Final Results

RNS Number : 9335A

Restaurant Group PLC

26 February 2014

 



The Restaurant Group plc

Final results for the 52 weeks ended 29 December 2013

The Restaurant Group plc ("TRG" or "the Group") operates over 440 restaurants and pub restaurants.  Its principal trading brands are Frankie & Benny's, Chiquito, Coast to Coast and Garfunkel's. The Group also operates Pub restaurants and a Concessions business which trades principally at UK airports.

The Group had another strong performance in 2013 with significant growth in revenues, profits and cash flow:

2013 results	Compared to 2012
-       Revenue increased to £580m (like-for-like sales +3.5%) -       Operating margin 12.9%	+9% +40 bps
-       EBITDA increased to £107.8m	+13%
-       Profit before tax increased to £72.7m	+13%
-       EPS increased to 28.0p per share -       Proposed full year dividend of 14.0p per share	+16% +19%

·      Operations strongly cash generative. Operating cash flow £116.8m, up 15%

·      Roll out continues

o  35 new sites opened in the period

o  36-43 new sites targeted for 2014

·      Over 1,000 new jobs created in 2013

·      Strong current trading, with total sales up 10% and like-for-like sales at 3.5% for the eight weeks to 23 February 2014.

Andrew Page, Chief Executive, said:

"The Restaurant Group delivered another strong performance in 2013, building further on its consistent record of increasing earnings each year. Our like-for-like sales were 3.5% ahead of the previous year, margins increased and all of our businesses grew sales and profits. Earnings per share were 16% ahead of the prior year. We opened 35 new restaurants - these are trading well and are set to deliver excellent returns. Last year we created over 1,000 new jobs and this year we will create even more as we expect to open a further 36 to 43 new restaurants.

These results are a reflection of the hard work and efforts of the TRG team and I would like to record my thanks to them for producing another outstanding performance. With the UK economy showing improvement, employment levels rising and inflation falling there are good prospects for an improvement in household finances.  This bodes well for our sector and all of our team will be working determinedly to deliver another year of profitable progress. The Restaurant Group is in great shape and I am confident that it will continue to prosper."

26 February 2014

Enquiries:

The Restaurant Group
Andrew Page, Chief Executive	020 7457 2020 (today)
Stephen Critoph, Group Finance Director	020 3117 5001 (thereafter)
Instinctif Partners
Matthew Smallwood Justine Warren	020 7457 2020

Chairman's statement

The Group delivered another strong performance in 2013 with significant growth in revenues, profits and cash flow. This is particularly impressive as it follows on from a decade of consistent growth and demonstrates the very formidable strength of the Group's business.

Like-for-like sales were 3.5% ahead of the previous year which represents an outperformance against our sector.  I am very encouraged that this trend has continued into 2014 with like-for-like sales for the eight weeks to 23 February 2014 3.5% ahead of the previous year (first eight weeks of 2013: +6.5%). 

The continuing squeeze on household finances has been widely reported and this has meant that conditions for consumer-facing businesses were again tough in 2013. By focusing on our customers and giving a wide range of choice we have ensured that the Group has continued to make profitable progress, once again, delivering record profits and earnings.

We increased our openings programme during 2013 with 35 new restaurants opened.  Of these, 19 restaurants opened in the final two months of the year and it is testament to the strength of the TRG team that all were successfully opened whilst, at the same time, our existing restaurants enjoyed a flourishing level of trade.  We are delighted with the performance of our new openings and they are set to deliver good returns.  Looking forward, we have a superb pipeline of new sites covering the period 2014 to 2016.

In 2013, the Group's revenues grew by 9% to £580m (2012: £533m), profit before tax grew by 13% to £72.7m (2012: £64.6m) and earnings per share grew by 16% to 28.0p (2012: 24.1p).  This increase in earnings per share represents a compound annual growth rate of 11% over the five years to December 2013.  This represents strong growth, delivered consistently over a long period of time and is reflective of our first class business and the efforts of our management team. 

As a result of this strong performance, the Board is recommending a final dividend of 8.75p per share to give a total for the year of 14.0p (2012: 11.8p) an increase of 19%.  This dividend is covered two times by earnings per share, in line with our dividend policy.  Subject to shareholder approval at the Annual General Meeting to be held on 15 May 2014, the final dividend will be paid on 9 July 2014 and the shares will be marked ex-dividend on 18 June 2014.

