A Day in the Life:

Follow us on Twitter at either @langtoncapital or @brumbymark.

It’s misty and cold out there but, in the UK, that simply means that it could be any month of the year.

However, whilst you could fill a library with books about the weather, we’re in a rush so we won’t comment further. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Deltic (formerly Luminar) has reported LfL sales +7.5% in the half year to end-August. Total sales rose by 15.5%. CEO Peter Marks reports ‘there’s been plenty of speculation about the health of the UK nightclub sector. Our consistently strong performance is testament to the fact that there is still huge consumer appetite for a big night out experience; something that only clubs can deliver. The fact that we’ve secured new banking facilities with HSBC and our continued sales growth, proves there’s still real upside in the sector for strong operators with well-invested venues’.

• Some 33 MPs are to take part in a day in Parliament today to highlight the importance of tourism to the UK economy. CEO of the BHA Ufi Ibrahim reports ‘hospitality is a wealth generator across the country, not just London and the South East, and we can contribute a lot more to this country in new well-paid jobs, exports and increased tax revenue.’ She continues ‘but we need government support to fully unleash our industry’s potential; on tourism VAT, on visas, deregulation, aviation capacity and on creating a fair digital marketplace by banning so-called ‘Rate-Parity’ agreements.’

• Accolade Wines announces acquisition of Chilean wine producer Viña Anakena in order to extend its New World offers

• M+C reports that coffee shop chain BB’s Coffee + Muffins aims to double in size over the next five years via new openings in UK + Ireland

• Taco Bell is to sell beers, wines + spirits from 22 Sept. Co has c6k outlets in US. Starbucks also recently announced it is to sell booze

• Toys R Us has reduced Q2 losses by around one third. Still made a loss of $99m + co continues to ‘right-size the cost structure’

• Southern hemisphere wines are taking market share from Old World nations and are being increasingly favoured by British consumers.

• Premier Foods has recalled 33,600 packs of two types of Bisto chicken gravy granules over fears they may contain pieces of metal.

• Figures from IMRG show online retail sales in the UK recorded their weakest August growth for 15 years this year.

• MillersCoors will close its Eden, North Carolina brewery sometime this year as it grapples with a ‘fragmented’ beer market. The move will cause 520 job losses and Fernando Palacios of MillerCoors said the closure is in order to ‘optimise our brewery footprint and streamline operations for greater efficiency across our remaining seven breweries’.

• Barclaycard is upgrading its phone app to make contactless payments with near-field communication (NFC)-enabled Android phones from November. Consumers will be to make contactless payments of up to £30 without a PIN and from £31 to £100 when entering their PIN from their phones. Barclaycard data also shows the amount UK consumers are spending using contactless has jumped 150% in the past 12 months and the number of transactions is up 134%.

A few words on the developing uses of money:

• B of England comments on payment habits, underlines requirement that businesses adapt to remain relevant re debt cards, contactless, etc. The Bank acknowledges that consumers need to make both regular and spontaneous payments and says it ‘does not seek to promote any one payment mechanism over another, but in supporting its mission, aims to protect and enhance the stability of the financial system.’ Fair enough then. The Bank points out that change remains the only constant. It says that the use of debit cards has increased five-fold since 2000 whilst the use of cheques has fallen by 60%. Cash usage, perhaps surprisingly, is around the same whilst the use of credit cards is up by 60%.

• More on payment habits. Unsurprisingly, the Bank says ‘the majority of regular payments are now facilitated by standing orders and direct debits, with only 10% paid for with cash in 2014.’ Overall re payments, it says ‘the value of spontaneous cash-based payments has, on the whole, been quite stable over the past fifteen years’ and it says ‘despite consumers increasingly moving to other payment methods, the value of Bank of England notes in circulation continues to grow, and has trebled over the past two decades.’ It believes that around half of notes ‘in circulation’ are not actually in circulation but are hidden around the house or whatever and are therefore used as a store of value. Bank notes are, at the end of the day, ‘untraceable bearer instruments’ in the Bank’s jargon. It says ‘it is not possible to
locate where banknotes are being held at any one time.’ interestingly, the volume of Sterling banknotes (along with US$s and Aussie $s) has about doubled over the last 13yrs. The number of Euros in circulation has risen by 325% whilst the volume of Swedish Krona has actually fallen.

Holidays & Leisure Travel:

• Accor Hotels is to take over 2 hotels in Iran, aims to secure >100 more over next 10yrs as the country opens up. CEO Sébastien Bazin told the FT ‘Iran has absolutely everything, in terms of very rich history, extraordinary geography . . . [and a] true sense of hospitality.’

• Glasgow-based Barrhead Travel turnover rose 27.9% for the year to 31 December 2014, from £191.1m to £245.9m.

