United Kingdom
What will 2010 be serving up for the Leisure sector? - Mark Edwards
On 26 January, it was announced that the recession in the UK was over. Rather than being triumphant news, there was a sense of foreboding as the growth rate was a disappointing 0.1%. So, what does 2010 hold?
Industry surveys indicate finance directors are more confident in 2010 than 2009. They feel the tide is turning and that the control they have over their business is stronger than for the past 18 months. Furthermore, restaurants and hotels are reporting stronger performance in the last three months of 2009 and not simply based on weak comparatives.
Further good news was found in the recently released unemployment figures which showed the rate falling to 7.8% from 7.9% - this was certainly unexpected. There is also much talk in the industry about the potential for the deal market to pick up and this should drive interest and potential in the sector. There are a number of leisure IPOs rumoured to be in the pipeline including Merlin, Betfair and Travelport and the success, or otherwise, of these will be keenly observed.
There is a feeling that as the year goes on, companies will continue to benefit from improving like for likes, and a stable base on which to manage the needs of the business and its customers. If food inflation is kept under control then businesses should begin to see their margins improve, especially if discounting can be phased out smoothly.
Of course, it is not all good news. The confidence that FDs feel is in their ability to manage the business, not that high levels of profit and cash are set to return. The hope is that the unpredictability of the last 15 months is disappearing so now control can be exercised over staff levels, supplier contracts, and making sensible decisions about investment in their product. The high demand in December was fuelled by a very weak pound resulting in an influx of overseas visitors, although mainly to London – and this may not continue.
Even the promise of more ‘staycations’ is based on continued low interest rates, low inflation and no additional increase in unemployment. There is a feeling that the reason the unemployment figures are falling is because people are coming off the official list by taking part time jobs or lower paid jobs. There is also serious concern that inflation is on the way up and the consequential increase in interest rates, would have a devastating impact on discretionary spend.
Then, there is yet more bad news. The VAT rate increase in January is already hurting a number of operators, and this coupled with the change in rules for tips, the revaluation of London properties for Rates assessment (the cash cows of many multi-site operators) and the threatened further rise in VAT after a general election, increases the risk of further administrations. The market for finance appears to be slowly thawing with more cash flowing through the system, but the banks remain relatively risk averse. Terms are not likely to be generous to operators and values for properties would be put under pressure if the banks decide to release portfolios they are currently supporting. Furthermore, pressure on the financial markets could be severe if the General Election fails to result in a Government able to make tough decisions about tackling the levels of national debt.
All in all, 2010 is going to be a very tough year for the industry and stability, above all else, is what everyone would like to order this year.