The Restaurant Group plc Annual Report 2010 Strong brands The Restaurant Group plc 5-7 Marshalsea Road London SE1 1EP Focused strategy Tel: 020 3117 5001 Annual Report 2010 www.trgplc.com
The paper used in this report is source from well-managed forests and is FSC accredited.
Printed in the UK using vegetable based inks which have lower VOC emissions (Volatile Organic Compounds), are derived from renewable sources and less hazardous than oil-based inks.
The printer is ISO 14001 accredited and Forest Stewardship Council (FSC) chain of custody certified. Under the framework of ISO 14001 a structured approach is taken by the company to measure, improve and audit their environmental status on an ongoing basis. FSC ensures there is an audited chain of custody from the tree in the well-managed forest through to the finished document in the printing factory.
If you have finished reading this report and no longer wish to retain it please pass it to interested readers, return it to The Restaurant Group plc or dispose of it in your recycled paper waste. Thank you.
Designed and produced by The College www.thecollege.uk.com Contents Shareholder information
The Restaurant Group plc operates 389 restaurants and pub restaurants. Its principal trading brands are Frankie & Benny’s, Chiquito Directors Registrar and Garfunkel’s and it also operates a Pub Alan Jackson Equiniti Limited Non-executive Chairman Aspect House restaurant business as well a Concessions Spencer Road Andrew Page Lancing division which trades on over 50 sites, Chief Executive Officer West Sussex BN99 6DA principally at UK airports. Stephen Critoph Auditors Group Finance Director Deloitte LLP Hill House Trish Corzine 1 Little New Street Executive Director, Concessions London EC4A 3TR Introduction Financial highlights 01 Tony Hughes Solicitors At a glance 02 Non-executive Maclay, Murray & Spens LLP One London Wall Simon Cloke London EC2Y 5AB Non-executive Slaughter and May Company Secretary One Bunhill Row Robert Morgan London EC1Y 8YY Business review Registered office Brokers Chairman’s statement 04 Until 14 March 2011: JPMorgan Cazenove Chief Executive Officer’s review of operations 06 151 St Vincent Street 20 Moorgate Group Finance Director’s report 12 Glasgow G2 5NJ London EC2R 6DA
From 14 March 2011: Panmure Gordon 1 George Street Moorgate Hall Glasgow G2 1AL 155 Moorgate London EC2M 6XB Governance Head office Board of Directors 16 5-7 Marshalsea Road Financial calendar Report of the Directors 18 London SE1 1EP Annual General Meeting – 11 May 2011 Corporate responsibility 26 Directors’ remuneration report 29 Telephone number Proposed final dividend – 2010 Audit Committee report 36 020 3117 5001 Announcement – 9 March 2011 Ex-dividend – 18 May 2011 Company number Record date – 20 May 2011 SC030343 Payment date – 17 June 2011 Financial statements Independent auditors’ report 38 Accounting policies for the consolidated accounts 39 Consolidated income statement 43 Consolidated statement of comprehensive income 44 Consolidated statement of changes in equity 45 Consolidated balance sheet 46 Consolidated cash flow statement 47 Notes to the accounts 48 Independent auditors’ report – company accounts 69 Company financial statements – under UK GAAP 70 Group financial record 72 Shareholder information 73
The Restaurant Group plc Annual Report 2010 73 Introduction Business review Governance Financial statements
19.9 9.00 55.8 85.8 465.7 79.6 435.7 77.4 50.0 8.00 416.5 48.9 17.4 .70 7 16.6 .25 7 67.8 43.4 366.7 14.6 6.00 314.7 55.6 35.0 11.5 TheRestaurant Group plc Annual Report 01 2010 8% 12% 12.5% 14% 7% re (p) idend per share Adjusted profit before tax (£m) (p) Adjusted EPS Div Adjusted EBITDA (£m) 06 07 08 09 06 07 08 09 06 07 08 09 06 07 08 09 06 07 08 09 Revenue (£m) 10 10 10 10 10 + + + + +
basis
week
53
of period a
increased excluding increased
on to
the
tax tax theof financial statements).
in
stated
stated
14%
dividend are
before before results
rose year
opened
adjusted
full as
profit
EPS profit
adjusted
sites
and
marked
new
2011 for targeted sites new 22-27 24 £56m to 17% by 20p per share 20p Proposed 12.5% up 9p per share, Statutory £56m to 12% by Adjusted sales -1%) (like-for-like £86m 8% to by increased EBITDA Adjusted £466m to 7% up Revenue • the given trading current Strong economic climate, with like-for-like sales returning growth to at +3% and total sales up 8% for the nine weeks 6 Marchto 2011 • Roll out continues Operationsgenerativestronglycash and net debt reduced £20m by £47m to 20p to 7% rose EPS • Statutory Results compared with weekfor 2010 a 52 basis for 2009. • • • Statutory • • • The Group had a strong performance performance strong a had Group The in 2010: Financial Financial highlights non-trading items (refer 2 note to At a glance Supporting brand development
• 9 new openings • 197 restaurants Frankie & Benny’s brings together the best of classic American and Italian style and cuisine that always provides great value for money. The kitchen buzzes with bustling activity as the chefs prepare dishes from our broad menu – pizzas, pastas, burgers, grills and other favourites – while, in typical stateside fashion, service at Frankie & Benny’s is second to none! Settle into a cosy booth to enjoy a casual family meal or a catch up with friends and observe the clatter and chatter of the open kitchen and the familiar classic 50’s and 60’s soundtrack playing in the background. The restaurant walls are filled with family snapshots and memorabilia showing life on the lower east side of the Big Apple, helping you into a “New York state-of-mind”. First opened in 1995 in Leicester, Frankie & Benny’s has become one of the best known casual dining brands in the United Kingdom, and trades successfully in leisure and retail locations, stand-alone sites and at six airports. The estate comprises of almost 200 restaurants spread across the country from Aberdeen to St Austell.
• 5 new openings • 68 restaurants With almost 70 restaurants nationwide, at Chiquito we are proud to be the UK’s most popular answer to Mexican eating and drinking with over 100,000 happy hombres tucking into our vibrant, tasty food every week. The Chiquito menu offers a great range of authentic Mexican & “North-of the Border” dishes in a laid-back Latino environment, with fantastic music. The décor draws inspiration from Mexican architecture and Latin style. Some restaurants have a rustic and relaxed feel while others demonstrate the buzz and graphic energy of contemporary Mexico City. Chiquito favourite dishes include nachos, burritos, enchiladas and our signature sizzling fajitas, as well as the old favourites – burgers, salads and steaks from the grill. We specialise in Mexican beer and fantastic cocktails. Chiquito is open for lunch, lazy afternoons and lively evenings, so whether you’re out shopping, meeting friends after work or planning a party it’s the only place to be! Trading in the UK for over 20 years, Chiquito continues to attract a broad mix of young adults, couples, teenagers, families and large parties. 2
• 2 new openings • 23 restaurants Garfunkel’s – a truly great name in British and world cuisine. Founded in London’s West End in 1979, Garfunkel’s has become legendary! It embraces the concept of being all things to all people. Offering something for everyone, the menu is a fantastic mix of the best of British and international cuisine. From the tempting rotisserie chicken to teriyaki salmon, everything has been chosen because we just love the taste. Our salad bar has a delicious range of fresh salads, prepared dishes and dressings available all day. Principally located across Central London, each Garfunkel’s restaurant offers a place to relax and take a break from the hustle and bustle outside, with a loyal following of visitors, local residents and workers who have been eating at Garfunkel’s for years. Garfunkel’s continuing popularity means expansion is still on the menu after over 30 years of trading. Our latest restaurant opened on Cockspur Street, Trafalgar Square in 2010, and offers the same friendly welcome and broad menu in a warm contemporary setting, just what you need after a hectic shopping trip in the West End or the perfect way to complement a theatre visit. Continued success across all day parts including breakfast, lunch and dinner means a healthy appetite for growth with more sites earmarked to open in Central London.
