Langton Capital – 2021-05-27 – PREMIUM – Trading patterns, staffing, Oakman Inns, green list, MGM & other:
Trading patterns, staffing, Oakman Inns, green list, MGM & other:
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A DAY IN THE LIFE:
Many a slip, as they say, twixt cup and lip and, as if to prove the above, my phone rang yesterday as I was attempting to lever a cup of hot coffee from its resting place on my desk to my gob.
With entirely foreseeable results as the shock (really shouldn’t have been too much of a shock, it’s a phone, it rings occasionally) meant I failed to both hold the cup perpendicular to the floor and answer the phone at the same time and, as I seem to have prioritised the latter over the former, I found that I had to sit for five minutes or so, talking in business-like tones, with a triangle of thankfully cooling beverage puddled between my legs.
And that’s not a good look as it could easily either get mistaken for an accident of an altogether worse sort or attract the unwelcome attention of the dog, who’s a filthy beast at the best of times.
Anyway, soon mended and, as it stopped raining late afternoon, I was able to give myself a bit of an airing out of doors. On to the news:
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PUBS & RESTAURANTS:
• ‘Variant of concern’ comments:
• The Morning Advertiser has reported that the eight areas highlighted as having growing number of Indian variant Covid-19 cases (Bolton, Blackburn, Kirklees, Bedford, Burnley, Leicester, Hounslow and North Tyneside), have seen a growing number of cancellations of bookings. Advice, and it is just advice at this stage, that indoor gatherings should be avoided, has done the damage. UKH’s Kate Nicholls says the government advice ‘has quite clearly caused a considerable amount of confusion and uncertainty amongst residents and businesses in these areas. This has a considerable knock on effect on the hospitality sector, damaging consumer confidence meaning operators now face the prospect of lost bookings and sales.’ The government has denied that it is attempting a lockdown by stealth. PM Boris Johnson has said that his roadmap out of lockdown is ‘cautious and irreversible’.
• Day parts:
• A number of operators said, when they were allowed to open for outdoor trading only, that a) drink sales were trumping sales of food and that b) trading volumes tailed off relatively sharply in the evening. This is not surprising re a) because food requires a bigger time (and money) commitment than does a drink on the part of the consumer and re b) the weather was cold and it got colder when the sun went down. See comment on May and indoor trading below.
• Langton comment: The UK Met Office reports that, in April, ‘the provisional UK mean temperature was 5.7 °C, which is 1.7 °C below the 1981-2010 long-term average, with April being colder than March for the first time since 2012.’ The drop below the mean is the largest for any month since Langton kept these records, i.e. 2015. The Met Office says ‘the number of days of air frost across the UK was the highest in a series since 1960.’ This came at a price to Langton, ever-hopeful in the face of Yorkshire weather, as it killed our runner beans and courgettes.
• May has been very, very wet. The Met Office hasn’t got stats for May yet – though it has said that, with a week to go, some areas were already recording their wettest Mays for 100yrs plus. Re April, the Met Office says ‘many areas were very dry’ and this was ‘the UK’s fourth driest April in a series from 1862. Sunshine was well above average everywhere, especially across northern England and southern Scotland.’ Seems like a distant memory.
• Evening sales:
• As operators can now serve indoors, the weather should have a lesser impact. However, there are comments coming in from operators, trade bodies and customers to suggest that lunchtimes are busier (relative to 2019) than are evenings.
• Langton comment. This from a reader ‘Mark, quick anecdote. I went out for dinner in Covent Garden last night. Everywhere felt very buzzy and normal from 7-8.30 and then it just emptied. By 9pm the whole place felt deserted. We went in search of an after dinner drink and ended up having to go to another restaurant for a glass of wine (sticks and sushi). The waitress there confirmed that it tends to be really busy from 6-8 then it empties.’ This seems to be something of a theme. It is (probably) unlikely that behaviour has changed permanently.