• Marriott International has announced the signing of two new properties in South Africa, in partnership with The Amdec Group. The 150-room Johannesburg Marriott Hotel Melrose Arch and 200-unit Marriott Executive Apartments Johannesburg Melrose Arch are set to open by February 2018.

• More from Marriott: Alex Kyriakidis, President and Managing Director, Middle East and Africa for Marriott International commented: ‘Africa is important to Marriott International’s growth strategy because of its rapid economic growth, growing middle class and youth population, as well as the expansion of international flights onto the continent… With over 850 million people in sub-Saharan Africa, there are enormous opportunities there.’

• Domestic tour operator Hoseasons is celebrating its fifth record summer in a row, crediting the appeal of UK breaks for the performance. Hoseasons managing director, Simon Altham, said: ‘External factors will always have an impact on the domestic market but this resurgence in UK breaks is not a new phenomenon, nor a knee-jerk reaction to overseas events. It’s a trend that’s been growing in recent years as more and more Britons opt to make the most of what ‘s on their doorstep, whether as a main holiday or in addition to an overseas break.’

• The United Federation of Travel Agents Associations (UFTAA) has written an open letter to IATA accusing airlines of exploiting fuel surcharges. The cost of fuel has tumbled over the past 18 months from $110 to around $40 a barrel. The UFTAA claims that airlines are still charging a fuel surcharge of between €25 and €450 per ticket and has pointed out that, according to IATA’s own sources, the savings for airlines in 2015 will be in the region of $4 billion.

• More from the UFTAA: The organisation wrote in its letter: ‘Generally the cost for the fuel should as soon as convenient be included in the general operation cost eg. air fare (no airplane can fly without fuel). However, airlines continue shamelessly to misuse this ticketing loophole and thus manipulate the transparency of the ticket price.’

• Conclusion from the UFTAA: The group added: ‘The tax box on the tickets has increasingly become a vehicle for various extra charges not included in the basic air fare either to distort the price transparency or perhaps to serve as a loophole for tax evasion? How long will this charade be tolerated by the consumers?’

• Air India is to ground 130 cabin crew for being overweight after warning last year that 600 of its 3,500 staff must slim down.

• American Airlines has ordered a review after admitting a pilot flew the wrong plane from Los Angeles to Hawaii last month.

• Gatwick airport has introduced GatwickConnects, a ‘world-first’ service allowing short and long-haul flights to be booked in one transaction. GatwickConnects routes can be found when booking through Skyscanner and Dohop. Stewart Wingate, chief executive of Gatwick Airport said: ‘Gatwick is a competitive and innovative airport that can respond quickly to the changing way people are choosing to fly. We are uniquely placed to offer a service like GatwickConnects, due to the breadth of our route network and our diverse short and long haul airline mix. This new service will provide outstanding choice for passengers, as well as genuine savings, and we will offer travellers a range of hassle free check-in, baggage handling and hospitality benefits while they are with us.’

• Boeing has signed a deal with telecoms firm ViaSat to provide new aircraft with a wifi option 8 to 10 times faster than other onboard systems. The aircraft maker’s network systems chief engineer, John Craig, said following this agreement: ’we now look to add ViaSat airborne terminals to our line-fit factory options. This will give Boeing’s commercial airline customers a new cost- and time-effective high-bandwidth connectivity choice for their airplanes.’

• IHG has signed Hotel Indigo Berlin City – East Side in a franchise agreement with multiple development agreement partner Tristar Hotel Group. The property, due to open in autumn 2017, will feature 119 rooms, gym, restaurant and rooftop bar with an outdoor terrace, and is within walking distance of Berlin’s Warschauer Strasse and Ostbahnhof train stations. IHG director of development Rene Schappner said: ‘The signing of this hotel emphasises IHG’s position as a clear market leader in the boutique hotel segment.’

Merlin Q3 trading update tomorrow:

• Merlin produces its Q3 trading update on Thursday.  The group’s shares are currently on a PE of c22x earnings.  The shares have pulled back in recent months following the accident at its Alton Towers theme park currently resting at around 380p, having peaked at around 460p in May this year.

• The group has three major operating division:  Midway, the indoor attraction division (Madame Tussauds, SEA LIFE, The Eye, The Dungeons,  LEGOLAND Discovery Centres and Shrek’s Adventure), LEGOLAND Parks and Resort Theme Parks (Alton Towers, Thorpe Park, Chessington World of Adventures, Warwick Castle, Gardaland (Italy), and Heide Park (Germany).

• The biggest news for Merlin this year was the accident that occurred at its Alton Towers theme park.  The group has stated that this will likely subdue earnings at the group’s Resort Theme Park segment going into H2, and at the group’s half year it found that LfL’s at the RTP segment were down 2%.  This fall has been mitigated somewhat by strong Like for Like growth of 6% at the group’s LEGOLAND Theme Parks and 2.9% at the Midway attractions division. 

