Langton Capital – 2021-03-24 – PREMIUM –Private co accounts, sunk costs, staycations, o/seas holidays etc.:
Private co accounts, sunk costs, staycations, o/seas holidays etc.:
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A DAY IN THE LIFE:
Just heard a nasty rumour that the kids are breaking up for Easter on Friday, this some ten minutes or so after they went back post lockdown.
But time, tide and, apparently, school holidays wait for no man and, as I’m told the clocks go forward this weekend and it’s Easter the one after, the above is only to be expected.
Nonetheless, it’s indicative of the fact that, whilst we’re watching paint dry and waiting for the pubs to reopen, the year is ticking by before our eyes.
Indeed, the jobs are mounting up.
Only a matter of time before I’m told that the grass needs cutting and, as I know the mower currently has three flat tyres and a flat battery, I’d better put a lock on the shed and find somewhere to hide. On to the news:
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PRIVATE COMPANY ACCOUNTS:
• Glendola, which operates bars and restaurants including the Waxy O’Connor’s chain, has reported full year numbers to 28 March 2020 to Companies’ House. The figures are rather historic but, as they were signed in December last year, they do include comment on the Covid-19 pandemic.
• Glendola reports revenues up slightly from £38.9m to £39.3m. Costs rose more rapidly and the company reports an operating loss of £7.6m (2019: operating profit £2.9m). The company reports a loss before tax of £8.0m compared with a profit before tax of £2.4m in the prior year. There was a provision (included in the above figures) for impairments of just under £8m. The company, which was incorporated in 2001, reports shareholders’ funds of £17.1m (down from £25.5m in the prior year) with reduced accumulated profits of £15.1m).
• Glendola says ‘the directors were pleased with the performances of the businesses in a difficult trading environment.’ It says ‘the impact of Covid-19 on the operations has been significant and led to a significant impairment of its fixed assets.’
• Glendola adds that it ‘disposed of a number of underperforming assets after the year end. Subsequent to the year end the group disposed of a number of underperforming businesses. These operations had an operating loss of £887,000 and a net loss £1,350,000.’
• The company says its ‘loss before taxation includes impairments totalling £7,960,000. The group has complied with all of its bank covenants throughout the year. The group successfully renewed its financing after the year end, in July 2020, with the new facility for £26,700,000 expiring in December 2021. Additional facilities of £6,000,000 expiring in July 2023 were attained as part of this refinancing, therefore, giving the group and its related parties access to total financing of £32,700,000.’
• Catapult, which operates as a temporary employment agency with a large number of food and beverage clients, has reported full year numbers to end-December to Companies’ House.
• Catapult, which only needs to lodge exempt accounts (no P&L, just a balance sheet) reports that accumulated losses increased during the period by £1.95m. Losses had increased by £3.33m in the prior year. The company now has accumulated losses since incorporation of £13.4m and negative shareholders’ funds of £1.1m.
• The company is not obliged to make any statement on trading and it has not done so. The results are unaudited. The group raised £2.15m in new equity in the period under review and it may have to do so again this calendar year. There is no comment on the going concern principle. The period subsequent to its year end coincides with Lockdown 3.0 in the UK and it is likely that demand for Catapult’s services has been limited. The company is in a tricky position.
• Attention is currently elsewhere as the Big Picture is, well, Big. But, on the ground, companies are having to deal with the reality of the situation and some will struggle to survive. This may be going unnoticed. Perhaps unnoticed is the wrong word but, with major companies (call them lenders, tenants or taxpayers) struggling, it is possible that the attention of banks, landlords and the government is understandably focussed elsewhere.
• However, all companies (arguably at least) will have to face reality at some point. There will be business models that, sometimes through no fault of their own, have not worked. At this point, the heuristic of ‘sunk costs’ will kick in. Tis bloodier to turn back than go on (or something similar) said Macbeth and, if that is the case, then going on is the right course of action. If, however, there is a limited chance of success, then some very difficult decisions will have to be made and the fact that shareholders have sunk £5m, £10m or £50m into the venture should not enter into calculations (but it always does).
