Final Results

RNS Number : 5741C

Restaurant Group PLC

09 March 2011

 



The Restaurant Group plc

Final results for the 53 weeks ended 2 January 2011

The Restaurant Group plc ("TRG" or "the Group") operates 389 restaurants and pub restaurants.  Its principal trading brands are Frankie & Benny's, Chiquito and Garfunkel's and it also operates a Pub restaurant business as well a Concessions division which trades on over 50 sites, principally at UK airports.

·      The Group had a strong performance in 2010:

Statutory and adjusted results stated on a 53 week basis for 2010 compared with a 52 week basis for 2009	Note: 52 weeks comparable
-     Revenue up 7% to £466m (like-for-like sales -1%)	+4%
-     EBITDA increased by 8% to £86m	+4%
-     Adjusted profit before tax increased by 12% to £56m	+6%
-     Adjusted EPS rose 14% to 20p per share	+9%
-     Proposed full year dividend of 9p per share, up 12.5%
-     Statutory profit before tax increased by 17% to £56m
-     Statutory EPS rose 7% to 20p

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

 Operations strongly cash generative and net debt reduced by £20m to £47m

·      Roll out continues

o  24 new sites opened in the period

o  22-27 new sites targeted for 2011

·      Strong current trading given the economic climate, with like-for-like sales returning to growth at +3% and total sales up 8% for the nine weeks to 6 March 2011

Andrew Page, Chief Executive, said:

"These are good results, achieved against a tough backdrop, with earnings per share increasing 14%, operating cashflow up £11m to £88m and net debt £20m lower at £47m. We opened 24 new restaurants last year, which are performing superbly, and we expect to open a similar number this year. 2011 has started well - like-for-like sales grew in both January and February and, after nine weeks, are 3% ahead of last year. Our total sales are currently 8% ahead.

We are continuing to focus our efforts on giving our customers great value, service and hospitality; sticking to our areas of expertise, delivering high returns on investment and further strengthening our market positions. The Restaurant Group is in good shape, we have an outstanding team of people and we look forward to making further profitable progress this year."

9 March 2011

Enquiries:

The Restaurant Group
Andrew Page, Chief Executive	020 7457 2020 (today)
Stephen Critoph, Group Finance Director	020 3117 5001 (thereafter)
College Hill
Matthew Smallwood	020 7457 2020

Chairman's statement

I am delighted to report that the Group has again grown revenues, profits and earnings per share. Trading conditions during the year were adversely impacted by the ongoing difficult economic backdrop and also some very unusual, weather related, events - the ash cloud in April and one of the harshest winters on record at the end of the year. These factors made trading conditions tough for UK consumer-facing businesses during 2010. However, not withstanding those challenges, the Group continued to make profitable progress, opened 24 new restaurants, served 37 million meals including five million children's meals and created 700 new jobs.

During 2010 the Group's revenues grew 7% to £466m (2009: £436m), adjusted profit before tax grew 12% to £55.9m (2009: £50.0m) and adjusted earnings per share increased by 14% to 19.95p (2009: 17.48p). This increase in earnings per share represents a compound annual growth rate of 17% over the five years to 2010, a significant achievement that demonstrates the resilience and ongoing positive performance of the Group.

Accordingly, the Board is recommending an increased final dividend for 2010 of 7.46p per share giving a total for the year of 9.00p per share (2009: 8.00p), an increase of 12.5%. Subject to shareholder approval at the Annual General Meeting to be held on 11 May 2011, the final dividend will be paid on 17 June 2011 to shareholders on the register on 20 May 2011 and the shares will be marked ex-dividend on 18 May 2011.

Our continued focus on our Leisure and Concessions divisions again enabled the Group to deliver a strong performance despite the difficult backdrop for UK consumer - facing businesses. Our Leisure division, which incorporates Frankie & Benny's, Chiquito, Garfunkel's and our Pub restaurants, performed well, delivering a 6% increase in revenues and profits. During the year we opened 17 new restaurants in the Leisure division; these are trading ahead of expectations and are set to deliver strong returns. During 2011 we plan to open between 20 and 23 new restaurants in the Leisure Division.

Despite some major challenges resulting from the ash cloud problems in April and the harsh weather at the end of the year, our Concessions Division performed superbly. Although UK passenger numbers declined during the year, our business countered this by focusing on gaining market share and growing margins. This resulted in a significant uplift in revenues (which increased by 12%) and profits which increased by 29%. During the year seven new sites were opened. These are trading well and are set to deliver good returns. We plan to open two to four new Concessions sites during 2011.

The Group has consistently demonstrated the resilient nature of its business model and this is another excellent set of results. The Group has continued to stay disciplined and focused, growing its estate with quality new restaurants, increasing earnings and dividends, generating high levels of cash and significantly reducing net debt. These excellent results are the result of the hard work, expertise and dedication of our Directors, senior management and staff. On behalf of the Board I would like to record our thanks to all of them.

During the year, we appointed Simon Cloke as a non-executive Director. We welcome Simon to the Board and are confident that he will make a valuable contribution to TRG.

We have started the current year well, with like-for-like sales growth of 3% for the first nine weeks of the year, and we are looking to build further on this. We have a superb business with distinct market positions, and strong brands with outstanding value-for-money offerings with wide appeal. I am confident that we are well placed to continue our profitable progress.

