Langton Capital – 2020-06-10 – PREMIUM – Restaurant Group, the consumer, furloughing, WTB, openings etc.:
Restaurant Group, the consumer, furloughing, WTB, openings etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Ran out of time again. On to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
BARCLAYCARD CONSUMER SPENDING (IN MAY 2020)COMMENTS: Just how much is the consumer still spending and where is this money being spent? 10 June 2020:
• See also Pubs & Restaurants below.
• Barclaycard’s consumer spending report suggests that consumers in the UK spent some 26.7% less this May than they did in the same month last year. Spending at the UK’s supermarkets rose by 24.5% on the month but spending on non-essentials fell by 36.9%.
• Barclaycard says ‘other encouraging signs are also emerging. After weeks of isolating Brits are understandably keen to enjoy the great outdoors. There’s a positive shift for the cafes, pubs and restaurants beginning to open up again, as well as the retailers who stock essentials for barbecues and other socially distanced gatherings.’ See analysis in Premium Email.
• This was down 36.9% having been down 47.7% in April. Amazon must have been busy because most of the shops are still shut.
• Barclaycard says May’s spend on eating and drinking out of the home was down by 70.3%. In April it had been down by 79.1%.
• From such a low base, it’s worth remembering that, as sales had fallen by four fifths in April, they will have to quintuple from that level to get back to where they were last year
• The uptick in eating and drinking spend must have been due to click and collect, delivery and takeaway as all sit down facilities are still closed
• It would fit in with the evidence we have that many brand owners are reopening sites (for delivery) in order to rub off the rust ahead of a ‘proper’ opening in early July
• Barclaycard says 14% of ‘Brits are now buying food and drinks from a pub, and 10 per cent are purchasing takeaway coffee.’
• People are food shopping big but less frequently. Whilst supermarket spend was up by 24.5%, the number of transactions was down by 13.9%
• This fits with the evidence produced by Cambridge University that we commented on last week
• Hospitality and leisure spend is down 82.0%. Restaurant spend is down 90.2% and spend in bars, pubs and clubs is down by 95.4%
• Spend in takeaways is only down by 27.3%. Hotels are down 89.8% and airlines are down by 89.4%.
• Online spend is only down by 0.1% and the number of transactions is actually up by a material 27.6%.
GETTING BRITAIN BACK TO WORK: The furlough scheme has saved a lot of jobs (though some have gone). But it is, arguably, addictive. How and when will Britain ‘get back to work’? 10 June 2020:
• Some 8.9m workers are now furloughed. Some firms will have been getting under the wire ahead of the 10 June deadline for registrations if furloughed employees are to be supported into the second phase of the scheme.
• As we mention below, getting these workers off the couch at some point might be quite a task.
Willingly off work?
• There is no doubt that a large number of the 8.9m mentioned above would like to be back at work.
• For some, 80% of salary (which might even be made up to 100% by employers) is quite generous – as there will be no travel expenses, lunchtime sandwiches or the like – but for others, it is a real hardship.
• Because overtime and tips are not included. And the furlough is only on declared income so any staff working even partially cash in hand will not be getting paid for that. Furthermore, the scheme only covers incomes up to £2,500 per month
• But some of the 8.9m will be willingly off work. During the summer, it could be a not-unpleasant experience. There are always trolls around but some suggested yesterday that the teachers were dragging their feet re schools, for example
• The government has said that the furlough scheme has so far cost the taxpayer £19.6bn.
• And the prospect of there being a cut-off point – of today – for those intending to furlough staff into the summer, has led to more staff being furloughed
• Self-employed workers have claimed a further £7.5bn. It could be hard to break this habit. The scheme, in a slightly modified form, is to continue until the end of October
COMPANY REORGANISATIONS: Companies frequently appoint advisors to consider their options. This is a well-trod path. Here we ask who is still on it? 10 June 2020.
The legal position:
• Company directors are under a fiduciary duty to protect shareholders and to do all they can to protect the financial health of their companies
• This is partially why, when a company ‘falls into administration’, it has often appointed advisors some weeks or months before in order to ‘consider its options’
• Except in the case of a complete shock from left field, a company will know for some time when it is in trouble
• Directors (except in the current crisis) can be personally liable for debts run up if they trade whilst knowingly insolvent
• Not surprisingly, they do not want to do this. Hence, advisors will be appointed.
