Langton Capital – 2018-03-15 – Cineworld, Marston’s, Sportech, Conviviality & other:
Cineworld, Marston’s, Sportech, Conviviality & other:
A DAY IN THE LIFE:
It’s always good fun mangling your metaphors.
This because many people can’t stand it and, if you’re in a semi-serious conversation with them, you can observe them grinding their teeth and becoming completely distracted from whatever else you’re saying such that you may be able to get one over on them or, at the very least, give them a bit of indigestion.
My current favourite is that you have to ‘rip the bandage off to make an omelette’, followed almost immediately by, ‘lend us a tenner’.
It hasn’t worked so far but I’ve been harvesting very odd looks and persistence is a virtue and even the best squirrel can’t find all his nuts. On to the news:
• Conviviality yesterday said that it will cancel its 4.5p per share dividend, which was due to be paid tomorrow. This will save £8.2m.
• Conviviality says that ‘following the suspension of the Company shares from trading and pursuant to the steps being taken by the Company to address the short term funding requirement, the Board have resolved to cancel the interim dividend of 4.5 pence per share that was due to be paid on Friday 16 March 2018. As a result of the cancellation of the dividend, the Company’s cash position is improved by approximately £8.2 million.’
• Conviviality earlier commented that it had ‘identified a payment due to HM Revenue & Customs of approximately £30.0 million which falls due for payment on 29 March 2018 and which has not been accrued for within its short term cash flow projections.’ It says ‘this has created a short term funding requirement. The Company’s announcement on 13 March 2018 confirmed an expected range of adjusted EBITDA of between £55.3 million and £56.4 million. To the extent that the current situation creates operational difficulties, this may negatively impact the adjusted EBITDA range.’
• Conviviality is ‘currently in compliance with its banking covenants’. The next covenant test date is 29 April 2018. Net debt needs to be less than 4x adjusted EBITDA. At the moment, the company expects net debt to be c£150m including invoice discounting on 29 April with adjusted EBITDA of around £56m. Debt excluding discounted invoices will be around £113m.
• Conviviality reports it ‘has engaged PwC to assist it in its forthcoming discussions with HM Revenue & Customs and its key stakeholders including its lending banks, credit insurers, suppliers and other creditors, as well as to determine the potential impact of any resulting funding requirement on the Company’s adjusted EBITDA expectation and compliance with its banking covenants. Following preliminary advice received from PwC, whilst there can be no guarantee, the Board believes this short-term funding requirement will be satisfactorily resolved.’
• Conviviality’s shares remain suspended and it says ‘a further update will be made in due course.’
• Langton comment: Whilst not close to Conviviality, we cannot see prima facie how a £30m funding requirement, especially for a tax liability, which should be pretty visible, could not have been identified by a competent finance department.
• That suggests a number of unpalatable options. Either the liability was missed (but see above) or it wasn’t. If it wasn’t, then the RNS is a bit odd and if it was, then, well, there is a competence issue.
• And if the liability wasn’t missed but wasn’t reported properly up the management chain, then there may be a very serious issue regarding communication (or rather the lack of it) which might be again a competence issue or it could have been brought about by a ‘can-do’ culture or a ‘make-it-work’ approach – which has turned out to be rather reckless.
• There could have been a ‘don’t tell the boss’ approach or there could have been a ‘fingers crossed’ attitude. None of the above are good and, as the company says there can be no certainty that the funding issues can be resolved, and the shares remain suspended, the situation remains disturbing.
• That management was buying shares last week remains somewhat perplexing. But that sticky point remains, we can’t think of a good reason as to why you would forget about a £30m bill to the Revenue.
PUB, RESTAURANT & DRINK PRODUCERS:
• Marston’s has reported that ‘Roger Devlin has informed the Board of his intention to step down from his role as Chairman’. This is ‘in view of his other increased business commitments.’
