Langton Capital – 2020-11-19 – PREMIUM – Xmas planning, Nichols, Jet2, GVC, 888, lockdown trends etc.:
Xmas planning, Nichols, Jet2, GVC, 888, lockdown trends etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Whilst real teenaged depression is not something to joke about, I had to laugh when our fourteen-year-old said in an attempt to get out of her homework that ‘it’s just an endless loop of existence’.
I thought it might be something serious, I’m A Celebrity had been cancelled, some YouTube wally or other had closed down their channel or something but no, just homework so ‘yeah,’ I said.
‘And that’s the good part. Wait till you get to my age, then it gets really bad.’
Anyway, that seemed to do the trick.
I work cheap & am available for consultations most of the day. On to the news:
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THE IMPACT OF COVID. THE PAST & THE NEAR-TERM FUTURE: Longer term, we will revert to the social behaviour that is deeply ingrained within us. Shorter term, not so much? 19 Nov 2020:
• On-Trade Consultancy yesterday hosted a webinar during which participants discussed the major impacts of Covid and likely (or possible) short term developments.
Longer term numbers revert to their means and people revert to their genes:
• Made up as it is of a number of short terms, the longer term often looks after itself.
• The long term simply ‘happens’ and, often, it is more predictable than the short term (think death and taxes rather than day to day considerations)
• Longer term, we will revert to the norm. We will socialise. We will meet, even in large groups and pubs and restaurants, those that are left, will prosper
• But many will not
On Trade’s webinar:
• Contributors included OTC’s Matt Steinhofel, Ann Elliott of Elliott’s Agency, Katie Moses of KAM Media, Amber Staynings of Bums on Seats and Mark Brumby from Langton
Reasons to be cheerful:
• The damage is significant. Perhaps 660,000 jobs lost but this is an optimistic industry serviced by optimistic people.
• The speed with which operators have pivoted, often to delivery – including home kits, has been impressive. If some of this can be retained post-lockdown then, even after delivery fees, it will be accretive.
• The lobbying has been joined up, the implementation of technological innovations has progressed at warp speed and operators have upped their charitable & social work
• The customer use of tech and delivery has been embraced by consumers. Many say they would buy their Christmas Dinner from a pub or restaurant if the units are not open
• Rents have softened and staff have (euphemism alert) become more readily available
Some black spots:
• Many operators have failed, hundreds of thousands of jobs have been lost, surviving companies have taken on more debt, there have been no ‘exits’ for investors and dividends and capital spending have been cut
• The pain has not been shared equally, London has suffered and working from home (WFH) may not fully abate
• These problems and changes are not to be sneezed at
• We think it will happen, but it will be different. Guessing at 40% to 50% of a normal year? That’s a big unknown.
• There was widespread agreement that we could all do with a party.
• But people will spend less. They may be worried about their health or their finances or both.
• Forward bookings will be scant, large gatherings probably still not legal and walk-ins will be more important than they have been for many years
• This could / should lead to operators, who will be less sure of demand, taking less risk with menus, staffing etc
• On a brighter note (for the survivors at least), supply will be reduced
A post-Christmas lockdown?
• On balance, the thinking is yes.
• But it’s a very binary answer to a question that is not as binary as it seems because ‘when is a lockdown not a lockdown?’
• A Tier III on steroids may not be visibly much different from what we have now
• Christmas could be a super-spreader. That might be accepted by many people to preserve their mental health
• Some scepticism as to how a government that has hit pretty much every banana skin it could find (and which has manufactured a number more in addition), will roll out a vaccine in a ‘world-beating’ fashion
Will there be a blizzard of eviction notices?
• Again, it requires a binary answer but, in truth, it depends.
• Landlords may boot out tenants if they can relet properties but, otherwise, after 1 April, they will be stuck with the business rates if the tenant is not in situ
Thoughts on 2021:
• Bizarrely, the end of the year might be a bit more foreseeable than the beginning. Normality should be almost upon us.
• We hope good operators with sensible funding structures will assert themselves and, if some operators have to fail, they are selected on the basis of funding and competence rather than at random
PUBS & RESTAURANTS:
Government pondering post 2 December restrictions:
• With Wales loosening and Scotland tightening, the government in Westminster must be considering its position post 2 December.
• The PM, Boris Johnson, says that the lockdown will definitely end, which is worrying.
• Trade bodies the British Beer & Pub Association, the British Institute of Innkeeping and UK Hospitality have begun lobbying in an attempt to inject a bit of certainty / backbone.
• The trade bodies say ‘that 72% of sector businesses expect to become unviable and close in 2021.’ Using research undertaken by CGA, they say a survey of members found ‘that the tiering system used across England was particularly damaging to pubs and hospitality businesses.’
