Langton Capital – 2021-02-22 – PREMIUM – Audit timing, M&B, reopening plans, holidays, costs & other:
Audit timing, M&B, reopening plans, holidays, costs & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Just a few questions about dogs:
How is it that they can be laying in every doorway in the house at the same instant?
Answer: Maybe they race ahead is a blur, Superman-style, in order to block the room that you are walking to as effectively as they did the one you just left.
Why do they howl like a mad thing when a fox barks on the TV but sleep through the visit of the boilerman without lifting an eyelid?
Answer: There could be more fun to be had (and allegiances to be forged) if they offer to chase a fox around the garden than there is if they try to bite (another) workman on the ankle.
Why do they always want to be on both sides of any door? You open it, they want to go out. They go out, they want to be back in. And repeat.
Answer: Maybe you made that fatal mistake of putting some scraps into their bowl while they were out once. They now have going-out-coming-back = food firmly imprinted on their brains.
And there’s little you can do about it other than make the situation worse by offering them a scrap of food to come back in when they’ve left you standing on the doorstep calling to them for ten minutes. Because, then it’ll be a) go out, b) refuse to come back in, c) get food, d) come in (and check bowl), e) disappointment – hence go to a).
Anyway, that’s enough of that. It must be spring because the bullfinches are busy stripping the buds from our fruit trees. On to the news:
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SOME PRACTICAL CONSIDERATIONS:
• Attention is focused on what the government may, should or will say this evening.
• But day to day issues still have to be dealt with. Auditors are stretched and full year, December 2020 numbers will be stacking up for attention.
What this means:
• Companies can, and in many cases have been, going with unaudited H1 numbers (and Q1 and Q3 numbers) but, with final results, this is not an option.
MITCHELLS & BUTLERS:
Further to its announcement that it intended to issue £350m worth of equity in order to bolster its finances and secure bank debt, M&B has this morning announced the underwritten offer.
• M&B says that it ‘today announces an underwritten fully pre-emptive open offer (the “Open Offer”) to raise up to £351 million.’
• The group says its ‘liquidity position has deteriorated significantly as a result of the impact of the COVID-19 pandemic and the Open Offer is critical for the continued operation of the Group and its immediate financial stability.’
• It says the cash will ‘reduce its unsecured debt and to support the Group’s secured debt financing through an injection of equity, allowing the Group to meet its fixed obligations.’
• The group adds that the cash ‘will also enable the resumption of investment in the Group’s estate to maintain its competitive position, providing the financial stability and strength to emerge from the crisis, allowing previous momentum to be regained.’
• M&B says that it ‘reached agreement with its relationship banks for a new £150 million 3 year unsecured revolving credit facility’ on 14 Feb
• The granting of the facility ‘is conditional on completion of the Open Offer.’
• The group also received bond waivers on 14 Feb and says ‘in the event that the Open Offer is not completed, such Amendments and Waivers may be withdrawn.’
• The group is emphasising the necessity of the funding. The Takeover Panel has been convinced and it has not insisted that the concert party of investors, who own more than 50% of M&B, make a bid for the shares that they do not already own
• The terms. The Company ‘is proposing to offer New Shares to all Qualifying Shareholders at a price of 210 pence per share on the basis of 7 New Shares for every 18 Existing Shares.’
• Odyzean, the consortium of major shareholders that owns c55% of the company, ‘has entered into an irrevocable undertaking with the Company to take up its entitlements under the Open Offer and to subscribe for any additional shares that become available through, and are allocated to it under, the Excess Application Facility. The Open Offer is therefore fully underwritten.’
• M&B says that all of the Group’s German businesses were closed at the start of November 2020.
• Before that, in the period from 27 September 2020 to 16 January 2021, total managed sales were 69.8 per cent. below the prior year.
• M&B says ‘on a like-for-like basis (for sites when open, excluding periods of closure) trading was 30.1 per cent. down on the prior year across this period.’
• It adds ‘the Group had a cash balance of £113 million as at 16 January 2021 with all facilities drawn.’
• Pension fund payments have been delayed (with the agreement of the fund’s trustees) and ‘cash burn was estimated to be between £30 million and £35 million per four-week period.’
