C&C, 888, WTB conference call, breweries, GDP numbers, labour etc.:

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A DAY IN THE LIFE:

I was looking the other day at the little tub of paper clips on my desk and I’d swear I’ve had some of the little blighters for a couple of decades or more.

The chunky steel ones are from our time in Geneva pre Millennium and the colourful ones are from when we set up this office and splurged a hundred quid or so on stationery, most of which is still gathering dust on the shelves around me and in various drawers.

But getting back to paper clips, the above prompted the question, do they ever wear out?

I mean the answer, in a literal sense, is certainly yes, but if 99.9% are absent-mindedly bent out of shape during phone calls or are bent straight and used to poke a hole in something, then the percentage that get to die of old age must be vanishingly small.

And those that do will weaken imperceptibly with each use but, if some to my certain knowledge are already twenty years old and counting, it’s likely that they’ll outlast me and, to all intents and purposes, that approximates to infinity.

Anyway, it’s Friday and the weekend is upon us. Have a good one and let’s move on to the news:

PUBS & RESTAURANTS:

Breweries:

The Society of independent Brewers has launched a new UK brewery tracker ‘setting out the definitive number of actively trading breweries in 10 areas of the UK.’ The Tracker ‘shows the National total number of active brewers as 1828 as of the first January 2023. This comes after a tough 2022 for the industry, where brewery closures are estimated to have almost doubled those of new openings….’

• SIBA will release its Tracker ‘on a quarterly basis throughout 2023 and beyond, giving an accurate and up to date brewery number for the UK, something which has often been difficult to track in the past in a consistent way.’

• CEO Andy Slee says ‘it has been an incredibly tough few years for the independent brewing industry and as we look ahead to the future it is important to be able to track our market-share against the dominant global brewers. The SIBA UK Brewery Tracker plays an important role in this and will give the industry an accurate and timely figure on active breweries, with a clear regional breakdown of numbers.’

• SIBA has clear criteria as to what constitutes a brewery, which it defines as ‘an active business that makes beer and that has its own brewing equipment with further criteria defined for breweries with multiple sites, or which are now owned by a Global brewer.’

• Andy Slee goes on to say ‘the figures released today are a snapshot of the UK brewing industry as it stands at the start of 2023, but which I believe will form the basis of an incredibly useful resource for tracking the increase and decrease in breweries across the UK in the coming year – an important barometer for industry health. With figures released every quarter we can track numbers nationally and regionally and will be releasing the data freely to all, giving everybody access to up to date and robust data on brewery numbers – something which has been sadly lacking in the past with multiple sources for often wildly conflicting numbers.’

Heating help:

The MA quotes Black Sheep Brewery CEO Charlene Lyons as saying that the Government’s new energy support package is “brutal”. She says it will be ‘a really tough pill to swallow because you’ve got the brewery that loosely benefits, but there’s no point having a brewery firing on all cylinders if you haven’t got the capacity to sell beer because the pubs can’t afford to open because they can’t afford their energy bill.’

Food price inflation: Tesco CEO Ken Murphy says he ‘thinks and hopes’ food inflation will start to ease in the second half of the year. The supermarket reported sales up 7.2% YoY in the six weeks to 7 January.

Drink spiking. Licensing solicitor John Gaunt reports that the government has decided not to create a standalone offence for drinks/needle spiking.

A report by Bizimply suggest that hospitality staff are working longer hours in response to recruitment problems…

• Some 55% of businesses said that Christmas and New Year trade was as strong as they hoped for and adds ‘the recruitment challenge continues to be a key concern for hospitality employers.’ It says ‘the real-time data from employees checking in and out of work shows hours worked by employees increased significantly across Christmas and the new year.’ Bizimply adds ‘however, employers are also very aware that in the longer term, especially as the economy start to recover, they will need to recruit new employees to expand their existing teams.’

• Bizimply says ‘almost a third of employers have told us they expect no improvement in the problems of recruiting front-of-house staff in the year ahead, rising to almost two thirds who expect to see no improvement when it comes to recruiting kitchen staff.’ It reports that the average number of hours a week worked by staff rose from 28 hours in October to 32 hours in the second half of December.

