Preliminary Results

RNS Number:6358M
Food & Drink Group (The) PLC
28 January 2008



The Food & Drink Group PLC
("FDG" or "the Group")


Unaudited Preliminary Results for the Year ended 29 September 2007


The Food & Drink Group PLC, the London focussed licensed retailer and operator
of 33 bars including Henry J Bean's and Jamies, announces preliminary results
for the year ended 29 September 2007.


HIGHLIGHTS


  * Turnover up 2.4% to £20.8m (2006: £20.3m)


  * Like-for-like sales up 2.4% across the Group


  * Site EBITDA of £3.6m (2006: £3.7m)


  * Profit before tax was £0.6m (2006: £0.9m)


  * Earnings per share were 8.8p (2006: 18.0p)


  * Gross margin remains healthy at 74.6%;  food sales increased by 5%


  * Acquisition of seven leasehold sites from Puzzle Pub Company for £1.2m in
    the second half;  disposal of three units  (Canyon Restaurant, Henry J
    Bean's Camden and Jamies Philpot Lane)


  * Opening of new Henry J Bean's in Wimbledon (July) and roll out of new
    Jamies' Bar & Restaurant brand template to Bishopsgate (April), plus the
    conversion of two former Puzzle pub sites to the new Jamies format at Fleet
    Place and Maddox Street post the September year end


  * Terms agreed for additional bank funding of £2.5m


Stephen Thomas, Chairman of The Food & Drink Group, commented:


"Henry J Beans and the City Bars business have continued to deliver strong
underlying trading with good growth in food sales in particular.  The invested
Bars business is showing good returns and we plan to focus on improving the
performance of the uninvested bars business over the months ahead. The Puzzle
sites have integrated well and the refurbished units are delivering improved
performance which is encouraging.


"Whilst there has been some softening in trading in the current year as a result
of consumer concerns in the wider market, the Directors remain confident that
the Group has a portfolio of brands with significant untapped future potential."


28 January 2008


ENQUIRIES:

The Food & Drink Group PLC                            Tel:      [phone]

Stephen Thomas, Chairman

James Kowszun, Chief Executive

College Hill                                          Tel:      [phone]

Justine Warren


The Food & Drink Group plc


Unaudited Preliminary Results for Financial Year ending 29th September 2007


Chairman's Statement


Introduction


The Financial Year ended 29th September 2007 ("Financial Year") saw a clear
distinction between the first eight months, when trade was strong with both
improvement initiatives and the investment programme delivering above
expectation, and the final four months of the Financial Year when trade became
more challenging, principally as a result of poor weather limiting our ability
to utilize our substantial outside trading space.


Significant progress was made with the Group's brand development.  Improving the
core elements of the Henry J Bean's brand continued to deliver benefits and
culminated in the opening of Henry J Bean's in Wimbledon in July.  Sales
performance at the site has been consistently strong since opening which has
continued into the new Financial Year.  The evolution of the Jamies Wine Bar
brand commenced with the refurbishment of the Bishopsgate site in April and was
quickly followed by extending the changes to Jamies, Minories, as well as the
conversion of two Puzzle sites at Fleet Place and Maddox Street post the year
end.  The resultant performance from these sites has been encouraging.


Three properties were disposed of during the year with an overall profit on
disposal of £0.4m.  We acquired seven leasehold sites from the Puzzle Pub
Company in April, leaving the Group with 33 sites at the year end.  The former
Puzzle sites have integrated well and, although delayed, the refurbishment
programme that will deliver the expected value from the acquisition began after
the year end, with the successful conversions of two sites into the new Jamies
format.


Financial Review


Accounting Adjustments


The year-end reporting process had to be completed in the absence of the Group's
Finance Director who remains on indefinite compassionate leave. This resulted in
a delay to the announcement of results until January 2008.  The services of an
interim finance team were immediately engaged.


A number of issues which required further investigation became apparent at the
end of 2007, principally relating to the timing of recognition of costs.  The
overall impact of the adjustments was to increase the expensed cost base for the
Financial Year 2007 by £0.7m and to reduce net current assets by an equivalent
amount.  This will not affect future cash flow.  £0.4m of the adjustments relate
to head office costs, with £0.1m relating to finance costs and £0.2m relating to
site-level performance.


