REG - Restaurant Group PLC - Interim Results <Origin Href="QuoteRef">RTN.L</Origin> - Part 1

RestaurantAnnouncement

31/08/2017 07:06

RNS Number : 3591P
Restaurant Group PLC
31 August 2017
Interim results for the 26 weeks ended 2 July 2017
Good progress on strategic initiatives
Trading in line with expectations
Strategic highlights 
 Early signs of improved volume momentum in our Leisure business
 Fundamentally improved value positioning and food offer in Frankie & Benny's
 Restaurant technology roll-out complete to facilitate serving customers better
 Healthy pipeline of opportunities to advance growth in Pubs and Concessions
 Good progress on cost reduction
 Team strengthened
Financial highlights*
 Like-for-like sales down 2.2% 
 Total sales down 1.9% on a 26 week comparable basis; down 7.1% on a statutory basis
 Adjusted1 profit before tax of 25.5m (2016: 36.6m). Statutory profit before tax of 2.8m (2016: loss of 22.5m)
 Exceptional charge of 22.7m (2016: 59.1m) 
 Adjusted1 EBITDA of 44.3m (2016: 59.6m)
 Adjusted1 EPS of 10.0p (2016: 14.3p). Statutory EPS of 0.6p (2016: loss per share 11.2p)
 Continued strong free cash flow of 35.1m (2016: 35.8m)
 Net bank debt of 19.3m (2016: 35.6m)
 Interim dividend maintained at 6.8p per share, reflecting the Board's confidence in the plan
 Current trading in line with our expectations; we continue to expect to deliver an adjusted PBT outcome for the full-year in line with current market expectations
*The highlights reflect the statutory 26 week period in 2017 versus the statutory 27 week period in 2016 unless stated otherwise
1 Adjusted reflects pre-exceptional costs and is further defined in the glossary at the end of this report
Andy McCue, Chief Executive Officer, commented:
"We have made good progress against our strategic initiatives outlined in March. Our Leisure customers are enjoying a better value, higher quality product; our growth plans for our Pubs and Concessions businesses are advancing well and we have made good progress in delivering cost efficiencies. I've been impressed with our colleagues' receptiveness to change and thank them for their contribution to stabilising the business."
Enquiries:
The Restaurant Group
Andy McCue, Chief Executive Officer
020 3117 5001
Instinctif Partners
Matthew Smallwood
Guy Scarborough
020 7457 2020
Introduction
We have made good progress on the four key elements of our strategy that we set out earlier in the year, to:
 re-establish the competitiveness of our Leisure brands; 
 serve our customers better and more efficiently;
 grow our Pubs and Concessions businesses; and
 build a leaner, faster and more focused organisation. 
Customers are enjoying better value and improved quality of offer in our Leisure brands. As a result, we are beginning to see some early signs of volume improvement. 
As we have highlighted before, 2017 is a transitional year. As we make the necessary investments in price to correct for our previously weak value position, and in quality to ensure consistency of our food offer, like-for-like sales and margins will come under inevitable pressure in the short term. 
We are on track to finish the year with a more competitive offering, a strengthened team, and a more efficient business, positioning us well for 2018 and beyond. 
We continue to benefit from a strong balance sheet and free cash flow generation and as a sign of confidence in our plan, the Board is proposing to maintain the interim dividend of 6.8 pence per share.
Business review
 Re-establish the competitiveness of our Leisure brands
Frankie & Benny's (258 units)
We have focused on restoring our value credentials, deepening the distinctiveness of our offer to families and marketing to attract back lapsed customers. 
In January, we trialled and then launched an improved, cheaper fixed price menu (9.95 for two courses) which continues to perform well. We launched our new core menu in two waves in March and May. The new menu is considerably more competitive than the previous version, with entry prices reduced by 22%, and like-for-like dishes, on average, 7% cheaper. As a consequence, our prices on key value indicator dishes are now significantly lower than our peer set. 
We have invested in improved food quality to ensure we can produce dishes consistently well, introduced new sharing dishes which are proving popular among our target family audience, and created new dishes which have shown encouraging early adoption. 
In June we launched a new kids' menu taking on board feedback from our younger customers and their parents. The menu is genuinely differentiated in the sector, with a much more engaging food offer and presentation, as well as being better value.
Our marketing is focused on attracting back lapsed customers, in part with discounts, which are increasingly channelled through affiliate partners, as well as seasonal campaigns such as our 'win a holiday every day' promotion during the school summer holidays. Later in the year, we plan a marketing re-launch, enabling us to highlight the distinctive family appeal of the brand, delivered with more relevance and consistency. 
While there remains a lot to do, there are early signs of customer awareness of our changes, with recent data showing an uptick in value for money ratings, net promoter scores and the brand rankings for quality of ingredients and freshness of food. 
