Langton Capital – 2020-03-26 – PREMIUM – Intu, Vianet, Hostelworld, SSP, Ten Entertainment, Big Dish & other:
Intu, Vianet, Hostelworld, SSP, Ten Entertainment, Big Dish & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Getting the message across. Parent to 14yr old daughter, ‘it’s a global emergency, you really might have to drink skimmed milk.’
See yesterday’s tweets (at the foot of Forthcoming Results) for Covid-19 updates 1, 2 and 3 on bird-table action, book-reading and government-mandated gazing into space. On to the news:
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COVID-19. SOME OTHER THOUGHTS. The dust hasn’t yet begun to settle but, when it does, this will be a changed industry. Here we look at some of the current and future implications. 26 March 2020:
The relationship with landlords:
• This has been mixed. Some landlords are playing hardball. They know that, if they do so and other landlords do not, then they will be the first to be paid.
• Some sort of government help for landlords (which will, in the end, need to be forthcoming) might help everyone to chill out.
• The name of the game is to pass the parcel. Don’t get stuck with it. That, unfortunately for the taxpayer, is government’s job.
The relationship with banks:
• We have heard more (slightly) positive feedback than we have negative and, given that the latter tend to be more vocal, it may be that banks are playing ball – or they are at least trying to.
Role of government – Access to the £330bn
• Banks are coming in for some stick for insisting on personal guarantees to issue government-backed emergency loans to business owners. Access to the money, as always, seems to be easier for those companies that do not really need it.
• Directors of smaller companies, therefore, are being asked to risk their homes somewhere down the line to do what the government says is the ‘right thing’ in the short term. The government has said that nobody should be punished for doing the right thing. It hasn’t said that they won’t.
• A couple of banks have said they would not require PGs but Barclays requires them and HSBC is reportedly saying that it will require a form of personal guarantee for loans over £100,000. Directors of pub and restaurant companies have no idea when the current lockdown will end.
The market’s mood swings:
• What a difference a week makes. It wasn’t that long ago that President Trump was saying he was happy to shake hands with, kiss and hug foreign dignitaries. PM Johnson was more British about it and would only shake hands, his dad, Stanley, insisted he would still go to pubs and Tim Martin was telling all and sundry that social mixing in pubs wasn’t responsible for spreading the virus.
• Cruise operators were saying it was ‘unwarranted’ to warn against older holidaymakers cruising, various trade shows were going ahead ‘because Matt Hancock said it was OK’ and even the Olympics were still on.
• Everything then took a major lurch down. Sport stopped, work stopped, pubs closed down & the economy was put into an induced coma in an attempt to throw off the bug in a move that President Trump and others have suggested could be worse than the disease itself.
• That said, however, it’s possible that the low point (re sentiment, not the impact of the virus) was reached a couple of days ago. Let’s see. Swings imply moves in both directions so it’s possible sentiment will take another jolt as TV screens are certain to be showing some pretty distressing scenes over the coming weeks.
Wartime – debt, state intervention up, civil liberties & incomes down:
• We’re a wartime this and wartime that but, at the end of the day, what does that mean?
• We get the ‘pulling together’ and ‘common enemy’ bits but the wartime state does imply increased debts, increased state interference and reduced civil liberties.
• And, so far, it’s a tick, tick and tick to the above. Let’s see how far it goes. Things might be on a hair trigger. The government could be damned if it overreacts and damned if it doesn’t. That’s why it’s paid the big bucks.
• Quite a bit of what would normally be in the Premium section is included in The Coronavirus Outbreak & the On Trade below. This is in order to elicit feedback, where possible, from a wider group of readers.
• Time is our enemy again this morning. We will write further on the following for tomorrow. Watch out for tweets on these subjects during the day on #brumbymark.
• The benefits and now the problems of neg working cap
• Bad debts for suppliers and landlords. They are people too.
• It’s all about burn rate, stupid
• Thoughts on ‘will others follow SSP in raising equity?’
• Now we know that Black Swans exist, how does it change our behaviour?
• The issue of mental health. Think multi-week lock-in, 15th floor of a tower block etc.
THE CORONAVIRUS OUTBREAK & THE ON-TRADE.
• Jonathan Downey, CEO of London Union (Dinerama etc.) is coordinating efforts alongside UK Hospitality to liaise with landlords, avoid disputes and access the government’s Coronavirus Jobs Retention Scheme.
