Swimming pools under threat as operators fear industry collapse
Britain’s favourite physical pastime hit by surging energy prices
Swimming, the most popular physical activity in Britain, is at risk as soaring energy prices threaten the closure of hundreds of pools across the country.
It has led to desperate measures with gym and leisure centres lowering pool temperatures, turning down lights and urging swimmers to reduce showering times to save on energy costs to keep pools open.
With inflation hitting a 40-year high and little to help businesses in a government support package announced this week, swimming pool owners fear the sector could “collapse” in the next six months, said Huw Edwards, chief executive of industry association UKActive.
In a survey of nearly a third of the UK’s public pool operators this week, 85 per cent said they would be forced to reduce services in the next six months, while 63 per cent said they were likely to cut staff, according to UKActive, which promotes the interests of gyms and leisure centres.
Mark Sesnan, chief executive of leisure group GLL, which operates 135 facilities with public pools, said the energy crisis had created “a nightmare” and was “harder than the Covid challenge”.
Colin Waggett, chief executive of Third Space, a boutique gym operator in London, added the company was on a “week to week rollercoaster” as it tried to manage costs and maintain its high-end saunas, pools and spa facilities.
“If you offer a certain service and expectation, there is only so much you can do,” he said.
Even before the energy crisis, half of Britain’s 4,000-plus pools were under threat of closure, according to a pre-Covid-19 report by the country’s governing body Swim England.
Its 2019 report estimated around 1,800 pools would shut by 2030 as those built during a boom in the 1960s and 1970s became too old and expensive to upgrade.
With debts piling up following the pandemic and energy price rises of between 100 and 150 per cent since 2019, that closure number is likely to be much higher, said Swim England’s chief executive Jane Nickerson. “Every pool is at risk now,” she said.
It has prompted some gyms to trial a system that uses waste heat from data centres to keep pools warm. This diverts heat generated by data processing machines into swimming pool boilers.
Nickerson said this could be a “game-changer” as data centre owners could offer them to pools at no additional cost to their businesses.
Eight industrial-size data boxes, which provide cloud storage and other digital information, could heat a 25-metre pool, Nickerson added.
Many swimming pool operators have already negotiated energy price rises with their local council backers, but anticipate further increases as “wet-side” activities that are typically lossmaking have recovered faster than gym or sports sessions, which would normally subsidise pools.
In the case of GLL, its energy bill has increased 125 per cent compared with 2019, meaning that it will be £15mn over budget on energy this year, chief executive Sesnan said. This is too much of a strain for a business that only turned a £3mn profit pre-Covid-19.
Consequently, GLL is considering introducing an energy surcharge of up to £1.50 on swimming prices to make up for shortfalls. “We’ve calculated that for every person who uses the pool, it is somewhere between £1 and £2 extra on the energy bill every visit.”
Many pool operators have also turned down air and shower temperatures, replaced old bulbs with LED lighting, ensured pool covers are used at night to retain warmth and improved lagging on pipes, but most say these measures only offer marginal gains.
Ivan Horsfall-Turner, chief executive of Freedom Leisure, which provides public sports facilities, said its energy costs had doubled, forcing the company to reduce temperatures of its swimming pools a 10th of a degree at a time to help customers acclimatise.
“We are still recovering from Covid in terms of getting our income and throughput back, so the last thing we want to do is put our customers off,” he said.
Some pool operators have medium term plans that involve investment in renewable energy sources such as ground source heat pumps and solar panels, but this requires capital that businesses emerging from long months of closure during Covid-19 and steep restart costs do not have.
Even gyms without pools are not immune. Alex Wood, chief financial officer of PureGym, said rising energy costs were “a challenging backdrop for everyone right now”.
James Balfour, chief executive of rival group 1Rebel, said he expected “a lot of consolidation” as inflation hit weak businesses. The fitness studio chain has bought two smaller companies out of administration in the last two months, he added.
Ice rinks are also acutely challenged, said Kirsty Cumming, chief executive of Community Leisure UK.
