Langton Capital – 2022-03-25 – PREMIUM – Everyman, consumer, confidence, inflation, Red Oak, DGE, TUI & other:
Everyman, consumer, confidence, inflation, Red Oak, DGE, TUI & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The dog’s getting a bit creaky in his old age and, in a bid to improve his lot, we’ve got him a selection of tablets and, whatever the merits or demerits of medicating a dog, we can be sure of at least one thing, the results won’t be clouded by any risk of a placebo effect.
That because the mutt doesn’t remotely link the visit by the vet, a bit of poking and prodding, the suspiciously regular offer of drug-laced treats and then him feeling any better (or, hopefully not, worse).
Because he has a simple, ‘that happened’ view of life.
He isn’t embarrassed, he has no regrets and, though he does understand that the rattling of his bowl is usually followed by something being put in it, he doesn’t have much respect for any other consequences as he views life to be basically a series of unconnected events. Ah, the simple life. Anyway, he seems to be walking a bit better.
Anyway, we’ve made it to another Friday. The weather’s glorious. High teens in the day and around freezing at night. Suits me but, apparently, it’ll mean the death of many a newly-planted runner bean. On to the news:
• The Spring Statement – encompassing fiscal & tax policy – is only one of a number of factors impacting the consumer. Others include interest rates, specific cost increases (food, energy & fuel) and wider inflation.
• Having said the above, the reaction to the Spring Statement was almost uniformly non-positive. It usually takes a while for the undertone and the stealth taxes to sink in. Whilst this may still be happening, some of the headline stuff was sufficiently brazen to register immediately.
Some rowing back on earlier tax rises:
• The economic environment has worsened since the Chancellor said he would put up NIC and all the rest. Indeed, it has worsened in the last month and, in the last week or so, the OBR has cut growth forecasts, oil has hit $110 a barrel and the Bank of England has put interest rates up for the third time in three meetings.
• Hence, some nudging of the tiller was likely. Economists seem to believe around a third or earlier-announced tax rises have been postponed or dropped. However, there was little done for those on benefits or pensions and The Resolution Foundation maintains that some 1.3 million people will fall into absolute poverty over the next year.
• The Chancellor does not have a magic wand. However, whilst that is easy for us to say, it is more difficult for some others to live with. Literally as, in some cases, people may not be able to afford both to heat and to eat. Leaving politics to one side, what does this mean for hospitality?
Some demographics will fare less well than others:
• The Chancellor has tweaked a few things to help those workers towards the bottom end of the pay scale. This is useful. But benefits and pensions are lagging and, as those with least income have the highest propensity to spend (they cannot afford to save), this will impact revenues for some operators.
• The Resolution Foundation says household incomes are forecast to fall by 2% across the parliament as a whole. But like the curate’s egg, they will be much worse in some parts than in others.
And averages are very dangerous things.
• A river may be four feet deep on average but, if bits are 10’ deep, those who cannot swim, will drown.
• And the same is true re finances – both different groups of people and differing time periods will diverge from the average. The poor will fare least well and, as regards timing, this year and next year will be worse – at least on the OBR’s reckoning, than will be the elusive ‘medium term’.
• This may work for electoral cycle purposes but individuals and companies need to survive through the short term in order to enjoy the benefits offered in the long term.
• Financial rewards may as well be in heaven if companies have gone bust before they can reap them.
Less well-off consumers:
• Resolution says average working-age households will see a 4% real loss in incomes this year with the poorest quarter of households losing 6%. The latter may be amongst (from necessity) the most price-sensitive consumers out there.
• CEO Torsten Bell says only one in eight workers will see their tax bills actually fall by the end of the parliament, The tax cut comes at the end of the period, potentially just before the next election.
• Resolutions says ‘only those earning between £49,100 and £50,300 will actually pay less income tax in 2024-25, and only those earning between £11,000 and £13,500 will pay less tax and National Insurance (NI). Of the 31 million people in work, around 27 million (seven-in-eight workers) will pay more in income tax and NI in 2024-25.’
• Taxes are set to take the highest proportion of income ever. Mr Sunak says ‘borrowing spiralled up to levels we haven’t seen since the Second World War’ and says this was the ‘biggest economic shock in over 300 years and we had to introduce interventions like furlough.’
• The 300yrs is interesting as it is a period that includes two world wars, the loss of the American colonies and the Napoleonic Wars.
• The OBR says the drop in living standards will be the largest in any single year ‘since ONS records began in 1956-57’.
• The Institute for Fiscal Studies says those on benefits will see costs rise by around 10% but their benefits will only rise by 3.1%.