COMPANY NEWS:

C&C Group plc has updated on trading for the Christmas period saying that ‘as outlined in H1 FY2023 results, our outlook for H2 noted a potential significant impact from the continuing cost of living pressures facing consumers.’ It says that ‘despite year-on-year net revenue growth of c.20% in the key trading month of December 2022, we now expect the Group’s full year operating profit range for FY2023 to be €84-88m…’

• C&C says ‘we believe consumer spending pressure is a driver behind this trading performance and will continue to be so in the near-term. Further, trading has been significantly impacted by rail network strikes in the UK, reducing footfall in urban areas(i) over the key festive trading period.’

• The company adds ‘despite the near-term challenges, the Group will continue to operate well within its stated leverage range (less than 2.0x) and this coupled with our strong free cash flow generation will ensure that our stated capital allocation objectives are maintained. C&C will continue to review and drive efficiencies throughout our business while ensuring we deliver a market leading offering to our customers and consumers.’

• C&C comments that trade bodies suggest ‘booking cancellations across the sector over the festive period [were] approximately down 30% for the period with walk-ins down 28% vs 2019.’

Brewdog CEO James Watt has tweeted ‘we are building plans to open 100 BrewDog Bars in India.’

• He adds ‘we already opened 3 brilliant Brewdog bars and we have 2 more opening in Q1 of 2023 which will take us to 5 outstanding locations in India.’ He says ‘we are already brewing over 10 different BrewDog beers in India’ and adds ‘craft beer grew 127% in India in the last year & with 1.4 billion people in India the potential for further growth is huge. We believe that within 5 years India will be our most important international market.’

Shake Shack has announced it is to open its 12th site in the UK on Oxford Street on Friday 27 January.

Dishoom is the only hospitality company to retain its position in the Glassdoor Best Places to Work in the UK top 50 list, coming in at 40th place.

The Inn Collection Group reports LfLs up 20% over the festive period, driven by high occupancy rates of 82%. The company has added eight properties to its portfolio following The Harris Family Trusts acquisition in February 2022.

Arc Inspirations is set to open a Manahatta in Sheffield next month, located in the heart of the city. The group currently operates 18 premium bars across the North of England, under the brands of Banyan Bar & Kitchen, BOX and Manahatta.

Per the MCA, Karen Forrester has stepped down as CEO of Individual Restaurants and will be replaced by Andrew Garton, the former TGI Fridays boss. Individual Restaurants has around 33 restaurants, with 18 trading under Piccolino, six Restaurant Bar & Grills, four Riva Blue sites, and three under Piccolo.

Oregon-based drive-thru coffee chain Dutch Bros opened 133 new stores in 2022 as it continues its drive to operate 1,000 US outlets by 2025. Dutch Bros now has 671 outlets across the US and is targeting 150 openings in 2023. Dutch Bros is the fourth largest coffee-focused branded coffee chain in the US, behind Starbucks, Dunkin’ and Tim Hortons.

WHITBREAD – Q3 CONFERENCE CALL:

Following its Q3 update on trading, Whitbread hosted a conference call for analysts and our comments thereon are set out below.

Current trading:

• See also comments in earlier Whitbread Flash Note.

• Accommodation sales are up 36% vs pre-pandemic. F&B is still below but the co is ‘working hard’ to get this back to record levels.

• Outperformance? Yes, co is taking share from franchised operators and independents.

• Micro markets. There isn’t an overall uniform performance. London is the highest rate market.

• Occupancy is around 85% across the group as a whole. How confident can you be in retaining this? There are unknowns but lead indicators give no cause for concern.

o The group is off OTAs. Inbound is back but 90% of business is still domestic.

Q&A:

• Outlook. Details as to what the optimism is based on.

o Co is ‘quite positive’. No lead indicators ‘are showing any weakness at all’.

o Supply is reduced. Around 4% has come out.

o Inflation is hurting competitors more than it is Whitbread. WTB has not had to take quite as much price as some competitors.

o Business demand is picking up. Longer lead indicators. Leisure has been good for some time.

o ‘Big ticket’ sales are depressed across the economy. Whitbread is into business & ‘affordable treats’.

o How far can pricing be pushed? There is a cap. Co will not say quite where. But the levels have trended up.

o Can’t be too definitive as the co is still ‘a relatively short lead time business’ when it comes to sales. Nonetheless, can be confident on this year. FY24 is less certain – but bookings are in line in % terms with prior years (and rates are higher).

o Occupancy levels are high & the group is back to c50:50 in terms of business and leisure. London is also ‘back’.

o F&B.

