A Day in the Life:

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

So what’s the best excuse for getting into the office late?

There’s the single-decker, relatively honest ‘I didn’t hear my alarm’ but there are a large number of interesting variants thereon.

There’s the still-somewhat-simple double-decker ‘my phone went flat, my alarm didn’t go off…’ and then there are triple and quadruple deckers such as ‘the dog must have turned off my charger, my phone went flat…’ and someone let the dog in the front room, he must have turned my charger off, my phone went flat…’ etc. etc.

But anyway, despite periodic panicked and late attendance, we’ve made it to Friday. Hull City are still top of the Championship despite having been held to a goalless draw by Brighton midweek and all is relatively well in the world. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Coca Cola HBC reports full year numbers, says ‘underlying trends in volume growth continued to be strong in Q4’.

• Coca Cola HBC FY: Says volumes +2.6% on the year, adds ‘established markets returned to growth for the first time in 5yrs’

• Coca Cola HBC FY: Says saw ‘good performances in Italy and Greece’ and ‘volumes grew in all countries in the Developing markets segment with particularly positive trends in Poland and Hungary’.

• Coca Cola HBC FY: Saw ‘double-digit growth in Nigeria, Romania and Ukraine’. This helped drive volume in EM +2.5%, despite Russia drops.

• Coca Cola HBC FY: Revenues down 2.5% reported but up in constant currency terms. EBIT €473.2m (+11.4%). CEO Dimitris Lois reports ‘I am pleased with our progress in 2015; volumes grew in all segments for the first time in five years and margins have improved significantly. Our commercial initiatives supported volume expansion and we made further efficiency gains to ensure continued profitable growth.’ He adds ‘conditions in Europe are slowly improving while countries with large oil exposure face ongoing difficult trading conditions.’ Mr Lois concludes ‘going into 2016 we will continue to take action to address the challenges on a country by country basis. Overall we think the business is well placed to build further on both the volume growth and margin expansion achieved in 2015.’

• US giant Walmart, parent company to the UK’s ASDA, has reported its first annual sales decline in 30yrs. Strong US$ has impacted translation and Amazon is said to be taking market share. Revenues still managed to limp in at a gigantic $482.1bn for the year ended January.

• Brakspear has announced that it is brewing Mild again at its Bell Street Brewery. It last brewed the 3% ABV drink in 1996. CEO Tom Davies reports ‘we opened the Bell Street Brewery in order to bring brewing back to Henley, and it has been a delight to restore some of the most popular Brakspear beers and allow drinkers locally to enjoy them again. Both Brakspear Special and Old Ale have been hugely popular and we’re expecting Mild to be a similar success.’

• Rumours that Tesco and a private equity consortium led by Permira are ‘stalking’ Morrisons continue to do the rounds. The Mail reckons ‘an offer in the region of £6.42bn, or 275p a share, could not be far away.’

• Julian Momen has been appointed the new chief operating officer at Carlsberg, after spending more than two years as chief financial officer.

• The PMA notes that West Yorkshire brewer and pub operator Timothy Taylor is looking for more units after buying its first pub in seven years at the end of 2015. Tim Dewey, the chief executive, said: ‘We want more pubs. We’ve set aside money for the past seven years, but for a variety of reasons we haven’t purchased any. It’s so easy to look at the one thing you don’t like about a site rather than the nine things you do.’

• 3G Capital-backed Restaurant Brands International saw Q4 systemwide sales rise 8.8% at Burger King and 12% at Tim Hortons, taking Q4 profits to $184.5m

• Ed’s Easy Diner CEO, Ivan Schofield, is to step down less than six months of being in charge and after calling time on an attempted c£90m sales process. Andrew Guy is set to take the top spot once more, having steered Eds’ Easy Diner for five years prior to Schofield’s appointment.

• Neurologist Dr. Dean Burnett says that alcohol can help you remember past events of similar levels of intoxication that would otherwise be lost to memory. ‘If you were to be told some interesting gossip or useful information after a couple of glasses of wine, your brain would encode your slightly intoxicated state as part of the memory, so would be better able to retrieve this memory if you were to have another couple of glasses of wine on a different night, not right after the first two,’ explained Dr. Burnett.

