Langton Capital – 2022-06-01 – PREMIUM – Fuller’s, CCH, BrewDog, confidence, flight disruption, labour etc.:
Fuller’s, CCH, BrewDog, confidence, flight disruption, labour etc.:
A DAY IN THE LIFE:
It’s very quiet.
Indeed, it feels like Christmas week. It’s chilly, low single digits in York in the mornings this week, 12 degrees in the afternoon and today could be Christmas Eve, given the volume of out-of-office replies and the ghostly silence out there.
But anyway, we’ll push on. Here’s the news:
QUESTION OF THE WEEK?
Question of this week:
What will happen to the delivery market now that restaurants are open again, times are getting hard and there may be some discounting?
PUBS & RESTAURANTS:
Cost of living crisis:
Not new news but, keeping it to the fore, Labour has warned of a ‘cost of living tsunami’ as families face price rises of up to 50 per cent on everyday grocery items. Charities say the increase will see more of the poorest families turn to food banks as households struggle with the brunt of the cost of living crisis.
Anti-poverty campaigner Jack Munroe has suggested that inflation for the poorest 20% of people is higher than for everyone else. The ONS believes that this is not entirely the case. There appears to be some conflating between the impact of absolute increases in food prices in general and the specific impact on people who are cash-strapped to begin with. The IFS says the rise in domestic energy prices alone means that inflation for the least affluent decile in society is around 14%, compared with 8% for the richest.
The RAC reports that petrol and diesel prices yesterday hit new highs on the back of comments that the EU was to ban Russian oil imports.
• The RAC says ‘the EU’s decision to ban the majority of Russian oil imports will cause the barrel price to go higher still, spelling yet more misery for fuel prices in the UK.’ It adds that ‘the wholesale price of petrol has already been increasing due to the increased summer driving demand which means we are likely to see average forecourt prices for petrol climb to 180p a litre in a matter of days.’ The RAC comments ‘far worse will follow as the current oil price of $122 will likely lead to an average price of a litre of unleaded hitting 185p.’
The latest BRC Nielsen Shop Price Index has shown that shop prices grew at their fastest rate in over ten years last month. Retail price inflation was 2.8% in May, its highest since July 2011. The number is still materially below CPI.
• The BRC’s Helen Dickinson says ‘retail prices edged up further as commodity, energy and transport costs continued to climb.’ She adds that it is ‘likely to get worse before it gets better for consumers with prices continuing to rise and a further jump in energy costs coming in October.’ Food price rises, rising by 4.3% in May, outweighed promotional offers.
The Bank of England yesterday reported that credit card borrowing is rising at its fastest rate in 17 years, at up 11.6%. The number is ahead of inflation and may show that consumers are plugging the gap (between price rises and their incomes) by unsecured borrowing.
• Consumer credit as a whole was up by 5.7%, below inflation. Although one should not call a trend from one month’s data, to the extent that consumers are borrowing on credit cards to maintain spending, this is something of a concern. It is a quick fix but, over the medium term, it is not a fix at all as interest charges will kick in and consumer spending could be reduced rather than increased over anything other than a very short term period.
Labour & staffing issues:
UK Hospitality has ‘launched a nationwide hospitality workforce strategy to nurture cooperation between industry stakeholders and boost recruitment and training for a new generation of skilled hospitality staff, plugging the sector’s 170,000 jobs gap.’
• UKH CEO Kate Nicholls says ‘this strategy sets out a vision to ensure [hospitality is] fully-resourced with people with the right skills, a clear talent pipeline with established routes of progression and high levels of employee wellbeing. It is based on a partnership approach with industry bodies and governments.’
• Ms Nicholls adds that it is ‘critical that sector businesses are able to cultivate a skilled and dynamic workforce. Hospitality offers a wide range of roles with different skill sets. It provides entry-level to managerial to corporate jobs. People will find great training opportunities and meritocratic career progression.’
• Layoffs during the pandemic compounded problems caused when elements of the European labour force went home after Brexit. Hospitality’s image may have taken a dent. UKH says, however, that ‘a booming hospitality workforce will create a fantastic hospitality experience for all, and a better society.’
