Langton Capital – 2020-02-10 – PREMIUM – Quentin Rests, West Berks Brewery, Jan holiday bookings etc.:
Quentin Rests, West Berks Brewery, Jan holiday bookings etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Storm Clara could be about to cause Langton some problems getting down to London today but, for the retailers, it proved to be something of a disaster yesterday.
Langton made it past the fallen branches and flooded drains into York City centre on Sunday (risking he health and well-being of its 12yr old Skoda Fabia into the bargain) where parking was plentiful and the pavements were empty.
Even the stag and hen parties, usually a very washed-out but still visible presence on a Sunday were absent, the panhandlers were looking even more forlorn than usual and we were thanked, yes thanked, in one shop for venturing out and making it worth their while opening.
The shop in question maybe spoke too soon as it was the retail outlet attached to the Art Gallery where they were selling mugs for £32 and keyrings and the like for not much less.
Not quite our scene but still, the serious point to be made is that, when the public has a reason to remain in front of the fire and order online, it seems to be pretty willing to do so. The movement of some of the High Street burden from business rates (still high) to corporate profits (low or non-existent for many retailers) can’t come soon enough. On to the news:
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PRIVATE COMPANY ACCOUNTS: WEST BERKSHIRE BREWERY. West Berkshire Brewery has reported (somewhat late) its numbers to end-March 2019 to Companies’ House. 10 Feb 2020:
• West Berkshire Brewery, where industry veteran David Bruce is chairman and Tom Lucas is MD, has reported end-March 2019 numbers to Companies’ House.
• It should have reported these numbers by end-December.
• A Compulsory Strike Off notice against the company was discontinued on 14 December.
• The accounts were signed on 6 February 2020.
• We would suggest that the first half of the chairman’s statement is markedly more optimistic than the second. The numbers do not look too rosy
Company Comment (Part I):
• West Berkshire chairman David Bruce says in his 6th chairman’s statement that the group has turned its attention to sales and marketing.
• He says ‘we introduced a comprehensive, insight-driven, sales and marketing strategy and set about recruiting, developing and training a high-calibre sales team for both the on and off-trade channels.’
• The company sold 56% more draft beer by volume in 2019 than it did in 2018. Bottle sales were up 77% and can sales rose seven-fold.
• Mr Bruce says ‘sales from our contract brewing and packaging business continue to grow, and our brewery Taproom & Kitchen continues to exceed all our expectations.’
• West Berkshire says its ‘exciting rate of growth is validation of our investments and strategy, and our dedication to developing our business in the correct way.’
The bald numbers:
• Whilst West Berkshire maintains that it is making progress, the numbers still feature a great deal of red ink
• Sales rose by 86.4% to £6.3m
• The operating loss was £2.99m (2018: loss £2.19m). After adding back a number of exceptional items, depreciation and some other charges. West Berkshire maintains that this is equivalent to an underlying EBITDA loss of £0.65m
• The declared loss before tax is £3.31m (2018: loss £2.27m)
• Accumulated losses on the balance sheet total some £6.15m
• After raising £1.5m in new equity during the period under review, shareholders funds are some £5.4m vs £7.0m in the prior year
• Debt, including finance leases and net of cash is £4.52m. It was £1.51m in the prior year. £3.04m of the debt is convertible loan stock
• Tangible net assets have increased by £2.4m
Further company comment (Part II):
• West Berkshire says that it ‘identified the urgent requirement for a robust marketing and sales strategy’.
• It says that ‘despite some challenges, the on-trade team is well placed to take advantage of the increasing prospects for the company.’
• Chairman David Bruce says the company ‘endured some significant production challenges for the period ending March 2019.’
• He says ‘it has proven to be an extremely tough and challenging period across many fronts as we continue to build on our success and our investments.’
• Mr Bruce says the company had production and packaging problems then was ‘hit by the pan-European CO2 shortage which reduced our production of all beers apart from draught cask products to an absolute minimum.’
• He says the 2018 ‘incredibly hot summer’ meant that ‘the water supply on our site quite literally dried up and despite having mains supply we were reduced to brewing between four and eight times a week.’
• This ‘had significant production and cost implications.’
