Langton Capital – 2019-03-28 – PREMIUM – Fulham Shore, Time Out, Adnams, high street ‘heroes’ etc.:
Fulham Shore, Time Out, Adnams, high street ‘heroes’ etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Working from home one week in three or whatever is great but, looking out over the garden, I feel as though I can see the grass beginning to grow and that’s a problem because the lawn mower’s bust.
Again, that is, and the chance of us getting it mended as an emergency measure when just about everyone in the world who owns a lawnmower is doing the same thing, is a bit slim.
And getting someone in to cut the grass as a one-off is a bit of a longshot so I’m faced with the choice of either continuing to observe it grow or encouraging the rabbits to eat more quickly. Anyway, am rushing around a bit this morning so we’ll have to move straight on to the news:
HIGH STREET HIGH ROLLERS: A GOOD STORY CAN STILL SUCK IN MONEY: THE TRIUMPH OF HOPE OVER EXPERIENCE contd: 28th March 2019:
Even the sexiest of chains ultimately need to make a profit. And that’s often when the dream comes to an end…
• Some chains have a certain something. They suck in capital but, at the end of the day, they need to turn a profit. And many of them simply don’t. We’ve commented on the problems with nought to sixty (sites) in the past. We’ve said of several busted expansion stories that we never saw the brakelights even flicker. The smaller of them need money from friends & family and The Crowd. Rounds Three & Four can be tricky and a down-round could be fatal.
Highstreet High rollers
• In 2008 the high street experienced cheap rents, cheap money, less competition and cheaper labour.
• What’s not to like. It was the beginning of a 10yr upswing and lead to an influx of money from private equity.
• Consequently, the high street expanded rapidly, especially areas such as the ‘grab-n-go’ market.
Somewhat faded glory…
• However, the year is now 2019 and the favourable conditions mentioned above have ceased to exist. Companies face increasing costs as rents, business rates, wages and pension payments continue their ceaseless march upwards.
Our findings, a trawl through Companies’ House:
• Langton has analysed 20-plus private companies operating in the ‘grab-n-go’ market, comprising coffee shops such as Grind to burger joints like Five Guys.
• Our findings showed that all these companies made losses in 2017.
• not some of them or most of them. All of them and market conditions have now worsened and access to capital has become, with a couple of exceptions, more difficult
• Despite this, in a lot of cases, expansion has continued. The mantra seems to be ‘we’ll grow until we make a profit’. This might morph into ‘we’ll grow until someone calls us out’.
Customers have been getting more than they paid for, landlords more than they deserve…
• Combined, these 20 small companies lost £65.7m on the High Street.
• It begs the question, what is the purpose of a business if not to be profitable? These were not meant to be charities channelling value to staff, suppliers, landlords, customers etc.
• They split between overseas chains with deep pockets and / or sugar daddies in the UK – eg MOD Pizza, Five Guys, Chipotle and small companies that have often harnessed The Crowd
But this is not sustainable…
• In any event, operators such as these inflate rents wherever they go and they cause problems for more established (and often better-financed) competitors
• Like pigeons, they could fly in, poo on everything, and then fly out. Or rather drop dead (financially at least)
• As access to capital becomes more constrained, some rely on crowdfunding at eyewatering valuations.
• Tomorrow we’ll consider how this may end, what will be the early signs of failure and so on.
• More heuristics, it’s time we did a book review, comment on CVAs (are we seeing landlord push-back) & other.
FULHAM SHORE – F.Y. TRADING UPDATE:
• FUL – trading in line, openings to be stepped up, dividend being considered, group believes it will ‘continue to thrive’.
• Fulham Shore, owner of the Franco Manca & Real Greek chains of restaurants, has updated on trading saying ‘we expect to report that both revenue and headline EBITDA will be ahead of last year’s figures and in line with market expectations.’
• FUL says ‘the growth has been driven by increasing customer numbers in our existing restaurants and new restaurant openings.’
• Both Franco Manca & The Real Greek ‘have steadily increased their turnover each quarter of this financial year, both in total revenue, and in comparison to the previous year. This culminated in a particularly strong trading performance towards the end of the financial year.’
• FUL says that a short period of cannabilisation as the group opened more sites nearer to each other in London ‘has now ended.’ This is encouraging regarding the potential for further sites.
