Final Results

RNS Number : 3207Y

Restaurant Group PLC

29 February 2012

 



The Restaurant Group plc

Final results for the 52 weeks ended 1 January 2012

The Restaurant Group plc ("TRG" or "the Group") operates 400 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 as a Concessions division which trades on over 50 sites, principally at UK airports.

·      The Group had a strong performance in 2011:

*Results marked as adjusted are stated excluding non-trading items and, unless otherwise stated, reflect the 52 week period in 2011 compared with the comparable 52 week period in 2010.  Statutory results for 2010 were stated on a 53 week reporting period. Like-for-like information is stated for a consistent number of weeks in 2011 and 2010.

52 weeks trading in 2011	Compared to 52 weeks in 2010	Compared to 53 weeks in 2010
-       Revenue increased to £487m (like-for-like sales +3.25%)	+7.25%	+4.5%
-       Adjusted EBITDA increased to £89.7m	+8%	+4.5%
-       Adjusted profit before tax increased to £60.3m	+12%	+8%
-       Adjusted EPS increased to 22p per share	+14%	+10%
-     Proposed full year dividend of 10.5p per share	+17%	+17%
-     Statutory profit before tax of £48.6m	n/a	-14%
-     Statutory EPS of 17p	n/a	-15%

 Operations strongly cash generative and net debt reduced by £5.3m to £41.6m

·      Roll out continues

o  25 new sites opened in the period

o  25-30 new sites targeted for 2012

·      Over 500 new jobs created in 2011 and over 600 new jobs to be created in 2012

·      Solid current trading given the economic climate, with total sales up 3% and like-for-like sales at -2% for the eight weeks to 26 February 2012

Andrew Page, Chief Executive, said:

"This was another year of good progress for The Restaurant Group, with increases in revenues, margins and profits as we continued to strengthen our market position and to grow our business.  The performance of our recent years' openings has been outstanding and this bodes well for the future.  Last year, we opened 25 new restaurants, creating more than 500 new jobs and this year we will open between 25 and 30 new restaurants.  Our team was magnificent, showing great dedication and endeavour, and all of our people are determined to make 2012 another successful year."

29 February 2012

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 Justine Warren	020 7457 2020

Chairman's statement

I am delighted to report that the Group delivered another excellent performance in 2011, with growth in revenues, adjusted profits and adjusted earnings per share. Although trading conditions were difficult, and the economic backdrop weak, the Group has been able to further strengthen its market positions, grow the estate and generate significant increases in cash flow. This means that we are well placed to weather the more straitened economic conditions with which UK consumer-facing businesses currently have to contend and, as conditions improve, the Group is very well positioned to take advantage of the opportunities to further accelerate its growth.

Our focus on our customers and providing consistently high standards of service and value for money has enabled the Group to continue its profitable progress. 2011 was a busy year for our team as we looked to build on the strong performance delivered in the previous year. We opened 25 new restaurants, served 39 million meals and created more than 500 new jobs. During 2011 the Group's revenues grew by 7.25% to £487m (2010: £454m), adjusted profit before tax grew by 12% to £60m (2010: £54m) and adjusted earnings per share increased by 14% to 22p (2010: 19p). This increase in earnings per share represents a compound annual growth rate of 14% over the five years to 2011; a significant achievement that demonstrates the resilience and consistently positive performance of the Group.

In addition to having to manage the business against a backdrop of pressure on household incomes we have also been faced with some fairly sizeable cost increases. Much effort has been put into mitigating and minimizing these cost increases and this manifested itself in a modest margin improvement and strong profit uplift.

As a result of this strong performance, the Board is recommending a final dividend of 6.5p per share giving a total for the year of 10.5p per share (2010: 9.00p), an increase of 17%. Subject to shareholder approval at the Annual General Meeting to be held on 17 May 2012, the final dividend will be paid on 19 July 2012 to shareholders on the register on 29 June 2012 and the shares will be marked ex-dividend on 27 June 2012.

All of our businesses performed well with positive like-for-like sales growth, good levels of profits and we added new sites to each of our brands. The performance of our new openings has been excellent and our expectations in respect of returns on investment look likely to be exceeded. This bodes well for the future progress of the Group. Currently, we are expecting to open between 25 and 30 new restaurants during 2012 and we are encouraged by both the size and quality of the pipeline of new sites.

TRG has consistently demonstrated the resilient nature of its business model and this is another excellent set of results. The Group is managed in a disciplined and focused manner - growing both organically and also through a judicious and carefully executed roll out. By operating in this manner, we are able to grow our estate, increase earnings and dividends and generate high levels of cash and returns on investment.

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.

We have had a solid start to the current year, with sales growth of 3% (like-for-like sales of -2%) for the first eight 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 which have wide appeal. I am confident that we are well placed to continue our further profitable progress.

Alan Jackson

Chairman

29 February 2012

Chief Executive Officer's review of operations

Introduction

2011 was another year of good progress for The Restaurant Group, achieved against a challenging economic backdrop and an increasingly constrained environment for consumer-facing businesses. The Group traded well for most of the year, achieving like-for-like sales growth in eleven of the twelve months. The year started very well with a strong bounce back in the early months following the severe winter weather at the end of 2010. Trade during the spring months was variable and, as we entered summer, it picked up markedly. From late summer through to mid-November, trading was quite reasonable and for the final six or seven weeks of the year it was strong.

