Langton Capital – 2021-03-03 – PREMIUM – Budget, beer tie, the consumer, holiday dilemma & other:
Budget, beer tie, the consumer, holiday dilemma & other:
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A DAY IN THE LIFE:
Well, we’ve bagsied our seat in front of the telly to watch Mr Sunak later on and, since he’s allegedly got the fate of the nation resting on what he says, we’re banking on him not getting swollen headed about it and on him coming up with the goods that will be guaranteed to please all the people, all of the time.
Just what those ‘goods’ are, however, is above our paygrade.
But, like the apocryphal elephant, though we can’t describe it, we’ll know it if we see it and, like all good democrats, we reserve the right to moan about whatever it is that he decides to do, whenever he decides to do it.
So, no pressure there, then. Bit busy today so let’s move on to the news:
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PUBS & RESTAURANTS:
The Budget & the furlough scheme:
• The bets have been placed, the fix is in. All eyes and ears will now be focused on the Chancellor and his 12.30 House of Commons speech.
• Langton comment: The government is to extend the furlough scheme until September when the chancellor makes his Budget speech later today. This is seen as a welcome move by the hospitality industry, which has a large proportion of its staff currently supported by the scheme. The scheme had been due to close at the end of April.
• UK Hospitality says ‘extending the full scheme up to and beyond the point of full reopening of the sector is a welcome move. It will help keep businesses afloat and more jobs secure as they trade their way back to prosperity in the years to come. This means it is more important than ever the Government sticks to its plan to allow full reopening of venues on 21 June.’
• Businesses will have to contribute to the scheme by the end of July. They will pay 10% towards hours not worked in July, and 20% in August and September. UKH says this ‘will place unnecessary pressure on fragile businesses just as they are beginning to get back to their feet.’ Kate Nicholls adds ‘it is also very disappointing not to have national insurance contributions removed from the scheme. Businesses are burning through their cash reserves and many will have exhausted them before they have a chance to reopen.’
• Labour says business should have been given some certainty “months ago”. Sunak says ‘our Covid support schemes have been a lifeline to millions, protecting jobs and incomes across the UK. There’s now light at the end of the tunnel with a roadmap for reopening, so it’s only right that we continue to help business and individuals through the challenging months ahead – and beyond.’
• Loungers’ Alex Reilley tweets ‘the extension to furlough is VERY welcome but until the end of September implies the government is expecting some detours along the road to recovery.’
• This is the first of the dominos to fall. The big three, furlough, the 5% VAT rate and the suspension of business rates, are arguably what has created a cliff edge this month and next. Attention will be focused on rates and VAT – with the likelihood surely that there will be some extension of the reliefs.
• The furlough scheme, despite the chancellor’s earlier comment that he would not seek to support the unsupportable (when it came to jobs), has kicked unemployment into Q4. This is a) good news but b) temporary. It’s to be hoped that the industry can get a good summer under its belt before government debt issues and the sluggish economy perhaps risk taking the shine off things.
The beer tie:
• A major area of discussion for years, the beer tie has been eclipsed by Covid. But the SBPA comments on moves north of the border.
• The Scottish Beer & Pub Association reports that ‘pub tenants and landlords have united to express disappointment and frustration that the Tied Pubs (Scotland) Bill has passed Stage 2 in the Scottish Parliament today. Emma McClarkin, CEO of Scottish Beer and Pub Association says ‘this is a sad day for the leased and tenanted pub sector in Scotland. Despite efforts from tenants and pub owning businesses alike, our parliamentarians are simply not listening to them and seem determined to push through a Bill which will have a long-term detrimental effect on the fabric of Scottish pub sector.’
• The SBPA says ‘the leased and tenanted tied pub model operates as a partnership between the pub owning company and the pub tenant. The business model which has operated successfully for generations, seeks to share the financial risk and reward of running a pub business in partnership.’
• Recent research covering the UK as a whole has seen tenants express general satisfaction with the way that their landlords have behaved during the Covid-19 pandemic.
• Langton comment. Few things are perfect but everything is relative (in this case relative to the behaviour of third party landlords) and the leased model has shown the strengths of operating as a partnership in order to see through to the other side of the current pandemic.
