Fuller’s, Deliveroo, JDW, Jet2, Entain, masks, staffing issues etc.:

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A DAY IN THE LIFE:

Bit of a rush this morning, what with the football and a hatful of company results. On to the news:

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FULLER, SMITH & TURNER – FY NUMBERS:

Fuller’s has this morning reported full year numbers to end-March and our comments thereon are set out below:

The numbers:

• Fuller’s says it has turned in a ‘resilient performance in an extraordinary year that started and ended with our entire pub estate closed, and with social distancing restrictions for 16 months to date’

• The company says c71% of the year was lost.

• It says it has seen ‘high customer demand while sites were open [which] gives us confidence in our ability to rebound strongly as restrictions are eased.’

• Revenues for the year were £73.4m (2020: £319.7m) with an adjusted loss before tax of £48.7m (2020: profit £19.4m).

• The group reports that net debt has risen to £218.1m from £178.9m last year. The group is reporting a basic loss per share of 87p versus a profit in the prior year per share of around 5.8p.

• There is no full year dividend proposed ‘in light of pandemic impact on trading performance, but [the group’s] intention is to return to progressive dividend policy at the appropriate time.’

Current Trading and Outlook

• Fuller’s reports that its estate is now fully reopened, albeit with restrictions

• It says that its ‘balanced business in terms of operational style, geography and demographics with varying recovery trajectories across the estate’ offers some protection

• The group says ‘current net debt levels are below where they were pre-pandemic, helped by strong cash generation since reopening’

• Managed like for like sales for the 12 weeks to 3 July 2021 were running at 76% of 2019 levels

• The group says this is ‘reflecting the continued impact of social distancing restrictions on trading, particularly in our London pubs’

• Fuller’s says it has over 90 projects planned during the year and it is looking forward to trading fully with no restrictions from 19 July. The group adds that it is ‘in excellent shape to continue to deliver long-term strategy and growth.’

Company comment:

• CEO Simon Emeny comments ‘the end of restrictions is now just 11 days away and our pubs and hotels are perfectly placed to benefit from growing consumer confidence and the return of normal life.’

• He says ‘the boom in staycations and desire to get back out with friends has led to strong trading in parts of our estate – particularly Cotswold Inns & Hotels and our rural pubs with rooms – and  there is an incredibly busy season to come with numerous weddings and a high level of advance bookings.’

• Current LfLs are running at 76% of 2019 levels and the group, with its predominantly freehold estate, says ‘cash generation is strong and our net debt levels are below where they were pre-pandemic.’

• Fuller’s says that it is founded on its ‘iconic, predominately freehold, well-invested estate of stunning pubs and hotels, which are geographically southern based and cover city, town, village and rural locations.’

• The group says ‘with our strong Balance Sheet, a cash generative business and the fact that the enduring appeal of the high-quality British pub has never been stronger, we look to the future with confidence.’

JD WETHERSPOON – FY TRADING UPDATE -CONFERENCE CALL:

JD Wetherspoon hosted a conference call post its full year trading update and our selective comments thereon are set out below:

Covid-19 changes:

• The upcoming relaxations on 19 July should increase capacity (in that it will remove social distancing & allow ordering from the bar).

• Re increased efficiency, the group says its app is pretty efficient but table service for cash and card is expensive. Allowing customers to go to the bar will reduce costs.

• Re demand, it is unclear how the consumer will react. The company says a boost is likely but not a certainty. It reports that managers and area managers strongly believe it will increase. On balance, this is likely ‘subject to inevitable changes of government direction in coming months.’

VAT and other costs:

• VAT – most of the decrease was ‘largely’ passed on to customers. Prices will be adjusted upward when VAT rises. The group took the drop in VAT on food and spread it across food and drink.

• Wage pressure and competition for staff. Quite a lot of pressure driven by self-isolation requirements. This should peak and then abate post 19 July.

• Re longer term staffing issues. JDW retained ‘the vast majority of its employees’ and most have returned. There are ‘no particular recruitment issues’ other than in seaside towns.

• There are ‘no particular pressures that could lead to the need to put up wages’. This could change when all pubs fully re-open.

• Regarding more general costs, the group says it has seen nothing unusual as of yet, but says this possibly hasn’t reached the company yet as drink contracts are usually long term and are subject to inflation-linked increases.

• Food pricing is generally more volatile but ok so far, nothing major to report ‘albeit with some swings and roundabouts.’

• Re rents, there is downward pressure. The group has been able to ‘regear’ a few leases extending the terms for lower rents or rent-free periods. It says this is ‘helpful but not enough to really move the needle.’