Construction advisory company Glenigan has said that ‘after a dramatic downturn during the pandemic, new private office construction activity is continuing to stage a spectacular recovery.’
• This suggests that somebody, at least, believes that working from home will eventually come to an end. Glenigan says ‘new office developments of all sizes have seen an upturn and the value of project starts in the sector rose 50% in the three months to April on the previous quarter and were up 19% on a year earlier. Project starts on large schemes – worth over £100 million – rose almost four-fold in the three months to April.’Glenigan says ‘some significant office projects in the pipeline should help buoy up activity in the sector, particularly in London.’
CAMRA reports that just over seven new pubs opened every week in the second half of 2021, which the organisation described as ‘encouraging’. However, Nik Antona, CAMRA chairman, cautioned ‘With the cost of living crisis affecting consumers, and the cost of business crisis facing our pubs, brewers and cider makers, we are really concerned that this positive news from our 2021 figures will turn into a nightmare report for 2022’.
• CAMRA says ‘pubs are not only vital employers, but they are key to community life up and down the country – bringing people together and tackling loneliness and social isolation.’ It then pitches for state help, saying ‘government across the UK must do more to make sure pub businesses can survive the cost of business crisis, and that consumers can still support their local pubs at a time when household budgets are being squeezed.’
Lloyds Bank’s monthly barometer shows that businesses are increasingly confident that they can use inflation to rebuild their margins. The barometer found that 60% of the companies surveyed in the past month said they planned to raise prices in order to protect margins, due to the increasing cost of supplies, while 16% said they planned to increase workers’ pay by 4% or more.
BrewDog has reported total revenues up by 21% to £286m in the year to end-December 2021. The company reports a £5.5m operating loss for the year, down from a £6.8m loss in 2020. The company reports it has invested £13m in unit expansion, with seven new bars and two new hotels during the year.
• CEO James Watt comments ‘though challenges remained, not least the continued closure of much of our bar estate during the year, we delivered significant growth across the business.’ He adds ‘we are investing in our brand, sustainability, our operations, but most importantly, our people – being the best employer we can be, and offering brilliant careers, is the surest way to support our future growth.’
• Mr Watt adds ‘we believe we have a once in a generation opportunity to build a business and brand that has a positive impact on the world.’ The company spent some £17m in advertising its brand last year. Mr Watt says that 2022 has started well.
• Total volumes were up 23% on 2020, driven by growth in the UK, Germany and Australia. The company says UK performance was strong in the off trade. The CEO says ‘there will continue to be an internal focus on cost in the current inflationary environment.’
Coca Cola HBC’s Chair of the Remuneration Committee, Charlotte J. Boyle, has written to shareholders providing ‘some important context in relation to our approach to executive remuneration.’
• Ms Boyle says ‘we achieved strong performance in 2021 as well as in the first quarter of 2022. In a volatile market environment, where in many of our countries we had customers who remained closed for several months in 2021, the business achieved an acceleration of revenues and profitability as well as a faster pace of market share gains, with all key metrics above pre-pandemic levels.’
• Ms Boyle says ‘we have continued to invest in long-term opportunities including the acquisition of Coca-Cola Bottling Company of Egypt and the stake in Caffè Vergnano which expands our coffee strategy.’ She says that ‘our investors have benefited from recent and historical strong financial performance’ and adds that, with the above in mind, the CEO’s salary was increased ‘by 3.2% (in line with wider workforce) to €815,000’ and he received an ‘annual bonus of 91% of maximum (following downward discretion from 100%).’ Ms Boyle says ‘we believe we have done the right thing for the company, its shareholders and its employees.’
Fuller’s has announced that it has ‘successfully completed the refinancing of its Group debt facilities of £192 million, which were due to mature in February 2023. The new debt facilities consist of a £90 million term loan and a £110 million Revolving Credit Facility provided by a syndicate of seven banks.’
