Langton Capital – 2017-02-20 – Unilever, business rates, inflation, trading & other:
Unilever, business rates, inflation, trading & other:
A DAY IN THE LIFE
We got another bit of wired kit on Saturday that I don’t pretend to understand.
It connects the TV to the internet, allows you to surf various channels etc. and, clever as the people who make these things are, they understood that few people were going to read the instruction booklet & so provide a ‘Quick Start’ guys for the impatient, the over-eager, idiots and men.
But, looking at the thing, I realised that I wasn’t sure that I could follow it.
And at one stage I’d swear a grinning cartoon fool looked to be sticking his finger in a plug socket after which he was presumably going to put his feet in a metal bucket of water and pray for lightning.
Still, we got the thing working but, as it demanded credit card details and there was no ‘skip’ button, it’s gone back in the box & will be returned to the shop.
We tried to find a way around, of course. Even entered into a conversation with the online assistant. But that person, named apparently both John and Trevor at different stages in the conversation, asked for credit card details to process an ‘assistance fee’ of $69.99 in order to avoid putting your credit card details in, which kind of rendered the advice useless.
Still, whilst we might have made a £40 mistake, there are others messing around with $145bn or so. But that’s other people’s money, of course. Different rules. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Wetherspoon’s is to include on its menus the number of calories contained in its drinks next month, with other pub groups expected to follow suit. It comes after a poll found 90% of people did not know the calorie count of a pint of beer, with 80% unaware how much was in wine. Tim Martin, chairman of the 930-strong group, called it a ‘logical step’.
• Christopher Snowdon of the Institute of Economic Affairs argues that all alcoholic drinks should be taxed at a single flat rate of 9p per unit. The head of lifestyle economics called the current duty regime ‘excessive and illogical’ and said a 9p/unit rate would ensure a tax on alcohol rather than an ‘arbitrary’ levy on fluids.
• Stonegate has completed the integration of the 30 Intertain units following its acquisition last year for c£39.5m, per Propel.
• Bud Light to return to UK after 16yr gap says The Grocer. Journal also reports shoppers would dump brands for own-label if Brexit forces up price of food
• The business rates row is moving to a new level. For most losers, there is a winner. But try telling that to an operator in a swish district in the South East.
o It’s true to say that the rating system is somewhat outdated. It doesn’t make any allowance for online sales etc.
o Daily Mail reports price of a pint may rise 5p because of Rates hike alone. This is getting serious
• Foresight Group is in talks to take a stake in Liverpool-based Indian street food chain Mowgli, which currently has three sites. MCA writes that Foresight reportedly beat off interest from the Business Growth Fund and Imbiba.
• Colliers reports increased appetite for the pub sector and writes that pubs will most likely be sold in mid-scale packages in the coming year.
• Figures from the ONS show that retail sales volumes fell unexpectedly by 0.3% month-on-month in January compared to expectations of a 0.9% rise. The ONS said the data indicated the first signs of a fall in the underlying trend since December 2013, with increased fuel and food prices playing a key role.
• A group of global food chain experts led by Professor Tim Benton of the University of Leeds have called on supermarkets to better support UK food production. The group write in a report using Defra data that just 23% of the fruit and veg eaten in Britain is grown here.
• Moody’s reports Kirin’s planned sale of Brazilian business to Heineken is Credit Positive. It says the $700m sale is ‘credit positive for Kirin…because it is divesting a loss-making business and its leverage would improve if proceeds are used to reduce debt.’ Moody’s goes on to say ‘although selling the Brazilian business will weaken Kirin’s geographic diversification, the company’s overall profitability will improve without the loss-making operation.’
• Telegraph predicts ‘perfect storm’ for High Street. Points to challenge from online, rates increases & other factors.
• Predicts prices may rise even though demand is edging down as delivered products remove the need to visit shops.
• Speaking of business rates, the BRC says ‘it is the tax that is fundamentally broken, the whole thing needs to be overhauled.’ Cost increases may have to be passed on to customers.
• Pro Brexit campaigners at Leave Means Leave have suggested £300 could be knocked off shopping costs if the UK leaves the EU.
• It presumably accepts that, if lamb and prawns are shipped halfway across the world, farmers’ jobs will be lost in the UK and this will not be without cost. Tariffs on goods from the EU could have the opposite effect.
• The Daily Mail reports that half of all ready meals consumed in Europe, were eaten in the UK.
