A Day in the Life:

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Find previous emails at https://www.langtoncapital.co.uk/daily-notes/ 

So I was in one of the outlets of a major supermarket chain over the weekend and noticed that it was advertising the fact that it had a number of jobs available.

Furthermore, as it was a big store, these were specialist roles and this particular position was on offer in the perfume and haircare aisles. Now I’m only ever to be found in such aisles in the four weeks or so before Christmas so I have very little experience in these matters but I was somewhat intrigued to see that the store was soliciting applications for a Beauty Therapist Level Two position.

Which led me to wonder what that was. I mean are Level One staff only allowed to work with the slightly ugly whilst Level Two are authorised to take on the really big jobs? Or is it the other way around and what kind of training would you need to beautify me? Presumably you’d need to be a black-belt in order to take on such a task.

Or at least I like to think so. Anyway I’t’s a busy morning this morning so let’s move on to the news:

Mitchells + Butlers – Full Year Numbers:

Full Year Numbers:

Mitchells & Butlers has this morning reported results for the 52wks trading to 26 September and further comments are set out below:

Trading:

Total sales for the year were up by 6.6% at £2.1bn. Adjusted operating profit was up by 4.8% at £328m with PBT of £126m (2014: £123m0

Adjusted EPS is 35.7p (up 9.5%) and a final dividend per share of 5p is being recommended

The dividend is higher than many had expected though the pace at which the group intended to move to a ‘normalised’ level of payment has been the topic of some debate

The group reports that LfL sales were +0.8% in the year (not a surprise as the group had reported to w50)

M&B says that ‘sales in the first eight weeks of the year have been soft, with total sales down by 1.3% and like-for-like sales down by 1.6% reflecting an increasingly competitive market’

CEO Phil Urban’s business review:

New CEO Phil Urban reports ‘the environment in which we operate remains competitive and dynamic.’

He says ‘new supply into the market has been widely reported, consumer trends are evolving and becoming ever more demanding, and we are facing a dramatically changing cost landscape with the introduction of the National Living Wage next year.’

He goes on to say ‘such challenges are not new to the industry or the group, and we will respond with energy and urgency to each.’

He adds ‘the impact of technology is ubiquitous. Consumers are increasingly digitally connected in all aspects of life, with implications for how we communicate with and serve them.’

The NLW will impact the wider industry and MAB says its approach will be ‘rounded’. CEO Urban reports MAB will look at efficiencies and the opportunity to increase guest spend per head.

Business review conclusions:

MAB will ‘build a more balanced business’ meaning that it needs to sharpen and target its brands ‘in a dynamic market.’

Specifically the group mentions Miller & Carter saying it is ‘a successful premium brand with only 36 sites but the potential for many more.’

Harvester, it says, ‘is susceptible to new competitors due to its size and positioning’ and could be in need of more investment

The group needs to ‘instil a more commercial culture’ ‘with a focus on driving profitable sales day in and day out.’

CEO Urban says, however, that the group will not drive sales at the expense of profitability

The group says it will ‘increase the pace of execution and innovation’ and will approach the need for change ‘urgently’

Langton Comment: Re current trading, the group says ‘sales in the first eight weeks of the year have been soft, with total sales down by 1.3% and like-for-like sales down by 1.6%, reflecting an increasingly competitive market.’

It says ‘as we face these challenges we have a clear set of priorities going forward’ and adds ‘we are continuing with our strategy whilst retaining a flexible approach across our extensive portfolio of pubs and restaurants, seeking sustained and balanced profit growth rather than purely the pursuit of sales.’

Despite slower trading in FY16 to date, with the important Christmas period to come, the group concludes ‘through this we are confident we can deliver strong shareholder returns.’

New CEO Phil Urban will present to analysts at 8.15am. He and his fellow directors will need to convince a wider audience that, post the Alistair Darby era when many of the initiatives outlined would appear to have been attempted, the group can drive change in the areas where that change is most needed.

The reintroduction of the dividend may help though there will be some observers who will suggest that it has been dragged from a Board that last paid out to shareholders in 2008.

In order to secure this year’s numbers (of around 38p in earnings) the group will have to convince that it has the tools with which to engineer something of a turnaround. If numbers are justified, then M&B is trading on a PER of around 9x this year’s earnings with perhaps a 2% to 3% yield – depending on guidance given at this morning’s meeting.

The group’s share register is still skewed (Elpida and Joe Lewis own c50%) and, though M&B has some excellent sites with the potential, perhaps, to regain some of their previous lustre, many would-be shareholders may look for value elsewhere.

