Langton Capital – 2019-03-29 – PREMIUM – Fullers, Franco Manca, CAKE update, discounts, staycations etc.:
Fullers, Franco Manca, CAKE update, discounts, staycations etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I read a book the other day called So You’ve Been Publicly Shamed by Jon Ronson in which the author, who’s main topic was the current fashion for demanding apologies for anything that has offended, is offending or may at some point in the future offend you.
And very interesting it was too but, the thing that stuck with me was just how many professionals there are out there who are paid to ‘scrub’ the Internet and remove info that puts their client in a bad light.
In fact, ‘scrub’ is probably the wrong word as even the most powerful oligarchs etc (you know, the ones taking out super-injunctions all the time etc) can’t remove stuff. They just have to drown it out with positive or at least neutral information.
Hence the ‘date rape’ allegation or whatever gets relegated to page twenty of the Google search so, with that in mind, I Googled my own name and, for some reason, it was in connection with an article in that illustrious morning eye-opener, City AM.
And the headline that comes back top of the Google search is ‘City Bids Farewell to Ancient Broker’ which, since I was a dashing 40-something (at least at the time), I thought was a bit rich.
The headline, however, had nothing to do with the bit about me which was quite a pleasant article about the setting up of Langton Capital nearly ten years ago. Still, forever, the words ‘Ancient,’ ‘Broker’ and ‘Brumby’ will be linked online. On to the news:
PATISSERIE HOLDINGS STATEMENT OF AFFAIRS. THE HORROR STORY CONTINUES. 29th March 2019:
KPMG’s interim reports are in the public domain. PwC’s specific enquiry into the fraud is not. Stonebeach, CAKE’s primary trading subsidiary, has just lodged its Statement of Affairs with Companies’ House. It does not make for easy reading.
• To keep it brief, there is nothing left for shareholders and chairman Luke Johnson is not able to say what happened. Caveats. This is one subsidiary (albeit by far the largest), some of the assets may have been too conservatively priced etc but, at the end of the day, it looks like there is no value left.
• By its very nature, the administration remains a work in progress until it is completed. This has not happened yet. Bits of the Statement of Affairs are dated 22 February, bits 25 February & other statements are dated 7 March.
• Stephen Francis (now gone) signed the Statement of Truth back in February. Chairman Luke Johnson attached a note dated 7 March. Some of the information may have been superseded by the Administrators’ interim reports.
A bit of the detail:
• There is little narrative but the figures themselves are stark.
• Stated asset value is in the left-hand column, realisable value in the right. And there is a monstrous difference between the two.
• Stonebeach (the group’s primary trading subsidiary) stated in its accounts that its kitchen equipment was worth £8.3m, its leases £5.7m, its furniture £3.3m and its shop fittings £12.3m. That totals £29.6m. The Administrators have valued all of the above at zero.
• Some £9.8m of ‘prepayments’ are also included as assets. Administrators’ valuation also zero.
• There is a bargain to be had re the £5.8m of stock (value £0.8m) and there is £2.0m worth of motor vehicles going for £100k. Langton could be interested in fifty quid’s worth of the former and all of the latter.
• Most glaringly, the £24.1m ‘in the bank’ was actually £35,000.
• CAKE was valued at £400m plus prior to its suspension. The Administrators value total assets at £4.6m. They say creditors look like £8.8m implying a deficit of £4.2m.
• The possibility of a payment to shareholders looks remote.
Statement of concurrence by the Chairman:
• Chairman Luke Johnson has attached a letter, the gist of which is that he concurs (or he has no reason not to concur) with the above conclusions.
• The letter says: ‘serious irregularities were discovered in the Company’s and Group’s accounts in October / November 2018’. This much we know.
• It says ‘these resulted in the corruption of the group’s accounting record and possible significant accounting mis-statements in its past audited financial statements, including thousands of historic erroneous bookkeeping entries’.
• Note the word ‘audited’ & also the implication that the fraud went back several accounting periods. The reference to ‘thousands’ or entries suggests that maintaining the illusion may have been more than a fulltime job for one person.
• There was ‘very significant manipulation’ of the balance sheet & P&L accounts.
• Mr Johnson says that it is his understanding that the above has rendered impossible the completion of the Statement of Affairs ‘to the normal required level of disclosure & integrity’.
• Mr Johnson says he understands that those currently involved ‘are in no way claiming the Statement of Affairs truly represent accurate books of account for the entries involved.’
Where are we at?
• The Administrators will wish to wrap this up, get paid & walk away. Some creditors will get a bit of what they are owed & others will get nothing. Shareholders, sadly, will be in the latter category.
• But that is unlikely to be the end of the matter. There is plenty of time for finger-pointing.
