Langton Capital – 2017-03-08 – Restaurant Group FY, tech in food delivery & other:
Restaurant Group FY, tech in food delivery & other:
A DAY IN THE LIFE:
Dashing to meetings. On to the news:
RESTAURANT GROUP – FULL YEAR NUMBERS:
• The Restaurant Group has this morning released full year numbers to 1 Jan 2017 and our comments are set out below:
• Group says total revenue rose by 3.7% to £710.7m. LfL sales, however, fell by 3.9% over the year as a whole and by 5.9% in Q4.
• Restaurant Group has today reported FY numbers saying that sales rose by 3.7% to £710.7m
• LfL sales, however, were down by 3.9% in the year and by 5.9% in Q4. This data was pre-announced on 25 Jan.
• The group has held its dividend at 17.4p for the full year. Chairman Debbie Hewitt says ‘the Board will revisit the previous policy of two times EPS cover at the appropriate time.’
• Adjusted PBT was down by 11.2% at £77.1m
• The group has put through an exceptional charge of £116.7m ‘primarily reflecting site closures, asset value impairments and provision for onerous leases.’
• Adjusted EPS is also 11.2% lower at 30.0p. EBITDA is down by 5.5% at £121m
• Group comments:
• RTN reports ‘we have completed the strategic reviews of our brands.’
• It says ‘while there is much work to do, we are confident in our plan to turnaround the business’
• The group aims to ‘re-establish the competitiveness of our Leisure brands, serve our customers better and more efficiently, grow our Pubs and Concessions businesses [and] build a leaner, faster and more focused organisation.’
• The above would serve the company well. Execution will be the issue
• The group has slowed its roll-out of leisure sites
• Re the outlook, group says ‘during 2017, the Group will face well documented external cost pressures’.
• Jam not today. It says ‘we expect the trading performance of the business in the first half of 2017 to remain difficult but anticipate momentum improving towards the end of this transitional year as our initiatives start to take effect.’
• The numbers:
• RTN says this was a ‘challenging trading year across the Leisure brands; good performance from Pubs and Concessions.’
• CEO Andy McCue reports ‘having completed the strategic reviews of our brands, we are now pursuing a new and focused plan to turnaround and grow the business.’
• He says ‘TRG has significant scale advantages, a diverse portfolio of brands with strong brand awareness and is highly cash generative.’
• Mr McCue reports ‘however, there is much to change in our Leisure businesses to provide customers with better value and an improved experience while, at the same time, ensuring we continue to grow our Pubs and Concessions businesses.’
• Overall ‘it will take time to effect the scale of change required and for customers to respond but I’m proud of how our colleagues are rising to the challenge.’
• Re balance sheet, net debt fell by £0.1m in the year to £28.3m
• Interpretation – snapshop:
• The dividend has been held. That may or may not have been the right thing to do. Cutting the dividend would have provided cash & sent a message. This was maybe (at least for this management) a ‘once-only’ opportunity.
• Much now depends on execution. The massive provisions should ensure that closed units do not impact the P&L – but they will impact cash-flow.
• The opening programme has been slowed. The group says ‘we expect to open between 16 to 20 units in 2017 with associated capital expenditure of between £16m-£20m.’
• Many of the changes have margin and cost implications. The trajectory for profits may be – even if things go well – somewhat lower than previously hoped.
• Current trading (no numbers given) is ‘in line with our expectations.’ The group says ‘2017 will be a transitional year for the business, given the significant change underway and the substantial investment in price and marketing. We anticipate momentum improving towards the end of the year as our initiatives start to take effect.’
• Recovery is anticipated to be H2 weighted. In truth, it could be longer before tangible signs of growth re-appear.
• Langton Comment: RTN guided as to its poor sales on 25 Jan. The provisions were large but should have been anticipated. The dividend has not been cut. Where this will be place on the ‘bravado vs confidence’ spectrum will become clear over time.
• It is to be hoped that there will be no further closures. Closed units have been provided against (a la Spirit etc.) but cash costs will continue.
• Coast to Coast, previously seen as an area of growth, has seen ‘extreme declines in LfL sales’. The brand will be ‘re-positioned’ towards burgers & steaks. Not shut down, then.
• The valuation is in flux.
• Looking on the brighter side, Restaurant Group’s pubs continue to trade well.
• And the group has little debt though it must incorporate the capital liability of leases from FY19 and its fixed charge cover was only around 2x – and that was before material cuts to forecasts.
