The Restaurant Group (TRG) has announced plans to further rationalise its leisure estate, with the closure of a 35 sites.
An exceptional pre-tax charge of £117.5m was recorded in the group’s full year 2022 results, relating to the reduced forecast earnings within its Leisure division and the subsequent planned restructuring.
Meanwhile TRG announced a plan to build back profits, after “significant deterioration” in its EBITDA margin.
The leisure business, which includes Frankie & Benny’s and Chiquito, achieved flat like-for-like sales growth in FY22, 5% behind the market.
TRG described it as a highly contested market segment and most directly impacted by cost-of-living pressures.
The group plans to exit c.35 potentially loss-making locations over the next two years through a combination of exercising break clauses, lease expiries, selective conversions and accelerated disposals.
One to three sites will be converted to Wagamama over the next two years. At least 13 sites will be exited at break clause or lease expiry. Seven freeholds will be sold, while 10-20 sites are being marketed for exit.
Overall, the Leisure estate is expected to reduce by c.30% from 116 sites today to 75-85 sites by 2024.
The news comes as TRG blamed sector-wide cost inflation for its EBITDA margin falling from c.14% in 2019 down to 9.4% in FY22.
When accounting for the benefit from lower VAT in Q1 2022, the FY22 VAT Adjusted EBITDA margin fell to 8.3%.
During the year, TRG reported “robust trading” with total sales of £883m (2021: £636.6m).
Adjusted EBITDA was £83.0m (2021: £81.2m), while adjusted profit before tax was £20.3m (pre IFRS 16) (2021: £16.6m).
The company reported a statutory loss before tax of £86.8m (2021: loss of £35.2m).
Wagamama, Pubs and Concessions LFL sales all out-performed their respective market benchmarks in FY22 (versus 2019 comparatives).
TRG said it had built a proactive plan to drive significant margin accretion from the 8.3% base, with an ambition to target an improvement of 250bps to 350bps over the next three years (i.e. FY25 year-end run-rate).
Exceptional items relate to an impairment of assets of £113.9m (2021: £25.9m), which relates to the impact of reduced trading expectations and near-term inflationary pressures, primarily relating to certain sites in the leisure business.
The IFRS right-of-use asset impairment is £60.4m with the remaining charge being property, plant and equipment.
An estate restructuring charge of £6.8m (2021: £1.8m) was made relating to the planned accelerated disposal of certain leisure sites and remeasurement for existing closed sites.
Andy Hornby, chief executive, commented: “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.”
