10th June 2019
15 of the Top 20 UK restaurant companies do not have enough cash to cover debts falling due next year
On average Top 20 restaurant groups have only 74% of the cash they need to pay upcoming debts
Combined pressures of increasing costs and reduced consumer spending
15 of the Top 20* UK restaurant companies do not have enough cash to cover their debts falling due in the next year, shows research by UHY Hacker Young, the national accountancy group.
An 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.
UHY Hacker Young explains that, 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.
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 their debts is that the failure of restaurant companies like the Jamie Oliver Restaurant Group is that some lenders are reluctant to continue to extend credit to the sector.
UHY Hacker Young adds that the lack of cash to cover upcoming debts reflects the intense financial pressures on the restaurant sector. Very few major UK restaurant companies have been able to reduce their costs fast enough to deal with slowing growth. Brexit and interest rate rises 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 says: “Cash is drying up amongst the Top 20 UK restaurants who now only have 74p for every £1 they owe to creditors.”
“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.”
UHY Hacker Young adds that some restaurants are implementing restructuring plans in order to improve profitability which could incur even bigger cash costs in the short term. For example, this includes the costs of making employees redundant and exiting lease agreements early.
Examples of high-profile restaurant chains that have experienced financial difficulties include:
- Jamie Oliver Restaurant Group, 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
Recent research by UHY Hacker Young reveals that the Top 100 UK restaurants made an £82m loss in the last year, down from a pre-tax profit of £102m twelve months ago***.
*Ranked by turnover
**Company accounts filed with Companies House 2018/19
***Company accounts filed with Companies House as of March 31 2019. Excludes Jamie Oliver Restaurant Group
About UHY Hacker Young:
The UHY Hacker Young Group is one of the UK’s Top 20 accountancy networks with more than 100 partners and 540 professional staff working from 23 locations around the country. The offices within the Group provide a wide range of accounting, tax and business advisory services, with a reputation for integrity and reliability within the financial community, and particularly with London’s Stock Markets. UHY Hacker Young are also ranked 13th in the ARL Corporate Advisers Rankings Guide amongst other UK audit firms for advising London Stock Exchange listed companies.
UHY Hacker Young is a founder member of the UHY International network with offices in every major financial centre in the world. Further information can be found at www.uhy-uk.com
UHY Hacker Young
020 7216 4637