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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Restaurant Group Plc | LSE:RTN | London | Ordinary Share | GB00B0YG1K06 | ORD 28 1/8P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 64.80 | 0.00 | 00:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
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. ---------------------------------------------------------------- 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. ---------------------------------------------------------------- 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.
---------------------------------------------------------------- EBITDA Earnings before interest, tax, depreciation, amortisation and impairment. ---------------------------------------------------------------- Net debt Net debt is calculated as the net of the long-term borrowings and finance leases. ---------------------------------------------------------------- Free cash EBITDA less working capital and non-cash movements flow (excluding exceptional items), tax payments, interest payments and maintenance capital expenditure. ---------------------------------------------------------------- Adjusted Earnings before interest, tax and exceptional items. operating profit ---------------------------------------------------------------- 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. ---------------------------------------------------------------- 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. ---------------------------------------------------------------- Adjusted Calculated by taking the profit before tax of the business profit pre-exceptional items. before tax ---------------------------------------------------------------- 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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END
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