The News:

Pub, Restaurant & Drinks Producer News:

• Food Standards Agency has said that JD Wetherspoon + Pret a Manger have consistently the best food hygiene scores. Both operators received a rating of five at 93.1% of their stores with the average across the industry some 83.7%. McDonald’s was in no3 slot at 92.9% of its restaurants scoring five followed by Starbucks at 91.0%. The FSA said ‘we ‘we want to build on the success of the scheme and reduce consumer risk even further by encouraging people to ‘look before they book’. It adds ‘telling people about hygiene standards in food outlets in a way that is clear and easy to understand has made a real difference. We have seen standards improve and more and more businesses are able to show their customers that they take food hygiene seriously.’

• Stonegate announces £200k Chester-Le-Street refurb of sports-focused community pub Whitehills

• Franco Manca has 5 openings lined up + is in negotiations on 4 more reports Propel, quoting ‘sources’.

• The BBPA has welcomed the 10th anniversary of the Licensing Act but warns of ‘add ons’ such as Mandatory License Conditions driving up costs. BBPA CEO Brigid Simmonds commented: ‘The Licensing Act is working well, and has not resulted in the ‘free for all’ that some suggest. 24-hour drinking is very much a myth, as on average, pubs close less than half an hour later than they did under the previous Licensing Act. Harmful drinking and alcohol related violence are also falling.

• ‘We have also seen significant ‘add ons’ since 2005, such as Mandatory Licence Conditions, bringing significant additional costs and burdens to licensing regulation in the sector. Overall, we should be looking at how we can ease the regulatory burden on pubs.’

• Scottish distillery Dunnet Bay has launched its third craft spirit offering and first vodka, Holy Grass.

• DP Poland has opened its first store in Wroclaw, the largest city in West Poland with 600,000 inhabitants and a student population. Wroclaw is the third Polish city Domino’s Pizza has a presence in, following Warsaw and Krakow.

• C&C Group has appointed Mr Vincent Crowley and Mr Rory Macnamara as independent non-executive directors with effect from 1 January.

• Big Issue vendors will now sell Change Please coffee for £2.50 a cup from eight carts in areas around London. The Big Issue has partnered with advertising agency FCB Inferno and Old Spike Roastery to launch Change Please.

• A study from the Joseph Rowntree Foundation has found that some 1.7 million people aged 16-24 are in poverty compared with 1.4 million over-65s. The foundation’s state-of-the-nation report found 400,000 more 16-24 year olds are living in poverty than a decade ago and CEO Julia Unwin said that young people are being ‘locked out’ of well-paid jobs and affordable homes.

• Compass Group has bumped up its FY dividend by 10.9% to 29.4p on the back of a 5.8% increase in full year revenue to £17.8bn. Group earnings per share were up 11% to 53.7p, putting the group on just over 20 times earnings as of yesterday’s closing share price of 1,077p.

• CPG contd. Australia was the catering company’s one weak area, although Compass’ emerging markets more than made up for it with growth of 11%, while Europe and Japan revenues rose 1.9% and North America performed strongly, up 7.9%. The group’s restructuring plan, announced in July with £26m of related costs (primarily labour cost reductions), is on track to deliver the expected savings and operational efficiencies. Incremental restructuring costs of £20m-£25m are expected for 2016, but the group says its outlook is positive and unchanged’.

• CPG contd. Compass spent £328m buying back shares in the year and will continue to do so in order to keep its net debt/EBITDA at its target of 1.5 times.

• CPG contd. CEO Richard Cousins commented: ‘[Consumer sales and marketing] initiatives combined with a more benign macroeconomic environment in many of our markets resulted in like for like revenue growth of 2.5% reflecting modest price increases and improving volumes in North America and Europe & Japan.  In Fast Growing & Emerging we have seen like for like weakness in some emerging markets and in our Offshore & Remote business.

• CPG contd. ‘Excluding the impact of the restructuring, organic operating profit increased by 6.5% and the underlying operating margin improved by 10 basis points as we continue to drive efficiencies across the business using our management and performance framework, MAP.’

• Pepsi has entered the smartphone market with its first phone launching in China, manufactured by Shenzhen Scooby Communication Equipment.

Travel & Hotels:

• Flights to Paris were running down 2% prior to Fri 13 attacks but were down 13% on Nov 21 reports travel data analyst ForwardKeys. Cancellations are up. The biggest drops were from the US, China, Spain and Italy.

• Chinese visitors could spend as much as £1bn in the UK by 2020 reports VisitBritain. Says the currently spend c£2,700 each.

