Preliminary results
Restaurant Group PLC
05 March 2008
The Restaurant Group plc
Preliminary results for the year ended 30 December 2007
The Restaurant Group plc operates 330 restaurants and pub restaurants
predominantly in leisure locations and airports. Its primary offerings are
Frankie and Benny's, Chiquito, Garfunkel's, Blubeckers and Brunning & Price.
• The Group had an excellent 2007:
- 5.5% growth in like-for-like sales
- Revenue up 17% to £367m
- Adjusted EBITDA increased by 22% to £67.8m
- Adjusted profit before tax increased by 24% to £43.5m
- Adjusted EPS rose 27% to 14.6p
- Proposed full year dividend of 7.25p up 21%
- Statutory profit before tax increased by 98% to £42.8m
- Statutory EPS rose 105% to 14.9p
*Results marked as adjusted are stated excluding non-trading items (refer to
note 2)
• Leisure and Concessions divisions continued to grow revenues and operating
profit
• Operations strongly cash generative (£74m of cash generated during the
period)
• Roll out continues
o 36 new sites opened in the period - all self-funded
o 30-35 new sites targeted for 2008
o Potential for over 250 Frankie and Benny's (currently 159)
• Brunning & Price acquired for £32m and trading well
• Solid current trading with like-for-like sales +4%
• Targeting another year of progress in 2008
Andrew Page, Chief Executive, said:
'The team delivered another impressive performance in 2007, with earnings up 27%
and 36 new restaurants successfully opened and trading well. Whilst that is very
pleasing, our attention is now firmly fixed on the current year which has
started well with like-for-like sales growth currently 4% ahead. With a tighter
consumer market still anticipated during 2008, we will continue to focus on
giving our customers great service and value, opening at least thirty new
restaurants and building further on our record of success.'
5 March 2008
Enquiries:
The Restaurant Group
Andrew Page, Chief Executive 020 7457 2020 (today)
Stephen Critoph, Group Finance Director 0845 612 5001 (thereafter)
College Hill
Matthew Smallwood 020 7457 2020
Justine Warren
The Restaurant Group plc
Full year results for the year ended 30 December 2007
Chairman's statement
*Results marked as adjusted are stated excluding non-trading items (refer to
note 2)
2007 was another year of excellent progress for The Restaurant Group, with
substantial increases in both revenue and profits. Against a more difficult
background for consumer-facing businesses the Group grew like-for-like sales by
5.5% following on from growth of 5% for the previous year. Our strong and
resilient market positioning combined with affordable offerings enabled the
Group to produce a record set of results, with adjusted earnings per share
growth of 27%. We sold more than 30 million meals (including around four and a
half million children's meals) during 2007, an increase of three million total
meals on the previous year and also created approximately 1,000 full and part
time new jobs.
2007 was the second full year of trading in the Group's refocused form. You will
recall that we took the decision to direct our focus away from the increasingly
crowded high street marketplace and positioned TRG's business firmly in the out
of town segments of the eating out market. This strategy has served us well as
it affords us some protection in a more challenging economic environment.
Building on a strong performance for the first half of the year the Group made
further progress during the second half to produce an excellent set of full year
results. Revenue increased by 17% to £367m, adjusted profit before tax increased
by 24% to £43.5m (2006: £35.0m) and adjusted earnings per share increased by 27%
to 14.64p (2006: 11.50p). Following on from a 27% increase in adjusted earnings
per share in 2006 this is a very strong performance and, as a result, the Board
is recommending a final dividend of 5.99p per share (2006: 4.95p) giving a total
dividend for the year of 7.25p (2006: 6.0p) per share, an increase of 21%.
Subject to approval at the Annual General Meeting, the final dividend will be
payable on 9 July 2008 to shareholders on the register on 13 June 2008 and the
shares will be marked ex-dividend on 11 June 2008.
Both of our divisions, Leisure and Concessions, performed superbly during 2007
with growth in like-for-like sales, revenue, profit and margins. We opened a
total of 36 new restaurants and pub restaurants during the year and we are
delighted with their performance. Our expansion plans are unchanged and we are
targeting a further 30-35 new openings for 2008. In October 2007 we acquired the
Brunning & Price pub restaurant business which added 14 high quality pub
restaurants to this growing part of our Leisure division. We welcome the
Brunning & Price team to TRG and we are delighted with the performance of the
business since its acquisition.
Our Leisure division, which incorporates Frankie & Benny's, Chiquito,
Garfunkel's and Pub Restaurants, enjoyed another successful year with a strong
increase in like-for-like sales growth, an improvement in adjusted operating
profit margin and a 21% increase in adjusted operating profit. During the year
we opened 34 new restaurants and pub restaurants within this division - these
are performing well and are set to deliver strong returns.
The Concessions division also performed strongly with good growth in
like-for-like sales, an improvement in adjusted operating profit margin and a
13% increase in adjusted operating profit. We opened two new sites within this
division in 2007 and both are performing well.
Group-wide, this is another excellent set of results and is testament to the
hard work and dedication of our directors, senior management team and all staff.
We are fortunate to have a high quality and stable team at TRG and on behalf of
the Board I would like to thank them all for their valued contribution over the
past year.
Since our last year end we have welcomed two new non-executive Directors to the
Board. David Richardson who was previously Finance Director of Whitbread plc and
Tony Hughes who was until recently a director at Mitchells & Butlers plc have
joined our Board. Andrew Thomas retired from the Board in February 2008 and I
would like to thank him for his contribution over the past seven years.
2008 has started well with like-for-like sales for the first nine weeks 4% ahead
of last year and total revenue up 21%. This is very encouraging and, whilst
recognising that we face a challenging economic backdrop, I believe that it
augurs well for another year of progress.
Alan Jackson
Chairman
5 March 2008
Chief Executive's Review of Operations
Introduction
2007 was another year of good progress for The Restaurant Group ('TRG') building
on the strong performance of the previous year. Both divisions performed well
and all of our key performance metrics improved. Revenue, EBITDA, profits and
margins all grew and this serves to highlight both the benefits of our strategy
of focusing on the out-of-town marketplace and also the efficacy of our model.
