Langton Capital – 2020-06-30 – PREMIUM – Sloth vs Virtue, Intercon, On the Beach, Vianet, Comptoir, Cineworld etc.:
Sloth vs Virtue, Intercon, On the Beach, Vianet, Comptoir, Cineworld etc.:
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A DAY IN THE LIFE:
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GETTING STAFF BACK TO WORK: Pictures during the working week from the UK’s beaches last week suggest that getting the UK into the workplace again could be quite a task. 30 June 2020:
We are, as has oft been repeated, in unprecedented times. Enforcing the lockdown meant enforcing inactivity. On the exit from lockdown, harsh though it sounds, is there a danger that sloth has been legitimised and disguised as virtue?
March 2020 HMG flicks the ‘off’ switch:
• PM Boris Johnson advised us not to go to the pub in mid-March, told operators they had to shut on 20 March & announced the lockdown formally on Monday 23 March
• The furlough scheme, aid for small business via £10,000 and £25,000 grants, suspension of business rates, postponement of VAT payments, government backed loans etc followed
• This eased the most acute of fears re job losses and the UK consumer battened down the hatches
Job done but where’s the ‘on’ switch:
• There is likely to be an enquiry into just how the UK ended up with both the highest death rate in Europe and a forecast of the biggest hit to its economy when the still suboptimal goal, surely, was to go for one or the other
• But we are where we are and the near-term problem has to be how to get the economy moving again. Here, there is mixed signalling, both from the government and the consumer
• The government is saying get back to be work but don’t get back to work, to travel to the office but don’t use transport, to mix with people but don’t mix and everything is normal but it’s not normal
• Meanwhile, the consumer is saying he’s itching to get back to work, but it might not be safe to do so.
• He’d love to dig in and do his bit but perhaps he shouldn’t, perhaps he should use his discretion and give it a long, hard think
• Look at the recent kerfuffle with the teaching unions and, in the meantime, the summer is upon us, the furlough scheme has some time to run, people have got money in their pockets, there are carrots but no sticks and nobody seems to have much of a sense of urgency
• Apart from business, that is, as business knows that it needs to get back to work because, if it doesn’t, there will be no work to go back to
Sticks and carrots:
• The government has stepped in quickly to make sure that the 9m workers currently furloughed and the 2m self-employed people being supported did not become unemployed immediately
• A 12m unemployed number is almost unthinkable but, in the US, a number at 40m plus does show what might have happened in the UK if the government had not stepped in
• Consumers were told to stay at home and they were paid to do so
Idleness, the ‘parent of mischief’, can have its attractions:
• Workers (or rather now non-workers) can feel that they are doing their bit.
• They have either 80% or in many cases 100% of their former income level. This will be a higher proportion after tax
• They are saving money on sandwiches, coffees, commuting and on the occasional after-work beer – this may add up to £100 a week or more, especially in London
• They may (or may not) be keeping fit
• They have more leisure time. Trips to Bournemouth beaches, midweek, were sharply higher last week. Gardens should be better, DIY tasks done etc. Although, in reality, many may have just blasted through various Netflix box sets
• They will be (for better or worse) seeing more of their families
• Last but certainly not least, they are safe
The negative points (for the consumer / worker):
• Tips and overtime won’t be covered. Promotions etc won’t be happening.
• They could be ‘rusting up’.
• There is a nagging feeling that ‘all of this will need to be paid for’. Though this is a demon that many will be only too willing to ignore.
• They may be worried about their employer’s financial health (but see above).
So, what might happen?
• Machiavelli suggests giving good news yourself and delegating bad news to underlings – and this is a point not wasted on many politicians as we move from the ‘giving’ phase of support to the ‘taking’ phase via increased taxes etc
• In the meantime, there are moves to ‘nudge’ the employees and their employers back to ‘normality’
• The Furlough will be tapered – and the taper will steepen etc
• The human reaction will be interesting and mixed. Some on the Right have suggested that the teaching unions and Labour undermined moves to get schools open
• Although denied, this would accord with what might be expected in other areas as, harsh though it sounds, sloth might masquerade as virtue
• Comments gratefully received, running out of time, more tomorrow
PUB & RESTAURANT NEWS:
Covid-19 issues & reopening:
• The supply side.
• UK Hospitality believes that around 1 million hospitality staff could return to work before the end of July. It says that over six in ten outlets should be open again on or shortly after 4 July with around 75% open before the end of next month.
• UKH says 960k staff should return next month with a further 720k joining them by the end of September. UKH’s Chief Executive Kate Nicholls comments ‘this is incredibly positive news’ and adds ‘we know that lots of customers have been incredibly keen to get back out and support their local businesses.’
