Marston’s, Restaurant Group, Revolution Bars, G4M & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

Bit busy again today. On to the news:

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MARSTON’S UPDATES ON TRADING: Marston’s has updated on trading in these uncertain times. 18 March 2020:

Marston’s has this morning updated on trading for its Q2 and commented on the impact of Covid-19 and our comments are set out below:

Current trading:

• Marston’s reports that sales at its managed and franchised pubs fell by 1% in the 24-week period to last weekend

• Beer volumes have been in line with expectations

• On the managed and franchised side, sales in the last 8wks have been minus 5%. This includes the February storms and the Covid-19 disruption of the last 2wks or so

• Beer volumes for this period were again in line with expectations

• Marston’s says over the last two weeks ‘sales have been broadly flat’ but adds ‘we anticipate that the Government’s advice will result in significantly lower sales in the coming weeks.’

• The group has indicated that it does not intend to shut its pubs at this stage but has said that it expects sales to be materially lower

• The group will support its tenants with rent free periods and other discounts on a case-by-case basis

• MARS says ‘given the ongoing uncertainty, we are unable to quantify the impact of COVID-19 on our financial and trading performance at this stage, however we expect a reduction to our expectations for Financial Year 2020.’

• The group adds ‘the scale of this will depend upon how the situation develops and over what timescale, and the impact of further measures taken by the Government.

Balance sheet and debt:

• Marston’s says that it will continue with debt reduction and with its disposal programme where this is possible

• It will suspend its dividend for H1 until trading is more predictable

• This will save the group some £20m

• MARS has headroom on its bank facilities and says that it can continue to trade without liquidity issues on a materially lower level of sales

• Capex will be trimmed or postponed and working capital is being managed

• The group will participate in the government’s £330bn of funding measures for industry if it needs to. The implication is that it will not do this straight away

• MARS says ‘we have appropriate headroom on both our bank and securitised facilities, supported by a 93% freehold estate. As a consequence of this, and the actions we have taken to date, we believe that we have sufficient liquidity to maintain operations at a materially reduced level of business.’

• It says ‘in addition, we are having discussions with our banking group about the provision of covenant waivers for the second half-year, in the event these should be required. Whilst at an early stage, those discussions have been constructive.’

Conclusion:

• MARS welcomes the measures announced by the government yesterday alongside its employment-protection measures (due today or at least very shortly)

• The suspension of business rates should save the group perhaps £30m per annum. This should pan out at around 5% of sales across many pub and restaurant companies

• MARs says ‘we are taking an extremely prudent approach and being cautious in our management of the business during this period of unprecedented uncertainty.’

• The group says ‘we have significantly reduced capital expenditure for the foreseeable future’ and adds ‘we are reducing overhead and other variable costs.’

• The group says ‘we have completed £60 million of disposals in the year to date. Given this, and based upon transactions in the pipeline, we retain our full year target of £85-90 million.’

• MARS concludes ‘we welcome the measures outlined by the UK Government yesterday to provide support for the hospitality sector.’

Langton Comment:

• Marston’s has reassured that, despite recent storms and Covid-19 disruption, sales cumulatively are only 1% shy of last year.

• Of course, there has been a deterioration as the period has progressed but, if MARS is to save £30m on business rates and £20m on its H1 dividend, liquidity issues are not currently pressing.

• Trading is likely to worsen but, with access to the £330bn of government loans specifically put in place to aid companies with short term liquidity issues, there is now something of a safety net available.

• Indeed, one of the government’s primary aims is to protect employment and it needs industry to remain as healthy as possible during this period if it is to achieve that.

• The group’s shares have been very weak in light of 1) poor trading and 2) the lack of certainty both as to the depth and length of the current crisis. Whilst much of that uncertainty remains, MARS has reassured that it is able to save cash in the short term and now has access to government funding over the medium term. The shares should bounce this morning. 

UK GOVERNMENT BUDGET MEASURES: New chancellor Rishi Sunak yesterday unveiled the first part of a help package for UK industry. 18 Mar 2020:

The background:

• Trading has been very negatively impacted by Covid-19. People have been advised not to visit pubs and, though they remain open, footfall is well down.

