Langton Capital – 2022-02-24 – PREMIUM – Commodities, AB InBev, Molson Coors, BrewDog, Heathrow etc.
Commodities, AB InBev, Molson Coors, BrewDog, Heathrow etc.
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Affirmation bias is quite a powerful thing.
We talk about inflation quite a lot these days and, with a rise to over 7% baked in because of what will happen to the energy price cap in April, that’s not going to stop any day soon.
And then, as it’s front of mind, we see inflation everywhere.
This is going up by 15%, that by 20% and the other by 25% but, strangely, we never see, let alone comment, on the prices that have stayed the same or, heaven help us, might have actually gone down a little.
But for the maths to work – and assuming the stats boffins aren’t misleading us somehow – there must be lots of prices doing very little.
The problem is, we can’t see them. Anyway, we’re back up north now licking our financial wounds. On to the news:
GENERAL THOUGHTS: COMMODITY PRICES…
PUBS & RESTAURANTS:
Oil prices have been flirting with the $100 per barrel level leading some commentators to suggest that UK petrol prices could hit a record 150p a litre later this week. There are also reports that the Ukraine conflict could impact grain and barley prices – and therefore impact the price of beer – as well as a number of other commodities.
Bank of England governor Andrew Bailey has told the Treasury committee of MPs that ‘second round effects of inflation’ can be avoided if workers do not ask for pay rises in order to compensate for their higher cost of living. This is a truism but, for those facing increased costs, it is more easily said than done. Mr Bailey said that inflation was ‘transitory’ but he seems to have changed his mind. He says that asking for pay rises will ‘embed’ inflation in the economy.
• It’s not clear what Mr Bailey, who told MPs that he could not remember how much he earns (clue, it’s £575k), thought would happen when costs rose. And asking for pay restraint from others whilst earning so much oneself did look rather tone deaf.
• Sadly, Mr Bailey is correct when he says that inflation punishes the weak. Be they employees without union representation or companies will no pricing power, weaker players in the economy will suffer as ‘stronger’ players take a larger share of the cake. This has implications for hospitality operators.
• Interestingly, chancellor Rishi Sunak has taken a more market-oriented approach and said that it is not his business to try to influence what private companies pay their staff. Former Bank of England MPC member Andrew Sentance told City A.M. that comments such as those from Andrew Bailey were an attempt to distract from the Bank’s own inaction.
• The above has implications for interest rates. Economists at Goldman Sachs, for example, are reported to expect rate rises at each meeting up to August and see borrowing costs at 1.75 per cent by November, the highest level since January 2008.
The BBPA has commented on the Department for Levelling Up, Housing and Community and Treasury’s joint technical consultation on moving to a three-yearly business rates cycle, saying that ‘the brewing and pub industry in the UK makes a major contribution to the local and national economy. The sector generates £26 billion of economic value and supports 940,000 jobs, and 85% of pubs in the UK are run as SMEs.’
• The BBPA goes on to say ‘however, the sector has also long suffered from over-taxation on business rates. Pubs pay more in business, per pound of turnover, than any other business sector. The business rates bill for the sector accounts for 2.5% of total business rates paid despite only representing 0.5% of total rateable turnover, an overpayment of £570 million.’
• The BBPA makes a number of suggestions. It says it is ‘clear the proposed changes to the business rates system to improve fairness will be totally undermined by the increase the administrative burden and cost to publicans up and down the UK. Pubs and brewers are at the heart of communities fostering social cohesion as we reconnect and recover from the pandemic. With the required support our sector can deliver jobs and additional economic value in every part of the UK, supporting levelling up and the regeneration of high streets and town and city centres up and down the country.’
Lumina Intelligence’s UK Restaurant Market Report 2021/22 indicates that the market grew 25.9% or £2.3bn in 2021 to a total value of £11.2bn. Outlet decline continued in the market in 2021, at a rate of -2.8%, seeing a net loss of 817 sites.
• Lumina reports that delivery peaked at 56% but still accounts for around one in three branded restaurant occasions. It says that consumers eat out in independent restaurants less frequently than they do in branded restaurants. However, when they visit, they spend more at £25.14 for independent restaurants and £21.59 for branded restaurants.