All of the constituent parts of the Group saw growth in 2011 and, despite having to contend with some significant input cost pressures, the Group achieved strong growth in adjusted profits and a modest improvement in adjusted margins. Total sales were 7.25% ahead of the previous year (like-for-like sales 3.25% ahead) and adjusted earnings per share increased by 14% - against a challenging backdrop and year-on-year growth for the previous years this represents a good result and bodes well for the future.

Results*

*Results marked as adjusted are stated excluding non-trading items and, unless otherwise stated, reflect the 52 week period in 2011 compared with the comparable 52 week period in 2010.  Statutory results for 2010 were stated on a 53 week reporting period. Like-for-like information is stated for a consistent number of weeks in 2011 and 2010.

TRG's trading metrics performed well for the 52 week period to 1 January 2012:

·      Total sales increased by 7.25%

·      Like-for-like sales increased by 3.25%

·      We sold 39 million meals

·      Adjusted EBITDA increased by 8% to £89.7m

·      Adjusted operating profit increased by 8% to £61.2m

·      Adjusted operating profit margin increased by 10 basis points to 12.6%

·      Adjusted pre-tax profit increased by 12% to £60.3m

·      Adjusted earnings per share increased by 14% to 21.86p

·      Net debt, at 0.48x Group adjusted EBITDA, fell by £5.3m to £41.6m

Our people and our business

Throughout our business, we aim to continually evolve and improve our offering - food, service and standards. Menus are reviewed twice a year, our seasonal specials menus change quarterly and we pay close attention to the nutritional and calorific content of dishes to ensure that we have something to match all of our customers' requirements. Particular attention is paid to our children's offerings to ensure that they afford the opportunity to form a key part of a sensibly balanced diet. Much work has taken place throughout our Group in this area and further detail is contained in the Corporate Responsibility section in the Annual Report. 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. We strive to employ the best people and to provide them with an opportunity to develop. Our staff benefit from a number of training programmes as soon as they join us and, as they progress through the ranks, the training becomes more specifically geared to equipping them to become efficient and effective managers. In addition to our management training programmes, our staff at all levels have the opportunity to secure qualifications in several areas relevant to our industry, including Food Hygiene, Health & Safety, NVQ's and BII accreditations.

We employ more than 10,000 people throughout the UK and during 2011 more than 500 new members joined the TRG team. 2011 also marked the first graduate recruitment programme for TRG. This attracted a large number of very high quality applicants and we have employed eleven graduates who have embarked on a fast-track scheme towards restaurant management. 

Our brands

Frankie & Benny's (208 units)

Frankie & Benny's performed well in 2011, increasing revenues and profits; margins were maintained at 2010 levels. We opened 16 new restaurants of which nine were on non-cinema sites. All of the new openings are trading strongly and they are expected to deliver excellent returns. We anticipate opening between 14 and 18 new Frankie & Benny's restaurants in 2012.

Chiquito (69 units)

Chiquito delivered a good performance in 2011 with increases in revenues, profits and margins. We opened four new Chiquito restaurants during the year all of which are located alongside Frankie & Benny's. This dual roll out strategy works well and we expect it to continue in 2012. The new Chiquito's are trading well and are expected to deliver strong returns. During 2012 we expect to open two to four new Chiquito restaurants.

Garfunkel's (23 units)

Garfunkel's traded well during 2011 delivering good levels of margins and profits. During the year we opened two new Garfunkel's restaurants - these are trading well and are set to deliver strong returns. We are building a good pipeline of new Garfunkel's sites and currently expect to open two to four a year for the next few years. During the first half of 2012 we expect to open at least two new restaurants in central London.

Pub restaurants (42 units)

Pub restaurants traded well during 2011 and delivered good levels of margins and profits. During 2011 the ex-Blubeckers conversion programme was completed. The portfolio is now operating in line with the Brunning & Price model and the results of the changes made over the past 18 months are most encouraging. We opened one new Pub restaurant, the Old Hall at Sandbach, which is trading superbly and is set to deliver strong returns. During 2012 we expect to open between three and five new Pub restaurants.

Concessions (58 units)

Our Concessions business has traded superbly during 2011 with strong increases in revenues, margins and profits. An absence of disruptions, as experienced during 2010, certainly helped the performance but, even adjusting for this, the underlying trend was one of good improvements across all of the key metrics. Passenger numbers at the principal UK airports rose solidly and our business benefited from this. During the year we opened two new restaurants at Gatwick airport - these are trading well and are set to deliver excellent returns. We are expecting to open two or three new restaurants during 2012.

The TRG business model, capital structure, 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 2011 this was again the case. TRG's business model enables the Group to grow in a predominately organic and highly value-accretive way, funded from its internally generated funds.

Our touchstones are cash flow and return on investment. Our business 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. The Group's capital structure is framed in a sensible and prudent manner which enables shareholder value to grow and which recognises the operational and financial gearing inherent in our (predominantly) lease-based business model. In determining the appropriate capital structure, the key considerations which we keep under regular review are:

1.   The level of free cash flow generated and our expectation for this going forward;

2.   The level of capital investment required to fund our new openings (and our expectations with regard to the number of new openings over the medium-term);

3.   The maintenance of our progressive dividend policy and our intention to grow dividends in line with earnings;

4.   Ensuring that we have sufficient financial resources available to take advantage of opportunities to expand the business;

5.   Ensuring that we have sufficient financial resources available to cope with a deterioration in trading conditions as a result of an economic downturn or other adverse factors; and

6.   Maintaining a good level of fixed charge cover as measured by the Group's ability to meet and service all of its financial obligations.