• The advisors will look to funding options (equity, banks, bonds and the like) and may then try to sell bits of the business
• They will almost certainly communicate with landlords and other creditors and a CVA could be considered
• In parallel with this, there could and should be attempts to sell the whole company or to break it up
• If none of the above is successful, then the company may appoint administrators. These will often (indeed usually) be the advisors that have been working with them for some time
• Hence, whilst this should save costs, the advisor/administrator has his or her bread buttered on both sides
Who is where?
• We’ll try to put this in tabular form in future and keep it current. At the moment, time pressures mean that it is factual as far as it goes but incomplete
• Carluccio has been there, done that and gone. Boparan has taken some of the sites.
• Chiquito and Food and Fuel have called in administrators. Restaurant Group is taking a number of the F&F sites back from the administrator.
• Casual Dining Group is reported to have instructed Alix Partners to consider its options. As of 1 June, a sale of the ‘whole business’ was reportedly being considered
• Byron is reported to have hired KPMG to undertake a review. As of early May, some time ago now, an auction of the business was expected
• Pizza Express is reported (end-May) to be ‘considering a CVA’
• Pret a Manger (early June) is ‘in talks with its landlords’
• Prezzo has appointed FRP to consider its options (early May)
• GBK will ‘no longer be supported by owner Famous Brands’
• Wasabi per the Times (7 June) has appointed KPMG to consider its options
• Restaurant Group has just launched a CVA for its leisure division.
• Ran out of time but will do:
• More on Administrations. As mentioned, there is a well-trod path (appoint advisors, explore options, advisor becomes administrator, try to sell the business, partially do so, partial shutdown & redundancies) and there are a lot of companies on it.
• Debt. There is a lot of it about. Some is called, simply, debt (be it bank of government loans) but the rest is masquerading as delayed VAT payments, rolled up rents, unpaid bills and the like.
RESTAURANT GROUP TO UNDERTAKE A CVA OF ITS LEISURE ESTATE:
• The Restaurant Group has this morning announced a proposal to ‘reduce the size of its Leisure estate and rental cost base by the implementation of a company voluntary arrangement’
• It says ‘the CVA will relate to the statutory entity “The Restaurant Group (UK) Limited” (“TRG UK Ltd”) which principally comprises the Frankie and Benny’s estate.’
• TRG says ‘the arrangements will have no impact on the Group’s Wagamama, Airport Concessions and Pub operations.’
A little more detail:
• TRG says ‘the CVA will provide a mechanism to restructure the Leisure estate in line with the plan outlined in the Group’s last market update (on the 8th April 2020) by reducing the current portfolio by exiting approximately 125 trading sites as well as seeking improved rental terms on a portion of the remaining trading estate.’
• The group says post CVA ‘this will leave a remaining trading estate in the Group’s Leisure business of approximately 160 sites.’
• It adds ‘the CVA will also include a mechanism to exit approximately 25 previously closed Leisure sites, thereby further reducing the existing onerous lease provision held on the Group’s balance sheet.’
• The company concludes ‘the proposals reflect TRG’s proactive approach to ensuring a long-term sustainable business for all stakeholders in the face of unprecedented disruption to the UK’s casual dining sector. The CVA will not seek to compromise claims of any creditors other than certain landlords, and inter-company liabilities. The rights and entitlement of all trade suppliers, HMRC and employees will not be affected by the proposals.’
• CEO Andy Hornby says ‘the issues facing our sector are well documented and we have already taken decisive action to improve our liquidity, reduce our cost base and downsize our operations.’
• He adds ‘the proposed CVA will deliver an appropriately-sized estate for our Leisure business to ensure we are well positioned despite the very challenging market conditions facing the casual dining sector.’
The property angle:
• TRG includes a comment from Melanie Leech, Chief Executive, British Property Federation, who says ‘these situations are never easy, particularly now for the retail and hospitality businesses on our high streets at the sharp end of the Covid-19 pandemic.’
• She adds ‘property owners, however, need to take into consideration the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property, as they vote on any CVA proposal.’
• Ms Leech says ‘the Restaurant Group and Alix Partners engaged with the BPF before launching this CVA proposal. This has provided us an opportunity to improve understanding of property owners’ interests and concerns, but ultimately it will be for individual property owners to decide how they will vote on the CVA.’