• Tweet yesterday: Staffing issues (sourcing & cost) now big deal for hospitality. More London & city centre thing than suburban/provincial, but impact could spread. Re staff, if you don’t use it, you might lose it. Hence, made sense to open for delivery/outdoor even if not strictly profitable.’ The MA quotes accountants RSM as saying that it believes the number of job vacancies in hospitality has increased by 46% in the last two weeks. The MA says ‘licensees have said they are struggling to recruit chefs and worried staff shortages will hit their businesses hard as they try to recover from pandemic losses.’ It adds ‘what’s more, pub operators have also been faced with increased labour requirements to meet rigorous health and safety requirements such as asking for customer contact details and regular cleaning.
• Langton comment: The future is unknown and may be unknowable but it’s hard to see how this doesn’t lead to inflation, at least in the short term. We know we’re pushing on string here (the force is in a certain direction but the outcome is less certain) but wage pressure could ripple out from city centres and London, staff prices may be bid up, shortages (typically of chefs) could become an issue and operators may compete for staff. They could then look to preserve margins and selling prices could rise. This will coincide with the two upcoming rises in VAT, some of which may be passed on to consumers etc.
• Whether this ‘sticks’ or not is one for the pointy heads in the Bank of England to worry about. The ‘Wall of Money’ might mean that customers are indifferent in the short term. And capacity will be reduced so, with less supply, prices may naturally be higher but, as spending patterns normalise, customers may see that their money is buying them less and ask for pay rises from their own employers. At this point, it could get baked in but, beyond that, we’ll have to dig out our 1970s text books to remind ourselves what happens.
• The March edition of the CGA Prestige Foodservice Price Index ‘reveals [the] first signs of a return to inflation.’ It says ‘inflation is starting to return to food and non-alcoholic drinks after months of falling prices’ and adds ‘March figures from the Index show a firming of prices year-on-year as lockdowns moved towards loosening and deflationary pressures related to Brexit receded. As hospitality gradually restores full service and government policy regarding public sector debt, taxation and inflation becomes clearer, it is expected that prices will continue to increase month-on-month.’
• Langton comment: The numbers, though not given here, are thought to be modest. The moves are more akin to a change in direction (from mild deflation to inflation) rather than an immediate move to higher prices – but that in itself is important. Inflationary pressures have been spotted in fruit, meat and bread. Shaun Allen, CEO of Prestige Purchasing, said: “We expect prices to rebound as volumes recover, probably to above 2020 levels as the year progresses’ and adds that operators ‘should also avoid taking a renewal of pre-lockdown supply for granted, as the commercial impacts of the Winter lockdown have been harmful to many supplier balance sheets.’
• CGA adds ‘the return of hospitality is a huge relief for operators, the foodservice sector and consumers alike. However, the sector faces a long road back to profitability, and the signs of inflation will be unwelcome for businesses already facing a host of other challenges.’ Inflation is sometimes derided as simply an irritant. It costs shoe leather to haggle about cost increases and then pass on price rises. But it is more than that as it shifts the balance, disadvantages the weak and punishes individuals and firms on fixed incomes. It encourages debt and discourages savings. CGA is thinking about product prices alone when it says ‘keeping a close eye on pricing trends and developments and responding nimbly will be crucial to the recovery process over the remainder of 2021.’
From the archive:
• This tweet was written on 3 April 2020. Over a year ago. Shows both how much and how little we knew at the time. ‘Long Easter Weekend coming up shortly but will we even notice? Or are the weeks descending into some sort of formless mush? Looks easy on paper but it could be hard to spark up the old engine again when this lot stops.’
Company & other news:
• Community pub company Hawthorn has announced the appointment of Colin Rutherford as the company’s new Chairman. The company notes ‘Colin, 62, is an experienced Chairman and Non-Executive Director and has many years of relevant experience in the pub and hospitality sector, including at Mitchells & Butlers plc where he has been a Non-Executive Director for 8 years.’ CEO Mark Davies adds ‘Colin brings a lot of industry knowledge and corporate finance experience to our Board and is very alive and ambitious to the opportunities ahead and I’m delighted with this important appointment.’
