Langton Capital – 2020-06-03 – PREMIUM – SSP, C&C, DP Eurasia, Mediterranean holidays, RTN, Travelodge etc.
SSP, C&C, DP Eurasia, Mediterranean holidays, RTN, Travelodge etc.
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• Has the consumer gone a bit mental? Well we don’t really know as there isn’t much consumption going on. But that doesn’t stop us speculating.
• Excluded from Greece & Spain. Are we bothered?
HAS THE CONSUMER GONE A BIT MENTAL? The consumer has been shocked and cajoled into staying home. That was, perhaps, necessary. But whether it was, or it wasn’t, where’s the exit route? 3 June 2020.
Where we are:
• Crashes are usually more abrupt than either the build up to them or the recovery thereafter.
• This tends to be true with the slow build up to a cliff-edge on the stock market and it has been true to date with the multi-decade increases in consumption that preceded the spending crash brought about by the lockdown
• Indeed, crash, the clue is perhaps in the name.
• But V-shaped recoveries are rare. That doesn’t mean they can’t happen. It just means that they don’t.
• What we don’t know is whether the above financial observation can be carried across to confidence.
• Or, more accurately in this case, the lack of it because consumers have been scared, frankly, into staying home and, with several hundred people in the UK still dying from Covid-19 every day, they may take some persuading that things have changed
• But we would suspect that there are parallels.
• The feeling that we are invincible, that science conquers all and that pandemics belong in history books has taken a knock
• And, whilst memories are ‘short’, that’s not true in all cases as the WW2 fixation amongst some elements in society will witness
• And Covid-19 has most certainly knocked the Three Day Week, the Miner’s Strike, the Winter of Discontent, the Exchange Rate Mechanism crisis & most other living-memory shocks into a cocked hat
• In short, it’s a big deal – and it will take some time to get over
• We ran a piece a couple of months ago entitled ‘Saying the Obvious Things for the Obvious Reasons’
• We pointed to cruise bosses saying it was fine for pensioners to take cruises, conference organisers saying mass gatherings were risk free, concert promoters herding 10,000, 20,000 people into small venues, pub operators saying the disease wasn’t transmitted in licensed venues etc.
• And there’s no doubt some of that going on now.
• But there is another side to it. Scientists may be over-cautious because they don’t have a P&L to worry about and investors and operators may be saying the opposite because they do. And they can’t both be right
• Trying to keep a sense of balance, we lamented the ‘empowered frowning’ and ‘smug tutting’ that had now been weaponised by some citizens who, in another life, might well have been cackling into their knitting at the foot of the guillotine
• The one side may label the other spineless ninnies with the ninnies hitting back and saying that the open-up-at-all-costs people are sickening, greedy and selfish. And that kind of polarisation could take some rowing back from
GREECE & SPAIN DON’T LOVE US ANYMORE. Are we staying at home this year? Will we make a virtue out of a necessity? 3 June 2020:
The facts at present:
• Tunisia, Italy and Portugal will allow UK tourists back in. The UK’s largest destinations, Spain and Greece, will not
• But that’s supply, what about demand?
• There may not be a rush to get back into planes and that, coupled with restrictions on which destinations are available, will almost certainly mean that a lot of would-be holidaymakers will be remaining in the UK this year
UK capacity (supply):
• UK holiday supply can’t be turned on like a tap
• Certainly, there will be some slack that can be brought back into circulation and capacity utilisation may rise. Cottages may be booked for additional weeks and hotels and holiday villages may have increased occupancy
• But there could be a lot of consumers this year who can’t or won’t manage to book a holiday at all this year
• Some consumers may be happy not to go on holiday whilst others will be disappointed.
• But all will likely see their spare incomes (unless they lose their jobs) rise as a result of UK or zero holidays
• This could be good news for the UK’s pubs & restaurants – though here, of course, there is also a problem with supply in that they may not be allowed to reopen in the way that they would like
• There is a chance, just a chance, that trade could be relatively buoyant if the weather remains good, there isn’t a second wave and reopening of units continues with a lifting of the 2m rule either (hopefully for the industry) before it is introduced or at least shortly thereafter
PREMIUM COMMENTS ON TODAY’S NEWSFLOW & OTHER:
Comment on pricing plans:
• MCA’s poll of hospitality industry leaders, which has found that most operators intend to keep their food and drink prices the same as they were before lockdown, should be greeted with some relief.
• There would have immediately been claims of profiteering – even if that was not in fact the case as increased costs will need to be paid for somehow.
