Langton Capital – 2020-10-13 – PREMIUM – Seedrs, new rules, job losses, retail spend, hotels & other:
Seedrs, new rules, job losses, retail spend, hotels & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We’re only echoing what’s been said elsewhere here but the eerie ghost town that is the City of London was a bit of a shock yesterday.
It was reminiscent of those dim and distant days when, as a junior member of staff, you were called into the office on a Sunday or a Bank Holiday to help move furniture or to prepare for an office move, empty streets, shut and sometimes shuttered pubs, no pedestrians, the works.
Indeed, Langton’s first meeting over beers had to be rescheduled as the pub was closed. But that was perhaps no bad thing as it will be charging £6 per pint with a 12.5% service charge on top as you won’t be able to order at the bar, and our own office, the halls of which have been freshly painted and were looking rather nice, was pretty much completely deserted.
And, as the doorman who I must have seen most days for a year or more asked me for maybe the tenth time what my name was and who I had come to visit, it brought home that 20% occupancy means that the door staff, security and the cleaners are in – but nobody else, and that’s how it felt.
Anyway, the rest of the day was a blur of admin as there was no milk in the fridge, the office plants had died, the Internet had switched itself off in a major way and there were a stack of bills in my pigeon hole and here we are, time to move on to the news.
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PRIVATE COMPANY ACCOUNTS: Seedrs and Crowdcube recently announced that they were to merge. The operators are both loss-making disruptors. 13 Oct 2020:
• As mentioned, Seedrs and Crowdcube are both loss-making disruptors.
• In their latest accounts, Seedrs (more detail below) reports that it had £4.3m of revenue in its year to Dec 2019 and made a pre-tax loss of £5.1m.
• Crowdcube (year to Sept 2019) reports revenues of £7.7m and a loss of £2.6m.
• Seedrs and Crowdcube have lost an accumulated £19.6m and £23.1m respectively.
• The idea of bypassing The City or Banks for funding may have a bright future. But funding it is certainly becoming expensive.
A comment on the outlook:
• Both Seedrs and Crowdcube’s latest numbers are pre-Covid-19.
• The coronavirus pandemic will not have had a positive impact on the desire of potential investors to commit their capital to unlisted companies
• In addition, many of the companies that have been crowd-funded to date may find themselves in a tricky position
• Some may fail, others may need more capital and a down-round is rarely helpful for the companies concerned or for sentiment
• The risks inherent in funding private companies were always there – but Covid-19 may have brought them to the fore
• There will not be much of a secondary market and exits are uncertain
Seedrs results company comment:
• Seedrs says ‘the performance of the Group during 2019 has been very encouraging, with the platform achieving record levels of investment and fundraising activity while introducing market-leading products and technology.’
• It says ‘the Group completed a fundraising round of £4.4 million in the second half of the year in order to accelerate investment in the Group’s research and development of new investment services and platform features while ensuring the Group’s cost base follows a path to further efficiency and scalability to meet the Group’s primary objectives.’
• It says ‘online investment in alternative asset classes is growing as an industry and continues to receive attention and support from the media, public and government. Whilst there is competition, the Group is confident that its commitment to developing a strong brand, an extensive customer base and a quality service will mean it remains a market leader.’
• Re Going Concern, the company says ‘the Directors have prepared business plans and cash flow forecasts for a period well beyond 12 months from the date of their approval of these financial statements, which indicate that, taking account of reasonably possible downsides, the Group will have sufficient funds, from its committed cash, to meet its liabilities as they fall due for that period. As a result, these financial statements have been prepared on a going concern basis.’
• Auditor KPMG, whilst it has not qualified its opinion, says ‘we draw attention to note 3.1 to the financial statements which indicates that the Group incurred a net loss of £4.7m for the year (2018: £4.0m) and had operating cash outflows of £4.4m (2018: £3.6m), and, under certain scenarios, in particular adverse business impact of the Covid-19 pandemic, the Group’s ability to continue as a going concern may be dependent on additional capital being raised that is not yet committed.’
• KPMG says ‘this, along with the other matters explained in note 3.1, constitutes material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern.’
• The accounts were signed on 17 April, the Audit Report was signed on 22 April and the Accounts were lodged at Companies House on 5 October
The numbers and post balance sheet events:
• As mentioned, Seedrs lost £5.1m before tax on revenues of £4.3m. This is arguably not sustainable.
