Langton Capital – 2020-04-27 – PREMIUM – Intercontinental Hotels, behaviour, C19 exit plans, airline etc.:
Intercontinental Hotels, behaviour, C19 exit plans, airline etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, in a world of Skype and Zoom, whilst it’s probably acceptable (and inescapable) that you’ll have bad hair and a stubbly beard, what do you do if your daughter’s guinea pig won’t stop squeaking?
Do you a) give the thing a stern talking to or b) nip out and pull it some grass from the garden and hope nobody notices that you’re gone, or do you c) pretend you’re on a squeaky exercise bicycle and that the rest of the world is foolish for being out of step?
Well, while c) is perhaps the most likely, you could always fess up and say there’s a hungry rodent in the room (in addition to yourself) and that it’s trying to be either friendly or amorous – and probably both.
Anyway, such are the unforeseen problems of lockdown. On to the news:
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• Any permanent changes to behaviour?
• And what about the workers?
ANY PERMANENT CHANGES TO BEHAVIOUR? Have trends been accelerated? 27 April 2020:
The basic premise:
• Whilst there has been some reversion to the past (baking bread, using Smash and condensed milk etc.) we would suggest that, for the most part, changes to customer behaviour have been accelerated rather than reversed.
• Digital entertainment. Games have been huge for some time. Streaming video has boomed (see Netflix stats, Disney Plus etc) and downloaded music has continued its relentless march.
• Digital meetings. Zoom, Skype, Google Hangouts, MS Teams and whatever Apple is offering these days have done well. See our negative comments on office space below.
• Delivery. Whilst this is an abnormal environment, delivery has taken share from eat-in, if only due to the fact that there is no eat-in at present. Slightly worryingly for the genre as a whole, Deliveroo has said that the crisis has had a significant negative impact on its business.
• Elsewhere, Domino’s in the US has reported good numbers, supermarket delivery slots have been doubled at Tesco and Uber Eats even made it to Langton Towers over the weekend.
Probably temporary winners:
• Beards, vanity bookcase backdrops for Skyping, greasy hair and BO are all on the up as retailers says shampoo and deodorant sales have fallen sharply and blokes are too lazy to shave.
• The off-trade in general. Off-sales of alcoholic drinks have risen, Premier Foods says part of the uptick in its sales is due to more people (actually virtually everyone) are eating at home rather than on the move or in restaurants.
The losers, potentially permanent:
• Well pretty much everyone else is a net loser. But here we pick a few out.
• Property. People have been working from home and ordering for delivery – food, products etc. Businesses may consider downsizing their offices, they may hot-desk etc.
• And high street overcapacity may only be exacerbated by accelerated changes to trends.
Hopefully, temporary losers:
• The on-trade. Right now, there is no on-trade. The only way is up.
• Hairdressers. DIY was never going to be a good look. DIY dentistry is likely even worse.
AND WHAT ABOUT THE WORKERS? Will workers get back to ‘normal’ on demand? 27 April 2020.
We tweeted a month ago today:
• Yes, a month. It seems like forever ago and no-time, both at once. ‘Covid ££ side effects #15. Worker behaviour is changing or will change. Getting back into first gear will be tough.’
• We added ‘this is a lazy summer holiday times 5 or 6. Show me the man who says he’s getting up earlier & working harder than he did last week & I’ll show you a liar?’
Getting back into first gear:
• Some staff will have been lost. They may have swapped a furlough for a job at Tesco or Amazon and vacancies will need to be filled.
• This has implications for training costs and the time that will be necessary before trading is ‘normalised’. This is a supply-side point. Demand is another issue.
• Staff may need an element of retraining. It may sound patronising but it is likely true.
• And mentally, most furloughed workers are in another place. Their head is not in the game. Indeed, there is no game at the moment.
Behaviour. Staff, suppliers, customers etc.:
• Memories may be short, but some workers may have a different attitude towards tips versus basic pay going forward. They may remember that tips are not included in any compensation discussions.
• But maybe not.
• Similarly, suppliers may remember their ‘better’ customers, landlords their tenants who paid their Q2 rent bills etc.
Industry and other feedback:
• The Telegraph quotes Dixons Carphone boss Alex Baldock as saying that some sales that have shifted online during the lockdown will never return to bricks and mortar stores. He says he is ‘pleased by the proportion of our store sales which have switched to online, and it’s unrealistic to think those will all return to stores.’
• Retail Economics says UK consumers will be reluctant to return to their former habits when the lockdown ends. See below.
• We cover below the story that sales of meat-free meat substitutes in the US are reported to be up as a number of slaughterhouses and processing plants have been forced to close.
• Various restaurateurs, see below, have suggested that they could not make ends meet if customers had to remain 2m distant from each other.
