Langton Capital – 2020-12-17 – PREMIUM – Crisis management, Tier Three, JDW, Revolution, SSP, Gym Group etc.:
Crisis management, Tier Three, JDW, Revolution, SSP, Gym Group etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Muscle memory is a real thing.
I mean look at typing. You don’t need to look at the keyboard to type many if not most words but, if you ask me where the A, B or C keys are on the board, I’d be hard pressed to tell you – and, if I was successful in doing so, it would only be after miming typing a couple of words on a phantom keyboard, just to be sure.
And the same with mechanical tasks.
Putting together a formatted email, for example. Cut this, paste that, delete this chunk, move it over there etc but, after something like a Christmas break, everything can take longer & much of it needs to be relearned.
Not really going anywhere with this so, before we disappear down some meaningless rabbit-hole, let’s move on to the news:
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AN EXPERIMENT IN REAL TIME (WITH REAL LIVES, REAL JOBS ETC). There have been plenty of U-turns. Hospitality is justified in feeling somewhat victimised. 17 Dec 2020:
• Response to crisis? How about this: a) have a well-researched, clearly enunciated, plan and b) stick to it.
• Easier said than done, of course, but the U-turns and moved goal posts will keep the people tasked with the inevitable enquiry into the Covid response by the UK government busy for a long, long time
• The only consistent feature has been inconsistency.
• We won’t list them all because there are too many. But masks either work, or they don’t. Ditto, lockdowns.
• You either ‘follow the science’ or you make stuff up on the hoof. Don’t do either at random or both at the same time.
• Case in point, the 10pm curfew and other spur of the moment, non-scientific responses meant to ‘signal’ virtue at the expense of a third party – in this case hospitality.
• We are either all in this together, or we are not. We should either travel the length and breadth of the country whilst knowingly infected, or not. We should…well, we could go on.
• Tiers should, surely, be consistent? We’re used to Division One becoming the Premier League, the Third Division being the new Division One etc but, even in sport, there is a certain cynical edge.
• Tier one to three in September and October had changed by December. Why not push areas up a notch & have tier four?
• At least that is transparent and honest. If all of your variables (except the behaviour of the virus) remain variable, then it’s hard to measure anything.
• There are a lot more instances, but we’d better move on.
Where are we now?
• The government is going to ‘talk sternly to us about Christmas.’ You couldn’t make it up. As a father of five, four now through teenage and one still living through it, I know how that goes.
• The tiers were reviewed yesterday, and an announcement is due today. When will changes be dated from? Does anyone in government know how long it takes to brew beer, get lettuce in from The Netherlands and contact dozens if not hundreds of members of staff who are currently furloughed?
• Given hiccups in vaccine production, a Lockdown 3.0 is possible. What’s the plan?
A few words in mitigation:
• Nobody said this was easy. But relative performances across countries suggest that the UK isn’t in the best of positions.
• Being unkind, we are strung out between nannyism, and a libertarian desire to keep things open, even at a risk to health.
• That’s binary. That means that there simply isn’t a middle path. The only thing worse than either of the above is an inconsistent mix of the two.
• We tweeted at the end of March, that’s nearly nine months ago ‘Destroy the economy or let 200k vulnerable people die? It’s a dreadful, dreadful choice and well above our pay grade. But one thing we do know. Don’t, whatever you do, do both.’
• Yet here we are.
• Decisions need to be a) made and b) they should be consistent – or at least understandable. That takes an effort of will and there is a big gap where leadership ought to be.
PUBS & RESTAURANTS:
The current situation:
• The London hospitality industry spent yesterday in lockdown. Lockdown 3.0, to give it a number. The Cabinet was scheduled to review the tier structure yesterday and any announcements of moves between tiers will be made later today.
