Burger & Lobster takes cost-cutting measures as it racks up £6m loss

Burger & Lobster

Restaurant chain Burger & Lobster made a loss of £6.3m in its last reported financial year, accounts filed at Companies House this week reveal.

The deficit, for the year to 3 January 2016, compared with a net profit of £109,836 the year before. Losses before interest, tax, depreciation and amortisation amounted to £1.79m in 2015, versus a £1.46m profit the year before.

Directors at the chain, which runs 14 restaurants in the UK, said the losses were down to increased purchase prices on lobster and lobster meat accompanied by its fixed selling price strategy and “significant” pre-opening costs associated with its UK expansion. It launched sites in Holborn, leciester Square and West India Quays during 2016.

It also blamed a rise in head office costs and depreciation expenses as a result of “prudently accelerated depreciation” for fixed assets relating to several sites that it was looking to close or sub-lease last year.

“The key strategies are to reverse the trading losses through increase in selling prices, closure and/or sales of loss-making restaurant sites and restructuring of the head office operations, so to reduce the head office costs,” the directors stated. “Management of cash flows generated by the trading operations is a major emphasis.”

Despite the losses, the group‘s turnover actually soared by 41% in 2015. But costs increased from 43% of sales in 2014 to 47% of sales last year. This led to gross margin slipping four percentage points to 53%.

Burger & Lobster said the risk of cost prices going up could be mitigated by using multiple suppliers to source main products which would allow it to select the best available combination of price and quality. “If an increase in costs prices were to occur, it may adversely affect the financial results of the group, to the extent that such costs increases cannot be offset by further increases in selling prices,” it said.

Meanwhile, the report revealed that Burger & Lobster received a loan from NatWest Bank to finance the opening of new restaurants but it was not able to meet the debt covenants agreed.

It subsequently obtained additional funding from the bank to restructure its existing obligations and use the remaining balance for the restaurant sites development and working capital purposes, but was still unable to meet the revised debt terms.

“The company’s directors are in process of negotiating revised maturities and terms or to obtain the replacement financing. This situation indicates the existence of a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern,” they said.

However, management added in the report that given the cost measures implemented to improve profitability, the closure of loss-making sites and the restructuring of head office operations, they have “ reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future.”

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