Langton Capital – 2021-01-28 – PREMIUM – Lost sales, Diageo, Fever Tree, Britvic, PPHE, Rank, Staycations etc.:
Lost sales, Diageo, Fever Tree, Britvic, PPHE, Rank, Staycations etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
An exit strategy from the current lockdown will be outlined on 22 Feb. But we’re a bit busy this morning due to RNSs etc. On to the news.
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REDUCED REVENUES: SPEND HAS BEEN LOST, NOT DEFERRED.
• A pizza or a pint foregone in April 2020 or May or June or November of that year or skipped in Q1 of 2021 will not be caught up on in the late spring or the summer.
• Or ever because, unlike spend on a sofa or a new motor vehicle, it isn’t postponed but rather is lost forever.
UKH & CGA data (see also Pubs & Restaurants below):
• That 54% of revenue was lost in calendar 2020 is a) a stark reminder of the problems the industry is facing but it is not a surprise.
• The minus 57% in Q4 shows that the exit rate for the year was worse than the average for the period.
• The outlook for Jan, Feb and probably for all Q1 this year is worse still.
We’re all in this together.
• Yes, but are we really?
• Fair enough, you can’t dampen an infectious disease (pre-vaccine) without limiting human contact.
• And that has implications for certain sectors, hospitality foremost amongst them, but it does appear as though the industry has had to take its begging bowl to government more frequently than it would have liked.
• This has secured some money, no doubt, but, as more than one commentator wrote into us earlier in the year, there are some concerns that the industry looks as though it is whining and begging when it is really only laying out the facts.
LONGER TERM IMPACT OF THE PANDEMIC:
The industry would rather be open than shut.
• That isn’t going to happen during January or February and, even when units are allowed to reopen, trading will hardly be normal. Below we just consider a small number of what could be a long list of pervasive changes.
A pervasive fear of infection.
• Some, wet-led, destinations may bounce back. Others may be slower to return to ‘normal’. Vaccines are fantastic – and they are the way out of the pandemic – but some are 70% effective on first dose, 90% on second and perhaps 30% of people may not wish to be vaccinated or may be hard to reach. This means that c40% of people could be vulnerable and a return to ‘normality’ can’t be taken for granted as a result.
The impact of turning away customers.
• The MA reports a public on the Isle of Wight as saying: ‘you cannot imagine the internal conflict that results from turning people away at the door on a rainy night when the venue is at less than half capacity.’ The publican adds ‘these people will not remember the venue for being Covid-safe, they will remember it for being unfriendly and turning them away at the door.’
No vertical drinking rules may have turned off a generation.
• The MA’s publican says ‘I can assure you that table service and forced seating on Christmas Day was no victory, no success, it felt like hammering the nails into our own coffin.’ If youngsters had to have to have a meal for most of last year and had to be seated for virtually all of it, they may view the pub differently.
• The lure of the park bench. Sad, but the MA’s Isle of Wight publican says ‘the sun will bring barbecue parties and beer in the park with off sales – for retail – thriving.’ The publican says people may drink at friends’ houses.
• Current increases in footfall are of no use to shuttered units. People may decide that a visit to the shops will stave off cabin fever. But not many shops are open. The major High Street draws are shut and, even where open units have increased footfall, would-be customers have been passing locked up pubs and restaurants.
• Please let us know if other major impacts come to mind.
PUBS & RESTAURANTS:
The costs of lockdown:
• Data from UKH and CGA has shown that the hospitality sector turnover last year was less than half of 2019 levels – dropping by almost £72bn or 54% – equivalent to nearly £200m a day in lost revenue for Britain’s pubs, bars, restaurants and hotels. Sales in Q4 were down by 57%.
• The latest Quarterly Tracker from UKH and CGA Quarterly Tracker reveals a staggering 54% drop in sales in 2020. It says ‘the stark figures highlight hospitality’s ongoing need for specific financial support from Government in order to survive the crisis and play its part in economic recovery.’
• CGA recently reported that around 6,000 licensed premises in Britain closed permanently in 2020. It says ‘and with severe restrictions likely to remain in place for months, aid is urgently needed to prevent thousands more business failures.’
• UKH’s Kate Nicholls says ‘these figures are simply devastating; hospitality was hit first, hit hardest and continues to suffer because of pandemic restrictions brought in. And sitting behind this massive loss of revenue is the dreadful, real impact on people’s lives and livelihoods across all parts of the sector and supply chain. It is also yet another stark reminder of the importance of having an exit strategy from the current lockdown and providing ongoing support for sector businesses.’