• They say ‘under tier one restrictions, only 25% of operators said they could turn a profit. Under tier two restrictions, 76% said they would be unviable or operating at a loss. For those pub and hospitality businesses having to operate under tier three restrictions, the survey found that 94% would be unviable or operating at a loss.’
• The problem for government at present is that, with the R rate above one and the country in lockdown, it might be hard to remove restrictions, even though the PM has promised to do so.
• The trade bodies ‘are calling on the Government to adapt the current tier restrictions by relaxing the ban on household mixing in tier two, alongside a modest extension to the 10pm curfew. They are also asking for the Government to allow ‘wet-led’ pubs (pubs who serve just drinks) to re-open in tier three without having to serve food as well, provided they follow the other rules. The medium risk tier one should also be relaxed further, according to the trade bodies.’
• This may be something that the government feels it can summon the largesse to accede to. Even if it means a bit more tightening further down the road. The bodies say ‘these measures are needed to help enable communities, friends and families to safely gather this Christmas in venues which are following Government guidelines, serving to tables, enforcing social distancing and working with NHS test and trace, whilst helping ensure the sector’s very survival by maximising its ability to viably trade in this critical period.’
• Basically, if businesses cannot lay down a bit of financial fat over Christmas, then there may not be a January. See also premium email.
• A joint spokesperson for the three organisations said ‘the evidence is here to see of the devastating, long-term impact the Government’s restrictions are having on hospitality and pub businesses.’ They add ‘without a change in approach and more support from Government, much of our sector could be gone within a year – that means businesses and jobs lost plus much-loved venues closed forever.’
• The bodies conclude that the measures they suggest will help wet-led operators and ‘ensure their very survival so they can re-open once more when we are through the worst of this crisis.’
• Dr Susan Hopkins, the medical director of Test and Trace, has suggested that around five days of lockdown could be necessary for each one day freed from restrictions. She says England could face nearly a month of lockdown for the Christmas week. PHE has since said that Dr Hopkins “misspoke” on the latter point and the 5 to 1 ratio was the one that it wished to stress.
• A Number 10 spokesman has reiterated that Mr Johnson has a “clear intent to allow families to spend Christmas together” although this will not be “normal.” Business Secretary Alok Sharma has told Sky that it is still too early to say exactly what the rules will be. This does not help operators to plan. Sharma says “Christmas is of course going to happen come what may. I would love to have members of my family round, but we just have to wait and see where we’re at.” An announcement is expected next week.
• Across the economy as a whole, the ICAEW has been taking business’s temperature. The ICAEW says ‘it is worth remembering our lives are and will remain different for the remainder of 2020 and most of 2021. With that in mind we need to be resilient as individuals, families and businesses.’
• It says 49% of businesses currently trading ‘reported a decrease in their turnover below what is normally expected for this time of year. On 8 November, overall UK footfall dropped to 33% of the level seen on the equivalent day last year as national restrictions were introduced in England.’ It is likely that almost 100% of businesses no longer trading also registered a decline.
• The ICAEW says ‘business planning for 2021 will be difficult as we don’t know the timings for mass vaccinations and whether they will truly work but there are some practical steps you can take to minimise potential disruption to your business.’ True that.
• The accountancy body says confidence is down and late payments are up. it says its index of business confidence is at 19.0, which it says is ‘marginally better than the last quarter of 2019, where issues like Brexit and the General Election affected business confidence.’ It says ‘a torrid year is coming to a bleak and worrying end for many households and businesses.’
• It adds ‘households are in the situation of seeing opportunities for spending their money limited, due to new restrictions, as well as preparing for potentially more bad news on the economic and employment front by curtailing spending. The effect is to reduce consumer demand, reducing activity throughout the economy.’
• In terms of geography, London is the least confident region. The ICAEW says the capital ‘with its transport system, concentration of IT companies and high-value property market, has the lowest confidence of any region in the UK.’
Working from home:
• The ICAEW, which has been busy recently, says that workers seek a hybrid approach to office of the future. This has a ‘have cake and eat it’ feel to it but, as a reflection of what employees want, it may be nonetheless accurate for that.
• It says ‘rumours of the demise of office life may be greatly exaggerated’ adding that a study by global architecture, design and planning firm Gensler suggests that staff who split their time between the office and home working have the best experience. It says they ‘are more likely to feel greater overall job satisfaction than those working exclusively at either home or the office, and to feel that working during the pandemic has had a positive impact on their creativity.’
• Flexibility may be at a premium.
