Final Results
Restaurant Group PLC
07 March 2007
The Restaurant Group plc
Full year results for the year ended 31 December 2006
The Restaurant Group plc operates 284 branded restaurants predominantly in
leisure locations and airports. Its primary brands are Frankie & Benny's,
Chiquito, Garfunkel's and Blubeckers.
2006 2005 % change
Turnover (£m) * 314.7 287.3 +9.6%
EBITDA (£m) * 55.6 50.0 +11.3%
Adjusted profit before tax (£m) * 35.0 29.5 +18.5%
Adjusted earnings per share (p) * 11.50 9.08 +26.6%
Profit before tax, after non-trading items and DPP (£m) 21.6 26.5 -18.4%
Earnings per share, after non-trading items and DPP (p) 7.26 10.78 -32.6%
Proposed full year ordinary dividend (p) 6.00 4.75 +26.3%
* Results are stated excluding non-trading items and excluding the results of
Deep Pan Pizza in the prior year comparatives. Further information is provided
in note 2(a).
These results reflect the first full 12 months of the Group trading in its new
form after a year of considerable corporate activity in 2005 which has focused
the Group in the out of town segments of the eating-out market
• Incorporating strong 2nd half year sales, total like-for-like sales
were +5% for 2006
• Further good progress in margin growth with adjusted operating profit
margin increasing 140 basis points to 12.5%
• Cash generated from operations up 14% to £63m
All our businesses and brands performed well
Leisure
• Frankie & Benny's (139 units)
- EBITDA and profit grew more than 20%
- 25 new units opened during 2006
- Returns from new units compare favourably with earlier years' openings
- Strong pipeline with 15 - 20 to open in 2007
• Chiquito (45 units)
- Highest like-for-like sales and operating profit growth in the Group
- EBITDA +38%, profit +44%, operating profit margin up 120 basis points
- 11 new restaurants opened during 2006
- 5 - 10 new restaurants to open in 2007
• Garfunkel's (29 units)
- Strong like-for-like sales; operating profits up 15%
- Operating profit margins up 140 basis points
- Refurbishment programme delivering strong sales growth
• Blubeckers (22 units)
- Strong like-for-like growth
- Five units opened in 2006, including one conversion
- Pipeline building with 5-10 new units to open in 2007
Concessions (49 units)
- Very pleasing performance
- Solid like-for-like performance and six new openings increased sales
21%
- EBITDA +23%, profit +24%, operating profit margin up 40 basis points
- Between two and five new concessions for 2007, building work for
Terminal 5 to commence in 2007
Current Trading
- Like-for-like sales for the first nine weeks +5%
Commenting on these results, Andrew Page, Chief Executive said:
'2006 was a very satisfactory year for The Restaurant Group with earnings
increasing by 27% on the previous year. Our strategy is designed to deliver
sustainable and growing cash flows combined with consistently high returns on
investment and these results relect that.
Our marketplace remains buoyant and 2007 has started well with like-for-like
sales 5% ahead of last year. We occupy leading positions in our chosen market
segments and we intend to continue to build on this. We will open between 30
and 35 new restaurants in 2007 and we look forward to making further good
progress during the coming year.'
7 March 2007
Enquiries:
The Restaurant Group plc 020 7457 2020 (today)
Andrew Page, Chief Executive 0845 612 5001 (thereafter)
Stephen Critoph, Group Finance Director
College Hill
Matthew Smallwood 020 7457 2020
Chairman's statement
* Results are stated excluding non-trading items and excluding the results of
Deep Pan Pizza in the prior year comparatives. Further information is provided
in note 2(a).
I am delighted to report that the Group has enjoyed another successful year of
profitable growth. 2006 was, in many ways, a watershed year for The Restaurant
Group - the first full twelve months of trading in its new form. You will recall
that 2005 was a year of considerable change for the Group on the corporate
front, as we continued to direct our focus away from the increasingly crowded
high street marketplace and positioned our business firmly in the out of town
segments of the eating out market. This was in line with our strategy of
focusing on markets with distinct barriers to entry, good growth prospects and
high returns on investment. The impact of these changes is clear to see in this
set of results.
For 2006 we delivered a like-for-like sales increase of 5% which was a fantastic
performance. As a result, our adjusted profit before tax grew by 19% on the
prior year. In addition, our strong cash generation enabled the Group to add 47
new restaurants (including rebranding former DPP units) to its portfolio during
the year, taking the total number of outlets to 284.
Building on a strong first half performance we made further good progress during
the second six months to produce excellent full year results. Full year adjusted
pre-tax profit increased by 19% to £35.0m (2005: £29.5m) with turnover from our
principal trading brands increasing by 24% to £308.7m (2005: £248.8m). Adjusted
earnings per share increased by 27% to 11.50p (2005: 9.08p).
As a result of this excellent performance the Board is recommending an increased
final dividend of 4.95p per share (2005: 3.84p), an increase of 29%, giving a
total dividend for the year of 6.00p (2005: 4.75p) per share. Subject to
approval at the Annual General Meeting, the final dividend will be payable on 4
July 2007 to shareholders on the register on 8 June 2007 and the shares will be
marked ex-dividend on 6 June 2007. As detailed in my interim statement, we also
paid a special dividend of £34.8m during the first half of the year.
Our Leisure Division which incorporates Frankie & Benny's, Chiquito, Blubeckers
and Garfunkel's enjoyed another excellent year, recording a 27% increase in
operating profit. All of the brands delivered strong like-for-like growth during
2006 and we look forward to a continuation of this trend in 2007. During the
year we opened 41 new restaurants in this division and we expect to open
approximately 30 more units in the Leisure Division during 2007. Our new
openings are performing well and we continue to enjoy high levels of return on
investment. The performance of our co-located units (Frankie & Benny's and
Chiquito) has been particularly pleasing and we believe that there is scope to
continue this pattern of dual roll-out.