• Whilst groups of landlords, for example some of those of Caffe Nero (see yesterday) and Virgin Active gyms (see below today) have manoeuvred to disadvantage or even evict their hospitality tenants, tied pub landlords have typically been in the game for generations and, for the most part, they intend to remain in it for generations to come.
• The alleged patriarchal nature (or even patronising nature) of the relationship may grate with tenants at times but, as those who have lobbied hard to go free of tie may be now realising, at the risk of mixing our metaphors, the grass is always greener on the other side of the fence and you should be careful what you wish for – as you may well get it. Having to stand alone (against Covid, your banks, suppliers, the tax authorities and even your third party landlord) at this time is something of a challenge.
• The SBPA goes into detail as to what it sees as the shortcomings of the Market Rent Only provisions and says it is unfair to allow tenants to break leases that were signed in good faith by both sides. It quotes multiple-tenant Simon McLeod as saying ‘this just isn’t the right time to be considering legislation that is only going to stifle our recovery. The focus now from MSPs should be on revitalising the industry and the timing of this Bill is really not good. I think it’s unwise and we should be concentrating on the economy.’
• Another multiple tenant says the Bill would be ‘taking a sledgehammer to crack a nut.’ The tenant says the whole area is one for negotiation rather than legislation.
• The Budget may take money out of the consumer’s pocket but a) it probably will not and b) there is growing evidence that ‘forced savings’ have been one of the side effects of the current and prior lockdowns. The Bank of England has reported another major paydown in debt in January with consumers adding to their savings.
• On the other hand, the LSE Centre for Economic Performance has found that two-thirds of those who are self-employed have lost out financially to Covid. This is the flipside of the freedoms to be found in self-employment. A regular pay-cheque is not one of the main features and, as such, compensation by the state is harder to organise than it is for salaried employees.
• The LSE says that over half of the two thirds of self-employed people who have been disadvantaged are earning less than £1,000 per month. It says ‘despite the availability of different types of financial support, many self-employed workers are still suffering hardship.’ It adds ‘this crisis is far from over, and policy-makers still have ample room to make policy changes that will affect not only livelihoods today, but also the speed at which the UK can grow when coming out of the crisis.’
• Langton comment: Covid is a Black Swan. We knew that such things exist, but we didn’t live our daily lives as though one was around the corner but, this time, it was. People and firms don’t give 100yr events much weight when making five-year plans.
• This means that ‘sensible’ decisions, such as self-employment or taking a large proportion of your income as tips (which are lightly taxed, often at zero percent if they are taken in cash), can have negative consequences.
• Employers don’t suffer employers’ NIC on tips, and this may have pushed things in that direction as well.
Company & other news:
• Molson Coors is reported to have sold its Indian beer business to Inbrew Holdings, which is HQ’d in Singapore. Inbrew says it ‘understands the Indian beverage market and comprehends the needs of existing and emerging consumers. A portfolio of strong local and international brands supported by established distribution and well-invested manufacturing facilities will allow Inbrew to continue offer quality products.’
• The US state of Texas is to end its mask rules and allow businesses to reopen at full capacity next week says its Governor Greg Abbott. Abbott says ‘it is now time to open Texas 100%.’ The rule has also been lifted in Michigan, Louisiana, and Mississippi.
• Nichols plc has reported full year 2020 results saying that it has turned in a ‘resilient financial performance despite challenging trading conditions.’ The company reports revenue down by 19.3% at £118.7m with operating profit down by 80% at £6.6m. the group reports an adjusted profit before tax of £11.6m, down 64% on the prior year. Basic EPS is down by 82% at 13.1p.
• Nichols says that the Vimto Brand Value in the UK rose by 6.7% versus soft drink market of +2.5%. It says the brand was up by 7.4% in Africa and adds ‘Vimto continues to progress across the rest of the world, delivering revenue growth of 17.3%.’ The out of home market was ‘significantly impacted by the pandemic with revenues down 61.4% and fixed costs weighing heavily on overall financial performance.’
• Chairman John Nichols says ‘the Covid-19 pandemic presented us with unequalled challenges in 2020,’ and says ‘the strength of the Vimto brand, the Group’s robust balance sheet and our diversified business model has ensured a resilient financial performance in the period despite the challenging trading conditions across our markets. We have achieved significant outperformance from the Vimto brand in the UK, solid growth in Africa and a good performance in the Middle East despite the impact of the recently introduced Sweetened Beverage Tax (SBT) and Covid-19 restrictions.’
