Langton Capital – 2020-09-25 – Jobs, Winter Economy Plan, stay at home, 10pm curfew, confidence etc.:
Jobs, Winter Economy Plan, stay at home, 10pm curfew, confidence etc.:
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A DAY IN THE LIFE:
When is it the right time to replace your phone?
Of course, you might just be trying to engineer a reason to get a new piece of kit but is cracking the back of it good enough?
Probably not and, as mine has a broken back case (rectified by putting a case protector on it, which we suspect caused the problem in the first place), it’s clear that the thing can function pretty well even carrying this sort of injury.
However, when I put my phone to charge on the radiator (stupid, short, 30cm charging wire. Not my fault at all) and then put the radiator on, I managed to burn a yellowy brown stripe the length of the screen – and I thought I had a good enough excuse.
But the phone laughed it off as nothing but a scratch and, as the screen has since developed a crack and a bit of plastic has disappeared from around the charging point, I’m beginning to suspect that, like a Kalashnikov or a two inch stub of pencil, the thing is indestructible and that it will last longer than I will.
There is, of course, the emergency ‘I dropped my phone in the loo’ excuse if you really need to use it. That can usually be relied upon to do the trick. Early December could be a good time, just before Christmas. Sorted.
Anyway, follow us for real time developments on Twitter at @brumbymark and on to the news:
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WHEN IS A JOB NOT A JOB? Chancellor Rishi Sunak is struggling with this question as we write. 25 Sept 2020:
• It’s sometimes worth folding your hand early. The alternative may be to feed the pot, run up your liabilities and have nothing positive to show for the process at the end.
• Of course, this is clearer with hindsight than it is ‘in the moment’.
• But it is a real issue now for companies being offered more debt, rent rollups, VAT deferrals and the rest.
• They are being invited to run up more and more liabilities but they must, at some point, ask themselves if they will be able to pay this back.
• Certainly, chancellor Rishi Sunak is asking a similar question on behalf of the taxpayer when it comes to the c1m hospitality ‘jobs’ that are still being furloughed.
State aid in context:
• The chancellor has said from the early days of the pandemic that the taxpayer will not be able to save every single job.
• Some 1m hospitality jobs are currently furloughed and, given the weather, the end of EOTHO and tightened Covid-19 restrictions, it is possible (indeed likely) that fewer rather than more workers will be needed over the medium term
• Tasty said, before the current tightened restrictions, that it may re-close some units once EOTHO ended
• Hence employers will be making difficult decisions. The government is here offering to pay 22% of employees’ wages – but that may not be enough to move the dial when employers are making decisions re labour scheduling
Human nature in this kind of situation:
• To a hammer, everything is a nail. A restaurant, bar or pub owner is just that. A restaurant, bar or pub owner.
• They will not want to throw in the towel and become a care worker or an Amazon delivery driver.
• But, at some point…
• This will be a tough sell. Baristas, cocktail bar staff and the like will face some decisions every bit as tough as their employers
• Elsewhere, it might always have been likely that trade bodies and companies would have said that the measures were ‘nice but don’t go far enough’.
• However, a certain theme has developed in the comments (see general email below) and operators seem to mean it when they say the measures will not be sufficient to stave off job cuts
How many of the 1m jobs can be saved?
• As the chancellor was asked this question directly, and ducked it, we feel justified in not giving a number
• However, as the direction of travel as far as potential revenues has changed over the last couple of weeks, it is likely that a large number may not be required by their current employers going forward
• Larger firms may have put off their redundancy programmes until they knew just what the chancellor felt able to offer
• Whitbread, JDW, SSP, Restaurant Group and many other operators (not least those undergoing CVAs) have not waited to see yesterday’s detail
• Those that have waited may feel the need to take action on staff numbers sooner rather than later
PUBS & RESTAURANTS:
Chancellor Rishi Sunak’s Winter Economy Plan:
• Winter has been coming for some time. Chancellor Rishi Sunak yesterday put in place some measures that he says will support industry over the coming months. Although too late for some employees at Whitbread, JDW and dozens of casual diners and coffee chains that have either enacted CVAs or cut staff, Mr Sunak says that it is intended to keep workers in their jobs.
• VAT on hospitality services (excluding alcoholic drink) will remain at 5% until the end of March 2021. It had been set to return to 20% on 13 January.
