Langton Capital – 2021-03-05 –
R Rates, Business Rates & Interest Rates. JDW, MARS, RBG, Deliveroo…
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A DAY IN THE LIFE:
I’m beginning to think that our dog, who is black and brown and, when he’s lying silently in our darkened hallway, is almost invisible, is a master when it comes to playing the odds.
Because he knows that the most likely outcome of a surprise encounter with a two-legged mammal is that the human comes to a screeching halt and perhaps drops whatever’s in its hands, maybe even food. Outcome, therefore, neutral to good and odds around 90%.
Meaning there’s only a one in ten chance the human walks straight into him but, even then, there’s a 90% chance that they’ll kick something he doesn’t care about much, like his skull or his body, and only a further one in ten chance that he gets a foot in something vital, like his eye or his groin. Outcome, neutral to painful, odds against the latter, long.
Hence, he’s weighing a 90% chance he gets mildly scolded (admittedly confusingly rewarded if a sandwich drops into his mouth) plus a 9% chance of a kick in the head and a 1% chance of a kick somewhere more painful against the 100% inconvenience of having to get up and shift himself and, as actions do clearly speak louder than words, he’d got that one all worked out many years ago.
Anyway, as we passed February last week, we’ve added another Cultural Month. To see what we got up to check HERE. have a good weekend and on to the news:
BUDGET – INTERPRETATION:
Business rates suspension:
£2m per business.
• It’s been confirmed that the £2m maximum business rates relief applies to entire companies not just to single sites. This was always likely as there are few properties with a £2m plus business rates bill.
• Only certain retail, hospitality and leisure properties are eligible.
• Rates relief will be 100% business rates relief from 1 April 2021 to 30 June 2021, then 66% business rates relief for the period from 1 July 2021 until end-March next year.
• The cap will need some juggling as, if a company that has assets across several geographies (as nearly all larger pub companies and restaurant chains do, there may be some argy-bargy as to which authorities get paid and which do not (the latter making up the £2m of relief).
• Arithmetically, 3mths at 100% relief and 9mths at 66% relief gives an average of 75% relief from business rates across the year.
• The Treasury says ‘this means 750,000 retail, hospitality and leisure properties in England will pay no business rates for 3 months from 1 April 2021, with the vast majority of eligible businesses receiving 75% relief across the year.’
When is a business ‘closed’ for purposes of relief?
• Property agent Gerald Eve has clarified that the definition of ‘closed’ when it says ‘from 1st July businesses that were required by law to be closed on 5th January 2021 will benefit from a further 66% relief for the remaining nine months of the year.’
• There aren’t any fiddly decisions that need to be made about these businesses reopening with outside space and these units not reopening until June, etc.
• Gerald Eve says: ‘the decision to extend will be welcomed by those that stand to gain – albeit an earlier announcement would have given businesses more opportunity to plan for recovery – but the ongoing omission of properties in some of the worst-affected sectors continues to disappoint.’
• Worth noting that ‘the relief scheme will again not apply to vacant properties.’ Gerald Eve perhaps has more sympathy for landlords than can be found in some other quarters. It says ‘as the lockdown restrictions come to an end and the anticipated recovery kicks in, landlords, investors and developers will have a key role to play. But instead of being supported in this, they face punitive rate demands on empty properties.’
• Was a business that has a mix of sit down and takeaway restaurants ‘forced’ to close on 5 January?
• And what about sit-down restaurants, e.g., Wagamama or a pizza restaurant, that did a good trade in delivery or click & collect?
• And what does that do to the cap of £2m? Within a modestly-sized operation, some units may have shut, others stayed open for takeaway, others did click & collect or delivery…
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PUBS & RESTAURANTS:
Covid in retreat:
• The nightly stats confirm that Covid, at least for present, is in retreat.
• The NIESR estimates that the R rate fell to around 0.8 at the end of February from a range of 0.9 – 1.0 where it had been the week before. The NIESR says ‘should these pandemic variables in the UK continue to fall at the current rate, by 8th March when schools reopen, trend daily cases are forecast to be around 4,300, hospital admissions around 600 and number of deaths close to 200.’
• It says ‘looking further ahead to when non-essential retail is scheduled to reopen on the 12th April, we expect trend daily cases to be around 700, admissions around 200 and deaths below 50.’
