Langton Capital – 2020-10-28 – PREMIUM – Social Media, Tier III, home working, Whitbread, cleanliness etc.:
Social Media, Tier III, home working, Whitbread, cleanliness etc.:
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A DAY IN THE LIFE:
Bit busy today, on to the news:
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BOOK REVIEW – Part 2 (of 2). TEN ARGUMENTS FOR DELETING YOUR SOCIAL MEDIA ACCOUNTS. By Jaron Lanier, 2018: Silicon Valley insider Lanier makes some important points. 28 Oct 2020:
• Lanier says that Social Media (SM) encourages, without consciously trying to do so, paranoia, bad behaviour, depression, extremism and a host of other ills.
• He has a point. His language is a bit fruity. It wouldn’t get past some firewalls so, when we say AH, we’re sure you’ll know what we mean.
• See also Monday’s piece covering Reasons 1-5 inclusive. We’ll cover Mr Lanier’s remaining ‘reasons to delete below.
Reason Six: SM destroys empathy.
• Because you are categorised & pigeon-holed, to be more efficiently changed & conditioned, you are placed with like-minded people. Organised in such a way, people are more reactive to dog-whistles and dark ads.
• Extremists may believe that, because they have found half a dozen people globally who agree with them, that they have a widely accepted viewpoint.
• They / we may become less tolerant of other people’s views.
• Lanier says there is a ‘social numbness’. He says, ‘the scale and speed of idiocy has been increased.’
• commonality of input is reduced. so should read the express. there is a social numbness. echo chambers & bubbles. your views are reinforced. you are corralled into groups for profit. dark ads. customised. they are small changes, but they add up – e.g. stop some people from voting. promotes tribalism. neural hashtags are not pleasant. we can sometimes seem crazy to each other. says the scale of opacity is opaque.
• Keywords: bubbles, echo-chambers, dark ads, dog-whistles etc.
Reason Seven. Social media makes you sad.
• You are the product. Your happiness or otherwise is incidental.
• If the product, you, are more easily manipulable when you are sad or angry, then that is what the algorithms will work towards.
• SM is ‘structurally humiliating’. It can lead to ‘social anxiety’. You will never have as many friends, likes or re-tweets as you would like.
• You are driven half mad and are indirectly sending money to Silicon Valley in the process.
• Key thoughts. Has Mr Trump been driven batty by social media?
Reason Eight. It removes economic dignity.
• Gig workers have little security.
• ‘Free’ products, such as most SM platforms, should always be treated with a degree of scepticism. Somebody is paying for all of those glass castles.
Reason Nine. SM is making politics impossible.
• Things are no longer getting better. We have taken ‘improvement’ for granted for a hundred years or more.
• The ‘moral arc’ has slipped backwards. Politics is tribal and ‘democracy has been weakened.’
• SM ‘favours loud mouthed AHs’
• Some of it is very dark. ISIS was addicted to atrocity. People can self-radicalise.
• SM ‘is pro paranoia, pro irritability & pro AH.’ The platforms simply favour views that drive traffic. It is ‘sterile and ruthless’. These views may be those of awful AHs.
• Lanier warns that we may come to believe that our ‘hell of insults & lies’ is normal. It isn’t.
Reason Ten. A catch-all. SM ‘damages your soul’.
• It can damage empathy and make you into a sad AH
• Truth is diminished. We have gifted a chunk of our free will to Silicon Valley.
• The business model has ‘perverse incentives’
• It fosters ‘belief without evidence’. We had spent a century getting away from this approach.
• Any list of ten excludes other reasons. These include the fact that it interferes with family dynamics, pressures the young (especially girls), opens us up to scams etc.
• He says we should be cats, rather than dogs. Do what you want, rather than what a shadowy billionaire has conditioned you to do.
PUBS & RESTAURANTS:
Legislation, push back etc.:
• A group of 50 Tory MPs from “red wall” seats are pressing the PM to produce a “roadmap out of lockdown.” The MPs want to know what the plan is. Also, what recovery measures are going to be taken to help the north of England.
• Sky reports that the prime minister is under mounting pressure from his medical advisors to bring in tougher coronavirus rules at the same time as northern and other Tory MPs are calling for an end to lockdown.
• The Sun reports that the PM has been warned that the whole of England will need to be under the toughest Tier 3 restrictions by mid-December. The PM is also being warned against overoptimism as a vaccine might not work for everyone or be permanent.
