Langton Capital – 2017-03-28 – Thomas Cook, Tasty, AG Barr, Hostelworld & other:
Thomas Cook, Tasty, AG Barr, Hostelworld & other:
A DAY IN THE LIFE:
Bit busy this morning so straight on to the news:
TASTY FULL YEAR NUMBERS:
• Tasty reports FY numbers, says revenues +28% at £45.8m with gross profit +26% at £5.3m. Pre-opening profit +21%. Headline loss of £848k. Group now has 61 restaurants trading.
• Tasty taken impairment charges on poor units. Says that ‘turnaround strategies have been implemented at these sites in an effort to bring performance of these restaurants in line with the rest of the estate.
• Tasty says ‘post year end trade has been below expectations and the Directors believe that the trading environment for the coming 12 months will remain challenging.’ It says ‘as a result, the Group has revised down the planned number of openings for the current year from 15 to 7 and expects that headline operating profit will be below that achieved in 2016. The Group is undertaking a full review of the estate and operational structure and is implementing a number of strategies to improve performance.’
• Tasty concludes ‘the Directors believe the Group’s core ‘Wildwood’ brand remains attractive to customers and the Group is taking positive action to address the expected financial performance and ensure growth in the future.’
PUB, RESTAURANT & DRINK PRODUCERS:
• The CGA Prestige Foodservice Price Index reports that foodservice price inflation was running at 3.7% in February. Prices were rising by 2.9% in January and by 1.8% in December. Prestige suggests that ‘rising foodservice inflation has been the result of a combination of factors, including lower than usual supply of key items and the weak pound.’ It says ‘of the ten sub-categories measured by Prestige Purchasing and CGA Strategy, nine saw higher prices year on year.’
• Prestige reports fish prices +8% y-o-y. It says ‘inflationary pressure looks set to continue, with our FPI forward forecasts showing we might just hit 5% in the next couple of months.’
• Prestige says it sees ‘no respite in inflationary trends. The moderate to steep rises in nearly all categories are placing unwelcome pressure on businesses in the foodservice supply chain, and with sterling continuing to struggle there is little to suggest that inflation will ease soon. It reinforces the need for operators to adopt sharp purchasing strategies in the months ahead.’
• Britvic Soft Drinks Review for 2016 has described the year as a ‘transformational year’ for the soft drinks sector. The review highlighted the impending Soft Drinks Levy as one of the key headlines that is set to change the industry. UK soft drinks were estimated to be around £14bn last year.
• A.G. Barr, the soft drinks maker, posted a 4.4% increase in statutory profit before tax to £43.1m (2016: £41.3m). Total revenue increased to £257.1m (2016: £253.2m).
• AG Barr. Gross margin is 46.9%, up 10 bps on the previous year, operating margin is up 50bps to 16.8%. Basic EPS increased by 3.9% to 30.78p with a net cash position at year end of £9.7m (2016: Net debt £11.3m). A proposed final dividend of 10.87p a share to give a proposed total dividend of 14.40p per share, an 8.0% increase year on year.
• In terms of strategy, A.G. Barr maintained its overall market share in UK softdrinks, with strong growth in IRN-BRU. CEO, Roger White, said ‘”We have made considerable progress across the business over the last 12 months and delivered a solid financial performance in volatile and uncertain market conditions.
• As consumer tastes and preferences continue to change, our recent announcement that 90% of Company owned brands will contain less than 5g of total sugars per 100ml by the autumn of 2017 is a positive demonstration of how the business is responding to consumers’ needs with both pace and commitment. The UK consumer environment remains uncertain, however we are confident that our great brands, effective business model, clear strategy and strong team ensure we are well placed to realise the full potential of our business and to deliver consistent long-term shareholder value.’
• Deliveroo UK riders are campaigning for employment rights such as minimum wage and holiday pay and have began legal action against the company. About 200 riders have registered to join the claim, out of more than 15,000 couriers working for Deliveroo. The lawyers representing the couriers, Leigh Day, have said that if the lawsuit is successful, the company could face ‘substantial compensation’ for the riders.
• Darden Restaurants Inc. has agreed to purchase Cheddar’s Scratch Kitchen from the private-equity firms L Catterton and Oak Investment Partners for $780m. This acquisition brings the Orlando-based Darden to eight casual dining concepts. Darden CEO, Gene Lee stated ‘Cheddar’s is a great fit in the Darden portfolio because it complements our existing brands’.
• The Wine and Spirit Trade Association (WSTA) has stated that failure to get complete access to the EU free market in Brexit negotiations could see gridlock at UK ports and ‘encourage the resurgence of alcohol smugglers’. The UK wine trade is worth £17.3bn in economic activity with an estimated 1bn bottles of wine coming from the EU per year.
