O’Neill’s and Harvester owner considers emergency cash call

The pub and restaurant group Mitchells & Butlers (M&B), which owns pub chains including O’Neill’s and restaurant brands such as Harvester, has said it may ask investors for emergency funds to help it survive an “extremely uncertain” future, as enforced closures have left it less than three months away from running out of cash.

In the latest evidence of the havoc the coronavirus pandemic has wrought on the hospitality sector, the group, which also runs All Bar One, Toby Carvery and Miller & Carter, said all its venues had been shut since 30 December.

The complete loss of trading – under tough lockdown rules set to last until mid-February in England – has escalated its woes after a dismal three-month trading period that ended on 26 November.

Multiple closures due to coronavirus restrictions sent overall sales down 67% during that quarter. Even those pubs, bars and restaurants that were able to stay open reported revenues down 30%.

M&B has cut costs and reduced spending but said it had only £125m cash left, having drawn on all its lending facilities. The business is burning through up to £40m per month and also has a £50m quarterly debt repayment due to go out on 15 March.

With a cash crunch looming, M&B said it was likely to issue new stock and ask investors to buy it. Its shares fell 7% in early trading, because equity raisings dilute the value of existing stock.

“We welcome recent positive news on vaccine approval and rollout but the future facing the hospitality sector remains extremely uncertain,” M&B said in a statement.

“It is not possible to estimate with any confidence what restrictions on our ability to trade lie ahead of us and for how long. As a result, the directors believe it is prudent to explore an equity capital raise, to give the group increased financial and operational flexibility.”

The plan has the backing of M&B’s largest shareholders. The billionaire Joe Lewis, who is also the majority owner of Tottenham Hotspur football club, and the horse-racing tycoons JP McManus and John Magnier own just over 50% of the company between them.

But directors have not decided when to launch the cash call or how much will be needed, the company said.

“We are now in a third national lockdown,” said the chief executive, Phil Urban.

“I am consistently impressed by the resilience and energy of our teams as we repeatedly open and close businesses that we have invested in to make [them] Covid secure and urge the government to better understand the huge impact these restrictions are having on the hospitality sector.

“The job retention scheme is temporarily protecting some employment but there is a real and pressing need for support for businesses themselves if we are to return to being the vibrant sector and important employers that we were.”

Analysts at stockbroker Jefferies said it was “no great surprise” that M&B wanted to raise funds, given that companies such as Wagamama-owner the Restaurant Group and Whitbread, which owns Premier Inn hotels and Beefeater Restaurants, have also raised new funds.

“Longer term, with a mainly-freehold, well-invested estate, M&B looks well-placed to capture market share from a damaged hospitality sector,” said analyst James Wheatcroft.