Use of CVAs up by 143% in last six months, study says
Linklaters notes that there were 12 CVAs already utilised in the first quarter of this year alone.
The number of restaurants in financial distress has skyrocketed by 143% in the last six months compared to the previous six months, according to analysis by global law firm Linklaters.
Their research notes that there were 12 CVAs (company voluntary arrangements), a process where struggling businesses are allowed to restructure its estate, in the first quarter of this year alone compared to 17 in the whole of 2017.
Byron, Carluccio’s and Prezzo are some of the restaurant brands that have resorted to CVAs to close outlets this year.
(Also read: Carluccio's announces creditors' support for CVA proposal)
“The sector has been faced with a number of issues that have caused a stranglehold. First, there’s oversaturation in the market. A number of chains expanded rapidly to the point that supply has raced ahead of demand. Couple that with increased food prices, staff costs and business rates, owners are looking at where they can reduce costs to put the business on a more sustainable footing,” Linklaters Restructuring & Insolvency partner Richard Hodgson commented.
“When used successfully, CVAs can lead to businesses being saved and therefore fewer property vacancies. However, their use has become much more wide-spread and is therefore having a more significant impact on landlords than was maybe originally conceived. As a result, we have seen some resistance and pressure from a number of landlords this year, calling for the government to reform the system,” Simon Price, Real Estate partner at Linklaters, added.
Carluccio’s secures £10m of new funding, reports multi-million profit loss
Following the approval of its CVA proposal, Carluccio’s recently announced that over 60 of their restaurants will receive significant investment through £10 million of new funding into the business from majority shareholder Landmark Group.
The fund infusion programme will see up to £250,000 invested in each location and will refresh brand standards and on-going food development that will be overseen by its new senior management team.
“This is an important milestone for the Carluccio’s business and our team, allowing us to now look ahead positively to the future, with a clear plan to re-assert, and build on, our credentials as the UK’s leading Italian restaurant and food company, built on fresh, flavourful dishes," Carluccio’s CEO Mark Jones said in a statement.
Carluccio’s also reported the cost of its CVA proposal in its 2017 accounts despite only being approved in May of this year.
Adjusted group EBITDA halved to £6.5m compared to 2016's £13.2m while group revenues decreased to £138.2m from 2016's £140.9m.
“While these numbers are somewhat historical now, the decrease in underlying profit last year did graphically illustrate the requirement for us to create a more focused group; to divest from lossmaking sites; and to invest significantly in our core business, and I am pleased to be able to report this progress in the intervening period,” Jones added.
(Photo credit: Carluccio's Facebook page)
