Langton Capital – 2020-01-31 – PREMIUM – Britvic, National Living Wage, C Wells, Coronavirus etc.:
Britvic, National Living Wage, C Wells, Coronavirus etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
In these days of strongly held opinions, the accusation that this, that or the other is a cult is often heard.
But what are we saying there? Are we implying that members are blindly following someone or something without considering that there could be another side to an argument?
So, when trying to see if the cap fits, it’s hard to avoid looking at Dominic Cummings. A more balanced, rounded chap you couldn’t hope to meet of course but could, just could, he be a cult leader?
Rick Ross at the Cult Education Institute, which specialises in rescuing the vulnerable from the evil, suggests that a cult should display the following signals:
• A leader with absolute authoritarianism without meaningful accountability.
• He (it’s usually a he) should have no tolerance for questions or critical inquiry.
• There will be no meaningful financial disclosure regarding budget or expenses
• Cult members will have an unreasonable fear about the outside world, such as impending catastrophe, evil conspiracies and persecutions. (David Cameron suggested that they would have swivel-eyes).
• You are always wrong in leaving or attempting to leave the cult.
• There is a familiar pattern of abuse and bullying.
• There may be books, news articles etc documenting the abuses of the leader.
• Followers are made to feel they can never be “good enough”.
• The group/leader is always right.
• The leader is the exclusive means of knowing “truth” or receiving validation, no other process of discovery is really acceptable or credible.
And if you suggest that some prominent followers are likely to be goggly-eyed nut jobs with weird clothes and hair (or no hair), you might be describing a chunk of the Cabinet alongside some of Mr Cummings’ more vocal followers in business and outside of parliament.
Still, it could all be a bad dream. On to the news:
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THE NATIONAL LIVING WAGE: The NLW for over 25s will rise by 6.2% to £8.72 per hour on 1 April this year. 31 Jan 2020:
• There are several statutory minima regarding pay.
• As most workers are over 25yrs old (and the National Living Wage applies to the over-25s), the NLW is arguably the most important.
• On 1 April, these rates go up by between 4.6% and 6.5%. The NLW rises by 6.2%. This increase is considerably greater than had been expected.
• For the record, apprentices must be paid a minimum of £4.15, under 18s get £4.55, those aged 18, 19 and 20 get £6.45, the National Minimum Wage applies to those aged 21-24 inclusive and will be £8.20 and the NLW is for over-25s and will be £8.72
• There are arguably two questions. First, do we want a flatter or a spikier income distribution? Second, if we’re not at the desired position now, how can this be achieved without destroying business models?
• The NMW and the NLW are moves to flatten the curve.
• Hence, politicians are promising OPM (other people’s money) to workers (a.k.a. voters) but they know that they cannot afford to bankrupt business.
• However, PM Boris Johnson did famously said ‘f— business’. And, in December, he added ‘for too long, people haven’t seen the pay rises they deserve.’
• At election time at least, the friends you need may be the friends in need.
• And there may be more to come as Chancellor Sajid told the Tory Party Conference last September that the Tories would raise the NLW to £10.50 by 2024.
• That implies rises of a fraction under 5% p.a. for the next four years. Or it may imply rises of 6.2% (the rise just announced) each year for three years in order to hit the target a year early and in plenty of time for the next General Election
The impact – macro:
• A report published by the University of Massachusetts in November suggested there was little or no evidence of job losses as a result of rising minimum wage levels.
• The author, Professor Arindrajit Dube, said of the UK that there was ‘room for exploring a more ambitious national living wage’.
• However, if the NLW rose to £1,000 per hour, then it would cost jobs, so it is just a question of at what wage rate jobs would be shed
• The Federation of Small Businesses said the proposed 2020 increase would lead to job losses. It says ‘wage increases aren’t much good to workers if prices rise, jobs are lost and there’s no impact on productivity.’
• But they would say that, wouldn’t they and, as Mr Johnson says, ‘f— business’.
The impact – micro:
• Some of the impact can be recouped via efficiencies (job cuts or labour scheduling), some can be mitigated by ‘taking price’ and some positive benefits may actually come back through companies’ tills (as workers across the economy will be paid more)
• But the above impacts will not be evenly spread.
• Contrast a care home or a creche, with Glaxo. The one will have wages as a very large percentage of revenue with many employees on the minimum wage, and the other is Glaxo.
