Langton Capital – 2018-04-06 – Conviviality, Rank, sugar tax, PMIs, cash usage & other:
Conviviality, Rank, sugar tax, PMIs, cash usage & other:
A DAY IN THE LIFE:
So, on returning from a few days away over Easter, we couldn’t help but notice that our garden had disappeared to be replaced by something that looks very much like a frigid swamp.
There’s standing water over a good part of it and, where the ground falls away in places, this is over a foot deep and, whilst it hasn’t rained in a good day or so, it doesn’t look as though these thousands of gallons of dirty water are going anywhere particularly quickly.
I mean take the hint, why don’t you, go downhill.
But here we have a problem because the Vale of York is, well, a vale and, while water doesn’t hang around on the cliff edges they call streets in Sheffield, it does 50 miles to the north and now we have ducks and geese adding to the list of objectionable vermin trying to share our land with us.
So, as we look out over a scene from the film Southern Comfort (albeit 20 degrees cooler), with dying, water-logged vegetation gradually giving up the ghost against the vicissitudes of a vengeful Mother Nature, it must be time to move on to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Services PMI slips on bad weather. See Finance & Markets below.
• The ‘ground-breaking’ sugar levy on high-sugar drinks has come into effect today, in a bid to reduce the amount of sugar consumed in our diets. Leading brands such as Fanta, Ribena and Lucozade have already slashed their sugar content in anticipation of the levy, which is also enacted by a handful of other nations including Mexico, France and Norway.
• The levy is being applied to manufacturers – whether they pass it on to consumers or not is up to them. Drinks with 5g of sugar per 100ml will face a lower rate of tax, 18p per litre. Those with more than 8g per 100ml will face a higher rate, 24p per litre. Pure fruit juices will be exempt as they do not carry added sugar, while drinks with a high milk content will also be exempt due to their calcium content. Originally, the Treasury forecast it would raise more than £500m a year, but that has now been reduced to £240m because of the sugar reduction by manufacturers.
• Conviviality yesterday announced that it had appointed PwC as administrators to the business. The group says the ‘companies now in administration are Conviviality Plc and Conviviality Brands Limited.’ The group adds ‘no other companies in the group have had administrators appointed and such other companies continue to trade.
• Conviviality reports it ‘continues to engage with parties interested in its retail business, which trades under the names of Bargain Booze, Bargain Booze Select Convenience, Wine Rack and Central Convenience.’ It says ‘PwC will provide further updates in due course.’
• Conviviality reports Investec Bank plc has resigned as Nominated Adviser and Broker to the Company with immediate effect. It says this will lead to the cancellation of its listing on AIM. The group adds ‘the shares of Conviviality Plc remain suspended pending further notice.’
• Fever Tree has announced that ‘following the administration of Conviviality Plc, a company of which David Adams is Chairman, David has tendered his resignation as a Non-Executive Director of the Company with immediate effect and this has been accepted by the Board.’ The group thanks Mr Adams for his contribution.
• Agents still finding good news amidst all the bad.
• Fleurets reports Q1 has seen ‘substantial growth in turnover figures relating to the pub and late-night bar sector, especially within December, from the likes of Redcomb Pubs, Barworks and Deltic Group. However, this has not been reflected in the middle market restaurant sector with news of the restructuring of Carluccio’s, Jamie Oliver Restaurant Group and, most recently, Prezzo having Compulsory Voluntary Arrangements approved.’
• Fleurets says freehold pub prices have increased by 14.6% in Q1 -though this is not comparing like units with like. It says this is ‘driven by fewer individual deals and more portfolio deals in 2017. The pub market has seen good activity with sales of companies; Scottish brewer, Brewdog, acquired Draft House with 13 London-based units, and Fuller’s purchasing Dark Star Brewery.’
• Fleurets reminds readers there are now more than 2,000 breweries in the UK, rising by 64% in over 5 years’
• Costa coffee has launched a new lunchtime menu which will include a toastie, a hot drink and a snack for under a fiver.
• Carluccio’s is to open in the London Marriott hotel Maida Vale. Mark Jones, CEO Carluccio’s comments: ‘This is our third venture with Marriott and we have now proven that our all-day trading format is particularly suited to hotel operations where breakfast and impromptu dining are an integral part of the guest offer’.