• Mr Devlin’s resignation will take effect from 31 May 2018 and ‘the process for a replacement is underway and an update on succession will be provided in due course.’ Roger Devlin comments ‘Marston’s is a great business which has been transformed over recent years into the high quality pub portfolio and market-leading beer business which it comprises today. The Company benefits from a strong Board, well established leadership team and a clear strategic plan for continued growth. I have thoroughly enjoyed my time with the business and wish Ralph and the team continued success in the future.’
• EI Group has bought back another 265,428 of its own shares for cancellation qt 120,2p per share.
• The Grocer has suggested that milk prices may be on the rise. This after farm gate prices rose by 50% over the last few months.
• Uber is investing more into UK food delivery this year and plans to launch in 40 new cities after finding UberEATS was ‘more successful than we thought’. Speaking to the FT, Droege declined to specify how much the company would invest to expand the service – but said group chief executive Dara Khosrowshahi was ‘a big fan of the [UberEats] business,’ which he added had ‘viable unit economics’.
• Action on Salt claims that a significant proportion of Chinese ready meals sold in supermarkets should come with a health warning as some lines contain more than two-thirds of an adult’s maximum recommended daily salt intake. The campaign group is calling on Public Health England to take immediate action on setting new salt targets and making front-of-pack labelling mandatory.
• The Jamie Oliver Group had allowed competition to ‘encircle’ it in the last few years, according to the group’s recently appointed boss Jon Knight. Speaking at the recent Casual Dining Show, Mr Knight added that a number of new initiatives have been put in place to help turnaround the group’s fortunes: ‘We didn’t innovate enough in the last decade so we’re sure as hell making up for it now. We’ve done a huge review of our labour costs, we’ve just put in a new menu model that’s already made the improvements in food costs and labour that we needed and that’s a huge part for us. We’re also looking at refreshing some of our sites and finally investing in our estate and we’re making sure that we’re caring for our staff. I’m fed up of losing my staff to the competition, I’m fed up of them leaving.’
• As regards the wider pub industry, Conviviality owns the Matthew Clark distribution company, which services a large number of independent pubs, restaurants and other retail outlets. Any disruption to supply would be potentially very hurtful. It is not likely that all customers have a Plan B in place.
• NPD has reported that ‘various forms of deals and promotions account for 28 percent of visits to Britain’s out-of-home market.’ This amounts to up to 3 billion visits a year.
• Tropicana has introduced two new juice lines in the US with no artificial sweeteners or flavourings in a bid to keep abreast of changing consumer demand.
• Toys R Us UK is set to close all of its stores in the next six weeks after failing to attract a buyer for its 100 sites.
• Amazon has launched its first ever debit card in Mexico in a move to encourage consumers without bank accounts to buy online.
• A new report from Culinary Vision Panel’s Mindful Dining Initiative shows that millennials have ‘sky high’ expectations for snacks and grab-and-go foods and ‘don’t want their dining choices to have unintended negative consequences’. The Panel says it ‘found that whether it’s rewarding a company’s fair-trade labor practices or their zero-waste policies, millennials are the most serious about ethically sourced grab-and-go foods.’
• Toys R Us is set to close or sell all of its 885 stores in the US in the coming months, putting as many as 33,000 jobs at risk. The retailer is also expected to go into liquidation in France, Spain, Poland, and Australia, with additional plans to sell operations in Canada, central Europe, and Asia. The Washington Post reports the toy chain had stopped paying its suppliers earlier this week.
HOLIDAYS & LEISURE TRAVEL:
• ForwardKeys reports World Cup mania has lead to air travel bookings to Russia doubling. Mexico shows the greatest uplift in bookings – ahead by a factor of 19 on visitors going to Russia last year.
• Newcastle International Airport will open its new international arrival hall ahead of the summer holidays this year.
• Airsorted, a Airbnb management firm, has closed a £5m funding round. The funds will help the firm fuel its global expansion plans. It is also looking to raise a further £1m through a crowdfunding campaign it is set to launch on the Seedrs platform in the near future.
