In light of current equity market conditions and the rapidly changing developments regarding Covid-19, The Restaurant Group plc (LON:RTN) provided the following update.
Current Trading Update:
Group like-for-like sales for the first eight weeks of the financial year were up 4.5%, in a period unaffected by Covid-19.
In the last two weeks we have seen an increasing and material impact of Covid-19 across our businesses with Group like-for-like sales being down 12.5%. In particular, our Concessions business has been significantly impacted with like-for-like sales down 21.7% and getting worse by the day given International travel bans.
Outlook:
The Restaurant Group’s key priority at these unprecedented times is the health and safety of our employees, customers and business partners.
The Group has been reviewing the rapidly evolving situation relating to Covid-19 and has modelled a scenario of the potential financial outcome in the coming months. It is now clear that the increasing effects of Covid-19 will result in a material reduction in our expectations for revenue and profit across the business for the first half of this financial year (the period ending 28th June 2020).
Today, the Company is therefore providing guidance on the potential impact on our full year results of Covid-19. This guidance is predicated on the following revenue assumptions:
- An overall decline in Group like-for-like sales of 25% in FY2020 (assumed down 45% in the first half and 5% in the second half).
- A significant decline in our Concessions business (down 92% in Q2) with significant disruption persisting through the remainder of the year (down 31% in H2).
- A sustained reduction in footfall across Leisure, Pubs and Wagamama, with like-for-like sales across these businesses down 68% in Q2, including 10 weeks of shutdown, before normalising through H2.
In response to the uncertain environment, the Group is taking a number of actions to protect profitability and to conserve cash:
- The Group will reduce capital expenditure for 2020 by at least £45m from the previous guidance of £75m.
- The Group is highly focused on delivering maximum operational efficiency across all areas of our business over the course of 2020 and is targeting to save at least £45m.
- The Group will be 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 equitably reflects the unique and unforeseeable situation. The forecast assumes at least a 50% reduction in fixed rent across all our Wagamama, Concessions, Pubs and Leisure restaurants, and reflects the business rates holiday for three quarters of 2020 as announced yesterday in the Chancellor’s statement.
- The Group will work with lending banks to seek covenant holidays throughout 2020 in order to preserve maximum flexibility to operate the business through this challenging period.
As a result, the Group currently estimates Adjusted EBITDA for the financial year ended 27 December 2020 to be between £95m and £105m with leverage (pre-IFRS 16 net debt to EBITDA) of between 2.2x and 2.5x.
Under this scenario, we would retain a minimum of £75m of cash liquidity throughout the remainder of the 2020 financial year. The Group estimates that in the event that the entire group is in shutdown for a period in excess of that assumed above, then the adverse impact on cash would be no more than £15m for each further month of shutdown.
Clearly the situation is evolving rapidly and there is no certainty around the severity and duration of the impact on the business. The Company is continuing to consider its funding options, both equity and debt, on an ongoing basis.
The Restaurant Group is fundamentally a resilient business with a strong asset base, substantial cash liquidity and strong cash flow. The Group has a strong management team in place and the capability to adapt and respond quickly to changing market conditions.
The Board remains confident in the strategy over the longer term and believes the Group will be well positioned to benefit from the normalisation in trade with its diversified set of brands.
