Langton Capital – 2018-04-20 – CVAs, brand perception, Deltic, Heineken, Sterling etc.:
CVAs, brand perception, Deltic, Heineken, Sterling etc.:
A DAY IN THE LIFE:
What is it with labels that won’t peel off?
I mean I get it that shops don’t want thieves moving a £20 sticker onto a £60 pair of shoes but do they really need to make labels so robust that they’re still there showing that you bought your footwear for £7.99 from a discount supermarket a year or more after you’ve bought them?
And cups and mugs are much the same.
They have a label, thankfully on the outside, that’s still there even after having been nuked in the dishwasher four and twenty times until they finally wear off or turn up baked onto the inside some of the other cup that you have to push furthest on the tray from the one that you’re going to use yourself.
Anyway, I’m going to have to cut the grass. Wish me luck but, with the sun shining and the tinkle of glasses audible from the nearest pub’s beer garden, this could easily not happen. On to the news:
A couple more in our ad hoc series of non-rhetorical questions regarding F&B and leisure in general. Today we look at CVAs. We can’t see how they will not shift the goal posts and change behaviour going forward.
QUESTIONS, QUESTIONS (12): Do CVAs reward poor performance?
• Question: Are failing companies being given an unfair advantage? CVAs involve a majority of creditors obliging all creditors to accept a scheme that will disadvantage some of them. Equity may be wiped out but businesses remain otherwise intact and, as poor trading has effectively been given a free pass, there are concerns that behaviour will be impacted going forward. Conclusion: It’s hard to see how such let-offs will not promote less cautious operators with little equity from taking more risks. Remaining (good) operators are disadvantaged.
QUESTIONS, QUESTIONS (13): CVAs for listed companies?
• Question: Could we see listed companies filing CVAs? CVAs tend to feature an equity wipe-out and a financial setback for some landlords. Staff, suppliers etc. seem to come away relatively little-changed. In PE-owned companies, the equity owners often also own the debt and, if they have little enough of he former and more of the latter, they will be cool with the deal. Conclusion: If equity ‘needs’ to be wiped out, CVAs may not be an option for many listed companies. Carpetright seems to disagree. Going forward, thinner equity could be a feature.
PUB, RESTAURANT & DRINK PRODUCERS:
• CGA and Stone & River have reported that growth currently is selective. It has looked at a number of operators and scored them based on three key metrics: changing brand awareness, customer recommendation and the difference between the number of consumers with positive and negative opinions of an operator.
• CGA says ‘Costa, JD Wetherspoon, Stonehouse Pizza & Carvery, Miller & Carter and Greggs are among the businesses with the most momentum in the out of home eating and drinking sectors at the moment’
• CGA says Costa is growing most rapidly. It already has ‘more than 2,300 coffee shops and 7,000 Costa Express self-service units’.
• CGA says on the High Street, JD Wetherspoon is ‘the leading operator’ in drinks followed by All Bar One.
• CGA reports that M&B’s Stonehouse Pizza & Carvery ‘tops the report’s list of leading pub restaurant names, ahead of Greene King’s Farmhouse Inns’
• CGA says that Greggs is the dominant quick service operator, ahead of McDonald’s. CGA says ‘staying on top of consumer habits and opinions is going to be crucial if brands are to generate momentum in this ultra-competitive market, and CGA’s data can help them do so’
• Stone & River says the industry is ‘in flux’. It says some sectors are evolving rapidly.
• Deltic Group has secured a new £20m debt facility with HSBC as part of its strategy to target new sites, other multi-site operators, and even make larger-scale acquisitions. Speaking at Peel Hunt’s Leisure Conference yesterday, CEO peter Marks said that the first round of the group’s refurbishment programme — due to complete this financial year — ‘is the big rocket fuel for’ for the bar and club operator.
• Heineken saw its global shipments rise 4.3% in the first quarter of the year, thanks in part to significant growth in Asia. Profits fell to €260m from €293m a year earlier on a reported basis. Heineken CEO Jean-François van Boxmeer said:’“Performance in the first quarter was in line with expectations, with volume growth benefiting from an earlier timing of Easter this year and a slow start last year. The Heineken brand grew by 8.1% and we saw continued growth momentum in key markets around the world. In Europe, volumes were negatively impacted by cold weather across the region. Our full year guidance remains unchanged.’
