The Restaurant Group AGM Report (RTN)

Today I attended the Annual General Meeting of The Restaurant Group for the first time – held in the City of London at 10.00 am. There were about 50 shareholders present which I was told was slightly more than normal, perhaps because the company seems to be in some turmoil after recent profit warnings and the abrupt departure of the finance director. From being one of those stock market growth stocks on high valuations (share price peaking at over 700p in late 2015), it’s now fallen from grace and the share price is about 300p at the time of writing.

This is a very brief report – a summary of the full report for ShareSoc Members.

The company runs a number of different chains of restaurants – Frankie & Bennys – a “family focussed” chain, Chiquito – mexican food, Coast to Coast – American style food, Brunning & Price – traditional country pubs, and others. Frankie & Bennys is the largest in number (over 250 outlets) and the last time I ate in one of those was about 20 years ago when I took my sophisticated Swedish boss there (booked by someone else and totally inappropriate). The menu seems not to have changed much since. I also sampled one of their pubs this week – the White Hart in Sevenoaks. My wife and I agreed the food was somewhat boring and not particularly cheap either although the ambience was OK. Clearly I need to do some more research than just sample one venue which I will do, but one thing I did learn at the AGM is that shareholders get a number of 25% discount vouchers which should assist. Yes investment research can be hard work but one has to do it.

Alan Jackson, the current Chairman but retiring at this event, opened the meeting by introducing the board. He also mentioned the recent departure of the CFO so the resolution to reappoint him had been withdrawn. They are starting a search for a new CFO. Mr Jackson will be succeeded as Chairperson by Debbie Hewitt, one of the current non-executive directors.

The trading environment since the end of the year has been challenging. The Chairman recognised it is a significant setback. Pubs and concessions were performing well but Frankie & Bennys is a particular problem. Decline in retail park footfalls and the general economy were the apparent causes. The full year like-for-like revenue was expected to be down in the range minus 2.5% to 5%. The Chairman said the company remains highly profitable but they are not where they expected to be. But they still have underlying confidence in the business and the brands.

Questions were then invited (most people did not give their names so I will simply number them, and only a few are covered here):

1. Asked about pipeline of new restaurant developments (from Richard Beddard as were others) – target growth is now only 37 for this year and its being nudged down. Debbie: In the face of reality re footfall and market changes we have to be disciplined about returns.
2. From me: Why could like-for-like be down as much as 5%. Answer: because the decline is continuing, but it was not a very clear answer at all. However from other questions and answers one gets the hint that the board feels a major strategic review is definitely required with some urgency.
3. From me. What are the short term operational initiatives referred to in the last announcement: Answer from the CEO: Focussed on Frankie & Bennys in the short term. Refurbishment to provide more covers in up to 50 restaurants (to replace large bars in some), review of menus and local marketing, promotion of digital App (have half million downloaded already).
4. From me. Why did the CFO leave. Answer: board was unanimous on change before a review was undertaken. Note: did not really get a simple answer here, but later asked the new Chairperson about this specifically. She said that the CFO (who had been there a very long time and hence might have been seen to be part of the “old guard” who had now largely gone) was resistant to change and was “in denial” about the need for change.
5. From me. Noted that Debbie had 4 listed company directorships (including another Chair) plus 4 directorships of private companies. Would she had enough time? I also noted that this number was certainly contrary to ShareSoc’s guidelines. She said the other directorships gave her knowledge of retail businesses and footfall issues. She could cope with the workload – for example met 14 of the top shareholders in the last two weeks. The CEO then said Debbie is the most outstanding individual he has ever worked with. Comment: she certainly seems to be a “dynamic” person. Debbie said the business had not faced up to the reality of the business. When asked whether she would keep all her other directorships she did say she would be stepping down from two of them soon when she reached the 9 year recommended limit, which she is a great believer in.
6. We then moved to the poll (by poll cards, a despicable system). I asked the Chairman whether they were going to disclose the proxy votes so we can see the significant votes against and ask questions on them. He was not going to do so but did then did so. Only 73% voted FOR the remuneration report and 94% for the CEO’s re-election. Comment: clearly some shareholders took the same view as the writer in the Daily Telegraph who suggested they had sacked the wrong person (based on comments from a large institutional holder). Comment: I have not formed a conclusive view on that but certainly there are some doubts on the current CEO.

The meeting then concluded with the directors willing to chat to shareholders. I talked briefly to Debbie and as she is also a director of NCC Group where I hold shares – I suggested they cease holding their AGMs at 10 am in Manchester. I might go to their AGMs if it was more convenient in space or time.

In summary this was a useful meeting that made it very clear that there are unlikely to be quick solutions to their problems. The restaurant formats seem tired with a suggestion the menus need improving and pricing may also be an issue. Perhaps the profits have been so good of late simply because they increased prices and reduced the quality. The impact of such changes can take time to affect customer popularity. Only now are revenues and profits heading downhill as a result. That of course is only one possible conclusion but it is clear the new Chairman feels the business has some major problems that need fixing.

Roger Lawson