• The criminal investigation is ongoing and various injured parties may feel the need to take legal advice.
The above brings home in no uncertain terms that there can be a big gulf between what assets are worth to a continuing business and what they may realise in a fire-sale.
• The Going Concern Principle may be an arcane piece of accounting mumbo jumbo to some, but it is critically important to understand what it might mean if things go wrong. If a company cannot continue, its assets may be worth very little.
The principle in practise:
• Most businesses do go on from accounting period to accounting period and it is only right that their assets be valued accordingly.
• But crashes do happen. CAKE was spectacular. Much more common, will be the loss-making company that simply runs out of money.
• And here the valuation principle is brutally binary. To an expanding coffee shop, all its tat is worth something but, if that coffee shop or bar company is lossmaking and it’s exhausted the patience of The Crowd, then valuations will do a 180.
• And the pasting that Grant Thornton is getting will make auditors more cautious.
• There could be some difficult conversations coming. ‘We really are a Going Concern.’ ‘Good luck but you’re loss-making, where’s your working capital coming from?’ ‘We’ll get some, honest…’
• Still getting distracted by hot topics in the news but more to come on heuristics, it’s time we did a book review, comment on CVAs (are we seeing landlord push-back) & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• Fuller’s beer disposal progressing. EGM date announced, CMA on side & certain directors to leave the company.
• Fuller’s has updated on the disposal of its beer business to Asahi saying a circular will be posted to shareholders later today. An EGM to approve the disposal will be held on 24 April.
• Fuller’s says Asahi has received CMA approval to complete the deal. The group is to delay the announcement of its FY numbers to 25 July (was 7 June) in order to finalise the disposal. The group says Simon Dodd will resign as Managing Director of The Fuller’s Beer Company and as a Director of the Company on 30 April 2019. In addition, Jonathon Swaine will resign as Managing Director of Fuller’s Inns and as a Director of the Company on 11 October 2019 and Richard Fuller will resign as Corporate Affairs Director on 31 January 2020, but will remain on the Board as a Non-executive Director.
• Discounts still much in evidence. Prezzo 40% off mains, ASK 30% off mains and Domino’s offering 35% off orders over £30.
• Telegraph reports ‘the company behind restaurant chains Franco Manca and The Real Greek is poised to start paying dividends despite the ongoing malaise in the casual dining sector.’ It says ‘Fulham Shore said both sales and profits were expected to be ahead of the previous year, steadily increasing each quarter.’
• Fulham Shore had ‘a particularly strong trading performance’ in the final few weeks of its financial year to March. The Telegraph says ‘Thursday’s optimistic trading update came as many chains continue to suffer from a so-called “casual dining crunch”.’ This has been caused by rising rents, ‘punitive’ business rates and wage inflation.
• Four strong wine-bar chain Vinoteca has appointed advisors as its looks to secure funding for its next stage of growth reports Propel. The company, which was incorporated in 2005, last reported accounts for the year to end-March 2018. The group reported at the time that retained profits fell during the year by £410k to minus £35k. Shareholders’ funds fell to £468k. The company last year closed its restaurant and bar in Beak Street, Soho. See yesterday’s comment on High Street operators.
• The rising number of staycations this summer reported under leisure travel below (with a boost to Easter too) should be good news for the country’s pubs
• Pizza Express is relaunched its Langham Place, Oxford Circus yesterday to test a new offer with more emphasis on bar space and an extended cocktail list. The company is also exploring grab-and-go options with its new pizza by-the-slice concept Za in the City.
• AlixPartners Growth Company Index names Sticks ‘n’ Sushi as the UK’s fastest-growing restaurant group, with 8 sites in the UK. Indian operator MW Eat Group came second and Oakman Inns third.
• Bessemer Investment Partners, a New York PE firm, acquires 73 Taco Bell restaurants in Texas from KorMex Foods.
• UKHospitality responds to the BMC report on alcohol and cancer, saying ‘While this study will drive some headlines in the popular press, it is entirely misguided and misleading, and we believe the BMC should and must do better. All studies agree that there is an immediate health risk from smoking, from the first puff onward, whereas studies show that this is not the case with drinking alcohol. Indeed, moderate drinking can benefit wellbeing, so to try to compare the two in this way is completely wrong.’
• Grind announces it will put the extra money raised from its crowdfunding towards an additional site should it hit £3.5m. The original campaign target was £1.35m, with money raised currently sittinng at £3.1m.
• Zonal reports turnover maintained at £54m for the year ended 30 June 2018, with a 95% yoy increase in SaaS sales revenues and operating profit down from £4m to £3.7m. The company also announced a 41% increase in R&D spend to £6.9m.
