3 October 2017

Revolution Bars Group plc (LSE:  RBG)

Preliminary results for the 52 weeks ended 1 July 2017

LFL sales and capital investment driving growth in underlying earnings

Revolution Bars Group plc ("the Group"), a leading UK operator of premium bars, trading under the Revolution and Revolución de Cuba brands, today announces its preliminary results for the 52 weeks ended 1 July 2017.  The comparative period is the 53 weeks ended 2 July 2016.  As previously disclosed in the trading update on 25 July 2017, the full year 2016 results have been restated.  Full details of this restatement are set out in the Financial Review.

Overview

Revenue was £130.5m (2016: £119.5m), with an increase in like-for-like** sales of 1.5% (52 weeks).

Six new sites opened during the period - four Revolución de Cubas during the first half in Harrogate, Aberdeen, Reading and Glasgow, and two Revolutions towards the end of the second half in Southend and Torquay.  In addition, major refurbishment projects were undertaken during the last quarter at the Revolutions in Blackpool and Cardiff.  Based on trading levels achieved to date, the new bars are on track to deliver excellent returns on capital, consistent with the five new openings in the prior period, which achieved returns on capital of 32% in their first full financial year.

Growth in adjusted EBITDA*** to £15.1m (2016 Restated*: £13.0m) was driven by a solid underlying performance from like-for-like** venues, full year mature contributions from five venues opened in the comparative period, and part-year contributions from six openings in the current period.

Highlights

·     Revenue £130.5m (2016: £119.5m)

·     Like-for-like** sales +1.5%

·     Gross margin improved by 82 bps

·     Adjusted EBITDA*** £15.1m (2016 Restated*: £13.0m)

·     Profit before Tax £3.6m (2016 Restated*: £5.1m)

·     Adjusted profit before tax*** £9.3m (2016 Restated*: £7.4m)

·     Earnings per share 8.2p (2016 Restated*: 8.8p)

·     Adjusted Earnings per share*** 14.2p (2016 Restated*: 11.7p)

·     Final dividend of 3.30 pence per share (assuming no acquisition of the Group before the dividend is paid)

Recommended cash offer for the Group

Following the Group's trading update in May 2017 updating investors on lower than anticipated profitability for the 52 weeks ended 1 July 2017, and the resulting drop in share price, Stonegate Pub Company Limited ("Stonegate") made an approach to acquire the Group.  On 24 August 2017, the Board recommended Stonegate's cash offer of 203 pence per share, which represented a 62.4 per cent premium to the share price prior to the commencement of the offer period on 31 July 2017.  It is expected that the Group's shareholders will vote on the recommended cash offer by Stonegate on 17 October 2017.

The Board is also engaged with Deltic Group plc ("Deltic") as a possible offeror for the Group.  Deltic has outlined a merger proposal, which the Board has rejected due to significant concerns regarding both value and deliverability.  Deltic has indicated that, in order to put forward its merger proposal and discuss it with the Group's shareholders, it will in due course publish its own profit forecast and a quantified financial benefits statement in respect of a merger.  In parallel, Deltic has also stated that it continues to evaluate a possible cash offer for the Group.  The Takeover Panel announced on 21 September 2017 that Deltic must either announce a firm intention to make an offer for the Group under Rule 2.7 of the City Code on Takeovers and Mergers, or announce that it does not intend to make an offer, by 5.00 pm on 10 October 2017.  Deltic is continuing to perform due diligence on the Group, and the Board is committed to ensuring that the interests of shareholders are best served.

Current trading and the future

Like-for-like sales in the first quarter of the current period are at +0.3%.  July and August returned to a more normal trading pattern following the terrorist incident in Manchester in May, whilst September trading, for the sector as whole, has been disappointing, largely due to this year's very wet and cool weather compared to record temperatures in September last year.

The first of six new sites planned for the new financial period opened in Belfast in the third week of July.  Belfast Revolución de Cuba has achieved the highest sales levels of all venues opened in the last two years and has averaged £80k per week over the first 9 full weeks of trading.  Three further Revolutions are scheduled to open in Solihull, Inverness and Putney before Christmas and two new Revolución de Cubas will open in the second half.  The pipeline of new venues is building very strongly and contracts have already been exchanged on a further two sites that are due to open in the next financial period.

The Board is confident in the current strategy, the underlying financial strength of the Group, its brands and strong customer propositions, which have underpinned three years of consistent like-for-like growth. 

Income statement summary

* Restated - See note 1 of the consolidated financial statements for an explanation and analysis of the prior year adjustments included in respect of the profit for the 53 weeks ended 2 July 2016

**Like-for-like sales are defined as total retail sales from bars that have been trading continuously for at least 12 months.

***Adjusted EBITDA excludes exceptional items and non-recurring opening costs (see reconciliation table on page 12 of the Finance review).