As a result of strong cash generation, the Group has continued to significantly reduce its levels of debt. This has been especially marked in recent years whilst roll out opportunities for new restaurants have been limited to around 25 new sites per annum. In the four years since 2007, net debt has reduced from £77m to £42m. During this period the Group has invested £106m in opening 108new restaurants, £48m (maintenance capex) has been invested in maintaining the existing estate and £67m has been paid out to shareholders in the form of dividends. During much of this period the economic backdrop has been poor (and at times very bleak). Against such a backdrop we believe that TRG's very prudent capital structure has been appropriate, safeguarding shareholders' interests whilst allowing the Group to grow profits and cash flow and for dividends to increase. Whilst economic conditions continue to be tough, and the immediate outlook opaque, we intend to continue to adopt this very prudent approach to capital structure. However, once conditions improve we will review the position to determine what, if any, adjustments to the capital structure are appropriate. This review will, of course, take full account of the key considerations listed above and any changes would be in line with our policy of maintaining a sensible and prudent capital structure whilst also growing shareholder value.

Capital expenditure and TRG opening programme

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 restaurants.

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 continue 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. This disciplined and consistent approach has also ensured that our new openings continue to deliver strong returns. It is particularly encouraging that returns from our openings in the last three years have been at some of the highest levels achieved in the past decade.

Our free cash flow generation is sufficient to enable the Group to accelerate the openings programme whilst maintaining maintenance capital expenditure at an appropriate level and pursuing a progressive dividend policy. As a result of the tough economic backdrop, currently there are very few new edge and out of town schemes being built and, in the short-term, this situation is likely to persist. However, there are a significant number of new schemes in developers' pipelines and, at some point, these are likely to be activated. In the meantime, many of our new restaurant opportunities are being secured from a variety of other sources and the work that we are doing in this regard has had the benefit of widening the potential paths to further future roll out growth for the Group. The economic downturn, whilst presenting formidable trading challenges, has also afforded to us several new opportunities and we intend to continue to identify and pursue these where we are confident that they will meet our returns criteria.

During 2012 we are expecting to open between 25 and 30 new restaurants and we are also successfully adding to our potential pipeline for the next two to three years.

Market dynamics and the economy

Companies operating in the retail environment have found conditions tough in recent years and this seems to have become a persistent theme. A deep recession followed by rising taxes, household inflation, a fiscal squeeze with lower government spending and higher direct and indirect taxation, rising unemployment (with the equally corrosive, concomitant, fear of unemployment) and negative changes in year-on-year real wages, have placed significant pressures on many consumer-facing businesses. This has proved particularly problematic for businesses with poor market positioning, weak business models and high levels of financial leverage. Attempts at stimulating the economy through expansionary monetary stimuli have had some success, but the economic backdrop remains very tough. Selling products and services to the UK consumer has certainly become quite a challenge.

In addition to consumers being squeezed as a result of the difficult economic backdrop, other factors are also at work and some distinct trends, both operationally and behaviourally, have been evident.  Those companies that have established strong market positions, with offerings that are accessible, attractive, convenient, well understood, trusted and are seen by their customers to offer good value have tended to outperform. Customers have become more selective about what, and how, they purchase and it is noteworthy how important a strong and clear online offering and communication platform has become for many parts of the retail marketplace. The ability to read and quickly adapt to customer trends is increasingly important.

With many households experiencing a squeeze on funds available for discretionary spend, harder choices between competing consumption wishes are having to be made. A propensity to save (or pay down debt) has replaced the urge to buy on credit that was so prevalent just a few years ago. Consumer-facing businesses have had to work harder to claim a share of this smaller cake.

Those companies that operate in the dining out sector have approached these challenges in different ways. Many have chosen to compete for customers largely on price and this has often manifested itself via heavy promotions and deep discounting. "Buy one get one free" and other similar, deep discounting, offers have been rife, and they still are. Our Group adopted a different approach, focusing on value, choice and consistency of service and standards. We have also increasingly harnessed digital media to broaden awareness of our brands and what we can offer. This has served TRG well, enabling it to continue to grow profits and protect margins.

Eating out has become habitual in the UK and it is an activity that many people are reluctant to give up. At our price point it represents a "small ticket" item or, to put it another way, "an affordable treat". In times of fiscal restraint and stretched finances, it is a "pleasure" in which many people still feel able to indulge.

This trend to eat out regularly is secular, driven largely by socio-economic factors (ageing population, busy lifestyles, more women in the workplace etc) and growth is set to continue over the longer term. Whilst this growth may be harder to achieve in the current climate, once conditions improve, and particularly when people feel more confident about their jobs and incomes, the upward path is likely to be re-established.

In the short-term however, the key risks to growth are largely macro-economic. This time last year the picture seemed to be getting clearer and there was a real expectation that the economy had started the steep climb out of recession. Indeed this picture persisted until early summer, at which point political paralysis in the US followed by the significant shocks in the Eurozone brought it to an abrupt halt. The final part of 2011 was characterised by great uncertainty about the Eurozone, sovereign debt and the pressures on the banking and financial system. Although the UK is not part of the Eurozone, around half of its export business is directed there and its banks and financial institutions have exposure to Eurozone sovereign and corporate debt. A collapse of the Eurozone was, and still is, regarded as being bad for Britain. Against this backdrop, increasing uncertainty and deep concern took hold in much of the UK during the latter stages of 2011 and this is still evident. This makes life more difficult for consumer-facing businesses as many households decide to rein in their discretionary expenditure even more. More recently a number of steps have been taken to re-structure the heavily indebted Eurozone countries and to provide liquidity to the banking system in an effort to stimulate the economies of the Eurozone countries. This has provided some breathing space in which to try to secure a workable solution and to work towards a re-balancing. However, in the short-term it is likely that uncertainty will persist and this will act as a further drag on economic growth during 2012.