TRG has consistently demonstrated the strength and resilience of its business model and this is, again, another set of record results.  The Group is managed by a stable, experienced and long standing team, in a disciplined and focused manner - growing organically and also through judicious and carefully executed roll out.  By operating in this manner, TRG is able to grow its estate, increase earnings and dividends and generate high levels of cash and returns on investments.

These outstanding results are a product 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 our teams across the country.

As recently announced, Andrew Page, our Chief Executive Officer, will be retiring at the end of August after thirteen years with the Group.  Under Andrew's leadership, The Restaurant Group has developed into a first class and firmly established FTSE-250 business, with an excellent track record of growth in earnings, dividends and shareholder value.  The Board and I, personally, would like to express our heartfelt thanks and congratulations to Andrew on the immense success he has achieved at TRG during his tenure. I am delighted that Andrew has agreed to continue as an Advisor to the Chairman and Board on an annually renewable basis for two days a week.  The search for a new Chief Executive Officer is well underway.

We have made a strong start to the current year, with sales growth of 10% (like-for-like sales up 3.5%) for the first eight weeks of the year and we are looking to build further on this as we move through the year.  We have an outstanding business with market-leading brands in excellent locations, and an experienced management team with real strength and depth. All of our brands are well recognised, providing our customers with a wide range of choice and superb value for money.  I am confident that we are well placed to continue our further profitable progress.

Alan Jackson

Chairman

26 February 2014

Chief Executive Officer's review of operations

Introduction

The Restaurant Group has an excellent track record of delivering consistent, year on year, growth in cash flow and profits combined with high returns on investment. Building on the solid growth achieved in each year over the past decade, TRG delivered further profitable progress in 2013.

The Group achieved like-for-like sales growth in 11 out of 12 months with full year like-for-like sales growth of 3.5%. As in previous years, like-for-like profits also increased. I am pleased to report that good like-for-like sales growth continues, and, after the first eight weeks of 2014, like-for-like sales are 3.5% ahead of the previous year.  Total sales for 2013 were £580m (2012: £533m) an increase of 9% and earnings per share increased by 16% to 28p (2012: 24p); this represents a good result and augurs well for the future.

Results

TRG delivered strong trading metrics for the 52 week period to 29 December 2013:

·      Total sales increased by 9%

·      Like-for-like sales increased by 3.5%

·      43 million meals were sold

·      EBITDA increased by 13% to £108m

·      Operating profit increased by 13% to £75m

·      Operating margin increased by 40 basis points to 12.9%

·      Pre-tax profit increased by 13% to £72.7m

·      Earnings per share increased by 16% to 28p

·      Cash flow generated from operations increased by £15m to £117m

·      Free cash flow increased by £7.9m to £77.1m

Our people and our business

Throughout TRG we aim to continually evolve and improve our offering - food, service, facilities and standards. Our 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. We pay close attention to our children's offerings to ensure that they afford the opportunity to form part of a sensibly balanced diet. We are also committed to support the Government's initiatives to encourage healthier lifestyles and, to this end, we have made a number of pledges including salt reduction and encouraging physical activities.  As part of our ongoing health and safety assurance processes we regularly conduct testing of products and facilities at our suppliers. 

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, we provide them with the skills necessary to be 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 12,000 people throughout the UK and during 2013 more than 1,000 new team members joined TRG. As we continue to open new restaurants, the opportunities for our people to progress and secure promotion increase and this helps TRG to attract and retain high quality team members.

Our brands

Frankie & Benny's (232 units)

Frankie and Benny's traded strongly in 2013 delivering significant increases in turnover, EBITDA and profit.  Once again, margins were very strong and this is particularly encouraging as we have been further building the team and resource base in anticipation of an increased rate of roll out.  During the year we opened 17 new restaurants of which six were on cinema sites.  Trade at the new openings has been strong and they are on track to deliver excellent returns.  We anticipate opening between 18 and 22 new Frankie and Benny's restaurants in 2014.  The strength of the Frankie and Benny's brand, its breadth of appeal, versatility and high level of customer recognition all contribute to a consistent track record of success.  This gives us great confidence that there is significant future roll out potential for this brand.