PUB & RESTAURANT NEWS:
• Sales of meat-free meat substitutes in the US are reported to be up as a number of slaughterhouses and processing plants have been forced to close. Nielsen reports that sales of plant-based meat substitutes in the US rose by 200% in the week ending April 18. They are up by 265% on an 8wk period. These numbers are rising from an admittedly low base.
• Retail Economics has joined some other surveyors in reporting that UK consumers will be slow to return to their former habits when the lockdown ends. It reports that only one consumer in ten will resume spending and travelling as they had done before the crisis erupted.
• People will be reluctant to use public transport and to eat out. Crowded public venues may be a no-no for some time.
• The FT reports that boring foods are making a comeback. Suppliers, overall, may be prepared to put up with the somewhat backhanded comment as sales are indeed rising. The FT mentions Mr Kipling, flour, Ryvita crackers, Marvel powdered milk and Smash instant mashed potato packets as brands and products seeing a resurgence of demand under lockdown. Premier Foods last week reported a 10.5% increase in sales in March.
• CGA reports that more people, perhaps unsurprisingly, are making cocktails at home. If they want to drink them, after all, they have little choice. There are probably a lot of things currently being done at home that would hitherto have been done out of doors. CGA says ‘the cocktail boom has been one of the on-trade’s success stories of recent years, with a 10% increase in sales value in 2019 alone. Over 10 million regularly drink cocktails when out, a habit now moving to the domestic environment.’
• Environment Secretary George Eustice has said that only a third of the migrant labour needed to pick fruit and vegetables in Britain’s fields will arrive this year. He says ‘we are working with industry to identify an approach that will encourage those millions of furloughed workers in some cases to consider taking a second job, helping get the harvest in June.’
• Whilst many waiters & bar staff may not relish the thought of back-breaking field work, some might. This could make re-sourcing labour that bit more difficult when the lockdown ends.
Exit strategies – or lack of them.
• The Guardian carries a major piece saying that social distancing in restaurants is likely to mean it is not worth them opening. It says ‘traditional waiter-service restaurants say they are finding it hard to see how they could function at all with social distancing.’
• The Guardian quotes one restaurateur as saying that, if his business introduced social distancing, ‘we’d survive for three months and then go bust.’ Jonathan Downey asks his peers what would happen if ‘this is it’. That is there are no rent concessions and government aid ends at the end of June. He says ‘that may not be the most likely scenario but it’s still one you need to consider’.
• UKHospitality has welcomed moves by the Welsh Government to outline how it wishes to see the industry exit from the current lockdown and has called on Westminster and the devolved Governments to co-ordinate their approach. CEO Kate Nicholls says ‘there must be a plan in place well ahead of any eventual reopening of businesses. The focus of the plan must be how we can open safely and viably, rather than when. We do not want to rush the process only to find out that businesses cannot operate and that customers and team members are at risk.’
• The BBPA observes that the Government has rejected calls for a deferral of beer duty payments due on 25th April relating to beer produced in March and says that ‘if the Government had deferred beer duty payments, it would have better enabled brewers to get back on their feet and ready to resupply pubs after the COVID-19 crisis. The decision taken will instead put all brewers under even more financial strain.’
• The BBPA says ‘the Government’s failure to defer beer duty is a huge blow to pubs and brewers. It will put brewers under even greater financial strain, meaning there is a real risk to their ability to resupply pubs when they can safely re-open after the Coronavirus lockdown.’
• Business secretary Alok Sharma is reported to be considering allowing supermarkets to stay open for longer on Sundays.
• The Treasury is considering upping the proportion of emergency loans that it will underwrite from 80% to 100%. At least for smaller companies.
• Burger & Lobster is to reopen its Mayfair site for delivery.
• The BBPA has said that sales of low and no-alcohol beer are rising across the country.
• Poundstretcher has hired KPMG to advise on financial options reports Sky. Most of the group’s c450 stores have remained open during the current crisis.
• North Yorkshire gin distillery Taplin & Mageean has become one of a number to swap production to hand sanitisers in recent weeks.
• Campari is set to target acquisitions according to Italian newspaper la Repubblica.
• Pernod Ricard’s global sales fell 14.5% in its third financial quarter as the widespread closure of bars and restaurants took effect. In Europe, sales were ‘stable’ at least until end-March.
• BJ’s Restaurants in the US said Friday it is ready to reopen dining rooms once it is given permission to do so.
• The sector should bounce a little today but it was broadly down on Friday. Major moves included M&B, SSP and Whitbread, down 5%, Compass down 6%, Marston’s and Restaurant Group down 8%. Risers included Gear4Music and Fevertree, up 11% and 7% respectively on updates and Naked Wines, up 12%.
• The ONS reports that, whilst clothing sales are running sharply lower, sales of food and drink, perhaps unsurprisingly, have held up.
