Langton Capital – 2020-12-02 – PREMIUM – Loungers, Stock Spirits, Tiers for Christmas, trading & other:
Loungers, Stock Spirits, Tiers for Christmas, trading & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
It’s both a source of some comfort but also disappointment to find yourself thoroughly average.
Of course, you wouldn’t want to have a non-average number of legs or eyes or be half or double the normal height for an adult – but sometimes, just sometimes, it would be nice to stand out a little.
Because it can be a little wearing if you decide to drive to the coast on the same day and at the very moment that everyone else does.
And it can be crowded if you do your Christmas shopping in a rush on 23rd and 24th of December with all the other blokes in town, disappointing if you’re the fifth, sixth or seventh person to offer windfall apples to the postman on his rounds, etc. etc.
Anyway, it’s pitch dark in the morning now and it’s going to snow come the weekend. On to the news:
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IN TODAY’S PREMIUM EMAIL:
Here we consider the hot topics & hope to analyse as well as report.
LOUNGERS H1 NUMBERS: Loungers has this morning reported H1 numbers for the 24wks to 4 October and our comments are set out below: 2 Dec 2020:
• Revenue for the period is £53.4m against £79.8m last year
• Adjusted EBITDA is £13.2m vs £14.5m with a marginal profit of £117k against a reported loss of £2.5m last year
• Diluted EPS is a positive 0.1p against a loss of 2.3p per share last year
• Cash generated from operations was £20.9m against £12.6m in the prior year
• Net debt excluding property leases was £13.6m against £35.4m
• Loungers reports ‘a very strong resumption of trading post the first lockdown that provides confidence in Loungers’ ability to out-perform in a post Covid-19 environment.’
• The company says that it generated ‘significant market out-performance post re-opening to 4 October’
• Not a normal period. The group, which operates 168 café/bar/restaurants across England and Wales under the Lounge and Cosy Club brands reminds us that the 24 week period being ‘reported on includes 11 weeks of lockdown, four weeks of phased re-opening, four weeks of Eat Out to Help Out in August, and finally five weeks of relative normality, albeit this five week period included the introduction of the “Rule of 6”, the 10pm curfew and local lockdowns in Wales.’
• The company says it saw post reopening like for like sales growth of +25.1% between 4 July and 4 October
• The company raised equity with net proceeds of £8.1m during the period and agreed an additional £15m revolving credit facility
Balance sheet & debt:
• Loungers reports on its ‘material reduction in non-property net debt to £13.6m’
• It says ‘this provides the balance sheet strength not only to withstand the second and potential future lockdowns but to ensure the Group is well positioned to resume its roll-out strategy and benefit from an increasingly tenant friendly property market, where prime pitch properties in strong target locations are available at attractive rents.’
• It says its roll-out programme has been recommenced ‘in a measured fashion’
• In H1, the company opened a Cosy Club in Brindley Place and the Ponto Lounge in Hull. It says the Sentado Lounge in Sittingbourne opened shortly after the half year end.
• The group is on site in Stourbridge and Wolverhampton and scheduled to open early in the New Year.
Current Trading and Outlook
• Loungers says ‘the strength of our trading in the first half was maintained through to the second national lockdown commencing on 5 November’
• It adds ‘underlying LFL sales performance (excluding the positive impacts of EOTHO and the VAT reduction) of minus 1.1% in the period to 4 October declined only fractionally to minus 1.3% in the extended period to 4 November, in spite of the growing impact of the 10pm curfew and the ultimate inclusion of 55 of our sites in Tier 2 and 3 areas.’
• It says ‘in the short term we expect a more severe impact on sales. In England we have 60 sites that will remain closed under Tier 3, with 91 sites trading in Tier 2 and three sites trading in Tier 1. In Wales we have 14 sites that will be subject to increased restrictions from 4 December.’
• Loungers remains confident. It says ‘the strength of our brands and the manner in which they performed coming out of the first lockdown provides confidence for the future and we would expect a strong trading environment for our brands once Covid-19 restrictions are eased.’
• It says it should open around 25 new site openings per annum during the course of the financial year ending April 2022
• CEO Nick Collins says ‘as we dare to look beyond Covid-19, Lounge and Cosy Club have never seemed more relevant, and we approach 2021 with enthusiasm and optimism.’
