Langton Capital – 2021-03-01 – PREMIUM – Restaurant Group, Budget, unit closures, JDW, SSP, Shake Shack etc.:
Restaurant Group, Budget, unit closures, JDW, SSP, Shake Shack etc.:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: We watched The Blues Brothers again over the weekend and it brought home that a) it’s been 20+ years since we last watched it and b) it remains an exceptionally good film. The music’s spot on, the cartoonish nature of it works very well, Belushi is a nutcase, the deadpan humour is great, and the cast actually look as though they had fun making the film. And the last shouldn’t be underestimated. The clothes & hairstyles may have dated but none of the above facets of the film have and, if we can say the same about ourselves and what we did and looked like back in the late 70s and early-80s, we’ll be abnormally lucky. Indeed, check out Spielberg in the film we’ve just mentioned. He has a cameo at the very end and it’s a wonder he didn’t use whatever sway he had in Hollywood subsequently to have the last five minutes of the film destroyed! Anyway, that’s enough of that. It’s March, it’s meteorological spring and the days are getting longer but the weather’s schizophrenic. We had a sunhat on yesterday and there’s frost on the ground this morning. On to the news: ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. CHANGED EMAIL FORMAT: The Premium Email is unchanged. The Free Email is now written and pre-sent the evening before. It should include much of the news but not any breaking stories from the morning that it is sent such as company releases, nor Langton comment. See Twitter for in-day comment. RESTAURANT GROUP UPDATE: Restaurant Group has updated on its debt financing & the impact of Covid. Debt: • RTN reports that it has agreed £500m of new long-term debt facilities • This comprises a £380 million Term Loan Facility to 2026; and £120 million Super Senior Revolving Credit Facility to 2025 • It says there will be no leverage tests until June 2022 • Coupon is c7% with no formal amortisation requirements • The group says FY 2020 year-end (27 December 2020) net debt (pre-IFRS16) of was c.£340m, and adds this is ‘in line with our expectations’ • RTN says ‘the New Facilities provide the Group with enhanced liquidity and long-term financing with the maturities of the Term Loan and the RCF being in 2026 and 2025, respectively.’ • It adds the new debt ‘will be used to repay and refinance in full all of TRG’s existing debt facilities…which are all due to reach maturity by July 2022.’ More detail on the debt: • It says ‘following the utilisation of the New Facilities, and the repayment of the Existing Facilities, the Group’s financing arrangements will be simplified, as the Group will be consolidated into one finance group at the TRG level which will provide a more efficient funding structure to support the Group’s strategic initiatives.’ • RTN adds ‘the Group shall be subject only to a minimum liquidity covenant set at £40m (versus £50m under the existing TRG Plc RCF) until 30 June 2022 with net leverage-based testing then resuming under the RCF.’ • ‘There shall be no net leverage-based testing under the Term Loan until the period ending 31 December 2022 at which point the Group’s net leverage covenant (as measured on a pre-IFRS 16 basis) shall be set at 5.0x before decreasing every six months to 4.0x by the period ending 31 December 2023 and thereafter.’ • RTN says both new debt tranches ‘are subject to a margin ratchet which allows the Group’s cost of debt to decrease according to prevailing net leverage (defined as pre IFRS 16 net debt/EBITDA).’ • It clarifies ‘for illustrative purposes the initial weighted average cost of debt is expected to be approximately 7.0%, which would fall to approximately 6.0% were net leverage to go below 2.0x.’ • There are no contractual amortisation repayments. Trading: • RTN says it is burning cash at the rate of around £5.5m ‘per four week period during ongoing national lockdown, with a c.£40m working capital outflow post year-end due to unwind of supplier creditor positions’ • The Group adds ‘the cash burn rate is expected to stay at this level until the end of the current restrictions for hospitality businesses, which as per government guidance on 22 February are due to end no earlier than 17 May 2021.’ • It says it has seen ‘strong recent trading for delivery and takeaway across c.200 sites in Wagamama and Leisure businesses’ • It has an ‘accelerated reopening plan for dine-in trading, once the current restrictions for hospitality businesses end, with all viable sites being reopened within two weeks’ • This presumably takes into account the fact that many sites will not be able to open for outside dining in April • RTN says it ‘currently has approximately 200 sites trading for delivery and takeaway across its Wagamama and Leisure businesses.’ • It says ‘the trading performance of those sites in the current financial year (FY 2021) has been very encouraging with average standalone delivery and takeaway sales in Wagamama and Leisure at approximately 2.5x and 5.0x pre-Covid-19 levels.’ • It concludes ‘with this strong operating platform in place, the Group has good capability to deliver an accelerated reopening plan for dine-in trading, once the current restrictions for hospitality businesses end, with all viable sites being reopened within two weeks.’ Langton comment: • Debt and liquidity issues are to the fore with all operators at the moment. Future potential will only be realised if there is a future • This necessitates negotiations with banks, bondholders and equity holders. RTN has issued equity once and, it would appear, it hopes not to have to do so again • Restaurants are perhaps better placed for delivery but less well placed than pubs when it comes to opening for outdoor trade next month • Within delivery, Wagamama is relatively well-positioned. • There are no forecasts at present and they would not be meaningful. But RTN has been ahead of the game in many respects when it comes to analysing the impact of closure and to doing something about it. PUBS & RESTAURANTS: Budget 2021 overview: • Attention has switched from un-lockdown proposals to the possible content of Wednesday’s Budget. • Rarely has so much attention been focused on the event. Sunak will outline the current state of the UK economy and its outlook. He will then give some details as to his proposed moves re taxation and borrowing. • PM Boris Johnson has ruled out a return to austerity. If spending is not to be cut, the government will need to raise taxes or continue borrowing – or both. • Borrowing could be a possible short-term fix. The Conservative backbenches, the Labour Party and business are all saying that it is too early to cut support and too early to put up taxes. • The debt markets (and the currency markets) will ultimately be the judge of how far this can be allowed to go. See premium email for further comment. • Ahead of Wednesday’s crucial speech, there is talk of Beer Duty cuts, of a continuation of the Furlough, the 5% VAT rate and the suspension of business rates and a potential £5bn ‘Save the High Street’ package. Pre-Budget trade appeals for help: • The BBPA and Long Live the Local have reported on a YouGov poll that ‘found that 3 in 4 Brits (76%) believed that pubs are important to local communities – a 4 percentage point increase since July 2019.’ It found that ‘64% also said that pubs are important in securing the future of local high streets.’ • The report says ‘when asked if they wanted the Chancellor to help pubs in the forthcoming Budget, only 12% of respondents thought the Government should not do anything. 52% of people supported a cut in business rates, 46% of people wanted to see a cut or freeze in beer duty and 42% supported a reduction on VAT on pub food.’ • Langton comment – see premium email. • People are notoriously generous when it comes to giving one third party’s money to another third party. When they are asked to give the money themselves, they are less willing. • It is also true that actions speak louder than words and that talk is cheap, etc. • Ditto that saying the ‘government should help…’ might be viewed differently if rephrased ‘the taxpayer, i.e., you, should help…’ • Ditto that an absolute question (would you give money to…) is easier to answer in the affirmative than is the question as to just how you should rank government spending between the NHS, education, pensions, defence, law and order etc. Much as we might like it to be otherwise, putting helping pubs into that mix might get a less positive answer. • The survey also finds that 62% of respondents ‘think the Government should use the Spring Budget to support Britain`s brewing industry with 54% of people thinking a cut in beer duty should be included in the Budget, as 7 in 10 (69%) thinking that the level of beer duty in the UK, which is 11 times higher than that in Germany, is unfair.’ There may be some political traction here. • The BBPA’s Emma McClarkin says ‘these findings serve as a much-needed reminder to how important local pubs are to our communities. People miss their local and the sense of community it brings.’ Long Live the Local says ‘people want Government to help Britain’s pub and brewing sector in this Budget -especially following the extremely tough year they have faced.’ • The Pubs Matter campaign is also asking for further support from no11 Downing street ‘to rescue our fragile pubs with an emergency package of support.’ A spokesperson for the campaign said ‘pubs and breweries across the UK have been amongst the hardest hit businesses in the pandemic, but we also know that they will be the most needed, with the public desperate to get back to those places that allow them to celebrate, commiserate and reconnect with each other once restrictions are lifted.’ • It says ‘the Chancellor holds the fate of the nation’s pubs in his hands as we face a critical turning point. The package of measures must support all businesses, including our traditional wet-led pubs, otherwise a large part of the UK’s heritage will be lost forever.’ Closures as a result of Covid-19 (and a bit due to over-expansion): • CGA and Alix Partners’ Market Recovery Monitor reports that ‘nearly 12,000 licensed premises have closed in Britain since December 2019.’ There have been 4,170 new sites opened since December 2019 to give a net loss of 7,724 licensed units. The closure rate amounts to a record one unit closing per hour. • The report says ‘the number of permanent closures is expected to rise sharply, as the effects of trading restrictions—including a catastrophic drop in trade over the key month of December—take their toll.’ It says only 43.2% ‘of England’s pubs, bars and restaurants have an outdoor area of some kind, and while the number is higher among food pubs (78.4%) and community pubs (71.0%), it is far lower on high streets (25.6%) and among casual dining restaurants (11.4%).’ • The latter are amongst the sub-sectors already under most pressure. • The Monitor says ‘these numbers set out the full, devastating impact of the pandemic on Britain’s licensed premises. The wipe-out of Christmas trade was clearly the final blow for many businesses, and the long wait that others now face to open their doors sadly means closures will mount even higher.’ • CGA says ‘there is huge pent-up demand for hospitality among consumers, and it is encouraging to see signs of resilience in the sector. Pubs have proved more durable than restaurants in recent months, and outside service will give many of them a useful kickstart if the sun shines. Amid all the closures, it’s also encouraging to see a steady flow of new entrants to the market. We remain very confident about the long-term future of the sector, but unfortunately there is more pain to come first.’ • Alix Partners’ MD Graeme Smith says the roadmap to reopening ‘will clearly benefit some segments of the market [but] a significant proportion of operators, even some of those with outdoor space, will not find it a viable option. For many businesses, it will not be until mid-June, when restrictions are more fully lifted, that they will be able to trade on a profitable basis.’ • Alix Partners says ‘the rapid acceleration in site closures since the start of the year demonstrates just how brutal the situation is. Businesses are burning through cash at an alarming rate as costs stack up, and within the sector there is despair as to why hospitality is at the back of the queue when it comes to reopening. The Budget is absolutely crucial to the future survival of thousands of sector businesses; a substantial package of financial support is needed to prevent greater numbers of closures across this year and beyond.’ Other news: • A new trade association, the Welsh Beer & Pub Association, has been launched to work alongside the BBPA in order to ‘represent the wide range of beer and pub businesses in Wales, campaigning for policy outcomes that help protect and grow the sector.’ There are over 3,000 pubs in Wales and approximately 120 breweries. • Re the above, Mark Davies, CEO of Hawthorn, which has 26 community pubs in Wales says ‘pubs and the brewing industry have been at the heart of Welsh communities for centuries.’ • New figures produced by Makro show that Poles order pizza up to twice as often as they do in Italy itself. Pizza Portal, which is not limited to pizzas, says that pizza is ordered 61 percent of the time by its clients with burgers in second place at 22 percent. • On Trade Consultancy invited partners to join it in raising money for charitable causes. It says ‘join On-Trade Consultancy in making a difference! Our wonderful team, clients and partners are collectively planning to complete the challenge of running, walking and cycling 2,021 miles over the course of 2021 to raise money for OTCs incredible Charity Partners, Hospitality Action! Any donation would be greatly appreciated and is going to the most amazing cause. Donation Link: https://bit.ly/3iFISgX.’ Company news: • JD Wetherspoon has commented on an article run by Bloomberg’s Businessweek saying that it contains a number of inaccuracies. The company maintains that it is not a “host to drunken students” and says that it is not “sacrificing worker pay for affordable prices”. • JDW says its pubs are not split into “grid-like seating plans” and says it is misleading to say that it has leveraged “it’s scale to beat out smaller competitors”. It says it is untrue that it is the “most-hated” pub company in the country. JDW chairman Tim Martin says: ‘there are a number of other errors in the Businessweek article, but these are the main ones.’ • The Telegraph suggests that SSP’s share plan for management could be hard for shareholders to swallow. It says the company ‘will introduce a restricted share plan for management instead of one that is directly linked to performance amid uncertainty surrounding the coronavirus crisis.’ CEO Simon Smith will be eligible for an award worth up to 100pc of his salary, with Jonathan Davies, the chief financial officer, eligible for 75pc. The two directors were not paid bonuses in 2020 and both agreed to take significant pay cuts. • Shake Shack has announced Q4 & full year numbers saying that LfL sales improved from minus 16% in Q3 to ‘nearly flat’ in Q4. Total sales in Q4 were up by 4%. CEO Randy Garutti says ‘we’re pleased to report revenue in the fourth quarter of $157.5 million, with same-Shack sales improving to down 17.4% compared to down 31.7% in the third quarter 2020. Looking at fiscal 2021, we were encouraged to see recovery momentum continue with same-Shack sales in fiscal January 2021 down only 5%, and with suburban Shacks delivering growth of 8% compared to last year.’ • Shake Shack says ‘the first few weeks in fiscal February have been impacted by the cold weather and snowstorms across many parts of the country, with same-Shack sales down around 16% through the 17th of the fiscal month.’ • Re the outlook, Shake Shack says it ‘is not providing full guidance for the fiscal year ending December 29, 2021. The timing of return to pre-COVID sales levels is highly dependent upon the return of the high traffic areas that contributed to many of the strongest Shack sales, including those most reliant on travel, schools, offices and major gatherings, as well as ultimately, fully open dining rooms.’ It says ‘the timing of that recovery remains unknown today. As the Company approaches the one year mark in mid-March 2021 since the initial and extensive impact of COVID-19, it remains cautious about the near-term sales outlook, especially in its urban business.’ • Keurig Dr Pepper has reported net sales up 4.5% to $11.62 billion in 2020. The company says coffee sales were up 4.7% to $4.43 billion for the full-year and grew by 9.1% in Q4. Chairman & CEO Bob Gamgort says ‘KDP again delivered on its annual financial commitments in 2020, capped by a strong fourth quarter with exceptional growth in net sales that was driven by market share gains across our portfolio and accelerated household adoption of the Keurig system.’ It says ‘while we expect 2021 to be another challenging and unpredictable year, we’re confident in our ability to deliver the final year of the merger commitments communicated in 2018.’ It concludes ‘in 2021, KDP expects to deliver another year of strong growth and exceed its three-year merger target of 2-3% average annual growth.’ • Reports that Bruntwood Works and BrewDog have exchanged contracts & will open a BrewDog Hotel in the city to be called Doghouse Manchester. Rooms will be beer-themed. • Yo! Sushi has announced that John Walden is to join the group as chairman. HOTELS & LEISURE TRAVEL: • Some travel industry leaders are suggesting that vaccine passports could be available in time for the summer holiday season. The Times reports ‘vaccination passports will be here by summer.’ It says German Chancellor Angela Merkel has commented ‘everyone agreed we need a digital vaccination certificate.’ • However, EU president Ursula von der Leyen said developing the relevant technology would take “at least three months”. The European Council said in a statement: “We are determined to continue to coordinate our action to tackle the pandemic. For the time being, non-essential travel needs to be restricted.” • Jet2holidays has suggested that the success of the vaccine rollout programme in the UK could mean that Britons are the first nationality that many overseas destinations will let visit. • YouGov data has said there is little evidence of a boom in overseas holiday bookings. It says 9% of adults had booked a summer holiday in the UK when asked on 11 Feb – and the number had only risen to 11% on 25 Feb. YouGov says 6% had booked an overseas holiday by 25 Feb compared to 7% on 11 Feb. • STR reports that US hotel occupancy in the week to 20 Feb was down 24% on the same week last year. Room rates were down by 22% and REVPAR was 41% lower. • The former US embassy in Grosvenor Square is to reopen as a Rosewood Hotel. The unit will comprise 139 rooms and suites. OTHER LEISURE: • Flutter, which reports full year numbers tomorrow, has reportedly made £14m in shares available to staff for working during the pandemic. CEO Peter Jackson says, with regard to the review of gambling currently underway and the threat to advertising in sports, ‘if gambling is not allowed to continue its association with sports, because that’s what the Government decides, I think there would need to be a good transition period. I don’t think that the switch would be an easy one because the gambling industry is a source of revenue for the sector.’ • Twitter is aiming for revenues of at least $7.5bn in 2023, up from $3.7bn last year. FINANCE & MARKETS: • Budget – see above. • Sterling up at $1.3982 and €1.1568. Oil down at $65.45. UK 10yr gilt yield up 3bps at 0.82%. World markets mixed to lower on Friday but Far East up in Monday trade & London set to open around 74 points higher. MORE LEISURE SNIPPETS: Last-mile delivery company Gophr has received £4m in a new funding round. A new restaurant, Bad Vegan, is opening its first site at Buck Street Market eBay is reportedly set to spend ‘millions’ on expanding in the UK The Hong Kong bar industry has reportedly seen 15% of its bars close The consumer: LCP reports 6 million people have become ‘accidental savers’ The consumer. Rail fares are to rise by more than inflation for the first time in 7yrs Discover Holidays, which includes brand Disabled Holidays, has ceased trading. A study commissioned by RCL finds that the transmission of aerosol particles / Covid risk via air con on board ships is ‘exceptionally low’. Walt Disney is to open a Star Wars hotel, the Galactic Starcruiser hotel, later this year Extended Stay America executives see a lot of opportunity for expansion Eurotunnel parent Getlink has reported “robust revenue” and a “solid performance” last year despite Covid RETAIL WITH NICK BUBB: • See Premium Email • Saturday’s Press and News (1): The front-page headlines of the Saturday papers were very mixed: the FT highlighted an exclusive pre-Budget interview with the Chancellor (“Sunak warns of bills to pay from “exposed” public finances”) and the Times also had a Budget theme: “First-time buyers get boost for new loans”. The Daily Mail, however, went with the view that Covid deaths have been inflated by coroners (“What is truth about Covid deaths?”), whilst the Guardian ran with “Saudi crown prince approved Khashoggi murder: US report”) and the Telegraph revelled in the testimony of the disgraced SNP leader Alex Salmond: “Salmond denounces Sturgeon: “Scotland’s leadership has failed””.
• Saturday’s Press and News (2): In terms of Retail news, the Pets at Home update on Friday morning generated lots of positive headlines and boosted the share price on a weak day for the sector and the stockmarket eg the lead story in the Telegraph market report was headlined “Investors left purring over Pets at Home profit upgrade”, whilst the Daily Mail went with “Pets at Home on a roll amid lonely lockdown” and the Times ran with “Puppy love in lockdown is playing to strengths of profitable Pets at Home”. On the Housing market related front, the final results on Friday from the dominant Online portal Rightmove (which has a market cap of as much as £4.9bn…) were less well received, with the shares falling by nearly 7%, as noted by the lead story in the Daily Mail market report (“Investors gazumped as Rightmove profits dive”) and although the article in the Times was headlined • Sunday’s Press and News (1): Inevitably, most of the headlines on the front pages of the Sunday papers were about the upcoming Budget: the Observer went with “Sunak’s £5bn plan to rescue High Streets from collapse”, the Sunday Telegraph ran with “Sunak plots tax raid on parcels and freelance workers” and the Sunday Times flagged that there would be a “Stealth rise in income tax to pay Covid bill”. The Mail on Sunday trumpeted that “A single jab is giving 90% protection!”.
