Final Results

Restaurant Group PLC 08 March 2006 The Restaurant Group plc Full year results for year ended 1 January 2006 The Restaurant Group plc operates 237 branded restaurants predominantly in leisure locations and airports. Its primary brands are Frankie & Benny's, Chiquito, Garfunkel's and Blubeckers. 2005 2004 % change Adjusted revenue (Â£m)* 287.3 255.4 +12.5 Adjusted EBITDA (Â£m)* 50.0 43.3 +15.5 Adjusted profit before tax (Â£m)* 29.5 24.4 +21.0 Profit before tax, after non-trading items and DPP (Â£m) 32.1 21.0 +52.9 Adjusted earnings per share (p)* 9.08 7.84 +15.8 Earnings per share, after non-trading items and DPP (p) 10.78 6.59 +63.6 Proposed full year dividend (p) 4.75 4.20 +13.1 * Results are stated before non-trading items and DPP. Further information is provided in note 2 to the financial information. Key financial â€¢ Like for like sales up 3% for the year â€¢ Profit before tax, DPP and non-trading items up 21% â€¢ Operating profit margin* increased by 90 basis points â€¢ EPS (excluding non-trading items and DPP) up 16% Key operational â€¢ Significant corporate activity reduced exposure to the challenging high street sector Leisure â€¢ Frankie & Benny's enjoyed another superb year with strong like-for-likes and excellent returns - EBITDA and profit increased significantly - 14 new sites opened â€¢ Chiquito - Good growth in turnover, EBITDA and profit - Nine new units opened â€¢ Garfunkel's - Challenging year with effects of London bombings - Returned to previous trading levels â€¢ Blubeckers - Integration complete - Good financial performance - Site pipeline developing Concessions â€¢ Excellent year â€¢ Eight new units opened â€¢ Awarded concession to operate three brands at Birmingham International Airport Current Trading â€¢ Continued good trading; like for like sales for nine weeks to 5 March 2006 at 4% â€¢ 25-30 new sites in pipeline for 2006 Commenting on these results, Andrew Page, Chief Executive said: '2005 was another good year. We have an excellent business, strong finances, great people, market leading brands and a proven strategy for growth. We have the capacity to fund significant future growth from new developments whilst continuing to grow profits from our existing estate. We are confident that we will make further good progress in the coming year.' 8 March 2006 Enquiries: The Restaurant Group plc Alan M Jackson, Chairman 020 7457 2020 (today) Andrew Page, Chief Executive 020 7747 7750 (thereafter) Stephen Critoph, Group Finance Director College Hill Matthew Smallwood 020 7457 2020 Chairman's Statement Results are stated excluding non-trading items and DPP, as set out in more detail in note 2. I am delighted to report that, for the fourth successive year, the Group has produced another excellent set of results. Against a challenging economic backdrop and a more fragile consumer environment our business has continued to prosper. Our brands delivered a like-for-like sales increase of 3% which, when measured against a 5% increase in the previous year, was a fantastic performance. As a result, our adjusted profit before tax increased by 21% on the prior year. Cash generation was strong and we were able to finance the roll out of 32 new restaurants from internally generated funds. 2005 was also a busy year for the Group on the corporate front with the sale in March of Est Est Est to Living Ventures Limited ('LV') and the simultaneous acquisition of a 40% shareholding in LV. At the end of June we purchased Blubeckers for Â£27m in cash and we are delighted with its performance during our first eight months of ownership. In December we sold the Caffe Uno business for Â£33m in cash. We had, for some time, been concerned about the long-term sustainability of profit and cashflow from our high street businesses (Est Est Est and Caffe Uno) which operated in the increasingly competitive and rather crowded high street pizza and pasta market. As a result of these disposals and our acquisition of Blubeckers, our focus is now on non-high street locations. The majority of our continuing business is located in areas where there are distinct barriers to entry, where we are confident of delivering good growth in profits and cashflows and of generating high returns on investment. Simultaneously with the sale of Caffe Uno we also announced our intention to return up to Â£35m to shareholders. Building on an excellent first half performance, we continued our profitable progress during the second half of 2005. Full year adjusted pre tax profits increased by 21% to Â£29.5m (2004: Â£24.4m) with turnover from principal trading brands increasing by 25% to Â£248.8m (2004: Â£199.6m). Adjusted earnings per share increased by 16% to 9.08p (2004: 7.84p). As a result of this strong performance the Board is recommending an increased final dividend of 3.84p per share (2004: 3.375p) an increase of 14%, giving a total dividend for 2005 of 4.75p per share, an increase of 13%. Subject to approval at the Annual General Meeting, the final dividend will be payable on 5 July 2006 to shareholders on the register on 9 June 2006 and will be marked ex-dividend on 7 June 2006. Our Leisure and Concessions divisions traded well throughout the year, with both recording significant increases in profits and cashflows and both divisions ended the year on a strong note. During 2005 we opened a total of 32 new units and these have all traded well. The new openings included seven sites that we acquired from the Deep Pan Pizza Company and the performance of these new openings has been superb. Since the year end we have assumed control over the remaining 27 sites currently trading as Deep Pan Pizza and it is our intention to convert many of these into our Leisure brands. Our Leisure division (which now incorporates Frankie & Benny's, Chiquito's, Blubeckers and Garfunkel's) had an excellent year. Notwithstanding the devastating impact on Garfunkel's second half trade as a result of the London bombings, the Leisure division recorded a 30% increase in operating profit. During the year we opened 14 new Frankie & Benny's and nine new Chiquito's. 2005 also saw Frankie & Benny's open its one hundredth restaurant (in Livingston) and the brand continues to go from strength to strength. Chiquito's turnaround is now complete and profits for this brand increased by almost 50%. We are confident that we can continue to grow Chiquito and we have been particularly encouraged by the results of units co-located with Frankie & Benny's. Our Concessions division also enjoyed a busy year with eight new units opened. Of these, three were new shopping centre sites and five were airport sites. We are pleased with the performance of our new openings and the growth that we have achieved in this division. As previously mentioned we have largely disposed of our high street restaurants. During 2005 the Caffe Uno business struggled against an increasingly competitive background and as a result its full year contribution to Group profit was about 25% lower than the previous year. Our Est Est Est business was sold to Living Ventures at the end of the first quarter and simultaneously we acquired a 40% shareholding in Living Ventures. The LV team have had a busy year, integrating and repositioning the Est business, and we are expecting to see the benefits from these efforts flow through in 2006 and beyond. Since the year end we have returned to shareholders by way of a special dividend the majority of the cash received from the two