• The word avoid still comes to mind.
• Short term news flow is likely to be negative. Certainly, comps are becoming easier but, as mentioned above, price cuts will hit LfL sales and these and also cost increases will impact margins. Execution is key & the competition will not stand idly by whilst RTN gets its house back in order.
PUB, RESTAURANT & DRINK MANUFACTURERS:
• Stock Spirits has reported a 0.6% fall in net sales revenue to €261.0m for the year to 31 December 2016 as adjusted EBITDA fell 4.1% to €51.5m. The important Polish market remains ‘highly competitive’ and further cost reduction and restructuring activities are expected in the coming year. The group acquired a Czech Republic spirits business in 2016 for €5m and has renewed distribution agreements with Distell (Italy and Slovakia), Synergy (Poland), and Beam (Poland), as well as launching a batch of new products.
• Commenting on the results, Mirek Stachowicz, Chief Executive Officer, said: ‘Trading has remained challenging in our core Polish market, where there have been several significant changes in the competitive landscape [however] we are now starting to see signs of stabilisation in our Polish business, as reflected by the market share gains that we achieved in both value and volume terms during the second half of 2016 versus the first half.’
• UK supermarket sales are growing at their highest levels for more than two and half years, amid inflation-driven price rises. The data gathered by Kantar Worldpanel found that in the 12 weeks leading to February 2017 UK supermarket sales rose 2.3% compared to same period last year.
• Economists polled by Reuters expect that UK wage growth won’t keep up with inflation this year. They are concerned that a consumer spending slowdown is already underway. Reuters reports ‘shoppers have been one of the main drivers of economic growth since Britain voted in June to leave the European Union and any signs they are reining in spending will be a worry for policymakers.’
• Economist polled by Reuters expect inflation to hit 2.6% later this year. Only 3 of 33 economists did not believe that a spending slowdown was underway.
• Brown-Forman yesterday reported Q3 numbers saying reported sales were flat at $808m but were +4% on an underlying basis. Diluted EPS was +1% at 47c. The strong US$ has held back reported earnings.
• Brown Forman CEO Paul Varga reports ‘against a continued challenging global backdrop for consumer staples, our third quarter underlying sales growth accelerated nicely relative to our first half.’
• Brown Forman CEO Varga continues ‘we expect our fourth quarter underlying sales to have a similar favorable comparison to the first half, though we now anticipate full year underlying results at the lower end of our original forecast.’
• Brown Forman reports ‘as expected, underlying net sales growth in Europe accelerated from -1% during the second quarter to 6% in the third quarter, as timing of promotional activity and customer purchases in the United Kingdom and Germany reversed.’ Re the outlook, Brown Forman reports ‘the company believes that fiscal 2017 is on track to be another year of continued growth in underlying net sales and operating income, despite the significant uncertainty that currently exists around the global economic and geopolitical environment, not to mention foreign exchange volatility.’
• Fleurets has announced the appointment of Kevin Conibear as Head of Retail Leisure & Restaurants. It says ‘the role will lead Fleurets’ activity in the restaurant sector and their involvement within the urban retail leisure markets.’
• Mahesh Madhavan will take over from Michael Colan as CEO of Bacardi Limited as of April 2018. Madhavan has spent 20 years at Bacardi and is currently a member of the company’s global leadership team and regional president of Asia, Middle East & Africa, with previous experience in a variety of emerging markets including Thailand and the Philippines.
• The WSTA has again called on the Chancellor to reduce wine and spirit duty after its latest market report showed combined sales in the last five years have grown 54% since 2012. WSTA chief executive Miles Beale pointed out that higher inflation, the impact of the pound’s devaluation and the potential for duty increases meant the wine industry was facing a potential ‘triple whammy’ that could be devastating for the trade this year.
• ‘The UK saw the largest ever quarterly sales of sparkling wine at the end of last year but with price rises looming we need government support to ensure that the bubble doesn’t burst when it comes to the British drinkers’ love for fizz,’ he said.
• Journal NRN in the US says that parent co Domino’s Pizza sales in Q4 were excellent. Says same-store sales +12.2%, a ‘number that easily bested its primary pizza competitors — and everybody else in the restaurant industry.’
• Domino’s in the US. NRN says ‘the obvious answer to Domino’s performance is its technology. Domino’s has used technology more effectively than just about any other restaurant chain — giving consumers the ability to order just about anywhere, in as simple a manner as possible.’