• Elsewhere, the group is buying the freeholds of properties it leases, where possible

• Business rates have now risen to 33% of normal levels is being charged from July 2021 onwards, relating to English pubs. There was no cash-cap to the benefit between 1 April and 30 June this year but, from 1 July, the benefit is capped at £2m per business. JDW says this is an ‘imminent big increase from zero.’ It points out that Scotland, Wales and Northern Ireland are due to start charging again from April 2022.

Selling prices:

• How do your prices compare with nearby pubs? The company has done a comparison – but it is harder than usual to be definitive. The pricing gap has, if anything, widened. This may be because competitors have not passed on VAT reductions. Hence, the gap could narrow.

Overall trading: 

• The company says the scenario at the time of the placing was for a slightly lower EBITDA than is now expected. Repairs and wage costs were projected a little higher.

Balance sheet issues:

• Re working capital. The company says that working capital inflows (due to higher levels of trade, new pubs etc) will more than compensate for the negative impact of rental payment catchups etc.

• Re acquisition opportunities, distressed competitors etc, the company says that there are fewer ‘bargains’ on offer than one might expect during a “recession”. This is consistent with comments from other companies regarding prime assets, freeholds in particular. The market for leases could be somewhat softer

PUBS & RESTAURANTS:

Isolation, track & trace, lost workers etc.

• There are a series of estimates pointing in the same direction but giving somewhat different numbers (depending on assumptions). As many as 1.4m Brits per week could be ‘pinged’ by track and trace to stay at home this summer, as forecasts predict as many as 100,000 positive cases per day. The Daily Mail stretches to an even more debilitating 3.5m people pinged and told to leave the workforce each week. The Delta variant is thought to have an unrestricted (i.e. open economy, no countermeasures) R rate of around seven. In addition, each covid case is said to result in an average of one additional individual forced to self-isolate per week. Javid has said that from August 16, double-jabbed Brits would not need to isolate as long as tests come back negative.

• A few examples. Different time periods & assumptions – but it adds up to a sizeable problem, especially for industries employing younger workers. UKHospitality estimates that up to one third of the hospitality workforce could be off work self-isolating. Kate Nicholls, CEO of UKHospitality, said 60% of hospitality staff are aged between 15 to 34 and so will not be double-jabbed by 16 August.

• Per the Guardian, two million people could contract Covid this summer, potentially meaning up to 10 million must isolate in just six weeks. This is not a crazy number given estimates as widely separated as those in the Financial Times (2m per week) and The Daily Mail (3.5m per week). Health minister Sajid Javid said England is set to enter ‘unchartered territory’ as restrictions ease. Per the Sun, members of the public are deleting the track and trace app in ‘droves’ amid warnings that millions will have to self-isolate. The Sun reports that up to 3.5 million Brits are expected to be stuck in self isolation by early August if 100k cases per day is reached.

• Meanwhile, demand for staff is rising sharply per KPMG and the Recruitment and Employment Confederation. The firms find the rate of recruitment is growing at the fastest rate since 1997. KPMG says ‘June’s data confirms that momentum in the jobs market continues to surge, with improved business confidence leading to record high recruitment activity.’ It adds ‘for the fourth month running we’re seeing a decline in the availability of candidates to fill all these new roles and the most severe deterioration for 24 years. We need action from businesses and government to re-skill and up-skill furloughed and prospective workers now more than ever.’

Mask wearing:

• Mask wearing. In the recent past (and, indeed, now) there has been no choice in the matter but, as there will be choice involved post 19 July, there is immediately disagreement. It could help revenues if a pub once again feels like a pub but, it has to be conceded, some customers may feel differently.

• Further comment. Young & Co & Revolution (pubs) and Sainsbury (pretty obvious) have said they will ditch mandatory mask wearing as soon as possible. New Health Secretary, Sajid Javid, says he doesn’t like them and won’t wear them. Nobody, that we’re aware of, has said they will ask anybody not to wear them. There is talk of the joy of ‘seeing smiling faces’.

• Slightly more conflicted are worker unions (our staff will be exposed) and certain airlines (which will require masks still to be worn). Sir Keir Starmer says that they should still be mandated on public transport (decision to be announced) and union USDAW says ‘the Government should not be weakening safety measures in shops at the same time as opening up other venues. There is no reason why requirements to wear face coverings and maintain social distancing in busy public areas like shops cannot continue.’ This seems halfway sensible.

• Clive Watson of City Pub Group says customers will be ‘encouraged to wear masks’ and staff will be asked to do so. Heathrow and the Gaucho restaurant chain has said they will continue with mask-wearing. This will include for customers at Heathrow but whether it is staff or staff and customers in many other venues remains unclear. The Caterer trade journal quotes a number of operators as suggesting that staff will wear masks. This could be reassuring for some customers.

