Langton Capital – 2019-12-06 – PREMIUM – ETM Group, outlet numbers, Thomas Cook, swine flu etc.:
ETM Group, outlet numbers, Thomas Cook, swine flu etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I wouldn’t particularly like to face Andrew Neil but, with some honourable exceptions, it does feel as though our top-flight journalists are capable of being somewhat shallow. Certainly the campaign coordinators seem to feel that way, I mean why else would we be bombarded with asinine slogans such as ‘Get Brexit Done’.
And the ‘false equivalence’ that’s going on is rather disappointing. Grimsby chip shop owner vs Cambridge professor of economics etc., it’s 50:50 and allowing comments to stand (e.g. he got a deal done that nobody said was possible) is also rather feeble because buying a ten-grand car for twenty-grand is always possible.
And you’ll even get those leather seats thrown in that the vendor said weren’t possible if you cave in elsewhere and if you chuck your own erstwhile allies under the bus, then so much the better.
Still, better keep it all in perspective. It’ll be ‘done’ by Thursday, won’t it?? On to the news:
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PRIVATE COMPANY RESULTS – ETM GROUP – Ed & Tom Martin’s pub company, ETM Group, has reported full year numbers to 24 Feb to Companies’ House. 6 Dec 2019:
• Turnover rose to £31.5m from £27.0m.
• Gross margin was up from 75.3% to 75.7%.
• Group EBITDA, which excludes opening costs, rose to £2.58m from £1.65m last year. The adjusted EBITDA margin is therefore 8.2% versus 6.1% in 2018.
• The group has made an operating loss of some £2.07m (versus an operating profit of £1.20m last year) and interest costs bring this to a loss before tax of £2.63m vs a profit last year of £0.97m.
• The loss has reduced retained profits from £3.85m to £0.77m and shareholders’ funds are now £0.80m vs £3.86m last year.
• ETM says ‘the period to 24 February 2019 has been a transformational year for the business with continued growth, significant investment in people and development of systems and processes.’
• It says turnover growth was ‘driven by strong like-for-like growth of 5.8% and one new opening at Westfield White City in July.’
• It says ‘the business saw strong trading over the summer months in its sports led sites as a result of the Football World Cup.’
• EBITDA rose (as reported above) and the group says that ‘during the year, £10m of additional funding was secured from HSBC, refinancing existing debt and providing £6.2m for future site expansion and investment in the existing estate.’
• ETM says ‘following on from this refinancing the business undertook a strategic review of its activities, incurred some abortive property acquisition costs, completed corporate restructuring work including buying back of shares and explored opportunities for further growth.’
• The group says that ‘one off costs totalled £1.5m in respect of these matters.’
• ETM concludes ‘the Directors therefore feel that the business is now in an even better shape to grow and exploit opportunities in what continues to be a challenging and competitive market, The business has new openings planned in this current year including Redwood at London Bridge Station due to open in Autumn 2019.’
Other points & Langton comment:
• Auditor Haysmacintyre has signed off on the accounts as a going concern and the directors say ‘at the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.’
• This is standard.
• But, with the balance sheet being virtually wiped out by a couple of missteps in the year just reported, it does imply that either 1) trading has improved or 2) the directors know that they can source funding even if losses were to continue.
• However, the group does seem to be saying that the one-off costs (£1.5m) are less than the loss as a whole, implying that underlying trading was at a loss.
• The interest charges seem to be wholly to banks or leasing companies so there is no real justification to add those back.
• Overall, ETM is highly regarded as an operator.
• However, at the end of the day, it will need to make profits. EBITDA is great but there seems to be quite a bit of slippage between the EBITDA figure and the loss before tax – and these are not optional costs.
• The going remains tough out there. As always, these numbers are very historic. It will be interesting to see how 2019 has turned out.
PUBS & RESTAURANTS:
• The latest Market Growth Monitor from CGA and AlixPartners, which covers the period to September 2019, reports that the number of licensed premises in the UK fell by 2.0% during that period.
• Restaurant Group had previously said that numbers had fallen 1.0% (albeit from peak to a date earlier than that covered by CGA) and M&B has said that capacity has fallen by 3.5% (this probably is, but need not necessarily, be measured by outlet number rather than an estimate of revenue).
