A Day in the Life:

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So a visit to Knowsley Safari Park at the weekend (10th birthday celebrations, nearly 2hrs each way, car-load of screaming children) was accompanied by a rare glimmer of good sense on our part when we decided to forego the pleasure of driving through the monkey section of the park (200+ bored and angry, 40lb beasts with time on their hands and mischief on their minds) in favour of spending £5 per head to go around said graveyard of new-car warranties on the Baboon Bus.

And this bus, excrement strewn, window-wiperless, bitten, scratched and bumped, the condition of which should have spoken volumes, almost immediately rewarded our caution as various cars around us had their rear-view mirrors, mud-flaps and number plates torn off and strewn around the road.

The only slight hiccup came when the driver admitted, rather theatrically, that the bus had an emergency entry button on the outside and that it was only a matter of time before the baboons, or worse still the lions, learned how to use it. That kept us on our guard but we survived. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Coffee shops and cafès remain the top breakfast time venues but have also been gaining share in the lunch and dinner markets. M&C Allegra’s The EatingOut Panel monthly report shows 25% of breakfasts are now bought from a coffee shop or café (compared to 22% in January 2014), thanks in large part to growing business across the big three of Costa, Starbucks, and Caffè Nero. Fast food remains the most popular channel during lunch hours, while pub restaurants cater to 27% of all out of home dinner occasions.

• Café and restaurant operator Benugo aims to hit turnover of £110m in 2016 after reaching a ‘milestone’ £100m in 2015, writes M&C

• JD Wetherspoon is striking the traditional Sunday roast dinner from its menu and will focus more on all-day meals such as burgers and burritos, writes the Daily Mail.

• Britain’s most popular café chains are serving sandwiches and pastries that contain high levels of salt, according to analysis from the Telegraph. Sandwiches and paninis sold by Starbucks, Caffe Nero, and Costa contain high proportions of the maximum daily salt levels recommended by health experts. One Starbucks panini alone contained 3.1g of salt, more than half the maximum daily recommended amount for adults, while a panini in Caffe Nero has 3.2g of salt.

• Leisure sector investor Luke Johnson has described the current rent situation as a ‘fix’ that ensures rents rise on an ongoing basis. Speaking at the Casual Dining Show, he added: ‘For those who have sites in central London and are facing a review in the next 12 or so months, look forward to a 100 to 150% increase. But the fact is that it’s not the landlords or agents who are creating all these jobs and keeping the economy going – it’s us. The system is deeply unfair and unsustainable – and no other country in the world has anything like it.’

• Morrison’s enters into supply agreement with Amazon, agrees new terms with Ocado. Will make ‘hundreds of Morrisons products…available to Amazon Prime Now and Amazon Pantry customers.’ It says ‘Morrisons will provide a wholesale supply service to Amazon, allowing Amazon’s customers access to a wide range of Morrisons ambient, fresh and frozen products.’ CEO David Potts reports ‘today’s agreement is built on Morrisons unique strengths as a food maker. The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling.’ Mr Potts continues ‘this is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business. We look forward to working with Amazon to develop and grow this partnership over the coming months.’

• Morrison’s agrees new terms with Ocado, says will take space in Ocado’s new Customer Fulfilment Centre in Erith. Morrison’s adds, however, ‘this amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrison’s to achieve profitable growth online. There can be no certainty that an agreement will be concluded.’

Leisure Travel:

• Kuoni reports FY numbers and EQT publishes offer prospectus for public tender offer for the Kuoni Group’s shares at CHF370

• Kuoni FY numbers. Turnover +6.9% organic at CHF3.3bn. EBIT +6.3% at CHF81.2m. Group says ‘with organic growth of +6.9% in 2015, Kuoni Group continues to outperform the market with its continuing activities.’ Exchange rate movements cut turnover in CHF terms by 7.6%.