Our Concessions Division delivered a terrific set of results with operating
profits for this division increasing by 24%. Against a very challenging backdrop
for parts of 2006, this was an outstanding performance. We opened six new units
during the year and we are pleased with the initial performance. This year we
expect to open a further 2-5 new units in the Concessions Division.
During 2006 we concluded the conversion programme for 13 of the DPP sites which
we acquired in early 2006 and the results from these have been pleasing. The
remaining sites have been, or will be, sold or closed. Although the performance
of our associate company, Living Ventures, was disappointing we are encouraged
that the actions being taken by their management are beginning to impact
positively on performance. Notwithstanding this, we have made a provision of
£9.5m against our carrying value of the loan note, which has no cash impact,
following an impairment review of our investment and loan note.
Overall, this is an outstanding set of results and demonstrates both the
strength and potential of our business and its brands. However, none of this
would have been possible without the hard work and dedication of our senior
management team and staff. We have a fantastic team at The Restaurant Group and
on behalf of the Board I would like to thank them all for their valued
contribution over the past year.
We have started the current year well, with like-for-like sales for the first
nine weeks 5% ahead. This year our target will be to open 30-35 new restaurants,
we will be seeking to deliver further improvement in margins and our people will
be looking to match or exceed the expectations of our customers and
shareholders.
I am confident that we will continue to make further good progress during the
coming year.
Alan M. Jackson
Chairman
7 March 2007
Chief Executive's review of operations
* Results are stated excluding non-trading items and excluding the results of
Deep Pan Pizza in the prior year comparatives. Further information is provided
in note 2(a).
Introduction
The Restaurant Group ('TRG') performed strongly throughout 2006 with the
benefits from the strategic repositioning undertaken during the previous year
evident in all of our key performance metrics. All of our businesses performed
well, delivering a 19% increase in adjusted profit before tax. We have also made
further good progress in terms of margin growth with a 140 basis point increase
in our operating profit margin. This improvement resulted from, inter alia,
increased trading levels, driving further economies through scale, enhanced
operating practices and other Group initiatives to improve efficiency.
Our core objective continues to be growth in shareholder value and the strategy
we have deployed to achieve this is to build a business capable of delivering
long-term, sustainable and growing cashflows. Cash generation is a key area of
focus for the team at TRG and I am delighted that we have, again, converted our
profits into cash at a very healthy rate and that both earnings and operating
cashflow per share have grown strongly.
Our model for generating value is straightforward and robust. It has five key
components, as follows:
1. Strong underlying like-for-like profit growth from our existing estate
through focusing on our customers and as a result of initiatives to
secure further operational improvements and efficiencies;
2. Incremental profit improvements through economies of scale;
3. Clear and sustainable conversion of those growing profits into cash;
4. A new unit rollout programme funded from those internally generated
cashflows; and
5. Consistently high returns from those new openings, significantly ahead
of our cost of capital, to generate further growth in profits and
cashflow.
This virtuous circle enables the Group to continue its growth in a predominantly
organic and value-accretive way. The quality of our cashflow is a distinctive
feature of TRG's model, with our businesses occupying leading positions within
our chosen market segments. Since the beginning of 2006 our focus has been on
markets away from the high streets, concentrating on edge of town, out of town,
rural, semi-rural and concessions locations. We believe that these segments have
distinct barriers to entry, offer the opportunity for significant further growth
and enable us to generate high returns. Going forward we intend to continue our
development along these lines.
All of the key performance metrics improved during 2006:
• A 5% increase in like-for-like sales - the bulk of which was as a result
of more customers using our restaurants as opposed to price or spend
increases - combined with our new openings resulted in turnover increasing
by 10%;
• Adjusted EBITDA increasing by 11% and adjusted operating profit increasing
by 23%; and
• Margins improved at both divisional and group levels with our Group
operating profit margin rising by 140 basis points to 12.5% - a very
satisfactory result particularly against the background of a 90 basis point
operating profit margin improvement in the previous year.
Again, the increase in profit was the product of three principal components -
like-for-like profit increases from the existing estate, profitable contribution
from new openings and further cost savings from purchasing initiatives and
operational improvements and efficiencies. This combination represents a healthy
background to our continuing profitable development.
Leisure
Total turnover: £236.3m Profit: £50.7m Operating margin: 21.5%
Frankie & Benny's (139 units)
Frankie & Benny's had an excellent year with both EBITDA and profit growing by
more than 20%. The brand delivered strong growth in like-for-like sales and yet
again produced further growth in both EBITDA and operating profit margins. This
brand forms a key part of TRG's future plans for growth and it is encouraging
that we were able to open 25 new units during 2006. Of these, 11 were
conversions of former Deep Pan Pizza sites, nine of which are branded as 'Little
Frankie's', a derivative concept of Frankie & Benny's designed to operate on a
smaller footprint than a standard Frankie & Benny's restaurant. The performance
of the new openings has been very good and it is particularly encouraging to see
that the returns from the new Frankie & Benny's are consistently high both in
absolute terms and also, very importantly, in comparison with the returns
derived from earlier years' openings. This gives us much confidence for the
future as we look to continue our rollout at a rate of 15-20 new Frankie &
Benny's restaurants per annum. Our pipeline of new sites is strong with good
visibility on rollout to the end of the decade.
Chiquito (45 units)
2006 was another good year for Chiquito with the highest like-for-like sales and
operating profit growth within the Group. EBITDA increased by 38% and operating
profit was up 44%. Margins also improved significantly with the EBITDA margin up
90 basis points and profit margin up 120 basis points. Against a background of
significant profit growth and margin enhancement in 2005 this is a terrific
performance and one that the Chiquito team are keen to build on in 2007. During
the year we opened 11 new restaurants and we are expecting to open 5-10 new
restaurants in the current year, a rate which we expect to maintain for the next
few years. Returns from the new openings are good and this gives us confidence
as we grow this brand. We are particularly encouraged by the performance of our
restaurants co-located with Frankie & Benny's and we will continue to pursue
dual roll-out opportunities.
