Whitbread, Revolution, tier system tears, footfall & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

So yesterday, it was up to Falling Foss (etymology, old Norse, waterfall as in High Force, Hardraw Force etc) and May Beck (similar etymology, stream) to stomp around in the mud.

And very enjoyable it was too and we tried to spend, we really did but, other than seventy quid on diesel, we weren’t able to as the socially distanced queue at the Foss’s café was too intimidating and the car park was free.

Today, it’s over to Hull after the Whitbread numbers (via Hell and Halifax) and tomorrow we’ll walk from the Hole of Horcum to The Horseshoe at Levisham where we can fuel up then maybe check out the Steam railway before stumbling back to the car.

It might not be Antibes, Nice and then Monte Carlo for supper in the sunshine. It’s more mud, mess and misery followed by sandwiches in the sleet but at least it gets us out of the house. On to the news:

ADVERTISE WITH US:

Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.

WHITBREAD H1 NUMBERS: The co says it is outperforming. But Sept & Oct trading has been tougher after a hopeful August. 27 Oct 2020:

Whitbread has reported H1 numbers to 27 August and our comments thereon are set out below.

Headline numbers:

• Whitbread says that ‘H1 total sales were significantly down year-on-year reflecting the closure of the vast majority of our hotels and restaurants for a large part of the period.

• It has reported sales down 77% at £250.5m (2019: £1,078.0m) with an operating loss of £290.6m (2019: operating profit £298.7m)

• The group has operating losses from joint ventures of £359.3m (2019: loss £37.7m) and interest costs to give an adjusted loss before tax of £367.4m (2019: profit £235.6m) with a statutory loss before tax of some £724.7m

• The loss per share is 181.9p pre-adjusting items with a statutory loss per share of 377.4p

• Whitbread says ‘when permitted, we reopened quickly and safely, with 97% of UK hotels open by the end of July’

Trading since reopening:

• WTB says ‘since reopening, UK accommodation sales performance has been ahead of the market, benefitting from the fast reopening, the strength of the Premier Inn brand and our leading customer proposition’

• It says ‘UK occupancy levels steadily improved on a weekly basis, averaging 51% in August, while UK Restaurant performance was boosted by the positive impact of the Eat Out to Help Out scheme.’

• The company says ‘August UK total sales improved to 38.5% down year-on-year.’

• The company adds ‘in Germany, we grew our open hotel network from 6 to 19 hotels by the end of the half, and by a further 2 in October to take the total to 21 open hotels today.’

• The group is taking ‘ongoing decisive action to protect the business’ including a head office restructure and cuts in capex

Germany:

• Whitbread says ‘in Germany, we have a compelling opportunity to replicate our UK success story, and our aim is for Premier Inn to be the number one budget hotel operator.’

• WTB says ‘we will continue to invest in growing our German pipeline and believe we have a long-term line-of-sight to over 60,000 rooms through both organic and inorganic investment.’

• The company has ‘today announced the signing of up to a further 15 hotels in Germany that are currently operating under the Centro, Ninetynine and Fourside brands, of which 8 are open and 7 are pipeline.’

• It says ‘subject to competition clearance, the open hotels are expected to join the Premier Inn estate in December 2020, and would take our open estate to 29 hotels and our total open and committed pipeline in Germany to 68 hotels’

Current trading:

• WTB says ‘recent lockdown measures announced by the UK Government mean we will continue to manage our cash position carefully.’

• It adds ‘our balance sheet, enhanced by the successful Rights Issue, provides a strong platform for future growth and investment to drive market share gains.’

• Re current trading, the company says ‘Premier Inn UK’s occupancy increased from 51% in August to 58% in September and our total accommodation sales recovery year-on-year was c.6% ahead of the midscale and economy market in September.’

• It says ‘we continued to see good leisure bookings and a pick-up in business-to-business sales, albeit from a low base.’

• The company adds ‘since the Government announcement in early October instructing working from home where possible and the recent regional lockdowns, we have seen a slowdown in the market performance.’

• The company says ‘our performance has remained ahead of the market, but with the fast-changing nature of the COVID-19 environment, near-term visibility remains limited.’

