Langton Capital – 2019-10-31 – PREMIUM – Carlsberg, YUM, Starbucks, recent collapses etc.:
Carlsberg, YUM, Starbucks, recent collapses etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
As parents, we’ve reluctantly had to accept that Halloween is now a big deal.
Of course, that’s great news for pubs and clubs, some of whom say that it’s almost the biggest night of the year, but it’s not so good when you have to ferry kids around to parties, stump up for face paint, costumes, sweets, pumpkins and the like. Next thing you know, I’ll be paying for clothes and a wig to put on an effigy and burn at the weekend…
But it gives us another whole area about which we can grumble and moan. It wasn’t like this in our day. Oh dear. Time to move on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
Our bulk email distributor uses a variety of different IP addresses. This can lead to email getting blocked. If the email doesn’t arrive, please let us know. The current day’s effort is always available on the website.
RECENT COLLAPSES – ANY LONGER-TERM IMPLICATIONS? Amidst the raft of CVAs, the collapses of Pat Val and, to a lesser extent, Goals Soccer, stand out. Will there be any longer-term consequences? 31 Oct 2019.
• Shareholders lost all their money in Pat Val. Indeed, some put more cash in – and they lost that as well.
• Goals Soccer may have some value. But nobody would feel comfortable betting on that and other operators, those that have undergone a CVA or who have seen vulture funds use their debt to seize control of the entire company, have also taken a major (or total) hit.
• But will there be longer-term consequences, or will the herd revert to a peaceful slumber until or unless another one of its members is struck down by fraud, management failure or simply inconveniently ferocious competition?
Auditors and non-executive directors will be jittery:
• Again, there is a risk that this will be short-term only but auditors (widely criticised in a number of cases) and non-executive directors (ditto) may take their jobs more seriously.
• Both groups may have under-sold themselves and, if they have to put in more hours, they may wish to charge more for their services. In any case, the fees for the above are more likely to go up than down.
• Audit fees may have been hammered into the ground. Grant Thornton may have thought that it would get consultancy work from CAKE in compensation but, even if it had, the money would likely not have compensated for the reputational damage that it has suffered since fraud and incompetence brought the company down.
• Auditors may need more insurance, they may undertake more work, they will demand higher fees.
• Ditto non-executive directors. Any NED advisory body will tell prospective NEDs that they should inquire more, spend longer with their companies, not be ‘over-boarded’ and secure higher levels of personal indemnity insurance.
• NED fees will likely go up. If there is a move against over-boarding, the pool of potential NEDs may be diminished.
Auditors may focus more closely on the Going Concern principle:
• Many assets at CAKE and at a number of units given up during the CVAs of other companies have been ‘abandoned’.
• Administrators have noted that the recovery costs would have outweighed the fire-sale value of the assets.
• The going concern valuation level was, thus, far, far too high under the circumstances.
• Companies that have accumulated losses and are still ‘pre-profit’ may be asked some difficult questions.
Lenders, landlords and the like:
• The impact of CVAs and other business failures on landlord’s properties will not have gone unnoticed.
• Terms are likely to be toughened. New operators may need to put up larger deposits and lease terms could be shorter. There may be more demand for personal guaranties.
• Bank lenders don’t often lend to pre-profit companies but loans to others, where profits looks secure but they may be vulnerable, could come under review
• The length of loans may shorten. This will increase the frequency of fee-heavy renegotiations and, ultimately, operators will need to pass these costs on to consumers
GENERAL NEWS – PUBS & RESTAURANTS:
• Data from CGA has shown that spirits sales increased by 22% on Halloween last year compared to 2017. A spokesperson for CGA stated: ‘Halloween spikes spirit sales by 57%, with vodka, liqueurs and speciality drinks being the most popular drinks for spook night. In contrast, beer sales increased by just 2.3%, suggesting that Halloween is a high-tempo occasion where consumers choose shots, bombs and cocktails rather than beer or long drinks’.
• CGA says ‘we are already seeing the opening of more experience-led venues, which typically make more sales by running themed evenings, games, immersive storytelling and virtual reality activities – as well as cashing in on the fact that 84% consumers on a night out now upload photos to social media.’ It says that, against this backdrop, ‘the fancy dress aspect of Halloween is a great opportunity to get branding for operators, although that can only be achieved if pubs, bars and drinks brands deliver the all-important ‘Instagrammability’— with environments and activations that encourage drinkers to take and share their snaps.’
