Langton Capital – 2019-07-23 – PREMIUM – Fevertree, Jamie’s, pub code, discounts etc.:
Fevertree, Jamie’s, pub code, discounts etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We had to have an emergency drinking session over the weekend as my mounting meanness led me to buy a batch of beer from a bargain store that I hadn’t realised expired at the end of the month.
But these burdens need to be faced manfully and, popping the cap from the nth bottle I consoled myself that I was doing my bit to prevent food wastage.
And, somehow, I still managed to cut the grass on Sunday morning. True, the mower picked up one or two random scrapes and the podcasts I was listening to didn’t really register but the job got done and the birds are happy as they can once again get at the various bugs and grubs that had been slithering around in the undergrowth unseen (more on politics below).
Anyway, the number of out-of-office replies is reaching biblical proportions but, without further ado, let’s move on to the news:
JAMIE’S ITALIAN COLLAPSES AND LEAVES CREDITORS £83m WORSE OFF: Say it quickly & it doesn’t sound like much – but this is a remarkable loss. 23 July 2019:
• How do you lose £83m as a modestly sized restaurant chain? Do you lose a steady £8m for a decade or do you putter along for a while breaking even and then sink like a stone when assets are written down and the ‘Going Concern’ assumption bites the dust?
• Though there are often primary tremors (CVAs, steady losses, shareholder support etc), it’s more often the latter than the former.
The glory days:
• For several years, Jamie’s Italian was bagging the top sites, the top staff etc.
• It was also paying the highest prices for the above and was raising costs for competitors as well as for itself.
• As the market became crowded and the pixie dust dissipated, the group began to make losses.
Reported losses & CVA:
• Jamie’s reported a profit of £2.4m in 2015, a loss of £9.9m in calendar 2016 and a loss of £31.1m for the year to December 2017.
• The Dec 17 loss was reported in October 2018 and it followed the group’s CVA in February of that year.
• Jamie’s cautioned ‘the period under review was a difficult trading environment for the casual dining market.’ The group wasn’t kidding and worse was to come.
• Jamie’s faced ‘significant new and increased competition from new entrants to the casual dining sector.’
• Jamie’s itself had been very much a part of the problem. It may be hard to see this from the inside looking out.
• The group closed six unprofitable sites in H1 2017 and underwent a CVA in January 2018. It managed to exit the ‘leases of 12 unviable restaurants and reduce the rent on 8 underperforming restaurants.’
• These were restaurants that the group had actively sought out, bid on, furnished & opened previously.
• Exceptional losses (of £25.1m) exacerbated 2017 overall losses.
• The group nonetheless collapsed into administration in May 2019 raising the spectre that other companies that had undergone CVAs may also have cut too little, too late
• Letting the administrators in is akin to asking a bull to help you renovate a china shop. The bull may really, really try its best, but the outcome is always the same.
• The first thing to go is the ‘Going Concern’ principle – because, with 20 of its 23 restaurants closed immediately, the company just isn’t.
• This means that an altogether different view is taken of valuations. See our comments on Patisserie Valerie 20 March and 29 March. Pat Val’s black hole was a not dissimilar £94m.
• The administrator to Jamie’s Italian is KPMG.
• KPMG achieved lease premia on the Leeds, Manchester & Piccadilly sites (c£624k) but shortfalls were considerable. In total, c£2.4m has been recovered from asset sales and debtors. The continuing units have made a positive contribution of c£334k. Administrators’ fees are running around £1.1m.
• Assets with a book value of £33.4m now have an estimated realisable value of less than a million pounds.
• £15m of leasehold properties are worth nothing, £2m of kitchen equipment is worth nothing, £1m of fixtures is worth nothing, £4.6m of loans to ‘connected parties’ is worth nothing.
• There is a pattern here. Even £3m of debtors might yield only £100k etc.
• Meanwhile, liabilities (loan notes – HSBC and others, VAT, PAYE, creditors, intercompany loans – Mr Oliver himself etc.) are real and total around £83m.
• Take assets worth around £1m and liabilities of £83m and this will end in the way one would expect it to end. The taxman is towards the front of the queue and will be paid whilst other creditors will get little or nothing.
A bit of analysis:
• Jamie’s had negative net worth of £12m at December 2017. No-one could deny that there was some writing on the wall.
• The negative worth was meant to reflect the costs of the CVA (which happened after that year end).
• The group has therefore moved from minus £12m to minus £83m in less than a year.
• That’s quite an achievement though the bulk of the shortfall will be due to the administrators taking a much more brutal attitude towards valuation.
• This isn’t always justified but, as the creditors to Jamie’s Italian are finding out, in this instance it most certainly is.