• Thoughts at the moment is that there is some confusion, that payday for many is today and that ‘we need clarity from HMRC but business should get on with it and save jobs’. There is no doubt that, if the industry is helped and does not have to shed labour, the return to ‘normal’ will be quicker than it would otherwise have been.
• There is something of a backlash going on against companies closing down theirn delivery and takeaway offers because of ‘concerns for the health and safety of our team’ etc. There is a whiff of ‘virtue signalling’ claim some operators.
• Downey and others have criticised landlord’s ‘bullying tactics. The current moratorium on evictions will help. There is no formal mechanism to oblige landlords to share the pain of their tenants. Hopefully, realism will prevail. Some landlords are saying that the £10,000 per small site or the £25,000 per medium sites helicoptered in by the money (some time) should be used to pay the rent.
• JD Wetherspoon has said that it will not pay suppliers until its pubs reopen, even for products that have already been delivered. The group says that it will pay staff for work done prior to the lockdown on 3 April. It has called for more clarity on the jobs retention scheme, specifically when the money will be transferred to operators.
• JDW says ‘we are asking for a moratorium on payments, until the pubs reopen, at which point we intend to clear outstanding payments, within a short timeframe.’ It says ‘we understand that this puts significant pressure on our suppliers, but we are kindly asking for your assistance during this very difficult period.’
• Intu has updated on the impact of Covid-19 saying that ‘all of our centres in the UK and Spain are operating on a semi-closed basis. In line with the latest Government advice in both countries, only essential stores, such as supermarkets, pharmacies and banks, remain open.’
• Into says rent was due yesterday and says ‘we have received 29 per cent of this. We are in discussions with our customers on the outstanding rents. For the same period last year, we had received 77 per cent on the quarter day.’ Intu says ‘we have significantly reduced capital expenditure for the foreseeable future and are cutting back on head office costs to maintain additional cash within the business. In addition, to support our customers, we have initiated a programme of reducing non-essential service charge costs and are passing on these savings to them.’
• The company adds ‘the reduced social activity is likely to continue for the foreseeable future impacting our footfall and potential future rents. The impact of the reduced rents received is expected to require us to seek covenant waivers and we are in constructive discussions with the relevant lenders.’ It says ‘given the ongoing uncertainty around COVID-19, we are no longer able to provide guidance in relation to the 2020 financial year.’ It can only conclude ‘in these difficult times we continue to assess all strategic alternatives and will provide further updates as appropriate.’
• Vianet has updated saying ‘trading for the second half of the year has been largely as anticipated and, as a result, subject to any further COVID-19 provisions, the Group’s full year profits for the year ended 31 March 2020 will be in line with market expectations at over £4.00m and ahead of the £3.85m reported last year.’ It goes on to say ‘the mandatory closures of pubs, bars and restaurants in the UK will have a material effect on almost all our Smart Zones customers. In anticipation of this, we had therefore proposed a reduced rate on all our contracts in order to maintain business continuity and to avoid more expensive reconnection costs for customers when pubs reopen. We are encouraged by our customers’ responses and expect to be able to protect a meaningful portion of the Group’s recurring revenue during this period of pub closures.’ The company cannot predict the
• Vianet says ‘taking account of the Group’s current cash and available resources, and modelling various prudent business scenarios, we are confident that the actions taken mean that the Group has a cash runway well beyond the period which the Government has indicated as being the likely duration of this crisis. As such, the Board believes that the Group is well placed to absorb a prolonged period of uncertainty.’ The group will not pay the final dividend that was to be voted on at its forthcoming AGM.
• Big Dish reports that ‘government intervention has had an immediate impact on the ongoing operations of the Company.’ It says ‘the Manchester team has been furloughed’ and says ‘whilst the longer-term effect to the restaurant industry due to the Covid-19 pandemic is unknown at this time, the Company remains optimistic that once restaurants are allowed to reopen there will be increased demand for its services, as was the trend at the start of 2020.’
• Black Box Intelligence in the US reports that full service restaurants in the US saw same-store sales decline an average of 74% in the five days ended March 23. The lockdown in the US is very patchy. Looking at the response of some operators, Black Box says ‘consistent with historical trends, satisfaction scores for consumers ordering delivery remain significantly lower than dine in and takeout sentiment.’
