Langton Capital – 2020-07-14 – PREMIUM – Retention bonuses, masks, Fever Tree, secondary shutdowns etc.:
Retention bonuses, masks, Fever Tree, secondary shutdowns etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Despite the ongoing Covid-19 & no-deal Brexit crises, Making Tax Digital has caught up with Langton and, far from understanding that we wish to spend our time swinging on a chair, doing our Championship League Table anti-relegation maths for the umpteenth time and gazing out of the window, has started to say that it’s serious when it cautions that we have to comply with its various landfill of rules and complete a load more forms.
These ‘this is a friendly reminder rather than a threat’ communications are topped and tailed by unsubstantiated offers of support through the Covid debacle and messages of understanding for what we’re going through but, at the end of the day, the grey man is beginning to stamp his foot and assert that your bureaucracy is your bureaucracy and you’ve got to comply.
Hence our panicky online shop for computer packages, our diary clearing and all the rest. Oh VAT, how we truly love you. Anyway, follow us on Twitter at @brumbymark and let’s move on to the news:
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INCENTIVES TO REHIRE FURLOUGHED WORKERS: Too little to make a difference, panicky, a waste of money, all (or none) of the above? 13 July 2020:
The basic facts:
• Some 9.4m workers were furloughed (some have now been taken back on) and 2m self-employed people were also receiving state aid
• The government has offered £1,000 per employee re-employed, provided that they are paid a minimum amount (£520 per month) and are kept on until the end of January next year
The bribe in context:
• The minimum wage for full time employees plus national insurance for employers adds up to around £20,000 per annum meaning that the £1,000 is 5% of a year’s income or 10% for the period from now till end-January
• If workers are taken on at the point that furlough ends, end-October, and sacked in January, it amounts to a 20% subsidy
• Some observers have suggested that this is too little where it is needed and too much where it is not
• Employers that are quietly happy to receive a windfall will probably say nothing
• In hearing from companies at all, we may be therefore self-selecting adverse comments
• That said, Primark will not take the £30m bonus due from the taxpayer as a result of it taking back on its 30,000 furloughed staff.
• The BBC says this is ‘potentially putting pressure on other major firms not to take taxpayer money.’
• London Union’s Jonathan Downey, who would like to see the potential £9bn more carefully targeted, says ‘the job retention bonus is a disastrous waste of taxpayer cash, giving billions of pounds to companies that don’t need it to protect jobs that aren’t at risk.’
• Downey says: ‘the £9.4bn allocated to this could’ve been better used elsewhere.’
• Downey believes that larger units should have been given grants and the government could have paid the rent of operators for a year
• It is often difficult to disaggregate the self-interest from underlying beliefs
• The scheme is easy to understand and relatively easy to implement and it will help on the margin.
• Given how consumer confidence is impacted by job losses and the £1,000 bonus may head some of these off, any incentives to maintain staff should perhaps be welcomed
• This may just ‘get some employers over the line re retaining staff to wait while sales return to acceptable levels’.
• The furlough scheme has been good in its way but it has disguised levels of unemployment that must surely have risen sharply
• The £1,000 perhaps aims to continue this but at a fraction of the cost (although this is maybe not a bad thing)
• Further comments along the lines that ‘the money would be better spent subsidising rental payments.’ Yes and no. Corporate rents are cash payments between two corporations whilst job losses impact consumer demand almost immediately
• The ‘targeting is inefficient’. This is true. But if it (the £1,000) does the job, that might be a worry for tomorrow. Some (most? all?) of the money will come back through payroll taxes for employees kept on, avoided Universal Credit payment and corporate taxes if the company remains in business
• It’s all well and good a company turning down government handouts – but what do their shareholders think?
• A company may be under a fiduciary duty to maximise its income (for its shareholders) by any legal means
• The company could argue that it was ‘virtue signalling’ in order to enhance its brand value, though that is a little cynical
• The behaviour of companies such as John Lewis is a little easier to understand than AB Foods (Primark)
• What a V-shaped recovery looks like in practice.