disposals. It is worth noting that the strategy for growth that we put in place at the end of 2001 has resulted in a turnover increase between 2001 and 2005 of 83% in the Leisure division and 93% in the Concessions division. Over the same period profits have increased by 128% and 75% respectively. Our strong position in these two markets means that we are well placed to continue to deliver good growth. You will note that there have been a number of changes to the accounting rules following the introduction of International Financial Reporting Standards which has had an impact on the way our results are presented. However, it is very clear that whatever accounting basis is applied, these are an excellent set of results and they are a testament to the hard work and dedication of the management team and staff. On behalf of the Board, I would like to thank them all for their valued contribution over the past year. 2005 was another good year for the Group. I am pleased to report that 2006 has also started well with like-for-like sales for the first nine weeks 4% ahead. We plan to open 25-30 new restaurants this year, we will continue to focus on ways to further improve profitability and we will continue to invest in our people and systems. We have an outstanding business with leading brands, a strong pipeline of new sites, a great team and a proven strategy for growth. I am confident that we will continue to make further good progress during the coming year. Alan M Jackson Chairman 8 March 2006 Chief Executive's Review of Operations Results are stated excluding non-trading items and DPP, as set out in more detail in note 2. Introduction 2005 was both an exciting and challenging year for TRG. Whilst we were very active on the corporate front, delivering change which we believe will be value accretive for the Group, we also remained closely focused on our core business and secured further profitable growth. Although 2005 was a tough year for companies operating in consumer-facing businesses, our profits (and profitability) showed significant improvement in both of our core divisions. Overall we have delivered a full year adjusted profit before tax increase of 21%. We have also secured significant improvement in our margins through scale, increased trading levels, efficiencies and operational improvements and this has resulted in an improvement of 90 basis points in our adjusted operating profit margin. As last year, there has been a very healthy conversion of profits into cash and strong growth in both earnings and cashflow per share. As a result, the Group finances continue to be strong and our rollout programme has been funded from internally generated cashflows. Following the sale of our Caffe Uno business in December 2005, we announced the intention to return Â£35 million to shareholders by way of a Special Dividend on 9 March 2006. The Group carries a manageable level of debt, has a strong balance sheet and is well placed to continue to fund its growth. Our focus during 2005 has been very much geared towards further progressing our strategy, set out at the end of 2001, of operating in areas with distinct barriers to entry, good growth prospects and high returns. We are looking to develop a business that is capable of producing long-term, sustainable and growing cashflows and our strategy is geared to deliver this. We ended 2005 with a rather different configuration of business than when we started the year. Following the sale of Est Est Est and Caffe Uno, most of our business is now located away from the high streets and, in particular, away from the crowded high street pizza and pasta marketplace. The result of these changes is that we now have a business with a higher quality of earnings and cashflow than at any time in TRG's recent history. We intend to further develop these businesses and to grow them so that we are able to maintain leading market positions and continue to generate high returns. All of the key performance metrics improved during 2005. Adjusted turnover increased by 12%, adjusted EBITDA increased by 16% and adjusted operating profit increased by 23%. In 2004 we exceeded one of our medium term targets, to achieve an operating profit margin of 10%, and I am delighted that in 2005 we made significant further progress in this regard with an increase of 90 basis points to secure an adjusted operating margin of 11.1%. The increased profit was the product of good like-for-like growth from the existing estate, strong returns from new restaurants, cost savings from purchasing initiatives and further operational efficiencies. This combination represents a healthy background to our continuing profitable development. Leisure Total turnover: Â£189.0m Profit: Â£40.0m Operating margin: 21.1% Frankie & Benny's (114 units) Frankie & Benny's reached two major milestones during 2005 - firstly, in April when the one hundredth unit opened and later in the year, in September, when it celebrated its tenth anniversary. In total we opened 14 new units during the year and the business performed superbly. Frankie & Benny's enjoyed strong like-for-like sales increases and this, combined with strong performances from new openings, meant that turnover rose significantly. Both EBITDA and operating profit increased by approximately 30%. All of the key metrics improved with both the EBITDA and operating margins improving by around 100 basis points. Of the eight poorly performing sites acquired from the Deep Pan Pizza Company, we converted three into Frankie & Benny's and the results have been superb. We plan some further such conversions during 2006. All of our new openings have performed well and they are set to generate very good returns. In 2006 we will open 15-20 new restaurants and we anticipate new unit development will continue at around this level for the rest of the decade. Frankie & Benny's tenth anniversary year was marked by fundraising activities for the BBC's Children in Need Appeal. I am delighted to report that the efforts and generosity of staff and customers meant that over Â£150,000 was raised for this very worthwhile cause. Chiquito (34 units) Chiquito had an outstanding 2005 with a significant increase in turnover, EBITDA and operating profit. EBITDA increased by 38% and operating profit by 48%. Margins also improved - EBITDA by 220 basis points and operating profit by 230 basis points. During the year we completed our refreshment and refurbishment programme which has delivered a softer, more contemporary and more female and family friendly style. We opened nine new Chiquito restaurants during 2005 of which five were opened during the last six months of the year. These included conversions of some former Deep Pan Pizza sites. All of the new openings have performed well. We are delighted with the progress made with Chiquito over the past two years and we are excited by the potential it has for further expansion. We are particularly pleased to see this offering working alongside, and complementing, Frankie & Benny's at several leisure sites. During 2006 we plan to open 5-10 new Chiquito restaurants. Blubeckers (17 units) We acquired Blubeckers at the end of June 2005 and we are delighted with this business. We spent the period to December 2005 integrating the business into TRG and setting in place some refinements to the 'model' which are designed to enable the business to improve profitability and to be further developed. To date, the results from Blubeckers have been