Alan Jackson

Chairman

9 March 2011

Chief Executive Officer's review of operations

Introduction

2010 turned out to be another challenging year for The Restaurant Group, partly due to factors that we had anticipated and partly as a result of some that we had not.

Although the UK economic recovery gained momentum during the year, the backdrop for domestic consumer-facing businesses remained difficult. As anticipated, consumer confidence was fragile as a result of a number of factors including the shock from the recession, ongoing tighter credit conditions, levels of unemployment (and the fear of unemployment), inflation, higher taxes and negative real earnings growth. 2010 also threw up two unexpected challenges - the Eyjafjallajökull volcano ash cloud in April and one of the worst winters on record at the end of the year. Both of these unusual meteorological events caused significant disruption to our business and, although we were able to take some mitigating actions, adversely impacted sales and profits.

Notwithstanding those challenges, the Group continued to make further good progress increasing sales, profits and cash flow. Both of our divisions performed well, with our Leisure division delivering a solid increase in profits and our Concessions division delivering a significant profit increase. Margins also held up well with both EBITDA and operating margins improving on the previous year. Total sales were 7% ahead of the previous year (like-for-like sales were 1% below) and adjusted earnings per share increased by 14%. Against a challenging backdrop this represents an impressive performance and bodes well for the future.

The TRG business model and 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 cash flows. The Group has a consistent record of converting profits into cash at a very healthy rate, and delivering increasing cash flows each year, and in 2010 this was again the case. TRG's business model enables the Group to grow in a predominantly organic and highly value-accretive way, funded from its internally generated funds.

Our touchstones are cash flow and return on investment. This model enables our shareholders to enjoy the benefits of high returns on capital, growth in profits and cash flow and sizeable income distributions from our progressive dividend policy.

Our key criteria in determining where to invest our capital is to operate restaurants in locations with high barriers to entry, good growth prospects and where we are confident that we can secure high returns on investment. Our focus is on edge of town, out of town, rural, semi-rural and airport locations and we occupy leading market positions in these segments.

The footprint that the Group occupies in edge and out of town leisure and airport locations is comprehensive and, from a market positioning perspective, very formidable. It would be virtually impossible to replicate this footprint from scratch and the Group is well placed to continue to roll out more new restaurants.

Capital expenditure and TRG opening programme

Our philosophy regarding capital expenditure remains consistent - we focus on cash generation and on securing a return on invested capital at rates ahead of TRG's weighted average cost of capital. We have continued to apply the same levels of analytical rigour, commercial analysis, experience and risk adjustment to each capital project that we undertake. This approach has served TRG well and we do not intend to deviate from it.

Our free cash flow generation is sufficient to enable the Group to fund 35 to 45 new restaurants per annum whilst maintaining maintenance capital expenditure at the appropriate level and pursuing a progressive dividend policy. However, the level of new development activity (particularly edge and out of town developments) within our sector is still well below the levels we saw prior to the onset of the recession. At this stage of the economic cycle this is not unusual and whilst there has been a pick up in new development activity in some sectors, this has not yet gathered pace within our sector. However, there is a significant number of schemes that developers have in the "pipeline" and we are confident that, at some point, these will be activated. The catalysts for this are likely to be evidence of the consumer marketplace returning to steady growth and appropriate funding being available. At this stage it is difficult to predict when this might be but, if the pattern of previous economic recoveries is followed, it is likely to be within the next two years.

In the meantime, we will continue to identify and judiciously pursue other opportunities which we are confident will meet our returns criteria. This is likely to mean that new openings for 2011 will be at a broadly similar level to last year's and, for the time being, we plan to continue to apply our surplus cash flow towards reducing net debt; this fell by a further £20m over the past year to £47m.

Results*

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

TRG's trading metrics performed well for the 53 week period to 2 January 2011:

§ Total sales increased by 7% (like-for-like sales were 1% lower) and we sold 37 million meals;

§ Adjusted EBITDA increased by 8% to £86m;

§ Adjusted pre-tax profit increased by 12% to £56m;

§ Group operating profit margins increased by 40bp to 12.6%; and

§ Net debt, at 0.55x Group adjusted EBITDA, fell by £20m to £47m.

Leisure

Total revenue: £373.7m (2009: £353.6m)            Operating profit: £72.9m (2009: £69.1m)

Operating margin: 19.5% (2009: 19.5%)

Frankie & Benny's (197 units)

Frankie & Benny's performed well in 2010, increasing revenues, margins and profits. We opened nine new restaurants of which five were on non-cinema sites. All of our new openings are trading superbly and are set to deliver strong returns. Our focus continues to be directed towards providing our customers with a great dining experience - plenty of choice across the price points, offerings geared towards specific parts of the day, good value and superb hospitality and service. As with all our brands, we eschewed deep discounting and this helped to deliver a strong margin and profit performance. We anticipate opening between 12 and 15 new Frankie & Benny's restaurants in 2011.

Chiquito (68 units)

Chiquito performed solidly during 2010 although profits were a little below the prior year's level. During the year we absorbed input cost increases in order to maintain menu prices at a level appropriate for the locations in which most of our Chiquito restaurants operate. We opened five new Chiquito restaurants during the year all of which are located alongside Frankie & Benny's. This dual roll out strategy has worked well and we expect it to continue in 2011. The new openings are performing ahead of our expectations and are set to deliver strong returns. During 2011 we expect to open 3-4 new Chiquito restaurants.

