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Restaurant Group PLC - Final Results

RNS Number : 1216E
Restaurant Group PLC
26 February 2020
 

The Restaurant Group plc ("TRG")

This announcement contains inside information

Final results for the 52 weeks ended 29 December 2019

2019 Highlights

·    Delivering the benefits of the Wagamama transaction

Market-leading like-for-like (LFL) sales performance of +8.5%

Cost synergies ahead of plan, site conversion programme well progressed

US Joint Venture (JV) established after year-end to facilitate capital-light growth plan

·    Growing our Pubs and Concessions businesses

Concessions LFL sales growth of +4.1% well ahead of passenger growth; strong presence in new Manchester terminal secured

Pubs LFL sales growth +4.0% consistently outperforming the market; healthy pipeline of new sites in 2020

·    Optimising our Leisure brands

LFL sales decline of 2.8%, representing an improvement on previous years

Delivery sales performing well, supported by targeted operational initiatives to improve food offering and brand proposition

Overall estate size reduced by 18 sites to 350 sites via closures and conversions to Wagamama

Andy Hornby, Chief Executive Officer, commented:

"Having joined the business in August last year I am particularly pleased with the continued and significant progress made following the acquisition of Wagamama and the integration of the business into the Group, which has transformed the Group's growth trajectory and momentum. 

Our three growth businesses of Wagamama, Concessions and Pubs are all out-performing their respective markets and have clear potential for further growth.  I am also acutely aware of the challenges facing our Leisure business and the wider casual dining sector.   

It is therefore clear that our strategic priorities need to evolve in order to maximise shareholder value in the medium term.  Following extensive review we have defined three clear strategic priorities for the next two years:

·    Grow our Wagamama, Concessions and Pubs businesses;

·    Rationalise our Leisure business; and 

·    Accelerate our deleveraging profile

In order to support these strategic priorities, the Board has taken the decision to temporarily suspend the dividend.  This will allow us to continue investing in our three high growth businesses, whilst facilitating an acceleration of our Leisure estate rationalisation and reducing our net debt. 

We have made an encouraging start to the new financial year with like-for-like sales up 5.3% for the first six weeks of 2020."

 

2020 to 2021 Strategic priorities

·    Grow our Wagamama, Concessions and Pubs businesses

Continue selective approach to new sites generating strong returns

Maintain like-for-like sales outperformance versus respective benchmarks

 

·    Rationalise our Leisure business

Accelerate rationalisation of the estate from 350 sites today to a target of 260-275 sites by the end of 2021

 

·    Accelerate our deleveraging profile

Target a reduction in net debt / EBITDA leverage  from 2.1x today to below 1.6x by the end of 2021

 

Temporary suspension of dividend to facilitate strategic priorities

 

2019 Financial summary

·    Group like-for-like sales up 2.7%, with total sales up 56.4% to £1,073.1m (2018: £686.0m)

·    Adjusted1 profit before tax of £74.5m (2018: £53.2m).  Statutory loss before tax of £37.3m (2018 Statutory profit: £13.9m)

·    Adjusted1 EBITDA of £136.7m (2018: £87.9m)

·    Exceptional pre-tax charge of £111.8m (H1 2019: £115.7m, H2 2019: (£3.9m) credit) primarily related to impairment in our Leisure business recorded in the first half of 2019 (2018: £39.2m)

·    Adjusted1 EPS of 11.9p (2018: 14.7p).  Statutory loss per share of 8.2p (2018 earnings per share: 2.4p)

·    Operating cash flow of £140.5m (2018: £88.3m)

·    Net bank debt of £286.6m (2018: £291.1m) with net debt/EBITDA at 2.1x

·    No full year dividend declared to facilitate new strategic priorities

Current trading

Current trading is encouraging with like-for-like sales up 5.3% for the first six weeks of 2020.

1 The Group's adjusted performance metrics such as like-for-like sales and free cash flow are defined within the glossary at the end of this report

 

Enquiries:

 

The Restaurant Group plc

Andy Hornby, Chief Executive Officer

Kirk Davis, Chief Financial Officer

 

020 3117 5001

MHP Communications

Oliver Hughes

Simon Hockridge

Alistair de Kare-Silver

 

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 08:45am.  If you would like to register, please contact Robert Collett-Creedy at MHP Communications for details on 020 3128 8147 or email [email protected].

The presentation slides will be available to download from 08:30am from the Company's website

https://www.trgplc.com/investors/reports-presentations

 

 

Notes:

 

1.    At the year-end The Restaurant Group plc operated over 650 restaurants and pub restaurants throughout the UK. Its principal trading brands are Wagamama, Frankie & Benny's, Chiquito and Brunning & Price.  It also operates a multi-brand Concessions business which trades principally in UK airports.  In addition the Wagamama business had 5 restaurants in the US and over 50 franchise restaurants operating across a number of territories.

 

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 and free cash flow are defined within the glossary at the end of this report.

 

4.    The main factors that could affect the business and the financial results are described in the "Senior management Risk Committee" section in The Restaurant Group plc 2019 Annual Report, which will be available to shareholders in April 2020.

 

5.    The information contained within this announcement is considered by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No.596/2016 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information will be considered to be in the public domain.

 

Chairman's statement

2019 has been a year of significant progress for the business, with the acquisition of Wagamama transforming the shape of the Group.  We now have a diversified set of brands and a much greater emphasis on growth, providing firm foundations for future earnings.

Total revenues in the year were up 56% to £1,073m, with LFL sales up 2.7%, representing an improvement on the decline in LFL sales experienced in 2018.  The divisional split of our performance was as follows:

 

·    Wagamama continued to deliver exceptional growth in its first year as part of "TRG", trading well ahead of its core UK market and ahead of management expectations at +8.5% LFL sales;

·    Our Concessions business traded strongly at +4.1% LFL sales, despite the impact of the demise of Thomas Cook and subsequent decline in passenger numbers;

·    Our Pubs business continued to see LFL sales trade consistently ahead of the pub restaurant sector at +4.0%; and

·    Our Leisure business saw a decline of 2.8% in LFL sales, an improvement on the prior year performance reflecting the tough competitive nature of this segment of the market. 

 

Adjusted1 profit before tax was up 40% to £74.5m and Adjusted1 EPS was down 19% to 11.9p per share.  Statutory loss before tax was £37.3m (2018 Statutory profit: £13.9m) including exceptional charges of £111.8m (2018 £39.2m) which are explained further in the Financial review section.  Statutory loss per share was 8.2p (2018 earnings per share: 2.4p).

The Board is excited by the multiple opportunities identified in our three growth businesses (Wagamama, Concessions and Pubs) but is also mindful of the importance of rationalising the Leisure estate alongside reducing our leverage.  We have therefore concluded that the temporary suspension of the dividend is the most sensible way to ensure that we retain the flexibility to grow the business, whilst facilitating an acceleration of our Leisure estate rationalisation and strengthening our balance sheet.  We are now targeting net debt to EBITDA to be below 1.6x by the end of 2021.  The Board is therefore not recommending a final dividend payment and the total dividend for the year is, therefore 2.1 pence per share.

 

The Group now employs over 21,500 people and they are the lifeblood of our business.  The Board would like to record our thanks and appreciation for their continued hard work and commitment.

 

The Board is confident that we have a strong strategic plan with the focus and rigour to deliver increased shareholder value notwithstanding the current challenging consumer environment.

 

 

Debbie Hewitt MBE

Chairman

25 February 2020

 

 

Business review

Introduction

We have three Group priorities:

·    Grow our Wagamama, Concessions and Pubs businesses: These businesses, which contribute c. 75% of Group Outlet EBITDA, are well aligned to structural growth and we have a number of opportunities to invest, whilst delivering attractive returns

·    Rationalise our Leisure business:  Our Leisure business has been particularly impacted by the declining retail footfall, changing customer preferences and rising costs that affect the broader casual dining market.  We are therefore focused on maximising the cash return of this division while we exit structurally unattractive sites and optimise our propositions

·    Accelerate our deleveraging profile:  We are targeting a reduction in leverage from 2.1x to below 1.6x by the end of 2021, whilst retaining the flexibility to invest in our growth businesses and rationalise our Leisure business

 

 

1.   Grow our Wagamama, Concessions and Pubs businesses

Wagamama

Wagamama is a differentiated, high growth pan-Asian proposition that has consistently and significantly outperformed its core UK market.  It is well aligned to the key structural trends in our sector and addresses customer demand for speed of service, delivery and healthier options.

The Wagamama business is underpinned by a unique cohesive culture.  In the year the business launched a refreshed set of core values that supported team engagement and saw a further reduction in team turnover to an all-time record low for both front and back of house teams.