• Kuoni FY numbers. Says ‘the GTD and VFS Global Divisions performed very well in 2015.’ It adds ‘both increased their turnover, EBITA and EBIT compared with the previous year. The Global Travel Services (GTS) Division posted a decline in turnover and negative operating earnings. The restructuring of this division, announced and started in November 2015, is progressing according to plan.’

• The number of international tourists visiting the English regions has reached a record level, with trips up 7% YoY to 11.7 million for the first nine months of 2015. The VisitBritain figures show some areas, such as the North East (+23% to 460,000) and the North West (+12% to 2.1 million) enjoyed double-digit growth.

• The Office of National Statistics findings also revealed that July to September 2015 saw a record 4.7m visits to English regions – up 8% on 2014 and beating the previous record set in 2006. Spending by international visitors across the regions also climbed 4% to £5.8bn over the same period.

• Spanish chain Meliá Hotels International saw pre-tax profits rise by 79% last year to €101.6m over 2014 and revenues increased by 16% to €1.7bn.

• SeaWorld shares have fallen 9% after the beleaguered company reported a 7.6% drop in FY 15 profits to $72.8m despite an overall climb in attendance across its 11 sites. The group said it has put an end to its practice of spying on animal rights activists.

Other Leisure:

• Nintendo has slashed its FY profit forecast by 50% to 17bn yen (£150m), citing slow sales and the strong yen as deciding factors.

Finance & Markets:

• IMF Managing Director Christine Lagarde has warned that the global economy could derail if global policymakers do not continue to act together.

• Sterling reached a seven-year low against the dollar on Friday as Brexit fears weigh on the currency, leaving it on track for its biggest weekly loss since 2009.

• Signs of deflation in Eurozone macroeconomic data could drive the European Central Bank to take additional policy actions at its March meeting. Reports of falling prices in Germany, France and Spain along with an array of weak sentiment surveys has highlighted the fragility of the region’s recovery.

• G20 warns it would be a global financial ‘shock’ if the UK were to leave the EU. However, former chancellor Lord Lawson pointed out that 15 of the G20s members were outside the EU, implying that their views may be less valuable as a result.

• Meanwhile G20 leaders have been told by various observers, critics etc. that they ‘must do more ‘ to promote global growth

• Chancellor may make further cuts. Tells BBC that slower growth may prompt further reductions in spending.

• US economic growth estimates revised up, grew at 1.0% in Q4 vs earlier estimates of 0.7%.

• World markets: UK & Europe up on Friday but US shares fell. Far East mostly lower in Monday trading

• Oil price still edging up. Trading at around $35.50 per barrel

Langton Licensed Retail Index – Major Movers

The LRI was up 1.18% last week, underperforming a 2.45% rise in the FTSE all-share driven up by strength in the banking and oil stocks.

Pubs

• Greene King and Marston’s were up more or less in line with the LRI last week, rising 1.48% and 1.99% respectively, while M&B and JD Wetherspoon slightly underperformed, up 0.77% and 0.82% apiece.

• Punch underperformed its rival Enterprise last week, with the former falling 2.73% and the latter rising 2.89%.  Punch’s share price is now approaching levels last seen this time last year.

• And Fuller’s underperformed Young’s with the former down 2.31% and the latter up 1.32%.  Fuller’s shares had been outperforming their London rival in recent months.

Other Leisure

• Merlin Entertainments had a strong week, rising 3.01% as it produced its full year numbers on Thursday.  The group has seen revenue at its Resort Theme Parks division fall some 12.5% in the wake of the crash at Alton Towers, for which the group is now being prosecuted.  The group’s Midway division however saw a 2.3% rise in revenue and a 0.3% rise in visitor numbers, despite the strong pound in 2015, which will have negatively impacted European visitors to the London Midway cluster which makes up a ‘significant’ part of the group’s Midway estate.   With current sterling weakness it’s possible to imagine a good performance from the group’s London estate in the coming months.

• A mixed set of broker notes out last week left Whitbread unchanged (-0.08%) in a rising market last week.   The group produces its Q4 update on Thursday.