excellent. Like-for-like sales growth improved significantly during the second half of 2005 and this improvement has continued into 2006 with strong growth over the last few months. We believe that Blubeckers has good potential and we are planning to add up to six new sites during 2006 and thereafter we see scope to further grow this business. Blubeckers position in the marketplace - a great offering with very wide appeal across most socio - economic and age groups with meals served in a relaxed and safe environment - is ideal for catering for future trends in the eating out market. I would like to thank the team at Blubeckers for the professional and efficient manner in which they have embraced the integration into TRG. Garfunkel's (29 units) Garfunkel's year was one of two halves. A solid first half performance was severely affected following the London bombings in July 2005. This had a significant adverse effect on our Central London trade which typically accounts for over 60% of Garfunkel's turnover and is heavily influenced by tourists and customers who are participating in other leisure related activities such as theatre, cinema and other visitor attractions. We estimate that these problems resulted in a profit shortfall of around Â£0.9m in the second half. However, during the final quarter of 2005 trade started to pick up and currently we are enjoying like-for-like growth. Providing there is no repeat of last year's atrocities we are confident that Garfunkel's will enjoy a solid 2006. Concessions (43 units) Total turnover: Â£59.8m Profit: Â£8.9m Operating margin: 14.9% Our Concessions business has enjoyed another successful and busy year. During 2005 the business has delivered strong growth in turnover, EBITDA and operating profit. Profits increased by 27% to Â£8.9m and the profit margin increased by 50 basis points to 14.9%. Against a background of cost pressures within the airports business this is a commendable performance. During the year we opened eight new units of which five were in airports and three in shopping centres. We were delighted to win a tender for three units at Luton airport and these opened at the end of the first half. During the second half we opened three shopping centre sites and one airport site and these are trading in line with our expectations. During 2006 we expect to open between four and six new sites including three at Birmingham airport. We are delighted with the progress that has been made within our Concessions business - over the past four years its profits have increased by 75% - and we are determined to continue to develop it to ensure a continuation of this trend. We enjoy a leading market position in UK airport catering and have invested in our Concessions business and its people with the objective of continuing to be the leading UK player and to secure further profitable growth. Disposals During 2005 we sold our Est Est Est and Caffe Uno businesses. Prior to sale both businesses were performing below the previous year's level of profitability and did not demonstrate sufficient potential going forward to justify TRG's continuing ownership. Both businesses were sold for very satisfactory prices and the bulk of the combined cash proceeds is to be returned to shareholders by way of a Special Dividend. As part of the terms of sale of the Est Est Est business we agreed to acquire a 40% shareholding in the acquiring company, Living Ventures Limited. Since acquiring Est Est Est the team at Living Ventures have been fully occupied with its integration and relaunch. We anticipate that the results of their efforts will start to come through in the current year and thereafter. DPP Shortly after the year end TRG exercised its option to take control of the DPP business. The Group is now in the process of integrating and rationalising DPP which will result in certain one-off charges in 2006, covered in the Finance Director's Report. Non-core brands During the year losses from non-core activities reduced by Â£0.5m to Â£0.9m. We will continue to take steps to mitigate the losses from non-core units. Future prospects We ended 2005 in a form rather different from that in which we started the year. Activity on the corporate front has resulted in our business having a focus geared largely towards out of town leisure and concession locations. Furthermore, our remaining high street restaurants are located mainly in sites which benefit from high footfalls of tourists, shoppers and customers pursuing leisure-related activities such as the theatre. We believe that this more focused composition enables the Group to deliver higher quality profits and cashflows. We have an excellent business, strong finances, great people and market-leading brands. Our operations are now predominantly in areas where we benefit from distinct barriers to entry, good growth prospects and high returns. We have the capacity to fund significant future growth from new developments whilst continuing to grow profits from our existing restaurants - a healthy background to further profitable development. Our focus will continue to be on growing shareholder value, through developing a Group capable of delivering sustainable and growing earnings and cash flows. The market outlook, prospective economic conditions and challenges for 2006 are, we believe, fairly similar to those which prevailed during much of 2005. We made good progress last year and we are confident of continuing to do so in 2006. Andrew Page Chief Executive 8 March 2006 Group Finance Director's Review Results * *Results are stated excluding non-trading items and DPP, as set out in more detail in note 2. As noted in the Chairman's statement the Group has had another very strong year. Turnover of the principal trading brands increased by 24.6% to Â£248.8m. This was the result of a highly satisfactory 3% growth in like for like sales combined with the impact of new site openings. Group EBITDA increased by 15.5% to Â£50.0m, and operating profit increased by 22.6% to Â£32.0m. Total Group profit before tax of the trading business, after taking into account finance charges and TRG's share of the Living Ventures business, amounted to Â£29.5m, an increase of 21% compared to the prior year. IFRS The Group's results have been prepared this year on an IFRS basis for the first time. As noted in the IFRS statement in June and the Interim Results announcement last September, this has resulted in some changes to the reported results compared to UK GAAP. These primarily relate to treatment of share options, finance leases and the interest rate swaps. In addition, as a result of the existence of the option to convert debt due from Deep Pan Pizza ('DPP') into equity, we have been required under IFRS to consolidate the losses incurred by DPP during the year. This is covered in more detail later in this review. A full analysis of the impact of IFRS was provided in the Group's IFRS conversion statement last June. Non-trading items The Group's results include a profit before tax of Â£4.3m in relation to non-trading items. This is made up of the following items: Â£m Profit on disposal of Caffe Uno 3.6 Profit on disposal of Est Est Est 1.6 Share of Living Ventures' profit on disposal 0.4 Property disposal losses (net of release of property exit accrual) (0.9) Restructuring costs (primarily related to integration of Blubeckers) (0.3) Interest rate swap impact (0.1) As noted in the Chief Executive's Review, there will be certain one-off charges relating