Langton Capital – 2021-07-22 – PREMIUM – Britvic, Loungers’ webinar, recovery, passports, Coke, Chipotle & other:
Britvic, Loungers’ webinar, recovery, passports, Coke, Chipotle & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I’ve never seen ‘Discoloured White With Water-Stains’ advertised as a colour on any tins of paint in the DIY shop but, the evidence of my eyes would very much suggest, it’s a colour that we’ve picked out with care and used on multiple occasions over the last few years.
Because that one on our walls, alongside ‘Two-Toned Creamy Grey With Embedded Flies & Other Insects (on our woodwork), seems to have been our hue of choice.
Of course it might be that, in the same way that all Plasticine ends up brown, paints just end up like this no matter how optimistically they start out but anyway, it’s too hot to paint anything at the moment so that’s all very academic.
Before we melt, let’s move on to the news:
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LOUNGERS’ FULL YEAR WEBINAR:
Following the release of its full year numbers, Loungers hosted a webinar for analysts and our comments thereon are set out below:
• For the FY22, LfL sales are +23.7%. This includes a VAT benefit of around 10%. The underlying LfL increase ‘feels like it is around 10%’
• Only 34% of weeks were available in FY21 compared with 90% of weeks in FY20
• H1 was better as the co was open for a greater number of weeks & was helped by EOTHO. H2 was restricted, even before the lockdowns. The weaker margin includes higher company furlough contributions
• The VAT drop is worth 760bps to margin in the year under review. The margin bridge, which is a necessarily busy slide, is no14.
Balance sheet issues:
• Roll-out is now back on track. The group should open 23 this year. Probably 2 Cosy Clubs & 21 Loungers. The run rate will be over 25 a year. The pipeline ‘has never looked so exciting’. Loungers picked up 4 sites as a result of the Pizza Express CVA.
• Whilst not committing itself, the co says it would like to be in a position ‘to open more than 25 sites a year if it chose to do so’. It would add a 5th build team.
• The group does not expect to be opening in Zones 1 or 2 in London but an Ealing site is in the offing
• Further comment: What drives the choice as to what, when & where to open? Return on capital is key metric.
• Will you need to add central costs? Modestly.
• Build cost inflation? Not noticeable at this stage.
• The group illustrates a number of recent openings where rent is running at only between 4% and 6.5% of revenues.
• Underlying net debt was £47.5m at the year end. Due to positive working capital swings, this fell to £25.7m on 11 July
• Interruptions due to the pingdemic have increased. The group lost 30 days of trading last week compared to 43 days in the prior month. Currently, some 61 team members have tested positive and around 150 staff have been pinged
• Very recently, pings have declined. Some people may be deleting the app. The co allows staff to return to work during a ping isolation ‘advice’ period, if they have a negative Covid test
• This week ‘is slightly less bad’ in terms of closed units.
• Recruitment & retention ‘is as hard now as it has ever been’. Brexit has impacted companies that did not have many EU staff due to competitor poaching. Some staff have been lost to Amazon, food retailers etc.
• Lack of accommodation in resort locations is impacting staff availability
Current trading & outlook:
• Demand has been ‘consistently strong since reopening’ and this is particularly the case in staycation locations
• The group has returned to bar service in Loungers, but not in Cosy Clubs. There is no more table service, though the app is still working. It was 70:30 app vs table service. Going forward, it will be 50:50 app & bar service. Masks are voluntary for staff and customers
• The group ‘continues to evolve’. It is looking to increase spend per head in Cosy Club.
• The group has ‘added around 1,000 covers’ via outside space. This is equivalent to ‘six or seven Loungers’. Some will be retained longer term.
• Margin outlook. VAT will rise (in 2 movements), business rates have been partially reimposed. There are staff cost & distribution cost risks.
• There are ‘inflationary risks and government support is beginning to unwind’. The group is edging up prices ‘cautiously’. The ‘overall’ increase is c4%. Three bands, say 2, 4 & 6%.
• Degree of competition? Supply is coming down. Trading is too ‘noisy’ at the moment to say much more.
• Are rents falling? Not much in the South and Home Counties. It’s selective. Choice of sites may be better as there is less competition for sites.
PUBS & RESTAURANTS:
A long road ahead:
• Trade bodies UKH, the BBPA and the BII have combined to say that ‘ongoing Government support essential to help sector meet challenges and rebuild after the pandemic’. The joint release says that ‘the long-awaited easing of restrictions this week does not mark an easing of challenges for sector businesses. Chief among these are major concerns around staffing, the supply chain and tapering of Government support.’ It says ‘furthermore, the current ‘pingdemic’, as a result of the NHS Covid app, means up to as many as a fifth of staff in the sector are isolating at any one time. This is forcing operators to reduce operating hours or to close venues completely, threatening to derail recovery.’