For further information:

CHAIRMAN'S STATEMENT

Our business

The strategy of the Group is to provide high-quality retail brands in the leisure sector.  Our business comprises two strong brands: Revolution, which is focused on young adults and Revolución de Cuba, focused on a broader age range.  Whilst both businesses are wet-led, food is an important part of our growth and of our appeal to both customer groups.  Our strategy for growing the business is to be customer focused, continually striving to provide a better experience both in terms of product offering, ambience and facilities leading to repeat visits and driving like-for-like sales. The Group is additionally focused on growing its footprint and number of premium bars by seeking new sites in good locations, and investing capital to deliver good returns.  This year we opened six new venues, four of which were Revolución de Cubas. Two years ago, Revolución de Cuba traded from only five venues but, including Belfast, which opened shortly after the period end, the brand now trades from fourteen venues and has the potential for further significant growth in the number of trading units.

At the beginning of the period, the Group operated from 62 venues (53 Revolution and nine Revolución de Cubas). During the reporting period there were six openings and we temporarily closed one venue in May, but re-opened it in September 2017, and therefore the Group traded from 67 venues at the end of the reporting period.

Our results

Our reported results show good progress against the prior period, with sales growth of +9.2% and even stronger growth in adjusted EBITDA*** at +16.0% against the restated figure for the prior period. We consider adjusted EBITDA*** to be the key measure that best represents the business' underlying performance as it excludes exceptional items and bar opening costs that are a function of the timing of the new venue development programme rather than the underlying trade.  Last year's adjusted EBITDA*** has been restated from £15.6m to £13.0m.  Operating profit was £3.7m (2016 Restated*: £5.3m) but this was after charging exceptional items of £4.4m (2016 Restated*: £1.4m).

During the year, there was significant change within our finance team.  This included the Chief Financial Officer, Sean Curran, and the Group Financial Controller, who had both been with the business for over ten years, both leaving the Group. Chris Chambers replaced Sean in the autumn of 2016 but resigned shortly thereafter in February 2017. Mike Foster joined the business in March 2017, initially as interim Finance Director, before being appointed to the Board and as the Group's Chief Financial Officer in early June 2017. 

The new team's initial focus was to assess the forecast results for the current period.  This review resulted in the trading update that was released on 19 May 2017. The current finance team has strengthened and upgraded the systems and processes of the finance function. Additionally, a detailed review has been undertaken of the application of the Group's accounting policies and practices. This review has resulted in a restatement of the prior period's results.

Recommended cash offer for the Group

Following the Group's trading update in May 2017 updating investors on lower than anticipated profitability for the full year ended 1 July 2017, and the resulting drop in the Group's share price, Stonegate Pub Company Limited ("Stonegate") made an approach to acquire the Group.  On 24 August 2017, the Board recommended Stonegate's cash offer of 203 pence per share, which represented a 62.4 per cent premium to the share price prior to the commencement of the offer period on 31 July 2017.  It is expected that the Group's shareholders will vote on the recommended cash offer by Stonegate on 17 October 2017.

The Board is also engaged with Deltic Group plc ("Deltic") as a possible offeror for the Group.  Deltic has outlined a merger proposal, which the Board has rejected due to significant concerns regarding both value and deliverability.  Deltic has indicated that, in order to put forward its merger proposal and discuss it with the Group's shareholders, it will in due course publish its own profit forecast and a quantified financial benefits statement in respect of a merger.  In parallel, Deltic has also stated that it continues to evaluate a possible cash offer for the Group.  The Takeover Panel announced on 21 September 2017 that Deltic must either announce a firm intention to make an offer for the Group under Rule 2.7 of the City Code on Takeovers and Mergers, or announce that it does not intend to make an offer, by 5.00 pm on 10 October 2017.  Deltic is continuing to perform due diligence on the Group, and the Board is committed to ensuring that the interests of shareholders are best served.

Our Board

As previously noted, Chris Chambers resigned from the Board in February 2017.  Mike Foster was appointed as Chief Financial Officer (and to the Board) in early June 2017. We also welcomed Jemima Bird as a non-executive director in December 2016.

Our dividend

To date, the Board has adopted a progressive dividend policy reflecting the cash flow generation and long term earnings potential of the Group whilst retaining sufficient capital to fund investment to grow the business.  However, in the light of the restatement of profits relating to earlier periods and the lower level of underlying earnings for the current period relative to original expectations, the Board is proposing a final dividend of 3.3 pence per share (2016: 3.3 pence).  This will result in the dividend for the full year being at 4.95 pence per share, an interim dividend of 1.65 pence per share (2016: 1.5 pence) having been paid on 6 April 2017.

