Langton Capital – 2020-11-27 – More from M&B & Fuller’s, Tiers, reaction, northern pubs etc.:
More from M&B & Fuller’s, Tiers, reaction, northern pubs etc.:
A DAY IN THE LIFE:
So, with Hull in the news as a coronavirus hotspot and many of its residents giving their views to various TV journalists, I’ve had a chance to freshen up my accent.
Much to the annoyance of whomever is in the room with me as I’d forgotten that ‘Gowie Nerm’ wasn’t the name of a local footballer but rather it meant ‘returning to my residence’ and that a ‘Kirker Curler’ wasn’t a device intended to change the shape of your hair that was often found in churches but was a can of Coke.
Anyway, with pubs closed in Hull – and in 40% or so of England including nearly 80% of the North – it might be a dryer run up to Christmas than we had wanted, hoped for or expected.
But the fat lady hasn’t sung yet. There’s certainly a bit of a backlash going on. Just verbal, at present. But there just might be a rebellion on Tuesday and rules could yet get changed on 16 December. On to the news:
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MITCHELLS & BUTLERS WEBINAR: Following the announcement of its FY numbers, Mitchells & Butlers hosted a webinar & our comments are set out below. 27 Nov 20:
FULLER, SMITH & TURNER: Following the announcement of its H1 numbers, Fuller’s also hosted a webinar & our comments are set out below. 27 Nov 20:
OTHER CONSIDERATIONS: Political response to the proposed new Tier system.
PUBS & RESTAURANTS:
Trade very much out of love with the Government #4 – Tiers announced.
• The government yesterday allocated regions to Tiers. Matt Hancock told the Commons that more regions would be in the top two tiers, and he wasn’t kidding. Only 1% or so of the population of England is in Tier One.
• A brief reminder as to the rules.
• Tier One. Rule of Six. As Poppleston Allen says, ‘businesses must not accept a table booking for a group of more than 6 individuals or admit a group of more than 6 people, unless there is a qualifying exemption.’ Last orders 10pm, close 11pm.
• Tier Two. Meet only other members of your own household. And venues must close unless they operate as if they were a restaurant. They may only serve alcohol as part of a ‘substantial’ meal. Last orders 10pm, close 11pm. Alcohol can be served at breakfast.
• Tier Three. Pubs & restaurants shut except for delivery, takeaway and click & collect. Thankfully, the government says that you can order food or drink ‘by post’. Customers are not allowed to enter premises.
• Major cities in Tier Three, such as Manchester, Sheffield, Birmingham, Stoke, Newcastle, Middlesbrough, Sunderland, Hull, Leeds, Bradford, Derby, Leicester, Lincoln and Bristol will have shut pubs until at least 16 December
• Liverpool, York & London are in Tier Two and virtually nothing (apologies to the Isles of Wight & Scilly and to Cornwall) is in Tier One.
• ‘Bad’ might sum it up.
• The BBPA says ‘over 30,000 pubs in England will either be forced to remain closed or be rendered unviable due to 99% of the country being placed under tighter tier two and tier three restrictions.’
• It says ‘16,454 pubs will be forced to close as they are in tier three regions. Of the 21,091 pubs that are in regions classified as tier two, 13,920 pubs will either remain closed because they don’t serve substantial meals, or will be financially unviable due to the impact on revenue of the additional restrictions, including no household mixing and only serving alcohol with meals.’
• The BBPA says ‘despite the perilous position pubs find themselves in, the Government is not providing sufficient support to them, the trade association says. At present, grants for pubs are as low as £1,300 a month – not even enough to cover basic fixed costs. This, the BBPA says, means many will be forced to close unless the Government changes its approach, or provides them with the level of grants they need, like it did during the first lockdown.’
• Emma McClarkin says ‘with 99% of the country under tighter tier two or tier three restrictions, there will be carnage unless the Government acts immediately. Pubs face full closure if they are drinks led or in tier three. We need the Government to recognise the impact of these restrictions and urgently provide more financial support.’
• She says ‘we cannot overstate how serious the situation is currently facing our staff, communities and businesses. The future of hundreds of breweries, thousands of pubs and tens-of-thousands of jobs hangs in the balance. The focal point of countless communities in every region of the UK could be lost forever, the social consequences of that do not bear thinking about.’
• Pubs singled out without supporting data?
• JD Wetherspoon has updated on trading saying that ‘it has 13 pubs in England which are classified as tier one. In addition, there are 51 pubs in Wales, where the regulations approximate to tier one in England.’ It adds ‘tier two comprises 435 pubs. This tier includes 17 pubs in Scotland where the regulations approximate to tier two in England.’
• JDW adds it ‘has 366 pubs which will remain closed. 315 of these pubs are in tier three in England. 51 are in Northern Ireland and Scotland. These 51 pubs have similar restrictions to tier three in England. This group of pubs will remain closed, since opening for takeaways, for example, is unlikely to be a realistic proposition.’
• Chairman Tim Martin says ‘the government has extended a form of lockdown, by stealth, in large swathes of the country.’ He highlights the JDW magazine, in which he says the company illustrates ‘the errors of judgement made by the government and SAGE.’
