The Restaurant Group plc

Interim results for the 26 weeks ending 29 June 2008

The Restaurant Group plc operates 336 restaurants and pub restaurants predominantly in leisure locations and airports. Its primary offerings are Frankie and Benny's, Chiquito, Garfunkel's, Blubeckers and Brunning & Price. 

• The Group had a strong performance in the 1st half of 2008: 

      - +3% growth in like-for-like sales 

      - Revenue up 18% to £203m

      - EBITDA increased by 16% to £35.3m

      - Adjusted profit before tax increased by 20% to £21.1m

      - Adjusted EPS rose 23% to 7.20p

      - Declared interim dividend of 1.40p up 11%

      - Statutory profit before tax increased by 29% to £22.1m

      - Statutory EPS rose 25% to 7.60p

*Results marked as adjusted are stated excluding non-trading items (refer to note 2)

• Leisure and Concessions divisions continued to grow revenues and operating profit demonstrating resilient market leading positions of our two business segments 

• Pipeline strong 

 - 17 new sites opened in the period 

 - 30-35 new sites targeted for 2008

       - Excellent roll out potential  

• Good current trading with like-for-like sales +3% against strong comparatives 

• Remain confident of another year of progress in 2008

Andrew Page, Chief Executive, said: 

"The TRG team has delivered another set of very satisfactory results with sales up 18% and profit up 20%. The market for consumer-facing businesses is tough and these results reflect the hard work of our people, the strength of our brands and our distinct market positions. Our new openings are performing strongly and we expect to have added more than thirty new restaurants by the end of 2008.

The second half has started well, with year to date like-for-like sales 3% ahead of last year, and our focus is firmly directed towards maintaining this progress."

29 August 2008 

Enquiries:

  Chairman's Statement

The Restaurant Group has traded well during the first six months of the year, delivering a 3% growth in like-for-like sales, and increasing total revenues by 18% to produce growth in adjusted profit before tax of 20% and adjusted earnings per share growth of 23%. Both of our divisions increased revenues and profit; the Leisure division produced a 17% increase in operating profit and the Concessions division a 9% increase.  

Against a deteriorating economic backdrop and challenging market conditions for consumer - facing businesses this represents a strong performance and is a reflection of the more resilient market positioning of the Group's businesses. Despite the "hurdle" being raised each year, this is the seventh successive set of interim accounts showing growth in profits and earnings per share. 

We have again converted those increased profits into cash, with free cashflow increasing by 29% to £23.0m (2007: £17.9m). We have continued to invest in growing our site portfolio; during the first six months we opened 17 new restaurants and pub restaurants and these are performing well.

Results

Results marked as adjusted are stated excluding non-trading items (refer to note 2)

During the first half the Group made further good progress. Revenues grew by 18% to £203.2m (2007: £171.9m), EBITDA increased by 16% to £35.3m (2007: £30.3m), adjusted operating profit grew by 19% to £23.9m (2007: £20.1m), adjusted profit before tax increased by 20% to £21.1m (2007: £17.6m) and adjusted earnings per share increased by 23% to 7.20p (2007: 5.87p). In light of this solid performance the Board is declaring an interim dividend of 1.40p per share (2007: 1.26p) representing an increase of 11%. The dividend will be paid on 16 October 2008 to shareholders on the register on 19 September 2008 and the shares will be marked ex-dividend on 17 September 2008.

Leisure (284 units)

Total revenue: £161.3m        Operating profit: £32.1m    Operating margin: 19.9%

Frankie & Benny's (165 units) 

Frankie & Benny's has traded well during the first half of 2008 with increases in both revenues and operating profits. During the first half we opened seven new restaurants - they are all trading well and are set to deliver high levels of return on investment. In total, we expect to open 16 to 21 new Frankie & Benny's restaurants this year and, going forward, the pipeline is strong.

Chiquito (53 units)

Chiquito has also performed well during the first half with significant increases in both revenues and operating profits. One new restaurant was opened during the first half and since the end of June we have opened a further two restaurants. These new openings are performing well and are set to deliver high returns. During 2008 we expect to open between five and eight new Chiquitos and the forward pipeline for this brand is also strong.

Pub Restaurants (43 units)

Overall, the performance of our Pub Restaurants business was solid, although this part of our Group has been more affected by the downturn in the economy and also through food cost inflation, as a result of a higher meat content in its menu offerings. We have been able to mitigate the impact of cost pressures through careful menu engineering (both content and price point) and cost management initiatives.  