It is particularly encouraging that TRG was able to achieve these results
against a more challenging economic backdrop and this demonstrates both the
defensive and resilient characteristics of our market positioning and the
strength of our operations and brands. As a result, the Group achieved a record
level of adjusted earnings per share at 14.64p representing growth of 27% on the
previous year. Considering that the 'bar' had been raised significantly in 2006,
when earnings per share grew by 27%, these results represent a very satisfactory
performance.
TRG Rationale
Our core objective continues to be growth in shareholder value and our strategy
to achieve this has been, and will continue to be, to build a business capable
of delivering long-term, sustainable and growing cashflows. I am pleased to
report that, again, we have successfully converted our profits into cash at a
very healthy rate. Strong growth in earnings per share has translated into
strong growth in cashflow per share. Our model enables the Group to continue its
growth in a predominantly organic and highly value accretive way, funded through
internally generated funds. Where we deem it appropriate we are also able to
supplement this organic growth via targeted acquisitions, as we did during 2007
with the acquisition of the Brunning & Price pub restaurant business. Our
touchstones are cashflow and return on investment and, whether we are assessing
a new site or an acquisition, our focus is on ensuring that the investment is
value accretive.
TRG's primary focus is on edge of town, out of town, rural, semi-rural and
airport locations. These locations have significant barriers to entry, offer
good growth prospects and enable us to generate consistently high returns on
investment. We occupy leading market positions in each of these segments and we
are well placed to continue to grow our business in these areas. Looking
forward, we have a strong pipeline of new sites for the next three years.
Group Results
*Results marked as adjusted are stated excluding non-trading items (refer to
note 2)
All of our key performance metrics improved during 2007 with growth in both of
our divisions:
- Building on the 5% increase in like-for-like sales in 2006, we grew
this metric by 5.5% in 2007. Approximately 70% of this increase represented '
covers' growth with more people using our restaurants and in 2007 we sold more
than 30 million meals;
- Revenue increased by 17% to £367m;
- Adjusted EBITDA increased by 22% to £67.8m and adjusted operating
profit increased by 23% to £48.2m; and
- Margins improved at both divisional and Group levels with our Group
adjusted operating profit margin increasing by 60 basis points to 13.1% - a very
satisfactory result particularly against a tough hurdle of 140 and 90 basis
point improvements in 2006 and 2005 respectively.
Again, the increase in profit was the product of three principal components -
like-for-like profit increases from the existing estate, profitable contribution
from new openings and further cost savings resulting from operational
efficiencies and purchasing initiatives. This combination represents a healthy
background to our continued profitable development.
Divisional Results
Leisure
Total revenue: £285.2m Operating profit: £61.6m Operating margin: 21.6%
Frankie & Benny's (159 units)
Frankie & Benny's performed superbly with both EBITDA and operating profit
increasing by more than 20% and good growth in margins. During the year we
opened 20 new restaurants of which 10 were on non-cinema sites. The results from
the new openings have been excellent and they are set to deliver very strong
returns. This year we are aiming to open a similar number of new restaurants
and, having been busy in recent years building a high quality pipeline of new
sites, we look forward to continued strong returns.
Chiquito (53 units)
Chiquito enjoyed another excellent year with growth in EBITDA and operating
profit of almost 30% and operating profit margin up 90 basis points. Against a
background of very high growth in profits and margins in both 2006 and 2005,
this represents an outstanding performance. Last year we challenged the Chiquito
team to build on their terrific performance in 2006 and they did not let us
down. I am confident that they will be just as keen to repeat that feat in 2008!
During the year we opened eight new restaurants and we are delighted with their
performance. We expect to open 5-8 new Chiquito restaurants in 2008. As noted in
my report last year we are particularly pleased with the performance of our
restaurants which are co-located with Frankie & Benny's and we are continuing
with our plans to pursue these dual roll-out opportunities.
Garfunkel's (26 units)
Garfunkel's performed well during 2007 and, notwithstanding that we lost 19
weeks of trade during the first half whilst restaurants were closed for
refurbishment, the business delivered approximately the same level of profit as
for 2006. The refurbishments were completed by the end of the first half and
during the second half profits and margins increased significantly. Garfunkel's
is now in its 29th year and continues to deliver excellent profits and returns.
Pub Restaurants (42 units)
This business now comprises Blubeckers and, following its acquisition in October
2007, the Brunning & Price pub restaurant business. Blubeckers performed solidly
during 2007 and has good potential. During 2006 we embarked upon a more
ambitious rollout programme for Blubeckers and this continued in 2007. Last year
we opened six new Blubeckers pub restaurants and in the summer we strengthened
the Blubeckers team by introducing senior management with a strong track record
within TRG of operational management and also good experience of executing
successful rollouts. The impact of this has been very positive.
Following the acquisition of Brunning & Price ('B&P'), we added a further 14 new
pub restaurants to our portfolio. We are delighted with the performance of the B
&P pub restaurants since the acquisition and we intend to grow the business. The
B&P pub restaurants have a more relaxed feel compared with Blubeckers. Although
B&P's pubs are not branded they all share a similar type of fit out and
operating style. The quality of food is high - B&P won the Good Pub Guide's Food
Pub of the Year Award for the third time in 2007 - and they attract a regular
and loyal customer base. We are delighted to have retained all of the
operational management team at Brunning & Price. It is an experienced, talented
and successful team and we look forward to working with the team to further
develop and grow our Pub Restaurant business.
During 2008 we are expecting to open a total of 5-10 new pub restaurants and,
longer-term, the Pub Restaurant business has the potential to become a
significant part of the Group.
Concessions (50 units)
Total revenue: £81.2m Operating profit: £12.5m Operating margin: 15.4%
Our Concessions division enjoyed another year of good progress producing a
strong increase in operating profit and an improvement in margin. Against a more
challenging operating background both logistically and cost-wise this is an
outstanding performance. We opened two new units during 2007 and these are
generating strong returns. We expect a small net increase in the number of
Concessions units during 2008 in what will be a year of significant change given
the developments at Heathrow airport. In late March we will open four new sites
at the new Terminal 5 and later in the year when Terminal 2 closes we will close
our restaurant there. During 2008 we are expecting some significant swings in
trading patterns at Heathrow as passengers migrate from the existing terminals
into the new T5. Going forward, we are confident that these new developments
place our Concessions business in a very strong position.
