Langton Capital – 2018-03-29 – Conviviality, surcharge proposals for bottles, costs etc.:
Conviviality, surcharge proposals for bottles, costs etc.:
A DAY IN THE LIFE:
First of two short weeks this week. The email will be going out in somewhat shortened form as Langton will be away from the office until next Wednesday. On to the news:
CONVIVIALITY, MATTHEW CLARK, SOURCES OF SUPPLY ETC.:
• Conviviality has announced that it is to appoint administrators to the Company
• Perhaps tellingly, it says this will happen ‘unless circumstances change’
• Conviviality says ‘the Board intend to appoint administrators within 10 business days. The secured creditors can, however, appoint administrators without the requirement for notice.’
• Conviviality reports ‘the Directors intend to allow the business to continue to trade and the Company continues to work alongside advisers in order to preserve as much value as possible for all stakeholders as it explores a number of inbound enquiries regarding a potential sale of all or parts of the business.’
• The group says ‘further announcements will be made as appropriate.’
• Bargain Booze & Matthew Clark owner Conviviality had earlier announced that it has not been able to raise the £125m in emergency funding that it had been looking for post its discovery of a tax liability and other issues.
• Conviviality reports a key element of its plan ‘was an equity placing to raise gross proceeds of £125.0 million (the “Placing”), which the Directors believe is the minimum amount required to adequately recapitalise the business.’ Conviviality reports ‘despite a significant number of meetings with potential investors resulting in good levels of demand, and constructive discussions with a number of key customers and suppliers regarding the provision of support, there was ultimately insufficient demand to raise the full £125.0 million.’
• Conviviality says ‘the Board wish to thank its customers, suppliers and employees for their continued support during this difficult period for the Company.’
• Conviviality reports it ‘is in discussions with its lending banks and advisors regarding other possible options and is in receipt of a number of inbound enquiries regarding a potential sale of all or parts the business. A further update will be made as appropriate.’
• Conviviality reports ‘the Board believe that shareholders in the Company will receive little-to-nil value.’ The group’s shares will remain suspended until further notice.
• Sky had earlier reported that 2,500 jobs are at risk ‘as the owner of Bargain Booze heads for administration’. It says it has learnt administrators could be appointed this week. Certainly the group’s comment that equity had little value has done nothing to dispel such suggestions.
• Conviviality has reportedly had trouble with suppliers and some customers have been looking for alternative – or at least backup – sources of stock from delivery company Matthew Clark.
• Wider considerations. Should an administration result from the above failure to raise funds, 1) suppliers may find themselves unsecured creditors. Furthermore 2) some customers will not be getting their supplies and 3) others, which had been expecting volume-related rebates, may also find themselves to be unsecured creditors.
• Putting all one’s eggs in one basket (partly in order to become a ‘more important’ – and more heavily rebated – customer, may prove not to have been without its own risks. KFC found this to be a problem when it switched suppliers. Over-reliance on one sources is not always the best solution.
• Other operators, such as Marston’s, have distribution companies that supply the free trade. Matthew Clark’s assets are likely to find themselves with new owners and there will be some winners.
• Landlords will not, however, be among them as the Wine Rack and Bargain Booze chains may be under pressure to close some, many or all units and the keys for impacted units will go back to property owners.
• The speed with which Conviviality has apparently unravelled will also unsettle investors, suppliers and customers. The vague concerns led to a £30m liability led to the resignation of the CEO led to the scrabble for £125m led to the possible administration of the company, etc.
• One potential source of problems is the extremely low-margin nature of the majority of the businesses that Conviviality was involved in. This was a problem shared with Carillion.
• It is harder to survive shocks when margins are low. The antidote is perhaps to be incredibly well-run or to have cash margins that are higher than those disclosed in the P&L courtesy of high depreciation or other non-cash payments. Amongst pub companies, JDW perhaps satisfies both of these criteria. Others may not be in quite such an advantageous position.
PUB, RESTAURANT & DRINK PRODUCERS:
• Consumer confidence rose in March on the back of higher wage rises reports GfK. It says the Beast from the East did little to dissuade consumers. GfK reports ‘the prospect of wage rises finally outstripping declining inflation, high levels of employment with low-level interest rates, and finally some movement on the Brexit front appear to have boosted our spirits.’ It says ‘consumers are feeling a tiny spring in their step – let’s see next month if April showers dampen the mood. UK wages rose at their fastest pace in two-and-a-half years in the three months to January, official figures released earlier this month showed.’
• Customers will be charged an extra 20p for drinks cans and bottles under plans for a refundable deposit scheme to combat litter and boost recycling. Michael Gove, the environment secretary commented about the threat to marine plastic posed: ‘It is absolutely vital we act now to tackle this threat and curb the millions of plastic bottles a day that go unrecycled. We have already banned harmful microbeads and cut plastic bag use and now we want to take action on plastic bottles to help clean up our oceans.’.
