Langton Capital – 2021-12-20 – PREMIUM – SAGE, business response, drink sales, JDW, WTB, Sportech etc.:
SAGE, business response, drink sales, JDW, WTB, Sportech etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We commented a couple of weeks ago about how infrequently we use (or receive) cheques these days.
And there are other victims of technology because, while Langton has a battered old Yorkshire Bank chequebook in its backpack that first saw action during the Crimean War and which last dispensed money in anger some time in 2018, it also has a cupboard shelf full of self-seal envelopes which have begun to curl and which couldn’t stick themselves shut now to save their lives.
Whilst we like the past as much as the next person, cheques and envelopes are victims of online banking and emails respectively and, whilst that’s a pity for whoever produces and processes the things, we wouldn’t want to turn the clock back.
And nor could we, of course. Anyway, it’s going to be a strange week but we’ll see it out to the end. On to the news:
PUBS & RESTAURANTS:
The Covid backdrop.
Warnings from the scientists are becoming more pointed, the gist of it being that, because of the delays in getting sick, getting sicker, being admitted to hospital, then to the ICU and unfortunately then succumbing to the illness, the trends for the next fortnight to three weeks cannot be impacted by further restrictions but any tightening of restrictions could help from about three weeks’ time and onward. There is major pushback on the above from some politicians and from business.
• The science is what it is. The time that the illness takes to progress means that there isn’t much firm real-world data but the urgency with which the scientific community is making its suggestions is there for all to see. Hospitalisations, intensive care admissions and deaths are nailed on for infections to date but, if Omicron cases double every two and a half days, politicians are looking at all of the above numbers – be they high if O is similar to D or low if it is benign – doubling in January for every two and a half days that they delay measures.
• But the resignation of Lord Frost & the rebellion by 99 MPs who voted against the latest health measures mean that the political situation is uncertain and businesses re reported to have reacted with ‘dismay’ at possible tougher Covid measures before (or presumably shortly after) Christmas after health secretary Sajid Javid said on the Andrew Marr programme that such measures could not be ruled out. Mr Javid said ‘there are no guarantees in this pandemic, I don’t think. At this point we just have to keep everything under review.’
The Netherlands has become the first country in Europe to reintroduce a full lockdown. Schools will also shut from today alongside hospitality and non-essential shops. They will not reopen until at least 14 January. PM Mark Rutte said this was ‘unavoidable because of the fifth wave caused by the Omicron variant that is bearing down on us’.
Documents seen by the BBC show that Sage has called for an “immediate” curtailment of indoor mixing to combat the spread of omicron. The Telegraph says ‘scientific advisers have told Number 10 that waiting until after Christmas to impose restrictions is not an option if the government wants to prevent the NHS being overwhelmed with more than 3,000 hospitalisations a day in January.’
• The Telegraph says that ‘while Sage is an advisory body, its new advice is likely to place Boris Johnson and his ministers under pressure given they have previously suggested that preventing the NHS from becoming overwhelmed is the single most important criterion when deciding whether or not to lock down.’
• Sage says ‘the earlier interventions happen the greater the effect they will have. This may also mean that they can be kept in place for a shorter duration.’ Go hard and go early is the opposite of the suck it and see approach currently in place. Discourse is dominated by opinion rather than fact and there is, to be fair to the government, no obvious answer as to which might be the right approach.
• The risks with O are increased transmissibility (a much higher R rate), “immune escape” (where people who have already had Covid are around 8-9 times more likely to catch it again than they would the D variant) and vaccine evasion. The hopes re O are that it is more benign. Politicians, like the rest of us, will no doubt be hoping for the best but Prof Chris Whitty has said it would be a mistake at this early stage to assume that the variant is less dangerous than its predecessors.
CEO of Fuller’s Simon Emeny has criticised the government’s ‘mixed messaging’. The NTIA says it is being victimised once again. JDW says this is a lockdown by stealth. Young & Co’s Patrick Dardis says customers are “terribly confused” and many hospitality operators were already “hanging on by their fingernails”. He told the BBC ‘the latest fear campaign [is] damaging so many businesses that could have possibly survived, and as a consequence, thousands and thousands of businesses will now collapse in January.’
• Fuller’s Mr Emeny says he’s been left “no option” but to close 20 Fuller’s pubs this Christmas – the industry’s busiest time of year – as a result of cancellations and staff absences. He told Sky ‘operating a large number of units in central London, we’re really in the eye of this hospitality challenge. Being out last night in the centre, it was very, very quiet. The reality in London is that our sales are currently down between 60 and 80%. As a result, we are closing 20 of what would have been our busiest sites indefinitely.’
