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Pub companies in survival talks with lenders despite government suppport

All three welcomed the Chancellor of the Exchequer's new proposals for business rates relief for 12 months and access to a credit guarantee facility but will still face minimal cashflow for many weeks

Mitchells & Butlers -

Pub and bar companies say they are slashing costs and are in talks with their lenders about survival plans after the UK government announced social distancing measures to prevent the spread of coronavirus. 

Mitchells & Butlers PLC (LON:MAB), Marston's PLC (MARS) and Revolution Bars Group PLC (LON:RBG) all on Tuesday revealed the obvious impact of the public staying at home is having an impact on their business.

With statements from the government suggesting that the current state of much reduced social activity is likely to continue for several months at least, all three expect a significant reduction in sales for the current year and said they were already making preparations for this.

Enough cash for a few months

Mitchells & Butlers, which operates chains including Toby Carvery, All Bar One, Nicholson's and O'Neill's, said it currently has “material cash resources” that it thinks “should be sufficient” to get it through to “well into the second half”.

With a debt payment and covenant test due in half-year stage on 11 April, M&B said it believed it “could suffer a significant loss” in the remaining period and still clear the required levels. 

Fellow FTSE 250-listed Marston’s said it has had “constructive” talks with its banks even though it feels its current headroom on both its bank and securitised facilities is “appropriate”, supported by a 93% freehold estate. 

“As a consequence of this, and the actions we have taken to date, we believe that we have sufficient liquidity to maintain operations at a materially reduced level of business.”

Marston’s said that, as its tenants and lessees face similar challenges to the main group, it has “reassured them that we will suspend rent on a case by case basis where it is appropriate to do so”.

It said with the government lockdown expected to continue for several months at least, it was "unlikely" to pay an interim dividend in order to retain a potentially crucial £20mln of cash.

Smaller Revolution Bars said it had net debt of £10.5mln at the end of last week and was “proactively exploring all the options available” about securing further funding.

A day earlier, sector peer City Pub Group Plc (LON:CPC) said it was taking measures to reduce costs and preserve cash, including cutting employee costs both at its head office and its pubs, with directors also taking a 25% pay cut.

Government measures

The industry welcomed Chancellor of the Exchequer Rishi Sunank’s newly announced support for the leisure sector, including access to a credit guarantee facility and a business rates holiday for all companies 12 months. 

But Revolution said it “does not go nearly far enough and we hope that there will be further measures in the coming days to provide assistance with payroll entitlements to gain surety for our employees, amongst other things”.

Marston's said it expected further measures to be proposed intended to support employment.

The business rate holiday for all pubs and restaurants, which in last week’s budget was abolished business rates for one year for businesses with a rateable value of less than £51,000 and on Tuesday was extended to all hospitality, retail and leisure firms, will “bring much needed cost (and cash) savings for the sector”, said analysts at Liberum, with annual business rates ranging from around 3% to 9% of sales.

Liberum calculated the rates relief should save Mitchells & Butlers circa £100mln, City Pubs roughly £1.8mln.

“This obviously gives the companies extra cash headroom immediately. We would hope further relief actions following, including rent/lease payment holidays and possible tax changes (payment holidays or VAT suspension).”

Quick facts: Mitchells & Butlers

Price: 197.6 GBX

LSE:MAB
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Market Cap: £848.1 m
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