Langton Capital – 2020-04-17 – PREMIUM – Pub trading, Hollywood Bowl, Gym Group, Whitbread etc.:
Pub trading, Hollywood Bowl, Gym Group, Whitbread etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, the swamp that we call a garden has dried out a bit and, unless it rains, I may have to cut the grass again.
And here, like with so many other dilemmas, there are choices that need to be made. Do we a) get up early tomorrow, cut the grass and bask in a smug feeling of enhanced self-worth? Or do we b) have a lie in, pray for rain, fake a limp, maintain that we should be on furlough, open a beer and argue that it’s not safe to operate machinery after opening a second, third and fourth?
Yes, that’s not such a tough one, is it?
But such are the decisions, under lockdown, that need to be made at the cutting edge of finance. However, for the moment, there’s still stuff going on so. Catch us on @brumbymark and let’s move on to the news:
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MARCH COFFER PEACH TRACKER – AND WHAT IT MEANS: March is ancient history but some comment on the road back, delivery etc. 17 April 2020.
The month in context:
• Early March seems like a lifetime ago but, for what it is worth, the Coffer Peach Tracker for March 2020 vs the same month a year earlier is out today.
• March was a month of two halves.
• Or, rather, it perhaps fell into three thirds. The first 10 days were, relatively at least, carefree and happy. The middle period represented a sharp downward slope in footfall and, from the 20th of the month, footfall fell to zero.
The bare figures:
• The tracker says that ‘all parts of the market were hit hard, as the slowdown in sales, which started in February, continued during the first half of the month before the total shut down on March 20.’
• The Tracker has LfL sales down 57.8% on the month with restaurant groups down 56.2% and bar chains down 60.0%.
• London trading was worse than that outside the capital with London down 60.4%, and trading outside the M25 down 56.8%.
• CGA says ‘the drop in sales that began in February and escalated in the next month, meant that even by the end of March, the eating and drinking out sector had fallen into year on year decline, down 4.1% on the previous 12 months.’
• April and May are set to be down almost 100% (there will be some delivery). CGA says ‘with shutdown wiping out April sales, apart from a small amount of delivery income, and May likely to be the same, the devastating effect on the market is self-evident.’
• Accountant RSM says ‘there has been tremendous support from Government but more still needs to be done to protect the 3.2 million jobs of those who work in the sector.’
• It says ‘at a time when cash is so desperately needed to meet the upfront wages for furloughed staff, most operators are still struggling to access the Coronavirus Business Interruption Loan Scheme under current lending criteria.’
• Coffer Corporate Leisure adds ‘every single consumer is a stakeholder and a participant in the hospitality sector, and we all feel a sense of pain at the industry’s suffering since the enforced closures.’
The road back.
• This is always likely to be tough. CGA says ‘even if there is an early easing of restrictions, which is far from certain, reopening of the market will almost certainly be phased and gradual. We are looking at a substantial loss of revenue right across the sector.’
• We heard yesterday, after the above comments were penned, that the lockdown would continue for at least another three weeks.
• RSM says ‘great uncertainty remains not only as to the extent of the current shutdown, but also as to what the lifting of lockdown might look like. More support is needed with property-related costs and this includes support for landlords themselves who remain liable to pay business rates for empty sites.’
• Coffer Corporate Leisure says ‘the re-opening of outlets to full capacity will take months and the sector desperately needs ongoing support. Whilst an earlier release from lockdown appears at first sight to be a good thing; consumers will be anxious about socialising and trading levels will be subdued. The future in terms of consumer behaviour is very uncertain making any form of planning for future very difficult.’
• This is a key point as the sector could be left to cover nearly all of its costs with only a portion of its income – at least for some time.
Any bright spots?
• Delivery accounted for 7.4% of sales among the casual dining groups in the Tracker cohort, up from 5.5% in January.
• Some of this may stick after the lockdown ends.
• CGA says ‘although there has been growth in delivery and there is plenty of evidence to suggest more consumers are turning to delivered food during the lockdown, the picture is patchy.’
• It adds ‘as well as more companies establishing delivery options, there are also a number of major players that have closed down their delivery businesses altogether for safety reasons.’