• The Lib Dem and Alliance Party of Northern Ireland have called upon the UK’s four devolved regions to get their regulations into some form of agreement ahead of Christmas.
• The government has reportedly told pubs and restaurants not to take advantage of a loophole that would allow colleagues from different households to meet indoors if they said their meeting was for business purposes.
• Sky reported Stephen Barclay, the Chief Secretary to the Treasury, as previously saying that people were “allowed to meet in restaurants under the guidance for work meetings”. A Downing Street spokesperson is reported to have told the FT that restaurants shouldn’t exploit the loophole.
• Beer Taxes. SIBA has reported that small independent brewers pay business rates of over fifty times as much per pint as Global beer brands (who admittedly brew much larger volumes more efficiently). At the moment, this is not an issue as Business Rates are not being collected.
• SIBA says that ‘it is hugely important Government recognise the pressure independent brewers are under and address the inherent unfairness in Business Rates between Global and local breweries. It is unfair to expect small brewers to once again carry the tax burden for Global brands, particularly as they are some of the worst hit by coronavirus and there is the potential for separate tax rises around the corner too.’
• Tucked away in its CVA announcement yesterday was a comment on the impact of the 10pm curfew from Revolution. The company says that LfL sales from ‘4 July 2020 through to 29 August 2020 were 72.5% of last year, ahead of the level anticipated by the Board at the time of the announcement of its equity fundraising.’
• The group says ‘in the subsequent three weeks, comparable venue sales remained buoyant at 77.8% of last year, but in the last five weeks to 24 October 2020 have reduced to 49.4% due to the imposition of the 10pm curfew and more recently localised lockdowns, with more severe operating restrictions now affecting many of the Group’s reopened bars.’
• It will be a challenge for leasehold businesses to make an operating, let alone a net, profit at this level of revenue.
Working from home:
• Bank of England economist Andy Haldane has said that working from home, as workers are once again being urged to do, stifles creativity. He says the pandemic has ‘reshaped our working lives, our economic contributions and our well-being.’ Haldane says ‘if you asked me if I am happier working from home, I genuinely would not know. I do not miss the commute.’ For many people, commutes are hardly enjoyable.
• Losses of productivity, innovation, and the like ‘will grow with time’. Haldane says ‘at some point, they will offset the benefits of avoiding South West Trains.”
• Whitbread pointed out yesterday that the major reason that it had written down the value of its investment in Germany was that the discount rate had risen. This (the denominator in any calculation) reflects increased risk. The numerator (expected earnings from the assets) may also have fallen, exacerbating the write-down.
• We mention this because of the implications for companies with pension fund deficits. Whitbread did not comment on its own pension fund position yesterday but Premier Foods, for example, reports H1 number on 10 November.
• Book publisher Bloomsbury has reported good H1 numbers. The publisher says that people have “rediscovered the pleasure of reading.”
• Chicago is to once again ban indoor dining from Friday.
• Farmers say they will need thousands of foreign workers for the UK harvest next year as Britons do not want to do the work
• Carlsberg has reported better-than-expected beer sales in the third quarter. It says organic volumes rose by 2.4% in Q3. The business performed strongly in the craft and specialty brews sections, as well as its alcohol-free line. The company says ‘the pandemic remains a concern for us, impacting our people, our customers and our businesses in many of our markets.’ It adds ‘consequently, we’re continuing to adapt our organisation, processes and structures to a new market reality, including changed consumer preferences and a temporarily reduced level of on-trade activity.
• M&B brands Toby & Harvester are offering kids meals for a quid.
• Artisanal bakery Arôme has signed for a new unit at The Yards in Covent Garden.
• Denny’s Corp in the US has reported an improvement in sales, albeit from a low base. The operator says same-store sales were down 26% so far in fourth quarter as compared for the prior-year October period, but that was an improvement over negative same-store sales of 39% in July, 35% in August and 28% in September.
CHANNEL FOUR DESPATCHES:
• Channel Four’s Despatches programme on Monday looked at cleanliness. The programme took swabs from a number of coffee shops (Costa), from London buses, from hotels (a number of Britannia units) and from a number of Tesco supermarkets.
• The results were interesting but, if anything, they proved only that people are human and that adherence to cleanliness standards was variable.