In the UK, 2011 ended with the economic outlook poorer than it had been just a few months earlier. Projections for UK GDP growth were cut and the outlook for employment deteriorated. As we start 2012, it seems that we will be facing an economic backdrop just as tough as the one experienced during the past year. There are however several positives - inflation is expected to fall sharply and, whilst money wage increases are likely to be fairly modest, it is possible that, as we move through 2012, household incomes available for discretionary spend will rise, sterling is still at a level that makes UK exports attractive and  several of the larger exporters (for example vehicle manufacturers) are beginning to invest and hire more workers and there now seems to be a new determination within the Eurozone to implement measures that will avoid a break-up and may eventually lead to a sustainable re-balancing. Within the UK we are also looking forward to two significant events - the Diamond Jubilee and the Olympic Games. Both of these will be good for Britain and could also benefit UK businesses.

From our perspective, the major short-term macro-economic issues are unemployment, job insecurity and squeezed household finances.  Providing there is not a significant further deterioration in any of these, the UK should, as we move into the second part of the year, start to see a gradual re-building of consumer confidence.

Future prospects

We are planning on the basis that the outlook for 2012 will be just as tough as the conditions experienced last year and we have framed our plans accordingly. Over the past four years, our business has experienced some difficult trading conditions and during that period sales, profits and cash flow all increased. TRG is well placed to cope with challenging conditions and, very importantly, to benefit significantly 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, breadth and value of their offerings. We have a well proven business model, a strong balance sheet and are well positioned to continue our expansion. Just as we did in 2011, during 2012 we will continue to:

·      Stick to our areas of expertise;

·      Focus on our customers by providing excellent value, choice and service;

·      Maintain high standards of operational efficiency and execution;

·      Carefully control our costs and seek to mitigate and minimise the impact of inflationary input costs. Where we are able to secure fixed or capped price contracts for key purchases, on acceptable terms, we will seek to do so;

·      Add high quality new restaurants to our portfolio; and

·      Focus on cash flow, returns and growing shareholder value.

Our aim is to continue to strengthen our market positions and deliver long-term and sustainable profitable growth.

2011 was a tough year for our sector and it presented TRG with some big challenges. As always, our team rose to those challenges and produced a superb performance. All of our people will be working towards replicating this again in 2012. The first two months of 2012 have started solidly with total sales 3% ahead of last year (like-for-like sales of -2%), and we will be looking to build further on this as we move through the year.

Andrew Page

Chief Executive Officer

29 February 2012

Group Finance Director's report                                            

Results

Against the background of another challenging year in terms of the macro-economic environment, the Group has recorded another strong set of financial results. The previous statutory financial year was for a 53 week period ending on 2 January 2011. The comparatives in the statutory accounts refer to this period.

Compared to the comparable 52 week period the adjusted results (excluding non-trading items) are as follows:

	52 weeks ended 1 January 2012	Comparable 52 weeks ended 2 January 2011	%	53 weeks ended 2 January 2011	%
	£m	£m	change	£m	change
Revenue	487.1	454.0	+7.25%	465.7	+4.6%
Cost of sales	(397.8)	(370.3)		(379.3)
Pre-opening costs	(1.9)	(1.6)		(1.6)
Gross profit	87.4	82.1	+6.4%	84.8	+3.0%
Administration costs	(24.0)	(23.3)		(24.0)
Share-based payments	(2.2)	(2.2)		(2.2)
Adjusted EBITDA	89.7	83.4	+7.6%	85.8	+4.6%
Depreciation	(28.5)	(26.8)		(27.2)
Adjusted operating profit	61.2	56.6	+8.2%	58.6	+4.5%
Adjusted operating margin	12.6%	12.5%		12.6%
Net interest	(0.9)	(2.6)		(2.7)
Adjusted profit before tax	60.3	54.0	+11.7%	55.9	+7.9%
Tax	(16.6)	(15.7)		(16.2)
Adjusted profit after tax	43.7	38.3	+14.1%	39.7	+10.1%
Adjusted EPS (pence)	21.86	19.25	+13.6%	19.95	+9.6%

Total revenues increased by 7.25%, as a result of 3.25% like-for-like sales growth and the impact of new sites. Total adjusted EBITDA of £89.7m increased by 7.6% on the prior year, and adjusted operating profit of £61.2m grew by 8.2%. At the half year the Group adjusted operating margin was 20 basis points lower than the prior year. It is therefore very pleasing to see that for the full year the adjusted operating margin has increased by 10 basis points. This was the result of continued attention to detail and diligence in all areas of cost, combined with the decision taken a number of years ago not to pursue the deep discounting strategy that has become endemic across the sector.

Net interest costs reduced substantially during the year, due to reduced average levels of net debt, lower average interest costs as interest rate swaps unwound and interest income from the Group's outstanding loan note with the Living Ventures group. Adjusted profit before tax of £60.3m grew by 11.7% compared to the prior year. The Group's average tax rate continues to decline in line with the reducing rate of UK corporation tax. This resulted in adjusted earnings per share of 21.86p, 13.6% ahead of the prior year.

