Langton Capital – 2021-09-13 – PREMIUM – August Tracker, vaccine passports dropped, Pat Val, holiday prices etc.
August Tracker, vaccine passports dropped, Pat Val, holiday prices etc.
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Amazing the way the mind works.
The sun was shining in our corner of Yorkshire and I thought about the Med. Overseas holidays, remember them? And that led onto a consideration of recent staycations. Half term in six weeks. Then the Yorkshire coast. Whitby came to mind and I remembered the Steampunk Weekend.
That led me to the David Hume (1750s or 60s) comment that ‘the humour of blaming the present and admiring the past is strongly rooted in human nature.’ He went on to say this ‘has an influence even on persons endued with the profoundest judgement and most extensive learning’ and that led me on to thinking about when we had to double-click in order to open a web page.
Thought that was a waste of time, best consigned to the past. We’ve outgrown it but then I considered all those occasions on which I’ve pocket dialled a contact or accidentally rung a number on my phones screen when Googling something unrelated and must have tapped a phone number underlined in blue.
That made me think double clicking wasn’t such a bad idea, Hume may have had a point, the Steampunk Weekend might be onto something and knotted handkerchiefs, buckets and spades and a charabanc to the seaside might be the future as well as the past.
Hum. Not sure quite how uplifting that was for a Monday. On to the news:
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The latest Coffer CGA Tracker shows ‘rolling 12-month sales down 15% but managed pubs, bars and restaurants show resilience with 5% growth in August.’ It says there has been a ‘strong month for restaurants and bars as consumer confidence builds’ and adds that ‘sales [are] buoyant beyond the M25 but slower to recover in London.’
• The Tracker suggests that ‘mounting consumer confidence and staycations helped Britain’s leading managed pub, restaurant and bar groups to lift sales above pre-COVID-19 levels in August.’
• It says ‘sales were 5% ahead of August 2019. It is the first month of year-on-year growth since hospitality reopened from mid-April.’
• The Tracker adds that ‘total sales were also 35% up on August 2020, when the majority of venues were open after Britain’s first lockdown and the government’s ‘Eat Out to Help Out’ initiative was running.’
Pubs v restaurants:
• The Tracker reports that ‘for the fourth month in a row, managed restaurant groups outperformed the market, with total sales up by 7% on August 2019.’
• It says ‘pubs recorded 3% growth, with pub restaurants (up 6%) faring better than drink-led sites (up 1%). Bars enjoyed an impressive surge in sales following the easing of restrictions on the late-night sector, finishing August 21% up on 2019.’
• These numbers will be aided by the fact that VAT on food is 5% now compared with 20% back in August 2019.
• The Tracker adds that ‘businesses benefited from a first full month of restriction-free trading in August, as well as the easing of safety concerns among diners and drinkers.’
• It says ‘widespread ‘staycations’ during the school holidays contributed to a strong August for regions beyond London, with sales outside the M25 up by 9%.’
• It says ‘London continued to be impacted by the absence of many office workers and tourists, and sales within the M25 were down by 7% on August 2019.’
• On a longer 12-month measure, the Tracker says ‘COVID continues to take a toll on groups’ trading’ and adds the ‘rolling 12-month sales to the end of August 2021 were down by 15% on the 12 months to August 2020—a period which included the UK’s first national lockdown.’
• Further comment: CGA says ‘August was another impressive month of recovery for managed groups from the havoc wreaked by COVID-19. It is a particularly impressive performance given the severe operational pressures that many businesses are working under, including staff shortages, supply problems and rising costs.’
• CGA adds ‘sales growth is testament to the resilience and adaptability of the hospitality industry and consumers’ ongoing enthusiasm for restaurants, pubs and bars. While trading conditions remain some way off pre-COVID norms, August will hopefully act as a springboard for a strong final four months of 2021 for the sector.’
• Coffer Corporate Leisure says that ‘we should be wary of the major challenges which lay ahead; shortage of food and drink and labour, the end of furlough and the statutory demands for repayment of loans, rates, VAT and now higher NIC.’
• Coffer adds ‘there is also the threat of further lockdown and COVID controls as well the spectre of the end of the rental moratorium. The next few months will prove the depth of these challenges, but the undoubted ability of the sector to cope as ever.
• Sponsor RSM adds this is ‘a fantastic result’ and says ‘with many operators carrying huge debt burdens, an opportunity to replenish depleted cash reserves will be a huge relief and hopefully the start of a more sustained recovery.’ But it adds ‘the resilience of the sector will be put to the test once’ by upcoming tax reversions.