• Further comment: In comments that virtually mirror our ‘Elephants in the Room’ comments (except debts and rents are not mentioned), the bodies focus on a number of issues.
o Staffing. The release says that all businesses surveyed had staff vacancies. Some 84% of these were front of house with a third also short of managers.
o Supply chains. Some 94% of companies responding ‘are experiencing difficulties with their supply chain – 66% have reduced product lines; 63% are seeing delays in deliveries; 60% are experiencing products not turning up.’
o Costs. The release says that 56% of respondents are seeing major price inflation
• So what can be done? With nurses wanting a pay-rise, social care needing funding and (what Dominic Cummings labelled the PM’s crazy) infrastructure projects requiring cash, it doesn’t hurt for hospitality to throw its hat into the ring. The bodies call for ‘additional business rates relief into 2022/23 as the top measure, followed by a continued reduction in hospitality VAT beyond March 2022 and, thirdly, an overhaul of the business rates system.’ Being realistic about it, chancellor Sunak may have something to say about, from the tax collector’s point of view, too much give and too little take.
• The bodies also call for ‘a reduction in the tax on beer and alcoholic drinks, as well as help to address labour shortages experienced by the sector.’ They says ‘the easing of all legal restrictions should mark a progression into the recovery phase for our sector, which has been hardest hit during the pandemic and only now permitted to trade unrestricted and make progress toward rebuilding and paying off accrued debts.’ They concluded ‘for hospitality to begin a sustainable recovery, Government must continue working closely with us in order to put in place the right trading environment, including measures such as further business rates relief into next year and the extension of the lower rate of VAT. This will offer firms the chance to bounce back strongly and help to rebuild fragile consumer confidence. With the right support, hospitality can be at the forefront of the nation’s
• SIBA has written to the chancellor to say that ‘small independent brewers were left in limbo over Small Breweries’ Relief changes.’ It says the ‘changes could see more than 150 small brewers paying up to £44,000 extra per year to the Treasury. They could come into force within months leaving small brewers little time to prepare.’ SIBA says ‘Small Breweries’ Relief is pivotal for brewers’ survival, and we have now faced a year of uncertainty not knowing when changes will be made or how much extra brewers will have to pay.’ It adds ‘this is at a time when pubs have been closed for most of the past 16 months and small brewers are struggling to survive and repay debt. We therefore urge the Chancellor to support the sector and provide the certainty we need by not reducing SBR for those below 5,000hl.’
• Further comment. SIBA quotes economists Professors Geoff Pugh and David Tyrrall as saying that ‘the evidence [concerning Small Breweries’ Relief] suggests that the cost to the taxpayer is compensated by encouraging entrepreneurship and innovation and therefore more varied choice for consumers, job creation, and competition in an otherwise increasingly concentrated industry. The proposals for reform therefore require overwhelming evidence that the claimed benefits do not come at the expense of these actual benefits.’
Covid passports & pingdemic:
• The Morning Advertiser reports that hospitality industry bosses have been left in the dark about the possibility of the Government introducing vaccine conditions for pubs and bars in the autumn. Boris Johnson’s spokesperson said ‘we’re going to use the coming weeks to look at the evidence, particularly both in the UK and globally before making a specific decision’.
• The government has said it is ‘crucial’ that individuals alerted by the NHS Covid 19 app isolate themselves even if they were not contacted by NHS Test and Trace via phone, email or text. This message contradicts business minister Paul Scully, who said bosses and individuals should make ‘informed decisions’ about whether or not to self-isolate.
Company & other news:
• Britvic Q3. Good momentum, some caution as to further development of the pandemic. has reported Q3 revenue of £384.8m, an increase of 22.8% on last year. The company says it has seen ‘revenue growth in all business units’ and adds that ‘year-to-date revenue increased by 3.1% to £1,001.9m.’ Britvic says ‘we continued to deliver strong GB At-Home performance in Q3, with revenue ahead of last year throughout the quarter.’
• Further comment. Britvic says ‘the easing of lockdown restrictions in the UK also led to a significantly improved performance in the Out-of-Home channel and benefited On-the-Go consumption.’ The company adds ‘performance was supported by trade restocking ahead of reopening, as well as continued strong consumer demand for our brands. The reopening of indoor hospitality in the UK in May enabled most outlets to open, albeit with reduced capacity due to continued social distancing measures.’
