Langton Capital – 2021-08-16 – PREMIUM – Reopenings, Redcat, Pret, CCH, Inn Collection, TUYI, ROO & other.:
Re-openings, Redcat, Pret, CCH, Inn Collection, TUYI, ROO & other.:
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A DAY IN THE LIFE:
Plenty to talk about over the coming days regarding hospitality’s near term opportunities and challenges.
Staycationing in North Yorks and the Peak District provided illustrations of both but, just for the moment, we find ourselves a bit pushed for time after scrolling through newsfeeds, emails and the like to blow off the dust.
Hence, stopping only to mention that the Mighty Hull City’s brief sojourn at the top of the Championship is over for the moment and, if we pick up red cards and ship goals at the wrong end of the pitch like we did on Saturday, we won’t be challenging for promotion any time soon, we’ll move on to the news:
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PUBS & RESTAURANTS:
• The latest Market Recovery Monitor from CGA and AlixPartners has reported that ‘more than 7,000 licensed premises have not yet returned after last month’s ‘freedom day’. The Monitor says ‘while it is expected that some are still planning their restart or are waiting for trading conditions to improve—especially in Scotland and Wales, where restrictions were lifted later than in England—others are unlikely to open again.’ More than nine units in every ten that existed pre-Covid are now open. The Monitor says ‘the wave of re-openings was partly triggered by ‘freedom day’ in England on 19 July, which allowed many venues, especially nightclubs and late-night bars, to trade for the first time since March 2020. Across Britain, 98,790 licensed premises were open by the end of July—93.0% of the total known sites.’
• A little flavour. The Monitor says that 98.1% of food-led licensed premises were reopened by the end of July, compared to 91.4% of drink-led sites. It says that chains have reopened more units than independent operators. The former have 98.7% of their units open and only 89.9% of single-site traders are open.
• Further comment. CGA’s Karl Chessell says ‘it’s very promising that well over nine in 10 venues are back open again. Trading numbers are now at their highest point since COVID-19 hit, and a modest but steady flow of new venues suggest that the worst of the crisis may now be behind us. However, with so many sites yet to reopen, more business failures are inevitable. Thousands of businesses remain vulnerable, and their future will now depend on how well they can overcome major challenges such as the high debt levels many have. Consumers are returning to the sector and the pent-up demand is favourable, so getting through the early stages of the recovery is critical for these businesses.’
• Graeme Smith, AlixPartners’ MD says ‘the long-awaited freedom day marked the beginning of a new chapter for hospitality with the focus for operators now shifting to securing a return to viability after almost 18 months of closure and heavily restricted trading. But over 7,000 sites remain in limbo and the question now must be whether these venues will ever reopen under their current ownership or be lost permanently. The well-publicised challenges in the market around labour and product supply only add to a complex picture during what should be peak trading season, with operators across the country taking drastic action through reducing their hours or closing as a direct consequence of these issues.’
• CGA and AlixPartners are expert in what they do but the 93.1% seems a little high to us, certainly in terms of ‘capacity’. It may be that 93.1% of units are open in some shape or form but, with reduced trading hours and restricted capacity in some cases, the number of covers (or the drinking equivalent) may be markedly lower than the 93.1% suggests. It could be that we are comparing apples with oranges to some extent as, in reality, ‘pre-Covid’ tends to mean ‘2019’ and there were a number of CVAs and selective site closures between that year and the beginning of the Covid pandemic.
• UK Hospitality last week highlighted the contribution made by the reopened hospitality sector to Q2 GDP numbers. UKH says ‘these figures not only show the importance of the hospitality sector to the UK economy, even in the severely restricted and beleaguered state it was in during the second quarter of this year, but also demonstrate its real potential to power a wider economic recovery now trading restrictions have finally been eased after almost 18 months.’ GDP was up by 4.8% between Q1 and Q2. Kate Nicholls continues ‘this was not a period characterised by booming sales and plain sailing for the sector, but many weeks where businesses were still operating under strict restrictions and experienced a multitude of challenges brought about by the pandemic.’