• The top 25 US hotel markets accounted for just 37% of sales in 2017, down from 52% in 2016, according to the Hotel Transaction Almanac 2018. The hotel transactions tracked by STR totaled nearly $20.1 billion, but the average total investment per room declined more than $30,000 (to $240,000).
• Cineworld reports FY to end-Dec. Turnover up 8% (constant currency) to £890.7m with adjusted EBITDA of £198.2m (up 7.4%)
• Cineworld reports adjusted PBT of £127.5m with EPS of 16.4p. Co has seen ‘solid UK and Ireland revenue growth of 6.2%.’
• Cineworld reports net debt is down to £278.3m with an adjusted EBITDA to net debt ratio of 1.4 times.
• Cineworld admissions +3.5% with nine new openings in the year and the purchase of the 16-screen Empire in Newcastle now completed.
• Cineworld historic numbers overshadowed by current acquisition of Regal Entertainment but chairman Anthony Bloom comments ‘2017 was an exciting year for the Cineworld Group – the most momentous since its formation in 1995.’ He says ‘the Group’s operations in the UK and ROW once again posted record results.’
• Cineworld CEO Mooky Greidinger comments ‘2017 saw the Group make great strides in delivering on our strategy and vision to be “The Best Place to Watch a Movie”’
• Re current & future trading, Cineworld comments ‘we have been pleased with the performance of the Group through the opening weeks of the year and we are encouraged by the strength of the film slate for 2018, which includes “Jurassic World: Fallen Kingdom”, “Fantastic Beasts: The Crimes of Grindelwald”, “Avengers: Infinity War”, “The Incredibles 2”, “Mamma Mia! Here We Go Again”, “Solo: A Star Wars Story”, “Deadpool 2”, “Fifty Shades Freed”, “Mary Poppins Returns” and many more. We look forward to another year of growth in shareholder value.’
• Listed pools betting group Sportech saw the price of its shares collapse more than 50% in early trading on the news that, not only have sales talks failed, but the company is having to enact £8m of writedowns following the discovery of accounting issues that ‘may or may not lead to further impairments of a non-cash nature.’ Last year, Sportech sold its historic Football Pools business in a deal worth £83m and then put itself up for sale in October as part of a wider strategic review.
FINANCE & MARKETS:
• President Trump (America First) has blocked what would have been the largest technology merger the world had seen, the purchase of Qualcomm by Broadcom of Singapore.
• Sterling down a shade vs dollar at $1.3971 and up a fraction vs Euro at €1.1289
• Oil up a little at $62.86
• UK 10yr gilt yield down 5bps at 1.43%
• World markets: UK, US and Europe down yesterday with Asia mostly higher in Thursday trade
• No10 has backed away from the idea of scrapping 1p and 2p coins. It said ‘the consultation’s call for evidence was simply intended to help the government better understand the role of cash and digital payments.’
• Brexit etc.:
o It was sorted but now it isn’t as Sky reports UK business is to ‘raise concerns about Brexit’s potential impact on their UK workforces during talks this week with Theresa May.’ Those attending the meeting include the bosses of BT, Lloyds, ITV, Virgin Money, the CBI, Royal Mail & Diageo.
o Times reports ‘Brexit leaves us lonely in a dangerous world’. Guy Verhofstadt has said that the spy poisoning shows how Brexit “weakens the U.K. and us.”
o Without apparent irony, Mrs May has said ‘those who threaten our security would like nothing more than to see us fractured.’
o UK in a Changing Europe has said that there will be no NHS dividend from leaving the EU. Slower growth will more than wipe out any reduction in contributions to the EU, even after the £40bn divorce payment has been completed.
PRIOR DAY LATER TWEETS:
• Later tweets: Over-optimism, confirmatory bias & perhaps a bit of greed, arrogance, naivete & some bad luck behind High Street F&B car crash?
• Government considering tax on coffee cups, crisp packets, chewing gum. Raises funds & deflects attention from economy etc.