The MA reports that UKHospitality expects pubs, bars, cafés, and restaurants to see a further 22% drop in bookings. This after they have already dropped by around a third due to increased Covid restrictions and government warnings to avoid hospitality venues. UKHospitality CEO Kate Nicholls said ‘Christmas trade is always crucial for the hospitality industry, making up as much as a quarter of the year’s profit for many businesses.’
• Ms Nicholls says ‘last year Christmas was cancelled and so much rested on this December period for businesses already staggering under a burden of debt incurred from the pandemic and facing rising costs across the board.’ The MA reports that prior to the emergence of Omicron and Plan B restrictions, figures showed the industry was on track to reach 95% of pre-pandemic trade levels. This has very much been overtaken by events.
Labour analysis of data from the ONS suggests that one in every five businesses are at risk of going bust, with one in three reporting lower festive sales. Pressure is building on Chancellor Rishi Sunak to step in and provide some form of state aid.
There are a whole host of valid questions that need, somehow to be answered. We won’t try to list dozens but consider how can or should hospitality operators labour schedule? Should they sack staff or cut hours? What will happen to all the food they cannot sell? What is the position regarding landlords? If HMG is ‘monitoring’ the situation, when can we expect some sort of conclusion as to state aid (or definitive lack of it)?
Calls for government help:
The chancellor is back in the UK after meetings with US healthcare companies in California and is facing calls to help firms hit by the current “unofficial lockdown” resulting from the Government’s Covid-19 advice.
• The Treasury says it is assessing the situation. The Telegraph suggests that authorities may not have cash available when it quotes a government source as saying ‘we’re not in the same position financially as we were last year. We have to be incredibly precise about what funding is needed and where.’
CGA’s latest Drinks Recovery Tracker has shown that average drinks sales by value in Britain’s managed pubs, bars and restaurants in the week to last Saturday (11 December) were 13% below the same week in 2019. Given that prices have risen markedly, footfall must be down by a considerably larger percentage amount. Beer & cider sales were down 15%, sales of wine were off by 21% and spirits did somewhat better at minus 6%.
• CGA says this is the third week of double-digit decline in a row, after a 14% drop last week and a 12% drop the week before. It says ‘anxiety about the spread of the Omicron variant, along with instructions to work from home and warnings about socialising, have led many consumers to stay at home at what should be the busiest time of year for drinking-out.’ It says Covid passes in nightclubs are also a factor.
• In Scotland, drink sales were down by 18% last week, compared to 13% in England and 11% in Wales. CGA says it ‘has been a poor start to December for the sector. Recovery has taken a significant step back and we can expect sales numbers to dip even further below pre-pandemic levels.’ It says this is ‘another big blow for an industry that was pinning hopes on a busy Christmas to recoup losses from 2021’s lockdowns and restrictions, but that is instead looking at a pretty bleak winter. Thousands of businesses are now in danger, and tax support and grants are now urgently needed to save them.’
Drinks Ireland has collated data from across the world and says that global alcohol consumption was down by 6% last year.
As mentioned above, consumers may be confused as to current restrictions and as to the direction of travel. In addition, interest rates have risen and they will rise again in the New Year. Rail fares, as mentioned below, are set to rise by 3.8% from March, with the rise linked to the RPI measure of inflation in July.
The BBC reports that ‘UK shoppers chose to avoid High Streets and city centres on the crucial weekend just before Christmas’ quoting Springboard as saying that the number of people on High Streets fell by 5.9% on Sunday but rose 4.8% at retail parks week-on-week. In a normal year, there should have been a week-on-week increase.
COMPANY & OTHER NEWS:
JD Wetherspoon has this morning announced that ‘after consultation with shareholders and employees, it was felt that the company would benefit from having more pub experience at board level.’ It says ‘as a result, suitable applicants from within the company were invited to apply.’ It says over one hundred applications were received and says that ‘four appointments have been made – two as employee directors with full plc director status, and two as associate employee directors.’
• JDW says ‘the appointments are effective from 20 December 2021 and have been made for an initial three-year term. It says the employee directors are Debbie Whittingham, who was Wetherspoon’s ‘Area Manager of the Year’ in 2010 and Hudson Simmons, who was ‘Pub Manager of the Year’ in 2010. Chairman Tim Martin, says ‘a successful pub company depends primarily on gradual improvements, based on suggestions from employees’ and adds ‘the appointment of employee directors will extend this approach to board meetings and will help to preserve the culture of the company for the future.’
