Langton Capital – 2019-10-09 – PREMIUM – Labour saving, plant-based foods, pizza innovation…
Labour saving, plant-based foods, pizza innovation…
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
How come, when a guest is about to arrive in the office for a coffee and a chat, you manage to drop a hole punch on the floor & cover every square inch of the meeting room with circular disks of paper?
Which are exceedingly hard to pick up. And the vacuum is nowhere to be found and then you knock the milk jug over and still can’t track down where that month-old gym bag smell is coming from meaning that, though offering an accurate insight into your day-to-day life, you’re maybe not advertising your office at its best.
Anyway, none of the above signals the end of the world so, with that comforting thought in mind, let’s move on to the news:
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PRIVATE COMPANY RESULTS – PAPA JOHN’S GB LIMITED: Papa John’s GB has reported numbers to 30 Dec. The company competes against Domino’s and Pizza Hut delivery as well as against the aggregators (Deliveroo etc.) 9 Oct 2019:
o Papa John’s is the franchise-holder for the UK. It sub-franchises areas to sub-franchisees. It receives royalty fees from these sub-franchisees and charges a marketing fee. It supplies some products. In its turn, it remits franchise fees to the US brand owner.
o The company has been buffeted by competition from the market leader, Dominos, as well as from a periodically resurgent Pizza Hut delivery and from aggregators such as Deliveroo, Just Eat, Uber Eat etc.
o The group ended 2018 with 415 stores. This is up 30 y-o-y. All of the sites are operated by franchisees.
o Papa John’s GB is ultimately (even accounting for the paragraph below) owned by the US parent company, Papa John’s International Inc.
o In May 2019 (post the Dec-2018 accounts reported here), Papa John’s GB was absorbed by its immediate parent, Papa John’s Pizza Ltd. The former limited company was struck off and the operations are now conducted by the latter.
• Papa John’s GB reports that, in early 2018, it outlined a number of ‘strategic priorities to improve upon the execution of the Company’s strategy.’
• It says that, despite ‘recent competitive challenges’, it has been ‘recognised as a trusted brand and quality leader in the UK pizza category.’
• The group says that it has improved its products and introduced more efficient operating systems.
• The company has invested in its ‘team members’ and has become more active with regard to marketing.
• The group appointed Elizabeth Williams as MD during the year. New finance, marketing and operations directors were also appointed.
• Such major changes (including the absorption of the company into its immediate parent) do suggest that fundamental issues needed to be addressed.
• Papa John says ‘for the first time in twelve years, underlying comparable sales growth of the UK stores declined by (4.5)% mainly as a result of heightened competition and the long hot summer.’
• Whilst the weather will average out (and last year should have benefited a little from the World Cup) the level of competition is unlikely to diminish over the medium term.
• Papa John says ‘the pizza market remains intensely competitive with significant promotional discounting continuing to take place in 2018 as in prior years.’
• There is much evidence to suggest that this has continued into 2019.
• Papa John’s, which does not manage any of its outlets itself, says ‘rising food and labour costs also affected franchisee profitability and store openings.’
• The company says it ‘invested’ £2m worth of royalty reductions & rebates etc. back into its franchised estate during the year. That is, it cut prices to its franchisees.
• Turnover rose by 1.7% to £68.4m. A the group comments above, this was more than all down to store number increases as LfL sales declined.
• Operating profit was £2.9m (2017: £6.4m), an operating percentage of just 4.2%, down from 9.4% in 2017.
• PBT is £3m, down from £6.4m.
• The company paid a £3.5m dividend to its owners and retained profits fell to £7.6m from £8.4m the prior year. Shareholders’ funds amount to £25.4m. This includes £743k of intangible assets. The company has net cash of £2.4m.
Other, conclusion etc.:
• The auditor is KPMG and the audit report is clean.
• The direction of travel as illustrated in these accounts looks to have been downwards.
• The group says it is concentrating on product, people etc. and, whilst that may be necessary, it may also not be sufficient to turn the company around.
