Full Year Results

RNS Number : 2709S

Restaurant Group PLC

08 March 2023

The Restaurant Group plc ("TRG" or "The Group")

Robust trading performance in FY22, very encouraging start to FY23

FY22 Financial summary (for the 52 weeks ended 1 January 2023)

· Total sales of £883.0m (2021: £636.6m)

· Adjusted¹ EBITDA profit of £83.0m on a pre IFRS 16 basis (2021: £81.2m)

· Adjusted¹ Profit before tax of £20.3m on a pre IFRS 16 basis (2021: £16.6m)

· Statutory loss before tax of £86.8m on an IFRS 16 basis (2021: loss of £35.2m)

· Net debt of £185.7m on a pre IFRS 16 basis (2021: £171.6m), Net debt/EBITDA¹ at 2.2x (2021: 2.1x).

· Net debt on an IFRS 16 basis of £581.7m (2021: £582.0m)

FY22 highlights

· Robust trading performance in a challenging casual dining market

o Wagamama, Pubs and Concessions like-for-like ("LFL") sales all out-performed their respective market² benchmarks in FY22 (versus 2019 comparatives)

o Customer ratings remain very strong across all brands

· Proactive cost management to mitigate ongoing inflationary pressures

o Hedging of utilities³ for FY23, FY24, FY25⁴ provided certainty on the cost base; and at current prices⁵ are broadly in line with the spot market

o Purchase of interest rate caps saving TRG c.£4m of cash interest annually (at current Sonia bank rates of 4%) and over £12m during the next three years

· Amended debt facilities with extended tenor and improved covenant package

o Long-term funding in place with over four years tenor remaining; improved covenant arrangements and the ability to make further repayments

o Substantial liquidity with c.£140m of cash headroom⁶, having made £110m of term-loan repayments during the year

Current trading and outlook

· Very encouraging start to the year across all our divisions:

LFL sales (%) vs 2022 comparable for the 8 weeks from 2 January to 26 February 2023

TRG Division	TRG LFL sales	TRG VAT Adjusted⁷ LFL sales
Wagamama	+2%	+9%
Pubs	+9%	+14%
Leisure⁸	(4)%	+2%
Concessions	+48%	+56%

· Dine-in trends have been particularly strong:

LFL sales (%) vs 2022 comparable for the 8 weeks from 2 January to 26 February 2023

TRG Division	Total LFL sales	Delivery and takeaway LFL sales	Dine-in LFL sales	VAT adjusted⁷ Dine-in LFL sales
Wagamama	+2%	(17)%	+9%	+16%
Pubs	+9%	n/a	+9%	+14%
Leisure⁸	(4)%	(17)%	(1)%	+5%
Concessions	+48%	n/a	+48%	+56%

o Delivery and takeaway LFL sales decline for Wagamama and Leisure in line with reduced demand across the delivery market

o Concessions sales recovery driven by improved passenger volumes with LFL sales broadly flat compared to 2019 levels

· FY23 Outlook:

o A very encouraging start to the trading year

o Cost outlook in line with previous guidance

o Management's expectations for FY23 remain unchanged

Medium-term strategy

· Strategic plan developed to deliver significant EBITDA¹ margin accretion over a three-year time horizon⁹; targeting an improvement of 250bps to 350bps; driven by:

o Wagamama: Continued UK new site expansion with improved commercial lease terms and good ongoing international opportunities

o Pubs: Driving continued strong LFL sales growth based on strength of operating model and resilient core offering

o Leisure: Proactive estate management and further rationalisation plan to enhance future cash generation

o Concessions: Restructuring actions taken during COVID driving strong LFL sales growth as passenger volumes recover; proactively renewing leases to maximise future earnings

o Cost opportunities:

§ Short-term contracts with food and drink suppliers to benefit from softening of inflation

§ Utilities deflation in FY24 and FY25 as per our hedging

§ Central cost efficiencies plan

· Target net debt / EBITDA¹ below 1.5x within three years

· The Board is continually reviewing our longer-term strategic options and will update shareholders as appropriate

Andy Hornby, Chief Executive Officer, commented:

"We've delivered a strong operating performance for the year in a market which has continued to pose a number of headwinds for casual dining operators.

Current trading has been very encouraging to the great credit of our teams who continue to ensure our customers receive the best experience possible.

We have a clear plan to increase EBITDA margins over the next three years and deliver significant value for all our stakeholders."

¹ Pre IFRS 16 Adjustment and exceptional charges

² Market refers to Coffer Peach tracker for restaurants (Wagamama and Leisure benchmark) and Coffer Peach tracker for pub restaurants (TRG Pubs benchmark). Coffer peach LFL sales represent the weighted average of weekly LFL sales reported (internal calculation). UK air passenger growth used as market benchmark for Concessions

³ Utilities relate to electricity and gas. This relates to own billed and managed sites and excludes landlord billed sites at shopping centres and airport concession sites

⁴ Fully hedged for FY23 & FY24, 80% of volume hedged for Q1-Q3 FY25

⁵ Spot prices remain volatile. At spot prices as at end of February , TRG is hedged at c.£4.5m adverse in 2023, c.£1.0m adverse in 2024 and c.£3.0m positive in 2025

⁶ Cash headroom position as at 1 Jan 2023. Subject to minimum liquidity of £40m

⁷ VAT benefit boosted LFL sales by approximately 5 to 7% for the restaurant and pub sector in Q1 2022 (13 weeks to 3 April 2022)

⁸ Leisure includes Barburrito

⁹ FY25 year-end run-rate

Enquiries:

The Restaurant Group plc

Andy Hornby, Chief Executive Officer

Kirk Davis, Chief Financial Officer

Umer Usman, Investor Relations

020 3117 5001

MHP Communications

Oliver Hughes

Simon Hockridge

020 3128 8789/8742

Investor and analyst conference call facility

In conjunction with today's presentation to analysts, a live conference call and webcast facility will be available starting at 9:00am (UK time). If you would like to register, please contact Pauline Guenot at MHP for details on +44 7850 937 183 or email TRG@mhpc.com.

The presentation slides will be available to download from 8:00am (UK time) from the Company's website https://www.trgplc.com/investors/reports-presentations

Notes:

1. As at 1 January 2023, The Restaurant Group plc operated approximately 410 restaurants and pub restaurants throughout the UK. Its principal trading brands are Wagamama, Brunning & Price and Frankie & Benny's. It also operates a multi-brand Concessions business which trades principally in UK airports. In addition the Wagamama business has a 20% stake in a JV operating six Wagamama restaurants in the US and over 50 franchise restaurants across a number of territories. The Group employs approximately 18,000 colleagues in the UK.

2. Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences are "forward-looking statements" within the meaning of the United States federal securities laws. These forward-looking statements reflect the Group's current expectations concerning future events and actual results may differ materially from current expectations or historical results.

3. The Group's Adjusted performance metrics ('APMs') such as like-for-like sales, Adjusted measures, pre-IFRS 16 basis measures and free cash flow are defined within the glossary at the end of this report.

Chairman's statement

Having now been in the role for over 12 months, I have been able to spend considerable time familiarising myself with the business, visiting a number of our restaurants and pubs nationwide, speaking to colleagues across the Group and engaging with our shareholders. TRG is one of the UK's biggest hospitality businesses, a significant employer, and one of the few UK listed casual dining groups. TRG also has a strong, pro-active management and leadership team who have steered the business very well through an extremely challenging period of significant macro-economic uncertainty and major structural change in the UK casual dining sector and position the group for medium term growth.

2022 was a challenging year for the casual dining sector as the industry "recovered" from the Covid 19 lockdowns in the previous two years and the travel industry started to rebuild passenger volumes. We entered the year with the Omicron variant still impacting our business, shortly followed by the war in Ukraine which significantly impacted utility and supply chain costs and resulted in increasing cost-of-living pressures for our customers.

In response to the challenging macro-environment, TRG took decisive management actions to provide certainty on its cost base where possible, by hedging our utilities until December 2024[1] and reducing our interest rate exposure through interest rate caps. With further improvements in the customer offer and various operational initiatives, the Group has delivered a robust trading performance in 2022. In December, the Group successfully amended and extended its debt facilities providing extended tenor, an improved covenant package and the ability to make further repayments as appropriate .

I would like to thank all of my new colleagues at TRG, both at our Head Office and in our restaurants and pubs nationwide, for their continued hard work and commitment during another challenging year.

Whilst it is early days, the Group's trading performance in the first eight weeks of the current financial year (FY23) has been very encouraging. The management team have developed a clear plan to deliver significant EBITDA margin accretion over a three-year time horizon and the board continues to consider long-term strategic options.

Ken Hanna

Chairman

07 March 2023

Business review

Introduction

Following on from the Covid-19 pandemic, 2022 was a year which presented new challenges for the business, primarily in the form of significant inflationary pressures which have impacted the entire casual dining sector. Through the actions we have taken over the course of the year, we have been able to navigate these cost pressures and now look forward with a greater degree of visibility on our key cost lines.

We have developed plans which are focused on achieving significant EBITDA margin accretion over a three-year time horizon, with a number of proactive initiatives now in place to drive the greatest value from our portfolio, expanding where we see attractive returns whilst effectively managing both pricing and costs.

We provide more detailed updates below:

Key updates in FY22:

1) Our diversified multi-brand portfolio

2) Navigating cost headwinds

Our medium-term strategy:

3) Investing in long-term growth opportunities

4) Proactive plan to deliver EBITDA margin accretion over three years

1. Our diversified multi-brand portfolio

Note: All LFL sales figures for FY22 quoted in this section are versus 2019 comparables

Wagamama

Wagamama is the only UK pan-Asian brand concept of scale and is one of the UK's market-leading premium casual dining brands. The business has had a consistent and strong track record of market LFL sales outperformance pre-Covid. This continued in FY22, with Wagamama achieving LFL sales growth of 8%, representing a 3% outperformance versus the market. Customer ratings have remained excellent with the December 2022 external NPS scores (as measured by BrandVue) positioning Wagamama as the number one brand amongst casual dining chains in the UK.

This performance is underpinned by strong brand health and core operational drivers as follows:

· Trend-led menu innovation: The business continues to innovate in anticipation of future food trends with a focus on maintaining our 50% plant-based commitment whilst also protecting iconic Wagamama dishes. Vegan participation of sales has grown to 20% which has been supported by the launch of our plant-pledge and 50% plant-based menu. Additionally the business launched its Gyoza ramen dishes over the winter, which have seen strong participation with the chicken gyoza ramen being the third most popular dish on the menu.

· Unique colleague-centric culture: The Wagamama business continues to be underpinned by a strong people culture which has been a key focus since the business started over 30 years ago. The business stands for radical inclusion which drives ethnically diverse teams (43% of our teams identify as non-white) and also benefits from strong restaurant leadership stability with a high average length of service (General Manager; 5 years, Head Chef; 7 years). This in turn drives strong unit economics and stability within teams.

· Purpose-led marketing activity: Wagamama has a focus on building relevant, distinctive marketing campaigns that look to drive short-term sales and long-term brand saliency. The business has a key focus on its purpose pillars of sustainability, mental health and radical inclusion whilst also driving relevancy in its marketing activations. A recent partnership example with Niko Omilana (a prominent YouTube influencer) helped to generate strong engagement and grew student penetration by 24% in 2022.

Pubs

Our Brunning & Price Pubs business is a premium food-led concept and also has had a consistent and strong track record of market LFL sales outperformance pre-Covid. The business delivered an exceptional performance in FY22, delivering LFL sales growth of 10%, representing a 11% outperformance versus the market. Customer sentiment remains strong with social media scores (consolidation of Google, Facebook and Tripadvisor scores) averaging approximately 4.5/5 for 2022, maintaining our highest rating over the past five years.

