M&B H1 numbers, Marston’s H1, Premier Foods, labour issues etc.:

A DAY IN THE LIFE:

A busy day with numbers today, both stats & company results. So, just another reminder that we’ve reintroduced Start the Day. It’s on the right in bold (or at the bottom if you receive the Word version of this email). It features:

• Start the Day with a Song (back after its Covid shutdown. Suggestions, especially more recent releases, welcome),

• Quotey McQuoteface (a Quote & general knowledge quiz),

• A Little Birdie Told Us (interesting stuff whispered in our shell-like – comments & contributions welcome)

On to the news:

LANGTON EMAIL:

The Free Email is now written in short form. Extended versions of many stories are in the Premium Email. Reply to this email if you would like to upgrade.

See Twitter for in-day comment. Let us know if you would like an example of the Premium Email or to comment on the new format.

Prices for the Premium are £345 for one subscription, £595 for multiple, both plus VAT. Reply to this email to order & request invoice.

Or sign up for easy in, easy out monthly option HERE

MARSTON’S H1 NUMBERS:

Marston’s has today reported H1 numbers and our comments thereon are set out below:

The numbers:

• Marston’s reports sales for the H1 up to 97% of those in the same period in FY2019. Total revenue is £369.7m

• The pubs made an operating profit of £39.9m in H1 (against a £57.2m loss) but, as mentioned below, CMBC is in loss.

• The reported PBT is a loss of £7.5m compared with a loss of £122.4m in the same period last year

• Breaking the period down (it seems like a long time ago but the H1 reported features a strong autumn followed by Plan B and then the Omicron variant), Marston’s was up in LfL terms by around 1.3% in the first 7 weeks and then down around 9% for the important Christmas & New Year period.

• Trading towards the end of the H1 period has been notably stronger. Though marginally down in LfL terms, this has absorbed the February storms and the increase in VAT from 12.5% to 20% (which may have hurt LfLs by up to 4pps or so).

• The Carlsberg Marston’s Beer Co has made an operating loss of around £2m with a loss after interest of £8m. The products are particularly sensitive to on-trade demand. Marston’s is an investor here & does not run the business on a day-to-day basis.

• CMBC should perform more strongly in H2 but it is unlikely to pay Marston’s a dividend this financial year. Some £15m to £20m had been anticipated. Marston’s is not writing down the value of its investment. 

More on trading & costs:

• The half has featured a return to ‘more normal’ trading. Footfall is down but prices are higher. Menus have been overhauled and simplified. Quality has been maintained or improved and price rise have covered the increase in VAT.

• Older customers have been slower to return. This has changed the sales mix. There appears to be more of a monthly cycle with demand slipping a little ahead of pay-days.

• Brains has performed well. There is some more discounting out there.

• Food inflation is around 7%. Labour costs are up 6% or so. Higher energy prices will negatively impact costs by around £5m in H1 or by £10m in H2. Food and labour costs can be covered by price increases but, in the short term, higher energy costs will impact margins.

Cash flow, debt & balance sheet

• Although registering an outflow of £8.9m at the headline level, there has been a net cash inflow after adjusting for the deferred payment of duty and VAT alongside the receipt of further funds from Carlsberg.

• The group is more often cash negative in H1. It should be cash positive in the period to end-September.

• The group says that net debt, excluding IFRS 16 lease liabilities and largely secured on our 82% freehold estate, was £1,246.5 million (FY2021: £1,232.3 million).

• The company has booked only some £3m of disposal proceeds in H1 but, as the sales were achieved at a 35% premium to book, the implications for valuation are positive.

Strategy:

• Marston’s is considering exiting the 2-4-1 brand. This has been the weakest segment for the company. The units will remain within the group but will move to a single-price structure. Any changes should be achieved before the group’s September year end.

• The group says its review of the 2-4-1 brand ‘indicates that c. 90 pubs should be converted to Signature over the next four years, and we are planning to convert our first Signature wet-led pub later this year.’

• There will be a 30% target return on capital.

Current trading and company comment:

• Re current trading, MARS says ‘trading since the half year end remains encouraging despite the current inflationary pressures households are facing, with increased cost of living from energy bills and food.’

• It says ‘total like-for-like sales in our managed and franchised pubs are slightly higher relative to 2019.’

• The group adds ‘cost and labour pressures continue to be prevalent and will be higher than initially anticipated at the start of the financial year.’

• It says ‘we are working hard to mitigate as many of these cost pressures as possible and we expect to offset some of these higher levels of inflation through a combination of cost efficiencies and pricing strategies, however, there will inevitably be some impact on our earnings for the year despite the mitigating actions.  Nevertheless, we are not prepared to compromise the quality of both product and service in our pubs.’