Blubeckers (22 units)
2006 was the first full year of operating Blubeckers within TRG and we are
encouraged with the results. Blubeckers delivered strong growth in like-for-like
sales and delivered a very good level of EBITDA and operating profit. During
2006 Blubeckers became fully integrated into TRG and since June we have begun to
roll out new Blubeckers restaurants. We added five new units during 2006, one of
which was a conversion of a Garfunkel's restaurant in Cambridge.
We are encouraged by the performance of these new sites where typically the
build-up in trade takes longer (approximately two to three years) than it does
for our other brands. We expect to earn good returns from these new openings and
this has encouraged us to step up the openings programme in 2007 to 5-10 new
restaurants. Blubeckers is well placed to benefit from the trends towards
increased eating out and its widespread appeal across most socio-economic and
age groups makes it particularly attractive to much of the UK population.
Garfunkel's (29 units)
Garfunkel's produced a very solid performance during 2006 with operating profits
up by 15%. It enjoyed strong like-for-like sales growth and delivered
significant improvements in margins with the operating profit margin increasing
by 140 basis points.
During the second half of 2006 we commenced a refreshment and refurbishment
programme within Garfunkel's. The first site to undergo these changes was our
restaurant at Northumberland Avenue followed by the unit at Irving Street. The
results have been extremely pleasing with strong growth in sales and a widening
of the customer base. We are currently planning to refresh and refurbish
approximately 10 sites during 2007 and we anticipate that this will deliver a
significant level of incremental cashflow at each site to generate very
satisfactory levels of return on investment. In December 2006 a former Deep Pan
Pizza site on Oxford Street was converted into a Garfunkel's and we are pleased
with its performance since opening.
Concessions (49 units)
Total turnover: £72.5m Profit: £11.1m Operating margin: 15.3%
Our Concessions business faced some very challenging operating conditions for
parts of 2006. The increasing focus on airport security initiated by the
Department of Transport during the first quarter followed by further disruption
during the summer meant that our Concessions team at the major UK airports faced
some demanding conditions. Our team responded superbly to produce a very
satisfactory set of results.
Solid like-for-like sales growth together with a contribution from the six new
openings delivered a 21% increase in turnover and EBITDA and operating profit
growth of 23% and 24% respectively. It is particularly pleasing to report that
both EBITDA and profit margins grew, by 20 and 40 basis points respectively.
Our six new openings included three sites at Birmingham airport and a new unit
at Victoria Station. We are pleased with the performance of these new sites and
we anticipate opening between two and five new concessions units in 2007. We
recently announced that we have won concessions for four new units at the new
Terminal 5 at Heathrow; building work will commence during 2007 and the units
are scheduled to open in March 2008. We are delighted to have secured these
sites and to be able to participate in this landmark UK airport project.
Non-core brands and associate
During the year losses from non-core activities increased from £0.9m to £2.0m.
This largely reflects the workout from the old Deep Pan Pizza estate. We
anticipate a significant reduction in these losses going forward.
Losses from our investment in Living Ventures amounted to £0.9m and the returns
from this investment have fallen below our expectations at the time the
investment was made in March 2005. However, we are encouraged that the actions
initiated by their management during 2006 are now starting to yield some
benefits and we are looking for further improvement during 2007. Nevertheless,
in the light of the recent poor performance of this investment we have carried
out an assessment of its Balance Sheet carrying value and concluded that it is
appropriate to make an impairment provision for the amount of £9.5m. Further
details are contained in the Finance Director's report.
Corporate
During 2006 we completed the transfer of all of our operations and
administrative functions into one site in Borough, London. This exercise ran
very smoothly and was carried out in a highly professional manner by our people.
The positive impact of bringing everyone together as one team is already very
evident and I am confident that we will continue to derive further benefits in
the future.
Market dynamics and economic backdrop
The prospects for the UK eating out market look favourable on both short and
medium term bases. Socio-economic factors such as an ageing population, more
females in work and levels of disposable income significantly higher than for
previous generations augur well for our industry. Lifestyle changes are also
positive with an increasing level of consumer spending on leisure activities.
Projections for future growth in eating out spend indicate a continuation of
recent trends for a rate of growth ahead of GDP growth.
We believe that interest rates and employment levels are two key drivers of
consumer spend which can potentially impact our marketplace. We have seen
interest rates rise three times in the past eight months and whilst we are
encouraged by the resilience of our business in the face of such rises, we
remain vigilant to the potential impact of significant further increases in the
cost of borrowing. In terms of the outlook for employment we are encouraged by
the high levels of employment and believe that the increases seen in recent
years have provided some underpinning for consumer-facing businesses such as
ourselves. Cost inflation in our sector has been an issue for the past twelve to
eighteen months and TRG has clearly demonstrated its ability to cope with this.
On balance, we believe that the macro-economic backdrop remains broadly
favourable for our sector.
Against a backdrop of positive demand-side dynamics, a key concern for some time
has been supply-side risk. In this regard we believe that we have positioned TRG
in market segments which afford some protection from supply-side risk whilst
benefiting significantly from the positive demand trends in our marketplace.
This has resulted in a more resilient business with the potential to deliver
higher-quality, long-term, sustainable and growing cash flows.
Future prospects
2006 was another good year for the Group but our attention is now focused on
2007 and beyond. We have a superb portfolio of brands, good visibility on
rollout of new restaurants, occupy leading market positions in our chosen
segments and have a fantastic team of people. The year has started well with
like-for-like sales for the first nine weeks 5% ahead of last year and we are
confident of continuing our progress in 2007.
