Langton Capital – 2020-10-08 – PREMIUM – Scotland closures, English options, Shep Neame, GVC, New River etc.:
Scotland closures, English options, Shep Neame, GVC, New River etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We had a pair of frisky roe deer in the garden during the summer months who, laughing dismissively at the fence we had thought would keep them out, came and went pretty much as they pleased.
They looked good but, it has to be said, they stripped quite a lot of the bark from our fruit trees and then infested our long grass with ticks known, with good reason, as deer ticks, most of which found their way, over time, onto the dog’s head.
Rather him than us, of course.
If you will go rubbing your head in the dirt but stripping engorged ticks so near to his teeth took a bit of nerve meaning that, thank you very much, we’d just as soon the deer didn’t come back.
Not that we’ll have much of a say in the matter and, after a nice, sunny day yesterday, it’s due to be bright again after lunch.
Time to move on to the news & follow us for real time developments on Twitter at @brumbymark:
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INCREASED RESTRICTIONS IN SCOTLAND: With many arguing that restrictions should be removed, particularly the 10pm curfew, here a reminder that regulations can also move in the opposite direction. 8 Oct 2020:
• This has been somewhat overtaken by events, namely the well-placed stories that pubs in (some areas of) the North of England may be obliged to shut. But here it is nonetheless.
• See general email for what the rules are, when they are to be introduced and for industry and company reactions
Be careful what you wish for:
• Prompting a government, in this case the Scottish government, to review its regulations, can lead to increased rather than relaxed restrictions
• MPs vote on the 10pm curfew in England next week.
• Raising the whole issue of the severity of the clampdown on hospitality at a time when infection levels are ballooning might have an unpredictable outcome
• Infections have been doubling perhaps every week meaning that, when the 10pm curfew was first attacked politically 2wks ago or so as being an unresearched gimmick (fair shout), infections were only around a quarter of current levels
• Looking at our own dear York as an example, infections per 100k, when Langton Capital succumbed personally to the virus, almost exactly a month ago, were around 15.
• In the four weeks since, infections have risen to around 35, then 50, then 70 and most recently 192 registering a veritable explosion in the last 10dys or so
• To put this in context, York is running at around 2.5x Scotland as a whole, almost 2x England and around 0.5x hotspots such as Leeds, Liverpool & Newcastle
• Certainly, hospitalisations are lagging (and many of those infected are fit, young and healthy) but concerns must be rising
Regulations tend to be quick-on and slow-off:
• Regulations are ‘slapped’ on but ‘eased’ off.
• Hence a move, such as that in Scotland, may take some time to be completely removed.
• The idea of a ‘short, sharp, shock’ suggests that it will be rapidly reversed. But the actuality here remains to be seen.
The practical implications:
• In the comments re the implication of the lockdown below, we have two devastatings, one death sentence (but how many do you need?), one knockout blow and one catastrophe
• This is extreme language with little held in reserve but, to industry professionals who have seen their operations open, shut, open and now shortly shut (and then open again), it is not surprising
• Because the idea of a fire-break sounds sensible and indeed it may be sensible, but it fails to convey just how much work and admin and heartache is involved in closing a business, running down its stock (in less than 48hrs), laying off its staff, discussing its future with suppliers etc.
• And then the premises will need to be secured, the beer will need to be destroyed, there will be (another) working capital outflow etc. etc. etc.
• Ex the furlough, staff cannot realistically be paid so, on the human level, tens of thousands of staff may be attempting to negotiate the Hell that is Universal Credit come this time Friday
• Against this backdrop, the £40m, unless it is conveyed, in cash, almost immediately to the venues affected, is virtually an insult
The read-across for England:
• Not positive and not neutral.
• Though, on a political level, English politicians may not wish to be seen to be emulating their Scottish peers.
• This may introduce a drag on the timing but, as far as direction of travel is concerned, there are negative implications.
SCOTTISH 16-DAY LOCKDOWN:
Scotland’s ‘short, sharp action to arrest a worrying increase in infection’:
• First Minister Nicola Sturgeon has said that all pubs and licensed restaurants across central Scotland are to be closed under new measures aimed at tackling a surge in coronavirus cases.
• Pubs across central Scotland, including Glasgow & Edinburgh, will only be allowed to serve alcohol outdoors. That’s not very helpful in October. Residents in hotels will be excluded. The rules come into force from 6pm this Friday until 25 October. Around 3.4 million people live in the area subject to new regulation.