• It is, indeed, good news – and a huge relief – that demand seems to be there.
• But 15pps more of the money going through the till on food is currently being recorded as revenues (and it drops straight through to the bottom line), so it is perhaps not surprising that food is outperforming drink.
• Data on the number of covers would be interesting. They will be markedly less good than the LfL sales numbers suggest.
• That said, demand is there and, with that part of the equation at least in place, there is the opportunity for better operators to shine.
PUBS & RESTAURANTS:
The Winter Plan – Vaccine passports & other:
• First you see them, now you don’t. These (vaccine passports) were definitely going to happen last week but, according to a number of press reports, now they are not. Sajid Javid told the BBC as much and PM Boris Johnson will announce this week that his plans will be scrapped. This will come as a relief to nightclubs and other ‘intentionally crowded’ venues. Mr Johnson speaks tomorrow. Repeal of some emergency laws. The PM will say further lockdowns are unnecessary and will stress the importance of the vaccination programme.
• Further comment: Business likes to plan but, if rules are run up the flagpole, mulled over, semi-announced (e.g. by vaccines minister Nadhim Zahawi last week) and then pulled on the Andrew Marr show – all ahead of any official statement – planning is somewhere between hard and impossible. That said, the dropping of vaccine passport talk will come as a relief to the late night industry.
• The Scottish Government’s decision to proceed with vaccine passports from next month has been called ‘extremely disappointing’ by trade bodies.
• The Society of Independent Brewers has called the Scottish Covid passport scheme ‘hugely disappointing’ saying that the restrictions will cause issues for venues of various sizes, including local beer festivals.
Labour & product shortages:
• The Food & Drink Federation has said that consumers have benefited from the ‘just in time’ delivery infrastructure that was available to suppliers under the single market and before the shortage of lorry drivers made itself felt. CEO Ian Wright says ‘the just-in-time system is no longer working and I don’t think it’ll work again.’ The government says it does not ‘recognise claims of permanent shortages’ and adds ‘the UK has a highly resilient food supply chain which has coped well in responding to unprecedented challenges.’
• Further comment: This will get embroiled in Brexit arguments but the FDF’s CEO adds ‘the UK shopper and consumer could have previously expected just about any product they want to be on the [supermarket] shelf or in the restaurant all the time.’ He says ‘that’s over. And I don’t think it’s coming back.’ That the government disagrees is a) interesting but b) its comments should probably be sourced (presumably a SPAD) and weighted accordingly against the FDF’s opinion. Nobody is suggesting that there will be a shortage of food. Nor that Christmas dinner will be roast turnip with beetroot garnish. Just that choice may be diminished.
Working from home:
• A report, produced by Cambridge Econometrics for the Local Government Association, has concluded that city centres and towns across the UK could lose half a million jobs due to changes brought about by the pandemic, chiefly the move towards working from home.
• Further comment: There seems to have been something of a concerted return to the office last week (with more to come this week). That is ‘good’ as far as it goes but it needs to be taken in context with most of the ONS’s real time indicators (bus & rail usage, private car usage etc) still indication a substantial number of workers are yet to return to the office.
• The LGA points out that public transport use is well down on pre-pandemic levels and companies (such as coffee shops, cafes, sandwich bars & city centre restaurants) that benefit from commuter trade are still struggling. The LGA concludes that there are maybe 4.6 million urban jobs in “vulnerable or very vulnerable” sectors such as hospitality. Some 500k of these are more acutely at risk. The LGA is calling on central government to create a new “sustainable urban futures fund” that could direct £7bn over a decade to support invest in infrastructure.
• The above shortfall has near term implications for footfall and profitability and medium and longer term implications for rental levels, business rates charges and the supply of new outlets.
• The Telegraph quotes CEO of Lloyds of London, John Neal, as suggesting that the City of London should get employees back to their office so that younger staff don’t see their careers stall and fail to learn from their senior colleagues. Neal says ‘I think it’s massively important for younger workers to experience in-person trading. We have the best talent in the world in London in the insurance industry.’ Footfall at Lloyds is around 40% of pre-pandemic levels.
Company & other news:
• Sky reports that Grant Thornton, the former auditor of Patisserie Valerie, is facing a multimillion pound fine nearly three years after the collapse of the café chain as a result of false accounting and management’s failure to spot illusory revenues and the fact that its cash pile did not exist.