Non-Core
During the year losses from non-core activities decreased by £0.55m and we will
continue to take steps to reduce these non-core losses.
Corporate Activity
In October 2007 we acquired Brunning & Price Limited for £32m in cash. The
business comprises of 14 trading pub restaurants and one development site. B&P
is based predominantly in the North West and has a long history of profitable
growth. We have retained B&P's operational management team, will continue to
operate the pub restaurants in the existing, highly successful style and we will
gradually add new pubs to the B&P business. Together B&P and Blubeckers provide
a very attractive opportunity to grow our Pub Restaurant business.
Market Dynamics and Economic Backdrop
We are confident that prospects for the eating out market remain positive.
Socio-economic factors such as an ageing population, more females in work and
levels of disposable incomes significantly higher than in previous generations
augur well for our industry. Lifestyle changes are also positive with an
increasing propensity to spend on leisure activities. Eating out, particularly
at our popular price points (£10-£16 spend per head), has become a habitual part
of most people's lives and is something many are reluctant to give up. During
2007 the smoking ban came into effect in England and Wales, following the ban in
Scotland the previous year. Overall, we believe that TRG has benefited from this
as more families and those with an aversion to smoking have visited our
restaurants.
During most of 2007 and into 2008 much has been said and written about the
deteriorating economic backdrop and pressures on the consumer. A series of
successive interest rate rises starting in 2006 and continuing through into 2007
saw base rates rise by 125 basis points (in effect increasing the cost of
borrowing almost 30%). The cost of servicing an already high level of personal
debt therefore rose for much of the UK population. Compounding this we saw
inflation rise, by varying amounts depending upon which particular index one
chose to use, and the burden of taxation increase. Together this combination has
served to make life more difficult for the UK consumer and looking forward into
2008 we anticipate a continuation of these tighter conditions.
Whilst we would not suggest that TRG is completely impervious to these economic
factors, we are very encouraged that our business has demonstrated a
considerable level of resilience in the face of a slowing UK economy and a
tighter consumer market. We believe that this is the result of a number of
factors including our popular price point and value for money, our focus on
areas with higher barriers to entry (and thus lower supply-side risk), the
strength of our brands, consumers' reluctance to forego eating out and, very
importantly, the skill and application of the TRG team. Restaurants which have
opened within the last few years have performed very well, delivering strong
returns and we intend to continue to open a similar number of new restaurants
each year for the foreseeable future.
We believe that interest rates and employment levels are two key drivers of
consumer spend which can potentially impact our marketplace. We have recently
seen two reductions in base rates to the current level of 5.25% and we note that
employment levels are, and are projected to remain, high. Whilst it is suggested
that there is scope for further monetary relaxation during 2008 we believe that,
in the light of current levels of inflation as measured by the CPI, it may take
some time before the base rate drops back below 5%. We are also mindful of the
risks of further taxation pressures as a result of the level of the budget
deficit. Furthermore, GDP growth is forecast to slow in 2008 to a below trend
level but, looking further ahead, there is the prospect of a pick-up, back
towards trend, in 2009. As a result, we have factored a less favourable
macro-economic backdrop into our planning for 2008 than we have experienced over
the last five years.
Despite this we believe that TRG is well-placed to weather these tighter
conditions. Recent trading has been solid and we continue to see excellent
results from our new openings. Cost pressures have been an issue for some time.
We identified the risk of inflationary cost pressures with respect to our input
costs two years ago and, during 2006 where we were able to, we took steps to
remove or minimise that risk through taking out longer term (typically three
years) fixed or capped price contracts. This approach served us well during 2007
and we will continue to benefit from this in 2008 and 2009. However, we are
still exposed in some areas where currently cost pressures are being felt
(mainly fresh meats and dairy/milk products). In these areas we would normally
fix prices for 6-12 months but at present we are, in most cases, eschewing fixes
of more than three months as our purchasing team anticipate a reasonable
possibility of prices softening later in the year. We have also kept our menu
content under regular review so as to try to mitigate the impact of cost
inflation through careful menu engineering. In the light of the current tighter
consumer market and, we believe, the importance of value for our customers we
are likely to hold off increasing menu prices in the short term but we will be
carefully reviewing this during the second quarter with the prospect of some
increases later in the year.
Future Prospects
2007 was another year of good progress for the Group with both divisions
achieving growth. The current year has started well with like-for-like sales
growth during the first nine weeks at +4% (of which covers growth represents
70%) and total revenue for the same period up 21% (a 16% increase excluding B&
P). At this stage last year, like-for-like sales growth was +5% (of which covers
growth represented 75%) and total revenue was 16% ahead. Whilst we are
encouraged by this, we recognise both the ongoing impact of a continuation of a
tighter consumer marketplace and also the fact that our comparative
like-for-like hurdles, at +8.3% and +7.3% in quarters two and three, are
demanding. We have made a solid start to the year and, providing there is not a
significant further deterioration in the UK economy, we are confident of
continuing our progress in 2008.
Andrew Page
Chief Executive Officer
5 March 2008
Group Finance Director's Review
Results
*Results marked as adjusted are stated excluding non-trading items (refer to
note 2)
As described in the Chairman's statement the Group has had another excellent
year. Total Group revenue increased by 16.5% to £366.7m. Revenue of the
principal trading brands increased by 18.7% to £366.4m.
Adjusted Group EBITDA was £67.8m, up 21.9% compared to the prior year. After
adding back pre-opening costs and the IFRS non-cash share option charge,
adjusted Group EBITDA in the year was £72.1m. Adjusted Group operating profit
grew by 23.0% to £48.2m. In terms of margins we made further good progress,
adjusted Group EBITDA at 18.5% showed an improvement of 80 basis points on the
previous year, while adjusted Group operating profit margin at 13.1% was 60
basis points ahead of 2006.
