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Restaurant Group delivering on recovery despite CFO loss

The Frankie & Benny's owner has already undergone a management overhaul during the past 12 months
April 25, 2017

The sudden departure of Restaurant Group 's (RTN) chief financial officer (CFO), Barry Nightingale, has rattled shareholders. The shares fell 9 per cent on the day of the announcement, largely on concerns that the move might derail the ongoing restructure put in place by new chief executive Andy McCue. The shares have since partially recovered.

IC TIP: Buy at 351p

Mr Nightingale's exit with immediate effect is the latest development in a management makeover at RTN. Mr McCue wasted no time putting in place a new team after he joined the company in August last year, including senior hires from Costa, JD Wetherspoon (JDW) and Paddy Power Betfair (PPB). They are tasked with restoring the reputation and profitability of the business, which owns a number of eating-out brands including Frankie & Benny's and Chiquito. The strategy of previous management to keep prices up and rapidly expand the number of restaurant locations proved to be unappealing to customers. Pre-tax profits fell to £77.1m last year from £86.8m in 2015. Management has announced a cost-cutting programme aiming to save £10m a year by 2019 at a one-time cost of £6m.

The company will now look to use analytics tools based on customer data as the basis for making decisions and draw customers back in to its restaurants with budget-friendly promotions and family favourites back on the menu. The cost-cutting efforts have already led to the closure of 33 restaurants, with another eight set to close this year. Management hopes a £117m exceptional charge for the restructuring will help to reduce future depreciation and amortisation charges, £44m of which has been set aside to prevent the cash costs in any soured rental agreements from tarnishing the income statement.

Life at Restaurant Group will go on. Canaccord Genuity analyst Nigel Parson is confident any changes to strategy will not be affected by the CFO's departure, as Mr Nightingale's strengths lay in cost cutting. Focus at Restaurant Group must now shift beyond that to IT and marketing, he said.