• Further comment: This one has gone quiet recently and, even if it hadn’t, news would have been overshadowed by the upheaval wrought by the Covid pandemic. However, it’s interesting to see Sky speculating on a £4m fine for Grant Thornton. Additionally The SFO arrested five people as part of its own investigation, but none appear to have been charged to date.
• Sky reminds us that ‘Luke Johnson, the seasoned entrepreneur who has been involved in many of Britain’s most successful hospitality businesses, was the company’s chairman and has described his emotional torment at the discovery of the apparent fraud.’ It says ‘Mr Johnson has not been accused of any criminal wrongdoing.’ Management are responsible for the production of the accounts. Grant Thornton is also reported to be ‘facing a £200m damages claim from FRP Advisory, Patisserie Holdings’ liquidator, for what was described as its “negligent” oversight of the company’s books.’
• Grant Thornton said earlier this year ‘we will continue to rigorously defend the claim.’ It says ‘Patisserie Valerie is a case that involves sustained and collusive fraud, including widespread deception of the auditors and ignores the failings of the board and management who were primarily responsible for the group’s accounts and the running of the business.’ As mentioned above, despite allegations of fraud (and incompetence) it would appear that none of the directors have been criminally charged.
• Measures restricting the ability of landlords to present winding up petitions against limited companies are to be extended to 31 March 2022, bringing them in line with timing for the lease forfeiture moratorium (which prevents the repossession of commercial premises). Business minister Lord Callanan says ‘we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures protections will help them to do that.’
• Further comment: UK Hospitality says the new measures will be helpful as it provides a breathing space to negotiate with suppliers. CEO Kate Nicholls says ‘the extension of existing protections, along with some further additional ones, is a very welcome response to our lobbying of Government to that end.’ She says it is ‘right and fair that the economic pain of the pandemic – in which hospitality was one of the worst affected sectors suffering long periods of forced closure and restricted trading – should be shared between landlords and tenants’ and adds ‘this move will save thousands of businesses and jobs, and is a key step on the way to recovery for both the sector and the country.’
• The Daily Mail reports Pret a Manger is optimistic about trading in city centres after employees returning to offices last week drove a 15% uplift in just seven days. CEO Pano Christou said ‘We are optimistic and confident this demand will continue to build throughout the rest of the year.’
• Data from HMRC shows that the hospitality sector has seen the biggest drop in workers on furlough this summer, with 15% of employments eligible for furlough on the scheme at 31 July 2021. At the end of June, 19% of employees in the food service and accommodation sector were on furlough.
• The MCA reports that Stonegate saw a small uplift in sales as workers return to offices, but CEO Simon Longbottom also warned that uncertainty over Covid passports could negatively impact the recovery.
• New York is being sued by DoorDash, GrubHub, Caviar, Seamless, Postmates and Uber Eats in regards to the permanent 15% delivery fee cap passed in August.
• Indoor virtual clay shooting experience, Clays, will open its first site on 1st November in the heart of the City of London at 55 Moorgate. The new experiential leisure concept comprises 12 ‘pegs’ or booths, which can be booked by groups of up to 20 people for a 90-minute session.
• The Evening Standard reports that spending in London restaurants is almost back to pre-pandemic levels, at 90% of normal levels. A report from the rail industry highlighted the importance of train commuters to rebuilding London’s economy, with £54bn a year was spent by train passengers to London pre-pandemic. The report said rail commuting from the Home Counties was only at 25% of normal.
• Data from the International Organisation of Vine and Wine (OIV) shows that Brits consumed twice as much wine as Americans per capita in 2020. Portugal consumed the most wine per capita,whereas the US was the world’s biggest consumer of wine in total at more than 4.4 billion bottles during the year.
• Champagne region grape harvests have seen a 60% drop in natural yields, attributable to the extreme weather experienced this year.
• The Independent writes that the UK will delay checks on some EU imports while it seeks a solution on trade of foodstuffs with Northern Ireland. A Defra spokesperson said ‘By allowing some chilled meat items to continue to be imported from the EEA [European Economic Area] until 1 January 2022, firms will be able to focus on their recovery and maintain existing supply lines.’
• Shares in tech & retail giant Alibaba fell sharply on stories that its financial affiliate Ant Group is being investigated by authorities in China.