• The Restaurant Group is transforming its Chester branch of Coast to Coast into its new Firejacks concept, per MCA.
• Woodforde’s Brewery has appointed James Armitage as its commercial and marketing director. James Hughes, Woodforde’s CEO said Armitage’s appointment is a key factor for the delivery of the company’s growth plans. ‘It completes our senior team following the recent appointment of Neil Bain, who will focus on continued production of great quality award winning beer including Woodforde’s Wherry and Nelson’s Revenge, two of our most popular products. I wish them both the greatest success in their new roles and look forward to working with them.’
• Retail sales fell by 1.2% in March as the Beast from the East hit the nation. This was worse than expected due to a 7.4% decline in petrol sales as the cold snap deterred motorists from travel but was still bad news for the high street as sales excluding petrol dropped 0.5%, according to figures from the ONS.
• Pizza Hut UK will be sold to a buyout team led by its chief executive in the nest few days. Sky news has reported the deal to worth more than £100m for the 260-strong chain.
• Comparison company, Compare The Market is to invest millions of pounds into its dining out scheme that will enable customers access to cut-prices at thousands of restaurants.
• Rob Pitcher has been announced as Revolution Bar Group’s new CEO, and will join the team on the 25th June. Keith Edelman has been acting-CEO since Mark McQuater’s resignation last year, but will now take up his previous non-executive Chairman role once more.
• Hundreds of thousands of the UK’s poorest families are going without basic necessities, according to research from Citizens Advice. The survey found that 140,000 households are going without power, as they are unable to top up their prepayment meters.
HOLIDAYS & LEISURE TRAVEL:
• The resurgence in sterling should give holidaymakers more spending power when travelling abroad. The pound’s biggest year-on-year gains have been against the Turkish lira (up 27.7%) and Russian ruble (up 25.8%). However, nine of the Post Office’s ten fastest growing currencies for January-March cover long haul countries. They include the Barbados dollar with sales up 29% after the currency fell 14.7% year-on-year based on Tuesday’s exchange rates.
• Manuel Muniz, a leading academic, has warned industry leaders that growing inequality, a ‘hollowing out of the middle classes’ and ‘a loss of faith in democracy’ threatens the growth forecast for travel and tourism.
• More than a quarter of Britons would support tourist spots introducing time slots to control visitor numbers if outbound destinations were to enact similar measures, according to a YouGov poll.
• Historic cruise liner Queen Elizabeth 2 has re-launched as a floating hotel in Dubai promising ‘a unique experience capturing all that was grand about her 40 years of service’. A company spokesman said 224 of the 800 rooms were ready for business, with the remainder expected to be completed by October.
• STR data has shown that the US hotel industry saw occupancy rise 6.1% to 68.1% in the week 8-14 April. Data also showed that ADR was up 5.8% to $130.57 and RevPAR climbing 12.2% to $88.95.
• US hotel data has shown occupancy up 0.9% to 61.6% in Q1 2018. Data from STR has also indicated ADR climbing 2.5% to $127.37 and RevPAR increasing 3.5% to $78.46.
• Merlin Entertainment has announced that it has refinanced its banking facilities. The group has increase its multi-currency credit facility from £300m to £600m with a repayment date of April 2023.
FINANCE & MARKETS:
• Mark Carney has suggested that there will be a number of interest rate rises over the coming years, but he has not been drawn as to timing.
• The rate rise expected for next month is now less certain given the fall in inflation announced yesterday. Carney says ‘I don’t want to get too focused on the precise timing, it is more about the general path.’
• Bank Governor Mark Carney has said that uncertainty around Brexit has stopped what would otherwise have been a ‘surge in investment’. He says ‘unfortunately that means in the short term that the speed limit [of the UK economy] is not increasing. Productivity is not increasing, which will limit the rate at which people’s wages can pick up.’
• Sterling down at $1.4078 and €1.1406
• Oil at $73.64
• UK 10yr gilt yield up 10bps at 1.51%
• World markets: UK up yesterday with Europe mostly higher and US down. Far East mostly down in Friday trade
o Mark Carney says UK economy slipping its gears on lack of investment caused by Brexit uncertainty.
o Bloomberg suggests another red line is being abandoned re immigration. Cabinet said to be split.
o Sky quotes ‘senior MP’ as saying the final Brexit bill is ‘shrouded in uncertainty’. HMG is pointing towards £35-£39bn
PRIOR DAY LATER TWEETS:
• Later tweets: See Questions, questions in today’s email. Q: Can you tell the difference between the problem & the solution? A: Not always
• Evolution. Amazon ships globally, becomes UK’s 5th largest retailer. Prime hits 100 million, Netflix still growing etc. etc.
