Langton Capital – 2020-09-28 – PREMIUM – 10pm closing, jobs, Fulham Shore, Diageo, William Hill etc.:
10pm closing, jobs, Fulham Shore, Diageo, William Hill etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, the clocks haven’t even gone back yet and it’s getting dark in the evenings.
And that’s brought back to front of mind just how useless those energy-saving bulbs, the ones that light up a room ten minutes after you’ve been in, turned the light on and left again, are.
And dangerous, too, because, before you’ve cast any light on the staircase you’ve been up and down the thing twice and, if there were any roller-skates, golf balls or Lego bricks (in bare feet, awful) scattered around you’d have found out about them to your cost long before you saw them.
Anyway, good weather today and tomorrow and then it’s back to autumn again. Follow us for real time developments on Twitter at @brumbymark and on to the news:
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10pm CLOSING. THE INESCAPABLE DILEMMA: You can’t please all the people. The unpleasant truth may be that it only by ‘hurting’ trade that you can supress the virus? 28 Sept 2020:
• The rationale. Reducing human contact should supress virus transmission.
• There are constraints to implementing the above. A large group of workers had to work, even during lockdown.
• And all the workers who continued to work during lockdown, farmers, nurses, police officers, transport workers, care workers etc will still work.
• Everything else has to be ranked.
• Schools are apparently sacrosanct. There would be great reluctance to shut some shops hence, though they have been allowed to remain open, pubs and restaurants have taken a bit of a hit.
• Hospitality. There appears to have been little or no attempt to model the impact of a 10pm closure. It was meant, apparently, to send a signal.
• The Sunday Times quotes sources as saying the practical effects of a curfew were not modelled. Rather the move was seen as ‘a good symbolic thing because it’s a low-cost way of sending a clear message that things are different’. Low cost to whom?
• However, one would hope that there are tables in SAGE or elsewhere suggesting what impact various things – opening schools, universities, workplaces, pubs, restaurants etc – would have on the R rate.
• Presumably, there are hopes, though these appear somewhat ambitious, that tinkering at the edges will bring the R rate below One.
• Potentially, politics will get involved.
• More likely maybe is that the lockdown tightens in time to supress the virus and give the economy the chance of another reopening (perhaps not the last) ahead of Christmas.
Getting the R number down – the theory:
• At least in the short term, the health of the economy (taken as a proxy for human interactions) and the virulence of the virus are positively correlated
• That means that you can only squash the sombrero by depressing economic activity (or by restricting human contact in some way that does not impact economic activity, e.g. by working from home)
• Even the latter will have an economic impact, e.g. on TfL, on Pret, on coffee shops, transport hubs etc.
• There has been a political pendulum at work (not just in the UK)
• The idea was to ignore the virus (to mid-March), then to suppress it (to early July), then to tell people to eat and drink out and to go back to work as normal (to last week) and then to suppress the virus again
• This is (and probably has to be) a play for time ahead of the discovery of a vaccine. At this rate, herd immunity could take years and, if early sufferers become vulnerable again after 6 or 12 months, it may not be achievable at all.
Getting the R number down – the politics:
• Passions are running high. Some commentators are written off as scaremongers and lockdown fetishists and others are Covid-deniers, anti-vaxxers or Malthusians
• More mainstream are the suggestions that 1) the Rule of Six won’t do much and that the 10pm curfew is too easy to get around or 2) that current measures have already gone too far – witness the strange alliance that may defeat the government later this week
• Politicians may try to please the most people possible or disappoint the least. They may say that a square is a square, unless you want it to be a circle, in which case it’s a circle
Getting the R number down – the practise:
• The problem with the above is that the virus is deaf, dumb and blind and it doesn’t listen to bluff and bluster.
• It knows what it needs and wants and it does what it does very well. Its spread will be determined by the level of human interactions
• If the 10pm curfew is easy to get around (for some), there will be no downward pressure on the virus and more measures will be needed. That said, Greene King has told the BBC that the impact of the 10pm closure was greater than it had anticipated.
• And the 10pm closure has hit operators disproportionately. The Sunday Times quotes the Hippodrome Casino as saying that it takes more than a half of its daily revenue after 10pm. The percentage for Restaurant Group could be nearer 2%.
• There are other consequences. Such as everyone leaving hospitality establishments at the same time, mingling in taxi and bus queues with some going on to drink at home under unsupervised conditions.
