Langton Capital – 2020-11-12 – PREMIUM – Young & Co, Marston’s, Wales, debt, Deltic, Wm Hill etc.:
Young & Co, Marston’s, Wales, debt, Deltic, Wm Hill etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Find banana skin, apply foot?
Given that the government hasn’t shown much skill when it comes avoiding stepping on slippery fruit, it might pay to look for its next opportunity to slip up.
Lockdown 1.0 was exacerbated by discharging vulnerable Covid-19 positive patients back to nursing homes and Lockdown 2.0 followed hard on the heels of EOTHO and the decision to send circa two million frisky students to the four corners of the country to do whatever students do when in close physical proximity to each other these days so, what about Lockdown 3.0?
A spark of intelligence?
Here at least there appears to be some application of thought (viz the rapid testing of students planned for mid-Dec) because, if we sucked back the above 2m youngsters into a big mincing machine, shoved them with their ghastly backpacks onto crowded trains and then splurged them back to their parental homes, what might we expect through January and into February?
Anyway, it’s all well above my pay grade so let’s move on to the news:
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ODDS AND ENDS. Feedback from operators & Lockdown 2.0 comments, longer term trends and trading in Wales. 12 Nov 20:
Feedback from operators: Comments on Christmas:
• Operators and consumers are uncertain whether pubs & restaurants will definitely, definitely reopen on 3 December. And so is everyone else.
• There is a possibility, perhaps a remote one, that Lockdown 2.0 will be extended.
• The likelihood is that the Lockdown will be lifted for both political reasons (the libertarian wing of the Tory Party would have a cow if it wasn’t lifted) and for the sake of the mental health of the nation.
• But there is a degree of uncertainty.
• This will lead a) customers eschewing forward bookings (this would be normal at this time of year, at least for meals) and b) operators not to take big risks on menus.
• From the customers’ point of view, it’s risky to bet the farm on a forward booking that may or may not be honoured. Walk-ins and / or very late bookings may be the norm
• Operators, for their part, will not have the certainty that they would prefer (and which comes from forward bookings).
• They may, therefore, keep Christmas menus as close as possible to the normal menu. Perhaps with a bit of red and green trim around it (both the paper menu and the food offer)
• Elsewhere, particularly for some High Street restaurants, Christmas remains ‘the big one’. It will not, this year, be as big as usual. This could be terminal for some operators going into what is always a very tough January and February period.
Feedback from operators: The removal (or at least deferment) of the retention bonus:
• For some operators, those with 30,000 or 40,000 members of staff, this was a promised £30m or £40m cash injection in January.
• This will not now be forthcoming. This is something of a bummer.
Feedback from operators: Accrued liabilities.
• The scale of these, deferred rent, VAT payments, perhaps duty, other government payments such as PAYE, NIC, sugar taxes, apprenticeship levies, Covid loans, bounce-back loans, normal bank loans, supplier payments, revolving bank credits etc. is getting beyond a joke.
• It is a racing certainty that not all of this debt will be paid back. Creditors and reluctant debtors will be arguing about this for years.
• The government and the banks may not get as much sympathy as they perhaps deserve. But some suppliers could find themselves in trouble through no fault of their own. Even landlords might struggle.
Feedback from operators: Cost cutting.
• In the same way that an animal or plant will do everything it can to avoid extinction, firms will cut costs to and beyond the point that is healthy.
• There is some evidence that staffing levels in some operations may be cut to the point where it is hard for firms to provide a satisfactory service
Feedback from operators: Other.
• Firms are finding it hard to plan. It’s hard to find anyone to blame for this but it is a problem.
• With hindsight, not available ‘in the moment’, it might have been better to say ‘a) three months down, b) three months up, c) two week firebreak’ and then repeat b) and c) for as long as necessary
• Staff to not feel secure. This is a big, big issue.
• The moratorium on evictions may need to be extended. But, and with some justification, landlords may say this is tantamount to removing the incentive to pay rent.
