M&B full year, SSP, Fevertree warning etc.:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

Don’t you find that people become a bit more insular in the winter?

Because fellow pedestrians and the like seem more remote when it’s dark. It’s possible to walk to and from work without having to acknowledge that they even exist other than as shadow passing, as it were, in the night.

And they tend to be well wrapped up, have their headphones on and avoid eye contact at the best of times, stopping only occasionally to swerve homeless people, check that there aren’t any cyclists shooting up and down the pavement and ensure that their coffees aren’t spilling.

Furthermore, even when we get to the office, as the builders have again thoughtfully erected scaffolding outside our window that blocks out the light almost completely, it seems to us as though it never really brightens up beyond a dull gleam even at noon.

Which, if you’re looking for a silver lining, helps us to concentrate on our work. Lovely but anyway, it’s time to move on to the news:

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MITCHELLS & BUTLERS FULL YEAR NUMBERS: Mitchells & Butlers has this morning reported full year numbers for the 52wks to 28 September and our comments are set out below. 20 Nov 2019:

Headline numbers:

• M&B reports total revenue of £2.24bn (2018: £2.15bn)

• The group says operating profit is up by 16.5% at £297m

• PBT is up 36.2% at £177m and EPS is 33.5p (2018: 24.5p)

• In line with expectations, there is no dividend.

• LfL sales for the year are up by 3.5%. In the first 7wks of the new financial year, sales are +1.4% ‘in a period of adverse weather’. The group maintains that it continues to outperform the market.

More on trading:

• M&B says that trading has been ‘strong’ and that it has outperformed the market both in terms of sales and in profit growth.

• The group says it has seen a strong performance across its brands ‘driven by sales initiatives’

• Efficiencies have raised the operating margin from 14.1% to 14.2%.

• The group has reiterated its priorities. Namely to 1) build a more balanced business, 2) instil a more commercial culture and 3) drive innovation. It maintains that it is making progress in all of these areas.

• The group says ‘an innovation mindset continues to be a priority for our business.’ M&B’s digital strategy ‘represents an opportunity to unlock value by facilitating agile integration with new technology.’

Balance Sheet, Debt etc.:

• M&B reports that is has expended £152m on capex during the year, slightly down on last year’s £171m ‘including 7 new site openings and 240 conversions and remodels’

• Adjusted free cash flow is £11m (2018: outflow £19m)

• Net debt is down to £1.56bn (FY 2018 £1.69bn). This represents 3.6 times adjusted EBITDA (FY 2018 4.0 times)

• M&B says ‘our estate comprises 1,748 pubs, bars and restaurants, of which more than 80% are freehold or long-leasehold.’

• Brand optimisation continues. Premiumisation ‘and amenity upgrades’ are ongoing trends.

• Capex will remain elevated as the group moves to a 6-7 year refurbishment cycle against the 11-12 years that it used to maintain

Conclusion:

• CEO Phil Urban says ‘these strong results reflect the work we have done over the last few years, first to build sustained sales growth and then to convert that into profit growth.’

• Mr Urban says ‘it has been extremely encouraging to see an improvement in like-for-like sales growth across the portfolio during the year, fuelled by our Ignite programme of work.’

• The work carried out ‘puts us in a stronger position as we move forward into the next financial year, in what we expect to remain challenging market conditions.’

• Regarding the market, M&B says ‘the eating out industry continues to face challenges, including rising costs and supply which has, over recent years, outstripped demand.’

• It says ‘the result of these factors has been a number of CVAs and business closures amongst our competitors, and, in the twelve months to June, the number of restaurants in operation fell by 3.4%.  This reduction in sites was evenly spread across the UK.’

• M&B adds ‘the industry as a whole remains in revenue growth; forecast to be 1.3% in the year to September 2019. This suggests that, despite reported fragile consumer confidence, people ultimately still want to go out and treat themselves to social occasions.’

• M&B says ‘the UK political and economic environment remains uncertain. The impact of Brexit remains unclear.’

• Re current trading, M&B says ‘in the first seven weeks of the new financial year like-for-like sales have grown by 1.4% having continued to outperform the market in a period of adverse weather.’

• It says ‘a return to profit growth in the last financial year represents significant progress in the face of inflationary cost headwinds impacting the sector.’

• Overall, M&B concludes ‘the market remains challenging with a high level of macro uncertainties, but we will remain focused on maintaining a strong balance sheet and reducing our net debt whilst positioning the business to generate value for our stakeholders.’

