Langton Capital – 2019-08-13 – PREMIUM – TUI Group, JPJ, input costs, discounts & other:
TUI Group, JPJ, input costs, discounts & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: So, it’s great to be back but, as we flew yesterday from the 34-degree heat in northern Italy (too hot) back to 13 degrees and drizzle at Yorkshire airport, it was a bit of a shock. And it’s clear that the restaurant industry isn’t the only one big into upselling as the two hour flight featured two passes by the drinks trolley, one offering voucher deals on future flights, one to get rid of sandwiches at half-price 15 minutes before touch-down and two to sell duty-free goods. Quite how duty free became a feature on a flight that never left the EU (though it may have passed over Switzerland), I’m not sure. Nonetheless, the announcements were interesting with the biggest groan going to ‘warming up to 16 degrees in destination but with rain’ and the most puzzling either ‘come and get an extra 20% of all of your Raybands’ or ‘keep up the golden glow (pron. glare) of your tan with our spray-on body-aids’. Anyway, fewer excuses as to why the email could be shorter going forward. On to the news: INPUT COSTS – FOOD PRICES: • The latest CGA Prestige Foodservice Price Index recorded a ‘colossal’ 21.6% year-on-year increase in its non-alcoholic beverage categories in June 2019 • CGA reports that this takes the overall index to its highest index point to date. • The search for profit – premiumisation ongoing. Not sure if it’s demand pull or supply push. Certainly, retailers are moving to where they think the money is. • The CGA Prestige report says ‘inflation in the Mineral Water, Soft Drinks & Juice category has risen since September 2018 and shows no sign of slowing. It follows a swing in drinking habits that has seen adult soft drinks become one of the UK’s fastest growing beverage categories, with one in five adults choosing to not drink alcohol and its sales up 15.4% in five years.’ • Other food categories ‘recorded only small increases in inflation in June 2019.’ • However, rather than falling in price, ‘fruit was one of the few food categories to see month-on-month inflation. Continued issues in recruiting fruit pickers in the UK have resulted in lower yields, forcing wholesalers to import more from European countries including Italy and Spain— which, with the pound performing poorly against the Euro, has led to price inflation.’ • The B-word. • In addition to causing staffing problems in the fruit fields, Prestige says ‘foodservice price inflation over the next few months is likely to be affected by Brexit, and fears are mounting that a no-deal departure from the European Union could have a catastrophic effect on UK food supply.’ • Prestige says meat prices could be impacted ‘with the National Farmers’ Union recently declaring that it could result in the mass slaughter of lambs, as the UK cannot consume the amount it produces.’ • Prestige reminds readers ‘the Environment Secretary Michael Gove warned the National Farmers Union that the food sector may never recover from no-deal even if a deal was struck in the future.’ • Prestige says ‘this uncertain environment is not likely to change over the coming months, as further insecurity in supply from Europe and the strength of the pound adds to the volatility.’ GENERAL NEWS – PUBS & RESTAURANTS: • The latest CGA Prestige Foodservice Price Index recorded a ‘colossal’ 21.6% year-on-year increase in its non-alcoholic beverage categories in June 2019 • CGA reports that this takes the overall index to its highest index point to date. • Discounts still prevalent in the eating out market. Bella Italia and Café Rouge 40% and 30% off mains respectively, Pizza Express 25% off food & Prezzo offering 20% off. • YUM Brands, which owns the KFC, Pizza Hut and Taco Bell brands, has announded that CEO Greg Creed is to retire. The company says its Board of Directors has unanimously elected David Gibbs as Chief Executive Officer, effective January 1, 2020, and appointed him to the Company’s Board. • CEO elect Gibbs reports ‘I’ve had the privilege of partnering with our franchisees to grow the three iconic brands within the Yum! Brands portfolio for over 30 years and am honored to follow in Greg’s footsteps.’ • During Creed’s tenure, the company span off YUM China and pushed franchising for its brands globally. NRN reports ‘roughly 98% of the company is now franchised, compared to 77% in October 2016.’ The group has 48,800 restaurants around the world, only 859 of which are company owned. • Constellation Brands has announced that it has signed an agreement with Heaven Hill Brands to divest Black Velvet Canadian Whisky and the brand’s associated production facility in Lethbridge, Alberta, Canada, along with a subset of Canadian whisky brands produced at that facility. Constellation will receive cash proceeds of approximately $266 million USD. • The bosses of more than 50 retailers including market leaders such as Asda and Boots have written to the new chancellor urging him to change tax rules to boost the UK High Street. The letter pleads with the chancellor to fix the “broken business rates system”, which is now outdated. • The last non-airport sites that comprised the Jamie Oliver Restaurant Group have been transferred to new ownership following its collapse into administration. Dishoom has taken one site in Covent Garden and The Ivy Collection is reported to have taken two sites in Cardiff and in London. Christie & Co says ‘many of these sites are in prime locations within key towns and cities, which helped attract a wide variety of operators and bids. We are therefore pleased to have achieved a positive outcome for the joint administrators.’ • Jamie Oliver’s three restaurants at Gatwick airport have been sold to SSP. • The MCA reports that pubs should take more than a quarter of the £5.5bn growth in the eating out market that it forecasts for the next three years. • The MCA says that its UK Eating Out Market Report 2019 suggests that ‘managed, branded and franchised pubs will benefit from significant further physical expansion and its multiple growth drivers across more craft and premium beverages, improved food offers, growing accommodation focus, all-day and enduring value for money strengths.’ • The MCA forecasts that growth in the eating out market in the UK will be at its slowest rate in seven years this year, just1.3%. This is below the rate of inflation. • Visit frequency is forecast to fall by 1% whilst menu prices will rise by around 2%. Margins could be hit as the MCA says ‘declining visit frequencies, rising promotion usage and the growth of home delivery are the key reasons for a slowing eating-out market.’ • Dishoom has reported turnover 26.3% up in 2018 vs 2017 to £45m. EBITDA is £4.3m vs £2.3m in 2017. • Feed it Back, which tracks customer satisfaction scores across the breakfast, lunch and dinner dayparts, says that satisfaction (though high at 90.8%) is at its lowest during the evening period of trading. Feed it Back suggests ‘the data shows that customers’ expectations are greater during the evening, with previous research indicating that the majority of special occasion bookings, such as anniversaries or birthdays, taking place at this time.’ • Deliveroo has announced that it is to pull out of Germany. This is the first time that the company has withdrawn from a market. The merger of rivals Just Eat and Takeaway.com will make the merged competitor the largest operator in the UK, German, Dutch & Canadian markets. • The BRC has reported that the number of vacant shop properties in town centres, at 10.3%, is at its highest level in four and a half years. Footfall in July is down by 1.9%, the worst July performance in 7yrs. • Springboard reports July as ‘much more challenging’ for shopping centres and High Streets than out of town stores. High Street footfall was down by 2.7% in the month on last year with retail park footfall actually up by 1.2%. • The TUC says that pay rates for the UK’s lower & middle-income staff have fallen in real terms over the last 10yrs. • Casual Dining Group reports that it is to source its chicken and fish humanely and responsibly. HOLIDAYS & LEISURE TRAVEL: • TUI Group has reported Q3 numbers saying that turnover rose 3.7% to €4.75bn with underlying EBITDA down 46% at €100.9m. • TUI says ‘our Holiday Experiences continue to deliver a strong performance, despite the challenges we currently face in our Markets & Airlines business, demonstrating the strength of our integrated business model.’ • TUI reports Riu ‘saw lower demand in Spain resulting from the continued shift of demand from Western to Eastern Mediterranean’ but says that cruising performed strongly. • TUI says ‘Markets & Airlines continued to see a weak demand environment leading to a later booking behaviour by our customers, reflecting the ongoing knock-on impact of the Summer 2018 heatwave and Brexit uncertainty. Number of customers were marginally ahead of prior year however and the segment delivered a stable underlying result outside of the 737 MAX grounding impact.’ • TUI comments ‘we expect our FY19 full-year results to be impacted by the 737 MAX grounding. We have seen a later booking behaviour to date from the ongoing knock-on impact of last year’s extraordinary hot Summer with demand continuing to be impacted by Brexit uncertainty. In addition, overcapacity to Spanish destinations has resulted in increased competition, putting pressure on margins for the division.’ • As regards the outlook, TUI says underlying EBITDA for the year could be down by around 26%. • Peel Hotels has urged its shareholders to vote in favour of its delisting at its AGM to be held on 19 Sept. • Thomas Cook yesterday confirmed that it has made ‘significant progress’ in its moves to source up to £900m of new commitments from its largest shareholder Fosun and a number of lending banks. • TCG also confirmed that the £900m, higher than earlier suggestions of £750m, will give it ‘further liquidity headroom through the coming 2019/20 winter cash low period and ensure the business can continue to invest in its strategy.’ • TCG expects to implement its recapitalisation in early October 2019. • Bourne Leisure has reported revenue for 2018 up by 2.2% to £1.1bn. PBT slipped 1.1% to £153.4m. • STR has reported that London hotel supply rose 1.5% in July 2019 vs the same month in 2018. Demand rose by only 0.6%. • STR says London occupancy slipped 0.9% in July vs July last year with room rates up 3.3%. REVPAR rose by 2.4%. • TUI is to sell its specialist German tour operators Berge & Meer and Boomerang Reisen for around €100m. TUI says ‘the transaction will sharpen Tui’s tour operator business and our position as a vertically integrated tourism group. Berge & Meer Touristik and Boomerang Reisen pursue different business models and have a different strategic alignment.’ OTHER LEISURE: • JPJ has reported H1 numbers saying gaming revenue is up 14% with net income of £5.2m vs a loss of £100k last year. • JPJ says ‘trading in the second quarter has been in line with management’s expectations and we remain confident in the full-year outlook. Our international markets are well-placed to continue to deliver strong growth and Jackpotjoy UK is set to pass the anniversary of the introduction of enhanced UK responsible gambling measures during the second half of 2019.’ • Neil Goulden, Executive Chairman of JPJ, commented ‘I’m pleased to report that the Group has delivered another good quarter of revenue growth, alongside the expected impact of higher gaming taxes on EBITDA.’ Mr Goulden says ‘we expect the Gamesys acquisition to complete during Q3 2019 and we will update the market further in due course.’ • Flutter has said that a no-deal Brexit threatens to disrupt horseracing as the free movement of racehorses would be impacted. • Customer complaints about UK betting companies have risen by a factor of around 50 times over the last 5yrs reports the BBC’s Panorama programme. FINANCE & ECONOMICS: • The RICS says that ‘falling supply in the lettings market seems likely to squeeze rents higher.’ • RICS says agreed home sales have fallen in number. It says, however, that initial enquiries have picked up slightly. • Pound languishing at $1.2065 and €1.0783. Oil $58.46. UK 10yr gilt yield now only 0.48%. World markets lower yesterday with Far East down in Tuesday trade. • Brexit & Politics: o PM still spending Phil’s rainy-day fund on security, prisons, police etc. Says will cut taxes for the better off, invest in infrastructure etc. Economy not growing suggesting HMG revenue may also stagnate and therefore borrowings may have to pick up the slack. o President Trump said willing to support a UK-US free-trade agreement. Reuters says on exit from EU ‘many diplomats expect London to become increasingly reliant on the United States’. o Presidential advisor John Bolton has said that the US would support ‘enthusiastically’ a no-deal solution if it were enacted by the current UK government. The UK is “first in line” for a trade deal. o Pro-remain MPs are expected to challenge the PM’s right to leave the EU without a deal on 9 Sept. o Brexit supporter Lord Wolfson has said that the UK should be able to avoid severe disruption in the event of a no-deal Brexit o The Guardian suggests that Britons have spent £4bn stockpiling goods in preparation for a possible no-deal Brexit. START THE DAY WITH A SONG: Yesterday’s song was Golden Touch by Razorlight. Today who sang: When the day that lies ahead of me Seems impossible to face When someone else instead of me Always seems to know the way RETAIL WITH NICK BUBB: • Card Factory: Today’s pre-close update from the discount card chain Card Factory (for the six months to July 31st) is headlined “Robust sales performance in a challenging consumer environment” and the 1.5% LFL sales growth does indeed look quite good, but Q2 performance was weaker, after a strong Q1 (when LFL sales were +2.3%) and the company says that full-year profits are likely to be only “broadly in line” with its previous expectations, which implies that there have been some operating cost pressures. Shareholders will, however, be cheered to hear that, given the strength of cash generation in the business, there will be another special dividend towards the end of the year.
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win for the fifth week in a row, but it was a close run thing. The overall Asda basket cost £68.62, just 25p cheaper than second placed Morrisons. Sainsbury was a close third, on £69.67, but Tesco was on £77.64 and Waitrose was even further off the pace, on £82.22. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won by Tesco, for the third week in a row, as its 115,000 sq ft “Extra” superstore in Salisbury came top, with 88 points out of 100 (the Sainsbury superstore in Braehead Glasgow was a close second, on 86 points). Elsewhere in the magazine, there were features on the outlook for Majestic Wine after the sale to a US private equity firm, the new-look M&S Food store in Hempstead Valley and a “Power List” of the
• News Flow This Week: After the Cambridge-based Marshall Motor interims today, tomorrow brings the interims from another struggling Motor dealer, the Manchester-based Lookers. Thursday brings the ONS Retail Sales figures for July and the Wal-Mart/Asda Q2 and then on Friday we get the Watches of Switzerland Q1 update.• Yesterday’s Press and News: The main Retail focus in today’s papers is on the latest monthly BRC-Springboard footfall and vacancy figures, which show the usual gloomy trends, but the new PR team of Michael Murray and Sports Direct have clearly been working overtime, as there is another “exclusive” interview with the so-called Head of Elevation in the Times today, in which he says it will take 4 years to move the company upmarket and that he has to “translate” what #MadMike means when he makes punchy statements. And the loss-making Online mattress retailer Eve Sleep has |
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