• Ms Nicholls says ‘there is still a long way to go and businesses are by no means out of the woods yet’ but adds ‘getting venues open and customers through the doors means that more jobs will be kept safe. Despite the positive news we need support for those businesses that are still not able to open, and for those whose jobs rely upon them.’
• There appears to be a general & understandable feeling of trepidation mixed with guarded optimism. Few operators want to overpromise.
• The Centre for Economics & Business Research has predicted that a third of adults in the UK will visit a pub in their first week of reopening. That would be wonderful but it does sound a little high. The CEBR suggests that around 6.5 million pub trips will be made over the coming weekend, that’s some 1.5 million more than a typical July weekend.
• The CEBR does say, however, that many Britons “remain cautious” over a return to bars and pubs. It says ‘the longer-term outlook for the pub industry may not be so rosy, however. Many within the wider hospitality industry had warned that the need for 2m rendered a majority of businesses unviable. Though the replacement of this rule with a new “one-metre plus” recommendation means that many more pubs will now be able to return to operation, it still represents a considerable restriction for others.’
• The CEBR is estimating pubs will generate around 46% of their pre-Covid revenues.
• One of the keys has to be avoiding a reopening and reclosing cycle as is like those being seen in Florida, Texas and some other US territories. Texas, parts of California and Florida have partially re-closed and Restaurant Business reports that in the state of Maine, ‘the reopening of bars has been postponed indefinitely. Dine-in restaurant capacities remain at 50 people per room.’
• The NPD Group reports that weekly spend in UK foodservice in April 2020 was just over £200 million, compared to April 2019’s weekly spend level of around £1 billion pounds – a fall of 80%.
• NPD says ‘the scale of the crash in out-of-home foodservice visits is unprecedented and the 80% fall in spend underlines the severity of the collapse. As we start to come out of lockdown, consumers are likely to be sensitive to prices and value for money. Value-related visits should increase rapidly in the same way as the 2008-2010 financial crisis when price-driven or voucher-driven visits rose sharply. We also expect deal-based visits to increase as they did in the financial crisis: they grew by over a quarter even though the overall market registered a 2% visit decline.’
• NPD says ‘the importance of meal deals is likely to grow as operators fight for market share. Operators are now more savvy about these deals, and they know that consumers that buy on ‘value’ can often spend more if the product range and offering is right. However, it’s important to sound a note of caution. While reopening and initial recovery is imminent, and the relaxation of social distancing is welcome, the eating-out industry has a huge task ahead if it is to return to anything like normal trading. The good news is this is an extremely innovative and creative sector, and we know it will adapt fast to create the ‘new normal’.’
• Wireless Social has reported that parts of London are ‘recovering’ at different rates. It says ‘areas that have a high density of offices, such as the City and Canary Wharf, were really struggling even as lockdown eased. Footfall had been consistently below -80%, and even as people were given more freedom, it showed minimal impact in these areas only creeping up to about -70%.’
• Wireless Social says ‘the West End, a more hybrid area of hospitality, entertainment, shopping, residential and offices, is still remaining a difficult area as well.’ It says that ‘the London Villages areas such Wimbledon, Hampstead, Putney, etc. where we can see the impact of people working from home, progressively higher footfall, as people venture out and visit the businesses local to them.’
• Sector analyst Peter Backman suggests that 4th of July will be ‘Discovery Day’ for the UK’s operators. Money will be allowed to talk, actions will replace words and the consumer will be asked to prove rather than simply say that he or she wants to get out and about again.
• Who? How many will open?
• UKH has a view above & Peter Backman suggests that ‘a large majority of independents and small groups (at least those that are still financially viable) will open as soon as they can. But there is not a clear consensus from the larger players about what they plan to do on 4 July.’
• JDW will open all of its sites immediately. Marston’s has said that it will be largely open on 4 July & Greene King says two thirds of its sites will be open. Young’s is waiting until August but, if the above is anything to go for, UKH’s estimate of 60% straight away and three quarters by end-July looks to be in the ballpark, at least for pubs.
• Some casual diners may be slower to open and some will not reopen at all. See comments on Restaurant Group & Byron below. Backman reminds us that Bill’s will open 9% of its sites immediately and Pizza Express around 16%.
• How? Government guidelines.
• The guidelines are just that. Any local authorities looking to take a firmer line may be disappointed as a great deal of discretion has been left in the hands of operators. And probably inescapably so. it’s to be hoped that any rule-stretching is not too blatant as, as one respondent reminded us, some residential neighbours have been pleased to see licensed premises shuttered and they will be quick off the mark with their camera-phones.
• The Department for Business, Energy and Industrial strategy has, however, clarified that the ’30 person limit’ is not a cap on capacity for entire venues. The guidelines, in one of their few proscriptive comments, say ‘it is against the law to gather in groups of more than 30 people, except for the limited circumstances as set out in law. In these specific cases, those operating venues should take additional steps to ensure the safety of the public and prevent large gatherings or mass events from taking place.’ The 30-person-maximum gatherings refer to discrete events or groups rather than the capacity of a venue in total.
