Langton Capital – 2020-05-12 – PREMIUM – More on un-lockdown, pubs, Hollywood Bowl, Escape Hunt etc.:
More on un-lockdown, pubs, Hollywood Bowl, Escape Hunt etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The word ‘unprecedented’ is getting quite an airing.
And it seems apt because I had to Google Home Secretary Priti Patel’s comment on her success in bringing shoplifting down (when nearly all shops are shut) as I didn’t believe that anyone in public office would make such a statement.
But they did. It’ll be ‘in-growing toenail? Simple. Cut your leg off’ next and, if you’d suggested that the president, even of an uninhabited piece of rock in the middle of nowhere, had said you might kill a virus by injecting bleach, I’d have said no way but that has happened.
And said president may be suggesting zapping a tiny, tiny little bug, the almost invisible enemy with a tremendous, super-strong light like the world has never seen before too long, but hang on, what do you mean, he already has?
Anyway, poking fun at certain politicians is a bit like shooting fish in a barrel. Easy but not very satisfying – or indeed very productive. On to the news:
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• More on industry feedback
• How will the industry change?
PLEASE SIR, I WANT MORE: Understandably, the hospitality industry is both thankful for what it’s received and anxious to receive more: 12 May 2020:
• The hospitality industry was first into lockdown and it could be virtually the last out.
• It therefore has some justification in asking for special measures to help it – and it is certainly making that call.
Where we are:
• Covid-19 is a wave crashing over us.
• The wave will be 1) gone at some point but 2) what’s left when the water recedes could look a little different to what was there before it arrived.
• That said, the government’s aim (and the aim of most European governments though less so perhaps the US) has been to try to make sure that what’s left looks passably like what we had before
• Therefore keeping the infrastructure, the capital structures and the staff in place seems logical.
• This can be done for a short while – though, as Rishi Sunak has said, only at huge cost. But it can’t go on forever.
• The furlough scheme, zero business rates, delayed VAT payments, the £10k and £25k grants and access to debt (maybe in that order) have helped to preserve much of the structure of the industry
• It makes sense, therefore, if the government still wants to 1) protect the economy and 2) it has the money to do so, to keep help in place for hospitality
Reality check, sidebar:
• Hospitality really is a special case.
• Some venues are ‘crowded by design’.
• It’s part of the buzz and asking such units to socially distance simply will not work. It would make sense to keep these units mothballed – but they will need help
• On the specifics, see our comments on a smoothed furlough (probably a working credit of some sort) and UKH comments today
INDUSTRY FEEDBACK: The industry is full of suggestions, many of which involve the government in supporting operators further. Landlords also come in for a bit of stick: 12 May 20:
• The trade bodies are extremely active. They are pressuring government in the way that they should and are currently at least all pushing in the same direction.
• The proof of the pudding will be in the eating but either 1) government is listening or 2) it was always thinking along the same lines because an extension of state aid is, hopefully, likely
• See general email for comments from UKH, BBPA, BII and others
• Industry analyst Peter Backman has updated on the industry saying ‘there is some sign of activity in the foodservice sector – not much, but enough to show that there is a heartbeat somewhere in the takeaway and delivery sector.’
• Timing is everything. As we have said, you can hold your breath under-water, but not forever. Backman says ‘whilst some businesses are turning their thoughts to how to open up whenever that is allowed, many are facing an existential crisis as they see their liquidity running out.’
• Mr Backman comments – and we agree – that ‘it seems as though the government is sympathetic to the needs of the foodservice, hospitality and leisure sector – which has been particularly hard hit by the lockdown and is likely to be asked to endure for longer than any other sector of the economy.’ Unfortunately, ‘it remains to be seen whether this appreciation is turned into action.’
• There are some mixed messages from government. The earliest that pubs could open is apparently 4 July but other ministers are said to be briefing that it’s more likely to be August.
• Backman says ‘at its core, the current situation is not about finance or the economy but consumer demand – and specifically lack of consumer demand caused by a medical condition about whose outcome we have no idea and no history to guide us. We really are in uncharted territory.’
• Backman says since the lockdown, around 50 brands have opened a total of 425 units for delivery and takeaway
• Footfall is still massively down, and it won’t be switched back on via the flicking of a switch
• The government hopefully recognises this and will taper state aid accordingly
PUB & RESTAURANT NEWS:
Trade response to un-lockdown:
• UKH has written to chancellor Rishi Sunak saying that ‘an extended and flexible furlough scheme is critical to the survival of the UK’s hospitality sector.’ See earlier Langton comments suggesting the same thing.
