Seagrass, which owns Five Guys and Ribs & Burgers, slumps to $15m loss, in breach of debt covenants

The operator of the Five Guys chain, as well as Meat & Wine Co and Ribs & Burgers brand, says its private equity owners will guarantee additional funding.

Seagrass Boutique Hospitality, one of the country’s largest owners of restaurants, has slumped to a $14.6m loss in the 12 months to June 30 despite revenues rising to $144.3m.

In documents lodged with the corporate regulator, Seagrass warned a poor economic outlook and difficult operating conditions had created uncertainties about its survival without additional financial support from its shareholders.

Seagrass was acquired by Sydney private equity outfit Crescent Capital Partners in a $100m deal in 2019, and operates several chains including The Meat & Wine Co, the Ribs & Burgers brand and high-end steakhouse 6 Head.

It also owns the local master franchise rights for the Five Guys burger chain, which it has been rapidly expanding, and runs the Hunter & Barrell restaurants in Australia and Dubai.

Seagrass lost $9.6m in the 2021 financial year.

The accounts, lodged on Monday, show revenues increased from $121m in the 2021 financial year to $144.3m, while personnel expenses rose from $51.4m to $66.5m. However, there was also a significant rise in finance costs, which increased from $9.3m to $11.1m in the 12 month period.

The company owes more than $58m, including around $39m to Crescent Capital. Seagrass, the accounts note, was in breach of its debt covenants as of June 30. It owes banks $13m.

“The ability of the group to pay its debts as and when they fall due … is dependent upon the group achieving sustained profitability, generating adequate cash flow from operations, ongoing support from shareholders and returning to compliance with banking covenants,” the filings read.

“To address this, the directors have received formal confirmation from shareholders that they remain supportive of the business, that loans due to them will not be called for a period of at least 12 months and that additional funding would be provided if required.

“In addition, positive discussions are ongoing over updating covenants requirements.”

In particular, the company said the Covid-19 pandemic had made it difficult to operate through the year, with severe restrictions placed on in-restaurant dining. Seagrass was forced to alter its business, as was much of the hospitality sector, to cater for greater delivery-based sales.

“As the pandemic restrictions eased, a return to dine in-store had become more prevalent and the directors are comfortable that the group has effective operating models in place to generate income via both in-store and delivery channels to cater to any future changes in Covid-19.”

Seagrass is run by Bradley Michael, who earlier this year outlines significant expansion plans for the business. The company opened its first Victorian Five Guys outlet in August, and is planning to open more Italian Street Kitchen and Hunter & Barrell-branded restaurants locally.

“I told my staff that we would think bigger, that we would extend our expansion plans and make them bigger than they were before,” Mr Michael told The Australian in 2021.

“I don’t think there will ever be an opportunity like this, over the next two years, for me to drive this business in a growth direction – I have the infrastructure, I have the people and I have the finances to do it.”

Originally published as Seagrass, which owns Five Guys and Ribs & Burgers, slumps to $15m loss, in breach of debt covenants