• Avison Young’s UK Cities Recovery Index, which ‘monitors the diversity of market activity and the speed and trajectory of the recovery following the ongoing impact experienced across our cities as a result of Covid-19’, has suggested
• The property advisor comments on ‘recovery’ saying that ‘through the course of the lockdown [number 2.0] our indicators have shown that the economic impact would not be as bad as the first lockdown. The headline National Index was the same (67.2) on 30th November as it was on the 22nd. Following the easing of the measures, it rose to 71.9 on 6th December. We expect this to increase further, as this week’s update only captures half a week with the lockdown having been lifted.’
• The services PMI did not take the hit that it took in Q1. Avison Young says ‘this likely reflects the shorter and less extensive set of restrictions this time around, and a sector better placed to adapt and deliver some degree of business activity.’ It adds ‘as with the first lockdown, the hardest hit sectors this time were Hotel & Leisure and Mobility. Commercial activity has been resilient in both instances, even more so this time as manufacturing continues operating.’
• The British Hospitality Association has stated that millions of pounds worth of food is set to be wasted due to the movement of London into tier 3. Kate Nicholls, chief executive of the BHA commented: ‘As with previous short-notice lockdowns, this is going to cause a glut of wasted food and drink’.
• JD Wetherspoon is offering hospitality operators the opportunity to display three posters it has produced giving an alternative view to the government over Covid-19 and lockdown. The articles have been featured in Wetherspoon News. Chairman Tim Martin says they ‘detail how the government is messing up the economy and also the health of the nation.’
• Mr Martin says ‘we were approached by a restaurant owner in Tonbridge asking if he could display them in his restaurant and were happy for him to do so. We are now extending the opportunity to all hospitality operators who wish to download the posters from our website (www.jdwetherspoon.com) and make it available to their customers.’ He says ‘more than 800,000 jobs have been lost so far, many in hospitality, so it’s vital for political folly to be highlighted.’
• BBPA CEO Emma McClarkin has told a committee of MPs that ‘the ban on actual household mixing inside our venues within the tiering system is absolutely devastating for the pub sector’. She says that bringing people together is ‘absolutely what we do’ adding ‘we are a community centre, a community hub and we’ve invested millions to make us Covid-secure.’
• Ms McClarkin says that the rules on Christmas mixing are ‘making a mockery’ of pub tier rules saying they are ‘banning us from allowing people to mix and meet together when the Government has now introduced a Christmas plan that allows them to do that in private, unregulated and unsafe settings where all bets are off.’
• As an industry, Ms McClarkin says ‘we absolutely support enforcement measures. If pubs are flouting those rules then I think they should have action taken against them because they are undoing the absolutely sterling work the majority of pubs are doing. Inevitably we will rely on the information we’re given from customers and their ability and desire to want to comply with the rules.’
The real test may come when government support is removed:
• Alix Partners comments on the outlook for the sector saying ‘economically speaking, the hospitality and leisure industry has stood on the front line throughout the COVID-19 crisis. It has rolled with the punches that efforts to control the pandemic have indirectly thrown at their businesses.’ It says there could and should be a move back towards free movement in the New Year as vaccines are rolled out.
• Alix Partners says ‘we have already witnessed a wave of restructuring efforts to cope with the pandemic. Government assistance through initiatives such as the furlough scheme will likely represent merely a stay of execution for many operators, masking the levels of investment and business transformation required to survive and prosper for the long term.’
• It says ‘permanently adopting and enhancing services, processes and technologies that have improved both the customer experience and internal business operations should form the foundation of recovery strategies that will help operators to build back better after COVID-19.’ Operators will have to be agile. Easier to say, than do.
• Markit’s flash Composite PMI for the UK in December suggests ‘a relatively subdued service sector performance (49.9) continued to hold back the recovery, while manufacturing production was firmly in growth territory (55.3).’ The overall composite was in modest growth, see below.
• Markit says the Services component rose ‘from a five-month [lockdown 2.0 inspired] low of 47.6 in November but remained fractionally below the neutral 50.0 threshold. While some service providers noted a rise in activity following an easing of lockdown measures, there were still widespread reports that COVID-19 restrictions had either reduced customer demand or even led to ongoing business closures.’