• Further comment: UKH says ‘the sector collectively lost over £100bn in sales across the course of the pandemic – a truly staggering figure.’ It says ‘we urge the Government to continue to work closely with businesses to help them navigate the challenges that we will undoubtedly face in the months ahead and to create a business landscape that will help return businesses to profitability as quickly as possible. Measures we are calling for include the urgently needed reform of business rates and a permanently lowered rate of VAT.’
• CGA reported last week that ‘sales in the contract catering sector grew by more than two thirds in the second quarter of 2021 as the sector continues its recovery from COVID-19 lockdowns.’ It says ‘sales from April to June 2021 were up by 69% on the same three months in 2020, when the UK moved into a full national lockdown. Year-on-year sales growth grew at a higher pace from April into May and June — months in 2020 when the majority of venues served by contract caterers, like schools, universities, offices and sporting venues, were closed.’ However, on a rolling 12-month basis, ‘sales in the year to end-June were 38% below the previous 12 months.’ CGA says ‘this demonstrates the huge impact of on-off closures of private and public sector spaces on the contract catering sector over 2020 and 2021.’
• Further comment: CGA says ‘after a devastating 2020 and early 2021, these numbers are encouraging signs that the contract catering sector’s recovery is underway. With many people continuing to work from home, it may be some time before sales get back to pre-COVID-19 levels, but the gradual return of education, leisure, and event catering over the second quarter has been a positive start.’ It says ‘we can be optimistic that demand will continue to pick up over the rest of 2021.’
• The MA quotes the latest data from Centre for Cities’ High Streets Recovery Tracker as saying that Freedom Day has provided a much-needed boost to the pubs, restaurants and nightclubs in many cities. It says night-time footfall in the centres of the UK’s 63 largest cities and towns rose by 16 percentage points.
• Further comment. This is a) helpful but b) late in the day. Interestingly, the survey also touches on staycations, saying that only two geographies have recovered to their pre-pandemic levels of footfall: Blackpool and Bournemouth.
R rate and infections:
• The NIESR has commented on rising infections saying that it is ‘likely that some of the increased infection transmission resulting from step-4 reopening are becoming evident only now in the data, following the incubation period of the virus which ranges from 2 to 14 days.’ Covid vaccines ‘are highly effective at averting severe illness and death’ meaning that mortality numbers are lower than would have been the case with similar levels of infections a few months ago.
• Further comment: The NIESR says there has been a ‘marked increased social contact.’ It says ‘we consider this the predominant reason for the muted reversal in the decline in cases that become evident recently.’ No prizes for concluding that but, with deaths and serious hospitalisations lower than would previously have been the case, the mood music does suggest that the relaxation of restrictions is not presently under threat.
Industry trends & other news:
• Lumina Intelligence reports that pubs accounted for 15% of total eating out occasions in the four weeks to 11 July 2021. Some 50% of the population are eating out. It says average spend is up 2.6%.
• Further comment: Not sure whether this is pre or post VAT. It makes a difference. Lumina says ‘with many consumers remaining cautious amid rising coronavirus cases in June/July, participation and frequency of eating out remained stable.’ It adds ‘however, a shift towards pubs and bars and restaurants from lower-ticket solutions like retail and coffee shops has driven an increase in average spend per visit. Pubs will have no doubt capitalised on the recent success of the England team at the Euros.’
• Beer deliveries could be under threat due to strike action by delivery drivers. Union Unite has said there will be two 24-hour strikes on Tuesday 24 August and Thursday 2 September. There will also be an overtime ban and a work to rule.
• Further comment: This is the entirely predictable outcome of a shortage of staff. A pinch-point has been created and Unite has been quick to spot it. Muscles may be flexed and income reallocated from some parts of the economy to van drivers. This may or may not impact GDP but, what it will do, is change how it is shared out across the players. The Road Haulage Association comments on the shortage of HGV drivers saying ‘we keep seeing the 100,000 driver shortage figure, that’s quite a conservative estimate.’
• Working from Home. The BBC reports that Google may cut the wages in the US of employees who opt to work from home permanently.