The core drivers that generate this consistently strong performance are:

- Attractive customer demographics: An average of 60% of the total population within a 15-minute drive time forming part of the higher income classes (A to C1), usually comprising at least a 25,000 total catchment population

- Defensible, well-invested locations: Having sites situated primarily in rural and suburban locations (c.80%) with spacious layouts and limited competition nearby has been instrumental in the Group's ability to trade strongly. Over 60% of the Pubs estate benefits from having over 100 "external" covers

- Localised business model with strong execution: The business model benefits from autonomy on menu selection at a site level which allows pubs to adapt their offering to local demand and the business benefits from strong retention and stability of its management team

The business also benefits from strong asset backing with approximately 50% of our pubs being freehold. In August 2022, our freehold pub estate was valued at £160 million according to a third-party valuation commissioned by the Group.

Leisure

The business achieved flat LFL sales growth in FY22, 5% behind the market. The Leisure business is in a highly contested market segment and is the component of our portfolio most exposed to changes in wider consumer sentiment, and therefore Leisure's trading performance has been the most directly impacted by the cost-of-living pressures.

Despite the challenging trading backdrop, customer ratings remain strong with a 10% improvement in NPS achieved across Frankie & Benny's over the year and 5% for Chiquito (as measured by the Yumpingo platform).

The key drivers of this improved customer sentiment have been:

- Continued investment in food & drink quality: The number of core menu items was reduced by 15% to 20% for the winter menu launch which further supported our focus on improved food quality and dish execution. Drinks presentation has improved significantly with new glassware across our range including our popular cocktails.

- Improved colleague engagement through our 'Raise the Roof" programme: Over 35% of our Leisure teams have now graduated through the programme driving a strong improvement in customer NPS and team engagement scores. 85% of our colleagues are happy in their role with over 80% recommending the business as a great place to work.

In response to the tough macro-environment, the Leisure business has proactively developed a further estate rationalisation plan in order to further enhance its cash generation. There is a good level of lease flexibility across the Leisure business and we plan to exit c.35 potentially loss-making locations over the next two years through a combination of exercising break clauses, lease expiries, selective conversions and accelerated disposals as follows:

· Conversions - one to three sites to be converted to Wagamama over the next two years

· Lease events - at least 13 sites will be exited at break clause or lease expiry

· Freeholds - seven freeholds will be sold

· Accelerated disposals - Sites are being marketed for exit and we expect to dispose of 10-20 sites

Overall, as a consequence of the above actions, the Leisure estate is expected to reduce by c.30% from 116 sites today to 75-85 sites by 2024.

Concessions

The Concessions business recovered strongly during 2022 with all 42 sites open for trading during the peak summer season. The significant increase in demand over Easter created several operational challenges, not least the ability to recruit and retain sufficient team members in a highly competitive market. Our teams performed heroically against a tough backdrop to be ready for the busy summer trading period.

LFL sales declined by 13%, 10% ahead of the passenger volume decline of 23% over the year. Sales have benefitted from a higher than anticipated recovery in passenger volumes as well as an increased average spend per passenger, partly through increased pricing to offset inflationary pressures and partly through increased dwell times.

The Concessions team are very well positioned to maintain strong momentum into 2023 and 2024 as the recovery in passenger numbers continues.

2. Navigating cost headwinds

TRG has a policy of proactive risk management ensuring we have certainty over our future cost base wherever possible. As announced at the Group's interim results on the 8th September 2022, TRG chose to hedge Utilities to achieve certainty in a highly volatile market.

At current spot utilities prices (which remain extremely volatile) TRG is currently hedged broadly in line with current spot prices[2].

As announced on 22^nd December 2022, in challenging market conditions TRG successfully secured debt financing for the next four years with improved covenant arrangements and has the ability to make further repayments as appropriate.

This is vital in a casual dining sector where debt financing has proven exceptionally difficult to achieve since COVID. The benefit from TRG's purchasing of an "interest rate cap" in 2021 means that, based on the current Bank of England base rate of 4%, the current cash saving is over £4 million per annum, or £12m over the term of the hedges.

3. Investing in long-term growth opportunities

Our Wagamama business has a track record of delivering strong returns on new sites and despite the near-term cost challenges we plan to selectively grow the business. In FY23 our development capital expenditure will be focused on growing Wagamama UK sites and supporting our US JV partners with their roll-out plans:

Wagamama UK: Our returns from openings over the last four years (20 sites opened during 2018-2021) excluding central London sites have continued to be strong and achieved ROIC[3] of between 35 to 40% in FY22. The two central London sites we opened during this period have been impacted by the changes in working patterns affecting central London.

Our most recent regional openings in 2022 (six sites) have benefitted from improved commercial terms and are expected to deliver ROIC² of c.40% in FY23. These new regional sites offer large virgin catchments with relatively low fixed costs, good incentives and strong brand awareness and demand.

These exceptionally strong returns achieved by our regional openings gives us confidence to continue to invest in our expansion programme despite the recent elevated level of inflationary pressure in utility and supply chain costs this year.

We have clear visibility of a profitable openings programme over the next three years with a healthy pipeline in place and plan to open five sites in FY23 and a further five sites in FY24 and FY25 respectively.

Long-term ambitions include significant measured roll-out potential to expand both in the UK to a targeted c. 200 restaurants (from 156 today)

Wagamama US: Our US JV is a 20:80 partnership (with TRG as the minority investor) and the JV assumes full ownership of the operations of the US business. The JV therefore provides TRG with a capital efficient means for expanding the business in the US. TRG retains the option to repurchase the remaining 80% of the business starting in December 2027.

Our US JV partners have made good progress with the operations in the business with customer ratings having improved significantly and currently average 4.2/5 for FY22 versus 3.9/5 in FY21 (as measured by Yelp).

With regard to new site development, the JV is focusing its expansion plans in regions outside of New York and Boston, where the operating and property costs are significantly lower and in the last six months has opened two new sites in Atlanta and Tampa. Whilst early days the overall performance across the two sites has been encouraging. Two further sites are due to open in FY23 in Dallas and Arlington. The JV Board will decide the precise scale of the future expansion plans but we would expect to be targeting an overall estate size of 25-35 sites by December 2027 (from the seven existing sites today)

Wagamama International franchise: We made good progress in our expansion plans in FY22 and opened seven new sites predominately in Italy and the Middle East. Going forward we expect to open five to eight new restaurants per year, representing a capital efficient way to expand the Wagamama brand internationally.

Pubs: Our expansion plan will resume when capital costs of quality pub assets moderate and new sites meet our returns thresholds. Our focus for the year ahead will be to continue to drive LFL sales growth with the core B&P model proving extremely resilient and exploring opportunities to increase our accommodation offering.

Concessions: We are proactively renewing leases in our existing estate and have renewed four leases in the last six months including two major sites at Heathrow and Gatwick. This activity maximises our future earnings stream from this business. Our restructured airport portfolio is now benefitting significantly from the recovery in air travel, with a significant acceleration in the sales performance of the Concessions business throughout FY22, with like-for-like sales now almost flat to 2019 sales levels. This augurs well for the continued anticipated recovery in passenger volumes in 2023 and 2024.

4. Proactive plan to deliver margin accretion over three years

Despite strong sales growth and rigorous central cost management, sector-wide cost inflation has caused a significant deterioration in TRG's EBITDA margin from a pro-forma 2019 EBITDA (pre-IFRS 16) margin of c.14% down to 9.4% in FY22. When accounting for the benefit from lower VAT in Q1 2022, the FY22 VAT Adjusted EBITDA (pre-IFRS 16) margin falls to 8.3%.

We have built a proactive plan to drive significant margin accretion from this 8.3% base, with the clear ambition to target an improvement of 250bps to 350bps over the next three years (i.e. FY25 year-end run-rate)

The core drivers will be:

(1) Volume and pricing growth: Continuous operational initiatives to drive customer footfall and selective price increases whilst preserving our value for money offer

(2) Cost opportunities: Short-term contract extensions with suppliers in order to benefit from expected softening of inflation through 2023 and benefitting from deflation in our utilities costs in FY24 and FY25 due to our hedging. The Group will also target efficiencies it can achieve in its central cost base

(3) Portfolio mix: The continued expansion of Wagamama, continuing to grow our Pubs business, the rationalisation of the Leisure estate and the earnings recovery from our Concessions business as passenger volumes continue to recover will all enhance the profitability mix of the Group over the next two to three years

Summary

Despite the continuing inflationary pressures facing the casual dining sector, TRG is confident in our ability to deliver shareholder value:

· We delivered a robust trading and operating performance in FY22

· We have made a very encouraging start to trading in FY23

· The cost outlook is improving

· Medium-term strategic priorities:

o Proactive plan to deliver significant EBITDA margin accretion

o Target net debt/EBITDA below 1.5x

o Continue to review longer-term strategic options

Financial Review

In 2022, the Group was able to trade with limited restrictions from Q2 when the impacts of the Omicron variant had dissipated. Our Concessions business was able to fully reopen for trade from the second half of 2022 and benefited from a better-than-expected recovery of passenger volumes through Q3 and Q4. Overall, the Group traded robustly in 2022, and we were particularly pleased with the sales growth in our Wagamama and Pubs divisions with their respective market outperformances in the year.

As has been widely reported the war in Ukraine triggered unprecedented cost pressures, particularly in elevated levels of food and drink and energy inflation. This coupled with shortages of labour supply in the UK and increasing National Living Wage, has led to a reduction in operating margins despite the strong sales growth delivered.

Statutory Results

The key statutory financial measures (IFRS 16) are summarised below and are stated after the impact of exceptional costs:

	STATUTORY RESULTS (IFRS 16)
	52 weeks ended 1 Jan 2023 £m	53 weeks ended 2 Jan 2022* £m
Revenue	883.0	636.6
Operating profit/(loss)*	(49.7)	11.8
Loss before tax*	(86.8)	(35.2)
Loss after tax*	(68.5)	(40.3)
Statutory EPS/(LPS) (pence)*	(9.0)p	(5.6)p

^* Restated to remove business rates from closed site provisions

Revenue for the year was £883.0m (2021: £636.6m) which represented an increase of 38.7% on the prior year. Revenue growth was driven by continued strong trading across our Wagamama and Pubs businesses along with the benefit from the reopening of international travel benefiting our Concessions business in a meaningful way from H2 2022. Our Leisure business whilst achieving flat LFL sales growth underperformed the market, with the business impacted to some degree by the cost-of-living pressures on the UK consumer.

The statutory operating loss of £49.7m (2021: operating profit of £11.8m) was due to the impact of significant exceptional items of £117.5m (2021: £27.2m) which are explained further below. These exceptional items are primarily due to a non-cash impairment charge, as a result of lower forecast future earnings expectations, predominately in our Leisure division, due to significant inflationary and cost-of-living pressures in the near-term. Prior to the impact of exceptional items, operating profit was £72.7m (2021: £37.1m).

Net interest costs of £37.1m (2021: £47.0m) are significantly lower than the prior year due to the recognition of an exceptional gain in the period of £11.9m (2021: nil) on our interest rate caps. The interest rate caps limit SONIA rates to 0.75% until November 2025 on £125m of gross debt, and until November 2026 on £100m of gross debt. The interest cost prior to exceptionals was £42.0m compared to £45.1m in the prior year, the decrease in costs was mainly due to savings achieved from the early repayments of the term-loan made during the year resulting in lower debt facilities, partially offset by the increase in SONIA rate on the floating debt.