Langton Comment:

• M&B has recently outperformed the market. It has certainly benefited from strong London trading and the impact of the capex that has taken place across its estate but it has also been pulling what levers it can elsewhere in order to improve trading.

• It is rightly rather proud of today’s numbers and, though trade has slowed in FY19/20, the weather has been far from helpful. As always, the Christmas trading period will be critical.

• The rise in margin is particularly noteworthy.

• In recent weeks, M&B has been getting stuck in both in terms of discounting (with up to 40% off at some of its outlets) and in evolving its offer in line with changing consumer tastes.

• As mentioned in earlier emails, the group has a large estate and all changes will take time to come through. Competitors will not stand still. Smaller operators will be more nimble but other, larger players, are facing much the same challenges as M&B.

• The group’s shares have risen strongly since Greene King agreed to a bid from Chinese investment company CKA such that they have proved a very profitable investment. Good trading has since boosted the shares further, but they remain optically relatively cheap.

• MAB is strongly asset-backed and, though its share register and its dividend policy arguably require a bit of work the group is pulling what levers it can.

PUBS & RESTAURANTS:

• SSP Group has reported FY numbers to 30 September 2019 saying these are ‘strong full year results’ and the group has had ‘another year of significant expansion.’

• SSP says revenue rose 7.8% to £2.8bn with underlying operating profit up 12.1% at £221.1m. LfL sales are up 1.9%.

• SSP CEO Simon Smith says ‘SSP has delivered another strong performance in 2019. Operating profit was up 12% at constant currency, driven by solid like-for-like sales growth despite some external headwinds, significant new contract openings and further operational improvements.’

• The group says ‘we continue to grow our business in North America, and have made good progress expanding in Continental Europe. In the Rest of the World, we have grown in India and the Philippines, and have entered Brazil, a new market for us, with further market entries planned in Bermuda, Bahrain and Malaysia.’ It adds ‘the new business pipeline is strong across all our geographies both this year and next, and we’ve announced a £100m share buyback which further demonstrates our confidence in the future of the business.’

• Regarding the future, SSP says ‘the new financial year has started in line with our expectations and, whilst a degree of uncertainty always exists around passenger numbers in the short-term, we continue to be well placed to benefit from the structural growth opportunities in our markets and to create value for our shareholders.’

• Some caution from Fevertree. Downgrades likely.

• Fevertree has updated on trading saying that it has seen continued growth despite the fact that ‘the Group has lapped exceptional comparators from summer 2018 and more recently seen a wider slowdown in consumer spending.’

• Fevertree says ‘in the UK Off-Trade, our performance has been behind our expectations in the second half.’ It says ‘despite these short-term headwinds, Fever-Tree remains in a very strong position.’

• Fevertree says ‘the Group remains on track to deliver growth across all its regions with the US performing ahead of our expectations in the second half.’ It adds ‘however, given the short-term headwinds at UK Off-Trade, the Board now expects the Group to report revenue for the full year ending 31 December 2019 of between £266m-£268m, representing year-on-year growth of 12-13%, with margin expectations unchanged.’

• Fevertree CEO Tim Warrillow says ‘we continue to see growth across all four regions.’ He adds ‘despite challenging comparators, our performance in the UK On-Trade underlines the strength of the brand and while the mixer category in the Off-Trade is moderating alongside the recent slowdown seen across the wider grocery channel, we continue to maintain our clear UK market leadership position.’

• UK Hospitality has published its wish-list for whomever forms the next government. It says that, with the right encouragement, the hospitality industry can ‘grow its output by 5.5% over the next 3 years’ and ‘increase employment by half a million within a decade, across multiple levels and in every region, including 30,000 apprenticeships by 2025.’

• UKH asks the incoming government to rebalance ‘the business tax burden to reflect the modern digital economy by reforming the business rates system.’ It says any new government should also ‘boost skills and opportunities for our workforce’ and thereby boost incomes. It should raise employers’ NIC thresholds and bring communities together.

• UKH CEO Kate Nicholls comments ‘hospitality businesses are integral to almost every community in the UK.’ She says the sector employs 3.2m people and says ‘we can do so much more, though, if we are given the right kind of support from the Government.’

• Tossed owner Zest Food has become the latest high street operator to tap its landlords for lower rents after submitting plans for a CVA (a creditors’ voluntary arrangement). Zest blames its worsened trading on the 13 Vital Ingredients stores it purchased out of administration last year. Trading there has been ‘significantly below expectations.’

