The Restaurant Group plc Interim results for the 26 weeks ended 30 June 2019 A diversified business aligned to structural growth trends Strategic highlights · Wagamama plans on track and progressing well o Market leading like-for-like1 sales performance continues o Addressing strong pipeline of growth opportunities o Site conversion and cost synergy programme on track · Concessions leveraging market opportunities o Like-for-like sales consistently ahead of passenger growth o Further development of brand portfolio with partnerships o Advanced discussions on adjacent market opportunities · Pubs continue to drive growth o Strong like-for-like sales outperformance vs market continues o Customer ratings remain consistently high o Healthy pipeline of new site opportunities · Optimising Leisure2 business o On-going initiatives to improve food offering, service standards and brand proposition o Progress in brand perception and employee engagement o Estate management discipline continues Financial highlights · Like-for-like sales up 4.0%, with total sales up 58.2% to £515.9m (2018: £326.1m) · Adjusted1 profit before tax of £28.1m (20183: £20.7m) · Exceptional pre-tax charge of £115.7m (2018: £8.4m) predominantly relating to a £100.2m impairment charge and a £10.7m onerous lease provision in our Leisure business · Statutory loss before tax of £87.7m (2018 Statutory profit3: £12.2m) · Adjusted EBITDA of £61.4m (20183: £38.4m) · Adjusted EPS4 of 4.5p (20183: 5.9p). Statutory loss per share of 16.1p (2018 earnings per share3: 3.3p) · Operating cash flow of £52.3m (2018: £25.6m) · Net bank debt of £316.8m (2018: £24.2m) with pro-forma net debt/EBITDA at 2.3x · Interim dividend of 2.1p per share, in line with policy 1 The Group's adjusted performance metrics such as like-for-like sales and free cash flow are defined within the glossary at the end of this report 2 Leisure business refers primarily to our Frankie & Benny's and Chiquito brands 3 As restated, refer to note 1 of the financial statements for details 4 Earnings per share adjusted for bonus element following the rights issue in both financial years
Current trading and outlook
· Group like-for-like sales up 3.7% for the first 34 weeks of the financial year benefiting from soft comparatives in the prior year · Like-for-like sales in the most recent six weeks were up 0.2%, driven by the strong performance of our three growth businesses which have continued to outperform their respective markets, largely offset by our Leisure business reverting back to a trend of modest like-for-like sales decline · In summary, trading remains broadly in line with our full year expectations Debbie Hewitt MBE, Non-executive Chairman, commented: "We have traded well throughout the first half of the year, delivering 4% like-for-like sales growth, driven by the market outperformance of Wagamama and our Concessions and Pubs businesses. Our Leisure business delivered a marginal decline in like-for-like sales despite benefitting from the weaker comparatives following last year's extreme weather and football World Cup. We continue to focus on improving our brand offerings and delivering the best possible experience to our customers whilst optimising our Leisure business to enhance the overall Group performance. We are mindful of the headwinds in the casual dining sector and the meaningful uncertainties created by the potential of a 'no-deal Brexit' and are planning with this in mind. However, our business is now better diversified and purposefully positioned to benefit from multiple opportunities for growth. I am pleased to welcome Andy Hornby as our new CEO, who is bringing a strong consumer, brand and people focus to the business." Andy Hornby, Chief Executive Officer, commented: "I am delighted to have joined The Restaurant Group in August. Our three growth businesses of Wagamama, Concessions and Pubs are all out-performing the market and have potential for further growth. At the same time, we have an acute focus on optimising our Leisure business, through targeted operational initiatives and disciplined estate management. Despite the well documented challenges facing the casual dining sector, the Group's diversified set of brands provides firm foundations." Notes · The estate at 30 June 2019 comprised of 356 Leisure sites (240 Frankie & Benny's, 80 Chiquito, 13 Coast-to-Coast, eight Garfunkel's, six Filling Station, five Firejacks and four Joe's Kitchen), 135 Wagamama sites, 70 Concessions and 82 Pub restaurants (all based in the UK). In addition the Wagamama business has five restaurants in the US and 57 franchise restaurants operating across a number of territories. · 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 57 of our latest Annual Report and Accounts which can be found on the Group website: https://www.trgplc.com/investors/reports-presentations/ · 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. · The Group's adjusted performance metrics such as like-for-like sales and free cash flow are defined within the glossary at the end of this report. Enquiries:
The Restaurant Group plc Andy Hornby, Chief Executive Officer Kirk Davis, Chief Financial Officer |
020 3117 5001 |
MHP Communications Oliver Hughes Simon Hockridge Alistair de Kare-Silver |
020 3128 8742 / 8789 TRG@mhpc.com |
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Investor and analyst conference call facility In conjunction with today's management presentation meeting, a live conference call and webcast facility will be available starting at 9:30am. If you would like to register, please contact Robert Collett-Creedy at MHP Communications for details on 020 3128 8147 or email TRG@mhpc.com. The presentation slides will be available to download from 9:30am from the Company's website: https://www.trgplc.com/investors/reports-and-presentations Business review Introduction The Group is aligned to structural growth trends with Wagamama, Pubs and Concessions contributing in excess of 70% of Group outlet EBITDA in the period. Wagamama, the UK leader in pan-Asian cuisine, continues to deliver a market leading performance and we are on track to deliver our plans for the business as set out below. Concessions benefits from continued passenger growth, albeit at a slower rate than in previous years and we are exploiting opportunities for new space as airports further invest in terminals, capacity and food and beverage offerings. Furthermore, given our strength in developing and operating a broad range of formats, we see potential over the medium term for growth in adjacent markets outside of travel hubs in the UK and in international airports. Our Pubs benefit from being in strong locations with attractive market dynamics, coupled with a market leading proposition and operational capability. We have a healthy organic pipeline of sites and have a number of initiatives to continue to drive clear sector outperformance. We continue to make progress in our Leisure business, undertaking various initiatives to improve food offering, service standards and brand proposition. However, we remain exposed to the well documented retail structural decline and a challenging cost environment, whilst competing in saturated local markets. We have therefore taken a more cautious view on the medium-term outlook within our Leisure business which has been reflected in the impairment charge being recognised at the half-year. In the first half of 2019, we have made good progress on the three key elements of the strategy that we set out at our preliminary results in March 2019, which were: · Deliver the benefits of the Wagamama acquisition; · Grow our Concessions and Pubs businesses; and · Optimise our Leisure business 1. Deliver the benefits of the Wagamama acquisition Wagamama delivered another strong performance in the first half of 2019 with the core UK business benefiting from both strong in restaurant and delivery growth. UK like-for-like sales growth remained significantly ahead of the wider market, with like-for-like sales up 10.6% in the first six months of the year (to 30th June 2019). Adjusted EBITDA (on a rolling 12 months basis) grew to £51.4m in the period to 30th June 2019 from £42.3m (for the last reported financial year ending 29th April 2018). Wagamama retained its market leading position with the highest net promoter score among casual dining brands in the UK, and we have benefited from excellent staff retention at our restaurants, with employee turnover reaching its all-time best position for both front and back of house teams. Among other initiatives implemented in the first half of the year, we launched a new menu in May, continuing our commitment to provide constant innovation aligned with our customers' evolving preferences. The new menu extends the range of vegan options, including 'Avant Gard'n', our bestselling vegan dish. We also launched our new lighter 'Kokoro' bowls (sub-650 calorie range) giving our guests additional healthy eating choices, as well as launching an improved drinks and desserts range. Over the period, a strong partnership with Deliveroo and the implementation of operational and technological improvements in our delivery proposition contributed to delivery sales rising to c.12% of total sales from c.9% in the same period last year. We completed five transformational restaurant refurbishments in the period, adding 200 covers with an expected return on invested capital of at least 45%. As set out below, we are progressing well on the multiple growth avenues that the Wagamama acquisition has unlocked. UK New sites & Concessions: Our selective approach