Alternative Performance Measures

TRG uses a number of non-statutory measures to monitor business performance which are referred to within the Annual Report and Accounts, but primarily relate to Adjusted and pre-IFRS 16 profit metrics. This is because the pre-IFRS 16 profit is consistent with the financial information used in the management accounts to inform business decisions and investment appraisals. It is TRG's view that presenting the information on a pre-IFRS 16 basis will provide a useful basis for understanding the Group's results to all stakeholders. Specifically, the measures mainly relate to three adjustments:

- The main profit measure used is Adjusted EBITDA. This is not a statutory measure but closely represents the Group's ability to make cash trading profits as it excludes key non-cash elements of the Income Statement such as depreciation and amortisation as well as exceptional items

- The adjusted profit and debt measures are based on the IAS 17 approach to lease accounting and does not include the impact of IFRS 16. This is used as it more closely represents the cash profit of the business, and debt as measured by our banks

- The adjusted profit measures are quoted excluding the impact of items that management have deemed as exceptional as they are material and not related to underlying trading

As these measures are not defined by accounting standards, they may not be comparable across companies. The adjusted results may exclude significant costs (such as restructuring or impairments) and so may not be a complete picture of the Group's financial performance, which is presented in the statutory results.

The key alternative performance measures are summarised below. Both pre-IFRS 16 and IFRS 16 figures are shown and are stated before the impact of exceptional costs:

APM (Pre-IFRS 16) APM (IFRS 16)

	52 weeks ended 1 Jan 2023 PRE IFRS 16 £m	53 weeks ended 2 Jan 2022* PRE IFRS 16 £m	52 weeks ended 1 Jan 2023 IFRS 16 £m	53 weeks ended 2 Jan 2022* IFRS 16 £m
Revenue	883.0	636.6	883.0	636.6
Adjusted¹ EBITDA	83.0	81.2	147.2	115.2
Adjusted¹ EBITDA margin	9.4%	12.8%	16.7%	18.1%
Adjusted¹ operating profit/(loss)	44.5	42.8	72.7	37.1
Adjusted¹ operating margin	5.0%	6.7%	8.2%	5.8%
Adjusted¹ profit/(loss) before tax	20.3	16.6	30.7	(8.0)

¹ The Group's adjusted performance metrics are defined within the glossary at the end of this report. All such adjusted measures are stated pre-exceptional items

^* Restated to remove business rates from closed site provisions

Adjusted EBITDA (pre-IFRS 16) for 2022 is £83.0m (2021: £81.2m). The improvement in EBITDA was due to strong sales growth across our Wagamama, Pubs and Concessions businesses, which was partially offset by the significant cost inflation experienced across labour, cost of goods sold and utilities during the year.

The Group made a profit before tax and exceptionals (pre-IFRS 16) for the year of £20.3m (2021: profit £16.6m).

Refinancing

During December 2022, the Group successfully completed an amend and extend of its existing debt facilities. As part of the refinancing the Group repaid £20.9m of the term loan in order to reduce ongoing interest costs while maintaining significant cash headroom. The Group's debt facilities now comprise the following:

- A £220m term loan with over five years to run through to April 2028; and

- A £120m super senior revolving credit facility with over four years to run through to March 2027 with the option of a one-year extension to March 2028.

The revised covenant package provides additional covenant headroom for the Group until March 2025 . For the FY23 financial year, the Group's net leverage covenant (as measured on a pre-IFRS 16 basis) is set at 5.0x for the June 2023 covenant test (previously 4.5x) and 4.75x for the Dec 2023 covenant test (previously 4.0x).

The revised facilities provide the Group with an extra two-year term, an improved covenant package over the next 18 months and the ability to make further repayments as appropriate .

Capital allocation framework

The Group remains disciplined in its approach to capital allocation with the overriding objective being to enhance shareholder value. The Group's capital allocation framework prioritises:

Priorities	Parameters
(1) Investment in customer offer	Refurbishment and maintenance capex within a range of £20m to £30m per annum
(2) Maintain a strong balance sheet	Target leverage[4] below 1.5x within the next three years
(3) Wagamama and Pubs new site expansion	Deliver against targeted returns criteria: o Wagamama >35% ROIC o Pubs >20% ROIC

Cash flow and net debt

Net debt on an IFRS 16 basis has remained flat from £582.0m to £581.7m in the year. The lease liability component of this was £396.0m (2021: £410.4m), a reduction of £14.4m. This reduction was due to payments made during the year of £59.8m, which was partially offset by the following main drivers:

· New leases signed with a lease liability of £19.5m

· Interest on lease liabilities of £17.7m

· Remeasurements of lease modifications of £13.9m, relating to items such as lease renewals

The Pre-IFRS 16 net debt component (i.e. bank debt) has increased from £171.6m to £185.7m, an increase of £14.1m. Free cash flow reduced to £39.4m (2021: £44.7m). In the year there was a material increase in working capital due to the VAT rate reverting to 20% from Q2 but this was offset by an increase in maintenance and refurbishment capex of £36.6m (2021: £19.0m). The increase in capital expenditure related to a catch-up on refurbishment spend relating to our Wagamama, Pubs and Leisure businesses, following two years of disrupted trading due to Covid.

Development expenditure of £21.6m (2021: £14.9m) related primarily to opening eight new Wagamama restaurants and two new pubs including the freehold purchase of a new pub due to open in FY23.

Summary cash flow for the year (on a pre-IFRS 16 basis) is set out below:

	2022 £m	2021 £m
Adjusted EBITDA (Pre-IFRS 16 basis) ¹	83.0	81.2
Working capital and non-cash adjustments	14.3	5.7
Operating cash flow**	97.3	86.9
Net interest paid	(21.3)	(20.6)
Tax (paid)/received	-	(2.6)
Refurbishment and maintenance expenditure	(36.6)	(19.0)
Free cash flow	39.4	44.7
Development expenditure	(21.6)	(14.9)
Acquisition of Barburrito	(6.2)	-
Movement in capital creditor	(1.5)	(1.0)
Utilisation of onerous property cost provisions	(8.3)	(6.0)
Exceptional costs	(8.6)	(15.0)
Proceeds from issue of share capital	-	166.8
Proceeds from disposals	0.8
Other items	(1.4)	-
Cash movement	(7.4)	174.0

Net Debt (Pre IFRS 16 basis)
Group net debt brought forward	(171.6)	(340.4)
Derecognition of finance lease liability (IFRS 16 transition)	-	-
Non-cash movements in net debt	(6.7)	(5.2)
Group net debt carried forward (Pre IFRS 16 basis)	(185.7)	(171.6)

Incremental lease liabilities (IFRS 16)	(396.0)	(410.3)
Group net debt carried forward (IFRS 16 basis)	(581.7)	(582.0)

¹ The Group's adjusted performance metrics are defined within the glossary at the end of this report. All such adjusted measures are stated pre-exceptional items

**Operating cash flow excludes certain exceptional costs and includes payments made against lease obligations

A reconciliation of free cash flow is in note 22 of the accounts

At year-end, the Group had cash headroom of £139.2m (2021: £258.1m) consisting of £111.5m of undrawn revolving credit facilities (2021: £111.6m) and a cash balance of £27.7m (2021: £146.5m) which provides the Group with significant liquidity to fund both the operations of the Group and future new openings for both our Wagamama and Pubs businesses. The primary driver of the reduction in the cash balance during the year relates to £110m of repayments made on our term-loan facility.

This strong financial position and substantial liquidity enables the Group to navigate the near-term sector challenges with key cash flow items for FY23 outlined in the table below:

	FY22 actuals	FY23 guidance
Disciplined and flexible capex programme	£58m	£40m to £45m
Cash interest costs	£21m	£21m to £22m
Working capital inflow	£14m	£5m to £10m
Onerous lease cost	£8m	£10m to £12m

- Capex FY23: refined our investment plans to invest between £40 to £45m. We will focus on maintenance expenditure across our businesses and selective refurbishments, with new openings expenditure predominantly within our Wagamama business

- Cash interest costs FY23: costs expected to be in-line with FY22, with the c. £21m repayment of debt facilities in December 2022 offsetting the increase in Sonia bank rate

- Working capital FY23: expect an inflow due to improved payment terms across key suppliers and ongoing benefit from further revenue growth

- Onerous lease costs FY23 : expected to increase due to additional onerous lease provisions at certain sites, predominately within our Leisure division

Exceptional items

An exceptional pre-tax charge of £117.5m has been recorded in the year (2021 restated: £27.2m), these costs in the main relate to the reduced forecast earnings within our Leisure division and the subsequent planned restructuring.

Exceptional items predominately relate to:

- Impairment of assets of £113.9m (2021: £25.9m). The impairment charges relate to the impact of reduced trading expectations and near-term inflationary pressures, primarily relating to certain sites in our Leisure business. The IFRS right-of-use asset impairment is £60.4m with the remaining charge being property, plant and equipment.

- An Estate restructuring charge of £6.8m (2021: £1.8m) relating to the planned accelerated disposal of certain leisure sites and remeasurement for existing closed sites

- Write off of previously capitalised loan fees on the amend and extend of the existing debt facilities and new fees incurred on the amend and extend deal of £7.0m (2021: £1.9m)

- Recognition of an exceptional gain made on the interest rate caps of £11.9m (2021: nil)

The tax credit relating to these exceptional charges was £23.2m (2021: charge £9.4m).

Cash expenditure associated with the above exceptional charges in the year was only £8.6m (2021: £7.4m) relating principally to onerous lease payments and business transformation costs. In total, there is a £1.7m cash inflow relating to exceptional charges due to the £11.9m gain on the interest rate caps. The remainder of the exceptional items were non-cash in nature.

Tax

The tax credit for the year was £18.3m (2021: charge of £5.1m), summarised as follows:

	2022			2021
	Trading £m	Exceptional £m	Total £m	Trading £m	Exceptional £m	Total £m
Corporation tax	-	-	-	0.7	(0.7)	-
Deferred tax	6.1	(23.2)	(17.1)	(2.6)	10.3	7.7
Total current year tax	6.1	(23.2)	(17.1)	(1.9)	9.6	7.7
Adjustments in respect of prior years	(1.2)	-	(1.2)	(2.8)	0.2	(2.6)
Total tax (credit) / charge	4.9	(23.2)	(18.3)	(4.7)	9.8	5.1

Effective tax rate (excl prior years adjustments)	20.0%	19.8%	19.7%	23.8%	(38.6%)	(23.4%)
Effective tax rate	16.1%	19.8%	21.1%	53.8%	(39.4%)	(16.7%)

Given that the Group has made a statutory loss in both the current and prior periods, the effective tax rate is not indicative of future expected tax rates. It is also worth noting that the Group has further statutory losses and interest restrictions worth £31.0m which will reduce future cash tax payments over the next two to three years.

The effective adjusted tax rate for the year was 16.1% compared to the 53.8% in the prior year. In the current year, the adjusted tax rate is below the main rate as there are one off accelerated allowances. Excluding the one-off benefit, the effective tax rate is 23.6% (2021: 23.8%). Consistent with prior years, the tax rate is higher than the UK corporation tax rate due to non-deductible expenses primarily relating to depreciation on non-qualifying assets.

The current year exceptional tax credit of £23.2m consists of £5.1m credit relating to the change in tax rate from 19% to 25% which increases the value of the deferred tax liability and the balance are tax credits from the exceptional costs.

Key inflationary themes FY23

There are some well-documented sector wide cost challenges for the year ahead, as outlined below:

All inflation figures below are stated as their incremental impact in FY23 vs FY22 post mitigating activities

- Labour market pressures: the continued shortage of labour across the UK is leading to upward pressure on wage rates in addition to the significant increase in the National Living Wage (NLW) from April 2023 of 9.7%. Wage inflation is expected to be between 8 to 10% as a result of this in FY23

- General food and drink inflation: driven by global commodity markets it is expected that cost inflation of 10%+ will be experienced in FY23 with inflation moderating through H2

- Utilities inflation : Given extreme volatility in the utilities markets, we have hedged[5] 100% of our volume in FY23 & FY24 to gain certainty on this element of cost inflation. In addition, we are 80% hedged for the first three quarters of FY25.

