Langton Capital – 2020-03-11 – PREMIUM – Dart Group, Shepherd Neame, Cote, coffee & other:
Dart Group, Shepherd Neame, Cote, coffee & other:
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A DAY IN THE LIFE:
Pushed for time this morning. On to the news:
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PRIVATE COMPANY ACCOUNTS – COTE RESTAURANTS LTD. Cote reported full year numbers to 26 July 2019 to Companies’ House last week. 11 Mar 2020:
• The company reports revenues of £156.6m, up 7% of 2018.
• It reports a gross profit of £66.9m (42.7%) up from £63.0m last year (43.0%).
• PBT is up by 19% at £5.5m. This is after a number of ‘non-trading’ items. These include some new openings costs but also in 2019 it included £1.65m of impairments and write downs and also a loss on the sale of fixed assets of £1.34m (presumably a case of earlier under-depreciation).
• If one treats the impairments as a depreciation catch-up, then the reported profit of £5.5m may well be the best number to work with
• The company has retained profits of £67.9m and shareholders’ funds of the same amount. It has no debt and cash of £14.5m.
• However, under ‘contingent liabilities’, the company does say that it is ‘a guarantor to a bank facility taken out by group undertakings. At 28 July 2019 the total amount outstanding under the facility was £138.0m (2018: £137.6m).’
• Cote reminds readers it is ‘a licenced restaurant group operating French styled brasseries within the UK.’
• It says ‘it is open every day for breakfast, lunch and dinner. The first brasserie opened in August 2007 and the Company now operates 96 restaurants.’
• The company says ‘Cote adheres to a strict value for money philosophy, focusing on selling authentic French dishes made with quality and fresh ingredients at affordable prices.’
• Re its performance, Cote says ‘the executive management team reviews detailed weekly and periodic information covering a range of financial and non-financial performance indicators.’
• The company says that revenues rose by 7% and that it ‘invested in expanding the portfolio in the period, opening 5 restaurants’
• EBITDA, which is struck before ‘non-trading items’, was £18.4m (2018: £17.9m).
• The company concludes ‘in light of the current trading environment, the directors are satisfied with the performance of the Company.’
• It says ‘in a year that has seen widespread closures across the sector, the directors are pleased that the business continues to deliver sales and EBITDA growth. Unit economics remain strong and having opened 5 restaurants this year, the directors remain committed to investing in future openings.’
• Re its assets, Cote says ‘a whole portfolio site review was undertaken and two were identified as not meeting expectations which consequently have been impaired. Two restaurants were also closed during the reported period.’
• Cote is considered a Going Concern by both its directors, and its Auditor.
• Auditors BDO have signed a clean audit report on 2 March this year.
• The group is ultimately owned by private equity house BC European Capital IX.
• These look like clean and relatively straight-forward accounts.
• Certainly, compared with many other private companies that we have seen report, the accounts appear robust and there is no debt.
• There are a couple of wrinkles, perhaps.
• There is no debt but the company is on the hook for the debt of connected companies. In extremis, this may amount to gearing though, whilst things remain stable, Cote does not have to pay the interest.
• The accounts, as are all accounts, are backward-looking.
• One might argue that the non-trading items (largely pre-opening costs, write-downs (perhaps just accelerated depreciation) and provisions) should be taken into account when determining profitability.
• Otherwise, Cote seems to be in a better position than many of its competitors – or at least it was in the year to July last.
PUBS & RESTAURANTS:
• Shepherd Neame has reported H1 results for the 26 weeks ended 28 December 2019 saying that turnover in the period increased to £79.0m (2018: £76.5m), an increase of +3.3% with underlying operating profit up +1.1% at £8.0m.
• Shepherd Neame says underlying basic earnings per share were up +4.7% to 33.1p (2018: 31.6p) with an interim dividend of 6.00p (2018: 5.87p), an increase of +2.2%
• The company says its 69 managed pubs achieved a ‘solid performance’. It says sales rose by 4.3% to £37.0m (2018: £35.5m) with like-for-like sales up by +0.9% ‘against strong comparatives in the prior year (2018: +4.1%).’
• Shepherd Neame says its 239 tenanted pubs ‘continued to trade strongly despite fewer pubs.’ It says ‘average income per tenanted pub grew by +5.0% (2018: +4.0%)’ with like-for-like tenanted pub income up by +2.9% (2018: +2.2%). Own brand beer volumes ‘returned to growth’ with sales +3.3% (2018: -1.0%) during the period.’
• Re current trading, Shepherd Neame reports that ‘for the 35 weeks to 29 February 2020: – Managed pub like-for-like sales [were] up +0.6% – Like-for-like tenanted pub income up +2.6% – Own brand beer and cider volumes up +4.4%.’
