Langton Capital – 2016-04-18 – MRO, Stock Spirits, buy-backs, Monarch & other:
A Day in the Life:
So how much Marmite do you end up leaving in the new squeezy tub because it’s simply not worth the effort trying to get any more out?
My guess is that it’s going to be around 10% though, in many cases, it could be quite a bit more because, once you’d squeezed and shaken the thing a few times, the upside offered by making it last another couple of rounds of toast is outweighed by the near certainty that you’re going to both do yourself an injury and end up with the ceiling and lampshades stripy with the stuff if you carry on throwing it around.
Which, I presume, is a win-win for Unilever.
Not only do they sell the gunk in a plastic tub for about 1.5x the price you can get it in a glass jar but more of the product gets left sticking to the sides and re-purchases will be that bit more frequent. Either that or you might be persuaded to go cold turkey, never touch the stuff again. On to the news:
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Market Rent Only. BBPA reports ‘key aspects of the Pubs Code are unworkable and are seeking an urgent meeting with Ministers to discuss.’ It says that the absence of a transition period is a problem adding ‘when the Groceries Code was introduced there was a six month’s transition between adoption and the need to act on it, and the same should apply to the pubs legislation.’ It says ‘quite apart from the disruption to agreements already concluded, with no final details available, there is no time for staff training of those who will have to ensure compliance with the new legislation.’ See also Langton comment below.
• MRO: ALMR says code ‘finally brings a much needed sense of clarity that should give licensees the stability they need to move forward.’ It adds ‘as a sector we need to work collectively on establishing and promoting appropriate entry training for lessees and facilitate access to existing methods of dispute resolution that are open to businesses. This needs to be done rapidly to ensure that lessees can hit the ground running on 26 May.’
• MRO deemed to be a little more tenant-friendly than some of the companies may have hoped. Lack of a transition period does seem an oversight. Linking ‘significant capital spend’ to a multiple of dry rent seems sensible though there perhaps should have been a second level (at perhaps 4-5x dry rent plus) at which the tie could be kept for a little longer than 7yrs. Presumably also this agreement will stick with the property if the lessee sells his/her lease?
• Stock Spirits reports CEO Chris Heath to step down ‘with immediate effect to take early retirement.’
• Miroslaw ‘Mirek’ Stachowicz, an NED, will serve as interim CEO ‘until a suitable replacement is found.’ Group says ‘Mirek has extensive experience of leading consumer branded companies in Poland and CEE and is currently non-executive vice-chairman of Harper Hygenics SA and non-executive director of CCC, both of which are listed on the Warsaw Stock Exchange.’ Chairman David Maloney reports ‘the Board and Nomination Committee have been discussing executive succession plans for several months and I appointed an international search firm in early February this year to help identify a new CEO. I also discussed this directly with Chris.’ He adds ‘our plan was to ensure that we had a new Polish managing director in place before initiating any other changes to avoid further uncertainty…but Western Gate’s actions have clearly interrupted our careful
• Stock Spirits. Outgoing CEO Chris Heath says ‘Stock Spirits is a great company with excellent brands and some extremely talented people who I have been privileged to work with.’ He adds ‘the Board and I have been reviewing Group succession plans for some time and we felt that now was the right time for a change of leadership.’
• The Telegraph writes that the Qatar sovereign wealth fund and private equity group CVC have abandoned plans for a potential takeover of Sainsbury’s.
• A new report claims that British consumers will spend some £3bn on coffee from shops and cafés this year, despite volumes having already risen by 28% in the past five years. Mintel expects coffee shop sales to hit £3.14bn this year, with industry forecasts anticipating £3.75bn by 2020 thanks in large part to increasing sales from non-specialist sites such as pubs and restaurants.
• Enterprise Inns bought back another 54,438 shares on Friday at between 99.75p and 102.25p per share
• NPD Group/Crest Foodservice Pulse reports consumer confidence in UK remained positive in Q4 but down on Q3
• Foodservice Pulse: Mild weather in Q4 helped eating out of the home with ‘deals’ falling again as a proportion of total sales. Pulse suggests, however, that ‘efforts made by smaller casual dining chains and independent restaurants to tailor their offer to a more demanding consumer have not yet been successful.’ Pulse concludes ‘confident consumers tend to treat themselves and their families more, particularly during the Christmas period, and this is reflected in the return of families to the sector and a very good performance of the total foodservice market.’
• Deltic Group has opened the second site in its Shoreditch-inspired Bar & Beyond concept and is looking to make further acquisitions. Speaking the MCA, chief executive Peter Marks said the most recent site at Stevenage Leisure Park could see the group move into daytime trading, adding: ‘It’s a totally different mindset from nightclubs where you open when you know there is going to be trade. With bars, it’s important you are seen to be open to build that momentum. We’ve been very pleasantly surprised with how early and how sustained the trade is.’
• Research from the University of East Anglia suggests climate change has boosted grape growing in the UK but weather-related volatility poses a threat. English wine production has encouraged vineyard area to expand by some 148% in the past ten years, although data indicates that climate variability at important points in the growing season could leave the industry vulnerable to the elements. The UK has been warming faster than the global average since 1960 and eight of the warmest years in the last century have occurred since 2002.
• Lidl’s expansion into Ireland shows no sign of slowing down, with sales passing the €1bn mark and plans to open another 40-50 stores in the near future. The German discounter currently has 147 stores in the country.
• The Grocer’s Bridgethorne Shopper Index shows that 60% of consumers are in favour of the incoming sugar tax. More than 90% of respondents said they had heard of the new measures, while 52% said they were concerned about the amount of sugar in their food.