• ZpertHR says that pay freezes may become a feature of wage negotiations over the medium term. It says 15% of pay deals in the three months to May resulted in no increase in wages. This is around double the proportion in the three months to April. XpertHR says ‘with the potential for redundancies looming, frozen or reduced pay is likely to be used as a way to minimise the number of job losses.’
• As mentioned yesterday, certain US states are registering higher levels of infection and transmission. Restaurants in a number of these states are said to be ‘voluntarily’ shutting their units.
• Three US states have closed bars with immediate effect. This has occurred in seven Californian counties and in the whole of Texas. Florida bars have been told not to sell alcohol and outdoor gatherings of more than 100 people now need prior approval.
• Restaurant Group’s CVA proposals approved.
• Restaurant Group reports CVA approved by creditors. Some 82% of creditors (hurdle was 75%) and 65% of unconnected creditors (hurdle 50%) voted in favour. 28-day period to allow a challenge but otherwise the deal will go ahead.
• CEO Andy Hornby said yesterday ‘TRG is extremely grateful for the support shown by our creditors in today’s vote.’ TRG says ‘as mentioned in the announcement on 10 June, this will leave a remaining trading estate in the Group’s Leisure business of approximately 160 sites, of which approximately 85 will be subject to a reduction in rental costs and revised lease terms. A more comprehensive update will be provided at the Group’s interim results.
• Sky reports that Byron Burger ‘is racing to secure a takeover after becoming the latest major restaurant operator to teeter on the brink of financial collapse.’ It says the company has filed notice of its intention to appoint administrators and is now thought to be in ‘detailed talks with three potential buyers.’
• This implies a pre-packaged administration rather than a CVA. Although the one could be followed by the other. A feature of such deals is often that underperforming sites are left with the administrator as the company transitions from one group of owners to the next
• KPMG has been advising Byron since early May. See our prior comments on the conveyor belt towards administration on which a number of operators find themselves. Byron is thought likely to open its 51 UK restaurants from the middle of July. It employs around 1,200 staff.
• The Press seems to agree that Byron ‘is in last-ditch talks over a rescue deal.’
• Colliers International suggests that the UK restaurant sector will see revenue drop by £23bn this year because of the coronavirus pandemic
• Franco Manca has tweeted ‘on Saturday the 4th July we are going to re-open 14 Franco Manca to dine in customers.’
• Comptoir Group has said that it ‘will reopen its venues in phases and in line with recommended safety guidelines’ from Saturday. It says ‘at this stage, the Group has not completed its review as to which restaurants it may decide never to re-open.’
• Comptoir says ‘the Group went into the COVID-19 pandemic with 30 restaurants, including six franchised sites. The Directors are in discussions with all its restaurant landlords about future lease obligations. The Directors expect the outcome of these discussions and the support it receives from landlords to influence how many restaurants the Company operates going forward. The Company will provide further updates as appropriate.’
• Vianet has updated on trading saying ‘thanks to our proactive response to management of C19, the Group’s performance in the first two months of the financial year has been very encouraging, with losses comfortably lower than anticipated.’ It says ‘whilst we recognise that the C19 situation is still unpredictable and uncertain, we remain confident that the Group is in a very good position to resume its strong earnings growth, continue the solid momentum that was building into FY2021 and deliver on the exciting growth opportunities that we see ahead of us.’
• The Cirque du Soleil is cutting more than 3,000 jobs
• TGI Friday should open its 66 UK sites on 6 July. Liberation Group will reopen its units in stages. St Austell Brewery will open all of its pubs on 4 July. Flight Club will open its 6 UK sites on 1 August. Young & Co is aiming for early August.
• Gents’ clothing outfitter TM Lewin seems to be heading for a pre-pack administration per The Sunday Times.
• Britvic is to pause advertising on Facebook and Instagram in July.
• US burger operator Wendy’s is said to be looking at a site in Reading as its first venue in what will be a return to the UK
• Waitrose is said to be creating 800 jobs at a new distribution centre
• Some sharp moves in the sector yesterday. Carnival, Everyman, Nichols & Cineworld respectively down 5%, 5%, 6% and 11% respectively in a falling market. Risers included Restaurant Group (CVA approval) up 4%, Premier Foods up 6%, TUI up 8% and New River up 9%.
• Commercial real estate advisory firm, Altus Group, has said that, prior to Covid-19, pub closure numbers in England and Wales had “stabilised” in H1 2020
• The All-Party Parliamentary Group for Hospitality and Tourism yesterday launched a new inquiry into coastal and lakeside tourism. UKH’s Kate Nicholls says ‘as the country begins to rebound from COVID-19, tourism and hospitality businesses across the country will have a huge role to play.’ Ms Nicholls adds ‘the Government has pledged a ‘levelling up’ agenda across the country and supporting these vital sectors should form an essential part of this.’