But it is the swimming pool operators that are likely to be hit hardest, said Sesnan. Unless public swimming pools “get a subsidy from the government or the cost [of energy] comes down, it is inevitable that we will have to close”.
“You can always work out in a gym by opening the windows and turning the air conditioning off, [but] it’s an existential threat to swimming.”
Mercedes considers culling F1 engine client
Team that supplies McLaren, Williams and Aston Martin says leasing to rivals is no longer “compelling”
Mercedes team principal Toto Wolff said new spending rules have put one of its three Formula One customers at risk of being culled, because the German manufacturer is no longer earning “substantial amounts” from producing engines for its rivals
“Unfortunately, the business of leasing engines is not compelling and interesting because the [governing body] FIA has put in a certain limit that you can charge to your customers, in order to protect the smaller teams,” Wolff said, adding that the Mercedes team itself accounted for the bulk of its profits, which amounted to just under £14mn last year.
Mercedes supplies rivals McLaren, Aston Martin and Williams with engines designed by its high-performance unit in Brixworth, UK. All teams have been subject to increasingly restrictive cost caps over the past two seasons, as F1 owner Liberty Media seeks to narrow the financial gap between the most and least successful outfits.
After winning eight constructor’s championships in a row, Mercedes has struggled with its car this season, losing pace to frontrunners Red Bull and Ferrari. Its clients also faced difficulties in getting ahead of their closest rivals in the middle of the pack during some early races.
Wolff said the production of two engines apiece for three other teams was a burden for Mercedes, whose engineers have been preoccupied with developing upgrades to the cars for its drivers Lewis Hamilton and George Russell.
“I’d rather have six [client cars], push the development further down the line and then make two engines less, because you need to produce two less plus two spares for every team,” he said.
“In an ideal world, I would maybe see us plus two [customers], so actually downsize a bit,” he added, but did not elaborate on which client Mercedes was likely to drop. The relationship between Mercedes and McLaren is the oldest of the three, dating back decades, albeit with a six-year gap.
Wolff’s comments come as Mercedes’ German rivals Porsche and Audi — both VW subsidiaries — are poised to enter F1, in time for rule changes in 2026 that would increase the amount of electric power generation in cars.
One of the VW-owned brands could team up with McLaren, depriving Mercedes of a leasing customer, according to people familiar with the plans.
Speaking before Mercedes’ better showing on the track in Barcelona last week, Wolff also played down Mercedes’ ability to compete for another constructor’s championship this year. “We just need to come back and consolidate third place and then just slowly crawl back,” he said.
While Mercedes has had to contend with a “bouncing” problem on its cars, rivals Red Bull and Ferrari “have continued to develop their car without any of this effect”, Wolff said, and would likely remain further ahead.
Closing Stock Market Summary: Market rallies into long weekendThe stock market finished a volatile week on a firmly higher note with the S&P 500 (+2.5%) and Nasdaq (+3.3%) rising for the third consecutive day while the Dow (+1.8%) logged its sixth advance in a row, snapping its longest weekly losing streak since 1932.
Equities recorded the bulk of their gains during the first hour of action, adding to their big gains in late trade. The Nasdaq maintained its lead throughout the day while the S&P 500 and Dow returned into positive territory for the month.
Today's economic data was headlined by the Personal Income/Outlays report for April. The report showed a smaller than expected increase in income and a larger than expected increase in spending, but the yr/yr deceleration in the PCE Price Index was viewed as a silver lining that could signal an inflationary peak.
All eleven sectors spent the day in positive territory with six groups gaining at least 2.0%. Top-weighted technology (+3.4%) spent the day near the top of the leaderboard, alongside the consumer discretionary sector (+3.5%). The relative strength in these groups was notable since technology and retail stocks have been among the worst performers during the market's recent slide to levels not seen since early 2021.
