Langton Capital – 2023-07-05 – PREMIUM – Oakman, Naked Wines, Joe & the Juice, Krispy Kreme, Center Parcs etc.:
Section TitlePREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Youngest is doing A-level mocks this week and quite stressful it is too. But, as she’s the fifth next-gen Brumby to run this course, it made me consider just how many GCSEs and A-levels, mocks and actual exams, added to university exams, year ones and finals alongside Masters’ exams, professional business exams, Registered Reps papers, CFA exams and Chartered Accountancy papers, I’ve had to vicariously ‘sit through’. And the total, each one a big deal when it was actually taking place, is somewhere between 220 and 250 and we haven’t finished yet. So there’s no wonder my hair turned grey. And then started falling out altogether but that’s enough of that, let’s move on to the news: PUBS & RESTAURANTS: Accountancy firm Price Bailey has reported that restaurant closures reached the highest quarterly figure in a decade in Q1 this year… • The firm says that some 569 restaurant businesses entered insolvency in Q1 2023 and that a total of 2,028 restaurant business became insolvent over the past year (up 55% on 2021/22 when 1,303 entered insolvency.) • Price Bailey points to rising interest rates and banks taking action against non-performing loans and generally taking a less tolerant attitude. We have seen a similar shift at HMRC. • Head of insolvency at Price Bailey, Matt Howard, says ‘while there are early signs of an improvement in trading conditions for restaurants, insolvencies in Q1 reached the highest quarterly level in over a decade. The improving economic outlook may come too late for many restaurant businesses which have accumulated unmanageable levels of debt over a testing few years.’ • He says ‘there is often a lag between a return to more robust economic activity and declining insolvencies. Banks will likely start to put increasing pressure on debtors to perform or pay off loans. Focus will start to shift from financially stressed businesses to startups and those with better prospects, which may mean that insolvencies continue to rise despite many restaurants seeing improved takings.’ • Langton. Indeed, recovery and insolvency numbers could, for a short period at the beginning of a recovery period, be positively correlated. This because banks and other creditors believe there could be a more active market in which to sell the assets that they may be about to seize. • Price Bailey says ‘restaurants are capital-intensive businesses. The cost of acquiring leases and outfitting restaurants can run into the millions per site in prime city centre locations. Many are highly geared and are perpetually walking a balance-sheet tightrope. As interest rates creep up, it might only take a few months of poor takings to send them over the edge.’ • The numbers overall indicate a pickup in administrations. This may be / will be due to a) creditors becoming twitchy and impatient and b) those same creditors thinking that now may be a better time to push a debtor into administration than it was yesterday (or will be tomorrow). The fact, see email last week, that HMRC is now objecting to some high profile administrations on the of lack of fairness, suggests that the ground may have shifted somewhat in recent weeks. The consumer: Generation Rent says that the average time it takes to save for a home deposit in England has risen to almost 10 years… • This declining affordability will impact spending patterns. Generation Rent says that prospective buyers could be well into their 40s before they are able to buy a home. Putting cash into consumers’ pockets – bank bosses are being told to increase savings rates. Though welcome, this would be meaningful for a relatively limited number of consumers. And taking it out again – much more material is the fact that a typical five-year fixed mortgage deal now has an interest rate of more than 6%…. • Langton. Five grand in the bank might make you an extra £100 a year (before tax) if the banks really pulled their fingers out. • In contrast, a mortgage familiar to us, which is at floating rate, has increased from around £300 a month to around £1,700 (after tax). That’s an annual worsening of about £17,000 or maybe 300x the magnitude of the above benefit once tax is taken into account. Inflation: Sainsbury yesterday suggested that the rate of food price inflation is starting to fall. It isn’t forecasting absolute price reductions but just a slackening in the rate of growth… • Some commodity-based prices such as coffee and maybe fresh products such as milk, fruit etc could fall in absolute terms. Sainsbury CEO Simon Roberts says ‘we are putting all of our energy and focus into battling inflation so that customers get the very best prices when they shop with us, particularly now as household budgets are under more pressure than ever.’ • He adds ‘food inflation is starting to fall and we are fully committed to passing on savings to our customers. Since March, we have invested over £60m in lowering prices, leading on price cuts across more than 120 essentials like bread, butter, milk, pasta, chicken and toilet roll.’ • Mr Roberts concludes ‘customers have also saved over £90m since we launched Nectar Prices in April. In addition, we’re offering great value through Stamford Street, our entry-price range and through our biggest ever Aldi Price Match campaign. All of this is underpinned by the continued delivery of our cost-saving programmes.’ WFH: This has slipped from the headlines but it’s still a thing. CoStar reports that around 105 million sq ft of office space is vacant nationwide, up 68 per cent on the pre-pandemic level with more capacity coming on every month… • Langton. So, if you build it, will they come? Maybe if prices are cut sufficiently, employers will lean on employees more heavily to come back into work but, otherwise, we’re inclined to think that the answer is ‘no’. This will leave co-located pub & restaurant operators, café and coffee shop owners and grab and go food shops in an unfortunate position. Other news: In the USA, restaurant sales growth picked up in May, largely as a result of increased prices… • Restaurant Dive reports that ‘restaurant same-store sales growth was 1.9% during May, up from 1.3% the previous month.’ It adds ‘but what is clear is restaurant sales growth is not as strong as it was during the last months of last year, immediately before the Omicron boost came into effect. As a comparison, restaurant same-store sales growth averaged 4.4% for the months included in Q4 2022.’ • It says ‘same-store traffic growth was minus 3.5% during May, an uptick higher than the minus 3.6% reported for April. Performance for the industry is not very different than the average minus 3.7% traffic growth recorded for the months during the last quarter of 2022.’ New Zealand’s wine exports rose in value by 25% in the year to May 2023. COMPANY NEWS: Oakman CEO Peter Borg Neal has told the MCA’s Pub Conference that ‘a ten-pound pint will come – the sooner the better as far as I’m concerned….’ • He says the sector and its customers need to be realistic about the costs of doing business. He says ‘we can’t afford to have suppressed margins for too long. You end of being a busy fool. There has to be margins and there has to be price.’ • The MCA reports that ‘a key issue for Oakman has been the lack of availability of debt to fuel its ambitions and build out its pipeline’. Borg Neal says the debt markets were effectively closed to ‘anything intricate or challenging’. He says ‘there is money out there – but the institutions are quite difficult at the moment.’ • The Oakman CEO says ‘we’re looking to simplify our debt until the market normalises, then go back to the market for institutional debt.’ • Considering an exit for his shareholders, Borg-Neal says ‘if we exit via private equity, a listing or trade sale, we need to get the right value.’ He says ‘to do that, going to have to navigate the next period of time, until the external world changes.’ • Langton. The debt markets are difficult and exiting is more easily said than done. Both buyers and sellers, but predominantly the former, have issues at the moment. Buyers may not be able to access funding and, if they can, it will be more expensive than it was 18 months ago. • And demand for acquisition opportunities may be muted whilst the full impact of the consumer slowdown remains uncertain. This could oblige – or certainly incentivise – operators to run their businesses for another year or possibly more in order to show that they can survive and that they will be in a position to prosper when the consumer recovers. For London operators (not particularly Oakman), running a Christmas without train strikes (or Omicron the one before) could be critical in achieving valuation. Naked Wines yesterday mid-morning released a profits warning for the year just started, news that its figures (expected on 6 July would be delayed) and said that its chairman, David Stead, would step down and leave the company… • Naked Wines said that its figures would not be released tomorrow as planned and said ‘a revised date will be made in due course.’ • The company says its numbers are in line with previous guidance (total revenue of c.£350m (flat on a reported basis, minus 6% to minus 8% on a comparable basis) and says that ‘FY23 adjusted EBIT of £15-18m, [is] expected at the upper end of the guided range.’ • However, the company adds that ‘sales in the first quarter of the financial year have been below expectations largely as a result of reduced levels of new customer recruitment.’ It says that ‘extrapolating current trends through the remainder of the financial year would result in sales of around £300m.’ • The group says it has revised its financial planning and in light of this ‘the Auditors require additional time to complete their procedures.’ As nothing should have changed to the historic numbers, we would imagine this revolves around the Going Concern statement and how the directors can convince its auditors that this is still appropriate. • Naked says it ‘is announcing the following changes, which will take immediate effect, to support the development of plans to drive profitable growth.’ It announces ‘the appointment of Rowan Gormley to the Board, assuming the role of Chairman’ and adds that ‘David Stead will step down as Chairman and leave the Board.’ Danish coffee firm Joe & the Juice has reported record 2022 revenues with sales up 49% in the 12 months ended 31 December 2022 to reach DKK 1.7bn ($247.6m). Operating profit reached DKK 277m ($40m) in 2022…. • The company reports that its ‘financial results cement that we are delivering on our strategy to drive Joe & The Juice to robust and profitable growth. In a year marked by the aftermath of Covid-19, we have achieved the highest revenue growth in the group’s history and adapted to a constantly evolving market.’ • CEO Thomas Noroxe says ‘the past few years have underlined Joe & The Juice’s presence as a global brand. We are now so well established in Europe and the US that more than 95% of our juice bars contribute positively to our operations. Therefore, it is crucial for us to continue our strategy of fully exploiting the potential of our existing markets. This strengthens our profitability and is therefore the natural next step in our growth plan.’ Krispy Kreme U.K. Ltd has reported its FY numbers for the period ended 1 January 2023 to Companies House. The company is a specialty retailer and wholesaler of doughnuts. Turnover increased in the year as Q1 lapped lockdown comparatives. Adjusted EBITDA fell Year-on-Year (YoY) as cost pressures increased and one-off benefits from 2021 fell out…. • The company increased its net shop count by 4 during the year, reaching 125 retail locations across the UK. Krispy Kreme Holding UK Ltd is the immediate parent company, with JAB Holding s.a.r.l considered to be the ultimate controlling party. • Revenue was up by 9.3% YoY to £117.2m, with the majority of growth occurring in Q1 lapping lockdown in Q1 2021 as well as growing sales through its delivery and ecommerce channels. • Gross profit marginally increased by 2.1% YoY to £63.6m, representing a retraction in gross margin to 54.2% from 56.9% in FY21. • Adjusted EBITDA fell by 29.1% YoY to £16.8m, giving an EBITDA margin of 14.4%, down from 22.1%. This was due to rising commodity prices & other input costs as well as one-off benefits relating to insurance and leases in the year prior falling out. • The company saw an exceptional charge of £2.7m, driven by the net of asset impairments, costs for aborted projects, gain on disposal of fixed assets and employee redundancy costs. This is up from £798k in the previous period. • The company made an operating profit of £5.0m, down significantly from £14.0m the period before. Government grant income fell off materially in the year to £37k in the year, compared to a sizable £1.3m in FY21. • Krispy Kreme U.K. posted a profit before tax of £5.2m, down from £14.1m in the previous period. The company paid a dividend of £5.9m in the period. • As a result of the above, the company’s retained earnings fell by £1.5m to £8.7m. • It ended the period with £3.1m of cash, up from £1.2m as at the end of the prior period. Krispy Kreme U.K. did not hold any bank debt in the period. The company owed Krispy Kreme Doughnut Corporation £960k as at the end of the period, and has loaned the same company £9.4m. Net assets fell by £1.6m in the year, to £14.8m. Unilever has defended its decision to keep operating in Russia saying to leave the country was “not straightforward.” The new owners of The Black Sheep Brewing Company have closed three pubs that it deems uneconomic. The units are in York and Leeds. Commenting on the sale of its tenanted pub division comprising 27 pubs, Cameron’s Brewery CEO Chris Soley says the sale ‘provides a strong platform for us to focus on investment for growth within both our brewing facility and managed pub estate….’ • He says ‘we are delighted to have completed the transaction with FB Taverns who are focussed on supporting the further development of community pubs. We wish the licensees all the best for the future and would like to thank them for their contributions while working with Cameron’s.’ Founder of plant-based group VBites and former Mrs Paul McCartney Heather Mills, has acquired the assets of Plant & Bean out of administration…. • The company closed its doors after it suffered from soaring costs and operational disruptions, with all 32 staff being made redundant. The company manufactured meat-free products for the likes of Quorn, Princes and Wicked Kitchen from the 125,000 sq ft factory in Boston. Diageo-owned Guinness has announced a €25m investment in a new facility at St. James’s Gate in Dublin, Ireland, for its non-alcoholic stout…. • Forecasts indicate that the non-alcoholic alternative will account for 10% of all Guinness trademark sales in Ireland in the coming years. • MD of Diageo Ireland, Barry O’Sullivan, comments ‘Guinness 0.0 is now the number one selling non-alcoholic beer in a four-pack format in both Ireland and Great Britain. This expansion in production capacity at St James’s Gate is a testament to the quality of Guinness 0.0 and the growth of the non-alcoholic category, as consumers look for more choices on different occasions. We expect the growth of Guinness 0.0 to be another export success story for Ireland.’ The Estate Tea Company plans to open a unique day-into-night venue at its Heaton based headquarters in Newcastle…. • The Estate Tea Company has secured collaborations with a range of small single estate tea growers from tea producing countries including India, Japan, China, Sri Lanka and Taiwan. The MCA reports that better kebab brand Döner plans to reach a global estate of 50 sites in the next two years…. • The brand currently has sites in Leeds, Harrogate, Headingley, and Bootle, along with a store in Dubai, and plans to open in London soon. Caravan is to open what will be its largest restaurant later this year in London’s Covent Garden. The site will be in the Grainhouse on Drury Lane. HOTELS & LEISURE TRAVEL: The Times reports that bidding on the planned £4 billion sale of Center Parcs has not lived up to expectations and says the sale is ‘hanging in the balance after a number of prospective bidders dropped out of the race amid a sharp downturn in private equity dealmaking….’ • The Times reports that ‘first-round bids were due towards the end of June, with Brookfield Property Partners, which has owned Center Parcs since 2015, taking a handful of parties through to the second stage.’ • It adds that ‘two of the favourites — CVC, the buyout group, and Blackstone, which sold the upmarket chain of holiday villages to Brookfield — are no longer in the running, according to a source close to the process.’ The Labour-led Government in Wales plan to increase council tax on second homes by up to 300% from April this year has reportedly backfired…. • Second homeowners are said to be registering as small businesses, allowing them to pay business rates instead of council tax, and then claiming 100% tax relief if their property has a rateable business value of less than £12,000. Colliers estimates that this system is losing local councils across England and Wales around £170m a year, up from £150m in 2022. OTHER LEISURE: Meta is launching its Twitter rival, Threads, on Thursday…. • Threads will be linked with Instagram and is the latest move in a rivalry between Meta boss Mark Zuckerberg and Twitter owner Elon Musk. Last month, the pair agreed to a physical fight. City AM has put itself up for sale after the pandemic left it with £1.2m in debt at the end of the pandemic…. • The change in commuting habits post-pandemic is also said to have hit the newspaper hard, which distributes 70,000 copies a day targeting financial workers. FINANCE & MARKETS: Sterling higher at $1.2704 and €1.1679. Oil price up at $75.82. UK 10yr gilt yield down 6bps at 4.42% having earlier hit 15yr highs yesterday. Markets mixed yesterday & London set to open down around 4pts as at 6.30am. RETAIL WITH NICK BUBB: • Today’s News: The AO.com finals (for y/e March) trumpet a “Step change in profitability as we rationalise, simplify and refocus our operations”, with the EBITDA margin reaching 4.0% and 5.0% still expected for the current year, but there is nothing in the statement about current trading or the relationship with Frasers. The Topps Tiles Q3 update (for the 13 weeks to July 1st) flags that “Trading saw a continuation of the good performance reported for the first half”, with Retail LFL sales up 2.3% and full-year profits are expected to be in line with market expectations. The QUIZ finals (for y/e March) note a “Continued revenue recovery and improved profitability in FY23”, but the statement flags that recent trading has been “tough”, with sales down 15% over the last 3 months and full-year profits expected to be only flat.
• Yesterday’s News: The M&S AGM yesterday morning passed uneventfully, although it was a surprise to see that nearly 14% of shareholders voted against the re-election as a non-exec of the Irish businesswoman, Evelyn Bourke. The shock news that the founder and former CEO of Naked Wines, Rowan Gormley, is to be appointed Chairman, with immediate effect (replacing David Stead) came out at 10am yesterday, at the same time as the announcements that tomorrow’s scheduled finals (for y/e March) are to be postponed, as “in light of the revisions to the group’s plans the Auditors require additional time to complete their procedures” and that “sales in the first quarter of the financial year have been below expectations, largely as a result of reduced levels of new customer recruitment”. The return of the highly experienced Rowan Gormley, to help the Naked Wines CEO Nick Devlin, was justified • Today’s Press: According to the invaluable Guardian morning email briefing, there is a mix of stories across the front pages: the Guardian leads with “UK ready to drop £11.6bn pledge for climate fund”. The i has yet another headline about the mortgage crisis: “UK mortgage crunch: four more interest rate rises in 2023 forecast”. The Financial Times reports “BoE considers forcing foreign banks to replace branches with subsidiaries”. The Daily Mail says “Boris’s Partygate accuser faces his own police probe”. The Telegraph leads with “US pushes for Von der Leyen to be Nato chief”, while the Times reports on an “Overhaul to tackle the scourge of rogue police”. • News Flow This Week: There is an analyst’s presentation by the John Lewis Partnership today and tomorrow brings the Currys finals. |
|