Tasty: Radical Management Action Urgently Required As Estimated Pandemic Cash Burn Could Leave Company Broke By November

5 thoughts on “Tasty: Radical Management Action Urgently Required As Estimated Pandemic Cash Burn Could Leave Company Broke By November”

1. Tasty (TAST)

   Publication of 2019 annual report

   Various interesting snippets, most of which were not mentioned in the blog post above;

   1) Going concern

   Confirmation of the ‘going concern’ narrative. The board has a “reasonable expectation” — the same term used for the previous two years:

   

   

   2) Audit

   Haysmacintyre replaced BDO as auditor for 2019:

   

   The new auditor appears to have evaluated certain management assumptions in greater depth.

   In particular, impairments and lease provisions are now double-checked with 10-year projections:

   
   

   The ‘going concern’ basis was also checked for 2019:

   

   A good sign — audit materiality was reduced significantly. Scope remains 100% as well:

   
   

   3) Corporate governance

   New for 2019 — a full corporate governance statement:

   

   Lots of corporate-governance commentary on employees, which noted the benefits of staff training have yet to be realised in full:

   

   The Kayes like to skip the occasional board meeting:

   

   Would be useful to know more about the “effective procedures” to monitor the conflicts of interest.

   A useful line on the group’s culture:

   

   ‘Tri for life’ is an organisation associated with director Sam Kaye.

   4) Debt

   Confirmation that the debt has all been paid off:

   

   5) Director pay

   Probably the most encouraging note in the accounts this year. The Kayes have waived their fees and the two other long-time directors have reduced their fees by 75%:

   

   6) Employees

   TAST’s employee stats showed good productivity improvements during 2018, but the ratios declined a fraction for 2019:

   

   Revenue per employee was £43k versus £45k for 2018, while employees per outlet were 17.6 versus 16.9 for 2018.

   I had hoped those 2018 stats would be maintained for 2019, although perhaps 2018 was a freak result and/or the figures are skewed by part-time workers. The average cost per employee was £17.7k, versus £18.3k for 2018.

   Total staff costs remain at 41% of revenue. Was 36% in 2014.

   7) Fixed assets

   This accounting looks somewhat suspect:

   

   A 10% straight-line reduction could be equivalent to a useful life of 10 years, which feels optimistic for restaurant fittings. Restaurant Group applies an equivalent useful life of 3-10 years.

   A 5% straight-line reduction for computer equipment — indicating perhaps a useful life of 20 years — seems ridiculous.

   Too late to bother with this bookkeeping policy now. But had I noticed the policy a few years ago, I may have questioned the accounting optimism — and perhaps considered other aspects of TAST where management were (in hindsight) too ambitious.

   8) Goodwill

   If you believe the accounting, two restaurants enjoy a total carrying value of £326k:

   

   My blog post above calculates the market cap per restaurant to be £50k.

   9) Inventories

   

   The £11.4m of stock expensed through the P&L represented 26% of revenue — matching the proportion for the previous two years.

   The level was 23% for 2016 — Brexit year — which indicates TAST has indeed lost some margin due to Brexit if (as I suspect) most stock is bought in from overseas.

   The £871k of raw materials and consumables suggests TAST carries c28 days of stock.

   10) Options

   Oh dear — various subsidiary options were repurchased by the company for just £28:


   

   I can’t be sure, but I believe those options explain why the holding company owns 53% of the main operating subsidiary:

   

   The percentage was always 100% in previous reports. Not sure if the new auditor has applied a different calculation, or perhaps the rights issue last year has affected the percentage. Similar to the useful-life policy, not something to worry about unduly given the current questions over the group’s survival.

   Option dilution is not a problem with the shares at 2p:

   

   Options that can be exercised need the shares to rally to 31p.

   11) Receivables

   No problems here:


   

   12) Payables

   No problems here:

   

   13) Related party transactions

   Benja Properties was omitted from last year’s transactions but included this year:

   

   14) IFRS 16

   The adoption of IFRS 16 for 2020 will reduce profit by £1.3m:

   

   IFRS 16 does not affect cash flow, and I will worry about the finer details should TAST ever get to publish its 2020 annual report.

