The Restaurant Group feels like a company that has been fighting for survival ever since Danny Breithaupt — whatever happened to him? — was shown the door as chief executive in 2016 after the company isued three profit warnings in the space of only fifteen weeks (Dominic Walsh writes).
His successor, Andy McCue, the former Paddy Power boss, devised a revamp to put the company back on a stable footing, only to throw all the cards up in the air with a £559 million deal to acquire the Wagamama noodle bar chain, financed by a £315 million rights issue. Not only did the deal squeak through the required shareholder vote by a slender margin, but barely two months later Mr McCue promptly handed in his resignation “due to extenuating personal circumstances”.
Given the state of flux The Restaurant Group was in, the chances of attracting a top-drawer replacement seemed remote. Step forward Andy Hornby.
Hiring one of the men vilified over his role in the demise of HBOS may have seemed like a bizarre concept, but it is easy to forget that, for the most part, his career has been pretty impressive, particularly his last job running the betting shop business of Ladbrokes Coral Group. Moreover, since he took up the role in August, he has wasted no time in getting to grips with the problems of over-rented restaurants on leisure parks while expanding its two most successful businesses — Wagamama and its gastropubs, most of them under the Brunning & Price badge.
A lesser character might have been discombobulated by being forced to close the entire business amid of the coronavirus pandemic, but Mr Hornby adjusted quickly, regarding the crisis as an opportunity to accelerate the disposal of loss-making, uneconomic or otherwise poorly performing leisure sites.
First he tipped most of the Chiquito Mexican chain into administration; then yesterday he confirmed plans to shed 125 outlets and improve the rental terms on another 85 via a company voluntary arrangement. For good measure, he also reversed the recent acquisition of Food & Fuel, a small London pubs business, again via administration.
These insolvency moves effectively crunched what he had been planning to do over five or six years into only a few weeks and will leave the group focused on Wagamama, gastropubs and concessions, as well as a smaller but profitable leisure business.
Of course, there is a human cost to all this, with well over 4,000 jobs going at Chiquito and Frankie & Benny’s but, in the wake of Covid-19, the reality is that without such drastic action the whole company would have been at risk and with it several thousand more jobs.
The shares were almost unchanged at 70p yesterday and, given its recent history, the market’s scepticism is understandable. The road from those profit warnings to yesterday’s CVA has not been a pretty one. As one market-watcher observed: “At the beginning of 2016, the group had a market value of £1.5 billion. Since then it has tapped shareholders for almost £400 million. Today it is worth over £400 million. That is mismanagement on a grand scale.”
It is hard to disagree, but Mr Hornby is the solution, not the cause, and the way he has played the poor hand he was dealt has found favour with analysts. For example, Tim Barrett, at Numis, said: “He very quickly identified that the sustainable value was in freehold pub assets and the on-trend Wagamama business. He’s shrinking to a smaller core than originally planned, but sidestepping onerous leases is a masterstroke.”
Advice Hold
Why Covid-19 will run its course, restaurants will reopen and the slimmed-down group should prosper
RWS Holdings
It doesn’t matter how you say it, the first-half results from RWS Holdings were among the worst that the language and intellectual property services company has published for several years (Alex Ralph writes).
RWS was founded in 1982 and was listed on Aim, London’s junior stock market, in 2003 after a buyout involving 3i, the private equity group, and Andrew Brode, who remains RWS’s chairman and largest shareholder. Through a series of deals, the company has expanded to offer technical translation through its IP and life sciences divisions, as well as language services for technology companies.
Its adjusted pre-tax profit fell by 7.1 per cent to £33.1 million in the six months to the end of March on revenue that was 1.6 per cent lower at £169.7 million. The damage was done largely by 7 per cent drop in sales in its IP services division, which reflected a combination of a tough comparison with the previous year and the loss of a large, albeit unnamed customer. Its shares fell yesterday by 4½p, or 0.8 per cent, to 592½p.
Yet despite that weak first half, there is reason for optimism. Trading has rebounded strongly since the period ended, with RWS enjoying record sales in April and a strong May, despite the pandemic. It also returned to the acquisition trail with two deals. It spent $20 million on Iconic Translation Machines, which adds a machine translation and artificial intelligence expertise to the group, and $21 million on Webdunia, which bolsters its translation services for technology businesses in India and the Asia Pacific region.
Indeed, RWS should be well placed when the Covid-19 turmoil passes, as it is focused on customers in the science and technology industries that are likely to benefit as lockdowns end. It expects limited impact on customer demand from the virus and has enjoyed increased activity from clients in the drugs sector working on the coronavirus outbreak. It also has maintained its interim dividend at the same level as last year at 1¾p per share and , in these tough times, has curtailed recruitment, capital expenditure and discretionary spending.
Advice Buy
Why Services customers in promising areas and share pullback is a buying chance
