Langton Capital – 2019-09-17 – PREMIUM – Cabana, insolvencies, bad management, TCG etc.:
Cabana, insolvencies, bad management, TCG etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Have you noticed that, on holiday, at home or wherever, the only way to get teenagers out of their bedrooms, be it to prepare for school, a day trip or a visit to relatives, is to turn the WIFI off?
Because that, as sure as night follows day, will lead to the thump, thump, thump of irritated feet on the floorboards above your head, then the managed tumble down the stairs followed by the ‘muuu-uuum or daaa-aaaad, why is the internet not workiiiing??’
The latter delivered, of course, with those downturned lips that only the 13-16yr olds can get right and which implies that all the world’s problems have been caused by you – when all you’re really trying to do is to get a bit of sunlight on their skin before we enter the permanent night that passes for November, December and January in some parts of this sceptered isle.
Anyway, enough of all that. It’s not as though we didn’t know what to expect. On to the news:
CABANA ADMINISTRATION. ADMINISTRATOR’S PROPOSALS ETC.: KPMG at least touches on what went wrong, what was lost financially, who took which assets & what (if anything) is left over for creditors etc. 17 Sept 2019:
• Although best avoided, failures are interesting as they shine a light on issues, both internal and market-wide, that may otherwise be pushed to one side (or at least not given much prominence) until they can no longer be ignored.
• External factors may feature cost swings (due to currency movements, droughts etc.), slack demand and oversupply (though re the latter, the failed company may be a part of the problem as well as a victim of it).
• Market-wide issues may also include cheap money, declining returns required from assets, property availability and a general, me-too atmosphere.
• Internal factors such as overconfidence and a lack of differentiation may feature. Failure to adapt to changing circumstances – or even to accept that circumstances are not the same as intended in the business plan – will also not help.
• Cabana operated eight South American casual dining restaurants in the UK. It appointed KPMG as administrators on 16 August.
• The best assets were sold to insiders. The bank expects something, preferred and other creditors will get nothing. The administrator expects to be paid.
• The administrators completed two ‘pre-packaged transactions’. They sold four sites to Fired Up One and another to Hache Trading.
• KPMG says ‘both purchasers are connected parties and wholly owned subsidiaries of Hush Brasseries Limited’.
• The three remaining sites have been closed.
• There ‘are not expected to be sufficient funds to enable a distribution to the preferential creditors’ says KPMG. It adds ‘there are not expected be sufficient funds to enable a distribution to the unsecured creditors.’
• KPMG says: ‘we anticipate the most likely exit route will be dissolution.’
A bit of detail:
• This is a pre-pack rather than a CVA.
• The administrators say: ‘the Company was founded in 2011 in response to demand for a premium South American casual dining restaurant.’ That demand must have passed us by.
• The group expanded ‘rapidly, opening eleven restaurants’ but the market slowed in 2017 and several of the company’s sites became unprofitable.
• The company exited three sites and shuttered Newcastle but it ‘continued to face liquidity issues, the onerous lease in Newcastle and the expiry of the Bank’s overdraft facility.’
• The last accounts filed (to Dec 2017) showed a loss after write-offs of £5.9m. Shareholders’ funds had fallen from £7.4m to £1.5m. They clearly fell by more during 2018 and 2019.
• The company faced a £0.7m funding crisis in August 2019’. Ahead of this, the directors engaged KPMG, initially as advisors and from August as administrators.
• KPMG adds ‘the directors concluded that it would be in the best interest of creditors [who are to get nothing] to file a notice of intention to appoint administrators.’
• The disposals of the better units were to subsidiaries of Hush Brasseries, which ‘is connected by way of a common director and shareholders.’
• KPMG tells creditors ‘we are satisfied that we are acting in accordance with the relevant guides to professional conduct and ethics.’
The two sales and the closures:
• The pre-packaged sales, of four units and one unit, were undertaken to related parties. The four units were sold for £313k and the one unit for £32k.
• Some £65k of the above related to the F&E costs of equipping five ‘premium South American casual dining restaurants’.
• The purchasers have assumed the obligations re the secured loan notes. Hush made a contribution towards the wages of redundant workers.
• For the remaining three leases, KPMG concluded there was ‘no value in the leasehold interest if offered for sale on a standalone basis.’ It adds that the assets therein would cost more to realise than they were worth and has ‘abandoned the assets located at these restaurants.’
• Over-optimism, over-expansion, me-tooism etc. But we are where we are.
• Cabana’s accounts showed (albeit end-2016) that the then-eleven units had £10.6m of tangible assets between them.
• Five of these £1m units have now been sold for £345k (a 93% discount) and three more have been abandoned as worthless (a 100% loss).
• Put your hand up if you’re not here. Occasionally, our system bounces email addresses off our list. It for some reason thinks this is a good idea. We never (well, hardly ever) cut anyone on purpose. But, proving a negative is tough so, if you don’t get it for a few days & would still like to receive it, please (check your spam folder and then) drop us a line.
