Langton Capital – 2020-11-03 – PREMIUM – Lockdown, spilled beer, debt, Scottish holidays, gyms etc.:
Lockdown, spilled beer, debt, Scottish holidays, gyms etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We had a power cut on Sunday evening.
We’re very much ‘edge of town’ and it lasted a couple of hours or more, but the ‘good’ news was that:
a) It wasn’t Christmas Day, and we didn’t have the turkey in the (electric) oven (this really did happen a couple of years ago – try ringing Npower on 25 December)
b) We have candles, a couple of log-burning stoves, torches and a stock of batteries (we’ve been here before, see above) and…
c) We found out as a matter of priority before the phone’s battery threatened to die that we were one of 410 houses impacted (good luck to you if you are one of only a couple, you might get some attention later in the month).
And we have workarounds.
You can tether your laptop to your phone for the Internet, of course. And you can charge your phone in the car. We have a couple of camping gas stoves (be prepared, dib dib) for coffee, you can boil a meaningful amount of water above the log-burner but you can’t do anything quickly and it’s about now that you realise the telly is a no-no, you’ve given most of your hard copy novels to charity shops and War & Peace and even A Tale of Two Cities were meant to be, well decorative.
And you can’t get a shave or a shower (the pump is electric even if the boiler is oil fired), the house is pitch black immediately and cold very quickly and, at that point, thankfully, the electricity came back on. Anyway, colder, brighter weather on the way and, if you squint hard enough, it’s nearly the weekend. On to the news:
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WHAT DOES LOCKDOWN 2.0 MEAN ON THE GROUND? Politicians, particularly perhaps those from a journalistic or legal rather than business background, may believe that business can achieve the unachievable, endure the unendurable. 3 Nov 2020:
• Having made a couple of steps forward, companies have been thrown back a step, maybe two. Looking at comments made by operators suggests that this will be an extremely challenging time.
• So how easy will it be to survive?
A worked example:
• Here we look at Tasty. This isn’t an attempt to single the company out but is rather because the company was the last to update before the announcement of a second lockdown.
• We aren’t specifically looking at the numbers, but rather the behaviour of the company before & during & after Lockdown 1.0. This should give us a feel, at least, as to what might be left in the tank for Lockdown 2.0.
The chairman’s statement follows a pattern familiar across a number of companies. This is broadly:
• We were doing OK
• Then we were forced to close
• Our first thoughts were for our staff & customers.
• Then we cut costs. We furloughed staff, spoke with landlords & suppliers, delayed payments, maybe sold a jewel or two etc. We concentrated on protecting cash. We secured new facilities. Recognition of help from staff, banks, government, suppliers, landlords etc.
• Then we reopened. We’d like to thank our teams etc. We were helped by EOTHO. But social distancing has reduced capacity
• But trading is difficult & uncertain. The Tier system and ‘work from home’ suggestion (now an order) had made trading more challenging.
• Debts to banks, landlords, the taxman etc are mounting.
• All this came before Lockdown 2.0 was announced. Trading is now certain (i.e. there isn’t any) but even more difficult.
• One gets the impression, and this is not a Tasty-specific comment, that operators might find it tougher in November than they did in April & May.
• Tasty specifically had a More London unit to sell, it alludes to a potential CVA (saying it hopes (or hoped) that this could be avoided), says it has reduced some rents, it will not reopen six units and it has made 32% of its staff redundant. This is not atypical.
You come up for breath, you go under again…
• This must be exhausting for operators. They have to do with staff, landlords, suppliers & banks what they did last time – but from a weaker position.
• This cannot be sustainable into the longer term.
• Prior to the announcement of Lockdown 2.0, Tasty said ‘the outlook for the sector remains extremely challenging and uncertain.’
• Tasty has cut its estate and costs but says it ‘expects future trading to remain unpredictable and exceptionally difficult with the threat of further local lockdowns, tighter restrictions and the possibility of full lockdown still remaining.’
• Tasty says ‘the Directors note that there may be material uncertainty in relation to going concern due to the effects of Covid-19 and the impact of ongoing losses.’
A potential bright spot:
• Takeaway and delivery was an area of material growth for some operators.
• Those with a tech-savvy, typically younger customer base seemed to perform well.
