Langton Capital – 2019-02-13 – Heineken, Stonegate, CAKE, JDW, Intercon, M&A & other:
Heineken, Stonegate, CAKE, JDW, Intercon, M&A & other:
A DAY IN THE LIFE:
Why is it that tomato sauce, hand cream & suntan lotion are dispensed in either feeble puffs of air with a little bit of the product in the resulting fog or in massive great dollops that would either coat the hide of an elephant or give a fair-sized fish something to swim in?
Because I have a theory that ketchup salesmen want to see plates heavily smeared with uneaten tomato sauce going into the dishwasher and in much the same way the sun-screen oligarchs want to see smeary children attracting tons of sand on the beach.
Indeed, I believe that the single most effective way to increase toothpaste usage is to widen the nozzle confirming that, on many occasions, the simple solutions are perhaps the most effective.
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PUBS & RESTAURANTS:
• Heineken has reported full year numbers for 2018 saying that net revenue organic growth was 6.1% with volumes up by 4.2%.
• Heineken says that it has seen growth in all regions. Volume of the flagship Heineken brand was up by 7.7%, the best performance in over a decade
• Heineken reported net profit up 12.5% underlying at €2.4bn. CEO Jean-François van Boxmeer comments ‘in 2018 we delivered another year of superior top-line growth.’ He points out that The Heineken brand’s zero alcohol product is now available in 38 countries.
• Heineken says ‘our premium portfolio grew double digit, led by our international brands, craft & variety and cider portfolios. All regions grew and Brazil recorded a strong performance following the successful integration of our two businesses.’
• The group says ‘our strategic priorities are growth oriented with an ever-increasing emphasis on the sustainability of this growth, both socially and environmentally…Going into 2019, we expect the environment to remain uncertain and volatile. Overall, we anticipate our operating profit to grow by mid-single digit on an organic basis.’
• The Morning Advertiser reports that JDW boss Tim Martin has denied claims made by Guardian journalist Owen Jones that the group pays poverty wages. The journal quoted a group of JD Wetherspoon employees earlier this month as saying ‘wealthy, exploitative bosses like Tim Martin’ are responsible for driving down wages.’ JDW was the target of strike action last year by staff protesting against low wage levels.
• Telegraph reports ‘fears are mounting that retail tycoon Mike Ashley will gatecrash the sale of Patisserie Valerie with a fresh swoop at the eleventh hour.’ Not sure that the administrators would be fearful of such a move.
• CAKE administrators KPMG have reportedly given bidders until lunchtime today to come up with best & final offers for slices of (or all of) the company. Any purchaser of the PLC would inherit CAKE’s problems in the same way that Lloyds took over those of HSBC or Royal Bank inherited the near fatal problems within ABN Amro.
• Stonegate has stated that it intends to make more acquisitions in the year ahead. The group bought 88 sites through various acquisitions in the last six months, taking the group to nearly 800 units.
• Stonegate reported LfL sales up 4.7% with total revenue climbing 11% to £774.4m for the 53 weeks ending 30 September 2018. Stonegate says ‘our 8th year of trading remained strong with the business seeing continued year on year sales, margin & profit growth’.
• Stonegate reported a loss after exceptional costs and financing charges of £7.5m (2017: loss £24.1m). The group has accumulated losses of some £81.3m after financing costs. The group has positive net worth (balance sheet totals) of £2m.
• Accountant BDO has commented on 2018 saying that it was a rollercoaster year, that deals continued, that it saw a rise in CVAs and that it offered better trading conditions for wet-led pubs (hot weather & World Cup) than had been seen for several years.
• In 2019, BDO forecasts more pub M&A as well as more corporate action in the south-east Asian food market. BDO says ‘2019 looks to hold many challenges, agile operators with differentiated offerings that are able to deliver exceptional and memorable experiences will continue to flourish.’
• UKHospitality has welcomed the recommendation to cut planning appeal decisions by five months, Chief Executive Kate Nicholls stating: ‘This is positive news for hospitality and a major shot in the arm for the UK’s high streets. Although a few hospitality businesses are in remote locations, they are mainly in and around high streets. Slashing red tape for high street venues will help support the kind of investment needed to reverse the decline in town centres’.
