Langton Capital – 2021-02-15 – PREMIUM – M&B fund raise, reopening spec., landlords, Chancellor’s mailbox etc.:
M&B fund raise, reopening spec., landlords, Chancellor’s mailbox etc.:
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A DAY IN THE LIFE:
Bit busy with announcements today. On to the news:
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See M&B & comment on property costs below.
MITCHELLS & BUTLERS TO RAISE £350m:
• M&B has announced this morning its intention to undertake an open offer to raise £350m at 210p per share, a 36% discount. This is to secure financing from its banks and to strengthen its finances.
• The company says ‘it intends to raise £350 million by means of an underwritten fully pre-emptive open offer.’ The company also says it has ‘reached agreement with its relationship banks for a new £150 million 3 year unsecured revolving credit facility.’ It says this ‘conditional on completion of the Proposed Open Offer.
• Mitchells & Butlers has also agreed a number of amendments and waivers.’ It says that if the offer of shares is not completed, ‘such Amendments and Waivers may be withdrawn.’ This should not happen – see Odyzean below.
• Major shareholders in M&B have come together.
• Major shareholders Elpida, Piedmont and Smoothfield ‘have informed Mitchells & Butlers that they have come together as a concert party and consolidated their holdings under a newly incorporated holding company, Odyzean Limited…in order to help address the significant capital needs of Mitchells & Butlers and provide a clear and consistent framework for their future relationship with the Company.’
• M&B says ‘Odyzean has indicated its intention to make available the full amount of £350 million to be raised, to ensure that the Proposed Open Offer will be fully subscribed in all circumstances.’
• M&B adds ‘looking forward, Odyzean has indicated that, in order to streamline decision-making, it intends to review the composition of the Board of Directors, which may result in a reduced level of independent Non-Executive representation in the future. Odyzean has also informed the Company that it intends to work with the existing management team to ensure the strategy and structure of the business are appropriate to optimise its long-term success and that the time and cost devoted to public company matters are reduced.’
• M&B says ‘as a result of the consolidation of the Consortium’s shareholdings in the Company, the Odyzean Group owns approximately 55% of the issued share capital of the Company and therefore controls a majority of the votes in the Company. Mitchells & Butlers’ lenders under its existing unsecured facilities have given their consent to the technical change of control of the Company.’ The Takeover Panel says the consortium will not have to launch a bid.
• M&B says its independent directors and Odyzean have ‘agreed on the structure of the equity raise being an open offer, this being in the best interests of the Company and its shareholders as a whole, whilst ensuring Odyzean’s support and certainty of funds on an accelerated timetable in order to meet the liquidity needs of the Company.’
• Chairman Bob Ivell says ‘we are pleased to have received the support of our major shareholders and key creditors. Mitchells & Butlers was a high performing business going into the pandemic and this capital raising and refinancing will provide the business with the certainty of funding that it needs in order to emerge in a stronger position to take advantage of its strong property portfolio, well known brands and operational expertise in order to win market share and continue its long-term strategy of deleveraging and driving value creation for shareholders.”
• The company says ‘a full announcement will be made on finalisation of the offering documentation and it is expected that the Company’s shares will be marked “ex-entitlement” on the date of that announcement, as is customary for an open offer.’
• Langton comment: This smells somewhat like a take-private on behalf of the company’s major shareholders.
• ‘Existing shareholders’, which presumably includes the Odyzean shareholders, have agreements to take up shares not taken up by other shareholders.
• However, there are few who would suggest that M&B does not need to overhaul its financing ahead of refinancing commitments and, with such powerful shareholders on its board, such a move was perhaps always likely.
• We have commented for some time that M&B has great assets and an able management team – but that its share register was not normal and ‘needed some work’. This is that ‘work’ being applied – though not necessarily in the direction that some other shareholders may have wished.
• The Takeover Panel seems to be compliant with the above.
• The verbiage regarding reducing the ‘time and cost devoted to public company matters’ does suggest that the controlling shareholders are not in love with the idea of the company being listed. Moves to ensure a de-listing in the future cannot be ruled out.
• Some may cynically suggest that comments from the company such as those above could be intended to drive down shareholder support and therefore increase the number of shares made available to existing, larger shareholders. This may not be entirely wrong.