• The Restaurant Group’s stock had a bad Tuesday last week that saw the group’s shares end the week down 3.66%.  The group announced in January that it was ‘more cautious than previously on the outlook for 2016’ which may have prompted something of a rethink of the group’s high rating for some bulls of the stock.

• Cineworld and Domino’s UK were both up last week, up 4.37% and 3.27% respectively. Both groups appear to be recovering from ratings fears brought about by troubled global markets earlier in the month. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

The FRI missed out on some of the upside last week, with bankers and miners enjoying some of the biggest moves. Ocado and McColls saw the biggest gains in the group, while the newly-tickered Majestic Wine (WINE) also had a positive week.

Grocers

• Sainsbury underperformed its immediate peers, falling -3.14% to 252.9 following the news that South-African retail giant Steinhoff has made a bid for Home Retail. The latest is that Sainsbury is considering a higher offer for the owner of Argos, but this would not be guaranteed to put Steinhoff off.

• The group recently moved its main stock market listing to Frankfurt and has made no secret of its UK ambitions. Steinhoff’s existing UK operations, Harveys and Bensons, generate around £500m of annual sales and also make a good case for the acquisition. In Upholstered furniture, Steinhoff claims a 7.4% UK market share (vs 1.9% for Argos), while in Living/Dining Room furniture, the group has a 3.7% market share (vs 6.6% for Argos), and in Beds, it claims a 9.4% market share (vs 6.5% for Argos).

• As Mr. Bubb commented last week: ‘A combined Harveys/Bensons/Argos business would therefore be able to achieve some useful buying synergies in furniture, particularly once the important Manufacturing and Logistics operations of Steinhoff UK are taken into account.’

• Meanwhile, Ocado shares bounced 8.27% to 281.71p on little news, although this still leaves its shares far adrift of its 52-wk high of 464p. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
Apart from the coverage of the hapless Chancellor’s warning in a BBC TV interview on Friday that he may have to make fresh cuts to public spending in next month’s Budget, the main focus in the Saturday papers was on the announcement from the embattled Sports Direct that it will no longer borrow money from Mike Ashley. Its complaint that “the Group has been subject to unjustified press criticism over related party transactions” was widely mocked (the Evening Standard on Friday thundered that “Ashley’s on another planet”, whilst the Times Business editorial highlighted the “Fog on the Tyne”) and it was also widely noted that Sports Direct face relegation from the FTSE 100 index in the quarterly review next week and that Mike Ashley’s football team, Newcastle United FC, may also be relegated…More importantly, perhaps, the
Times flagged that Mike Ashley has denied that he is considering taking Sports Direct private, saying that there was “not a shred of truth in the speculation”. The other big news, as reported by the Guardian, as well as the Times, was a leaked document that Tesco planners have looked at a scenario of cutting store staff numbers by 39,000 over the next three years. The big story in the stockmarket reports was that Nomura has added Burberry to its “Buy” list. Finally, there were a few snippets about the results from the shopping centre group Intu Properties, with the Evening Standard on Friday winning the prize for “most bizarre headline”: “Lakeside owner owes rise to Geiger counter”.

Sunday Press:
There wasn’t a great deal of new news in the Sunday papers. The Mail on Sunday flagged that Sainsbury is mulling a higher offer for Home Retail, although the City Editor said that there would be no shame in walking away and a South African source told the Sunday Times that there is no way that the giant Steinhoff will be scared off: the Sunday Times background feature on the bid situation also has some interesting quotes from Steinhoff’s billionaire backer Christo Wiese about why he is targeting the UK. Sports Direct remained in focus, with the Sunday Telegraph noting that it is likely to be chucked out of the FTSE 100 index for being too small and the Prufrock column in the Sunday Times mocking the fact that the company owns 51% of its new PR adviser, Keith Bishop Associates, despite press criticism of its related party transactions. Finally, the prize for
“most bizarre use of a fashion model photo” goes to the Sunday Telegraph for running a huge photo of two fashion models on a motorbike to illustrate a snippet about the improved results coming up from the Online retailer MySale.