02 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
of
the
visit. food,
pubs
that
concepts range
never you our
pub
building,
bars.
mean
Our
almost all appropriate. will
The
performance the
time
f and as ensuring
o
espoke British
have want b
pubs public.
specials
each
place.
pubs
fine we
arrive,
parties
don’t
great first local create successful
character you
We third shops,
the travelling
and Midlands – 45 34 Frankie & Benny’s 08 Chiquito 03 TRG Concessions North West – 53 Frankie27 & Benny’s Chiquito11 TRG07 Concessions 08 Pub restaurants North East – 34 Frankie24 & Benny’s 09 Chiquito TRG01 Concessions
centres, favourites the interiors, really in
the
brands, from ensures
that to pub
moment
histories. trusted
TRG sandwich ageless seasonal the
the
preserve
shopping
brands to
TheRestaurant Group plc Annual Report 03 2010
believe flexibility
we
and
us and from
hospitality
We existing
service, and
alongside fascinating
welcome, of.
franchise instead
service –
to with
South East – 97 36 Frankie & Benny’s Chiquito13 restaurants Pub 22 26 TRG Concessions London (inside the M25) – 44 Frankie12 & Benny’s 06 Chiquito Garfunkel’s15 06 Pub restaurants 05 TRG Concessions East – 26 Frankie14 & Benny’s 03 Chiquito 02 Pub restaurants TRG07 Concessions deliver frequently
attracted locations care
warm counter providing
choices
a
we
knowledge same
what
taken
find new
engaging the buildings
changes
service,
transport needs are
was
partnerships feel all experience
offers
always operating restaurants table
of
other restaurants client restaurants
friendly, needs
and
after available also intriguing
you’ll
in years 43 58
meet your establish look
Scotland – 44 Benny’s & Frankie 22 08 Chiquito Garfunkel’s07 TRG07 Concessions Northern Ireland – 2 Frankie01 & Benny’s 01 Chiquito01 Wales – 20 Frankie12 & Benny’s 03 Chiquito 05 Pub restaurants South West – 21 Frankie12 & Benny’s 06 Chiquito Garfunkel’s01 02 TRG Concessions to their perfect pub looks like. Each of ourpubs has its own style and personality, and opening • 1 new • Really great pubsare timeless, familiar andvery British. Everybody knows what which a large variety of great real ales and fine wine and great coffee. Mostly set in beautiful rural or semi-rural locations, each pub has a “local” feel and many are set beers menu There’s go out of fashion, and that opportunities expand to in the sector are available for experienced operators with the right offer for customers. all across our diverse brand portfolio, covering a wide range of popular categories including openings • 7 new • ConcessionsTRG’s division has a market-leading reputation for developing partnerships deliver to cateringsolutions that meet the needs of our clients and their customers. Currently operating more than 50 outlets in busiest the UK’s specialist airports, 20 Building on our track record of innovation, partnership and performance ahead of sector growth will ensure we remain a market leader in this exciting sector. or To Pub 97 26 44 45 34 21 53 20 44 Chairman’s statement
I am delighted to report that the Group has again grown “ The Group has consistently revenues, profits and earnings per share. Trading conditions during the year were adversely impacted by the ongoing demonstrated the resilient nature difficult economic backdrop and also some very unusual, of its business model and this weather related, events – the ash cloud in April and one of the harshest winters on record at the end of the year. is another excellent set of results.” These factors made trading conditions tough for UK consumer-facing businesses during 2010. However, not withstanding those challenges, the Group continued to make profitable progress, opened 24 new restaurants, served 37 million meals including five million children’s meals and created 700 new jobs.
During 2010 the Group’s revenues grew 7% to £466m (2009: £436m), adjusted profit before tax grew 12% to £55.9m (2009: £50.0m) and adjusted earnings per share increased by 14% to 19.95p (2009: 17.48p). This increase in earnings per share represents a compound annual growth rate of 17% over the five years to 2010, a significant achievement that demonstrates the resilience and ongoing positive performance of the Group.
Accordingly, the Board is recommending an increased final dividend for 2010 of 7.46p per share giving a total for the year of 9.00p per share (2009: 8.00p), an increase of 12.5%. Subject to shareholder approval at the Annual General Meeting to be held on 11 May 2011, the final dividend will be paid on 17 June 2011 to shareholders on the register on 20 May 2011 and the shares will be marked ex-dividend on 18 May 2011.
Our continued focus on our Leisure and Concessions divisions again enabled the Group to deliver a strong performance despite the difficult backdrop for UK consumer – facing businesses. Our Leisure division, which incorporates Frankie & Benny’s, Chiquito, Garfunkel’s and our Pub restaurants, performed well, delivering a 6% increase in revenues and profits. During the year we opened 17 new restaurants in the Leisure division; these are trading ahead of expectations and are set to deliver strong returns. During 2011 we plan to open between 20 and 23 new restaurants in the Leisure Division.
04 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 05 2010
A business capable of delivering long-term, sustainable growing and cash flows
are
sites share nature
cloud sales
the of
we
TRG. good
and
Although
were
of
to excellent set ash
business
which with
and
non- appeal. thanks and
market
a end sites resilient the
deliver
our
as year, These
to wide the like-for-like
the profits
superbly.
superb
new brands Concessions
disciplined
from
excellent
at
a
gaining the set
with expertise with and contribution
debt.
Cloke
record
of
new
on stay
are seven
to have strong
to net
well,
12%) another work, four resulting
weather
and
performed like We
Simon
year and is
weeks
to by
offerings valuable
year demonstrated
focusing
a well hard
the
this. this
harsh
nine two
reducing would by
continued I the on Division
the and
first
make of challenges current
this
positions,
appointed
open trading During
has increased
will and the to the onsistently
Board
we
further are
e c
model result major h
for
29%. the
market value-for-money significantly April Group
plan (which
has
year, the
by build
of
3% in that progress.
countered
Concessions started These
some We and to The of
the
are
2011.
business our distinct
Group
have
behalf
cash its revenues
We results looking welcomeexecutive We Director. Simon the Board to and are confident During to all of them. them. of all to dedication our of Directors,senior management and staff. On growth with in focused, growing its estate with quality new restaurants, increasing earnings and dividends, generating high levels of and growing margins. This resulted in a significant uplift Alan Jackson Chairman 9 March 2011 profitable I am confident that are we well placed continue to our The during outstanding increased problems year, UK passenger numbers declined during our the year, business of Despite opened. returns. results. Chief Executive Officer’s review of operations
Introduction “Our core objective continues to 2010 turned out to be another challenging year for The Restaurant Group, partly due to factors that we had be growth in shareholder value anticipated and partly as a result of some that we had not. and our strategy to achieve this Although the UK economic recovery gained momentum is to build a business capable of during the year, the backdrop for domestic consumer-facing delivering long-term, sustainable businesses remained difficult. As anticipated, consumer confidence was fragile as a result of a number of factors and growing cashflows.” including the shock from the recession, ongoing tighter credit conditions, levels of unemployment (and the fear of unemployment), inflation, higher taxes and negative real earnings growth. 2010 also threw up two unexpected challenges – the Eyjafjallajökull volcano ash cloud in April and one of the worst winters on record at the end of the year. Both of these unusual meteorological events caused significant disruption to our business and, although we were able to take some mitigating actions, adversely impacted sales and profits.
Notwithstanding those challenges, the Group continued to make further good progress increasing sales, profits and cash flow. Both of our divisions performed well, with our Leisure division delivering a solid increase in profits and our Concessions division delivering a significant profit increase. Margins also held up well with both EBITDA and operating margins improving on the previous year. Total sales were 7% ahead of the previous year (like-for-like sales were 1% below) and adjusted earnings per share increased by 14%. Against a challenging backdrop this represents an impressive performance and bodes well for the future.
