Langton Capital – 2018-07-02 – Casual Dining Group, BTC, Wagamama, World Cup etc.:
Casual Dining Group, BTC, Wagamama, World Cup etc.:
A DAY IN THE LIFE:
Well, it’s Monday but, with the sun shining and more football on the telly than you could shake a stick at, it’s not all bad news.
Indeed, I also had a stroke of luck today and, though it’s not often that I unreservedly praise Microsoft, when I inadvertently closed a Word file without saving and imagined that I had lost an hour’s work or so (and it’s like dog-years, an hour’s work between 5am and 6am is worth three hours at any other time of day), I was initially a bit distraught.
In fact, I was turning the air blue but as I dimly remembered and was then able to action the fact that MS keeps copies of unsaved documents for a short period of time, all was not lost.
Anyway, on to the news:
CASUAL DINING GROUP SWAPS DEBT FOR EQUITY:
• Casual Dining Group, owner of the Las Iguanas, Café Rouge & Bella Italia brands, has announced that it has received a new £30m cash investment
• CDG says the investment, from KKR, has the support of management & shareholders including Apollo, LLC and Pemberton, is being made to ‘fund growth opportunities’
• CDG CEO Steve Richards says ‘we are delighted to have agreed substantial new investment which establishes a strong foundation to continue to invest in our brands and take advantage of opportunities in the sector as they arise. With no external debt and strong funding, this gives Casual Dining Group a very strong financial platform’.
• CDG’s Mr Richards says ‘against a challenging backdrop, we continue to perform ahead of the market, with total sales up nearly 5% and like-for-like sales up 2.3%, in the past 14 weeks.’
• CDG says ‘we have also seen double digit profit uplift in the period. Our growth initiatives gather pace with delivery, partnership openings and our digital-first approach all driving sales. We have opened 7 new concession sites in airports and hotels since the start of the year with an active schedule of UK owned and international franchise new openings in the pipeline, building on our existing well invested estate.’
• The Sunday Times had earlier taken a more critical view saying ‘Casual Dining Group, the owner of Café Rouge, has orchestrated a debt-for-equity swap with its lenders in an attempt to slash its weighty interest bill.’
• The Sunday Times says the deal, worth an estimated £150m, will see KKR & Pemberton swap debt for equity. It says ‘the restaurant industry is struggling to cope with increased food prices and rising business rates. Prezzo, Jamie’s Italian and Carluccio’s have been forced to close stores and negotiate lower rents with landlords through an insolvency process known as a company voluntary arrangement (CVA).’
• Debt will be reduced to around 3x core earnings. Along with many others in the sector, Bella Italia and other CDG brands have been discounting in recent months in an attempt to protect the top line, albeit at the expense of margin.
• The last accounts filed by CDG at Companies’ House show turnover (for the year to May 2017) of £329m but an operating loss of some £10.8m. This was exacerbated by £43.4m of finance costs to give an overall loss before tax of £54.2m. Although CDG has been working hard at the operating level, it is thought that trading has worsened since the above date. The group had negative net worth a year ago of around £96m. It therefore had reported balance sheet equity of negative £96m alongside debts of some £478m.
• A year ago, the company said it had experienced a ‘difficult trading environment’. It said consumer confidence levels were low and that cost pressures were significant with overbuilding of casual dining outlets also a problem. This had led to ‘high levels of discounting and promotions as covers have fallen’. The group says that trading over the last 14wks has been more positive.
PUB, RESTAURANT & DRINK PRODUCERS:
• BTC Hospitality, which owns the Apostrophe, Euphorium & Soho Coffee brands, has announced that it lost some £6.4m in the year to end-January, up from a loss of £3.0m in the prior year. BTC now has negative net worth of £7.9m including accumulated losses of £6.8m.
• See earlier Langton comments for our take on how the PE and other models have led to high levels of debt, overexpansion etc.
• FT reports Wagamama is attracting interest from some of the largest PE houses in the US and Europe. It reports that the group could sell for as much as £750m. Wagamama has 130 outlets in the UK, five in the US and around 60 franchises elsewhere in the world. The FT says ‘Wagamama, whose sales grew 8 per cent last year, has also received an approach from private equity investor Eddie Truell that would value the business at about €600m, according to informed people, but it was rejected by the owners as too low.’
• CAMRA has reported that one pub a week is closing in London. There has been a 27% reduction in pub numbers since 2001. The number of pubs per head of population has been falling for over a century. City Hall said that demolition of pubs has been the most common reason for pub closures. It would, after all, be hard for them to remain open thereafter.
• Press Association reports c50k jobs have been lost (or threatened) this year to date on the High Street.
• England fans are expected to drink six million extra pints in the last 16 match against Colombia. BBPA Chief Executive Brigid Simmonds comments: ‘When it comes to watching the World Cup, only being at the game itself can compare with being in the pub. With the England team doing us proud and getting to the knockout stages of the tournament, fans will continue to pack out their local to cheer on the boys. It’s fantastic news for the Great British pub’.
