Langton Capital – 2019-09-25 – PREMIUM – Shepherd Neame, Admiral, T Cook, Itsu & other:
Shepherd Neame, Admiral, T Cook, Itsu & other:
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A DAY IN THE LIFE:
Running a bit short of time as Langton is trying to dry out after the rain this morning meaning that it’s time for the news.
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PRIVATE COMPANY RESULTS – ITSU: Itsu was created by Pret a Manger founder Julian Metcalfe to offer healthy Asian food in a grab and go format. It has reported numbers to 27 Dec 2018. 25 Sept 2019:
• Itsu reports that ‘the 2018 financial statements reflect a welcome return to stronger sales growth across the group, akin to levels that itsu is more accustomed to.’
• It says ‘the group, especially the UK retail business, has had a disciplined 2-year focus on reversing the detrimental profit impacts that the sector has had to’ face into.’
• Against this background, ‘through a combination of strong LFLs (like-for-like, same store sales growth), profitable new store openings and strong profit contribution from the itsu Grocery division, the group has been able to improve net profit by 38.9%.’
• Even notwithstanding the tough environment, this is a pretty good performance
• Turnover is up by 10.4% to £116.5m. Grocery sales are up 28% with the group opening its first store in the US and a 7.5% increase in the UK.
• Itsu reports LfL sales in the UK grew by ‘an encouraging 3.6%’
• Itsu says ‘in 2018, the business made a strategic decision to exit the majority of its breakfast offer to focus on the more profitable and faster growing evening day-part.’
• Evening sales grew by 2.1% LfL in 2018.
• During the year, the group ‘redeveloped’ its hot food range and introduced more products featuring ‘health, freshness & value for money’.
• The lower price point ‘has not only seen a large increase in LfL transaction volume but also a healthy 2.3% LfL increase in items per transaction, proving that more customers are buying more products from Itsu, year-on-year.’
• EBITDA rose by 60% in the year to £4.1m. Itsu says ‘the growth in EBITDA came from increased turnover flowing down at a far higher rate, increase EBITDA contribution from the Grocery business and improved cost discipline within the stores and at head office’.
• Itsu says its grocery business had ‘its strongest year’.
• Despite the increase in EBITDA, the loss before tax was £5.9m, down from a loss of £8.2m in the prior year. This (as is the case with so many privately funded companies) is not caused by interest or other capital-provision costs.
• Interest payable is only £103k, down from £720k in the prior year.
• The group now has accumulated losses since incorporation of £19.5m. Due to fund-raisings, the company has positive shareholders’ funds of £35.0m.
• Itsu has no net debt. It has around £7m of cash and £7m of bank loans. Some of the £7m of cash will be in-branch and should be viewed as necessary working capital.
• There are four directors including founder, Julian Metcalfe. There were no resignations or appointments during the year
• The auditor is PwC. The Audit report is clean.
• The accounts are produced under the Going Concern principle. The directors say (as is normal) ‘after making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The group therefore continue to adopt the going concern basis in preparing its financial statements.’
GENERAL NEWS – PUBS & RESTAURANTS:
• Shepherd Neame has reported FY numbers to 29 June saying that it has been ‘a year of good strategic progress’ with the group turning in ‘a solid financial performance.’
• Adjusting for the 53rd week last year, Shepherd Neame says ‘managed and tenanted pubs performance has been excellent and we continue to outperform the market. Brewing and brands, as previously outlined, is in transition with lower turnover and profit.’
• Group turnover fell by 6.9% to £145.8m (2018: £156.6m) and 52wk profit was down 0.3% at £11.4m. EPS was level at 60.9p.
• Shepherd Neame says ‘in order to fund the business for the long term and to take advantage of any opportunities that may arise over the next few years, the business refinanced its debt facilities. As a result, a one-off exceptional charge of £10.8m was incurred. Statutory profit before tax therefore was £3.5m (2018: £12.1m).’
• As regards current trading, Shepherd Neame reports ‘in the 11 weeks to 14 September, total revenue in our managed pubs was up +4.7% (2018: +7.8%) and same outlet like-for-like managed sales were up +1.6% (2018: +5.1%).’
• During the same period, beer and cider volume were up by 5.8% (2018: +4.0%). The group says ‘in the 9 weeks to 31 August like-for-like tenanted pub income was up +2.7% (2018: +6.2%).’
• Shepherd Neame CEO Jonathan Neame says ‘Shepherd Neame remains well positioned in the sector, with great pub assets, an exciting and evolving beer portfolio, an excellent brand reputation and a heartland presence in Kent that will benefit from considerable economic development in the next 10 years.’
