Langton Capital – 2020-08-14 – PREMIUM – Book review, EOTHO, London, NewRiver, quarantine plans & other:
Book review, EOTHO, London, NewRiver, quarantine plans & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The fact that Sadiq Khan is now imploring would be Central-Londoners to get back to the Capital and spend money, has brought home again that Langton is pretty typical of the wider economy as a whole – and of the people in it.
During lockdown we came home, we didn’t go out much, we cut our credit card spending by around half, we doubled the proportion within that spent on food, we didn’t spend on travel, we undertook fewer but larger shops, we cut costs at work and all the rest.
And, as lockdown has eased, we’ve put the second car back on the road, we’ve , we plumped for staycations, we’ve cautiously been out to pubs and restaurants but, much to Mr Khan’s annoyance, we’re still working from home and haven’t been to London since March.
Though, as home is 200 miles from EC2M and public transport volumes aren’t what they were, we have a decent excuse. But this is pretty big stuff for Central London operators such as Pret and the blizzard of grab n go restaurants, dependent largely on a 2hr (if they’re lucky) window of trade for only five days of the week.
And many of them didn’t have much of a balance sheet to begin with meaning that this could be existential (with all of its implications for footfall, jobs, business rates for councils etc).
But elsewhere, we haven’t been using cash (we drew money out of an ATM for the first time in four months last week), we’ve got the hang of Zoom, we’ve given the summer 2020 fashions a miss and have taken the plunge with DIY haircuts and, in addition, I haven’t worn long trousers since it got above 15 degrees.
Which has both confused the dog and led to allegations that I look like a tall Krankie. So, I really must lost the cap. Anyway, much cooler and a bit blowy up North. Have a good weekend and let’s move on to the news. Follow us on Twitter at @brumbymark.
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BOOK REVIEW: FACTFULNESS – HANS ROSLING (2018 – posthumously published). Swedish doctor, academic & TED Talk favourite Hans Rosling, who sadly died in 2017, comments here on misconceptions regarding economics, politics & poverty. 14 Aug 2020:
• Rosling, who famously maintained that slow change is not the same as no change, said that attitudes, unless you work against your base instincts, can often be hard-wired in childhood / when your parents are or were young.
• Spoiler alert. But things change.
• An optimist at heart, Rosling’s party piece, apart from sword swallowing (really), was to ask a series of questions to which the correct answer, though not the most ‘obvious’ one, was always the most optimistic.
• Hence, he would surprise audiences by revealing that the average life expectancy across the entire world was now 70yrs, the number of people in extreme poverty over the last two decades had halved and that 80% of the world’s infants had been inoculated against at least one illness.
• Some 80% of the world’s population has access to electricity, girls worldwide spend almost the same number of years in education as boys and the average number of children born per woman globally is around two.
• In fact, only failed states, those plagued by war and factionalism, remain absolutely impoverished. Everywhere else, people are relatively better than they were.
The guts of his argument:
• Rosling maintained that people are too pessimistic when it comes to progress, Fractional movements over a few decades amount to major change.
• Our ‘world view’ changes more slowly.
• We have a ‘gap instinct’. We think in terms of West and The Rest. But people represent a continuum with major overlaps between countries. There are rich people, even by ‘Western’ standards, in India, Brazil, Nigeria and elsewhere.
• Rosling said that lifestyles converge as incomes converge.
• He said income levels should be used to allocate countries to groupings rather than geography, religion etc.
• He said there are four income groups. Personal incomes double twice in each group before a country can move to the next group. Think barefoot, shoes, bicycle, moped, car, better car etc.
• Some 91% of people now live in middle- or higher-income countries.
Our pessimistic nature.
• We are drawn to bad news. It grabs the headlines. In 2016, there were 10 air crashes that led to fatalities. But there were 40,000,000 successful landings.
• What is frightening, e.g. a shark attack or a lightning strike, isn’t necessarily what’s dangerous, unattended domestic swimming pools, steep staircases, cigarettes etc.