• The Department of Environment, Food and Rural Affairs are considering banning the sale of plastic plates and cutlery in England. France was the first country to announce a ban on plastic plates and cutlery, though the law passed in 2016 will not come into effect until 2020.
• Co-founder of Pipers Crisps, Alex Albone, has warned about a crisps shortage following a poor UK potato crop. The Beast from the East followed by the heatwave has played havoc with potato crops.
• Frasers Hospitality UK Holdings, owner of the Malmaison and Hotel du Vin brands, reports a loss of £187k following weaker consumer spending and higher overheads, down from last year’s pre-tax profit of £7.3m. The group runs 34 hotels and employs more than 2,500 workers. The company said the industry is going through a ‘sustained period of difficult trading conditions’.
• Leeds-based Stephenson Group has invented carbon dioxide solubilisers to combat the ongoing shortage during the world cup. The solubilisers, branded as Sustain, ensure drinks retain their fizz for longer, as well as improving the taste.
• Per Met Office, the hot, dry and sunny weather is set to continue across the UK due to high pressure.
• Per MCA, founder of Gaucho Group, Zeev Godik, could acquire the company back from current owner Equistone, who bought it in 2016 for £100m. It is speculated Godik could acquire the business for between £30-50m.
• In the US, Cheesecake Factory will open its first pan-Asian fast-casual concept this autumn, called Social Monk Asian Kitchen. The first site will be located in Thousand Oaks, California. The menu ‘span across several Asian countries’ with dishes like salads, sandwiches, rice and noodle bowls, and frozen custard.
• Beyond Meat, a meat-alternative burger business, opens a second manufacturing facility in Missouri. The company made its UK debut earlier this year.
• Guinness is to open its first brewery in the US for more than 60 years following an $80m investment to replicate the success of its St James’s Gate Guinness Brewery in Dublin, which has 1.5m visitors a year.
• The producer of Corona, Constellation Brands, has missed expected earning figures, reporting a profit of $2.20 per share instead of $2.43.
• Professor and author, Chistel Lane, has stated that drink-focused venues are ‘not viable’ and operators must expand their food offer.
• JD Wetherspoon may provide provide a ‘halo’ effect for nearby pubs, bars and restaurants, a report from Market Growth Monitor has found. The survey found that within three years of opening 57.5% of the areas within a half-mile radius had increased their number of licensed premises, while only 42.6% had recorded a decline.
• A UK supermarket lettuce shortage is looming due to unusually high temperatures, according to growers. Growers say they may have to import leaves from the US to make up the shortfall at a time when more than 90% of salad leaves is usually UK grown. It said the last week a record 18 million lettuces had been sold, about 40% more than last year.
HOLIDAYS & LEISURE TRAVEL:
• The June 2018 Operator Sentiment Tracker Survey by the Association of Serviced Apartment Providers (ASAP) and Savills found that 38.5% of respondents are slightly to significantly more optimistic about business prospects in the serviced apartment industry compared to six months ago, but down from 47.7% in November 2017. The majority of respondents believe operational performance will be in line with 2017.
• AccorHotels will acquire 50% of the US lifestyle company SBE Entertainment in a deal worth $319m.
• STR data shows US hotel room demand up 2.9% for the 12 months up to April, with supply up 1.9%. Occupancy was up 1% to 66.1%, ADR increased 2.2% to $128 and RevPAR grew 3.2% to $84.
• The UNWTO reports global international tourist arrivals up 6% in the first four months of 2018 yoy. The UNWTO reported 8% growth in visitors in Asia and the Pacific, with numbers in Southeast Asia 10% higher and in South Asia up 9%.
FINANCE & MARKETS:
• British economy grew by 0.2% in Q1 says ONS in a slight upgrade since its earlier estimate of 0.1%. The ONS says ‘GDP growth was revised up slightly in the first three months of 2018, with later construction data, and significantly improved methods for measuring the sector, nudging up growth.’ Services growth is reported to have picked up in April.
• BMW says it may reduce investment & cut jobs in the US in order to avoid retaliatory tariffs. Canadian countermeasures came into force over the weekend.
• Sterling stronger at $1.3174 & €1.1308
• Oil up at $78.25
• UK 10yr gilt yield up 2bps at 1.29%
• World markets: UK & Europe higher with US also up. Far East mixed in Monday trade.
• Brexit etc.:
o Business Secretary Greg Clark has hinted that the Brexit transition period could be extended. The EU has thus far said that this would not be an option.
o CBI says Brexit may not be a “promised land” for Northern Ireland
o PM meets with Cabinet at Chequers this week. Another fudge is the most likely outcome.