The strength of the off-trade:
• C&C (see above) has spelled out just how strong the shift from the on-trade to the off-trade has been.
• This has not been due to demand factors, of course, but there are implications. E.g. 1) it is helpful for manufacturers to have another outlet stream, 2) it has negative margin implications for manufacturers, 3) the on-trade will be hoping that it isn’t too habit-forming in the minds of customers
What will the new normal look like:
• MCA quotes 52% of business leaders as saying sales levels will not exceed 40% of normal levels in the first month of reopening
• Based on the data we have, which is scant, that seems reasonable for units that reopen. For units that do not reopen, the drop will remain at 100%
• This could cement further the shift to the off-trade. It is to be hoped that this will not become permanent.
PUB & RESTAURANT NEWS:
• WHO funded research has concluded that a one metre gap would cut the risk of contracting Covid-19 from a person that has it from 13% if there is no social distancing to only a 2.6% chance. Increasing the gap to two metres would halve the risk to around a 1.3% chance. As always, the trade off is between social health and the economy.
• The BBPA has said that maybe only 20% of pubs could reopen if social distancing were imposed at two metres. This would rise to 50% and 70% if the distance were reduced to 1.5 metres or one metre.
• Hugh Osmond has tweeted ‘where are all the second waves in countries coming out of lockdown? Where are the deaths in Japan?’ A number of voices are calling for the lockdown to be lifted as quickly as possible.
• The Financial Conduct Authority is moving to seek clarification on how insurance companies should be behaving towards their customers who have business interruption insurance. UK Hospitality says that this is a race against time. It says ‘we now have a final sprint towards the deadline, to make sure that hospitality’s insurance plight is properly heard.’ UKH says ‘we are urging all hospitality businesses to get in touch, so the industry’s voice is heard.’
• The FT reports that hotels, pubs and restaurants ‘face having to reopen under onerous social-distancing rules with strict limits on the number of customers and tables spaced at least two metres apart’. This is broadly as feared. If enacted, it might mean that as few as a quarter of the UK’s pubs felt that they were able to reopen.
• Wireless Social has reported that there is some evidence that consumers are beginning to leave their homes in larger numbers. It says London is now seeing footfall numbers higher than on 22 March, which was the day before the lockdown was imposed in the UK.
• Wireless Social says that footfall in London was down by 62.2% on Sunday 31st May. It had been down by 62.6% before the lockdown was announced. Footfall had been down by around 73% through most of April. The company says ‘this is significant, as it’s an earlier indicator that consumers are starting to return to pre-Covid behaviours. Just how much of a return we’ll see is likely to emerge over the coming weeks.’
• Fourth Hospitality it to launch an in-app health survey ‘that enables operators to efficiently track the health of their employees to ensure all measures are taken to safely staff their sites when the industry reopens.’
• Another 300,000 UK workers have been furloughed in the last week. Some 8.7m people are now on furlough, a little over a quarter of the UK’s total workforce. Chancellor Rishi Sunak has said that it will be extended to October, at which point it is planned to cease.
• Qikserve has said that ‘the coronavirus pandemic has fundamentally changed both consumer behaviour and hospitality operations forever.’ It says ‘the rise of consumers’ digital behaviour and the strict social distancing restrictions operators will need to enforce has led to brands diversifying both their on and off premise digital ordering capabilities.’
• A poll of hospitality industry leaders by MCA/HIM has found that most operators intend to keep their food and drink prices the same as they were before lockdown. Some 40% of those surveyed expected trade levels to reach no more than 40% of pre-coronavirus levels in the first month of reopening. Only 6% expected sales to reach 80% or more of prior levels.
• An Edinburgh Business School study has suggested that the UK wine industry expects its revenues to fall by 52% in the wake of the Covid-19 outbreak. Two thirds of the wineries surveyed had suffered from cash flow difficulties.
• SSP has reported H1 numbers to 31 March and announced that it is to issue shares and offer shareholders a chance to reinvest their dividends.
• SSP, the ‘leading operator of food and beverage outlets in travel locations worldwide’, says that ‘Covid-19 had a significant impact on SSP’s results for the first half of the current financial year.’ It says prior to the onset of the disease, it ‘had performed well and in line with expectations’ but it began to ‘see a material impact on trading in our Asia Pacific region from the escalation of the virus in late January and throughout February, following which trading then deteriorated rapidly across the entire Group during March as the impact of the pandemic spread across the world.’