Marketing analysts Admirals’ research shows that an average pint could cost more than £10 by the end of the decade. Admiral market analyst Roberto Rivero said ‘Soaring energy prices, labour shortages and the rising cost of raw materials are pushing up input costs for businesses which, in turn, is putting upward pressure on prices.’
• Admirals rows back a little on its most aggressive forecasts when it says ‘rising inflation should only be transitory until the economy is used to living with Covid, however, things are likely to get worse before getting better.’ It adds ‘if inflation continues to rise at a faster rate than wages, then the price of a pint would be the least of our concerns.’ Maybe nonsense in, nonsense out. Admirals says ‘the hospitality sector would likely suffer as people began to prioritise spending on essential items and, although many of us may think a pint of beer on a Friday night is essential, things like food and household goods will take priority for most.’
The ongoing Russia-Ukraine crisis is set to cause a steep price hike in barley, leading to higher costs and supply chain disruption for beer companies. Ukraine is among the top five global producers of barley. Ankur Jain, chief executive of Bira 91, told the Economic Times, the development would put further margin pressure on the sector.
FEVS figures show that French wine export sales reached a record high of €15.5bn, up 28% YoY, with exports to China surging by 56% last year.
COMPANY & OTHER NEWS:
Anheuser Busch InBev has reported Q4 & full year numbers saying that ‘continued momentum [has] delivered over 15% top-line growth in FY21.’ CEO Michel Doukeris says ‘this year was an important step in our journey to create a future with more cheers. Relentless execution of our strategy drove continued momentum to deliver over 15% top-line growth, EBITDA at the top-end of our outlook and another year of strong cash flow generation.’ The company says that total volume rose by 3.6% in Q4 and own beer volumes were up by 3.4%. it says that non-beer volumes were up by 3.8%. In FY21, total volumes grew by 9.6% with own beer volumes up by 9.7% and non-beer volumes up by 8.7%.
• AB InBev says total revenue was up by 12.1% in Q4 and up by 15.6% in FY21 with revenue per hl growth of 5.5%. The group says that it saw a ‘23.5% increase in combined revenues of our global brands, Budweiser, Stella Artois and Corona, outside of their respective home markets in 4Q21, and 22.9% in FY21.’ Normalized EBITDA was up by 5.0% in the quarter to 4 882 million USD ‘represents an increase of 5.0%.’ The co says that in ‘FY21, normalized EBITDA increased by 11.8% to 19 209 million USD and normalized EBITDA margin contracted by 118 bps to35.4%.’
Early BrewDog investor Keith Greggor is reported to have resigned as a director of the company reports The Grocer. It says Mr Greggor is a ‘high-profile US investor, a drinks industry veteran and co-founder of investment firm The Griffin Group.’ He first bought into BrewDog in 2009. He has ‘now stepped down but remains a shareholder in the business.’
• A BrewDog spokesman says Mr Greggor has ‘been a director since 2009 and decided to step down to focus on his other business interests’. It says he “has made a huge contribution to the business in that time, during which we’ve grown to be the global leader in craft beer, with over 100 bars and four hotels worldwide”. The spokesman says ‘as we continue to evolve the board under the leadership of our chairman Allan Leighton in line with the UK corporate governance code, we expect to make other appointments to the board in due course.’
The Times reports that meal kit company Gousto has raised a further $230 million a month after sealing its unicorn status with a $100 million placing. The company ‘has completed a secondary placement led by SoftBank Vision Fund 2 and backed by Fidelity International, Grosvenor Food & AgTech and Railpen, formerly known as the Railway Pensions scheme.’
Molson Coors has reported Q4 & full year numbers saying that net sales increased 14.2% in Q4 on a reported basis and 13.7% in constant currency ‘primarily due to financial volume growth in both the Americas and EMEA & APAC segments, positive net pricing and favourable sales mix’ changes. Molson Coors says ‘net sales per hectoliter increased 3.8% on a brand volume basis in constant currency.’
