Langton Capital – 2018-04-05 – Conviviality, C&C, distribution, discounting, waste etc.:
Conviviality, C&C, distribution, discounting, waste etc.:A DAY IN THE LIFE: Premiumisation certainly exists and, in some situations, we at Langton can even identify with it, for example if you buy a decent car then, well, you’re buying a decent car. It should run better, it should look better, it should last longer, be more comfortable etc. etc. but, with that in mind, why would you pay £100 for a pair of sunglasses when you can get a perfectly good pair for a tenner or a workable pair from some street hawker for £2 or £3 or so? Because the branded pair is very unlikely to have any kind of technological advantage, it won’t be able to copyright its style, colour, shape, size or whatever and stamping the name of the manufacturer on the side, which might be of limited value anyway as someone else can call themselves Guccii or RegBan or whatever, arguably just makes the wearer looks showy and cheap. They’ll be putting the brand name on the outside of underpants next. On to the news: CONVIVIALITY DISMEMBERED: • A busy day for announcements from C&C and purchasing companies yesterday. C&C initially announced it was to buy Matthew Clark & Bibendum for ‘a nominal sum’. The deal completed within a few hours leaving C&C with 100% of the issued share capital of Matthew Clark Bibendum. • C&C will recapitalise the business & provide sufficient working capital to allow operations to continue. • C&C announced that ‘AB InBev will provide additional financial support to the transaction.’ • C&C believes the transaction will ‘create the leading independent route-to-market network across the British Isles, alongside C&C’s existing drinks wholesaling businesses in the UK and Ireland’. • C&C is to acquire gross assets of around £230m for virtually nothing. But nothing is ever that simple and there will be liabilities attached. C&C reports ‘at completion, Matthew Clark Bibendum will have £102 million of working capital facilities provided by its current lender group, repayable in instalments over the 12 months following completion.’ • C&C CEO Stephen Glancey commented ‘we know the Matthew Clark and Bibendum businesses very well. They are great businesses with unparalleled on-trade market access, a wide range of supplier relationships and supported by a knowledgeable and loyal employee base.’ C&C will ‘put an end to this period of disruption and uncertainty.’ • Conviviality later confirmed the sale & said ‘all trade creditors of the Conviviality Direct business will be paid in full.’ It said the future of its (former) employees was secure and customers would be assured of continued service. • Conviviality formally appointed administrators to the part of its business comprising Matthew Clark and Bibendum just prior to the deal. It said the disposals were ‘the best outcome for creditors, suppliers, customers and employees of the Conviviality Direct business.’ • Conviviality reports it ‘continues to pursue opportunities in respect of the Conviviality Retail business and will provide an update in due course.’ It says ‘no other companies in the Group have had administrators appointed and such other companies continue to trade.’ • Conviviality’s shares remain ‘suspended pending further notice.’ • Timetable of events: o 8 March – First profit warning – c£5m hit expected o 14 March – £30m tax bill discovered, shares suspended. o 19 March – CEO resigns. o 28 March – Rescue rights issue fails o 29 March – Group announces equity now has negligible worth o 4 April – Major non-retail businesses sold for nominal sum • Questions etc.: o There will (and should) be a post mortem because just how did an £800m market cap company become worth so little, so quickly? o How did a £5m error become a £30m oversight and then become a near £800m hit? o Was there any communication going on? In the absence of major legal defeats on matters of tax principles, taxation liabilities should not come as a surprise. Just what was going on? o This isn’t a victimless event. Employees, suppliers and customers may be OK. Banks may be repaid etc. but shareholders will not be getting much if anything back on their investment. PUB, RESTAURANT & DRINK PRODUCERS: • Discounts akimbo. Prezzo 2-4-1, Pizza Express up to 25% off, Harvester kid for a quid, Zizzi & ASK 30% off mains. • MOD Pizza UK has announced that it has raised another £1m in capital via the issue of redeemable convertible preference shares. The UK group has now raised some £18.02m in capital. The group, which is growing rapidly, lost £5.02m in the year to 25 December 2016, the last year for which accounts are available. • The British Institute of Innkeeping (BII) and UKHospitality are teaming up to lead the sector’s efforts to tackle packaging waste with a sector-wide packaging event. Unpack the Future of Hospitality will be hosted on 10 May by Bank of Ireland Corporate Banking at their central London offices and will bring together hospitality operators, suppliers, and parliamentarians to discuss packaging waste reduction. • US journal The Nation’s Restaurant News reports that a California judge has ruled that coffee retailers must add cancer warning labels on ready-to-drink coffees sold US private equity firm Carlyle is paying $1bn to buy Accolade Wines — the largest producer of Australian wines — amid what some are calling a boom in the Australian wine sector. Some $2.56bn of Australian wine was exported in 2017, with demand from China rising 63% to $848m. ‘This is a company with great brands and strong market positions, with multiple growth opportunities, particularly in Asian markets,’ said Carlyle in a statement. • Technomic suggests competition is heating up in the US pizza industry. Anne Mills, senior manager of consumer insights at Technomic, commented: ‘Increased demand for quality and authenticity is influencing consumers to become increasingly discerning about each component on their pizzas. As consumers’ expectations rise and competition increases, pizza operators will be driven into niche, specialized areas such as Roman-style, Detroit-style and even convenience-focused offerings.’ • Online science journal popsci.com has suggested that California should chill out a little. It says high temperature cooking – of anything – is associated with slightly higher cancer risks. French fries were targeted last year. • Nielsen reports that the significant growth in the use of podcasts is becoming a ‘trusted source for brands looking to reach consumers.’ It questions whether podcasts are actually driving results but social media strategies are increasingly important. • Nielsen reports that the use of mobile wallets is increasing. Quoting the Hong Kong market, it reports that ‘nearly all online shoppers (95%) are aware of any mobile wallet in the Hong Kong market, particularly among those aged 15-24, and as many as 99% have heard of at least one mobile wallet service.’ Cash is under pressure as a medium or exchange, even across more mature demographics. • Restaurant group D&D London is ending trading at its high profile sites at The Royal Exchange later this summer after deciding not to exercise its option to renew its leases. Des Gunewardena, chairman and CEO of D&D, commented: ‘We have thoroughly enjoyed being part of The Royal Exchange for some 15 years and in that time The Grand Café and Sauterelle restaurant have become firm City favourites… We remain committed to the City and plan to announce a new and very exciting restaurant project in the Square Mile shortly.’ • Pret A Manger is to open its first site in Germany later this year alongside HMSHost, which has already supported openings in Denmark and the Netherlands, per MCA. The group is also in talks to open further sites in the Middle East and plans to grow the brand in North America as well as pushing into Canada. • Be At One has made former chief operating officer Andrew Stones its new managing director, while Adam Gregory will join from Leon to become operations director. Gillian Lambden joins as people director from Franca Manca • Rosa’s Thai Cafe and Lunyalita are set to open at Liverpool’s Albert Dock. • Black Gold, a Spanish 8.5% ABV stout by Basque Oak Brewery, took gold at the inaugural London Beer Competition. • Researchers at the University of Leeds have concluded that cutting out red meat could significantly reduce the risk of cancer. The study gathered data from 32,147 women aged 35-69 years in England, Wales and Scotland. • Indian ecommerce site, Flipkart, may be acquired by Amazon despite currently being in talks with Walmart. Amazon has pledged to invest $5bn in India as part of its expansion plans. HOLIDAYS & LEISURE TRAVEL: • Springboard Insights said lower high street footfall – down 2.4% over the Easter weekend – didn’t affect travel agents, who reported ‘strong’ Easter sales. • Millennium Hotels and Resorts will open its first hotel in Turkey later this month. • Plaza Premium Group is to open a new premium airport hotel under its Aerotel brand at Heathrow terminal 3. The General Manager for the UK of the group, Amin Amin, said: ‘Aerotel London Heathrow is the Group’s sixth hotel at an airport to meet the demand of transit passengers. It promises a comfortable airport accommodation and flexible booking hours, bringing guests a brand new home-away-from-home experience at Heathrow, with added convenience’. • Wyndham Hotel Group and NOVUM Hospitality have announced a partnership that will see the pair develop new European hotels. • Skyscanner has added train bookings to its platform, partnering up with Ctrip. • Marriott is aiming to lower the commissions it pays to online travel agencies starting with Expedia Group once its contract is renegotiated later this year. OTHER LEISURE: • Gfinity has announced that its Formula 1 Esports Series will be continued to a second season on 13th April. The new season will see Mercedes, Red Bull, Force India, Williams, Renault, McLaren and others setting up their own teams. The prize fund for the competition is $200,000. • Tottenham Hotspurs has announced record revenue figures for the year ended 30 June 2017, increasing 50% to £306.3m. The success of the team in the Champions League and increased sponsorships have led to the rise in income. • Facebook has revealed that the data of up to 87 million people was improperly shared with controversial consultancy firm Cambridge Analytica. Whistleblower Christopher Wylie had originally suggested 50 million accounts might have been exploited. FINANCE & MARKETS: • UK construction PMI fell sharply to 47.0 in March. The Beast from the East may have been largely to blame. Manufacturing (announced the day before) was healthy. The much more important services PMI is announced at 9.30am today. • Savills has said that homeowners over 50 own three quarters of property wealth across the UK. Over 65s own 43%. • UK services PMI for March comes out at 9.30am. • President Donald Trump is offering talks with Beijing to head off a trade war that he said would be easy and then said wasn’t happening at all. • UK car registrations fell sharply in March per the SMMT. New registrations were down by 15.6% vs March 2017. Diesel demand was down by 37%. • Eurozone unemployment fell in February to 8.5%. • Sterling down a little vs dollar at $1.407 and lower vs Euro at €1.146 • Oil up 40c or so at $68.38 • UK 10yr gilt yield unchanged at 1.36% • Bitcoin down at $6,601 • World markets: UK mixed yesterday with Europe down and US up. Far East mostly higher in Thursday trade • Brexit etc.: o FT quotes Oxford Uni