• Delivery issues. KFC has warned that supply chain issues are disrupting deliveries of both food and packaging materials.
• Sport in pubs. CGA reports that 30% of consumers watched sport in pubs in the first ten days’ trading after Freedom Day.
• Spring frosts in France alongside heavy summer rains mean that this year’s grape harvest will be ‘historically low’.
• RedCat Pub Company is reported set to acquire The Coaching Inn Group. The MA says this is ‘for a rumoured £50m’. Quite whether this is EV or equity value or post-new money isn’t clear. Coaching Inn Group operates 18 coaching inns across the UK, largely in historic market towns. The group was founded by Kevin Charity in 1996 and secured investment from BGF in 2015. The purchase sees RedCat, former Greene King CEO Rooney Anand’s vehicle backed by Oaktree Capital Management, move to 60 sites. Mr Anand says ‘I’m delighted that The Coaching Inn Group is becoming part of RedCat.’ He adds ‘I look forward to building our pub hotels business and building our business together.’
• Pret a Manger is in the news for a number of reasons. It has said it will open 100 new shops nationwide with franchisees. It has also said it will make permanent what had been an effective pay cut by not paying workers during their breaks. However, it has said that a ‘good service bonus’, which was based on mystery shopper reviews and which was paused last year, will be reinstated. It had first done this at half the rate of previous years – but has now made this whole.
• Further comment: The move to franchised units will be a new one for Pret. The company sees it as a way to open more rapidly in sites outside of its London core market, which has been hit hard by the drop in office and tourist footfall caused by Covid. The group is in talks with possible franchise partners. The company highlights the attraction of the provinces when it says ‘in some areas such as regional towns and parts of northern England, our shops are busier than they have ever been.’ It adds ‘we’re looking to establish new partnerships with franchise partners to bring Pret to more people in towns and travel hubs across the UK, and we’re also looking at where we can open more shops which we run directly.’
• Wendy’s in the US is to grow its partnership with Reef Technology and aims to open 700 delivery kitchens over the next five years. Most will be in the US with some in Canada and the UK.
• Amazon is reported set to launch its own-brand food lines for sale.
• Moody’s has reported that Coca-Cola HBC AG’s agreement to acquire approximately 94.7% of Coca-Cola Bottling Company of Egypt, which should close in the fourth quarter of 2021, is credit positive ‘because it will increase CCH’s geographic diversification and expand its operations to Egypt, a country with high growth potential. It will also reduce the group’s leverage, because the transaction will be mostly funded with existing cash while adding EBITDA of about €50 million-€60 million from the acquired assets, by our estimates.’
• McDonald’s is to oblige its office workers get vaccinated against COVID-19. This will delay the return to the office from Sept. 7 to Oct. 11.
• The Inn Collection is to convert the landmark Dean Court Hotel near York Minster. The acquisition will take the estate to 25 units. Inn Collection Group MD Sean Donkin says ‘the Dean Court Hotel is an extraordinary site. We are absolutely delighted to be adding this spectacular venue and its team into our collection. It matches our pubs with rooms blueprint in every way, offering our expanding customer base an unrivalled location with a phenomenal USP in its proximity to York Minster. We have had York in our sights for a considerable time and are looking forward to operating here and welcoming the Dean Court staff team and customers into The Inn Collection Group family.’
• Gordon Ramsay is to open his first Bread Street Café in Ealing Broadway on 23 August reports The Caterer.
• See Finance & Markets for comment on inflation, petrol prices and the shortage of labour in the US. Note also that McColl’s profit warning referenced shortages caused by a lack of lorry drivers. Also, the ICAEW mentions that Covid will still be putting pressure on the Treasury in 20yrs’ time. It’s worth remembering this when considering how it will react to calls for further support such as VAT reductions, business rates suspensions etc.
HOTELS & LEISURE TRAVEL NEWS:
• An ABTA poll suggests that around a third of holidaymakers have booked an overseas holiday this summer with 41% doing so at some point in the next 12 months. However, 26% of people believe that foreign travel should still be banned. ABTA says ‘as an industry, we know that the demand to travel abroad is there – and has been for quite some time.’ It adds ‘this is certainly reflected in the fact that a third of people had a foreign holiday booked for this summer and more plan to head off overseas in the next 12 months.’
