TIDMRTN
RNS Number : 7920Y
Restaurant Group PLC
08 March 2017
The Restaurant Group plc
Final results for the 53 weeks ended 1(st) January 2017
Strategic review complete
Trading in line with expectations
Strategic highlights
We have completed the strategic reviews of our brands. While
there is much work to do, we are confident in our plan to
turnaround the business which has four key elements:
-- Re-establish the competitiveness of our Leisure brands.
-- Serve our customers better and more efficiently.
-- Grow our Pubs and Concessions businesses.
-- Build a leaner, faster and more focused organisation.
Price investment and proposition changes are underway, roll out
of Leisure sites has been slowed down and GBP10m of cost savings
have been identified for delivery in 2019.
Financial highlights
-- Challenging trading year across the Leisure brands; good
performance from Pubs and Concessions.
-- Total revenue up 3.7% to GBP710.7m.
-- Like-for-like sales down 3.9%.
-- Adjusted profit before tax* down 11.2% to GBP77.1m.
-- Exceptional charge of GBP116.7m (H1 2016: GBP59.1m, H2 2016:
GBP57.6m) primarily reflecting site closures, asset value
impairments and provision for onerous leases.
-- Statutory loss before tax of GBP39.5m (2015: statutory profit before tax GBP86.8m).
-- Adjusted EBITDA* down 5.5% at GBP121.0m, adjusted operating profit* down 11.0% to GBP79.2m.
-- Adjusted EPS* down 11.2% to 30.0p per share.
-- Statutory loss per share of -20.1p (2015: statutory earnings per share 34.5p per share).
-- Strong free cash flow of GBP78.9m.
-- Full year dividend maintained at 17.4p per share.
-- Current trading in line with our expectations.
* Pre-exceptional charge
Andy McCue, Chief Executive Officer, commented:
"Having completed the strategic reviews of our brands, we are
now pursuing a new and focused plan to turnaround and grow the
business. TRG has significant scale advantages, a diverse portfolio
of brands with strong brand awareness and is highly cash
generative. However, there is much to change in our Leisure
businesses to provide customers with better value and an improved
experience while, at the same time, ensuring we continue to grow
our Pubs and Concessions businesses. It will take time to effect
the scale of change required and for customers to respond but I'm
proud of how our colleagues are rising to the challenge. "
Enquiries:
The Restaurant Group
Andy McCue, Chief Executive
Officer
Barry Nightingale, Chief Financial
Officer 020 3117 5001
Instinctif Partners
Matthew Smallwood
Guy Scarborough 020 7457 2020
Notes:
1. The Restaurant Group plc operates 488 restaurants and pub
restaurants throughout the UK. Its principal trading brands are
Frankie & Benny's, Chiquito, Coast to Coast and Brunning &
Price. It also operates a multi-brand Concessions business which
trades principally in UK airports.
2. Statements made in this announcement that look forward in
time or that express management's beliefs, expectations or
estimates regarding future occurrences are "forward-looking
statements" within the meaning of the United States federal
securities laws. These forward-looking statements reflect the
Group's current expectations concerning future events and actual
results may differ materially from current expectations or
historical results.
3. Adjusted measures (*): This report primarily focuses on
adjusted measures, denoted by an asterisk. Adjusted measures,
unless otherwise stated (e.g. free cash flow) are defined as the
equivalent statutory measure before exceptional charges. Adjusted
measures are reconciled to the statutory measures on the income
statement.
4. Like-for-like sales: This measure provides an indicator of
the underlying performance of our existing restaurants. Group
like-for-like is calculated by comparing the performance of all
mature sites in the current period vs. the comparable period in the
prior year
Chairman's statement
2016 was a challenging year for the Group with a consistently
disappointing trading performance exposing fundamental issues
across our three main Leisure brands, although we continued to
benefit from a strong performance from Pubs and Concessions. Total
revenues were up 3.7% to GBP710.7m with like-for-like sales for the
year down 3.9%. Adjusted profit before tax* was down 11.2% to
GBP77.1m and Adjusted EPS* was down 11.2% to 30.0p per share.
Statutory loss before tax was GBP39.5m and the statutory loss per
share was 20.1p.
We have taken decisive action by implementing a strategy review
across all of our leisure brands. It is clear that we had added an
unsustainable premium to pricing in our Leisure businesses and that
changes to our menus had been insufficiently tested with our
customers. Complex operational processes have added costs and the
business operating model had become inefficient.
We have a rigorous plan in place to address these issues. 2017
will be a transitional year during which we will implement measures
to restore profitability, growth and ultimately transform the
business.
There has been substantial change to the Board and to the
Executive leadership team to support this programme. I became
Chairman in May 2016 and the Board was refreshed with the
appointment of two new non-executive Directors, Mike Tye and Graham
Clemett in April and June respectively.
Andy McCue joined us as Chief Executive of the business in
September. Andy is the ex CEO of Paddy Power plc and brings
substantial experience of managing a turnaround in a multi-site
consumer business through a rigorous approach to customer insight,
the development of the customer proposition and colleague
engagement. Barry Nightingale joined us as Chief Finance Officer in
June 2016. He has a broad commercial background and turnaround
experience allowing him to make an important contribution to this
critical phase in the Company's development.
As I highlighted in our Interim Report in August, the Board has
taken measures to ensure that we have a more rigorous and
disciplined approach to the allocation of capital. We have slowed
down our site roll out plans until we can be sure that the Group's
brand and location strategy is sufficiently robust. We continue to
take action to close underperforming sites where we do not believe
they are capable of generating adequate returns.
