Langton Capital – 2020-07-09 – Mini-budget, re-opening plans, job losses, C&C, New River etc.:
Mini-budget, re-opening plans, job losses, C&C, New River etc.:
A DAY IN THE LIFE:
Bit slow pulling things together this morning. Follow us on Twitter at @brumbymark and let’s move on to the news:
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IT’S NICE TO FEEL WANTED: Rishi Sunak’s announcement that he would extend further taxpayer cash to the hospitality industry has been warmly welcomed. But there are gaps. 9 July 2020:
• It’s nice to feel wanted and, having been the focus of much of Chancellor Rishi Sunak’s largesse yesterday, the hospitality industry can console itself that it has, at least, been listened to. See analysis in Premium Email.
PUB & RESTAURANT NEWS:
Covid-19 – Mini Budget proposals & reception:
• Chancellor Rishi Sunak yesterday delivered a mini budget in which he:
o Cut VAT from 20% to 5% on accommodation, visitor attractions, cinemas & hospitality sales of food & non-alcoholic drinks from 13 July to 12 January. This will apply to hot takeaway food.
o Said the government would pay £1,000 for each furloughed employee taken back on and retained until January next year. That’s around a 12% subsidy of the cost of a minimum wage employee for 6mths. Nice though it is, much of the money will go where it is not needed. Where it is ‘needed’, it may be too little to make much difference.
o Offered discounts on meals (with non-alcoholic drinks) taken out in August of 50% up to a maximum of £10 per head on Mondays, Tuesdays and Wednesdays. Restaurant owners can offer the discount to customers and claim it back from the government.
o There also moves to encourage the recruitment of trainees, stamp duty is cut and there are green grants.
• This was being digested (no pun intended) by operators and would-be customers during the afternoon. Nobody has seen anything like it before. Much of the 15% cut in the gross price of sales (ex-booze) will stick in the till and be used to widen margins. A bit (our estimate, maybe a quarter or a half) could feed through to lower prices – though this will be hard to see as prices had just gone up to cover some of the Covid-19 costs. See also Premium Email.
• The VAT targeting ensures that much of the giveaway should stay in the UK rather than be leaked away via imports.
• Industry feedback has been generally very positive. UK Hospitality CEO Kate Nicholls comments it ‘is reassuring that the Chancellor singled out hospitality and tourism as a vital part of the UKs economy and a pillar of social life around the UK. It is also good to see that Government acknowledges that our sector has been uniquely hit by this pandemic.’
• Ms Nicholls says: ‘customer confidence is key to our sector’s revival and our ability to help Britain’s economic recovery.’ She says ‘this significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together amount to a huge bonus. We hope that the UK public rightly sees it as sign that we are ready to welcome them back safely. The future of many businesses and jobs depends on it.’
• UKH says ‘this doesn’t mean we are out of the woods, and there are still significant challenges ahead. The biggest of these is the spectre of rent liabilities which many businesses are still facing from their closure period. Rent bills have piled up over the past few months even though venues were closed, and businesses are now facing huge rent debts with prospects for the future still in the balance. We are going to need Government support on this before too long.’
• The BBPA has ‘warmly welcomed Rishi Sunak’s positive package of support as a helpful first step on a long road to recovery, especially for food led pubs and those with accommodation and will help secure jobs.’ The moves do not apply to alcoholic drink retailers or to breweries.
• CEO Emma McClarkin says ‘these initiatives, which we have been calling for, will be beneficial for pubs that serve food and offer accommodation, and will also help compensate for an expected long period of reduced sales and revenue for pubs.’ She says pubs ‘who just serve beer may feel they are left wanting.’
• The Food & Drink Federation says it is ‘extremely appreciative of the unprecedented support the UK Government and the devolved administrations have provided throughout this crisis.’ It says ‘we hope these measures will lead to a significant boost in demand for the hundreds of manufacturers who supply into hospitality and the out of home sectors and help them to manage increased supply costs.’
• Admiral Taverns CEO Chris Jowsey says ‘whilst I welcome the support to the hospitality sector provided by the Chancellor, I’m very disappointed that he chose to support only those large pubs where food is a major income stream. Many local, community pubs do little food or are wet led, but they have worked tirelessly to support their communities during lockdown. The Chancellors measures do not help these pubs at all and could be seen to be dissuading consumers from visiting smaller, local pubs. We would urge the Chancellor to level up and support all pubs, regardless of their size, location and retail offer.’