Total interest costs in the year of £4.0m were 22.2% higher than the previous
year. This reflects the higher levels of average net debt during 2007 (following
payment of the £35m special dividend in March 2006 and the £32m acquisition of
Brunning & Price in October 2007).
Total adjusted profit before tax excluding Living Ventures was £44.2m, an
increase of 23.1% on the prior year. After taking into account TRG's share of
the losses of Living Ventures total Group profit before tax and non-trading
items was £43.5m, an increase of 24.2% on the prior year.
Non-Trading Items
The full year results include a net non-trading charge of £0.7m before taxation.
This consists of the following items:
• A provision of £1.7m against the carrying value of the Group's investment
in Living Ventures as previously announced and detailed in the Interim
Results for 2007,
• A credit of £1.0m recognised in respect of outstanding loan note interest
received from Living Ventures at the time of the sale of the Living Room
business in June 2007 as also previously announced and detailed in the
Interim Results,
• A net charge of £0.2m in respect of the revaluation of the interest rates
swap at the year end, and
• A net credit of £0.2m relating to various property disposal items.
Capital Expenditure
During 2007 the Group invested a total of £47.4m (2006: £40.8m) in capital
additions. This consisted of the following:
• £37.8m invested in 36 new sites (20 Frankie & Benny's, eight Chiquito, six
Blubeckers and two Concession outlets). This includes two freehold
developments and the Heathrow Terminal 5 fit out costs.
• £9.6m on refurbishment and maintenance expenditure.
As we have highlighted previously, the Group is very focused on ensuring that
our investments generate excellent returns on investment. In order to ensure
that this is achieved, we adopt a rigorous approach to capital investment
appraisal. All new site proposals are subject to this process which includes
detailed financial evaluations and demographic analysis, as well as local
competitor and market analysis. All significant projects are subject to approval
by the Group Board and we conduct post completion reviews on a regular basis.
These confirm that we are continuing to achieve the excellent expected levels of
financial return on a very consistent basis.
Cash Flow
Set out below is a summary cash flow statement for 2007. This demonstrates once
again the very strong cash generation characteristics of TRG, and the very
transparent conversion of reported operating profit into cash. Cash flow
generated from operations at £73.8m showed an increase of 16% on the prior year.
After interest, tax and maintenance capex, free cash flow of £50.6m grew by 19%
compared to 2006. This level of free cash flow means that, once again, the
Group's expanding development programme as well as a significantly increased
level of ordinary dividend was entirely financed out of internally generated
cash flow.
£ million 2007 2006
Adjusted operating profit 48.2 39.2
Working capital & non-cash adjustments 6.0 7.7
Depreciation 19.6 16.5
Cash flow from operations 73.8 63.4
Interest paid (3.4) (2.8)
Tax paid (10.2) (9.7)
Maintenance capex (9.6) (8.5)
Free cash flow 50.6 42.4
New build capex (37.8) (32.3)
Ordinary dividends paid (12.2) (9.5)
Underlying net cash flow 0.6 0.6
Disposals and integration (including Living Room) 8.6 (2.0)
Acquisition of Brunning & Price (32.9) -
Cash proceeds from issue of shares 1.1 1.1
Special dividend - (34.8)
Purchase of shares for employee benefit trust (7.2) -
Financing costs offset against bank debt 0.7 -
Change in net debt (29.1) (35.1)
Net debt at start of the year (47.5) (12.4)
Net debt at end of the year (76.6) (47.5)
Other points to note on the cash flow are as follows:
• Total ordinary cash dividend payments to shareholders at £12.2m increased
by 28% compared to 2006.
• Disposals include £7.8m in respect of the Living Room disposal announced
in June, with the balance relating to various property disposals.
• The Group invested a total of £32.9m (including costs) acquiring the
Brunning & Price business, as announced in October.
• The Group invested £7.2m acquiring shares for the Employee Benefit Trust.
This was in two tranches: 1.5m shares acquired on the 29 June 2007 for a
total consideration of £5.0m; 1m shares acquired on 27 November 2007 for a
total consideration of £2.2m.
The Group ended the year with net debt of £76.6m compared to £47.5m at the start
of the year.
Financing
In December 2007 the Group completed new financing arrangements. This consists
of a new committed £120m facility for five years until December 2012. In all
respects this is on terms at least as good as the previous facilities.
The Group also has interest rate hedging instruments in place to fix interest
costs on a significant proportion of the overall net debt position. £30m is
fixed at a rate of 4.695% until January 2009. A further £25m is fixed at 4.92%
until January 2011.
The Group is therefore in a strong financial position with substantial head room
against covenants and available facilities, which will enable us to maintain the
new site development programme.
Balance Sheet & Key Financial Ratios
Total Group net assets increased in the year from £65.2m to £77.2m. The detail
of this movement is set out in the consolidated statement of changes in equity.
The main movements are an increase of £29m, representing the retained profits
for the year, less dividend payments of £12.2m and a £7.2m charge to reserves in
respect of the acquisition of shares for the Employee Benefit Trust.
The key financial ratios during the year were as follows:
Covenant 2007 2006
EBIT interest cover 12.1x 12.0x
EBITDA interest cover >4x 17.0x 17.1x
Fixed charge cover 2.4x 2.3x
Balance sheet gearing 99% 73%
Net debt / EBITDA <3x 1.13x 0.85x
Compared to banking covenants under the new facility arrangement, we have
substantial head room.
In terms of financial gearing, given that the Group's business is primarily
lease based, the key ratio we focus on is fixed charge cover. For the year this
was 2.4 times, broadly in line with the level in the previous year.
Taxation
The total taxation for the year on ordinary activities is £13.6m as follows:
2007 2006
Trading Non-trading Total Trading Non-trading Total
Corporation tax 12.5 0.3 12.8 9.8 (1.3) 8.5
Deferred tax 2.3 (1.5) 0.8 2.5 0.2 2.7
Total 14.8 (1.2) 13.6 12.3 (1.1) 11.2
• The underlying normalised tax rate on trading activities excluding
unrelieved associate losses was 33.5% (2006: 34.1%). The reduction in the
rate of corporation tax from 30% to 28% announced in the 2007 Budget only
comes in to effect from April 2008, and has therefore had no impact on the
current year underlying charge.
