REG - Restaurant Group PLC - Interim Results
06/09/2023 07:00
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RNS Number : 4934L Restaurant Group PLC 06 September 2023
The Restaurant Group plc ("TRG" or "The Group") Interim results for the 26
weeks ended 2 July 2023 ("H1")
Increase in management expectations for FY23 EBITDA and excellent progress in
executing medium-term plan
Highlights
· Strong like-for-like ("LFL") sales and Adjusted EBITDA(1) growth
driven by Wagamama, Pubs and Concessions
· Trading performance supports a moderate increase in management's FY23
Adjusted EBITDA(1) expectations
· Excellent early progress in executing medium-term plan to:
o Deliver 250bps to 350bps of Adjusted EBITDA(1) margin accretion over a
three-year time horizon(2)
o Target net debt/adjusted EBITDA(1) below 1.5x before the end of FY25,
whilst supporting accelerated investment in Wagamama openings
· Continue to actively explore strategic options to further accelerate
margin accretion and deleveraging
Financial summary
· Total revenue +10% to £467.4m (2022: £423.4m)
· Adjusted EBITDA(1) +15% to £36.3m on a pre-IFRS 16 basis versus the
VAT adjusted basis of £31.4m in H1 2022 (2022 reported Adjusted EBITDA(1):
£41.7m)
· Adjusted Profit before tax(1) of £7.2m on a pre-IFRS 16 basis, well
ahead of the VAT adjusted comparable loss of £0.1m in H1 2022 (2022 reported
Adjusted profit before tax: £10.2m)
· Statutory profit before tax of £2.3m on an IFRS 16 basis (2022: loss
of £28.5m), includes exceptional charges of £15.2m predominately relating to
non-cash impairment charges
FY23 Outlook
· FY23 costs in line with previous expectations and medium-term cost
outlook continues to improve
· The trading performance supports a moderate increase in management's
FY23 Adjusted EBITDA(1) expectations
o FY23 Net debt(1) expected to be between £180m and £190m
Andy Hornby, Chief Executive Officer, commented:
"We are encouraged by the significant progress made in the first eight months
of the year, delivering strong LFL sales growth despite the consumer
backdrop. In light of the strong trading we are increasing our expectations
for FY23 Adjusted EBITDA.
We are making excellent progress on our medium-term plan and the Board
continues to actively explore strategic options to further accelerate margin
accretion and deleveraging.
A massive thanks to each and everyone of our dedicated team members who have
worked so hard to deliver these excellent results."
Operational highlights
· Wagamama, Pubs and Concessions recorded strong LFL sales growth:
Year To Date ("YTD") LFL sales (%) vs 2022 comparable split by category for
the 34 weeks to 27 August 2023
TRG Division Total YTD LFL sales Total YTD LFL sales VAT(3) Adjusted Delivery and takeaway LFL sales Dine-in Dine-in LFL sales VAT(3) Adjusted
LFL sales
Wagamama +7% +9% (8)% +11% +14%
Pubs +8% +10% n/a +8% +10%
Leisure (3)% (1)% (6)% (2)% Flat
Concessions +29% +31% n/a +29% +31%
o Wagamama, Pubs and Concessions all delivering dine-in covers growth (YTD)
· Customer ratings remain very strong across all brands:
o Wagamama maintained as the number one UK casual dining chain brand by
BrandVue
o Brunning and Price recognised as best Pub Group in the UK by CGA Pub Track
· Segmental disclosure shows strong Adjusted EBITDA(1) progression in
H1 23 on a VAT adjusted basis for Wagamama, Pubs and Concessions
· Excellent early progress in medium-term margin accretion and
deleveraging plan:
o Strong current trading
o Incremental annualised cost savings achieved of £5m p.a.
o Acceleration of new Wagamama UK openings to 8-10 a year from FY24
o Leisure estate rationalisation ahead of plan
(1) Pre-IFRS 16 Adjustment and exceptional charges
(2) FY25 year-end run-rate
(3)VAT benefit boosted LFL sales by approximately 5 to 7% for the restaurant
and pub sector in Q1 2022 (13 weeks to 3 April 2022). This is an estimation
by management looking at the calculated VAT benefit impact within its
divisions. The VAT adjusted figures in this announcement (including in the
segmental disclosure section) have used this estimation consistently
Enquiries:
The Restaurant Group plc 020 3117 5001
Andy Hornby, Chief Executive Officer
Kirk Davis, Chief Financial Officer
Umer Usman, Investor Relations
MHP Group 020 3128 8789
Oliver Hughes 07885224532
James McFarlane 07584142665
Investor and analyst conference call facility
In conjunction with today's presentation to analysts, a live conference call
and webcast facility will be available starting at 9:00am (UK time). If you
would like to register, please contact MHP Group for details on 020 3128 8100
or email TRG@mhpgroup.com.
The presentation slides will be available to download from 7:30am (UK time)
from the Company's website
https://www.trgplc.com/investors/reports-presentations
Notes:
1. The Restaurant Group plc had approximately 380 restaurants and pub
restaurants throughout the UK as at 6 September 2023. Its principal trading
brands are Wagamama and Brunning & Price. It also operates a multi-brand
Concessions business which trades principally in UK airports. In addition,
the Wagamama business has a 20% stake in a JV operating seven Wagamama
restaurants in the US and c. 60 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" and reflect the Group's current
expectations concerning future events. Actual results may differ materially
from current expectations or historical results.
3. The Group's Alternative performance measures ('APMs') such as
like-for-like sales, Adjusted measures, pre-IFRS 16 basis measures and free
cash flow are defined within the glossary at the end of this report.
Business review
Introduction
We are particularly pleased with the strong LFL sales and Adjusted EBITDA
growth achieved in Wagamama, Pubs and Concessions in the first half of the
year, which has continued in Q3 to date, and this supports a moderate increase
in management's expectations for FY23 Adjusted EBITDA.
Our Leisure business has been most impacted by the current cost-of-living
pressures and is in marginal LFL sales decline. In response to these ongoing
challenges the business has accelerated the rationalisation of the estate and
is focused on improving the cash generation within the Leisure business.
Overall, excellent early progress has been made on executing the medium-term
plan to:
- Deliver 250 to 350 basis points improvement in Adjusted EBITDA(1)
margins over the next three years (i.e. FY25 year-end run-rate)
- Reduce Net debt / Adjusted EBITDA(1) to below 1.5x before the end
of FY2025, whilst supporting accelerated investment in Wagamama openings
We provide updates on the following areas below:
1. Trading update and key priorities for each division
2. Our margin accretion plan
1. Trading update and key priorities for each division
Total Like-for like ("LFL") sales (%) vs 2022 comparable split by H1 and
current trading showing both Q3 (to-date) and Q2 and Q3 (to-date) combined
H1 Total LFL sales H1 Total LFL sales "Excl. VAT benefit" (illustrative)
Q3 (to-date) Total LFL sales Q2 and Q3 (to-date) combined Total LFL sales
26 weeks to 2 July 2023 26 weeks to 2 July 2023 8 weeks to 27 August 2023 21 weeks to 27 August 2023
Wagamama +4% +7% +16% +9%
Pubs +9% +12% +5% +10%
Leisure (5)% (2)% +6% (2)%
Concessions +28% +30% +33% +27%
VAT benefit boosted LFL sales by approximately 5 to 7% for the restaurant and
pub sector in Q1 2022 (13 weeks to 3 April 2022). This is an estimation by
management looking at the calculated VAT benefit impact within its
divisions.
LFL sales figures in the section below versus the market reference the final
column in the table above, for the 21-week period from 03 April to 27 August
2023 (i.e. Q2 and Q3 to date) versus the comparable period in the prior year,
as this normalises the comparisons for both Lower VAT and Omicron closures
impacting the market to varying degrees in Q1 2022.
Wagamama
Trading update
Wagamama has traded strongly throughout the year with trading strengthening
further in Q3 to an exceptionally strong 16%, helped in part by the cool
summer weather.
Wagamama delivered LFL sales growth of 9% in Q2 & Q3 to date, representing
a 2% outperformance versus the market. The outperformance in "dine-in" sales
has been particularly pleasing at 5%. Customer ratings have remained very
strong with the June 2023 external NPS scores (as measured by BrandVue)
maintaining Wagamama as the number one brand amongst casual dining chains in
the UK.
Wagamama has a consistent and strong track record of market outperformance
with the key drivers of this being:
- Unique colleague culture: the Wagamama business continues to be
underpinned by our unique culture and ethos. In 2023 we have delivered
significantly reduced team turnover and strong retention levels as we have
continued to focus on mental health and well-being initiatives to support our
teams
- Continuous menu innovation: In 2023 we further evolved our
vegan and core menus with two highlights being our vegan Kare Loman (which is
our 3(rd) most popular plant-based dish) and within our sides range, we have
seen our new crispy chilli mushrooms reach strong participation. In addition,
as part of our summer menu launch, we innovated within the cocktail range and
have seen cocktail participation increase significantly on last year
- Purpose-led marketing activity: Our marketing strategy remains to
drive both short-term sales action whilst building long-term brand saliency to
build both a functional and emotional relationship with our guests. In the
first half of the year there has been a continuous drumbeat of demand driving
activity which has included menu innovation, student-based activity and a
Deliveroo exclusive TV campaign
- Well-invested estate: Wagamama's estates review process continues
to ensure that we regularly invest in our sites and complete selective
transformational refurbishments, such as the Ashford Designer Outlet in Kent,
where we can further enhance returns.
Growth opportunities
Wagamama UK: We have opened 38 new full-service restaurants between
2016-2021. Within this 33 of the sites opened were in 'regional' locations
(i.e. outside central London and airport locations) and these delivered a
ROIC 1 in excess of 35% (rolling 12 months to June '23) providing strong
financial returns, despite high food and energy inflation costs.