• Brewdog UK sales jumped by 130% in 2015 and the group says it now boasts a 112% annual profit growth rate over the past five years. Meanwhile, its flagship Punk IPA is now the best-selling craft beer in a high growth section of UK supermarkets due to the firm’s crossover appeal as a craft beer brand.

• Treasury Wine Estate, recently acquired by Diageo for £361m, has announced a 42% rise in H1 net profits to $60.6m for the six months to 31 December. Total net sales revenue increased by 22% to $1.8bn and was attributed to its successful strategic shift towards the premium end of the market.

• Asda’s Q4 sales tumbled by 5.8%, a record quarterly sales fall just six months after CEO Andy Clarke said the group had passed its trading ‘nadir’. Sales fell 4.7% over the year as a whole as Asda’s value proposition continues to suffer at the hands of the rapidly-expanding Aldi and Lidl. Parent company Walmart also reported falling profits, with net income for the fourth quarter down 7.9% to $4.57bn.

Leisure Travel:

• Millennium & Copthorne FY: Sales +2.5% at £847m, PBT down 42% at £109m, EPS down 41.5% at 19.9p and dividend down 52.8% at 6.42p

• M&C FY: REVPAR down 0.6% on year, down by 4.1% in constant currency in Q4. Asian hotels lead losses.

• M&C FY: Says ‘the main contributor to the reduction of 1.3% in RevPAR was the performance of the Group’s Asian hotels’. Says here REVPAR down 9% across Singapore and the rest of Asia. Says ‘London and New York also saw RevPAR declines during 2015, due mainly to the impact of refurbishments at Millennium Bailey’s Hotel London and ONE UN New York respectively.’

• M&C FY: Group says it has ‘recognised a net charge of £43m against pre-tax profits in 2015. This net charge includes £76m of impairment losses relating primarily to four of the Group’s properties located in New York, Rest of Europe and Rest of Asia; offset by net revaluation gains of £33m on its investment properties.’

• M&C FY: Says 2016 started slowly. Says ‘in the first 31 days of trading in 2016 Group RevPAR decreased by 5.9%’.

• M&C FY: Early 2016 trading sees ‘Europe down by 10.1%, the US down by 10.9% and Asia down by 3.6%.’ It adds ‘RevPAR for Australasia increased by 20.7%.’

• M&C FY: Chairman Kwek Leng Beng comments ‘in 2015, global hospitality markets were impacted by falling commodity prices, mounting concern with regard to terrorism, health advisory travel alerts and uncertainty regarding growth of the Chinese market. These external factors, which negatively affected the year’s performance, are expected to continue in the current year.’

• M&C FY: Mr Kwek continues ‘although the short term trading outlook is uncertain, the Group has a long term perspective. Management considers that asset ownership is key to creating long term value in a changing hospitality industry landscape. The Group will therefore continue to focus on its strategy of ownership and management of hospitality real estate assets. In 2016, management will work on optimising returns on the Group’s assets by undertaking refurbishment projects, whilst remaining vigilant with regard to controlling costs.’

• US hotel market mixed in Superbowl week. STR reports occupancy down 3% across US hotels in week to 13 Feb. Rate +3.3%, REVPAR +0.2%. See earlier comments on the hotel cycle and why we believe that both the US and the UK (particularly London) markets are past their peaks.

• The CAA has stepped in to refund around 300 holidaymakers following the collapse of Turkish specialist Elixir Holidays. The collapse of Elixir Holidays follows a difficult period for Turkish tourism as a result of terrorist attacks. Both Thomas Cook and Tui have cut capacity to the destination and earlier this week Mark Warner announced it would not be offering holidays to the Sea Garden Beach Resort in Bodrum

• A bomb blast in the Turkish capital Ankara has left 28 dead and more than 60 injured, with civilians caught up in what is thought to be an attack on military personnel. ‘The Turkish authorities are investigating. British nationals are advised to stay away from the area and to follow the instructions of local authorities,’ the Foreign Office said.