• The cost of NHS coronavirus tests for international arrivals in the UK has been reduced from £88 to £68 for people arriving from green-listed countries.
• TUI has reported an “enormous rebound” in working capital as a result of holiday bookings and says that it is “no longer burning cash.” See comment on H1 numbers under recap below.
• Indeed Flex reports that demand for hotel staff rose by 21% in just one week following the easing of some travel restrictions.
• Further comment: A convoy can only move at the speed of its slowest member. If it doesn’t, it becomes an untidy straggle. In the context of the hotel market, the pinch point might swing from being ‘permission’ (i.e. the legality or otherwise of travel) towards staff availability.
• Sykes Holiday Cottages has acquired a Gwynedd-headquartered competitor, Abersoch Quality Homes.
• Onboard spend. This has risen sharply, says Norwegian Cruise Lines. Perhaps passengers are less keen to go ashore?
Airlines & airports:
• IATA reports that the global airline industry lost $126bn last year with revenues falling by around $421bn.
• The CAA forecasts a “further recovery” in passenger numbers as restrictions are eased. It says 6.3m passengers flew in and out of Britain during the quarter compared with 3.4 million during January to March.
• However, Gatwick Airport is reported to be in talks with its bank lenders to avoid defaults as major losses continue. It says the government should simplify its rules and adds ‘the UK is in danger of continuing to lag behind Europe and the US whose much simpler travel rules are enabling passengers to travel more freely and enjoy much needed breaks and reunions with family and friends.’
• Heathrow says July passenger numbers were up 74% on the same month last year. It says, however, that ‘the cost of testing in the UK remains prohibitive for many, as industry calls for VAT to be scrapped, alongside the use of cheaper lateral flow for low-risk destinations. This will keep people safe and will avoid travel becoming the preserve for the wealthy.’
• Airbnb has reported Q2 numbers saying that it now has a record number of listings with over four million hosts. The company says ‘the way that people travel and live continues to change. We believe that many of the new booking trends that emerged over the past year are here to stay.’ The company reduced its net loss for the quarter to $68 million, an improvement of $507 million compared to the second quarter of 2020 and an improvement of $229 million compared to the second quarter of 2019.
• Cineworld is reportedly considering a US listing for its shares. See catchup below for the group’s H1 numbers.
FINANCE & MARKETS:
• The UK economy grew by 4.8% in Q2 compared with Q1 per the ONS. The NIESR says ‘June’s month-on-month growth of 1 per cent in GDP was mainly driven by the effects of reopening which led to a 1.5 per cent growth in services sector in June 2021. Return to some normality in health activities and increased demand for indoor dining were the main contributors to rapid growth in services output. Meanwhile, production output contracted by 0.7 per cent in the same period.’
• Further comment: The NIESR says ‘with catch-up potential still evident in consumer-facing services and the continued effects of reopening, we expect growth in July of 1 per cent, and 2.4 per cent for the third quarter of 2021 overall. This reflects our assumption that Covid-19 cases will continue to wane and remaining domestic restrictions imposed by governments and businesses will be lifted over the course of the third quarter.’
• It says the recovery isn’t equal across sectors adding ‘ensuring a sustainable and balanced recovery from the pandemic remains the biggest policy challenge.’ It says ‘we expect growth to slow in the third quarter but still remain high by historical standards on the assumption of waning Covid-19 cases and lifting of all domestic restrictions by the end of the third quarter. It will be important to monitor the underlying growth rate of the economy as the opening-up effects dissipate.’
• The RAC says petrol prices are now at an 8yr high.
• US job vacancies reportedly hit a new record high in June of 10.1 million positions.
• The rate of inflation in the US was 5.4% in the year to July.
• The ICAEW reports that the UK Treasury will take 20yrs or more to recover from Covid.
