Langton Capital – 2015-10-21 – More on WTB, YUM Brands, sugar wars, Merlin & other:
A Day in the Life:
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I know that I still favour the flat vowels of my native Yorkshire but, as a matter of principle, if you can vocalise a syllable with the minimum of effort, then why not do so?
And that leaves me wondering just why some accents have developed in the way that they have.
Because I understand that diphthongs have evolved in order to supply additional vowels (and to therefore allow more words without adding letters to the alphabet) but why would an Australian, for example, stick a triphthong at the end of the pretty simple word ‘no’?
I mean it comes out as nee oh waaah when ‘no’ or ‘ner’ as they say in Hull would have sufficed and have you watched some people’s mouths move as they get their words out? No wonder they remain thin, they must be burning calories like there’s no tomorrow. On to the news:
Whitbread H1 numbers: Analysts’ meeting:
Following the announcement of its H1 numbers this morning, Whitbread hosted a meeting for analysts and our comments are set out below:
Trading – Premier Inn:
London sales are +51% 2012-2015 vs a market increase of 12%. In the regions, growth at PI is 37% vs 24% for the market as a whole
Supply growth (STR numbers) should be around 2% in London and 1% in the regions (and some of this is PI adding stock)
Occupancy levels for the year should be ‘broadly flat’
Leases now account for 35% of estate. Freeholds are still a focus as they allow flexibility, such as re the decision as to whether to add rooms via extensions
Group will add 7% to 6% to capacity this FY. Costs are weighted to H2. Some 5,500 rooms will be added. Three more hubs should open this FY with three more the following year
Hub is achieving £100 per room, international losses are slightly down at £3.0m and 84% of distribution is now digital. The new hub sites could have more double rooms. Group will consider other cities, Edinburgh was mentioned.
Group ‘is seeing no impact from AirBnB in London’.
How do you see Germany developing? How will you allocate capital? Group has ‘tremendous opportunities’ in the UK. Having said that, the group needs to get to critical mass (12-15 hotels in 6-8 cities) as quickly as possible.
Group uses hotels.com. Paid search marketing costs have actually fallen year on year
How defensible is your UK price differential? Co interpreted the question in a certain way, said that it offered excellent VFM – even if it wasn’t the cheapest offer on the market
Trading – Restaurants:
Group is beating the Coffer Peach Tracker & refurbishments continue
Trading – Costa:
Costa has turned in an ‘excellent’ performance. Underlying profits are +28.4%.
Group will open 220 net new stores this year and add 700-800 machines
Price rises have only been modest and group has left Starbucks in the dust when it comes to the question ‘what is your favourite coffee shop?’ Some 31% favoured Starbucks 7yrs ago (now 17%) whilst Costa has risen from 22% to 38%
Group would like 2,500 stores in the UK by 2020 – it currently has 1,999
Re machines, more drivers ‘are making a Costa coffee and essential part of their journey’
China & Asia should see 50 new stores added this year. The China slowdown ‘is not helping’ but Costa is a very small part of the economy and says ‘its success is in its own hands’
Wages rose by c10% in H1. This will impact costs in H2.
Group is ‘looking at and starting to expand into’ a number of other European countries
Overall, balance sheet, cash flow & other:
Current trading. August was ‘disappointing’ but trade has picked up in September and October.
Group is a good payer & NLW will not change (but may accelerate) its payment systems. Wage bill will rise by 5% to 6% or so. This is a little ahead of the 4% to 5% that it had previously expected.
Debt for the year should settle around £900m. Co intends to remain below 3.5x debt to EBITDA.
£36m of capex was directed to new hotels and extensions, the group remains confident and new CEO Alison Brittain, will take over in early December.
Langton Comment: Whitbread has reassured that UK trading is in line with expectations and concludes that its performance in China is not yet being adversely impacted by the economic slowdown in that country.
The group’s brands have legs both domestically and overseas. Whitbread’s shares have reacted positively to today’s announcement. The shares are rarely ‘cheap’ and, at around 20x this year’s earnings, that remains the case.
However, the growth profile remains attractive, the group is conservatively financed and is well asset-backed. Sellers have little reason to exit the shares and would-be holders remain poised to take advantage of any share price setbacks.
Pub, Restaurant & Drinks Producer News:
• YUM is to split off its China unit. China business more than half the group but has been hit by a number of problems. Investors have been pushing for a split + the group recently appointed activist investor Keith Meister to its board. The split should take place next year. China units suffered last year from a report that it may have used meat that was out of date. It had also suffered from stories that its suppliers may have been overdosing chickens with anti-biotics. Yum China will operate under franchise and will be the original company’s largest franchisee.