• FUL says ‘as a result, many of the early sites are now achieving growth again, reflecting the underlying quality and value of the Franco Manca customer proposition.’
• The company adds ‘The Real Greek continues to trade well, especially in warmer, sunny weather due to the availability of outside seating.’ Summer comps could be tough if the UK reverts to the mean in terms of weather.
• FUL says ‘we are ending the financial year with 61 restaurants, comprising 44 Franco Manca in the UK, 1 Franco Manca in Italy and 16 The Real Greek. We opened four new Franco Manca in the financial year ending 31 March 2019. Two of these pizzeria are outside London, in Bath and Cambridge, with the third just off the Aldwych in London and the fourth, opening last week, opposite the steps of St Paul’s Cathedral and the London Stock Exchange.’
• FUL says it is considering paying a dividend.
• Regarding current trading, FUL says ‘one new Franco Manca restaurant is currently being built in Greenwich, and this will open early in the new financial year. We have signed a site for a Franco Manca pizzeria in Edinburgh and are in legal negotiations on other restaurant leases across the UK. These will be for openings targeted in the summer or autumn of 2019. The Real Greek is also negotiating for a number of new sites around the UK.’
• FUL is to increase the rate of openings saying ‘assuming our customer numbers continue to grow and trading continues to be robust, we plan to open an increased number of restaurants across both brands in the financial year ending March 2020.This increased opening schedule will be financed primarily by internally generated cash flow. We will continue to monitor Brexit through April 2019 as it occurs.’
• The group concludes re FM & TRG that ‘both businesses continue to trade well and in-line with the Board’s expectations and we remain confident that the Group will continue to thrive over the coming years.’
GENERAL NEWS – PUBS & RESTAURANTS:
• Time Out has reported FY numbers for the year to 31 December 2018 saying that revenues grew by 10% to £48.8m
• Time Out says its Market sales grew 51% to £9.0m ‘with Time Out Market Lisbon delivering strong EBITDA in the period of £4.3m, up 95% year-on-year (2017: £2.2m)’.
• Time Out is reporting an EBITDA loss of £8.1m (vs a loss of £14.2m last year). It says this is ‘in line with expectations.’
• Time Out had net debt of £4.8m at its year end. CEO Julio Bruno says ‘Time Out has achieved a number of key milestones in the last twelve months.’ Mr Bruno says in light of the progress made in 2018, we are confident in the outlook for the Group in the year ahead. 2019 will be a transformative year as Time Out opens its doors to five new markets in Miami, New York, Boston, Chicago and Montréal. By the end of the year, Time Out will have markets totalling 185,000 sq ft with almost 4,000 seats and offering food from 120 of some of the best chefs in these cities.’
• Adnams has reported FY numbers saying ‘2018 was a year of considerable change for Adnams.’ The group had ‘its first full year of trading at the transformed Swan Hotel and the first year of operation of our expanded brewery.’
• Adnams reports turnover up 5.6% at £78.9 million with beer volumes up by 2.2%. Operating profit was £1.6m vs £2.2m the year before. In addition, there were a number of one-off costs ‘notably the cost of outsourcing the filling of casks for a few months whilst we installed our dealcoholisation plant, and a new cask robot.’ H2 was ahead of last year whilst H1 was behind. Reported PBT was a loss of £181k vs a profit of £2.1m last year.
• As regards the outlook, Adnams says there is ‘an uneasiness as to how the future will look.’ It says planning has been difficult but states ‘our business is well-invested including state of the art systems. We have ensured that quality is at the heart of what we do and that we can communicate that message to our customers. We are well placed for the future, uncertain as it may be.’
• Rowan Gormley, boss of Majestic Wine, said the ‘radical’ decision to sell its UK retail arm gives the business many more options. Majestic is rebranding as Naked Wines and will concentrate on its growing online wine subscription service going forwards.
• Co-founder of Uber Travis Kalanick has bought a London-based kitchen rental start-up in a move that could see him expand his portfolio of ‘dark kitchens’ for delivery apps in the UK.
• Mr Kalanick’s City Storage Systems has acquired FoodStars, which runs over 100 commercial kitchens across London. The company operates as Cloud Kitchens in the US, where it competes with Uber Eats.
• Synergy Grill manufacturer Active Food Systems has been awarded ‘Accredited Supplier’ status by the Carbon Trust, making it the first commercial chargrill maker to do so.