Pub restaurants (43 units)

Pub restaurants traded well during 2010, increasing margins and profits. We have continued our programme of modifying the former Blubeckers sites to bring them more into line with the Brunning & Price style of operation and the subsequent results have been very encouraging. We expect to complete this programme during 2011. In December we opened a new pub restaurant, the Nevill Crest & Gun, near Tunbridge Wells. It is trading superbly and is set to deliver strong returns. During 2011 we expect to open 2-3 new pub restaurants.

Garfunkel's (23 units)

Garfunkel's performed superbly during 2010 delivering a significant increase in margins and profits. The business trades predominantly in Central London close to theatres, shopping districts and other tourist attractions. During the year we opened two new restaurants and these are trading well and are set to deliver strong returns. We expect to open up to three new Garfunkel's restaurants during 2011. 

Concessions (58 units)

Total revenue: £92.0 (2009: £82.2m)       Operating profit: £14.2m (2009: £11.0m)

Operating margin: 15.5% (2009: 13.4%)

Our Concessions business, despite having to cope with declining passenger numbers ("pax") and exceptional meteorological events, had an excellent year and delivered a record level of profits.

Trading in the airports marketplace remained tough in 2010 with pax declining for a third year (albeit at a much slower rate of decline compared to 2009). Our efforts have been focused on improving our offering, high levels of customer service and tight cost controls with the objective of improving margins and growing profits. This approach served us well during 2010 and the Concessions division produced a record level of EBITDA (£18.8m) and profits of £14.2m, representing an increase of 29% on the previous year. Our ability to operate effectively and profitably in this market segment, and in challenging conditions, demonstrates our high levels of expertise and our commitment to the airports marketplace.

We occupy the leading market position in the UK airports and have a consistent track record of delivering excellent results. As economic growth resumes, we anticipate an improving trend in pax and this will benefit our Concessions business. During the year we opened seven new sites - these are trading well and are set to deliver good returns. We expect to open between two and four new concessions sites in 2011.

Market dynamics and the economy

For most people, eating out has become a habitual activity and is something that they are reluctant to give up. Despite the challenging economic conditions that have characterised the UK since 2008, the propensity for people to eat away from their homes has continued. This is a secular trend, driven largely by socio-economic factors. Eating out constitutes a "small ticket" item which absorbs a relatively small proportion of disposable income. We expect this trend to continue and this augurs well for the future.

During 2010, our sector continued to be characterised by significant and often deep discounting. "Buy One Get One Free" and similar types of promotions have been commonplace and continue to be used frequently by many other companies. Our approach has been to avoid the deep discounting "treadmill", rather, to give our customers consistently good value, service and hospitality and to broaden the audience of potential customers, predominantly through increased use of digital marketing techniques. During 2010 we significantly increased marketing across social networking websites, e-marketers and smartphone applications and these have had a positive impact on revenues. This approach has meant that we have continued to focus on maintaining and improving margins, growing profits and cash flows and, very importantly, securing high returns on our invested capital.

As the UK climbs out of recession, the macro-economic picture is becoming clearer. Although it is not an immediately attractive landscape it is a much less dark and bleak scenario than the one faced at the beginning of 2009. The UK has started to emerge from the deepest recession seen for several generations and, although during the final quarter of 2010 the recovery lost some traction (mainly due to the severe UK weather), the pattern seems to be following a broadly similar trend to that seen in the early 1990's.

The government has committed to significant changes in spending and taxation and the impact of these will be felt during 2011. A large part of the fiscal squeeze is being effected through spending cuts which, in real terms, look quite deep (although these are less draconian in nominal terms). It is likely that these cuts will have an impact upon employment levels in the public sector and, potentially, those parts of the private sector where there is a high level of dependency upon government contracts. There is a clear expectation that the slack which this may create will be absorbed by the private sector. Certainly, corporations have significantly stepped up capital spending, and many exporters are thriving, which should be positive for employment. However, expectations for growth in consumer spend are, in the short- term, more modest. There are several factors impacting consumer spend, including higher levels of taxation (both direct and indirect), unemployment levels approaching 8% (the fear of unemployment also remains a concern for many UK households) and rising household inflation. This latter point has become very topical recently and conventional wisdom would suggest an increase in interest rates to counter inflation. However, it appears that, as the economic recovery is still in its early stages and with the inflation indices being significantly impacted by VAT increases and "imported" inflation, the Monetary Policy Committee ("MPC") appears inclined to maintain a relaxed monetary stance, perhaps in part to reduce the risk of precipitating a sharp slowdown in economic growth with the concomitant risk of deflation. If interest rates rise only modestly and mortgage rates remain at low levels this will, to a significant degree, continue to support households' discretionary spend levels and, providing employment levels do not deteriorate, this should enable consumer confidence to build. Initially this is likely to be gradual, although once it becomes evident that unemployment levels are not dramatically increasing (and as the fear of unemployment diminishes) the recovery in consumer confidence should gather pace.

