Langton Capital – 2020-07-02 – PREMIUM – M&B H1, more on SSP job cuts, re-opening, furlough etc.:
M&B H1, more on SSP job cuts, re-opening, furlough etc.:
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MITCHELLS & BUTLERS – H1 NUMBERS: The group says it was outperforming before the lockdown & that its experience in Germany gives it an advantage over other operators. 2 July 2020:
Mitchells & Butlers has this morning reported H1 numbers for the 28wks to 11 April and our comments are set out below:
• Total revenues were £1.039bn, down from £1.186bn last year. As it is a 28wk period, the first half includes nearly 4wks of closure
• LfL sales growth was 0.9% before closure. Clearly it was minus 100% thereafter
• The group says its sales performance had ‘remained consistently ahead of the market’
• The operating loss for H1 was £51m versus a profit in the prior year of £140m. The basic loss per share is 25.0p vs a profit per share of 14.3p last year
• The company says it had demonstrated ‘strong operational performance demonstrated before lockdown’
• It says it has taken ‘rapid and effective action’ since in order to ‘protect guests and team members and to reduce costs’
• The company has new financing agreements in place that ‘provide security and flexibility’
• It says that it has an advantage over some of its competitors in that the ‘experience of [its] German business provides clear path for re-opening’
Balance Sheet, Debt etc.:
• M&B says that it has now access to unsecured, committed financing facilities upped by £100m to a total for £250m to December next year. Total net debt is £2.2bn (including lease liabilities)
• Capex this year will include two new sites and 166 conversions totalling around £82m (2019: £90m)
• The group is recording a reduction in property values of £524m
• CEO Phil Urban says ‘the business was performing very well before the enforced closure in response to Covid-19, building on the strengths of our estate of mainly freehold properties…’
• Mr Urban says the company’s ‘assets, coupled with our early experience of re-opening in Germany, give us a clear plan for re-opening and ensure that we are well placed to continue to bring people and communities together and to keep Mitchells & Butlers at the forefront of the eating and drinking-out market.’
• As regards current trading, the group says ‘we continue to be focused on emerging from the Covid-19 induced crisis in a position of strength with the intention of continuing to build the business and outperforming the industry.’
• It says the financial arrangements it now has in place ‘provide sufficient liquidity to survive a delay in re-opening beyond our current expectation of early July.’
• M&B adds that ‘uncertainty remains over a number of important variables, including the re-opening profile of our sites, the social distancing measures which will need to be in place and the strength of consumer demand.’
• It says, unsurprisingly, that ‘we do not feel it is currently meaningful to give forward guidance.’
• M&B has recently outperformed the market – when there was a market to outperform.
• In common with its peers, it has accessed additional capital and believes that it is in a good position when it comes to reopening.
• The timing would appear to be unclear. The company will be asked for more guidance at its 8.30am conference call.
• The group has strong asset-backing and, though it has been impacted by Covid-19 along with the rest of the industry, it is better-positioned than most to recover once recovery is allowed to begin.
• The group’s share register and its dividend policy arguably require a bit of work – but these are tomorrow’s issues. First, we would like to see when the group’s pubs are going to reopen and see just how trading pans out thereafter.
SSP YESTERDAY ANNOUNCED REDUNDANCIES: These were all in the UK. None anywhere else. What’s behind that? 2 July 2020:
SSP making a statement with it chequebook:
• A lack of competence or will power or foresight or simply bad luck? Either way, money talks and SSP is paying money to jettison staff in the UK but it is not doing so elsewhere in the world.
• SSP says that the recovery in the UK now looks more sluggish and it says that it will remain so over the near term.
• It may be wrong, of course, but SSP is a global player and it isn’t a pointy headed academic. It is playing and paying with real money. The cost of making 5,000 people redundant could run to £10m and it isn’t something the company would do lightly. But it is only cutting staff in the UK. Why is that?
• SSP says ‘we are beginning to see early signs of recovery in some parts of the world and are starting to open units as passenger demand picks up.’ It says ‘however, in the UK the pace of the recovery continues to be slow.’
• This has spawned the job cuts. SSP goes on to say that ‘the medium-term prospects for the Group remain positive.’ But the UK seems a little out of step.
• SSP does not attempt to put its finger on any one reason or another. The blame game would be a hot political potato and not something that would appeal to a global PLC.
