Langton Capital – 2020-05-11 – PREMIUM – Unlockdown, pub closures, airlines, quarantines, Marston’s etc.:
Unlockdown, pub closures, airlines, quarantines, Marston’s etc.:
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A DAY IN THE LIFE:
So, hands up if the alarm on your phone went off on Friday when you had been planning to have a lie in.
Forest of arms there, I would imagine, but never mind, it was a glorious first half to the Bank Holiday weekend, one that would have had many a publican looking ruefully at his or her empty beer garden whilst catching the whiff of BBQ smoke and the clink of beer bottles from all around the neighbourhood.
Anyway, it was twenty-two degrees here Saturday then a touch of frost overnight and highs of about eight yesterday. Back to earth with a bump, a welcome to England for the begoinas and more of the same to come this week.
Here’s a question for you. What’s the most famous line in cinema? See if you can get the top three. For cheaters, there’s a list on ‘info-please’, top 100 movie quotes. On to the news:
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• Unlocking the lockdown
• Polarising society
UNLOCKING THE LOCKDOWN: Whilst legislation can change quickly, there isn’t an off switch to change people’s attitudes. How can consumer attitudes be changed? 11 May 2020:
• The PM has made the first statement as to what the ending of the lockdown could look like.
• This is a tricky balancing act. It was never going to be easy, or indeed possible, to get a complicated message across in a few minutes. For brief details, see the general email.
• Legislation has obliged business to close. Legislation cannot force it to reopen (though it will) and it (that is legislation) can only go so far to assuage the fears and concerns of would-be consumers.
The likely best case:
• In the absence of flare-ups (see South Korea, where a recent outbreak centred on nightclubs and elsewhere), shops will be allowed to reopen early June with some hospitality units, in some shape of form, being allowed to reopen early July.
• Not much at this stage.
• Much depends on which hospitality units are allowed to open.
• The least good case is that outside areas only are opened and that there is a capacity cap. This is moderately likely.
• This won’t help venues with only inside areas. It isn’t as helpful for the UK as it would be in the Mediterranean.
• Perhaps some inside areas will open. There may be no vertical drinking. There may be a capacity cap. Hours may be limited.
• This is also likely. It won’t do much for nightclubs.
• At the end of the day, is a pub with no vertical drinking, a capacity cap, a 2m distance between drinkers, table service and a one-only policy in the loos really a pub?
Some industry feedback:
• See also general email.
• The Guardian quotes ‘Whitehall sources’ as saying the July openings could ‘apply only to cafes and restaurants with outdoor space, and that England’s pubs must remain closed into August and possibly beyond.’
• We have written (admittedly blind but at some length) about the incentive on government to ‘privatise’ the problem whilst taking the plaudits for solving it.
• The industry is on to this as a risk. A partial opening or, effectively, a no-opening solution must be accompanied by a degree of financial hand-holding.
• The Guardian quotes JDW Chairman Tim Martin as saying ‘it’s fair enough if the government is ‘following the science’ and there is evidence of pubs being riskier environments than other places. I genuinely don’t know the stats on pubs and there may be none available.’
And the consumer:
• The big unknown is how will the consumer react because fear doesn’t have an off-switch but rather tends to abate over time
• The ‘solution’ to the toilet roll crisis was more toilet roll on the shelves. When it was there, people didn’t feel compelled to hoard it.
• With Covid-19, the proof that it isn’t a threat will be that it isn’t a threat. And proving that is not within the government’s gift.
• We have mentioned that there is a degree of polarisation going on.
• We have ‘lockdown zealots at one end with their weaponised frowns & empowered tutting & conspiracy, 5G Big Brother nut jobs at the other.’
• Some people may drive a ‘defiance bounce’. It’s just the flu etc. But many others may change their behaviour over the medium (say 6-18mths) term.
• We have asked ‘where’s the road back to normality?’ That remains a good question. The above would not leave the UK in anything like a ‘normal’ condition. The hospitality industry, and heaven help the airlines, is in a spot.
• Government help should, could and may well in actuality, remain in place for some time.