Andrew Page
Chief Executive Officer
7 March 2007
Group Finance Director's review
Results
* Results are stated excluding non-trading items and excluding the results of
Deep Pan Pizza in the prior year comparatives. Further information is provided
in note 2(a).
As described in the Chairman's report the Group has had another excellent year.
Total Group turnover increased by 9.6% to £314.7m and turnover of the principal
trading brands increased by 24.1% to £308.7m. This strong level of turnover
growth reflects an impressive level of 5% like-for-like sales growth in the
principal brands, a full year impact of new openings in 2005 and a part year
impact of openings during 2006. Group EBITDA increased by 11.3% to £55.6m, and
Group adjusted operating profit increased by 22.6% to £39.2m. These levels of
growth would have been even stronger had it not been for a higher level of
losses in non-core brands and discontinued operations (relating respectively to
Deep Pan Pizza and the Caffe Uno sites not sold to Paramount at the end of
2005).
Total adjusted profit before tax excluding Living Ventures was £35.9m, an
increase of 19.2% on the prior year. After accounting for our share of the
losses of Living Ventures, which amounted to £0.9m, total reported Group profit
before tax and non-trading items amounted to £35.0m, an increase of 18.5% on the
prior year.
Non-trading items
The Group results include a net charge before taxation of £13.4m in respect of
non-trading items. This is made up of the following items:
2006 2005
£m £m
Impairment of loan note due from Living Ventures (9.5) -
DPP integration and rationalisation (4.6) -
Interest rate swap impact 0.7 (0.1)
Other items (net) - (1.2)
------ ------
(13.4) (1.3)
------ ------
In the light of the continuing poor performance of the Living Ventures business
we have conducted a detailed review of the current carrying value of this
investment. As a result of this review we have concluded that it is appropriate
to make a provision of £9.5m against the loan note due to be settled in 2008.
Going forward we will continue to encourage the executive management of Living
Ventures to improve the financial performance of the business. It continues to
be our very firm intention to maximise the value of our investment in this
business.
The one-off charge relating to the Deep Pan Pizza rationalisation process is a
little higher than the initial estimate of up to £4m. We have adopted a prudent
approach regarding provision for onerous lease conditions for certain Deep Pan
Pizza properties.
Non-trading items also include a credit relating to the Group's interest rate
swap arrangements. New swap arrangements were put in place in January 2006.
Under IFRS this swap is re-valued at each accounting date. The upward movement
of interest rates over the course of the last twelve months has resulted in this
positive revaluation.
Profit on disposal of businesses
We are pleased to report further profits relating to the Caffe Uno disposal in
December 2005. The additional profit after taxation of £3.8m (profit before
taxation of £2.7m), which is in addition to the profit after taxation of £3.5m
reported in 2005 (profit before taxation of £3.7m) relates to cost and potential
warranty accruals no longer required and the completion of significantly better
than anticipated deals on disposal of the residual Caffe Uno sites not sold to
Paramount in December 2005. Including the profit before taxation of £3.7m
recognised last year, this brings the cumulative profit on disposal before
taxation of the Caffe Uno business to £6.4m.
Capital expenditure
During 2006 the Group invested a total of £40.8m (2005: £40.9m) in capital
additions. This consisted of the following:
• £28.6m invested in 47 new units (16 Frankie & Benny's and nine Little
Frankie's, 11 Chiquito's, six Concession outlets, four Blubeckers and one
Garfunkel's). This includes an amount of £3.7m spent on converting 13 ex
Deep Pan Pizza sites, with the balance spent on 34 brand new locations.
• £8.5m on refurbishment and maintenance expenditure.
• £3.7m on completing the new head office development referred to in last
year's report.
The Group continues to be focused on optimising financial returns from our
capital investments. As we have described in previous reports the Group operates
a rigorous investment appraisal process with the financial viability of all new
developments being subject to a detailed review. This review covers all aspects
of proposed new developments including financial projections, socio-economic and
demographic analysis, and local competitor and market analysis. All significant
projects are approved by the Group Board and we conduct post-completion
appraisals which confirm that we are consistently achieving the expected levels
of financial return.
Cash flow
The Group continues to be strongly cash generative with a very healthy and
transparent conversion of operating profits into cash flow. Net cash flow from
operations of £63.4m grew by 14% compared to the previous year. Free cash flow
(defined as cash flow from operating activities less interest, tax and
maintenance capital expenditure) was £42.4m, an increase of 19% compared to the
prior year (2005: £35.7m).
Once again, the Group's substantial new site development programme, as well as
the ordinary dividend, has been entirely financed out of internally generated
cash flow.
Balance sheet & key financial ratios
Total Group net assets in the year reduced from £91.4m to £65.2m. This reduction
is due to the special dividend of £34.8m paid in March. Total non-current assets
increased from £181.7m to £194.0m, reflecting the Group's strong capital
expenditure programme net of depreciation charges.
The key financial ratios for the year were as follows:
2006 2005
Interest cover 12.0x 17.5x
Fixed charge cover 2.3x 2.3x
Balance Sheet gearing 73% 14%
Interest cover has reduced significantly as a result of the much higher levels
of average net debt during 2006 compared to 2005. For TRG, given that this is a
primarily lease based business model, fixed charge cover is the key financial
ratio that we focus on. For 2006 the Group's fixed charge cover was 2.3 times,
in line with 2005.
Taxation
The total taxation charge (excluding the impact of disposal of businesses) for
the year is £11.2m compared with £8.6m in the prior year. The taxation charge
on the trading business reflects a normalised tax rate in 2006 of 34% (2005:
33%). The total taxation charge of £11.2m (2005: £8.6m) consists of a
corporation tax charge of £8.5m (2005: £9.0m) and a deferred tax charge of £2.7m
(2005: £0.4m credit).