Coast to Coast (10 units)

We opened our first Coast to Coast restaurant in Brighton in November 2011.  By the end of 2013 we had ten Coast to Coast restaurants of which five were opened during the year.  The performance of our Coast to Coast restaurants has been excellent and in a handful of cases, truly exceptional.  They are set to deliver strong returns.  Eight of our ten Coast to Coast restaurants trade alongside either, or both, Frankie and Benny's and Chiquito.  These three brands complement each other well and we plan to continue to open further Coast to Coast restaurants alongside our other Leisure brands.  We are planning to open between five and seven new Coast to Coast restaurants in 2014 and we have identified several dozen locations where we are confident that a Coast to Coast restaurant would trade well.  Our forward pipeline is encouraging and we believe that this brand has significant roll out potential.

Chiquito (73 units)

Chiquito performed well in 2013 with a solid increase in revenues and a significant increase in EBITDA, profit and margins.  We opened four new Chiquito restaurants during the year.  They are trading superbly and are set to deliver strong returns.  During 2014 we expect to open between five and seven new Chiquito restaurants.

Garfunkel's (16units)

Garfunkel's traded superbly during 2013 and this has continued into 2014.  Central London, the traditional heartland of Garfunkel's, has been especially buoyant and Garfunkel's has benefited from this.  Like-for-like sales growth was exceptionally strong and this translated into significant increases in turnover, profit and margins.  We are continuing to search for new site opportunities which will deliver our required returns. 

Pub restaurants (49 units)

Our Pub restaurants business traded strongly throughout the year and delivered significant increases in turnover, profits and margins.  We opened four new Pub restaurants during the year and these are trading well and are set to deliver strong returns.  During the year our recent opening, The Bulls Head, at Mottram St. Andrew, won the Good Pub Guide's "Best New Pub of the Year" award.  We continue to build a portfolio of high quality pubs in terms of location, appeal, standard of food and service and, most importantly, consistent growth in profits.  Our Pub restaurant business has the potential to grow significantly over the medium term and also to command a niche position as a high quality, nationwide Pub restaurant business.  During 2014 we expect to open four to six new Pub restaurants.

Concessions (60 units)

Our Concession business traded strongly in 2013 with a solid increase in turnover and significant increases in EBITDA, profits and margins.  Our business continues to gain market share and, as passenger numbers start to increase, we are confident that this trend can continue.  During the year we opened five new units and these are set to deliver strong returns.  We expect to open two to four new Concession restaurants in 2014.

The TRG business model and strategy

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. 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 has a consistent record of converting profits into cash at a very healthy rate, and delivering increasing cash flows each year, and in 2013 this was again the case.

In 2013 the Group generated £116.8m of operating cash flow and having paid a corporation tax bill of £17.7m, interest payments of £1.1m and spending £20.9m on capital improvements for our existing estate, the Group's free cash flow amounted to more than £77m. This was £7.9m ahead of the previous year and continued the Group's record of growing cash flow each year.

This cash is put to good use - in 2013 we spent almost £56m on new developments which will, in turn, contribute to the continuing growth in the Group's profits and cash flows; we returned almost £25m to our shareholders by way of dividends.

This virtuous circle of rising profits being converted into higher levels of cash flow which is then invested in new restaurants which, in turn, deliver high levels of return on invested capital is a highly efficacious and value-accretive model.  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 model delivers high returns, growth and income in the form of dividends. The model is robust, resilient and rewarding for our shareholders.

TRG's capital structure

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 maintain our estate to a high standard and 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 profitably;

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 reduced its levels of debt significantly. In the six years since the end of 2007, net debt has reduced from £77m to £42m. During this period the Group has invested more than £200m in opening 171 new restaurants and acquiring freeholds of our existing Pub restaurants, £85m (maintenance capital) has been invested in maintaining the existing estate and £114m 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 prudent capital structure has been appropriate, safeguarding shareholders' interests whilst allowing the Group to grow profits and cash flow and for dividends to increase.

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 recent 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.  Looking forward over the next two to three years the quality and quantity of our forward pipeline is the best that we have seen for many years.

During 2014 we are expecting to open between 36 and 43 new restaurants and we are also successfully adding to our potential pipeline for the next two to three years.

