Langton Capital – 2018-02-20 – Intercontinental Hotels, KFC, disrupters, experiential etc.:
Intercontinental Hotels, KFC, disrupters, experiential etc.:
A DAY IN THE LIFE:
So, there’s been a Sudden Stratospheric Warming event above the North Pole, has there?
This apparently involves the temperature warming by about 50 degrees over a matter of days, which in turn can shift the Gulf Stream and bring colder air from the East over the UK.
The Met says there’s a 70% chance of this happening & a 30% chance that it will stay mild. Hence around 70% of weather forecasters are saying that it will fall below freezing in York over the weekend and not come above that level, day or night, until around 6 March, whilst 30% are saying you should be unpacking your swimming trunks. Makes planning easy, doesn’t it? On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Trurating, which collates feedback from customers at the time they pay their bills, has reported results for the year to December 2017. The group lost £3.8m in the year versus a loss of £4.9m in the prior year. It has now accumulated losses of £11.2m since incorporation.
• C&C has reported that its wholly owned subsidiary, Vermont Hard Cider Company, ‘will resume full responsibility for the sales and marketing of the Group’s portfolio of cider brands in the US including Woodchuck, Wyders and Magners. By mutual agreement the Group will terminate its current arrangements with Pabst Brewing Company as of that date.’ C&C points out that, in FY17, its US business constituted only c.4% of Group volumes and less than 1% of operating profits.
• Jamie Oliver’s two upmarket Barbecoa restaurants have officially gone into administration, although a pre-pack arrangement has allowed the site near St. Paul’s to be bought back by the chef via a newly-created subsidiary. Jamie’s Italian, which has debts of £71.5m, recently announced that it will close 12 of its 37 stores.
• EI Group yesterday bought back another 315,727 shares for cancellation at 125.4p per share
• Dame Judith Hackitt of the EEF manufacturers’ body will say later today that the apprenticeship levy needs a complete overhaul. The levy is “complex” and seen as just another tax.
• Pubs and restaurants in Yorkshire are rallying in the tough climate, with only 28.3% of pubs deemed to be at a higher than normal risk of insolvency, below the average of 29.4%.
• Toilets in pubs and bars are some of the UK’s dirtiest facilities according to data from laminate manufacturer Formica Group. The group found that four in 10 Brits believe that toilets in bars and pubs are even worse than nightclubs, only beaten by facilities.
• The number of UK restaurants entering into administration has increased by a fifth in the last year, as chains feel the squeeze from greater competition and falling customer spending. There were nearly 1000 insolvencies across the restaurant industry in 2017 compared with 825 in the year before.
• KFC has had to temporarily close hundreds of UK restaurants as a result of ‘teething problems’ with a new delivery contractor that has seen it run out of chicken. Just 80 of the group’s c900 UK and Ireland restaurants were open yesterday.
• KFC is blaming ‘operational issues’ but, with the word ‘chicken’ in your name, supplying the product is pretty important. Workers are being encouraged to take holiday but would not be forced to do so. A spokesperson said ‘our teams are working flat out all hours to get the rest back up and running as soon as possible – but it’s too early to say how long it will take to clear the backlog.’ Notes on store doors say that the group has had a few ‘hiccups’ with delivery.
• The Scotch Whisky Association has challenged the use of the word ‘Glen’ on a German whisky on the grounds that it is an infringement of Scotch’s protected status. The European Court of Justice is expected to rule on the challenge this week.
• Total champagne sales for 2017 came in at 307.3m bottles slightly lower than expected.
• Russell Hume Ltd, a Derby-based meat supplier, has fallen into administration with the loss of almost 270 jobs amidst an ongoing investigation by the Food Standards Agency. Chris Pole, partner at KPMG and joint administrator, said ‘We will be seeking buyers for the business and its assets. Any interested parties are advised to contact us as soon as possible.’
