Langton Capital – 2021-03-26 – PREMIUM – Pre-packs, R rate, vaccine passports, crowd funding & other:
Pre-packs, R rate, vaccine passports, crowd funding & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Confirmation, if confirmation were needed, yesterday that getting coffee coloured carpets is generally a good idea.
Because, in the event of accidents, say someone were to trip over the dog and drop a steaming mug on the floor, you can always work on the basis that ‘another half pint won’t hurt it.’
And, although nothing much is proof against a half-litre of blackcurrant juice, if anything, it’s safer to have coffee coloured furniture as well.
However, it is worth remembering that laptops can’t swim even if, as we found out to our cost just last year, they look for a while as though they’ve survived before succumbing to a bout of fizzing and popping before giving up the ghost altogether.
Anyway, we got the grass cut yesterday. Pumped the tyres up, charged the batter, filled the jerry can etc and all in March. Yes, March. I’m sure that means something about the summer or the weather or whatever. On to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
CHANGED EMAIL FORMAT:
The Premium Email is unchanged. The Free Email is written and pre-sent the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email.
• A pre-pack administration has the feeling of a formal process whereby a pre-determined outcome is legitimised. The ‘new’ buyers of a company undergoing a pre-pack are often the previous owners.
• This has led some to cry foul and it’s worth noting that the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 will come into force from 30 April 2021.
What the new regulations require:
• The law will ‘introduce a requirement for a connected party purchaser to obtain a report from an independent and suitably qualified person before a pre pack can be undertaken’ says the ICAEW.
• Company Rescue says ‘it may be time to think about alternative strategies such as trading in administration – with a sale to connected or unconnected parties, voluntary liquidation with the goodwill/assets being sold to newco, or a CVA that can keep the company intact, maximise creditors interests, allow deep restructuring and, in time, preserve shareholders positions.’
• The new law ‘states administrators cannot make a substantial disposal of the company’s business to connected directors, or shareholders, in the first 8 weeks of the administration period unless (a) the creditors approve the transaction, or (b) they have a qualifying report from a qualified independent “Evaluator”.’ Says Co Rescue.
• The law is intended to bring deals out into the light.
• Or, if not quite in the light, then at least an Evaluator and / or the creditors of the company will have a say in what happens.
• This could lengthen and complicate the process of administration and, if the wall of debt and accrued rent that many operators have amassed leads to more corporate failures, this could come at an unfortunate time.
• This is not a position that existed previously. The person ‘must have sufficient relevant knowledge, experience, and appropriate professional insurance cover’ says Co Rescue.
• the Evaluator must report and state the value being paid in the pre-pack along with the identity of any connected parties.
• This is new territory, but it may well shine a light on what could have been, or could appear to have been, cosy and uncontested deals.
• Co Rescue spells it out when it says ‘insolvent companies facing the need to “right size” their costs…need to consider either a) selling the business to a well-capitalised buyer through a compliant pre-pack or b) putting the company into a CVA which can be hugely flexible and powerful.’
PRIVATE COMPANY ACCOUNS: PHO & HUSH:
Pho 2012 Ltd
Pho has reported numbers for the year to 23 Feb 2020 to Companies House. The numbers, which are very historic, cover the period before Covid but, as they were signed on 8 March this year, they make reference to the pandemic.
• Pho reports revenues up from £34.4m to £38.9m with the loss before tax reduced from £1.5m to £1.3m. The group made an operating loss, before interest, of £448k, down from an operating loss of £763k last year.
• Pho has accumulated losses since incorporation of £4,9m. It has shareholders’ funds down from £2.1m last year to £582k at the time of these accounts (more than a year ago).
• Pho says ‘the year to February 2020 was a strong year for the Company with sales and profit increasing significantly on the prior year.’ This is now overshadowed by the Covid pandemic.
• Pho says ‘over the last 12 months, the Company has continued its growth and roll out plan with two new restaurants openings, both outside of London, which further strengthens the Company’s presence in the regions of the UK.’
• It says ‘the Directors are delighted with the performance of our recent restaurant openings, which have all traded in line, or above, expectations in 2019/20.’