Market dynamics and the economy

The backdrop for consumer-facing businesses has been especially tricky over the past five years.  The squeeze on household finances has meant that companies in consumer-facing businesses have had to adapt and make important choices as to how they operate.  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. 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 still are. Our Group has adopted a different approach, focusing on value, choice and consistency of service and standards.  Last year, the proportion of TRG's revenues which were driven by promotions was, as in the previous year, very modest. We have also increasingly harnessed digital media to broaden awareness of our brands and what we can offer. These tactics have 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.

Growth in eating out is a secular trend, driven largely by socio-economic factors (ageing population, busy lifestyles, more women in the workplace etc.) and this is set to continue over the longer term. Despite the current climate TRG has been able to secure good levels of like-for-like sales growth in both 2012 and 2013 and, as conditions improve and particularly when people feel more confident about their jobs and incomes, this is likely to accelerate.

TRG's approach has put us in a strong position to accelerate the growth of the business as UK economic growth becomes more firmly established.

After several years of declining or static real GDP, the UK economic outlook has started to look brighter.  This is most welcome and, although some commentators have emphasised that it is founded on consumer spending (funded via debt) and a more buoyant housing market, it is certainly a significant improvement on recent years.

Most of the key UK economic measures and indicators are showing improvement: GDP growth has picked up with the UK recording growth levels well ahead of its European neighbours, inflation has abated and employment levels are at record levels.  The rate of creation of new jobs over the last twelve months has been encouraging and if productivity levels improve it is likely that we will start to see an increase in real wage growth, something that has been elusive for several years.

There are, however, a number of concerns including the prospect of a tightening in monetary policy which would lead to higher interest rates impacting households with floating rate mortgages and/or other debt to be serviced.  Since 2008 we have witnessed global monetary stimulus on an unprecedented and exceptional scale and the UK has participated extensively in this.  At some point the UK's loose monetary policy will end - the timing and extent of the tightening will be an important determinant of the UK's prospects for sustained growth and, more particularly, the prospects for household and consumer finances.  With "forward guidance" still in its infancy in the UK, it is difficult to predict when, and to what extent, monetary tightening will be implemented.  However, it seems clear from the Bank of England's recent pronouncements that low UK interest rates are likely to be with us for some time and this is good news from a consumer and household perspective. 

Low interest rates, low inflation, high levels of employment and real wage growth will be key determinants in the acceleration of growth and thus the medium term outlook for our sector.

Future prospects

Over the past five years, our business has experienced some difficult trading conditions and during that period sales, profits and cash flow increased every year. Also within that period we have devised and developed our new brand, Coast to Coast, and executed its initial roll out very effectively, further widening TRG's development path.

TRG's businesses command strong market positions in each of our chosen segments and our brands are widely recognised for the quality, breadth and value of their offerings. We have a well proven business model, a strong balance sheet, an experienced management team and are well positioned to continue our expansion. Just as we did in 2013, during 2014 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;

·      Add high quality new restaurants that meet our investment criteria to our portfolio; and

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

Our aim is to continue to strengthen our market positions, to judiciously roll out our brands and deliver long-term and sustainable profitable growth. The Group has demonstrated its resilience and we expect it to benefit significantly from an upturn in consumer confidence.

The future

This is my final report as The Restaurant Group's Chief Executive Officer as I will be retiring at the end of August.  It has been a truly remarkable journey which started in June 2001 when we took a business that had lost its way, re-structured and re-orientated it and then, from firm foundations, have grown it to become the successful company that we have today.  Credit for this success belongs to the TRG team who, at times, have achieved the seemingly impossible and throughout have delivered a consistently fine performance for our shareholders.  They are an outstanding group of people and it has been my privilege to lead them over the past ten years.

As so often in past years, 2013 presented some big challenges.  As always, our team rose to those challenges to deliver a superb performance.  All of our people will be working towards replicating this in 2014.  The first two months of 2014 have started well with total sales 10% ahead of last year (like-for-like sales up 3.5%) and we will be looking to build further on this as we move through the year.

The Restaurant Group is in great shape and I am confident that it will continue to prosper.

