Langton Capital – 2017-01-03 – Input costs, rising prices, Britvic, Brexit & other:
Input costs, rising prices, Britvic, Brexit & other:
A DAY IN THE LIFE:
So, as if further proof were needed to confirm that I’m getting out of touch with the media, it’s been reported that nine of the top ten most-viewed shows in 2016 were episodes of The Great British Bake Off.
The remaining top-tenner, coming in at no8, was an episode of Mr Attenborough’s Planet Earth II but, getting back to Bake Off, a cooking show in a tent, just what’s going on?
I mean The World’s Strongest Man wouldn’t be in my top 100 but, having said that, it would be well ahead of Bake Off which, in my opinion, sticks a few things together, none of which I feel drawn to, and puts them in a field.
I must be missing something but anyway, it’s back to work time. On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• Britvic has announced it is to buy Bela Ischia Alimentos in Brazil for £54.5m. it says it sees ‘substantial annual cost synergies.’
• Britvic purchase to be EPS accretive in first full year. Sees buy as ‘a key pillar of Britvic’s strategy.’ CEO Simon Litherland says ‘the proposed acquisition of Bela Ischia represents an exciting opportunity to build on our very strong first year in Brazil with further expansion of our presence in a large and growing soft drinks market. Bela Ischia operates in a category where Britvic has proven capability of generating growth, launching new products and establishing brand leadership and is an excellent complementary fit with our existing business.’ He adds ‘our due diligence to date has identified significant cost synergies and potential further revenue benefits arising from a broader brand portfolio and geographical presence. As a result, we are confident that this complementary acquisition should create a fantastic platform to consolidate our strategic position in Brazil and
• Lynx Purchasing warns on inflationary trends this year. Says ‘operators need to get 2017 off to the right start by taking urgent action to tackle the impact of food and drink inflation on their business’. Lynx says ‘January will see a wake-up call delivered to many restaurants, pubs and hotels in the form of supplier invoices for products bought during the key trading month of December.’
• Lynx suggests ‘most operators had set menus in place for much of December, taking them up to Christmas and through to the New Year weekend.’ It says ‘they may now find that much of the profit margin they were forecasting from December sales has been eroded by lower GPs. That will be a sobering thought for many operators as they face the prospect of the quiet trading months of January and February and the expectation that food and drink inflation will continue to rise steadily throughout 2017.’
• Lynx says ‘we know that a number of suppliers had to raise prices on key products during December – for example, dairy, and especially butter, has seen sharp price rises, and products imported from Europe have cost more as a consequence of the fall in the value of sterling.’
• Restaurant chains including Byron and Leon are marking up the cost of items ordered through Deliveroo to cover the commission the group charges. A spokesman for Deliveroo said: ‘We urge restaurants not to charge more to those eating at home than to those eating in the restaurant. Ninety-eight per cent of the thousands of restaurants we work with across the UK agree and do not charge more.’
• Pub industry veteran Rupert Clevely has warned that pubs will need to raise the price of their food and drinks by around 3% in 2017 in response to rising costs. Clevely singled out the rates rise as of ‘considerable concern’, but the industry also faces cost pressure from the fall in sterling, minimum and living wage increases, and the apprenticeship levy.
• Pizza Hut in the US is offering a 50% discount on food ordered online or by app through to Jan. 9. It says ‘the weeks after the holiday season can be financially tight for many. With this quick and easy offer, we’re making sure Pizza Hut fans can enjoy the pizza they love without breaking the bank.’
• At the end of March last year only seven late-night levies had been introduced, compared with a government expectation of 94. Measures such as the Early Morning Restrictions Orders (EMRO), introduced by Mrs. May as home secretary in 2012, have so far rarely been used by licensing authorities. A report by the Institute of Alcohol Studies suggested that the failure of EMROs resulted from opposition from the licensed trade, poor gathering of supporting evidence and fears that they would undermine night-time economies.
• Some 85% of people asked by uSwitch said they would be paying off credit cards into 2017 after celebrating the New Year on credit. People will carry an average £636 on credit cards into 2017, according to price comparison site uSwitch’s survey of 1,261 adults. A total of 65% expressed concern about their level of debt, while Bank of England governor Mark Carney has also recently warned about record high levels of household debt.
• Deltic Group CFO Russell Margerrison has left after four years with the group, per MCA.
• BrewDog’s 7.5% Crowdcube bond has sailed past its £6m target and is on track to reach its maximum of £10m.
• Contactless spending in pubs jumped by 79% in 2016, while fast food outlets saw a 69% rise and contactless payment in restaurants grew by 62%. Barclaycard’s Contactless Spending Index shows nearly half of Brits now use contactless at least once a month.
• Grand Union, the London-based bar chain backed by Luke Johnson, is reportedly reviewing options for its nine-strong estate. The group grew revenues by 11.4% to £8.1m and EBITDA by 21% to £1.5m in the year to 26 March.
• Bacon sales have tumbled as shoppers choose fish over meat, with a report by The Grocer showing meat sales slid by £300m while pre-prepared fish was up by over £30m in 2016. Nielsen data show the number of people buying fresh meat in supermarkets has dropped by 4.4% throughout the year, with bacon sales falling by over £122m and sausage sales declining by £51m.