• Beer sales rebound. September proved to be a strong month for beer sales in both the on and off trades. On trade beer sales are thought to have risen by around 8% with off-sales even stronger. Total beer sales in the month were up almost 12%. This against a relatively weak month last year. Beer sales are still around 13% lower than they were in 2015.
• Carlsberg reports it has ‘delivered a solid third quarter.’ The Danish brewer says that organic revenue grew by 3.1% with net revenue growth of 5.3%.
• Carlsberg says that volumes were down 0.5% organically in Q3 with growth of 0.7% in the 9mths to date. Craft volumes are up 12% to give a 9mth total of +15%.
• For the year as a whole, Carlsberg now expects ‘organic operating profit growth of around 10% (unchanged from announcement on 28 October).’ CEO Cees ’t Hart says ‘we’re pleased that we’ve been able to deliver solid revenue growth for the quarter despite tough comparables from last year.’
• The Carlsberg XEO continues ‘in particular, the Asia region continued its very good performance. The top line in Western Europe was solid in spite of challenging comparables from the very warm and dry summer last year, while we had difficult comparables in Russia and faced challenges that negatively impacted our market share year-over-year.’ Carlsberg upgraded earnings estimates earlier this week. It says its ‘solid earnings performance in China and Western Europe more than offset the challenges in Russia.’
• YUM Brands shares slid yesterday as Q3 revenues came in in line with estimates but profits were below expectations. Revenue was $1.34 billion with EPS of 80c against the 94c expected by the market.
• YUM says worldwide LfL sales were +3% with KFC +3% and Taco Bel +4%. Pizza Hut LfL sales were unchanged year on year.
• YUM CEO Greg Creed says ‘following a very strong first half of 2019 and in line with our expectations, third-quarter results were consistent with our long-term growth plan.’ Creed adds ‘we’re rapidly approaching the end of a truly historic year. 2019 will not only mark the completion of our 3-year transformation of Yum!, but will also mark the end of my tenure as Yum! CEO.’
• Starbucks has reported Q4 and full year numbers saying that Q4 LfL sales were +5% ‘led by 6% Comp Growth in the U.S. and 5% Comp Growth in China.’ Globally, store numbers rose by 7% with a 17% growth in China. At the end of its financial year, the company had 31,256 stores worldwide.
• Starbucks CEO Kevin Johnson says ‘I’m very pleased with our strong finish to fiscal 2019, as we sustained positive momentum across each of our business segments.’ The CEO continues ‘our U.S. business delivered 6% comparable store sales growth in the fourth quarter, while China grew comparable store sales by 5% and total transactions by 13%. Our strong performance throughout fiscal 2019 gives us confidence in a robust operating outlook for fiscal 2020.’
• Starbucks says ‘consolidated net revenues grew 10% over the prior year adjusted for unfavourable impacts of approximately 3% from Streamline-driven activities.’
• Starbucks says ‘we are seeing traffic growth across all day parts and we intend to build on this momentum in the year ahead.’ Total revenues for the quarter increased 7% to $6.75 billion. Net income was $802.9 million, or 67 cents per share, up from $755.8 million, or 56 cents per share, for the same quarter, last year.
• Business rates have once again come under fire from MPs. The Treasury Select Committee says that an urgent consultation is necessary.
• Partners at Grant Thornton have seen their pay fall by 13% this year as the accountancy group, which was the auditor to Patisserie Valeri, has delayed publishing its accounts.
• Vinoteca, which was founded in 2005 by Brett Woonton and Charlie Young, has reported headline unaudited accounts for the year to end-March 2019 to Companies’ House. The firm, which has five units, reduced its retained losses by around £20k. The company now has only £16k in accumulated losses and has positive balance sheet totals of just under £500k. The company says ‘we focus on producing carefully-sourced, great tasting food. Every Vinoteca has its own unique and daily changing menu created by a different head chef, though all our kitchens bake their own bread and serve our outstanding Vinoteca bavette steak.’
• Fatbergs in the news. We commented on Fatbergs yesterday. Completely coincidentally, Thames Water is reported to have been knocking on the door of foodservice establishments in South London after clearing a 40-tonne fatberg from an underground sewer in Greenwich.’