• UK Hospitality has warned the government not to overburden the hospitality industry through the introduction of its bottle deposit scheme, asking the government to create an opt-out for business where drinks are sold on the premises. Chief Executive of UK Hospitality, Kate Nicholls said: ‘The Government’s proposal for a deposit scheme highlights the need for a united front from the sector to tackle the problem of packaging waste and avoid additional costs for businesses. The hospitality recognises the challenge and is already playing an active role in providing solutions and is not underestimating the importance and cost implications. There is, however, a genuine worry that this scheme will simply increase costs for businesses while not providing the action required to tackle packaging waste’.
• The BBPA has responded to the Environment Secretary’s announcement of a planned deposit return scheme, with Chief Executive of the group, Brigid Simmonds stating: ‘The BBPA’s role as an industry leader in running packaging compliance schemes for many years puts us in a unique position working with DEFRA to discuss deposit schemes. We will continue to work with the Government to look at the details of any new deposits legislation to make sure that it works for both brewers and small businesses like pubs. It is good to see DEFRA acknowledging that the burden on the hospitality sector must be carefully considered in designing any new scheme’.
• The Californian fast-food chain, In-N-Out Burger are suing a YouTuber for $25k after he filmed ‘prank’ videos where he told customers their food was contaminated. Cody Roeder pretended to be the company’s chief executive and told diners that their food was contaminated and garbage.
• Loungers, the cafe bar operator, has opened its 100th site in Moseley Birmingham. The group plan to open a further 16 sites in 2018.
• DFS has announced that it has delivered profit in line with expectations for the half year ending January 27. Pretax profit declined to £7m from £16.7 the previous year. The group’s revenue was up 4.3% to £396.1m with the group stating this was ‘reflecting increasing scale and relative market leadership’.
• Food and drink exports from Yorkshire and the Humber has increased 11% to £1.14bn in 2016, according to data released from the HMRC.
• Amazon shares have fallen 7.4% following the news website Axios report that President Donald Trump is obsessed with the world’s largest retailer and wants to rein in its growing power.
HOLIDAYS & LEISURE TRAVEL:
• In the US, hotel demand continues to grow, and demand related to Hurricane Harvey and Hurricane Irma played a big role in overall U.S. demand numbers, said Jan Freitag, SVP of lodging insights at STR.
• The growing popularity of Turkey and Tunisia is worrying Spanish hoteliers who are concerned Spain’s annual number of international visitors will decline. Juan Molas, president of CEHAT, said ‘Visitor numbers are coming back strong to these competitors, as well as to Greece, which are now stabilizing, and they are again attracting tourists from our major markets like Britain, Germany, Russia and the Nordic countries’.
• Monarch’s failure last year and Ryanair’s flight cancellations have increased customers concerns as to whether they will get refunds or not from their travel firms, data from the BDRC has indicated.
• Tui is to acquire the destination management division of global bedbank giant Hotelbeds in a deal worth €110m.
• London city airport has recorded its busiest week with over 100,000 travelers passing through its doors.
• Gfinity announce a £6.7m fundraise with 55.8m shares at 12p per share. The raise will fund the net cost of delivering Seasons 3 & 4 of the Gfinity Elite Series in the UK as well as Season 1 in Australia.
• GVC has completed its acquisition of Ladbrokes Coral.
• The Gambling Commission has fined Sky Bet £1m for failing to protect vulnerable customers.
• Gfinity has announced it has signed fragrance company Lynx as a partner in the Gfinity Elite series. Gfinity earlier this week announced losses of some £7m plus on revenues of around a quarter of that level.
• BlackBerry has announced a fourth-quarter profit that beat analysts’ expectations following strong performances from its high-margin software and services departments.
FINANCE & MARKETS:
• The number of cars made in Britain fell by 4.4% in February compared with the same month last year per the SMMT. This is due to a “double digit figures” drop in domestic demand. Some 17% fewer cars were made for the UK market. More than 80% of cars made in the UK are exported.
• Sterling down vs dollar at $1.4081 and lower vs Euro at €1.1419
• Oil up at $69.87
• UK 10yr gilt yield down 4bps at 1.37%
• Bitcoin trading at $7,937
• World markets. UK mixed yesterday. Europe up and US down. Far East mostly up in Thursday trade.
• Brexit etc.:
o PM will tour the country today to mark the one-year-to-Brexit date. She will attempt to show unity across the country. Mrs May says ‘I am determined that as we leave the EU, and in the years ahead, we will strengthen the bonds that unite us, because ours is the world’s most successful union.’
o Airbus boss has said that Britain should not necessarily be removed from the EU’s Galileo project post Brexit
o A number of EU trading partners are thought likely to impose tariffs on British goods when the UK leaves the EU. This unless trade deals can be agreed with them in the coming months.
o The number of London jobs being lost to the EU as a result of Brexit is said to be slowing. Around 5,000 jobs may be lost before March next year. Earlier estimates had been for around twice that level.
START THE DAY WITH A SONG:
Yesterday’s song was Blackstar by David Bowie. Today who sang:
Coming out of my cage
And I’ve been doing just fine
Gotta gotta be down
Because I want it all
RETAIL NEWS WITH NICK BUBB:
• “The Daily Retailer” is going to be on holiday now until after Easter. Nick will be back, bright and early, on Tuesday April 3rd.