• Tossed itself is said to still be in growth. CEO Neil Sebba says ‘the directors consider a CVA as the best way to protect the Tossed brand, provide breathing space for the company and provide strong foundations on which the business can grow in the future.’ He adds ‘as part of this we are asking landlords to look at the rent that we pay

• The FT reports that some Scottish distillers are creating a ‘spirit’ with little or no alcohol. Operators suggest that the growing demand for low and no-alcohol options poses an opportunity for Scotland’s distillers. The reaction of consumers is so far unclear.

• Puttshack has secured a 25,000 square foot site in Atlanta in a new $450m mixed-use development called ‘The Interlock’. Puttshack, which completed a £30m equity raise with lead investor Promethean Investment this year, has recently opened its latest site in London, at 1 Poultry Bank. 

• Impossible Foods and Beyond Meat target China, which consumes a third of the world’s meat. Outbreaks of African swine fever has made the need for alternative sources of protein more acute. 

• Coca-Cola will switch to using PET bottles in Sweden made only of recycled plastic at its Jordbro factory south of Stockholm. The company said the switch ‘means a 25% reduction of CO2 emissions annually compared with before the transition’.

• US restaurants registered a 1.4% growth in LfL sales in October per US journal NRN. It says that, amongst the larger operators, ‘Wingstop saw the greatest overall latest-quarter same-store sales growth, at 12.3%, while Steak ‘n Shake’s 6.5% decline marked the biggest fall.’

• Speaking at the Propel Multi-club event, founder of Market Halls, Andy Lewis-Pratt, has said that his company plans to be a ‘consolidator’ in the sector. He says ‘the number of food halls has increased considerably over the past few years, meaning there is scope for consolidation – and we expect to be a consolidator. We have explored the regional markets and think a key part of our strategy will be consolidating some of those regional operators.’

• Alibaba is to raise as much as $12.9bn in a secondary listing in Hong Kong.

• Deliveroo has stated that it expects vegan orders on its platform to grow, following a 330% rise over the past two years.

• Deliveroo has also found that UK customers increase their snacking orders on its app by 74% during the winter months.

• Hard Rock Hotel has announced that it will open a site in Prague in 2023. 

• The new chief executive of the BBPA, Emma McClarkin has commented to The Morning Advertiser: ‘My priority, come Brexit, is to make sure when that cacophony of noise is going off, our voice from the industry really cuts through. My job is to understand what we are doing right now and to navigate this period of political change we are seeing, not only with a general election coming up and any Budget that will be coming in the new year’.

• Protesters in Hong Kong have barricaded themselves inside university buildings in recent days, leading the FCO to recommend against travel to the region: ‘The situation around protests and public gatherings can change quickly, with the potential for violence, especially during unauthorised protest’.

• Molson Coors has acquired a ‘significant’ minority take in L.A. Libations, a company which specialises in identifying emerging drinks brands and helping them to expand. Founded in 2009, L.A Libations has provided services for established brands including Zico Coconut Water, Core Water and Body Armor.    

• Pernod Ricard has denied claims that there was a ‘constant pressure’ for staff members to consume alcohol. The claims were made at an employment tribunal where several employees complained. One employee, ‘Amélie’, a salesperson still working for Pernod Ricard, said that drinking on the job caused her to seek treatment for alcoholism after experiencing hallucinations and hearing voices.  

• Caribe’ CEO, Keshia Sakarah, has announced the launch of a new permanent site at Pop Brixton. 

HOLIDAYS & LEISURE TRAVEL: 

• EasyJet will launch a reworked easyJet holidays in the UK before Christmas, offering customers flexibility as a ‘key part’ of its business. EasyJet Holidays is expected to be ‘at least breakeven’ for the financial year to September 30, 2020. 

• Chinese online travel agency Trip.com Q3 results showed corporate travel revenue of $47m, up 26% YoY and 9% QoQ. The company said the business travel boost was driven by ‘expansion in its corporate customer base and an optimised product mix trend’.

• EasyJet has laid out a timetable for operating a fully electric fleet, in partnership with Airbus. The company also pledged to offset fuel emissions from all its flights with immediate effect at a cost of approximately £25 million over the next year. 

• Dalata Hotel Group will rebrand the existing Tamburlaine hotel in Cambridge into a Clayton Hotel with 160-rooms. 

OTHER LEISURE:

• Manchester City has reported revenue of £535.2m in 2018/19, with the figure projected to rise again next year as payments from a £45m-a-year Puma kit deal will also start to take effect. Local rivals, Manchester United, reported turnover will fall to between £560-580m this year because of their failure to qualify for the Champions League.   

