Langton Capital – 2020-11-16 – PREMIUM – Xmas, Lockdown II, retention bonus, M&B, Revolution, Caffe Nero etc.:
Xmas, Lockdown II, retention bonus, M&B, Revolution, Caffe Nero etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I have a 30-foot tall cooking apple tree outside my home-office window.
And, whilst I know I should probably got up it on a wobbly ladder at this time of year to pick the fruit, I haven’t got around to so yet and, as a result, c1kg apples keep hitting the mud with and awful thump and, looking at the impressive dents they’re leaving, it’s hard not to consider the lengths that Isaac Newton went to, to prove that apples fall downwards.
Of course, he didn’t prove anything of the sort.
And I’m sure he knew intuitively that they would hit the ground shortly after they were shaken by the wind from the tree but, considering we’re familiar with it 350yrs later kind of proves that the story he told was a good one.
Moving from one good story to another, an impressive headline in The Daily Mash on Friday: ‘The best part of having a dog is when it runs away and you have to chase it for hours, say dogs.’
Anyway, I’d say it’s nearly Friday but, sadly, it isn’t. On to the news:
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SOME VERY IMPORTANT ODDS AND ENDS. Feedback from operators. Wil Lockdown 2.0 end on 2 December and how important is Christmas? 16 Nov 20:
Feedback from operators & other thoughts: Will the lockdown end on 2 Dec?
• The options are yes or no but the thinking is yes. For a whole host of reasons, largely political and economic. Less so, health.
The lockdown likely will end on 2 December:
• Politically, this may be an imperative.
• The PM will have to consider his own position, the credibility of his party and the health of our nation.
• He may (indeed almost certainly will) consider that two out of three isn’t bad and restrictions will be listed.
• Mr Johnson’s position is weakened and that of his backbenchers has been enhanced
• The Huffington Post points out that the 50-strong Tory backbench Coronavirus Recovery Group has now been mobilised and it will hold the PM’s feet to the fire
• The Huff says the CRG (similar in some ways to the ERG) may vote against the Tier System being reimposed and the PM ‘may well have to rely on Labour votes for his plan.’
• But, politically, the lockdown arguably has to end.
Economics & health:
• Choking the economy cannot go on forever. It would be helpful if the lockdown ended as soon as possible (it can’t be earlier than 2 December) as the hospitality industry needs Christmas
• But longer term, it is likely that the health of the economy and the physical health of the UK population, must move in tandem
• Here the maths is a bit tricky re the health part of the equation. The R rate is still above one and the pandemic is therefore expanding. This with the lockdown in force.
• So how could the pandemic do anything other than expand more rapidly still if the lockdown were lifted?
• Hopefully, the impact of the lockdown will cumulate. But, even so, the Huff points out that ‘NHS medical director Prof Stephen Powis underlined in the No.10 TV briefing [that] there is a two week lag between people getting infected, developing symptoms and going into hospital.’
• There will be a further lag before some people admitted to hospital go into ICUs and thereafter some will die
• Hence deaths could still be at high levels, perhaps even still rising, at a time when the lockdown is meant to end
• That isn’t very encouraging but the lockdown in Wales has been lifted despite its rate of infection being the same as England, and the latter has only just gone into lockdown
• That doesn’t seem very joined up as both moves can’t simultaneously be right
• A week and a half into the four-week lockdown, the Huffington Post says that infection numbers show ‘that we are not close yet to the plateauing that many had hoped.’
• Add in the 14dy lag in hospitalisations and the further 7-14dy lag before patients could die and the timing looks poor
• A two-week circuit break over the Half Term, suggested by Labour and therefore perhaps considered out of bounds for he government, may have made more sense – particularly as schools and higher education could have been shut down too
• The Huff says, ‘Johnson could be under serious pressure from his scientists to say he should extend the lockdown, maybe for one more week.’ You can say that again
Feedback from operators: Comments on Christmas:
• We commented on Christmas on Thursday saying it will be short and different.
• We believe, but cannot be sure, that it will happen.
• In the absence of the £1,000 per head job retention bonus (see general email below), a good Christmas is even more important than usual.
• If operators cannot lay on some fat, they may not be able to survive January and February particularly if, as is entirely possible, Lockdown 3.0 were to hit Easter
• There are too many variables to be definitive. Will the industry open on 3 December, will the Rule of Six and 10pm closing still be in force etc.
• Planning is difficult, if not impossible.
• The absence of certainty should mean that operators take fewer risks. The Xmas menu will be closer to a normal menu and orders may not be put in with suppliers
• You can’t grow a turkey in a week and nor can you brew beer in that timescale
• And what about staff? Do you take them on, leave them dangling or what?
