Langton Capital – 2021-01-22 – PREMIUM – Unit closures, reopening date, HMG help, furlough, confidence etc.:
Unit closures, reopening date, HMG help, furlough, confidence etc.:
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A DAY IN THE LIFE:
As boring accountants, we’re into detail. We tend to think that, whilst strategies are important, the devil can be in the execution. It isn’t good enough simply saying ‘succeed’ or ‘win’ because, ultimately, someone must work out how.
We get the big picture stuff. We know that there’s gold produced from other elements when two stars collide. But getting your hands on said gold is something else as the stars may be a billion light years away, they would have impacted each other sometime before life crawled out of the sea on earth and we can’t get there.
And we wouldn’t survive if we did get there and we couldn’t get back but, when I bounced that illustration off an entrepreneur last week his eyes lit up, he worked his jaw and turned to me saying ‘hum, gold you say?’
Meaning, perhaps, that optimism is genetic and hard to shift. It can engender tunnel vision & deafness and the entrepreneur referred to above was last seen carrying binoculars and a very long ladder. On to the news:
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RECOVERY MONITOR – NET CLOSURES RISE SHARPLY. See also general email.
Pubs less badly hit than restaurants.
• This will be a) wet more robust than dry offset by b) food easier to sell on delivery than booze but exacerbated by c) the fact that most restaurants are leasehold, and most pubs are freehold (or owned by pubcos if the operator themselves doesn’t own the property).
• The Market Monitor says that casual dining site numbers fell by 9.7% in 2020. That is nearly one in ten restaurants gone. High Street pub numbers would have been down by more than community boozers with one of the main differences again being that the latter are freehold.
• CGA says ‘with stop-start trading for much of 2020 and a widespread shutdown during what should have been a bumper Christmas, nearly 10,000 licensed venues have not been able to make it through, and it is sadly inevitable that thousands more casualties will follow.’
• As reported yesterday, several operators and would-be operators have recently raised funds in order to invest in freehold sites. The very fact that these funds exist could limit the downside for freeholds. There is no such prop for leasehold sites.
• CGA says ‘after such a bleak Christmas it is difficult to be optimistic about the market. But consumers are desperate to get back to eating and drinking out, and we can be confident that footfall and sales will return when the sector can finally reopen.’
• We agree with this, directionally. But the speed and scale of the recovery will depend in part on the depth and length of the recession and the consumer’s reaction to it. See below for comments on consumer debt. The response of companies to the economic downturn – do they cut jobs or not – will also have an impact.
• CGA says ‘the case for government support over the next few months is urgent and compelling. There are better days to come, but the sector will be in survival mode for some time yet.’
Opportunities (survive, reopen, prosper):
• Demand will return and, as supply will be reduced, survivors could prosper.
• They will have their own micro-issues to deal with (which are not so micro, as it were, at the micro-level. Debt they may have taken on & will need repaying etc) but, as AlixPartners says, the closures ‘may bring opportunities for ambitious operators, by freeing up property and labour and reducing competition and costs.’
• Alix says: ‘right now survival remains the name of the game.’ It calls for a ‘roadmap to reopening.’ That may not be possible at present. It says ‘the rapid rollout of the vaccine offers hope, but with restrictions unlikely to be lifted until Easter at the earliest, the coming months will likely see more sites lost for good.’
PUBS & RESTAURANTS:
• Sky reports Dr Marc Baguelin, from Imperial College London, who sits on a sub-group of SAGE, has said that bars & restaurants should stay closed until May. He says that opening earlier would lead to a “bump” in COVID-19 cases. PM Boris Johnson told BBC news last night that he believed restrictions should only be lifted gradually.
• The Mail quotes ‘scientists’ as saying that the ‘reopening of pubs and restaurants should be pushed back to May.’ It then quotes hospitality leaders as saying that only ‘one in five restaurants, pubs and bars had enough money to get through beyond March.’ Kate Nicholls, CEO of UKH, told Radio 4’s The World At One that if the reopening of the sector was delayed until May, 3.2million could lose their jobs. She says ‘just one in five hospitality businesses are confident that they will have enough cash to get through beyond March. There is no way that businesses will be able to survive until May with no revenues coming in for seven months.’
• UKH adds ‘it’s a cash burn of half a billion pounds to keep the sector closed each and every month. If we are forced to wait for a longer period then unfortunately there will be little left of the hospitality sector and the 3.2million people who work in it to reopen at that point in May.’