Molson Coors points to the higher prices that it has managed to charge. It says that it generated net income of $80.0 million, $0.37 per share on a diluted basis in Q4. For the full year, ‘net sales increased 6.5% reported and 4.7% in constant currency, primarily due to positive net pricing, favourable sales mix, primarily due to portfolio premiumization and the reopening of the on-premise channel, and increased financial volumes in the EMEA & APAC segment, partially offset by lower financial volumes in the Americas segment.’
• The company says ‘this past year, we made significant progress against our revitalization plan – from growing our top line, to premiumizing our global portfolio to a record level, to making significant investments in our capabilities.’ What are ‘premiumisation’ and ‘favourable pricing’ moves to one person may be simply deemed to be ‘inflation’ by another.
• Molson Coors says that its own costs rose. It says there were headwinds in a ‘challenging inflationary environment and [the] continued impact from the coronavirus pandemic, including returning restrictions with the Omicron variant in the fourth quarter.’ The co says ‘this year [presumably, actually, last year], we grew the top-line for the first time in a decade, our two biggest brands each grew net sales and we now have a larger global above premium portfolio than ever before.’
• Reading between the lines, margins have been supported or expanded by increasing prices in an environment where customer were either prepared to accept this or were unable to do anything about it if they were not. This may be finite.
The MCA reports that State of Play Hospitality is experiencing a strong level of bookings from both corporate and social groups of guests returning. CEO Toby Harris said ‘We had a very strong autumn leading into Christmas. The rebound trend had been very much established. Then we had the ‘Omicron pause’ […] and now we are seeing a really strong comeback’.
A new digital platform, Krowd, has launched in the UK ‘to aid the growth of the hospitality sector by targeting new and lapsed customers.’
In the US, Texas Roadhouse has said that it will introduce a 3% menu increase from April.
• Such a ‘small’ increase may mean that more than one rise will be introduced in a year. Certainly if the past is anything to go by. The company says ‘at this time, we have not seen a negative reaction from the price increases that we took in May and November of 2021.’
LEISURE TRAVEL & HOTELS:
Camping and Caravanning Club reports bookings are up 33% on Easter 2019, despite the easing of international travel restrictions.
• The extent to which the staycation market holds onto the market share gains made during Covid remains one of the major unknowns. Keeping consumers in the UK works on a number of levels and, though the overseas tour operators may have a different opinion, domestic pub, bar and restaurant operators will be hoping that staycations remain popular. The CCC says ‘Easter is a really popular time for camping that signals the start of the season.’ It adds ‘this year looks certain to make up for lost time with strong bookings and a significant increase in the number of campers heading to our sites.’
Heathrow reports 2021 passenger numbers fell to the lowest level since 1972, at 19.4 million. The airport reports losses of £3.8bn over the two years of pandemic, but added that its £4bn liquidity remains sufficient to support recovery.
• CEO John Holland-Kaye says ‘while 2021 was the worst year in Heathrow’s history, I am very proud of the way that colleagues focussed on passengers, and we were able to maintain our position as one of the top 10 airports in the world for service.’ In terms of people landed, the airport has slipped compared to some other destinations. The CEO says ‘demand is now starting to recover and we are working closely with airlines to scale-up our operations and reopen Terminal 4 for the summer travel peak.’
Atlas Hotels has acquired a portfolio of six further hotels, located across Scotland, for an undisclosed sum. The purchase of Chardon Group sees the Atlas portfolio increase to 60 UK sites with over 7,400 bedrooms.
The Daily Telegraph reports that issues with courier TNT has led to a delay in passports being issued to holidaymakers. The newspaper said some travellers are waiting for up to 10 weeks for applications to be processed – it typically takes three weeks for a new adult passport to be issued and costs £75.
TfL has confirmed that from today face masks will no longer be mandatory across the network. However, TfL said it ‘strongly encourages customers to wear face coverings on its services to drive down transmission of the virus and keep each other as safe as possible’.
ABTA has confirmed that cruise holiday specialist travel agency Northumbria Travel has ceased trading.
Parkdean Resorts, the UK’s largest holiday park operator, is launching a campaign to create a caravan emoji, which will see the company submit an official application to Unicode Consortium.
Costar points out that extended stay hotels have performed well over the pandemic. Pitched, as they are, as something between an apartment rental and a room hire, they have seen guests stick with them to a greater degree than has been true at traditional hotels. STR says ‘last year, extended stay chains ran at an average occupancy of 73%, as other business-oriented hotels recovered much slower.’