These strong returns achieved by our regional openings gives us confidence to
accelerate our expansion plans and we are now targeting to open between eight
to 10 sites per year from FY24 onwards.
Our long-term ambitions include significant measured roll-out potential to
expand in the UK to a targeted 200 to 220 restaurants (from an expected 161
sites at the end of FY23).
Wagamama US: As a reminder our US JV is a 20:80 partnership (with TRG as the
minority investor) and the JV assumes full ownership of the operations of the
US business. The JV therefore provides TRG with a capital light means for
expanding the business in the US. TRG retains the option to repurchase the
remaining 80% of the business starting in December 2027.
The JV will open four new sites in FY23 in Atlanta, Tampa, Dallas and
Arlington bringing the estate to a total of nine sites by December 2023. We
expect the JV to deliver a positive EBITDA contribution in FY24 as we further
develop the US presence for Wagamama. The JV Board will decide the precise
scale of the future expansion plans but we would continue to expect to target
an overall estate size of 20-30 sites by December 2027.
Wagamama International franchise: Our Wagamama franchise business is
currently comprised of 59 sites across Europe and the Middle East which
contribute approximately £2.5m Adjusted EBITDA (post divisional overheads).
We are in the final stages of securing a new franchise agreement to open
several sites in airport locations in India (new territory) with the first
site expected to open in 2024. In addition we are exploring opportunities to
further accelerate our international footprint.
Brunning & Price Pubs
Trading update
Pubs have maintained a consistently strong performance from Q1 through to Q3,
when normalising for weather comparisons over the summer.
The business delivered LFL sales growth of 10% in Q2 and Q3 to date,
representing a 1% outperformance versus the market. Customer sentiment has
continued to be very strong with social media scores (consolidation of Google,
Facebook and TripAdvisor scores) averaging 4.6/5 for the last 12 months to
June 2023, delivering our highest ever rating. We are particularly pleased
that Brunning and Price was recognised as the best Pub Group in the UK by CGA
Pub Track, which is all credit to the strong leadership and delivery of the
teams over many years.
The key drivers of this continued market outperformance are:
- Good customer demographics: On average around 60% of the total
population that lives within a 15-minute drive time form part of the higher
income classes (A to C1), and there are usually at least a 25,000 people
within these catchments.
- High quality property estate in defensible, well-invested
locations: Our sites are typically located in rural and suburban locations
(c.80%) with expansive layouts and limited competition nearby, which has been
instrumental in the Group's ability to trade strongly over the years. Over 60%
of the Pubs estate benefits from having in excess of 100 "external" covers,
which is clearly beneficial through good summer trading.
Growth opportunities
Our Pubs business is a high-quality asset with significant potential to create
further value. The B&P offer has proved timeless and the business has
consistently outperformed the market over the last nine years (between 2013
and 2022). During this period the business has opened 29 pub restaurants
that have delivered a ROIC 2 (#_ftn2) in excess of 20% (rolling 12 months to
June 23) providing good financial returns, despite high food and energy
inflation costs. Our pub restaurants benefit from high sales densities with
a food mix typically in excess of 65% and the significant investment in new
sites means that they then have low ongoing maintenance and refurbishments
capital expenditure requirements and therefore deliver strong free cash flow.
We opened one new pub during the first half of the year, the Mytton and
Mermaid in Shrewsbury, which has surpassed our expectations and is one of our
most successful new pub openings. We aim to open between 1 to 3 high quality
pubs per year from FY24 onwards.
Concessions
Trading update
We are very pleased with the strong recovery of our Concessions business in
2023, which has exceeded management's expectations with LFL sales growth of
27% in Q2 and Q3 to date versus 2022, which is an outperformance to the market
of 12%. Year-to-date LFL sales for the 34 weeks are +29%.
Importantly, UK air travel continues to make a significant recovery in 2023,
with passenger volumes in airports where TRG operate improving from c. 90% of
2019 volumes in Q1 to c. 96% of 2019 volumes in Q3. The strength of the
Concessions performance is further illustrated by comparing the trading
run-rates against pre-Covid levels, with LFL sales versus 2019 up 3% in Q1,
up 10% in Q2 and up 13% in Q3.
We now expect that passenger volumes will recover to 2019 levels in 2024,
which is a year earlier than originally expected. This is a significant
milestone for the industry and TRG. It is reassuring that the recovery in
passenger volumes has been consistent across the country, with London,
Regional and Scottish airports all performing well vs 2019 sales levels.
In order to capitalise on the expected future growth opportunities and for TRG
to continue to position itself as the partner of choice for all future Food
and Beverage opportunities the business continues to focus on:
- Improving the customer experience through enhanced service and
ongoing menu development
- Ongoing brand development in partnership with new and existing
franchise partners, for example, Jones the Grocer being delivered for T2
Heathrow in Q1 2024
- Agreeing extensions on a number of existing contracts including
major redevelopments at Gatwick and Luton. This activity maximises our
future earnings stream from this business
Leisure
The Leisure business traded more resiliently in Q3 with a strong recent cinema
slate helping LFL sales to 6% in Q3.
The business however has traded below the market, and achieved a LFL sales
decline of 2% in Q2 and Q3 to date, with year-to-date LFL sales being down
3%. The Leisure business has been impacted by a number of challenges, in
particular the cost-of-living pressures on its core customer base.
In response to these ongoing challenges the business has accelerated the
rationalisation of the trading estate from 116 at FY22 year-end to an expected
c. 76 sites at FY 23 year-end, delivering the planned two-year rationalisation
programme in 12 months. This will be achieved through:
- Exercising the lease expiry / break clause on 14 sites, which have
a contractual expiry within the next 18 months
- Selling eight freehold sites with five expected to complete in Q4
2023 generating c.£5m of proceeds
- Converting three sites to Wagamama by the end of FY24
- Accelerating the disposal of between 12 to 17 sites through mutual
agreement with landlords / alternative tenants.
The TRG Property team has made good progress in efficiently managing the
disposal programme and protecting net cash and we expect to exit the vast
majority of the lease obligations of the c. 40 closed sites by the end of
FY24.
In addition to the estate rationalisation the team remain focused on enhancing
the core offer for both Frankie and Benny's and Chiquito's. In particular over
the last six months the teams have concentrated on:
- Staff training and retention: We are investing in staff training
and retention programs in order to attract and retain qualified employees, in
order to provide our customers with the high-quality service that they expect
- Value for money: We are focusing on offering high-quality food and
service at a competitive price in order to attract and retain customers
We continue to improve the customer offer and operational delivery in order to
maximise the cashflow from the business.
2. Update on margin accretion and deleveraging plan
Excellent early progress has been made in the first eight months of the year
on the margin accretion and deleveraging plans. As previously reported in our
trading update at the start of May, £5m of incremental annualised cost
savings had been identified and will in part benefit FY23 EBITDA with the full
£5m of cost savings flowing through to FY24. In addition, other central cost
saving initiatives have been identified and will deliver as part of the margin
accretion plan in FY24.
As highlighted above, each of the Wagamama, Pubs and Concessions businesses
have seen strong LFL sales growth, market share gains and delivered year on
year volume growth. This continued market outperformance on volume with
selective price increases will further benefit margin accretion through to
2025.
Finally, the increase in planned new openings for Wagamama to eight to 10 a
year combined with the accelerated rationalisation of the Leisure portfolio
further enhances the profitability of the Group's portfolio.
As a consequence of the early progress above, management is well on track to
deliver a 250 to 350 basis points improvement in its Adjusted EBITDA(1)
margins by December 2025 (i.e. year-end run-rate).
Net debt /Adjusted EBITDA(1) (pre-IFRS 16) is expected to be below 1.5x before
December 2025, whilst supporting accelerated investment in Wagamama openings.
Summary
· Strong LFL sales and Adjusted EBITDA(1) growth driven by Wagamama,
Pubs and Concessions
· Trading performance supports a moderate increase in management's FY23
Adjusted EBITDA(1) expectations
· Excellent early progress in executing medium-term plan to:
o Deliver 250bps to 350bps of Adjusted EBITDA(1) margin accretion over a
three-year time horizon(2)
o Target net debt/Adjusted EBITDA(1) below 1.5x before the end of FY25,
whilst supporting accelerated investment in Wagamama openings
· Continue to actively explore strategic options to further accelerate
margin accretion and deleveraging
Financial Review
As outlined in the business review, we were particularly pleased to have
delivered a continued strong LFL sales outperformance versus the market across
our Wagamama, Pubs and Concessions businesses, illustrating the strength of
our customer propositions and ability to outperform the market. Our Leisure
business achieved a moderate LFL sales decline which was behind the market,
with the business impacted by the increased inflationary pressures on the UK
mid-market consumer.
Statutory Results
The key statutory financial measures (IFRS 16) are summarised below and are
stated after the impact of exceptional costs:
STATUTORY RESULTS
(IFRS 16)
26 weeks ended 2 July 2023 27 weeks ended 3 July 2022
£m
£m
Revenue 467.4 423.4
Operating Profit/ (loss) 19.6 (12.2)
Profit/(loss before tax) 2.3 (28.5)
Profit/(loss after tax) (1.5) (26.1)
Statutory loss per share (pence) (0.2p) (3.4 p)
Revenue for the period was £467.4m (2022: £423.4m) which represents an
increase of 10% on the prior year, with strong growth across our Wagamama,
Pubs and Concessions businesses.
The increase in operating profit to £19.6m (2022: loss of £12.2m) is due to
the strong trading performance, good cost control and lower exceptional costs.
Net interest costs of £17.3m (2022: £16.3m) are higher than the prior year
due to an increase in the interest cost of our floating debt and a lower
exceptional gain on Group's interest rate caps in the current period compared
to last year.