The pace of change in the business is accelerating and in the second half of the year we will refine our menus, making changes based on insights gathered to date, as well as trialling a series of new product innovations which, if successful, will feature more broadly in 2018. Towards the end of the year, we also plan on piloting a low cost 'capital refresh' of some of our older properties which will focus on improving the look and feel of customer facing areas. 
Chiquito (83 units)
In February this year, we re-introduced fixed price value menus to Chiquito offering two courses for 10.95 and three courses for 14.95, generating a significant improvement in the proportion of sales channelled via fixed-price menus and highlighting the value-conscious nature of our customer base. 
Consistent with our intention to broaden the appeal of the brand, we have been trialling a fundamentally changed menu in 20 sites, which has received encouraging feedback. This new menu provides the customer with the ability to custom-build tortillas and vary the spiciness of their sauce, all at a highly competitive price point of 9.95. We will make some changes to that menu in the coming weeks, extending the trial to a further 20 sites, with a view to rolling out the proposition across the estate thereafter. 
Other Leisure brands (38 units)
Coast to Coast's like-for-like trading performance continues to be challenging, albeit we have managed to improve the trading trajectory in recent months through discounting. 
Our focus has been on developing a new proposition, Firejacks, which offers high quality flame-grilled steaks and burgers at highly competitive prices. We have converted the Coast to Coast in Northampton to Firejacks, and re-launched the restaurant earlier this month. This pilot site will enable us to test and refine the concept and determine the potential for roll-out via conversions of further Coast to Coast sites. 
Our remaining brands, Garfunkel's, Filling Station and Joe's Kitchen are performing solidly. We don't consider these brands to be strategic priorities that justify significant focus or resource at this time. 
 Serve our customers better and more efficiently
In the first half of the year we completed the upgrade of our technology in restaurants in our Leisure and Concessions businesses, enabling:
 improved labour forecasting and scheduling via a new labour management software solution;
 increased frequency and accuracy of bookings via an integrated system of online, telephone and in-restaurant reservations;
 quicker ordering and payment processing via use of hand-held terminals; and
 increased attachment rates of, for example, side dishes, via automated prompts to servers. 
We are investing in training our team to use the technology optimally and will be introducing simplified service training to ensure our service standards are consistently delivered. Where possible, we are stripping out unnecessary back-of-house processes and, in turn, increasing the proportion of time deployed which is customer-facing. 
New technologies may also help us to remove customer pain points and/or improve the experience. Later this year we will trial mobile order-and-pay and click-and-collect applications in a small sample of test sites. Following that, we anticipate upgrading our customer-facing digital assets in 2018. 
 Grow our Pubs and Concessions businesses
Our Pubs have performed well in the period, helped in part by favourable weather but also driven by strong operational delivery. 
We have focused on improving the consistency of our execution, which has contributed to an increase in our customer ratings to an all-time high. We have also deepened our links with the communities in which we operate by hosting popular beer and gin festivals. 
We have committed increased resources to identifying sites to enable us to increase the rate of openings, and consequently, the pipeline of prospective sites is steadily growing. 
Our Concessions business continues to perform strongly, driven by both solid growth in passenger numbers and by strong execution in maximising the throughput of customers. Our pipeline of new opportunities has strengthened in recent months and we expect to secure several new contract wins in the second half of the year. 
 Build a leaner, faster and more focused organisation
We have made good progress reducing the cost base. We have restructured head office roles and streamlined our field operations team. We have also invested in strengthening the senior team, as well as building our analytical capabilities, and will make additional investments in our marketing team in the second half.
We are looking forward to Kirk Davis joining next February as Chief Financial Officer from Greene King where he holds the same position, and Michael Healy joining in November as Chief Marketing Officer from Paddy Power Betfair. We will end the year with a high capability team at an overall lower cost. 
We have centralised purchasing within the Group, reducing the number of suppliers and, in turn, leveraging scale economies. Similarly, our logistics is now channelled through fewer partners, generating savings. 
We have made reductions in overheads, both in better managing demand and striking improved terms with suppliers. 
Overall, we expect to save c.10m in 2017 versus a 2016 baseline, which is ahead of plan, all of which is supporting our reinvestment in price, product and marketing. 
Current trading and outlook
Current trading is in line with our expectations, with year to date like-for-like sales for the 34 weeks to 27 August down 2.5%.