• Sterling around level since our last email at $1.3851 and €1.1744. Oil down at $69.77 and the UK’s 10yr gilt yield broadly unchanged at 0.58%. World markets better but London set to open down by around 55pts as at 7.10am.
• Rightmove reports that the average price of a house in the UK fell last month for the first time this year. Prices were down 0.3% with the price of larger homes falling by 0.8%.
CATCH-UP – RESULTS ETC (for the dates on which these numbers were reported, see Forthcoming Figures schedule).
• See premium email for brief comments on Deliveroo, Coca Cola HBC, Gregg’s, Stock Spirits, Domino’s Pizza, Diageo, TUI, Intercontinental Hotels, Hostelworld, Cineworld and Escape Hunt.
• Deliveroo reported H1 numbers saying that the value of orders had doubled since last year’s H1. Revenue rose by 82% to £922.5m and losses were £104.8m, down from £128.4m in the same period last year. Berlin-based Delivery Hero now has a 5% stake.
• Coca Cola HBC reported H1 numbers. CEO Zoran Bogdanovic says the numbers ‘demonstrate the power of our 24/7 portfolio, our revenue growth management actions, the strength of our execution capabilities and the talent of our people whose resilience and adaptability will underpin our future opportunities.’ He says ‘we are encouraged by the strength of the performance, and while conscious of the risks as the COVID-19 pandemic continues to impact our markets, we continue to expect a strong recovery in FX-neutral revenues and now believe that we can achieve a 20-30bps EBIT margin expansion this year.’
• Gregg’s reported H1 numbers. The group returned to profits, reporting a positive £55.5m (against a loss of £65.2m in the same period last year). CEO Roger Whiteside says ‘Greggs once again showed its resilience in a challenging first half, emerging from the lockdown months in a strong position and rebuilding sales as social restrictions were progressively relaxed.’
• Stock Spirits has been bid for by CVC. The target has agreed to a 377p bid, some 41% above the then-current share price.
• Domino’s Pizza Group reported H1 numbers and announced that it had sold its Swiss business to leave it solely focused on the UK and Ireland.
• Diageo has announced the purchase of Mezcal Unión through the acquisition of Casa UM. It says ‘Mezcal Unión was launched in 2011 by a group of Mexican entrepreneurs with the purpose of developing the category while generating positive social impact and preserving traditional production.’
• TUI reported H1 numbers hailing a ‘successful return of operations’. The company says ‘we had an enormous rebound in working capital of €320 million. This is the first time in the crisis we are not burning cash but adding cash, leading to liquidity of €3.1 billion. Our cash position is €1.4 billion better than just three months ago.’
• IHG reported H1 numbers saying that pre-tax profits rose to $67 million from a $275 million loss in H1 last year. The co says ‘trading improved significantly during the first half of 2021, with travel demand returning strongly as vaccines roll out, restrictions ease, and economic activity rebuilds.’
• Hostelworld reported H1 numbers saying that it had made a loss of €9.7 million against a loss of €8.3 million in the same period last year. The company says ‘overall, while bookings continue to trend well below normalised patterns, we expect the recovery to improve further during the second half of the year, albeit that we expect net bookings will remain at significantly reduced levels when compared to 2019.’ Hostelworld adds ‘whilst significant uncertainty remains, and the recovery is likely to take some time, the board remains confident in the resilience and flexibility of the group’s business model, and its ability to execute on its growth strategy and build market share as demand recovers.’
• Cineworld also reported H1 numbers saying that it ‘delivered a resilient performance in a very challenging market, strengthening its liquidity position and continuing to demonstrate tight control over its operating costs and cash usage. The Group is in a strong position to benefit from the expected industry recovery.’ The group reported revenues of $292.8m (H1 2020: $712.4m) and an adjusted EBITDA loss of $21.1m (H1 2020: profit of $53.0m).