• Having a product, such as pizza, which is high-margin and which travels reasonably well, also helps
• Franco Manca (owned by Fulham Shore) reported on 15 October that ‘during April 2020, in a few locations, we gradually opened for delivery and click and collect. Within a few weeks some of our sites were busier than the previous year. They were breaking trading records without any dine-in customers.’ It said ‘approximately half of our restaurants were operating profitably at Headline EBITDA level on this basis by June 2020.’
Pubs vs Restaurants #3 will be tomorrow (unless it gets bumped by b
PUBS & RESTAURANTS:
• The government has been giving more details regarding the upcoming lockdown in the House of Commons.
• PM Boris Johnson has defended his ban on pubs and bars selling takeaway drinks during the lockdown.
• He says the R rate ‘is still above one in every part of England.’ The PM, who famously said eff business in response to complaints that enough notice was not being paid to its travails in regard to Brexit planning, says ‘I am truly sorry for the anguish these measures will impose, particularly for businesses who have only just got themselves on their feet.’
• Commenting on the ban on takeaway sales of beer from pubs and breweries, SIBA says ‘as if a second national lockdown in England wasn’t disastrous enough for pubs and independent breweries, Government have gone further this time around and introduced an unjustified restriction banning pubs from selling takeaway beer, a service which was the only source of income for many businesses during the summer lockdown.’
• He says ‘this is baffling considering supermarkets will presumably still be allowed to sell packaged beer, whilst small breweries and pubs will not.’ SIBA says ‘government has time and time again failed the independent brewing sector by not providing the support we need.’
• The BBPA says ‘we cannot see the logic of letting supermarkets and shops sell alcohol, but not pubs that have off-licenses. Government should reverse this decision immediately to help pubs and brewers survive and pints being needlessly wasted.’ Not selling opened containers of alcohol onto the street is one thing, but selling unopened cans and bottles seems to be quite another.
• CAMRA says ‘offering alcohol for takeaway was a lifeline for many pubs, and particularly breweries, during the first lockdown…it is a baffling and damaging decision to remove this option.’
• CAMRA says ‘pubs & breweries were already reporting losses and the risk of closure before Christmas and this will only add to the risk of permanent closures withing the next few months.’
• Pubs and restaurants across England are cutting prices in order to get rid of perishable food and beer. JD Wetherspoon is selling beer for 99p, Stonegate is selling it for 95p per pint and Greene King and Mitchells & Butlers are also reducing prices in order to shift stock.
• Stonegate says ‘the snap three-day sale is following the Government’s announcement at the weekend that all pubs must close during the national lockdown. The offer is only valid from Monday 2 November – Wednesday 4 November.’ It says ‘once again, the hospitality industry is being told to bear the financial brunt of further regulations in the Government’s response to COVID-19. Given the short notice, this 95p pint sale is to ensure minimal wastage of product across our estate. Cask ale only has a shelf life of a few days once its tapped and spiled, and in March the British Beer and Pub Association estimated that over 70 million pints of beer were poured down the drain.’
• SIBA says re the PM’s comments in the Commons ‘it was encouraging to see the PM commit to look again at this issue around the unfairness of allowing supermarkets to sell beer, but not pubs during the second lockdown.’ It says ‘England’s pubs and independent brewers need to see the final and full guidance as soon as possible so they can prepare their businesses for the changes which come into effect from Thursday. Takeaway beer was, and is a vital cashflow lifeline for brewers and publicans.’
• SIBA says ‘we need to see a return to the regulations which were in place during the first lockdown; whereby pubs could sell takeaway beer to consumers, independent bottle shops and brewery shops are classed as essential retail and that independent breweries can continue to offer delivery and click and collect from the brewery gate throughout November.’
• Foodservice analyst Peter Backman reports that this lockdown won’t be exactly as it was in March. He says we have more experience than we did earlier in the year. He says ‘we have learned that delivery and takeaway are not only perfectly acceptable – but are much in demand from customers.’ He says ‘operators who pivoted to delivery and stuck with it, are in a good place (indeed their place seems to be specifically protected under the forthcoming lockdown rules).’
