Langton Capital – 2020-06-01 – PREMIUM – The Lockdown, CJRS changes, Hollywood Bowl & other:
The Lockdown, CJRS changes, Hollywood Bowl & other:
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A DAY IN THE LIFE:
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• What the lockdown did. Data from Spanish bank BBVA shows how spending patterns were impacted.
WHAT THE LOCKDOWN DID: A study of the impact on consumer spending using Spain as a working example. 1 June 2020:
• Card payments give a very accurate indication – in almost real time – as to spending patterns.
• Prof Vasco Carvalho of Cambridge University has used BBVA data to illustrate what happened in Spain
Why bother? Can’t we see what happened?
• Carvalho says ‘accurate, real-time information on the state of the economy can be used to better inform private actions and evidence-based public policy’. It’s hard to disagree with that
• We all know that spending on airline tickets fell – but by how much, when and where?
• National Accounts and the like take months to prepare. In times of crisis, they are too historic and backward-looking
• Data generated by banks via spending is ‘naturally occurring’ information. GDPR means that it has to be anonymised – but it is still available relatively quickly
• The data set is large. It is not subjective. It represents consumers actions, not their words. There should be fewer opportunities for incorrect interpretation
What questions need to be answered?
• The study looks at how large the decline in consumption was. When did it kick in, how large was any reallocation of spending to other products and how much shifted to online?
• Because card spending is very granular (by postcode of the customer), spending patterns can be tracked across regions and even within cities – between richer & poorer areas
The study in Spain:
• Carvalho looks at1.4bn transactions over 70m card accounts, involving 2.2m merchants
• The lockdown in Spain was enacted on 15 March (23 March in the UK)
• It was very strict. And successful. Deaths in Spain over the last four days were 4, 2, 1 and 1. In the UK they were 215, 324, 377 and 412.
• The number of transactions fell by around 50% almost immediately.
• But there was a change in the average transaction size (it got larger), transaction type (online rose, face-to-face spending fell sharply) and transaction area (food rose, everything else fell)
• Interestingly, and intuitively, there had been an increase in the number of food purchasing occasions in the immediate run up to the lockdown. They were running about 30% above trend with larger ticket sizes as well
• The number of transactions in travel hubs fell by around 90% and the number of ‘retail and recreation’ purchases fell by over 90%
• These numbers broadly flatlined at the ‘new normal’
• Online spending, not surprisingly, rose sharply from around 14% of all transactions to around 22% of all transactions.
• Carvalho considers that at least some of this shift is likely to be permanent. Certainly the delivery companies have put in the infrastructure to cope with these higher numbers
The reallocation of expenditure:
• As mentioned, the number of transactions in total broadly halved.
• Within the reduced figure, the number of food transactions roughly more than doubled, from around 18% of all transactions to around 38%
• That is to say the absolute number of food transactions rose slightly
• Expenditure everywhere else collapsed. I mean tell me about it, right?
• But it is important to analyse these things as the sum of anecdotal evidence can sometimes aggregate to a silly number
• Spending on travel, hotels, lodging, leisure & entertainment, personal care & beauty, sports & toys and books & newspapers fell to negligible amounts
The impact across income groups
• Carvalho was able to analyse spending across postcodes in the Madrid area. He found that poorer areas, despite such areas presumably having a higher marginal propensity to spend, saw transaction numbers fall most rapidly
• Carvalho says ‘the fall of expenditures induced by the lockdown is larger in areas where the pandemic has caused more distress.’
• He says poorer workers are more likely to be unable to work from home
• Carvalho says ‘we also looked at the relationship with the age structure of the population’ and found little correlation with spending changes
• Carvalho says ‘the current crisis comes at a time when the world is as rich in digital data as it has ever been.’
• This allows an altogether new level of analysis, almost in real time
• The study suggests that the main takeaways are an almost halving in spending occasions with a virtual doubling of online spend
• The question is, which of the changes forced by Covid-19 will be temporary and which will be permanent
• There is no reason that we are aware of as to why the experience in the UK should be different to that in Spain
PUB & RESTAURANT NEWS:
CJRS changes & reaction:
• Changes to the Coronavirus Job Retention Scheme will come in a month earlier than expected. From 1 July the scheme will allow part-time working.
