Langton Capital – 2018-02-23 – Wm Hill, CGA comment, overcapacity, costs & other:
Wm Hill, CGA comment, overcapacity, costs & other:
A DAY IN THE LIFE:
Bit busy this morning, presentations etc. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Oversupply (particularly in food), resultant discounting, Brexit & rising costs impact confidence in the industry.
• CGA has reported that business leaders are ‘hopeful for growth amid mounting challenges’.
• CGA survey ‘reveals the impact of rising costs, over-supply and Brexit—but shows optimism for drinks-led businesses in particular’
• CGA says ‘leaders in the eating and drinking out sector anticipate a tough year of trading in 2018, but remain resilient yet realistic around their future prospects.’ It says 2017 was ‘difficult’ and adds that ‘for the first time in the history of the survey, more leaders reported that their performance had been below expectations (33%) over the last six months than above expectations (26%).’
• CGA reports ‘only a third of leaders (34%) say they are now optimistic about the eating and drinking out market as a whole over the next 12 months.
• CGA: Industry is facing ‘a cocktail of challenges’. It’s worth pointing out that most of these, though not all, are not of the industry’s making. Oversupply is something of a home-grown problem but costs have risen because of external factors and the economy has slowed likewise. Consumers have seen negative wage growth for the last year or more and unemployment has now risen by the largest amount in five years. The government has pushed ahead with stealth taxes and levies and the NLW and the NMW have increased costs.
• Langton believes there is still room for good operators to succeed but concedes that the backdrop is unhelpful to say the least.
• CGA says ‘there are mounting concerns that supply is outstripping demand in many areas of Britain.’ Langton wrote on this subject last year. Notes now available at half price, that is £100 plus VAT. Just drop us a line.
• CGA reports ‘difficulties are being intensified by Brexit.’ It says new openings are being scaled back (finally) with fewer new entrants into the market expected. As usual, behavioural factors kick in (over-optimism bias etc.) and business leaders are confident about their own businesses whilst being broadly pessimistic about everyone else’s’.
• CGA says ‘our Business Leaders’ Survey paints a complex and fascinating picture of prospects for British pubs, bars and restaurants in 2018. With property, people and food costs rising and the twin threats of saturation and Brexit looming large, brands face something of a perfect storm of challenges this year. It adds ‘but this is a very resilient industry, and our poll shows there are bright spots and opportunities for growth in the market too. People will continue to enjoy eating and drinking out in 2018, and operators that can best understand and deliver the experiences that consumers crave will be the winners in an ultra-competitive market.’
• EI Group yesterday bought back 321,200 shares for cancellation at 125.26p per share
• Ei Group is launching a new ‘Barrel Top’ pizza concept for its publicans at eilive 2018 later this month. Paul Farr, Head of Food at Ei Group, said: ‘We have focused on identifying key trends across the eating out market and supporting our publicans with simple offers that tap into them and drive sales. We’re confident Barrel Top can deliver tangible results for all our publicans. A great pizza is only as good as its ingredients, the oven and skills used to cook it, so we’ve brought in some fantastic products and created a range of different kitchen layouts and flows, to ensure the best quality and a easy to make product every time.’
• Unilever is expected to decide within weeks on whether to consolidate its operations into the Netherlands & away from the UK in the wake of Brexit.
• The weather will be cold next week with the Met saying the UK could experience the coldest weather for five years.
• Jack in the Box in the US has reported LfL sales down 0.2% in its financial Q1.
• Cracker Barrel Old Country Store is considering ‘hand-held breakfast sandwiches and off-premise biscuit bars’.
• The Lakes Distillery is now ranked as one of the finest tourist attractions in the UK by VisitEngland.
• Honest Burger has secured an increased funding package from from Santander to help drive its growth pipeline, the MCA has reported.
• Cafe Rouge has announced it will launch a new delivery brand called Stack & Grill, as it looks to get a ‘slice of the delivery market’. The concept will focus on new sourdough crocs, as well as burgers and craft beers.
• The motorway service station operator Welcome Break is to extend its partnership with PizzaExpress with a further opening at South Mimms services off the M25.
• Meat sales have remained strong despite Veganuary, vegan and vegetarian food sales were up 14% according to Nielsen.
• New research adds to the argument that the polyphenols found in red wine helps fight tooth decay and gum disease.
• Deadpool actor Ryan Reynolds has bought a ‘significant stake’ in US-based Aviation Gin and is now the owner and creative director of the ‘best damn gin on the planet’. CEO of co-owner Davos Brands, Andrew T. Chrisomalis, said: ‘We couldn’t be happier that Ryan discovered Aviation. He wholeheartedly embodies the authentic, original spirit of Aviation Gin.’