Alternative Performance Measures
TRG uses a number of non-statutory measures to monitor business performance
which are referred to within the Interim Report, but primarily relate to
Adjusted and pre-IFRS 16 profit metrics. This is because the pre-IFRS 16
profit is consistent with the financial information used in the management
accounts to inform business decisions and investment appraisals. It is TRG's
view that presenting the information on a pre-IFRS 16 basis will provide a
useful basis for understanding the Group's results to all stakeholders.
Specifically, the measures mainly relate to three adjustments:
- The main profit measure used is Adjusted EBITDA. This is not a
statutory measure but closely represents the Group's ability to make cash
trading profits as it excludes key non-cash elements of the Income Statement
such as depreciation and amortisation.
- The adjusted profit and debt measures are based on the IAS 17
approach to lease accounting and does not include the impact of IFRS 16. This
is used as it more closely represents the cash profits of the business, and
debt as measured by our banks.
- The adjusted profit measures are quoted excluding the impact of
items that management have deemed as exceptional as they are material and not
related to underlying trading in the period.
As these measures are not defined by accounting standards, they may not be
comparable across companies. The adjusted results may exclude significant
costs (such as restructuring or impairments) and so may not be a complete
picture of the Group's financial performance, which is presented in the
statutory results.
The key alternative performance measures (APM) are summarised below. Both
pre-IFRS 16 and post- IFRS 16 figures are shown and are stated before the
impact of exceptional costs:
APM
(Pre-IFRS 16) APM (IFRS
16)
26 weeks ended 2 July 2023 26 weeks ended 3 July 2022 26 weeks ended 2 July 2023 26 weeks ended 3 July 2022
Pre-IFRS 16
Pre-IFRS 16
IFRS 16
IFRS 16
£m
£m
£m
£m
Revenue 467.4 423.4 467.4 423.4
Adjusted(1) EBITDA 36.3 41.7 72.2 72.2
Adjusted(1) operating profit/(loss) 20.3 22.9 39.1 35.5
Adjusted(1) operating margin 4.3% 5.4% 7.6% 8.4%
Adjusted(1) profit/(loss) before tax 7.2 10.2 17.5 13.9
(1)The Group's adjusted performance metrics are defined within the glossary at
the end of this report. All such adjusted measures are stated pre-exceptional
items
Adjusted EBITDA (on a pre-IFRS 16 basis) for the 26 weeks is £36.3m (2022:
£41.7m). As mentioned above and outlined in the business review, the main
driver of the decrease in Adjusted EBITDA is due to the reduced VAT rate in Q1
2022, which was worth approximately £10m of EBITDA in H1 2022. Excluding the
benefit of VAT in Q1 2022 underlying EBITDA increased from £31.4m in H1 2022
to £36.3m in H1 2023.
The Group made an adjusted profit before tax (on a pre-IFRS 16 basis) for the
period of £7.2m (2022: £10.2m).
Segmental analysis
Segmental disclosure is provided below to present a clearer view of the
trading performance across each of our businesses. The information below is
shown both with and without the benefit of the lower VAT rate in Q1 2022
having been removed (which contributed an estimated £10.3m to EBITDA in
2022). This allows the reader to understand the underlying performance of each
business without the benefit of the lower VAT in Q1 2022:
Segmental analysis: H1 23 vs H1 22
Wagamama Pubs Concessions Leisure TRG Group
2023 HY 2022 HY 2023 HY 2022 HY 2023 HY 2022 HY 2023 HY 2022 HY 2023 HY 2022 HY
£m £m £m £m £m £m £m £m £m £m
Revenue 222 207 80 71 81 57 84 88 467 423
Restaurant EBITDA* 36.6 37.2 11.7 12.5 8.8 5.0 2.1 10.4 59.2 65.1
Divisional overheads (7.8) (8.1) (2.7) (2.7) (2.0) (1.7) (2.9) (3.2) (15.4) (15.7)
Divisional EBITDA* (including VAT benefit for H1 2022) 28.8 29.1 9.0 9.8 6.8 3.3 (0.8) 7.2 43.8 49.4
VAT benefit** - (6.0) - (1.6) - (0.6) - (2.1) - (10.3)
Divisional EBITDA* (excluding VAT benefit for H1 2022) 28.8 23.1 9.0 8.2 6.8 2.7 (0.8) 5.1 43.8 39.1
Central overheads (7.5) (7.7)
EDITDA* 36.3 31.4
(VAT adjusted)
*Adjusted (pre-exceptional charges)
**VAT benefit boosted LFL sales by approximately 5 to 7% for the restaurant
and pub sector in Q1 2022 (13 weeks to 3 April 2022). This is an estimation
by management looking at the calculated VAT benefit impact within it's
divisions. The VAT adjusted figures in the table above have used this
estimation
- Wagamama delivered Adjusted EBITDA(1) of £28.8m compared to
£23.1m on a VAT adjusted basis in the prior year, an increase of 25%
- Pubs delivered Adjusted EBITDA(1) of £9.0m compared to £8.2m on
a VAT adjusted basis in the prior year, an increase of 10%
- Concessions delivered Adjusted EBITDA(1) of £6.8m compared to
£2.7m on a VAT adjusted basis in the prior year, an increase of 150% based on
a strong recovery of passenger volumes across UK airports; and
- Leisure (including Barburrito) delivered an Adjusted(1) EBITDA
loss of £0.8m compared to a VAT adjusted EBITDA profit of £5.1m in the prior
year. This decline in EBITDA is due to the year-on-year sales decline and
significant inflation impacting cost of goods sold, labour and utilities
In the period, divisional overhead costs were £15.4m, down from £15.7m in
the prior year. Divisional overheads relate to operational resource, HR,
marketing, and commercial finance teams within the divisions supporting their
trading activities.
Central overheads were marginally lower at £7.5m compared to £7.7m in the
prior year. Approximately 40% of central overheads relate to shared service
functions supporting the trading divisions (procurement, property and IT) and
c.60% related to corporate functions (including Plc Board requirements,
central finance and Head Office property costs).
Cash flow and net debt
Net debt on an IFRS 16 basis has increased marginally from £581.7m (as at the
Dec 22 year-end) to £585.5m in the period. The key driver of this increase
in net debt relates to the timing of our capital expenditure and exceptional
costs being first half weighted.
On a full year basis, we expect pre-IFRS 16 net debt to be between £180 to
£190m. The reduction in net debt by year-end will be driven by:
- Higher management expectations for FY23 EBITDA
- Proceeds from the sale of Leisure freehold sites (c.£5m)
- An expected working capital inflow
- Lower capital expenditure in H2; and
- Lower exceptional costs
Operating cash flow (on a pre-IFRS 16 basis) in the period reduced to £36.4m
from £57.6m in the prior year. The reduction in operating cashflow is
primarily due to the prior year benefiting from a significant working capital
inflow of £15.9m following the largely unrestricted trading in H1 2022 when
compared to H1 2021 as a result of Covid related closures.
Summary cash flow for the year (on a pre-IFRS 16 basis) is set out below:
HY 2023 HY 2022
£m
£m
Adjusted EBITDA (Pre-IFRS 16 basis) (1) 36.3 41.7
Working capital and non-cash adjustments 0.1 15.9
Operating cash flow(2) 36.4 57.6
Net interest paid (10.0) (11.0)
Tax paid (0.5) (2.0)
Refurbishment and maintenance expenditure (16.0) (15.6)
Free cash flow 9.9 29.0
Development expenditure (7.8) (6.4)
Movement in capital creditor (0.8) 1.0
Utilisation of onerous property cost provisions (5.5) (3.9)
Exceptional costs (4.7) (3.1)
Other items (0.6) (1.4)
Cash movement (9.5) 15.2
Net Debt (Pre-IFRS 16 basis)
Group net debt brought forward (185.7) (171.6)
Non-cash movements in net debt (0.3) (2.0)
Group net debt carried forward (Pre IFRS 16 basis) (195.5) (158.4)
Incremental lease liabilities (IFRS 16) (390.0) (402.4)
Group net debt carried forward (IFRS 16 basis) (585.5) (560.8)
(1)The Group's adjusted performance metrics are defined within the glossary at
the end of this report. All such adjusted measures are stated
pre-exceptional items
(2)Operating cash flow excludes certain exceptional costs and includes
payments made against lease obligations
The Group continues to benefit from significant cash headroom with £133.4m as
at the half-year period end (2022 Year-end: £139.2m).
The Group continues to target net debt/EBITDA 3 (#_ftn3) below 1.5x before
the end of FY25.
Exceptional items
An exceptional pre-tax charge of £15.2m has been recorded in the period
(2022: £42.4m). The key driver of this charge has been the impairment of
certain sites and goodwill predominantly relating to the Leisure division. A
net impairment charge of £13.6m has been provided in the period (2022:
£45.4m).
The other two significant exceptional items are a £4.4m charge relating to
the Leisure Division estate rationalisation programme (2022: £0.7m) and a
further gain on the revaluation of the Group's interest rate caps of £4.3m
(2022: £5.3m).
The tax credit relating to these exceptional charges was £1.5m (2022: £6.0m
tax credit).
Cash expenditure associated with the above exceptional charges was £4.7m
(2022: £3.1m).
Tax
The tax charge for the period was £3.8m (2022: credit of £2.4m), summarised
as follows:
HY 2023 HY 2022
Trading Exceptional Total Trading Exceptional Total
£m
£m
£m
£m
£m
£m
Corporation tax 1.0 (1.0) - - - -
Deferred tax 4.3 (0.5) 3.8 3.6 (6.0) (2.4)
Total current year tax 5.3 (1.5) 3.8 3.6 (6.0) (2.4)
Effective tax rate 30.2% 10.0% 165.9% 25.9% 14.2% 8.4%
The Group's pre-exceptional effective tax rate is 30.2% (2022: pre-exceptional
effective tax rate of 25.7%). The effective tax rate exceeds the blended
statutory corporation tax rate of 23.0% primarily as a result of
non-qualifying depreciation (which accounts for 6.0% of the differential on
the effective tax rate).