PUB & RESTAURANT NEWS:
• Further comments that community pubs have outperformed city centre venues and that re-opening numbers are still building from a lowish base.
• Central London observation, customer. Surprising that so many pubs & restaurants were closed. Riverside units were busy, some busier than last week. The weather was better but confidence may also have firmed up a little.
• Some units running at around last year’s levels with beats earlier in the week but capacity constraints meaning that they were never in a position to challenge the big days over the weekend.
• Units will simply never be ‘mobbed’ under the current restrictions.
• Suburban units down by between 10% and 40% on last year. Some units up. Often special circumstances such as recently opened or lapping event last year that had held back trade.
• As we tweeted yesterday (see below), there is a degree of survivor bias here. Good news arguably travels faster than bad (if it isn’t spread by a third party) and pubs & restaurants, naturally, have opened the units they perceive will be busy, first.
• These are down (between a tad and maybe 40-50%). As we said yesterday, less good units, and there are a lot of them, are still down 100% in that they are shut. Some will stay that way. Industry needs sustained help.
Covid – the new (ab)normal:
• Wearing a face covering is to be mandatory in shops and supermarkets in England from July 24. No10 says that the science has evolved. Michael Gove had said on Sunday that it should not be compulsory. It’s not clear why there is a 10dy gap between making the decision and implementing it. It is unclear when or if the need to wear a face covering will be extended to pubs and restaurants.
• Analyst Peter Backman has said that it was striking that ‘hospitality was front and centre to the Government’s thinking at this tragically difficult time.’ As we mentioned in a piece last week, it’s nice to feel wanted.
• Hospitality is a major employer. Aside from the tragedy of unemployment, the sheer admin involved in taking large numbers of people onto Universal Credit for an unspecified amount of time would have been (hopefully will not be) very considerable.
• Backman says that industry has lobbied well and, though it certainly hasn’t been with one voice, there have been notable concerted efforts and the message has been consistent. This is a credit to a diverse and non-homogenous sector.
• Backman says the hospitality sector still faces ‘further existential challenges’ not least when it comes to ‘paying the rent, coping with reduced demand (despite the government’s measures), coping with further redundancies and many more ugly pressures.’
• It remains unclear just how much of the 13% (15/120) reduction in price will be passed on to the consumer. The industry has to choose between widening margins and cutting prices. Our betting is that it does first the one and then the other.
• This not least because, with not all units open (by any manner of means) and reduced demand, price is not an issue. This will become more acute as additional units are reopened and, at that point, prices may be cut. Some operators are moving early – see JDW below.
• See our various comments on The Speed of the Slowest. Various budgetary incentives, including the half-price (cheap) meals on Mondays, Tuesdays and Wednesdays next month, will only tempt in customers to town centre sandwich shops and the like if the public transport necessary to get them there is running and if customers are confident enough to venture out of the house.
• The latest Consumer Sentiment Tracker from Feed it Back and KAM Media has found that net promoter scores across the hospitality industry ‘are up compared with pre-lockdown, but there was a drop this weekend compared with opening weekend.’ Feed It Back say this drop could be because ‘re-opening weekend is likely to have attracted the keenest and most enthusiastic hospitality supporters so the high score last weekend will reflect this. Overall satisfaction ratings were fairly stable.’
• KAM reports ‘an impressive 93% of those who visited pubs and restaurants at the weekend said that the venues new procedures made them feel safe enough to return, a slight drop from re-opening weekend.’ It says ‘the vast majority [of customers] are feeling happy with the new procedures which operators have adopted, which is testament to the hard work and commitment which the industry is putting in to ensure that customers feel safe.’
• As mentioned previously, CGA reports that ‘sales of alcohol in managed pubs and bars outstripped non-alcoholic drinks on the 4 July weekend.’
• Wireless Social reports that more than 70 brands have signed up its track and trace product developed in partnership with analytics company, Purple AI.
