Langton Capital – 2021-05-19 – Marston’s, Mitchells & Butlers, current trading, holidays, beer duty etc.:
Marston’s, Mitchells & Butlers, current trading, holidays, beer duty etc.:
A DAY IN THE LIFE:
I decided a few days ago to put up some Ikea shelves that had been resting in our garage – and the garage of our previous house – for the thick end of 20yrs, and they were still in pretty good nick.
No warping or whatever and they’re well-travelled, as I can remember buying them, in Geneva of all places, where the local telly told you to hold your nose and go to Ikea under the strap line ‘ne sois pas snob’.
Don’t be a snob because, in Geneva, which is not short of fur coats, small dogs and Russian emigres, it was thought demeaning to pitch up at Ikea where, horror of horrors, you might have to lug a load of planks out to the carpark where it might scratch the Bentley’s roof.
Anyway, I’d always found that they were pretty good and holding a few books off the ground and, as that’s what they were meant for, I had no complaints. On to the news:
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MARSTON’S – H1 NUMBERS:
Marston’s has today reported H1 numbers and our comments thereon are set out below:
• Given the restrictions on trading during the period – and the disposal of the beer business – the headline numbers are not entirely meaningful. Nonetheless, revenues were £55.1m vs £343, in the same period last year, with an underlying loss before tax of £122m (2020: loss £0.8m).
• The underlying loss per share is 16.7p (2020: profit per share of 1.2p) but the £291m profit on disposal of the brewing operations pulls the statutory numbers back up to a profit, with statutory EPS of some 31.5p
• As expected, there is no dividend. The company says ‘the Board believes that given the significant disruption to trading in the current financial year and continuing uncertainty it will be prudent to plan for no dividends to be paid in respect of financial year 2021.’
• It says ‘dividends have been an important component of returns to shareholders over many years and we will naturally look to resume dividend payments when there is sufficient certainty about the outlook.’
• Marston’s undertook a detailed review of its operations ahead of reopening and, as the required revenue to break even was relatively low, it reopened around 70% of its units in England on 12 April and around 70% of its Welsh and Scottish assets from 26 April
• This may have depressed LfL numbers but it maximised cash flow and the contribution to overheads in absolute terms
• LfL sales for the period since outside reopening (open pubs only and adjusting for the Easter weekend) show sales at around 80% of pre-Covid levels. Drink sales, aided by a warm spell in April, were 90% and food was 60%. Cold evenings curtailed food sales
• The group reports that it broke even in EBITDA terms during the month of April. Only a handful of the c700 units that it reopened failed to break even. The revenue required to break even will edge up when VAT rates and business rates normalise
• During times of total closure (hopefully not to be repeated), MARS burns around £4m per week
Cash flow and debt:
• Marston’s reports an outflow from trading of around £100m but, as a net c£230m was received as a result of the brewing JV, there was a net inflow for the period of around £110m
• There are no abnormal amounts owing to trade creditors or landlords and the outstanding VAT payment (c£46m) will be paid on terms running to the end of the year
• The contingent receivable as a result of the disposal of the brewing operations has risen from around £8m to c£24m
• Marston’s has drawn £164m of its £280m of bank facilities and it has £16m in cash. It has no refinancing requirements over the medium term and it has waivers on its securitisation covenants until January next year
• Group net debt is £1.23bn (down £150m over the last year). The group intends to reduce net debt to below £1bn by 2025.
Outlook & company comment:
• In a very active period, the SA Brain deal may be overlooked. This capital-light transaction, however, could become something of a template for further deals.
• Marston’s CEO Ralph Findlay reports ‘despite the challenges of the last year, the actions we have taken have ensured that Marston’s has emerged a stronger and more focused business with a substantially strengthened balance sheet, a 40% stake in Carlsberg Marston’s Brewing Company and a clear vision for the future.’
• Mr Findlay, who will leave the company at the end of the financial year, reports ‘I am confident that the business is in an excellent position to execute its strategy and deliver a return to growth as the country recovers from the pandemic.’
• The CEO says ‘whilst still early days, trading has been encouraging since we were permitted to open our doors for outdoor trading last month and it has been fantastic to have our teams back in the business, doing what they do best, and welcoming customers back into our pubs.’ He says ‘we look forward to all trading restrictions being removed next month which signals a return to some semblance of normality.’
• Re the upcoming management change, Ralph Findlay says ‘I am delighted to hand over the reins of Chief Executive Officer to Andrew Andrea later this year and am confident that both Marston’s – and its talented team of people – will be in extremely able hands under his stewardship.’ He says ‘Marston’s has a great opportunity ahead and I look forward to seeing the Group go from strength to strength as it embarks on the next exciting stage of its development.’
• Marston’s has been extremely active during the Covid pandemic. The company has finalised its Carlsberg JV and agreed on various waivers with its bondholders and added to its liquidity headroom. The company has secured the SA Brain estate of pubs via an innovative, asset-light deal and has seen off an opportunistic bid approach from Platinum Equity Advisors. More recently, the company has announced that long-standing CEO Ralph Findlay is to retire at the end of this financial year, to be replaced by current CFO, Andrew Andrea.
