TIDMRTN
RNS Number : 9598S
Restaurant Group PLC
15 March 2019
The Restaurant Group plc
Final results for the 52 weeks ended 30 December 2018
Strategic highlights
-- Acquisition of high quality business in Wagamama which has
continued to outperform the sector
-- Concessions business opened 21 new units and entered four new airports
-- Pubs increasingly outperformed the market and opened a record 21 pubs
-- Leisure business improved like-for-like sales momentum in every quarter in 2018
-- Group delivered like-for-like sales growth since the World Cup
-- Enlarged group now strongly orientated towards growth
Financial highlights
-- Like-for-like sales down 2.0%, with total sales up 1.0% to GBP686.0m (2017: GBP679.3m)
-- Adjusted(1) profit before tax of GBP53.2m(2) (2017(3) :
GBP57.8m(2) ). Statutory profit before tax of GBP13.9m (2017(3) :
GBP28.2m)
-- Exceptional pre-tax charge of GBP39.2m (2017(3) : GBP29.7m)
-- Adjusted(1) EBITDA of GBP87.9m (2017: GBP95.8m)
-- Adjusted(1) EPS(4) of 14.7p (2017(3) : 16.7p). Statutory EPS
of 2.4p (2017(3) : 6.7p per share)
-- Operating cash flow of GBP88.3m (2017: GBP107.8m)
-- Net debt of GBP291.1m at year-end (2017(3) : GBP23.1m)
following Wagamama acquisition, with proforma net debt/EBITDA at
2.2x
-- The Board proposes a final dividend of 1.47p(5) , reflecting
the Board's policy of paying a dividend covered two times by
adjusted(1) profit after tax
1 Adjusted reflects pre-exceptional items and is further defined
in the glossary at the end of this report
2 Includes a GBP2.2m benefit (2017: GBP0.7m) from lower
depreciation following a prior year adjustment to the impairment
provision
3 As restated, refer to Note 2 of the financial statements for
details
4 Earnings per share adjusted for bonus element following the
rights issue in both financial years
5 Full year dividend per share of 8.27p calculated such that the
total cash paid out in dividends for the full year is covered twice
by adjusted profit after tax. This is stated on the basis of
dividends declared and paid not adjusted for the impact of the
rights issue
Current trading
Current trading is in line with our expectations with
like-for-like sales up 2.8% for the ten weeks to 10 March 2019.
Andy McCue, Chief Executive Officer, commented:
"We have made significant progress in 2018, acquiring a
differentiated, high growth business in Wagamama, opening a record
number of new sites in both our Pubs and Concessions businesses,
and driving improved like-for-like sales momentum in the Leisure
business throughout 2018. We now have a business that is orientated
strongly towards growth and we continue to focus on delivering
shareholder value."
Enquiries:
The Restaurant Group plc
Andy McCue, Chief Executive
Officer
Kirk Davis, Chief Financial
Officer 020 3117 5001
MHP Communications
Oliver Hughes
Simon Hockridge
Alistair de Kare-Silver 020 3128 8742
Investor and analyst conference call facility
In conjunction with today's management presentation meeting, a
live conference call and webcast facility will be available
starting at 10:00am. If you would like to register, please contact
Robert Collett-Creedy at MHP Communications for details on 020 3128
8147 or email TRG@mhpc.com.
The presentation slides will be available to download from
9:45am from the Company's website
https://www.trgplc.com/investors/reports-and-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 2018 Annual Report,
which will be available to shareholders in April 2019.
Chairman's statement
2018 was a pivotal year for the Group. The acquisition of
Wagamama and the development of our Pubs and Concessions businesses
have accelerated our progress into growth sectors and we continue
to make improvements to the customer proposition and our execution
across our Leisure business.
Total revenues were up 1% to GBP686m, with like-for-like sales
for the 52 weeks ended 30 December 2018 down 2%, representing an
improvement on the decline in 2017. The group delivered
like-for-like sales growth since the World Cup, with our Pubs
business continuing to consistently trade ahead of the pub
restaurant sector and our Concessions business trading strongly.
Our Leisure business exhibited improved like-for-like sales
momentum through 2018.
We opened a record 21 new pubs (inclusive of acquisitions) and a
record 21 new concessions units during the year.
Adjusted(1) profit before tax was down 8.1% to GBP53.2m and
Adjusted(1) EPS was down 11.9% to 14.7p per share. Statutory profit
before tax was GBP13.9m (2017(3) : GBP28.2m) including exceptional
charges of GBP39.2m (2017(3) : GBP29.7m) which are explained
further in the Financial review section. Statutory EPS was 2.4p
(2017(3) : 6.7p).
The acquisition of Wagamama formally completed on 24 December
2018. The business has a differentiated, high growth, pan-Asian
proposition which has significantly and consistently 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 healthy options. We continue to believe that the
acquisition will be transformative for the Group, allowing us to
accelerate Wagamama's UK roll-out with selected TRG site
conversions, expand the UK concessions presence leveraging our
existing relationships, address delivery opportunities via
restaurants and delivery kitchens, pilot pan-Asian cuisine
'food-to-go' offerings, explore international growth options and
deliver at least GBP22m of synergies.
The enlarged Group now derives c.70 per cent. of outlet EBITDA
(on a full-year 2018 pro-forma basis) from high growth segments
(Wagamama, Concessions and Pubs) and is well equipped to address
compelling growth avenues.
We were appreciative of the engagement of all of our investors
during the process of acquiring Wagamama and the support provided
for the rights issue that was undertaken to raise GBP315m in order
to fund the acquisition.
The Group has continued to face external cost pressures
throughout 2018, including increases in the national living wage
and national minimum wage, the apprenticeship levy, the revaluation
of business rates, higher energy taxes and increased purchasing
costs due to the combined effects of a devalued pound and commodity
inflation. As we seek to mitigate these cost pressures, our
initiatives to improve the effectiveness of our labour scheduling
and to exploit new technologies are on track and continue to drive
efficiencies.
On 14 February 2019, we announced that Andy McCue, CEO, had
informed the Board of his decision to leave the Company due to
extenuating personal circumstances. Whilst the Board is clearly
disappointed that Andy will not be able to provide the long-term
leadership for the business, we recognise that his decision to step
down is the right one for him and his family. The Board anticipates
that Andy will remain in position while his successor is being
recruited. An extensive search is well underway to recruit the new
CEO. An announcement regarding the appointment will be made in due
course.
Other Board changes during the year included the resignation of
Paul May as Non-Executive Director in October 2018 and the
appointment of Allan Leighton, who joined as a Non-Executive
Director in December 2018, at the completion of the Wagamama
transaction. Allan is currently Chairman of Co-operative Group
Limited and Entertainment One Limited, among others, and has
previously been Chief Executive Officer of ASDA Group Limited and
Pandora A/S and Chairman of Pace plc and Royal Mail. He knows the
Wagamama team well and has extensive experience of managing public
and private companies in the retail and hospitality sectors and a
wealth of experience in growing consumer businesses.
Simon Cloke, non-executive Director, will step down as Senior
Independent Director at the AGM in May 2019 and will be replaced as
Senior Independent Director by Allan Leighton.
Although a search had commenced to recruit an additional
Non-Executive Director with digital credentials during 2019, the
Board decided that it was sensible to postpone this search until
such time as the new CEO is recruited. Simon Cloke has agreed to
remain on the Board as a non-executive Director for a period of up
to a year, to ensure continuity whilst the new CEO is recruited.
The Board will then re-commence its search to recruit an additional
non-executive Director with technology and digital credentials and
at that point Simon Cloke will step down from the Board.
We have also added to the strength of the senior leadership
team, with the appointment of Lisa Hillier as Chief People Officer,
joining us from Just Eat plc.
The business continues to generate strong free cash flow, with
GBP59.6m in 2018 (2017(3) : GBP85.1m). As announced at the time of
the acquisition, we will adopt a policy of paying a dividend
covered two times by adjusted(1) profit after tax, with this policy
reflected in the final dividend that the Board has proposed for
2018 of 1.47 pence per share. The total dividend for the year is,
therefore, 8.27 pence per share. The Board believes that this
funding structure and dividend policy reflects an appropriate
balance between delivering shareholder returns, enabling the
Company to invest in further growth and enabling the Company to
achieve an appropriate deleveraging profile.
The enlarged Group now employs over 22,000 people and they are
the lifeblood of our business. The Board would like to record our
thanks and appreciation for their hard work and commitment.
This has been a pivotal year for the Group, with progress on our
strategic initiatives, improved like-for-like sales momentum in our
Leisure business, growth in our Pubs and Concessions business, and
a transformational acquisition that accelerates our momentum in
growth segments. We continue to benefit from strong cash generation
and a healthy balance sheet. The Board is confident that we have a
robust plan and the focus and rigour to deliver value for
shareholders in what is a challenging consumer environment.
Debbie Hewitt MBE
Chairman
15 March 2019
Business review
Introduction
Following the acquisition of Wagamama, the enlarged group is now
strongly orientated towards growth with Wagamama and our
Concessions and Pubs businesses contributing c. 70% of Group outlet
EBITDA in the period (on a full-year 2018 pro-forma basis).
Wagamama is a differentiated, high growth pan-Asian proposition
that has consistently and significantly outperformed its core UK
market. That outperformance is driven by excellent operational
standards, as well as being exceptionally well aligned to
structural growth drivers as customers demand more convenient,
faster, and healthier options.
Our Concessions business is a market leader in UK airports. Our
strength in capability to develop and operate a broad range of
formats in a wide range of infrastructure types has resulted in a
strong track record of like-for-like sales growth, winning new
sites and renewing existing space.
