Pubs and Bars Call for Government Support Amid the New Social Distancing Norms

Summary

• Evening curfews coupled with local lockdowns pose a big threat to the pubs and bars businesses
• Industry body BBPA, has called for sector-specific furlough scheme beyond October
• Pubs & restaurant stocks have suffered significantly on the stock exchanges due to the pandemic

The coronavirus pandemic seems to be a never-ending saga for the Travel & Leisure sector in the UK, with the enforcement of latest evening curfews and local lockdowns leading to collapses of the ailing sector. The pubs and bars are in dire need of a dedicated bailout package from the government as the woes seem to linger in this sector for some more time.

UK’s current tally of deaths stood at more than 41 thousand with infection rate rising every day. To curb the rate of spread of this contagious virus, the British government has introduced a ban on gatherings of more than six people, which is indirectly a conflict of interest for restaurants and pub owners.

The business owners fear evening curfews and local lockdowns are going to kill their hopes for recovery. BBPA (British Beer and Pub Association), has called upon the government to extend VAT cuts and roll out a sector-specific furlough scheme beyond October.

Do read: Travel & Leisure Industry Woes Unlikely to End Soon with Challenge of Social Distancing

It has been a disastrous year for the pubs & restaurants businesses. The outlook for the remaining year appears to be gloomy.

Here, we would put our lens through some of the LSE listed businesses operating in this sector.

Fuller, Smith & Turner Plc (LON:FSTA)

Fuller, Smith & Turner is a chain of premium pubs and restaurants. The company recently released trading statement for the 23-week period ended 5 September 2020.

While, most of the businesses were allowed to reopen in July by the British government. The company began a phased reopening of its pubs in the first week of July and had reopened 169 sites by the end of August. More than 90 per cent of its managed Pubs and Hotels have reopened during September. Notably, Pubs and restaurants were last on the list of Government’s lockdowns exit plans.

According to the company’s recent trading update, the sales in the Managed Pubs and Hotels have grown steadily and are 80 per cent of last year (on a like for like basis) since their reopening in July.

The company witnessed increased trade across the Fuller's estate in August as consumers were encouraged by the Government's Eat Out to Help Out scheme, which was announced by the Chancellor of the Exchequer, Rishi Sunak during his Summer Statement 2020.

Cotswold Inns & Hotels, which was included in the portfolio of company’s assets last year witnessed strong business led by high occupancy rate. Fuller's is well-positioned to navigate any challenges ahead with its well-invested, predominately freehold estate and strong balance sheet.

Mitchells & Butlers Plc (LON: MAB)

More than 120 years establishment, Mitchells & Butlers PLC (LON:MAB) is a FTSE 250 listed Company, which operates pubs and restaurants in the United Kingdom.

(Source: Company’s filings, LSE)

Due to the government directive of shutting down operations amid coronavirus induced lockdown, the company’s total revenue stood at £1,039 million in the first half of 2020, was down by 12.4 per cent in comparison to last year. However, the Company demonstrated strong operational performance prior to lockdown. The company has entered new financing arrangements to ensure smooth conduct of operations. The Company has stated that it was not in a position to provide any meaningful guidance for the remaining part of 2020. However, it has industry-leading operational skills along with a range of brands, which are popular amongst Britons.

Marston’s Plc (LON:MARS)

FTSE All-Share listed company, Marston’s Plc (LON:MARS) is engaged in independent brewing and pub retailing business.

(Source: Company’s filings, LSE)

The Covid-19 disruption incurred an estimated impact of around £40 million in revenue. Nevertheless, there was an improvement in net cash flow of £55 million, reflecting progress on debt reduction plan. It was also supported by £61 million disposal proceeds through the sale of 168 pubs.

The Group’s joint venture with Carlsberg UK shall generate significant synergy opportunity. The Company is expected to receive up to £273 million equalisation payment, valuing Marston's Beer Company at £580 million. The proceeds are expected to be used for further debt reduction and targeting ongoing cash flow broadly to be cash neutral. The transaction is subject to competition clearance and shall be completed by the fourth quarter of 2020.

Do read: UK’s Pubs & Restaurants May Have to Make Check-Ins Mandatory for Customers

J D Wetherspoon Plc (LON: JDW)

As per a recent trading update, the FTSE 250 listed company has reopened all pubs in England, Wales, and Scotland, except for pubs in airports and stations. Overall, 844 out of 873 pubs are now open. For the 44 days to 16 August 2020, like-for-like (LFL) bar and food sales were 16.9 per cent down, as compared to the same period the last year.

The renowned pub-owner secured a loan of £48.3 million loan through the Coronavirus Large Business Interruption scheme to further strengthen the liquidity after raising approximately £141 million (excluding fees) through equity share placing. The company’s revenue was up by 5 per cent on like-for-like basis to £933 million in the first half of the fiscal year 2020. The company had also cancelled its dividend pay-out to ensure liquidity. The company expects to report a loss in the fiscal year 2020 due to Covid-19 pandemic and associated lockdown.

1 Year Comparative chart: FSTA, MAB, MARS, and JDW

(Source: Refinitiv, Thomson Reuters)

Reopening of pubs & bars was already last on the list of lockdowns easing plans. Now the local lockdown scenario can drastically impact the cash flows and liquidity position of the businesses. There is significant component of fixed costs which can burn a bigger hole in pockets of business owners. Moreover, implementing social distancing measures could change the way this business operates and impact the profitability. Moreover, in the post-Covid scenario, people might seek deeper insights into industry practices, and food supply chain information to feel more confident and secure in eating out. It would certainly take a lot of effort to get the consumer’s confidence back. Notably, end of furlough scheme next month could also impact the already battered sector.