2017 is a transitional year as we continue to address the competitiveness of our Leisure businesses and focus on achieving a sustainable volume-led turnaround. Where opportunities to accelerate our progress present themselves, we will invest appropriately. As a result of the investments we have made in our new menus and promotional activity in the year, our full year 2017 cost of goods sold margin is expected to be between 1.5 and 1.8 percentage points higher than 2016.
Accordingly, we continue to expect to deliver an adjusted profit before tax outcome for the full year in-line with current market expectations.
We expect to open between 18 and 20 units in 2017 with associated capital expenditure of between 18m and 20m. Refurbishment and maintenance capital expenditure, including technology investment, in 2017 is expected to be c.20m. 
We anticipate opening between 10 and 20 units in 2018.
Financial review
Trading results
2017 is a 52 week year and the first half contained 26 weeks (H1 2016: 27 weeks). The growth figures and comparatives set out in this section reflect the performance versus the statutory 27 week period in 2016 unless otherwise stated.
Like-for-like sales declined by 2.2% versus the comparable 26 week period with total turnover down 1.9%. On a statutory basis, turnover declined by 7.1% to 333.1m (2016: 358.7m). The like-for-like sales decline reflected the investments we have made in price and proposition across our Leisure brands, partially offset by a good performance from our Pubs and Concessions businesses. 
With declining like-for-like sales, the well-known sector specific inflationary cost pressures and investments made in price, product and marketing, adjusted operating profit (EBIT) fell by 29.5% to 26.5m (2016: 37.5m) with the adjusted operating margin falling by 2.6 percentage points to 7.9%. On a statutory basis operating profit was 3.8m (2016: operating loss of 21.6m). 
Adjusted profit before tax for the period was 25.5m (2016: 36.6m), with adjusted profit after tax of 20.0m (2016: 28.5m). Adjusted earnings per share was 10.0p (2016: 14.3p). On a statutory basis, our profit before tax was 2.8m (2016: loss before tax of 22.5m) and statutory earnings per share was 0.6p (2016: loss per share of 11.2p). 
The Group recognises that we are facing continued headwinds on labour costs, food and drink input costs, utilities and occupancy costs. These inflationary cost pressures are anticipated to continue through the second half of the year and into next year at a similar level. We will continue to be vigilant on cost and to drive efficiencies in order to mitigate these increases.
The Group remains highly cash generative with free cash flow of 35.1m in the period (2016: 35.8m); reflecting lower operating profit offset by lower maintenance capital expenditure and tax payments in the period, the latter as a result of the statutory loss for the year ended 2016. Net bank debt at the end of the period was 19.3m (2016: 35.6m).
In the period we opened 12 new restaurants and pubs and expect to open 18 to 20 sites for 2017 as a whole (2016: 24 sites).
Restructuring and exceptional charge
An exceptional charge of 22.7m has been recorded in the period (2016: 59.1m), which comprises:
 property provisions of 4.4m (2016: 16.8m) recognising the successful exit of 12 sites, the reassessment of the remaining disposal sites and further review of our existing estate;
 a charge of 9.8m relating to a change in the discount rate applied to the onerous lease provisions; 
 impairment charge of 4.3m (2016: 40.3m) made against the carrying value of some restaurant assets given recent changes in certain markets; and
 4.2m (2016: 2.0m) relating to costs incurred in the restructuring projects that were initiated in 2017 to implement the new strategy and cost saving initiatives. 
Interim dividend
Given the Board's confidence in the plan and the strength of our balance sheet, we are declaring an interim dividend of 6.8 pence per share, unchanged from last year. The interim dividend will be paid on 12 October 2017 to shareholders on the register on 15 September 2017 and shareswill be marked ex-dividend on 14 September 2017.During this transitional period the Board will continue to assess the dividend based on progress against the plan. 
Notes
1. The estate at 2 July 2017 comprised 258 Frankie & Benny's, 83 Chiquito, 19 Coast to Coast, 8 Garfunkel's, 7 Filling Station, 4 Joe's Kitchen, 59 Pub restaurants and 56 Concessions.
2. There are a number of potential risks and uncertainties which could have an impact on the Group's performance over the remaining six months of the financial year and which could cause actual results to differ materially from expected and historical results. These have not materially changed from those set out on page 11 of our latest Annual Report and Accounts which can be found on the Group website: http://www.trgplc.com/investors/regulatory-announcements.
3. Statements contained in this interim report are based on the knowledge and information available to the Company's Directors at the date it was prepared and therefore the facts stated and views expressed may change after that date. By their nature, the statements concerning the risks and uncertainties facing the Company in this interim report involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. To the extent that this interim report contains any statement dealing with any time after the date of its preparation such statement is merely predictive and speculative as it relates to events and circumstances which are yet to occur. The Company undertakes no obligation to update these forward looking statements.
4. Summary adjusted trading income statement (26 weeks vs 27 weeks*):