• SIBA CEO James Calder comments ‘today’s announcements are a mixed picture. The job retention bonus and kickstart scheme will help beer, brewing and pubs given we employ a disproportionate number of young people. The temporary VAT cut to 5% and Eat Out to Help Out scheme will help encourage people back into the pub. But we’re very disappointed that beer, the UK’s national drink has been excluded from the VAT cut and the eating out scheme. Today’s announcements do nothing to directly help small, ‘wet led’ community pubs and independent craft breweries.’
• The NIESR is less impressed saying that ‘the new measures unveiled by Chancellor Rishi Sunak to help the economy are badly timed and could trigger a rapid rise in unemployment.’
• It says: ‘prematurely removing key support measures could sap confidence and lead to permanent long-term damage to the economy if those who become unemployed, as a result, lose their skills and attachment to the labour market.’ It says the confirmation that the Coronavirus Job Retention Scheme will end in October ‘means that the lifeline that had been extended to over 9 million workers will be taken away. People who are currently furloughed may doubt that they will be taken back on and this will affect their confidence to spend.’
• Oakman Inns says ‘the Chancellor’s Job Retention Bonus is a real fillip.’ It says ‘the Chancellor’s announcement does not alter the fact that there remains considerable uncertainty regarding the UK’s economic outlook and possible long-term changes in consumer behaviour, thanks to a falling consumer pound. However, Oakman believes that the business is well-positioned to succeed given its rural locations, large sites, premium positioning and strong food sales.’
• Oakman says ‘we believe that the crisis will create significant opportunities for further growth, which should allow a business of our calibre to outperform the previous forecasts once the economy recovers.’
• Appreciation via Twitter from Pizza Express, Loungers and others.
• Burger King UK boss Alasdair Murdoch has said that the economic damage caused by the coronavirus pandemic could lead the operator to shut up to 10% of its restaurants at a cost of 1,600 jobs. Burger King has currently reopened about 370 of its 530 restaurants in the UK. The firm, in common with many others, has been pushing for rent reductions.
Covid – the new (ab)normal:
• The Local Data Company says 4 July was a ‘not so ‘Super Saturday’ for London’ as the capital ‘lagged 35% behind the rest of England for consumer activity on the weekend of hospitality’s grand reopening.’
• Mobility data from Huq/LDC measuring consumer activity around stores revealed that activity was down by 37% when compared to the weekend before lockdown commenced in March and down by 81% compared to the average activity levels across the first 6 weekends of 2020.
• LDC says footfall over the weekend was down by 75% in London but down by only 40% in the UK’s regions. It says ‘the region which saw the best recovery was Yorkshire and the Humber with activity down by just 26.7% compared to the weekend before lockdown.’
• LDC says this data ‘illustrates the true impact that the lack of tourism and continued reticence to get on public transport in the capital is having on this city in particular. Historically, London has always been more resilient than other regions, with vacancy in the capital at just 8.2% coming into the pandemic, significantly lower than other regions and the national average of 12.3%.’
• A study carried out by Brew//LDN and KAM Media has ‘highlighted that, during lockdown, respondents have been drinking beer more frequently, sourcing beer from different channels, broadening their repertoire of beers and even embracing brand new online drinking occasions.’ The study suggests that ‘an impressive 46% of respondents bought beer direct from a brewer for the first-time during lockdown’ and ‘87% said they plan to continue post-lockdown signifying a potentially huge shift in the way purchase their beer with considerable impacts for both the off and on-trade.’
• Glasgow-based operator G1 has begun a petition calling for music to be allowed in bars & restaurants when they are allowed to reopen north of the border. It says ‘music is not a “nice to have” for us, but a hugely important draw which we feel we simply cannot do without, especially when the tide feels so very against us in so many other ways.’
• C&C has announced the appointment of David Forde as Group Chief Executive Officer. It has also announced the appointment of Patrick McMahon, current Group Strategy Director, as Group Chief Financial Officer to succeed Jonathan Solesbury who has informed the Board of his intention to retire with effect from 1 September 2020.
• REIT New River has updated saying that 81% of its retail tenants (by gross income) are now open. It says ‘of the total quarterly rent due on 24 June 2020, 71% has either been collected or had alternative payment terms agreed with occupiers.’ In its pubs business, Hawthorn Leisure, New River says ‘over 90% of our community pubs in England have now reopened, following the lifting of restrictions by the UK Government on 4 July 2020. We have plans in place to reopen our pubs in Scotland and Wales over the next two weeks.’
• New River says ‘trading in our pubs has been encouraging so far, with our operator managed pubs delivering like-for-like sales growth of +4% over the reopening weekend, compared to the equivalent weekend last year. This performance reflects our focus on wet-led community pubs, and the fact that over 70% of our sites have outside space.’
