Langton Capital – 2020-02-06 – PREMIUM – Compass Group. Stock Spirits. On the Beach, insolvencies etc.:
Compass Group. Stock Spirits. On the Beach, insolvencies etc.:
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A DAY IN THE LIFE:
It’s amazing how you can mis-hear things.
I mean I used to think that the Fun Boy Three were singing ‘I love Cecile’ when they were in fact singing ‘Our Lips are Sealed’ and there are various other instances when I’ve sung along lustily to a song, getting the tune perhaps broadly right but most of the words completely wrong.
And, away from music, I spent years as a child thinking that, when the priests at school were calling for an end to de Y.O. Lance in Northern Ireland, they were talking about chucking away some biblical spear in Belfast or perhaps it was the name of an unpopular chip shop in County Armagh that they wanted to see the back of.
And there are plenty of other instances where, if you miss one word out of a sentence (often the word ‘not’) you’ll get completely the wrong meaning. Anyway, we could go on but, as time is a pressing, we’ll just ask which overworked mythical individual (more or less) said ‘and all that a man hath, will he give me for his life…’? On to the news:
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COMPANY INSOLVENCIES & UPDATE ON CVAS: The government has released data on insolvencies in the UK in Q4 (and FY) last year. Our take is below. 6 Feb 2020:
• The government has released new data on company insolvencies in England and Wales for Q4 and for full year 2019.
• The commentary on these statistics says: ‘In 2019, underlying company insolvencies increased to their highest annual level since 2013.’
• The report also says: ‘Underlying company insolvencies decreased in Q4 2019 compared with Q3 2019.’
• But total insolvencies were higher in Q4 2019 compared with the same quarter of 2018.
The hard stats
• ‘Total insolvencies’ includes administrations, creditors’ voluntary liquidations (CVLs), compulsory liquidations and company voluntary arrangements (CVAs).
• There were 17,196 underlying company insolvencies in 2019, a 6.8% increase on 2018, with CVLs representing 70.1% of all underlying company insolvencies.
• The Insolvency Service reports 2.0% of insolvent companies entered insolvency via a CVA.
• For 2019, the number of CVAs fell a modest 1.1% to 351, from 355 in 2018.
• The data also breaks down insolvencies by sector. As expected, construction tops the list, but is closely followed by the retail and accommodation & food service sectors.
Comments on the leisure industry:
• Even though CVAs were broadly flat year-on-year at 351, the number suggests that trading remains challenging for the casual dining industry.
• Overcapacity is still a problem in the casual dining sector, which has seen a string of high profile CVAs in the last couple of years.
• Restaurant Group said that capacity had increased by c25% over the last 5-6yrs and said that it had only fallen recently by around 1%
• M&B has updated since & suggests that casual dining numbers are down by perhaps 3% from their peak
• Cost pressures are also set to increase in the labour-intensive industry, with the National Living Wage set to increase costs by around 6.2%.
A pincer movement on costs and revenues:
• These factors will continue to drive companies into proposing CVAs
• Legally, the company needs to convince its CVA administrator that it has no feasible alternative
• Entrepreneurs will have to be persuaded to clip their wings or leave their businesses or go bust or perhaps all three (albeit with something of a time delay between stages 1, 2 and 3
• Re no1, we don’t quote the bible very often but Ecclesiastes says ‘even a live dog is better off than a dead lion.’
• Re no2, business founders will resist but they are often shuffled off (sometimes sideways and down rather than out) into ‘other roles’
• Re no3, Colliers says 13 of the CVA’s it closely followed ended in collapse and administration
The above considering the Boris Bounce:
• The general economic outlook will need to remain upbeat in order to arrest the rise in underlying insolvencies.
• The Sunday Times said, if this is a bounce, we need a better trampoline. However, yesterday’s PMI was pretty good
• The Insolvency Service says ‘in periods of economic growth, liquidation rates tend to decrease.’ Not a surprise.
• Fingers crossed for some operators. If they can postpone collapse in the short term, Mr Maynard Keynes has assured them that in the longer term they will be dead
PUBS & RESTAURANTS:
• Compass Group has updated on current trading in a statement that will be read at its AGM later today. The company says its ‘organic revenue for the three months to 31 December 2019 grew by 5.3%, driven by strong levels of new business wins and good retention rates, particularly in North America.’
• CPG adds ‘the cost action programme, which was announced in November, is progressing as expected and the benefits are offsetting the anticipated impact of lower Business & Industry volumes in Europe.’