The TRG business model and rationale Our core objective continues to be growth in shareholder value and our strategy to achieve this is to build a business capable of delivering long-term, sustainable and growing cash flows. The Group has a consistent record of converting profits into cash at a very healthy rate, and delivering increasing cash flows each year, and in 2010 this was again the case. TRG’s business model enables the Group to grow in a predominantly organic and highly value–accretive way, funded from its internally generated funds.
Our touchstones are cash flow and return on investment. This model enables our shareholders to enjoy the benefits of high returns on capital, growth in profits and cash flow and sizeable income distributions from our progressive dividend policy.
06 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
for
items
meet
period
to
£20m
and,
£20m
will
by openings
week 40bp
£56m; fell year’s
non-trading new 53 by
further to
a last
the confident £86m; that
to by 12%
to for EBITDA,
are
fell by excluding meals;
level increased mean
8% we
well
this to
by
stated
million
adjusted
similar
which are
debt; likely 37
increased
margins
is
net performed
Group sold TheRestaurant Group plc Annual Report 07 2010
increased
profit
profit broadly
This
adjusted a
we
as at 0.55x
metrics
and opportunities reducing at
EBITDA pre-tax be
criteria.
and
operating
Occupying Occupying leading market positions will marked
other debt,
lower) t
towards
returns
2011 £47m. to 1% Adjusted Adjusted Group 12.6%; Net sales increasedTotal (like-for-like sales 7% by were
(refer note 2) to Results over the past year £47m. to Results* the time being, plan we continue to apply to our surplus cash flow for our In the meantime, will we continue identify to and judiciously pursue • • • • • 2 Januaryto 2011: TRG’s rading *
will is
we
edge the entry,
is
of the and
policy.
difficult the not that in
scratch to
the would
on
the these
is out a is of yet It
capital
is
securing
it
is within
sector
have project from
(particularly new growth
not on
this
and apply
our
remains
point,
dividend be
in enable
onset barriers
our analysis, focus
to
stage
there confident
has to and
to
up
cycle edge the
capital
invest activity steady Our
high some
are
this
formidable.
this footprint in to
within
to likely to
at pick
At
developers
we
is
a with each
this
very
expenditure it
continued However, prior progressive
sufficient
to that,
commercial
that
generation a
where
economic is
sectors,
been
where occupies
saw
have at rates weighted ahead TRG’s of
returning investment.
available. the capital development
sector. cash
replicate locations has
rigour, we
and on
of We followed,
some
in to on
developments)
confident
our pursuing schemes Group is
in new
perspective,
being adjustment
there of generation tage of
levels
determining are
the s
and returns town
focus risk capital.
regarding in
within
the analytical
marketplace we flow
of
level activity this
of prospects
that
whilst
we
of funding level
high and
ecoveries impossible
At – restaurants number
r
out
and the
pace
positioning
years.
cash
cost and criteria
below
levels growth and
two footprint free philosophy key secure
consumer
well
virtually
operate
market
development appropriate recession. gathered appropriate Group fund to 45 new 35 to restaurants per annum whilst maintaining maintenance capital expenditure at the Our experience well servedTRG has approach This undertake. we that and do we not intend deviate to from it. unusual economic predictto when this might be but, if the pattern previous of “pipeline” be activated. The catalysts for this are likely be evidence to of the still significant edge However, same a return on invested capital next average consistent Capital expenditure and TRG opening programme Our and the Group is well placed continue to roll to out more restaurants. new town leisure and airport locations is comprehensive and, from from and, comprehensive is airport locations and leisure town a be of town, out rural, town, of town, of semi-rural and airport locations and occupy we leading market positions in these segments. The can to good Our Chief Executive Officer’s review of operations continued
Pub restaurants (43 units) Leisure Pub restaurants traded well during 2010, increasing margins 2010 2009 and profits. We have continued our programme of modifying Total revenue £373.7m £353.6m the former Blubeckers sites to bring them more into line with the Brunning & Price style of operation and the subsequent Operating profit £72.9m £ 69.1m results have been very encouraging. We expect to complete Operating margin 19.5% 19.5% this programme during 2011. In December we opened a new pub restaurant, the Nevill Crest & Gun, near Tunbridge Wells. Frankie & Benny’s (197 units) It is trading superbly and is set to deliver strong returns. Frankie & Benny’s performed well in 2010, increasing During 2011 we expect to open 2-3 new pub restaurants. revenues, margins and profits. We opened nine new restaurants of which five were on non-cinema sites. All of Garfunkel’s (23 units) our new openings are trading superbly and are set to deliver Garfunkel’s performed superbly during 2010 delivering strong returns. Our focus continues to be directed towards a significant increase in margins and profits. The business providing our customers with a great dining experience – trades predominantly in Central London close to theatres, plenty of choice across the price points, offerings geared shopping districts and other tourist attractions. During the towards specific parts of the day, good value and superb year we opened two new restaurants and these are trading hospitality and service. As with all our brands, we eschewed well and are set to deliver strong returns. We expect to open deep discounting and this helped to deliver a strong margin up to three new Garfunkel’s restaurants during 2011. and profit performance. We anticipate opening between 12 and 15 new Frankie & Benny’s restaurants in 2011.
Chiquito (68 units) Chiquito performed solidly during 2010 although profits were a little below the prior year’s level. During the year we absorbed input cost increases in order to maintain menu prices at a level appropriate for the locations in which most of our Chiquito restaurants operate. We opened five new Chiquito restaurants during the year all of which are located Consistently alongside Frankie & Benny’s. This dual roll out strategy has worked well and we expect it to continue in 2011. The new openings are performing ahead of our expectations and are good value, set to deliver strong returns. During 2011 we expect to open 3-4 new Chiquito restaurants. service and hospitality
08 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
and
2011.
in
results.
expect
business. airports
sites
improving We
UK an
excellent
the
in returns.
Concessions concessions
anticipate
good delivering
our
we position new of
four deliver
benefit
to record market
and resumes,
will TheRestaurant Group plc Annual Report 09 2010
set
track two
this are
leading
growth
and and the
between pax
well
Sticking to to Sticking of areas our expertise consistent
in a
occupy
economic
open
o We During the year opened we seven new sites – these are trading t trend have As
and
2009 an
13.4% level
£11.0m 2010 £82.2m
focused in of
in operate
during service
margins delivered
to
and
record been
levels
marketplace. well a
tough
2010 and
15.5% us representing ability £14.2m
have £92.0m exceptional
high
year customer
improving segment,
Our
our airports and
of
of
produced served remained efforts
£14.2m, the
year.
of to levels market Our
excellent
(“pax”)
an division objective this
ofits
high
approach pr in
previous 2009). demonstrates the
had
marketplace
to numbers
This and
the
with commitment
offering,
on profits.
events, profitably
our airports of Concessions our
profits.
