Directors of restaurant group Polpo remain confident they have the “foundations” in place to ensure the future viability of the business after creditors voted in favour of CVA proposals to avoid it entering administration.
Bosses decided last month that a CVA was the “best option” available to it following an abortive attempt to recapitalise the business. That came after HMRC, to whom it had historic debt obligations, refused to accept a further rescheduling of what it was owed, even though the chain had demonstrated profitability in the last three months.
Some 98% of creditors approved its CVA plans at a vote on Friday.
Companies House records filed last week show Polpo revenues fell 5% to £13.6m for the year to 1 April 2018 due to the closure of its Bristol, Exeter and Ape & Bird sites, as well as declining like-for-like sales.
The impact of National Living Wage increases and raw ingredient prices that could not be passed onto customers also hit the business, while one-off impairment costs of £648,000 due to site closures and an onerous lease charge of £125,000 led to a loss for the year of £1.3m.
At the end of October 2018 the company changed its management, with Richard Beatty taking over as managing director.
He instigated a comprehensive review of overhead contracts and procedures, making significant savings in terms of head office salaries and non-essential head office costs. Total savings to date are expected to exceed £1m on an annual basis, according to the report.
The principal objectives of the CVA are to rationalise creditor obligations, improve the balance sheet and assist in a return to profitability.
This will be achieved by compromising certain non-critical creditors, including the “substantial” historic VAT liability due to HMRC and exiting two loss-making central London sites.
Commenting on future developments, the directors stated in Polpo’s financial report: “Polpo is fundamentally a people business. The previous senior management team spent little time engaging with staff and customers, which led to a deterioration in service standards. The reinvolvement of the high profile founders has re-engaged Polpo’s historic customer base and has led to an improvement in staff morale.
“This was evidence in improved sales in the critical December period. The headwinds felt in the sector are now being actively addressed via a renewed strategy. Head office costs have been cut and the focus will now move to labour productivity. Assuming the CVA is successful, the directors believe that they have put the foundations in place to ensure the future viability of the business.”
Polpo said management continue to restructure the cost base of the business, reposition the brand and drive menu innovation to drive customer loyalty and attract new diners to its restaurants.