Compared to the statutory 53 week period last year, total revenues increased by 4.6%, adjusted operating profits were up from £58.6m to £61.2m and adjusted profit before tax increased from £55.9m to £60.3m.  Adjusted earnings per share increased by 9.6% compared to the 53 week adjusted statutory comparative of 19.95p.

Cost inflation

Cost inflation in 2011 proved to be a somewhat more significant issue than anticipated at the start of the year, particularly on food and beverage costs where we saw average increases for the year of over 3%. Wage cost inflation was higher than in 2010, principally due to the much higher level of minimum wage increase which was effective from October 2010 (an increase of 2.2% compared to 1.2% in October 2009).

The outlook for 2012 in terms of cost inflation is uncertain at this stage. We think it unlikely that food and beverage cost inflation will be any less than that experienced in 2011. Although our strategy continues to be one of fixing costs where sensible, at present a larger proportion of our food and beverage input costs remain unfixed than would normally be the case. This is in anticipation of further softening in commodity prices during 2012.

In terms of labour costs, the standard rate of national minimum wage increased by 2.5% in October 2011, and this will be the key driver in 2012. All our main utility contracts are fixed through until October 2012. We have already entered into new contracts effective from October 2012 on a number of constituent elements of our utility cost base, which will result in some level of cost increase in the final quarter of the year. Business rates are linked to the Retail Prices Index and are expected to increase in April 2012.  Rental cost inflation continues to run at low levels compared to historic trends that prevailed prior to 2009. We expect this relatively benign situation on rental increases to continue in 2012.

Non-trading items

The full year statutory results include a non-trading charge of £11.7m before tax, and £9.3m after tax. At the half year we reported a pre-tax charge of £7.2m in respect of site disposals and closures (the Group's Spanish business, a number of the ex-Edwinns sites and a number of legacy sites in the Chiquito estate). During the second half of the year we decided to exit a small number of additional sites which do not generate adequate levels of return. Additionally, following the Paramount business going into administration at the end of 2011, we have made a provision relating to leases on former Café Uno sites which have reverted or could potentially revert to TRG. This provision has also been included in the non-trading charge.

Cash flow        

Set out below is a summary cash flow statement for the full year.

	2011	2010
	£m	£m
Adjusted operating profit (52 weeks in 2010)	61.2	56.6
Working capital and non-cash adjustments	2.1	1.9
Depreciation (52 weeks in 2010)	28.5	26.8
Net cash flow from operations	91.8	85.3
Net interest paid	(0.3)	(2.1)
Tax paid	(15.7)	(17.6)
Maintenance capital expenditure	(14.4)	(11.3)
Free cash flow	61.4	54.3
Development capital expenditure	(29.3)	(20.7)
Dividends	(22.3)	(15.7)
Normalised net cash flow	9.8	17.9
Extra trading week in 2010 (EBITDA)	-	2.5
Disposals	(2.8)	-
Net cash flow from share issues	1.0	1.9
SWAP termination payment	(0.4)	(1.0)
Purchase of shares for employee benefit trust	(3.1)	(1.4)
Finance costs offset against bank debt	0.8	(0.1)
Reduction in net debt	5.3	19.8
Net bank debt at start of year	(46.9)	(66.7)
Net bank debt at end of year	(41.6)	(46.9)

Capital expenditure 

During the year the Group invested a total of £43.7m in capital expenditure (2010: £32.0m). £14.4m of this was spent on refurbishment and maintenance expenditure (2010: £11.3m). This includes completion of the programme to reposition the ex-Blubeckers pubs to the Brunning & Price model. We have also upgraded much of the underlying IT infrastructure across the Group and the cost of this is included in the maintenance capex figure.

Development capital expenditure in the year was £29.3m (2010: £20.7m). This includes the 25 new sites opened in the year (three of which were freeholds), and also includes the cost of acquiring two pub freeholds currently in development which will open during 2012. The 25 sites opened during the year are all performing very satisfactorily, on average generating levels of turnover and financial return significantly ahead of our feasibility requirements.

We continue to be absolutely focused on ensuring that all of our new sites generate very high levels of financial return. All potential new sites are subject to a thorough due diligence process before we commit to a project. As well as detailed financial modelling and evaluation, this due diligence process includes demographic analysis, detailed review of competitors and planned/potential developments in the area. We also identify other existing sites with similar characteristics both in terms of demographics and location to further inform our decision making process. We conduct regular post-investment appraisals and these confirm that we are continuing to achieve levels of return in line with our high hurdle rates.

As noted in the comments above regarding non-trading items, the Group closed a number of sites during the year bringing the year end total to exactly 400. The table below summarises opening and closures in the year:

	Year end 2010	Opened	Closed	Year end 2011
Frankie & Benny's	197	16	(5)*	208
Chiquito	68	4	(3)	69
Garfunkel's	23	2	(2)	23
Pub restaurants	43	1	(2)	42
Concessions	58	2	(2)	58
Total	389	25	(14)	400

* including three restaurants in Spain

Financing and key financial ratios

As announced in November 2011, the Group successfully completed a refinancing exercise in October. We now have a new £140m five year facility in place which runs until October 2016, with the same covenants as our previous facility. Both of these covenants are tested on a six monthly basis by reference to the Group's published results. These and other key financials are summarised as follows:

	Banking covenant	2011	2010
EBITDA / Interest cover	>4x	47x	32x
Net debt / EBITDA	<3x	0.48x	0.55x
Fixed charge cover	n/a	2.6x	2.6x
Balance sheet gearing	n/a	26%	32%

As can be seen from this table the Group has substantial headroom against banking covenants and is in a very strong financial position. This strong financial position means we are able to maintain and accelerate the level of new openings and acquire pub and other freeholds where it is sensible to do so. We are also able to maintain our programme of investment in the existing estate, a very important factor in maintaining a strong and successful business going forward. The Group's strong financial position also ensures that we are able to pay a generous and increasing level of dividends.