Our Pubs business is well positioned in the market with a
premium, differentiated food-led offer that is increasingly
outperforming the pub restaurant sector. The business benefits from
operating and often owning differentiated assets and delivering an
exceptional experience. There continues to be opportunities to
expand this business and we have a healthy organic pipeline in
place.
In our Leisure business we operate multi-brand casual dining
restaurants across the UK. While the business is not inherently
well exposed to structural growth drivers as a function of either
location or proposition form, we are focused on optimising the
propositions to maximise profitability. We will also be disciplined
in our approach to capital allocation.
Our Group priorities are to:
- Deliver the benefits of the Wagamama acquisition;
- Grow our Concessions and Pubs businesses; and
- Optimise our Leisure brands
1. Deliver the benefits of the Wagamama acquisition
Wagamama
Wagamama has a strong competitive advantage as the only UK
pan-Asian brand concept of scale.
The business is well aligned to key structural trends,
consistently outperforming the market average on experience
ratings(6) in healthiness of food, convenience and speed.
Wagamama benefits from a high quality leadership team which
operates the business as a standalone entity and has the freedom to
cultivate its unique cohesive culture.
Wagamama has demonstrated an outstanding track record of
like-for-like revenue growth. In its quarter three results (12
weeks up to 3 February) Wagamama increased like-for-like sales(7)
by 9.1%; resulting in like-for-like sales7 of 9.7% for its
financial year to date (quarters one-to-three). The Wagamama team
have identified clear opportunities to grow like-for-like sales
further in 2019, including:
- Development of the drinks range to help drive higher participation
- Investment in local marketing and events to drive greater
awareness, using new data sources to more effectively target
audiences and win share
- Further expansion of the vegan range, including new
collaboration hero dish 'Avant Gard'n', which features a vegan
'egg', being launched in partnership with vegan chef Gaz Oakley
- Increased delivery growth via greater reach of aggregators and
technology integration both within and between restaurants
- Six major refurbishments planned for this year which will add
300 additional covers (equivalent to two new restaurants)
6 Source: Morar/BrandVue Q4 customer ratings
(7) Like-for-like sales as per Wagamama Q3 bond report
The business is also progressing well on driving future growth
via the levers identified at the time of the transaction:
UK Casual Dining: We expect to open between three to four new
restaurants this year in the UK, as well as converting eight
Leisure sites to Wagamama.
UK Concessions: The business has won a tender for a site in
Heathrow Terminal 3 which is due to open in the second half of this
year. A site has also been secured in the planned redevelopment of
Manchester airport and is due to open in the first half of 2020.
The business is also exploring a variety of other airport
opportunities.
Delivery: The delivery kitchen in Battersea has been
successfully trialled and we will be rolling out further delivery
kitchens in the year.
International: We opened a new restaurant in Murray Hill, NYC
earlier this year and will open in Midtown Manhattan in the Summer.
A strategic review of our options for the US business has commenced
and we will update investors on our plans later in the year.
Food to go formats: The business has developed a new grab and go
concept which is to be branded "Mamago". The concept will offer a
newly developed Asian menu to capitalise on increased customer
demand for convenience. The initial pilot is planned for launch in
the second half of this year.
Synergies
We will convert eight Leisure sites to Wagamama restaurants this
year, with a similar number expected next year. Teams across the
business have well developed people, marketing and design and build
plans to ensure the new restaurants launch successfully. The eight
sites are in locations which align well with the Wagamama customer
demographic, and in competitive markets where we have high
confidence that we can take share from less differentiated
offerings. The eight TRG sites collectively make a modest profit
today and we expect them to generate incremental EBITDA returns in
excess of 50% of the cost of capital to convert. The converted
sites will open between August and November 2019. We have continued
confidence in delivering an incremental EBITDA benefit of at least
GBP7m per annum at maturity in 2021 from our site conversion
programme. We are progressing well with our cost synergy plans and
collaborative cross-functional working groups across the business
have been established. We have continued confidence in delivering
at least GBP15m of cost synergies per annum in 2021. Synergies will
be achieved through leveraging scale and consolidating spend across
the following cost categories:
- Procurement and logistics
- Site level overheads
- Central costs
2. Grow our Concessions and Pubs businesses
Concessions
Our Concessions business operates a wide variety of food and
beverage formats, across over 35 brands, primarily in UK airports.
This includes bespoke concepts designed with airport partners, The
TRG Group's own leisure brands, and well-known third-party brands,
which operate under franchise arrangements.
Our trading continues to be strong and we continued our strong
track record of retaining sites with c.85% having received contract
renewals beyond the term of the initial contract. In particular
during 2018 we successfully renewed contracts for existing large
spaces at both Gatwick and Heathrow airports. On average our
contracts have been extended for 90% of the original concession
term.
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, position us well
for further contract wins in the future.
In 2018 we have been successful in winning 21 new units and
adding five new clients in UK travel hubs as well as four new brand
partnerships. These new openings were a mix of multiple formats and
categories showcasing our operational capability strength and
ability to provide full solutions to airport partners. This
included a "Spuntino" restaurant in Heathrow, the first "Brewdog"
bar in a UK airport in Edinburgh, two outlets for "Barburrito" and
our first "Crepeaffaire" franchise unit. We also developed several
in-house concepts such as the "Hawker Bar" in Luton and "Distilling
House" pub in Aberdeen.
We expect to open at least 5 to 10 Concessions units in 2019. In
addition to this we have secured a contract to operate a number of
significant sites for the planned redevelopment at Manchester
airport, due to trade in 2020.
Plans to grow our business outside of UK airports are
progressing well. We have developed two new brands, "Mezze Box" and
"Grains and Greens" with Sainsbury's. The initial trial has
commenced with five counters opened so far this year. We are also
building a team to support our longer term plans for growth into
international airports.
Pubs
Our Pubs business is well positioned in the market with a
premium offering tailored to local markets. The business continued
to outperform the pub restaurant sector in 2018, with the extent of
outperformance increasing year-on-year.
During the year we optimised our menu pricing architecture and
developed a more flexible approach to our menus, with an expansion
of the nibbles and sharing sections, and smaller plate options on
some of the core dishes. In the year ahead we will be launching a
gluten-free menu in all our pubs. We continue to refine our drinks
range to ensure we cater for an increasing trend in craft beer and
low alcohol/no alcohol drinks.
We continue to look at opportunities to leverage the existing
space in our estate. Benefitting from the warm weather over the
summer we ran an increased number of events such as our gin and
prosecco festivals as well as live music events which are proving
increasingly popular. During the year we opened three new private
dining rooms and our first separate function space at the Red Fox
pub which has been used for larger functions, including weddings.
Following the successful opening of our first pub with
accommodation in September, we opened another in February 2019. We
anticipate additional revenue opportunities by continuing to
leverage our existing space in the year ahead with further function
space, private dining rooms and all-weather external terraces
currently under consideration.
Our estate expansion plans are progressing well. We opened 21
new pubs in the year including the acquisitions of Ribble Valley
Inns Ltd (consisting of four leasehold pubs) and Food & Fuel
Ltd (consisting of 11 leasehold pubs and café-bars predominately
situated in affluent London neighbourhoods). We have now
refurbished three of the Ribble Valley sites and these are
delivering a sales uplift in excess of 30% post refurbishment. The
Food & Fuel Ltd sites are trading in line with expectations and
plans are in place to further develop these propositions through
2019. Our single site Brunning and Price acquisitions are trading
well and we expect to open at least seven more pubs in the coming
year.
3. Optimise our Leisure business
The market backdrop for our Leisure business is challenging with
a 27% increase in the number of branded restaurants over the past
five years. This has been accompanied with a dramatic decrease in
the growth rates of both total sales and like-for-like sales every
year since 2014. Structural trends including declining retail
footfall, the rapid rise of the delivery sector and fast changing
customer preferences towards convenience and healthy options all
create challenges for long established multi-site operators of
scale. Profitability has been further challenged by the pressure of
rising costs, with the bulk of our restaurant wage bill inflating
by around 4%, electricity costs at eight year highs, and rent and
rates costs remaining at high levels despite the decreasing
consumer demand. In response, we are focused on ensuring our brands
are competitively differentiated, increasing our exposure to
healthy and convenient options and capitalising on 'off-trade'
delivery and collection sales. However, given the market backdrop,
we are acutely disciplined in how we allocate capital and highly
discerning as to lease renewal commitments and the flexibility
inherent within them.
Our Leisure estate is disproportionately highly exposed to these
pressures. 56% of our estate directly neighbours retail, most of
which are in out-of-town locations. As a result of our discipline
over recent years, the vast majority of our Leisure portfolio
remains EBITDA positive. 41% of our Leisure portfolio also has a
lease end or break option within the next five years.
In order to ensure we make the correct property decisions, we
have analysed every restaurant in our Leisure estate to determine
its potential performance versus its actual performance. In the
case of Frankie and Benny's, 31% of sites are in structurally
unattractive locations, and as such, we will seek to exit these
locations in future years. Of the remaining Frankie and Benny's
locations, 60% are outperforming or in-line with their local
markets; in 40% we believe there is scope for operational
improvement.
Frankie and Benny's
The brand has seen considerable activity over the last twelve
months, progressing well on a number of initiatives.
In May, we saw the launch of our new Feel Good Range, offering
our customers increased and improved healthier options. The range
has proved popular with penetration at c.10% of sales, with the top
performers in this range being the Nashville Chicken Skewers and
Skinny Chicken Pizza.
We launched on Comparethemarket's 'Meerkat Meals' partner
platform in June and have seen really strong engagement with it
becoming one of our most popular promotions.
We launched our squishies campaign in October through to
November where we gave away a free Squishie toy with every kids
meal. This proved successful in driving repeat visits.
Our payment at table feature, "pay my bill", is improving in
popularity with customers, with over five percent of transactions
being made through this channel.