• It concludes ‘despite this, profit and cash sensitivities for this year remain broadly consistent with those articulated in May.’

Balance sheets, cashflow & debt:

• Whitbread announced a 1 for 2 rights issue to raise £1.009bn gross in May. The Rights price was 1500p and the Theoretical Ex-Rights Price at the time was £22.69, close to today’s share price

• The company said ‘the purpose of the Rights Issue is to ensure that Whitbread emerges from the COVID-19 pandemic in the strongest possible position to take advantage of its long-term structural growth opportunities and win market share in both the United Kingdom and Germany.’

• Whitbread says it ‘entered the COVID-19 pandemic with a strong balance sheet and significant liquidity.’ It has cut costs and protected cash flow. It furloughed staff and ‘has been confirmed as an eligible issuer under the CCFF, with an issuer limit of £600 million. The Group has also obtained waivers until 2 March 2022 of the existing financial covenants under its financing and pension arrangements, which have temporarily been replaced with debt and liquidity covenants.’

• The company says it ‘entered the new financial year with balance sheet headroom’ but says it has ‘faced into material cash outflows’

• It says, however, that its ‘freehold property…reduces volatility in the current downturn and provides a flexible source of funding for investments and additional liquidity if required.’

Company comments:

• CEO Alison Brittain says ‘our performance following the reopening of our hotels and restaurants in the summer was encouraging and we continue to trade ahead of the market. Taking market share in the UK demonstrates the strength of our trusted Premier Inn brand and the benefits of our unique operating model.’

• Ms Brittain says ‘since March we have trebled our open hotel network in Germany to 21 hotels and today announced the acquisition of up to 15 more hotels. This takes our network of open and pipeline hotels to nearly 70 hotels, with broad geographic coverage across many major cities and towns.’

• The company says it has ‘taken decisive action and we continue to focus on protecting our guests, our teams and our business in light of the impact of the recent increase in regional and national restrictions.’

• Ms Brittain says ‘Whitbread’s long-term strategy remains as relevant and compelling as ever.’ She concludes ‘we hold a uniquely advantaged position in the UK market as the largest player with the strongest brand.’ The CEO says ‘we will be well placed to enhance our market leadership position even further in the UK, and accelerate our growth in Germany, supporting our guests and teams and driving long-term value for all our stakeholders.’

Langton Comment:

• Comparative numbers are relatively meaningless.

• But this is a big loss and the group’s comments re September and subsequent trading are of necessary cautionary.

• However, staycations will be big this year. The group is still under-represented in London, which is perhaps no bad thing at present.

• As mentioned earlier, the Rights Issue should, perhaps be seen as 1) precautionary and 2) potentially predatory. There will be opportunities to make acquisitions in the coming months and years. The expansion in Germany is testament to this.

• WTB has pulled all the levers available to it to preserve cash and wishes to put itself in a better position than its competitors.

• Over the longer term, the group has proved itself an effective builder of estates of largely-freehold based leisure assets

• WTB will be better positioned than a number of its competitors with a largely freehold estate and its Rights Issue cash in the bank.

BOOK REVIEW PT II TOMORROW:

PUBS & RESTAURANTS:

Revolution – partial CVA:

• Revolution Bars Group has announced that ‘following a review of its strategic options, one of its subsidiary entities, Revolution Bars Limited has launched a company voluntary arrangement in order to reduce the size of its estate and rental cost base and improve the profitability and return on capital of the Group over the long-term.’

• The company says ‘the Group’s Revolucion de Cuba branded bars and four Revolution branded bars operated by other entities in the Group are unaffected by the proposal. Furthermore, there is no impact on RBG with respect to its AIM listed status.’

• The company adds that, ‘since the UK Government’s enforced closure of bars in March 2020, the Group’s management has undertaken significant and meaningful initiatives to protect the Group’s ongoing viability.’ It says ‘given the latest Government restrictions under which the Group is operating, the Group’s trading outlook is uncertain and based on all the information and commentary available, the Board now anticipates that the important Christmas trading period will be severely compromised and any return to near normal levels will not be possible before next Spring at the very earliest.’