Stephen M. A. Critoph
Group Finance Director
7 March 2007
The Restaurant Group plc
Consolidated income statement
Year ended 31 December 2006 Year ended 1 January 2006
Continuing Discontinued Total Continuing Discontinued Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Revenue 3 314,018 730 314,748 263,878 38,450 302,328
Cost of sales 4 (256,060) (1,026) (257,086) (218,049) (34,528) (252,577)
Gross profit/(loss) 57,958 (296) 57,662 45,829 3,922 49,751
Administration costs 4 (18,475) - (18,475) (19,019) (777) (19,796)
Release of accrual for
property exit costs 5 - - - 1,700 - 1,700
Provision against 5 (9,500) - (9,500) - - -
carrying value of loan
note from associate
Loss on integration of
DPP 5 (4,582) - (4,582) - - -
Loss and provision for
loss on disposal of
fixed assets 5 - - - (2,594) - (2,594)
Operating profit 25,401 (296) 25,105 25,916 3,145 29,061
Interest payable (3,308) - (3,308) (2,692) - (2,692)
Interest receivable 699 - 699 689 - 689
Profit before share of 22,792 (296) 22,496 23,913 3,145 27,058
associate and tax
Share of post tax result
in associated
undertaking (917) - (917) (600) - (600)
Profit before tax 21,875 (296) 21,579 23,313 3,145 26,458
Profit before tax,
analysed as:
Trading business -
managed 35,312 (296) 35,016 26,394 3,145 29,539
DPP Restaurants Limited
trading result - not
managed - - - (1,733) - (1,733)
Non-trading items 5 (13,437) - (13,437) (1,348) - (1,348)
21,875 (296) 21,579 23,313 3,145 26,458
Tax on profit from
ordinary activities 6 (11,264) 101 (11,163) (7,567) (1,050) (8,617)
Profit on ordinary
activities after tax 10,611 (195) 10,416 15,746 2,095 17,841
Profit on sale of
business after tax 5 - 3,950 3,950 - 5,504 5,504
Profit for the financial
year attributable to
equity shareholders 10,611 3,755 14,366 15,746 7,599 23,345
Earnings per share
(pence)
Basic 8 5.36 1.90 7.26 7.27 3.51 10.78
Diluted 8 5.34 1.89 7.23 7.22 3.48 10.70
Dividend per share
(pence)
- ordinary 7 6.00 4.75
- special 7 16.00 -
The Restaurant Group plc
Consolidated statement of changes in equity
Year ended 31 Year ended 1 January
December 2006 2006
£'000 £'000
Opening equity (IFRS, excluding IAS 32 and IAS 39) 91,436 75,883
Adjustment to opening equity for inclusion of swaps under
IAS 32 and IAS 39 - 127
Opening equity (IFRS, including IAS 32 and IAS 39) 91,436 76,010
Profit for the year 14,366 23,345
Foreign exchange translation differences 1 (165)
Deferred tax credit on share based payments taken
directly to equity 1,529 411
Total recognised income and expense for the year 15,896 23,591
Dividends - ordinary (9,490) (9,277)
Dividends - special (34,793) -
Issue of new shares 1,096 604
Share based payments - credit to equity 1,059 508
Total changes in equity in the year (26,232) 15,426
Closing equity 65,204 91,436
The Restaurant Group plc
Consolidated balance sheet
At 31 December 2006 At 1 January 2006
£'000 £'000
Non-current assets
Intangible assets 11,275 11,275
Property, plant and equipment 174,035 151,337
Investment in associate 7,810 8,727
Trade and other receivables 875 10,375
193,995 181,714
Current assets
Stock 2,992 2,763
Financial assets - derivative financial instruments 652 7
Trade and other receivables 5,170 5,498
Prepayments 12,138 11,094
Cash and cash equivalents 683 426
21,635 19,788
Total assets 215,630 201,502
Current liabilities
Short-term borrowings (1,165) (1,845)
Income tax liabilities (4,947) (8,315)
Trade and other payables (74,864) (71,476)
(80,976) (81,636)
Net current liabilities (59,341) (61,848)
Non-current liabilities
Long-term borrowings (47,000) (11,000)
Other payables (2,737) (2,696)
Deferred tax liabilities (16,247) (13,971)
Provisions (3,466) (763)
(69,450) (28,430)
Net assets 65,204 91,436
Equity
Share capital 54,863 54,366
Share premium 20,346 19,747
Foreign currency reserve 81 80
Other reserves 1,823 764
Retained earnings (11,909) 16,479
Total equity shareholders' interests 65,204 91,436
The Restaurant Group plc
Consolidated cash flow statement
Year ended 31 Year ended
December 2006 1 January 2006
Note £'000 £'000
Cash flows from operating activities
Cash generated from operations 9 63,374 55,484
Interest received 68 219
Interest paid (2,906) (2,076)
Tax paid (9,656) (8,199)
Net cash flows from operating activities 50,880 45,428
Cash flows from investing activities
Acquisition of associate - (10,186)
Acquisition of subsidiary, net of cash acquired - (26,889)
Disposal of business, net of cash disposed (1,455) 32,982
Disposal of subsidiary, net of cash disposed - 5,630
Integration of business (584) -
Purchase of property, plant and equipment (40,775) (39,767)
Proceeds from sale of property, plant and equipment 58 708
Net cash used in investing activities (42,756) (37,522)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 1,096 604
Net proceeds from issue of bank loan 36,000 4,000
Dividends paid to shareholders (44,283) (9,277)
Net cash used in financing activities (7,187) (4,673)
Net increase in cash and cash equivalents 937 3,233
Cash and cash equivalents at start of year 10 (1,419) (4,652)
Cash and cash equivalents at end of year 10 (482) (1,419)