• Some 125 sites ‘have been identified for closure in the short term under the CVA proposal, with the balance of 85 sites being subject to a reduction in rental costs and revised lease terms.’
• There are ‘approximately 65 Leisure trading sites which will be unaffected by the CVA’
• A creditors meeting is scheduled for 29th June 2020.
• We have mentioned for some times that bad stuff rolls downhill.
• Landlords can expect to feel, with some time delay, what their tenants feel.
• If the latter cannot pay their rental bills, then reality usually prevails.
• The problem comes when the landlords, rightly or wrongly, believe that the company is taking advantage of a situation to change lease terms or to dump units altogether
• There is something of a row going on with Travelodge, for example
• Hence TRG has a balancing act to pull off. It needs to persuade landlords that there is no alternative – but the financial pain is unlikely to be equally shared between them
• Hence the group will need (as always) to secure the approval of 75% of the creditors voting by value.
• If the group can pull this off – and Covid-19 really is an exceptional circumstance – then it will have pushed perhaps three, four or five years’ worth of organic restructuring into one year
• The group has raised equity and debt and cut costs. It could and should be one of the survivors – but the creditors’ vote remains another hurdle to be overcome
PUB & RESTAURANT NEWS:
• Business Secretary Alok Sharma has confirmed that pubs and restaurants will not be allowed to reopen until 4 July at the earliest. A date of 22 June had been mentioned for some pubs with beer gardens. Toilets would have been an issue.
• Sharma says that the 2m rule will remain in force for the time being. He says ‘I can confirm today that retail outlets which have been required to be closed will be able to open their doors again from Monday 15 June so long as they comply with the COVID-secure guidelines.’ He added ‘this is the latest step in the careful restarting of our economy and will enable high streets up and down the country to spring back to life.’
• This may add support to critics of government policy who suggest that it is being made up on the hoof. The Telegraph, which may have been used as a sounding board, had suggested a 22 June date for pubs. Interestingly, Niccolo Machiavelli, writing over 500yrs ago, said that bad news, like pubs can’t open, should be delivered by underlings. Maybe Mr Johnson himself will be the one to tell us that the Great British Pub is finally to be allowed to open?
• UK Hospitality Cymru has said that ‘an orderly and clearly signalled opening date that allows high summer season trading could save as many as 40,000 jobs this year in and around Wales’ hospitality industry.’
• UKH has written to the government saying that ‘unless the Government provides fiscal support to overcome the stand-off between landlords and tenants over unpaid rent, hospitality business failures and significant job losses will follow.’
• UKH tells chancellor Rishi Sunak, who is not short of advice these days, that hospitality firms are facing ‘difficult trading for the foreseeable future [and they] will be unable to come to rent settlements without support.’ Certainly true and, with Q3’s rental payments due on 24 June, some help here would be most welcome.
• UKH says that some units will simply not be able to open if landlords are hounding them for rent. Landlords have their own issues and, with this in mind, some sort of referee could help to keep industry wheels turning. One of the issues facing government, apart from simply how to pay for all of this, will be how to support good businesses without altogether stopping market forces from taking their inevitable toll on their less-good competitors.
• UKHospitality Chief Executive Kate Nicholls says ‘the stalemate on rent, with the June quarterly rent day fast approaching, is the biggest threat to the recovery and future of hospitality.’ Ms Nicholls says ‘we are moving towards the reopening of the sector and many people, both in and out of hospitality, are keen to see businesses open again. Unfortunately, all the good work in keeping businesses afloat during lockdown and the best-laid plans for restarting, could be completely undone by the impasse on rents.’
• UKH is calling for the current moratorium on lease forfeitures and enforcement action to be extended until the end of the year. The industry body says ‘the reality is, though, we are at a point where the Government has to step in and act decisively, otherwise businesses will go under, jobs will be lost, and rent will never get paid.’ It says ‘fiscal support is now the only option if we want to avoid business failures. The Government must consider supporting hospitality businesses who cannot pay rent. A continued stand-off does not help anyone.’
• The Telegraph runs a study suggesting ‘most shoppers will not be comfortable returning to the high street next week.’ It says this dashes ‘retailers’ hopes of a post-lockdown spending spree.’