• The best result came from London buses. Believe it or not, the grab poles, bells etc were clean. Of the six Costas, the Britannia Hotels and the Tesco supermarkets (trolleys), the results were mixed. Half of the Costas grew various bacterial cultures (not necessarily Covid) as did some of the hotels and the Tesco sites.
• Tesco said, quite reasonably, that it can’t track every trolley in its carpark. Costa said it cleans every half-hour. The implication being that a lot of ‘stuff’ can happen in the intervening thirty minutes. Overall, one was left with a feeling that rules are only as good as the staff asked to impose them. But well done Transport for London.
• Next week, interestingly, the programme will be tracking one single hospitality job and the >1,000 applicants that went for it asking broadly ‘have we sold a large part of an entire generation out?’
WHITBREAD H1 NUMBERS – CONFERENCE CALL:
Following its H1 presentation, Whitbread presented online and hosted a conference call for analysts and our comments thereon are set out below.
• The company does not go through its H1 numbers or its initial response to Covid-19 in any detail. See earlier comments.
• Trading was ‘in line with expectations.’ The group received £86m in furlough payments.
• The statutory loss includes a £348m non-cash write-down.
• The net cash outflow for H1 was £462m
• WTB says the market as a whole recovered to 49.9% and 49.2% of prior year revenues in Aug & Sept. But this slipped to 42.7% in Oct. WTB has outperformed the market in each of those three months
• Co says PI has taken its share up by 3.5pps to 10.8% in August and up 3.4pps to 10.5% in September
• WTB says ‘the near-term environment is challenging.’ There is increased uncertainty.
Template for recovery:
• Whitbread says this is in three parts: Protect, Restore and then Drive Long Term Value. These are not linear but may take place alongside each other
Strategic position & break-even etc:
• The co says, correctly, that some of the best opportunities to invest are during tough times. Timing is, self-evidently, critical
• Post its rights issue, the group has cash and total available facilities of £2.3bn.
• The co says it will break even at the EBIT level with 55% occupancy & room rates down 20%. This is net of the benefit of zero business rates & the furlough
• There is remaining growth in the UK. Independents had 57% of the market in 2010 – but they still had 48% in 2019. These operators will have been impacted by Covid-19
• The group has a committed pipeline of 13k rooms. This will provide growth for 2-3yrs. WTB says the branded budget sector has outperformed the wider hotel market in each of the last 12yrs or so – this is particularly the case in downturns
• Slide 20 shows PI under-indexes in London and group-business and over-indexes in manual workers who cannot work from home
• The group sources its own guest & has largely freehold properties
• Covid-19 will slow overall growth in room numbers and put additional pressure on independent operators
• Six hotels at the start of the year to 19 at end-H1. The co has 21 open now. It has secured a network of 53 and this is now rising to 68. Performance in Germany is ‘encouraging’.
• This remains a large & attractive market. it is an ‘exciting structural opportunity’. Independents still have 72% of the market. WTB is seeing ‘active signs of distress’ across some independent operators. Whitbread has ‘line of sight’ to around 5% of the market
• Current trading:
o Why such a sharp drop post August? Co didn’t really answer this but said it was pleased with its performance. The low break-even (at the unit level) turnover means that trading (rather than not trading) is almost always a good idea. Co was cash neutral in August.
o October? Co is outperforming but didn’t give numbers. Tier III does dissuade travel. Group has 40 closed in Wales, none in England. Sentiment is more widely impacted. Occupancy is ‘about 50%’ and it could ‘drop further’. This ‘could last until the springtime’.
o The group craves certainty. Even if ‘plans’ are wonky, at least there is something to base behaviour on.
o Business v leisure. Broadly 50:50. Mostly domestic. Fewer conferences & meetings. Over-indexes on S&ME. Won’t give percentages. Some of the German units are conference-facing.
o B v L. Aug was more leisure (as usual). Cities were quiet, London was ‘moribund’. This should swing to B in Q4 but not giving numbers.
o Pricing? Down 25% or so. Slipped a couple more points in October.
o Other. Co won’t give info on EOTHO. It is taking market share across the market, not just from Travelodge.
• Cost savings? Co is working towards 1% reduction in sales equalling £18m off profits, even after the end of furlough (and possibly the reintroduction of business rates).
• Other markets:
o Germany: Many competitors are cash constrained. The 15 that the group has just announced were ‘cherry-picked’ down from 53.
o The Foremost (German acquisition) has been written down. What implications does this have? Still valuable. But the discount rate has risen.
o Middle East. Stable but a small part of the company.