• What the group has not done has also been noteworthy. It has not issued equity, it has not increased its underlying indebtedness, it has not launched a CVA for any of its leasehold assets and it has not made any potentially risky capital transactions – either disposals (the brewing JV is strategic) or purchases of ‘distressed’ assets.
• Marston’s has shown that it can operate at profitable levels of turnover even under relatively severe restrictions and the freehold nature of its units means that trading outlet costs are reduced.
• It remains the case that forecasting is not yet possible but, looking longer term, pandemics are rare, hostelries have been popular for centuries, Marston’s debt is reduced, and it has a well-financed, largely-freehold estate.
• The company could make accretive acquisitions. It is in a good position to do so and the hospitality industry is likely to see supply reduce going forward and Marston’s is well-positioned to prosper.
MITCHELLS & BUTLERS – H1 NUMBERS:
Mitchells & Butlers has this morning reported H1 numbers and our comments are set out below:
• Although rendered relatively meaningless by the pandemic, the results were as follows. Sales in the period were £219m against £1.04bn last year. The loss before tax was £200m (2020: loss £121m) and the basic loss per share is 33p. There is no dividend.
• Trading & further comment, see premium email:
PUBS & RESTAURANTS:
• It’s still early days with a small sample size but there is plenty of comment out there on footfall and trading patterns. It’s still early in the week, the weather has been bad in parts and it’s not pay-week (or close to it) and we’re a way off the next Bank Holiday yet. Nonetheless, The Guardian reports The Fork (formerly Bookatable) as saying that a record number of tables were booked for a Monday, 12% more than on any single date since July 2020. The Fork says 88% of its client restaurants were open on this week compared with 47% when dining was allowed outdoors only.
• Langton comment: See premium email.
• Springboard suggests that London and ‘historic towns’ have seen increased footfall but most other regions have recorded numbers below two years ago. Tenzo has reported that restaurant sales were up 4% on Monday compared to 2019. That’s a single day and, given the novelty factor, it may not give an accurate picture for the future. Tenzo says LfL sales week on week were up 70%. Tenzo expects more restaurants to reopen as we approach the weekend. See our comments on small samples, above.
• Clear Sight reports in its ‘Mood of the Nation’ snapshot, that some 48% of British adults now believe that the worst of the crisis is behind us – a new high. It says the ‘anticipated time horizons to normality [has shortened] slightly.’ It says ‘30% believe we’ll see ‘something close to normality’ before the end of Q3 – but just over half of us believe it’ll be 2022 (or beyond).’
• S4Labour has reported that sales on Monday, admittedly a sample of one day, were down by 10.3% on the same Monday in 2019. It says ‘the decline in sales was driven by a 24% collapse in drink sales, where restrictions continue to prohibit vertical drinking. Food sales were up 5% compared to the same Monday in 2019, indicating the majority of pent-up demand has dissipated, with outside service being re-introduced in April.’
• Langton comment: See premium email.
Company and other news:
o Oakman Inns has announced it biggest project to date, The Woburn. The pub and restaurant will reopen today alongside accommodation comprising 48 bedrooms together with seven cottages within the large courtyard. CEO Dermot King says ‘The Woburn could easily become the jewel in the Oakman Group’s portfolio of historic pubs and hotels’ and adds ‘The Woburn is perfect for those looking for a much-needed mini-break.’
o Recovery or frozen animation? The number of insolvencies in April fell versus the same number a year ago. Company Insolvencies (UK) reports that in April 2021 there was a total of 925 registered company insolvencies across England and Wales. This is 23% lower than that in the same month the previous year and 35% lower than that in the same month two years before. Company Rescue reports ‘the decrease in bankruptcies is thought to be driven by a fall in debtor applications and creditor petitions. The enhanced Government financial support for individuals and businesses since COVID-19 emerged has contributed to these falls.’
o A coalition comprising SIBA, CAMRA, UKH and others, representing Britain’s Brewers, pub companies, operators and beer drinkers, have come together to call for a cut in duty paid on beer sold in the UK’s pubs. SIBA says ‘the majority of beer produced by the UK’s independent brewers is sold into pubs. A lower duty rate for draught beer would support the Government’s levelling up agenda by investing into communities, supporting wet led pubs struggling to recover from the pandemic, and brewers and securing the employment of thousands in hospitality, particularity amongst young people.’
• Gordon Ramsay Restaurants is aiming to open another 10 sites in the UK by the summer, it says. Ramsay has earlier said that he has plans for 50 sites in the UK. The celebrity chef says ‘despite all of the pandemic related challenges, we have to be optimistic and forward thinking and invest back into our amazing industry.’
• The administrators of the Richoux restaurant group have sold the brand and its IP to Naveen Handa, who is reported to be associated with the Cairn Group.
• Euromonitor international reports that global alcohol sales fell by 6% during the last year, impacted by the closures worldwide of large parts of the on-trade. Among major markets, Euromonitor says that consumption in India was down 19%, in Spain it fell by 14% and in the UK it was some 10% lower. Sales rose in Australia, South Korea, Russia and Brazil amongst other territories.