• Because, although the company (any company) has an array of levers to pull, it cannot heavily influence the economy in which it operates, the behaviour of its competitors, the arrival of disruptors etc. etc.
• Here, the signs are not particularly encouraging but, as there has been a corporate restructuring post year end and the newco does not have to produce FY19 accounts for nearly a year, it may be a while before we hear further.
GENERAL NEWS – PUBS & RESTAURANTS:
• JD Wetherspoon has introduced a plant-based burger to nearly 900 of its outlets across the UK. Oliver Addis, food development manager at JD Wetherspoon, explained: ‘We were looking for a plant-based burger that could deliver on taste and texture and we found that in The Meatless Farm Co. The British company is really driving the UK’s plant-based based movement and we’re confident customers are going to enjoy this new offering within our pubs’.
• Minimum wage rising & industry looking for ways to cut costs. Tricky in a service industry but finding more cost effective kitchen equipment is one way of doing so.
• Foodservice Equipment Journal reports that Synergy Grill Technology has increased production from 10 grills a week to 10 grills a day in the last few months on the back of demand for its energy-efficient grills. The units, which do not need a fat tray, save on cleaning time and tick a number of economic, green and other boxes.
• FEJ quotes Synergy Grill chairman Justin Cadbury as saying that the company ‘is in the middle of significant roll-outs with two leading UK casual dining chains, with many others in the pipeline. As such as we are in the enviable position of being able to increase our staff at a time when many other companies are making cut-backs.’
• Whilst Mr Cadbury did not name the companies behind the contract wins, he quotes one customer as saying that ‘one customer has calculated that by installing a 900 wide Synergy Grill in each of their establishments, not only have they saved 4400 tonnes of C02 every year – that is the equivalent of taking 800 cars off the road, but they have also saved themselves over £500,000 in energy costs. Whether you are a major chain or an independent restaurant, there is real money savings to be had.’
• Domino’s Pizza Inc missed estimates on Wall Street yesterday and its shares fell by around 6%. The company re-set its long-term growth goals and said it would cut costs and investment over the remainder of this year. The company, which owns the Domino’s brand & franchises it out worldwide, is fighting against disruptors such as Deliveroo in Europe, Uber Eats, Door Dash, Grub Hub and Just Eat / Hungry House.
• Domino Inc’s CEO Richard Allison said the restaurants supplying product via the delivery disruptors ‘are currently pricing below the cost to serve, offering free delivery or other deep discounts that are currently enabled by investor subsidies.’ He said ‘when we take all that into consideration, we no longer believe that a long-term outlook with a 3- to 5-year time horizon is that instructive to our investors.’
• Domino Inc’s LfL sales in the US were up by 2.4% in Q3, the slowest rate of growth in 15 quarters.
• Brewer & pub operator Joseph Holt has reported numbers to end-Dec to Companies House saying that revenue rose 5% to £68.7m with PBT up by 40% to £4.2m. The company says that it has turned in a ‘strong set of results’.
• Papa John’s numbers show a reduction in profit in the year to end-Dec 2018. More details in Premium Email.
• Consumer confidence is holding up globally reports US business organisation The Conference Board. It says, however, that ‘there is an unprecedentedly large gap between strong consumer confidence and business confidence, which has been hit by the trade war and manufacturing downturn.’
• The UK high street is set to suffer another blow as Vodafone announces plans to shut 1,000 shops across Europe. Vodafone says it wants to change its role on the high street to reflect changing consumer behaviour.
• SpiceBox has launched a crowdfunding campaign on Seedrs with the company seeking to raise £300,000 to open up a second vegan curry house.
• Made of Dough is to open its first Roma pizza outlet on Brick Lane early next month. The company will be offering pizzas for £5. Made of Dough will offer authentic fare at EDL prices. You need to sell a lot of pizzas at five quid to make a mint but, at the other end of the spectrum, established operators that have undergone (or may undergo) CVAs have found that lazily offering me-too product at high prices does not work. The evidence of our own eyes suggests that companies get found out. They then need to discount to get customers through the door – and even then, they seem to be reluctant to come back.