• Re Covid, Pho says ‘the onset of COVID-19 in the UK and subsequent Government mandated restrictions have had a devastating impact on the UK restaurant and hospitality sector.’
• It says ‘after approximately seven weeks of full closure during the first lockdown, primarily to ensure staff welfare and to make the venues COVID secure, the business began trading Delivery and Takeaway at a select number of sites, from May 2020.’
• It adds ‘despite a significant increase in Delivery and Takeaway sales during the COVID restrictions periods, the Company’s overall revenue and profitability has been severely impacted. As a result of COVID, the Directors expect a 45% reduction in total turnover in the year to February 2021.’
Re the outlook:
• Re the future, Pho says ‘at the time of approval of these financial statements, the UK government has recently announced a timetable under which the latest lockdown will be lifted however future sales levels in the hospitality sector remain uncertain. The Directors are confident that once eat in trade is allowed to recommence and the business has stabilised, the group will be well positioned to continue its growth plans.’
• Pho says ‘the Directors expect that the impact of COVID-19 will last well into 2021. As such, the Directors have reviewed the forecasts and believe them to be prudent considering the current uncertainty around the recovery of eat in trade.’
• In addition, the Directors have reviewed several downside scenarios which contemplate further lockdown periods and slower recovery and again believe the Company is well placed to manage through this eventuality.’
• It says ‘the Directors remain in constant dialogue with the Company’s creditors to ensure that appropriate payment plans are agreed.’
• Pho says ‘for several years leading up to the COVID pandemic, the restaurant sector had evolved to become a highly competitive market due to a surge in expansion across the sector in recent years and an over-supply of restaurants.’
• ‘Although the over-supply is likely to reduce given the negative impact of COVID on many businesses, customers still have an unprecedented level of choice…’ However, ‘the Directors believe that the Pho concept coupled with the continued investment in the brand, food quality and service standards give a competitive advantage and the ability to grow market share and customer base.’
Hush Brasseries Ltd:
Hush has reported the (now very outdated) numbers for the year to 29 Dec 2019 to Companies’ House.
• The Co reports revenue up from £8.5m to £10.6m with an operating loss increased from £479k to £1.8m and a loss before tax of £2.0m. The company has losses since incorporation of £6.6m and shareholders’ funds of £1.4m.
• The accounts were signed on 10 March this year and the company makes reference to the Covid pandemic.
• Hush says ‘the casual dining sector experienced a difficult 2019 dominated by weak consumer spending driven by Brexit and election uncertainty, coupled with the pressures of increased business rates and labour costs. These pressures have now been eclipsed by COVID-19.’
• It says ‘in the first quarter of 2019, the group opened its seventh Hache restaurant in Kingston. In August of 2019, the group acquired five Cabana restaurants in Westfield London, Westfield Stratford, The O2 Arena, Central St Giles and London Designer Outlet, Wembley.’ It adds ‘the year’s accounts carries the acquisition, pre-opening and integration costs relating to these six new units.’
• Re Covid, Hush says the ‘group reacted swiftly and with entrepreneurial agility. It says all capital expenditure was put on hold, and the directors and senior management team volunteered to take pay reductions.’
• Hush says ‘the furlough scheme was extensively used, but the group made the difficult decision to make redundancies particularly in relation to sites with uncertain re-opening dates. The current total workforce has sadly reduced by almost 100 team members since the start of the pandemic.’
• Most of Hache stayed open for delivery. It says ‘delivery sales were several times pre-COVID levels and propelling some sites into like-for-like growth.’
• Hush says ‘Hush and the Cabana restaurants closed throughout the first lockdown and re-opened in stops and starts through the following two lockdowns. Material costs are associated with each closure and re-opening, including stock write-offs, deep cleaning, and staff retraining.’
• The company says ‘we have worked constructively with all of our landlords and there are no material landlord positions that we believe cannot be resolved with pragmatism and commerciality being exercised on both sides. We were, however, unable to agree terms with the landlord of the London Designer Outlet in Wembley, and that unit was surrendered with no further ongoing liability to us.’
Re the future:
• Hush says ‘although the future trading environment for 2021 is uncertain, we are optimistic that the vaccine programme coupled with the possibility of package of government stimuli for the hospitality sector will improve our position and liquidity in the next 12 months.’