• McDonald’s, which is closed in the UK, is to offer free delivery for consumers until 6 April.
• In the UK, almost half a million new benefits claims have been received by the Department for Work and Pensions in the past nine days. There will be many more would-be claimants who have not been able to get through. A large number of these claimants will work (or will have worked) in the hospitality industry.
• Kerb, which operates a number of street markets, has said that the ‘lack of support for self-employed is our biggest anxiety’. It suggests that further Government measures are needed to support the self-employed – that is, its customers.
• Off-licenses have been deemed ‘essential retailers’. They rank alongside supermarkets, pharmacies, petrol stations, newsagents, pet shops, DIY shops, bike shops and agricultural merchandise shops as vital for consumers in the UK.
• A number of drinks companies have pledged to donate funds to support workers that have lost their livelihoods due to the Covid-19 outbreak. These include Carlsberg, Campari and Zamora Company.
OTHER PUB & RESTAURANT NEWS:
• SSP Group announced yesterday that it had completed the placing of 86.2m new shares at 250p to raise around £216m. The Placing Price of 250 pence ‘represents a premium of 6.2 per cent to the closing share price of 235.5 pence on 24 March 2020 and a discount of 7.7 per cent to the middle market price at the time at which the Company and the Joint Global Co-ordinators agreed the Placing Price.’
• Wynnstay has reported that its Specialist Agricultural Merchanting Depots ‘are classified as supplying essential goods to the agricultural industry and rural community. As a result, these outlets have remained trading, however some disruption to normal operations is expected regarding employee availability and the measures we are undertaking to protect both colleagues and customers. The Group’s feed, seed and fertiliser processing activities and other distribution operations continue to function to plan.’
• CGA has suggested that more than 50% of people are using or planning to use delivery and takeaway services during the coronavirus crisis.
• Zizzi has shut its units having hitherto said that it would run a delivery operation. The company says ‘following the latest government guidance on social distancing and staying home wherever possible, we believe it’s in the best interests of our amazing teams to suspend our takeaway and delivery services for the time being.’
• Pernod has said that the Covid-19 outbreak will have ‘widespread repercussions’ on its business. It is looking at a c20% drop in operating profit this year.
• JD Wetherspoon has been criticised by the Bakers, Food & Allied Workers’ Union for implying that it will not pay staff wages until it is sure that the Government’s furlough scheme is working. Chairman Tim Martin released a video in which he expressed sympathy for his workers and said that he would quite understand if they took a job somewhere else in the short term.
• Tim Martin said ‘companies like Costa, owned by Coca-Cola, and McDonald’s, being owned by large multinationals, can afford to retain staff and commit to paying them, before details of the Government furlough scheme are published.’ He said ‘however, they are in a minority in the pub and restaurant trade.’ He said ‘most companies, including Wetherspoon, do not have the resources, while pubs are shut, to make this commitment and need to see details of the scheme in order to retain and pay staff, as the Government has sensibly requested, rather than instigating large-scale lay-offs.’
• Rachel Reeves, chair of the Business, Energy and Industrial Strategy committee, said ‘Sports Direct and JD Wetherspoons are big names on our high streets, relying on the dedication and hard-work of their staff and the trust of customers for their success.’ She adds ‘at times of national crisis, it’s vital that businesses step up, do the right thing and stand by their workers and their customers.’
• Ms Reeves says ‘when many businesses are undertaking great work to support the national effort, it’s crucial that companies such as JD Wetherspoons and Sports Direct do all they can ensure their workers are properly protected and get the pay to which they are entitled.’ JD Wetherspoon says that it will pay its workers this Friday for hours they worked last week.
• YUM Brands has updated on trading saying ‘working together, we can limit the spread of COVID-19 while offering convenient, affordable food in a low contact environment.’ The company says it will ‘support impacted employees’ and adds that it is ‘enhancing the benefits available to them during this difficult time.’ It says ‘the Company will pay employees who are required to stay at home, or who work at a restaurant that is closed, for their scheduled or regularly scheduled hours during their time away from work. Yum! Is actively working with its franchise partners to encourage a similar approach.’ It will keep some restaurants open. These will operate a ‘low or no touch’ policy.
