A Day in the Life:

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

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

So Langton visited the dentist yesterday.

A new one, the old one had retired, made too much money presumably and it’s always tricky breaking in a new one, persuading him or her that you don’t really want anything doing and that ‘watchful waiting’ is perhaps the best course of action.

But this one seemed OK. On the fear & greed index (my fear, his greed) he seemed to have decided that he was in for the long haul and that he would get me for something expensive in the end. And that was alright with me because ‘in the end’ isn’t now, is it?

Anyway, it’s getting light outside, which is a first, and the birds are singing so, without further ado, let’s move on to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• BBPA Policy Director Andy Tighe argues that 1p cut in duty is more than just a token gesture. Says, combined with absent increases, it is material to the industry and may amount to a £370m per annum saving. He says the consumer is saving more, adding ‘we estimate that the effect on the price of a pint is around double this, when it comes to prices over the bar.’

• BBPA concedes supermarkets ‘undoubtedly benefit from lower beer duty rates, but as we have seen over the last decade or so, pricing in supermarkets bears little correlation to beer duty changes.’ It says ‘between 2002 and 2013, beer duty went up 64%. Over this time, beer prices in pubs went up 48%, but prices in supermarkets went up just 8%.’

• BBPA says cutting beer duty will encourage pub visits saying its ‘polling continues to show pub goers and the public in general are hugely supportive of lower beer taxes to keep a visit to the pub affordable and ultimately it is their view that matters most.’

• A survey by M&C Allegra Foodservice shows just 43% of sector leaders polled believe this year will be better than the last, compared to 70% in 2015. The majority appear to be anticipating a relatively flat year, with only 6% expecting trade to deteriorate (down from 11%) and 51% expecting no change (up from 19%). Some 87% of respondents are anticipating an increase in the frequency of going out to eat.

• Russian vodka exports have hit a record 10-year low due to falling demand across the West, and particularly Ukraine. The amount of vodka exported from the country fell by 40% to 43.5m litres in 2015, according to data from the Centre for the Study of Federal and Regional Alcohol Markets (CSFRAM). Vadim Droby, director of the CSFRAM, reportedly commented: ‘Due to the events in Ukraine and Syria, the attitude towards Russia in the West has worsened and that could be the main reason for the drop in sales of Russian vodka’.

• Pernod Ricard CEO, Alexandre Ricard, says he expects China demand to fall rather than rise in the near term. Speaking to The Drinks Business, Ricard said he expects the Chinese market for spirits (its second largest after the US) to shrink by between 5% and 10% during the group’s full year to the end of June.

• Anglia Maltings, where CEO David Thompson was formerly chairman at Marston’s, has acquired GlobalMalt Group. The group says ‘the acquisition consolidates AMH’s strong position in the malting industry, enabling it to expand and better serve its international customers. The Group currently has three separate businesses: Crisp Malting Group, comprising five maltings, three in East Anglia and two in Scotland; Edme, comprising a wholegrain ingredient plant in Essex; and Micronized Food Products, comprising a cereal ingredient plant in North Yorkshire.’ David Thompson comments ‘the Brewing, Distilling and Food industries across the globe are significantly changing: the role of suppliers can sustain the success of companies trading in these evolving conditions.’

• Health campaigners are calling for a ban on extra-large cups of hot drinks in coffee shops and stores because of the high amounts of sugar they can contain. According to new research analysing sugar levels in nine of the UK’s leading high-street coffee chains and franchises (including Starbucks, Costa Coffee, Café Nero and Greggs), the charity Action on Sugar found that some 98% of hot flavoured drinks currently on sale would receive a ‘red’ (high) label for excessive levels of sugars.

• Sugar, sugar. Starbuck’s Hot Mulled Fruit – Grape with Chai, Orange and Cinnamon Venti contains an impressive 25 teaspoons of sugar in its extra-large cup – more than three times the maximum adult daily intake of free sugars. A large Costa Coffee Chai Latte was found to contain 20 teaspoons of sugar.

• BrewDog is embarking on the US leg of its equity fundraising scheme, Equity for Punks, in May. The brewer and bar operator is aiming to give away up to 20% of BrewDog USA to help fund the $25m cost of setting up its Columbus brewery and build a network of brewpubs across the country.