• JDW’s Tim Martin has criticised the Jamie Oliver anti-sugar campaign, saying that it is ‘showboating’ that would cost pubs millions of pounds and cause further closures at a time when pub prices were already high compared to supermarkets. Tim Martin comments ‘Jamie Oliver runs restaurants which cater to an affluent clientele. He is either courting the favour of the elite or is badly out of touch with the majority of people. I believe that he should campaign for tax equality for pubs, restaurants and supermarkets, since pubs and restaurants pay 20% vat on food sales, compared to zero for supermarkets. Showboating of this kind by Jamie Oliver will close pubs.’
• Camino has said that it will join the Jamie Oliver campaign to add a levy to soft drinks.
• Hall & Woodhouse increased turnover by 6.4% to £109.5m and profit before tax by 10.5% to £7.8m for the year to the end of January. Talking to the M&C, managing director Anthony Woodhouse said the group continues to focus on growing its income from accommodation and is ‘quietly confident’ of another strong year.
• Brakspear is supporting its licensees with its third annual Jazz & Blues Festival, running from 13-22 November.
• Tsingtao brewery has acquired the remaining 50% stake in its loss-making Suntory Holdings JV for 822.9m Yuan (£83.91m). Brewers in the region are facing stiff competition from international competitors and a report from Euromonitor International recently found while Tsingtao accounts for 18.4% of the Chinese market while AB InBev, which is merging with SAB Miller, has 14%. Japanese media reports that Suntory will now focus largely on soft drinks, white spirits and wine.
• Dark Star Brewery will open its first site under its fledgling pub company early next year in Haywards Heath, West Sussex. The M&C reports that the group plans to grow to 20 sites over the next five years, with its first to be called the Lockhart Tavern.
• Chris Snowdon, Director of Lifestyle Economics at the IEA, says international sugar taxes have no effect on overall health and obesity.
• McColl’s has announced plans to sell up to 100 newsagents as it looks to focus investment on the convenience branch of the business. The sales will not go ahead at less than asset value, and are expected to be revenue neutral in 2016.
• Local Data Co + British Independent Retailers’ Association say independent shops are in dramatic decline. Survey says around 8,059 local shops closed in the 6mths to July – though 7,915 did open. The BIRA dis concede ‘the loss of 144 shops is not a lot in the context of the 279,569 total across Britain, but is disastrous in comparison to a gain of over 3,600 in 2011. The good times are no longer rolling.’
• Waitrose boss Mark Price is to leave the co to become chairman of Channel Four. Price has spent 33yrs at John Lewis
• Home Retail posted mixed results for the 26 weeks to 29 August show a reported profit before tax increase of 73% to £23.4m. However, with sales falling 2% to £2.6bn and trading uncertain, the group has warned on full year profits. Operating and distribution costs decreased by £10m to £941m, with Homebase costs decreasing by £26m but Argos costs rising by £14m as it competes on same day delivery.
• Home Retail: CEO John Walden commented: ‘The combination of this trading uncertainty, an increased level of investment in the launch of Fast Track and the underlying profit reduction from Argos’ challenging first half, mean that at this stage of the financial year we expect the Group’s full-year benchmark profit before tax to be slightly below the bottom end of the current range of market expectations of £115m to £140m.’
• Trust levels in advertising are broadly unchanged, says Nielsen.
Holidays & Leisure Travel:
• PPHE Hotel Group has signed a hotel management agreement with Battersea Power Station Development Company (BPSDC). The luxury lifestyle art’otel will open in 2019 with 160 plus bedrooms. Art’otel is a collection of city centre hotels across Europe that ‘fuse exceptional architectural style with art-inspired interiors’ and boast a ‘powerful combination of world-class art with some of the world’s most exciting artists and best-in-class service.’
• Merlin announces China JV. Will set up JV with China Media Capital to develop LEGOLAND Park in Shanghai + other attractions elsewhere.
• Merlin says it will open ‘additional Midway attractions across China; including existing and new brands’. Merlin says ‘the partnership will be proudly announced today in the presence of China’s President Xi Jinping and the Duke and Duchess of Cambridge, at a high-profile creative event at Lancaster House hosted by UK Trade & Investment (UKTI) as part of the President’s State Visit.’
• Merlin details its ‘plan to develop a LEGOLAND Park in the Shanghai area and target the roll out of various Midway brands throughout China.’ It says ‘the new Midway opportunities to be explored by the joint venture will include both the adaption and localisation of existing and proven Merlin brands, such as ‘The Dungeons’ and selected ‘LEGOLAND Discovery Centers’ for the Chinese market as well as the development of new Midway brands and concepts including ‘DreamWorks Tours – Kung Fu Panda Adventures’ and others.’
• Merlin’s Nick Varney says ‘we are delighted to announce that we are forming a joint venture with CMC and are honoured to be able to make an announcement at such an important event to showcase British creativity and celebrate China and UK collaboration.’ He adds ‘China is a key growth market for the Group and we see this partnership as providing a significant opportunity to accelerate our plans. We’re also very excited to be working with CMC on the development and roll out of new brands. By working together in partnership we will be able to combine our expertise in operating world-class attractions with CMC’s insight and expertise in the Chinese market.’
