our attractions in Australia and New Zealand, Merlin expects to report full year results in line with current expectations, with underlying profit before tax broadly in line with the 2014 result.’ Merlin will report its 2015 Preliminary results on 25 February 2016.

Finance & Markets:

• Factory activity in China fell in Nov as PMI hit 49.6 from 49.8 in Oct. Any number <50.0 implies contraction

• World markets: UK mixed yesterday, Europe higher. US down in later trade but Far East higher in Tues trade

• Oil price a little firmer at around $44.80 per varrel

• UK mortgage approvals rose to 69,600 in Oct. Though a shade below expectations of 69,900, the number was up on last month

• India’s economy grew at an annual rate of 7.4% between July and September compared to 7% in the previous quarter, according to official figures. The rate of growth was higher than China’s and was powered by rising domestic demand and manufacturing activity.

Langton Licensed Retail Index – Major Movers

The LRI underperformed the market again this week falling 0.83% while the market rose 0.57%.

Pubs

It was a mixed bag for the pub companies last week following full year trading updates from Marston’s and Mitchell’s & Butler’s.

M&B shares were down 8.73% at the group’s first trading update with Phil Urban at the helm.   The group announced that Like for Likes for the first 8 weeks of the new financial year were down 1.6%, with total like for likes for the year just ended up 0.8%.

Marston’s on the other hand saw its shares gain 7.08%.  The group declined to comment on recent trading, having updated on FY trading back in October, but did mention that recent LfLs were ‘up, not down.’   The group has less competition on new build sites with GNK and MAB somewhat distracted, and EBITDA per pub has increased some 40% over the last two years.

Greene King was up 1.64% ahead of its interims this week, presumably as the market hope’s the group has been taking share from M&B.

Other Leisure

SSP Group also had numbers last week, which were well received, sending the shares up 5.12%.  The shares barely reacted to the Paris attack, despite 10% of the group’s estate being in France, and more than half of the estate in Europe.

Merlin, which has updated the market today, was down 0.97% last week.  The group’s shares have recovered a chunk of their gains since the Alton Towers crash currently sitting at c410p, but the shares did reach highs of 460p earlier this year.

Cineworld was down 2.95% after updating on Q3 trading last week, however a c4% rise yesterday means renders this somewhat moot.   The group’s shares have been weak recently following suggestions that next year’s trading will be facing tough comps.

Patisserie Holdings was down 2.46% following its numbers on Friday.   The group saw revenue up 20%, PBT up 29.2%, and declared a maiden dividend of 1.67p. Will Brumby – will.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

John Lewis Sales Watch: We said last Friday that John Lewis would hope to take nearly £200m in sales last week (inc VAT), to top the bumper £179m they took a year ago and yesterday’s news that Black Friday itself was nearly 12% up, thanks to the Online surge, but we doubt if that will have been sustained over the week as a whole. We would pencil in a more modest 5% increase in total sales overall (c3% up LFL, ex the impact of the new Birmingham store etc.), ahead of Friday morning’s official figures for w/e Nov 28th, which would imply gross sales of £188m last week

Topps Tiles: Today’s finals for y/e September are in line with the guidance given in the detailed pre-close update on Sept 30th, with 5.4% LFL sales growth driving underlying PBT growth of 19% to £21m and a chunky dividend increase. And although LFL sales in the first eight weeks of the new-year have slowed to +3.3%, Topps say that it is in line with their expectations and CEO Matt Williams concludes: ”The Group has entered the period in good shape and with a clear purpose, and we remain energised by the multiple growth opportunities open to the business in the years ahead”.

McColl’s: Today’s pre-close update from the convenience store chain McColl’s for y/e Nov 29th can’t disguise the fact that that Q4 LFL sales were still down, by 1.8%, but the company hails that as a 0.5% improvement on the prior quarter and focuses on the good progress made with strategic priorities and developing the convenience store offer, so CEO James Lancaster says “We therefore expect results to be in line with the Board’s expectations for the year”. Nick Bubb – nicholas_bubb@hotmail.com

Monday 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:

Capacity issues:

• It’s not us guv’nor say a number of operators.

• And, when they do concede that they are putting on units (as Azzurri has done with ASK & Zizzi), they seem to say that it’s because they have a unique offering or have broad appeal and that the wider consumer base deserves to have access

• Meaning that this could become something of a micro-macro issue.

• That is to say, what is good for each individual operator is not necessarily good for the market as a whole

• But the problem here is that there is no self-correcting mechanism.

• At least not this side of rising rents, stretched balance sheets, pressured LfLs, lower margins and ultimately a number of business failures

What’s in a name? MPs seem inclined to tax sugary drinks.

• Taxing fizzy drinks may be more easily said than done.

• Wherever there are definitions, there may be operators trying to game the system.

• Manufacturers may (but probably won’t) powder their drinks, remove the fizz or, and this at least would be an agreeable outcome, reduce the sugar in their products

• But they may also squeal about the sugar in tomato sauce, the sugar in baked beans, the sugar in pretty much everything else – and they will have a point.

• So maybe the answer would be to tax sugar at source.

• But here you would effectively have to treat the product as you do alcohol. That is that it has one price the production side of bonding and another price once the tax has been included and it can be passed on to consumers

• Only the consumers here would be business operations as sugar at source is a B2B market.

• Perhaps do it through VAT?

Evolution in the casual dining market:

• Evolution continues, MAB suggests Christmas dinner bookings in pubs and restaurants have increased some 202% since 2012.

• It says the number of meals sold in the first two weeks of the month has tripled from around 90,000 in in 2012 to 272,000 in 2014, with a key trend appearing to be more consumers going out for more than one Christmas event.

• This fits in with comments from a number of operators to the effect that, whilst consumers remain parsimonious overall, they are still willing to spend on ‘big days’ such as Mothers’ Day, Valentine’s Day and the days around Christmas

• Elsewhere, operators have commented over a period of years that customer numbers for Christmas Day itself continue to rise

Random information, hopefully not all of it useless:

• Sterling stable, oil price down, commodities all weak except El Nino products (cocoa, sugar, OJ). Same old same old.

• Thomas Cook shares giving a bit back today but managed four straight days of gains last week post FY numbers.

• Jet2 has suggested that holiday sales have softened since the outrages in Paris. This is hardly unexpected and the share prices of the major operators should have taken this on board a week ago or more.

• Markets last Friday skewed by the drop across mining shares. The (mining heavy) FTSE100 was down whilst the FTSE250 was up. The All Share, which is dominated in terms of market cap (c70%) by the FTSE100, was down.

• Black Friday, whilst not a damp squib, seems to have come in below expectations. Online sales, however, were particularly strong.

• Interesting to contrast the LfL sales performances of Conviviality Retail’s Wine Rack with Majestic Wines. Both groups have updated recently with the former saying LfL sales were up 5.3% and the latter revealing a 4.6% drop.