Chancellor Rishi Sunak is set to meet business leaders for crisis talks on Friday as firms warn of lost bookings. Mr Sunak said the government would do ‘whatever it takes’ to support jobs, but that funding was already available.
Hall & Woodhouse has acquired 10 pubs this year, with Mark James, Property Director at Hall & Woodhouse, saying ‘We are seeing some good opportunities at the moment, and our recent acquisitions add real quality, with many located in popular tourist locations across the south of England. These acquisitions will also significantly increase our bedroom stock.’ The company has a total estate of around 170 pubs.
Oakman Group Peter Borg Neal has written to customers and shareholders saying that the company faces ‘some immediate challenges with the new Omicron variant causing alarm in Government circles.’ He adds ‘we must keep a sense of perspective as the current situation is nowhere near as bad as last year’.
• Mr Borg Neal says ‘we have seen a large number of cancellations of Christmas bookings (particularly larger corporate events) but we are backfilling with smaller, family bookings and walk-in trade that is presumably driven by the ‘working from home’ customers. The situation is much more severe for industry colleagues who are focussed on trading in urban areas and they have my great and sincere sympathy. Nonetheless, we are grateful to be located in commuter belts and rural locations.’
• The company adds ‘for the 22 weeks to Sunday 5th December the group has delivered sales of just over £26m. Versus the last comparable data, which is for 2019, this represents like-for-like sales growth of 16.3% and total growth of 34.1%.’
Mintel comments on the evolving European plant-based food consumer profile saying that ‘COVID-19 has created new momentum for plant-based food and drink.’ It says ‘some consumers see the virus as a reason to reduce consumption of meat, poultry, dairy and other animal products.’ It says ‘this appeal is not expected to subside as COVID-19 becomes less of a factor on European lives.’
The BBC reports that Pret A Manger has received ‘thousands’ of complaints over its drinks subscription service as smoothies are often unavailable.
Falling consumer confidence and ‘Plan B’ restrictions have led to Shepherd Neame announcing a 10% rent deduction for its licensees from 1 January 2022. CEO Jonathan Neame said ‘These remain challenging times, and we want to ensure we continue to offer every support possible to help our licensees preserve the future of their businesses.’
Online delivery company Farmdrop, which delivers food directly from farmers and producers, has closed. It follows recent warnings from food firms that the UK is facing a worsening supply chain crisis.
The joint venture between AEG and Crosstree Real Estate Partners, Waterfront Limited Partnership, is opening its biggest BOOM BATTLE BAR in the Entertainment District at The O2. BOOM BATTLE BAR will feature Axe Throwing, Augmented Reality Darts, Shuffleboard, as well as family-friendly favourites such as Crazier Golf and Karaoke Booths.
LEISURE TRAVEL & HOTELS:
Whitbread has noted the vote against its remuneration policy and provides an update saying that, because a ‘significant minority of shareholders (35.75%) voted against the advisory resolution to approve the Company’s remuneration report’, it has ‘engaged extensively with our large investors. As a result, we believe we have a good understanding of investor sentiment regarding the votes cast against. The feedback received has been relayed to the Remuneration Committee and will be taken into consideration by the Committee in its future decision making.’ WTB says ‘we will continue to engage constructively with investors on this topic throughout the rest of the year. A final update will be provided in the 2021/22 Remuneration Report.’
Germany has joined France in barring visitors from the UK from entering the country. Rules were in force from yesterday evening. TUI reports it has cancelled all river cruises in the country that had been due to depart this month.
Jacques Damas, CEO of Eurostar, has said that the banning of tourists from Great Britain is not helpful for his company. He says ‘the price is being paid by our customers. They are cancelling all their Christmas plans.’
Travel Weekly reports that two out of five UK adults are likely to book an overseas holiday in 2022, but 47% cited ‘changing UK travel restrictions’ as their greatest concern when considering an overseas holiday.
Chancellor Rishi Sunak has faced criticism from travel agents and tour operators for only addressing concerns for the hospitality industry. Clive Wratten, CEO of the Business Travel Association, said ‘I am still awaiting your call to organise a conversation with the business travel sector. It is likely, by the way, that one of our members booked your trip to California! We need help as much as the hospitality sector, business travel puts £220 billion into [the] UK economy.’
Most Eurostar services were sold out over the weekend after a rise in bookings in response to the Covid restrictions announced by France on Thursday. There were also reports of long queues to board ferries at ports such as Dover. Things will be much quieter now.
Inghams and Esprit have cancelled departures to France up to and including January 4, with CEO of Inghams and Esprit parent Hotelplan UK, Joe Ponte, saying ‘For those customers impacted, we hope they will choose to join us for their holiday at a later date, but if not, they will be offered a refund.’
