Langton Capital – 2019-12-17 – PREMIUM – Azzurri, FUL, optimism, green shoots etc.:
Azzurri, FUL, optimism, green shoots etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Politics aside, news flow is slowing, and, for many, this could be the last week at work.
Or at least the last week in the office so, without further ado, let’s move onto what news there is.
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AZZURRI GROUP FULL YEAR NUMBERS: Azzurri Group, the owner and operator of the ASK, Zizzi, Coco di Mama and Radio Alice restaurant brands, has reported full year results to 30 June 2019 to Companies House. 17 Dec 2019:
• The group reports that total sales are up by 7.0% at £299.4m.
• It says adjusted EBITDA is up to £38.1m from £37.0m in the prior year.
• The group opened 10 new restaurants during the period and undertook some 29 refurbishments.
• Azzurri had 162 Zizzi restaurants, 111 ASKs, 22 Coco di Mama units and 3 Radio Alice restaurants at the time of its report.
• Chairman Harvey Smyth says ‘the Azzurri Group has built on last year’s momentum and continued to trade well in the face of a challenging backdrop for the UK restaurant sector.’
• Mr Smyth says ‘in the last year, all four of our brands grew their like-for-like sales and increased their EBITDA despite dampened consumer confidence. Our core brands, Zizzi and ASK Italian, continued to gain market share by delivering consistently great experiences to our customers.’
• The company says ‘like-for-like sales growth has been achieved for the seventh year in succession and on a comparable basis adjusted EBITDA moved forward from £37.0m last year to £38.7m this year.’
• It says ‘we are pleased with this performance, which further solidifies the Group’s position as the leading operator in the Italian casual dining sector and increasingly so in the food-to-go sector.’
• The group reminds investors ‘on 21 June 2019, Azzurri acquired the trade and assets of POD Food Limited. The transaction involved the acquisition of the brand and up to 13 sites operated by POD with the intention of converting a number of the sites to Coco di Mama over time.’
• Re current & future trading, the company says ‘cost pressures remain an ongoing challenge for the Group, as they do for the wider sector. In the past year, we have continued to trade well through these challenges implementing a robust yet thoughtful approach to increased operational efficiencies. As a result, the Group delivered year-on-year improvements jn food and labour margins, which was very pleasing to see.’
• Overall, the company concludes ‘we will continue to focus on what we do best: offer customers exciting experiences in our restaurants and good value food, whilst continuing to invest in menu innovation, our restaurants, stores and, most importantly our hard-working people.’
• Azzurri reports revenues up as reported above to £299.4m with gross profits of £46.4m.
• The company reports profit before interest down from £7.9m to £7.2m.
• Reduced interest charges bring the loss before tax to £16.3m down from a loss of £23.4m last year.
• Azzurri has accumulated losses since incorporation of £57.1m. It has negative shareholders’ funds of £58.2m.
• As is often the case with private equity-owned companies, a part of this is down to the financing structure.
• Of the £23.5m of interest costs, some £10.0m is payable to third party banks whilst £3.7m is on shareholder loans and £7.9m is preference share dividends.
• The company says it ‘meets its day to day working capital requirements through a combination of its banking facilities and the generation of operating cash flows.’
• It says ‘having made an assessment of both liquidity and compliance with the covenants set out in the Groups banking arrangements, the Directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.’
• Auditors PwC have signed off on this.
PUBS & RESTAURANTS:
• CGA and Fourth have reported that optimism in the eating and drinking-out market has risen to its highest point for 18 months. The company’s latest quarterly Business Confidence Survey says that senior executives ‘remain wary of squeezed consumer spending and rising costs as 2020 nears’.
• CGA reports that 44% of senior executives are optimistic about prospects for the eating and drinking-out sector over the next 12 months. This compares with the 30% that said the same thing in the last survey three months ago, and is at the highest point since May 2018.
• Some 64% of operators are confident about the prospects for their own company (up 6pps) but optimism still remains ‘well below levels recorded by the survey before 2016’s EU Referendum.’
• CGA CEO Phil Tate says ‘leaders remain nervous about consumer footfall and spending in 2020, the survey shows. Just over half (53%) think consumers will eat and drink out less often in the next six months, and only 25% anticipate an increase in average spend, with 32% predicting spend to fall. The poll identifies further concerns about rising people, property and food costs.’