Our customers are responding to these initiatives, and this has
resulted in an improvement in our social review scores throughout
the year as well as improved sales momentum.
We are currently trialling "order ahead" functionality in 25
sites. This gives our customers the ability to order and pay for
their meal in advance, alongside a booked table, and have it ready
for them when they arrive at the restaurant. Initial feedback from
customers has been positive and we will look to roll out more
broadly later in the year.
Upcoming activity includes continued improvement in the core
proposition via new menus. We will shortly trial a simplified core
menu with a large reduction in the number of dishes to help our
teams improve operational consistency. Our marketing campaigns will
become increasingly targeted to specific occasions and highlight
new food development via limited time offers. We will invest in
service and operational improvements in underperforming sites and
actively manage the structurally disadvantaged tail.
Chiquito
The brand has evolved its offering over the course of the year
with a number of initiatives employed. In January 2018 we launched
a new core menu aimed at reinstating value, improving choice,
simplifying navigation and focusing on more authentic Mexican
dishes such as our 'build your own' tortillas option.
We invested in a stronger senior operational team throughout the
year. This in turn allowed us to focus on the quality of our
General Managers and drive standards up through peer group
benchmarking.
Our promotional strategy has become more centred around Mexican
favourites, generating a very encouraging take-up from
customers.
We also launched a virtual brand "Kick-ass Burrito" which,
across all delivery aggregators now has 131 points of sale.
Our customers are recognising these improvements with a notable
increase in our social review scores throughout the year as well as
improved trading momentum, with like-for-like sales improving in
every quarter.
Our plans for the year ahead include the launch of a new menu in
April which will feature a strong range of dishes catering for
people with dietary restrictions as well as improving our vegan and
vegetarian offer with dishes such as our jackfruit burrito with
benefits, beetroot and feta lettuce wrap and bean and red chilli
burger. We will also offer exciting trade-up options with premium
ingredients such as our Picanha surf & turf dish and Barabacoa
beef build your own option.
Summary and current trading
In summary:
- The enlarged group is now strongly orientated towards growth
- Wagamama like-for-like sales momentum is strong and we are
progressing well on the growth avenues unlocked by the
acquisition
- Strong growth continues in Concessions and Pubs
- We remain focused on optimising our Leisure brands and property portfolio
- Current trading for first 10 weeks of the year in line with
our expectations with like-for-like sales up 2.8%
Financial review
Trading results
Like-for-like sales declined by 2.0% for the year, with total
revenue up 1.0% to GBP686.0m (2017: GBP679.3m). The like-for-like
sales decline reflected the annualisation of the investments we
made in price and proposition across our Leisure brands in 2017,
along with the impact of the adverse weather and the World Cup in
2018, which were partially offset by a strong like-for-like sales
performance from both our Pubs and Concessions businesses. The
Group delivered like-for-like sales growth since the World Cup with
our Leisure business exhibiting improved like-for-like sales
momentum through 2018.
With declining like-for-like sales and the well-known sector
specific inflationary cost pressures, the Group's Adjusted(1)
operating profit (EBIT) fell by 6.9% to GBP55.4m (2017(3) :
GBP59.5m) with the Adjusted(1) operating margin falling from 8.8%
to 8.1%. On a statutory basis, the Group's operating profit (EBIT)
was GBP16.6m (2017(3) GBP29.8m). Adjusted(1) operating profit
(EBIT) includes a GBP2.2m (2017: GBP0.7m) benefit from lower
depreciation following a prior year adjustment to the impairment
provision. The prior year adjustment reflects the appropriate
allocation of central costs to individual restaurants following a
reassessment of our impairment methodology.
Adjusted(1) profit before tax for the period was GBP53.2m
(2017(3) : GBP57.8m). Adjusted(1) profit after tax was GBP41.8m
(2017(3) : GBP45.8m). The Adjusted(1) effective tax rate for the
Group increased to 21.4% (2017(3) : 20.9%). On a statutory basis,
the effective tax rate of 50.6% (2017(3) : 34.9%) reflects the
higher exceptional charges in the year. Adjusted(1) earnings per
share were 14.7p (2017: 16.7p). On a statutory basis, profit before
tax was GBP13.9m (2017(3) : GBP28.2m) and EPS was 2.4p (2017(3) :
6.7p).
The adjusted measures are summarised below:
52 weeks ended 52 weeks
30 December ended 31
2018 December
2017(3)
GBPm GBPm % change
------------------------------ --------------- ---------- ---------
Revenue 686.0 679.3 1.0%
Adjusted(1) EBITDA 87.9 95.8 (8.3%)
Adjusted(1) operating profit 55.4 59.5 (6.9%)
Adjusted(1) operating margin 8.1% 8.8%
Adjusted(1) profit before
tax 53.2 57.8 (8.1%)
Adjusted(1) tax (11.4) (12.1)
Adjusted(1) profit after
tax 41.8 45.8 (8.6%)
Adjusted(1) EPS (pence) 14.7 16.7 (11.9%)
------------------------------ --------------- ---------- ---------
Cash flow and net debt
Operating cash flows remain strong with free cash flow of
GBP59.6m in the year (2017: GBP85.1m). Free cash flow in the year
reflects the lower EBITDA and higher refurbishment and maintenance
capital expenditure. The Group's net debt at the year-end was
GBP291.1m, an increase of GBP268.0m on the prior year net debt of
GBP23.1m(3) following the acquisition of Wagamama and significant
capital investment for the strategic development of our Concessions
and Pubs businesses.
Summary cash flow for the year is set out below:
2018 2017(3)
GBPm GBPm
-------- -------------
Adjusted(1) operating profit 55.4 59.5
Working capital and non-cash adjustments 0.4 12.0
Depreciation 32.5 36.3
Operating cash flow 88.3 107.8
Net interest paid (1.0) (0.7)
Tax paid (7.4) (7.1)
Refurbishment and maintenance expenditure (20.3) (14.9)
---------------------------------------------- -------- -------------
Free cash flow 59.6 85.1
Development expenditure (33.0) (18.4)
Acquisitions of RVI and Food and Fuel (14.8) -
net of cash acquired
Movement in capital creditors 5.8 (5.9)
Dividends (34.9) (34.9)
Utilisation of onerous lease provisions (11.2) (12.7)
Exceptional restructuring costs - (6.8)
Acquisition of Wagamama net of cash acquired (310.1) -
Debt acquired on acquisition of Wagamama (225.0) -
Acquisition and refinancing exceptional (10.1) -
costs
Proceeds from issue of share capital 305.8 -
Other items (0.1) 0.5
---------------------------------------------- -------- -------------
Net cash flow (268.0) 6.9
Net debt brought forward (23.1) (30.0)
---------------------------------------------- -------- -------------
Net debt carried forward (291.1) (23.1)
---------------------------------------------- -------- -------------
In December 2018 the Group refinanced its borrowings and now has
GBP220m of revolving credit facilities that expire in December 2021
and a GBP10m overdraft facility. In addition the GBP225m Wagamama
Bond matures in July 2022. At the year-end we had GBP161.9m of cash
headroom and significant headroom against our banking
covenants.
Group banking 2018 2017
covenant
--------------- ------ ------
Banking covenant ratios:
EBITDA / Interest cover >4x 47x 66x
Net debt / EBITDA(8) <3.5x 2.2x 0.2x
Other ratios:
Fixed charge cover n/a 2.0x 2.1x
Balance sheet gearing n/a 63% 11%
--------------- ------ ------
(8) On a full-year 2018 pro-forma basis
Capital expenditure
During the year the Group invested GBP68.5m (2017: GBP33.3m) in
capital expenditure (excluding the acquisition of Wagamama). Our
investment in refurbishment and maintenance capital expenditure
increased to GBP20.3m (2017: GBP14.9m) reflecting the Frankie and
Benny's capital refreshes on 16 sites and the conversions of four
Coast to Coast units to Firejacks. Our investment in new site
expenditure increased to GBP47.8m (2017: GBP18.4m) reflecting the
higher number of new site openings across our Pubs and Concessions
businesses in 2018 compared to 2017.
This expenditure included the acquisitions of "Ribble Valley
Inns Ltd" and "Food & Fuel Ltd" which added 15 pubs to our
portfolio.
During the year we closed 20 sites, comprising 15 sites from
Leisure and five sites from Concessions. Within Concessions two of
the sites had reached the end of their contractual life and the
other three sites are currently undergoing redevelopments into new
Concession units. In the year we also closed 15 Leisure sites, five
of which had reached the end of their contractual life and the
remainder were sites which no longer generated acceptable cash
returns. The table below summarises openings and closures during
the year.
Year-end Opened Closed Transfers Year-end
2017 2018
------- ------- ---------- ---------
Frankie & Benny's 259 1 (12) - 248
Chiquito 85 - (2) - 83
Coast to Coast/Filling
Station 25 - (1) (4) 20
Firejacks 1 - - 4 5
Garfunkel's 8 - - - 8
Joe's Kitchen 4 - - - 4
Pub restaurants 60 21 - - 81
Concessions 55 21 (5) - 71
------- ------- ---------- ---------
Wagamama - 140 - - 140
Total 497 183 (20) - 660
------- ------- ---------- ---------
We expect to spend GBP55m to GBP60m on development expenditure
in 2019; comprising:
- At least seven new pubs
- Between 5 to 10 new Concessions sites in 2019, including the
initial expenditure relating to Manchester terminal
redevelopment
- At least six new Wagamama sites
- Eight Leisure site conversions to Wagamama
- Roll-out of delivery kitchens across the enlarged group and
pilot of Wagamama Grab and Go concept
Refurbishment and maintenance capital expenditure will range
between GBP30m to GBP35m. This will include six transformational
refurbishments of Wagamama UK sites and several large-scale
Concessions redevelopment projects.
