Langton Capital – 2019-09-23 – PREMIUM – Thomas Cook, Brighton Pier, Escape Hunt etc.:
Thomas Cook, Brighton Pier, Escape Hunt etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I think if I hear one more politician say ‘let me be clear’ I’m going to start throwing things at the television.
Because, whilst I know that such phrases (and ‘let me be honest’, ‘to tell you the truth’ and ‘no disrespect but…’) are followed by the direct opposite, it’s as though the phrase had just been invented and that every talking head feels compelled to get it into pretty much every answer.
And, as Nassim Nicholas Taleb and others have suggested, a lack of clarity is one of the overriding features when looking into the future from the present (as opposed to looking back on it when writing a smarty-pants history book) and the only certainty is uncertainty.
However, it’s as well as not to know your weaknesses meaning that, if I’m going to pitch things at the TV I’d better put a few soft items around my chair. Perhaps scarves, gloves, soft toys etc. and move those teapots, bottles of bitter and 2kg paperweights beyond an arms’ reach.
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PRIVATE COMPANY ACCOUNTS: Social Entertainment Ventures Ltd trades as Flight Club and Bounce in the UK & the US. It has an investment in Puttshack Ltd and has reported full year numbers to 30 September 2018 (which were due by 30 June 2019) to Companies’ House. 23 Sept 2019:
• Social Entertainment Ventures says it ‘has performed broadly in line with expectations and the directors are pleased with the performance of the group during the year’.
• It says ‘revenue increased during the year as well as adjusted EBITDA principally as a result of opening the first Flight Club in Chicago in May 2018’.
• Social Entertainment Ventures confirms ‘at the year end, four venues were open and trading (two in the UK and two in the US).’
• Revenues increased by 10.4% to £14.5m.
• Adjusted EBITDA rose from £0.4m to £1.2m and the adjusted EBITDA margin increased from 3.1% to 8.4%.
• The consolidated P&L account shows a loss for the year before tax of £1.5m. This comes after a profit of £3.9m last year – though this 2017 profit was after a non-cash adjustment for the ‘fair value of the investment in Puttshack’ of plus £5.0m)
• Transitioning from a positive EBITDA to the loss involves crediting management fees charged for running Puttshack’s London venue of £379k and debiting depreciation, interest payable of £639k and exceptional items of £986k being largely pre-opening costs and legal & professional fees
• Social Entertainment owns 14.7% of Puttshack. Its 2017 revaluation would suggest that the value of the whole of Puttshack had risen by £34m or so.
• Social Entertainment’s consolidated balance sheet shows shareholders’ funds of £5.5m including retained profits of £2.2m.
• The company balance sheet, which includes Puttshack as an investment rather than including a share of its assets and liabilies, reports negative shareholders’ funds of £2.1m and accumulated losses of £3.6m
• Debt net of cash has risen from £3.8m in 2017 to £6.1m in 2018. The company says that new funds (see below) were received post-balance sheet sufficient to cover the repayment of debts falling due
• At end-Sept 2018, Social Ventures had £2.1m outstanding to Santander and £3.0m of shareholder loan notes with another £2.1m of loan notes to other investors
• The auditor is Deloitte.
• The accounts are prepared as a going concern. The directors say that the receipt of funds post year-end validates this method of accounting. Social Entertainment writes ‘even though the Group has net current liabilities of £3.6m…this does not represent a risk to liquidity given the natural working capital cycle of the business and management’s ability to manage cashflow.’
• There are four directors. There was one resignation and a subsequent appointment during the year
Post balance sheet events:
• The accounts were signed on 16 September 2019, by which time, the group had a clearer picture of its financing than it did at 20 September 2018
• Social Entertainment says ‘after the balance sheet date, £2.75m of investment was received from an institutional investor for the development of a new concept and grow the Flight Club portfolio in the US’.
• The company also reports ‘heads of terms have also been agreed with this new investor for additional funds, with the targeted completion date within a few weeks of the date of signing these accounts’.
• The company adds ‘the invested funds will be of a sufficient level to cover the other facilities that expire within 12mths of the singing date of these financial statements’.