• Signs of a cautious optimism will be welcomed by both the industry and its investors. The survey highlights the importance of retaining talented and engaged staff. Fourth reports ‘it is encouraging to see some green shoots of optimism and I hope this will gather momentum with a pro-business election result. This has the potential to unlock industry investment and a corresponding uptick in consumer confidence. However, it’s clear there are three Ps that remain front of mind for our business leaders – people, profit and politics.’
• The CGA report coincides with comments from foodservice analyst Peter Backman, who also points out that ‘after three years of decline, the fastest growing emerging restaurant brands have grown by 3.8% in the last six months.’
• Mr Backman says that ‘the rise in the number of brands featured, from 129 to 134, could indicate the early stages of a return to the fortunes of the restaurant sector.’ He adds ‘these [growing] brands reflect a common theme of the list, which is the growing popularity of small-footprint, fast food models featuring desserts and coffee. And, this segment is likely to fuel future growth.’
• Fulham Shore yesterday presented its H1 numbers to analysts. The group reiterated that it is set to open between 8-10 units per annum going forward. It said that landlords were becoming more flexible and were offering incentives in some cases. Second hand units were available but incentives for new builds were also a feature of the market. The company says that it has an eye on towns such as York, Newcastle and Manchester (where it would like a second site). Whilst the group does deliver from some of its restaurants, it is less exposed in this area than some of its peers due to its kitchens being often 100% focused on their dine-in customers.
• The Telegraph points out that the number of pubs across the UK has increased for ‘the first time in years’ recently. It says that this offers ‘a lesson to other embattled sectors.’ Fair to say that a very material number of pubs were closed and / or converted to alternative use in the ten years or so post the introduction of the smoking ban in the UK.
• The US has proposed tariffs on European products in a continuation of a dispute over subsidies given to Airbus. The tariffs include 25% on Scotch whiskey.
• Data from Feed It Back has found that people skills and service were key drivers in positive reviews over the festive period. The research found that 22% of customers who had left a negative or positive review received a response from management.
• Coffee#1 has opened its 100th store in Banbury, Director of the group Bruce Newman commented: ‘100 stores is a fantastic milestone for us and a great achievement for everyone involved with the business. We plan to run the 100th Coffee#1 shop with the same ethos as the 99 that have preceded it, with a strong focus on our customers, great coffee and ensuring our stores are homely and welcoming’.
• Ei Publican Partnerships has announced it will team up with leading UK brewers and drinks companies in its ‘Cheer Up January’ initiative that will see up to 100,000 free drinks given to customers.
• George Bukhov-Weinstein and Ilya Demichev, founders of Burger & Lobster, have launched Wild Tavern on Chelsea’s Elystan Street earlier this month. The restaurant has been inspired by coastal areas of Italy, Spain and France, and serves up charcoal-grilled dishes using local and Mediterranean produce.
• Lion has pledged to use 100% renewable electricity to brew all its beers by 2025, following on from its claim last month to become Australasia’s first major carbon neutral brewer in 2020.
• Deloitte expects average discounts by retailers to hit 50% by Christmas Eve, the biggest in almost 10 years. Springboard said shopper numbers were lower than the same time last year.
• Data from Springboard shows footfall on the highstreet down 0.9% in the second week of December. The figures reveal a 5% drop in the number of shoppers compared to the same period last year as the trend towards online shopping continues to gather pace.
HOLIDAYS & LEISURE TRAVEL:
• The Official Receiver reports Thomas Cook collapsed with £9bn of total liabilities, including £585m owned to customers and £45m to employees. The largest amount of £5.7bn covers debts to other group companies, followed by £1.7bn owed to banks and other lenders.
• Manchester airport saw more than 100,000 passengers each day during August, with two runways handling an average of 624 flights a day during the month.
• Cruise and Maritime Voyages have already booked more than two-thirds of its 2020 capacity, with flagship Columbus almost 80% sold.
• Per Tech Crunch, Uber is in talks to sell UberEats India to local rival Zomato. The deal currently values UberEats’ India business at around $400m, with Uber potentially investing between $150-200m in Zomato as part of the deal.