• Ms Nicholls says ‘hospitality can and will bounce back and it’s in the interests of the Government to support a sector that, in normal times, contributes many billions of pounds in tax to the Treasury and employs over three million people.’
• CGA says ‘this is the clearest evidence yet of the shattering impact of the COVID-19 pandemic on the country’s hospitality industry. With every week of restrictions, the sector loses more than a billion pounds of sales, hundreds of businesses and thousands of jobs. Widespread closures over December, the busiest time of year for so many restaurants, pubs and bars, were a devastating final blow in a year of unprecedented challenges.’
• CGA says ‘hospitality has responded to the pandemic with courage and innovation. Businesses have worked tirelessly to protect jobs, to support local communities and, when they are able to trade, to keep people safe. With a vaccine rollout underway there is at least some light at the end of the tunnel, and this sector is well placed to help recharge the UK economy as 2021 goes on. But it will only be able to do so if it gets the extensive support that is now desperately needed to sustain it over the next few months.’
• See also Premium Email above.
Support measures in Scotland:
• Chief Executive of the BBPA and the Scottish Beer & Pub Association, Emma McClarkin commented on the Scottish Government’s new support measures: ‘This Scottish Government support package, whilst not replacing lost income, will help provide a bridge to the other side of the pandemic for many of our fantastic, world-leading producers who have been responsible for a brewing renaissance in Scotland over the last decade. It is recognition of the important contribution Scottish brewers make to the economy, jobs and culture’.
• Chief Executive of SIBA, James Calder remarked on the same topic: ‘Beleaguered small breweries have been some of the hardest hit by the Covid pandemic and seen their sales drain away with the closure of pubs. In these tough times it is hugely welcome that the Scottish Government has listened to our concerns and worked with SIBA to develop a new funding scheme specifically for small breweries in Scotland’.
UK-wide support – spec ahead of Budget:
• The Treasury has stated that it has no plans to extend the VAT cut for the hospitality sector. Treasury Minister Jake Norman commented: ‘The relief comes at a significant cost, and while the government keeps taxes under review, it has no current plans to extend it further’.
• Rishi Sunak, Chancellor of Exchequer, stated that further economic support will be provided following appeals from trade body UKHospitality.
Spare a thought for the events industry.
• Because there are currently no events. And there haven’t been since the pandemic first struck. Sky mentions that perhaps ‘400,000 jobs have been lost in a “perfect storm” for the sector during the coronavirus crisis.’ Sky quotes Peter Heath, MD of the Performance Lighting and Sound Association (PLASA), as saying that ‘Brexit red tape had exacerbated the challenges facing the industry as it looks to get back on its feet.’
• Safe to say, sadly, that the events industry will not be one of the first to reopen when the Prime Minister updates on his un-lockdown strategy on 22 February.
• The FCA is to consult on raising the contactless card limit to £100. It is currently £45. The FCA says it ‘is important that payments regulation keeps pace with consumer and merchant expectations.’ It adds ‘recognising changing behaviour in how people pay, as part of a wider consultation, we will shortly be seeking views on amending our rules to allow for a possible increase in the contactless limit to £100.’
• It would be interesting to hear what the FCA has to say about daily limits in order to keep the damage that a thief or opportunist getting hold of a card could do in any one 24hr period to an acceptable maximum.
Company & other news:
• Drinks giant Diageo has updated on H1 trading saying that it has seen an ‘encouraging return to growth, good cash generation and’ it has been able ot declare an increased dividend.
• DGE reports net sales down 4.5% at £6.9bn. It says that ‘organic growth of 1.0% was more than offset by unfavourable exchange. Reported operating profit (£2.2 billion) declined 8.3% [was] driven by unfavourable exchange and a decline in organic operating profit.’
• DGE CEO Ivan Menezes says ‘we delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail.’
• DEG continues saying ‘North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20.’
• DGE concludes ‘we expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo’s ability to emerge stronger.’
• Britvic has updated on Q1 trading. CEO Simon Litherland says ‘trading in the first quarter continued to be impacted by COVID-19 restrictions. Our portfolio of family favourite brands has however again performed well in the channels open to us, assisted by the additional flexibility we now enjoy as a result of investment in our GB supply chain.’
• BVIC says ‘while the introduction of the latest restrictions will undoubtedly impact this year’s results, we will continue to implement our strategy.’ It says ‘Britvic is a fantastic business operating in a highly resilient category. With a team of dedicated and passionate people and market-leading brands, we are confident that we will continue to successfully navigate the pandemic, emerge stronger, and be at the forefront of the recovery when it comes.’