• Markit adds ‘the UK economy returned to growth in December after the lockdown-driven downturn seen in November, adding to signs that the hit to the economy from the second wave of virus infections has so far been far less harsh than the first wave in the spring.’ It says ‘the recovery lacked vigour, however, as the service sector remained under particular strain, contracting marginally again as ongoing social distancing measures due to tiered lockdowns continued to hit many parts of the economy. Consumer-facing services, notably hotels, restaurants and tourism, reported further marked declines in output, largely offsetting renewed growth in business services, transportation and manufacturing.’
Other post-Covid developments:
• Operators may have to deal with ‘the absence of – and slow return to – international travel.’ This will impact London more than the UK’s regions. Alix Partners say that ‘developing and effectively managing multiple sales channels’ will be critical. Table apps could be here to stay, and delivery may not shrink back to its former market shares.
• Dealing with employees positively could be an issue. Alix Partners points out that ‘regular switching from full-time to part-time or zero hours in response to regional lockdown levels’ has been critical to date – but it may not be what employees would like to see longer term as many staff may ultimately wish for a bit more certainty.
• Alix points out that the relationship between landlords & tenants will need to evolve and companies may need to be leaner, with smaller central cost structures.
• We would add that some relationships, often for very different reasons but including those with suppliers, landlords, the government, the banks, staff, bondholders etc., may need a bit of work after the pandemic ends. One company’s cash management is another company’s recalcitrant customer, my cost cuts are your revenue reductions and so on.
Revolution full year numbers, JD Wetherspoon AGM statement:
• Revolution Bars Group has reported full year numbers for the 52 weeks ended 27 June 2020 saying that it has secured further liquidity and is ‘well positioned to emerge stronger’ from the current situation as a result.
• RBGT says that an ‘improved performance in the first half was followed by strong trading over the first 10 weeks of the second half of FY20 with like-for-like sales up 1.6% with growth in both brands.’ This was followed by lockdown. The company says ‘pre COVID-19 impact, refurbished sites continued to perform well and on track to deliver rapid paybacks and strong returns.’
• RBG says it took ‘swift action…to significantly improve the financial liquidity available to the business and to minimise the cash burn rate in response to COVID-19 pandemic’ with ‘six loss-making bars exited through lease surrenders during FY20.’ Total revenues were £110m against £151m last year with an adjusted EBITDA of £9.8m against £11.1m last year.
• RBG made an adjusted Loss Before Tax of £3.9 million compared to a profit of £3.0 million in FY19. The statutory Loss Before Tax is £31.7 million (FY19: Loss £5.6 million) after £21.9 million of exceptional items.
• RBG CEO Rob Pitcher says ‘2020 has been an immensely challenging year but I am incredibly proud of the dedication shown by our team to steer us through this period.’ He says ‘prior to the onset of the pandemic we were reaping the rewards of the workstreams we introduced last year to improve performance with both brands in like-for-like sales growth, out-performing our High Street Bars peer group.’
• Mr Pitcher adds ‘we also continued to see strong results from our refurbishment programme’ alongside other positive developments that he says ‘give me great confidence that we are well placed to recover and return to growth once trading restrictions are removed.’ Re the lockdown, he says the government is ‘deliberately sacrificing businesses and people’s livelihoods. The recent grants of £1,000 per pub as compensation for being deprived of our most important trading period is derisory and insulting and underlines a complete lack of understanding of the costs associated with businesses of this nature.’
• Pitcher concludes ‘the next few months will continue to be challenging and entirely dependent on imposed operating restrictions. Further meaningful government support will be required to help safeguard the industry and avoid further job losses, particularly for young people. However, given the actions we have taken to secure the future of the business, I am confident that Revolution will emerge from this crisis as a more focused business, and in a strong position relative to our competition, ready to seize any opportunities that arise.’’
