Langton Capital – 2019-09-30 – PREMIUM – `Gig workers, MARS, late night spend, TCG etc.:
Gig workers, MARS, late night spend, TCG etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, Langton along with four of its five (adult or semi-adult) kids did make it to Go Ape over the weekend where the younger members dangled from various trees and swung into rope-nets, zip-lined across valleys and generally spent parental money and got filthy into the process.
And, though various of the trails were closed to allow rally enthusiasts to scream up and down narrow, undulating corridors throughout the forest, a good time was had by all.
However, it has to be said that tree-scrambling isn’t much of a spectator sport. After the first hour or so it gets a bit samey and neck-ache sets in but it’s a good job that we did it when we did as the heavens opened on Sunday and they don’t seem to have shut since.
Anyway, we’re at the dawn of a new week. Let’s move on to the news:
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TAKING GIG-ECONOMY WORKERS ONTO THE BOOKS: Moves afoot in California suggest that gig workers could be treated like standard employees, 30 Sept 2019:
• The California legislature has passed a bill (Tues 10 Sept, known as AB5) that will effectively re-classify gig-economy workers (delivery & Uber drivers) as employees.
• This has implications for 1) employment taxes (more of them & some of them paid by the company in the event that the employee cannot or will not stump up) and 2) for holiday pay and sick pay (which creates a liability for employers).
• This is currently a US issue but the matters being addressed apply elsewhere in the world. UK employers (Uber, Deliveroo etc.) could come under political pressure.
• NRN in the US says that such a move ‘will likely make restaurant delivery a more expensive proposition for those that rely on third-party players for that last mile of bringing food to consumer doorsteps.’
• This because the delivery companies will have to provide for sick pay, holiday entitlements and, probably, pension payments for delivery drivers that have not previously been considered as employees.
• In the US, the bill will impact employees ‘if a company exerts control over how they perform their job or if their work is part of a company’s regular business.’
• This would certainly cover food delivery.
• If the above were to be picked up in the UK, similar rules may be adopted. At present, the HMRC becomes interested in collecting (or rather having the employer collect) NIC and income tax if the ‘employee’ derives all or virtually all of his/her income from one source & that income is relatively regular.
• Elsewhere, the Pensions Regulator, arguably, wouldn’t need too much encouragement to get involved and minimum wage legislation could apply.
• In the US, there are thought to be around 450k gig workers in California alone.
Why it matters:
• Treating gig workers as employees would level the playing field somewhat between bricks & mortar operators and delivery companies.
• The cost of food deliveries would likely go up. The only way it couldn’t is if wages were cut, if restaurants were forced to accept higher commissions or if the delivery companies took a hit – and many of them are currently losing money already.
• Anything that changes the price dynamics between delivered food and the sit-down version would impact demand for both types of businesses.
• To say that the price of delivery food ‘would increase’ is, however, a little simplistic as it may be that the market could simply not bear higher prices. If this were the case, then delivery demand would fall.
• Whilst the above legislation has not spread to the rest of the US (let alone crossed the Atlantic), it does seem reasonable that, over time, the treatment of gig workers will ‘normalise’.
• If it does not, existing bricks & mortar operators could continue to be disadvantaged and governments may both lose revenue that they are not collecting in employment taxes and have to pay out more ultimately in social transfers to gig workers who are not getting sick pay, holiday pay or pensions.
GENERAL NEWS – PUBS & RESTAURANTS:
• The Sunday Times reports that Marston’s plans to sell c150 tail-end pubs for around £45m. The Times says ‘Marston’s is understood to have appointed advisers from Christie & Co to sell off 150 tail-end pubs for about £45m, in a process dubbed Project Harvest — part of its mission to pay down the debt. Initial bids were due on Friday, but the deadline has been pushed back until the end of this week.’
• Marston’s has recently cut back on its opening programme in order to more rapidly pay down debt. It updates on full year trading on 15 October.
• Nightclub operator Deltic’s latest survey of late-night spending patterns has suggested that UK consumers are spending more on a night out than at any point in the last three years.
• Deltic says the average spend on a night out is £70.69 this September. It says that is up by 25% on the same period last year and the highest since October 2016. That makes it rather a volatile series as very little goes up or down by 25% or so when inflation is just 2% and demographic trends are relatively stable.
• Deltic says that 61% of people went on a night out at least once a week in Q3 this year, up from around 56% last year. Peter Marks, CEO of Deltic comments ‘this quarter’s Deltic Night Index demonstrates that consumers are spending a significant portion of their disposable income on going out. However, these aren’t impulse purchases. People are clearly thinking about where and when they spend their money, as shown by the percentage of people that budget, and seek out the best value whilst enjoying a fantastic night out.’
