Langton Capital – 2021-11-12 – PREMIUM – More on YNGA, labour and supply issues, M&B, SSP & other:
More on YNGA, labour and supply issues, M&B, SSP & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I was considering question marks yesterday and how they can provide something of a get out of jail card if you’re making slightly contentious suggestions.
Like ‘Is Company X Running Out of Cash? It’s just a question, gov. we wouldn’t suggest testing it but that little bit of punctuation could keep away the solicitor’s letters.
Not that we would condone wanton speculation but (credit here journo Jon Sopel and others), the question mark is often used by headline writers who are then derided by rivals as posing ‘Questions To Which The Answer Is No’.
Known as QTWTAIN, these include headlines such as Did Aliens Build the Pyramids? Was Jack the Ripper a Woman? Does Eating Weetabix Improve Your Golf? Or Did Adolf Hitler Invent the Birdie Dance?
But there are also serious ‘questions’ (a.k.a. crazy speculative comments) including Daily Mail – Do Aliens Live 17 Miles Above Us? The Independent – Is Biden Blocking The JFK Assassination Files Over Hidden Bombshells? Wired – Could The Moon Actually Crash Towards Earth? And here’s one from the BBC just this morning: Would the World be Better if it was run by Teenagers?
And there are lots more. Check out Betteridge’s Law of Headlines as it’s very similar.
Anyway, it’s Friday so, let’s move on to the news and, thereafter, have a great weekend.
PUBS & RESTAURANTS:
The FT points out that ‘against all expectations, the UK jobs market is booming, with more than 1m vacancies.’ It goes on to analyse ONS data to split this down. It says hospitality is second only to health and social care in the rankings of staff shortfalls with vacancies of around 134,000 positions. Even with the move to online shopping, retail is short a further 90,000.
• UKH has mentioned an even-higher 200,000 empty positions in hospitality but, whichever is the right number, it is big. Comments from JDW on Wednesday and Young & Co yesterday (that they are seeing no staffing problems) reminded us of our comments on exceptionalism earlier in the week.
• The FT says ‘hiring bottlenecks were to be expected in sectors that reopened at speed after the lifting of Covid-19 restrictions, but they are taking longer than anticipated to clear.’ This is true if staff were laid off. If they were furloughed and lines of communication remained open, then it should be less so.
• The FT says ‘the hospitality industry, which employs about one in 10 of the UK workforce, is among the industries with the highest level of vacancies. Latest official data show 134,000 unfilled posts, months after pubs, restaurants and hotels reopened.’ It adds ‘the sector has always had a high rate of staff churn but employers said it was now much more difficult than usual to fill vacancies. Some 40 per cent of hospitality employers are reporting staff shortages, according to data from the Office for National Statistics. Many are responding by demanding workers do overtime, cutting trading hours or even closing.’
• We have commented recently on hiring and retention bonuses and on wage inflation in general. The FT says ‘the labour shortages have become so acute that restaurant, hotel and bar operators have found staff being poached by rivals. One London restaurateur said some competitors had come in during working hours to hand out business cards.’ London, despite operators in the Capital lagging the performance of their regional peers, is reported to be seeing a particular shortage of EU workers. The staycation boom has led to a shortage in holiday hot spots.
• The FT points out ‘one key issue is that many workers left the industry during the pandemic because payments under the government’s furlough scheme did not cover lost tips, leaving them with significantly less than their usual earnings. Meanwhile, more young people than usual have stayed in education, shrinking the pool of potential recruits to the industry.’
Lynx Purchasing has said ‘hospitality operators can avoid nasty surprises this Christmas, in the form of unexpected food and drink shortages, through better buying discipline and close communication with suppliers.’ Lynx has published its Autumn / Winter Market Update. It says ‘the challenge in the supply chain currently as that as soon as one gap is plugged, another one opens somewhere else.’
• Lynx continues ‘for example, there were fears of a turkey shortage as British producers deal with labour shortages and the problems with CO² supply, but it now looks like suppliers will be able to meet demand through imports. However, there are similar issues facing producers of beef, pork, salmon and other staples of festive menus, and it’s not always clear exactly where and when shortages will become an issue.’
• Inflation. Lynx says ‘what is apparent is that inflation is already having an impact. Figures from the Office of National Statistics showed restaurant prices paid by customers were up 5.9% year-on-year in September, as operators passed on their higher buying costs. Every food and drink product operators buy, as well as essentials such as equipment, disposables, cleaning & hygiene, workwear and packaging, is affected by higher costs to some extent.’