to the rationalisation and integration of the DPP business. This charge is expected to be between Â£3m to Â£4m. This will be booked as a non-trading charge in the 2006 accounts. Cash flow and balance sheet The Group continues to be strongly cash generative. Cash generated from operations was Â£55.5m. Free cash flow (defined as cash generated from operations less interest, tax and maintenance capex) was Â£35.7m. It is worth noting that the Group's free cash flow of Â£35.7m has financed virtually all of the substantially increased level of development capital expenditure as well as an increase in the normal dividend. Group interest cover (the number of times net interest charges are covered by operating profit) was 17.8 times compared to 15.4 times in the prior year (both calculated on an IFRS basis including finance lease interest). In addition to interest charges, the Group has a significant level of largely fixed rental charges as a result of the lease based business model. Total fixed charge cover in 2005 was 2.3 times, compared to the prior year figure of 2.2 times. The basis of these calculations is set out below: 2005 2004 Interest cover Adjusted operating profit (Â£m) 32.0 26.1 Net interest (Â£m) (1.8) (1.7) Interest cover 17.8x 15.4x Fixed charge cover EBITDA (Â£m) 50.0 43.3 Add back: rent (Â£m) 35.0 32.1 EBITDAR (Â£m) 85.0 75.4 Fixed charges Net interest (Â£m) 1.8 1.7 Rent (Â£m) 35.0 32.1 Fixed charges (Â£m) 36.8 33.8 Fixed charge cover 2.3x 2.2x Year end balance sheet gearing was 14% (2004: 15%). Capital expenditure During the year the Group invested a total of Â£40.9m (2004: Â£26.9m) in capital expenditure. This consisted of: â€¢ Â£25.4m on developing 32 new sites (an increase of 36% on the prior year), including the acquisition of several freeholds, â€¢ Â£9.7m on refurbishment and maintenance capital expenditure, and â€¢ Â£5.8m of costs in relation to acquisition and development of the new Group head office. The investment in refurbishment and maintenance of Â£9.7m includes completion of the Chiquito refurbishment programme. The Â£5.8m of office acquisition and redevelopment costs relate to the freehold office premises acquisition referred to in the 2005 interim results announcement and the first phases of the redevelopment. As noted in the Interim Statement this will enable all corporate and brand management functions to be consolidated into one building by the end of 2006. As the Group accelerates its organic development programme it remains paramount to ensure that we are focused on optimising financial returns from our capital investments. In order to ensure that this is achieved, the Group operates a rigorous investment appraisal process with the financial viability of all significant projects being subject to a detailed review. This review includes a critical assessment of all the underlying trading and other assumptions, including analysis of competition and demographic factors. All new sites are reviewed and approved by the Board. The Group also conducts post investment appraisals and these have indicated continuing strong financial performance. Deep Pan Pizza As has been noted previously, the existence of an option to take control of DPP during the year means that under IFRS we are required to consolidate the results of that Company, notwithstanding the fact that throughout 2005 this was an independently run and managed business over which TRG had no management control. As previously announced on 12 January 2006 TRG exercised its option to take full control of DPP. This followed the very successful conversion of eight problematic DPP sites into very successful TRG branded restaurants over the course of the last 15 months. We are currently integrating the DPP business into the TRG structure and completing a detailed review of the site portfolio. The integration and portfolio rationalisation process will, as indicated elsewhere in this review, result in a one-off charge which will be taken in the 2006 results as an exceptional non-trading item. During 2005, the already difficult trading situation experienced by DPP in the first half was compounded by the impact of the London bombings in July. This resulted in a second half performance significantly weaker than previously anticipated. It should be noted that the full year trading loss of Â£1.7m includes: Â£1.0m of head office costs; Â£0.3m of losses incurred by sites disposed of during the year; and some Â£0.6m of site depreciation. After adjusting for these items, the business was positive at a site EBITDA level. As noted in the January announcement concerning the exercise of the option, we expect to convert a substantial number of these sites to TRG Leisure brands during the course of 2006, with the remaining sites being slated for disposal. Living Ventures As noted in the Chief Executive's Review, as part of the disposal of Est Est Est, the Group acquired a 40% shareholding in the acquiring company, Living Ventures Limited. The key elements of the transaction, as announced at the time were as follows: â€¢ TRG acquired a 40% shareholding in Living Ventures for Â£7.7m. In addition TRG acquired preference shares in LV for Â£2.2m, redeemable in full in 2008. â€¢ Simultaneously Living Ventures purchased the Est Est Est business for consideration of Â£16.4m of which Â£6.0m has been paid in cash with the balance satisfied by a loan note, also repayable in 2008. â€¢ TRG was granted a call option (but not an obligation) to purchase the remaining 60% of Living Ventures in 2008 based on a pre-agreed company valuation based on eight times EBITDA less debt. â€¢ TRG was also granted a separate call option to purchase back the residual Est Est Est business on a multiple of six times EBITDA. TRG's 40% interest in Living Ventures is accounted for using the equity accounting method. This appears in the year end balance sheet under non-current assets at a carrying value of Â£8.7m. The loan note balance of Â£10.4m is also included under non-current assets. As noted in the Chief Executive's Review, since acquiring Est Est Est the Living Ventures management team has been fully occupied with integrating and relaunching the Est Est Est business. This has involved major capital investment at five of the sites. In addition, during this period the Company has opened two new Living Room sites in London and Oxford. This activity has absorbed a great deal of management time and also significant levels of pre-opening costs which are taken as a charge against profits during the period in which they arise. In December Living Ventures disposed of its Prohibition bar business to Ultimate Leisure realising a profit on disposal before tax of Â£1.5m. This transaction was in line with the Living Ventures' strategy of focusing on the core restaurant business. The accounts of TRG for the full year include a net loss of Â£0.2m in respect of the Group's share of Living Ventures' post tax results for the nine months to December 2005. This can be summarised as follows: Â£m Operating EBITDA 3.12 Depreciation (2.24) Share option scheme provision (0.12) Operating profit 0.76 Interest (including Â£0.5m payable to TRG) (1.43) Loss before tax and one-off costs (0.67) Pre-opening costs (0.83) Profit on disposal of Prohibition 1.50 Net profit before tax 0.0 Tax on disposal of Prohibition (0.5) Net loss after tax (0.5) TRG share (40%) (0.2) In this context it should also be noted that TRG's results include Â£0.5m of interest receivable from Living Ventures