• CGA and AlixPartners say that they have identified ‘bright spots in a challenging market.’
• The Growth Monitor says that there were 116,500 pubs, bars, restaurants and other licensed premises in the UK in September. It says that ‘the 2.0% fall is the ninth successive quarter of year-on-year decline, but the rate of closures is the lowest since mid-2018.’
• The number of restaurants fell by a slightly higher 2.4% in the year to September, a net closure rate of 12 units per week. It maintains that the ‘bulk of closures were of independents, with group-run restaurants—managed sites from operators with more than one location—fractionally up by 0.3%.’
• CGA’s research shows many sites that have closed as a result of CVAs ‘have been swiftly reopened.’ This is perhaps inevitable as landlords can use the £500k plus of fixtures and fittings as an inducement to new tenants. When the high street bar market suffered a shake-out post-Millennium, we very quickly realised that the next best use of a bar, is a bar.
• A spiral of increasingly dodgy covenants taking over many-times failed sites may be on the cards. This means that capacity is sticky. It won’t fall quickly.
• CGA says the ‘data shows a huge amount of churn in the restaurant market.’ It says ‘one brand’s difficulty is another’s opportunity.’ This is true, at least as far as it goes. If the economy were to boom, operators holding the parcel when the depressing music stopped would be amongst the winners. However, the betting seems to be that the economy is unlikely to come to operators’ rescue any time soon.
• Longer term, the Growth Monitor points out that the number of leased pubs in the UK has fallen by more than 5,000 since September 2014, while managed pub operators have added nearly 1,000 units, often food-led. The drop in capacity has helped wet-led units recently.
• Stonegate may sell around 40 pubs in order to address competition concerns following its purchase of EI Group reports Propel. The CMA has invited comments on the deal from interested parties as looks into whether or not the purchase could reduce competition. Stonegate had already said that it will sell of up to 100 sites.
• In the US, TDn2K reports that restaurant sales did grow in November thanks largely to a shift in the Thanksgiving holiday date. It says LfL growth came in at 1.6% in the month, representing the third month of growth.
• TD2nK goes on to say that ‘two of the first three weeks of the month had negative same-store sales. Additionally, the month-to-date growth rate by the end of the third week was -0.3%. But comparing a regular week to Thanksgiving week last year meant the fourth week of the month had positive same-store sales growth in the double digits, which was enough to elevate the month’s overall growth rate by almost two percentage points.’ It suggests that the outlook for December could be challenging.
• The impact of African swine fever has begun to have an effect on world food prices generally reports the FT. it says that prices are now at their highest level in more than two years. Global meat prices are reported to be some 18% higher than they were a year ago.
• A Drinkaware YouGov poll has suggested that 33% of workers feel pressured to drink at work parties. Drinkaware urges moderation saying ‘over-indulging can lead to mistakes, regrets and hangovers.’
• Coffee roaster Matthew Algie has said that it will be the first coffee roastery in the world to become carbon neutral. It reports ‘One Carbon World is an initiative which aims to reduce climate change and assists organisations in achieving carbon neutrality over the next four years.’ It says ‘we verified our carbon footprint methodology and results, and offset out emissions by purchasing certified credits from a tree planting project in Uruguay and a wind energy project in India.’
• Workers at UK brewer & pub co Greene King are holding a strike ballot as a dispute over pay remains unresolved.
• Cheshire-based Robinson’s Brewery has purchased six-site strong Individual Inns.
• Exports of Burgundy have exceeded €1 billion for the first time.
• The Urban Village Pub Company has acquired its seventh site with the aid of Fleurets. The unit, in Northamptonshire, is the company’s first in that county.
• Diageo’s Indian operation United Spirits is to merge with its majority-owned subsidiary Pioneer Distilleries.
• Whole Foods Market has said that 40% of households will not be eating turkey this Christmas. That suggests that 60% will still be eating what has become the traditional Christmas meal.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook customers are reported to be facing delays in getting their money back when they were unable to take holidays due to the company’s collapse. The sixty-day limit for repayments is today.
• Expedia Group has announced that its CEO and CFO are to leave the company with immediate effect. The chairman says ‘ultimately, senior management and the board disagreed on strategy.’ It would appear that the winners and the losers have made themselves known at an early stage.
