Langton Capital – 2020-06-22 – PREMIUM – CVAs in the pipeline, 2m rule, rents, Saga, VAT reductions etc.:
CVAs in the pipeline, 2m rule, rents, Saga, VAT reductions etc.:
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A DAY IN THE LIFE:
In common with many garages across the UK, ours is now bursting at the seams with bumph to go to charity shops, jigsaws with ‘only one piece missing’, old toys, books etc and our recycling as, living down a bumpy lane, we don’t get it collected for fear of causing physical injury to the recycling engineers via unauthorised shaking and rattling.
Meaning that, at some point, we’re going to have to brave the recycling bins where a sense of inferiority often sets in when standing next to fellow travellers as they seem to drink only white wine, the odd cheeky red and a bottle of prosecco on special occasions.
Whereas we tend towards the volume end of the market and have maybe 400 empty bottles of ale and the odd tinnie alongside maybe one muddy old bottle of Beck’s that found its way into our garden at some point, probably a BBQ, that has been ignored since last summer and which we are recycling in order to balance out our deposit.
Anyway, it has to be done. Heatwave on the way. Pubs gnashing their teeth again. Good luck to all and on to the news:
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IT’S ALL GONE QUIET OVER THERE: Travelodge’s CVA was approved by creditors last week and Restaurant Group’s vote is set for a week today. But what else is in the pipeline? 22 June 2020:
• Government support is just that. It’s support rather than a solution. That’s good in that it gives financially credible businesses some breathing space but, for some companies, there are other, fundamental problems.
• And government support won’t go on forever. When it stops, the losers may fall over but, that said, some have fallen over already.
The state of play:
• As leisure analysts we’re naturally over-focused on leisure but, in the case of Covid-19 we, along with general retail. really are seeing a lot of the action.
• Several companies have called in administrators. Others have warned of CVAs, a lack of ongoing support from majority shareholders going forward, discussions with landlords and the like
• In the latter cases, there has been a silence in recent weeks
Been & Gone (i.e. cried wolf, there really was a wolf and it’s devoured them):
• Companies that have called in administrators, been broken up or re-sold (or are in the process of doing the above) include: Benito’s Hat, Carluccio’s, Chiquito’s, Food & Fuel, Laura Ashley, Cath Kidson, Oasis & Warehouse, Victoria’s Secret (UK).
• Travelodge looks set to be added to the ‘completed CVA’ list. Most of Le Pain Quotidien’s UK sites have been sold in a pre-pack
• Some companies have been accused of using Covid-19 in order to secure better deals, more often than not, with landlords.
• Travelodge sweetened its deal and looks set to enact its CVA.
• Philip Green’s Arcadia group is reported to have warned its landlords that it needs rent cuts in order to keep open shops where it has the legal right to leave.
• Debenhams entered administration, again, on 9 April but looks set to operate its stores almost ‘normally’
• New Look is reported to be angling for turnover-based rents. And why wouldn’t they?
• Intu is reported to have put KPMG on standby for administration.
• All Saints is ‘considering a CVA’, Poundstretcher is proposing a CVA, Go Outdoors is reportedly set to appoint Deloitte as administrators and Oak Furnitureland has been sold in a pre-pack administration
A currently deafening silence:
• Taking the above out of the equation leaves a swathe of casual diners who are reportedly ‘considering their options.’
• Casual Dining Group filed notice to appoint administrators in mid-May. It didn’t do so but stories circulated early June that the whole of the group was now for sale. There has been no news since
• Byron. KPMG was appointed as advisor end-March. Sky reported that the company was to be auctioned ‘this week’ – that was early May. It would appear as though buyers didn’t bite KPMG’s hand off as we have heard nothing since.
• Pizza Express refinanced some of its debts in April and was reported to be saying that it would permanently close some of its stores (more easily said than done) by the end of May. In early June, it launched a pasta brand. The Daily Mail said the company was ‘considering a CVA’. This may have been kite-flying but we would expect more news at some point.
• Pret a Manger, everyone’s darling, is reported to be in discussions with landlords regarding rent reductions. Again, and why not? Sky, over three weeks ago, said these were ‘crunch talks’.
• GBK: Owner Famous Brands has ‘withdrawn support’. This was back in early April & no news since.
• Prezzo: Reported nearly two months ago to be ‘weighing its options’. It has appointed FRP Advisory to help it with its deliberations.
• Wasabi ‘hired KPMG earlier this month to help it discuss rent reductions with its landlords’. No news since. Said to be going for turnover-based rents.
• Restaurant Group has taken decisive action and the vote on its CVA is a week today.