• Lynx advises keeping menus flexible in order to be in a better position to deal with stock outages, if these occur. It says ‘the best advice currently is to keep descriptions flexible, whether it’s the dish of the day or the house wine, and work with suppliers to get the best, in terms of quality and value, from what’s available.’ It says ‘forecasting is always a challenge, and especially when many customers are cautious about committing to spending, but the sooner operators can confirm orders, the easier it will be for suppliers to meet demand.’
CGA reports that the UK hospitality industry is yet to recover to pre-Covid trading levels. It says that sales in restaurants, bars and hotels are still 10% below 2019 figures despite increased spend per head. Footfall is significantly down. JDW yesterday said that it was proving challenging getting older customers back into its pubs. CGA says that sales in the on-trade (including restaurants) was 73% of the 2019 level over the three months to the end of September.
• The FT reports UKH as saying that profit margins across the industry had been cut by about a third on average since post-lockdown re-openings. It expects the cost of labour to rise by 11 to 13 per cent next year. CEO Kate Nicholls says ‘the anticipation was that the recovery would have been stronger than it has been.’ She says the poor performance ‘underlines the fragility of the sector. Businesses are not operating at full capacity and full strength.’ The FT reports that ‘utility costs were expected to increase by between 50 and 80 per cent when the next contracts are renewed over the next six months, while food and drink prices were likely to rise between 7 and 9 per cent.’ It says ‘the sector has been disproportionately affected by the departure of thousands of European workers following Brexit, as well as many employees leaving the industry to find work in more stable sectors such
YOUNG & CO – H1 ANALYSTS’ MEETING:
Following its H1 update, Young & Co. hosted a results meeting for analysts and our comments thereon are set out below:
• For the 24 complete weeks trading, LfL managed sales were 6.7% behind the same 24 weeks in 2019.
• However, food sales had LfL growth of 13.3% on 2019 comparatives. This was due to a ‘restaurant style’ approach before restrictions were lifted.
• As normal service resumes, moving away from table service, COO Simon Dodd said we can expect this to give some LfL food growth back.
• Central London and the City saw LfL sales down 40% and 30% on 2019, respectively, during H1.
• Post-H1 trading, Central London and the City have seen a turnaround in the last six weeks, behind 2019 by 12.9% and 12.0% respectively.
• CEO Patrick Dardis said this Christmas looks like it will be the company’s biggest ever.
• Due to flexible working, Mondays are now even quieter than pre-pandemic, whereas Fridays are just 1% behind 2019 levels.
• The Young & Co App is currently rated at 4.5 stars, with 1.3m customers, orders through the app can account for between 4-50% of a pub’s sales, depending on factors such as beer garden size.
Cost & Margin
• Dardis said the company had largely mitigated cost inflation as the company is tendering for new liquor suppliers, with drinks representing 70% of sales.
• Dardis admitted that other costs such as labour, utility and insurance has increased.
• The CEO said the company will only put prices up once a year, in February, usually in line with inflation.
• Young & Co said the company has not been impacted too much by staff shortages, in fact the total staff count has grown from 4000 to 5000 during the period.
• The company was quizzed over the need for £10m head office costs now that the tenanted division has been sold. It responded that at £10m it is the smallest head office of its peer group and that head office costs are ‘at the right level; if not a little tight’.
Balance Sheet & Capex
• Young & Co reported current debt (pre-IFRS 16) of £66.8m with significant headroom of £188.2m.
• The sale of the leased pubs to Punch has given the company funds to spend on capex & acquisitions, roughly allocated as follows:
o £20m for acquisitions
o £30m for capex (up from £24m previously)
• More capex is to be allocated in the Cotswolds & south England areas, but Dardis said this does not mean the company will exclude London going forwards.
• The company indicated that it is and has been committed to ESG, they will set out carbon neutral and other ESG targets at the full year presentation.
• The sale of the tenanted pubs and the equity fundraise have left YNGA with something of a war-chest.
• There is little of the caution seen yesterday from JDW in this update. YNGA agreed with JDW that Central London pubs had performed poorly, but presented a picture where there is an ongoing bounce-back in London over the last 6 weeks.
• As regards trading, it appears that YNGA is doing well. We would caution that ‘pent up demand’, though good, may only last so long. Management seemed confident looking forwards, but a full recovery for Central London might never happen.
