Marston’s Q1 update, service sector, delivery, Plan B, inbound etc.:

A DAY IN THE LIFE:

Evolution is what it is. It’s unthinking. It doesn’t ‘decide’ things so much as just try them out at random.

So, it’s landed us with hands and opposable thumbs.

Which, if you can imagine a horse trying to thread a needle or tie its shoelaces are great, but it’s also decided that we need to have virtually no sense of smell, which a) we don’t really miss as we didn’t really have it in the first place but b) is maybe something of a shame in that a sense of smell lets you register things from the past and ‘see’ things in other dimensions.

I mean a bloodhound or a polar bear (jury’s out as to which animal has the better sense of smell) can ‘see’ what’s happened a day, a week or a month ago and can also take in what’s occurring over the horizon, on the other side of a closed door or even underground or in the depths of a locked and darkened box.

And that would surely give any sentient being even more of an evolutionary advantage, wouldn’t it?

Not that I’d want to have a nose as big as a horse or devote 50% of my brain to processing smells. I mean there’s little enough room in there after all the existing junk I’ve got sloshing around is accommodated in any case but, when you look at a squirrel’s sense of smell (which is brilliant) and the tiny brain that used to process it (think pea, a small one), I would settle a rodent’s sense of smell just to get me a seat at the table.

And, while we’re on the subject, how come those blooming eagles can see so much better than we can? On to the news:

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MARSTON’S Q1 (16 WEEK) TRADING UPDATE:

Marston’s has today updated on trading for its Q1 (the 16wks to 22 Jan 2022) and our comments thereon are set out below:

The numbers:

• Marston’s reports that trading for the full 16wk period saw LfL sales down by 3.9%. a

• Total sales were down by 3.6%, indicating that, despite operating a large number of units in Wales and Scotland, the group had virtually no pubs shut.

• Some of these units will have been minus 40% plus. But the decision was taken not to shut them (and therefore to allow their results to drop into LfL numbers).

• This can hurt the optics but units that remain open do not ‘rust up’ (i.e. lose stock ,staff and customers) in a way that shuttered units can. Closure and reopening costs (and working capital swings) are also avoided

• For the 5wks of Christmas, Marston’s reports that it’s LfL sales were 1% ahead of its competitor market (defined as the CGA Coffer Tracker outside the M25)

• For total sales (taking into account the fact that some competitors have shut units), the group believes it was 5% ahead

• Marston’s LfL sales were +1.3% for the first 8wks of the period and down by 8.8% in the last 8wks (the period to last Saturday). The direction of travel has taken a turn for the better as Plan B will be dropped from tomorrow

• MARS is reporting a greater number of Plan B-impacted weeks than were M&B or RTN (the former reported December down 6% and RTN reported its pubs down 7% in December)

Other comments & points

• Hospitality in Wales and Scotland, where MARS is heavily represented, were trading under tighter restrictions than England

• Costs are in line with guidance given at the full year numbers on 30 November

• The group generated cash in the period – net of pre-announced catchup VAT payments (£50m) netted against a £28.2m deferred payment to MARS from Carlsberg

• On 1 Jan, bank debt was £199m against the group’s £280m facility. We do not envisage problems with further bank waivers, where necessary.

Company comment:

• Marston’s comments that Plan B has had an impact but it believes that demand will bounce back when restrictions are removed

• The group’s pubs are community-based and they are less reliant on a return to work than are some of the units of a number of its competitors

• CEO Andrew Andrea comments ‘whilst the emergence of the Omicron variant and subsequent Government guidance temporarily impacted consumer sentiment, we remain confident that the strong trading momentum which we were experiencing prior to that will resume.’

• The CEO adds ‘we welcome the various plans underway to gradually ease trading restrictions in Scotland and Wales.  These, together with the reduction in the required self-isolation period and anticipation of an imminent end to the work from home directive, should enable some semblance of normalised trading patterns to return.’

• Marston’s says it believes ‘there is growing evidence over the most recent of weeks of the New Year that consumer confidence is rebuilding, and guests are returning to our pubs in greater numbers, which is encouraging. Importantly, Marston’s has a well invested, predominantly community pub estate which is well placed to benefit from the pent-up consumer demand which we are confident remains.’