• Debt advisory charity Step Change says that British households may amass debts of up to £6bn over the coronavirus crisis. It says millions could fall behind on credit card payments, council tax and utility bills. The Bank of England has reported that a record £7.4bn was paid off consumer debt and personal loans in April as spending fell sharply.
• Whilst the savings rate in some countries including the UK has been very low recently, some retailers are hoping to access a perceived ‘mountain of savings’ when consumers are allowed out to spend.
• Fitch Solutions says ‘consumers are placing a greater focus on essential spending categories.’ Barclaycard data concurs. However, put bluntly, spending on essentials and saving money is boring. The consumer may well be going a little stir crazy.
Other Covid issues.
• SIBA has called on the government to ‘slash beer duty and extend business rate support to secure survival of the UK’s independent breweries.’ SIBA says craft breweries have seen sales drop by 82% with 65% of UK operations mothballing their businesses.
• SIBA says beer production is at a record low this year because of the pandemic. CEO James Calder says ‘there are around 2000 small independent brewers in the UK.’ He says if the Chancellor were to enact what we are calling for, we have a fighting chance of survival. Without these reforms, thousands of skilled jobs in breweries and in the supply chain will be lost.’
• Wireless Social has said that demonstrations and poor weather over this last weekend have combined to lead to a decline in high Street footfall compared with last week. Though still well down on 2019, an upward trend from the lows had been detected in recent weeks.
• Companies in the UK have borrowed around £35bn from the three emergency loan programmes set up by the government. These are loans, not gifts. Demand for Bounce Back Loans has been strongest with some £24bn now lent out. Around £10bn has been lent out under the Coronavirus Business Interruption Loan Scheme.
• Further analysis suggesting a fifth of hospitality businesses may struggle to open before the end of this calendar year. Other comments that a third of operators will shut sites and another third haven’t yet made up their minds etc.
• Whitbread has announced that its 1 for 2 rights issue was taken up by 91.4% of shareholders. The deal is underwritten so WTB will get all of the cash.
• Uber is reported to have abandoned a plan to run its own food delivery kitchens.
• Patty and Bun is to launch a chicken-focused brand, Sidechick’s, this week.
• Pret is to reopen all of its Veggie Pret stores this week
• McDonald’s will open some of its stores to walk-in customers next week
• Heineken’s Star Pubs & Bars has extended rent relief for leased and tenanted pub operators for next month and August
• Hawksmoor is to introduce a delivery service, Hawksmoor at Home. The group will open one of its London sites as soon as practical.
• Pepsi has expanded its Egypt business with a commitment to invest some $100m this year
• Debenhams is reported set to close three stores with substantial job losses.
• Game is to reopen next week.
• Grubhub shares rose sharply in the US on talk that both Just Eat and Delivery Hero would be interested in discussing takeover deals.
• Château Mouton Rothschild is reported to have released its 2019 vintage at 30% less than its 2018 release price.
• Pod Ltd has announced that it has appointed a liquidator. The company has been in administration since July last year.
• Sector technology specialists Airship has appointed Sam Brown to the key role of sales director, as of 1 July. Sam was previously with Wireless Social.
• Sky reports that Hovis may be auctioned later this year with a price tag of perhaps £100m. Premier Foods owns 49%. The Telegraph goes so far as to mention a possible £150m.
• Bank of England chief economist Andy Haldane has said that the UK is facing a record level of inactivity in its labour market. He says ‘we’ve seen activity across the economy collapse, and we’ve seen a rapid rise in inactivity among workers – both people being made unemployed, but importantly… 8m people underemployed due to furlough schemes.’ The number is now 8.9m.
HOLIDAYS & LEISURE TRAVEL:
• A survey undertaken by Lastminute.com has concluded that demand for staycations from next month rose by 45% as holiday-makers began to turn to domestic breaks
• Nods and winks suggest that ‘air-bridges’ will be put in place with a number of countries before the end of this month. PM Johnson is said to be ‘deeply engaged’ in the process.
• The optics are important but ‘private assurances’ are being given that a number of major airline markets will be exempted from current quarantine legislation.