• The group says it ‘has securitised debt servicing costs of £51 million per quarter (comprising interest and amortisation), and all non-essential capital expenditure continues to be suspended.’
• CEO Phil Urban says ‘M&B was a high performing business coming into the pandemic and with the support of our main stakeholders, including the equity injection from this Open Offer, we have every confidence that we can emerge in a strong competitive position once current restrictions are lifted.’
• He says ‘the hospitality industry has done everything that has been asked of it to date and, now that the vaccines are being rolled out and infections are dropping, we are hopeful that pubs and restaurants will soon be allowed to reopen safely so that we can start to serve our customers again.’
• M&B was in a tight spot.
• The debt extension and securitisation waivers are conditional on the equity raise.
• It has convinced the Takeover Panel that, in the event this fund raise did not go ahead, it was in imminent danger of going bust
• This has allowed the consortium to effectively take over M&B without paying a premium
• Indeed, the amount of cash being put into the company is going in at a discount
• This is not judgemental, as such, but a comment on where the pandemic has put us
• We have said many times that M&B is a fine company doing the right things. We have, however, always suggested that its share register ‘needed a bit of work’.
• This is that work being enacted – and not necessarily in a way that most shareholders would have liked to see
PUBS & RESTAURANTS:
Covid-19 news – reopening plans:
• PM Boris Johnson will this evening reveal the government’s plans to reopen the economy. There has been much speculation and lobbying from various trade bodies & companies is likely to continue to the last minute.
• The BBPA has ‘urged the PM to ‘keep the doors open’ on Great British Pub.’ It says the PM should ‘consider [the] essential community role of pubs ahead of reopening roadmap.’ It says ‘pubs need to reopen as soon as it is safe to do so in order to provide a safe place for people to socialise and drink in, as well as connect as a community once more.’
• The BBPA says pubs are at the heart of communities and adds that ‘tens of thousands of pubs are operated as small family businesses, which also double up as a home, meaning despite being successful businesses for decades, pubs could close and many could become homeless through no fault of their own.’
• CEO Emma McClarkin says ‘the Great British Pub has always been more than just a place to drink. It is where we go to connect. It is where we go to form community.’ She says lockdown has undoubtedly had a significant impact on the wellbeing and mental health of all of us. Our pubs can play a leading role in bringing us back together once more, safely, in a controlled and regulated environment.’
• Drinkaware adds ‘lockdown has been a challenge for everyone and our research has indicated in the early stages of the pandemic (late March to June) when lockdown restrictions were at their height, 26% of all drinkers reported drinking more at home than normal. As restrictions eased, and people were able to get out and about, this fell to 15%.’ When there were no pubs to drink in, it is perhaps unsurprising that people drank a little more at home. Their weekly consumption could still have fallen.
• It adds ‘we are particularly concerned for people who already drank at ‘higher risk’ levels pre-pandemic and who have increased their drinking still more throughout lockdown. Almost half of these drinkers drink at home alone at least weekly, and drink to cope with stress and anxiety or to relieve boredom, or simply for something to do. For these drinkers, pubs provide a safer and regulated place in which to enjoy a drink in moderation and an important opportunity to be with others in a socially-distanced and safe setting.’
• The Guardian hopes that PM Johnson will be able to restrict his boosterism and keep talk of big bangs, independence days and great British summers to a minimum as he outlines moves to reopen. Mr Johnson says that moves to relax must be ‘cautious but irreversible’.
• The Guardian quotes Chris Jowsey, CEO of Admiral, as saying of the government ‘the release things in the press and if they get a bad reaction they change their mind. To my knowledge there’s no meaningful consultation going on at any level.’ Mr Johnson has previously said that hospitality represents a high risk of coronavirus infection.
Other Covid-19 news:
• The FT has suggested that the suspension of business rates will be extended beyond the end of March by Chancellor Rishi Sunak. It is also suggested that the furlough scheme will be continued into the summer.
• The Treasury has said it will delay the publication of its review into the business rates system until later this year. It says ‘due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances.’
• IBN has suggested that hospitality may be responsible for a third of the drop in UK GDP over the pandemic. It says up to £53.3bn of revenue may have been lost.