• Admittedly, there’s plenty of frozen turkeys and bottled beer out there but, in the absence of any certainty, will operators order them?
• We covered the absence of forward bookings last Thursday. This would usually underpin stock ordering and give whoever is responsible for labour scheduling something to work towards
Why it matters:
• The job retention bonus isn’t there anymore, January is always awful and February, Valentine’s Day excepted, isn’t much better
• Another lockdown, let’s hope not, is entirely possible and, if operators have not been able to refill their financial coffers in December, this could be hard to survive
PUBS & RESTAURANTS:
Cash flow hit:
• We mentioned a week ago today that Lockdown 2.0 featured the scrapping of the £1,000 retention bonus that was due to companies taking employees back on, provided that they kept them on the books until January.
• The Sunday Times has picked up on this saying that ‘companies are scrabbling to plug holes in their budgets’ as a result of this move. It points out ‘Sunak scrapped that bonus when he extended the furlough scheme last month.’
• The Sunday Times echoes the view we are hearing from businesses that ‘the U-turn has caused turmoil at businesses that had factored bonuses totalling tens of thousands of pounds into their cashflow forecasts.’
• The scheme could have either cost the Treasury or benefitted industry by as much as £9.6bn if all furloughed staff had been taken back on. The Resolution Foundation think tank estimated it would cost about £7.5bn as a result of job cuts.
• The FSB says ‘small businesses that have got lots of revenue issues were looking forward to a bit of guaranteed income in January.’ It says ‘that one little bit of light at the end of the tunnel has gone. If you have not earned much for nine months, the prospect of £1,000 in your account is huge.’
• If it weren’t for the fact that the government might have used up its allocation of U-turns for this month, one might imagine the policy being reversed.
Other Covid news:
• The Guardian reports that the UK’s large supermarkets, who benefited to the tune of £2bn when business rates on retailers was suspended, are under pressure to pay the cash back.
• The paper says ‘the big six supermarkets – Tesco, Sainsbury’s, Asda, Morrison, Aldi and Lidl – will save £1.9bn in bills during the tax year to 31 March 2021, according to figures from Altus Group, a property adviser.’
• Tesco, Sainsbury and Morrison’s have already paid dividends to shareholders during the period in which they have relief from business rates.
• CGA reports ‘the majority of consumers feel confident enough to return to pubs, bars and restaurants after England’s lockdown.’ The lockdown is due to end on 2 December. CGA says ‘55% of consumers in England feel safer in hospitality venues than they do in shops and supermarkets.’
• CGA says 86% of consumers are satisfied with safety precautions and as many as 76% of consumers say they will go out again when sites are open.
• CGA says ‘as we near the end of a hugely challenging year, it’s encouraging to find that so many consumers feel confident enough to return to pubs, bars and restaurants.’ It says ‘it’s a reflection of the hard work that operators have done to provide safe and hygienic environments, and is a positive sign ahead of the crucial pre-Christmas trading period. The fact that consumers clearly still love going out to eat and drink should give everyone cause for optimism for 2021.’
• Charlie Gilkes as Inception tweets it would ‘be great if large events spaces could be rented for mass vaccination programme to help this sector and deliver vaccine simultaneously.’
• KAM Media says, having contacted 200 people about their Christmas plans, some 25% said they would purchase a take-away Xmas lunch if pubs and restaurants are closed against a similar 24% if they’re open. KAM says ‘there was some interest in a “cook at home” Christmas dinner, with 20% of people we spoke to happy to consider it if venues were closed and 17% if open. And a huge 26% would get a takeaway from their local pub/restaurant at some point over the Christmas period if venues are closed, 24% if they’re open.’
• Revolution Bars Group has updated on its CVA process saying that it has been successfully approved. Revolution says ‘over 88% of all creditors voted in favour of the proposal (75% approval required) – Over 75% of the unconnected creditors voted in favour of the proposal (50% approval required).’
• Revolution says there is now a 28-day period, following the filing of the report by the chair of the meeting, in which a creditor may apply to court to challenge the CVA. The company affected has 51 Revolution branded leasehold bars. The company says ‘following the approval of the CVA, RBL will exit six bars imminently, and reduced rental terms have been agreed in respect of seven other bars that are now subject to turnover-based rents with minimum rental thresholds for the duration of the two year CVA period.’
• Commenting on its financial position and liquidity, Revolution says it has two bars open in Wales and three in Scotland. It says it ‘estimates that its cash flows (before one-off costs of implementing the CVA of approximately £1.1m) will improve over the two-year period of the CVA by approximately £4.0m.’ The Group’s cash burn rate is estimated at approximately £0.4m per week.