• Marks & Spencer has been forced to accept wholesale price rises of up to 15% on some grocery lines, per The Times. The retailer angered small own-label suppliers in November, who have threatened to pull products from Marks & Spencer’s shelves in response to Steve Rowe’s promise to protect shoppers from the impact of sterling’s drop since the Brexit vote.
LEISURE TRAVEL & HOTELS:
• Fog has been causing delays to flights for London airports over the New Year’s weekend
• Figures from the British Hospitality Association Travel Monitor shows that the number of leisure tourists coming to the UK has fallen for the second month in a row. Outbound holiday travel shows signs of strong growth, however.
• Visit Britain has said that overseas spending in the UK could hit record levels this year. It says the number of visitors could rise by 4% to 36.7m visits. It says ‘these figures not only underpin a longer-term pattern of growth for inbound tourism, one of our fastest growing export industries, but also demonstrates its growing importance as a key driver for economic growth and jobs.’ It continues ‘with our hotels, shops and attractions all offering excellent value for overseas visitors right now, it’s a great time to come to Britain. Through our strategic partnerships and global marketing campaigns we are converting aspiration to visit into bookings, ensuring that the economic benefits of tourism are spread across all of Britain’s nations and regions.’
• Terrorist attack in Istanbul likely to raise travel concerns, Turkish market unlikely to rebound rapidly
• Thomas Cook has reported that Spain (mainland & islands) accounted for 36% of searches over the NY period. Greece had 17%.
• Norwegian set to launch £56 one-way New York air fare this summer
• The US hotel industry posted a 1.2% fall in occupancy to 42.2%, while average daily rate was down 3% to $106.06 and revenue per available room slid 4.2% to $44.76.
• Average hotel rates in Europe grew by 1.5% in November and occupancy rose by 4.2% to 70.3%, with much of the growth coming from eastern Europe. London performed well, however, rebounding from last year’s terrorist attacks in Paris, with occupancy levels in November up by 5.3% to 85.9%, which helped to increase ADR by 2.6 per cent to £151.65.
• Rail commuters now pay up to six times as much as their European counterparts following the latest round of fare increases in excess of inflation. Research published by a union-backed campaign shows workers are spending as much as 14% of their salary travelling to work by train every day, while more than 230,000 commuters claim to have given up their jobs during the last three years due to rising fares.
• Abta research indicates that almost a quarter (24%) of travellers intend to spend more on holidays this year and early indications are of summer bookings up 11% on last year.
FINANCE & MARKETS:
• Brexit think tank Change Britain has suggested the UK will be a “beacon of global free trade” if it follows a hard Brexit.
• Change Britain says UK will create nearly 400,000 new jobs if it quits the EU customs union. Both manufacturing & services would benefit. Former Cabinet Minister Michael Gove reports ‘the UK has a prosperous future ahead of us if we leave the EU’s customs union and become a beacon of global free trade. As we strike new trade deals with the growing economies of the 21st century, it will create hundreds of thousands of jobs right across the country, strengthening communities throughout the UK and ensuring that everyone feels the benefits of economic growth. But in order to achieve this we must take back control of our trade policy. Only then can we realise the full potential of this great trading nation.’
• FT reports economists gloomy on 2017 outlook. Says ‘growth will slow, incomes will be squeezed and investment delayed.’
• FT accepts UK growth remained resilient in aftermath of 23 June Brexit vote but says it will slow to perhaps 1.5% in 2017.
• FT reports 64% of economists polled as saying growth will slow this year. Only 3% thought it would pick up
• Institute of Public Policy Research says Britain faces a decade of disruption in the wake of Brexit
• IPPR says Brexit will “profoundly reshape the UK’. It says ‘painful trade-offs are almost certain. Growth is expected to be lower, investment rates worse, and the public finances weaker as a result of Brexit.’
• Opinions on Brexit obviously pretty polarised. The only certainty is uncertainty.
• IPPR says by 2030 households will on average be £1,700 worse off per year than they would have been if Britain had stayed in the EU’
• IPPR says low-income households will see incomes rise only 2% between now & 2030. Will go nowhere for a generation
• Official data shows UK grew by 0.6% in Q3
• Halifax says UK house prices will rise this year but only by between 1% & 4%. Rate was 10% in March last year. Halifax says ‘the housing market is critically dependent on how the wider economy evolves. We consider it most likely that the UK economy will soften over the course of 2017.’
• Nationwide says the same thing, estimates 2%.
• Times poll suggests London house prices will stall this year. Prices will ‘flatline or contract’ in 2017.
• BBA reports fewer mortgages offered in November compared with October. But says credit card lending hit a 4mth high
• OECD says lower house prices could benefit the UK economy. It says ‘we’ve already started to see some changes in real estate prices in the UK.’
• World markets: UK hit highs last Friday with Europe also up yesterday. US down on Friday, Far East up in Tues trade
• Brent around $57.15. Well up over holiday period
• Sterling $1.23, little changed over holidays
• US long rates down, 30yr government money earning 3.06%
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• BBPA writes to Liverpool City Council to express concern over the recent decision to implement a Late Night Levy.