Restructuring and exceptional charge
An exceptional pre-tax charge of GBP39.2m has been recorded in
the year (2017(3) : GBP29.7m, including the prior year restatement
of GBP16.5m), which includes the following:
- Onerous lease review resulted in a charge of GBP10.0m in the
year (2017: GBP4.2m). This comprises:
-- A GBP5.2m credit in respect of unutilised provisions
following the successful exit of 28 sites ahead of expectations;
and
-- A further charge of GBP15.2m was provided for in the year.
This comprised a charge of GBP11.1m in respect of newly identified
onerous leases and a charge of GBP4.1m in respect of sites
previously provided for
- A net impairment charge of GBP14.0m (2017(3) : GBP20.7m,
including the prior year restatement of GBP16.5m) was made against
the carrying value of specific restaurant assets due to recent
changes in certain markets. This comprises an impairment charge of
GBP17.1m partially offset by reversals of previously recognised
impairment losses of GBP3.1m
- An exceptional charge of GBP14.8m has been recorded in the
year in relation to the acquisitions of Wagamama, Food and Fuel Ltd
and Ribble Valley Inns Ltd. Acquisition related costs are items of
one-off expenditure, including legal and professional fees,
incurred in connection with the acquisitions
- Restructuring and strategic review costs of GBPnil (2017:
GBP4.8m) relating to costs incurred in the restructuring projects
that were initiated in 2017 to implement the new strategy and cost
initiatives; and
- An exceptional charge of GBP0.5m has been recognised in the
year as a result of the refinancing which took place to fund the
acquisition of Wagamama. The charge relates to the write off of
unamortised finance costs connected to the old debt facility
The tax credit relating to these exceptional charges was GBP4.3m
(2017(3) : GBP2.2m).
Cash expenditure associated with the exceptional charges was
GBP21.3m in the year (2017: GBP19.5m). Cash costs relate to onerous
leases of GBP11.2m (2017: GBP12.7m), acquisitions and refinancing
costs of GBP10.1m (2017:GBPnil) and costs associated with the
implementation of the new business strategy of GBPnil (2017:
GBP6.8m)
Tax
The Adjusted(1) tax charge for the year was GBP11.4m (2017:
GBP12.1m), summarised as follows:
2018 2017
GBPm GBPm
------ ------
Corporation tax 10.4 10.8
Deferred tax 1.0 1.3
------ ------
Total 11.4 12.1
------ ------
Effective adjusted tax rate 21.4% 20.9%
The effective Adjusted(1) tax rate for the year was 21.4%
compared to 20.9% 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 50.6%, which increased from the 2017(3)
rate of 34.9% due to the increase in exceptional charges in the
year.
The Restaurant
Group plc
Consolidated
income
statement
52 weeks ended 30 December 52 weeks ended 31 December
2018 2017
Restated (Note 2)
------------------------------------------
Exceptional Exceptional
Trading items Trading items
(Note (Note
business 6) Total business 6) Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4 686,047 - 686,047 679,282 - 679,282
Cost of sales 5 (603,332) (23,997) (627,329) (588,594) (24,894) (613,488)
------------- -------------- ---------- ---------------- ------------ ----------
Gross
profit/(loss) 82,715 (23,997) 58,718 90,688 (24,894) 65,794
Administration
costs (27,313) (14,775) (42,088) (31,188) (4,772) (35,960)
------------- -------------- ----------
Operating
profit/(loss) 55,402 (38,772) 16,630 59,500 (29,666) 29,834
Interest
payable 7 (2,233) (467) (2,700) (1,712) - (1,712)
Interest
receivable 7 1 - 1 51 - 51
------------- -------------- ---------- ---------------- ------------ ----------
Profit/(loss)
on ordinary
activities
before tax 53,170 (39,239) 13,931 57,839 (29,666) 28,173
Tax on
profit/(loss)
from
ordinary
activities 8 (11,361) 4,312 (7,049) (12,076) 2,249 (9,827)
------------- -------------- ---------- ---------------- ------------ ----------
Profit/(loss)
for the year 41,809 (34,927) 6,882 45,763 (27,417) 18,346
------------- -------------- ---------- ---------------- ------------ ----------
Earnings per
share (pence)
Rights adjusted
basic 9 14.67 2.42 16.66 6.68
Rights adjusted
diluted 9 14.63 2.41 16.58 6.65
------------- ---------- ---------------- ----------
The table below is provided to give additional information to shareholders
on a key performance indicator:
EBITDA 87,855 (24,802) 63,053 95,755 (8,973) 86,782
Depreciation,
amortisation
and impairment (32,453) (13,970) (46,423) (36,255) (20,693) (56,948)
------------- -------------- ---------- ---------------- ------------ ----------
Operating
profit/(loss) 55,402 (38,772) 16,630 59,500 (29,666) 29,834
------------- -------------- ---------- ---------------- ------------ ----------
The Restaurant Group
plc
Consolidated balance
sheet
At 30 December At 31 December
2018 2017
Restated
(Note 2)
Note GBP'000 GBP'000
Non-current assets
Intangible assets 11 613,685 26,433
Property, plant and
equipment 12 434,298 327,320
Fair value lease assets 1,361 -
----------------- ---------------
1,049,344 353,753
----------------- ---------------
Current assets
Inventory 8,678 5,930
Other receivables 22,912 14,949
Prepayments 31,096 17,473
Cash and cash equivalents 65,903 9,611
128,589 47,963
----------------- ---------------
Total assets 1,177,933 401,716
----------------- ---------------
Current liabilities
Corporation tax liabilities (2,702) (2,129)
Trade and other payables (211,705) (114,841)
Other payables (272) (164)
Provisions 13 (9,377) (10,408)
----------------- ---------------
(224,056) (127,542)
----------------- ---------------
Net current liabilities (95,467) (79,579)
----------------- ---------------
Non-current liabilities
Long-term borrowings (354,420) (31,223)
Other payables (27,521) (24,596)
Fair value lease liabilities (10,426) -
Deferred tax liabilities (52,674) (4,301)
Provisions 13 (50,244) (33,888)
----------------- ---------------
(495,285) (94,008)
----------------- ---------------
Total liabilities (719,341) (221,550)
----------------- ---------------
Net assets 458,592 180,166
----------------- ---------------
Equity
Share capital 138,234 56,551
Share premium 249,686 25,554
Other reserves (7,158) (7,753)
Retained earnings 77,830 105,814
----------------- ---------------
Total equity 458,592 180,166
----------------- ---------------
The Restaurant Group plc
Consolidated statement of changes in equity
Share Share Other Retained Total
capital premium reserves earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- --------- ------------- -----------
Balance at 2 January
2017 (Restated) 56,550 25,542 (9,987) 122,334 194,439
Profit for the year
(Restated) - - - 18,346 18,346
Issue of new shares 1 12 - - 13
Dividends - - - (34,866) (34,866)
Share-based payments-
credit to equity - - 2,158 - 2,158
Deferred tax on share-based
payments taken directly
to equity - - 76 - 76
Balance at 31 December
2017
Restated (Note 2) 56,551 25,554 (7,753) 105,814 180,166
---------- ---------- ---------- ------------- -----------
Balance at 1 January
2018 56,551 25,554 (7,753) 105,814 180,166
Profit for the year - - - 6,882 6,882
Rights issue of new
shares 81,683 224,132 - - 305,815
Dividends - - - (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
---------- ---------- ---------- ------------- -----------
There is no comprehensive income other than the profit for the
year in the year ended 30 December 2018 or the year ended 31 December
2017.
Other reserves represents the Group's share-based payment transactions,
shares held by the Employee Benefit Trust and treasury shares
held by the Group.
Consolidated cash flow statement
52 weeks 52 weeks
ended ended
30 December 31 December
2018 2017
Restated
(Note 2)
Note GBP'000 GBP'000
Operating activities
Cash generated from operations 14 88,307 107,819
Interest received 10 55
Interest paid (1,013) (751)
Tax paid (7,364) (7,068)
Cash outflows from exceptional onerous
lease provisions 6 (11,183) (12,738)
Cash outflows from exceptional restructuring
costs 6 - (6,792)
Cash outflows from exceptional acquisition
and refinancing costs (10,103) -
------------- -------------
Net cash flows from operating activities 58,654 80,525
------------- -------------
Investing activities
Purchase of property, plant and equipment (47,514) (39,275)
Purchase of intangible assets (1,532) -
Proceeds from disposal of property,
plant and equipment 370 828
Purchase of subsidiaries (364,197) -
Cash acquired on acquisition of subsidiaries 39,270 -
Net cash flows used in investing activities (373,603) (38,447)
------------- -------------
Financing activities
Net proceeds from issue of ordinary
share capital 305,815 13
Repayments of borrowings (170,000) (106,500)
Drawdown of borrowings 272,000 99,500
Upfront loan facility fee paid (1,500) -
Dividends paid to shareholders 10 (34,866) (34,866)
Finance lease principal payments (208) (182)
------------- -------------
Net cash flows used in financing activities 371,241 (42,035)
------------- -------------
Net increase in cash and cash equivalents 56,292 43
Cash and cash equivalents at the beginning
of the year 9,611 9,568
Cash and cash equivalents at the end
of the year 65,903 9,611
------------- -------------
1. General information
Corporate information
The Restaurant Group plc (the "Company") is a public listed
company incorporated and registered in Scotland. The consolidated
preliminary results of the Company as at and for the year ended 30
December 2018 comprise the Company and its subsidiaries (together
referred to as the "Group").