• On-Trade Consultancy (OTC) yesterday hosted a webinar during which participants discussed the major impacts of Covid and likely (or possible) short term developments. Speakers included Matt Steinhofel of OTC, Ann Elliott of Elliott’s Agency, Katie Moses of KAM Media, Amber Staynings of Bums on Seats and Mark Brumby from Langton. The video can be found here:
• The Institute for Economic Affairs says ‘with a vaccine on the horizon, there is a sense of cautious optimism.’ It adds that, once there is at least the first signs of the dust settling, we will have to consider how to pay for all of the spending that the government has incurred.
• An IEA panel discussion on the Resolution Foundation’s proposed £40bn tax hike suggested that government spending would also have to be cut.
• KAM Media is to launch its follow up report on low and no-alcohol drinks in January. The Low+No / 2021 report contains ‘exclusive research into the low and no category from a customer perspective, looking into the latest trends to help operators, retailers and brands unlock further growth in this category and satisfy customers’ growing demand for this drinking occasion.’ Details as to the report can be found here
• The Food & Drink Federation, responding to the Prime Minister’s Ten Point Plan for a Green Industrial Revolution, says ‘we have identified a clear pathway, but the changes required to manufacturing processes and energy supply systems are so significant, businesses will need clear direction and support in partnership with Government and other stakeholders to make that transition. We now look forward to the imminent publication of the Energy White Paper.’
• Nichols has updated on trading for the 9mths to end-Sept saying it has seen a ‘continued outperformance of the Vimto brand offset by anticipated declines in Out of Home as a result of Covid-19.’ Nichols says ‘as anticipated in the Group’s Interim Results in July, the ongoing Covid-19 pandemic has continued to impact the soft drinks industry.’
• Nichols says ‘the Vimto brand has continued to outperform the wider UK soft drinks market, achieving growth of 5.8% in value terms in the year to date, versus 1.9% value growth across the wider UK soft drinks market. Across the Group’s International markets, the strong momentum reported in the Group’s Interim Results has continued, particularly in Africa, where revenues increased by 10.5% YTD against the prior year.’
• The company says ‘cash generation has continued to be very positive through 2020 and despite the financial challenges posed by the ongoing pandemic cash and cash equivalents at the end of the period were £45.4m (30 September 2019: £37.2m).’ Re next year, Nichols says ‘given the ongoing uncertainty regarding the future progression of the pandemic, the Board is not able to provide financial guidance for the year ended 31 December 2021 at this stage.’
• It says ‘whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand and the Group’s diversified business model, remains well placed to deliver its long-term strategic ambitions.’
• Nichols chairman John Nichols says ‘the Board remains pleased with the Group’s resilient performance in the period despite the significant impact of the Covid-19 pandemic on the Out of Home sector. We are particularly encouraged by the strong performance of the Vimto brand in the UK where we continue to make market share gains.’ He concludes ‘whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand and the Group’s diversified business model, remains well placed to deliver its long-term strategic ambitions.’
• Naked Wines has reported H1 numbers saying that it had seen accelerated growth through the six-month period and the group is upgrading its FY 2021 outlook saying ‘the positive trading momentum has been sustained into the start of the second half of the year, although we are mindful of significant levels of political and economic uncertainty.’
• CEO Nick Devlin says ‘Naked Wines is a bigger, better business than it was twelve months ago. The last six months have been a critical period in the development of the company. We have delivered exceptional growth and a permanent step change in scale and efficiency for the organisation. We have a business today that is not only larger, but structurally improved and ideally positioned to deliver sustained growth in the coming years.’
• Clair Preston-Beer, who has been appointed as Managing Director for Local Pubs at Greene King. Ms Preston Beer will sit on the executive board, leading the brewer and retailer’s 600-strong Local Pubs division.
HOTELS & LEISURE TRAVEL:
• Devin says ‘looking ahead, whilst the economic outlook remains uncertain, we move into the second half with continued trading momentum, supported by a strong cash balance and with conviction in the potential to unlock further growth opportunities in all our markets.’
• Jet2 has reported H1 numbers to end-September saying that revenues fell by 88% to £299.9m with a loss before tax of £119m against a profit last year of £337m. The loss per share is 56.9p (2019: profit per share 185.5p) with no dividend.
• Jet2 says ‘in what has proven to be a period of unprecedented operational and financial challenges, Group operating loss was £111.2m (2019: operating profit £361.5m) with Group loss before foreign exchange revaluation and taxation of £130.9m (2019: Group profit before foreign exchange revaluation and taxation £347.1m).’
