Langton Capital – 2021-09-08 – PREMIUM – Normality, firebreaks, tax rises & demand, weather, traffic lights etc.:
Normality, firebreaks, tax rises & demand, weather, traffic lights etc.:
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A DAY IN THE LIFE:
We’ve downloaded Birdnet in order to try to make out some of the various birds that flutter around in our garden after spending an hour or so belting it out for all that they’re worth every morning.
The song thrushes and even the robins maybe have it when it comes to varied songs but, my goodness, don’t bullfinches sound depressed?
Their single note song makes them sound as though they are about to throw themselves off a bridge. Which indeed they maybe are and the odd one, sounding like a sad, lonely, squeaky wheel, appears to be even more melancholy than most. We haven’t seen it yet but imagine it must be dragging its chin around on the floor.
And, although we’re trying to be kind, don’t the chiff chaffs sound boring? They’re belting it out, throw in a bit of variety from time to time and sound, well, simply monotonous, repetitive and utterly dull.
Last day for a while working on the picnic table today. On to the news:
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RETURNING TO ‘NORMAL’:
Thoughts on Hospitality: How much lockdown behaviour is now ‘baked in’? Comments welcome.
This is a) important but b) unanswerable. Nonetheless, here are a few thoughts:
• We would suggest that many of the ‘changes’ wrought by Covid represent an acceleration of pre-existing trends.
• This, if correct, extends to flexible working, order-and-pay apps, delivery, less use of cash etc.
• Of more importance, perhaps, is whether it also extends to staycations, BBQs in the back garden rather than pub visits and drinking at home
A few observations:
• Delivery, less use of cash, ordering apps seem still to be growing in absolute terms – but the rate of growth has slowed
• Working from home is reducing in absolute terms – but it is unlikely that it will disappear completely – and this has long term implications (not all bad, e.g. for suburban pubs)
• The absolute level of pub & restaurant visits has, obviously, risen since lockdowns set them at zero – but again, the question is: ‘what will the new normal look like?’
• Staycations will abate next year. Prices are up perhaps 40%. This is a windfall (after a poor 2020) for cottage owners (and nearby pubs & restaurants), but it can’t be relied upon
It’s getting that last 10-20% back that’s tough:
• Getting back to 80% may be ‘easy’. Nothing’s really easy, of course, but the last 10% or even 20% may be tougher
• So what’s the reaction? Operators could ‘take price’ and make visitors pay for the loss caused by the absentees but, as we have said, that could lead to a handful of oligarchs paying £100 per pint in an empty pub
• Or do hospitality operators embark on a ‘re-education’ process and make themselves once again unavoidably relevant?
• Price is a quicker fix than the long slog. We may see both. But the first one first.
• Feedback welcome.
PUBS & RESTAURANTS:
An October firebreak?
• The Independent says ‘Ministers have denied a report that they plan to impose a firebreak lockdown in October half term if coronavirus hospitalisations continue at their current rate.’ This was, arguably, an opportunity missed last year – but the situation is now very different with the majority of adults vaccinated. Vaccines minister Nadhim Zahawi says he has not heard of the plan. The Independent quotes a ‘scientific adviser’ as saying that it ‘would be sensible to have contingency plans, and if a lockdown is required, to time it so that it has minimal economic and societal impact.’
• Further comment. Though the government has suggested that this would only be introduced as a ‘last resort’, the trade has reacted negatively, saying that, at a time when the furlough had ended and VAT had begun its move back towards 20%, such a firebreak would be disastrous and would set back its recovery. It would certainly not be a ‘good thing’ but, in all honesty, it would be remiss of the government if it did not contingency plan from time to time. The trade will be keeping an eye on infection and ultimately death numbers now that the kids have gone back to school and social interactions have picked up after the summer.
• Whatever the rights and wrongs of breaking manifesto pledges to pay for social care, the method used to pay for it, namely a rise in NI contributions for both business and employees, is regressive and it will take money out of the pockets of a demographic that might have otherwise spent some of it on hospitality products and services. Similarly, the suspension of the triple lock (which if implemented, would have seen pensioners receive something of a windfall) may redirect cash from carveries, bingo and the like to the taxman. The employers’ rise does, as the CBI says, amount to a tax on jobs.
• Further comment: The CBI says that the move ‘amounts to a tax on jobs which could derail the UK’s economic recovery.’ This is true but, at a time when the labour market is very tight and perhaps set to get tighter, it is more likely to manifest itself via inflation rather than job losses. Nobody really wants to pay tax. Business suggests it should be linked to profits, not jobs. Some say it should be progressive, etc, but polling suggested the government would get away with an NI rise and that’s what we have got.
• The Indian Summer, even if it’s due to end overnight tonight, should be lifting spirits & helping the tills to sing. On the margin, it will be persuading staycationers that they didn’t do the wrong thing and should help pubs make use of their beer gardens at a time when every little helps. It will be negative, however, for indoor leisure companies such as cinemas, bowling alleys and the like.