START THE DAY WITH A SONG:
Friday’s song was She Bangs the Drum by Stone Roses. Today, who sang:
And nobody’s gonna go to school today,
She’s going to make them stay at home
And daddy doesn’t understand it
He always said she was as good as gold
PRIOR DAY TWEETS:
• Later tweets: Greene King down c9% post FY numbers. Plus 2.2% against WWW (wedding, weather, World Cup) deemed not enough?
• Hotstats says profit per room for UK hotels down 4.3% in May. Room revenues fell by 1.2%. WTB said similar. Too much capacity?
• GfK says UK confidence minus 9 in June vs minus 7 in May. Says sees ‘falls across all key measures’
• GfK sees ‘a more marked deterioration in our levels of optimism about the general state of the economy’.
• Waitrose considering closing stores. My, my. That marks something of a turnaround. Wonder how M&S food is doing?
• Alix Partners says restaurant supply blipped down 0.4% in last 12mths after rising more than 15% over last 5yrs.
• Centre for Cities says dependence on retail should fall, need more offices, housing etc. This will have major implications for footfall
• No football today. Repeat; no football. Choices for a sunny Friday therefore: get some work done or sit outside & talk about the World Cup
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News: There were 3 companies in focus in the Saturday papers: Arcadia, Amazon and Homebase. The news that the embattled Philip Green and his Taveta investment vehicle (which owns the struggling Arcadia) had failed in its legal bid to stop the publication of a damning report by the FRC into the collapse of BHS and the audit failure by PwC was picked up by the FT, the Guardian, the Times and the Telegraph. The news that Amazon’s acquisition of an Online pharmacy, Pillpack, sent shockwaves through the pharmacy sector on Wall Street was featured in the FT (“Amazon ramps up plan to disrupt pharmacy sector with home deliveries”) and the Daily Mail. And the news that the new owners of Homebase are looking at a CVA plan to dump 40 stores was flagged by the Telegraph and the Daily Mail.
• Saturday Press and News (2): In other news, the John Lewis Partnership profit warning featured in the FT’s review of the week and the JLP Chairman, Charlie Mayfield, was the Daily Mail’s “Zero of the Week”. The “In the Money” column about Director’s pay in the Daily Mail highlighted that Helen Connolly, the CEO of Bonmarche, got a 25% pay rise last year. And the Daily Mail had snippets about the news that Boohoo is offering its employees the chance to buy up to 7.9m shares in the company and that Morrisons is trialling a “quiet hour” on Saturday mornings in 3 stores.
• Sunday Press and News (1): After the publication of the much-awaited book about the embattled Philip Green (”Damaged Goods”) by the excellent Oliver Shah of the Sunday Times (now promoted to Business Editor), the great man himself pens a Comment column in the main section of the paper lamenting the decline of colourful characters like Philip Green (“The big bad wolves are leaving the City. We’ll miss the drama”), whilst a review of the book by Ian King in the Culture magazine flags that (although “its entertaining stuff, pacily written”) one shortcoming is that “the warmer side to Philip Green’s character” doesn’t come across. On a less happy note, the Prufrock column in the Sunday Times notes the paranoia of many business guests about being seen to appear at the book launch at Fortnum & Mason’s (given Philip Green’s network of informants) and the Mail on Sunday flags that Philip
• Sunday Press and News (2): In other news, the John Lewis Partnership got a bullish feature in the Sunday Telegraph after last week’s Strategy update (“John Lewis puts faith in partners as it faces up to the future”) , but the City Editor of the Mail on Sunday lamented after the JLP profit warning that “When the fear hits John Lewis you know it’s time to worry”. The Mail on Sunday also noted that the short interest in Marks & Spencer now amounts to £800m or as much as 17% of the shares. The Sunday Times had a snippet about the Superdry results next week, noting that it needs to provide reassurance about Retail trading, whilst the Sunday Express flagged that Sainsbury will report a small dip in Q1 sales next week.
• Tesco: Out of the blue, Tesco has grandly announced this morning a “Long-Term Strategic Alliance” with mighty Carrefour. There is no explanation of why the 2 companies have chosen each other, but it clearly goes without saying that they are the market leaders in the UK and France and think that by pooling their buying power they can extract even better terms from multinational suppliers like Unilever. The former Unilever veteran, Dave Lewis, the Tesco CEO, says: “By working together and making the most of our collective product expertise and sourcing capability, we will be able to serve our customers even better, further improving choice, quality and value”. We are not sure what the move says about Brexit…but it will certainly spur Sainsbury and Asda on to cajole the CMA into approving their merger…
• News Flow This Week: As July (and the second half of the year) gets underway, attention turns to the start of Wimbledon today, as well as all the traditional “Christmas in July” Christmas range previews. In terms of company news, Wednesday brings the Sainsbury Q1 and the Topps Tiles Q3, whilst we get the Superdry finals and the ABF (Primark) update on Thursday.