• M&B’s shares have risen around 50% this calendar year on vaccine and reopening hopes. The company is well-positioned to succeed relative to many of its peers. The issue, as has been the case for some time, is whether smaller shareholders will participate fully in any further upside.
PUBS & RESTAURANTS:
• Plenty of speculation over the weekend as to how and when Lockdown 3.0 will end. But no facts yet. PM Johnson is still set to outline plans a week today, on 22 Feb.
Markedly more optimistic talk.
• There is some cautious talk of reopening pubs & restaurants by Easter. Beer gardens could be ‘back in action’ by the end of March. The Easter break is broadly in the middle of its range this year, with Easter Sunday on 4 April.
• The Mail on Sunday reports that Number 10 will permit outdoor dining at pubs within one’s household bubble in time for Easter. It also suggests that the 10pm curfew and the need to order a ‘substantive meal’ if you are going to drink alcohol, will be scrapped.
• If the lockdown ended early April, it would be almost the same length as the first period of closure in Q2 last year. This time, however, pubs and restaurants had been under strict tier regulations for months with a period of closure in November. Hence, their finances are not as strong as they were a year ago.
Expert opinion etc.
• A number of medical experts have been quoted as saying that pubs reopening in April would be “premature.” The Press Association quotes Dr Bharat Pankhania, clinical lecturer at the University of Exeter medical school, as saying ‘it’s premature because we don’t know what the state of cases will be in the country at that point in time. It may be that the cases are low and that we have regained control because we are now managing to keep the case numbers down and our immunisation levels have been sufficiently high to have a majority of the vulnerable population immunised and therefore protected.’
• The PA quotes Dr Julian Tang at the University of Leicester as saying ‘opening pubs will bring more people into closer contact with each other – this will allow the virus to spread – we already know and understand this concept.’ This is (hopefully) understood – but the question will be at some stage, just how much risk is acceptable?
• The Express says that guidelines on face masks and social distancing could remain in force until autumn at the earliest, according to plans drawn up by Downing Street and the Scientific Advisory Group for Emergencies (SAGE). The paper says ‘a Whitehall source warned they believe social distancing in particular “will need to be in place for a long time to come”’.
Industry & other comment:
• In a letter to PM Johnson, CEO of Young’s Patrick Dardis says the pub industry can be part of the solution rather than a part of the problem. Dardis points out that a ‘successful vaccination programme is meaningless if it does nothing to aid our economic recovery’. He says that the pub industry has been treated with a lack of respect.
• It is maybe not meaningless if it saves lives but Mr Dardis says ‘we are shocked and appalled that the government is basing its decisions to keep the great British pub closed on unfounded and unproven statistics. We are exasperated at the obvious lack of interest and respect we are getting from this government.’
• Dardis says ‘pubs are a huge part of our culture and are a significant part of every community.’ He says ‘there is absolutely no evidence to support some of the messaging suggesting that pubs are a significant factor in spreading the virus’.
• Mr Dardis concludes ‘the roadmap for pubs should be as it was back in July – nothing more, nothing less’. He says ‘we should then expect restrictions to be reduced to zero over a short few months.’ The Young’s CEO commends the BBPA’s roadmap to reopening and says ‘I implore the government to heed this advice’.
• The Tory COVID Recovery Group has told the PM that coronavirus restrictions must be fully lifted by the end of April. That seems a little presumptive. The CRG says there will be ‘no justification’ for retaining restrictions after the over-50s have been offered a jab.
• The CRG says ‘COVID is a serious disease and we must control it. However, just like COVID, lockdowns and restrictions cause immense social and health damage, and have a huge impact on people’s livelihoods.’ It says ‘the vaccine gives us immunity from COVID, but it must also give us permanent immunity from COVID-related lockdowns and restrictions.’
• Letters to politicians are coming in thick & fast with 160+ hospitality industry bosses writing to the Chancellor with advice.
Deliveroo support for EOTHO II:
• Delivery firm Deliveroo, which is working towards an IPO, has joined with some 300 restaurant groups to send a letter to PM Boris Johnson (his postbag is getting rather full) and push the government to repeat its Eat Out to Help Out scheme when restaurants are allowed to reopen.
