MARS, Rosa’s, labour costs, employment, holiday demand & other:

A DAY IN THE LIFE:

Bit busy today. On to the news:

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MARSTON’S – FULL YEAR TRADING UPDATE:

Marston’s has today updated on Q4 and full trading and our comments thereon are set out below:

The numbers:

• Marston’s updates on Q4 and on the year to date. LfLs in the managed business (versus 2019) were down 1% for the full year having been down 2% in the first 42wks. Total sales are up 2% versus 2019 with drink outperforming food

• In the most recent 10wks (to 1 Oct), LfL sales are up 3% versus 2019 (pre-Covid) and up 4% against last year (which benefited from lower rates of VAT)

• Once again, drink sales have outperformed food with the latter impacted negatively by hot weather and the former impacted positively

• The overall picture is one of improved trade as they year has progressed (Omicron blighted Q1) but with reduced government help.

• Marston’s says ‘the level of customer demand remains encouraging, notwithstanding the continued uncertainty around the cost of living.’

• It says ‘we continue to have confidence that our pub strategy is beginning to deliver positive momentum, evidenced by this good trading performance’ and adds that the co is ‘well-placed to meet the challenging consumer environment.’

Costs:

• Energy. MARS has faced higher utility costs over the summer but it is fixed from October to March. The government price cap should also shelter some of the costs in H1 of FY23.

• MARS says ‘the Group’s gas price is fixed until the end of March 2025’ but adds that ‘electricity costs in the last 10 weeks of FY2022 have been higher than originally expected’. It says, nonetheless, that ‘the Group’s electricity is hedged for H1 of FY2023, covering the six-month period from October 2022 to March 2023.’

• Marston’s says ‘the recent announcement by the Government concerning the energy price cap was helpful and further protects our H1 energy spend.  Regarding H2, we await the review of the price cap, albeit we currently remain comfortable with the guidance we have provided on energy costs for the Group’s financial year as a whole.’

• Food & Drink costs. As mentioned above, there is no change to cost guidance re utilities overall and nor is the company changing its guidance on food and drink costs.

Cash, debt & balance sheet issues:

• MARS remains cash generative at these levels of profitability. Debt is down around £16m on this time last year and it is c£30m lower than it was at end-H1.

• The group has benefited from a £19.4m dividend from Carlsberg Marston’s Brewing Company and further contingent consideration for the acquisition of £28m. During the year, some £50m of deferred duty and VAT was paid out to HMRC.

• The group’s debt remains long-dated and asset backed. The large majority of it is at fixed rates and the company retains around £65m of headroom on its bank facilities as well as some £10m in cash.

• The company says ‘the securitisation is fully hedged to 2035’ and adds that ‘the Group’s mark to market position on its interest rate swaps has reduced substantially in view of interest rate rises.’

• It says ‘the property leasing is index-linked capped and collared at 1% and 4% respectively’ and adds that ‘there are £60 million of swaps against the bank facility fixed at 4.0% until 2031. There is a £60 million forward start swap fixed at 2.2% which takes effect from April 2025.’

Company comment and outlook:

• As with the wider industry, the outlook is uncertain. But calendar Q4 (Q1 of FY23) should see unrestricted trade for the first time in three years.

• CEO Andrew Andrea says ‘this is a good performance, with the trading momentum we experienced in the Summer continuing.’ He adds ‘Marston’s has a long-term capital structure which is well suited to the current market environment and we remain committed to our debt reduction strategy with which we continue to make progress.’

• The CEO continues ‘we are managing cost inflation well with food, drink and energy costs covered for the immediate future.’

• Re the future, Mr Andrea says ‘whilst we are not complacent and can’t predict what the future will hold, what is clear is that people want – and are continuing – to visit our predominantly community pubs.’

• He says ‘the level of customer demand we are experiencing is encouraging which underpins our confidence that our strategy is working and we are making positive progress in that regard.’

• The CEO concludes ‘looking forward, we are primed to maximise the trading opportunities provided by the forthcoming World Cup and first restriction-free Christmas in three years.  Marston’s is in good shape and well positioned to navigate the future.’

Langton Comment:

• Whilst there is no comment on margins or profits in today’s statement, Marston’s is not discounting to any great degree and LfL sales momentum would appear to have picked up.

• Drink sales are encouraging and the group remains cash-flow positive with fixed and asset-backed debt at manageable levels.

• There is no change to cost guidance, which may come as something of a relief to the market.

• Whilst numbers are currently hard to pin down, a sum of the parts valuation may be appropriate at some point as Marston’s is both an investor in its beer company, an owner of a sizeable freehold estate and an operator of its pubs.

• The market remains challenging and difficult to read but MARS is generating cash, debt is falling and its community estate leaves it catering to a relatively attractive demographic.

• Would-be shareholders may currently be shying away from consumer stocks in general but, when a degree of discrimination between one consumer stock and another returns, Marston’s is well-positioned to prosper.