The current year tax effect of exceptional items of £1.5m (effective tax rate
of 10%) comprises a corporation tax credit of £1.0m and a net £0.5m deferred
tax credit relating to the tax deductions on exceptional items such as right
of use asset impairment and provisions.
Selected FY23 financial modelling guidance
· Total capital expenditure approximately £43m to £45m:
o Maintenance and IT investment of c. £20m
o Refurbishment capex of c.£10m
o Expansionary capex of c. £10 to £15m
· IFRS 16 EBITDA add-backs (i.e., rent & other property non-cash
charges):
o Net add-back £58m to £64m:
- £60m to £62m for fixed rent
- £7m to £9m for lease modifications
- (£7m) to (£9m) for non-cash property charges
· Depreciation and interest detailed in table below:
Pre-IFRS 16 £'m IFRS 16 £'m Total £'m
P&L Depreciation 35-36 34-35 69-71
P&L Interest 27-28 16-17 43-45
Going concern
The directors have adopted the going concern basis in preparing the Interim
Financial Review after assessing the Group's principal risks including current
macroeconomic headwinds, relating to the cost-of-living crisis and elevated
levels of inflation. In conducting their review, the Directors have concluded
that the Group has sufficient liquidity and covenant headroom for the going
concern review period to 30 September 2024.
The Group has substantial liquidity with £133m in cash and cash equivalents,
or available facilities at the balance sheet date. Following an amend and
extend in December 2022 these facilities are committed until at least March
2027. The facilities consist of a £220m Term loan and a £120m RCF. Further
details of the Group's debt facilities and covenants are in Note 23 to the
FY22 Annual Report and Accounts.
Whilst the Group has delivered Total revenue growth of 10% in the first half
of the year the Directors remain cautious about the ability for our customers
to continue their current level of spending in our restaurants and pubs whilst
the cost-of-living crisis continues, and the current and future impact of
increases in the Bank of England Interest rate. In preparing the 'base case'
forecast for the period to 30 September 2024, the Directors have assumed
continued growth in sales but that this growth would moderate throughout the
period. Further, management have included the impact of current elevated
levels of inflation throughout the remainder of 2023 and then a reduction in
inflation in 2024. In this forecast, available liquidity does not fall below
£89m compared to a minimum liquidity covenant of £40m, and Senior Secured
Net Leverage does not exceed 2.3x against a covenant requirement of no more
than 4.25x.
In addition, the Board has considered a 'stress case' scenario where sales
have been reduced 4% from base case (5% reduction in volume with the benefit
of a 1% price increase). In this 'stress case' scenario, without mitigation,
liquidity falls to a minimum of £81m and Senior Secured Net Leverage
increases to 2.5x but still within the covenants of the Group's banking
facilities. In this 'stress case' scenario, including mitigations, such as,
the ability to further increase our selling prices, conduct a central cost
reduction program and to refine our uncommitted capital expenditure plans,
liquidity falls to a minimum of £85m, and Senior Secured Net Leverage
increases to 2.5x but still within the covenants of the Group's banking
facilities.
The Board have also considered a reverse stress case to determine the level by
which sales would need to fall from the 'base case' before there is a risk of
a leverage covenant breach. Pre-mitigating actions, the level of sales decline
compared to the base case is 9.7%. Following mitigating actions, which are
within management's control, and include the ability to increase selling
prices, conduct a far more extensive central cost reduction program and
further refinement to capital expenditure plans the level of sales decline
compared to the base case increases to 17.1%. Selling price increases before
the assumed volume reduction have the largest mitigating benefit. The Board
considers this level of sales decline over a sustained 12 month period as
remote due to trading being ahead of the base case in the year to date, the
current economic outlook from both the Bank of England and the International
Monetary Fund is for a shallow recession in 2023 and that during the last
economic recession the Group only experienced a modest sales decline of less
than 2% in 2009 compared to the prior year and less than 1% in 2010 when
compared to 2009.
However, if this level of sales decline were experienced on a sustained basis,
the Group would take further decisive actions which is within its control to
further reduce both its operating costs and capital expenditure to mitigate
the potential risk of a covenant breach. Furthermore, the directors would
also engage with its lending group for covenant waivers, which were provided
during the pandemic given similarly extreme circumstances.
Based on the above the Board has a reasonable expectation that the Group has
adequate resources to continue in operational existence for the period to 30
September 2024, being at least the next twelve months from the date of
approval of the year-end accounts. On this basis, the Directors continue to
adopt the going concern basis of preparation.
Principal Risks and Uncertainties
The Group set out its internal risk management process together with its
formal assessment of its principal risks and uncertainties as at the date of
publication on pages 69 to 70 of its 2022 Annual Report. Since then, the
Group's Risk and Audit Committees have continued to review and assess the main
risks likely to impact the Group while assessing the controls and mitigations
being put in place across the Group. In addition, the Risk Committee maintains
a watch on emerging risks, as well as those relating to climate change and the
environment, to ensure that the appropriate steps are taken at the right time.
The potential impacts of climate change on the business are recorded in a
separate register and are currently acknowledged within the key risks as part
of the Group's broader supply chain risks. The Senior Management Risk
Committee, which meets quarterly, has held three meetings to date during the
financial year, and reported back to the Audit Committee and, ultimately, to
the Board. The key material risks as currently identified by the Directors
remain unchanged overall since the date of the Annual Report and are listed
below, together with the controls and mitigations that are in place:
Risk Mitigating Factors
Consumer Demand · Broad portfolio of brands that provide a range of offers across
various customer demographics
· Reduction due to cost-of-living increases and significant inflation
levels · Flexible capital allocation policy to ensure that plans are adapted
to a changing economic environment
· Temporary reductions as a result of the impact on wider hospitality
industry from transport strikes · Ongoing focus on ensuring value for money offering across the brands
with regular price benchmarking against competitor pricing
· Potential reduction due to expected future increases in Bank of
England interest rates and the impact on consumers' mortgages · Periodic business review process and weekly trading meeting to review
and assess any adaptation required to trading plans
· Detailed monitoring of key cost lines in 2023 Budget
Supply Chain Inflation · Continuing to streamline supply base to efficiently meet the
requirements of revised estate
· Increases in cost of goods sold inflation due to commodity, labour,
distribution and utilities cost rises within the supply chain · Inflation tracked by brand with monthly CFO review and business
updates provided to divisional teams
· Ongoing inflation due to the Russia-Ukraine war impacting world
markets · Identifying and delivering against a good pipeline of commercial
opportunities which includes bringing new suppliers to market
· Higher sourcing costs/supply issues for ingredients caused by
increased climate-related extreme weather events impacting harvests · Working with the development and operations teams to inform on
inflation risks and agree mitigation opportunities which could include
adapting menus
· Strategic purchasing and category management approach so buyers can
partially mitigate increases through negotiation or tender or by moving
supplier
· Dual sourcing of essential products
Cybersecurity · Vulnerability assessments conducted monthly, and remediation works
undertaken
· Risk associated with the failure to mitigate against external attacks
on systems and networks, loss or corruption of data and inadequate internal · Cyber Essentials yearly gap analysis
processes over the handling and management of data
· Working to external accreditation frameworks
· Annual penetration tests for all external services
· Regular phishing tests
· Cyber insurance in place
Employee Recruitment and Retention · New recruitment process embedded to enhance the quality of team
selection
· Failure to attract, retain, or develop chefs, and general and senior
managers · Continued improvement of onboarding and induction process focused on
the first 90 days of employment to improve employee engagement, as well as
· Employee turnover is excessive across the industry for front of ongoing training opportunities
house, back of house and management roles. Risk of high employee turnover is
greater due to the current age profile and increased part-time nature of the · Extension of apprenticeship schemes across brands to further enhance
workforce team development with a particular focus on back of house roles
· Ongoing review of the need to increase attraction/retention
payments for key roles, e.g. chefs
· Pay increases being brought forward where required
· Ongoing focus on wellbeing and mental health as part of the employee
proposition
Allergen Incident · Detailed database built up by ingredient/supplier and testing process
including physical verification
· Serious allergen incident involving adverse customer reaction or
death as a result of failure of procedures on site or incorrect ingredient · Allergy advice and information on all brand websites and menus
data being provided by suppliers
· All-staff training focused on asking about allergies and reinforcing
best practice.