• New River adds ‘we were pleased with the Chancellor’s announcement yesterday of further support for the hospitality sector, which will be beneficial to our tenants and pub partners, and also recognises the vital role that hospitality plays in the UK economy.’
• Continued steady re-opening of pubs, bars & restaurants.
• Feedback suggesting some, non-city-centre bars were down by less than 5% on the same weekend last year. Office-facing venues were either the worst-trading or have not yet reopened.
• This coming weekend could be ‘extremely interesting as the weather forecast is decent.’
• The odd discount popping up. Ego Restaurants has emailed customers offering them 20% off list prices.
• Oakman Inns has announced that Dermot King, currently COO, will become Chief Executive of the company with existing CEO Peter Borg-Neal moving to become Executive Chairman. Current chairman Mike Smith will step down from the Chair but will remain on the Board as a Non-Exec. Dermot King says ‘we remain deeply ambitious for the Company and as market leaders in the growing Premium pub sub-sector, we believe that the opportunities ahead of us for this deeply talented team, are very exciting.’
• Oakman updates on its financial position saying that, ‘prior to the impact of the Coronavirus pandemic, Oakman was trading well with LFL sales up 4.3% year to date and total sales +14.3%. However, the sudden closure of the business in week 38 of the financial year has meant that for the year ending June 30th sales of £31.5m+ represent a sales decline of 17.3% over the previous year.’
• Peter Borg Neal says ‘the sudden closure of the business and the subsequent unwinding of the working capital position put the business under considerable financial strain.’ It has since accessed funding and now says ‘the Chancellor’s VAT reduction on food and accommodation for the next six-months from 20% to 5% for six months will be a substantial boost for our cash-flow and also help maintain a fair pricing policy.’
• Some quite large movements on the sector yesterday, mostly downwards. Franco Manca brand owner Fulham Shore’s shares were up 5% but Cineworld, DART, Hostelworld, On the Beach, Restaurant Group & Revolution Bars were all down 4%, Hollywood Bowl and Marston’s were 5% off, Stock Spirits was 6% lower and M&B was some 9% off.
• Wine imports into China have reportedly fallen by 29% in volume terms and 31% in terms of value.
HOLIDAYS & LEISURE TRAVEL:
• Rishi Sunak’s announcement yesterday will help staycations but it does little (except for the £1,000 employee cash backs) for holiday companies seeking to sent customers overseas.
• ABTA says ‘we welcome the chancellor’s announcement, as it is good news for domestic tourism. However, the lack of backing for outbound tourism represents a missed opportunity, this is a sector that directly provides 220,000 jobs right across the UK and is in urgent need of tailored support.’
• Sunak will be under pressure to keep citizens’ money (including cash that he has just ‘gifted’ them) in the UK.
• Inbound tourism could be a big winner. But it maybe was going to be anyway. The issue here, before long, may be lack of capacity.
• The British Tourist Authority says ‘the key for success will be ensuring we continue to attract domestic and international visitors through the autumn and extend the season.’
• DART Group has reported full year numbers for the now very historic year to end-March saying that ‘in what was a record year for the Group, Profit before hedge ineffectiveness, FX revaluation and taxation from continuing operations increased by 50% to £264.2m. There will be no final dividend.
• DART says that since 31 March 2020, it ‘has enhanced its liquidity position to deal with the effects of Covid-19’ but says it ‘still faces challenges as a result of the Covid-19 pandemic and therefore maintaining a healthy cash position remains our top priority.’
• DART says ‘we remain confident that once normality returns, our Customers will be determined to enjoy the wonderful experience of a well-deserved Jet2 holiday.’
• A poll carried out for Mundy Cruising has found that almost a third of luxury cruise passengers plan to opt for smaller ships once the industry returns from after the coronavirus pandemic.
• The Scottish government has issued a list of countries for which public health measures will be listed. It does not include Spain.
• Domestic boat holiday company Le Boat has reported a 253% year-on-year increase in staycation bookings.
• The Travelodge Owners Action Group (a group of landlords) has confirmed that it is in talks with major hotel operators including Accor, Marriott International, InterContinental Hotels Group, Hilton, Jury’s Inn and Magnuson Hotels about taking over the management of a number of hotels currently flagged as Travelodges.
• TUI says it has ‘successfully completed the sale of its subsidiary Hapag-Lloyd Cruises to TUI Cruises. Hamburg-based TUI Cruises is a joint venture between TUI and Royal Caribbean Group.’
• Highland Group in the US reports that long-stay properties have performed more robustly over the Covid-19 period than have hotels.
• PPHE Hotel Group says it will have 80% of its 45 properties across Europe open by the end of July
• Ryanair’s cabin crew has accepted a temporary pay cut in order to avoid redundancies.