Limited on the loan notes. Following the disposal of the Prohibition business and one loss making Est Est Est unit, the Living Ventures business currently comprises a total of 31 units. This is made up of: â€¢ 16 Est Est Est outlets (of which four have been subject to major capital redevelopment); â€¢ 13 Living Room outlets (including the two new sites in Oxford and London); and â€¢ Two Bar and Grill outlets, (including one Est Est Est conversion). For the period since the deal the Living Ventures team have been fully occupied with integrating the Est Est Est business and managing major capital expenditure projects at five of those sites as well as developing and opening two new Living Room locations. With this phase now complete, the management team is now focussed on ensuring that the business fully capitalises on this period of intense change and development. Taxation The total taxation charge for the year is Â£8.8m compared to Â£6.9m in 2004. This consists of a mainstream corporation tax charge of Â£11.0m and a deferred tax release of Â£2.2m. The overall tax charge of Â£8.8m and the comparable year analysis is as follows: 2005 2004 Â£m Â£m Taxation on trading business 9.9 7.6 Taxation credit on DPP (0.8) - Net taxation credit on non-trading items (0.3) (0.7) Total taxation charge 8.8 6.9 The underlying tax rate in respect of 2005 was 33% (2004: 34%). Special dividend and share consolidation On 7 February 2006 TRG announced details of a special dividend of Â£35m and associated eight for nine share consolidation. This followed the sale of the Caffe Uno business which completed on 12 December 2005 and the announcement at that time of the Group's intention to return approximately Â£35m to shareholders. Dealing in the new ordinary shares commenced on 27 February 2006 and the special dividend to all shareholders on the register on 24 February 2006 will be paid on 9 March 2006. Adjusting for the Â£35m special dividend, year end net debt would have been Â£47.4m (compared to the actual figure of Â£12.4m) and net debt to equity gearing would have been 84% compared to the reported figure of 14%. Interest will be payable on the increased level of debt from March 2006 onwards. Stephen Critoph Group Finance Director 8 March 2006 The Restaurant Group plc Consolidated income statement Year ended 1 January 2006 Year ended 31 December 2004 Continuing Discontinued Total Continuing Discontinued Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Revenue 3 263,878 38,450 302,328 199,680 55,766 255,446 Cost of sales 4 (218,049) (34,528) (252,577) (164,332) (48,617) (212,949) Gross profit 45,829 3,922 49,751 35,348 7,149 42,497 Administration costs 4 (19,019) (777) (19,796) (15,317) (1,446) (16,763) Release of accrual for property exit costs 5 1,700 - 1,700 - - - Profit/ (loss) on sale of business 5 - 5,274 5,274 (500) - (500) Loss and provision for loss on disposal of fixed assets 5 (2,594) - (2,594) (2,554) - (2,554) Operating profit 25,916 8,419 34,335 16,977 5,703 22,680 Interest payable (2,692) - (2,692) (1,937) - (1,937) Interest receivable 689 - 689 270 - 270 Profit before share of associate and tax 23,913 8,419 32,332 15,310 5,703 21,013 Share of post tax result in associated undertaking 5 (600) 400 (200) - - - Profit before tax 23,313 8,819 32,132 15,310 5,703 21,013 Profit before tax, analysed as: Trading business excluding DPP 26,394 3,145 29,539 18,700 5,703 24,403 DPP Restaurants Limited trading result 6 (1,733) - (1,733) - - - Non-trading items 5 (1,348) 5,274 3,926 (3,390) - (3,390) Profit made on disposal of business by Living Ventures 5 - 400 400 - - - 23,313 8,819 32,132 15,310 5,703 21,013 Tax on profit from ordinary activities 11 (7,567) (1,220) (8,787) (5,154) (1,788) (6,942) Profit for the financial year attributable to equity shareholders of the parent 15,746 7,599 23,345 10,156 3,915 14,071 Earnings per share (pence) 13 Basic 7.27 3.51 10.78 4.75 1.84 6.59 Diluted 7.22 3.48 10.70 4.74 1.84 6.58 Dividend per share (pence) 12 4.75 4.20 The Restaurant Group plc Consolidated statement of changes in equity Year to 1 Year to 31 January 2006 December 2004 Â£'000 Â£'000 Opening reserves (IFRS, excluding IAS 32 and IAS 39) 75,883 54,835 Adjustment to opening reserves for inclusion of swaps under IAS 32 and IAS 39 127 - Opening reserves (IFRS, including IAS 32 and IAS 39) 76,010 54,835 Profit for the year 23,345 14,071 Foreign exchange translation differences (168) (36) Pre-acquisition losses of DPP Restaurants Limited taken directly to reserves - (197) Deferred tax credit on share based payments taken directly to reserves 414 256 Total recognised income and expense for the year 23,591 14,094 Dividends (9,277) (7,977) Issue of new shares 604 14,741 Share based payments - credit to equity 508 190 Total changes in equity in the year 15,426 21,048 Closing reserves 91,436 75,883 The Restaurant Group plc Consolidated balance sheet At 1 January At 31 December 2006 2004 Â£'000 Â£'000 Non-current assets Intangible assets 11,275 - Property, plant and equipment 151,337 154,678 Investment in associate 8,727 - Trade and other receivables 10,375 - 181,714 154,678 Current assets Stock 2,763 2,599 Financial assets - derivative financial instruments 7 - Trade and other receivables 5,498 3,731 Prepayments 11,094 10,612 Cash and cash equivalents 426 482 19,788 17,424 Total assets 201,502 172,102 Current liabilities Short-term borrowings (1,845) (5,134) Income tax liabilities (8,315) (5,531) Trade and other payables (71,476) (57,773) (81,636) (68,438) Net current liabilities (61,848) (51,014) Non-current liabilities Long-term borrowings (11,000) (7,000) Other payables (2,696) (4,431) Deferred tax liabilities (13,971) (15,725) Provisions (763) (625) (28,430) (27,781) Net assets 91,436 75,883 Equity Share capital 54,366 54,087 Share premium 19,747 19,422 Foreign currency reserve 80 245 Other reserves 764 256 Retained earnings 16,479 1,873 Total equity shareholders' interests 91,436 75,883 The Restaurant Group plc Consolidated cash flow statement Year to 1 Year to 31 January 2006 December 2004 Note Â£'000 Â£'000 Cash flow from operating activities Cash generated from operations 14 55,484 49,538 Interest received 219 98 Interest paid (2,076) (1,476) Tax paid (8,199) (6,753) Net cash flow from operating activities 45,428 41,407 Cash flows from investing activities Acquisition of associate (10,186) - Acquisition of subsidiary, net of cash acquired (26,889) (358) Disposal of business, net of cash disposed 32,982 - Disposal of subsidiary, net of cash disposed 5,630 - Purchase of property, plant and equipment (39,767) (26,021) Proceeds from sale of property, plant and equipment 708 4,719 Net cash used in investing activities (37,522) (21,660) Cash flows from financing activities Net proceeds from issue of ordinary share capital 604 14,741 Net proceeds from issue of bank loan 4,000 - Repayment of borrowings - (28,000) Dividends paid to shareholders (9,277) (7,977) Net cash used in financing activities (4,673) (21,236) Net increase/ (decrease) in cash and cash equivalents 3,233 (1,489) Cash and cash equivalents at start of year 15 (4,652) (3,163) Cash and cash equivalents at end of year 15 (1,419) (4,652) The Restaurant Group plc Notes to the accounts 1) Segmental analysis Year ended 1 January 2006 Year ended 31 December 2004 Turnover EBITDA EBITDA Profit Profit Turnover EBITDA EBITDA Profit Profit Margin Margin Margin Margin Â£'000 Â£'000 % Â£'000 % Â£'000 Â£'000 % Â£'000 % Leisure 189,009 49,541 26.2% 