• The ONS reports that 81% of accommodation and foodservice businesses are now closed. Of the foodservice outlets that have remained open, around a half have cut staff hours.
• Chinese scientists are reported to be looking into how air-conditioning systems could have helped spread the Covid-19 virus throughout the Wuhan area.
HOLIDAYS & LEISURE TRAVEL:
• Intercontinental Hotels has updated this morning saying that it has ‘secured new financing arrangements to further strengthen its liquidity position.’ It says it has amended its syndicated revolving credit facility and achieved a waiver of existing covenants until 31 December 2021.’
• IHG says it has a ‘minimum liquidity covenant of $400m, tested at half year and full year’ and adds ‘the Bank of England has also now confirmed IHG as an eligible issuer for the UK Government’s CCFF, and IHG has issued £600m (c$740m) in commercial paper under this facility.’
• As regards current trading, IHG says ‘we expect to report that Q1 Global RevPAR decreased approximately 25%, including a 55% decline in March, in line with the Business Update we provided on 20 March.’ It says ‘trading in Greater China continues to steadily improve, with only 12 out of 470 hotels now closed. In the US, ~10% of our hotels are currently closed, demonstrating the resilience of our mainstream, franchised business, and, in EMEAA, ~50% of hotels are currently closed. Occupancy levels in comparable open hotels are currently in the low to mid 20% range across the business.’
• Coach holiday company Shearings parent company, Specialist Leisure Group, has filed a notice of its intention to appoint administrators. Sky reports that it is currently working with PwC on a potential sale.
• Spanish hotels saw a 66% drop in foreign custom in March. The drop will be steeper still this month.
• Elegant Resorts has urged clients to reschedule any summer bookings that they may have to a later date.
• The World Travel & Tourism Council has said that potentially as many as 100m tourism jobs could now be at risk worldwide. It suggests that 1m jobs a day are currently being lost.
Airlines & air travel:
• Virgin Atlantic has said that it is still in talks with the UK government regarding a bailout. The Sunday Telegraph has suggested that boss Sir Richard Branson is looking for a buyer for his stake (or for the airline as a whole).
• The French and Dutch governments are to provide €9 billion in state aid to Air France-KLM.
• Delta Air Lines of the US has suggested that recovery from the Covid-19 crisis ‘may take years’.
• Gatwick Airport has said it might take four years for passenger numbers to return to pre-crisis levels.
• Merlin is raising €500m in new bonds. Almost all of its outlets worldwide are currently shut. The FT reports ‘the funding would represent a liquidity lifeline for a company suffering from the coronavirus pandemic that has closed all but nine of its 130 sites.’
• CD and vinyl sales are said to have halved in recent weeks. Streaming is still on the up. The Covid-19 crisis could have accelerated some trends that were already in place.
• Snap (owner of Snapchat) could be amongst the financial winners at present. Last week it said that revenues in Q1 rose by 44% on the same quarter last year.
• Netflix, another winner, is to raise further funds via the issue of $1bn in bonds.
FINANCE & ECONOMICS:
• The CBI has told the government that it is in a ‘race against time’ to save jobs by helping to prevent firms from going out of business.
• Sterling up vs dollar at $1.1464 and level vs Euro at €1.1464. Oil lower at $20.83. UK 10yr gilt yield unchanged at 0.29%. World markets. UK and Europe lower on Friday. US up and Far East higher in Monday trade. UK set to open up around 100pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s Market: Asian markets were firm overnight (the Nikkei is up by 2.7%), amidst guarded optimism that the coronavirus curve in Europe and the US has begun to flatten, and the FTSE 100 index is expected to open well ahead this morning (according to the Proactive private investor website), with the spread-betting firms expecting the FTSE 100 to open over 80 points up at 8am, at around the 5840 mark.
• Today’s News: A busy week has got off to a very quiet start and we can’t see any Retail company news out this morning, but JD Sports issued a surprise/brief update late on Friday afternoon, to flag that it is delaying its final results for a second time (because of the pandemic crisis), won’t pay a final dividend and is temporarily cutting Director pay and deferring Bonuses.
• Saturday’s Press and News (1): The front page headlines about the pandemic in the Saturday papers were pretty mixed in tone, with the Guardian highlighting that the PM’s controversial adviser Dominic Cummings has sat on the secret SAGE advisory group and that the Government ignored a Cabinet Office warning last year about the risk of a pandemic, whilst the FT went with “Pressure on testing mounts as applications overwhelm website”. There was a more hopeful air, however, to the front page headlines of the other newspapers: the Telegraph flagged that businesses are being quietly told to prepare to re-open (“Business told: time to get back to work”), whilst the Times ran with “”Covid-secure” offices to get Britain back to work” and the Daily Mail went with “Choose 10 Lockdown friends and family”.
