Langton Capital – 2016-08-12 – Restaurant Group’s new CEO, Brexit fears & other:
A Day in the Life:
So jetlag flying east is often a bit of a pig and, as a result, I’ve been seeing more of 3am and 4am than I have for a number of years.
Still the world continues to revolve and life goes on. Let’s move on to the news:
RESTAURANT GROUP – REPORTED MANAGEMENT CHANGES:
• Restaurant Group to replace CEO Danny Breithaupt. Ex-Betfair CEO Andy McCue to take over on 19 Sept.
• RTN. Breithaupt to be pushed after less than 2yrs in charge, all top team now replaced over that period after series of profit warnings
• RTN. Sky says changes ‘are expected to be welcomed by investors four months after its most recent profit alert.’
• RTN. Group reports ‘a new leader is needed to implement the initial actions and then prioritise the next phase of the review.’ It adds ‘the Board thanks Danny for his contribution throughout his time with the business.’ Chairman Debbie Hewitt reports ‘Danny has provided strong operational leadership over the years. He has fully participated in the review of our operating strategy in a professional, conscientious and thorough way. We have agreed that this is an appropriate point for him to handover to a new leader who will implement the initial actions and set the priorities for this next phase of development for the business.’
• RTN. New CEO is Andy McCue, former CEO of Betfair. RTN says ‘Andy is a proven listed company Chief Executive, having recently held that role at Paddy Power plc, where he embedded a new growth strategy which delivered record revenues and profits, as well as playing a pivotal role in the merger with Betfair plc.’
• RTN. Group reassures that ‘the business continues to trade in line with previous guidance. An update on the operating strategy review will be given at the Interim results.’
• RTN. Co set to report H1 numbers a fortnight today. Group says an update on the strategic review will be given at that date. Sky says ‘Restaurant Group’s plummeting share price has whetted the appetite of activist investors and private equity firms, although a recent recovery in its value has deterred suitors from making formal takeover approaches.’ It suggests ‘Cinven, the buyout firm that used to own Pizza Express, was among the firms which had been in the early stages of evaluating an approach to the board of Restaurant Group.’
• RTN. Arguably the last time we saw such a wholesale clear-out at board level was post M&B’s hedge-loss debacle back during the credit crunch. At the time, M&B’s shares had been flirting with £8 per share and they are still, some nine years later, below £3. Coincidentally, RTN’s shares also flirted with £8 and then fell to below £3. They are currently above that level (see Sky share-price-recovery comments above) and have continued to edge higher.
• RTN. And at MAB, the first set of management changes were by no means the last. This may not happen with regard to RTN as there are differences here (vs MAB), some helpful, some less so.
• RTN. The share registers of both companies are very different (which should help – or at least not arguably hinder) RTN’s rehabilitation but new capacity, high and rising rents and a reliance on leasehold assets could work in the other direction. And the company had perhaps been ‘running on fumes’ for a number of years. Shareholders should have known that (see earlier Langton comments) but they are unlikely to blame their own judgement in the short term.
• RTN. A period in the dog-house is maybe to be expected – but 9yrs might be a shade harsh. In the meantime, the group will need to persuade investors (and we have seen a big churn in the register, many holders are new to the company) that the worst is over and ultimately regain its mojo. That may be easier said than done in a market awash with nimble, aggressive and well-funded competitors.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Enterprise Inns’ Hunky Dory Pubs has announced that it opened its first pub, in Solihull, yesterday. Hunky Dory is a ‘managed-expert’ partnership between Enterprise Inns and Oakman Inns. Enterprise CEO Simon Townsend comments ‘the opening of our first Hunky Dory site marks an important milestone in the development of our Managed Expert model.’ He continues ‘we’ve worked closely with Peter [Borg-Neal] to find the right venue and create the perfect retail offer to ensure the business will thrive.’
• The NIESR has said that employers have reacted to the 23 June Brexit poll result with a mixture of ‘shock, horror and regret’. It says that employers in sectors such as hospitality, food & drink, and construction, which employ a large number of EU migrants, were unprepared for the result.
• NIESR reports employers see recruitment as a problem if/when the UK leaves the EU. It says existing EU workers ‘have been left in the dark about their future’. Employers are calling for a say in future immigration policy.
• NIESR says few employers communicated with their workforces prior to the vote and ‘a number of employers have needed to put in place policy to deal with xenophobic incidents involving the public towards their EU employees’. This may be necessary now but it represents a waste of both time and money. The NIESR concludes that ‘politicians need to minimise damage to businesses and individuals’ and it calls for consultation with firms as to any new procedures
• Ruby Tuesday has reported Q4 & FY numbers with CEO JJ Buettgen saying ‘our fourth quarter was impacted by softness in the casual dining industry and increased promotional activity by our peers.’