 This is both a service to guests and to outside customers. The value end of the market has lagged. Co is working on menus, drinks ranges & is investing in sites.

 Spend per head is up but cover volumes have been lower.

 WTB is ‘at the lower end of performance’ when it comes to the value end of pub restaurants overall.

• Costs & margins:

o Est 7-8% cost inflation for FY24. NMW, NLW. Energy is 75% hedged, 25% at market. Some £40m extra. Mitigation will extend to c£100m over three years. So net inflation could be 5.5%.

o FY24 pricing should remain strong but will profits move forward? This will depend on the outturn on costs. Co not keen to make commitments.

o Will you be able to price in line with inflation? Is ‘difficult to say’ whether it will fully offset inflation.

o Labour. WTB ‘invested in wages’ in calendar 2022. They paid cost of living awards & put up basic wages. The group has a relatively stable workforce. It is ‘in a comfortable position’,

• Germany.

o The 18 hotels that can be measured in LfL terms will be ‘profitable this financial year’. They were definitely profitable in Q3. The full German business should be profitable in ‘calendar 2024’.

• Balance sheet & uses of cash:

o Group is mindful of the investment opportunities out there. CEO Brittain mentioned ‘bolt on acquisitions’.

o Dividend will be reviewed at the full year (February).

o New openings? UK say just below 2,000 rooms & Germany 2,000 to 2,500. Acquisitions would be on top of this. Co is ‘a great covenant’ when it comes to leased assets.

HOLIDAYS & LEISURE TRAVEL:

Passport application fees are set to rise on 2 February, with adult prices going from £75.50 to £82.50 & kids from  £49 to £53.50. The government said it will be the first time in five years that the cost of applying for a passport has increased and that it does not make any profit from the cost of passport applications.

Leeds Bradford Airport (LBA) is looking to recruit up to 100 new workers, holding two job fairs in January.

Clia data shows that 72% of those who have never cruised before are open to cruising, up from 71% in 2019…

• Of those who have cruised before, 91% intend to take a holiday at sea again, a 14% increase from 2019. Clia UK and Ireland managing director Andy Harmer said ‘2023 is shaping up to be a very positive year for the cruise industry’.

ForwardKeys reports that China’s relaxation of Covid-19 travel restrictions has triggered a surge in domestic and international flight bookings, reaching 50% of the 2019 level in the final week of the year…

• However, domestic bookings for the Chinese New Year period from January 7 to February 15 remained 71% behind 2019 levels despite domestic airline capacity being due to be restored to 88% of the pre-pandemic level by the end of January.

London Heathrow airport has said that the reintroduction of Covid-19 testing rules for visitors from China could “set back” the recovery in volumes…

• Heathrow says ‘we are concerned that the recovery of the aviation sector, which is critical to the economy, could be set back by the reintroduction of testing for travellers in the UK and elsewhere in response to increasing Covid levels in China, even though governments acknowledge there is no scientific basis for doing so.’

HotelHub reports that the recovery in hotel bookings in Europe slowed inQ4. It says Q3 was only 1% behind 2019 whilst Q4 slipped to 3.5% behind…

• Eric Meierhans of HotelHub comments ‘the fact that the volume of international hotel bookings from both the US and Europe has dipped over the final quarter of the year is not particularly surprising, given that business travel’s post-Covid recovery has been impacted by so many parallel geopolitical and economic crises.’

• He says ‘global inflation, the cost-of-living crisis, rising energy costs – not to mention climate change – are all affecting business travel budgets and decisions about the purpose and validity of a business trip, especially an international trip.’

OTHER LEISURE:

888 Holdings has updated on trading for its 12 months ending 31 December 2022, saying that [with Wm Hill pro forma in for both periods] revenue in Q4 was down 3% at £445m and revenue in the year was also down 3% at £1.85bn. The company says trading was nonetheless in line with expectations.

• 888 says ‘online revenues [were] stable compared to Q3 2022, and 5% lower than the prior year, with a continuation of the trends seen in the first nine months of the year, with strong performances across a number of regulated countries being offset by the impact of proactive enhanced player safety measures within the UK Online segment.’

• It says ‘retail revenues of £131 million were up 5% compared to the prior year and up 6% compared to Q3 2022 as the well optimised retail estate continues to perform strongly.’