• The government wants to ensure that there is a tomorrow. It has put certain measures in place.

• Yesterday, UK Hospitality and over 200 CEOs from across the UK’s hospitality sector called upon the government to provide support for business. Some of the measures that the open letter suggested were subsequently adopted during the afternoon by Chancellor Rishi Sunak. UKH’s Kate Nicholls said ‘this is by far the greatest crisis we have had to face as a sector. Venues are already closing and people are already losing their jobs. Unless we get immediate financial support from the Government, the country’s hospitality sector will cease to exist in any recognisable capacity.’ The letter reminded government that the budget measures announced last week did little to support larger businesses.

• By the end of yesterday, UKH and others may have begun to believe that the chancellor was listening

• The BII similarly yesterday called for ‘an urgent rescue package for pubs and other hospitality businesses and suppliers, similar to that given to banks in the 2008 financial crisis.’ It wanted, somewhat ambitiously, ‘a guarantee to pay the wages of all employees working in pubs and hospitality’ and ‘rent, duty, VAT and business rate cancellations for all breweries, pubs and suppliers for six months.’ Some of these demands were met later in the day.

Sunak’s comments:

• Confidence is key and the chancellor repeated that he would ‘do whatever it takes’ to keep British industry going

• Or at least to ensure that it can start going again if it is forced in parts to shut down for a period of time

• Mr Sunak had been under pressure to suggest that he would move the UK economy to an almost-wartime footing and be prepared to run deficits of 10% or even 20% of GDP for as long as it takes to fight off Covid-19. He has gone some way to delivering on this.

The Chancellor’s speech:

• He says the government will do whatever it takes.

• it is a collective effort etc. A time to be bold. They will give industry all the tools it needs.

• Support for businesses in the Budget was £30bn. Here Sunak promises:

• Loans of up to £330bn to ensure liquidity. This will be ready ‘by next week’.

• Mr Sunak is meeting with retail, airlines & airports etc to identify the ‘most-affected’ sectors.

• Business rates are being suspended for all businesses for a year. This should save around 5% of sales for many companies.

• There is an additional grant of up to £25k per business with £10,000 grants to small business.

• Sick pay will be reimbursed (already announced) and there will be more employment measures announced today (or at least shortly)

• Various hardship funds are being set up for individuals. The government intends to preserve jobs – and it can only do this if it supports industry.

Reaction of industry bodies:

• A number of operators have put out RNS statements this morning. See elsewhere in this note.

• Trade bodies have given a cautious welcome to Chancellor Rishi Sunak’s package of measures announced yesterday. Some ask for more.

• The Chancellor announced a £330bn loan facility and £20bn of other measures in addition to the £30bn announced last week. Detail on measures to protect employment are due in the coming days. See also premium email.

o Kate Nicholls of UKHospitality says ‘the Chancellor has clearly been listening and these extra measures represent proper progress on last week’s Budget. The focus now has to be on making sure that hospitality businesses can draw down the support loans and other funds while they still have businesses to operate, such are the levels of urgency for most businesses.’

o UKH says ‘we will wait with great anticipation and hope that the detail on employment support measures live up to the hype but, if they are substantive, this could amount to a really helpful raft of support – this needs to come urgently as jobs are being lost every day.’

o The BBPA says ‘we recognise as a sector that we are in unprecedented times and are prepared to play our part, but whilst we welcome the measures outlined today, they do not deal with the immediate cash flow and liquidity problems our industry faces.’

o The BBPA says ‘without an urgent cash injection our sector will need to reduce its biggest cost, labour. It also won’t be able to take advantage of the planning changes proposed by Government today enabling pubs to help feed the nation through delivery.’

o It says ‘the Government literally has 24 hours to put together a pub specific package to prevent irreversible closures and job losses. The pub industry stands ready to work with the Government to create the rescue package that is needed.’

o SIBA says ‘whilst the Chancellor announced the first in a significant package of measures his statement raised more questions than it answered for the UK’s small independent brewers.’

o It says ‘disappointingly nothing was announced to allow more small independent breweries to sell and deliver direct to consumer. We seek urgent clarity from the Home Office on this.’