• BVIC talks numbers saying ‘in the first quarter, total revenue was £328.1m. On a comparable basis of constant currency and excluding the disposal of the French private label juice business, this represents a 5.8% decline on last year (reported revenue declined 9.8%).’
• Fever Tree has updated on full year trading saying that revenue will be down 3% at £252.1m. The company says that it ‘delivered a resilient performance in 2020, underpinned by strong sales and strategic progress in the Off-Trade and e-commerce channels across our regions which helped to mitigate the impact of widespread closures of the On-Trade during the year.’
• Fever Tree adds ‘despite the ongoing challenges posed by the pandemic the Group delivered a strong second half performance across our key markets and is expected to deliver revenue for the full year of c.£252 million, which is ahead of the guidance provided at our Interim Results in September.’ In the UK, off trade sales rose 20%. It says ‘as expected, our On-Trade sales were impacted by the periods of lockdown and on-going restrictions during the year, leading to a decline of c. 60% year-on-year. While the On-Trade currently remains closed, we continue to maintain strong relationships with our On-Trade partners and are well placed to benefit from this as the sector begins to reopen in the coming months.’
• Fever Tree says ‘while uncertainty continues into 2021, our resilient performance over the course of 2020 and the momentum seen in many of our key markets alongside our continued brand strength and supportive trends, gives us confidence in the Group’s position as we look ahead.’ Tim Warrillow, CEO, says ‘the last twelve months have highlighted the strength of the Fever-Tree brand amongst our consumers and customers as well as the fantastic team and partners we have in place.’
• Warrillow says ‘the COVID-19 pandemic has thrown up many challenges but it has also accelerated the trends we have been talking about for a number of years – namely the growing interest in premium spirits and long mixed drinks as at-home mixing has taken hold not only with consumers but retail and spirits partners alike.’
• Fever Tree concludes that ‘uncertainty remains especially in terms of the timing of reopening of the On-Trade across many markets but our performance over the last year, combined with our track record against the competition and the supportive global trends gives us confidence in the future growth potential for Fever-Tree.’
• MPs heard yesterday that pubs, restaurants and cafes have ‘never been coronavirus hotspots’.
• The NRA in the US has warned that a minimum wage of $15 per hour will put a major strain on restaurant companies.
• Hedge funds took a hammering yesterday on the GameStop and other shorts. They will be moving quickly to take advantage of share prices squeezed up to what they consider uneconomic levels.
• Research from Christie & Co has found that investor appetite for pubs remains healthy despite the impacts of the pandemic. Demand for pubs in rural and coastal areas increased during 2020 as the numbers of people working from home led to increasing interest in community-based sites.
• The MA has reported that the majority of brewers are postponing beer price increases until later in the year. Heineken is reportedly planning on increasing beer prices by 2.8-4.5% from April.
• PepsiCo has joined a JV with Beyond Meat in order to develop and produce plant-based snacks and beverages.
• Mealco, the startup that aims to help chefs launch new restaurants designed around delivery, has raised $7m in seed funding.
• Drinks Business has reported that Champagne shipments for 2020 are now officially confirmed to have dropped by 18%, representing a decline of 52.5 million bottles on 2019. A higher level of demand for consumption at home has reduced what would otherwise have been an even larger decline.
• LVMH shares rose yesterday as the French luxury drinks & luggage group reported what were said to be resilient fourth-quarter results.
• Sky reports that PE house CapVest has appointed Goldman Sachs to look into a sale of Valeo Foods, which has the Kettle Kettle crisps and Rowse honey brands.
• As mentioned, with Deliveroo, Dr Martens and Moonpig looking for major IPOs, the rush for the exit is gathering pace.
HOTELS & LEISURE TRAVEL:
• The BBC reports a sharp uptick in staycation bookings.
• The Institute of Customer Service has said that customer satisfaction levels across the travel sector have fallen to the lowest level in more than a decade. Refunds have been an issue of contention.
• TUI has announced that the rump of its rights issue has been placed at €3.85 per share.
• PPHE Hotel Group has updated on trading for the year ended 31 December 2020 saying that ‘despite the disruption caused by the pandemic, the Group continued to make strategic progress.’
• PPHE says its ‘development pipeline reviewed and prioritised with most projects progressed as planned, albeit with some minor delays due to government restrictions.’ The company says its financial position ‘remains strong, with £197.6m cash available as at 31 December 2020.’
