Langton Capital – 2022-02-01 – PREMIUM – AG Barr, insurance, future trading, Domino’s, Arc, travel demand etc.:
AG Barr, insurance, future trading, Domino’s, Arc, travel demand etc.:
A DAY IN THE LIFE:
Running a bit behind today after getting sucked into watching some of the fireworks in the House of Commons yesterday.
It was Nixon who said to Frost, ‘when the President does it, that means it’s not illegal’. Interesting, but surely no way to run a democracy.
However, apropos of nothing, it did get us thinking about lying. It’s a complicated area. Ian Blackford saw it in blacks and whites but there may be some people who could pass a lie-detector test on the basis that a lie wasn’t really a lie because they so-much wanted what they said to be true.
Or it was true in the version of the film running in their head.
Or narcissists can’t be liars because they really believe what they say or, on the tree falling in a forest when nobody can hear it principle, a lie isn’t a lie if it can’t be proven to be such.
Or if the can’s kicked far enough down the road that nobody cares any more, was the lie ever really a lie? Or if attention is distracted? A bit of flag-waving or a small-scale war would fit the bill.
Anyway, all that’s above our paygrade. Let’s move on to the news:
PUBS & RESTAURANTS:
The outlook for the wider industry.
The latest report from Future Foodservice considers the outlook for the foodservice industry to 2025 and concludes that revenues should ‘grow to £95.6bn, increasing substantially from £75bn in 2021, but [will still be] lower than the £98bn achieved in 2019.’ The reports suggests that there will be ‘more apparent polarisation between value-driven social refuelling and the experiential, premiumised dining, with challenges for those stuck in the middle.’
• Simon Stenning’s report suggests that there will be ‘a continued growth in Fast Food brands and increasing Americanisation of the market.’ It says features include ‘the continuing ‘Polo-Mint’ effect with city centre trade migrating to suburban locations, as working from home continues for a proportion of the week for many office workers, driving growth in neighbourhood cafes, convenience stores, pubs and restaurants.’
• Challenges include the upcoming return of VAT to 20%. Operators will have to decide whether to accept reduced margins or they will alternatively have to try to pass price rises on to a cash-strapped consumer. Mr Stenning says that further problems include ‘inflation rising and squeezing consumer discretionary spending, whilst consumer confidence remains in negative territory.’ An ‘increased tax burden from April with National Insurance rising, at a time when the National Living Wage also increases’ will raise costs for industry.
• The report says that ‘with 2022 recovering well, subsequent years up to 2025 are forecast to continue growing both in line with economic recovery, but also as consumers continue to eat and drink out of home habitually, with foodservice taking a greater share of stomach from supermarkets, especially through the rising provision and demand for delivered foodservice solutions.’
• Mr Stenning says ‘whilst the past two years have been incredibly challenging for all in the industry, the Next Era, from this year onwards, sees exciting new concepts growing, an increase in experiential dining providing consumers with persuasive reasons for eating and drinking out of home, and new technology enabling more efficient experiences.’
• He adds that ‘walue-driven, convenient, fast food solutions will also become more important, meeting new consumer demands, especially from those who are cash-poor and time-poor, but also as the way we live changes, and we try to fit more in.’ Mr Stenning says ‘there are still challenges at the start of 2022, with the increased tax burden and rising inflation, and the industry has to be careful of dampening nascent consumer demand by pushing more price rises onto them, but if the focus is on delivering exceptional experiences then the best operators will thrive.’
The Independent quotes some retailers and hauliers as warning that increased Brexit red tape will see reduced choice in supermarkets.
• There should not be food shortages, as such. Just less choice. The Independent says ‘specialist food shops in particular are being hit hard by bureaucracy introduced on 1 January 2022, with some fearing that their businesses will no longer be viable when physical checks on food imports are introduced in July.’ It says ‘one haulier likened Brexit to “death by a thousand cuts” as EU companies increasingly shun the UK with each new round of paperwork, administration and delays.’