• CEO Jonathan Neame says ‘Shepherd Neame continues to benefit from a well-balanced business. These results demonstrate the strength of our tenanted pubs in a period where managed margin was held back by the challenging cost environment.’ Mr Neame says ‘for the rest of the year, we remain concerned about the potential impact of the Covid-19 virus. We have seen no discernible change in customer behaviour to date. Looking forward it is impossible at this stage to gauge the likely impact, but should there be significant restrictions on travel and the movement of people in the coming months, that would have an inevitable bearing on our business and our supply chain.’
• The company concludes ‘over the longer term, the quality and profile of the Company’s brands and pubs will stand us in good stead and form an excellent platform from which to grow. We are confident we are building an even stronger business for the future.’
• Coffee market expanding but the ‘segment remains vulnerable to tough trading’ reports the Allegra World Coffee Portal. It says independent operators continue to grow with independent café revenues up by 1.4% to £2.49bn over the last year.
• There are now around 7,066 independent cafes across the UK reports Allegra. That is up by only 0.6% on the prior year. Allegra says ‘the UK’s independent cafés have proved agile and resilient in the face of sustained market challenges over the last 18 months. Many independent operators have responded by enhancing service credentials and pivoting propositions to accommodate the growing importance of health & wellness, environmental concerns and a desire for local, community-based experiences.’
• Regarding profitability, Allegra says that ‘independents have borne the brunt of tough trading conditions in the UK café market.’ it says they are ‘less able to exploit economies of scale enjoyed by branded coffee chains.’ Some 41% of industry leaders surveyed by Allegra say that consumers are more price conscious than they were 12 months ago.
• Allegra concludes positively saying ‘despite tough times for UK hospitality, independent coffee shops will remain a source of inspiration and innovation for the wider UK café market for many years to come.’
• Former Sainsbury boss Justin King says that access to labour, should some staff become ill or have to self-isolate, could be a bigger problem when it comes to getting shelves stacked than is panic buying.
• The Institute of Directors (IoD) says that business confidence has fallen sharply in the last few weeks with one in five directors now saying that the Covid-19 outbreak represented a severe threat to their businesses. Restaurants & hotels, which cater almost by definition to travellers and tourists, could be near ground zero.
• Over 80% of Britons have stated that coronavirus is unlikely to stop them from visiting the pub, the Morning Advertiser has reported.
• Several restaurants in London’s Chinatown have closed in a bit to help reduce the impact of Coronavirus on their bottom line, Big Hospitality has reported.
• Causeway Capital has confirmed that it is merging Patisserie Valerie and Bakers + Baristas, creating a group with more than 125 locations throughout the UK and Ireland.
• Food delivery and digital subscription services have seen sales rise as customers opt to stay in with takeaway to avoid coronavirus concerns.
• Corbin & King has announced plans for its next three restaurants in London, The Caterer has reported.
• The plant-based meal delivery service, allplants, has secured £3.4m in a Seedr funraise. Felix Capital, the venture fund behind GOOP and Deliveroo, also participated in the round, alongside Octopus Ventures.
• Oisin Rogers, the founder of Guinea Grill, will take control of The Windmill Pub in Mayfair.
• DoorDash Kitchens, which is the ghost kitchen experiment currently being undertaken by the delivery company, is taking on additional independent restaurants in the San Francisco area. DoorDash launched the shared kitchen space last October. A larger scale roll-out is possible.
• The FT reports that plant-based meat substitute companies are moving beyond the plain burger. It says that Novameat, for example, is using “microextrusion” technology in order to produce muscle-like fibres made from plants.
• AO.com reports sales of freezers have spiked, driven by fears over the coronavirus outbreak, with sales up 200% yoy last week. John Lewis also said it had seen ‘a substantial uplift in freezer sales’.
• A report by the government-funded research group Energy Systems Catapult states that the UK cannot go climate neutral much before 2050 unless people stop flying and eating red meat almost completely. However, the report concedes that the British public do not look ready to take such steps and substantially change their lifestyle.
HOLIDAYS & LEISURE TRAVEL:
• Dart – more a profit comment than a profit warning.
• Dart Group has updated on trading saying that the group expects profit for the year to March 2020 to be ‘significantly ahead of current market expectations.’ Dart goes on to say that ‘future reductions of FY21 flying capacity will result in a proportion of the Company’s existing hedging contracts becoming ineffective, thereby impacting those profits.’
• FY21 will be tougher due to the coronavirus. Dart says the ‘important January and February booking performance’ was ahead of last year’ but ‘momentum has weakened over recent weeks with the increased reporting of Covid-19 cases in Europe.’
