Langton Capital – 2020-05-19 – PREMIUM – Compass Group, Casual Dining Group, Carluccio, re-openings etc.:
Compass Group, Casual Dining Group, Carluccio, re-openings etc.:
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A DAY IN THE LIFE:
Rather busy this morning, on to the news:
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• More on Casual Dining Group. Industry major files notice of intention to appoint administrators.
• CVAs and subsequent failure. Cutting too little, too late?
• Operators & the government may be able to control supply. Demand, not so much. Will customers come back?
CASUAL DINING GROUP FILES NOTICE OF INTENTION TO APPOINT ADMINISTRATORS: See also Company News below. 19 May 2020:
• CDG, owner of the Bella Italia, Café Rouge & Las Iguanas brands, has said that it is considering administration
• Some 6,000 jobs are at risk.
• This is, often but not always, a precursor to 1) attempts to refinance a business (which has surely been attempted already), then 2) moves to perhaps sell some assets or brands (ditto) and 3) potentially a CVA or a move straight to administration.
• CDG has spelled this out to some extent in saying that the move gives it 10 business days to decide whether to enter administration
• CDG’s announcement will move it to the top of the list ‘for attention’ with regard to its banks and landlords
• The group last reported accounts are for the year to end-May 2019
• The group for that period reported a loss before tax of £66m
• It had some £629m of accumulated losses since incorporation and a negative net worth of some £94m
• The company is said to be seeking ‘flexibility in rental structure’ from landlords.
• Alix Partners are considering the firm’s options. This may involve a full administration but, if deals can be agreed with landlords, there may be only a partial closure
• CDG says ‘as is widely acknowledged, this is an unprecedented situation for our industry and, like many other companies across the UK, the directors of Casual Dining Group are working closely with our advisers as we consider our next steps.’
• It adds ‘these notifications are a prudent measure in light of the company’s position and the wider situation. These notifications will also protect the company from any threatened potential legal action from landlords while we review the detail of the government advice and formulate a plan for the company in these difficult times.’
CVAs AND THE SUBSEQUENT FAILURE OF OPERATORS: Optimism and the pushback from landlords may have prevented deeper (and necessary) CVA cuts to capacity. 19 May 2020:
• We commented yesterday on the collapse into administration of a number of operators that underwent CVAs. often in 2018.
• And now industry major Casual Dining Group has filed notice of its intention to appoint administrators at the High Court. It underwent one of the earliest CVAs in 2014. In July 2018, the group reported that it had received a £30m cash injection in order to ‘fund growth opportunities’.
• In November 2018, the Sunday Times reported that CDG had appointed restructuring experts Alvarez & Marsal to help it cut costs.
• The latest appointment of advisors will give the group around 10dys to assess all of its financial options, it says. Some 6,000 jobs are said to be at risk
• We and others have commented that a number of currently furloughed jobs across the hospitality and other industries may no longer actually exist
• CDG says that it has appointed Alix Partners to help it assess its options and to work on a restructuring programme.
• Advisors in this sort of situation often assess funding options then, if funding is not available, they may move onto attempt asset disposals and, ultimately, they may consider administration.
SUPPLY IS ONE THING, DEMAND MAY BE QUITE ANOTHER: Operators and government may be able to influence supply. Demand is trickier to predict. 19 May 2020.
• Some operators are baying to be allowed to reopen.
• Others have said they would be reluctant to reopen unless some social distancing rules are eased materially.
• It is mathematically correct that, if the minimum distance between customers was dropped from two metres to one metre, then the potential capacity for a venue would be quadrupled
• The WHO is reported to consider 1m sufficient. But researchers at MIT in the US have pointed out that sneezes can expel droplets up to 8m and much will depend on the attitude of customers.
• YouGov has suggested that 32% of respondents will ‘spend more’ on eating out when restrictions are lifted
• However, there is a real risk that new habits will be formed (eating at home, delivery, home-baking, generally saving money etc) and YouGov itself, in a separate survey, has said that people ‘are more concerned about visiting places where they would likely end up in closer contact with others.’
• CGA recently said that around a third of F&B operators intended never to reopen some of their shuttered units and that a further third had yet to make up their minds
• In addition, the administrations that have happened since lockdown was imposed mean that some units will definitely not be coming back
• Hence, when added to distancing policies, there will be less supply coming out of lockdown than there was when we went in
• Demand could be influenced by health fears and a feeling that hospitality venues will not be as hospitable as they were before Covid-19. At least in the short and medium term
• Analyst Peter Backman says that, with social distancing in place & perhaps Perspex screens, restaurants may ‘feel strange and quite probably unfriendly; and this will be exacerbated by the wearing of masks and gloves, the constant wiping and sanitising of surfaces and other actions designed to reduce the possibility of infection and reassure staff and guests.’
