Langton Capital – 2021-03-15 – PREMIUM – Lost trade, shop closures, festivals, outbound travel etc.:
Lost trade, shop closures, festivals, outbound travel etc.:
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A DAY IN THE LIFE:
Right, it’s Monday.
That’s the bad news but, on the other hand, the Mighty Hull City won again on Saturday (top of the league, don’t ask which one, and five straight wins on the trot) and we’ve got our boiler working again which, though we were saving money because we were able to turn the fridge off, is something of a relief.
Because, we can assure you, nostalgia is overrated when it comes to heating just one room in the house, washing your hair in cold water and ferrying kettles up to the bathroom to get a shave.
Anyway, here’s a couple of questions for you (answers just below Advertise With Us below):
a) Are there more mammals or birds in the world? Doubtful that anyone’s ever counted them but there are, allegedly, 400bn of the one and 180bn of the other, but which is which?
b) Which country has the largest number of bird species? Think ‘most varied geography’ and then see below:
On to the news:
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Mammals or birds. There are, apparently, more than twice as many birds in the world as there are mammals. Mammals are more secretive, less visible, but also less numerous. NB – we’re not sure whether this includes domestic animals, in which case chickens will have swung the scales.
Diverse Fauna. Colombia, we’re told, has the largest number of bird species in the world, at around 1,878. The country has a coastline, jungles & mountains. It doesn’t have deserts or icebergs but, come to think of it, there would be no birds there if it did.
Interestingly, six of the top seven most populous countries for bird species are in the northern half of South America – see https://rainforests.mongabay.com/03birds.htm
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PRIVATE COMPANY ACCOUNTS – PUB COMPANY ETM GROUP LTD
• Pub company ETM has reported full year numbers to 23 February 2020 to Companies’ House saying that revenue rose in the period from £31.5m to £31.6m. There were disposals during the year so ongoing revenue fell. The EBITDA rose from £2.6m to £3.0m and the reported loss before tax fell from a loss of £2.64m to a loss of £2.34m. The underlying loss is reported to be £943k after the impact of exceptional items is removed.
• The numbers are, of course, very historic but, as the accounts were signed on 25 Feb this year, there are references to the Covid-19 pandemic. The company says ‘the continuous improvement programme initiated in 2019 resulted in significant year on year increases in site margins and a lower re-structured head office cost base.’ It adds that ‘with the noted cost control and the disposal of underperforming sites the Directors therefore felt that the business was well placed going forward into FY21.’
• Re Covid, the company says ‘however, within weeks the country was shattered by spread the of the Covid-19 virus which forced the Government to close all bars and restaurants on 23 March 2020.’ It says ‘the Group sought to secure as much liquidity as possible. Payment plans were agreed with all suppliers, and asset finance providers and there was significant support from its landlords. The Group also took full advantage of the Governments rates and furlough schemes. In addition, to build a cash reserve and to cover a future period of uncertainty, the company applied for and received £2.5m as a Government backed Coronavirus Business Interruption Loan (“CBIL”). The business has also received £250k insurance compensation for the forced closure.’
• ETM adds ‘the business finally reopened (9 out of 13 sites) in a phased and controlled manner on 5 July 2020 with support from the Eat Out Help Out (“EOHO”) scheme and 5% VAT rate on food.’ ETM then runs through the stop-start trading since July and says ‘the Group has also again taken all measures to preserve as much liquidity as possible including applying for all the latest Government and local authority grants.’ It has boosted delivery sales etc.
• ETM says ‘cash flow forecasts have been prepared for the 12-24 months following the date on which these accounts have been signed. On the basis of these forecasts the Directors believe that, subject to the challenges facing the UK economy, with the ongoing support of suppliers and landlords, the accounts can, and should be prepared on a going concern basis.’
• The Going Concern issue will be a real one for a large number of companies. ETM says ‘the Group recognises the potential market, operational and financial risks that it faces in the current economic environment.’ Although the numbers reported to Companies’ House do not reflect Covid, as at end-Feb last year, ETM had accumulated losses since incorporation of £1.14m and negative shareholders’ funds of £1.11m.
PUBS & RESTAURANTS:
Covid-pandemic news & developments:
• The British Beer & Pub Association reports that ‘pubs will miss out on 12 million in sales of pints and 3.6 million in sales of meals due to the ongoing restrictions covering this Mother’s Day.’
• Garden centres may have been busy but ‘pubs across the UK will remain closed and unable to serve takeaway beer on Mothering Sunday’ says the BBPA. It adds that this is the second Mothers’ Day that has been impacted by Covid.