• 888 says ‘the World Cup contributed to a successful fourth quarter, and was also a strong period for both acquisition of new customers and engagement of existing customers across online and retail, with online player days at William Hill up 22% compared to Euro 2021.’

• Re the Outlook, the company says this ‘is unchanged, with group revenues expected to be lower by a low single digit percentage, and an Adjusted EBITDA margin of at least 20%, with a strong focus on integration and execution of cost synergies during the year.’

• 888 has also announced ‘that the Board and Yariv Dafna, Chief Financial Officer and Executive Director, have mutually agreed that he will step down following the publication of the Group’s FY22 results. Yariv has made significant contributions to 888’s progress in recent years, including through its transformational combination with William Hill.’

Disney shareholder Nelson Peltz has accused the company of raising ticket prices to customers too aggressively. Peltz says ‘Disney may believe that price increases and ‘nickel-and-diming’ of cast members and other costs is good for the bottom line. However, we suspect it is short-term thinking that puts the brand value and long-term health of the business at risk.’

Apple CEO Tim Cook is to take a 40% pay cut, reportedly at his own request.

National league football club Scunthorpe United have been served with a winding-up petition from HMRC. A takeover that appeared to be nearing completion last month has yet to materialise.

Elon Musk has earned the Guinness World Record for the largest ever loss of personal wealth, falling by £153bn since November 2021, according to a Forbes estimate. The decline was largely due to the poor performance of Musk’s Tesla stock.

FINANCE & MARKETS:

The ONS has reported that ‘monthly real gross domestic product (GDP) is estimated to have grown by 0.1% in November 2022, following growth of 0.5% (unrevised from our previous publication) in October 2022.’ It says ‘looking at the broader picture, GDP fell by 0.3% in the three months to November 2022.,,’

• The ONS adds ‘the services sector grew by 0.2% in November 2022, after growth of 0.7% (revised up from a growth 0.6% in our previous publication) in October 2022; the largest contributions came from administrative and support service activities and information and communication.’

• It says ‘output in consumer-facing services grew by 0.4% in November 2022, following growth of 1.5% (revised up from a growth of 1.2% in our previous publication) in October 2022; the largest contribution to growth came from food and beverage service activities in a month where the FIFA World Cup started.’

• The ONS says ‘production output decreased by 0.2% in November 2022, after a fall of 0.1% (revised down from flat in our previous publication) in October 2022; manufacturing was the main driver of negative production growth in November 2022, partially offset by a positive contribution from mining and quarrying.’

• It concludes ‘the construction sector was flat in November 2022 after growth of 0.4% (revised down from growth of 0.8% in our previous publication) in October 2022.’

Commenting on the above, the CBI says ‘while the economy performed better than expected in November, the data can’t mask the underlining problems in the UK economy. High inflation is severely impacting household budgets and businesses are facing intense cost pressures. As a result, consumer spending and investment plans are weakening…’

• It adds ‘the question for the government now is not whether we will fall into recession, but how long and deep the recession will be. If we want to curb the extent of a downturn, then the Prime Minister and the Chancellor need to stay alive to enacting pro-growth measures. Notably, introducing a permanent full investment allowances regime will help to shore up capital spending, during a time of high inflation and constrained demand. The positive impact on the supply side of the economy will also bode well for growth prospects over the longer term.’

The BCC says ‘today’s GDP figures for November provide further evidence that UK economic growth is heading in the wrong direction, despite this period normally being among the busiest for the retail sector…’

• It adds ‘while month-on-month GDP grew by 0.1%, this is a volatile measure. The three-month average, standing at –0.3%, sends a clearer signal of the current trajectory of the economy.’ It says ‘unprecedented energy costs, new trade barriers with the EU, and lasting damage caused by Covid lockdowns have created the hardest trading conditions for small businesses in recent history.’

• The BCC says ‘our latest Quarterly Economic Forecast expects five consecutive quarters of recession lasting until the end of 2023, and our most recent business survey points to significant falls in longer-term business confidence.’ It says ‘to get back to growth in the long-term, firms will need to see the removal of trade barriers, particularly with the EU, investment in public infrastructure, and measures to improve their access to appropriately skilled staff.’