• Fuller’s adds ‘the new facilities have an initial maturity date of 31 May 2026 with an option to extend by a further year. The facilities are unsecured, and the borrowing cost of the facilities is determined by the level of Company leverage. The initial borrowing cost is 285 basis points over SONIA, which is a significant improvement to the cost of the existing debt facilities.’ It says ‘the new facilities are £119 million drawn, leaving £81 million of undrawn facilities available to support the future growth of the business.’
The Hard Rock Café is to open in York on Coney Street in a site formerly occupied by TK Maxx. The multi-level York venue in development will feature a “state-of-the-art café featuring Hard Rock Café’s one-of-a-kind blend of music, entertainment, iconic merchandise and authentic American food and drinks”.
The MCA reports that Franco Manca and German Doner Kebab (GDK) have partnered with Just Eat for Business, in order to capitalise on the return of workers to the office.
Burleighs Gin has launched a new Raspberry Edition Gin, expanding its portfolio. The spirit can be drunk on its own, with a tonic or as a base for cocktails.
Flexible workforce app Stint is experiencing record demand as hospitality venues across the UK prepare for the Platinum Jubilee Bank Holiday. The platform, which connects businesses around the country with students who perform simple tasks during short, flexible shifts.
B&M says UK LFL sales have been down by 13.0% on last year, shares drop 9%. Yes, tough comps. Perhaps, should have been expected. But tell that to the market.
• Strange or atypical comps will be a feature of the industry until at least next Christmas (when the Omicron comps will fall out). Hence, judging 2022 trading against last year – or even against three years ago – could be problematic.
• That said, it’s hard to know just what is included in share prices and what isn’t. That B&M is down against lockdown comps is hardly surprising but, as we say above, tell that to the share price.
HOLIDAYS & LEISURE TRAVEL:
Senior aviation figures warn that Europe’s airports face ‘a big challenge’ to cope with passenger numbers this summer. They blame not only staff shortages but continuing Covid restrictions, the war in Ukraine, the boom in leisure travel and passengers arriving at airports unprepared to display documents, and they warn UK travellers face an additional impact at overseas borders due to Brexit.
• The BBC reports that Tui will cancel six flights a day until the end of June, which it blamed on staff shortages at Manchester Airport. Around two million people are set to fly over the bank holiday in one of the busiest periods so far this year.
• Tui says we understand how disappointing this this will be for those impacted; however, we believe this is necessary to provide stability and a better customer service at Manchester Airport.’ Manchester Airport comments ‘we understand TUI’s difficult decision to cancel a number of services over the course of the next month, although we are obviously disappointed to see passengers’ plans disrupted in this way.’
• Careful what you wish for? Airlines, airports & holiday companies will have spent much of the last two years wishing for a return to ‘normality’ but, now that it is here, it is presenting problems. Staff numbers were cut. Some people will not have been willing to come back to work in the travel industry where wages can be moderate or low and, as staff have witnessed first-hand, job security may be limited.
Jet2 CEO Steve Heapy has told Travel Weekly that current travel delays “will improve” as the industry deals with staff shortages. He insists the current situation is “as bad as it will get”. Heapy said ‘these issues are temporary. We are very optimistic for the future. Let’s get customers in and give them a fantastic experience.’
ACI Europe reports that air passenger numbers in Europe are set to rise faster than previously forecast, with passenger numbers returning to 78% of 2019 levels this year, having previously forecast a return 10 percentage points lower at 68%.
• However, ACI Europe warned of ‘significant uncertainty’ due to the war in Ukraine, ‘worsening economic conditions’ and threat of new Covid variants. It also warned of staffing issues ‘disproportionately affecting larger airports’.
• ACI Europe says ‘passenger traffic is trending along our optimistic scenario on the back of travel restrictions lifting across many markets and strong summer pent-up demand. But the history of the past three years suggests caution, especially as we still do not have an established playbook on how to deal with future Covid-19.’