Cost inflation also poses challenges for our sector; although this is not a new phenomenon. During much of the last decade, our sector often experienced cost pressures (especially with the significant annual increases in the minimum wage) and in 2007 and 2008 food input costs increased quite quickly. Currently there is relatively low wage cost pressure, but also some risk that inflationary expectations could feed through into UK wage bargaining.  Commodity prices (including food and oil) have risen and this trend is expected to continue. TRG's approach has, for several years, been to protect the business from rising input costs by taking out fixed (or capped) price contracts with suppliers. At present over 50% of our input costs have fixed (or capped) prices for one year, and approximately one third are fixed (or capped) for two years. This approach has served us well and is one that we intend to continue.

Future prospects

We are planning on the basis that the outlook for consumer-facing businesses continues to remain as challenging during 2011 as it was last year and we have framed our plans accordingly. Our business has experienced some very tough trading conditions over the past two years and during that time sales, profits and cash flow all grew. TRG is well placed to cope with challenging conditions and, very importantly, to benefit substantially from the upturn in consumer confidence that will, in due course, prevail.

TRG's businesses command strong market positions in each of our chosen segments and our brands are well recognised for the quality and value of our offerings. We have a robust and well proven business model, a strong balance sheet and we are well positioned to continue our expansion. Just as we did in 2010, during 2011 we will continue to:

§ Stick to our areas of expertise;

§ Focus on our customers by providing excellent value and service;

§ Maintain high standards of operational efficiency and execution;

§ Carefully control our costs;

§ Add high quality new restaurants to our portfolio; and

§ Continue to focus on cash flow and returns.

By so doing, our aims are to continue to strengthen our market positions and deliver long-term and sustainable profitable growth.

The difficulties our team faced during 2010 were significant but, as always, our people rose to the challenge and delivered a very impressive performance. We are very fortunate to have an outstanding and loyal team at TRG and I am confident that they will be working towards delivering another strong performance this year. The current year has started well, with like-for-like sales growing in each of the first two months and, after nine weeks, total sales are 8% ahead of last year (like-for-like sales up 3%).  We are looking to build further on this as the year progresses.

Andrew Page

Chief Executive Officer

9 March 2011

Group Finance Director's report                                            

Results

Against the backdrop of another challenging year in terms of the economic environment, the Group has recorded a very satisfactory set of results. For the statutory 53 week financial year, total sales of £465.7m increased by 7% compared to the prior year. Group EBITDA was £85.8m, an increase of 8% on the prior year. Total depreciation charges were £27.2m (2009: £26.3m), resulting in adjusted operating profits of £58.6m, an increase of almost 10% on the prior year.

Group operating margin in the year was 12.6%, an increase of 40 basis points compared to the prior year. This was achieved through continuing focus on the cost base, close management of procurement costs and operational efficiencies across the business. The Group's margins have also benefited from our decision taken two years ago not to pursue the deep discontinuing strategy that many other operators in the sector have followed.

Interest costs of £2.7m fell by 20% compared to the prior year, principally as a result of lower debt levels during the year. This resulted in Group adjusted profit before tax of £55.9m, an increase of 12% on the prior year. After taking into account a lower average tax rate in the year (as discussed later in the report), adjusted post-tax profits of £39.7m increased by 15% compared to the prior year, resulting in adjusted EPS of 19.95p, an increase of 14% compared to prior year.

On a pro forma 52 week basis the key financial figures were as follows: revenues were £453.7m (up 4%), EBITDA was £82.6m (up 4%), adjusted operating profit was £55.9m (up 5%), adjusted profit before tax was £53.2m (up 6%), and adjusted earnings per share was 19p (up 9%).

Cost inflation

During 2010 cost pressures were relatively benign with average food and beverage cost inflation at about 1.5%. Wage cost inflation was driven by the National Minimum Wage increases of 1.2% in October 2009 and 2.2% in October 2010.

Looking forward to 2011, there is clearly some upward pressure on food and beverage costs. Although the Group has a strategy of fixing costs wherever possible, we do expect to see a somewhat higher level of average inflation compared to 2010.  At this stage in the year, taking into account the benefit of the fixed and capped price contracts already secured, we expect average inflation across all our food and beverage inputs to be between 2% and 3%.

On labour costs, the key driver continues to be the National Minimum Wage increase referred to above. Rental cost inflation is at very low levels compared to previous years. For 2011, based on the evidence of reviews in 2010 and those we have completed since the year end, we do not expect rental inflation on the existing base to be much more than 1%. For utility costs, most of our major contracts are fixed forward until late 2012 and in the current year we will have the benefit of a reduction compared to 2010.

Taking all these factors into account, we estimate that the business needs to have total sales growth of 2-3% to cover off the cash costs of these inflationary cost increases. After nine weeks the Group's total sales are up 8%, more than double what is necessary to cover the expected cost increases. 

Non-trading and non-core items

In the current year the only non-trading item is a credit of £0.6m, an accounting adjustment arising on the IFRS revaluation of the Group's interest rate swap arrangements.

During the year non-core losses (from our small sub-let estate) reduced from £1.3m to £0.7m. We continue to take steps to minimise these losses.

Capital expenditure 

During the year the Group invested a total of £32.0m in capital additions (2009: £31.5m). This included development expenditure of £20.7m (2009: £20.1m) and £11.3m of refurbishment and maintenance expenditure (2009: £11.4m).