conditions, 29%
(£18.8m) and the
compared the controls
and
passenger
of level
in
and cost
growing
improving
EBITDA decline
record
Concessions (58 units) Total revenueTotal Operating profit Operating margin Trading challenging expertise effectively meteorological increase 2010 of and tight with pax declining for a third year (albeit at a much slower rate on of a Our Concessions business, despite having cope to with declining Chief Executive Officer’s review of operations continued
Market dynamics and the economy The government has committed to significant changes in For most people, eating out has become a habitual activity spending and taxation and the impact of these will be felt and is something that they are reluctant to give up. Despite during 2011. A large part of the fiscal squeeze is being the challenging economic conditions that have characterised effected through spending cuts which, in real terms, look the UK since 2008, the propensity for people to eat away quite deep (although these are less draconian in nominal from their homes has continued. This is a secular trend, terms). It is likely that these cuts will have an impact upon driven largely by socio-economic factors. Eating out employment levels in the public sector and, potentially, constitutes a “small ticket” item which absorbs a relatively those parts of the private sector where there is a high level small proportion of disposable income. We expect this of dependency upon government contracts. There is trend to continue and this augurs well for the future. a clear expectation that the slack which this may create will be absorbed by the private sector. Certainly, corporations During 2010, our sector continued to be characterised have significantly stepped up capital spending, and many by significant and often deep discounting. “Buy One Get exporters are thriving, which should be positive for One Free” and similar types of promotions have been employment. However, expectations for growth in consumer commonplace and continue to be used frequently by many spend are, in the short-term, more modest. There are other companies. Our approach has been to avoid the several factors impacting consumer spend, including higher deep discounting “treadmill”, rather, to give our customers levels of taxation (both direct and indirect), unemployment consistently good value, service and hospitality and to levels approaching 8% (the fear of unemployment also broaden the audience of potential customers, predominantly remains a concern for many UK households) and rising through increased use of digital marketing techniques. household inflation. This latter point has become very During 2010 we significantly increased marketing across topical recently and conventional wisdom would suggest social networking websites, e-marketers and smartphone an increase in interest rates to counter inflation. However, applications and these have had a positive impact on it appears that, as the economic recovery is still in its early revenues. This approach has meant that we have continued stages and with the inflation indices being significantly to focus on maintaining and improving margins, growing impacted by VAT increases and “imported” inflation, the profits and cash flows and, very importantly, securing high Monetary Policy Committee (“MPC”) appears inclined to returns on our invested capital. maintain a relaxed monetary stance, perhaps in part to reduce the risk of precipitating a sharp slowdown in As the UK climbs out of recession, the macro-economic economic growth with the concomitant risk of deflation. picture is becoming clearer. Although it is not an immediately If interest rates rise only modestly and mortgage rates attractive landscape it is a much less dark and bleak scenario remain at low levels this will, to a significant degree, continue than the one faced at the beginning of 2009. The UK has to support households’ discretionary spend levels and, started to emerge from the deepest recession seen for providing employment levels do not deteriorate, this should several generations and, although during the final quarter enable consumer confidence to build. Initially this is likely of 2010 the recovery lost some traction (mainly due to the to be gradual, although once it becomes evident that severe UK weather), the pattern seems to be following unemployment levels are not dramatically increasing a broadly similar trend to that seen in the early 1990’s. (and as the fear of unemployment diminishes) the recovery in consumer confidence should gather pace.
10 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
two build
delivered
our
started
to
first
significant and
has
the
sustainable were of
looking
year
strengthen
and are
challenge to 2010 each
in We
current the
to he
during
T 3%).
continue long-term
rose growing up
to
year. faced
are
deliver TheRestaurant Group plc Annual Report 11 2010
sales sales this
people team
and aims
our our
our
A robust robust A well and proven business model growth. like-for-like
(like-for-like
positions always, performance
doing,
with as difficulties
year
so
a very impressive performance. are very We fortunate have an to outstanding and loyal team at TRG and I am confident that they will be working towards delivering another strong well, further on this as the year progresses. Andrew Page Chief Executive Officer 9 March 2011 months and, after nine weeks, sales total are 8% ahead of last market profitable The but, By
we
and
for
each
third and, fixed as
served
years in
and with
and
robust has,
although one
sheet have low has
value
costs
Just
a the as two
have
experienced prevail.
risen
in we bargaining.
for
past have input inflationary has conditions positions
sector;
costs pressures
portfolio; contracts and
have remain
balance
relatively approach to: wage
excellent the We
approach
course,
that to
our
is food
returns.
our oil)
expansion.
cost
input
year outlook
increases
UK
price
market to for approximately
over risk
due This
strong
business
and our and TRG’s the
our
last there 2008 in
a
into
challenging and continue
of
providing
offerings.
Our
annual flow
some that strong
continues food
will, was and
years.
capped) will by
with
it our
year,
50%
model,
continue experienced
challenges (or conditions also that
through continue. we two restaurants cash
as of
Currently
basis
2007
to
one
to cope
for on over
but in
the new fixed feed often significant
to 2011 (including
for
2011
command value
poses
accordingly. businesses trading
on customers
and business
quickly.
out the
focus
ced
and also
could present confidence
our
sector to quality prices
capped)
prices during expected
during
pla
positioned plans
tough pressure, with
quite
At is wage)
on
(or
taking proven our
our high planning execution; service; well y well
quality businesses
very
cost b 2010,
inflation is aintain high standards operational of efficiency
well trend are
fixed in are
capped) the
Continue Carefully control our costs; Add and M and Stick our to areas expertise; of Focus
consumer
Commodity expectations minimum are Future prospects Future We us well and is one that intend we continue. to (especially this is not a new phenomenon. During much the of last decade, Cost several years, been protect to the business from rising input costs TRG this and during that time sales, profits and cash flow all grew. some framed • challenging increased wage consumer-facing suppliers. (or very importantly, benefit to substantially from the upturn in • TRG’s • • • ourof chosen segments and our brands are well recognised and for we • did Group Finance Director’s report
Results “We continue to be absolutely Against the backdrop of another challenging year in terms of the economic environment, the Group has recorded a very focused on ensuring that all of our satisfactory set of results. For the statutory 53 week financial new openings achieve the high year, total sales of £465.7m increased by 7% compared to the prior year. Group EBITDA was £85.8m, an increase of 8% levels of return on investment which on the prior year. Total depreciation charges were £27.2m we target.” (2009: £26.3m), resulting in adjusted operating profits of £58.6m, an increase of almost 10% on the prior year.
Group operating margin in the year was 12.6%, an increase of 40 basis points compared to the prior year. This was achieved through continuing focus on the cost base, close management of procurement costs and operational efficiencies across the business. The Group’s margins have also benefited from our decision taken two years ago not to pursue the deep discounting strategy that many other operators in the sector have followed.
Interest costs of £2.7m fell by 20% compared to the prior year, principally as a result of lower debt levels during the year. This resulted in Group adjusted profit before tax of £55.9m, an increase of 12% on the prior year. After taking into account a lower average tax rate in the year (as discussed later in the report), adjusted post-tax profits of £39.7m increased by 15% compared to the prior year, resulting in adjusted EPS of 19.95p, an increase of 14% compared to prior year.
On a pro forma 52 week basis the key financial figures were as follows: revenues were £453.7m (up 4%), EBITDA was £82.6m (up 4%), adjusted operating profit was £55.9m (up 5%), adjusted profit before tax was £53.2m (up 6%), and adjusted earnings per share was 19p (up 9%).
Cost inflation During 2010 cost pressures were relatively benign with average food and beverage cost inflation at about 1.5%. Wage cost inflation was driven by the National Minimum Wage increases of 1.2% in October 2009 and 2.2% in October 2010.