• Online bookings in the UK could plateau at 50% says speaker at Hays Independence Group Conference in Portugal

• Indian hotel group Lalit will open its first international property in London in 2016, a 70-room site in a former Grade II-listed former grammar school near Tower Bridge.

• The boss of IAG, Willie Walsh, expects to make more acquisitions, having recently purchased Aer Lingus for 1.4bn euros. The airline group has also recently acquired Spanish low-cost carrier Vueling and Bmi from Lufthansa.

• Speaking at the Airport Operators Association (AOA) annual conference in London, Walsh added that he expects more consolidation within the European airline industry going forward and branded the proposed £18.6bn third runway at Heathrow as being ‘unaffordable’ for the airline industry.

• The Foreign & Commonwealth Office has advised British travellers to Brussels to closely follow security advice as the city remains in lockdown. Sixteen suspects have been detained in raids by Belgian security forces, but suspected Paris attacker Salah Abdelslam is still on the run and the alert remains at the highest level.

• FCO travel advice posted on Sunday and still current on Monday morning said: ‘The Brussels metro network will remain closed on 23 November, and many public events are likely to be cancelled and tourist attractions will be closed.

• ‘Schools and universities in Brussels will also be closed and some employers are advising employees to avoid coming into the office. There is currently a heavy police and military presence, including at transport hubs and public sites.’

Other Leisure:

• Cineworld updates on 46wk trading, total revenues +11.9%, Box Office +10.8% and Retail +12.8%

• Cineworld says ‘solid H1 performance has continued’ + adds ‘admissions growth took place in all territories with exception of Slovakia.’ It says ‘Q4 has started strongly with the release of “Spectre” on 26th October in the UK and on 5th November in CEE and Israel. The increase in admissions and nature of the film mix bolstered the retail revenue growth, which has increased by 12.8% as well as advertising and distribution revenues, which are reflected within the 16.2% increase in other income.’ The group says ‘during the second half of the year we have continued to deliver on our expansion plans, recently opening three new cinemas in the UK (Solihull NEC, Newport and Whiteley, with 28 screens in total). In CEE & Israel, during the second half we have opened four new cinemas in Romania (Constanta City Park, Deva, Severin and Suceava, with
30 screens in total), two in Poland (Lublin Felicity and Starogard, with 15 screens in total) and one 16 screen cinema in Jerusalem, Israel. We are scheduled to open a further three cinemas in the UK (Hinkley, Stoke-on-Trent and Crouch End with 19 screens in total) bringing the total number of multiplex cinemas opened during year to a record number of 19, with 160 screens in total. By the end of the year the Group will have over 2,000 screens.’

• Cineworld concludes it ‘remains confident of delivering a performance for the year as a whole in line with current market expectations.’

Finance & Markets:

• US$ hits 8mth high on rate hike expectations

• The latest Markit report shows the economic effect of the attacks in Paris, with its index falling from 52.7 to 51.3 in November after a rapid fall-off in trade. Chief economist Chris Williamson commented: ‘Clearly there’s been a cut in footfall and any sort of feel-good factor amongst consumers in the wake of the horrific events. But history does tell us that these events tend to have a very short-lived impact.’

• World markets: UK and Europe down yesterday + US market lower in later trading. Far East mostly up in Tues trading

• Oil price firmed up a little overnight. Trading at around $45 per barrel

Retail Roundup from Nick Bubb:

AO.com: Today’s interims from AO World (aka AO.com) for the six months ended 30 September are heavily impacted by the big start-up losses in Germany, but the core UK business still seems to be growing nicely, with H1 website sales up by 24%, implying a useful pick-up in Q2. AO say that “The second half has started well, although we still have peak trading ahead of us, including Black Friday later this week. In the UK we are on track with our plans for the year as a whole…and we will commence trading in the Netherlands in Spring 2016”. The analysts meeting in the City is at 9am.

Pets at Home: After the disappointing Q2 trading update from Pets At Home back on Oct 30th, today’s interims don’t add much more to the sum of human knowledge and, although H1 profits were sluggish (with underlying EBITDA up by only 5%), the company always had the view that “profit growth will be weighted to the second half, as the strong Health & Hygiene comparatives ease”. At least cash flow is strong again, and the interim dividend is up by 11%, on the back of 13% EPS growth. The statement that in 2016/17, “we expect the impact of the National Living Wage, alongside an increased investment in seamless shopping, to create a minor dilution to EBITDA margin” will no doubt be a talking point at the 9.30am analysts meeting in the City.