The consolidated preliminary results of the Group for the year
ended 30 December 2018 were approved by the directors on 14 March
2019. The Annual General Meeting of The Restaurant Group plc will
be held at 9:30am on Friday 17 May 2019 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 30 December 2018 and are presented in
UK Sterling and all values are rounded to the nearest thousand (UK
GBP'000), except when otherwise indicated.
Going concern
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 30 December 2018 and 52 weeks to
31 December 2017 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 31 December 2017 have been filed with the Registrar
of Companies and those for the 52 weeks to 30 December 2018 will be
filed following the Company's Annual General Meeting.
The auditor's reports on the accounts for both the 52 weeks to
30 December 2018 and 52 weeks to 31 December 2017 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
2019.
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 30 December 2018.
The Restaurant Group plc
Notes to the accounts
For the year ended 30 December 2018
2 Restatement of comparatives
Rent Impairment
Capital Free Finance Dilapidations & onerous
As originally contributions periods lease provision leases
disclosed (i) (ii) (iii) (iv) (v) As restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------------- --------------- --------- -------- -------------- ----------- ------------
Consolidated income
statement for the
52 weeks ended
31 December 2017
Cost of sales before
exceptional items (589,490) 387 - (199) - 708 (588,594)
Exceptional cost
of sales (8,386) - - - - (16,508) (24,894)
Interest payable (1,911) - - 199 - - (1,712)
Trading tax on
profit from
ordinary
activities (12,076) - - - - - (12,076)
Exceptional tax
credit 1,423 - - - - 826 2,249
Profit after tax 32,933 387 - - - (14,974) 18,346
Adjusted EBITDA 95,118 842 - (205) - - 95,755
Depreciation and
amortisation (36,514) (455) - 6 - 708 (36,255)
Consolidated balance
sheet at 31 December
2017
Property, plant
and equipment 335,029 16,460 - 84 - (24,253) 327,320
Trade and other
payables - current (124,238) (841) 8,038 - 2,200 - (114,841)
Other payables
- non-current (2,548) (15,232) (8,038) 1,222 - - (24,596)
Deferred tax
liabilities (5,127) - - - - 826 (4,301)
Provisions -
non-current (31,688) - - - (2,200) - (33,888)
Retained earnings 127,548 387 - 1,306 - (23,427) 105,814
Consolidated
statement
of changes in equity
Retained earnings
as at 1 January
2017 129,481 - - 1,306 - (8,453) 122,334
--------------------- -------------- --------------- --------- -------- -------------- ----------- ------------
Basic and diluted
earnings per share
Weighted average
ordinary shares
for the purposes
of basic earnings
per share 200,376,258 - - - - - 200,376,258
Weighted average
ordinary shares
for the purposes
of diluted earnings
per share 201,344,618 - - - - - 201,344,618
Total profit for
the year (GBP'000) 32,933 387 - - - (14,974) 18,346
Basic profit/ (loss)
per share for the
year (pence) 16.44 0.19 - - - (7.47) 9.16
Diluted profit/
(loss) per share
(pence) 16.36 0.19 - - - (7.44) 9.12
Adjusted basic
profit per share
for the year
(pence) 22.29 0.19 - - - - 22.48
Adjusted diluted
profit per share
(pence) 22.18 0.19 - - - - 22.37
--------------------- -------------- --------------- --------- -------- -------------- ----------- ------------
During the year, management have identified five items for which
we have retrospectively amended the financial statements.
(i) Lease incentives - capital contributions
The Group has historically recognised contributions received
from landlords to offset against the cost of fitting out a
restaurant as a reduction in Property, plant and equipment.
Management has identified this error in the year, and reclassified
to Trade and other payables, split between current and non-current.
Whereas these have previously been depreciated each year, over the
lease life, all lease incentives are now recognised, within Cost of
sales in the income statement. The prior year credit was also
reclassified from Depreciation into Cost of sales. This has
resulted in:
- An increase in the Property, plant and equipment as at 1
January 2017 of GBP16.9m, representing the reversal of prior
incentives, with a corresponding increase in the Trade and other
payables balance for the remaining incentives to recognise over the
lease life.
- An increase in the Depreciation charge for 2017 of GBP0.5m and
a decrease in rent of GBP0.8m.
(ii) Lease incentives - rent free periods
The Group has previously accounted for rent free lease
incentives as a current liability, despite them being recognised in
the income statement over the life of the lease. The Group has
reclassified amounts that will be unwound to the income statement
after one year to non-current Other payables. This has resulted
in:
- An GBP8.0m increase in non-current Other payables as at 1
January 2017, and a corresponding decrease in current Trade and
Other payables.
- There is no impact on the 2017 income statement as the
incentive was released appropriately.
(iii) Finance lease
The historical accounting for finance leases on a number of
sites was incorrect. A mechanical calculation error had led to the
future cash outflows being overstated. This has resulted in:
- A GBP1.7m reduction in non-current Other payables, and a
corresponding reduction in Retained earnings as at 1 January 2017.
There is less than a GBP0.1m impact on Property, plant and
equipment as these sites have been fully impaired.
- The impact on the income statement for 2017 is considered
immaterial, and has not been adjusted.
(iv) Dilapidations provision
The Group historically recorded dilapidation provisions within
current Trade and other payables. The Group has corrected the
reclassification of dilapidations to non-current Provisions. This
has resulted in:
- A GBP2.2m increase in non-current Provisions, and a
corresponding decrease in current Trade and other payables as at 1
January 2017.
- No impact on the income statement for 2017 as these were
recognised prior to 1 January 2017.
(v) Impairment and onerous lease
As part of the year-end process, management reviewed and
re-assessed the method by which central costs are allocated to the
individual CGUs for the purposes of impairment testing. As a
result, an appropriate portion of the central costs were allocated
to the CGUs to more accurately determine their future cash flows.
This change has been applied retrospectively to the 1 January 2017
balance sheet. This has resulted in:
- A write down of the 1 January 2017 Property, plant and
equipment values of GBP8.5m and corresponding reduction in opening
Retained earnings; and
- An additional 2017 Exceptional impairment charge of GBP16.5m
and a reduction in Depreciation of GBP0.7m, totalling a GBP15.8m
impact on Profit before tax.
3 Segmental analysis
The Group trades in one business segment (that of operating
restaurants) primarily within the United Kingdom. In addition, the
Group operates restaurants in the United States and generates
revenues from franchise royalties primarily in the Middle East and
Europe. The segmentation between geographical location and
restaurant operations and royalty revenues are not considered
significant to be reportable segments under IFRS 8.
4 Revenue
Revenue has been generated from the operation of restaurants,
with approximately 99% of revenue generated within the United
Kingdom. The remainder is attributable to restaurants within the
United States and from franchise royalties primarily in the Middle
East and Europe.
5 Profit for the year 2018 2017
Restated
(Note 2)
GBP'000 GBP'000
Cost of sales consists of the following:
Continuing business excluding pre-opening
costs 601,928 586,451
Pre-opening costs 1,404 2,143
-------- ----------
Trading cost of sales 603,332 588,594
Exceptional items (Note 6) 23,997 24,894
Total cost of sales for the year 627,329 613,488
-------- ----------
2018 2017
Restated
(Note 2)
Profit for the year has been arrived at
after charging /(crediting): GBP'000 GBP'000
Amortisation (Note 11) 342 -
Depreciation (Note 12) 32,111 36,255
Impairment of property, plant and equipment
(Note 12) 13,970 20,693
Purchases of food, beverages and consumables 149,586 147,079
Staff costs 242,375 236,981
Minimum lease payments 78,182 73,063
Contingent rents 12,515 10,093
-------- ----------
Total operating lease rentals of land and
buildings 90,697 83,156
Rental income (2,300) (2,007)
-------- ----------
Net rental costs 88,397 81,149
-------- ----------
6 Exceptional items 2018 2017
Restated (Note 2)
GBP'000 GBP'000
Included within cost of sales:
Onerous lease provision in respect of closed and other sites 10,027 4,201
Impairment of property, plant and equipment 13,970 20,693
-------- ------------------
23,997 24,894
Included within administration costs:
Acquisition related costs 14,775 -
Restructuring and strategic review costs - 4,772
14,775 4,772
Included within interest payable:
Refinancing costs 467 -
-------- ------------------
Exceptional items before tax 39,239 29,666
Credit in respect of tax rate change 219 176
Tax effect of exceptional Items (4,531) (2,425)
-------- --------
(4,312) (2,249)
Net exceptional items for the year 34,927 27,417
------- -------
An exceptional pre-tax charge of GBP39.2m has been recorded in
the year (2017 Restated: GBP29.7m), which includes the
following:
- Onerous lease provisions resulted in a charge of GBP10.0m in
the year (2017: GBP4.2m). This comprises:
-- A GBP5.2m credit in respect of unutilised provisions
following the successful exit of 28 sites ahead of
expectations;
-- A further charge totalling GBP15.2m was provided for in the
year. This comprised a charge of GBP11.1m in respect of newly
identified onerous leases and a charge of GBP4.1m in respect of
sites previously provided for.
- A net impairment charge of GBP14.0m (2017 Restated: GBP20.7m)
was made against the carrying value of specific restaurant assets
due to continuing challenging trading conditions in the markets in
which the Group's restaurants operate as well as a challenging
outlook, and has had a significant impact on the Group and the
wider casual dining market. There has been an improvement in
trading conditions and outlook at certain of the Group's
restaurants which has resulted in the reversal of some previous
historic impairment charges. The net charge comprises an impairment
charge of GBP17.1m partially offset by reversals of previously
recognised impairment losses of GBP3.1m.
- An exceptional charge of GBP14.8m has been recorded in the
year in relation to the acquisitions of Wagamama, Food and Fuel and
Ribble Valley Inns. Refer to Note 17 for further details.