• Nichols continues ‘whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand, the Group’s diversified business model and the skill and commitment of our colleagues, remains well placed to deliver its long-term strategic ambitions. Given the continued near-term uncertainty, 2021 guidance remains withdrawn.’
• Elsewhere, the Welsh Government has announced a further £30 million for hospitality, leisure and tourism businesses affected by ongoing coronavirus restrictions. The move will see £30m of targeted support being made available to support small, medium and large businesses in the hospitality, leisure and tourism sectors as well as related supply chain businesses. The funding will be aimed at slightly larger operations, those employing ten or more staff, in recognition of the higher level of operating costs that they businesses face.
HOTELS & LEISURE TRAVEL:
Should we, shouldn’t we: The holiday dilemma
• Overseas holiday bookings are said to be buoyant.
• There may be a feeling that the future will take care of itself. But 7hr queues at Heathrow will not help sentiment and nor will comments from Professor Jonathan Van-Tam, deputy CMO, that there is “great uncertainty” about the prospect of overseas summer holidays because of new variants of Covid-19.
• Even PM Boris Johnson has left himself plenty of room to pull the rug, which does put the sharp uptick in bookings in a questionable light. Van Tam says ‘many of the vaccination programmes in Europe – which is a place where we frequently go on holiday abroad – are running behind ours.’ He adds ‘whether we can go on holiday abroad to places such as Europe depends upon what other countries will say and do in terms of foreign tourism.’
• Provided consumers are confident that, if necessary, they will get their money back on cancelled holidays, they may be prepared to book. Nonetheless, home secretary Priti Patel and Labour’s Yvette Cooper have also said that it may be ‘too soon’ to book summer holidays.
• The WTTO is lobbying for a return to air travel and there is talk that Spain may establish a “green corridor” for vaccinated British tourists. Spanish tourism minister Fernando Valdes told Bloomberg that ‘we have discussions with our colleagues in the UK.’ He says ‘for us the British market is our main market. But obviously since we are a member of the European Union, the solutions have first to be part of the discussions in the EU.’
• It is against the above confused backdrop that we are seeing what appears to be a boom in overseas bookings. These may lead to cancellations.
• Transport secretary Grant Shapps has chaired the first meeting of the new Global Travel Taskforce.
• Jet2holidays has told Travel Weekly that 2022 capacity could exceed 2019
• A survey by Thrive has found that 74% of respondents believe it is reasonable to be told to wear a facemask on a plane. Thrive says ‘these findings suggest consumers are now conditioned to ongoing social distancing measures which reduce transmission and prevent the spreading of Covid-19.’
• Hotstats says that, though there is cause for optimism, turning the page on a calendar year, in this case 2020, does not assure a better result in 2021. It reports that REVPAR across European hotels in January was down by 87% on the same month last year.
• IHG has told Hotel News Now that ‘now is the perfect time to reinvent the industry’.
• STR reports that the performance of hotels in China this January ran ahead of the same month last year, but it is still well below 2019 levels. Referring to the Chinese New Year, STR says ‘daily occupancy in the market sat in the 30% range for most of the festival period (Feb. 11-17) then rose to as high as 37.6% on Saturday, Feb. 20.’
MORE LEISURE SNIPPETS:
• Consumers are reported by think tank Thrive to be in favour of vaccinated-passenger only flight.
• Scenic has reported a 150% uptick in bookings since PM Johnson reported his roadmap out of lockdown last week.
• Instagram is launching Live Rooms to host up to four people talking at each other together.
• Sky reports that ‘a group of Virgin Active landlords are exploring moves to end their relationship with the health and fitness chain as it tries to thrash out a rescue deal that could involve steep haircuts for creditors.’
• Langton Comment: It’s starting to look as though at least some landlords are willing to fight back when faced with tenants who may be demanding a better deal. Sky quotes an ‘industry source’ as suggesting that the landlords were preparing contingency plans in the event that they could not agree revised terms with Virgin Active. It says that negotiations have been going on for weeks.