The final dividend is subject to approval at the Company's Annual General Meeting and would ordinarily be expected to be paid on 7 December 2017.  However, if the Stonegate acquisition of the Group completes prior to the Annual General Meeting taking place, the dividend will not be payable.

Stonegate will have the right to reduce the amount of consideration payable for each Revolution Share by the amount of any dividend (or other distribution) which is paid or becomes payable by Revolution to Revolution Shareholders before the date on which the proposed scheme of arrangement becomes effective, which is expected to be on or about 23 October 2017. Based on the expected timetable, therefore, it is not anticipated that any dividend (or other distribution) will be paid or that the offer price will be reduced.

If Stonegate does exercise its right to reduce the amount of consideration payable for each Revolution share by the amount of any dividend (or other distribution) that has not been paid, Revolution Shareholders will be entitled to receive and retain that dividend (or other distribution).

Our people

The Group has a skilled workforce as well as experienced senior and regional management teams with proven credentials in the industry. Strong cohesive teams have been built across our businesses with a focus on staff training and development to continuously improve individual capabilities and trading performance. I would like to recognise the commitment and the substantial effort of all our employees and thank them for their contribution to the Group's performance. It is their continued dedication and commitment to the business together with a clear strategic plan that is integral to our achievements.

Our future

Given the recommended cash offer for the business from Stonegate, it is likely that the ownership of the Company will change in the next few weeks.  However, such an event is not certain and, whatever the outcome of the potential transactions, the business is well placed to succeed.

We have two strong brands that are trading well in a challenging market.  In the first quarter of the new period, like-for-like** sales are +0.3% and our first new opening this year in Belfast has achieved the best initial sales levels of all twelve openings in the last two years averaging £80k per full week since opening.

The sector is facing some well-publicised and significant cost headwinds: minimum wage and living wage rate increases, the introduction of the apprenticeship levy and substantial increases in general rates following the 2017 revaluation.  Staffing and recruitment may now also come under pressure due to Brexit-related issues.  However, now that we have dealt with the historical financial reporting issues, and have improved reporting and controls in place, we are better placed to be able to rise to these challenges.

The scale and strength of our new venue pipeline and the excellent returns achieved by new venues opened in the last two years means that the business can be confident about achieving its growth targets going forward.  The clear and focused strategy, the quality of our sites and proposition, and the talent within the Group, leaves the business well placed for further growth in 2018.

Keith Edelman

Chairman

3 October 2017

* Restated - See note 1 of the consolidated financial statements for an explanation and analysis of the prior year adjustments included in respect of the profit for the 53 weeks ended 2 July 2016

**Like-for-like sales are defined as total retail sales from bars that have been trading continuously for at least 12 months.

***Adjusted EBITDA excludes exceptional items and bar opening costs (see reconciliation table on page 12 of the Finance review).

CEO'S STATEMENT

I can report that the business has made good operational progress during the last reporting period.  At the heart of that progress is our focused strategy to:

·     build customer loyalty, ensuring that all visits to our venues are an excellent experience

·     drive continued profit improvement from existing sites

·     expand the estate into new profitable locations

Building customer loyalty

Customer loyalty is determined by many factors.  We do not take anything for granted with people in all areas of our business contributing fully to this goal.

·     Our Drinks purchasing team is continuously seeking new products and looking to premiumise, innovate and evolve our customer proposition through new products, service quality, and brand support.  Cocktails, which comprise 23% of our total drink sales by value, are a good demonstration of the success of this team's approach.  Our two brands currently list in the region of 100 different cocktails and change menus 4 times per annum to ensure that there is always something new.  Last year we introduced more than 130 new serves.

·     Our Food development team is always seeking to innovate with new dishes and ways in which to make the service delivery faster and more consistent.  We regularly introduce specials to determine whether a new dish could become part of the regular menu.  In a small number of venues, we are currently trialling a reduced number of menu options with encouraging results, delivering important benefits such as reduced wastage, labour savings and purchasing economies.

·     Our People development teams are continually enhancing training and recruitment programmes to ensure that we have front line staff capable of providing outstanding customer service.

·     Our Sales and Marketing teams promote our proposition particularly well.  By getting close to and understanding our customers, through both social media and in our venues, they ensure that our customers' needs are fulfilled.  Our pre-booked revenue, which has grown consistently year-on-year, is a key driver of like-for-like sales.  In the last year £17.1m of our income was pre-booked.  We also monitor standards very closely through customer feedback scores and a "mystery visitor" programme, and results are reviewed weekly by the senior management team.

·     Our Operations teams are ultimately responsible for the business delivery, and have to plan and coordinate the right resources to ensure the customer enjoys an excellent experience.

Driving profit improvement from existing sites

Driving profit improvement from existing sites requires a focus on both sales and costs, which is integral to the way that all our teams are managed.