• More than a third of UK coffee drinkers consider milk an essential component to the perfect coffee, research from Andronicas has indicated.
• US craft beer exports have increased 7.1% to the UK. Steve Parr, export development programme manager for the Brewers Association said: ‘The UK grew [beer imports] by 7.1% in 2017 to maintain its position as the second biggest export market after Canada. This growth is impressive when set against the thriving domestic brewing scene the UK is currently undergoing’.
• Wahaca, the Mexican dining chain has reported a pre-tax loss last year of £4.7m, with the group attributing the loss to its 2016 norovirus outbreak.
• Alcohol has remained as the top selling consumer goods category in the UK, valued at £16.1bn in 2017, according to data from IRI. Alcohol grew by 4.4% in the UK, with sparkling wine the fastest growing sub-category at more than 10%.
• The Finest Bubble, set up by Nick Baker, is a new delivery service that promises to get Champagne to addresses in London within two hours.
• Canadian consumers are snacking between meals more now than they were in 2016, per Technomic’s 2018 Canadian Snacking Occasion Consumer Trend Report. The snappily titled report concludes that common snacking triggers include ‘boredom and mindless eating’.
HOLIDAYS & LEISURE TRAVEL:
• Declining use of cash. Eye for Travel reports that cash usage in travel is declining. It says newer travellers, often from developing countries, may not use cash in the way that it has been traditionally used in the past. Eye for Travel reports ‘the next billion consumers who will become regular leisure travelers will look different to those in established travel markets in the West today. They will come from mobile-first societies where the digital environment has evolved in a different way. This means they will bring with them new payment methods that travel brands will need to adapt to.’
• Eye for Travel reports ‘mobile wallets are already hugely popular in countries such as China, India, Indonesia, and Kenya. In China, many consumers keep their plastic on hand solely for when they travel, instead using apps linked into the social sphere, such as WeChat Pay and AliPay, when they are spending at home. And that spending is soaring, already reaching into the trillions in dollar terms.’
• Chinese conglomerate HNA Group has decided to sell some or all of its $6.5bn stake in Hilton Worldwide. HNA is Hilton’s largest shareholder, owning more than a quarter of its common stock. HNA Group has been paring its overseas investments as it stares down about $20bn in US dollar-denominated debt due to mature in 2018 and 2019. This year, it sold stakes it acquired in Park Hotels and Hilton Grand Vacations through its Hilton Worldwide purchase. HNA is also working to float its 65% stake in Gategroup, the Swiss airline catering company, and Swissport, the aviation services group.
• The Ritz-Carlton Hotel Company is to open a resort in the Unesco-protected area of Nikko in Japan in 2020. ‘We will be working to curate a Nikko experience that truly showcases what is special about this destination while bringing to life and honouring its Unesco heritage,’ said Lisa Holladay, global brand leader for The Ritz-Carlton.
Facebook shares rose as much as 4.2% on Thursday as Mark Zuckerberg said the social network had not seen any meaningful impact on usage or ad sales following its Cambridge Analytica data scandal.
• French hotel firm Foncière des Régions (FdR) has confirmed it is in exclusive-rights discussions with Starwood Capital to a portfolio of 14 hotels under the Principal Hotel Company brand. The deal is said to be worth around £750m and ‘could be finalised by the end of the first half of 2018’.
• Blackstone is looking to takeover Spanish property group Hispania through Alzette Investment. Hispania is valued at around €1.9bn and has three-quarters of its business in hotels and tourism.
• Transport for London has warned of disruption to thousands of people ahead of four days of strikes coordinated by the RMT union coinciding with the London marathon.
• The London to Rotterdam and Amsterdam service by Eurostar has debuted, connecting the two capitals for the first time.
• Humberside Airport is set for a Balkan boost in Summer 2019 after closing a deal with Balkan Holidays. The deal will see the introduction of a second weekly service connecting to Bourgas, Bulgaria
• Virgin Holidays has partnered with Next to open 20 new concession stores across England, Scotland and N. Ireland.
• For the week 25-31 March US hotel occupancy fell 2.8% to 66.4%, ADR increased 3.6% to $130.81 and RevPAR grew 0.7% to $88.90.