• Or contrast a full-service casual diner with a wet-led pub. Where personal service is involved, it’s hard to cut labour.
• Some companies can put up prices and others, either because demand is very elastic or because competition is intense, cannot
• Hence nursing homes, creches and to a lesser extent full service (not bottom end) casual diners tick most of the boxes in the ‘wrong’ column
• On the income side, JDW will arguably see a bigger boost, for example, than will D&D Restaurants or Brasserie Bar Co.
• Cut hours.
o Labour may be shed (in favour of capital equipment or DIY options – e.g. bar service vs table service).
o There may be some more efficiencies to be had (but, after a number of years of sluggish top-line growth, most efficiencies have arguably been had already)
• Narrow differentials:
o Pay differentials may be narrowed but this is finite. Whilst the CEO may not be irritated that the cleaner gets more than he did, a shift-boss might.
• Take price:
o That is jack up selling prices, bake inflation into the system.
o This will a) be tempting, b) be blamed on the government but c) not always be possible.
• Accept lower margins:
o This may be inescapable in the short term (see comments from Marston’s and other operators)
o This will be a transfer from owners of capital to suppliers of labour.
• Cut service levels:
o This may be inevitable for companies on the edge, but it could be short-sighted.
o Some companies such as creches can’t cut service levels as these are mandated in law.
• Go bust.
• The NLW is rising by perhaps 2% more than had been expected.
• In the short term, Marston’s says this will impact profits by around 2% of its payroll. In the medium term, the net cost could be halved.
• JDW says the rise is bigger than expected but that expectations re profits remain unchanged. Something else in the mix (e.g. prices) must have changed for those two statements to be consistent.
• Some companies may fail as a result of the above. Many, particularly ambitious and over-expanded casual diners, were between a rock and a hard place already
• Where staff shortages were apparent already (chefs, some waiting staff), increased costs will be hard to avoid
PUBS & RESTAURANTS:
• Britvic has updated on Q1 trading saying it has had a ‘robust start to the year [and is] confident of achieving full year expectations’.
• BVIC says it has generated ‘first quarter revenue of £369.8m, an increase of 4.9% on the prior year. The quarter benefited from the inclusion of additional trading days following the previously announced move to monthly accounting. On a comparable days and constant currency basis, revenue increased by 2.6% and we remain confident of achieving market expectations for the year.’
• CEO Simon Litherland says ‘I am pleased to report that we have delivered a robust start to the year. While we anticipate conditions will remain challenging, we are confident of achieving market expectations for the year, underpinned by the strength of our brand portfolio and exciting marketing and innovation plans.’
• Wells & Co has announced an increase of £10m in revenue year-on-year to £53m. Peter Wells, managing director of the group, commented: ‘Our progress over the past 12 months is testament to our team’s commitment to operating a quality estate of pubs’.
• McDonald’s has stated it will be investing £1bn in its UK and Ireland estate, including the opening of a further 60 sites.
• McDonald’s has closed hundreds of restaurants in China, due to the outbreak of coronavirus.
• Research from OnBuy.com has found that KFC’s vegan offerings were the most searched for on Google in the UK during Veganuary.
• The Cook & Dine event, which saw rough sleepers and hospitality leaders team up, has delivered dining experiences to nearly 300 Londoners.
• East London Pub Company have teamed up with the workforce management group Bizimply. Carly Pickering, East London Pub Company’s Recruitment, Training and Development Manager said: ‘All our pubs are finding Bizimply a great business tool that helps them on a daily basis. The software is really intuitive, with a simple clock in and out to record staff hours and payroll, and personnel files with notes all in one place’.
• Plant Power, a vegan tempeh brand stocked in Sainsburys, Boots and Bidfood, has declared its mission to convert Brits to the wonders of tempeh – a soybean meat substitute.
• The Food & Drink Federation has responded to the introduction of the Environment Bill saying it ‘heralds a much-needed overhaul in environmental legislation, the first of its kind for over twenty years.’
• The FDF says its ‘member companies have made great strides in minimising packaging waste and carbon emissions, while protecting food safety and quality. Manufacturers have delivered a reduction in food waste of over 30% on a per capita basis since 2011 and halved their CO2 emissions since 1990, having reduced total emissions by 53.2%.’ It says ‘we are particularly encouraged by the proposal to establish a fully independent Office for Environmental Protection, and welcome the inclusion of climate change within its remit as part of government’s commitment to reach net zero emissions by 2050.’