39,974 21.1% 150,723 38,747 25.7% 30,710 20.4% Concessions 59,771 12,360 20.7% 8,919 14.9% 48,882 9,925 20.3% 7,018 14.4% Principal trading brands 248,780 61,901 24.9% 48,893 19.7% 199,605 48,672 24.4% 37,728 18.9% Non-core brands 63 (691) (1096.7%) (901) (1430.6%) 75 (1,192) (1591.8%) (1,432) (1912.4%) Continuing operations 248,843 61,210 24.6% 47,992 19.3% 199,680 47,480 23.8% 36,296 18.2% Discontinued operations 38,450 6,977 18.1% 3,922 10.2% 55,766 11,602 20.8% 7,149 12.8% Total all brands 287,293 68,187 23.7% 51,914 18.1% 255,446 59,082 23.1% 43,445 17.0% Pre-opening costs (included in cost of sales) (1,511) (0.5%) (1,511) (0.5%) (948) (0.4%) (948) (0.4%) Administration (16,158) (5.6%) (17,933) (6.2%) (14,628) (5.7%) (16,237) (6.4%) Share based payments (508) (0.2%) (508) (0.2%) (190) (0.1%) (190) (0.1%) Sub-total 287,293 50,010 17.4% 31,962 11.1% 255,446 43,316 17.0% 26,070 10.2% DPP Restaurants 15,035 (94) (0.6%) (652) (4.3%) - - - - - Limited DPP Restaurants Limited administration (1,021) (6.8%) (1,021) (6.8%) - - - - Non-recurring items included within administration Restructuring costs (334) (0.1%) (334) (0.1%) - - - - Recovered aborted bid costs - - - - 457 0.2% 457 0.2% Impairment of - - - - - - (793) (0.3%) goodwill EBITDA / Profit before non-trading items 302,328 48,561 16.1% 29,955 9.9% 255,446 43,773 17.1% 25,734 10.1% Release of accrual for property exit costs 1,700 - Profit/ (loss) on sale of business 5,274 (500) Loss and provision for loss on disposal of fixed assets (2,594) (2,554) Operating profit 34,335 22,680 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 Limited ('DPP') has been consolidated as a subsidiary under IAS 27 throughout the year even though The Restaurant Group plc ('TRG' or 'the Group') legally only held 19.9% of the issued share capital (as detailed further in note 6). As TRG has subsequent to the year end acquired full control of DPP, the trading performance of DPP has been shown separately due to the different shape that this division will have going forward. Non-trading items include redundancy and restructuring costs incurred following the acquisition of Blubeckers Limited and for redundancy costs incurred in DPP Restaurants Limited, profits and losses made on disposal of businesses and property, plant and equipment, and finance charges arising on the remeasurement of swap instruments. A reconciliation of profit before tax between the reported financial information and the additional financial information is provided below: Year ended 1 January 2006 Continuing Discontinued Trading Non DPP business operations business trading trading Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Reported statutory profit before tax 23,313 8,819 32,132 - - 32,132 DPP Restaurants Limited 1,733 - 1,733 - (1,733) - Restructuring costs (including redundancies) 334 - 334 (334) - - Profit on disposal of Est Est Est Restaurants Limited - (1,582) (1,582) 1,582 - - Profit on disposal of Caffe Uno - (3,692) (3,692) 3,692 - - Release of accrual for property exit costs (1,700) - (1,700) 1,700 - - Loss and provision for loss on disposal of fixed assets 2,594 - 2,594 (2,594) - - Finance charge arising on interest rate swap 120 - 120 (120) - - Profit made on disposal of business by Living Ventures Limited - (400) (400) 400 - - Additional reported profit before tax 26,394 3,145 29,539 4,326 (1,733) 32,132 Year ended 31 December 2004 Continuing Discontinued Trading Non DPP Business Operations Business Trading Trading Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Reported statutory profit before tax 15,310 5,703 21,013 - - 21,013 Recovered aborted bid costs (457) - (457) 457 - - Impairment of goodwill arising on acquisition of DPP Restaurants Limited 793 - 793 (793) - - Impairment of receivable arising on disposal of DPP 500 - 500 (500) - - Loss and provision for loss on disposal of fixed assets 2,554 - 2,554 (2,554) - - Additional reported profit before tax 18,700 5,703 24,403 (3,390) - 21,013 A detailed income statement is supplied below (note 2a), reflecting the supplementary presentation, and this is also analysed in an additional presentation of the segmental analysis (note 2b). The Restaurant Group plc Note 2a - Additional income statement Year to 1 January 2006 Continuing Discontinued Trading Non DPP business operations business trading trading Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£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) Recovered aborted bid costs - - - - - - Restructuring costs - - - (334) - (334) Impairment of goodwill - - - - - - (17,664) (777) (18,441) (334) (1,021) (19,796) Trading profit/ (loss) 28,817 3,145 31,962 (334) (1,673) 29,955 Profit/ (loss) on sale of business - - - 5,274 - 5,274 Release of accrual for property exit - - - 1,700 - 1,700 costs Loss and provision for loss on - - - (2,594) - (2,594) disposal of fixed assets Operating profit/ (loss) 28,817 3,145 31,962 4,046 (1,673) 34,335 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 3,926 (1,733) 32,332 Share of post tax result in associated undertaking (600) - (600) 400 - (200) Profit/ (loss) before tax 26,394 3,145 29,539 4,326 (1,733) 32,132 Tax on profit / (loss) from ordinary activities (8,817) (1,050) (9,867) 300 780 (8,787) Profit/ (loss) for the financial year attributable to equity shareholders of the parent 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) 4.75 The Restaurant Group plc Note 2a - Additional income statement Year to 31 December 2004 Trading Discontinued Trading Non DPP business operations business trading trading Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Revenue 199,680 55,766 255,446 - - 255,446 Cost of sales: Excluding pre-opening costs (163,384) (48,617) (212,001) - - (212,001) Pre-opening costs (948) - (948) - - (948) (164,332) (48,617) (212,949) - - (212,949) Gross profit/ (loss) 35,348 7,149 42,497 - - 42,497 Administration costs Excluding one-off costs (14,981) (1,446) (16,427) - - (16,427) Recovered aborted bid costs - - - 457 - 457 Restructuring costs - - - - - - Impairment of goodwill - - - (793) - (793) (14,981) (1,446) (16,427) (336) - (16,763) Trading profit/ (loss) 20,367 5,703 26,070 (336) - 25,734 Profit/ (loss) on sale of business - - - (500) - (500) Release of accrual for property exit costs - - - - - - Loss and provision for loss on disposal of fixed assets - - - (2,554) - (2,554) Operating profit/ (loss) 20,367 5,703 26,070 (3,390) - 22,680 Interest payable (1,937) - (1,937) - - (1,937) Interest receivable 270 - 270 - - 270 Profit/ (loss) before share of associate and tax 18,700 5,703 24,403 (3,390) - 21,013 Share of post tax result in associated undertaking - - - - - - Profit/ (loss) before tax 18,700 5,703 24,403 (3,390) - 21,013 Tax on profit/ (loss) from ordinary activities (5,862) (1,788) (7,650) 708 - (6,942) Profit/ (loss) for the financial year attributable to equity shareholders of the parent 12,838 3,915 16,753 (2,682) - 14,071 Earnings per share (pence) Basic 7.84 6.59 Diluted 6.58 Dividend per share (pence) 4.20 The Restaurant Group plc Notes to the accounts Note 2b - Additional information - segmental analysis excluding DPP and non-trading items Year ended 1 January 2006 Year ended 31 December 2004 Turnover EBITDA EBITDA Profit Profit Turnover EBITDA EBITDA Profit Profit Margin Margin Margin Margin Â£'000 Â£'000 % Â£'000 % Â£'000 Â£'000 % Â£'000 % Leisure 189,009 49,541 26.2% 39,974 21.1% 150,723 38,747 25.7% 30,710 20.4% Concessions 59,771 12,360 20.7% 8,919 14.9% 48,882 9,925 