• Escape Hunt reports that it will open all eight of its English venues on 11 July with the Scottish site set to open in the coming weeks. ESC says it has ‘re-commenced work in Norwich and Basingstoke, the two new sites which were put on hold as a result of the lock down.’
• ESC says it ‘welcomes yesterday’s announcement by the Government of further support to the sector.’ CEO Richard Harpham says ‘for any customers still unable to travel to our venues, we are pleased to announce that we will be expanding the availability of our Remote Escape Room Experiences over the coming weeks.’
FINANCE & ECONOMICS:
• The Treasury reports that public spending on the battle against coronavirus has risen to nearly £190bn.
• German Chancellor Angela Merkel has cautioned the EU that it should prepare for a no-deal Brexit at the end of the year.
• Halifax reports that UK house prices fell by 0.1% in June. It says they are up 2.5% year on year.
• Sterling up vs dollar at $1.2629 but down vs Euro at €1.1114. Oil higher at $43.29. UK 10yr gilt yield unchanged at 0.18%. World markets lower in UK & Europe yesterday but up in the US and Far East (in Thursday trade). UK market set to open up around 35pts as at 7am.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: There is no sign of the pre-close update expected from DFS, but the Irish-based DIY and builder’s merchant group Grafton has issued a trading update, as have the retail property companies Town Centre and New River Retail. Grafton say that they have been encouraged by trading in June, with LFL sales only 1% down across the group (-10% in the UK distribution business of Selco). New River say that footfall at its shopping centres was 41% down last week on last year, but trading at its pubs was 4% up last weekend (“this performance reflects our focus on wet-led community pubs, and the fact that over 70% of our sites have outside space. We were pleased with the Chancellor’s announcement yesterday of further support for the hospitality sector”). At the Leeds-based Town Centre, Edward Ziff, the Chairman, says “We have collected a robust and reassuring level of rent for the
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 2 Jul 20 Mitchells & Butlers H1 numbers
• 3 Jul 20 GfK consumer confidence numbers
• 7 Jul 20 Whitbread AGM
• 9 Jul 20 DART Group FY numbers
• 9 Jul 20 New River trading update
• 10 Jul 20 Carnival business update
• 13 Jul 20 Pepsi Q2 numbers
• 21 Jul 20 DP Eurasia H1 trading update
• 22 Jul 20 Britvic Q3
• 23 Jul 20 C&C AGM
• 28 Jul 20 Gregg’s H1 numbers
• 28 Jul 20 AG Barr trading update
• 29 Jul 20 Wizz Air June quarter numbers
• 6 Aug 20 Naked Wines AGM
• 7 Aug 20 Diageo FY numbers
• 11 Aug 20 Domino’s Pizza Group H1 numbers
• 19 Aug 20 Rank FY numbers
• 9 Oct 20 JD Wetherspoon FY numbers
• 26 Nov 20 Britvic FY numbers
Many results are likely to be delayed. For information purposes, the results below were delivered at these dates last year.
2019 COMPARATIVE RESULTS:
• 11 Jul 19 Dart Group FY numbers, 16 Jul 19 Fulham Shore FY numbers, 17 Jul 19 Nichols H1 numbers, 24 Jul 19 Marston’s Q3 trading update, 25 Jul 19 Fuller’s FY numbers, 25 Jul 19 Compass Group Q3 update, 25 Jul 19 Diageo FY numbers, 30 Jul 19 Gregg’s H1 numbers, 31 Jul 19 M&B Q3 update
• The Press isn’t ‘The Enemy’ but what’d be ‘easy copy’ (disorder, heaving A&Es, 2nd spike) isn’t what the industry wants. Boring but we want no drama, steady, steady build from albeit low levels, return of confidence etc. And a bung from Rishi #VAT #VATreduction
• VAT cut. We’ll find out shortly after 12.30 but how much of it will get handed to customers and how much will pad the tills? Just asking for a friend. #VAT #VATreduction
• My maths is rusty but if half of pubs were open & they were half full, that’s revenues down 75%. Or at least footfall. Prices have been jacked up but still a long road. However, ‘a journey of 1,000 miles starts with a single step’ and all that good stuff #hospitality
• More important than ever. Pre-bookings, avoiding no-shows, apps, cashless facilities & cleanliness, of course. Menu choice & price less important, though that could evolve #hospitality
• Good news. Temporary VAT cut to 5% on hospitality accommodation & food. Will help operators cut prices & widen margin at the same time. £1,000 promise per employee brought back from furlough. That will help #VAT #VATreduction
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