• Effectively CJRS no1 ran from 1 March to 30 June. CJRS no2 is detailed below.
• The Institute of Chartered Accountants in England & Wales says ‘allowing employees to return to work part-time from 1 July is a sensible move, and in principle it is fair that employers should be prepared to take some of the financial burden off the tax-payer as businesses start up again.’
• The ICAEW says ‘we would like to see a higher level of support retained for sectors which will still be barred from doing business, such as hospitality and leisure. Otherwise there is a real risk for these companies that a sudden increase in staff costs, without the ability to generate revenue, will cause a wave of avoidable redundancies and closures.’
• From 1 August, the CJRS will not cover the cost of employers’ National Insurance nor pension contributions.
• To the end of August, the CJRS will pay 80% of wages. This falls to 70% in September, provided the employer pays the other 10%. The CJRS then falls to 60% in October, with the employer paying 20% (and the other 20% if it is making wages good plus the employers’ NIC plus statutory pension contributions.)
• Chancellor Rishi Sunak says ‘as we begin to re-open our country and kickstart our economy, these schemes will adjust to ensure those who are able to work can do so, while remaining amongst the most generous in the world.’
• The BBPA ‘has welcomed some aspects of the new furlough scheme’ but says that ‘for the tapered support to work, ALL pubs need to be open and operating at a sustainable level by the time the tapering kicks in.’ The BBPA alongside a number of other trade organisations has been pushing for the two metre rule to be reduced to one metre.
• The BBPA says this ‘would significantly increase the number of the UK’s 47,000 pubs that could safely re-open from one-third to three-quarters in July and at levels that would be more operationally viable – enabling more pub staff to return to work as the furlough scheme tapers off and reducing the risk of job losses.’
• Mirroring views expressed by the ICAEW above, the BBPA says ‘the announcement did not include any recognition of the unique pressures that the pub and hospitality sectors face having been closed the longest.’
• The BBPA says it is calling upon the Government ‘to recognise that up to a quarter of our pubs may not be able to open even with a one metre rule in place, in which case they will need the furlough scheme to continue at the current 80% until they can reopen.’
• UK Hospitality broadly ‘welcomes pragmatic evolution of furlough scheme.’ CEO Kate Nicholls says ‘this is a positive and pragmatic step towards reopening the economy while recognising that this recovery will take time, particularly in hospitality.’ It says any contributions ‘will be difficult for hospitality businesses to bear.’ It calls for help on brokering a solution on rents.
Other Covid-19 issues:
• Accountant UHY Hacker Young has said that the UK is likely to suffer a series of restaurant collapses later this year as costs post the lockdown will rise and demand will not return to pre Covid-19 levels for some time.
• Hacker Young says the sector was already under pressure from rises in the National Living Wage and other costs alongside some overbuilding. Landlords are currently legally prevented from winding up companies over unpaid rent due to Covid-19 legislation.
• Several well-known names have already called in administrators whilst a number of others, such as Casual Dining Group, Pizza Express and even Pret are considering their options and are in discussions with their landlords. CGA has said that a third of operators are planning to permanently close some branches and another third have yet to make up their minds.
• Hacker Young says ‘the restaurant sector has been put under huge pressure by this crisis and the lockdown. The sector really needs the Government to formulate proposals that will help the sector bounce back as quickly as possible.’ It says restaurants should ‘start putting in place cash management measures as soon as possible to ensure they have enough working capital to meet them.’ Thus far, the government has not offered any special treatment to the hospitality sector.
• Ashton Business School has been told that thousands of the UK’s curry houses could struggle to reopen after COVID-19.
• The FT quotes UK banks as warning that up to half of the £18.5bn of bounce back loans that they have thus made may not be repaid. It says banks ‘are lobbying the chancellor to prepare for the collapse of hundreds of thousands of small businesses.’