PRIVATE COMPANY ACCOUNTS: ROSA’S LONDON LIMITED – 07734532

Rosa’s Thai has reported its full year numbers to 27 March 2022. The results for the year have been significantly impacted by Covid-19, with periods of closure & restrictions. Overall: Trispan-owned Rosa’s experienced substantial interruption during the period, with operations being predominantly delivery only until limited inside dining was permitted from 17 May, with a full lifting of restrictions in June…

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PUBS & RESTAURANTS:

Recruitment issues:

The ONS updates on the UK labour market today, saying ‘the UK employment rate for June to August 2022 was 75.5%, 0.3 percentage points lower than the previous quarter…’

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The Caterer reports that hospitality leaders have launched the Westminster Works recruitment scheme yesterday. The scheme will see a greater emphasis of on-the-job trials and accelerated training for applicants in a bid to fill a minimum of 2,200 vacancies at hotels, restaurants, bars, and clubs across the area by March 2024.

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The CBI reports that ‘three-quarters of UK companies [have been] hit by labour shortages in [the] last 12 months.’ it says that ‘46% of those affected are unable to meet output demands’ and says this is ‘holding back growth.’

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Interest rates and finance costs:

The apparent U-turn on plans to force a cut in benefit payments in real terms has spooked the markets somewhat and has led to a sharp rise in borrowing costs…

Consumer income:

Despite another rumoured U-turn on policy – that benefits would not be cut in real terms – the IFS maintains that “big and painful” spending cuts will be needed to repair the country’s finances. All things being equal, this will remove income from those with a high propensity to spend and who tend to find themselves in lower economic deciles…

Mortgage costs have risen on the back of further rises in bond yields. Moneyfacts reports that the average interest rate on a two-year fixed mortgage is now 6.3%. Five year mortgages are up to an average rate of 6.19%. These are the highest levels since 2008. On 23 September, the day of the mini-budget, the average two and five year fixed rate mortgages were around 4.75%.

The ONS reports today on income levels saying that ‘growth in average total pay (including bonuses) was 6.0% and growth in regular pay (excluding bonuses) was 5.4% among employees in June to August 2022…’

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General trading:

Springboard reports footfall across UK retail destinations declined marginally last week from the week before, down -0.2%. The decline over the week was driven by drops in footfall in both shopping centres and retail parks, whilst in high streets footfall rose very slightly…

Other news:

Estate agent Hamptons has reported that one in five renters have been asked to pay 12 weeks’ rent up front. Some 6.6pc of renters have been asked to pay six months. This will reduce the capacity to spend.

COMPANY NEWS:

Pernod Ricard: Indian authorities have demanded $244m from Pernod Ricard for reportedly avoiding import duties by undervaluing concentrate imports for a decade. Pernod Ricard has reportedly since challenged the $244m tax demand and an Indian court will hear the case on Tuesday.

Las Iguanas is introducing service robots at two of its restaurants through a trial with Soft Bank Robotics. The robots will support team members with everyday tasks such as delivering food and drinks to tables, and returning used dishes to the kitchen, allowing team members to spend more time interacting with guests.

Arc Inspirations CEO Martin Wolstencroft has told the MCA that the company can make ‘significant returns’ and carry out its ambitious growth strategy despite the current economic climate. Arc Inspirations’ momentum has continued into FY23, with LfLs for Q1 up 19% on April-June 2019, with the company revealing a pipeline of five sites in the next six months.

Stonegate Group celebrates the 9th year of its apprenticeship scheme, with over 300 apprentices learning whilst working across the business.

Gameshow Studios, the first interactive gameshow experience in London, opens in spring next year. The concept will put contestants through a 90-minute test on their general knowledge, memory, and mental dexterity. The experiential leisure venue will evoke the feel of a TV set kitted out in with all the lights.

Patty & Bun is to partner with Growth Kitchen in order to provide the former’s burgers through the latter’s Bermondsey hub where Growth Kitchen already partners with brands such as Tortilla and Kricket.

HOLIDAYS & LEISURE TRAVEL:

Travel Weekly reports that the slump in the value of sterling will hit the pockets of holidaymakers planning winter sun trips to many popular destinations, according to a survey by Post Office Travel money…

Average holiday prices were higher at the start of this year when customers booked holidays for the first time since Covid, according to Co-operative Travel Consortium head of retailing Alison Holmes.

OTHER LEISURE:

Sky News reports that David Armstrong, a former CEO of the Wasps, is spearheading a takeover bid for the Premiership Rugby club that could save it from the threat of relegation or extinction. According to sources close to the auction, the takeover bid is believed to be worth more than £50m, with a further £12m earmarked for working capital.

FINANCE & MARKETS:

Borrowing costs shot back up yesterday as the government seemed to signal that it would not be cutting back on benefit payments…

The Bank of England said yesterday that it was prepared to step up the level of its interventions…

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Press comment suggests that the Bank has ‘failed to move the market’ (The Times) or has ‘failed to stop bond sell-off’ (Daily Mail).

Chancellor Kwasi Kwarteng is to unveil another mini-Budget on 31 October. The date had been 23 November. The OBR will now publish its report alongside the budget.

Sterling mixed at $1.1033 and €1.1393. Oil price up at $95.78. UK 10yr gilt yield up 20bps now on yesterday’s level at 4.46%. World markets lower yesterday and London set to open down around 45pts as at 6.30am.

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