• Revolution says its CFO, Mike Foster, is to step down from the board on 22 December. Danielle Foster will take over. CEO Rob Pitcher says re the CVA ‘this is a positive step in the right direction for the business.’ He says that current government restrictions are ‘often illogical, inappropriate and disproportionate.’ He says, however, that the promise of a vaccine does give ‘some potential indication of a timeline to normality.’
• M&B is set to close 20 sites reports The Telegraph. It says the company is ‘axing up to 20 pubs and restaurants, putting scores of jobs at risk as the industry battles tighter restrictions.’ The co is reported to be working with advisors CBRE to ‘offload a string of leasehold sites.’
• An M&B spokesman says ‘as announced in September, M&B re-opened the vast majority of its estate, approximately 95pc, after the first lockdown ended. The remaining sites have been under review on a case-by-case basis since, taking into account factors such as expected footfall and business layout. We have taken the difficult decision not to reopen some of these sites and are working with leaseholders on next steps.’
• DP Poland reports that ‘in connection with the possible acquisition of the entire issued…share capital of Dominium S.A., it has been mutually agreed that Iwona Olbrys, Chief Executive Officer, will be leaving the Company. Iwona has resigned from the Board of Directors with immediate effect.’
• DPP says ‘it is the intention of the Company to propose the appointment of a new CEO, who has been identified, on the publication by the Company of an admission document in connection with the Acquisition. The Acquisition will be subject to the necessary shareholder and regulatory approvals.’
• DPP says ‘pending a further appointment, Nick Donaldson, Non-Executive Chairman, and Rob Morrish, Non-Executive Director, will continue to have a more active role in the running of DP Poland’s business.’ It says ‘further announcements will be made in due course.’
• Gregg’s is to cut 820 jobs as trading is expected to remain below normal levels for the foreseeable future. CEO Roger Whiteside comments ‘Covid trading conditions have forced this action on to our business and we are all very saddened by the need to part company with around 820 friends and colleagues, many of whom have worked with us for many years.’ He adds ‘at lockdown levels of sales, even after all of the mitigating action that we have taken, Greggs will not be profitable as a business and there can be no room for complacency.’
• Commenting on the launch of its CVA, Caffe Nero boss Gerry Ford says ‘like so many businesses in the hospitality sector, the pandemic has decimated trading, and although we had made significant progress in navigating the financial challenges of the first lockdown, the second lockdown has made it imperative that we take further action.’
• The Sunday Times reports that Caffe Nero has told some landlords not to expect any rent for up to three years.
• Pepsico says that consumers are likely to buy more snacks supplied by its Frito-Lay subsidiary. It says ‘as the holidays approach, consumers are expecting their celebrations to look different compared to last year.’ It says ‘consumers have shifted their behaviour with 58 percent snacking more since COVID-19, and shopping through new channels with online adoption up 40 percent.’
• Door Dash has filed documents as a part of its IPO process showing a net loss of $149 million and $1.9 billion in revenue for the period to end-September. NRN in the US says its last private valuation was $16 billion and has thus far raised $2.5 billion in investment.
• Supply issues ahead? The BBC reports that ‘retailers, shipping and haulage companies have complained of “chaos” at Felixstowe Port in Suffolk, affecting goods in the run-up to Christmas.’ It says there ‘one ship due to be unloaded at the port last week was redirected to Rotterdam because of “unacceptable” delays.’
HOTELS & LEISURE TRAVEL:
• The government’s Global Travel Taskforce has said that an increased use of Covid testing could allow the current 14-day quarantine restrictions to be cut to seven days from next month.
• Consumer research undertaken by firm Oliver Wyman has suggested that many consumers are keen to travel as soon as possible. The survey suggests that opinions are still divided, however, with 43% saying they would be comfortable to take a flight and 37% uncomfortable. Some 40% of respondents said they would like an empty seat next to them.
• TUI boss Fritz Joussen has said that the holiday market could return to pre-pandemic levels of demand as soon as 2022. However, he told German magazine Der Spiegel that ‘we cannot and must not exclude any option, not even that we need additional loans.’ He says ‘nor can we rule out the possibility of raising new equity or selling parts of the company at an appropriate time.’
• Tributes have been pouring in for the genuinely liked and popular John Hays, co-founder of Hays Travel, who died last week.
• The Sunday Times reports that Airbnb is taking share from traditional hotels. It reports, however, that even after cost cutting, the operator is still losing ‘vast sums of money’.
• Premier Inn owner Whitbread has said it now expects to cut fewer jobs at its hotels and restaurants than the 6,000 it mentioned in September.
• Normality is some way off.
• STR reports that London hotels were flat October on September. They were way down compared with the same month in the previous year. It says occupancy was down 67% year on year with rates down 45% and REVPAR some 82% lower.