In spite of our trading challenges, the business continues to
generate strong free cash flow, with GBP78.9m in 2016 and as a sign
of confidence in our plan the Board is proposing the payment of a
final dividend of 10.6 pence per share to be paid on 7 July 2017 to
all shareholders on the register on 16 June 2017 (ex-dividend date
15 June 2017). The total dividend for the year is, therefore,
maintained at 17.4 pence per share. During this transitional period
the Board will assess the dividend based on progress against the
plan. The Board will revisit the previous policy of two times EPS
cover at the appropriate time.
During 2017, the Group will face well documented external cost
pressures from the increases in the National Living Wage, the
National Minimum Wage, the Apprenticeship Levy, the revaluation of
business rates, higher energy taxes and increased purchasing costs
due to the combined effects of a devalued pound and commodity
inflation. We expect the trading performance of the business in the
first half of 2017 to remain difficult but anticipate momentum
improving towards the end of this transitional year as our
initiatives start to take effect.
TRG employs over 15,000 people and they are the life blood of
our business. The Board would like to record our thanks and
appreciation for their hard work, commitment and dedication.
The Board is confident that we have a robust plan and the team
and resources in place to deliver.
Debbie Hewitt MBE
Chairman
8 March 2017
Business review
Strategy update
Despite the poor trading performance of the Group in 2016, TRG
remains a highly cash generative business which benefits from
significant scale and a diversified portfolio. While the Group's
performance has suffered due to weakness in our Leisure businesses,
it is clear that these performance issues can be addressed and we
are confident in our turnaround plans.
Andy McCue joined TRG as CEO on 19th September 2016. In recent
months we have made good progress in strengthening the team,
completing the strategic review of our brands and conducting a
comprehensive review of our cost base.
We have a clear plan to turnaround the business which has four
key elements:
1. Re-establish competitiveness of our Leisure brands.
2. Serve our customers better and more efficiently.
3. Grow our Pubs and Concessions businesses.
4. Build a leaner, faster and more focused organisation.
We expect 2017 to be a transitional year. We plan to address the
competitiveness of our Leisure businesses head-on, requiring
investment in both price and proposition, as well as increased
marketing spend to re-engage lapsed customers and attract new ones.
We are focused on a volume-led turnaround which will take time as
customers respond to the improvements we are making. Where
initiatives prove successful, we will invest behind them in order
to accelerate our progress.
1. Re-establish competitiveness of our Leisure brands
Frankie & Benny's
We identified last year the key root causes of our decline: loss
of value credentials, poor menu changes and lack of operational
discipline which impacted the consistency of our offering.
Initial trials of alternative value options indicate that, while
a step in the right direction, simply correcting for past mistakes
will be insufficient to recover our market share losses endured
since 2013. Since then we have traded price over volume while
competitors have improved their offer and consequently, we have
lost customers who now need to be persuaded to revisit us and
regain trust in an improved proposition.
Our initial responses include:
-- re-focusing our efforts on the core customer base of 'families' and those 'out & about';
-- developing an improved customer proposition, more closely
aligned to the requirements and preferences of these groups;
-- launching a new weekday value menu at GBP9.95, the lowest
price for five years, to be competitive during non-peak times,
whilst improving the choice and quality of offering;
-- reinstating some previously popular dishes;
-- re-engineering and testing a new core menu in readiness for
launch this month, which will offer our customers substantially
better value. This menu is also easier for the guest to navigate
and less complex in its delivery, enabling us to improve our
consistency; and
-- embarking on targeted promotional campaigns, over specific
periods, to ensure we are competitive and delivering a compelling
offer to the most value-conscious customer segments.
Our improvement focus will be on restoring our value
credentials, deepening the distinctiveness of our offer and
investing in marketing to attract back lapsed customers.
Chiquito
Chiquito's brand positioning in the market is relatively weak.
Compared to competitors, a narrow reach of potential customers are
attracted to the brand. Customer research indicates Mexican cuisine
and particularly its association with spice, can alienate some
potential customers. For the customers that do visit us, their
frequency of visit is the lowest of our competitor set, due in part
to our value positioning as well as a relatively high proportion of
visits being oriented around infrequent, special occasions such as
celebrations.
Separately Chiquito has, more recently, substantially
underperformed the market. This decline has been driven by poor
menu changes, a lack of value competitiveness, speed of service
issues, as well as a softer market due to weaker cinema
attendances.
Taking learnings from recent menu trials, we have made
improvements to the offer, having introduced a weekday value menu
offering two courses for GBP10.95 and three courses for GBP14.95,
with encouraging early participation rates. We have also tested a
variety of promotional mechanics as we build an understanding of
the response rates by campaign type, customer segment and versus
competitor activity.
We intend to broaden the appeal of the brand, making it
accessible to a wider customer base. This will involve:
-- a widened cuisine extending to, for example, Texan and Californian influences;
-- providing customers with the option for greater
customisation, including of fillings and spice levels;
-- better value, delivered via an improved price architecture;
-- a menu that is easier to understand and navigate; and
-- reducing unnecessary complexity of dishes, facilitating
quicker service and improved consistency.
We will roll out the changes in a sample of restaurants to learn
and optimise before implementing more widely. Later in the year,
once the changes are widespread, we will invest in marketing behind
the rejuvenated proposition.
Coast to Coast
Launched in 2011, Coast to Coast sites showed promising early
trading, leading to an acceleration in the opening programme,
peaking at 23 restaurants. However, since 2014 the business has
suffered extreme declines in like-for-like sales.
The brand positioning has become progressively more premium,
which has been at odds with the typical customer missions when
visiting out-of-town locations. As with our other Leisure brands,
poor price and menu decisions have been made, although the extent
of the changes within Coast to Coast have been more pronounced,
with a corresponding impact on performance.