GENERAL NEWS – PUBS & RESTAURANTS:
• In addition to reporting that the number of restaurant businesses going insolvent has jumped 25% in the last year to 1,410 in 2018/19, up from 1,130 in 2017/18, accountant UHY Hacker Young says the mid-market is ‘over-saturated’ and adds that ‘whilst many restaurant businesses were dangerously overextended it took the Brexit related blow to consumer spending and a rise in costs in raw material costs from the collapse in Sterling to precipitate the sector’s crisis.’
• Hacker Young says the big-name restaurants (e.g. Jamie Oliver, Byron Burger and Strada) have grabbed the headlines but this ‘has obscured the problem at thousands of smaller restaurant businesses.’ The accountant says ‘good restaurants and bad have all struggled from over-capacity, weak consumer spending and surging costs. Having a loyal following is great but if that loyal following stops going out then you have a problem.’
• Restaurant Group says that capacity has only fallen by 1% or so after increasing by more than a quarter in recent years. Hacker Young says ‘those businesses that had the foresight to scale back operations before the going got really tough are in a better shape now.’ Fulham Shore and other restaurant operators have reported that there are now a number of attractive property proposals becoming available.
• Hacker Young advises operators to focus on cash-flow. They should maybe have delayed some openings, sharpened their offers and put in break-clauses – but it’s easy to be wise after the event.
• Cheap money and me-tooism has led to overexpansion. This, when combined with recent slack demand, has depressed LfL sales. This has sponsored discounting (and, at the extreme, closures and administrations). Prezzo is currently offering 40% off main meals, Café Rouge and Pizza Express are 30% and 25% off food respectively.
• The Morning Advertiser quotes director of Compliance & Litigation as saying that ‘bad management can result in fraudulent behaviour.’ We would suggest that bad management may be correlated with fraud – and there may even be some causality – but the direction of that causality may be questionable (or variable).
• Recent collapses and suspensions such as Patisserie Valerie and Goals Soccer may have had certain management styles (and these, particularly in the case of Patisserie Valerie may have contributed to or enabled the companies’ misrepresentations), but many others seem to have been a victim of the market and / or of their own over-optimism or lack of ability.
• Compliance & Litigation says ‘if leadership creates the wrong culture, you create disenchantment and therefore increase the risk of fraud.’ Hard to argue with, though the definition of ‘wrong’ may need some work. Bullying bosses, and the sector has / had a few of them, can lead to a breakdown in the communication of (especially bad) news, and that provides fertile ground for fraud.
• UK private equity deals are reported to have fallen by 12% on this time last year.
• The CGA and UKHospitality Future Shock report has found that the UK hospitality sector has increased in productivity, with gross value added per hour worked increasing 3% compound since 2009.
• However, a survey conducted by CGA filled out by business leaders showed only a quarter think the hospitality sector performs better in productivity than other UK industries.
• Karl Chessell, Business Unit Director, Retail and Food at CGA, said: ‘Considering all of its cost and administrative burdens, hospitality is an impressively productive industry—but our survey of leaders shows that there is room to improve. This is a dynamic and creative sector, and it will be fascinating to see how technology and innovation can improve productivity levels in the years ahead’.
• Pub visits in the week and during the weekend declined 0.6% and 2.4% respectively, according to research from NPD Group. The research also found that the most popular time to visit the pub was lunch with more than a third of visits taking place then (38.6%).
• Research from Zonal has found that UK consumers have an average of 1.3 phones and these are changed more regularly than our toothbrushes. It is estimated that there are 3.1 connected devices for each pub customer. Some 36% of customers stated that they used order-at-the-table apps for speed with one in three customers saying more businesses should have apps, with Millennials and parents preferring them.
• UKHospitality welcomes the Northern Ireland Executive’s consultation on business rates, with CEO Kate Nicholls saying ‘It will give businesses a chance to air their concerns and secure the reform that will finally provide a fair business rates system fit for purpose. For too long, business rates have failed to reflect the realities of business in the 21st Century and high streets have been hit hard.’
• In the US, research by The NPD Group shows Generation Z could be responsible if restaurant industry traffic turns positive again anytime soon. The research shows Gen Z made 11 billion restaurant visits to restaurants in the year ended July 2019, and now represents 24 percent of total foodservice traffic. David Portalatin, vice president food industry analyst for Port Washington, N.Y.-based NPD, said ‘[Gen Z] are more important to the foodservice industry than other users. [They] are using restaurants at a rate that previous generations did not.’
• Carlton & United Breweries will be branching into wine after acquiring Riot Wine for an undisclosed sum. CUB has a 50% share of the Australian market and was sold to Asahi by AB InBev for AUS$16m in July.
• Oddbins and its sister company Wine Cellar Ltd will be sold in the next few weeks, according to joint-administrators Duff & Phelps. The proposed purchaser is believed to be the business’s former owner.
• McDonald’s has announced that it has distributed 70 million books to British children since the Happy Readers scheme launched in 2013.
• McDonald’s is celebrating its third annual McDelivery Day in the US later this week.
• Diageo has secured more than 20 million pledges to never drink and drive through its prevention campaign #JoinThePact. Kate Gibson, Director of Diageo in Society commented: ‘I am delighted by the progress our #JoinThePact initiative has made to date and our ambitious target to collect 50 million pledges never to drink and drive shows our tireless determination to make progress on reducing drinking and driving’.