Rail fares are set to rise by 3.8% from March, with the rise linked to the RPI measure of inflation in July. Increases are normally implemented on the first working day of every year, but have been delayed until March since 2020.
Sportech has announced that ‘further to the Company’s announcement on 1 December 2021 regarding Sportech’s exclusive discussions to potentially sell its terrestrial lottery supply contract, the period of exclusivity afforded to the potential buyer has been extended to 31 December 2021 in order to bring the negotiations and any resulting transaction to a conclusion.’ It adds ‘there can be no certainty that this transaction will proceed, and a further announcement will be made if and when appropriate.’
FINANCE & MARKETS:
The Institute of Economic Affairs has commented on the Bank of England’s decision to put interest rates up from 0.1% to 0.25% saying the Bank has ‘decided that continued inaction in the face of soaring inflation would do far more damage in the longer term than a small increase in UK interest rates now. This has been the judgement of the IEA’s Shadow Monetary Policy Committee for some time, too.’
• The IEA says ‘the 0.15 percentage point increase in the Bank’s official interest rate, to 0.25 per cent, still leaves borrowing costs at historically low levels. UK interest rates were 0.75 per cent before the pandemic stuck, but economic activity and employment have now largely recovered.’ It says ‘most importantly, inflation is now well above the 2 per cent target and has consistently overshot the Bank’s forecasts. The MPC’s main job is to worry about inflation and the moves today should go some way towards restoring the credibility of the monetary policy framework. This will therefore help to keep inflation in check over the longer term.’
• The IEA says that if the ‘economy does need further support in the short term, this should come from fiscal measures targeted at the sectors most at risk. An extended period of ultra-loose monetary policy might just add to economy-wide price pressures, and require bigger increases in interest rates in future to bring inflation back under control.’
A Bloomberg columnist points out that, in one 24hr period last week, one major central bank put rates up (in the UK), another said it was doing nothing but would do something soon (the Fed), another said it wouldn’t raise interest rates now or during all of 2022 (the ECB) and a lesser bank (in Turkey) actually put rates down.
• John Authers says ‘generally, it’s hard to bring an inflation spike under control unless interest rates rise to a point where they’re above the rate of inflation. That, at least, is the learning of history. Steeply negative real rates will do nothing to fight inflation. And that is a pity.’ There are, of course, a lot of political reasons as to why rates will not be raised to 5% plus in the UK any time soon.
Sterling weaker at $1.3221 and €1.1747. Oil price sharply lower at $70.95. UK 10yr gilt yield up 2bps at 0.77%. World markets: London up on Friday but the rest of the world headed south. Far East considerably lower this morning & London set to open down by around 118pts as at 7am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): We thought that the news about the Lib Dems’ stunning victory in the North Shropshire by-election would be the big focus in Saturday’s papers, but such is the pace of current events that the main front-page story was the extraordinary revelation that the hapless Cabinet Secretary, Simon Case, has had to step aside from the investigation into last year’s Downing Street Christmas parties because he was at one of the parties himself…However, the Telegraph combined both stories with the headline “PM’s bid to move on from poll rout is derailed by fresh leaks”. The Times ran with “Downing Street parties inquiry in disarray after chief quits”, whilst the Daily Mirror proclaimed that “they were all at it” (“Party probe office had a party”). The main headline in the Guardian was about the pressure on the party inquiry boss to quit because of his own party, but it
• Saturday’s Press and News (2): In terms of Retailing stories, the strong ONS Retail Sales figures for November got less coverage than usual, although the Times flagged that “Black Friday brings early festive cheer main for retailers”. The Guardian wrapped the figures into a story about the plunge in High Street footfall last week, highlighting the 32% slump in West End footfall on Thursday compared to 2019. The Guardian, the Times and the Telegraph all noted the collapse of the upmarket Online fresh food grocer Farmdrop. The Daily Mail had a snippet about the delivery tie-up between Asda and Just Eat, whilst the market report in the Times flagged that the Boohoo share price managed to rally a bit on Friday, despite falling below 100p early on, after a stack of broker downgrades.