• The London-based healthy fast casual brand, Farmer J has raised £1.9m of investment for expansion plans, with Imbiba being one of new investors.
• Restaurant Brands International, parent company of Burger King, tim Hortons and Popeyes louisiana Kitchen has reported system ide sales growth of 6.9% in Q4 2018.
• AB InBev has acquired the US-based consumer review website RateBeer.
• CEO of Pernod Ricard, Alexandre Ricard, announces the company will continue to dispose of brands that ‘no longer fit’, as seen in the sale of Argentine wine brand Graffigna last month. Pernod Ricard’s wine portfolio includes brands like Australia’s Jacob’s Creek, Rioja giant Campo Viejo and boutique brand Ysios, New Zealand brands Brancott Estate, Stoneleigh and Church Road, and California brand Kenwood.
• Lewis Pie and Pasty Co. partners with Coles Brewery and Distillery to produce a gin from leftover bread, to be called ‘bakery gin’.
• Leon reports vegan dishes increased to 55% of total sales between January 2018 and January 2019, with vegetarian dishes as a whole rising from 46% to 64%.
HOLIDAYS & LEISURE TRAVEL:
• Intercontinental Hotels has announced that it has expanded its ‘luxury footprint with acquisition of Six Senses Hotels Resorts Spas.’ Six Senses currently manages 16 hotels & resorts with 18 management contracts in its pipeline.
• IHG says it has paid $300m for ‘Six Senses Hotels Resorts Spas, one of the world’s leading operators of luxury hotels, resorts and spas.’ IHG CEO Keith Barr says ‘Six Senses is an outstanding brand in the top-tier of luxury and one we’ve admired for some time.’ He continues ‘Six Senses’ attractive development pipeline provides us with a platform for high quality growth. With the power of the IHG enterprise, we believe we can expand Six Senses to more than 60 properties globally over the next decade. This acquisition continues the progress we’ve made against the strategic initiatives we outlined a year ago, which included a commitment to adding new brands in the fast-growing $60 billion luxury segment.’
• Mountain Paradise, a Manchester-based tour operator, has ceased trading with future holidays being cancelled but Atol protected.
• STR reports US January hotel pipeline up 4.5% yoy to 195,580 rooms in construction. New York alone accounted for 13,986 of these rooms.
• Europe’s January hotel pipeline showed 162,372 rooms in construction, with Germany accounting for 46,498 rooms.
• A proposed European Commission law says trains will be allowed to use the Channel Tunnel for three months after Brexit in the event of a no-deal. The proposal is aimed at mitigating ‘significant impact’ of a no-deal Brexit.
• On the Beach reports all-inclusive holidays account for half of all bookings so far this year as holidaymakers tighten their belts ahead of Brexit. The company said 62% of all family bookings made during January were for all-inclusives holidays – up from 58% for the same period last year.
• ITC Travel Group reports bookings up more than 34% in the week ending 3 February, as luxury travel booms. Cruise sales were up 53% yoy.
• Luton airport reports passenger throughput up 13% yoy in January to 1.1 million.
• Travelodge opens a 58-room property near Ashford International station in Kent, taking the company to 574 hotels in total. The hotel chain says it is focusing on stops on the HS2 line, a high-speed railway that will link London, Birmingham, the East Midlands, Leeds and Manchester.
• The London Borough of Southwark is consulting on introducing a late night levy, planned to start on 1 September 2019.
• Molson Coors warns of ‘material weakness’ in its financial reporting after identifying accounting errors stemming from its $12bn acquisition of SABMiller. The news sent shares in the brewer down 9.5%.
• The Scotch Whiskey Association reports exports up nearly 8% to £4.7bn in 2018, driven by strong growth in the US, India and Mexico. SWA CEO, Karen Betts, said Scotch has ‘continued to grow despite the challenges posed by Brexit and by tensions in the global trading system’.