• Langton Comment. There are a lot of figures being thrown around and sometimes it’s worth having a think about them. The above lost revenue figure, at £53.3bn, does seem like a rather large number. This is admittedly only back of the envelope stuff but, if there were 120k licensed premises in the UK (pubs, restaurants, bars, clubs etc.) doing, say, £10k per week each (including smaller, tenanted pubs), then £53.3bn represents a 100% loss of trade for 44wks (or a 50% loss of trade for 88wks). IBN may be looking at the wider hospitality market.
• Commenting on the successful vaccine rollout in the UK, UK Hospitality says it ‘gives even greater justification for the safe opening up of the hospitality sector from the start of April, when all over 60s and younger vulnerable people will have been vaccinated. Any further delay will be a massive blow for hospitality businesses, their staff and customers.’
• UKH adds ‘with all adults vaccinated by July, the UK public and the hospitality industry can look forward to Summer trading with minimal restrictions.’ It concludes ‘we urge the Prime Minister to set out an Easter opening plan for hospitality when he sets out his roadmap on Monday.’
• CGA says that the pandemic has driven a lot of drinkers online. Whilst they can’t consume product over the Internet, they can certainly buy it. CGA says 28% of on-premise consumers ‘bought alcohol online in December 2020, up by three percentage points since August. Of these, three in ten (30%) had never done so prior to the pandemic—proof that lockdowns have released a wave of new online purchasers.’
• CGA says ‘wine is the most popular e-commerce purchase by some distance, the report shows. More than half (53%) of consumers have bought it online—twice as many as have purchased lager (26%) and gin (24%). Soft drinks (21%) and craft beer (20%) complete the list of the top five most wanted drinks.’
• The Morning Advertiser reports that ‘almost nine in 10 businesses need the Government to announce any continuation to the furlough scheme now rather than in the Budget next month.’ This presumably because redundancy decisions will need to be made before the end of furlough is, as planned, it ends in April.
Company & other news:
• Fulham Shore has announced the exercise of options over ordinary shares in the Company by certain directors alongside the sale of shares issued pursuant to the Option exercises. In total, 6,665,614 Options over new ordinary shares of 1p each in the Company have been exercised by the Directors. The company says ‘certain Directors have indicated that the proceeds of this sale will be applied to fund further exercise of share options that are due to expire in October 2021 in the near future.’
• The FSB has written to chancellor Rishi Sunak laying out what it sees as a roadmap to recovery. It says it hopes that vaccination success ‘means we will soon be able to stop talking about extraordinary measures businesses need simply to survive, and instead refocus on the brilliant things that small businesses can do, not least driving job creation and growth as we recover from this period.’
• EP Eurasia on Friday said that moves made by a number of its shareholders means that ‘’Jubilant Foods will become the largest shareholder in DP Eurasia, holding 32.81% of the Company’s ordinary share capital.’
• Champagne shipments for January are reported to be 18% down, year on year. The reduction had shrunk to 5% in December.
• Co-founder of Leon, John Vincent, has said that extending lockdown will ‘cost lives’. He told Radio Four that Leon was losing £200k per week. He said ‘how can we be saying, glibly, ‘it doesn’t matter if lockdown carries on for a few weeks or months longer than necessary’ without the analysis? I wouldn’t launch a chicken wrap without analysis.’
• ASDA reported a LfL increase in sales of 5.1% in the 12wks to 31 December. Sales in the 8wks to Christmas Eve were up 6.9%.
• The Insolvency Service has said that the number of firms looking to cut staff was the lowest since the pandemic started. It says 292 British employers made plans to cut jobs in January. This is up 9% on January last year.
• The ONS, on the other hand, says that redundancy rates have increased faster over Covid than they did during the 2008-09 economic recession.
• The CIPD and Adecco, the recruitment company, are back on the bull-tack saying that 56% of UK employers want to take on staff in the next three months. This is the highest figure in a year. The sectors most likely to hire staff are healthcare, finance and insurance and education. The CIPD says ‘our findings suggest that unemployment may be close to peak and may even undershoot official forecasts, especially given the reported fall in the supply of overseas workers.’