- Restructuring and strategic review costs of GBPnil (2017:
GBP4.8m) relating to costs incurred in the restructuring projects
that were initiated in 2017 to implement the new strategy and cost
initiatives.
- An exceptional charge of GBP0.5m has been recognised in the
year as a result of the refinancing which took place to fund the
acquisition of Wagamama.
The tax credit relating to these exceptional charges was GBP4.3m
(2017 Restated: GBP2.2m).
Cash expenditure associated with the above exceptional charges
was GBP21.3m in the year (2017: GBP19.5m) relating to the cash cost
of the onerous leases of GBP11.2m (2017: GBP12.7m), the cash cost
of the acquisitions and refinancing of GBP10.1m (2017: GBPnil), and
costs associated with the implementation of the new business
strategy of GBPnil (2017: GBP6.8m).
7 Net finance charges 2018 2017
Restated
(Note 2)
GBP'000 GBP'000
Bank interest payable 1,355 746
Onerous lease interest 375 409
Amortisation of facility fees 333 365
Interest on obligations under finance
leases 170 192
----------------------- -----------------------
Trading borrowing costs 2,233 1,712
Exceptional refinancing costs (Note 6) 467 -
Total borrowing costs 2,700 1,712
Other interest receivable (1) (2)
Loan note interest receivable - (49)
----------------------- -----------------------
Total interest receivable (1) (51)
Trading net finance charges 2,232 1,661
Total net finance charges 2,699 1,661
----------------------- -----------------------
8 Tax Trading Exceptional Total Total
2018 2018 2018 2017
Restated
(Note 2)
a) The tax charge comprises: GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ----------------------- ----------------------- -----------------------
Current tax
UK corporation tax at 19%
(2017: 19.25%) 10,183 (2,447) 7,736 10,568
Adjustments in respect of
previous years 191 - 191 (683)
--------------------- ----------------------- ----------------------- -----------------------
10,374 (2,447) 7,927 9,885
--------------------- ----------------------- ----------------------- -----------------------
Deferred tax
Origination and reversal
of temporary differences 1,832 - 1,832 94
Adjustments in respect of
previous years (634) - (634) 1,190
Charge/(credit) in respect
of rate change on deferred
tax liability (211) 219 8 165
Credit in respect of fixed
asset impairment - (2,084) (2,084) (1,507)
--------------------- ----------------------- ----------------------- -----------------------
987 (1,865) (878) (58)
Total tax charge for the
year 11,361 (4,312) 7,049 9,827
--------------------- ----------------------- ----------------------- -------------------------
The adjustments in respect of previous years predominantly
relates to allocations of property, plant and equipment
between qualifying and non-qualifying expenditure.
b) Factors affecting the tax charge for the year
The tax charged for the year varies from the standard UK corporation
tax rate of 19.00% (2017: 19.25%) due to the following factors:
Trading Exceptional Total 2017
2018 2018 2018 Restated
(Note 2)
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ----------------------- ----------------------- -----------------------
Profit on ordinary activities
before tax 53,170 (39,239) 13,931 28,173
--------------------- ----------------------- ----------------------- -----------------------
Profit/(loss) on ordinary
activities before tax
multiplied by the standard
UK
corporation tax rate of
19.00% (2017: 19.25%) 10,102 (7,455) 2,647 5,423
Effects of:
Depreciation/impairment
on non-qualifying assets 1,266 570 1,836 3,720
Expenses not deductible
for tax purposes 518 2,354 2,872 475
(Credit)/charge in respect
of rate change on deferred
tax liability (211) 219 8 165
Adjustment in respect
of previous years (443) - (443) 507
Release of tax provisions (15) - (15) (478)
Business combinations (80) - (80) (182)
Share options 224 - 224 197
Total tax charge for the
year 11,361 (4,312) 7,049 9,827
--------------------- ----------------------- ----------------------- -----------------------
The Finance (No.2) Act 2015 introduced a reduction in the main
rate of corporation tax from 20% to 19% from April 2017 and from
19% to 18% from April 2020. These reductions were substantively
enacted on 26 October 2015.
The Finance Act 2016 introduced a further reduction in the main
rate of corporation tax to 17% from April 2020. This was substantively
enacted on 6 September 2016. The deferred tax provision at the
balance sheet date has been calculated at this rate, resulting
in a GBPnil tax charge (2017 restated: GBP0.2m).
9 Earnings per share (EPS) 2018 2017
Restated
(Note
2)
a) Basic earnings per share:
Weighted average ordinary shares for the
purposes of basic earnings per share 284,959,978 274,616,270
Total profit for the year (GBP'000) 6,882 18,346
Basic earnings per share for the year (pence) 2.42 6.68
----------------------- -----------------------
Total profit for the year (GBP'000) 6,882 18,346
Effect of exceptional items on earnings
for the year (GBP'000) 34,927 27,417
----------------------- -----------------------
Earnings excluding exceptional items (GBP'000) 41,809 45,763
Adjusted earnings per share (pence) 14.67 16.66
----------------------- -------------------------
b) Diluted earnings per share:
Weighted average ordinary shares for the
purposes of basic earnings per share 284,959,978 274,616,270
Effect of dilutive potential ordinary shares:
Dilutive shares to be issued in respect
of options granted under the share option
schemes 64,070 383,856
Shares held by employee benefit trust 688,276 943,284
285,712,324 275,943,410
----------------------- -----------------------
Diluted earnings per share (pence) 2.41 6.65
Adjusted diluted earnings per share (pence) 14.63 16.58
On the 14 December 2018 the group issued 290,428,830 new ordinary
shares of 28.125p each through a rights issue. To reflect the
rights issue, the number of shares previously used to calculate
basic and diluted earnings per share and adjusted earnings per
share have been amended in the table above in accordance with
IAS 33.
A bonus adjustment factor of 1.370 has been applied, based on
the ratio of an adjusted closing share price of 200.0p per share
on 30 October 2018, the business day before the shares started
trading ex rights price at that date of 108.5 pence per share.
Prior to this re-presentation, the EPS for the year ended 31 December
2017 as restated (Note 2) was 9.16 pence (basic), 9.12 pence (diluted),
22.48 pence (adjusted basic) and 22.37 pence (adjusted diluted).
Diluted earnings per share information 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 of share option schemes and the shares held
by the employee benefit trust. The calculation of diluted earnings
per share does not assume conversion, exercise or other issue
of potential ordinary shares that would have an antidilutive effect
on earnings per share.
10 Dividend 2018 2017
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders during the year:
Final dividend for the 52 weeks ended 31 December
2017 of 10.60p (2016: 10.60p) per share 21,240 21,240
Interim dividend for the 52 weeks ended 30 December
2018 of 6.80p (2017: 6.80p) per share 13,626 13,626
----------------------- --------------------
Total dividends paid in the year 34,866 34,866
----------------------- --------------------
Proposed final dividend for the 52 weeks ended
30 December 2018 of 1.47p (2017 actual proposed
and paid: 10.60p) per share 7,232 21,240
----------------------- --------------------
The proposed final dividend is subject to approval by shareholders
at the Annual General Meeting to be held on 23 May 2019 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 2018, adjusted for the 0.7m shares owned
by the employee benefit trust for which dividends have been
waived. Software
11 Intangible assets Trademarks Franchise & IT
and
Goodwill licences agreements development Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- ------------ --------
Cost
At 2 January and 31
December
2017 26,433 - - - 26,433
----------- ----------- ----------- ------------ --------
Accumulated
amortisation
At 2 January and 31
December
2017 - - - - -
----------- ----------- ----------- ------------ --------
Cost
At 1 January 2018 26,433 - - - 26,433
Additions - - - 1,532 1,532
Additions on
acquisition
of subsidiaries
(Note
17) - 479 - 1,207 1,686
Intangibles
recognised
on acquisition of
subsidiaries
(Note 17) 326,476 236,000 21,900 - 584,376
At 30 December 2018 352,909 236,479 21,900 2,739 614,027
----------- ----------- ----------- ------------ --------
Accumulated
amortisation
At 1 January 2018
Charged during the
year - - 28 314 342
At 30 December 2018 - - 28 314 342
----------- ----------- ----------- ------------ --------
Net book value as at
31 December 2017 26,433 - - - 26,433
----------- ----------- ----------- ------------ --------
Net book value as at
30 December 2018 352,909 236,479 21,872 2,425 613,685
----------- ----------- ----------- ------------ --------
The intangible assets reported on the balance sheet represent
goodwill, trademarks and licences, franchise agreements and software
and IT development arising on the previous acquisition of Blubeckers
Limited and Brunning and Price Limited, which now trade as pub
restaurants, and current year acquisitions of Ribble Valley Inns
Limited, Food and Fuel Limited and Wagamama. Refer to Note 17
for further details of intangible assets recognised on acquisition
of subsidiaries.
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. Therefore, goodwill and trademarks
arising on acquisition are monitored and an impairment test is
carried out which compares the value in use of each cash generating
unit (CGU) to its carrying value.
The recoverable amount of the goodwill and trademark CGU's is
GBP352.9m and GBP236.5m as at 30 December 2018 respectively.
The recoverable amounts have been based on value in use estimates
using cash flow projections based on one year budgets approved
by the Board. The value in use estimates differ depending upon
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 9.2% (2017: 10.2%) that reflects the
risk of these assets. Cash flows are extrapolated in perpetuity
with an annual growth rate of 2%. Perpetuity is believed to be
reasonable due to the significant proportion of freeholds in
the estate and the nature of the leasehold properties. It was
concluded that the value in use for the CGU's is higher than
its carrying value and therefore did not require impairment.
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 scenarios
have been summarised as follows:
- An increase in the discount rate of 1%
- A decrease of 5% on forecast cash flows
The sensitivity analysis shows that no impairment would result
from either an increase in the discount rate or a decrease in
forecast cash flows.