• Dart is able to say ‘nevertheless, our current cumulative Summer 2020 bookings remain above those at this time last year.’ Despite this, ‘given the limited visibility on the impact of Covid-19, the Board is currently unable to determine how this will effect Group profit before foreign exchange revaluation and taxation for the financial year ending 31 March 2021.’
• Dart says ‘we continue to monitor the situation carefully and are taking proportionate actions to underpin the stability of the business, which includes reducing capacity on some routes where warranted, but always keeping at front of mind the need to ensure our Customers experience the Holidays they deserve.’
• The company, like so many others, can only conclude ‘as circumstances evolve, the Board will provide a further update both in relation to the FY20 profit outturn and a fuller outlook for the Summer 2020 trading period.’
• Brussels is to allow airlines to ignore the use-it-or-lose-it rules re airport landing slots. This will mean that airlines do not need to have ‘ghost flights’ in order to maintain their rights.
• Per STR, hotels in Italy have reported significant occupancy declines amid the outbreak of coronavirus. Milan reached an occupancy peak of 93% on 19 February as the market hosted Fashion Week, as of 1 March this had fallen to 8.5%..
• Venice reports hotel occupancy of just 6% on 1 March, with the fall driven by the cancellation of Carnival. Rome hotels saw absolute occupancy at 21% as of 1 March.
• Several hotel companies have eased their cancellation policies amid the coronavirus crisis. Accor will accept cancellations without penalties for individual travelers travelling to affected regions. Best Western has asked independently owned and operated hotels to ‘exercise flexibility and understanding’ when handling cancellation requests.
• Hilton has also modified cancellation waivers for guests travelling to or from affected regions. Hyatt Hotels is waiving cancellation fees for stays through 31 March 2020 for guests residing in affected areas. InterContinental Hotels Group will waive change and cancellation fees for guests traveling to or from affected regions.
• More hotel companies are withdrawing their 2020 guidance. Park Hotels & Resorts updated its projected loss for lost-rooms revenue tied to COVID-19 up to $30m. Host Hotels & Resorts said ‘to date, the company’s total revenues, net income and adjusted (earnings before interest, tax, depreciation and amortization) have been negatively impacted by approximately $97 million, $48 million and $48 million, respectively, excluding the collection of approximately $16 million of cancellation fees.’
• Transport secretary Grant Shapps has written to regulators urging them to relax the ‘use it or lose it’ rule around airport slot rules while the coronavirus outbreak continues, with some airlines admitting they are flying near-empty flights to maintain their slots.
• The IoD says one in three business directors surveyed had cancelled or restricted employee travel while up to a half were encouraging home working.
• The FT points out that ‘companies across the world are reeling from the impact of the coronavirus outbreak, with businesses in the hospitality and travel sectors among the hardest hit as people have cancelled travel plans.’
• Hotel companies reported to be keen for the government to impose travel bans in order to allow insurance claims to be made for loss of revenue in some cases.
• Ryanair, Jet2.com and British Airways have cancelled flights to Italy. Ryanair’s last flight to the country will be on Friday. Norwegian Air is cutting about 15% of its capacity. Australian travel agencies, Helloworld Travel and Webjet, have scrapped earnings guidance and Sydney Airport has reported international traffic down 16.8% in February and by around 25% in the first 9dys of March.
• Abta has appealed to prime minister Boris Johnson ahead of Wednesday’s Budget urging the government to consider ‘extraordinary support measures’ for the UK travel and tourism sector due to the ongoing coronavirus crisis.
• Mark Tanzer, CEO of Abta, has said ‘As the outbreak of coronavirus develops, travel businesses are under increasing pressure. They cannot wait to see what may happen in the months to come; we are asking the government to act now in taking steps to protect them.’
• Royal Caribbean increased its revolving credit capacity by $550m due to developments related to the COVID-19 outbreak. The company aims to improve liquidity by at least a further $1.7 billion in 2020. Richard D. Fain, chairman and CEO said ‘These are extraordinary times and we are taking these steps to manage the company prudently and conservatively’.
• Clia will respond to the US advisory discouraging Americans from taking cruise holidays by presenting an industry plan to manage any serious coronavirus outbreak on an ocean-going cruise ship on a stand-alone basis.
• Re cruising, the risk to operators is that the coronavirus outbreaks on the Diamond Princess in Japan and the Grand Princess in San Francisco could change booking habits. Being locked on a ship will not help people get back to work or school after their holidays and it could injure their health.
• Qantas is cutting international capacity by almost a quarter for the next six months due to the spread of coronavirus into Europe and North America following a ‘sudden and significant’ drop in forward travel demand.
• Google has asked its North American staff to work from home.
FINANCE & ECONOMICS:
• Budget today. Chancellor Rishi Sunak & outgoing Bank of England governor Mark Carney under pressure to help business & the consumer. Interest rates may be cut reports The Telegraph (though monetary policy is unlikely to be sufficient in the short run to make much difference).