Tax

The total tax charge in the year was £14.2m, analysed as follows:

	2011 (52 weeks)			2010 statutory (53 weeks)
	Trading	Non-trading	Total	Trading	Non-trading	Total
	£m	£m	£m	£m	£m	£m
Corporation tax	18.0	(1.1)	16.9	17.6	(0.3)	17.3
Deferred tax	(1.4)	(1.3)	(2.7)	(1.4)	0.5	(0.9)
Total	16.6	(2.4)	14.2	16.2	0.2	16.4
Average tax rate	27.5%			29.0%

On trading activities the underlying tax charge in the year was £16.6m. This represents an average tax rate of 27.5% compared to 29.0% in 2010. This reduction primarily reflects the reduced level of UK corporation tax rate. 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 rates announced in 2010.  The Group's average tax rate will continue to be higher than the headline UK rate primarily due to significant levels of disallowable expenditure in our capital expenditure programme.

Stephen Critoph 

Group Finance Director

29 February 2012       

The Restaurant Group plc
Consolidated income statement
		52 weeks ended 1 January 2012				53 weeks ended 2 January 2011
		Trading	Non-			Trading	Non-
		business	trading	Total		business	trading	Total
	Note	£'000	£'000	£'000		£'000	£'000	£'000
Revenue	2	487,114	-	487,114		465,704	-	465,704
Cost of sales:
Excluding pre-opening costs	3	(397,782)	(7,544)	(405,326)		(379,268)	-	(379,268)
Pre-opening costs	3	(1,948)	-	(1,948)		(1,591)	-	(1,591)
		(399,730)	(7,544)	(407,274)		(380,859)	-	(380,859)
Gross profit / (loss)		87,384	(7,544)	79,840		84,845	-	84,845
Administration costs		(23,962)	(192)	(24,154)		(24,054)	-	(24,054)
Share-based payments		(2,237)	-	(2,237)		(2,235)	-	(2,235)
Trading profit / (loss)		61,185	(7,736)	53,449		58,556	-	58,556
Loss on disposal of fixed assets	4	-	(4,169)	(4,169)		-	-	-
Earnings before interest, tax, depreciation and amortisation:		89,741	(8,405)	81,336		85,806	-	85,806
Depreciation		(28,556)	(3,500)	(32,056)		(27,250)	-	(27,250)
Operating profit / (loss)		61,185	(11,905)	49,280		58,556	-	58,556
Interest payable	5	(1,818)	230	(1,588)		(2,788)	596	(2,192)
Interest receivable	5	916	-	916		114	-	114
Profit / (loss) on ordinary activities before tax		60,283	(11,675)	48,608		55,882	596	56,478
Tax on profit / (loss) from ordinary activities	6	(16,575)	2,344	(14,231)		(16,186)	(167)	(16,353)
Profit / (loss) for the year		43,708	(9,331)	34,377		39,696	429	40,125
Earnings per share (pence)
Basic	7	21.86		17.19		19.95		20.16
Diluted	7	21.84		17.18		19.90		20.11
Dividend per share (pence)1	8			10.50				9.00
1 The dividend per share of 10.50p is the interim and proposed final dividend in respect of 2011 (9.00p is the interim and final dividend in respect of 2010).

Consolidated statement of comprehensive income
	52 weeks ended 1 January 2012	53 weeks ended 2 January 2011
	£'000	£'000
Profit for the year	34,377	40,125
Exchange differences on translation of foreign operations	(488)	(5)
Total comprehensive income for the year	33,889	40,120

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 3 January 2011	56,101	23,234	488	(6,302)	71,192	144,713
Profit for the year	-	-	-	-	34,377	34,377
Exchange differences on translation of foreign operations	-	-	(488)	-	-	(488)
Total comprehensive income for the year	-	-	(488)	-	34,377	33,889
Issue of new shares	218	748	-	-	-	966
Dividends	-	-	-	-	(22,337)	(22,337)
Share-based payments - credit to equity	-	-	-	2,237	-	2,237
Employee benefit trust - purchase of shares	-	-	-	(3,050)	-	(3,050)
Current tax on share-based payments taken directly to equity	-	-	-	-	1,178	1,178
Deferred tax on share-based payments taken directly to equity	-	-	-	-	(314)	(314)
Balance at 1 January 2012	56,319	23,982	-	(7,115)	84,096	157,282
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