PUB & RESTAURANT NEWS:
Winding down the lockdown:
• Perhaps more questions than answers, maybe more clarity is needed and yes, there’s a lack of guidance but this is the first step. There will be more detail in the House of Commons today
• We haven’t yet met all of the ‘five tests’ but there is at least a roadmap. These are protecting the NHS, a sustained and consistent fall in deaths, the rate of infection decreasing, ensuring the supply of tests and PPE and avoiding a second peak.
• People who cannot work from home will be ‘encouraged’ to return to work from today. But they shouldn’t use public transport (if possible). That will cause some problems. And what does ‘encouraged’ mean?
• Will the JRS (which is in place until at least the end of this month but will need renewing if it is to continue thereafter) be stopped for certain industries?
• People will be allowed to take unlimited exercise from Wednesday. They will be allowed to drive to beauty spots etc. But there won’t be much open in the way of cafes or pubs.
• Some (but not all) younger children will hopefully go back to school early next month with year tens, if I’ve got my maths right, perhaps going back in July.
• Shops may be allowed to open early next month with some hospitality venues, subject to safeguards, in early July. It is not clear if this will include pubs or not – see Premium Email.
• UK Hospitality says the statement “leaves the door open” to extend the Coronavirus Job Retention Scheme for those sectors that will take longer to reopen and return to profitability.’
• UKH’s CEO Kate Nicholls says ‘Mr Johnson was explicit about his commitment to support those workers whose businesses are not able to return soon, and we remain committed to continuing our dialogue with the government to achieve that. We have been calling for a more flexible, extended furlough system and today’s statement appears to leave the door open for that.’
• England is not out of step with Scotland, Wales and Northern Ireland.
• The proposed 14dy quarantine to be imposed on visitors by air (apparently excluding Ireland and France) will keep visitor numbers potentially depressed.
• The BBPA said yesterday ‘the industry was looking for a glimmer of hope today, a date to plan to and further financial support reassured, but it looks like we have more weeks of uncertainty ahead of us.’
• It says ‘our sector remains in limbo and facing severe uncertainty and financial devastation. If Government plans to keep pubs closed until the final phase of release, as rumoured, this would make pubs first in and last out of lockdown.’
• This is true. The flip side, whether the JRS and other measures are extended for pubs, remains to be seen. The BBPA says ‘extending the lockdown without offering additional support will be devastating.’
• The BBPA says ‘our own research shows that 40% of Britain’s pubs won’t survive beyond September with the current level of financial support on offer from the Government. That’s almost 19,000 pubs that won’t reopen.’
• The BBPA concludes ‘our clear and urgent ask to the Government is that they recognise the real jeopardy facing the great British pub and put in place targeted measures now to save it, or risk losing local pubs forever.’
• SIBA said yesterday ‘the Prime Minister’s statement this evening gave us a starting point and a methodology for how we will come out of lockdown.’
• It says ‘the partial awakening of our sector is still at least 8-12 weeks away.’ It says ‘our sector requires continued direct support from Government to ensure that the 1 million jobs in pubs, brewing and supply chain are preserved.’
• Business leaders have called for more clarity on what changes will be needed in the workplace. Businesses have to deal with practicalities rather than soundbites. The BCC says ‘businesses need their practical questions answered so they can plan to restart, rebuild and renew.’
Other Covid-19 news:
• The BBPA has reported back on a survey it has undertaken suggesting that around ‘40% of Britain’s 47,000 pubs won’t survive beyond September, unless they get more support from Government to get them through the COVID-19 lockdown.’
• The BBPA says that suggests that, in the absence of further aid, nearly 19,000 of the UK’s 47,000 pubs could stay closed permanently.
• In addition to the general concern that consumers may be reluctant to leave their homes after so many weeks of being told not to, the BBPA pleads that the hospitality industry is a special case because, if customers have to be socially distant from one another, the venues’ draw will be reduced. It says it is ‘calling on the Government to recognise that pubs will need additional specific support to survive as they are allowed to re-open too, ensuring their businesses are commercially viable while they have to operate under social distancing restrictions that will inevitably reduce revenues significantly.’