• Air France-KLM has swung from a loss of €216m in 2014 to a €127m net profit for 2015 thanks to low oil prices and favourable currency conditions. The company’s fuel bill fell 6.7% to €6.2bn and revenue rose from €24.9bn to €26bn, although the group estimated the impact of the November terrorist attacks at €120m and said the ‘geopolitical context… remains very uncertain.’

Other Leisure:

• Vivendi is ready to team up with Qatar-controlled beIN Sports channels in France to shore up its loss-making French Canal Plus pay-TV business. About 316,000 subscribers terminated their contract last year, pushing operating losses to €264m (£204.5m), from €74m in 2014 as competition from the likes of Netflix increases.

• Uber is losing in excess of $1bn a year in China as a result of tough competition from the country’s largest taxi app, Didi Kuaidi. After launching in China in 2014, Uber is now available in more than 40 cities in the superpower and aims to grow to 100 over the next 12 months.

Finance & Markets:

• World markets: UK mixed, Europe up and US down in Thurs trading. Far East lower in Friday trade

• Oil price lower at around $33.90 per barrel

• ECB minutes from Jan meeting suggest that downside risks to single currency economy increasing. Blames volatility in financial markets & slower growth in Emerging Markets. Says its current policy stance needed to be reviewed by early next month. May fuel the belief that rates could be forced below zero.

• OECD calls for action to tackle slowing growth. Group cuts its forecast for 2016 to 3% from 3.3%. Says trade & investment too weak. US rate rise last December now looking like it may be the last for some time

• Number of people owning their own home in England has risen for the first time in 10yrs per 2014/15 English Housing Survey. Says the increase, of only 5,000 to 14.3m, though tiny, takes the proportion of home owners to 63.6%, the first rise since 2002. The number of people renting fell to 4.3m, the first fall in 17yrs.

Reduced tax relief on debt interest in 60 seconds…

Potential impact – freehold-owning pubs, cyclical companies as well as PE-owned vehicles.

Introduction:

• Debt interest currently relieved before tax whilst dividends are an after-tax payment.

• Furthermore, some companies (often PE-owned) wilfully drive down profits by issuing debt in a low tax jurisdiction such that profits are sucked from the UK (via interest charges) and are then not taxed (or are lowly taxed) in the jurisdiction in which the debt has been issued.

• The FT amongst others (here) has suggested that HMG may restrict interest set off against taxable profits to 30% of EBITDA.

Baby, bathwater and all that:

• Corporate raiding PE houses may be a legitimate target but entities such as property companies and utilities (very stable income) will have high debt

• Others (e.g. pub companies) may have bought freeholds with debt and will find they don’t get the tax relief that they would have got had they rented the asset

• Some companies that have seen profits fall (e.g. Tesco) and could also be impacted.

• Isn’t the domicile of the debt-issuing vehicle the issue?

Other issues:

• Freehold owning companies made multi-year decisions when they funded purchases. Any change in taxation should not therefore be abrupt.

• What about pension interest (a nonsense), finance ‘charges’, non-cash payments etc.?

• Overall, a can of worms – but it may happen. Budget is Weds 16 March 2016

Retail Roundup from Nick Bubb:

Today’s Press and News:
On the back of yesterday’s Wal-Mart Q4 results, the poor -5.8% LFL Asda sales figures get plenty of coverage, with some lurid front-page Business headlines, eg “Asda suffer steepest ever sales fall as rivals expand” in the FT and “Asda is “not in crisis”, says boss, despite biggest ever fall in sales” in the Telegraph. The editorial comment is mostly unsympathetic, despite Asda’s boast about “stable” profits, with the Guardian mocking the use of the word “nadir” last summer by the embattled CEO Andy Clarke and the Daily Mail wondering whether Wal-Mart will lose patience with Asda. The FT also notes, mockingly, that Morrisons has said it will invest £30m into revamping the staff rest areas in its stores in the hope that a more motivated workforce will help to improve performance, whilst the Times looks at
the sceptical response in the City to yesterday’s “fantasy M&A” talk about a Tesco bid for Morrisons. The Independent flags that the broker Jefferies has urged Mike Ashley to take Sports Direct private and the FT notes that Darty was boosted at Xmas by more Sunday trading in France.

