Langton Capital – 2020-01-29 – PREMIUM – Stonegate, Deliveroo, Starbucks, coronavirus v SARS etc.:
Stonegate, Deliveroo, Starbucks, coronavirus v SARS etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
To an outsider (or a toddler), I would think English is both an easy and a difficult language to learn.
I mean you can make of the grammar what you will but at least there are no genders, cases (nominative, accusative and the like) or adjectival endings but the spelling, well, that’s something else.
There’s cough and bough, bear and bare, Edinburgh, Peterborough and Middlesbrough, Worcestershire, Gloucestershire and Hull and a whole lot more that you simply have to learn and, apart from flammable and inflammable, valuable and invaluable meaning the same thing, how do you explain why it’s impenetrable and impossible but infrequent and independent?
Or unlikely, uncommon or unpleasant for that matter?
Anyway, that’s enough for the moment. We’re users of language rather than builders, drivers rather than engineers so let’s move on to the news:
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PRIVATE COMPANY RESULTS – Pub giant Stonegate, which last year purchased EI Group, has reported full year numbers to 25 September: 29 Jan 2020:
• Stonegate, which prior to EI Group ran a number of managed house formats including Slug & Lettuce, Common Room, Be at One and others, has said that revenues for the year came in at £852.8m, up from £774.4m last year.
• Operating profit before depreciation (almost the same measure as EBITDA) was £125.3m (2018: £106.8m).
• Pre-exceptional PBT came in at £6.4m (2018: £6.6m but exceptional costs took the company down to a loss of £24.6m before tax (2018: loss £4.5m).
• Exceptional costs of £30.2m comprise acquisition and integration costs of £8.9m and ‘discretionary exit bonus’ costs of £15.7m
• Impairments and lease provisions came in at around £5.5m net.
• Stonegate has total assets of £927.8m but net assets of minus £10.8m due to its borrowings of around £750m and accumulated losses of £109.6m
• Stonegate says that it operated, prior to the acquisition of EI Group ‘within a wide variety of formats: from community and high-street pubs, through branded bars, to country inns and late-night venues.’
• It says its ‘goal is to deliver fantastic customer experiences and has an extensive selection of formats, with a little something for everyone.’
• Stonegate says ‘we keep things simple and do not over complicate; we do what we say we are going to do; we are open and honest with each other and we approach challenges with solutions in mind.’
• It says ‘the Group’s strategy is to improve growth through increasing our exposure to the more attractive categories and segments of our markets.’
• It will do this by ‘continuing to intelligently invest in its pub estate to maximise site profitability’ and by ‘pursuing targeted acquisitions of attractive and complementary pub portfolios with upside potential.’
• The group had around 770 pubs and bars (prior to EI Group).
Comment on expansion and trading:
• Stonegate updates on acquisitions during the period saying that it ‘completed the assignment of 11 Novus site leases and on the 22 January 2019 exchanged on a further 6 sites from Balls Brothers (Emporium) Limited and Tank and Paddle Limited, all of which are in prime London locations.’
• It says ‘these premium sites will, in time, fit within existing Stonegate brands and formats, including the Be At One Brand.’
• The group adds it ‘acquired the entire issued share capital of Bar Fever Limited comprising 32 trading businesses. Fever mainly comprise late-night bars in urban areas throughout England – operating under a variety of brands like Fever, Boutique, Zinc and Moo Moo. The bars are a strong fit with Stonegate’s drink led strategy and compliment the geographical spread of the late-night division.’
• The biggest deal was announced towards the end of the financial period.
• On 18 July 2019 Stonegate announced that an agreement had been reached to buy EI Group.
• The group said, when it signed its accounts on 17 January this year, that ‘the proposed transaction is currently being reviewed by competition authorities, which whilst there is no firm timetable, is expected to conclude in spring 2020.’
• Stonegate says ‘being a wet led business, Stonegate continues to trade ahead of the general pub market and outperform the overall retail sector.’