The Group is committed to investing in the existing estate and our very strong balance sheet position means that we are not constrained from maintaining this investment, which is essential to securing the long-term health and profitability of the business.

During the year the Group opened a total of 24 new outlets, a significant improvement on expectations at the beginning of the year. Our 2010 new sites (and also those opened in 2009) are generating levels of sales and profitability at least in line with, and in most cases substantially ahead of, feasibility. After taking into account two closures in the year, the Group ended the year with 389 trading units.

The table below summarises openings and closures during the year:

	Year end 2009	Opened	Closed	Year end 2010
Frankie & Benny's	188	9	-	197
Chiquito	63	5	-	68
Garfunkel's	22	2	(1)	23
Pub restaurants	42	1	-	43
Concessions	52	7	(1)	58
Total	367	24	(2)	389

We continue to be absolutely focused on ensuring that all of our new openings achieve the high levels of return on investment which we target. When assessing the viability and profitability of potential new sites, we adopt a highly rigorous and analytical approach. This includes a detailed financial evaluation, as well as demographic analysis, competitor and market analysis, and comparison to other sites in the Group's existing portfolio. We also conduct regular post-investment appraisals and these confirm that we continue to achieve target levels of returns.

Cash flow        

Set out below is a summary cash flow statement for the year. Net cash from operations is £87.8m (2009: £77.1m). After interest payments, tax and maintenance capital expenditure the Group generated free cash flow of £56.8m. Once again this demonstrates the very strong and transparent cash flow generation characteristics of the Group's business. The free cash flow financed all of the new sites and dividends. Net cash flow was £19.8m (2009: £12.2m) which resulted in net debt reducing from £66.7m to £46.9m.

	2010	2009
	£m	£m
Operating profit	58.6	53.4
Working capital and non-cash adjustments	2.0	(2.6)
Depreciation	27.2	26.3
Net cash flow from operations	87.8	77.1
Net interest paid	(2.1)	(2.2)
Tax paid	(17.6)	(13.7)
Maintenance capital expenditure	(11.3)	(11.4)
Free cash flow	56.8	49.8
New build capital expenditure	(20.7)	(20.1)
Dividends	(15.7)	(14.9)
Normalised net cash flow	20.4	14.8
Disposals	-	0.5
Net cash flow from share issues	1.9	1.0
SWAP termination payment	(1.0)	-
Purchase of shares for employee benefit trust	(1.4)	(3.9)
Finance costs offset against bank debt	(0.1)	(0.2)
Change in net debt	19.8	12.2
Net bank debt at start of year	(66.7)	(78.9)
Net bank debt at end of year	(46.9)	(66.7)

Financing and key financial ratios

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.

The Group's banking arrangement contains two financial covenants, both of which are tested on a six monthly basis by reference to the Group's published results. These and other key financial ratios are summarised as follows:

	Banking covenant	2010	2009
EBITDA / Interest cover	>4x	32x	24x
Net debt / EBITDA	<3x	0.55x	0.84x
Fixed charge cover	n/a	2.6x	2.5x
Balance sheet gearing	n/a	32%	58%

As can be seen all of these financial ratios improved during the year. In the current climate, in which the economic outlook continues to be somewhat uncertain, we are happy to see a reduction in the overall level of net debt. This puts us in a very strong position to accelerate the new site opening programme over the next several years as circumstances allow. This strong financial position also allows us to maintain a high level of maintenance expenditure on the existing estate as well as a generous and increasing level of dividend to shareholders.                                

Tax

The total tax charge in the year was £16.4m, analysed as follows:

	2010			2009
	Trading	Non-trading	Total	Trading	Non-trading	Total
	£m	£m	£m	£m	£m	£m
Corporation tax	17.6	(0.3)	17.3	16.0	(0.7)	15.3
Deferred tax	(1.4)	0.5	(0.9)	(0.4)	(3.8)	(4.2)
Total	16.2	0.2	16.4	15.6	(4.5)	11.1
Average Tax Rate	29%			31%

On trading activities the underlying tax charge in the year of £16.2m represents a tax rate of 29% compared to 31% in 2009. This reduction is primarily due to the revaluation of deferred tax liabilities to reflect the lower rate of corporation tax which applies from April 2011. We expect to see a continuing reduction in the average tax rate over the next few years as the government implements the phased reduction in corporation tax rate announced in 2010.

The Group's average tax rate will continue to be higher than the headline mainstream corporation tax rate primarily due to significant levels of disallowable expenditure within the capital expenditure programme.