The table below shows the inflationary impact on our utilities balance post this hedging activity:

Inflationary impact post hedging (FY23 vs FY22)

Inflationary impact post hedging (FY24 vs FY23)

Inflationary impact post hedging (FY25 vs FY24)

Costs expected to be £7m to £8m higher in 2023 vs 2022

Costs expected to be £3m to £4m lower in 2024 vs 2023

Costs expected to be £4m to £5m lower in 2025 vs 2024

There are a number of actions the Group is taking to mitigate the significant effects from the elevated levels of cost inflation expected for the current year:

- Continue to deliver a reduction in labour turnover to improve retention through better recruitment and onboarding

- Working with our supply chain partners to lock in short term contracts in order to benefit from reduced inflation as the year progresses

- 100% of electricity and gas volume hedged⁵ for 2023 and 2024 and 80% hedged for the first three quarters of FY25, providing certainty over our costs and locking in deflationary savings in FY24 and FY25

- Conducting a review of our central cost base as part of our three-year margin accretion plan

Selected FY23 Guidance

· Total capital expenditure approximately £40m-£45m:

o Maintenance and IT investment of c.£20m

o Refurbishment capex of c. £10m includes:

- 3-5 Wagamama transformational refurbishments

- 3 significant pub refurbishments

o Expansionary capex of £10m-£15m

- 5 Wagamama UK restaurants

- 1 Pub restaurant

- 3 significant Concession renewals

· IFRS 16 EBITDA add-backs (i.e., rent and other property non-cash charges):

o Net add-back £49m to £53m

- £60m to £62m for fixed rent

- (£9m) to (£11m) for non-cash property charges

· Depreciation and interest detailed in table below:

	Pre-IFRS 16 £'m	IFRS 16 £'m	Total £'m
P&L Depreciation	35-37	31-33	66-70
P&L Interest	24-26	16-17	40-43

Environmental and Social initiatives

The Group remains committed to acting as a responsible business and continues to both develop new initiatives, and enhance existing ones, to progress its Environmental, Social and Governance (ESG) agenda.

Our 'Preserving The Future' Programme focuses on continuously finding ways to reduce our carbon footprint in our own operations and our supply chain, sourcing responsibly and sustainably, improving our packaging, further contributing to our communities, and improving the health and wellbeing of our colleagues and customers, all underpinned by a strong governance framework.

Details of key activities the Group has undertaken in FY22 will be disclosed in TRG's annual report in the Environmental and Social report section.

Going Concern

The directors have adopted the going concern basis in preparing the Annual Report and Accounts after assessing the Group's principal risks including current macroeconomic headwinds, relating to the cost-of-living crisis, elevated levels of inflation and utility market volatility. In conducting their review, the Directors have concluded that the Group, and Company, have sufficient liquidity and covenant headroom for the going concern review period to 31 March 2024.

The Group has substantial liquidity with £139m in cash and cash equivalents, or available facilities at the balance sheet date. Following an amend and extend in December 2022 these facilities are committed until at least March 2027. The facilities consist of a £220m Term loan and a £120m RCF. Further details of the Group's debt facilities and covenants are in Note 15 to the Accounts.

Whilst the Group has had an encouraging start to the year, with current trading above forecast, the Directors remain cautious about the ability for our customers to continue their current level of spending in our restaurants and pubs whilst their cost-of-living crisis continues and specifically the unprecedented increases in UK household energy bills. In preparing the 'base case' forecast for the period of going concern to 31 March 2024, the Directors have assumed that sales volumes would moderate marginally throughout the period from current levels and have included the impact of inflation at its current elevated levels throughout 2023 and then a moderation of inflation in 2024. In this forecast, available liquidity does not drop below £104.5m compared to a minimum liquidity covenant of £40m, and Senior Secured Net Leverage does not exceed 2.9x against a covenant of no more than 5.0x.

In addition, the Board has considered a 'stress case' scenario where sales volumes have been further reduced by 5% across all divisions and with the benefit of 1% incremental price, the net impact on sales is assumed to be 4% below the base case. In this 'stress case' scenario following management mitigation, which includes the ability to further increase our selling prices, conduct a central cost reduction program and to refine our uncommitted capital expenditure plans, liquidity falls to a minimum of £89m, and Senior Secured Net Leverage increases to 3.4x but still within the covenants of the Group's banking facilities.

The Board have also considered a reverse stress case to determine the level by which sales volume would need to fall from the 'base case' before there is a risk of a leverage covenant breach, which is the most sensitive covenant. Pre-mitigating actions, the level of sales volume decline compared to the base case is 7.4%. Following mitigating actions, that are completely within managements control, which includes the ability to increase selling prices, conduct a far more extensive central cost reduction program and further refinement to capital expenditure plans the level of sales volume decline compared to the base case increases to 14.6%. The Board considers this level of sales volume decline over a sustained 12 month period as remote due to current trading (in the first eight weeks) being ahead of the base case, the current economic outlook from both the Bank of England and the International Monetary Fund is for a shallow recession in 2023 and that during the last economic recession the Group only experienced a modest sales decline of less than 2% in 2009 compared to the prior year and less than 1% in 2010 when compared to 2009.

However, if this level of sales volume decline was experienced on a sustained basis, the Group would take further decisive actions which is within its control to reduce further both its operating costs and capital expenditure to mitigate the potential risk of a covenant breach. Furthermore, the directors would also engage with its lending group for covenant waivers, which were provided during the pandemic given similarly extreme circumstances.

As a result of the above analysis, where the base and stress cases show adequate liquidity and leverage covenant headroom and the level of sales volume decline required in a reverse stress case to risk a covenant breach is considered remote, the Board has a reasonable expectation that the Group, and Company, have adequate resources to continue in operational existence for the period to 31 March 2024. On this basis, the Directors continue to adopt the going concern basis of preparation.

Viability statement

In accordance with provision 31 of the UK Corporate Governance Code (July 2018) (the 'Code'), the Directors have assessed the viability of the Group over a three-year period to December 2025.

The Directors believe that three years is the appropriate time-period over which to evaluate long term viability, and this is consistent with the Group's current strategic planning process. Management have prepared, and the Board has considered two key scenarios:

• A 'base case' where the business is trading normally but the current macro-economic climate has been considered for each of labour, cost of goods sold and utilities inflation. Specifically, the Group has forecast like-for-like sales growth to varying degrees across the divisions when compared to 2022. Cost inflation of c.10% is forecast in 2023 but then reducing significantly in 2024 and 2025 to c. 4% excl. utilities which is forecast to reduce in line with the hedges that were put in place. The Concessions business is forecast to return to pre-pandemic levels of passengers in 2025 in line with current air passenger forecasts.

• A 'stress case' whereby the company is more significantly impacted by the cost-of-living crisis assumes sales are further reduced by 4% in 2023 and based on a more significant impact from the recession, but then recovers to similar levels of trading through 2024 and 2025.

As detailed in the Risk Committee report, the Board has conducted a robust assessment of the principal risks facing the business. The resilience of the Group to the impact of these risks has been assessed by the creation of the 'stress case' which management believe to be a severe but plausible scenario based on past experience (see Principal Risks and Uncertainties in the annual report). Taking account of the company's current position, principal risks facing the business and the sensitivity analysis discussed above, as well as the potential mitigating actions that the company could take, and the experience that the Company has in adapting the business to change, the Board expects that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of assessment. The Board also noted that the Group's debt facilities extend beyond the period of the viability assessment. Further details on the forecast process and assumptions can be found in Note 1 to the accounts.

The Restaurant Group plc

Consolidated income statement

		52 weeks ended 1 January 2023
		Trading business	Exceptional items (Note 7)	Total


	Note	£m	£m	£m
Revenue		883.0	-	883.0
Cost of sales		(762.8)	(120.7)	(883.5)
Gross profit/(loss)	5	120.2	(120.7)	(0.5)

Share of results of associate		-	-	-
Administration costs		(47.5)	(1.7)	(49.2)
Operating profit/(loss)		72.7	(122.4)	(49.7)

Interest payable	8	(42.3)	(7.0)	(49.3)
Interest receivable	8	0.3	11.9	12.2

Profit/(loss) on ordinary activities before tax		30.7	(117.5)	(86.8)

Tax on profit/(loss) from ordinary activities	9	(4.9)	23.2	18.3

Profit/(loss) for the year		25.8	(94.3)	(68.5)

Other comprehensive income
Foreign exchange differences arising on consolidation		(0.4)	-	(0.4)
Total comprehensive profit/(loss)		25.4	(94.3)	(68.9)

Profit/(loss) per share (pence)
Basic	10	3.3	-	(9.0)
Diluted	10	3.4	-	(9.0)


EBITDA		147.2	(8.5)	138.7

Depreciation, amortisation and impairment		(74.5)	(113.9)	(188.4)

Operating profit/(loss)		72.7	(122.4)	(49.7)

Consolidated income statement

		53 weeks ended 2 January 2022
		Trading business	Exceptional items (Note 7)	Total


	Note	£m	£m	£m
Revenue		636.6	-	636.6
Cost of sales*		(548.2)	(23.7)	(571.9)
Gross profit/(loss)	5	88.4	(23.7)	64.7

Share of results of associate		(0.3)	-	(0.3)
Administration costs*		(51.0)	(1.6)	(52.6)

Operating profit/(loss)		37.1	(25.3)	11.8

Interest payable	8	(45.7)	(1.9)	(47.6)
Interest receivable	8	0.6	-	0.6

Profit/(loss) on ordinary activities before tax		(8.0)	(27.2)	(35.2)

Tax on profit/(loss) from ordinary activities	9	4.3	(9.4)	(5.1)

Profit/(loss) for the year		(3.7)	(36.6)	(40.3)

Other comprehensive income
Foreign exchange differences arising on consolidation		0.1	-	0.1
Total comprehensive profit/(loss)		(3.6)	(36.6)	(40.2)

Profit/(loss) per share (pence)
Rights adjusted basic	10	(0.5)	-	(5.6)
Rights adjusted diluted	10	(0.5)	-	(5.6)


EBITDA		115.2	0.6	115.8

Depreciation, amortisation and impairment		(78.1)	(25.9)	(104.0)

Operating profit/(loss)		37.1	(25.3)	11.8

* Restated - refer to Note 2

** Cost of sales and administration reclassification in the current year - refer to Note 2.

Consolidated balance sheet

		At 1 January 2023	At 2 January 2022*
		At 1 January 2023	At 2 January 2022*
	Note	£m	£m

Non-current assets
Intangible assets	11	604.1	599.9
Right of use assets	12	237.6	289.4
Property, plant and equipment	13	257.7	285.1
Derivative financial instruments	18	15.4	2.1
Trade and other receivables		8.2	4.7
		1,123.0	1,181.2

Current assets
Inventory		6.5	6.0
Trade and other receivables		18.3	13.9
Prepayments		8.0	8.0
Cash and cash equivalents	18	27.7	146.5
		60.5	172.5

Total assets		1,183.5	1,353.7

Current liabilities
Trade and other payables		(160.7)	(128.3)
Provisions*	15	(2.3)	(3.1)
Lease liabilities	16	(55.0)	(73.1)
		(218.0)	(204.5)

Net current liabilities		(157.5)	(32.0)

Long-term borrowings	18	(213.4)	(318.1)
Deferred tax liabilities*		(25.8)	(43.6)
Provisions*	15	(5.3)	(3.2)
Lease liabilities	16	(341.0)	(337.3)
		(585.5)	(702.2)

Total liabilities		(803.5)	(906.7)

Net assets		380.0	447.0

Equity
Share capital		215.2	215.2
Share premium		-	394.1
Other reserves		1.6	0.1
Retained earnings*		163.2	(162.4)
Total equity		380.0	447.0

Consolidated statement of changes in equity

	Share capital	Share premium	Other reserves	Retained earnings	Total
	Share capital	Share premium	Other reserves	Retained earnings	Total
	£m	£m	£m	£m	£m

Balance at 27 December 2020	165.9	276.6	(3.9)	(131.3)	307.3
Loss for the year*	-	-	-	(31.1)	(31.1)
Other comprehensive income	-	-	0.1	-	0.1
Total comprehensive income/(loss)	-	-	0.1	(31.1)	(31.0)