Sterling mixed at $1.218 and €1.1237. Oil up at $83.65. UK 10yr gilt yield lower at 3.34%. World markets better yesterday and London set to open up around 2pts as at 6.30am.

The US Labour Dept has said that US inflation fell from 7.1% in the year to November to 6.5% in the 12 months to December. The figure was in line with expectations.

City AM points out that ‘City traders’ believe the Bank of England’s current round of interest rate hikes will top out at lower levels than feared in Q3 and in most of Q4 last year. The jettisoning of Liz Truss and all of her policies and ideas has much to do with this shift.

RETAIL WITH NICK BUBB:

• Yesterday’s Tesco and M&S News: Both Tesco and M&S confirmed their full-year profit guidance with their quarterly/Christmas trading updates yesterday. The Tesco Q3 covered the 13 weeks to 26 November, but it also gave an update on Christmas, ie the 6 weeks to 7 January  and on the core UK business it trumpeted “Most competitive offering to date, delivering further growth on top of an exceptionally strong base”, with LFL sales growth accelerating from 4.3% to 7.2%. There was no mention of the inflation/volume split to sales growth, but Tesco highlighted “Continued strong growth across large stores and convenience; Online sales returning to growth within the period, with sales +59% higher than pre-pandemic and Online participation stabilising at around 13%”. Despite the pressure on margins, Tesco reconfirmed FY22/23 guidance for Retail adjusted operating profit of between
£2.4bn and £2.5bn. The M&S Q3 covered the 13 weeks to 31 December and the company noted that there was a 0.7% calendar benefit to the outcome, but both Food and Clothing/Home were strong, with Food up 6.3% LFL and Non-Food up 8.6% LFL. CEO Stuart Machin noted that “M&S Food outperformed the market on volume and value in the critical four-week Christmas period for the second year running and reached its highest ever recorded market share. Clothing and Home delivered another outstanding performance, maintaining its market leadership position with its highest market share in seven years”. As for the profit guidance, M&S flagged that “There are clear macro-economic headwinds ahead and underlying cost pressures, but our strong trading performance provides confidence that the results for the year will be consistent with the guidance set out at the Group’s interim results in
November”.

• Today’s News: After the plethora of Christmas trading updates yesterday, it’s just DFS today, but it’s an interesting one, given the pressures on big-ticket spending and the news is…fine, with full-year profit guidance re-iterated. DFS flag that, following low market wide demand levels at the start of the financial year, trading improved in the second quarter (the 13 weeks to Dec 25th), with order intake growth relative to 2018 increasing to +16.3% (+18.8% vs 2021). CEO Tim Stacey says “The Group has traded well through the second quarter and the start of the important winter sale trading period. Whilst the macroeconomic environment remains challenging and hard to predict, we reiterate our full year profit guidance supported by the positive current trading momentum”. There has also been more news from the fast-recovering Card Factory, with Matthias Seeger appointed as Chief Financial
Officer, having previously been CFO of Costcutter Supermarkets from September 2015 to September 2021 (where he worked for then CEO, Darcy Willson-Rymer, who says “Matthias has extensive financial experience and I look forward to working with him again, confident that his expertise and values will support Card Factory’s strategic projects and significant change programme over the next few years”.

• Today’s Press: According to the invaluable Guardian morning email briefing, there is a mixed bag of stories on today’s front pages: the Guardian itself leads with the headline “Barclay privately admits he must increase pay offer to NHS workers”. The Financial Times reports “Biden faces counsel probe into sensitive files found at home and office”. The Telegraph headline is “Net zero plan to ban gas boilers in a decade”, while the i leads with “34 homeless children die in England in three years”. The Times has the latest on new NHS guidelines: “Millions more offered chance to take statins”, whilst the Daily Mail says “Hand out statins on demand, doctors are told”.

• News Flow Next Week: Another busy week kicks off on Tuesday with the Ocado Retail Q4/Xmas update and the THG Q4. Wednesday then brings the Burberry Q3, the Currys update, the WH Smith AGM/update and the Topps Tiles AGM. On Thursday we get the Dunelm Q2 and the Boohoo update (as well as the Wickes Q4, potentially). Friday then brings The Works interims, as well as the widely followed monthly GFK Consumer Confidence index and the ONS Retail Sales figures for December. Over in the US, the well-known NRF retail trade show opens in sunny New York on Sunday.