• The group is here pointing out that it believes it is correct to adopt the principle of valuing its business as a ‘going concern’.
• Bounce, Flight Club & Puttshack are high-profile companies in what appears to be a growth market
• However, the group is currently making losses and, though it has been able to finance these via capital issuance, this may not always be possible
• Social Entertainment would be best advised to achieve profitability as soon as possible. As is so often the case, this may be more easily said than done
GENERAL NEWS – PUBS & RESTAURANTS:
• JDW Friday bought back 162,500 of its own shares for cancellation at 1530p.
• The FT reports that the ‘spate of deal-making’ this year has provided some evidence that the UK pub industry is worth of investment attention. Greene King is being purchased by Hong Kong billionaire Victor Li’s companies, EI Group is being purchased by Stonegate and Fuller’s has sold its brewery to Asahi.
• The FT reports ‘the deals mark not only the relative cheapness of British assets due to the weak pound but also investors’ belief in the longevity of the pub.’
• It’s true to say, however, that for every buyer there is a seller. GNK is 220yrs old and its directors have decided that now is the time to sell. Fuller’s has made a similar decision re its brewery and EI Group, which has done much to secure its own turnaround, has decided to sell its assets to private equity.
• Nonetheless, there are (or at least there were) buyers around. The assets sold feature strong, freehold property portfolios. High street restaurants, where much of the sector’s pain has recently been focused, tend to be leasehold. At certain points in the cycle, this has allowed operators to grow rapidly but, at present, the lack of much asset-backing has been deemed a negative.
• The administrators’ reports at Patisserie Valerie, Cabana and elsewhere have shown that, when £600k or £800k leasehold restaurants need to be ‘sold’, they may be worth virtually nothing. Assets are routinely ‘abandoned’ in sites that are being given up and ovens costing many thousands of pounds, will either be junked of sold for a few hundred quid.
• Prezzo 40% off mains or 25% off food. Pizza Express 25% off food.
• CGA reports that business confidence among the leaders of Britain’s pub and restaurant groups ‘has taken a hit amid fears about the long-term impact of Brexit—pushing market optimism to its lowest ebb for two years.’
• CGA’s latest quarterly Business Confidence Survey, produced alongside Fourth Hospitality, ‘indicates that fewer than a third (30%) of industry bosses are currently optimistic about prospects for the general market—down by nine percentage points on the last survey three months ago. The figure is the lowest since November 2017, and the joint lowest since the EU Referendum of June 2016.’
• Operators are typically more confident about their own business but, whilst this is still directionally true, only 58% fancied their own chances, down 7pps from the last poll.
• CGA says that its Business Confidence Survey ‘spotlights Brexit as the overwhelming source of pessimism, and reveals that leaders are concerned about the long-term as well as immediate impacts of leaving the EU.’ Operators are concerned about increased food costs and higher labour rates alongside an expected fall in consumer confidence.
• CGA says ‘this is a sober message to the Government from the country’s pub, bar and restaurant operators.’ Fourth adds ‘in an industry known for its positivity, energy and a can-do-will-do culture, our latest leaders’ survey is telling. Brexit, and the prevailing uncertainty, is clearly and understandably weighing on the sector.’
• The Brighton Pier Group has reported FY numbers for the 52 weeks to 30 June 2019 saying that revenue rose to £32.0m 9from £31.4m) with PBT unchanged at £3.2m. Diluted EPS is 6.1p vs 5.0p last year.
• Brighton Pier CEO Anne Ackord says ‘our new golf site opening at Rushden Lakes, the first since our purchase of Paradise Island Adventure Golf last year, has performed beyond expectations and we are looking forward to our next opening at Drake’s Circus in Plymouth later this year.’ She says ‘I am delighted that the Group has delivered growth in both sales and earnings.’
• Re current trading, Brighton Pier says ‘trading for the Group during the important first two months of the current financial year – July and August 2019 – met budget. Consequently, we remain confident of our prospects.’
• During the last three years UK branded restaurants have seen a 3.2% fall in visits whist independents have suffered a 1.3%.