• SSP simply says re the UK that ‘our intention was to re-open units and bring back our teams as rapidly as possible once passenger demand recovered’ but it says ‘the reality is that passenger numbers still remain at very low levels, a reflection of the extent and duration of the current restrictions in place. In the Rail sector, which represents the majority of SSP’s UK operations, passenger numbers remain c. 85% lower YOY and the UK Air sector has to date been largely closed.’
SSP on travel:
• The company, some might say, is damning with faint praise re the travel market in the UK. It says that air bridges could ‘lead to some limited return of short-haul air travel demand in July, although capacity is expected to be significantly reduced, and long-haul travel is anticipated to remain at extremely low levels.’
• It says the recovery in rail ‘is expected to be prolonged.’
• SSP sees only 20% of its units opening ‘by the autumn.’ It is therefore worth its while to sack staff, even if it has to take some back on further down the line.
• The c5,000 staff that it is talking about making redundant are all in the UK. The cost of the action will be between £8m and £10m.
PUB & RESTAURANT NEWS:
Covid-19 issues & reopening:
• UK Hospitality has said that 460,000 jobs are at risk if the Government does not extend its package of hospitality support and include support for suppliers within it. UKH says ‘as we begin the process of reopening, a new survey by the UKHospitality Supplier Alliance, shows that hospitality suppliers are an intrinsic part of the hospitality sector, have suffered alongside operators during lockdown and will be critical to a successful restart.’
• Suppliers tend to be dedicated to the sector and they have been unable to pivot to supply other parts of the economy that have remained open. UKH says its ‘survey results spell out the fragile state of supplier confidence, current hardships faced and the prospect of mass redundancies and business closures if Government support is not extended through early trading.’
• CEO Kate Nicholls says ‘the supplier network is integral to the hospitality ecosystem. These businesses will provide critical support to operators and will be an essential part of a successful restart. Suppliers will also be the last to be paid.’ Ms Nicholls says ‘after months of little to no revenue and with a requirement to invest in order to play their part in the restart, the supply chain is at a critical point.’ She says ‘without support, many [suppliers] will go to the wall, operators will disappoint their customers and a potential 460,000 team members will find themselves unemployed’.
• CGA now reports that as many as two thirds of operators are set to lay off staff when furlough ends with an additional 20% yet to make up their minds.
• Spare a thought for suppliers.
• Many if not most operators’ stock market statements during the Covid-19 shutdown have commented on their slashing of capital spending. And, whilst this is understandable and almost certainly unavoidable, one company’s capex is another company’s income.
• These are deferable purchases, of course, but kitchen equipment manufacturers amongst others are hurting. The Foodservice Equipment Association in the UK has taken a survey of its members and has found them in a rather gloomy mood.
• Equipment companies believe that there will be more second-hand equipment sales and more online sales. We would suggest that there may also be more machines repaired rather than replaced, though the survey suggested that the number of maintenance and service engineers will be reduced. Service levels in kitchen will be impacted over time but, in the short term, it is likely that operators will do what they must in order to conserve cash.
• The FEA’ CEO Keith Warren says ‘if there is a move towards service and more repair, obviously engineers are needed to do that. It’s going to be critical that we hold on to their knowledge and experience throughout this process.’ Manufacturing output is currently the lowest on record and 37% of manufacturers do not expect trading conditions to return for at least 6 to 12 months.
• Avoiding a second spike in Europe remains critical – see comments from McDonald’s below.
• We commented yesterday in the Premium Email that a lot of employers appeared to be counting their 45 day consultation periods backwards from the day, in August, when they will first have to pay their furloughed staff some serious money.
• At that point, companies run the risk of paying for staff that they don’t need and, harsh though it is, they are making decisions now in order to reduce their cash burn next month.
• Today, the negative news has continued with John Lewis saying it plans to cut an unspecified number of jobs and stores and Harrods saying that 700 roles are to go. The BBC says 10,000 jobs have been put on notice in the last 24hrs.
• Arcadia, which didn’t appear to be in the BBC’s thinking above is to cut 500 jobs.
• Casual Dining Group break-up looking likely.
• Sky News believes that Aurelius Equity has tabled a bid for Café Rouge and Bella Italia while PE houses ‘Endless and Trispan are vying to buy Las Iguanas as a break-up of Casual Dining Group, one of the UK’s biggest restaurant operators, looms’.