• Insects are an increasingly viable food ingredient and should be seriously considered by forward-thinking, environmentally friendly brands, per Mintel. There is still a considerable ‘yuck factor’ to overcome, but modern cuisine is littered with modern delicacies that were once considered repulsive. Eating insects is a common practice in many parts of the world, with the United Nations estimating that nearly two billion people incorporate them into their diets globally.
• Mintel also draws attention to ‘the growing momentum of algae’ as a food and drink ingredient for those seeking more plant-centric diets. Algae are also considered a sustainable food source for animals and humans. The plants are found in almost every ecosystem in the world, and they grow much faster than many traditional crops such as wheat and barley.
HOLIDAYS & LEISURE TRAVEL:
• Norwegian Cruise Line has posted a 20% jump in profits to $759.9m for 2017 thanks to a 10.7% rise in revenue to $5.4bn. The company said the increases were down to a 6% increase in capacity days following the delivery of Norwegian Joy in April, Regent’s Seven Seas Explorer in June 2016 and Oceania Cruises’ Sirena in April 2016.
• Heathrow reports 2017 pre-tax profit falling almost 19% yoy to £217m triggering a warning that airports in France and Germany could overtake the London hub. Despite this, Heathrow is growing at its fastest rate in five years with a record 78m passengers using the airport in 2017, up 3.1% yoy. The airport claimed that “significant progress” had been made on expanding Heathrow, with the first planning consultation underway and a shortlist of logistics hubs around the UK to help build it.
• Strike action in Paris grounded half of Air France long-haul flights yesterday, with the dispute also affecting 25% of medium-haul flights and 15% of short-haul.
• Airbnb is introducing a guest membership programme and a new luxury accommodation programme to help it achieve its target of a billion annual guests by 2028.
• Shearings Holiday has brought back a Grand Tourer brochure for 2018-19 comprised of 41 tours, 15 of which are in the UK. New trips range from a Land’s End to John O’Groats tour to a Greece island-hopping itinerary.
• The US hotel industry saw occupancy increase 1.2% to 62.9% in the week ending 17 February, while ADR grew 3.2% to $128.75, and RevPar rose 4.4% to $80.99.
• Wm Hill reports FY numbers, sees ‘strong underlying performance in 2017 driven by growth in Online and US’
• Wm Hill reports net revenue of £1.7bn, up 7% with an adjusted operating profit of £291.3m (up 11%). Group reports a statutory loss before tax of £74.6m. Dividend is up 6% at 13.2p.
• Wm Hill reports that it has made ‘good progress against three strategic priorities’ that is growing UK market share, growing internationally and improving technology. The group reports that it has a ‘strong balance sheet with net debt for covenant purposes of £515.2m, 1.4x EBITDA.’
• Wm Hill CEO Philip Bowcock reports ‘William Hill begins 2018 in a stronger position after a year of significant change for the business.’ He says ‘looking ahead, we will invest in more innovation in Online and our omni-channel platform, as well as in the US to ensure we can unlock its full potential at the right moment.’ Mr Bowcock says ‘having transformed many areas of the business, momentum continues to build and the significantly strengthened leadership team is focused on delivering on the exciting growth opportunities that lie ahead of us.’
• Playtech has blamed “significant headwinds” for slowing earnings growth.
• The chief executive of Snap was awarded a staggering $638m (£458m) in 2017 — the third-largest payment ever received by an executive in a single year.
• The 11-acre Toy Story Land by Walt Disney World Resorts is set to open on June 30. The guests will ‘feel like they have shrunk to the size of a toy’ with attractions including a family-friendly Slinky Dog Dash roller coaster and Alien Swirling Saucers.
• Pandora, the music streaming service, reports subscription revenue up 63% to $97.7m and numbers up 25% to 5.48m.
FINANCE & MARKETS:
• The ONS has revised down its estimate of UK growth from 0.5% to 0.4% for Q4 last year. It says ‘a number of very small revisions to mining, energy generation and service were enough to see a slight downward revision to quarterly growth overall.’
• Bank of England maintains interest rates may have to rise more rapidly than previously thought.
