Langton Capital – 2019-10-02 – Caravan, Black Sheep, RBG, disposals, wages etc.:

October 2 2019

Caravan, Black Sheep, RBG, disposals, wages etc.:

A DAY IN THE LIFE:

Don’t you find it annoying when Google ‘figures you out’?

I mean thankfully Langton’s habits are borderline boring but even for us, being shown ads or random videos on planting runner beans or how to stop your dog from attacking the postman feels somehow rather spooky.

And it can be a little unsettling if they pop up whilst you’re running through a PowerPoint presentation on your screen so heaven help those hard-core wierdos out there whose search histories would make a sailor blush.

They must spend half their time hiding their screens from their colleagues or trying to figure out how to get onto the Dark Web. Or how to search anonymously (or on somebody else’s computer) as much of what they look at might raise eyebrows if it popped up during a presentation on the intricacies of IFRS16.

Anyway, enough of that. Time to research those runner beans. On to the news:

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PRIVATE COMPANY RESULTS: Companies need to put their accounts in within 9mths of their year ends. This means that a rash of December 2018 companies have recently lodged accounts with Companies’ House. 2 Oct 2019:

Caravan Coffee Roasters, Noir Espresso, Black Sheep etc. See Premium Email.

GENERAL NEWS – PUBS & RESTAURANTS:

• Fourth has commented on Chancellor Sajid Javid’s announcement that the National Living Wage will rise to £10.50 by 2024 saying that average wages in the ‘hospitality industry are on track to hit £10.60 over the next five years’ in any case.

• Fourth says ‘hourly wages for workers in the hospitality industry have consistently outstripped the annual NLW legislative increases since its introduction in April 2016, with hourly wages growing annually by around 4%.’ The move to £10.50 by 2024 is not an acceleration on this trend.

• The lowering of the age threshold for the £10.50 band from over 25 year olds, to those over 21 years of age could have an impact although JDW and others have made a point of paying younger staff doing the same job the same rate as their older colleagues.

• Fourth says the rise ‘will have little impact in the hospitality industry, which has experienced a steady erosion of the actual wage gap between these two age cohorts, which has remained around 2% for the past six months, currently sitting at £8.55 and £8.70, respectively.’

• Fourth comments, however, that ‘we live in unpredictable political times, and more aggressive wage inflation policy from other parties, such as Labour who propose reaching the headline figure of £10.50 as early as 2020, would require a significant uplift in current wage levels, which would be untenable for many businesses.’

• The move (to raise wages) is effectively a transfer of income from one group to another (shareholders to staff) and, if companies fight to maintain margins, then it will lead to either increased productivity (labour scheduling, mechanisation etc. a.k.a. unemployment) or increased prices or, most likely, a bit of both.

• Naked Wines has announced that it has sold its Lay & Wheeler Limited subsidiary for a total cash consideration of £11.3m. It says ‘this Disposal follows the sale of the Majestic Retail and Commercial businesses, announced in August 2019, for total consideration of approximately £100m, and represents another significant milestone in the evolution of the Naked group, by freeing up capital and resource to pursue the significant growth opportunity ahead of Naked.’

• CEO Rowan Gormley says ‘following the disposal of Majestic Retail and Commercial, I am delighted that we have also secured an independent future for Lay & Wheeler and its employees.’ Mr Gormley concludes ‘we look forward to our future as a much simplified and growth orientated company continuing to focus on the huge opportunity ahead of us.’

• Further from Revolution Bars yesterday. The group’s dividend will remain suspended ‘in order to prioritise both investment in the existing estate and a reduction in bank borrowings.’ Christmas is a ‘crucial trading period’ and early signs are encouraging. RBG says ‘over the last three months our like-for-like sales have consistently outperformed the ‘Bars & High Street Bars’ cohort in the CGA industry sales tracker for the first time in over eighteen months as we start to recover market share.’

• RBG confirms that ‘in the first thirteen weeks of this financial year like-for-like sales increased by 0.7% and if adjusted for the rise in number of closure days resulting from our refurbishment programme it is 1.2%.’ The group says ‘we have now transitioned from a year of stabilisation into a year of consolidation.’ New openings do not appear to be a priority.

• Gregg’s has stolen the headlines by its decision to stockpile pork ahead of 31 October.