• Langton Comment: This is somewhat curious as Deliveroo should benefit when consumers do not visit restaurants. It should find that money spent on EOTHO is not spent on food to be delivered.
• The letter to the PM says that restaurant businesses are ‘under immense financial pressure’. It says ‘even when they are able to reopen to customers, restrictions around mixing of households and social distancing measures mean that a return to trading at full capacity will remain dependent on the successful vaccine rollout.’
• EOTHO I was used over 100m times by consumers in August.
• The letter calls for further help in the form of continuing the 5% rate of VAT for food in pubs & restaurants and extending the suspension of business rates.
Other Covid news:
• There are proposals that customers may have to show a vaccine passport to go to a pub or restaurant Dominic Raab has suggested.
• The ONS announced on Friday that the UK economy shrank by 9.9% in 2020, the largest decline ever recorded.
• The BBPA points out that Food and Beverage services – which includes pubs – dropped by 48.0%. Alcohol drink manufacturing, which includes breweries, fell by 33.9%. Both sectors clearly underperformed the weak, wider economy.
• The BBPA calls for ‘a clear reopening date for pubs from the Prime Minister and stimulus support from the Chancellor in his upcoming Budget, as outlined in their roadmap to recovery published earlier this week to help kick-start the sector again as soon as it can reopen.’
• The BBPA says ‘things cannot continue as they are. Local pubs and breweries have been burning through cash and building up debt for months, communities across the UK are fast running out of hope that their local is going to survive. Thousands of pubs and hundreds of thousands of jobs continue to hang in the balance whilst we wait for clarity on exactly when and how pubs reopen.’
• SIBA reports that 200 million fewer pints of craft beer were brewed in 2020, ‘proving’ that the ‘sector needs targeted support and a sensible timetable for pubs re-opening.’ SIBA says that breweries have been turning to sales from on-site brewery shops – but it says that ‘given pubs are the main destination for independent beer in the UK, no switch to cans, bottles or mini kegs could make up for that loss of trade.’
• SIBA CEO James Calder says ‘brewers have been at the sharp end of restrictions within hospitality. They have done their best to adapt and to survive, but without targeted grant support in England, Wales and Northern Ireland and a swift and sensible re-opening of the economy, many will not survive.’ SIBA calls for the 5% VAT rate to be extended to beer.
• UKH CEO Kate Nicholls says that the pub industry needs ‘a clear staged exit strategy for the industry. Not just about reopening and the date on which we reopen…[but also] it is about the terms and conditions on which we reopen, how long any residual restrictions last and crucially, how long those social distancing restrictions last going forward.’ Ms Nicholls says that the sector broke even for only around one week in the period from mid-March last year to now.
• Landlords are often not viewed sympathetically by their tenants. But they have their own liabilities to service.
• Langton Comment: The Telegraph quotes Shaftesbury CEO Brian Bickell as saying that overseas visitors may not return to London in large numbers until late 2022 or even 2023. Shaftesbury maintains that the hotel quarantine requirements will put off would-be visitors as will the general atmosphere of uncertainty.
• Bickell says ‘I’d love to be proved wrong, but the reality is it needs a lot of things to come together to give people that confidence to start travelling, and the question is whether people want to necessarily travel back to cities in the same way.’
• Pleading for more taxpayer help for his tenants, Bickell says ‘the reality is these businesses [his hospitality tenants] need at least 12 months to get back on their feet. There could be bumps going into next winter – we just don’t know if there are variants of the virus knocking around or anything like that … We do need the business rates issue sorted out, short-term and long-term.’
• Elsewhere, City Pub Group chairman Clive Watson has said that the industry can ‘forget’ overseas tourists this summer.’ If Shaftesbury’s Mr Bickell is anything like correct, the industry can forget them for much longer than that.
• The Times reports ‘ministers are drawing up plans to extend protections for commercial property tenants in another hammer blow to landlords suffering huge shortfalls in rent.’
• It says rent arrears are up to around £4.5bn – but no tenants can currently be evicted. The Times quotes sources as suggesting that the moratorium on evictions could be extended.