• Sterling up vs dollar at $1.3943 and up vs Euro at €1.1332
• Oil up sharply at $66.36
• UK 10yr gilt yield down 1bp at 1.54%
• World markets: UK down yesterday with Europe also lower. US higher and Asia mostly up in Friday trade
• Brexit etc.:
o Cabinet met at Chequers yesterday so Brexit solved.
o Hard Brexiters angry at potential 5yr implementation period that may be extended to infinity. Boris says Brexit is a mess.
o Some ministers telling FT it could be 2024 before a trade deal is agreed.
o Bloomberg reports ‘official’ as saying Chequers will have only ‘blurred the detail’.
o FT reports could take 5yrs to recruit border staff & build inspection posts.
o Times reports current PM Theresa May is ‘planning a U-turn on the rights of migrants’ who arrive in the UK post Brexit.
o Not clear any more just what Brexit means.
PRIOR DAY TWEETS:
• Later tweets: Cold weather. Met Office happily saying we’ll have coldest weather in 5yrs tomorrow. Below freezing in York, day & night, for over a week
• Vouchering: Where is the road back to full pricing? Discounts still much in evidence. NPD says discounts drive £14bn of spend
• NPD re discounting. Says ‘it’s hard to stand out’. Well of course it is, this is a zero sum game at best & a lose-lose at worst.
• EasyHotel announces hefty, well-supported placing of 45.5m new shares at 110p each to fund expansion. Plenty of growth out there
• UK growth in Q4 est. down to 0.4% (from 0.5%). Unemployment up, Centrica cutting 4k jobs & BoE saying rates will rise faster etc. Quelle joie…
• Boris Johnson & Theresa May to sort out Brexit (a ‘mess’ per the former) at Chequers. Panic over, sorted etc.
• See Langton’s ‘how to paint a pig’ 60 seconds. Dress it up, widen its margins & then what? Do a Dignity, perhaps?
• Langton is between offices. We should be moving into London Wall later this month but, for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was, of course, Paint it Black by The Rolling Stones. To finish off the week, who sang:
‘Money don’t grow on trees,
I got bills to pay, I got mouths to feed
There ain’t nothing in this world for free’
DID YOU KNOW?
• The verb ‘to whore’, in several other Germanic languages means ‘to rent’. You can huur a flat in Holland, for example or hyra a lawnmower in Sweden. And, of course, you can whore out a politician in almost any country in the world. The English word ‘hire’ is from the same root.
RETAIL NEWS WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that mighty John Lewis had a quiet time last week, with continuing weak Home sales. And today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday Feb 18th, also flags that things remained uninspiring, despite Valentine’s Day, with Fashion Store LFL sales down by 2.5%, albeit the comp of +0.7% last year was relatively firm. Including Homewares and Lifestyle chains, total Store LFL sales were also down, by 1.1% (vs +2.3% a year ago). However, overall Online sales were up by 13.6% (versus a huge +30.8% a year ago), with Online Fashion sales 16.2% up.
• Trade Press (1): Today’s front cover of Retail Week magazine (which celebrates its 30th birthday this week) is a graphic, with the headline “Is your loyalty scheme still relevant?”, to flag up the main feature on “what it takes to earn customer allegiance”. RW also have features on “Do new year discounts still do the business for furniture retailers?” and “How retailers are using tech to bring greater personalisation to stores”. The main News stories are that Asda posted a third consecutive quarter of sales growth (but suffered a decline in profitability) during its crucial Christmas trading period and that Arcadia and its “billionaire owner” Philip Green have hit out at reports that he is planning to offload all or part of the struggling fashion group. In his column the Editor looks at the Arcadia story in the Sunday Times and says “Arcadia ‘sale’ reaction sends message on
• Trade Press (2): In Drapers magazine today, the Editor also looks at the Arcadia sale story in her column, flagging that “This year could be a fashion game-changer” and thundering that “Ten years ago, it would have been unimaginable that a stalwart like Arcadia could be up for sale”. The main News story is the industry debate about the future of Arcadia, but Drapers also flag that Spring fashion sales have stalled, as the cold snap and consumer caution continue. Otherwise, the magazine is a special Footwear and Accessories issue and there are plenty of features, including an interview with Andy Long, the CEO of Pentland Brands. Drapers also has a site report from Westfield London’s £600m extension, to find out how it is “externalising the shopping centre”, and takes a look at the new John Lewis anchor store opening next month.
• News Flow Next Week: Next week kicks off with the Hammerson finals and the ABF (Primark) pre-close. Tuesday brings the Greggs finals and the Inchcape finals (and the Boohoo pre-close?). On Wednesday we get the monthly GFK Consumer Confidence index, the Travis Perkins (Wickes) finals and the eagerly-awaited Tesco and Booker EGM’s. The Howden finals on Thursday will then give us a further insight into the outlook for “white van man”. And there should be some news next week on the embattled Steinhoff (and its UK operations of Poundland and Dreams/Bensons), via the much-awaited publication of its restated 2016 and 2015 Accounts and the 2017 results