·     Premiumisation of our drink and food offerings and strong brand identities differentiate our business model and customer offer.  We are conscious that, in a challenging market place, we do not overprice and therefore monitor competitor prices very closely to ensure we continue to be competitive and take advantage of our premium positioning.

·     Driving sales is the most important activity of our Sales and Marketing teams, who constantly produce new campaigns and work with brand owners to build promotions to drive footfall and to encourage customers to increase spend.  For example, cocktail master classes are very popular - in the last year we achieved £4.7m of incremental sales and have recently launched an on-line retail option for our flavoured vodkas.  During the year, we recruited two corporate sales managers to also develop this part of the market.  Their early results are encouraging and, in particular, our Christmas bookings for 2017 are significantly ahead of last year. 

·     Our Finance and IT teams play a critical role in providing the systems and reporting to facilitate running an efficient business.  Significant IT developments have been undertaken in the year to support the Sales, Operations and People Development teams.  Our Finance team has had much to contend with in the last year and it is now very clear that our accounting systems and processes were in need of upgrading.  Improvements have been made, and will continue to be made, in this area to provide a more robust financial infrastructure and in so doing bring additional benefits.

·     As ever, it is the Operations team at the "sharp end" of the business who drive sales through outstanding operating standards and marketing effectively to their customers at a local level.  Payroll is our biggest cost and it has risen significantly in recent years as a result of the increases to Minimum wage and Living wage.  Our efforts to meet these structural challenges have not been quick enough, but we are introducing new systems that will result in improved labour scheduling and better control of this significant cost.

Expansion of our estate

Our property team is driving significant value through its site selection and property development activities.  During the reporting period, we opened two Revolutions in Southend and Torquay and four Revolución de Cubas in Harrogate, Aberdeen, Reading and Glasgow.  Revolution in Macclesfield closed at the end of May 2017 but reopened in September 2017 after the period end.  Shortly after the period end we opened a Revolución de Cuba in Belfast and now trade from 69 venues (55 Revolution and 14 Revolución de Cuba).

Sales levels at the new sites have been excellent.  Our primary objective at opening is to ensure that we provide an outstanding customer experience and our venues are resourced accordingly.  Newly trained staff are unable to achieve full efficiency initially, but this strategy aims to ensure good feedback scores, good word of mouth marketing and achieve significant repeat business.  Additionally, there are significant marketing costs associated with a launch, and therefore new sites do not make a full contribution in their first year of trading (and, in some cases, can take a full year to reach normal operating maturity and efficiency).  We believe this is the right approach for the long term health and viability of these new venues, a belief which is being borne out in practice by the achievement of very strong returns in the second year of trading.

Six openings are planned for the new financial period; three Revolutions and three Revolución de Cubas.  Belfast Revolución de Cuba opened in July and new Revolutions are planned to open before Christmas in Inverness, Solihull and Putney.  Two further Revolución de Cubas are expected to open in the second half.

The property team has built a very strong pipeline with three further sites that could potentially open in the second half of the current financial period, but given that our developments are primarily funded from internally-generated cash resources, they are planned for early in the 2018/19 financial period.  The pipeline being developed beyond that is considerable and we would expect to be able to open at least six sites per annum for several years onwards.

Results

The year on year growth in total revenue at +9.2% and adjusted EBITDA*** +16.0% reflect good progress despite the absorption of significant cost headwinds affecting the whole sector.  Operating profit was £3.7m (2016 Restated*: £5.3m) but this was after charging exceptional items of £4.4m (2016 Restated*: £1.4m).
 

Employees and management teams

I would like to acknowledge the dedication and commitment demonstrated by all our employees.

The results of the Group represent a collective effort and I would like to thank all of our employees for their support during the year and for their contribution to our results. 

Mark McQuater

Chief Executive Officer

3 October 2017

* Restated - See note 1 of the consolidated financial statements for an explanation and analysis of the prior year adjustments included in respect of the profit for the 53 weeks ended 2 July 2016

**Like-for-like sales are defined as total retail sales from bars that have been trading continuously for at least 12 months.

***Adjusted EBITDA excludes exceptional items and bar opening costs (see reconciliation table on page 12 of the Finance review).

FINANCIAL REVIEW

Prior Year Adjustments

Towards the end of the reporting period, and following a thorough internal financial review, it has come to light that certain marketing expenditures were incorrectly capitalised as short life assets, and that there had been an over-accrual of supplier rebates at previous period ends.  As a result, the Board engaged PwC to undertake a detailed independent review and report on these items.  This report was delivered to the Board in August 2017. The correction of these two items has resulted in a restatement of the accounts for the 53 week period ended 2 July 2016.  In parallel with the PwC work, the Audit Committee of the Board decided that, ahead of the completion of the consolidated financial statements for the reporting period, a thorough review should also be undertaken of the application of the Group's accounting policies and practices.  This has resulted in the identification of a number of adjustments that are required to be made in prior period accounts.  Many of these relate to 2016, although some relate to earlier periods. The adjustments are outlined in notes to the announcement.  In aggregate, the effect of the prior period restatement is to reduce net assets at 27 June 2015 by £2.5m. The cumulative effect of the restatements was to reduce profit after tax for the period ended 2 July 2016 by £1.7m, and to reduce net assets as at 2 July 2016 by £3.3m.