• The company reported to Companies House that it had allotted some new shares on 9 July 2020 and recently announced that it was to merge with Crowdcube
Crowd funding in general:
• We have published a number of articles suggesting that crowd funding had pushed up valuations and that, in some cases, investors were not altogether clear what they were investing in or for potentially how long
• The lack of transparency, liquidity and exit routes concerned us
• Some of the companies we have commented on over recent months and, in many cases, these have not been performing well
• Covid-19 will have exacerbated many of the problems that these companies have been facing
• The crowd funding industry as a whole may be negatively impacted by the Covid-19 pandemic in that it could reduce risk appetite and delay exits
• Some companies that have been funded could struggle and any exits that were on the cards pre Covid may be delayed
PUBS & RESTAURANTS:
Three tier lockdown system:
• As expected, the PM Boris Johnson yesterday told the House of Commons that the UK was to be divided into three tiers, Medium Risk, High Risk and Very High Risk with restrictions differing accordingly.
• Medium is the Rule of Six, High is the above plus no household mixing indoors and Very High will be all of the above with households banned from mixing outdoors as well and pubs and bars closed.
• Regions categorised as Very High will only include Liverpool at this stage
• Restaurants will be allowed to stay open. This leaves open the definitional question as to what is a pub, and what is a restaurant. Mr Johnson last night said a restaurant was an outlet that served alcoholic drink only accompanying a main meal.
• Gyms, betting shops, casinos and adult gaming centres will also be obliged to close.
• This will leave the door open to a lot of pubs. Although some may wish to close in highly regulated areas and, if they are ‘forced’ to, they will be eligible for the 67% furlough.
• There is no financial support for firms in Tier 1 or Tier 2
• The rules come in on Wednesday and they will be reviewed every four weeks.
• SIBA, which represents smaller brewers in the UK, yesterday added its voice to those calling for enhanced support. Support will only be provided for businesses told to close (perhaps pubs in certain areas) but it will not provide support for other businesses, such as the brewers (or the food supply chain) that would then find themselves without customers.
• SIBA points out that an estimated ‘5 million pints of beer from small independent breweries were poured away during lockdown, and when pubs reopened in the summer many Global companies decided to replace beer for free, with small breweries expected by pubs to match the same deal.’
• The Society of Independent Brewers Chairman Ian Fozard said: “Rishi’s bar bill is now well overdue and with new regional lockdowns being threatened, how many more million pints will have to be dumped before urgent financial support is implemented for small brewers – or will they be expected to pick up the tab again?”
• The BBPA has said that ‘targeting pubs is wrong and will lead to permanent closures and job losses.’ It sis calling for ‘an evidence-based, proportionate response to the virus – citing latest PHE figures released on Friday 9th October showing that pubs and hospitality venues are not major sources of COVID-19 infections – representing just 3% of total transmissions.’
• BBPA CEO Emma McClarkin says the proposals are ‘grossly unfair’ and says ’if the Government is really going to go ahead and force much of our sector to close, then a far stronger financial package of support is going to be needed than what the Chancellor already announced.’
• The British Institute of Innkeeping CEO Steven Alton says ‘our industry has been one of the worst affected during the pandemic, not only from enforced closures, but also with consumer confidence being undermined at every step by ever changing restrictions and the blaming of hospitality for the spread of Covid-19.’ Alton says ‘in order to have any chance of survival, as a minimum where ANY restrictions are placed on our sector, additional business support is critical.’
• UKH says ‘the impact of all of these restrictions is huge and we are quickly reaching the point of no return for many businesses.’ CEO Kate Nicholls says ‘there is currently a concerning lack of support on offer for hospitality businesses in tier 2, and to a lesser extent tier 1, despite their facing restrictions that is seeing trade down by between 40% to 60%. They will have the worst of both worlds, operating under significant restrictions without the financial support on offer to tier 3 businesses. Without enhanced grant support and enhanced Government contributions to the Job Support Scheme, many are going to fall by the wayside.’
• SIBA says ‘brewery sales have collapsed because of the uncertainty of further restrictions, as pubs fear they will be closed. While pubs that are legally closed are being offered financial support this does not seem to apply to small breweries that will lose more than 80% of their sales.’ It adds ‘we need a comprehensive package of support, including the extension of the Job Retention Scheme to breweries before it is too late to save our small independent brewers.’
• A poll by YouGov reports that 64% of those polled do not think that the government has a clear plan for dealing with the Covid-19 pandemic compared to 20% that do.
Footfall and business levels:
• Fourth says ‘the latest figures from Fourth…and Wireless Social…have revealed the impact COVID-19 has had, and continues to have, on jobs and footfall.’ It says ‘hospitality workers’ jobs hang in the balance, and that nationwide footfall is falling again, despite the momentum generated by August’s Eat Out to Help Out (EOTHO) scheme.’