• Mr Neame says ‘our managed pubs have achieved substantial growth in turnover and profit. The tenanted pub estate has maintained its impressive like-for-like performance. Brewing and brands performance has, as expected, been more challenging this year, but we are excited by the potential of our emerging portfolio.’ The CEO concludes ‘we are encouraged by how the new year has started and remain cautiously optimistic about the Company’s prospects despite the uncertainties ahead’.
• Admiral Taverns has confirmed that it has purchased a portfolio of 150 community pubs from Star Pubs & Bars (Heineken).
• Admiral says ‘the acquisition of the nationwide portfolio marks the latest stride forward in Admiral’s proven growth strategy as a leading operator of community pubs.’ The group ‘has developed a high quality estate of approximately 800 sustainable, individual and authentic wet-led pubs, which sit across England, Scotland and Wales. On completion, the acquisition will take the Group’s estate to circa 950 pubs.’
• CEO Chris Jowsey says ‘we are delighted to announce another important step forward in our strategy and ambitions for the business. Admiral has a strong track record of integrating new acquisitions and these new pubs will significantly increase our presence across the UK.’
• Rugby a boost. The Morning Advertiser reports that ‘despite early UK kick-off times, the opening weekend of the 2019 Rugby World Cup yielded a 5% increase in rugby fans searching for pubs compared to the start of the 2015 tournament.’
• Not clear yet how much of this will increased level of interest will translate into cash in pubs’ tills.
• Junkyard Golf has announced that it is to open its first permanent site in London, in Broadgate Quarter campus. The company says ‘located just off of Liverpool Street and set to open in November this year, the new location will occupy a 12,000 square ft unit in Broadgate Quarter, and will eventually replace the pop up in The Old Truman Brewery on Brick Lane, which opened in 2016.’
• Junkyard Golf Club says it ‘has revolutionised the world of crazy golf; building innovative environments that put a unique and immersive spin on the traditional game, complete with cocktail bars and scrapyard decor.’
• More gaps on the High Street. Around a quarter of the UK’s physical travel agents’ shops are thought to have closed over the last 7yrs. The number of banks has fallen by only slightly less. See more on TCG below.
• Allegra reports that 9% of consumers believe that coffee served in a pub is of a higher quality than that served by operators such as Pret A Manger, Costa Coffee or Starbucks. It’s certainly cheaper.
• Some 48% of customers would choose a pub over a coffee shop if the pub opened early enough.
• Benugo, a commercial caterer and café operator, reports turnover up 3% to £116.1m for the year to 28 December 2018, with gross profits up to £44.6m.
• FRP Advisory, the administrators of Epic Pub Company, have appointed Fleurets to market three pubs in London and the Home Counties. The three pubs are The Golden Ball in Maidenhead, 185 Watling St. Pub & Kitchen in Towcester and The Imperial Arms in Chelsea.
• Pret a Manger will complete its initiative to have full ingredient labels across its 391 UK stores by the end of the week. Pret’s Allergy Plan was launched in May following the inquest in to the death of Natasha Ednan-Laperouse, who died after eating a baguette bought from the chain in 2016.
• Channel 4 have invested a seven-figure sum in alternative meat startup The Meatless Farm Co.
• A German court has ruled that hangovers are an ‘illness’ though this isn’t quite what it seems. It doesn’t appear to be a get-out-of-jail card for those who’ve gone a little too far on a Thursday night, but rather a ruling that was held to be making illegal claims about its anti-hangover drinks that would only have been permissible should they be deemed ‘medicines’.
• Alcohol moderation body The Portman Group has published the 6th edition of its Code of Practise re packaging and promotions. Drinks bodies have suggested that ‘if you can or bottle something with 4 units or more is: – make clear it’s for sharing & decanting – make clear it’s a quality, premium product – signpost and include ‘drink sensibly’ messages – put a ‘serving size’ message on it – think about re-sealable swing tops.’
• The bottom line being, think twice before selling or drinking 12% ABV beer by the pint as if it were a 3.5% mild.
• US operator Outback Steakhouse, which is owned by Bloomin’ Brands, has extended its largely internally-operated delivery business to included DoorDash. Outback says ‘we’ve done a remarkable job growing our own delivery business, and DoorDash adds another layer of accessibility and convenience.’
• A survey of 600 recruitment firms undertaken by the Recruitment and Employment Confederation, has found that business confidence is falling as uncertainty around Brexit continues. This is feeding through to recruitment.
