Langton Capital – 2020-03-31 – Nichols, corporate collapses, balance sheet repair etc.:
Nichols, corporate collapses, balance sheet repair etc.:
A DAY IN THE LIFE:
It felt a lot quieter yesterday and, after the excitement of the first week of a lockdown, some 45 RNS statements from leisure companies etc., that was always likely to be the case.
Not that there isn’t an awful lot of work going on to bail out various ships at the moment, of course.
Still, the news flow, a flow of administrations notwithstanding, may be slower and it could be an idea to catch up on those TED Talks that you’d always wanted to watch.
Any suggestions would be gratefully received. We’ve just watched Bill Gates on epidemics (recorded 5yrs or more ago) and a Swedish professor on, well, relative perspectives, at least that’s what we’d call it in layman’s language.
The latter pointed out that, to a giant, everyone is small. Similarly, to a destitute person, everyone is ‘rich’ and to a person in the developed world, everyone who is ‘poor’ is the same – but there are many degrees of poverty.
Can you afford food, for example? Little else matters if you can’t but can you afford shoes? What about a bicycle? How about a moped, a dilapidated motor car etc and the same is true regarding the Covid-19 outbreak.
Everyone, I think we can agree, is in a mess but, when you look closely, some messes are much, much messier than others.
Follow news on #brumbymark and here’s today’s email:
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PRIVATE COMPANY ACCOUNTS – CASUAL DINING GROUP. CDG has reported full year numbers to 26 May 2019 to Companies’ House. 31 Mar 2020.
• CDG had 9mths to report its accounts and, even under normal circumstances, that means they would be a little historic… See Premium Email.
PUBS & RESTAURANTS:
• Nichols has this morning updated on trading under current circumstances saying that ‘trading in the first two months of the financial year was in line with management’s expectations.’ The group adds ‘however, as a result of the COVID-19 pandemic and the restriction of movement of people worldwide, the Board now expects a significant impact on the Group’s financial performance in 2020.’
• Nichols says ‘given the level of global uncertainty, the Board is not currently able to provide financial guidance for the year ended 31 December 2020.’ It adds that it had a strong balance sheet at the beginning of this year but says it is cancelling its final dividend for last year of 28p per share.
• Nichols says ‘the Board and management team continue to plan for multiple scenarios and explore various ways to mitigate the impact of reduced demand on the business for a potentially sustained period.’ It says it ‘is taking steps to remove cost, including the re-evaluation of its marketing spend given the changed circumstances, postponing non-essential recruitment and suspending non-critical capital expenditure from the business.’
• Chairman John Nichols says ‘with a heritage of 112 years, Nichols has successfully weathered significant challenges and changes across global markets before. Driven by the strength of the Group’s brands, robust balance sheet and diversified business model, the Board remains absolutely confident in Nichols’ ability to both manage the near term pressures impacting the global economy and emerge from this unprecedented period well-placed to continue to deliver the Group’s long-term growth plans.’
• Yum Brands, the operator of the KFC, Taco Bell and Pizza Hut brands, has raised new fresh capital from bond investors in a deal that will net the company some $600m. The group is bolstering its cash position ahead of what may be a prolonged economic shutdown in the US and worldwide. The brand owner has more than 50,000 outlets globally, nearly all of them operated by independent franchisees and licensees.
• YUM’s CEO, Greg Creed, is to forego his 2020 salary and donate it to employees. He did earn nearly $14m last year and probably isn’t short of a bob or two.
Administrations – Carluccio & Bright House gone into administration.
• Carluccio yesterday called in FRP as administrators to the firm. The company says that it had been facing ‘challenging trading conditions’ for some time. The coronavirus shutdown pushed it over the edge and FRP is ‘urgently looking at options’ regarding the business.
• Carluccio’s administrator is to make use of the CJRS (coronavirus job retention scheme) whereby it can pay its workers 80% of their former salary (at the government’s expense) in order to keep its options open. Some 2,000 jobs will be at risk.
• FR says ‘we are operating in unprecedented times and the issues currently facing the hospitality sector following the onset of Covid-19 are well documented. In the absence of being able to continue to trade Carluccio’s, in the short term, we are urgently focused on the options available to preserve the future of the business and protect its employees.’