We do, however, see an opportunity to re-position the brand
towards a focus on steaks and burgers, both of which are growing
market segments and yet remain relatively unpenetrated in our
current locations. Our offer will be substantially more affordable,
with a compelling range and quality ingredients. Inevitably this
will result in lower gross margins, which we believe will be offset
by increased volume of covers. The more focused offering will also
facilitate a stronger brand identity and to maximise its potential,
we expect to invest in marketing alongside some capital expenditure
to make clear the proposition has changed.
We are developing a plan for how this new proposition will be
delivered. In the meantime roll out of further Coast to Coast sites
is suspended until we have clear evidence this new proposition is
working.
2. Serve our customers better and more efficiently
The business lacks rigorous, streamlined processes and systems
that would enable us to deliver the right service standards, with
the optimal level of resources, on a consistent basis.
We see opportunities to improve our sales forecasting accuracy,
to optimise our labour modelling and to deploy resources more
accurately which, in turn, will increase our sales by ensuring the
right service level is available at the right times, while removing
costs from those parts of the day where we operate
sub-optimally.
We have plans to reduce non-value adding or customer facing
activities throughout the business, some of which are dependent on
process, systems and supplier changes.
We are also focused on equipping our servers with the training
and tools, tailored to each brand, to showcase our proposition
fully, generating higher sales through cross-sell and up-sell.
3. Grow our Pubs and Concessions businesses
Our Pubs business is well positioned with a distinctive offering
and defensible locations. Strong operational execution, along with
locally sourced produce, has attracted a loyal and increasing
customer base who rate the offering highly, relative to
competitors. We see opportunities to further increase sales in
existing sites by optimising our menus and pricing and investing in
marketing.
The Pubs deliver consistently good and growing returns, with a
relatively modest refurbishment capital requirement compared to our
other brands. Our Pubs are concentrated in the North West, North
Wales and the Home Counties, presenting opportunities to
organically extend our footprint. Over the medium-term we expect to
increase the rate of openings as we build and convert a bigger
pipeline of prospective sites.
Our Concessions business operates five different food and
beverage formats, across 37 brands, within 12 UK airports. The
business has grown sales and profits consistently driven by new
space from contract wins, strong growth in passengers and continued
improvement in sales per head and conversion of passengers.
With our unique capabilities enabling us to consistently deliver
high operational standards at high volume and peak-load intensity,
along with our format development and partnering skills, we are
positioned well for further contract wins in the future.
4. Build a leaner, faster, more focused organisation
The business has excess cost driven by complexity and
inefficiency. We have undergone a detailed review of the cost base
and have identified opportunities to reduce costs by approximately
GBP10m on an annual run-rate basis, delivered in 2019.
Implementation has begun and the savings we capture in 2017 and
2018 will be re-invested in price, product and marketing to grow
the business. The one-off cost to achieve these efficiencies is
expected to be c. GBP6m.
These efficiencies will include streamlining our processes,
reducing overheads, extracting further purchasing benefits from our
scale and reducing the number of people we employ. This will
involve some difficult decisions but we are confident our
colleagues will embrace being part of a more efficient
organisation.
We are effecting a culture change towards a more customer
focused, insight-led organisation which can operate at pace. To
that end, we are pleased to have made some important changes to the
leadership team:
-- Murray McGowan has been appointed Managing Director, Leisure
and will join us on 5(th) June 2017. Since 2015, Murray has been
the Managing Director for Costa Express and prior to that, worked
for Yum! Brands, Cadbury and McKinsey.
-- Lucinda Woods has joined us as Director of Strategy and
Business Development and brings analytical and strategic skills
from her experience at Paddy Power Betfair, Investec and KPMG.
-- Debbie Moore has joined us as Group HR Director and brings
extensive multi-site and large employee company experience from
Spirit Pub Company, Royal Mail and Dixons.
-- Keith Janes has been promoted to Property Director, having
been at TRG for two years and previously rolled out formats for
Costa and Nokia.
We are taking a more disciplined approach to capital investment.
We have undertaken a comprehensive review of our property pipeline
on a site-by-site basis and have refined our selection criteria,
resulting in a reduction in the number of viable prospects.
Business review
Overview of the year
2016 was a disappointing year. Turnover was up 3.7%, benefitting
from a 53(rd) week, with like-for-like sales down 3.9%. The
underperformance was driven by each of our three major Leisure
brands, Frankie & Benny's, Chiquito and Coast to Coast. Our
Pubs and Concessions businesses performed well, benefiting from
good operational execution.
Brands
Frankie & Benny's (258 units)
The brand had a difficult trading year, with declining
like-for-like sales and operating margins, substantially
underperforming the market. Operational leadership was changed in
June and following the strategic review of the brands at the end of
the summer, a series of price and menu trials were launched to test
and learn the most effective way to arrest trading performance. 10
sites were opened and 15 sites closed during the year.
Chiquito (79 units)
Chiquito traded poorly in 2016, with declining like-for-like
sales and operating margins. While a drop in cinema attendances
contributed to some of this decline, the main drivers were poor
proposition changes, and operational issues affecting speed of
service. Five sites were opened and 12 sites closed during the
year.
Coast to Coast (21 units)
Coast to Coast had a difficult year. The brand is relatively
young and while lower sales are to be expected from new units after
their opening year, sales have continued to decline thereafter. A
radical change to the menu in January was received poorly and
progressive price changes in recent years have also contributed to
significant declines in like-for-like sales. Two sites were opened
and two sites closed during the year.