• The BBPA is specifically calling on the government to ‘extend its grant support programme for pub businesses throughout the lockdown of pubs and the early stages of reopening.’ It would like to see the threshold raised to above the £51,000 rateable value at which it is now set.
• It would also like to see the JRS extended beyond June with a ‘specific ‘back to work scheme’ for pubs and breweries, to help protect 900,000 jobs.’ See Langton’s comments on Wednesday and Thursday last week.
• The BBPA says ‘pubs are losing cash fast. The Government must understand that the current financial support they are giving, although welcome, does not go anywhere near enough to help pubs in an extended lockdown or when they can reopen under social distancing restrictions.’
• Separately, HIM/MCA Insight has reported that an extension of the Job Retention Scheme beyond the end of June cut-off date is the top priority for independent restaurant owners. Concerns are many. CGA last week said that discussions with landlords were in the top spot.
• The British Retail Consortium has said that decisions on which shops should reopen and in the order that they should do so should be based on safety, not size.
• Recipe boxes have seen a big pick up in demand per the FT.
• Around a quarter of employees in the UK are currently furloughed. The number is reported to 90% or more across some sections of the hospitality industry. The HMRC says that 6.3m workers are on the furlough scheme.
• A YouGov/CEBR survey has said that UK consumer sentiment is at its lowest level since January 2012.
• Michelin-starred chef Marcus Wareing has said that the hospitality industry could collapse unless it receives more help from government. He says ‘social distancing does not work in hospitality.’
• Marston’s updated on Thursday saying that it has ‘formally asked the holders of its Secured Class A Notes for a limited number of technical waivers and amendments.’ This are being requested ‘solely as a consequence of the enforced temporary closure of its pubs by the UK Government as a result of the COVID—19 pandemic measures.’
• The group says it ‘is confident that it has sufficient headroom on both its bank and securitised facilities, supported by a 93% freehold estate.’ It says ‘the Board believes that the Group has sufficient liquidity to maintain operations at a materially reduced level of business.’
• Bondholders are being invited to a meeting to be held on 29 May 2020. It says around 50% of the holders of the A notes have indicated that they intend to vote in favour of the Proposals to temporarily waive a number of covenants. The waivers include the covenant re the ‘debt service coverage ratio test throughout 2020 and the necessity for an amendment to the 30 day suspension of business clause arising because of the UK Government’s enforced lockdown during the pandemic.’
• Several other companies with securitisations are likely to be having similar discussions. Marston’s says it ‘is not seeking any changes to the scheduled interest or quarterly repayments due to noteholders.’ The company reiterates that it is mitigating costs to the extent that it can, it has cancelled its H1 dividend and 93% of its staff are on furlough. It has suspended all capital and operational expenditure for the foreseeable future (other than essential maintenance spending) and has ‘regularly engaged with tenants with a view to ensuring that rent can be paid and tenants are able to recommence trading once the restrictions imposed by the UK Government are eased.’
• JD Wetherspoon issued an RNS on Thursday refuting some comments made by Forbes magazine. It says it is paying furloughed staff and it made clear that reopening pubs at the end of June was a working assumption not a firm prediction.
• Press reports that Pizza Express’s owners have restructured the group’s debt. Ratings agency S&P says this is highly likely. Some £465m was due back to bond holders next year. The chain is owned by Chinese investor Hony Capital.
• Pret is opening 71 stores from today.
• BrewDog has said that it will encourage ordering ‘from-table’ when its pubs reopen. It says ‘this is a hugely challenging time for our bars’. It adds ‘although the future of hospitality businesses is incredibly uncertain, we remain optimistic.’
• The Real Greek is to open four sites for delivery and collection.
• Shake Shack opened its first dark kitchen over the weekend within the Deliveroo Editions site in London’s Battersea.
• Hall & Woodhouse will extend the cancellation of rent and service charges due to it from tenants until 27 June.
• Yorkshire gin distillery Divine Gin has announced a 380 per cent increase in sales since the UK lockdown began.