• Sturgeon said infection levels were in danger of ‘returning to the peak level…by the end of the month.’ She says ‘indoor environments, where different households from different age groups can mix, inevitably present a risk of transmission. That risk can be increased in some hospitality premises if good ventilation is difficult, and if it is hard to control the movement of people.’
• She says ‘the presence of alcohol can of course affect people’s willingness to physically distance.’
• Cafes not selling alcohol will be allowed to remain open until 6pm.
• Other leisure activities will also have to close. These include snooker and pool halls, indoor bowling alleys, casinos and bingo halls. Contact sports will be suspended for the next two weeks, although professional sports can continue. Outdoor live events will not be permitted
Additional financial support:
• The Scottish government has said that £40m in aid will be provided. Inception co-founder Charlie Gilkes points out that ‘£40m support in Scotland between over 16,000 licensed premises is just over £2k each.’ He says this is ‘nothing like enough to cover fixed costs.’
• Scottish Conservative leader Ruth Davidson called for more details about support. She says many businesses are ‘running on empty’.
Implications for England:
• Although ministers may deny it, Scotland has both a) tended to be slightly more cautious than England but also b) has often been ahead of its southern neighbour when it comes to imposing restrictions.
• This despite infections in Scotland (85 per 100k) being below those in England (109 per 100k). The BBC points out that infection rates in Liverpool, Manchester and Newcastle are more than twice the level of infection in Glasgow.
Industry & trade body response:
• The Scottish Hospitality Group has said this is ‘a death sentence’ for many small businesses.
• The Federation of Small Businesses says that the move will impact many areas of the economy, including tourism.
• The SBPA says that ‘further restrictions will deliver a ‘knockout blow’ for many pubs – thousands of pubs, jobs and livelihoods [are] at severe risk.’ It says ‘thousands of jobs are now at high risk not just in the pub and hospitality sector, but across the wider supply chain.’
• SBPA CEO Emma McClarkin says ‘these harsh new restrictions will deliver a knockout blow for many of Scotland’s much-loved pubs and the communities they serve. We entirely understand and appreciate the difficult situation of the government and the need to continue to take measures to suppress the virus, but we question the fairness and wisdom of these restrictions and the level of financial support available to help our sector through this.’
• Ms McClarkin says ‘pubs across the country provide a safe regulated environment for people to socialise in, but also increasingly as a space to work or study. The small number which can continue to operate with these restrictions will do so, but unfortunately without an ability to sell any alcohol, most are unlikely to be viable.’
• Nick MacKenzie, CEO of Greene King, which has 240 pubs in Scotland and 2500 employees, says ‘today’s shut-down of Scottish pubs is a devastating blow for the thousands of people who work in the industry.’
• He says ‘the sector has already seen pub closures and job losses and a second shut-down will see more closures and lost jobs in every Scottish community. We welcome the acknowledgement that support is needed but are concerned that £40m won’t go far enough and urgently need to understand the detail and the speed this can be deployed.’
• UKH says ‘this is a total catastrophe. Scottish hospitality is already on the brink and is unable to look ahead with any degree of confidence.’ It says ‘forced closures will spell the end for many, many venues which have no cash flow and will have exhausted their reserves. Severe restrictions to those businesses not forced to close will amount to a closure for many. It is likely to be the final straw for many that were only just hanging on. We are going to see businesses fold and many jobs lost.’
• SIBA says ‘the Scottish Government needs to urgently publish the full evidence for this lockdown and guarantee that small breweries will be eligible for the financial assistance package.’
• It adds ‘pubs and small breweries are in a fragile state because of the Covid crisis and for many this sudden shut down in Scotland will be the final blow. A two week shut down will mean fresh cask beer will have to be destroyed in pub cellars, with pubs or small breweries footing the bill, and the beer supply chain from breweries into pubs must once again come to a dead stop.’
• CAMRA says the move is ‘absolutely devastating news for pubs and breweries.’ It says ‘publicans who have been operating at reduced rates, and who have already invested thousands of pounds of their dwindling reserves making their premises COVID-secure, now face 16 days without any turnover whatsoever. Understandably, they feel like pubs have become the scapegoat for the pandemic.’
• The Scottish Licensed Trade Association, speaking before the details of the lockdown were announced, said the country was already in danger of losing around a third of its pubs even before the onset of Covid-19, risking around 12,500 jobs – which has been exacerbated by the 10pm curfew, but could double if further restrictions are put in place.