· Ongoing refresher training delivered
· Weekly monitoring of training status for current and new employees,
with compliance statistics sent out to the operations teams
The Restaurant Group plc
Consolidated income statement
26 weeks ended 2 July 2023
Trading business Exceptional items (Note 5) Total
(Unaudited) (Unaudited) (Unaudited)
Note £'m £'m £'m
Revenue 3 467.4 - 467.4
Cost of sales (403.7) (18.0) (421.7)
Gross profit/(loss) 63.7 (18.0) 45.7
Administration costs (24.6) (1.5) (26.1)
Operating profit/(loss) 39.1 (19.5) 19.6
Interest payable 6 (21.9) - (21.9)
Interest receivable 6 0.3 4.3 4.6
Profit/(loss) before tax 17.5 (15.2) 2.3
Tax on profit/(loss) 7 (5.3) 1.5 (3.8)
Profit/(loss) for the period 12.2 (13.7) (1.5)
Other comprehensive income:
Foreign exchange differences arising on consolidation - - -
Total comprehensive income/(loss) for the period 12.2 (13.7) (1.5)
Basic earnings/(loss) per share (pence) 8 1.6 (1.8) (0.2)
Diluted earnings/(loss) per share (pence) 8 1.6 (1.8) (0.2)
The table below is provided to give additional information to shareholders on
a key performance indicator:
EBITDA 72.2 (6.3) 65.9
Depreciation, amortisation and impairment (33.1) (13.2) (46.3)
Operating profit/(loss) 39.1 (19.5) 19.6
All amounts relate to continuing activities
26 weeks ended 3 July 2022 52 weeks ended
1 January 2023
Trading business Exceptional items (Note 5) Total Total
(Unaudited) (Unaudited) (Unaudited) (Audited)
Note £'m £'m £'m £'m
Revenue 3 423.4 - 423.4 883.0
Cost of sales (359.6) (46.1) (405.7) (883.5)
Gross profit/(loss) 63.8 (46.1) 17.7 (0.5)
Administration costs (28.3) (1.6) (29.9) (49.2)
Operating profit/(loss) 35.5 (47.7) (12.2) (49.7)
Interest payable 6 (22.0) - (22.0) (49.3)
Interest receivable 6 0.4 5.3 5.7 12.2
Profit/(loss) before tax 13.9 (42.4) (28.5) (86.8)
Tax on profit/(loss) 7 (3.6) 6.0 2.4 18.3
Profit/(loss) for the period 10.3 (36.4) (26.1) (68.5)
Other comprehensive income:
Foreign exchange differences arising on consolidation (0.2) - (0.2) (0.4)
Total comprehensive income/(loss) for the period 10.1 (36.4) (26.3) (68.9)
Basic earnings/(loss) per share (pence) 8 1.3 (4.8) (3.4) (9.0)
Diluted earnings/(loss) per share (pence) 8 1.3 (4.8) (3.4) (9.0)
The table below is provided to give additional information to shareholders on
a key performance indicator:
EBITDA 72.2 (1.4) 70.8 138.7
Depreciation, amortisation and impairment (36.7) (46.3) (83.0) (188.4)
Operating profit/(loss) 35.5 (47.7) (12.2) (49.7)
All amounts relate to continuing activities
Consolidated balance sheet
As at 2 July As at 3 July As at 1 January
2023 2022 2023
(Unaudited) (Unaudited) (Audited)
Note £'m £'m £'m
Non-current assets
Intangible assets 596.5 591.6 604.1
Right of use assets 9 240.1 265.9 237.6
Property, plant and equipment 269.5 272.0 257.7
Derivative financial instruments 13 17.9 8.8 15.4
Investments 0.6 - -
Other receivables 7.6 5.4 8.2
1,132.2 1,143.7 1,123.0
Current assets
Inventory 7.1 6.8 6.5
Trade and other receivables 13.3 17.7 18.3
Prepayments 4.6 10.5 8.0
Cash and cash equivalents 18.3 72.6 27.7
43.3 107.6 60.5
Total assets 1,175.5 1,251.3 1,183.5
Current liabilities
Trade and other payables (153.8) (148.6) (160.7)
Provisions (3.8) (2.5) (2.3)
Lease liabilities 9 (58.5) (61.6) (55.0)
(216.1) (212.7) (218.0)
Net current liabilities (172.8) (105.1) (157.5)
Long-term borrowings 12 (213.8) (231.0) (213.4)
Deferred tax liabilities (29.7) (41.7) (25.8)
Lease liabilities 9 (331.5) (340.8) (341.0)
Provisions (4.8) (3.4) (5.3)
(579.8) (616.9) (585.5)
Total liabilities (795.9) (829.6) (803.5)
Net assets 379.6 421.7 380.0
Equity
Share capital 215.2 215.2 215.2
Share premium - 394.1 -
Other reserves 2.7 0.9 1.6
Retained earnings 161.7 (188.5) 163.2
Total equity 379.6 421.7 380.0
Consolidated statement of changes in equity
Share Share Other Retained
capital premium reserves earnings Total
£'m £'m £'m £'m £'m
Balance at 2 January 2022 (audited) 215.2 394.1 0.1 (162.4) 447.0
Loss for the period - - (0.2) (26.1) (26.3)
Share-based payments - - 1.5 - 1.5
Deferred tax on share-based payments - - (0.5) - (0.5)
Balance at 3 July 2022 (unaudited) 215.2 394.1 0.9 (188.5) 421.7
Balance at 2 January 2022 (audited) 215.2 394.1 0.1 (162.4) 447.0
Loss for the period - - (0.4) (68.5) (68.9)
Cancellation of share premium - (394.1) - 394.1 -
Share-based payments - - 2.4 - 2.4
Deferred tax on share-based payments - - (0.5) - (0.5)
Balance at 1 January 2023 (audited) 215.2 - 1.6 163.2 380.0
Loss for the period - - - (1.5) (1.5)
Share-based payments - - 1.2 - 1.2
Deferred tax on share-based payments - - (0.1) - (0.1)
Balance at 2 July 2023 (unaudited) 215.2 - 2.7 161.7 379.6
Consolidated cash flow statement
26 weeks ended 26 weeks ended 52 weeks ended
2 July 2023 3 July 2022 1 January 2023
(Unaudited) (Unaudited) (Audited)
Note £'m £'m £'m
Operating activities
Cash generated from operations 11 63.0 84.7 150.5
Interest received 0.3 0.2 -
Interest paid (11.9) (11.2) (21.3)
Cash received from interest cap 1.8 - -
Corporate tax paid (0.5) (2.0) -
Payment against provisions (1.3) (1.1) (1.7)
Payment on exceptionals (4.7) (3.1) (8.6)
Net cash flows from operating activities 46.7 67.5 118.9
Investing activities
Purchase of property, plant and equipment (21.6) (20.9) (54.2)
Purchase of intangible assets (3.1) (0.1) (5.4)
Proceeds from disposal of property, plant and equipment - - 0.8
Purchase of Barburrito Group Limited - - (6.3)
Net cash flows from investing activities (24.7) (21.0) (65.1)
Financing activities
Repayment of obligations under leases 12 (30.8) (29.9) (59.8)
Repayments of borrowings (128.0) (89.1) (110.0)
Drawdown of borrowings 128.0 - -
Upfront loan facility fee paid (0.6) - (1.4)
Derivative financial instruments purchased - (1.4) (1.4)
Net cash flows used in financing activities (31.4) (120.4) (172.6)
Net decrease in cash and cash equivalents (9.4) (73.9) (118.8)
Cash and cash equivalents at the beginning of the period 27.7 146.5 146.5
Cash and cash equivalents at the end of the period 18.3 72.6 27.7
1 Accounting policies
Basis of preparation
The interim condensed consolidated set of financial statements included in
this interim financial report has been prepared in accordance with the UK
adopted IAS 34 'Interim Financial Reporting'. The accounting policies and
methods of computation used are consistent with those used in the Group's
latest annual audited financial statements. The interim condensed consolidated
financial statements do not include all the information and disclosures
required in the annual financial statements, and should be read in conjunction
with the Group's latest annual consolidated financial statements as at 1
January 2023.
General information
The comparatives for the full year ended 1 January 2023 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.
The accounting period runs to a Sunday each half year which will be a 26 or 27
week period. The Directors present their report and consolidated financial
statements for the 26 week period ended 2 July 2023, with the comparative 26
week period to 3 July 2022.
Going concern basis
The directors have adopted the going concern basis in preparing the Interim
Financial Review after assessing the Group's principal risks including current
macroeconomic headwinds, relating to the cost-of-living crisis and elevated
levels of inflation. In conducting their review, the Directors have concluded
that the Group has sufficient liquidity and covenant headroom for the going
concern review period to 30 September 2024.
The Group has substantial liquidity with £133m in cash and cash equivalents,
or available facilities at the balance sheet date. Following an amend and
extend in December 2022 these facilities are committed until at least March
2027. The facilities consist of a £220m Term loan and a £120m RCF. Further
details of the Group's debt facilities and covenants are in Note 15 to the
FY22 Annual Report and Accounts.
Whilst the Group has delivered Total sales growth of 10% in the first half of
the year the Directors remain cautious about the ability for our customers to
continue their current level of spending in our restaurants and pubs whilst
the cost-of-living crisis continues, and the current and future impact of
increases in the Bank of England Interest rate. In preparing the 'base case'
forecast for the period to 30 September 2024, the Directors have assumed
continued growth in sales but that this growth would moderate throughout the
period. Further, management have included the impact of current elevated
levels of inflation throughout the remainder of 2023 and then a reduction in
inflation in 2024. In this forecast, available liquidity does not fall below
£89m compared to a minimum liquidity covenant of £40m, and Senior Secured
Net Leverage does not exceed 2.3x against a covenant requirement of no more
than 4.25x.
In addition, the Board has considered a 'stress case' scenario where sales
have been reduced 4% from base case (5% reduction in volume with the benefit
of a 1% price increase). In this 'stress case' scenario, without mitigation,
liquidity falls to a minimum of £81m and Senior Secured Net Leverage
increases to 2.5x but still within the covenants of the Group's banking
facilities. In this 'stress case' scenario, including mitigations, such as,
the ability to further increase our selling prices, conduct a central cost
reduction program and to refine our uncommitted capital expenditure plans,
liquidity falls to a minimum of £85m, and Senior Secured Net Leverage
increases to 2.5x but still within the covenants of the Group's banking
facilities.