The strong performance of our Wagamama business is reinforced by a highly selective approach to opening new sites, based on a methodical, data-driven approach and a capital expenditure investment appraisal that carefully evaluates and scores its key selection criteria, including demographic and competitive dynamics.

New openings continue to generate strong returns - the 23 sites opened between 2016 and 2018 have generated on average a 44% return on invested capital (defined as 2019 rolling 12 months outlet EBITDA/initial invested capital).

These strong foundations uniquely position the business to continue its exceptional track record of out-performing the market.

2019 performance

Wagamama delivered a strong performance with the core UK business benefiting from strong in-restaurant and delivery growth.  UK like-for-like sales growth remained significantly ahead of the wider market, with like-for-like sales up 8.5% in the period.  Adjusted EBITDA (on a rolling 12 months basis) in 2019 grew to £60.7m from £44.6m in 2018.

Delivery sales rose to c.12% of total sales in 2019 from c.10% in the previous year, as we benefited from the implementation of operational and technology improvements such as bespoke delivery stations, Deliveroo tablets and a switch to fully recyclable packaging.  

During the year the Wagamama team continued to drive innovation at pace. 2019 saw further menu development leading to an increased participation of our vegan range, with the "Avant Gard'n" dish proving particularly successful. 

In 2019 we completed five transformational restaurant refurbishments, adding 200 covers with an expected return on invested capital of c.50%.  

We made excellent progress on the cost synergy programme achieving £8m in 2019 and expect to achieve £15m in 2020, effectively delivering the cost synergy plan in only two years.  In line with the acquisition plan, we prioritised the renegotiation of supply contracts for food, drinks and consumables, and have implemented a number of other initiatives across the Group.

On the site conversion programme we remain firmly on track to deliver an incremental EBITDA benefit of £7m per annum in 2021 from the conversion of 15 sites.  We completed eight conversions in 2019 and these sites are generating an average weekly sales uplift of 120%, with an expected return on invested capital of over 40%.  We are planning to convert five to six more sites in 2020 and believe there is scope for further conversions in 2021.

Growth opportunities

We continue to see opportunities to increase like-for-like sales in our business for the year ahead:

·    2020 will see further menu innovation, both on core menu dishes (e.g. vegan 'Suika' tuna launched for Veganuary) and through collaborations  

·    We will also be trialling new "pay-on-phone" functionality as part of a technology upgrade to provide our customers with faster service and remove the need to wait for the bill before paying and leaving

·    In 2020 we plan to further develop our delivery operation by installing more bespoke delivery stations in high volume sites to speed up packing and working with our delivery partners

·    A further five transformational restaurant refurbishments are planned for 2020, adding an additional 300 covers to those restaurants

As set out below, we also continued to make good progress on the multiple growth opportunities that the Wagamama acquisition has unlocked outside of the core business:

UK New sites: We continue to adopt a highly selective approach to new site openings. In 2019 we opened 10 Wagamama sites including eight conversions from our Leisure branded sites and two new sites at "The Bower" in Old Street London and Heathrow Terminal 3.  We will continue our selective approach to high quality openings and currently expect to open up to 10 sites in 2020 including five to six conversions from our Leisure branded sites.

New formats: Away from the core UK business, we have made good progress in addressing the other growth opportunities associated with Wagamama.  We currently operate three delivery kitchens and expect to open more this year focused on areas not covered by existing restaurants (e.g. Peckham) and towns and cities with demand opportunities (e.g. Leeds).  In November 2019 we launched our first food-to-go concept, "Mamago", on Fenchurch Street in London.  We expect to spend the next six months optimising the proposition before evaluating further roll-out potential.

US: As we previously announced, we launched a strategic review last year of how best to develop the Wagamama US business, given the well-known challenges of developing it as a fully owned business from the UK.  Over the course of the last six months we identified and met with a number of potential development partners and are delighted to have entered a joint venture partnership (the "JV") with Conversion Venture Capital ("CVC2") as financial partners and Robert Cornog Jnr and Richard Flaherty as operating partners. Rob and Richard are two experienced US restaurant leaders who share our vision for Wagamama and have the financial support from Conversion Venture Capital, an investment firm that focuses on partnering with entrepreneurs and management teams that value flexible capital.  Rob and Richard have a wealth of experience in the Hospitality segment, including most recently as senior leaders of the award-winning restaurant concept, "Punch Bowl Social" ("PBS").  The JV will be a 20:80 partnership (with TRG as the minority investor) and the JV will assume full ownership of the existing operations of the US business.  The JV will provide Wagamama's US operations with local operational expertise and expansionary capital with the aim to further expand the brand in the United States.  The JV Board will decide the precise scale of the expansion plans but we would expect to be opening approximately 30-40 restaurants over the first five to six years of the JV.  TRG retains the option to repurchase the remaining 80% of the business starting in 2026.  The JV therefore provides TRG with a capital efficient means for expanding the business in the US, whilst at the same time minimising losses in the near-term.  The JV commenced on 31st of January 2020 and will license the Wagamama brand.

 

Concessions

Our Concessions business operates a wide variety of food and beverage formats, across over 35 brands, primarily in 16 UK airports.  Our strong multi-brand portfolio consists of bespoke concepts designed with airport partners (45% of sites), TRG's own brands (15% of sites), and well-known third-party brands, which operate under franchise arrangements (40% of sites).  We have established long-standing relationships with our airport partners having operated in this market place for 28 years. 

 

Our unique capabilities, enabling us to consistently deliver high operational standards at high volume and peak-load intensity, along with our format development and partnering skills, has resulted in a strong track record of like-for-like sales growth, winning new sites and renewing existing space. 

2019 performance

Our sales continue to trade ahead of passenger growth with like-for-like sales increasing by 4.1% in the year, and we continued our strong track record of retaining sites with 90% of sites having received contract renewals beyond the term of the initial contract following successful renewals on five sites during 2019.  On average, our contracts have been extended for 100% of the original concession term.

We opened four new sites in 2019, including our Sonoma site at Gatwick airport which is our largest Concessions restaurant at c.7,000 square feet, accommodating over 300 covers at a time, as well as the first Shake-Shack restaurant in a UK airport, also at Gatwick.

Growth opportunities

We expect to open six sites in the first phase of the planned Manchester airport terminal redevelopment which is due to open in the second half of 2020.  We are pleased with the broad portfolio of brands we have secured, which include a "Wagamama" restaurant, the first Pub with a brewery "Bridgewater exchange", the first "San Carlo" restaurant and the first ETM affiliated pub "Apiary" in a UK airport.

The market remains attractive with air passenger growth still positive albeit slowing, and airports continuing to invest in terminals, capacity and their offering.  We see opportunities to expand our estate and will compete through a disciplined capital approach for forthcoming terminal development opportunities in the UK, including Birmingham, London City, Stansted and Luton airports, which will arise over the next three to four years.  We continue to explore opportunities to expand our presence in adjacent markets, and expect to open two sites (both of which are bespoke brands) in locations within Hilton hotels in 2020.

 

Pubs

Our estate comprises of 72 Pubs within the "Brunning & Price" ("B&P") family, which are predominantly located in countryside and suburban locations, and 12 Pubs trading under the "Food & Fuel" banner, which are predominantly located in central London. Whilst having distinct difference; for example, the latter has a significantly higher dependence on drink rather than food sales, both are premium propositions focused on delivering for the local customer base.  

Our Pubs business has been continuously outperforming the market as measured by the Coffer Peach Pub Restaurants tracker on a like-for-like sales basis for over five years.

A combination of factors contributes to this strong and consistently robust performance in B&P:

·      Attractive location demographics (within a 10-15 minute drive time) with on average a total population of at least 50,000 with approximately 55% of residents forming part of the higher income classes A to C1 (according to Experian data). The pubs often benefit from limited quality competition nearby due to their semi-rural locations and the B&P operational support network of chefs and operation managers help them to consistently deliver a fresh food-led offering in a relaxed pub environment

·      Our approach to running the Pubs business as a collection of individual local pubs, rather than a 'brand' or 'chain'. The aim is to delegate as much decision making as possible to the pub management in order to foster real ownership. Local chefs are able to create 30-50% of their own menu dishes and much of the drinks range is sourced by the manager and crew. This autonomy at site-level allows the pubs to evolve alongside their local community and respond quickly to customer-driven requirements; and

·      Strong operational capability and consistent execution with our social media score reviews maintained at 4.4 out of 5 throughout the year

 

The business also benefits from strong asset backing with approximately 50% of our pubs being freehold.  In November 2019, Savill's valued our freehold pub estate at £153 million.

2019 performance

The business continued to outperform the pub restaurant sector in 2019 with like-for-like sales increasing by 4.0%, with particularly strong trading over the Christmas period with like-for-like sales increasing by 8% (over the 3 week period ending 5th January).