• Living Ventures has put its Blackhouse and Newgate businesses into administration.
• Wahaca has reportedly brought in advisors to help it consider its options. CEO Mark Selby said on 7 June ‘starting up, it’s going to be hell.’
De-mystifying some of the above:
• Directors can be personally liable for debts if they trade whilst ‘knowingly insolvent’. They are therefore keen not to do so.
• Part of the process of avoiding potential liability, understandably, is to hire advisors to consider financial options.
• These usually include cost savings, minor disposals or the sale of some or all of the business or a fund raise either from shareholders or from the banks. Much of the above may already have been tried by the existing management
• The next step is to either enact some or all of the above and / or to ‘enter into discussions with landlords’ and / or to threaten a CVA.
• Then the CVA can be enacted or a sale of the business, often through a pre-pack administration could be achieved
• All of the above can be stopped at any stage if, for example, trading improves sharply. There has been no such upside risk during the Covid-19 pandemic
Why the silence?
• Advisors, to say the least, will be very busy.
• And banks, landlords and other creditors may similarly have a lot on their plates.
• But the above processes are likely to continue and, unless trading improves, the movement will be in one direction only
• That said, there will, at some point, be a truly fantastic opportunity for unencumbered new entrants (alongside the hardy survivors) to make their mark in hospitality
GOVERNMENT BY OPINION POLL? 2m rule, cutting VAT, putting taxes up in the autumn, recording contact details at the pub door. It’s hard to tell which are leaks and which are government policy. Or if there is any difference. 22 June 2020:
• London Union boss Jonathan Downey says we are dealing with government by opinion poll
• Policy is unattributably leaked
• Dweebs are put out to float it a bit further
• If it is popular, the PM will announce it officially
• Mr Downey says ‘lobbying is no longer enough.’ Some believe that the government needs to be persuaded that a policy is popular before they will adopt it
• Just how this will work with tax rises remains to be seen
• Downey says ‘we have to convince the public first and the new thinking that follows will drive Government policy.’
• Unfortunately ‘58% of the UK don’t want any relaxation in lockdown measures.’ Downey says ‘we have to change their minds first and fast. We have to celebrate and persuade, agitate and assure. Hospitality is safe, welcoming, diverse, fun, nourishing and community.’
• Charlie McVeigh, late of Drafthouse and now founder of Project Pint, says ‘we are supporting the Peter Borg-Neal-led insurgency.’
• If the public want something, it will happen. McVeigh says ‘basically, it’s safe, we’re ready, you don’t know what you’re doing, there has already been too much damage so we are opening on 4 July. More and more operators are flocking to his proud banner. The people will lead the government out.’
PUB & RESTAURANT NEWS:
Covid-19 issues – the 2m rule:
• Chancellor Rishi Sunak said over the weekend he hoped to remove the 2m rule. Health Secretary Matt Hancock said proposals on reducing the 2m guidance would be brought forward ‘this week’. PM Boris Johnson will likely be the person to announce the change officially on Tuesday.
• The trade will be hoping for a firming up on the 4 July opening date and for a reduction in the 2m rule to perhaps 1m. Ireland has said the distance can be reduced if people are in a given space for only a short period of time. Other countries have different rules for outside spaces.
• ‘Mitigating factors’ is likely to become the buzz phrase over the coming days. Face masks, registering your name, address, phone number and contact details before entering a pub & brief rather than lengthy stays will be mitigating factors whilst hugging and kissing will not be.
• The Sun says pubs and restaurants will have to take the names and contact details of all of their customers. Though intrusive and expensive to police, this makes some sense. New Zealand adopted this policy in order to be able to contact patrons later if a guest came down with the coronavirus. Health Secretary Matt Hancock has said that such measures could not be ruled out.
• Lib Dem leader Ed Davey said ‘if the government hadn’t made such a hash out of the tracing app people wouldn’t need to leave a name and number every time they nipped out for a pint.’
• The Telegraph says shops, despite queues, remain quiet. Springboard says they were running at only around half the volumes of a year ago. York city centre was extremely quiet yesterday.
• UKH has welcomed the Government’s extension of the moratorium on lease forfeitures and enforcement activity until the end of September. In addition, the government has published a code of practice on commercial leases impacted by COVID-19.
• UKH says ‘although the majority of landlords have been pragmatic, a minority have aggressively pursued tenants that have been closed for months and no ability to pay.’ It says ‘this code goes some way to bringing together landlords and tenants in the pursuit of a negotiated solution to allow hospitality businesses to move on and revert to the new normal, but this must be recognised as a first step that needs to be built on by all parties.’