• He adds ‘our strong balance sheet will enable us to get back to doing what we do best, opening 25 sites a year, creating over 500 jobs a year, investing in high streets across the UK and looking after our customers and teams.’
• Collins adds ‘I would strongly urge the Government to engage with our sector, provide immediate, targeted support where required, and re-consider the ill-thought through policies that have brought much of our industry to its knees.’
• Re current trading and prospects, the group says ‘it remains unclear how we will trade following re-opening in England and with the latest restrictions in Wales, not least during the Christmas trading period, however the strength of our brands and the manner in which they performed coming out of the first lockdown provides us with confidence for the future.’
The High Street becoming a desert?
• Arcadia and now Debenhams. Landlords, shall we say, a bit like Japan in August 1945, are no longer on the front foot. A fact not lost on restaurant companies lobbying for lower rents, advisors pushing CVAs etc.!
• With restaurants, when competitors go bust, it helps the survivors. With department stores & High Street clothing retailers, not so much. Check Ansoff matrix. May provide a brief fillip but downward trend is surely secular rather than stock specific.
Biggest Covid mistakes:
• Biggest Covid mistakes? Boy, that’s a long list. Lockdown 1 too late. Cummings rule breaches. Intra-lockdown nonchalance, EOTHO, PPE debacle, track n trace debacle, mixed messages, competence vacuum, unfocused UK-wide response etc. Will keep historians busy.
The two sides to EOTHO
• In praise of EOTHO. It kick-started the industry, got millions back to work, reintroduced the ‘habit’ of eating out and helped our mental health. Did the job but the kangarooing ‘stop-start’ that followed undid much of this, surely? See also anti-view.
• But anti view. EOTHO. ‘To help out’ bit invoked spirit of Blitz. Was a duty but was that wise? Get people to mingle, put alien food, drink, glassware & cutlery into/onto their mouths in the middle of a pandemic with R rate of 3.5? Time date it, introduce FOMO. In a pandemic?
PREMIUM – SEE ALSO BLUE BELOW
PUBS & RESTAURANTS:
Tiers before Christmas:
• England has emerged from lockdown today into, well, lockdown. The government won its vote on the tier system by 291 votes to 78 votes.
• Tier One (there is virtually nobody in Tier One) demands that ‘businesses must take reasonable steps to prevent separate groups from mingling with each other within indoor and outdoor settings.’
• It also demands that ‘businesses selling food or drink (including cafes, bars, pubs, restaurants and takeaways) must be closed between 11pm and 5am, with last orders for food and drink having been placed by 10pm.’
• It adds ‘in venues which sell alcohol, food and drink must be ordered by, and served to, customers who are seated. This means that a business that sells alcohol must introduce systems to take orders from seated customers, instead of at a bar or counter. This applies to both indoor and outdoor settings.’
• Tier One also requires ‘all businesses selling food or drink must ensure that customers only consume food or drink while seated. This means that in unlicensed premises, food and drink can be purchased at a counter, but customers must sit down to consume it, even in outdoor settings.’
• In Tier Two (just over half of us) ‘venues must close unless they operate as if they were a restaurant. This means serving substantial meals, like a main lunchtime or evening meal. They may only serve alcohol as part of such a meal.’
• You can have beer with breakfast but not without food.
• Tier Two says ‘businesses that do not ordinarily serve food may enter into a contracting arrangement in order that they are able to do so and remain open. However, allowing customers to bring food into the premises that had been purchased elsewhere in order to consume alcohol remains prohibited.’
• In Tier Three (just under a half) ‘businesses selling food and drink (including alcohol) must close.’
• They can sell food and non-alcoholic drinks through takeaway, click-and-collect, drive through or delivery’ but only to ‘customers who order it in advance via phone, internet, mobile app or post.’ Nice to see the Post Office getting a mention but what about Semaphore, pigeon post and smoke signals?
• Tier Three requires that ‘businesses should ensure that customers who collect pre-ordered food or drink do not enter the premises to collect their orders. Where possible businesses should take payment prior to collection of an order to limit contact between customers and staff.’