• JD Wetherspoon has commented ahead of its AGM, which is to be held later today. Chairman Tim Martin says ‘2020 has been an extraordinarily difficult year for many businesses.’ He says that, in its reaction to the Covid-19 pandemic, the ‘government has relied on information that has often turned out to be untrue.’ He says many studies suggests that lockdowns are ineffective.
• Mr Martin says ‘over 800,000 jobs have been lost so far, approximately equivalent to the combined working populations of the cities of Manchester and Birmingham. These job losses are bound to rise sharply in the coming months, without a radical change in government policy.’ He says ‘the situation for pubs is dire. All pubs in the UK (as at 16 December), apart from a handful in remote areas, are effectively shut.’ He says ‘less than half are able to open as restaurants, only serving alcoholic drinks with a meal – but that is not what pubs were designed for, and is not usually profitable.’
• JDW says ‘due to the conscientious efforts of its employees, bankers and shareholders, and to the loyalty of millions of customers, Wetherspoon may be in a better position than some companies and individuals.’ But he adds ‘70% of our premises are shut today, despite expenditure of many millions in compliance with health regulations. In addition, over 50 million pub visits have been registered, using the track and trace system, and there have been no outbreaks of the virus reported to the company.’
• SSP has reported FY results for the year ended 30 September 2020, showing revenue down 47.9% to £1433.1m and an operating loss of £363.9m. CEO of the group Simon Smith commented: ‘Covid-19 continues to have an unprecedented impact on the travel industry and on SSP’s businesses in all geographies. We have taken rapid and decisive action to reduce costs, preserve cash and to substantially strengthen the Group’s financial position’. Remarking on forecasted 2021 trade, Simon Smith stated: ‘Whilst we expect passenger numbers to remain subdued over the winter, we are optimistic that, alongside good progress with the vaccination programme, we will see a significant upturn in both domestic and international travel from the Spring’.
• Bakery chain Paul UK is reported set to expand across the country via franchise agreements with partners for the first time. The company currently has 38 units, mostly in London. CEO of Paul UK, Paul Hilton, says ‘as we enter the franchise market, we will be looking for like-minded, experienced investors and operators who are just as passionate about baking and quality as we are.’
• Vita Mojo has aggregated data from hundreds of sites across the pub, restaurant and QSR sector, finding that digital ordering has driven up customer spend and new ordering channels have gained traction. The data shows customers are spending on average 20% more through digital ordering channels compared to EPOS sales. Nick Popovici, Co-Founder and CEO at Vita Mojo, commented: ‘Digital ordering will continue to play a huge role in the hospitality customer experience in 2021. The operators who are thinking holistically about tech, and are able to unlock its full potential will be those who survive the short term and thrive in the long term’.
• The Scottish based gin producer, The Gael Spirit Company is teaming up with Business Gateway and aiming for international expansion.
• Aldi is to begin a trial of click and collect across 200 of its stores in time for Christmas.
HOTELS & LEISURE TRAVEL:
• A number of cruise operators are reported to be offering discounts on their 2021 departures. Azamara, Emerald Cruises and Holland America Line have discounts of up to 40%.
• Intercontinental Hotels is to expand its upscale voco brand to Vietnam next year.
• Kuoni reports customers are either booking late for immediate travel, or far into the future, with the company seeing a rise in its average sale price. Online searches for isolated retreats are 50% up year on year. According to Kuoni, villas with private pools are one of the most requested holiday types.
• The Advantage Travel Partnership reports a drop in demand week on week after the Canary Islands loses its travel corridor. Kelly Cookes, leisure director at Advantage, said the removal of the Canaries had ‘dented’ confidence among consumers.
• Heathrow warns travellers that safety measures will be the priority while traveling, rather than the passenger experience. Those preparing to fly are being asked to wrap up warm as they may be asked to wait outside terminals if congestion starts to build.