• The Synergy Grill has been assessed using criteria designed to examine a proven track record of delivering energy efficient and renewable energy-using systems. Synergy commercial and marketing director Richard Ebbs says ‘energy efficiency and sustainability issues are at the very core of Synergy Grill technology and were hugely influential factors during the design process. We are thrilled that Active Food Systems have been accredited by the Carbon Trust to carry out the install of energy efficient grill solutions such as our Synergy Grill; especially as we are the only chargrill manufacturer to be listed on the Green Business Directory.’
• The Synergy Grill uses patented burner technology that uses on average 59% less gas than other grills. There is less residue, no fat tray to clean and no danger of putting fat down the drain and causing environmental damage such as sewage blockages and fatbergs.
• The Food & Drink Federation has written to MPs telling them that leaving the EU without a deal will reduce food choice for shoppers and increase prices.
• Moody’s has said that McDonald’s Corporation’s announcement that it is to acquire Dynamic Yield, which provides personalization and decision logic technology, for c$300 million is credit positive as it will ‘further strengthen McDonald’s ability to enhance the consumer experience, particularly at the drive-thru where in general 60%-70% of sales occur for a typical quick service restaurant.’
• Moody’s says ‘the acquisition also fits with McDonald’s greater use and integration of various technologies to date through its Experience of the Future.’
• The MCA & HIM have reported that ‘healthier eating is a trend that is showing no sign of slowing. The data indicates that 73% of consumers do at least 1-2 hours of exercise a week with 47% of consumers trying to reduce their fat intake. Some 30% are looking to cut down on sugar.
• The HIM Healthy Snacking Report 2018 suggests that 49% of consumers make sure that every meal they eat contains fruit or vegetables and 45% are actively trying to improve their health through their diets.
• The joint report suggests that ‘consumers and operators are starting to take responsible consumption seriously. The MCA Menu & Food Trends Report 2018 shows decreasing beef consumption, growing interest in vegetarian and vegan diets, falling alcohol consumption [and a] rising demand for local produce.’
• Healthy eating itself is hard to pin down. The MCA says ‘the concept of healthier eating is very subjective and the quicker operators embrace that, the more growth opportunities they will see. Operators need to understand the demands of their consumers and ensure that their offering suits those needs.’
• Curious Restaurants has reported full year numbers to end-June to Companies House. The company, which is building its estate, saw retained losses increase from £657k to £752k.
• The government announces typical council tax bills in England will rise by 4.7% in April, with the levy on average B and D property increasing by £78 to £1,750. The government said this increase is in part due to the cost of policing and adult social care.
• In the US, McDonald’s announces that it will stop lobbying against minimum wage increases. The company said ‘We believe increases should be phased in and that all industries should be treated the same way’. Earlier this year the Democrats introduced the Raise the Wage Act, which proposes to increase the federal minimum wage from $7.25 an hour to $15 an hour by 2024.
• CWT reports total travel management transaction volume up 6.1% to $25bn in 2018, with revenue up 4.8% to $1.5bn. Meetings & Events revenue increased 4.2% and Hotel distribution business RoomIt saw revenues up 12.8%.
• Research from the University of Toledo and North Carolina shows living in close proximity to a craft brewery could help push up the asking price of your property.
• Newcastle’s Shields Road has been named the country’s worst shopping destination for a second time, with the area seeing 19% of its shops closing.
• UK Hospitality has reported that ‘encouraging dialogue between customers and businesses is the most effective way of tackling allergen-related issues,’.
HOLIDAYS & LEISURE TRAVEL:
• Senior travel industry figures say a short delay to Brexit would be a ‘disaster’ for the summer peak travel period. Martin Alcock, owner and director at The Travel Trade Consultancy, said ‘A two-month delay is a disaster. A 10-month delay probably just kicks the can down the road, but it would save the summer season.’
• Starwood Capital puts three of its De Vere properties up for sale at a price of £60m. The sites are Horwood Estate, Staverton Estate and Cranage Estate.
• The Advantage Travel Partnership has posted Brexit advice for members with a digital campaign called ‘Don’t let Brexit delay your exit!’.
• The Seasonal Business in Travel coalition claims the lack of progress on Brexit has left ski operators ‘in complete limbo’. Spokesperson Diane Palumbo said ‘In October, people were still booking for the April school holidays, but even then bookings were dribbling in for March 30…Then in mid-December, when Theresa May delayed the vote on her Brexit deal, these bookings stopped altogether.’