Growth opportunities

We continue to see opportunities to increase like-for-like sales in our business for the year ahead:

·      Rapid and flexible menu development and product range changes to respond to new demand and further opportunities such as vegan, vegetarian, set menu occasions, low/no alcohol

·      Ongoing evolution of already successful events including beer and gin festivals

·      Further utilisation of existing space and external areas with outside bars and BBQ's

·      Optimisation of group-managed phone bookings and online bookings - constant review and refinement of the booking algorithms for peak times to ensure maximum availability for customers to book and a steady, manageable flow of orders to assist smooth service

 

In terms of estate expansion, we opened four sites in 2019, which are trading well and ahead of expectations.  We will continue our selective approach to site expansion with three to five sites planned for 2020 and see significant opportunity to expand our geographical reach across the UK.

 

2.   Rationalise our Leisure business

Backdrop

The market place remains challenging for our Leisure business with chronic overcapacity in the sector and significant cost pressures particularly due to labour costs.  As previously highlighted, we had identified 118 sites that are in structurally unattractive locations and we anticipate that we will exit at least 50% of leases when we are able to exercise a break clause or lease expiry. 

2019 progress

We continue to take a disciplined approach to our estate optimisation and closed 18 Leisure sites in 2019 (eight of which were conversions to Wagamama) taking the overall size of the estate to 350 sites as at 29th December 2019.

2020-2021 estate rationalisation plan

As part of our overall rationalisation plan for the Leisure business we are accelerating our reduction of the estate and are targeting to reach 260-275 sites by end of 2021. We will achieve this through a combination of exercising break clauses, lease expiries, selective conversions and are actively marketing other sites for disposal as follows:

·     Conversions - 7-12 sites to be converted to Wagamama over the next two years  

·     Lease events - at least 31 sites will be exited at break or expiry, with this number potentially increasing if landlord negotiations to sensibly reduce rents and increase lease flexibility are not successful

·     Freeholds - 12 freeholds will be sold where the EBITDA multiple delivers the required shareholder return

·     Accelerated disposals - Sites are being marketed for sale and given the historic run rate of disposals over the last two years, we expect to dispose of 25-35 sites

Alongside our estate management activity we are focused on initiatives to improve the food offering and brand proposition as well as optimising the delivery opportunity for our Leisure business as set out below.

Targeted operational activities

Grow our delivery business

The delivery channel and online brands in particular, continue to be a core focus of growth for the Leisure business, with our delivery sales more than doubling in 2019 versus the previous year.  We exited 2019 with delivery sales accounting for c.6% of total sales from our Leisure business, of which online only brands contributed c. 50% of total delivery sales.  

Activity during the year included the launch a new online brand in the majority of Chiquito sites called 'Chicken Cartel', offering signature South American flavours across a variety of chicken and vegetarian formats (e.g. talera burgers, wraps, salad bowls and glazed chicken).  We also continue to pursue opportunities with our existing brand, recently improving and extending the menu of 'Kick-Ass Burrito'. We are also trialling a Caribbean brand collaboration with Levi Roots in 12 sites on Uber eats.

We see further opportunities to extend the reach of delivery sales and have recently introduced a 'Vegan by Frankie's' online brand exclusive to Uber eats.  We also trialled three new virtual brands in our Frankie and Benny's estate - pies, wraps and fish & chips - with a view to rolling out the most successful (Pies) across the estate in March 2020.

Improve our food credentials

As part of Frankie & Benny's October 2019 menu launch there was a particular focus on investing in food quality, targeting our grills category with an improved quality steak, as well as upgrading our pasta sauces (carbonara, meatballs). Customer and colleague feedback on the menu developments has been positive, and there are further plans to continue this momentum in 2020 with further quality investments and innovation in the pipeline.  Additionally, to support the kitchen teams to consistently deliver the menu, we have reduced the number of items by 10%.  The introduction of our vegan range at the start of 2019 helped meet our customers' needs and allowed us to attract new customers to the brand, with the most recent vegan campaign in January 2020 seeing the participation of vegan products climb to 10% of sales.

In Chiquito's, key food initiatives for the brand in the year included the launch of dedicated vegan and breakfast menus, which helped to extend the brand's reach to a broader range of customers and in our October menu launch we also enhanced our mainstream authentic Mexican offer and significantly reduced operational complexity.

New management team

We were delighted to announce the appointment of Mark Chambers as CEO of our Leisure Business, and Jacqui McManus as People Director for Leisure.  Mark brings with him a wealth of experience in customer led multi-site retail businesses having most recently been Managing Director of the Retail business at GVC Group (owners of Ladbrokes Coral). Mark was responsible for a Retail estate of 3,500 shops (employing approximately 20,000 colleagues) and the Ladbrokes Coral Retail business has strongly out-performed the market under his leadership over the past few years. 

Jacqui joined us in January from TGI Fridays where for the past ten years she has led the HR transformation agenda focused on people, culture and engagement with significant success (demonstrated through both significantly improved employee turnover and impressive business performance).

 

3.   Accelerate our deleveraging profile

We are focused on reducing our leverage to a level that is sustainable and prudent through the cycle and over the course of 2019, we reduced leverage on an absolute basis and on a multiple basis, whilst growing the business.  We have today announced the temporary suspension of the dividend to enable the Group to accelerate its deleveraging profile, whilst maintaining the ability to continue investing in our high growth segments (Wagamama, Concessions and Pubs) and provide the flexibility required to rationalise our Leisure estate.  We are targeting leverage of below 1.6x by the end of 2021.

Summary

In summary:

·      Strong financial performance by Wagamama in 2019 emphasising significant potential for future growth

·      Concessions and Pubs continue to outperform their respective benchmarks with multiple opportunities for growth ahead

·      Focused restructuring plan for the Leisure business

·      Temporary suspension of dividend to facilitate strategic priorities

 

 

Financial review

Trading results

Like-for-like sales increased by 2.7% for the year, with total revenue up 56.4% to £1,073.1m (2018: £686.0m). Like-for-like sales and total sales increases reflect the benefit of the Wagamama acquisition, as well as a strong performance from our Concessions and Pubs businesses.  In the period, we saw a strong performance from Wagamama, which has continued to significantly outperform the UK market delivering +8.5% like-for-like sales growth.  Our Concessions business saw like-for-like sales increase by 4.1% (despite being impacted by the Thomas Cook collapse), well ahead of passenger growth.  Our Pubs business delivered like-for-like sales growth of +4.0%, maintaining its outperformance to the market.  Like-for-like sales in our Leisure business declined by 2.8%, representing an improvement on the rate of decline versus previous years.

Adjusted1 operating profit increased by 64.4% to £91.1m (2018: £55.4m) with the adjusted1 operating margin rising to 8.5% from 8.1%, reflecting the combined business post acquisition and cost synergies delivered from a successful integration programme.  On a statutory basis, the Group's operating loss was £20.7m (2018: operating profit: £16.6m), reflecting an exceptional pre-tax charge of £111.8m predominantly relating to impairment and onerous lease provisions in our Leisure business.     

Adjusted1 profit before tax for the period was £74.5m (2018: £53.2m).  Adjusted1 profit after tax was £58.3m (2018: £41.8m).  The adjusted1 effective tax rate for the Group increased to 21.8% (2018: 21.4%).  On a statutory basis, the increase in exceptional charges in the year led to an overall loss for the period, and resulted in an effective tax rate of 8.3% (2018: 50.6%).  Adjusted1 earnings per share were 11.9p (2018: 14.7p).   On a statutory basis, loss before tax was £37.3m (2018 statutory profit: £13.9m). On a statutory basis, loss after tax was £40.4m (2018: Statutory profit £6.9m) and statutory loss per share was 8.2p (2018 earnings per share: 2.4p).

The adjusted measures (as shown on the face of the Income Statement) are summarised below:


52 weeks ended

29 December

2019

52 weeks ended

30 December

2018



£m

£m

% change

Revenue

1,073.1

686.0

+56.4%





Adjusted1 EBITDA

136.7

87.9

+55.6%





Adjusted1 operating profit

91.1

55.4

+64.4%

Adjusted1 operating margin

8.5%

8.1%






Adjusted1 profit before tax

74.5

53.2

+40.2%

Adjusted1 tax

(16.3)

(11.4)






Adjusted1 profit after tax

58.3

41.8

+39.4%





Adjusted1 EPS (pence)

11.9

14.7

(19.1%)

 

Cash flow and net debt

Operating cash flows remain strong, with free cash flow of £81.2m in the year (2018: £59.6m). The increased free cash flow generated in the year reflects the cash generated from the Wagamama operations, partially offset by the increased cost of financing.  The Group's net debt at the year-end was £286.6m (2018: £291.1m), a decrease of £4.5m on the prior year.  The decrease in net debt was driven by the increase in free cash flow generated by the business.  In the year, we also completed the sale and leaseback of our head-office building raising gross proceeds of £26.9m and incurred acquisition and integration expenditure relating to Wagamama of £28.5m.