HOTELS & LEISURE TRAVEL NEWS:
• Sajid Javid has told Sky News that double-vaccinated travellers will no longer need to take PCR tests when returning to the UK. This change may be brought in in time for the October half-term holidays. Javid says ‘the PCR test that is required upon your return to the UK from certain countries, I want to try and get rid of that as soon as I possibly can. I am not going to make that decision right now, but I have already asked officials that at the moment we can, let’s get rid of these kind of intrusions, the costs that generates for families, particularly families just trying to go out and holiday.’
• Further comment: Whether Javid has the weight of the Cabinet behind him or not is unclear. Confusion about vaccine passports, where ministers Oliver Dowden and Nadhim Zahawi were both saying they would be introduced as recently as last week and now they are not, does suggest that policy can be changed at short notice. That’s if there was any policy there in the first place to change but, should the story be true, it will be welcomed by the travel industry as another important step in the road back to normality.
• Ryanair boss Michael O’Leary has told the Sunday Times that holiday prices are likely to rise sharply when consumer demand for travel rebounds next year. He says there will be fewer flights and higher taxes adding ‘I think there will be a dramatic recovery in holiday tourism within Europe next year.’ He says ‘the reason why I think prices will be dramatically higher is that there’s less capacity.’
• The Travel Network Group is asking for the government to support the sector after the latest official figures showed that 26,800 travel agents and tour operator staff were still on furlough on July 31. Agencies and tour operators have the second highest rates of furloughed staff, after the aviation sector.
• easyJet is scheduling more than 1 million seats for its autumn flights sale and is cutting prices by 20% for bookings made by September 14.
• Gaming Realms has reported H1 revenues up 50% at £7.7m with the group returning to a profit of £0.8m from a loss of £0.7m in the same period last year. Michael Buckley, Executive Chairman, says ‘the Group has delivered an excellent first half both in terms of significant earnings growth and new licensing and distribution agreements.’ He says ‘we intend to continue to deliver further value by scaling our platform and bringing innovative content to new audiences worldwide. With more material impact expected from Michigan and Pennsylvania in the second half of this year, the Board is confident in the future performance of the business.’
• A US court has ruled that Apple cannot stop app developers directing users to third-party payment options, dealing the company a major blow in its ongoing trial against Fortnite-maker Epic Games. Epic Games had challenged the up-to-30% cut Apple takes from purchases – and argued that the App Store was monopolistic.
FINANCE & MARKETS:
• UK economic growth slowed to just 0.1% in July, down from June’s 1.0%. The UK economy is still 2.1% smaller than it was in February 2020. Production output was up by 1.2% and construction shrank by 1.6% with services broadly flat. The CBI says labour shortages and supply chain disruptions ‘are likely to have taken the edge off growth as we head into autumn.’ It says ‘temporary, targeted interventions are needed to enable businesses to keep their doors open – for instance, placing HGV drivers on the Shortage Occupation List could make a real difference.’
• Further comment :The UK’s economic recovery is slowing and the EY Item Club says it is entering a ‘tougher phase.’ EY says ‘the bulk of the gains from the reopening of the economy are now behind us, so a tougher phase of the recovery beckons.’ Chancellor Rishi Sunak says ‘our recovery is well underway’ and he says ‘we’ll continue to recover from the pandemic.’
• The NIESR says it now expects growth of 1.6% in Q3, though this is reliant on growth of 0.8% being delivered this month. It says ‘GDP growth of under 0.1 per cent in July would have been negative had it not been for the reopening of an oil field previously closed for temporary maintenance.’ It says ‘there remains potential for ‘catch-up’ in transport, hospitality and arts, which remained between 7 and 19 per cent below their February 2020 levels.’
• The ONS reports that UK exports fell by 1% in July.
• Sterling mixed at $1.3828 and €1.172. Oil higher at $73.19. UK 10yr gilt yield up 3bps at 0.76%. World markets broadly lower on Friday but London set to open up around 20pts as at 7.10am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines on Saturday were pretty gloomy, in different ways, notably the Times, which flagged “PM eyes another decade”…The Daily Mail went with more revelations about Prince Andrew, but the Guardian noted “GPs “struggling to guarantee safe care”” and the Telegraph highlighted “Council tax rise to pay for social care”. The FT, however, went with a US legal blow to Apple’s control of its App Store: “Epic victory deals payment blow to Apple”.