• The UK’s leading digital pub and bar platform, useyourlocal.com, has entered a new phase in its expansion plan. Alongside growing membership amongst customers who use the site, useyourlocal.com will extend its partnerships with both operators and brand owners. Managing Director, Stuart Mills stated ‘there is a huge opportunity to persuade more people to use the pub more often by creating the ‘one stop shop’ online pub portal that consumers tell us they want.’
• Convenience sector investment decreased by nearly 50% in the last quarter, as the sector braces for approaching cost increases relating to business rates and employment. A survey conducted by the Association of Convenience Stores found that between December and February retailers invested £154m in their businesses down from £299m in the previous quarter. The Chief Executive of ACS, James Lowman stated ‘the latest investment figures show that while thousands of stores are making improvements in their business, there is hesitancy to invest at a time when business rates bills are going up for many and the new rates of the National Living Wage come into force in April.’
• Optimism is on the rise among leaders of the pub-owning business since the EU referendum in June 2016. The CGA Peach survey found that 68% of owners in the pub trade were feeling optimistic about the market, increasing from the 24% that said so immediately after the vote. Almost three quarters, 71%, said that they were neither ‘concerned’ nor ‘very concerned’ about Brexit.
• The ALMR has warned against introducing measures that could stifle trade in the fight against childhood obesity. The House of Commons Select Committee has published its report into childhood obesity making a number of recommendations including changes to legislation to include health as a planning consideration, as well as recommendations on portion sizes, promotions and the soft drinks levy.
• Poundland has placed discount chain 99p stores in administration only two years after buying the 252-store-strong rival
• Two of Tesco’s largest shareholders, Schroders and Artisan Partners, have called upon it to pull out of its deal to buy Booker
THOMAS COOK – H1 PRE-CLOSE TRADING UPDATE:
• Thomas Cook has updated on H1 saying ‘winter 2016/17 closing out as expected, with bookings similar to last year’s levels’. Winter is 90% sold with bookings +1% and average selling prices down 1%. Group says ‘this position is unchanged since our last update at our first quarter results in February.’
• TCG says ‘although conditions remain very competitive in the airline market, Condor’s load factor has improved, with bookings down 2% compared to capacity reductions of 5%, while pricing is up 1%.’
• TCG IMS: Says ‘summer bookings up 10% with strong growth to Greece and smaller European destinations’. Summer is 42% sold, some 1% ahead of last year.
• TCG says Northern Europe is particularly strong for summer but the UK market is more competitive.
• TCG says ‘full year underlying EBIT guidance maintained.’ CEO Peter Fankhauser reports ‘customers’ appetite to go abroad on holiday this summer is good across all our markets despite continued political and economic uncertainty. Our decision to expand our holiday offering to Greece has helped support customer demand, with bookings to Greece up by around 40% versus last year, while smaller destinations like Cyprus, Bulgaria and Croatia are also proving popular.’
• TCG boss Fankhauser says ‘after a slow start to the season and a tough year in 2016, we’re seeing early signs that customers are beginning to go back to Turkey and Egypt.’
• TCG reports ‘following strong growth last year, bookings to the Spanish Islands have levelled off in a very competitive market.’
• TCG says ‘competition is particularly intense in the airline sector, putting downward pressure on pricing.’
• TCG concludes ‘as we look ahead to the rest of the year, I am confident that the work we’re doing to strengthen the quality and appeal of our holiday offering will win more fans for Thomas Cook, demonstrating continued progress in our transformation to put our customers at the heart of the business.’
• TCG outlook. Group says ‘trading for the Group is progressing in line with our expectations.’
• TCG concludes ‘while we are seeing some margin pressure in parts of our business due to more competition, overall demand for our summer holidays is strong. Based on our current trading performance, and supported by further financial benefits from implementing our strategy, we continue to expect our full year underlying operating result to be in line with current market expectations.’
HOSTELWORLD FULL YEAR NUMBERS:
• Hostelworld has reported a 1% fall in total group bookings for the year ended 31 December 2016, as the group continues its strategy of offloading non-core brands and redirecting trade to its Hostelworld platform. The group’s flagship brand, Hostelworld, represented 87% of total bookings as compared to 73% in 2015, and the resulting sales and marketing efficiencies have allowed for a more profitable booking mix, with an increased adjusted EBITDA margin of 30% (2015: 28%) and adjusted EBITDA up by 7% to €23.9m on a constant currency basis.
• The group retained a typically strong level of underlying cash conversion this year, at 90%, giving it cash balances of €24.6m. Hostelworld’s proposed final dividend per share of 10.4 euro cent represents a 75% distribution of adjusted net income. Adjusted EPS was down slightly, however, from €0.22 to €0.20, putting its shares on just over 10 times earnings.
• Hostelworld says it is ‘in a strong position to capture future growth in the hostel sector’ because of its cash generation and investment in technology and brand, while the ‘improved momentum’ seen in H2 (which saw bookings up 2% year-on-year) has continued through the first quarter of the new year. Asia remains its fastest-growing continent, with group-wide booking growth of 12% and a 21% increase in hotel supply base in key markets.
