Langton Capital – 2021-02-10 – PREMIUM – Lobbying, cliff edge, rents, Chapel Down, Oakman, Jet2 etc.:
Lobbying, cliff edge, rents, Chapel Down, Oakman, Jet2 etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Still bitterly cold here with a dusting of snow and a bit more to come this morning. You might like to check out a month in the life, HERE.
Bit busy so on to the news:
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HOW TO LOBBY FOR THE INDUSTRY:
PUBS & RESTAURANTS:
The road to un-lockdown:
• The British Beer & Pub Association has called for the publication of a clear timeline and date for when pubs can reopen. The call comes today as the industry body says that ‘trading restrictions and lockdowns caused sales of beer in pubs to plummet by 56% in 2020 – down by £7.8 billion.’
• The BBPA’s proposed roadmap says ‘pubs must reopen when non-essential retail and other parts of the hospitality sector reopen.’ It says that ‘mandatory trading restrictions – such as alcoholic drinks served only with a substantial meal, no mixed households and the 10pm curfew – must be removed when pubs reopen in a timely way.’
• The BBPA also says ‘the Government will need to continue to provide financial support in the form of a stimulus package to ensure businesses do not fail due to unsustainable debt built up during the lockdowns.’
• Specifically, the BBPA (and much of the industry as a whole) is calling for:
o An extension to the VAT cut
o A similar extension to the business rates holiday
o A ‘significant beer duty cut’
• It says: ‘without such a plan…thousands of local pubs will fail due to their unsustainable debt and cash burn levels, resulting in local jobs and local pubs that are vital to communities throughout the UK being lost for good.’
• The BBPA points out that in Q2, beer sales (in the on-trade) were down by 96%. Similarly, Q4 sales were down by 77%. Despite EOTHO and relief at the end of Lockdown 1.0, beer sales in the on-trade were down by 27% in Q3.
• Philip Whitehead, Chairman of the British Beer & Pub Association, says ‘this is not sustainable for our sector. We cannot continue to hold out under these circumstances. We urge the Government to provide clarity to our sector on when it can expect to fully reopen.’
• Langton Comment: Do we say ‘want’, ‘need’ or ‘deserve’ when it comes to taxpayer aid? Or do we simply demonstrate what an asset the sector is to the country & then make our case? We have gone off on one here & hope we don’t lose any readers as a result.
HOW TO BEST MAKE THE CASE FOR HOSPITALITY:
• The above is good, punchy stuff but we occasionally advise clients (and ourselves) to turn the telescope around and look through the other end. This because a) we might be looking through the wrong end to begin with and b) it gives a different and, who knows, perhaps a more mainstream impression.
• With the above in mind, we would suggest re the distress and hardship suffered by pubs, the brewing industry and restaurants, who cares?
• That is a genuine and valid question. It’s a question being faced by the airlines, cruise ships, cinemas, the events industry etc.
• This is not intended to be provocative for the sake of provocation – but rather it is meant to be helpful, a means to an end. The carrot may work better than the stick and the industry doesn’t necessarily want to get a name for whining.
• In asking who cares, we at Langton care.
• And we know that the pubs, restaurants etc in question care. But we are not alone in the world. Other people may have different views. There has been much talk of echo-chambers and the like re Brexit and it is worth remembering that, just because we care, we can’t assume that everybody does.
• And we won’t get the support we want. Nor what we need or demand or feel we deserve. We’ll get the support that the taxpayer (via politicians) wants to afford.
• This is a world in which the government has to juggle the desires, fears and ability to pay of a whole host of constituents including tee-total Gen Z (who may end up paying for this whole thing), widows, orphans, taxpayers, freeloaders, social animals, couch potatoes, Facebook, Netflix & food delivery addicts etc.
• And then it has to mix in the financial needs/requests of hospitality and compare it with those from education, the NHS, social care, pensioners etc. and that’s even before it adds in Mr Johnson’s bridge between Scotland and Northern Ireland, HS2 and the ability and/or the desire to pay for all of this via income foregone elsewhere.
Stick vs carrot:
• Hence, the use of words such as ‘must’ and ‘need’ should perhaps occasionally be tempered.
• We all thought we ‘must’ go to the office every day. And we ‘needed’ to go on foreign holidays, we ‘had to’ go to the cinema etc. The cruise, airline & events industry also thought that customers ‘needed’ them but, in extremis, none of that was true.
A more measured approach forthcoming from business?
• Interestingly, the words coming out of business leaders via the BBPA, Nick Mackenzie, CEO at Greene King, Kevin Georgel at St Austell Brewery and Mark Davies, CEO of Hawthorn Leisure, seem to reflect this. These people are not lobbyists but rather individuals that have to operate in the real world, where decisions have to be balanced and not just uttered.