• Less positively, Backman points out that ‘over the last six months, businesses in the foodservice sector have been weakened by debt (rent, workers and VAT still remains to be paid) and a loss of confidence (and some anger that the government hasn’t got it right). So, they are less resilient. And the feeling that we are all in this together is no longer the powerful force it was.’
• The lockdown will last at least to ‘well within the Christmas trading period’. Christmas this year, if it starts at all, will start late.
• In the meantime, restaurants are reporting a high level of bookings for today and tomorrow.
• Shepherd Neame boss Jonathan Neame tells the BBC his reaction is one of anger. It is ‘soul-destroying & disheartening’ and he is left ‘disillusioned’. He says ‘this is the fourth change of strategy affecting hospitality within the last six weeks, and I don’t think it will be the last.’ He says his company will have to tip much of its real ale down the drain.
• The Food & Drink Federation says ‘confirmation that the furlough scheme will be extended is extremely welcome news for food and drink businesses who continue to feed the nation. However, we need further clarity that the food supply chain will be supported sufficiently.’ It says that ‘without further reassurance thousands of jobs will be under threat as businesses consider closing their doors for good. The economic impacts of this decision threaten calamity unless we see further details of a rescue package in the next 72 hours.’
• Less than 48hrs after saying the self-employed would receive 40% of their normalised income, the government has upped it to 80% (at a cost of £4.5bn to the treasury).
• The volte-face on JSS vs Furlough is already old news & is covered below.
Other lockdown news:
• S4 Labour says ‘there is a lifeline in the extension of the Furlough scheme, with some slight changes. Our development team are now working round the clock to reverse the work we had put in place to cater for the JSS and revert to Furlough. We will be releasing an update to the software on Tuesday to reflect this.
• The furlough (welcome back) will operate during November. After which the JSS will come into play. Or will it?
• Bloomberg comments re pubs and restaurants that ‘they were already suffering from a dearth of office parties, as well as a 10pm closing time.’ It says ‘having some customers was better than none. Now that’s off the table. And they probably won’t be able to count on a pre-Christmas rush. Some will be able to offer takeaway, but unless establishments appeal to a young, tech-savvy customer base, this won’t compensate for closed doors.’
• It says ‘it is not even clear that hospitality will be able to reopen on Dec. 2. When businesses don’t know what to expect’ concluding ‘the forthcoming restrictions are not the Christmas gift that retailers, pubs and restaurants wanted.’
• Jim Pickard at the FT tweets that it is ‘worth remembering the cost of full furlough over a month could be around £5bn, which puts the Manchester extra £5m and the school meals £20m in perspective.’
• Cask Marque says ‘we now have lockdown until December. We have updated our guidelines for the closedown of the cellar and bar. Details can be found here www.cask-marque.co.uk/closure-procedures. Cask Marque’s Paul Nunny emphasised ‘it is important that pubs minimise the cost to themselves by carrying out the correct closedown procedures which will ensure that they are ready to re-open their business with the minimum delay.’ He says ‘the Cask Marque team will be available to help and support and answer any questions.’
• NRN in the US says ‘the uncertain economic recovery for restaurants in the wake of the COVID-19 pandemic has slowed in recent months, posing more hurdles for operators.’ It says restaurant employment in the US is still about 2.3 million positions below pre-COVID-19 pandemic levels.
• The National Restaurant Association in the US says after a growing number of openings during the summer months as cities and states eased coronavirus restrictions, the autumn has started to see closures. It says ‘a recent survey found that 40% of operators are unlikely to be in business six months from now if there is not additional support.’
• The EY Item Club says that business’s bank borrowings will rise fivefold this year versus last. It says net borrowing from banks rose to £43.2bn between January and August from £8.8bn for 2019. It says ‘for the vast majority of firms the loans appear to have been critical, and it is forecast they won’t start to repay debt, and reduce their borrowing, until 2022 or even later.’
• It may be that some loans never get repaid.
• Shake Shack says it is ‘thrilled to announce that it will open a delivery-only Shack in Reading on Thursday 5th November, delivering Shack favourites to the people of Reading for the very first time via Deliveroo.’