Some unattractive ‘truths:’
• Unfortunately, with schools and universities open and with non-essential shops open and essential workers still working, the R rate may be near to or above one – even if hospitality were shut down entirely
• Perhaps universities should not have gone back? It can’t be much fun being locked down without face to face lectures, tutorials or the chance to socialise
• In that case there is a chance that hospitality could remain open and that the numbers would still add up
PUBS & RESTAURANTS:
Last week’s additional restrictions, 10pm curfew etc.:
• No attempt at assessing impact of a 10pm closure. Business minister Paul Scully has said, re the 10pm curfew, that ‘no assessment has been made, but we will be working with the sector to understand the impact over the coming weeks.’
• The Lib Dems are demanding that ministers either publish the medical, scientific and behavioural evidence behind the ‘arbitrary restriction’ on trade after 10pm, or reverse their decision.
• Tory backbencher Tobias Ellwood has called on the government to ‘revisit’ its changes to hospitality trading rules.
• Scientists not consulted. SAGE member Professor Graham Medley has said that he had never heard talk of a 10pm curfew before it was actually announced. Medley says ‘I never discussed it or heard it discussed.’ Fellow SAGE member Professor John Edmunds is reported as saying that the curfew was ‘fairly trivial’ and would have a ‘very small impact on the epidemic’.
• The Mail on Sunday has claimed that PM Boris Johnson ‘is the prisoner of scientists who even want to lock down Wendy houses – and Britain is now in the grip of mad science.’ This despite claims from scientists (above) that they had not been consulted on recent policy changes.
• London Union boss Jonathan Downey writes ‘at Dinerama this weekend, where we trade from 17:00-00:00 Thu/Fri/Sat, we saw our weekly sales (already tracking at a low 43% like-for-like over 10 weeks) drop by a further third because of curfew. I know that other businesses have seen hits of 40-70%.’
• A group of around 40 Troy MPs are to vote with opposition parties later this week in order to prevent arbitrary further legislation being introduced by the government without reference to parliament. Tory Steve Baker says this is ‘all about MPs having a vote on the government’s policy before it comes into force and takes away people’s civil liberties’.
Early feedback – first weekend:
• One operator has commented that ‘for UK managed pubs the world did not stop spinning on Thursday and we achieved LFL growth on Thursday, Friday and Saturday and for the week as a whole.’
• The operator says ‘drink was in double digit decline, food and accommodation in very high double digit growth to compensate, although clearly a margin mix impact.’ The weather was different and rural pubs did better. Town centres may have fared less well.
• Greene King said the impact of 10pm closing was greater than they had initially believed it would be.
• Counting backwards from end-October, not making staff redundant is already set to cost major operators millions of pounds as some of the consultation period will now be out of furlough.
• The Mail on Sunday says ‘hospitality businesses will start making thousands of job cuts from tomorrow.’ This, maybe akin to sticking your head out of the window and saying it’s raining, is very likely. Some operators, such as JD Wetherspoon, Whitbread & Restaurant Group, have jumped the gun.
• The Mail says Young’s is making up to 500 of its 4,200 staff redundant. It says Adventure Bars will lay off 10 per cent of its employees ‘within days’.
• The Resolution Foundation says that Rishi Sunak’s new jobs support scheme will not stop ‘major’ job losses
• Some 1m hospitality workers remain on furlough and, if trade is to slide from current levels, it is becoming less likely that they will be needed. UKH now says that a reasonable outcome might be the loss of 560k jobs.
• DJs and nightclub staff are amongst many groups of workers that fear they are not being protected by current moves. The government will pay only around a quarter of wages post end-October and this level of job support will not be sufficient to hold open jobs that, at the moment, do not exist.
• Moving jobs is not a stress free and seamless exercise. Twenty-something baristas and cocktail waiters may find it hard to retrain as geriatric care workers and Amazon delivery drivers.
• Shaftesbury on Friday said that ‘Covid-19 measures continue to affect consumer confidence.’ It says, however, that there are some signs of recovery. Shaftesbury says ‘the West End has seen a gradual recovery in footfall with the return of local and domestic leisure visitors and its office-based workforce.’ This may be currently moving in the opposite direction.
• Shaftesbury CEO Brian Bickell says ‘the course of the pandemic in the short and medium term will continue to dictate the extent of restrictions imposed by the UK and other governments to contain the spread of the Covid-19 virus, with implications for the global economy and the pace of recovery.’ He says the West End has ‘exceptional qualities’ and says ‘we remain confident in the long-term prospects for our exceptional portfolio and business.’