• Rosa’s Thai Cafe will open in Birmingham’s Paradise development at Chamberlain square.
• Coca-Cola reports net revenue up 16% yoy in the three months to the end of December to $9.07bn, with operating income up from $1.8bn to $2.2bn. However, growth in Europe faltered, with organic revenue in the region down 2%.
• Amazon shares increased by 13% in after-hours trading as it reports sales up 21% yoy for the three months to the end of December, to $87.4bn. The company saw the number of Prime subscription members rise to 150 million. The share price increase gives Amazon a market cap of over $1tr.
• QikServe, which recently acquired pay-at-table or pre-order company Preoday, has said that ‘Pay at Table can reduce customer wait time from 12 minutes to under 2 meaning you can turn table faster, drive revenues through additional seatings and save on staff time costs.’
• The RICS has said that the demand for bricks & mortar demand has yet to pick up despite hopes of a post-election bounce. It said 55% more respondents expect rents in the retail sector to fall rather than rise during 2020. The RICS said any improvement ‘has not found its way into the retail sector, where the outlook remains just as downbeat as before.’
HOLIDAYS & LEISURE TRAVEL:
• Although share prices should have reacted already in anticipation, there are likely to be more profit ‘comments’ on the impact of the further delay in the reintroduction of Boeing’s 737 Max aircraft shortly.
• Thousands of tourists have been left stranded on the luxurious Carnival Cruise Line ship the Costa Smeralda in the Mediterranean off Rome after two Chinese passengers fell ill. The ship has around 7,000 persons on board including crew. Carnival subsidiary Costa Crociere said its priority is ‘to guarantee the health and safety of guests and crew.’
• Large companies such as JPMorgan Chase, Apple and Kraft Heinz are suspending travel to China amid the coronavirus outbreak.
• STR reports US hotel occupancy down 0.3% to 57.8% for the week ending 25 January, with ADR up 0.6% to $125.07 and RevPAR up 0.3% to $72.24.
• CNN reports hotel guests want fewer single-use plastics when staying at hotels.
• Hotel Tracker says London occupancy lower (with more supply coming) and both room rates & occupancy lower in the regions in calendar Q4.
• The Hotel Market Tracker produced by HVS, AlixPartners & STR for Q4 2019 suggests that hotels in London saw RevPAR growth of 0.9% in Q4 2019 (to £135.25).
• Average occupancy in London fell to 84.8% but room rates rose by 1.9%.
• The Tracker reports that ‘the UK’s regional hotels saw RevPAR…fall in the quarter, down 2.7% to £50.73 and occupancy down marginally to 73.6%.’ Room rates were also down by 2.1%.
• HVS says ‘softening occupancy will be a concern in London, particularly given the high number of hotels projects in the pipeline, although the fact room rates have risen by nearly 2% is encouraging.’
• Re the regions, HVS says ‘any improvement in yields will take longer to reach provincial hotels but they should start to see some change as we move through 2020. However, the active hotel pipeline, currently at 6% of supply outside London, will continue to prove challenging as it will in the capital.’
• The value of assets that changed hands in London rose to £1.5bn in Q4 but transactions in the regions were down 38% to £2.2bn.
• On a brighter note, HVS says ‘the recent UK election result and the ensuing Brexit decision is likely to make the UK more attractive to many investors.’ It says ‘this is likely to have a more immediate impact on transaction yields in London during 2020, although any improvement may be tempered by the pipeline of luxury hotels in inner London.’
• The Bank of England’s MPC yesterday voted by a majority of 7–2 to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, (i.e. QE) at £435 billion.
• British tourism may take a hit from the coronavirus outbreak in China, as British Airways suspends all flights to and from mainland China. VisitBritain predicted the number of Chinese visitors in 2019 would reach 483,000 in 2019, up 43% on 2017.
• Travel 2 and Gold Medal will try to return clients from China as local authorities confirmed that coronavirus had spread to every region on the mainland.
• Sykes Holiday Cottages reports bookings for summer 2020 up 20%, representing an increasing demand for staycations. Sykes said the trend was boosted by ‘prolonged uncertainty over Brexit’.