GfK has reported that consumer confidence has slipped by five points in the face of the deepening cost of living crisis. GfK says ‘a wall of worry is confronting consumers this month and there is an unmistakable sense of crisis in our numbers.’
• GfK says ‘consumers across the UK are experiencing the impact of soaring living costs with 30-year-high levels of inflation, record-high fuel and food prices, a recent interest-rate hike and the prospect of more increases to come, and higher taxation too – all against a background of stagnant pay rises that cannot compensate for the financial duress.’
• It adds ‘this is the fourth month in a row that UK consumer confidence has dropped. With a headline score of -31, we are at a level last seen in October and November 2020 when Covid numbers were rising. Confidence in our personal financial situation and in the wider economy are severely depressed while the daily news of unimaginable suffering from a horrifying war in Europe and rising COVID numbers at home is adding to the bleak mood. The outlook for consumer confidence is not good; it’s certain there’s more bad news to come.’
• The overall score slipped by five points to minus 31 in March. GfK says all five of its measures were down in comparison to the February 25th announcement.
PUBS & RESTAURANTS:
Inflation & costs.
More letters and emails are going out from industry suppliers to hospitality operators informing them of price rises.
• We have seen one email saying ‘milk prices continue to soar at an unprecedented rate, along with rising energy costs and transport costs. Furthermore, milk yields are currently down due to farmers reducing fertilisers and exploring new feeds to try and manage their costs. Alongside this, demand for exports within the dairy industry have continued to increase, putting further pressures on the supply chain.’
• The email continues, saying eggs are in short supply, avian flu has forced birds indoors and prices are rising. It says ‘the price of wheat and maize has risen enormously in recent weeks; Ukraine is one of the main exporters of these crops and chicken feed consists of 60% of these two raw materials. Europe is “currently experiencing the strongest outbreak of bird flu ever recorded” and new cases are still being reported daily.’
• It never rains but it pours. The email says ‘we therefore have no choice but to increase pricing again from Monday 4th April 2022. Please see attached your new price list with all affected products highlighted. Please be assured…’ etc.
RTN and JDW last week maintained that their costs were rising by ‘five percent plus,’ and by ‘a little less than inflation’ respectively.
Chancellor Sunak has announced a temporary 50% business rates relief for eligible hospitality businesses up to £110,000, worth £1.7bn for small businesses and effective from next month.
• The average pub with a rateable value of £21,000, would save £5,200 thanks to the proposed new rates. The Chancellor also announced the business rates multiplier would be frozen in 2022-2023.
Altus Group claims that hospitality businesses in England face a ‘dangerous cost of doing business crisis’ with high street business rates set to rise £3.1bn on 1 April. Councils in England estimate business rates income from 1April for the 2022/23 tax year will be £22.57bn after all reliefs.
Milk company Arla has said that supermarket milk prices need to rise by about a third to cover spiralling costs as the dairy co-operative said it would start exporting British milk overseas where farmers can get better returns, reports The Times.
• It reports ‘Arla said that as part of its five-year strategy it was “calling time on cheap milk” and would end contracts that did not pay a return for farmers who needed to invest in their farms. The co-operative said that it was increasing its investment by more than 40 per cent to about £3.4 billion across its European operations. Arla is Britain’s largest dairy company and fourth biggest food producer, with 2,100 farmers in the UK.’
• Arla says ‘because of the recent crisis, feed, fuel and fertiliser have rocketed and therefore cashflow on the farm is negative.’ It says ‘UK dairy farmers have been producing more for about the last seven to eight years but it’s now going the other way. In February, they produced 2% less and in March it’s 4%.’
The Daily Mail reports that the ‘hospitality industry [is] on a knife edge as Chancellor refuses to extend 12.5% rate of VAT amid ‘tidal wave’ of rising costs.’ This will not come as new news to many operators. The Mail says ‘the hospitality industry has warned it is facing thousands of job losses without further support.’
CGA has released trading data for last week, with its Drinks Recovery Tracker showing that out-of-home drinks sales were 7% up on pre-pandemic levels. It says ‘after several weeks of parity with pre-pandemic levels, it suggests the drinking-out market’s recovery is building momentum. However, with inflation currently running at 6% for the last year alone, sales remain well below pre-pandemic patterns in real terms.’
• CGA says ‘last week’s trading was boosted by St Patrick’s Day celebrations, with drinks sales on Thursday (17 March) up by 37% on the same day in 2019. The extension of celebrations, plus widespread good weather, kept sales well ahead on both Friday (up 7%) and Saturday (up 11%). Saturday trading was also lifted by rugby fans watching the final round of Six Nations fixtures in pubs and bars. Across the week, spirits sales were 25% up on the same period in 2019, while beer (up 7%) and cider (up 10%) recorded year-high growth as well.’