• There is no obvious signs of discounting from UK pubs & restaurants yet on discount voucher websites. Perhaps there seems little point as operators are not yet clear when and / or which units they will be opening.
• The Scottish Government has published guidance for tourism and hospitality businesses suggesting an indicative start date of 15 July.
• The National Tourism Development Authority of Ireland has revised guidelines for pubs, gastropubs and bars in Ireland. These are to open from 29 June. One metre distancing must be maintained and customers can be seated for 105 minutes.
• Singapore has allowed its restaurants and bars to open.
• The Competition & Markets Authority has launched a probe into potential retailer profiteering over products such as hand sanitisers.
• There are reported to be ‘clusters’ of Covid-19 in France, Germany, Italy and Spain but, overall, the signs that a limited lifting of the lockdown can work are good.
• Worth remembering. If a premises licence is held by a company and that company becomes insolvent, the premises licence lapses immediately and can only be resurrected by applying to transfer it within 28 days of the insolvency. If that doesn’t happen the licence is lost and a new one would have to be applied for.
• A solicitor friend tells us ‘this can create substantial difficulties if the lost licence is in a stress area like Soho or Covent Garden where the council policies dictate that they won’t grant new licences.’ It can lead to costly new licence applications and devaluation of property and the business which has lost the licence.
• The Telegraph says that private equity is considering whether or not to buy up swathes of UK industry. It quotes KKR as saying ‘we’ve been preparing for an environment like this for over a decade.’
• FT reports Sunak likely to put taxes up after what it is now suggesting is a likely cut in the rate of VAT for at least the short term
• UKH reports that the recovery for our industry from Covid-19 will be lengthy and painful. It is calling for an urgent confirmation of the 4 July opening date and for a drop in the 2m rule to 1m. It is likely that we will get both of these tomorrow. UKH says that even at one metre, trade could drop by 50%. CEO Kate Nicholls says ‘this bleak outlook from operators should sound the alarm with governments across the UK.’
• London’s congestion charge is to rise by 30% to £15 from today and it will extend to 7dys a week.
• DoorDash is raising around $400m in a further fund-raising. This will value the company at around $16bn post-new money.
• Asahi UK has said that will work with its customers to help them reopen their businesses. It says ‘whilst there’s no ‘on-switch’ for the reopening of the on-trade, from Saturday 4th July we can really begin the journey of reconnecting in a meaningful way.’
• Asahi says it has undertaken a detailed survey alongside its customers and has ‘created a £1.5m+ back-to-trade support package.’ The company is ‘committed to supporting the stability and success of the hospitality sector throughout the covid-19 recovery.’ It says ‘we feel strongly that the combination of practical measures and innovation will be key to doing so.’
• Restaurant chain Bistrot Pierre is reported to have appointed KPMG to find a buyer.
• Waitrose reports that demand for English & Welsh wine is running up 40% on this time last year.
• The Sunday Times reports that Go Outdoors, which is owned by JD Sports, is about to call in administrators. Deloitte is reported to have been appointed. The company has 67 stores and 2,400 staff.
• Soho House has reportedly secured a $100m equity injection from majority-owner Ron Burkle. Sky says the group has ‘grown at breakneck pace over the last decade, opening clubs in Barcelona, Hong Kong, Istanbul, Mumbai and West Hollywood.’
• Apple is closing 11 stores in four US states as coronavirus cases have risen in those geographies.
• Moody’s reports that Tesco’s sale of its Polish operations for a net consideration of around PLN819 million (£165 million) to Salling Group A/S was ‘strategically beneficial to Tesco because it allows management to focus on its more profitable operations in Central Europe but will not meaningfully affect its debt ratios.’
• Q3 rent due in advance on Wednesday. That may cause some issues.
• Cask Marque has issued a number of recommendations as to how best pubs should look after their cask ale post lockdown. Demand could be reduced and the product, which is unique to pubs, has a limited shelf-life.
• Paul Nunny reminds publicans that the 2019 Cask Report showed that 40% of drinkers would not return to the same pub after being served a bad pint and 37% would tell their friends about it. Serving good beer is critically important. Cask Marque’s recommendations are available online or via Paul Nunny firstname.lastname@example.org 07768 614065
HOLIDAYS & LEISURE TRAVEL:
• Saga has updated on trading in a statement that will be read at its AGM later today. The company says its ‘insurance business has been resilient’ but adds that its Travel business ‘has remained on pause since the decision in mid-March to suspend operations due to COVID-19.’
• Saga says it ‘continues to expect some travel to resume this year; retention levels continue to be high, particularly in Cruise.’ It adds it has ‘cancelled all travel departures up to and including August and had refunded £44m of advance receipts to customers, mainly relating to the Tour Operations business.’
