Langton Capital – 2019-09-13 – PREMIUM – JDW full year, EI Group, M&C, Thomas Cook etc.:
JDW full year, EI Group, M&C, Thomas Cook etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, do we have the right to say we’ve ‘read a book’ if we listened to it on Audible?
And, if we do, then 1) why not say the same if we’ve watched the film (perhaps obvious as it’ll just be 90 minutes long and the book may take 24hrs solid to read) and 2) why do we somehow less accomplished if we’ve listened to the words being read rather than if we’ve turned the pages ourselves?
Or even tapped the right-hand side of the screen if we’re reading on a Kindle?
Indeed, there’s some evidence to suggest that it takes more effort to listen to a script than it does to read it. Or, more accurately, you may have to listen to it more carefully (or twice) in order to take it in whilst, if you’ve read it, a part of your brain tells you that, as you’re making all this effort, you’d jolly well better make the effort to understand it.
Anyway, there’s no Podcast of the morning email available yet but, over time, that could change. On to the news:
JD WETHERSPOON – FULL YEAR NUMBERS: Group reports LfL sales in the year +6.8%. Margins lower. Outlook ‘reasonable’. 13 Sept 2019:
JD Wetherspoon has this morning reported full year numbers to 28 July and our comments thereon are set out below:
• JDW reports LfL sales up 6.8% for the year. Total sales are £1.8bn (up 7.4%).
• The operating margin is down to 7.3% from 7.8% last year.
• PBT is £102.5m (2018: £107.2m) with adjusted EPS down 4.7% at 75.5p. Headline EPS, after exceptional items, is 69.0p.
• The total dividend for the year is 12.0p, in line with last year. The group says it will maintain the dividend at this level ‘for the time being’.
• Chairman Tim Martin says ‘we currently anticipate a reasonable outcome (pre IFRS16) for the current financial year, subject to our future sales performance.’
• He adds ‘as in previous years, we will provide updates, during the year, on the company’s trading.’
• LfL sales in the 6wks to 8 Sept were +5.9%
More on trading:
• JDW reports net interest was covered 3.9 times by operating profit before interest, tax and exceptional items (2018: 4.8 times)
• This is ‘owing mainly to an increase in the cost of interest-rate ‘swaps’ or hedges and a reduction in operating profit.’
Balance sheet, debt etc.:
• JDW says ‘total capital investment was £167.6m in the period (2018: £110.1m)’
• Some £35.2m was invested in new pubs and pub extensions (2018: £35.9m), £55.2m in existing pubs and IT (2018: £64.7m) and £77.2m in freehold reversions, where Wetherspoon was already a tenant (2018: £9.5m).
• The group reports exceptional charges of £7.0m (2018: £18.3m).
• JDW reports ‘free cash flow, after capital payments of £54.3m for existing pubs (2018: £68.9m), £16.0m for share purchases for employees (2018: £13.6m) and payments of tax and interest, increased by £3.6m to £97.0m (2018: £93.4m). Free cash flow per share was 92.0p (2018: 88.4p).’
• The group bought back 402,899 shares (0.38% of the share capital) during the year at an average cost per share of 1,327p.
• Re Tim Martin’s shareholding. The chairman says ‘my shareholding over the last 15 years has increased, as a result of the company’s share ‘buybacks’, to 31.8% of the issued share capital.’
• The group is to seek further approval for a rule 9 ‘whitewash’, which will allow more buybacks without triggering a bid from Mr Martin (as a >30% shareholder).
• Total net debt, excluding derivatives, was £737.0m (2018: £726.2m), an increase of £10.8m.
• Net-debt-to-EBITDA was 3.36 times (2018: 3.39 times) – EBITDA was £5m higher in 2019, offsetting a small increase in debt.
• Headroom. At 28 July 2019, the company had £158.0m (2018: £133.9m) of unutilised banking facilities. It adds ‘in August the company raised an additional £98m from a private placement debt facility.’
• The group has adopted the IFRS 16 leases standard from 29 July. It will apply to FY20.
• JDW estimates ‘all things being equal, the company estimates that for the year ending 26 July 2020, EBITDA will increase by c£58m and operating profit by c£8m. The interest charge will increase by c£22m and profit before tax will decrease by c£14m. On the balance sheet, a net lease liability of c£617m and total assets of c£618m will be recognised, with no change to net assets. There will be no impact on cash flows except in relation to tax payments. Further detail will be included in the accounting policies note in the 2019 annual report.’