• See Premium Email for Langton comment.
PUBS & RESTAURANTS:
Possible closures in some parts of Northern England
• Sky reports ‘Johnson expected to order pubs in North of England to shut’. It says the PM ‘is expected to order tough new COVID curbs next week on pubs in northern England, which could include closing them altogether in Liverpool, Manchester and Newcastle.’
• This presumably would be area-by-area. But it is a leak at this stage, not accepted policy.
• It is prima facie at odds with the moves to allow pubs to open beyond 10pm, which is being discussed on Monday. However, the infection rate is very different between towns, even in the North of England, and moves could be made selectively.
• It says in an ‘announcement that could come within days, the prime minister is expected to unveil a clampdown in response to alarming rises in coronavirus cases in the worst hit areas.’ The chancellor, Rishi Sunak. Is reported to be ‘finalising a new package of coronavirus support for the stricken hospitality industry, in response to demands from MPs and local government leaders.’
• MPs will vote on the 10pm curfew on Monday. It was apparently brought in without any analysis as to its impact. The mood music has swung 180 degrees, however, in the last few days.
• The Times goes with ‘pubs and restaurants in northern England could be closed within days as concern mounts about rising coronavirus cases and hospital admissions.’ It says ‘ministers are holding discussions about introducing further restrictions amid fears that hospitals could be overwhelmed if they do not act. Daily hospital admissions have passed 500 nationally, with 508 on Saturday. There are 3,145 Covid-19 patients being treated at present, of whom 2,944 are in England and 1,030 are in the northwest. Another 14,162 new infections were recorded in latest figures today.’
• Berlin bars are to be obliged to close at 11pm in heir first curfew in 70yrs
• Shepherd Neame has updated on trading saying that, ‘since our last update on 1 July 2020, nearly all of our pubs have re-opened, traded successfully and benefitted from the Eat Out To Help Out Scheme across the summer. Our London pubs have been the last to open and most of these in the last few weeks.’
• It says ‘like-for-like sales in those 64 Managed Pubs and Hotels that were open for this period were down –7.9%. Our coastal and destination sites have performed well and food and accommodation sales have been strong but our city centre and Central London drinks-led outlets less so.’
• Shepherd Neame says ‘for the thirteen weeks to 26 September, we achieved 73% of prior year Tenanted Pub income. This includes substantial rental support for our licensees throughout the period and the phased opening of our pubs.’ It adds ‘Own Brand Beer and Cider volumes since the start of the new financial year are -1.9% versus last year.’
• The company says ‘we anticipate that trading during the winter months will be challenging as the new restrictions, such as the rule of six and 10pm curfew, impact business and consumer confidence; but we welcome the extension of the reduced VAT rate of 5% until March 2021.’
• The latest Customer Sentiment Tracker from Feed It Back and KAM Media concludes that ‘September saw a significant rise in customer satisfaction.’ It says ‘satisfaction ratings bounced back in September and customer confidence remains high, despite the new lockdown measures.’
• The Sentiment Tracker says satisfaction ratings were up, compared with August, ‘for food and drink quality, service levels, atmosphere and cleanliness. Even ‘value for money’ saw a small improvement in hospitality customers’ eyes compared with August.’
• The Tracker concludes that some of the consumers tempted into pubs, restaurants & cafes by the EOTHO scheme were ‘definitely harsher critics’. Katy Moses at KAM says ‘for the overall British public, there is no doubt that confidence has been shaken. But those who are still actually visiting the venues are having safe and enjoyable experiences and they plan to return.’
• The Restaurant Group on Tuesday said that discounting was running at lower levels than usual. Whilst we believe this is the case, the MA looks at the operators that have chosen to continue some sort of EOTHO scheme into September and October. It names operators including Oakman Inns, Revolution Bars Group, Arc Inspirations and The Lost & Found. Other operators include M&B’s various brands.
• Sir Keir Starmer has challenged PM Boris Johnson to publish the scientific evidence behind the 10pm closing time for English pubs. MPs will vote on the issue next Monday.
• Greene King is cutting 800 jobs and says 79 sites will stay closed for the time being. The company suggests that about one third of these could be shut permanently. Greene King says ‘the continued tightening of the trading restrictions for pubs, which may last another six months, along with the changes to government support was always going to make it a challenge to reopen some of our pubs. Therefore, we have made the difficult decision not to reopen 79 sites, including the 11 Loch Fyne restaurants we announced last week.’