• Marston’s says ‘looking forward, whilst consumer sentiment may come under some short-term pressure, we are not experiencing any material trading evidence of that currently.  Irrespective, the pub, and specifically the community pub, where the majority of our estate is located, has proved its resilience time and time again over history.’

• It adds that ‘post-pandemic trading clearly demonstrated the demand for the local pub in our communities and we remain confident that it will prevail in both the short and longer term.  We have injected additional investment into our pubs, our marketing and our people to ensure the prospects for the business are strong for the medium to longer term.’

Comment:

• Overall, trading is holding up. Marston’s can mitigate some, hopefully most, of its cost increases – but not all.

• CEO Andrew Andrea says ‘we are pleased that since restrictions lifted trading has largely normalised enabling us to return to profitable trading, as well as focusing – and making considerable progress – on our strategic growth plans towards achieving £1 billion of sales.  We remain on track to reduce the Group’s debt by the end of FY2022.’

• He adds ‘we continue to evolve our estate to maximise returns and will have transitioned away from the value food segment, our Two for One brand, by the end of September.   Investment into our estate through conversions and refurbishments continued in H1, with a further eight projects scheduled in H2, targeting a minimum return of 30%.’

• The CEO says ‘whilst mindful of the challenges which every hospitality business currently faces, trading remains stable and we look forward to an uninterrupted summer.’ He adds ‘we are navigating our way through cost increases, mitigating these as much as we can through cost efficiencies and pricing strategies, whilst welcoming customers back without compromise to the best Marston’s guest experience.’

• Marston’s concludes ‘the pub remains the home of affordable socialising and has continually proven its resilience in previous times of economic challenge.’ It says ‘we are operating a “business as usual” mindset, positioning the Group’s balanced and well invested pub estate for future sustainable like-for-like growth over the medium to long term.”’

MITCHELLS & BUTLERS – H1 RESULTS:

Mitchells & Butlers has this morning reported H1 numbers and our comments are set out below:

Headline numbers:

• M&B reports LfL growth of 1% in H1 to take total revenue to £1.159bn (H121: £219m). Operating profit is £121m (vs a loss of £132m last year) and EPS is 7.6p (2021: loss of 31.8p). There is no dividend.

• Total sales are 97.8% of H1:2019 levels.

• M&B had previously reported that LfL sales for the 15wks to 8 Jan were down by 1.5%. During that period, food sales were up 5.2% and drink sales were down by 9.1%.

• M&B says ‘food sales continue to outperform drink with like-for-like sales growth of 6.9% over the first half, and with premium brands continuing to perform well, helped by the reduced rate of VAT.’

• It says ‘we have more recently observed an encouraging trend of recovery in city sites, with like-for-like sales growth of 1.1% during the second quarter, as people begin to return to offices, albeit trading in some areas of London, such as The City, still remains relatively subdued.’

• It says ‘drink sales continued to be challenged across the sector and like-for-like sales declined by 6.9% in the first half, with suburban locations seeing the largest declines.’

• See premium. Reply to this email to upgrade.

INFLATION:

It’s all over the news and all over this email. The ONS reports it hit 9% in April.

Here a snippet from Britvic, yesterday, as its H1 result has a fair bit of comment about inflation. CEO Simon Litherland said ‘The current geo-political uncertainty is likely to result in continued cost inflation and pressure on consumer spending at least into 2023.’

He also points out that ‘soft drinks are not immune to changes in consumer spending’.

Litherland continues ‘We have successfully executed pricing and cost actions to mitigate significant levels of inflation’ but the CFO caveats that ‘There has however been a time lag between inflation hitting our P&L and the implementation of price increases’.

Above, the Board of Britvic has painted the picture of an inflationary backdrop which has driven the company to raise prices in an environment where consumers are squeezed.

Consumers will no doubt ask employers for higher wages; driving up costs for companies; which will then seek further price rises and so on.

And so the wheel of inflation turns, with Britvic holding its place in the cycle. Until it doesn’t. The key moment will be the price at which consumers decide to start substituting branded soft drinks for supermarket own brands. Consumers can do their own ‘cost actions’ if they are squeezed hard enough.

PUBS & RESTAURANTS:

Consumer confidence:

Numbers from GfK on Friday but, in the meantime, a YouGov poll commissioned by  the Royal College of Physicians found 55% felt their health had worsened owing to issues such as higher heating and food costs. The cost of living crisis has led doctors to warn that some patients can no longer afford to look after themselves.

• See premium. Reply to this email to upgrade.

The labour market:

For a B2C sector, wages are double-edged. They are a major cost but they also represent income in the hands of would-be customers. The stats that came out yesterday were remarkable for a number of reasons:

• See premium. Reply to this email to upgrade.

HVS London has commented that ‘improving the hospitality industry’s recruitment issue is a multi-faceted challenge with no quick fix but the need for short-term as well as long-term measures.’ Its 16th industry webinar heard speakers say that hospitality was ‘about human interaction and connection. It’s vital to have the right people.’