• Consumers may well feel, why bother?
• Of course, as we quote in Company News below, memories are short – but this is a one in a hundred year event and the spillover into behaviour could last for some time.
• Backman comments ‘while it is encouraging that consumers do not appear to have lost their desire to eat out, when the time comes and they are able to do so once again, will they actually want to do so?’
• The FT has addressed the issue under the heading ‘tempting back the terrified’.
• Richard Hodgson, CEO of Yo! Sushi, told the FT he would not reopen a single outlet until he could be sure diners would return. He says ‘irrespective of what restrictions are lifted, we need to see what the customer sentiment is.’ Hodgson adds ‘when you see someone in a face mask and perspex screens, it reminds you that there is a risk.’
• Part of the problem will be that consumers have been told for weeks it is safer not to leave the house
• There has developed a certain virtue in not doing so.
• Langton has commented upon the ‘empowered frowning’ and ‘smug tutting’ that can be encountered outside of the home and this may extend, at least for a time, into the post-lockdown world
• Fuller’s CEO Simon Emeny tells the FT ‘the government has spent the last seven weeks educating the customer in a way that it is completely alien to them. Now they need to re-educate them.’
PUB & RESTAURANT NEWS:
• See Casual Dining Group under Company News.
• Accountant UHY Hacker Young says that the number of winding-up petitions issued against restaurants has jumped by 165% this year to date compared with the same period last year. Some 53 petitions have been filed.
• We suggested yesterday in our ‘Class of 2018’ piece (more below) that some creditors may be conflicted on whether or not to seek to call in administrators. Under normal circumstances, such a threat would galvanise the debtor into some sort of action but, today, perhaps not so much.
• Creditors may also have bigger fires to fight, they may be concerned about inheriting sites (if they are a landlord) with the accompanying maintenance and ultimately business rates costs etc.
• Currently a temporary ban on winding up orders is in place. UHY Hacker Young says there could be a leap in such actions once the moratorium expires at the end of next month.
• We mentioned yesterday that the current ‘crush’ was stopping a lot of casualties from having the space to fall over. UHY Hacker Young many restaurants will struggle to stay solvent when the lockdown ends and when costs return to normal levels. It says ‘the recent jump in winding up petitions against restaurants is unlikely to be the biggest increase we see this year.’
• The accountant puts the finger on it when it says ‘restaurants will have an extremely small window to get customers back through the door before restart costs deplete cash and send them into insolvency. They are especially at risk being one of the last sectors to return to normal activity.’
• Foodservice analyst Peter Backman has updated on the sector saying that the industry is positioning itself now that there are the first signs that lockdowns will be eased and, hopefully at some point, ended. However, as many hospitality units are ‘crowded by design’, they will be amongst the last to reopen.
• Mr Backman suggests that restaurants will not be open until early July at the earliest and pubs a month later. Outside seating areas may be opened up first. Social-distancing will be an issue (both for supply and demand).
• Contactless bill payment is an easy fix. Perspex screens and distanced-tables with no bar service might be more troublesome. Some operators are likely to experiment with more innovative and interesting screening, with mannequins occupying seats in order to spread out customers etc.
• UK Hospitality has reiterated just how important it is to get some sort of rent shield, agreement, moratorium or some other solution put in place before Q3 rent demands begin to arrive for payment as soon as 24 June.
• UKH says ‘in June, sector businesses are due to pay nearly £800m in rent, having been forcibly closed and generated no income for over three months. We appreciate that landlords have their own financial pressures and the majority of landlords have been happy to work with tenants to find solutions, but a damaging minority continue to put pressure on beleaguered hospitality businesses at the worst time.’
• The Treasury has received more than two million claims from self-employed people for government grants. In addition to the 7m or so staff that are already furloughed, this is all starting to get rather expensive. Chancellor Rishi Sunak says the value of claims to date is £6bn.
• On-trade data specialist Caterlyst says that 29% of on-trade business owners remain ‘confident that their businesses can survive the outbreak and a further 29% hopeful that their business can possibly thrive after lockdown.’