• YUM says it has temporarily closed 7,000 restaurants around the world. It believes the impact of COVID-19 pandemic on same-stores sales will grow progressively worse through mid-summer.
• Meanwhile YUM China has said that 95% of its stores in China are now open either fully or partially. The company says ‘we are seeing early signs of recovery, as business gradually resumed and people returned to work in China.’ Store closures peaked in February with approximately 35% of restaurants closed.
• Journal NRN in the US says that some restaurants are pivoting to selling groceries in order to keep afloat.
• Implying that they should take some of the financial hit, Boxpark’s Roger Wade says ‘I encourage all landlords out there to make sure they’re doing their bit.’
• The UK’s supermarkets are hiring through the Feed the Nation website.
• See yesterday’s tweets at the foot of Forthcoming Results.
HOLIDAYS & LEISURE TRAVEL:
• Hostelworld has updated saying that ‘on 4 March 2020 at the time of the Group’s preliminary results, Hostelworld estimated that the impact of COVID-19 would be a reduction in Q1 2020 EBITDA in the range of €3 to €4 million. Since early March booking trends have continued to deteriorate as the outbreak expanded, and while the Group took immediate steps to mitigate the financial impact, we now expect the overall EBITDA reduction in Q1 2020 to be c. €5.0 million.’
• Hostelworld says ‘as at 24 March 2020, the Group’s net cash position remains strong, with in excess of €20 million of immediately available cash on hand (as at 31 December 2019: €19.4 million). The Group confirms it has no debt obligations.’ Hostelworld will not pay a final dividend for the year to end-December 2019. The company is unable to quantify the impact of the outbreak. CEO Gary Morrison says ‘the COVID-19 outbreak has had an enormous impact on the hostelling industry, the wider travel market, and the communities we live in.’ he says ‘given the strength of our balance sheet and the initiatives we have taken in recent weeks I am confident that when this crisis passes, as it inevitably will, we will emerge stronger than ever.’
• Holiday Extras has undertaken research that suggests Britons are booking holidays for later in the year in anticipation of the coronavirus crisis having passed by then. It says 25% of those surveyed have already booked a flight or holiday for later in the year. Whether these bookings were made before or after the recent pick up in concerns re the virus is unclear.
• Certainly, operators are strongly encouraging holidaymakers whose original bookings are now impossible to fulfil to re-book for later in the year. For an industry that operates on negative working capital, this is something of a necessity.
• Easyhotel yesterday updated on trading saying that its hotels in Barcelona and Nice are now shut and adds that ‘following the announcement and requirement by the UK Government on 23 March 2020, the Board can confirm that all its owned hotels are now closed until further notice.’
• EZH says it is protecting cash flow where possible and it is cutting costs. It says ‘it is too soon to estimate the full impact that these closures and the previously announced deterioration of our forward booking position will have on the Group’s performance for the current financial year ending 30 September 2020, however, trading is expected to end the year substantially behind the Board’s expectations.’
• EZH says ‘we have a robust balance sheet backed by a significant freehold and long leasehold estate. Additionally, the recently announced equity fundraising of £11 million (gross) due to complete on 26th March 2020, when aggregated with its existing cash balances, means that we currently have access to good levels of liquidity.’ It concludes ‘the Board remains confident in the Group’s strategy over the longer term. It will continue to monitor the evolving situation closely and will update the market as appropriate.’
• The Guardian reports that ‘hundreds of residents of the budget hotel chain Travelodge, including homeless families housed there by local councils, have been turned out on to the street after it closed its premises.’ Travelodge asked all its guests on Tuesday to leave its premises as soon as possible.
• Government guidance issued on Tuesday confirmed that all businesses providing holiday accommodation should ‘take steps to close for commercial use as quickly as is safely possible’.
• Sky reports that airlines have called on the government to underwrite hundreds of millions of pounds in regulatory and air traffic control charges as they seek to navigate through the escalating coronavirus crisis. The news site has ‘obtained a letter sent on Wednesday by Airlines UK, the industry’s main lobbying group, to Grant Shapps, the transport secretary, in which it calls again for a package of emergency support.’
• The World Travel & Tourism Council has said that some 75 million travel & tourism jobs across the globe are at ‘immediate risk’. Numbers coming out of the US suggest that 4.6 to 6.0 million jobs could be at risk in that country alone.
