Langton Capital – 2019-04-09 – PREMIUM – Casual Dining Group, RTN, costs, City Pub Co, Comptoir etc.:
Casual Dining Group, RTN, costs, City Pub Co, Comptoir etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Bit busy this morning so let’s move straight on to the news:
RECENT COMPANIES HOUSE REPORT & ACCOUNTS: Numbers from Casual Dining Group (Casual Dining Bidco) 9th April 2019:
• Casual Dining Bidco has lodged full year numbers to 27 May 2018 (just over a month late) with Companies’ House. The group had 276 restaurants as at May 2018. The group has accumulated over half a billion pounds’ worth of losses in recent years.
The (relatively) Good:
• CDG says it ‘has continued to operate in a challenging external environment and against a backdrop of tough conditions has outperformed the broader market.’
• CDG says the group ‘has disposed of a limited number of unprofitable sites during the year to 27 May 2018. New franchising agreements have been signed and sites are now open in UK and Europe.’
• Revenues have slipped by 0.5% to £327.4m.
• The loss before tax rose to £42.5m (from £35.6m in 2017).
• ‘Management adjusted’ EBITDA (stripped of one off costs) was £25.9m (positive) against a positive £29.9m last year.
And the Ugly:
• CDG says ‘for a period of time the Group had been working with its existing lenders and shareholders to rebalance its capital and debt structure to ensure it has the appropriate liquidity and funding platform for its needs.’
• The group has decided to write off £209.6m of goodwill. This raises the reported loss to just under a quarter of a billion pounds (£242.2m).
• At the May 2018 year end date, the group had accumulated losses of £563.9m and negative shareholders’ funds of £236.8m.
• It’s safe to say that, when the shareholders that recently exited to KKR bought the company, they did not intend to lose a cumulative half billion pounds plus in the next few years
Refinancing post year end:
• CDG says that ‘£30m [of] new cash has been received.’ The group adds ‘the capital injection and refinancing provides a long-term capital structure for the group, strengthens the balance sheet, and positions COG for growth.’
• Post year end, term debt fell from £163.9m to £87.4m with a £25m Revolving Credit Facility remaining in place
• CDG mentions headwinds (NMW, business rates, rent increases, extreme weather) etc.
• It says: ‘as a result of the challenging market conditions the Group has used FY18 to position itself for success in the new financial year.’ But there is no comment on current trading.
• The refinancing post year end saw loan interest capitalised and inter-company loans ‘were released’ (presumably written off).
• The group was then sold to KKR, its principle lender, at which time, more debt was swapped for equity. We don’t have sight of a current balance sheet.
RESTAURANT GROUP PUTS 44 SITES UP FOR SALE: In line with stated company policy. 9th April 2019:
• 44 units ‘for sale’ via Savills. Some shut, others partially stripped of their fixtures. Reverse premia may be available. A step in the right direction. Some units ‘may split’. Could open the door for Gregg’s, Costa & other ‘smaller-footage’ units to move in.
Restaurant Group aims to exit 44 sites:
• Whilst the units are ‘for sale’, Savills says ‘the majority of the units are available without premiums’ and says ‘incentives’ will be selectively available.
• The sites include one freehold and one long leasehold. The rest are leases.
• Rents vary mostly between £60k and £160k. Most expire in the 2030s, some in the 2040s. The majority have break-clauses between 2yrs and 15yrs out.
A case in point:
• The next best use of a restaurant is a restaurant.
• This is what it is – but it doesn’t make it easy for capacity to come out of the market.
• The site in York (Coney Street) was an indie pizza restaurant & a Café Rouge before becoming a Joe’s Kitchen in 2016.
• RTN at that point signed a 15yr lease with a 15yr break at £154k, upward only.
• The group, under new management, is now looking to exit a 25yr commitment before the end of year three.
• More heuristics, it’s time we did a book review, comment on CVAs (are we seeing landlord push-back) & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• The losses accumulated by Casual Dining Group (see Premium Email) and a number of other companies suggest that there may be some sort of structural imbalance. Not new news but somebody, landlords, customers, suppliers or staff, has been taking more out of the industry than they have been putting in. Shareholders, on the other hand, have been putting more into the pot.
• Spotting a problem is a step in the right direction but it’s hardly a solution. Generating more profits from a restaurant usually entails a mix of putting prices up, cutting costs or increasing footfall – and there are problems with enacting each of those solutions.
• Perhaps getting out of surplus sites is the answer. But the best, second best, third best use of a restaurant site is often still to use it as a restaurant, so it’s hard to see capacity actually coming out.
• Savills reports it has ‘been instructed by The Restaurant Group plc to handle the sale of 44 restaurants which have been highlighted for disposal and are available for immediate sale.’