• William Grant & Sons has the Milagro Tequila brand
• Beavertown Brewery is teaming up with Fuller’s to launch Nanobot on draught.
• Property REIT New River is hosting a virtual Capital Markets Event today and is updating on its rent collection. It says ‘our rent collection for the first and second quarters continues to improve, and in recent weeks we have signed key agreements with a number of retailers which until now represented a significant proportion of rent outstanding.’
• New River says ‘across our retail portfolio, 94% of occupiers by gross income are now open and trading.’ It says ‘we have continued to progress leasing activity in recent months.’ In its pubs business, Hawthorn Leisure, New River says ‘almost all of our community pubs in England, Scotland and Wales are now open and trading.’ It continues ‘our pub portfolio has outperformed the wider market since the easing of lockdown restrictions. For the 12 week period since 5 July 2020, the day pubs were allowed to open in England, like-for-like volumes in our Leased & Tenanted pubs were down only 8% compared to the same period in 2019, and like-for-like sales in our Operator Managed pubs were down 16% compared to the same period in 2019. Our trading performance compares favourably to the wider market over the same period, with data from the Coffer Peach Business Tracker reporting that pub
• New River says ‘Hawthorn returned to profitability within eight weeks of reopening. For the month of September 2020, Hawthorn Group EBITDA was £1.9 million, which is 90% of the Hawthorn Group EBITDA in September 2019.’ It adds ‘the liquidity and alternative use value of pubs is evidenced by the fact that, since 1 April 2020, we have sold 19 pubs, generating £5.1 million in proceeds, and two convenience stores, generating £2.1 million.’
HOTELS & LEISURE TRAVEL:
• Travel Weekly reports that only 29% of would-be ski holiday-makers ‘are confident they will be able to ski at all [this season] despite the positive intentions by most.’
• Royal Caribbean says it has “tweaked” 2021 cruise programmes to “try and optimise the summer”. This may be a case of pushing capacity out from the spring.
• STR points out that ‘landlords of Travelodge U.K. properties have until 18 November to decide whether to stay with their brand contract or convert to another brand.’
• Manchester Airports Group has said that 900 jobs are a risk. It has suffered a 90% reduction in demand since March and the furlough scheme ends this month.
• GVC Holdings has updated on Q3. CEO Shay Segev says ‘this has been another strong period for GVC. We have delivered our nineteenth consecutive quarter of double-digit online growth, along with market share gains in all our major territories.’
• The CEO concludes ‘while the risk of further restrictions as a result of COVID-19 mean that we remain cautious on the short-term outlook, in the longer term we are confident of being able to continue delivering sustainable growth for all our stakeholders.’
FINANCE & MARKETS:
• The National Audit Office says that up to 60% of emergency pandemic loans made under the Bounce Back scheme may not be repaid. Some are fraudulent whilst other loans may have been made to companies that will not survive.
• Sterling mixed at $1.2936 and €1.0989. Oil unchanged at $42.15. UK 10yr gilt yield up 2bps at 0.31%. World markets mixed. London market set to open up around 10pts.
RETAIL WITH NICK BUBB:
• Today’s News: On top of the confident update from the car dealer Vertu Motors yesterday, today’s update from the second-hand car supermarket Motorpoint is also pretty bullish about things, flagging that post-lockdown “demand levels have exceeded management’s expectations with strong year on year sales growth” and that its 14th outlet is scheduled to open in Stockton on Tees at the end of this year. At the other end of the world, the Australian-based Online retailer MySale (in which the embattled Philip Green still has a stake) has announced that the people behind its local rival Catch.com.au are injecting £5m into the business. Nearer to home, the community pub and shopping centre chain NewRiver has announced improved rent collection figures, ahead of a Capital Markets event this afternoon. And yesterday’s AGM for the hapless Frasers Group yesterday was a bit of a non-event, with all
• Next Beauty Hall Watch: We are indebted to the Store Design expert John Ryan for flagging on his Newstores daily blog yesterday that the first Next Beauty & Home store opened in the former Debenhams store in Intu’s Watford centre on Friday. The footprint of the new store is identical to the two-floor Debenhams it replaced, with Beauty on the same/upper floor. Next Home & Beauty opened another 3 stores in former Debenhams units over the weekend: in Milton Keynes, the Metrocentre in Gateshead and Reading