Consolidated balance sheet
		At 1 January 2012	At 2 January 2011
	Note	£'000	£'000
Non-current assets
Intangible assets		26,433	26,433
Property, plant and equipment		269,141	259,583
		295,574	286,016
Current assets
Stock		3,925	3,630
Trade and other receivables		7,382	5,573
Prepayments		15,158	13,541
Cash and cash equivalents	10	10,242	2,738
		36,707	25,482
Total assets		332,281	311,498
Current liabilities
Corporation tax liabilities		(8,542)	(8,539)
Trade and other payables		(87,198)	(81,945)
Financial liabilities - derivative financial instruments		-	(618)
Other payables - finance lease obligations		(326)	(296)
Provisions		(3,282)	(602)
		(99,348)	(92,000)
Net current liabilities		(62,641)	(66,518)
Non-current liabilities
Long-term borrowings	10	(51,835)	(49,662)
Other payables - finance lease obligations		(2,806)	(2,772)
Deferred tax liabilities		(16,733)	(19,091)
Provisions		(4,277)	(3,260)
		(75,651)	(74,785)
Total liabilities		(174,999)	(166,785)
Net assets		157,282	144,713
Equity
Share capital		56,319	56,101
Share premium		23,982	23,234
Foreign currency translation reserve		-	488
Other reserves		(7,115)	(6,302)
Retained earnings		84,096	71,192
Total equity		157,282	144,713

Consolidated cash flow statement
		52 weeks ended 1 January 2012	53 weeks ended 2 January 2011
	Note	£'000	£'000
Operating activities
Cash generated from operations	9	91,745	87,821
Interest received		916	114
Interest paid		(1,612)	(3,289)
Tax paid		(15,722)	(17,518)
Net cash flows from operating activities		75,327	67,128
Investing activities
Purchase of property, plant and equipment		(43,648)	(31,982)
Disposal of fixed assets		(2,754)	-
Net cash flows used in investing activities		(46,402)	(31,982)
Financing activities
Net proceeds from issue of ordinary share capital		966	1,900
Employee benefit trust - purchase of shares		(3,050)	(1,433)
Net proceeds from / (repayments of) loan draw downs		3,000	(20,000)
Dividends paid to shareholders		(22,337)	(15,706)
Net cash flows used in financing activities		(21,421)	(35,239)
Net increase / (decrease) in cash and cash equivalents		7,504	(93)
Cash and cash equivalents at beginning of year	10	2,738	2,831
Cash and cash equivalents at end of year	10	10,242	2,738

1 Segmental analysis

The Group trades in one business segment (that of operating restaurants) and one geographical segment (being the United Kingdom).

The Group previously reported its results in three business segments, Leisure, Concessions and non-core.  The Directors have concluded that these businesses meet the criteria for aggregation as one reporting segment as they have similar economic characteristics.

2 Revenue		2011	2010
		£'000	£'000
Income for the year consists of the following:
Revenue from continuing operations		487,114	465,704
Other income not included within revenue in the income statement:
Rental income		3,583	3,527
Interest income		916	114
Total income for the year		491,613	469,345

3 Profit for the year		2011	2010
		£'000	£'000
Cost of sales consists of the following:
Continuing business excluding pre-opening costs		397,782	379,268
Pre-opening costs		1,948	1,591
Non-trading charge		7,544	-
Total cost of sales for the year		407,274	380,859
		2011	2010
Profit for the year has been arrived at after charging/ (crediting):		£'000	£'000
Depreciation and impairment		32,056	27,250
Purchases		111,015	106,690
Staff costs		153,048	145,581
Rental income		(3,583)	(3,527)
Minimum lease payments		51,012	47,495
Contingent rents		7,034	7,083
Total operating lease rentals of land and buildings		58,046	54,578

4 Non-trading items		Note	2011	2010
			£'000	£'000
Items classified as non-trading within ordinary activities:
Provision for loss on disposal of fixed assets and onerous leases		i	(7,544)	-
Termination costs		ii	(192)	-
Net book value of disposed fixed assets included within non-trading		iii	(1,614)	-
Cash paid		iii	(2,754)	-
Creation of accrual for closure costs		iii	(313)	-
Transfer of accumulated foreign currency translation		iii	512	-
Loss on disposal of fixed assets			(4,169)	-
Finance credit arising from termination / remeasurement of interest rate swaps		iv	230	596
(Loss) / profit on ordinary activities before tax			(11,675)	596
Tax credit / (charge) on non-trading items		v	2,344	(167)
Total non-trading items after tax			(9,331)	429
i)  During the 52 weeks ended 1 January 2012, the Group has recorded a charge of £7.5m for the exit costs of a number of sites which do not generate adequate levels of return and for future rental obligations of leases of previously assigned leases that have returned to the Group.
The £7.5m includes £3.5m fixed asset impairment, £0.1m cash paid for costs incurred and a further £3.9m provision for future lease and other costs.
ii) In the 52 weeks ended 1 January 2012 the Group has recognised a £0.2m non-trading charge for unamortised fees relating to its terminated bank facility.
iii)  During the 52 weeks ended 1 January 2012, the Group has disposed of various fixed assets including the three restaurants the Group operated in Spain.  These closures have resulted in a loss on disposal of fixed assets of £4.2m including £2.8m of cash paid in respect of reverse premiums, legal and other costs.
iv) The Group has taken a credit of £0.2m (2010: £0.6m credit) in respect of the termination and remeasurement of its interest rate swaps. The Group's only remaining interest rate swap was terminated on payment of £0.4m on 9 February 2011.
v) In the 52 weeks ended 1 January 2012, the Group has recognised a non-trading tax credit of £2.3m (2010: £0.2m charge).