• Feargal Mooney, Chief Executive Officer, commented: ‘As widely reported, 2016 was challenging for the travel industry, which had to contend with the impact of terrorist attacks and the implications of Brexit… Our continued focus on key strategic initiatives is supporting year on year bookings growth, and together with our highly cash generative business model positions us well to benefit from continued market growth.’
HOLIDAYS, LEISURE TRAVEL & HOTEL
• ONS figures showing a 17% fall in UK visitors to the USA are being attributed to the weak pound and a ‘Trump slump’. The fall in sterling has also helped bring about a 15% hike in spending by visitors to the UK, according to the BHA, whose monthly Travel Monitor shows a 19% increase year-on-year of inbound holidaymakers. BHA chief executive, Ufi Ibrahim, said: ‘The weak pound makes the UK an attractive destination but the government would do well to remember this is just a short-term benefit.’
• Ladbrokes Coral Group reports FY numbers, says revenue +11% at £1.5bn with group EBITDA +14% at £198.9m
• Ladbrokes: Group reports operating loss of £202m but says underlying earnings were 6.6p (vs 9.6p last year). Full year dividend is unchanged at 3p. CEO Jim Mullen reports ‘this is a very successful start for the Ladbrokes Coral Group. Both Ladbrokes and Coral entered the merger in November with good momentum, and together delivered a strong full year financial performance.’
• Ladbrokes outlook, group says ‘while we face some short term uncertainty with the triennial review, the scale, talent and agility we have in this business represent real strengths going forward. We intend to use these strengths to establish Ladbrokes Coral as both the leading, and the best, betting and gaming business.’
FINANCE & MARKETS:
• Sir James Dyson has that the UK will succeed in trading beyond Europe because ‘that’s where the growth is’. Mr Dyson said that he was ‘enormously optimistic’. Sir James said ‘I’m enormously optimistic because looking outwards to the rest of the world is very, very important because that’s the fast-growing bit.’
• Farmers have called on Mrs May to secure a free trade deal with Europe. They say that any failure to do so would drive up prices
• Mrs May will trigger Article 50 tomorrow
• Brent up to $51.05
• Sterling stronger on rising rates. Up to 1.2568 vs $ and 1.1565 vs Euro
• UK 10yr gilt yields up 3bps at 1.27%
• World markets: UK & Europe down yesterday with US also lower. Far East higher in Tuesday trading
• Later tweets:
• Coffee shops ‘to replace the local’. But this is apples vs oranges. Dwell time shorter, not a family experience, little food etc. etc.
• If coffee shops adapt to offer food, beds, AWPs, TVs, family experience etc. then would they also change their name? To ‘pubs’
• Trump dump, Trump slump, Trump trade blah blah. Markets going down because? Because they went up too much…
• DPP: Q1 LfL c18%, TV advertising at some point, new cities, new towns, new franchisees. Inflexion point ‘soon’. What’s not to like?
RETAIL NEWS WITH NICK BUBB:
• Tesco: The Sky News story on Friday that Tesco was negotiating with the SFO to pay a big fine of over £100m to settle the 2014 accounting fraud scandal turned out to well-informed (again), as Tesco has announced this morning that it has done just that, agreeing a £129m penalty to reach a Deferred Prosecution Agreement. Tesco has also announced that the FCA has found “market abuse” in relation to the Tesco trading statement announced on 29 August 2014 and that it has agreed to set up an £85m compensation scheme for investors, to be administered by KPMG. Ahead of the Tesco finals on April 12th, Dave Lewis, the CEO, says: “We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand”. There is no explanation, however, of who over-stated profits or why. And, needless to say, there is no
• Retail Sales Watch: We flagged on Friday that the ONSpenalty to Retail Sales figures for February were again boosted by improbably strong 10.5% growth for “Small Retailers”, which meant that the Office of National Statistics (ONS) reported total sales by value up by as much 4.7% last month, whereas the BRC-KPMG measure of gross sales growth (which focuses on Large Retailers) was just 0.4% (down 0.4% LFL)…So, who was right? Well, the new consultancy group, Retail Economics (RE), which is run by Richard Lim (who used to be in charge of the monthly BRC-KPMG Retail Sales survey), has just come out with its own overview and their estimate is that gross Retail sales rose in value by a mere 0.9% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is clearly much closer to the BRC figure than the ONS (aka the “Planet ONS”). RE estimate that Food sales were lifted by
• News Flow This Week: Tomorrow brings the Game Digital interims. The Booker finals and DFS interims are on Thursday, with the latest monthly GFK Consumer Confidence survey coming out first thing on Friday.
• News Flow Next Week: The Topps Tiles Q4, the ASOS interims and the latest Kantar/Nielsen grocery market share figures are out on Tuesday next week. Thursday then brings the Mothercare Q4 and the Dunelm Q3 is out on the Friday.