• Shares in AB InBev’s Asia-Pacific unit rose c7% on their Hong Kong trading debut. The revived IPO was priced at the lower end of the projected range. AB InBev nonetheless raised c$5bn from the sale.
• The CGA latest Business Confidence Survey has found that the majority of Britain’s pub, bar and restaurant groups are keen to see the UK avoid a ‘no-deal’ Brexit, with only 7% of business leaders stating they thought it would be a good idea.
• Prezzo 40% off mains, Pizza Express 25% off food. Bella Italia offering 2nd main course for £1.00.
• The Food and Drink Federation has said that ‘continued access to EU preferential trade agreements [is] vital to avoid significant drop in exports.’ The FDF says that the UK Government has secured continuity deals for 15 existing EU preferential trade agreements out of a total of more than 40.’ This represents around £650m of trade out of a total of £1.5bn in H1 2019.
• The Society of Independent Brewers is teaming up with the Michelin Guide to bring independent craft beers to the exclusive Michelin Star Revelation event next month.
• The MCA UK Restaurant Market Report 2019 has found that sales at the top 50 branded restaurants in the UK have increased by 2.1% in 2019, against a backdrop of a market decline of 3.1%.
HOLIDAYS & LEISURE TRAVEL:
• Tui UK has announced that it will expand its tour programme, taking travellers to ‘off the beaten track’ locations.
• Comments now from both TUI and Jet2 suggest that capacity is going into the UK overseas holiday market in the wake of the Thomas Cook collapse. This is good news for operators in resort and probably a relief for would-be holidaymakers – but it does mean that any upward spike in margins as a result of TCG’s demise may only be temporary.
• CDL has reported that it has had acceptances for its bid for Millennium & Copthorne from holders as at 27 September of 99.21% of the equity. As the bidder has acceptances of over 90%, it has chosen to compulsorily purchase those shares that it does not own. MLC’s shares will be de-listed on 11 October.
• ICAMAP, which is bidding for EasyHotel, has reminded investors that its bid closes tomorrow at 1pm. It may or may not be extended. If EasyGroup, which as indicated it will hang on, does not accept the bid, then ICAMAP will not be able to delist the shares.
• EasyHotel has announced that non-executive Chairman Jonathan Lane has confirmed his intention to step down from the Board and to leave the Company on 1 October 2019. EZH says ‘following Jonathan’s resignation, Non-Executive Director Scott Christie will assume the role of Interim Non-executive Chairman.’
• Jet2.com and Jet2holidays have added more than 170,000 seats to the Canaries, Turkey, Cyprus, Greece and the Balearics. The company claimed the extra flights were being added because of increased demand between October to March, rather than a response to slots being available after the collapse of Thomas Cook.
• Merlin announces plans to open a Legoland in Sichuan, western China, by 2023. Merlin Entertainments has entered into a partnership agreement with Global Zhongjun Cultural Tourism Development to build and operate the resort.
• DER Touristik acquires Czech-based Fischer Travel Group for an undisclosed sum.
• CAA data shows 143,000 departing passengers who used London City Airport last year live within a three-mile radius, up 22% yoy.
• More on TCG.
o Union TSSA suggests that Thomas Cook boss Peter Fankhauser’s claim that he was not a fat cat does not stand up to scrutiny. The TSSA says ‘unlike employees he walks away having been paid millions of pounds. It’s our members who are paying the price.’
o Profits at Barrhead Travel fell to £1m last year despite a 6.6% growth in revenue to £320 million from £300 in the prior year.
o The FT looks at the track record of the three most recent bosses at TCG, Peter Fankhauser, Harriet Green and Manny Fontenla-Novoa concluding that ‘previous executives sowed the seeds of [the company’s] downfall with a debt-fuelled expansion and an inability to deal with disruption from new online rivals.’ It says that Mr Fontenla Novoa liked doing deals, Harriet Green splurged £180m on advisors and left Peter Fankhauser, a travel industry lifer, to inherit ‘a company that was “the most complicated simple business I’ve ever seen,’’ according to one person close to the liquidation process.’
o TCG arguably never had the capital to get back on a level footing. The FT says ‘Mr Fankhauser and Mr Fontenla-Novoa declined to comment. Ms Green did not respond to requests for comment.’
o Travel Weekly agrees that this was not a collapse that could be pinned on any one single event. It says that the merger with MyTravel ‘was strategically wrong’ and money was wasted on pan-European reservation systems. Entry into the Russian and Indian holiday markets proved to be ‘complete disasters’ and the group failed to sufficiently differentiate its product as it was assailed by low-cost airlines and new entrants such as Jet2.
FINANCE & ECONOMICS:
• Bank of England MPC member Michael Saunders has said that the bank may need to cut interest rates should Brexit uncertainty persist.
