M&B H1, Marston’s meeting, delivery, staffing, disposable income etc.:

A DAY IN THE LIFE:

I took the time out to polish my shoes yesterday and managed to polish a good section of my trouser leg.

And that is a bit of a bummer as a product that is meant to ‘permanently stain’ will do exactly that when applied to the wrong surface.

Which represents something of a cautionary tale because, if you extend it to other items such as kitchen knives (which are meant to cut meat of any description), chain saws (which are meant to cut off things that are remarkably similar in some ways to arms and legs) and rat poison (which is meant to kill rates, irrespective of the number of legs that they have), it does mean that you have to be careful with tools and implements as they could do something that you would rather they did not.

Anyway. It’s probably a good thing that every man and his dog doesn’t own a collection of firearms in this country. On, from a person with a black stripe down his fawn-coloured trousers, to the news:

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MITCHELLS & BUTLERS – H1 NUMBERS:

M&B has reported H1 numbers and our comments are set out below: Headline figures: M&B reports that revenues for the period were some £1.282bn, up from £1.159bn in the prior year.  Operating profit is £99m (FY22: £121m) and PBT is down to £40m from £57m in the prior year. EPS is 5.4p (FY22: 7.7p) and there is no dividend (FY22: nil). Total sales are up 10.6% ‘supported by increases in both volume and spend per head.’ LfL sales are up 8.5%. The group says it ‘made a strong start to the year with like-for-like sales growth of 6.5% over the first ten weeks, primarily driven by drink sales growth.’

The company announces that ‘as expected, growth significantly increased in the final five weeks of the first quarter due principally to last year being impacted by the emergence of the Omicron variant which resulted in a downturn in activity across much of the festive season. Like-for-like sales for the quarter were up 10.4% against FY 2022.’ M&B is…

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MARSTON’S H1 ANALYSTS’ MEETING:

Following the release of its H1 numbers, Marston’s hosted an analysts’ meeting and our comments thereon are set out below:

Headline numbers:

• Marston’s has reported total revenues up 10.0% for H1 at £407m with LfL sales up 10.7% vs last year – and up by a more material 15% if last year is normalised to take account of the lower rate of VAT. LfL sales are up by 17.9% vs the Covid-impacted H1 of FY20.

• Pub operating profit is up by 8%, reflecting higher energy costs, with the company reporting a marginal loss before tax of £2.9m (FY20: loss £6.1m) as a result of higher interest costs. Debt is down but bank rates have risen. In terms of seasonality, the company said that usually a third of profit is generated in H1 and two thirds is generated in H2.

• MARS is expecting to make a profit in its seasonally busier H2 and there is no change to guidance.

Trading:

• The company delivered consistent outperformance of the Peach Tracker in H1, in terms of LfL sales.

• MARS increased prices by 15% YoY, with its most recent price rise contributing 7% of this increase.

• Food & drink spend per head were each up 9% YoY.

• Order & pay represented c2% of sales, with potential to rise to c10% on sunny days. As such, MARS believes most customers would rather engage with a person.

• The company said there were early signs of improving consumer confidence, with pub reputation scores staying stable following price increases, pointing to customer resilience.

• MARS also referenced improvements in recent GfK Consumer Confidence surveys, albeit the overall sentiment still being negative. The latest GfK survey is released on Friday.

• The company stated that with it is not aiming to be the cheapest operator, instead focusing on the mass-market with a good entry point price.

• MARS stated that there is a correlation between its reputation scores, employee engagement, EHO scores and LfL sales. It has improved across all three of these metrics and said there is room to improve them further.

• The company also brought focus to its simplification strategy, with menu items -7% and a significant spirits SKU reduction (>50%), helping improve speed of service.

Profitability:

• Gross margin improved by 2% on food and drink, driven by the mix change with premiumisation and price rises.

• MARS also reported that costs are stabilising, stating that the food cost outlook is improving.

• Energy costs are fixed for the remainder of the financial year and at a lower level into H1 of next year.

• They have not yet been fixed for H2 next year, but wholesale energy costs continue to fall, and as such, MARS will continue to assess the market before making a decision on how to approach H2 energy costs.

• There is set to be a step up in interest costs from FY24, rising from the £34.6m expected in FY23 to £37.8m in FY24.

Disposals, estate repositioning & cash flow:

• The company made £24m of disposals, at 39% higher than the NBV of the assets. The disposals attracted a combined EBITDA multiple of x13.

• These disposals were a mixture of ‘gold bricks’ & sites where there has been specific interest.

• MARS expects a further £30-35m of disposals in H2.

• The company commented that disposals next year are expected to return to ‘normal’ levels of c£10m.

• It mentioned that its next property revaluation will be in H2 this financial year.

• Regarding the repositioning of its estate, the company said it has so far focused mainly on its food-led ‘Signature’ units, having converted 35-40% of these. It said it has yet to push on its Signature wet-led repositioning and expects to do so next year. The majority of the repositioning is expected to be complete by FY26.

• MARS pointed out that c£100k refits are delivering better returns than the larger c£500k projects.

• MARS has a £6m net annual cash outflow from its pension, until FY25, after which it will be freed up in terms of free cash flow for the company to use.

Langton Comment:

• Sales are ahead of last year and ahead of the Coffer Peach Tracker. Costs are in line with guidance and, turning to margins, there should be some easing of pressures for both energy and food from around the middle of calendar Q2.

• The group has performed well over the Bank Holidays but, as always, the weather has been a more material factor. It was not good in March (which is in these figures) but has been tolerable since.

• Marston’s is little impacted by train strikes. Elsewhere, pressures should abate.

• The market remains challenging and difficult to read but MARS has indicated that it is beating market sales, is generating cash and cutting debt.

