The Restaurant Group looking to raise £175m from its shareholders

Wagamama owner, The Restaurant Group (TRG), is today looking to raise more than £175m from its shareholders to ensure the firm’s survival, should another COVID-enforced lockdown be introduced by the government.

TRG’s CEO Andy Hornby said the pandemic had presented devastated the sector, and the funds were needed to restructure the firm to cope with the current situation.

Over the last year – during the pandemic – total sales dropped by 57% to £459.8m as like many other restaurants, they were forced to close their doors to stop the spread of coronavirus. As a result, TRG reported a £127.6m pre-tax loss.

TRG owns national restaurant chains such as Wagamama, Chiquito, Coast to Coast and Frankie & Benny’s.

Hornby said: “The COVID-19 pandemic has presented enormous challenges for our sector but the TRG team has responded decisively to restructure our business whilst preserving the maximum number of long-term roles for our colleagues. TRG is operationally a much stronger business than 12 months ago. “The capital raise announced today, alongside the debt refinancing announced last week, represents the last important step in our restructuring process and provides TRG with the long-term flexibility to invest in growing our business.

“Whilst the sector outlook remains uncertain, and we are mindful of continuing restrictions across the UK, we are confident that the actions announced today will allow us to emerge as one of the long-term winners.”

Industry reaction

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown shared her thoughts on today’s news with Business Leader.

There may now be a roadmap to reopening for the hospitality sector, but it’s not come soon enough for Restaurant Group. It’s been forced to go cap in hand again to shareholders, looking for £175 million to bolster its finances after being side swiped by the ongoing impact of the coronavirus.

It comes soon after the company secured another loan and credit facility lifeline of £500 million to help consolidate its debts. It also raised £57 million last April to try and weather the incoming Covid storm. In this latest capital raising drive it will issue 95.3 million new shares to investors at a price of £1 per share. It will also issue 79.7 million new shares to existing shareholders by offering them five new shares for every 37 existing shares, also for £1 per share.

There is no doubt the group is in pretty dire straits right now. Sales plummeted by 57% in 2020 and with their sites still mothballed, cash burn is intense, at around £5.5 million a month. The extension of the furlough scheme and the VAT cut to 5% were welcome announcements in the Budget but they are like sticking plasters for a company that has sustained a serious injury.

The rehabilitation plan following the Covid blow is a major restructuring drive which saw 250 sites close, mainly Chiquito, Frankie & Benny’s and Food and Fuel restaurants where bookings struggled even when restrictions were eased.

Management says its optimistic about the longer term prospects for recovery particularly for its Wagamama brand. Takeaways have taken off at restaurants offering the service and demand for tables was high out of lockdown.

Pent up demand from diners appears to be there, but it will take time to be unleashed. Many of Restaurant Group’s sites have limited outdoor seating so are unlikely to fully benefit from the phased opening of the hospitality industry from April 12th. When indoor dining does resume from May 17th, social distancing measures will continue to limit volumes for some time.

The cash injection from this latest rights issue will give it some breathing space but there may well be more restructuring pain to come, as a slimmed down version of Restaurant Group emerges from the crisis.

Source