• The Fatberg weighed as much as three double-decker busses. It took 3wks to clear with some of it having to be removed by hand. Operators interested in a fat-free future may wish to drop us a line.
• Speaking about the Fatberg rather than channelling Boris Johnson re the current House of Commons, Thames Water said ‘this was a massive and disgusting blockage that took a great deal of effort and teamwork to clear.’
• IHOP in the US has announced that TravelCenters of America Inc. will open 94 IHOP outlets over the next five years at the company’s existing fuel stops. IHOP currently has more than 1,700 restaurants in the U.S.
• The BBPA has predicted that England rugby fans will drink one million extra pints at the pub if England wins the Rugby World Cup final on Saturday. Andrew Tighe, Policy Director at the British Beer & Pub Association, commented: ‘If England do win the Rugby World Cup, we expect many fans to stay in their local for the afternoon and evening to celebrate, boosting beer sales by up to one million pints. Come on England!’
• The amount of companies in the pubs, restaurants and clubs sector entering into administration has almost doubled during Q3, a study from the London Gazette has shown.
• A poll conducted by The Morning Advertiser has found that 44% of licensee respondents want to remain within the EU, with 25% saying they wanted out. The rest either don’t know, don’t care or would like another poll.
• Yum! Brands has seen system sales increase 8%, with LfL sales up 3% during Q3 ended September 30, 2019. Greg Creed, CEO, said: ‘Following a very strong first half of 2019 and in line with our expectations, third-quarter results were consistent with our long-term growth model. We delivered system sales growth of 8%, with same-store sales of 3% and net-new unit growth of 7%, led by continued strong performances at KFC International and Taco Bell’.
• Uber has revealed its UberEats delivery drone that it hopes will revolutionise its food transport business.
• The acquirer of the UK wine specialist Majestic Wine, Fortress Investment Group, is believed to be lining up buying 150 pubs from Marston’s. Marston’s is looking to offload the 150 pubs in order to reduce its debt of £1.4bn by around £200m in the next four years.
• Australian wine exports have increased in value to AU$2.89bn, an increase of 7% on last year. CEO of Wine Australia, Andreas Clark, commented: ‘The positive numbers also reflect that the average value of bottled wine to all but three of our top 20 destinations are in growth and nearly all the major global regions imported more Australian wine in the past year, with the exception of Europe, which declined by 3%’.
• Chick-fil-A has opened its first Scottish unit in Aviemore despite criticism from the Highland LGBT Forum. The criticism follows a report by US news website Think Progress, saying the Chick-fil-A Foundation donated millions of dollars in 2017 to organisations that LGBT campaigners say have a reputation of being hostile to LGBT rights.
• Volta do Mar, a Portuguese restaurant, is set to open in Covent Garden next month.
• Gousto launches its first plant-based burger, saying demand for plant-based recipes have surged 158% since April 2017.
HOLIDAYS & LEISURE TRAVEL:
• Capacity going on. Travel Weekly reports that ‘TUI and Jet2holidays could apply to increase their ATOL licences following the collapse of Thomas Cook’. In many ways, it would be a surprise if they did not. TW says ‘TUI has hiked summer 2020 capacity by two million seats and Jet2.com has added hundreds of thousands of seats for this winter and next summer.’
• Royal Caribbean Cruises yesterday reported Q3 US GAAP earnings of $4.20 per share and adjusted earnings of $4.27 per share ‘which include a $0.13 negative impact from Hurricane Dorian’.
• RCL says ‘our business continues to thrive and exceed our expectations.’ CEO Richard Fain says ‘while Hurricane Dorian had a negative impact, stronger demand for our brands and our key itineraries exceeded our expectations.’ He says ‘excluding the hurricane impact, we are not only able to maintain our yield and earnings guidance, but to raise both slightly as a result of particularly strong performance in the US and China.’
• Gatwick is trialling a new boarding system which will see passengers with window seats board first, followed by those in the middle and aisle. The trial will be conducted at gate 101 with easyjet and the airport hopes the system will cut the overall boarding time.
• Planning permission has been granted for the development of 133 holiday park lodges and accompanying facilities at Malton Road – just one hour from Scarborough and Whitby. The part-developed site is now available for purchase after Avison Young was appointed on behalf of administrators.