Pub restaurants (57 units)
Our Pub business traded well during the year, growing
like-for-like sales and profits. The strong and stable team
continued to develop the business, improving the menus and
successfully trialling new booking technology to accommodate more
covers. Four sites were opened and one closed during the year.
Concessions (59 units)
Our Concessions business had another strong year. While
benefitting from strong passenger growth across our UK airport
sites, we added to this by successfully driving incremental covers
and spend per head. We opened one site during the year, a new pub
in Gatwick North terminal which has its own gin distillery and
closed two due to airport configuration changes.
Current trading and outlook
Current trading is in line with our expectations.
2017 will be a transitional year for the business, given the
significant change underway and the substantial investment in price
and marketing. We anticipate momentum improving towards the end of
the year as our initiatives start to take effect.
We expect to open between 16 to 20 units in 2017 with associated
capital expenditure of between GBP16m-GBP20m. Refurbishment and
maintenance capital expenditure will range from GBP20m-GBP25m.
Financial review
Results
TRG had a disappointing year: revenue was up 3.7% to GBP710.7m
but, following the exceptional charges, the Group incurred a loss
before tax of GBP39.5m (2015: profit before tax of GBP86.8m). The
adjusted measures are summarised in the table below:
53 weeks ended 52 weeks ended
1 January 27 December
2017 2015
GBPm GBPm % change
--------------------- --------------- --------------- ---------
Revenue 710.7 685.4 +3.7%
EBITDA * 121.0 128.0 (5.5%)
Operating profit * 79.2 88.9 (11.0%)
Operating margin * 11.1% 13.0%
Profit before tax * 77.1 86.8 (11.2%)
Tax * (17.0) (19.4)
Profit after tax * 60.1 67.4 (10.8%)
EPS (pence)* 30.02 33.80 (11.2%)
--------------------- --------------- --------------- ---------
*Excludes the impact of the exceptional charge of GBP116.7m.
**Reflects the trading performance vs. the statutory 52 week
period in 2015. In 2016, the full year comprised 53 weeks.
Total revenue increased by 3.7%, mainly due to the impact of the
53(rd) week. Total adjusted EBITDA* for the year was GBP121m, a
decrease of 5.5% on the prior year and adjusted operating profit*
decreased by 11.0% to GBP79.2m. Adjusted group operating margin*
for the year was 11.1%, a decrease of 190 basis points on the prior
year. Within this, our administration cost base decreased as
percentage of turnover by 80 basis points, reflecting cost saving
initiatives implemented in many of our central support functions
during the latter half of 2016.
Interest costs were a little lower this year, partly due to a
lower level of average net debt during the year and partly due to
the annualisation of improved terms under the new financing
arrangements, which were completed in June 2015. This was partially
offset by an increase in non-cash interest as a result of increased
onerous lease interest charges.
Overall, this resulted in adjusted total profit before tax* of
GBP77.1m, an 11.2% decrease on the prior year. The average tax rate
in the year was 22.1%, a little lower than the prior year,
resulting in adjusted EPS* of 30.0p, a decrease of 11.2% on the
prior year.
Restructuring and exceptional charge
A total exceptional charge of GBP116.7m has been made in the
year, GBP59.1m in the first half and a further GBP57.6m in the
second half. The total cash element of this charge is GBP43.2m.
We have closed 33 sites and intend to close a further eight
underperforming units which we do not believe are capable of
generating adequate returns. We have made an exceptional charge in
respect of these closures of GBP58.4m in the period relating to
impairment of fixed assets, provision for onerous leases and other
associated costs as a result of these decisions.
We have impaired a total of 66 sites. The total charge of
GBP51.4m in respect of these sites includes fixed asset write downs
and contractual cost provisions.
The exceptional charge also includes further costs incurred in
the year relating to the Board and management restructuring as well
as redundancy and consultancy fees.
The first half 2016 exceptional charge results in 2017
incremental operating profit benefit of GBP7m; the second half
charge results in an incremental operating profit benefit of GBP3m
in 2017. The difference relates primarily to a lower number of
loss-making sites closed in the second half of the year. The
operating profit benefit comes from lower depreciation following
the impairment charge, onerous leases having been provided for and
other efficiencies offset by an increased onerous lease interest
cost.
Cash flow
The Group continued to be strongly cash generative, generating
GBP78.9m of free cash flow. After development capex of GBP28.8m,
GBP34.9m of dividend payments and other non-trading items, net debt
reduced by GBP0.1m in the year to GBP28.3m at the year end. Set out
below is a summary cash flow for the year.
2016 2015
GBPm GBPm
----------- -----------
Adjusted operating profit* 79.2 88.9
Working capital and non-cash adjustments 1.1 5.6
Depreciation 41.8 39.1
Operating cash flow 122.1 133.6
Net interest paid (0.8) (1.0)
Tax paid (16.2) (17.6)
Maintenance capital expenditure (26.2) (19.7)
------------------------------------------ ----------- -----------
Free cash flow 78.9 95.3
Development capital expenditure (28.8) (55.1)
Movement in capital creditors (10.3) 1.9
Dividends (34.9) (32.1)
Purchase of shares - (1.7)
Other items (4.8) 1.9
------------------------------------------ ----------- -----------
Net cash flow 0.1 10.2
Net bank debt brought forward (28.4) (38.6)
------------------------------------------ ----------- -----------
Net bank debt carried forward (28.3) (28.4)
------------------------------------------ ----------- -----------
Cost inflation
Food cost inflation pressures were managed well in 2016. This
was due to the benefit of contracted supply agreements which
shielded the Group from the immediate impact of cost rises observed
in the second half of the year. However, the outlook for food and
beverage inflation in 2017 is more difficult, with both direct
purchase cost inflation and the impact of foreign exchange
increasing our input costs. We will continue to take advantage of
our highly effective buying function to minimise the impact of
these headwinds.