Today’s Press and News:
A quiet-looking Monday had already been enlivened by the front page headline of the FT (“Around 1m retail jobs will vanish by 2025, warns industry body”), but then came the joint announcement s from Morrisons and Ocado, plus the dull-sounding “Restatements of Debtor Impairment Provisions” announcement from home shopping group N Brown. The latter is based on the application of IAS 39 and actually seems to be bullish, increasing reported profits by a few million, but we can’t quite work out whether the announcement s from Morrisons and Ocado are bullish or not. Morrisons play up the news that they have agreed to provide a wholesale supply service to Amazon of fresh food from their Manufacturing arm, but they also flag a new agreement in principle to take space in Ocado’s huge new Customer Fulfilment Centre (“CFC”) in Erith next year and for Ocado to
deliver “a store pick solution” for Morrisons. However, Morriiosn make the heavy caveat that “This amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrisons to achieve profitable growth online. There can be no certainty that an agreement will be concluded. However, Tim Steiner, CEO of Ocado, trumpets “”We are delighted to have reached an in principle agreement with Morrisons. This is a win-win arrangement which allows both of us to grow faster, and more profitably”. Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution Friday 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:

Wet sales vs food:

• See earlier email for detail.

• Suffice it to say that Alix Partners & CGA say that the number of wet-led units in the UK fell by 1.2% in the year to December 2015 whilst the number of food-led units rose by 1.6%.

• This continues a well-established trend. We note that it does not attempt to comment across the size of units opening (presumably rather large, perhaps chain-units) versus those closing (likely to be small).

• Of more importance, perhaps, were the comments that 1) the rate of wet-led closures was slowing and 2) London new-openings in the food-led space were lagging those in the rest of the country

• Re closures. The slowing is perhaps not a surprise as the weak will have gone to the wall long since. 

• And it’s refreshing to see that the ‘slowing’ refers to the % rate of closures rather than an absolute number of units because the latter should have been expected to fall as the industry itself shrank in size.

• Re London, we have been hearing for some time that there were some signs of indigestion in the market, no pun intended.

• Unfortunately, the 2014 and 2015 stampede for sites will have pushed up rents and this will remain a burden on London operators, potentially for many years.

• We still hold the view that new entrants, nimble, relevant, innovative etc., can continue to take share from established operators

The industry overall:

• Not very reassuring to see the CGA Peach Business Leaders’ Survey suggesting that some respondents believed that ‘2015 might even have marked a high point for restaurant and pub operators.’

• Oops.

• However, we would suggest that, if there are any chill-winds to be felt, these will impact lazy, entitled or incompetent incumbents rather than new entrants or relevant and innovative existing operators.

Terrorism & leisure travel.

• As mentioned in previous emails, the two do not mix well.

• Today (see earlier email), we have the FCO warning on Indonesia, On the Beach saying that cutting prices won’t help where there are safety fears and the Egyptian authorities saying that they are trying really hard to avoid any more planes being blown out of the sky.

• We refer to our first point, leisure travel and terrorism do not mix well.

Random information, hopefully not all of it useless:

• We’re writing this early as we’ve got a train to catch but it does look, at least at the time of writing, as though the FTSE100 should close above its 50dy moving average today. That will give the chartists something to write about.

• Having said the above and accepting that the market has a mind of its own, corporate earnings across Europe as a whole are running behind estimates. Even Lloyds yesterday (up 13% on the day) missed numbers. So did RBS – down some 9% at the time of writing

• Sterling still weak but at least not falling at the moment. All of the comments re a weaker pound’s impact on costs etc. remain unchanged

• Oil over $35 per barrel. Who would have thought a couple of years ago that we would have been trumpeting that as good news?

• Gold still moving in the opposite direction to the oil price.

• Looks like we may have missed our chance to buy all that cheap chocolate.

• Commodity of the day. Soybean meal. Dull? Yes but also an important input product. Price tried to go markedly better around 8mths ago but then fell back exhausted. The gloop is now trading some 23% where it was a year ago.