• Revenues for H1 were down 2.7% at £1.215bn with LfL sales down 8.4%. Trading will be much worse in Q3. SSP made an operating loss of £6.7m on a reported basis under IFRS 16 and a loss before tax of £34.3m on a reported basis, also under IFRS 16. This equates to a loss of 8p per share.
• SSP says that it has taken measures to cut costs and has secured waivers of its existing covenant tests until September 2021. CEO Simon Smith says ‘Covid-19 has had an unprecedented impact on the travel sector. Our response has been to take quick and decisive action to protect our people and our business, whilst around the world our colleagues have helped and supported their local communities.’ He says ‘looking forward, and with sufficient liquidity to manage a pessimistic trading scenario, I believe the actions we have been taking during this crisis will make us a fitter and stronger business, well placed to deliver for all our stakeholders as the travel market recovers.’
• SSP says that it is issuing shares in order to bolster its funds and will offer shares to shareholders in lieu of last year’s final dividend. The group’s share placing will be conducted through an accelerated book-building process.
• C&C has reported full year numbers to end-Feb saying that revenue rose by 7.8% in he period to €1.7bn. EPS was some 10.5% higher. There will be no final dividend a trading has obviously changed materially since the end of financial 2020.
• C&C says that it has taken measures to conserve cash and has issued approximately €140m worth of US Private Placement notes. It says ‘the shutdown of the hospitality sector has materially impacted our business, with no revenue generated in the on-trade channel since March.’
• C&C says April & May volumes for Bulmers were down 16%. This comprised a drop of virtually 100% in the on-trade and a rise of 62% in the off-trade. Margins will be impacted. Group interim chairman Stewart Gilliland says ‘the COVID-19 pandemic presents a challenge of unprecedented scale and uncertainty for our industry and supply partners.’ He says ‘the ongoing closure of the hospitality sector has material implications for our business and earnings potential, with approximately 80% of our revenue derived from the on-trade channel.’
• C&C says ‘the progress of the Group in FY2020 further strengthens our belief in the long-term strategy for the business. As the largest alcohol distributor in the UK and Ireland, we have secured a unique platform and our results for FY2020 reflect the strength of this position. In the short-term, execution of our strategy will be impacted by COVID-19, which has necessitated the temporary withdrawal of our future guidance. Trading since the lockdown measures were announced has clearly been challenging, however, our business is structurally integral to the markets we serve and, together with our local, fabric brands, puts us in a strong position to re-engage with customers and consumers once restrictions across pubs, bars and restaurants, are lifted.’ See Premium Email.
• DP Eurasia, which has the master franchisee of the Domino’s Pizza brand in Turkey, Russia, Azerbaijan and Georgia, has updated on trading saying ‘in both of its core markets, the Group continues to operate under government mandated operational constraints due to COVID-19 and remains focused upon ensuring the safety of its staff and customers.’
• DPEU says ‘dine-in service has been unavailable in both countries and take-away has been greatly reduced, especially in Russia.’ DPEU says ‘delivery system sales have increased by 19% in Turkey and have remained flat in Russia during the post-COVID period (16 March – 31 May 2020) compared to the same period last year.’ The group says ‘in Russia, 26 stores remain temporarily closed for reasons of labour optimisation.’
• DPEU says ‘as steps to ease governmental restrictions are being taken in Turkey, the Group is experiencing a pick-up in take-away sales in the cities where weekend curfews are being lifted.’ It says ‘whilst Russia is behind Turkey in terms of starting this normalisation process, the Group is more comfortable that a full shut down of its stores in its markets in the future is a very remote possibility. Assuming that the current operational constraints do not significantly worsen, the Group remains confident in its plans for business continuity and cash flow.’
• The owner of Frankie & Benny’s and Garfunkel’s is set to tell staff that a “large number” of its outlets will not reopen after lockdown.
• The BBC reports The Restaurant Group as preparing to tell staff that not all of its units will reopen as many sites are ‘no longer viable to trade and will remain closed permanently.’ The group will tell staff of the fate of their individual units by the end of today. The company says ‘the Covid-19 crisis has significantly impacted our ability to trade profitably, so we’ve taken the tough decision to close these restaurants now.’
• CGA has recently said that a third of UK operators will close sites with a further third yet to make up their minds. Restaurant Group has already said that it will close its Chiquito operation.
• McDonald’s is to open another 190 units for drive through and delivery from today.
