Langton Capital – 2017-06-09 – Election, Brexit, Fuller’s FY, business confidence & other:
Election, Brexit, Fuller’s FY, business confidence & other:
A DAY IN THE LIFE:
Bit busy (and tired) this morning. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• The only certainty is uncertainty as Tories say they will try to form next government. Ms May resisting calls to resign
• CGA Peach research suggests the out-of-home food and drink market has been ‘hit by stalling business confidence’
• CGA Peach says ‘mounting worries over rising costs have depressed confidence levels among the leaders of Britain’s eating and drinking out market’. The latest quarterly CGA Confidence Survey ‘shows that the recovery in sector optimism seen at the start of this year, following the shock of last year’s Brexit vote, has stalled. Of the 170 senior executives from across the pub, restaurant, bar and café market responding to the survey last month, two thirds (66%) said they were positive about prospects for their own businesses in the coming 12 months, with just 43% optimistic about the market as a whole.’
• CGA Peach’s Peter Martin comments ‘at the start of the year, the market had looked like it was recovering some confidence after it hit rock bottom after the Brexit referendum this time last year. The vast majority of senior executives had voted to remain, but that now looks to be on hold.’
• CGA quotes bosses as citing business rates and food costs (cited by 79% and 78% respectively), followed by decreased staff availability, rental and property cost and increased staff costs as the main problems that they are facing.
• CGA says ‘the number of business leaders concerned about rising food prices has increased 11 percentage points since the start of 2017 and reflects the fact that foodservice inflation is running at 5.8%, according to latest figures from the CGA Prestige Foodservice Price Index.’
• CGA reports ‘although to date, the public has generally continued to go out to eat and drink as normal, not surprisingly, 57% of senior executives are now worried about consumer confidence over the next six months.’
• Rising food prices and business rates are major concerns for business leaders, according to the quarterly CGA Confidence Survey, which takes soundings from 170 senior executives from the hospitality industry. Some 80% of bosses were worried about rising costs, up 11% since the start of the year, while almost half (49%) of those surveyed said they had already implemented price increases on certain food menu items and 35% said they had upped prices for consumers across their menus.
• May was a disappointing month for US restaurant chains as same-store sales fell 1.1%, meaning the industry has not reported a month of positive sales since February 2016. These results come from data by TDn2K through The Restaurant Industry Snapshot, based on weekly sales from over 27,000 restaurant units and more than 155 brands representing $67bn dollars in annual revenue.
• French spirit maker Rémy Cointreau has upped for 2019-20 after strong cognac sales in Greater China have driven an ‘excellent annual performance’. Sales grew 4.7% to €1.09bn with the group reporting an operating profit of €226.1m, up 13.8% on constant exchange rates. The company announced it would pay a dividend of €1.65 per share.
• Food & Fuel plans to add another two sites to Frontier Pubs, its joint venture with Ei Group’s Managed Investments, before the end of the year. Speaking to MCA, Food & Fuel CEO Jo Cumming said: ‘Food & Fuel still feels so small and manageable, like a family, and we have so much experience in the business that we have been able to expand at the rate we have with Frontier.’
• The chairman of the British Hospitality Association has criticised plans to increase the minimum wage without assessing the impact on businesses. Speaking at the BHA summit in London this week, Nick Varney said the hospitality industry was ‘unappreciated’ by Government despite its ‘vital role’ in providing entry-level jobs. He warned that political parties were using rising wages as part of a ‘dangerous bidding war’ for votes while overlooking businesses’ ability to absorb the costs.
• Papa John’s International is looking to add 45 restaurants in Chile and another 40 in Spain following the signing of expansion agreements with franchise operator Drake QSR AG.
• Gin sales at UK supermarket Waitrose have exceeded all other spirits as a result of strong 20% year-on-year growth. ‘We’re starting to see a change in the way people enjoy their gin, with many sipping it before their meal as an aperitif. That’s why local craft suppliers, who tend to enhance their gin with unique flavours and aromas, really appeal to our customers,’ said Waitrose spirits buyer John Vine.
• Gordon Ramsay’s father-in-law has been jailed for six months for conspiracy to hack the chef’s computer systems after being sacked as chief executive of Gordon Ramsay Holdings.
• The Real Coffee Bean Co. has been set up to source its coffee beans from farmers of small holding farms and cooperatives.
• BrewDog is offering a free pint of its Punk IPA from any Brewdog bar for anybody who took a picture of themselves at the polls before 10pm last night. ‘The political scene could do with more candour and honesty and recent political polls have been spectacularly off target, so we’re running the first ever poll with added craft beer,’ said James Watt, co-founder of BrewDog. ‘We believe everyone is more truthful and candid with a beer in their hand and we’re confident the results taken from outside our bars across the country will provide a more accurate picture of voting intention than any of the usual boring polls.’