• The company says ‘we strengthened our cash position in May 2020, by completing an oversubscribed Placing of 20% of the then issued share capital of the Company raising gross proceeds of £171.7m.’ It adds ‘at this stage, we anticipate winter 20/21 seat capacity will be approximately 50% less than winter 19/20. And, with travel advice remaining uncertain, we expect forward bookings to continue to display a pronounced shorter lead time than in previous years.’
• Jet2 says ‘whilst the recent positive news about a potential vaccine was welcome, we continue our cautious approach to summer 2021. Current seat capacity is close to summer 2019 levels and we are on sale to all our popular Real Package Holidays leisure destinations.’
• The group says it will continue to preserve cash and is ‘equipped to deal with this most challenging of trading environments and also best positioned for a return to full operations in a stable financial position, to the benefit of all stakeholders.’
• STR reports that the U.S. hotel industry ‘showed slightly lower performance from the month prior’ in October. Occupancy was down 30% year on year at 48% with room rates down 27%. REVPAR was down 49% on last year.
• Ski brands Inghams, Ski Total, Esprit Ski and Flexiski, owned by Hotelplan, are cutting their winter chalet programmes for the winter as a result of Covid-19.
• Carnival Cruise Line says it has extended its suspension of sailings to the end of January. The suspension is moving forward at the rate of about a month a month. Carnival aims to build a ‘gradual, phased in approach to resume guest operations.’
• Club med says that 52% of Brits would go skiing even if they had to quarantine on their return to the UK. That must be 52% of regular skiers rather than a random sample, surely.
• The Airport Operators Association says that it expects travel restrictions to remain in place regardless of whether or not airport testing is brought in. CEO Karen Dee says ‘what happens next depends on how long it takes to rebuild passenger confidence and that is linked to what the government does.’
• The US Travel Association says that spending on travel in the US will be 45% down this year from 2019 levels. Around 3.5m travel jobs in the US have disappeared. The USTA says ‘it is unknown how many of those job losses will become permanent.’
• GVC CEO Shay Segev says ‘as we set out last week with the launch of ARC, our new Safer Gambling programme, we are committed to leading the industry on safer gambling issues. Our proprietary technology provides us with unparalleled insight into player behaviour and we are now enhancing this capability by working with partners to provide additional scientific based insight.’
• 888 has announced the roll out of ‘The Control Centre’ which it says will promote safer gambling. CEO Itai Pazner says ‘the first phase of the Control Centre will focus on making safe gambling tools more accessible and visible to customers, with several additional safe gambling product features due to be integrated over the coming months.’
FINANCE & MARKETS:
• Inflation jumped modestly from 0.7% in the year to September to 0.9% in October. The ONS says ‘the largest contribution to the CPIH 12-month inflation rate in October 2020 came from recreation and culture (0.26 percentage points).’ It says ‘clothing; food; and furniture, furnishings and carpets made the largest upward contributions.’
• The NIESR says ‘our measure of underlying inflation, which excludes extreme price movements, increased to 1.3 per cent in October, thanks to an increase in underlying inflation across all 12 of the UK regions. Inflation is likely to remain subdued in the short-term but the possibility of early roll-out of a Covid-19 vaccine and a no-deal Brexit pose upside risks on consumer inflation in 2021.’
• Accountancy firm KPMG says that the failure to strike a Brexit deal with Europe will cut the UK’s economic growth rate by more than half next year. It says it still expects a last-minute agreement.
• Nissan has said that its future in Britain will ‘not be sustainable’ in the absence of a deal.
• The ONS reports that house prices rose by 4.7% in the 12mths to end-September.
• Sterling weaker at $1.3226 and €1.1162. Oil higher at $44.15. UK 10yr gilt yield up 1bp at 0.34%. World markets turning down towards the end of the day yesterday and London set to open down around 53pts.
RETAIL WITH NICK BUBB:
• Today’s News: The Kingfisher Q3 trading update is full of monthly and weekly sales detail, showing that business has remained strong, with LFL sales over 17% up in the 13 weeks to Oct 31st, albeit the last 2 weeks have been a bit slower (aggravated by the pull forward of demand into the last week of October by the lockdown in France). The 2 core businesses of B&Q in the UK and Castorama in France did particularly well in Q3, but trading was a bit slower in Screwfix and Brico Depot (as well as in Poland and Russia. There is no sign of the expected Card Factory Q3 update, but Naked Wines has announced its interims for the 26 weeks to Sept 30th, with impressive revenue growth of 80%.
• News Flow This Week: First thing tomorrow we get the widely-followed GFK Consumer Confidence index for “November” (with the City expecting a fall from -31 to -34), as well as the ONS Retail Sales for October (with the City expecting a fall of -0.6% in month-on-month seasonally adjusted volume).