• Whichever way the chain is cut up, permanent closures and job losses are likely.
• Talking ahead of its staged reopening from Saturday, Loungers Nick Collins told CGA ‘we’ll take it as they come, we’re used to opening a new site every two weeks. The cycle of events is complex, but it’s not rocket science, it’s just about being organised.’ He says ‘we’ve been doing takeaway trials for the last few weeks with 27 sites open for delivery, which will turn to fully open on Saturday. We’ll look to open 20 sites per week going into August.’
• Shepherd Neame has said that ‘we expect to re-open at least two thirds of our pubs by the end of July.’ The company goes on to say its ‘financial position has been strengthened with the agreement of a £25 million borrowing facility utilising the UK Government’s Coronavirus Large Business Interruption Loan Scheme.’
• Shepherd Neame say ‘over the past three months, the Company has been run very tightly, minimising cost and preserving cash through every available avenue including the cessation of all non-contractual capital expenditure in the brewery and pub estate, the minimisation of all expenditure to the lowest level possible, and the use of Government assistance.’ It says ‘the Board is pleased to announce that its banking lenders…have agreed to increase the Group’s overall debt facilities utilising the UK Government’s CLBILS. The banks will provide the Group with a £25 million revolving credit facility of which £15m is committed and the further £10m available on request which will mature on 1 July 2022’
• Pizza Express expects to open 46 of its restaurants from 9 July. The company has written to landlords saying it is withholding its rental payments to landlords for Q3, which were due last Wednesday.
• McDonald’s in the US is to halt the reopening of more dining rooms in its home territory saying in a letter seen by NRN ‘keeping with our thoughtful approach to reopening, effective today, we are pausing all dine-in reopening plans for 21 days.’ It is doing this in reaction to a rise in new infections in some states.
• McDonald’s says ‘our resiliency will be tested again. COVID-19 cases are on the rise – with a 65 percent increase in infections over the last two weeks.’ It says ‘given the rise in COVID-19 cases, we must act with the same mindset and discipline we employed throughout the crisis.’
• McDonald’s has separately reported that its same-store sales in the U.S. were down 12% for the partial second quarter, which covers April and May. Breakfast was particularly hard-hit with that daypart being responsible for “more than half of the comp” decline. Lunch and dinner were relatively flat
• Uber has made a takeover offer to buy Postmates, the delivery service, per the New York Times. The paper says ‘the two companies could reach a deal as early as Monday evening.’
• Yumpingo, which says it is ‘the voice of your guest – a single platform that delivers actionable insights across every shift and every digital touchpoint’, has teamed up with Unilever Food Solutions to launch a free step-by-step guide to help hospitality businesses create menus that will maximise profits. Unilever says ‘chefs across all sectors will likely find themselves pressured to deliver while working around many restrictions come re-opening. We wanted to make sure that, when they do go back into the kitchen, they have a tool that can help them take a close look at their menus, that enables them to make informed decisions around getting the right dishes – and, fundamentally, delivers them a profitable bottom line and keeps their customers happy.’
• Hawksmoor will reopen the first of its sites on 9 July and will have its entire estate open by the beginning of September.
• NPC International Inc in the US, which operates more than 1,600 restaurant franchises including around 400 for Wendy’s and 1,200 for Pizza Hut, has filed for Chapter 11 bankruptcy protection. NPC’s head of its Wendy’s operation, Carl Hauch, says ‘the Wendy’s business remains strong and resilient and is already recovering from the impact of the pandemic to produce year-over-year growth.’ He says ‘we look forward to continuing our discussions with our brand partners, landlords and other creditor groups and are confident that we will be able to work collaboratively to agree on a long-term plan that is in the best interests of all stakeholders.’
• Craft brewery Amity Brey Co has secured £75k to launch new pub in Leeds
• Burger restaurant Meat Stack is to open a stand-alone site in Newcastle.
• Meanwhile, on a different scale altogether, SSP believes that hundreds of its units will not approach normality until at least the Autumn and it is making 5,000 staff, more than a half of its UK total, redundant.
• New Look is reported to have given an ultimatum to landlords in which it demands rent cuts.
• Deliveroo has been given the go-ahead to deliver some medicines. Separately, there is talk of its delivery riders getting training to spot child abuse on the doorstep.