• The CAA reports more than three quarters of claims from Thomas Cook customers have been settled with total payments of over £200m. Some 300,000 of the holidays cancelled after Thomas Cook went bust in September were financially protected under the Atol scheme.
• Boeing has said it will temporarily halt commercial production of the grounded 737 MAX aircraft in January.
FINANCE & ECONOMICS:
• IHS Markit has produced ‘flash PMI’ numbers for December suggesting that the UK saw ‘a decline in private sector output for the second month running in December.’ The number came in at 48.5, down from 49.3 in November. Any number below 50.0 implies contraction.
• IHS Markit reports ‘December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.’
• Rightmove suggests that the price of the average home in the UK will rise by 2% in 2020 with rises in the North exceeding sluggish growth or small falls in the South.
• Sterling lower at $1.3282 and €1.1911. Oil higher at $65.37. UK 10yr gilt yield up 3bps at 0.82%. World markets higher yesterday with Far East up in Tuesday trading.
• Brexit & politics etc.:
o White House economic adviser Larry Kudlow is to visit Britain in early January for economic and trade talks.
o The Bank of England has suggested that the UK financial system is prepared for even a worst-case Brexit scenario with a hard exit from the EU and a consequent trade war.
o PM Johnson is to publish Brexit legislation that will legally prohibit him from extending Brexit negotiations beyond December next year. This may raise fears of another ‘cliff-edge’.
o The House of Lords and the Judiciary may be overhauled. The BBC’s license fee is potentially up for discussion.
o Up to £100bn could be spent on Red Wall areas, some of which voted Tory last week. IHS Markit suggests that the economy is currently flat lining and, as the EU divorce bill will need to be paid and Mr Johnson has said that he will not put taxes up and he will not borrow more, it is unclear where the money will come from.
START THE DAY WITH A SONG:
Yesterday’s song was Enola Gay by Orchestral Manoeuvres in the Dark. Today, who sang:
“Here he comes, he’s all dressed in black,
Beat up shoes and a big straw hat
He’s never early, he’s always late
First thing you learn is that you always gotta wait”
RETAIL WITH NICK BUBB:
• Frasers Group: The EGM yesterday morning approved the bizarre name change from Sports Direct to Frasers Group (the ticker is FRAS) and the City approved of the signs of “green shoots” at the troubled House of Fraser and the shares shot up by c30%, after big profit forecast upgrades.
• Trade Press: Friday’s Drapers magazine was the last of the year and contained the obligatory “Review of the Year”, but, after a tumultuous year for fashion retailing, the main feature was the annual Drapers Power 100 list, which highlights all the people who shaped the industry in 2019 (including 44 new entries), topped by Paul Marchant of Primark, John Lyttle and Mahmud Kamani of Boohoo and Peter Cowgill of JD Sports. Drapers also had a feature on the uncertain outlook for the Arcadia Group (following the resignation of Topshop’s CEO), a profile of Missguided founder CEO Nitin Passi (and what he is doing to rectify the “self-inflicted wounds” that led the fast fashion etailer to crash and burn in 2017) and an article about why independent retailers are up in arms about Nike and Adidas’s switch in strategy to cut them out of the sales equation. And the Editor looked in her column at
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win yet again (for the 8th week in a row). The overall Asda basket cost only £58.21, no less than £8.08 cheaper than second placed Morrisons on £66.29. Tesco was third, on £68.00, Sainsbury was fourth on £68.66 and Waitrose was well off the pace, on as much as £78.99 (not helped by charging £1.25 more than Asda on Birds Eye chicken pies and £2 more on Twinings tea-bags…). The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Tesco, as its 120,000 sq ft Extra hypermarket in Pitsea in Essex came top, with 84 points out of 100. Elsewhere in the magazine, “The Grocer” had a big supplement on the Top Products of 2019, based on Nielsen data, as well as a major feature on the Top Marketing campaigns of 2019, with M&S Food
• News Flow This Week: Tomorrow we get the WH Smith EGM (to approve the US deal) and the Carpetright EGM (to approve the Meditor rescue bid). On Thursday we get the ONS Retail Sales figures for November and then Friday brings the GFK Consumer Confidence survey for “December”.