• Certainly, bad stuff still happens. People die in poverty, but it is possible for the world to be both ‘bad’ and still be ‘better than it was’.
• We extrapolate and don’t account for mitigating actions. We saw this recently with the Imperial College, half a million deaths from Covid, story. The academics knew that mitigating action would cut the number massively – but the 0.5m number stuck
• We think in straight lines, but life is full of curves. Global population will level off, etc.
• We aren’t good at judging scale. Is the lottery a million or a billion to one shot? There’s quite a difference.
• We deal in absolutes. Certainly, 4.2m infant deaths is awful but, if it’s down from 14m on a smaller global population only a couple of decades ago, then somebody is doing something right
• Left to our own devices, we tend to make steady, invisible-to-the-naked-eye, progress
• Rosling cautions against extrapolation (the population will keep on rising), exceptionalism (‘they’ can never by like ‘us’) and nostalgia (make us, you, them great again).
• He advocates healthy scepticism when presented with free-standing facts as you need to compare them against something.
• He says one should be humble and curious. One needs to update one’s knowledge. Don’t always blame something or somebody for something bad and be sceptical when someone claims credit for something good.
• Take your time, think, don’t be rushed to conclusions. Look at the data, question the correlation and take small steps.
PUB & RESTAURANT NEWS:
Covid news, trading etc.:
• CGA has reported on the government’s Eat Out to Help Out scheme saying that food sales rose by 31% on the first week of the offer as a whole across UK managed pubs and restaurants contacted.
• CGA says Monday, Tuesday and Wednesday of the first week of the offer saw food sales up by 100%, 95% and 106% respectively. These numbers will not include drink sales. Anecdotal evidence gathered by Langton suggests that week two was busier than week one.
• CGA confirms our earlier belief that cannibalisation was relatively slight with Thursday sales down by only 4% (in week one). The weekend crowd will be different to those dining on M, T & W, who many have decided to forego Thursday. Even during the Covid-19 pandemic, Fridays, Saturdays and Sunday lunchtimes (particularly in the good weather) remain a draw.
• CGA says that 27% of UK adults had used the scheme by this Tuesday (with 5 of the 13 days on which it will be offered gone). CGA says ‘the scheme appears to have achieved the sector’s hope of bringing back people who were previously hesitant about eating out. Two in five (39%) of those who have used Eat Out to Help Out were making their first visit to the sector since the end of lockdown. Of those who are still to eat or drink out, a quarter (26%) say they are likely to make use of the scheme before it ends.’
• We consider an extension is possible. This extension could (and maybe should) be viewed as a move to persuade the grey market to get involved as there is still some evidence of reticence here and many visitors at the moment will be families with school-age children.
• The scheme could be helping to build confidence. Any extension, which could be funded by some operators themselves if the Chancellor baulks at the cost, would put further clear water between operators that have reopened in an attempt to attract customers and those that have been slow to do so. See earlier Premium Emails for comments on margin, discounting and how some operators may struggle if others do press the ‘discount’ button/
• CGA says ‘along with operators’ stringent hygiene precautions, it is encouraging consumers to venture out and see that they can have a safe as well as good value meal out. As the scheme goes on it will hopefully begin to have a positive impact on footfall on other days of the week too—though it is already clear that the sector will need sustained support from government after the scheme ends at the end of the month.’ There is something of a cliff out there at present as EOTHO, the furlough scheme, 5% VAT and zero business rates (and the summer weather) will all finish at some point in the coming months.
• London mayor Sadiq Khan has said that people working from home has become a big problem for London. He had previously, in line with guidance, urged people to stay off the underground and to stay at home as much as possible. Now, this is becoming a bit of an issue.
• Mr Khan now says ‘the key thing I think we need to understand is that if we all stay at home working it’s a big problem for central London.’ He says ‘many small businesses rely on your workers going to work, the café bars, the dry cleaners, the shoe repair shops and others.’ Transport for London is running Tube and bus services at 15 per cent and 12 per cent respectively of their normal levels.