Financial Review


Overall sales in the year grew by 2.4% to £20.8m, mirrored by a like-for-like
sales increase of 2.4% reflecting the acquisition of seven leasehold sites from
The Puzzle Pub Company in April 2007 but offset by the disposal of Henry J
Bean's Camden at the start of the Financial Year and Canyon Restaurant and
Jamies Philpot Lane in January 2007.  Food sales increased by 5% from the bars
as a whole reflecting the on-going improvements made to our food quality and
range.


We successfully renegotiated our drink supplier agreements during the second
half.  This improved both the quality and flexibility of our drinks range whilst
maintaining margins.


Whilst we have continued to improve quality, consistency and value for money in
our food offer, the impact of these changes, together with food cost price
increases during the year, resulted in a small decline in food gross margin.  We
made some headway in improving the gross margins at the acquired Puzzle sites
and there is scope to improve this further going forward.  Overall gross margin
reduced marginally over the year but remains healthy at 74.6% (2006: 75.2%).


Site operating costs were tightly controlled during the year but as a percentage
to sales were adversely impacted by the lower than expected summer sales.
Investment in entertainment and marketing expenditure was maintained in order to
continue to drive sales performance and wage costs remained well managed within
the sites but increased as a percentage of sales as a result of sales delivery.
Site EBITDA in the year was £3.6m representing a margin of 17.5% (2006: £3.7m
and 18.0% respectively).  Overall EBITDA after central administrative costs was
£2.3m (2006: £2.7m).


Operating costs have been positively impacted by a number of expected one-off
benefits principally relating to the successful resolution of a number of issues
relating to both sales and employment taxes relating to previous acquisitions.
The overall impact of these items, taken together, is £0.3m.  Operating profit
from ordinary activities before interest and taxation for the year was £1.0m
(2006: £1.3m).


The profit on disposal for the year of £0.4m relates to the disposal of three
properties - Canyon Restaurant, Jamies Philpot Lane and Henry J Bean's Camden.


The interest cost in the accounts for the Financial Year was £0.8m (2006:
£0.7m).   Net debt at the year-end was £9.0m (2006: £8.1m), representing gearing
of 93% (2006: 102%).  Of this debt, £7m is owed to Barclays Bank plc, with the
remainder represented by a Euro3.5m, 7-year unsecured subordinated loan raised in
March 2007.


Overall, the Group delivered profit before tax for the Financial Year of £0.6m
(2006: £0.9m), after charging £0.5m amortisation of goodwill.


The tax charge in the accounts is £0.1m and the Group still has trading losses
available for utilization in future years.


Earnings per share for the year were 8.8p (2006: 18.0p), although this increases
to 18.3p (2006: 29.0p), excluding the impact of amortisation of goodwill.


The Board does not propose to pay a dividend in the current financial year.


Capital expenditure in the year totalled £2.7m and was funded by both the
increase in borrowings and a share placing of £1.5m (gross) completed in July
2007.  The Group invested in a function venue at Hodgsons wine bar for £0.1m in
November 2007, the refurbishment of Bishopsgate Jamies in April for £0.2m and
the creation of Henry J Bean's Wimbledon in July for £0.5m, all of which are
delivering levels of return in excess of expectation.  In addition, the Group
acquired seven leasehold sites from The Puzzle Pub Company in April for £1.2m.


At the year end, overall fixed assets have risen to £21.0m (2006: £19.9m) and
the net assets of the Group are £9.8m (2006: £8.0m).


Bank Funding


We are delighted to announce that we have agreed revised funding arrangements
with Barclays Bank plc that will provide the Group with an additional £2.5
million of funding, securing further financial stability.  As part of this
refinancing, the Group has agreed waivers for breaches of banking covenants that
resulted from the late adjustments to the accounts.  A technical consequence of
this is that we have to disclose all bank borrowing as current liabilities in
the balance sheet at the year end, despite the long-term solution being agreed
with our bankers.  With our banking issues now resolved, to aid understanding,
we include a pro-forma balance sheet at note 7 showing the position had we
concluded the refinancing before the year-end.