Consumer spending power.
With taxes and mortgage rates set to rise, the consumer could end up somewhat strapped. Additionally, food and energy costs are going up. Inflation is ahead of wage rises. Even more so when tax increases are factored in. Consumption, therefore, can only be maintained in some areas by spending less in others. The only way consumption as a whole can be maintained is if consumers save less or actively dissave (i.e. borrow to spend). Fingers crossed but this is often a hugely dangerous course of action.
• Some £800bn in house equity value is said to have accrued to homeowners over the last year. Re-mortgaging or taking advantage of an ‘equity-withdrawal’ could free up capital for home owners but, as is the way with these things, there are risks. Savills says strong demand from buyers amid the coronavirus pandemic and government stimulus meant average prices rose more than 10 per cent in 2021. But people have to live somewhere and withdrawing equity from a house might only work if people are permanently trading down. Anything else will involve taking on substantial risk should house prices at any time reverse.
Real Business Rescue reports that more than 6,000 pubs and bars were in significant financial distress in December 2021, a 23% increase when compared with Q4 2019. According to data from CGA, trade was down by an average of 30% for the sector during the second half of December 2021 when compared with 2019.
• Real Business Rescue says ‘bars and pubs have missed out on one of their most profitable months of the year as December saw a rise in Covid-19 cases leading to cancelled Christmas parties and other social events put on ice.’ It adds that ‘following this, our research shows the hospitality sector has hit its worst months yet since before the pandemic, with more than 6,100 bars and pubs in significant financial distress. This is an increase of 23% from the same period before the pandemic began, where we saw 1,131 fewer pubs and bars in distress.’
Guest experience management expert HGEM reveals that 61% of consumers believe service standards within the industry have fallen, and main issues that have led to disappointment have been service quality and service speed. The survey also points out that three out of four customers would be more lenient about service mishaps if they knew that the location was actively trying to recruit more staff.
Black and White Hospitality and Rare Restaurants, which own the Marco Pierre White and Gaucho restaurants respectively, have joined forces to prepare for an arbitration with Tokio Marine, the insurance company for both operators, which has thus far refused to pay out on business interruption insurance policies.
• Black & White says ‘our policy wording, and that of those who have joined the campaign, is very clear. If there is a closure by a statutory body, then the policy should provide coverage. Given that the Government ordered us and many others to close down, it’s hard to see how there can be any ambiguity around this.’ It says ‘yet despite rulings from the Supreme Court and the FCA, our insurers continue to play games. We are left with no other choice but to press on with arbitration. We have grouped together with other policy holders across the UK and are ready to take this as far as we need to.’
COMPANY & OTHER NEWS:
AG Barr has updated on full year trading for the 53 weeks to 30 January saying that ‘revenue for the year is expected to be c.£267m, a 17.5% increase compared to the prior year.’ It says ‘this is marginally ahead of the revised guidance issued in November 2021 and exceeds the pre-pandemic revenue performance of 2019/20 (£255.7m) which also included c.£21m of Rockstar brand revenue.’ Co mentions inflationary pressures & says it is cutting costs.
• AG Barr says ‘this strong trading performance was achieved despite the unexpected and increased UK Government restrictions related to the Omicron Covid variant, and further emphasises the quality and resilience of our brands, business model and people.’ It adds ‘both our Barr Soft Drinks and Funkin business units have traded well, particularly during the periods when restrictions were eased.’
• The company says ‘the inflationary pressures highlighted in our November 2021 update have materialised as expected, particularly across packaging and energy linked commodities. We have initiated several cost control actions to reduce the impact of these rising costs and have adjusted our pricing with customers where appropriate.’ It says it ‘will continue to seek opportunities across the coming year to offset the impact on our business.’