• Balance sheet:
o More sale & leasebacks? Happy to hold freeholds. Travelodge is having issues with its landlords. But the group has optionality. Landlords would like to have WTB as a covenant.
o New openings: The models have been re-run. Some extensions etc have been shelved. May ‘cherry-pick’ the odd site. Could infill in a bigger way in Germany. The group is not stepping away from earlier c110k room targets. Comfortable with the pipeline rooms just for now.
o Hurdle rates are unchanged. Hotel earnings have been adjusted for the current situation.
o Group has been opening slightly larger units. The number of restaurants has risen slightly with the number of hotels down. There is ‘no issue here’.
• After a drop yesterday, WTB’s shares have steadied on what is a cautionary statement.
• WTB truly is ‘well-positioned’ but, as always, this is relative rather than absolute.
• Trading is more difficult, and the group expects regional lockdowns to come and go (although none have gone yet) ‘until springtime’.
• This favours WTB over the independents. Or rather it disfavours WTB less than it does some others.
• There are no meaningful forecasts at this stage. WTB is a February year end, meaning that not only FY21 but FY22 will be Covid-impacted.
• Asset valuations (given today’s write-downs) are fluid – but the move is clearly down. This is more notable with leases, where the discount rate has risen.
• Overall, WTB remains well-positioned, but there is little visibility as to current or near-term future trading
HOTELS & LEISURE TRAVEL:
• PwC has said that the UK hotel industry could take four years to return to 2019 levels of business. PwC says London hotels will be particularly badly hit. It says ‘the reason why London is so strong normally is that it’s heavily reliant on international travel and the corporate market. Unfortunately for London, it’s those two markets that have been hit hardest and will have the longest recovery.’
• Some 57% of TUI UK customers say they expect to book a Mediterranean beach holiday for next summer.
• STR has said that the Covid-19 pandemic must be brought under control in the minds of consumers before international travel can recover fully. STR says China is a good example of virtual normality. It reports that China ‘has not had more than 100 new cases a day since March. Restrictions on movement have been lifted.’
• Butlin’s reports that four staff at is Skegness resort have tested positive for Covid-19.
• EasyJet yesterday announced that it had raised $398.6 million (305.8 million pounds) from the sale and leaseback of nine aircraft.
• Qantas has said it will not restart flights to the UK and US until there is a vaccine for Covid-19 ‘given the high prevalence of the virus in both of those locations.’
• Carnival has announced that ‘due to the uncertainty about when international travel restrictions might be lifted, Princess Cruises is extending its pause in operations for cruises departing from Australia and New Zealand through May 31, 2021.’
• Carnival says ‘guests will receive a refundable Future Cruise Credit equivalent to 100% of the cruise fare paid plus an additional non-refundable bonus FCC equal to 25% of the cruise fare paid.’
• Indoor karting operator TeamSport is to open a new £1.1m venue in Watford.
FINANCE & MARKETS:
• Sterling up at $1.3059 and €1.1079. Oil lower at $40.48. UK 10yr gilt yield down 4bps at 0.24%, world markets lower yesterday with UK set to open down around 70pts as at 7.15am.
RETAIL WITH NICK BUBB:
Next: The much-awaited Next Q3 update today (for the 13 weeks to Oct 24th) brings the news that full price sales were “better than we anticipated” and were up 2.8% against last year (down c18% in Retail, but up c23% Online). And full year profit before tax, based on the new central sales scenario of -8% in Q4, is now forecast at £365m, £65m higher than the central scenario given in September with the interims. Next has also said that it can cope with a “no deal Brexit”, but has again warned that the ports may not be able to cope…
Today’s Other News: Talking of Brexit…B&M has announced that it is having to hold an EGM on Dec 3rd to approve some technical changes to its Articles of Association, caused by its Luxembourg domicile and the end of the Brexit transition on Dec 31st. Over in the US the supermarket giant Kroger (which owns the City Markets chain in Colorado, inter alia) issued an investor update yesterday, but all it did was reaffirm the shareholder value return model and there was nothing about the Online Grocery partnership with Ocado (apart from a slide in the analyst’s presentation about the way to grow Digital profitability). And while we were looking for the delayed Shoe Zone pre-close update last night, we noticed that an upscale German Online fashion business called Fashionette had set its IPO price at Eur 31 (near the bottom of the mooted 30-38 range), capitalising the business at Eur 192m,