Summary



The decision to write off £0.7m of excess prepayments/insufficient accruals has
been taken and the balance sheet is more robust as a result.  This issue has
been resolved and is now historic.  With a business that continues to show tight
control of site costs, future performance is therefore predominantly dependent
upon the ability to generate top-line sales performance.



Operational Review


Henry J Bean's


Henry J Bean's had a strong year with like-for-like sales finishing the year
6.3% up.  Improvements to the food offering, focusing on product quality and the
core offer, resulted in food sales growing by 6.6% in the year.  At the same
time, improvements to the cocktails and wine offer in the sites have enabled the
sales mix to move into more premium products.


Gross margin within this division remained unchanged from last year with active
management of sales mix, together with reduced wastage offsetting increases to
cost prices, particularly on food items.  Wage costs have remained well
controlled, with variable costs increasing on the previous year with
sales-driving entertainment costs and utilities representing most of the
increase.


We opened a new Henry J Bean's in Wimbledon in the late summer.  The site shut
in January 2007 to allow for landlord improvements to the building and reopened
for trade in late July.  The design and operational template will form the
blueprint for the future expansion of the brand.  The sales performance since
re-opening has been consistently strong, with food sales particularly pleasing.


During the year, the Henry J Bean's franchises in Brighton and Stratford ended,
in line with our intention to run UK operations wherever possible as managed
operations.  The remaining UK sites, both located in hotels in York and
Edinburgh, continue to run as franchises, with York receiving a successful
refurbishment during the year.  We also sent a team to provide extensive support
and re-training for our franchise partner in Malta, with encouraging results.
Two new airport-based sites have also opened since the year end in Mexico.


With the work we have done to improve the offer, support our franchise partners
and expand the brand, Henry J Bean's remains a highly valuable brand that has
significant untapped future potential.


Jamies Wine Bars and the City


The City wine bar business had a good year with like-for-like sales showing
growth of 5.9%.  The wine list continues to perform well and the food offer has
been upgraded with encouraging results showing food sales growth of nearly 9%.


Jamies Bishopsgate was refurbished in April 2007.  A revised design template,
coupled with a much-improved offer, has had marked success.  The offer, which
reflects the core Jamies brand offering of an excellent wine list and a range of
light meals, now incorporates a more wide-ranging lunch and evening food
offering and a range of premium cocktails.  Feedback has been excellent and with
the site showing good sales growth, we have begun to roll the concept out to
other sites, with the upgrading of Jamies Minories and the conversion of two
Puzzle sites at Fleet Place and Maddox Street post the year end.


With its focus on lunchtime and early-evening business, supported by private
functions and parties, this remains an extremely cost-efficient business to run
with tight wage control and good profit conversion.  There is strong potential
to expand this business further, both in the City and, outside, on a more
selective basis.


Bars


Performance within Bars saw marginally positive trading across the bulk of this
estate with The Saint in Paternoster Square performing particularly well.  This
was with the exception of Jamies Canary Wharf - one of our larger sites where
the outside trading area is several times larger than the internal trading space
- which experienced poor summer trading as a result of wet weather.
Consequently, like-for-like sales were down 1% across the Bars estate as a
whole.  A few of the sites that have not been refurbished for some time began to
show some sales decline in the second half of the financial year.  Correcting
this trend is a key focus area for the new financial year.


Puzzle Acquisition


We acquired seven leaseholds from the Puzzle Pub Company in April 2007 for £1.2m
with the intention of refurbishing and rebranding the sites to deliver the
expected return on investment.  The initial integration went well, with back of
house and purchasing being successfully unified within the first month,
delivering a modest improvement to gross margin at the sites.


The property aspects of the acquisition have caused some delay to our original
plans.  Legal completion of the assignment of two of the sites was only finally
achieved in January 2008 and obtaining landlord's consent to alterations delayed
the conversion of two sites to the new Jamies format until after the end of the
Financial Year, although both have both now been successfully completed.  Of the
remaining three sites, one is scheduled for refurbishment in the first quarter
of 2008.  One of the remaining two sites is only on a short remaining lease term
and is being traded without refurbishment whilst the final site is being sold.


Once these actions have been completed, the acquisition will fully deliver its
expected returns however, this benefit has been delayed by some six months.  As
anticipated, the acquisition will contribute to the profits in the current
Financial Year.



