Restaurant Group, Revolution Bars, Wm Hill, Nichols & other:

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A DAY IN THE LIFE:

Bit busy today. On to the news:

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RESTAURANT GROUP FY NUMBERS. No dividend for the moment but Wagamama on track, leisure still needs attention. 26 Feb 2020.

Full Year Results – 52wks to 29 Dec 2019:

The Restaurant Group has this morning released Full Year numbers for the 52wks to 29 December 2019 and our comments thereon are set out below:

The numbers:

• RTN has reported total sales up 56.4% (including Wagamama) to £1.073bn.

• Group LfL sales are up by 2.7%. Wagamama LfL sales are up 8.5% confirming that the pre-existing businesses remains in modest decline (see detail below)

• Adjusted profit before tax is £74.5m with a statutory loss before tax of £37.3m after exceptional items

• Adjusted EBITDA is £136.7m (2018: £87.9m)

• Exceptional charges amount to £111.8m, all of which were announced at H1. This is re the ‘impairment in our leisure business recorded in H1’

• Adjusted EPS is 11.9p (2018: 14.7p) with no dividend announced for the final (H1: 2.1p).

• The omission of the final dividend is ‘to facilitate new strategic priorities’.

• Bank debt is £286.6m (2018: £291.1m) with net debt to EBITDA at 2.1x.

Other comments, outlook etc.:

• RTN says it is ‘delivering the benefits of the Wagamama transaction.’

• It says there, there is a ‘market-leading like-for-like (LFL) sales performance of +8.5%.’

• The group adds that ‘cost synergies [are] ahead of plan [and] site conversion programme [is] well progressed’

• A JV has been established in the US (after the year end) in order to ‘facilitate capital-light growth plan.’

• Concession LfL sales were +4.1% which was ‘well ahead of passenger growth.’

• Pubs LfL were +4.0%. They are ‘consistently outperforming the market’ and there is a ‘healthy pipeline of new sites in 2020.’

• The Leisure Business saw LfLs down 2.8% ‘representing an improvement on previous years.’

• The group says delivery sales are ‘performing well, supported by targeted operational initiatives to improve food offering and brand proposition.’

Conclusion:

• RTN confirms that it has reduced the size of its leisure estate by 18 sites to 350 ‘via closures and conversions to Wagamama’

• CEO Andy Hornby says ‘having joined the business in August last year I am particularly pleased with the continued and significant progress made following the acquisition of Wagamama and the integration of the business into the Group, which has transformed the Group’s growth trajectory and momentum.’

• Mr Hornby says ‘our three growth businesses of Wagamama, Concessions and Pubs are all out-performing their respective markets and have clear potential for further growth.  I am also acutely aware of the challenges facing our Leisure business and the wider casual dining sector.’

• He adds ‘it is therefore clear that our strategic priorities need to evolve in order to maximise shareholder value in the medium term.’

• The group will grow its growth businesses, ‘rationalise’ its leisure business and accelerate its deleveraging

• The co says ‘in order to support these strategic priorities, the Board has taken the decision to temporarily suspend the dividend.’

• It says ‘this will allow us to continue investing in our three high growth businesses, whilst facilitating an acceleration of our Leisure estate rationalisation and reducing our net debt.’

• Re current trading, the company says ‘we have made an encouraging start to the new financial year with like-for-like sales up 5.3% for the first six weeks of 2020.’

Restaurant Group – A Tumultuous Few Years:

Restaurant Group has warned on profits four times, had four CEOs, three CFOs and two chairmen in little more than five years. It has announced the largest acquisition in its history and has cut its dividend.

• Aug 2014 – CEO departs – Andrew Page retires

• Aug 2014 – CEO appointed – Danny Breithaupt

• Jan 2016 – Profit warning

• Mar 2016 – Profit warning

• Apr 2016 – Profit warning

• Apr 2016 – CFO departs, Stephen Critoph steps down

• May 2016 – Chairman departs, Alan Jackson retires

• May 2016 – Chairman appointed, Debbie Hewitt joins the group

• Jun 2016 – CFO appointed – Barry Nightingale

• Aug 2016 – CEO departs – Danny Breithaupt leaves

• Aug 2016 – CEO appointed – Andy McCue joins

• Jan 2017 – Profit warning

• Apr 2017 – CFO departs – Barry Nightingale leaves

• May 2017 – Trading update re ‘transitional year’

• Aug 2017 – CFO appointed – Kirk Davis

• Oct 2018 – Acquisition of Wagamama, Rights Issue & dividend cut

• Dec 2018 – Rights Issue completed

• Feb 2019 – CEO departs – Andy McCue resigns

• May 2019 – Co announces Andy Hornby as new CEO

• Sep 2019 – Group announces another £115.7m of write downs

• Feb 2020 – Co ‘temporarily’ suspends dividend payments to shareholders

Langton Comment:

• The Restaurant Group has had an eventful few years since Andrew Page hung up his boots in August 2014.