Autodesk (ADSK 211.38, +19.75, +10.3%) finished atop the tech sector after beating Q1 expectations and issuing mixed guidance for FY23 while top-weighted components like Apple (AAPL 149.64, +5.86, +4.1%) and NVIDIA (NVDA 188.11, +9.60, +5.4%) also made notable contributions to the rally. NVIDIA's strength helped the PHLX Semiconductor Index (+4.0%) finish the day ahead of the tech sector, though both groups gained 8.1% for the week.
Retail stocks in the consumer discretionary sector were also a notable source of strength even though quarterly reports from the group have shown continued concerns about costs eating into margins. However, Ulta Beauty (ULTA 425.08, +47.12, +12.5%) finished ahead of other discretionary components after reporting better than expected results and guidance while Gap (GPS 11.60, +0.48, +4.3%) finished with a solid gain despite plunging nearly 15.0% at the open in reaction to its Q1 miss and below-consensus guidance. On the bright side, management indicated that performance is expected to improve in the second half of the year.
The improved sentiment in the market masked continued strength in the energy sector (+1.7%), as crude oil returned to its May high. The energy sector gained 8.1% for the week, extending its May advance to 16.9% while crude oil climbed $0.64 or 0.6% to $114.77/bbl, rising $4.72 or 4.3% for the week.
Treasuries had a mixed, but largely little changed, showing on Friday. The Treasury complex climbed for the third week in a row, with the 10-yr yield slipping one basis point to 2.74% today. The benchmark yield surrendered five basis points this week, pausing just above its 50-day moving average (2.73%).
Reviewing today's economic data:
- Personal income increased 0.4% month-over-month (consensus 0.5%) following an unrevised 0.5% increase in March. Personal spending rose 0.9% month-over-month (consensus 0.6%) following an upwardly revised 1.4% increase (from 1.1%) in March. The PCE Price Index was up 0.2% month-over-month ( consensus 0.3%) and the core-PCE Price Index, which excludes food and energy, was up 0.3% month-over-month, as expected.
- The key takeaway from the report is that there was a moderation in the year-over-year rates for the price indexes, which will support the peak inflation narrative. The PCE Price Index was up 6.3% year-over-year, versus 6.6% in March, and the core-PCE Price Index, the one the Fed watches most closely, was up 4.9% year-over-year, versus 5.2% in March.
- The final May reading for the University of Michigan's Index of Consumer Sentiment fell to 58.4 from the preliminary reading of 59.1. The final reading for April was 65.2. In May 2021, the Index of Consumer Sentiment stood at 82.9.
- The key takeaway from the report is that inflation concerns have negatively impacted views on buying conditions for houses and durables, and the future outlook for the economy.
- The advance goods trade deficit narrowed to $105.90 bln in April from a revised deficit of $125.90 bln (from -$125.30 bln) in March.
- Advance Retail Inventories increased by 0.7% in April after increasing a revised 3.0% (from 2.0%) in March.
- Advance Wholesale Inventories increased by 2.1% in April after increasing a revised 2.7% (from 2.3%) in March.
Bond and equity markets will be closed on Monday for Memorial Day. On Tuesday, the market will receive the March FHFA Housing Price Index (prior 2.1%) and March S&P Case-Shiller Home Price Index (consensus 20.0%; prior 20.2%) at 9:00 ET, followed by May Chicago PMI (consensus 55.5; prior 58.5) at 9:45 ET, and May Consumer Confidence (Briefing.com consensus 103.7; prior 107.3) at 10:00 ET.
- Dow Jones Industrial Average -8.6% YTD
- S&P 400 -10.6% YTD
- S&P 500 -12.8% YTD
- Russell 2000 -15.9% YTD
- Nasdaq Composite -22.5% YTD
Enfamil Maker Reckitt Shops Baby-Formula Unit Amid Shortage
Sale process comes at time of upheaval in key U.S. market
Reckitt Benckiser Group RBGLY 0.51% PLC is pushing ahead with a multibillion-dollar sale of its infant-formula business as severe shortages scramble the key U.S. market.