• Consumer magazine Which has said that airlines are failing to properly warn holidaymakers about the risk of post-Brexit flight cancellations
• Chancellor Hammond says slow growth to be feature of UK economy for next 5yrs. UK at 1.5%. OECD says will be slowest of G20 nations
• Vietnamese specialist Pho says Deliveroo ‘dark kitchen’ concept flawed as Deliveroo itself may become an operator & steal market from partners
• Pho suggests Deliveroo will have a ‘what do I need you for?’ moment with regard to the suppliers in its Dark Kitchens
• We are now in our new office with WIFI and a telephone. Number etc. at the foot of this email. Woohoo. Much of our furniture, however, has gone to heaven. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday we had a bit of swagger with Happy Mondays’ ‘Step On. Today we are nostalgic — who sang:
I was five and he was six,
We rode on horses made of sticks
He wore black and I wore white
He would always win the fight
RETAIL NEWS WITH NICK BUBB:
o Conviviality: After its ominous early announcement yesterday morning that the shares were being temporarily suspended at 101p (capitalising the group at just £185m), “pending an announcement”, the increasingly beleaguered drinks distributor Conviviality continued with its series of bizarrely timed announcements…At 9.55am it came out with an update that revealed, astonishingly, that the CFO had forgotten to allow for a £30m tax bill due on March 29th in his cash flow forecast and that the company was therefore in urgent talks with its banks about funding, helped by PWC…And at 4.09pm it announced it was cancelling the interim dividend that was about to be paid, in order to save £8m…In between, at lunchtime, there was an announcement that long-time supporter, the Old Mutual fund management group, had wisely cut its stake from c7% to c3%…Incidentally, the Tuesday lunchtime announcement
o Inditex: The finals from the fashion giant Inditex were also out yesterday in sunny Spain and although it has been famously tight-lipped in the past about giving away details, we were impressed with the focus it put on Online sales (41% growth last year, to 10% of sales, or 12% in markets where they have an Online presence) and the fact that all its different brands (like Pull & Bear, Massimo Dutto, Oyshka and Stradivarius) are solidly profitable: the core brand Zara only accounted for Euro 16.6bn of the total 25.3bn sales last year.
o Signet: The American jeweller Signet announced a fancy sounding “Path to Brilliance” strategy yesterday on the back of its Q4/final results to y/e January, involving, in so many words, the closure of 200 mall stores and a push to drive Online up from 8% to 15% of sales by 2021. As for its UK subsidiaries of H Samuel and Ernest Jones, the news was poor, with Q4 LFL sales plunging by 9.4% (despite good sales of prestige watches), to take LFL sales for the year down by 6.0%.
o Philip Green Watch: The embattled Philip Green will be able to take a break from his problems at Arcadia by celebrating his 66th birthday today, although he probably won’t be able to afford the sort of lavish, high-profile party he has enjoyed in the past…And looming over him is the book due out soon from his bete noire, Oliver Shah of the Sunday Times, called “Damaged Goods”…
o TIPS Watch: The great 4-day Cheltenham jumps racing Festival continues today and our alter ego, “Honest Nick”, is bringing you his each-way Tips every day. And, given how competitive the racing is, he was again reasonably pleased with his efforts yesterday, on Day 2, as his banker Altior won the big race, the Champion Chase, at odds of evens, whilst The Last Samuri came third in the Cross-Country race at 11-4 and he also picked another Irish trained winner, Presenting Percy, at 5-2 in the 2.10. As for his “Three to Follow” each-way Tips, Black Op came 2nd at 8-1, but Fixe Le Cap finished well down the field in the 2.50 and Felix Desjy was only sixth in the last race at 5.30pm. As for today, the banker of the day is probably the Willie Mullins trained Un De Sceaux in the Ryanair Chase at 2.50, whilst Terrefort should win the 1.30, but, for better odds, as our “Three to Follow” e/w