• There are few ‘must’ or ‘have to’ comments in there.
• Mackenzie says last year was bad but adds ‘we are grateful for the financial support the government has given.’ He says ‘we urgently need confirmation on additional support’ but it doesn’t sound like a demand. The carrot is that ‘pubs are the heartbeat of their communities and can play a really important role as we emerge from this pandemic.’ They create jobs & make people feel alive etc.
• Georgel says ‘the Great British pub is part of our social fabric.’
• He says ‘it’s far more than just a huge economic contributor. The avoidable loss of these wonderful, historic, community assets will be felt by generations to come, if the Government don’t act now.’ Davies also points to avoidable losses saying ‘a failure to do this [support pubs] will inevitably lead to business failure, loss of jobs and a destruction of community value in so many locations around the UK.’
• Saying ‘my success is mine alone, but my problems belong to all of us’ runs the risk of a) upsetting the people we need to help us and b) is open to challenge.
• Netflix may bring down the cinema. Amazon is hurting the High Street. It’s what steam did to horses and Covid is era-defining.
• Everyone has had to manage with a couple of beers on the sofa and to say the government will ‘need to’ do anything and that the 10pm curfew ‘must be removed’ might simply not be the right approach.
• It could be sensible to emphasis issues such as jobs (often for young people), promotion opportunities, on the job learning, hospitality, community spirit, the mental health benefits of getting out and about, the sponsorship of local activities, beer gardens, Sunday Lunch and the like rather than what business owners would ‘like’, ‘need’ or ‘have to’ have.
Other Covid-19 news:
• Admittedly talking about residential rather than commercial rents, Capital Economics suggests that rents in London could fall by as much as a fifth if the capital’s population plunge becomes a sustained reduction. The population of London is thought to be down by around 700,000 as a result of Brexit & the pandemic.
• Looking towards the cliff edge that for some operators is the end of March, Loungers’ chairman Alex Reilley tweets ‘I really don’t think the government or the people have any idea about the catastrophic devastation that lies ahead for hospitality. Ending (inadequate) support will flatline thousands of businesses – crushing hopes & dreams, wiping out life savings, causing awful financial insecurity & hardship, destroying livelihoods & resulting in the loss of hundreds of thousands of jobs.’
• Reilley says ‘the vast majority of a generation of entrepreneurs in our sector will be financially ruined. Despite all of this our voices have become nothing more than white noise to government & the MSM & it would increasingly appear that we’re the ones that just have to ‘take it on the chin’.
• Reilley says ‘hospitality is a wonderful fraternity made up of people from all walks of life & every social background. We are hard-working, passionate, risk-taking survivors. We’re also very proud – being a burden on the state doesn’t sit easily with us & asking for help is not in our makeup.’
• He says ‘without continued, & additional, support the business failures & subsequent job losses in our sector will be far worse & more shocking than you could have ever feared. The fate of hospitality is in your hands [minister Kwazi Kwarteng] & only you have the power to prevent the decimation of a sector that directly employs 3.2m in addition to hundreds of thousands of related jobs in our supply chain.’
• The World Coffee Portal says that Covid-19 has wound back seven years’ sales growth for UK branded coffee shops. It says the industry is back to 2013 levels with ‘nearly £2bn wiped off market value.’ It says that, for the ‘first time in over 20 years the UK branded café segment posts negative sales and outlet growth – minus 39% and minus 1.9% respectively.’
• The portal says there are now 9,159 UK branded coffee shops, a net decrease of 182 over the last 12 months. The World Coffee Portal forecasts a modest return to outlet growth in 2022. Allegra Group Founder and CEO Jeffrey Young says ‘while there is no doubt the UK’s branded coffee shops are here to stay, Covid-19 has had a devastating impact over the last 12 months. With the market suffering a near 40% sales decline in 2020, World Coffee Portal forecasts it will take at least three years before the segment returns to pre-pandemic levels.’ He says ‘unfortunately, we anticipate further casualties over the next 12-18 months and further government assistance may well be required to ensure the short-term viability of many coffee shops and the wider hospitality industry.’
• Diageo has updated on its management performance metrics saying that ‘due to the uncertainty created by the Covid-19 pandemic, and as noted in the Annual Report for the year ended 30 June 2020, the Remuneration Committee of the Board of Diageo plc decided to set [performance] targets for these awards after the reporting of interim results for 1 July 2020 to 31 December 2020.’ Some of the thresholds have been adjusted accordingly. See the company’s website.
• Chapel Down Group has announced the proposed disposal of its Curious Drinks beer and cider brands and brewery. These businesses will be placed in administration ‘following which RCP [Risk Capital Partners, the Luke Johnson vehicle] will acquire the business and assets from the administrators.’