• Prices for alcoholic drinks rose by 5.2% from December to January, 2% higher than during the same period a year ago.

• Brasserie Bar Co turnover grew 14% to £37.2m in the year to 30 June 2015 and restaurant EBITDA increased by 9% to £5.7m.

Leisure Travel:

• Accor FY numbers. Says has produced ‘excellent 2015 results reflecting the benefits of the transformation plan’.

• Accor reports FY revenues +2.3% at €5.6bn, EBIT +10.6% at €665m and net profit +9.4% at €244m. CEO & chairman Sébastien Bazin reports ‘AccorHotels delivered an outstanding performance in 2015: growth in revenue, a big improvement in earnings and a more robust financial position. The momentum driven by the strategic, operational and cultural transformation and the quality of the performance and motivation of our teams are clearly producing results in all of our businesses. AccorHotels is moving forward, driving its growth and focused on the future. In an extraordinarily volatile global economic context, and at a time when the hospitality industry is reinventing itself, the opportunities available are numerous and the Group’s objectives for 2016 are clear: strengthen our position as the world’s leading hotel operator, and continue to significantly improve our
operational and financial performance.’

• Accor reports FY numbers, says has seen ‘growth in revenue, a big improvement in earnings and a more robust financial position.’

• Accor FY: Says ‘the momentum [has been] driven by the strategic, operational and cultural transformation and the quality of the performance and motivation of our teams are clearly producing results in all of our businesses.’

• Accor FY: Says ‘in an extraordinarily volatile global economic context, and at a time when the hospitality industry is reinventing itself, the opportunities available are numerous and the Group’s objectives for 2016 are clear: strengthen our position as the world’s leading hotel operator, and continue to significantly improve our operational and financial performance.’

• Accor has seen ‘strong growth in Europe and in emerging markets’. France has seen ‘difficulties’ caused by terrorism in Jan & Nov.

• Accor buys 30% of Oasis Collections, the “Home meets Hotel” company ‘blending the value and authenticity of private rentals with the service, quality-control and amenities of a hotel.’

• Accor also invests in Squarebreak, co that offers a digital platform to private upscale properties in resort locations, primarily in France, Spain and Morocco. Accor says ‘in partnership with innovative players, Accorhotels continues to forge ahead along the path of changing and new behaviors in hospitality and travel’.

• Marriott Q4. Diluted EPS 77c (+13%) with constant dollar REVPAR +3.8% in the quarter, revenues +4% (constant currency).

• Marriott Q4: says has pipeline of 270k rooms. Income margin 47% vs 42% last year.

• Marriott full year: EBITDA $1.7bn, up 13% on last year. Diluted full year EPS 315c. Group expects EPS +17% to +23% this year. CEO & President Arne M. Sorenson comments ‘we are pleased with our results for 2015. Worldwide system-wide comparable RevPAR rose 5 percent on a constant dollar basis for the full year with average daily rate up 4 percent. In North America, RevPAR also grew 5 percent for system-wide comparable properties and occupancy reached a record 74 percent.’

• Marriott CEO Sorenson comments ‘we are encouraged by recent demand trends. Fourth quarter 2015 worldwide system-wide comparable RevPAR rose 4 percent in constant dollars. Group RevPAR in North America increased 6 percent in the quarter and new group bookings for future business increased 10 percent year-over-year.’ He concludes ‘we remain optimistic about 2016. Not including the impact of the pending Starwood acquisition, we expect worldwide gross rooms growth of 8 percent, or 7 percent net, with worldwide systemwide comparable RevPAR increasing 3 to 5 percent on a constant dollar basis.’

• The majority shareholder of All Leisure Group says no decision has been taken on whether the struggling leisure company will be taken private. Speaking in the Travel Trade Gazette, chairman and 60% owner Roger Allard said: ‘We’re just looking at it. Obviously as a public company we have to [notify] the market first if we’re thinking about anything.’ For the year to the end of October 2015, the group swung to a pre-tax profit of £0.2m from a loss of £7.2m in 2014. Revenue was down 8.4% to £127.m.