The Board have also considered a reverse stress case to determine the level by
which sales would need to fall from the 'base case' before there is a risk of
a leverage covenant breach. Pre-mitigating actions, the level of sales decline
compared to the base case is 9.7%. Following mitigating actions, which are
within managements control, and include the ability to increase selling
prices, conduct a far more extensive central cost reduction program and
further refinement to capital expenditure plans the level of sales decline
compared to the base case increases to 17.1%. Selling price increases before
the assumed volume reduction have the largest mitigating benefit. The Board
considers this level of sales decline over a sustained 12 month period as
remote due to trading being ahead of the base case in the year to date, the
current economic outlook from both the Bank of England and the International
Monetary Fund is for a shallow recession in 2023 and that during the last
economic recession the Group only experienced a modest sales decline of less
than 2% in 2009 compared to the prior year and less than 1% in 2010 when
compared to 2009. .
However, if this level of sales decline were experienced on a sustained basis,
the Group would take further decisive actions which is within its control to
further reduce both its operating costs and capital expenditure to mitigate
the potential risk of a covenant breach. Furthermore, the directors would also
engage with its lending group for covenant waivers, which were provided during
the pandemic given similarly extreme circumstances.
Based on the above the Board has a reasonable expectation that the Group has
adequate resources to continue in operational existence for the period to 30
September 2024, being at least the next twelve months from the date of
approval of the year-end accounts. On this basis, the Directors continue to
adopt the going concern basis of preparation.
2 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.
Other standards, interpretations and amendments issued but not yet effective
are not expected to have a material impact on the Group financial statements.
Reclassification of cost of sales and administrative expenses
Within the 2022 Annual report and accounts, the Directors adjusted the
allocation of cost of sales and administration expenses to more appropriately
reflect the nature of costs incurred. The same allocation has been
consistently applied within the results for the 26-week period ended 2 July
2023. No adjustment has been made to the prior year interim figures presented
as comparative information. Had an adjustment been made, costs of sales in the
26-week period ended 3 July 2022 would have been £4.2m greater and
administration expenses reduced by an equivalent amount.
3 Segmental analysis
Operating segments
IFRS 8 Operating segments requires operating segments to be based on the
Group's internal reporting to its Chief Operating Decision Maker (CODM). The
CODM is regarded as the combined Executive team of the Chief Executive
Officer, and the Chief Financial Officer.
The Group has four operating segments of:
-Wagamama
-Pubs
-Leisure; and
-Concessions
It is the Directors' judgment that given the ongoing cost-of-living crisis'
impact on the broader casual dining sector and in particular the Leisure
business that it is no longer appropriate to aggregate all segments under IFRS
8. The Directors have reviewed the future economic characteristics of our
Wagamama, Pubs and Concessions businesses, including Gross Margin, Net Margin,
EBITDA and Sales trajectory, along with the non-financial criteria of IFRS 8
and concluded they are similar. However, given the ongoing cost-of-living
crisis and its impact on certain customer segments, the Leisure division no
longer has similar long-term economic characteristics.
In addition, the Directors believe it is of greater value to stakeholders for
the Group to provide transparency of divisional performance and central
overheads cost through the provision of full divisional disclosure. In
providing this segmental reporting the Directors are meeting the requirements
of IFRS 8 and its stakeholders.
Comparative period segmental presentation has been represented.
Geographical segments
The Group trades primarily within the United Kingdom and generates revenue
from the operation of pubs and restaurants, with substantially all revenue
generated within the United Kingdom. The Group generates some revenue from
franchise royalties primarily in Europe and the Middle East. The segmentation
between geographical location does not meet the quantitative thresholds and so
has not been disclosed.
Wagamama Pubs Leisure Concessions Group Total
H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022
£m £m £m £m £m £m £m £m £m £m
Revenue 222.4 207.4 79.6 71.5 84.2 87.6 81.2 56.9 467.4 423.4
Restaurant EBITDA 36.6 37.2 11.7 12.5 2.1 10.4 8.8 5.0 59.2 65.1
Divisional Overheads* (7.8) (8.1) (2.7) (2.7) (2.9) (3.2) (2.0) (1.7) (15.4) (15.7)
Divisional EBITDA (Inc VAT Benefit) 28.8 29.1 9.0 9.8 (0.8) 7.2 6.8 3.3 43.8 49.4
VAT Benefit - (6.0) - (1.6) - (2.1) - (0.6) - (10.3)
Adjusted Divisional EBITDA 28.8 23.1 9.0 8.2 (0.8) 5.1 6.8 2.7 43.8 39.1
Central Overheads (7.5) (7.7)
Group adjusted EBITDA (VAT adjusted) 36.3 31.4
Add back VAT benefit - 10.3
Depreciation and amortisation (16.0) (18.8)
Interest (13.1) (12.7)
Profit before taxation and exceptional items 7.2 10.2
Adjustments for IFRS 16 10.3 3.7
Exceptional items (15.2) (42.4)
Group profit/(loss) before taxation 2.3 (28.5)
*Divisional overheads relate to operational resource, HR, marketing, and
commercial finance teams within the divisions supporting their trading
activities.
40% of central overheads relate to shared service functions supporting the
trading divisions (procurement, property and IT) and 60% related to corporate
functions (including Plc Board requirements, central finance and Head Office
property costs).
VAT benefit boosted LFL sales by approximately 5 to 7% for the restaurant and
pub sector in Q1 2022 (13 weeks to 3 April 2022). This is an estimation by
management looking at the calculated VAT benefit impact within it's
divisions. The VAT adjusted figures in the table above have used this
estimation
Wagamama Pubs Leisure Concessions Group Total
FY 2022 FY 2022 FY 2022 FY 2022 FY 2022
£m £m £m £m £m
Revenue 423.7 149.7 178.6 131.0 883.0
Restaurant EBITDA 74.9 26.8 14.9 9.1 125.7
Divisional Overheads (13.4) (5.8) (6.6) (3.4) (29.2)
Divisional EBITDA (Inc VAT Benefit) 61.5 21.0 8.3 5.7 96.5
VAT Benefit (6.0) (1.6) (2.1) (0.6) (10.3)
Adjusted Divisional EBITDA 55.5 19.4 6.2 5.1 86.2
Central Overheads (13.5)
Group adjusted EBITDA (VAT adjusted) 72.7
Add back VAT benefit 10.3
Depreciation and amortisation (38.5)
Interest (24.2)
Profit before taxation and exceptional items 20.3
Adjustments for IFRS 16 10.4
Exceptional items (117.5)
Group loss before taxation (86.8)
4 Reconciliation to Underlying Trading Profit
The results used by the Directors to monitor and review the performance of the
Group continue to reflect the IAS 17 approach to accounting and a number of
the key metrics used in this report are prepared on that basis. A
reconciliation is provided below of the key differences between results under
IFRS 16 and the basis used for management reporting.
H1 2023 Adjustments for IFRS 16 H1 2023 Exceptional items H1 2023 Total H1 2022
Trading Trading Total
IAS 17 IFRS 16 (Note 5) IFRS 16 IFRS 16
£'m £'m £'m £'m £'m £'m
Revenue 467.4 - 467.4 - 467.4 423.4
Cost of sales (422.5) 18.8 (403.7) (18.0) (421.7) (405.7)
Gross profit/(loss) 44.9 18.8 63.7 (18.0) 45.7 17.7
Administration costs (24.6) - (24.6) (1.5) (26.1) (29.9)
Operating profit/(loss) 20.3 18.8 39.1 (19.5) 19.6 (12.2)
Interest payable (13.4) (8.5) (21.9) - (21.9) (22.0)
Interest receivable 0.3 - 0.3 4.3 4.6 5.7
Profit/(loss) before tax 7.2 10.3 17.5 (15.2) 2.3 (28.5)
EBITDA 36.3 35.9 72.2 (6.3) 65.9 70.8
Depreciation, amortisation and impairment (16.0) (17.1) (33.1) (13.2) (46.3) (83.0)
Operating profit/(loss) 20.3 18.8 39.1 (19.5) 19.6 (12.2)
The "Adjustments for IFRS 16" summarised above can be seen in the below
reconciliation of trading profit before tax (excluding exceptional items) from
the IAS 17 basis to the IFRS 16 basis of accounting:
H1 2023 H1 2022
£'m £'m
Underlying trading profit before tax 7.2 10.2
Removal of net rental related expenses and lease movements 35.9 30.5
Net change in depreciation (17.1) (17.8)
Net change in interest payable (8.6) (9.0)
Interest receivable on net investments in subleases 0.1 -
Trading profit before tax under IFRS 16 17.5 13.9
5 Exceptional Items
26 weeks 26 weeks 52 weeks ended
ended ended
2 July 2023 3 July 2022 1 January 2023
(Unaudited) (Unaudited) (Audited)
£'m £'m £'m
Included within cost of sales:
- Impairment charges relating to property, plant and equipment and 4.5 38.9 106.4
right-of-use assets
- Impairment charges relating to goodwill 9.1 6.5 7.5
- Estate restructuring 4.4 0.7 6.8
18.0 46.1 120.7
Included within administration costs:
- Professional fees re. various corporate activities 1.2 - -
- Business Transformation 0.3 1.6 1.7
1.5 1.6 1.7
Included within interest payable :
- Gain made on derivative financial instruments at fair value through income (4.3) (5.3) (11.9)
statement
- Refinancing costs - - 7.0
(4.3) (5.3) (4.9)
Exceptional items before tax 15.2 42.4 117.5
Impact of tax rate change - - (5.2)
Tax effect of exceptional Items (1.5) (6.0) (18.0)
(1.5) (6.0) (23.2)
Net exceptional items for the period 13.7 36.4 94.3
Impairment charges
An impairment charge has been recorded against certain assets to reflect
forecast EBITDA at our trading sites over the Group's viability period.
This charge comprises the following:
- An impairment reversal of property, plant and equipment and
right-of-use assets of £4.5m
- An impairment of goodwill of £9.1m
The impairment charge includes a reversal of £6.4m of impairment from the
prior year due to a revision in allocation of prior impairments to Cash
Generating Units. Further details on the impairment of non-current assets are
given in note 10.