• Perils of overcapacity.
• Ruby Tuesday CEO says ‘given that we expect the macro environment to remain challenging for some time, we are taking the necessary steps to change the trajectory of our business.’ The group will close ‘approximately 95 underperforming restaurants.’ The co says ‘the decision to close restaurants is a difficult but necessary step as we take aggressive actions to strengthen our organization. Performance at each of these locations, despite the loyalty of valued guests and the efforts of our dedicated employees, was not meeting expectations. Full-time and part-time employees impacted by closures will be offered positions in nearby restaurants where possible.’
• Pubs are being forced to close their doors as a result of high rents and cheaper drinks in supermarkets, according to research from CAMRA. A survey in which the Campaign for Real Ale spoke to 2,000 adults highlighted pub rent and beer taxes as key factors in turning a pint at the local into an ‘unaffordable luxury’, with four in five adding that cheaper supermarket alternatives plays a big part in the amount of pub closures.
• Ebay is looking to step up its online wine plans in the UK after partnering with Worldwine Vines to set up a new marketplace. The platform has soft-launched with 135 wines but will increase its range to 1,000 by the end of the year. Ebay’s offering, which will have 48-hour delivery for a flat-rate £6.20 charge and is looking at rolling out 3-bottle cases, could prove a serious and deep-pocketed competitor to Majestic Wines and its own online service.
• Researchers have suggested that weaker alcohol could help reduce its harmful effects and provide a more popular alternative to alcohol-free products. ‘We are proposing that the alcohol content of alcoholic beverages [be] reduced,’ writes lead author, Jurgen Rehm, director of the institute for mental health policy research at the Centre for Addiction and Mental Health. ‘That means we should, for example, reduce the [alcohol] content of beer from an average of 5.5% to an average of 4.5%.’
• Beer writer Peter Brown has argued that craft beer is here to stay and should not be dismissed as an Americanized version of ‘real British Ale’.
• Sports pub app MatchPint has partnered with CPL Animate to deliver a free training video for sports pubs ahead of the new season.
• Hampshire-based brewer and pub operator Upham Group is continuing to review its options and is close to expanding its debt facility after deciding to put its IPO on hold.
• San Miguel more than doubled its first half profits to PHP35.3bn ($755m) thanks to higher food sales and the sale of its telecoms assets.
LEISURE TRAVEL & HOTELS:
• The US hotel industry reported occupancy down by 1.6% in the week to 6 August but rate +2.7%. REVPAR was +1.1%.
• More than 1,500 firefighters are tackling wildfires to the north of Marseille.
• EasyJet faced another walk out by Amsterdam pilots yesterday
• TUI boss Fritz Joussen has said that holiday costs will rise for UK travellers. He says that bookings have not yet fallen (but nor have prices risen) and continues ‘we are talking a high single-digit percentage. It will not be that bad.’
• Arguably holidays are booked months in advance. That said, the Brexit result has not apparently led to many cancellations.
• Leading Scottish travel agency Barrhead Travel saw profits jump 66% in ‘another successful year’, with turnover up £21m to £267m in the 12 months to 31 December 2015. The group has asked BDO to seek new investment for future growth.
• Heathrow saw the busiest single day in its history of 31 July, with 258,028 passengers contributing to a 2.1% year-on-year rise in July numbers to 7.44 million. New airplane models such as the Airbus A380 superjumbos and a record number of Boeing 787 Dreamliners were crucial in delivering the result for the capacity-constrained travel hub.
• July was the busiest single month in Gatwick’s history as short-haul flights helped deliver a 6.9% year-on-year jump to 4.6 million passengers.
• Manchester Airports Group, which operates Stansted, East Midlands, Bournemouth and Manchester airport, saw passenger traffic rise 8.1% in July.
• Cineworld has blamed currency fluctuations and a particularly strong 2015 film line-up for its 35% drop in H1 profits to £30.6m. Cineworld operates across nine countries and has more than 2,000 screens.
• Cineworld has reported that it has completed the acquisition of five cinemas from Cinema Holdings Limited, the holding company of Empire Cinema Limited.
• China’s Alibaba has reported a sharp increase in international sales. Sales outside the group’s home territory rose by 123% – though the total here still comprises only 4% of total sales.
FINANCE & MARKETS:
• Bank of England reports companies believe ‘result of the EU referendum would have a negative effect, overall, on capital spending, hiring and turnover over the coming year’. It says ‘scores for employment and investment intentions had weakened in absolute terms, pointing to expectations of little change in staff numbers and capital spending over the coming six to twelve months.’ The Bank says ‘business services growth had softened further, partly reflecting weakness in commercial property investment and corporate transactions.’
• Bank says ‘consumer spending growth had also slowed’ – but it concedes this ‘appeared to have partly reflected the effects of unusually wet weather.’
