Final Results

RNS Number : 2668O

Restaurant Group PLC

04 March 2009

 



The Restaurant Group plc

Preliminary results for the year ended 28 December 2008  

The Restaurant Group plc operates 354 restaurants and pub restaurants predominantly in leisure locations and airports. Its primary offerings are Frankie and Benny's, Chiquito, Garfunkel's, Blubeckers and Brunning & Price. 

• The Group had a strong 2008: 

                -   1.5% growth in like-for-like sales

                -   Revenue up 14% to £417m

                -   Adjusted EBITDA increased by 14% to £77.5m

                -   Adjusted profit before tax increased by 13% to £48.9m

                -   Adjusted EPS rose 14% to 16.7p

                -   Proposed final dividend of 6.3p per share giving a full year dividend of 7.7p per share, up 6%

                -   Statutory profit before tax increased by 10% to £47.1m

                -   Statutory EPS rose 10% to 16.4p

*Results marked as adjusted are stated excluding non-trading items (refer to note 2)

• Leisure and Concessions divisions continued to grow revenues and operating profit

• Operations strongly cash generative (£78.8m of cash generated during the period)

• Net debt of £79m, equivalent to one times EBITDA

• Roll out continues

  • 40 new sites (24 net new sites) opened in the period - all self-funded

  • 15-20 new sites targeted for 2009

• Satisfactory current trading given the economic climate with like-for-like sales -2.5% for the nine weeks to 1 March 2009, an improvement on the last two months of 2008

Andrew Page, Chief Executive, said: 

' This is another set of great results from The Restaurant Group with profits up 13%. The combination of our distinct market positioning, strong brands, keen focus on margins and an outstanding team have enabled TRG to deliver another year of good progress. We asked a lot of our people in 2008 and they responded magnificently. I would like to record my thanks and appreciation to all of them.

Against a difficult economic backdrop, the current year has started well with total revenues 4% ahead of last year. The Group is in good shape with strong cashflows and, having eschewed the trend in recent years of replacing permanent capital with bank debt, we are well placed to weather the recession and take advantage of opportunities to add new restaurants within our selected market segments.' 

4 March 2009

Enquiries:

The Restaurant Group
Andrew Page, Chief Executive	020 7457 2020 (today)
Stephen Critoph, Group Finance Director	0845 612 5001 (thereafter)
College Hill
Matthew Smallwood Justine Warren	020 7457 2020

The Restaurant Group plc

Full year results for the year ended 28 December 2008

Chairman's statement

*Results marked as adjusted are stated excluding non-trading items (refer to note 2)

I am very pleased to report that The Restaurant Group ('TRG' or 'the Group') produced a record level of profits and earnings per share in 2008. During what became an increasingly challenging environment for our sector, TRG built on its strong first half performance to deliver growth in both revenues and earnings per share for the full year. Set against a deteriorating marketplace for consumer-facing businesses, this represents a strong and very resilient performance. During 2008 TRG's like-for-like sales grew by 1.5%, we sold over 33 million meals (including nearly four million children's meals), opened 40 new restaurants and created approximately 600 new full and part-time jobs. 

Despite the rapid deterioration experienced in the UK economy during the second half of 2008, the Group was able to build on its successful first half performance and further grow revenues, profits and earnings during the second half of the year. Full year revenues increased by 14% to £417m (2007: £367m), adjusted profit before tax increased by 12.5% to £48.9m (2007: £43.5m) and adjusted earnings per share increased by 14% to 16.67p (2007: 14.64p). Following on from two successive years of 27% growth in adjusted earnings per share, this represents continued good progress. Accordingly, the Board is recommending a final dividend of 6.30p per share (2007: 5.99p) giving a total for the year of 7.70p (2007: 7.25p) per share, an increase of 6%. Subject to approval at the Annual General Meeting, the final dividend will be payable on 8 July 2009 to shareholders on the register on 12 June 2009 and the shares will be marked ex-dividend on 10 June 2009. 

At the end of 2005, TRG embarked upon its strategy of focusing on two core segments (Leisure and Concessions) and 2008 was the third full year of trading in this form. Our results since adopting this strategy have been consistently strong and it is our intention to continue to focus our efforts in these two areas. 

Both divisions, Leisure and Concessions, performed well during 2008 growing both revenues and profits. During the year we opened a total of 40 new restaurants and, overall, we are delighted with their performance. Our plans for new openings during 2009 have been impacted by a slowdown in new construction projects. The credit crunch and a deterioration in the retail marketplace has resulted in many of our potential landlords delaying new development projects and this has particularly impacted the edge and out of town leisure and retail parks market. Consequently, we now anticipate that we will open between 15 and 20 new restaurants during 2009. Whilst this is less than we had previously anticipated, it enables the Group to retain more of its cashflow which can, if appropriate, be deployed at a later stage to pursue fresh opportunities within our chosen market segments. 

Our Leisure division, which incorporates Frankie & Benny's, Chiquito, Garfunkel's and Pub Restaurants, enjoyed another successful year. Brunning & Price, which we acquired in October 2007, produced an excellent performance during its first full year of TRG ownership with growth in like-for-like sales, revenue and profits. During the year we opened 31 new restaurants and pub restaurants within our Leisure division - these are trading well and are set to deliver strong returns. For the year as a whole, the Leisure division delivered a strong performance with growth in both revenues (up 15%) and profit (up 12%). We plan to open between 13 and 15 new restaurants in our Leisure division during 2009.