 

Summary cash flow for the year is set out below:

 

2019

2018

 

£m

£m

 

 

 

Adjusted1operating profit

91.1

55.4

Working capital and non-cash adjustments

3.8

0.4

Depreciation and amortisation

45.6

32.5

Operating cash flow

140.5

88.3

Net interest paid

(14.5)

(1.0)

Tax paid

(10.3)

(7.4)

Refurbishment and maintenance expenditure

(34.5)

(20.3)

Free cash flow

81.2

59.6

Development expenditure

(38.8)

(33.0)

Movement in capital creditors

(5.0)

5.8

Dividends

(17.5)

(34.9)

Utilisation of onerous lease provisions

(12.6)

(11.2)

2018 acquisitions* net of cash acquired

-

(324.9)

Debt acquired on acquisition of Wagamama

-

(225.0)

Integration costs

(11.2)

-

Acquisition and refinancing costs

(17.3)

(10.1)

Proceeds from issue of share capital

-

305.8

Proceeds from disposals

27.3

-

Other items

-

(0.1)

Cash movement

6.1

(268.0)

Group net debt brought forward

(291.1)

(23.1)

Non-cash movement in net debt

(1.6)

-

Group net debt carried forward

(286.6)

(291.1)

 

*Relates to Wagamama, Food & Fuel and Ribble Valley Inns acquisitions

In December 2018 the Group refinanced its borrowings and currently has £220m of revolving credit facilities that expire in December 2021 and a £10m overdraft facility repayable on demand.  In addition the £225m Wagamama Bond matures in July 2022.  At the year-end we had over £160m of cash headroom and significant headroom against our banking covenants.

 

Capital expenditure

During the year the Group invested £73.3m (2018: £68.5m excluding the acquisition of Wagamama).  Our investment in refurbishment and maintenance capital expenditure increased to £34.5m (2018: £20.3m) reflecting an additional £16.0m in relation to Wagamama, which included five transformational refurbishment projects that created 200 additional covers in those restaurants.  Our investment in new site expenditure of £38.8m (2018: £33.0) included £17.5m in relation to our Wagamama business. This investment included eight conversions of our Leisure sites to Wagamama, three new Wagamama restaurants (including one in the US), two new delivery kitchens and one "Mamago" site.  We also opened four new Concessions sites and four new Pubs in the year. 

During the year we closed 16 sites, comprising 10 sites from Leisure, four sites from Concessions, one Pub and one Wagamama restaurant in the US.  The table below summarises openings and closures during the year.

 

Year-end 2018

Opened

Closed

Conversions

Year-end 2019

   

 

 

 

 

 

Frankie & Benny's

248

-

(9)

(3)

236

Chiquito

83

-

-

(4)

79

Other Leisure Brands

37

-

(1)

(1)

35

Pub restaurants

81

4

(1)

-

84

Concessions

71

4

(4)

-

71

Wagamama*

140

6

(1)

8

153

 

 

 

 

 

 

Total

660

14

(16)

-

658

 

*Note: Wagamama sites include five Wagamama restaurants in the US, three delivery kitchens and one "Mamago" site in the UK

 

Restructuring and exceptional charge

An exceptional pre-tax charge of £111.8m has been recorded in the year (2018: £39.2m), which includes the following:

 

-      A net impairment charge of £108.4m (2018: £14.0m) has been recognised in the period. Of this £102.1m was booked in the first half of the year and comprised two main elements:

 

(i)            In the Leisure business we have recognised an impairment charge across sites that were identified as structurally unattractive; and

(ii)           In addition, given the well documented over capacity and continued like-for-like sales decline in the casual dining market, and ongoing cost headwinds we have taken a more cautious medium term outlook when assessing the Leisure business for impairment.

-      Onerous lease provisions resulted in a charge of £7.5m in the year (2018: £10.0m).  The overall full-year charge comprises the following elements:

-     A £1.0m credit in respect of unutilised provisions following the successful exit of eight sites ahead of expectations; and

-     A further charge totalling £8.5m was provided for in the year. This comprised a charge of £7.9m in respect of newly identified onerous leases and an additional charge of £0.6m in respect of sites previously provided for.

-      Acquisition and integration costs of £11.2m (2018: £14.8m) relating to costs incurred in the integration of Wagamama and the project costs to achieve the synergy cost saving and site conversion programme;

-      An impairment of assets held for sale for £2.0m (2018: £nil) was incurred relating to Wagamama US sites which were under strategic review; and

-      An exceptional profit of £17.2m has been recognised on the sale and leaseback of our freehold Head Office building.

 

The tax credit relating to these exceptional charges was £13.1m (2018: £4.3m).

Cash expenditure associated with the above exceptional charges was £13.8m in the year (2018: £21.3m) relating to the cash cost of the onerous leases of £12.6m (2018: £11.2m), and the cash cost of the acquisitions and refinancing of £28.5m (2018: £10.1m). This was offset by the £27.3m received in the year for the sale of our head office and one Leisure freehold site.

 

Tax

The adjusted1 tax charge for the year was £16.3m (2018: £11.4m), summarised as follows:

 

2019

2018

 

£m

£m

 

 

 

Corporation tax

15.5

10.4

Deferred tax

0.8

1.0

Total

16.3

11.4

Effective adjusted1 tax rate

21.8%

21.4%

 

The effective adjusted1 tax rate for the year was 21.8% compared to 21.4% in the prior year.  The Group's effective tax rate will continue to track above the headline UK tax rate primarily due to our capital expenditure programme and the significant levels of disallowable capital expenditure therein.  The statutory effective tax rate for the year was 8.3%, a decrease from the 2018 rate of 50.6%.  This was due to an increase in exceptional charges in the year and an overall loss for the period.

FY20 Guidance

•     2020 development capital expenditure - £40m to £45m

-    Three to four new Pubs

-    Eight new Concessions sites, including six sites in phase one of Manchester airport terminal redevelopment

-    Three to four new Wagamama sites in the UK

-    Five to six Leisure site conversions to Wagamama

•     2020 refurbishment and maintenance capital expenditure - £30m to £35m, including five further transformational refurbishments of Wagamama sites

•     Net cost inflation expected to be £15m, which is £2m-£3m higher than previous expectations due predominately to the recently announced 6.2% increase in National Minimum Wage and National Living Wage

 

 

The Restaurant Group plc





Consolidated income statement







52 Weeks ended 29 December 2019













Trading

Exceptional items




business

(Note 6)

Total


Note

£'000

£'000

£'000






Revenue

3

1,073,052

-

1,073,052






Cost of sales


(930,566)

(117,894)

(1,048,460)






Gross profit/(loss)

4

142,486

(117,894)

24,592






Administration costs


(51,393)

6,068

(45,325)






Operating profit/(loss)


91,093

(111,826)

(20,733)






Interest payable

7

(16,660)

-

(16,660)

Interest receivable

7

98

-

98






Profit/(loss) on ordinary activities before tax


74,531

(111,826)

(37,295)






Tax on profit/(loss) from ordinary activities

8

(16,260)

13,149

(3,111)






Profit/(loss) for the year


58,271

(98,677)

(40,406)






Other comprehensive income:





Foreign exchange differences arising on consolidation

578

-

578

Total comprehensive income for the year


58,849

(98,677)

(39,828)






Earnings per share (pence)





Rights adjusted basic

9

11.87

-

(8.23)

Rights adjusted diluted

9

11.87

-

(8.23)
















EBITDA


136,743

(6,038)

130,705






Depreciation, amortisation and impairment


(45,650)

(105,788)

(151,438)






Operating profit/(loss)


91,093

(111,826)

(20,733)

 

 

The Restaurant Group plc





Consolidated income statement





52 Weeks ended 30 December 2018











Trading

Exceptional items




business

(Note 6)

Total


Note

£'000

£'000

£'000






Revenue

3

686,047

-

686,047






Cost of sales


(603,332)

(23,997)

(627,329)






Gross profit/(loss)

4

82,715

(23,997)

58,718






Administration costs


(27,313)

(14,775)

(42,088)






Operating profit/(loss)


55,402

(38,772)

16,630






Interest payable

7

(2,233)

(467)

(2,700)

Interest receivable

7

1

-

1






Profit/(loss) on ordinary activities before tax


53,170

(39,239)

13,931






Tax on profit/(loss) from ordinary activities

8

(11,361)

4,312

(7,049)






Profit/(loss) for the year


41,809

(34,927)

6,882






Other comprehensive income:





Foreign exchange differences arising on consolidation

-

-

-

Total comprehensive income for the year


41,809

(34,927)