• Pragma Consulting reports that data emerging from Germany suggests a strong rebound in restaurant trade in May as consumers were able to meet once again with friends and family.’ M&B said last month that sales in its German Alex restaurant chain opened at around 50% of prior levels and rose steadily (at the time of the company’s comments) to 70% of prior year.
• Pragma says ‘a note of caution must also be struck. There is likely to be significant regional variations; for instance, inner city locations may struggle as professionals continue to work from home.’
• We would suggest that now would not be the best of times to be a heavily-indebted, late-night, intentionally-crowded, inner-city operator of large venues reliant on public transport.
Not all plain sailing
• Secondary shutdowns in Florida and a number of other US states. California bars to re-close. Florida bar owners are suing their governor over re-imposed restrictions. A similar move is taking place in Texas. KFC is closing 40 of its restaurants in Florida. It says ‘we have advised our franchise locations in the hot spot states of Florida, Texas, Arizona and California that have reopened to consider closing dining rooms for dine-in seating at this time.’
• Hong Kong has tightened social distancing rules again
• The South African government has reinstated its ban on domestic alcohol sales
• California governor Gavin Newsom has tweeted ‘COVID19 cases continue to spread at alarming rates. CA is now closing indoor operations STATEWIDE for: -Restaurants -Wineries -Movie theaters, family entertainment -Zoos, museums -Cardrooms Bars must close ALL operations.’
• Newsom says ‘this virus is not going away any time soon. It’s incumbent upon all of us to recognize soberly that COVID -19 is not going away any time soon, until there is a vaccine and/or an effective therapy.’
• Arizona has ordered that restaurants operate at 50% dining room capacity.
• Hong Kong Disneyland is shutting again less than one month after it reopened due to Covid-19 outbreaks.
• Barclaycard has reported that ‘June sees gradual recovery as warm weather and the reopening of shops steadies consumer spending.’ It says ‘spending on essentials grew 6.6 per cent, bolstered by the highest increase in supermarket expenditure since the start of the year.’ Barclaycard adds ‘non-essential spend fell 22.3 per cent – less sharply than in May – as the reopening of non-essential shops boosted consumer spending.’
• Barclaycard reports ‘while over half of Brits continue to avoid the shops, household confidence has held up as consumers save money by postponing summer holidays.’ It says ‘consumer spending fell 14.5 per cent year-on-year in June – the smallest decline since lockdown began – with month-on-month figures showing an uplift as shops re-open.’
• Shopping in supermarkets was up by 25.7 per cent overall, ‘its sharpest since the start of the year. Online grocery spend also jumped significantly by 105.9 per cent year-on-year, as demand for home deliveries saw supermarkets increase their available slots for online orders.’
• Spending on fuel was down by 33.8 per cent and ‘spending at sports and outdoor retailers rose a significant 50 per cent in the week of 14th-20th June.’ At this point, pubs & restaurants had still not reopened. Barclaycard says ‘while overall spending on eating and drinking declined by 56.4 per cent year-on-year, this represents a less steep drop than May (70.3 per cent). Takeaways and fast food rose for the first time since pre-lockdown with a 5.7 per cent yearly growth, as restaurants, pubs and cafes continued to establish takeaway and delivery services and Brits enjoyed al-fresco dining with friends.’
• Barclaycard cautions ‘there were signs, however, that the high street’s recovery may be a long one as over half (56 per cent) of consumers continue to avoid the shops. Three in 10 (31 per cent) Brits admit to delaying shopping because they are afraid of getting or spreading coronavirus, while 18 per cent say they are put off by crowds. New social distancing rules are providing some reassurance, with nearly a fifth (18 per cent) more likely to return to shops because of these precautions.’
• The card processor concludes ‘while shoppers remain understandably cautious, slowly but surely Brits are starting to spend again.’ It says ‘the recent VAT cut and meal vouchers are also a positive sign for the hospitality industry and it will be interesting to see how these measures impact consumer spending.’ We have yet to see how much of the price reduction is passed on to consumers.