• Saturday’s Press and News (3): The FT had an interesting feature on the Logistics crisis in UK Retailing (“Stores show skill in tackling severe festive challenges”, highlighting that “fresh methods have been employed to confound warnings of sold-out toys and imported turkeys” and quoting the likes of Boots, Currys, B&M and Poundland on the way that retailers have got round supply chain problems. And the Times had an interesting feature interview with the upbeat Sainsburys boss Simon Roberts (“Food, glorious food is the mantra for Sainsbury’s in fight for new customers”), noting that he is putting “food first” in his vision for the chain (Argos was hardly mentioned in the profile) and highlighting, after a tour of the Sydenham hypermarket in south-east London, that “his love for retailing is obvious”. The Times also had the full interview with the outspoken Ryanair boss Michael Ryan
• Saturday’s Press and News (4): There was a double-page spread in the Daily Mail with its traditional rating of the festive food fare of the big supermarkets: the nine chains got marks out of 5 for each of ten traditional Christmas food items and although the Daily Mail didn’t attempt to total up the ratings, we did, so you don’t have to. And, for what’s it worth, Aldi, Tesco and M&S came joint top, with 40 marks out of 50, whilst Morrisons and the Coop came joint bottom, with 35 marks each.
• Sunday’s Press and News (1): The front-page news headlines of the Sunday papers were dominated by the news that the controversial Brexit Minister, Lord Frost, had resigned from the Cabinet in protest at the “political direction” of the Government. This was originally a Mail on Sunday scoop (“Now the Minister for Brexit walks out on Boris”), but was quickly followed by the other papers, eg “Johnson crisis deepens as Brexit Minister Frost resigns” (the Observer), “Crisis deepens for PM as key Brexit ally quits” (Sunday Times) and “Frost quits Cabinet as Johnson considers Christmas lockdown” (Sunday Telegraph).
• Sunday’s Press and News (2): In terms of Retail stories, there was a lot of focus on the impact on supermarkets of the Omicron pandemic before Christmas, with the main Business story in the Sunday Times headlined “Grocers stockpile as lockdown fears grow” and the main Business story in the Mail on Sunday headlined “Food bosses warn of staff sickness chaos”. Taking a longer-term perspective, there was an interesting Business feature in the Observer flagging that Covid has reversed or accelerated so many trends that the future of retail is becoming hard to read (“Fewer customers, less choice, deserted stores: has shopping changed for ever?”).
• Sunday’s Press and News (3): The Sunday Times Business section also found room on its front page for the news that a) the struggling Online fashion business Missguided has been saved from collapse by a deal with the turnaround firm Alteri and b) the City research firm The Analyst that triggered the collapse in the THG share price has withdrawn its Sell recommendation (indicating that the worst may be over). The Sunday Times also had a feature on the selling direct to consumers policy of Nike, noting that the Very Group and the footwear chain Schuh are the latest retailers to be delisted by Nike…The Sunday Telegraph had an article about Frasers Group, musing, after the latest share buyback announcement, whether Mike Ashley plans to take the business private. The Mail on Sunday picked up the Sky News story that M&S has brought in the head-hunters MWM to benchmark the three internal
• Sunday’s Press and News (4): In terms of all the Economics comments in the Sunday papers, we give our usual shout-out to the column by the Sunday Times Economics correspondent David Smith (“Awful timing from the Bank – let’s hope it’s no futile gesture”), in which he highlighted that “last week’s rate rise should be seen as the first in a sequence with more to come”. We also enjoyed the columns by the veteran City commentator, Jeremy Warner, in the Sunday Telegraph (headlined “It looks bad now, but Johnson may be about to get lucky with Omicron”) and by the Economics correspondent, Philip Inman, in the Observer (headlined “The rate rise sends out the wrong message in tough times”).
• Today’s Press: According to the invaluable Guardian press summary email, the Guardian itself has a front-page photo of the PM with wine and cheese alongside his wife and up to 17 staff in the Downing Street garden during lockdown in May 2020, raising questions over No 10’s insistence that a “work meeting” was taking place. The Guardian headline is “Johnson and staff seen at No 10 event in lockdown”. The Daily Mail amplifies Tory Covid curb resisters with “Don’t ruin our Christmas again, Boris”, while the Daily Express has Sajid Javid’s warning: “‘No guarantees’ of escape from tougher Xmas rules”. The Chancellor doesn’t like the country to lose money and the Times says of that: “Sunak resists new Covid restrictions before Christmas”. “D-day for Christmas” – the Daily Mirror says Boris Johnson will hold meetings with his top team today amid the “Covid crisis”. The Telegraph has “PM looks
• This Week’s News: There is no UK Retailing company news scheduled this week, but the stockmarket will be open every day, up until lunchtime on Friday (Christmas Eve), so we will be carrying on with “The Daily Retailer” all week…In the US tonight, mighty Nike is releasing its Q2 results (which will interest JD Sports and Frasers Group followers) and back in the UK the monthly CBI Distributive Trades survey is out tomorrow morning.