• UKH any extension ‘includes the continuation of the 80% furlough pay until the end of September with a tapered scheme until the end of the year, a removal of the three-week maximum period to increase flexibility among reopening businesses and sector-specific part-furlough schemes with pay shared between the Government and the employer.’
• UKH says ‘even by December trade will be markedly lower than last year, putting people’s livelihoods at risk without further support.’ CEO Kate Nicholls comments ‘the introduction of the furlough scheme has been a crucial lifeline for many businesses and employees. It has helped hospitality overcome the initial crisis, saved businesses and kept jobs open. As the Government, and businesses, begin to think about reopening, it is vital that furlough support continues. Abruptly turning it off would be a disaster and undo the good work that the Government has already done.’
• The problem is that ‘when lockdown lifts, a substantial number of hospitality businesses will be unable to reopen again and many of those that can will still be operating far under normal capacity. Confidence among businesses for the rest of the year with even best-case scenario predictions pointing to a huge drop in trading. Without continued support through the furlough scheme businesses will fail and people will lose their jobs.’
• The BBPA says ‘we are pleased to see pubs included as part of the possible reopening of the hospitality sector in July. This would be great news for those pubs who can meet the social distancing measures required by then.’ It goes on to say ‘of course, it is important to note that more clarity is still needed on the conditions that will be required for pubs to re-open in July. Due to the unique nature and wide range of pubs – no two pubs are the same – for many it may be a considerably longer time until they can fully re-open.’
• The BBPA says ‘we believe that pubs should only open when safe to do so, but without additional support now – particularly for those who won’t be able to re-open sooner – many more of our nation’s pubs and the brewers that supply them with beer will struggle to survive closure and beyond. To this end we will continue to press the Government for the ongoing support our sector needs.’
• It concludes ‘without specific additional financial support for pubs and brewers, the social hubs and heart of communities in many towns, villages and cities across the UK will remain at risk.’
• UKH is separately to publish a series of protocols aimed at supporting the safe reopening of hospitality venues. It says ‘the size and diversity of the hospitality sector means that there is no one-size-fits-all approach to reopening.’
• The government would appear to be suggesting that venues which are ‘crowded by design’ (and many are) will not be among the first to open. No surprise there but it does mean that support will really need to be kept in place for longer.
• Industry analyst Peter Backman has updated on the industry saying ‘there is some sign of activity in the foodservice sector – not much, but enough to show that there is a heartbeat somewhere in the takeaway and delivery sector.’ Mr Backman says ‘whilst some businesses are turning their thoughts to how to open up whenever that is allowed, many are facing an existential crisis as they see their liquidity running out.’
• Backman says it ‘seems as though the government is sympathetic to the needs of the foodservice, hospitality and leisure sector – which has been particularly hard hit by the lockdown and is likely to be asked to endure for longer than any other sector of the economy.’ Unfortunately, it ‘remains to be seen whether this appreciation is turned into action.’
Winding down the lockdown. More certainty or less?
• Drinks Business quotes Nick Mackenzie, CEO of Greene King, as saying that a false start to any market reboot would be worse than no start at all. All of the government’s plans, largely down to necessity, are thus far conditional of future developments re Covid-19.
• SIBA has suggested that the lockdown has been particularly hard on small brewers. Certainly, the global lager producers are less reliant on real ale.
• Dominic Raab appears to have said that pubs will not be opening until 4 July at the earliest. He says that the current changes being proposed to the lockdown are only ‘modest’.
• This is broadly in line with a number of industry observations & comments. JDW, at the time of its share placing last month, said ‘the company’s current assumptions are that its pubs will remain closed until late June 2020.’
• Greene King says ‘we are keen to avoid a false start and the support that the government has provided during the lockdown will also be needed during the recovery phase as maintaining social distancing will have a significant impact on pubs. We are working closely with our people and our tenants to put in place a reopening strategy that adheres closely to government guidance so that when we do open our doors again, it is with robust safety and hygiene measures in place for our team and customers.’
• A smoothing of the withdraw is both necessary and, hopefully, likely.
• The British Beer and Pub Association, British Institute of Innkeeping and UK Hospitality have outlined in a letter what they believe the hospitality industry needs from government in order to ensure its survival.
• The trade bodies are calling for an ‘extended, more flexible furlough scheme to the end of 2020, tapered to encourage people back to work only when it is safe, and gradually, if appropriate.’
• The bodies want a ‘removal of the £51k rateable value cap on grant eligibility, to open funds up to the 20% of pub and hospitality companies that represent the bulk of trade and employees.’