Estate restructuring
At FY22 year-end the Group announced a restructuring programme relating to the
closure of certain sites within the Leisure Division. At the half year the
Group has reassessed the onerous obligations relating to these sites and any
additional costs that need to be provided for, including redundancy costs.
Professional fees re. various corporate activities
During the year, the Group incurred material one-off costs relating to
corporate refinancing and restructuring activity. Since these costs are
material, one-off and unrelated to underlying or ongoing trading, they are
presented as exceptional items.
Business Transformation
As part of the ongoing transformation activity to deliver synergies across the
group a project has been undertaken to implement a common finance platform. In
H1 2023, costs of £0.3m were incurred as the finance platform was extended to
cover the Wagamama operations from March 2023.
Gain made on derivative financial instruments at fair value through income
statement.
At the 2 July 2023, the Group held interest rate caps valued at £17.9m which
are used to manage in parts the Group's exposure to interest rate risk on a
proportion of its borrowing facilities. In the current interim period, a gain
of £3.9m was recognised upon fair value remeasurement. The main reason for
this gain is the increasing future expectations of SONIA rates over the
remaining term of the derivative instruments.
For details of prior period exceptional items, please see Note 5 of the
Group's 2022 interim results and Note 7 of the 2022 Annual report and
accounts.
6 Net Interest Payable
26 weeks ended 26 weeks ended 52 weeks ended
2 July 2023 3 July 2022 1 January 2023
(Unaudited) (Unaudited) (Audited)
£'m £'m £'m
Bank interest payable 12.9 10.8 21.1
Unwinding of discount on lease liabilities 8.6 9.0 17.7
Amortisation of facility fees 0.4 2.0 3.5
Other interest payable - 0.2 -
Trading interest payable 21.9 22.0 42.3
Exceptional refinancing costs - - 7.0
Interest payable 21.9 22.0 49.3
Other interest receivable (0.3) (0.3) (0.3)
Unwinding of discounts on investments in subleases - (0.1) -
Trading interest receivable (0.3) (0.4) (0.3)
Gain made on derivative financial instruments at fair value through income (4.3) (5.3) (11.9)
statement
Interest receivable (4.6) (5.7) (12.2)
Total net finance charges 17.3 16.3 37.1
Bank interest payable is largely comprised of interest on the term loan (see
Note 12), which has increased due to rising SONIA rates.
7 Tax
The tax net charge of £3.8m is composed of a trading current tax charge of
£1.0m, as well as a trading deferred tax charge of £4.3m. This is partially
offset by the tax impact on exceptional items, comprising a current tax credit
of £1.0m, as well as a deferred tax credit of £0.5m. The effective
Corporation tax rate on the adjusted loss (before exceptional items) is 30.2%.
The effective tax rate is above the corporation tax rate of 23.5% principally
as a result of non-qualifying depreciation. The effective corporation tax rate
on exceptional items is 10.0% due principally to impairment charges on
goodwill.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023.
The Group has applied the exception under IAS 12 to recognising and disclosing
information about deferred tax assets and liabilities related to top-up income
taxes.
8 Earnings Per Share
26 weeks ended 26 weeks ended 52 weeks ended
2 July 2023 3 July 2022 1 January 2023
(Unaudited) (Unaudited) (Audited)
Weighted average ordinary shares for the purposes of basic earnings per share 764,516,127 764,479,722 765,057,356
Effect of dilution - share options 4,845,334 - 2,434,551
Diluted weighted average number of shares 769,361,461 764,479,722 767,491,907
£m £m £m
Profit/(loss) for the period after tax (1.5) (26.1) (68.5)
Effect of exceptional items on earnings for the period 13.7 36.4 94.3
Adjusted profit for the period after tax 12.2 10.3 25.8
pence pence pence
Basic profit/(loss) per share for the period (0.2) (3.4) (9.0)
Effect of exceptional items on earnings for the year per share 1.8 4.8 12.3
Adjusted profit per share for the period 1.6 1.3 3.3
Diluted earnings per share on profit/(loss) for the period (0.2) (3.4) (9.0)
Diluted earnings per share on adjusted profit for the period 1.6 1.3 3.4
Diluted earnings per share information is based on adjusting the weighted
average number of shares for the purposes of basic and diluted earnings per
share 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 diluted earnings per share figures allow for the dilutive effect of the
conversion into ordinary shares of the weighted average number of options
outstanding during the year.
9 Right of Use Assets and Lease Liabilities
Movements in the right of use assets during the period are shown below:
26 weeks 26 weeks ended 52 weeks ended
ended 3 July 2022 1 January 2023
2 July 2023 (Unaudited) (Audited)
(Unaudited)
£'m £'m £'m
Brought forward right of use assets 237.6 289.4 289.4
Arising on business combination - - 8.5
Additions 3.7 7.1 11.0
Disposals (1.2) - (0.5)
Depreciation (17.2) (17.8) (36.4)
Remeasurements 24.8 11.6 26.0
Impairment (Note 10) (7.6) (24.4) (60.4)
Carry forward right of use assets 240.1 265.9 237.6
When indicators of impairment exist, right of use assets may be assessed for
impairment. As described in Note 10, all non-current assets were assessed at 2
July 2023.
Movements in lease liabilities during the period are shown below:
£'m £'m £'m
Brought forward lease liabilities 396.0 410.4 410.4
Arising on business combination - - 8.5
Additions 3.7 7.1 11.0
Unwinding of discount on lease liabilities 8.7 9.0 17.7
Cash payments made (30.8) (29.9) (59.8)
Liabilities extinguished on disposals (3.8) (2.3) (5.7)
Remeasurements 16.2 8.1 13.9
Carry forward lease liabilities 390.0 402.4 396.0
Analysed as:
Amount due for settlement within one year 58.5 61.6 55.0
Amount due for settlement after one year 331.5 340.8 341.0
Total lease liability 390.0 402.4 396.0
10 Impairment Reviews
Due to the significant inflationary pressures during 2023, the current cost of
living crisis impacting consumer demand and increased interest rates in the
UK, there are indicators of potential impairment of assets and, accordingly,
the Directors have chosen to assess all non-current assets for impairment in
accordance with IAS 36.
Approach and assumptions
The Group's approach to impairment reviews is unchanged from that applied in
previous periods and relies primarily upon "value in use" tests, of restaurant
cash generating units ('CGUs') although for freehold sites utilises
independent estimates of market value by site. Where this is higher than the
value in use, impairment reviews rely on freehold valuations. For intangible
assets, the testing is performed at the level of the relevant group of CGUs
that benefit from the goodwill or other intangible asset.
Discount rates used in the value in use calculations are estimated with
reference to our Group weighted average cost of capital. For 2023, we have
applied the pre-tax discount rate of 11.2% to all assets (2022: 11.5%).
Terminal growth rates range from zero to three percent.
For the current period, value in use estimates were prepared on the basis of
forecasts consistent with those described in Note 1 under the heading "Going
concern basis". The most significant assumptions and estimates relate to
revenue recovery and cost forecasts on site-by-site cash flows.
Results of impairment review
Impairment has been recorded in a number of specific restaurant CGUs. A net
impairment charge of £4.5m (2022: £39.8m) has been recognised, comprised of
an impairment charge of
£17.1m and impairment reversals of £12.6m. Of this charge, a net reversal of
£3.1m was recorded against Property, Plant & Equipment ("PPE") and a net
charge of £7.6m was recorded against Right of Use Assets. A further charge of
£9.1m was recorded as impairment to Goodwill.
A net impairment charge was recorded in the interim period of £13.6m. This
comprised a net impairment charge in the Leisure division of £15.9m, with net
impairment reversals within the Concessions and Wagamama divisions of £1.2m
and £1.1m, respectively. The net impairment charge was within the Leisure
division, which continues to be impacted by the cost-of-living crisis and
reduced customer demand in its core customer segments.
Sensitivity to further impairment charges
The key assumptions used in the recoverable amount estimates are the discount
rates applied and the forecast cash flows. 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 as well as discount rates used.