Stephen Critoph 

Group Finance Director

9 March 2011

The Restaurant Group plc
Consolidated income statement
		53 weeks ended 2 January 2011				52 weeks ended 27 December 2009
		Trading	Non-			Trading	Non-
		business	trading	Total		business	trading	Total
	Note	£'000	£'000	£'000		£'000	£'000	£'000
Revenue	3	465,704	-	465,704		435,743	-	435,743
Cost of sales:
Excluding pre-opening costs	4	(379,268)	-	(379,268)		(356,889)	-	(356,889)
Pre-opening costs	4	(1,591)	-	(1,591)		(1,477)	-	(1,477)
		(380,859)	-	(380,859)		(358,366)	-	(358,366)
Gross profit		84,845	-	84,845		77,377	-	77,377
Administration costs		(26,289)	-	(26,289)		(24,017)	-	(24,017)
Trading profit		58,556	-	58,556		53,360	-	53,360
Loss on disposal of fixed assets	5	-	-	-		-	(526)	(526)
Operating profit/ (loss)		58,556	-	58,556		53,360	(526)	52,834
Interest payable	6	(2,788)	596	(2,192)		(3,517)	(1,169)	(4,686)
Interest receivable	6	114	-	114		186	-	186
Profit/ (loss) on ordinary activities before tax		55,882	596	56,478		50,029	(1,695)	48,334
Tax on profit/ (loss) from ordinary activities	7	(16,186)	(167)	(16,353)		(15,559)	4,497	(11,062)
Profit for the year		39,696	429	40,125		34,470	2,802	37,272
Earnings per share (pence)
Basic	8	19.95		20.16		17.48		18.90
Diluted	8	19.90		20.11		17.40		18.82
Dividend per share (pence) 1	9			9.00				8.00
1 The dividend per share of 9.00p is the interim and proposed final dividend in respect of 2010 (8.00p is the two interim and the final dividend in respect of 2009).

Consolidated statement of comprehensive income
	53 weeks ended 2 January 2011	52 weeks ended 27 December 2009
	£'000	£'000
Profit for the year	40,125	37,272
Exchange differences on translation of foreign operations	(5)	(140)
Total comprehensive income for the year	40,120	37,132

Consolidated statement of changes in equity
				Foreign
				currency
		Share	Share	translation	Other	Retained	Total
		capital	premium	reserve	reserves	earnings
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 28 December 2009		55,568	21,867	493	(7,104)	45,108	115,932
Profit for the year		-	-	-	-	40,125	40,125
Exchange differences on translation of foreign operations		-	-	(5)	-	-	(5)
Total comprehensive income for the year		-	-	(5)	-	40,125	40,120
Issue of new shares		533	1,367	-	-	-	1,900
Dividends		-	-	-	-	(15,706)	(15,706)
Share-based payments - credit to equity		-	-	-	2,235	-	2,235
Employee benefit trust - purchase of shares		-	-	-	(1,433)	-	(1,433)
Current tax on share-based payments taken directly to equity		-	-	-	-	525	525
Deferred tax on share-based payments taken directly to equity		-	-	-	-	1,140	1,140
Balance at 2 January 2011		56,101	23,234	488	(6,302)	71,192	144,713
Balance at 29 December 2008		55,333	21,104	633	(5,348)	21,884	93,606
Profit for the year		-	-	-	-	37,272	37,272
Exchange differences on translation of foreign operations		-	-	(140)	-	-	(140)
Total comprehensive income for the year		-	-	(140)	-	37,272	37,132
Issue of new shares		235	763	-	-	-	998
Dividends		-	-	-	-	(14,887)	(14,887)
Share-based payments - credit to equity		-	-	-	2,098	-	2,098
Employee benefit trust - purchase of shares		-	-	-	(3,854)	-	(3,854)
Current tax on share-based payments taken directly to equity		-	-	-	-	29	29
Deferred tax on share-based payments taken directly to equity		-	-	-	-	810	810
Balance at 27 December 2009		55,568	21,867	493	(7,104)	45,108	115,932

Consolidated balance sheet
		At 2 January 2011	At 27 December 2009
		£'000	£'000
Non-current assets
Intangible assets		26,433	26,241
Property, plant and equipment		259,583	254,841
		286,016	281,082
Current assets
Stock		3,630	4,122
Trade and other receivables		5,573	5,042
Prepayments		13,541	12,951
Cash and cash equivalents		2,738	2,831
		25,482	24,946
Total assets		311,498	306,028
Current liabilities
Corporation tax liabilities		(8,539)	(9,298)
Trade and other payables		(81,945)	(80,326)
Financial liabilities - derivative financial instruments		(618)	(2,242)
Other payables - finance lease obligations		(296)	(276)
Provisions		(602)	(928)
		(92,000)	(93,070)
Net current liabilities		(66,518)	(68,124)
Non-current liabilities
Long-term borrowings		(49,662)	(69,515)
Other payables - finance lease obligations		(2,772)	(2,718)
Deferred tax liabilities		(19,091)	(21,161)
Provisions		(3,260)	(3,632)
		(74,785)	(97,026)
Total liabilities		(166,785)	(190,096)
Net assets		144,713	115,932
Equity
Share capital		56,101	55,568
Share premium		23,234	21,867
Foreign currency translation reserve		488	493
Other reserves		(6,302)	(7,104)
Retained earnings		71,192	45,108
Total equity		144,713	115,932

Consolidated cash flow statement
		53 weeks ended 2 January 2011	52 weeks ended 27 December 2009
	Note	£'000	£'000
Operating activities
Cash generated from operations	10	87,821	77,075
Interest received		114	186
Interest paid		(3,289)	(2,377)
Tax paid		(17,518)	(13,724)
Net cash flows from operating activities		67,128	61,160
Investing activities
Purchase of property, plant and equipment		(31,982)	(31,519)
Proceeds from sale of property, plant and equipment		-	463
Net cash flows used in investing activities		(31,982)	(31,056)
Financing activities
Net proceeds from issue of ordinary share capital		1,900	998
Employee benefit trust - purchase of shares		(1,433)	(3,854)
Net repayments of loan draw downs		(20,000)	(15,000)
Dividends paid to shareholders		(15,706)	(14,887)
Net cash flows used in financing activities		(35,239)	(32,743)
Net decrease in cash and cash equivalents		(93)	(2,639)
Cash and cash equivalents at beginning of year	11	2,831	5,470
Cash and cash equivalents at end of year	11	2,738	2,831

