Langton Capital – 2018-10-25 – CAKE, C&C, Gourmet BK CVA, Carlsberg, AB InBev etc.:
CAKE, C&C, Gourmet BK CVA, Carlsberg, AB InBev etc.:A DAY IN THE LIFE: Time’s against us here again but just a moment to say that, in our opinion, not enough people consider inaction to be a positive action. Because, very often we would posit, doing nothing (watchful waiting as the medicos call it) is a better solution that riving open a body and having a dig around to see what’s inside. We don’t want to go too far with the medical analogy here as we have business in mind but, of course, you’ll get different advice if you ask 1) a doctor who is paid by the procedure or 2) a doctor who is paid by the hour. And in the corporate world, it’s much the same. You would expect a barber to say ‘yes’ if you asked him whether you needed a haircut and, with regard to corporate restructuring experts, pretty much the same incentives are at work. Talk to honest Langton is what we say. We might tell it you straight. Anyway, enough about that. On to the news: PATISSERIE HOLDINGS: • Busy day for Pat Val yesterday. • The group announced that the winding up petition against major subsidiary Stonebeach Limited was dismissed by the High Court of Justice, Business and Property Courts. • The group also disclosed to Companies’ House that Luke Johnson had been appointed a director of Stonebeach on 24 October, a day after the group announced that it had discovered accounting irregularities. • Less pleasantly, the group announced that it ‘is seeking to understand why the grant of options relating to 2015 and 2016 have not been appropriately disclosed and accounted for in its financial statements.’ • This follows suggestiions in the Press the one set of the options that CEO Paul May and CFO Chris Marsh exercised were not known about publicly. Mr May and Mr Marsh made a total profit on option share sale proceeds of £4.56m earlier this year. • There are some moves to claw this back as the numbers on which the options targets were based look to be incorrect. • Mr May and Mr Marsh also sold shares to realise some £6.4m in total when the group IPOd at 170p in 2014. The result of the investigation into whether or not the accounts were misstated at that time is not yet known. • At the time of the IPO Chairman Luke Johnson, family members and Risk Capital sold around £36m of stock in addition to which some loans to directors totalling £10.9m were repaid. • The group has paid around 9.71p in dividends since incorporation. A part of this payout may have been based on incorrect information. • Mr May and Mr Marsh retain 1m and 0.666m shares under option respectively. The group says these shares ‘remain unvested and are now considered by the company as being unlikely to become exercisable under the rules of the LTIP’. Horse, stable door, bolted etc. • The FT has pointed out ‘the latest disclosures raise new questions about the role of chairman and entrepreneur Luke Johnson. He has been head of the remuneration committee, which sets pay, since the company listed in 2014.’ • The Financial Reporting Council has told the Financial Times it was “looking into this matter carefully and will give full consideration to further action as more facts become available.” • Corporate governance issues are to the fore and Invesco is reported as saying that the group should not be responsible for the investigation into its own ‘potential incompetence’. SIXTY SECONDS – CASUAL DINERS: DEALING WITH INCREASED COSTS: How did we get here? • In an upcycle, you may put on costs, bid up in terms of rents, pay staff more, etc. • HMG also increases its burden (disabled access, bike racks, sugar levies, energy levies etc.) • It wades in with more planning costs, NMW, NLW, Business Rates costs & other • It kicks restaurants that snaffle tips from their staff & generally cements in higher costs • And if Sterling falls, energy, food & drink will also cost more So, where are we now? • F&B prices higher (perhaps 25% to 30% of sales) • Labour costs up (perhaps also 25% to 30% of sales) • Property costs up (rent, rates, service charge & repairs says 15% to 20% of sales) • Nowhere to hide & bad enough in an upswing • But, if real wages fall & confidence declines, this can be a potentially existential problem How are the players reacting? • Mitigating cost increases via efficiencies & passing some on via price would appear sensible • Discounting & attempting to beggar thy neighbour a little less so • Plan A adopted by some (freehold based and/or basically good operators) e.g. MARS, JDW • Plan B common across High St diners – Prezzo, Pizza Express, CDG brands etc. • These are often leasehold, PE-owned & unable to cope with too much financial disturbance • Failures have been concentrated here. CVAs are likely to continue PUBS & RESTAURANTS: • Regarding handling costs, outlined above. There are very few ways to cut labour costs in a service industry. We consider forward ordering and cutting hours needed to clean equipment in the kitchen as being core to any solution. If you would like to talk with us on these subjects, please drop us a line. • C&C has reported H1 numbers saying core C&C revenues grew 6.4% and operating profit was up by 4.0%. Reported numbers are skewed by the acquisition of Matthew Clark and Bibendum. • C&C says Bulmers, Magners and Tennent’s each grew revenue growth in key markets. Bulmers Revenue +4%; Volume +5%. Magners Revenue +11%; Volume +12%. Tennent’s Revenue +7%; Volume +0.1%. • C&C CEO Stephen Glancey reports ‘trading through the first six months has been strong driven by favourable summer weather and the impact of the World Cup. Encouragingly, our key brands have all delivered market share in their key markets and year on year revenue growth. In our core business, wholesale and wine also performed well with +11% revenue growth, shipping 0.56 million cases of wine a 2% increase from last year.’ • Mr Glancey concludes ‘looking ahead, we have a degree of momentum in our core business and recognise the criticality of Christmas trading for Mathew Clark and Bibendum.’ Mr Glancey says ‘C&C’s core business is in good health with a strong balance sheet and a focus on shareholder value. Management are confident in the medium term that Matthew Clark and Bibendum will each unlock significant value and opportunity for all shareholders.’ • Gourmet Burger Kitchen has announced it has completed its CVA, the agreement will see 17 of its 85 stores closing. The group reported a operating loss of £2.6m in the six months up to 31 August, with LfL sales down 10.6%. • Making an operating loss is a very bad idea indeed as interest charges and some other costs still need to be paid thereafter. A negative number so far up the P&L implies real issues with the business model or major write-offs (or both). • Grant Thornton, currently under fire regarding its role in the Patisserie Holdings debacle, is organising the CVA. • Carlsberg increases its full-year profit guidance, now expecting underlying profits to increase by 10-11% due to the boost from a hot summer and effective cost-cutting. The industry is battling rising costs of raw materials, energy and packaging as well as stagnating demand in the US and Europe. However, growth in emerging markets has been encouraging. • AB InBev has reported Q3 numbers saying ‘revenue grew by 4.5% in the quarter, with revenue per hl growth of 4.2%.’ • Total volumes were up 0.2% on the quarter. AB InBev says ‘good growth in own beer volumes achieved in Europe, Mexico and many African markets was partially offset by Brazil and Argentina. In 9M18, total volumes were up 0.3% with own beer volumes up 0.6% and non-beer volumes down 3.1%.’ • Debenhams is reportedly seeking to close 50 of its 166 stores, affecting up to 4,000 jobs. The department store is expected to announce a record £500m loss. • The Morning Advertiser claims supermarkets are selling pints for as low as 79p, making them ‘impossible’ for pubs to compete with. Licensees are expecting a tough trading period in the festive season due to this. • European Parliament votes for a complete ban on single-use plastics including plastic cutlery and plates, cotton buds, straws, drink stirrers and more. The UK will also have to incorporate the rules into national law if the ban is enacted before the end of a Brexit transition period. • Heineken stated net profits for the first nine months of 2018 were up to 1.61bn euros from 1.49bn. The group also recorded an increase of 8.7% in volume of sales to 175.3m hl. • The MCA has reported that the Casual Dining Group is trialing a new virtual restaurant Chef & Rooster. The group’s chief operating officer, James Spragg, stated the group was looking to get a ‘slice of the delivery market’. • Jollibee , the Filipino fast food chain, is set to open sites in Manchester, Liverpool and Birmingham, Big Hospitality has announced. • Research conducted by The Morning Advertiser and CGA has found that ‘a cocktail of costs’ has resulted in pubs charging several times supermarket prices for whisky measures. • Wine Australia reports overall wine exports grew 11% to AUS$2.71bn in the year to 30 September 2018, driven by Chinese demand. Conversely, exports to the US dropped in value by $38m. • Livelyhood, a five-strong pub chain, reports turnover up 29.4% to £5.9m for the year to 31 July 2018. Sarah Wall, Livelyhood founder, said ‘We look forward to continued growth with two new openings and a further refurbishment in the current year.’ HOLIDAYS & LEISURE TRAVEL: • Hilton reports Q3 net income up modestly yoy to $164m, with adjusted EBITDA up 9% to $557m. The company approved 29,200 new rooms for development during the quarter, bringing the company’s pipeline to more than 371,000 rooms, up 11% yoy. • STR reports Europe hotel occupancy down 0.7% to 80.7%, ADR up 3.6% to €123.09 and RevPAR up 2.8% to €99.38 for September 2018. • Lyft acquires Blue Vision Labs, a London-based AR start-up, for a reported $72m. Blue Vision will work with Lyft’s autonomous car division to boost its tech. • The UNWTO reports Mexico visitor numbers up 78.7% since 2012 to 39.3m, producing $21.3bn in visitor spend accounting for 8.7% of the country’s GDP. OTHER LEISURE: • Tottenham Hotspur opened their new club store yesterday, a 23,000 sq ft shop on Tottenham High Road. • Harley Davidson reports revenues up 16.8% to $1.12bn, with sales in Europe up 3%. FINANCE & ECONOMICS: • Zoopla has reported that over a third of home sellers are now cutting prices from their original figures. • Sterling down at $1.2889 and €1.129 • Oil down at $75.54 • UK 10yr gilt yield down at 1.44% • World markets down (bar UK) with US and Far East sharply lower. FTSE100 forecast to open down around 55pts. • Brexit: o Transport minister Chris Grayling says ‘UK’ should charter ships to get around tunnel delays post Brexit. Joint Customs Consultative Committee member says this is ‘another example of another high level plan devised by someone who doesn’t know how things work.’ PRIOR DAY LATER TWEETS: • Later tweets: WTB says 30% of Premier Inn pipeline is in Germany. EZH also switching attention to Continent. Great hopes but execution now key • PI is seeing ‘weaker consumer demand’. That said, business held up better and Q2 was better than Q1. Group is ‘cautious on UK • Upcoming Cap Mkts Day allows WTB to kick can down road re answers on cash return, dividend, sale & leasebacks, opco propco etc. • Times quotes source as saying CAKE shareholder{s} believe the company should not investigate its own ‘potential incompetence’. • AIM governance, Luke Johnson, auditors, executives, non-executive directors and others all coming under some pressure • CAKE says it is trying ‘to understand why the grant of options relating to 2015 and 2016 have not been appropriately disclosed’ • Whitbread at a pivotal moment. Advisors will be telling it to ‘do something drastic’. Like asking a barber if you need a haircut… START THE DAY WITH A SONG: Yesterday’s song was Unfinished Sympathy by Massive Attack. Today, who sang: All this talk of getting old, It’s getting me down my love Like a cat in a bag, waiting to drown RETAIL NEWS WITH NICK BUBB:
Debenhams: Today’s final results (for y/e August) confirm the EBITDA, pre-exceptional profit before tax and net debt figures released by the beleaguered Debenhams in their last update on 10 September, but they also confirm the weekend press story that the dividend is being axed it is now planning to close a third of its stores…In line with the bullish mood at the recent Watford store opening, the message is that the “transformation is gaining traction in volatile markets”, but that the business is “taking decisive action to strengthen its base”. The number of stores that it thinks have no future has been increased from 10 to 50 over the next 3-5 years and it has written of over £500m below the line on goodwill and lease impairment etc. It is unclear how the cost of closures will be financed, notwithstanding further cost cutting, and there is an ominous silence about the planned sale of ScS Group: As if to underline the problems of being a department store concession operator, ScS has issued a surprise trading update today (for the 12 weeks ended 20 October) and announced that it is pulling out of its 27 House of Fraser concessions by the end of January. Trading for the group as a whole is actually in line with expectations, thanks to impressive 4.5% LFL order growth in the core business, but its business in House of Fraser has slumped by no less than 52.5%…That no doubt reflects footfall weakness, as well as customer uncertainty about the wisdom of trusting House of Fraser with deposits (the concessions are not branded ScS, but operate as if they’re part of House of Fraser). That news will give the embattled Mike Ashley further food for thought, as he digests the news from Debenhams this morning… News Flow This Week: Tomorrow brings the detailed Pendragon Q3 update. |
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