• CGA adds ‘last week’s trading figures show the hard work of Britain’s pubs, bars and restaurants to build back from two years of disruption is paying off. They also emphasise the value that good weather and celebratory occasions like St Patrick’s Day can bring to the On Premise, and with more sunshine, Mother’s Day and Easter on the horizon, operators can be cautiously optimistic about trading. However, confirmation this week of high inflation and the end to hospitality’s VAT relief, and mounting pressure on consumers’ disposable incomes, remind us that a return to pre-COVID-19 normality is still some way off.’
Next yesterday made some interesting comments on consumer behaviour. See Tweets. The company believes it may lose some revenues to hospitality over the coming months as consumers switch to experiences over products.
MCA reports that Red Oak Taverns CEO Mark Grunnell says the company has ‘significant firepower’ for acquisitions following a debt refinancing with Hayfin Capital Management. Grunnel said he would be ‘very disappointed’ if the tenanted pub company did not beat its 2021 openings tally of 34 pubs this year.
Victors Newcastle restaurant has submitted plans for its £1.5m restaurant in the site of the former Las Iguanas. The American-inspired restaurant will cater for 175 diners of which 80 are outside dining spaces.
The MCA reports that Stonegate’s managed pub conversions completed so far are delivering ‘promising results’ with plans to maintain its capital investment programme going forwards. The 4,580 strong pub company reported strong trading, with revenue of £714m for the year ended 26 September 2021. The company reported a loss before tax of £233m, up from a loss of £746m the year prior.
Gusto Italian says that Mother’s Day will be its busiest day since before the COVID pandemic. Advance bookings are already 35% higher than their previous busiest post-COVID day, Friday 17th December 2021, and gift card sales are also up 115% compared with this time last year.
Next has warned that prices are set to raise this year, forecasting them to increase by 3.7% in H1 and 8% in H2. The retailer said it still expects to make a £850m profit this year. Inflation data showing overall clothing and footwear prices rose 8.8% in the year to February 2022.
Diageo has agreed the sale of its Windsor business to Bayside/Metis, a South Korean-based private equity group, for an aggregate consideration of KRW 200 billion (approximately £124 million). Diageo says ‘the transaction will have no material impact on earnings per share in Fiscal 22. At completion of the transaction, expected to be in Fiscal 23, an exceptional cumulative foreign exchange translation gain will be recycled to the income statement. As part of the agreement, Diageo will supply Scotch whisky to Bayside/Metis under a 10-year supply agreement.’
• Diageo adds ‘this transaction marks the next chapter for Diageo Korea. We remain fully committed to the market and further developing our international spirits and beer business, which is being driven by premiumisation and consumer interest in categories like international whisky. We take a disciplined approach to capital allocation and this sale is very much in line with our track-record of active portfolio management.’
HOLIDAYS & LEISURE TRAVEL:
Travel Weekly reports that German authorities are probing the transfer of a large stake in Tui by Russian billionaire Alexey Mordashov in a potential breach of EU sanctions triggered by Russia’s invasion of Ukraine. The transaction, on February 28, saw the 29.9% stake, worth about £1.1 billion, transferred to BVI registered Ondero Ltd with no owner listed, despite a legal requirement that stakeholders be named. A subsequent filing revealed Ondero’s owner to be Mordashov’s wife Marina.
Advantage Global Network, formerly known as WIN Global Travel Network, said it expected annual turnover for its members to total around $7.5 billion this year. The network said that 80 per cent of its partners had now moved from ‘pandemic mode to recovery mode’, with 95 per cent planning to recruit new staff this year.
• Advantage says ‘corporate customers are starting to travel, looking once again to promote their products, meet with customers and fulfil business obligations. TMCs need to be ready because the corporate customer of 2019 is not the same in 2022 – they need and want more support,’
Business Travel Show Europe research shows that business travel buyers are seeing healthier budgets for 2022 than they did six months ago, but travel levels are still unlikely to return to pre-Covid levels for at least two years for most organisations.
Hex Hotel has opened in Doncaster, just metres from the entrance to the 175-acre Yorkshire Wildlife Park.
Peter Hebblethwaite, CEO of P&O Ferries, has admitted to MPs that a decision to sack 800 workers last week without consulting the unions broke the law. ‘We chose not to consult and we are, and will, compensate everybody in full for that’ he said.
STR reports that ‘lifted by spring break travel, U.S. hotel performance rose from the previous week and showed improved comparisons against 2019.’ It says occupancy in the week to 19 March was 66.9% (down only 3.7% on 2019) and rates were up 13.6% at $151.63. The resultant REVPAR was up 9.5% on three years ago.