• Operating margin is expected to by 15.6% compared with 14.8% in the prior year. The company says the ‘business has remained strongly cash generative throughout the year and we expect to end the financial year with c.£66m of net cash. CEO Roger White says ‘we are delighted with both the resilience our business has demonstrated and the growth we have delivered.’ He says ‘we have delivered an excellent financial performance against a volatile backdrop.’ The CEO concludes ‘we plan to further invest in our business in 2022/23 and remain confident in our ability to deliver continued growth in both revenue and profit in the coming year.’
Domino’s in the US has offered customers a $3 credit towards future purchases if they collect their orders rather than have them delivered. The promotion is time limited and will run until 22 May. The company says it will cover the Superbowl period.
The BII has announced that entries are now open for the 2022 BII Licensee of the Year award. It says ‘the impact of the pandemic on the pub sector over the last 2 years has been devastating, but even when their venues were closed and their businesses were at their most fragile, the nations’ licensees showed resilience, positivity and above all care for their teams, customers and local communities.’
• CEO Steven Alton says that it was ‘incredibly disappointing that the pandemic forced us to cancel the Licensee of the Year competition in 2020’ and says that the ‘LOYA recognises the best of the best from our sector, with key industry experts and operators leading the judging to ensure the standard of finalists goes from strength to strength. Our focus for 2021 was on how licensees weathered the storm over the pandemic, as well as the positive impact they had on their teams and communities.’
• Mr Alton says ‘in 2022, we are looking forward to once again welcoming the very best licensees to be put through their paces, recognising and celebrating not only the way they have dealt with the challenges that the pandemic brought, but also their plans for taking their businesses forward as they recover and rebuild for the future.’
Tesco is to shut its Jack’s brand, the hard discounter that was intended to compete with Aldi and Lidl.
Diageo has announced more than £70m investment into a new microbrewery and culture hub in Covent Garden, central London. Guinness at Old Brewer’s Yard is set to open in autumn next year, and become the Southern UK hub of Diageo’s Learning for Life Bartending and Hospitality Programme.
Arc Inspirations has secured a £14m refinancing package, which includes a separate £5m facility to help the group expand its site numbers. Arc Inspirations runs 18 sites across its Manahatta, Box and Banyan brands in the north of England. CFO Tim Knockton says ‘we’re delighted to have successfully concluded this process – it is clearly a significant endorsement for Arc Inspirations and for the wider hospitality sector. From early in the process, we were extremely encouraged by the number of banks that showed interest in supporting the refinancing and are very pleased to be partnering with HSBC, who are long-term supporters of the sector.’
• Arc says ‘the £5m growth element of new banking facility will support investment in a number of new sites for Arc.’ It adds that it opened two sites in Q4 last year and says ‘the new banking arrangements and latest property pipeline developments follow an encouraging period of trading for the group in the second half of 2021. From mid-July to mid-December, the group delivered sales up 42% versus the same trading period in 2019, prior to the pandemic.’ It says that ‘on the back of this very strong return to trading, Arc expects to produce a record performance in terms of both profit and sales for its full financial year to 31 March 2022.’
Greggs has been named the most admired brand in the UK at the Britain’s Most Admired Companies awards.
Swingers City and Swingers West End, has partnered with non-alcoholic spirits brand CleanCo, to introduce a selection of non-alcoholic cocktails for guests.
Direct Wines has warned that proposed changes to alcohol duty will lead to higher prices and less choice for wine drinkers. According to the Wine and Spirit Trade Association (WSTA), 80% of white wines and 90% of red wines will face a duty hike.
Student work app Stint has hired a new Chief Technology Officer (CTO) and Chief Product Officer (CPO), following the appointment of Harry Lang as Stint’s first Chief Marketing Officer earlier this month.
Plant-based meat company, Heura, has announced it has more than doubled the number of households that consume Heura vs. last year. The company closed 2021 with €17.7m in turnover, up from €8m in 2020.
The entry deadline for the SIBA Business Awards 2022 has been extended to the 13th February. The 2022 awards include three new categories in response to shifting consumer buying habits.