Company insolvencies:

The Insolvency Service has released numbers for April saying that there was a total of 1,991 registered company insolvencies across England and Wales. There were 1,777 creditors voluntary liquidations (up 118% on April 2021 and 74% higher than in April 2019) alongside 113 administrations (up 51% on April 2021 but 22% lower than in April 2019.’

• See premium. Reply to this email to upgrade.

The English Whisky Guild is a new marketing group consisting of 15 English whisky distilleries. The global market for whisky is forecast to grow from $60bn now to $108bn over the next ten years.

US Census data has revealed that restaurants in America increased their share of consumer food spending in April to hit 54.9% of the food dollar. This is up from 52.3% a year ago. US equity research firm Kalinowski Equity Research LLC says ‘even more impressively, as best as we can tell, this 54.9% market share figure for April 2022 is an all-time monthly high for the U.S. restaurant industry.’

TUI says that it plans to repay a further tranche of debt to German state institutions. It had previously said that it would accelerate the repayment after reporting a “strong recovery” last week.

Netflix has laid off about 150 staff in the wake of a fall in subscriber growth.

Quoting an industry body, the Times reports that ‘a flat-rate levy on betting firms designed to fund problem gambling initiatives would tip about a third of Britain’s bricks and mortar casinos into loss and threaten nearly 3,000 jobs.’

COMPANY NEWS:

Prezzo has promoted Dean Challenger to CEO and Gwion Iwan to Operations Director.

Vagabond Bar and Kitchen is set to open in Heathrow’s Terminal 5 on 19 May. The £1.2m bar and kitchen will be a 4,500 square ft airside site with a 170-guest capacity. The opening will bring the chain to 11 sites.

Branded food major Premier Foods has reported FY numbers saying ‘it’s particularly pleasing that we have exceeded those [January 2022] increased expectations with Trading profit up 11.9% and adjusted PBT up 37.6% compared to two years ago. Yet again, our brands have grown faster than their categories, with revenues increasing nearly 10% vs two years ago as they gained volume and value market share in Grocery and Sweet Treats both instore and online. Mr Kipling enjoyed its best year ever, benefitting from sustained levels of marketing investment and a series of new product launches.’

HOLIDAYS & LEISURE TRAVEL:

UKHospitality CEO Kate Nicholls claims that the recovery in UK hospitality was ‘largely pre-booked and prepaid’ during the pandemic and not the product of new bookings, leaving the outlook for the rest of the year ‘unclear’. Nicholls warned that ‘The next 18 months will be as difficult to navigate as Covid. Things are not going to settle down. Change and instability will be the new normal for hospitality.’

• See premium. Reply to this email to upgrade.

Germany, Greece, Italy and Spain are among countries keeping the mask mandate on flights despite a relaxation of EU regulations. France has lifted the face mask obligation on aircraft, trains and buses.

American Express Global Business Travel CEO Andrew Crawley has urged the Civil Aviation Authority to be ‘more thoughtful’ in its assessment of airport charges and challenge Heathrow ‘to recoup its pandemic losses by operating more efficiently rather than plundering the airlines and gouging our customers’.

London Heathrow has reclaimed its place as the busiest airport for international airline capacity in the world, offering 762,000 departing seats this week putting it ahead of Amsterdam’s Schiphol airport, which has 712,000. However, this is still down 16.5% on the corresponding week in 2019.

STR reports that the European hotel sector is set to become the ‘poster child’ of recovery for the next six months. Ireland leads the recovery, with rates 21% higher than comparable 2019 levels in May, and is closely followed by Portugal (18% higher) and Spain (14% higher). Hotels in Poland (93%), the UK (89%) and Ireland (84%) saw the highest occupancy levels.

FINANCE & MARKETS:

Sterling up at $1.2468 and €1.1838. Oil price slightly lower at $112.56. UK 10yr gilt yield up 15bps at 1.89%. World markets better yesterday. London set to open some 5pts higher as at 6.30am.

FORTHCOMING NEWS:

Big week this week – see details in Trading Statements & Events.

In addition to updates today from Marston’s & M&B, we have Young & Co on Thursday. Premier Foods has updated this morning on the branded food market.

The ONS updated on employment and wages yesterday and it has released inflation numbers today. GfK updates on consumer confidence on Friday.

YESTERDAY’S TWEETS:

Email. C&C (full year), Britvic (H1 numbers), Shaftesbury (site purchase), April sales tracker, costs & inflation. ONS wages stats (real decline) & unemployment numbes & more. Today’s e/m & sign up free www.langtoncapital.co.uk. #inflation #costoflivingcrisis #hospitality

• See premium. Reply to this email to upgrade.

RETAIL WITH NICK BUBB:

• See premium. Reply to this email to upgrade.