The Concessions division also performed well during 2008, recording an increase in revenues (up 7.5%) and profit (up 2%). 2008 was an exceptionally busy year for this division with 9 new openings and 11 sites closing. During the first half year we opened four sites at Heathrow's new Terminal 5 and four new sites at Gatwick South. Overall, the performance of these new openings has been good and is set to improve further as T5 and Gatwick South increase their passenger numbers. We plan to open between two and five new airport sites during 2009. 

In what was a difficult year for UK consumer-facing businesses, these results represent a strong performance from TRG and reflect the hard work and dedication of our Directors, senior management team and all of our staff. On behalf of the Board I would like to thank them all for their valued contribution over the past year. 

Whilst 2008 was the most challenging year that our industry has experienced over the past decade or more, it looks likely that 2009 will be even more challenging. Although not immune to the adverse impact of the UK recession, TRG occupies a resilient position within the popular price-point dining out marketplace and is well-equipped to strengthen its market position further.  

2009 has started reasonably well, with like-for-like sales for the first nine weeks of the year 2.5% below 2008 levels. Despite the more difficult backdrop we are confident that TRG is well positioned to weather this recession, to capitalise on opportunities that may arise and to continue with its profitable development in the same focused and sustainable manner as it has done to date. 

Alan Jackson

Chairman

4 March 2009 

Chief Executive's review of operations                

*Results marked as adjusted are stated excluding non-trading items (refer to note 2)

At the beginning of 2008 we were concerned that a less favourable outlook for the UK economy combined with tightening conditions for the consumer would present significant challenges for our sector during the year ahead. At that time inflationary headwinds were also building and, although we had mitigated the risk of this via fixed or capped price contracts in respect of approximately one third of our input costs, those too were anticipated to make profit progress more difficult to achieve. In addition, many of the other operators in our sector had, since the end of 2007, adopted a tactic of deep discounting in order to stem declining sales. Against what looked set to become a more challenging and potentially divergent marketplace we framed our strategy and tactics accordingly and I am pleased to report that this has enabled TRG to enjoy another year of good progress.  

Against the well-documented challenging economic backdrop, both of our divisions performed well during the year delivering growth in both revenues and profit. Margins too held up well with a 10 basis point increase in the EBITDA margin to 18.6% (2007: 18.5%) and a 10 basis point decline in operating profit margin to 13.0% (2007: 13.1%). Our like-for-like sales also grew by 1.5%, which taken against increases of 5.0% and 5.5% in the two preceding years represents very solid progress. As a result, the Group again achieved a record level of adjusted profit before tax which increased by 12.5% to £49m and adjusted earnings per share which increased by 14% to 16.7p. 

TRG rationale  

Our core objective continues to be growth in shareholder value and our strategy to achieve this is to build a business capable of delivering long-term, sustainable and growing cashflows. I am pleased to report that, once again, we have successfully converted our profits into cash at a very healthy rate. TRG's business model enables the Group to grow in a predominantly organic and highly value-accretive way, funded from internally generated funds. Our touchstones are cashflow and return on investment. 

TRG's primary focus is on edge of town, out of town, rural, semi-rural and airport locations. These locations have significant barriers to entry, offer good growth prospects and enable the Group to generate consistently high returns on investment. We occupy leading market positions in each of these segments and are well placed to continue to grow our business. 

Capex and TRG opening programme

Our philosophy regarding capital expenditure remains consistent - that is, we focus on cash generation and return on invested capital at rates ahead of TRG's weighted average cost of capital. We will continue to apply the same high level of analytical rigour, commercial analysis, experience and risk adjustment to each capital project that we undertake. This approach has served TRG well over the last seven years and we do not intend to deviate from it. This means that projects that have been postponed or delayed by the developers will not be substituted with unduly risky and/or less attractive projects. Rather, we will retain our cash until such time as either the original projects reappear or other equally attractive opportunities become available. In the meantime, our surplus cashflow will be applied towards reducing debt. 

Results

All of our key trading metrics performed well during 2008:

• Building on the 5% and 5.5% increases in like-for-like sales in 2006 and 2007, we grew this metric by 1.5% in 2008. During the year we sold more than 33 million meals;

• Revenue increased by 14% to £417m;

• Adjusted EBITDA increased by 14% to £77.5m and adjusted operating profit increased by 13% to £54.2m; and 

• Group margins (EBITDA and operating profit) were held at last year's levels - a very satisfactory performance against a changing business mix, inflationary cost pressures and the 290 basis point increase in operating profit margins achieved since the beginning of 2005. 

Leisure

Total revenue: £329m        Operating profit: £69m    Operating margin: 21.0%

Frankie & Benny's (179 units) 

Frankie & Benny's performed well during 2008 with turnover, EBITDA and operating profit all increasing. Whilst the EBITDA margin was maintained there was a very small decline in the operating margin. During the year we opened 21 new restaurants of which 13 were on non-cinema sites. The results from the new openings have been excellent and they are set to deliver strong returns. In 2009 we had intended to open a similar number of new restaurants to 2008 but we have, over the past six months, had a rising number of projects postponed or cancelled by the developers. We believe that this reflects two key factors - firstly a lack of bank finance available to property companies and secondly a deteriorating retail sector making it more difficult for landlords to secure tenants on projects with a retail component. Accordingly, as of March 2009, we now anticipate opening between 8 and 12 new Frankie & Benny's during the forthcoming year. 

Chiquito (61 units)

Chiquito enjoyed another year of good progress with increases in revenues, EBITDA and operating profit. EBITDA and profit margins were maintained at the levels achieved in 2007. During the year we opened eight new Chiquito restaurants - these are trading well and are set to deliver good returns. During 2009 we expect to open between two and four new Chiquito restaurants. Again, we have seen strong performances from our co-located restaurants and we plan to continue to pursue dual roll-out opportunities. 