Throughout this report, the 2016 comparatives are described as "Restated" which means they are adjusted for prior period adjustments.

The restatements of the key comparative measures for the 53 weeks ended 2 July 2016 are set out below:

Results

Revenue for the year was £130.5 million (2016: £119.5 million), a +9.2% increase compared with the prior period.  The revenue increase comprised part-year contributions from six new sites opened during the period and the annualisation of five new sites opened in the prior period as well as an increased contribution from established sites.  Revenue from like-for-like** venues increased on the prior period by 1.5%. 

Operating profit was £3.7m (2016 Restated*: £5.3m) but this was after charging exceptional items of £4.4m (2016 Restated*: £1.4m).

The underlying result, as measured by adjusted EBITDA ***, was £15.1 million (2016 Restated*: £13.0 million), an increase of 16.0%.  This reflects an adjusted EBITDA margin of 11.6% of revenue compared with 10.8% in the prior period (Restated*).  This improvement has been predominantly driven by improvements in profit conversion from the five openings in the prior period and improved terms on a number of product supply arrangements, which helped gross margin improve by 0.8%.  This was notwithstanding that Food sales, where margins are lower, increased their share of total revenue from 13.6% to 14.3% due to the accelerated expansion of the Group's Revolución de Cuba branded venues, where food sales are a higher proportion of total revenue. The improvements in gross margin are also testament to our policy of offering a premium drinks range and the introduction of many new brands with significant support from the brand owners.

The table below shows how adjusted EBITDA*** has moved forward in the constituent parts of the estate.

Despite like-for-like** sales growth and improvements in gross margin, adjusted EBITDA*** in the older estate has reduced by £0.2 million, predominantly reflecting the 53rd week in the 2016 period and on an underlying basis with revenue growth and margin improvements offsetting higher than inflation cost increases on wages and overheads.

Of the five venues opened in the prior period, three opened in the first half and two towards the end of the second half (and the profit maturity at these sites is very encouraging).  Adjusted EBITDA*** excludes opening costs, meaning the improvement is due to a combination of annualisation of revenue, sales growth post anniversary of opening (included in like-for-like** sales increase) and maturing EBITDA conversion.  As referred to in the Chief Executive Officer's report, our primary objective at opening is to ensure outstanding customer experience, and it is entirely expected that revenue growth is achieved post anniversary and that operating efficiencies improve significantly over time.  Average revenue per venue for these five venues in the period was £2.5 million, with adjusted EBITDA*** equating to 18.4% of revenue. We anticipate seeing further profit improvements at these sites in the coming period and, ultimately for adjusted EBITDA*** conversion to exceed 20%.

Six venues opened in the current period, four Revolución de Cubas in the first half and two Revolutions towards the end of the second half.  All have traded well achieving total revenue in the year of £5.6 million and adjusted EBITDA*** of £0.8 million which equates to 14.2% of revenue.  Clearly this group of sites has yet to reach full maturity, but we expect improvements in the coming year that should also approach an adjusted EBITDA*** conversion of 20%.

Central costs represent 5.4% revenue compared to 5.9% in the prior period.

The Group's reported pre-tax profit reduced to £3.6 million (2016 Restated*: £5.1 million). The reported result for the period has been significantly impacted by exceptional items and bar opening costs for new venues of £5.7m (2016 Restated*: £2.3m).  The Board's preferred profit measure is adjusted pre-tax profit, which excludes exceptional items and bar opening costs and on this basis, adjusted pre-tax profit rose to £9.3m (2016 Restated*: £7.4m), an increase of 25.1%.

Exceptional items and bar opening costs

Exceptional items, by virtue of their size, incidence or nature, are disclosed separately in order to allow a better understanding of the underlying trading performance of the Group. Costs of £4.3 million (2016 Restated*: £1.4 million) were associated with the changes in Chief Financial Officer, additional resourcing to support the Accounting Review, a fixed assets impairment charge, an increase in the provision for onerous leases and charges relating to the long term incentive plan. The prior period costs principally related to professional fees associated with an aborted acquisition.  Bar opening costs refer to costs incurred in getting new sites fully operational and primarily include costs incurred before opening and in preparing for the launch. 

The Board believes that the performance measures, adjusted EBITDA***, adjusted operating profit*** and adjusted pre-tax profit***, give a clearer indication of the underlying performance of the business as they exclude exceptional items and bar opening costs that are a function of the timing of the new venue development programme rather than the underlying trade. 