• Among hospitality and leisure sub-sectors, Barclaycard says that June spending was down against June last year by 71.4% overall. By 56.4% in eating and drinking, by 86.0% in restaurants, by 93.0% in pubs & bars and was up by 5.7% in takeaways. This may have been skewed by a reluctance to use (or a ban on) cash. Entertainment spend was down by 76.5%, spend on hotels & resorts down 75.8% and Travel spend was down by 80.1%.
• Meanwhile, the BRC has said that retail sales values rose by 3.4% in June this year versus June 2019. It suggests that a release of pent-up demand spurred the growth. The BRC says ‘though a month of growth is welcome news, retail is not out of the woods yet. The pandemic continues to pose huge challenges to the industry, with ongoing stores closures and job losses across the UK.’
• Fever Tree has updated on trading saying that ‘we had a solid start to the year with Group trading in the first two months in-line with expectations. From March onwards, trading across our regions has been dominated by the impacts of COVID-19, leading to widespread closure of the On-Trade alongside a consistently strong performance through our Off-Trade channels.’
• Fever Tree says: ‘in the UK, positive momentum in both the spirits and mixer categories in the Off-Trade during lockdown has continued.’ Off trade sales in the 12 weeks to 14th June were up 34% year-on-year. US off-trade sales are also strong at +89% for the 12wks to 13 June. Off-trade sales in Europe are ‘robust’ and in the rest of the world are ‘strong’.
• Re the On-Trade, Fever Tree says this ‘is gradually re-opening across many of our regions.’ It says ‘the changes in channel and territory mix resulting from COVID-19 are expected to lead to gross margin headwinds during this financial year.’
• The group announces the acquisition of Global Drinks Partnership in Germany ‘to optimise route-to-market’. CEO Tim Warrillow says ‘the completion of the GDP acquisition is an important step as we execute our growth plans in Germany,.’
• Pepsi reported Q2 numbers yesterday saying that food sales rose but that its drink sales were lower. The company says ‘as mobility has started to increase, you do see the beverage business doing better.’
• Diageo has created ‘the world’s first ever 100% plastic free paper-based spirits bottle, made entirely from sustainably sourced wood.’
• JD Wetherspoon has announced that it will cut prices to customers in light of the recent cut in VAT on food and soft drinks. The company has suggested that it will pass the reduction on to its customers in full.
• The Morning Advertiser reports that ‘as a result of the tax cut, JDW will offer a pint of Ruddles Bitter for £1.29 (down about 50p on average), a pint of Doom Bar at £1.79 (down 31p on average), Abbot Ale (down 40p on average) and guest beers at £1.99 (down 26p on average) across 764 of its pubs.’ This despite the fact that the cut in VAT does not extend to beer. The MA says ‘all JDW pubs including those in town and city centres, airports and stations will see prices reduced for these products.’
• Marston’s CEO Ralph Findlay has told the Evening Standard that he is pleased with the way the company’s pubs reopened and says that, although Saturday had been hyped ahead of the day itself, it provides a point from which to build a steady recovery.
• Findlay says city centres are the most difficult geographies with the strongest part of the market currently community locals. Wet-led pubs have outperformed food. He says that ‘what people have missed above all is a pint of beer, and a bit of a relaxing occasion.’
• Shake Shack is to offer its Chick’n Bites to UK consumers from today.
• The BBPA has commented on the UK government’s update on its proposed points-based immigration system saying ‘today’s announcement on the new points-based immigration system provides important clarity but will present significant challenges for our sector.’ It says pubs ‘will find it incredibly challenging to absorb the costs and complexities of becoming a sponsoring employer in order to take on staff from outside the UK.’
HOLIDAYS & LEISURE TRAVEL:
• Butlin’s is to reopen a number of its resorts on July 24. It had been holding back as swimming pools, hitherto, had not been allowed to operate.
• Heathrow has reported passenger numbers were down by 95% in June compared with the same month last year.