• Hotel News Now in the US says ‘a new national survey commissioned by the American Hotel & Lodging Association shows that many Americans are not expected to travel this holiday seasons. Results show that 72% of Americans are unlikely to travel for Thanksgiving and 69% are unlikely to travel for Christmas, compounding the challenges for the hotel industry during this public health crisis.’
• Manchester United has reported matchday revenues down 92% but broadcasting revenues up 45%. Overall, revenues were down 19.5% at £109m and the company made a loss of £30m.
• China’s Tencent has reported advertising revenue higher and quarterly profits up by 89% in Q3.
FINANCE & MARKETS:
• Governor of the Bank of England Andrew Bailey has said the UK economy could suffer post Brexit from a lack of “goodwill” if there is no trade deal.
• Federal Reserve chair Jerome Powell and ECB President Christine Lagarde have both said the global economy is still in for a tough time despite vaccine news.
• The Halifax points out that demand for flats is depressed. Flats, which outperformed the London market between 2011 and 2019, have been the weakest element this year.
• PM Boris Johnson is self-isolating. It had been hoped that he would re-set his government in the wake of resignations this week as well as conclude the trade agreement with the EU. The BBC says ‘the timing is far from ideal for a prime minister seeking to get back on the front foot. The PM also has big decisions to make on Brexit, with time running out to secure a trade deal.’
• Sterling higher at $1.322 and €1.1156. Oil higher at $43.28. World markets broadly better on Friday with Far East up today. London set to open up around 45pts.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front page headlines of the Saturday papers were dominated by the sacking of the PM’s much-hated adviser Dominic Cummings on Friday: the Telegraph flagged that “Cummings exits No10 with parting shot at PM”, whilst the Times saw it as “Cummings forced out in purge of Brexiteers”, the Guardian summed it up as “End of Cummings era” and the FT (which had some great/lurid detail on the arguments and recriminations inside Downing Street) went with “Johnson cuts Cummings loose”.
• Saturday’s Press and News (2): In terms of Retailing stories, the main news was that JD Sports won their appeal against the stupid decision of the wretched Competition and Markets Authority (CMA) to block its takeover of the struggling rival Footasylum, with the Appeals Tribunal concluding that the CMA had “acted irrationally” in not considering the impact of the pandemic on the sportswear market (the Business editorial in the Times thundered that this was “sanity at last”). The main Business story in the Times was that the UK stockmarket had had its best week since April (up nearly 7%), thanks to vaccine hopes, but the main Business story in the Daily Mail was that Matt Moulding, the boss of the recently floated The Hut Group, has scooped a £840m bonus pot from his controversial long-term incentive plan. More modestly, the FT highlighted that Simon Wolfson, the Next boss, had netted
• Sunday’s Press and News (1): The headlines on most of the front pages of the Sunday papers were again about the blood-bath and feuds inside Downing Street, which appear to have centred on the PM’s surprisingly influential girlfriend Carrie Symonds, with the loyal Sunday Telegraph running with “Downing Street slams “vicious and cowardly” attacks on Symonds”, whilst the Observer leapt to the defence of the PM’s new Press spokesperson Allegra Stratton (“Attacks by PM’s ousted aide left PM’s new press chief in tears”). The Sunday Times had a full expose on “The week it fell apart” for Dominic Cummings, but its main lead was on the “’Chumocracy’ row inside the heart of Government” (“Lobbyist given secret access to Covid meetings”).
• Sunday’s Press and News (2): In terms of Retail stories, JD Sports was in the spotlight again, with the main Business story in the Sunday Telegraph the news that JD Sports has emerged as a serious contender to buy the bankrupt Debenhams, a move that would infuriate Mike Ashley…And, talking of bankrupt fashion retailers, the main Business story in the Sunday Times was that the embattled Arcadia is on the verge of going into administration, with Sky News reporting that the group is desperately looking for £30m in funding to keep going. The Sunday Times also had a follow-up piece on the struggles of Arcadia, headlined “Last chance saloon for Green’s Arcadia”, highlighting that Philip Green’s days on the High Street are numbered and quoting our view that the P&L for y/e Aug 2020 will look disastrous, despite the impact of the CVA on rents. The Sunday Times also had a front page News
• 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 (“Record growth disappoints – but job market offers hope”), in which he noted that there is clearly a need for targeted help for the young unemployed. We would also flag the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“EU trade deal finally within reach with Cummings gone and Biden in”), in which he noted that “Deal or no deal, Britain’s final departure from the EU on Jan 1st promises to be a shambolic nightmare”. And the column by the veteran Economics commentator William Keegan in the Observer (“If only we could find a vaccine to cure Britain of Brexit”), in which he flagged that “the evidence is mounting of impending chaos at the docks,