THOMAS COOK REPATRIATIONS, IMPLICATIONS ETC.:
• Spot flight prices to and from some resorts have doubled or trebled. Holidaymakers in resort will get back to the UK alright but those who are yet to fly will 1) get their money back but 2) find that this will come late and it won’t go as far as it would have done prior to TCG’s collapse.
• If not-yet-holidayed holidaymakers have to stump up a few hundred quid extra to go on the holiday that they had been promising themselves, they will have to either earn more to pay for it or spend less elsewhere.
• Or save less, of course but, with the savings ratio currently already vanishingly small, that won’t be enough.
• Around 15,000 Brits per day are being brought back. So far, so good.
• Operation Matterhorn is thought to be costing around £100m. The Air Travel Trust, the body that we as passengers pay into every time we fly, will pay for most of the operation.
• More than 1,000 flights are planned as a part of Operation Matterhorn, which will run until 6 October.
The blame game:
• This will run and run.
• Margins are very low in tour operating. The companies should arguably not take risks in this kind of scenario. But the devil-take-the-hindmost and, if one operator doesn’t work on finer and finer margins, then another will.
• The directors did trouser tens of millions. Arguably they were worth it. And then they weren’t.
• Describing the reception that a rival was about to receive when entering the market from general retail perhaps 20yrs ago, an industry operator told Langton that getting volumes and pricing right was akin to walking a tightrope – but that other operators, the oil price, new entrants and terrorists etc. were vigorously shaking both ends of it.
• That has been true for decades. But memories are short and, even with Monarch to remind us what can happen, operators insist on putting on more capacity, shaving prices etc.
• A period without collapses is like the period when the guy running through a fireworks factory with a lit candle doesn’t blow himself up. See our various comments on Black Swans etc.
Band wagon junkies:
• PM Johnson has questioned management behaviour.
• Business secretary Andrea Leadsom, a.k.a. the dimmest bulb in the Cabinet, has asked the official receiver to look at whether TCG management action ‘caused detriment to creditors or to the pension schemes’.
• People being wise after the event. There is not likely to be a smoking gun. It’s called business. Overlay World Cups, hot weather, Brexit uncertainty, oil price spikes, Sterling collapses and fickle consumers and here we are.
• The German government is reportedly looking at whether to support Condor, TCG’s airline in that country.
• Destination markets Spain, Turkey and others are reported to have offered help.
• New companies will grow from the ashes very quickly. There will be a short-term margin bonanza.
• A newly-unemployed Thomas Cook rep and retail agent is already reported to have set up a jobs portal for loose leisure travel staff. There are a lot more of them now than there were last week
• There will be plenty of instances where the repatriation doesn’t go smoothly (guest thrown out of their rooms etc.) but, overall, there’s a good chance that it will go well.
• The FT has reported that TCG was within days of running out of cash.
• TCG is, of course, only a minority UK company. Of its c600k passengers stranded abroad, only around a quarter were / are British.
• The German airline arm, Condor, has secured a €380 million state-funded lifeline to keep flying.
• Hotels in resorts in Spain, Greece & Turkey will be hard hit. There will be bad debts and vacancies. Some of the vacancies will be immediate. The rooms will be there but flight prices could be high.
• Some suggestion that Southern European hotel companies would have been willing to help with a bailout.
HOLIDAYS & LEISURE TRAVEL:
• STR reports that the European hotel industry raised occupancy by 0.4% in August 2019 vs the same month last year. Room rates are up 1.0% and REVPAR is +1.4%.
• Accor will open six UK hotels signed by Proark under the Mercure brand by the end of the year. The hotels are located in Birmingham, Nottingham, Cardiff, Bedford, Telford and Harlow.
• Tourism Alliance research shows that the UK tourism industry has grown by £18.5bn over the last two years, bringing the total expenditure by tourists in the UK to £149.5bn. Kate Nicholls, the Tourism Alliance Chairman and CEO of UKHospitality said ‘We need to reduce the level of taxation faced by visitors coming to the UK, ensure we have an immigration system that provides UK tourism businesses with access to employees’.
• TfL has issued Uber a two-month extension to its current 15-month license which was due to expire tomorrow.
• Revenues at Manchester United rose to an all-time record of £627m for the year to July. The season, not the best in terms of results, was described as ‘turbulent’.
• Escape Live opened a Peaky Blinders themed escape game yesterday.
FINANCE & ECONOMICS:
• Sterling up a little at $1.2464 and €1.1331. Oil down at $62.59. UK 10yr gilt yield down 2bps at 0.53%. World markets down yesterday & Far East lower today.