5 Net finance charges	2011		2010
	£'000		£'000
Bank interest payable	1,084	1,978
Other interest payable	375	460
Interest on obligations under finance leases	359	350
Change in fair value of interest rate swaps	(230)	(596)
Total borrowing costs	1,588	2,192
Bank interest receivable	(3)	(2)
Other interest receivable	(10)	(112)
Loan note interest receivable	(903)		-
Total interest receivable	(916)		(114)
Net finance charges	672		2,078

6 Tax
	2011	2010
a) The tax charge comprises:	£'000	£'000
Current tax
UK corporation tax at 26.5% (2010: 28%)	17,221	17,571
Adjustments in respect of previous years	(318)	(288)
	16,903	17,283
Deferred tax
Origination and reversal of timing differences	(1,145)	(291)
Adjustments in respect of previous years	(56)	142
Credit in respect of rate change	(1,471)	(781)
	(2,672)	(930)
Total tax charge for the year	14,231	16,353

The Finance Act 2011 introduced a reduction in the main rate of corporation tax from 1 April 2011 from 28% to 26% resulting in a blended rate of 26.5% being used to calculate the tax liability for the 52 weeks ended 1 January 2012.

The Finance Act 2011 introduced a reduction in the main rate of corporation tax from 26% to 25% effective from 1 April 2012 and this rate is required to be used in calculating deferred tax provisions at the balance sheet date.  The Government has also indicated that it intends to enact future reductions in the main corporation tax rate of 1% each year reducing the main tax rate down to 23% by April 2014.

From the previously announced main rate of corporation tax of 27%, the reduction to 25% from 1 April 2012 has resulted in a deferred tax credit in the income statement of £1.5m.  Of the £1.5m, £0.7m has been reported as non-trading as 1% of the total 2% reduction in the 52 weeks ended 1 January 2012 is of a one-off nature and does not reflect the underlying trend in tax rate movements.  The future 1% main tax rate reductions are expected to have a similar impact on the underlying trading tax rate as the current year, however the actual impact will be dependent on the Group's deferred tax position at that time.

7 Earnings per share		2011	2010
a) Basic earnings per share:
Weighted average ordinary shares in issue during the year		199,956,884	199,026,844
Total profit for the year (£'000)		34,377	40,125
Basic earnings per share for the year (pence)		17.19	20.16
Total profit for the year (£'000)		34,377	40,125
Effect of non-trading items on earnings for the year (£'000)		9,331	(429)
Earnings excluding non-trading items (£'000)		43,708	39,696
Adjusted earnings per share (pence)		21.86	19.95
b) Diluted earnings per share:
Weighted average ordinary shares in issue during the year		199,956,884	199,026,844
Dilutive shares to be issued in respect of options granted under the share option schemes		189,903	495,532
		200,146,787	199,522,376
Diluted earnings per share (pence)		17.18	20.11
Adjusted diluted earnings per share (pence)		21.84	19.90

The additional non-statutory earnings per share information (where non-trading items, described in note 4, have been added back) has been provided as the Directors believe it provides a useful indication as to the underlying performance of the Group.

Diluted earnings per share information is based on adjusting the weighted average number of shares 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 2011 or 2010.

8 Dividend
			2011	2010
			£'000	£'000
Amounts recognised as distributions to equity holders during the year:
Second interim dividend for the 53 weeks ended 2 January 2011 of nil (2009: 6.30p) per share			-	12,146
Final dividend for the 53 weeks ended 2 January 2011 of 7.46p (2009: 0.30p) per share			14,525	580
Interim dividend for the 52 weeks ended 1 January 2012 of 4.00p (2010: 1.54p) per share			7,812	2,980
Total dividends paid in the year			22,337	15,706
Proposed final dividend for the 52 weeks ended 1 January 2012 of 6.50p (2010 actual proposed and paid: 7.46p) per share			12,695	14,525
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 17 May 2012 and is not recognised as a liability in these financial statements.  The proposed final dividend payable reflects the number of shares in issue on 1 January 2012, adjusted for the 4.9m shares owned by the employee benefit trust for which dividends have been waived.

9 Reconciliation of profit before tax to cash generated from operations
		2011		2010
		£'000		£'000
Profit before tax		48,608		56,478
Net finance charges		672		2,078
Loss on disposal of fixed assets		4,169		-
Share-based payments		2,237		2,235
Depreciation and impairment		32,056		27,250
(Increase) / decrease  in stocks		(295)		492
Increase in debtors		(3,426)		(1,121)
Increase in creditors		7,724		409
Cash generated from operations		91,745		87,821

10 Reconciliation of changes in cash to the movement in net debt
		2011	2010
		£'000	£'000
Net debt:
At the beginning of the year		(46,924)	(66,684)
Movements in the year:
(Proceeds from) / repayments of loan draw downs		(3,000)	20,000
Non-cash movements in the year		827	(147)
Cash inflow / (outflow)		7,504	(93)
At the end of the year		(41,593)	(46,924)

Represented by:		At 28	Cash flow	Non-cash	At 2 and 3	Cash flow	Non-cash	At 1
		December	movements	movements	January	movements	movements	January
		2009	in the year	in the year	2011	in the year	in the year	2012
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents		2,831	(93)	-	2,738	7,504	-	10,242
Bank loans falling due after one year		(69,515)	20,000	(147)	(49,662)	(3,000)	827	(51,835)
		(66,684)	19,907	(147)	(46,924)	4,504	827	(41,593)

11 Basis of preparation

The Group's preliminary announcement and statutory accounts in respect of 2011 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 1 January 2012 or 2 January 2011 but is derived from those accounts.  Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the Company's Annual General Meeting. The 2011 statutory accounts are prepared on the basis of the accounting policies stated in the 2010 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

 

 

FR SEIFWAFESELE