• Travel company Mark Warner has pulled out of Turkey and cancelled its programme at the Sea Garden Beach Resort in Bodrum.

• Birmingham airport saw passenger traffic grow 9% last month compared to the same period last year, making it its busiest January on record. The midlands airport handled 666,681 passengers, up 55,000 thanks to strong demand from both long and short-haul flights. Birmingham airport CEO Paul Kehoe said: ‘This is an excellent start to the year and it means we are now celebrating our eleventh consecutive month of record breaking passenger figures.’

Finance & Markets:

• UK unemployment fell by 60k between Oct & Dec to 1.69m per ONS. Rate now 5.1%. Wage growth subdued.

• Governor Carney, in another life, was going to start putting UK interest rates up when unemployment fell below 7%. Clearly didn’t happen. More people employed than ever. ONS reports ‘while the employment rate continues to hit new highs and there are more job vacancies than ever previously recorded, earnings growth remains subdued and markedly below the recent peak of mid-2015,” Mr Palmer said.

• World markets: UK strongly better yesterday with Europe also up. US closed higher and Far East up in Thurs trade

• Oil price better, trading at around $35 per barrel. Estimates of $50 during H2 may not be too wide of the mark

• Japan has reported exports down for 4th month in a row.

Retail Roundup from Nick Bubb:

Darty:
You may very well think that the French electrical retailer Darty has been taken over by its rival, FNAC, but the wheels of French/EU regulation grind exceedingly slow and, even if the agreed FNAC offer of Nov 20th 2015 receives “Phase 1 competition clearance”, completion of the deal is not expected until in or around mid-2016, whilst it could be as late as Q4 2016 if the offer only receives “Phase 2 competition clearance”. So, life goes on for Darty and today’s Q3 update covers the 3 months to end Jan, is headlined “Strong peak trading and further improvement in cash position” with sales in the core business in France up by 4.4% LFL (with gross margin down 50bps). The CEO, Régis Schultz, says: “Despite events in Paris, we performed well over Christmas and the winter Sale period with a competitive offer and good product
availability”. There is an analyst’s conference call at 8am.

Today’s Press and News: The Sky News story that Amazon has reportedly hired Frances Russell, the former Head of Womenswear at Marks & Spencer, to help launch an own-label clothing range (thought to be called “Racked”) gets a fair amount of coverage, although the Business editorial in the Guardian thunders that M&S has shown that even deep pockets don’t guarantee success in the brutal clothing market and the Evening Standard last night noted our view that Online clothing consumers are focused on brands. Otherwise the market reports are obsessed with the Food Retailers: the Evening Standard last night led with the upgrade by Exane on Sainsbury, to reassess the prospects for the Argos deal, whilst the Daily Mail today leads with the story that Tesco is eyeing up a bid for Morrisons…

Asda Watch:
On the back of today’s Wal-Mart Q4 results, the weighty Asda PR machine will try and put a positive spin on things, via a briefing to the media at lunchtime on its own performance and strategy. This time last year, despite a puff about the “£600m cap ex programme” and store revamp plans, all the focus was on the weak trading, with LFL sales down by 2.6% (ex-fuel) in the 12 weeks to January 4th. A year on and trading has got worse, with LFL sales likely to be c4% down, despite embattled CEO Andy Clarke’s empty boast about trading having reached a “nadir” back in the summer. Asda has clearly been hit hard by the growth of the discounters, Aldi and Lidl, but the logical response would be to emphasise that “the top-line is vanity and the bottom-line is sanity”, via a focus on the robust margins and profits, although in the past Asda
has tried to have it all ways…

Ipsos Watch:
The market research firm Ipsos is perhaps best known for being the joint sponsor with KPMG of the prestigious Retail Think Tank, but it is also a French listed business and we spotted this gem in its notably well-written and interesting Outlook statement with yesterday’s final results: “…we are experiencing a period of intense transformation where there are more questions than answers; where the factors of division and fragmentation are more powerful than the forces of unity; where fears are little attenuated by reasons for hope; and where, ultimately, the unpredictability of opinions, markets and behaviour is only matched by the abundance of such diverse, distinctive and, naturally, contradictory data that the narrator often loses the thread of the narrative. Profusion rhymes with confusion. This is where the research industry – and Ipsos within it – is facing
its greatest challenge and, naturally, its greatest opportunity”.

