Langton Capital – 2017-07-20 – Nichols, Remy, Premier Foods, credit cards & other:
Nichols, Remy, Premier Foods, credit cards & other:
A DAY IN THE LIFE:
Bit busy again this morning, hopefully have something to say tomorrow. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Per MCA, Handmade Burger Co was accepting bids late yesterday as a consequence of going into administration earlier this month.
• The BBPA have published an updated guide addressing how licensees can deal with drug use and drug users on their premises titled ‘Drugs and pubs: A guide to keeping a drug free pub’. CEO of the BBPA, Brigid Simmonds, said ‘A proactive approach to tackling illicit drugs and a strong relationship with the police and local authorities are the best way forward.’
• Per MCA, Chop’d is planning to open up a second site in Canary Wharf and convert its Salad Bowl sites into its core brand, growing the chain’s total number sites to 18.
• Habit Burger Grill, which operates 200 sites in the US, is planning to launch in the UK, according to the MCA.
• Signatories from 26 representative bodies for the UK food and drink supply chain have proposed 10 key priorities for the Brexit negotiations in the form of a joint letter. Some of the priorities include; avoiding any ‘cliff-edge’ by securing interim and transitional periods, quickly allowing the EU workforce to remain in the UK, negotiating special solutions with Ireland on workforce, regulation and borders, and to deliver continued zero-tariff and frictionless trade across borders in both directions.
• IFS reports that income inequality has narrowed since the 2007-08 recession. It says the fall in inequality in London has been ‘dramatic’.
• JDW has bought back another 250k of its own shares for cancellation at 1019.6p per share.
• Rémy Cointreau has increased sales by 9.9% to €240.2m. Both currency and the acquisition of Westland and Domaine des Hautes Glaces in January 2017 made favourable contribution to the company’s results.
• McDonald’s franchisee owners are feeling confident they can hit 3.2% LfL sales growth in Q2, beating Wall Street predictions of 3.1%. Analyst, Mark Kalinowski, of Nomura-Instinet has said ‘Drivers of the U.S. business during Q2 included beverage promotions (such as $1 any size soft drinks) and the national launch of Signature Crafted Recipes (semi-customized burgers and chicken sandwiches)’.
• The trade association UK Finance has reported that a third of all card payments are now contactless, a rise of 18% on the same month last year. A total of £4.5bn was spent on contactless in May, compared to £40.6bn in May 2016.
• The soft drinks business, Nichols, has reported group revenue increased 12.4% to £63.5m with operating profit climbing 7.1% to £12.7m during the first six months of 2017. Chairman, John Nichols, said ‘Nichols has delivered another strong performance in the first half of the year. Our sales momentum, which continues to outperform the UK market coupled with successful management of input costs has delivered solid profit growth’.
• Premier Foods has updated on Q1 trading saying that sales were down by 3.1% ‘in line with the group’s expectations for the quarter’.
• Premier says it is gaining share in grocery & sweet treats ‘in a competitive environment’. International sales are +20%, the 11th successive quarter of growth.
• Premier reports new products have been introduced & it says ‘expectations for progress in full year remain unchanged’. CEO Gavin Darby reports ‘our first quarter sales were lower than last year, as we expected, primarily due to lower sales volumes in the grocery categories, notably desserts.’ He continues ‘at the retail level we have continued to outperform our markets and industry peers, our international business grew 20% in the quarter, and our cost savings programmes are on track.’
• Premier Foods concludes ‘we expect to report positive sales growth in the second quarter, broadly flat sales in the first half and our expectations to deliver progress in the full year are unchanged.’
We built it and they did not come:
• Fulham Shore chairman David Page, when reporting his company’s FY numbers last week, said that ‘recent years have seen unprecedented amounts of capital invested in the UK restaurant sector and, in recent months, more restaurant space has appeared on the market than for many a year.’
• This is great but, with the economy growing at less than 2% p.a., there need to be losers as well as winners. Mr Page said that, whilst Franco Manca and The Real Greek are operating very well, losers would be found in the ranks of the companies with:
o ‘Me too’ offerings.
o Those that were over-rented.
o Those with tails of unprofitable sites.
o Companies with dated menus
o Those with too much debt
o Companies with poor concepts
o And operators with un-incentivised staff
• We would suggest that, in a relatively moribund economy with rising costs, labour shortages and, potentially, interest rates, companies offering the wrong things to the wrong people, in the wrong way, from the wrong sites and at the wrong prices, should expect to fail.
• We would also suggest that if you price-gouge, drive margin and then have to discount and/or cut headline meal prices, you may also fast-track yourself into the above grouping.
Delivery & the end of credit card surcharges:
• The end of credit card surcharges; the impact on delivery companies. From January, operators will no longer be able to charge a surplus for transactions involving a credit card. See also comments under travel, below.
• Credit card surcharges aren’t such a big deal with the casual diners but, when it comes to delivery, consultant Peter Backman suggests that around £26m or more of incremental revenue booked by the likes of Deliveroo, Just Eat & Uber Eats etc. may be at risk.
• The BBC calls delivery companies ‘the worst offenders’ (along with airlines)
• Peter Backman believes that credit card charges may make up around £26m of the c£0.5bn that the companies currently generate in revenues in the UK. This would suggest that delivery companies rake in around 5% of all credit card surplus charges levied by all businesses in the UK. This is a much larger proportion than Delivery makes up of the economy as a whole and does, as the BBC suggest, label them as one of the ‘worst offenders’.
• Online delivery companies as a whole could have a £26m revenue hole to fill. It may be able to do this but only if it is willing (and able) to increase delivery charges levied, which are typically more visible than might be a credit card fee.