• Restaurant Dive in the US reports on the labour shortage. It says ‘people are returning to restaurants in droves, excited to dine out and meet with friends. But this sudden ramp up in business after several months of slumping sales is creating a staffing challenge for operators.’
HOTELS & LEISURE TRAVEL:
Current situation – confusion leading to, well, confusion:
o Green list countries (or country, namely Portugal) are OK but with Matt Hancock and now Boris Johnson saying holidaymakers should not travel to amber countries, some holidaymakers have been wrong-footed. The PM said yesterday it was “very important people grasp what the amber list is – not somewhere to go on holiday”. Areas of confusion include – but are not limited to – the following:
o Refunds. The BBC points out that some travel companies are refusing refunds or changes of date to customers who have booked holidays to amber list countries. One company contacted by the BBC, Villa Plus, said ‘government advice on amber destinations is not legislation and whilst we empathise with those that may now choose not to travel due to the entry requirements they face upon return to the UK, we cannot provide them with a refund or credit for monies paid and they should seek compensation from their travel insurance provider.’
o Delays at airports. The government itself has said that travel may not be ‘normal’ and that delays at the UK border on return are likely. The first, one-week Portugal holidays should be returning next Monday.
o Cancellations (UK holidays). There is some talk of customers booking holidays at two or more hotels with a view to cancelling all but one at the last-minute. If true, this will cause severe problems. The Guardian quotes tech company Avvio as saying that UK hotel cancellation rates were running at “scarily low” levels. Consumers, confident in hotels’ refund policies, are being accused of ‘hoarding’ bookings.
o More on ‘hoarding’. Avvio says ‘many holidaymakers have booked both a foreign holiday and a UK stay, and our data shows they are often holding on to both. If they decide at the last minute to risk a holiday abroad, a late rush of cancellations in the UK would create chaos across the whole industry as hotels scramble to fill their suddenly vacant rooms. Many of these just won’t be filled, resulting in tens of millions of pounds in lost revenue.’
• Expedia reports that UK holidays are still in the majority for departure dates during May and into the short term future. Watching what happens at the airports seems like a sensible policy.
• The UK domestic holiday market should be a winner should reduced numbers of holidaymakers choose to (or be able to) go abroad.
• Langton comment: See premium email.
Other holiday & hotel news:
o Airbnb. Putting a brave face on it, Airbnb has suggested that, whilst holiday lets may be under pressure, a new market could develop for remote workers staying away from home whilst ‘working from home.’ Other workers may move permanently but then return to their old haunts and use Airbnb properties. CEO Brian Chesky says ‘if you think about where business travel is going in the future, it seems completely intuitive to me that as companies offer more flexibility, more people are going to live around the world.’
o STR leads on the labour shortage in the US hotel industry.
o Eurostar has reached a £250 million refinancing agreement with its shareholders and banks.
FINANCE & MARKETS:
o The UK rate of unemployment fell to 4.8% in the quarter to March (from 4.9% in the quarter to February). A tightening jobs market could lead to inflation – though the end of the furlough scheme could push in the opposite direction. UK job vacancies have hit their highest level since the start of the pandemic.
o Average wages. Average weekly earnings rose 4.0% in the three months to March. This was below the 4.5% expected and is somewhat inconsistent with a tightening labour market. The NIESR says it ‘predicts that average weekly earnings growth will be 5.3 per cent in the second quarter of 2021.’ It nonetheless maintains that ‘there is still significant slack in the labour market.’
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TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 17 May 21 Hollywood Bowl H1 numbers
• 18 May 21 Britvic H1 numbers
• 18 May 21 Escape Hunt FY numbers
• 18 May 21 DP Eurasia trading update
• 19 May 21 Marston’s H1 numbers
• 19 May 21 Premier Foods FY numbers
• Est 19 May 21 M&B H1 numbers
• 19 May 21 UK ONS inflation data
• 20 May 21 Young & Co FY numbers
• 20 May 21 Fevertree AGM
• 20 May 21 888 AGM
• 21 May 21 GfK consumer confidence numbers
• 25 May 21 Restaurant Group AGM
• 25 May 21 Shaftesbury H1 numbers
• 26 May 21 C&C FY numbers
• 26 May 21 Playtech AGM
• 3 Jun 21 New River full year numbers
• 8 Jun 21 DP Eurasia AGM
• Est 13 Jun 21 Barclaycard Consumer Spending report
• 15 Jun 21 Vianet full year numbers
• 24 Jun 21 Bank of England MPC meeting
• 13 Jul 21 Pepsi Q2 numbers
• 23 Jul 21 Premier Foods Q1 update
• 27 Jul 21 Campari H1 numbers
• 3 Aug 21 Domino’s Pizza H1 numbers
• 5 Aug 21 Bank of England MPC meeting
• 10 Aug 21 Intercontinental Hotels H1 numbers
• 12 Aug 21 TUI Q3 numbers
• 18 Aug 21 Carlsberg H1 numbers
• 19 Aug 21 Rank FY numbers
• 22 Oct 21 Intercontinental Hotels Q3 numbers
• 26 Oct 21 Campari Q3 numbers
• 8 Dec 21 TUI FY numbers
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