• Chris Martin, CEO of Irish retail group Musgrave, says possible Brexit-related tariffs could lead the UK and Ireland into recession. He said the devaluation of sterling had already had a major impact on the areas near the border with Northern Ireland in the past few months, and added: ‘Ultimately I think it’s incumbent, unless we want to see consumer recession both in the UK and Ireland, that we work as retailers, and also suppliers, to make sure those tariffs are worked away through the system,’ he said.
• US better burger brand Five Guys is set to debut in Germany this August with a site in Frankfurt and will also open three new units in the UK this month (a new London flagship site in Piccadilly, followed by openings in Edinburgh and Clapham).
FULLER’S FULL YEAR NUMBERS:
• Fuller’s reports FY numbers to 1 April. Revenue +12% at £392m with adjusted PBT +5% at £42.9m
• FSTA EPS +5% at 61.4p. EVITDA some 8% higher at £70.5m with total dividend +5% at 18.8p.
• Fuller says it has seen a strong performance from Managed Pubs and Hotels with LfL sales +3.7%. This ‘driven by good growth in food and accommodation’
• Fuller’s reports ‘tenanted Inns LfL profits marginally down 1%, EBITDA per pub up 2%’ with ‘total beer and cider volumes down 2%’. It says that operating profits in The Fuller’s Beer Company rose 5%.
• Fullers has ‘invested £22 million in our existing Inns estate, broadening the appeal of our pubs’ & has bought 5 pubs in the year. The group has added 71 bedrooms & opened four new The Stable restaurants. Fullers now owns 76% of the pizza operator.
• Fuller’s current trading, first nine weeks. Managed LfL sales +6.6% with Tenanted LfL profits +5%. Total beer & cider volumes +7%.
• Fuller’s CEO Simon Emeny reports ‘it has been another good year for Fuller’s with a strong set of results for the Company. Food and accommodation have driven like for like sales growth in our Managed Pubs and Hotels and the targeted investments we have made in both new sites and redeveloping our existing estate have generated excellent returns. We have purchased five new sites and completed 25 major refurbishments in the last 53 weeks.’
• Mr Emeny continues ‘we are only nine weeks in to the new financial year but we have had a very strong start, albeit against our softest quarter last year, with like for like sales in our Managed Pubs and Hotels up 6.6%, like for like profits in our Tenanted Inns up 5% and volumes in The Fuller’s Beer Company rising 7%.’
• Re headwinds, Fuller’s comments ‘there are a number of headwinds that will have a significant financial impact on both Fuller’s and the industry as a whole, but we face the future in a strong position. Our Managed Pubs and Hotels are in good shape and although there is a lot of work and a long way to go, we have a clear vision and solid strategy for both our Tenanted Inns and The Fuller’s Beer Company.’
• Fuller’s CEO concludes ‘in short, while we are cautious and realistic about the future, we are well-placed to continue to delight our customers, recruit and develop the best team members and reward our shareholders.’
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Tourists will ‘stand by’ London in the wake of deadly terrorism atrocities, according to the head of London’s promotional body. CEO of London & Partners, Laura Citron, said ‘At this stage it is not possible to predict the impact on the tourism industry but we do know that in the two months following the Westminster attack, travel agent bookings to London were up 6.7%. Londoners and visitors are resilient and we are confident that tourists will stand by the city and our values.’ Whether this turns out to be true, or not, remains to be seen. Anecdotal evidence has restaurants very quiet this week.
• Last week’s BA computer debacle led to the cancellation of 672 flights the operator has confirmed. BA adds ‘by 29 May, the airline was flying the vast majority of its schedule. An independent investigation will examine every aspect of the power failure. British Airways is working hard to compensate affected passengers as quickly as possible.’
• Research from online booking platform Campsy found that Kuala Lumpur has the cheapest average accommodation costs worldwide, with Monte Carlo being the most expensive. London was the 15th most expensive in a study of over 200 cities. London hostel rates started at £20.67 a night, with peer-to-peer rooms costing from £165.46 and a five star hotel stay at £1,037.97.
• The latest data from STR shows mixed KPI results for the US hotel industry yoy. Occupancy was down 1% to 63.9%, ADR was up 1.4% to $120.34, and RevPAR was up 0.4% to $76.89.
• Etihad Airways has pulled out of a joint venture holiday airline with TUI Group. The plan would have seen Etihad buy Air Berlin’s leisure airline Niki, but TUI said Niki was ‘no longer available’ for a deal.
• Apple has moved into original tv content after releasing a ‘Dragon’s Den’-like show called Planet of the Apps.
ELECTION & BREXIT:
• The unelectable (nearly) beats the unpalatable as robotic Mrs May turns voters off big time. Massive smack in face.