• The non-trading credit of £1.2m arises primarily as a result of revaluing
the year end deferred tax balance at the new rate of 28%, in line with
accounting guidance.
Stephen Critoph
Group Finance Director
5 March 2008
The Restaurant Group plc - Preliminary Announcement
Consolidated income statement
Year ended 30 December 2007 Year ended 31 December 2006
Continuing Discontinued Total Continuing Discontinued Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Revenue 3 366,710 - 366,710 314,018 730 314,748
Cost of sales 4 (296,669) - (296,669) (256,060) (1,026) (257,086)
Gross profit / (loss) 70,041 - 70,041 57,958 (296) 57,662
Administration costs (21,834) - (21,834) (18,475) - (18,475)
Provision against carrying 5 (1,656) - (1,656) (9,500) - (9,500)
value of associate
Loss on integration of DPP 5 - - - (4,582) - (4,582)
Profit on disposal of fixed 5 247 - 247 - - -
assets
Operating profit / (loss) 46,798 - 46,798 25,401 (296) 25,105
Interest payable (4,254) - (4,254) (3,308) - (3,308)
Interest receivable 1,025 - 1,025 699 - 699
Profit / (loss) before share 43,569 - 43,569 22,792 (296) 22,496
of associate and tax
Share of post-tax result in (749) - (749) (917) - (917)
associated undertaking
Profit / (loss) before tax 42,820 - 42,820 21,875 (296) 21,579
Profit / (loss) before tax,
analysed as:
Trading business 43,480 - 43,480 35,312 (296) 35,016
Non-trading items 5 (660) - (660) (13,437) - (13,437)
42,820 - 42,820 21,875 (296) 21,579
Tax on profit / (loss) from 6 (13,644) - (13,644) (11,264) 101 (11,163)
ordinary activities
Profit / (loss) on ordinary 29,176 - 29,176 10,611 (195) 10,416
activities after tax
Profit on sale of businesses 5 - - - - 3,950 3,950
net of tax
Profit for the financial year 29,176 - 29,176 10,611 3,755 14,366
attributable to equity
shareholders
Earnings per share (p)
Basic 7 14.90 - 14.90 5.36 1.90 7.26
Diluted 7 14.82 - 14.82 5.34 1.89 7.23
Dividend per share (p) 8 7.25 6.00
Ordinary
Special 8 - 16.00
Consolidated statement of changes in equity
Year ended 30 December Year ended 31
2007 December 2006
£'000 £'000
Opening equity 65,204 91,436
Profit for the year 29,176 14,366
Foreign exchange translation differences 40 1
Tax on share-based payments taken (712) 1,529
directly to equity
Total recognised income and expense for 28,504 15,896
the year
Dividends - ordinary (12,173) (9,490)
Dividends - special - (34,793)
Issue of new shares 1,090 1,096
Share-based payments - credit to equity 1,738 1,059
Employee benefit trust - purchase of (7,209) -
shares
Total changes in equity in the year 11,950 (26,232)
Closing equity 77,154 65,204
The Restaurant Group plc
Consolidated balance sheet
At 30 December At 31 December 2006
2007
£'000 £'000
Non-current assets
Intangible assets 26,516 11,275
Property, plant and equipment 228,757 174,035
Investment in associate - 7,810
Trade and other receivables - 875
255,273 193,995
Current assets
Stock 3,349 2,992
Financial assets - derivative financial instruments 415 652
Trade and other receivables 7,027 5,170
Prepayments 12,830 12,138
Cash and cash equivalents 1,692 683
25,313 21,635
Total assets 280,586 215,630
Current liabilities
Short-term borrowings - (1,165)
Income tax liabilities (6,842) (4,947)
Trade and other payables (85,191) (74,864)
Other payables - finance lease debt (271) (271)
(92,304) (81,247)
Net current liabilities (66,991) (59,612)
Non-current liabilities
Long-term borrowings (78,265) (47,000)
Other payables - finance lease debt (2,558) (2,466)
Deferred tax liabilities (25,388) (16,247)
Provisions (4,917) (3,466)
(111,128) (69,179)
Total liabilities (203,432) (150,426)
Net assets 77,154 65,204
Equity
Share capital 55,295 54,863
Share premium 21,004 20,346
Foreign currency reserve 121 81
Other reserves (3,648) 1,823
Retained earnings 4,382 (11,909)
Total equity shareholders' interests 77,154 65,204
The Restaurant Group plc
Consolidated cash flow statement
Year ended 30 Year ended 31
December 2007 December 2006
Note £'000 £'000
Cash flows from operating activities
Cash generated from operations 11 73,812 63,374
Interest received 1,546 68
Interest paid (3,468) (2,906)
Tax paid (10,228) (9,656)
Net cash flows from operating activities 61,662 50,880
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired 9 (32,884) -
Disposal of business, net of cash disposed - (1,455)
Net proceeds from disposal of business by associate 6,280 -
Integration of business - (584)
Purchase of property, plant and equipment (47,407) (40,775)
Proceeds from sale of property, plant and equipment 815 58
Net cash flows used in investing activities (73,196) (42,756)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 1,090 1,096
Employee benefit trust - purchase of shares (7,209) -
Net proceeds from issue of bank loans 32,000 36,000
Dividends paid to shareholders 8 (12,173) (44,283)
Net cash flows from / (used in) financing activities 13,708 (7,187)
Net increase in cash and cash equivalents 2,174 937
Cash and cash equivalents at start of year 12 (482) (1,419)
Cash and cash equivalents at end of year 12 1,692 (482)
The Restaurant Group plc
Notes to the accounts
1 Segmental analysis
Year ended 30 December 2007 Year ended 31 December 2006
Turnover EBITDA EBITDA Operating Operating Turnover EBITDA EBITDA Operating Operating
profit profit
margin profit margin margin profit margin
£'000 £'000 % £'000 % £'000 £'000 % £'000 %
Leisure 285,226 76,161 26.7% 61,572 21.6% 236,258 62,703 26.5% 50,745 21.5%
Concessions 81,199 16,567 20.4% 12,485 15.4% 72,479 15,154 20.9% 11,088 15.3%
Principal 366,425 92,728 25.3% 74,057 20.2% 308,737 77,857 25.2% 61,833 20.0%
trading brands
Non-core brands 285 (1,134) (398.0%) (1,449) (508.5%) 5,281 (1,789) (33.9%) (1,999) (37.8%)
Continuing 366,710 91,594 25.0% 72,608 19.8% 314,018 76,068 24.2% 59,834 19.1%
operations
Discontinued - - - - - 730 (296) (40.6%) (296) (40.6%)
operations
Total all brands 366,710 91,594 25.0% 72,608 19.8% 314,748 75,772 24.1% 59,538 18.9%
Pre-opening costs (2,567) (0.7%) (2,567) (0.7%) (1,876) (0.6%) (1,876) (0.6%)
(included in cost of
sales)
Administration (19,483) (5.3%) (20,096) (5.5%) (17,192) (5.5%) (17,416) (5.5%)
Share-based payments (1,738) (0.5%) (1,738) (0.5%) (1,059) (0.3%) (1,059) (0.3%)
Total before non-trading 67,806 18.5% 48,207 13.1% 55,645 17.7% 39,187 12.5%
items
Provision against carrying value (1,656) (9,500)
of associate
Loss on integration of DPP - (4,582)
Profit on disposal of fixed assets 247 -
Operating profit 46,798 25,105
No geographical segment analysis has been provided as the Directors do not consider there to be materially
significant geographical segments. The Group currently operates three restaurants outside of the United
Kingdom.