12 Property, plant and equipment Fixtures,
Land and equipment
buildings and vehicles Total
GBP'000 GBP'000 GBP'000
Cost
At 1 January 2017 - Restated
(Note 2) 541,655 191,593 733,248
Additions 16,192 17,146 33,338
Disposals (17,459) (8,440) (25,899)
Transfers to provisions 500 - 500
At 31 December 2017 - Restated
(Note 2) 540,888 200,299 741,187
--------------------- ------------------------------------------------ -----------------------
Accumulated depreciation and
impairment
At 1 January 2017 - Restated
(Note 2) 239,163 139,594 378,757
Provided during the year - Restated
(Note 2) 20,353 15,902 36,255
Impairment - Restated (Note
2) 16,249 4,444 20,693
Disposals (14,177) (7,661) (21,838)
At 31 December 2017 - Restated
(Note 2) 261,588 152,279 413,867
--------------------- ------------------------------------------------ -----------------------
Cost
At 1 January 2018 540,888 200,299 741,187
Additions 38,374 14,913 53,287
Additions on acquisition of
subsidiaries 67,900 32,346 100,246
Disposals (569) (751) (1,320)
At 30 December 2018 646,593 246,807 893,400
--------------------- ------------------------------------------------ -----------------------
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
--------------------- ------------------------------------------------ -----------------------
Net book value as at 31 December
2017 279,300 48,020 327,320
Net book value as at 30 December
2018 352,066 82,232 434,298
--------------------- ------------------------------------------------ -----------------------
The impairment charge comprises a charge of GBP17.1m partially
offset by reversals of previously recognised impairment losses of
GBP3.1m. Refer to Note 6 for further details. Included within the
book value of property, plant and equipment are assets under
construction of GBP2.8m (2017: GBP0.7m) which are not
depreciated.
During the period the Group amended its estimate of residual
values for property, plant and equipment by reference to an
external valuation.
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. 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 9.2% (2017: 10.2%) 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 2%.
The key assumptions in the value in use estimates are the
discount rate applied and the forecast cash flows. An increase of
1% in the discount rate would give rise to an additional impairment
charge of approximately GBP1.2m, whilst a decrease of 1% in the
discount rate would give rise to a reduction in impairment of
approximately GBP0.5m. The forecast cash flows take into account
management's experience of the specific sites and its long term
expectations of the market. A 10% reduction in these forecast cash
flows would result in an additional impairment charge of
approximately GBP2.8m.
2018 2017
Restated
(Note 2)
Net book value of land and
buildings: GBP'000 GBP'000
Freehold 114,919 108,419
Long leasehold 4,102 3,640
Short leasehold 233,045 167,241
352,066 279,300
-------- ----------
Assets held under finance leases 2018 2017
Restated
(Note 2)
Costs GBP'000 GBP'000
At the beginning of the year 1,595 1,961
Disposals during the year - (366)
-------- ----------
At the end of the year 1,595 1,595
-------- ----------
Depreciation
At the beginning of the year 1,434 1,681
Provided during the year 11 25
Disposals during the year - (272)
-------- ----------
At the end of the year 1,445 1,434
-------- ----------
Net book value at the end of the year 150 161
-------- ----------
13 Provisions
2018 2017
Restated
(Note 2)
GBP'000 GBP'000
Provision for onerous leases 57,421 41,805
Other provisions 2,200 2,491
Balance at the end of the year 59,621 44,296
-------- ----------
Analysed as:
Amount due for settlement within one year 9,377 10,408
Amount due for settlement after one year 50,244 33,888
59,621 44,296
-------- ----------
Onerous
contracts
& other
property
provisions Other Total
GBP'000 GBP'000 GBP'000
------------ -------- ----------
Balance at 1 January 2018 - Restated
(Note 2) 41,805 2,491 44,296
Transfer from other provisions 291 (291) -
Provisions acquired (Note 16) 16,758 - 16,758
Release of onerous lease provision
in respect of closed sites now
disposed (5,214) - (5,214)
Onerous lease provision in respect
of distressed and other sites 14,669 - 14,669
Amounts utilised (11,263) - (11,263)
Unwinding of discount 375 - 375
Balance at 30 December 2018 57,421 2,200 59,621
------------ -------- ----------
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 GBP9.5m in
the year (2017: GBP4.5m). This comprises:
-- A GBP5.2m credit in respect of unutilised provisions
following the successful exit of 28 sites ahead of
expectations;
-- A further charge totalling GBP14.7m was provided for in the
year. This comprised a charge of GBP11.1m in respect of newly
identified onerous leases and a charge of GBP3.6m in respect of
sites previously provided for.
During the year GBP16.8m of provisions were acquired through
business combinations. Refer to Note 16 for further details.
Included in the opening balance is a GBP2.2m reclassification of
dilapidations to other provisions, which are expected to be
utilised within three years. Refer to Note 2 for further
details.
Changes in the EBITDA performance of each site could impact on
the value of the provision. It is estimated that, a 10% decline in
the EBITDA performance of the sites included in the provision would
generate an additional provision of GBP0.3m. Additionally, it is
estimated that, should all leases with more than ten years
remaining on the committed lease term be exited two years ahead of
expiry, the provision would reduce by GBP1.0m. A 1% increase in the
risk free rate would reduce the provision by GBP1.7m while a
reduction of similar magnitude would result in an additional
provision of GBP1.9m.
14 Reconciliation of profit before tax to cash
generated from operations 2018 2017
Restated
(Note 2)
GBP'000 GBP'000
Profit before tax 13,931 28,173
Net interest charges 2,232 1,661
Impairment of property, plant and equipment 13,970 20,693
Onerous lease and other property provisions 10,027 4,201
Restructuring costs - 4,772
Acquisition costs 14,775 -
Refinancing costs 467 -
Share-based payments 761 2,158
Amortisation 342 -
Depreciation 32,111 36,255
Loss on disposal of fixed assets 104 -
Decrease/(increase) in stocks 83 (298)
(Increase)/decrease in receivables (3,983) 2,185
Increase in creditors 3,487 8,019
Cash generated from operations 88,307 107,819
------------ -----------------------
15 Reconciliation of changes in cash to the movement
in net debt 2018 2017
Restated
(Note 2)
GBP'000 GBP'000
Net debt:
At the beginning of the year (23,102) (29,966)
Movements in the year:
Net (withdrawals)/repayments of borrowings (102,000) 7,000
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 208 182
Non-cash movements in the year (359) (361)
Net cash inflow 56,292 43
At the end of the year (291,132) (23,102)
----------------------- ----------
Represented
by:
At 30
December Unamortised
At Cash 2017 Cash Debt loan fees Upfront
2 flow Non-cash & 1 flow acquired acquired loan Non-cash At 30
January movements movements January movements on on facility movements December
in the in the in the in the
2017 year year 2018 year acquisition acquisition fee year 2018
--------- ---------- ---------- --------- ---------- ------------ ------------ --------- ---------- ----------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and
cash equivalents 9,568 43 - 9,611 56,292 - - - - 65,903
Bank loans
falling
due after
one year (37,882) 7,000 (341) (31,223) (102,000) (225,000) 2,493 1,500 (190) (354,420)
Finance
leases (1,652) 182 (20) (1,490) 208 (1,164) - - (169) (2,615)
(29,966) 7,225 (361) (23,102) (45,500) (226,164) 2,493 1,500 (359) (291,132)
--------- ---------- ---------- --------- ---------- ------------ ------------ --------- ---------- ----------
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.
16 Basis of preparation
The Group's preliminary announcement and statutory accounts in
respect of 2018 have been prepared on the going concern basis. The
financial information set out above does not constitute the Group's
statutory accounts for the years ended 30 December 2018 or 31
December 2017 but is derived from those accounts. Statutory
accounts for 2017 have been delivered to the Registrar of Companies
and those for 2018 will be delivered following the Company's Annual
General Meeting. The 2018 statutory accounts are prepared on the
basis of the accounting policies stated in the 2017 statutory
accounts. The auditor has reported on those accounts; their reports
were unqualified and unmodified and did not contain statements
under s498 (2) or (3) of the Companies Act 2006.
17 Acquisitions in
2018
During the year the Group undertook three business combinations. Details of the purchase consideration,
the provisional fair value of the identifiable assets the and liabilities acquired and goodwill are as follows:
Ribble
Valley Food and
Inns Fuel Wagamama Total
Purchase
consideration GBP'000 GBP'000 GBP'000 GBP'000
Cash paid 939 14,263 348,995 364,197
Total purchase
consideration 939 14,263 348,995 364,197
--------------------------- ----------------------- ---------------- ---------------------
Assets GBP'000 GBP'000 GBP'000 GBP'000
Trademark (Note 11) - - 236,000 236,000
Franchise agreements
(Note 11) - - 21,900 21,900
Intangible assets
(Note 11) - - 1,686 1,686
Fair value lease
assets - 417 1,115 1,532
Property, plant and
equipment (Note 12) 835 6,366 93,045 100,246
Cash and cash
equivalents 114 268 38,888 39,270
Prepayments - 339 10,265 10,604
Other receivables 50 98 6,834 6,982
Corporation tax
receivable - 37 - 37
Stock 44 145 2,641 2,830
--------------------------- ----------------------- ---------------- ---------------------
1,043 7,670 412,374 421,087
--------------------------- ----------------------- ---------------- ---------------------
Liabilities
Fair value lease
liabilities - (1,102) (10,183) (11,285)
Trade payables (284) (842) (27,398) (28,524)
Other payables (202) - (9,226) (9,428)
Accruals (120) (518) (18,479) (19,117)
Other tax and social
security (63) (455) (21,760) (22,278)
Corporation tax
liability - - (47) (47)
Deferred tax
liability (28) (846) (48,335) (49,209)
Provisions - - (16,758) (16,758)
Long term
liabilities - - (4,213) (4,213)
Secured loan notes - - (222,507) (222,507)
(697) (3,763) (378,906) (383,366)
--------------------------- ----------------------- ---------------- ---------------------
Total identifiable net assets
at fair value 346 3,907 33,468 37,721
--------------------------- ----------------------- ---------------- ---------------------
Goodwill arising on acquisition
(Note 11) 593 10,356 315,527 326,476
Total purchase
consideration 939 14,263 348,995 364,197
--------------------------- ----------------------- ---------------- ---------------------
The net cash flow impact of
the acquisition is:
GBP'000 GBP'000 GBP'000 GBP'000
Cash consideration (939) (14,263) (348,995) (364,197)
Cash acquired 114 268 38,888 39,270
(825) (13,995) (310,107) (324,927)
--------------------------- ----------------------- ---------------- -----------------------
The Group made fair value adjustments on acquisition in respect
of trademarks, franchise agreements, goodwill, property, plant and
equipment and lease assets and lease liabilities. The accounting
for the acquisitions made in the year is provisional and will be
finalised in the window allowed by IFRS 3.