• It says ‘operating an adaptable multi-format strategy, we expect that growth confidence to continue in 2020.’
• The group says ‘constant evolution of our formats is essential to meet the changing needs of the customer’ but it adds ‘the fundamental needs for people to socialise will not change but how we address that will need to evolve.’
• Stonegate says ‘the casual dining market continues to struggle with oversupply and deep discounting to attract customers, something we have worked hard to become much less reliant on in our offer.’
• Re costs, Stonegate says ‘cost pressures continue to exist through inflation, National Living Wage, rates valuation, etc, however through disciplined cost management planning we are well placed to manage and mitigate increases.’
• The financial statements have been prepared on the going concern basis. Despite the negative net worth, TDR has deep pockets.
• There is no mention of auditors in the report. The company does say ‘there is no statutory requirement for accounts to be audited in the UK; however, these accounts are being prepared and subject to a non-statutory audit for the purpose of filing accounts of the UK branch of this overseas Group and formally setting out the financial performance and position of the Group.’
• The bulk of the group’s borrowing, some £738m, is provided by Stonegate Pub Company Financing plc.
• The company has reported accounts around the same time that a listed company would have done so.
• There is no mention of an IPO and, on prior occasions, the group has stated that it has no intention of coming to the public markets
PUBS & RESTAURANTS:
• Two of Deliveroo’s funders, Index Ventures and Accel, have said that the CMA is jeopardising investment in British start-ups by launching a Stage II investigation of the food delivery app’s potential investment from Amazon.
• The CMA has now detailed its concerns and has pointed to a potential reduction of competition in online restaurant ordering apps. Index Ventures says that the investigation into what Amazon may have done in the future if it did not invest in Deliveroo ‘sets a dangerous precedent’. It says ‘if the CMA process is riddled with uncertainty, and its duration is a source of competitive harm, this will affect the incentive to start and invest in companies in the UK altogether.’
• Accel partner (and also Deliveroo board member( Luciana Lixandru, says ‘the UK’s fair regulatory environment and business-friendly government has enabled local founders to attract substantial investment from around the world and scale iconic, global companies.’ But, Lixandru goes on to say, ‘the CMA’s actions are putting this at risk, and it’s vital that the UK and its ambitious entrepreneurs are able to continue to compete for funding which could otherwise go anywhere else in the world.’
• Deliveroo added a 50p service charge in February 2019. At the time it said ‘we use this to bring you more exciting new restaurants and keep improving our service.’ It is now adding a further service charge, even to customers that have signed up for their free delivery service as it moves to cut its ongoing losses. The Daily Mail says ‘Deliveroo customers have vowed to boycott the takeaway app’ as a result of this extra charge.
• Deliveroo says that, in total ‘for the vast majority, delivery fees will be lower and in many areas will start from as low as 99p.’ Subscribers to the group’s £11.49-a-month subscription service will also pay the charge. The subscription charge itself was raised a year ago from £7.99 a month. Langton questioned earlier this month just how the group intends to get to break-even without hiking prices such that it threatens to drive away its customers.
• Starbucks has reported Q1 numbers saying that same store sales were up 5% globally with 6% growth in the US and 3% growth in China. The number of stores in operation globally rose by 6% with 16% net store growth in China. Starbucks has reported Q1 EPS of 74c.
• Starbucks says ‘building on solid business momentum from fiscal 2019, Starbucks performed very well throughout the first quarter, including one of the strongest holiday seasons in the history of our company. As a result, we are off to a strong start in fiscal 2020.’
• CEO Kevin Johnson says ‘our growth was fuelled by a healthy balance of comparable sales growth and new store development, as well as continued expansion of our Global Coffee Alliance with Nestlé. Investments in our partners, beverage innovation and digital customer relationships contributed not only to strong topline growth, but also significant margin expansion in the quarter.’
• Starbucks concludes ‘we remain optimistic and committed to the long-term opportunity in China, building on our brand heritage and 20-year legacy of profitable growth.’