26 weeks ended 2 July 2017
27 weeks ended 3 July 2016


m
m
% change
Revenue
333.1
358.7
(7.1%)




Adjusted EBITDA 
44.3
59.6
(25.7%)




Adjusted operating profit
26.5
37.5
(29.5%)
Adjusted operating margin 
7.9%
10.5%





Adjusted profit before tax 
25.5
36.6
(30.4%)
Tax 
(5.5)
(8.1)





Adjusted profit after tax
20.0
28.5
(29.9%)




Adjusted EPS (pence)
9.98
14.26
(30.0%)
* Reflects the statutory 26 week period in 2017 versus the 27 week 2016 comparatives.
5. Summary cash flow statement




26 weeks ended 2 July 2017
27 weeks ended 3 July 2016




m
m
Adjusted operating profit

26.5 
37.5 
Working capital and non-cash adjustments
1.5 
1.3 
Depreciation

17.8 
22.1 






Net cash flow from operations

45.8 
60.9 






Net interest paid

(0.3)
(0.4)
Tax paid


(1.7)
(9.0)
Maintenance capital expenditure

(8.7)
(15.7)






Free cash flow

35.1 
35.8 






Development capital expenditure
(11.2)
(12.8)
Movement in capital creditor
(2.2)
(10.5)
Utilisation of property provisions 

(7.0)
-
Restructuring costs 

(5.5)
-
Other items

(0.2) 
1.6 






Change in net bank debt

9.0 
14.1 






Net bank debt at start of period

(28.3)
(28.4)
Comparable net bank debt at end of period

(19.3)
(14.3)
Dividend paid

- 
(21.3)
Net bank debt at end of period

(19.3)
(35.6)
The Restaurant Group plc Interim report 2017
Condensed financial statements
Consolidated income statement

26 weeks ended 2 July 2017 


Trading
Exceptional



business
(see note 3)
Total


(unaudited)
(unaudited)
(unaudited)

Note
'000
'000
'000





Revenue

333,107
-
333,107





Cost of sales
2
(289,505)
(18,439)
(307,944)





Gross profit/(loss)

43,602
(18,439)
25,163





Administration costs

(17,136)
(4,238)
(21,374)





Operating profit/(loss)

26,466
(22,677)
3,789





Interest payable

(968)
-
(968)
Interest receivable

2
-
2





Profit/(loss) on ordinary activities before tax

25,500
(22,677)
2,823





Tax on profit/(loss) from ordinary activities
4
(5,496)
3,908
(1,588)





Profit/(loss) for the period

20,004
(18,769)
1,235










Earnings/(loss) per share (pence)




Basic
5
9.98

0.62
Diluted
5
9.94

0.61
The table below is provided to give additional information to shareholders on a key performance indicator:
Earnings before interest, tax, depreciation and amortisation:

44,257
(18,398)
25,859





Depreciation and impairment

(17,791)
(4,279)
(22,070)
Operating profit

26,466
(22,677)
3,789
Consolidated income statement

27 weeks ended 3 July 2016


Trading
Exceptional



business
(see note 3)
Total


(unaudited)
(unaudited)
(unaudited)

Note
'000
'000
'000





Revenue

358,667
-
358,667





Cost of sales
2
(302,762)
(57,131)
(359,893)





Gross profit/(loss)

55,905
(57,131)
(1,226)





Administration costs

(18,381)
(2,009)
(20,390)





Operating profit/(loss)

37,524
(59,140)
(21,616)





Interest payable

(923)
-
(923)
Interest receivable

40
-
40





Profit/(loss) on ordinary activities before tax

36,641
(59,140)
(22,499)





Tax on profit/(loss) from ordinary activities
4
(8,099)
8,178
79





Profit/(loss) for the period

28,542
(50,962)
(22,420)










Earnings/(loss) per share (pence)




Basic
5
14.26

(11.20)
Diluted
5
14.20

(11.15)
The table below is provided to give additional information to shareholders on a key performance indicator:
Earnings before interest, tax, depreciation and amortisation:

59,595
(18,860)
40,735





Depreciation and impairment

(22,071)
(40,280)
(62,351)
Operating profit

37,524
(59,140)
(21,616)
Consolidated income statement

53 weeks ended 1 January 2017


Trading
Exceptional



business
(see note 3)
Total


(audited)
(audited)
(audited)

Note
'000
'000
'000





Revenue

710,712
-
710,712





Cost of sales
2
(598,136)
(109,732)
(707,868)





Gross profit/(loss)

112,576
(109,732)
2,844





Administration costs

(33,420)
(6,944)
(40,364)





Operating profit/(loss)

79,156
(116,676)
(37,520)





Interest payable

(2,073)
-
(2,073)
Interest receivable

66
-
66





Profit/(loss) on ordinary activities before tax

77,149
(116,676)
(39,527)





Tax on profit/(loss) from ordinary activities
4
(17,043)
16,405
(638)





Profit/(loss) for the period

60,106
(100,271)
(40,165)










Earnings/(loss) per share (pence)




Basic
5
30.02

(20.06)
Diluted
5
29.84

(20.06)
The table below is provided to give additional information to shareholders on a key performance indicator:
Earnings before interest, tax, depreciation and amortisation:

120,965
(48,626)
72,339





Depreciation and impairment

(41,809)
(68,050)
(109,859)
Operating profit

79,156
(116,676)
(37,520)
Consolidated balance sheet











At 2 July 2017
At 3 July 2016
At 1 January 2017


(unaudited)
(unaudited)
(audited)


'000
'000
'000





Non-current assets




Intangible assets
26,433
26,433
26,433
Property, plant and equipment

343,304
368,377
345,952


369,737
394,810
372,385





Current assets




Stock

5,750
5,329
5,632
Trade and other receivables

12,719
9,601
18,782
Prepayments

17,064
14,327
15,824
Cash and cash equivalents

8,734
6,132
9,568


44,267
35,389
49,806





Total assets

414,004
430,199
422,191










Current liabilities




Corporation tax liabilities

(2,015)
(3,647)
(1,275)
Trade and other payables

(136,810)
(110,938)
(121,850)
Other payables - finance lease obligations

(330)
(343)
(393)
Provisions

(13,252)
(6,313)
(16,391)


(152,407)
(121,241)
(139,909)





Net current liabilities

(108,140)
(85,852)
(90,103)





Non-current liabilities




Long-term borrowings

(28,039)
(41,697)
(37,882)
Other payables - finance lease obligations

(3,013)
(2,984)
(2,950)
Deferred tax liabilities

(3,490)
(8,519)
(4,434)
Provisions

(36,574)
(16,498)
(27,579)


(71,116)
(69,698)
(72,845)





Total liabilities

(223,523)
(190,939)
(212,754)