FINANCE & ECONOMICS:

• to ensure all the stores remain viable.’

• Moody’s has suggested that the next economic downturn in Europe could see more failures than the last as there has been an increase in the proportion of companies operating whose capital is rated junk. It says the number of companies it rates as ‘speculative’ has doubled in Europe over the last three years.

• Sterling lower at $1.2009 and €1.1656. Oil lower at $60.78. UK 10yr gilt yield up 1bp at 0.73%. World markets broadly lower.

• Brexit & politics:

o Shadow chancellor John McDonnell has said that workers and consumers will ‘take back control’ under a new Labour government if it wins the election.

o Last night’s televised debate between Boris Johnson and Jeremy Corbyn has been deemed a no-score (or a bore) draw.

o Mr Corbyn alleged that there had been secret talks between civil servants and representatives of US drug companies about easier access to the NHS post Brexit. PM Boris Johnson said that was ‘an absolute invention.’

START THE DAY WITH A SONG:

Yesterday’s song was the still-weird White Rabbit by Jefferson Airplane. Today, who sang:

“Do you believe it in your head?,

It’s so safe to play along

Little soldiers in a row

Falling in and out of love”

RETAIL WITH NICK BUBB:

• Kingfisher: The new CEO, Thierry Garnier, has only been in the job for 8 weeks and those expecting him to have delivered a miraculous turnaround in performance at the struggling Kingfisher DIY empire will be disappointed that today’s Q3 update (for the 13 weeks to Oct 31st) is…disappointing, with overall LFL sales down by 3.7%. In the UK, B&Q was down by 3.4% LFL and even Screwfix was only up by 3.7%. In France, LFL sales tumbled by c6.0% at both Castorama and Brico Depot with mild weather blamed for hurting sales of heating products! And, elsewhere, the important business in Poland was hit by Sunday trading restrictions, with LFL sales 3.2% down. About the only good news is that overall gross margins for the year are still expected to be no worse than flat, despite soft sales. The new CEO says, scathingly, that “My early assessment is that we have not found the right balance
between getting the benefits of group scale and staying close to local markets. We are suffering from organisational complexity, and we are trying to do too much at once with multiple large-scale initiatives running in parallel”.

• Retail Sales Watch: The Retail month of November (the 4 weeks to Nov 23rd) is nearly over, but we haven’t seen the final word yet on how good October was on the High Street, given the autumnal weather…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 3.0% last month (ex-petrol)…But the BRC-KPMG measure of gross sales was only up by 0.6% in gross terms (up 0.1% LFL). So, who was right? The ONS? Or the BRC? Well, the consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey) has just come out with its own detailed overview of October and their estimate is that gross Retail sales rose in value by 2.1% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is
slightly nearer the ONS than the BRC-KPMG view of things. RE estimate that Food sales growth was 2.4% last month and that Non-Food sales were up by 1.9% overall (with DIY and Gardening down by 3.3%, but with Clothing up by 3.7%, at the two sub-sector extremes).

• Waitrose Watch: After a weak start to November, trading at Waitrose picked up last week and yesterday morning’s JLP weekly overview, for w/e Nov 16th, revealed that Waitrose saw a rise of 2.6% in gross ex-petrol sales, although whether that was due to the continuing big “20% off” Wine promotion or good sales of “Excitable Edgar” merchandise is unclear…That left the last 42 weeks down by 0.7% gross cumulatively, but although Waitrose do not think it worthwhile giving a weekly LFL sales figure, we think that store space is at least 1% down (after the sale of five Waitrose stores in June and more disposals last month), so that the LFL sales picture will look better (the LFL sales dip was 0.4% in H1, with gross sales down by 0.8%).

• John Lewis Trading Watch: The cool weather helped John Lewis again last week, but overall gross sales in w/e Nov 16th still fell back, by 3.4%. In terms of sales mix, Fashion/Beauty sales were up by 0.7% gross last week and Home sales were up by 3.4% gross, but Electricals were down by as much as 14.4% gross, “as we annualised against new product launches”. The new Cheltenham store opened in October 2018 is now LFL, so there is no new space in the current figures, but we think that John Lewis LFL sales are down by c2.0% over the last 42 weeks, despite the Sale-driven jump in the first three weeks in October: overall gross sales are running down by 1.6% cumulatively (the H1 LFL sales fall was 2.3%, with gross sales 1.8% down).

• News Flow This Week:  Tomorrow brings the Naked Wines interims and the Hotel Chocolat AGM.