• Arrogant, distant Mrs May runs alienating campaign full of U-turns & facile soundbites. What, I wonder, did we think was going to happen
• Corbyn performance secures labour in hands of far Left. Mrs May, should she resign, could see Tories move to Right
o Financial Times. May election gamble backfires. Corbyn results ‘gobsmacking’.
o Times. Says it was a ‘humiliating night’ for Tories. First denying exit polls, they now seem to accept that the last-minute analysis was correct. Frankly, they have little choice.
o Telegraph. Sterling plummets on prospect of hung parliament. Softer Brexit likely. ‘Election shock throws country into uncertainty’.
o Guardian. May under fire as hung parliament confirmed. May’s dream ‘lies in ashes’.
o Independent. It’s ‘Mayhem’ with ‘Britain & Brexit in disarray as PM’s election gamble backfires spectacularly’
o BBC etc. May promises ‘a period of stability’
o Daily Mail, Express etc. Doesn’t matter. Interestingly, Daily Star says Brexit talks could be delayed. They had been due to start in less than a fortnight.
o Soon-to-be adversarial EU negotiators wonder what we’re playing at.
o Trump White House may not have known we had an election pending. Theresa who?
o Former UKIP (who, they?) boss Nigel Farage says UK ‘staring down the barrel of a second EU referendum’. Says Brexit (which some might say perhaps got us into this mess) ‘s ‘in trouble’
FINANCE & MARKETS:
• The ECB yesterday left interest rates on hold.
• ECB says ‘we are now confident that inflation will converge with our objectives.’ Deflation is less of a threat.
• ECB expects growth across eurozone to be 1.9% in 2017 compared with its March forecast of 1.8%. It raised its estimate for 2018 to 1.8% from 1.7%, and for 2019 to 1.7% from 1.6%. The OECD is looking for 1.6% this year for the UK, with 1.0% next year.
• ECB’s Draghi says bond buying will continue, saying the ‘ECB will be in the market for a long time’.
• Japan’s economic growth has been estimated at 0.3% in Q1 compared with earlier estimates of 0.5%.
• The number of Americans filing for unemployment benefits fell last week
• The IMF has welcomed the decision by the ECB to keep interest rates unchanged. It says ‘the ECB’s removal today of the possibility of further reductions to key policy interest rates reflects diminishing deflation risks while maintaining the commitment to very substantial monetary accommodation.’
• Seasonally-adjusted Eurozone GDP rose by a y-o-y 1.9% in Q1
• Oil down 50c or so at $47.88
• Sterling sharply down vs US$ at $1.2752
• Pound also materially lower versus Euro at €1.138
• UK 10yr gilt yield up 4bps at 1.04%
• World markets: UK mixed yesterday with FTSE100 down & mid-cap higher. Europe lower, US up and Asia mostly up in Friday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Oil slides, Sterling stronger vs US$, grain prices low but proteins high. Very mixed bag re outlook for inflation.
• Election rests on younger voters. Rain in the North. Tories heading for 80 seat majority say spread-betters
• Directors selling in boohoo, Gear 4 Music, Fevertree, Purple Bricks. They need to spread assets but gives pause for thought??!
• C-store growth set to continue per IGD. May be true but just how profitable are these sales? Morrison’s may have the right idea…
• Fake illness claims could push up costs of holidays & insurance. Something had to replace PPI but come on, really?
• Staycations reported to be ‘up 27.8%’ (see email). That sounds simply too high to be true.
• World economy to grow 3.6x as fast as UK next year says OECD. But we’re sick of experts, aren’t we…?
RETAIL NEWS WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that trading at John Lewis last week was stronger in Fashion, but subdued elsewhere, and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flags that w/e June 4th saw Fashion Store LFL sales rise by 5.9% against last year, helped by the warm weather. Including Homewares and Lifestyle chains, total Store LFL sales were up 3.4% last week. Overall Online sales were up by as much as 24.5% (on top of 21.4% growth a year ago).
• Trade Press: The front cover of Retail Week magazine today is a sombre photo of two armed policemen in a shopping centre outside a Boots store, to flag up a feature on “Keeping shoppers safe: what action retailers should take amid security fears”. And in his column the Editor thunders that “London’s Borough Market shows retail at its best”, although he also flags up “Joules’ winning personality”. RW also has a feature on the disruptors muscling in on the menswear market and a column by Nick Beighton on how ASOS keeps its pioneering spirit. The main feature in Drapers magazine is on how Retailers should prepare for Brexit, but there is also a feature on the new Days department store opened by the Edinburgh Woollen Mill Group, whilst the Editor thunders in her column that “Style Group lives to ¬fight another day”.
• News Flow Next Week: As we head into the troubled post-Election period, next week is quite busy, kicking off with the Motorpoint finals on Monday. Tuesday brings the Ted Baker Q1/AGM and, in the evening, the prestigious “The Grocer” Gold Awards for the food industry. The Mulberry finals are on Wednesday. The Majestic Wine finals, the Morrisons AGM and the ONS Retail Sales figures for May are on Thursday. Then Friday brings the Tesco Q1/AGM.