to high quality openings continues and we expect to open three sites this year including "The Bower" in Old Street, London, and a site in Heathrow Terminal 3. We currently expect to open four to five sites in 2020 including a site in the planned terminal redevelopment at Manchester airport. Delivery Kitchens: We continue to explore how best to serve our customers where we don't have a Wagamama restaurant and launched our first Wagamama-only Delivery Kitchen in Hackney in July. We plan to open at least another two delivery kitchens by the end of the year. Food-to-go formats: We are on track to launch our first food-to-go concept, "Mamago", in Q4 2019 in Fenchurch Street, London. The proposition has been inspired by the Wagamama core business, with a menu of made-to-order pan-Asian cuisine ranging from grab-and-go adaptions on Wagamama classics like Katsu to new and innovative, nutritionally-balanced and flavour-packed dishes built for breakfast and lunch. International: Our US business has delivered improved trading momentum benefitting from improved team stability and operational execution. We are progressing with our review of strategic options for the business and will provide a further update in due course. Synergies We are on track to deliver at least £15m of cost synergies in 2021, having made good progress in the first half of the year. In line with the acquisition plan, we prioritised the renegotiation of supply contracts for food, drinks and consumables, and have obtained significant savings through rate equalisation and economies of scale. We have also obtained additional savings through shared expertise across the group in areas such as energy efficiency and maintenance, as well as through eliminating the duplication of certain professional services. We anticipate that 60% of the cost synergy programme will benefit the cost base of Wagamama and 40% in to the Legacy-TRG5 business. On the site conversion programme we are on track to deliver an incremental EBITDA benefit of £7m per annum at maturity in 2021 from the conversion of 15 sites. Our Leisure sites in Stevenage and Bletchley converted to Wagamama in late August and another six sites will convert between September and November, with an expected return on invested capital of circa 50%. We are planning to convert at least seven more sites in 2020. 5 Excludes Wagamama. 2. Grow our Concessions and Pubs businesses Concessions Our Concessions business primarily operates in 16 UK airports and four UK rail stations. At its core we manage long-term partnerships and operate multiple formats and brands to deliver food and beverage solutions to our partners. Our sales continue to trade ahead of passenger growth and we continued our strong track record of retaining sites with at least 85% of sites having received contract renewals beyond the term of the initial contract. On average our contracts have been extended for 90% of the original concession term. In the first half of 2019, we developed further trials and rollout of technologies to improve customer convenience, particularly through waiting time screens (a display that informs the average service and kitchen time to receive an order), pay-at-table and order and pay functionalities. We expect to open at least five new sites in 2019, two of which have already opened, including our Sonoma site at Gatwick airport which is our largest Concessions restaurant at circa 7,000 square feet, and can accommodate over 300 covers at a time. We have also secured six sites in the planned Manchester airport terminal redevelopment which are due to open in 2020. The terminal is expected to reach maturity in 2022, with the gradual shift of passengers out of the existing terminal having a short-term impact on profitability through 2020 and 2021. We are also exploring opportunities in adjacent markets outside of travel hubs in the UK and in international airports. Pubs We currently have an estate of 83 Pubs, which are predominantly located in countryside and suburban locations, with a premium proposition focused on the local customer base. In the first half of 2019, like-for-like sales continued to outperform the overall pub restaurant sector. In the first half of 2019, we continued to evolve our menus in line with customer preferences. For example, we refined and extended our vegan range, with the introduction of items such as mushroom pie and beetroot burger, now our top selling vegan dishes. On our drinks range, we have introduced a larger selection of low/no alcohol beers, reflecting increasing customer demand, and extended the opportunity for pub managers to source and stock local beers and craft lager, in addition to the already well-established cask range, which have been well received by customers. We have, in certain locations, developed