Langton Capital – 2016-11-22 – Mitchells & Butlers FY, Compass Group, prices & other:
Mitchells & Butlers FY, Compass Group, prices & other:
A DAY IN THE LIFE:
I hear that a new, 12-sided one pound coin is to be introduced in March next year.
And not before time, too, because we’ve has a bad £1 coin in our parking meter change in the car for some time.
A variety of machines have spat it out and, to be honest, it’s starting to look a bit orange when compared to other coins of the same denomination but it’s a little bit irritating to know that there are c45m fake £1 coins in circulation – up from 15m 10yrs ago – one of which is sitting, lonely and unloved, in our 9yr old Skoda’s glove box.
Still, since the parking meters in question are also spitting out what I’m sure are perfectly fine but rather shiny 20p coins, the case against the little blighter isn’t proven. Hence, rather than throw it in the bin, I’m very tempted to add it to the general Brumby hoard and spend it down the pub – or would that make us complicit in the crime wave that’s currently sweeping the nation? On to the news:
MITCHELLS & BUTLERS – FULL YEAR RESULTS:
• FY Results – Year to 24 Sept 2016: Mitchells & Butlers has this morning reported FY results for the 52wks to 24 Sept and further comments are set out below:
• M&B reports FY LfL sales down 0.8% but ‘with improving trend through the year’
• It says that the last 8wks were +0.5%
• Sales are £2.086bn (2015: £2.101bn) and adjusted operating profit is £318m against £328m last year
• Adjusted EPS is 34.9p (2015: 35.7p) and there is a final dividend of 5p per share
• More on recent trading:
• M&B CEO Phil Urban reports ‘during the year we have made good progress in our three priority areas: building a more balanced business; instilling a more commercial culture; and driving an innovation agenda.’
• He says ‘this focus is starting to have a positive effect on our sales, with improved performance against a subdued market in recent months through continuation of the momentum we saw start in the second half of last year.’
• The group reports ‘sales growth in the first eight weeks was impacted by the Rugby World Cup in the prior year, but I’m encouraged by the underlying momentum which has seen recent weeks return to the levels seen in the summer.’
• Regarding the future, Mr Urban comments ‘in the next year, as previously announced, we face external cost headwinds, notably from further wage inflation, the recent business rates review and exchange rate movements.’ Urban adds ‘we are working hard to mitigate these headwinds wherever possible, both through building on our sales momentum and active management of our cost base.’
• Balance sheet, cash flow and debt:
• M&B reports that it has opened 8 new sites this year and converted 252 units
• Free cash flow before adjusted items is £60m (FY 2015: £95m)
• The group reports net debt of £1.84bn, some 4.3x adj. EBITDAb (FY 2015 4.3 times)
• M&B says ‘we have started to see early positive results emerging from our work’. It says it had a challenging H1 but says sales were +0.2% in H2
• This has been ‘driven by an increased level of capital investment in our estate but also an improvement in the performance’
• Re Brexit, the group says it will be impacted via changes in consumer confidence, it may find staffing more difficult and costs may rise
• In common with other operators, costs will be an issue. The group reports ‘although we are working hard to take mitigating action where possible, we expect to see downward pressure on margins in this financial year’.
• M&B concludes ‘despite these challenges, we remain encouraged by the progress we have seen so far’ and says that it believes it can ‘continue to generate long-term shareholder value’.
• Langton: M&B has seen performance improve in H2 and LfLs are +0.5% in the first 8wks of the current year – this latter against the Rugby World Cup last year.
• As a largely food-led company, the rugby would have been neutral to slightly unhelpful last year.
• As we have reported on a number of occasions, M&B is a big ship and it will take time to turn.
• That does not mean that this will not happen but cost pressures in the year just started will make generating profits that little bit more difficult and, as the company may have been guilty of pushing prices a little too aggressively in the past, it may not be able to press the ‘price’ button and this could impact margins.
• M&B’s performance at its converted and invested units has been good,
• As regards its share price, we are now at a point where the group is trading at only around 7.7x current year earnings and it has a 2.7% (and hopefully growing) yield.
• M&B has an extremely attractive estate but, with much still to do, the group’s shares may be fairly priced at around these levels.
COMPASS GROUP – FT NUMBERS:
• Compass Group has reported FY numbers saying ‘organic revenue growth of 5% was converted into profit and cash which was reinvested in the business or returned to shareholders.’