• STR has updated on the London hotel industry saying that occupancy fell by 74% in June this year compared with the same month last year. It reports that room rates were down by 59% and REVPAR was 90% lower.
• STR says ‘the absolute levels in each of the three metrics would be the lowest for any month on record in STR’s London database. STR analysts do not expect significant performance increases until restrictions are eased further in the U.K.’
• Travelodge is to reopen a further 100 properties this week. It says it will continue to reopen around 100 hotels per week this month.
• Irish hotelier Dalata has confirmed that it has ‘significant financial headroom’
• Tour operator Fleetway Travel has entered administration after over 40 years in business.
• Holiday Extras is cutting 330 jobs (and thus turning its back on £330,000 of job retention bonuses due in January).
• Virgin Atlantic is reported set to seal a £1.2 billion rescue deal. The Times says ‘last night the airline was putting the finishing touches to agreements with three credit-card payment processors…to ensure passenger payments were released to the airline.’ It says ‘agreement would allow the company to press ahead with a recapitalisation under which Davidson Kempner, a US hedge fund, will inject almost £200 million.’ Sir Richard Branson will put in a similar amount, ‘raised from the sale of shares in Virgin Galactic, his space venture.’
• The Times says ‘the financing will leave intact the 51 per cent equity holding of Virgin Group and the 49 per cent held by Delta Air Lines.’
• UK Hospitality says that the new European regulations providing increased transparency and fairer online terms and conditions, which come into effect this week, will help to ensure a level playing field between operators.
• Hotelier Iberostar plans to continue a phased reopening with more than 45 properties set to open in nine destinations over the next couple of months.
• Celebrity Cruise’s CEO Lisa Lutoff-Perlo has told Travel Weekly that sentiment in the new-to-cruise market has ‘turned pretty negative’ recently but that cruising will ‘ultimately be the safest vacation’ in the world. Persuading new customers to try out cruising for the first time could be something of a challenge.
FINANCE & ECONOMICS:
• The Telegraph reports that Britain has more potential “zombie” companies (i.e. highly indebted companies) than other countries because of the debt taken on by companies even ahead of their struggle to cope with the Covid-19 shutdown.
• Singapore has entered recession with GDP in Q2 down 12.6% year on year.
• Sterling lower at $1.2553 and €1.1064. Oil lower at $41.92. UK 10yr gilt yield up 4bps at 0.29%. World markets. UK & Europe up yesterday but US mixed. Far East lower in Tuesday trade. London set to open down around 65pts as at 1am.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• BRC Retail Sales figures for June (the 5 weeks to July 4th): We thought that today’s figures, which came out overnight, would still show total sales down (after the 19% slump in April and the c6% fall in May), despite strong Online sales growth, but the outcome was actually 3.4% up. The BRC pointed to the strength of pent-up demand and noted that “Computing, furniture and home improvement all continued to do well as the public invested in home comforts and remote working”, but the decent weather gave the biggest boost to Food sales. The key Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +3.8% and -15.0% respectively), but it looks to us as if total Food sales were c6%/7% up and that Non-Food sales were fractionally up. The overall improved Non-Food performance was driven by decent growth in sub-sectors like Computing, Furniture and
• AO.com: Investors who have pumped the AO.com share price up to the heady heights of 164p since the start of the lockdown may be disappointed to see that the company has not chosen to provide a detailed trading update with today’s delayed finals for y/e March.
• Today’s Other News: There is still no more news yet from the embattled Boohoo this morning, eg about company shareholding changes, but DFS has issued a bullish trading update, flagging that it has experienced very strong trading in stores since reopening with order intake up 69% year-on-year (thanks to the release of latent demand from customers) and that it has “a materially higher order bank year-on-year”.
• News Flow This Week: Tomorrow brings the Dixons Carphone finals, the Dunelm Q1 update, the ASOS trading update and the Burberry AGM. On Thursday we get the Frasers Group finals and the Marshall Motors AGM, with the Homeserve AGM on Friday.