existing space to cater for private functions, including weddings. For instance, at the Mill House in Hook we have refurbished the adjacent barn, which is now available to host private events, meetings and small family parties. We also continue to explore opportunities to expand our accommodation offering, currently available at the Arrow Mill in Alcester and The Highdown in Goring-by-the-Sea. We made further progress in the rollout of technology initiatives to improve our customer experience and commercial performance. We started trialling an in-app ordering function that allows customers in our busy gardens to order from their table. We also launched an improved version of our reservation software, which allows for improved customer flexibility. We have maintained our social media score reviews at 4.4/5, confirming our commitment to delivering a high standard of customer service. We expect to open four new sites this year, three of which have already opened. We will continue our selective approach to site expansion, with a disciplined approach to site criteria and strict financial hurdles, whilst our geographical reach is gradually expanding across the UK. 3. Optimise our Leisure business Our Leisure business has benefitted from our initiatives to improve food offering, service standards and brand proposition, as set out below. Nevertheless, the backdrop remains challenging and we continue to take a disciplined approach to our estate. In the first eight months of 2019, we have closed 16 sites (10 Frankie & Benny's, four Chiquito, one Coast to Coast and one Garfunkel), reducing the overall leisure estate to 352 sites. Among those closed, we executed the following actions: · Eight sites converted or are in the process of converting to Wagamama · Three sites closed and were exited, by exercising the break clauses or lease expiry · Five sites closed as they were no longer generating acceptable cash returns We are making progress in negotiations with landlords when there are lease events, having obtained rent reductions in the most recent negotiations as well as greater flexibility in lease terms. The remaining estate has a median of six years to the first potential exit date (i.e. lease expiry or the date at which we can exercise a break clause). We expect to exit at least 50% of Leisure sites reaching their next exit date, and will continue to explore market opportunities to exit these sites earlier where possible. Frankie & Benny's Our focus over the half year has been on enhancing the brand's food proposition, improving customer engagement and affinity, and continuing to leverage the existing estate. In May we launched our new menu, where we reduced the overall size of the menu by circa 10%, simplifying our offer for customers and streamlining operations for our restaurant teams. The reduced menu includes 26 new dishes that refocused on our Italian American heritage and the removal of a number of less popular dishes. Feedback on our new menu has been positive, with dishes such as the Meatballs Al Forno and Toblerone Cheesecake being particularly popular with customers. Our increased focus on customer engagement has been driven through the better use of social media, and proactive marketing to create a 'buzz' around the brand. A key campaign in the period was "Bring It Back" where we surveyed our customer base using social media to find out what they would like to see return to the menu which led to previous dishes such as Spaghetti Chicken Alfredo and Vegan Nuggets returning to the Summer Specials menu. We also created significant engagement around the news of Prince Archie's birth, where we offered everyone named Archie a free meal in our restaurants. The social campaign had organic reach of over 2 million, with 30,000 customers engaging with the content. We continue to look for opportunities to leverage our estate and have increased the penetration of delivery sales in our core menu and virtual brands. We are now active across 193 sites in partnership with multiple aggregators and operate two virtual brands from most sites. The two virtual brands are "Stacks", providing our customers with "fully loaded burgers" and "Birdbox" our fried chicken brand with a southern American twist. As a result of our initiatives we continue to see a consistent improvement in customer ratings on social media. Chiquito In the first half of 2019, the key objectives have been to further refine the brand identity and proposition, re-focusing on our core values of fun, choice and value. We launched a new menu in April which had better choice and a range of options focused on health and premiumisation. We have created a new menu category, "Greens and Grains", which includes new dishes such as "Burrito with Benefits" and "Chopped and Topped Salad". We also