6,882






Earnings per share (pence)





Rights adjusted basic

9

14.67

-

2.42

Rights adjusted diluted

9

14.63

 -

2.41
















EBITDA


87,855

(24,802)

63,053






Depreciation, amortisation and impairment


(32,453)

(13,970)

(46,423)






Operating profit/(loss)


55,402

(38,772)

16,630

 

 

Consolidated balance sheet














At 29 December

2019

At 30 December

2018


Note

£'000

£'000





Non-current assets




Intangible assets

11

616,787

619,493

Property, plant and equipment

12

335,710

430,631

Fair value lease assets


1,211

1,361



953,708

1,051,485





Current assets




Inventory


9,274

8,678

Other receivables


21,924

22,912

Prepayments


26,088

31,096

Cash and cash equivalents


49,756

65,903

Assets of disposal group held for sale

13

4,081

-



111,123

128,589





Total assets


1,064,831

1,180,074





Current liabilities




Overdraft


(9,950)

-

Trade and other payables


(188,287)

(212,477)

Corporation tax liabilities


(6,210)

(2,702)

Provisions


(14,549)

(11,018)

Liabilities of disposal group help for sale

14

(4,081)

-



(223,077)

(226,197)





Net current liabilities


(111,954)

(97,608)





Long-term borrowings


(323,822)

(354,420)

Other payables


(26,077)

(27,521)

Fair value lease liabilities


(9,605)

(10,426)

Deferred tax liabilities


(42,007)

(52,674)

Provisions

14

(38,344)

(50,244)



(439,855)

(495,285)





Total liabilities


(662,932)

(721,482)





Net assets


401,899

458,592





Equity




Share capital


138,234

138,234

Share premium


249,686

249,686

Other reserves


(5,921)

(7,158)

Retained earnings


19,900

77,830

Total equity


401,899

458,592












 

The Restaurant Group plc







Consolidated statement of changes in equity
















Share

Share

Other

Retained




capital

premium

reserves

earnings

Total


Note

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2018 


56,551

25,554

(7,753)

105,814

180,166








Profit for the year


-

-

-

6,882

6,882

Issue of new shares


81,683

224,132

-

-

305,815

Dividends

10

-

-

-

(34,866)

(34,866)

Share-based payments - credit to equity


-

-

761

-

761

Deferred tax on share-based payments taken directly to equity


-

-

(42)


(42)

Purchase of treasury shares


-

-

(124)

-

(124)















Balance at 30 December 2018


138,234

249,686

(7,158)

77,830

458,592








Balance at 31 December 2018


138,234

249,686

(7,158)

77,830

458,592








Profit for the year


-

-

-

(40,406)

(40,406)

Other comprehensive income


-

-

578

-

578

Total comprehensive income


-

-

578

(40,406)

(39,828)

Dividends

10

-

-

-

(17,524)

(17,524)

Share-based payments - credit to equity


-

-

576

-

576








Deferred tax on share-based payments taken directly to other reserves


-

-

(83)

-

(83)

Purchase of treasury shares


-

-

-

-

-















Balance at 29 December 2019


138,234

249,686

(5,921)

19,900

401,899

 

During the year, the Group made a £578,092 (2018: £Nil) foreign currency gain on translation of foreign subsidiaries. There is no further other comprehensive income other than the profit for the year ended 29 December 2019 or the year ended 30 December 2018.                                                        

Other reserves represents the Group's share-based payment transactions, shares held by the employee benefit trust and treasury shares held by the Group.                        

 

The Restaurant Group plc









52 Weeks ended

29 December 2019

52 Weeks ended

30 December 2018

Note

£'000

£'000










15

140,501

88,307


98

10


(14,638)

(1,013)


(10,252)

(7,364)


(12,642)

(11,183)


(28,464)

(10,103)


74,603

58,654








(75,972)

(47,514)


(2,334)

(1,532)


27,325

370


-

(364,197)


-

39,270


(50,981)

(373,603)








-

305,815

16

(32,000)

(170,000)


-

272,000

16

9,950

-


-

(1,500)

10

(17,524)

(34,866)

16

(170)

(208)


(39,744)

371,241





(16,122)

56,292




16

65,903

9,611


(25)

-




Cash and cash equivalents at the end of the year


49,756

65,903

 

 

1 General Information

Corporate 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 29 December 2019 comprise the Company and its subsidiaries (together referred to as the 'Group').

The consolidated preliminary results of the Group for the year ended 29 December 2019 were approved by the directors on 25 February 2019. The 2020 AGM will be held at 10:00 am on Tuesday 19 May 2020 at the offices of MHP Communications at 6 Agar Street, London WC2N 4HN.

Accounting policies

Basis of preparation

Whilst the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs") as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRSs.

The consolidated financial statements comprise the financial statements of the Group as at 29 December 2019 and are presented in UK Sterling and all values are rounded to the nearest thousand (UK £'000), except when otherwise indicated.

Going concern basis

The financial statements have been prepared on a going concern basis as, after making appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future at the time of approving the financial statements.

Nature of financial information

The financial information contained within this preliminary announcement for the 52 weeks to 29 December 2019 and the 52 weeks to 30 December 2018 do not comprise statutory financial statements for the purpose of the Companies Act 2006, but are derived from those statements. The statutory accounts for The Restaurant Group plc for the 52 weeks to 30 December 2018 have been filed with the Registrar of Companies and those for the 52 weeks to 29 December 2019 will be filed following the Company's Annual General Meeting.

The auditor's reports on the accounts for both the 52 weeks to 29 December 2019 and 52 weeks to 30 December 2018 were unqualified and did not include a statement under Section 498 (2) or (3) of the Companies Act 2006.

The Annual Report will be available for Shareholders in April 2020                                                            

 

New accounting standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the consolidated preliminary results are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 29 December 2019. There have been no changes to the accounting standards in the current year that have materially impacted the Group financial statements. The only future accounting policy to have a material impact on the group financial statements if IFRS 16, as described below.

IFRS 16 'Leases' was issued in January 2016 and introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees and will supersede the current lease guidance including IAS 17 'Leases' and the related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019 and will be adopted by the Group for the financial year commencing 30 December 2019.

The standard represents a significant change in the accounting and reporting of leases, impacting the income statement and balance sheet as well as statutory and alternative performance measures used by the Group.

As a result, the profile of costs recognised in the consolidated income statement will change materially in comparison to IAS 17 as follows:

- Depreciation will increase due to the recognition of right-of-use assets

- Existing rental costs will reduce - the only rental costs that remain will relate to low value assets, turnover based leases, or short-term leases

 - Finance costs will increase due to the unwinding of the discounted lease liability

There is no net cash flow impact on application of IFRS 16, although the classification of cash flows will be affected as operating lease payments under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as operating and financing cash flows respectively.

The Group is in the process of conducting an extensive review of all the Group's leasing arrangements in light of the new accounting standard. The Group has elected to use the Modified Retrospective approach to calculate the impact of IFRS 16. This will mean that the results for the year ended 27 December 2020 will be presented under IFRS 16 but the year ended 29 December 2019 will not be restated. The opening balance sheet as at 30 December 2019 will be restated to recognise the right of use asset and lease liability.

The transition work stream is nearing completion and the Group estimates that, had IFRS 16 been applied in the 52 weeks ended 29 December 2019, the impact on the consolidated balance sheet would have been:

- Recognition of a right-of-use asset in the range of £850m - £890m disclosed within non-current assets.

- Recognition of a corresponding lease liability in the range of £920m - £960m.

- Derecognition of other balance sheet items, including onerous lease provisions, rent free accruals and fair value adjustments relating to acquired leases of around £70m.

- The above results in a reduction in opening retained earnings in the range of £5m - £20m (before adjusting for associated tax impacts).

Key judgements have been addressed, including the assessment of how reasonably certain it is considered to be that a lease option (extension, expiry or break) will be exercised, and the determination of an appropriate discount rate used to calculate the present value the lease liability and to initially measure the right-of-use asset. With regards to these, the Group has determined that the lease term will correspond to the duration of the contracts except in cases where the Group is reasonably certain that it will exercise contractual extension, break options, or management expect to be able to exit the lease in another manner. The incremental borrowing rate on transition has been based on the implicit rate within the lease agreement, where the implicit rate in the lease is not readily determinable this has been estimated.

               

2 Segmental analysis                                                                                    

Operating Segments

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 trades in two reportable segments, defined as the 'Growth Business' and the 'Leisure Business'.  These have been defined based on the Leisure Business having different economic characteristics from the Growth businesses.  The different brands within each reporting segment all meet the aggregation criteria set out in Paragraph 12 of IFRS 8.