Net assets

190,481
239,260
209,437










Equity




Share capital

56,550
56,550
56,550
Share premium

25,542
25,542
25,542
Other reserves

(8,938)
(11,562)
(9,987)
Retained earnings

117,327
168,730
137,332
Total equity

190,481
239,260
209,437
Consolidated statement of changes in equity










Share
Share
Other
Retained
Total

capital
premium
reserves
earnings


'000
'000
'000
'000
'000












Balance at 27 December 2015 (audited)
56,518
25,255
(11,080)
212,867
283,560
Loss for the year
-
-
-
(40,165)
(40,165)
Issue of new shares
32
287
-
-
319
Dividends
-
-
-
(34,862)
(34,862)
Share-based payments
-
-
1,323
-
1,323
Other reserve movements
-
-
(230)
-
(230)
Current tax on share-based payments taken directly to equity
-
-
-
73
73
Deferred tax on share-based payments taken directly to equity
-
-
-
(581)
(581)






Balance at 1 January 2017 (audited)
56,550
25,542
(9,987)
137,332
209,437
Balance at 2 January 2017 (audited)
56,550
25,542
(9,987)
137,332
209,437
Profit for the period
-
-
-
1,235
1,235
Dividends
-
-
-
(21,240)
(21,240)
Share-based payments
-
-
980
-
980
Deferred tax on share-based payments taken directly to equity
-
-
69
-
69






Balance at 2 July 2017 (unaudited)
56,550
25,542
(8,938)
117,327
190,481


Consolidated statement of changes in equity











Share
Share
Other
Retained
Total

capital
premium
reserves
earnings


'000
'000
'000
'000
'000





Balance at 27 December 2015 (audited)
56,518
25,255
(11,080)
212,867
283,560
Loss for the period
-
-
-
(22,420)
(22,420)
Issue of new shares
32
287
-
-
319
Dividends
-
-
-
(21,237)
(21,237)
Share-based payments
-
-
(265)
-
(265)
Other reserve movements
-
-
(217)
-
(217)
Current tax on share-based payments taken directly to equity
-
-
-
105
105
Deferred tax on share-based payments taken directly to equity
-
-
-
(585)
(585)






Balance at 3 July 2016 (unaudited)
56,550
25,542
(11,562)
168,730
239,260
Consolidated cash flow statement






26 weeks ended 2 July 2017
27 weeks ended 3 July 2016
53 weeks ended 1 January 2017


(unaudited)
(unaudited)
(audited)

Note
'000
'000
'000 





Operating activities




Cash generated from operations
7
45,843
60,890
122,148
Interest received

3
40
41
Interest paid

(320)
(454)
(865)
Tax paid

(1,724)
(9,023)
(16,223)
Net cash flows from operating activities

43,802
51,453
105,101





Investing activities




Purchase of property, plant and equipment

(22,095)
(38,972)
(65,280)
Disposal of fixed assets

-
1,424
2,219
Utilisation of property provisions

(6,970)
-
(3,315)
Cash outflows from exceptional restructuring costs

(5,571)
-
(3,759)
Net cash flows used in investing activities

(34,636)
(37,548)
(70,135)





Financing activities




Net proceeds from issue of ordinary share capital

-
319
319
Net (repayments of)/proceeds from loan 
8
(10,000)
11,000
7,000
Dividends paid to shareholders

-
(21,237)
(34,862)
Net cash flows used in financing activities

(10,000)
(9,918)
(27,543)





Net (decrease)/increase in cash and cash equivalents

(834)
3,987
7,423





Cash and cash equivalents at the beginning of the period/year

9,568
2,145
2,145





Cash and cash equivalents at the end of the period/year

8,734
6,132
9,568
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 26 weeks and description of principal risks and uncertainties for the remaining 26 weeks of the year); and
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board,




