Langton Capital – 2020-11-24 – PREMIUM – 3 Dec plans, Xmas, Compass, vaccines, Cineworld etc.:
3 Dec plans, Xmas, Compass, vaccines, Cineworld etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton recently did one of those 23 & me genome tests which confirmed pretty much what the mirror suggests every time we look in it.
It found DNA that was archetypally British or Irish or Flemish or German or Scandinavian. It presented an image of a genome tootling around the North Sea for millennia and it was both too accurate and too general to take very seriously.
But there was 3% Neanderthal in there somewhere alongside a proximate 100% chance that the sample donor would have blue or green eyes and a strong genetic likelihood that he would not be afeared of heights.
So, armed with that, I got the ladder out to pull the Virginia Creeper off the wall and out of the gutter but began almost straight away to have my doubts because, either a) the tests weren’t 100% accurate or b) my genes had forgotten to communicate my lack of fear of heights to my brain and I felt decidedly uncomfortable wobbling around 20 feet up in the air.
Still, no harm done and, apparently, 23 & me was kind enough to tell me there’s a cluster of similar genomes in the Hull area. Helpful but not something that my address book hadn’t already told me. On to the news:
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A LOCKDOWN BY ANY OTHER NAME? The trade’s reaction to the announcements re post-2 December trading were uniformly negative. 24 Nov 20:
• Winter hasn’t started yet and yet this is this the 3rd, 4th or 5th Winter Plan depending upon which changes are deemed fundamental and which are merely evolutions and tweaks.
• The ideas, widely leaked in the Press on Saturday and Sunday, were only announced to the Cabinet on Sunday and to the Commons yesterday.
• We hear about Christmas plans today, travel quarantine changes tomorrow and which regions will be in which Tiers on Thursday.
• See general email below.
• There is a widespread belief that hospitality (a.k.a. younger people, both customers and staff) is being thrown under the bus in order to save Christmas ‘for the family’ (a.k.a. older people).
• This is a tough political decision. Cynical but, perhaps, the one group are more natural supporters of the government than is the other.
• In addition to the comments covered below, Sacha Lord, night-time economy advisor for Greater Manchester, says ‘I cannot and will not, just sit by and allow the Government to destroy hospitality.’
• He says the changes ‘spell the end of the traditional pub as we know it.’
• Lord adds ‘I totally understand that people want Xmas with family and friends, as do I. But the worst possible start to 2021, would be shutting down hospitality again after just a few weeks of trading. It would be the final nail.’
Which regions will be in which Tier?
• This will be announced on Thursday. However, there could have been a move away from Tier I as the pandemic has grown bigger during lockdown
• In the week that the UK went into lockdown, the week ending 8 November, there were 2,327 Covid deaths in the UK. This rose to 2,890 in the following week and to 3,090 last week.
• Deaths are a lagging indicator and this is a flattening of the curve but, as the R rate has not been below 1.0 during lockdown, it is perhaps likely that more regions will be in Tier III than were there prior to 5 November (lockdown 2.0 day)
• And Tier III is tougher than it was suggesting that, other things being equal, revenues will be lower across the hospitality on a LfL basis post-lockdown than they were pre-lockdown
• This decline in performance will not be spread evenly across the industry but, as Tier III pubs will have to shut except for takeaway and Tier II pubs will only be able to sell drink with food, it should be evident across the industry as a whole
A CRESCENDO OF COMPLAINTS: The proposals above are not yet law. Tory rebels could vote them down and the Labour Party is keeping its powder dry. 24 Nov 20.
• The above isn’t a done deal. The government has form when it comes to bluffing the public into changing its behaviour.
A far from compliant House of Commons:
• The Covid Recovery Group of Tory MPs can muster around 70 votes.
• The party excommunicated rebels, David Gauke, Nicholas Soames etc, in the run up to the December election
• But the CRG is closer in beliefs to the Tory base and, if Donald Trump and the Tory Party have anything in common, it’s that they both know you can’t risk alienating your base
• Hence, the personal downside to rebel MPs of voting against the government is limited and a rebellion is possible
Wouldn’t it have happened already?