• Joint administrator to wine retailer Oddbins says that it has sold a substantial portion of the business to a new owner, which it declined to name. Duff & Phelps says the sale was achieved ‘despite the current financial situation and secured the jobs of people employed in 28 stores.’
HOLIDAYS & LEISURE TRAVEL:
• Travelodge is likely today to launch a formal restructuring plan that involves a CVA in order to secure the future of the firm. Advised by Deloitte, Travelodge will propose a £40m injection of new equity with increased borrowings. The company will seek an agreement from its landlords to cut some rents in the short term.
• Sky News has quoted a source close to the deal as saying this will not be a traditional CVA as there will be no closures. The proposal appears to be that all 564 sites would revert to their full rent agreements from the end of next year. Landlords would be promised a share of Travelodge’s earnings over the next three years as compensation for any lost rent.
• Travel Weekly quotes trade executives as saying that a blanket quarantine of visitors to the UK would lead to mass redundancies. Some 71% of respondents believed that the quarantine plans would lead their companies to lay off up to two-thirds of their staff.
• Various sources have been speculating that the UK government will water down its proposals for a 14dy quarantine to be imposed on visitors from 8 June. The matter is to be debated in the House of Commons today, Wednesday. Operators will have been pulling their hair out because, in the real world, these things – appealing to foreign would be customers or not – take time to organise etc.
• Italy is taking a different tack to that of Greece and Spain in that it has decided to allow UK travellers to enter the country. Museums, parks and beaches have opened up. UK visitors will be allowed in from today, 3 June.
• Tunisia is opening up for tourists from tomorrow. Portugal is also set to allow UK tourists to return.
• The owner of Travelsphere and Just You, G Touring, is ‘right sizing’ its business. Not in an upward direction.
• The winter sun market in the Caribbean is said to be strong.
• Butlin’s has pushed back its planned reopening times. It will now remain closed until at least 16 July. Butlin’s says ‘our team are working from home so it may take a little longer to get back to you than we would like, but we have been able to help the majority of guests affected to date, either to find a new break in the future or process a refund.’
• EasyJet hopes to be flying around a half of its routes by next month and three-quarters by August
• STR reports that extended-stay hotels have performed more strongly than traditional hotels over the Covid-19 period. Extended stay REVPAR is reported to be down by 18% whilst that for upscale hotels is reported to be 76% lower.
• Train journeys on the up. Some booking companies have reported that train journeys, which used to be heavily outnumbered by flight bookings, are now running at much higher levels. Perhaps a case of the one going down rather than the other necessarily going up.
• Social gaming company Zynga has confirmed that it is buying Turkey’s Peak Games for $1.8bn.
FINANCE & ECONOMICS:
• Oxford Economics has suggested that the UK economy will shrink by 8.3% this year. Unemployment could be 7% in Q4. The report, which was commissioned by the ICAEW, says that the UK should have returned to modest growth by H2 this year, provided the lockdown continues to be relaxed over the summer.
• The Nationwide says that UK house prices fell by 1.7% last month. It says that they still stand at 1.8% above levels of a year ago.
• The BRC-Nielsen data for May shows that shop prices slid by 2.4% in the month, the biggest drop since 2006.
• Nissan has said that the future of its UK plant at Sunderland would be under threat in the event of a no-deal Brexit
• Sterling higher at $1.2582 and €1.1227. Oil up at $40.14. UK 10yr gilt yield unchanged at 0.23%. World markets up yesterday & London set to open up around 55 points.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: Vertu Motors (which is the 5th largest UK motor retailer, with a £110m market cap, operating predominantly under the Bristol Street Motors, Macklin Motors, Farnell and Vertu brands) has become the first player in the industry to comment on the trading outlook since English car showrooms opened on Monday, with its finals (for y/e Feb) today. It notes that the losses of £20m in April and May were much less than feared at the start of the crisis, but it ducks giving any short-term forecasts, although it has some interesting thoughts on the general outlook for the car business, eg “it is likely for a number of reasons that the UK market for used vehicles will recover quickly in the short term as movement restrictions are lifted. Pent-up demand, aversion to public transport and the increased staycations in the UK may all come into play here”.
• News Flow This Week: This evening brings the latest FTSE All-Share index quarterly review (with Homeserve still expected to be one of the 3 or 4 companies winning promotion to the FTSE 100 index, based on last night’s closing prices). And first thing on Friday we get the latest “flash” GFK Consumer Confidence report (with the record -39 index low seen in July 2008 yet to be tested so far in the current crisis).