• Domino’s in US. Keep it simple (at least in the eyes of the consumer). NRN says ‘to be sure, it will be difficult for the chain to maintain this momentum. But, at least for the moment, Domino’s has proven that customers will flock to a chain that does its job exceptionally well.’
• The six-strong Yummy Pub Co. is changing its name to The Yummy Collection in order to reflect the changing nature of the business. ‘A pub is no longer just a pub,’ said co-owner Tim Foster. ‘Our venues have pubs, yes, but they also contain cocktail bars, wine cellars, meeting rooms and hotels. We realised that our name was holding us back because it put us in a particular box. Customers demand more in 2017; they want an immersive experience, they want quirky, fun and creative ideas that don’t always sit within the pub genre.’
HOLIDAYS & LEISURE TRAVEL:
• Marriott plans to ‘dramatically’ increase the size of its European portfolio across all segments of the industry. The hotel operator will ‘accelerate’ growth of luxury and collection brands The Ritz Carlton, St Regis, The Luxury Collection, Autograph Collection Hotels and Tribute Portfolio, as well as industry stalwarts Marriott Hotels and Sheraton. It also has aggressive growth plans for its new Delta Hotels.
• InterContinental Hotels Group has signed eight new hotels within the Holiday Inn brand family in Germany. The country is IHG’s second biggest market in Europe with 69 hotels and 38 in the pipeline.
• The latest PwC European Cities Hotel Forecast anticipates that hotel occupancy and revenue will be driven this year by robust European economies, Mediterranean destinations, and business travel. An influx of tourists from the US and a booming Asia should drive hotel trading in 2017, with the majority of key city destinations likely to see continued growth. Measured by revenue per available room (revpar), Porto tops the 2017 growth table with a 14.8% growth forecast, followed by Dublin (8.7%), Budapest (6.8%), Madrid (5.9%), Lisbon (5.6%), Prague (5.5), Barcelona (5.4%), Frankfurt (4.5%) and Paris (3.6%).
• British Airways is set reduce the average legroom on some of its European flights, in order to fit more passengers onto its A320 and A321 aircrafts. An inch of legroom will be taken from each row , creating an extra two rows (12 seats). BA has stated that this will help to keep airfares low.
• A study by Auto Trader has found that only 21% of British drivers would consider buying an autonomous car in the future. Respondents to the survey said they enjoyed driving too much to consider a driverless car 45% of the time. The study also revealed that only 21% of UK drivers felt like they knew what an autonomous car was.
• Toronto-based Onex Corporation has completed the acquisition of Britain’s biggest holiday parks business, Parkdean Resorts, for £1.35bn. Agents CBRE advised Parkdean Resorts on all real estate matters throughout the transaction. Parkdean CEO John Waterworth reports ‘these deals demonstrate major confidence in the holiday park market and reflect the continuing strong outlook for UK domestic holidays.’
• Games Workshop anticipates higher than expected profits for 2016/17. The group claims that their sales and profit figures are benefitting from a weaker pound.
• Shares of the newly listed Snap Inc (SNAP.N) fell by 12% yesterday after analysts gave the company a tepid reception. A seemingly expensive valuation and slowing growth of the user base of the app has reportedly led to short interest climbing towards a sizeable $300mn for the stock.
FINANCE & MARKETS:
• Budget at 12.30pm. Chancellor Phillip Hammond expected to say UK is resilient but outlook uncertain
• IEA says that ‘the announcement by Phillip Hammond that there will be no budget spending spree is to be welcomed.
• IEA says we should not seek to borrow to spend our way to growth. It says ‘it is a matter of regret that so many economists are inclined to give professional support to the idea’ [that unrestrained borrowing can permanently buoy growth].
• Halifax reports the annual rate of growth in UK house prices slowed in Feb to its lowest rate in 3.5yrs. Prices still rose by 5.1%. Halifax reports ‘a sustained period of house price growth in excess of pay rises has made it increasingly difficult for many to purchase a home.’
• Brazil has been in recession for two years, the longest sustained period of economic decline since records began
• The head of BMW in the UK has told the BBC that a decision on whether the electric Mini will be produced in the UK or elsewhere will be made in a few months’ time.
• US equity markets weaker but dollar strong ahead of expected rate rise next week.
• Eurozone GDP 0.4% higher in Q4 last year.