• Escape Hunt updated on H1 trading saying that ‘trading in the ten weeks to 25 July 2021 has been encouraging, with levels of occupancy returning faster than expected after lockdown.’ It said ‘site level EBITDA from the UK owner-operated estate in the ten-week period to 25 July 2021 has been ahead of management’s expectations.’ Total revenue (not LfL) for the ten weeks was +58% on 2019. LfL sales were down by 5%. CEO Richard Harpham says ‘we remain very firmly of the view that consumer spending on experiential leisure will continue to grow and that the Group is well placed to benefit from this shift in spending patterns giving us cause for optimism for our future.’
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines on Saturday were dominated by the news that the gunman in the Plymouth shootings was recently given his shotgun licence back by the police, despite the doubts in the local community about his mental health…The main FT headline, however, was “Taliban surrounds Kabul and seizes Afghanistan’s second city” and the FT also flagged that Amazon Studios is moving production of the “Lord of the Rings” film series from New Zealand to the UK (“Hobbits embark on epic journey as Amazon switches production to UK”).
• Saturday’s Press and News (2): In terms of Retailing stories, the main focus was on the news that the German pet supplies retailer Zooplus has agreed to be bought (for a 40% premium) by the US buyout firm Hellman & Friedman. Lex column in the FT noted that, despite its apparent success during the pandemic, the shares and customer performance of Zooplus have “badly lagged behind” its peers, although the H&F bid could yet “unleash a scrap” for the Online retailer, as the shares “traded a whisker above” the offer price. In other news, the main Business story in the Telegraph was that the recent closure of key Chinese ports because of Covid outbreaks could disrupt Christmas supply-lines to the UK (“Scramble to avert empty shop shelves at Christmas”), whilst the Daily Mail went to town on a story that M&S is about to announce that six small fashion brands, including Fat Face,
• Sunday’s Press and News (1): The main front-page stories in the Sunday papers were more varied: the Sunday Times went with an exclusive about the Chinese attempt to control the World Health Organisation before the Covid outbreak (“China, the WHO and the power grab that fuelled the pandemic”. The Sunday Telegraph continued with the row about UK gun controls (“” Force gun owners to face Online hate trawl””) and the Observer focused on the crisis in Afghanistan (“Afghans flee Kabul in panic as Taliban forces close in”).
• Sunday’s Press and News (2): In terms of Retail stories, there was more news on the Morrisons bid situation, with the Mail on Sunday focusing on the fact that the buyout firm Apollo has still not agreed to join the Fortress bid consortium, amidst rumours that it had baulked at the higher price that Fortress had agreed to pay for Morrisons. The Sunday Times flagged that CD&R is expected to counter-bid this week and it had a separate article noting that the Fortress buyout firm is under scrutiny over its takeover techniques (“Skeletons in the stockroom of Morrisons’ leading suitor”). The Sunday Times also highlighted that the retail veteran Ian McLeod, who is currently running the Dairy Farm supermarket group in Asia, has emerged as the leading candidate to be the next CEO of Asda. The Sunday Times also had a feature on the problems of Harvey Nichols, asking whether its owner could
• Sunday’s Press and News (3): The Mail on Sunday flagged that the shopping centre landlord LandSecs is reporting good summer trading (“Staycation spenders flooding into shopping malls”) and it also had a feature on the boom in sales of luxury watches and other expensive goods (“Roaring 20’s are REALLY here as Britain goes on luxury spree”), plus a feature interview with the boss of the family activity business Gravity Active (“I’ll fill empty Debenhams stores – with trampolines and go-karts”). The Observer previewed the interim results on Tuesday of Just Eat, noting the concern about its weak share price performance, whilst the Sunday Telegraph had an article about the likelihood of more consolidation in the Food delivery sector.
• Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we give our usual shout-out to the column by the Sunday Times Economics correspondent David Smith (“A V-shaped recovery – but not yet a Heineken one”), in which he noted that the economy is bouncing back, but investment has a long way to go. The column in the Sunday Telegraph by the veteran City commentator Jeremy Warner also deserves a shout-out: headlined “Why delta variant makes a return to economic normality more likely” he noted the irony that because the highly infectious nature of the Covid delta variant is making herd immunity impossible we have to learn to live with it as best we can, highlighting the welcome end to the “pingdemic” tomorrow (Aug 16th).