Company & other news:

• Deliveroo has updated on Q2 trading saying that it has been ‘ahead of expectations’ and the group is increasing its growth guidance for the full year.  Gross transaction value is up 76% in Q2 to £1.74bn. Deliveroo says that ‘orders grew 88% year on year at the group level to 78m in the second quarter of 2021. In the same period orders in the UK and Ireland grew 94% year on year to 38m and orders in the Group’s international segment grew 83% year-on-year to 40m.’

• Deliveroo says it has ‘seen continued strong growth and consumer engagement in H1, and as a result of that plus increased expectations for H2 is increasing the guidance for full year annual GTV growth from between 30% to 40% to between 50% to 60%.’ The company says it ‘sees an opportunity to make further discretionary investments into growth opportunities in the second half, and as a result of accelerating these investments in H2, along with an expectation that AOV reverts towards pre-COVID levels, we are confirming our full year gross profit margin guidance (as a % of GTV) and expect it to be in the lower half of our previously communicated range.’ The group will be reporting its H1 2021 results on August 11th.

• England is through to its first major final in 55yrs. The match, to be played on Sunday, should boost income for wet-led pubs.

• Licensing laws will be relaxed for Sunday in case the Euro final goes to extra time and penalties.

• JD Wetherspoon shares closed down nearly 2% (24p) yesterday in a market up 0.6%. The shares were just giving back a little of their recent gains as they had risen almost £1 since the beginning of this month. The pubs have seen sales slip over the period of the Euro football tournament. The Times points out that JDW had two share placings last year and that chairman Tim Martin sold shares totalling £60m in January 2021 (£50m) and December 2020 (£5m) and July 2020 (£5m). It says that Mr Martin’s share of the company has thus fallen from 32% to 25% but adds that he has no plans to retire.

• Staff shortages. The government is temporarily extending the hours HGV drivers can work from nine hours to 10 hours. The limit was originally put in place as a safety measure. It has been relaxed in order to partly compensate for the c100,000 shortfall in drivers. The Road Haulage Association has said the move wouldn’t make any difference. Union Unite has said that any driver who feels too tired to drive safely has a legal right to refuse to do so. Perhaps even an obligation.

• Deliveroo will create 400 new ‘high-skilled’ jobs over the next year in areas such as software engineering, data science, and designing. The firm said the aim was to work on a range of innovations that would help improve the app experience for restaurants, riders, and customers on the platform.

• Brewdog’s advert for its hard seltzer brand, Clean & Press, has been banned by an advertising watchdog for its purportedly misleading health claims. A spokesman for BrewDog said ‘We have accepted the ASA ruling and have removed the wording in question.’

• Further comment: It’s tempting to say, with the football on, that BrewDog is picking up a few yellow cards. It has been in the news for apparently tolerating a toxic culture of bullying and intimidation, it has had to concede that a ‘solid gold can’ that it was giving away was primarily made of brass and now it has been had up on misleading ads. Perhaps this is a coincidental run of bad luck or perhaps the halo has slipped. Time, we would assume, will tell.

• Arena Events Group reports revenues down more than 50% over the past year to £71.6m, compared to the previous period’s £160.6m. Greg Lawless, CEO of Arena Events Group,said ‘We are cautiously optimistic about the pace of recovery in the live events industry, which has started later than we would have liked as Covid-19 restrictions have returned in some countries and remained in place in others longer than anticipated.’

• GrubHub in the US is to use self-driving vehicles for robot delivery of meals on college campuses.

• Wine Australia reports the country’s grape crush is up 31% on last year, making it the largest on record. Vine growers across Australia have reportedly harvested 2.03 million tonnes of wine grapes this year thanks to a near perfect ‘unicorn’ season.

JET2 – FULL YEAR NUMBERS:

• Jet2 has reported full year numbers saying that, ‘in what has proven to be a period of unparalleled operational and financial challenges, the Group made a loss before FX revaluation and taxation from continuing operations of £373.8m (2020: pre-exceptional profit before FX revaluation and taxation from continuing operations of £264.2m).’

• The group says that, during Covid (and now) it has worked to minimise cash burn. It says ‘our year end liquidity position remained strong with a total cash balance of £1,379.0m, (2020: £1,387.5m), a decrease of 1% and an ‘Own Cash’ position of £1,061.7m (2020: £520.4m), an increase of 104%.’

• The company points out that ‘extensive international travel restrictions meant our aircraft were fully grounded for approximately 29 weeks of the financial year and operated a significantly reduced programme when flying was permitted.’

• It says ‘we believe opportunities for financially strong, resilient and trusted operators will only increase. Bookings for Summer 22, for which package holiday bookings are displaying a materially higher mix of the total are encouraging and with the vaccination progress being made, we are optimistic that Summer 22 will be a considerable improvement on both Summer 20 and Summer 21.’

