Langton Capital – 2021-07-15 – PREMIUM – Just Eat, rents, 19 July, inflation, Wales, BrewDog, amber list etc.:
Just Eat, rents, 19 July, inflation, Wales, BrewDog, amber list etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The word (or two words) dog-whistle seem to have gained traction in recent years and, assuming that they only applied to lazy, click-bait-type headlines that get the blood rushing on sensitive political issues, I obviously thought myself immune.
However, that’s just rubbish, of course.
Exceptionalism is usually a myth because my buttons get pressed just like everyone else’s and, when I realised that the pings and bleeps coming from my phone as well as those little blue circles on your Twitter icon, the Facebook likes and the green blobs on your WhatsApp etc were also dog-whistles of a sort, my misery was complete.
Anyway, before we get the shrill, blowing instrument out and talk about the merits & demerits of taking the knee, cancel culture or English exceptionalism, let’s move on to the news:
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PUBS & RESTAURANTS:
• CGA and UKH have produced a report, Future Shock’, in which they have looked at the scale of COVID’s impact on the hospitality sector as well as a number of reasons to be cheerful (tempered with the need for further financial relief). The jointly-penned report concludes ‘the hospitality industry is ready to lead the UK’s post-COVID recovery, but needs sustained support on a range of challenges after a devastating 16 months.’
• Further comment: The report, ‘hospitality: COVID and beyond’ concludes that some £80bn in sales has been lost in 12mths, with perhaps ‘the permanent closure of nearly 10,000 licensed premises and a collapse in inbound tourism’ also being major impacts of the pandemic. The report concludes that 79% of ‘business leaders now feel optimistic about market prospects for the next 12 months, while consumers are increasingly confident about going out. However, it also highlights strong headwinds facing hospitality in the recovery period, on staff recruitment, rising costs, high debt levels, tax burdens and more.’
• Survival was unsurprisingly Stage I of any plans when faced with the pandemic and, having achieved this much, companies now have to deal with the consequences of so much lost trade, the dislocation with regard to contact with suppliers, customers and staff and the balance sheet shocks that lost sales combined with an unavoidable burn-rate for almost all operators has entailed.
• CGA’s Karl Chessell comments that this is now ‘a crucial turning point for hospitality.’ He says ‘COVID-19 has inflicted massive damage on our sector, closing thousands of businesses, wrecking hundreds of thousands of jobs and wiping out billions of pounds in sales, and we will feel the effects of the pandemic for years to come.’ We are, however, now at Stage II and CGA says ‘as restrictions wind down, our research points to plenty of reasons to be optimistic—not least from the release of the latent demand for the special experiences that only hospitality can provide. Our sector is well placed to drive economic recovery and mend the UK’s damaged social fabric, but it can only do that if it gets proper and sustained support from government across a host of urgent issues.’
• UKH adds that the sector is ‘fragile’ but says ‘many of our business leaders are nevertheless optimistic about the future as this report demonstrates.’ It says this ‘will be a rough recovery’ but says it will work with the ‘Government, industry stakeholders and our members to gain support from Government and reduce any unnecessary red tape or burdensome legislation so we have a conducive operating environment to aid a fruitful return to pre-pandemic trading levels.’
• Separately, UKH was amongst other hospitality and retail bodies that told MPs earlier this week that many operators faced collapse due to debts accrued during the pandemic. Some £6.5bn in unpaid rent bills are being addressed with perhaps a quarter of this in hospitality. The British Property Federation has suggested that hospitality businesses may be facing greater difficulties than retailers.
• Clear Sight has looked at recovery potential and prospects and says the National outlook remains divided. It says ‘confidence in the UK Government’s management of the pandemic continues to erode’ with consumers pointing to Matt Hancock. Re business leaders, Clear Sight says ‘54% of decision-makers back the government – down from 60% in May.’
• Further comment. Re consumers’ plans, Clear Sight says ‘the incidence of those booking a staycation rose to the highest level in June since tracking began in early 2020 – a trend which also manifests itself in higher participation rates in the paid-for accommodation sector.’ This bodes well for UK pubs & restaurants as well as for the accommodation providers themselves.