• Saturday’s Press and News (2): In terms of Retailing stories, the weak July GDP figures were blamed on weak Retail sales and the Covid “pingdemic”, whilst the Telegraph flagged that Morrisons is under fire for its policy of reducing sick pay for unvaccinated staff. The main Business story in the Times was that the parent company of JD Sports, Pentland Group/Industries, has moved its tax base offshore, to Ireland. The “Share of the Week” in the Daily Mail, ahead of next week’s trading update, was Ocado and the Business editorial in the Telegraph praised Ikea’s decision to invest in the High Street, via its plan to take on the Top Shop site at Oxford Circus. And there were plenty of retailers in the FT list of the “Top 100 Entrepreneurs” in the UK, eg the Issa brothers (3rd), Simon Arora (8th), Mike Ashley (10th), Malcolm Walker (11th), Nick Robertson (14th), Tom Morris of Home Bargains
• Sunday’s Press and News (1): Most of front-pages of the Sunday papers carried photos of Britain’s new sporting sensation, Emma Raducanu, after her sensational victory in the US Open tennis final on Saturday night, but the news headlines were mixed: the Sunday Times carried on with its new Royal scandal focus (“Charles offered to meet murky Russian donor”), whilst the Mail on Sunday flagged the “End of PCR travel tests”, the Observer noted that “Covid jabs for 12-15 year olds “set to start in two weeks”” and the Sunday Telegraph went with the continuing row in the Tory party about the tax rise to pay for increased NHS and social care spending (“”Poll tax 2.0” will harm jobs and families, Treasury’s own experts admit”).
• Sunday’s Press and News (2): In terms of Retail stories, there was an interesting scoop about M&S’s food supply problems in Europe on the News pages of the Mail on Sunday (“M&S set to close stores in France over border chaos”), but the main story, as noted on the front page of the Sunday Times Business section (as well as in the Mail on Sunday), was that the US activist fund pushing for a shake-up at Rolls Royce, Causeway Capital, has also amassed a stake of over 9% in WH Smith.
• Sunday’s Press and News (3): The hard-working Retail correspondent of the Sunday Times had a number of other Retail stories, including the news that the Issa brothers, of EG Group/Asda fame, have held talks with the Canadian convenience store group Couche Tard (which looked at buying Carrefour earlier this year), with a view to them taking over EG’s petrol station business. The Sunday Times also had a feature interview with the former Sainsbury boss Justin King (“King of the grocers aims his trolley at Big Tech tax avoiders”). In which the great man highlighted that “it’s unusual to get the flip-flopping of recommendations” that you’ve seen from the Board of Morrisons. The Sunday Times also had a separate article about the Morrisons bid situation, noting that the 2 private equity bidders have produced airy intention statements on the protection of Ken Morrison’s legacy that can be torn
• 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 (“After this dog’s dinner, can we sustain record taxes?”) and the column in the Sunday Telegraph by the veteran City commentator Jeremy Warner (“Ministers hide behind five myths about health and social care reform”). We also enjoyed the column by the Economics correspondent, William Keegan, in the Observer, headlined “Taxing the lower-paid could stop the recovery in its tracks”, and the Business editorial in the Sunday Telegraph about how the stockmarket flotation of private equity businesses is reviving the spectre of the conglomerates of the 1980’s (“One of the worst ideas in City history is coming back”)
• Today’s News: A busy week has kicked off today with the ABF (Primark) pre-close update, for the 53 weeks to 18 September, which is a bit hard to interpret, as weaker than expected sales at Primark have been offset by lower operating costs to deliver better than expected profits, with the second half operating margin at Primark to top 10%. LFL sales were as much as 17% down in Q4, however, because of Covid restrictions, although “we have seen a significant improvement in trading as the period progressed, from a weekly decline in like-for-like sales of 24% at the start of the period to a decline of 10% in recent weeks”. There is no Q4 LFL sales figure for the UK specifically, although that has improved from -24% at the start to -8% in recent weeks. The suspicion that Primark is missing out on Online sales may be strengthened by the news that “A new and improved customer-facing website
• This Week’s News Flow: Tomorrow brings the JD Sports interims, the Made.com interims, the Ocado Q1 update and the latest monthly Kantar grocery figures. Wednesday then brings the Dixons Carphone AGM and the Games Workshop AGM. On Thursday we get the JLP interims, the THG interims, the Wickes interims, the Dixons Carphone/Currys name-change and an ASOS Capital Markets Day on Sustainability. Friday then brings the ONS Retail Sales figures for August.