Andrew Page

Chief Executive Officer

26 February 2014

Group Finance Director's report

Results

2013 was another challenging year, with consumer discretionary spending continuing to be under significant pressure. The Restaurant Group nevertheless performed extremely well and has achieved another record set of financial results, as follows:

		2013		2012	%
		£m		£m	change
Revenue		579.6		532.5	+8.8%
Operating profit		74.9		66.4	+12.8%
Margin %		12.9%		12.5%
Net interest		(2.2)		(1.8)
Profit before tax		72.7		64.6	+12.6%
EPS (pence)		28.02		24.08	+16.4%

Total revenue increased by 8.8%, reflecting a 3.5% increase in like-for-like sales and the impact of new openings in 2012 and 2013.  Total EBITDA for the year was £107.8m and operating profit was £74.9m, both representing an increase of almost 13% on the prior year. It was also very pleasing to see meaningful progress on operating margin, which increased by 40 basis points to 12.9%. This improvement resulted from operational leverage benefits, detailed focus on all areas of cost and a low level of promotional discount activity.

In 2012 the Group benefitted from a £0.4m payment of historical outstanding loan note interest from Living Ventures. There was no such item in 2013 and this was the principal factor behind the increased level of net interest costs during the year.

Profit before tax was £72.7m, an increase of almost 13% compared to the prior year. The average tax rate in the year was 22.7%, compared to 25.3% in the prior year. This resulted in net profit after tax of £56.2m and EPS of 28.02p, an increase of more than 16% compared to the prior year.

Cash flow

Once again the Group's cash flow generation was extremely strong with net cash flow from operations increasing to almost £117m (2012: £102m). Free cash flow (after interest, tax and maintenance capital) was over £77m, a substantial increase on the prior year (2012: £69.2m). As the Group's new opening programme accelerates, we are increasing our level of development capital expenditure (as described in more detail below). After a substantial increase in dividend payments, this resulted in net debt of year end of £41.9m, an increase of £5.9m compared to the prior year.

Set out below is a summary cash flow for the year:

	2013	2012
	£m	£m
Operating profit	74.9	66.4
Working capital and non-cash adjustments	9.0	6.5
Depreciation	32.9	29.1
Cash flow from operations	116.8	102.0
Net interest paid	(1.1)	(0.9)
Tax paid	(17.7)	(16.1)
Maintenance capital expenditure	(20.9)	(15.8)
Free cash flow	77.1	69.2
Development capital expenditure	(55.7)	(39.2)
Dividends	(24.9)	(21.7)
Purchase of shares for employee benefit trust	(2.3)	(2.9)
Other items	(0.1)	0.2
Net cash flow	(5.9)	5.6
Net bank debt at start of year	(36.0)	(41.6)
Net debt at the end of year	(41.9)	(36.0)

Cost inflation

Following a number of years in which food cost inflation has been running at elevated levels, in the second half of the year we started to see some abatement in these levels of increase. This has been due to a variety of factors including; good crop harvests in 2013, some modest strengthening in sterling against both the Euro and US Dollar during the course of the year and sensible decisions about the timing of new longer term supply deals. We currently anticipate that this slightly more benign environment on food cost inflation will continue in 2014.

Minimum wage increased by 1.9% in October 2013, following a 1.8% increase in October 2012. We are beginning to see some modest increase in underlying wage cost inflation, reflecting the strong employment statistics and recent strengthening in the UK economic situation. Whereas we anticipate a more benign environment on food cost inflation in 2014, we expect some continued firming in wage costs as the economy and employment levels continue to improve.

In relation to utility costs, all our key electricity contracts are fixed through until October 2014 and gas through until spring 2015. This is an area where we continue to see strong inflationary pressures. Rent also is an area where, following very low levels of increase during the economic downturn, we are seeing modest increases in the typical level of five yearly rent review.

Capital expenditure

During the year the Group invested a total of £76.6m in capital expenditure, a significant increase on the prior year (2012: £55.0m). This total includes £20.9m of maintenance and refurbishment expenditure and £55.7m of development expenditure. Development capital includes five freeholds opened during the year (three pubs and two leisure sites), as well as £5m of current year capital investment in relation to sites that will open during the course of 2014. During the year we opened a total of 35 sites and these are all performing well, generating levels of turnover and return typically ahead of the feasibility requirement. The table below summarises openings and closures during the year:

	Year end	Opened	Closed	Year end
	2012			2013
Frankie & Benny's	217	17	(2)	232
Coast to Coast/Filling Station	11	5	(1)	15
Chiquito	69	4	-	73
Garfunkel's	19	-	(3)	16
Pub restaurants	45	4	-	49
Concessions	61	5	(6)	60
Total	422	35	(12)	445

The closures included four marginal, end of lease sites and two sites in Victoria Station in London where we have signed leases for new sites which will open during the course of 2014.