• Plenty of tweets and emails to customer lists yesterday from pub & restaurant operators saying they were looking forward to welcoming diners back to their outlets.
• A group of MPs have called on the Government to change restrictions and provide further financial support for pubs. The MA reports that the letter written by around 11 MPs ‘called for the science behind the curfew to be released and further financial assistance for pubs impacted by the tier restrictions.’
Trade bodies not pleased:
• The BBPA says pubs have been unfairly singled out in new regulations when compared to theatres, cinemas and sports grounds. CEO Emma McClarkin points out ‘it’s outrageous you can have a pint in a theatre, concert hall, cinema or sports ground without a substantial meal, but not the pub. It is a slap in the face of pubs and brewers.’
• She says ‘as an industry on its knees, fighting to survive, we have invested over £500 million to make our pubs Covid-secure, followed all the guidance and pioneered NHS Track & Trace. These new regulations now make a mockery of the great lengths we have gone to in making our pubs safe.’
• CEO of UKH Kate Nicholls tweets that the sector has jumped through every hoop presented to it. She tweets that, as an industry, ‘we reduced our occupancy and capacity to ensure social distancing at all times. Secondly, we made it all seated, with consumption only at table. Thirdly, we moved to side by side or back to back seating and 2m for face to face – plus face masks for staff & customers.’
• She adds ‘fourthly, we put in place staff to enforce one way controls, ensure seating and maintain social distancing. Those measures mean you cannot be in close face to face proximity with strangers for any prolonged period of time. Only people you are close to are the group you are with.’
• Ms Nicholls adds ‘finally, the very best measure to eliminate risks in indoor settings is good ventilation. Far from being poorly ventilated, hospitality venues have been required to meet – and in many cases they exceed – the ventilation standards set out by SAGE to mean they are a very low risk.’
• The BII says ‘we are calling on Government to recognise the reality of how fragile our pubs are right now. They support vital local jobs and can be at the heart of the economic recovery in 2021. The essential role that our pubs play in their local communities as safe places to come together providing the desperately needed human connection across our nation, must be safeguarded.’
• CEO of Greene King Nick Mackenzie says ‘today’s announcement of the £40m support fund for wet-led pubs only equates to around £1,000 per pub – which simply isn’t enough and won’t touch the sides of the financial hole that’s left for pubs over what is traditionally the busiest trading period of the year. Because of the new tier structure, many pubs are unviable with heavily reduced revenue and significant costs from reopening and closing as the rules constantly change.’
• Mackenzie adds ‘jobs and livelihoods are at risk. Unless the Government urgently reviews the restrictions, many pubs face permanent closure, which will deprive communities across the country of their much-loved great British pub.’
You wouldn’t have thought you could make the hospitality industry any angrier, would you? But you would have been wrong.
• The government is offering £1,000 of taxpayers’ money to pubs that do not serve food. These pubs are losing Christmas and say that the compensation being apparently grudgingly offered is laughable. See Premium Email.
• UKH says ‘the Government’s support for hospitality fall far short of the minimum required to save businesses and prevent unemployment.’ It adds that the measures restricting trade are being unfairly targeted and says that ‘the support announced for hospitality businesses, including today’s £1,000 payment for pubs, falls far short of the required level to avoid catastrophic failures and widespread job losses.’
• UKH is calling for an urgent, targeted replacement of the Job Retention Bonus.’ This had promised £1,000 per employee to staff taken off furlough and retained until next month. It has been scrapped.
• UKH also wants an extension of the rent debt moratoria, compensation of businesses for losses, an extension of the current VAT cut ‘as well as a business rates holiday for the whole of 2021 to enable businesses to rebound next year.’
• UKH says ‘this is not just a threat to community wet led pubs but also neighbourhood restaurants independent hotels, nightclubs and other hospitality venues who are now staring failure in the face. The sector will lose £8bn of revenue in December and bear £0.3bn of costs of closure and restricted trading.’
• The BBPA says ‘the Government has shown a total disregard for the impact its rules and restrictions are having on our sector and the thousands of jobs and communities it supports. 7 in 10 alcoholic drinks sold in pubs are beer, so punishing pubs also punishes Britain’s world leading brewing sector.’ It adds that the ‘so-called Christmas bonus for drinks led, community pubs worth £1,000, on its own, is simply nowhere near enough to stave off thousands of pub closures.’