• Some £83 million worth of sales may be lost. The BBPA says ‘as ever, our locals are still doing all they can to serve their communities despite the lockdown, safely. This has seen pubs innovate and create ‘makeaways’, cooking kits and more traditional takeaways. Although it isn’t quite the same as being in the pub, it is the next best thing.’
• The Daily Mail reports that a legal challenge over Boris Johnson’s decision not to allow pubs to reopen fully in April is being planned. It says ‘hospitality trade leaders announced they were going to court over the ‘plainly irrational’ decision to restrict pubs and cafes to outdoor opening only from April 12 while allowing non-essential shops to reopen to customers.’
• The paper says ‘Hugh Osmond, founder of Punch Taverns, and Sacha Lord, night-time economy adviser for Greater Manchester, claimed the risk of Covid transmission was actually higher in shops than in pubs.’ Mr Osmond says that ‘time is of the essence’ for the sector and warned that ‘the cost of lockdown to the hospitality industry is £200 million a day’.
• Osmond says ‘this legal case will give a fighting chance to over three million people who work in hospitality and to the tens of thousands of businesses, suppliers, landlords and contractors large and small forced into bankruptcy.’
• The High Street:
• PwC reports that the full impact of the Covid-19 pandemic has yet to be felt on the High Street. The Local Data Company says that a net 9,877 outlets closed across the country last year (the net of 17,352 closures and 7,665 openings).
• PwC says the picture is could get worse before it gets better – if it ever does get better. PwC says ‘unfortunately, there is still quite a lot to play out. You’ve seen the closures of the likes of Debenhams and Topshop and that’s happening in 2021 so they’re not even in our numbers.’
• The LDC says ‘much of the impact is a reflection of things that happened before the pandemic. This was not just the move online but areas such as legislative changes, for example for betting shops, consolidation due to overexpansion, or chain-wide closures for restaurants and mobile phone stores that found themselves in trouble pre-Covid-19.’
• Langton comment, see premium email.
• Better to be a) away from the High Street and b) away from London and the south east.
• There are caveats, of course. Some operators will still prosper on the High Street and some London-based operators will do well. They could benefit from reduced competition and lower rents.
• Why does the news re High Streets matter for hospitality? Any major change to spending, working or social habits is likely to have some sort of an impact, either good or bad, on the hospitality industry. In the specific case of shop units closing, there are both positive and negative implications.
• Looking on the bright side, competition for sites should be diminished, vacant units should come on the market and rents should fall. Terms may shift (e.g. re deposits, capital contributions from landlords, break clauses, no upward-only clauses etc.) in favour of the tenant.
• On the negative side, the draw of certain locations may be reduced. If there are fewer shoppers, the demand for coffees, lunchtime sandwiches etc may also fall. This will be bad news for operators with a major exposure in these areas as their landlords may not be keen to reduce their rents in line with diminished trade.
• LDC says ‘looking at where this this opening and closure activity has predominated really tells the story of changing consumer preferences and shifting demand.’ It says ‘on the whole, flagship, city centre high streets and shopping centres saw a greater decline in chain stores versus more local markets and retail parks which proved to be more convenient and perceptibly safer.’
• LDC says ‘there is regional disparity, too. For the first time, London has been hit harder than other regions with a record increase in net closures this year. Together with the South East, they account for a third of the decline of all shops.’
• Licensing solicitor Poppleston Allen reports that Oxford City Council has made the decision to remove its existing Cumulative Impact Policy as part of its Recent Statement of Licensing Policy Review.
• CGA reports that major festivals are selling out and consumers look to be increasingly confident about planning their summers. It says 63% of consumers surveyed said ‘they were likely to splash out on festivals and live events to make up for missing out in 2020, while nine in ten were either very likely (77%) or likely (14%) to rebook for festivals that had to be cancelled last year.’
• CGA says only 9% of festival-goers would stay away from the market in 2021 due to safety concerns. CGA says its ‘research shows a major pent-up demand for hospitality among consumers, and this is clearly extending to festivals.
• Drinks Business reports the ‘biggest players’ in the UK champagne market, including Moet Hennessy, as saying that sales over Christmas and for Valentine’s Day were ‘incredible’. Referring to last year, Moet said ‘the Christmas period accounted for 46% of annual Champagne sales in the off-trade and in fact Champagne grew the fastest out of all beers, wines and spirits, growing at 28% year-on-year.’