• Revenues were £19.9bn, operating profit was +7.2% at £1.445bn and EPS was 61.1p.
• Group had ‘another excellent year in North America with growth of 8.1%’. Europe was +2.8% and RoW +3.6%
• Group CEO Richard Cousins says ‘Compass has had another strong year. Performance in North America continues to be excellent, and we are pleased with our progress in Europe. In the Rest of World, the performance is mixed, with the impact of the cyclical downturn in our commodity related business offsetting reasonable progress elsewhere.’
• CEO adds ‘our expectations for 2017 are positive, with growth weighted to the second half of the year. The pipeline of new contracts is good and our focus on organic growth, efficiencies and cash gives us confidence in another year of delivery.’
• Mr Cousins concludes ‘in the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue growth, margin improvement, and continued returns.’
PUB, RESTAURANT & DRINKS PRODUCERS:
• Vianet’s iDraught system shows beer volumes were down y-on-y last weekend, with both sports & non-sports venues seeing a drop.
• The Food & Drink Federation has reported that UK food exports to the rest of the world are growing at 2x the rate of those to the EU. Britain will need to negotiate trade deals with these recipient markets post Brexit. The numbers were 19.2% vs 9.6% in Q3 this year against the same quarter last.
• UK food exports +12.1% overall in Q3 vs last year. Helped by collapse in Sterling. FDF says ‘it is very pleasing to see non-EU exports performing beyond expectations, with UK firms taking advantage of increased competitiveness following the currency changes since the summer.’
• Imbiba-backed Wright & Bell has launched its ‘department store of dining’ concept The Kitty Hawk in Moorgate, which is open from 7am until midnight. The site is split into five ‘departments’: a bar and kitchen with sharing plates, a below street-level steak restaurant, a coffee bar and patisserie which doubles up as a cocktail bar, and a 12-cover private dining room.
• Workers at Diageo have voted to take industrial action in a dispute over pensions over plans to move staff from a final salary pension scheme. Diageo described the move, which could affect all its 50 sites in Scotland, as well as other locations in Northern Ireland and Cheshire, as ‘clearly disappointing’.
• Boxpark Croydon has announced its official partnership with Deliveroo as the delivery partner for the casual dining development. Tenants signed up to use Deliveroo include Bang Bang Hawker Kitchen, Coqfighter, MEATliquor, Indi-Go and more.
• Morrisons is reducing the price of petrol to less than £1 a litre for shoppers who spend more than £50 in store.
• Imported beers are expected to enjoy healthy profits in China in the years ahead, while domestic beers have now clocked up 25 straight months of decline since July 2014. In 2015, China imported beers worth about $575m according to Chinese trade publication, China Alcoholic Drinks Industry, a 41.3% increase over the previous year. By contrast, Tsingtao beer reported a fall in net profit of 13.9% in 2015.
• Innis & Gunn is now overfunding after raising over £1.7m from more than 1,460 investors.
• Diageo has launched an immersive virtual reality (VR) experience that allows users to ‘see, hear and feel’ a fatal drunk driving collision as part of its efforts to address drink driving.
• Tesco’s One Stop posted a 47.5% jump in pre-tax profit to £15m in the year to 27 February as sales rose 3.7% to £958.7m.
LEISURE TRAVEL & HOTELS:
• The boss of Avalon Waterways and Cosmos Tours believes river cruising could reach a similar level to ocean cruising within five years, although it remains about ten years behind in terms of marketing and awareness. ‘There is a huge opportunity for river cruise as a sector to absolutely catch up with ocean cruise,’ said Giles Hawke. ‘We can learn so much from what the ocean cruise lines have done. They have, just because of their scale and size, been able to invest a lot of money and make mistakes and learn things.
• ‘The river cruise lines can then continue to learn very quickly the aspects which have worked for ocean cruises and those which haven’t.’
• Comcast Corp’s NBCUniversal has invested an additional $200m in BuzzFeed, giving it a valuation of some $1.7bn and doubling NBCU’s stake.
FINANCE & MARKETS:
• UK inflationary expectations are at their highest level in 3yrs per Barclays survey. Public expects inflation in 1yr to be 2.2%.
• Bank of England reports inflation will be 2.7% be end of next year. Barclays says consumers expect the same number during 2018. The bank says ‘we do not see current expectations as worrying. While the BoE Monetary Policy Committee will likely welcome the tame response of inflation expectations so far, it will nonetheless maintain a relatively tough rhetoric to ensure that this remains the case.’