• It says ‘when trading conditions return to more normalised levels it will be crucial for the Group to be able to recover quickly, return to cash generation and be appropriately structured for the long-term. Accordingly, the Board believes that it is in the best interests of all stakeholder groups for it to now propose a restructuring of certain of the Group’s property interests through a CVA of one of its subsidiary entities RBL.’

• Revolution says ‘RBL operates 50 Revolution branded bars. The CVA proposes to reduce the size of RBL’s estate by 6 bars and reduce its rental cost base, thereby improving the profitability and return on capital of the Group over the long-term.’ The nominees for the CVA will be Clare Kennedy, Peter Saville and Catherine Williamson of AlixPartners LLP.

• Revolution says ‘the Group’s lender, NatWest, has agreed to waive the defaults that arise from the CVA which would otherwise mean that the Group is in breach of certain undertakings.

• CEO Rob Pitcher says ‘throughout this extended period of distress caused by COVID-19, the Group has sought to prioritise the health and well-being of its staff and customers, minimise its cash consumption, maintain good levels of liquidity to ensure its ongoing viability and to be in a position to take advantage of opportunities that may arise once restrictions are lifted. The CVA proposed by the Group’s Revolution Bars Limited subsidiary entity, if agreed by landlords, is another proactive step to lower outgoings to help safeguard the future of the Group and improve long-term performance.’

Tier III (soon why not just call it ‘England’?)

• The government has announced that Warrington has gone into Tier III with parts of Nottinghamshire to follow shortly. Talks are ongoing with Leeds and with Newcastle and the North East.

• Important in football. Go where the ball is going to be, not where it was yesterday. In Newcastle and Liverpool, infection rates are falling markedly, perhaps as the student bump in infections works its way through the system. York numbers are flattening but Leeds was still rising as of late last week. 

• We’re all in this together? Some complaints that, when London was in trouble in March, the whole country locked down. However, now that the North has messed the bed, there will be selective remedies. This may be just the way the cookie crumbles as lockdown fatigue has become much more of a feature than it was earlier in the year. 

Footfall:

• Steady week on week. London still lagging.

• Analysis from S4labour shows hospitality sales down year on year by 26.2% last week. The company says this is ‘similar to what they have been for all of October’. S4Labour says ‘week on week sales are constant, up just 1.4% overall, and up 5.6% outside London. The weekly figures show signs that there was a momentary lapse earlier in the month, followed by a stabilisation of confidence.’

• S4 says London ‘was down 15.8% compared to the previous week. Early indicative figures continue to show a clear correlation between London moving into Tier 2 and a sales decline. S4’s Richard Hartley says ‘government restrictions continue to hamper the progress the industry is trying to make’.

Government restrictions:

• One Tory MP writing to constituents enquiring about the efficacy of the 10pm curfew that, whilst it ‘will show a marginal impact’, it is perhaps the perception of curfews that matters as it suggests it is not ‘OK for youngsters to go to pubs, bars and nightclubs whilst grandparents aren’t able to see their extended family.’

• The MP says ‘I have a feeling that curfews are as much (if not more) about management of the overall populace and its attitudes to risk than about the strict scientific basis. This is somewhat speculation I’m sure you understand, generally based on what I’ve been researching myself.’ Brave words in this heated environment.

Closures:

• It’s not real until it’s real. We (and other industry observers) have been suggesting for some time that a quarter of hospitality units may not reopen. This was brought home to Langton when The Bell, it’s haunt on Middlesex St, emailed regulars to say ‘following weeks of agonising, we have made the heart-breaking decision to temporarily close our doors from 10 pm on Friday, 30th October for the foreseeable future. The trading situation right now is almost impossible, and it costs us money to open our doors. As you can imagine, this is unsustainable.’

• The Bell says, on a brighter (though short term) note ‘before we go though, we have some beer that we need to shift. So, we’ll be serving takeaway pints from 4 pm until 10 pm Tuesday, and Midday until 10pm Wednesday through until Friday from £2.50 a pop.’ The operator says ‘we hope that we can reopen early in 2021.’