• Britvic says ‘overall, while our product and pack mix has improved in the quarter, it has not yet returned to pre-pandemic levels. As we approach the critical summer trading period, we anticipate making further progress through the rest of this year and delivering profit within the range of current market expectations.’ CEO Simon Litherland says ‘performance in Q3 was encouraging, as we benefited from the easing of lockdown restrictions, while also continuing to perform well in the At-Home channel. Some degree of uncertainty remains for now, however, as the full course of the pandemic is still unknown.’
• Litherland says ‘the momentum we had built up going into the pandemic has stood us in good stead throughout, and I am confident that we will continue to navigate our way through it successfully.’ He concludes ‘we remain committed to rebuilding investment behind our portfolio of market-leading brands’ and says ‘we remain confident that our strategy is fit for the future and will continue to drive growth and create sustainable value for all our stakeholders.’
• Coca-Cola Co has reported on Q2 saying that the company was raising its full year sales forecast after beating numbers to date. Sales in some markets in Asia were impacted in Q2 by the resurgence of the virus. The company rose adjusted overall revenue by 41.1% in Q2 and raised its annual organic revenue target to an increase of 12% to 14%, from the high single digits rise expected earlier. Annual adjusted earnings per share are expected to rise 13% to 15%.
• Chipotle has beaten Q2 sales & earnings forecasts but warns that higher beef and freight costs will offset the benefit of prices rises. The company says ‘Q3 is going to be challenged by several industry-wide issues.’ Sales were up 31.2% on last year (estimates +29.4%) with margins up to 24.5% from 12.2% in Q2 last year. The operator opened 56 new locations during the quarter.
• Remy Cointreau says it expects an ‘excellent’ first half due to the ‘shipment phasing effects’ and better consumption trends in the US alongside soft comps from next year. The company says it ‘remains confident in its ability to outperform the exceptional spirits sector.’ Sales in Q2 were up 105% to €293.1 million.
• Consumer spending. Chancellor Sunak has been told by the IFS that he will have to either raise taxes or cut spending.
• Further comment. The government has thus far said that it would do neither but either one or the other would cut consumers’ ability to spend. Spending is still running ahead of pre-pandemic levels and, re the tax take, the economy is 3% smaller. The IFS says ‘our forecasts suggest the Chancellor has almost no additional wiggle room for permanent spending giveaways if he is to remain on course to deliver current budget balance.’ It adds ‘this suggests a very difficult spending review. Any additional spending to meet the demands and cost pressures from Covid, or to meet pre-existing spending demands such as for social care, would potentially require spending cuts elsewhere or further increases in tax.’
• Top Hat, a ‘Monopoly’-themed restaurant, is to open at The Court on Tottenham Court Road, London.
• Fountain Beverage Co.’s Hard Seltzer is to commence a multi-million-pound investment campaign. UK Partner, Jon Hamm, comments that ‘as a successful start-up in the U.S we are delighted by the momentum of Fountain in the UK. There is a huge amount of potential here.’
• Big Hospitality reports that Market Halls is launching a £1m crowdfunding campaign on Seedrs early in August. The London-based food hall operator currently has three locations; Victoria, Fulham and the West End and plans to launch a site in Canary Wharf next year.
• Cobra Coffee has acquired Amsric Ltd, a Starbucks franchisee with 12 stores, taking the total number of Starbucks stores Cobra operates to 47.
• JTF Mega Discount Warehouse has entered administration after a potential takeover deal collapsed at the last moment. JTF is a retail discount chain with 12 outlets across the Midlands and North of England, selling toys, health and beauty products and home and garden furniture.
HOTELS & LEISURE TRAVEL NEWS:
• Per the Guardian, basic checks on people arriving in England from green and amber list countries will no longer be required by border officials, according to leaked instructions. One officer said ‘The only rationale for this change is to speed up queue times when travel is expected to increase. At a time when the country is unlocking, this is the time when we should be using every tool available to mitigate the risks, not turn a literal blind eye’.
• Travel Supermarket has said that Lanzarote is the best value package holiday destination for a last-minute peak summer holiday.
• STR reports that the US hotel industry recorded its highest monthly occupancy and revenue per available room (RevPAR) since October 2019 in June. It says occupancy was 66.1% with rates $129 and REVPAR $85.31. STR says ‘in addition to higher occupancy and RevPAR levels, ADR was the highest for any month since February 2020. While year-over-year percentage changes show significant increases because of comparison with a pandemic-affected period in 2020, the country’s performance levels remained below the pre-pandemic comparable of June 2019: occupancy (-9.8%), ADR (-4.0%) and RevPAR (-13.4%).’