• The group adds ‘in the first quarter the Group spent £40 million on acquisitions. Our strategy is to make targeted and disciplined bolt-on acquisitions, focused on our core food offering, which strengthen our capabilities. There continues to be a pipeline of opportunities across the Group.’
• Regarding the outlook, CPG says ‘we have had an encouraging start to the year and our outlook for 2020 remains unchanged with organic growth around the mid-point of our 4-6% guidance range whilst maintaining our strong margin. In the longer-term, we remain excited about the significant structural growth opportunities globally, and the potential for further revenue and profit growth combined with further returns to shareholders.’
• Stock Spirits Group has also updated on trading, saying that ‘we are on track for the year as a whole.’ It says ‘from 1 January 2020, there was a 10% increase in spirits excise tax in Poland, and a 13.2% increase in spirits excise tax in the Czech Republic. As a result, and as expected, our businesses in both markets experienced exceptionally strong demand from our customers as they built up inventory in the run up to these changes being implemented. Overall, the performance in both markets to date has therefore been significantly ahead of the same period last year although, based on previous experience of such changes, we expect the current quarter will see some consequential impact from the strong first-quarter.’ Stock Spirits says it will announce its interim results on Wednesday 13 May 2020.
• The vegan pizza concept, Purezza has announced its intent to triple the size of its Camden site, making it ‘one of the biggest vegan restaurants in the UK’.
• The Scottish Beer & Pub Association has called on the Government to deliver a deposit return scheme that works for both the environment and the brewing industry.
• Low2nobev.com has reported on research published by The Portman Group that has found that one in four visits to UK pubs are now alcohol-free. According to the research 57% of adults would consider drinking low-alcohol drinks in pubs.
• Chapel Down has closed its canal-side bar and restaurant in London’s King’s Cross, just a year after having opened it. Frazer Thompson, chief executive of Chapel Down commented: ‘Although we got great reviews and gave customers a terrific experience, we couldn’t get the scale of traffic we needed to make it profitable. It’s always difficult when the staff have been so fantastic’.
• Sales of alcohol declined 20% in UK supermarkets this January compared to last year, according to data from Kantar. Kantar’s head of retail and consumer insight Fraser McKevitt said: ‘The January [alcohol] sales are half those of December, but 20% down on a normal, non-Christmas month. So while that is sizeable, it’s not as if nobody is buying alcohol – over half of households bought it. Despite the the noise around Dry January, alcohol sales are still considerable’.
• Sales of low and no-alcoholic drinks have increased 58% year-on-year across Greene King’s managed estate this January. Greene King chief commercial officer Phil Thomas said: ‘There’s a huge opportunity for product innovation and further expansion within the category and we’re confident that the trend we’re currently seeing is set to continue’.
• Research from Allegra has found that independent coffee shops in London have increased 700% in the last decade to 400 in 2020. Jeffrey Young, Allegra CEO and founder of the London Coffee Festival said: ‘Londoners are looking for a more polished but still informal experience. The days of the grungy coffee shop are gone’.
• Exports of Australian wine grew by 3% in the year to Dec 2019, reach a value of AU$2.91bn.
• Sales of organic wine have increased 47% in the UK in the last year to a value of £2.45bn.
• Luxury goods group, LVMH is rumoured to be in discussions with the Brunello estate Castello Banfi in Montalcino with regards to a potential acquisition.
• The pasta delivery company, Pasta Evangelists has raised £3.5m in new funds.
• The London based barbecue and grill restaurant, Smoky Boys has opened its first site outside of London in Castleford’s Xscape centre.
• TheVeganKind has achieved its £300k funding target in two days on Seedrs, and now aims to raise £600k. The company operates an online supermarket selling thousands of vegan and plant-based products.
• Sales of organic food and drink in the UK rose by 4.5% last year to a record £2.45bn.
• Mowgli, an Indian street food chain, has secured its first Scottish site in Edinburgh, with further openings lined up for Bristol and Leeds over the next few months.
• Impact Data reports the average email open rate across the restaurant and bars sector was 15% in January 2020, with operator engagement boosting this to over 20%. The average voucher redemption rate was 10%, whereas 15% would indicate strong engagement with the communication.
• The strong Services PMI suggests that there is something of a bounce going on.