Ribble Valley Inns
On 21 May 2018, Brunning and Price Limited acquired 100% of
issued shares in Ribble Valley Inns Limited, a pubs business, for
consideration of GBP0.9m. The Group acquired Ribble Valley Inns in
order to accelerate its expansion strategy of its pubs division.
The goodwill premium on acquisition was paid to allow the Group to
quickly expand the successful pubs business through
acquisitions.
In the year to 30 December 2018 acquisition related costs of
GBP0.2m have been recognised within exceptional acquisition and
refinancing related costs totalling GBP15.2m (Note 6). Since 21 May
2018 Ribble Valley Inns Limited has contributed revenue of GBP2.0m,
EBITDA loss of GBP0.4m, operating loss of GBP0.5m and loss before
tax of GBP0.5m.
If the acquisition of Ribble Valley Inns Limited had taken place
at the start of the financial period, the enlarged TRG Group would
have recognised revenue of GBP3.2m, EBITDA loss of GBP0.5m,
operating loss of GBP0.8m and loss before tax of GBP0.8m. The Group
refurbished three out of the four pubs in the period since
acquisition with the pubs shut for an extended period during that
time. The group also invested in marketing and training to coincide
with the relaunch.
Food and Fuel
On 29 August 2018, Brunning and Price Limited acquired 100% of
issued shares in Food and Fuel Limited, a premium pubs business,
for consideration of GBP14.3m. The Group acquired Food and Fuel in
order to accelerate its expansion strategy of its pubs division.
The goodwill premium on acquisition was paid to allow the Group to
quickly expand the successful pubs business through
acquisitions.
The fair value lease assets and liabilities recognised upon
acquisition of GBP0.4m and GBP1.1m arose due to current rental on
operating leases being favourable or unfavourable to current market
terms. The mark to market adjustment on operating leases values the
difference between contractual and market rents until that
difference is extinguished. The market rents were sourced from
external property advisors. An income approach and discounted cash
flow methodology was applied to fair value the mark to market lease
adjustments. A discount rate of 6% was applied based on average
retail property yields in the UK, which implicitly reflect future
rental growth expectations. The fair value lease assets and
liabilities are being amortised over the life of the leases, which
is up to 24 years.
In the year to 30 December 2018 acquisition related costs of
GBP0.5m have been recognised within exceptional acquisition and
refinancing related costs totalling GBP15.2m (Note 6). Since 29
August 2018 Food and Fuel Limited has contributed revenue of
GBP4.2m, EBITDA of GBP0.4m, operating profit of GBP0.2m and profit
before tax of GBP0.2m. If the acquisition of Food and Fuel Limited
had taken place at the start of the financial period, the enlarged
TRG Group would have recognised revenue of GBP12.7m, EBITDA of
GBP1.0m, operating profit of GBP0.4m and profit before tax of
GBP0.4m.
Wagamama
On 24 December 2018, The Restaurant Group plc acquired 100% of
issued shares in Mabel Topco Group, which operates a chain of
pan-Asian style noodle bars, trading in the UK through Wagamama
Limited, and in the USA through Wagamama Inc. The UK business also
operates as a franchisor of the brand in all territories in which
Wagamama trades outside of the UK and USA. The consideration paid
consists of funding through a rights issue and bank loan.
The acquisition of Wagamama provided the enlarged TRG Group the
opportunity to deliver on multi-pronged growth strategies and
provide the enlarged group clear scale advantages as Wagamama is a
differentiated high growth brand with clear structural
advantages.
Goodwill of GBP315.5m represents the buyer specific synergies
the Group will be able to achieve from acquiring Wagamama, the
potential for future franchise agreements, growth potential in the
UK and US through further roll-out and access to a workforce with
vast experience in operating a successful pan-Asian restaurant
chain.
Trademark intangibles of GBP236.0m have been recognised upon
acquisition on the basis that Wagamama is a large and well
recognised Casual Dining brand, with high awareness among casual
dining chains and is highly advocated, with one of the highest Net
Promoter Scores amongst its competitors. The brand is particularly
strong with young, affluent consumers who are familiar with
international cuisine. A relief-from-royalty valuation approach was
used to value the trademark. The trademark is deemed to have an
indefinite useful life.
Franchise agreements of GBP21.9m have been recognised upon
acquisition following a valuation of the agreements that were in
place as at the acquisition date. A multi-period excess earnings
method was used in the valuation. Franchise agreements are being
amortised over a useful economic life of 15 years.
The valuation of leasehold improvements and fixtures and
fittings has resulted in a downward fair value adjustment of
GBP19.0m. The depreciated direct replacement cost approach has been
applied to value the tangible assets and the replacement cost has
been based on the cost of recent fit out projects undertaken for
Wagamama. Depreciation has been based on the existing depreciation
policies.
The fair value lease assets and liabilities recognised upon
acquisition of GBP1.1m and GBP10.2m arose due to current rental on
operating leases being favourable or unfavourable to current market
terms. The mark to market adjustment on operating leases value the
difference between contractual and market rents until that
difference is extinguished. The market rents were either sourced
from advice provided by external property advisors, current lease
negotiations or ongoing monitoring of restaurant rental levels in
connection with the day to day management of the lease portfolio.
An income approach and discounted cash flow methodology was applied
to fair value the mark to market lease adjustments. A discount rate
of 5% was applied for locations in London and 7% for locations
outside of London based on average retail property yields in those
areas, which implicitly reflect future rental growth expectations.
The fair value lease assets and liabilities are being amortised
over the life of the leases, which is up to 24 years.
In the year to 30 December 2018 acquisition related costs of
GBP14.5m have been recognised within exceptional acquisition and
refinancing related costs totalling GBP15.2m (Note 6). A further
GBP2.1m of upfront loan fees have been capitalised against the new
revolving credit debt facility and GBP9.3m of share issue costs
have been recognised in share premium.
Since 24 December 2018 the Wagamama Group has contributed
revenue of GBP7.0m, adjusted EBITDA of GBP1.1m, operating profit of
GBP0.7m and profit before tax of GBP0.5m.
If the acquisition of the Wagamama Group had taken place at the
start of the financial period, the enlarged TRG Group would have
recognised revenue of GBP328.3m, adjusted EBITDA of GBP44.6m,
EBITDA of GBP34.5m, adjusted operating profit of GBP27.5m,
operating profit of GBP17.4m, adjusted profit before tax of
GBP17.9m and profit before tax of GBP7.8m.
18 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 2019.
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
30 December 2018. 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 McCue Kirk Davis
Chief Executive Officer Chief Financial Officer
14 March 2019 14 March 2019
Glossary
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 Represents the performance of the business before exceptional
business costs and is considered as the key metrics for shareholders
to evaluate and compare the performance of the business
from period to period.
Exceptional Those items that, by virtue of their unusual nature
items or size, warrant separate additional disclosure in
the financial statements in order to fully understand
the performance of the Group.
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Like-for-like This measure provides an indicator of the underlying
('LFL') performance of our existing restaurants. There is no
sales 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 LFL calculation.
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Adjusted Earnings before interest, tax, depreciation, amortisation
EBITDA and exceptional items. Calculated by taking the Trading
business operating profit and adding back depreciation
and amortisation.
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EBITDA Earnings before interest, tax, depreciation, amortisation
and impairment.
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Net debt Net debt is calculated as the net of the long-term
borrowings and finance leases.
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Free cash EBITDA less working capital and non-cash movements
flow (excluding exceptional items), tax payments, interest
payments and maintenance capital expenditure.
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Adjusted Earnings before interest, tax and exceptional items.
operating
profit
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Adjusted Calculated by taking the profit after tax of the business
EPS pre-exceptional items divided by the weighted average
number of shares in issue during the year.
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Adjusted Calculated by taking the profit after tax of the business
diluted pre-exceptional items divided by the weighted average
EPS number of shares in issue during the year, including
the effect of dilutive potential ordinary shares.
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Adjusted Calculated by taking the profit before tax of the business
profit pre-exceptional items.
before
tax
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Theoretical This Is the price per Ordinary Share calculated as
Ex-Rights at a date by applying the following formula: Current
Price price * Existing Ordinary Shares) plus (Rights issue
Price * New Ordinary shares) divided by existing Ordinary
Shares plus New Ordinary Shares.
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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 rns@lseg.com or visit www.rns.com.
END
FR LIFILVVIELIA
(END) Dow Jones Newswires
March 15, 2019 03:01 ET (07:01 GMT)
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