Conclusion, current trading etc.:
• JDW chairman Tim Martin writes at great length about VAT inequality, the European Union etc. Re current trading, he says ‘despite continuing political problems…Wetherspoon continues to perform well. Like-for-like sales for the six weeks to 8 September 2019 were up 5.9%.’
• Mr Martin concludes ‘we currently anticipate a reasonable outcome (pre IFRS16) for the current financial year, subject to our future sales performance. As in previous years, we will provide updates, during the year, on the company’s trading.’
• JD Wetherspoon reported on most of its full year trading on 10 July and today updates on the last two weeks (slightly better than the year as a whole) and the first 6wks of FY20 (LfL sales +5.9%).
• Margins are down a little, debt is up (as the group is buying in properties) and the dividend will be held over the medium term.
• Chairman Tim Martin defends his company’s corporate governance record.
• JDW remains a good company that knows its market. It comments at length on the EU, elites, democracy, VAT etc.
• It is cutting prices by 7.5% to illustrate the impact of a potential VAT cut and is selling some beer at £1.39 per pint.
• This may secure its market position over time but, in the short term, earnings may be somewhat held back.
• JDW does what it does extremely well, but it is not currently cheap and its low margins could prove to be a point of weakness if sales growth stalls against the background of what the company has called ‘continuing political problems’.
GENERAL NEWS – PUBS & RESTAURANTS:
• EI Group yesterday reported that it had gained approval at court and at its General Meeting to proceed with its sale to Stonegate. EIG says ‘at the Court Meeting, the requisite majority of Scheme Shareholders voted in favour of the resolution to approve the Scheme’ and adds ‘at the General Meeting, the requisite majority of EIG Shareholders voted to pass the Special Resolution to approve and implement the Scheme (including, without limitation, the amendment to the EIG articles of association).’
• Regarding timing, EI Group says ‘completion of the Acquisition remains subject to the satisfaction, or if applicable, the waiver of the other Conditions set out in the Scheme Document, including the regulatory approvals from the European Commission or the CMA, as applicable, the FCA and the Court sanctioning the Scheme at the Court Hearing.’
• JD Wetherspoon’s has announced plans to cut the prices of all food and drink on Thursday 19 September to highlight the benefit of a VAT reduction in the hospitality industry. The group is set to reduce its prices by 7.5% in response to high beer duty, rising business rates and VAT.
• JDW has pointed out on a number of occasions that several countries across the EU currently charge lower rates of VAT on hospitality services than they do in general.
• Administrators to Cabana, KPMG, have published proposals that involve HSBC getting something but which suggest that there will be no payout for preferred or other creditors. Fuller coverage & comment in the Premium Email next week. KPMG says: ‘we anticipate the most likely exit route will be dissolution.’
• The UK Restaurant Market has contracted 3.1% to £18.8bn in 2019, according to data from the MCA.
• The Chief Executive of the Food & Drink Federation, Ian Wright has commented: ‘It is as the Food and Drink Federation have been saying for the best part of two years now – it lays bare the grisly crisis facing the UK’s food and drink supply chain in a no-deal Brexit scenario. And shoppers have rightly come to expect a wide range of products on supermarket shelves. In a no- deal Brexit scenario there would be significant and adverse changes to product availability, and random shortages’.
• The 3D printer meat alternative startup, Redefine Meat has raised $6m in seed investment, led by CPT Capital.
• John Lewis reports a loss of £25.9m for the half-year, saying sales slipped amid ‘difficult’ trading conditions, amplified by ‘subdued consumer confidence’. The company also said a no-deal Brexit would have ‘signifcant’ impact and the business would not be able to fully offset the effect.
• A report by the Labour Party claims people should work fewer hours to earn a living, but that capping their hours would be unrealistic. The report said imposing a four-day week would not be ‘realistic or even desirable’.
• The CEO of the Co-op Group, Steve Murrells, claims a no-deal Brexit will leave ‘gaps on the shelves’ of UK supermarkets.