GENERAL NEWS – PUBS & RESTAURANTS:
• Fevertree has reported H1 numbers to end-June saying revenue rose 13% to £117m with adjusted EBITDA up 8% and PBT up 7% at £35m.
• Fevertree EPS is up 7% at 24.3p with the H1 dividend up 23% at 5.2p. The Telegraph speculated yesterday that such levels of growth, although decent, may not be enough to sustain the shares at their current levels.
• Fevertree says it has seen ‘continued growth across all four regions’ with ‘very encouraging momentum in the US with notable national distribution gains in the first half of the year.’
• Fevertree CEO Tim Warrillow, who sold over £100m worth of shares last August, says ‘it has been an encouraging first half for the Group with growth across all our four regions, most notably in the US, where we have made significant distribution gains and operational progress.’
• Mr Warrilow says ‘while we have not been immune to the impact of the unseasonably poor weather in the UK, we have further strengthened our market leadership position within the UK and have seen positive momentum in Europe and the rest of the world reflecting our increasingly global footprint.’
• Fevertree concludes ‘whilst we remain mindful of the tough comparators over the remainder of the summer in the UK, the Board anticipates that the outcome for the full year will be in line with its expectations.’
• The BBPA has responded to the consultation on the Statutory Review of the Pubs Code and Pubs Code Adjudicator, with Chief Executive of the organisation Brigid Simmonds commenting: ‘The evidence suggests that the Pubs Code and the Adjudicator are doing the job they were meant to do; regulating the relationship of pub operator and publican. It is still early days for a Code which had no transition period and where guidance and decision making has been slow’.
• The campaign group Long Live the Local has commented that changes to taxation could help slow down the closure rate of pubs. Programme director David Cunningham said: ‘These closures are, in part, driven by high and sustained operating cost increases such as employment costs, food and drink inflation and disproportionately high taxes including beer duty, business rates and VAT’.
• Deliveroo has started delivering cooked food from Sainsbury’s. The Pizza service commenced yesterday in four cities across the UK. The pizzas will be cooked to order during the two-month trial.
• Deliveroo will reportedly charge around £2.50 delivery for the Sainsbury’s pizzas as supermarkets look to take a larger slice of the UK’s c£8bn food delivery market, which is said to have grown by over 13% last year. ASDA began trials with Just Eat last year.
• Discounts still at high levels. Beefeater offering 33% off food with Bella Italia 30% off and Prezzo 40% off. Café Rouge 30% off food and Pizza Express 25% off.
• Pizza Hut is reported set to convert the c400 units that it has in the UK to a new model featuring an open kitchen.
• Beer gardens could be set for a strong week as temperatures are expected to climb throughout the week, reaching a potential record-breaking height on Thursday of 29 degrees.
• The Ministry of Agriculture in France has warned that the country’s wine sales could fall by 13% due to damaging weather conditions.
• Cafe Rouge has announced that it will provide carers for disabled customers, the first major restaurant to do so.
• Australian wine exports increased by 4% to $2.86bn last year.
• Over 200 pubs closed for business in the first six months of the year according to research conducted by Altus group. UKHospitality chief executive Kate Nicholls commented: ‘Cost pressures, principally extortionate business rates, are pushing too many pubs to the margins and high streets are being squeezed’.
• A judge has found that a landlord to Debenhams that has been bankrolled by Mike Ashley’s Sports Direct group can expedite a challenge to the retailer’s restructuring proposals.
• Starbucks Corp. has invested an undisclosed sum into its digital ordering and pick up system, Brightloom.
HOLIDAYS & LEISURE TRAVEL:
• The Times reports ministers are considering a ‘carbon charge’ that would require all carriers to introduce carbon offsetting payments at the point of ticket sale. The report by the Department for Transport said ‘One way to increase uptake could be to follow an opt-out rather than opt-in model’.
• Which? warns holidaymakers of high roaming costs for data this summer, with the research finding a Virgin Mobile customer in Dubai could be hit with a bill for £52.70 – the provider’s monthly data cap – for taking a single photo.
• Price comparison searches with TravelSupermarket reveal Turkey and Tunisia as the top growth destinations outside the Eurozone this summer. Ibiza and Dubai are losing their appeal despite the emirate remaining the top long-haul destination
• Travelodge announces interest to expand into 26 domestic coastal resorts in a potential investment of £165m creating around 650 jobs. Travelodge UK development director Tony O’Brien said ‘We are seeing the rebirth of British seaside resorts and coastal towns as a result of Britons changing holiday habits.’
• Shares in Whitbread fell 4.5% yesterday (down 217p) on news that it had completed its cash return to shareholders.
• Hospitality Scotland has called on the Scottish Government to introduce a mandatory registration and licensing scheme for short-term letting, in order to deal with the rise of Airbnb. UKHospitality Executive Director for Scotland Willie Macleod said: ‘Home-sharing and short-term letting platforms continue to operate at an unfair advantage, arguably sometimes at the margins of the law, and the time has come for mandatory registration’.