12 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
of
23 58 43 68
197 389 and
2010
and 2009)
line we
which in Year endYear in on
outlets, rigorous
estate that
viability achieve financial beginning
profitability
–
(1) (1) least (2) new feasibility.
to
return
the highly the at
opened
competitor
24 of,
of and a
means
existing Closed at
post-investment
of investment,
detailed
the a those
levels continue n health
this ahead adopt 9 – 5 2 1 – 7 i
total
24 analysis, regular assessing
a position
also we profitability we
high
Opened includes that expectations and
the (and
sheet
When
sites, investing
long-term
opened
on conduct
maintaining This to 42 52 22 63
substantially sites
sales 188 367 the
new
2009
demographic target. also confirm of achieve TheRestaurant Group plc Annual Report 13 2010
balance from Group
new
Year endYear as
we
cases We
the these
levels
approach. well securing potential
committed 2010
strong
improvement most
to which
is of as openings year
and year with 389 trading units.
year:
in
Our
very portfolio.
constrained
We are well well are We positioned to our continue expansion the
the
new
business.
and
restaurants analytical our Group
not generating year.
the our essential
significant
the evaluation, target levels returns. of a Frankie & Benny’s Chiquito Garfunkel’s Pub Concessions profitability and existing market analysis, and comparison other to sites in the Group’s appraisals The and are is of During are continueWe be absolutely to focused on ensuring that all of Total investment with, The table below summarises openings and closures during After taking account into two closures the Group in the year, ended the
those
our
take
the
fixed have
all
Group do and
to
National IFRS
into cost years.
expect
contracts
3%. that
will are
we the sub-let
cover
development the the cost
not 2010
we
and
to across
arrangements.
price be taking on
in
Rental
do
small continue
to previous 2%
year
estimate
we contracts
2010. possible, to Although year,
swap
our We included
we arising inflation to
above.
capped
reviews
the end,
rate
necessary to This
of
current
major in (from
costs.
between is and
continues £0.7m.
year the
our wherever be
to average
compared
account,
in
of stage
what to fixed interest the
losses
compared
referred
adjustment driver
£31.5m). evidence
into
costs
and the this
beverage
levels
£1.3m
key
most expect
since
of the At
inputs
double
and low Group’s the we fixing
2012
(2009: on
from increase
factors non-core
reduction
of costs,
ery the than a
2010. accounting
late
v
food benefit
of of year to
costs,
at
an
Wage these based
beverage
on
completed the
utility until
is
more secured,
reduced
the
additions all
strategy
and For
a
2011, benefit labour
have
8%,
£0.6m,
compared expect see to a somewhat higher level average of inflation During already account estate) revaluation inflation On food of and (2009:expenditure £11.3m £20.7m of £20.1m) refurbishment and maintenance expenditure (2009: £11.4m). Capitalexpenditure During the year the Group invested £32.0m of a total in capital steps minimise to these losses. forward has For we expected cost increases. Non-tradingandnon-core items In the current year the only non-trading item is a credit of pressure there is clearlyLooking some upward forward 2011, to Minimum the business needs have sales total to growth 2-3% of Taking coverto off the cash costs these of inflationary rental inflation on the existing base be much to more than 1%. increases. After nine weeks the Group’s total sales are are sales total Group’s the weeks nine After increases. up the Group Finance Director’s report continued
Cash flow 2010 2009 Set out below is a summary cash flow statement for the year. £m £m Net cash from operations is £87.8m (2009: £77.1m). After Operating profit 58.6 53.4 interest payments, tax and maintenance capital expenditure Working capital and non-cash the Group generated free cash flow of £56.8m. Once again adjustments 2.0 (2.6) this demonstrates the very strong and transparent cash flow Depreciation 27.2 26.3 generation characteristics of the Group’s business. The free Net cash flow from operations 87.8 77.1 cash flow financed all of the new sites and dividends. Net Net interest paid (2.1) (2.2) cash flow was £19.8m (2009: £12.2m) which resulted in net debt reducing from £66.7m to £46.9m. Tax paid (17.6 ) (13.7) Maintenance capital expenditure (11.3 ) (11.4) Free cash flow 56.8 49.8 New build capital expenditure (20.7) ( 20.1) Dividends (15.7) (14.9) Normalised net cash flow 20.4 14.8 Disposals – 0.5 Net cash flow from share issues 1.9 1.0 SWAP termination payment (1.0) – Purchase of shares for employee benefit trust (1.4) (3.9) Finance costs offset against bank debt ( 0.1) (0.2) Change in net debt 19.8 12.2 Net bank debt at start of year (66.7) (78.9) Net bank debt at end of year (46.9) (66.7)
14 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
£m
(4.2) 11.1 Total of 15.3
than due
the 31%
next year a
£m to
(0.7) (4.5) (3.8) 2009 Non- the the higher see
trading
imarily corporation
within 2010.
in
to phased revaluation pr be of
in
over £m
to (0.4) 31%
15.6 16.0 the the
rate rate
Trading
compared rate to
charge
expect
tax
£m tax tax
due lower expenditure 17.3
Total 29% 16.4 We
continue
announced
of
the
will implements
£m 2011. rate 0.5 (0.9) 0.2
rate 2010 average (0.3) Non-
primarily rate corporation trading
tax underlying reflect
tax is
the April
a disallowable to tax
£m
in TheRestaurant Group plc Annual Report 15 2010
the (1.4) 17.6
programme. 29% 16.2 of
from
Trading government
reduction levels the average
mainstream liabilities tax
corporation
activities reduction represents
applies as in
tax This
Maintaining standards high operational of efficiency and execution expenditure
Group’s taxtotal analysed charge in the year was £16.4m, years
headline which trading
significant £16.2m 2009.
StephenCritoph Group Finance Director 9 March 2011 capital to the On The Deferred tax Corporation of in deferred tax continuing few reduction Total Average tax rate Tax Tax The as follows:
24x 2.5x
2009 58% net 0.84x
until and
of basis was
and
as several
of years level
uncertain, accelerate
32x £120m facility 2010 2.6x These
32%
to 0.55x monthly
improved next financial five of
dividend
level
estate
of six for bank
overall the
a
results. high ratios
n/a n/a strong the >4x <3x on a somewhat
position level
runs
facilities
over
existing in
be Banking
This covenant and
the to
tested committed
strong financial
published
on banking maintain
2007 are allow.
The increasing
to
very reduction
these programme a a
us
and of in
continues Group’s which
facility. see
all
cover of
us
committed the
to December expenditure
allows
opening
to
in
both has 2012. seen puts outlook
generous circumstances
site also
overdraft be a happy
as place This
as Group debt/EBITDA
new in
are
can
reference
£10m
put a covenants, bankingThe Group’s arrangement contains two financial December by other financial key ratios are summarised as follows: Balance sheet gearing EBITDA/Interest As Financing and key financialFinancing and key ratios The the debt. we Fixed charge cover during In thecurrent the year. climate, in which the economic Net to shareholders.to well maintenance position years Board of Directors
1 2 3
1 Alan Jackson, 2 Andrew Page, Non-executive Chairman Chief Executive Officer Aged 67, he joined The Restaurant Group plc as Executive Aged 52, he joined The Restaurant Group plc as Finance Chairman in March 2001 and became non-executive Director in June 2001. In December 2003 he was appointed Chairman from January 2006. He has a wealth of experience Group Managing Director and in January 2006 became Chief in the leisure sector. For 18 years, from 1973 to 1991, he Executive Officer. His career has spanned both international occupied various positions within Whitbread, principally and domestic businesses. Prior to joining The Restaurant Managing Director of Beefeater steakhouses and also the Group plc, he held a number of senior positions in the leisure Whitbread restaurant division where he was responsible for and hospitality industry including Senior Vice President the creation and development of Beefeater, Travel Inns and with InterContinental Hotels and Finance Director of Hanover TGI Friday brands. After the Beer Orders in 1991 he founded International plc. Prior to that, Andrew spent six years as his own business which became Inn Business Group plc in a Corporate Financier with Kleinwort Benson having trained 1995 and was subsequently acquired by Punch in 1999. He and qualified as a Chartered Accountant with KPMG. chaired Oriental Restaurant Group plc until its sale to Noble Andrew is a non-executive director of Arena Leisure plc. House in 2000. Currently Alan is non-executive chairman of Charles Wells Limited, non-executive deputy chairman of 3 Stephen Critoph, Redrow plc and a non-executive director of Playtech plc. Group Finance Director Aged 50, he was appointed as Finance Director of The Restaurant Group plc in September 2004. Previously he has held several senior finance positions in Compass Group plc and Granada Group plc, including Corporate Development Director of Compass Roadside and Finance Director of Travelodge and Little Chef. He trained and qualified as a Chartered Accountant with Deloitte & Touche.
16 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
of
to
of roles
the
the in and
2003 n
i Director (previously
Director
2007 plc from
2002 worked
to
Company plc in
management
he
as Managing
Butlers
1995
&
Group senior was Butlers
from non-executive &
He a
7 Previously
held
appointed plc)
as
Mitchells he
2008. of was
2004.