Garfunkel's (22 units) 

This year the Garfunkel's brand celebrates its 30th anniversary and it remains a strong business, predominantly located in central London, delivering high margins and excellent returns on invested capital. During 2008 Garfunkel's performed superbly and, although some restaurant closures (due to the expiry of leases) meant that turnover reduced, the overall profit increased by 15%. Margins also improved with significant increases in both EBITDA and operating profit margins. During 2009 we expect to open a new Garfunkel's in Tottenham Court Road on a redeveloped site upon which a very successful Garfunkel's previously traded. 

Pub Restaurants (44 units)

Overall our Pub Restaurant business performed steadily during 2008. Brunning & Price which we acquired in October 2007 delivered a superb performance with growth in like-for-like sales, revenues and profits. Blubeckers however, found the going tougher and this pattern persisted throughout the year. This was due, in part, to its geographical concentration in the South East and also to its price point which, combined with a more formal style of offering, means that it has less 'everyday appeal'. Where feasible, during 2009 we will be aligning the Blubeckers style of offering more closely to the less formal style of Brunning & Price as we believe that this will afford greater operational flexibility and will also appeal to a wider potential customer base. 

At the start of 2008 we had anticipated opening between 5-10 new pub restaurants. In fact, we opened just two. The main reason behind our decision to scale back the openings in 2008 was due to our assessment, as we moved through the first half of the year, that the pub sector was likely to come under more pressure over the next year or so. Whilst this pressure may lead to further competitive discounting and pricing pressure in the near term it will, we believe, yield some potentially lucrative opportunities to grow our Pub Restaurant business in the future. Accordingly we have, for the time being, decided to 'keep our powder dry' in the expectation that over the next couple of years we will have the opportunity to use our resources to greater effect. Longer-term we believe that this business has the potential to grow significantly.  

Concessions (48 units) 

Total revenue: £87.3m    Operating profit: £12.7m    Operating margin: 14.6%

Despite a number of factors impacting adversely upon our Concessions division during 2008, the business recorded a very creditable set of results. Turnover and profits both increased although, as previously anticipated, profit margins came under pressure slipping by 80 basis points to 14.6%. 

2008 was a challenging year for several reasons including large scale changes at Heathrow airport (including the opening of the new Terminal 5) and major redevelopment at Gatwick South. Since the fourth quarter of 2008 we have experienced a decline in passenger numbers ('pax') at many of our airport locations and this has also impacted our Concessions business. Notwithstanding these factors, our team has responded magnificently to ensure that the adverse revenue impact resulting from both airport disruptions and pax declines was minimised, and that operational efficiencies were secured. The result was like-for-like sales growth in every quarter and an increase in profits over the year. 

Looking forward into 2009, we are cautious about the outlook for airports. A global recession with the prospect of declining GDP is likely to impact air travel adversely and thus pax for much, if not all, of 2009. Beyond this it is difficult to make a call but we do know from past experience that firstly, TRG has an outstanding track record of positively outperforming pax changes and secondly, the medium and longer - term trends for this sector are strong with pax growth forecast to trend ahead of GDP growth and with a growing number of passengers flying with low cost airlines. 2009 is likely to be a year where we focus on continuing to outperform pax and to carefully control our costs. Our Concessions business is in good shape, it is the pre-eminent operator in UK airports, has an outstanding team of experienced staff and continues to generate good returns. 

Additionally, the average length of our airport concessions has increased significantly over the past year. This should leave TRG well placed in the event of changes in individual airport ownership.

Non-core

During the year non-core losses decreased by £0.6m and we will continue to take steps to minimise these non-core losses.  

Market dynamics and economic backdrop

Eating out has become an increasingly popular pastime for large parts of the UK population in recent years with growth trending at levels ahead of GDP growth and we remain confident that the prospects for our market are positive. Socio-economic factors such as an ageing population, more females in work and levels of disposable income significantly higher than in previous generations augur well for our industry. Eating out, particularly at our popular price points (£10-£16 spend per head), is a relatively 'small ticket' item for most people and for many it has become a habitual part of their lives and something that they are reluctant to give up. 

Nevertheless, eating out represents, to a significant degree, discretionary spend and as such can be flexed according to consumers' disposable income and confidence. It would therefore be naïve to assume that our business is impervious to the recessionary forces and deteriorating economic backdrop currently besetting the UK. To date, TRG has demonstrated a level of resilience and popularity with diners that has enabled it to continue to grow revenues and profits and, at the same time, maintain margins - we are determined to continue this. There are a number of factors that have enabled TRG to withstand the economic downturn. These include our distinct market positioning in segments with lower supply-side risk, our price point (and avoiding the deep discounting that has pervaded large parts of the market), offerings which have wide appeal to most socio-economic groups and a commitment to delivering great hospitality to our customers. 

There is no doubt that we currently face the most difficult economic backdrop experienced for at least two generations. The issues are many and complex. The rapidity with which the global economy has deteriorated over the past twelve months has been astonishing. Twelve months ago there was great concern about global inflation and this was being particularly felt in our sector. Today the concerns have moved on to worries of worldwide deflation, stretched public and private sector finances, rising unemployment and a global recession. Furthermore, a lack of liquidity in the banking system is making life difficult for both corporates and consumers. This has become serious as it adds a further deflationary and negative dimension to the slowdown. The reaction of most governments and central authorities has been to launch initiatives to reflate economies and the UK has been at the forefront of many of these. Both fiscal and monetary stimuli have been harnessed, potentially including the relatively untried technique of quantitative easing. Interest rates are now at the lowest level on record and may yet go lower. Meanwhile unemployment levels have risen. 

