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UK’s top restaurant companies don’t have cash to cover debts

Three quarters of the top 20 UK restaurant companies by turnover do not have enough cash to cover their debts falling due in the next year, according to research by accountancy group UHY Hacker Young. Analysis of the short-term liabilities and assets of the UK’s top 20 restaurant companies reveals that, on average, they have just 74% of the cash (or other easily realisable assets) they need to pay the debts that fall due in the next twelve months.

This latest analysis by UHY Hacker Young follows on from recent research by the firm that showed the top 100 UK restaurants made an £82m loss in the last year, down from a pre-tax profit of £102m twelve months earlier. In order to pay the debts falling due, restaurants will be forced to either roll over their debts, raise more capital from shareholders to pay down the debt, sell or sharply increase their cash generation, with the latter likely to prove problematic in the face of weak demand.

The ability to pay 100% of short-term debts out of cash and other short-term assets is considered healthy. The risk in trying to roll over debts is that the failure of restaurant companies like the Jamie Oliver Restaurant Group is that lenders may be reluctant to continue to extend credit to the sector or will increase the cost of credit because of concerns about risk.

Very few major UK restaurant companies have been able to reduce their costs fast enough to deal with slowing growth. Brexit and higher borrowing costs have slowed consumer spending in the sector and a glut of new restaurant openings in the last decade has cannibalised sales.

Peter Kubik, Partner at UHY Hacker Young said: “There is plenty that these companies can do to sort out that short term cash shortfall, but they will need to act early and take some tough decisions.” He explained that a number of the firms have recently entered a company voluntary arrangement (CVA) ‘either just before or just after the date of the accounts so the cost-cutting hasn’t kicked in yet. We can’t say categorically whether it is going to work or not’.

Indeed restructuring plans in place to improve profitability could incur even bigger cash costs in the short term, including the costs of making employees redundant and exiting lease agreements early.

Kubik added: What we’re dealing with here is medium quality chains trying to be reasonably high end and there are a lot of them, in terms of both the same brand in a small area and a number of different brands in the same area. Competition is high.”

Among high profile restaurant chains that have recently faced financial difficulties are:

  • Jamie Oliver Restaurant Group, which went into administration in May 2019
  • Prezzo, the Italian pizza chain announced in 2018 that it would be closing 93 of its restaurants and cutting 1,000 jobs
  • Carluccio's The Italian restaurant group closed 35 restaurants as part of a Company Voluntary Agreement in 2018 affecting 500 jobs

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