• New West End reports that West End footfall was down 4% week-on-week on Saturday, 26 September. It was down 5% week-on-week on Friday and down 15% week-on-week on Thursday. Against last year, the numbers were down by 46%, 58% and 62% respectively. The wetter weather will have had a negative impact.
• We would suggest that London is a resilient, though currently troubled market. Writing in the Sunday Times, former Patisserie Valerie chairman Luke Johnson writes ‘closed shops, desolate Tube stations, abandoned restaurants, empty theatres deserted offices: a stroll across the capital can be a depressing experience.’ Johnson says ‘if London is a ghost town, the City is facing oblivion.’
• The Centre for Economic & Business Research has suggested that Covid-19 has depressed spending by £2.3bn in central London. The CEBR says ‘during the months of March to July virtually everybody that could was working from home, so we estimate that the lost spending during that period was more than £500m per month because all of the spending on restaurants, hairdressers and other services was almost entirely lost as people were confined to their homes.’
• CGA reports that ‘consumers will significantly reduce their visits to pubs, bars and restaurants in the light of new government restrictions—but many plan to continue socialising elsewhere after curfew.’
• CGA says new returners to hospitality venues could be put off saying ‘tighter regulations are set to have the biggest impact on consumers who have been slow to return to hospitality—especially those in older age groups. They appear less likely to affect the behaviour of previously regular visitors, who largely indicate they will maintain their frequency.’
• CGA says 30% of respondents ‘admit they would seek out alternative locations to continue socialising.’
• CGA concludes by saying ‘our survey shows that having been encouraged out to restaurants, pubs and bars in August, large numbers of consumers are now likely to retreat. The new restrictions deal a major blow to operators who had got back on their feet after lockdown, and to city-centre and late-night operators in particular.’
• University students in Scotland, parts of Manchester & other areas are effectively in lockdown. Students in Scotland were told not to go to pubs, bars and restaurants last weekend.
• Paul Kinsey of the Harewood Group says that a petition calling on chancellor Rishi Sunak to help the late night industry will go live shortly.
• SIBA comments on the purchase by Marketing Management Services of Flying Firkin Distribution saying ‘following a small investment and business development by SIBA, Flying Firkin Distribution is a modernised and viable business which will continue to support independent brewers under its new stewardship by Marketing Management Services Ltd, who have proven experience in cask beer wholesale and distribution.’
• The Fulham Shore has updated on trading saying that it should publish FY20 numbers ‘on or around 15 October 2020.’ The company says that it ‘expects to report revenue growth of 7.2% to £68.6 million (2019: £64.0 million).’ FUL adds ‘following the completion of the placing and extension to its banking facilities in August 2020, the Group remains well capitalised. The Group’s net debt (before recognition of leases under IFRS 16) at the close of business on 25 September 2020 was £3.52 million, with £7.46 million undrawn of its £25.75 million of available banking facilities.’
• FUL says ‘since the year end, the Group opened a new Franco Manca on The Cut, near to the Old Vic theatre and Waterloo Station in London, in mid-September. As at the date of this announcement, Fulham Shore has 68 out of its 70 restaurants open and trading.’ It says ‘thanks to the UK Government’s “Eat Out to Help Out” scheme, Group revenues for the days when the scheme was operating increased markedly compared to those in the previous year.’
• FUL says re the 10pm curfew ‘the Board does not believe that this curfew will have a material effect on the Group’s dine-in business, as the majority of its customers eat before then.’ It says ‘the Group will continue to react and adapt if and when new regulations come onto force in the areas where it has restaurants. If, as before, delivery and / or takeaway services are permitted and dine-in is curtailed, the Company will pivot the business in this direction as it did earlier in the year.’
• FUL chairman David Page says ‘we are popular with the public, well capitalised and have headroom in our borrowing facilities. We believe that these positive attributes, combined with our cash balances, will see us emerge from this period as a successful survivor in an albeit reduced UK restaurant sector.’
• Diageo has updated on trading ahead of its AGM saying ‘we have made a good start to fiscal 21, with sequential improvement in our performance across all regions, driven by strong execution, robust demand in the off-trade channel and the gradual re-opening of the on-trade channel in most markets. The pace of recovery from the Covid-19 pandemic and easing of government restrictions varies by market.’
• DGE says ‘our US business is performing strongly and ahead of our expectations’ and says ‘in Europe, off-trade demand remains robust and the on-trade channel has largely re-opened with the easing of lockdown measures in most countries, although the risk of additional restrictions remains where infection rates are worsening. In China, the on-trade channel continues to recover, although larger banqueting occasions are returning more slowly. While the on-trade has also begun to re-open in Africa, India and Latin America and the Caribbean, we expect the pace of recovery in those markets to be more gradual. Travel retail continues to be severely impacted.’
