Langton Capital – 2020-12-01 – PREMIUM – Covid response, EOTHO, Wales, supply chain, Caffe Nero etc.:
Covid response, EOTHO, Wales, supply chain, Caffe Nero etc.:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Our dog is irredeemably thick. And that’s a fact but, after laughing at him for chasing behind a mirror to get at the dog that he was sure was there, I found myself tapping a book because, in this age of Kindles, I was sure that that was the way to turn the page. And then I realised that I tend to tilt the screen on my laptop when I’m on Zoom calls and somebody has got a half of their heads cut off. That’s a completely useless waste of time, of course and, when I was sure that I noticed the dog sniggering at me, I had to concede that hypocrisy, as so often, is alive and well and living in my house. On to the news: ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. WOULD YOU DO IT ALL AGAIN? Given what it knows now, what could, should and would the government have done? Introduction: • There is no rear-view mirror but, if there had been, what could and should the government have done? The events: • Because denying there was a problem & then advising people not to visit pubs (March) wasn’t helpful. • Then locking down (also March) was perhaps necessary – but opening up and pouring petrol on the guttering embers of the industry (via EOTHO in August) wasn’t perhaps wise • And then clamping down again via a range of cumulative measures (the first go at tiers, the rule of six, 10pm curfew, lockdown 2.0 and then another tier system similar for many to a lockdown, doesn’t seem terribly joined up. Certainty has been lacking. • Perhaps this is inevitable. • But, as we’ve mentioned several times, we tweeted back at the end of March or so ‘destroy the economy or let 200k vulnerable people die? It’s a dreadful, dreadful choice and well above our pay grade. But one thing we do know. Don’t, whatever you do, do both.’ • Yet here we are. An alternative history: • This was going to be a big deal from the beginning. SAGE, the CDC, China and others knew that from early January. • An earlier lockdown would have helped as it would have kicked the virus off its March growth trajectory earlier on. • Clamping down for a month followed by easing as we played for time ahead of a vaccine would have provided some certainty. • Nothing’s ever this simple. But locking down in March then easing in April & May would have been possible. • Locking down in June and easing for the summer, locking down over an extended October half term & then having Christmas etc would have allowed industry, education, consumers & scientists to plan. Future history books: • It is hard to see these being kind because, after all, they have no cause to be. • The approach of the UK’s four regions has not been joined up, the UK’s death rate is high, its economic hit is considerable & recruitment specialist Indeed says that London has been worse hit than other large European cities. • A short-dated ‘government of national unity’ would not have been a bad idea but, in this rather febrile environment, maybe we should just dream on THE IMPACT OF THE EAT OUT TO HELP OUT SCHEME: • The government has confirmed that the EOTHO scheme pretty much hit numbers forecast back in early September. • It says hospitality businesses claimed £849m through the scheme and discounted more than 160 million meals. • Some 49,000 operators made claims with 55% being restaurants. The average discount on a meal was £5.24. • Many operators clawed back to level on the month with some ahead on a LfL basis (once the government money had been factored in). • That was not a bad performance given that the scheme only covered Mon to Weds and many units had reduced capacity due to social distancing • The scheme grew in popularity as August progressed with some customers presumable unwilling to miss out • CGA says ‘it’s clear the success of the scheme was fundamental in keeping many businesses afloat through such challenging times. We would welcome a similar scheme next year to help the hospitality sector recoup some of the losses they will undoubtedly face as a consequence of the current lockdown, at a time when they would normally be building cash reserves to see them through the leaner Winter months.’ • Industry analyst Peter Backman asks of the EOTHO scheme ‘did it meet its objectives?”. The aim was to ‘boost spending in restaurants, and the Chancellor enhanced that by saying that its objective was to boost the sector back into long-term growth.’ • Sales did rise in August, but subsequent restrictions cumulated through September, October and November and culminated in a lockdown and closure. A long-term boost is far from proven and the scheme never extended to alcohol. • Backman does concede that the ‘scheme was sufficiently successful for [some operators] to continue to fund it themselves, in some form or other, into September.’ • However, ‘sales faltered in October and during the November lockdown, they seized up altogether.’ • See our comments above for the possible verdict of history. • Operators are grateful that EOTHO was introduced but, as the government was effectively incentivising hospitality operators and their customers to face both ways at once, it might not have been the most sensible way in which to boost the industry. PUBS & RESTAURANTS: Wales kicks over the apple cart: • Having ‘emerged’ from lockdown ahead of the rest of the UK, the Welsh first minister Mark Drakeford now says that Wales could suffer 1,700 avoidable deaths over the winter “unless we act”. • He says pubs and restaurants across the principality will be not be allowed to sell alcohol and will be forced to close at 6pm every evening – starting Friday this week, the first Friday in December. • With Christmas around that corner, that is a bit of a buzz kill. • Wales holds that cinemas, bowling alleys, bingo halls and other indoor entertainment venues must also shut from the same date. • Drakeford says cases are rising in the over-60s and says ‘the measures we are taking are based on what the UK SAGE group of experts tells us has worked best elsewhere.’ • The first minister says ‘to support businesses affected by these new restrictions into the New Year, we will provide the most generous package of financial assistance anywhere in the UK.’ Trade reaction: • The trade feels victimised and not, some would say, without reason. • UKH Cymru welcomes ‘the swift response by the Welsh Government to provide immediate substantial support for businesses that are being forced to endure devastating new restrictions and closures over the holiday period.’ • But it says ‘at this time of year, when businesses can trade up to 25 per cent of annual turnover- and above- the new restrictions are a massive blow to hospitality in Wales as well as our loyal customers and workforce as we head towards Christmas and the New Year.’ • It says ‘we feel isolated and feel we are unjustly bearing the brunt of Government actions when retail and other areas are allowed to trade relatively unhindered.’ It adds ‘we are still waiting for the full information on the restrictions and package [of support] and there is still a long way to do before the sector is anywhere near to being out of the woods.’ • The BBPA says the ruling ‘means that all 3,227 pubs in Wales will be severely hit throughout December, the most important trading time of the year. 2,151 community pubs that are drinks led will be forced to close whilst 1,076 pubs that are more food led will be rendered unviable by the ban on alcohol sales and 6pm curfew. Possible takeaway sales will not go anywhere near compensating for this huge loss of business. • CEO Emma McClarkin says this ‘will destroy the sector. Evenings are the key trading period for pubs and enjoying a beer, with or without a meal, is one of life’s simple pleasures – forcing pubs to close at 6pm and banning alcohol sales all but closes them down in reality.’ • The BBPA welcomes the support in England & says in England ‘the Prime Minister needs to now deliver significantly enhanced financial support to pubs and the wider supply chain in England, if they are going to survive the dire impact of the new tighter tiering restrictions coming into place this week.’ • Representing the beer suppliers side of the trade, SIBA says ‘the decision to ban the sale of alcohol in hospitality from Friday will be the final blow for small breweries and pubs in Wales who rely on the Christmas trading period for a substantial percentage of their annual income. There is no evidence to justify these new targeted restrictions.’ • It says ‘pubs represent more than 80% of all sales for Welsh small breweries and we have seen throughout the Covid crisis that these small businesses have been left out in the cold and not had access to the level of financial support they need. Without real, targeted support many small breweries will not survive the winter period.’ • The Telegraph quotes industry leaders as saying the industry has been ‘singled out’ for harsh treatment in the run up to Christmas. Supply chain issues: • CGA and Prestige Purchasing have conducted research that suggests that Covid-19-related disruption has caused supply difficulties for more than nine in ten hospitality operators since they reopened in July. • The survey ‘shows that just 8% of operators have escaped supply challenges since the end of the first national lockdown, while only 9% have not encountered any delays. Nearly three quarters (73%) think service levels have decreased since July, while only 5% think they have improved. The findings reflect the complex challenges faced throughout the hospitality supply chain, including widely fluctuating demand as a result of local lockdowns and new restrictions.’ • Prestige says ‘we should not view these problems as a failure within our supply community. They simply highlight the enormous challenges that the pandemic has brought to the whole value chain. The frequent and sudden changes to social restrictions and the complexity of regionality have reduced demand planning to educated guesswork.’ • CGA adds ‘these figures show the massive impact of the pandemic and lockdowns across the hospitality supply chain. Suppliers are working in exceptionally difficult circumstances, and many operators have been grateful for their support and hard work in responding to issues that are completely beyond their control.’ Other news: • The Commons votes today on the PM’s proposals to put England into Tiers tomorrow. • UKH has called on MPs to support the hospitality industry. • S4labour reports that through lockdown 2.0, hospitality sales in sites that were trading in England were 80% down on pre lockdown levels and 96.5% down year on year. It says ‘it should be noted that on top of these figures, 32% of sites did not trade at all, so the actual cost to hospitality during the lockdown was 94% of revenue.’ • November isn’t a big month, but that’s a large hit. S4labour reports ‘takeaway sales were low during lockdown, indicating that for most sites it was not feasible or profitable to pivot business models.’ • On a brighter note, it says ‘sales figures from the few days before lockdown indicate that consumer confidence in hospitality is high, and pent up demand will mean that the few days coming out of lockdown are likely to be busy.’ • S4labour CEO Alastair Scott says ‘most operators do not have the infrastructure or the business models to run takeaway sales at a profit and the government cannot expect the industry to rely on such sales for survival. As lockdown-esque restrictions linger further into December, it is not looking promising for an industry that relies on Christmas trading to get through the next year.’ • Industry analyst Peter Backman asks of the EOTHO scheme ‘did it meet its objectives?”. The aim was to ‘boost spending in restaurants, and the Chancellor enhanced that by saying that its objective was to boost the sector back into long-term growth.’ • Sales did rise in August, but subsequent restrictions cumulated through September, October and November and culminated in a lockdown and closure. A long term boost is far from proven. It did not extend to alcohol. • Pernod Ricard CEO Alexandre Ricard has said that the group has beaten sales expectations because of its “agility, resilience and determination.” • DoorDash could raise up to $2.8bn in new money via its IPO. The company is being valued at around $27bn. • Shops will be able to open for 24hrs solid in the run up to Christmas says communities secretary Robert Jenrick. Pubs & restaurants, not so much. • Vegan pitta restaurant chain What the Pitta is to open a site in Manchester early next year. • Arcadia Group yesterday collapsed into administration. Approach to Caffe Nero: • The Issa brothers, who recently purchased ASDA, are reported to have made a bid for Caffe Nero. Sky reports that they made the offer to the founder and controlling shareholder, Gerry Ford, over the weekend. Caffè Nero commented late yesterday to confirm the approach. • It says it had indeed received an ‘unsolicited non-binding offer for the shares of The Nero Group Limited’. It adds ‘it is the Directors view that this party’s clear intention is to disrupt the CVA process currently underway as a precursor to opportunistically acquiring the Company at a later date. The highly conditional proposal purports to provide for payment in full of landlord rent arrears but otherwise the terms of the CVA would remain as originally proposed.’ • Nero says its directors are ‘fully aware of their responsibility to maximise recovery to creditors’ but says the uncertainty attached to the approach means they do not believe that it would help creditors ‘or…be in the long term interests of the Group.’ It says the approach ‘has been made without any understanding of Caffe Nero’s financial and trading position’ and adds that, if pursued, the approach would lead to delays in the current process. • Nero says it ‘has committed to modify the CVA proposal so that in the event of a sale of the Group to this third party within the next six months, compromised landlords will have their arrears as of today’s date paid in full.’ HOTELS & LEISURE TRAVEL: • The Canary Islands are reported set to accept (much cheaper) antigen tests to prove visitors do not have Covid-19. • EasyJet is partnering with two testing firms to offer cut-price Covid tests ahead of travel. • Unite union members at Heathrow are due to strike today. • Travelodge is reported to have kept hotels generating more than 98% of its 2019 U.K. hotel EBITDA post its CVA. • STR reports that US hotels saw occupancy down 33% year on year in the week to 21 November. Rate is down 29% and REVPAR is 52% lower. • Hostelworld has confirmed that TJ Kelly, Chief Financial Officer, will resign from the roles of Executive Director and Chief Financial Officer effective today. He will remain with the Company until 31st December 2020 to ensure an orderly handover. OTHER LEISURE: • Sportech has announced that it has entered into a conditional agreement to sell its Global Tote business to Betmakers Technology Group for a total cash consideration of £30.9 million, subject to an adjustment to reflect the level of working capital in and the valuation of the US defined benefit pension liability attributable to the Global Tote business at completion of the Disposal. • Sportech says ‘we previously set out that one of the Group’s transformation objectives included evaluating and executing material corporate opportunities which deliver tangible investor returns. The Board believe this transaction very much achieves that objective.’ • Q3 smartphone sales are said to be 5.7% down year on year. • Newcastle game company Silent Games has been acquired by Swedish company Amplifier Game for an undisclosed sum. FINANCE & MARKETS: • Job search company Indeed has reported that London has seen the biggest fall in job opportunities among Europe’s largest cities. • Sterling higher at $1.3365 and €1.1174. Oil up at $47.47. UK 10yr gilt yield up 2bps at 0.31%. World markets down yesterday but steady today. London set to open around level. RETAIL WITH NICK BUBB: Today’s News: The trading update with today’s Topps Tiles finals (for y/e Sept) is very strong, with LFL sales just under 20% up over the last 8 weeks and the statement is headlined “A year of challenge and change – emerging stronger and refreshed”, notwithstanding the big £10m loss for the year. The update from the small Online womenswear retailer Sosandar with its interims is less clear, with sales over the last 3 months apparently only 17% up on last year, albeit with a big reduction in marketing spend. We can’t see anything more yet on Frasers’ interest in the bankrupt Arcadia or JD Sports’ waning interest in the bankrupt Debenhams, but, bizarrely, there has been another Pets at Home announcement, this time to flag the disposal of the 5 specialist referral vet practices to the Linnaeus Group for a useful £100m. News Flow This Week: As we move on into December, the latest quarterly FTSE index review is announced tomorrow evening. The B&M EGM is on Thursday, along with the Signet Q3 and the Kroger Q3 results in the US, whilst the ABF/Primark AGM update is on Friday. |
|