• The Society of Independent Brewers has urged consumers to support small breweries and to buy independent craft beer.’ CEO James Calder says SIBA is ‘encouraging thousands of beer lovers across the UK to engage with the Brew2You app and ultimately to support small breweries at this difficult time by buying independent craft beer.’
• UKH has commented on the government announcement that it is to establish a working group to develop a code of practice to provide guidance on rent negotiations saying ‘a code of practice can be a significant step in unlocking the current impasse in the commercial property market.’ It adds ‘this code should provide a mechanism to agree rent waivers or reductions for the crisis period. To enable this to happen Government will need to extend the moratorium on enforcement activity that is currently being introduced.’
• UKH has ‘proposed a summit to determine solutions that will mutually benefit landlords, tenants and the communities in which they operate, and we stand ready to facilitate in any way we can.’
• The Telegraph carries an interview with John Timpson, who runs a small chain of gastropubs, in which the entrepreneur says hopes of a V shaped recovery may be misplaced. Mr Timpson says that Christmas sales, which will come in after the chancellor’s support measures have been withdrawn, could by 10% or 20% down. Companies may struggle to make ends meet at this sort of revenue levels.
• The FT has reported that the government is planning to launch a big stimulus package before the summer with a focus on creating jobs and infrastructure projects to help boost the economy
• Marston’s announced on Friday that it had received approval from its Class A Noteholders to wave a number of covenants in its securitisation in light of the Covid-19 outbreak. Some 96.12% of Notes were voted in favour of the proposals. A remarkable 99.55% of Notes were represented at the meeting. MARS says ‘the Issuer will now proceed with the implementation of the Proposals.
• Pizza Express is reported to be considering a CVA in order to restructure its business. Other options could include a pre-packaged administration. The Telegraph reports that the company has hired the investment bank Houlihan Lokey and law firm Kirkland & Ellis to ‘explore its options.’
• The Telegraph reports that Pizza Express is to launch a pasta delivery service ‘as it scrambles to bring in sales during the virus crisis.’
• Pret A Manger, which is owned by JAB Holdings, is said by the FT to have called in consultants to help ‘overhaul its fast food business model as its core customer base of commuters remains working from home.’ Alvarez & Marsal and CWM are advising on preparations for the ‘new retail environment’.
• Pret CEO Pano Christou says ‘reduced footfall, combined with high rental costs, have placed substantial pressure on our business.’ He says ‘we are putting together a clear plan to address these issues and are already making good progress, with more than 300 shops up and running again as of next week.’
• The BBC says that Pret is attempting to renegotiate its rents ‘as it attempts to avoid store closures during the coronavirus epidemic.’ And, with landlords on the back foot, why not?
• Shares in JAB Holdings owned JDE Peet’s rose by 12% on their first day of dealing after raising €2.25bn to complete what has been Europe’s biggest initial public offering since 2018.
• Capital & Counties has bought a 26.3% stake in West End landlord Shaftesbury PLC. Shaftesbury says ‘the Board looks forward to engaging with Capco as it would with any other shareholder in the Company.’
• Amazon has said that it plans to offer permanent jobs to around 70% of the 175,000 temporary workers it has taken on to meet demand during the COVID-19 period.
HOLIDAYS & LEISURE TRAVEL:
• Dart Group has announced that it has completed the sale of its Distribution and Logistics business, Fowler Welch to Culina Group Limited for a gross cash consideration of £98.0 million. Dart says ‘at 31 March 2020, Fowler Welch had unaudited net assets of £60.5 million.’
• Dart says ‘the Board believes that the Transaction will enable the Group to focus on its long-term strategy of growing its Leisure Travel business and, importantly, enables Fowler Welch to continue to flourish and grow profitably under new ownership.’
• TUI has undertaken a survey that concludes 45% of respondents would like a holiday before next summer. As this is a 14-month period, it is perhaps hardly surprising that a lot of people say they would like a break.
• TUI says 15% of respondents would like to get away as soon as possible and 16% would like to get away before the winter.