During 2016 we experienced the first National Living Wage
increase which resulted in many of our employees benefiting from
above inflation wage rises. We expect this trend to continue given
the Government's stated aim is to continue to increase the National
Living Wage until at least 2020. 2017 also sees the introduction of
the Apprentice Levy which will be 0.5% of our annual gross wage
bill.
Our other two largest cost items are occupancy and utility
costs. The revaluation of business rates, which comes into effect
in April 2017, will add approximately GBP3m to the Group's rates
bill. Rental inflation continues to increase at c.2% per annum. We
expect that our utility costs will increase in 2017 as the Group's
current fixed price contracts expire in the third quarter of the
year.
Capital expenditure
During the year the Group invested a total of GBP55.0m in
capital expenditure compared to GBP74.8m in the prior year. We
invested GBP26.2m in maintenance and refurbishment expenditure
which included GBP7.0m spent on a Frankie & Benny's bar
reduction programme and GBP28.8m in new site development
expenditure. During the year we opened a total of 24 new sites. In
addition to the 33 closed sites highlighted above, four further
sites closed in the year including two concessions which had
reached the end of their contractual life and two leisure sites
which we declined to renew at the end of their lease. The table
below summarises openings and closures during the year.
Year end Opened Closed Transfers Year end
2015 2016
--------- ------- ------- ---------- ---------
Frankie & Benny's 261 10 (15) 2 258
Coast to Coast/Filling
Station 28 3 (3) - 28
Chiquito 86 5 (12) - 79
Garfunkel's 13 - (2) (3) 8
Joes Kitchen 3 1 (2) 2 4
Pub restaurants 54 4 (1) - 57
Concessions 61 1 (2) (1) 59
--------- ------- ------- ---------- ---------
Total 506 24 (37) - 493
--------- ------- ------- ---------- ---------
Financial and key financial ratios
The Group continues to maintain considerable headroom against
the covenant tests of its GBP140m revolving credit facility, which
is in place until June 2020.
Banking covenant 2016 2015
--------------------------------------------- ------- -------
Banking covenant ratios:
EBITDA / Interest cover >4x 60x 63x
Net debt / EBITDA <3x 0.2x 0.2x
Other ratios:
Fixed charge cover n/a 2.4x 2.7x
Balance sheet gearing n/a 14% 10%
------------------ ------- -------
Tax
The total trading tax charge for the year was GBP17.0m,
summarised as follows;
2016 2015
GBPm GBPm
------ ------
Corporation tax 16.9 19.1
Deferred tax 0.1 0.3
------ ------
Total 17.0 19.4
------ ------
Effective tax rate 22.1% 22.4%
The effective trading tax rate for the year was 22.1% compared
to 22.4% in the prior year. The lower tax rate reflects the ongoing
reduction in the corporation tax rate. As noted in previous reports
the Group's effective tax rate will continue to be higher than the
headline UK tax rate primarily due to our capital expenditure
programme and the significant levels of disallowable capital
expenditure therein.
The Restaurant Group plc
Consolidated income statement
53 weeks ended 01 January 52 weeks ended 27 December
2017 2015
Trading Exceptional Trading Exceptional
(see note (see note
business 4) Total business 4) Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2 710,712 - 710,712 685,381 - 685,381
Cost of sales (598,136) (109,732) (707,868) (558,491) - (558,491)
------------ -------------- ---------- --------------- ------------ ----------
Gross
profit/(loss) 112,576 (109,732) 2,844 126,890 - 126,890
Administration
costs (33,420) (6,944) (40,364) (37,999) - (37,999)
------------ -------------- ----------
Operating
profit/(loss) 79,156 (116,676) (37,520) 88,891 - 88,891
Interest payable 5 (2,073) - (2,073) (2,128) - (2,128)
Interest
receivable 5 66 - 66 82 - 82
------------ -------------- ---------- --------------- ------------ ----------
Profit/(loss) on
ordinary
activities
before tax 77,149 (116,676) (39,527) 86,845 - 86,845
Tax on
profit/(loss)
from
ordinary
activities 6 (17,043) 16,405 (638) (19,447) 1,488 (17,959)
--------------- ------------ ----------
Profit/(loss)
for the year 60,106 (100,271) (40,165) 67,398 1,488 68,886
------------ -------------- ---------- --------------- ------------ ----------
Earnings/(loss)
per share
(pence)
Basic 7 30.02 (20.06) 33.80 34.55
Diluted 7 29.84 (20.06) 33.50 34.24
------------ ---------- --------------- ----------
The table below is provided to give additional information to shareholders
on a key performance indicator:
Earnings before
interest,
tax,
depreciation
and
amortisation 120,965 (48,626) 72,339 127,991 - 127,991
Depreciation and
impairment (41,809) (68,050) (109,859) (39,100) - (39,100)
------------ -------------- ---------- --------------- ------------ ----------
Operating profit 79,156 (116,676) (37,520) 88,891 - 88,891
------------ -------------- ---------- --------------- ------------ ----------
The Restaurant Group plc
Consolidated statement of changes
in equity
Share Share Other Retained Total
capital premium reserves earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 28 December 2015 56,518 25,255 (11,080) 212,867 283,560
Loss for the year - - - (40,165) (40,165)
Issue of new shares 32 287 - - 319
Dividends - - - (34,862) (34,862)
Share-based payments - debit
to equity - - 1,323 - 1,323
Other reserve movements - - (230) - (230)
Current tax on share-based payments
taken directly to equity - - - 73 73
Deferred tax on share-based
payments taken directly to equity - - - (581) (581)
Balance at 01 January 2017 56,550 25,542 (9,987) 137,332 209,437
-------- -------- --------- --------- ---------
Balance at 29 December 2014 56,433 24,495 (11,971) 175,567 244,524
Profit for the year - - - 68,886 68,886
Issue of new shares 85 760 - - 845
Dividends - - - (32,115) (32,115)
Share-based payments - credit
to equity - - 2,900 - 2,900
Employee benefit trust - purchase
of shares - - (1,746) - (1,746)
Other reserve movements - - (263) - (263)
Current tax on share-based payments
taken directly to equity - - - 818 818
Deferred tax on share-based
payments taken directly to equity - - - (289) (289)
Balance at 27 December 2015 56,518 25,255 (11,080) 212,867 283,560
-------- -------- --------- --------- ---------
There is no comprehensive income other than the profit/loss for the
year in the year ended 1 January 2017 or the year ended 27 December
2015.
