Langton Capital – 2021-06-21 – PREMIUM – WFH advice, loans & liability, staff, Recovery, staycations, BrewDog etc.
WFH advice, loans & liability, staff, Recovery, staycations, BrewDog etc.PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: In the same way that paint scrapes on the bollards in car parks tell an unpleasant story, so too do smeary nose prints on glass doors. Because, unless a door slams in your face or you walk, wholeheartedly and at pace straight into it, there is no particularly persuasive reason as to why you would find a nose print on a door unless it was that of a two year old toddler who thought it was a good idea at the time. Or a dog, of course, because there are very few places that they aren’t happy to put their noses but, for an adult human, a bit more care should be taken, particularly if you want to avoid heavy, swinging objects and thereafter talking with a nasal burr for a few days until you can get the congealed blood out of your schnoz. Anyway, enough of that. The weather’s set fair and, hopefully, England will progress tomorrow. 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. CHANGED EMAIL FORMAT: The Premium Email is unchanged. The Free Email is written and pre-sent the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email. PUBS & RESTAURANTS: Working from home: • Guidance is clear at present. You should work from home if you can. But this is shortly to be withdrawn [was going to be 21 June and is now 19 July] and there are indications that the government will suggest employers and employees should make their own minds up. This has ongoing implications for pubs, bars, restaurants and coffee shops in town centres and near to commuter rail and tube stations. • New flexible season tickets go on sale today aimed at commuters who do not travel to work every day of the week. The tickets can be used for eight days in any one month. Bounce Back Loans and directors’ personal liability: • Company Rescue reports that, though anecdotal, it is hearing of multiple instances of the mis-use of the Bounce Back Loan Scheme. It says ‘we are hearing that some people have been applying for bounce back loans for their companies and then using the money to pay off debt either for the company or personal debt.’ It cautions that ‘just because they [the party making the loan] didn’t ask for guarantees doesn’t mean that under no circumstances would you per personally liable to pay them back if the company couldn’t.’ • Further comment: Company Rescue warns directors that they could be open to allegations of ‘preference’ and potentially ‘fraudulent preference’ if they use a new debt to pay off old liabilities. It cautions directors ‘be aware that if you have used the loan to pay off personal debts then that is pretty much fraudulent. If the company cannot pay back the loan then the bank, or a liquidator, may well investigate where it went and conclude that it was “stolen” from the company. The veil of incorporation will be lifted and you will be personally liable for the debts. In addition you may well be disqualified from being a director of a company.’ • Company Rescue says ‘the UK government will be keen to get money back from the Bounce Back Loans Scheme. Given that they estimate that 40% of companies will not be able to pay them back they will look closely at the behaviour of directors.’ Staff shortages: • One of Langton’s ‘elephants’, there are plenty of comments in the Press regarding instances of staff shortages. The Telegraph says Tesco has sounded an alarm over driver shortages. It (The Telegraph) says the ‘UK faces shortfall of 65,000 drivers after EU workers leave the UK and driver training and testing is suspended during the pandemic.’ This may be temporary. But it probably isn’t and, even if it was, it is leading to supply chain problems and to inflation in the immediate term. • Further comment: Langton can’t get Ikea to deliver five Ivar shelves because its ‘deliveries are in high demand and there are currently no delivery options available’. It advises customers to ‘check back tomorrow’ – but the same message has been up there for a fortnight. If they came back, which at some point they may, and said delivery was magically available to the first customers indicating they were willing to pay double or triple the normal delivery charge, they would still find customers. This is where inflation, another one of our elephants, comes from. • UK Hospitality has unveiled a ‘new 12-point plan to tackle the current staffing crisis facing an industry that remains in a hugely fragile state following more than a year of closures and severely restricted trading.’ It says ‘the plan focuses on short-term solutions the sector is facing but also looks at some medium- and long-term actions, outlining what both employers can do and how the Government can support these efforts’ and adds ‘this includes short-term actions to boost collaboration between the industry and Government, schools, colleges and universities, along with broader measures to improve perceptions of the sector as an employer, introduce new qualifications and grow the pool of available workers in the economy.’ • Further comment: Interestingly, the 12-points don’t include the obvious (quick and dirty) solution, which is to throw money at the problem. Pay staff more, pay higher retention bonuses, pay joining fees and pay staff to introduce colleagues. In the real world, all of these actions will be taking place and costs – and prices – will rise accordingly. Concentrating on non-financial issues, UKH says ‘hospitality offers a wonderfully diverse range of roles and exciting careers and is a stable employer for millions of people across the UK. Staff at all levels play a crucial role delivering world-class hospitality at the very heart of their communities, with employers large and small offering high-class training schemes, apprenticeships and career development pathways.’ Other trading & covid news: • The latest Market Recovery Monitor from CGA and AlixPartners ‘shows a strong reopening for some segments but jeopardy for late-night and independent businesses.’ It says ‘around 25,000 licensed premises were still shut at the end of May 2021’ and adds that ‘with strict restrictions including distancing and table service in place, CGA’s trading data shows that sales have been well below pre-COVID-19 levels in these segments in particular. The four-week delay to a full easing of trading restrictions in England until 19 July, with Scotland likely to follow a similar path, places many closed businesses in jeopardy of failure.’ • CGA’s Karl Chessell says ‘Britain already has nearly 10,000 fewer licensed premises than before the pandemic, and that number will sadly rise as a result of the government’s delay. Coming as it does on top of a mountain of challenges on debt, tax, rising costs, recruitment and much more, hospitality now deserves sustained financial backing to save thousands of businesses and jobs, and the government’s extension of the ban on commercial evictions of tenants is a welcome first step. The hospitality sector’s recovery is central to the UK’s economic revival, and more support like this is vital if we are to prevent further casualties.’ • The Federation of Small Businesses has warned that the UK hospitality sector is in a critical position and has called for a new strategy to help bolster operators. Research highlights the impact of the pandemic on the UK’s tourism and hospitality sector and its supply chain and the FSB points to the high levels of debt in the sector. It says ‘with mass closures and restricted openings over the last 15 months, COVID-19 lockdowns have shown just how important our pubs, restaurants, hotels and thousands of businesses in the supply chain are to both the economy and communities.’ • The HMRC reported on Friday that British food and drink exports to the EU fell by £2bn in the first three months of 2021. The sale of dairy products slipped by a non-negligible 90% leaving farmers, who will shortly face competition from Australian producers, to join the list of those wrong-footed by Brexit, Mr Johnson, or both in the last few months. (List incl. fishing industry, Ulster Unionists, EU grant beneficiaries in South Wales etc.) • The FDF says ‘the loss of £2bn of exports to the EU [in Q1 this year] is a disaster for our industry, and is a very clear indication of the scale of losses that UK manufacturers face in the longer-term due to new trade barriers with the EU.’ Dairy was down 90~%, fish down 52%, snacks down 39% and chocolate down 37%. Covid and transport issues will have added to problems caused by Brexit red tape. • CEO of The Crown Estate, Dan Labbad, said the estate and other property owners in the UK faced ‘obsolescence’ if they did not adapt as they would risk losing tenants to nimbler rivals and the potential redundancy of buildings that failed to meet rising environmental standards. • Agriculture industry members say that the UK faces shortages of British-produced meat as problems with recruitment continue due to Brexit and coronavirus. The poultry industry is reporting a 10% fall in the number of birds being slaughtered for meat in recent weeks. • The Telegraph runs a story saying that European retailers are still hamstrung by post-Brexit red tape. It says ‘EU store owners bemoan trade rules ‘nightmare’ as shelves left bare amid weeks of delays to shipments of British produce.’ Staycations: • Travel Counsellors has said that would-be holidaymakers from the UK are postponing their holidays due to the current levels of uncertainty and changes to the government’s traffic light system. It says that 31% of new holiday bookings made last week were for winter 2021-22, and 23% were for summer 2022. Travel Counsellors says ‘travel has of course become more complex than ever, with the traffic light system and latest FCDO advice to navigate.’ Company news: • Hotel Chocolat has announced that it has agreed to acquire the shares in Rabot 1745 Limited that it does not already own. The business currently operates a JV with Andrew Gerrie (the Non-Executive Chairman of Hotel Chocolat) to develop a range of beauty. Hotel Chocolat holds its c.47 per cent. of the issued share capital of Rabot through its subsidiary, Hotel Chocolat Limited. It says it has ‘agreed to acquire the remaining c.53 per cent. of the issued share capital of Rabot, including the 40.5 per cent. owned by Andrew Gerrie, for a total cash consideration of £4.00.’ • BrewDog co-founder James Watt has said in a Linked In post that he takes responsibility for the company’s culture and has said that the fact that this was deemed ‘toxic’ by some members of staff was his fault. Watt says the company is “very close to appointing an independent agency to conduct a review of our culture and people practices to ensure we can make positive and inclusive change at all levels of our business.” He says that the findings will be shared internally and externally before the end of this year. Watt says ‘the correct way to approach this situation is to focus all our energy on how we can use this platform to think differently, challenging ourselves to build a team and company we can all continue to be very proud to be a part of. Although this situation hurts a lot, I am determined to ensure we use it as a catalyst to become a better business.’ • Per The Telegraph, McDonalds plans to hire 20,000 more workers and open up to 150 high street restaurants in the UK and Ireland. Paul Pomroy, its UK CEO, said ‘People are using their local high streets in a different way, because they’re working from home at the moment, and I think local high streets will continue to be part of the fabric of the UK.’ • Itsu plans to open 100 new stores after founder Julian Metcalfe sold a 30% stake to Bridgepoint capital for around £200m, potentially valuing the chain at more than £660million overall. • Morrisons has rejected a £5.5bn takeover proposal from US private equity firm Clayton, Dubilier & Rice, saying it ‘significantly undervalues’ the firm. • Despite the above, insurance company Battleface says 48% of Britons will still consider travelling to Spain for a holiday this summer despite the country being on the UK’s amber list. Battleface says ‘there is still a huge appetite for international travel this summer.’ Inflation: • Another of Langton’s elephants gets plenty of coverage. The Telegraph says ‘households face a £700 blow as inflation rises to its highest level for a decade this summer, economists have warned.’ It says this could be the financial cost of rising prices to the average UK household. The natural response will be for workers in said household to ask their employer for a pay rise. The Resolution Foundation says ‘the temporary nature of this inflation spike means the Bank can look through it. But the £700 hit to living standards it will bring means households and the Government cannot afford to ignore it.’ • Further comment: As previously announced, Bank of England economist Andy Haldane is to leave the bank this month. Thursday’s MPC meeting will be his last. Mr Haldane says that Britain is at the “most dangerous moment” for managing inflationary risk since 1992. He says the “beast of inflation” is stalking the land. He says that booming demand, labour shortages and supply-chain disruption could lead to a “wage-price spiral familiar from the 1970s and 1980s”. • El Pollo Loco in the US is to test drone delivery via a partnership with drone operator Flytrex. Apparently, Flytrex orders take about a third of the time taken by road delivery. The Air Loco drones cruise at 32 miles per hour and have a wire release mechanism to lower the food orders from 80 feet. Let’s see how that goes. It will certainly give the neighbourhood dogs something to bark at. • Further comment: Always on the look out for April Fool’s jokes, we have to conclude that this isn’t one of them. Google Streetview, instantaneous number plate recognition and other innovations might have been thought similarly impossible (or very improbable) before they were spun out to a global audience (and in some cases sponsored whole industries) – so why not drone delivery? • Other companies have also been considering and have been testing this for some time. Goodness knows what the ‘rules of the road’ are 80 feet in the air. And there are other, practical issues. Does the recipient have to acknowledge delivery or is a drop (literally) sufficient? What about damages, what condition will the food be in when it arrives, etc. etc. Questions to be answered but, at the end of the day, that’s the reason for conducting a test, isn’t it? HOTELS & LEISURE TRAVEL: • Italian health minister Roberto Speranza confirmed that all visitors from the UK will be required to quarantine for 5 days upon arrival from Monday. The Netherlands introduced mandatory quarantine for UK arrivals from Tuesday, and Germany, Austria and France already have restrictions in place. • The Guardian reports that the UK govt’s ‘very cautious’ approach will see few countries added to the green list for travel at the next review, due by 28 June. • Manchester Airports Group is leading the call for a judicial review over the traffic light system’s ‘lack of transparency’, with British Airways and Virgin Atlantic joining the legal challenge. • Royal Caribbean International has reduced capacity on a UK-based ship as it tries to bring numbers onboard in line with government restrictions. The restrictions capping numbers at 1,000 passengers or 50% of the ship’s capacity could be in place for a further four weeks until July 19. • Business Travel Association CEO Clive Wratten said the UK corporate travel sector is in a ‘catastrophic’ state as the government ‘changes its mind like the weather’. Wratten said ‘There is a desire to travel but what is needed is confidence.’ • The BTA reports that the UK lost £3.18bn in GDP this week due to the decline of business travel trips following Covid-19, The data shows that in the second week of June, business travel trips from the UK dropped by 67.72% from 2019 pre-pandemic levels. • Balpa has reported that it believes the UK aviation industry has been the ‘hardest hit’ in Europe by restrictions on international travel. Balpa says this has been ‘caused by the UK government’s ludicrously cautious restrictions on international travel.’ It adds ‘hapless ministers give all the appearance of deliberately attacking aviation and tormenting the public with their mixed messages over summer holidays’ and adds ‘Balpa is demanding that the UK government gets its act together and opens the US routes and European holiday travel destinations that it has blocked with no published evidence at all.’ • STR’s latest Market Recovery Monitor shows that for the week ended June 12 the U.S. hotel industry sold more than 90% of the rooms that it did during the comparable week in 2019. OTHER LEISURE: • ByteDance, owner of TikTok, saw total revenue up 111% to $34.3bn in 2020, with annual gross profit rising by 93% to $19bn and a net loss of $45bn. • Spotify acquires Podz, a podcast discovery platform. Spotify said ‘We believe that Podz’ technology will complement and accelerate Spotify’s focused efforts to drive discovery, deliver listeners the right content at the right time, and accelerate growth of the category worldwide.’ FINANCE & MARKETS: • Sterling weaker at $1.3798 and €1.163. Oil price up at $73.73. UK 10yr gilt yield down 3bps at 0.76%. World markets sharply down on Friday and London set to open down a further 48pts or so this morning. RETAIL WITH NICK BUBB: • Saturday’s Press and News (1): The sensational win by the Lib Dems in the Chesham and Amersham by-election dominated the front pages, except in the Daily Mail (which dredged up some nonsense about the Princess Diana murder conspiracy). The Financial Times headline flagged that “Tories pin poll loss on “toxic” planning reforms”, the Times ran with “PM warned homes plan turning off Tory voters”, the Telegraph went with “Get back to Tory values, Cabinet warns PM” and the Guardian said that “Tories fear “blue wall” seats at risk after Lib Dem victory”.
• Saturday’s Press and News (2): In terms of Retailing stories and news, the disappointing ONS Retail Sales figures for May on Friday morning got plenty of uncritical coverage, with the re-opening of hospitality generally being blamed, eg “Restaurants opening eats into retail sales” was the headline in the Times, whilst the Guardian went with “Retail sales fall as people head for the bar and restaurants” and the Telegraph said “Consumers dined out in May instead of spending in shops”. As for company news, the Boohoo AGM row was overshadowed by the Tesco Q1 update, which fed a variety of headlines: the FT went with “Tesco detects reversion to pre-pandemic modes of shopping”, the Daily Mail combined the Tesco trading slowdown with the ONS figures (“Tesco hit as Britons flock to pubs and restaurants”), the Guardian flagged that “Tesco urges Government to resolve NI border trade issue with
• Saturday’s Press and News (3): As for the Boohoo AGM and the news that co-founder Carol Kane staved off the threatened investor revolt, the FT and the Telegraph didn’t find it newsworthy, but the Guardian and the Daily Mail gave it plenty of coverage and the Times also noted the story. The Times also flagged that another advisory group has called on shareholders to vote against the JD Sports Director bonuses at the upcoming AGM. The FT highlighted that Sports Direct is looking to open flagship stores in Europe as part of the “elevation” strategy pursued by Michael Murray, as exemplified by the expensive revamp of the Oxford Street store. The Times picked up on the news that the Motor dealer Inchcape has been surprised by the post-lockdown appetite for new cars and, on a weak day in the stockmarket, Inchcape was one of the few risers on Friday (as noted by many of the market reports). • Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were pretty varied: the Mail on Sunday ran with another silly Royal row, but the Observer highlighted that “John Bercow defects to Labour with withering attack on PM”, whilst the Sunday Times flagged the tensions between the PM and the Chancellor with “Profligate PM’s pledges fuel tax-rise fears” and Sunday Telegraph went with “Hancock kept PM in dark over jabs success”.