• Khan is calling for an extension to the present business rates holiday. London’s West End could lose £5bn in retail sales this year. This is currently due to end in March.
• The BBPA has welcomed the news that the US will not impose tariffs on UK beer. It says the market is worth £107 million to British brewers. The move (or absence of a move) ‘will aid British beer’s recovery from COVID-19.’
• CEO Emma McClarkin says ‘due to the fallout they are facing from the COVID-19 lockdown and the impact it has had on domestic sales of beer, exports like those to the US will be crucial for Britain’s brewers as they start to recover their trade.’ She continues ‘this is a positive signal of intent from the US for a good future trading relationship with UK brewers, enabling further growth for them in the US market.’
• Meanwhile spirts companies have been less than happy with the news that the US has said that it will maintain the tariff increase of 25% on over 100 European products including wine and spirits that it introduced last October.
• The Scotch Whisky Association says the tariffs are inflicting “huge damage” on the Scotch whisky sector. Exports to the US have fallen c30% since the tariffs were imposed. The Scotch Whisky industry is reported to support some 11,000 jobs.
• Commercial property and pub owning REIT NewRiver has updated on trading today saying that ‘the Company’s trading performance in the first quarter ended 30 June 2020 was in-line with our revised expectations as outlined in our Full Year Results on 18 June 2020.’
• NewRiver says 80% of Q2 rent has been collected (or alternative arrangements have been made). The group has stepped up its disposal efforts and says it has ‘£87 million of cash reserves and £45 million of undrawn revolving credit facilities, providing sufficient liquidity of £132 million.’
• NewRiver says ‘since the easing of lockdown, footfall has continued to improve across our retail portfolio’ and adds that, at Hawthorn Leisure, its pub-owning business, ‘over 90% of our community pubs in England, Scotland and Wales are now open and trading, following the easing of restrictions from 4 July 2020.’
• NewRiver says ‘the underlying performance of the pub estate has been solid, with like-for-like volumes down only 15% in our Leased & Tenanted estate and like-for-like sales down only 13% in our Operator Managed portfolio since 4 July 2020, compared to the same period last year.’
• The REIT says its pubs are ‘benefiting from: The community and suburban locations of our pubs…the wet-led nature of our portfolio and the lower fixed costs associated with running a wet-led business [and] ‘the fact that 86% of our pubs were invested in during lockdown, with our partners and tenants using Government support and their own capital to improve the standards of the pub with a particular focus on outdoor space investments, customer safety and customer hospitality.’
• The company adds that ‘over 70% of our pubs having outdoor space, with many of these performing in line with pre-COVID-19 levels’ also helps in the return to more normal trading. Since 1 April, the group has sold 13 pubs, generating £3.9 million in proceeds.
• Adnams yesterday reported H1 numbers to end-June saying that revenue was down by 40% at £20.95m and the group made a loss before tax of £3.9m (2019: loss £1.2m). Chairman Jonathan Adnams says of the Covid-19 pandemic ‘the hospitality sector was one of the hardest hit as socialising became heavily restricted and pubs were required to close their doors. As a pub owner and pub operator ourselves, and with a drinks business heavily orientated towards the on-trade, our business was focussed on our online sales, to our supermarket partners and other shops. These sales represented only about one fifth of our normal trade.’
• The company has benefited from the various government schemes but, in light of losses, no final dividend was paid for 2019 and no interim dividend is proposed for 2020. Adnams says ‘the Directors will keep the dividend policy under continuous review and return to paying dividends as soon as is appropriate.’
• Pre the lockdown, beer sales were running down 3% year on year. Clearly everything changed thereafter. The company mentions cost pressures but says ‘controlling costs, maximising opportunities, and delivering operational excellence at pace has ensured that we have continued to grow the parts of the business that could operate.’ Mr Adnams concludes ‘as we approach the Adnams’ 150th anniversary in 2022 we can look forward to building back better.’