• PPHE CEO Boris Ivesha says ‘following a good start to the financial year, our performance was significantly impacted following the onset of the COVID-19 pandemic, nevertheless we continued to extend and make good progress with our development pipeline. The resulting prolonged periods of both international and domestic travel restrictions across our markets led to a significant reduction in both Group room revenue and occupancy. We took decisive action to mitigate the impact of the pandemic, rapidly adapting our operations and demonstrating the Group’s resilience.’
• PPHE concludes ‘whilst the near-term trading environment remains challenging, mired by further government-imposed lockdowns to stem the spread of the virus, we are encouraged that vaccine programmes are being rolled out in all the markets in which we operate. As restrictions are eased, we anticipate a phased recovery driven by strong consumer demand for leisure travel, which we experienced in the summer of 2020.’
• PM Boris Johnson has confirmed that British residents arriving in England from Covid hotspots will have to quarantine in hotels. The measures will apply to those returning from most of South America, southern Africa and Portugal.
• The PM has added that a ban on travel for leisure purposes will be enforced at UK airports and ports. Good stuff but, Labour & some others have suggested, this may be coming 12mths too late. Johnson says that it ‘is illegal to leave home to travel abroad for leisure purposes and we will enforce this at ports and airports.’
• Home secretary Priti Patel has said ‘going on holiday is not a valid reason’ to travel. Patel wants to ‘reduce passenger flow’. This is clearly something of a negative in the short term for the travel industry.
• Property advisor Christie & Co has said that there is a ‘wall of capital ‘ waiting to invest in hotel opportunities.
• Rank has reported H1 numbers to end-Dec saying that the group made an underlying loss of £41.8m against a profit of £58.7m last year. The loss per share is 9.8p (2020: profit 10.9p).
• Rank CEO John O’Reilly says ‘there is no doubt that the impact of the COVID-19 pandemic has been far beyond anything we or any other leisure operator could have imagined or planned for. The ever-changing restrictions coupled with curfews, which in particular have a seismic impact on our Grosvenor venues, have resulted in an exceptionally challenging first half for the Group.’
• The company says it has taken a ‘stringent approach in applying affordability restrictions, particularly on higher staking customers, which has impacted revenues in our UK facing digital business in the half. We have been making good progress in the development of our proprietary technology platform to prepare the digital business for its exciting future.’
• The company says ‘there continues to be uncertainty looking ahead, particularly as our venues remain closed and we have no firm guidance as to when we will be able to reopen. We remain focused on managing our liquidity position and, following the successful £70m equity placing in November 2020, combined with the support of our lending banks, I believe we have the balance sheet strength to survive an extended period of closure.’ Rank concludes ‘we are now focusing on delivering the next stage of our Transformation plan and are ready to reopen our venues when the virus is under control and the vaccine roll-out has achieved its purpose.’
• Apple sales hit a record over Christmas.
• Tesla has reported record deliveries in Q4 but its shares fell in after-hours trading after profit undershot analyst expectations.
• Accountant Deloitte has reported that the COVID-19 pandemic will cost Europe’s 20 richest football clubs over £1.7bn by the end of this season. The BBC says ‘clubs have suffered considerable losses on both broadcast and matchday revenue. Barcelona generated more money than any other club in Europe, but still had the second-largest revenue fall in absolute terms.’
FINANCE & MARKETS:
• The number of new cars built in the UK in 2020 fell by around a third to just under 921,000. This is the lowest total since 1984 per the SMMT.
• Sterling mixed at $1.3668 and €1.1301. Oil lower at $55.47. UK 10yr gilt yield unchanged at 0.27%, World markets down yesterday and London set to open down around 90pts.
RETAIL WITH NICK BUBB:
Today’s News: There is still no more news on the mooted JD Sports share placing, with investor confidence no doubt slightly shaken by the slump on Wall Street, which has even hit mighty Apple…Over in the US, Apple reported their Q1 results after hours last night and, although it was widely expected that they would report quarterly sales of over $100bn for the first time, the company still smashed forecasts, with 21% growth to $112bn in revenue, thanks to a surge in iPhone 12 sales. But Apple shares still traded 3.3% down after-hours, with the liquidity crisis caused by the astonishing short squeeze in Gamestop driving some odd share price movements…At a more mundane level, the fashion brand Joules has announced its interims today for the 26 weeks to end Nov and the message is that “Accelerating digital sales support delivery of profits ahead of expectations for the period”: there is no