20.3% 7,018 14.4% Principal trading brands 248,780 61,901 24.9% 48,893 19.7% 199,605 48,672 24.4% 37,728 18.9% Non-core brands 63 (691) (1096.7%) (901) (1430.6%) 75 (1,192) (1591.8%) (1,432) (1912.4%) Continuing operations 248,843 61,210 24.6% 47,992 19.3% 199,680 47,480 23.8% 36,296 18.2% Discontinued 38,450 6,977 18.1% 3,922 10.2% 55,766 11,602 20.8% 7,149 12.8% operations Total all brands 287,293 68,187 23.7% 51,914 18.1% 255,446 59,082 23.1% 43,445 17.0% Pre-opening costs (included in cost of sales) (1,511) (0.5%) (1,511) (0.5%) (948) (0.4%) (948) (0.4%) Administration (16,158) (5.6%) (17,933) (6.2%) (14,628) (5.7%) (16,237) (6.4%) Share based payments (508) (0.2%) (508) (0.2%) (190) (0.1%) (190) (0.1%) EBITDA / operating profit* 287,293 50,010 17.4% 31,962 11.1% 255,446 43,316 17.0% 26,070 10.2% Net interest charges (1,896) (1,179) Interest receivable from Living Ventures Limited 522 - Finance lease interest (449) (488) Total net interest charges (1,823) (1,667) Profit before taxation and 30,139 24,403 share of associate's result* Share of losses of associate (600) - Profit before taxation* 29,539 24,403 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. * Results are stated before non-trading costs, and do not include the performance of DPP Restaurants Limited The Restaurant Group plc Notes to the accounts For the year ended 1 January 2006 3) Revenue 2005 2004 Â£'000 Â£'000 Revenue consists of the following: Continuing business - owned and managed during the year 248,843 199,680 DPP Restaurants Limited 15,035 - Continuing operations 263,878 199,680 Discontinued operations 38,450 55,766 Total revenue for the year 302,328 255,446 DPP Restaurants Limited has been consolidated as a subsidiary under IAS 27 throughout the year even though TRG legally only held 19.9% of the issued share capital (as detailed further in note 6). As TRG has subsequent to the year end acquired full control of DPP, the trading performance of DPP has been shown separately due to the different shape that this division will have going forward. 4) Operating expenses 2005 2004 Â£'000 Â£'000 Included in cost of sales are the following: Continuing business - owned and managed during the year 200,851 163,384 Pre-opening costs 1,511 948 DPP Restaurants Limited 15,687 - Continuing operations 218,049 164,332 Discontinued operations 34,528 48,617 Total cost of sales for the year 252,577 212,949 Included in administration costs are the following: Continuing business - owned and managed during the year 17,664 14,981 Restructuring costs 334 - Recovered aborted bid costs - (457) Impairment of goodwill - 793 DPP Restaurants Limited 1,021 - Continuing operations 19,019 15,317 Discontinued operations 777 1,446 Total administration costs for the year 19,796 16,763 5) Non-trading items 2005 2004 Â£'000 Â£'000 Items classified as non-trading are as follows: Included within continuing business: Restructuring costs (334) - Recovered aborted bid costs - 457 Impairment of goodwill - (793) Release of accrual for property exit costs 1,700 - Loss on disposal of DPP business - (500) Loss and provision for loss on disposal of fixed assets (2,594) (2,554) Finance charge arising from remeasurement of interest rate swap (120) - (1,348) (3,390) Included within discontinued business: Profit on disposal of Est Est Est Restaurants Limited 1,582 - Profit on disposal of the Caffe Uno business 3,692 - 5,274 - Profit made on disposal of business by associate 400 - 5,674 - Total non-trading items before taxation: 4,326 (3,390) 6) Post balance sheet events a) DPP Restaurants Limited In November 2004, The Restaurant Group plc ('the Group' or 'TRG') announced that it had been granted an option to take full control of DPP Restaurants Limited ('DPP'), operators of the Deep Pan Pizza chain of restaurants. This option became exercisable on 31 December 2004, and, under IFRS, the Group was required to consolidate 100% of DPP, even though the option had not been exercised. Consequently the Group's results for 2005 have included 100% of the losses made by DPP, although legally TRG only owned 19.9% of DPP. On 12 January 2006, the Group announced that it had acquired full control of DPP Restaurants Limited for a nominal sum. TRG originally sold 52 branches to DPP Restaurants Limited brand in 2001. Subsequently DPP has disposed of 19 units (eight of which have been to TRG). Those units which have been converted into TRG brands have shown an average turnover increase of over 100%. b) Return of value and share consolidation Following the disposal of Caffe Uno to Craftbutton Limited in December 2005 (see note 10 for further details) the Group announced that it would make a return of value to shareholders. On 7 February 2006 the Group announced a special dividend of 16p per share (totalling Â£34.8m) which is to be paid to shareholders on 9 March 2006. At an Extraordinary General Meeting on 23 February 2006, shareholders granted approval for a share consolidation whereby nine existing ordinary shares were exchanged for eight new ordinary shares. On 27 February 2006 the new ordinary shares were admitted to the London Stock Exchange's market for listed securities. 7) Disposal of Est Est Est Restaurants Limited On 31 March 2005, the Group sold Est Est Est Restaurants Limited to Living Ventures Limited. Proceeds were Â£16.375m, of which Â£6m was received in June 2005 and the remainder is payable in 2008. Interest is accruing on the outstanding balance at LIBOR. A profit of Â£1.6m was made on disposal. The disposal of shares in Est Est Est Restaurants Limited qualifies for substantial shareholding exemption, and consequently no tax charge has been recognised in respect of that profit. The analysis of assets and liabilities sold and consideration received is detailed below: Â£'000 Property, plant and equipment 14,492 Stock 157 Trade and other receivables 287 Cash and cash equivalents 11 Trade and other payables (283) Deferred tax (1,719) Net assets 12,945 Gross profit arising on disposal 3,137 16,082 40% of profit not recognised following investment in Living Ventures Limited (1,255) Accrual for warranty claims (300) Net profit arising on disposal 1,582 Sale proceeds Cash consideration received 6,000 Deferred consideration 10,375 Professional fees (293) 16,082 8) Acquisition of 40% stake in Living Ventures Limited The Group has recognised a profit of Â£1.6m following the disposal of Est Est Est Restaurants Limited to Living Ventures Limited on 31 March 2005. As the Group has taken a 40% stake in Living Ventures Limited, the profit recognised on the disposal of Est Est Est Restaurants Limited has been reduced by 40% to reflect the unrealised element of profit. This unrecognised profit was Â£1,255,000 as disclosed in note 7. 