• Best advice to sprawling, tired operators? Don’t start from here. Whilst it’s always going to be hard work, new entrants don’t have to deal with sometimes insoluble legacy issues.
• Sky reports that the strong UK jobs market has been a notable positive feature of the UK economy since the financial crisis. It says, however, that concerns are mounting and that recruitment groups Page Group and Robert Walters are cautioning that ‘heightened Brexit-related uncertainty [is] now impacting candidate and client confidence at all levels.’
• A gin distillery is being installed on board P&O Cruises’ new ship the Iona. The line is collaborating with UK producer Salcombe Gin in the initiative.
• The BBPA, Hospitality Ulster and Deloitte are hosting four free webinars to help businesses and stakeholders from the beer and pub sector prepare for Brexit.
• The Oktoberfest celebration in Munich attracted 6.3m people, with more than 7.3m litres of beer being drank, 200,000 fewer than in 2018.
• The policy Manager at the Food & Drink Federation, Dominic Goudie commented on the UK’s updated temporary tariff regime: ‘As FDF said in March, adjusting to this new schedule is both confusing and complex for businesses. This is not going to create a big win for consumers. The investment made right across the supply chain in preparing for a no-deal Brexit means prices will likely increase regardless of the Government’s tariff decision today. New tariffs will apply to some foods that are currently imported tariff-free, yet no tariffs will be applied to goods that cross the border between Ireland and Northern Ireland’.
HOLIDAYS & LEISURE TRAVEL:
• Travel Weekly reports that the relaunch of EasyJet Holidays will create opportunities for former Thomas Cook staff. The gap left by the TCG brand will not be a gap for very long. Superior margins will be available for only a very short period of time. As the redundant aircraft will soon be back in the sky, capacity may even increase over the medium term as operators scrabble for share.
• CDL, which has taken over Millennium & Copthorne, says that the process whereby it will compulsorily purchase the outstanding shares that it does not own is ongoing.
• Peter Foster, Europe editor of the Daily Telegraph, has warned travel industry leaders to expect ‘grinding uncertainty’ whatever the outcome of the next few weeks regarding Brexit.
• Per Sky News, Brookfield Property Partners, owner of Center Parcs UK, is planning a £3bn sale or stock market listing. City sources said on Tuesday that neither Brookfield nor Center Parcs’ board had made firm decisions about the timing of any process
• The Thomas Cook collapse is now affecting jobs in the supply chain as Aviator, a firm that carried out ground handling for Thomas Cook Airlines at Manchester airport, is preparing to go into administration and will cease trading on October 22 with the loss of 351 jobs.
• Carnival has commenced the construction of a dedicated cruise terminal in Japan. The facility is due to open at the port of Sasebo on Kyushu Island in the south-west of the country in summer 2020, with Carnival’s cruise line brands being granted berthing preference under a 20yr agreement.
• European hotel investment volume is up 4.3% YoY, according to Savills latest hotels report, reaching close to £14bn between January and September 2019.
• Tier Mobility, a Berlin-based startup that operates a fleet of 20,000 scooters across 40 cities in 12 countries, has raised $60m. This follows a $275m raise by Bird, a larger electric scooter company.
• GVC has updated on trading saying that it has increased its guidance range for full year EBITDA by around £15m to c£675m. CEO Kenneth Alexander comments ‘I am delighted that the Group’s financial performance has allowed us to upgrade our full year EBITDA expectations again. Online momentum remains strong.’
• Mr Alexander says ‘our US sports-betting joint venture with MGM Resorts remains very well-placed to capitalise on the US sports-betting opportunity. The integration of the Ladbrokes Coral businesses is progressing well with the migration of the Ladbrokes, Coral and Gala online brands due to commence in Q4 and complete by the end of H1 2020.’
• Sony announces the PlayStation 5, set to launch at the end of 2020.