Other Operating Initiatives


Christmas trading was a highlight of the Financial Year under review, primarily
as a result of an improved focus on private functions and parties trade.  This
focus has been maintained throughout the Financial Year with continued success.
There has been a four-fold increase in the number of weekend functions booked in
the otherwise closed City bars and the preparation for Christmas 2007 was the
best we have achieved to date.



In addition to increasing general function and booking resource, we have also
launched a party and event management business called Champagne Moments, which
proactively seeks functions business and also stages promotional events for
which we sell tickets.  Some of the more successful initiatives to date include
wine dinners hosted by noted winemakers and several rugby-related events, most
notably when we hosted the New Zealand rugby team at Henry J Bean's and
Apartment 195.  This is a fledgling income stream for us at present but we are
excited about its prospects for the future.


Management and Employees


During the Financial Year, Kamal Shah and Chris Poil resigned from the Board as
non-executive directors.  John Williams joined the Board as the senior
non-executive director in April 2007, bringing with him a long-standing depth of
knowledge in the key area of property management in particular.


As mentioned above, the Group's Finance Director remains on compassionate leave
and the Board has put in place a number of measures to ensure the smooth and
professional operation of the finance function whilst any uncertainty remains.
We have engaged on-going interim support at both Finance Director and Financial
Controller level, together with strengthening the underlying finance function.
The Board expects to be able to clarity the long-term situation in the near
future.


Outlook


Since the start of the new financial year overall sales have grown by 3%.
Like-for-like sales in the first 16 weeks of the financial year show a marginal
decline of less than 1%.  Within that figure, Henry J Bean's and the City Bars
have delivered like-for-like sales growth of 5.2% and 4.1% respectively and it
excludes sites that are being actively marketed for disposal.  This trend
continued throughout the Christmas trading period, where, despite bookings being
well ahead of the previous year, spend levels showed a decline on 2006. New
Year's Eve saw a 9% improvement on 2006, driven by better bookings but otherwise
trade since Christmas has continued to be slow.


The like for like improvement within both the City sites and Henry J Bean's
shows the continued strength of the core brands.  Bars have shown like-for-like
sales decline and the Board believes that this is primarily driven by a
weakening of consumer confidence and a lack of growth in sales from the sites
that have not received any significant capital expenditure over the past two
years.  Correspondingly, the investment in the Jamies and Henry J Bean's brands
has delivered measurable success.  The new Henry J Bean's in Wimbledon is
showing sales growth on its previous year of more than 60%, sales at Jamies,
Bishopsgate are 18% ahead of last year and the two recent conversions of Puzzle
sites to Jamies saw good initial sales performance since reopening.


Current trading is marginally below expectation to date.  However, the Group has
historically made the majority of its annual profits in the second half of the
Financial Year.  We will continue to update the market as the year continues.



Jamies Wine Bar & Restaurant and Henry J Bean's continue to be exciting brands
with good underlying performance, a strong return from recent investment and
with significant untapped future potential.  A primary focus for management for
the remainder of the Financial Year is to improve the performance of the
under-invested bars business either through reinvestment or disposal.


In conclusion, we believe that the Group is sub-scale and its current capital
structure inappropriate for a more uncertain economic climate.  Consequently,
all non-essential capital expenditure will be put on hold and the Group is
actively looking for a substantial corporate transaction.  The aim is to create
a business of sufficient scale to cover its necessary central cost base more
efficiently than the Group is currently able to achieve.  At the same time, we
will continue to apply a tight focus on costs across the business.


In addition, the Board has successfully completed the renegotiation of its
banking facilities to ensure that both the funding available and the terms
attached to it are appropriate for the Group and to ensure that it is robustly
financed.  Additional funding of £2.5m has been made available to the Group.


The successful implementation of these actions, together with the strong
operational management of the Group will ensure that the business continues to
thrive, regardless of the short-term market conditions that it faces along with
the rest of the industry.


Stephen Thomas,

Chairman,

28th January 2008.