• AccorHotels has acquired a 50% stake in Mantis Group for an undisclosed sum. South Africa-based Mantis manages 28 properties.
• According to Techcrunch, Alibaba is preparing to invest in ride-sharing business Grab. Grab announced last month that it had reached a deal with Uber to acquire its Southeast Asian business.
• ViaVan, a ride-sharing app, has launched in London. The service allows users to hail a shared ride but does not allow customers to book individual rides.
• Fleurets reports ‘there has been renewed interest in the leisure activity market [in Q1]’. It says ‘ten pin bowling has seen an uplift in growth of 28% since 2012; a wider audience is now targeted looking at attracting adults, not just children.’
• Rank Group yesterday updated on trading. It effectively warned on profits & its shares lost some 15.6% of their value.
• Rank reports on Q3 and year to date trading saying Q3 revenues fell 2%. The Beast from the East will not have helped. Rank says Mecca revenues were down by 2%, casinos were down 9% and digital revenue was up 17%.
• Rank says its ‘digital business continues to trade strongly.’ However, it reports its ‘UK venues businesses have been impacted by weaker than expected visits which have been compounded by two periods of cold weather.’ It says ‘Grosvenor Casinos’ underperformance has also been exacerbated by a negative contribution from its VIP players.’
• Rank concludes it is ‘cautious about the UK consumer outlook and as a result expects the Group’s UK venues to continue to be impacted for the remainder of the 2017/18 financial year and into 2018/19.’ It says ‘management now expect the Group’s full year operating profit to be in the range of £76m-£78m.’
• Per MCA, All Star Lanes appoints advisors to assess options for future growth which could include; a further fundraise, a management buyout led by CEO Christian Rose, or the sale of the company.
FINANCE & MARKETS:
• UK services PMI fell in March to 51.7 from 54.5 in February. Bad weather dampened trade. Any number above 50.0 implies growth.
• Markit says ‘the UK economy iced up in March, suffering the weakest increase in business activity since the Brexit vote amid widespread disruptions caused by some of the heaviest snowfall in years. As a result, first quarter economic growth will likely have been adversely affected. The PMI surveys collectively signal a quarterly GDP growth rate of just under 0.3%, down from 0.4% in the fourth quarter, albeit with the rate of growth sliding to just 0.15% in March alone.’
• President Trump, perhaps stung by market-pleasing stories that he had backed down in the trade war with China that he has initiated, has told officials to consider a further $100bn (£71.3bn) of tariffs against China.
• US trade deficit with the rest of the world hit a record high in February of $57.6m. Exports rose by 1.7% but the importation of services also rose.
• Sky reports China as saying it will fight to win a trade war ‘at any cost’. The Chinese Ministry of Commerce reports ‘if the US side disregards opposition from China and the international community and insists on carrying out unilateralism and trade protectionism, the Chinese side will take them on until the end at any cost.’
• Sterling weaker at $1.3993 and €1.143
• Oil down at $67.94
• UK 10yr gilt yield up 6bps at 1.42%
• World markets: UK sharply higher yesterday on Trump trade climb-down (which has now been reversed). Europe & US also higher with Asia mostly higher in Friday trade.
o All sorted, problem gone away.
PRIOR DAY LATER TWEETS:
• Later tweets: Conviviality’s shares remain ‘suspended pending further notice.’ How did this happen? From £5m ‘error’ to bust in 3wks??
• Discounts akimbo. Prezzo 2-4-1, Pizza Express up to 25% off, Harvester kid for a quid, Zizzi & ASK 30% off mains.
• Nielsen reports on significant growth in use of podcasts. Also digital wallets etc. Cash no longer king, old bastions falling etc.
• Services PMI for March in big miss. Came in at 51.7 vs est. of 54.0 & last month 54.5. May be the weather. Lowest no. since pre Brexit vote
• Donald Trump picks fight, backs down. He probably doesn’t see it that way. But the market does. Up c100pts at opening
• Big ticket plunge w. UK car registrations down 15.6% in March vs last year. Was strong month in 2016, however.
