Langton Capital – 2020-09-24 – PREMIUM – M&B, curfew, Cineworld, Escape Hunt & other:
M&B, curfew, Cineworld, Escape Hunt & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Hopefully, that wasn’t the curtain coming down on Summer 2020 yesterday but, as time stops for no man and there are a few chilly days with rain to come, we may well have seen the best of it. Meaning that, with EOTHO firmly in the rear-view mirror and new regulations kicking in today, there is a bit of a devil’s brew of factors coming together and it will be tough or impossible over the coming days to disaggregate the impact of the worsening weather, changes in consumer confidence, the diktat that workers should stay at home (again) and the impact of the new rules, the one from the other. And it matters a bit because some factors (e.g. the onset of winter) are more predictable (and finite) than others, some are impervious to government action and others can be changed quite quickly – as the myriad government U-turns of recent weeks have made only too clear. So, we’ll be watching the dials and listening to the tills singing (or not) with particular interest and any feedback will be gratefully received. The tightened regulations will impact this weekend – but then so too with the weather, the more sombre tone emanating from HM Government and the inconveniently timed football matches and the rest. Anyway, that was a bit heavier than we’d intended when we started writing it. Follow us for real time developments on Twitter at @brumbymark and 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. MITCHELLS & BUTLERS UPDATES ON FULL YEAR TRADING: M&B has today updated on trading. 24 Sept 2020: Mitchells & Butlers has this morning updated on the first 51wks trading for its full year (the period to 19 Sept) and our comments are set out below: Operating performance: • M&B says that ‘following enforced closure in response to the Covid-19 pandemic in March we were able to reopen the vast majority of our estate on 4 July.’ • It says ‘we have now been trading for 11 weeks and at the date of this announcement the number of sites which have reopened has increased to over 95% of the estate.’ • M&B says ‘during the period since reopening we have, as before, continued to outperform the market, benefiting in particular from the breadth of our estate and the balanced exposure we have both regionally and across offerings.’ • It says ‘in July like-for-like sales declined by 32.4% impacted by reduced capacity as a result of enforcement of social distancing measures and by consumers’ caution to visit restaurants and pubs.’ • However, ‘during August, the well-publicised government funded Eat Out to Help Out scheme plus a temporary reduction in the rate of VAT on certain supplies combined to help return the business to like-for-like sales growth, of 1.4%.’ • M&B says that ‘subsequent trading in the first three weeks of September has settled slightly below this at a like-for-like sales decline of 6.4% prior to the introduction of additional trading restrictions this week.’ • Food sales in August were up 20.1% with drink down 16.7%. • Food sales in September to date are up 4.5% with wet sales down 16.5%. Balance Sheet, liquidity & debt: • M&B says that ‘on 12 June the group announced revised financing arrangements that had been agreed with our main creditors to provide a platform of both additional liquidity and improved financial flexibility in order to meet the challenge presented by Covid-19.’ • It says ‘the group currently has unsecured cash balances of c.£100m, in addition to undrawn committed unsecured facilities of c.£140m.’ • Re investment, M&B says ‘before the closure of the estate we had completed 168 investment projects including two acquisitions. The investment programme was suspended in March and resumption will be considered through continuous review of operational performance and cash flow management.’ Conclusion: • CEO Phil Urban says ‘after a difficult period of closure, we have been delighted to welcome back our guests with the vast majority of our sites open and trading again under Covid-secure procedures.’ • He adds ‘I am particularly impressed by the way in which our teams have made this possible by responding to the challenge of our new operating environment with energy and enthusiasm.’ • Urban says ‘the future remains both challenging and uncertain, with only this week a curfew and other additional restrictions being imposed on how and when we can operate.’ • Overall, the CEO concludes ‘we believe we are well placed to meet that challenge and to keep Mitchells & Butlers at the forefront of the eating and drinking-out market.’ Langton Comment: M&B • M&B’s shares have been buffeted by government announcements and Covid-19 developments over recent weeks. • In common with its peers, M&B accessed additional capital and believes that it is in a good position to outperform in the current environment. • EOTHO was clearly very helpful. Trading then understandably slipped and today’s developments will be unlikely to push it higher. • There is no meaningful guidance at this time. • 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. • The group’s share register and its dividend policy arguably require a bit of work. There are some observers who say that it will require capital. • Trading over the coming weeks will be critical and we will see how that develops. The group has a mix of urban and suburban outlets and its London estate must be suffering. • In the regional suburbs, it should be trading well. There is no conference call. The group should report full year numbers in the middle of December. THE 10pm CURFEW, TABLE