launched vegan and breakfast specific menus, providing our customers with greater choice. We have also increased our presence on social media, with a more proactive engagement with our customers. For instance, a video involving Sam Thompson and Pete Wicks from the reality programmes 'Made in Chelsea' and 'The Only Way is Essex' featured in one of our restaurants and raised our brand's share of voice on social media to a new high. We continue to look for opportunities to leverage our estate and have increased the penetration of delivery sales in our core menu and virtual brands. We are now active across 73 restaurants in partnership with multiple aggregators and operate two virtual brands from most sites. The two virtual brands are "Kick-Ass Burrito" and "Cornstar Tacos". Kick-Ass Burrito is a great value, virtual-only burrito brand. Cornstar Taco offers fresh, full flavour and fully loaded crispy tacos and nacho boxes. As with Frankie & Benny's, we continue to see an improvement in our customer ratings on social media particularly in areas related to service and value. Summary · Enlarged group strongly orientated towards growth · Wagamama acquisition plan on track · Like-for-like sales growth ahead of passenger growth in Concessions with multiple opportunities ahead · Pubs continue to outperform the market with opportunities for further growth · Continuing challenges in Leisure business, addressed through targeted initiatives and disciplined estate management Current trading and outlook · Group like-for-like sales up 3.7% for the first 34 weeks of the financial year benefiting from soft comparatives in the prior year · Like-for-like sales in the most recent six weeks were up 0.2%, driven by the strong performance of our three growth businesses which have continued to outperform their respective markets, largely offset by our Leisure business reverting back to a trend of modest like-for-like sales decline · In summary, trading remains broadly in line with our full year expectations Financial review Like-for-like sales improved by 4.0% in the first half of the year with total turnover up 58.2% to £515.9m (2018: £326.1m). Like-for-like sales and total sales increases reflect the benefit of the Wagamama acquisition being consolidated into the TRG business. In the period we saw strong performances from Wagamama which has continued to significantly outperform its core UK market, from our Concessions business which has traded ahead of air-passenger growth and from our Pubs business, which has consistently traded ahead of the pub restaurant sector. Our Leisure business delivered a marginal decline in like-for-like sales in the period, despite benefitting from the weaker comparatives due to the extreme weather and the football World Cup last year. Adjusted operating profit increased by 70.8% to £36.5m (20183: £21.3m) with the adjusted operating margin rising from 6.5% to 7.1%, reflecting the like-for-like sales growth in the period coupled with the benefit from the Wagamama acquisition. On a statutory basis, the Group's operating loss was £79.3m (20183: operating profit: £12.9m), reflecting an exceptional pre-tax charge of £115.7m related predominantly to the impairment and onerous lease provisions in our Leisure business. Adjusted profit before tax for the period was £28.1m (20183: £20.7m), with adjusted profit after tax of £22.1m (20183: £16.2m). Adjusted earnings per share were 4.5p (2018: 5.9p). On a statutory basis, our loss before tax was £87.7m (20182: profit before tax: £12.2m) and statutory loss per share was 16.1p (20182 statutory earnings per share: 3.3p). The Group has continued to experience external cost pressures throughout 2019, including inflation in wages, purchases, property and utility costs. We now expect gross cost headwinds in the region of £27m for the full-year, of which we expect to mitigate circa 40% (excluding the benefits arising from the Wagamama cost synergy programme). The Group remains cash generative with free cash flow of £27.0m in the period (2018: £14.2m); the increase in free cash flow reflecting the cash generated from the Wagamama operations, partially offset by the increased cost of financing. The Group continues to invest in future growth opportunities and has spent £20.3m on development capital expenditure (2018: £11.3m). Net Debt increased by £25.7m to £316.8m. The increase in Net Debt was predominantly driven by the one-off acquisition and integration cost relating to Wagamama of £20.7m. Restructuring and exceptional charge An exceptional pre-tax charge of £115.7m has been recorded in the period (2018: £8.4m), which includes the following: · A net impairment charge of £100.2m (2018: £6.2m) has been recognised in the period. Of the £100.2m charge, £97.9m related to restaurants trading within in our Leisure business and £2.3m relates to two Wagamama restaurants in the US. The impairment charge comprised of two main elements: (i) In the Leisure business we have recognised an impairment charge across sites that were identified as structurally unattractive; and