Restaurant
Mitchells
of TheRestaurant Group plc Annual Report 17 2010 Bass,
and
The
appointed Continents
January Division
Board in joining
Six
joined was September
to
the in
he he
and
department on
Prior 62, 39, plc
Company Restaurants
6 Tony Hughes,6 Tony Non-executive Aged the Secretary the finance function Coca-Cola of HBC S.A. having qualified as a Chartered Accountant with KPMG. Bass served 2007. finance at B&Q, J.A.Devenish and Whitbread. 7 Robert Morgan, Secretary Company Aged 6
as
in she
Director
ndustries was I joining
and 1993 Group’s
he to
Head building
2003
in Brand
managing
the
Häagen-Dazs Prior plc
for
house Global March
Diversified for
In
Group included Board. Concessions
appointed
Wasserstein,
– largest
the worked HSBC’s Formerly
its
was responsible
5
to which of
of
Trish she
Director 2010. Kleinwort
Restaurant
Concessions.
plc, some –
currently 1997 Director
The
is appointed In March
with Garfunkel’s
in
Group Dresdner Managing
and for
was
Director
joined
at
Managing
she 2005
2003
business
operations. in
Company 53,
Manager appointed
Restaurant
Operations Industrials the
appointed of of 5 Simon Cloke, Non-executive Aged 43, he was appointed as a non-executive Director then managedthe Atacama Restaurant Group. and building materials clients. HSBC’s Group The 4 Trish Corzine, Executive Director, TRG Concessions Aged Area was October of Garfunkel’s and Airports, and in 1999 was promoted promoted was 1999 in and Airports, and Garfunkel’s of to airport 4 Report of the Directors
The Directors present their Annual Report and the Group No Director has a service contract with the Company Accounts for the year ended 2 January 2011. requiring more than twelve months notice. In accordance with the UK Corporate Governance Code best practice, Results and dividends all the Directors will be subject to re-election at the Annual The results for the year ended 2 January 2011 are presented General Meeting to be held on 11 May 2011. under International Financial Reporting Standards (“IFRSs”). The Report and Accounts are drawn up on a 53 week During the year the Audit Committee comprised the following reporting basis ending on 2 January 2011 (2009: 52 week non-executive Directors: reporting basis ending on 27 December 2009). The results • Simon Cloke (appointed on 26 March 2010) for the year are set out in the Group consolidated income • Tony Hughes statement on page 43. This shows a Group profit after tax • John Jackson (resigned on 6 May 2010) of £40.1m (2009: £37.3m). An interim dividend of 1.54p per share was paid on 13 October 2010. The Directors propose a Simon Cloke is currently Chairman of the Audit Committee. final dividend of 7.46p per share, which is subject to approval at the Company’s Annual General Meeting to be held on During the year the Remuneration Committee comprised 11 May 2011. Should this be approved, this final dividend the following non-executive Directors: will be paid on 17 June 2011, bringing the ordinary dividend • Tony Hughes per share payable in respect of 2010 to 9.0p (2009: 8.0p). • Simon Cloke (appointed on 26 March 2010) • John Jackson (resigned on 6 May 2010) Principal activity The principal activity of the Group is the operation of Tony Hughes is currently Chairman of the restaurants and pub restaurants. Further information relating Remuneration Committee. to the business, including a review of the year’s performance and planned developments, is given in the Chief Executive During the year the Nominations Committee comprised Officer’s review of operations on pages 6 to 11. the following Directors: • Tony Hughes (Chairman) Business review • Simon Cloke (appointed on 26 March 2010) The Company is required by the Companies Act to include • Alan Jackson a business review in this report. The information that fulfils • Andrew Page the requirements of the business review can be found • John Jackson (resigned on 6 May 2010) in the Chairman’s statement, Chief Executive Officer’s review of operations and Group Finance Director’s report The Directors’ remuneration report, which includes details on pages 4 to 15, which are incorporated in this report of Directors’ remuneration and interests in the Company’s by reference. shares and options, together with information on service contracts, is set out on pages 29 to 35. Directors Full details of the Directors of the Company are given on Directors’ shareholdings pages 16 and 17. The Directors who held office during 2010 The interests of the Directors in the shares of the Company, were as follows: all being beneficially owned, were as follows: At At At Executive Directors 8 March 2 January 27 December • Andrew Page 2011 2011 2009 • Stephen Critoph Executive Directors • Trish Corzine Andrew Page 576,806 576,806 506,806 Stephen Critoph 258,647 258,647 202,491 Non-executive Directors Trish Corzine 255,497 255,497 213,757 • Alan Jackson • Tony Hughes Non-executive Directors • Simon Cloke (appointed on 26 March 2010) Alan Jackson 400,191 400,191 400,191 • John Jackson (resigned on 6 May 2010) Tony Hughes 91,476 91,476 10,000 In respect of 2010, each of the non-executive Directors Simon Cloke – – n/a (excluding the Chairman) is considered by the Board to be independent. Since 6 May 2010, Tony Hughes has held Details of the Directors’ share options are disclosed in the role of senior non-executive Director. Alan Jackson the Directors’ remuneration report on pages 33 and 34. transitioned from executive Chairman to non-executive The closing mid-market price of the ordinary shares on Chairman on 1 January 2006 and following his tenure as an 2 January 2011 was 275.0p and the range during the executive Director, is not considered to be an independent financial year was 186.3p to 297.8p. non-executive Director.
18 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
4.19 3.31 3.81 5.62 4.04 3.45 5.56 3.56 3.65 3.36
% of issued
share capital shares 7,282,316 7,608,373 Number of 7,099,999 6,600,615 8,058,428 6,700,863 9,054,580 4.54 6,890,620 8,360,566 11,220,208 11,084,906 TheRestaurant Group plc Annual Report 19 2010 BAE Pension Fund Investment Management governance Corporate corporate of standards high to committed is Company The corporate of principles observing the to and governance Corporate on Code Combined the in contained governance Financial the by 2006 in issued was that Governance is Board the (“thewhich ReportingCouncil Code”)for accountable shareholders. to Statement of compliance with the Combined Code Throughout the Company the year ended 2 January 2011, has been in compliance withthe provisions set out in number the concerning provisions for except Code the the and independent, be to considered Directors of previously was (who Chairman the independenceof executive Chairman before assuming the role non- of executive Chairman in January 2006). The Company are who Directors non-executive two has currently 50% the than less is which independent, be to considered Combined the under guidance practice best Board the of Board the from retired Jackson John 2010 During Code. non- independent an as appointed was Cloke Simon and executive The Director. composition the of Board is regularly Board the of effectiveness the that ensure to reviewed standard. high a at are Group) the (andperformance of Statementaboutapplying theprinciples theCode of in out set principles the applied has Company The Principles Main the both including Code, the of 1 section Code the with complying by principles, supporting the and Main the how of explanation Further above. reported as in and below out set is applied been have Principles the Directors’ remuneration report and the Audit Ameriprise Financial Inc AmeripriseFinancial Management M&GInvestment report. Committee Blackrock Inc Blackrock F&C Asset Management New Smith Asset Management Legal & General Asset Asset General & Legal Management Morgan Asset ManagementJ.P. Scottish Widows Investment Investment Widows Scottish Partnership Old Mutual Asset Managers Standard Life Substantial shareholdings Substantial the of notified been had Company the February 2011 16 At ordinaryshare issued the in more or 3% of interests following capital the of Company: p per share. 8 ⁄ 1 p. As at 2 January 2011, the issued, called called issued, the January 2011, 2 at As p. 8 ⁄ 1 p. The authorised share capital is 284,444,444 ordinary 284,444,444 is capital share authorised The p. 8 ⁄ 1 shares 28 of Share capital structure capital Share of ordinaryshares shares, of class one has Company The 28 Following the 2010 Annual General Meeting the Directors Directors the Meeting General Annual 2010 the Following have had the authority allot to shares an up aggregate to represented which £18,690,289 of amount nominal the of capital ordinaryshare the of third one approximately shareholders. by given was authority the time the at Company be to Meeting General Annual the at expires authority This this extend to proposed be will it and 2011 May 11 on held authority (updated for the current number shares of in issue) present no have Directors The Meeting. forthcoming the at following addition, In authority. this exercising of intention the have Directors the Meeting, General Annual 2010 the The in shares of purchases market make to authority to up Company the of behalf on plc Group Restaurant the of 10% represented (which ordinaryshares 19,936,308 the of time the at capital ordinaryshare issued Company’s minimum Meeting).The General Annual 2010 the of Notice 28 is shares such for paid be may that price up and fully paid number of shares in issue was 199,470,892 199,470,892 was issue in shares of number paid fully and up rights special or shares preference no are There shares. issue. in shares the of any pertainingto The Group has entered into various contracts, including including contracts, various into entered has Group The may which ordinarybusiness of course the during leases, of control of change a of event the in terminated be The Restaurant Group plc. The maximum price is the higher of 5% above the average average the above 5% of higher the maximumis The price five the for ordinaryshares the for quotation market middle higher the and purchase of date the preceding days business highest the and trade independent last the of price the of Exchange Stock London the on bid independent current out. carried is purchase the time the at Official Daily List GeneralAnnual forthcoming the at expires authority This authority this extend to proposed be will it and Meeting issue)at in shares of number current the for (updated present no have Directors The Meeting. forthcoming the intention exercising of this authority. Report of the Directors continued