• Alan Cross, trade sales boss at Jet2holidays, said Jet2.com had no plans to acquire Thomas Cook Airlines, and had no current plans to start flying from other London airports after launching routes from Stansted in 2017.
• Widespread concerns in the Press that Goals Soccer will struggle to settle its newly-discovered £12m debt to HM Treasuary for unpaid tax. The company has suspended its shares, is in discussions with its bankers and may perhaps find it difficult to persuade either bankers or shareholders to put up cash that will immediately be paid in tax. The mis-declaration of tax is said to stretch back several years.
• Spotify acquires small podcasting studio Parcast as part of its commitment to invest up to $500m into its new podcasting business. Parcast is best known for its true-crime and other factual serials in genres like mystery, science fiction, and history.
FINANCE & ECONOMICS:
• The EY Item Club suggests that house prices this year could stagnate or ‘even fall slightly’. It says ‘if the UK ultimately leaves the EU without an approved Brexit deal, house prices could fall by around 5% in 2019 amid heightened uncertainty and weakened economic activity’.
• The US trade deficit narrowed in January as a result of good auto sales and the sale of soybeans to China. The US was $51.1bn in the red in the month.
• Sterling up a fraction at $1.3195 and €1.1721. Oil down at $67.64 and UK 10yr gilt yield up 1bp at 1.02%. World markets lower yesterday with Far East down in Thursday trade.
• Brexit & politics:
o Mrs May has told her party to back me and sack me. She will quit if her Brexit deal is approved by the Commons.
o Donald Tusk has said that remainers in the UK must not be ‘betrayed’ by either their own government or by the EU.
o Mr Tusk says ‘you cannot betray the six million people who signed a petition to revoke Article 50, the one million people who marched for a people’s vote, or the increasing majority of people who want to remain in the European Union.’
o Efforts to pus Mrs May’s deal through the House of Commons to continue, Bridge-over-the-River-Kwai-like, as MPs vote against 8 alternative plans.
o Speaker Bercow has warned HMG that the bill must be ‘substantially’ changed from the one that has failed twice already. Bercow said ‘I do expect the government to meet the test of change. They should not seek to circumvent my ruling.’
o Seven speakers of the House have been executed over the centuries.
o The BCC says that MP’s need to stop ‘chasing rainbows’ when it comes to Brexit. Business is focusing on minimising the damage.
PRIOR DAY LATER TWEETS:
• IPO share price performance (typically poor). Why is it ‘different this time?’ It rarely is. Triumph of hope over experience? See Premium e/m
• IPOs. Are holders selling? Have they held for a short period? Are they only selling ‘to help buyers / staff / the market? Really…?
• Demotions. Why are they so hard? Is it because people are promoted to their highest level of incompetence in the first place? See Premium e/m
• Goals Soccer updates on ‘significant’ accounting errors. Shares suspended on AIM. In talks with bankers etc. Current trading OK but…
• Indicative votes to commence today. More Qs than As. Will they be free votes? What order will they come in, will HMG listen etc…
• Langton Premium Email. All the news, all the views for less than the price of a couple of coffees a week. Drop us a line to join in
• Betting on the next PM. Michael Gove 5:2, Boris Boris 5:1, David Liddington & Jeremy Hunt 7:1.
START THE DAY WITH A SONG:
Yesterday’s song was Mull of Kintyre by Paul McCartney & WINGS. Today, who sang:
He ruled the Russian land and never mind the czar,
But the cassock he danced really wunderbar
TOPICS FOR CONSIDERATION IN PREMIUM EMAIL:
• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employemnt levels (& costs) etc.
• Occasional ‘deep dives’ into stocks (Pat Val, RTN etc.), trends etc.
• Book reviews. Black Swans, The Honest Truth about Dishonesty, Dark Pools, Lean Start Up, Smartest Guys in the Room, Client Nine, Black Edge, The Billionaire’s Apprentice, Thinking Fast & Slow, Wizard of Lies & many others.
• Accountancy, Audit & other, thrill-a-minute topics
• Behavioural economics. Over-confidence, Hofstadter’s Law, confirmatory bias etc.
• Other. Guest contributions, From the Archive etc.
RETAIL NEWS WITH NICK BUBB:
Mr Bubb is taking a well-deserved break.