• IHS Markit UK Services PMI for January markedly better. The reading came in at 53.9, up from 50.0 in December. Markit says ‘the headwind from delayed decision-making had lifted since the general election and helped to deliver a return to business activity growth in January.’
• Markit says ‘robust demand for staff continued to push up operating expenses at the start of 2020.’
• Grubhub reports that it doubled the number of restaurants from which it delivers in the fourth quarter, adding up to a total more than 300,000 options. It says ‘we strengthened both sides of our marketplace during the fourth quarter, adding 1.4 million active diners.’
• The company logged 502,600 orders in the fourth quarter, up 8% year-over-year and up 10% from the third quarter. In the third quarter, orders were down 6% from the previous period.
• Moody’s reports that the outbreak of the coronavirus, centred in China, will be credit negative for the world’s major drinks brands. It says ‘the outbreak is credit negative for the European alcoholic beverage sector because it will curb consumption in what is one of the world’s largest markets. According to Euromonitor, China accounts for 26% of the total global alcoholic beverage market by volume.’
• Moody’s says ‘Remy Cointreau…is the most exposed to the Chinese market. Around 20% of its sales are generated in China, according to Euromonitor.’ Moody’s says that Pernod Ricard generates 10% of its sales in China and Diageo Plc around 5%.
• HOP Vietnamese has raised £1.6m on Crowdcube. It had been aiming to sell £750k worth of shares on a pre-new money valuation of £9.1m.
• Aldi is to open its biggest distribution centre yet. Department stores and now a large Ikea might be closing but cheap groceries still have a market.
• NRN in the US reports that The Wendy’s Co. is to roll out its national breakfast offer from 2 March. The company says ‘people deserve a delicious, affordable and higher quality breakfast than what they’re currently getting, so that’s exactly what we’re going to serve when Wendy’s launches breakfast nationally.’
HOLIDAYS & LEISURE TRAVEL:
• On the Beach Group has updated on trading in a statement that will be read out to its AGM later today. The group says ‘as outlined in the Group’s Preliminary Results on 27 November 2019, there exists an unprecedented opportunity to take market share in the beach travel market following the failure of Thomas Cook Group.’ It says ‘On the Beach has responded to this opportunity, more than doubling offline marketing spend to drive awareness of the On the Beach brand. Management expects that a proportion of this investment will pay-back in the second half of the financial year. Alongside this exceptional marketing spend, the Group has also focused on price competitiveness to continue to drive long term market share gains.’
• OTB says seat prices increased due to TCG’s failure and the grounding of Boeing’s 737 Max aircraft. It says ‘despite the significant increase in the prices of holidays across the market and the seat capacity constraints, the immediate actions taken by the Group to capture market share are helping to drive strong sales growth for summer 2020 departures.
• OTB CEO Simon Cooper says ‘the actions we have taken in the first four months of the new financial year have accelerated our market share gain and mean we are well prepared to take advantage of capacity returning into the market.’ He adds ‘we look forward to providing a more detailed update on progress at the Group’s Interim Results.’
• Ten people on board Diamond Princess have tested positive for the new coronavirus. The ship has been placed under quarantine off the shore of Japan.
• Cathay Pacific has asked staff to take three weeks of unpaid leave to help it cope with the impact of the coronavirus.
• Disney+ has grown to nearly 29m subscribers in less than three months, with the direct-to-consumer and international segment, which includes streaming service Disney+, posting an operating loss of $693m, down from $136m a year ago.
• Casinos in Macau have temporarily closed down as the Chinese Government continues its attempt to slow the spread of coronavirus.
• Unsurprisingly, Moody’s reports that the coronavirus will be credit negative for the world’s gaming operators, particularly those with operations in the Far East. Moody’s says ‘Wynn Resorts Finance…Las Vegas Sands Corp…and MGM Resorts International are the most vulnerable to revenue declines based on their exposure to the region. Macau is the only part of the country [China] where casinos are legal.’
• Moody’s says ‘Wynn Resorts has the highest relative exposure of the three to the Macau region.’
• The competitions authority have announced that they plan to review the £10bn merger between gambling groups Flutter, owner of Paddy Power and Stars Group, which owns Sky Betting and Gaming. Brands controlled by Flutter and Stars make up around 40 per cent of the UK’s online sports betting market.
FINANCE & ECONOMICS:
• The IHS Composite Output Index for January came in at 53.3 up from 49.3 in December. Duncan Brock of the Chartered Institute of Procurement & Supply, said ‘the UK service sector leapt into action in the New Year with a welcome return to stronger business activity and an optimism not seen for almost five years.’