• DGE says ‘our outlook for the first half of fiscal 21 has improved since the year-end, reflecting the good start to the year, particularly for our US business. We continue to expect sequential improvement in organic net sales and operating profit compared to the second half of fiscal 20. Compared to the first half of fiscal 20, we still expect lower organic net sales and margin dilution.’
• Overall, Ivan Menezes says it is ‘pleased with the resilient performance of our business in the current challenging operating environment and encouraged by our progress. While the pace of recovery is uncertain, I am confident in our strategy, the long-term fundamentals of our business and Diageo’s ability to emerge stronger.’
• The Sunday Times reports that ‘Polpo, which has branches in Soho and Chelsea, has filed notice of administration. The restaurant chain declined to comment.’
• Revolution Bars considers CVA. RBG on Friday announced ‘further to the continuing challenging trading environment and exacerbated by the further COVID-19 related restrictions announced by the Government earlier this week, the Board of Revolution confirms that it has been working with advisers to assess various strategic options for the Group.’
• It says ‘the Board is currently evaluating the potential impact of the latest developments on the Group’s business before deciding what the next steps should be. One of the potential options being explored is a reduction in the size of the Group’s estate by the implementation of a company voluntary arrangement.’
• RBG concludes that it ‘has a strong balance sheet following the £15m equity fundraising and the extension of its banking facilities announced in June but the Board believes that the long term nature and potential impact of the latest operating restrictions means that it must consider all necessary options to ensure that its business remains viable.’
• Various Eateries has seen its shares admitted to AIM. The group recently raised £25m. It would not be surprising to see advisors come forward with an acquisition in the very near future.
• Various Eateries (VARE) says ‘the net proceeds [of its fund raise] will principally be used to advance the Group’s plans to roll out its Coppa Club and Tavolino brands and to fund future activities, possibly including acquisitions.’ Chairman Hugh Osmond says ‘to many, this crisis is an existential threat; but it is also a once-in-a-lifetime opportunity to build a new, major leisure business, based on how people want to live now. That is why we are floating Various Eateries today and that is what we are raising money to try to achieve.’
• Famous Brands has fully written off its UK business, Gourmet Burger Kitchen. Famous Brands reports that GBK has seen revenues fall by 66%.
• Tesco is limiting some customer purchases in an attempt to head off panic buying.
HOTELS & LEISURE TRAVEL:
• Barbados has placed the UK on a list of high risk countries.
• BALPA has said that a breakthrough in negotiations with easyJet means that there will be no compulsory redundancies. Some sixty pilots have taken voluntary redundancy and 1,500 have agreed to work part-time
• IATA has said its call for 100% testing of all air passengers for Covid-19 is ‘achievable’ and ‘realistic’.
• Speaking about the US hotel industry, STR says ‘August RevPAR declined 47.3% from August 2019 and the continuation of “less bad” results continues. The data used to get 10 percentage points better month over month, but the pace of improvements slowed.’
• Caesar’s Palace has approached William Hill with a view to buying the company. William Hill says ‘following an initial written proposal from Apollo on 27 August 2020, William Hill received a further proposal from Apollo and proposals from Caesars.’
• Caesar’s has issued a statement saying it is in ‘advanced discussions concerning a possible cash offer for the entire issued and to be issued share capital of William Hill. Under the terms of the Possible Cash Offer William Hill Shareholders would be entitled to receive: 272 pence in cash.’
• Caesar’s says ‘the Possible Cash Offer values the entire issued and to be issued share capital of William Hill at approximately £2.9 billion and would provide William Hill shareholders with an opportunity to realise certain value in cash for their shares at a compelling price.’
• Caesar’s says it ‘has finalised its due diligence and a further announcement will be made as and when appropriate. Should a firm offer be made it would be subject to approval of William Hill shareholders and customary antitrust and regulatory gaming approvals. Caesars expects that the transaction would close in the second half of 2021.’
FINANCE & MARKETS:
• The CBI has said a Brexit trade deal with the EU ‘can and must be made’.
