Economy, taxes, Artificial Intelligence, C&C, DGE, Adnams, RCL & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

I was considering the other day how virtually all energy – whether it be heat or stored in the form of calories – comes ultimately from the sun.

OK so the earth has got a molten core, there’s a bit of heat down there but you can see how plants were the first to get the hang of converting the energy in sunlight into, well, into life.

And they beat me to it because I could sunbathe all day and I’d still get hungry.

And then you have your herbivores. They go the direct route. They munch up the vegetation that in turn soaked up the energy from the sun and did something with it.

And then it gets interesting.

Because, and I know evolution doesn’t ‘think’ as such, some animal (and some plants) decided to eat a dead animal that ate the plant that soaked up the energy from the sun and did something with it.

And then, some animal must have taken it a bit further. They ‘thought’ that waiting for an animal to die was a tad dull so they, the carnivores, decided to speed things up and make dead the animal that ate the plant that soaked up the energy from the sun and did something with it.

Which means, presumably, that I’m another couple of steps down the chain when I next order a burger. On to the news:

PUBS & RESTAURANTS:

UK economy:

The CBI has reported its belief that the downturn currently besetting the UK’s private sector will ‘persist into 2026’. The CBI says that a weighted balance of 20% (i.e. pessimistic > optimistic) ‘firms across the private sector expect activity to fall in the next three months…extending a run of negative predictions that began in late 2024,…’

• The CBI’s latest Growth Indicator has indicated no growth. It says ‘the downturn is expected to be broad-based, with business volumes in the services sector set to decline (-15%), driven by weak expectations in both business & professional services (-12%) and consumer services (-28%). Distribution sales are expected to fall sharply (-34%), alongside a contraction in manufacturing output (-19%).’ Hospitality sits in the consumer services sector, one of the least optimistic.

• Alpesh Paleja, Deputy Chief Economist at the CBI, says ‘firms are facing a difficult winter, with private sector momentum weak and confidence fragile. Uncertainty around the upcoming Budget is weighing heavily on sentiment, with many firms keeping key decisions on hold until more clarity is forthcoming. Cost pressures from a variety of sources remain strong, with last year’s tax rises adding to the drag.’

• There is clearly a desire to get across the message that hitting business again in next month’s Budget could backfire for the chancellor. The CBI says ‘the business tax burden is already at a 25-year high and – rather than tinkering around the edges – the Chancellor must strategically address the tax system’s complexities that are undermining growth and deliver a Budget and tax system that helps businesses invest, hire, and scale.’

• A negative balance of 40% of respondents said that volumes in the consumer services sector fell in the three months to October. C&C yesterday reported that volumes were down. Most leisure retailers are also pointing to reduced footfall and higher prices.

• The CBI says that ‘hiring intentions within the services sector remain weak.’ It says ‘consumer services companies expect a sharp fall in numbers employed (-33%)’. Re selling prices, the report suggests that ‘selling price expectations in the services sector eased to their long-run average in October.’ It says that ‘expectations have moderated for both business & professional services firms (+5%) and consumer services (+18%).’

Tax rises:

Based on its interpretation of what defines ‘working people’, Sky News reports that ‘Rachel Reeves is unlikely to raise the basic rates of income tax and national insurance.’ This in order to avoid breaking a promise to protect working people. Sky believes that officials have been ‘tasked with protecting the income of the lower two-thirds of working people, meaning in theory people earning more than around £46,000 could face a squeeze in the budget….’

• Most consumers, indeed around two thirds of them, will earn below the above figure and, as such, their disposable incomes may not be reduced in the Budget. Above that level, there may be some impact. Sky does, however, go on to say that it ‘understands that ministers are still considering whether to break manifesto pledges, and these options remain on the table.’

AI and the threat to jobs:

The state of the jobs market is often cited as the largest influencer when it comes to people’s propensity to spend. Job losses impact the ability to spend but the fear of job losses impacts the desire to do so of a much larger number of employees / consumers…

• With that in mind, interesting to note the interpretation of Amazon’s move this week to slash thousands of central function jobs as being driven by the implementation of AI. This may be a) true and contagious or b) untrue with the job losses down to Covid-era over-hiring or c) partly true and still somewhat disturbing. Certainly a large number of corporates are sure to be looking at AI with a view to cutting costs (also known as jobs).

C&C GROUP – H1 ANALYSTS’ MEETING:

Following the release of its H1 results, C&C Group hosted a conference call for analysts and our comments are set out below.

Headline comments:

• Challenges facing the market as a whole ‘have accelerated’. The warm weather was welcome, but it ‘did not lead to volume growth’.

• Improvement ‘is underway, but will take time to feed through to the bottom line’. The drop in revenue is largely down to exiting the BBG contract but there has been some volume decline (but revenue increase) across the market as a whole.

• Costs for FY26 are ‘in line with expectations’. Co expects ‘modest inflation’ in FY27.

The market & divisional performance:

• Customers are cash-constrained. Value is critical. Long-alcoholic-drinks are outperforming wines & spirits.

• Tennent’s remains Scotland’s no1 beer brand. Bulmer’s performed well, helped by the weather. Magners is improving ‘after some very challenging years’. The premium portfolio ‘continues to grow’.

o Q. What remains to be done at Magners? It had pushed too much for volume. Lost momentum in on-trade. Co needs 1) consumers to ‘reappraise the brand’ then it should see impact 2) in the off-trade and later 3) in the on-trade.

• Distribution. Matthew Clark is ‘much-improved’ in terms of service levels. Recovery ‘remains a long-term journey’. Some volume could be shed in order to improve profitability.

Financials:

• FCF should be broadly in line with FY25 outturn. Leverage (borrowing to EBITDA) is in line with last year at 1.1x. There are no short term refinancing issues. Capex needs are ‘modest’ at €15-20m p.a.