• The write-downs were announced at H1 but the split in performance between the ‘growth businesses’ and leisure remains marked.

• As we have mentioned before, RTN pushed its Frankie & Benny’s brand too hard & ‘took price’ when it might have been better-advised to develop another brand and/or to introduce EDLP (every-day-low-pricing).

• Overcapacity and slower demand has had an impact and the group is still suffering from the readjustment that this has caused.

• In 2018, the Wagamama acquisition, which was enacted against significant shareholder opposition, topped off what RTN described as a ‘pivotal’ year.

• Wagamama is still growing strongly. The scale of the delivery business, and how much of the growth it is supplying, will be important in determining margin going forward.

• The shares have been poor recently on trading and coronavirus concerns. There is, for the moment, no yield support.

• RTN will have to continue pulling itself up by its bootstraps. Wagamama will make average numbers look markedly better but it is clear from the write-downs that Leisure is still in trouble.

PUBS & RESTAURANTS:

• Revolution Bars Group has reported interim results for the 26 weeks ended 28 December 2019 saying LfL sales are positive 1.2% with total sales of £81.2m (2018: £78.5m) and adjusted EBITDA of £7.6m (pre-IFRS16).

• RBG CEO Rob Pitcher says ‘we have continued to make significant progress revitalising the Revolution brand and further improving the performance of Revolución de Cuba. Having stabilised the business in FY19, FY20 is about consolidation and the benefits of the many actions that we have taken are beginning to be realised.’

• RBG says ‘H2 FY20 has started encouragingly and should we continue on our current trajectory then the Board is confident the business will be well-positioned to resume site expansion in FY21.’

• Nichols has reported full year numbers saying revenue rose 3.5% to £147.0m with PBT of £32.4m against £31.8m last year.

• Nichols CEO John Nichols says ‘I am pleased to report on a year of further progress during which Nichols achieved continued revenue growth in both our International and UK businesses. As a result, the Group delivered year-on-year increases in profit before tax and earnings per share and we are today proposing a final dividend of 28.0 pence per share, resulting in a 6.0% increase in the full year dividend.’

• Mr Nichols continues ‘the Group’s performance demonstrates the strength of our diversified business model, which provides a strong platform to deliver continued growth.’

• Discounts continuing. Bella Italia 30% off mains till end-March. Frankie & Benny’s & Pizza Express both 25% off mains till near end-Feb. Prezzo 2-4-1 on mains till 1 March, M&B’s Toby offering two mains for £12 till 27 Feb.

• Companies with exposure to travel sites, which are usually a good market, SSP, RTN etc. on a bit of a downer as a result of Coronavirus fears. Fortunately, the leases tend to be revenue sharing. This offers some downside protection but there will still be fixed costs to cover.

• Fulham Shore, in a presentation organised by Shares Magazine, has said that retail park trading is tough. The group is not heavily involved as it has only two sites in this segment, at both London Westfields. Many other operators are much more heavily exposed.

• FUL chairman David Page suggested that, just because the directors of the property companies behind the shopping centres wear suits and have been in the game some time, doesn’t mean that they get everything right. Witness Intu and Hammerson’s recent travails.

• Other operators have suggested to us that lining up six or eight casual diners on one side of an internal ‘food street’ and six or eight on the other side, was never going to work. The operators themselves however, admittedly often under different managements, have colluded in this process.

• HGEM has said that ‘88% of [restaurant] guests are happy to share their name and email address with operators, fairly standard data. Only 10% are happy to share their social media handle and 12% their address, both feeling rather unnecessary.’ It says that discounts off the price of food would be the most tempting offer when consumers decide whether or not to leave their personal details.

• HGEM says ‘when it comes to providing data, catching guests at a good time is key. We found that guests do not want to be asked for their email address when they’ve just arrived at your venue or during their meal when they’re trying to relax. We did find however that 36% would be happy to provide this right at the end of their experience, on paying the bill, or when they get home. The most desirable option for 53% would be during booking process.’