RESTAURANT GROUP UPDATES:

• The Restaurant Group has updated on trading saying ‘group like-for-like sales for the first eight weeks of the financial year were up 4.5%, in a period unaffected by Covid-19.’

• However, the group says ‘in the last two weeks we have seen an increasing and material impact of Covid-19 across our businesses with Group like-for-like sales being down 12.5%. In particular, our Concessions business has been significantly impacted with like-for-like sales down 21.7% and getting worse by the day given International travel bans.’

• RTN says ‘the Group has been reviewing the rapidly evolving situation relating to Covid-19 and has modelled a scenario of the potential financial outcome in the coming months.’

• It says ‘it is now clear that the increasing effects of Covid-19 will result in a material reduction in our expectations for revenue and profit across the business for the first half of this financial year (the period ending 28th June 2020).’

• RTN models an overall decline in Group like-for-like sales of 25% in FY2020 (assumed down 45% in the first half and 5% in the second half) saying this would involve ‘a significant decline in our Concessions business (down 92% in Q2) with significant disruption persisting through the remainder of the year (down 31% in H2).’

• It is looking at ‘a sustained reduction in footfall across Leisure, Pubs and Wagamama, with like-for-like sales across these businesses down 68% in Q2, including 10 weeks of shutdown, before normalising through H2.’

• It is ‘taking a number of actions to protect profitability and to conserve cash.’ It will reduce capital expenditure for 2020 by at least £45m from the previous guidance of £75m. It is ‘working with landlords across all business areas to ensure that no minimum guarantees are enforced within Concessions, where rents are largely turnover based; and to ensure that the rent roll for 2020 across our other businesses equitably reflects the unique and unforeseeable situation.’

• It sees ‘at least a 50% reduction in fixed rent across all our Wagamama, Concessions, Pubs and Leisure restaurants, and reflects the business rates holiday for three quarters of 2020 as announced yesterday in the Chancellor’s statement.’

• The group ‘will work with lending banks to seek covenant holidays throughout 2020 in order to preserve maximum flexibility to operate the business through this challenging period.’

• RTN reassures that ‘the Group currently estimates Adjusted EBITDA for the financial year ended 27 December 2020 to be between £95m and £105m with leverage (pre-IFRS 16 net debt to EBITDA) of between 2.2x and 2.5x.’

• It would retain a minimum of £75m of cash liquidity throughout the remainder of the 2020 financial year.

• ‘The Group estimates that in the event that the entire group is in shutdown for a period in excess of that assumed above, then the adverse impact on cash would be no more than £15m for each further month of shutdown.’

• RTN has gone further than most but there is only so much that it can say. It adds ‘clearly the situation is evolving rapidly and there is no certainty around the severity and duration of the impact on the business. The Company is continuing to consider its funding options, both equity and debt, on an ongoing basis.’

• It concludes ‘the Board remains confident in the strategy over the longer term and believes the Group will be well positioned to benefit from the normalisation in trade with its diversified set of brands.’

PUBS & RESTAURANTS:

• Revolution Bar Group has updated on trading saying that ‘in very recent days, the Group has experienced a decline in LFL revenue following the increasing impact of COVID-19. Following the UK Government’s announcement late yesterday advising the public to stay away from bars and the actions of other Governments, it is reasonable to expect the trading environment will be very challenging for the foreseeable future.’

• It says ‘as such, the Board expects a material deterioration in trading performance for the remainder of the financial period ending 30 June 2020, however, given the continued high level of uncertainty it is not possible to quantify the precise impact at this time.’

• RBG is cutting costs including payroll and is considering closing during ‘unprofitable trading sessions’. It is suspending payments where possible and has requested a deferment of PAYE and VAT payments. It welcomes the government’s package of support but says ‘this does not go nearly far enough and we hope that there will be further measures in the coming days to provide assistance with payroll entitlements to gain surety for our employees, amongst other things.’