   Maynard

2. Tasty (TAST)

   Statement re: Redundancies published 03 July 2020

   Radical action — 32% of the workforce has been let go. The company also needs more cash. Here is the full text:

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   “Further to the Company’s announcement on 26 June 2020 regarding the phased opening of a limited number of sites over the next few weeks, given the anticipated drop in footfall due to the continuing restrictions imposed as a result of COVID-19, the Board has come to the difficult decision that staff numbers need to be reduced accordingly. Consequently, some 284 staff members (representing approximately 32 per cent. of the total workforce) have been made redundant across our restaurants and Head Office. Clearly, this decision has been very difficult for everyone involved and throughout this process our priority has been to support those that have been affected.

   The board of directors is exploring ways to minimise costs and to strengthen the balance sheet including investigating the possibility of new debt and / or equity capital and also discussing terms with landlords and trade creditors. Further announcements will be made as and when appropriate.”
   ——————————————————————————————————————————-

   Would be interesting to see if “new debt” could indeed be taken on and on what terms. Not sure there will be great appetite for another equity raise. Oh dear.

   Maynard

3. Tasty (TAST)

   Paul Scott scuttlebutt published 07 August 2020

   Investment blogger Paul Scott has visited Wildwood Bournemouth. “Very busy“:

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   Pubs and restaurants seem to be seeing a surge in demand, thanks to the Eat Out to Help Out Govt discount scheme. Industry data suggests that sales were up 70.9% in the first 3 days of the scheme (food up 114.3%). I decided to mystery shop Wildwood, in Bournemouth, a pre-covid favourite of mine, on Weds earlier this week. I couldn’t believe how busy it was – packed downstairs, and a good smattering of groups upstairs too (which is usually empty).

   I asked the waitress how business has been, she replied, “very busy, every day, since we re-opened on 18 July“. Isn’t that surprising. She said the Govt scheme has helped, but it was busy already. Bournemouth generally was busy with people at about 6pm, although being a seaside town, and the weather being pleasant, and people not going abroad, then perhaps those factors help. It looks very mixed anyway – central London is still almost deserted, but by the looks of it seaside/holiday towns are doing alright. I’m going to mystery shop Franco Manca for lunch today!
   ———————————————————————————————————————————-

   Talking of Franco Manca, owner Fulham Shore issued this statement on 06 August 2020:

   “Trading at the Group’s re-opened restaurants has started gradually, and the early signs in both businesses are promising. In the four weeks since 6 July 2020, like-for-like restaurant sales at reopened sites were approximately 72 per cent. of the equivalent weeks in the previous year.

   The Group has shared approximately half the benefit of the new six month reduction in VAT on food with its customers. In addition, both Franco Manca and The Real Greek will be participating in the Government’s Eat Out to Help Out initiative, where customers will enjoy a 50 per cent. discount (up to £10 per person) when dining from Monday to Wednesday in August. Both these measures are expected to have a positive impact on the Group’s trading as sales rebuild to pre-COVID-19 levels.”

   Like-for-likes (LFLs) down 28% does not seem catastrophic all things considered. Something to bear in mind is the adjustment to VAT and the government Eat Out to Help Out scheme. I am not sure how the LFL numbers will be affected by these initiatives. For example, FUL has shared half the VAT benefit with customers, implying the other half has benefited the company. So LFLs may be flattered a little by the subsidies.

   Loungers, which operates a hybrid cafe/bar/restaurant chain, issued this statement on 05 August 2020:

   “The Board is pleased to update on current trading having now re-opened all 165 sites in the estate, with the exception of Cosy Club in Leicester which opens this Friday. Like for like sales have been -1.7% over the period from 4 July, when our phased re-opening commenced, through to 2 August. Whilst these are still early days, we are encouraged by the initial strength of our trading performance to date and remain confident the Company will emerge strongly from this period.”

   LFLs down just 1.7% is incredibly impressive.

   All told, perhaps the dining-out sector has not died just yet. TAST’s next update should be interim results during September.

   Maynard

4. Tasty (TAST)

   Trading update published 18 August 2020

   Nothing too surprising here given the circumstances. Management still warning that another equity placing could be needed. Here is the full text:
   
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   Tasty (AIM: TAST), the owner and operator of restaurants in the casual dining sector, announces the following update, further to the announcements made on 26 June and 3 July 2020.

   The Board confirms that the process of significantly reducing the workforce by more than 30% is substantially complete.

   The phased reopening schedule has continued, principally to take advantage of the Government’s ‘Eat Out to Help Out’ scheme and reduced VAT. The Board expects to have up to 48 sites trading in August, which will represent approximately 86% of the estate. Most of the remaining restaurants are not planned to re-open for the foreseeable future and some of the restaurants which are currently open may need to close again should they not reach expected trading levels.