• It adds ‘we have fared better than many of the sector and this is not only down to the quick reactions of the executive team, but also the support of all of our stakeholders including staff. creditors, lenders, shareholders and landlords. It has very much been a team effort.’
PUBS & RESTAURANTS:
Covid R rate:
• The government has said that it will be led by the data, not dates. Hence, the pathway to reopening will be influenced by the number of infections, hospitalisations and deaths. The R-rate and inoculations are also key inputs and, for a number of weeks now, the NIESR has produced its own estimate of the R rate. As at 23rd March, it says ‘the Reproduction number…had moved up to 0.9 – 1.0 by 19th March, which is again higher than SAGE’s estimates.’
• It says ‘this estimate was obtained after controlling for enhanced testing in schools that started when they reopened on the 8th of March. If enhanced testing in schools is not controlled for, the R estimate would be in the range 0.9 – 1.05.’ Whilst not yet seeming to threaten reopening dates, the number should be kept under review. ‘Reassuringly,’ the NIESR says, ‘hospital admissions and deaths due to Covid-19 continue their steady decline.’ This is presumably because, though the R rate is still near 1.0, most over-50s are now inoculated and most under-50s do not have serious infections.
Vaccine passports, moon-shots and the like:
• PM Boris Johnson has now said ‘there is going to be a role’ for COVID vaccine certification but says it might come only after every adult in the UK has been offered a vaccine by the end of July. He seems to be rowing back on any suggestion that this may be mandatory for admittance into pubs and the like. Sky reports the PM as saying ‘what we want to do is rollout the vaccine programme and see what that builds in terms of general resistance to the virus’ when he was asked about “papers for the pub” schemes.
• The BII has said that ‘vaccine passports for pubs [are] unworkable.’ It says ‘the suggestion of vaccine passports in order for people to visit our nation’s pubs, yet again places an unfair and unfounded burden on our industry, not shouldered by other sections of our economy. With indoor retail being able to open a full 5 weeks at least before our Covid-secure venues…the introduction of another barrier for them to trade freely will have a major impact on their profitability.’ This seems to be a fair point. It is not clear whether the PM’s suggestion that individual pubs might be allowed to decide whether to insist on vaccine certificates etc was a well-thought out move or an off-the-cuff suggestion.
• The BII points out that ‘despite over 60 million visits a week in the summer of 2020 to hospitality venues, there was no discernible rise in Covid rates caused by people safely socialising in our pubs.’ It says ‘the Prime Minister must deliver his roadmap commitment with pubs to be free of restrictions on June 21st.’ It concludes ‘our pubs, small businesses led by entrepreneurs, are facing a long road to recovery, more unworkable & baseless ideas will result in business failure & lost jobs.’
• Hugh Osmond describes the suggestion as ‘repressive and unethical’. UK Hospitality says it is ‘crucial that visiting the pub and other parts of hospitality should not be subject to mandatory vaccination certification.’
• An administrative burden but not without upside.
• The Guardian has reported that pubs could ‘be allowed to ditch social distancing rules and allow people to crowd together as long as they check customers’ Covid status on entry.’ It believes it has an exclusive. The Guardian says dropping social distancing (and maybe allowing bar service, vertical drinking and the like?) ‘would mean many pubs would be able to operate far more profitably, and is likely to be an incentive for citizens to get vaccinated or tested.’ The paper says a ‘Whitehall source stressed the consultation was in its early stages and that no decision had been made.’
Other Covid news:
• SIBA comments on the Government announcement of a new £1.5bn pot of business rates support for those which have not previously benefitted, including breweries, saying ‘it is hugely positive news that Government has finally recognised that many sectors, including brewing have been left behind over the last 12 months and are seeking to redress this. We warmly welcome this new round of business rates funding and will now press local authorities and Government to urgently prioritise and distribute these funds to breweries. The brewing sector has suffered enormously as pubs, which represent over 80% of our trade, have been closed off to us.’