• The Welsh Beer & Pub Association has welcomed the announcement that the Welsh Government plans to move to Alert Level Zero, in the process lifting many COVID restrictions, from 7th August. It says ‘the lifting of restrictions will enable more pubs to reopen that have remained shut because they cannot viably operate under current restrictions’ adding ‘after nearly 18 months of forced closure or operating under heavy restrictions, the WBPA has warned that the recovery for brewers and pubs will only begin when restrictions are lifted.’
• Further comment: The WBPA adds ‘pubs in Wales that were unable to reopen and operate viably because of the restrictions will now be able to open once more. Although this will be 2 and a half weeks after pubs in England do’ and says ‘the recovery of pubs and brewers in Wales is just beginning with the last 18 months practically being written off for them.’ The WBPA says ‘having been one of the worst hit sectors by lockdown, our pubs and brewers now need the UK Government to invest in them by reforming VAT, beer duty and business rates to reduce the unfair tax burden they face and aid their recovery.’
• The British Institute of Innkeeping has surveyed its members and concludes that the legacy of lockdowns ‘threatens the recovery of our nations’ pubs.’ It says the survey ‘results show a clear picture of debts built up over the last 17 months, and rising costs across all areas of their businesses, from staffing to increased costs for utilities, food and drink supplies.’ It finds that 55% of respondents ‘have accrued pandemic specific debts of over £20k per site, with more than 1 in 4 having debts of up to £80k. They will also need considerable time to pay back these debts, with 57% needing more than 2 years and 1 in 2 of those needing more than 5 years to repay debts.’
• Further comment: The BII says only 42% of its members responding are ‘confident of returning to profit once all restrictions are lifted as increased costs and debt repayments impact their businesses.’ It says that 72% will be facing full rent payments after 19th July. Around a half of respondents are ‘struggling to recruit the staff they need.’ The BII says ‘72% of operators are having to raise wages for front of house staff. 40% of these have had to increase wages by more than 10% to attract and retain staff. Similarly 57% have had to raise wages for back of house and kitchen staff, with 48% having to increase wages by more than 10%.’
• BII CEO Steven Alton says ‘the resilience, goodwill and determination of our nations’ pubs has been incredible to witness over the course of the pandemic. However, it is clear to see that this alone will now not be enough to ensure that their businesses survive.’ He says ‘these small businesses are essential and valued hubs of their communities, providing accessible, social spaces for everyone to come together to connect, celebrate and commiserate’ and adds ‘they urgently need support from Government in the form of an extension of the Business Rates holiday to April 2022 for England to match the devolved nations, an extended VAT reduction, an immediate cut to duty on draught products specifically for pubs and an urgent reform of the entire rates system.’
• Further costs associated with labour shortage (in US). McDonald’s Corp has said that it and its franchisees have surveyed more than 5,000 workers and managers and find that they would like more money and help with child care and other ancillary benefits. The company increased pay by 10% for its workers in its corporately owned stores in May. The WSJ says ‘this summer, McDonald’s franchisees will begin to study how their pay measures up against other employers in their markets to make it more competitive. A group of franchisees this summer are also expected to begin offering employees backup child and elderly care, and owners will decide whether to expand it by the end of the year.’
Company & other news:
• Just Eat Takeaway has updated on trading for its Q2 to end-June saying that orders were up 61% or up 51% including Grubhub. The company’s CEO, Jitse Groen, says ‘we have combined Just Eat Takeaway.com and Grubhub into one of the largest online food delivery companies in the world. The new combination grew 51% in terms of orders in the first half year. Adjusted EBITDA losses, mainly caused by US and Canadian fee caps and our investment programme, have now peaked. We therefore expect the Company to trend back to profitability going forward while retaining significant growth during the second half of the year.’
• Further comment: Just Eat has provided data on a standalone and a proforma basis to show the impact of the Grubhub acquisition. The company says ‘the combined business is one of the largest online food delivery marketplaces globally, with very significant growth opportunities in several of the largest profit pools in the world.’ It says ‘given the success of the Company’s investment programme in the legacy Just Eat markets, expectations for 2021 have improved and management upgrades its previous guidance of more than 42% order growth for Just Eat Takeaway.com (excluding Grubhub) during 2021 to now more than 45% order growth for the full year.’