• Oil up to $56.01 from $55.74 last week
• Sterling lower at 124.2c vs US$ and 117.06c vs Euro
• House price growth slowing, however. Rightmove reports +2.3% y-o-y in year to February. They rose by 3.2% in January
KRAFT APPROACH TO UNILEVER – THE BID THAT NEVER WAS:
• We’ve come full circle. Kraft will not bid for Unilever. The wires have been buzzing over the weekend but, in an intriguing Press Release, both parties have said that they respect each other too much to fall out over the odd 100 or 150 billion dollars.
• Unilever & Kraft this morning identically report ‘Unilever and Kraft Heinz hereby announce that Kraft Heinz has amicably agreed to withdraw its proposal for a combination of the two companies.’
• It continues ‘Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.’ Kiss, kiss, smiley face, smiley face.
• For the record, Kraft Heinz made a $143bn approach to buy Unilever saying Kraft ‘confirms that it has made a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living.’
• Kraft said ‘while Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction. There can be no certainty that any further formal proposal will be made to the Board of Unilever or that an offer will be made at all or as to the terms of any transaction.’
• Unilever responded frostily saying ‘their proposal represents a premium of 18% to Unilever’s share price as at the close of business on 16 February 2017. This fundamentally undervalues Unilever. Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions.’
• Kraft / ULVR put-up-or-shut-up means former has until 5pm on 17 March 2017 to either announce a firm intention to make an offer for Unilever or announce that it does not intend to do so.
• As it was, the parties didn’t need a month to come to the conclusion that a stress-free marriage wasn’t a realistic possibility
o Kraft has shown its hand. It wants to buy things.
o It was clearly prepared to pay a very juicy multiple of sales (not just profits)
o There are other, admittedly smaller, fish in the sea
o Some of the sales & EBITDA multiples for smaller operators are much, much lower than those for Unilever
LEISURE TRAVEL & HOTELS:
• Almost 200 Thomas Cook travel agency jobs are at risk under plans to shut 39 branches as part of the travel agent’s review of its retail network. Thomas Cook hopes to have the majority ‘redeployed across the business to retain their expertise’.
• A record high of 2,049,093 Brits travelled to Tenerife last year, making up some 36.6% of all visitors to the island.
• VisitBritain statistics confirm that a record 37.3 million visitors came to the UK last year, up 3% on 2015, although spending remained the same at £22.2bn. The US, which remains Britain’s most valuable source market, and Canada grew strongly. VisitBritain chief executive Sally Balcombe said: ‘We must seize the opportunity to build on this, boosting visitor spending by driving home the message of welcome and value particularly in our high spending markets such as China and the US and the valuable European market.’
• The state of emergency in Tunisia has been extended for a further three months.
• Snap has been valued at up to $22bn ahead of its IPO, which will see shares sold for between $14 and $16. The flotation will be the largest since Alibaba went public in 2014 with a value of $171bn.
• Foresight Group has invested £4m in golf equipment retailer Clubhouse Golf, which will go towards driving international trade and developing its e-commerce platform.
FINANCE & MARKETS:
• More than a quarter of employers (27%) believe EU staff are considering leaving their jobs and/or the UK this year. A fall in the supply of EU nationals is hitting the UK retail and wholesale, manufacturing, health and accommodation, and food services sectors particularly, the survey of more than 1,000 employers conducted by the Chartered Institute of Personnel and Development found.
• The Times reports properties are taking longer to sell
• UK gilt yields sharply lower as reflation concerns abate. 10yr gilt yield 1.21% vs 1.26% on Friday
• World markets: UK up Friday but Europe lower. US up and Far East mostly up in Monday trade
TODAY IN A NUTSHELL:
• Business rates row moves to new level. For most losers, there is a winner. But try telling that to operators in swish London post codes
• Daily Mail reports price of a pint may rise 5p because of Rates hike alone. This is getting serious
• ONS shows retail sales volumes fell unexpectedly by 0.3% m-o-m in Jan vs expectations of a 0.9% rise.
• Kraft drops ULVR approach. Both companies say they love & respect each other. There are other fish in the sea
• Moody’s reports Kirin’s planned sale of Brazilian business to Heineken is Credit Positive
• Telegraph predicts ‘perfect storm’ for High Street. Points to challenge from online, rates increases & other factors.