• Staff at Carluccio were paid 50% of their salary for work completed this month. CEO Mark Jones gave up his salary for the month but additional funds were not forthcoming and a potential merger with Byron Burger did not get off the ground.
• Rent to own business Bright House has also called in administrators. It had been struggling for some time. See our comments on ‘co-morbidity’ in earlier emails and also in tweets, below Forthcoming Figures.
• The Restaurant Group’s Chiquito and Food & Fuel operations are likely to go into administration in the near future.
Passing the parcel:
• Some landlords are playing hardball. The FT quotes chains Pho, Escape Hunt and Caffè Concerto as among those that have been threatened with legal action for non-payment of rent.
• The FT points to Sykes Capital and Criterion Capital as taking a firm stance. Criterion says ‘the government at no time has said that commercial tenants should receive a rental holiday, yet many, but not all, are choosing to withhold rent. Such action is jeopardising our obligation to meet our commitments to lenders.’
• It is fair to say (see earlier emails) that landlords have financial obligations, debt, staff and all the rest as well,
• Some landlords suggest that operators should look to the government’s helicopter money (£10,000 per site for very small sites and £25,000 for somewhat bigger units) as a source from which to pay their rents. This may work for some operators in the medium term but 1) in the short term the money has not arrived yet (and nor has the 80% of wages promised for staff) and 2) none of the money will be forthcoming for sites with a rental value of more than £51,000.
• A number of landlords are offering rent deferrals and / or one month payments rather than quarterly. Various operators have said that this is not ‘enough’ as the revenue that they are currently foregoing has been lost, not delayed. They unsympathetic would say that the rents remain legally enforceable.
Has the industry been too thinly capitalised?
• Well the easy answer is ‘yes’ but being wise after the event isn’t particularly useful and we are where we are.
• The issue would have been much worse if the coronavirus had struck in 2007 or 2008 as, post the credit crunch, most companies have taken measures (never enough, with hindsight) to shore up their balance sheets.
Too little, too late?
• The government’s promised aid may not be too little but it could easily be too late.
• Because companies that cannot pay their March, let alone their April wage bills, and cannot pay their rent or supplier bills into the bargain, are effectively insolvent and they are unlikely to remain in existence for very long.
• Indeed, it will be hard enough for solvent operators to keep staff and a core team from which to build.
• The Guardian says ‘the coronavirus pandemic is expected to lead to the demise of thousands of restaurants, pubs, shopping chains and other high street businesses, despite the government offering unprecedented financial support and changing insolvency rules to give companies more time to pay debts.’
• Politicians and civil servants, bless them, may be trying hard but they do not exist in the world of business and may not fully understand the options facing business people now – how can we justify putting more money into a situation on the back of a completely unproven government promise when we are completely unsure as to the end game?
• The Guardian quotes Monsoon as amongst a number of operators considering their options.
• The National Living Wage rises by 6.4% tomorrow. This is not an April Fool’s joke.
• Boxpark has shut completely. Delivery had hitherto been available.
• On the other hand, Itsu is to reopen two of its restaurants in order to provide meals to London hospitals.
• The Casual Dining 2020 exhibition, which had re-booked itself from March to July, has finally given up the ghost. See our ‘Doing the Obvious Thing for the Wrong Reason’. Casual Dining 2020 had said ‘the clear advice from the government and health secretary Matt Hancock is for people not to panic and for large gatherings to continue as normal’. We said a fortnight (i.e. a lifetime) ago ‘it is our sincere wish that that does not prove to be optimistic.’
• In the US, the Cheesecake Factory Inc. is furloughing 41,000 hourly workers & reducing the pay of its executive officers by 20%. It is also warning landlords it will not make lease payments for April because of the coronavirus pandemic reports NRN.
• Rockfish & The Seahorse says it is ‘preparing to press pause, or ‘mothball’ our restaurants until the environment has changed and we can be in a position to press ‘play’ and be ready to thrive again.’ The operator says ‘we have paid our staff 100% of their wages for March and by using the support of the Government’s Job Retention Scheme have been able to preserve all of the jobs at Rockfish and the Seahorse, with the exception of a handful of brand new joiners who we are advising on what support they may receive.’