• Mr Bruce says ‘in addition to this, we were not able to trade outside in our Taproom garden due to issues regarding permissions.’
• The chairman calculates ‘these exceptional issues cost the business c.£800,000 in exceptional expenses, costs of rectification in addition to significant, unquantified, opportunity costs.’
• Mr Bruce says ‘there was significant stress throughout the business as a result of the challenges outlined above, and it was with sadness that we also accepted the resignation of non-executive directors Peter Whitehead and Sheila McKenzie.’
• Mr Bruce adds ‘throughout early and mid-2019 there was significant disruption in the finance department.’
• This led to a ‘delay in completion of the audit and financial statements.’
• The group’s chairman says ‘since the start of the new financial year in April, and despite some initial setbacks, the core business is growing and the investments we have made in infrastructure and personnel are continuing to bear fruit.’
• Mr Bruce says the company now has ‘the right team’, its gross margins are up and the group is ‘well within sight of breakeven and positive EBITDA which we anticipate will come when turnover hits £8m with continued sales growth projected thereafter.’
• Mr Bruce concludes ‘the Board believes that though the investment phase of the business has been completed there is a cash requirement to support working capital within the next 12 months, to support the Group’s continued and accelerating growth. The Board is working with advisors to explore appropriate options for securing this finance.’
• The directors have prepared the accounts under the Going Concern principle.
• The directors say: ‘the Group is currently loss-making and cash consumptive having been through a period of sustained investment into plant, pub acquisitions and business infrastructure.’
• They say: ‘the future cash consumption will depend on the trajectory of revenue and gross profit growth together with the overhead expenditure and amount of capital expenditure required to support this growth. The forecast of these items is inherently uncertain.’
• However, they believe the company can grow volumes with little increase in staffing levels.
• They still concede ‘though the investment phase of the business has been completed there is a cash requirement to support working capital within the next 12 months, to support the Group’s continued and accelerating growth.’
• They say ‘the Board is working with advisors to explore appropriate options for securing this finance and based upon these discussions the Board has a reasonable expectation that sufficient funds will be raised however there can be no certainty of this.’
• As mentioned above, the accounts were signed on 6 February.
• The directors concluded: ‘it is appropriate to prepare the financial statements on the basis of a going concern. These financial statements do not include any adjustments that may be necessary should the Company be unsuccessful in raising the required finance.’
• The company raised £526k in new equity post its year end. As this was in June, July & Dec 2019, prior to the signing of its accounts, the cash requirement mentioned above is presumably in addition to this
• The auditors are James Cowper Kreston.
• The auditors say: ‘the directors have prepared the financial statements on a going concern basis, the validity of which depends upon the success of the directors in raising sufficient additional funds, which is inherently uncertain.’
• They say ‘the quantum of funds required is also inherently uncertain as it is dependent on the future trading performance of the group and the cash flows arising therefrom.’
• The auditors are going along with the use of the Going Concern principle but they say ‘the above factors mean that that a material uncertainty exists that may cast significant doubt on the Group’s and the parent Company’s ability to continue as a going concern.’
• In no particular order we would suggest first, hope springs eternal.
• Second, West Berkshire raised £1.5m via crowdfunding in 2016. At the time, the group already had over 600 small shareholders.
• Third, it was advertising the ‘last chance’ to invest in it as an EIS-allowable investment back in June last year
• Fourth, the auditor’s statement was guarded
• Fifth, the directors signed the accounts last week. This is nearly a year after the closing of the accounts referred to above. They say they need funds and they will be in a much better position than outsiders to comment the company’s position as it stands today
PUBS & RESTAURANTS:
• Quentin Restaurants, which operates the Pizza East, Chicken Shop & Dirty Burger restaurant chains amongst other units (14 in total) has reported late numbers for the rather historic year to December 2018.
• More detail in the premium email tomorrow but, in brief, the group reports revenues down by nearly 12% at £23.4m with headline losses of £13.4m against a loss of £4.9m in the prior year. In the year to December 2018 there were exceptional charges of some £10.7m against charges of £1.8m in 2017.