• The NIESR says ‘the decisive result of the general election has reduced political uncertainty, but elevated economic uncertainty is likely to persist until the details of the UK’s future trade relationship with the EU are settled.’
• It says ‘our central forecast is for economic growth of around 1½ per cent per annum. The Chancellor’s aim of raising UK economic growth to around 2¾ per cent a year is unlikely to be attained in the current global economic context (one in-five chance).’
• Re the global economy, the NIESR says ‘our forecasts for global GDP growth this year of 3 per cent, effectively the same as last year, and 3¼ per cent next year are unchanged on three months ago. We expect only a very gradual pick-up in activity as the year progresses, with headwinds to growth and fragility remaining a feature of the global economy.’
• Sterling lower vs dollar at $1.298 but up vs Euro at €1.1802. Oil higher at $56.50. UK 10yr gilt yield up 6bps at 0.61%. World equity markets higher with Far East up in Thursday trade.
START THE DAY WITH A SONG:
Yesterday’s song was Irene Cara with Flashdance, What a Feeling. Today who sang:
Don’t be told what you want,
Don’t be told what you need
There’s no future
RETAIL WITH NICK BUBB:
Next: Next are taking analysts to look at their big warehouse complex in sunny Doncaster today, but no RNS has yet been issued, so we can assume that “no material new information” will be disclosed, ahead of the finals for y/e January on March 19th. But the logistics operation of Next is a key strength of the business and we trust that analysts will come away impressed.
Marks & Spencer: Talking of logistics skills, it is hardly worth saying that the contrast between Next and M&S (think Castle Donington) is painfully obvious, but “Marks & Spencer is a fantastic brand with huge potential”. Well, that’s what the highly respected Katie Bickerstaffe said in the surprise statement issued at lunchtime yesterday to announce that she had decided to move from being a non-exec director of M&S to being the full-time Strategy and Transformation Director. She was available for a role after the collapse of the plan to float SSE Energy Services and we thought she might be in the running for a big Retail job, given her pedigree as MD of Dixons Carphone UK, so it seems a bit of waste to take this job at M&S. She has, however, secured a 4 day working week and is also in charge of the M&S Bank, so she will have plenty to do when she starts on
Weather Watch: It has seemed pretty mild and spring-like as we move on into February, but memories about “the weather” are always notoriously short-term and often too London-centric…so, ahead of Tuesday’s BRC-KPMG Retail Sales survey for January, we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected trading on the High Street across the country…And their overview for the calendar month of January flags that the UK joined in with the rest of Europe’s warmer temperatures versus last year. It was the 5th warmest January of the past 55+ years and the warmest since 2007. For the month as a whole the average temperature of 6.2° C was 1.5° C above last year and 1.9° C above “normal”. Overall, across the country, in terms of the sales of key seasonal products, Planalytics estimate that the impact on “weather
Grocery Market Share Watch Part 2: We highlighted on Tuesday that the latest Nielsen grocery sales figures (for the 4 weeks to Jan 25th) showed that overall supermarket industry sales growth was only 0.7%, but we can now reveal that the rival Kantar survey on Tuesday reported that sales were up 0.8% for a similar 4 week period (to Jan 26th), on a “Till Roll” basis, albeit that was below the 1.0% level of food price inflation. However, on a pure “Grocery” basis (ex-Non Food) overall sales were 1.0% up, according to Kantar, boosted by Aldi/Lidl growth of 7.4% combined. Morrisons was the worst of the “Big 4” on this basis, with gross sales 2.3% down, whilst Sainsbury was down by 0.4% gross, but Asda and Tesco were both up by 0.1% gross. M&S Food was up, however, by as much as 5.6% gross (despite tough comps).
BDO High Street Sales Tracker: We highlighted yesterday that the John Lewis sales figures for last week should have been a bit better, given the snow disruption comps and tomorrow’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly/suspiciously good progress in recent months) is also OK…In w/e Sunday Feb 2nd, BDO Fashion sales were up by 2.9% LFL, despite a decent comp and surprisingly weak Online sales, whilst Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were up by 1.9% last week (up 6.2% in Store sales and down by 2.8% in Online sales).
News Flow Next Week: The BRC-KPMG Retail Sales for January (the 5 weeks to Feb 1st) are out first thing on Tuesday, just before the Ocado finals. Wednesday then brings the Dunelm interims.