• The Gym Group has agreed an extension to its COVID-19 £30m banking facility to June 2022. Commenting on the reopening of gyms, CEO Richard Darwin commented: ‘We are pleased to be welcoming members back to our gyms again. The Government’s decision to keep gyms open in all tiers shows the important role the sector has in fighting Covid-19 and keeping the nation active’.
• Browser company Wish’s parent, ContextLogic fell as much as 14% in its first day of trading yesterday in New York.
• Moody’s reports positively on Disney’s streaming subscriber numbers saying that they are at ‘the top-end of its initial 2024 forecast of 60-90 million global subscribers. Now, the company updated its guidance for the streaming service to 230-260 million subscribers by fiscal 2024.’ It says this is ‘a credit positive’.
• Facebook is set to move all of its UK users into user agreements with it’s California-based HQ rather than its Irish unit, thus meaning UK users will no longer be protected by GDPR.
• Model railway company Hornby is to halt international orders until January next year because of Brexit uncertainty. The company tweeted ‘we hope you can understand the difficult position we are in and remain patient with us until we can find a solution.’
FINANCE & MARKETS:
• UK inflation tumbled in November. The NIESR says ‘underlying inflation displayed the largest fall since the start of the pandemic, decreasing by 1 percentage point to 0.3 per cent in the year to November 2020, as measured by the trimmed mean, which excludes 5 per cent of the highest and lowest price changes.’
• The NIESR says ‘the November lockdown is reflected in both headline and underlying inflation. Headline CPI inflation decreased to 0.3 per cent in the year to November 2020, down from 0.7 per cent recorded in October, reflecting lower prices in most of the categories during the month. Our measure of underlying inflation, which excludes extreme price movements, decreased to 0.3 per cent in November. Inflation is likely to remain subdued in the short-term as more stringent Covid-19 restrictions will weigh on already weak demand and labour market prospects.’
• The Markit flash PMI for December shows ‘a marginal expansion of UK private sector output, driven by another solid increase in manufacturing production. In contrast, overall levels of service sector activity stagnated at the end of 2020, largely due to ongoing coronavirus disease 2019 (COVID-19) restrictions on hospitality, leisure and travel businesses.’ See Pubs above for services comment.
• Sterling higher at $1.3559 and €1.1089. Oil up at $51.63. UK 10yr gilt yield up 2bps at 0.28%. World markets broadly higher yesterday. London set to open up about 22pts.
RETAIL WITH NICK BUBB:
Watches of Switzerland: Today’s interims (for the 26 weeks to Oct 25th) from Watches of Switzerland (which has a market cap of £1.3bn) show that the luxury watch market continues to operate on a different planet from the rest of retailing, with a robust performance on sales (only down 3%) and EBITDA (up 27%), despite the lockdowns etc. And after a strong start to H2, with sales up c12% in the last 7 weeks, the group has revised up its full year guidance on sales and profits, even though it is assuming further lockdown measures in January and February 2021 and has taken into account the removal of tax-free shopping in the UK from 1 January 2021 (albeit it also says “We believe that the UK Government has misjudged the impact of removing tax-free shopping for tourists and we will continue to support all efforts to have this changed”).
Planet ONS Watch: In “the real world”, as per the BRC-KPMG figures for November (the 4 weeks to Nov 28th), underlying Retail Sales were a bit disappointing last month, given the second “lockdown” of non-essential shops, despite strong Food sales, but we will find out at 7am tomorrow morning what “seasonally adjusted” life was like on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures…Now, City economists (who still, unaccountably, treat the rather dubious ONS figures as the gospel truth) generally expect a drop of 1.3% in month-on-month seasonally adjusted sales volumes (inc petrol), but our friends at Capital Economics have pencilled in a slump of as much as 6.0%, for what it’s worth. We will be ignoring these silly month-on-month sales volume figures…and focusing, as usual, on the
News Flow This Week: Tomorrow morning brings the widely followed GFK Consumer Confidence survey for December and the ONS Retail Sales figures for November (see above), whilst Nike report their Q2 results in the US in the evening.