Trade Press (1): The front cover of Retail Week magazine today is a photo of the fascias of Morrisons and Aldi, with the headline “New year, new price war” and the question “Is there any respite in sight?”. RW also has feature articles on what the rise of the robots means for Retailing and the top 30 retailers ranked by sales density.  The summary of the week’s news also highlights that Debenhams has poached David Smith, boss of The Body Shop’s Asia Pacific arm, as its International Director and that Asda is to launch four more Decathlon shop-in-shops. In his column, the Editor thunders that “Morrison’s price offensive has put Aldi on the back foot”.

Trade Press (2):
The Editor of Drapers magazine today thunders in her column that, despite the positive noises about BHS recently, “its ultimate challenge is going to be to change customer perceptions of the brand and move away from its reliance on the “grey pound””.The main new stories are the rumoured move of Frances Russell to Amazon, the sale of 81 Brantano stores to Alteri Investors and the BHS loan on its Bristol store, but Drapers also flags that Marks & Spencer has reiterated its commitment to improving working conditions in its supply chain (after a report accused some of its clothing factories in Sri Lanka, Bangladesh and India of underpaying workers), Boohoo has agreed to buy a property on China Lane in Manchester for £1.6m (to extend its Head Office) and Uniqlo will reopen its flagship store on Oxford Street on March 18 (after closing it last year for
refurbishment and expansion).

News Flow Next Week: Things are a bit busier next week, with the ABF (Primark) pre-close on Monday, the Sainsbury/Home Retail “PUSU” bid deadline on Tuesday and the Howden finals on Thursday, whilst, in the world of Retail Property, Wednesday brings the CapCo finals and Friday is the day of the Intu Properties finals. And as the end of the month is approaching quickly now, we get the CBI Distributive Trades survey for “February” on Wednesday and the monthly GFK Consumer Confidence Index on Friday. Nick Bubb – nicholas_bubb@hotmail.com

Thursday 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:

Accor aims for disruption:

• Change is the only constant, standing still is not an option.

• Accor has acquired a 30% stake in Oasis Collections saying this is ‘the company which pioneered the “Home meets Hotel” category of accommodations, blending the value and authenticity of private rentals with the service, quality-control and amenities of a hotel.’

• Group says ‘Oasis Collections allows us to explore new complementary offer to upscale hotels’.

• Group also announces a ‘strategic investment’ in Squarebreak. It says ‘with this investment, Accorhotels is positioning itself to better understand the expectations of guests in a sector where the stay experience and the quality of service are particularly important.’

• It says ‘in partnership with innovative players, Accorhotels continues to forge ahead along the path of changing and new behaviors in hospitality and travel.’

Hot topics:

• We’re currently writing on a number of subjects. Any feedback as to which you consider the most interesting and/or important and/or timely would be gratefully received. Topics include:

o Crowdfunding (hidden risks)

o Slowing London market (hotels and pubs/restaurants)

o Cockroach vs butterfly. That is ubiquity or intense specialisation, which is the better business model?

o Pensions time bomb

o Corporate bond spreads, tighter credit, recession fears etc.

o Probably never get around to writing on it but also – EM debt, threat to US$ value if reserve currency status undermined etc.

Random information, hopefully not all of it useless:

• Intercontinental Hotels up 7% yesterday. Good numbers from Marriott & OK from Accor but what, if anything, else is going on?

• Rally looks to be petering out. Volumes pretty low over the last couple of days, apparently. Suggests that the rally may have latterly lacked conviction. Currently down & looks as though the 4dy winning streak could be broken.

• Sell the rallies say the bears.

• Sterling quite weak. Looks set to test recent lows against both the Euro & the US dollar.

• Unemployment at lowest level since 1975, we’re told – but are we comparing like with like? Were the figures fiddled more or less in 1975 vs today? Or about the same?

• Pig prices really now rather high. Major recent rally means that lean hog prices, after a period during which they were well down on a 12mth view, are now up by 5% over the last year.