Debbie Hewitt
Andrew McCue
Non-executive Chairman
Chief Executive Officer
31 August 2017
31 August 2017
Accounting policies
Basis of preparation
The annual financial statements of The Restaurant Group plc are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union. The accounting policies and methods of computation used are consistent with those used in the Group's latest annual audited financial statements.
General information
The comparatives for the full year ended 1 January 2017 do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on these accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
Going concern
Despite the Group's challenging trading performance in the first half of the year, the Company is profitable, highly cash generative and retains a strong balance sheet. The Group has a debt facility of 140m which was renewed on 8 June 2015 and now matures in June 2020. As at 2 July 2017 the Group had drawn down 29m of this facility and had net bank debt of 19.3m. Based on the Group's plans for the next 12 months and after making enquiries (including preparation of reasonable trading forecasts, consideration of current financing arrangements and current headroom for liquidity and covenant compliance), the Directors have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the condensed financial statements.
Changes in accounting policies
The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.
There have been no changes to the accounting standards in the current year that have materially impacted the Group financial statements.
Notes to the condensed financial statements
1 Segmental analysis
The Group trades in one business segment (that of operating restaurants) and one geographical segment (being the United Kingdom). The Group's brands meet the aggregation criteria set out in paragraph 22 of IFRS 8 'Operating Segments' and as such the Group reports the business as one reportable segment.
2 Cost of sales


26 weeks ended 2 July 2017
27 weeks ended 3 July 2016
53 weeks ended 1 January 2017


(unaudited)
(unaudited)
(audited)


'000
'000
'000
Cost of sales consists of the following:




Continuing business excluding pre-opening costs

(287,936)
(301,672)
(594,756)
Pre-opening costs

(1,569)
(1,090)
(3,380)
Trading cost of sales

(289,505)
(302,762)
(598,136)
Exceptional charge

(18,439)
(57,131)
(109,732)
Cost of sales for the period/year

(307,944)
(359,893)
(707,868)
3 Exceptional items


26 weeks ended 2 July 2017
27 weeks ended 3 July 2016
53 weeks ended 1 January 2017


(unaudited)
(unaudited)
(audited)


'000
'000
'000





Provision for onerous leases and other costs

(4,346)
(16,851)
(41,682)
Change in assumption of discount rate

(9,814)
-
-
Impairment of fixed assets

(4,279)
(40,280)
(68,050)
Restructuring and strategic review costs

(4,238)
(2,009)
(6,944)
Exceptional cost before tax

(22,677)
(59,140)
(116,676)
Tax

3,908
8,178
16,405
Net exceptional cost for the period/year

(18,769)
(50,962)
(100,271)
An exceptional charge of 22.7m has been recorded in the period (2016: 59.1m), which comprises:
- Property provisions of 4.4m (2016: 16.8m) recognising the successful exit of 12 sites, the reassessment of the remaining disposal sites and further review of our existing estate;
- A charge of 9.8m relating to a change in the discount rate applied to the onerous lease provisions; 
- Impairment charge of 4.3m (2016: 40.3m) made against the carrying value of some restaurant assets given recent changes in certain local markets; and
- 4.2m (2016: 2.0m) relating to costs incurred in the restructuring projects that were initiated in 2017 to implement the new strategy and cost saving initiatives. 
- A 3.9m tax credit in relation to exceptional items (27 weeks ended 3 July 2016: 8.2m, 53 weeks ended 1 January 2017: 16.4m)
4 Tax
The underlying tax charge has been calculated by reference to the expected effective current and deferred tax rates for the full financial year to 31 December 2017 applied against the trading profit before tax for the period ended 2 July 2017.
The full year effective tax rate on the underlying profit (before exceptional items) is estimated to be 21.6% (2016: 22.1%).
The Finance (No.2) Act 2015 introduced a reduction in the main rate of the corporation tax from 20% to 19% from April 2017 and from 19% to 18% from April 2020. These reductions were substantively enacted on 24 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.
5 Earnings/(loss) per share

26 weeks ended 2 July 2017
27 weeks ended 3 July 2016
53 weeks ended 1 January 2017

Earnings
Weighted average number of shares
Per-share amount
Earnings/(loss)
Weighted average number of shares
Per-share amount
Earnings/(loss)
Weighted average number of shares
Per-share amount

(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(audited)
(audited)
(audited)

'000
millions
pence
'000
millions
pence
'000
millions
pence










Basic earnings per share
1,235
200.4
0.62
(22,420)
200.1
(11.20)
(40,165)
200.2
(20.06)
Effect of dilutive options
-
0.1
-
-
-
-
-
0.4
0.04
Shares held by employee benefit trust
-
0.7
-
-
0.9
0.05
-
0.8
0.08
Diluted earnings per share
1,235
201.2
0.61
(22,420)
201.0
(11.15)
(40,165)
201.4
(20.06)