• Caterlyst’s survey of 772 mostly independent restaurateurs and publicans says 96% have seen revenues plummet ant 80% are completely shuttered at present. Caterlyst says ‘many pubs and restaurants have just cause to be concerned about what the future holds unless their regular business can resume soon, or a more accessible package of financial support is delivered to them. In the meantime, innovation and diversification may hold the answer to keeping these businesses afloat until – and possibly even after – lockdown is lifted.’
• Union Unite has called on pub companies to cancel rents for their tenants. Many should have received £10k or £25k windfalls from the government.
• Looking at how restaurants may change post Covid-19, NRN in the US says that busy restaurants may be half-full but have a bustling delivery business ‘whisking dozens of orders in and out of the store’. NRN quotes New England Consulting as saying ‘the restaurant industry will never go back to ‘normal’ again.’ It adds ‘memories are short; people will come back. But it will take a couple of years for traffic to get back [to the way it was before]. You’ll see a spike when we reopen the country — people are landlocked right now and want to get out — but that will soon level out.’
• Casual Dining Group has filed notice of its intention to appoint administrators.
• Sky reported that Casual Dining Group ‘is close to unveiling plans for a series of insolvency arrangements aimed at putting the business on a sustainable long-term footing.’ It says an announcement was likely to be made this week.
• CDG operates the Bella Italia, Café Rouge & Las Iguanas chains of restaurants. Sky says the group’s moves are ‘expected to involve company voluntary arrangements (CVAs) for two of its three brands…with the other being placed into administration.’
• Sky says ‘preliminary talks are understood to have got under way with landlords late last week.’
• CDG said ‘as is widely acknowledged, this is an unprecedented situation for our industry and, like many other companies across the UK, the directors of Casual Dining Group are working closely with our advisers as we consider our next steps.’ CDG was one of the first restaurant chains to undergo a CVA, which it enacted in 2014. See also Premium Email.
• Compass Group has reported H1 numbers and confirmed that it is to raise around £2bn in new equity.
• Compass CEO Dominic Blakemore says ‘the COVID-19 pandemic has had a profound impact on Compass.’ He says ‘the first five months covered by the results we are announcing today showed a continuation of the strong performance we reported last year, but it goes without saying that COVID-19 has changed everything.’
• The group says ‘Compass is a resilient and adaptable organisation and we have moved quickly to manage cash and costs and increase liquidity.’ It says ‘given the uncertainty in the short term outlook, today we have launched a £2 billion equity raise to reduce leverage and increase our liquidity.’
• Compass says ‘a strong balance sheet will allow us to weather the crisis whilst continuing to invest in the business to enhance our competitive advantages, support our long term growth prospects and further consolidate our position as the industry leader in food services.’
• The H1 numbers are largely meaningless given developments since. Revenue fell by 20.4% in March but by 46.1% in April. The group says that it is cutting costs and the board have taken pay cuts. The group adds ‘we are managing our cash tightly. Net capital expenditure for the first half of the year was £402 million and we expect second half net capital expenditure to be reduced to circa £200 million as we limit investment to projects that are associated with new contract wins or have been previously committed. All M&A activity for the second half of the year has been paused.’
• CPG says ‘at 31 March 2020 net debt was £4,876 million, including additional £926 million related to the impact of IFRS 16.’ It says ‘today we have announced a non-pre-emptive equity placing of new ordinary shares targeting gross proceeds of approximately £2.0 billion. Including the raise our proforma net debt will be £2.9bn.’
• KFC is to have 500 of its 900 branches in the UK & Ireland open by the end of this week. Costa Coffee is also to reopen more sites.
• Sky says that Boparan is close to announcing the purchase of a number of Carluccio assets. It says that around 900 jobs could be saved. Some 2,000 jobs have been at risk since the company called in administrators last month.
• Investment body Imbiba has taken a stake in boutique hotel brand House of Gods. It has invested an undisclosed sum into BXTR Services Ltd, a hotel services company that operates the House of Gods hotel in Edinburgh, KIP Hotel in Hackney and the Baxter Hostel in Edinburgh.
• Aldi UK is to have groceries delivered by Deliveroo.
• Good day for the sector yesterday. Compass, Gregg’s, Gym Group all up 6%. Revolution Bars & SSP up 7%. M&B up 8% and City Pubs, & Whitbread up 9%. Wetherspoon & Intercon up 10%TUI 13% higher, Carnival up 15%, On the Beach 17% higher and Restaurant Group up 20%.
• The Government’s proposed points-based immigration bill is back in the Commons.