• Devon and Dorset seafood restaurant operator Rockfish has reported that it has now reopened its entire estate of 9 units. It says ‘sales in some sites are already equal to last year and overall like for like (LFL) sales are currently only 7% below last summer’s trading despite social distancing measures which reduces covers available.’
• The Stay Original Company, which owns a collection of properties in the south of England, reports that its King’s Arms unit in Dorchester will open its doors and welcome guests on Thursday 17th September. The opening will be the fifth and largest property for the South West boutique hotel and pub group.
• Moet & Chandon has combined with Airship to offer customers buying a bottle of champagne from The Bottle Club will receive an e-voucher for two complimentary glasses of Moët & Chandon to toast with friends at any of The Alchemist group’s 20 bars across the country.
• New Look has launched a CVA. It says it will also launch a debt for equity swap.
HOLIDAYS & LEISURE TRAVEL:
• Travel plans have been further disrupted after the government included France, Malta and the Netherlands to the UK’s quarantine list. Travellers returning from those countries must self-isolate for 14 days on arrival in the UK. France has said it will introduce similar measures for visitors to the UK returning to France.
• Costa Cruises, which is owned by Carnival Corporation, has said that the restart of its cruises in September will be exclusively for Italian guests. Costa says ‘the decision was made considering the evolution of the epidemiological scenario and taking in account the regulation issued today by the Italian Ministry of Health regarding mandatory checks for travellers returning from some European and foreign destinations, which suggests a cautious approach.’
• STR reports that the US hotel industry saw occupancy down 33% in the week to 8 August with room rates down 25%. REVPAR was off by 49%.
• Uber rival Lyft has reported Q3 numbers saying that it generated revenue down 61% at $339m in the quarter with a loss of 141c per share.
• PM Boris Johnson has said the government will ease regulation regarding bowling alleys, casinos, skating rinks and beauty salons.
FINANCE & ECONOMICS:
• Cinema chain Vue is report by Sky to be close to securing a £100m debt package.
• Video game Fortnite owner Epic Games is to sue Apple and Google after the firms dropped the game from their app stores.
• Sterling little changed at $1.306 and €1.1053. Oil down a little at $45.11. UK 10yr gilt yield up 1bp at 0.25%. World markets lower yesterday. London set to open little changed.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
Today’s News: Ahead of its AGM today, the community shopping centre and pub landlord NewRiver has issued a Q1 trading update, and there has also been news from QUIZ and Naked Wines: the new CEO of the high-flying Naked Wines, Nick Devlin, has had the confidence to pick up some more shares PA (c4300 at 456p) , whilst the embattled fashion chain QUIZ has announced an extension to its short-term overdraft facilities with HSBC, without saying why this might be needed. As for NewRiver they still make a virtue of the fact that “We continue to have limited exposure to the structurally challenged retail sub-sectors that have been particularly impacted by COVID-19, with no department stores in our portfolio, minimal exposure to mid-market fashion, and no exposure to (the most troubled) casual dining operators” and the operational metrics seem to bear them out, with 60% of rents in the last
BDO High Street Sales Tracker: The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday Aug 9th, BDO Fashion LFL sales were down by c8% (with Store Fashion sales down c40% and Online Fashion sales up c57%), whilst Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by c7% (down c33% in Store sales, but up c73% in Online sales). However, it is worth bearing in mind that the index is constructed from an unweighted adjusted average of percentage changes and the sample base is not huge, so it needs to be taken with a pinch of salt. BDO note that, according to Springboard, footfall continues to be way down on last year (down 40% in the High Street and down 34% overall).
News Flow Next Week: As we move even further on into the “dog days” of August, there is a fair bit going on next week, kicking off on Tuesday morning with the latest monthly Kantar/Nielsen grocery sales figures, followed at lunchtime that day with the Asda/Walmart Q2 results. The much-delayed final results from the hapless Frasers Group (aka Sports Direct) then come out on Thursday, along with the AO.com AGM. First thing on Friday we then get the widely followed GFK Consumer Confidence index for August, as well as the ONS Retail Sales figures for July…