• Getting into its stride, the BBPA says ‘£1,000 on its own is a meagre amount for pubs to cover 9 weeks of costs let alone compensate them for the huge loss of business over the festive period. It is quite frankly, an insult to thousands of pubs across the UK that are on their knees.’
• Warming to the theme, it continues ‘it barely touches the sides of what pubs up and down the country require to cover their costs and ensure they survive. Nor does it recognise the inherent danger they are in heading into the next year without more support should the tighter tier system remain unchanged.’
• The BBPA says ‘this December, the average pub will lose £47,000 in revenue. A £1,000 payment is not even a sticking plaster. The current monthly grants to pubs have to be increased significantly if pubs are to survive and be able to play a role in the new year in leading the economic recovery and serving their local communities.’
• William Lees Jones of JW Lees tweets ‘if Christmas is 1/4 of a pub’s profits and, if £25k is a reasonable wage, then grants for wet led pubs needs to be |£6,000 not £1,000 when France are paying compensation at 20% of turnover.’
• Sacha Lord, late night trade advisor to Manchester tweets ‘I don’t want to sound ungrateful, but Boris Johnson has just offered our wet led pubs 1k.’ He says ‘1k will NOT save most of the 1806 wet led pubs across Greater Manchester. Our community pubs, most of which our in our most deprived areas. It feels like an insulting token gesture.’
• CAMRA says ‘a one-off £1,000 grant simply isn’t enough to compensate wet-led pubs in Tier 2 and 3 areas in England that will be forced to close at what should be their busiest time of the year.’ It adds ‘the Government must urgently introduce a new, decent and long-term financial support package for hundreds of thousands of wet-led community pubs which deserve to be saved from going bust due to these restrictions.’
• Hawksmoor tweets ‘the £1000 per venue for wet-led pubs after the £1000 per employee was taken away is like taking the service charge off your bill at Hawksmoor and expecting the waiter to be grateful for a £1 tip.’
• The latest Market Recovery Monitor from CGA and AlixPartners shows just 6.2% of Britain’s sites were trading at the end of November, with tough restrictions in England and Wales set to keep well over half shut.
• It says ‘as many as 50,000 licensed premises could keep their doors closed after the end of the national lockdown and the start today of the new tiered restrictions in England. The Monitor adds that there is a major challenge facing restaurants, pubs, bars and other venues in December, ‘despite yesterday’s assurance from Government of some limited financial help for drinks-led pubs.’
• CGA and AlixPartners’ research says ‘at least a third of operators in Tier 2 could be unable to trade while subject to these regulations. Combined with Tier 3 businesses, it means that more than 50,000 licensed premises in England may not open their doors this week.’ CGA adds ‘after a steady recovery over the summer, these new figures illustrate the catastrophic impact of the government’s restrictions on hospitality’s ability to trade.’
• CGA adds ‘the experiences of Scotland and Wales show that a release from lockdown is no guarantee that businesses can reopen. Despite the end of England’s shutdown, the harsh tiered arrangements means tens of thousands of England’s premises are simply unviable in their most important trading month of the year. The longer the system remains in place, the bleaker are the prospects for survival for many of these businesses.’
• Leon has launched a CVA reports Sky. Sky says ‘the proposals, which require creditor approval, would see four of Leon’s restaurants switch to a rent-free model.’ It says ‘the majority of its 60 outlets will switch to turnover-based rents – an increasingly common framework for coronavirus-battered hospitality and retail businesses.’
• Sky quotes Leon co-founder John Vincent as saying that the chain has ‘engaged extensively with the vast majority of our landlords across the last few months.’ He says the co has ‘a duty to secure Leon’s future for the benefit of all our stakeholders and, after careful reflection, believe this CVA is the best way of doing that. It will give the business the breathing space it needs before it can fully resume normal trading and look to grow again.’
• Wireless Social says there wasn’t a great deal of change in footfall in England last weekend from the previous three weekends. It says ‘across the whole of the UK, Saturday 28th saw -68% of the footfall seen in February, and Sunday 29th saw -66% of February’s footfall.’