• A team of volunteers from Zonal have teamed up with charity, Only A Pavement Away, to help pack 309 backpacks, filled with warm clothing, sleeping bags, toiletries and flasks, to help rough sleepers in Edinburgh.
• Accountants UHY Hacker Young has reported that the number of breweries in the UK grew by 216, or 7.5%, in 2020 despite the Covid-19 pandemic. It reports that there are now a total of 3,018 breweries in the country.
• UHY says that the closure of pubs may even have acted as a catalyst for some would-be brewers when it came to starting their own brewing businesses. The accountant says ‘growth in breweries during a very difficult period for the drinks industry is a positive sign. Entrepreneurs clearly feel confident in the prospects for a bounce back once pubs and bars can open again.’
• It adds ‘people’s appetite for trying new beers from different breweries has contributed to the long-term rise in new breweries being set up.’ It says there has been little discounting and concludes ‘as hospitality begins to reopen, these new breweries will need to build on the momentum they have created through their direct-to-consumer sales.’
• Young & Co is reported set to open two new pubs in May this year. When pubs are allowed to operate outdoors, both will open outdoor terraces from Monday 12th April. One of the units is in St Albans and the other in Greenwich. CEO Patrick Dardis says ‘after the most challenging of year for our industry, we are pleased to announce the arrival of these two new pubs this spring.’
• The Inn Collection is reported to have raised new funds in order to drive expansion this year and next.
• A bit dry but The Bank of England conducted interviews about people’s inflationary expectations between 9 and 22 Feb. It says consumers believed the current rate of inflation was 2.5% and they thought it would rise to 2.7% over the next 12mths. Both numbers unchanged from November 2020.
• Consumers believe higher inflation will weaken the economy. Some 35% believe interest rates will rise (up only slightly from 33% in November). These aren’t necessarily questions where the consumer is well placed to answer although the individual’s own expectations should impact his or her own behaviour.
• Molson Coors has fallen victim to a cyber attack that is reported to have disrupted its systems. Molson Coors says it ‘is working around the clock to get its systems back up as quickly as possible.’ It adds ‘although the company is actively managing this cyber security incident, it has caused and may continue to cause a delay or disruption to parts of the company’s business, including its brewery operations, production and shipments.’
• Sheffield-based hospitality technology company Airship has won three awards at the UK Developer Awards 2021 – including the prestigious Dev Team of the Year accolade.
HOTELS & LEISURE TRAVEL:
Staycations or flight-inclusive travel this summer?
• IPK International has said it believes outbound travel will rebound quickly this year. It says 62% of would-be travellers want to go abroad in 2021. IPK reports ‘above-average interest in visiting friends and family.’
• See premium email for discussion on Cabin Fever, Talk is Cheap and The Silver Lining (staycations).
• Cabin fever. People, unsurprisingly, would like to travel. We have been locked down, to one degree or another, for over a year now and it would be nice to get out and about. Hence, perhaps, it is not surprising to get a strong positive on this test.
• However, it should maybe be contextualised. What if you have to be inoculated? What if there are four hour queues at both airports? What about if the facilities in resort are only partially open or completely shut?
• Talk is cheap. These are the sort of factors that will influence the decision as to whether to spend or not (rather than just say you would like to spend). Here, the rows that took place last year when consumers were trying to get their money back from travel companies could be a negative. Would-be travellers will arguably be more willing to risk their cash if they know the holiday company won’t go bust and will give them their cash back if a holiday isn’t possible.
• Silver lining. Leisure as a whole would undoubtedly like to see the back of Covid. But, if it sticks around a little longer, one of the undoubted winners will be the staycation market – and domestic pubs & restaurants should also do well.
• There has been talk of domestic holiday prices rising sharply. It wouldn’t do to kill the goose that lays the golden egg and, to some extent, pubs & restaurants may like to see accommodation costs remain reasonable such that consumers have more money to spend once they get to their holiday destination.
• It’s likely that a larger number of enterprising publicans this year than last will be offering tent pitches and caravan hook-up in their car parks and beer gardens. Councils, if ever they turn a blind eye, could be minded to make 2021 the year that they choose do so.
• The desire to travel (provided it is safe, convenient and not too expensive) is no doubt there. Addressing the last of these points, speakers at the Path to Revival webinar hosted by the Pacific Asia Travel Association heard that a rebound it trade driven by discounting would be a ‘terrible move’.
• Travel Weekly reports that ‘booking volumes for the peak summer holiday period are starting to pick up as destinations prepare to welcome back British tourists.’ Agents have reported that the majority of bookings are still for later in the year or even for 2022. Advantage Travel Partnership says the bounce is due to the ‘announcements from various destinations wanting to welcome British travellers back this summer, combined with the UK’s vaccination rollout and the plan for lockdown restrictions to ease’.