LEISURE TRAVEL & HOTELS:
Ryanair has dampened recovery hopes saying that the future remains “hugely uncertain” despite a recent pickup in demand. CEO Michael O’Leary says that bookings are coming in later than usual, so the airline is planning to cut prices to stimulate demand.
• This will not suit the holiday companies. Calls to ‘book early’ are as old as the leisure travel industry itself. Early booking allows operators to book a larger proportion of their ‘lift’ (i.e. aircraft seats) and ‘beds’ (beds) firm. Firm bookings will be at lower prices as owners of aircraft and hotels will allow discounts to be certain of shifting capacity. It they (the airlines and the hotels) are left holding stock and taking risk for longer, then they will need a higher price to compensate them.
• Hence, as with Simon Stenning’s comments on the impact of higher VAT rates above, operators will be left with the choice of either accepting lower margins (in order to take an acceptable level of risk) or having to pass price rises on to a consumer already facing tax increases as well as higher mortgage, energy and food costs.
• Ryanair says that any forecasts at this stage are ‘hugely sensitive to any further positive or negative Covid news flow and so we would caution all shareholders to expect further Covid disruptions before we here in Europe and the rest of the world can finally declare that the Covid crisis is behind us.’
New proposals announced on Monday will give airline passengers on UK domestic flights a fairer and simpler compensation process for delays. Transport Secretary Grant Shapps said the proposals ‘aim to bolster airline consumer protections and rights’.
The Queens Hotel Leeds has seen a 50% surge in bookings following £16m refurbishment, with its clients ‘eager to get back to live events’.
All travellers to EU member states will now be required to have had a second vaccination within nine months.
Cineworld has today announced ‘that it has initiated discussions with former dissenting shareholders of Regal Entertainment Group in relation to a potential rescheduling of the Group’s payment obligations under the unsecured facility agreement relating to the settlement reached with such shareholders which was announced on 10 September 2021.
The company says ‘in order to facilitate these discussions, Cineworld has obtained waivers of, or undertakings to waive, any events of default arising from non-payment under the Unsecured Facility Agreement from various other creditors. These creditors include certain holders of Cineworld’s guaranteed convertible bond due 2025 as well as the lenders under certain of its existing debt facilities.’ It says it ‘has initiated discussions with the Regal Litigation Parties with the aim of maximising its available liquidity and is hopeful that a satisfactory agreement can be reached within the period afforded by the waivers.’
Sony Interactive Entertainment has announced that it is to acquire games company Bungie for $3.6 billion. The co says ‘we’ve had a strong partnership with Bungie since the inception of the Destiny franchise, and I couldn’t be more thrilled to officially welcome the studio to the PlayStation family.’ It says ‘this is an important step in our strategy to expand the reach of PlayStation to a much wider audience. We understand how vital Bungie’s community is to the studio and look forward to supporting them as they remain independent and continue to grow.’
Wordle has been bought by the owner of the New York Times.
FINANCE & MARKETS:
Sterling mixed at $1.3452 and €1.1966. Oil price lower at $89.49. UK 10yr gilt yield up 6bps at 1.30%. Bank of England rate decision to be announced on Thursday. World markets mixed to better on Monday. London set to open up some 55pts as at 7am.
RETAIL WITH NICK BUBB:
• Today’s News: After the profit warning from the home shopping group Studio Retail yesterday (which sent its shares plunging by 35%), the profit warning from Joules today will set tongues wagging, given the widespread nature of its supply chain problems: after disappointing trading over the last 9 weeks, Joules has even had to postpone today’s interims (for the six months to end Nov), while it completes its “going concern” analysis! And after the news on Friday about a THG director selling shares, investors in ASOS will be disappointed to hear that the founder Nick Robertson, who is still a non-exec of the company, has dumped 450,000 shares, even with the price down at this level. Not perhaps a promising background for first dealings today in the Unbound/Hotter Shoes IPO on AIM (under the ticker “UBG”)…
• This Week’s News: Thursday brings the Virgin Wines trading update, the ScS update, the latest MPC decision on interest rates and the Amazon Q4 in the US.