Financing & key financial ratios

As described in previous annual reports, we currently have a £140m five year facility in place which runs until October 2016. There are two covenants under this facility which are summarised in the table below, together with other key financial ratios:

	Banking
	Covenant	2013	2012
Banking covenant ratios
EBITDA/interest cover	>4x	48x	41x
Net debt/EBITDA	<3x	0.39x	0.38x
Other ratios
Fixed charge cover	n/a	2.7x	2.6x
Balance sheet gearing	n/a	19%	20%

The Group has very substantial headroom against both of the banking covenants and continues to be in a very strong financial position. This strong financial position means that we are comfortably able to accelerate our opening programmes over the next few years, including investing in freeholds sites where appropriate, whilst at the same time investing in and maintaining the existing estate. 

Tax

The total tax charge of the year was £16.5m analysed as follows:

	2013	2012
	£m	£m
Corporation tax	19.2	18.1
Deferred tax	(2.7)	(1.8)
Total	16.5	16.3
Effective tax rate	22.7%	25.3%

The effective tax rate in the year of 22.7% has reduced substantially compared to the prior year. This partly reflects the ongoing reduction in the headline rate of  corporation tax (which reduced from 24% in tax year 2012/13 to 23% in 2013/14, and where legislation has now been enacted which will see it reduced to 21% in 2014/15 and 20% from 2015/16). As a result of this legislation having been enacted our deferred tax liability has been revalued at the eventual taxation rate of 20%. The Group's effective tax rate will continue to be higher than the headline UK tax rate primarily due to our capital expenditure programme and the significant levels of disallowable expenditure therein.

Stephen Critoph

Group Finance Director

26 February 2014

The Restaurant Group plc
Consolidated income statement
		52 weeks ended 29 December 2013	52 weeks ended 30 December 2012
	Note	£'000	£'000
Revenue	2	579,589	532,541
Cost of sales:
Excluding pre-opening costs	3	(469,729)	(435,276)
Pre-opening costs	3	(3,784)	(2,217)
		(473,513)	(437,493)
Gross profit		106,076	95,048
Administration costs		(31,160)	(28,613)
Trading profit		74,916	66,435
Earnings before interest, tax, depreciation and amortisation		107,791	95,540
Depreciation		(32,875)	(29,105)
Operating profit		74,916	66,435
Interest payable	4	(2,447)	(2,527)
Interest receivable	4	216	653
Profit on ordinary activities before tax		72,685	64,561
Tax on profit from ordinary activities	5	(16,495)	(16,334)
Profit for the year		56,190	48,227
Earnings per share (pence)
Basic	6	28.02	24.08
Diluted	6	27.97	24.05

The Restaurant Group plc
Consolidated statement of changes in equity
		Share	Share	Other	Retained	Total
		capital	premium	reserves	earnings
		£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2012		56,334	24,027	(7,737)	111,224	183,848
Profit for the year		-	-	-	56,190	56,190
Issue of new shares		98	464	-	-	562
Dividends		-	-	-	(24,863)	(24,863)
Share-based payments - credit to equity		-	-	2,947	-	2,947
Employee benefit trust - purchase of shares		-	-	(2,291)	-	(2,291)
Other reserve movements		-	-	(1,859)	-	(1,859)
Current tax on share-based payments taken directly to equity		-	-	-	950	950
Deferred tax on share-based payments taken directly to equity		-	-	-	481	481
Balance at 29 December 2013		56,432	24,491	(8,940)	143,982	215,965
Balance at 2 January 2012		56,319	23,982	(7,115)	84,096	157,282
Profit for the year		-	-	-	48,227	48,227
Issue of new shares		15	45	-	-	60
Dividends		-	-	-	(21,682)	(21,682)
Share-based payments - credit to equity		-	-	2,233	-	2,233
Employee benefit trust - purchase of shares		-	-	(2,855)	-	(2,855)
Other reserve movements		-	-	-	-	-
Current tax on share-based payments taken directly to equity		-	-	-	1,354	1,354
Deferred tax on share-based payments taken directly to equity		-	-	-	(771)	(771)
Balance at 30 December 2012		56,334	24,027	(7,737)	111,224	183,848