Kingfisher: Today’s Q3 profits from Kingfisher (for the 13 weeks ended 31 October) are basically flat in constant currency terms and it is no surprise to hear CEO Véronique Laury say: “Q3 trading conditions have followed a similar trend to the first half of the year, reflecting the more encouraging macroeconomic backdrop in the UK offset by a softer market in France”. In the UK LFL sales were up by 4.6% (led by Screwfix) and trading profits were 14% up, but in France LFL sales were flat and trading profits were 7.5% down in constant currency terms.

John Lewis Sales Watch: With Black Friday looming large, it will be interesting to see how that great High Street bellwether John Lewis did last week, given the drag effect on Electricals trade. But, given the turn in the weather, Fashion sales should have picked up and we would pencil in a modest 1% increase in LFL sales overall (ex the impact of the new Birmingham store etc), ahead of Friday morning’s official figures for w/e Nov 21st. That would imply gross sales of £115m last week, but that will be eclipsed by the near £200m in sales that John Lewis will hope to take this week (which was much bigger than Xmas week last year…). Nick Bubb – nicholas_bubb@hotmail.com

Monday 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:

Terrorism – the market’s selective response:

• So the market seems to have judged that Thomas Cook, TUI and the other travel companies will be impacted by the recent terrorism problems but not SSP Group?

• The market has rightly assumed that travel to tourist destinations is likely to be affected, but we’d argue that travel in central Europe, given the attack took place on the continent, is also likely to be affected.

• SSPG has some 2,000 units. Of theses there are 237 in France, 205 in Germany and 41 in Belgium (which is the focus of current counter terrorism action), with another c650 are located in the UK.

• Most of these are at travel hubs

• We wouldn’t want to suggest that the falls in TCG and TUI were justified, but we’d argue if they’ve fallen, should not SSPG have gone down with them?

Terrorism & travel disruption. Holidays vs short breaks:

• Thomas Cook will outline on Weds just what recent travel disruption has cost it.

• But having said that, the downed Russian airliner & the outrage in Paris are outside the year (to Sept 2015) that the group is reporting.

• The group will nonetheless be under pressure to give some sort of indication as to the likely costs of further short-notice changes to schedules etc.

• Paris is a short break destination. Brussels ditto though it is also a major business and political hub.

• This market is much more intensively served by the budget airlines and the flag-carriers than is the market for 1wk and 2wk holidays.

• As such, the likes of Ryanair, EasyJet, IAG and others will be facing problems regarding 1) short term slack demand and 2) longer term shifts of demand between geographies.

• Hotel operators such as Intercontinental will be suffering from lower occupancy levels in Paris – and probably, though we have no figures as yet – in other gateway cities.

• Occupancy in Paris was anecdotally said to be down by around a half in the aftermath of the Friday 13 attacks.

• Travel shares have understandably reacted negatively to recent developments but the financial scale of the hit is as yet unclear

• Thomas Cook will be first up across holiday operators and, though the impact of recent attacks will be negative, the group remains an interesting play re China where Fosun has yet to buy 10% of its shares in the market

Random information, hopefully not all of it useless:

• Harris & Hoole. Just how has the company been able to lose so much money in so short a time period? And, following on from that, how committed to the business do you think we should consider Tesco to be medium term?

• Sounds like a horror B-Movie but the Daily Mail reports that Tesco is fighting back in the lobster price war with Lidl and Aldi

• Debenhams is asking suppliers for a 2% rebate (for early payment).

• Interestingly Grocer 33 (see earlier email) has allowed Lidl in as a guest retailer when comparing basket prices for the majors. Not surprisingly, it blew all competitors out of the park coming in at nearly 20% cheaper than ASDA.

• ASDA is losing that particular battle but Tesco still has it all to play for. The name of the ‘biggest loser’ has yet to be inked in.

• Tale of two profit warnings. Interesting to see Majestic Wines +10% last week and Poundland down 20%. Both had cautionary statements.

• Likewise interesting to see YNGA down last week but FSTA up – both on good numbers.

• Sterling reversing recent trends (at least in the very short term). Down against the Euro & up against the US$. Presumably the acceptance of a US rate rise is being factored in.

• Having said that, the Euro is at a 7mth low to the US$.

• Commodities floored. Copper at 6yr lows (and down 30% in the last 12mths) and gold at one year lows (down 8% on 12mths).

• El Nino soft commodity prices still strong but all others very weak. For example, sugar now flat on the year but soybeans down 15%. OJ up 3% on the year but Soybean Meal down by 26%.

• Strange week this week. Autumn statement on Weds, Thanksgiving (so no US) on Thursday and Black Friday on Friday.

• Draghi dovish. Euro interest rate rise thought to be more than a year away. US estimated December and UK end-Q1 next year. But all estimates subject to change without notice.