   The Company has experienced a positive level of sales this month to date, temporarily supported by the increase in people staying in the UK this summer, Government initiatives and pent up demand following the relaxation of lockdown restrictions since March, however, the Board expects future trading to remain challenging.

   The Board remains extremely cautious regarding trading in September and is continuing to explore ways to minimise costs and to strengthen the balance sheet including the possibility of new debt and/or equity capital. Discussions are also continuing with landlords and trade creditors to reduce current and future liabilities.
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   The workforce reduction was announced during July.

   TAST’s websites say 36 (of 51) Wildwoods and 4 (of 5) dim-ts are currently trading:

   

   

   So up to another 8 sites could open to get to the 48 mentioned in the RNS.

   Reducing the workforce by 30% and the estate by 14% suggests staff per outlet has reduced by almost 20%, which could mean sales per outlet has dropped by almost 20% as well. Oh dear.

   Fulham Shore issued this statement today (20 August 2020):

   “The UK Government’s ‘Eat Out to Help Out’ scheme has proved to be beneficial both for UK diners and Fulham Shore. Trade in the first full fortnight in August was markedly up on the same period in the previous year, with the Group achieving one of its highest weekly turnover figures in the second week of ‘Eat Out to Help Out’, despite some of its restaurants still remaining closed.

   Almost all of the Group’s employees are back off furlough and the Company is recruiting and training more restaurant staff at all levels.

   Since 6 August 2020, the Company has re-opened two more The Real Greek restaurants and is planning to reopen another Franco Manca next week, next to the new Harrods store in Westfield London. This will take the Group restaurant numbers that have re-opened for trading up to 50 (out of 51) Franco Manca and 16 (out of 18) The Real Greek. This will leave the Company with three unopened sites in the City and West End of London, which will re-open when office tenants and theatregoers return. The Company also remains on track to open a new Franco Manca on The Cut, near to the Old Vic theatre and Waterloo Station in London, in mid-September.”

   A markedly different tone to that of TAST. FUL is even taking on more staff and opening new sites.

   Whether that difference justifies FUL’s market cap of £60m versus TAST’s £3m is hard to say.

   Maynard

5. Tasty (TAST)

   Bank Facility

   Looks like the much needed radical action is underway, with talk of a CVA. Also, the threat of another equity raise may have diminished as Barclays is happy to lend further money. Here is the full text:

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   Further to the most recent trading update announced on 18 August 2020, Tasty (AIM: TAST), the owner and operator of restaurants in the casual dining sector, announces the following update.

   In light of the continued economic uncertainty and the impact of COVID-19 related restrictions, the Company has secured a £1.25 million, four year term loan from its existing bankers, Barclays Bank plc (the “Facility”), in order to strengthen its balance sheet and provide additional working capital support. The Facility is available to be drawn down until 7 February 2021, however, draw down is restricted until the future of the Company is assured through restaurant closures and creditor arrangements. The Facility has a capital repayment holiday of 12 months and carries interest at a rate of 4.5% per annum over the Bank of England Base Rate, following draw down.

   The Board of Tasty confirms that, whilst no decision has yet been made, it is continuing to work with its advisers, KPMG, to assess the potential impact of COVID-19 on the business and the various strategic options available to the Company, including a potential company voluntary arrangement. The Company will commence consensual negotiations with landlords and other creditors shortly and anticipates that this process will be completed by the end of November 2020. The Board believes that given the recently announced additional COVID-19 related regulations and the probability of future tighter restrictions in the near future, all potential options should continue to be explored but, with creditor assistance, a more formal procedure may be avoided.

   The Company will make further announcements as appropriate.
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   Debt costs at 4.5% + Base Rate does not feel exorbitant, although the revised facility taken on during November 2018 charged between 2.5% and 4% + LIBOR. This latest debt facility is not available until the “future of the company is assured“, which presumably is not the case at present.

   A CVA looks a possibility if the landlords do not agree to rent reductions. I suspect landlords generally have little choice at present other than to accept reduced terms. TAST co-chief exec Sam Kaye and his wider family own significant property investments and let certain sites to TAST. I would like to think the negotiations between TAST and the Kayes would be very consensual. The aim of completing all the landlord negotiations within a month also suggests landlords have little option but to accept new terms.

   All told, TAST’s survival is still not guaranteed but the chance of surviving has improved somewhat.

   Maynard

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