Growth Business


Leisure Business


Total













2019

2018


2019

2018


2019

2018






£'000

£'000


£'000

£'000


£'000

£'000

Sales





689,846

279,720


383,206

406,327


1,073,052

686,047

Outlet EBITDA



142,908

56,456


45,085

58,712


187,993

115,168














Central allocations









(51,250)

(27,313)

Group trading EBITDA









136,743

87,855














Exceptional items









(111,826)

(38,772)

Depreciation and amortisation








(45,650)

(32,453)

Net finance charges









(16,562)

(2,699)

Tax











(3,111)

(7,049)

Net profit/(loss)









(40,406)

6,882














                                                                                               

                                                                                                                                                               

Geographical Segments

The Group trades primarily within the United Kingdom.  The Group operates restaurants in the United States and generates revenue from franchise royalties primarily in the Europe and the Middle East.  The segmentation between geographical location does not meet the quantitative thresholds and so has not been disclosed.

3 Revenue                                                                                         

Revenue has been generated from the operation of restaurants, with approximately 98% of revenue generated within the United Kingdom. The remainder is attributable to restaurants within the United States and from franchise royalties primarily in Europe and the Middle East.              

                               

4 Profit for the year


2019

2018



£'000

£'000

Profit for the year has been arrived at after charging/(crediting):




Amortisation (Note 11)


2,589

342

Depreciation (Note 12)


43,061

32,111

Impairment of property, plant and equipment (Note 12)


105,788

13,970

Purchases of food, beverages and consumables


218,630

149,586

Staff costs (Note 5)


392,690

242,375





Minimum lease payments


110,118

78,182

Contingent rents


15,617

12,515

Total operating lease rentals of land and buildings


125,735

90,697

Rental income


(2,766)

(2,300)

Net rental costs


122,969

88,397

 

5 Staff costs








a) Average staff numbers during the year (including Directors)


2019

2018

Restaurant staff


20,819

15,375

Administration staff


475

321



21,294

15,696







2019

2018

b) Staff costs (including Directors) comprise:


£'000

£'000

Wages and salaries


358,959

224,486

Social security costs


27,285

14,723

Share-based payments


576

761

Pension costs and salary supplements


5,870

2,405



392,690

242,375







2019

2018

c) Directors' remuneration


£'000

£'000

Emoluments


1,909

1,398

Salary supplements


127

165



2,036

1,563

(Credit)/ charge in respect of share-based payments


(204)

(85)



1,832

1,478

 

6 Exceptional items






2019

2018



£'000

£'000





Included within cost of sales:




- Impairment of property, plant, equipment and software


105,788

13,970

- Onerous lease provisions in respect of closed and other sites


7,455

10,027

- Write off of closed site property, plant and equipment


2,632

-

- Loss on assets held for sale


2,019

-



 



117,894

23,997

Included within administration costs:








- Acquisition and integration costs


11,180

14,775

- Profit from sale of property, plant and equipment


(17,248)

-







(6,068)

14,775

Included within interest payable:




- Refinancing costs




Exceptional items before tax


-

467



111,826

39,239









Tax effect of exceptional Items


(13,149)

(4,312)



(13,149)

(4,312)





Net exceptional items for the year


98,677

34,927





 

An exceptional pre-tax charge of £111.8m has been recorded in the year (2018: £39.2m), which includes the following:

A net impairment charge of £105.8m (2018: £14.0m) has been incurred against property, plant and equipment and software assets. Of the £105.8m charge, £103.1m related to restaurants trading within our Leisure operating segment which has a recoverable amount of £115.4m based on its value in use. £2.7m of the impairment charge relates to four Wagamama restaurants predominantly in the US. The impairment charge comprised of two main elements:

(i) In the Leisure operating segment we have recognised an impairment charge across sites that were identified as structurally unattractive; and

(ii) In addition, given the well documented over capacity and continued like-for-like sales decline in the casual dining market, and ongoing cost headwinds, a more cautious medium term outlook has been taken when assessing the Leisure operating segment for impairment.

 

• Onerous lease provisions resulted in a charge of £7.5m in the year (2018: £10.0m). This comprises:

- A £1.0m credit in respect of unutilised provisions following the successful exit of 8 sites ahead of expectations;

-A further charge totalling £8.5m was provided for in the year. This comprised a charge of £7.9m in respect of newly identified onerous leases and a charge of £0.6m in respect of sites previously provided for.

• An impairment of assets held for sale for £2.0m (2018: £nil) was incurred relating to Wagamama US sites which were under strategic review

• During the year the Group sold and leased back the head office building, for a gain of £17.2m. This was made up of the cost of the building of £6.2m, fixtures and fittings disposed of £3.3m, offset by the £26.7m, net of selling fees, received in the year for the sale of the head office building.

• An exceptional charge of £11.2m (2018: £14.8m) has been recorded in the year in relation to the integration of Wagamama.

• A write off of £2.6m was made to the carrying value of the property, plant and equipment for Leisure sites which are converting to Wagamama in line with the Leisure estate rationalisation plan.

The tax credit relating to these exceptional charges was £13.1m (2018: £4.3m).

Cash expenditure associated with the above exceptional charges was £13.8m in the year (2018: £21.3m) relating to the cash cost of the onerous leases of £12.6m (2018: £11.2m), and the cash cost of the acquisitions and refinancing of £28.5m (2018: £10.1m). This was offset by the £27.3m received in the year for the sale of our head office and one Leisure freehold site.                               

7 Net finance charges














2019

2018



£'000

£'000





Bank interest payable


14,413

1,355

Other interest payable


20

-

Onerous lease interest


634

375

Amortisation of facility fees


1,423

333

Interest on obligations under finance leases


170

170

Trading borrowing costs


16,660

2,233





Exceptional refinancing costs (Note 6)


-

467

Total borrowing costs


16,660

2,700





Other interest receivable


(98)

(1)

Total interest receivable


(98)

(1)





Trading net finance charges


16,562

2,232

Total net finance charges


16,562

2,699

 

8 Tax






Trading

Exceptional

Total

Total


2019

2019

2019

2018

a) The tax charge comprises:

£'000

£'000

£'000

£'000






Current tax





UK corporation tax

15,186

(1,233)

13,953

7,736

Adjustments in respect of previous years

305

(579)

(274)

191

Foreign tax relief

(1)

-

(1)

-

Foreign tax suffered

19

-

19

-


15,509

(1,812)

13,697

7,927











Deferred tax





Origination and reversal of temporary differences

2,362

(429)

1,933

1,832

Adjustments in respect of previous years

(1,337)

-

(1,337)

(634)

Credit in respect of fixed asset impairment

(273)

(10,908)

(11,181)

(2,076)


751

(11,337)

(10,586)

(878)






Total tax charge for the year

16,260

(13,149)

3,111

7,049






 



 

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% (2018: 19%) due to the following factors:







Trading

Exceptional

Total

Total


2019

2019

2019

2018


£'000

£'000

£'000

£'000






Profit/(Loss) on ordinary activities before tax

74,531

(111,826)

(37,925)

13,931






Profit on ordinary activities before tax multiplied





by the standard UK corporation tax rate of 19% (2018: 19%)

14,161

(21,147)

(7,086)

2,647






Effects of:





Depreciation/impairment on non-qualifying assets

1,583

8,683

10,266

1,844

Expenses not deductible for tax purposes

466

1,165

1,631

2,872

Movement on unrecognised deferred tax asset

966

139

1,105

-






Effect of overseas tax rates

20

-

20

-

Adjustment in respect of previous years

(1,033)

(579)

(1,612)

(443)

Release of tax provisions

-

-

-

(15)

Business combinations

-

-

-

(80)

Profit on disposal of properties

-

(1,310)

(1,310)

-

Share options

97

-

97

224

Total tax charge for the year

16,260

(13,149)

3,111

7,049

 

9 Earnings per share




2019

2018




a) Basic earnings per share:



Weighted average ordinary shares for the purposes of basic earnings per share

490,904,049

284,959,978



Total profit/(loss) for the year (£'000)

(40,406)

6,882




Basic earnings per share for the year (pence)

(8.23)

2.42

Total profit/(loss) for the year (£'000)

(40,406)

6,882

Effect of exceptional items on earnings for the year (£'000)

98,677

34,927

Earnings excluding exceptional items (£'000)

58,271

41,809




Adjusted earnings per share (pence)

11.87

14.67

b) Diluted earnings per share:






Weighted average ordinary shares for the purposes of basic earnings per share

490,904,049

284,959,978

Effect of dilutive potential ordinary shares:



Dilutive shares to be issued in respect of options granted under the share option schemes

-

64,070

Shares held by employee benefit trust

-

688,276





490,904,049

285,712,324




Diluted earnings per share (pence)

(8.23)

2.41

Adjusted diluted earnings per share (pence)

11.87

14.63

 

Diluted earnings per share is based on adjusting the weighted average number of shares for the purposes of basic earnings per share in respect of notional share awards made to employees in regards to share option schemes and the shares held by the employee benefit trust. The conversion, exercise or other potential issue of ordinary shares has an antidilutive effect on earnings per share and there is therefore no reduction from basic earnings per share.