FINANCE & ECONOMICS:
• Sterling up vs dollar at $1.2915 but down vs Euro at €1.1391. Oil up sharply at $63.82. UK 10yr gilt yield unchanged at 1.18%. World markets all better yesterday with Far East up today. FTSE100 forecast to open up around 40pts.
• Brexit etc.:
o Bank of England governor Mark Carney has said that a no-deal Brexit would be an ‘economic shock’ for the country. He has called for a deal to be agreed. Foreign secretary Jeremy Hunt has said there is a ‘real hunger’ for a deal. It still has to be decided which deal is approved.
o BCC says UK firms have been ‘hung out to dry’ by the government as it plays politics with people’s livelihoods.
o Sky reports ministers were warned by the National Audit Office that the no-ferry ferry company that it awarded a government contract to represented a ‘high risk proposition’. Seabourne has since been stripped of its contract. Transport minister Chris Grayling has not given details of any break fee.
o FT reports that an apprehensive German government is now preparing for a no-deal Brexit.
PRIOR DAY LATER TWEETS:
• Later tweets: Discounts heavy approaching H2 Feb. Prezzo 50% off, Bella Italia 40% off, Café Rouge 2nd main for a quid, Pizza Express 25% off etc.
• Road back to full margin will be tough. Everyday low pricing a better offer. That & a decent, non-cynical, added value product.
• Little news on the sale process (if any) for Pat Val. Sports Direct will not bid. Luke Johnson and / or Risk Capital almost certainly not
• STR reports London hotel occupancy up 2.4%, ADR up 3.2% & RevPAR up 5.7% in January 2019. Others say EU visitors down, Chinese numbers up
• Brexit. Nasty Party flag-waving & shooting from hip in all directions. Need ‘more muscular army’. Incompetent Party wisely keeping schtum
START THE DAY WITH A SONG:
Yesterday’s song was Connection by Elastica. Today, who sang:
May you always do for others,
And let others do for you
May you build a ladder to the stars
And climb on every rung
RETAIL NEWS WITH NICK BUBB:
Dunelm: Back on Jan 7th, the homewares chain Dunelm flagged that today’s interims (for the 26 weeks to Dec 29th) would show stronger than expected profits growth, thanks to good c7% LFL sales growth and improved gross margins in the core business and loss-elimination in the Worldstores.com operation. And underlying PBT is said to have been up 17% to £70m in H1, although it is odd that Dunelm have absorbed a chunky £3.8m impairment charge on the Fogarty brand (as flagged in the January update) and not treated it as an exceptional write-off. The bulls looking for a profit upgrade today will be pleased to hear from CEO Nick Wilkinson that “We traded well through our key Winter Sale period and remain pleased with our performance to date”, but there is no detailed update on Q3 and, in terms of the outlook, Dunelm merely say that “We are confident in delivering market expectations (of c£116m
Waitrose Watch: Having enjoying improved trading in January, Waitrose is also going well in February so far and yesterday morning’s JLP weekly overview reported a 2.0% increase in gross ex-petrol sales (c2% up LFL) last week, in w/e Feb 9th (helped by the earlier fall of Chinese New Year). With no new store openings to speak of, LFL sales were only flat in H2, to the end of January (albeit Waitrose worked hard to improve gross margins), but the first 2 weeks of H1 have been up c3% LFL.
John Lewis Trading Watch: In contrast, John Lewis started the new financial year on a weak note because of “the snow”, but last week, w/e Feb 9th, was still disappointing, down 3.2% gross (c5.5% down on a “LFL” basis, excluding new stores like Westfield). In terms of sales mix, Fashion/Beauty sales were up by 3.0% gross, but Home sales were down 4.0% gross last week and Electricals were 7.8% down gross (which was blamed on tough comps). LFL sales were c2% down in H2 (with gross margins under a lot of pressure) and have been over 6% down over the last 2 weeks.
News Flow This Week: The provisional verdict of the CMA on the planned merger of Sainsbury and Asda is likely to be next week rather than this week, so there’s not much left in the news bank this week, although the ONS Retail Sales figures for January will be good for a laugh on Friday morning.