The two key macro-economic drivers for consumer spend which tend to influence our marketplace are interest rates and employment levels. The latter is likely to act as a drag for some time whilst a reduction in the former has yet to feed through into increasing consumer spend whilst uncertainty over job security, and a desire to pay down household debt and rebuild household savings, persists. Nevertheless the significant reduction in interest rates combined with lower inflation should mean that disposable incomes increase and in due course this will lead to an increase in consumer spend.  

GDP changes have moved into negative territory and the outlook for 2009 is for a decline of 3% or more. Therefore, in the short-term it looks highly likely that things may become more difficult. Some commentators have suggested that the UK will emerge from the recession in the second half of 2009 and that there will be a resumption of growth in 2010. We believe that it is too early, and that there is still too much uncertainty, to make that call. We have factored into our planning a further deterioration in the outlook for the UK economy in 2009. 

It is our intention to work hard to sustain those positive factors that have, to date, enabled TRG to withstand the deteriorating situation and grow sales and profit. We will also re-enforce our emphasis on tight cost control and judicious, value-accretive, expansion. TRG plans to continue to focus on those areas of business that it knows well and where it has expertise. Having eschewed the trend in recent years to replace permanent capital with debt we are well-placed to continue our expansion through new openings and should suitable new site opportunities arise TRG should be well-positioned to exploit them. As always our touchstones will be cashflow and return on investment.  

Future prospects

Against further economic deterioration we have started the year reasonably well with like-for-like sales for the first 9 weeks 2.5% below 2008 levels. This represents a good improvement on the trends experienced in the final two months of 2008.

Whilst the short-term outlook for the UK economy and consumer-facing businesses is trickier and may make life difficult for many companies, we believe that beyond the short-term it is likely to have a cathartic and positive effect upon our sector. The reasons for this are two-fold: firstly, some operators will withdraw or significantly downscale their plans and secondly, it is likely, for some time, to deter new entrants. Combined, these factors should act as a brake on restaurant supply and the positive impact of this is likely to be felt for some time. Looking forward, companies with sound finances and strong market positions will emerge from this recession in a significantly enhanced position. TRG is well placed to strengthen its position within its two chosen business segments and to continue its profitable development. 

Finally, I would like to record my thanks and appreciation to the TRG team. We asked a great deal of our people in 2008 and they responded magnificently. Without their unstinting efforts and professionalism we would not have been able to make such good progress. Our focus is now directed to 2009 and beyond and we are again looking to our staff to re-double their efforts. I am confident that they will do so. 

Andrew Page

Chief Executive Officer

4 March 2009

Group Finance Director's review

*Results marked as adjusted are stated excluding non-trading items (refer to note 2)

Results

The Group has recorded another very satisfactory set of financial results. Total Group revenue increased by 14% to £416.5m. This was generated from a combination of like-for-like sales growth, a full year impact of new sites opened in 2007 and a part-year impact from the current year site openings. 

Group EBITDA for the year was £77.5m (2007: £67.8m), or £79.4m after adding back the non-cash charge of £1.9m in respect of share-based payments. Total Group adjusted operating profit in the year was £54.2m, up 12.5% compared to the prior year. As noted in the Chief Executive's review, the Group's operating margin held up more strongly than we had anticipated earlier in the year at 13.0% (2007: 13.1%). This commendable performance resulted from a determined focus on managing all elements of our cost base against the background of a challenging trading environment and substantial inflationary pressures on some of our key cost lines. 

Total interest costs increased to £5.3m (2007: £4.0m). This increase was primarily due to the impact of a full year's interest charge in respect the increased levels of debt resulting from the Brunning & Price acquisition in October 2007.

Total Group adjusted profit before tax and non-trading items was £48.9m, an increase of 12.5% compared to the prior year. This resulted in underlying EPS of 16.67p, an increase of 14% compared to 2007. 

Non-trading items 

The full year results include a net charge before tax for non-trading items of £1.8m compared to a charge of £0.7m last year. The principal components of this are:

• A £0.3m net profit on some minor property disposals.

• A £0.6m charge in respect of one-off restructuring costs in the Leisure division. 

• A charge of £1.5m arising on the revaluation of interest rate swap arrangements at the year end.

Capital expenditure 

During the year the Group invested £46.7m in capital additions (2007: £47.4m) comprising:

• Development capital expenditure - £35.9m (2007: £37.8m)

• Maintenance and refurbishment - £10.8m (2007: £9.6m)

The Group is committed to maintaining the fabric of the existing estate. Our strong financial position mean that we are able to maintain an appropriate level of investment in the existing estate, even in the current challenging economic environment. 

During the year the Group opened a total of 40 new outlets, one of the largest opening programmes we have undertaken in recent years. After taking into account site closures (primarily in the Concessions Division at Heathrow and Gatwick Airports), we ended the year with 354 trading units. The table below summarises the openings and closures by brand. 