COMPANY & OTHER NEWS:
Mitchells & Butlers has partnered with Uber Eats to allow customers to order food from around 1,000 of its venues on the app.
The Morning Advertiser reports that the RedCat Pub Company has acquired Suffolk site ‘the Turks Head’ in Hasketon bringing RedCat’s estate to 77. At the beginning of 2021, Rooney Anand raised £200m to invest in Britain’s pub sector.
The Guardian reports that Uber is to increase its rates by 10% in London as it tries to attract drivers back onto its platform. Calls for taxis have risen in the UK by almost 20%, and Uber will need about 20,000 more drivers to return to usual service levels. Whether customers will be prepared to pay more for their journeys remains to be seen.
• Sky reports this morning that ‘Tube drivers have threatened to walk out later this month when the Night Tube service is due to restart.’ It says ‘24hr strikes will take place on the Central, Jubilee, Northern, Piccadilly and Victoria lines from 26 November and 18 December.’ Sky links this to the Uber story above and implies that it labour shortages may be empowering labour to demand more money.
SSP Group is reported to have won a $200m contract to open 34 food & beverage outlets at Suvarnabhumi Airport in Bangkok, Thailand. It says ‘the decision to extend our investment with this new venture at Suvarnabhumi Airport demonstrates our commitment to the Thailand SSP business and to continuing our extensive partnership with both Minor and King Power. It is also testament to our confidence in the robustness of Thailand’s economy coming out of Covid.’ SSP opened its first food court in Don Mueang International airport, Bangkok, in 1995. It has since expanded operations across Thailand’s major airports.
Grosvenor Britain & Ireland (GBI) has signed Gordon Ramsay’s modern European restaurant, Bread Street Kitchen & Bar at Liverpool ONE, a 195-cover restaurant featuring an extensive bar area.
Delivery Hero reported revenue up 89% YoY to €1.8bn in Q3, with the company processing 791 million orders, up 52% YoY.
• Based on the Q3 results, the Company’s outlook for 2021 was raised again to the upper end of €33-35bn GMV and the total segment revenue adjusted to the upper end of €6.4-6.7bn. Emmanuel Thomassin, CFO, said ‘The Integrated Verticals segment has once again been a crucial driver, supporting this quarter’s solid revenue results and leading to an exceptional QoQ growth, which surpassed listed industry peers.’
Beyond Meat forecasts Q4 revenue below estimates, as the company reported a slowing demand in both grocery stores and restaurants.
• Sales to U.S. retail stores fell 15.6% to $52.4m in Q3, Beyond said, while those to U.S. restaurants fell 7.3% to $15.1m. Widespread supply chain problems and labour shortages at Beyond’s own facilities and a transportation provider also hampered operations, as did water damage at its packaging storage centre due to severe weather.
Panera Brands in the US has filed documents saying that it intends to IPO.
The British Honey Company, which produces craft spirits as well as premium British Honey and is listed on the AQUIS market, has announced that ‘Mark Jones has joined the Company as interim CEO, below PLC board level and has made an immediate impact in tightening up our operations and structuring the senior management team to take advantage of sales and growth opportunities.’ It says ‘we have observed a keen interest, across our customer base, in our white label business, where customers wish to work with us so that we can provide a dependable source of product. This is opening up exciting new sales opportunities.’ Regarding trading, chairman Richard Day says ‘we are entering a traditionally busy period in our trading calendar, in keeping with the rest of the spirits and drinks industry and we are trading well.’ It believes the full year outturn will be in line with management
LEISURE TRAVEL & HOTELS:
Travel Chapter has postponed its IPO plans, citing market volatility. The company uses a platform to connect a supplier base of property owners with their customers via its flagship brand holidaycottages.co.uk.
The UK Foreign Office is advising Brits to check their passport is stamped as they travel to Europe as they are only allowed to travel to countries in the Schengen area for up to 90 days in any 180-day period without a visa. Travel Weekly reports that ‘next year, Brits travelling to the Schengen countries of Europe will have to apply for a visa costing €7 (about £6) when the European Travel Information and Authorisation System comes into force by the end of 2022.’
STR reports that U.S. hotel performance increased slightly last week (to 6 Nov) with occupancy at 59.8% (down 13.0% on 2019) and average daily rate of $128.14 (down 3.2%). This leads to REVPAR of $76.61 (down 15.8%)
Olly Brendon, chief executive of ATD Travel Services, said transatlantic bookings were 40% higher than average for November on Monday. Brendon said ‘I am confident that demand for 2022 and 2023 will remain strong.’
