Langton Capital – 2020-02-11 – PREMIUM – TUI, Quentin, Wm Hill, Barclaycard report, cinemas etc.:
TUI, Quentin, Wm Hill, Barclaycard report, cinemas etc.:
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A DAY IN THE LIFE:
Booking the cinema over the weekend we found that Vue was offering all seats for all films and on all days at £4.99 whilst Cineworld was charging £11.00.
Both chains charge 75p per ticket as a booking fee, which is a bit rich, but even taking this levelling factor into account, Cineworld is still more than double the price at Vue, where they also manage to brag that every seat is now a leather, electric-powered, recliner.
So, what am I missing here?
We note that the Cineworld has just opened. Vue may have decided to greet the opposition by slashing prices and it may get some of its cash back via its extortionately priced popcorn. But I’m not sure it was any cheaper at Cineworld – I did notice it was charging £2 for a bottle of water – so we popped our heads in to see if it was tumbleweed city.
But it was hard to tell as we turned up between showings when not many (even price inelastic) customers would have been milling around. However, the good people of York are not renowned for paying double what they need to for an undifferentiated product and we’ll continue to monitor the situation (for as long as there are decent films to watch). On to the news:
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PRIVATE COMPANY ACCOUNTS: QUENTIN RESTAURANTS: Quentin Restaurants (Pizza East, Chicken Shop & Dirty Burger) has reported December 2018 numbers. 11 Feb 2020:
• 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.
The numbers 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.
• The losses were skewed by exceptional costs. 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.
• The hefty exceptional costs help highlight the difference between Going Concern and disposal values when restaurants are closed.
• The group has losses accumulated since incorporation of £17.0m and it has negative shareholders’ funds of £15.4m.
• Quentin has cash of £1.5m (or rather it did over 13mths ago at the reported balance sheet date) and, though it had no bank debt, it owed £13.1m to its ‘parent undertaking’
• The company says ‘at 30 December 2018 the company’s ultimate parent company was Quentin Limited, a Jersey registered company.’
• It reminded observers that Soho House sold its shares in Quentin Ltd to Quentin Partners Ltd. Quentin says ‘the ultimate controlling parties at 30 December 2018 were jointly Quentin Partners Limited and Landsdowne Developments Limited.’
• Quentin says ‘gross margin for the period improved from 2017 to 72.4%, up from 70.4%, owing to the closure of three poorer performing sites and continued margin improvement.’
• It says ‘adjusted EBITDA for the 52 weeks to 30 December 2018 was a loss of £0.8m (31 December 2017 – a loss of £0.4m) with results impacted by rising labour and property costs, along with investment to support future growth.’
• The group says ‘given the challenging trading conditions in some areas of the casual dining market, the Group has recognised a non-cash impairment charge of £6.2m against the carrying value of its restaurant assets and further non-cash onerous lease charges of £3.7m in the period to 30 December 2018.’
• It has exited its Chicken Shop JV in Barcelona.
• Quentin says ‘the Group has also seen challenging performances at some sites owing principally to wider sector difficulties in certain locations. The Group are undertaking on-going strategic review of these sites in order to maximise the profitability of the portfolio.’
In talks to restructure portfolio:
• The company says ‘plans are well progressed to consolidate the Group’s portfolio and focus on the more profitable sites.’
• It says ‘subsequent to the period end, the Group has commenced talks with landlords regarding additional lease exits, sub-lets, or conversions, which are at an advanced stage.’ The accounts were signed on 4 Feb this year.
• Quentin says ‘the Directors have also put in place plans to improve revenues whilst reducing the Group’s cost base to drive profitability across the portfolio.’
• Quentin says ‘as the Group is currently loss making and has net liabilities, it has obtained a letter of financial support from its parent company.’
• The mix is arguably good restaurants, rich parent, poor profitability.
• Some poor sites, overexpansion & now retrenchment.
• The group has the assets (or rather its parent does) to make its units a success. It may not be all of these units in all of these locations, however.
• There will be some interesting conversations going on with landlords, many of whom presumably thought that they were onto a winner when they took Quentin as a tenant
PUBS & RESTAURANTS:
• Barclaycard spending data a mixed bag. Good for cinemas, poor for restaurants. Short term consumer optimism but longer term concerns etc.