Langton Comment:

• We believe that MARS has some flexibility when it comes to ‘taking price’. This puts it in a favourable position compared to some of its competitors, who have been fairly aggressive when it comes to putting through increases

• The market remains difficult to read due to restrictions, differential VAT rates and the upcoming consumer squeeze but, whilst normality remains hard to define, Marston’s comments should reassure. The company  has traded positively in terms of cash and it is confident that it will reduce debt further going forward.

• Looking towards the longer term, pandemics are rare, hostelries have been popular for centuries, Marston’s debt is coming down, it’s strategy is clear and it has a well-financed, largely-freehold estate.

• No word in this trading update about margins or the dividend but the group has ridden Covid relatively well and restrictions are being peeled away.

• Although they had (in common with the sector) a bad day yesterday, MARS shares have partially recovered from recent lows and, whilst there are challenges ahead, we believe that the company remains well-positioned to prosper.

PUBS & RESTAURANTS:

Market moves:

Sharp correction for consumer stocks yesterday. Strange that the word ‘correction’ isn’t ever used for positive moves. Nonetheless:

Down 4%: Whitbread, Wetherspoon & Flutter.

Down 5%. Young’s, TUI, Saga, Rank, Jet2, Hotel Chocolat, Marston’s, 888, City Pubs, Deliveroo & Gregg’s.

Down 6%: C&C, Hollywood Bowl and Entain.

Down 7%: Naked Wines & Sportech.

Down 8%: Gm Group, Just Eat Takeaway, Carnival, Cineworld & Restaurant Group.

Down 9%: Nightcap.

The Service Sector.

Markit reports its flash PMIs for January, saying that ‘another slowdown in the service sector held back the UK economy at the start of 2022.’ It says ‘with hospitality, leisure and travel all struggling due to Omicron restrictions, this offset resilient growth in business and financial services.’

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Delivery & Omicron:

CGA reports that Omicron concerns have led to a spike for delivery and takeaway sales in December. Data compiled with Slerp finds, unsurprisingly, that Omicron and the associated Plan B restrictions, had a negative impacted in that some consumers chose not to go out in the run-up to Christmas. CGA says ‘the December edition of the Tracker reveals that groups recorded a 127% increase in sales by value [of both takeaway and delivered product] from the levels of December 2019. It is a sharp rise on the 2021-on-2019 comparison of 97% in November, reflecting consumers’ decisions to stay at home and restrictions in the hospitality sector as the Omicron variant spread.’

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Inbound tourism.

UK Hospitality has welcomed easing of restrictions for international tourists and business travellers coming into the UK. CEO Kate Nicholls says ‘this is a sensible and pragmatic step towards normality, given the encouraging fall in cases, the general easing of restrictions and given the UK’s position as a leading destination for international tourists and as a major business and commerce hub.’ See also Travel below.

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The Guardian reminds us that support for the CO2 industry is about to end. Previously, CO2 shortages had caused problems in the production of certain foods.

Consumer squeeze:

The Daily Mail reports that the ‘entire cabinet ‘would back a tax hike delay’’: it says ‘Ministers are ready to act as top Tories, business chiefs and economists turn up the heat on Boris Johnson over planned national insurance rise.’

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Dropping Plan B:

Due to happen tomorrow, foodservice analyst Peter Backman raises the question as to whether habits will have changed? The previous three lockdowns suggest that demand has bounced back – and that is most likely to be the case this time – but as a number of operators have pointed out, older customers have not returned in their pre-pandemic numbers and delivery has taken a share of the market that it might be reluctant to give back.

The above is a particularly valid question with regard to a) demographic differences across customers, b) the longer term market share likely to be taken by delivery, c) what proportion of the workforce continues to work from home and d) will home entertainment (Netflix, Peloton, Disney Plus etc) retain a bigger share of wallet going forward?

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A study by UK Biobank has suggested that drinking wine could reduce the risk of Covid infection, however, the same study found that beer and cider drinkers actually faced a higher Covid infection risk compared with those who didn’t drink anything.

Drink sales in the Far East are entering the critical Chinese New Year period, with the pre-festival sell-in period skewing quarterly sales and profit figures for spirits giants like Diageo, Pernod Ricard and Rémy Cointreau. Alibaba (China’s equivalent of Amazon) reckons that 30% of its alcohol sales bought as gifts are associated with the festival.