PUBS & RESTAURANTS:
• Path to reopening spelled out. Vote in Commons tomorrow.
• The Health Protection (Coronavirus, Restrictions) (Steps) (England) 2021 Regulations have been published by the government. Solicitors Poppleston Allen point out that the regs ‘set out a stepped approach to ending the lockdown in England. The regulations come into effect on the 29th March and do not have a timescale for relaxing restrictions, rather they set out that there will be 3 Steps, each with progressively reduced restrictions. On 29th March 2021 all parts of England will enter Step 1, which primarily permits groups of up to six persons to meet outdoors.’
• Step 2 is the 12 April reopening of non-essential shops and outdoor pubs & restaurants. 17 May (at the earliest) should see pubs reopen indoors (step 3) and Poppleston Allen says lockdown should expire on 30th June 2021 (all being well).
• On 12 April, ‘bars and restaurants will have to close any indoor premises for ‘on’ sales but may sell food or drink, including alcohol, for consumption outdoors on the premises if: 1. the food or drink is ordered by, and served to, a customer who is seated outdoors on the premises (table service), and 2. the operator takes all reasonable steps to ensure that the customer remains seated outdoors whilst consuming the food or drink on the premises.
• This is not new news but the proposals are spelled out. There will be maximum fines of £5,000 for people illegally taking foreign holidays before the end of June. The Commons should vote on them tomorrow. Poppleston Allen points out ‘there is no mention of substantial meals or a curfew’ and says ‘under Step 2 toilets will be permitted to remain open (including for premises selling alcohol). For premises not selling alcohol customers may order and pay for food and drinks by entering an indoor part of the premises; it appears for premises selling alcohol that payment will be required at least outside, if not specifically at the table.’ As already announced ‘in Step 2, casinos, bingo halls, bowling alleys and snooker and pool halls, cinemas and theatres (except drive-ins), will remain closed.’ The regulations will be reviewed every 5wks.
Other Covid news:
• Staycations vs the potential for further lockdowns. See premium email.
• Efficacy of the AZN Oxford vaccine.
• The New England Journal of Medicine has reported on a study funded by the Bill & Melinda Gates Foundation, that suggests the Astra Zeneca vaccine may not be effective against the South African variant. Drop us a line if you would like more detail. The study looks solid. The result, which was published on 16 March, would fit in with the change in mood re travel that seemed to emanate from government from around the middle of last week.
• We commented on Monday – ‘The holiday conundrum. Travel Weekly reports that ‘industry figures have criticised a senior cabinet minister and a leading scientist for refusing to rule out the government extending a ban on foreign holidays.’ This could be a little tone deaf as a) ministers can’t really promise to do, or not to do, anything and b) there is a legitimate fear that, even if the UK population is inoculated against one (or several) variant, it may not be immune to them all. Dr Mike Tildesley, of the Scientific Pandemic Influenza Modelling group, which feeds into Sage, saying that overseas holidays this summer were “extremely” unlikely. It will be interesting to see how travel company and airline shares open this morning.’
• What it means?
• It’s rather binary. If would-be holidaymakers are obliged to stay in the UK this summer, that’s good news for UK hospitality outlets. If, however, UK visitors overseas bring back a variant then, almost by definition, this would have not been stopped by our vaccines and could pose a threat to the wider population back home. This could prompt further lockdowns and be bad news for all concerned. Against this backdrop, one can see perhaps why the government is edging toward a possible ban on overseas holidays, perhaps for the rest of this year.
• The study is HERE:
Small brewers ‘treated unfairly.’
• SIBA has highlighted once again that small brewers are not in receipt of the same level of support as many other sub-sectors. SIBA says ‘despite pubs being shut and therefore 80% of brewery sales blocked, small brewers have not received the same level of support as the wider hospitality sector and, at their own expense, poured away over 6 million pints of craft beer.’ It says ‘their message is clear, the Chancellor should save local breweries by introducing a Brewers Support Fund similar to what’s been seen in Scotland which provides direct grants of up to £30,000 per small brewery.’ SIBA CEO James Calder says ‘small breweries are the lifeblood of our communities and have seen their businesses and livelihoods going down the drain because of the Covid pandemic and the closure of pubs. Today they are reminding the Chancellor what is at stake and what we’ll lose without direct support
• A poll conducted by Lumina Intelligence has found that 53% of operators believe that extending the rent eviction moratorium is simply postponing the issue. Some 30% wanted to see a review of commercial tenant and landlord legislation and 26% would like to see debts to be written off.