• Just Eat says gross transaction value for the combined company this year should be in the range €28 to €30 billion. The group says it ‘will continue to invest in growth and prioritise market share over adjusted EBITDA’ but it says it ‘believes that adjusted EBITDA losses peaked in the first half of 2021 and expects its adjusted EBITDA margin to improve going forward, driven by the removal of significant fee caps in the US and Canada, improved unit economics in the Company’s Delivery network and increasing benefits from the investment programme in the legacy Just Eat markets.’
• Losses reduced but set to continue. The company says that it ‘expects Just Eat Takeaway.com (including Grubhub) to generate an adjusted EBITDA margin in a range of minus 1% to minus 1.5% of GTV. This adjusted EBITDA margin includes the significant impact of fee caps and voluntary partner support of approximately €200 million in the US and Canada.’
• Sainsbury’s and Waterstone’s have said they would like customers to keep on wearing masks.
• BrewDog is reported to have appointed consultancy firm Wiser to conduct a “full, unbiased review” of its business practises after allegations that the company had a “toxic” working environment with a ‘culture of fear’ pervading the business.
• Further comment: Some 100 former employees signed an open letter to the above effect. CEO James Watt has “committed to doing better”. Whilst we have no particular insight into goings on at BrewDog, we do recall the issues at Uber, where founder Travis Kalanick also had the ‘toxic culture’ label attached to him and his company. BrewDog may well be familiar with the narrative which, after a couple of hiccups, ended in Mr Kalanick leaving the company. Watt says ‘we want to be an employer for which our amazing team are truly proud to work, and we believe the actions we have taken – as well as those we are still working on – will help us meet that objective.’ Union Unite is pushing to represent workers at the brewer and pub company. Some 4,000 people – maybe not all of whom will be workers at the company – have signed a petition calling on BrewDog to recognise it.
• The MCA reports that Tortilla is exploring the possibility of an IPO.
• Nestle is looking at the ‘cultured meat sector’. A leaked report suggests that it is working with Israeli cell-based start-up Future Meat Technologies.
• John Lewis & Waitrose at to cut 1,000 jobs.
• British Land reports it has stopped rent concessions to retail tenants at a number of its shopping centres and retail parks.
• Food equipment giant Middleby has said it will not increase its offer for rival, Welbilt.
• Guidance notes issued after the confirmation yesterday that Freedom Day is to go ahead say that the government “expects and recommends” shoppers to wear face masks when indoors, even if they are not told to by law. The TUC has called the confusing message “a recipe for rising infections”.
HOTELS & LEISURE TRAVEL NEWS:
• Transport secretary Grant Shapps has said that holiday destinations Ibiza, Majorca and Menorca are to move back to England’s amber list (from green). The changes will take place at 4am on Monday. Holidaymakers who left to a green destination a week ago will come back and have to isolate if they have not had both jabs. This will add to administrative problems for younger holidaymakers (and their employers) where they had expected to go back to work next week. Bulgaria and Hong Kong have moved to the green list.
• Further comment: Whether this was predictable or not, it is likely to come as a shock to holidaymakers on the Spanish islands and to people just about to travel there. The rules change re isolation on Monday, meaning this might not be quite as disruptive as it would otherwise have been but, nonetheless, it does bring home just how rapidly these things can change. On the margin, this may dampen demand for overseas holidays and buoy demand for staycations.
• The trade has reacted with disappointment and frustration to the shift of the Balearic Islands to the amber list. Jet2 is adding capacity to new green listed Bulgaria and Croatia but suspending flights to red list Turkey until August 11. Jet2 did make the point that changing the Balearic islands from green to amber from Monday “changes nothing whatsoever” for fully vaccinated holidaymakers. TUI, however, has said that its customers on the islands who want to return early should contact the company in resort. It says ‘all requests will be accommodated on TUI flights where seats are available.’
• Jet2 CEO Steve Heapy points out ‘customers and children travelling with them who are under 18 can continue to enjoy, or look forward to enjoying, quarantine-free flights and holidays from across the UK to any destination on the green or amber list this summer.’ He adds ‘from the demand we are seeing this is most certainly the case, with customers looking to enjoy the benefits of the successful vaccination programme by getting away to the sunshine.’ On the margin, we can’t help thinking, the movement between lists and problems associated therewith may prove a further boost to staycations this summer.