• The units, ‘which are located throughout England, Scotland and Wales are being offered for sale individually.’ A number are closed, some have had fixtures & equipment removed. Savills reports ‘the majority of the units are available without premium’ and adds ‘incentives are available in certain instances.’ See Premium Email for more detail.
• Cutting costs: a bit of a challenge? The latest CGA Prestige report on food prices says that its index has hit an all-time high of 9.8%. It says ‘after tracking at above-average levels since May 2018, the Foodservice Price Index from CGA and Prestige Purchasing has reached the highest point of year on year inflation since its inception.’
• CGA Prestige points to fish prices and increases in the price of fruit as impacting its balance of products. It expects fruit prices to ease & says that dairy prices are currently falling.
• Prestige Purchasing CEO Shaun Allen says ‘food prices in the sector have been consistently tracking at higher levels for nearly a year, and the latest inflation level of almost 10% this month reflects the extent of how much the supply markets have been impacted compared to the same period last year. However the outlook on inflation is looking more positive for operators, as the Foodservice Price Index has fallen slightly over the past two months, indicating that inflation in the sector looks to have peaked and is forecast to drop back over the coming months.’
• CGA says ‘the challenge of inflation in the foodservice sector intensified yet again this month, with prices of important items like fish and fruit running at high levels. Combined with Brexit-related economic uncertainty, patchy consumer confidence and various supply issues, it is making forecasting extremely difficult for operators across the industry.’
• Putting prices up: how’s that going? Beefeater 33% off food or kids eat free. Prezzo 2-4-1. Bella Italia 30% off mains, Café Rouge & Pizza Express 25% off.
• Sizzling Pub Co (M&B) offering 40% off in selected pubs. It says ‘take your pick from our sizzling selection of great tasting dishes, and with such great savings, there’s no excuse not to treat yourself.’
• Barclaycard has reported on consumer spending in March saying that it rose by 3.1%, largely on the back of warmer weather.
• Barclaycard says ‘non-essential expenditure grew 3.4 per cent year-on-year, however these figures are compared with March 2018 when the ‘Beast from the East’ significantly impacted spending.’
• Barclaycard reports supermarket spending down 0.5%. It says ‘amidst ongoing political and economic uncertainty, confidence in the UK economy has fallen to its lowest level since 2014.’ This is likely to impact spending going forward.
• Barclaycard, where numbers are inflated by the increased use of contactless cards, reports ‘pubs and restaurants helped non-essential spending see strong growth this March, recording uplifts of 15.1 per cent and 12.1 per cent respectively, as Brits made the most of the opportunity to relax and dine out.’
• Whilst the feeling is that March was indeed a good month, it doesn’t really feel quite that buoyant on the ground.
• Barclaycard says ‘almost half of Brits (46 per cent) are worried that their quality of life will decline due to Brexit.’ The card provider reports ‘underlying sentiment is cautious. March was characterised by ongoing uncertainty around Brexit, with consumers concerned about an impact on food prices and supplies. In light of this, consumer confidence in the UK economy is the lowest it’s been since we began recording this data.’
• The City Pub Group has this morning released full year numbers to end-Dec saying that revenues rose 22% to £45.7m with LfL growth of 1.6%.
• City Pub Group reports adjusted EBITDA up 28% at £7.9m with adjusted PBT of £5.1m, up 60% on last year. Diluted EPS is 3.05p, up from a loss per share of 2.45p last year.
• City Pub Group opened 11 pubs during the year and should have ‘an estate of 65-70 pubs by mid-2021.’
• City Pub Group chairman Clive Watson says ‘our strategic expansion has continued at pace with the opening of eleven new pubs in 2018 bringing the total to 44. Our performance has been driven by both organic growth and the new pubs coming on stream. Considering the continued strong performance, we are delighted to increase our dividend, by 22% for shareholders.’
• City Pub Group continues to ‘seek new sites to add to our portfolio and we have already earmarked six new pub openings for this year.’ It says ‘we believe the combination of further acquisitions, fine tuning the management of our existing estate and the benefits of our new divisional structure will enhance our performance further.’
• The group concludes ‘we are positioned to meet the number of well-trailed headwinds, not least the challenges brought through Brexit, and to take advantage of the softening market for acquisitions with our robust balance sheet and strong cash generation.’
• Comptoir Group has reported full year numbers to end-Dec 2018 saying that revenues rose by 16.1% to £34.3m with a loss before tax of £210k (2017: profit £460k).
• Comptoir reports adjusted EBITDA of £2.1m versus £1.1m last year with a loss per share of 0.26p (versus a profit per share last year of 0.39p). CEO Chaker Hanna reports ‘trading for the year to date has continued to be in line with Board expectations, and we anticipate this momentum will continue into the second quarter of 2019.’
• Compoir says ‘like for like sales growth has continued each month as newer restaurants reach anticipated maturity levels and the Company is continuing to take a cautious approach to selecting new site openings, enabling focus on the existing estate and further development of the brand whilst ensuring the most efficient operating model is maintained.’