Returning to the office:
• With macro-stats in short supply there are plenty of anecdotal comments out there. The Bank of England seems to be pointing in two directions at once, saying that it still intends that staff should come into the office from this month (albeit for only a minimum of one day a week) but it says the time is not yet “right for us” to require staff to come back if they had worries about doing so.
• Further comment: You may get one answer from staff when the sun is shining and quite another when it is cold and damp at home and there is the chance of a Christmas party in the office in the near future. That said, if companies test the water in what looks like rather a timid fashion, the return to work could take longer than it would otherwise have done.
• Interestingly, there seems to be a difference between experiences in London (where commuting costs are higher and the travel itself is sometimes horrible) and the provinces. This may be purely coincidental. But it probably isn’t and the Bank says around 5% of its staff have been coming in. If looked at on an ‘at least once a week basis’, this covers around a quarter of London-based staff whilst those at the Bank’s Leeds and Debden sites are back to pre-pandemic occupancy rates. The Bank says ‘we would expect those numbers to increase further as the new phase in our return to office programme begins next week.’ At 5%, they certainly wouldn’t have much further to fall.
• Ministers have launched a public consultation on whether to make some measures brought in during the pandemic, such as allowing outdoor marquees and additional outdoor seating, permanent. Housing secretary Robert Jenrick may have pre-judged the issue when he says ‘we intend to make as many of these measures permanent fixtures of British life as possible.’
Company & other news:
• The Wine and Spirit Trade Association (WSTA) confirmed that there are already wine supply difficulties in the lead up to Christmas. Robert Foye, CEO at Accolade Wines, admitted there would be supply issues of wine and prosecco.
• Figures show alcohol consumption in Ireland fell by 10.8% in the first half of 2021, with beer and cider sales being hit the hardest, down by 15% and 13%.
• Wagamama has launched its ‘plant pledge’ which will encourage diners to eat more vegan dishes and cut back on meat and dairy to help the environment, with 50% of its menu set to be meat-free from October 6.
• The On Trade Consultancy’s MD, Matt Steinhofel, has announced that the BII is to join it as a trusted business partner. He says ‘we are delighted to join the BII as trusted business partner where we can showcase our innovative drink, tech and hospitality services clients to the BII membership.’
• Canadian coffee chain Tim Hortons is reported set to open a new site in Ipswich later this year.
• Per The Independent, Scottish vegetable producers are having to throw away millions of cauliflower and broccoli heads due a shortage of farm workers and lorry drivers. Managing director of ESG, Andrew Faichney, said ‘We should have started our freezing production last weekend, but, as yet, we haven’t frozen a single floret of broccoli.’
• The French agriculture ministry reports that a 29% reduction in output was expected across the wine industry this year due to widespread frosts which were said to have been particularly harmful to early-growing grape varieties such as Chardonnay.
HOTELS & LEISURE TRAVEL NEWS:
• The trade is beginning to speculate that the government’s traffic light rules governing international travel could be scrapped next month. An article in the Telegraph has fired the hopes as it says ‘officials have been told to develop a new system based on the vaccination status of travellers rather than the Covid rating of the country they are visiting.’ It says this is ‘likely to mean amber and green will disappear as separate categories, although red will continue with travellers still required to quarantine in hotels on returning from high-risk destinations.’ The government had previously promised to review the system by the end of this month when it was introduced last year.
• Further comment: The Telegraph tends to be well-informed on Tory Party thinking & it says that ‘Tory MPs and the travel industry have criticised the system’s increasing complexity with “watch” list categories for countries at risk of moving up a tier and “amber plus” which briefly required travellers to France to quarantine on return to the UK irrespective of their vaccination status.’ Travel Weekly says ‘amber and green would disappear as separate categories, although red will continue with travellers still required to quarantine in hotels on return from high-risk destinations.’ It suggests that this would be welcomed by the travel industry.
• Chancellor of the Exchequer Rishi Sunak says it would be ‘challenging’ to keep elements of the furlough scheme going for specific sectors (such as air-based travel). He says that this extension ‘may not be the case that this is the most effective or sensible way to provide support for those sectors most affected by Covid-19.’
• Holiday Extras has identified what it is calling WFH – or work from holidays. It says 6% of respondents to a recent poll had already worked from holiday with another 14% planning to do so this year. It says ‘with the start of the year lost to lockdown and the unpredictable traffic light system causing chaos over the summer, it’s no wonder sun-starved Brits are finding ways to extend their breaks.’ It adds ‘so many of us have got used to working remotely that thousands of companies have simply made it a permanent policy.’
• Heathrow is now offering passengers Covid-19 PCR test results in less than three hours for £95. It means that passengers needing a negative PCR result to fly can book to take the test on their day of departure and wait in the carpark.