• Zonal CEO Stuart McLean said ‘This is a milestone anniversary for Zonal as we celebrate 40 years since our founder, and my father, Ralph McLean, launched the company after inventing the first hospitality EPoS system for our family hotel.’
• Lidl will roll out its damaged veg box initiative across the UK. Fruit and vegetables that aren’t in perfect condition are sold in a mixed 5kg box for £1.50.
HOLIDAYS & LEISURE TRAVEL:
• A study by travel industry digital marketing specialist Sojern claims more British holidaymakers are opting to take domestic breaks this summer instead of travelling abroad. UK holiday searches and bookings are up by a third on this time last year, according to the study.
• Airbnb announces it has checked in its 500 millionth guest. The company is set to acquire HotelTonight in a deal reported to be worth roughly $465 million. Airbnb is reportedly valued at $31bn.
• Lyft increases its IPO share price range to $70-72 per share, set to list on Friday. At $72 per share Lyft could raise more than $2.2bn at an initial valuation above $20bn. The previous price range outlined by the company was $62-68 per share. The group has settled on a valuation based on $72, valuing the firm at $24.3bn.
• Icelandic budget carrier Wow Air collapsed yesterday morning, stranding thousands of passengers. The airline struggled to attract investors and announced yesterday ‘Wow Air has ceased operation. All Wow Air flights have been cancelled.’
• For the week ending 23 March, STR reports US hotel occupancy up 0.2% to 69.6%, ADR up 0.2% to $133.65 and RevPAR up 0.4% to $93.02.
• The National Cyber Security Centre finds Huawei still poses a threat to national security, saying it could ‘only provide limited assurance that all risks to UK national security from Huawei’s involvement in the UK’s critical networks can be sufficiently mitigated long-term’.
FINANCE & ECONOMICS:
• Nationwide reports house price growth of 0.4% in the year to Feb, up from 0.1% in the year to Jan. It says ‘after almost grinding to a complete halt in January, annual house price growth remained subdued in February, with prices just 0.4% higher than the same time last year.’
• Nationwide adds ‘indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have remained broadly stable in recent months, but survey data suggests that sentiment has softened.’
• Guardian reports car manufacturers’ Brexit anxiety is now ‘at fever pitch’. Around 80% of the cars made in this country are exported, more than half of them to the EU. The SMMT says ‘the ninth month of decline for UK car production should be a wake-up call for anyone who thinks this industry, already challenged by international trade hostilities, declining markets and technological disruption, could survive a no-deal Brexit without serious damage.’
• Sterling down at $1.2069 and €1.1636. Oil up at $68.14. UK 10yr gilt yield down 3bps at 0.99%. Not good news for those calculating pension fund liabilities to 31 March. World markets better yesterday with Far East higher this morning.
• Brexit, politics etc.:
o Vote today but not clear yet whether this will be MV3 or not. Commons may be looking for something, anything that it can agree on. Even ‘Today is Friday’ would struggle in this environment.
o Odds of everything, whilst not arithmetically possible, seem to have increased. Vote may be a wish list item, no comment on the political declaration going forward.
o The BBC reports that the EU free-trade deals achieved to date are ‘incomplete’. The BBC says ‘this is despite claims from ministers that these deals have been rolled over in their entirety.’ A deal with Switzerland has been signed but the CBI has complained of the “gap between rhetoric and reality” from ministers over these deals.
o FT reports just over 70% of respondents to a poll in the paper favoured revoking the Article 50 exit process altogether. By contrast, this was only the fifth most popular option among MPs in Wednesday’s “indicative votes”.
PRIOR DAY LATER TWEETS:
• The High St. Even sexiest of chains ultimately need to make profits. That’s often when the dream comes to an end. See Premium e/m
• Fulham Shore – trading in line, good end to year, openings to be stepped up, dividend now possible, group believes will ‘continue to thrive’.
• Time Out FY. Sales up but EBITDA loss of £8.1m (vs a loss of £14.2m last year). It says this is ‘in line with expectations.’
• Mr Kalanick’s City Storage Systems has acquired FoodStars, which runs over 100 commercial kitchens across London.
• Synergy Grill manufacturer Active Food Systems awarded ‘Accredited Supplier’ status the Carbon Trust. First chargrill maker to do so.
• Nationwide: House prices +0.4% in year to end-Feb. Adds ‘measures of consumer confidence weakened around the turn of the year.’
START THE DAY WITH A SONG:
Yesterday’s song was Rasputin by Boney M. Today who sang:
When I’m drivin’ in my car, and the man come on the radio,
He’s tellin’ me more and more about some useless information
Supposed to fire my imagination
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.