The Board There is significant involvement from the non-executive The Board’s role is to provide entrepreneurial leadership Directors. This involves an ongoing dialogue with the of the Company and Group within a framework of prudent executive Directors including constructive challenge of and effective controls which enable risk to be assessed and performance and the Group’s strategy. The non-executive managed. The Board reviews the Group’s strategic objectives Directors are provided with sufficient information to allow and looks to ensure that the necessary financial and human them to monitor, assess and challenge the executive resources are in place to achieve these objectives, and to management of the Group. Comprehensive Board papers review management performance against these objectives. including financial information are circulated to all Directors prior to Board meetings and, on a weekly basis, they receive The Board also sets the Company’s values and standards up-to-date trading information. The non-executive Directors and manages the business in a manner to meet its have the opportunity to meet without the executive Directors obligations to shareholders and other stakeholders. present, and this includes discussions of targets set and The Board currently comprises the non-executive Chairman, achieved by management. the Chief Executive Officer, the Group Finance Director, the Executive Director of the Concessions division and two All Directors have access to the advice and services of non-executive Directors. Their biographies appear on pages the Company Secretary and a procedure has been agreed 16 and 17 and these demonstrate a range of experience for the Directors in the furtherance of their duties to take and sufficient calibre to bring independent judgement on independent professional advice, if necessary, at the expense issues of strategy, performance, resources and standards of the Company. On joining the Board there is a process of conduct which is vital for the success of the Group. for Directors to receive training as to their role and its Tony Hughes acts as senior independent non-executive requirements and for non-executive Directors to gain Director and is available to shareholders if they have reasons an understanding of the whole business. Non-executive for concern on which contact through the normal channels Directors are actively encouraged to meet with operational is inappropriate or has failed to resolve an issue. management and to visit the Group’s operations in order to enhance their understanding of the Group’s business, The roles of Chairman and Chief Executive Officer are clearly its brands, employees and processes. defined. The Chairman is responsible for the leadership of the Board and the Chief Executive Officer is responsible for the During 2010 there were eight Board meetings with full strategic direction and operational management of the Group. attendance by Board members.
The Board meets on a regular basis and there is a formal Executive Directors are included in the annual performance schedule of matters specifically reserved for its consideration. evaluation of all senior employees within the Group. This This includes approval of the annual budget and the three involves a comprehensive review of performance against year business plan, approval of the interim and year end objectives and covers areas for future development through Report and Accounts, review and approval of significant appraisal documentation and meetings. The non-executive capital expenditure (including development of new sites), Directors also meet in the absence of the Chairman to significant disposals of assets and acquisitions or disposals appraise the Chairman’s performance in the light of his of businesses. fee review.
Operational management are responsible for the day-to-day The Company acknowledges the importance of developing running of the Group and report on a regular basis on that the skills of the Directors to run an effective Board. To assist performance to the Board. The Board is responsible for in this, Directors are given the opportunity to attend relevant reviewing, challenging and approving the strategic direction courses and seminars and to acquire skills and experience of the Group and monitoring operational performance. which may enhance their contribution to the ongoing The Board is responsible to shareholders for the proper progress of the Group. The Board and committees of the management of the Group and has access to the necessary Board have been subject to a formal performance appraisal, information to enable it to discharge its duties. All Directors through an internal questionnaire, and the performance are subject to annual election by shareholders at the first of all members of the Board is considered as part of the opportunity after their appointment, except where they annual remuneration review process. are appointed by shareholders, and to re-election thereafter at intervals of not more than three years. Following changes to the UK Corporate Governance Code, Directors will be subject to re-appointment on an annual basis.
20 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 21 2010 The Restaurant Group plc – strategy shareholder grow to is objective key Group’s Restaurant The value and the strategy deployed achieve to this build is to a business capable generating of long-term, sustainable and business a built have we this of pursuit In flows. cash growing which is focused on the growing casual eating out market. have targetedWe segments this of market which offer distinct delivering of confident be can we where entryand barriersto is there where and flows cash and profits in growth good led has This investment. on returns high for potential good and Leisure – areas two in activities our focus to Group the casual expanding the in operates Group The Concessions. good provide to continue offerings our and market, dining value for money in comfortable surroundings and excellent service from our dedicated teams. strategyThe deliver is to Group’s further organic growth Benny’s, & Frankie – brands our of roll-out the through business. restaurant Pub our and Garfunkel’s Chiquito, coupled development, for sites of pipeline solid a have We sales like-for-like deliver to continuing on focus strong a with growth from our existing restaurants. Our Concessions business operates in a dynamic and complicated market market-leading have teams management our where improving and innovation of record track a and expertise sales performance and the Group continues look to for opportunities expand to this division. The Restaurant Group plc – risk factors The Board Directors of regularly identify, monitor and manage the on list The Group. the uncertaintiesto and risks potential following page sets out what the Directors consider be the to of overview an with uncertainties, and risks principal current to presumed not is list This these. for process mitigation the change. to subject verynature, its by is, and exhaustive be RestaurantThe performance key Group – plc indicators receive management executive and Directors of Board The timely a in delivered information management of range wide a progress of measures principal the are below Listed manner. the monitor to basis regular a on reviewed are that Group. the of development sales Like-for-like underlying the of indicator an provides measure This highlights and restaurants, existing our performanceof successful development our of offerings best to match changing consumer demands over time. There is no accounting standard or consistent definition of “like-for-like applied has Group the although industry, the across sales” reporting for years across calculation of basis consistent a like-for-like Group the 2010, performance.During like-for-like 2009 in decline 2% a followed which 1% by declined sales increaseand in 2008. a 1.5%
is included in the Audit Committee report on pages 36 and 36 pages reporton Committee Audit the in included is opportunity to the have Company the of Shareholders 37. Company the of auditors external as LLP Deloitte re-appoint at the Annual General May 2011. Meeting be held to on 11 Remuneration Committee Remuneration non-executive two of consists Committee Remuneration The Directors. There was 100% attendance the of four Remuneration Committee meetings The role during 2010. The Board uses the Annual General Meeting to communicate communicate to Meeting General Annual the uses Board The their welcomes and investors institutional and private with chairmen the that ensure to aims Chairman The participation. and Committee Remuneration Committee, Audit the of Nominations Committee are available at the Annual General Meeting answer to questions, and for all Directors attend. to There is a regular dialogue with institutional investors investors institutional with dialogue regular a is There announcement Company’s the after presentations including from Feedback year. half the at and results, year-end the of on Board the to provided is shareholders institutional major take will Board the appropriate, where and, basis regular a recommendations. and concerns their address to steps Committee Nominations non-executive the of consists Committee Nominations The Directors, the non-executive Chairman and the Chief attendance full with 2010 during once met It Officer. Executive the for reference of terms written are There meeting. the at to recommendations makes It Committee. Nominations additional of replacement or appointment the for Board the Directors. It is also responsible for succession planning Audit Committee non-executive two of consists Committee Audit The by chaired was Committee the year the During Directors. by date that since and 2010 May 6 until Jackson John 2010 during twice met Committee Audit The Cloke. Simon with full attendance at each meeting. A more detailed description the of work undertaken the by Audit Committee on pages 6 to 11 includes a review of planned planned of review a includes 11 to 6 pages on developments. future thisof Committee and details how of the Company complies Directors’ the in out set are Code the of principles the with remuneration report on pages 35. to 29 Group. the for Communications with shareholders with Communications high given are shareholders with Communications Officer’s Executive Chief statement, Chairman’s The priority. report Director’s Finance Group and operations of review business the of review detailed a include 15 to 4 pages on and the Chief Executive Officer’s reviewof operations Report of the Directors continued