• The chairman of John Lewis has warned that the company is to enact £100m of cost cuts and 75 job losses in senior management.

• Discounts still prevalent with Bella Italia & Prezzo offering a 2nd meal for £1, Café Rouge offering 30% off food and Pizza Express 25% off food.

• The Office for National Statistics latest Consumer Trends report suggests that UK consumer spending in restaurants & hotels fell by 0.7% in Q2 this year. Consumers are becoming choosy as overall, the ONS says, household spending in total grew by 0.4% quarter on quarter. This was up by 1.1% year on year.

• A study by the law firm Irwin Mitchell has found that the foodservice industry will be among the top five most disrupted sectors as a result of Brexit.

• The leisure property specialist, Fleurets has been instructed by administrators FRP Advisory to market three public houses in London and the Home Counties; The Golden Ball in Maidenhead, 185 Watling St. Pub & Kitchen in Towcester and The Imperial Arms in Chelsea.

• Hakkasan Group aims to open 10 sites in Mexico following a deal with Mexican hospitality and development company Dinar.

• The Six Bells in Fulbourn village near Cambridge has reopened after a £350,000 investment.

• The recipe box company, Gousto has announced its intentions to create 700 jobs, more than doubling its workforce.

• Per Sky, climate change and historically low prices could cause coffee to become a luxury in the UK if businesses do not help farmers. Experts say that by 2050, up to half of the land used to grow coffee globally may be rendered unsuitable for this purpose.

• In the US, Keurig Dr Pepper (KDP) and McDonald’s USA have entered into a long-term agreement for KDP to distribute McCafé packaged coffee. KDP will continue to be the exclusive manufacturer of McCafé K-Cup pods in the US.

HOLIDAYS & LEISURE TRAVEL:

• UBS cautions that ‘flight shaming’ could halve the rate of growth in air travel over the longer term. Global passenger numbers have been growing by 4% to 5% p.a. (though by less in developed economies).

• A group of now-unemployed Thomas Cook workers is to lobby Parliament today and hand in two petitions with over 60k signatures highlighting their concerns over the collapse of the company.

• ICAMAP has announced that its bid for EasyHotel is now closed for acceptances. It has 68.8% of EasyHotel’s equity either owned or pledged to its bid and the offer is no longer open.

• ICAMAP has previously said that it would delist EZH shares if it were able. As it has not secured enough shares to ensure a special resolution, this will not now happen. Similarly, it did not achieve 90% and will not be able to compulsorily purchase the EZH shares that it does not own.

• The Transport Salaried Staffs’ Association, representing staff at Thomas Cook, is calling for business secretary Andrea Leadsom’s resignation. The union wants MPs to investigate reports that Leadsom failed to meet Thomas Cook officials prior to the failure.

• The Financial Reporting Council (FRC) has launched a probe into EY’s audit of Thomas Cook’s financial statements. Although circumstances can evolve rapidly in the travel industry, TCG prepared its accounts under the Going Concern principle and this was signed off by the auditors at the end of last year. This does not now appear appropriate as the company had a significant negative value when it ceased trading.

• Secret Escapes acquires Malvern Group’s LateRooms out of administration. KPMG said Secret Escapes acquired ‘intellectual property rights, business information and social media accounts’ for £750,000.

FINANCE & ECONOMICS:

• The IHS Markit Manufacturing PMI for September rose slightly to 48.3 from 47.4 in August. Any number below 50.0 implies contraction.

• Markit says ‘manufacturing production continued to contract in September, as companies cut back output in response to a further reduction in new order intakes. The investment goods sector was by far the weakest performer.’

• Markit says ‘the UK manufacturing downturn continued in September, adding to signs that the sector may be sliding into recession.’ It says ‘some manufacturers noted increased inventory building activity in preparation for the forthcoming exit date, but the impact of such Brexit-related stock building was dwarfed by weakening demand for other customers, due in part to clients routing supply chains away from the UK.’

• Donald Trump has stepped up his tweet-attacks on the Federal Reserve after domestic stats showed a slowing of the economy. He is demanding further cuts in interest rates.

• Sajid Javid has said that there will be another budget this year. The content will depend on whether or not the UK cuts a deal with the EU later this month.

• UK house price growth ‘almost ground to a halt’ in September reports the Nationwide. Prices in September were down by 0.2% month on month. Prices were up by 0.2% year on year.