• Inflation slowing, rates to rise next month? Sterling saying perhaps not. Salad prices (too wet) likely to rise, however
• Debenhams. If it didn’t exist, would you build it today? Thought not. CFO leaving, full year results ‘at lower end or current range’
• Intu shares hardly down yesterday on failed bid. Hammerson maintains situation has worsened this calendar year
• Warm weather sets pub tills ringing. Will favour wet over food (& casual diners). Capacity has been going on in the latter categories
• Can’t extrapolate too far but this good weather is the first for >6mths. Last rolling 12mths has been miserable with capital M…
START THE DAY WITH A SONG:
As I am sure many of us are feeling after an evening in the sun yesterday, our song was Comfortably Numb by Pink Floyd. Today who sang:
Letting the days go by, let the water hold me down
Letting the days go by, water flowing underground
Into the blue again after the money’s gone
RETAIL NEWS WITH NICK BUBB:
Bonmarche: Given how bad the clothing market has been, the Q4 trading update from the embattled Bonmarche today could have been worse…Even so, the 11% fall in Store LFL sales is eye-catching, but Online sales were up by 31%, so that combined LFL sales were only 7% down and as discounting was much reduced the gross margin was resilient. With cost savings, the full year-profit income will be in line with expectations, which is a relief. CEO Helen Connolly says “Whilst we expect the market to remain difficult, our focus will be on continuing to improve our proposition to customers through a number of self-help initiatives, which we expect to drive further progress for the business during the new financial year”.
Steinhoff Watch: The beleaguered South African retail conglomerate Steinhoff has been on minds recently, funnily enough. That’s partly because we still can’t quite believe that running the UK side of Steinhoff (Bensons and Dreams etc) was the stepping stone for the well-respected Stuart Machin to become the new Marks & Spencer Food MD, notwithstanding his earlier career at Asda. And it’s partly because the revised Steinhoff Accounts for 2016 and 2017 still haven’t been finalised, after the recent accounting and management scandal. At any rate, angry shareholders will have a chance to vent their spleen at the Steinhoff International AGM today (at 1pm local time in Amsterdam).
Trade Press (1): The front cover of the new fortnightly Retail Week magazine today flags up a special feature on “How voice technology will transform retail”. The Editor thunders in his column that “When the retail landscape is changing so quickly and so radically, you’d expect Retail Week to change too” and says that “Online or offline? It’s not an either-or choice”. The main News story is about Tesco and the outlook for its Booker acquisition: “Tesco guns for growth”.
Trade Press (2): In Drapers magazine today, the Editor thunders in her column that “Primark and JD provide a beacon of High Street hope” (despite the concern in the sector about the high-profile CVA’s by the New Look and Select chains). In terms of News stories, Drapers focuses on the news that HSBC has withdrawn credit protection for some New Look suppliers, JD Sports is heading for the US Finish Line with record profits, Shop Direct is to close its distribution centres in Manchester and move fulfilment to the East Midlands and creditors to Select have expressed growing concern about the future of the High Street (even though the majority approved the Select CVA last week). Drapers also have a feature article about whether there will be a ripple effect of CVA’s on the High Street. And Drapers have the second of its excellent sector-by-sector “Hit or Miss” store review series, based on a
BDO High Street Sales Tracker: We flagged on Wednesday that although John Lewis did badly last week, against strong Easter comps, today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday April 15th, would look a lot worse because of BDO’s bigger Fashion weighting and the uninspiring weather. And BDO Fashion Store LFL sales were indeed down by as much as 12.1%. Including Homewares and Lifestyle chains, total Store LFL sales were down by 11.4% (versus +9.4% a year ago). But overall Online sales were up by 17.2%, with Online Fashion sales nearly 26% up.
News Flow Next Week: A quieter week doesn’t really kick off until Wednesday, when we get the Boohoo.com finals. Thursday brings the N Brown finals, the Carpetright CVA meeting, the French Connection/Toast EGM and the infamous CBI Distributive Trades survey for “April”. First thing on Friday we get the monthly GFK Consumer Confidence index, closely followed by the Travis Perkins (Wickes) Q1 update.