The Restaurant Group plc
Consolidated balance sheet
		At 29 December 2013	At 30 December 2012
	Note	£'000	£'000
Non-current assets
Intangible assets		26,433	26,433
Property, plant and equipment		337,519	293,785
		363,952	320,218
Current assets
Stock		5,085	4,872
Trade and other receivables		7,794	6,476
Prepayments		14,601	15,940
Cash and cash equivalents	9	7,307	12,879
		34,787	40,167
Total assets		398,739	360,385
Current liabilities
Corporation tax liabilities		(9,725)	(9,173)
Trade and other payables		(103,780)	(93,845)
Other payables - finance lease obligations		(330)	(328)
Provisions		(1,120)	(2,089)
		(114,955)	(105,435)
Net current liabilities		(80,168)	(65,268)
Non-current liabilities
Long-term borrowings	9	(49,164)	(48,853)
Other payables - finance lease obligations		(2,885)	(2,844)
Deferred tax liabilities		(12,524)	(15,712)
Provisions		(3,246)	(3,693)
		(67,819)	(71,102)
Total liabilities		(182,774)	(176,537)
Net assets		215,965	183,848
Equity
Share capital		56,432	56,334
Share premium		24,491	24,027
Other reserves		(8,940)	(7,737)
Retained earnings		143,982	111,224
Total equity		215,965	183,848

The Restaurant Group plc
Consolidated cash flow statement
		52 weeks ended 29 December 2013	52 weeks ended 30 December 2012
	Note	£'000	£'000
Operating activities
Cash generated from operations	8	116,838	102,000
Interest received		216	653
Interest paid		(1,308)	(1,551)
Tax paid		(17,700)	(16,141)
Net cash flows from operating activities		98,046	84,961
Investing activities
Purchase of property, plant and equipment		(76,626)	(54,945)
Disposal of fixed assets		(400)	98
Net cash flows used in investing activities		(77,026)	(54,847)
Financing activities
Net proceeds from issue of ordinary share capital		562	60
Employee benefit trust - purchase of shares		(2,291)	(2,855)
Net repayments of loan draw downs		-	(3,000)
Dividends paid to shareholders		(24,863)	(21,682)
Net cash flows used in financing activities		(26,592)	(27,477)
Net (decrease) / increase in cash and cash equivalents		(5,572)	2,637
Cash and cash equivalents at the beginning of the year	9	12,879	10,242
Cash and cash equivalents at the end of the year	9	7,307	12,879

The Restaurant Group plc

Notes to the accounts

For the year ended 29 December 2013

1 Segmental analysis
The Group trades in one business segment (that of operating restaurants) and one geographical segment (being the United Kingdom).  The Group's brands meet the aggregation criteria set out in paragraph 22 of IFRS 8 "Operating Segments" and as such the Group report the business as one reportable segment.
2 Revenue			2013		2012
			£'000		£'000
Income for the year consists of the following:
Revenue from continuing operations			579,589		532,541
Other income not included within revenue in the income statement:
Rental income			3,338		3,211
Interest income			216		653
Total income for the year			583,143		536,405
3 Profit for the year			2013		2012
			£'000		£'000
Cost of sales consists of the following:
Continuing business excluding pre-opening costs			469,729		435,276
Pre-opening costs			3,784		2,217
Total cost of sales for the year			473,513		437,493
			2013		2012
Profit for the year has been arrived at after charging / (crediting):			£'000		£'000
Depreciation			32,875		29,105
Purchases			129,703		121,898
Staff costs			184,122		168,240
Minimum lease payments			57,266		54,207
Contingent rents			8,418		7,590
Total operating lease rentals of land and buildings			65,684		61,797
Rental income			(3,338)		(3,211)
Net rental costs			62,346		58,586