Finance cost

Finance costs of £0.2 million (2016: £0.1 million) relate to borrowings under the Group's committed Revolving Credit Facility and also include commitment fees relating to any undrawn element of the Facility and the amortisation of arrangement fees over the life of the Facility.  During the year, the Group increased its credit facility to £25 million to provide greater flexibility in managing the timing of capital investments so that good opportunities are not foregone and also to provide headroom against unforeseen short term-trading issues.  At the end of the period, loans of £7.5million (2016: £0.5million) were outstanding on the Revolving Credit Facility.

Taxation

The current period shows a tax credit of £0.6 million (2016 Restated*: charge £0.7 million) due to credits from earlier periods more than offsetting the current year tax charge.  The corporation tax payable on profits in the current period amounts to £0.9 million (2016 Restated*: £1.1 million) but is offset by a net deferred tax credit arising from timing differences and adjustments to prior periods of £1.4 million. 

Capital expenditure and returns on invested capital

The Group invested £12.8 million (2016 Restated*: £11.9 million) in total during the period of which £8.6 million (2016 Restated*: £6.5 million) related to new venues and £4.2 million (2016 Restated*: £5.4 million) related to developing and maintaining the existing estate.  £1.5 million of the expenditure on new venues related to the new Revolución de Cuba in Belfast that did not open until the third week of July 2017, just after the period end.

The five venues opened in the prior period generated adjusted EBITDA*** in the current period of £2.3m.  The capital development cost for these five venues was £7.1m producing a return on capital of 32 per cent during the current reporting period (adjusted EBITDA*** divided by capital cost).  As indicated in the results section, some of these venues opened at the end of the prior period and their current period performance does not reflect full maturity of either sales or EBITDA conversion. Further improvements in both sales and profit are being achieved at these venues that will drive the returns higher.  The six venues opened in the current year are following a similar trading and maturity profile to date and similar returns are expected.

Operating cash flow and net debt

The Group generated net cash flow from operating activities in the period of £10.0 million, £3.2 million less than the prior period (Restated*).  This was mainly attributable to negative movements on working capital and the payment of tax £1.1 million (2016 Restated*: £nil).  Capital investments of £12.8 million (2016 Restated*: £11.9 million) and dividend payments £2.5 million (2016: £1.6 million) resulted in a net cash outflow in the period of £5.4m (2016 Restated*: £0.4m) and an opening net cash position of £2.3m moving to a closing net debt position of £3.2m. 

Earnings per share

Basic earnings per share for the period were 8.2 pence (2016 Restated*: 8.8 pence).  Adjusting for exceptional items and non-recurring opening costs results in an adjusted earnings per share for the year of 14.2 pence (2016 Restated*: 11.7 pence), an increase of 2.5 pence per share. 

Dividend

The Board has recommended a final dividend of 3.3 pence per share (2016: 3.3 pence), which is to be proposed at the Company's Annual General Meeting on 30 November 2017. 

Mike Foster

Chief Financial Officer

3 October 2017

*Restated - See note 1 of the consolidated financial statements for an explanation and analysis of the prior year adjustments included in respect of the profit for

the 53 weeks ended 2 July 2016

**Like-for-like sales are defined as total retail sales from bars that have been trading continuously for at least 12 months.

***Adjusted EBITDA excludes exceptional items and bar opening costs (see reconciliation table on page 12 of the Finance review).
 

Consolidated statement of profit and loss and other comprehensive income

for the 52 weeks ended 1 July 2017

* See Note 1 for an explanation and analysis of the prior year restatements included above in respect of the 53 weeks ended 2 July 2016. 

Consolidated statement of financial position

at 1 July 2017

* See Note 1 for an explanation and analysis of the prior period restatements included above.

Consolidated statement of changes in equity

for the 52 weeks ended 1 July 2017

* See Note 1 for an explanation and analysis of the prior year adjustments included above in respect of the profit for the 53 weeks ended 2 July 2016 and in respect of other prior periods.

Consolidated statement of cash flow

for the 52 weeks ended 1 July 2017

* See Note 1 for an explanation and analysis of the prior year restatements included above in respect of the 53 weeks ended 2 July 2016.

1.     Basis of preparation

The consolidated financial statements have been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. They are presented in pounds sterling, with values rounded to the nearest hundred thousand, except where otherwise indicated.

Prior Year Adjustments

During the year, there were extensive changes within the Finance team, following the resignations of key senior personnel.  The new team became aware that certain of the Group's accounting policies and processes were not being strictly applied or were not in accordance with accounting standards. This was highlighted in the Group's pre-close announcement.  The new finance team has undertaken a review into the Group's accounting policies and practices and PwC were engaged to produce a report for the Board on the two most significant matters relating to the classification of certain marketing expenditure as short life assets and the historic over-estimation of accrued income from supplier rebates.