• Comptoir will ‘continue to explore further franchise opportunities, alongside the already agreed terms reported at the half-year results to open three additional franchised sites with HMS Host in the second half of 2019; in Ashford (Kent) and our second and third international franchised operations in Dubai and Abu Dhabi Airports.’
• Brew Dog is looking to raise up to another £50m from The Crowd. It says ‘every single person who invests any amount in Equity for Punks will get the opportunity to win an additional £1m worth of shares!’
• Brew Dog says ‘no application has been made, nor is intended to be made at this time, for any shares (including the New B Shares) in the capital of the Company to be dealt in or listed on any stock exchange or market.’ The issue will be of B shares & these will rank pari passu with B shares already issue.
• Brew Dog points out that it has already raised £67m to date from 97,000 investors. It says the new money will fund the hotel (The Doghouse), new breweries, bars & products. There are 89 pages of distinctly un-punk small print.
• Brew Dog says it will spend up to £16m on 5 new bars in in France, Germany, Italy & Spain. It will put money into its hotel, will spend £9m on a Brewery & Craft Beer Museum in London, will increase capacity in Ellon (£8m) and spend £12m on bars in Asia & events spaces in the US.
• Punch acquires four pubs from Mitchell’s of Lancaster, with CEO Clive Chesser saying ‘Punch is investing approximately £30m in its pubs this year and is progressing well on a three year plan to invest £80m in its estate’.
• Owner of Chuck E. Cheese’s and Peter Piper Pizza, CEC Entertainment, will merge with Leo Holdings with a view to IPO later this year. The new company will be called Chuck E. Cheese Brands and will list on the New York Stock Exchange with an enterprise value of $1.4bn.
• Chinese distiller Kweichow Moutai reports Q1 profits above market expectations, with net profit up 30% yoy. Shares in Moutai increased by as much as 4.9% on the news.
• Contract caterer Wilson Vale has increased revenue by 11% in 2018 to just below £34m. The group reported that costs increased 10% over the same period but profits managed to grow. Co-founder Andrew Wilson said: ‘It’s good to report that our continued investment in our management structure and resources have resulted in a positive set of numbers for 2018’.
• Diageo potentially has to pay up £278m in back tax due to the EU finding that a tax scheme introduced in 2012 by the then Chancellor of the Exchequer George Osborne was providing an unfair advantage to multination companies. Diageo responded to the news: ‘We operate in accordance with UK law and are transparent about our maximum potential liability. We await the detailed decision [from the EU] and the UK government’s response in order to assess what it means for us’.
• Cider and perry on-trade has been valued at £1.94bn, representing a 4% increase on a moving annual total.
• US restaurant industry sales are expected to reach a record high of $863bn in 2019, up 3.6% on last year, a report from the National Restaurant Association has found. Hudson Riehle, the Nation’s Restaurant Association’s senior vice president of the research and knowledge group said: ‘That’s a solid growth rate and definitely better than many other industries. But the growth rate over the past decade drops to the high -4% range. So that is the environment going forward for the industry’.
• International food services and facilities management group Sodexo has bought the live-in care specialist The Good Care Group. Sarosh Mistry, CEO Sodexo Home Care Worldwide, said: ‘Both Sodexo and The Good Care Group share a common mission to help our consumers age in their homes as independently and comfortably as possible’.
HOLIDAYS & LEISURE TRAVEL:
• Minoan Group reports pre-tax losses up almost £0.5m to £3m for the year to October 2018. The company said the deficit primarily reflected the net loss on the sale of Stewart Travel of £1.6 million. The sale was completed after ‘costly delays’ as a result of aborted negotiations with two private equity counterparties.
• Luton airport expects more than 210,000 travellers over the Easter weekend, with popular destinations including Warsaw and Barcelona.
• The state of emergency in Tunisia has been extended for a further month, with the FCO saying ‘Since the terrorist attack in Sousse in June 2015, which targeted tourists, the UK government has been working closely with the Tunisian authorities to investigate the attack and the wider threat from terrorist groups.’
• Marriott International plans to expand its Middle East and Africa Portfolio by 19 properties this year, with over 100 properties in development.
• Corus Hotels will rebrand its Chace hotel in Coventry into a Laura Ashley Hotel featuring a Tea Room.
• Boeing announces it will cut the production of the 737 Max from 52 to 42 per month as investigations continue into the recent crashes.
• BDO reports UK hotels will defy Brexit uncertainty as an extra 1m foreign travellers will visit Britain this year. The report shows 2018 occupancy rose 1.8% to 78.8%, ADR down 0.8% to £99.82 and overall UK rooms yield up 1.1% to £78.64.