• Politics & Brexit:
o Supreme Court hands landmark 11-0 defeat to the government.
o PM Boris Johnson still breaking records. Loses six for six in House of Commons votes, sacks 20-odd moderates and is called out as having, shall we say, misrepresented the truth to the Queen.
o Oh, to be a fly on the wall at BJ’s next meeting with the monarch. He’ll be getting the full eyebrow treatment…
o Parliament back at work tomorrow. The Rebel Alliance, which sounds like something from Star Wars, is considering whether to hold Mr Johnson in contempt of parliament, institute no-confidence proceedings or push for an investigation into the PM’s alleged conflicts of interest in giving state money to female business friends. Somewhat spoiled for choice.
o FT says: ‘Mr Johnson’s first two months at Number 10 have been a litany of disastrous mis-judgments’.
o Jeremy Corbyn calls on the PM to ‘consider his position.’ Nigel Farage has said Johnson should apologise to the Commons and potentially offer his resignation.
o Hotel bed rates in Manchester likely to dip a bit. Tory Party conference seats anyone? There’ll be plenty of space as parliament will be sitting, there could be some mischievous votes called and, if you do the west coast mainline at all frequently, you’ll know it’s a likely 4hrs door to door.
o BBC quotes a no10 source as saying ‘we think the Supreme Court is wrong and has made a serious mistake’. Bad losers. David Gauke says this is ‘a clear attempt to undermine respect for the judiciary, questioning the motives of the judges, encouraging others to pile in.’
o Tory MP Andrew Bridgen says this scrutiny of Mr Johnson’s motives is ‘the worst possible outcome for democracy’. He said the ruling was ‘an absolute disgrace.’
o The Supreme Court judges made plain that this was not about Brexit but rather about respect for the law.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Boohoo: Back on Sept 5th, mighty Boohoo flagged that trading in the six months to end Aug had been stronger than expected and upgraded its full-year guidance, but did not spell out exactly how good Q2 had been. Today’s interims, however, show that H1 sales growth of 43% was even stronger than the 39% growth in Q1, with the Q2 acceleration driven by remarkable growth in the core Boohoo business, and that has dropped down to 53% growth in adjusted EBITDA to £60.7m (10.8% of sales), which is ahead of City expectations. John Lyttle, the new CEO, says: “It has been a fantastic first half of the year for the group…We enter the second half of the year well-placed and confident that our platform, which combines the latest fashion, great prices and excellent customer service, all underpinned by a well-invested infrastructure, will deliver further market share gains”. There has been no
• Waitrose Watch: Disappointingly, given the benefit you would have expected the business to have had from the “Indian Summer”, yesterday morning’s JLP weekly overview, for w/e Sept 21st, revealed that Waitrose saw another dip, of 0.9% in gross ex-petrol sales last week, despite a soft comp, continuing the weak start to H2…That left the last 34 weeks still down by 0.7% gross cumulatively, albeit store space is fractionally down (after the sale of five Waitrose stores in June), so that the LFL sales picture won’t look as bad (the LFL sales dip was 0.4% in H1).
• John Lewis Trading Watch: The hot and sunny weather was never going to help John Lewis last week, but it was still a shock to see that overall gross sales were well down yet again, by 12.4% in w/e Sept 21st, despite a weak comp…In terms of sales mix, Home sales were down by 13.4% gross, Fashion/Beauty sales were down by 12.3% and Electricals were down by 11.24 gross. There is only the new Cheltenham store in the figures, but overall John Lewis LFL sales, however, are down by c2.8% over the last 34 weeks, as gross sales are now running down 2.3% (the H1 LFL sales fall was 2.3%).
• Retail Sales Watch: The Retail month of September (the 5 weeks to Sept 28th) is nearly over and the outcome will not be good, on a line through what Next and John Lewis have been saying, given the impact of the “Indian Summer”, but we haven’t seen the final word yet on how good August was on the High Street, given the hot weather at the end of last month…The wretched Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported last Thursday that non-seasonally adjusted total Retail Sales by value were up by 2.8% last month (ex-petrol), despite unusually modest 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 only flat in gross terms (down 0.5% LFL). So, who was right? The ONS? Or the BRC? Well, the consultancy group, Retail Economics (RE), which was
• News Flow This Week: The CBI Distributive Trades survey for “September” is out at 11am this morning (for what it’s worth). Tomorrow brings the DFS finals and the monthly GFK Consumer Confidence survey is out first thing on Friday.