• Starbucks says that its international LfL sales were up by 1%. This comprised a 2% increase in price and a 1% fall in transaction numbers.
• Regarding FY2020, the group says its ‘guidance is unchanged from what was provided in conjunction with its Q4 fiscal 2019 earnings report which excludes any impact of the coronavirus.’
• In response to the virus, Starbucks has closed half its outlets in China, warning that the rapidly expanding infection is likely to affect its financial performance. It says ‘this is expected to be temporary.’ However, it says ‘given the dynamic nature of these circumstances, the duration of business disruption, reduced customer traffic and related financial impact cannot be reasonably estimated at this time but are expected to materially affect our International segment and consolidated results for the second quarter and full year of fiscal 2020.’
• It says ‘the company will update its guidance for fiscal 2020 when we can reasonably estimate the impact of the coronavirus.’
• The BBPA responds to a report on a points-based immigration system, with CEO Emma McClarkin saying ‘85% of pubs are SMEs and the new system must be simple for them to use, particularly the sponsorship process.’
• The CBI’s retail sales gauge held at 0% for the year to January, indicating the high street missing out on the so-called ‘Boris bounce’.
• Australian bush fires have pushed up the priced of lamb. Pork prices had already risen on the back of swine diseases impacting China and chicken prices had risen as the meat is sometimes used as a substitute.
• Ebay has said that the imposition of internet sales taxes by state governments in the US could slow growth.
• Alcohol sales in Scotland’s convenience stores and supermarkets have decreased by 3.6% in the last 12 months, following the country’s introduction of a minimum unit pricing.
• Pizza company Made of Dough has reported full year numbers to end-April 2019 to Companies’ House. The accounts show that retained earnings (usually a proxy for profit after tax) rose by £16,500 during the year. The company has retained earnings of £19k and shareholders’ funds of £334.7k.
• Full year accounts to end-April 2019 show that escape games company Tick Tock Unlock increased its retained earnings (usually a proxy for post-tax profit) in that year by £4,500. The company has retained earnings of £177.3k with shareholders’ funds of £177.9k.
• Suntory, the Japanese drinks company, has purchased a 10% stake in Edrington, the owner of whisky brands including The Macallan, Highland Park and The Famous Grouse.
• The Migration Advisory Committee has stated that the UK should reduce its salary threshold for skilled migrants from £30,000 to £25,600.
• The Food and Drink Federation has found that food manufacturers have reduced food waste by 30% in the last 10 years.
• The Harwood Arms in Fulham, London, has been named the best Gastropub by the 2020 Estrella Damm rankings.
• El Mexicana, the burrito bar group, has raised a seven-figure sum from alternative lender ThinCats, as the group looks to expand nationally.
HOLIDAYS & LEISURE TRAVEL:
• Re the coronavirus in the Far East, it’s perhaps worth remembering just what the SARS virus did to travel in the area in 2003. The BBC in May 2003 reported that ‘at the elegant Great Eagle Hotel in Hong Kong, occupancy of the 487 rooms has fallen into single digits.’
• The BBC went on to report that, in May, ‘the hotel occupancy rate across Hong Kong is 15%, in contrast to a more usual 82%.’ It goes on to quote the then vice president of the World Travel & Tourism Council Rick Miller as saying ‘the impact of SARS on these countries [in the Far East] has been four or five times the impact of September 11 in the States.’ One Hong Kong businessman said ‘SARS has not killed many people but it has killed the economy.’
• Whilst the period was particularly difficult for the hospitality industry as a whole, the Far East economy did, of course, recover.
• Whitbread Plc has secured planning permission for an 80-room Premier Inn hotel on Camden High Street, built on the site of the former Sports Direct store.
• The CAA’s Atol scheme has produced research claiming many travellers could be leaving themselves vulnerable to illegitimate travel companies by not checking for and ensuring they have adequate financial protection in case things go wrong.
• Marriott International’s global pipeline increased to approximately 515,000 rooms at the end of last year, with the company signing 815 agreements.