The resulting sensitivities to fluctuations in the key assumptions have been
summarised as follows:
Property, plant and equipment and right-of-use asset impairment:
Sensitivity Change applied Decrease in Net Impairment Increase in Net Impairment
Expense Expense
Sales forecast +/- 1% £(4.9)m £3.7m
Inflation forecast +/- 1% £(2.9)m £3.4m
Discount rate -/+ 1% £(1.3)m £1.0m
Terminal growth rate +/- 1% £(0.7)m £0.4m
Freehold Valuation +/- 5% £(0.1)m £1.1m
Goodwill impairment:
Sensitivity Change applied Decrease in Impairment Increase in Impairment
Expense Expense
Sales forecast +/- 1% £(3.9)m £3.7m
Inflation forecast +/- 1% £(2.4)m £3.5m
Discount rate -/+ 1% £(0.9)m £2.4m
Terminal growth rate +/- 1% £(0.5)m £2.0m
Freehold Valuation +/- 5% Nil Nil
11 Reconciliation of profit before tax to cash generated from operations
26 weeks ended
26 weeks ended 52 weeks ended
2 July 2023 3 July 2022 1 January 2023
(Unaudited) (Unaudited) (Audited)
£'m £'m £'m
Profit/(loss) on ordinary activities before tax 2.3 (28.5) (86.8)
Net interest charges 21.6 16.3 42.0
Exceptional items (Note 5) 15.2 47.7 117.5
Share-based payments 1.2 1.4 2.4
Depreciation and amortisation 33.1 36.7 74.5
Increase in inventory (0.6) (0.8) (0.5)
Decrease/(increase) in receivables 9.2 (6.9) (6.3)
(Decrease)/increase in payables (19.0) 18.8 7.7
Cash generated from operations 63.0 84.7 150.5
26 weeks ended
26 weeks ended 52 weeks ended
2 July 2023 3 July 2022 1 January 2023
(Unaudited) (Unaudited) (Audited)
Reconciliation of net cash from operating activities to free cash flow £'m £'m £'m
Net cash flows on operating activities 46.7 67.5 118.9
Payment on exceptionals 4.7 3.1 8.6
Payment of obligations under leases (30.8) (29.9) (59.8)
Refurbishment and maintenance expenditure (16.0) (15.6) (36.6)
Payment against onerous lease provision (pre-IFRS 16) 5.3 3.9 8.3
Free cash flow 9.9 29.0 39.4
12 Long Term Borrowings
As at 2 July 2023 As at 3 July 2022 As at 1 January 2023
(Unaudited) (Unaudited) (Unaudited)
Drawn Available Total facility Drawn Available Total facility Drawn Available Total facility
facility facility facility
£'m £'m £'m £'m £'m £'m £'m £'m £'m
Term loan 220.0 220.0 240.9 - 240.9 220.0 - 220.0
Overdraft facility - 15.0 15.0 - - - - - -
Revolving credit facilities - 100.1 100.1 - 111.6 120.0 - 111.5 111.5
Total banking facilities 220.0 115.1 335.1 240.9 111.6 360.9 220.0 111.5 331.5
Unamortised loan fees (6.2) (9.9) (6.6)
Long-term borrowings 213.8 231.0 213.4
Cash and cash equivalents (18.3) 18.3 (72.6) 72.6 (27.7) 27.7
Pre-lease liability net debt 195.5 158.4 185.7
Lease liabilities 390.0 402.4 396.0
Net debt 585.5 560.8 581.7
Cash headroom 133.4 184.2 139.2
At 1 January 2023 and 2 July 2023, the Group has covenants over both the term
loan and the revolving credit facilities (RCF). Both facilities require a
minimum liquidity level of £40m which is measured as the total of cash and
undrawn facilities. On the term loan, the covenant requires total net debt to
be no more than 5.0x EBITDA, gradually reducing to 4.0x by March 2025 until
the end of the facility.
On the RCF, the Group is required to maintain total net debt to EBITDA below
5.25x, gradually reducing to 4.25x by March 2025 until the end of the
facility. In addition, the ratio of RCF debt to EBITDA can be no more than
1.5x, when the RCF is drawn.
During the period ended 2 July 2023, the Group converted £15m of its RCF into
an overdraft facility. The overdraft facility includes the same interest
charge and covenant conditions as the RCF, but provides greater operating and
cost efficiency in managing the Group's debt facilities.
The available revolving credit facilities are reduced from the total facility
by £4.9m of letters of credit issued to external suppliers
Net Debt
Bank loans
Cash and falling due
cash after one Lease
equivalents year liabilities Total
£m £m £m £m
Balance as at 2 January 2023 27.7 (213.4) (396.0) (581.7)
Net repayments of borrowings - - - -
Repayment of obligations under leases (30.8) - 30.8 -
Non-cash movements in the year - (0.4) (24.8) (25.2)
Net cash inflow 21.4 - - 21.4
Balance as at 2 July 2023 18.3 (213.8) (390.0) (585.5)
The non-cash movements in lease liabilities are in relation to the
de-recognition and remeasurement of lease liabilities, while the non-cash
movement in bank loans are in relation to amortisation of prepaid facility
costs.
13 Financial instruments
IFRS 13 'Financial Instruments: Disclosures' requires fair value measurements
to be recognised using a fair value hierarchy that reflects the significance
of the inputs used in the measurements, according to the following levels:
Level 1 - Unadjusted quoted prices in active markets for identical assets or
liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
At 2 July 2023, 1 January 2023 and 3 July 2022, the Group's fair value
measurements were categorised as Level 2, relating to the interest rate cap
derivative instruments entered into during 2021 and 2022.
The Group entered these derivative financial instruments as hedges to manage
its exposure to interest rate fluctuations. The instruments are measured at
fair value using Level 2 valuation techniques after initial recognition. The
fair value of derivative instruments classified as Level 2 is calculated by
discounting all future cash flows by the relevant market discount rate at the
balance sheet date. At 2 July 2023, an asset valued at £17.9m (1 January
2023: an asset of £15.4m; 3 July 2022: an asset of £8.8m) was recognised in
relation to these instruments.
A gain of £4.3m was recognised in the 26-week period ended 2 July 2023 (see
Note 5). Gains of £5.3m and
£11.9m were recognised in the prior interim period and full year,
respectively.
There were no transfers between levels during any period disclosed. The
carrying value of the Group's short- term receivables and payables is a
reasonable approximation of their fair values. The fair value of all other
financial instruments carried within the Group's financial statements is not
materially different from their carrying amount.
14 Subsequent Events
Since the balance sheet date no material subsequent events requiring further
disclosure or adjustment to these financial statements have been identified.
INDEPENDENT REVIEW REPORT TO THE RESTAURANT GROUP PLC
Conclusion
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
2023 which comprises a Condensed Consolidated Income Statement, a Condensed
Consolidated Balance Sheet, a Condensed Consolidated Statement of Changes in
Equity, a Condensed Consolidated Cash Flow Statement and explanatory notes. 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.
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 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, 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.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
5/09/2023
Glossary
Measure Closest GAAP Measure Reconciliation Description
Adjusted diluted EPS Diluted EPS Note 8 Calculated by taking the profit after tax of the business pre-exceptional
items divided by the weighted average number of shares in issue during the
year, including the effect of dilutive
potential ordinary shares.
Adjusted EBITDA Operating Profit Income Statement Earnings before interest, tax, depreciation, amortisation and exceptional
items. Calculated by taking the Trading business operating profit and adding
back depreciation and amortisation.
Adjusted EPS EPS Note 8 Calculated by taking the profit after tax of the business pre-exceptional
items divided by the
weighted average number of shares in issue during the year.
Adjusted operating profit Operating Profit Income Statement & Note 4 for Operating profit prior to the impact of Exceptional items.
IAS 17 basis
Adjusted operating margin N/A Income Statement & Note 4 for Calculated as the Operating profit as a percentage of Revenue. For the
'Adjusted' basis this is
IAS 17 basis
using the profit and revenue prior to Exceptional items
Adjusted profit before tax Profit before tax Income Statement & Note 4 for Calculated by taking the profit before tax of the business pre-Exceptional
items.
IAS 17 basis
Adjusted tax charge Tax on profit from ordinary Income Statement Calculated by taking the tax of the business pre-Exceptional items.
activities
Effective adjusted tax rate N/A Note 7 & Financial Review Calculated as the tax expense as a percentage of profit before tax. For the
'Adjusted' basis this
is using the tax and profit prior to Exceptional items.
Cash headroom Cash & Cash equivalents Note 12 Calculated as the funds available to the business through either its Cash
& cash equivalents
balance or through undrawn facilities, less letters of credit.
Capital expenditure Net cash flow from investing activities N/A This is calculated as the total of Development capital expenditure and
Refurbishment and
maintenance expenditure and is the cash outflow associated with the
acquisition of Property, plant and equipment, intangibles and investments in
the US joint venture.
Development capital expenditure Net cash flow from investing N/A This is the Capital expenditure relating to profit-generating projects upon
which we expect a
activities
commercial return in future years.
EBITDA Operating profit Income Statement & Note 4 for Earnings before interest, tax, depreciation, amortisation and impairment.
IAS 17 basis
Exceptional items N/A Income Statement and Note 5 Those items that are material, and not related to the underlying trade of the
business.
Free cash flow Net cash flow from operating activities Financial Review Adjusted EBITDA (IAS17 basis) less working capital and non-cash adjustments
(excluding exceptional items), tax payments, interest payments and
Refurbishment and maintenance
expenditure.
Like-for-like sales N/A N/A 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 (traded for at least 65
weeks) sites in the current period versus the comparable period in the prior
year. Sites that are closed, disposed or disrupted during a financial year are
excluded from
the like-for-like sales calculation.
Minimum liquidity N/A N/A The minimum liquidity is a financial covenant required under the terms of our
loans to have a
minimum of both available undrawn facilities plus Cash and cash equivalents of
at least £40 million.
Net debt Long-term borrowings Financial Review Net debt is calculated as the net of all borrowings less cash and cash
equivalents, plus the IFRS
16 Lease liabilities.
Pre-lease liability net debt Long-term borrowings Financial Review As above Net Debt but excluding the IFRS 16 Lease liabilities.
Refurbishment and maintenance Net cash flow from investing Financial Review This is the Capital expenditure relating to projects to maintain and refurbish
our estate. No
expenditure activities
incremental financial return is expected on this expenditure.
Return on Invested Capital (ROIC) N/A N/A Outlet EBITDA (pre-IFRS 16 and exceptional charges)/initial capital invested.
Trading business N/A N/A Represents the performance of the business before exceptional items.
TSR N/A N/A Total Shareholder Return over a period. Total shareholder return (TSR) is
calculated as the overall appreciation in the share price, plus any dividends
paid, during a period of time; this is
then divided by the initial purchase price of the stock to arrive at the TSR.
Group EBITDA (VAT adjusted) EBITDA Note 3 Adjusted EBITDA (IAS17 basis) reduced by the benefit received by the Group in
1Q 2022 from
the UK's reduced VAT rate of 12.5%, contributing £10.3m to EBITDA.
1 Return on invested capital defined by outlet EBITDA/initial capex
invested…..outlet EBITDA is the rolling 12 months to June 23 (pre-IFRS 16)
2 Return on invested capital defined by outlet EBITDA/initial capex
invested…..outlet EBITDA is the rolling 12 months to June 23
3 Pre-IFRS 16 and exceptional charges
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