• Sterling a little weaker at $1.2281 and €1.1233. Oil down at $59.41. UK 10yr gilt yield up 2bps at 0.51%. World markets down yesterday with Far East lower today.

• Brexit & politics:

o PM Boris Johnson will today send formal proposals regarding a Brexit deal to Brussels. The FT quotes a ‘Whitehall insider’ as saying ‘the next 48 hours are going be crucial to deciding whether there’s a deal that can be done.’

o The approach to Brussels is said to be the ‘final offer’. Dominic Cummings is reported to have said ‘we’ll make one offer and then walk away’.

o PM Johnson says the proposal has ‘evolved significantly’ in the past 24 hours and if the EU rejects it, the UK will break off talks and exit with no deal.

o Former aid to Tony Blair Jonathan Powell says ‘this looks like something put forward by somebody who is not serious about reaching a deal.’

o Dominic Grieve says it looks like replacing no-border with two-borders and hundreds of miles on no-man’s land.

o Fund manager Crispin Odey, who supports Brexit, says that he is not motivated by personal profit via shorting UK companies, Sterling etc.

START THE DAY WITH A SONG:

• Training courses intruding. Back soon.

RETAIL WITH NICK BUBB:

• Tesco: After yesterday’s bombshell that JLP is to merge the management of John Lewis and Waitrose and that Rob Collins, the MD of Waitrose, is being squeezed out, comes the news today, on the back of the strong Tesco interims, that Tesco boss Dave Lewis to step down next year. At least the decision is his alone and he can clearly say that the turnaround has been done, so he can leave with mission accomplished. What he will do next is unclear (does a career in UK politics beckon or will he go back to Unilever?), but the bigger question is why Tesco overlooked an array of internal candidates for the new CEO position and have gone outside and appointed Ken Murphy from Boots (aka “Ken who?”) as the new Tesco boss.

• Waitrose Watch: As for weekly trading at Waitrose…yesterday morning’s JLP weekly overview, for w/e Sept 28th, revealed that Waitrose saw another dip, of 0.2%, in gross ex-petrol sales last week, continuing the weak start to H2…That left the last 35 weeks still down by 0.7% gross cumulatively, but 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 only 0.4% in H1).

• John Lewis Trading Watch: The more autumnal weather helped John Lewis last week, but it was disappointing to see that that the 4.8% recovery in overall gross sales in w/e Sept 28th was actually attributed to a “20% off Sale” promotion in Home…In terms of sales mix, Home sales were up by 16.8% gross and Electricals were up by 4.5% gross, but Fashion/Beauty sales were down by 4.2% gross. There is only the new Cheltenham store in the figures, but overall John Lewis LFL sales, however, are down by c2.6% over the last 35 weeks , as gross sales are now running down 2.1% (the H1 LFL sales fall was 2.3%, with Online sales said to be “broadly flat”).

• Choc Watch: We are indebted to the Store Design expert John Ryan for flagging up in his daily Newstores blog yesterday that Hotel Chocolat’s beauty brand Rabot 1745 has just opened a small standalone store in the Westfield London shopping centre: “Whether you would want to smear your face and others parts of the body with cocoa-related products is a moot point, but this is certainly different from most of the other beauty offers in Westfield”.

• News Flow This Week/Next Week: Tomorrow brings the Ted Baker interims. Next week should be quieter, kicking off first thing on Tuesday with the BRC-KPMG Retail Sales survey for September. Wednesday then brings the Vertu Motors interims and the Laura Ashley AGM. On Thursday we get the Dunelm Q1 update and the N Brown interims, with the QUIZ trading update on Friday.

TRADING STATEMENTS & EVENTS:

Upcoming results are set out below:

• 3 Oct 19 Constellation Brands Q2 numbers

• 8 Oct 19 Hollywood Bowl FY trading update

• Est 8 Oct 19 EasyHotel FY update

• Est 8 Oct 19 Gfinity FY numbers

• 15 Oct 19 Marston’s year end trading update

• 18 Oct 19 Coca Cola Q3 numbers

• 22 Oct 19 Whitbread H1 numbers

• 22 Oct 19 G4M H1 update

• 22 Oct 19 On the Beach FY update

• 24 Oct 19 C&C H1 numbers