• Grant Shapps, Transport secretary, is launching a £500 million fund today to restore rail services cut more than 50 years ago.
• The British department of transport will be able to access a new £500 million fund to develop better rail connections for communities which have previously seen their stations close.
• VisitEngland has partnered with the makers of Peppa Pig to market to families with young children to take domestic short breaks. The £650,000 promotion is expected to generate more than 225,000 additional overnight stays in England.
• STR reports the US hotel industry saw occupancy up 0.6% in December, with ADR up 2% and RevPAR up 2.6%.
• The FCO is advising against all but essential travel to mainland China amid the ongoing coronavirus outbreak.
• Hong Kong is limiting travel between the city and mainland China to reduce the chance of coronavirus spreading more widely.
• A report in the Nikkei Asian Review suggests Apple’s plans to increase iPhone production and launch a cheaper model could be disrupted by the outbreak of a new coronavirus in China.
• Apple has reported a rise in iPhone sales in the key Christmas quarter.
FINANCE & ECONOMICS:
• Sterling down at $1.3021 and €1.1821. Oil higher at $60.17. UK 10yr gilt yield up 3bps at 0.54%. MPC to comment on rates tomorrow. World markets better yesterday with Far East mixed in Wednesday trade.
• Brexit & politics:
o Britain’s decision to give Huawei a role in its 5G network could complicate a free trade agreement with the United States says Republican Senator Lindsey Graham. Mr Graham says ‘this decision has the potential to jeopardize US-UK intelligence sharing agreements and could greatly complicate a US-UK free trade agreement. I hope the British government will reconsider its decision.’
START THE DAY WITH A SONG:
Yesterday’s song was Use Somebody by Kings Of Leon. Today, who sang:
Why, why some people break up,
Then turn around and make up
I just can’t see
You’d never do that to me (would you, baby)
RETAIL WITH NICK BUBB:
ScS Group: The Sunderland-based furniture and carpets retailer ScS has announced its half-year trading update today, with the last 9 weeks seeing a 1.2% increase in LFL orders, in line with expectations, but the big shock is the news that the veteran CEO David Knight has announced that he wants to step down at the end of the year.
Pendragon: The embattled Motor retailer Pendragon has announced its trading update for y/e December, with the slightly bizarre message that although the performance of the group improved significantly in the second half, the underlying PBT outcome for the full year is expected to be “around the bottom end of market expectations”, because of the challenging UK car market background.
Wickes: Ahead of the planned Q2 demerger from Travis Perkins, Wickes is holding a Capital Markets Day today in sunny Watford and it has announced another strong trading update, with LFL sales up by 4.5% in Q4 (up 5.1% in what it calls “Core” DIY and up 3.2% in what it calls “DIFM”: Do it for Me).
John Lewis Trading Watch: The financial year ended for John Lewis on a weak note in w/e Jan 25th with gross sales down by 2.5% (down c2.2% LFL), according to yesterday morning’s final JLP weekly overview…John Lewis blamed rival promotional activity for depressing sales in Home, although Computer sales were helped again by Windows 7 replacement business. In terms of sales mix, Electricals were up by 1.1% gross and Fashion/Beauty sales were up by 0.4% gross last week, but Home sales were down by 9.3%. Over the 52 weeks of the year, overall gross sales were down by 1.6% cumulatively (the H1 LFL sales fall was 2.3%, with gross sales 1.8% down).
Waitrose Watch: Last week, w/e Jan 25th, saw another fall in gross ex-petrol sales at Waitrose, of 1.6%, leaving the cumulative run-rate at -0.9% over the last 52 weeks, but JLP revealed after Christmas that store space is running as much as 1.7% down (after the sale of five Waitrose stores in June and more disposals in October), so the LFL sales picture does not look so bad, albeit the position is boosted by strong Online Grocery growth, ie overall LFL sales were flat last week (the LFL sales dip was 0.4% in H1, with gross sales down by 0.8%).