• On a brighter note, the Bank reports ‘a decline in manufacturing export volumes had been arrested, aided by the depreciation of sterling.’
• The International Energy Agency has suggested that a weaker global economy means that demand for oil could grow only slowly in 2017. It says that demand could grow by 1.2mbpd (million barrels per day) next year compared to 1.4mbpd this year. Supply increases could also weigh on the oil price, which fell by 14.5% in July alone.
• Initial claims for unemployment benefit in the US fell by 1k to a seasonally adjusted 266k last week. Claims below 300k have been associated in the past with a strong labour market. The San Francisco Fed’s John Williams has said that a further interest rate rise in 2016 could be ‘appropriate’.
• World markets: UK up yesterday, Europe also higher. US markets ended Thursday higher & Far East higher in Friday trade
• Oil price recovering somewhat with sharp upward move in last 24hrs. Brent crude now changing hands at $46.20 per barrel
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Enterprise Inns has updated on Q3 trading saying it is ‘maintaining positive trading performance with strategic plan on track’
• ETI LfL income in its leased and tenanted business is +1.9% in the 44 weeks to 30 July 2016, plan is ‘on track.’
• Adnams reports H1 numbers saying ‘we saw many positive developments, notably 7% growth in our own beer volumes’
• Adnams Pubs and Hotels reported mixed trading saying that some units ‘were slightly behind our expectations’
• Adnams suggests ‘the vote for the UK to leave the European Union has of course created additional economic uncertainty.’
• Young & Co announces Steve Robinson will join Board & succeed Peter Whitehead as Finance Director on 6 September
• A report by Oxford Economics suggests the sugar levy will cut just five calories per person per day.
• CGA Peach suggests c26.8m UK consumers have had hot restaurant food delivered to their home or office in the past 6mths
• Wagamama CEO David Campbell has ruled out an IPO of the c120-strong brand in the short term
• TUI trading sees a ‘good Q3 performance, further demonstrating the resilience of our vertically integrated model’
• TUI says ‘UK trading remains strong, no apparent slowdown in bookings as a result of the EU referendum.’
• Cineworld saw revenues grow by 6.8% to £356.7m as adjusted profit before tax inched up 0.3% to £39.4m in H1
• The Institute for Fiscal Studies has said that membership of the EU is worth around 4% of national income to UK economy
• Some UK government bonds are now yielding negative returns. Gilts maturing in 2019 and 2020 are yielding c. minus 0.1%.
• RICS has said that the number of surveyors reporting higher house prices has fallen to its lowest level in 3yrs
• Other Tweets: Bank of England’s Summ. of Business Conditions suggests companies see negative Brexit vote impact on capital spending, hiring and turnover
• BoE sees ‘scores for employment and investment intentions had weakened in absolute terms’. Sees little growth in jobs
• BoE sees services growth ‘softened further, partly reflecting weakness in commercial property investment and corporate transactions’
• BoE says ‘consumer spending growth had also slowed’ – though partly due to wet weather. Declines in exports have slowed, howeve
• BoE sees commercial real estate activity, particularly in London, as being ‘materially affected’
• DFS not as upbeat as SCS. Some big ticket weakness expected post Brexit vote. Holiday, per TUI, not yet impacted.
• Corp. activity in big-ticket (e.g. Lookers to buy rivals) to keep good times going post Brexit vote. Sustainable growth not so much
RETAIL NEWS WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis had a decent start to August last week, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for w/e Aug 7th flags that Fashion Store LFL sales were only flat (despite a very soft comp), although a pick-up in Homewares sales lifted total Store LFL sales by 1.7% and total Online Non-Food sales were up by just over 32%.
• Trade Press: The front cover of Retail Week magazine today features a photo of The Body Shop UK boss Simon Coble with the headline “Ethical earnings”, to flag up a feature on how the retailer is growing at its fastest pace in a decade. RW also have articles about Consumer Confidence (reading between the lines to gauge how consumers really feel), the Retail lessons from the cafe chain Pret and a look at how US shopping malls are adapting to the digital age. In terms of news stories, RW focuses on the fact that it has been a week of mixed fortunes for fashion retailers, as “two star performers”, Next and New Look, reported subdued figures, but etailer Boohoo went from strength to strength. In his column, the Editor notes that BRC-KPMG Retail Sales picked up in July, despite Brexit, and thunders that “retailers should use the breathing space they have
• News Flow Next Week: The middle of August is not traditionally a very busy period for Retail news, but there is a fair bit going on next week: the Marshall Motors interims are on Tuesday and then the Lookers interims are on Wednesday, if you’re into Motor Retailing. Then Thursday brings the Kingfisher Q2 update, the ONS Retail Sales figures for July and the Asda/Wal-Mart Q2.