EBITDA is operating profit before depreciation, amortisation and non-trading items.
Note 2 - Additional income statement
Additional income statement information is provided as a useful guide to
underlying trading performance. The adjustments from the statutory income
statement exclude the non-trading items, detailed in note 5, and are to aid
understanding of the income statement and should be read in conjunction with,
rather than as a substitute for, the reported information.
The 2007 and 2006 results include a number of items which are of a one-off
nature or are unrelated to the period's result and hence are not representative
of the underlying trading performance of the business. These have been
separately identified in the additional income statement as non-trading items.
Note 2a - Additional income statement
Year ended 30 December 2007
Continuing Discontinued Trading Non-
operations operations business trading Total
£'000 £'000 £'000 £'000 £'000
Revenue 366,710 - 366,710 - 366,710
Cost of sales:
Excluding pre-opening costs (294,102) - (294,102) - (294,102)
Pre-opening costs (2,567) - (2,567) - (2,567)
(296,669) - (296,669) - (296,669)
Gross profit / (loss) 70,041 - 70,041 - 70,041
Administration costs (21,834) - (21,834) - (21,834)
Trading profit / (loss) 48,207 - 48,207 - 48,207
Provision against carrying value of - - - (1,656) (1,656)
associate
Loss on integration of DPP - - - - -
Profit on disposal of fixed assets - - - 247 247
Operating profit / (loss) 48,207 - 48,207 (1,409) 46,798
Interest payable (4,017) - (4,017) (237) (4,254)
Interest receivable 39 - 39 986 1,025
Profit / (loss) before share of 44,229 - 44,229 (660) 43,569
associate and tax
Share of post-tax result in (749) - (749) - (749)
associated undertaking
Profit / (loss) on ordinary 43,480 - 43,480 (660) 42,820
activities before tax
Tax on profit / (loss) from ordinary (14,802) - (14,802) 1,158 (13,644)
activities
Profit / (loss) on ordinary 28,678 - 28,678 498 29,176
activities after tax
Profit on sale of businesses net of - - - - -
tax
Profit / (loss) for the year 28,678 - 28,678 498 29,176
Earnings per share (p)
Basic 14.64 14.90
Diluted 14.56 14.82
Dividend per share (p) 7.25
Ordinary
Special -
Note 2a - Additional income statement (continued)
Year ended 31 December 2006
Continuing Discontinued Trading Non-
operations operations business trading Total
£'000 £'000 £'000 £'000 £'000
Revenue 314,018 730 314,748 - 314,748
Cost of sales:
Excluding pre-opening costs (254,184) (1,026) (255,210) - (255,210)
Pre-opening costs (1,876) - (1,876) - (1,876)
(256,060) (1,026) (257,086) - (257,086)
Gross profit / (loss) 57,958 (296) 57,662 - 57,662
Administration costs (18,475) - (18,475) - (18,475)
Trading profit / (loss) 39,483 (296) 39,187 - 39,187
Provision against carrying value of - - - (9,500) (9,500)
associate
Loss on integration of DPP - - - (4,582) (4,582)
Profit on disposal of fixed assets - - - - -
Operating profit / (loss) 39,483 (296) 39,187 (14,082) 25,105
Interest payable (3,308) - (3,308) - (3,308)
Interest receivable 54 - 54 645 699
Profit / (loss) before share of 36,229 (296) 35,933 (13,437) 22,496
associate and tax
Share of post-tax result in (917) - (917) - (917)
associated undertaking
Profit / (loss) on ordinary 35,312 (296) 35,016 (13,437) 21,579
activities before tax
Tax on profit / (loss) from ordinary (12,364) 101 (12,263) 1,100 (11,163)
activities
Profit / (loss) on ordinary 22,948 (195) 22,753 (12,337) 10,416
activities after tax
Profit on sale of businesses net of - - - 3,950 3,950
tax
Profit / (loss) for the year 22,948 (195) 22,753 (8,387) 14,366
Earnings per share (p)
Basic 11.50 7.26
Diluted 11.45 7.23
Dividend per share (p) 6.00
Ordinary
Special 16.00
Note 2b - Additional non-statutory information*
* Results are stated excluding non-trading items
Year ended 30 December 2007 Year ended 31 December 2006
Turnover EBITDA EBITDA Operating Operating Turnover EBITDA EBITDA Operating Operating
profit profit
margin profit margin margin profit margin
£'000 £'000 % £'000 % £'000 £'000 % £'000 %
Leisure 285,226 76,161 26.7% 61,572 21.6% 236,258 62,703 26.5% 50,745 21.5%
Concessions 81,199 16,567 20.4% 12,485 15.4% 72,479 15,154 20.9% 11,088 15.3%
Principal 366,425 92,728 25.3% 74,057 20.2% 308,737 77,857 25.2% 61,833 20.0%
trading brands
Non-core 285 (1,134) (398.0%) (1,449) (508.5%) 5,281 (1,789) (33.9%) (1,999) (37.8%)
brands
Continuing 366,710 91,594 25.0% 72,608 19.8% 314,018 76,068 24.2% 59,834 19.1%
operations
Discontinued - - - - - 730 (296) (40.6%) (296) (40.6%)
operations
Total all 366,710 91,594 25.0% 72,608 19.8% 314,748 75,772 24.1% 59,538 18.9%
brands
Pre-opening costs (2,567) (0.7%) (2,567) (0.7%) (1,876) (0.6%) (1,876) (0.6%)
(included in cost of
sales)
Administration (19,483) (5.3%) (20,096) (5.5%) (17,192) (5.5%) (17,416) (5.5%)
Share-based payments (1,738) (0.5%) (1,738) (0.5%) (1,059) (0.3%) (1,059) (0.3%)
EBITDA / adjusted 67,806 18.5% 48,207 13.1% 55,645 17.7% 39,187 12.5%
operating profit
Total net interest (3,978) (3,254)
charges
Adjusted profit before taxation 44,229 35,933
and share of associate's result
Share of post-tax result in (749) (917)
associated undertaking