HOTELS & LEISURE TRAVEL:
• Hostelworld on Friday announced ‘it has signed a €30 million five-year term loan facility with certain investment funds and accounts of HPS Investment Partners, LLC or subsidiaries or affiliates thereof.’ It says ‘the facility will be used for general corporate purposes and materially strengthens Hostelworld’s liquidity position. Hostelworld will draw down on this facility on 23 February 2021.’
• The facility is at ‘a margin of 9.0% per annum over EURIBOR…Until the first anniversary of drawdown all interest rolls up and capitalises. Between the first and third anniversaries of drawdown, Hostelworld has an option to capitalise up to 4.0% per annum of the accruing interest with the balance of the interest during that period (and all interest accruing after the third anniversary of drawdown) being cash pay.’
• Which magazine reports that around 2.3m people have not received refunds for flights they lost due to travel restrictions.
• Crystal Cruises will demand that all guests be fully vaccinated against Covid-19 at least 14 days before their cruise.
• Nature Climate Change says that taxes should be increased on international flights in order to provide money for developing countries to tackle greenhouse gas emissions.
• TUI has said that Crete and the Canary Islands are currently its most popular summer 2021 destinations. TUI says ‘an increase in bookings for the Balearic Islands is still expected in the coming weeks. An increase in bookings is also expected for Turkey.’
• Sky reports that holiday (and financial services) company Saga is ‘in talks about a £170m debt package as it seeks to chart a course through the remainder of the coronavirus pandemic.’
• Sky says the group is talking to ‘a group of debt funds’ but says insiders believe ‘the talks with existing prospective lenders are some way from being concluded…and may not result in a deal.’ The group recently reported ‘whilst the group has significant liquidity and headroom to the current covenants in short term bank facilities, given the backdrop of continued disruption to the travel business, we are taking actions to further enhance financial flexibility.’ It said ‘we have commenced constructive discussions with lenders, who remain supportive.’
• Walt Disney World theme parks are to celebrate the 50th anniversary of the opening of Walt Disney World Resort in Florida later this year.
• The Save Future Travel Coalition has called for the creation of a vaccine certificate in order to steer the travel industry out of the current lockdown.
• STR reports that US hotel occupancy was down 28% in the month of January with room rates also down by 28%. The resultant REVPAR was down by 48% on last year.
• Uber has lost its lengthy battle in the courts to prevent its drivers from being classed as ‘workers’. As workers, drivers may be entitled to basic employment protections, including minimum wage and holiday pay.
• Netflix is reported to be in talks to take new production space at a 230,000 square foot warehouse development in Enfield.
• The National Lottery Heritage Fund is to make payments totalling £13.5m to heritage sites and independent cinemas across the UK.
FINANCE & MARKETS:
• Flash Markit data for the UK in February finds ‘only a fractional decline in UK private sector output, which contrasted with the sharp reduction seen at the start of the national lockdown in January.’
• Markit reports the composite PMI at 49.8, up from 41.2 in January. It says staffing levels also ‘showed signs of stabilisation during February as private sector employment decreased at the slowest rate since the downturn began in March 2020.’
• Markit says ‘although the hospitality sector, including hotels and restaurants, reported a further steep decline, as did the transport and travel sector, rates of contraction eased considerably.’
• Public sector net borrowing was £8.8 billion in January 2021. This is the highest January borrowing since monthly records began in 1993 and the first January deficit for 10 years.
• The Vauxhall plant in Ellesmere Port is said to be under review.
• Sterling stronger at $1.4012 and €1.1557. Oil higher at $63.83. UK 10yr gilt yield up 7bps at 0.70%. World markets mixed on Friday with London set to open down around 59pts.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were split between Covid lockdown exit plans and the latest Royal Family row: the Guardian went with “Whitty and PM clash over “big bang” return to school” and the Telegraph ran with “Families will be able to meet next month”, but the Times flagged that “Harry and Meghan hit back at loss of royal roles” and the Daily Mail screamed at Harry and Meghan: “Have they no respect?”. The FT’s main headline was about the gig economy ruling by the Supreme Court: “Uber rocked by landmark UK ruling that drivers are “workers””.