9) Acquisition of Blubeckers Limited On 21 June 2005 The Restaurant Group plc completed the acquisition of 100% of the ordinary share capital of Blubeckers Limited for Â£22.75m, and a further payment of Â£4.3 million for the repayment of intercompany debt. Blubeckers Limited operates two restaurant brands, 'Blubeckers' and 'Edwinns', and at the date of acquisition had 17 restaurants in the south of England. In the six months that Blubeckers was a subsidiary of the Group it contributed Â£1.3m to net profit. If the acquisition had occurred on 1 January 2005, Group revenue (including DPP Restaurants Limited) would have been Â£310.8m and profit before tax (including DPP Restaurants Limited) would have been Â£32.5m. The acquisition had the following effect on the Group's assets and liabilities: Preliminary Recognised fair value Carrying values adjustments amounts Â£'000 Â£'000 Â£'000 Property, plant and equipment 19,884 (36) 19,848 Stocks 287 (115) 172 Trade and other receivables 200 (123) 77 Cash and cash equivalents 938 - 938 Trade and other payables (1,816) (71) (1,887) Deferred tax (226) (2,370) (2,596) Net identifiable assets and liabilities 19,267 (2,715) 16,552 Goodwill on acquisition 11,275 Consideration paid, satisfied in cash 27,827 Cash (acquired) (938) Net cash outflow 26,889 Following the acquisition there has been a programme of integrating operational and support functions into The Restaurant Group plc. As a result of this, costs of Â£221,000 have been incurred. These costs are considered as non-trading as they relate to the acquisition and integration. 10) Disposal of Caffe Uno On 12 December 2005 the Group completed the disposal of 53 of the 59 sites that formed the Caffe Uno brand. The associated business assets were sold to Craftbutton Limited for Â£33.025m, which was received in cash, less associated expenses (including expenses pertaining to the return of value to shareholders). The remaining sites will be sold or rebranded, and accordingly have been written down to their estimated realisable value. The disposal was completed as an asset transaction and consequently there is a taxation charge arising on the profit on disposal. A working capital adjustment has been made (subsequent to the year end) whereby Craftbutton Limited has paid the book value of identifiable working capital balances. The analysis of assets and liabilities sold and consideration received is detailed below: Â£'000 Cash consideration received 33,025 Professional costs - paid (43) Professional costs - accrued (2,237) (2,280) Impairment of Caffe Uno units not disposed to Craftbutton Limited (2,290) Provision for dilapidations and warranties (2,030) Property, plant and equipment (23,176) Finance lease assets (901) Finance lease debt 1,344 Net assets disposed (22,733) Profit before tax 3,692 Taxation (470) Profit after tax 3,222 11) Taxation 2005 2004 The taxation charge comprises: Â£'000 Â£'000 Current taxation UK corporation tax at 30% 11,190 7,601 Adjustments in respect of previous years (187) 118 11,003 7,719 Deferred taxation Origination and reversal of temporary differences (1,803) 51 Adjustments in respect of previous years (413) (828) (2,216) (777) Taxation charge 8,787 6,942 12) Dividend 2005 2004 Â£'000 Â£'000 Amounts recognised as distributions to equity holders during the year: Final dividend for the year ended 31 December 2004 of 3.375p (2003: 2.90p) per share 7,306 6,198 Interim dividend for the year ended 1 January 2006 of 0.91p (2004: 0.825p) per share 1,971 1,779 9,277 7,977 Proposed final dividend for the year ended 1 January 2006 of 3.84p (2004: 3.375p) per share 7,423 7,306 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. The dividend payable reflects the number of shares in issue following the share consolidation which became effective on 27 February 2006. In addition, a special dividend of 16p per share (totalling Â£34.8m) is due to be paid to shareholders on 9 March 2006. This is in respect of the return of value to shareholders following the disposal of Caffe Uno in December 2005. 13) Earnings per share 2005 2004 a) Basic earnings per share: Weighted average ordinary shares in issue during the year: 216,576,330 213,638,719 Total basic profit for the year (Â£'000): 23,345 14,071 Basic earnings per share for the year (pence) 10.78 6.59 Effect of non-trading items on earnings for the year (Â£'000) (4,626) 2,682 Effect of consolidation of DPP Restaurants Limited for the year (Â£'000) 953 - Earnings excluding non-trading items (Â£'000) 19,672 16,753 Adjusted earnings per share (pence) 9.08 7.84 b) Diluted earnings per share: Weighted average ordinary shares in issue during the year: 216,576,330 213,638,719 Dilutive shares to be issued in respect of options granted under the Share Option Scheme: 1,668,454 315,824 218,244,784 213,954,543 Diluted earnings per share (pence) 10.70 6.58 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 period under review, have been added back) has been provided as the Directors believe they provide a useful indication as to the underlying performance of the Group. 14) Reconciliation of operating profit to net cash inflow from profit before tax 2005 2004 Â£'000 Â£'000 Profit before tax 32,132 21,013 Net finance charges 2,003 1,667 Profit on sale of business - Est Est Est (1,582) - Profit on sale of business - Caffe Uno (3,692) - Loss on sale of property, plant and equipment 2,594 2,554 Release of accrual for property exit costs (1,700) - Loss on sale of business - 500 Impairment of goodwill - 793 Net loss made by associate 200 - Non-cash charge reversed in reserves 508 - Depreciation 18,606 17,304 (Increase)/ decrease in stock (439) 70 (Increase)/ decrease in receivables (2,451) 975 Increase in payables 9,305 4,662 Cash flow from operating activities 55,484 49,538 15) Reconciliation of changes in cash to the movement in net bank debt 2005 2004 Â£'000 Â£'000 At the beginning of the year (11,652) (38,163) Movements in the year: Loans (taken out) / repaid (4,000) 28,000 Cash inflow/ (outflow) 3,233 (1,489) At the end of the year (12,419) (11,652) Represented by: At Cash flow At 1 January movements 1 January 2005 in the year 2006 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 482 (56) 426 Overdrafts (5,134) 3,289 (1,845) 3,233 Bank loan due within one year - - - Bank loans due after one year (7,000) (4,000) (11,000) (4,000) (11,652) (767) (12,419) 16) Basis of preliminary statement The Group's consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and which are effective at 1 January 2006. The Group issued an announcement on 28 June 2005 setting out the transition for the Group to International Financial Reporting Standards. It included details of the Group's principal accounting policies under IFRS, and the financial information set out in the preliminary results has been prepared in accordance with those accounting policies. The Directors have applied those policies in the preparation of the financial statements for the year ended 1 January 2006. The transition date for adoption of IFRS is determined in accordance with IFRS 1 First Time Adoption of International Financial Reporting Standards, and has been determined as 1 January 2004. 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 31 December 2004 are not the Group's statutory accounts for that financial year. Those accounts, which were prepared under UK GAAP, 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. Appendix - Reconciliation to proforma UK GAAP basis Profit before Tax Profit after tax tax Â£'000 Â£'000 Â£'000 Year ended 1 January 2006 Proforma UK GAAP 34,149 (9,538) 24,611 Share based payments (508) 152 (356) Finance leases 459 (138) 321 Consolidation of DPP Restaurants Limited (1,848) 814 (1,034) Rolled over gains - (113) (113) Fair value of interest rate swaps (120) 36 (84) IFRS 32,132 (8,787) 23,345 Year ended 31 December 2004 Proforma UK GAAP 22,128 (7,039) 15,089 Share based payments (190) 57 (133) Finance leases (132) 40 (92) Impairment of goodwill arising on DPP (793) - (793) Fair value of interest rate swaps - - - IFRS 21,013 (6,942) 14,071 This information is provided by RNS The company news service from the London Stock Exchange

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