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Wed 8th Apr 2020 - TRG plans share placing, assumes phased reopening of sites until end of year
TRG plans share placing, assumes phased reopening of sites until end of year: The Restaurant Group (TRG), the Wagamama and Frankie & Benny’s operator, has announced its intention to carry out a placing of new ordinary shares in the capital of the company of up to circa 19.9%, as it looks to raise further equity. TRG said the placing is expected to provide sufficient liquidity for the company to deal with “this challenging environment and enable it to continue to operate, where possible, through this extraordinary period while ensuring it is well positioned for the eventual normalisation”. It said “in light of the rapidly changing developments regarding covid-19”, it had modelled a pessimistic scenario for the current financial year, which 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 tall its circa 600 restaurants and pubs will remain closed until the end of June. The company said: “Furthermore, with the government indicating social distancing measures will remain in force post lock-down, we believe there will be a slow recovery in footfall during the rest of this financial year. We therefore assume we would be extremely disciplined in the phased reopening of our restaurants through July to December and would expect to reopen about 400 of our 600 restaurants and pubs across that period, potentially with some restrictions on operations immediately following lock-down.” TRG said this scenario results in the following revenue assumptions – an overall decline in group like-for-like sales of circa 45% in FY2020 assumed to be down 60% in the first half and circa 30% in the second half (with the third quarter down 45% and fourth quarter down 10%), and an overall decline in group total sales of circa 50% in FY2020 assumed down 60% in the first half and circa 45% in the second half (with the third quarter down 60% and fourth quarter down 30%). Since the market update provided on 18 March, the group said it had 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 circa £3m per four week period; and it has accessed the government furlough scheme to ensure the ongoing employment of more than 20,000 employees and included the business rates holiday for three quarters of 2020. It has also placed Food and Fuel and Chiquito into administration. The company said it was also working with landlords across all business areas to ensure no minimum guarantees are enforced within concessions, where rents are largely turnover based; and to ensure the rent roll for 2020 across its other businesses reflects the “slow and gradual return of trade following the lock-down period”. The company said: “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 the fourth quarter, despite a continuing decline in like-for-like sales, the group estimates 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 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.” On the placing, the business said: “After consultation with a number of major shareholders on the rationale and the structure, we are seeking to raise further equity through a cash box placing of up to approximately 19.9% of the company's existing ordinary share capital. The board of directors has concluded the placing is in the best interests of shareholders and wider stakeholders and will promote the success of the company. Clearly the situation continues to evolve rapidly and there is no certainty around the severity and duration of the impact on the business. However, TRG is fundamentally a resilient business with a strong asset base, substantial cash liquidity and strong cash flow. 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.” Earlier this week, the company announced it had secured an additional £15m increase in Santander's super senior revolving credit facility to Wagamama from £20m to £35m.


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