Barclays Corporate Banking has reported that staff shortages continue to be a major problem for the UK’s travel sector. It’s March 2022 report, based on surveys with 504 travel industry businesses, suggests that there is 37% of respondents believe staffing and recruitment was the “greatest disruptor to business”, on a par with travel restrictions.
Aparthotel group Adagio is opening seven new sites in 2022, including its second property in Scotland later this year.
Travelodge has announced that it plans to open six UK hotels in 2022, including the group’s first new build budget-luxe design hotels, and a franchise flagship hotel in Dublin. Locations include two sites in London at Docklands and Wimbledon and the group’s first hotel in Hexham.
FINANCE & MARKETS:
The Bank of England yesterday reported a material drop in net mortgage borrowing in April. A net £6.4bn was lent in March, dropping to £4.1bn in April. Mortgage approvals for house purchases fell from 69,500 to 66,000. Re-mortgage approvals fell from 48,700 to 47,800.
Knight Frank says ‘activity among purchasers is ebbing as the cost of living squeeze shrinks the pool of buyers. Rates on certain products have doubled in the past twelve months and there is a real sense of urgency among many borrowers who sense they must act soon or reassess what they can afford.’
The Telegraph reports that ‘the UK lagged behind France in luring foreign investment again last year in a sign that Emmanuel Macron’s efforts to entice deals through pro-business policies are having the desired effect’. The Telegraph says ‘France stole the UK’s European investment crown in 2019 after Macron went on a charm offensive to woo businesses after Brexit.’
Sterling mixed at $1.2582 and €1.1741. Oil sharply lower at $116.03. UK 10yr gilt yield up 13bps at 2.12%. World markets mixed yesterday with London set to open up around 28pts as at 6.30am.
Short week & nearly over. Next week is only a little more active with City Pub Group holding its AGM on the Wednesday and Fuller’s full year numbers on the Thursday.
RETAIL WITH NICK BUBB:
• Grocery Market Watch: The latest monthly Nielsen grocery market share figures (for the 4 weeks to May 21st) came out at 8am yesterday, a week later than the rival monthly survey from Kantar (which covered the 4 weeks to May 15th). The Nielsen survey was headlined “UK grocery sales return to growth as 20% of Brits set to spend more over Jubilee bank holiday weekend”, with total till sales up by 0.6% in the four weeks (after a 1.8% fall in the previous 4 weeks, despite the later Easter), even though Online Grocery sales fell by 15%. Kantar said that supermarket sales declined by 1.7% over the 4 weeks to 15 May, but Nielsen highlighted that w/e May 21st was up by 2.3%, as shoppers stocked up for skool half-term and the Jubilee weekend. Mike Watkins of Nielsen said that “The forthcoming Platinum Jubilee Bank Holiday weekend should give a welcome if short-term boost to grocery sales. While
• Today’s News: The Dr Martens finals (for y/e March) are headlined, a little inelegantly, “DR. MARTENS BRAND STRONGER THAN EVER; CONVICTION IN FUTURE GROWTH”, but CEO Kenny Wilson spells it out by saying that “When we listed, we committed to deliver high-teens revenue growth, and today we are pleased to report 22% constant currency growth and EBITDA ahead of market expectations” (up 28%). The footwear brand (which now has a market cap of £2.2bn, well below the IPO level of £3.7bn) is also bullish about the year ahead, stating that “For FY23, we now expect high-teens revenue growth, with the upgrade to guidance the result of the price increases which take effect from AW22 and our expectations for volume growth remaining unchanged”. EBITDA margins are expected to be held this year overall, but the company does warn that the first half margin will be 200-300 bps down, partly because of the
• This Week’s/Next Week’s News: Given the Bank Holidays tomorrow and Friday, this is the last working day of this week, but, as we move on into June (already!), this evening will see the quarterly FTSE index review announced (with ASOS expected to get into the FTSE 350 index, following its move up from AIM, with a market cap of £1.5bn or so). Next week we get the BRC-KPMG Retail Sales survey for May first thing on Tuesday morning, followed by the Marks Electricals finals on Wednesday, the Signet Q1 results on Thursday (in the US) and the THG AGM on Friday.