Working from home:
• Santander has said it will close 111 branches across the country. TUI yesterday said it would close another tranche of retail outlets. The Nationwide yesterday said it would allow 13,000 staff to work wherever they wanted. Goldman Sachs is under pressure as junior staff say they are working 15hr days from home. John Lewis said yesterday it would not reopen eight department stores. The above (and many more similar stories) are mixing the impact of Covid with that of the internet. They support the view that some trends already in place have been accelerated by the pandemic. Workplaces and High Streets are likely to change and operators with a vested interest in the pre-Covid status quo may find this a challenge.
• Rishi Sunak has called on employers to end working from home and to ask staff back in the office. He says ‘I’m probably in the camp of saying that it’s good that people are in offices together.’
• The Insolvency Service has suggested that firms in the UK planned fewer job cuts than they had in January, despite Covid closures. The Service says that around 26,000 jobs were at risk, down around a fifth on January’s figure and slightly lower than February 2020.
• The Competition and Markets Authority has concluded that the proposed merger of Crowdcube and Seedrs could operate against the public interest. The CMA says ‘investment in small and growing businesses is vital to the UK economy as we emerge from the coronavirus pandemic, and we have given this deal careful consideration.’ It says ‘these are the two largest equity crowdfunding platforms in the UK, with at least a 90 per cent share of the market between them and we see them competing closely on price and innovation. This means the merger could lead to less choice and higher fees for SMEs and investors.’
• Both companies are currently lossmaking. The rationale for the merger was, one would imagine, to stem these losses. That may not be possible and the very function that the CMA says it believes is vital could be threatened. However, it is what it is. The CMA says it has ‘reached the view that blocking this merger is likely to be the best way to maintain competition. The decision to block any deal is not taken lightly and is only made if there is a real risk of customers losing out.’ Seedrs says ‘we are deeply disappointed with these findings, and we firmly disagree with the CMA’s view that this would be an anti-competitive transaction.’ Crowdcube also expresses disappointment.
• Langton comment: Seedrs elaborates a little when it says ‘we fervently disagree with the CMA’s view, but given the low likelihood that they will change their mind at this point, we have concluded that it does not make sense to continue the battle.’ The company, which is presumably facing another period of cash burn, says ‘we had prepared for this possibility, and we’re pleased to announce that we have agreed a new funding round for the business. Given the strength of the business’s recent performance, we will be able to use this round to return to our pursuit of major growth initiatives. We will share full details of the round very shortly.’
Companies & other news:
• The Glendola-owned Waxy O’Connors sit in Manchester is reported to have shut after almost two decades of active trading.
• 23.5 Degrees, which was Starbucks first UK franchised business partner, is to open its 80th store in the UK this week.
• Be At One has launched a new cocktail competition ahead of reopening in April and May.
• Chipotle has taken a stake in Nuro, which operates driverless delivery vehicles.
• The Inn Collection Group is to purchase Lake District venue The Wateredge Inn at Ambleside.
• Zonal has become a BII Trusted Partner.
• Admin would be horrible but one could see this happening in a libertarian environment: theguardian.com/world/2021/mar…
• Party pooper alert. Reading companies’ words re their future brings home that there is a major sliding scale & some confusion as to where we are between – HOPE – FORESEE – THINK – BELIEVE – KNOW. We are very much at the start, not the end, of that list.
• One of J Lewis stores to shut is York, Vanguard. Our e/m reaction yesterday ‘wow, they only opened it 5-6yrs ago. It’s a big, in my opinion somewhat unnecessary, development…the parking & access wasn’t altogether joined up.’ Timing, both in and out, is atrocious.
• Proved yesterday for the -nth time just how serendipitous it has been buying coffee-coloured carpets. Another half pint won’t hurt.
HOTELS & LEISURE TRAVEL:
• PM Boris Johnson has told MPs ‘things are looking difficult on the Continent’. He says ‘we will have to look at the situation as it develops.’ See emails earlier this week. We believe concerns re the importation of new variants may mean that the curtain is likely to come on overseas holidays for this summer, possibly as early as 5 April. Should this happen, UK domestic capacity may struggle to meet demand.
• Travel Weekly has heard that holiday prices are rising sharply. The journal’s Future of Travel Spring Forum has heard from contributors that ‘average selling prices had risen by 37%-38% on long-haul and short-haul programmes.’ There has been some mix change and some out-and-out price inflation.