• Barclaycard’s latest Consumer Spending report covering last month concludes that consumer spending grew by 3.9% in January ‘as Brits fill up on fuel and food.’
• The report says that spending of fuel was up by 4.3% with spending in the supermarkets some 3.7% higher. It says that ‘cinema spend jumped by 22.0% as crowds flocked to watch 1917, and travel agent and airline spend grew as consumers looked to their next holiday.’
• Barclaycard says that confidence in the UK economy has reached its highest in more than three years. It says that the spending uplift in January marks ‘a distinct uplift from the low levels of growth seen in 2019.’ It says ‘consumers are feeling upbeat about the country’s economic prospects, with three quarters confident about their household finances.’
• Spending in restaurants, however, fell ‘for the third month in a row, by 3.5%, while takeaway expenditure grew 11.4%.’
• Barclaycard says ‘looking ahead, however, over half of UK adults (51%) believe the pace of economic growth could decline in the next few months. Consumers are also thinking carefully about the most responsible way to spend their money. More than half (56%) said they have become more conscious of their personal impact on the environment and consequently intend to change their behaviour.’
• Barclaycard concludes ‘consumer spending has had a boost in January, and we’ve also seen confidence in the economy grow. Brits are planning holidays and enjoying box office hits. Traditional retail continues to face challenges though. How retailers respond to consumer demand for value for money and responsible shopping will be key.’
• Other data also mixed concerning a ‘Boris Bounce’.
• The British Retail Consortium meanwhile has said that sales through the shops that it monitors rose by only 0.4% in January compared with the same month in 2019. The Telegraph quotes KPMG as saying ‘consumer confidence has started to return post-General Election, but we have not experienced any major leaps for the sector yet. We have to remember, this semi-positive performance will also be the result of aggressive discounts and consumers’ preoccupation with bagging a bargain.’
• The CEO of Five Guys, John Eckbert has stated that the group is ‘actively looking at’ including a vegan option in its offering. Eckbert commented: ‘The opportunity to have the family consider a vegan option is interesting and they do have an open mind about it. They’ve said they’ll think about it. It has to be a great product and something that is uniquely ours but there’s a chance for it. There is an open door’.
• New York City’s council has launched an investigation into the effect of dark kitchens upon the restaurant industry, with a mind to introduce new regulations.
• Footfall in shopping centres increased for the first time in almost three years during January, rising 0.2%.
• The Milan-based Flower Burger vegan burger chain has signed a master franchise agreement to bring the brand to the UK.
• Boris Johnson and Home Secretary Priti Patel are to set out their immigration reforms, including a fall in salary threshold for some migrants, at a cabinet meeting on Friday.
• KPMG reports the number of company administrations in England and Wales rose by nearly 5% to more than 1,400 last year, driven by Brexit uncertainty and economic turmoil.
• Food prices have risen by more than a fifth in China due to the outbreak of coronavirus, with overall inflation reaching 5.4%. Pork prices rose 116% in January.
• Restaurant Brands International reports weak performance at Tim Hortons, with comparable store sales down 4.3% this quarter. The coffee and doughnut brand will revamp its coffee program.
HOLIDAYS & LEISURE TRAVEL:
• Complicated numbers from TUI but the group delivers what looks like a modest upgrade (excluding increased 737 Max grounding costs).
• TUI Group has reported Q1 numbers saying that turnover is up by 7.7% (by 6.8% in constant currencies) with underlying EBITDA more than trebled at €111.5m (albeit including exceptional costs – see below).
• TUI says ‘our first quarter of the new financial year saw improved booking trends for our Winter programme, driving a good underlying result in our Markets & Airlines business.’
• The group says ‘excluding the effects of the continued Boeing 737 Max grounding and the non-repeat of a hedging gain from prior year, underlying EBIT for Markets & Airlines improved by 14% versus prior year.
• TUI says ‘Holiday Experiences saw a weaker result for this first quarter, with improved occupancy and average revenues at Hotels & Resorts offset by higher cost base and FX losses from the devaluation of Turkish Lira.’
• It says ‘the grounding of the Boeing 737 Max aircraft incurred replacement costs of €45 m across Markets & Airlines. The segment also saw a headwind of €29 m from the non-repeat of a hedging gain reported in Q1 of the prior year.’
