The Restaurant Group (TRG) has recently agreed to sell its leisure business brands to Big Table Group. TRG is the owner of well loved Japanese restaurant brand Wagamama, while the Big Table Group owns Cafe Rouge. This move aims to boost earnings and reduce debt for TRG.

The Restaurant Group will offload its underperforming divisions in this deal. This includes the Frankie & Benny’s and Chiquito restaurants all across the UK. The sale is expected to increase adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins while decreasing debt. It covers 75 operational sites within the leisure business.

Earlier this year, The Restaurant Group announced plans to shut up to 35 sites over the next two years. They specifically targeted branches that were incurring losses as part of cost-cutting efforts. TRG anticipates exiting most of the lease obligations for recently closed sites by the end of FY24. The remaining liability and expected cash outflow from these sites is estimated at no more than £1 million to £2 million annually from FY25 onward.

The American-themed Frankie & Benny’s and the Mexican restaurant chain Chiquito incurred a loss of £0.8 million in the first-half results disclosed on September 6. In contrast, the group’s other divisions reported robust profits during the same period.

Over the last 2 years, especially in a post pandemic and post Brexit era, leisure businesses across the UK have seen a considerable decline. This trend was visible in TRG’s restaurants as well. A 3% year-on-year decline in sales on a like-for-like basis was noted during the 34 weeks ending on August 27.

Big Table Group will pay TRG a mere amount of £1 upon completion of the sale. Additionally, TRG will make a cash contribution of £7.5 million, subject to certain adjustments in cash, debt, and working capital. There may also be a minor working capital outflow for TRG at the

FY23 year-end. This sale also clears around £50 million of lease liabilities and between £1 million and £2 million of annual cash outflows from remaining lease liabilities on closed sites.

This news was received positively within the hospitality sector. The Restaurant Group’s share price rose by 5.89% to 50.30 in early morning trading on Monday in response to the same.

Andy Hornby, CEO of TRG, expressed that the sale of the leisure business aligns with their strategic plans to improve adjusted EBITDA margins and reduce the company’s overall debt. At the same time, TRG’s chairman, Ken Hanna, announced he would step down from his role for personal reasons.

Selling assets to lower debt is a wise financial move, especially if businesses have been struggling with cash outflows for longer periods of time. In tough economic climates like today, hospitality businesses must focus on eradicating their debt smartly.

Read more about insolvency trends within the hospitality sector here.