ORDERING, CONSUMER CONFIDENCE ETC. New regulations come into force today. Opinion is divided as to what the likely impact will be. 24 Sept 2020: Introduction: • Tangible rules are 10pm closing (implying 9.30pm last orders), table ordering (and presumably payment) and face coverings to be worn when not at table. • Intangible changes will focus on confidence. The move here is more likely to be down than up – but views are divided. Backward looking stats: • Pub restaurants often close their kitchens at 9pm or even 8pm. • Hence it is not a surprise to see food led pubs saying that only 4% of their income has historically been taken after 10pm with family-oriented casual diners sometimes as low as 2%. • There is a justifiable view that the new rules will impact already-hit late night units still more – and leave other operators relatively untouched. • But there will be an impact as customers will need to be out of the door by 10pm, which probably implies paying at 9.30pm or 9.45pm. Other issues. • And confidence, see the KAM Media piece below, is likely to be impacted negatively. Staff will have to wear masks, as will customers when they arrive and leave and at any times when they are not seated at their table. • Sport will also be an issue. Sky often has 8.15pm kick-offs (which it may change) which imply a 10.10pm or so finish (assuming a 90m match with no extra time or penalties). That won’t fit well with a 10pm closure time. • The closure time will be particularly bad news for bars, late-night venues and outlets such as casinos, where a large proportion of business is conducted after 10pm. Support measures: • This seems to be something of an open door. Mr Sunak will update the House of Commons later today. FORWARD BOOKINGS: These are a good rather than a bad thing as they allow planning, menu prep and bring a degree of certainty, particularly if deposits have been taken. 24 Sept 2020: Summary: • Forward bookings are a) good but b) one might expect there to be fewer of them for ‘big days’ such as Halloween, half-term week, bonfire night and the three or four-week run up to Christmas. • Re bookings, think wedding planner in miniature. Spend thousands of pounds on all sorts of preparations only to be told that you can either 1) have 15 guests of 2) get married some other time. • In that light, why book a few tables for 30 Xmas guests when it’s currently illegal and there’s little clarity re the outlook Implications: • Spontaneity is exciting but not good for planning purposes. • And the big days may be more spontaneous affairs than they would have been ex-Covid. • Menu planning will be more of a challenge as you might have vegans eating you out of tofu one minute and a run on steak and chips the next. • Not that these are insurmountable problems. In terms of their priorities, pubs and restaurants are a) open, b) open and c) open and they would like to stay that way. • Almost everything else is an irritation rather than a deal breaker. PUBS & RESTAURANTS: Curfew, table service etc.: • Some clarification from the government as to what it wants the trade to do from today. • Meals and drinks will have to be ordered from (and presumably paid for at) table • McDonald’s, Pret a Manger and other grab and go outlets without an alcohol licence will not need to serve customers at tables. • Wales has now moved to 10pm last orders. England is 10pm, everyone must be out of the premises. • Coffee shops will be exempt from the table service rule More trade reaction: • The BII has called ‘for long term support for pubs whilst long term restrictions are in place.’ Given the reported musings of Chancellor Rishi Sunak, they could be pushing on an open door. Reasonableness (of demands) could be the keyword. Sunak is speaking in The House later today. • The BII says ‘long term sector specific restrictions will need to be matched by long term sector specific Government support’. The trade body says ‘the impact of further restrictions on pubs who have delivered extensive changes to venues to protect their staff and customers has two key impacts; restricting already significantly reduced levels of trade, with the majority of pubs not making a profit, and severely undermining critical consumer confidence.’ • Confidence is currently the great unknown. • Kate Nicholls, CEO of UKH, has said that support needs to be put in place without delay to avoid additional redundancies and business closures. Ms Nicholls comments ‘unless the government acts really quickly, we’ve got a cliff edge coming at the end of September, which is when the trigger date comes for redundancy consultations, and it’s also when the rents have to be paid.’ • UKH says ‘you cannot close down or severely restrict a whole sector without providing support for the people whose jobs, livelihoods depend upon it. You must make the support packages available to the industry last as long as the restrictions that you impose upon us. In the initial period, we need sector-specific furlough to be continued while we are through this period of closure. You need a real solution on rents because the rent dilemma comes to a head at the end of September and, currently, we don’t have that debt enforcement moratorium extended, and we don’t have any support on rent.’ • Some one fifth of restaurants have yet to reopen reports CGA. They are, in the light of the tightened regulations from today, perhaps less likely to do so. Tasty has said that it may re-close units post the EOTHO scheme. • Trade bodies the BBPA, UKH and the BII have issued a joint statement saying that ‘23% of their members think their businesses will fail by the end of the year without further Government support.’ The survey found that one in eight hospitality staff have already been made redundant. It says that, on average, businesses believe their workforce will be 25% lower by February 2021 compared to February this year. This will represent 675,000 lost jobs. • The BBPA’s Emma McClarkin says ‘this research shows pub businesses were already teetering on the edge. Now the Prime Minister has announced even more restrictions for them, it is clear much more support will be needed from the Government to ensure they survive.’ She adds ‘an immediate stimulus package is required for our sector in the form of an extension to the furlough scheme and business rates relief, plus continuation of the VAT cut to food and soft drinks and a significant cut to the UK’s excessively high beer duty.’ • Founder of Pret a Manger Julian Metcalfe has criticised Boris Johnson for ‘sitting down with his Union Jack talking utter nonsense’ rather than getting on and dealing with the Coronavirus pandemic. Metcalfe says ‘to turn to an entire nation and to say ‘stay at home for six months’ and spout off some Churchillian nonsense about ‘we’ll make it though’ is terribly unhelpful.’ • Metcalfe says ‘the talk of six months is criminal. We’re losing thousands upon thousands of jobs. How long can this continue.’ • The bald fact is that the political pendulum has swung decisively away from encouraging customers to eat and drink out. Asking for additional support in light of this is perhaps not unreasonable. See Premium Email for more comment. With disintermediation negate the impact of earlier closing? • It’s possible that 9.30pm will be the new 2am. Maybe it won’t be that stark in practise but, if drinkers want to have 4, 6 or 8 drinks, it is not beyond their wit to still do so. • A snap poll carried out by KAM Media has found ‘that a significant proportion of the English public remain unconvinced that the new 10pm hospitality curfew will deliver on its promise to help curb the spread of Covid-19.’ KAM says ‘47% of adults interviewed think the 10pm curfew to be introduced on Thursday will make no significant difference to the spread of the virus. A further 34% think it will ‘somewhat’ help the situation, but not significantly.’ The impact on confidence: • KAM’s research also ‘found that the introduction of the curfew means that 13% of adults in England are now more nervous about visiting a pub or restaurant. And 14% said they will visit pubs and restaurants less frequently as a direct result of the curfew.’ • After actively encouraging the UK public to go out and about via EOTHO and telling workers to return to their offices, there is some mixed messaging going on. Other Covid-19 news: • IGD has reported that the Covid-19 outbreak has created ‘significant challenges’ for the food-to-go market in 2020 and it says it ‘will continue to be impacted by COVID-19 over the next three years.’ • IGD says the sector will decline by 43% to £10.8bn in 2020 – a decrease of £8.1bn on 2019. It says ‘unsurprisingly, since the UK went into lockdown, almost all food-to-go shopping trips experienced significant declines.’ It says ‘footfall in cities and transport hubs – on which many food-to-go businesses depend – has so far been slow to return. The shift to more homeworking in particular has had massive implications for food-to-go.’ • IGD says any recovery ‘will be gradual and may be subject to reversal; trends may differ by geographic area subject to local lock-downs. It is reasonable to assume that a degree of homeworking will form a part of the new normal in the short and long term, which may mean food-to-go businesses will adapt to fit in with their customers’ work patterns rather than wait for old habits to resume.’ • The BBC reports that chancellor Rishi Sunak is ‘understood to be looking at options to replace the furlough scheme when it expires at the end of October.’ This could include a salary top-up scheme similar to that operating in France and Germany. The hospitality industry, where perhaps a million workers remain furloughed, will be watching developments with interest. • The CBI, the TUC and the Labour Party are pushing this. Examples on the Continent provide a framework that could be followed. Footfall: • New West End reports that West End footfall was flat week-on-week on Tuesday, 22 September. It says ‘compared to the same day last year, footfall was down 52%’. • The BCC has said, re the call for workers to once again work from home, that ‘these measures will impact business and consumer confidence at a delicate time for the economy.’ It calls for a clearer road map. Presumably this would lead first away from and hopefully longer term back to, normality. Other news: • Nielsen reports that off-trade sales of champagne in the UK rose by 25% over the summer compared with last year. • John Dunham Associates in the US reports that more than half a million jobs will likely be lost this year in the US brewing industry Company news: • Mitchells & Butlers has this morning updated on the first 51wks trading for its full year (the period to 19 Sept) and our comments are set out below: • M&B says that ‘following enforced closure in response to the Covid-19 pandemic in March we were able to reopen the vast majority of our estate on 4 July.’ • It says ‘we have now been trading for 11 weeks and at the date of this announcement the number of sites which have reopened has increased to over 95% of the estate.’ • M&B says ‘during the period since reopening we have, as before, continued to outperform the market, benefiting in particular from the breadth of our estate and the balanced exposure we have both regionally and across offerings.’ • It says ‘in July like-for-like sales declined by 32.4% impacted by reduced capacity as a result of enforcement of social distancing measures and by consumers’ caution to visit restaurants and pubs.’ • However, ‘during August, the well-publicised government funded Eat Out to Help Out scheme plus a temporary reduction in the rate of VAT on certain supplies combined to help return the business to like-for-like sales growth, of 1.4%.’ • M&B says that ‘subsequent trading in the first three weeks of September has settled slightly below this at a like-for-like sales decline of 6.4% prior to the introduction of additional trading restrictions this week.’ See Premium Email for more detail. • Stonegate Pub Company is to feature Doom Bar during Cask Ale Week, which starts today, Thursday 24 September. • Greggs reports that a “small number” of the 300 workers at the chain’s production hub north of Newcastle have tested positive for Covid-19 HOTELS & LEISURE TRAVEL: • HVS London reports ‘there is no doubt that the COVID-19 pandemic has had a most dramatic effect on the hotel business throughout Europe and words like ‘unprecedented’ and ‘unique’ are used liberally to describe the situation.’ It says • HVS says that ‘supply growth has always been a factor in the performance of individual hotels to the extent that new hotels entering a market area can result in a dilution of the available demand. One outcome of the current pandemic is the likelihood that the pipeline of new hotels will come under increasing scrutiny by developers, investors and lenders.’ • Under HVS’s ‘Best Case’ scenario, UK hotel EBITDA recovers to 2019 levels by 2024. It says that under its ‘Worst Case’ scenario, ‘EBITDA recovers to 2019 levels by 2025, although in some cases this could be longer.’ • Jet2holidays has continued the suspension of its programme to Paris, Budapest and Prague until November 23. • Research by Panache Cruises says that 26.5% of customers contacted indicated that they would book a cruise as soon as they were able to. However, 31.4% were not sure when they would resume cruising. • STR reports that occupancy across European hotels fell 44.6% to 43% in August. It says ADR dipped 13% to €103.95 and RevPAR decreased 51.8% to €44.69 ($52.18) for the month. OTHER LEISURE: • Cineworld has reported H1 numbers saying that ‘the COVID-19 global pandemic has adversely affected the Group’s results for the period, with all sites across the Group closed between mid-March to late June/August 2020.’ • Cineworld CEO Mooky Greidinger says ‘despite the difficult events of the last few months, we have been delighted by the return of global audiences to our cinemas toward the end of the first half, as well as by the positive customer feedback we have received from those that have waited patiently to see a movie on the big screen again.’ • The CEO says ‘current trading has been encouraging considering the circumstances.’ He says ‘while there continues to be a lot of uncertainty, we have a dedicated and experienced team that is focused on managing business continuity while taking advantage of the strong slate currently planned for the months ahead.” • Escape Hunt has updated on trading for its AGM saying ‘trading in our UK owner-operated sites has been encouraging since we re-opened on 12 July 2020.’ The company says ‘in the first eight weeks after re-opening to 6 September 2020, sales grew from an initial level of around 25% of the 7-day week’s sales in the equivalent week in 2019 to over 90% of sales in the equivalent week in 2019 in each of the last two weeks of the eight-week period.’ • ESC says ‘since then September has, as expected, seen the pace of recovery slow, although sales in the six weeks to 20 September were nevertheless an encouraging 72% of the same period in 2019.’ It says ‘we will provide a further update in our interim results which are due to be released on 29 September 2020.’ FINANCE & MARKETS: • Chancellor Rishi Sunak will address parliament today at 12.30. The Autumn Budget, at which the chancellor would have addressed funding his various spending plans, has been cancelled. • Flash PMI readings for September have indicated something of a fall back from August’s buoyant levels. • Looking back at yesterday’s comment by Michael Gove that 7,000 lorries may end up queueing for two days to get across the channel led us to do a small calculation. If an 18-wheeler is 80 feet long, which it is, 7,000 lorries implies a 106-mile tailback. That’s if there are no gaps between vehicles whatsoever. • Sterling little changed at $1.2707 and €1.0896. Oil little changed also at $41.54. UK 10yr gilt yield up 2bps at 0.23%. World markets mixed. London set to open down around 65pts. RETAIL WITH NICK BUBB: Today’s News: The DFS finals for y/e June are pretty ugly, given the impact of the lockdown on furniture deliveries and underlying loss is as much as £57m, before the exceptional write-offs on the small Sofa Workshop and Dwell businesses. However, since then trading has bounced back very well and the CEO says “in the absence of further lockdown impacts, we therefore look forward to reporting a strong first half sales and profit performance”. The scheduled interims today from the embattled Motor dealer Pendragon have been delayed for audit reasons (notwithstanding the importance of the key “plate change” month of September to the second half outlook), but there has been an unscheduled update from Pets at Home to flag that the last 8 weeks have seen double-digit LFL sales growth and that it now expects full year profits for y/e March to be above expectations. |
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