• However, TUI says ‘provided the current strong trading trends for our Markets & Airlines business continue, we are now expecting a high single digit percentage turnover growth (previously: mid to high single digit percentage growth).’ It says ‘this would have corresponded to the upper end of an underlying EBIT range of approx. € 950 m – € 1,050 m, already including an approx. € 130 m cost impact for the 737 Max grounding.’
• The grounding is to continue and cost more than anticipated. TUI says ‘we have been able to narrow the range of the additional cost for a full FY20 grounding of the 737 Max from approx. € 220 m – € 270 m to approx. € 220 m – € 245 m. Moreover, these additional Boeing costs did not have to be fully reflected in our updated guidance range as we now expect to partly offset this impact based on the current strong trading trends for our Markets & Airlines (as set forth above), by mitigating factors such as cost measures and because we have now included a certain level of compensation from Boeing.’
• Outlook. TUI says ‘FY20 in terms of booking trends has started exceptionally well, with the UK delivering its best bookings volume month in the company’s history.’ However, the Boeing 737 Max grounding ‘continues to weigh on our operational performance, with an extended grounding now expected for the rest of the financial year.’
• The group will grow its Hotels & Resorts business with 17 hotel openings planned for the year. Hapag Lloyd Cruises is to be incorporated into TUI Cruises and ‘the transaction is expected to generate a considerable book gain.’
• Re Brexit, TUI says ‘we follow the political negotiations closely and continue to develop scenarios and mitigation strategies for various outcomes.’ Overall, this is a relatively positive financial statement.
• Post Office Travel Money reports 80% of the top 40 holiday currencies have fallen in value against the pound compared with a year ago, meaning travellers can expect to see their cash stretch further on trips abroad following Brexit.
• CEO of European travel association Etoa, Tom Jenkins, warned of a ‘complete breakdown’ in the market to and from China due to the ongoing coronavirus outbreak. UKinbound CEO Joss Croft said ‘We have members struggling and if this goes on businesses will go under. They will go out of business.’
• The Diamond Princess cruise ship has seen an additional 66 passengers test positive for the novel coronavirus, bringing the total to around 130 on the vessel.
• Tui Cruises and Hapag-Lloyd Cruises are to merge in a plan worth €1.2bn, creating a European cruise company with a combined fleet of 12 ships.
• Ola, the Indian ride-hailing app, has launched in London. Ola says it already has three million customers across the UK and hopes to be number one in London within a year.
• The government’s decision to green-light HS2 could lead to a rebellion by up to 60 Conservative MPs, sources say.
• BA has extended its ban and cancelled all flights to and from Beijing and Shanghai until 1 April, citing the Foreign Office’s advice against all but essential travel to mainland China.
• Wm Hill has announced an Official Partnership with CBS Sports. It says ‘William Hill [is] to Be Exclusive Sports Book & Wagering Data Provider of CBS Sports Digital.’
• Wm Hill says ‘the deal will reinvent fan engagement through a unique integration of sports betting, media, product and technology.’ WMH says ‘becoming the official sports betting provider to CBS is another major step forward for William Hill in our US expansion.’ The financial terms of the deal are not being disclosed.
• Cinema prices. See comments in A Day In The Life and also in the Barclaycard survey above.
• Potential bidders for the UK’s National Lottery licence say delays in the process could favour the incumbent Camelot.
FINANCE & ECONOMICS:
• Nissan has temporarily shut one of its factories in Japan as it can’t get parts from China.
• Sterling higher at $1.2916 and €1.1837. Oil lower at $54.05. UK 10yr gilt yield down 1bp at 0.56%. World markets lower in Europe yesterday but better in the US. Far East mixed in Tuesday trade.
• Brexit & politics:
o Michael Gove has said that frictionless trade with the EU will end this year with the introduction of import checks at the UK border.
o Sajid Javid is demanding ‘permanent equivalence’ for financial services in the City of London. This is said to be an ‘opening position’.
o Some ‘straight-banana’ talk of Northern Ireland being in a different time-zone to the rest of the UK after 1 Jan.
START THE DAY WITH A SONG:
Yesterday’s song was Riders on the Storm by The Doors. Today, who sang:
“Finished with my woman,
’cause she couldn’t help meWith my mind,
People think I’m insane because I am frowning
All the time”
RETAIL WITH NICK BUBB:
• Nick is on a short break. Back Wednesday.