• STR says ‘traditionally targeting guests who often stay for weeks at a time, extended stay properties offer larger accommodations and often full-kitchen areas. Traditional customers include consultants on assignment, construction crews and residents in between living arrangements.’
• Commenting on the US market, it says ‘the average occupancy for extended stay properties in 2020 was around 60%, roughly 16 points above the U.S. average. Even as the health crisis hit the U.S. and hotel occupancy plummeted to a national average of 24% in April 2020, extended stay hotels maintained a 44% occupancy.’
STR says that the US hotel industry was sluggish in January. It says occupancy was 47.8% (down 12.6% on 2019) with average daily rate almost in line (down 0.3%) at $123.51. The resultant REVPAR is down 12.8%.
Netflix has unveiled a £1.5m war-chest to search for new UK film-makers, allowing the directors to make anything from crime thrillers and sci-fi to romance and comedy, driven by the principle that ‘daring’ film-making can ‘drive commercial as well as critical success and can emerge from all backgrounds’.
Take-Two Interactive Software has issued Q4 revenue guidance of $808 million-$858 million, compared to the consensus revenue estimate of $918.47 million. The company provided earnings per share guidance of $0.780-$0.880 for the period, compared to the Thomson Reuters consensus earnings per share estimate of $1.150.
FINANCE & MARKETS:
City AM reports that UK customs duties paid by business in the year to end-Jan 2022 rose by 64% on the prior year as red-tape and friction became a feature of trade with the EU after the UK’s official exit. The amounts paid are rising sequentially with the last five months prior to 31 Jan being the five highest months on record.
• Accountant UKH Hacker Young says ‘this shows how the post-Brexit increase in custom costs to UK consumers is really biting.’ It adds that ‘the cost of tariffs and extra paperwork is causing serious difficulties for many businesses, who are already struggling to stay profitable in the face of mounting pandemic-induced costs. Over the past year custom duties have been a hugely significant additional cost for many businesses.’
• Hacker Young says ‘for a lot of them, custom duties have taken a big bite out of their profitability. Businesses who import and export goods between the UK and EU might be questioning whether their business models are viable.’
Oil prices have shot through $100 a barrel after explosions were heard near to Kiev. An invasion from ‘Russia, Belarus and Crimea’ has been reported.
Sterling mixed at $1.3497 and €1.2009. Oil through $100 at $102.01 per barrel. UK 10yr gilt yield up 1bp at 1.47%. World markets down yesterday & London set to open down around 200pts as at 7am.
Despite the tax rises to come in April, Chancellor Rishi Sunak is to further pledge to “deliver a low tax, higher growth economy.” Labour says he has ‘hit households and business with 15 tax rises in two years in post – with an unfair National Insurance rise down the line – and he has raised the most tax on average per budget than any chancellor in the last 50 years.’
The IMF has suggested that Rishi Sunak should consider introducing a wealth tax to raise money from those “who have benefited most from the pandemic.” It says ‘windfall or wealth taxes’ could be one way to deal with “demand-supply imbalances.”
RETAIL WITH NICK BUBB:
• Today’s News: The Howden finals are strong, with profit before tax of £390m, up 111% on 2020 and 50% on 2019, significantly outpacing revenue growth. And the new year is off to an encouraging start, with underlying LFL revenues up by 18% in the UK in the first two trading periods. There is no formal profit guidance, but Howden say “While it is still early in the new financial year, we have, at present, the momentum for another successful year in 2022 and the plans in place to deliver one”. There have also been strong final results from the Irish based DIY group Grafton and the global motor dealer Inchcape. The Victorian Plumbing AGM update, however, flags that it expects that both gross profit margin and adjusted EBITDA margin will be “slightly lower than previously anticipated” this year, although trading is relatively good, with sales only 3% down in the first four months (to end
• This Week’s News: The monthly CBI Distributive Trades survey is out at 11am this morning (for what it’s worth). First thing tomorrow we get the monthly GFK Consumer Confidence index and, over in the US, the Q4 results from Footlocker are out at lunchtime tomorrow.