Reckitt kicked off a sale process for its formula business last month, with first-round bids submitted this week, according to people familiar with the matter. Bidders include buyout firm Clayton Dubilier & Rice, they added. The unit could fetch around $7 billion, some bankers and analysts have estimated.
The sale process comes against the backdrop of a nationwide shortage that has thrust the more than $4 billion U.S. formula industry into the spotlight, with parents left scrambling to find supplies and company executives facing questions from lawmakers.
Recent upheaval in equity markets is another complicating factor, bankers say, and there is no certainty a deal will be completed.
Baby formula has been in short supply for months partly because of supply-chain issues caused by the Covid-19 pandemic. Product recalls and a production halt by Abbott Laboratories exacerbated the shortages.
Abbott closed its Sturgis, Mich., plant, which makes Similac and other brands, in February after the Food and Drug Administration said it found the presence of a germ called cronobacter sakazakii, which can be deadly in infants, in the factory. The germ wasn’t found in products. Abbott has since said it aims to reopen the plant in the first week of June.
To help alleviate shortages, Reckitt has said it is running its factories 24/7, including on Sundays, to increase production. The company has also narrowed production to increase volumes, focusing on sizes it says allows it to provide the most formula. It has also said it is working with the FDA to expedite formula imports from Mexico.
Reckitt has been a major player in the global formula industry since it agreed to buy Mead Johnson Nutrition for $16.6 billion in 2017. The deal handed the London-listed company a range of nutritional products including Enfamil and the Sustagen milk supplement for children.
But formula hasn’t been a top performer for Reckitt, which also makes Lysol cleaning products and Nurofen painkillers. The company took a write-down of 5 billion pounds, equivalent to $6.3 billion, on its formula business in 2020, citing challenges in China, where birthrates have slowed and competition from local players has been fierce.
Reckitt sold the bulk of its infant-formula business in China last year in a deal that valued the business at $2.2 billion including debt to China-based investment firm Primavera Capital Group. It has also exited other markets, including Argentina.
That left Reckitt with a formula business in the U.S., the Philippines, Mexico and Thailand, among other countries. Analysts say Reckitt has gained market share in the U.S. in recent years, and that the country makes up about half its formula division’s sales but nearly two thirds of its operating profit.
The Abbott recall has significantly shifted market share in the U.S., with Reckitt now holding about 55% compared with roughly 40% previously, according to analysts at Barclays. The firm says Abbott’s share has dropped to 20% from around 40%.
Barclays estimates Reckitt could retain as much as a quarter of its recent share gains since parents who switch to Enfamil or another formula are unlikely to switch back once Abbott’s production resumes.
Those changes could complicate the landscape for prospective buyers of Reckitt’s formula business, say some industry executives and bankers.
“The question a buyer will have is ‘I can foresee a big jump in sales but am I going to hold that share,’” said Tim Brown, who ran Mead Johnson’s U.S. business during an Abbott recall of beetle-tainted Similac formula in 2010. Mr. Brown said he expects Reckitt’s formula sales to stay higher for at least the next two quarters.
However, Jefferies analyst Martin Deboo said that in the longer term the current shortages could lead to reform of the federal Women, Infants and Children program, which provides formula at no cost to families and effectively guarantees Reckitt about 18% of the U.S. market.
Reforms could open up the possibility of more competition from Gerber owner Nestlé SA and France’s Danone SA, which have about 10% and 1% of the U.S. market, respectively, said Mr. Deboo. That is “not necessarily a good look, in the midst of a reported sale process,” he added.
WIC is the largest buyer of infant formula in the U.S., making up more than half of annual formula sales, according to the Agriculture Department, which oversees the program.
The system has created a greater reliance on WIC-approved formula manufacturers by requiring states to contract a single supplier, giving the winning company a majority of market share. The program requires retailers to stock more of WIC-approved brands, which leads to greater sales among non-WIC consumers, too.