• Labour has attacked Chancellor Sunak’s proposed support for the economy saying that his talk of wanting to withdraw help ‘as soon as possible’ is tone deaf. Others have accused the hospitality sector of bleating. Politicians will be trying to assess the public mood as well as the state of the UK’s public finances.
• Labour says the government is only interested in doing the “bare minimum.”
• Loungers’ Alex Reilley says that life is about risk tweeting ‘I get that scientists have to do their thing but surely there has to be a point where even they accept that living life to the full, with risk, is infinitely more preferable to life being just about avoiding death.’
• Chancellor Rishi Sunak is considering another extension of the Government’s Job Retention Scheme (JRS), reports Bloomberg. In its current form the scheme pays 80% of employee wages up to £2,500 a month.
• Northern Ireland Health Minister Robin Swann has extended coronavirus lockdown restrictions to 5 March. He says this is ‘not the time to open any floodgates’.
• Sterling up vs dollar at $1.3701 but down vs Euro at €1.1259. Oil lower at $55.45. UK 10yr gilt yield up 3bps at 0.33%. World markets down yesterday and London set to open down around 10pts.
• The latest Recovery Monitor from CGA and AlixPartners has reported that nearly 6,000 licensed premises have been lost in the UK during 2020, nearly triple the number that shut down in 2019.
• The Recovery Monitor says there was a net decline of 5,975 sites in 2020, or minus 5.1% in terms of all licensed sites. The above figure is comprised of 9,930 closures and 3,955 openings. The Market Recovery Monitor ‘measures the scale of the damage wrought by the pandemic on hospitality businesses and forecasts many more closures in 2021.’ See also premium email.
• The BBPA has commented that the figures from CGA and AlixPartners ‘show what a devastating year 2020 was for pubs.’ CEO Emma McClarkin says ‘our sector is far from out the woods yet though and it continues to fight for its very survival through the pandemic in 2021. We fear things could actually get much worse before they get better for our pubs and brewers.’
• The BBPA says ‘given this latest evidence showing how the COVID crisis and lockdown is ripping pubs away from their communities for good, it is more important than ever that the Government backs our local pubs and brewers.’ It says ‘this means grants delivered to them immediately before it’s too late. It also means reopening properly along with a stimulus package that helps pubs to thrive including extensions to the Business Rates holiday and VAT cut, as well as a beer duty cut.’
• UKH boss Kate Nicholls says ‘the loss of 6,000 premises is a dreadful blow to this country’s hospitality sector, but it is going to be the tip of the iceberg if we continue on our current course.’ She says ‘the sector’s outlet numbers have contracted 5% and one in five businesses say they do not have enough cash to last beyond February. The entire sector continues to be hit hard, but restaurants have arguably been hit hardest of all. Not surprisingly, many of the worst off are independent businesses teetering on the verge of collapse due, in large part, to the issue of rent debt.’
• UKH says ‘this is a stark reminder of the importance of having an exit strategy and ongoing support for businesses. Sustaining businesses, keeping them alive and keeping jobs protected is vitally important and is going to be key to recovery once we emerge from this.’
• GfK has reported on UK consumer confidence for January saying ‘despite the widespread anticipation of a ‘return to normal’ with the ramp-up of the vaccination programme, it is too early to deliver a jolt in the arm to UK consumer confidence. Our view of the general economic situation still makes for grim reading, especially expectations for the coming year, which shows a nine-point drop.’
• GfK says ‘this continues to suppress the overall index, which is further dampened by a weak major purchase score, as reflected in retail sales figures across the country. The real key is how we view our personal financial situation for the next 12 months. Confidence in this figure reflects our financial hopes and fears, as well as those of our families and loved ones, and it seems to be holding up. That’s just as well because, amid widespread uncertainty over jobs and livelihoods, any decline in how we see our personal finances in the year to come would be a clear warning that the economic outlook will not improve any time soon.’
• GfK reports its overall Confidence Index Score decreased two points to minus 28 in January. It says four of its five measures decreased in comparison to the December 18th announcement and one measure increased. The Savings Index, which is not good in itself for consumption, has gone up by one point only to +18 in January; this is two points lower than this time last year.
• The ONS has found that 45% of workers had to borrow £1000 or more in order to cope with the impact of Covid, up from 35% last year. The ONS also found that those aged 30 were 35% more likely to have been furloughed than the population as a whole.
Company & other news:
• The casual dining operator, Dining Street Limited has entered into administration with 147 jobs lost. All of the group’s 14 sites have been closed for dine-in services since 20 December.