• Debt is £10.5m, in line with expectations and the company says ‘the Board continues to monitor the Group’s funding requirements closely and is proactively exploring all the options available.’ Rob Pitcher, CEO, comments ‘at this difficult time, we are doing all we can to protect our business and our employees from the COVID-19 virus and any financial hardship its effects may have. We would welcome further Government support.’

• RBG concludes ‘whilst we face a very challenging period in the current financial year, we are determined to make the right choices for the Group, employees, shareholders and all other stakeholders.’

• JD Wetherspoon boss Tim Martin yesterday used a company RNS to outline say that he believes ‘the government will make a tactical error in resorting to de facto lockdown.’ He suggests that it would be better to admit that most people will get the virus but take measures to protect the vulnerable.

• JDW says keeping pubs open despite the virus ‘has the additional advantage of being in tune with the robust instincts of the nation. This is evidenced by Wetherspoon sales which have been positive in the last few weeks in spite of storms and health scares.’ He says the UK should not take ‘French leave of his senses by following the lockdown example of perfidious Emmanuel Macron.’

• Hawksmoor yesterday announced ‘today we have made the most difficult decisions we have ever made or that we ever hope to make in future.’ It says ‘as of tomorrow [18 March] we will temporarily close all of the Hawksmoor restaurants – I feel that that is clearly what the government is advising us to do even if they are not mandating it.’

• D&D Restaurants has also ‘taken the difficult and sad decision to temporarily close all of our UK restaurants with effect from the close of business today. This follows the temporary government-imposed closures of our restaurants in both New York and Paris.’ D&D says ‘it’s a desperately sad day for us.’

• BigHospitality reports that many restaurant businesses are now being told by their insurers that they will not be covered in the event of any Government imposed lockdown on the hospitality sector. 

• Tenzo reports that ‘the coronavirus outbreak is having a devastating impact on sales, with the latest data showing that on Sunday 15th March, the average business saw a 44% decrease in sales compared with last year.’ It says ‘this situation is unprecedented for the hospitality industry.’ Tenzo suggests ‘cafes are the worst affected, followed by restaurants, with sales down 26% and 23% respectively. Pubs seem to be much less affected, with a drop of only 6%.’ The latter number sounds a little low.

• Perhaps a little tedious but nonetheless important, the Institute of Chartered Accountants in England & Wales has voiced concerns over the Going Concern consideration in its members’ audit reports for companies affected by Covid-19. It says ‘some entities which were previously a going concern may no longer be.’ For others there will be ‘material uncertainties’. This may not be a subject for immediate attention – but it will rear its head over time.

• Private companies:

o Black Eagle Brewery (which trades as Truman’s), which announced last week that MD James Morgan had stepped down as a director, has reported somewhat overdue figures to 31 March 2019 to Companies’ House showing that retained losses for the year rose by just under a million pounds (£994,000) in the year under review.

o Truman’s raised around £850k in new capital during the year and, as at end-March 2019, the company had £866k of shareholders’ funds. Truman says ‘new and existing shareholders have continued to back the business with substantial investment, which has included the opening of a new pub, the Newman Arms in Fitzrovia.’

o The company moved to new brewing premises during the year saying that this, and the new pub, ‘were important factors behind the significant loss recorded in the year to March 2019; the year up to March 2020 is also forecast to be loss making.’ The company says that it should make a profit in 2021. This is all before the recent Covid-19 upheavals.

o Truman says that it will need more cash from shareholders. It says ‘during this period, the further support of shareholders is required.’ The numbers reported to Companies’ House were audited by LB Group (Stratford) and are unqualified. The company says ‘at the time of approving the financial statements, the directors have a reasonable expectation that the Company will have the resources to continue in operational existence for the foreseeable future.’

o Flat Iron Square has reported full year numbers to 8 March 2019 showing that retained earnings fell by £386k in the year under review. The company had, over a year ago on 8 March, shareholders’ funds of £106k.

• Licensing solicitors Poppleston Allen has launched a coronavirus-related briefing suggesting that operators could consider home delivery and take a number of other measures to mitigate the impact of Covid-19.

• A number of restaurant companies such as Bleecker Burger, The Cinnamon Club, Hawksmoor & others are inviting diners to support them by paying for meals now with the intention of dining later.