Yesterday, Heathrow reported that over 3 million passengers travelled through the airport during October, marking six consecutive months of growth. Despite signs of recovery, passenger levels remain 56% down on pre-pandemic levels.
PPHE Hotel Group has completed the acquisition of the 4-star Londra & Cargill Hotel in a prime central location in the city of Rome. The hotel is expected to be relaunched in early 2023.
A survey from American Express Meetings & Events has found that about two-thirds of surveyed meeting and event professionals expect in-person meeting levels to return to their pre-pandemic numbers within two years.
The UK hotel market has rebounded during the summer months of 2021, with the positive momentum continuing into the autumn, according to analysis from Knight Frank.
• September saw a 91% month-on-month increase in profit per available room for hotels in London, and regional UK hotels witnessed highest revenue levels since summer 2019. Regional UK hotels recorded market-wide occupancy of 67.9% for the month of September, whereas for London, the pace of recovery whilst improving has been slower.
FINANCE & MARKETS:
The ONS reported yesterday that UK GDP rose by 1.3% in the July-September quarter. There is a lot of noise around this but, in brief, the quarterly number is a little below the estimate of 1.5%. Within the quarter, July was weaker than previously thought (actually registering a decline) and September was good.
• There is, arguably, enough in there for everybody. Bulls will point to the ‘exit trend’ (i.e. the quarter ended well), whilst those determined to take a downbeat line may say that the overall quarterly number is less than expected and the pace of recovery is slower than that in other major economies.
• The Office for National Statistics says this leaves GDP still 2.1% below its levels in the last quarter of 2019, before the pandemic began. Strong contributors in Q3 were in the hospitality, arts and recreation, and health following the further easing of restrictions. The growth was consumer led with services making most progress. Accommodation and food services rose by 30% in the quarter.
• Production output only rose by 0.8% in Q3. A shortage of production and excess of demand may lead (in fact is leading) to inflation. Producers ran down stock levels (either by design or because they were having trouble sourcing stocks). Construction output shrank by 1.5% in Q3.
• Supply chain problems were mentioned as holding back growth. The ONS says ‘business investment remained well down on pre-pandemic levels in the three months to September.’ This does look inflationary. The BCC says the UK is ‘only likely to return to its pre-pandemic level next year, behind many of our international competitors.’
Sterling was trading at 10mth lows against the dollar yesterday. This and growing inflationary signals are likely to keep up the pressure for an interest rate rise. The Bank of England’s MPC next meets on 16 December. It may not deliver the sort of Christmas present that borrowers would like to receive.
The Royal Institution of Chartered Surveyors has said that house prices are likely to continue to rise over the next year. It says ‘although the mood music around interest rates does appear to be shifting, for now the stronger influence on the housing market is the ongoing imbalance between demand and supply.’ Rising interest rates may, over time, counteract this.
Sterling weaker at $1.3368 and €1.168. Oil down at $82.27. UK 10yr gilt yield unchanged at 0.92%. World markets broadly better yesterday and UK set to open around level as at 7am.
RETAIL WITH NICK BUBB:
• Today’s News: After the bumper bundle of company news yesterday, it’s thinner pickings today, but The Works’ pre-close update (for the 26 weeks to 31 October) is interesting, as “the multi-channel value retailer of arts, crafts, toys, books and stationery” has flagged that trading during the period has been “stronger than expected”, with a two-year LFL sales increase of 14.5%, yet the Board expects the full year result for FY22 to be in line with its original expectations, because of much higher freight costs. There has been no update from DFS ahead of its AGM (which is at the unusually late time of 3.30pm), but the recently floated/embattled online fashion business In The Style has announced out of the blue that Adam Frisby, the Founder and CEO, has taken the decision to become Chief Brand Officer, with Sam Perkins recruited from The Very Group to replace him as CEO: the
• Next Week’s News: After a very busy week for company news, next week is quieter, but there is still plenty going on, kicking off on Tuesday with the Homeserve interims, the Land Secs interims, the latest monthly Nielsen grocery figures and the Dunelm AGM. Wednesday then brings the British Land interims and the Inchcape Capital Markets Day, whilst on Thursday we get the Naked Wines interims and the Marks Electricals interims. Friday then brings the monthly GFK Consumer Confidence index, the ONS Retail Sales figures for October and the Kingfisher Q3 update.