• Saturday’s Press and News (2): In terms of Retail news, most papers noted the very poor ONS Retail Sales figures for March on Friday morning: the record fall in Retail Sales last month was the main Business story in the Guardian and the paper also had an accompanying article about how “After lockdown, shopping may never be the same again” and some vox pop from readers about how they will buy less takeaway coffee and less seasonal clothes after the end of the lockdown and will shop more locally. The Telegraph included the ONS Retail Sales figures in an article about how the NWE and the BRC are asking for more Government advice on how to safely re-open non-food shops. The Times also highlighted the record fall in Retail Sales last month and the Business Editorial thundered that some good may come out the crisis by getting rid of “zombie retailers” like Debenhams and opening up “ghost
• Saturday’s Press and News (3): In other news, the announcement by Burberry on Friday that it was not going to ask the Government for help in furloughing staff was the main Business story in the Daily Mail, whilst the Times noted that the Directors of JD Sports were “good sports” for taking pay cuts (the Daily Mail highlighted the 75% pay cut volunteered by Chairman Peter Cowgill). The Times flagged that the Co-op said with its annual results on Friday that its operating costs will rise by as much as £200m this year because of the impact of the crisis and the Times also noted that the troubled car dealer Lookers has had to postpone its final results again because of accounting concerns. The “Investment Extra” column in the Daily Mail looked at whether grocers could continue to thrive after the pandemic (“Supermarket shares are food for thought”). And the Telegraph had snippets about the
• Sunday’s Press and News (1): The front page headlines of the Sunday papers were again dominated by the pandemic crisis and the Sunday Telegraph went with the belated talk of tighter controls at airports (“Two week’s quarantine if travelling to the UK”), whilst the Mail on Sunday ran with “Scientists hail game-changing immunity test”, the Observer highlighted the dilemma that the PM will face today on his return to work on how to ease the lockdown while the infection rate remains so high (“PM returns to face lockdown dilemma as scientists warn over grim virus data”) and the Sunday Times flagged that “Tory grandees tell PM: it’s time to ease the lockdown”.
• Sunday’s Press and News (2): In terms of Retail news, the main focus was on how many shops are planning to re-open despite the continuing official Government advice about the need to “stay at home”…The Sunday Telegraph had an article in its main section by Dixons Carphone boss Alex Baldock headlined “We are committed to opening zero-contact stores as soon as we can”, plus a separate Business section article about Alex Baldock’s warning that some High Street sales will be lost forever to Online. The main Business story in the Mail on Sunday was that John Lewis is planning to be able to re-open stores next month, helped by JLP’s experience with Waitrose, with the John Lewis retail park stores with car parking set to be in the first tranche. The Mail on Sunday also highlighted that Homebase re-opened 20 stores at the weekend (following the recent re-opening moves by its rival
• Sunday’s Press and News (3): The news that Frasers/ Sports Direct has asked its long-suffering suppliers to take a 20% discount on unpaid bills was picked up by the Mail on Sunday and the Sunday Telegraph. The Sunday Telegraph also had a feature on the mountain of unsold fashion stock, quoting retail veteran Ian Cheshire as warning that it will have to be cleared in a “Sale of the century”. On a happier note, the Sunday Times “Profit Track” list of the fastest-growing private companies in the UK was headed by the fitness clothing business Gymshark, noting that it has not furloughed staff and that it has been smart with its social media messaging. In terms of upcoming news, Sainsbury was in the spotlight ahead of its finals this week, with the Sunday Times noting the pressure on its final dividend decision and the Mail on Sunday flagging that Sainsbury’s may have to bail out its own
• Sunday’s Press and News (4): 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 (“Lockdowns are different, and ending it will be the hard part”), as well as the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Even the Bank of England’s money tree comes at a cost”). And the Observer’s Business Leader column argued that shopping centre landlords should resist the pressure for rent cuts from Boots (“Strange times when commercial landlords deserve sympathy”), while the Business Editor of the Sunday Times, Oliver Shah, made the same point in his column about “The case for landlords”, arguing that embattled shopping centre landlords like Intu and Hammerson need to rebrand as “Retail asset owners” and get protection from the rapacious rent cut demands of
• News Flow This Week: There is plenty of important Retail company news scheduled this week, kicking off tomorrow with the Travis Perkins (Wickes) AGM/Q1 update. Tomorrow also brings the latest monthly Kantar/Nielsen grocery sales figures (at 8am) and the Hammerson AGM. Then Wednesday brings the much-awaited Next Q1 update, as well as the Dixons Carphone pre-close update and the Shoe Zone AGM. Thursday brings the Sainsbury finals, plus the Apple Q2 and the Amazon Q1 in the US in the evening. Then the Covent Garden landlord, Capital & Counties, has its AGM on Friday, May 1st.