• Reports that Rupert Murdoch’s Fox group is looking to take an 18.5% stake in American fantasy sports and betting website FanDuel in the light of the liberalisation of the US gambling market
• Sportech has noted ‘the announcement made by the State of Connecticut on 2 March 2021 in which it announced a proposal to expand gaming, specifically sports wagering and iGaming in a deal with the Mohegan Tribe and the State Lottery.’ It says the proposal includes 15 retail sports betting locations awarded to the State Lottery with a right to sub-license some of those locations to Sportech Venues. Sportech notes ‘that this announcement is somewhat contrary to the previous statements from the Governor. The Group is seeking further clarification and will update the market in due course.’
FINANCE & MARKETS:
• As suggested in the Day in the Life, above, this is perhaps the most keenly awaited Budget in years. The Institute of Economic Affairs has suggested a sweeping range of taxes that could or should be abolished. That may not happen any time soon.
• The NIESR quotes the Chancellor as saying that, in the absence of spending cuts or tax rises, then ‘debt will continue to rise indefinitely and that’s not a good situation.’ That shows a certain understanding.
• The Nationwide reports that house prices rose last month to leave the price of the average house up 6.9% in the year to February vs up 6.4% in the year to Jan.
• Sterling mixed at $1.3941 and €1.1539. Oil slightly higher at $63.14. UK 10yr gilt yield down 6bps at 0.69%. World markets broadly higher yesterday and London set to open up around 44pts.
RETAIL WITH NICK BUBB:
• Today’s News: The UK-listed, African petrol retailer, Vivo Energy has reported its finals today and it doesn’t seem to be as gloomy about the future of electric cars as its UK peers: volumes fell 7% in 2020, but Christian Chammas, the CEO of Vivo Energy, says “2020 was a year like no other, but we saw a strong recovery in H2 and continued to deliver against our strategy…Our markets have not been knocked off course by the pandemic, with a young and growing population driving economic development and future fuel demand”. Vivo (whose ticker is VVO) should not be confused with VINO, the ticker for Virgin Wines, which made a successful stockmarket debut yesterday, with the shares popping over 15% from the offer price to close at 228p. In other news, the French Connection share price closed c8% down, after announcing at 12.30pm that one of its suitors, Spotlight Brands/Gordon Brothers, had
• Boohoo: After a slightly bizarre report on Sky News that mighty Boohoo is facing a possible US import ban after allegations over the use of slave labour (an Asian campaign group called Liberty Shared claims Boohoo is not doing enough to stop forced labour in the Leicester factories which make many of its clothes), the share price fell sharply first thing yesterday, dipping below 320p, over 7% down, but it had already recovered a fair way by just after 9am, when Boohoo rushed out a “Response to media commentary”. Boohoo flagged that the group has not received any correspondence from, nor is it aware of any investigation by, US Customs and Border Protection (“CBP”) and that Boohoo continues to fulfil orders to customers in the US across all of its brands. The shares closed just over 3% down, with Sky News also reporting that JD Sports has overtaken Boohoo in the race to acquire
• Grocery Market Share Watch: Yesterday’s latest published Kantar supermarket “Total Till” sales figures focused on the last 12 weeks, but the privately disclosed last 4 week’s figures are what the City focuses on and we are now able to bring you these: on a pure “Grocery” basis (excluding Non-Food), overall Kantar sales improved from +11.2% in the previous 4 week period to +15.3% in the 4 weeks to Feb 21st, with Aldi/Lidl still lagging the “Big 4”, with growth of “only” 10.1% combined. Morrisons saw 19.3 gross sales growth on this basis, whilst Sainsbury was up 18.7%, Tesco was 19.7% up and Asda was 15.7% up gross. Outside the “Big 4”, M&S Food “at home” sales recovered to +7.0% gross in the 4 week period (before looking at the loss of much of its sandwich etc trade at lunchtime). The best Kantar performer (apart from Ocado) remained Iceland, with “till roll” sales nearly 30% up.
• This Week’s News: Today’s Budget has been well-trailed…but the actual event starts at c12.30pm, whilst the latest quarterly FTSE Index review is out this evening (with Dr Martens and Moonpig up for promotion and Morrisons at serious risk of demotion, depending on last night’s closing prices). Tomorrow afternoon brings the Q4 results in the US from Ocado’s big tech client, the supermarket giant Kroger.