Gross proceeds from share issue	49.3	125.9	-	-	175.2
Share issue transaction costs	-	(8.4)	-	-	(8.4)
Share-based payments	-	-	3.4	-	3.4
Deferred tax on share-based payments taken directly to other reserves
	-	-	0.5	-	0.5

Balance at 2 January 2022	215.2	394.1	0.1	(162.4)	447.0
Loss for the year	-	-	-	(68.5)	(68.5)
Other comprehensive income	-	-	(0.4)	-	(0.4)
Total comprehensive income/(loss)	-	-	(0.4)	(68.5)	(68.9)

Cancellation of share premium	-	(394.1)	-	394.1	-
Share-based payments	-	-	2.4	-	2.4
Deferred tax on share-based payments taken directly to other reserves	-	-	(0.5)	-	(0.5)

Balance at 1 January 2023	215.2	-	1.6	163.2	380.0

*Restated - refer to Note 2

Consolidated cash flow statement		52 weeks ended 1 January 2023	53 weeks ended 2 January 2022



	Note	£m	£m

Operating activities
Cash generated from operations	17	150.5	128.1
Interest received		-	-
Interest paid		(21.3)	(20.6)
Corporation tax (paid)/repayment		-	(2.6)
Payment against provisions*	15	(1.7)	(5.6)
Payment of exceptional costs*	7	(8.6)	(7.7)
Net cash flows from operating activities		118.9	91.6

Investing activities
Purchase of property, plant and equipment	13	(54.2)	(31.1)
Purchase of intangible assets	11	(5.4)	(2.7)
Proceeds from disposal of property, plant and equipment		0.8	-
Investment in associate		-	(0.3)
Purchase of subsidiary		(6.3)	-
Net cash flows from investing activities		(65.1)	(34.1)

Financing activities
Net proceeds from issue of ordinary share capital		-	166.8
Repayment of obligations under leases	16	(59.8)	(48.7)
Repayment of borrowings	18	(110.0)	(383.6)
Drawdown of borrowings	18	-	330.0
Upfront loan facility fee paid	18	(1.4)	(14.6)
Derivative financial instruments fees paid	18	(1.4)	18
Net cash flows used in financing activities		(172.6)	48.3

Net increase/(decrease) in cash and cash equivalents		(118.8)	105.8

Cash and cash equivalents at the beginning of the year	18	146.5	40.7

Cash and cash equivalents at the end of the year	18	27.7	146.5

*Restated - refer to Note 2

1. General information

The Restaurant Group plc (the 'Company') is a public listed company incorporated and registered in Scotland. The consolidated financial statements of the Group for the year ended 1 January 2023 comprise the Company and its subsidiaries (together referred to as the 'Group'). The principal activity of the Group during the period continued to be the operation of pubs and restaurants.

The 2023 AGM will be held on 23 May 2023. The notice convening this meeting is expected to be sent to shareholders in mid-April, along with details regarding proxy voting, and will be made available at the same time at www.trgplc.com/investors/reports-presentations/.

Basis of preparation

The information included in this preliminary announcement has been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted in accordance with UK Adopted International Financial Reporting Standards (IFRS).

The financial year runs to a Sunday within seven days of 31 December each year which will be a 52- or 53-week period. The year ended 1 January 2023 was a 52-week period, with the comparative year to 2 January 2022 being a 53 week period.

The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest hundred thousand except when otherwise indicated. They have been prepared on the historical cost basis, with the exception of derivative financial assets which are held at fair value.

Going concern basis

2. Restatement of comparatives

Business rates within closed site provisions

Where the Group holds a lease for a site that is no longer trading, a closed site provision is recognised for the costs to be incurred until the expected exit date. The Group's policy is that this should be all unavoidable costs which includes utilities, service charges and insurance, and has also historically included business rates. As a result of the additional guidance issued in relation to IFRIC 21 "Levies" in 2022, the Group has reassessed its policy in this area and concluded that business rates are a statutory obligation rather than a contractual obligation. As such prior period comparatives have been restated to remove business rates from closed site provisions. The resulting restatements are disclosed below.

	As originally disclosed	Adjustment	As restated


	£m	£m	£m
Balance sheet at 27 December 2020
Current provisions	(4.3)	3.0	(1.3)
Non-current provisions	(8.3)	8.3	-
Deferred tax liability	(39.7)	(2.3)	(42.0)
Retained earnings	(131.3)	9.0	(122.3)

	As originally disclosed	Adjustment	As restated


	£m	£m	£m
Balance sheet at 2 January 2022

Current provisions	(6.0)	2.9	(3.1)
Non-current provisions	(9.3)	6.1	(3.2)
Deferred tax liability	(41.9)	(1.7)	(43.6)
Retained earnings	(169.7)	7.3	(162.4)

	As originally disclosed	Adjustment	As restated


	£m	£m	£m

Income statement for the 53 weeks ended 2 January 2022
Exceptional cost of sales	(21.4)	(2.3)	(23.7)
Tax on loss from ordinary activities	(5.5)	0.4	(5.1)

Reclassification of cost of sales and administrative expenses in the current year

In the year ended 1 January 2023, the Directors have adjusted the allocation of cost of sales and administration expenses to more appropriately reflect the nature of costs incurred. No adjustment has been made to the prior year figures. Had an adjustment been made costs of sales in the year ended 2 January 2022 would have been £4.0m greater and administration expenses reduced by an equivalent amount.

3. Segmental analysis

IFRS 8 Operating Segments requires operating segments to be based on the Group's internal reporting to its Chief Operating Decision Maker (CODM). The CODM is regarded as the combined Executive team of the Chief Executive Officer and the Chief Financial Officer.

The Group has four operating segments of:

- Wagamama

- Pubs

- Leisure

- Concessions

It is the Directors' judgment that all of the segments meet the requirements for aggregation under IFRS 8. The economic characteristics of these businesses, including Gross Margin, Net Margin, EBITDA and Sales trajectory, have been reviewed by the Directors along with the non-financial criteria of IFRS 8. The Directors considered the expected near-term performance of the Leisure division during the cost-of-living crisis, and the longer-term projections considering the planned restructuring of the division during 2023 and 2024. The Directors concluded that the long-term economic characteristics of the Leisure division post-restructuring were similar to that of the other trading divisions within the Group, and therefore it was appropriate to aggregate the results.

Geographical Segments

The Group trades primarily within the United Kingdom and generates revenue from the operation of restaurants, with substantially all revenue generated within the United Kingdom. The Group generates some revenue from franchise royalties primarily in Europe and the Middle East. The segmentation between geographical location does not meet the quantitative thresholds and so has not been disclosed.

4. Reconciliation to underlying profit

The results used by the Directors to monitor and review the performance of the Group continue to reflect the IAS 17 approach to accounting and a number of the key metrics used in this report are prepared on that basis. A reconciliation is provided below of the key differences between results under IFRS 16 and the basis used for management reporting.

	2022	Adjustments		2022			Exceptional		2022	2021
	Trading		for IFRS 16		Trading	items		Total			Total*
	IAS 17				IFRS 16	(Note 7)		IFRS 16			IFRS 16
	£m		£m		£m	£m		£m			£m
Revenue	883.0		-		883.0	-		883.0			636.6
Cost of sales	(791.0)		28.2		(762.8)	(120.7)		(883.5)			(571.9)
Gross profit/(loss)	92.0		28.2		120.2	(120.7)		(0.5)			64.7

Share of result of associate	-		-		-	-		-			(0.3)
Administration costs	(47.5)		-		(47.5)	(1.7)		(49.2)			(52.6)

Operating profit/(loss)	44.5		28.2		72.7	(122.4)		(49.7)			11.8
Interest payable	(24.5)		(17.8)		(42.3)	(7.0)		(49.3)			(47.6)
Interest receivable	0.3		-		0.3	11.9		12.2			0.6

Profit/(loss) before tax	20.3		10.4		30.7	(117.5)		(86.8)			(35.2)

EBITDA	83.0		64.2		147.2	(8.5)		138.7			115.8
Depreciation, amortisation and impairment	(38.5)		(36.0)		(74.5)	(113.9)		(188.4)			(104.0)

Operating profit/(loss)	44.5		28.2		72.7	(122.4)		(49.7)			11.8

The "Adjustments for IFRS 16" summarised above can be seen in the below reconciliation of trading profit before tax (excluding exceptional items) from the 'Underlying' basis to the IFRS 16 basis of accounting:

	2022	2021*
	£m	£m
Underlying Trading profit/(loss) before tax	20.2	16.6
Removal of rent expense	64.2	34.0
Net change in depreciation	(36.0)	(39.7)
Net change in net interest payable	(17.8)	(19.0)
Interest receivable on net investments in subleases	-	0.1
Trading loss before tax under IFRS 16	30.7	(8.0)

*Restated - refer to Note 2

5. Profit for the year

	2022	2021
	£m	£m
Profit for the year after exceptional items has been arrived at after charging/(crediting):
Amortisation (Note 11)	2.4	2.3
Depreciation on right of use asset (Note 12)	36.4	39.9
Depreciation on property, plant and equipment (Note 13)	35.7	35.9
Loss on sale of property, plant and equipment	1.8	2.4
Net impairment of property, plant and equipment and software (Note 13)	46.0	12.6
Impairment of right of use asset (Note 12)	60.4	13.3
Impairment of goodwill (Note 11)	7.5	-
Impairment on net investments in subleases	-	0.1
Purchases of food, beverages and consumables	184.5	121.0
Inventory write downs	-	0.5
Staff costs (Note 6)	336.8	248.3
Covid-19 government grants	-	10.9

Variable rents	28.8	17.6
Rental income	(0.2)	(0.2)
Net rental costs	28.6	17.4

	2022	2021
	£m	£m
Auditor's remuneration:
Fees payable to the Company's auditor for the audit of the Group's annual accounts	0.5	0.4
Fees payable to the Company's auditor for the audit of the Subsidiaries' annual accounts	0.1	0.1
Total audit fees	0.6	0.5

Audit-related assurance services	0.1	0.1
Other assurance services	-	0.6
Total non-audit fees	0.1	0.7

Total auditor's remuneration	0.7	1.2

Non audit: Audit Ratio	0.1	1.4

During the period, all auditor's remuneration was expensed as administration costs. In 2021, auditors' non-audit remuneration of £0.6m was offset against the proceeds from issuance of shares, the remaining £0.6m was expensed as administration costs.

The maximum non-audit fees that the statutory auditor of a public interest entity can bill in any one year is set at 70% of the average of the audit fees billed over the last three-year period to the entity, its parent and its subsidiaries. Approval was obtained from the FRC to carry out non-audit services for a capital raise in March 2021 in excess of the 70% threshold.

6. Staff costs

a) Average staff numbers during the year (including Directors)	2022	2021
Restaurant staff	16,290	14,415
Administration staff	418	356
	16,708	14,771

	2022	2021
b) Staff costs (including Directors) comprise*:	£m	£m
Wages and salaries	305.1	220.5
Social security costs	24.2	17.9
Share-based payments	2.4	3.4
Pension costs and salary supplements	5.1	3.8
	336.8	245.6

	2022	2021
c) Exceptional Staff Costs:	£m	£m
Severance pay	-	2.7

	2022	2021
d) Directors' remuneration	£m	£m
Emoluments	1.8	2.3
Salary supplements	0.1	0.1
	1.9	2.4
Charge in respect of share-based payments	0.4	0.9
	2.3	3.3

*This is a net amount after Coronavirus Job Retention Scheme payments of £Nil (2021: £43.2m).