Notes to the accounts
1 Segmental analysis
	53 weeks ended 2 January 2011						52 weeks ended 27 December 2009
					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	373,720	95,067	25.4%	72,946	19.5%		353,552	89,525	25.3%	69,076	19.5%
Concessions	91,984	18,789	20.4%	14,234	15.5%		82,184	15,862	19.3%	11,040	13.4%
Principal trading brands	465,704	113,856	24.4%	87,180	18.7%		435,736	105,387	24.2%	80,116	18.4%
Non-core	-	(744)	-	(744)	-		7	(787)	-	(1,262)	-
Total all brands	465,704	113,112	24.3%	86,436	18.6%		435,743	104,600	24.0%	78,854	18.1%
Pre-opening costs		(1,591)	(0.3%)	(1,591)	(0.3%)			(1,477)	(0.3%)	(1,477)	(0.3%)
Administration costs		(23,480)	(5.0%)	(24,054)	(5.2%)			(21,384)	(4.9%)	(21,919)	(5.0%)
Share-based payments		(2,235)	(0.5%)	(2,235)	(0.5%)			(2,098)	(0.5%)	(2,098)	(0.5%)
Total before non-trading items		85,806	18.4%	58,556	12.6%			79,641	18.3%	53,360	12.2%
Loss on disposal of fixed assets				-						(526)
Operating profit				58,556						52,834
Total net interest charges				(2,078)						(4,500)
Profit on ordinary activities before tax				56,478						48,334
EBITDA is operating profit before depreciation, amortisation and non-trading items.

2 Additional non-statutory information 

Additional non-statutory income statement information is provided as a useful guide to underlying trading performance.  The 2010 and 2009 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.  

* Results are stated excluding non-trading items
	53 weeks ended 2 January 2011						52 weeks ended 27 December 2009
					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	373,720	95,067	25.4%	72,946	19.5%		353,552	89,525	25.3%	69,076	19.5%
Concessions	91,984	18,789	20.4%	14,234	15.5%		82,184	15,862	19.3%	11,040	13.4%
Principal trading brands	465,704	113,856	24.4%	87,180	18.7%		435,736	105,387	24.2%	80,116	18.4%
Non-core	-	(744)	-	(744)	-		7	(787)	-	(1,262)	-
Total all brands	465,704	113,112	24.3%	86,436	18.6%		435,743	104,600	24.0%	78,854	18.1%
Pre-opening costs		(1,591)	(0.3%)	(1,591)	(0.3%)			(1,477)	(0.3%)	(1,477)	(0.3%)
Administration costs		(23,480)	(5.0%)	(24,054)	(5.2%)			(21,384)	(4.9%)	(21,919)	(5.0%)
Share-based payments		(2,235)	(0.5%)	(2,235)	(0.5%)			(2,098)	(0.5%)	(2,098)	(0.5%)
EBITDA/  adjusted operating profit		85,806	18.4%	58,556	12.6%			79,641	18.3%	53,360	12.2%
Total net interest charges				(2,674)						(3,331)
Adjusted profit before tax				55,882						50,029
Tax				(16,186)						(15,559)
Adjusted profit after tax				39,696						34,470
Earnings per share (pence) - trading business
Basic				19.95						17.48
Diluted				19.90						17.40
EBITDA is operating profit before depreciation, amortisation and non-trading items.

3 Revenue		2010	2009
		£'000	£'000
Income for the year consists of the following:
Revenue from continuing operations		465,704	435,743
Other income not included within revenue in the income statement:
Rental income		3,527	3,493
Interest income		114	186
Total income for the year		469,345	439,422
4 Cost of sales		2010	2009
		£'000	£'000
Cost of sales consists of the following:
Continuing business excluding pre-opening costs		379,268	356,889
Pre-opening costs		1,591	1,477
Total cost of sales for the year		380,859	358,366

5 Non-trading items		Note	2010	2009
			£'000	£'000
Items classified as non-trading within ordinary activities:
Loss on disposal of fixed assets		i	(2)	(564)
Creation of accrual for disposal of assets		i	-	(80)
Amounts receivable		i	-	113
Other asset disposal included within operating profit		i	2	5
Loss on disposal of fixed assets			-	(526)
Finance credit / (charge) arising from remeasurement of interest rate swaps		ii	596	(1,169)
Profit / (loss) on ordinary activities before tax			596	(1,695)
Tax on non-trading items		iii	(167)	4,497
Total non-trading items after tax			429	2,802
i) During 2009 the Group disposed of fixed assets and realised a net loss of £0.5m.
ii) The Group has taken a credit of £0.6m (2009: £1.2m charge) in respect of the remeasurement of its interest rate swaps.
iii) In the year ended 2 January 2011, the Group has recognised a non-trading tax charge of £0.2m.  In the year ended 27 December 2009, the Group recognised a non-trading tax credit of £4.5m.  Included within this amount is a credit of £3.6m in relation to the release of a number of provisions created in 2005 following agreement with HMRC on the treatment of a number of transactions.