• Some balance sheets are becoming ‘irrecoverable’
• Some business models (and bits of models), e.g. competitive socialising, buffets, self-serve wine walls etc may simply not be compatible with a (thankfully rare) pandemic.
Trading in Wales:
• Welsh pubs were allowed to reopen last Monday.
• The ‘group of four’ rule is still in place and pubs must stop serving alcohol (but not kick out customers) at 10pm
• It’s only a few days’ trading but operators suggest that wet sales have been good and food sales, though sluggish, have been better than they were going into the circuit breaker in the principality.
• Some units are remaining closed for ‘a variety of reasons.’
• There is some evidence (and short periods can be unduly influenced by the weather, sporting events or the novelty of being open) that sales built from Monday to Tuesday and they may do so towards the weekend
• Customers, operators, the police and licensing authorities may need a period during which they can settle down
• Intrusive questioning (by the authorities or if obliged to by the operator) may be unhelpful
PUBS & RESTAURANTS:
• In the UK, the government is to extend the ability of pubs, restaurants and cafes to provide food takeaways by another year says Robert Jenrick. He says outdoor markets will be allowed. The freedoms were introduced in March. Their extension means that pubs and restaurants can focus on selling food takeaways if they choose to, while being able to return to operating as a pub or restaurant from 2 December.
• Jenrick says ‘we’ve taken decisive action since the beginning of the pandemic to support our pubs, restaurants, cafes and markets. Making it easier for them to provide takeaways has helped these businesses to adapt and helped sustain many through an unbelievably difficult year.’
• UKH says ‘the ability to provide takeaway services was a valuable lifeline for many hospitality venues, not just during the lockdown but in the days of reduced and restricted trade, too.’
• Late night operators ignored.
• Ahead of what may be final bids to help / buy Deltic, the Morning Advertiser reports that ‘while the existential crisis facing night clubs hasn’t occupied as many column inches as the plight of pubs, a number of sector stakeholders believe that lights out for late nights out would change not just the complexion of the hospitality sector, but of British culture.’
• Deltic CEO Peter Marks maintains that night clubs help sustain the wider hospitality industry. He says ‘one of the reasons our industry all gel well with each other is that we have a symbiotic relationship.’ Marks adds ‘the pubs understand that clubs play a role in their success, and likewise we like to work with the pubs because we know if we’re the only man standing in a town centre where all the pubs and bars have closed, we can’t survive either.’
• Researchers at IWSR have predicted that total alcohol sales globally this year will be down by around 8%. In May, ISWR had expected the year to show a decline of more than 10%.
• The ‘recovery’ from minus 10% plus to minus 8% has not been evenly spread. Consumption in China will be greater than anticipated whilst the slowdown elsewhere will be more in line with earlier forecasts.
• IWSR says ‘excluding national spirits such as baijiu and shochu, total beverage alcohol in the 19 focus countries will recover to 2019 levels by 2024. We may see that recover even faster now, given the recent news on encouraging vaccine trials.’
• The US and Canada, perhaps surprisingly, are forecast to show volume increases this year. Most other western markets will be lower.
• As a result of a 250% spike in coronavirus cases, San Francisco city will be shutting down all indoor dining starting tomorrow at midnight ‘for an unspecified length of time’ reports NRN. The journal says that ‘for the foreseeable future, the city will return to outdoor dining, takeout, and delivery only, after initially reopening indoor dining at 25% on September 30.’
• San Francisco mayor London Breed says ‘I know this is not the news our residents and businesses wanted to hear.’ He adds ‘right now, our public health officials are telling us we need to take these steps to get the virus under control and save lives – so that’s what we’re doing.’
• Technomic comments on global restaurant trends:
• Technomic suggests simpler menus, drive-through growth, more digital sales and a retreat into core cuisines which, in the US at least, comprise Italian, Mexican and Chinese food. Pandemic (talking about the US but applicable in the UK) says that there will be a shakeout in terms of operator numbers but says that, during and after the recovery phase, surviving operators could really do rather well. See Premium Email.