 

10 Dividend







2019

2018


£'000

£'000

Amounts recognised as distributions to equity holders during the year:






Final dividend for the 52 weeks ended 30 December 2018 of 1.47p (2017: 10.60p) per share

7,215

21,240

Interim dividend for the 52 weeks ended 29 December 2019 of 2.10p (2018: 6.80p) per share

10,309

13,626

Total dividends paid in the year

17,524

34,866







Proposed final dividend for the 52 weeks ended 29 December 2019 of £nil (2018 actual proposed and paid: 1.47p) per share

-

7,232

 

 

11 Intangible assets



Trademarks and

Franchise

Software and IT




Goodwill

licences

agreements

development

Total



£'000

£'000

£'000

£'000

£'000

Cost







At 1 January 2018


26,433

-

-

-

26,433

Additions


-

-

-

1,532

1,532

Additions recognised on acquisition of subsidiaries


-

479

-

1,207

1,686

Intangibles recognised on acquisition of subsidiaries*


332,284

236,000

21,900

-

590,184

At 30 December 2018


358,717

236,479

21,900

2,739

619,835








Accumulated amortisation and impairment







At 1 January 2018


-

-

-

-

-

Charged during the year


-

-

28

314

342

At 30 December 2018


-

-

28

314

342








Cost







At 31 December 2018


358,717

236,479

21,900

2,739

619,835

Additions


-

-

-

2,320

2,320

Amounts transferred to asset held for sale


(1,641)

(479)

-

-

(2,120)

Disposals


-

-

-

(223)

(223)

At 29 December 2019


357,076

236,000

21,900

4,836

619,812








Accumulated amortisation







At 31 December 2018


-

-

28

314

342

Charged during the year


-

10

1,460

1,119

2,589

Impairment


-

-

-

327

327

Amounts transferred to asset held for sale


-

(10)

-

-

(10)

Disposals


-

-

-

(223)

(223)

At 29 December 2019


-

-

1,488

1,537

3,025








Net book value as at 30 December 2018


358,717

236,479

21,872

2,425

619,493

Net book value as at 29 December 2019


357,076

236,000

20,412

3,299

616,787

 

* During 2018, Brunning and Price Limited acquired 100% of issued shares in Food and Fuel Limited and the Group recognised provisional fair values of the identifiable assets and liabilities acquired. During 2019, the Group undertook an external valuation of the property, plant and equipment which was representative of its fair value at the acquisition date. This has resulted in a £3.7m decrease in acquired property, plant and equipment from £6.4m to £2.7m and a £3.7m increase in goodwill. In addition to this, deferred consideration of £0.5m became payable resulting in a further £0.5m increase in goodwill. The total increase to goodwill was £4.2m, from £10.4m to £14.6m. As permitted under IFRS the fair value of property, plant and equipment, other payables and goodwill have been retrospectively adjusted.

*During 2018, The Restaurant Group acquired 100% of issued shares in Mabel Topco Group and the Group recognised provisional fair values of the identifiable assets and liabilities acquired. During 2019, the Group identified a further £1.6m provision on acquisition which has resulted in a corresponding increase in goodwill of £1.6m. As permitted under IFRS the fair value of other provisions and goodwill have been retrospectively adjusted.

Goodwill and trademarks arising on business combinations are not amortised but are subject to an impairment review annually, or more frequently if events or changes in circumstances indicate that they might be impaired.  The impairment test compares the higher of value in use, or recoverable amount, of CGU to its carrying value. In relation to intangible assets, CGU's have been defined as the original group of sites acquired in each acquisition.  It is not practicable to go down to the site level as this would require an arbitrary allocation of the intangible assets.  The values ascribed to each CGU are shown in the table below.                                                          

The recoverable amount of the goodwill and trademark CGUs is £1,214.7m as at 29 December 2019. The recoverable amount has been based on value in use estimates using one year budgets approved by the Board and a further two years forecast by Management. The projected cash flows have been discounted using a rate based on the Group's pre-tax weighted average cost of capital of 8.9% (2018: 9.2%) that reflects the risk of these assets. Cash flows are extrapolated in perpetuity with an annual growth rate of 2%. It was concluded that the value in use for each CGU is higher than its carrying value and therefore did not require impairment.

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:





Goodwill

Total intangibles

Recoverable Amount




Trademarks & Licenses




£'000

£'000

£'000

£'000

Wagamama



236,000

315,527

551,527

1,058,714

Brunning & Price



-

15,158

15,158

71,513

Blubeckers



-

11,275

11,275

65,121

Food & Fuel



-

14,526

14,526

16,354

Ribble Valley Inns



-

590

590

3,017




236,000

357,076

593,076

1,214,719

 

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. The key assumptions used in the recoverable amount estimates are the discount rate applied, the like-for-like sales growth and the perpetuity growth rates. The forecast cash flows and perpetuity growth rates take into account management's experience of the specific sites and its long term expectations of the market. The sensitivity analysis shows that no reasonably possible movements in these assumptions would lead to an impairment, with the exception of Food & Fuel.                            

The goodwill attributable to the Food and Fuel acquisition is supported on the basis of future trading projections produced by Management.  These plans include a material improvement to current trading based on a two to three year improvement plan, which is currently being implemented.  If this plan is not effective and sales are less than forecast then part or all of the goodwill amount may be impaired. The Group has conducted a sensitivity analysis on the key impairment test assumptions for the group of CGU's as summarised above.                                                               

US liquor licenses and trademarks have been transferred to the disposal group classified as held for sale. This amounts to £469k and relates to assets used by the Wagamama US business. Goodwill relating to the acquisition of Wagamama US has been transferred to assets held for sale amounting to £1,641k. See Note 13 for further details regarding the disposal group held for sale assets.       

12 Property, plant and equipment



Fixtures,





equipment




Land and

and




buildings

vehicles

Total



£'000

£'000

£'000

Cost





At 1 January 2018


540,888

200,299

741,187

Additions


38,374

14,913

53,287

Additions on acquisition of subsidiaries*


64,980

31,599

96,579

Disposals


(569)

(751)

(1,320)

At 30 December 2018


643,673

246,060

889,733






Accumulated depreciation and impairment





At 1 January 2018


261,588

152,279

413,867

Provided during the year


18,498

13,613

32,111

Impairment


14,582

(612)

13,970

Disposals


(141)

(705)

(846)

At 30 December 2018


294,527

164,575

459,102






Cost





At 31st December 2018


643,673

246,060

889,733

Additions


36,819

32,998

69,817

Disposals


(12,266)

(8,035)

(20,301)

Amounts transferred to Asset held for sale


(20,608)

(5,651)

(26,259)

Foreign exchange differences


(323)

(73)

(396)

At 29 December 2019


647,295

265,299

912,594






Accumulated depreciation and impairment





At 31st December 2018


294,527

164,575

459,102

Provided during the year


21,023

22,038

43,061

Impairment


85,009

20,452

105,461

Disposals


(2,222)

(6,142)

(8,364)

Amounts transferred to Asset held for sale


(17,595)

(4,674)

(22,269)

Foreign exchange differences


(84)

(23)

(107)

At 29 December 2019


380,658

196,226

576,884

Net book value as at 30 December 2018


349,146

81,485

430,631

Net book value as at 29 December 2019


266,637

69,073

335,710

 

* During 2018, Brunning and Price Limited acquired 100% of issued shares in Food and Fuel Limited and the Group recognised provisional fair values of the identifiable assets and liabilities acquired. During 2019, the Group undertook an external valuation of the property, plant and equipment which was representative of its fair value at the acquisition date. This has resulted in a £3.7m decrease in acquired property, plant and equipment from £6.4m to £2.7m and a £3.7m increase in goodwill. As permitted under IFRS the fair value of property, plant and equipment, other payables and goodwill have been retrospectively adjusted.                                                

Impairment testing on the Group's property, plant and equipment has been based on value in use estimates using cash flow projections based on one year budgets approved by the Board and a further two years forecast by Management. The value in use estimates differ depending on the area of the business. The projected cash flows have been discounted using a rate based on the Group's pre-tax weighted average cost of capital of 8.9% (2018: 9.2%) that reflects the risk of these assets. Cash flows are extrapolated in perpetuity or to the end of the lease life with an annual growth rate of between nil and 2% per annum depending on Management's assessment of the future profitability of the specific CGU.