• The Tracker points out that ‘due to the effect of the lockdown, the number of companies taking part in the March data collection was smaller than usual, totalling 44, but still representing operators across all parts of the sector, with collectively 7,000 plus sites and total annual sales of £8.1 billion.’
• The historical numbers arguably mean little, but we would make a number of points.
• Some damage was done in the first 10 days of March and much, much more was done in the next ten.
• The lockdown at least crystallised the situation and led to the government measures such as the furlough scheme, deferred VAT payments zero rates, allegedly ‘easy’ loans and led to the opening up of discussions with landlords
PUB & RESTAURANT NEWS:
• The government has announced that the coronavirus lockdown will remain in place for at least another three weeks.
• The All-Party Parliamentary Group for Hospitality and Tourism is launching an inquiry to establish the best ways to support businesses impacted by Covid-19.
• Chair of the All-Party Parliamentary Group for Hospitality and Tourism, Steve Double MP says ‘collectively, tourism and hospitality add around £80 billion to the UK’s economy and in normal times employ 3.3m people. These sectors were two of the first to feel the impact of first social distancing and then the lockdown and businesses have been hit hard in every region.’
• UKH’s CEO Kate Nichols says ‘there is no corner of the country which has not seen job losses, shuttered venues and communities anxiously looking to the future.’ Ms Nicholls adds ‘this inquiry will focus on how we get restarted rather than necessarily when.’
• The Treasury has announced that the government-backed loan scheme for large businesses affected by coronavirus has been expanded to cover all viable firms. Chancellor Rishi Sunak will formally launch the scheme on Monday.
• The government says ‘all viable businesses with turnover of more than £45m will be able to apply for government-backed support.’ At this level, it will back loans up to £25m. It adds ‘firms with turnover of more than £250 million can borrow up to £50 million from lenders.’ It adds ‘this complements existing support including the Covid Corporate Financing Facility and the Coronavirus Business Interruption Loan Scheme.’
• Mr Sunak said ‘I want to ensure that no viable business slips through our safety net of support as we help protect jobs and the economy. That is why we are expanding this generous scheme for larger firms. This is a national effort and we’ll continue to work with the financial services sector to ensure that our £330 billion of government support, through loans and guarantees, reaches as many businesses in need as possible.’
• The Society of Independent Brewers has undertaken a survey of small brewers suggesting that on average beer sales ‘are down by 82% since the outbreak of Covid-19, with many businesses struggling to survive’.
• SIBA says that ‘8 out of 10 brewers do not believe the Government is doing enough to support them with more than half (54%) of the UK’s independent breweries being unable to access any Government support. Nearly a third (29%) are now considering redundancies.’
• SIBA says ‘unlike the Global beer brands who can supply supermarkets in great volume, small independent breweries sell the majority of their beer through pubs, bars and restaurants, meaning the lockdown measures have hit them much harder.’
• SIBA says ‘pubs, bars and restaurants have been receiving help from the Government, but none of the same schemes apply to our small breweries who saw their sales fall off a cliff almost overnight.’ The trade body is ‘calling on Government to relax licensing laws to allow the 1 in 4 breweries who don’t have the relevant licenses in place to deliver beer direct to consumers in a variety of ways.’
• It says ‘in addition beer duty payments, which are often a brewers single biggest cost which account for 35% of turnover should be deferred by Government to help weather this storm.’
• City Pub Group has announced that its placing of 44.0m shares at 50p has successfully raised £22m before expenses. Chairman Clive Watson says ‘the net effect of the money raised is that the balance sheet has been significantly strengthened with net debt cut by two thirds.’
• Jobs search engine Adzuna.co.uk says that the UK jobs markets is one of the biggest casualties in the global job market with vacancies down 42% year to date. The hospitality industry has been particularly badly.
• Bids on Carluccio (sites or the entire company) were due in last Wednesday. The administrators are thought to have received a number of approaches from national pub companies and casual diners, mostly for individual sites.
• The FT says that ‘supermarket chain Tesco is among those that have expressed an interest.’ This will represent a windfall for a landlord somewhere. The paper says ‘FRP Advisory, the insolvency specialist running the sale process, has received offers for Carluccio’s locations from Tesco, Boparan Holdings, the company behind the Giraffe and Ed’s Easy Diner chains, and Three Hills Capital, owner of the burger brand Byron, according to people with knowledge of the negotiations.’ We believe at least one major, managed pub company has made offers for a number of sites.