• Pub Aid has said that pubs are continuing to serve their communities as far as possible. Pub Aid says ‘it came as no surprise that pubs are likely to be one of the last to leave lockdown, but it is undoubtedly going to be tough for many pubs. The fact that so many community pub heroes are putting others first at this difficult time is genuinely humbling and a demonstration of how pubs are a force for good, in their local communities and wider society.’
HOLIDAYS & LEISURE TRAVEL:
• Spain’s transport minister has said that the country is to attempt to restart its tourist industry by late June.
• That could be a bit of a problem as the Balearic Hotel Chain Association has suggested that only around 40% of the islands’ hotels are planning to open before the end of the season.
• And the UK’s own quarantine measures are still not clear – though Grant Shapps has told the Commons that measures will be brought in from early-June.
• This all seems rather uncertain and, when combined with problems that some customers have had in receiving refunds, it is not helpful re holiday bookings.
• Perhaps mindful of this, ABTA has written to PM Boris Johnson saying that there needs to be a “coordinated strategy” from government, supported by “specific measures and clear communication”. Good luck with that.
• Hotel giant Accor has said that it has agreed a new €560m Revolving Credit Facility
• Intercontinental Hotels has commented on its plans for enhanced cleaning procedures across its estate as Covid-19 lockdown measures are eased
• STR has said that REVPAR across the US hotel industry could fall by around 57.5% over 2020 as a whole.
• Ryanair boss Michael O’Leary has said the UK government 14-day quarantine restrictions are “bonkers” and “unfeasible”.
• O’Leary confirmed that it owes tens of millions of refunds to customers. It has distributed vouchers or cash refunds to a total of around €300m to date.
• Uber is to lay off another 3,000 workers in addition to the 3,700 job cuts announced earlier this month.
• Apple is reopening some stores with temperature checks and other safeguards in place. Around 100 stores globally have re-opened to date.
• Facebook has purchased GIF-maker Giphy for $400m. The purchase price has not been officially confirmed.
• Premier League football clubs are to resume training this week in what they hope will be the run up to a restart.
FINANCE & ECONOMICS:
• Bank of England economist Andy Haldane has told The Telegraph that there is a risk that the UK may return to 1980s levels of unemployment.
• Some 7m or so jobs may currently be furloughed – but the risk is that some of them no longer exist. The Institute of Student Employers has said that, perhaps unsurprisingly, the jobs market for students is thought to have shrunk by 15% this year with further cuts likely in 2021. Employers are reported to be looking for 32% fewer entrants on apprentice or school leaver programmes than originally planned for this year.
• Fed chairman Jerome Powell has said that US unemployment could peak at 25% as a result of the Covid-19 pandemic. Powell says that Q2 will be ‘very, very bad’ but hopes that recovery could commence from Q3.
• The IMF has said that a full financial recovery from Covid-19 is unlikely in 2021.
• Interesting to note that the construction of new office buildings in central London reportedly hit a new record high earlier this year. Demand is not what it was. Some of the shift to home-working could be permanent. Deloitte Real Estate says that sentiment has ‘dramatically shifted.’
• Sterling higher at $1.2199 and €1.1177. Oil up at $35.01. UK 10yr gilt yield up 3bps at 0.26%. World markets all higher yesterday with London due to open up about 19pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: The home repair and insurance business Homeserve (which has a market cap of just under £4bn and is classified as a General Retailer…) has announced robust final results for y/e March and increased its final dividend, flagging that “We have all become acutely aware of the importance of our homes over the last few months, which means that HomeServe’s purpose of making home repairs and improvements easy has never been more relevant”. By contrast, Topps Tiles (which has a market cap of only £75m…) has announced very weak interims for the period to end March, but flags that “the strong growth of our Online business, the development of a collection-only store model, and the encouraging initial customer response to our phased programme of store re-openings, all demonstrate our resilience in the face of the COVID-19 threat”. The embattled home shopping business N Brown (which has
• News Flow This Week: The Walmart/Asda Q1 results (for the calendar Q1 in the case of Asda) are out at lunchtime today, along with the Q1 results from the US DIY giant Home Depot. Tomorrow brings the Marks & Spencer finals, the finals from Great Portland (the London office and retail landlord) and the Q1 results from another US DIY giant, Lowes. Thursday then brings the Pets at Home finals, the finals from New River (the community shopping centre and pub landlord) and the Inchcape AGM update, plus the Pendragon AGM. The delayed Burberry finals and the ONS Retail Sales figures for April are then out on Friday.