• Wales is to allow fully vaccinated people returning from amber list countries to enter the principality without quarantining from 19 July. The move brings Wales in line with England and Scotland. First minister Mark Drakeford says ‘the pandemic is not over and the virus continues to spread across Wales, which makes it really important for everyone to say yes to vaccination and to do everything we can to keep ourselves and our loved ones safe.’
• Plans for an aparthotel on Glasgow’s Sauchiehall Street have been lodged in the city.
• The Times reports that Britain’s biggest gym chain, PureGym, has said in an update to bondholders that it is ‘mulling a stock market listing to accelerate its growth.’ The company says it is “in the early stages of considering options for potentially raising equity, including in the public markets” and was “working closely” with Leonard Green & Partners, its US private equity backer, to “review strategic options”. The operator was was launched in 2009, runs 283 clubs across the UK. Just before the pandemic, the group acquired Denmark’s Fitness World — which also has a presence in Switzerland and Poland — for about £350 million.
SOME OF YESTERDAY TWEETS (WITH INTROS):
Confusion? Not necessarily over the rules, because there won’t be any, but over how to respond to freedoms when the strong hint is perhaps that you shouldn’t be taking advantage of them:
• Masks, no masks? Distancing, capacity constraints? Do what you want. With regard to 19 July, it was Salvador Dali who said ‘what is important is to spread confusion, not eliminate it.’ He had a view, of course, but we didn’t imagine it would become government policy.
• Words like ‘irreversible’ & ‘freedom’ are in the bin, replaced by guidance, expectations & recommendations. And these are all backstopped by the political convenience that, though the Dutch reimposition of lockdown was featured multiple apologies, there were no resignations.
• Unlockdown. How will the industry react. Some operators (& individuals) will doubtless immediately take the opportunity to party hard whilst others, those with carveries and older customers, for example, may be markedly more cautious.
• DP Poland updated on Tuesday and it hosted a webinar. Vianet had its AGM & trading update and Pepsi reported on Q2 in the afternoon.
• DP Eurasia updated on H1 on Wednesday.
Next week is busier.
• 19 Jul 21 is ‘freedom’ day – although it’s not called that anymore. Tuesday sees Young & Co host its AGM. Tuesday we have full year numbers from Loungers and H1 figures from Nichols. Wednesday brings Britvic’s Q3 update and Thursday sees Premier Foods host its AGM and update on Q1 trading.
FINANCE & MARKETS:
• The rate of CPI in the UK rose to 2.5% in the year to June, up from 2.1% in May per the ONS. This represents the highest rate in 3yrs and is above the Bank of England’s target rate of 2.0%. Economists had been looking for around 2.2%.
• Governor of the Bank of England Andrew Bailey has said equivalence with the EU on services is proving elusive. He says ‘I think it’s fair to say that nothing really has moved forwards.’ This could leave a hole in the Exchequer’s finances.
• The ONS reports that house prices in the UK are up 10% in the year to May. Prices in London rose by a more modest 5.2%.
• Sterling $1.3835 and €1.1692. Oil $74.25. UK 10yr gilt yield 0.63%. World markets mixed yesterday with London set to open down around 20pts.
RETAIL WITH NICK BUBB:
Today’s News: Following the tie-up with Nordstrom announced on Monday, ASOS has announced its Q1 update this morning (for the 4 months to 30 June) and although the news is good, with constant currency sales up 30% (up 60% in the UK!), gross margins were down and ASOS highlight that “Trading in the last three weeks of the period was more muted, as continued COVID uncertainty and inclement weather, particularly in the UK, impacted market demand”. As a result the outlook is merely that overall full year adjusted PBT is to be in line with management expectations and, given what happened to the Dunelm share price yesterday after their profits upgrade, we fear that news may not go down too well in the City this morning…Just Eat (the Dutch based takeaway food business) has published its interims and shareholders may not be pleased to hear that “Just Eat Takeaway.com will continue to invest in
This Week’s News: Tomorrow brings the Burberry Q1 update, along with the Homeserve AGM. Some people expect the Frasers finals tomorrow, but there is still no official notification on the company website and the company was still buying its shares yesterday, so it seems unlikely that even Frasers would pull a fast one like that…