• Chancellor Sajid Javid is supporting HS2 ahead of a key meeting with the prime minister, with Mr Johnson has said MPs can expect a decision on the project ‘very shortly’.
• PayPal shares fell 4% as the company forecasted full-year adjusted profit below analysts’ expectations as it invests in technology to fend off competition in a crowded digital payments space.
FINANCE & ECONOMICS:
• Sterling up at $1.3095 and €1.1878. Oil a shade higher at $59.35. UK 10yr gilt yield up 1bp at 0.54%. World markets – UK & Europe down yesterday with US higher. Far East mixed in Friday trade.
• Politics & Brexit:
o The UK leaves the EU at midnight EU time tonight (11pm in the UK).
o The Guardian says ‘Britain’s economy is close to a turning point as the country prepares to formally leave the EU.’ It says ‘warning lights are flashing with zero growth forecast for the final three months of 2019.’
o Others suggest we should be more confident. PM Boris Johnson will speak (via Facebook) at 10pm tonight.
o The UK’s biggest manufacturing lobby groups are calling for more clarity as to how goods will move after the end of the transition period on 1 January next year.
o Cabinet minister Michael Gove has said that friction at borders and divergence of regulations with the EU could impact some sectors of the UK economy.
START THE DAY WITH A SONG:
Yesterday’s song was Highway To Hell by AC/DC. Today, who sang:
“Oh, I was carried away,
Caught up in an affray
As they let him away, he sang
“”We’ll meet again some day
And oh my boy, there’s a price to pay”””
RETAIL WITH NICK BUBB:
Consumer Confidence Watch: Well, if the MPC had decided on a panic interest rate cut from 0.75% to 0.5% yesterday, as was widely expected a couple of weeks ago, to bolster the flagging economy, it would have looked a bit foolish this morning, as the widely followed monthly GFK Consumer Confidence survey out overnight shows a further post-Election bounce. The overall GFK index of consumer confidence rose to -9 in January, from -11 in December, as expected in a Reuters poll of economists. “The latest measures concerning our personal financial situation…are encouragingly healthy and positive, as is the improvement in our view of the wider economic picture for the UK,” Joe Staton, client strategy director at GfK, says in the statement, noting that the Major Purchases index was the only part of the survey to fall in January, chiming with the downbeat vibes from the retail sector.
BDO High Street Sales Tracker: We highlighted on Wednesday that the John Lewis sales figures for last week were rather disappointing again, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly/suspiciously good progress in recent months) is again pretty good…In w/e Sunday Jan 26th, BDO Fashion sales were up by 2.0% LFL, despite a decent comp, whilst Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were up by 4.2% last week (up 3.1% in Store sales and up by 10.4% in Online sales).
Trade Press (1): The front cover of Retail Week magazine today is a photo of the Lush founder and ethical retail pioneer Mark Constantine (“Rebel with a cause”), to flag up the main feature on “The rebel fighting climate change before Greta was born”. RW also has features on Coupe de grace? (“Why there’s more to Mike’s legacy than Asda”); Profit, People and Planet (“Iceland’s Richard Walker on retail’s new bottom line”) and Reimaging the Mall (“Can American Dream be a step-change for shopping centres?”). And the Editor thunders in his column that “If Flybe deserves a break, why doesn’t retail?”, noting that Retailing’s pleas for Business Rates reform have been ignored by the Government.
Trade Press (2): Drapers magazine today is a special Childrenswear edition and there are articles about the key brands and trends to be buying into, predictions from top kidswear buyers, a behind-the-scenes look at Kenzo kidswear and an interview with the founder of value childrenswear retailer The Pud Store, Frances Bishop. In terms of News stories, Drapers flag that there are skills shortage fears in the fashion manufacturing and supply industry over the Government’s post-Brexit immigration plans. Drapers also look at what went wrong at Beales (via a visit to its hometown of Bournemouth), look at why The Shop at Bluebird (once described as one of the most beautiful shops in London) has shut down and look at how fashion brands can break into the US fashion market.
News Flow Next Week: As we move into February, company news flow dries up next week (unless Superdry still do their planned Q3 update on Thursday, despite the profit warning on Jan 10th), but good old Next are dragging the hard-working analysts around their super-efficient warehouse in sunny Doncaster on Thursday. And the BRC-KPMG Retail Sales survey for January and the latest monthly Kantar/Nielsen grocery sales figures are both out on Tuesday.