Adjusted profit before taxation 43,480 35,016
Taxation (14,802) (12,263)
Adjusted profit after 28,678 22,753
taxation
Earnings per share
(pence) - Trading
business
Basic 14.64 11.50
Diluted 14.56 11.45
No geographical segment analysis has been provided as the Directors do not consider there to be
materially significant geographical segments. The Group currently operates three restaurants
outside of the United Kingdom
EBITDA is operating profit before depreciation, amortisation and non-trading items.
3 Revenue 2007 2006
£'000 £'000
Revenue consists of the following:
Continuing operations 366,710 314,018
Discontinued operations - 730
366,710 314,748
Other income not included within revenue in
the income statement:
Rental income 4,013 5,960
Interest income 1,025 699
371,748 321,407
4 Profit from operations 2007 2006
£'000 £'000
Included in cost of sales are the following:
Continuing business excluding pre-opening costs 294,102 254,184
Pre-opening costs 2,567 1,876
Continuing operations 296,669 256,060
Discontinued operations - 1,026
Total cost of sales for the year 296,669 257,086
5 Non-trading items
Note 2007 2006
£'000 £'000
Items classified as non-trading within ordinary activities:
Provision against carrying value of associate i (1,656) (9,500)
Interest receivable from associate ii 986 -
Loss on integration of DPP iii - (4,582)
Finance (charge) / gain arising from iv (237) 645
remeasurement of interest rate swap
Profit on disposal of fixed assets v 247 -
Loss on ordinary activities before tax (660) (13,437)
Taxation (charge) / credit on non-trading items (225) 1,100
Credit in respect of rate change on deferred tax liability vi 1,383 -
Loss on ordinary activities after tax 498 (12,337)
Profit on sale of businesses:
Profit on disposal of Est Est Est Restaurants Limited vii - 184
Profit on disposal of the Caffe Uno business viii - 2,696
Profit on sale of businesses before tax - 2,880
Tax on sale of businesses - 1,070
Profit on sale of businesses after tax - 3,950
Total non-trading items after tax 498 (8,387)
i) A £1.7m provision has been made against the carrying value of the Group's associate company,
Living Ventures Limited, which, together with the £9.5m provision made in the year ended 31
December 2006, leaves a £nil carrying value of both the investment and the loan note.
ii) A credit of £1.0m has been recorded in respect of accrued loan note interest received from
Living Ventures Limited not previously recorded in the income statement.
iii) The loss on integration of the Deep Pan Pizza business is in relation to costs incurred during
2006 on employee and contract terminations and a number of property costs including the write down
of the carrying value of the business on integration, provisions for onerous leases and premiums on
disposal of some of the properties.
iv) The Group has taken a charge of £0.2m (2006: £0.6m credit) in respect of the remeasurement of
its interest rate swap.
v) During the year the Group disposed of fixed assets and provided for committed disposals and
realised a net profit of £0.2m (2006: £nil).
vi) A non-trading taxation credit of £1.4m has been recognised in the income statement due to the
impact of the rate change on the deferred tax liability. Further details are provided in note 6.
vii) On 31 March 2005, the Group sold Est Est Est Limited to Living Ventures Limited and a profit
of £1.6m was recognised in the year ending 1 January 2006. A further £0.2m was recognised in the
year ending 31 December 2006. No further profit has been recognised in 2007.
viii) On 12 December 2005, the Group disposed of 53 of the 59 sites that formed the Caffe Uno brand
to Paramount for a profit of £3.7m. In 2006, a further £2.7m profit was recognised following the
release of accruals in respect of dilapidations and warranty claims that were no longer required as
they became time lapsed, and following the completion of better than anticipated deals on disposal
of some of the sites not sold to Paramount. There has been no further profit recognised in 2007.
The discontinued results in 2006 relate to the sites not sold to Paramount, all of which have been
subsequently disposed.
6 Taxation
2007 2006
The taxation charge comprises: £'000 £'000
Current taxation
UK corporation tax at 30% 12,901 8,594
Adjustments in respect of previous periods (107) (115)
12,794 8,479
Deferred taxation
Origination and reversal of timing differences 2,306 2,684
Adjustments in respect of previous periods (73) -
Credit in respect of rate change (1,383) -
850 2,684
Taxation charge on ordinary activities 13,644 11,163
Taxation charge on disposal of business - (1,070)
Total taxation charge for the year, including impact 13,644 10,093
of disposal of business
Current tax on ordinary activities consists of £12.8m (2006: £8.6m) for continuing activities and
£nil (2006: £0.1m credit) in respect of discontinued activities. Deferred tax on ordinary
activities consists of £0.8m (2006: £2.7m) in respect of continuing activities and £nil (2006:
£0.01m credit) in respect of discontinued activities. In addition, a tax credit of £1.1m was
recognised in respect of the disposal of the Caffe Uno business in 2006.