• Crystal Cruises has announced that it will restart ocean sailings from the Bahamas from 3 July for fully vaccinated passengers. Crystal says ‘we can offer these cruises with mutual confidence, thanks to the meticulous planning and health and safety protocols that both Crystal Cruises and the Bahamas have put in place.’
• Too late for some operators. Coastal cruise specialist, Strand Travel, is reported to have ceased trading.
• CLIA has said that, as it takes 12wks to get a cruise ship back into service after a 12mth layup, it will not be possible for domestic cruises to take place from 17 May unless operators ‘take a bet’ on everything going to plan. Some operators maintain that they would need ‘just’ 8wks’ notice.
• Turkey has said that it will accept UK travellers this summer, without the need for vaccination certificates, as soon as the pandemic permits.
• Boss of Carnival Arnold Donald has said that the cruise industry will likely not return to pre-pandemic levels until at least 2023. He says there could be two more difficult years for the sector. Donald tells the FT that a return to normal ‘depends on so many variables, because every destination is going to have its own level of comfort and what regulations are gig to be.’
• Carnival concedes that attracting first timers could be tough for some time. Donald is requesting of authorities that there will be “no undue restrictions, constraints, disadvantages place on the cruise industry verses the rest of travel and tourism”. The company CEO did not rule out further fund raising for the company but said it had enough cash to 2022.
Other leisure travel news:
• STR reports that US hotel occupancy in the week to 6 March was 49%, down some 21% on last year. Room rates are down 22% and REVPAR is some 38% lower. STR says ‘while demand has improved in in many states, most markets remain deep in recessionary territory when indexed to 2019 levels. Year-over-year comparisons with 2020 are beginning to turn favourable as the country hits the one-year anniversary of its earliest pandemic restrictions.’
• Flutter has commented on press speculation re a potential IPO of FanDuel, the Group’s US business, saying it ‘regularly evaluates its organisational and capital structure to assess how best to position itself to deliver upon the Group’s strategy.’ The company adds ‘options including the listing in the US of a small shareholding in FanDuel are being considered but no decision has been made at this time. Should a decision be made to proceed with a listing in due course, an announcement will be made as appropriate.’
• Some 2,500 jobs are reportedly at risk if Virgin Active is not able to agree a restructuring of its liabilities with its creditors. Sky reports the company is drawing up contingency plans to appoint administrators by early June if it is unable to agree lenders and landlords to support its restructuring plan.
• Here East, based in East London, aims to become a “world-class” destination for esports businesses.
FINANCE & MARKETS:
• The ONS reported on Friday that the contraction of the UK economy in January was less than had been feared. The economy shrank by 4.9% m-o-m to leave it some 9% smaller than it had been in January 2020.
• The NIESR now expects a contraction of 2.4 per cent in the first quarter of 2021. This would leave GDP in the first quarter of 2021 also around 9 per cent lower than its level in the last quarter of 2019, before the pandemic struck.
• The NIESR says ‘while January’s lockdown has unsurprisingly hit the hospitality, retail and education sectors, returning to levels of output last seen in summer 2020, many other sectors have not been affected to anything like the same extent as they were last year.’
• Exports to the EU fell by 40% in January. Imports from the trading bloc fell by 28.8%. The ONS reports that numbers were picking up towards the end of the month. The overall trade deficit in the month fell. The UK is to continue waving through imports from the EU as the c30k customs agents needed to check forms have not yet been recruited.
• Lead indicators: The ONS reports that the volume of motor vehicle traffic grew by +4p in the week to 77% of the level 12 months previously. The proportion of the UK workforce on furlough remained unchanged at 19%.
• China growth surged in the first two months of this year. Industrial output, albeit with easy comps, rose by 35.1% in Jan & Feb vs last year.
• Governor of the Bank of England Andrew Baily has come under criticism ‘for failing to declare a potential conflict of interest in a scandal that saw thousands of bank customers mistreated’ reports the BBC. It says RBS has been ‘accused of benefitting as it left some of its customers in financial ruin.’ Bailey is also being criticised for the FCA’s lack of action, where he was the boss, during the collapse of Neil Woodford’s investment businesses.