The Restaurant Group plc
Notes to the accounts
1) Segmental analysis
Year ended 31 December 2006 Year ended 1 January 2006
Turnover EBITDA EBITDA Profit Profit Turnover EBITDA EBITDA Profit Profit
Margin Margin Margin Margin
£'000 £'000 % £'000 % £'000 £'000 % £'000 %
Leisure 236,258 62,703 26.5% 50,745 21.5% 189,009 49,541 26.2% 39,974 21.1%
Concessions 72,479 15,154 20.9% 11,088 15.3% 59,771 12,360 20.7% 8,919 14.9%
Principal trading
brands 308,737 77,857 25.2% 61,833 20.0% 248,780 61,901 24.9% 48,893 19.7%
Non-core brands 5,281 (1,789) (33.9%) (1,999) (37.8%) 15,098 (785) (5.2%) (1,553) (10.3%)
Continuing
operations 314,018 76,068 24.2% 59,834 19.1% 263,878 61,116 23.2% 47,340 17.9%
Discontinued
operations 730 (296) (40.6%) (296) (40.6%) 38,450 6,977 18.1% 3,922 10.2%
Total all brands 314,748 75,772 24.1% 59,538 18.9% 302,328 68,093 22.5% 51,262 17.0%
Pre-opening costs
(included in cost
of sales) (1,876) (0.6%) (1,876) (0.6%) (1,511) (0.5%) (1,511) (0.5%)
Administration (17,192) (5.5%) (17,416) (5.5%) (17,179) (5.7%) (18,954) (6.3%)
Share based
payments (1,059) (0.3%) (1,059) (0.3%) (508) (0.2%) (508) (0.2%)
EBITDA /
operating profit 314,748 55,645 17.7% 39,187 12.5% 302,328 48,895 16.2% 30,289 10.0%
Release of
accrual for
property exit
costs - 1,700
Loss on
integration of
DPP (4,582) -
Provision against
carrying value of
loan note from
associate (9,500) -
Restructuring
costs - (334)
Loss and
provision for
loss on disposal
of fixed assets - (2,594)
Operating profit 25,105 29,061
No geographical segment analysis has been provided as the Directors do not
consider there to be materially significant geographical segments. The Group
currently operates three restaurants outside of the United Kingdom.
The Restaurant Group plc
Note 2 - Additional income statement
Additional income statement information is provided as a useful guide to
underlying trading performance. The adjustments from the statutory income
statement are to aid understanding of the income statement and should be read in
conjunction with, rather than as a substitute for, the reported information.
DPP Restaurants Ltd ('DPP') was consolidated as a subsidiary under IAS 27
throughout 2005 even though The Restaurant Group plc ('TRG' or 'The Group')
legally only held 19.9% of the issued share capital due to the existence of an
option to take full control of DPP which became exercisable on 31 December 2004.
The additional income statement segregates the results of DPP in 2005 when the
business was not under the direct control of the Board. TRG acquired full
control of DPP on 12 January 2006 for a nominal sum and therefore the Group
results include those of DPP in 2006.
The 2006 and 2005 results include a number of items which are of a one-off
nature and not representative of the underlying trading performance of the
business. These have been separately identified in the additional income
statement as non-trading items.
For the purposes of the additional income statement, a normalised tax rate of
34% has been applied to the trading business to reflect the underlying effective
tax rate.
The Restaurant Group plc
Note 2(a) - Additional income statement
Year ended 31 December 2006
Continuing Discontinued Trading Non- DPP
business operations business trading trading Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 314,018 730 314,748 - - 314,748
Cost of sales:
Excluding pre-opening costs (254,184) (1,026) (255,210) - - (255,210)
Pre-opening costs (1,876) - (1,876) - - (1,876)
(256,060) (1,026) (257,086) - - (257,086)
Gross profit / (loss) 57,958 (296) 57,662 - - 57,662
Administration costs:
Excluding one-off costs (18,475) - (18,475) - - (18,475)
Restructuring costs - - - - - -
(18,475) - (18,475) - - (18,475)
Trading profit / (loss) 39,483 (296) 39,187 - - 39,187
Release of accrual for
property exit costs - - - - - -
Provision against carrying value
of loan note from associate - - - (9,500) - (9,500)
Loss on integration of DPP - - - (4,582) - (4,582)
Loss and provision for loss on
disposal of fixed assets - - - - - -
Operating profit / (loss) 39,483 (296) 39,187 (14,082) - 25,105
Interest payable (3,308) - (3,308) - - (3,308)
Interest receivable 54 - 54 645 - 699
Profit/(loss) before share of
associate and tax 36,229 (296) 35,933 (13,437) - 22,496
Share of post tax result in
associated undertaking (917) - (917) - - (917)
Profit / (loss) on ordinary
activities before tax 35,312 (296) 35,016 (13,437) - 21,579
Tax on profit / (loss) from
ordinary activities (12,364) 101 (12,263) 1,100 - (11,163)
Profit / (loss) on ordinary
activities after tax 22,948 (195) 22,753 (12,337) - 10,416
Profit on sale of business
after tax - - - 3,950 - 3,950
Profit / (loss) for the year 22,948 (195) 22,753 (8,387) - 14,366
Earnings per share (pence)
Basic 11.50 7.26
Diluted 7.23
Dividend per share (pence)
- ordinary 6.00
- special 16.00
The Restaurant Group plc
Note 2(a) - Additional income
statement
Year ended 1 January 2006
Continuing Discontinued Trading Non DPP
business operations business trading trading Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 248,843 38,450 287,293 - 15,035 302,328