• Yahoo shares fell 2% after reporting a lower than expected Q3 profit of $76.3m compared with $6.77bn for the same period last year. The latter figure was inflated by the tech firm’s sale of its shares in Alibaba, worth some $6.3bn. CEO Marissa Mayer commented: ‘As we move into 2016, we will work to narrow our strategy, focusing on fewer products with higher quality to achieve improved growth and profitability.’
• Movie ticket sites on both sides of the Atlantic crashed on Monday night as thousands of Star Wars fans struggled to order tickets for 18 December. Toys for the new film have already proven popular and analysts expect some $5bn in global sales.
• London Paramount Entertainment Resort has won £100m of financing from Chinese firm SinoFortone for a £3.2bn them park in Kent. The resort is being developed by Kuwait-backed London Resort Company Holdings, which estimates that the project will create up to 27,000 jobs.
Finance & Markets:
• World markets: UK mixed + Europe down yesterday. US down a little but Far East higher in Weds trading
• Oil price little changed at around $48.60 per barrel
Retail Roundup from Nick Bubb:
Home Retail: Ahead of the interims today from Home Retail the share price has shown signs of rallying, but bulls of the Argos Digital vision will be disappointed to hear the warning that management now expect full-year benchmark PBT to be “slightly below the bottom end of the current range of market expectations of £115m to £140m”. This caution reflects trading uncertainty pre-Xmas and “Black Friday”, more investment in “Fast Track” delivery and the poor underlying H1 performance of Argos (which saw profits plunge from £12m to £6.4m, on the back of a 3.4% LFL sales decline, despite an £8m timing benefit on gross margin…).
John Lewis Sales Watch: We flagged on Friday that October (the 4 weeks to Oct 31st) had got off to a tough start for that great High Street bellwether John Lewis, given the continuing “Indian Summer”, but the cooler weather last week will have helped to boost Fashion sales and so, against an easier comp, we would pencil in +2.5%/3% LFL sales overall (ex the impact of the new Birmingham store), ahead of Friday morning’s official figures for w/e Oct 17th.
Kantar and Nielsen Watch; Interestingly, Nielsen decided to pre-empt their great rivals Kantar yesterday, by announcing their latest Grocery market share figures (for the 4 and the 12 weeks to Oct 10/11th) much earlier than normal, at 8.30am in the morning. And the message from Nielsen was that “continuing price deflation and the enduring growth of the discounters outweighed any bounce from the Rugby World Cup, as the UK’s major supermarkets suffered a rare fall in both sales value and volume…during the four weeks ending 10 October, sales value at the tills dropped -1.0% versus the same period a year ago, whilst volumes declined -0.1%”. Then, at 9.30am, Kantar reported that, “with LFL grocery prices 1.7% lower than last year, the supermarket price war shows no signs of abating”.
Today’s Press and News: The big story in all the papers is yesterday’s hot news that Mark Price is to step down as head of Waitrose in April to try to become the next Chairman of Channel 4 and although some of the headlines are cruel, eg with the Daily Mail running with “Boss pays Price at Waitrose”, the editorial comments are generally sympathetic. Tonight Waitrose are unveiling their “Annual Food and Drink Report” to press and analysts at the Finchley Rood Cookery Skool. firstname.lastname@example.org
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:
Grocers singing from the same hymn sheet:
• Asda is to scrap the expansion of its click-and-collect service and slow its roll-out of of small stores
• It is to go “back to basics” and will focus on its core supermarket business.
• This sounds very similar to comments made by Morrison’s.
• Operators are cutting marginal capacity, Morrison’s has bitten the bullet on small-stores and other operators may be taking the red pencil to sites behind the scenes
• Alongside Begbies Traynor’s comments (see earlier email) this morning to the effect that there are some green shoots in the grocery market, we see the above as evidence that the UK grocery market is becoming accustomed to a lower-margin world and is adapting to a post-discounter world.
• We await H1 news from Premier Foods, which should be able to comment from the point of view of suppliers, on 10 November
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Red meat prices once again rising (after pulling back) and white meat prices falling (after a brief rally).
• Oil firmly below $50. Travel companies and the like will be keeping a sharp eye on this going forward.
• Travel stocks in top-10 FTSE100 performers yesterday on oil price weakness. Carnival and IAG feature. Compass also higher.
• Consumer confidence now at multi-year highs per Deloitte. Makes you wonder why the pubs & restaurants aren’t seeing more trade. Consumers could be in a more sober frame of mind now than at any time in the recent past.
• Whitbread – H1 analysts’ meeting – see notes above.