News Flow This Week: Tomorrow brings the ONS Retail Sales figures for January. Nick Bubb – nicholas_bubb@hotmail.com

Wednesday 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:

Pub & restaurant spending trends – London:

• See earlier email for detail on the Coffer Peach tracker.

• We see the main points as centring around 1) London, 2) capacity, 3) pubs vs restaurants.

• To deal with them in order re 1) it would appear that London is slowing.

• We would go so far as to say that it probably peaked in Q3 last year.

• There may not be a dramatic decline – and indeed total spend numbers may continue to rise – but capacity has been an issue and LfL sales could be anaemic. Or even absent. 

• The Tracker says ‘companies trading away from London saw the best of January’s sales uplift’. Sales outside the M25 were +2.4% with London sales up by only 0.4%. Peter Martin comments ‘the Capital was a tougher trading environment for all in January’.

• David Coffer says ‘the January like-for-like sales figures for inside London reflect, to some extent, the emotional sentiment Londoners experienced as a result of the November Paris atrocity.’

• This is likely to have been a minor negative with occupancy costs, we would suggest, more of an issue. Mr Coffer says ‘superior like-for-likes for outside London are no surprise and confirms the trend of expansion away from an ever more expensive London market – in terms of property acquisition, and indeed consumer prices.’

• There are two issues here. First occupancy costs for operators (these should not impact LfL sales but will hit margins) and second the cost of living for residents in London in general. This will clearly impact their ability to spend.

• Coffer says ‘the very high cost of London living is seeing the boundaries of Greater London extend to the provinces with many now commuting on a daily basis from provincial cities. This trend will also continue and further enhance trade outside of London.’ It would also, if true, increase transport costs & reduce spending money for the commuters concerned.

• We would also highlight work carried out by HVS last week. It ‘outlines the fact that London is to see the opening of a further 7,000 hotel rooms this year, at a time that occupancy has declined for the fourth consecutive quarter.’ It goes on to say ‘HVS chairman Russell Kett warns that this will put increasing pressure on operators in London at a time that a peak in the hotel market may nearly have been reached.’

Pub & restaurant spending trends – Capacity & Pubs vs Restaurants:

• Re 2) above, the Tracker points out that, whilst LfL sales were up by 1.9% in January, total sales were some 5.4% higher. The difference between the figures will be as a result of new capacity being added.

• This competition for sites will put upward pressure on occupancy costs – see David Coffer comments above.

• This will impact most operators as comparative rents are used when re-setting prices. Unfortunately both higher capacity and higher rents will be semi-permanent

• Re 3) it would appear that casual diners outperformed pubs & bars in January. The Tracker says sales for casual diners were +3.6% nationally and +4.7% outside London.

• The Tracker comments ‘this January’s pattern was similar to last year’s…with restaurants outstripping pubs, perhaps reflecting the continued impact of ‘dry January’.’

• We would echo the dry January comment and would also highlight strong cinema releases & wet weather as favouring eating out.

Inflation:

• UK rate now at 0.3% is actually a 12mth high.

• Stats are now lapping food price reductions this time last year alongside cheaper 2015 petrol.

• This will continue to be a feature in coming months.

• Could be that a negative rate was not a lasting feature, could rather have been a one-off step down.

• Certainly this has been the Bank of England’s contention though it now seems likely that we will not get back to the Bank’s target rate (2% inflation) until perhaps 2018.

Random information, hopefully not all of it useless:

• Travel stocks higher yesterday on relief that the Russians & Saudis did not agree to cut production. Oil price weaker for same reason.

• US market less strong than hoped yesterday & Far East rolling over. Slight surprise, therefore, that UK market is so buoyant. Up 70+ at time of writing & looking a good bet to close up for the fourth successive trading session.

• Hog prices higher. Check charts for further detail. Watch out for pork processors.

• Gold price off its highs. Rally yesterday failed to carry through.

• German GDP growth thought likely to be sluggish as Chinese consumers decline to spend quite so much on imports