• The Association of British Insurers has said that standard insurance policies would not cover operators against forced closures by government.

• Center Parcs has announced the ‘temporary closure of our UK villages’. It says they will all be closed from 20th March to 16th April 2020. It is cancelling pre-booked breaks and offering alternative dates in the future. Cash back is also an option. Casual Dining Group provides the catering at Center Parcs’ UK sites.

• Uber Eats, Deliveroo and Just Eat will offer contactless delivery to reassure the public reluctant to order for fear of contamination. Customers will be able to request that their food delivery be left on their doorstep rather than directly handed over. 

• Foodservice equipment manufacturers are being asked whether they are in a position to provide support with regard to the manufacturing of ventilators. Health secretary Matt Hancock said this week that the UK has around 5,000 ventilators but needed many times more than that. 

• Sky reports that Burger King UK has frozen NI and VAT payments to HMRC and told landlords that it is halting rent payments as part of an unfolding response to the COVID-19 crisis.

• Per Guardian, supermarkets in the UK are increasing contingency plans with discounter Aldi introducing an across-the-board rationing, which means customers can buy no more than four of any single grocery line.

• Castle Rock Brewer managing director Colin WIlde has reduced his take home pay to minimum wage during the ongoing crisis. 

• Snippets: Ei Publican Partnerships has completed the £190k refurbishment of The Woolpack in Stonehouse. Impossible Foods has secured $500m in Series F fundraising, with the money to be used to expand its global footprint. Planet Organic has acquired As Nature Intended for an undisclosed sum. The move will increase Planet Organic’s estate to 15 sites. Hawksmoor will delay the opening of its first international site in New York due to the spread of coronavirus.

• The view Stateside. NRN in the US updates on restaurants that have either closed or moved to delivery or drive-thru only. Chipotle has moved solely to delivery, Dunkin has removed all tables & chairs and offers takeaways, delivery and drive-thru meals. McDonald’s is the same, Starbucks is delivering etc. etc. Open Table in the US has said that restaurant traffic was down by 48% nationwide on Sunday. Andrew Cuomo, Governor of New York, has announced that the State Liquor Authority will change its rules to allow bars, restaurants, wineries and distilleries to sell their products off premises.

• High Street issues – Laura Ashley going & Dixons Carphone Warehouse to close all 531 of its free-standing phone shops.

• Sky and BT Sport are to suspend billing on their services for pubs. Sky has said ‘supporting these businesses [i.e. customers impacted by Covid-19-related drops in customer numbers] and doing what we can to help them in uncertain times is very important to us. We would like to reassure our Sky Business venues that from 14 March we will not be charging them for their Sky Sports service until a live sport schedule returns.’

• Yesterday’s tweets. 1. BBC says No10 has U-turned as ‘the science has changed’. I mean, really? Why did all other countries behave differently? Smells initially of Cummings & now of lost bottle. 2. BBC says 510,000 would have died under No10’s initial plan. That now dumped & a halting lock-down is creeping into its place. 3. Verdict of the world on no10’s insistence that ‘the science has changed’? Sell Sterling. And it’s been doing that for the last 10 days. 4. Eurozone commitments to support industry running up to 10% of GDP. That’s just the reality, surely. Meanwhile, no10 says wash your hands.

HOLIDAYS & LEISURE TRAVEL:

• New Foreign Office travel advice has urged all Britons to avoid non-essential travel overseas for an initial period of one month.

• Lufthansa-owned Austrian Airlines has announced it will temporarily suspend all scheduled flight operations as of Thursday. 

• Air New Zealand will reduce its long-haul capacity by 85% over the coming months and will operate a minimal schedule to allow Kiwis to return home.

• Turkey has closed its borders to flights from the UK & Ireland. The FCO has cautioned against flights to India & Egypt. As reported above, Foreign Secretary Dominic Raab later said that Britons should avoid all overseas travel.

• There are a whole lot of airlines effectively shutting up shop.

• Marriott is reported to have put ‘thousands’ of staff on unpaid leave.

• Shearings, Jet2, Brittany Ferries & others have withdrawn more services.

