Friday 13/11/20

  1. In CORONATRENDS NEWS, WeWork burns even more cash, Emirates announces its first loss in over 30 years and Tui faces criticism
  2. In RETAIL NEWS, WH Smith announces cuts and closures, Burberry wants tax-free to continue and B&M announces big profits
  3. In MEDIA-RELATED NEWS, Disney is a mixed bag, ITV says ads are turning a corner, TikTok gets a reprieve and Roblox considers an IPO
  4. AND FINALLY, I bring you a highly controversial cheesecake…



So WeWork keeps burning the cash, Emirates hits major turbulence and Tui annoys with late payments…

WeWork burns through another $500m in third quarter (Financial Times, Eric Platt) highlights the fact that the office space provider managed to burn $517m in the latest quarter as demand for office space in central locations continued to fall. This means that it “only” has $3.6bn left in the kitty, having now burnt through a staggering $1.7bn since the start of the year! Chief exec Sandeep Mathrani sticking to his target of being cash flow positive next year is looking increasingly like he is living in fantasyland as sales continue to fall. OK, so the company has cut thousands of jobs, closed poorly-performing buildings and rid itself of its narcissist (yet highly successful!) founder Adam Neumann but sales dropped by 13% in the latest quarter. * SO WHAT? * WeWork has been an absolute disaster and investors who even considered taking part in the abandoned IPO last year must be thankful that they dodged the mother of all bullets. Being an office space provider in a world where more people are working from home and who are therefore not commuting and doing more videoconferencing, not to mention the fact that commercial property prices in central locations are falling – means that WeWork is facing massive headwinds. Cashflow positive next year? My @rse. And there was me thinking the last CEO was full of 💩!

Emirates swings to first half-year loss in more than 30 years (Financial Times, Simeon Kerr) shows that the airline has hit a serious air pocket as it announced revenues fell

by about 75% due to coronavirus travel restrictions. Headcount has been cut by 24% as of September 30th and the company has been raiding its cash reserves and using a $2bn injection from the Dubai government to keep going. On the positive side, Emirates managed to switch to cargo operations as passenger traffic declined but in overall terms passenger numbers were down by 95% on the previous year and cargo volume fell by 35%. * SO WHAT? * This is unsurprising given what’s going on elsewhere in the world – and in the aviation industry – at the moment but I really think that those who can hang on and weather this extreme turbulence will see major upswings when vaccines become widely adopted. I believe that many people will be desperate to travel abroad after being locked down for so long!

Then in Tui under fire as delayed payments put businesses at risk (Financial Times, Alice Hancock and Kerin Hope) we see that Europe’s biggest tour operator is being targeted by Greek hoteliers for not paying its bills on time, which is putting hundreds of businesses at risk. Tui has issued a number of contract amendments in the last week or two which require hotel owners to wait until March 2021 to get 75% of the money owed to them for stays made this year. Usually, these payments are made 60 days after departure dates, so you can imagine the frustration and anger this is causing. * SO WHAT? * Everyone is doing their best to survive and Tui clearly does not want to become the next Thomas Cook. However, doing this by putting hoteliers in the lurch is not a good look and if this continues you wonder whether there will be some significant reputational damage that could prompt would-be holidaymakers to shop elsewhere.



WH Smith cuts, Burberry fights for tax-free and B&M puts in a strong performance…

WH Smith to shut 25 high street stores after it reports £280m loss (The Guardian, Sarah Butler) shows that the high street stalwart is going to make cuts, including about 200 jobs, after coronavirus has pushed it into loss. Sales in its high street outlets dropped by 19% but its previously successful outlets at stations, airports and hospitals suffered even more as they saw a 43% fall in sales to the year to 31st August. Interestingly, sales via its main website shot up by over 240%! The 200 job cuts here are in addition to the 1,500 announced in August. * SO WHAT? * I’ve probably said this before but WH Smith has seen an absolutely massive upheaval. Until the pandemic hit, its strategy of being in places with captive consumers was widely praised and was its major cash cow. That has completely changed with the advent of the coronavirus as the “boring” high street business kept it limping through while its outlets at airports and railway stations had to shut down. I think that it is high time for yet another overhaul at the retailer (it’s had its fair share of these over the years) to sort out its stodgy high street business and maybe this virus is going to give it a bit of negotiating power as it is in the throes of renegotiating the terms of leases on 120 stores this year and another 300 over the next three years. Lower rents would be a start, but I think WH Smith needs to reinvigorate its high street business while the former “cash cow” business regroups.