The Food and Drink Group plc

Unaudited Consolidated Profit and Loss Account
for 53 weeks ended 29 September 2007


                                                                53 weeks 29         52 weeks 23 September
                                                             September 2007                          2006
                                                                      £'000                         £'000

Turnover                                                             20,793                        20,313
Cost of Sales                                                        -5,282                        -5,032

Gross Profit                                                         15,511                        15,281

Administrative expenses                                             -14,864                       -13,929
excluding Exceptional expenses

Non recurring items                                                     319                          -150

Total Administrative expenses                                       -14,545                       -14,079

Operating Profit                                                        966                         1,202

Other Operating Income                                                    0                            60

Operating Profit on ordinary activities                                 966                         1,262
before interest and taxation

Profit on disposal                                                      402                           373

Interest receivable and similar income                                    6                             8

Interest payable and similar charges                                   -813                          -715

Profit  on ordinary activities before tax                               561                           928

Taxation on profit on ordinary activities                              -114                           -26

Profit  for the financial period                                        447                           902

Earnings per share
Basic                                                                  8.80 p                          18 p
Diluted                                                                8.43 p                        17.3 p



The Food and Drink Group plc

Unaudited Consolidated Balance Sheet


                                                       As at 29 September 2007 As at 23 September 2006
                                                                        £000's                  £000's
FIXED ASSETS
Intangible assets                                                        8,693                   8,959
Tangible assets                                                         12,331                  10,893
                                                                        21,024                  19,852
CURRENT ASSETS
Stocks                                                                     523                     335
Deferred Tax                                                               686                     684
Debtors                                                                  2,914                   2,862
Cash at bank and in hand                                                   115                     735
                                                                         4,238                   4,616

CREDITORS: amounts falling due within                                  -11,334                  -7,780
one year

NET CURRENT LIABILITIES                                                 -7,096                  -3,164

TOTAL ASSETS LESS CURRENT LIABILITIES                                   13,928                  16,688

CREDITORS: amounts falling due after                                    -2,355                  -7,375
more than one year

PROVISIONS FOR LIABILITIES AND CHARGES                                  -1,753                  -1,309

                                                                         9,820                   8,004

CAPITAL & RESERVES
Called up share capital                                                     56                      50
Share premium account                                                    7,426                   6,022
Other reserve                                                               34                       0
Profit and Loss account                                                  2,304                   1,932

SHAREHOLDERS' FUNDS                                                      9,820                   8,004


The Food and Drink Group plc

Unaudited Consolidated Cash Flow Statement

For the period ended 29 September 2007


                                                            53 weeks ended            52 weeks ended
                                                         29 September 2007         23 September 2006
                                           Note         £'000        £'000        £'000        £'000

Net cash inflow from operating                1                         10                     2,213
activities
Returns on investment & serving of
finance
Interest received                                          6                         8
Interest paid                                           -742                      -715
                                                                      -736                      -707
Taxation                                                               121                       -26
Capital expenditure & financial
investment
Acquisition of fixed assets                           -2,750                    -1,104
Net proceeds from sale of fixed assets                 1,184                       719
Net cash outflow from capital                                       -1,566                      -385
expenditure & financial investment
Dividends                                                              -75
Net cash (outflow)/ inflow before                                   -2,246                     1,121
management of liquid resources
Financing
Proceeds of share issue                                1,500
Cost of issue of new share capital                       -90                       -25
New borrowings                                         2,374
Costs of refinancing                                    -283
Repayment of long term borrowing                      -1,875                      -875
                                                                     1,626                      -900

(Decrease)/Increase in Cash                   2                       -620                       195



The Food and Drink Group plc


NOTES

 1. Net cash inflow from operating activities

                                                           29 September 2007         23 September 2006
                                                                       £'000                     £'000

Operating profit for the period                                          966                     1,262
Share based payments                                                      34                         -
Amortisation of goodwill                                                 481                       549
Depreciation                                                             805                       759
(Increase) in Stock                                                    (188)                      (32)
(Increase) in debtors                                                   (52)                     (540)
(Decrease)/increase in creditors                                     (2,036)                       215
Net cash inflow from operating activities                                 10                     2,213



 2. Reconciliation of net cash flow to movement in net debt

                                                           29 September 2007         23 September 2006
                                                                       £'000                     £'000