• This is a quick fix for government as it involves giving one third party’s money to another third-party group, without the government getting financially involved. As we have suggested on a number of occasions, it may not be healthy for the industry longer term.
• Chancellor Sunak has said that he (on behalf of the taxpayer) was not in the business of supporting businesses beyond the point that they are financially supportable. The rental eviction moratorium risks doing exactly this.
Company & other news:
• Pernod Ricard UK has suggested that there could be a “massive boom” in on-trade sales when outlets are allowed to reopen. It says its business is ‘planning for a good summer in the on-trade.’
• Pernod Ricard says many on-trade outlets will not survive. It points out only 70% of outlets reopened in summer and autumn last year when they were allowed to do so. It says ‘some may reopen under other owners.’
• Irish whiskey distiller Jameson has reported sales up 3% in the first half of its financial year. CEO Conor McQuaid says ‘despite an extremely difficult environment, we had a solid start to the financial year, with sales of Jameson Irish whiskey showing resilience by growing 3% in the first half of the year.’
• CGA has reported that gin sales were strong in the off-trade last year but it says ‘its stellar growth slowed in the second half of 2020. Between hospitality’s reopening in July and the end of the year, gin took a 23.9% share of total spirits sales—down by 0.1 percentage points on the previous 12 months. In sharp contrast, the liquors and specialities and rum categories increased their market share by 2.4 and 0.2 percentage points.’
HOTELS & LEISURE TRAVEL:
• UK quarantine hotel regs came into effect at 4am today.
• The UK government’s hotel quarantine website was out of action on Saturday and Sunday. Hopefully, it got itself back up and running as quarantine regs came into effect at 4am today.
• A message on gov.uk said on Saturday ‘due to a minor technical issue, the link to the booking portal in this guidance will not be available until later today. Please return to this page later if you wish to make a booking.’
• Travel Trade Gazette quotes a YouGov survey that says 83% of respondents did not feel confident about having a normal summer break overseas with only 5% feeling confident.
• The ETC’s European Tourism Trends & Prospects shows that there was a 70% fall in international arrivals in Europe in 2020. ETC says it expects ‘a slow restart of travel across Europe in the spring, with a gradual return to a ‘new normality’ through summer and autumn 2021.’
• Some 120 plus travel companies have combined to call on the government to ‘Save Our Summer’. The companies are urging the government to allow overseas holidays to restart on May 1. This looks pretty unlikely. Co-founder of Save Our Summer, Paul Charles, says ‘give us all a break, Boris. The industry is united in outrage.’ He says ‘senior government ministers have done a good job of torpedoing recovery in the travel sector and threatening jobs across travel and tourism. UK citizens should ignore their conflicting advice and book summer trips with confidence, knowing that they can get a refund or refix their travel dates if booking through a reputable travel provider signed up to SOS.’
• EasyJet CEO Johan Lundgren has called for a UK government plan to lift restrictions on travel.
• Lastminute.com will be taken to court unless it pays more than £1m of outstanding refunds by this week. The company missed a repayment deadline at the end of January.
• STR reports that US hotel occupancy was down 31% in the week to 6 Feb with rates down by 29%. The resultant REVPAR was down 51% on the same week last year.
FINANCE & MARKETS:
• Chancellor Rishi Sunak says that the drop in GDP in the UK is ‘comparable to other countries.’ The numbers suggest that the UK’s economic hit has been larger than that of its peers.
• The NIESR says of the 9.9% drop in UK GDP in calendar 2020, that this is ‘likely to be the largest annual fall among G7 countries last year.’ It says ‘with Covid-19 restrictions expected to remain elevated until early spring, we anticipate a sharp decline in activity during the first quarter of the year. Nevertheless, growth will pick up from the second quarter onwards as restrictions ease on the back of a successful vaccination programme.’
• The Japanese economy shrank by 4.8% last year.
• The Government has repeated that freight flows have returned to the same levels as last year.
• The European Commission estimates that EU GDP will be 0.5% lower than would otherwise have been the case by the end of 2022 due to Brexit. It believes the UK economy will be around 2.25% smaller.