• Analyst Peter Backman says ‘the scale of businesses and jobs at risk is still clearly very large and unimaginable at the start of the year.’

• The Morning Advertiser has commissioned research suggesting that ‘33% of hospitality businesses in the ‘very high’ tier three do not have sufficient support to remain viable and have closed already or plan to.’

• The MA says 26% of operators in Tier III ‘had seen bookings fall more than 100% while a further 26% said they had dropped by up to 50% and 11% said up to 20%.’ Not sure how bookings can go to less than zero but we get the gist.

Company news:

• Dunkin Brands, which owns Dunkin Donuts and Baskin Robbins has held discussions with Inspire Brands. The latter could make a bid for Dunkin though the latter says ‘there is no certainty that any agreement will be reached.’ Inspire owns Arby’s.

• Diageo is to acquire Chase Distillery. Diageo says ‘we are thrilled to be bringing such a quintessentially British portfolio of high quality, crafted brands into our family. We are excited about the growth opportunity within the premium plus segment and are very much looking forward to working with the Chase team to build on the portfolio’s considerable potential.’ Chase is the third gin label Diageo has invested in this year. The acquisition is expected to close in early 2021 subject to regulatory clearances.

• Becle, which owns Jose Cuervo Tequila, has turned in strong Q3 numbers showing global volumes grew by 26& over the period. Tequila comprises more than half of Becle’s global sales. Here, growth has been strong for a number of years.

• Stonegate is teaming up with former rugby professional James Haskell in order to host a major ‘rugby-exclusive quiz on Saturday 31 October at 7pm.’

• DoorDash has launched a programme aimed at ‘reviving’ closed restaurants by using them as ghost kitchens.

• Yumpingo has partnered with reputation management solution AreTheyHappy to now ‘offer hospitality businesses of any size the TotalView solution that helps them track, manage and impact all touch points on their guest journey.’

• Scottish craft beer brewer The Fierce Beer Co is to open a bar in Newcastle city shortly. The operator recently signed a 20 year lease on its first English venue, in Manchester.

• Mark Crowther has been appointed Chairman of Portobello Brewery.

Other news:

• New research from KAM Media & OrderPay has found that consumers may be suffering from ‘App overload’. The research has ‘found that 42% of hospitality customers want an app that can provide functionality across a number of different hospitality chains. Unsurprisingly this demand is driven by younger customers, with 51% of those aged under 34 looking for a simpler app-based solution.’

• The research found that demand for order ahead and pay-at-table apps ‘is clearly growing with the research finding that mobile phone ordering has become increasingly important to 41% of hospitality customers in the last six months. But even before Covid-19 hit, research from KAM Media found that 43% of 18-34-year-olds had used an app to pay a bill in a pub or restaurant, and 28% would have liked the ability to order and pay their bill even before arriving at the venue.’

• Property agent Colliers has hosted a meeting with Roger Bootle, chairman of Capital Economics. Bootle says the economic contraction we are seeing is similar to that over the Spanish Flu, 100yrs ago.

• Foodservice analyst Peter Backman has pointed out that the loss of the sense of taste & smell suffered by some Covid patients may impact demand going forward. Numbers may be relatively small but, if the best gin tastes like tap water, some consumers may not be willing to pay too much for it.

• Research has suggested that global eCommerce is dominated by six companies that take 58% of the global markets between them. Two Alibaba companies, Toaboa and Tmall account for 29% of the global market between them. Amazon is no3 at 13%.

HOTELS & LEISURE TRAVEL:

• New aircraft orders collapse. Not surprising, perhaps. There were zero orders for new aircraft in September with only 13 planes ordered in the whole of Q3, a number down 91.4% on the 150 or so ordered in Q3 last year.

• The lead time is material. There were 173 new aircraft delivered during Q3. Very few of these will have much to do.

• STR reports ‘September and the most recent weekly data for the United Kingdom hotel industry show a country grappling with a second wave of the COVID-19 virus and local lockdowns in response.’ It says ‘unsurprisingly the data is looking pretty bleak.’

