The Restaurant Group plans to shrink leisure estate by 30%

In response to the tough economic environment, the Restaurant Group (TRG) has said it expects to reduce its leisure estate by around 30% from 116 sites to 75-85 by 2024.

In a trading update for the 2022 financial year, the business said its leisure estate’s like-for-like sales were flat and 5% behind the market due to the segment being most exposed to changes in consumer sentiment, and therefore most directly impacted by the cost-of-living pressures.

The group today reported widening losses, from £35.2m to a statutory loss before tax of £86.8m last year, and subsequent plans to exit around 35 loss-making sites over the next two years through a combination of break clauses, lease expiries, conversions and disposals.

One to three sites are to be converted to Wagamamas over the next two years, at least 13 will be exited at break clause or lease expiry, seven freeholds will be sold, and 10-20 sites are being marketed for disposal.

Revenue for the year was £883m, an increase of 38.7% on the prior year, driven by strong trading across TRG’s Wagamama and pubs businesses along with the recovery of its concessions from the second half of the year, however inflationary pressures and cost increases hit the group’s margins.

This year, the group said its capital expenditure will be focused on growing Wagamama UK sites and supporting the joint venture US roll-out. In the UK, TRG plans to open five Wagamama sites each year over the next three years, with long-term plans to expand from 156 restaurants to around 200.

At year-end, the group had cash headroom of £139.2m consisting of £111.5m of undrawn revolving credit facilities and a cash balance of £27.7m to fund both the operations of the group and expansion for both its Wagamama and pubs businesses.

Chief executive Andy Hornby said: “We've delivered a strong operating performance for the year in a market which has continued to pose a number of headwinds for casual dining operators.

“Current trading has been very encouraging to the great credit of our teams who continue to ensure our customers receive the best experience possible.

“We have a clear plan to increase EBITDA margins over the next three years and deliver significant value for all our stakeholders.”

Activist investor Oasis Management, which holds a 6.5% stake in the business, has reportedly threatened to push for the removal of the group's boss after calling on the casual dining operator to be more transparent with shareholders about plans to turn around its "ruinous and devastating" share price performance and conduct a strategic review of its operations.

TRG has resisted the calls and said it is already undertaking its own review, refusing to grant the investor a seat on its board. Shares in TRG fell by two-thirds over the last year.

At last year's AGM the positions of chief executive Andy Hornby, chair Ken Hanna and chief financial officer Kirk Davis were all endorsed with 99% of shareholder's votes. The group’s next AGM will be held on 23 May.

Oasis has been exerting pressure on the business in the run up to the results announcement, claiming that shareholders "unfortunate enough" to participate in TRG's three equity capital raises over the past five years had seen the value of their investment "collapse by c.70% since 2018".

The hedge fund said the board's "refusal to acknowledge" the scale of the company's losses showed the need for more accountability at board level.

TRG bought Wagamama for an estimated £559m in 2018. The company employs approximately 18,000 people and operates around 410 restaurants and pub restaurants throughout the UK across brands including Wagamama, Brunning & Price and Frankie & Benny's. It also operates a multi-brand concessions business, which trades principally in UK airports, and Wagamama has a 20% stake in a joint venture operating six Wagamama restaurants in the US and more than 50 franchise restaurants.