6 Net finance charges			2010	2009
			£'000	£'000
Bank interest payable			1,978	2,886
Other interest payable			460	289
Interest on obligations under finance leases			350	342
Change in fair value of interest rate swaps			(596)	1,169
Total borrowing costs			2,192	4,686
Bank interest receivable			(2)	(6)
Other interest receivable			(112)	(180)
Total interest receivable			(114)	(186)
Net finance charges			2,078	4,500
7 Tax
			2010	2009
The tax charge comprises:			£'000	£'000
Current tax
UK corporation tax at 28% (2009: 28%)			17,571	16,058
Adjustments in respect of previous years			(288)	(756)
			17,283	15,302
Deferred tax
Origination and reversal of timing differences			(291)	(1,183)
Adjustments in respect of previous years			142	(3,057)
Credit in respect of rate change			(781)	-
			(930)	(4,240)
Total tax charge for the year			16,353	11,062

The Finance Act 2010 reduced the rate of corporation tax from 28% to 27% from April 2011, and this rate is required to be used in calculating deferred tax provisions at the balance sheet date. This has resulted in a tax credit in the income statement of £0.8m.

8 Earnings per share			2010	2009
a) Basic earnings per share:
Weighted average ordinary shares in issue during the year			199,026,844	197,212,437
Total basic profit for the year (£'000)			40,125	37,272
Basic earnings per share for the year (pence)			20.16	18.90
Total basic profit for the year (£'000)			40,125	37,272
Effect of non-trading items on earnings for the year (£'000)			(429)	(2,802)
Earnings excluding non-trading items (£'000)			39,696	34,470
Adjusted earnings per share (pence)			19.95	17.48
b) Diluted earnings per share:
Weighted average ordinary shares in issue during the year			199,026,844	197,212,437
Dilutive shares to be issued in respect of options granted under the share option schemes			495,532	884,472
			199,522,376	198,096,909
Diluted earnings per share (pence)			20.11	18.82
Adjusted diluted earnings per share (pence)			19.90	17.40

9 Dividend
			2010	2009
			£'000	£'000
Amounts recognised as distributions to equity holders during the year:
Second interim dividend for the 52 weeks ended 27 December 2009 of 6.30p (2008: nil) per share			12,146	-
Final dividend for the 52 weeks ended 27 December 2009 of 0.30p (2008: 6.30p) per share			580	12,188
Interim dividend for the 53 weeks ended 2 January 2011 of 1.54p (2009: 1.40p) per share			2,980	2,699
Total dividends paid in the year			15,706	14,887
Second interim dividend for the 53 weeks ended 2 January 2011 of nil (2009: 6.30p) per share			-	12,146
Proposed final dividend for the 53 weeks ended 2 January 2011 of 7.46p (2009 actual proposed and paid: 0.30p) per share			14,440	580
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 11 May 2011 and is not recognised as a liability in these financial statements.  The proposed final dividend payable reflects the number of shares in issue on 2 January 2011, adjusted for the 5.9m shares owned by the employee benefit trust for which dividends have been waived.

10 Reconciliation of profit before tax to cash generated from operations
			2010	2009
			£'000	£'000
Profit before tax			56,478	48,334
Net finance charges			2,078	4,500
Loss on disposal of fixed assets			-	526
Share-based payments			2,235	2,098
Depreciation			27,250	26,281
Decrease / (increase) in stocks			492	(189)
(Increase) / decrease in debtors			(1,121)	758
Increase / (decrease) in creditors			409	(5,233)
Cash generated from operations			87,821	77,075

11 Reconciliation of changes in cash to the movement in net debt
		2010	2009
		£'000	£'000
Net debt:
At the beginning of the year		(66,684)	(78,884)
Movements in the year:
Repayments of loan draw downs		20,000	15,000
Non-cash movements in the year		(147)	(161)
Cash outflow		(93)	(2,639)
At the end of the year		(46,924)	(66,684)

Represented by:		At 29	Cash flow	Non-cash	At 27 and 28	Cash flow	Non-cash	At 2
		December	movements	movements	December	movements	movements	January
		2008	in the year	in the year	2009	in the year	in the year	2011
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents		5,470	(2,639)	-	2,831	(93)	-	2,738
Bank loans falling due after one year		(84,354)	15,000	(161)	(69,515)	20,000	(147)	(49,662)
		(78,884)	12,361	(161)	(66,684)	19,907	(147)	(46,924)

12 Share-based payments

On publication of the 2010 results, the conditional and matching awards granted on 6 March 2008 become exercisable.  The vesting criteria for the TSR element of the conditional award were met in full and consequently, 100% of this part of the award will vest.  Earnings per share growth of the 2010 results compared with the 2007 results was between RPI + 4% and RPI + 10% and consequently, 82.5% of the EPS element of the conditional award and the matching award will vest.

13 Basis of preparation

The Group's preliminary announcement and statutory accounts in respect of 2010 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 2 January 2011 or 27 December 2009, but is derived from those accounts.  Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting. The 2010 statutory accounts are prepared on the basis of the accounting policies stated in the 2009 statutory accounts.  The auditors have reported on those accounts; their reports were unqualified and unmodified and did not contain statements under s498 (2) or (3) Companies Act 2006.

 

END

 

 

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