• BJ’s Restaurants in the US is scaling back on planned new openings.
• GfK has reported that consumer sentiment remained broadly flat at multi-year lows in the week to 26 April. It says ‘despite a one-point improvement in our second COVID-19 flash report at minus -33, consumer confidence in Britain’s lockdown economy is still severely depressed.’
• The ICAEW has warned that small businesses could face a cash-flow cliff-edge if and when support measures come to an end if demand has not picked up to pre-Covid-19 levels.
HOLIDAYS & LEISURE TRAVEL:
• UK airlines have said that a 14-day quarantine imposed on incoming passengers, expected to take effect at the end of this month, would present a further major blow to air travel. Airlines UK says ‘we need to see the details of what they are proposing.’
• Heathrow Airport CEO John Holland-Kaye has told the Transport Select Committee of MPs that ‘we need to agree a common basis on which we can allow people to go to Spain, say, and people to come here from Spain without going into quarantine. Without that, travel won’t be able to resume.’
• Travel and aviation leaders are seeking urgent clarification on what the quarantine plans mentioned by the prime minister on Sunday mean on the ground. Airlines UK says ‘ministers are effectively telling people they can no longer travel for the foreseeable future.’
• The CAA has warned airlines that they are legally required to provide refunds to customers who had their flights cancelled because of the coronavirus.
• Passengers at a number of airports are being asked to wear gloves as well as face-masks.
• Airlines for Europe, which may have a vested interest in believing so, says that passengers would not need to be ‘socially distanced’ as air filters on modern aircraft limit the risks of Covid-19 transmission in flight.
• International tourism arrivals were down by 22% in Q1 reports the UNWTO. It says they could fall by 60% to 80% over the year as a whole.
• Virgin Atlantic is reported to be considering options including a pre-pack administration.
• Royal Caribbean (RCL) has updated on its response to the Covid-19 pandemic saying ‘the Company has been developing a comprehensive and multi-faceted program to address the unique public health challenges posed by COVID-19. This includes, among other things, enhanced screening, upgraded cleaning and disinfection protocols and plans for social distancing.’
• RCL says ‘booking volumes for the remainder of 2020 are meaningfully lower than the same time last year at prices that are down low-single digits.’ Cancellation levels are ‘elevated’. The group says ‘as of March 31, 2020, the Company had $2.4 billion in customer deposits.’ The group has been cutting costs and says ‘since the last earnings call, the Company has taken several additional actions to further improve its liquidity position and manage cash flow.’ It says that just under half of its customers have requested cash refunds for cancelled cruises, with its operations currently suspended through to June 11. Other passengers are taking credit notes.
• Uber has reported a loss of $2.9bn for Q1. It says it is to cut around 3,700 jobs around the world.
• Hilton and Hyatt have both reported sharply lower Q1 numbers.
• STR says US REVPAR was down around 80% in the month of April with occupancy down around 64% and rate down 44%. For the week to 2 May, it says REVPAR was down 76.8% with occupancy down 58.5% and room rate down 44.0%.
• The BBC has been told that there are plans to increase train services from Monday 18 May as travel restrictions may be eased
• Esports company Gfinity has reported that it has partnered with BT Sport to deliver new “BT Sport FIFA Challenge” series. It says ‘a key part of our strategy is to create new and compelling content and we are delighted to be working with BT Sport to bring a new gaming entertainment show to sports fans.’
• Facebook and Google are to allow employees to continue working from home for the rest of the year.
FINANCE & ECONOMICS:
• The Bank of England says the UK economy could shrink 14% this year. It says there would be no quick return to normality. This would be the largest drop in at least 300yrs. The Bank is hoping for a sharp bounce back.
• Another 3.2m Americans lost their jobs last week. Some 33.3m have lost their jobs since mid-March.