• Sterling higher at $1.2771 and €1.0976. Oil up at $41.61. UK 10yr gilt yield down 4bps at 0.19. Markets broadly higher Friday with London set to open up around 73pts.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front page headlines of the Saturday papers were mostly focused on the Government’s handling of the economic and health crisis: the FT went with “Axe set to fall on 1m jobs this year” and there was a similar headline as the lead Business story in the Telegraph (“One million hospitality workers face redundancy”), but the front page Telegraph headline was “Ministers’ plan to save Christmas at all costs”, whilst the Guardian led with “Universities urged to drop all face-to-face teaching” (with many universities suffering from outbreaks of the coronavirus). The Daily Mail and the Times both went with the shooting of a police sergeant in Croydon.
• Saturday’s Press and News (2): In terms of Retailing stories, the main focus was on the reaction to Boohoo’s publication of its 234-page Independent Review into its UK supply chain and the tone of the coverage was pretty sceptical: the page 2 News article in the Guardian was headlined “Boohoo knew of Leicester factory failings, says report” and the headlines in the Times and the Telegraph were very similar. The FT went with the more neutral “Boohoo pledges to improve governance and oversight”, but the Daily Mail went big on “Boohoo bosses face calls to quit” (“As explosive report reveals appalling conditions for workers…”), flagging that one silly local Tory MP, Andrew Bridgen, has said that “Mahmud Kamani has to go”. The City Editor of the Daily Mail also stuck the boot in, noting in his lengthy column that Boohoo boss Mahmud Kamani “covertly owns or controls many of the factories in
• Saturday’s Press and News (3): In other news, the Times highlighted that the new CEO of Tesco, Ken Murphy, takes over on Thursday at a time of extraordinary turmoil (“Fresh face at Tesco will need to prove that he can deliver”) and set out some of his personal history (eg at Boots) and the priorities he faces at Tesco. The Guardian highlighted the comments made to the BBC on Friday by the Next boss Simon Wolfson about the way in which the shift to Online spending has left many shop jobs unviable. The Telegraph and the Daily Mail flagged that the latest Accounts for Mike Ashley’s private company, Mash Holdings, reveal that he spent nearly £2m on private helicopter and jet travel last year. The Daily Mail noted the share buying by the Superdry boss, Julian Dunkerton and the Times stockmarket report flagged that the M&S share price fell on Friday for the seventh successive
• Sunday’s Press and News (1): The headlines on many of the front pages of the Sunday papers were pretty varied: the Sunday Times ran with the news that the embattled PM has chosen two former right-wing newspaper editors for jobs supervising the BBC (“BBC critics set for top jobs in broadcasting”), but it also flagged a big feature on the fact that the PM is “at breaking point” (“torn between saving lives and rescuing the economy – something’s got to give”). And the Observer went with “Johnson faces revolt on Covid diktats as poll figures slump”, noting that Tory backbenchers are revolting, with Labour taking a 3 point lead in the latest opinion poll.
• Sunday’s Press and News (2): In terms of Retail stories, the Business Leader column in the Observer maintained the focus on corporate governance at Boohoo, calling on Mahmud Kamani to step down as Chairman (“It would be a crying shame if Boohoo’s boss clings on after its factory scandal”), whilst the Sunday Telegraph flagged that Boohoo is trying to get a Californian court to throw out a $100m lawsuit against its US pricing policies. Otherwise, the most interesting story was the Sunday Times revelation that Walgreen have parachuted in the Chairman’s partner, Ornella Barra to shake up Boots in the UK, although the Sunday Times also flagged that the Board of Walmart met yesterday to decide whether to choose between private equity groups Apollo and TDR (which is working with the EG petrol station group) as the preferred bidder for Asda. The Sunday Times also flagged that landlords and
• Sunday’s Press and News (3): In terms of all the Economics and comment columns in the Sunday papers, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“A question of confidence as we face a long six months”), in which he said that the Chancellor’s new economic package on Thursday was “pretty well judged”, even though “the measures let the tyres down on an economy not yet properly motoring”. We would also flag the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Get ready for inflation. It’s the only way of paying for today’s ruination”), in which he noted that it is no wonder the Chancellor decided to skip his Budget, given the scale of the public sector deficit…
• News Flow This Week: We could get the delayed Pendragon interims at some point this week, as well as news of the much-awaited Asda sale by Walmart, but the week definitely kicks off with the Mulberry AGM at 11am today. Tomorrow then brings the Greggs Q3 update, the Card Factory interims, the ScS finals and the Hotel Chocolat finals (as well as Quarterly Rent Day). On Wednesday we get the Boohoo interims and the Topps Tiles pre-close and Thursday brings the Studio Retail AGM (as well as the start of Ken Murphy as Tesco CEO).