FINANCE & ECONOMICS:
• The ONS reports that labour productivity across the UK has fallen at its fastest annual rate for five years. This has long been a source of bafflement for economists. One possible suggestion is that labour is being ‘hoarded’ ahead of Brexit. It can be seen as a short term alternative to capex and is easier to cut than capex if or when a major machine or building has been constructed.
• The Telegraph reports that the Conservative party ‘risk trashing their reputation for sound financial management after experts warned that day-to-day spending is set to surge.’ Promises made by PM Boris Johnson and Chancellor Sajid Javid extend to spending more on the NHS, on education, prisons, the police, roads, rail and fibre rollouts. The Party has promised not to raise taxes and not to borrow more. As GDP (and therefore tax revenues) are currently in mild decline, the numbers arguably do not add up.
• New head of the IMD Kristina Georgieva has said that Brexit, in any of its forms, will be ‘painful’. She says the UK will have to either borrow more or increase taxes if it does not wish to cut services.
• The FT reports the British Election Study as saying ‘the UK is heading into the most unpredictable and volatile general election in decades.
• Data from the IFS suggests that a no-deal Brexit would be worse for the UK economy than a Corbyn government. It goes on to say that Boris Johnson’s government is ‘adrift without any effective fiscal anchor’.
• Sterling down at $1.2217 and €1.1143. Oil lower at $58.00. UK 10yr gilt yield 4bps down at 0.41%. World markets all lower.
• Brexit & politics:
o The BBC quotes a no10 source as saying that a Brexit deal is now ‘essentially impossible’ after a call between the PM and Angela Merkel.
o Ms Merkel has said that a deal based on the UK’s proposals is ‘overwhelmingly unlikely’.
o The blame game is underway with a no10 spokesman saying the EU has decided to ‘budge one centimetre’.
o A no10 source (these are all thought to be Dominic Cummings) has said that if the proposal ‘dies in the next few days, then it won’t be revived’.
o Amber Rudd has said such language is ‘angry and desperate’.
o The FT reports that ‘Boris Johnson’s allies are drawing up plans to supposedly punish EU member states that agree to extend the Article 50 Brexit process.’
o The FT further reports government mood-music suggesting that ‘the negotiations over Boris Johnson’s offer of a Brexit deal have collapsed’ and that this is ‘all the fault of Germany and Ireland.’
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Motor Dealer Watch: The second hand car supermarket chain MotorPoint issued a reassuring trading update, flagging that it was growing market share and recovering gross margins, so that it was on track to meet full-year expectations. And its more mainstream rival, Vertu Motors, has issued resilient interims today and flagged that the key month of September saw improved trading, despite Brexit uncertainty, and that it is also on track to meet full-year expectations.
• Waitrose Watch: Trading at Waitrose remained subdued, on the face of it, last week, as yesterday morning’s JLP weekly overview, for w/e Oct 4th, revealed that Waitrose saw a fall of 1.7% in gross ex-petrol sales last week (despite an 8% rise in pumpkin sales!), continuing the weak start to H2…That left the last 36 weeks still down by 0.8% gross cumulatively, but store space is fractionally down (after the sale of five Waitrose stores in June and more this month), 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 autumnal weather helped John Lewis again last week and there was scope for some pent up demand to be released, but it was surprising to see that overall gross sales in w/e Oct 4th were as much as 23.1% up. However, the jump was again attributed to Sale promotions, mainly the continuing “20% off Sale” promotion in Home, as well as the first ever “my John Lewis Beauty Weekend” event across 35 shops and price matching a competitor’s Beauty promotions…In terms of sales mix, Home sales were up by no less than 68.4% gross, Fashion/Beauty sales were up by 8.8% gross and Electricals were up by 4.6% gross. The new Cheltenham store is just about LFL now, so there is no new space in the figures, but overall John Lewis LFL sales, however, are down by nearly c2% over the last 36 weeks , despite last week’s jump. Gross sales are now running down by 1.3% (the H1 LFL
• News Flow This Week: Tomorrow brings the Dunelm Q1 update and the N Brown interims, with the QUIZ trading update on Friday.