• Most battles, apparently, are won in the manoeuvring rather than in the fighting
• Hence, we might conclude that a threatened rebellion would have been worked into the proposals already made and that what remains is only hot air
• But see comments on bluffing above. This could be a ‘whites of their eyes’ type situation. The Commons will discuss and vote on the proposals early next week
• There could be some sweaty palms ahead of that and the outcome is not yet altogether certain
PUBS & RESTAURANTS:
A continued lockdown in all but name for much of the country:
• The change from a 10pm curfew to 10pm last orders (11pm closure) is welcome but tiers two and three are to be tougher than they were pre-lockdown.
• This is not an end to lockdown for pubs and restaurants – in many areas – in any meaningful way.
Industry & company reaction:
• UKH’s CEO Kate Nicholls tweets ‘it seems the hospitality sector is being made to pay the price for the rest of the economy opening up before Christmas.’ She says that millions of jobs are at risk.
• UKH has said that ‘the government is making a point of saying that these measures are needed in order to save Christmas.’ CEO Kate Nicholls says ‘in reality, they are killing Christmas and beyond for many businesses and their customers who look forward to, and rely on, venues being open at this time of year. Sadly, for many staff, it will be a Christmas out of work.’
• Shadow Secretary of State for Business & former Labour leader Ed Miliband tweets ‘i’s unbelievable once again pubs, restaurants and hospitality venues still don’t know where they stand, and what, if any, extra support is available. They have a right to be incredibly angry about how government seems oblivious to the deeply difficult circumstances they face.’
• Miliband says he is ‘deeply concerned about the effect of today’s announcement on hospitality and wedding sectors in absence of any announcement of extra economic support. Unless proper support forthcoming there is a real danger many businesses will not survive and these sectors will be decimated.’
• Oakman Inns founder Peter Borg Neal agrees saying ‘completely agree Ed. But why are Labour supporting this ridiculous Government? Without the support of the Labour Party, the restrictions would not make it through Parliament.’
• Bank of England chief economist Andy Haldane has suggested that complacency across the public, now that there are vaccines on the horizon, runs the risk of a third wave.
• The BBPA says the ‘new tier rules unfairly target pubs and will destroy [the] sector’. It says more financial support will be needed for pubs and brewers. CEO Emma McClarkin says ‘our sector has been singled out by these new measures which unfairly target pubs.’
• Ms McClarkin says ‘the additional restrictions will destroy our sector if they go ahead as proposed. Whilst the review of curfew is overdue the relaxation of the 10pm curfew is meaningless if most pubs are rendered unviable or forced to close under tiers two and three.’
• She demands evidence as to why pubs are being singled out and says that the evidence the BBPA is aware of hasn’t been taken into account. She says ‘pubs are COVID-secure, following all Government guidelines, serving to tables, enforcing social distancing and working hand in hand with NHS test and trace.’
• The BBPA says ‘in tier two alone, the new restrictions will mean 90% of pubs will be unviable and will only be able to operate at a loss. In tier three, no pub is viable if restricted to takeaway only. This will also mean our brewing businesses will be hugely damaged too.’
• The Society of Independent Brewers says the changes are ‘sucker punch for the independent brewing industry. The tougher restrictions being imposed on pubs at tier 2 and tier 3 mean that trade will be a trickle of what businesses need to survive the critical Christmas period.’
• SIBA points out that ‘wet led pubs, by definition cannot offer a substantial meal.’ It also calls for evidence as to why the rules are being tightened. SIBA says ‘small breweries have lost the vast majority of their sales with the closure of pubs and now they have little hope for the Christmas period.’
• The British Institute of Innkeeping says the announcement ‘signals further devastation for our already fragile sector. Whilst the relaxation of curfew is welcome to enable some businesses to trade over a greater period of time, the restructuring of the tiering system means that huge swathes of pubs across the country will now be faced with a crippling level of reduced trade.’
• CEO Steven Alton says ‘pubs have been placed in an impossible situation, where the mixing of households indoors will again only be possible in Tier 1 areas, and those in Tier 2 will now have to provide a substantial meal to allow them to serve alcohol. The Rule of Six will only apply outdoors as before in Tier 2 and Tier 3 businesses cannot open at all, except to provide a takeaway service.’
• Happy Christmas.
• The BII says ‘with such a reduction in footfall for our venues, profitability will be wiped out in the month where so many pubs rely on higher incomes to see them through the winter and into the spring. These tougher restrictions mean that despite furlough continuing until March, thousands of businesses will be left unable to survive until they are allowed to reopen and trade more freely or provided with realistic levels of business support.’