	At 30/12/07	Opened	Closed	Rebranded	At 28/12/08
Frankie & Benny's	159	21	(1)	-	179
Chiquito	53	8	(1)	1	61
Garfunkel's	26	-	(3)	(1)	22
Pub Restaurants	42	2	-	-	44
Concessions	50	9	(11)	-	48
Total	330	40	(16)	-	354

The Restaurant Group is highly focused on ensuring that all our investments generate excellent returns on investment. In order to ensure that this is achieved we adopt a rigorous approach to capital investment appraisal. All new sites are subject to this process. As well as detailed financial evaluation this involves demographic, local competitor and market analysis. All significant projects are subject to Group Board approval and we conduct post completion reviews on a regular basis. These confirm that we are continuing to achieve financial returns at a very satisfactory level. This focus on returns from new investments and the post investment appraisal process has been a key driver of value for the Group in recent years.

Cash flow 

Set out below is a summary cash flow statement for 2008. This demonstrates the very strong cash flow generation characteristics of The Restaurant Group and the very transparent conversion of reported operating profits into cash. Cash flow from operations was £78.8m. After paying interest costs, tax and maintenance capex the Group generated free cash flow of just under £50m. This free cash flow has been utilised to finance the Group's substantial opening programme and to pay total cash dividends in excess of £14m (a 17% increase in cash payments compared to the prior year).

£ million	2008	2007
Operating profit	54.2	48.2
Working capital & non-cash adjustments	1.3	6.0
Depreciation	23.3	19.6
Cash flow from operations	78.8	73.8
Interest paid	(4.8)	(3.4)
Tax paid	(13.6)	(10.2)
Maintenance capex	(10.8)	(9.6)
Free cash flow	49.6	50.6
Development capex	(35.9)	(37.8)
Dividends paid	(14.2)	(12.2)
Normalised net cash flow	(0.5)	0.6
Disposals (including Living Room)	1.8	8.6
Acquisition of Brunning & Price	-	(32.9)
Cash proceeds from issue of shares	0.1	1.1
Purchase of shares for employee benefit trust	(3.6)	(7.2)
Financing costs offset against bank debt	(0.1)	0.7
Change in net debt	(2.3)	(29.1)
Net debt at start of the year	(76.6)	(47.5)
Net debt at end of the year	(78.9)	(76.6)

Financing 

The Group has committed banking facilities of £120m and a £10m overdraft facility. The committed bank facility was put in place in December 2007 and runs for five years until December 2012. At the year end the Group's net debt was £79m. 

The Group has interest rate hedging instruments in place to fix interest costs on £65m of its total debt. £25m is fixed at a rate of 4.9% plus margin until January 2011; £20m is fixed at a rate of 3% plus margin until January 2012. A further £20m is fixed at 2.7% plus margin until January 2011. 

The Group's banking arrangements contain two financial covenants and these are tested on a six monthly basis. The Group currently has substantial head room against both of these covenants as summarised in the next section. 

Balance sheet and key financial ratios

Total Group net assets increased in the year from £77.2m to £93.6m. The details of this movement are set out in the consolidated statement of changes in equity. The principal movements in the year are an increase of £32.2m, representing retained profits for the year, less dividends paid of £14.2m and a £3.6m charge to reserves in respect of the purchase of shares for the employee benefit trust. 

  The key financial ratios during the year were as follows: 

		Covenant	2008	2007
EBIT interest cover		N/A	10.2x	12.1x
EBITDA interest cover		>4x	14.6x	17.0x
Fixed charge cover		N/A	2.4x	2.4x
Balance sheet gearing		N/A	84%	99%
Net debt / EBITDA		<3x	1.02x	1.13x

As is clear from this table, there is very substantial head room against our banking covenants. Balance sheet gearing has reduced from 99% to 84% (net debt as a percentage of net assets). However, for a leased based business such as The Restaurant Group the key financial ratio in terms of gearing is fixed charge cover. In 2008 the Group's fixed charge cover was 2.4 times, in line with the previous year.

Taxation 

The total taxation charge for the year was £14.9m as follows:

		2008				2007
	Trading	Non-trading	Total		Trading	Non-trading	Total
Corporation tax	15.0	(0.5)	14.5		12.5	0.3	12.8
Deferred tax	1.1	(0.7)	0.4		2.3	(1.5)	0.8
Total	16.1	(1.2)	14.9		14.8	(1.2)	13.6

The average tax rate on trading activities has fallen from 34% in 2007 to 33% in 2008. This reflects a nine month benefit from the reduction in the headline rate of corporation tax from 30% to 28% (effective from April 2008) partly offset by other adjustments, notably a lower level of tax relief arising on the exercise of share options. The Group's average tax rate continues to be higher than the headline rate of corporation tax. This is primarily due to the significant level of disallowable expenditure within our capital expenditure. 

Stephen Critoph

Group Finance Director 

4 March 2009

The Restaurant Group plc
Consolidated income statement
		Year ended 28 December 2008				Year ended 30 December 2007
		Trading	Non-			Trading	Non-
		business	trading	Total		business	trading	Total
	Note	£'000	£'000	£'000		£'000	£'000	£'000
Revenue	3	416,530	-	416,530		366,710	-	366,710
Cost of sales:
Excluding pre-opening costs	4	(335,731)	-	(335,731)		(294,102)	-	(294,102)
Pre-opening costs	4	(2,513)	-	(2,513)		(2,567)	-	(2,567)
		(338,244)	-	(338,244)		(296,669)	-	(296,669)
Gross profit		78,286	-	78,286		70,041	-	70,041
Administration costs		(24,055)	-	(24,055)		(21,834)	-	(21,834)
Trading profit		54,231	-	54,231		48,207	-	48,207
Release / (charge) of provision against carrying value of associate	5	-	39	39		-	(1,656)	(1,656)
Termination costs	5	-	(637)	(637)		-	-	-
Profit, net of losses, on disposal of fixed assets	5	-	292	292		-	247	247
Operating profit / (loss)		54,231	(306)	53,925		48,207	(1,409)	46,798
Interest payable	6	(5,403)	(1,488)	(6,891)		(4,017)	(237)	(4,254)
Interest receivable	6	97	-	97		39	986	1,025
Profit / (loss) before share of associate and tax		48,925	(1,794)	47,131		44,229	(660)	43,569
Share of post-tax result in associated undertaking		-	-	-		(749)	-	(749)
Profit / (loss) on ordinary activities before tax		48,925	(1,794)	47,131		43,480	(660)	42,820
Tax on profit / (loss) from ordinary activities	7	(16,147)	1,233	(14,914)		(14,802)	1,158	(13,644)
Profit / (loss) for the year		32,778	(561)	32,217		28,678	498	29,176
Earnings per share (pence)
Basic	8	16.67		16.38		14.64		14.90
Diluted	8	16.43		16.15		14.56		14.82
Dividend per share (pence)1	9			7.70				7.25
1 The dividend per share of 7.70p (7.25p) is the interim and final dividend in respect of 2008 (2007).