• Arguably officials & bankers who are sanguine about inflation are not the people who will have to try to pass price rises on to customers
• World markets: UK mixed yesterday (big caps up, mid-caps down). US & Europe up with Far East up in Tues trade
• Brent sharply higher at around $49.40 per barrel
• Sterling a little stronger at c$1.249 per US$ and 117.5c per Euro.
• US 30yr bond rates still around 3.00%.
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• A group of cross-party MPs have called on the government to provide more practical support for the UK wine industry
• Fuller’s has said that a “storm” of factors may force it to raise prices next year
• easyCoffee is eyeing expansion in London and beyond after the budget coffee chain received c200 franchise approaches
• ALMR’s Kate Nicholls says introduction of additional Night Tube services ‘has cemented London’s reputation as a truly 24hr city.’
• Chinese takeaway and delivery chain Hotcha has opened its first store in Exeter and its twelfth in the UK.
• Parkdean Resorts’ up for sale in what Sunday Times calls a ‘bid frenzy’
• Telegraph reports that a ‘looming government crackdown on high-stakes gambling machines’ could reduce bookies’ earnings by c1/4
• Autumn Statement due on Wednesday. Debt levels said to make any potential for giveaway “eye-wateringly” tight.
• Later tweets: Next fell Friday on gloomy comments on the outlook for clothing pricing next year. Input costs up, problems in passing that along
• Telegraph reports Tesco seeking planning permission to put flats above stores & homes in car parks. Plenty of room if customers go online
• Chance of US rate rise in Dec now put as high as 95%. Pretty much like a Clinton victory, then?
• Rising rates in US, US$ strong, gilt yields rising. Era of microscopic interest rates may be coming to an end
• Higher rates. Good for those with fixed price debt. Helps pension ‘deficits’. Could expose some chains as over-expanded
• Autumn statement likely to be a big yawn. There’s no money. No, really. There’s no money.
RETAIL NEWS WITH NICK BUBB:
• Kingfisher: Ahead of today’s Q3 (to Oct 31st), we were looking back at what happened in Q2 and in the UK, LFL sales increased by 7% (B&Q +5.6%, Screwfix +13.3%), whilst in France LFL sales were down by 3.2%. Well, its déjà vu all over again, as during Q3 the DIY market/weather background remained supportive in the UK, but in France the DIY market remained soft (Banque de France data indicated a surprisingly tough month in September, with sales down by 4%). So, in the UK LFL sales were up by 5.8%, reflecting continued strong Screwfix performance and solid B&Q performance, but in France LFL sales were down by 3.6%, With Poland also strong that averaged out at +1.8% LFL for the group. And so Véronique Laury, Chief Executive Officer, said: “We have delivered another solid sales performance overall, trading in line with expectations”.
• AO.com: The key word in the headline of today’s interims from AO World (aka AO.com): “AO delivers strong growth in sales and profits and strategic progress” is “profits”…But in the UK the core business has indeed delivered a useful increase in EBITDA, although the start-up businesses in Europe are still losing agreeable amounts of money.
• Trade Press: We flagged yesterday that Drapers magazine on Friday had the third of its excellent “Hit or Miss” reviews of autumn fashion on the High Street, on Footwear chains, but we never got round to telling you the outcome of Drapers’ second “Hit or Miss” survey, on Menswear chains (based on visits to Meadowhall shopping centre on 10-11 October). Top of the “Premium” category was All Saints, with 8/10 (French Connection and Ted Baker were both rated 6/10). Top in the “Young fashion” category was Urban Outfitters, with 8.5/10 (Superdry was scored 6/10: “Lots of samey product in a cluttered store means the highlights are hidden”). Top of the “Mainstream” category was Next, with 9/10 (“Practically perfect, and home to a top tailoring offer”), whilst Marks & Spencer got 7/10 (“Some pieces stand out in a very broad and otherwise samey offer”). And top of the “Value” category was
• News Flow This Week: Out in the US we get the Signet Q3 and the GameStop Q3 this afternoon. Back home, tomorrow brings the Chancellor’s Autumn Statement and, hopefully, the Arcadia finals from the beleaguered Philip Green…On Thursday we get the Mothercare interims and the Pets at Home interims. And then Friday, the day after Thanksgiving in the US, is…BLACK FRIDAY (although most retailers are running discount deals all week…).