• Bibendum Wines has launched a new app: LOCAL, which ‘helps restaurants, pubs, bars and independent merchants offer Home Delivery or Click & Collect, with zero set-up costs or up-front charges.’ Bibendum says ‘with the hospitality industry’s landscape changing dramatically in the last month, the distributor wanted to offer their customers in the UK a way to adapt and to keep going, without expensive set-up fees.’
• M&S is selling food boxes online for £30 containing 20 essential items such as pasta, rice, curry, cooking sauces and Percy Pig sweets.
• Restaurant Brands International, owner of the Burger King, Tim Hortons and Popeyes brands, is offering 14 days of paid sick leave for workers in company-owned locations diagnosed with COVID-19 or deemed in need of isolation, and advancing cash payments and rebates to restaurant owners.
HOLIDAYS & LEISURE TRAVEL:
• Tourism numbers could drop by 30% this year reports the WTO.
• EasyJet has now laid up all of its planes for an indefinite period.
• STR is predicting that the US hotel industry will see a 50% decline in REVPAR this year. As most of Q1 was relatively buoyant, the remainder of the year must be very poor. The exit rate, i.e. how the industry is doing in Q4, will be critical.
• MSC Cruises has extended the suspension of its sailings until end-May.
• Hull Trains has become the first UK train operator to halt all its services.
• The UK government is to spend around £75m bringing stranded Britons back from overseas.
• P&O Cruises and Cunard are extending their suspension in operations for a month until May 15
• Airbnb is to pay around $250m to cover some coronavirus cancellation costs
• MGM Resorts International in the US has said the coronavirus will ‘undoubtedly have a significant negative effect on our business in the near term.’ It says, however, that ‘we are well-positioned to emerge from the current crisis in light of our strong liquidity position and valuable asset portfolio.’
• The Gym Group has announced ‘the launch of an exciting new on-demand fitness product for its members.’ It says it has ‘also made a small investment in Fiit [a fitness app company], in early February this year’
• Gym Group CEO Richard Darwin says ‘the launch of this innovative new product enhances and delivers a best in class fitness offer for our members. Even before the outbreak of COVID-19 we had recognised the unique service that Fiit provides, both at home and in our gyms.’
• Bob Iger at Walt Disney is to take a 50% pay cut. Other directors will lose between 20% and 50% of their salaries
• Aston Martin has taken on a new $100m credit line
FINANCE & ECONOMICS:
• The Centre for Economics & Business Research has suggested that UK GDP could fall by 15% in Q2. This is by far the worst three-month period since its records began.
• YouGov reports that around a fifth of UK consumers fear an economic depression as a result of the Covid-19 disruption. Some 51% expect a recession.
• The St Louis Fed says the coronavirus fallout cost 47 million jobs in the US and drive the unemployment rate past 32%
• Banks in the UK are likely to be told to cancel £7.5bn of dividend payments due to shareholders (including the UK government via its holding in RBS)
• Sterling down vs dollar at $1.2336 but up vs Euro at €1.1196. Oil price lower at $22.96, UK 10yr gilt yield down 2bps at 0.33%. World markets higher yesterday with Far East mostly up in Tuesday trade
START THE DAY WITH A SONG:
Yesterday’s song was Hit me with your Rhythm Stick by the late Mr Ian Dury. Today, who sang?
In the silence of your room,
In the darkness of your dreams,
You must only think of me,
There can be no in between
RETAIL WITH NICK BUBB:
• Consumer Confidence Watch: The stockmarkets have been very gloomy over the last month about the devastating impact of the coronavirus on global economic activity, so today’s widely followed monthly GFK Consumer Confidence survey should catch the headlines, but we flagged yesterday that polling will have been done in the first half of the month (March 2nd-13th to be exact), before the pandemic began to get a grip, so it shouldn’t be interpreted as an up-to-date reading on all the coronavirus worries. Even so, it is surprising that the overall index has only dipped slightly, from -7 to -9, despite a steep eight-point fall in the Major Purchase Index. Joe Staton, Client Strategy Director at GfK says: “While we have a long way to drop before we match the devastating numbers seen in July 2008, when the Overall Index Score crashed to -39 points, we are likely to suffer further deterioration
• Retail Sales Watch: The Retail Sales month of March (the 5 weeks to April 4th) is nearly over, but we haven’t seen the final word yet on how bad February was on the High Street, given the wet weather…The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported on Thursday that non-seasonally adjusted total Retail Sales by value were up by a mere 2.3% last month (ex-petrol). But the BRC-KPMG unadjusted measure of gross sales was only up by 0.1% in gross terms (down 0.4% LFL). So, who was right? The ONS? Or the BRC? Well, the Retailing consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey) has just come out with its own detailed overview of February and their estimate is that gross Retail sales rose in value by 1.3% last month, year-on-year (non-seasonally adjusted,
• News Flow This Week: The latest monthly Kantar/Nielsen grocery market share figures (for the 4 weeks to March 21st/22nd) come out at c8am this morning. There is no more UK Retail company news scheduled this week (although we expect AO.com to give an update soon), but out in the US, it will be interesting to hear on Thursday what Walgreen Boots say about the outlook with their Q2 results (for the period ending Feb 29th).