The Restaurant Group plc
Consolidated statement of changes in equity
		Year ended 28 December 2008	Year ended 30 December 2007
	Note	£'000	£'000
Opening equity		77,154	65,204
Profit for the year		32,217	29,176
Foreign exchange translation differences		512	40
Current tax on share-based payments taken directly to equity		8	953
Deferred tax on share-based payments taken directly to equity		(536)	(1,665)
Total income and expense recognised directly in equity		(16)	(672)
Total recognised income and expense for the year		32,201	28,504
Dividends	9	(14,187)	(12,173)
Issue of new shares		138	1,090
Share-based payments - credit to equity		1,897	1,738
Employee benefit trust - purchase of shares		(3,597)	(7,209)
Total changes in equity in the year		16,452	11,950
Closing equity		93,606	77,154

The Restaurant Group plc
Consolidated balance sheet
	At 28 December 2008	At 30 December 2007
	£'000	£'000
Non-current assets
Intangible assets	26,241	26,516
Property, plant and equipment	250,722	228,757
	276,963	255,273
Current assets
Stock	3,933	3,349
Financial assets - derivative financial instruments	-	415
Trade and other receivables	5,652	7,027
Prepayments	12,985	12,830
Cash and cash equivalents	5,470	1,692
	28,040	25,313
Total assets	305,003	280,586
Current liabilities
Corporation tax liabilities	(7,749)	(6,842)
Trade and other payables	(84,211)	(85,191)
Financial liabilities - derivative financial instruments	(1,073)	-
Other payables - finance lease obligations	(274)	(271)
Provisions	(825)	(533)
	(94,132)	(92,837)
Net current liabilities	(66,092)	(67,524)
Non-current liabilities
Long-term borrowings	(84,354)	(78,265)
Other payables - finance lease obligations	(2,652)	(2,558)
Deferred tax liabilities	(26,211)	(25,388)
Provisions	(4,048)	(4,384)
	(117,265)	(110,595)
Total liabilities	(211,397)	(203,432)
Net assets	93,606	77,154
Equity
Share capital	55,333	55,295
Share premium	21,104	21,004
Foreign currency reserve	633	121
Other reserves	(5,348)	(3,648)
Retained earnings	21,884	4,382
Total equity	93,606	77,154

The Restaurant Group plc
Consolidated cash flow statement
		Year ended 28 December 2008	Year ended 30 December 2007
	Note	£'000	£'000
Cash flows from operating activities
Cash generated from operations	10	78,764	73,812
Interest received		97	1,546
Interest paid		(4,858)	(3,468)
Tax paid		(13,624)	(10,228)
Net cash flows from operating activities		60,379	61,662
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired		-	(32,884)
Net proceeds on disposal of investment in associate		39	6,280
Purchase of property, plant and equipment		(46,723)	(47,407)
Proceeds from sale of property, plant and equipment		1,729	815
Net cash flows used in investing activities		(44,955)	(73,196)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		138	1,090
Employee benefit trust - purchase of shares		(3,597)	(7,209)
Net proceeds from issue of bank loans		6,000	32,000
Dividends paid to shareholders		(14,187)	(12,173)
Net cash flows (used in) / from financing activities		(11,646)	13,708
Net increase in cash and cash equivalents		3,778	2,174
Cash and cash equivalents at beginning of year	11	1,692	(482)
Cash and cash equivalents at end of year	11	5,470	1,692

The Restaurant Group plc
Notes to the accounts
1 Segmental analysis
	Year ended 28 December 2008						Year ended 30 December 2007
					Operating						Operating
	Turnover	EBITDA	EBITDA	Operating	profit		Turnover	EBITDA	EBITDA	Operating	profit
			margin	profit	margin				margin	profit	margin
	£'000	£'000	%	£'000	%		£'000	£'000	%	£'000	%
Leisure	328,986	87,147	26.5%	68,951	21.0%		285,226	76,161	26.7%	61,572	21.6%
Concessions	87,275	16,606	19.0%	12,735	14.6%		81,199	16,567	20.4%	12,485	15.4%
Principal trading brands	416,261	103,753	24.9%	81,686	19.6%		366,425	92,728	25.3%	74,057	20.2%
Non-core brands	269	(290)	(107.9%)	(887)	(330.2%)		285	(1,134)	(398.0%)	(1,449)	(508.5%)
Total all brands	416,530	103,463	24.8%	80,799	19.4%		366,710	91,594	25.0%	72,608	19.8%
Pre-opening costs		(2,513)	(0.6%)	(2,513)	(0.6%)			(2,567)	(0.7%)	(2,567)	(0.7%)
Administration costs		(21,557)	(5.2%)	(22,158)	(5.3%)			(19,483)	(5.3%)	(20,096)	(5.5%)
Share-based payments		(1,897)	(0.5%)	(1,897)	(0.5%)			(1,738)	(0.5%)	(1,738)	(0.5%)
Total before non-trading items		77,496	18.6%	54,231	13.0%			67,806	18.5%	48,207	13.1%
Release / (charge) of provision against carrying value of associate				39						(1,656)
Termination costs				(637)						-
Profit, net of losses, on disposal of fixed assets				292						247
Operating profit				53,925						46,798
No geographical segment analysis has been provided as the Directors do not consider there to be materially significant geographical segments. The Group currently operates three restaurants outside of the United Kingdom.
EBITDA is operating profit before depreciation, amortisation and non-trading items.