• The MCA has reported that the Hop Vietnamese has been acquired in an accelerated sales process to a new entity controlled by founder Paul Hopper.
• The Canadain health and wellness company, Plant&Co Brands has bought YamChops, North America’s first and Canada’s only plant-based butcher shop.
• The government will provide £23m in funding to support seafood exporters across the UK. The funding will help businesses affected by changes to exporting due to Brexit and Covid.
HOTELS & LEISURE TRAVEL:
• TripActions has said that the corporate travel sector has ‘never faced a challenge like Covid-19.’ It says ‘even as governments and organizations around the world race to finalize and distribute a vaccine, 2020 has left its mark on the business travel sector.’ It says it is likely that ‘decision makers’ could ‘use business travel programs more strategically to support company goals.’ It says face to face meetings could be a part of a portfolio of ways in which executives keep in touch.
• STR updates on U.S. weekly hotel stats saying ‘occupancy climbed back to the 40% mark’ in the week to 16 Jan. It says this is down 32% year on year. Rates are likewise down by 32% and REVPAR is down by 54%.
• A YouGov online survey has found that fewer than one in 10 UK adults are confident of being able to take an overseas holiday this summer. Young adults aged 18-24 were most confident, with 14% believing they would be able to take a holiday abroad. Nine out of 10 (89%) respondents also said restrictions on international travellers ‘should have been introduced sooner’.
• Crystal Cruises extends its cancellation of ocean sailings until the end of May saying ‘the uncertainty surrounding this global health crisis hinders the ability for cruise lines to operate’.
• Following an announcement from the French government that Alpine ski lifts will remain closed, Club Med has cancelled all ski holidays up to February 27.
• The European Council will debate introducing a standard vaccination certificate for Europe this Thursday, 21 January.
• AITO says that the government has rode roughshod over the travel industry and is ‘leaving carnage behind’.
• Carnival has announced that it will sell its Pacific Princess vessel to an undisclosed buyer for an undisclosed sum. It says ‘guests with bookings will be notified, and along with their travel advisors, will receive information on how to book another Princess Cruise when operations resume. Guests who prefer a refund will be accommodated.’
• Per Sky, Cineworld faces shareholder backlash over plans to hand its top executives more than £30m in share awards despite it receiving taxpayer funding to help it survive the pandemic. Three major advisory groups are recommending that the cinema operators’ shareholders vote against the adoption of a new remuneration policy.
• Amazon attracted 49% of all new subscribers to paid streaming services in Q4 last year, beating out rivals Netflix and Disney+. Premier League and international rugby helped it attract half of all new UK subscribers.
FINANCE & MARKETS:
• Freight traffic between Britain and the EU is down around a third this year to date. Some small firms have suspended exports reports Sky. Costs of shipping from France is up 47%.
• Nissan has said that it is committed to Sunderland for the longer term.
• Sterling mixed at $1.3701 and €1.1259. Oil lower at $55.46. UK 10yr gilt yield up 3bps at 0.33%. World markets lower yesterday with London set to open down around 10pts.
RETAIL WITH NICK BUBB:
Today’s News: Having said yesterday that the John Lewis Partnership had maintained a dignified silence about Christmas trading and that we will have to wait until the final results on March 11th to hear how Waitrose and John Lewis have navigated the lockdowns and the Online sales boom, the company has come out with a short statement to flag that Christmas trading was better than expected and that it will do better than break-even in the year to end Jan. That is about all it says though and, although JLP is returning a Government loan, there is no mention of the reason why it has not returned the Business Rates relief for Waitrose. And talking of short statements, Next issued a brief announcement last night to say that it had pulled out of the auction for Arcadia, having failed to match the price offered by other players (which are thought to include a big Chinese Online business).
Next Week’s News: As January draws to a close next week, there are still a few retailers left to hear from: the QUIZ interims/update are on Tuesday, the ScS update is on Wednesday and the Joules interims are on Thursday.
BDO High Street Sales Tracker: Given the impact of the lockdown on non-essential stores, the BDO High Street Sales Tracker for medium-sized Non-Food chains tumbled again in w/e Jan 17th…BDO Fashion LFL sales were down by a hefty c22%, with Store Fashion sales down by 93%…And Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were down by c20% (down 87% in Store sales and up 134% in Online sales). The BDO index clearly tells a grim story, but it is just an unweighted average of percentage changes in the sales of their reporting retailers, so we would still caution that it shouldn’t be taken too seriously.