The review work has identified a number of prior period errors that, due to their materiality, require the restatement of the results for the 53 weeks ended 2 July 2016, as well as the consolidated balance sheet positions as at 2 July 2016 and at 27 June 2015.

In aggregate, the effect of the prior period restatement is to reduce net assets as at 27 June 2015 by £2.5m, to reduce profit after tax for the year ended 2 July 2016 by £1.7m, and to reduce net assets as at 2 July 2016 by £3.3m.

The nature and effect of individual adjustments is described below and in the tables that follow.

i.      Overstatement of accrued income relating to supplier rebates

Certain polices relating to income from supplier rebates and listing fees were not applied correctly, resulting in an over statement of accrued income as at 2 July 2016 and 27 June 2015.These amounts have now been written-off to the consolidated income statements for those respective periods and net assets reduced accordingly.

ii.     Short life assets

Certain items of marketing expenditure, including menus and branded collateral with lives of several months, were being capitalised as short-life assets and depreciated over periods of between 3 and 6 months. The appropriate treatment for such expenditure is to expense the cost when incurred. This treatment resulted in the overstatement of net assets as at 2 July 2016 and 27 June 2015, and the overstatement of depreciation and understatement of marketing costs for the periods ended 2 July 2016 and 27 June 2015. Corrections made result in the restatement of the Group's key alternative reporting measure (Adjusted EBITDA).

iii.    Onerous leases

Total liabilities were incorrectly assessed as at 2 July 2016 and 27 June 2015 due to errors in the calculation of onerous lease liabilities for two vacant properties. This has resulted in the overstatement of net assets as at 2 July 2016 and 27 June 2015, and the misstatement of the corresponding charge recorded within the consolidated income statement for the respective periods.

iv.    Share based payments

The amounts charged to the income statement for share based payments in the period ended 2 July 2016 and 27 June 2015 were understated due to errors in the calculations. Net assets at 2 July 2016 and 27 June 2015 were understated as a result of errors in the recognition of the corresponding deferred tax asset.

v.     Inventories

Inventories were overstated due to errors in the recording of sundry inventory values, the deductions made to cost for rebates received, and the elimination of intercompany profits resulting in an overstatement of net assets at both 2 July 2016 and 27 June 2015.

vi.    Under accrual of costs

Historically, the Group's accounting systems and processes have not captured all expenditure and liabilities as incurred and consequently prior year balances sheets have understated liabilities and overstated net assets.  Under accruals at prior period ends have been identified.  In addition, the systems for properly accounting for customer deposits have been inadequate leading to an understatement of the carrying value of these balances and an overstatement of net assets.

In addition the Group has restated for the consequential adjustments to taxation arising from the above.

Summary

A summary of the combined impact of the prior year adjustments on the consolidated statement of profit and loss account and consolidated statement of cash flows for the 53 weeks ended 2 July 2016 and on the consolidated statement of financial positions as at 2 July 2016 and at 27 June 2015 arising from the restatement are as follows:

Consolidated profit and loss for the year ended 2 July 2016

***The adjustments in respect of Share Based payments and Onerous leases are in respect of the shortfall of the pre-existing amounts.

Consolidated statement of financial position as at 2 July 2016

Consolidated statement of financial position as at 27 June 2015

Consolidated statement of cash flow for the 53 weeks ended 2 July 2016

The impact on EPS for the period ended 2 July 2016 of the above restatements was a reduction of 3.3 pence from 12.1 pence to 8.8 pence.  
 

Segmental information

The Group's continuing operating businesses are organised and managed as reportable business segments according to the information used by the Group's CODM in its decision making and reporting structure.

The Group internal management reporting is focused predominantly on revenue and EBITDA, as these are principal drivers of the Group's business and the allocation of resources. The CODM receives information on each trading venue and each trading venue is considered an operating segment. In line with IFRS 8, each operating segment has the same characteristics and, accordingly, the bars are aggregated to form the "Ongoing" reportable segment.  Within the ongoing business, assets and liabilities cannot be allocated to individual operating segments and are not used by the CODM for making operating and resource allocation decisions.

The Group performs all of its activities in the United Kingdom. All of the Group's non-current assets are located in the United Kingdom. Revenue is earned from the sale of goods. 

2.     Operating expenses

During the year the Group was subject to significant senior personnel changes in its finance function and as a result of identifying some significant accounting adjustments undertook a full accounting review. The associated external costs of the accounting review, including work undertaken by PwC, together with the costs relating to the contract termination of Chris Chambers, Chief Financial Officer, are included within exceptional costs.

As a result of the annual impairment testing of property, plant and equipment, the net book value of the assets at six of the Group's bars were written down either partially or in full.