• Greece is to welcome back holidaymakers from 29 countries from 15 June. Travellers from the UK, however, will not be allowed in. The list should be reviewed regularly.
• A number of aviation groups have urged the Chancellor to suspend APD
• The FT says that UK holiday parks should have a good summer.
• Travelodge’s landlords are said to be considering seizing control of the hotel chain after saying that the rent cuts proposed by its hedge fund owners would leave some facing financial ruin.
• Heathrow and Gatwick airports are reported to be facing multimillion-pound business rates bills.
• The British Institute of Innkeeping says that the majority of its members are extremely keen to reopen their pubs. It says of its members ‘many are desperate to reopen and start back on the road to recovery, whilst others feel that with current social distancing measures in place, bringing their businesses out of hibernation could lead to business failure.’
• Hotstats says ‘April was a month of virtually no business volume for Europe’s hotels.’ Occupancy fell by almost 70 percentage points. Gross operating profit per available room fell by 132% to minus €17.86 per room.
• Hotel News Now in the US reports that hotel demand in the US should rise by 50% next year but it cautions that, as the base will be lower, this will not represent a V-shaped recovery.
• HNN says that room rates in the US will rise by only 1.7% next year. And this from a lower base.
• STR reports that the US hotel industry saw occupancy fall by 50.2% in the week to 23 May with rates down 39.7%. REVPAR was down by 69.9%. STR says that the US industry lost about $28 per room per day at the gross level in April this year.
• Newcastle International Airport is to resume scheduled flights from 1 June.
• Hollywood Bowl has reported H1 numbers to 31 March saying that the group made a strong start to the year. It says in H1 revenues rose by 3.3% to £69.2m with LfL revenue growth of 8.6%. PBT was £14.5m, down 6.7% with EPS of 7.7p, down 7.8% on last year.
• Hollywood Bowl CEO Stephen Burns says ‘we are very pleased with the strong financial and operational performance achieved in the first half, including the positive reaction to our new mini golf concept Puttstars.’ He says ‘since the estate shutdown, we have taken a number of mitigating actions to preserve cash, further strengthen our balance sheet and to ensure we are as well positioned as we can be for when it is possible to reopen.’
• Mr Burns says ‘we remain confident in the long-term strength of our business model and our ability to deliver our simple customer focused growth strategy.
FINANCE & ECONOMICS:
• Lloyds Bank has said that UK business confidence fell to its lowest since the 2008 financial crisis in May.
• Make UK reports that 25% of its members are drawing up plans to make staff redundant. It says a further 45% of members are at the stage of considering redundancies.
• Sterling higher at $1.2385 and €1.1123. Oil up at $37.54. UK 10yr gilt yield down 2bps at 0.19%. World markets mixed on Friday, Far East up today and London set to open up around 75pts at 8am this morning.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The extension of the job furlough scheme by the Chancellor on Friday only hit the front page of the FT (“Sunak focuses on job creation plan”), in terms of the main stories in the Saturday papers. For the seventh day in a row, the front page of the Guardian went with the row about the PM’s controversial adviser Dominic Cummings (“MPs deluged with angry emails over Cummings”), but the Daily Telegraph went with the Government’s desperate plea for people to obey the lockdown until Monday (“Don’t try to see family or friends this weekend”), whilst the Times ran with “Most schools to open” and the Daily Mail thundered “Border farce” (over the air travel quarantine plan).
• Saturday’s Press and News (2): In terms of Retail news, there wasn’t as much coverage as we expected of the bumper trading update from the discount chain B&M on Friday, although most papers highlighted the boom in DIY and gardening sales it has enjoyed recently. The main Business story in the Times was that Tesco is facing a shareholder revolt at its upcoming AGM over the decision to hike Director Bonuses by excluding Ocado from its performance assessment. The Times also had an article looking at the Kamani family (“the rag trade billionaires”) after the Boohoo/Pretty Little Thing deal (“Pretty Little deal brings the Boohoo clan closer”), noting that “behind the parties and Instagram posts sits a family steeped in the clothing trade”.