• Nestlé Confectionery’s Polo mints brand has revealed a sugar free extra strong variant.
• Christopher Snowdon, head of lifestyle economics at the IEA, says that despite increasing sugar concerns dental health continues to improve.
• Action Hotels FY numbers. Has seen ‘y-o-y growth in all key financial performance indicators’ being sales, EBITDA, profit.
• Action Hotels reports sales +16% at $43.5m (2014: $37.6m). EBITDA +42% at $16m. Current trading ‘positive’, sales +14%. CEO Alain Debare reports ‘2015 has been another successful year of delivering growth to our shareholders. We opened new hotels and added more projects to the pipeline whilst overseeing strong performances from our existing profitable operating hotels. Our focus continues to be the delivery of our pipeline of hotels on time and on budget. We expect to deliver a further three hotels this year, taking the total for 2016 to five new hotels in one year.’
• Idea of hotels by the hour (see Friday) suggests that innovation is alive & well. Hot sheet motels may have been around for a while but, at airports, it’s likely that many customers would be happy to take a room for less than 24hrs. Innovators in this space may steal a march over their less fleet-footed competitors.
• Police are investigating an incident in which a drone is believed to have struck a passenger plane approaching Heathrow Airport.
• The cost of flying to the UK’s most popular destinations fell by an average of 10% in the first quarter of the year, according to data from kayak.co.uk. Flights to Dubai were down by 17% year-on-year to £336, while prices to New York fell 15% to £371 and those to Bangkok reduced by 12% to £497.
• A study from Airplus has found that almost half of UK travel managers will spend more on travel in the next year than they did in 2015. A total of 44% of the 847 buyers studied intend to increase their business travel spend, while 39% will maintain current levels and 16% anticipate a decrease.
• Monarch-owner Greybull Capital has refuted rumours of a possible sale of its airline, although it has appointed Deutsche Bank to assess its opportunities.
• Over the weekend, the Sunday Times carried an article suggesting that EasyJet was poised to buy leisure airline Monarch. Meanwhile the Telegraph has suggested that the airline is ‘eyeing up a number of struggling European rivals as its owners weigh ambitious growth plans for the low-cost carrier.’ The paper quotes sources as saying that Monarch has looked at Air Berlin, TuiFly, and Thomas Cook Airlines, as well as a budget airline in Spain, as possible bid targets.
• Pure Gym, Britain’s biggest budget gym, has posted an 82% rise in sales to £125.2m and a 77% jump in EBIT to £13.5m ahead of its c£500m IPO. The figures were boosted by the CCMP Capital Advisors-owned chain’s acquisition of LA Fitness’ 43 clubs for around £80m last May, with membership numbers growing by 62% to 670,000 across its 132 branded sites last year.
FINANCE & MARKETS:
• A number of key IMF member countries have said that they will pursue “growth-friendly” policies in order to boost their economies. Drilling down, it is hard to work out just what that means. IMF boss Christine Lagarde has said that talks between finance ministers and central bankers in Washington represented “collective therapy” as to how to deal with the slowdown in world growth.
• US industrial production fell in March, led by drops in mining and car manufacturing. Production was down 2% year-on-year.
• Begbies Traynor’s latest ‘red flag’ research has suggested that ‘Brexit could spell disaster for struggling UK exporters’. It acknowledges that Sterling may weaken but says that a number of the c21k UK manufacturers which rely heavily on exports could be ‘tipped over the edge in a Brexit scenario’. The insolvency specialist reports ‘our data shows that the UK’s exporting industries are already under significant financial pressure and can ill afford any potential risk to the 50 percent of British exports that go into the EU.’ It concludes ‘considering the current struggles that the UK manufacturing industries are facing, as seen most starkly in the steel industry recently, and the significant potential impact of a Brexit vote, it is crucial that firms make contingency plans for either outcome of the Referendum to avoid
• European car sales rose by 5.7% last month to 1.74m units
• World markets: UK down Friday, Europe also lower. US down in later trade & Far East lower in Monday trade
• Oil price down a little on Doha frustration. Trading at around $41.30 per barrel
• Rightmove reports house prices rose by 1.3% in April versus March
• Gold reported to have broken its uptrend. World apparently willing to take a little more risk.
Market Rent Only legislation in 60 Seconds…
• HMG has responded post consultation period & Law comes into effect at end of May
• Leaseholder thereafter will have right to demand free of tie lease
• This could (net-net) lead to lower rent (including wet-rent), but it transfers risk to the publican
Point of contention – transitional period:
• There is none; lessees could, in theory, demand an MRO from 1 June
• Potential admin problems as proposals (yesterday) came only c1mth prior to implementation
• In practise, excluding zealots, this is unlikely to happen in great numbers
Point of contention – ‘significant investment’:
• Carve out from MRO (if mutually agreed) if pub co invests ‘significant’ capital in the unit
• Sensible as the property owner has to generate a return
• This is now defined as 2 x wet rent (say £70k to £80k) for a 7yrs exclusion
• 7yrs works for a £70k ‘sparkle’ but it may be too short for a £300k overhaul
• Hence latter is unlikely to happen, these may become managed (or franchised) units
• The legislation (in one form or another) has been coming for 15yrs
• The feeling of relief (re the certainty) may at this stage outweigh other issues
• Market forces (bad pub cos have voids, go bust) has done most of the job already
• Most if not all listed pub cos already comply with the spirit of the law
• Admin hassle to one side, the Code’s implementation should have little impact