7. Exceptional items

	2022	2021*
	£m	£m
Included within cost of sales:
- Impairment charges relating to property, plant and equipment	46.0	10.1
- Impairment charges relating to right of use assets	60.4	9.5
- Impairment charges relating goodwill	7.5	-
- Estate restructuring	6.8	1.2
- Estate closure	-	0.6
- Remeasurement of closed sites provision (Note 2)	-	2.3
	120.7	23.7
Included within administration costs:
- Professional fees	-	1.6
- Business Transformation	1.7	-
	1.7	1.6
Included within interest payable :
- Refinancing costs	7.0	1.9
- Gain made on derivative financial instruments at fair value through income statement	(11.9)	-
	(4.9)	1.9

Exceptional items before tax	117.5	27.2

Impact of tax change	(5.1)	12.2
Tax effect of exceptional Items	(18.1)	(2.8)

Net exceptional items for the year	94.3	36.6

*Restated - refer to Note 2

Impairment of assets

An impairment charge has been recorded against certain assets to reflect forecast results at our trading sites over the viability period.

This charge comprises the following adjustments:

- An impairment of right of use assets of £60.4m

- An impairment of property, plant and equipment of £46.0m

- An impairment of goodwill of £7.5m

Further details on the impairment of non-current assets are given in note 14.

Estate restructuring

The Group has assessed the sites it regards as having onerous obligations for closed and closing sites based on the current forecast projections and has increased the provision accordingly. This provision for onerous sites relates to service charges and dilapidations and relates to a specific programme of restructuring. Business rates and the costs to exit for onerous sites are treated as an exceptional item and expensed as incurred.

Refinancing Costs

In December 2022, the Group refinanced its debt facilities in an 'extend and amend' deal with its existing lenders. The revised finance arrangements resulted in an exceptional loss on refinance of £5.5m. The exceptional charge relates to the write-off of an element of the deal fees associated with the original facility, which had been capitalised, the balance of the fees will be written off over the revised life of the borrowings. In addition, the Group incurred legal and advisory fees of £0.9m and incurred a prepayment penalty for early payment of £20.9m of debt.

Gain made on derivative financial instruments at fair value through income statement.

The company has paid £3.1m for interest rate caps that now have a market value of £15.4m. Of this £12.3m gain, £0.4m was recognised within the trading results in 2021 with an exceptional gain of £11.9m in 2022 due to its materiality. The main reason for this gain is the increasing interest rates in the year, and future expectations of SONIA rates over the term of the interest rate caps.

Business Transformation

An exceptional charge of £1.7m has been incurred as a result of the ongoing transformation activity to deliver synergies across the group. This cost relates to the implementation of a common finance platform following the acquisition of wagamama and includes software dual running costs and consultancy costs involved in the configuration and testing on the new system.

Tax rate change

The 2021 Budget in March 2021 announced an increase in the UK corporation tax rate to 25% with effect from 1 April 2023. This was substantively enacted on 24 May 2021. The total impact of the increase in tax rate on deferred tax was £12.2m, of which £14.8m related to the deferred tax asset associated with intangibles on the Wagamama trademark. This has been recognised as an exceptional item in the tax charge for the year as it is unrelated to underlying trading.

8. Net interest payable

	2022	2021
	£m	£m

Bank interest payable	21.1	22.3
Unwinding of discount on lease liabilities	17.7	19.6
Amortisation of facility fees	3.5	3.3
Other interest payable	-	0.5
Trading interest payable	42.3	45.7
Exceptional refinancing cost (Note 7)	7.0	1.9
Total interest payable	49.3	47.6

Unwinding of discounts on investments in subleases	-	(0.1)
Other interest receivable	(0.3)	(0.5)
Trading interest receivable	(0.3)	(0.6)

Gain on derivative financial instrument	(11.9)	-
Total interest receivable	(12.2)	(0.6)

Total net finance charges	37.1	47.0

9. Tax

a) The tax charge comprises:

	Trading	Exceptional	Total	Total
	2022	2022	2022	2021*
a) The tax charge comprises:	£m	£m	£m	£m

Current tax
UK corporation tax	-	-	-	-
Adjustments in respect of previous years	-	-	-	2.4
	-	-	-	2.4


Deferred tax
Current year	7.1	(18.1)	(11.0)	(4.5)
Adjustments in respect of previous years	(1.2)	-	(1.2)	(5.0)
Effect of future taxes at higher rates	(1.0)	(5.1)	(6.1)	-
Charge in respect of rate change on deferred tax liability	-	-	-	12.2
	4.9	(23.2)	(18.3)	2.7

Total tax (credit)/charge for the year	4.9	(23.2)	(18.3)	5.1

b) Factors affecting the tax charge for the year

The tax charged for the year varies from the standard UK corporation tax rate of 19% (2021: 19%) due to the following factors:

	Trading	Exceptional	Total	Total
	2022	2022	2022	2021*
	£m	£m	£m	£m
Profit/(Loss) on ordinary activities before tax	30.7	(117.5)	(86.8)	(35.2)

Profit on ordinary activities before tax multiplied
by the standard UK corporation tax rate of 19% (2021: 19%)	5.8	(22.3)	(16.5)	(6.7)

Effects of:
Adjustment in respect of previous years	(1.2)	-	(1.2)	(2.2)
Expenses not deductible for tax purposes	0.1	0.9	1.0	1.5
Income not taxable for tax purposes	-	-	-	-
Effect of future taxes at higher rates	(1.0)	(5.2)	(6.2)	-
Charge in respect of rate change on deferred tax liability	-	-	-	12.2
Depreciation/impairment on non-qualifying assets	1.3	2.0	3.3	1.9
Impairment on goodwill	-	1.4	1.4	-
Movement on unrecognised deferred tax asset	-	-	-	(1.6)
Share options	1.0	-	1.0	-
Tax reliefs and incentives	(1.1)	-	(1.1)	-
Movement in capital loss	-	-	-	-
Total tax (credit)/charge for the year	4.9	(23.2)	(18.3)	5.1

*Restated - refer to Note 2

The March 2021 Budget announced an increase in the UK corporate tax rate from 19% to 25%, from 1 April 2023. The rate was substantively enacted on 24 May 2021. Deferred tax assets and liabilities have been recognised at 25% to the extent they are expected to unwind after 1 April 2023. Any amounts expected to unwind prior to 1 April 2023 have been recognised at the current rate of 19%. The impact of the increase in the tax rate in 2022 was a £6.1m increase in the deferred tax liability. This is mainly related to the temporary differences on losses originated in 2022 at 19% tax rate which will be utilised later at higher tax rates.

10. Earnings per share

	2022	2021*

Weighted average ordinary shares for the purposes of basic earnings per share	765,057,356	722,182,407
Effect of dilution - share options	2,434,551	-
Diluted weighted average number of shares	767,491,908	722,182,407

	2022	2021
	£m	£m
Loss for the year after tax*	(68.5)	(40.3)
Effect of exceptional items on loss for the year*	94.3	36.6
Adjusted loss for the year after tax*	25.8	(3.7)

	2022	2021
	pence	pence
Basic loss per share for the year*	(9.0)	(5.6)
Effect of exceptional items on loss for the year per share*	12.3	5.1
Adjusted loss per share*	3.3	(0.5)

Diluted EPS on Loss for the year*	(9.0)	(5.6)
Diluted EPS on adjusted loss for the year*	3.4	(0.5)

*Restated - see note 2

Diluted earnings per share information is based on adjusting the weighted average number of shares for the purpose of basic earnings per share in respect of notional share awards made to employees in regards of share option schemes and the share held by the employee benefit trust.

The diluted earnings per share figures allow for the dilutive effect of the conversion into ordinary shares of the weighted average number of options outstanding during the year. Anti-dilutive shares that reduce the loss per share have been excluded from this calculation. There are 7,366,887 (2021: 267,076) share options excluded from the diluted earnings per share calculation because they would be anti-dilutive.

11. Intangible assets

		Trademarks and	Franchise	Software and IT
	Goodwill	licences	agreements	development	Total
	£m	£m	£m	£m	£m
Cost
At 27 December 2020	342.6	236.0	21.9	5.3	605.8
Additions	-	-	-	2.7	2.7
Disposals	-	-	-	(0.2)	(0.2)
At 2 January 2022	342.6	236.0	21.9	7.8	608.3

Accumulated amortisation and impairment
At 27 December 2020	-	-	2.9	3.4	6.3
Charged during the year	-	-	1.5	0.8	2.3
Disposals	-	-	-	(0.2)	(0.2)
At 2 January 2022	-	-	4.4	4.0	8.4

Cost
At 2 January 2022	342.6	236.0	21.9	7.8	608.3
Additions	9.4	-	-	5.3	14.7
Disposals	-	-	-	(0.6)	(0.6)
At 1 January 2023	352.0	236.0	21.9	12.5	622.4

Accumulated amortisation and impairment
At 2 January 2022	-	-	4.4	4.0	8.4
Charged during the year	-	-	1.5	0.9	2.4
Impairment	7.5	-	-	-	7.5
Disposals	-	-	-	-	-
At 1 January 2023	7.5	-	5.9	4.9	18.3

Net book value as at 2 January 2022	342.6	236.0	17.5	3.8	599.9
Net book value as at 1 January 2023	344.5	236.0	16.0	7.6	604.1

The recoverable amount of the goodwill and trademark CGUs is £1,233.4m as at 1 January 2023 (£1,337.6m as at 2 January 2022). The recoverable amount has been based on value in use estimates using forecasts approved by the Board. The projected cash flows have been discounted using a rate based on the Group's pre-tax weighted average cost of capital of 10.8% (2021: 10.6%) that reflects the risk of these assets. Cash flows are extrapolated in perpetuity with an annual growth rate of 2-3% (2021: 2-3%).

The carrying amount of goodwill and indefinite life intangible assets allocated to groups of CGUs is presented below along with the group of CGU's recoverable amounts.

	Trademarks & licences	Goodwill	Total intangibles	Recoverable amount
	£m	£m	£m	£m
Wagamama	236.0	315.5	551.5	1,030.8
Brunning & Price	-	15.2	15.2	144.8
Blubeckers	-	4.2	4.2	31.4
Barburrito	-	9.4	9.4	24.8
Ribble Valley Inns	-	0.2	0.2	1.6
	236.0	344.5	580.5	1,233.4

The Group has conducted a sensitivity analysis taking into consideration the impact on key impairment test assumptions arising from a range of possible trading and economic scenarios as outlined in the stress case scenario at Note 1 as well as risk weightings applied to cash flows, discount rates used and terminal growth rates as outlined in Note 14.

The Company has assessed that the Wagamama trademark of £236.0m (2021: £236.0m) has an indefinite useful life, and therefore is not amortising this asset. If the trademark was amortised on a straight line basis over a period of 25 years, an additional £9.4m (2021: £9.4m) of amortisation would be recognised.

12. Right of use assets

Set out below are the right of use assets recognised in the Group's balance sheet and movements therein during the year. All assets relate to access to and use of property and there is, therefore, no analysis of assets into different classes of use.

	2022	2021
	£m	£m
Right of use assets at beginning of year	289.4	368.9
Arising on business combination	8.5	-
Additions	11.0	18.4
Disposals	(0.5)	(4.6)
Depreciation	(36.4)	(39.9)
Remeasurements	26.0	(40.1)
Impairment (Note 14)	(60.4)	(13.3)
Right of use assets at reporting date	237.6	289.4

When indicators of impairment exist, right of use assets are assessed for impairment. As described in Note 14, all non-current assets were assessed at the end of 2022.