• The FT says ’no buyer has come forward for the whole business.’
• The Federation of Wholesale Distributors and Scottish Wholesale Association says that wholesalers have written an open letter to 350,000 pubs, restaurants and other hospitality companies asking them to settle invoices.
• London Union’s Jonathan Downey will submit a proposal to the Treasury next week for his #NationalTimeOut campaign. In it, Mr Downey proposes a nine-month rent-free period for hospitality companies paid for by the government.
• Cask Marque has expressed concern that the current pub shutdown may result in damaged beer lines and potentially to costly equipment replacement. Cask Marque’s Paul Nunny says that the shut-down should have been properly managed and adds that a degree of routine maintenance will still be required. Cask Marque says ‘once pubs re-open, Technical Services will be under enormous pressure to service dispense equipment. There are bound to be delays in call outs which may result in preventing pubs trading when allowed to open once again.’
• Gousto, a London-based meal-kit service, has closed a £33 million funding round.
• LVMH, maker of Moet Hennessey cognac, has said that Covid-19 ‘would not have a lasting impact’ on its business.
• Farmers have flown in Romanian workers to pick fruit and vegetables.
• Fewer large share price movements yesterday. Bigger moves on the upside. Revolution Bars up 18%, Restaurant Group up 8%, Saga and On the Beach up 7% and 6% respectively. Mitchells & Butlers one of the few fallers at down 6%.
• The Telegraph reports that major property companies have received only 41% of the rent they were due in end-March for the June quarter.
In the USA:
• Le Pain Quotidien has laid off all of its employees in the US reports journal Commercial Observer.
• Starbucks in the US says that it is preparing to move to a ‘monitor and adapt’ phase of recovering from the coronavirus pandemic. This will allow some carefully-selected store openings to take place at the appropriate time.
• YUM’s Pizza Hut brand has said it is expanding contactless ordering with the addition of nationwide curb-side pickup, also contactless.
HOLIDAYS & LEISURE TRAVEL:
• Whitbread has reported that ‘it has been confirmed as an eligible issuer under the UK Government’s Covid Corporate Financing Facility (CCFF).’ The company says it ‘has not currently issued any commercial paper from this programme.’ WTB says ‘in addition to this facility, as at 16 April the business has accessible cash reserves of c.£400 million and access to £900 million of its existing committed Revolving Credit Facility (RCF).’
• Saga has suspended all its tours and cruises on its vessel the Spirit of Discovery until June 1.
• Cruise industry operators, speaking to Travel Weekly, have said that operators will have to make ‘significant changes in our operations in order to move and be successful in the new world’.
• Savills has said that hotel transaction values fell year-on-year by 8.8% in Q1 this year. This despite the £1.15bn sale of The Ritz.
• EasyJet has suggested that any return to flying is likely to be slow and steady rather than sudden.
• Royal Caribbean Cruises has confirmed that 26% of its more than 5,000 US employees would either be laid off or furloughed and many crew will have the contracts cut short.
• STR reports that REVPAR across US hotels fell by 83.6% in the week to 13 April. Occupancy is down 69.8% and room rates are 45.6% off.
• The Gym Group became the latest leisure company to raise equity yesterday evening – although it has already been overtaken by Hollywood Bowl, which is raising money this morning (see below). The company (Gym Group) late yesterday said that it would issue an additional 19.9% to its shares in issue via an accelerated book build. The company says ‘the net proceeds of the Placing and Subscription will be used to strengthen TGG’s balance sheet and provide liquidity whilst TGG’s gyms are closed during this period of unprecedented COVID-19 disruption.’
• This morning, the Gym Group reported that it had successfully placed 27.4m shares at 150p per share to raise gross proceeds of around £41.3m. CEO Richard Darwin says ‘we are grateful for the support in these unprecedented times and are confident that the business now has sufficient liquidity to weather the Board’s most pessimistic trading scenario.’