• The Group has suggested that the Alton Towers accident means profits at the RTP segment would likely be £40-£60m lower this year than last year when the group saw £87m EBITDA and £60m operating profit at the segment, accounting for 17.3% of the group’s total operating profit.   The group predicts that the effects of the accident could last between 6-18 months, and have warned that next year’s trading may also be impacted.  4 of the 6 theme parks in the RTP segment are in the UK and the group has said that Thorpe Park has also seen a fall in trading, however the group suggested it will get back to the c£87m EBITDA level for the division by 2017

• Midway: Midway is the largest segment, last year making 48,1% of operating profit, and consists of some 90 sites worldwide.

• LfLs at the Midway segment at the half year were up 2.9% with revenue up 7.9% on a constant currency basis as the group continues to expand this segment.

• The group opened 5 new Midway attractions in H1, with 100 potential further sites identified. Target ROIC at a new attraction is 20%, on a c£5-8m spend per site.

• The group is typically targeting opening ‘clusters’ of sites where there are cross-selling and operational synergies to be had.

• Five of seven sites planned sites for FY17 had already been identified at the half year

• The group opened its first Shrek’s Adventure attraction in July this year, and has the rights to open up to 6 sites under the current agreement with Dreamworks (who get mid-single digit royalties) with the group hinting at a second site potentially in the USA.  The group has a working relationship with Dreamworks, so 6 sites isn’t necessarily a ceiling.

• The Midway segment made 48.1% of the group’s operating profit in FY2014,

• Midway trading in Asia has been mixed with the group’s Thai operations improving following unrest in the nation, but Hong Kong suffering due to travel restrictions imposed by China.

• London trading has been impacted by a dropping off in European travel to the UK as a result of the strong pound. The group is pushing domestic marketing which it hopes will offset the drop in European visitor numbers, and take domestic market share.

• LEGOLAND Theme Parks and Resort Theme Parks: The group continues to roll out its LEGOLAND Theme Parks, with openings in Dubai , Japan and Korea due to open in 2016, 2017 and 2018 respectively.

• The group has been rolling out accommodation at its theme parks, targeting a 20% ROIC from both accommodation revenue and increased park visitation.

• Hotels in Alton Towers and LEGOLAND Florida were opened in H1, with a 100 room hotel in Gardaland set for 2016.

• The Half year numbers at the LEGOLAND Parks saw strong LfL growth of 6% despite very tough comps last year as a result of the release of the Lego Movie.

• Momentum at the Resort Theme Parks as a result of the recent accident was interrupted, with Alton Towers forced to close for a week and rides at other parks closed while new safety measures are put in place.

• Conclusion: The group’s shares remain highly priced at c22x consensus FY2015 earnings, despite the recent drop in the wake of the Alton Towers accident, which will impact its largely UK based Resort Theme Parks.   That said, the group does have significant roll out potential at both its Midway and LEGOLAND Theme Park divisions, and with three new Lego movies scheduled for release in 2016, 2017 and 2018, the LEGO brand could remain buoyant for some time.   Execution risk is still there but momentum at the majority of the group’s operations seems to be strong. will.brumby@langtoncapital.co.uk

Other Leisure:

• Ladbrokes has announced that Paul Bowtell, CFO Coral Group will be CFO of the combined business. Ian Bull is to leave the co. Ian will leave the company in Feb 2016 – or shortly after completion if the Ladbrokes / Coral Group completes ahead of schedule. Chairman Peter Erskine, Chairman, commented ‘Ian has worked tirelessly through what have been challenging times and has helped steer Ladbrokes to this exciting point in its journey. We are pursuing an aggressive organic plan to build a stronger Ladbrokes as well as working on the proposed merger with the Coral Group, which will create a leading betting and gaming business and deliver substantial synergies.’ He adds ‘at the time of announcement of the proposed merger with Coral, we announced that Ian would be stepping down as Ladbrokes CFO and Ian has recently informed the Board that he wished to leave Ladbrokes on
completion of the annual accounts, in order to pursue other potential opportunities.’

Finance & Markets:

• The UK’s inflation rate fell to 0% in August from July’s rate of 0.1% due to a smaller rise in clothing prices, according to the ONS. Inflation has been held back due to the sharp fall in oil prices and the ongoing supermarket price war. In the year to August 2015, food prices fell by 2.8% and prices of motor fuels fell by 12.9%. CPI inflation has been almost flat for the past seven months. The development casts doubt on a rise in interest rates.

• World markets: UK, Europe + US all up in Tues trading (led by oils, banks) and Far East higher in Weds trade

• Oil price somewhat higher at $47.80 per barrel of Brent crude

• World Bank warns that higher US rates could destabilise developing countries. Change always brings, well, change.