• These numbers, as the government has said, could be impacted negatively by new variants or positively if the vaccine rollout continues to be successful. So far, it would appear, so good.
• The NIESR credits both the lockdown and the vaccine rollout. It says the fall in infections ‘may be due to the reduction in cases from reduced mobility during lockdown translating into subsequent reductions in admissions and deaths with a lag.’ It says the evidence ‘on the efficacy of the first dose of the vaccine in protecting against symptomatic Covid-19 for the over 70s’ looks positive.
The restaurant market:
• Lumina Intelligence has commented on the casual dining market making the point that the sector ‘enjoyed just 11.3 weeks of normal trading at the start of 2020 before the coronavirus pandemic made dine-in closures and other restrictions become a reality for operators.’
• Lumina says the ‘40 weeks of impaired trading saw £10 billion wiped from the total UK restaurant market value, a decline of 53%.’ It says an average of 42 restaurants closed every week last year.
• Lumina judges the mood of would-be consumers, saying that ‘when dine-in does reopen, creating experiences that are not easily replicated at home will be key for operators to drive footfall and compete with habitual delivery behaviours built up through the pandemic.’
• It asks how likely consumers would be to visit a restaurant in the next 6mths (assuming no further lockdowns) and finds that 73% were either somewhat, very or extremely likely to visit. Only about 14% refused to countenance a visit.
• Delivery has expanded as has the use of technology. Lumina asks ‘how likely is it you will use technology in restaurants in the future?’ 61% of those aged 18-24 and 58% of those 24-35 said they would use tech. Even 20% of those over 75 said they would use tech to give an average across all age-groups of 45%.
• Lumina says ‘lrading restaurant operators will emerge from the pandemic leaner but stronger with a greater focus on evolving consumer needs, less exposure to the threat of dine-in closures and opportunities to expand into attractive sites for more affordable rents.’
• Revolution Bar Group commented on its reopening plans yesterday (see yesterday’s comments included below).
• JD Wetherspoon yesterday confirmed that it ‘is to open beer gardens, roof top gardens and patios at 394 of its pubs in England from Monday April 12.’ It says ‘the pubs will be open from 9am to 9pm (Sunday to Thursday inclusive) and 9am to 10pm (Friday and Saturday), although some have restrictions on closing times and in those cases will close earlier.’
• JDW adds that the units ‘will offer a slightly reduced menu, to include breakfast, burgers, pizza, deli deals, fish and chips and British classics. Food will be available from 9am to 8pm seven days a week.’ It says ‘customers will be able to order and pay through the Wetherspoon app, however, Wetherspoon staff will be able to take orders and payment at the table from those who don’t have the app.’
• JDW will not be taking bookings. It says ‘customers will be able to enter the pub to gain access to the outside area and also to use the toilet.’ CEO John Hutson said: “We are looking forward to welcoming our customers and staff back to our pubs.”
• Marston’s yesterday update on financing saying that, in light of the current, third, national lockdown, it has ‘formally asked the holders of its Secured Class A Notes for a limited number of further technical waivers of its financial covenant for the second half of 2021 and until January 2022, to cater for the lockdown since 20 December and the significant restrictions that are likely to be in place on pubs, as per the government’s announcement of 22 February, until 21 June 2021 at the earliest.’
• MARS says ‘it is also seeking an extension of certain other technical waivers and amendments which were agreed to by the holders of its Secured Class A Notes in May last year.’ These are ‘required solely as a consequence of the enforced temporary re-closure of its pubs in England, Scotland and Wales by the UK government and the devolved administrations, as a result of the COVID–19 pandemic measures.’
• A meeting is scheduled for 26 March 2021. MARS says ‘the financial and liquidity position of Marston’s and its subsidiaries remains sound. As previously announced, the Group had £176m of headroom under its bank facilities as at 2 January 2021. Bondholders also benefit from the £120m Liquidity Facility which is expected to be only around £30m drawn at its peak.’
• Regarding reopening, Marston’s says it ‘is confident that demand in its pubs will be strong once allowed to fully re-open (albeit with restrictions). As previously reported, the pubs performed well last Summer after the first lockdown, outperforming the market in the 13 weeks to 3 October 2020 with like for like sales at the Group’s managed and franchised pubs 90% of the previous financial year during the corresponding period.’