• Silicon Valley Bank’s Wine Division reports total volume growth in wine sales in the US is starting to flatten out after 20 years of growth, but Americans are moving up from entry-level wines into more premium brands. The total US wine industry is expected to grow only 2-4% in dollar sales whereas the report indicates the premium wine segment to grow by 4-8%.
• Flipkart is in talks with Walmart regarding the US giant acquiring more than 40% of the Indian ecommerce firm. Analysts are suggesting the valuation may exceed Flipkart’s $12bn price tag in 2017.
• Maplin is holding crunch talks with potential buyers as it struggles to secure the future of its 2,500 employees. The retailer’s owners, Rutland Partners, appointed PricewaterhouseCoopers in January to assess its options and wrote to landlords asking for better rent terms. In a statement on Monday, a spokesman for Maplin said: ‘We are in advanced talks with a number of parties and expect to be in a position to announce a solvent sale of the business within days.’
HOLIDAYS & LEISURE TRAVEL:
• Intercontinental Hotels Group has reported full year numbers saying revenues rose by 4% to $1.784bn with adj. EPS of 244.6c, up 20%.
• IHG reports 104c dividend (up 11%) with net debt of $1.85bn compared to $1.51bn last year.
• IHG says it added 4% to its room stock last year & now has 798k rooms. Room signings were at 9yr highs.
• IHG reports global FY REVPAR up 2.7% with growth of 4.0% in Q4. CEO Keith Barr reports ‘we delivered a strong performance in 2017, with RevPAR growth of 2.7% and net system size growth of 4.0%. This has driven an 8% increase in underlying operating profit and a 22% increase in underlying EPS and underpins our decision to raise the total dividend by 11% for the year.’
• IHG adds ‘in recent years, we have built a powerful and effective enterprise which has supported our transition to being fully asset light, and driven strong performance across our 5,300 hotels.’ CEO Keith Barr concludes ‘we remain positive in the outlook for the year ahead and we are confident that our ambitious plans will deliver a meaningful change in IHG’s growth and drive industry-leading net rooms growth over the medium term.’
• Tour operator Kuoni says that the ‘experience economy’ is driving growth in travel sales as people increasingly value what they do over what they own. The group has seen increased demand for epic adventures, worldwide tours, and cruises celebrating special events such as landmark birthdays and weddings over the past year.
• On The Beach, the online travel agent, has been linked with a potential takeover bid although no statement was been made to the stock exchange on Monday morning. Rumours speculate of a potential bid from a US travel giant such as Expedia.
• Airbnb is cracking down on ‘pop-up brothels’ and traffickers who use its rental homes to sexually exploit vulnerable women and girls.
• Cineworld has announced 96.3% take-up for its 4 for 1 Rights Issue at 157p. The group says shares will be credited today.
• US-based activist investor ValueAct has become the third-largest shareholder of Merlin Entertainments after buying a 5.4% stake in the Legoland operator. ValueAct has pushed for change at companies including Rolls-Royce and Valeant Pharmaceuticals in the past, while Merlin has had to produce a full year profit downgrade following ‘difficult’ summer trading.
• ProSiebenSat.1 Media SE is in talks with private equity firm General Atlantic over the sale of a minority stake in its digital business.
FINANCE & MARKETS:
• Sterling down at $1.3978
• Pound lower vs Euro at €1.1282
• Oil price up a shade at $65.47
• UK 10yr gilt yield up 2bps at 1.60%
• World markets: UK & Europe down yesterday with US closed for Presidents’ Day. Far East mostly lower in Tuesday trade
• Brexit etc.:
o Government attempting to talk about something, anything, other than Brexit. Trouble is, after 8yrs in power, many problems are of ones’ own making. And then there’s Brexit.
o David Davis to speak in Vienna today. He is expected to say that the UK will not use Brexit to undercut the EU on environmental and social issues.
o Everyone is after a special deal. Cars, farmers, fishing industry etc.
o Food & Drink Federation says it has ‘repeatedly stated that those sectors which form the UK’s £112 billion ‘farm-to-fork’ supply chain would be most affected by Brexit.’ It says ‘with the clock ticking louder every day, we remain acutely aware that Government must negotiate a special agreement for trade in food products during the transition period that avoids the EU’s standard third country requirements.’