• Almost 150 French economists have written in Le Monde against the appointment of an ex-BNP Paribas banker as head of France’s central bank. The economists, mostly academics and including Thomas Picketty and ex-World Bank chief economist Francois Bourguignon, write that the appointing Francois Villeroy de Galhau’s creates a conflict of interest.

• US retail sales increased by 0.2% in August thanks to spending on cars, eating out, groceries and clothing, according to the US Commerce Department. However factory production fell by 0.5%, more than expected.

• House prices in Britain are rising fastest in the East of England, up 8.3% in the year to the end of July compared to a 5.5% rise in London, according to the ONS.

• Senior union leaders are threatening to lead strikes in protest of the Government’s new Trade Union Bill.

• Motor insurer Hastings Direct has confirmed plans to IPO as it looks to accelerate growth and is being valued at up to £1.5bn. The group has seen rapid growth over the last three years with the number of live customer policies growing at a compound rate of 22.5%.

• Tony Abbott is no longer the prime minister of Australia after being ousted by Malcolm Turnbull.

Retail Roundup from Nick Bubb:

JD Sports:
Back on July 31st, in its pre-close update, when JD Sports flagged that full-year PBT would be “approximately 10% ahead of the current consensus market expectations of around £110m” because of stronger than expected H1 trading in the core business, it was unclear how much of that would come through in the first half, but the City had pencilled in c40% profits growth to £35m. But JD Sports have smashed through that target today, with the interims showing amazing 82% growth to £46.6m…and it would have done even better if the Outdoor Division had pulled its weight, albeit H1 losses of £4.5m were slightly reduced. And although there is no detailed current trading update, even the lugubrious Peter Cowgill, the Executive Chairman, notes that, given the demanding comps after 2 years of strong LFL sales growth, “we are encouraged by the positive nature of the
trading to date in the second half across our core fascias”. We look forward to hearing how JD Sports (which now has a market cap of £1.7bn) has done it at the 9.30am results meeting.

Pets At Home: Yesterday afternoon’s “Investor and Analyst Day” in London organised by Pets At Home ended up at our local and recently opened store in Richmond (!), with a focus on a) the seamless shopping facilities for customers (order in-store kiosks and digital product screens), b) Advanced Nutrition (a product teach-in on Pets’ ability to own and innovate this market) and c) Pet Accessories (the in-house global sourcing and design capabilities).

Nick Bubb – nicholas_bubb@hotmail.com

Tuesday Wrap:

This was produced for distribution yesterday afternoon: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following:

Tour operators set to prosper?

• If TCG and TUI manage to update positively on 24 and 30 September respectively, then we can’t say that we weren’t warned.

• Home Retail Group, JD Wetherspoon, the BDO Retail and the Coffer Peach Leisure trackers, Greene King and various other operators have already said that they believe a larger proportion than expected of consumers were on holiday overseas in August.

• Barclaycard (see today’s email) has confirmed the trend. The plastic provider hasn’t been too subtle about it labelling its 14 Sept research ‘spending growth slows in August as Brits head abroad to escape summer washout’. The report is here – buoyant overseas holiday market

• Planalytics has said that August 2015 was ‘another cool & rainy month’ – see today’s Nick Bubb comments.

• Selling out of stock in the Lates market is crucial and, though both TCG & TUI operate in a number of geographic source markets, the UK seems to have performed extremely well.

• We would expect comments to that effect on 24 and 30 Sept and are somewhat surprised that the shares have not moved up a little further in anticipation of such statements.

Deflationary fears:

• A glance at the bank of commodity prices that Langton looks at daily (courtesy of the FT) does bring to mind just what a clear & present danger deflation is. The National Living Wage should perhaps be seen in this context. Perhaps Mr Osborne is using corporate coffers in order to increase prices.

Evolution – alive & well, seen most clearly in wine retailing today:

• Standing still is often not an option.

• In today’s email we highlight 1) the fact that Majestic is to retail own-label wine, 2) WDR highlights a double-digit increase in online wine sales and 3) the WSTA suggests that there is little brand-loyalty in the wine market – suggesting that retailing skills should be to the fore as the brand itself is insufficient to drive sales.

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Against a sea of red as regards other commodities, the corn price has been strong recently – you have to be careful where you pitch your starting price but the cost of corn is actually up around 19% over the last 12mths. See below:

• Oil, on the other hand, is markedly less than half of the price that it was 12mths ago:

• Marks & Spencer shares rose from £4 to £6 on recovery hopes in H1 this year. They have now lost half of the rise.

• Interestingly Kingfisher today says ‘we remain encouraged by the macroeconomic backdrop in the UK’.