COMPANY & OTHER NEWS:

Last night’s BBC programme on Brewdog saw the company accused by former staff of inappropriate behaviour.

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The BBC comments on a scam on a customer’s delivery account with Just Eat. The customer, in Northern Ireland, lost around £9,000.

The MCA reports that the Inn Collection Group is in advanced stage legals on four additional sites, with the deals due to be completed by the end of February. MD Sean Donkin said the group would focus some of its efforts on north Wales in terms of further expansion and that it was targeting 250 bedrooms in the Snowdonia area.

Diageo has agreed to sell Meta Abo Brewery, in Ethiopia, to BGI, part of Castel Group. It is expected that the deal will complete early in 2022.

Boxpark has said that its revenue fell 55% in its last financial year (to April 2021) but the company nonetheless managed to break-even despite on only 22 weeks’ trading. The company, which has 3 sites in London, said breaking even was ‘testament to the group’s highly flexible business model and cost base.’

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The Night Time Industries Association (NTIA) Wales CEO Michael Kill said the numbers ‘clearly states that there is no supporting data or evidence on the specific location of people who have caught Covid’.

Cornish Bakery reports LfLs up 30% vs 2019 as it finished 2021. The company also reported an industry leading score on Indeed of 4.83 and a net promoter score of 62.3.

Some 30 plus Starbucks stores in the US are said now to be making moves to unionise.

LEISURE TRAVEL & HOTELS:

Prime minister Boris Johnson has confirmed that tests for fully vaccinated international travellers arriving in England will be removed from Thursday. Travel Weekly has reported industry sources close to talks with the government have turned their attention to the validity of Covid certification for travel, and for a plan to deal with future variants of concern.

Scotland has moved itself to align with England over the dropping of testing for fully vaccinated international arrivals from February 11. Scottish minister Michael Matheson comments ‘these measures will significantly open up international travel and were agreed on a UK-wide basis.’

Club Med has predicted that it will have a record ski season in 2022/23. It is opening two new resorts in the French Alps.

The CEO of Genting Hong Kong, owner of Crystal Cruises, has quit along with his deputy following the company filing to be wound up after its German shipbuilding arm fell into insolvency due to the pandemic.

Parkdean Resorts has relaunched recruitment for the Kickstart scheme across the business, hoping to fill some of its 550 current vacancies.

NH Hotel Group plans to open ten new properties, with another six being refurbished, with the goal of strengthening its position in competitive destinations in Europe, Asia and Latin America.

OTHER LEISURE:

Peloton has suffered another PR headache after a character in the show Billions suffers a heart attack using one of its exercise bikes. Previously, a fictional character in the Sex and the City reboot died of a heart attack using a cycle machine.

The Guardian reports that a ‘committee of MPs has produced a report criticising the gambling industry regulator for trying to reduce addiction and urging ministers to take it into special measures.’

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Company Rescue reports that, there being reportedly no bids for Derby County, the club is ‘likely to run out of money in the next few days.’ It says ‘administrations can protect companies for a period of time but not indefinitely if the funds dry up.  One drain on their cash has been their ongoing legal battles.’

FINANCE & MARKETS:

Markit reports that ‘manufacturers outperformed service providers as a sustained turnaround in materials availability led to the fastest rise in production volumes for five months. However, all types of private sector businesses commented on capacity constraints and rising backlogs of work as a result of staff absences in January.’

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The composite flash PMI for January is 53.4. Markit points out that this is above the ‘50.0 no-change threshold for the eleventh consecutive month (since March 2021).’ It adds that ‘the index was down slightly from 53.6 in December and signalled the slowest rate of output expansion since the recovery from lockdown began last spring.’ Given that Plan B will be dropped tomorrow, this could pick up towards the end of the month.

Service sector growth was 53.3. This ‘has now weakened for three months in a row, with the latest loss of momentum attributed to ongoing pandemic disruptions and very subdued demand in customer-facing parts of the economy.’ Manufacturing output (index at 53.8) increased to the greatest extent since August 2021, despite survey respondents often reporting a negative impact on production from staff isolating due to COVID-19 and supplier delays.’

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