• TruRating and other operators have been attempting to build business models around the provision of guest feedback. All face the problem of potentially annoying diners who simply want to pay and leave.

• Incite Marketing has said that ‘competitive socialising has given grounds for excitement’ in what might otherwise be thought of as a difficult market for casual diners, bars & restaurants.

• Incite says ‘concepts which combine socialising with some sort of competitive play, alongside a casual food and beverage offer have been hitting the bullseye.’ The question is always going to be with regard to 1) sustainability and 2) roll out potential. There will be winners but this currently has some of the hallmarks of what could become a crowded market place with limited profitability, at least until some sort of shake-out has taken place.

• The new Pizza Pilgrims in Camden will also feature a Pizza Academy where people will be able to earn qualifications that allow them to take home ideas for self-improvement and business theory. 

• In the US, Steak n’ Shake plans to reopen temporarily closed locations as counter service restaurants to save on labor costs, with 29 operators selected to take part in the program.

• Brewdog COO David McDowall has criticised the government’s proposed immigration points system on Twitter saying that ‘we will eventually have a far less diverse and multicultural group of people working in (and growing careers in) our hospitality industry.’ This may actually suit some pro-Brexit voters but Mr McDowall goes on to say ‘we will close restaurants, bars and cafes around the country in droves as they buckle under the weight of an unsustainable workforce availability crisis.’

• Mr McDowall has invited Home Secretary Priti Patel or PM Boris Johnson to work a shift ‘in a BrewDog bar or work a shift in a Hawksmoor, Pret, Wagamama or any of the other awesome hospitality sector businesses that rely on a passionate, driven, experienced and skilled workforce day in, day out.’

• The bubble may be at work here as 70% vote leaving constituencies may have a different view.

• Trawlerman’s Fish Bar is set to open on Islington’s Upper Street in the site of the former Trawler Trash restaurant.

• Constellation Brands has acquired a minority stake in Karma Wellness Water, a US nutrient-enhanced beverage brand. 

• Big Hospitality has quoted vendor Caravan as saying that it has detected a move away from taking milk in coffee. It says this is ‘driven by veganism and a desire to experience the taste of high-quality coffee unmasked by cow’s milk or plant-based alternatives.’

• Tesco is to cut more than 1,800 jobs in its bakery function. It says a number of sites will cease baking from scratch and will just finish off pre-baked product on site.

• Per Big Hospitality, D&D London’s chairman and CEO Des Gunewardena claims restaurants will have to operate with fewer staff following the new immigration rules.  

• The National Farmers Union has said it would be ‘insane’ to sign a trade deal that allows the import of food that would be illegal to produce in the UK, such as chlorinated chicken. 

• Post-Brexit plans show large farms will face a cut to their subsidies over the next seven years. Instead, English farmers are set to receive subsidies for environmental projects carried out on their land.

• A report by Nielsen CGA shows hard seltzers attracted 7.5 million new drinkers in the US on-trade, with sales reaching $1.2bn last year.

• Winemakers are using a new app to integrate soil maps and sensor data into comprehensive diagrams that help them identify areas in the vineyard that need work.

HOLIDAYS & LEISURE TRAVEL:

• The BBC reports that ‘more and more people are choosing to cancel holidays to Italy as the number of cases of coronavirus in the country continues to rise.’ There will be many other families hesitating before hitting the ‘pay’ button re general holidays to the Med and elsewhere. Being stuck on a cruise ship, locked in a hotel or, even worse, having to spend a month in an airport, doesn’t appeal to many.

• HVS has reported that European hotel values have risen for the third year in a row. It says that ‘hotel values across Europe gained a further 3% last year.’ HVS says ‘most of the cities in the survey showed a positive valuation performance in 2019, with 10 experiencing value swings of over 5%.’

• HVS says ‘although a bit less bubbly than in 2018, RevPAR [rooms revenue per available room] performance for European hotels was still positive in 2019, at almost 3% up compared with the previous year.’ It says ‘this includes a handful of countries with double-figure growth, driven by exceptional events, currency dynamics and post-event adjustments.’

• HVS says that new supply is an issue. It comments ‘whilst the European pipeline still remains below double figures and the lowest on a global basis, key German cities and regional UK markets are feeling the pressure of substantial new supply.’