• The trade groups say ‘we know that pubs, hospitality and brewers can be crucial in driving economic recovery. We thank the Chancellor for his support thus far but urge him to enable venues across the country to play their role by opening in a safe fashion, when the time is right. Surviving the crisis can only happen with further support from Government, allowing pubs to not only pull through but deliver future prosperity.’
• The Telegraph suggests that the CJRS could be extended to September, albeit at 60% of wages rather than 80%. This may be fair if it is intended to prod employees into going back to work but, if their workplaces are simply not allowed to open, it may need to be higher than 60% if their employers are to be persuaded to leave their jobs open for them.
Other Covid-19 news:
• Springboard has said that shopping destinations saw their largest ever decline in April with numbers visiting retail sites down by 80%. Springboard says ‘whilst this is somewhat inevitable given the closure of all but essential stores, it is perhaps indicative of consumers getting into a new rhythm around shopping and working from home.’
• The TUC has expressed concerns should employees be forced to return to work against their wishes.
• Some restaurants in Spain are being allowed to reopen. Around a half of the country’s population is now in ‘phase one’ of the proposed un-lockdown.
• Some hopeful talk of ‘pent up demand’ for restaurant services in the US.
• Bacardi reports that cocktails are gaining in popularity. It says there is more drinking at home adding ‘it’s great to see Brits embracing the ‘cocktail hour’ once more, getting dressed up and enjoying their favourite serves over apps such as Zoom, as the virtual cocktail hour becomes our new normal.’
• National Restaurant News in the US reports that some 5.5m bar & restaurant jobs have been lost in the US. Another 2m jobs have been lost in the US across other hospitality companies. Across all sectors, 20.5m jobs were lost in April alone.
• Morrison’s has cut the price of petrol below £1 per litre.
• Glasgow-based leisure group G1 has fed 10,000 people as part of a 4 week initiative to feed those who need it most. Its ‘Big Social’ feed is a ‘pop up style, high volume hot food kitchen which is based at the groups city centre venue The Social.’
• Feed It Back and Eagle Eye Solutions are teaming up to offer free use of their respective platforms to reward customers for completing customer feedback surveys.
HOLIDAYS & LEISURE TRAVEL:
• TUI has set out a 10-point plan to reopen its tourist hotels. The points include promoting contactless check-ins, enforcing social distancing in common areas, adjusting capacity in restaurants (downwards), extending hours to avoid crowding and removing entertainment and other activities.
• Problem is, of course, that the above doesn’t sound like much fun.
• TUI also plans more cleaning, hand sanitisers in common areas, little or no ‘self-service’ and other moves that will hopefully make its units more attractive to would-be travellers.
• STR reports that London hotels REVPAR fell by 83.5% in April this year versus last. Occupancy was down by 73.0% with room rate down 38.9%. Daily rates are down to 2005 levels.
• HVS reports that ‘with much of Europe’s hotel sector still closed for business the industry faces a huge challenge to rebuild consumer confidence once Covid-19 lockdown restrictions start to lift later this year.’
• HVS says ‘when demand for hotels does start to return, whether that’s later this year or next year, operators will be coming back into a very different market to previously, with a new set of consumer concerns and requirements.’ It says ‘building trust between hotelier and customer will be paramount with businesses operating and presenting their services in a way that makes the guest, and the staff who take care of them, feel comfortable, confident and protected.’
• Choice Hotels has reported that 97% of its hotels are open. Q1 income was down by 9%.
• Marriott International reports that Q1 REVPAR fell by 22.5% worldwide. It was down by 19.5% in North America and by 30.4% elsewhere. Q2 will be considerably worse.
• Marriott CEO Arne Sorenson says ‘in the last few months we have seen the impact of COVID‐19 spread throughout our business in an unprecedented way.’ He says the year started well but ‘as the pandemic moved around the world, we saw global RevPAR fall sharply and, in April, worldwide RevPAR declined approximately 90 percent. Currently, roughly a quarter of our worldwide hotels are closed.’
• Marriott says that ‘the resilience of travel demand is evident in the improving trends we see in Greater China. Occupancy at our hotels in the region reached 25 percent in April, up from less than 10 percent in mid‐February 2020.’ It says ‘looking at our occupancy and booking trends, it appears that lodging demand in most of the rest of the world has stabilized, albeit at very low levels. Occupancy was around 20 percent over the past two weeks in North American limited‐service hotels, benefitting from leisure and drive‐to demand.’
• Arrivals from France will be exempt the quarantine.
• Cruise company Hurtigruten has extended the suspension of its sailings until mid-June at the earliest.