(ii) In addition, given the well documented over capacity and continued like-for-like sales decline in the casual dining market, and ongoing cost headwinds we have taken a more cautious medium term outlook when assessing the Leisure business for impairment · A write off of £1.9m (2018: £nil) was made to the carrying value of the property, plant and equipment for sites which will be converted to Wagamama · Onerous lease provisions resulted in a charge of £10.7m in the period (2018: £2.3m). This comprised a £0.4m credit in respect of unutilised provisions following the successful exit of four sites ahead of expectations and a further charge of £11.1m was provided for in the period. £5.7m was in respect of new sites where there is an element of the lease that is now onerous and £5.4m in respect of sites previously provided for · An exceptional charge of £3.0m (2018: nil) was made relating to the acquisition and integration costs of Wagamama The tax credit relating to these exceptional charges was £14.8m (20183: £1.3m). Cash expenditure associated with the above exceptional charges was £27.5m in the period (2018: £5.7m). The cash cost related to onerous leases of £6.7m (2018: £5.7m) and the cost of the acquisition and refinancing of £20.7m (2018: £nil). Interim dividend The Board proposes an interim dividend of 2.1p, reflecting the Board's policy of paying a dividend covered two times by adjusted profit after tax. The interim dividend will be paid on 10 October 2019 to shareholders on the register on 13 September 2019 and shares will be marked ex-dividend on 12 September 2019. FY19 Guidance We expect to spend £50m to £55m on development expenditure in 2019; comprising: · Four new Pubs · At least five new Concessions, including the initial expenditure relating to Manchester terminal redevelopment · Five new Wagamama sites (two UK, one Airport, two US) · Eight Leisure site conversions to Wagamama · Roll-out of delivery kitchens and pilot of Wagamama Grab & Go concept, "Mamago" Refurbishment and maintenance capital expenditure will range between £30m to £35m. This will include five transformational refurbishments of Wagamama UK sites, as well as two Pubs and one Concessions refurbishment projects. · Depreciation expected to be between £47m to £49m · Debt interest expected to be between £15m to £16m · Provision interest expected to be circa £1m Summary adjusted trading income statement:
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26 weeks ended 30 June 2019 |
26 weeks ended 1 July 2018 |
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£m |
£m |
% change |
Revenue |
515.9 |
326.1 |
58.2% |
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Adjusted1 EBITDA |
61.4 |
38.4 |
60.1% |
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Adjusted1 operating profit |
36.5 |
21.3 |
70.8% |
Adjusted1 operating margin |
7.1% |
6.5% |
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Adjusted1 profit before tax |
28.1 |
20.7 |
35.6% |
Adjusted1 tax |
(5.9) |
(4.5) |
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Adjusted1 profit after tax |
22.1 |
16.2 |
36.9% |
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Adjusted1 EPS (pence) |
4.5p |
5.9p |
(23.4%) |
1 Adjusted measures are stated before exceptional items and are as defined within the glossary
Summary cash flow statement:
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26 weeks ended 30 June 2019 |
26 weeks ended 1 July 2018 |
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£m |
£m |
Adjusted1 operating profit |
36.5 |
21.3 |
Working capital |
(8.8) |
(13.0) |
Non-cash adjustments |
(0.4) |
0.2 |
Depreciation |
25.0 |
17.0 |
Net cash flow from operations |
52.3 |
25.6 |
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Net interest paid |
(7.3) |
(0.4) |
Tax paid |
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(4.0) |
(2.1) |
Refurbishment and maintenance capital expenditure |
(14.0) |
(8.9) |
Free cash flow |
27.0 |
14.2 |
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Development capital expenditure |
(20.3) |
(11.3) |
Movement in capital creditor |
(4.0) |
1.7 |
Utilisation of onerous lease provisions |
(6.7) |
(5.7) |
Post-acquisition costs |
(20.7) |
- |
Other items |
(1.0) |
(0.0) |
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Cash outflow |
(25.7) |
(1.1) |
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Group net debt at start of period |
(291.1) |
(23.1) |
Group net debt at end of period |
(316.8) |
(24.2) |
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