• Fourth says ‘there has been an 18% drop in overall staff headcount compared to September last year.’ It says 500,000 workers have lost their jobs in hospitality, around a fifth of the total employed in January. It says ‘roughly 43% of the workforce remains on furlough status.
• Fourth says ‘UK footfall dropped to 46% below the pre-COVID average on the weekend of 3rd October – a 4 percentage point decrease compared to the previous weekend.’ It does feel as though momentum is negative just at the moment. In order to bring the R rate down, perhaps it needs to be.
• Wireless Social says ‘there was a drop-off in traffic over the course of September, with the national average tracking at 39% below the pre-COVID level on Saturday 5th September, compared to 42% below the average on Saturday 26th September. The weekend of 3rd October registered the lowest figures since early August, coming in at 46% below average levels.’
• Fourth says ‘September has been incredibly tough for hospitality businesses, as the sector has been hit by further challenging restrictions that have impacted trading and consumer confidence. The fact that nearly half of the workforce remain on furlough, with the closure of the scheme on 31st October is concerning.’
• Wireless Social says ‘the fact that nationwide footfall remained consistent throughout September was an encouraging sign for our industry, however the latest round of Government restrictions and the threat of more to come could be the straw that breaks the camel’s back for some businesses. Our footfall data reveals the impact that these restrictions, with seemingly little scientific evidence to justify them, have had on visitor traffic particularly at a time when businesses require as much support as possible.’
• S4labour reports that hospitality sales from last week were down 12.8% compared to last year. It says, however, that on closer inspection, ‘sales in dry-led venues are up 16% on last year, yet wet-led venues are down 40%.’ It says that London is still suffering more than the rest of the country.
• S4Labour says that ‘venues that are established as table service have an already adapted way of working, and greater consumer confidence, alongside much larger capacity with the given restrictions.’
Footfall & remote working:
• Pragma Consulting says the move to remote working will lead to employers tring to ‘contain office costs’. It says ‘in many cases, a company’s culture is grounded in its office environment, which is important for employees, new recruits and clients alike. As a result, physical workspaces in the future will need to evolve to strike a balance between the traditional and virtual office.’
• It is true that ‘cities around the world are the focal point for office culture.’ Transport systems have grown up to service city centres and suburbs exist to house workers. It is likely that there will be some changes going forward but, as Pragma points out, cities are likely to remain a major draw for many reasons.
• The upheaval should not be underestimated but Pragma points out that, as company needs for office space ‘evolve’, ‘this provides opportunities for innovative mixed-use concepts, while in the suburbs it may be the stimulus to draw footfall back to the UK’s towns.’ For operators with sites in city centres, this has longer term implications for revenues and capital values.
• The BBC reports that Mitchells & Butlers is consulting on job cuts. It It has not yet announced how many jobs are at risk. M&B says ‘while we have worked incredibly hard to make sites Covid-19 secure and keep staff and customers safe, we are facing significant difficulties from the recently introduced 10pm curfew for pubs, bars and restaurants, new enforced closures and tapering government support that doesn’t go far enough.’
• M&B says ‘with trading restrictions and uncertainty likely to continue for the foreseeable future, we strongly urge the government to step up the level of support it is offering to an industry which has been repeatedly singled out and taken the full brunt of restrictions.’
• Barclaycard & the British Retail Consortium have suggested that Christmas could come early this year for retailers, partly as a result of consumer stockpiling. The snapshot of retail trends shows that the five weeks to 3 Oct saw spending rise by 5.6% compared to the prior year.
• The BRC says there has been a ‘big improvement’ in sales and adds ‘September sales have given retailers early signs that consumers are starting their Christmas shopping earlier this year, which retailers are encouraging their customers to do in order to manage demand at Christmas and keep people safe.’
• Barclaycard reports a 15.4% increase in supermarket spending. It says ‘while more than a quarter of Britons admitted to stockpiling items such as tinned food and toilet roll in case shelves go empty again.’ It says ‘many are still cautious about the upcoming winter months, and the subsequent uncertainty it may bring has caused some to start stockpiling once more.’
• Storecheckers has reported that the incidence of shoppers not wearing masks is rising. It says unmasked shoppers rose from 16% to 21% and says that some Northern cities were high on the list of offenders.
• Drinks Business.com points out that exporters of wine to the UK, for bottling and re-export to the EU, could lose business as a result of Brexit.
• CAMRA says it is concerned that the Marston’s Carlsberg brewery JV cleared by the CMA last week could have an adverse impact on small brewers. The CMA decided that the merger would not reduce competition. Carlsberg says the CMA decision ‘is a significant milestone in the formation of the new company, which we believe will create significant value for employees, customers and beer-drinkers in the UK, and we look forward to moving to the next stage on this journey.’