Everyman Media Group has reported full year numbers to end-December, saying that the company traded normally for 24 weeks during the period, was restricted for a further nine and shut for 19 weeks. It says for 2021, admissions rose by 67% to 2.0m from 2020, when admissions were 1.2m. Given the nature of the lockdowns in both years, this is not comparing apples with apples.
Everyman reports sales of £49.0m (2020: £24.2m), an increase of 102%. It says average Ticket Price was £11.44 (2020: £11.81) and Spend Per Head of £8.96 (2020: £7.08). The company says it increased market share to 4.50% (2020: 4.46%). Adjusted profit from operations was £8.3m vs a loss of £0.3m in the prior year. The group currently has 36 units with a 2022 pipeline of 4 new venues.
Re the outlook, Everyman says ‘we are optimistic for the coming year, with customers continuing to appreciate the unique Everyman experience. Alongside this, a strong and varied film slate is anticipated, with a good mix of both the major releases and the well-watched independent films that our customers enjoy. So far in 2022 admissions momentum has continued and we remain focussed on delivering quality customer service throughout food, drink, staff and film.’
• CEO Alex Scrimgeour says ‘despite more twists and turns than Kenneth Branagh’s “Death on the Nile”, these last two years have conclusively proved our belief that Everyman has an enduring place at the hearts of the communities we serve. Thanks in no small part to our loyal customers, we have achieved remarkable levels of admissions, profitability, market share and customer satisfaction since government-imposed restrictions were lifted.’
• The company says ‘we continue to invest in our venues, our people and enhancing the Everyman proposition. Off the back of a return to quasi business as usual, our outlook is increasingly optimistic, consequently we will be looking to accelerate our openings strategy in the short and medium term. Of course, none of this would be possible without our incredible venue teams and head office who have worked tirelessly and selflessly throughout.’
Spotify has said it paid $7bn to music rights holders last year. This amounted to something in the region of 25% of the industry’s total revenues. It paid 52,600 artists more than $10,000 and some 130 were paid more than $5m in the last year. The BBC reports that the most-streamed acts last year were Bad Bunny, Taylor Swift, BTS, Drake and Justin Bieber.
FINANCE & MARKETS:
The flash UK Markit PMIs for March were released yesterday showing the economy has remained buoyant following Russia’s invasion of Ukraine. The services flash PMI was 61.0, up on the 60.5 registered in February and the composite number was 59.7, just down on the 59.9 registered the month before.
• Markit says ‘UK private sector output expanded at a sharp pace in March and the speed of recovery eased only fractionally since the previous month. However, escalating fuel, energy and staff costs resulted in the steepest rise in prices charged since this index began in November 1999.’
Markit cautions on inflation saying ‘escalating inflationary pressures and concerns related to Russia’s invasion of Ukraine meanwhile led to a slump in business optimism to its lowest since October 2020.
Markit says that the service sector level of activity continued to benefit from the removal of COVID-19 restrictions. It says ‘there were reports that the return to offices and customer events had boosted business activity in the service economy, alongside pent up demand for travel, leisure and entertainment.’
• The surveys ‘indicated a sustained robust pace of expansion in March as the further reopening of the economy from COVID-19 containment measures helped offset headwinds from the Ukraine war, Brexit and rising prices. However, the outlook darkened as concerns over Russia’s invasion exacerbated existing worries over soaring prices, supply chains and slowing economic growth.’
• Markit says ‘business expectations are now at their lowest for almost one and a half years, pointing to a marked slowing in the pace of economic growth in coming months.’
• On inflation, it says ‘prices pressures have spiked higher due to increased energy and commodity prices resulting from the invasion. With March seeing by far the largest rise in selling prices for goods and services ever recorded by the survey, consumer price inflation is set to rise further in the months ahead.’
• It says ‘the survey indicators point to potentially sharply slower growth in the coming months, accompanied by a further acceleration of inflation and a worsening cost of living crisis, which paints an unwelcome picture of ‘stagflation’ for the economy in the months ahead.’
Some 187,000 people filed for unemployment in the US last week, the lowest number since 1969, the Labour reported Department reported. The number is down around 28,000 from the previous week.
Sterling mixed at $1.3217 and €1.1982. Oil price lower at $119.28. UK 10yr gilt yield down 1bp at 1.64%. World markets mixed yesterday. London set to open down around 8pts just before 7am.
See The Consumer above for GfK figures for March.
RETAIL WITH NICK BUBB:
• Nick is taking a well-earned break.