Company & other news:
• Deliveroo. IPO price & rider legal action.
• Deliveroo. The group’s IPO has attracted some criticism due to valuation. The Times also reports that ‘Deliveroo is facing investigations in Europe over the legal status of its riders, potentially casting a shadow over its £9 billion stock market listing.’ It says the company is ‘battling legal claims or regulatory probes in Britain, France, Spain, the Netherlands and Italy over the classification of its couriers.’ Deliveroo highlights that ‘it may have to rewrite its business model if it was forced to provide riders with holiday and sick pay, minimum wages and other benefits.’ Uber in the UK recently agreed to minimum wages, holiday and sick pay, etc., but it said that its delivery drivers would not be a part of this deal.
• Time Out. Won’t do Waterloo, will do a fund raise.
• Time Out Group yesterday confirmed that it ‘no longer intends to proceed with the development of Time Out Market London (Waterloo) due to the impact of the COVID-19 pandemic.’ The company says ‘this decision does not change the Company’s need to secure additional funding, as a result of the financial impact of repeated periods of pandemic-related containment as previously stated in its interim results on 30 September 2020. Consequently, the Company is currently reviewing an equity funding proposal that would ensure the Group has financial and operational flexibility. It is anticipated that an update will be provided at the time of the Company’s interim results announcement on or around 30 March.’
• Leon shuts down US operations.
• UK fast food operator Leon has shuttered its four U.S. stores, which are located in Washington, D.C., and Virginia. The company has been “devastated by COVID-19.’ Restaurant Dive reports it had only managed to keep one American store — located in the District — open over the last 12 months, with volume down 85%, Edwards wrote in an email. The company says it is ‘focusing on re-building LEON in the UK & Europe, where our journey to make fast food, good food started 17 years ago.” It says ‘for now, we have to focus on survival. The US remains our long term number one priority.’
• Restaurant Dive also points out that Le Pain Quotidien’s U.S. division has filed for Ch11 bankruptcy. The same journal wrote, in December 2019, that ‘there’s a new kind of British invasion afoot in Washington, and it’s changing the way Americans think about fast food.’ It says Leon’s mission was to ‘make U.S. diners fall back in love with fast food…but this time, with better ingredients.’ Co-founder John Vincent said ‘I want to reinvent McDonald’s so that it tastes good, does you good and is kind to the planet. For me, it’s a whole different proposition from fast casual. … There’s a fun element to it.’ Covid has derailed plans.
• CEO James Spragg is to step down from the position at The Big Table, formerly The Casual Dining Group. He will be succeeded by Alan Morgan. The business underwent an administration and change of name last year and is now owned by private equity company Epris. Former Spirit Group CEO Mike Tye was appointed as non-executive chairman last summer. Mr Tye says he wanted to thank Mr Spragg for his time at the company. He says ‘I am pleased to also announce that we have appointed a successor. Alan Morgan, currently CEO of GLH Hotels, will join the business, as CEO. Alan brings with him a wealth of leadership experience gained across the hotel, leisure and hospitality industries and I know will be a great addition at The Big Table.’
• Pub & restaurant snippets.
• Starbucks has said it plans to ensure its supplies of unroasted coffee are carbon neutral by 2030. US operator Popeyes fried chicken is to open its first UK restaurant later this year. Tip Jar has announced that Gary Dolman, co-founder of app-based bank Monzo, has joined as an advisor to its board. See yesterday’s premium email for DPEU full year numbers & today’s for comments on M&B AGM.
HOTELS & LEISURE TRAVEL:
Hopes for overseas holidays:
• Growing concern that overseas summer holidays will not be allowed.