• Windsor & Eton Brewery reports ‘Miles Slade has joined the board of Windsor & Eton Brewery and will lead its plan to grow its pub estate. Miles spent 20 years in various operational roles at JD Wetherspoon and sat on the management board of the company from 2012 as Retail Director.’
• The company currently operates 4 bars and plans to add to that number. It says ‘Miles will direct this including opening a new enlarged Covid-secure brewery taproom and kitchen in early 2021. This will further enhance its visitor experience and also release space adjacent to production to install on-site packaging facilities.’
• The Resolution Foundation has said that a third of workers are afraid of catching Covid-19 at work.
• Uber Eats is offering £10 off first orders.
HOTELS & LEISURE TRAVEL:
• Carnival has announced that the ‘pause’ in its operations has been extended from Dec. 1 to Dec. 31. This ‘includes five brands from the world’s largest cruise company – Carnival Cruise Line, Cunard North America, Holland America Line, Princess Cruises and Seabourn.’
• Carnival says ‘we continue to work with the U.S. Centers for Disease Control and Prevention, and global government and public health authorities, as well as top medical and science experts around the globe, on a comprehensive plan for the eventual restart of cruising in North America. With their collective guidance, we have developed and continue to update our enhanced health and safety protocols that are in the best interest of our guests, crew and overall public health. Whenever we restart our cruise operations in the U.S., we certainly look forward to welcoming our guests on board.’
• There are suggestions that virtual tourism, a.k.a. checking things out on the internet, could be the next big thing.
• For those of us seeing humble cottages in North Yorkshire cancelled, some with easy refunds, others not clear yet, that doesn’t seem like an altogether bad idea.
• TfL has agreed a funding package from the Department for Transport. Mayor Sadiq Khan says that domestic & business Rates may have to rise.
• The WTTC says that up to 2.4 million UK jobs in the travel and tourism industry could be lost if travel bans remain in place.
• TUI is to continue flights from Scotland. It has confirmed all flights and holidays from England and Wales would be suspended for the duration of the lockdown period.
• The Telegraph reports that gym bosses have urged the PM to allow gyms to remain open during lockdown. The current rules will oblige them to close from Thursday under national lockdown rules
FINANCE & MARKETS:
• Former member of the Bank of England’s MPC Andrew Sentence tweets ‘based on what happened in April/May in #Lockdown1, it looks like UK GDP will drop 8 percent or so in November as a result of #Lockdown2. However, this is a loss of around 17 percent of GDP on a year ago. All of this inflicted by government policy – not by the pandemic itself.’
• Matt Hancock is looking a bit fragile as he is one of only three cabinet ministers at the centre of a leak inquiry after England’s lockdown news was pulled forward to Saturday from a reported planned date of yesterday.
• IHS Markit reported yesterday that the ‘recovery in the UK manufacturing sector continued at the start of the final quarter, as output and new orders rose again supported by improved demand from both domestic and overseas sources.’
• Markit says the recovery ‘showed further signs of losing impetus, as the initial boost to growth from the economy reopening faded and job losses accelerated.’ It reports an October PMI of 53.7 in October, down from 54.1 in September.’
• Markit says ‘October saw the UK manufacturing recovery continue, albeit with the upturn losing momentum amid ongoing lockdown measures and signs that growth could weaken further in coming months after Brexit-related stockpiling.’
• Sterling up at $1.2928 and €1.1091. Oil $38.83. UK 10yr gilt yield down 3bps at 0.23%. World markets better yesterday. London set to open c50pts higher.
RETAIL WITH NICK BUBB:
Today’s News: After yesterday’s Primark announcement that as of Thursday, 57% of its selling space will be closed because of the latest COVID 19 lockdowns in the UK and Europe, its parent company ABF has announced its final results for y/e Sept. And despite Primark’s lack of Online sales, the business still made £362m in operating profit in the period, even after losing £2bn in sales and £650m in profit from the lockdowns. In the UK, Primark highlight that sales since reopening to the year-end were only 12% lower on a LFL basis (down just 6% ex the four large UK destination city centre stores) and that clothing and footwear market share was held. Perhaps surprisingly, there is no sign in the statement of any intention by Primark to develop an Online offering…Otherwise, the big talking point is the news at lunchtime yesterday that the JD Sports boss, Peter Cowgill, dumped nearly £20m of