During the first half we opened one new Blubeckers pub restaurant and this is trading well. Our recent acquisition, Brunning & Price, continues to perform well and in line with our expectations. In July Brunning & Price opened at Sutton Hall near Macclesfield and the sales since opening have been excellent. In total, we expect to open two to three new Pub Restaurants in the full year.

Garfunkel's (23 units) 

Garfunkel's had a strong first half delivering good growth in profits and cash flows. Following the conclusion of the refurbishment programme in early 2007 this business has delivered excellent results and it continues to produce high levels of return on investment. 

Concessions (52 units) 

Total revenue: £41.8m        Operating profit: £6.0m        Operating margin: 14.4%

During the first half revenues increased by 11% and profits increased by 9%. Cost pressures both in terms of input costs and other airport operating costs meant that margins were slightly down. However, this is a very satisfactory performance and ahead of our expectations. 

2008 is likely to be one of the busiest years for our Concessions team with four new units opening in Heathrow T5 in March followed by the opening of four new units at Gatwick South in June. Overall, the performance of the new openings has been good and is set to improve further once the transfer of the remaining BA flights into T5 has been concluded later this year. Taking into account some closures (principally at Gatwick South and Heathrow) we expect to see a similar number of Concessions units at the end of the year compared to January 2008. 

Rising fuel costs, slowing GDP growth and flight reductions at some UK airports may continue to impact passenger growth for the next 12-18 months. However, we believe that our business will continue to benefit from trading down to lower cost airlines.  

We believe our heavier weighting towards airside operations has enabled our Concessions business to continue to grow market share and profits. We are market leaders in UK airport catering and we believe that our expertise, commitment to this specialised market segment and high reputation for delivering consistently strong results for our airport partners should enable us to continue to grow our Concessions business. 

Cost pressures and margins

As previously disclosed there have been significant cost pressures impacting TRG's marketplace, including food, fuel and utility cost increases. During 2006 and 2007, where we were able, we took steps to remove or reduce inflationary cost risk for about one third of our major input costs by entering into fixed or capped price contracts with suppliers. That decision has served TRG well and we expect to continue to benefit during the remainder of 2008 and for much of 2009. To date we have seen only a small decline in our EBITDA operating margin which is a credit to the operating teams across the Group and our central purchasing team. Inflationary pressures look set to continue for at least the remainder of 2008 and into 2009; we will continue to take steps to mitigate the impact of these.

Cash flow and balance sheet

The Group continues to be strongly cash generative. During the first half cash flows from operations increased by 27% to £35.6m (2007: £28.1m) and free cash flow (cash flow from operating activities less interest, tax and maintenance capex payments) increased by 29% to £23.0m (2007: £17.9m). The Group continues to convert its increasing profits into cash at a very healthy rate and this reflects the disciplined manner in which we run the business.

During the first half of 2008, £21.1m (2007: £19.1m) of our cash was applied to capital expenditure of which £5.2m (2007: £5.9m) represented maintenance capital expenditure and £15.9m (2007: £13.2m) represented investment in opening new restaurants. For the full year we expect to spend between £34m and £38m on opening new restaurants and we are projecting to fund this from internally generated cashflows.

Our net debt was £71.3m at the half year and we have a committed facility of £120m in place until December 2012.

Board changes

David Richardson resigned from the Board of Directors on 8 August 2008. I would like to thank him for his contribution to the Group during his tenure as a non-executive Director.

Risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. These have not materially changed from the information on the principal risks and uncertainties of the Group which are set out on page 16 of our latest Annual Report and Accounts. The key risks and uncertainties facing the Group in the second half of the year include adverse economic conditions, increased competitive supply and increased raw material and other costs.

Outlook

The second half has started well with good levels of trade in both divisions. Despite being up against a high hurdle in terms of like-for-like sales growth, the Group is currently 3% ahead of last year for the 34 weeks to 24 August 2008, a very creditable performance.

Our new restaurants continue to perform strongly and we have a solid pipeline for the remainder of this year, through 2009 and into 2010. In total, we expect to open 30-35 new restaurants and pub restaurants during 2008.

The deterioration in the UK economy over the past twelve months has been well documented. There are a number of key economic factors which are currently adversely impacting consumer-facing businesses including input cost inflation, increased pressure on disposable incomes and less security of employment. 

Although TRG is not immune from these factors, we believe that we have positioned our business in a manner which has made it more resilient and enabled TRG to continue to grow sales and profits. Whilst the economic outlook remains challenging, I am confident that, absent a further significant deterioration in the UK economy, we will deliver another year of good progress. 

Alan Jackson

Non-executive Chairman

29 August 2008