HOLIDAYS & LEISURE TRAVEL:
• YouGov reports that Spain has replaced staycatiions as the favourite destination for UK consumers. The top five are Spain, the UK, Portugal, France and Italy. Greece doesn’t feature at present, not least because it will allow UK holidaymakers to travel there.
• A study by Accor suggests that 34% of Britons cancelled some of their holiday plans as a result of Covid-19. It says 21% of UK residents are prepared to travel to Europe but only 12% would be willing to travel further afield.
• The CAA says there is a ‘substantial backlogs’ of money owed by airlines to consumers for cancelled flights.
• A survey in the US by the American Hotel & Lodging Association has found that 44% of Americans are still planning overnight vacation or leisure travel in 2020.
• Butlins has extended its resort closures to 23 July as it seeks clarity as to when and how it can open its pools, and start hosting live entertainment. Butlin’s says ‘following last week’s announcement from the government on the continued closure of pools and live entertainment, we have been waiting for further clarification on when and how we can open these facilities for you.’ It says ‘sadly, we haven’t had a further update, and with breaks fast-approaching, we have now extended the closure of our resorts to the 23 July.’
• Flight Centre has said it will not reopen all of its 75 stores in the UK after the lockdown. It has not made closure numbers public.
• Travel Weekly reports that travel agents are cautious when it comes to selling holidays this summer. They need more clarity on travel corridors and in-resort operations. In addition to which, they won’t want the botheration etc if there is a secondary lockdown and holidays have to be refunded and travellers in resort repatriated.
• Ryanair pilots are to take a 20% pay cut in order to save (at least for the moment) the majority of the 330 jobs currently under threat.
• Wigan Athletic has gone into administration. This, traditionally, has been associated with the docking of 12 points. This, rather than football on the field, could save The Mighty Hull City’s bacon this year.
• The CMA in the UK has said there should be tougher rules to curb the power of Google and Facebook. The latter is said to be taking more than half of the £5.5bn UK online display advertising market.
• Lego has become the latest major company to boycott advertising on social-media platforms due to the prevalence of hate speech.
FINANCE & ECONOMICS:
• S&P Global has estimated that UK GDP could contract by 8.1% this year. It says the UK could face a “perfect storm” next year if Brexit goes wrong.
• UK house prices are down on the same month a year ago for the first time in 8yrs reports Nationwide. The building society says that prices in the UK were down 0.1% in June compared with June a year ago and were down by 1.4% compared with last month.
• Nationwide says ‘the medium-term outlook for the housing market remains highly uncertain.’
• The IHS Markit PMI for UK manufacturing in June was released yesterday & showed that there were some ‘signs of stabilising in June, following the recent steep downturn caused by the coronavirus disease 2019 (COVID-19) pandemic.’ It says its measure rose to 50.1 in June where any number over 50.0 implies growth.
• Sterling stronger at $1.2492 and €1.1086. Oil higher at $42.08. UK 10yr gilt yield up 5bps at 0.22%. World markets mixed. London set to open up around 40pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Primark Watch: The food conglomerate ABF has issued a detailed Q3 trading update today (covering the period from 1 March to 20 June) and the main focus is, obviously, on the performance of its Retail business, Primark…Sales in the period were 75% down, because of the lockdown and the lack of Online sales, but all bar the stores in Scotland are now open, and Primark say that “trading in our reopened stores has in aggregate been reassuring and encouraging”, despite poor sales in big city centres, with trading in w/e 20 June up on last year in the stores in England and Ireland.
• John Lewis Store Closure Watch: As well as announcing another 12 John Lewis store re-openings in the week after next, including Oxford Street, JLP also told staff yesterday that not all the stores would re-open, according to a memo from Chairman Sharon White leaked to the Evening Standard. The list of 18 stores still to re-open includes the ill-fated Travel units in St Pancras and Heathrow, which are de minimis in the scheme of things, but there are also 6 retail park stores on the list (Ashford, Chichester, Croydon, Newbury, Swindon and Tamworth). More interestingly, given John Lewis’ negotiating clout with the landlords, there are shopping centre anchors like Brent Cross and Watford, as well as the recently opened flagships in Oxford and Westfield White City…
• News Flow This Week: As we move on further into July and Q3, the Sainsbury AGM is at 11am this morning. The latest GFK Consumer Confidence index “flash” is out first thing tomorrow, followed by the M&S AGM at 11am.