• Saga adds ‘for Cruise, customer loyalty has been exceptional. Advance receipts at the end of May were £43m, which is £5m lower than at the end of March but well ahead of expectations. The Group has retained over 70% of advance receipts on cancelled Cruise departures, and new bookings for next year have been very positive.’ The company says ‘the Group’s liquidity position remains strong.’
• The outlook, of course, remains uncertain and Saga says ‘the Group’s near-term priorities are to preserve cash and reduce leverage…and ensure our Travel businesses are ready to re-start operations as soon as restrictions lift.’ It says it can ‘resume traveling as soon as restrictions have been removed but has continued to run stress tests based on a wide range of outcomes for the COVID-19 crisis, including a further delay to the resumption of travel until next year. Based on this analysis the Group continues to expect to remain in compliance with key banking covenants at the next two half-yearly testing dates, although further actions may be needed to stay ahead given potential uncertain long-term impacts of COVID-19 on the business and the maturity of bank facilities in May 2022 and May 2023.’
• Air bridges are now expected with a ‘small number’ of countries by 28 June. Some might suggest that the government does seem to be leaking proposals to see which, if any, are popular.
• IAT has said that consumers are likely to remain cautious re flying and it says the return of demand could be “slow and shallow”. IAT says the majority of travellers could wait 6mths or longer before they fly again.
• IATA suggests that airline debts have risen to $550 billion. It says the industry “could see a lot of failures”. It believes there will be “a wave of mergers or airlines exiting particularly if European and US airlines don’t get a summer for the airlines to bulk up cash flows.” It says “we will likely see consolidation in the fourth quarter.”
• Spain is allowing visitors from the UK to enter the country without the needs to quarantine from the weekend just passed. Foreign Minister Arancha González Laya says ‘we will allow British visitors to enter Spain just like the rest of the European Union or Schengen area from June 21 freely and without the need for the quarantine.’
• TUI says it is prepared to immediately introduce a limited programme of summer holidays outbound from the UK when government advice not to travel is lifted.
• City Airport has recommenced flights.
• CLIA, the cruise industry trace body, has confirmed that cruises from the US will remain suspended until mid-September. The date previously announced was 24 July. CLIA says ‘the current No Sail Order issued by the CDC will expire on 24 July and, although we had hoped cruise activity could resume as soon as possible after that date, it is increasingly clear that more time will be needed to resolve barriers to resumption in the US.’
• Travelodge’s creditors have agreed to the company’s CVA proposals. The company says ‘the successful vote will enable Travelodge to navigate the short-term challenges facing the business as a result of the Covid-19 pandemic.’
• STR reports that the UK hotel industry saw occupancy fall by 52% in May with room rates down by 40%. REVPAR for the month was down by 71%. STR says ‘the absolute occupancy and RevPAR levels were the lowest for any May on record in the U.S., but all three key performance metrics were up from April levels. Recent weekly data shows occupancy above 40% due to a slow and steady rise in demand.’
• The Willerby Manor Hotel outside Hull (a Best Western) will permanently close post lockdown.
• Cineworld today reports it is ‘pleased to announce that the Group has agreed with a group of private institutional investors the terms of a new $250m secured debt facility with a maturity of 2023. This, together with the covenant amendments and revolving credit facility increase of $110m announced on 28 May 2020, further strengthens the Group’s balance sheet as cinemas begin to re-open around the world.’
FINANCE & ECONOMICS:
• The UK’s national debt has risen by £55.2bn in May, more than 9x the borrowing level for the same month last year. Total debt is now £1.95tn, greater than annual GDP and the highest level in terms of GCP % since around 1960.
• Sterling lower at $1.2386 and €1.1059. Oil price higher at $42.09. UK 10yr gilt yield up 1bp at 0.24%. World markets mixed with Far East mixed in Monday trade. London set to open (as at 6.30am) some 45 pts down.