The Restaurant Group plc
Consolidated balance sheet
At 01 January At 27 December
2017 2015
Note GBP'000 GBP'000
Non-current assets
Intangible assets 26,433 26,433
Property, plant and equipment 9 345,952 403,640
---------------- ---------------
372,385 430,073
---------------- ---------------
Current assets
Stock 5,632 6,389
Trade and other receivables 18,782 13,366
Prepayments 15,824 15,267
Cash and cash equivalents 9,568 2,983
---------------- ---------------
49,806 38,005
---------------- ---------------
Total assets 422,191 468,078
---------------- ---------------
Current liabilities
Overdraft - (838)
Corporation tax liabilities (1,275) (8,692)
Trade and other payables (121,850) (125,388)
Other payables - finance
lease obligations (393) (355)
Provisions 10 (16,391) (1,130)
---------------- ---------------
(139,909) (136,403)
---------------- ---------------
Net current liabilities (90,103) (98,398)
---------------- ---------------
Non-current liabilities
Long-term borrowings (37,882) (30,527)
Other payables - finance
lease obligations (2,950) (2,956)
Deferred tax liabilities (4,434) (12,096)
Provisions 10 (27,579) (2,536)
---------------- ---------------
(72,845) (48,115)
---------------- ---------------
Total liabilities (212,754) (184,518)
---------------- ---------------
Net assets 209,437 283,560
---------------- ---------------
Equity
Share capital 56,550 56,518
Share premium 25,542 25,255
Other reserves (9,987) (11,080)
Retained earnings 137,332 212,867
---------------- ---------------
Total equity 209,437 283,560
---------------- ---------------
The Restaurant Group plc
Consolidated cash flow statement
53 weeks ended 52 weeks ended
01 January 27 December
2017 2015
Note GBP'000 GBP'000
Operating activities
Cash generated from operations 11 122,148 133,632
Interest received 41 82
Interest paid (865) (1,125)
Tax paid (16,223) (17,644)
--------------- ---------------
Net cash flows from operating
activities 105,101 114,945
--------------- ---------------
Investing activities
Purchase of property, plant and
equipment (65,280) (72,914)
Disposal of fixed assets 2,219 250
Net cash flow on exceptional Items (7,074) -
--------------- ---------------
Net cash flows used in investing
activities (70,135) (72,664)
--------------- ---------------
Financing activities
Net proceeds from issue of ordinary
share capital 319 845
Employee benefit trust - purchase
of shares - (1,746)
Net withdrawals/(repayments) of
loan draw downs 7,000 (8,000)
Dividends paid to shareholders 8 (34,862) (32,115)
--------------- ---------------
Net cash flows used in financing
activities (27,543) (41,016)
--------------- ---------------
Net increase in cash and cash
equivalents 7,423 1,265
Cash and cash equivalents at the
beginning of the year 2,145 880
Cash and cash equivalents at the
end of the year 9,568 2,145
--------------- ---------------
The Restaurant Group plc
Notes to the accounts
For the year ended 01 January 2017
1 Segmental analysis
The Group trades in one business segment (that of operating
restaurants) and one geographical segment (being the United
Kingdom). The Group's brands meet the aggregation criteria set
out in paragraph 22 of IFRS 8 "Operating Segments" and as such
the Group report the business as one reportable segment.
2 Revenue 2016 2015
GBP'000 GBP'000
Income for the year consists of the following:
Revenue from continuing operations 710,712 685,381
Other income not included within revenue
in the income statement:
Rental income 2,260 2,688
Interest income 66 82
Total income for the year 713,038 688,151
-------- --------
3 Profit for the year 2016 2015
GBP'000 GBP'000
Cost of sales consists of the following:
Continuing business excluding pre-opening
costs 594,756 553,106
Pre-opening costs 3,380 5,385
-------- --------
Trading cost of sales 598,136 558,491
Exceptional charge 109,732 -
Total cost of sales for the year 707,868 558,491
-------- --------
2016 2015
Profit for the year has been arrived at
after charging / (crediting): GBP'000 GBP'000
Depreciation 41,809 39,100
Impairment 68,050 -
Purchases 144,467 142,325
Staff costs (see note 4) 239,297 225,642
Minimum lease payments 74,616 67,009
Contingent rents 10,906 9,607
-------- --------
Total operating lease rentals of land and
buildings 85,522 76,616
Rental income (2,260) (2,688)
-------- --------
Net rental costs 83,262 73,928
-------- --------
4 Exceptional items
2016 2015
Impaired
Exit sites sites Other Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Impairment of fixed
assets 26,585 41,465 - 68,050 -
Void period costs and
onerous leases 27,629 7,218 - 34,847 -
Other exceptional costs 4,173 2,662 6,944 13,779 -
----------- ------------ -------- ---------- --------
58,387 51,345 6,944 116,676 -
Credit in respect of
tax rate change - - (261) (261) (1,488)
Tax effect of exceptional
Items (8,142) (7,219) (783) (16,144) -
----------- ------------ -------- ---------- --------
(8,142) (7,219) (1,044) (16,405) (1,488)
50,245 44,126 5,900 100,271 (1,488)
----------- ------------ -------- ---------- --------
The Group has recorded a charge of GBP58.4m for the exit costs
of 33 underperforming sites, and a further eight underperforming
units which we intend to exit in the short-term as we do not
believe that these sites are capable of generating adequate
returns.