• The chancellor says this will cost the taxpayer £800m (on top of the £2.5bn cost of running the cut to 12 Jan). If 80% or 90% of this is kept by companies (rather than being passed on to customers), it represents a c£700m windfall.
• The repayment of accrued VAT can be smoothed over the best part of a year. It was originally due in March next year.
• A job support scheme will replace the furlough. The government will subsidise the pay of employees who are working fewer than normal hours due to lower demand. Workers must do at least a third of their normal hours
• The government will pay a maximum of 22% of a worker’s wages, down from 80% at the height of the furlough scheme.
• Bounce Back Loans payment terms will be extended from six years to 10. The government says this will cut monthly repayments by nearly half. CBILS will also rise from 6yrs to 10yrs. There will be a chance for some borrowers to suspend payments
The government’s view:
• The government says the measures will ‘help protect 2.4 million jobs through the winter’.
• The chancellor doesn’t want to effectively waste government money or workers’ time on protecting jobs that no longer exist
• Working out just which jobs these are could be a) more easily said than done and b) be a painful process
• Sunak says it is ‘impossible’ to predict how many jobs the government’s new wage subsidy scheme will save. There will be estimates but, at this time, they are not being shared.
Industry and trade body responses:
• The British Beer & Pub Association says ‘we were really hoping for a strong package of support today.’ It says ‘some elements of the Chancellor’s plan today are welcome, but do not go nearly far enough to save the thousands of pubs and jobs that we have highlighted are at serious risk.’
• The BBPA says ‘the VAT cut extension on food and soft drinks will help our sector and it is great to see the Chancellor answer our urgent call for this. However, the extension is only for six weeks and only takes us through to the end of the current restrictions – it needs to be much longer to help our sector recover.’
• The measures do less to help wet-led pubs.
• The BBPA says it is ‘very concerning to see the Chancellor not extend the business rates relief for pubs. Pubs now face a cliff edge come March 2021 where they will have to pay on average £25,000 each per rate paying pub. That’s a cost of £800 million to the sector which will be the final straw for many pubs. We need the Chancellor to review this and extend the business rates holiday as a matter of urgency.’
• The BBPA says that taking on more debt or lengthening its terms ‘isn’t even a viable option’ for many pubs.
• The Society of Independent Brewers CEO James Calder says ‘the Chancellor’s announcement that a new job support scheme for people in work will be introduced from November is welcome and will protect jobs, however it does not address the serious issues facing the brewing and hospitality industries which have been amongst the worst impacted by Coronavirus.’
• SIBA says ‘without targeted support for the beer, brewing and broader hospitality industry, which has been specifically targeted by new restrictions, then we will see widespread business closures of breweries and pubs.’
• SIBA points out that the 5% VAT extension does not help brewers.
• The Food & Drink Federation says ‘the decision to introduce the Jobs Support Scheme and to extend the VAT cut for hospitality are welcome from the government but simply do not go far enough.’
• There is a bit of a theme developing here.
• The FDF says ‘only by continuing a targeted furlough scheme while the current restrictions remain will we avoid mass long-term unemployment and the decimation of a sector that could otherwise support our economic recovery once the pandemic is over. We urge the UK Government to engage with those industries most impacted about what more can be done to support those food and drink businesses most affected by the restrictions.’
• UKH’s CEO Kate Nicholls comments ‘there is quite a bit of conditionality in the new support scheme which makes it challenging for hospitality businesses facing challenges in predicting demands and business going forward – we want to work with govt to get the details right to support hospitality.’
• UKH said yesterday ‘the announcement of further restrictions yesterday was a significant hammer blow that will inevitably depress trading. It was crucial that the Chancellor delivered support today that specifically targeted the hospitality sector which has been hit harder than any. The announcement of flexible employee support is a move in the right direction, but hospitality needs more targeted efforts to support jobs.’
• UKH says ‘almost 1 million people in our sector are still on furlough. We need Government to go further in hospitality, recognising the greater restrictions imposed upon us, and pick up the full cost of unworked hours.’
• It adds ‘the extension of the VAT cut was absolutely critical. UKHospitality had pushed hard for it, so it is great to see the Government taking note of our major concerns about recovery into 2021, though this must be extended further. The announcement of longer tax deferrals and the option of longer loan repayments should deliver some much-needed breathing room for employers.’