• Halifax reports that house prices in April were 2.7% higher than in the same month a year earlier
• Sterling higher at $1.2426 and €1.1454. Oil up at $30.45. UK 10yr gilt yield 0.24%. World markets higher last seen with London set to open up around 23 points (as at 7am, but this was sliding).
o The UK government, which set itself a 100,000 per day target by 30 April, has sent at least 50,000 coronavirus tests to the US for analysis.
o Much of the PPE sent in from Turkey has been rejected.
o Sajid Javid has suggested that the lockdown should perhaps be lifted by age. He adds ‘I think a V-shaped recovery will be challenging.’
o Former President Barack Obama has said that Donald Trump’s handling of the crisis has been ‘an absolute chaotic disaster.’
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Consumer Confidence Watch: The widely followed monthly GFK Consumer Confidence survey is normally out on the last day of the month, but GFK have published another flash estimate, based on interviewing between April 20th and April 26th. And although we expected the record -39 index low seen in July 2008 to be tested, the index has ticked up by one point, to -33, somewhat surprisingly (after -9 in March and -34 in April). Joe Staton, Client Strategy Director at GfK, said in the press release that consumer confidence in Britain’s lockdown economy is still “severely depressed”, but he noted that an uptick of 3 points in GfK’s Major Purchase Index is a sign of a possible indication of pent-up demand, although, in contrast to this, “the nine-point spike in the Savings Index suggests cautious consumers are stashing money under the mattress over worries for the future”.
• Friday’s Press: After the more upbeat tone of the front-page headlines of yesterday’s papers, today’s papers are more subdued, with the Times going with “PM to keep Britain in lockdown until June”, whilst the Guardian runs with “Fears No 10 has lost grip on lockdown exit plans” and the FT has “Britain on brink of worst recession since great frost of 1709, BoE warns”. The Telegraph, of all papers, goes with “Starmer: We owe it to VE Day generation to protect them from virus in care homes”. In terms of Retail and other news, the Times note the steady outcome of the latest GFK Consumer Confidence survey (see above), as well as the slump in the April overview from the BDO High Street Sales Tracker, together with the surprise news that Next is to take over the Beauty Hall space in 5 Debenhams department stores (“Pretty vacant stores given Next makeover”). The Guardian notes that the Next
• BDO High Street Sales Tracker: JLP flagged last week that, despite a big spike in Online sales, John Lewis sales were running down by c20% overall during the lockdown, but that the business was outperforming the general Non-Food market. The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday May 3rd, end of the month “pay day” spending helped to boost things a bit and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by 27% (down c90% in Store sales, but up by as much as c138% in Online sales).
• Trade Press: Retail Week magazine has again not been published this week, alas, but Drapers magazine is out and the front cover is a graphic of masked shoppers queuing up to enter a shop, to flag up the main feature on “Restarting Fashion Retail” (“Navigating the High Street’s New Normal”). Drapers also look at what fashion retailers will do with their unsold stock, the devastating impact on Bangladesh of the cancelled clothing orders, how to revive footfall once the lockdown ends and the implications for fashion employers and their staff of the Retail furloughs. And the Editor notes in her column that the High Street is going to look very different when we come out of the coronavirus lockdown and thunders that “the collapse of Oasis and Warehouse is a sad loss”.
• Saturday’s Press and News (1): The front page headlines in the Saturday papers were more varied than of late: the Daily Telegraph and the Daily Mail went with the Queen’s VE Day message to the nation (“Never give up, never despair” and “Our streets are not empty. They are filled with hope” , respectively), but the other papers went with aspects of how the pandemic lockdown and the Government response might develop: the FT went with “Furlough phase-out plan takes shape”, whilst the Guardian flagged that “June 1 school plans in doubt” and the Times ran with “All arrivals to be quarantined”.