• So significant cash generation will remain a feature. The €150m 3-year return to shareholders remains in place. Some €90m has been returned to date. The co has the capacity to make acquisitions, should opportunities arise.

• Q. Some €30m of buybacks still to come. Will ‘do €15m tranches’ and will align this to cashflow.

• Q. What of the company’s culture do you have to change? Hard to answer. Mr White implies that growth may have been a little rapid with loose ends flapping.

Strategy:

• There are both complicating factors and opportunities. Scale benefits and integration will be priorities. The company is neither a niche player nor a fully-integrated group taking advantage of its scale. The group aims to be ‘simpler centrally’ and stronger regionally.

• The co ‘will have many KPIs’. This will be a complicated task and CCR will give detail at its FY numbers in May.

• Q. Has material price ‘been taken’ and will this moderate materially? Co sees ‘low single digit inflation’. Distribution is price-sensitive. In branded, the co will ‘support its customers to drive growth’.

• Q. SKU rationalisation? Just at the beginning of the journey. Q. How happy are you with your range of products? Pretty happy.

Outlook:

• Q. Near term, Christmas bookings are looking good. There is ‘a background of positivity’. But impulse spend remains more important than bookings.

• Q. Will cost cuts come through to the bottom line, or will it be ‘invested’ in the customer proposition? Co will update more fully next May.

Langton Comment:

• See also earlier Flash Note.

• The company details a journey that a) has just really started and b) will take some time. Some revenue is likely to be shed. The company needs to secure its integration and deal with growth issues that have caused problems in the past. It aims to control the controllable and will update more fully in May.

• Cash flow, in the meantime, remains good. The recovery, early in the process though we may be, remains on track and cash returns to shareholders will continue.

• The group’s shares performed strongly in the middle part of this year but have since given back some of their gains. Some shareholders may be frustrated that recovery will take time but others are likely to be enthused by the company’s core assets and by its recovery-realism.

• Today’s confirmation that trading remains in line with expectations should provide some support.

COMPANY NEWS:

Diageo to open Guinness experience centre. The Guinness Open Gate Brewery London will open on 11 December offering experiences including a tasting room, two restaurants and  ‘pour your own pint’ instructions….

• Guinness says the offer ‘has been years in the making, and we’re thrilled that the moment has almost arrived. We can’t wait to welcome Londoners and visitors from around the UK and the world.’ It says ‘we consider this Guinness’ home in the UK, hosted in the country’s dynamic capital city’ and adds ‘it will be a place to celebrate heritage, embrace innovation, and invite visitors to discover new flavours, experiences, and stories.’

Suffolk-based brewer and pub company Adnams announces that Mr Simon Townsend, Non-Executive Director and Interim Chair of the Company, purchased 1,650 B Ordinary Shares in the Company on 24 October at a price of £18.05 per share. It adds that ‘on 28 October 2025 Mr Andrew Driscoll, Director and Chief Financial Officer of the Company, purchased 500 A Ordinary Shares in the Company at a price of £10.00 per share.

JD Wetherspoon chair Sir Tim Martin has told the MA that franchising could play an important role in the pub group’s long-term growth. He says ‘franchising could be very important, especially if we can copy companies like Starbucks and open up in Japan, China and India.’ JDW will update on Q1 trading on 5 November.

Sky reports that PE house KKR ‘has made a move to acquire Costa Coffee.’ It says KKR is ‘among a small number of parties in talks with The Coca-Cola Company and its advisers at investment bank Lazard about a possible takeover.’ Bain Capital and TDR Capital are also reported to have expressed an interest.

Drinks Business reports that Kirin is exploring a US$1 billion sale of its Four Roses Bourbon brand. It says there has been heightened interest from potential buyers.

HOLIDAYS & LEISURE TRAVEL:

Royal Caribbean Group yesterday reported Q3 numbers saying that it had generated adjusted EPS of $5.75. It says that its ‘results were better than the company’s guidance primarily due to higher than expected close-in demand and lower costs.’ RCL is ‘raising its full year 2025 Adjusted EPS guidance to $15.58 to $15.63, representing 32% year-over-year growth. This increase is mainly driven by the better-than-expected third quarter performance which is more than offsetting the minimal impact in the fourth quarter from recent adverse weather, and the unplanned extension of the temporary closure of one of the company’s exclusive destinations in Labadee, Haiti….’

• RCL CEO Jason Liberty says ‘we continue to see strong momentum across our business, powered by accelerated demand, growing loyalty, and guest satisfaction that is at all-time highs.’ He says ‘looking ahead, while it’s still early in the planning process, our strong booked position gives us confidence for 2026 and beyond. With our proven formula of moderate yield growth, strong cost controls, and disciplined capital allocation, we expect 2026 earnings per share to have a $17 handle, positioning us well to achieve our 2027 Perfecta targets.’

OTHER LEISURE:

Grainne Hurst, the chief executive of the Betting and Gaming Council, has told parliament’s Treasury select committee that there is no ‘social ill with gambling’. She went on to warn that taxing bookies more heavily would cost jobs, lead to closures and drive betting underground….

• Ms Hurst said of betting ‘I would disagree that there are social ills as a result of it. I think that it is properly taxed in the system’. She added ‘our argument is that if you increase further any additional taxes on the industry…it will put jobs at risk, will put shops at risk, will put sports sponsorship at risk.’

FINANCE & MARKETS:

Sterling lower at $1.3235 and €1.1380. Oil lower at $64.44. UK 10 year gilt yield unchanged at 4.40%. World markets mostly better yesterday. London set to open around unchanged as at 6.30am.

RETAIL WITH NICK BUBB:

Nick is taking a short break.