• The Quash Quarantine lobby group of travel companies’ spokesman Paul Charles says ‘we’ve received private assurances from senior government sources that travel corridors will be in place from 29th June. We urge the government to signal to the travel industry publicly and urgently that this is the case, as well as amend FCO advice on non-essential travel.’
• Reuters quotes a ‘Spanish foreign ministry source’ as saying that Spain is not discussing any sort of ‘air bridge’ with the UK. Spain is to allow Germany holidaymakers into the Balearics on a test basis. Portugal on the other hand has said that it is discussing arrangements with the UK.
• Kuoni has said that quarantine confusion is pushing holidays into calendar 2021.
• Incite says that many UK consumers are set to turn to domestic breaks. There may be a shortage of capacity.
• Travelsupermarket reports that the average package holiday prices to the Algarve have dropped by as much as 48% during lockdown
• Owner of UK domestic breaks brands Hoseasons & Cottages.com, Vacation Rentals, has agreed to offer refunds for cancelled bookings following action by the Competition and Markets Authority. The CMA has secured a commitment that customers will have the option of a full refund
• Iberostar has announced it will reopening some of its hotels this month.
• The WTTC says that, on a worst case basis, some 3m jobs could be lost in the UK travel and tourism industry if travel restrictions are kept in place.
• IATA has said that global airlines could lose $100bn in total this year and next. Traffic levels are back to 2006 volumes.
• Carnival-owned Cunard is delaying the restart of its cruise operations until 1 November at the earliest.
• Hotel group Radisson has said that it expects a further cash injection from its major shareholder, Aplite Holdings AB.
• Riviera Travel has announced a review of its business that could lead to the loss of 95 jobs
• Legoland, Thorpe Park & Chessington World of Adventure, all owned by Merlin, are planning to reopen on 4 July. Empty rows will be left on rides in order to distance riders.
FINANCE & ECONOMICS:
• Recruitment agency Reed has said that job vacancies are at three-year lows.
• The IEA says that the economic crisis that will be brought about by Covid-19 ‘has yet to manifest itself.’ It says ‘the economic crisis will only start when the lockdown ends.’ It says ‘the economy is not a machine that can be simply switched off and on at will.’ It can’t be placed in ‘sleep mode and then reactivated when needed.’
• The IEA calls for temporary deregulation to be made permanent, for autonomy for local government and for the tax system to be flattened and simplified.
• German exports slumped by 24% in April.
• The value of new mortgages approved in Q1 this year in the UK was up 6.1% on last year. Things will have changed since.
• The UK and Japan have begun post Brexit trade talks
• Sterling up at $1.2743 but down vs Euro at €1.1231. Oil lower at $40.64. UK 10yr gilt yield down 1bp at 0.33%. World markets lower yesterday but Far East up in Wednesday trade.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: On top of the shock news from Debenhams yesterday that it has been unable to reach agreement with the embattled Intu Properties to reopen its flagship store in the recently extended Watford shopping centre (as well as their stores in the Metrocentre and Milton Keynes), the struggling fashion chain QUIZ has announced that it is putting its Stores business into administration (with the aim of operating a much reduced store chain alongside its Online operation). There is no sign of the finals expected from Joules, but the West End landlord Shaftesbury has announced its interims, revealing only a c7% reduction in the end March asset valuation and putting a brave face on things: “The economies of London and the West End have a long history of structural resilience, having weathered many episodes of near-term challenges and uncertainties…London’s pre-eminent position amongst
• Signet: American retailing stocks have been rallying strongly of late, but sometimes it’s better to travel hopefully than to arrive, as yesterday the owner of the H Samuel and Ernest Jones jewellery chains, Signet, reported disappointing Q1 results (for the 13 weeks to May 2nd) and the shares fell by c16%…Management said that the performance of reopened US stores so far has been “encouraging”, but there was no guidance on Q2 sales or the full year outlook. LFL sales in Q1 fell by 39% in the US and by 38% in the UK, uncannily, despite surprisingly good Online sales. The company trumpeted that “in response to the COVID-19 crisis, Signet has accelerated its transformation to a digital first, Omnichannel retailer”, but Wall Street was spooked by the size of the Q1 loss and by the news that the size of the store asset impairment charge had not been finalised…
• News Flow This Week: Tomorrow brings the B&M finals, as well as the Morrisons AGM and the Dignity AGM.