• Langton comment: The 700-strong Hawthorn estate has been put up for sale by its owner, New River REIT. Sky News reports that ‘Admiral Taverns, one of Britain’s biggest privately-owned pub groups, is plotting a takeover of’ the company. It says ‘Sky News has learnt that Admiral is among several parties expected to table offers for Hawthorn Leisure ahead of a deadline on Friday’ and adds ‘a deal is expected to value Hawthorn at between £200m and £250m.’ Some other sources have suggested that an IPO is the favoured exit route but, whatever the truth of the matter, ‘dual-tracking’ (i.e. preparing for both an IPO and a potential trade or financial sale) is well-established practise across corporate brokers. The appointment of a chairman would be consistent with an IPO. If Admiral buys Hawthorn, on the other hand, Mr Rutherford’s appointment could be rather a short one.
• Hawthorn uses the announcement to comment on its estate. It says ‘with a focus on well-located community and suburban pubs, the Hawthorn estate is well placed to benefit from consumers working from home and using their local services and facilities. Hawthorn expects its pubs to lead a strong bounce back, as seen in the summer of 2020 when on re-opening Hawthorn pubs outperformed the sector.’ It adds that ‘throughout the pandemic, Hawthorn’s focus has been on continuing to protect and support its people and pubs. The business has maintained significant support to its partners and operators.’
• Oakman Inns has reported accounts to June 2020 to Companies’ House saying that ‘as with the rest of the Hospitality Industry, performance in the year was severely affected by the impact of the Covid-19 pandemic.’ The company says ‘prior to the enforced closure of the business the Company had been trading well with LFL sales growth of +4% and total sales growth of 13%.’ It adds that the group produced an EBITDA loss for the year of £2.6m and a total loss of £13.9m to leave it ‘with net liabilities of £10.8m, a figure that increases to positive assets of £13.6m after reclassification of shareholder loans as shareholder funds.’
• Oakman says ‘there has been significant post-Balance Sheet activity and the Company is stable, well-funded and ready for further growth’ and adds it ‘is on course to make a substantial EBITDA profit in 2020/21.’ The group, since its year end, has raised £9m of equity (split between £4.9m of new funds and £4.1m of shareholder loan conversions) and says it ‘Will have opened eight new sites by the end of June bringing the total number of sites to 35’ by the current financial year end.’
• Re reopening, Oakman says ‘when we were allowed to trade, our results were on average over 40% ahead of the market, suggesting that we have understood changes in consumer behaviour of which, post-pandemic, we are well placed to take advantage.’ Executive Chairman, Peter Borg-Neal, says the group is ‘grateful for the Government’s financial support’ and says ‘we are very well placed to take advantage of the strong consumer demand we anticipate in the year ahead and are placing no limitations on the scale of our ambition.’
• Langton comment: Oakman maintains that has the infrastructure in place to operate a larger chain and the company, admittedly in common with a number of others, is on the lookout for suitable sites. The company intends to have around 35 sites by the end of its current year (in June) with perhaps 40 next June. Oakman says that it would like, over the medium term, to create some sort of liquidity in its shares. The company is considering a listing, though it does not foresee the need to raise further funds.
• The Real Eating Company has said that it intends to add 15 additional sites over the next three years to take its estate to 25 coffee shops.
• Sidechick is to open its first London venue in Marylebone.
• Payment system Paysend in the US has closed a Series B funding round of $125m.
HOTELS & LEISURE TRAVEL:
• The BBC reports that Ryanair and EasyJet have refused boarding to some passengers who have taken the wrong Covid test. Ireland requires a RT-PCR test before departure, for example. PCR tests need to be sent away to a lab to be checked, and you are later informed of the results. This will do little to improve consumer confidence when it comes to travel.