• Wales ‘has been free of the majority of lockdown restrictions for 3 weekends now, and it appears the initial boost in footfall seen in the first 2 weekends of freedom has dipped slightly.’ Wireless Social says ‘in Cardiff on Saturday (28th) footfall dropped by 13% compared to the previous Saturday (21st) and on Sunday (29th) footfall dropped by 20% compared to the Sunday before (22nd.)’
• Bibendum Wine quotes PROOF Insight as saying that ‘25 million customers want to visit the On Trade in December.’ It says ‘spacious venues and those with outside areas located close to home will be prioritised by consumers.’
• The Evening Standard says ‘outspoken pubs boss Tim Martin is on the offensive again, blasting MPs for their treatment of the trade just as Britain prepares to come out of its second lockdown.’ Martin says “reckless decisions” over Covid-19 have hurt pubs.
• Mr Martin adds ‘it is a fallacy that pubs will reopen on Wednesday 2 December. The government has effectively closed all pubs in England, by stealth- possibly for the first time in history. A pub licence, unlike a restaurant licence, allows you to sell beer, wine and spirits “for consumption on the premises”, without a table meal- and this is now prohibited.’
• Michael Gove, interviewed by Piers Morgan yesterday, declined to say what a ‘substantial meal’ was. He said it has been known for years what it was. But would go no further.
• Environment Secretary George Eustice said a Scotch egg would “probably count.” Slices of pizza were deemed not to count in Manchester last month.
• Caffè Nero ‘confirms that creditors have approved its Company Voluntary Arrangement, including a modification that the Company will ensure compromised creditors (including landlords) will have their arrears paid in full in the event that a sale of the Group to the third party (which approached the Group late on Sunday night) occurs within the next six months.’
• The company says ‘in excess of 90% of creditors voted in favour of the proposal. As a result, the CVA has now formally been approved.’ It adds ‘importantly, the proposal received the support of an overwhelming majority of landlords. The Directors are extremely grateful to its landlords, business partners, suppliers and other creditors for their support and understanding in the process during these challenging times.’
• Caffe Nero says ‘after the devastating effect caused by the pandemic on Caffe Nero, the approval of this CVA by the Company’s creditors safeguards the immediate future of the business, and provides a sustainable platform from which the Company can navigate the challenges ahead, and rebuild sales momentum over the medium to longer term.’
• See yesterday’s email for comment on potential ‘takeover’ approach.
• Commenting on Caffe Nero’s position, Julian Dailly, Head of Retail Insights at brand intelligence specialist Savanta, said ‘the data shows that Covid-19 has hit Caffe Nero harder than its competitors, with a 38% decline in customer penetration between November 2019 and November 2020. This is compared to a 26% decline for Costa, and a 19% drop for Starbucks.’
• Savanta says ‘the company’s recovery has lagged behind its peers since the peak of the Coronavirus pandemic in the UK, with only 7.4% of people in the UK stating they have visited or ordered from a Caffe Nero in the past month (25.2% for Costa, and 16% for Starbucks.)’
• It adds ‘the firm’s heavily urban site base has been hit harder by the drop in footfall as offices and city centres closed, while competing shops have adopted new approaches to attracting and retaining customers, including convenience store vending machines, delivery services and drive thru sites.’
• Sky reports ‘the billionaire brothers who are in the process of buying Asda have warned Caffe Nero that its proposed restructuring will face a legal challenge after the coffee shop chain snubbed their takeover bid.’ It says ‘lawyers for EG Group, the petrol retailing giant headed by Mohsin and Zuber Issa, have written to Caffe Nero’s parent company to highlight the likelihood of a landlord rebellion against its company voluntary arrangement.’
• It would appear that landlords have come around to the CVA given Caffe Nero’s comments above.
• Stock Spirits Group has reported preliminary results for the year ended 30 September 2020 saying it has turned in ‘a resilient performance during uncertain times, with results ahead of expectations.’