• The CEO of Caffe Nero, Will Stratton-Morris has stated that the sheer number of operators competing in the food-to-go sector is a bigger concern than Brexit. Stratton-Morris commented: ‘I think the biggest challenge is not actually Brexit but the level of competition out there. There is a huge offer out there now and that means it is harder to grow your like-for-likes. I was looking at iced drinks over the summer’.
• The COO of the FDF, Tim Rycroft has commented on the PHE Sugar Reduction Programme: ‘Today’s report from PHE shows that food and drink manufacturers are continuing to reformulate and change portion size to remove sugar from the nation’s diet. This is an ongoing process, and since this data was collected in August 2018, FDF member companies have launched many new lower sugar recipes to great acclaim’.
• Beniro’s Hat is pursuing a CVA to renegotiate terms with its landlords, as the group deals with a ‘cashflow challenge’.
• Arc Inspirations has announced plans to convert its Banyan Bar & Kitchen site in York to its Manhatta brand.
• Carluccio’s Fresca transformation programme has resulted in a 35% increase in LfL sales at seven sites, the MCA has reported.
• A Greene King IPA poll finds that 22% of Brits say the ideal place to watch rugby is at the pub with friends. The survey discovered 17% said they will drink a couple of pints while watching the games, while one in 20 admitted to having five or more pints during a match.
• Walmart announces it will no longer sell e-cigarettes in the US due to ‘uncertainty’ about the rules governing e-cigarettes, which US health authorities have linked to more than 500 cases of lung injury.
THOMAS COOK COLLAPSE:
• Thomas Cook has collapsed into administration after weekend talks to save the company failed.
• The group was formed 178yrs ago. It has survived depressions, World Wars and the like but it has now ‘ceased trading with immediate effect’.
• The group says this morning that there is to be a ‘compulsory liquidation’ of the company.
• It says the weekend’s discussions ‘have not resulted in agreement between the Company’s stakeholders and proposed new money providers.’
• AlixPartners or KPMG will be appointed as Special Managers in respect of ‘relevant Group companies’.
• CEO Peter Fankhauser says ‘we have worked exhaustively in the past few days to resolve the outstanding issues… [and] although a deal had been largely agreed, an additional facility requested in the last few days of negotiations presented a challenge that ultimately proved insurmountable.’
• Fankhauser adds ‘this marks a deeply sad day for the company which pioneered package holidays and made travel possible for millions of people around the world.”
What will happen now?
• Planes will stop flying as creditors, including airports, seize aircraft.
• These will not be destroyed, of course, and it is in everyone’s interests to get them in the air again as rapidly as possible.
• But, in the short term, plans will need to be made (or should have already been made) to bring back stranded holidaymakers.
• Thomas Cook is a global (largely European) company. It could have more than half a million holidaymakers overseas, some 150,000 of whom are British.
• The repatriation will be the largest for the UK in peacetime.
• The emergency operation, codenamed Operation Matterhorn, will start as soon as today.
• Flight prices will spike and the market will tighten. Last minute holidays will dry up as TCG planes remain out of the market for some time.
• This will benefit margins for TUI and for Jet2 (Dart Group).
• Over time, the margins will return to normal but, given the cyclical nature of the industry, capacity may be sucked in.
• TCG’s package holidays are bonded via ATOL. Holidaymakers should be repatriated at no extra cost. This will be more easily said than done because, if a non-negligible fraction of the world’s planes are stranded on the tarmac, getting hold of capacity may not be possible in the very short term.
• ATOL only covers packages. These include the sales of any two of flights, accommodation, car hire and some other services. Flight only bookings will not be covered.
• Flight only customers who have pre-booked, could lose their money. They may be covered by their credit card company or by their own insurance.
• Thomas Cook’s travel agency shops could be shut as soon as today. The group has around 22,000 staff in the UK and many more across Europe in its source markets and in resort.
• Staff are protected (to some extent) in an administration. Unsecured creditors could fare considerably less well.
The blame game:
• CEO Peter Fankhauser says the collapse is a ‘matter of profound regret’.
• Major shareholder Fosun has said that it ‘worked tirelessly’ to secure a solution.
• It says that its position remained unchanged throughout the negotiations but that other factors changed. It adds ‘we extend our deepest sympathy to all those affected by this outcome.’