• The company’s internal metrics (reputation scores, employee engagement, EHO scores) are all trending positive and the company claims that this will correlate to LfL sales.

• Marston’s is pushing ahead with the simplification of its offer, both in terms of food and drink, tapping in to a hot trend in the hospitality sector while also reducing average serving times.

• The estate repositioning is well underway, with higher returns being delivered from more conservative investment amounts, driving value for shareholders.

• The NAV is substantial and units are being sold at above book value and at a x13 EBITDA multiple. However, the multiple achieved on H1 disposals may be difficult to maintain depending on the types of sites that are disposed of in H2.

• Would-be shareholders may be cautious in their approach to consumer stocks in general but, when a degree of discrimination between one consumer stock and another returns, Marston’s, with its predominantly freehold estate, strong asset backing and current positive trading, is well-positioned to prosper.

PUBS & RESTAURANTS:

Delivery:

CGA’s latest Hospitality at Home Tracker shows that Britain’s leading managed restaurant groups saw delivery and takeaway sales drop 1% year-on-year in April, It says ‘year-on-year trading has now been negative for 17 months in a row, following a boom in 2020 and 2021 as a result of COVID-19 lockdowns…

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Trading:

Lumina expects to see a ‘slow recovery in the UK food to go sector, impacted by household spending power and travel disruptions’. It says ‘the UK’s economic outlook has started to improve, with GDP no longer expected to be in negative growth in the first half of 2023….’

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Access to labour:

UKHospitality comments on yesterday’s employment stats, with CEO Kate Nicholls saying ‘The drop in hospitality vacancies we have seen over the past year is testament to the huge effort the sector is putting in to develop our own talent and help people back into the labour market…’

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The consumer – disposable income:

Rental costs. The average rent on a newly let home outside the capital rose by 7.8% to £1,002 a month in April. In London this was +17.2% to £2,200.

Government tax take to increase. The IFS yesterday reported that around 14% of workers could be paying higher rate tax later this decade on government projections. It says one in four teachers and one in eight nurses will be higher-rate taxpayers by 2027. This will reduce disposable income…

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The Financial Conduct Authority has said that the number of people struggling to pay their bills has risen by nearly 40% in the last year. It says some 10.9 million adults are now in difficulties, around 11% of adults have missed a bill or loan payment in at least three of the last six months…

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Some positive news on the cost outlook – gas prices have fallen after months of inflation, indicating that there may be some timely relief for the restaurant industry as summer approaches.

COMPANY NEWS:

Not a particularly good day on which to report figures, yesterday. On the Beach fell 14.4%, Marston’s shares finished the day 6.3% and Greg’s fell by 3.3%. Britvic bucked the trend with its shares up some 1.2% on the day.

Warren Buffett has disclosed a $41.3 million stake in Diageo. Berkshire Hathaway reports that it holds some 227,750 shares.

Gregg’s is to be allowed to remain open until 2am in its London Leicester Square outlet despite objections suggesting that it could be an anti-social hotspot. The shop must have bouncers on the door and install CCTV.

Activist investors. Shake Shack is to add an independent director in agreement with activist investor Engaged Capital…

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The MA reports that brewery Dawkins Ales has announced its closure with ‘a heavy heart’ after spiralling costs and post-pandemic repercussions took their toll on the business.

Just Eat has appointed Claire Pointon as its new managing director for the UK and Ireland, taking over from Andrew Kenny. Pointon was most recently at John Lewis where she led the customer function digitally and in-store

The Artisanal Spirits Company has announced that Billy McCarter, formerly Interim Finance Director, has been appointed as Chief Financial Officer and to the Board of the Group, with immediate effect.

HOLIDAYS & LEISURE TRAVEL:

Travel Counsellors has reported more than £20m profit in the year to 31 October 2022, up from a loss of £6.8m the year prior…

FCM Consulting analysis shows demand for business travel continues to be ‘high’ in Europe, with global demand remaining ‘strong despite mixed economic conditions’ in Q1 2023…

The number of items of luggage mislaid in or by airports has risen by three quarters from 2021 to 2022 to 7.6 bags per 1,000 passengers or some 26 million bags in total. Passenger volumes have also risen over that period.

OTHER LEISURE:

Parkdean Resorts has announced a new partnership with Only A Pavement Away, the charity which supports people facing homelessness, veterans and prison leavers find stability through employment in the hospitality industry….

Sky News reports that Sheikh Jassim Bin Hamad al Thani has submitted an increased fourth bid to buy Manchester United. The bid is believed to be close to £5bn but still below the Glazer family’s £6bn valuation.

A panel of MPs has called on the government to regulate crypto trading as a type of gambling. The Treasury Committee says the coins have “no intrinsic value and no useful social purpose.”

The Times reports that Robert Tchenguiz is facing a £2 million claim from a spread-betting company after running up millions in losses on his activist campaign at FirstGroup. Spreadex is taking the action after Mr Tchenguiz ran up losses of £4.1 million.

FINANCE & MARKETS:

The European commission forecasts that Europe’s economy is expected to grow faster than previously thought this year and next, up 1% and 1.7% respectively, up from 0.8% and 1.6%…

European Commission officials has warned individual countries against embarking on a spending spree to boost growth, as there is a risk this could prolong inflationary pressures…

The CBI has commented on yesterday’s labour market statistics saying that ‘while the gap between the number of vacancies and the number of job seekers continues to slowly fall, the UK labour market remains very tight and a constraint on growth…’

Sterling down at $1.2476 and €1.1481. Oil price lower at $74.83. UK 10yr gilt yield down 2bps at 3.80%. Markets lower yesterday & London set to open down around 21pts as at 6.30am.

RETAIL WITH NICK BUBB:

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