13. Property, plant and equipment

	Land and	Fixtures and
	buildings	equipment	Total
	£m	£m	£m
Cost
At 27 December 2020	570.4	237.7	808.1
Additions	19.3	16.4	35.7
Disposals	(41.0)	(82.3)	(123.3)
At 2 January 2022	548.7	171.8	720.5

Accumulated depreciation and impairment
At 27 December 2020	329.4	178.4	507.8
Provided during the year	14.1	21.8	35.9
Impairment	13.0	11.1	24.1
Impairment reversals	(3.7)	(7.8)	(11.5)
Disposals	(39.5)	(81.4)	(120.9)
At 2 January 2022	313.3	122.1	435.4

Cost
At 2 January 2022	548.7	171.8	720.5
Arising on business combination	-	0.3	0.3
Additions	19.2	37.5	56.7
Disposals	(2.2)	(2.1)	(4.3)
At 1 January 2023	565.7	207.5	773.2

Accumulated depreciation and impairment
At 2 January 2022	313.3	122.1	435.4
Provided during the year	11.0	24.7	35.7
Impairment (Note 14)	13.0	37.0	50.0
Impairment reversals (Note 14)	(1.5)	(2.5)	(4.0)
Disposals	(1.0)	(0.6)	(1.6)
At 1 January 2023	334.8	180.7	515.5

Net book value as At 2 January 2022	235.4	49.7	285.1
Net book value as At 1 January 2023	230.9	26.8	257.7

The Group has carried out impairment testing of property, plant and equipment as described in Note 14

The difference between the purchase of property plant and equipment in the cash flow statement and the additions to property plant and equipment in Note 13 relates entirely to fixed asset accruals.

	2022	2021
Net book value of land and buildings:	£m	£m

Freehold	107.8	103.2
Long leasehold (leasehold improvements)	2.2	3.7
Short leasehold (leasehold improvements)	120.9	128.5
	230.9	235.4

14. Impairment reviews

Due to the significant inflationary pressures expected to continue into 2023 and the risk of a recession impacting consumer demand in the UK there is a potential impairment of assets and, accordingly, the Directors have chosen to assess all non‐current assets for impairment in accordance with IAS 36.

Approach and assumptions

Our approach to impairment reviews is unchanged from that applied in previous periods and relies primarily upon "value in use" tests, although for freehold sites an independent estimate of market value by site has also been obtained as at 3 July 2022 and, where this is higher than the value in use, we rely on freehold values in our impairment reviews. These valuations are not expected to have changed materially in the period and therefore have been used for the full year 2022 impairment calculation.

Discount rates used in the value in use calculations are estimated with reference to our Group weighted average cost of capital. For 2022, we have applied the pre‐tax discount rate of 10.8% to all assets (2021: 10.6%). The higher discount rate used in 2022, reflects the increasing interest rates in the UK. This is however partially offset by a change in the financing structure of the Group to have a greater proportion of lease liabilities which are discounted at a lower rate than debt and equity.

For the current period, value in use estimates have been prepared on the basis of the forecast described in Note 1, above, under the heading "Going concern basis". The most significant assumptions and estimates relate to revenue forecast on site-by-site cash flows. These use sale growth and terminal values ranging from 0%-3% across divisions. The impairment indicator giving rise to the charge for the year relates to the economic downturn arising from the current cost-of-living crisis, which has resulted in a reduced budgeted forecast for 2023, predominantly in the Leisure portfolio. The indicators for the impairment reversals relate to sites which are expected to deliver LFL sales growth in 2023, with Concessions in particular benefiting from strong growth versus 2022 as passenger numbers continue to improve.

Results of impairment review

Impairment has been recorded in a number of specific CGUs, as well as impairment reversals. A net impairment charge of £106.4m (2021: £25.9m) has been recognised, of which £46.0m (2021: £12.6m) was recorded against Property, Plant & Equipment ("PPE") and a further £60.4m (2021: £13.3m) against Right of Use Assets. This is a gross impairment charge of £116.2m (2021: £49.2m) offset by impairment reversals of £9.8m (2021: £23.3m).

A further charge of £7.5m (2021: £nil) was recorded as impairment to the Goodwill of Pubs acquired through Blubeckers Limited and Ribble Valley Inns Limited.

Sensitivity to further impairment charges

The key assumptions used in the recoverable amount estimates are the discount rates applied and the forecast cash flows. The Group has conducted a sensitivity analysis taking into consideration the impact on key impairment test assumptions arising from a range of possible trading and economic scenarios as well as discount rates used.

The resulting sensitivities to fluctuations in the key assumptions have been summarised as follows:

Property, plant and equipment and right-of-use asset impairment:

Sensitivity	Change applied	Decrease in Net Impairment Expense	Increase in Net Impairment Expense
Sales forecast	+/- 5%	£(12.8)m	£12.6m
Inflation forecast	+/- 2%	£(26.4)m	£13.1m
Discount rate	-/+ 1%	£(2.4)m	£2.6m
Terminal growth rate	+/- 1%	£(1.2)m	£1.0m
Freehold Valuation	+/- 5%	£(0.4)m	£0.9m

Goodwill impairment:

Sensitivity	Change applied	Decrease in Net Impairment Expense	Increase in Net Impairment Expense
Sales forecast	+/- 5%	£(0.9)m	£16.3m
Inflation forecast	+/- 2%	£(0.9)m	£16.5m
Discount rate	-/+ 1%	£(0.9)m	£11.4m
Terminal growth rate	+/- 1%	£(0.9)m	£9.1m
Freehold Valuation	+/- 5%	£nil	£nil

15. Provisions

			2022		2021*
			£m		£m
Property cost provisions			7.0		3.9
Other provisions			0.6		2.4
Balance at the end of the year			7.6		6.3
Analysed as:
Amount due for settlement within one year			2.3		3.1
Amount due for settlement after one year			5.3		3.2
			7.6		6.3

	Property cost provisions	Other provisions		Total
	£m	£m		£m
At 2 January 2022*	3.9	2.4		6.3
Remeasurement	1.5	-		1.5
Transferred from other provision	3.2	(1.8)		1.4
Amounts utilised	(1.7)	(0.1)		(1.7)
Unwinding of discount	0.1	-		0.1
At 1 January 2023	7.0	0.5		7.6

*Restated - refer to Note 2

Property cost provisions

A provision is made for property-related costs for the period that a sublet or assignment of the lease is not expected to be possible. The amount and timing of the cash outflows are subject to uncertainty. The average period over which the provision is expected to be utilised is 3.9 years. An increase of one year in the expected period over which a sublet or assignment is not expected to be possible would result in an increase in the provision of £0.8m, whilst a decrease would result in a reduction on the provision of £0.8 amount.

Onerous contract and other property provisions are discounted using a discount rate of 0.0% (2022: 1.0%) based on an approximation for the time value of money.

Other provisions

Other provisions includes a best estimate of the liability in respect of a legal obligation to meet certain lease payments of a restaurant, the liability for which is considered probable, most likely within a year.

16. Lease liabilities

The Group is both a lessee and lessor of property.

(a) Group as lessee

Set out below are the movements in the carrying amount of lease liabilities during the period. All leases relate to access to and use of property.

	2022	2021
	£m	£m
At 2 January 2022	410.4	483.8
Arising on business combination	8.5	-
Additions	11.0	18.4
Unwinding of discount on lease liabilities	17.7	19.6
Cash payments made	(59.8)	(48.7)
Liabilities extinguished in disposals	(5.7)	(9.5)
Remeasurements	13.9	(53.2)
At 1 January 2023	396.0	410.4

Analysed as:
Amount due for settlement within one year	55.0	73.1
Amount due for settlement after one year	341.0	337.3
	396.0	410.4

The Group leases various buildings which are used for the purpose of operating pubs and restaurants. The leases are non-cancellable operating leases with varying terms and renewal rights and include variable payments that are not fixed in amount but based upon a percentage of sales.

The total value of expense relating to low value leases in 2022 and 2021 was immaterial.

In addition to the unwinding of discount on lease liabilities noted in the above table and depreciation on right of use assets, the Group is exposed to leases where future cash outflows are not reflected in the lease liabilities because the agreements are based on variable lease payments in the form of turnover rent.

The costs incurred by the Group in respect of short leases was immaterial in both the current period and the prior period.

As at 1 January 2023, the Group was not committed to any leases with future cash outflows which had not yet commenced.

Sensitivity to changes in assumptions

Termination Options

Some leases contain termination options exercisable by group before the end of the non-cancellable period. These extension and termination options held are exercisable only by the group and not by the lessors. The group assesses at lease commencement whether it is reasonably certain to exercise the extension or termination options. The group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control.

The group has estimated that the potential future lease payments, should it exercise the termination options, would result in a decrease in cash outflows of £144.9m.

Discount Rate

Lease liabilities under IFRS 16 are initially recorded at the present value of future lease payments discounted using the Group's incremental borrowing rate, which we estimate with reference to our debt facilities and observed bond yields, calculated on a lease-by-lease basis. Lease liabilities are subsequently unwound using the same discount rate and included in finance expense in the Group income statement. Increasing the discount rate by 1% would lead to an increased interest expense of £0.3m, while decreasing by 1% would lead to a decrease of £0.3m.

(b) Group as lessor

All income relates to fixed rental receipts. Movements in the net investment in lease assets included income of £0.6m and an expected credit loss reversal of £0.1m. There was no income from leases classified as operating leases.

Finance leases

Undiscounted lease receipts relating to finance leases for future years are set out in the table below. The total in the table for Finance Leases is greater than the balance sheet amount due to the effects of discounting and provisions for expected credit losses. There is no undiscounted unguaranteed residual value within the amounts recognised.

	2022	2021
	£m	£m
Amounts receivable in the next year	1.2	1.1
Amounts receivable in 1-2 years	1.1	0.9
Amounts receivable in 2-3 years	1.0	0.9
Amounts receivable in 3-4 years	0.9	0.9
Amounts receivable in 4-5 years	0.9	0.8
Amounts receivable after 5 years from the balance sheet date	7.5	6.5
Total	12.6	11.1

Operating leases
	2022	2021
	£m	£m
Amounts receivable in the next year	0.1	0.4
Amounts receivable in 1-2 years	0.1	0.4
Amounts receivable in 2-3 years	-	0.3
Amounts receivable in 3-4 years	-	0.3
Amounts receivable in 4-5 years	-	0.3
Amounts receivable after 5 years from the balance sheet date	0.2	3.9
Total	0.4	5.6

17. Reconciliation of profit before tax to cash generated from operations

	2022	2021
	£m	£m
Loss on ordinary activities before tax	(86.8)	(35.2)
Net interest payable	42.0	45.1
Exceptional items (Note 7)	117.5	27.2
Share of results of associate	-	0.3
Share-based payments	2.4	3.4
Depreciation and amortisation	74.5	78.1
Increase in inventory	(0.5)	(0.9)
(Increase)/decrease in receivables	(6.3)	5.1
(Decrease)/increase in creditors	7.5	5.0
Cash generated from operations	150.4	128.1

	2022	2021
Reconciliation of net cash from operating activities to free cash flow (non-GAAP)	£m	£m
Net cash flows from operating activities	118.9	91.6
Payment on exceptionals	8.6	7.4
Payment of obligations under leases	(59.8)	(48.7)
Refurbishment and maintenance expenditure	(36.6)	(19.0)
Payment against provisions	8.3	13.4
Free cash flow	39.4	44.7

18. Financial instruments and derivatives

Financial assets

The financial assets of the Group, which are classified at amortised cost, and those at fair value through profit and loss, comprise:

	2022	2021
	£m	£m
Cash and cash equivalents	27.7	146.5
Other receivables	26.5	18.6
Financial assets at amortised cost	54.2	165.1

Derivative financial instrument	15.4	2.1
Financial assets at fair value through profit and loss	15.4	2.1

Total financial assets	69.6	167.2

Cash and cash equivalents are comprised of cash at bank and cash floats held on site. The cash and cash equivalents balance includes £11.6m (2021: £5.4m) of credit card receipts that were cleared post year end.

Cash and cash equivalents also include £0.4m (2021: £0.9m) held on account in respect of deposits paid by tenants under the terms of their rental agreement.

During the current and prior period, the Group entered into derivatives in the form of interest rate caps which are measured at fair value through the profit and loss. The interest rate caps have an effective date of November 2022 to November 2026 - covering a value of £125.0m to November 2025 and £100.0m to November 2026. The strike price of the interest rate cap is 0.75%. Net gains or losses associated to the movement in the fair value of the interest rate cap do not include any interest paid relating to the interest rate cap.