• TUI has nonetheless said that it believes overseas summer holidays ‘will be possible this year.’ It says ‘we remain committed to working closely with the government on the Global Travel Taskforce and look forward to understanding more about when international travel can take place when it reports on 12 April.’ The Business Travel Association has focused on practicalities, saying it is important that the UK engineers greater coordination between the UK’s four regions as to what will be allowed and what will not. The BTA says ‘as if the issue isn’t difficult enough, we have the four nations disagreeing and arguing. It’s incredibly unhelpful. If you’re a consumer sat at home, you would think ‘I’m going to leave [overseas travel] for the time being’.’ See our comments on the ‘efficacy of the AZN Oxford vaccine’ above.
• Travel companies’ share prices had another down-day yesterday. Hostelworld was unchanged but Jet2, Carnival, On the Beach and TUI were down by 2.3%, 5.6%, 5.7% and 6.1% respectively.
• UK holiday capacity shortages likely?
• As long ago as 3 March, The Sun was reporting that ‘as many as 90 per cent of summer holidays are sold out as UK tour operators warn that bookings are still soaring.’ It said at the time ‘Brits opting to stay in the UK for a holiday this year are likely to be left disappointed with little left on the market.’ UK domestic one family holidays can start on 12 April. The position re overseas holidays is still unclear, although the government’s task force will report on the same day.
• On a similar note, The Telegraph reports self-catered accommodation website Unique Homestays as warning that 92 per cent of summer holiday dates are booked up, with Oliver’s Travels has just eight per cent of properties still available during the summer season.
• Cineworld attracts flack. See yesterday’s premium email for coverage of Cineworld’s reopening plans. The company has attracted criticism as Sky points out that the upbeat announcement comes ‘after effectively axing up to 45,000 workers six months ago.’ There could be some issues with re-staffing. Sky highlights that Cineworld’s ‘update made no mention of the workforce it needs to operate the business of screening movies.’ People who took redundancy (which has favourable tax treatment) could be banned from re-joining their former employer for at least 12mths.
• Aitch Group is to open a new indoor climbing venue in East London.
FINANCE & MARKETS:
• The rate of unemployment in the UK fell from 5.1% to 5.0% in the 3mths to January. Under-25s and staff in London have born the brunt of job losses reports the BBC. The large number of staff still on furlough does mean that the true scale of job losses is perhaps not yet fully apparent.
• The NIESR comments on average wage growth saying it ‘will stay broadly unchanged at 4.8% in the first quarter of 2021, compared to 4.7% in the previous quarter.’ It says ‘the number of furloughed workers increased to 4.8 million in January. We forecast that that number will steadily decline from April to September when restrictions are progressively lifted, subject to the vaccination programme running according to plan and infection rates being kept under control.’ The NIESR says, due to the vaccine rollout, ‘sectors like hospitality will finally be able to resume activity, but the effect of the pandemic on the labour market will probably be felt for years to come. Most furloughed workers will be able to return to their old job, but a significant number will find that their job has disappeared as businesses adjust to a new normal.’
• Sterling weaker at $1.3713 and €1.1579. Oil price down at $61.38. UK 10yr gilt yield down 7bps at 0.75%. World markets broadly lower yesterday with London set to open down around 36pts.
RETAIL WITH NICK BUBB:
Today’s News: The embattled car dealer Pendragon (best known for its main brands of Evans Halshaw and Stratstone) has announced its finals for y/e Dec, with a strong second-half recovery offsetting the big first half loss to leave a modest £9m profit for the year. And 2021 has seen resilient trading to date, thanks to improved Online business, with Group LFL new car volumes only 24.3% lower in January and February combined (vs the SMMT reported overall market reduction of 38.1%) and used car volumes down 32.8%. And the builder’s merchant group Travis Perkins has announced that it is pressing on with the delayed demerger of Wickes DIY, with the Prospectus published today ahead of a Capital Markets Day presentation on Friday. In 2020, Wickes recorded revenue of £1,347m, with 5% LFL revenue growth, and adjusted operating profit of £82m. CEO David Wood says that “The past year has prompted
This Week’s News: Tomorrow brings the CBI Distributive Trades survey for “March” and the belated ONS Retail Sales for February figures are out first thing on Friday.