Langton Capital – 2019-11-15 – PREMIUM – Chilango cap structure, Fuller’s cautions, Safestay etc.:
Chilango cap structure, Fuller’s cautions, Safestay etc.:
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A DAY IN THE LIFE:
Bit busy today, on to the news:
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BOOK REVIEW: JUST BORIS – SONIA PURNELL – Part II (of II). Ms Purnell worked with Boris Johnson at The Telegraph in Brussels in the 90s. She knows him well. 15 Nov 2019:
With friends like these?
• Boris Johnson’s former boss at The Telegraph, Max Hastings, famously said ‘almost the only people who think Johnson a nice guy, are those who do not know him.’
• His boss at the Spectator, Conrad Black, called him ‘duplicitous’. He was sacked from the Times. Former-Tory leader Michael Howard also let him go. Another boss, Andrew Neil, didn’t like him, Michael Gove did what he did and, with friends like these, who needs enemies?
The Spectator & the Back Benches:
• Biographer Sonia Purnell says that Johnson ‘presumes on the goodwill of others’ and is a charmer. He says ‘yes’ to most things but doesn’t mean it. He is ‘persistently unreliable’.
• He ‘despises tedium’ but, to the purists, he is an ‘ideological vacuum’.
• He won Henley as a ‘politico-comedian’. There were allegations of dirty tricks by the Johnson team. His own hands remained clean.
• He worked for Michael Howard but his ‘devotion to himself was greater than his devotion to his leader.’
• His attendance in the Commons was in the lowest 20%. He retained his jobs on TV, at the Spectator, at GQ Magazine etc. He was ‘spectacularly disloyal’ and ‘short-changed Henley’.
• Johnson also wrote a novel, 72 Virgins, which is worth a read. There were affairs. There was an abortion. There were more affairs.
• Johnson lied to the papers about one such affair and was sacked by Michael Howard. He said the comment, which was true, was an ‘inverted pyramid of piffle’.
• Marina kicked him out but let him back in. He inspires trust and loyalty but does not reciprocate. Few of his ‘women’ have kissed and told. He is a ‘politician without policy’. He has been indulged by his bosses.
• Polly Toynbee in Guardian called him ‘a self-absorbed sociopath & serial liar.’
• Johnson is light on policy and can ramble. But he is easy to underestimate. He made fewer gaffes vs Ken Livingston and won.
• He is sloppy with figures. He said new busses in London would cost £8m, but they cost £100m. The Boris Bikes (Ken Livingstone’s idea) generated an income of less than £10m over 5yrs but cost £114m etc.
• Simon Heffer says ‘he is not a politician, he is an act.’ He engages in ‘drive-by politics’.
• At City Hall, three were a number of errors at the beginning. There was no team. There were appointments and resignations.
• More affairs and a daughter. Thrown out of the marital home again but let back in.
The good points:
• Purnell maintains that Johnson is fun and exciting and rarely boring. But there are no policies.
• He is not judged ‘by normal standards’. He is ‘resourceful, cunning & strategic’ and, at the end of the day, he is just in it for himself.
• Events post publication. Second mayoralty, Olympics, Referendum, marriage collapse, various salacious stories, cabinet jobs and the Premiership.
MEXICAN FOOD: TOO HOT FOR SOME?
Chilango to restructure says The Telegraph:
• The Telegraph has reported that ‘thousands of “burrito bond” customers may be facing heavy losses as restaurant chain Chilango calls in a restructuring firm to secure its future.’
• We commented in our Premium Email on 16 October that the Mexican food market looked to be in a bit of a mess. Tortilla looks to be breaking even but the rest of the industry (ex-Chiquito’s) appears to be in loss.
• Capital has rushed into the market over the last ten years or so. We pointed out last month that the Guardian (writing in 2015) reckoned the number of Mexican restaurants rose by 71% ‘in the last year alone’.
• More restaurants have been opened since. We said last month ‘Mexican outlets beat ‘better burgers’ into second place in terms of scale but the question that perhaps should have been asked was ‘is this growth demand led or supply driven’?’
• We added ‘when a market becomes saturated, we’d question just who the ‘big winners’ – as the fast-expanding operators were labelled in the CGA report – are.’ We suggested that ‘the ‘winners’ should not include investors that have funded the units and the creditors that take a bath in any subsequent CVA. Perhaps the CVA accountants and lawyers are winners.’