• M&B brands Toby, Stonehouse, Harvester, Sizzling Pub Co, Nicholson’s, Ember Inns, All Bar One, O’Neill’s & Browns are advertising 50% off main meals this Mon to Weds with vouchercodes.co.uk
HOTELS & LEISURE TRAVEL:
• Hotel bosses in Scotland have warned first minister Nicola Sturgeon that new lockdown measures could cost thousands of jobs.
• Carnival Cruise Line has cancelled its remaining cruises for the six ships operating from Miami and Port Canaveral in November 2020. Closures seem to be creeping forward as departure times get closer.
• Carnival says it ‘continues to work on protocols and procedures that would allow for the resumption of cruise operations, with a gradual, phased-in approach, designating Miami and Port Canaveral as the first two homeports for embarkations. Cruises currently scheduled for December from those two homeports remain in place for the time being while Carnival evaluates options.’
• Heathrow CEO John Holland Kay says that airport testing needs to be implemented quickly if thousands of jobs are to be saved. He says September traffic through Heathrow was down by 82% on last year.
• UK cinema admissions could be the lowest since records began around 100yrs ago. Admissions had been on the rise since their previous all-time low in 1984 but the Q2 shutdown and poor admissions since have pushed numbers down.
• Cinema admissions this year could be down by around 75% on those of last year.
• The Guardian reports that a third of football supporters are put off spending money on their team’s shirt if it has a betting sponsor
• Tech Crunch reports that 2020 could beat last year in terms of App downloads. Some 204bn downloads were registered last year. Tech Crunch says consumers are spending 3hrs 40m a day on apps. That does seem to be rather a high number.
FINANCE & MARKETS:
• The Institute for Fiscal Studies has said that the economy cannot be ‘fully protected’ from the impact of Covid-19. It says the c£200bn spent by government to date is necessary but will mean that big tax rises are necessary in the future.
• The IFS says that the economy will be 5% smaller in 2024-25 than was projected back in March. The IFS concludes ‘we are heading for a significantly smaller economy than expected pre-Covid and probably higher spending too. Without action, debt – already at its highest level in more than half a century – would carry on rising. Tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade.’
• The UK unemployment rate rose to 4.5% between June and August as the pandemic continued to hit jobs per the ONS. It reports that 1.5m people were unemployed in the period, 209,000 more than a year earlier.
• Sterling a shade higher at $1.3047 and €1.1057. Oil down at $41.88. UK 10yr gilt yield unchanged at 0.28%. World markets broadly higher with London set to open up around 20pts.
RETAIL WITH NICK BUBB:
BRC-KPMG Retail Sales figures for September (the 5 weeks to Oct 3rd): We expected today’s figures, which came out overnight, to show further surprisingly good growth and total sales were indeed well up again, by as much as 5.9% (after the 3.2% increase in July and the 3.9% increase in August), given further strong Online sales growth. The BRC pointed to the weak comps with September a year ago and noted some signs of early Christmas shopping. The exact Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +5.6% and +3.2% respectively), but it looks to us as if both total Food sales and total Non-Food sales were c5%/6% up. The overall positive Non-Food performance was again driven by continued strong growth in Home-related sub-sectors like Computing, Furniture and Electricals. Total Online Non-Food sales growth in September edged down to +37%,
Today’s News: The delayed French Connection interims (for the six months to end July) don’t make pretty reading, but the business has controlled its cash and costs tightly and, with net cash just over the £5m mark, management think they still have enough working capital to keep going, in the current difficult circumstances, albeit the current trading update is a bit mixed: “Since the French Connection stores reopened, we had seen a gradual sales build from a low base, however since the recent revision and further lockdown guidance, this has reversed slightly”. On a happier note, the Motor dealer Marshall Motors has issued a strong trading update, highlighting that its c18% LFL new car sales growth in the key “plate change” month of September was way ahead of the overall market.
News Flow This Week: The latest monthly Kantar/Nielsen grocery sales figures (for the 4 weeks to Oct 3rd/4th) come out at 8am.Tomorrow brings the ASOS finals, the Just Eat Q3 update and the Watches of Switzerland AGM. The Dunelm Q1 update is on Thursday and we then get the much-awaited John Lewis Partnership Strategy review on Friday. Over in the US, the big events are the start of the 2-day Amazon Prime discount promotion and the preview by Apple of iPhone 12 today, whilst the Walgreen Boots Q4 results (for y/e August) are out on Thursday.