• The liquidators of Thomas Cook have turned down an approach from TUI to acquire some of its intellectual property assets, including the group’s domain name.
• The Scandinavian branch of Thomas Cook has been sold to Norwegian investor Petter Stordalen and private equity firms Altor and TDR Capital.
• The New York Times has reported that hotels and Airbnb in New Jersey are competing for the hearts and minds of residents, by funding political committees. Airbnb has reported spent $4.2m on the matter whereas the hotel industry has spent $1m.
• STR has speculated that the US hotel industry is topping out, stating that September was the second month in 2019 that saw a contraction in RevPAR.
• Sky reports that Goals soccer may be about to undergo a pre-pack administration before being bought by Inflexion Private Equity in partnership with Scottish leisure group Soccerworld. Goals’ shares were suspended in March.
• Facebook has returned to profit growth in Q3 reporting revenues up to $17.7bn from $13.7bn in the same three-month period a year earlier.
• Twitter is to ban political advertising worldwide. President Trump has used Twitter to call the move stupid.
• Apple has reported iPhone sales fell by 10% in Q3 on the same quarter last year. Revenue from the phones fell to a still-staggering $33.4bn.
• Alphabet reports Q3 revenue up 20% yoy to $40.5bn, but profit came in below expectations due to quarterly expenses of $31.3bn.
FINANCE & ECONOMICS:
• The Telegraph (of all people) says ‘nobody will take the Conservatives’ general election promises seriously if Javid lets borrowing run riot.’ The government’s deficit is rising sharply even before it has made good on its spending pledges.
• US economic growth slowed in Q3 – but by a little less than some expectations. Growth came in at an annualised 1.9%.
• The US Fed has cut interest rates for the third time in 4mths.
• UK car production fell by 3.8% in September compared with the same month a year ago. The SMMT says that ‘another bitterly disappointing month reflects domestic and international market contraction.’ It says ‘most worrying of all though is the continued threat of a ‘no deal’ Brexit, something which has caused international investment to stall and cost UK operations hundreds of millions of pounds, money that would have better been spent in meeting the technological challenges facing the global industry.’
• The stalemate over Brexit has been cited by the RICS as one of the reasons why a commercial property downturn is now a feature of the UK market.
• Sterling up vs dollar at $1.2919 and down vs Euro at €1.1573. Oil down at $60.78. UK 10yr gilt yield down 4bps at 0.68%. World markets mixed.
• Brexit & politics:
o Electioneering kicking off with one side wanting to talk about Brexit & Britain and the other about the NHS and social justice. The position of Nigel Farage could be critical.
o Channel 4’s Despatches programme has reported that UK civil servants have been meeting with US healthcare companies to discuss the NHS post Brexit.
o Nicky Morgan is not to stand at the next election. In standing down, she joins other moderates including Amber Rudd, Jo Johnson, Rory Stewart and David Lidington. They will likely be replaced by much more pro-Brexit candidates.
START THE DAY WITH A SONG:
Yesterday’s song was Waterloo Sunset by The Kinks. Today who sang:
And when she lets me slip away,
She turns me on all my violence is gone
Nothing is wrong
RETAIL WITH NICK BUBB:
• Carpetright: The embattled Carpetright has announced that it needs to raise yet more money to keep going and that, rather than try to arrange £80m in funding, it has decided to accept a bail-out cash offer of just 5p a share from its biggest shareholder, Meditor. Other shareholders, with c34% of the non-Meditor shares, have already indicated that they will vote to accept the offer, even though it is a huge discount to last night’s closing share price of 9p, so it looks all over bar the shouting. The trading update doesn’t contain any figures, but says “The Board believes that Carpetright is performing well despite the challenging economic backdrop and intense sector competition. Group profitability is improving as the company drives store efficiency and reduces the central cost base”.
• Consumer Confidence Watch: The widely-followed monthly GFK Consumer Confidence survey came out overnight and the overall index for October showed an unsurprising dip from -12 to -14, but polling was done in the first half of the month (Oct 1st-14th), well before the latest political drama over Brexit and the General Election. The index was last this low in August, and has not been lower since July 2013. Joe Staton, client strategy director at GfK, said “The ongoing machinations in Westminster appear to be impacting how we view our personal financial situation for the coming year, with a notable fall”.