• UKH says ‘the Chancellor has given us some reason to be positive again, but we urge him to engage with the trade on specific measures to keep people in work. While some of these measures announced today will give businesses a future to shoot for, and hope that they can begin to rebuild, we are still not out of the woods.’
• In a number of thoughtful comments, the ICAEW says ‘this will be a challenging winter, with hard choices to make for many businesses who have already taken on additional risk or debt. Only time will tell whether these measures go far enough, particularly for those sectors bearing the brunt of current restrictions.’
• It continues ‘the deferral of the full Budget Statement to the new year is understandable in the context of significant economic uncertainty, but I hope the Government uses the winter wisely to plan ahead for the coming spring. Looking forward, we need to see a long-term strategy with intervention and investment to create jobs with a future, especially in the green, scientific, professional and business services sectors.’
• The ICAEW concludes ‘business and consumer confidence remain fragile, so a successful outcome to the UK-EU trade talks is also vital.’
• Fuller’s CEO Simon Emeny tweeted ‘if previously successful pubs or hotels have been forced to close and hibernate for 6 months due to @10DowningStreet restrictions on City centres announced on Tuesday, how will the measures announced by @RishiSunak help save jobs?’
• London Union’s Jonathan Downey says ‘as expected a subsidy to support those in part time work and an extension of the VAT break (to 31 March 2021). This is nowhere near enough and will almost certainly lead to the loss of 1 million jobs in hospitality alone.’
• Downey adds ‘this government has enforced a reckless and catastrophic new curfew policy that will kill off businesses but these new measures will do nothing to protect the jobs at risk in our industry.’
• JW Lees MD William Lees Jones tweeted that ‘@RishiSunak has forgotten that hospitality employs a lot of people and his new job support scheme does not work – 6 weeks’ extra VAT at reduced rate and deferred tax bills are a help but 10pm closing, winter and the rule of 6 are going to close a lot of pubs, bars and restaurants.’
• COO at BrewDog David McDowall tweeted ‘the hopes of our sector have been crushed.’ He says ‘@RishiSunak hasn’t come close. Just not enough to avert a crisis facing thousands of businesses and hundreds of thousands of livelihoods. It all stems from a curfew that is seriously misguided and not based on any concrete evidence.’
Footfall, stay at home advice to office workers etc.
• As mentioned yesterday, it will be difficult or impossible to disaggregate the impact of cooler weather from that of stricter measures to combat Covid-19.
• Nonetheless, New West End reports that ‘footfall was down 18% week-on-week on Wednesday, 23 September.’ It says ‘compared to the same day last year, footfall was down 63%.’
• New West End says ‘a significant decline in visitation is highly likely related to poor weather (7°C colder than last Wednesday, with 18 mm of rainfall in Central London), as well as the new government guidelines.’ It says ‘there was a notable decline in footfall around morning commute hours (footfall between 8-9:00 AM down 70% year-on-year). Compared to last week, footfall started falling around 1:00 PM (-27% week-on-week) and this negative trend continuing through the afternoon and evening.’
• The Telegraph reports that, in London, the ‘City [is] back in shutdown as firms send staff home.’ It says a ‘raft of big employers expected to update their guidance to staff after Boris Johnson’s address to the nation. Britain’s biggest banks, law firms and accountants have cancelled plans to bring thousands of workers back to the office following new advice from ministers – dragging the City back into shutdown and sparking fresh fears for London’s tottering economy.’
• This will have an obvious impact on operators trading in the City, near transport hubs and in city centres in general. The Telegraph says ‘those to U-turn include accountant PwC, which was previously an enthusiastic supporter of the return to work but has now told its 22,000 UK staff to stop coming to the office unless they have a clear personal or business need.’
• There are a whole host of other examples.
• GfK has updated on UK consumer confidence saying ‘despite unfavourable double-dip economic headwinds and the threat of a second lockdown, we report an uptick for September as the Overall Index Score climbs to minus 25 from the near-historic low of minus 36 in our early June ‘flash’.’
• GfK says ‘this means consumer confidence has crept forward for nearly four months now but can this fragile improvement last or is it about to come to a grinding halt? Looking ahead over the rest of 2020 and beyond, keep an eye on our personal finance measure for the coming year and the major purchase intentions of consumers.’