The Group has also made an impairment charge of GBP51.3m against
66 sites, as required by IAS 36, which, owing to poor trading
performance, are unlikely to generate sufficient cash in the
future to justify their book value.
Furthermore, the Group has recorded a charge of GBP5.1m for
the Board and management restructuring and strategic review
costs, together with an accelerated charge of GBP1.8m in respect
of the cancellation by savers of options for the 2014 & 2015
Save as You Earn schemes.
The Group has recognised a GBP16.4m tax credit in relation to
these exceptional items (52 weeks ended 27 December 2015: GBP1.5m
tax credit in relation to revaluation of the deferred tax liability).
5 Net finance charges 2016 2015
GBP'000 GBP'000
Bank interest payable 834 1,075
Other interest payable 465 334
Facility fees 387 338
Interest on obligations under finance leases 387 381
-------- --------
Total borrowing costs 2,073 2,128
-------- --------
Bank interest receivable (5) (9)
Other interest receivable (8) (13)
Loan note interest receivable (53) (60)
-------- --------
Total interest receivable (66) (82)
-------- --------
Net finance charges 2,007 2,046
-------- --------
6 Tax
Trading Exceptional Total Total
2016 2016 2016 2015
a) The tax charge comprises: GBP'000 GBP'000 GBP'000 GBP'000
Current tax
UK corporation tax at 20.0% (2015:
20.25%) 17,011 (8,014) 8,997 19,624
Adjustments in respect of previous
years (116) - (116) (525)
-------- ------------ -------- --------
16,895 (8,014) 8,881 19,099
-------- ------------ -------- --------
Deferred tax
Origination and reversal of temporary
differences 27 - 27 24
Adjustments in respect of previous
years 121 - 121 324
Credit in respect of rate change
on deferred tax liability - (261) (261) (1,488)
Credit in respect of fixed asset
write downs and disposals - (8,130) (8,130) -
-------- ------------ -------- --------
148 (8,391) (8,243) (1,140)
-------- ------------ -------- --------
Total tax charge for the year 17,043 (16,405) 638 17,959
-------- ------------ -------- --------
b) Factors affecting the tax charge
for the year
The tax charged for the year varies from the standard UK corporation
tax rate of 20.0% (2015: 20.25%) due to the following factors:
Trading Exceptional
2016 2016 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Profit/(loss) on ordinary activities
before tax 77,149 (116,676) (39,527) 86,845
-------- ------------ --------- --------
Profit/(loss) on ordinary activities
before tax multiplied
by the standard UK corporation
tax rate of 20.0% (2015: 20.25%) 15,430 (23,335) (7,905) 17,586
Effects of:
Depreciation/impairment on non-qualifying
assets 1,868 4,765 6,633 1,960
Expenses / (income) not deductible
for tax purposes 621 2,616 3,237 103
Credit in respect of rate change
on deferred tax liability - (261) (261) (1,488)
Adjustment in respect of previous
years (876) (190) (1,066) (202)
Total tax charge for the year 17,043 (16,405) 638 17,959
-------- ------------ --------- --------
The Finance Act 2012 introduced a reduction in the main rate
of corporation tax from April 2015 from 21% to 20% resulting
in a blended rate of 20.25% being used to calculate the tax liability
for the 52 weeks ended 27 December 2015 and 20% for the 53 weeks
to 01 January 2017.
The Finance (No.2) Act 2015 introduced a reduction in the main
rate of corporation tax from 20% to 19% from April 2017 and from
19% to 18% from April 2020. These reductions were substantively
enacted on 26 October 2015.
The Finance Act 2016 introduced a further reduction in the main
rate of corporation tax to 17% from April 2020. This was substantively
enacted on 06 September 2016. The deferred tax provision at the
balance sheet date has been calculated at this rate, resulting
in a GBP0.3m tax credit.
7 Earnings per share 2016 2015
a) Basic earnings per share:
Weighted average ordinary shares for the
purposes of basic earnings per share 200,230,299 199,408,183
Total (loss)/profit for the year (GBP'000) (40,165) 68,886
Basic earnings per share for the year (pence) (20.06) 34.55
------------ ------------
Total (loss)/profit for the year (GBP'000) (40,165) 68,886
Effect of exceptional items on earnings
for the year (GBP'000) 100,271 (1,488)
------------ ------------
Earnings excluding exceptional items (GBP'000) 60,106 67,398
Adjusted earnings per share (pence) 30.02 33.80
------------ ------------
b) Diluted earnings per share:
Weighted average ordinary shares for the
purposes of basic earnings per share 200,230,299 199,408,183
Effect of dilutive potential ordinary shares:
Dilutive shares to be issued in respect
of options granted under the share option
schemes 404,829 488,349
Shares held by employee benefit trust 814,855 1,262,608
201,449,983 201,159,140
------------ ------------
Diluted earnings per share (pence) (20.06) 34.24
Adjusted diluted earnings per share (pence) 29.84 33.50
The additional non-statutory earnings per share information
(where exceptional items, described in note 5, have been
added back) has been provided as the Directors believe it
provides a useful indication as to the underlying performance
of the Group.