• Stride Gaming has updated on current trading saying ‘the Board expects to report NGR for the six month period ended 28 February 2019 approximately 5% lower than expected, reflecting greater disruption arising from fiscal and regulatory changes implemented in the second half of calendar year 2018.’
• Crown Resorts announces Wynn Resorts has approached the company with a takeover offer worth A$10bn, sending shares up a fifth. Analysts said the proposed deal was hard to justify given the problems Wynn was confronting in the US.
FINANCE & ECONOMICS:
• BDO reports that business confidence has slumped to its lowest point since 2012. It says the economy is only ‘growing’ because of stockpiling. BDO says ‘with optimism at levels last seen when we just avoided double-dip recession in 2012, UK businesses expect a zero-growth economy as the backdrop to their plans. This matters, because worried businesses don’t hire or invest, creating the conditions for a marked downturn.’
• The US is reportedly considering imposing tariffs on c$11bn worth of goods from the EU in response to subsidies that support Airbus. A preliminary list of goods to be taxed includes a wide range of items, from helicopters to wine.
• Sterling mixed but little changed at $1.3076 & €1.1605. Oil at new 2017 highs of $71.16. UK 10yr gilt yield down 1bp at 1.11%. World markets mixed. UK up yesterday but Europe & US down. Far East up in Tuesday trade.
• Brexit, politics etc.:
o Parliament has now given itself the right to scrutinise and even change Mrs May’s request for a Brexit extension to 30 June.
o Jaguar Land Rover is to go ahead with a shut down for a week because of uncertainties around Brexit.
o FT suggests ‘the Tories are the party of Brexit.’ It says a long delay is likely to be offered. Mrs May is currently pushing in Paris & Berlin for support for a shorter delay.
o FT suggests that, if a longer delay is agreed, Brexit will sit there ‘the political equivalent of Chernobyl.’ Basically a toxic lump that will need to be dealt with at some time.
o Guardian reports M Barnier says the EU would refuse trade talks with the UK unless the Irish backstop was addressed.
START THE DAY WITH A SONG:
Yesterday’s song was What’s my age again? by Blink 182. Today, who sang:
I rise as the morning comes,
Crawling through the blinds
I shouldn’t be up at this time
TOPICS FOR CONSIDERATION IN PREMIUM EMAIL:
• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employment 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:
• Debenhams: The continuing “war of words” between Debenhams and Sports Direct saw two official announcements from the latter yesterday, one at 7am confirming the weekend press reports that it had offered to underwrite a £150m rights issue (with strings attached) and another at 3.09pm to say that although their offer had been rejected by Debenhams they reserved the right to press on with the mooted 5p a share bid (compared to last night’s close of 1.8p, capitalising the business at just £22m…). From Debenhams there was an ominous silence, however, although today is widely expected to see the company pursue a pre-pack administration that will see the equity shareholders like #MadMike wiped out…
• BRC-KPMG Retail Sales for March (the 5 weeks to March 30th): We flagged yesterday that the BRC-KPMG figures were likely to be significantly depressed by the later fall of Easter, but the outcome was only down 1.1% LFL, which merely reverses last year’s growth, leaving underlying LFL sales flat over 2 years. The key Food/Non-Food LFL sales split is buried in the 3-month moving averages of +0.2% and flat respectively, but it looks like Food was maybe 2.5% down LFL in March, whilst Non-Food was also flat LFL, given the soft comps with the “Beast from the East” impact on Clothing etc a year ago (although Electricals and Furniture were weak).
• Today’s Press and News: The front pages today are full of the continuing splits in the Tory party over Brexit (eg “May’s green light for European elections enrages Tory sceptics” in the FT and “May risks Tory wrath to plead for more time” in the Guardian). In terms of Retail news, the subdued BRC-KPMG Retail Sales figures for March get plenty of coverage, mostly focusing on the Brexit uncertainty (eg “Retail sales slow in run-up to original EU departure date” in the FT), whilst the FT also flags that the health food chain Holland & Barrett consistently delays paying its suppliers (according to a Government commissioner in his first “naming and shaming of a big company”), but the big story is the continuing battle between Debenhams and Sports Direct. Most papers, like the FT, report that Debenhams looks increasingly likely to be placed into a pre-pack administration after the
• News Flow This Week: The Brexit madness continues in Westminster this week, but the Sports Direct/Debenhams madness is a welcome distraction, with Debenhams widely expected to go into administration today…Otherwise, tomorrow brings the Tesco finals, the ASOS interims and the Dunelm Q3, whilst on Thursday we get the WH Smith interims.
• Quote of the Day: Here’s another insight which could be worth dedicating to the Tory and Labour Brexit negotiating teams, this time from Hilaire Belloc and his famous 1907 children’s book “Cautionary Tales”, via the last line of his tale about Jim (“Who ran away from his Nurse, and was eaten by a Lion”): “And always keep a-hold of Nurse, For fear of finding something worse”.
• Nick is currently in the US.