• Sterling a little weaker at $1.3902 and €1.1655. Oil higher at $69.73. UK 10yr gilt yield sharply higher at 0.83%. World markets mixed on Friday but London set to open up around 16pts as at 7.15am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were rather unexciting: the FT went with “UK taxpayers exposed to £1bn of debt from Greensill and Gupta” and the Guardian ran with “Police officer charged with murder of Sarah Everard”. The Times went with the Covid vaccine roll-out (“Britain set to jab all adults by early June”) and the Telegraph took a similar line: “Vaccines for all over 40s by Easter”.
• Saturday’s Press and News (2): In terms of Retail stories, the upbeat trading news from Burberry on Friday got plenty of coverage, although the FT article (“Burberry outlook brightens as Asia-Pacific sales climb”) flagged that the very strong Q4 sales uplift has been boosted by weak comps in China, with Lex column in the FT also noting that Burberry “relies on Chinese customers for 40% of its sales” and highlighting that “Should Burberry stumble, it risks becoming a takeover target”. There were similar headlines about Burberry and Asia in the Telegraph and the Daily Mail, but the Times rang the changes with “Burberry is emerging from Covid trenches”.
• Saturday’s Press and News (3): The other big story was the problems of the embattled shopping centre landlord Hammerson, after the huge asset write-downs in Friday’s results, with the Times making this one of its main Business features (“Hammerson sees red as stores teeter on the brink”) and noting that Property analysts were unhappy with the lack of strategic clarity from the new CEO, Rita-Rose Gagne. The Telegraph and the Guardian both highlighted that the owner of Brent Cross and the Bullring in Birmingham is going to have to sell off more assets to survive. The Business editorial in the Telegraph was headlined “Death of our shops is only just beginning” and made some quite punchy comments about the problems of Hammerson and JLP, as Online shopping and Online delivery get bigger and better, whilst the Guardian had a feature on the problems of Oxford Street (“Earthquake reshaping
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were dominated by the vigil on Clapham Common for Sarah Everard, with the Observer (“Met commissioner under fire over policing of Everard vigil”) and the Sunday Times (“Outrage as police clashes tarnish vigil for Sarah”) focusing on the brutal police suppression of the event, whilst the Sunday Telegraph (“Kate’s tribute as she recalls how it felt to walk in London at night”) and the Mail on Sunday (“Kate joins the vigil for Sarah”) both flagged that the Duchess of Cambridge joined the women at the vigil to pay her respects.
• Sunday’s Press and News (2): In terms of Retail stories, the fact that the cupboard was pretty bare was well illustrated by the way the Sunday Telegraph plastered a fashion model photo over the front of its Business section to flag the very dull news that the New Look CVA challenge comes to court on Wednesday. And the two stories on the front of the Sunday Times Business section were not exactly Premier League stuff either: Amazon has registered the trademark Amazon Pharmacy (“Amazon’s next High Street target: your local chemist”) and the embattled Pret A Manger chain has agreed to sell its baked goods through Tesco (“Grab a Pret croissant at Tesco”). On its News pages, the Sunday Times also flagged that on the same day that Amazon launched its new hi-tech store in Ealing it also launched its new own-brand grocery range “By Amazon”, with its taste test concluding that its mussels in a
• 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 (“Now we face the economic shock of the new normal”), in which he highlighted that the flexibility of the labour market is about to be tested (“I doubt that people who worked on the beauty counter of Debenhams will be comfortable driving a fork-lift truck around a warehouse”) and by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“UK forced to change tack as trade with the EU descends into chaos”), in which he highlighted that the UK economy is focused on services not manufacturing: “We have traded our dignity for cheap foreign pap and a life of perpetual service”. There was also a good column by the Political correspondent of the Observer, Andrew Rawnsley, headlined “The
• Today’s News: The week has kicked off with IPO news, with today seeing the first dealings in the IPO of the Online womenswear group In The Style and the confirmation of the intention to float by the Online delivery giant Deliveroo. In The Style will have the ticker “ITS” and has a market cap of £105m at the placing price of 200p, but its backers will be hoping for a nice premium to that today. It remains to be seen what ticker Deliveroo will have and when it will be listed, but most of the other details of the IPO have already been leaked, including the news that it will have A and B classes of share and that account holders will be allowed to apply for shares as well, although we are also told today that the company will be raising £1bn in new money.
• This Week’s News: All eyes will be on Cheltenham from tomorrow. Tomorrow also brings the Greggs finals and the ScS interims, whilst the Dignity finals are on Wednesday. On Thursday we get the Ocado Q1 update, the MPC meeting news and the Nike Q3 and the Signet Q4 are out in the US. Friday then brings the widely followed monthly GFK Consumer Confidence survey.