• Fleurets has predicted that at least one tenanted pub company will exit the tied lease operating model in 2017
• Christmas weather. Mild but windy. Last year was extremely warm, this year closer to average. Overall, not bad.
• Monarch’s CEO has said that although profits will plateau next year, 2018 will be ‘transformative’ for the business
• Dart Group has announced that it has agreed to buy a further 4 new Boeing 737-800NG aircraft. Supply may, at some point, become an issue
• easyHotel is expanding its ‘super budget’ portfolio with a new £5m property in Leeds. The unit should open in 2018
• Domestic holidays are on the rise, tourists are spending more and business activity is on the up. Prices could rise says B of England
• Later Tweets: Sarny me up, it’s Friday. However bacon sales have plummeted says The Grocer. Meat sales down £300m in 2016 with fish sales up by >£30m.
• Holiday trends, where is the new capacity going? Dart now awaiting 34 new planes. Sure, some will be replacements but capacity is up
• Domestic holidays. Demand up but capacity can’t be increased quickly. You can’t have 50 new cottages in Mousehole overnight
• Domestic holidays. Feels as though prices could rise on buoyant demand. Good for currently besieged 2nd home owners but also EasyHotel etc.
RETAIL NEWS WITH NICK BUBB:
• BDO High Street Sales Tracker: We will find out tomorrow how that great bellwether John Lewis did over Christmas, but some flavour of how the calendar shift of Christmas Day from a Friday to a Sunday boosted the last week before Christmas can be sensed from Friday’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains, which flagged that w/e Dec 25th was rather good. With High Street footfall helped by the benign weather, Fashion Store LFL sales were up by 8.3%, boosted by a soft comp, and as Homewares and Lifestyle sales were very robust, total Store LFL sales were up by as much as 11.7%. And overall Online sales were up by an amazing 51%, on top of strong 25% growth last year.
• Saturday Press: New Year’s Eve seems a long way away now, but if you didn’t see the papers on Saturday then you didn’t miss much, although the Times and the Guardian both had reviews of the stockmarket “winners and losers” in 2016 and Sports Direct featured prominently as a loser (along with Next). Mike Ashley and Philip Green were also highlighted negatively in the Daily Mail review of the “Heroes and Villains” of 2016, with Dave Lewis of Tesco featuring on the positive side, for delivering “the green shoots of his recovery plan”.
• Sunday Press: Apart from New Year Tips (see below), there were quite a few plugs in the New Year’s Day papers that Next will defy the High Street gloom with its trading update on Wednesday: that was a front page Business story in the Sunday Times and was also featured in the Mail on Sunday and the Sunday Express. The Sunday Express, the Sunday Times and the Mail on Sunday also highlighted that Mike Ashley will throw his weight behind the embattled Keith Hellawell (who he affectionately calls “plod”) in Thursday’s shareholder vote on his position as Chairman of Sports Direct. The Observer started its Review of 2016 with the headline “Sports Direct: from FTSE to laughing stock” and also noted that the beleaguered Philip Green is 65 in March and will be able to draw his state pension (!). The main feature in the Observer was a 2 page spread on the fall of BHS (“How plans to save
• Bank Holiday Monday Press: The Daily Mail flagged that Next has been tipped as a Christmas sales winner, despite its refusal to discount pre-Christmas, and also noted that long-term bulls Goldmans have been pushing Ocado again. The Times, however, noted that Ocado is still heavily shorted by hedge funds and also highlighted that short sellers have stepped up their bets against Morrisons, Debenhams and Halfords. The Times flagged separately that Morrisons has cut the prices of 800 grocery lines. And the Times noted that private equity companies have put a couple of retailers up for sale: the jeweller Mappin & Webb and the lingerie chain Agent Provocateur.
• New Year Press Tips Watch: The Business journalists on the Daily Mail unveiled their 2017 Tips on Saturday and no retailers were listed in the nine selections (Ted Baker was one of their 2016 Tips, with a disappointing -6% outcome). The Sunday Telegraph Business team had Morrisons as the first of their ten 2017 Tips, given its recovery momentum (Dixons Carphone was one of their 2016 Tips, with a very disappointing -29% outcome). The Retail correspondent of the Sunday Telegraph went for a Consumer momentum play for 2017 in the form of the high-flying Fevertree. The Sunday Times Business team had no retailers in their nine 2017 Tips (Travis Perkins was one of their 2016 Tips, with a very disappointing -26% outcome). The Retail correspondent of the Sunday Times went for a Consumer recovery play for 2017 in the form of the embattled Restaurant Group. There were no 2017 Tips in the
• News Flow This Week: After the New Year break and the Bank Holiday yesterday, mighty Next will, as usual, kick off the plethora of Christmas trading updates tomorrow, with John Lewis Partnership also likely to unveil its Christmas overview. Not much else is expected this week, although the Sports Direct EGM vote on the future of the embattled Chairman Keith Hellawell is on Thursday morning.