• The Airport Operators Association fears airports could close imminently, unless the government intervenes and helps with financing.

• UKinbound requests that Chancellor Sunak intervenes to ‘protect the industry from the devastating effects of Covid-19’. The association has asked for guidance on how businesses can apply for Business Interruption Loans.

• British tourists in Morocco and Peru have told the BBC they are stranded and unsure how they will get home after their flights were suspended.

• Jet2 is readying rescue flights in an effort to repatriate holidaymakers who face the prospect of being stranded overseas as governments cut travel. 

• Gatwick cuts 200 jobs and cuts the pay of executives by 20% as the outbreak has an ‘unprecedented impact’ on the global aviation industry. 

• Rishi Sunak has said ‘In the coming days, my colleague the Secretary of State for Transport and I will discuss a potential support package specifically for airlines and airports.’

OTHER LEISURE:

• Gear 4 Music has updated saying ‘it ‘does not expect the Coronavirus outbreak to have an adverse impact on the Group’s trading for the current financial year ending 31 March 2020, and as previously stated is confident results will be at least in line with the Board’s expectations.’

• Going forward, it says ‘we are confident that we hold sufficient inventory to continue serving customers for several months, with additional stock on the way, and the financial resources to secure further inventory as necessary.’

FINANCE & ECONOMICS:

• The number of unemployed people in the UK rose slightly to 1.34 million in the three months to January compared to the same period last year.

• The ONS reports that UK average weekly earnings expanded by 3.1% excluding bonuses in the three months to January 2020 compared to the year before, and by 3.1% inclusive of bonus payments. The NIESR says ‘the outlook for wage growth has significantly worsened as a result of the disruptions caused by the coronavirus outbreak in the United Kingdom at the beginning of March.’

• Sterling lower vs dollar at $1.2103 but level vs Euro at €1.0961. Oil lower at $28.62. UK 10yr gilt yield up sharply at 0.58%. World markets better yesterday but Far East down in Wednesday trade and UK set to open down by perhaps 300pts.

START THE DAY WITH A SONG:

Yesterday’s song was Fire by Kasabian. Today, who sang:

“Johanna drove slowly into the city

The Hudson river all filled with snow”

RETAIL WITH NICK BUBB:

Today’s Market/News: The FTSE 100 index is expected to plunge again this morning (according to the Proactive private investor website) and open well down this morning, despite the big rally on Wall Street (ending 5.2% up) and the big Government fiscal support package announced after hours, as Asia’s main markets were down overnight (the Nikkei finished 1.7% down). The spread-betting firms expect the FTSE 100 to open over 275 points down…In terms of today’s news, Morrisons have flagged a big jump in current trading with their finals (LFL sales are running 5% up over the last 6 weeks, having been only flat in the first 4 weeks), whilst Sainsbury and Tesco have rushed out statements welcoming the Business Rates holiday announced by the Government. More ominously, given the slump in the ASOS share price yesterday, the Online fashion business Sosandar has flagged a collapse in demand over
the last week and Superdry has warned of a collapse in store footfall (and store closures in Europe) and withdrawn its guidance.

John Lewis Partnership Trading Watch: In the current pandemic crisis, it would be useful to have the usual weekly JLP sales figures, so the new non-disclosure policy is regrettable, but we have been flagging every Wednesday that it’s easy enough to look back at the John Lewis and Waitrose sales figures from a year ago and make an educated guess as to what the outcome would be this year. Now, the news on the grapevine is that John Lewis has been doing surprisingly well in recent weeks, helped by weak comps and better Online growth, but the recent decline in store footfall clearly accelerated in w/e March 14th, so we think that LFL sales will have been at least 5% down at John Lewis last week, given the growing coronavirus fears and stockmarket slump…However, as Dixons Carphone noted yesterday, there has been a boom in Electricals demand for home working etc, so strong Electricals sales
will have helped John Lewis outperform the High Street in general. As for Waitrose, we think that their LFL sales should have been at least 25% up last week, given all the coronavirus stockpiling and the strong Online Grocery growth (helped by the timely increase in store-picking capacity to support the strong growth at Waitrose.com).