• Aldi intends to expand aggressively in London and the South East despite a fall in profits. The discounter plans to open up to 250 stores in and around the capital by 2025.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook has confirmed that its meeting to agree the terms of a £1.1bn rescue (was £900m, then £1bn) package with lenders has been pushed back until the end of September. The vote had been due to take place this Wednesday. The group is in discussion with vulture fund bond holders who are exerting their leverage in order to secure more benefits for themselves.
• TCG says ‘the Company continues to target implementation of the recapitalisation in early October.’
• Pragma Consulting has said that ‘travel locations provide a great opportunity for gift retailers, but too often they miss out by limiting the category to souvenirs.’ In addition to food & drink retailers, the global gift market is forecast to be worth $31.6bn by 2021. The ‘gift market is defined in different ways, ranging from general merchandise…to souvenirs.’
• Abta is launching an advertising campaign in order to counter fears over post-Brexit travel to the European Union. Abta chief executive Mark Tanzer said: ‘We want to help the public feel confident about booking holidays and travel arrangements, especially over the important half-term period’.
• JUMP has pulled its bikes and scooters from a number of markets over the last few months with San Diego becoming the latest city affected. The Uber-owned company said the decision was in light of San Diego councilperson Barbara Bry calling for a moratorium on scooters in the city until it could figure out a fiscally responsible and thoughtful plan.
FINANCE & ECONOMICS:
• Rightmove has said that house prices are falling this month for the first time in a September since 2010. Rightmove said the number of properties coming to market was down by 7.8% this month on Sept last year.
• US economist Robert Shiller has cautioned that the US property market is frothy.
• Sterling lower vs dollar at $1.2416 but up vs Euro at €1.1272. Oil up another couple of dollars at $68.36. UK 10yr gilt yield down 7bps at 0.69%. Markets lower yesterday with Far East mixed in Tuesday trade.
• Brexit & politics:
o UK supreme court to begin deliberations on the legality of proroguing parliament. Betting is, whilst they will not rule on the reason behind the suspension, they will declare it not illegal.
o PM Johnson reiterated in Luxembourg that the UK will not extend its EU membership past 31 October. Johnson was booed when he attempted to speak alongside Luxembourg PM Xavier Bettel. Bettel said Johnson, who was not at the podium, needed to ‘stop speaking and act’.
o Having called himself The Incredible Hulk (in the process referring to himself in the third person), Mr Johnson seemed unwilling to face a small crowd. The Independent says it is ‘not Luxembourg’s duty to shield Boris Johnson from the public revulsion that he has earned’.
o Dominic Raab has said the UK has supplied enough detail to the EU for it to engage in further discussions.
o The Telegraph reports panic buying could cause shortages of toilet roll and disposable nappies
o The Lib Dems have said that, if they can take their number of seats from 18 to over 325 at the next election, they will consider that a mandate to cancel Article 50.
START THE DAY WITH A SONG:
Yesterday’s song was Nina Simone with I Wish I Knew What It Would Feel Like to Be Free. Today who sang:
I’d rather be at home with a Ray,
I ain’t got seventy days
Cause there’s nothing, there’s nothing you can teach me
That I can’t learn from Mr. Hathaway
RETAIL WITH NICK BUBB:
Ocado: The analysts conference call today is at 7.30am, so the company cut it a bit fine with a Q3 update that didn’t hit the screens until 7.21am…But the news is fine, if hard to interpret, given the extra distribution capacity opened via the 4th CFC at Erith, with sales up by 11.4% in the 13 weeks to Sept 1st.
French Connection: Today’s interims from the struggling French Connection (for the six months to end July 31st) were expected to also bring the outcome of the much-delayed strategic review, but that has been postponed yet again, to the end of January, for reasons which are unclear, even though active discussions continue with several parties. However, the group has said that it is on track to meet full-year expectations and it has made some modest progress in the first half, with Retail LFL sales growth of 1.4%, despite the difficult trading environment and underlying pre-tax losses reduced from £5.5m to £5.3m
The Grocer Watch: Ahead of the Ocado update and the latest monthly Kantar/Nielsen grocery market share figures, the widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda return to winning ways, with a convincing victory. The overall Asda basket cost just £49.41, £3.40 cheaper than second placed Sainsbury. Morrisons was third, on £53.21, Tesco was on £56.26 and the guest retailer Ocado was next, on £58.88, with Waitrose way off the pace, as usual, on £62.76. However, the separate Grocer “Mystery Shopper” monthly survey on Online Service and Availability was easily won by Waitrose, as it racked up a huge 98 points out of 100 (Ocado was bottom, on 70 points, after scoring zero for stock availability).And the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was also won by Waitrose, as its 20,000 sq ft
News Flow This Week: The latest monthly Kantar/Nielsen grocery market share figures (for the 4/12 weeks to Sept 7th/8th) come out at c8am this morning. Tomorrow brings the Kingfisher interims, the Pendragon interims, the Games Workshop AGM update and the British Land Capital Markets Day. On Thursday we then get the Next interims and the ONS Retail Sales figures for August, with the Applegreen interims on Friday.