The Restaurant Group plc

The Restaurant Group plc ("Group" or "TRG")

TRG signs agreement in respect of the proposed sale of Leisure business to Big Table Group ("BTG")

Further to an announcement made on 9^th September, TRG today announces that it has entered into an agreement in respect of the proposed sale of its Leisure business comprising of 75 trading sites and associated restaurant and management team employees to the Big Table Group.  As part of the transaction, TRG will pay a cash contribution of £7.5m to the Big Table Group.  The transaction is expected to complete in early Q4 2023.

Compelling strategic rationale:  As part of the ongoing review of its strategic options, the Board of TRG have concluded that a sale of its loss making  Leisure business will significantly accelerate the Group's core strategic goals of Adjusted EBITDA¹ margin accretion and deleveraging.  The transaction will create a high-quality retained group consisting of the three divisions of Wagamama, Pubs and Concessions which have delivered very strong like-for-like sales and Adjusted EBITDA¹ growth during the first half of 2023, with appealing long-term prospects.

Strong financial effects:  The transaction has attractive financial and strategic benefits for TRG:

·    Accelerates TRG's Adjusted EBITDA¹ margin accretion plan in excess of 100bps in its first full year following completion (FY24)

·    Expected to be marginally EPS accretive in its first full year following completion

·    Expected to improve post-IFRS 16 leverage with a reduction of IFRS-16 lease liabilities of c.£50m

·    Expected to further accelerate our progress to achieve net debt/Adjusted EBITDA¹ below 1.5x before the end of FY25

The Board is continuing to actively explore its strategic options to further accelerate margin accretion and deleveraging.

Andy Hornby, Chief Executive Officer of TRG, commented:

"A sale of our Leisure business significantly accelerates our medium-term strategic plans to increase Adjusted EBITDA margins and reduce leverage.  On behalf of TRG, I would like to express our massive thanks to the extraordinarily hardworking and dedicated teams across the Leisure business who have made huge improvements in the customer proposition over the last few years. We wish them all well as part of the Big Table Group."

Alan Morgan, Chief Executive Officer of the Big Table Group, commented:

"Creating, developing and acquiring brands that complement our existing portfolio whilst offering widespread consumer appeal is a fundamental part of our growth strategy. This exciting acquisition forms part of that strategy and we are delighted to be welcoming this new team into The Big Table Group."

Background:  The subject of the transaction is 75 trading sites and associated central costs and teams required to run those sites, principally comprising of the brands Frankie & Benny's and Chiquito. The Acquiror is Baltra Bidco Limited, a newly-incorporated company wholly owned by the Big Table Group Limited, one of the leading independent operators of restaurants in the UK, owned by the private equity firm Epiris.  

While the transaction is expected to complete in early Q4 2023, TRG will provide certain customary services (as part of a service agreement) at cost to Big Table Group for a limited period of time to ensure an orderly operational transition for the 75 trading sites currently within the Leisure business. This transition is expected to be completed by 31st March 2024. 

Transaction overview: The sale includes the transfer of the entire issued share capital of TRG's wholly-owned subsidiary, The Restaurant Group (UK) Limited (the "Subsidiary") to the Acquiror. Sites that have been previously closed as part of the Leisure businesses estate rationalisation plan will remain the responsibility of TRG.

As stated in our interim results announcement on 6^th September 2023, the TRG property and operations teams have made good progress in efficiently managing the disposal programme of closed sites and we expect to exit the majority of the lease obligations of the recently closed sites by the end of FY24.  We would therefore expect the remaining liability and expected cash outflow from closed sites (most of which are currently sub-let) to be no more than £1m to £2m a year from FY25 onwards.

The consideration payable by the Acquiror to the Group on completion of the sale is £1. In addition TRG will pay a cash contribution of £7.5m, subject to certain cash, debt and working capital adjustments, and there will likely be a minor working capital outflow for TRG in the FY23 year-end.  TRG expects the transaction to accelerate our deleveraging profile from FY24 onwards.

About The Big Table Group

The Big Table Group Limited, is one of the leading independent restaurant companies in the UK, operating over 160 sites under brands such as "Bella Italia", "Las Iguanas" and "Banana Tree". 

The Big Table Group is owned by private equity firm Epiris, which is committed to supporting a strategy of creating exceptional dining experiences by investing in culture and people through an award-winning training and development programme.

About TRG's Leisure business

Prior to the pandemic, TRG's Leisure business comprised 350 sites (as at December 2019).  Over the last three years, the Group has reduced its exposure to this "challenged" segment of the market by undergoing significant restructuring resulting in a remaining trading portfolio of 75 sites, which are being acquired by the "Big Table Group" Limited.

TRG's Leisure business consists primarily of the Frankie & Benny's and Chiquito brands. Frankie and Benny's is an Italian American brand offering real good comfort food and Chiquito has been delivering the top quality Mexican cuisine in a fun, fiesta-style environment for over 30 years.  Following the restructure of the Leisure business in May 2020, the business has been positioned post Covid with improved food quality and service levels and a focus on delivery growth, all of which have contributed to significantly improved customer ratings.  The Leisure business employs approximately 3,000 people all located in the UK.

For the FY22 year-end, The Leisure business statutory loss before tax² was £65m.  Gross assets for the subsidiary "TRG UK Limited" were £111m as at the latest reported balance sheet (2^nd July 2023). 

The transaction constitutes a class 2 transaction for the purposes of the UK Listing Rules.

About TRG

The Restaurant Group plc had approximately 380 restaurants and pub restaurants throughout the UK as at 10 September 2023. Its principal trading brands are Wagamama and Brunning & Price.  It also operates a multi-brand Concessions business which trades principally in UK airports.  In addition, the Wagamama business has a 20% stake in a JV operating seven Wagamama restaurants in the US and c. 60 franchise restaurants operating across a number of territories.

¹ Pre-IFRS 16 Adjustment and exceptional charges

² The statutory loss was due to the impact of significant exceptional items relating mainly to non-cash impairment charges

Enquiries:

IMPORTANT NOTICE

This announcement contains inside information for the purposes of Article 7 of the UK version of the Market Abuse Regulation (EU) No. 596/2014.  Upon the publication of this announcement the inside information is now considered to be in the public domain. The person responsible for arranging the release of this announcement on behalf of TRG is Andrew Eames (General Counsel & Company Secretary).

Lazard & Co. Limited acted as financial adviser to TRG

Lazard & Co., Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as financial adviser to TRG and no one else in connection with the proposed transaction and will not be responsible to anyone other than TRG for providing the protections afforded to clients of Lazard & Co., Limited nor for providing advice in relation to the proposed transaction or any other matters referred to in this announcement. Neither Lazard & Co., Limited nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Lazard & Co., Limited in connection with this announcement, any statement contained herein or otherwise.