Basic earnings/(loss) per share
1,235
200.4
0.62
(22,420)
200.1
(11.20)
(40,165)
200.2
(20.06)
Effect of exceptional items
18,769
-
9.37
50,962
-
25.46
100,271
-
50.08
Adjusted earnings per share
20,003
200.4
9.98
28,542
200.1
14.26
60,106
200.2
30.02
6 Dividends
Following approval at the Annual General Meeting on 26 May 2017, the final dividend in respect of 2016 of 10.60p per share, totalling 21.2m, was paid to shareholders on 5 July 2017.
The Directors have declared an interim dividend of 6.8p per share which will be paid on 12 October 2017 to shareholders on the register on 15 September 2017 and shares will be marked ex-dividend on 14 September 2017. In accordance with IAS 10, this will be recognised in the reserves of the Group in the second half of the year.
7 Reconciliation of profit before tax to cash generated from operations


27 weeks ended 3 July 2016
27 weeks ended 3 July 2016
53 weeks ended 1 January 2017


(unaudited)
(unaudited)
(audited)


'000
'000
'000





Profit/(loss) before tax

2,823
(22,499)
(39,527)
Net finance charges

967
883
2,007
Impairment of property, plant and equipment

4,279
40,280
68,050
Increase in provision for onerous leases and other costs

18,397
18,860
46,860
Share-based payments

980
(265)
1,323
Depreciation

17,790
22,071
41,809
(Increase) / decrease in stocks

(118)
1,060
757
Decrease / (increase) in debtors

4,824
4,705
(5,973)
(Decrease) / increase in creditors

(4,099)
(4,205)
6,842





Cash generated from operations

45,843
60,890
122,148










8 Bank loans
The Group has a committed bank facility of 140m in place until June 2020. During the 26 weeks ended 2 July 2017, the Group reduced the amount drawn down under this facility by 10.0m to 29.0m (27 weeks ended 3 July 2016: increase of 11.0m, 53 weeks ended 1 January 2017: increase of 7.0m).
9 Share capital
Share capital at 2 July 2017 amounted to 56.5m. The number of shares authorised, issued and fully paid increased from 201,063,045 to 201,063,167 in the period following the exercise of share options by employees, amounting to 122 shares. 
10 Related party transactions
There were no related party transactions in the 26 weeks ended 2 July 2017.
11 Contingent liabilities
There were no significant changes in the nature and size of contingent liabilities at 2 July 2017 to those reported in the Annual Report and Accounts for the 53 weeks ended 1 January 2017.
12 Events occurring after the reporting date
No material events have arisen since the end of the period which have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods.
INDEPENDENT REVIEW REPORT TO THE RESTAURANT GROUP PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 2 July 2017 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in the accounting policies, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review 
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 2 July 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, UK
31 August 2017
Glossary
The directors believe the alternative 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. The adjusted metrics are reconciled to the statutory results for the period within the income statement and the supporting notes.
Trading business
Represents the performance of the business before exceptional costs and is considered as the key metrics for shareholders to evaluate and compare the performance of the business from period to period.
Like-for-like ("LFL") sales
This measure provides an indicator of the underlying performance of our existing restaurants. There is no accounting standard or consistent definition of 'like-for-like sales' across the industry. Group like-for-like sales are calculated by comparing the performance of all mature sites in the current period vs. the comparable period in the prior year.
Adjusted EBITDA
Earnings before interest, tax, depreciation, amortisation and exceptional items. Calculated by taking the Trading business operating profit and adding back depreciation.
Net bank debt
Net bank debt is calculated as the net of the long-term borrowings less cash and cash equivalents.
Free cash flow
EBITDA less working capital and non-cash movements (excluding exceptional items), tax payments, interest payments and maintenance capital expenditure.
Adjusted operating profit
Profit before interest, tax and exceptional items.
Adjusted EPS
Calculated by taking the earnings per share of the business pre-exceptional items.
Adjusted profit before tax
Calculated by taking the profit before tax of the business pre-exceptional items.

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