The key assumptions in the value in use estimates are the discount rate applied and like-for-like sales growth. An increase of 1% in the discount rate would give rise to an additional impairment charge of approximately £0.3m, whilst a decrease of 1% in the discount rate would give rise to a reduction in impairment of approximately £0.3m. The forecast like-for-like sales growth takes into account management's experience of the specific sites and its long term expectations of the market. A 2% reduction in the forecast like-for-like sales growth would result in an additional impairment charge of approximately £1.3m while a 2% increase would reduce the impairment by £22.3m.                                      




2019

2018

Net book value of land and buildings:



£'000

£'000






Freehold



116,397

114,919

Long leasehold



3,128

4,102

Short leasehold



147,112

230,125




266,637

349,146






Assets held under finance leases



2019

2018




£'000

£'000

Costs





At the beginning of the year



1,595

1,595

At the end of the year



1,595

1,595






Depreciation





At the beginning of the year



1,445

1,434

Provided during the year



11

11

At the end of the year



1,456

1,445






Net book value at the end of the year



139

150

                                                                                                               

Property plant and equipment transferred to the disposal group classified as held for sale amounts to £4,361k and relates to assets used by the Wagamama US business. See Note 13 for further details regarding the disposal group held for sale assets.

                                                               

13 Assets held for sale

The assets and liabilities relating to the trading Wagamama US restaurants have been presented as held for sale following commencement of a sale process in September 2019. The transaction was completed subsequent to the balance sheet date in January 2020.  The Group entered into a joint venture agreement with a third party to operate the Wagamama US restaurants, In accordance with IFRS 5, the assets held for sale were written down to their fair value less costs to sell at the date of classification as held for sale and reassessed as at the Group's year end date.  As at 29 December 2019, a fair value loss adjustment of £2,019k has been recorded within exceptional items in the consolidated income statement.

Assets of £3,990k have been transferred in from property, plant and equipment, and £2,110k from intangible assets.  Onerous lease liabilities of £4,081k have been transferred from Provisions. These assets and liabilities have been contributed to the joint venture and in return the Group received a 20% share in the joint venture, which the Directors have assessed as having a fair value of £nil. The assets have subsequently been fair valued down from £6,100k to £4,081k and a loss on transfer to assets held for sale of £2,019k has been recognised in exceptional administration costs.

14 Provisions








2019

2018




£'000

£'000

Provision for onerous leases



48,862

57,421

Other provisions*



4,031

3,841

Balance at the end of the year



52,893

61,292

Analysed as:





Amount due for settlement within one year*



14,549

11,018

Amount due for settlement after one year



38,344

50,244




52,893

61,262

 

 










Onerous

contracts

& other

property

provisions

 

 

 

 

Other

 

 

 

 

Total


£'000

£'000

£'000





Balance at 31 December 2018*

57,421

3,841

61,262

Transfer from other provisions

187

(187)

-

Provisions classified as held for sale

(4,081)

-

(4,081)

Release of onerous lease provision in respect of closed sites now disposed

(1,064)


(1,064)

Onerous lease provision in respect of distressed and other sites

8,291

228

8,519

Other provisions recognised

-

576

576

Amounts utilised

(12,493)

(460)

(12,953)

Unwinding of discount

601

33

634





Balance at 29 December 2019

48,862

4,031

52,893

 

The onerous lease provisions are for onerous contracts in respect of lease agreements. The provision comprises the onerous element of expenditure over the life of those contracts which are considered onerous, expiring in 1 to 30 years, and exit costs including the costs of strip out, dilapidations and the costs expected to be incurred over the void period until the property is sublet.

Onerous lease provisions resulted in a charge of £7.5m in the year (2018: £10.0m). This comprises:

-     A £1.0m credit in respect of unutilised provisions following the successful exit of 8 sites ahead of expectations;

-     A further charge totalling £8.5m was provided for in the year. This comprised a charge of £7.9m in respect of newly identified onerous leases and a charge of £0.6m in respect of sites previously provided for.        

 

Changes in the EBITDA performance of each site could impact on the value of the provision. It is estimated that, a 2% decline in the like-for-like sales performance of sites would generate an additional provision of £0.7m. A 1% increase in the risk free rate would reduce the provision by £1.9m, while a reduction of similar magnitude would result in an additional provision of £0.9m. An increase of 1 year of rent in the cost to exit would result in an increase in the provision of £4.5m, while a decrease of 1 year would result in a decrease of £4.5m.

Provisions transferred to the disposal group classified as held for sale amounts to £4.1m and relate to assets used by the Wagamama US business. See Note 13 for further details regarding the disposal group held for sale assets.                                                                                                                          

* During 2018, The Restaurant Group plc acquired 100% of issued shares in Mabel Topco Group and the Group recognised provisional fair values of the identifiable assets and liabilities acquired. During 2019, a £1.6m provision was identified resulting in a £1.6m increase in goodwill and provisions.                

15 Reconciliation of profit before tax to cash generated from operations











2019

2018







£'000

£'000

Profit/(loss) on ordinary activities before tax




(37,295)

13,931

Net interest charges






16,562

2,232

Impairment of property, plant and equipment




105,788

13,970

Onerous lease and other property provisions




7,455

10,027

Acquisition and integration costs






11,180

14,775

Loss on Assets held for sale






2,019

-

Refinancing costs






-

467

Depreciation and amortisation






45,650

32,453

(Profit)/loss on disposal of property, plant and equipment



(15,388)

104

Other non-cash items






(11)

761

(Increase)/decrease in inventory






(596)

83

Decrease/(increase) in receivables






(261)

(3,983)

(Decrease)/increase in payables






5,398

3,487









Cash generated from operations






140,501

88,307

 

 

16 Reconciliation of changes in cash to the movement in net debt

2019

2018





£'000

£'000

Net debt:






At the beginning of the year




(291,132)

(23,102)

Movements in the year:






Net repayments/(withdrawals) of borrowings


32,000

(102,000)

Drawdown of overdraft


(9,950)

-

Debt acquired on acquisition of subsidiary


-

(226,164)

Unamortised loan fees acquired on acquisition of subsidiary

-

2,493

Upfront loan facility fee




-

1,500

Finance leases




170

208

Non-cash movements in the year




(1,594)

(359)

Net cash (outflow)/inflow




(16,122)

56,292







At the end of the year




(286,630)

(291,132)

 

Represented by:


At 31 December

Cash flow movements

Debt acquired on

Unamortised loan fees acquired on

Upfront loan facility

Non-cash movements

At 30 December

Cash flow movements

Non-cash movements

At 29 December


2017

acquisition

fee

in the year

2018

2019


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000












Cash and cash equivalents

9,611

56,292

-

-

-

-

65,903

(16,122)

(25)

49,756











Overdraft

-

-

-

-

-

-

-

(9,950)

-

(9,950)











Bank loans falling due after one year

(31,223)

(102,000)

(225,000)

2,493

1,500

(190)

(354,420)

32,000

(1,402)

(323,822)











Finance leases

(1,490)

208

(1,164)

-

-

(169)

(2,615)

170

167

(2,612)












(23,102)

(45,500)

(226,164)

2,493

1,500

(359)

(291,132)

6,098

(1,594)

(286,630)

 

                               

Cash and cash equivalents are comprised of cash at bank and cash floats held on site. The cash and cash equivalents balance includes credit card receipts that were cleared post year end.   

The non-cash movements in bank loans are in relation to the amortisation of prepaid facility costs.

 

17 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 April 2020.

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 29 December 2019. Certain parts of the annual report are not included within this announcement.

We confirm that, to the best of our knowledge

a) the financial statements, prepared in accordance with IFRSs as adopted by 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

b) The Business review 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.

On behalf of the Board

Andy Hornby

Kirk Davis

Chief Executive Officer

Chief Financial Officer

25 February 2020

25 February 2020

 

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.

Trading business

Represents the performance of the business before exceptional items and is considered as the key metrics for shareholders to evaluate and compare the performance of the business from period to period.

Exceptional items

Those items that, by virtue of their unusual nature or size, warrant separate additional disclosure in the financial statements in order to fully understand the performance of the Group.

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 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.

EBITDA

Earnings before interest, tax, depreciation, amortisation and impairment.

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.

Outlet EBITDA

EBITDA directly attributable to individual sites and therefore excluding corporate and central costs.

Net debt

Net debt is calculated as the net of the long-term borrowings and finance lease obligations less cash and cash equivalents.

Free cash flow

EBITDA less working capital and non-cash movements (excluding exceptional items), tax payments, interest payments and maintenance capital expenditure.

Adjusted operating profit

Earnings before interest, tax and exceptional items.

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 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 profit before tax

Calculated by taking the profit before tax of the business pre-exceptional items.

Adjusted tax

Calculated by taking the tax of the business pre-exceptional items.

 

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
FR SEUEFIESSEIE

Quick facts: Restaurant Group PLC

Price: 66

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Market Cap: £3.89 m
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