• Re Chilango, we said that the company, which is part funded by crowd-funded ‘Burrito Bonds, had not yet put in accounts for the year to March 2019 but that the accounts to March 2018 did not make pleasant reading.
• Though Chilango said it was ‘pleased with the current trading performance,’ it made a loss of £1.4m. There are accumulated losses of £14.4m. At least there were at March 2018. The short odds are that the accumulated loss is considerably greater now. We said ‘although we do not have sight of a current balance sheet, the company subsequently issued shares in July 2018, and in May, June and September 2019.’ We added that ‘Grant Thornton has signed the company off as a Going Concern.’
• This may now be under some question. The Telegraph says that Chilango first launched its ‘controversial bonds in 2014, with more than 700 investors backing the scheme, raising £2m.’ It says that a second bond was launched last year.
PUBS & RESTAURANTS:
• Fuller’s warns on restructuring costs.
• Fuller’s says separation costs re the disposed brewery ‘have transpired to be materially higher than expected, with additional resource required to assist the business through this complex separation period.’ It says ‘profit performance for the full year ending 28 March 2020 will be broadly in line with the prior year on a comparable basis, resulting in adjusted profit before tax in the region of £31m.’
• The group says that it will update more fully at its Half Year results on 12 December 2019.
• The company has updated on trading saying that ‘the business continues to trade well with total sales in our managed estate growing 5.2% and like for like sales growth of 2.3% for the 32 weeks to 9 November 2019, against strong comparatives for the corresponding period last year albeit with some margin erosion due to industry wide cost pressures.’
• Fuller’s says ‘as a result of the sale of the brewing business, underlying earnings of the retained business have been aligned accordingly and the vast majority of the central overheads reflecting Fuller’s former integrated structure have been retained by the Company until the TSA agreement with Asahi comes to an end by May next year.’
• Fuller’s CEO Simon Emeny says the company has encountered ‘some greater than anticipated costs as a result which have had a short term impact on our financial performance.’ He says, nonetheless, that ‘our strategy remains on track and we will continue to execute our growth ambitions and maximise the opportunities open to us as a focused pubs and hotel business.’
• UK Hospitality CEO Kate Nicholls has commented on PM Boris Johnson’s statement that he would cut business rates saying ‘high streets have been hit hard by business rates and hospitality has arguably been hit the hardest of any sector. A rates’ cut would certainly be a positive first step for businesses and, ideally, should come ahead of a wholescale review of the entire system.’
• UK Hospitality says ‘the other major parties should also take note. Business rates is the biggest barrier to growth that businesses are facing right now. Government cannot expect businesses to flourish under the current regime.’ The Tory’s manifesto is not due to be published for another couple of weeks.
• Young & Co yesterday mentioned that its expansion programme and ongoing investment ‘has put, and will continue to put, pressure on our operating margins.’ External factors such as the NLW and the NWM alongside increases in business rates also put downward pressure on margins.
• Young & Co pointed out that drink sales (up 0.7% LfL) underperformed food, largely due to the difficult comparative figures set during last summer’s sustained good weather. LfL food sales were up by 1.9%. It is likely that both numbers imply a reduction of volume (or a mix change in the case of drink with Pimm’s and summer drinks selling less well than other drinks). Accommodation LfL sales were up by 1.4%.
• YNGA says that ‘during October, key weekend trading days were dominated by heavy rain.’ We may hear other companies refer to adverse weather when they report numbers over the coming weeks.
• Zonal reports that it has teamed up with Uber Eats ‘to deliver an integrated food delivery service for restaurants.’ It says ‘we recognise that home delivery is here to stay, and demand will continue to grow. We are delighted to demonstrate our openness to technology integration with leading platforms like Uber Eats, which helps our customers meet changing consumer habits while upholding service and brand expectations.’
• The MA reports Admiral Taverns’ CEO Chris Jowsey as saying his pubco has plans to increase its estate from 1,000 sites to at least 1,500 over the coming two to three years.
• Contract & events caterer Concerto Group has reported numbers for the year to end-December 2018 to Companies’ House. The group generated £6.3m in revenue for the year but made an operating loss of £835k. The group reports a loss before taxation of £880k. Concerto has retained losses of £1.7m and its net balance sheet totals have swung into the red. The company has negative shareholders’ funds of £423k. Concerto is part of CH&CO Group. Concerto says ‘as part of the wider Group [it] maintains a positive relationship with its bankers.’ It says ‘the going concern basis has been adopted in preparing the annual reports and accounts.’