• RBS was one of the larger banks involved. The government was also approached for help but declined to step in.
• The government has implied that this is not a matter for the state. Transport Secretary Grant Shapps said the collapse was ‘very sad news for staff and holidaymakers’.
• The disruption to holiday patterns caused by the Brexit vote, the failed March and April deadlines and now the looming Halloween exit date has been very damaging.
• But this is 1) an industry-wide issue and 2) shouldn’t have impacted the Group’s non-UK passengers.
• Other factors (online competitors, competition in general, Turkey & North Africa upheaval, oil price oscillations etc.) are similarly industry-wide issues.
• The DfT has said that a ‘small number’ of passengers may need to book their own flight home.
• The CAA says ‘all Thomas Cook bookings, including flights and holidays, have now been cancelled.’ The CAA has told the BBC that it has already chartered ‘more than 40’ aircraft.
• Thomas Cook’s directors & advisors spent the weekend trying to raise more money from investors, bankers and the government whilst asking lenders to reduce their demand for a short term £200m funding top-up.
• Sky reported yesterday that credit card companies were being asked to release cash that they hold as collateral early to help with the group’s funding crunch.
• The government said yesterday that it had plans in place to bring home stranded holidaymakers if Thomas Cook went out of business – this statement will now be put to the test.
HOLIDAYS & LEISURE TRAVEL:
• On the Beach has commented on the TCG situation saying it is ‘assisting customers that are currently in resort and whose travel plans will be affected.’ It says ‘the Board anticipates that there will be a one-off exceptional cost associated with helping customers to organise alternative travel arrangements, and lost margin on cancelled bookings.’
• Jet2.com and Jet2holidays have put more than 3.3m seats on sale for winter 2020-21, including 1.6m seats to the Canary Islands with up to 160 weekly flights scheduled to Tenerife, Lanzarote, Gran Canaria and Fuerteventura.
• UKHospitality has called the Association of Accounting Technician’s suggestion to introduce a 2.5% tourist tax in Scotland ‘flawed’. UKHospitality executive director for Scotland, Willie Macleod, said ‘The proposed tax would hit only hotels and would fail to address day visits or affect home-sharing platforms which increasingly make up many overnight stays.’
• Ryanair’s UK pilots have cancelled five days of strikes set for this month as both parties prepare for further talks. CEO Michael O’Leary on Thursday described the strikes as ‘complete failures’.
• Escape Hunt, which operates escape games in the UK, has reported that it has signed its previously-reported US and Canada Franchise Deal.
• ESC says ‘it has now signed the contract with its US franchising partner, Proprietors Capital Holdings, for a roll-out of new franchise sites across the US and Canada.’ PCH is a ‘US-based investment capital company with a wealth of experience in supporting and growing brands as both a franchisee and franchisor.’
• ESC CEO Richard Harpham says ‘we are delighted to have found in PCH a partner that has a proven track record of rolling-out franchises, is well-resourced, and has a deep understanding of the experiential market. With a plan to roll-out escape rooms across the entirety of the US and Canada, this deal represents a significant step towards achieving our goal of growing the franchise estate by two to three times over the medium term.’
• Sports Direct has announced that is has made a proposal to Goals Soccer to buy the company for 5p per share. Sports Direct is the largest shareholder in Goals, with an 18.93% shareholding.
• Stride Gaming has updated the market on its takeover by Rank Digital Holdings saying ‘Stride and Rank are pleased to announce that the UKGC has given notice in writing that it has determined to approve the Offer and, as such, the relevant condition to the Offer has therefore been satisfied.’
• The last day of dealings in Stride’s shares is now expected to be 3 October.
FINANCE & ECONOMICS:
• Sterling down at $1.2481 and €1.1323. Oil up a shade at $64.96. UK 10yr gilt yield down 1bp at 0.63%. World markets mixed.