Gapping up
In reaction to earnings/guidance:
- RRGB +13.8%, SUMO +10.8%, DELL +9.6%, ULTA +7.9%, LGF.A +4.1%, ZS +3.2% (also announces partnership with Siemens), DOMO +3.2%, MRVL +3%, FTCH +2.9%, SAFM +1.3%, ADSK +0.8%
Other news:
- PMVP +11.2% (ASCO-related announcement)
- ACET +9.6% (ASCO-related announcement)
- IMGN +8.7% (ASCO-related announcement)
- ZY +7.8% (to sell modular automation system to Octant)
- ZYME +7.5% (ASCO-related announcement also All Blue Falcons increased active stake to 6.91% following the purchase of 570K shares (transaction dates 5/23-5/26))
- PDSB +5.4% (ASCO-related announcement)
- BCYC +5% (ASCO-related announcement)
- MYGN +5% (ASCO-related announcement)
- OCX +3.9% (ASCO-related announcement)
- ABUS +2.6% (ASCO-related announcement)
- OI +2.6% (subsidiary Paddock Enterprises plan of reorganization confirmed by U.S. Court)
- LYB +2.2% (announces $5.20/share special dividend and increases quarterly dividend by 5% to $1.19/share)
- AFMD +1.9% (ASCO-related announcement)
- VAL +1.8% (names new CFO)
- IMAB +1.6% (ASCO-related announcement)
- NVTA +1.4% (ASCO-related announcement)
- NVTS +1.1% (names new CFO)
Analyst comments:
- BOOT +2.8% (upgraded to Outperform from Neutral at Robert Baird)
- GPK +2.6% (upgraded to Outperform from Market Perform at BMO Capital Markets)
- BSX +1.8% (upgraded to Buy from Hold at Needham)
- HCA +1.5% (upgraded to Outperform from Mkt Perform at Bernstein)
Gapping down
In reaction to earnings/guidance:
- BIG -20.2%, GPS -18.6%, AEO -13.7%, CGC -11.2%, WDAY -9.4%, MAXN -8.6%, HIBB -4.5%, ME -2.4%, COST -1.8%
Other news:
- IOVA -44.4% (announces clinical data for lifileucel in advanced melanoma)
- SWTX -33.7% (ASCO-related announcement)
- MRTX -23.9% (ASCO-related announcement)
- ACB -14.3% (announces $125 mln bought deal financing)
- AADI -6.2% (ASCO-related announcement)
- PTGX -4.9% (ASCO-related announcement)
- TAK -2.3% (ASCO-related announcement)
- KNTE -2.3% (ASCO-related announcement)
- HROW -1.5% (files for $300 mln mixed securities shelf offering)
- M -1.2% (files mixed securities shelf offering)
Analyst comments:
- GEF -1.6% (downgraded to Market Perform from Outperform at BMO Capital Markets)
- CVS -1% (downgraded to Mkt Perform from Outperform at Bernstein)
Early premarket gappers
- Gapping up:
- ACET +18%, PMVP +16.1%, RRGB +12.9%, DELL +12.4%, ULTA +9.5%, ZYME +6.6%, SUMO +5.7%, BCYC +5%, MYGN +5%, MRVL +4.9%, PDSB +4.6%, LGF.A +4.1%, ZS +4.1%, OCX +3.9%, ZY +3.4%, DOMO +3.2%, ABUS +2.6%, AFMD +1.9%, VAL +1.8%, ADSK +1.8%, AMRX +1.7%, WEN +1.6%, IMAB +1.6%, NVTS +1.1%, ME +1%
- Gapping down:
- IOVA -46.4%, SWTX -30.8%, BIG -24.6%, MRTX -20.5%, GPS -19.1%, ACB -12.1%, AEO -12.1%, WDAY -8.1%, AADI -6.2%, IMGN -5.4%, PTGX -4.9%, MAXN -4.8%, TAK -2.3%, KNTE -2.3%, SB -2.2%, COST -2%, HROW -1.5%, CTIC -1.1%