Cost of sales:
Excluding pre-opening costs (200,851) (34,528) (235,379) - (15,687) (251,066)
Pre-opening costs (1,511) - (1,511) - - (1,511)
(202,362) (34,528) (236,890) - (15,687) (252,577)
Gross profit / (loss) 46,481 3,922 50,403 - (652) 49,751
Administration costs:
Excluding one-off costs (17,664) (777) (18,441) - (1,021) (19,462)
Restructuring costs - - - (334) - (334)
(17,664) (777) (18,441) (334) (1,021) (19,796)
Trading profit / (loss) 28,817 3,145 31,962 (334) (1,673) 29,955
Release of accrual for property exit
costs - - - 1,700 - 1,700
Provision against carrying value of
loan note from associate - - - - - -
Loss on integration of DPP - - - - - -
Loss and provision for loss on
disposal of fixed assets - - - (2,594) - (2,594)
Operating profit / (loss) 28,817 3,145 31,962 (1,228) (1,673) 29,061
Interest payable (2,512) - (2,512) (120) (60) (2,692)
Interest receivable 689 - 689 - - 689
Profit / (loss) before share of
associate and tax 26,994 3,145 30,139 (1,348) (1,733) 27,058
Share of post tax result in
associated undertaking (600) - (600) - - (600)
Profit / (loss) before tax 26,394 3,145 29,539 (1,348) (1,733) 26,458
Tax on profit / (loss) from ordinary
activities (8,817) (1,050) (9,867) 470 780 (8,617)
Profit / (loss) on ordinary
activities after tax 17,577 2,095 19,672 (878) (953) 17,841
Profit on sale of business after tax - - - 5,504 - 5,504
Profit / (loss) for the year 17,577 2,095 19,672 4,626 (953) 23,345
Earnings per share (pence)
Basic 9.08 10.78
Diluted 10.70
Dividend per share (pence)
- ordinary 4.75
- special -
The Restaurant Group plc
Note 2b - Additional Information
Year ended 31 December 2006 Year ended 1 January 2006
Turnover EBITDA EBITDA Profit Profit Turnover EBITDA EBITDA Profit Profit
Margin Margin Margin Margin
£'000 £'000 % £'000 % £'000 £'000 % £'000 %
Leisure 236,258 62,703 26.5% 50,745 21.5% 189,009 49,541 26.2% 39,974 21.1%
Concessions 72,479 15,154 20.9% 11,088 15.3% 59,771 12,360 20.7% 8,919 14.9%
Principal
trading brands 308,737 77,857 25.2% 61,833 20.0% 248,780 61,901 24.9% 48,893 19.7%
Non-core
brands 5,281 (1,789) (33.9%) (1,999) (37.8%) 63 (691) - (901) -
Continuing
operations 314,018 76,068 24.2% 59,834 19.1% 248,843 61,210 24.6% 47,992 19.3%
Discontinued
operations 730 (296) (40.6%) (296) (40.6%) 38,450 6,977 18.1% 3,922 10.2%
Total all
brands 314,748 75,772 24.1% 59,538 18.9% 287,293 68,187 23.7% 51,914 18.1%
Pre-opening
costs
(included in
cost of sales) (1,876) (0.6%) (1,876) (0.6%) (1,511) (0.5%) (1,511) (0.5%)
Administration (17,192) (5.5%) (17,416) (5.5%) (16,158) (5.6%) (17,933) (6.2%)
Share based
payments (1,059) (0.3%) (1,059) (0.3%) (508) (0.2%) (508) (0.2%)
EBITDA /
operating
profit 314,748 55,645 17.7% 39,187 12.5% 287,293 50,010 17.4% 31,962 11.1%
Total net interest
charges (3,254) (1,823)
Profit before taxation and share of
associate's result 35,933 30,139
Share of losses of associated company (917) (600)
Profit before taxation 35,016 29,539
Taxation (12,263) (9,867)
Profit after taxation 22,753 19,672
Earnings per share (pence) - Trading business
Basic 11.50 9.08
Diluted 11.45 9.01
No geographical segment analysis has been provided as the Directors do not
consider there to be materially significant geographical segments. The Group
currently operates three restaurants outside of the United Kingdom.
The Restaurant Group plc
Notes to the accounts
For the year ended 31 December 2006
3) Revenue 2006 2005
£'000 £'000
Revenue consists of the following:
Continuing business - owned and managed during the year 314,018 248,843
DPP Restaurants Limited - 15,035
Continuing operations 314,018 263,878
Discontinued operations 730 38,450
Total revenue for the year 314,748 302,328
4) Operating expenses 2006 2005
£'000 £'000
Included in cost of sales are the following:
Continuing business - owned and managed during the year 254,184 200,851
Pre-opening costs 1,876 1,511
DPP Restaurants Limited - 15,687
Continuing operations 256,060 218,049
Discontinued operations 1,026 34,528
Total cost of sales for the year 257,086 252,577
Included in administration costs are the following:
Continuing business - owned and managed during the year 18,475 17,664
Restructuring costs - 334
DPP Restaurants Limited - 1,021
Continuing operations 18,475 19,019
Discontinued operations - 777
Total administration costs for the year 18,475 19,796
5) Non-trading items 2006 2005
£'000 £'000
Items classified as non-trading are as follows:
a) Included within continuing operations:
Provision against carrying value of loan note from associate (9,500) -
Loss on integration of DPP (4,582) -
Finance gain / (charge) arising from remeasurement of interest rate swap 645 (120)
Release of accrual for property exit costs - 1,700
Loss and provision for loss on disposal of fixed assets - (2,594)
Restructuring costs - (334)
(13,437) (1,348)
Following a detailed review of the carrying value of Living Ventures, and in light of current
trading performance, the Board have concluded that it is appropriate to make a provision of £9.5m
against the loan note repayable in 2008.