• Brexit & politics:
o Downing Street has refused to commit to working to 2wk or end-September deadlines mentioned by various EU leaders as it says they are artificial.
o Jean Claude Juncker has told Sky he is ‘doing everything to have a deal’ as to fail to achieve one would have ‘catastrophic consequences’.
o Juncker has told Sky he is ‘convinced that Brexit will happen’.
o The OECD has said that a no-deal Brexit would cut 3% from the UK’s economic growth over the next three years compared with just 0.6% from the rest of the EU. It says that the UK would be likely to suffer a recession
START THE DAY WITH A SONG:
• Courses & exams getting in the way. Back shortly.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front pages of the Saturday papers had plenty of photos of the Global March against Climate Change on Friday, but the headlines were pretty varied: the Guardian went with “The day the world took to the streets”, but the Borisgraph went (ludicrously) with “EU hatches plot to sink Britain’s Brexit plan” and the Times focused on the near collapse of Thomas Cook with “Holiday giant on the brink”. In terms of Retail news, the big story was the Times’ scoop that Ocado is suing its co-founder and now bitter rival Jonathan Faiman over the way he tried to help Waitrose with his expertise, dragging the M&S bosses into the legal row (“Top retail bosses dragged into Ocado espionage case”) and it followed that news up with a separate background article about the ““Theft and deceit” behind old friends’ fallout”.
• Saturday’s Press and News (2): In other news, the collapse of the Eve Sleep share price on Friday, after its merger talks with another Online mattress retailer broke down, earned much scorn in the Editorial columns, whilst the Daily Mail highlighted that Simon Wolfson of Next has predicted that “Black Friday” will die out and be absorbed into normal mid-season Sales for fashion retailers. And the Guardian flagged that the House of Fraser store in Wolverhampton (the former Beatties flagship) is likely to be converted into student accommodation, albeit HoF is said to be in talks about moving into the nearby Debenhams store.
• Sunday’s Press and News (1): The chaos in the Labour Party ahead of its conference in Brighton dominated the front pages of the Sunday papers, with even the Observer flagging that “Labour plunges into Brexit chaos”, but the main talking point in terms of Retail stories was the Sky News scoop that the FD of the embattled Marks & Spencer, Humphrey Singer, is to step down, as noted by the Sunday Telegraph (“Exit of M&S finance chief after 14 months adds to retailer’s woes”) and the Sunday Times. Talking of M&S, the Mail on Sunday followed up on the unseemly legal row between Ocado and Jonathan Faiman with another expose (“Spying row rocks Ocado, M&S and Waitrose”), revealing that Faiman approached M&S in June last year to talk about setting up an Online Grocery business
• Sunday’s Press and News (2): The Sunday Times flagged that the CEO of Sainsbury, Mike Coupe, will come out fighting in Wednesday’s strategy update for the City (“Sainsbury’s boss plots path after Asda failure”), focusing on the Sainsbury Bank and on the Nectar loyalty card scheme. The Stockmarket Watch column in the Mail on Sunday also highlighted that the gloom about Sainsbury has lifted a little, whilst also noting that the Hotel Chocolat interims on Tuesday could boost their share price. The Sunday Times also flagged that, Charlie Mayfield, the Chairman of the John Lewis Partnership is preparing a central cost cutting drive at John Lewis and Waitrose and separately it had a feature article on the problems that will face the new JLP Chairman, Sharon White, when she takes over next year: “Huge pension liabilities, inflexible leases and cut-throat competition: Sharon White faces tough
• Marks & Spencer: The embattled Marks & Spencer has confirmed the weekend press story that the FD, Humphrey Singer, is to step down and the quotes in today’s announcement are the same as those that appeared in yesterday’s papers, after the story first broke on Sky News. Succession planning has only just begun, so Humphrey will be around for a while, but he says “After eighteen months of working with Steve to lead the transformation strategy and rebuild the finance function I have decided that now is the right time to move on”. What is not clear is why he thinks it is the right time to move on, in the absence of any new job news…
• Sports Direct: Fresh from the defeat of his legal challenge to the Debenhams CVA on Thursday and his attempt to exploit the CMA intervention on the JD Sports/Footasylum deal on Friday, #MadMike has popped up yet again today, in his attempt to replicate trying to win a game of “Monopoly” by buying the useless but cheap brown properties like Old Kent Road, by announcing a possible 5p offer for the troubled football pitch operator Goals Soccer Properties (whose shares are currently suspended)…