• A strike by easyJet check-in staff at Stansted airport has been cancelled by Unite.
• STR has reported Q2 2019 US hotel occupancy was down 0.1% to 70%, with ADR up 1.2% to $133.01 and RevPAR climbing 1.1% $93.17.
• Per Pragma, the Association of British Climbing Walls (ABC) estimate that over a million people climbed indoors in 2017, with climbing wall visits were up 16% in 2018 and are expected to rise by a further 12% this year.
• Pragma points to several factors contributing to the success of indoor climbing, including its inclusivity to more age groups, it being an alternative to the conventional gym and the social aspects of going climbing.
• Marvel’s Avengers: Endgame becomes the world’s highest-grossing film, overtaking Avatar at $2.7897bn. In the UK, however, the film can only claim fifth place on the all-time box office chart with Star Wars; The Force Awakens as the country’s top-earning movie.
• The British Competition and Markets Authority has announced it will investigate the acquisition of satellite communications firm Inmarsat by a private equity-led consortium in order to examine potential impacts on national security.
FINANCE & ECONOMICS:
• Sterling lower at £1.2477 and €1.113. Oil little changed at $63.30. UK 10yr gilt yield down 2bps at 0.72%. World markets better yesterday with Far East lower in Tuesday trade.
• Mrs May is pushing on with health proposals that include a ban on smoking by 2030. She is to be replaced as Tory leader tomorrow.
• The NIESR has said that growth has stalled and there is a one-in-four chance that the UK economy is already in a technical recession.
• NIESR says it expects 1% growth this year and next if a Brexit deal is struck. It says ‘in our main-case forecast scenario, economic conditions are set to continue roughly as they are, with high levels of employment and capacity utilisation but slow growth as businesses refrain from investment in view of continuing high uncertainty about future trading relations.’
• The NIESR says ‘we see the risks to growth to be heavily weighted to the downside in view of the high probability of a no-deal Brexit and the risk that this could be disorderly.’
• Brexit, politics etc.:
o New Team Tory leader announced around lunch time. Favourite Boris Johnson said to be either a breath of fresh air or a mendacious, amoral and calculated individual who has used buffoonery to disguise his ambition.
o The chairman of the government’s Industrial Strategy Council has told Newsnight that the Brexit deadlock has undermined efforts to boost the UK economy.
o Cabinet resignations expected today and tomorrow ahead of sackings later in the week.
o The UK’s Lib Dem party has appointed Jo Swinson as its new leader
START THE DAY WITH A SONG:
Yesterday’s song was Maybe Tomorrow by Stereophonics. Today who sang:
Who got the look,
I don’t know the answer to that question
Where’s the look
If I knew I would tell you
RETAIL WITH NICK BUBB:
Joules: Today’s finals (y/e May) from the fashion chain Joules are good, despite the problems of their mainstream competitors, with sales up by 17% and underlying PBT up by 19% and the CEO Colin Porter says “We are pleased with the group’s performance to date in the early stages of our new financial year, with trading in line with our expectations”.
McColl’s: Today’s interims from the struggling convenience store chain McColl’s are disappointing, with adjusted EBITDA down from £16m to £13m and the dividend slashed, but despite a highly competitive market, the company has sad that it expects to b “broadly” in line with expectations for the full year (y/e Nov).
Motorpoint: The second hand car supermarket chain Motorpoint has warned in its AGM trading statement today that gross margin pressure will hit first half profits, but that market share growth and a stronger margin trend in July has left it confident in the full-year outlook (y/e March).
Retail Sales Watch: All the focus in the sector now is on how well July (the 4 weeks to July 27th) turns out on the High Street, but we haven’t seen the final word yet on how bad the outcome was for June, given the cooler weather…The wretched Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported on Thursday that non-seasonally adjusted total Retail Sales by value were up by 4.0% last month (ex-petrol), boosted by reported 9.1% growth from Small Retailers…But the BRC-KPMG measure of gross sales (which focuses on Large Retailers, yet doesn’t capture the likes of Amazon) was down by 1.3% (down 1.6% LFL). So, who was right? The ONS? Or the BRC? Well, the consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey) has just come out with its own detailed overview and their
News Flow This Week: The latest monthly Kantar/Nielsen grocery sales figures (for the 4/12 weeks to July 13th/14th) come out at 8am this morning. Tomorrow brings the B&M Q1 trading update, with Thursday bringing the Inchcape interims, the Howden interims and the monthly CBI Distributive Trades survey. On Friday we then get the Bonmarche finals and the B&M AGM. Friday may also bring the delayed Sports Direct finals, although we still wouldn’t hold our breath…