Burberry warning over end to tax-free shopping (Daily Telegraph, Hannah Uttley and Simon Foy) shows that the luxury retailer is trying to hang on to any advantages it can

get as it announced a 62% fall in half-year pre-tax profits. It warned that ending tax-free shopping for overseas tourists would make it more expensive versus the rest of Europe and therefore end up turning visitors away. Ministers have suggested a “shop-and-ship” alternative where international visitors would be allowed to send goods overseas to take advantage of VAT relief but industry has said that this is unworkable. In Burberry’s case, two-thirds of their customers in the UK are tourists, so you can understand why they are fighting tooth-and-nail to keep the VAT relief. * SO WHAT? * At first glance, Burberry’s objections sound a lot like whingeing but when you consider the importance of tourists to their business you can understand. The thing is that there just aren’t any tourists at the moment and there are unlikely to be for the foreseeable future, so I think that the argument is somewhat academic at the moment. You would have thought that the government should throw Burberry a bone in this regard and keep the current duty-free thing in place. Mind you, Chinese consumers are starting to spend more and luxury goods groups have reported strong sales – so maybe Burberry can fight to get more of a slice of that action.

At the other end of the scale, B&M bosses set for £44m as lockdown profits soar (The Times, Ashley Armstrong) shows that the billionaire brothers behind B&M are about to get a £44m payout as the discount retailer unveiled profit numbers that more than doubled under lockdown! Bobby and Robin Arora have a 14.9% stake in B&M via their offshore vehicle SSA Investments and will get the money due to the company paying a £250m special dividend. * SO WHAT? * Although this is clearly rather nice for the brothers, they are facing criticism from those who object to massive payouts from companies who have benefited from taxpayer support during lockdown and just paid them away to shareholders. I suspect that this is a subject that will drag on for quite some time.



Disney’s story is mixed, ITV is positive about ads, TikTok gets a reprieve and Roblox eyes an IPO…

The pandemic has been “a whole new world” for Disney, which has largely suffered badly from a case of the coronavirus. At Disney, streaming soars as other businesses struggle (Wall Street Journal, Erich Schwartzel) shows that the company’s Disney+ streaming service is the only thing that’s going well for Disney at the moment as the company announced its second consecutive quarterly loss yesterday. Subscriptions to Disney+ hit 73.7m as at October 3rd versus over 60m in August. * SO WHAT? * The streaming business is where it’s at at the moment for Disney and some are arguing that it needs to be rated like a tech stock because of this, but the fact is that it is still highly exposed to tourism and moveigoing which are both in the doldrums at the moment. I think that sunny days will return for Disney but in the meantime I think it’s sensible to put more resource towards Disney+ to build it up while it is particularly relevant to all of our lives.

Elsewhere, Advertisers’ clamour for Christmas TV airtime boosts ITV recovery (The Guardian, Mark Sweney) highlights a bit of a turnaround as advertising revenues have bounced back strongly after a disastrous first half going into Christmas (nice, but I have to say I think this is a bit of a one-off as I would expect ad budgets to continue to be squeezed going into next year), US backs down on TikTok (Wall Street Journal, John D. McKinnon and Georgia Wells) shows that the US Commerce Department has decided to delay the implementation of an order that would have banned companies from providing internet-hosting or content-deliery services that would have made it impossible to operate in the US (great for TikTok/ByteDance as it buys them time to see how Biden will treat them) and Roblox/games: multiverse nurse (Financial Times, Lex) shows that Roblox is thinking about an IPO via the direct listing route which could give it an implied valuation of $8bn. Although this sounds expensive, Roblox’s advantage is that it’s more of a game engine rather than a developer. I say that because developers tend to be characterised by being one or two-hit wonders (e.g. Rovio Entertainment with Angry Birds etc.). As it is a hub for users to share games it acts more like YouTube and given that apparently 2/3 of all US children between nine and twelve use the platform it looks like a decent prospect IMO.



…in other news…

I thought I’d leave you today with the highly controversial Pigs in blankets cheesecake is driving people wild as it’s ‘so wrong it’s right’ (The Mirror, Courtney Pochin). Wait, whaaaaattt??? 😱😱😱 Having said that, I’m erring on the side of “I think I would try that”…

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)