Langton Capital – 2020-04-06 – Restaurant Group, GVC, consumer confidence, habits, Carnival etc.:
Restaurant Group, GVC, consumer confidence, habits, Carnival etc.:A DAY IN THE LIFE: So, after charging the battery on the mower, we pumped up its tyres, added a bit of oil, found some petrol for the thing & pleaded with it to start so pitifully that, after a few coughs and wheezes, it actually kicked into life and we got the grass cut at the weekend. Of course, the vegetation was verdant, full of life and a foot high in places and wringing wet, swampy and downright dangerous in others such that the job took us perhaps twice as long as usual but, because the sit on mower is a bone-shaker of the first order, it does wonders for the old Fitbit, which told me that I’d walked six or seven miles by the time I’d finished when, in fact, I hadn’t taken a step. See weekend tweets & follow intra-day comments on @brumbymark. Still, all that exercise and fresh air warranted a beer so all was not in vain. On to the news: LANGTON PREMIUM EMAIL: Corporate Offer: Premium email just £295 (plus VAT) for a single subscriber or £495 (plus VAT) for multiple subscribers. Drop us a line to get involved. Retail Offer: Easy in, easy out. £30 per month (inclusive of VAT, £25 net) via PayPal. Email us for details or check here. ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. PRIVATE COMPANY ACCOUNTS – OAXACA LTD (trading as Wahaca): Benito’s Hat last week went into (and out of) administration and Chiquito’s is reported to be shut for good. Here we look at rival Mexican operator, Wahaca. 6 April 2020. Basic numbers: • The numbers reported to Companies’ House are for the 53wks to 30 June 2019. • Wahaca reports that turnover for the year was £50.0m (2018: £47.9m) • It reports the Gross Profit margin was 43.6% (2018: 43.0%) and adjusted Operating Profit was £3.2m (2018: £2.7m). • The group reports that the Net Loss before Tax was £4.2m (2018: £4.9m). See Premium Email RESTAURANT GROUP UPDATES, DOWNSIZES ITS OPERATION: • The Restaurant Group has updated on its position during the Covid-19 lockdown saying it is ‘pleased to confirm that the TRG Lending Group have agreed that there will be no covenant test at the half year.’ • RTN says ‘in addition, Santander have increased their super senior revolving credit facility to Wagamama from £20m to £35m, thereby adding an extra £15m to the Group’s overall debt facilities.’ • The group adds that ‘the Executive Directors have decided to reduce their base salaries for a period of three months from April 1st. Andy Hornby, Chief Executive, has volunteered to take a 40% pay cut, which reflects the core policy for senior members of the TRG team who are not being furloughed. Kirk Davis, CFO, volunteered a pay cut and will see a 20% reduction for the same period. The smaller pay reduction for the CFO reflects the exceptional workload for the Finance function. These arrangements will be reviewed again on July 1st 2020.’ • The company goes on to say ‘both Executive Directors have also volunteered to forego their bonuses for the 2019 financial year, which were due to be paid on March 31st 2020.’ It says the Non-Executive Directors have also proposed to reduce their fees with effect from April 1st 2020 by 40%.’ • RTN has announced that Mike Tye, former Punch managed pubs head, has offered to step down as a Non-Executive Director and Chairman of the Remuneration Committee with effect from today. • Andy Hornby comments ‘these are unprecedented times for our business and our sector. Against this backdrop we have taken decisive action to improve our liquidity, reduce our cost base and downsize our operations.’ PUBS & RESTAURANTS: Drinking habits: • CGA reports that, unsurprisingly, the drinking habits of UK consumers has changed as a result of the current lockdown. Around 24% of those surveyed had purchased alcoholic drinks online during the last two weeks. • CGA reports that consumers have become more health-conscious & says that 42% say they are drinking less alcohol than they did before the outbreak. Only 14% were drinking more. Spirits have been gaining in popularity. Whiskey is he 9th most popular drink ordered in pubs but the 4th most popular bought online. • Calls re helicopter money. If the Jobs Retention Scheme is aimed at labour costs, and the suspension of business rates covers around a third of property costs, for small companies at least, the £10,000 or £25,000 that they have been promised in helicopter money should cover rent and some other costs. Government intervention – helicopter money: • Some industry lobbyists, whilst grateful for the steps that the Chancellor has taken to date, are suggesting that the pay-outs should be extended to companies operating from sites with a rateable value of more than £51k and go on to say that the cash handouts should be expressed as a percentage of the rateable value as a whole. Government intervention – loans: • Rishi Sunak has banned banks from demanding personal guarantees for emergency loans that will subsequently be underwritten by the government. The loan scheme will be extended to cover all small companies affected by Covid-19 and not just those unable to get commercial funding. • The BBPA said on Friday ‘we welcome the Chancellor’s statement today, bolstering credit lines to businesses affected by the COVID-19 crisis’ but it goes on to say ‘the all-important detail on the support remains to be seen, but if done right it should help out those businesses in the ‘squeezed middle’. The majority of our membership falls into this bracket and so haven’t had access to the support that the Government intended.’ • The BBPA says ‘it is a shame that the loans will be at commercial rates meaning successful businesses, through no fault of their own, will be forced to get into more debt due to this crisis. Nonetheless, it is imperative now that the banks take heed of this clear direction from Government and get the cash to businesses as fast as possible ensuring the great British pub industry survives this crisis and is in the best position to reopen in the future.’ Government intervention – business rates: • The business rates holiday announced by Chancellor Rishi Sunak is not state aid, the government has said. Other news: • Consumer confidence measurement company GfK has reported on confidence in the Uk saying that it ‘has decreased drastically by 25 points between the first two and last two weeks of March – falling to minus 34.’ It says ‘all measures that make up the Index Score have decreased.’ • GfK says ‘our COVID-19 ‘flash report’ shows a dramatic result with consumer confidence falling off the cliff in the last two weeks of March. The last time we saw such a decline was during the 2008 economic downturn. Our falling confidence in our personal financial situation and the wider economy reflects the new concern for many across the UK. Despite record grocery sales, and recent peaks for purchases of freezers, TVs and home office equipment as people prepared for a long period in the home, the Major Purchase Index is down 50 points – a stark picture for some parts of the retail industry in the short to medium term.’ • The GfK reading is much worse than the minus 9 reached in mid-March before PM Boris Johnson told non-essential shops, pubs & restaurants, to close. The FT quotes the EY Item Club as saying ‘it is clear that many consumers are worried about their jobs and income, and of course many people have already lost their jobs.’ • The Arcadia Group is reported to be facing a winding up order a it has been cancelling orders and not paying its rents. • The IFS has reported that young workers and the lowest paid are the most likely to be affected by the closure of businesses in the wake of the coronavirus lockdown. It says there is a “remarkable concentration” of workers under 25, women and the worst paid that have thus far been impacted. • Friday share price movements. For the first time in a little while there were no movements of any note greater than 10%. Good day for the gamblers with Playtech up 9%, Wm Hill up 7% & GVC +7%. City Pub Group also up 7% but Whitbread down 9%, Mitchells & Butlers down 7% and Cineworld down 6%. • Whitbread has donated over 27 tonnes of food to charity, the majority of which will be to food redistribution charity Fare Share as part of its new partnership with the organisation. • Reuters reports that flour is in short supply in UK supermarkets with recipe searches online hitting all-time highs. • The Cheesecake Factory in the US reports that Q1 sales fell 13% on a LfL basis. March sales were donw 46%. The company says ‘the Cheesecake Factory restaurants have a long-standing business in the off-premise channel, which enabled a quick pivot to an off-premise-only operating model in all open restaurants as required by state and local officials.’ • Constellation Brands has reported Q4 and full year numbers saying that it generated adjusted earnings per-share of $2.06, ahead of the $1.64 FactSet consensus. Sales rose 6% to $1.903 billion. CFO Garth Hankinson said the company has ‘significant’ capacity under its $2 billion revolving credit facility. The company should receive about $850 million in cash from the closing of the sale of its Gallo wines. It says we ‘remain focused on prudently navigating the challenging operating environment presented by COVID-19.’ • Rémy Cointreau has said that its operating profit will fall by 25% to 30% in the 2019/20 fiscal year (ending March) due to the impact of coronavirus. The year just commencing could be materially impacted. Remy says it was seeing some improvement in greater China, with most shops reopening as well as some restaurants and bars. Rémy Cointreau believes the percentage drop in sales in Q1 this financial year will be greater than the drop seen in Q4 to end-March. • Floral fashion design house Cath Kidston is set to file for administration in a move that will put 950 jobs at risk. • The Hong Kong Government has shut all bars and pubs in the area for two weeks from last Friday evening. • The London Wine Fair has been cancelled. The organisers promise ‘the best wine fair ever’ in May next year. • Starbucks in the US has said that it will extend the closure of its cafes through to 3 May. Starbucks will pay all employees $3 per hour Service Pay and some other benefits are being extended. • Pernod Ricard has issued bonds to the tune of €1.5bn. The funds will be used to refinance bank facilities. The two bonds carry coupons of 1.75% and 1.125%. • Grupo Modelo is to suspend production of its Corona beer. • KAM Media says it is unlikely that the behaviour of hospitality consumers will revert back to exactly the way things were. KAM says ‘the unprecedented measures to contain the virus, the uncertainty and weeks spent in their homes have provided many consumers with time to reflect and have altered behaviours – some of which may stick, if only temporarily.’ Some will kick against the ‘cabin fever’ that has set in for many of us whilst others may stick with the home cooking, less drinking and in-home fitness regimes that they have had to adopt over the last two weeks. • Debenhams is reported to have failed to make an agreed top-up payment to its pension scheme this month. Observers have speculated that the retailer could be on the verge of calling in administrators for the second time in a year. The BBC says the retailer ‘is set to appoint administrators as early next week.’ • Shares in Luckin Coffee, a start-up that aimed to displace Starbucks in China, fell by more than 70 per cent on Thursday after the company disclosed that an internal investigation had uncovered Rmb2.2bn ($310m) in fabricated transactions. • Glasgow operator G1 has said that it has drawn up plans for a “Heroes Card”- a rewards scheme aimed specifically at those key workers who are currently on the ground providing key work to treat the sick and keep the country moving. • Crussh Fit Food & Juice Bars is to deliver its products to homes across London. • Punch Pub Company has set up a new Pub Shop initiative ‘launched to support pubs, people and communities across the UK during the coronavirus ‘lockdown’ period.’ HOLIDAYS & LEISURE TRAVEL: • Despite the requirement that they refund holidays in cash, many European tour operating companies are issuing vouchers rather than giving cash back. Suppliers simply cannot afford to repay holiday payments in cash. • Carnival Corporation has reported quarterly numbers to end-February. It says it generated $150m of net income in the quarter. However, it says ‘the impact of COVID-19 on the first quarter 2020 net loss is approximately $0.23 per share’ and this will be considerably higher in the current quarter. • Carnival says booking volumes for H1 2021 are running ‘slightly higher than the prior year’. CCL says it ‘believes the ongoing effects of COVID-19 on its operations and global bookings will have a material negative impact on its financial results and liquidity. The Corporation also believes the effects of COVID-19 on the shipyards where its ships are under construction, will result in a delay in ship deliveries. The Corporation is taking additional actions to improve its liquidity, including capital expenditure and expense reductions, and pursuing additional financing. Given the uncertainty of the situation, the Corporation is currently unable to provide an earnings forecast, however it expects a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.’ • The UK Chamber of Shipping has said that a steep drop in passenger numbers due to the coronavirus pandemic means that the ferry industry is in need of state aid. • STR reports that the US hotel industry saw REVPAR fall by 80.3% in the week to 28 March. STR says this is not necessarily the bottom. It says ‘this is going to be a long, slow road with these double-digit, 80%-90% RevPAR declines going forward for the near future.’ • Amadeus has issued bonds and shares totalling some €1.5bn in a series of moves aimed at bolstering liquidity. The funds raised include around €750m in new equity. Amadeus says the funds will ‘enable the company to confront even the most adverse scenarios, based on assumptions well below the latest projections for air travel by IATA.’ OTHER LEISURE: • GVC has reported Q1 numbers and updated on the Covid-19 situation saying that net gaming revenue rose by 1% in Q1. The group had expected the impact of Covid-19 to be a negative £100m per month on EBITDA. It now says this should be £50m per month negative. CEO Kenneth Alexander says ‘we are responding decisively, and have put in place a range of measures to keep our people safe, strengthen our financial position, limit cash outflow, preserve jobs and maintain a compelling customer offer. I am confident that we will emerge from this period in a position of strength, and we will be well placed to take advantage of a range of attractive growth opportunities which we believe will be available to us.’ • Sky reports that both Ladbrokes and Coral have stopped paying rent on their more than 3.000 shops. Owner of the brands GVC says ‘in view of the enforced closure of all Ladbrokes and Coral betting shops in line with government guidelines, GVC has taken the difficult decision to temporary place on hold rental payments to its landlords.’ • Meanwhile in the online world, around 20 MPs have called for strict curbs on gambling during the Covid-19 lockdown for fear that bored consumers take to having a flutter during the period. The Betting & Gaming Council has promised to take steps to ensure that firms do not exploit vulnerable people and addicts who may be particularly at risk during the lockdown. • The quarter just ended has seen the largest ever customer spend through app stores per App Annie. Some $23.4bn of apps were purchased in the 3mth period. • Manchester United football players will donate 30% of their wages to local hospitals and health services. • The Premier League has called on its players to take a 30 per cent cut. FINANCE & ECONOMICS: • Friday’s March IHS Markit Services PMI showed ‘the steepest downturn across the UK service sector for more than two decades.’ The Services PMI was 34.5, slightly lower than the ‘flash’ reading of 35.7. • The UK composite PMI fell to 36.0 from 53.0 in February. This is also lower than the ‘flash’ reading of 37.1. • Markit says ‘a record slump in UK service sector activity reported in March adds to the increasingly bleak economic statistics seen recently across the developed world. Emergency public health measures to combat the COVID-19 pandemic continue to mothball business operations, force aggressive cutbacks on non-essential expenses and trigger distress for household finances.’ • The composite PMI for the Eurozone, where lockdowns came into effect in Italy, Spain and France earlier than elsewhere, fell to a record low of 29.7. • Job losses: o Over 1m have signed on to claim Universal Credit in the last 2wks. o Some 10m Americans have lost their jobs in the last 2wks. o Around 4m French workers have been temporarily laid off in the past two weeks. • New car registrations for March could be down by around 40% when they are announced at 9am today. They are likely to be worse in April. • Sterling lower at $1.2217 and €1.1297. Oil down in recent hours but still up on Friday’s price at $33.55. UK 10yr gilt yield down 1bp at 0.32%. World markets lower on Friday but Far East up today. UK set to open over 100pts higher. START THE DAY WITH A SONG: Friday’s song was Living for the Weekend, by Hard-Fi. Today, who sang? You were the sweetest thing that I ever knew, But I don’t care for sugar, Honey, if I can’t have you RETAIL WITH NICK BUBB: Today’s Market: After the dip on Friday, the FTSE 100 index is expected to rally well this morning (according to the Proactive private investor website), given declining coronavirus death rates over the weekend, with Asian markets well up overnight (the Nikkei is up 4.3%), even though the PM has had to go to hospital…The spread-betting firms expect the FTSE 100 to open c120 points up at around the 5540 mark. Today’s News: There is still no sign of an update from AO.com, or from the embattled N Brown, but WH Smith has confirmed the Mail on Sunday scoop that it is raising new equity (albeit the placing may be only around half the mooted £200m-300m in size) and ScS has announced that it is suspending payment of the interim dividend due to be paid on 7 May: “At a time when the UK Government is supporting ScS, it seems inappropriate to use the cash for anything other than protecting the financial strength and resilience of the business”. Saturday’s Press and News (1): The front page headlines in the Saturday papers were dominated by the gloomy news about the economic slump: the Telegraph Business section went with ““This is not a recession, its’ an abrupt stop”” (quoting one economist who calls it a “virus-driven ice age”), whilst the Times Business section ran with “Virus brings UK economy to its knees” and the FT’s main headline was “Global economy set for sharpest reversal since Great Depression”.
Saturday’s Press and News (2): In terms of Retail news, most papers highlighted the news that the beleaguered Debenhams is on the brink of going into administration (again). There was a big article in the Times about the view of some Non-Food retailers that the big supermarkets should not be getting the Business Rates holiday from the Government, with the entrepreneur Theo Paphitis mouthing off on the subject. The Times also highlighted the latest disaster to befall the funeral operators Dignity, with long-serving CEO Mike McCollum suddenly standing down on Friday and the company warning of potential branch closures. The stockmarket report in the Times flagged the rumour that the retail park sale deal by Hammerson may have to be renegotiated and it also noted the news that Shoe Zone has had to abandon its final dividend payment. The Daily Mail highlighted that WalMart has put its planned Saturday’s Press and News (3): In terms of editorial comment on the crisis, the Business editorial in the Times argued that the doomed HS2 railway line should be abandoned in favour of investment in super-fast broadband (“Time to build real highway we need”), whilst the Economics Editor of the Times penned an interesting column on the new need to build over-capacity into supply chains (“Overcapacity is not a bad thing when it protects us against risk”) and Lex column in the FT turned its guns on Amazon, thundering that “If Amazon wants to emerge from the coronavirus a hero, it needs to do more to keep its workers safe”. Finally, we’d point out a thought-provoking article in the Guardian about the devastating impact of the crisis on Airbnb: “They’re stuffed”: Covid-19 pandemic slams door on Airbnb business model”.