• UKH has said that many hospitality businesses will operate under ‘crippling conditions in the run up to Christmas’. It says the trade could see £7.8bn of revenue wiped out compared to last year if the new regulations last for all of December.
• A substantial meal is deemed to be at table. Alcohol may only be served with such a meal. The regulations say that a ‘table meal’ is one ‘eaten whilst seated at a table or at a counter or other structure which serves the purpose of a table and is not used for the service of refreshments’ (i.e. not at the bar). Some operators are suggesting that a knife and fork may need to be involved.
• Conservative MPs have called on the government to publish more evidence to justify areas of England being put into the higher tiers of Covid restrictions when the lockdown ends next week.
Tory rebellion brewing?
• The BBC reports that several Tory MPs have criticised the introduction of the stricter measures. The Covid Recovery Group, made up of Tory backbenchers, said it was “authoritarianism at work”. The government has promised to publish an impact assessment early next week before MPs get a chance to vote on the new rules on Tuesday. Presumably the delay is because either a) it doesn’t exist yet or b) the government does not want to allow much time for study.
• The BBC reports Labour is expected to decide early next week whether to back the plans after consultation with government coronavirus experts.
Alleged anti-northern bias worries ‘blue wall’.
• Northern pub leaders have complained that their regions are being ‘disproportionately targeted by new Tier System.’ They say ‘pubs, livelihoods, employment and communities will be destroyed by Mr Gove and Mr Hancock’s shameful targeting of them in the new tier system.’ They say that ‘Tier 3 is a lockdown through stealth and deceit.’
• The northern leaders say ‘Mr Gove, Mr Hancock and Mr Johnson are wilfully dealing out certain economic ruin to our pubs and the North. The North’s community pubs will suffer disproportionate hardship as the North has more drinks led community pubs than other parts of the country as a result of its industrial heritage.’ They add ‘in Tier 2 and above most pubs in the North (and elsewhere) are unviable, have been given insufficient financial support and will fail. There is no comparison to the current treatment of the pub industry – the lack of logic and inexplicable scapegoating of these community assets is a total disgrace when set against the context of what else is now allowed.’
• The leaders, including Thwaites, Joseph Hold, Hydes, JW Lees and Robinsons say ‘the government needs to be balanced and rational – in Tier 2 pubs either need the mixing of 2 households and to be able to serve alcoholic drinks without food or more financial support at this critical time.’
• S4labour has lowered its forecasts for the recovery of the on trade. It says originally, its research ‘showed a relatively optimistic outlook, factoring in the pre lockdown bounce indicating strong consumer confidence, however the recent announcements regarding a toughened of trading conditions for the majority of operators has significantly dampened the forecast.’
• S4labour says, using Wales as a model, ‘we could expect to see a circa 60% uplift in sales across England on pre lockdown trading. However, as Wales came out of lockdown in conditions that loosely looked like England’s tier 1, much of this analysis will be redundant in as many operators will exit lockdown and move straight in to toughened tier restrictions. During any normal December, we would factor in a circa 40% month on month uplift in sales, however, for the majority of operators, the work parties and general public splurge requires a significant down forecast.’
• S4labour says ‘the few operators in tier 1 could forecast a December that is 150% up on October, yet still down 25% on last year. Those in tier two, which seems to be the most part of the UK, whose trading conditions are much like those in the previous tier 3, can forecast sales that are 110% up on October yet down 45% on December 2019, with tier 3 operators trading in conditions that are similar to lockdown 2.0, and sales all but evaporated.’
Other trade comment:
• CEO of Marston’s, Ralph Findlay, says ‘in early July, we were credited for having opened safely and responsibly. Since the end of September, the UK Government has leaked, launched, and layered a labyrinth of legislation on pubs, and pubgoers and our employees are paying a heavy price. This latest plan smacks of the fog of politics, and the Prime Minister has lost his way.’
• Nick Mackenzie, CEO of Greene King says ‘the winter plan is another crushing blow for pubs and we have been unfairly singled out with punishing and unjustified restrictions that will make pubs across the country unviable through the most important month of the year. There is no clear evidence to show why it’s safe to have a meal and a drink in a restaurant, or mix socially behind closed doors at home over Christmas, but you can’t have a pint in a pub.’
• MD of JW Lees, William Lees-Jones, says ‘we are feeling very disappointed by the government’s current attitude towards pubs, especially when we have made our pubs safe places to be with investment and training. We are bearing the financial brunt of the Winter Plan, with all of JW Lees tenants paying no rent, beer stocks built up ready for Christmas and pubs ready to re-open next week.’
• Mr Lees Jones says ‘we expect reasonable compensation from government since the current grants and furlough support in no way make up for the pub sector being sacrificed at our busiest time of the year. We estimate that the current proposed measures will cost JW Lees around £2 million which is 1/3 of a normal year’s annual profits owing to the timing of the restrictions.’
• CAMRA says the new measures are “devastating” given their timing.