• Five days of strikes are causing travel problem to, through and over France.
• STR reports that the US hotel market saw occupancy fall by 11.6% in the Thanksgiving impacted week to 30 November. Rate was down 6.7% and REVPAR was some 17.5% lower.
• Bowling operator Lane7 is to launch its latest venue in Sheffield, South Yorkshire.
• Fitness brand Frame has opened a specialist studio in Islington.
• Private equity company CVC is said to have held talks with FIFA and Real Madrid about funding a new global football tournament.
FINANCE & ECONOMICS:
• The ONS reports that household wealth has risen by 13% in the 2yr period to March 2018. This data is rather old.
• The ONS has also said that unsecured consumer borrowing is up by 11% to £119bn in the two years to March 2018.
• HSBC has brought in a single overdraft rate of 39.9%. So not quite 40%, then. As daily fees are being scrapped, inadvertent borrowers may find themselves better off.
• Sterling up vs dollar at $1.3158 but lower vs Euro at €1.1846. Oil higher at $63.24. UK 10yr gilt yield up 4bps at 0.77%. World markets – down in UK & Europe yesterday but up in the US. Far East higher in Friday trade.
• Brexit & politics:
o The NIESR has said that ‘Britain’s trade in goods and services could be affected significantly following its departure from the European Union putting the country’s global competitiveness under threat.’
o PM Johnson has said there is no chance of him not striking a trade deal with the EU by the end of next year.
o Betting still on a comfortable Tory victory, albeit with only around 40% of the vote.
o FT suggests Tories will struggle to satisfy their knew supporters. Effectively right wing, blue collar voters who wish to be protected from the market.
o Guardian suggests PM Boris Johnson may scrap plans to tax global tech companies in order to smooth the way to a US trade deal.
o Sky says PM Johnson is to fall in line with the US re Huawei.
START THE DAY WITH A SONG:
• Taking a break due to exam commitments. Back middle of next week.
RETAIL WITH NICK BUBB:
• ABF (Primark): Ahead of its AGM today, the food conglomerate ABF has issued a brief trading update, but all it does is reiterate the outlook statement in the Annual Report. Primark now has 376 stores, after 3 recent openings and is said to have “a strong pipeline of good quality sites” and the operating margin for this year is expected to eb only slightly down, despite the impact of sterling weakness.
• Games Workshop: We were expecting a half-year trading update today from the high-flying Games Workshop (for the 6 months to Dec 1st), ahead of the interims in mid-January, but nothing has been announced. For all its virtues, the company does not go out of its way to be investor-friendly, so we can only assume it has nothing to add to the update it issued on Nov 8th, when it said that trading as going well and forecast first half sales of not less than £140m and PBT of not less than £55m…
• Signet: The American jeweller Signet pleased Wall Street with better than expected 2.1% LFL sales growth in its Q3 results yesterday (for the 13 weeks to Nov 2nd), but US LFL sales growth was 2.9% and the outcome was dragged back by poor UK LFL sales, with the H Samuel and Ernest Jones chains down by 5.2%, reflecting “a difficult operating environment in the UK”. But the UK is now less than 10% of total group sales…
• Dunelm: Given the focus first thing yesterday on the Boohoo share placing and the Joules update, inter alia, we missed the fact that Dunelm pushed out an unscheduled trading update (ahead of the Q2 update planned for Jan 9th), to flag that the transition to a new website platform had been surprisingly successful and that gross margins had been better than expected, prompting it to forecast that full-year PBT will now be higher than its previous expectations. This prompted the City to raise its PBT forecasts by 5% or so to c£140m and the shares shot up by nearly 20%…pushing the market cap over the £2bn mark.
• News Flow Next Week: The General Election on Thursday will dominate next week, but there is plenty going on in the Retail sector to distract us, kicking off with the McColl’s pre-close update expected on Monday. On Tuesday we get the Watches of Switzerland interims and the Mothercare interims, as well as the latest monthly Kantar/Nielsen grocery sales figures. Wednesday then brings the much-awaited Ted Baker trading update, whilst the Superdry interims, the Dixons Carphone interims and the Ocado Q4 update are also on Thursday.