START THE DAY WITH A SONG:
Yesterday’s song was Adele’s formidable ‘Rolling In The Deep’. Finishing off the week, which band sang:
Look at the shakies, what’s with the blush?
Fresh off the plane in my fuzzy rush
Everyone’s gathered to idolize me
I hate the way you talk, your Japanese scream
RETAIL NEWS WITH NICK BUBB:
• Kantar Grocery Watch: We have been asked how Wednesday’s grocery market share figures from Kantar turned out in terms of the 4 weeks to March 25th. And the answer is that all of the “Big 4” picked up, not least Asda, although the main “Total Till” figures include Non-Food sales, which may have been boosted by calendar timing (notwithstanding the snow disruption). But Asda was up 4.2% gross on this basis, Morrisons was up 4.6%, Tesco was up 3.0% and Sainsbury was up 2.1%, whilst Aldi/Lidl combined were up 9.7%. On a pure Grocery basis, industry sales rose by 4.0% and M&S Food underperformed again, with gross sales only 1.1%, despite all the new store openings (which may explain why the M&S Food MD recently lost his job)…
• Hammerson: The embattled shopping centre giant Hammerson issued a positive Q1 trading update yesterday morning, boasting of “strong operational performance” and nudging up its NAV by 1.8% (thanks to the improved valuations for its Premium Outlets and Irish businesses), but it also admitted that it is delaying its offer documentation for Intu Properties until it hears whether the French rival Klepierre will come back with a higher bid than the 615p indicative offer which was summarily rejected last month. With Hammerson trading at 547p and Intu trailing at just 206p, the City seems to be betting that the Hammerson Intu bid is dead and that Hammerson is vulnerable to a new bid from Klepierre, but there is a lot of golf to be played in this game yet…
• Today’s Press and News: The Q1 update from the embattled shopping centre giant Hammerson gets plenty of coverage in the FT, which highlights the improved NAV news, despite the well-publicised problems of many of its tenants. Lombard column in the FT has a good summary of the pros and cons of Hammerson’s bid for Intu Properties and the rival Klepierre bid for Hammerson and concluded that “if Hammerson is to win over shareholders to its Intu deal, it could do with Klépierre following the directions given by another Midlands property owner, and part-time playwright: “Exit, pursued by a bear””. The FT also highlights the weak SMMT new car sales figures for March: sales of diesel cars fell nearly 40% year on year in March, dragging overall new vehicle sales down 16% during the most important month in the automotive calendar. In other news, the Daily Mail and City AM highlight that Sainsbury
• Trade Press: The front cover of Retail Week magazine today focuses on the collapse of Conviviality (“Conviviality: the inside story”, “How tax bills, cost-cutting and stock shortages proved a lethal cocktail for the drinks specialist”). RW also has features on Carpet Wars (“How Phil Harris has become Carpetright’s worst enemy”) and Driving Change (“Will the arrival of autonomous vehicles accelerate retail innovation?”). In terms of News stories, RW highlights the news that Bunnings’ owner Wesfarmers is scouting for potential buyers of its UK DIY chain (and has drafted in Lazards to advise it) and that Conviviality faces the threat of legal action from investors over its misleading statements. And the Editor thunders in his column about “Conviviality: the danger of a glass-half-full attitude”.
• BDO High Street Sales Tracker: John Lewis did well last week, thanks to the earlier fall of Easter, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday April 1st, flags that Fashion Store LFL sales were down 2.8% (versus a comp of +2.8% last year). Including Homewares and Lifestyle chains, however, total Store LFL sales were up by 0.5% and overall Online sales were up by 12.8% (versus +21% a year ago), with Online Fashion sales 22% up.
• News Flow This Week: The Motor dealer Motorpoint has a Q4 update this morning.
• News Flow Next Week: A busy week kicks off with the BRC-KPMG Retail Sales for March first thing on Tuesday morning, closely followed by the Card Factory finals. The big event next week is the Tesco finals on Wednesday, but the ASOS interims are also on Wednesday. Thursday brings the WH Smith interims and the Dunelm Q3 update, whilst the Mothercare Q4 is also scheduled for Thursday. There could also be developments in the Hammerson bid situation next week, ahead of the so-called “PUSU” bid deadline on April 16th for the French shopping centre giant Klepierre.