• The company says ‘we are confident that once normality returns, our Customers will be determined to enjoy the wonderful experience of a well-deserved Jet2 holiday and that Jet2.com and Jet2holidays will continue to have a thriving future, taking millions of UK holidaymakers annually, to the Mediterranean, the Canary Islands and to European Leisure Cities and that Jet2 plc will emerge from this crisis an even stronger company.’

HOTELS & LEISURE TRAVEL:

• The government is to allow fully vaccinated travellers to avoid quarantine rules from later this month. Transport Secretary Grant Shapps will formalise arrangements later. They will include, per press reports, the dropping of the requirement of double-jabbed passengers to self-isolate when returning from amber list countries. This will open up traditional holiday destinations such as France, Spain, Portugal and Italy.

• Club Med has said that it expects summer 2022 “will be the busiest season on record.”

• British Airways is selling over 35,000 seats on UK to UK flights at less than £50 each way.

• Salutaris People, a provider of PCR covid tests, has called for the continued wearing of masks by airline passengers after 19 July. Ben Paglia, managing director of Akea Life and a founder of Salutaris People, said ‘It is a very dangerous and reckless precedent to allow a plane full of passengers to travel without face masks or coverings. Allowing passengers to travel without wearing masks could potentially set us back to the start of the pandemic when all air travel was banned.’

• P&O Cruises’ new 40-night winter sun Caribbean cruise on Aurora sold out in six hours on its first day on sale, with the line saying that the reaction demonstrates the pent up demand for cruise travel. Paul Ludlow, president at P&O, said the reaction ‘clearly demonstrates the desire from our guests for international cruising.’

OTHER LEISURE:

• Entain has updated on H1 trading saying that it has seen a ‘strong performance across the Group with positive trends as markets continue to re-open.’ Total Group net gaming revenue is up 11% in H1 and up 42% in Q2. CEO Jette Nygaard-Andersen says ‘we have delivered another strong performance across the Group.  Our diversified business model has enabled us to grow our business in all key markets while navigating channel and product mix changes as retail re-opens and we annualise last year’s restricted sports calendar.’ The CEO says ‘following our strong first half, we are upgrading our expectations for the full year and we remain confident and excited by the breadth and scale of the long-term sustainable growth opportunities ahead of us.’

FINANCE & MARKETS:

• Chancellor Rishi Sunak has been warned that Britain’s debts could prove to be “unsustainable” if interest rates rise to curb inflation and if Covid measures do not stop at the end of the current fiscal year (end-March 2022). The OBR has also warned that commitments to carbon neutrality could push up debt by a further £469bn over the next 30 years.

• Further comment. The picture we have here, and we may be wrong, is of a broadly financially sensible person being boxed in by a pincer movement caused by the pandemic and a person keen on making un-costed promises. We won’t say which we believe to be Chancellor Rishi Sunak and which is PM Boris Johnson. The problem is that there are no political prizes for saying ‘no’ and no financial prizes for not doing so. Que sera, sera.

• The OBR says that debt servicing costs could rise to 4% of GDP by 2050. UK GDP is around £2tn so 4% thereof is around £80bn, just to service debt. The OBR says that if interest rates were ‘to return to levels that were more normal in the past, it would raise the cost of servicing a given stock of debt and could – in extreme circumstances – push the debt-to-GDP ratio onto an unsustainable path.’ The extreme circumstances are not all that extreme and the analysis does give some credence to the suggestion that the Bank of England would not be too distressed to see a) inflation erode the real cost of debt whilst at the same time b) interest rates being persuaded not to rise to counter this.

• The Halifax reports that house prices fell by 0.5% in June (month on month). External estimates had been for a rise of around 1% plus. One month does not make a trend but the Halifax says it was “important to put such a moderate decrease in context.”

• Further comment: We always suggest that you should look at the incentives of the person making the comment in order to put it in context. And the Halifax most definitely wants a stable housing market undisturbed by fears of price falls. The Halifax may be right that this is a modest move. But its attempts to buoy the market could, perhaps, look a little transparent. It says ‘the power of home-movers to drive the market won’t fade entirely as the economy recovers’ and adds that this, ‘coupled with buyers chasing the relatively small number of available properties, and continued low borrowing rates, it’s a trend which can sustain high average prices for some time to come.’ And yet, prices fell.

• Sterling mixed at $1.3786 and €1.1685. Oil lower at $73.44. UK 10yr gilt yield down 3bps at 0.60%. World markets broadly better yesterday but Far East down in Thursday trade and London set to open down around 32pts as at 7am.

RETAIL WITH NICK BUBB:

• Nick is taking a well-earned break. He’s back on Monday.