As activist investors pressure it, The Restaurant Group, which owns the Frankie & Benny’s, Wagamama and Wagamama restaurants, has plans to close 35 of its worst performing sites.
It also announced a three-year plan for increasing operating margins from 8.3 percent to 11.8 percent. However, chief executive Andy Hornby stated that the move was not a concession to Oasis Management in Hong Kong, which owns a 6.5% stake.
TRG and Oasis have clashed in recent weeks after Oasis’ request for a seat on the board was denied. Oasis sources said that the fund also suggested that TRG sell its Brunning & Price pub chain to TRG for a value of PS250mn and would push Hornby to quit if he did not improve performance.
Irenic Capital Management, another activist fund, also held a position last year in TRG and has been in touch with the company. Irenic has yet to file a disclosure, which indicates that it holds less than 3% of the voting rights in TRG. Oasis will be meeting the TRG management in the next few days.
After it rejected speculations that it would soon announce an asset sale, shares in the London-listed company fell 15% to 38p. Hornby said that while it was not ruling out changing its stance, “No CEO will ever say an asset isn’t for sale. But clearly, he did. . . The only logic to selling it is if it’s worth significantly more to someone else and they are willing to pay for it.”
Hornby stated that he is not unnerved at the activist fund pressure. Hornby said, “I am nerved by making sure the business runs properly. . . If I fail to keep some of the promises I made, I will have an issue.”
TRG is under increasing pressure due to the presence of Irenic in its shareholder register. This New York-based firm was active in previous situations, including the merger proposal between Rupert Murdoch’s News Corp and Fox businesses.
Hornby stated that he was comfortable receiving input from all shareholders. Hornby stated that there was no doubt that his strategy was supported by the “broad” shareholder base.
TRG’s share prices had increased by 30% since February, when Oasis made its views public. The stock then fell on Wednesday. Hornby stated that he did not give credit to activist investors for the stock’s improvement.
He argued that the improvement was due to investors anticipating “promising full-year earnings” despite signs that customers were cutting back spending at TRG’s cheaper restaurants.
TRG reported that VAT-adjusted sales rose by 16 percent in Wagamama restaurants, 14% in its pubs division, and 2% at its leisure venues.
The Frankie & Benny’s, Chiquito and Chiquito chains will see the majority of closures. These will occur over the next two year as leases expire. Hornby stated that this would allow TRG to reduce its PS185mn debt, which has been difficult to service.
TRG’s total sales increased by nearly 39% year-on-year last year to PS883mn. Adjusted earnings before interest tax, depreciation, and amortization increased from PS81.2mn 2021 to PS83mn this year. The company stated that the group suffered a statutory pretax loss due to a non-cash impairment cost “due to significant inflationary or cost-of living pressures in the short term”.