(Decrease)/Increase in cash in the period                              (620)                       195
Net cash outflow from repayment of loan                                1,875                       875
New borrowing                                                        (2,374)                         -
Costs of raising new borrowings                                          283                         -
Foreign exchange movement                                               (71)
Movement in net debt in the year                                       (907)                     1,070
Net debt at start of period                                          (8,140)                   (9,210)
Net debt at end of period                                            (9,047)                   (8,140)


 3. Analysis of changes in net debt

                                                                     At 29     Cash Flow  At 23 September
                                                            September 2007                           2006
                                                                     £'000         £'000            £'000

Cash at bank and in hand                                               115         (620)              735
Loans due before one year                                          (6,807)       (5,682)          (1,125)
Loans due after one year                                           (2,355)         5,395          (7,750)
Total Net Debt                                                     (9,047)         (907)          (8,140)



 4. Nature of Preliminary Announcement


The preliminary results statement has been prepared on the basis of the same
accounting policies as those set out in the financial statements for the period
ended 23 September 2006. The financial information contained in this statement
does not constitute accounts as defined in section 240 of the Companies Act
1985.



The summarised balance sheet at 29 September 2007 and the summarised profit and
loss account, summarised cashflow statement and associated notes for the period
ended on that date have been extracted from the Group's 2007 financial
statements. Those financial statements are unaudited and have not yet been
delivered to the Registrar of Companies.

The financial information for the period ended 23 September 2006 is an abridged
version of the Group's financial statements for the period which contained an
unqualified audit report and which have been filed with the Registrar of
Companies.



The report and accounts for the period ended 29 September 2007 will be issued to
shareholders in the last week of February and will be available for at least one
month free of charge at the registered office; 195-197 Kings Road, Chelsea,
London SW3 5ED and at the Group's website www.foodanddrinkgroup.co.uk


 5. Share capital


As at 25 January 2008 the total number of voting rights in respect of the
Group's ordinary shares of 1p each is 5,672,125.



 6. Earnings per share


                                   Earnings         2007     Per share     Earnings         2006    Per share
                                                          amount pence                  weighted amount pence
                                                weighted                                 average
                                                 average                               number of
                                               number of                                  shares
                                                  shares

Basic earnings per share            447,000    5,081,319          8.80      902,000    5,005,497         18.0

Earnings attributable to
ordinary shareholders
Dilutive effect of securities                    219,434                                 196,608

Options
Diluted earnings per share          447,000    5,300,753          8.43      902,000    5,202,105         17.3
Adjusted earnings per share         447,000    5,081,319                    902,000    5,005,497

Earnings attributable to
ordinary shareholders
Amortisation of goodwill            481,000                                 549,000
Earnings before goodwill            928,000    5,081,319         18.30    1,451,000    5,005,497         29.0



 7. Proforma Consolidated Balance Sheet

The following table shows the balance sheet as it would have looked had
subsequent waivers and increased facilities been in place as at 29 September
2007.



The Food and Drink Group plc

Pro Forma Unaudited Consolidated Balance Sheet


                                                             As at 29 September  As at 23 September
                                                                           2007                2006
                                                                         £000's              £000's
FIXED ASSETS
          Intangible assets                                               8,693               8,959
          Tangible assets                                                12,331              10,893
                                                                         21,024              19,852
CURRENT ASSETS
          Stocks                                                            523                 335
          Deferred Tax                                                      686                 684
          Debtors                                                         2,914               2,862
          Cash at bank and in hand                                          115                 735
                                                                          4,238               4,616

CREDITORS: amounts falling due within                                   (5,467)             (7,780)
          one year

NET CURRENT LIABILITIES                                                 (1,229)             (3,164)

TOTAL ASSETS LESS CURRENT LIABILITIES                                    19,795              16,688

CREDITORS: amounts falling due after                                    (8,222)             (7,375)
          more than one year

PROVISIONS FOR LIABILITIES AND CHARGES                                  (1,753)             (1,309)

                                                                          9,820               8,004

CAPITAL & RESERVES
          Called up share capital                                            56                  50
          Share premium account                                           7,426               6,022
          Other reserve                                                      34                   0
          Profit and Loss account                                         2,304               1,932

SHAREHOLDERS' FUNDS                                                       9,820               8,004




                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

FR FGGZMVRZGRZG