• Thomas Cook to shut 39 branches. Evolution to online continues. Purchase of Co-op sites not so sensible in hindsight
• VisitBritain statistics confirm that a record 37.3 million visitors came to the UK last year, up 3% on 2015. Spending unchanged at £22.2bn
• State of emergency extended in Tunisia for a further 3mths
• Later tweets on Friday: US has too many restaurants says journal NRN. Wendy’s to open 1k new stores. Macro v micro behaviour. The one doesn’t benefit the other
• US Q4 earnings season shows EPS +7%. Not bad going. Strong Philly Fed numbers too.
• MLC confirms view that London hotels much, much stronger in Jan. Than both Jan last year & the autumn. Benefits MERL etc.
• Christopher Snowdon of IEA argues all alcoholic drinks should be taxed at a single flat rate of 9p per unit
• Stonegate has completed the integration of the 30 Intertain units following its acquisition last year for c£39.5m, per Propel
RETAIL NEWS WITH NICK BUBB:
• Saturday Press: The big business story in the Saturday papers was the shock/rejected Kraft Heinz bid for mighty Unilever (as trailed by FT Alphaville’s excellent Markets Live column on Friday morning) and Lex column in the FT concluded that Kraft Heinz can afford to pay more. There was also a lot of uncritical coverage of the disappointing ONS Retail Sales figures for January (although they were downplayed by the Telegraph, funnily enough), swallowing the line that consumers are reacting to price rises by reining in their spending. The Guardian had a bullish feature about the revival of the Iceland supermarket chain, noting the success of the Clapham store revamp and its middle class appeal (“Zuppa di Pesce, 28-day matured steaks, asparagus spears, and a £35 bottle of champagne to wash it down”) and flagging that Iceland is planning six more similar makeovers elsewhere in London,
• Sunday Press: The Kraft Heinz bid for Unilever filled plenty of column inches in the Sunday papers and Mike Coupe of Sainsbury was quoted by the Mail on Sunday as inveighing against the power of “massive monoliths” who form their biggest suppliers and flagging that the CMA will have a field day with the competition issues. The other big focus was on the iniquities of the new Business Rates system and the Sunday Telegraph flagged that both Mike Coupe and Andy Higginson of Morrisons have criticised the Business Rates system as being “medieval”. The Observer had a double page spread about the increases coming in Business Rates for many retailers next month (“Small shops recoil in the face of business rates that will more than double”), but perhaps the most useful overview of the problem came from the Sunday Times’ estimable Retail Correspondent Oliver Shah (who is up for 2 awards at
• Today’s Press and News: The amazing news that Kraft Heinz has already formally called off its bid for Unilever, because of political opposition and the cultural difference between the two companies, gets plenty of coverage in today’s papers…but there is also a lot of focus on the news that Amazon is to create 5000 new jobs in the UK and the growing political row about the planned rise in Business Rates (given the revelation that nearly all the worst affected areas are in Tory-held seats).
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Tesco score its first victory of 2017, with its basket of £60.90 coming in a convincing £4.14 than its nearest rival, Asda (and that was before the £2.97 Brand Guarantee cash back). Poor old Asda also had to give a hefty £10.74 Price Guarantee voucher. Morrisons was 3rd on £65.38 and Sainsbury was 4th on £67.00. As usual, Waitrose was in last place, on £71.45, but there was better news for Waitrose in the separate regular Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its 17,500 sq ft store in Wells came top, scoring 76 out of 100.
• Trade Press: We weren’t able to bring you the highlights of Retail Week magazine on Friday but the main feature was about how CEO Rowan Gormley is “putting the fizz back into Majestic”. RW also had features on the 5 lessons for retailers from JD Wetherspoon, why The Body Shop may need facelift, which companies could be on Asda’s shopping list and the new Bunnings DIY store in St Albans. And in his column the Editor took a sympathetic view of the recent news about Waitrose store closures and management job losses, thundering that “Waitrose’s tough decisions are in its long-term interests”.
• News Flow This Week: The hard-pressed spin-doctors at Asda will try to put their gloss on more weak sales figures tomorrow afternoon, on the back of the Wal-Mart Q4 results, with new CEO Sean Clarke overdue to set out his strategic plan. Tomorrow also brings the CapCo finals and the Hotel Chocolat finals, whilst we get the Intu Properties finals and the Howden finals on Thursday.