• Chapel Down says ‘the decision follows a strategic review by the Board, which was undertaken as a consequence of the effects of the COVID-19 pandemic on the hospitality industry. As disclosed in our interim results released on 30 September 2020, with 90% of its beer sold to the on-trade, Curious Drinks has been significantly impacted by the closure of pubs, bars, restaurants and hotels and other hospitality venues and events due to the UK Government imposed lockdowns.’
• The company says ‘in contrast, Chapel Down’s wine and spirit business, with an established strong brand and a more multichannel route to market has thrived, with overall volume growth of 38% in 2020.’ Frazer Thompson, CEO of Chapel Down Group, said: ‘The COVID-19 pandemic has upturned the best laid plans of businesses all over the world and has required companies to respond to the crisis with flexibility and agility. In our case that involved pivoting our multichannel strategy to have a stronger focus on supermarkets and e-commerce direct sales to consumers for our wines which resulted in volume sales growth of 38% in 2020. Demand and respect for English wines and Chapel Down in particular, is growing all the time, and as the leading brand and business we see a significant opportunity and a very bright future for Chapel Down. We certainly won’t be abandoning the hospitality business –
• Oakman Inns has reported that it is closing in on its target £4.5m fund raise. CIO Steven Kenee says ‘we have already received applications for over £3.8m of shares since opening the round in December and we are quietly confident that we will reach the £4.5m target we set for this round.’ CEO Dermot King adds ‘we believe there’s a huge unsatisfied demand for premium pubs right across the UK.’
• Boxpark has named Ben McLaughlin as its chief operating officer.
• Spirits commentator Amy Hopkins says it may take several years for Scotch whisky to make back the ground it lost as a result of the protracted trade dispute that blocked access to the US market during a large part of the Trump presidency.
• Former New World Trading Co CEO Chris Hill has joined Rooney Anand’s embryonic RedCat Pub Company as chief executive. RedCat is looking for pubs in the east, south east and south of England.
• Serial invesetor KKR has reported a 15% uplift in Q4 earnings.
• Wine retailer 28º–50º is to take on the former Byron unit at 300 King’s Road, Chelsea.
HOTELS & LEISURE TRAVEL:
• Jet2.com and Jet2holidays have extended the suspension of flights and holidays to April 14 at the earliest. The company still believes there is ‘huge pent-up demand’ for leisure travel this summer. It says ‘due to the ongoing uncertainty and travel restrictions caused by the Covid-19 pandemic, we have taken the decision to extend the suspension of flights and holidays up to and including 14th April 2021. Where customers yet to travel are affected by any programme changes, we will automatically cancel their booking with a relevant refund.’
• Matt Hancock says 16 hotels have been contracted for the government’s hotel quarantine scheme comprising 4,600 bedrooms.
• Quarantined travellers will be charged £1,750 for their stay. Failure to quarantine could lead to fines of up to £10,000.
• A report by The Airport Operators Association has suggested that a return to pre-Covid levels of air-traffic volume by 2025 was beginning to look somewhat optimistic. More demands for taxpayer cash as the AOA says ‘a comprehensive aviation recovery package is needed to see airports through the immediate government-ordered shut-down of aviation. This must include targeted financial support…’
• Marriott is planning a major expansion of its portfolio of all-inclusive portfolio of hotels.
• Staycations. Scarborough-based North Yorkshire Water Park is planning a multi-million pound expansion.
FINANCE & MARKETS:
• Chairman of JD Sports Peter Cowgill has said that Brexit trade problems have turned out to be “considerably worse” than feared. The government says trade levels are back to normal. The Road Haulage Association says volumes are down by two thirds. These comments can’t all be right.
• Sterling mixed at $1.3821 and €1.1397. Oil lower at $60.99. UK 10yr gilt yield down 2bps at 0.46%. World markets mixed but going better yesterday and London set to open up around 34pts.
RETAIL WITH NICK BUBB:
• Today’s News: The strong Dunelm interims this morning (for the 26 weeks to Dec 26th) were flagged up in the detailed trading update on Jan 14th, so there are no surprises in today’s figures, with PBT up 34% to £122m on the back of 23% sales growth, as per the guidance. The interest is therefore in the current trading update and although there is no H2 guidance, given the enforced store closures, investors will probably be relieved to hear the cautious-sounding news that “to date in the current quarter, we have been covering approximately 70% of our prior year sales through our home delivery and Click & Collect services. At this level of sales, we are making a modest weekly loss” (as that was pretty much what Dunelm said in mid-Jan). There is no other news out today so far, although the Mothercare EGM is being held at 11am (to approve the move to AIM etc). Otherwise, the interview
• This Week’s News: Tomorrow brings the Ted Baker Q4 update, along with the Tesco EGM (to approve the special dividend etc).