• The industry has a number of buttons to press but, we would suggest, the fact that the Delivery industry (or the Gig economy) once again finds itself in the cross-hairs of government, is more than just a coincidence.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Peel Hotels reports FY numbers, says turnover fell 1.3% to £16.8m with EBITDA down 12.5% at £2.25m. PBT is £170.5k with EPS of 3.1p. The group comments ‘it is very difficult to forecast the current year’s outcome as so much depends on staycation and increased Tourist activity stimulated by the weak pound.’
• Additional credit card charges levied by airlines & holiday companies are to be outlawed from next January. The BBC says ‘the worst offenders currently are airlines and food delivery apps’. Although historic, the BBC quotes the Treasury as suggesting that some £473m in additional fees were levied in 2010. Customers of many travel companies face a 1.5% or 2% surcharge if they wish to pay for their holiday via a credit card. The BBC says that the UK’s DVLA, for example, has made £42m from such fees since 2012.
• British Airways faced the latest round of planned strike action yesterday (Wednesday) by cabin crew, ahead of the peak summer holiday period. Members of the Unite union working for the airline are taking the action until August 1, in a dispute over pay. BA has drafted in staff from Qatar Airways to cover the 1,400 mixed fleet cabin crew on strike.
• Consumers will not be charged extra for paying on credit or debit cards, the government has announced. The ruling will come into operation from January next year, and is expected to affect airlines and food delivery apps most notably. In 2010 alone consumers paid £473m in card charges, according to the Treasury.
• A Tui passenger has been ordered to pay £25,000 after a court ruled she had lied about being ill while on a Thomson holiday. The customer made the claim two years after the trip in 2011 to Sharm El Sheikh, Egypt.
• International air travel to London increased 14% ‘due to the weak pound’, data from ForwardKeys has shown. The largest increases in travelers came from the Americas (21%) and Asia Pacific (14%).
• The US hotel industry has reported positive results for its three key metrics during June 2017, according to data from STR. Occupancy increased 0.7% to 73.4%, average daily rates had climbed 2.1% to $129.12 and RevPAR rose 2.8% to $94.73.
• Jet2.com and Jet2holidays have announced that it will almost double its Turkey offerings for summer 2018, due to increased customer demand.
• The number of tourists visiting Japan has reached a record high of 7.2m in the second quarter of 2017. Tourist numbers in the three months from April to July increased 21.1% compared to the same period last year, with visitor spending up 13% to ¥1.8tn.
• Google has announced that it will sell a revamped version of its smart glasses to businesses, more than two years after the original product was discontinued. The lead of the project, Jay Kothari, said ‘Workers in many fields, like manufacturing, logistics, field services, and healthcare find it useful to consult a wearable device for information and other resources while their hands are busy’.
FINANCE & MARKETS:
• Reuters suggests that U.S. and British officials will meet in Washington next week in order to begin discussing a trade deal
• Oil up to a recent high of $49.65
• Sterling up vs US$ at $1.3018
• Pound stronger vs Euro at €1.131
• UK 10yr gilt yield off another 3bps at 1.19%
• World markets: UK, Europe & US all higher yesterday with Far East markets mostly up in Thursday trading
YESTERDAY’S LATER TWEETS:
• Later tweets: Hotel Chocolat numbers. Good but apparently not good enough as shares down >2% to stand now c18% off peak
• DPP H1 update, system sales +50% in H1 with LfL sales +17%. Reports H1 revenues of 27m PLN versus 18m PLN last year
• Cash payments are for the first time not the most popular way to purchase goods, the British Retail Consortium has found
• Jury out on younger customers. MCA survey says 3% of food-led & 1% of wet-led pubs see <24yr olds as key customers
• Some groups focusing on younger customers, say they seek ‘experiences’ to compensate for not being able to afford to buy a house
RETAIL NEWS WITH NICK BUBB:
• Sports Direct: The much-awaited Sports Direct finals today, as expected, show a huge, near 60% fall in underlying PBT to £114m, but the City probably wasn’t expecting such a long statement to have to wade through…It is a pity that there will be no analysts presentation to go through the detail, but it is hard to know who would actually conduct that for Sports Direct, as they are in-between FD’s (albeit a new guy called Jon Kempster has stepped up to the plate, joining on 11 Sept) and formal presentations are not the strength of CEO Mike Ashley…He begins his statement by trumpeting that “Sports Direct is on course to become the “Selfridges” of sport by migrating to a new generation of stores to showcase the very best products from our third party brand partners” and later gives 2 examples of the success of the new stores, before going on to say “our outlook is optimistic and we aim to
• Planet ONS Watch: In the real world, June (the 5 weeks to July 1st) was a bit better on the High Street, as per the BRC-KPMG Retail Sales survey last week, helped by the hot weather and the early fall of the Eid festival. But we will find out at 9.30am this morning what life was like last month on that strange parallel world, the Planet ONS, via the Office of National Statistics Retail Sales figures for June. For what it’s worth, our friends at Capital Economics have pencilled in a 0.5% month-on-month recovery in “seasonally adjusted sales volume” (to pull the year-on-year growth back up to 2.7%), slightly more than the City consensus. We will, as usual, be focusing on the year-on-year movement in “non-seasonally adjusted sales value” (and the infamous “Big Retailer” versus “Small Retailer” ONS sales split), together with the inevitable revisions to previous data…
• News Flow This Week: Today has also brought some mixed news from Howden Joinery and Mothercare, as well as confirmation that the fashion chain Quiz has got its £200m valuation away. Tomorrow brings the AGM update from AO World (aka AO.com) and the interims from the London property company Capital & Counties (aka CapCo).