RTN.L Regulatory News (RTN)

The Restaurant Group plc

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

Acquisition of Barburrito, early debt facility repayment and purchase of interest rate caps

TRG provides an update today for:

· The acquisition of Barburrito Group Ltd ("Barburrito") for £7m, representing a next 12 months ("NTM") run-rate EBITDA multiple of 4.4x

· Choosing to make an early repayment of £44m of term-loan facilities

· The purchase of interest rate caps on £125m of debt

Acquisition of Barburrito

Background: Barburrito is an award-winning Mexican style fast-casual restaurant chain, focused on serving fast, fresh and healthy Mexican food. The business currently operates across 16 sites in high-footfall locations across a range of formats (i.e. shopping centres, city centres and transport hubs).

Strategic and financial rationale: The Barburrito proposition is well aligned with key consumer trends including healthy eating, convenience, customisable cuisine and offers high quality products at attractive prices with an average spend per customer of c.£10.

The strength and established nature of the proposition and its alignment to these key consumer trends has resulted in an impressive trading performance as laid out in the table below:

YTD FY22 Like-for-like ("LFL") sales (%) vs. 2019 comparables

* Q1 refers to the 13 weeks to 03 April 2022 and includes the benefit from VAT being at 12.5%. This boosted LFL sales for the restaurant and pub sector by approximately 5 to 6%.

**Q2 refers to the 12-week period to 26 June 2022, with VAT at 20%.

***YTD refers to the 25-week period to 26 June 2022.

Barburrito's strong current trading gives us confidence in its ability to align with and extend TRG's track record of market outperformance.

The sites have historically generated strong returns on invested capital1 in excess of 30% and TRG believes there is significant scope to further develop and expand the brand, particularly in the south of England, where there is limited presence. The initial expansion plan would be to double the existing estate over the next four years.

Barburrito will be integrated into TRG's Leisure & Concessions division, with the key operational team from Barburrito retained. The Leisure & Concessions team is very familiar with the business having operated two sites previously as franchises in UK airports.

Transaction overview:  The total consideration of £7m will be paid entirely in cash by TRG and represents a 4.4x run-rate EBITDA multiple. The transaction has been done on a debt-free and cash-free basis. TRG is acquiring the business from its existing shareholders2.

For the period ended 26 September 2021, Barburrito's profit before tax was £1.7m and as at 26 September 2021 its gross assets were £3.9m. The profit before tax ("PBT") figure for the period benefitted from significant temporary government support (i.e. VAT reduction and property grants).

The 16 existing sites are expected to contribute Adjusted3 company level EBITDA and PBT of c.£1.6m and c.£0.8m respectively to TRG over the next 12 months. 

Update on early debt facility repayment and interest rate caps

Given the Group's significant cash headroom and confidence in the underlying cash generation across our businesses, TRG chose to repay a further £44m of its term loan in June 2022, thereby reducing its total available debt facilities to £361m. The debt facilities currently comprise a £241m term loan and a £120m RCF facility which is undrawn. The Group currently has cash headroom4 in excess of £190m against these facilities.

To manage the risk of interest rate increases on its debt facilities, TRG purchased interest rate caps as follows:

· On £125m of debt limiting the SONIA base rate to 0.75% for a total cost of £2.2m from November 2022 to November 2025; and

· On £100m of debt limiting the SONIA base rate to 0.75% for a total cost of £0.9m from November 2025 to November 2026. These caps significantly reduce the impact of interest rate changes on our debt over the next four years

As a result of the £44m early repayment of the term-loan, the Group maintains its previous guidance for the expected P&L interest charge (pre-IFRS 16) for FY22 at between £24 and £25m, despite the significant increase in the SONIA base rates that have come into effect and possible further interest rate increases to come. The purchase of the interest rate caps provides further protection for TRG over the next four years.

Notice of results

TRG's next update is scheduled to be the interim results announcement on 8 September 2022.

1 Return on invested capital (ROIC) defined by outlet EBITDA for the twelve months to March 2020/initial capex invested

2 Existing shareholders comprise "Abbeyway Commercial (3) Limited, Morgan Davies, Stephen Herring, Graham Turner & Neil Lidguard"

3 Pre IFRS 16 Adjustment and exceptional charges

4 Cash headroom position as at 29 May 2022. Current facilities subject to minimum liquidity covenant of £40m.

Enquiries:

Notes:

1. The Restaurant Group plc operates approximately 400 restaurants and pub restaurants throughout the UK as at 12 July 2022. Its principal trading brands are Wagamama, Frankie & Benny's 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 five Wagamama restaurants in the US and over 50 franchise restaurants operating across a number of territories.

2. Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences are "forward-looking statements" statements and reflect the Group's current expectations concerning future events. Actual results may differ materially from current expectations or historical results.