Diluted earnings per share information is based on adjusting
the weighted average number of shares for the purposes of
basic earnings per share in respect of notional share awards
made to employees in regards of share option schemes and
the shares held by the employee benefit trust.
8 Dividend
2016 2015
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders during the year:
Final dividend for the 52 weeks ended 27
December 2015 of 10.60p (2014: 9.30p) per
share 21,237 18,550
Interim dividend for the 53 weeks ended
01 January 2017 of 6.80p (2015: 6.80p) per
share 13,625 13,565
-------- --------
Total dividends paid in the year 34,862 32,115
-------- --------
Proposed final dividend for the 53 weeks
ended 01 January 2017 of 10.60p (2015 actual
proposed and paid: 10.60p) per share 21,240 21,176
-------- --------
9 Property, plant and equipment
Fixtures,
Land and equipment
buildings and vehicles Total
GBP'000 GBP'000 GBP'000
Cost
At 29 December 2014 447,403 162,940 610,343
Additions 50,842 23,975 74,817
Disposals (8,360) (5,079) (13,439)
At 27 December 2015 489,885 181,836 671,721
---------- ------------- ---------
Accumulated depreciation and impairment
At 29 December 2014 141,547 100,220 241,767
Provided during the year 20,848 18,252 39,100
Impairment - - -
Disposals (7,869) (4,917) (12,786)
At 27 December 2015 154,526 113,555 268,081
---------- ------------- ---------
Cost
At 28 December 2015 489,885 181,836 671,721
Additions 38,445 16,558 55,003
Disposals (6,536) (6,801) (13,337)
At 01 January 2017 521,794 191,593 713,387
---------- ------------- ---------
Accumulated depreciation and impairment
At 28 December 2015 154,526 113,555 268,081
Provided during the year 22,533 19,276 41,809
Impairment 54,807 13,243 68,050
Disposals (3,991) (6,514) (10,505)
At 01 January 2017 227,875 139,560 367,435
---------- ------------- ---------
Net book value as at 28 December
2015 335,360 68,281 403,640
Net book value as at 01 January
2017 293,919 52,033 345,952
---------- ------------- ---------
10 Provisions 2016 2015
GBP'000 GBP'000
Provision for onerous lease contracts 19,853 2,714
Provision for property exit costs 24,117 952
Balance at the end of the year 43,970 3,666
-------- --------
Analysed as:
Amount due for settlement within one year 16,391 1,130
Amount due for settlement after one year 27,579 2,536
43,970 3,666
-------- --------
Onerous Property
lease contracts exit costs Total
GBP'000 GBP'000 GBP'000
Balance at 28 December 2015 2,714 952 3,666
Additional provisions made 18,197 30,221 48,418
Amounts utilised (1,161) (6,831) (7,992)
Provisions released (5) (225) (230)
Adjustment for change in discount
rate (337) - (337)
Unwinding of discount 445 - 445
Balance at 1 January 2017 19,853 24,117 43,970
----------------- ------------ --------
The provision for onerous contracts is in respect of lease agreements
and covers the element of expenditure over the life of those
contracts which are considered onerous, expiring in 1 to 30
years.
The provision for property exit costs includes the costs of
strip out and dilapidations and the costs expected to be incurred
over the void period until the property is sublet. In addition,
this includes a provision for other committed costs arising
from the strategic exit project.
11 Reconciliation of profit before tax to cash generated from
operations
2016 2015
GBP'000 GBP'000
(Loss)/profit before tax (39,527) 86,845
Net finance charges 2,007 2,046
Impairment (non cash) 68,050 -
Provision for future lease and other costs 46,860 -
Share-based payments 1,323 2,900
Depreciation 41,809 39,100
Decrease / (increase) in stocks 757 (859)
Increase in debtors (5,973) (5,633)
Increase in creditors 6,842 9,233
Cash generated from operations 122,148 133,632
--------- --------
12 Reconciliation of changes in cash to the
movement in net debt 2016 2015
GBP'000 GBP'000
Net debt:
At the beginning of the year (28,382) (38,578)
Movements in the year:
(Proceeds from) / repayments of loan draw
downs (7,000) 8,000
Non-cash movements in the year (355) 931
Cash inflow / (outflow) 7,423 1,265
At the end of the year (28,314) (28,382)
--------- ---------
Represented At 27
by: At 29 Cash flow Non-cash & 28 Cash flow Non-cash At 01
December movements movements December movements movements January
in the in the in the in the 2017
2014 year year 2015 year year
--------- ---------- ---------- --------------- ---------- ---------- ---------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash
equivalents 880 2,103 - 2,983 6,585 - 9,568
Overdraft - (838) - (838) 838 - -
Bank loans
falling due
after one year (39,458) 8,000 931 (30,527) (7,000) (355) (37,882)
(38,578) 9,265 931 (28,382) 423 (355) (28,314)
--------- ---------- ---------- --------------- ---------- ---------- ---------
13 Basis of preparation
The Group's preliminary announcement and statutory accounts in
respect of 2016 have been prepared on the going concern basis. The
financial information set out above does not constitute the Group's
statutory accounts for the years ended 1 January 2017 or 27
December 2015 but is derived from those accounts. Statutory
accounts for 2015 have been delivered to the Registrar of Companies
and those for 2016 will be delivered following the Company's Annual
General Meeting. The 2016 statutory accounts are prepared on the
basis of the accounting policies stated in the 2015 statutory
accounts. The auditor has reported on those accounts; their reports
were unqualified and unmodified and did not contain statements
under s498 (2) or (3) of the Companies Act 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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