• The BII adds ‘without immediate intervention, we anticipate infection rates rising further as people gather in homes and other settings, instead of our highly regulated and controlled hospitality environments.’ It adds ‘as we anticipate more of the country being taken into these higher tiers, the results of our most recent survey, which showed 75% of businesses becoming unviable by the middle of next year, will now be a huge under estimation.’
• PM Boris Johnson says he is ‘very sorry for the unavoidable hardship to business owners who have already endured so much destruction this year.’
• The vaccine being developed by Oxford University and AstraZeneca can protect 70.4% of people from becoming ill and up to 90% if a lower first dose is used followed by a second dose.
• The vaccine can be stored at fridge temperature and uses existing technology. See Premium Email yesterday for comments on ‘slow & perfect versus ‘quick and good enough’.
• The UK has pre-ordered 100m doses of the Oxford vaccine. Some 4m doses have been supplied so far. These cannot be used until the vaccine is licensed.
• Compass Group has reported full year numbers to end-September saying that revenues fell by 18.8% to £20.2bn with operating profit down by 69.7% at £561m and EPS down by 77.8% at 18.6p. There is no dividend. Last year the company paid out 40p per share.
• Compass says it ‘is well positioned for the future as it addresses the challenges of COVID-19.’ CEO Dominic Blakemore says ‘2020 was a challenging year for Compass.’ He says ‘we began the year on track to deliver our strongest performance ever, and over the course of a fortnight in March, we saw the containment measures to stop the spread of COVID-19 close half of the business’ and adds ‘through the summer, our performance began to improve slowly as we helped clients in Education and Business & Industry return to schools and offices safely.’
• Compass says ‘importantly, in the fourth quarter we returned the business to profitability and are now cash neutral. This was achieved mainly through contract renegotiations to reflect the difficult trading environment, continued discipline in terms of costs and some improvement in volumes. We are executing at pace and expect the underlying operating margin in the first quarter of 2021 will be around 2.5%.’
• It says ‘although the prospects of a vaccine are encouraging, the resumption of lockdowns in some of our major markets shows that we have to continue to take proactive actions to control the controllable and ensure the business can thrive despite the ongoing pandemic.’
• Compass Group concludes ‘we are improving the quality of the business and will emerge from the pandemic stronger than we’ve ever been. We recognise the importance of the dividend to our shareholders and the Board looks forward to reinstating it when considered appropriate. Finally, we remain as excited as ever about the significant structural growth opportunities globally, the potential for further revenue and profit growth, and returns to shareholders over time.’
• Sky reports that ‘Leon, the restaurant chain co-founded by Boris Johnson’s ‘food tsar’, Henry Dimbleby, is exploring an insolvency mechanism in an attempt to preserve itself during the coronavirus pandemic.’ It says the company ‘is drawing up proposals for a company voluntary arrangement which is likely to involve seeking permanent rent cuts from landlords.’
• Many of Leon’s units are in the now-quiet areas around office blocks & transport hubs in the UK’s major cities, especially London. Sky says Leon declined to comment as to how many units (if any) and jobs were at risk.
• Analyst NPD has reported that the food delivery market has increased in size by 39% over the last 3yrs. It estimates the market could be worth some £15bn by 2023.
• Foodservice sector analyst Peter Backman comments on the number of hospitality operators facing collapse and concludes that he warned previously ‘the real pain for the sector, in the form of corporate failures and lost jobs would speed up in the last few months of the year. And so it is coming to pass.’
• The tier system, the lockdown and the removal of the Job Retention Bonus have impacted cash flow in addition to which directors are once again personally liable if they trade whilst knowingly insolvent.
• Backman says ‘overall, 2021 will be better, but only a bit better, than 2020. Why not a lot better? You have to remember that the first quarter of 2020 was almost normal (it dipped towards the end of March as the threat from Covid began to become a reality) – the market in 2021, although improving throughout the year is much less likely to have any quarter which is “normal”.’
• Business Secretary Alok Sharma is expected to meet the heads of late night operators including Revolution Bars and Deltic this week. Revolution has recently announced a partial CVA and Deltic is looking for buyers in an attempt to stay afloat. Peter Marks, CEO of Deltic, says ‘every day you hear these announcements coming out from government supporting this and supporting that and there’s still nothing for us, we’ve got crumbs.’