• Charity Step Change has said that 1.2m people in the UK will face serious debt issues as a result of the Covid-19 pandemic. It says the UK is “sleep-walking into a debt crisis” and long-term support will be needed.
• Sweden has banned the sale of alcohol from bars and restaurants after 10pm.
• Young & Co has reported H1 results to 28 September saying that revenues fell to £55.1m from £168.2m last year with adjusted EBITDA down to £2.9m from £47.2m and an adjusted loss before tax of £19.2m vs a profit of £25.5m in the same period last year. The adjusted loss per share was 28.6p against a profit per share of 42.9p in the same period last year. There is no dividend.
• Young & Co says that the ‘lengthy period of closure had [a] significant impact on results.’ The co says that ‘total revenue for the 10 weeks since opening on 20 July was encouragingly 84% of last year.’ The group’s units are once again closed. A share placing in June raised £84.8m, which the company says ‘allowed us to strengthen our balance sheet and kick start our 18-month investment programme this autumn (with five pubs completed and back on-site at a further two pubs).’
• YNGA says ‘despite the introduction of curfew restrictions and London’s Tier 2 status, since the period end, the trading of our managed house division had been encouraging at 73% of last year until all our pubs closed on 5 November.’ CEO Patrick Dardis says ‘as a business we benefitted from the Government’s “Eat Out to Help Out” campaign throughout August, which boosted midweek footfall with diners attracted by the headline 50% discount. We also made use of the Government’s much welcomed furlough scheme which enabled us to protect the jobs of nearly 5,000 employees.’
• Dardis adds ‘despite the challenges presented to us, our rural pubs and hotels, particularly those in the South West and in coastal regions, have delivered like-for-like growth against last year benefitting from the staycations and weekend visitors. These tougher times have also demonstrated our strength in controlling our cost base in a very efficient manner.’
• The company concludes ‘whilst we were hoping that a further lockdown could have been avoided, the second lockdown with the financial support available from the Government will be considerably less damaging to our business than the potential move to Tier 3 in the areas that we operate. We remain positive at the prospect of trading in December.’
• Re current trading, Young & Co says ‘all our pubs closed on 5 November.’ It says ‘we are hopeful that when we re-open on 3 December, we will see the back of the 10pm curfew and London moves to Tier 1.’ The company says ‘we remain positive at the prospect of trading in December. Unfortunately, the typical excitement of the festive period and the opportunities this usually brings us has been replaced with uncertainty. At this time, we would usually have 90% of bookings already in the diary; without the prospect of hosting large group get togethers, corporate Christmas parties and spontaneous festive drinks, the outlook for this December is far from certain.’
• Marston’s announced yesterday that it is to seek a further covenant waiver from its bondholders.
• The company says ‘it has formally asked the holders of its Secured Class A Notes for a limited number of further technical waivers during the first half of 2021, as a precautionary measure following the renewed lockdown restrictions introduced in Wales on 23 October, and in England last week.’ It adds ‘the waivers being requested are required solely as a consequence of the enforced temporary re-closure of its pubs in England by the UK Government as a result of the COVID–19 pandemic measures, together with the continued uncertainty with regard to further potential lockdowns over the winter months.’
• Marston’s reiterates that it ‘outperformed the market in the 13 weeks to 3 October.’ It says it ‘was able to successfully reopen approximately 99% of its pubs, albeit under varying degrees of trading restrictions. Encouragingly, like for like sales at the Group’s managed and franchised pubs were 90% of the previous financial year during the corresponding period and during August, like for like sales increased 6%, illustrating the Group’s ability to reopen and trade its pubs well in spite of the continued restrictions imposed on the hospitality sector. Cash generation was also ahead of expectations.’
• Post the receipt of funds from Carlsberg as a part of the creation of the Carlsberg Marston’s Brewing Company, MARS says ‘the financial and liquidity position of Marston’s and its subsidiaries remains strong. As previously announced, the Group did not need to utilise the additional £70 million bank facility secured in May.’ It says that ‘given the prevailing uncertain outlook, management are continuing to take a prudent approach and therefore believe it is appropriate to seek the waivers requested to provide the Security Group with maximum flexibility over the coming months should that be required.’