• Quentin Restaurants closed two Chicken Shop units and one Dirty Burger site in 2017. This was largely behind the drop in turnover and the exceptional costs. It helps highlight the difference between Going Concern and disposal values when restaurants are closed. Quentin refers to ‘challenging trading conditions across the casual dining sector.’ More tomorrow.
• See comments on West Berkshire Brewery above.
• Research from Shoppercentric shows ‘food-to-go’ has reduced spending on household food, with 80% of UK shoppers saying they’ve eaten a meal which wasn’t prepared at home over the past month.
• In the US, Black Box Intelligence reports restaurant comp sales were up 2.25% on a rolling six month average ending January, the highest sales growth in 4 years. Sales have been driven by good weather and a milder winter during January.
• The MCA & HIM Food To Go Market Report 2020 reveals that consumers with a dietary requirement spend 35% more on food to go (FTG) than the average FTG consumer. The amounts are £7.14 on average, compared to the FTG average of £5.29.
• KAM Media comments on Pub20 saying that 15m adults visit at least one of the 49,500 British pubs every week. Some 95% of pub goers believe that the pub is the centre of the community. They may be partisan. Some 1-in-5 people met their partner in a pub.
• Jaguar Land Rover is shutting down production at two of its UK plants on some days now as a result of sluggish sales.
• Fourth has launched a report in partnership with sustainability platform Footprint, analysing how specific job roles within the industry can help reduce food waste. Catherine Marshall, Communications Director at Fourth said: ‘There is no silver bullet or quick fix to reducing food waste – tackling it requires a concerted effort from across the industry and at Fourth we’re determined to do our bit’.
• Research from Travelodge has found that only 28% of British families still get together round a table to eat dinner.
• Pret A Manger has announced another four new Veggie Pret stores to open by this summer, bringing the total to 14.
• BrewDog has released new branding alongside several commitments to commit to making the group more sustainable.
• The North Yorkshire brewery, Rooster’s Brewing Co has invested £850k into a new brewery taproom three times the size of its previous premises, at 20,000 square feet.
• The average price of a bottle of wine in the UK is anticipated to exceed £6 for the first time this year, research from the Wine and Spirit Trade Association has indicated.
• Restaurant sales in the US have seen sales increase 2.3% LfL in January, according to research from Black Box Intelligence.
• Yum Brands’ Pizza Hut reported a 2% drop in global same-store sales and a 4% decrease in the U.S. with CEO David Gibbs saying the company is working “urgently” to fix its Pizza Hut division. Yum reached 50,000 global restaurants by the end of Q4.
HOLIDAYS & LEISURE TRAVEL:
• January UK outbound holiday bookings have been up yoy, despite Britain leaving the EU at the end of the month.
• The International Air Transport Association reports demand, measured in revenue passenger kilometres, rose by 4.2% in 2019, compared to 2018.
• The number of infected people on the Diamond Princess in Japan has risen to 61 people.
• In the States, U.S. Travel Association President and CEO Roger Dow said that inbound travel from China to the U.S. will be ‘temporarily affected’ and that ‘Previous events tell us that travel is quick to rebound after health-related downturns.’
• Melco Resorts and Entertainment has abandoned its plans to raise its stake in Australian rival Crown Resorts to 19.99%. The gaming and tourism industries have been hit hard by quarantines and travel bans due to the coronavirus outbreak.
• Amazon has pulled out of the Mobile World Congress in Barcelona over risks posed by Coronavirus. However, the organiser said the event, which attracts 100,000 people, will go ahead.
• The FT reports that tighter regulation, higher taxes and negative media coverage contributed to the UK gambling sector’s first ever decline last year, with revenues down from £5.6bn to £5.3bn in the year to March 2019.
FINANCE & ECONOMICS:
• Sterling down vs dollar at $1.2906 but unchanged vs Euro at €1.1781. Oil lower at $54.49 and UK 10yr gilt yield down 2bps at 0.57%. World markets lower on Friday and Far East down in today’s trade.
START THE DAY WITH A SONG:
Last Friday’s song was Dreams by Fleetwood Mac. Today, who sang:
“There’s a killer on the road
His brain is squirmin’ like a toad,
Take a long holiday
Let your children play”
RETAIL WITH NICK BUBB:
• Nick is on a short break. Back Wednesday.