The Finance Act 2007 reduced the rate of corporation tax from 30% to 28% from 1 April 2008, and
this rate is required to be used in calculating deferred tax provisions as at the balance sheet
date. This has resulted in a one-off non-trading tax credit in the income statement of £1.4m.
7 Earnings per share 2007 2006
a) Basic earnings per share:
Weighted average ordinary shares in issue during the year 195,878,089 197,790,404
Total basic profit for the year (£'000) 29,176 14,366
Basic earnings per share for the year (pence) 14.90 7.26
Total basic profit for the year (£'000) 29,176 14,366
Effect of non-trading items on earnings for the year (£'000) (498) 8,387
Earnings excluding non-trading items (£'000) 28,678 22,753
Adjusted earnings per share (pence) 14.64 11.50
b) Continuing and discontinued activities:
Profit for the year from continuing activities 29,176 10,611
Basic earnings per share from continuing activities (pence) 14.90 5.36
Profit for the year from discontinued activities - 3,755
Basic earnings per share from discontinued activities - 1.90
(pence)
c) Diluted earnings per share:
Weighted average ordinary shares in issue during the year 195,878,089 197,790,404
Dilutive shares to be issued in respect of options granted 1,023,168 953,597
under the Share Option Scheme
196,901,257 198,744,001
Diluted earnings per share (pence) 14.82 7.23
Adjusted diluted earnings per share (pence) 14.56 11.45
Diluted earnings per share from continuing activities (pence) 14.82 5.34
Diluted earnings per share from discontinued activities - 1.89
(pence)
The additional earnings per share information (where non-trading items have been added back) has been
provided as the Directors believe they provide a useful indication as to the underlying performance of
the Group.
Diluted earnings per share information is based on adjusting the weighted average number of shares in
issue in respect of notional share awards made to employees in respect of share option schemes. No
adjustment is made to the reported earnings for 2007 and 2006.
8 Dividend
2007 2006
£'000 £'000
Amounts recognised as distributions to equity holders during
the year:
Final dividend for the year ended 31 December 2006 of 4.95p (2005: 9,702 7,442
3.84p) per share
Interim dividend for the year ended 30 December 2007 of 1.26p 2,471 2,048
(2006: 1.05p) per share
12,173 9,490
Special dividend of 16p per share paid on 9 March 2006 - 34,793
12,173 44,283
Proposed final dividend for the year ended 30 December 2007 of 11,777 9,702
5.99p (2006 actual proposed and paid: 4.95p) per share
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting
to be held on 7 May 2008 and is not recognised as a liability in these financial statements. The
proposed final dividend payable reflects the number of shares in issue on 30 December 2007.
9 Acquisition of Brunning & Price
On 17 October 2007 The Restaurant Group plc completed the acquisition of 100% of
the ordinary share capital of Brunning & Price Limited ('B&P') for £26.4m, and a
further payment of £5.7m for the repayment of existing debt within B&P. Fees of
£0.8m were incurred on the transaction. B&P operates 14 pub restaurants,
predominantly in the North-West of England. In the period that B&P was a
subsidiary of the Group, it contributed £0.4m to net profit.
10 Investment in associate
On 22 June 2007, Living Ventures Limited disposed of the Living Rooms business.
As a result of this transaction, the Group received a consideration of £6.3m in
cash, net of costs. In addition, the outstanding interest on the loan note,
amounting to £1.5m, was settled in full. The Directors have concluded that it is
appropriate to make a further provision of £1.7m, which together with the £9.5m
provision made in the year ended 31 December 2006, leaves a £nil carrying value
of both the investment and the loan note.
11 Reconciliation of profit before tax to net cash flow from operating activities
2007 2006
£'000 £'000
Profit before tax 42,820 21,579
Net finance charges 3,229 2,609
Profit on disposal of fixed assets (247) -
Loss on integration of DPP (net of operating cash flow) - 4,101
Provision against carrying value of associate 1,656 9,500
Share of loss made by associate 749 917
Share-based payment charge 1,738 1,059
Depreciation 19,599 16,458
Increase in stocks (121) (229)
Increase in debtors (3,043) (1,295)
Increase in creditors 7,432 8,675
Cash flows from operating activities 73,812 63,374
12 Reconciliation of changes in cash to the movement in net debt
2007 2006
£'000 £'000
At the beginning of the year (47,482) (12,419)
Movements in the year:
Loans taken out (32,000) (36,000)
Non-cash movements in the year 735 -
Cash inflow 2,174 937
At the end of the year (76,573) (47,482)
Represented by: At Cash flow At Cash flow Non-cash At
2 January movements 1 January movements movements in 30 December
2006 in the year 2007 in the year the year 2007
£'000 £'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 426 257 683 1,009 - 1,692
Overdrafts (1,845) 680 (1,165) 1,165 - -
(1,419) 937 (482) 2,174 - 1,692
Bank loans due within one - - - - - -
year
Bank loans due after one (11,000) (36,000) (47,000) (32,000) 735 (78,265)
year
(11,000) (36,000) (47,000) (32,000) 735 (78,265)
(12,419) (35,063) (47,482) (29,826) 735 (76,573)
13 Basis of preliminary statement
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 December 2007 or 31 December 2006, but
is derived from those accounts. Statutory accounts for 2006 have been delivered
to the Registrar of Companies and those for 2007 will be delivered following the
company's Annual General Meeting. The 2007 statutory accounts are prepared on
the basis of the accounting policies stated in the 2006 statutory accounts. The
auditors have reported on those accounts; their reports were unqualified and did
not contain statements under s237(2) or (3) Companies Act 1985.
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