During the year the level of provisions for onerous leases relating to two non-trading properties were reviewed and increased primarily reinstating a release in the prior period when management considered that there was a good prospect of being able to sub-let the properties.

At the time of the Initial Public Offering ("IPO"), substantial share options were awarded to a number of senior staff. The Board considers that the magnitude and timing of this award is one-off in nature and so treats any related charges or credits as exceptional.

In the 53 weeks ended 1 July 2016, restated exceptional items amounted to £1.4 million. This included professional fees incurred for an aborted corporate transaction and the contract termination costs relating to Sean Curran's resignation as Chief Financial Officer.  It also includes a charge for share based payments (resulting from the prior year adjustments) and a credit in respect of an adjustment to the onerous lease provision (part of which was previously included within underlying operating profit) reflecting management's assumptions at the time regarding the potential for sub-letting or disposing of the leasehold interests.  Movements in long-term incentive plans and onerous lease provisions are in respect of the shortfall of pre-existing amounts

Bar opening costs refer to costs incurred in getting new sites fully operational and primarily include costs incurred before the opening date preparing for the launch.  In the 52 weeks ended 1 July 2017, six new bars were opened but the costs also include the new Belfast opening in July 2017, shortly after the end of the reporting period. Five new bars opened in the 53 weeks ended 2 July 2016. Bar opening costs were found to be understated in the prior year, and the amount reported in the 53 weeks to 2 June 2016 has been updated accordingly.

3.     Taxation

The major components of the Group's tax (credit)/charge for each period are:

A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company's future current tax charge accordingly. The deferred tax liability at 1 July 2017 has been calculated based on the rates which will apply when those balances are expected to unwind.

4.     Earnings per share

The calculation of earnings per Ordinary Share is based on the results for the period, as set out below.

Profit for the period was impacted by one-off exceptional costs and bar opening costs. A calculation of adjusted earnings per Ordinary Share is set out below.

5.     Property, plant and equipment

The Group has determined that, for the purposes of impairment testing, each bar is a cash generating unit ("CGU"). The bars are tested for impairment in accordance with IAS 36 "Impairment of Assets" when a triggering event is identified. The recoverable amounts for the CGUs are predominantly based on value in use, which is calculated on the cash flow expected to be generated by the bars using the latest projected data available and discounted over perpetuity.

In the 52 weeks ended 1 July 2017, the Group impaired the assets of six CGUs, either partially or in full, based on the value in use of the CGU determined by discounted cash flow projections being lower than the net book value. When we recognise an impairment loss, we depreciate the assets adjusted carrying value over its remaining useful economic life.

In the 53 weeks ended 2 July 2016, no CGUs were impaired.

The value in use calculations use cash flows based on Board approved budgets covering a three year period. These budgets combine understanding of historic performance together with knowledge of the current market, and managements views on the future achievable growth. Cash flows beyond this three year period are extrapolated using a long term growth rate to five years at which point a terminal value has been calculated based upon the long term growth rate.

The key assumptions in the value in use calculations are the cash flows contained within the budgets, the long-term growth rate and the risk adjusted pre-tax discount rate as follows:

• Long term growth rate: 2.0% (2016: 2.0%)

• Pre-tax discount rate: 11.7% (2016: 11.7%)

The long-term growth rate has been determined with reference to forecast GDP growth which management believe is the most appropriate indicator of long-term growth rates that is available. The pre-tax discount rate is based on the Group's weighted average cost of capital.

A sensitivity analysis has been performed on each of these key assumptions with other variables held constant.

Increasing the pre-tax discount rate by 1% would result in additional impairments of £0.1m. A 0.1% decrease in the long term growth rate would increase the impairment charge recorded by £0.1m.

6.     Cash and cash equivalents

Cash and cash equivalents consist entirely of cash at bank and on hand, including cash floats held at venues. Balances are denominated in Sterling. The Directors consider that the carrying value of cash and cash equivalents approximates to their fair value.

The onerous lease provision is expected to be payable over the remaining lease terms. In 2016, the provision was net of an estimated rental income from future subletting of the properties.

The calculation is most sensitive to changes in the assumptions used for budgeted cash flow, and a risk-free discount rate of 2.6%.  Management considers that reasonably possible changes in assumptions would be a change in discount of 0.5%. As an indication of sensitivity when applied to the calculation, an increase to the rate of +/- 0.5% would result in a change in the corresponding liability of -/+ £0.1m.

The financial information set out in the preliminary statement of annual results has been extracted from the Group's financial statements which have been approved by a resolution of the Board and agreed with the Company's auditor.

The financial information set out above does not constitute the company's statutory accounts for the years ended 1 July 2017 or 2 July 2016. Statutory accounts for 2 July 2016 have been delivered to the registrar of companies, and those for 1 July 2017 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.