• Marston’s is to hold a virtual meeting later this morning for analysts to provide an update on the transaction to operate the SA Brain pub estate, which completed on 5 February 2021. The company says that no new material information will be made available.
• Underdog, which trades as Hawksmoor, has reported results to 31 December 2019 to Companies’ House. The historic accounts were signed on 18 Feb this year meaning that the group was able to update on the Coronavirus crisis. The company says it has ‘prepared the FY19 financial statements on a going concern basis.’
• The Group has net current liabilities of £45,100k (this over a year ago) largely due to the other loans due within one year of £44,183k.. (2018: £42,401k). The company says ‘these are loan notes due to the shareholders of the Group and as explained below these have now been extended out to 30 June 2022.’
• Hawksmoor says ‘underlying trading has historically been strong; however, from its onset, the Covid-19 pandemic has had a profound impact on the Group.’ The group outlines the open, shut, open, shut nature of last year and says it ‘has taken significant measures to safeguard its business during the periods of lockdown in the interests of all key stakeholders, including working with its banking partner to resolve potential covenant issues and engaging in the UK government’s furlough scheme.’
• Hawksmoor says that ‘trading in both re-opening periods in 2020 was very strong and ahead of forecasts, and with additional facilities with our supportive lenders, the directors expect that the Group will be able to meet liabilities as they fall due for the 12 months that follow the date of this report.’
• The group says ‘there is inherent uncertainty in respect of the lifting of the prevailing restrictions on the Group’s core operating environment and thus its ability to generate cash and comply with its covenants. Further, whilst the directors are confident that the bank debt will be successfully refinanced, the extension has not yet been agreed and therefore a material uncertainty exists in that may cast significant doubt on the Group’s ability to continue as a going concern and to realise its assets and discharge its liabilities in the normal course of business.’
• The company says its directors ‘consider this an unlikely scenario. Notwithstanding this material uncertainty, having assessed likely downside scenarios and mitigations available and being confident that a refinancing of the bank debt will be achieved in advance of the maturity date, the directors have formed the judgement that it is appropriate to prepare the financial statements on a going concern basis.’
• Much of the above will be demanded by auditors but, as the 15mths trading (or not trading) since the above year end will have added to the group’s accumulated losses, Hawksmoor’s balance sheet may well need attention at some point.
• As widely rumoured, Deliveroo is to list its shares in London in what could be a £5bn IPO. The company says the UK is its “long-term home”. There could be split voting rights that, in this case, may give founder Will Shu enhanced votes for his shares. Chancellor Rishi Sunak says that the company’s decision to list in the UK was a vote of confidence in the London market.
• The Minister for Small Business, Consumers and Labour Markets, Paul Scully, has confirmed that the cap on the amount of grant support firms are able to claim would be raised from £3m to £10.9m. Scully says ‘we continue to back businesses of all sizes through the pandemic and I’m delighted to see the cap on Covid-19 support grants raised to £10.9m.’ Scully says ‘extending our support will help retail and hospitality chains and the thousands of staff they employ.’ Raising the State Aid limits should help with ‘restart’ grant schemes.
• NRN in the US reports that ‘about three in 10 restaurant operators — 29%— said they do not expect their business to return to normal levels for least a year, and another 32% said they believed it would be seven to 12 months before business returns to pre-pandemic levels.’
• The NRA is the US says ‘until we get real change in consumer confidence, and until we see changes from our governors allowing us to operate at a higher capacity for indoor dining, until we get more people vaccinated, and until we get some relief, it’s very uncertain.’
• The US is to suspend tariffs on UK goods, including Scotch whisky, for four months. The US and the UK said jointly this would ‘ease the burden on the industry and take a bold, joint step towards resolving the longest-running dispute at the World Trade Organization.’
• The Scotch Whisky Association says it is ‘delighted’ and adds that ‘the tariff on single malt Scotch whisky exports to the US has been doing real damage to Scotch Whisky in the sixteen months it has been in place, with exports to the US falling by 35%, costing companies over half a billion pounds.’