• Diageo is recalling all of its newly launched non-alcoholic stout because of “microbiological contamination”. This will be something of an embarrassment as it comes only two weeks after it was launched. It says ‘as a precautionary measure we are recalling Guinness 0.0 in Great Britain because of a microbiological contamination which may make some cans of Guinness 0.0 unsafe to consume.’ It says this ‘does not impact any other Guinness variants or brands.’
• North Brewing Co is to move to a ‘new multi-million pound home in North Leeds’ located in a former tannery on Buslingthorpe Lane. Co-founder John Gyngell says ‘we are incredibly excited to make the move to Springwell.’ The company says 2020 has ‘undoubtedly been the most challenging year of business for North Brewing Co.’
• The Inn Collection Group has added The Stables in Whitby to its estate, which now consists of 17 inns.
HOTELS & LEISURE TRAVEL:
• Accountant Deloitte has reported that two-thirds of hospitality leaders are optimistic on the long-term future of the UK hotel market. However, half of the respondents believe that a ‘no deal’ Brexit will lower the attractiveness of London.
• Deloitte says ‘the hotel industry has been one of the hardest hit by the outbreak of Covid-19. However, as vaccination developments look increasingly promising and consumers think ahead to 2021 travels, senior hospitality figures are more optimistic about the year ahead.’
• The WTM Virtual travel conference has heard that there has been a resurgence in interest in package holidays for next year.
• Meanwhile former Patisserie Valerie chairman Luke Johnson has tweeted that ‘a Confederacy of Dunces led by Hancock and Shapps are destroying the travel industry and hundreds of thousands of jobs with their incompetence.’
• The Washington Post reports that some tourists have been buying fake COVID-19 test results in order to gain entry into certain countries. It says French authorities have broken up a forgery ring selling counterfeit test results at the Charles de Gaulle Airport in Paris.
• Heathrow CEO John Holland-Kaye has said that there is a “lack of government action” to support aviation, particularly when it comes to introducing testing at airports. He says this lack is ‘weakening our sector, making it harder for us to support the eventual economic recovery and help deliver the Prime Minister’s vision of a global Britain.’
• Shares in Lyft rose by 7% on its Q3 numbers. Revenues fell 48%, a lesser drop than had been feared.
• Apollo Management International has confirmed that it is not intending to make an offer for William Hill.
• GVC has updated. CEO Shay Segev says ‘under our new corporate identity, we will continue to use our unique technology platform to build on the exceptionally strong momentum that we have in our existing markets, grow into new markets, reach new audiences, enhance the customer experience, and provide industry-leading levels of player protection.’
• The Times reports that short-sellers have been squeezed in Cineworld.
• Spotify has announced that it is to buy Megaphone for a reported $235m.
FINANCE & MARKETS:
• The ONS has reported that the UK economy grew rapidly in Q3 as it staged a partial recovery from the depths of the Covid-19 pandemic. GDP grew by 15.5% in the quarter, slightly below estimates of a 15.8% increase.
• The economy grew by 1.1% in September against estimates of around 1.5% growth. City AM quotes the BCC as saying ‘while there was confirmation that the UK exited recession, the historically strong headline figure masks a loss of momentum through the quarter, as the temporary boost from the release of pent-up demand as the economy reopened gradually faded.’
• Sky reports that economists, perhaps unsurprisingly, are forecasting a faster recovery for the UK if the Pfizer vaccine is effective and is rolled out efficaciously.
• The government is to block foreign takeovers of certain companies.
• The Office for Tax Simplification has criticised Capital Gains Tax saying that it “can distort behaviour”.
• Sterling down vs dollar at $1.3195 but level vs the Euro at €1.1214. Oil down at $43.74. UK 10yr gilt yield up 2bps at 0.42%. World markets broadly better yesterday but London set to open down around 60pts.
RETAIL WITH NICK BUBB:
• Nick will be returning shortly.