• Nike is to stop selling directly through Amazon. It will focus on selling directly itself and, in-so-doing, it should keep more control over the end-customer. It remains to be seen whether any in the casual dining space feel inclined to try this with Uber Eats, Deliveroo or Just Eat.
• Former Deliveroo MD Dan Warne and former Tragus CEO Graham Turner are to open a food hall with up to ten independent traders in the Shelter Hall on Brighton seafront next summer.
• Next Tuesday, Fuller’s is to celebrate its 174th birthday by offering certain drinks at £1.74 each.
• The owner of Hush Heath wineries has suggested that there could be a ‘lot of casualties’ as a result of ‘massive oversupply’ within five years. There are parallels across a number of industries here. E.g. high street bars around the Millennium, casual dining in the last five years and London hotels (see below) perhaps now.
• Bella Italia has partnered with toy and entertainment company Hasbro to launch a Family Games Hour at selected UK sites in order to drive footfall. Bella Italia says ‘a board game is a great way to bond as a family.’
• China’s Luckin Coffee Inc, which is challenging Starbucks in the country, reported higher than expected Q3 revenues, raised its Q4 guidance and reported lower losses. The company’s shares rose nearly 14% on the news.
• The Catering Equipment Suppliers Association (CESA) has said that restaurants are increasingly repairing catering equipment rather than replacing it as uncertainty has become a feature of the market post the Brexit referendum. CESA members reported drops in orders of between 10% and 15%. It says ‘the service and spares industry remains strong, indicating that equipment is being repaired rather than replaced.’
• ASDA has reported a 0.5% drop in LfL sales in calendar Q3. It says that Brexit worries ‘continue to negatively affect customer spending patterns.’
HOLIDAYS & LEISURE TRAVEL:
• Safestay has announced that it has acquired the Hotel Auberge in central Berlin for €1.2 million. It says ‘currently operating as a 32 bedroom hotel, the Hotel Auberge is ideally suited to being converted into a modern 150 bed Safestay Hostel.’
• UK Hospitality has called upon hotels and other accommodation providers in Scotland to continue to lobby against the proposed tourist tax north of the border.
• STR reports that the US hotel industry increased occupancy by 0.1% and room rate by 1.9% in the week to 9 November. REVPAR was up by 1.9%.
• Smith Travel Research says that the hotel build pipeline for Europe is 44.3% greater than it was in October last year. Germany and the UK are the two markets currently seeing the most build activity.
• The hotel pipeline in the US has grown by 5.5% in the last year.
• Birmingham airport aims to be carbon neutral by 2033.
• A Sky poll has suggested that 56% of respondents are in favour of taking the rail network back into public ownership.
• TFL reports that there is just under £400m out there left unspent on Oyster Cards. Many commuters have switched to contactless credit cards.
• Camelot, which runs the UK’s National Lottery, has reported record sales in the first half of its financial year. Ticket sales were up by 13.5%. CEO Nigel Railton says that the brand has been ‘re-energised’.
FINANCE & ECONOMICS:
• The ONS reports that shoppers cut back on their spending in the year to October. Retail sales grew at their slowest rate for a year and a half in the month with the volume of product sold actually down by 0.1%. The ONS says ‘all main sectors saw falling sales apart from food shops.’
• The FT quotes some observers as suggesting that consumers could just be holding off on purchases ahead of ‘Black Friday’ discounts in November.
• The top 1% of earners in the UK now account for a third of income tax paid reports the IFS. The TUC meanwhile reports that payments to shareholders have risen ‘six times faster’ than have wages.
• Sterling up at $1.2878 and €1.168. Oil down at $62.49. UK 10yr gilt yield down 5bps at 0.71%. World markets mixed with Far East up in Friday trade.
• Brexit, politics etc.:
o The NIESR has stuck by its conclusion that the deal negotiated by Prime Minister Boris Johnson will leave the UK some £70bn worse off than if it had stayed in the UK. It says this amounts to ‘about £1,000 per year per person for ever.’
o Pollster Sir John Curtice says that the Tories are up one point over the last week to 39% with Labour also up one at 29% and the Liberals flat at 16%. He says that anything less than a 6-7ppt lead for the Tories is likely to lead to a hung parliament.
o Labour is promising free broadband for every home it the UK by 2030. It says the move, which could cost £20bn, would boost the economy.