• Holidaymakers in a hotel in the resort of Adeje, Tenerife are being tested for coronavirus after a confirmed case was identified. 

• BA has further extended the cancellation of flights from London to Beijing and Shanghai until April 17.   

• Dalata Hotel Group reports no material impact from coronavirus on its business. Annual pre-tax profits rose by 2.7% last year over 2018 to reach €89.7m.  

• Gulliver’s Valley, a new theme park under development in Yorkshire, is set to create more than 100 jobs in its first phase. 

• Preliminary February data from STR shows ‘an almost immediate decline in [hotel] occupancy levels in the early days of February’ in Asia Pacific destinations due to the ongoing coronavirus outbreak.

• Expedia plans to streamline its operations by letting 3,000 staff go. Expedia’s fixed cost base was almost double that of its European rival Booking.com on a per night basis.

OTHER LEISURE:

• William Hill has reported FY numbers saying that net revenues fell by 2% to £1.58bn with a loss per share of 3.1p.

• CEO Ulrik Bengtsson says ‘2019 was a year of transition during which we executed on our ambition to diversify internationally with the acquisition of Mr Green and the continued strong growth of our US business. The Group delivered a strong operating performance, ahead of our expectations and against a challenging regulatory backdrop.’

• WMH says ‘we move into 2020 in a stronger position. Almost a quarter of revenue is now generated outside the UK compared to 15% in 2018. We made positive progress with our digital platform, launching our purpose-built platform in the US and product developments in the Online business in 2019. We will invest in our proprietary technology as we continue to improve the competitiveness of our customer offering. We have also made great progress embedding a culture of safer gambling across the Group.’

• WMH concludes ‘our industry is evolving and this brings great opportunities, underlining the importance of our efforts to reposition the business. We look forward to building on these foundations with a renewed focus on customer, team and execution.’

• Walt Disney has announced that CEO Bob Iger has stepped down with immediate effect. He is to leave the company completely at the end of next year. Mr Iger is 69 years old.

• Manchester United reports revenue down nearly 12% in the six months to December, with the fall driven by its lack of Champions League football. For 2020, the club expects its total revenue to be between £560m and £580m.

FINANCE & ECONOMICS:

• The IFS has said that new Chancellor Rishi Sunak will have to raise billions of pounds worth of taxes, reinstate austerity, drop Tory budget commitments on borrowing or scale back spending plans. It says that, otherwise, his numbers do not add up. The IFS says even if Mr Sunak left policy unchanged, the government was likely to have to borrow £63bn next year – £23bn more than the most recent official forecast.

• Sterling higher at $1.2997 and €1.1947. Oil lower at $54.93. UK 10yr gilt yield down 3bps at 0.51%. World markets lower yesterday with Far East sharply lower again in Wednesday trade.

• Brexit & politics:

o David Davis has said he supports the tougher stance taken against the EU that PM Boris Johnson has adopted since his election victory in December.

o Michel Barnier has said that the EU needs there to be a level playing field. He says the European Union ‘will not conclude talks at any price’.

o Post Brexit trade talks will commence next Monday

START THE DAY WITH A SONG:

Yesterday’s song was Hunger by Florence + The Machine. Today, who sang:

“Politician granny with your high ideals,

Have you no idea how the majority feels?

So without love and a promised land

We’re fools to the rules of a government plan”

RETAIL WITH NICK BUBB:

• Capital & Counties: Today’s finals from CapCo (the Covent Garden landlord) show that it is miles away from the problems of Hammerson and Intu (it boasts of being “a strongly capitalised REIT, with access to substantial liquidity”), but it is not immune and the value of its Covent Garden estate has declined by a modest 1.4% to £2.6bn at year-end. The outlook statement notes the potential impact of the coronavirus (COVID-19), but it concludes with the view that “we firmly believe that London remains a destination of choice for capital, talent and tourism”. 

• McColl’s: The struggling convenience store chain McColl’s was one of the few risers in Retailing on the stockmarket yesterday, ahead of today’s finals (for the 52 weeks to Nov 24th), as if there would be some recovery noises, after another disappointing year. And the results are headlined “Building foundations for success”, with the trading update for the 11 weeks to Feb 9th flagging an “encouraging” 0.5% pick-up in LFL sales. But adjusted EBITDA for the new year is only expected to be “broadly flat” and the final dividend has been suspended, to help with the group’s “deleveraging priority”…