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 17 Mar 20 Numbers and / or Covid-19 trading update. Tasty, Brighton Pier, Rank Group
• 18 Mar 20 Numbers and / or Covid-19 trading update. Morrison’s FY numbers, DART Group, Gear 4 Music, Loungers, Marston’s, M&B, Restaurant Group, Revolution Bar Group.
• 19 Mar 20 Numbers and / or Covid-19 trading update. Everyman, Gym Group, Shepherd Neame, Sportech, Escape Hunt, Playtech, PPHE Hotels, New River, Comptoir.
• 20 Mar 20 Numbers and / or Covid-19 trading update. JD Wetherspoon, Hotel Chocolat, C&C, Carnival Corporation, Intercontinental Hotels.
• 23 Mar 20 Covid-19 updates, Fuller’s, Fulham Shore, Time Out, Tasty, Britvic, AG Barr, Ten Entertainment, Gym Group, New River, EasyHotel, Wizz Air, Gregg’s.
• 24 Mar 20 – Covid-19 updates – 888, Tasty, Games Workshop, Whitbread.
• 25 Mar 20 – Covid-19 update – SSP Group fund raise, Ten Entertainment fund raise
• 26 Mar 20 – Covid-19 update – Intu, Vianet, Hostelworld, Big Dish
• 27 Mar 20 – Covid-19 update – DP Eurasia, Flutter, City Pub Group, Coca Cola HBC, Domino’s Pizza, C&C
• 30 Mar 20 – Covid-19 update – DP Poland
• 31 Mar 20 – Covid-19 update – Nichols PLC
• 31 Mar 20 Gfinity FY numbers
• 2 Apr 20 Saga FY numbers
• 3 Apr 20 Constellation Brands numbers
• 9 Apr 20 Hollywood Bowl H1 trading update
• 23 Apr 20 Gear 4 Music FY numbers
• 28 Apr 20 Pepsi Co Q1 numbers
• 29 Apr 20 YUM Brands Q1 numbers
• 7 May 20 Intercontinental Hotels Q1 numbers
• 12 May 20 On the Beach H1
• 13 May 20 Marston’s H1 numbers
• 13 May 20 Stock Spirits H1
• 13 May 20 Compass Group H1
• 13 May 20 C&C full year numbers
• 14 May 20 Flutter AGM
• 21 May 20 Young & Co full year numbers
• 11 Jun 20 Fuller’s FY numbers
• Covid ££ side effects #17. The crisis is an accelerant. Struggling companies will go under rapidly. Gov. is saying ‘pay your workers’ and ‘we’ll stand behind you’ but when? And how? Collapses expected this week.
• Covid ££ side effects #18. Our mental health is going to take a kicking. This is doing none of us any good and a lot of us physical and mental harm. Nest eggs have gone, work ethic not far behind it?
• Covid ££ side effects #19. Hospitality will be a less-crowded market when this is over. Many, many, many restaurants, coffee shops, grab n go outlets & a smaller number of pubs will never re-open. Demand will be muted but supply will certainly be diminished.
• Co-morbidity, now there’s an ominous word. For corporates, add the coronavirus shutdown to any 2 or 3 of a) high debt, b) overrented properties, c) lazy, me-too products, d) an over-expanded estate & e) complacent management, and its goodnight, Vienna
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