• EU concedes it does not yet know how much the UK should pay when it leaves the body in 2019. It will be a ‘share of’ around £300bn. The UK is currently the EU’s (pretty much joint with France) 2nd largest economy. Figures of £60bn have been mentioned. The UK currently pays around a net £8bn into the EU. The EU says ‘we are currently not in a position to answer as any calculation would depend on numerous assumptions, which may be part of any discussions that ensue.’
• Brent $55.56 vs $55.87
• Dollar $1.2203 vs Sterling (was $1.2239)
• Euro 115.51c vs Sterling. Around 10pbs less to pound than yesterday
• UK 10yr gilt yield 1.19% (was 1.22%)
• World markets: UK mixed but Europe down yesterday. US markets lower but Far East mostly up in Wednesday trade
• Later tweets: House price growth at slowest in 3.5yrs reports Halifax. Prices still rose by 5.1% in the year to Feb. Perhaps still not sustainable…
• Car sales down in Feb. Yes, they were up strongly in Jan & Feb is a slow month but could be sign of hesitancy re big-ticket spending
• BRC says retail sales least strong (a.k.a. weakest) in 5yrs. Consumer obliged to spend more on food, less left over to spend elsewhere
• Germany says slack monetary policy wrong. Hear that, Greece? Euro rates may rise at some point, long march upwards has begun
• Just Eat buying spree drives revenues. Roll outs versus roll ups. Where do we begin? The latter is not without risk
• PwC (Oscars PwC & how could they be wrong?) says London hotels to raise ADR in line w. inflation this year & next. Stick your neck out, guys
RETAIL NEWS WITH NICK BUBB:
• John Lewis Partnership Watch: The shift of the Debenhams’ “New Season Spectacular” Sale should have lifted John Lewis last week, through price matching on branded lines, but gross sales were only up by 2.8% (less than 1% up LFL) in w/e March 4th. Fashion sales were up by 7.7% gross and Electricals were up 4.5%, but Home was down by 3.4%, reflecting the later fall of Mothering Sunday compared to last year. That leaves the cumulative 5 week run-rate at only +0.5% gross (c1.5% down LFL) ahead of tomorrow’s trading update and final results. Over at Waitrose, despite the impact of Pancake Day business, gross sales were 3.5% down last week (nearly 5.5% down LFL), with the Mothering Sunday shift having a bigger effect. Over the last 5 weeks combined Waitrose sales are now running up by just 0.3% (down c1.5% LFL).
• Yesterday’s Press and News: The Telegraph flagged that, following a big profit recovery last year, the private equity owned beds specialist Dreams has just appointed Rothschilds to look at a trade sale or IPO, whilst Questor column looked at Game Digital and said the shares are a Sell (with “the 7.2% yield likely to be a value trap”). And the City Diary in the Times noted that the garden centre veteran Nicholas Marshall has just been appointed the boss of Dobbies Garden Centres and that AO.com is to sponsor the next series of “Britain’s Got Talent” on TV.
• Grocery Sales Watch: We noted yesterday that the BRC-KPMG Retail Sales survey showed that the supermarket trade had a better February, with LFL sales slightly up, and that Nielsen said that takings at the tills for the last four weeks rose by 1.1% versus the same period last year. Well, the more bullish findings from their rival Kantar were that industry sales rose by 2.1% in the 4 weeks to Feb 26th (Kantar run to a Sunday rather than a Saturday). But the detailed Kantar figures for the 4 weeks showed that Aldi/Lidl skewed the outcome, by growing their combined sales by 15.2%, well up on the 10.0% growth that they achieved in the previous 4 weeks and ahead of the modest +0.3% of the “Big 4”: Tesco was flat in gross terms over the 4 weeks, Morrisons was +2.1%, Sainsbury was +0.6% and Asda was -0.7%.
• News Flow This Week: The Budget is at 12.30 today and although all eyes will be on what the embattled Chancellor says about Business Rates relief, we would look out for him sneaking through some VAT extensions. Tomorrow brings the Morrisons finals, the John Lewis Partnership finals and the Signet Q4 results, whilst the big “Retail Week Live” conference continues into its second day, culminating in the prestigious “Retail Week” Awards in the evening.
• Sports Direct Fake Closing Down Sale Watch: We flagged on Friday that the Sports Direct store in the tawdry, discounter-focused shopping centre in Grays Thurrock is closing down this month…but we went in there again yesterday and couldn’t help noticing that the aforementioned store is still open and trading normally, with no more “Closing Down” Sale signs in the window…No doubt the hard-working local Trading Standards officers are investigating…