START THE DAY WITH A SONG:
Courses and mock exams getting in the way. The song will be back next week.
RETAIL WITH NICK BUBB:
• Carpetright: The Board of the embattled Carpetright, have, inevitably, thrown in the towel and recommended the 5p bail-out offer from 30% shareholder, the fund manager Meditor. It’s not known what the hard-working CEO Wilf Walsh thinks of the situation, but the Chairman, Bob Ivell, admits that “With a recapitalised business and the backing of a committed new owner with the resources to invest in Carpetright for the long term, we will be able to complete our recovery in the private arena and emerge as a stronger business”. As for the poker-playing Meditor boss, Talal Shakerchi (who is clearly gambling that he can drive Carpetright’s bitter rival, the loss-making Tapi out of the market) says in the statement that “I am excited about the long term prospects and opportunities for the Carpetright business”.
• Planet ONS Watch: We flagged yesterday that in the real world, as per the BRC-KPMG figures for October (the 4 weeks to October 26th), Retail Sales were a bit brighter last month, given the impact of more autumnal weather and increased discounting, but “seasonally adjusted” life was a bit subdued on the High Street on that strange parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via yesterday’s official Retail Sales figures for October…As usual, City economists (who still treat the dubious ONS figures as the gospel truth) swallowed the 0.1% dip in month-on-month seasonally adjusted sales volume (ex-petrol), which was a bit worse than expected, without digging any further. We focused, as normal, on the year-on-year non-seasonally adjusted sales value figures, plus the controversial split between Large and Small Businesses and the overall October +3.0%
• Grocery Market Share Watch Part 2: We highlighted on Tuesday that the latest Nielsen grocery sales figures (for the 4 weeks to Nov 2nd) showed that overall supermarket industry sales growth slowed to only +1.1% (from +1.7% in the previous 4 weeks). However, the rival Kantar survey on the same day reported an even worse outcome of +0.4% for a similar 4 week period (to Nov 3rd), on a “Till Roll” basis, below the level of food price inflation. And on a pure “Grocery” basis (ex-Non Food) overall sales were only 0.3% up, according to Kantar, despite Aldi/Lidl growth of 8.4% combined. Tesco was the worst of the “Big 4” on this basis, with gross sales 2.6% down, whilst Asda was 0.3% down gross, Sainsbury was down by 0.2% gross and Morrisons was down by 1.6% gross, but M&S Food was up by a decent 3.5% gross.
• Asda Watch: If the Kantar grocery market share figures are any guide, Q4 has not started well for Asda and, amusingly, the weak Q3 sales figures reported by Wal-Mart yesterday for Asda (for the calendar quarter) were blamed on “Brexit uncertainty”, with LFL sales down by 0.5% (despite good Online Grocery growth) and overall gross margins hit by higher Clothing stock markdowns…
• BDO High Street Sales Tracker: We noted on Wednesday that the John Lewis sales figures for last week were quite weak, despite more price-matching of competitor promotions, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly good progress in recent months, possibly through sampling issues or the over-weighting Online sales) is very good…In w/e Sunday Nov 10th, BDO Fashion sales were up by as much as 10.8% LFL (albeit against a soft comp). And total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion) were up by 9.8% last week (up by 6.7% in Store sales and up by 22.1% in Online sales).
• Trade Press: Retail Week magazine has not been published today, but Drapers magazine is out today and the Editor looks in her column at the attempt by ASOS to introduce the Chinese “Singles Day” promotion on Nov 11th to the UK and thunders that “Let’s leave Singles’ Day Sales in China”. In terms of News stories, Drapers highlight that the new boss of the struggling New Look chain, Nigel Oddy, has admitted that the business still has “work to do”, Superdry’s full-price “reset” has hit revenues and M&S boss Steve Rowe has admitted that internal “execution” issues are to blame for the bad results. In terms of Features, Drapers look at the problems of Mothercare and Mamas & Papas in the babywear market, Sheffield town centre’s retail regeneration and the importance of FX hedging to protect margins. The main highlight, however, is the third of the always excellent “Hit or Miss”
• News Flow Next Week: There is again enough going on in the Retail sector next week to distract us from all the Election campaigning…kicking off on Tuesday with the AO.com interims and the Dunelm AGM. On Wednesday we get the Kingfisher Q3 update and then Thursday brings the Naked Wines interims and the Hotel Chocolat AGM.