• STR says demand is softening week on week. It says this ‘has been a consistent pattern since the peak of the August bank holiday.’ It says ‘the last three weeks have steadily become weaker as cases and local lockdowns have increased.’

OTHER LEISURE:

• William Hill has agreed to a takeover bid from Caesars. Potential rival bidder, private equity house Apollo, has been told that it must make a firm indication either way by 5pm on 12 November.

FINANCE & MARKETS:

• The Guardian reports King’s Business School as saying that 6m small businesses, responsible for 16.6m jobs in the UK, ‘are in a financially precarious position as a result of the pandemic.’

• Brinkmanship re Brexit deal. Deal still likely.

• Reuters reports ‘deal or no deal, British companies will have to confront a wall of bureaucracy that threatens chaos at the border if they want to sell into the world’s biggest trading bloc when life after Brexit begins on January 1.’

• Aerospace body ADS says that the future of the UK’s £34bn aerospace sector will be at risk if an EU trade deal is not agreed.

• The Telegraph quotes US ‘former top official’ Barbara Weisel as saying that the UK is unlikely to secure a US trade deal unless it first strikes an agreement with the European Union should Joe Biden win the presidential election next week.

• Sterling $1.3042 and €1.1018. Oil $40.88. UK 10yr gilt yield 0.28%. Markets lower yesterday. London set to open up a dozen points or so.

RETAIL WITH NICK BUBB:

• Today’s News: After the excitement yesterday from the recently floated Online giant, The Hut Group, which saw its share price surge to as much as 780p early on, on the back of the strong Q3 update (before falling back with the market to close only 4% up), today has brought humbler fare in the form of the delayed finals from the struggling fashion chain QUIZ (which is now capitalised at just £9m). There is no sign of the Shoe Zone pre-close update, but mighty Boohoo has announced that its Employee Benefit Trust hoovered up 5m shares at c274p.

• News Flow This Week: Over in the US the supermarket chain Kroger (Ocado’s key partner) is issuing an investor update later today. Tomorrow brings the much-awaited Next Q3 update. The rest of the week then looks quiet in the UK, but, in the US, the tech giants Amazon and Apple both announce their latest quarterly results after the close on Thursday evening.

• Superdry Watch: We flagged on Friday that the Superdry boss, Julian Dunkerton, had continued to buy more shares ahead of Thursday’s AGM, but we were wrong to say that the company was in close season, as the first half doesn’t end until this week, ahead of the scheduled Superdry pre-close on Nov 5th. He now owns nearly 20% of the equity and as the shares surged up by over 11% on Friday (to capitalise the group at just over £140m), we are reminded of an immortal line from the Sunday Times magazine profile of him a month ago: “I’m good at making money”. 

• Today’s News: After the excitement yesterday from the recently floated Online giant, The Hut Group, which saw its share price surge to as much as 780p early on, on the back of the strong Q3 update (before falling back with the market to close only 4% up), today has brought humbler fare in the form of the delayed finals from the struggling fashion chain QUIZ (which is now capitalised at just £9m). There is no sign of the Shoe Zone pre-close update, but mighty Boohoo has announced that its Employee Benefit Trust hoovered up 5m shares at c274p.

• News Flow This Week: Over in the US the supermarket chain Kroger (Ocado’s key partner) is issuing an investor update later today. Tomorrow brings the much-awaited Next Q3 update. The rest of the week then looks quiet in the UK, but, in the US, the tech giants Amazon and Apple both announce their latest quarterly results after the close on Thursday evening.

• Superdry Watch: We flagged on Friday that the Superdry boss, Julian Dunkerton, had continued to buy more shares ahead of Thursday’s AGM, but we were wrong to say that the company was in close season, as the first half doesn’t end until this week, ahead of the scheduled Superdry pre-close on Nov 5th. He now owns nearly 20% of the equity and as the shares surged up by over 11% on Friday (to capitalise the group at just over £140m), we are reminded of an immortal line from the Sunday Times magazine profile of him a month ago: “I’m good at making money”.