• It concludes ‘consumers are as jittery as stock markets right now and as the UK government puts the brakes back on – and there may be more to come – only an unbridled optimist will bet on confidence climbing further.’
• Sky reports that the first night of a 10pm curfew on pubs and restaurants has passed ‘largely without incident in England and Wales’ – but it says that some venues are warning that the absence of late-night drinkers could put their future into jeopardy.
• JDW chairman Tim Martin has commented on the 10pm curfew saying ‘it’s another random and arbitrary move by the govt which lacks logic or scientific credibility – it’s part of their “don’t just stand there, do something” approach.’ He says ‘it will reduce sales for hard-pressed pubs and restaurants, reduce employment and reduce govt taxes as a result.’
• Mr Martin adds ‘it will also increase the level of unsupervised socialising in the UK, as customers leave pubs and restaurants earlier.’ He says ‘there are about 3 million people employed in the hospitality industry and they are doing their conscientious best, with considerable success, to ensure that social distancing and hygiene standards are observed.’
• Cask Ale Week started yesterday, Thursday 24th September. Paul Nunny of Cask Marque, and instigator of Cask Ale Week, says ‘to survive in the long run, pubs and breweries need people to visit now. Going to the pub for a pint of real ale helps keep pubs – so often the hearts of their communities – open. It supports desperately needed jobs in hospitality, many among young people, who are the hardest hit economically.’
• Cornwall’s Camel Valley is reportedly set to complete its earliest grape harvest on record.
• Morrisons is reportedly restricting the number of items customers can purchase in some areas in order to head off panic buying.
HOTELS & LEISURE TRAVEL:
• Travel industry organisations have welcomed Mr Sunak’s measures but have warned that they may not go far enough to prevent further large-scale redundancies
• STR reports that US hotel occupancy was nearly flat from the previous week in the week to 19 September. Year on year was a different story with occupancy down 32%, rates down 29% and REVPAR some 52% lower.
• STR says that, in the US, ‘demand rose slightly (+0.3%), and the highest occupancy markets were once again those housing displaced residents from Hurricane Laura and western wildfires, with California South/Central showing the highest level in the metric (74.7%).’
• Travelers returning from Denmark, Slovakia, Iceland and Curacao will have to self-isolate for 14 days from this Saturday.
FINANCE & MARKETS:
• Sterling higher at $1.2756 and €1.0929. Oil up at $42.11. UK 10yr gilt yield up 2bps at 0,23%. World markets mixed with London set to open up around 30pts.
• UK government borrowing hit £35.9bn in August due to costs associated with Covid-19 reports the ONS. This is up £30.5bn on the figure for August last year and is the highest August since records began.
RETAIL WITH NICK BUBB:
Consumer Confidence Watch: After today’s latest report from the widely followed monthly GFK Consumer Confidence index, we would highlight that that the record -39 index low seen in July 2008 has still not been tested so far in the current crisis…The overall index ticked up to -25 from the -27 level seen in the report for last month (versus the -36 low seen in the early June “flash” report), but polling was done between 1st and 14th September, ie well before the latest gloom about a “second wave” of the pandemic and GfK’s Client Strategy Director Joe Staton says: “Only an unbridled optimist will bet on confidence climbing further”.
Today’s News: Mighty Boohoo has announced the result of the Independent Review of its UK supply chain by Alison Levitt QC, which is entitled An agenda for change in UK garment manufacturing” and flags that “Ms Levitt is satisfied that Boohoo did not deliberately allow poor conditions and low pay to exist within its supply chain, it did not intentionally profit from them and its business model is not founded on exploiting workers in Leicester”. Boohoo is holding a conference call for analysts at 8am, ahead of ist interims next week, but there is little evidence that the negative PR about “sweat shop” conditions in Leicester affected customer demand and the share price is unlikely to come to much harm today. And the embattled Mothercare has announced its delayed finals for y/e March today (2 days after its AGM?), flagging that although it boasts of “emerging as a sustainable, capital
News Flow Next Week: We could get the delayed Pendragon interims at some point next week, but the week definitely kicks off with the Mulberry AGM on Monday. Tuesday then brings the Greggs Q3 update, the Card Factory interims, the ScS finals and the Hotel Chocolat finals. On Wednesday we get the Boohoo interims and the Topps Tiles pre-close and Thursday brings the Studio Retail AGM.