• IATA reports that 89% of respondents in 11 countries would like to see a global standard for Covid vaccines, testing and certifications. IATA says ‘almost two thirds of respondents plan to resume travel within a few months of the pandemic being contained and borders opened. And by the six-month mark almost 85% expect to be back to travel.’ It adds ‘to avoid overwhelming airports and border control authorities, governments need to agree to replace paper-based processes with digital solutions like the IATA Travel Pass for vaccine and testing documentation.’
• ‘Escape the Everyday’ a UK-wide campaign to drive domestic day trips and overnight breaks is being accelerated with the launch of more than 1,200 digital billboard adverts showcasing activities and experiences in cities across the UK alongside radio adverts.
• The Caterer reports UK hotel property deals bounced back during the first half of 2021. Total hotel investment volumes reached £1.7bn across 59 deals between January and June 2021, an increase of 135% compared to the previous six months. The figure is below the pre-pandemic five-year average of £2.43b for the same period.
• Carnival Cruise Line said it hopes to resume sailings on its entire fleet by the end of the year, which would add another nine vessels, totalling 63 ships.
• Netflix confirmed it is moving into video games as it reported a sharp slowdown in subscriber growth, adding only 1.5 million subscribers in the April-June quarter compared to 10 million in the same period a year prior. Netflix said the pandemic had resulted in “unusual choppiness” in its growth.
FINANCE & MARKETS:
• UK government borrowing. The ONS reported yesterday that net government borrowing in June was £22.8bn. Though down on last year, this is the second-highest June borrowing since monthly records began in 1993. Tax receipts were £62.2 billion with central government spending of £84.1 billion (the latter is £2.5 billion more than in June 2020.) The shortfall of income vs expenditure will need to be born in mind when estimating whether the chancellor can continue making payments and concessions to the hospitality industry.
• Further comment: The ONS says ‘expressed as a ratio of GDP, public sector net borrowing in FYE March 2021 was 14.2%.’ Total government debt is now £2,218 billion…or around 99.7% of GDP, the highest ratio since the 102.5% recorded in March 1961.’ The government spent a record £8.7bn in interest on covering its debts in the month. The BBC says ‘the reason was a surge in inflation, which raised the value of index-linked government bonds.’ Accountant KPMG says ‘we still expect borrowing to undershoot the OBR’s latest forecast for this year. But we are not out of the woods yet, with the recent surge in Covid-19 cases putting some parts of the economy at risk of further restrictions later in the year and the uncertainty around the impact of phasing out the furlough scheme on unemployment.’
• The HMRC reports that 213,120 property sales were completed during June, more than twice the total in May.
• Lord Frost has said that the Northern Ireland protocol, which he negotiated, is not working. The EU has refused the UK’s demand to negotiate it again.
• Sterling up at £1.3714 and €1.1624. Oil up at $71.15. UK 10yr gilt yield up 5bps at 0.61%. World markets better yesterday and London set to open up by about 12pts as at 7am.
RETAIL WITH NICK BUBB:
• Today’s News: Today’s Howden interims (for the 24 weeks to 12 June) by last week’s update and profit upgrade, with H1 profit before tax of £119.2m bouncing back strongly from the loss of £14.2m a year ago (vs a H1 2019 profit before tax of £78.1m), reflecting the strong sales growth (UK same depot revenue was up 67% on 2020 and up 15% on 2019). There is also, however, an update on trading in the Period 7 of the financial year, ie the 4 weeks to July 10th, with UK same depot sales up by 30% and Howden say “We have performed strongly through the first half, ahead of our original expectations as we continue to benefit from our in-stock model and product availability. Whilst we have also seen significant cost inflation resulting from Brexit and COVID-19 related disruption, we have been largely successful in mitigating these with price increases and supply chain management,
• Planet ONS Watch: In “the real world”, as per the BRC-KPMG figures for June (the 5 weeks to July 3rd), underlying Retail Sales were strong again last month, despite the tougher comps from a year ago, but we will find out at 7am tomorrow morning what “seasonally adjusted” life was like on the High Street on that strange parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures…Now, City economists (who treat the dubious-looking ONS figures as the gospel truth) generally expect an increase of 0.8% in month-on-month seasonally adjusted sales volumes (including petrol), but our friends at Capital Economics have gone out on a limb with a forecast of -2.0% (albeit that would still be +7.5% year-on-year), for what it’s worth. We will, as usual, be ignoring these silly month-on-month sales volume figures…and focusing, as usual,
• This Week’s News: Tomorrow brings the monthly GFK Consumer Confidence index and the ONS Retail Sales figures for June (see above).