The loss on integration of the Deep Pan Pizza business is in relation to costs incurred on
employee and contract terminations and a number of property costs including the write down of the
carrying value of the business on integration, provisions for onerous leases and premiums on
disposal of some of the properties.
In addition, the Group has taken a credit of £0.645m (2005: £0.1m charge) in respect of the
remeasurement of its interest rate swap.
In 2005, the Group incurred a net charge of £0.9m in respect of loss and provision for loss on
disposal of assets and a charge of £0.3m on restructuring costs.
b) Profit on disposal of businesses:
Profit on disposal of Est Est Est Restaurants Limited 184 1,582
Profit on disposal of the Caffe Uno business 2,696 3,692
Share of profit made on disposal of business by associate - 400
2,880 5,674
Tax credit / (charge) on sale of business 1,070 (170)
Profit on sale of business after tax 3,950 5,504
The Group has released accruals of £2.7m created on the disposal of the Caffe
Uno business in December 2005 in respect of dilapidations and warranty claims
that are no longer required as they have become time lapsed, and following the
completion of better than anticipated deals on disposal of some of the residual
Caffe Uno sites not sold to Paramount.
In the year ended 1 January 2006, the Group disposed of Est Est Est and Caffe
Uno for a profit of £1.6m and £3.7m respectively.
The net impact after taxation of the profit on disposal of businesses is £3.9m
(2005: £5.5m).
6) Taxation
2006 2005
The taxation charge comprises: £'000 £'000
Current taxation
UK corporation tax at 30% 8,594 9,202
Adjustments in respect of previous periods (115) (187)
8,479 9,015
Deferred taxation
Origination and reversal of timing differences 2,684 15
Adjustments in respect of previous periods - (413)
2,684 (398)
Taxation charge 11,163 8,617
Taxation (credit) / charge on disposal of businesses (1,070) 170
Total taxation charge for the year, including
impact of disposal of businesses 10,093 8,787
Current tax consists of £8,568,000 for continuing activities and a credit of
£89,000 in respect of discontinued activities. Deferred tax consists of
£2,696,000 in respect of continuing activities and a credit of £12,000 in
respect of discontinued activities.
7) Dividend
2006 2005
£'000 £'000
Amounts recognised as distributions to equity holders during the year:
Final dividend for the year ended 1 January 2006
of 3.84p (2004: 3.375p) per share 7,442 7,306
Interim dividend for the year ended 31 December
2006 of 1.05p (2005: 0.91p) per share 2,048 1,971
9,490 9,277
Special dividend of 16p per share paid on 9 March 2006 34,793 -
44,283 9,277
Proposed final dividend for the year ended 31 December 2006 of
4.95p (2005: 3.84p) per share 9,656 7,442
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and
has not been included as a liability in these financial statements.
8) Earnings per share 2006 2005
a) Basic earnings per share:
Weighted average ordinary shares in 197,790,404 216,576,330
issue during the year:
Total basic profit for the year 14,366 23,345
(£'000):
Basic earnings per share for the year (pence) 7.26 10.78
Effect of non-trading items on 8,387 (4,626)
earnings for the year (£'000)
Effect of consolidation of DPP - 953
Restaurants Limited for the year
(£'000)
Earnings excluding non-trading items (£'000) 22,753 19,672
Adjusted earnings per share (pence) 11.50 9.08
The additional Earnings per Share information (where non-trading items and the
performance of DPP Restaurants Limited, which was not managed by The Restaurant
Group plc for the year ended 1 January 2006 have been added back) has been
provided as the Directors believe they provide a useful indication as to the
underlying performance of the Group.
b) Diluted earnings per share:
Weighted average ordinary shares in issue during the year: 197,790,404 216,576,330
Dilutive shares to be issued in respect of options
granted under the Share Option Scheme: 953,597 1,668,454
198,744,001 218,244,784
Diluted earnings per share (pence) 7.23 10.70
9) Reconciliation of profit before tax to net cash flow from operating activities
2006 2005
£'000 £'000
Profit before tax 21,579 26,458
Net finance charges 2,609 2,003
Loss and provision of loss on disposal of fixed assets - 2,594
Release of accrual for property exit costs - (1,700)
Loss on integration of DPP (net of operating cash flow) 4,101 -
Provision against carrying value of loan note from
associate 9,500 -
Share of loss made by associate 917 600
Non-cash charge reversed in reserves 1,059 508
Depreciation 16,458 18,606
Increase in stocks (229) (439)
Increase in debtors (1,295) (2,451)
Increase in creditors 8,675 9,305
Cash flows from operating activities 63,374 55,484
10) Reconciliation of changes in cash to the movement in net debt
2006 2005
£'000 £'000
At the beginning of the year (12,419) (11,652)
Movements in the year:
Loans taken out (36,000) (4,000)
Cash inflow 937 3,233
At the end of the year (47,482) (12,419)
Represented by: At Cash flow At Cash flow At
1 January movements 2 January movements 31 December
2005 in the year 2006 in the year 2006
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 482 (56) 426 257 683
Overdrafts (5,134) 3,289 (1,845) 680 (1,165)
3,233 937
Bank loan due within one year - - - - -
Bank loan due after one year (7,000) (4,000) (11,000) (36,000) (47,000)
(4,000) (36,000)
(11,652) (767) (12,419) (35,063) (47,482)
11) Basis of preliminary statement
The financial information included in this document is unaudited and does not
comprise statutory accounts within the meaning of section 240 of the Companies
Act 1985. The comparative figures for the financial year ended 1 January 2006
are the Group's statutory accounts for that financial year. Those accounts,
which were prepared under IFRS, have been reported on by the Group's auditors
and delivered to the Registrar of Companies. The report of the auditors was
unqualified and did not contain statements under section 237(2) or (3) of the
Companies Act 1985.
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