• The Telegraph fancies ‘a booking surge similar to that seen in Ireland following the announcement of its de-escalation plan’ across UK hotels shortly. That sounds a little optimistic.
• Any winners? Airport traffic stats are dismal. Passenger numbers are well down. When or if they rise, it is likely passengers will not want to linger. This could benefit grab and go food outlets over sit-down restaurants. Pragma says, when travel picks up, ‘although there is likely to be an increase in passenger dwell time, airports should expect lower usage of restaurants, particularly those that have communal seating on large tables, but demand could still be high for those with smaller, well-spaced tables.’
• BA has warned that flights may remain grounded as a result of the UK’s proposed quarantine plans. Outgoing CEO Willie Walsh has defended the company’s decision to cut 12,000 jobs, despite the availability of some state aid. The JRS tops out at £2,500 per month, not much for pilots.
• Officials at Heathrow have said that the proposed quarantine will effectively close borders as people will not be prepared to travel. Cargo flights are unaffected.
• Hollywood Bowl Group has updated on its financial position saying (as previously announced) ‘the Group’s lenders had agreed to a £10m revolving credit facility extension to its £35m banking facility, amended the leverage covenants and waived the cashflow covenants for the rest of FY2020.’ It now says ‘the existing banking facility (£35m) remains in place and following constructive discussions regarding ongoing support, the covenants on the existing facility have been further amended for the first half of FY2021.’
• BOWL says that the debt amendments and its recent equity fund-raise should allow the ‘Group to emerge from this period of significant disruption in a robust financial and operational position.’
• Escape Hunt plc has reported unaudited results for the year to end December saying that revenue rose by 128% to £4.9m with site-level adjusted EBITDA from owner-operated sites of £0.6m vs a loss of £0.5m in the prior year.
• Escape Hunt had nine sites open in the UK at the end of 2019 with LfL revenue growth of 34% from the three most mature sites. It had an ‘encouraging pipeline of new sites’. Trading to 29 Feb was ‘comfortably ahead of Board’s expectations’.Covid-19 has forced a shutdown but the group says that it still has an attractive pipeline of potential new sites.
• ESC says ‘the Board is actively exploring options to access further capital and to finance its strategic objectives for 2020 and beyond and to provide additional working capital in the short and medium term.’ CEO Richard Harpham says the strong performance pre-Covid ‘has given us greater confidence in our plans to grow both our owner-operated estate in the UK and our franchise network internationally. Whilst the business has been severely impacted in the short term by COVID-19, the support and understanding we have received from our employees and many of our suppliers has been amazing and, as such, we remain confident in the medium and long term prospects for the business.’
• Nintendo last week reported a sharp increase in sales in its Q4.
• The IEA argues against financial support for football clubs. Social distancing rules are likely to crush attendance figures (if indeed games can be played in front of a crowd at all) and the IEA says leagues should ‘declare now that the 2020-2021 season will not take place.’
• The IEA says ‘the government must make it clear in advance that it is not going to step in to bail clubs out if they go ahead with unrealistic plans for next season.’
• The Shanghai Disneyland has reopened.
FINANCE & ECONOMICS:
• UK EU trade talks are to resume ahead of the EU summit in June. The decision has to be made at the end of June as to whether the transition period, due to expire at the end of December, should be extended.
• US Treasury Secretary Steven Mnuchin says that unemployment rate in the US may be as high as 25%. In the UK, 25% of workers are currently furloughed. They have not yet lost their jobs.
• Sterling lower at$1.2318 and €1.1403. Oil down at $29.74. UK 10yr gilt yield 3bps higher at 0.27%. World markets mixed yesterday. London set to open up around 5pts.
• Covid-19 news:
o This can’t be easy but there is some pushback on the un-lockdown proposals with allegations of a lack of clarity. Cabinet said to be divided over imposing a 14-day quarantine on most people arriving in the UK.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: As well as the scheduled Morrisons Q1 update (which has flagged a slightly better than expected 5.1% increase in Retail LFL sales, despite a weak Easter, but has warned of a net adverse impact on profits from the pandemic), today has also brought a highly detailed Q1 trading update from Kingfisher and an update from AO.com. Astonishingly, this is the first comment that AO.com has given on the impact of the pandemic and it doesn’t exactly give much detail, apart from confirming that the y/e March results will be in line with expectations and that it has grown market share recently…The Kingfisher update, however, is packed with detail, noting that after the phased reopening of stores in the UK and France in the second half of April, there has been an improving relative sales trend (group LFL sales moved from -74.0% in the first week of April to +2.7% in the first week of
• News Flow This Week: Tomorrow brings the Greggs AGM and 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.