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June 30, 2023

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New York-based investor Irenic Capital Management has called for TRG to overhaul its current pay scheme, particularly with regard to CEO Andy Hornby’s salary.

It has also suggested TRG dispose of its ‘non-core assets’ and focus its attention solely on owning and growing the Wagamama brand.

Irenic’s comments come after Oasis Management, one of TRG’s largest shareholders, voiced ‘deep concern’ about the group’s remuneration policy​ and described Hornby’s pay – £658,000 in 2022 – as being ‘disproportionate’.

The Hong Kong-based activist investor, which has been piling pressure on TRG in recent months, said Hornby’s salary had ‘failed to promote value creation’ and claimed shares had fallen by c.73% since Hornby became CEO in 2019, which it described as ‘a markedly greater decline than suffered by industry peers’.

In its own statement, Irenic says it believes Hornby is capable of unlocking the substantial value that exists at TRG, but adds that the current remuneration plan provides little incentive to do so.

Instead, it suggests the group’s board adopt a new plan that more closely links pay to shareholder returns.

“Under the current remuneration plan, the only direct financial incentive for Mr. Hornby is to increase overall profits at the enterprise – irrespective of the capital employed to do so,” Irenic says.

“This encourages ill-advised acquisitions (Barburrito​) and provides a disincentive to make the hard but necessary decision to sell non-core assets – and use the proceeds to de-lever.

The investor continues that it has urged Ken Hanna, TRG’s non-executive chairman, to design a remuneration policy that encourages Hornby to ditch the group’s other restaurant brands, which includes the Frankie & Benny’s and Chiquito chains, and focus specifically on growing its Wagamama estate.  

“The path forward at The Restaurant Group should be clear. Dispose non-core assets, de-lever, and grow Wagamama – a brand that has excellent unit economics and a substantial global runway.

“Performance of The Restaurant Group’s non-core assets has rebounded from the depths of Covid-19 and financing markets are open. There is no reason for further delay in an asset sale program. It is time to get on with it.”

In its full year 2022 results, published last month​​​, TRG reported that sales growth across its leisure estate, which encompasses Frankie & Benny’s and Chiquito, remained flat and was 5% behind the market. However, it also hailed ‘robust trading’ across its Wagamama, pubs and concessions arms, which all saw like-for-like sales out-perform their respective market benchmarks.

The group currently plans to exit around 35 potentially loss-making locations in its leisure estate over the next two years through a combination of exercising break clauses, lease expiries, selective conversions and accelerated disposals.

In a statement released following Oasis’s intervention yesterday (26 April), TRG said it had performed strongly compared to the casual dining sector in recent years.

“Wagamama and pubs have consistently outperformed the market, leisure has been carefully restructured to maximise cashflow and we have successfully re-sized Concessions, so it is well placed to benefit as air travel continues to recover,” it said.

“As is normal, we are consulting with major shareholders ahead of our upcoming AGM on our remuneration policy.”

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