The Restaurant Group plc

2  Additional non-statutory information

Additional non-statutory income statement information is provided as a useful guide to underlying trading performance. The 2008 and 2007 results include a number of items which are of a one-off nature or are unrelated to the year's result and hence are not representative of the underlying trading performance of the business. The following segmental analysis excludes these non-trading items, as described in note 5, and is provided to aid understanding of the income statement and should be read in conjunction with, rather than as a substitute for, the reported information.   

The Restaurant Group plc
2 Additional non-statutory information *
* Results are stated excluding non-trading items
	Year ended 28 December 2008						Year ended 30 December 2007
					Operating						Operating
	Turnover	EBITDA	EBITDA	Operating	profit		Turnover	EBITDA	EBITDA	Operating	profit
			margin	profit	margin				margin	profit	margin
	£'000	£'000	%	£'000	%		£'000	£'000	%	£'000	%
Leisure	328,986	87,147	26.5%	68,951	21.0%		285,226	76,161	26.7%	61,572	21.6%
Concessions	87,275	16,606	19.0%	12,735	14.6%		81,199	16,567	20.4%	12,485	15.4%
Principal trading brands	416,261	103,753	24.9%	81,686	19.6%		366,425	92,728	25.3%	74,057	20.2%
Non-core brands	269	(290)	(107.9%)	(887)	(330.2%)		285	(1,134)	(398.0%)	(1,449)	(508.5%)
Total all brands	416,530	103,463	24.8%	80,799	19.4%		366,710	91,594	25.0%	72,608	19.8%
Pre-opening costs		(2,513)	(0.6%)	(2,513)	(0.6%)			(2,567)	(0.7%)	(2,567)	(0.7%)
Administration costs		(21,557)	(5.2%)	(22,158)	(5.3%)			(19,483)	(5.3%)	(20,096)	(5.5%)
Share-based payments		(1,897)	(0.5%)	(1,897)	(0.5%)			(1,738)	(0.5%)	(1,738)	(0.5%)
EBITDA / adjusted operating profit		77,496	18.6%	54,231	13.0%			67,806	18.5%	48,207	13.1%
Total net interest charges				(5,306)						(3,978)
Adjusted profit before share of associate and tax				48,925						44,229
Share of post-tax result in associated undertaking				-						(749)
Adjusted profit before taxation				48,925						43,480
Taxation				(16,147)						(14,802)
Adjusted profit after taxation				32,778						28,678
Earnings per share (pence) - trading business
Basic				16.67						14.64
Diluted				16.43						14.56
No geographical segment analysis has been provided as the Directors do not consider there to be materially significant geographical segments. The Group currently operates three restaurants outside of the United Kingdom.
EBITDA is operating profit before depreciation, amortisation and non-trading items.

3 Revenue		2008	2007
		£'000	£'000
Revenue consists of the following:
Continuing operations		416,530	366,710
Other income not included within revenue in the income statement:
Rental income		3,575	4,013
Interest income		97	1,025
Total income for the year		420,202	371,748
4 Cost of sales		2008	2007
		£'000	£'000
Cost of sales consists of the following:
Continuing business excluding pre-opening costs		335,731	294,102
Pre-opening costs		2,513	2,567
Total cost of sales for the year		338,244	296,669

5 Non-trading items	Note	2008	2007
		£'000	£'000
Items classified as non-trading within ordinary activities:
Release / (charge) of provision against carrying value of associate	i	39	(1,656)
Interest receivable from associate	ii	-	986
Termination costs	iii	(637)	-
Finance charge arising from remeasurement of interest rate swap	iv	(1,488)	(237)
Profit on disposal of fixed assets	v	306	476
Loss on disposal of fixed assets	v	(626)	(26)
Release / (creation) of accrual for disposal of assets	v	600	(203)
Asset disposal included within operating profit	v	12	-
Profit, net of losses, on disposal of fixed assets		292	247
Loss on ordinary activities before tax		(1,794)	(660)
Taxation charge on non-trading items		1,233	(225)
Credit in respect of rate change on deferred tax liability	vi	-	1,383
Total taxation on non-trading items		1,283	1,158
Total non-trading items after tax		(561)	498
i) A £1.7m provision was made in the year ended 30 December 2007 against the carrying value of the Group's associate company which, together with the £9.5m provision made in the year ended 31 December 2006, leaves a £nil carrying value of both the investment and the loan note due. A further £0.039m of proceeds relating to the disposal of Living Ventures Limited was received in the year ended 28 December 2008.
ii) A credit of £1.0m was recognised in 2007 in respect of accrued loan note interest received but not previously recorded in the income statement
iii) In the year ended 28 December 2008 the Group has incurred £0.6m of termination costs (2007: £nil).
iv) The Group has taken a charge of £1.5m (2007: £0.2m) in respect of the remeasurement of its interest rate swaps.
v) During the year the Group disposed of fixed assets and realised a net profit of £0.3m (2007: £0.2m).
vi) A non-trading taxation credit of £1.4m was recognised in the income statement in 2007 due to the impact of the change in the corporation tax rate on the deferred tax liability.