HOLIDAYS & LEISURE TRAVEL:
• Sky News reports Thomas Cook is seeking an a further £100m of funding from lenders, in addition to the £900m proposed last month. A court filing by the company stated: ‘The serious liquidity issues within the group have led to an urgent need to complete any restructuring within September.’
• British Airways has notified customers up to 900 flights could be affected by a second pilots’ strike on 27 September. The industrial action could affect up to 120,000 customers and follows an initial 48-hour strike on the 9th and 10th of September.
• CDL, which is bidding for Millennium & Copthorne, has declared that its final offer is now unconditional in all respects.
• CDL says it is ‘pleased to announce that, in light of the acceptances…the Acceptance Condition has now been satisfied and the Final Offer has become unconditional both as to acceptances and in all respects.’
• CDL’s offer for M&C will remain open until 27 Sept. It may be extended thereafter. CDL intends to delist M&C’s shares in due course.
• M&C itself says ‘the outgoing Independent Committee of M&C recommends that M&C shareholders who have not yet done so accept the Final Offer and urges such shareholders to accept immediately.’
• Brittany Ferries reassures passengers that they can ‘travel with confidence’ despite the British government planning for a no-deal Brexit. Britanny Ferries said ‘The reality is that we have had plenty of practice preparing for a no-deal scenario.’
• Helen Whately will be the new minister for arts, heritage and tourism, replacing Rebecca Pow. Whately tweeted: ‘Delighted to join @DCMS as Minister of Arts, Heritage and Tourism. Already lost count of the number of people who’ve told me I have the best job in Government.’
• Google will pay French authorities nearly €1bn as investigators had been seeking to establish whether Google, which has its European headquarters in Dublin, failed to declare some of its activities in the country. The settlement includes a €500m fine and additional taxes of €465m.
FINANCE & ECONOMICS:
• The ECB has cut interest rates for the first time in 3yrs in order to stimulate economic activity. It cut its rate to an all-time low of minus 0.4% and will institute QE (again) at the rate of €20bn per month.
• Sterling up vs dollar at $1.2349 but down vs Euro at €1.1155. Oil down at $60.40. UK 10yr gilt yield up 3bps at 0.67%. Markets higher yesterday with Far East up today.
• Brexit & politics:
o Arguments as to whether Yellowhammer is a base case or a ‘reasonable worst case’ assessment.
o Likely delays at ports, airports etc. alongside shortages of fresh foods and medicines.
o The election campaign that never was. Mr Johnson been seen cuddling Scottish bulls, talking to farmers, answering questions in primary school & talking to people on warship. But there is no election.
o Mr Johnson maintains that he prorogued parliament to prepare for the Queen’s Speech, not to electioneer or prevent parliament from getting in the way of his Brexit plans.
o PM Boris Johnson has denied lying to the queen. UK Supreme Court to rule on the issue on Tuesday. Scottish court says he misled the monarch. English court said it wasn’t within its jurisdiction to comment.
o Michel Barnier says the Brexit situation is ‘serious and uncertain’. He says there are no grounds for short term optimism.
o John Bercow has said he will do whatever he can to stop the prime minister illegally implementing a no-deal Brexit on October 31.
START THE DAY WITH A SONG:
Today we’ll welcome back the song quiz, so who sang:
“Now when I was a young boy, at the age of five,
My mother said I was, gonna be the greatest man alive
But now I’m a man, way past 21″
RETAIL WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that the John Lewis sales figures for last week were poor, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting suspiciously good progress in recent weeks) is not too bad. In w/e Sunday Sept 8th, BDO Fashion sales were up by 3.4% LFL (including Online)…And total BDO LFL sales (including Homewares and Lifestyle sales) were up by 2.1% last week (down a tad in Store sales, but up by 20.3% in Online sales).
• News Flow Next Week: As the Lib Dem party conference gets underway in sunny Bournemouth, all eyes will be on the Supreme Court next week, as it weighs up the legality of the prorogation of Parliament, but there is again plenty going on in the Retail sector next week, kicking off on Tuesday with the Ocado Q3, the French Connection interims and the latest Kantar/Nielsen grocery sales figures. Wednesday then brings the Kingfisher interims, the Pendragon interims, the Games Workshop AGM and the British Land Capital Markets Day. On Thursday we then get the Next interims and the ONS Retail Sales figures for August, with the Applegreen interims on Friday.