• As Sky says, the Budget will be overshadowed by Covid-19 and it could feel ‘very unreal’.
• Mortgage payments in Italy have been suspended. In the UK, RBS has suggested that it will allow some customers to defer repayments for up to 3mths. TSB has said it will allow two months.
• Sterling lower at $1.2931 and €1.1399. Oil higher at $37.94. UK 10yr gilt yield up 11bps at 0.28%. World markets lower yesterday but US up. Far East down in Wednesday trading.
• Brexit & politics:
o The former taking a back seat, the latter a bit silent at present.
o PM’s Brexit spokesman James Slack has said Brexit talks are going ‘exactly as planned’ reports Bloomberg.
START THE DAY WITH A SONG:
Yesterday’s song was Hurt by The Nine Inch Nails. Johnny Cash recorded perhaps the most popular version. Today, who sang:
You’ve never been so nuts about a guy
You want to laugh you want to cry
You cross your heart and hope to die”
RETAIL WITH NICK BUBB:
Dignity: The funerals operator Dignity might seem the ultimate defensive hedge on the coronavirus epidemic, but it has its own problems and the news with today’s finals that it is delaying its Transformation Plan, until the wretched CMA pronounces on its pricing policies, may not go down very well in the City
Lookers: Today was due to bring the finals from the struggling Manchester-based motor dealer Lookers, but it announced after hours last night that it was delaying the results until after Easter, to allow for an external investigation into the discovery of “potentially fraudulent transactions in one of its operating divisions”. Given that Lookers is already being investigated by the FCA for its financial selling techniques, it is understandable that the company needs to play things safe with the regulators, but March is a key trading month and the news will go down like a lead balloon in the City…
John Lewis Partnership Trading Watch: In the regrettable absence of the usual weekly JLP sales figures, because of the new non-disclosure policy, we have been flagging every Wednesday that it’s easy enough to look back at the John Lewis and Waitrose sales figures from a year ago and make an educated guess as to what the outcome would be this year. Now, John Lewis has apparently been doing surprisingly well in recent weeks, helped by weak comps and better Online growth. In w/e March 9th last year, the outcome was very weak (-8.8% gross) because of the later shift of Mothering Sunday/Easter, but though the national footfall figures were again pretty poor last week in this year, we think that LFL sales should have been no worse than flat at John Lewis last week, despite the growing coronavirus fears and stockmarket slump…As for Waitrose, the comp was also very weak in w/e March 7th (-8.9%
Weather Watch: It has turned very mild as we move on into March, after all the rain and storms last month, but memories about “the weather” are always notoriously short-term and often too London-centric…so, after yesterday’s subdued BRC Retail Sales survey for February, we turned to the Retail weather consultants Planalytics to check on how last month’s weather “should” have affected trading on the High Street across the country…And their overview for the calendar month of February was headlined “Rain and Gales Battered the Islands”, flagging that it was the wettest February ever for Ireland, the wettest since 1995 for England and the wettest since 1998 for Scotland. While not particularly cold, it was still a bit cooler than last year: for the month as a whole the average temperature of 6.1° C was 1.5° C below last year and 0.3° C below “normal”. Overall, across the country, in terms of
Today’s Press and News: Ahead of the Budget, the front page headline in the FT is “Sunak to signal end of austerity with massive leap in borrowing”, whilst other papers lead with the news that a junior Health Minister has gone down with coronavirus…After the late rally on Wall Street last night, pushing it 4.9% higher on the day, the Nikkei index in Japan closed 2.3% down overnight and so the UK stockmarket was expected to be only flat this morning, but the news of an emergency 0.5% cut in interest rates by the Bank of England will no doubt send shares higher…
TIPS Watch (2): The great 4-day Cheltenham Festival jumps racing continues today and our alter ego, “Honest Nick”, is bringing you his each-way Tips each day. Yesterday the Irish horses did not have things all their own way and “Honest Nick” did not have much luck: he was gutted when Captain Guinness was unluckily brought down at the 3rd last when going well in the 1.30 and he was not best pleased when Cash Back threw away his chance by getting frisky at the start of the 2.10 and Call Me Lord ran like a drain in the 3.30. Today should be a better day for the top Irish trainer Willie Mullins and in the big race at 3.30pm today, the Champion Chase, “Honest Nick” fancies Chacun Pour Soi, but the odds will be short. The Cross-Country race at 4.10 is always one of the highlights of the meeting and the mighty Tiger Roll is probably worth taking on with Easyland. As our “Three to Follow” today,
News Flow This Week: After the Budget at lunchtime today, tomorrow brings the delayed Intu Properties finals and the prestigious annual “Retail Week” Awards (in the evening).