HOLIDAYS & LEISURE TRAVEL:
• Intercontinental Hotels has updated on H1 trading saying ‘the pace of hotels reopening has continued to accelerate through the second quarter, with only 10% of the global estate currently still closed.’ It expects REVPAR to be 75% down in Q2 and 52% down in H1 as a whole. The group says ‘as at 26 June, IHG continued to have ~$2bn in available liquidity.’ It says ‘we have taken steps to protect cash flow by reducing costs and capital expenditure, and by proactively managing our working capital with measures including fee relief and increased payment flexibility for owners, which has resulted in continued payments being received through May and June. We will assess any further need for owner payment flexibility as the trading environment evolves.’
• On the Beach Group has reported H1 numbers to end-March saying revenues fell by 17% to £52.8m with an adjusted group PBT of £2.3m down from £15.7m last year. Re current trading, it says April bookings were 10% of normal levels but ‘from mid-June there has been a significant increase in demand for Summer 2020 departures, albeit from a very low base.’
• OTB CEO Simon Cooper says ‘in the aftermath of the Thomas Cook collapse, the Group made excellent progress in the first four months of the financial year, driving record levels of brand awareness and achieving sales growth of almost 30% for holidays departing in Summer 2020.’
• It says, however, ‘the onset of the COVID-19 pandemic led to a rapid slowdown in demand for foreign travel followed by the total closure of airspace across Europe by mid-March.’ The group says it ‘continues to successfully build a leading position as more consumers discover the ease of use and wide choice of beach holidays across our platforms’ and says ‘the Board continues to look to the future with confidence.’
• Travel Supermarket says that holiday searches have soared since news emerged of air bridges between the UK and certain destinations. The comparison website has just recorded its busiest weekend since lockdown began.
• Travel Supermarket says searches for Spanish trips doubled over the past week with a 216% spike in searches in Greece.
• Teletext Holidays chairman Steve Endacott has cautioned that the upcoming recession could be a bit of a dampener.
• Travel Weekly suggests ‘closer-to-home destinations will benefit from surge in no-fly holidays’. See our comments on ‘convoy theory’. That is, families will only move at the speed of the most timid.
• Staycity has received planning permission for the development of its fourth property in Manchester, in the city’s Deansgate area
• Greece has extended its ban on flights from the UK for another two weeks to 15 July.
• Cineworld has announced that its cinemas in the US and the UK are to reopen on Friday 31st July. CEO Mooky Greidinger says ‘Cineworld looks forward to welcoming these moviegoers back to our cinemas next month and believes that they will once again be immersed in the timeless theatrical experience they know and love.’
• The Parliamentary Public Accounts Committee has called the Gambling Commission “toothless” and the Department for Digital, Culture, Media & Sport “complacent” when it comes to examining the harm caused by problem gambling. It says ‘the government has approached other public health issues on the basis that prevention is better than cure.’
• The cinema industry is reportedly on track for it worst year in terms of revenue since 1996. Just maybe, under the circumstances, that is a relief.
• Zoos and aquariums across England are to benefit from a £100m fund set up to support them throughout the COVID-19 pandemic.
• eSports & gaming analyst Newzoo has said that the video gaming industry could be worth $159m this year.
FINANCE & ECONOMICS:
• Mortgage approvals in the UK fell by 90% in May to their lowest level on record for that month per Bank of England data
• Sterling lower at $1.2298 and €1.0942. Oil up at $41.49. UK 10yr gilt yield down 1bp at 0.16%. World markets better yesterday & Far East up in Tuesday trade. UK set to open down around 25pts as at 7.15am.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: Apart from the local lockdown in Leicester (which is home to several retailers, including Next and Dunelm), the Retail cupboard is pretty bare today, apart from the news that the hedge fund Tosca has thrown more good money after bad by edging up its stake in the embattled Ted Baker to 24%. But last night #MadMike announced that Frasers Group (aka Sports Direct/House of Fraser/Flannels etc) has doubled its stake in the German clothing business Hugo Boss to just over 10% (mostly through derivatives), repeating what it said back on June 12th: “This strategic investment reflects Frasers Group’s growing relationship with Hugo Boss and belief in Hugo Boss’ long-term future”.
• News Flow This Week: The highlight of this week is the Sainsbury Q1 update tomorrow and, as we move into July and H2, tomorrow also brings the Topps Tiles Q3, whilst the ABF (Primark) update and the Sainsbury AGM are on Thursday The M&S AGM is on Friday morning, with the latest GFK Consumer Confidence index “flash” out first thing that day.