• Diageo says that it wants to be carbon neutral within 10yrs. Chief executive Ivan Menezes says the company is ‘committed to playing our part to protect the future of our planet”, and will power all of its production facilities with 100% renewable energy by 2030. This follows a 44.7% reduction of emissions across the business’ global operations between 2007 and 2019.’
• Bothy Vineyard in Oxfordshire is reported set to cease wine production after 42 years due to issues with late spring frosts.
HOTELS & LEISURE TRAVEL:
• The government has announced that the 14-day self-isolation on arrival policy is to be cut to just five days. It has confirmed that a testing system for travellers arriving into England is to be introduced from December 15. It says arrivals into the UK from non-corridor countries will have the option to take a test after five days of self-isolation.
• Grant Shapps says ‘it’s a third of the time, so I think the travel industry will benefit massively. A lot of people I have spoken to want to travel but can’t afford to self-isolate for two weeks. That changes when it is five or six days or even seven days. So I think this will open the door to people looking to travel.’
• A number of airports are introducing on-site tests for outgoing travellers, which are payable at the traveller’s expense. Gatwick travellers are to be charged £60. This will mount up if we’re talking about a family of five.
• The Canary Islands are to require PCR tests, taken within 72 hours of departure, on arrival at accommodation in the islands. PCR tests are more expensive than antigen tests as they require lab analysis and cost over £100.
• STR reports that the hotel industry across Europe reported occupancy down 58% year on year in October with rates own 26%. REVPAR was some 69% lower. In the UK, each of the three key performance metrics fell to their lowest level since July.
• Founder of Wild Frontiers, Jonny Bealby, says that more mergers, acquisitions and failures in the travel sector can be expected as a result of Covid-19.
• Cineworld is reported to have agreed another deal with creditors yesterday, including $450 million in financing. Up to 10% of the company will be handed to creditors via the issue of equity warrants. CEO Mooky Greidinger says ‘we look forward to resuming our operations and welcoming movie fans around the world back to the big screen for an exciting and full slate of films in 2021.’
• Cinemas are to be allowed to reopen in Tiers 1 and 2.
• Gyms are to be allowed to reopen from and including 3 December.
• Up to 4,000 fans are to be allowed back into sports stadia.
• Snapchat is reported to have bought Voisey, a UK start-up that allows a user to add his or her voice to background music.
FINANCE & MARKETS:
• IHS Markit has produced flash PMI numbers for November in the UK saying that ‘business activity across the UK private sector decreased in November, which ended a four-month period of expansion.’
• Markit says ‘the downturn was driven by the fastest reduction in service sector output since May amid temporary business closures among leisure and hospitality companies.’ It says ‘in contrast, manufacturing production expanded at a robust pace during November and the rate of growth accelerated since the previous month.’
• The flash composite PMI for November dropped to 47.4 from 52.1 in October. Services were at 45.8 and manufacturing at 56.3. Markit says ‘a double-dip is indicated by the November survey data, with lockdown measures once again causing business activity to collapse across large swathes of the economy.’
• Advisory firm Alvarez & Marshal reports that manufacturers may bring production of some goods back to the UK as a result of Brexit.
• Outgoing president Donald Trump is to begin the handover process to Joe Biden.
• Sterling up at £1.3341 and €1.1253. Oil higher at $46.71. UK 10yr gilt yield up 3bps at 0.33%. World markets broadly higher yesterday. London set to open up around 27pts.
RETAIL WITH NICK BUBB:
Today’s News: Today has brought interim results from two of the great winners from the pandemic lockdown, namely AO.com and Pets at Home and both seem optimistic about the outlook. The AO.com interims are headlined “Profitable growth the AO way”, with the benefits of 53% revenue growth in the six months to end Sept dropping through to the bottom line to drive a 4.0% EBITDA margin. The founder and CEO John Roberts is bullish about the way in which the Online Electricals market has changed forever and thunders “Now really is our time and we are investing to win and cement the change”, whilst investors will be pleased to hear that “Group revenue growth in October was higher than the year-on-year H1 growth rate as we have benefitted from increased capacity, stock availability and further efficiencies following the continuing investments made in our infrastructure and people”. And the Pets at