• Sunday’s Press and News (2): In terms of Retail stories, the big news was the latest scoop from the very well-informed Mark Kleinman of Sky News, that the US private equity giant CD&R has made a 230p bid approach to Morrisons. The Sunday Telegraph highlighted that the once highly respected Tesco boss Terry Leahy is advising CD&R (“Leahy plots £5.5bn bid for Morrisons”) and had a big photo of him on the front page of the Business section: “Tesco veteran aiming to write new retail chapter”. The Sunday Times headline was “Buyout giant plots Morrisons bid”, but the Mail on Sunday flagged that the Board of Morrisons has already rejected the bid, on the grounds that it “significantly undervalues” the business, whilst the Business editorial in the Sunday Telegraph argued that the UK supermarkets sector is “critically undervalued” and that if a bid for Morrisons materialises it will
• Sunday’s Press and News (3): In other news, the Sunday Times had a couple of snippets: the advisory group Glass Lewis has stuck the boot in on Sainsbury’s ahead of its upcoming AGM (recommending a vote against the Director’s pay report) and the small builder’s merchant business Lords is looking at an IPO. But the other main Retail story in the Sunday Times was that John Lewis faces a backlash over the high fees that it apparently charges to stock brands on its website and it followed this up with the latest in its features on the “Future of Retail”, with a look at Online platforms (“Thought the department store was dead?”), beginning with the success that a small upscale fashion and furnishings chain called Biggie Best has had as a “Friend of Joules”. The Sunday Times also flagged that landlords are exploring legal action against the Government over its 9 month extension of the • Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“We inflated away debt once- it’s harder to do that now”), in which he noted that, unlike after the end of WW2, the Bank of England has an inflation target and that “any attempt to inflate debt away would, in theory meet with higher interest rates, which would be counter-productive”. And we would also give our usual shout-out to the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Let inflation rip or risk fiscal ruin – the choice facing central banks”), in which he flagged that, like the Fed in the US, “the Bank of England seems equally minded to “look through” fast emerging inflationary pressures”.
Today’s News: As flagged in yesterday’s press, the Board of Morrisons has already rejected the 230p bid from CD&R, on the grounds that it “significantly undervalues” the business, but the fact is that the shares have been trading sideways around 180p for much of the last 18 months, despite all the good work that Morrisons have done in developing the Wholesaling arm and the occasional Amazon bid rumours. As noted by the FT today, CD&R aren’t going away and we suspect a deal can be done in the 250p-260p area, so it should be a lively day for the sector on the stockmarket today, with an additional focus on the bid potential for Sainsbury and Tesco as well. In other news, Frasers Group has announced that it is to continue with its share buyback programme during the closed season that starts today and Boohoo announced on Friday afternoon that the shareholder revolt at the AGM was This Week’s News: Tomorrow brings the IPO debut of the Online bathroom retailer Victorian Plumbing, as well as the latest Kantar grocery market share figures (and some expect a WH Smith trading update). On Wednesday we get the Dignity AGM and Strategy update and the Joules pre-close update. The THG AGM is on Thursday and the Tesco AGM is on Friday, whilst first thing on Friday we get the monthly GFK Consumer Confidence index. Over in the US the Nike Q4 results on Thursday night will be a focus for JD Sports followers. |
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