• Royal Caribbean Group has announced that it ‘has received approval to resume sailings from the United States after more than a year of suspended operations during the COVID-19 pandemic. On June 26, the cruise company will mark a long-awaited return with Celebrity Cruises’ Celebrity Edge departing from Port Everglades in Fort Lauderdale.’ The company says ‘after months of working with the U.S. Centers for Disease Control and Prevention and other government officials, our Healthy Sail Panel and industry partners, we can again offer cruise lovers the chance to enjoy the wonders of cruising.’ The group says ‘all sailings will depart with vaccinated crew and everyone over the age of 16 must present proof of vaccination against COVID-19; as of August 1, 2021, all guests ages 12 and older must present proof of vaccination.’
• Uber has agreed to recognise a trade union for the first time in the UK. The GMB union will be able to represent UK drivers in discussions over earnings and benefits. The GMB says re its relationship with Uber ‘we’ve always agreed that drivers must come first, and today we have struck this important deal to improve workers’ protections.’ It is not likely that prices will go down as a result.
• Industry leaders, including the bosses of easyJet, Jet2, Tui UK, Airlines UK, Abta and Manchester Airports Group, have written to PM Boris Johnson saying that the green list must be expanded. They say ‘safe travel is possible and an urgent expansion to the green list is justified, including to many European countries, the US and Caribbean.’
• Travel Weekly quotes Alan Bowen, legal advisor to the Association of Atol Companies, as saying ‘consumers are confused beyond belief, when the one thing we need is consumer confidence.’ He adds ‘consumers think the government advice is not to travel.’
• Grant Shapps seems to have suggested that island destinations such as the Canary Islands and Majorca could be placed on the UK green list of destinations from 7 June. No10 had previously said that the green list, if it was extended at all in the short term, would not be adding many names.
• Meanwhile, France has introduced a quarantine period for arrivals from Britain due to the Indian variant. Austria and Germany have banned tourist visits from the UK.
• Iata has called for governments to agree on standardised Covid-19 vaccination and test certification saying that, if checks need to be manual, there will be “chaos” at airports. DG Willie Walsh says ‘we need a digital solution to take volumes of activity away from airports or we’ll have chaos on departure and chaos on arrival.’ Walsh warned of “significant airport disruption on the horizon”.
• Ryanair and easyJet say they will appeal against a decision by Italy’s antitrust authority to fine them millions of pounds for not refunding customers in cash for cancelled flights.
• PE house Marathon Asset Management has bought a 17-hotel portfolio of hotels in the UK from Cerberus Capital Management for £180m. The portfolio comprises 15 Holiday Inns and two Crowne Plazas.
• Airbnb boss Brian Chesky has told CNN that he does not expect business travel will return to recent highs any time soon. He says this ‘doesn’t mean business travel is dead, just business travel as we knew it isn’t coming back the way it was.’ He says ‘the reason why is the bar is higher to get on a plane to do a meeting.’
• Amazon has confirmed leaked stories that it is to buy MGM studios (including its film library) for $8.45bn. The purchase will give Amazon Prime access to a huge back catalogue of content. Amazon says ‘it’s very exciting and provides so many opportunities for high-quality storytelling.’
• Indian Twitter rival Koo has raised $30 million in a financing round led by Tiger Global Management.
FINANCE & MARKETS:
• Sterling mixed at $1.4115 and €1.1576. Oil lower at $68.58. UK 10yr gilt yield down 4bps at 0.75%. World markets slightly lower yesterday but London set to open up around 4pts this morning.
RETAIL WITH NICK BUBB:
Today’s News: Pets at Home appear to have taken PR lessons from M&S as their final results statement today (for y/e March) is headlined “A step change in our journey to become the best pet care business in the world”. Underlying PBT of £87.5m was 6% down (after repaying £29m of Business Rates relief), but an “estimated 8% increase in UK pet ownership over the past year has raised the outlook for growth across our addressable market” and, after a strong start to the new financial year, the company has been confident enough to forecast underlying PBT in the range of £120m to £130m for this year. Frasers Group, by way of contrast, appear to have taken no PR lessons, as they pushed out a one-line statement at c6pm last night to say that they have no intention of bidding for the well-respected German designer brand Hugo Boss, even though the bid rumours have been around since Friday and