• Saturday’s Press and News (2): In terms of Retail news, the Telegraph picked up the Sky News story that JD Sports and Sports Direct are amongst the bidders for the struggling South African-owned shoe chain Office, whilst the Guardian highlighted the sales boom expected by gardening centres when they re-open shortly (following the lead taken by Wales) and the Times noted that the City is expecting Morrisons to report Q1 sales growth of only 4%-4.5% when it reports next week. The Daily Mail flagged that Ocado is now capitalised at more than Morrisons, Sainsbury and M&S combined…and the FT had a couple of interesting articles about the varying impact of the pandemic: it had a feature about the sales boom being enjoyed by recipe box delivery companies like Hello Fresh, Mindful Chef and Gousto, but Lex column in the FT highlighted the problems of the Swiss watch industry (“For all their
• Sunday’s Press and News (1): The front pages of the Sunday papers were dominated by more headlines about the pandemic crisis and the Government’s plan to ease the lockdown: the Sunday Telegraph went with “Stay alert: PM’s new message to the nation” and the Sunday Times ran with “100,000 dead if UK eases too fast – scientists warn”, but the Observer flagged “No return to work until we feel safe, unions tell Johnson” and the Mail on Sunday highlighted “Hancock’s “Give me a break” bust-up with PM”
• Sunday’s Press and News (2): In terms of Retail news, the Mail on Sunday had some interesting stories, namely that Debenhams is very unhappy with the deal that Hammerson has struck with Next over its Beauty Hall space behind its back, hedge funds are shorting the aforementioned embattled shopping centre landlord on the fear that Hammerson will need to raise £500m in new equity to survive and Selfridges has just re-opened its Food Hall in Oxford Street. The Mail on Sunday also had a feature interview with the boss of Selfridges, Anne Pitcher (“We’re in for hardest year ever – and boring shops won’t survive”), in which she highlighted that clothing retailers face a difficult future, as “consumers look to own things for longer and…look more closely at where things come from and how they’re made”.
• Sunday’s Press and News (3): The Business editorial in the Sunday Telegraph thundered that “We should not mourn death of old High Street”, noting how Next is already adapting to the new world by attempting to create a British equivalent of Spotify, the Canadian “white-label” ecommerce business, and the Sunday Telegraph had a separate article about Next boss Simon Wolfson’s plan for his Total Platform business (“Retail veteran puts faith in Online platform as fashion’s Next big thing”). The Sunday Times noted that Morrisons is stepping up its work with Amazon, but it also flagged (on its News pages) that fashion retailers are planning a giant Summer Sale to clear the stock mountain and it had a Business feature on the problems of Matalan (“Matalan joins clothing empires stripped bare by crisis”), noting the controversy about whether its Monaco-based founder John Hargreaves should be
• Sunday’s Press and News (4): In terms of all the other comment columns in the Sunday papers, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“Wartime lessons on deficits, debt and the size of the state”), as well as the coruscating column by the veteran City commentator Jeremy Warner in the Sunday Telegraph about the confused and half-hearted Government approach to the lockdown and the economy (“Blind optimism is no substitute for real leadership”)…
• News Flow this Week: After the Bank Holiday weekend, Monday brings the Dignity Q1 and the McColl’s AGM. On Tuesday we get the Morrisons Q1, the Greggs trading update and the Land Secs finals. Wednesday brings the BRC-KPMG Retail Sales figures for April and then on Thursday we get the delayed WH Smith interims, plus the Just Eat AGM, the Next AGM and the Tesco AGM.
Today’s News: With exquisite timing, after the PM’s address to the nation last night on the progress of the pandemic, the embattled funeral operator Dignity has announced its Q1 results, which are broadly flat. Dignity has not chosen to provide any update on recent trading or speculate on the likely death rate for 2020, but the new Executive Chairman, Clive Whiley (of Mothercare fame) says that “all those working in the funeral industry are an easily forgotten subset of key workers who all deserve our thanks” and that, in terms of the balance sheet, “liquidity remains robust for the time being”. There is no sign of any update from McColl’s ahead of its AGM at 1.30pm, although there should be plenty to talk about, including last week’s news that the new FD Robbie Bell has decided to jump ship and take up the FD role at Holland & Barrett.
News Flow This Week: Tomorrow we get the Morrisons Q1, the Greggs trading update and the Land Secs finals. Wednesday brings the BRC-KPMG Retail Sales figures for April and then on Thursday we get the delayed WH Smith interims, plus the Just Eat AGM, the Next AGM and the Tesco AGM