4 Net finance charges			2013	2012
			£'000	£'000
Bank interest payable			1,345	1,489
Other interest payable			399	352
Facility fees			330	320
Interest on obligations under finance leases			373	366
Total borrowing costs			2,447	2,527
Bank interest receivable			(11)	(8)
Other interest receivable			(47)	(3)
Loan note interest receivable			(158)	(642)
Total interest receivable			(216)	(653)
Net finance charges			2,231	1,874
5 Tax
			2013	2012
The tax charge comprises:			£'000	£'000
Current tax
UK corporation tax at 23.25% (2012: 24.5%)			19,463	18,046
Adjustments in respect of previous years			(261)	80
			19,202	18,126
Deferred tax
Origination and reversal of temporary differences			(558)	(464)
Adjustments in respect of previous years			(60)	118
Credit in respect of rate change			(2,089)	(1,446)
			(2,707)	(1,792)
Total tax charge for the year			16,495	16,334

The Finance Act 2012 introduced a reduction in the main rate of corporation tax from April 2013 from 24% to 23% resulting in a blended rate of 23.25% being used to calculate the tax liability for the 52 weeks ended 29 December 2013.

Further rate reductions to 21% from April 2014 and 20% from April 2015 were substantively enacted on 2 July 2013, therefore the deferred tax provision at the balance sheet date has been calculated at 20%.  This has resulted in a deferred tax credit in the income statement of £2.1m.

6 Earnings per share			2013	2012
a) Basic earnings per share:
Weighted average ordinary shares in issue during the year			200,510,419	200,261,245
Total profit for the year (£'000)			56,190	48,227
Basic earnings per share for the year (pence)			28.02	24.08
b) Diluted earnings per share:
Weighted average ordinary shares in issue during the year			200,510,419	200,261,245
Dilutive shares to be issued in respect of options granted under the
share option schemes			347,065	235,567
			200, 857,484	200,496,812
Diluted earnings per share (pence)			27.97	24.05

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 2013 or 2012.

7 Dividend
			2013	2012
			£'000	£'000
Amounts recognised as distributions to equity holders during the year:
Final dividend for the 52 weeks ended 30 December 2012 of 7.30p (2011: 6.50p) per share			14,460	12,812
Interim dividend for the 52 weeks ended 29 December 2013 of 5.25p (2012: 4.50p) per share			10,403	8,870
Total dividends paid in the year			24,863	21,682
Proposed final dividend for the 52 weeks ended 29 December 2013 of 8.75p (2012 actual proposed and paid: 7.30p) per share			17,340	14,460

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 15 May 2014 and is not recognised as a liability in these financial statements.  The proposed final dividend payable reflects the number of shares in issue on 29 December 2013, adjusted for the 2.5m shares owned by the employee benefit trust for which dividends have been waived. 

8 Reconciliation of profit before tax to cash generated from operations
			2013	2012
			£'000	£'000
Profit before tax			72,685	64,561
Net finance charges			2,231	1,874
Share-based payments			2,947	2,233
Depreciation			32,875	29,105
Increase in stocks			(213)	(947)
Decrease in debtors			21	124
Increase in creditors			6,292	5,050
Cash generated from operations			116,838	102,000

9 Reconciliation of changes in cash to the movement in net debt
										2013		2012
										£'000		£'000
Net debt:
At the beginning of the year										(35,974)		(41,593)
Movements in the year:
Repayments of loan draw downs										-		3,000
Non-cash movements in the year										(311)		(18)
Cash (outflow) / inflow										(5,572)		2,637
At the end of the year										(41,857)		(35,974)
Represented by:		At 2	Cash flow	Non-cash		At 30 and 31			Cash flow		Non-cash			At 29
		January	movements	movements		December			movements		movements			December
		2012	in the year	in the year		2012			in the year		in the year			2013
		£'000	£'000	£'000		£'000			£'000		£'000			£'000
Cash and cash equivalents		10,242	2,637	-		12,879			(5,572)		-			7,307
Bank loans falling due after one year		(51,835)	3,000	(18)		(48,853)			-		(311)			(49,164)
		(41,593)	5,637	(18)		(35,974)			(5,572)		(311)			(41,857)
10 Basis of preparation

The Group's preliminary announcement and statutory accounts in respect of 2013 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 29 December 2013 or 30 December 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The 2013 statutory accounts are prepared on the basis of the accounting policies stated in the 2012 statutory accounts. The auditor has reported on those accounts; their reports were unqualified and unmodified and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

 

END

 

 

FR SESESIFLSESE