• Saturday’s Press and News (3): In other news, the FT had an interesting article with lots of graphics about the gradual recovery in the economy (“Economy shows signs of life, but is far from being in good health”), alongside an article that highlighted the problems facing shoppers on June 15th (“Long queues in High Street to test British patience”). And the Daily Mail had a decent overview of the investment potential of UK Retail stocks (“Why you may not bag a bargain on High Street”), noting that retailers are divided into survivors that will thrive (like Games Workshop), businesses that will do well if they can evolve and adapt (like Dunelm and Next) and those that will struggle to recover (like M&S). The Telegraph flagged that Mike Ashley has focused on health and safety issues in his shops (“Safety first as Ashley preps empire to reopen”). Finally, the stockmarket report in the
• Sunday’s Press and News (1): The front pages of the Sunday papers were pretty mixed in their subject matter: the Observer headline was “Top scientists: Cummings has broken trust in Covid policy”, but the Sunday Telegraph went with the way in which “test and trace” had to be prematurely abandoned in mid-March (“Officials “could only cope with five Covid cases a week””) and the Sunday Times reminded us that Brexit hasn’t gone away (“Keep promises or face no deal, Barnier tells PM”). The Sunday Times also had the front page headline: “Emergency Budget to save 2m jobs”, flagging that the Chancellor will unveil a stimulus package in w/c July 6th…
• Sunday’s Press and News (2): In terms of Retail news, the Sunday Telegraph flagged that mighty Boohoo is facing a $100m lawsuit in the US over so-called “fake” price promotions and it also had a big feature on the problems facing Simon Roberts as the new CEO of Sainsbury (“Sainsbury new boss needs perfect balance to keep tills ringing”). The Sunday Times flagged that Morrisons is facing a shareholder revolt at its AGM over Director pension payments and it also had articles about the problems facing the car dealer Lookers (“Lookers keeps skidding as showrooms reopen”) and Primark (“Social distancing leaves Primark in the discount bin”). The Mail on Sunday focused on Lookers’ rival Pendragon, highlighting that its new CEO Bill Berman wants to see a lot of consolidation in the industry. The Mail on Sunday also flagged that the billionaire boss of Matalan, John Hargreaves, has applied for
• Sunday’s Press and News (3): In terms of all the comment columns in the Sunday papers, there were plenty of worthy articles, but we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“Foreign investors miss the memo on levelling up”), in which he noted that London is still the focus for foreign investment plans, as well as the column by the Business Editor of the Sunday Times, Oliver Shah (“Blame the City for Atkins diet”), in which he looked at the management of Hammerson and thundered that “sleepy investors must shoulder the blame for allowing mediocre managers to extract life-changing sums in pay while delivering poor performance”. We would also give a shout out to the columns about the catastrophic economic impact of the lockdown by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Ministers have dug
• Ted Baker: As flagged by the well-informed Sky News on Friday evening, the embattled Ted Baker has announced its delayed finals this morning, along with a rescue funding deal, involving a huge placing of shares at 75p to raise £95m gross (compared to the market cap of only £68m at Friday’s close…). The shares fell heavily on Friday, as the market presumably got wind of the news, closing at just 153p. There isn’t a great deal of good news around, as profits were all but wiped out last year by stock write-offs and current trading is predictably awful (sales down 36% over the 14 weeks to May 2nd), but the new management team has set out a comprehensive strategy (“Ted’s Growth Formula”), with ambitious sales and profit targets, and the rescue deal has been backed by no less a personage than Ray Kelvin (with his 35% shareholding) and by the big institutions, so it will be interesting to see
• News Flow This Week: As we move into June and the easing of the lockdown, today sees the reopening of car showrooms (in England), as well as the start of Simon Roberts as CEO of Sainsbury and the Intu Properties AGM (at 2.30pm). Tomorrow brings the Card Factory finals, with their Q1 update due on Thursday. On Wednesday evening the latest FTSE All-Share index quarterly review is announced (with Homeserve and Kingfisher both candidates for promotion to the FTSE 100 index). And first thing on Friday we get the latest “flash” GFK Consumer Confidence report.