• Saturday’s Press and News (2): There was plenty of uncritical coverage of the latest ridiculous ONS Retail Sales figures, for January, eg with the Times flagging that “High Street laid low by sharp fall in retail sales”, whilst the Daily Mail lumped the figures in with an article about the hostile industry reaction to the latest delay in Business Rates reform and the Guardian lumped the figures in with an article about the latest record public borrowing figures. The other big Business stories were the news that sterling has moved up over the $1.40 level and the Sky News scoop that the Online car dealer Cazoo is thinking about a £5bn IPO…
• Saturday’s Press and News (3): In terms of other Retail news, the Times flagged that concerns about the Issa brothers raising petrol prices are why the CMA is looking at the planned merger of Asda’s petrol stations with their Euro Garages group, even though combined market share would be only 12%-13% (which rather belied the headline “Action stations as Asda owners set to control fuel market”). The Times also flagged that the 3.25% coupon on the junk bond issued by the Issa brothers as part-finance for the Asda deal was a big hit with investors and that the new owners of Asda are thinking of spinning off the George clothing business. In other news, the Telegraph and the FT both highlighted that the Arcadia pension fund had a bigger deficit than expected, but that help is on the way, whilst there was also plenty of coverage of the bullish noises made by the warehouse landlord Segro
• Sunday’s Press and News (1): There were less headlines than we expected on the front pages of the Sunday papers about the Government’s planned “roadmap” out of lockdown, although the Observer went with “Ban on outside sport can end, top scientist urges Johnson”. The Mail on Sunday trumpeted “Jabs for every UK adult by July 31st” and the Sunday Telegraph ran with “Vaccine for all adults by July as hopes raised for holidays”, whilst the Sunday Times focused on the Royal Family row: “William “sad and shocked” at his brother”.
• Sunday’s Press and News (2): In terms of Retail stories, the main story on the Mail on Sunday Business pages was that M&S is planning a big push into selling third-party clothing brands on its website (“M&S revamps clothes with raft of new brands”), but the big scoop was the Sunday Times story that John Lewis is planning to close up to 8 more stores, “with the chain’s bigger, older stores thought to be most at risk”, with an announcement expected on or around the date of the JLP final results on March 11th. As well as flagging that Marks & Spencer’s first new fashion brand will be Finery London (developed by the “Dragons’ Den” star Touker Suleyman), the Mail on Sunday also noted that ASOS is about to re-launch the Topshop brand on its website and that Boohoo is a surprise contender to buy Arcadia’s new Daventry distribution centre and save 700 jobs. The Sunday Times also
• Sunday’s Press and News (3): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the columns by the Sunday Times Economics correspondent David Smith (“Sunak shouldn’t even think of doing a Geoffrey Howe”), in which he highlighted the controversy about the tax rises in the March 1981 Budget and by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Ignore the EU land grab – the main threat to the City is closer to home”), in which he highlighted that the main problems facing the City lie in “woke political agendas and crushing home-grown regulation”. There was also a column by the veteran Economics commentator William Keegan in the Observer headlined “Jabs and spending don’t make Johnson a good PM”, whilst the Business Leader column in the Observer argued that “Asda’s prospects will be even tougher if it’s weighed down by
• Today’s News: The big Russian discount retailer Fix Price (which has over 4200 stores…) has confirmed that it is pressing ahead with a London stockmarket listing next month, having appointed 3 independent non-execs “to underscore our commitment to high standards of corporate governance”. The IPO is said to value the company at more than $6bn. On a less happy note, the struggling footwear chain Shoe Zone, which has a market cap of only £35m, has announced that Peter Foot, its Finance Director, has “left the business with immediate effect”. The company says that the move “will not have any impact on the company’s year end results”, which are to be announced on 8 March, but the timing does not augur well, not least as the FD has only been in place since July last year…
• This Week’s News: Another quiet week lies ahead, with most of the focus likely to be on the Prime Minister’s much-awaited lockdown exit plan this afternoon. Thursday brings the ABF (Primark) pre-close update, the Howden finals, the Inchcape finals and the Shaftesbury AGM and by Friday, with February rapidly coming to an end, the embattled Card Factory is due to provide a “liquidity update”, to keep its banks happy…