Financial liabilities

The financial liabilities of the Group, all of which are classified as other financial liabilities at amortised cost, comprise:

	2022	2021
	£m	£m
Trade and other payables	160.7	128.3
Lease liabilities	55.0	73.1
Short-term financial liabilities	215.7	201.4
Long-term borrowings - at floating interest rates¹	220.0	330.0
Bank fees	(6.6)	(11.9)
Lease liabilities	341.0	337.3
Long-term financial liabilities	554.4	655.4
Total financial liabilities	770.1	856.8

¹ At 1 January 2023, total financial liabilities attracting interest were £220.0m (2021: £330.0m). Interest is payable at floating interest rates which fluctuate and are dependent on SONIA and the Group's net debt to EBITDA leverage. The average rate of interest charged during the year on the Group's debt was 7.29% (2021: 5.70%).

On 2022 results, net interest was covered 2.2 times (2021: 2.5 times) by earnings before interest, tax, depreciation and exceptional items. Based on year-end debt and earnings for 2022, a 1% rise in interest rates would reduce interest cover to 2.1 times (2021: 2.3 times).

At 1 January 2023, the interest rate on the Term Loan is 6.5% above SONIA. A commitment fee of 0.9% is charged on the undrawn Revolving Credit Facility. The maturity dates on the Group's debt facilities are as follows: April 2028 for the Term Loan; and March 2027 for the Revolving Credit Facility.

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while looking to maximise returns to shareholders. The capital structure of the Group consists of equity (comprising issued share capital, other reserves and retained earnings), borrowings and cash and cash equivalents. The Group monitors its capital structure on a regular basis through cash flow projections and consideration of the cost of financing its capital.

The Group is subject to externally imposed capital requirements in respect of the Term Loan and Revolving Credit Facility. The Group is required to maintain a net debt to EBITDA ratio below set covenant levels and a minimum liquidity requirement of £40.0m.

Secured liabilities and assets pledged as security

The Group has pledged certain assets in order to fulfil the collateral requirements of the Term Loan and Revolving Credit Facility.

The Term Loan and Revolving Credit Facility are secured by a fixed charge over the shares and intellectual property of TRG (Holdings) Limited, The Restaurant Group (UK) Limited, Blubeckers Limited, Brunning and Price Limited, TRG Concessions Limited, and Wagamama Limited, as well as a floating charge on all present and future assets, property, business, undertaking and uncalled capital.

The maturity profile of anticipated gross future cash flows, including interest, relating to the Group's non-derivative financial liabilities, on an undiscounted basis, are set out below:

At 1 January 2023	Trade and other	Floating	Lease
	payables	rate	liability
	excluding tax	loan	debt	Total
	£m	£m	£m	£m
Within one year	160.7	27.7	57.4	245.8
Within one to two years	-	46.4	53.3	99.7
Within two to three years	-	42.5	48.2	90.7
Within three to four years	-	21.1	42.3	63.4
Within four to five years	-	19.4	37.7	57.1
After five years	-	184.8	223.5	408.3
	160.7	341.9	462.4	965.0

At 2 January 2022	Trade and other	Floating	Lease
	payables	rate	liability
	excluding tax	loan	debt	Total
	£m	£m	£m	£m
Within one year	128.3	24.6	74.6	227.5
Within one to two years	-	24.6	58.4	83.0
Within two to three years	-	24.6	53.4	78.0
Within three to four years	-	23.7	47.8	71.5
Within four to five years	-	353.1	40.2	393.3
After five years	-	-	262.7	262.7
	128.3	450.6	537.1	1,116.0

Fair value of financial assets and liabilities

Financial assets at fair value

There were no transfers between Levels 1, 2 and 3 fair value measurements during the current or prior period.

The interest rates caps are valued using Level 2 measurement. The Group has no other financial assets or liabilities that require measurement using Level 2 or Level 3 measurement techniques as defined by IFRS 13.

Long-term borrowings

	At 1 January 2023			At 2 January 2022
	Drawn	Available facility	Total facility	Drawn	Available facility	Total facility
	Drawn	Available facility	Total facility	Drawn	Available facility	Total facility
	£m	£m	£m	£m	£m	£m
Term loan	220.0	-	220.0	330.0	-	330.0
Revolving credit facilities	-	111.5	111.5	-	111.6	120.0
Total banking facilities	220.0	111.5	331.5	330.0	111.6	450.0
Unamortised loan fees	(6.6)			(11.9)
Long-term borrowings	213.4			318.1

Cash and cash equivalents	(27.7)	27.7		(146.5)	146.5
Pre-lease liability net debt	185.7			171.6
Lease liabilities	396.0			410.4
Net debt	581.7			582.0
Cash headroom		139.2			258.1

At 1 January 2023, the Group has covenants over both the term loan and the revolving credit facilities (RCF). Both facilities require a minimum liquidity level of £40m which is measured as the total of cash and undrawn facilities. On the term loan, the covenant requires total net debt to be no more than 5.0x EBITDA, gradually reducing to 4.0x by March 2025 until the end of the facility. On the RCF, the Group is required to maintain total net debt to EBITDA below 5.25x from March 2023, gradually reducing to 4.25x by March 2025 until the end of the facility. In addition, the ratio of RCF debt to EBITDA can be no more than 1.5x, when the RCF is drawn.

The available revolving credit facilities are reduced from the total facility by £8.5m (2021: £8.4m) of letters of credit issued to external suppliers.

Net Debt

	Cash and cash equivalents	Bank loans falling due after one year	Lease liabilities	Total
	£m	£m	£m	£m
Balance as at 27 December 2020	40.7	(381.1)	(483.8)	(824.2)
Net drawdown of borrowings	(53.6)	53.6	-	-
Upfront loan facility fee paid	(14.6)	14.6	-	-
Repayment of obligations under leases	(48.7)	-	48.7	-
Non-cash movements in the year	-	(5.2)	24.7	19.5
Net cash outflow	222.7	-	-	222.7
Balance as at 2 January 2022	146.5	(318.1)	(410.4)	(582.0)
Net repayments of borrowings	(110.0)	110.0	-	-
Upfront loan facility fee paid	(1.4)	1.4	-	-
Repayment of obligations under leases	(59.8)	-	59.8	-
Non-cash movements in the year	-	(6.7)	(45.4)	(52.1)
Net cash inflow	52.4	-	-	52.4
Balance as at 1 January 2023	27.7	(213.4)	(396.0)	(581.7)

The non-cash movements in lease liabilities are in relation to the de-recognition and remeasurement of lease liabilities, while the non-cash movement in bank loans are in relation to amortisation of prepaid facility costs.

Publication of Annual Report

This preliminary statement is not being posted to shareholders. The Annual Report will be posted to shareholders in due course and will be delivered to the Registrar of Companies following the Annual General Meeting of the Company. Copies of the Annual Report will be available from the Company's website in March 2023.

Responsibility statement of the directors on the Annual Report

The responsibility statement below has been prepared in connection with the Group's full annual report for the year ended 1 January 2023. Certain parts of the annual report are not included within this announcement.

We confirm that, to the best of our knowledge:

· the financial statements, prepared in accordance with the International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

On behalf of the Board

Andy Hornby Kirk Davis

Chief Executive Officer Chief Financial Officer

7 March 2022 7 March 2022

The directors believe the Adjusted Performance Metrics used within this report, and defined below, provide additional useful information for shareholders to evaluate and compare the performance of the business from period to period. These are also the KPIs used by the directors to assess performance of the business. The adjusted metrics are reconciled to the statutory results for the year on the face of the income statement and the relevant supporting notes.

Measure	Description
Adjusted diluted EPS	Calculated by taking the profit after tax of the business pre-exceptional items divided by the weighted average number of shares in issue during the year, including the effect of dilutive potential ordinary shares.
Adjusted EBITDA	Earnings before interest, tax, depreciation, amortisation and exceptional items. Calculated by taking the Trading business operating profit and adding back depreciation and amortisation.
Adjusted EPS	Calculated by taking the profit after tax of the business pre-exceptional items divided by the weighted average number of shares in issue during the year.
Adjusted operating profit	Operating profit prior to the impact of Exceptional items.
Adjusted operating margin	Calculated as the Operating profit as a percentage of Revenue. For the 'Adjusted' basis this is using the profit and revenue prior to Exceptional items
Adjusted profit before tax	Calculated by taking the profit before tax of the business pre-Exceptional items.
Adjusted tax charge	Calculated by taking the tax of the business pre-Exceptional items.
Effective adjusted tax rate	Calculated as the tax expense as a percentage of profit before tax. For the 'Adjusted' basis this is using the tax and profit prior to Exceptional items.
Cash headroom	Calculated as the funds available to the business through either its Cash & cash equivalents balance or through undrawn facilities, less letters of credit.
Capital expenditure	This is calculated as the total of Development capital expenditure and Refurbishment and maintenance expenditure and is the cash outflow associated with the acquisition of Property, plant and equipment, intangibles and investments in the US joint venture.
Development capital expenditure	This is the Capital expenditure relating to profit-generating projects upon which we expect a commercial return in future years.
EBITDA	Earnings before interest, tax, depreciation, amortisation and impairment.
Exceptional items	Those items that are material, and not related to the underlying trade of the business.
Free cash flow	Adjusted EBITDA (IAS17 basis) less working capital and non-cash adjustments (excluding exceptional items), tax payments, interest payments and Refurbishment and maintenance expenditure.
Like-for-like sales	This measure provides an indicator of the underlying performance of our existing restaurants. There is no accounting standard or consistent definition of 'like-for-like sales' across the industry. Group like-for-like sales are calculated by comparing the performance of all mature (traded for at least 65 weeks) sites in the current period versus the comparable period in the prior year. Sites that are closed, disposed or disrupted during a financial year are excluded from the like-for-like sales calculation.
Minimum liquidity	The minimum liquidity is a financial covenant required under the terms of our loans to have a minimum of both available undrawn facilities plus Cash and cash equivalents of at least £40 million.
Net debt	Net debt is calculated as the net of all borrowings less cash and cash equivalents, plus the IFRS 16 Lease liabilities.
Pre-lease liability net debt	As above Net Debt but excluding the IFRS 16 Lease liabilities.
Refurbishment and maintenance expenditure	This is the Capital expenditure relating to projects to maintain and refurbish our estate. No incremental financial return is expected on this expenditure.
Return on Invested Capital (ROIC)	Outlet EBITDA (pre-IFRS 16 and exceptional charges)/initial capital invested.
Trading business	Represents the performance of the business before exceptional items.
TSR	Total Shareholder Return over a period. Total shareholder return (TSR) is calculated as the overall appreciation in the share price, plus any dividends paid, during a period of time; this is then divided by the initial purchase price of the stock to arrive at the TSR.

[1] Utilities relate to electricity and gas. This relates to own billed and managed sites and excludes landlord billed sites at shopping centres and airport concession sites. Fully hedged for FY23 & FY24 , 80% of volume hedged for Q1-Q3 FY25

[2] Spot prices remain volatile. At spot prices as at end of February , TRG is hedged at c.£4.5m adverse in 2023, c.£1.0m adverse in 2024 and c.£3.0m positive in 2025

[3] ROIC refers to return on invested capital defined by outlet EBITDA/initial capex invested

[4] Net debt to EBITDA ratio (Pre IFRS 16 Adjustment and exceptional charges)

[5] This relates to own billed and managed sites and excludes landlord billed sites at shopping centres and airport concession sites

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Thursday, 21st November 2024

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Full Year Results

Priorities

Parameters

(1) Investment in customer offer

Refurbishment and maintenance capex within a range of £20m to £30m per annum

(2) Maintain a strong balance sheet

Target leverage[4] below 1.5x within the next three years

(3) Wagamama and Pubs new site expansion

Deliver against targeted returns criteria:

o Wagamama >35% ROIC

o Pubs >20% ROIC

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