• Gym Group adds ‘we continue to believe in the long term attractive fundamentals of the low cost gym sector and our strengthened balance sheet will enable us to take advantage of growth opportunities that arise in the immediate aftermath of the crisis.’
• Hollywood Bowl has reported that it is proposing a placing to raise approximately £10.9 million; the placing will take place at 145p per share via an accelerated book-building process.
• Hollywood Bowl updates on trading saying it ‘had traded well in the five months to 29 February 2020 ahead of the prior year period.’ Its units are now closed. The company says ‘trading in the early part of March was affected by the COVID-19 outbreak and on 20 March 2020, in line with Government guidance, the Group temporarily closed its centres. Since the estate closure, the Group has implemented extensive cost saving initiatives.’
• BOWL has since been cutting costs and reducing overheads. It will not pay a H1 dividend. The group says ‘as a result of these extensive cost saving initiatives, non-employee overheads (excluding property costs) are expected to reduce from approximately £1.1 million to approximately £0.1 million per month whilst centres remain closed.’
• Flutter has reported Q1 numbers saying that revenue rose to £547m from £478m last year. Sports activities have since been suspended and betting shops are closed. CEO Peter Jackson says ‘the Group performed very well in the period prior to the disruption to sporting events in mid-March.’
• Regarding current trading (or non-trading) the company says ‘while the current disruption is truly exceptional, it underlines the importance of product and geographic diversification. As such, the strategic logic of our combination with The Stars Group remains compelling. Following approval of the deal yesterday by the Irish Competition and Consumer Protection Commission, we look forward to completing the transaction in Q2 upon receipt of outstanding shareholder and regulatory approvals.’
• Sportech has updated saying that it ‘is pleased to announce the commencement of a multi-year international commingling agreement with UK Tote Group.’ CEO Richard McGuire says ‘Sportech has invested heavily to develop its Quantum global network and to improve the quality of its international business. The global market for pool betting is in excess of US$100 billion and UK Tote Group has an impressive team with ambitious plans. Sportech is delighted to extend its relationship with UK Tote Group to support their global initiatives.’
• Video chat ap Houseparty has seen massive growth due to the COVID-19 pandemic.
FINANCE & ECONOMICS:
• The Economist Intelligence Unit reports that the world is facing an economic downturn worse than the Great Depression.
• Britain has insisted that it will not seek an extension to its Brexit negotiations beyond the end of this year. It says it will oppose any move by the EU to extend talks.
• A further 5.2m Americans have filed for unemployment benefit. That takes the total to over 20.0m in the last four weeks.
• The Chinese economy shrank by 6.8% in Q1 according to official data.
• Sterling higher at $1.2495 and €1.1493. Oil higher at $28.21. UK 10yr gilt yield unchanged at 0.30%. World markets higher yesterday with Far East higher in Friday trade. UK market set to open up around 160 pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s Market: After the late rally on Wall Street yesterday (on hopes that the drugs giant Gilead Sciences is on the right track with its anti-viral drug) and a bright showing from Asian markets overnight, after the better than feared Chinese GDP figures (the Nikkei is up 3%), the FTSE 100 index is expected to surge higher this morning (according to the Proactive private investor website). The spread-betting firms expect the FTSE 100 to open 180 points up, at just over the 5800 level.
• BDO High Street Sales Tracker: We highlighted on Wednesday that last week’s John Lewis sales were probably no worse than 35% down in w/e April 11th, thanks to very strong Online sales, and the BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday April 12th, Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by 39%, for the second week in a row (down 97% in Store sales, but up by c125% in Online sales).
• Trade Press: Retail Week magazine has not been published this week and Drapers magazine has not been published either, because of the Easter break. The websites, however, have plenty of updates on the big news of recent days, eg the poor BRC-KPMG Retail Sales for March and the collapse of Oasis/Warehouse. And the Editor of RW thunders in his column that “Forget dividends and rates – grocers are heroes, not villains”.
• News Flow Next Week: There is not much Retail company news scheduled next week, but the ABF (Primark) interims on Tuesday and the Boohoo finals on Wednesday will generate plenty of interest, whilst Thursday brings the ONS Retail Sales figures for March. Note, by the way, that Easter was later last year (Easter Day was April 12th this year, compared to April 21st last year).