• Sterling higher at $1.3897 and €1.1448. Oil price up at $63.57. UK 10yr gilt yield up 6bps at 0.53%. World markets better on Friday with London set to open up around 53 points.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were mostly about Covid and the vaccine roll-out: the Guardian went with “Vulnerable at risk in jabs confusion”, but the Times trumpeted “Huge fall in Covid patients”, the Telegraph ran with “Hancock: we hope to live with Covid like flu by end of the year” and the Daily Mail screamed “It’s a jab well done!” (to celebrate the Government meeting its 15m jabs target). The FT’s main headline was about the December GDP figures: “Initial Covid shock sent Britain’s economic output to 300-year low” (the near 10% fall in 2020 GDP is said to have been the worst since the “Great Frost” of 1709).
• Saturday’s Press and News (2): There was plenty of Business editorial coverage on the GDP figures: the Guardian muttered “This may not be a double-dip recession, but it will feel like one”, but the Economics Editor of the Times noted in his column that, as households and businesses were protected from the economic pressures by the Government, “Deepest recession for 300 years has not seemed to be a recession at all”, whilst the main Editorial in the Times highlighted that the economy is like a “Coiled spring”, with the stage set for a powerful recovery later this year, unless the Budget is too punitive and a columnist in the Telegraph thundered that “Hasty tax squeeze risks choking hopes of swift Covid fightback” . Incidentally, the Telegraph also flagged that the Chancellor is thinking of extending the stamp duty holiday for 6 weeks.
• Saturday’s Press and News (3): In terms of Retail news, the Times flagged the Sky News story that the Online furniture retailer Made.com is looking at a £500m IPO, whilst the Daily Mail highlighted that the takeaway food delivery business Deliveroo is stepping up its expansion into grocery delivery ahead of its mooted £5bn IPO. There were a couple of feature articles about the huge gaps on the High Street left by the collapse of Arcadia and Debenhams: the Guardian found plenty of photo opportunities for its feature on “What does the end of Arcadia mean for the High Street?”, quoting former Top Shop boss Jane Shepherdson as saying that people will be quite shocked when they return to the High Street for clothes shopping and interviewing at length a couple of Arcadia staff about the pain of redundancy. The FT feature focused on Debenhams and the pressures on landlords (“Owners worry
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were mostly about “leaks” of the Government’s planned “roadmap” out of lockdown to be unveiled on Feb 22nd: the Observer went with “Covid vaccine creator: UK failed to heed virus alerts”, but the Mail on Sunday screamed “Back in the pub garden for Easter!”, the Sunday Telegraph ran with “Picnics and coffee in the park from March 8”, whilst the Sunday Times flagged “Back to school in three weeks”.
• Sunday’s Press and News (2): In terms of Retail stories, the main story on the Mail on Sunday Business pages was that “Burberry hands back millions in tax relief”, flagging that Burberry has become the first “non-essential” retailer to hand back its Business Rates relief, whilst the front page of the Sunday Times Business section also flagged that Burberry has repaid a £300m loan from the Bank of England (as well as highlighting that the Government is likely to extend the moratorium on landlord’s ability to evict tenants over unpaid rent). The Sunday Times also had an article about “The dash for 10-minute groceries”, highlighting the launch of a Grocery delivery service by motorbike in central London by the Turkish business Getir, as well as the Deliveroo tie-up with the Co-op, whilst the Sunday Telegraph flagged that Deliveroo is calling on the Government to repeat its “Eat Out to
• Sunday’s Press and News (3): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the columns by the Sunday Times Economics correspondent David Smith (“Forget Project Fear – Brexit reality is biting”) and the veteran City commentator Jeremy Warner in the Sunday Telegraph (“It’s time for Boris to put his faith in vaccine success and take a chance”). There was also a column by the Economics correspondent of the Observer that cast doubt on the prospects of the much-vaunted savings mountain being spent by nervous consumers: (“Post-Covid spending spree? The Bank needs to get real”).
• This Week’s News: A quiet week lies ahead, but today brings the Tesco share capital consolidation (which will leave the share price unchanged, ahead of the £5bn special dividend payout). The Applegreen EGM (to approve the go-private deal) is on Wednesday. Thursday brings the Asda Walmart Q4 update and on Friday we get the monthly GFK Consumer Confidence survey and the ONS Retail Sales figures for January.