6 Net finance charges		2008	2007
		£'000	£'000
Bank interest payable		4,718	3,370
Other interest payable		368	330
Interest on obligations under finance leases		317	317
Change in fair value of interest rate swaps		1,488	237
Total borrowing costs		6,891	4,254
Bank interest receivable		15	9
Interest received on loan note from associate		-	986
Other interest receivable		82	30
Interest receivable		97	1,025
Net finance charges		6,794	3,229

7 Taxation
		2008	2007
The taxation charge comprises:		£'000	£'000
Current taxation
UK corporation tax at 28.5% (2007: 30%)		15,382	12,901
Adjustments in respect of previous periods		(842)	(107)
		14,540	12,794
Deferred taxation
Origination and reversal of timing differences		32	2,306
Adjustments in respect of previous periods		347	(73)
Credit in respect of rate change		(5)	(1,383)
		374	850
Total taxation charge for the year		14,914	13,644
The Finance Act 2007 reduced the rate of corporation tax from 30% to 28% from 1 April 2008, resulting in a blended rate being used to calculate the corporation tax liability for the year ended 28 December 2008. At 30 December 2007, the revised rate of 28% was used to calculate the deferred tax liability which resulted in a one-off non-trading tax credit in the income statement of £1.4m.

8 Earnings per share
		2008	2007
a) Basic earnings per share:
Weighted average ordinary shares in issue during the year		196,669,242	195,878,089
Total basic profit for the year (£'000)		32,217	29,176
Basic earnings per share for the year (pence)		16.38	14.90
Total basic profit for the year (£'000)		32,217	29,176
Effect of non-trading items on earnings for the year (£'000)		561	(498)
Earnings excluding non-trading items (£'000)		32,778	28,678
Adjusted earnings per share (pence)		16.67	14.64
b) Diluted earnings per share:
Weighted average ordinary shares in issue during the year		196,669,242	195,878,089
Dilutive shares to be issued in respect of options granted under the
Share Option Schemes		2,861,641	1,023,168
		199,530,883	196,901,257
Diluted earnings per share (pence)		16.15	14.82
Adjusted diluted earnings per share (pence)		16.43	14.56
The additional non-statutory earnings per share information (where non-trading items, described in note 5, have been added back) has been provided as the Directors believe they provide 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 in issue in respect of notional share awards made to employees in respect of share option schemes. No adjustment is made to the reported earnings for 2008 and 2007.

9 Dividend
			2008	2007
			£'000	£'000
Amounts recognised as distributions to equity holders during the year:
Final dividend for the year ended 30 December 2007 of 5.99p (2006: 4.95p) per share			11,504	9,702
Interim dividend for the year ended 28 December 2008 of 1.40p (2007: 1.26p) per share			2,683	2,471
Total dividends paid in the year			14,187	12,173
Proposed final dividend for the year ended 28 December 2008 of 6.30p (2007 actual proposed and paid: 5.99p) per share			12,073	11,504
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 6 May 2009 and is not recognised as a liability in these financial statements.

10  Reconciliation of profit before tax to net cash flow from operating activities
			2008	2007
			£'000	£'000
Profit before tax			47,131	42,820
Net finance charges			6,794	3,229
Profit, net of losses, on disposal of fixed assets			(292)	(247)
Provision against carrying value of associate			(39)	1,656
Share of loss made by associate			-	749
Share-based payment charge			1,897	1,738
Depreciation			23,265	19,599
Increase in stocks			(584)	(121)
Decrease / (increase) in debtors			915	(3,043)
(Decrease) / increase in creditors			(323)	7,432
Cash flows from operating activities			78,764	73,812

11 Reconciliation of changes in cash to the movement in net debt
					2008	2007
					£'000	£'000
At the beginning of the year					(76,573)	(47,482)
Movements in the year:
Loans taken out					(6,000)	(32,000)
Non-cash movements in the year					(89)	735
Cash inflow					3,778	2,174
At the end of the year					(78,884)	(76,573)
Represented by:		At	Cash flow	Non-cash	At	Cash flow	Non-cash	At
		1 January	movements	movements	30 December	movements	movements	28 December
		2007	in the year	in the year	2007	in the year	in the year	2008
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents		683	1,009	-	1,692	3,778	-	5,470
Overdrafts		(1,165)	1,165	-	-	-	-	-
		(482)	2,174	-	1,692	3,778	-	5,470
Bank loans falling due after one year		(47,000)	(32,000)	735	(78,265)	(6,000)	(89)	(84,354)
		(47,482)	(29,826)	735	(76,573)	(2,222)	(89)	(78,884)

12 Basis of preliminary statement

The Group's preliminary announcement and statutory accounts in respect of 2008 have been prepared on a going concern basis. The financial information set out above does not constitute the Group's statutory accounts for the years ended 28 December 2008 or 30 December 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the Company's Annual General Meeting. The 2008 statutory accounts are prepared on the basis of the accounting policies stated in the 2007 statutory accounts. The auditors have reported on those accounts; their reports were unqualified and unmodified and did not contain statements under s237(2) or (3) Companies Act 1985.

 

END

 

 

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