• Stock Spirits reports revenues up 9.1% at €341m with adjusted EBITDA of €71m vs €67m last year. PBT is €19.6m, down 31% and the EPS is 9.8c vs 14.3c last year. CEO Mirek Stachowicz says ‘we are pleased to have delivered a resilient performance against the backdrop of a hugely challenging year. In H1, we successfully navigated excise tax increases in our largest markets of Poland and the Czech Republic. In H2, we prioritised protecting and supporting our employees, customers, suppliers and the communities around us in the face of the COVID-19 pandemic.’
• The company says ‘our strategy of sourcing and manufacturing nearly all of our products locally ensured that there has been no disruption to our operations.’ It concludes ‘while there remains some uncertainty in the short-term outlook, in the longer term we are confident that we will emerge from the pandemic with an even more loyal and engaged consumer base, closer customer and supplier relationships, and a stronger business than ever before. As such, we remain confident in the future prospects of Stock Spirits.’
• Black Eagle Brewery, which owns the Truman’s brand in London and which brews in the East End, has reported numbers to 31 March 2020 to Companies’ House showing that retained losses rose by £1.9m in the year.
• The company now has retained losses of £3.8m and, as at end-March last, it had negative shareholders’ funds of £121k.
• Pizza Hut Delivery is reported set to hire 2,500 staff in a recruitment drive after a surge in demand for takeaways during the pandemic.
• Debenhams stores are set to close after the chain failed to secure a rescue
• The Guardian reports that Sir Philip Green is a lot less rich than he used to be
HOTELS & LEISURE TRAVEL:
• Spain is reportedly organising a pilot scheme for mutual pre-departure testing for travel between the UK and the Canary Islands
• Opinium Research has found that 65% of UK adults would take a vaccine if it meant that they could travel internationally. Hopefully, it will be more than 65% over time.
• CNBC has reported that Airbnb plans to value itself at up to $35 billion.
• Video conferencing company Zoom has reported that annual sales will be even higher than expected as a result of pandemic demand for remote meetings
FINANCE & MARKETS:
• The OECD says that the global economy will contract by less this year than it had previously expected. The OECD says ‘for the first time since the pandemic began, there is now hope for a brighter future. Progress with vaccines and treatment have lifted expectations and uncertainty has receded.’
• The OECD says the UK economy will be among the hardest hit by the pandemic globally. It says the UK economy will still be 6% smaller than before the Covid health crisis by the end of next year.
• IHS Markit reports that ‘the upturn in the UK manufacturing economy strengthened during November, as rates of growth in output and new business accelerated and the downturn in employment slowed.’
• Markit says its PMI rose to 55.6 in November from 53.7 in October. It says ‘growth of the UK manufacturing sector picked up in November, temporarily boosted by ‘Brexit-buying’ among clients and the ongoing boost from economies re-opening following lockdowns earlier in the year.’
• The Nationwide reports UK house prices rose 6.5% in the year to November, the highest annual rate in nearly six years
• Sterling up vs dollar at $1.3419 but down vs Euro at €1.1109. Oil lower at $47.19. UK 10yr gilt yield up 5bps at 0.36%. World markets better yesterday but Far East mixed today. London set to open down around 16pts.
RETAIL WITH NICK BUBB:
• Today’s News: JD Sports waited until 9am yesterday to issue a very brief statement to confirm the “press speculation” that it had lost interest in buying the bankrupt Debenhams and after that the news came quickly that the administrators were liquidating the business, with all the stores likely to close in January…But things move quickly in Retailing these days and the big news this morning is that Tesco has suddenly announced that it wants to repay the £585m of Business Rates relief it received from the Government in respect of the COVID-19 pandemic, even though the extra costs of dealing with the pandemic are estimated at £725m. The Tesco Chairman John Allan says “We are financially strong enough to be able to return this to the public, and we are conscious of our responsibilities to society. We firmly believe now that this is the right thing to do, and we hope this will enable
• News Flow This Week: As we move further into December, the latest quarterly FTSE index review is announced this evening (with Homeserve said to be at risk of being ejected from the FTSE 100 index, despite its admirable defensive qualities and a £3.5bn market cap). The B&M EGM is tomorrow, along with the Q3 results from the jeweller Signet and the supermarket giant Kroger in the US. The ABF/Primark AGM update is on Friday.