• Sunday’s Press and News (2): In terms of Retail stories, there was an interesting scoop on the Mail on Sunday News pages that Amazon’s first Go “contactless” convenience store in the UK is going to be in Ealing, but, following the scoop last week that John Lewis is planning to close up to 8 more stores, the main story was the Sunday Times revelation that John Lewis Partnership is planning to open hundreds of mini-John Lewis concessions inside Waitrose stores (like the one opened recently in Wallingford) and also looking at a smaller John Lewis Local store format for High Streets. The Sunday Times article also highlighted that the new Chairman Sharon White was brought in to take tough decisions about John Lewis, following the expansion orchestrated by her predecessor Charlie Mayfield and the former John Lewis MD Andy Street: this point was also underlined by a hard-hitting column from
• Sunday’s Press and News (3): One of the main Business stories in the Sunday Telegraph was that Morrisons is in danger of being booted out of the FTSE 100 index in Wednesday’s review by the recently floated Dr Martens…The Sunday Telegraph also flagged that Rymans, the stationery chain owned by “Dragon’s Den” star Theo Paphitis, is embroiled in a row with landlords over unpaid rent and that Walmart will pick up the bill for an equal pay battle at Asda despite the sale to the Issa brothers. The Mail on Sunday highlighted that “a former JD Sports executive”, Nick Preston (who we have never heard of) has brokered a deal to buy the Thomas Pink brand and the paper also had a profile interview with the boss of eBay UK, Rob Hattrell, who warned the Chancellor that an “Online tax raid will hit small firms and shoppers”. The Sunday Times had an article about “the secretive brothers from • Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the columns by the Sunday Times Economics correspondent David Smith (“Sunak must support us now- and make us pay later”), in which he argued that the Chancellor must focus in Wednesday’s Budget on more short-term support for the economy and by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“My big Spac venture and a golden opportunity for listing rules reform”), in which he highlighted that “Spacs are just another symptom of the bubble-like conditions that US stockmarkets find themselves in”. There was also a good column by the Economics correspondent of the Observer arguing that “Austerity is alive, well and giving social care a kicking”.
Today’s News: Today was meant to be a quiet day, but Morrisons and McColl’s have announced that they are extending their wholesale supply partnership for another 3 years and that 300 McColl’s convenience stores are to be converted to the Morrisons Daily format. Both companies have issued press releases, with Dave Potts, CEO of Morrisons, saying that “Today’s agreement is another example of Morrisons extending the reach of our popular brand” and Jonathan Miller, CEO of McColl’s, saying “I am delighted to extend our partnership with Morrisons by a further three years…In Morrisons we retain a long-term partner with best-in-class sourcing and manufacturing capabilities”. Ahead of its y/e November final results on 23 March, McColl’s has also issued a trading update, to flag that over the last 12 weeks last year’s trading trends have continued, with gross margins down for mix reasons, but LFL
Friday’s News: There was quite a bit of interesting news out on Friday afternoon…With February rapidly coming to an end, the embattled Card Factory provided a “liquidity update” at 3.19m on Friday afternoon, to flag that its banks had given it another month to agree new loan covenants, but it sounds like there was a price to be paid for retaining the support of its bankers, as the company had to add, ominously, that “we are engaged on a plan to refinance the company” (which killed the recent strong share price rally stone dead). And then, at 3.25pm, mighty Boohoo announced that one of their non-exec Directors, Iain McDonald (fresh from his work in establishing a new Online retail lobby group, the UK Digital Business Association: the UKDBA) had taken advantage of the recent fall in the Boohoo share price to buy 100,000 shares at c335p. And over in the US, JD Sports’ big rival, Foot Locker |
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