• TUI has cut capacity this summer from 80% to 75% of 2019’s level. Summer bookings may have stalled.
Other travel news:
• Airlines have welcomed what they hope are EU moves to fast-track development of a Digital Green Certificate.
• ABTA has extended the deadline for issuing refund credit notes for non-flight package holidays cancelled due to Covid-19 to 30 April.
• STR reports that US hotel occupancy is now at its highest level since early March last year. Comps are easier now that the pandemic has annualised. Occupancy, at 58.9%, is almost double that of a year ago.
• Safestay has announced this morning it ‘has entered into conditional sale and purchase Agreements to sell the Edinburgh Hostel to a & o Hotels and Hostels for a cash consideration of £16 million payable at completion, representing a 22% premium to the £13.4 million book value. Larry Lipman, Chairman of Safestay, comments ‘we are very pleased with this transaction as it will facilitate a 35% reduction in Group borrowings as well as give us the cash balance to re-engage as restrictions lift. It is a very positive solution which provides a solid foundation to not only restart but also to have the option to invest at a time when many of our competitors will not.’
• Flutter announced yesterday that ‘the Kentucky Supreme Court has today denied a petition made by Flutter for a rehearing of its 17 December 2020 decision relating to legal proceedings originally brought by the Commonwealth of Kentucky against certain subsidiaries of The Stars Group in 2010, prior to its combination with Flutter.’
• The company says ‘Flutter is disappointed by the denial of its rehearing petition and continues to strongly dispute the basis of this judgment. Together with its legal advisors, Flutter will continue to consider its position in relation to the judgment, including potentially appealing the ruling of the case to the US Supreme Court along with other legal avenues which it may pursue thereafter.’ It says it ‘remains confident that any amount ultimately paid to resolve this matter will be a limited portion of the reinstated judgment. Further announcements will be made in due course as and when appropriate.’
• Dream Sports, which owns fantasy sports app Dream11, has secured $400 million in a new financing round.
FINANCE & MARKETS:
• Sky reports that nearly three months into the post-Brexit era, over half of UK businesses say they have faced disruption.
• Sterling stronger at $1.3768 and €1.1682. Oil lower at $62.93. UK 10yr gilt yield down 2bps at 0.73%. World markets better yesterday with London set to open up around 54pts.
RETAIL WITH NICK BUBB:
• Planet ONS Watch: We noted yesterday that, in the real world, as per the BRC figures for February (the 4 weeks to Feb 27th), underlying Retail Sales were a bit better last month, despite the “lockdown” of “non-essential” Non-Food shops, given the continuing strong Food and Online sales growth, but “seasonally adjusted” life was not so good on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via the belated official Retail Sales figures for February, which were released at 7am this morning…City economists (who treat the ONS figures as the gospel truth) will be pleased by 2.1% recovery in month-on-month seasonally adjusted sales volume (inc fuel), as that was exactly what was expected, but year-on-year volume was down 3.7% or down 1.1% ex-fuel. The ONS non-seasonally adjusted value sales (ex-fuel) were 1.3% down in
• BDO High Street Sales Tracker: Given the continuing impact of the lockdown on “non-essential” stores, today’s BDO High Street Sales Tracker for medium-sized Non-Food chains paints a surprisingly strong picture for w/e March 21st, but the beginning of the pandemic a year ago meant that the comps were very soft…BDO Fashion LFL sales were actually up by c103% (even though Store Fashion sales were down by c79%)…and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by c55% (down c73% in Store sales and up an impressive 157% in Online sales). As usual, however, it should be remembered that the BDO index is just an unweighted average of percentage changes in the sales of their reporting retailers, so it shouldn’t be taken too literally.
• Next Week’s News: A relatively quiet week lies ahead, ahead of the Easter break, but with the end of March fast approaching there should soon be a Card Factory update on liquidity/refinancing. Tuesday morning brings the latest monthly Kantar grocery sales figures, whilst on Wednesday we get the Topps Tiles Q2 update, plus the Walgreen Boots Q2 results and the Kroger Investor Day out in the US. The highlight of next week, however, will be the Next finals on Thursday.