• ABTA is seeking a suspension of the legal requirement to refund holidaymakers in full within 14 days. If too many customers ask for their money back, companies may be in serious trouble. Travel Weekly says ‘media reports on Monday suggested transport secretary Grant Shapps was poised to relax the rules on refunds in line with Abta’s request following a meeting last Thursday.’
• A decision is expected by the end of this week. ABTA says it is seeking the suspension of the legal requirement to refund consumers as it threatens many businesses with insolvency following the cancellation of millions of bookings.
• RCL has extended its suspension of cruises until mid-May from its earlier 11 April.
• The US is thought likely to pump some $60bn into its airline industry. In the UK, talks are ‘ongoing’.
• Ten Entertainment has commented on its proposed placing of shares saying that 3.25m shares were placed to raise around £5m gross. It says ‘the net proceeds of the Placing will be utilised to provide additional liquidity headroom during this unknown period of uncertainty relating to COVID-19.’
• Langton isn’t much of a tennis fan but surely Wimbledon’s a goner? Actions mean more than words. Where, when and how, for example, are the sportspeople training?
• Ten Entertainment has launched an accelerated book build in order to place shares to the value of around £5m (at yesterday’s share prices). The company says the ‘net proceeds of the Placing are intended to provide additional liquidity headroom during this unknown period of uncertainty relating to COVID-19.’
• Ten Entertainment maintains that it has taken action to mitigate its losses but says ‘whilst the situation remains uncertain, and it is impossible at this stage to be clear on when this crisis will conclude, the Company wants to take the prudent precaution to strengthen its balance sheet further in order to provide additional flexibility at this time and ensure the ongoing health of the business.’
• Nielsen has reported that, unsurprisingly, the various lockdowns across the world are leading to an increased consumption of media.
FINANCE & ECONOMICS:
• The CPI in the UK fell to 1.7% in the year to February from 1.8% in the year to Jan.
• The NIESR says ‘our analysis of approximately 130,000 goods and services included in the basket indicates that higher prices in the housing and household services as well as restaurants and hotels categories were not fully offset by sales in the month of February. Our measure of underlying inflation, which excludes extreme price movements, remained unchanged at 0.9 per cent in February. Underlying inflation increased in 4 regions of the UK. On this basis, we expect CPI inflation to settle around the Bank of England’s target of 2 per cent in the coming year.’
• The CBI says that British retailers fear sales will slump next month at a rate not seen since the depths of financial crisis in 2008-09. Indeed, as many shops are physically closed this time around, matching the 2008-09 result would be something of an achievement.
• Cambridge University’s Bennett Institute suggests that the UK could be heading towards a deep recession.
• Boris Johnson is facing more pressure to speed up testing. Tests to show whether an individual has already had Covid-19 or not would also be welcomed.
• Sterling $1.185 and €1.0861. Oil lower at $27.08. UK 10yr gilt yield down 1bp at 0.44%.
START THE DAY WITH A SONG:
Yesterday’s song was Mr Bruce Springsteen with his Hu-hu-hungry Heart. Today, who sang?
Yesterday I got so scared,
I shivered like a child,
Yesterday away from you,
It froze me deep inside,
RETAIL WITH NICK BUBB:
• Today’s Market: After the continued rally yesterday, the FTSE 100 index is expected to open lower this morning (according to the Proactive private investor website), after Wall Street dipped late on (to end the day only 2.4% up), on worries of a huge jump in the US jobless claims report today, with Asian markets dropping back overnight (the Nikkei fell by 4.5% overnight). The spread-betting firms expect the FTSE 100 to open c100 points down at around the 5520 mark, although there are more gloomy company updates out this morning…
• Today’s Retail News: The most sombre announcement this morning is from the beleaguered shopping centre landlord Intu Properties, announcing that only 29% of its scheduled rental income on quarter day was received yesterday, with the likes of Primark refusing to pay (albeit a year ago the figure was only 77%, at the height of all the CVA’s). There are also gloomy updates about store closures etc from QUIZ (the fashion chain) and Topps Tiles, but Dixons Carphone has announced that UK Electricals sales have jumped by 35% in the last 3 weeks and that its Nordics stores are still open, albeit its UK stores are all closed and UK Mobile sales have slumped by 24%…