• Diageo CEO Ivan Menezes says ‘today is a very good day for Scotch and Scotland. We recognise the Government’s tireless efforts, using the UK’s newly independent trade policy, to deliver the suspension and hopefully in time, a permanent end to these punitive tariffs.’ He says ‘final resolution of the aerospace dispute, combined with the announcement of a continued freeze on spirits duty in yesterday’s Budget, will safeguard thousands of jobs across Scotland and the UK.’
HOTELS & LEISURE TRAVEL:
• Saga plc has announced the conclusion of discussions regarding options to increase financial flexibility. It says ‘the Group has reached agreement to amend covenants on the term loan and revolving credit facilities and the agreement, which is expected to complete next week, of a one-year extension to the debt deferral on its cruise ship facilities.’
• Saga CEO Euan Sutherland says ‘the successful conclusion of these discussions is the latest step in reinforcing Saga’s financial position, and I would like to thank our funding partners for their ongoing support. We continue to see strong pent-up demand for travel among our customers and remain well placed to deliver on this opportunity when the guidance on international travel changes.’
• An investigation by Which? has found that the price of accommodation in UK seaside towns is rising for the summer. It says that prices are up by as much as 35%.
• The Seychelles is to reopen to international arrivals again from 25 March. There will be no Covid-19 vaccination or quarantine requirements.
• The Civil Aviation Authority says that around 95% of refunds due for cancelled flights have now been paid.
• STR reports that occupancy across US hotels slipped in the week to 27 Feb to 47.5%, down 26% on last year. Room rates are down by 25% and REVPAR is some 45% down on last year. The comps will shortly get much easier as the world laps lockdowns from last year.
• The airline & holiday industries have reacted negatively to the decision not to suspend APD increases. Airlines UK says ‘the continued absence of the promised Treasury consultation into APD – a full 12 months since its announcement by the chancellor – is a source of much frustration and bewilderment.’
• Travel Weekly reports RCL as “clinging” on to hopes that domestic cruise holidays could be allowed in May or June.
• Holiday companies Inghams and Club Med have suspended all holidays and stays until mid-May reports the TTG.
MORE LEISURE SNIPPETS:
• Pukka Pies is investing a further £4.5m at its Leicestershire bakery
• Aldi is investing £22m in new and existing stores in the Greater London area
• Cinemas in New York City could reopen on 5 March. Globally, box office sales are thought to be down by around 70% over the last year, and down by over 80% in the US and Canada.
• Apple’s App Store is to be investigated by the UK competition watchdog the CMA over claims of possible unfair practices
FINANCE & MARKETS:
• Markit reported on the UK Construction Industry yesterday saying that the February numbers means ‘UK construction companies experienced a solid return to growth in February after a setback at the start of 2021.’
• It says housing is driving the growth. The PMI was 53.3 in February, up from 49.2 in January. Markit says ‘the rebound was supported by the largest rise in commercial development activity since last September as the successful vaccine rollout spurred contract awards on projects that had been delayed at an earlier stage of the pandemic.’
• China is aiming for economic growth of over 6% this year.
• Sterling mixed at $1.3885 and €1.161. Oil price higher at $67.60. UK 10yr gilt yield unchanged at 0.78%. World markets lower yesterday and London set to open down by around 49pts as at 7.15am.
RETAIL WITH NICK BUBB:
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 paints a weaker picture for w/e Feb 28th, after a couple of brighter weeks…BDO Fashion LFL sales were nearly 10% down (with Store Fashion sales down by c92%) and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were c7% down (down c80% in Store sales and up “only” 141% in Online sales). As normal, it should be remembered that the BDO index is simply an unweighted average of percentage changes in the sales of their reporting retailers, so it shouldn’t be taken too seriously.
Next Week’s News: A busy week kicks off on Monday with the Shoe Zone finals. Tuesday then brings the BRC-KPMG Retail Sales survey for February, the DFS interims, the CapCo finals and the latest monthly Nielsen grocery sales figures. On Wednesday we get the Just Eat finals and the Fix Price IPO first dealings. Thursday then brings the Morrisons finals, the John Lewis Partnership finals and the Dignity finals, whilst the Hammerson finals and Mothercare’s move of listing to AIM follow on Friday.