• IATA reports that global air demand decreased by 53.1% in July compared to the same month in 2019. July 2021 capacity dropped 45.2% compared to its July 2019 level. Based on the latest bookings for August, global air demand outlook will be weaker due to rising Covid-19 cases, according to IATA.
• The German Business Travel Association reports that spending by German companies on business travel has fallen to the lowest level since records began almost two decades ago. Business travel expenditure in 2020 was just €10.1 billion, 81.7% than in 2019.
Company & other news:
• On the Beach has returned products to sale after maintaining its position not to sell holidays since the beginning of the pandemic. The company says ‘having carefully monitored the ongoing travel updates, the data at home and in our key destinations, and the sentiment among our customers, we feel that the time is now right to welcome them back to the beach.’ CEO Simon Cooper says ‘we’re encouraged by the easing of travel restrictions for the fully-vaccinated and the rollout of vaccination programmes in the UK and in our most popular destinations. This has also settled the traffic light system in recent weeks. And, whilst demand has a way to go to get back to pre-pandemic levels, we are seeing green shoots and a growing appetite amongst consumers to make up for missed summer getaways.’
• Further comment: The furlough system ends at the end of this month meaning that a number of companies such as On the Beach have some difficult decisions to make. They will bear most of the costs of running their businesses without any of the revenue unless they take a similar decision to that outlined above.
• Tui and Eurostar are issuing an enhanced version of their digital tours platform, giving access to more than 5,000 excursions, activities and tickets across Eurostar destinations.
• The Department for Transport has said the south east of England needs additional airport capacity, and that this would be best met by a third runway at Heathrow.
• The lockdown is continuing to have side-effects, with Moda Furnishings seeing its sales increase by 250% in the last year as people look to make more use of their outside spaces. Moda designs and manufactures all of its own products which it aims to sell at affordable prices.
• Erwin Hymer’s £15m investment plan will see over 200 jobs created at its County Durham manufacturing facility, with the staycation boom driving demand.
• 888 Holding is tipped to win the auction for William Hill’s combined UK and European business assets – put up for sale by Caesars Entertainment – consisting of a retail estate of over 1,400 betting shops as well as its UK and European online properties of WilliamHill.com and MrGreen.com. The Times has reported that some bids were in excess of over £1.7 billion.
• Esports company Gfinity has announced that it has acquired SiegeGG, a Rainbow Six Siege website and social channel. It says ‘Rainbow Six Siege is the highly popular first-person-shooter (FPS) game developed and published by Ubisoft. It has more than 70 million registered users and an established competitive gaming scene. SiegeGG is a leading authority for the Rainbow Six Siege competitive gaming community, with customers of its statistical information including e-sport tournament operators and Ubisoft itself.’ CEO John Clarke comments ‘Gfinity’s strategic focus is based on strengthening and growing ‘what we own’, in particular the Gfinity Digital Media group. We are excited to bring such a highly regarded website into the GDM and such a talented team led by Spencer into the Company.’
FINANCE & MARKETS:
• China’s exports rose by 25.6% in dollar terms in August, compared with the same month a year earlier, making $294.3bn. Growth in the year to July was 19.3%.
• The Halifax Building Society has reported that average house prices in the UK rose by 0.7% in the month of August. The average house now costs £262,954. The number was a little below estimates. Halifax says ‘given the rapid gains seen over the past 12 months, August’s rise was relatively modest and the annual rate of house price inflation continued to slow, hitting a five-month low of 7.1% (versus 7.6% in July).’
• The NIC rise. This may be a tax on the young. The FSB says it will disadvantage small businesses. The CBI says ‘businesses have endured a torrid 18 months and are now fighting to overcome crippling labour shortages which threaten to further undermine recovery prospects.’ It is not paid on unearned income and the employees’ payment is capped, so it is somewhat regressive.
• Bank of England MPC member Michael Saunders has said that interest rates might need to rise next year if the recovery continues and inflation becomes embedded.
• Sterling mixed at $1.3779 and €1.1634. Oil down at $71.83. UK 10yr gilt yield up 5bps at 0.74%. World markets broadly lower yesterday and London set to open down around 24pts as at 7am.
RETAIL WITH NICK BUBB:
• Today’s News: The headline sales and profit numbers in today’s Dunelm finals for y/e June were pre-announced back on July 14th and so the main focus is on current trading, with the company announcing that “sales growth in the first ten weeks of the new financial year has been encouraging….This strong start to the year, showing further growth against a tough comparative period, has been better than anticipated…in the absence of any trading restrictions, the Board expects that FY22 PBT will be modestly ahead of the top of the range of analysts’ expectations”. The updated PBT range is said to be £153m-175m, vs the £158m made in y/e June (and £109m for the year before). The Halfords trading update today ahead of its AGM covers the 20 weeks to 20th August and also flags “A strong start to trading delivered within a challenging operating environment”, with Motoring picking up the baton from