• Michael Kill, the CEO of the Night Time Industries Association, says ‘the Government must compensate these businesses for the period of time they have been closed, and the loss of business suffered due to restrictions through the festive period.’ He adds ‘the sector has suffered horrendously since the start of the pandemic and is bearing the burden, so that other sectors are able to open during the festive period.’
• CEO of Fuller’s, Simon Emeny, tweets ‘these decisions regarding the tier system are clearly being taken by ministers whose idea of a Great British Pub is a restaurant with Draught beer that they go to for dinner with their partner.’
• Jonathan Downey tweets the tier system ‘means 99% of us can no longer go to the pub just for a pint. These restrictions will last well into the new year and possibly for the next 4 months.’
• Charlie Gilkes, joint founder of The Inception Group, tweets ‘half the nation’s pubs, bars and restaurants have just lost their most important four trading weeks of the year and the rest will make a tiny proportion of their usual take. Urgent increased support needed for this sector to survive until April.’
• Trade journal Global Capital reports that the ‘Greene King securitisation faces default as bondholders face a choice’. Speaking of the Spirit Issuer bonds, it says the bondholders ‘declined to waive potential covenant breaches in the same way they did for other pubcos, including the company’s larger, whole business securitisation.’
• Reuters points out that Fuller, Smith & Turner Plc said on Thursday it had cut 20% of jobs since the start of this financial year
• The Drinks Trust has partnered with Spectrum.Life, a leading corporate health and wellbeing provider, to provide enhanced wellbeing support to the drinks industry across the UK.
• M&S says that up to 15% of its food product lines could be unavailable in its Northern Ireland shops in January.
HOTELS & LEISURE TRAVEL:
• IATA says London has suffered a 67% decline in airline connectivity in the last year. A year ago, it was the ‘most connected’ city in the world but, by September 2020, it had fallen to number eight.
• IATA says world airlines could lose around US$118.5 billion this year.
• Eurostar says it has seen a 95% drop in traffic. It has called on the UK government to provide similar financial support to that recently announced for England’s airports and for the airline sector as a whole.
FINANCE & MARKETS:
• The Guardian says the government will need to find up to £27bn worth of spending cuts or tax rises by 2024 to put the public finances on a sustainable footing. The Telegraph says it is £30bn.
• The OBR says that house prices could drop by 8% next year before recovering somewhat in 2022.
• Sterling a little lower at $1.3375 and €1.1211. Oil down at $47.84 and UK 10yr gilt yield down 3bps at 0.28%. World markets broadly lower yesterday with London set to open down 1pt or so.
RETAIL WITH NICK BUBB:
• Today’s News: Today is the culmination of the annual Online discount jamboree called BLACK FRIDAY, so you might see the occasional email offering some unrepeatable deal…The Hotel Chocolat AGM is at 10am today, but no trading update has been issued (yet). There was no news from ASOS yesterday at their AGM, but there was a noteworthy 18% shareholder vote against the Director’s remuneration resolution. And ahead of the Mothercare EGM yesterday, at about 8.30am, the company pushed out its interim results (for the 28 weeks to 10 October): the statement was headlined “Emerging as a sustainable, capital light, international franchise brand”, but sales fell 40% in H1 and Mothercare did well to limit the first half loss to £4.4m (versus a £4m profit last year). In terms of guidance, Mothercare said that the group expects to make a small EBITDA loss for the full-year, despite the apparent
• BDO High Street Sales Tracker: The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that things stayed positive yet again in w/e Sunday Nov 22nd, despite the non-essential store lockdown, helped by more Online promotions pre-Black Friday: BDO Fashion LFL sales were down, as usual, but by only c6% (even though Store Fashion sales were down by as much as c76%), but Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by c5% (down c66% in Store sales, but up c152% in Online sales).
• News Flow Next Week: The Online discount jamboree continues with the ghastly CYBER MONDAY, but after that consumers will be hopefully flooding back into the High Street, after the re-opening of non-essential shops on Thursday. Before that, Tuesday brings the Topps Tiles finals, whilst the latest quarterly FTSE index review is announced on Wednesday evening. The B&M EGM is on Thursday, along with the Signet Q3 results in the US, whilst the ABF/Primark AGM update is on Friday.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 24 Nov 20 Compass Group FY numbers
• 26 Nov 20 Fuller’s H1 numbers
• 26 Nov 20 Britvic FY numbers
• 26 Nov 20 New River H1 numbers
• 2 Dec 20 Loungers H1 results
• 2 Dec 20 Shepherd Neame AGM
• 2 Dec 20 Stock Spirits FY numbers
• 4 Dec 20 Shepherd Neame AGM
• 8 Dec 20 Vianet H1 numbers
• 10 Dec 20 Marston’s FY results
• 10 Dec 20 On the Beach FY results
• Est 15 Dec 20 Fulham Shore H1 numbers
• 17 Dec 20 Revolution FY numbers
• 17 Dec 20 JD Wetherspoon AGM
• 22 Dec 20 Revolution AGM
• 12 Jan 21 Nichols FY trading update
• 20 Jan 21 JD Wetherspoon H1 update
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