study as saying EU leaders (with the exception of Ireland) are broadly unconcerned about Brexit as far as their own economies are concerned. PRIOR DAY LATER TWEETS: • Later tweets: C&C to buy Matthew Clark & Bibendum from Conviviality. Consideration is ‘a nominal sum’ but business needs recapitalising. • C&C purchase of Matthew Clark should secure supply for UK pubs. Status of volume rebates unclear but future overall secured. • Food prices falling m-o-m per Nielsen. Up only 0.4% on year, is below inflation. Spare cash for other things? Yes, but interest rates rising • NPD Group predicts younger consumers will spend less on eating out. Because they’ve got less cash or less inclination? Bit of both • NPD. Over 50s spending more. Such polarisation in spending potential & desire arguably not necessarily positive longer term. • Bad weather means UK construction PMI fell sharply in March. Hit 47.0 with any number <50.0 implying contraction. Should be temporary START THE DAY WITH A SONG: Yesterday’s lyrics were from ‘Stronger Than Me’ by the late Amy Winehouse. Today, who sang: The scars of your love remind me of us They keep me thinking that we almost had it all The scars of your love they leave me breathless, I can’t help feeling We could have had it all RETAIL NEWS WITH NICK BUBB:
• Mothercare: We flagged yesterday that many Retailing management share incentive schemes are under water (after the recent drop back in sector share prices) and although we had Superdry on our minds we could easily have mentioned the embattled Mothercare instead…Unfortunately, the precipitous collapse in the share price to c17p had destroyed the credibility of the perennially bullish CEO Mark Newton-Jones, who was last seen buying shares back in early January, after yet another disappointing trading update (c219,000 shares at c46p). We recall an interview with Oliver Shah of the Sunday Times back in June last year, when the shares were c120p, in which he openly mocked the “short-term” view of the City and said “I genuinely think the market can’t value a turnaround”. Well, Mark Newton-Jones was rewarded for his optimism yesterday by getting the push as CEO, “with immediate effect”,
• Topps Tiles: Yesterday’s pre-close update from Topps Tiles covered the 13 weeks of Q2 to March 31st and the disappointing news caused full-year profit downgrades of c10%, sending the shares down by over 13%. The company said that “Trading in the second quarter has seen a slowdown from the +3.4% LFL level reported for Q1, with LFL sales down by 2.2%. While we estimate that short term weather factors in late February and March, and the timing of an earlier Easter, account for around 1.6% of the Q2 LFL sales reduction, it is also clear that that there has been a softening of the underlying market”. The Q2 comps were weak and Matt Williams, the CEO, said: “After a strong start to the year, market conditions have become more challenging over the second quarter. While the business has responded well with a performance ahead of the overall tile market, we are retaining a cautious view of
• Weather Watch: The weather has returned to “normal” in London, but memories about “the weather” are always notoriously short-term and often too London-centric…so we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected trading on the High Street across the UK…And their overview for March was “Winter Overstays its Welcome” and that “Cold Keeps Spring Sales in the Doldrums”. Overall, after 2 cold snaps, it was the 10th coldest March of the past 55+ years and the coldest since 2013 (the average temperature across the country in March was 3.9C, 4.0 degrees below last year and 2.3 degrees below “normal”). Planalytics said that “March will be a month retailers wish to forget as the weather caused mayhem in terms of both sales and footfall…Sales of all spring seasonal categories were significantly down on • Kantar/Nielsen Watch: The latest grocery market share figures (for the 4/12 weeks to March 24/25th) from these 2 rival research survey groups came out at 8am yesterday and both took a similar theme. The Kantar survey was headlined “The Beast from the East fails to freeze grocery sales”, flagging that in the 12 weeks to 25 March grocery sales increased in value by 2.5% compared to this time last year, despite adverse weather conditions disrupting shoppers. Coincidentally, Kantar also measured grocery inflation at+2.5% for the 12 week period ended 25 March. The Nielsen survey was headlined “Grocery sales remain buoyant despite winter storms and slowing inflation” and noted that in the four weeks ending 24 March, shoppers spent 3.3% more on groceries compared to the same period last year (or 2.6% more, excluding the discounters).
• Today’s Press and News: The news that the bankrupt Conviviality has sold its Matthew Clark drinks wholesaling business to the drinks group C&C for a nominal sum gets lots of coverage, but the change of CEO at Mothercare is also widely noted (“Rattled Mothercare opts for change at top” is the Times headline). The Times also flags that “Discounters’ market stays hot in the cold” (Aldi and Lidl continued to grow market share in the latest Kantar grocery sales figures), “Sales at Topps Tiles catch a chill from early Easter” and “M&S lingerie is fit for India’s middle classes” (M&S lingerie-only stores in India are doing very well). Lombard column in the FT looks at Conviviality (“Conviviality shareholders lose-lose as C&C buys into it wholesale”), Topps Tiles (”Topps: not so bonny tiler”) and Mothercare (“Listen with Mothercare”). And the FT market report noted that • News Flow This Week: The embattled Hammerson has a Q1 trading update this morning and tomorrow the Motor dealer Motorpoint has a Q4 update. |
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