o Efra has warned that farmers need a special fund to support them post Brexit.
o Japan has said its car plants in the UK must be profitable if it is to support them going forward.
o Irish border issue remains a problem. Ulster customs may have to mirror the EU, the UK will not stay in the free trade area and the DUP will not broach a border between Ulster and the rest of the UK. Something in that circle needs to be squared.
o Sky says Dutch government has activated Hard Brexit plan & is to introduce new customs staff into Rotterdam, Europe’s biggest port. Some 930 staff will be needed to check goods in the case of a Hard Brexit whilst 750 will be needed even in the case of a Canada deal.
PRIOR DAY TWEETS:
• Later tweets: Press says there’s too much capacity, too little demand. Casual diners falling over, including smattering of high profile operators
• Weather. The Met Office has said that we may be in for prolonged cold conditions. Sudden warming over Pole to disrupt gulf stream
• 60% of those surveyed expect rise in interest rates in next 6mths. That’s pretty much nailed on, then.
• Markit Household Finance Index shows deterioration in Feb as inflation remains above wage growth. It’s cumulative pressure, after all
• Observer says Apocalypse Now for retailers. We updated on overcapacity last year. Copies (were £200) available at reduced rate.
• Langton is between offices. We should be moving into London Wall later this month but, for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was wry 90’s anthem Common People by Pulp. Next, who sang:
So, you tore my heart out,
And I don’t mind bleeding
Any old time to keep me waiting
RETAIL NEWS WITH NICK BUBB:
• Dunelm: On the back of today’s Dunelm interims, it has been announced that, no sooner had the new Dunelm CEO Nick Wilkinson got his feet under the door, the CFO Keith Down will be stepping down in June “for family reasons”. First half PBT of £60m is 8% down on an underlying basis, but Dunelm had warned as such at the time of the Q2 in mid-January, when it highlighted the seasonal impact of the consolidation of Worldstores losses and some gross margin pressures, despite good sales growth in the core business. It says now that that the gross margin will be more stable in the second half, and that it expects “good full year profits growth”, even though operating costs will grow slightly ahead of sales in the full year. And the interim dividend is up 8% to 7.0p.
• Sports Direct: Out of the blue, Sports Direct has announced today that it intends to buy back another £100m of shares between now and the AGM in early September. No explanation is offered (other than the unhelpful comment that “the purpose is to reduce the share capital of the company”), but the move will dampen any hopes that the company will ride to the rescue of the embattled Debenhams or House of Fraser. The last time it bought back any shares was on the day of the final results last July, at which point it had bought back about £200m worth of shares.
• Planet ONS Watch: We flagged yesterday that the weaker than expected ONS Retail Sales figures for January got the usual uncritical coverage in the Saturday papers, but we didn’t have time to run through the figures in detail. In the “real world”, January (the 4 weeks to Jan 27th) was another reasonable month overall for the big retailers, as per the recent BRC-KPMG Retail Sales survey, with Food sales buoyed enough by high food price inflation to offset weak Non-Food sales. But life was not so good last month on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics). The ONS Retail Sales figures for January disappointed City economists, who had pencilled in a 0.3% month-on-month recovery in seasonally adjusted sales volume, as the outcome was only +0.1%. As usual, we ignored the silly seasonally adjusted volume figures and focused on the year-on-year,
• Asda Watch: This afternoon the spin-doctors at Asda will be putting their gloss on their apparent sales recovery in the business at Christmas, on the back of the Walmart Q4 results, with new CEO Roger Burnley no doubt keen to talk up prospects, for his new Walmart International boss Judith McKenna…
• News Flow This Week: Tomorrow brings the Hotel Chocolat interims, the CapCo finals (in the world of London property) and the Bunnings interims (in the world of Australian/UK DIY retailing). Then on Thursday we get the Intu Properties finals (in the world of regional shopping centres).