The Restaurant Group (TRG), behind the Frankie & Benny’s and Wagamama chains, has raised £57m through a share placing to bolster its finances ahead of an expected sales plunge this year.
Due to the fast-moving developments regarding COVID-19, the group has modelled a pessimistic scenario for the current financial year. This takes account of management actions taken to conserve cash, the benefit from the Government announced initiatives, and updated financing arrangements with the group’s lending group.
This scenario assumes that all its restaurants and pubs will remain closed until the end of June. Furthermore, with the Government indicating that social distancing measures will remain in force post lockdown, TRG believes that there will be a slow recovery in footfall during the rest of this financial year.
The company therefore assumes that it would be extremely disciplined in the phased reopening of its restaurants through July to December 2020 and would expect to reopen around 400 of its 600 restaurants and pubs across that period, potentially with some restrictions on operations immediately following lockdown.
This scenario results in the following revenue assumptions:
• An overall decline in Group like-for-like sales of c. 45% in FY2020 assumed to be down 60% in the first half and c. 30% in the second half (with Q3 down 45% and Q4 down 10%), and
• An overall decline in Group total sales of c. 50% in FY2020 (assumed down 60% in the first half and c. 45% in the second half (with Q3 down 60% and Q4 down 30%).
Since the market update provided on 18 March 2020 the Group has completed the following cash preservation activities:
- capital expenditure has been reduced to no more than £30m for FY2020,
- costs have been reduced to a minimum and (excluding payroll costs supported by the Government), ongoing cash expenditure is now only c. £3m per four week period.
- the group has accessed the Government furlough scheme to ensure the ongoing employment of over 20,000 employees and included the business rates holiday for three quarters of 2020.
- the Food and Fuel and Chiquito statutory entities have been placed into administration
- the group is working with landlords across all business areas to ensure that no minimum guarantees are enforced within Concessions, where rents are largely turnover based; and to ensure that the rent roll for 2020 across our other businesses reflects the slow and gradual return of trade following the lockdown period.
As a result, the Group now estimates under this scenario that Adjusted EBITDA for the financial year ending 27 December 2020 will be between £45m and £55m with net debt in the region of £310m to £320m. Importantly, in Q4, despite a continuing decline in like-for-like sales, the Group estimates that between £35m to £40m in Adjusted EBITDA will be generated given the significant cost restructuring completed.
Under this scenario, we forecast a minimum of £60m of cash liquidity throughout the remainder of the 2020 financial year. The Group believes that in the event that all our restaurants and pubs are shut down for a period in excess of that assumed in this scenario, then the adverse impact on cash would be no more than £5m for each further month of complete closure plus the cost of furloughing employees.