Sunday’s Press and News (1): The Sunday papers were again full of gloom and doom about the economic impact of the pandemic crisis and although the Sunday Telegraph flagged the concern about Debenhams’ ability to keep up its pension fund commitments, the focus on struggling retailers moved on to Philip Green’s beleaguered fashion empire Arcadia, with the Sunday Times flagging that it will soon tell landlords that it is walking away from many stores and the Sunday Telegraph noting that Arcadia has received a winding-up order from a hard-pressed supplier. The front page headline of the Sunday Times Business section was “High Street giants fight for life amid coronavirus mayhem” (with Cath Kidston also amongst the fallen), whilst there was a prominent article on the Mail on Sunday Business pages headlined “Shops set for “Sale of the Century” to shift fashion lines”, noting the huge
Sunday’s Press and News (2): The inevitable problems of Debenhams and Arcadia will fill many column inches in the newspapers this month, but one of the more shocking headlines in the weekend press was the Mail on Sunday scoop “WH Smith may seek £300m share sale”, noting that even mighty WH Smith is thought to be thinking of a £200m-300m share placing to prop up its balance sheet. And the Mail on Sunday noted separately that the ASOS share price has been one of the hardest hit retailers during the pandemic and that it is also rumoured to be thinking of a share placing, ahead of its interims next week…On a related theme, the Sunday Telegraph looked at the operational problems of Online non-food retailers, noting that they may soon start to cut back their product range to reduce the pressure on warehouse staff (“Lifeline for sellers and shoppers at risk if clicks go the same way as Sunday’s Press and News (3): In terms of all the Editorial and other comment, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“Despatches from an economy at two-thirds of normal”), as well as the column by the Sunday Times Business Editor Oliver Shah (“Johnson’s big chance to reboot Britain”), which was illustrated by a 5-year share price chart of Marks & Spencer…and which flagged that “this recession will purge the system, sweeping away struggling businesses” and that “Boris Johnson and his Chancellor need to channel the state interventionism they’ve been forced to cook up in this emergency into longer-term strategy”. News Flow This Week: Ahead of the long Easter weekend, there is not much company news scheduled this week, but the Tesco finals are going ahead on Wednesday, whilst tomorrow brings the much-awaited ASOS interims, the Homeserve pre-close and the Motorpoint pre-close update. TRADING STATEMENTS & EVENTS: Upcoming results are set out below: • 2 Apr 20 Covid-19 updates: Saga, Hollywood Bowl, Gear4Music, Hotel Chocolat • 3 Apr 20 Covid-19 updates: Fuller’s, Minoan • 3 Apr 20 Constellation Brands numbers • 6 Apr 20 Covid-19 updates: Restaurant Group • 6 Apr 20 GVC Q1 numbers • 6 Apr 20 Some delayed announcement expected. DP Poland deferred • 8 Apr 20 AG Barr FY numbers • 23 Apr 20 Gear 4 Music FY numbers • 23 Apr 20 Domino’s (US) Q1 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 • 19 May 20 Cranswick FY numbers • 21 May 20 Young & Co full year numbers • 11 Jun 20 Fuller’s FY numbers FRIDAY’S TWEETS: • Langton Covid comment #1. Industry facing two ways at once: A miserable & depressed face turned to landlords (to secure concessions) but a more upbeat one for the bank (as it is under no obligation to lend to companies that were not viable before the Covid-19 upheavals. • Langton Covid comment #2. So feedback from companies is driven by a) the truth as to what is going on out there but also b) by whether they’re more concerned about being downbeat (to influence landlords) or upbeat to secure funding from the bank. • Langton Covid comment #3. Shoot us, this is the pits. Langton found itself watching a back-episode of Bake Off yesterday. Sure, Nielsen says ‘consumption’ of online media has spiked, but we’d hoped we were better than that… • Covid ££ side effects #33. This is a change of life crossroads. Some habits, hopefully pub visits, gym contrition etc we will rush back to but others we might dump for good. Not sure the bookies are in a good spot at present. • COVID Qs #9. Where’s the lecture on life skills from Jacob Rees Mogg when you need it? He’s likely been silenced & reduced to haranguing peasants through a megaphone from behind the diamond-encrusted battlements of his castle in Somerset somewhere. Britain needs you Jake… • COVID Qs #10. Long Easter Weekend coming up shortly but will we even notice? Or are the weeks descending into some sort of formless mush? Looks easy on paper but it could be hard to spark up the old engine again when this lot stops. LANGTON CAPITAL: Made in Hull. Like all the best things. Langton Capital is a financial advisory company providing insightful views on the UK and global leisure industry and the wider consumer sector in general. Subscription to the daily email is free. Unsubscribing is painless. We provide daily off the shelf and bespoke research. We have helped with transactions, fund-raisings, disposals and other corporate issues. We have a good ear, we are impartial, independent and not half bad at what we do. If you think that we could help you or your business, drop us a line. |
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