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 headlines on the front pages of the Saturday papers were all about the planned revival of the hospitality industry, even though there were no Government announcements to that effect on Friday: the Times had leaked details of all the proposals and led with the eye-catching headline “Pubs to be patrolled as Britain faces ‘new normal’” (even though there were no further details on pub patrols in the article, which flagged that the PM is preparing to use a new slogan “Build, build, build” to help the effort to rebuild the economy), whilst the Telegraph trumpeted “End of lockdown in sight”…In terms of Business stories, the main story in the Times Business section focused on the rent payment crisis for landlords: “Four in five shops won’t pay full rent”, whilst the FT had a feature on “Prospering in the pandemic”: the minority of companies which have shone
• Saturday’s Press and News (2): In terms of Retail news, the FT had a big feature article looking at the problems of the Fashion retailing industry (“Dressing up again”), noting that, although the long queues at reopened shops like Primark suggest pent-up demand, “the impact of Covid-19 has been severe on an industry dependent on global supply chains, high levels of discretionary spending and tourism”, but it gave the last word to the menswear designer Paul Smith: “Quite a lot of people who enjoy clothes will want to dress up again”. The FT also had a separate article looking in detail at the success of Boohoo (“Dressing up: Boohoo’s agile pivot catches investors’ eye”), noting that, with its share price at a record high, its £5.2bn market value would see it join the FTSE 100 if traded on the main market rather than Aim, highlighting that Boohoo is more profitable than Asos or Zalando
• Saturday’s Press and News (3): The stronger than expected ONS Retail Sales figures for May got plenty of uncritical coverage, with the Guardian, for example, flagging that Garden centres and DIY stores drove the rebound, although its Economics editor warned that it would be wrong to bet on a V-shaped economic recovery just yet. The Times and the Daily Mail highlighted that Tesco is facing defeat at its AGM on Friday on the controversial Director Bonus arrangements (with the Business editorial in the Times noting that the sudden decision to take Ocado out of the performance benchmarks has angered Tesco shareholders).
• Sunday’s Press and News (1): The Reading terror attack dominated the front pages of the Sunday papers, but the Sunday Telegraph found room for a headline about the new social distancing plan (“One metre plus, the new rule that will reopen UK”), whilst the Sunday Times flagged on page 2 that the Chancellor is actively planning for an emergency VAT cut next month to help revive the economy. Further on, on page 11 of its News pages, the Sunday Times stuck the boot in on its old enemy, Philip Green, showing photos of him strolling around the harbour in Monaco, with the headline “Furlough Phil forgets his Topshop woes…by eyeing up a £25m yacht”.
• Sunday’s Press and News (2): In terms of Retail news, the Sunday Times flagged that JD Sports is preparing to put its struggling Go Outdoors chain into administration, whilst the Sunday Telegraph noted that the Hotter shoe chain’s restructuring plan has been rejected by landlords and the Observer went big on the Quarterly Rent Day melt-down for landlords next week (“What do retailers fear more than the R number? The Rent”). The Sunday Times also had an interesting feature on how the Treasury and the Bank of England responded to the pandemic, highlighting that AO.com has been one of the “long-term winners from the lockdown”. The Sunday Telegraph had an article about the way in which Boohoo, as well as various private equity businesses, are trying to buy up distressed retail brands (“Boohoo goes on a spree to create a house of brands”), whilst the Mail on Sunday flagged that
• Sunday’s Press and News (3): In terms of all the comment columns in the Sunday papers, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“The floor’s the limit: we must avoid negative interest rates”), in which he looked at the limits of monetary stimulus by the Bank of England, as well as the column by the Business Editor of the Sunday Times, Oliver Shah (“They forgave him for “F*** Business”, but Johnson is bleeding bosses’ support”), in which he noted that top industry leaders are unhappy with the growing incompetence of the Government.
• Today’s News: JD Sports has confirmed that it has served notice to put its struggling Go Outdoors chain into administration, to “create an immediate moratorium around the company and its property which lasts for ten business days”, but it has not explained why the business is doing so badly or why the parent company cannot support it. Mothercare has issued a Transformation Plan Update, which appears to say that things are “on track”, but notes, inter alia, that HSBC’s interest in the senior dent has passed to the scavenger fund Gordon Brothers, the HQ is being downsized and moving from Watford to Weybridge and the acting CEO Glyn Hughes has decided to step down “to pursue other opportunities”.
• Today’s Press: The Reading terror attack continues to dominate the front pages of today’s papers, but the FT goes with “Sunak poised to cut spending after summer of stimulus”, flagging that the Chancellor is drawing up plans for deferred tax rises and cuts to public spending in his Autumn Budget after he delivers a further fiscal stimulus for the UK economy next month (including a possible VAT cut). The FT also highlights that landlords are braced to receive as little as 10% of the quarterly rent they are owed on Wednesday…
• News Flow This Week: The highlight of this week is the Tesco Q1 and AGM on Friday, but the week kicks off with the formal entry of Homeserve and Kingfisher into the FTSE 100 index today. Tomorrow we get the Naked Wines finals, the latest monthly Kantar/Nielsen grocery sales figures and the Shoe Zone AGM. After that there is no UK company news scheduled, although Wednesday is Quarterly Rent Day for retailers and landlords and the Nike Q4 is out in the US on Thursday…