• The IFS has said that PM Boris Johnson’s various spending commitments will put a £26bn hole in the public finances. Moving higher rate tax bands up from £50k to £80k would cost around £9bn in lost revenue.
• The White House is said to be considering de-listing Chinese companies from US stock exchanges. Alibaba fell 5% on the news.
• Trade minister Liz Truss has said that Britain will be a low-tax, flexible economy after Brexit.
• Sterling lower at $1.2291 and €1.1237. Oil down at $61.75. UK 10yr gilt yield down 4bps at 0.48%. World markets mixed with UK & Europe higher on Friday & US lower. Far East mixed in Monday trade.
• The FT reports that spending promises being made by government (another £25bn on roads mentioned today) are coming under scrutiny as they do not seem to be consistent with slow growth and no increases in taxation. The government also says that it will build 40 new hospitals, spend more on the police & prisons and spend £5bn to support the rollout of high-speed broadband networks to rural areas.
• Brexit & politics:
o Various suggestions that PM Boris Johnson believes he cannot be compelled to write a letter to the EU requesting a Brexit extension.
o Mr Johnson is insisting that he did not have a conflict of interest when Mayor of London when his friend, Ms Jennifer Arcuri, received thousands of pounds in sponsorship grants.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): In the Saturday papers, the Times had the most to offer in terms of Retail stories, leading with more revelations from the bitter legal row between Ocado and its co-founder Jonathan Faiman (his lawyer has been accused of “burning” incriminating evidence). The Times also flagged that the owner of Poundland has rebranded itself from Pepkor to Pepco, to link itself with the central European discount chain of the same name and to distance itself from its troubled South African parent Steinhoff, ahead of a potential IPO. The Times also had a feature interview with the new boss of Mulberry, Thierry Andretta, who has “bags of ambition” to expand Overseas and drive Online sales.
• Saturday’s Press and News (2): In other news, the stockmarket report in the Telegraph noted that Justin King, a non-exec at Marks & Spencer, has followed Archie Norman in buying some shares, whilst the Daily Mail highlighted that Clive Whiley, the Chairman of Mothercare, has picked up a second job as Chairman of Dignity, the funeral business. The Daily Mail also focused on Tesco in its “Popular Shares” column (ahead of next week’s interims). Finally, Bryce Elder, the well-respected stockmarket correspondent of the FT, had an interesting, if not very well informed, column about the uncertain outlook for JD Sports in the US, notwithstanding the support of mighty Nike (”US expansion for JD Sports looks like a tough match”).
• Sunday’s Press and News (1): There were some interesting front page headlines in the Sunday papers, with the Observer flagging that “PM “whipping up riot fears to avoid Brexit extension”” , whilst the Sunday Times led with “Arcuri “told friends of affair with Boris””, the Sunday Borisgraph went, ludicrously, with “Johnson: I will build 40 new hospitals” and the Mail on Sunday, shamefully, ran with “No 10 probes Remain MP’s “foreign collusion””…
• Sunday’s Press and News (2): The main talking point in terms of Retail stories was the Sunday Times story about the lurid revelations in the legal row between the shoe firm Clarks and its former boss Mike Shearwood (“Clarks rocked by claims of racism, sexism and fraud”). The Sunday Times also flagged that Sainsbury is demanding that suppliers absorb any post-Brexit tariff rises, whilst the Observer highlighted the post-Brexit fresh food supply disruption fears flagged by Tesco, ahead of its interims next week. The “Stockmarket Watch” column in the Mail on Sunday highlighted that City brokers are bullish about what Tesco will have to say with its interims and also that M&S will focus on the overhaul of its Food business in its presentation to the City next week. The Sunday Times also had a feature interview with Mark Langer, the boss of the fashion business Hugo Boss, on his
Today’s Press and News: The news that another of the beleaguered Arcadia’s subsidiaries, Miss Selfridge, has reported big losses for last year is picked up by the Guardian and the Daily Mail, inter alia. The Times flags that that the struggling Mamas and Papas chain has brought in advisers to put the business up for sale and it also follows up the Sunday Times story that Sainsbury is demanding that suppliers absorb any post-Brexit tariff rises. The Telegraph leads its preview of the week’s company news with the headline that “Greggs remains on a roll” and it also has a useful “SWOT” analysis on Tesco ahead of tomorrow’s interims and flags that there are City fears that Ted Baker will try to raise money on the back of its interims this week.
News Flow This Week: As the Tory Party conference continues in rainy Manchester and as we move into October and Q4, there is again plenty going on in the Retail sector this week to distract us from the crisis in UK politics, kicking off tomorrow with a Marks & Spencer Capital Markets Day, the ScS finals and the Greggs Q3 update. Wednesday then brings the Tesco interims and the Topps Tiles pre-close update, with the Ted Baker interims following on Thursday.