Nature of risk Mitigation plans
Strategic/external risks
Adverse economic conditions and a decline in consumer Regular monitoring of performance and appropriate confidence and spend in the UK action plans
Increased supply of new restaurant concepts into the market Concentration on segments offering higher barriers to entry and good growth prospects; regular monitoring of performance and appropriate action plans
Impact of terrorism in key locations (including airports) Contingency planning and training; liaison with authorities and landlords in key locations
Possible health pandemic that may cause customers to stay Contingency planning and communication with employees away or prevent restaurants being adequately staffed
Lack of new site opportunities, and risks to existing Dedicated property department focusing on new site Concession agreements development, strong relationships with Concessions partners
Operational risks
Failure to provide customers with brand-standard value for Training, mystery diner visits, monitoring of customer feedback, money offerings and service levels internal quality control testing
Major failure of key suppliers to deliver products into restaurants Contingency planning for supply chain and suppliers
Damage to our brands’ images due to failures in environmental Training of restaurant and pub teams; detailed health and health compliance in the restaurants or from contamination safety manual; regular internal and external auditing of all sites; of products auditing of supply chain and suppliers; health and safety incentives and awards
The loss of key personnel or failure to manage Benchmarking of remuneration packages; analysis of staff succession planning turnover; performance appraisal and review system to retain existing talent; Long-Term Incentive Plan
Financial risks
Increase in prices of key raw materials (including foreign Rolling programme of securing longer-term contracts to mitigate currency fluctuations), wages, overheads and utilities short-term pricing fluctuations; energy efficiency programme
Reversion of formerly sold or disposed leases following Monitoring of sub-let properties; ongoing relationships with business failure of new occupiers property agents
Failure to meet banking covenants Signed facility agreement, monitoring of financial performance against covenant levels; banking relationships; significant levels of headroom against covenants
Compliance risks
Increased regulation of the food and beverage industry leading Monitoring of developments and liaison with external authorities to higher costs such as the Food Standards Agency and Department of Health
Breakdown in internal controls through fraud or error, major Experienced staff in key roles; segregation of duties; internal failure of IT systems and external audit processes; Audit Committee role
Changes to tax regime, including VAT, corporation tax and Ongoing monitoring in conjunction with external advisers income tax
Further information on the management of risks highlighted above is provided in the Chief Executive Officer’s review of operations and Group Finance Director’s report on pages 6 to 15.
22 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 23 2010 Terms of reference for the Board and its sub-committees, sub-committees, its and Board the for reference of Terms Board the reservedfor matters of schedule a including items agenda fixed of programme annual agreed an and approval. Board for lines clear with structure organisational established An responsibilityof and rigorous reporting requirements. are matters performanceoperational and Operational considered at monthly meetings the of executive Directors with senior management. Financial performance is reportingweekly through taken action and monitored the to reporting monthly and Directors executive the to Board. the by approved budgets annual against Board budgetaryprocess a by regulated is investment Capital post- and appraisals with levels, authorisation and reviews. investment agreed out setting manuals policy Comprehensive standards and control procedures. These include human and technology information policies, related resources external of firm a employs Group The safety. and health for basis regular a on restaurants monitor to auditors and health internal and statutory with compliance safety requirements. experienced an by headed function audit internal An Company the of areas all to access has auditor internal businessand Group’s and reports the into Board. The Group has well-established procedures which have been have which procedures well-established has Group The developed over many years which meet the requirements the is procedure control key A Guidance. Turnbull the of Board the of members executive of involvement day-to-day regular at attendance their and business the of aspects all in management meetings at which performance against plan has Group The reviewed. are prospects business and meeting management executive monthly a established operational senior Directors, executive three the where Group review departments functional of head and managers Additionally, Group. the affecting performanceissues and internal the strengthen continually to seeks Board the the improving with consistent is this where system control associate Group’s The reward. and risk between relationship does Limited, Group Restaurants Ventures Living company, The Group. the as controls internal same the under fall not internal controls within the associate are discussed with meetings shareholder during company that of management and are considered be appropriate to for an entity its of size. reviewing for processes the and features key Other effectiveness the of internal control system are below: described • • • • • • Internal control Internal internal of system Group’s the for responsible is Board The accordance In effectiveness. its reviewing for and control for Guidance Control: “Internal directors for guidance with Guidance”), “Turnbull (the Code” Combined the on Directors for process ongoing an is there that ensured has Board the reviewing the effectiveness the of system internal of control including identifying, evaluating and managing the significant regularly is which process, This Group. the by faced risks reviewed the by Board, is carried out in conjunction with that register risk a in documented is and planning business year financial the during enhanced progressively been has ReportAnnual and the of approval of date the to up and for responsibility overall its acknowledging Whilst Accounts. the that aware is Board the control, internal of system the risk the eliminate than rather manage to designed is system provide only can and objectives business achieve to failure of material against assurance absolute, not but reasonable, misstatement or loss. Further information on these key metrics is provided in the the in provided is metrics key these on information Further Group the and operations of review Officer’s Executive Chief report. Director’s Finance Operating profit margin margins profit monitor closely management and Board The as an indicator operating of efficiency within restaurants and operating adjusted Group the 2010 During Group. the across Group the addition, In (2009: 12.2%). 12.6% was margin from capital invested on returns the scrutinises closely generated EBITDA average the and openings site new restaurants. by EBITDA programme roll-out its finance to Group the of ability The business. existing the from flows cash strong by aided is before profit operating as EBITDA defines Group The EBITDA items. non-trading and amortisation depreciation, by generated flows cash for proxy useful a serves as Group the 2010 During monitored. closely is and operations 2009 the on 8% of increase an EBITDA, £85.8m generated £79.6m. of level New sites opened Group’s the of driver key a is brands our of expansion The report, Director’s Finance Group the in noted As profitability. process appraisal rigorous a to subject are sites new potential This approval. for Board the to presented are they before as openings of quality the maintain we ensures process Group the 2010 During opened. sites of quantity the as well opened new sites (2009: 24 and 19) plans open to 27 to 22 2011. during restaurants new Report of the Directors continued
Statement of Directors’ responsibilities in relation The Directors are responsible for keeping proper accounting to the accounts records that disclose with reasonable accuracy at any time The Directors are responsible for preparing the Annual the financial position of the company and enable them to Report, Directors’ remuneration report and the financial ensure that the parent company financial statements comply statements in accordance with applicable law and with the Companies Act 2006. They are also responsible for regulations. Company law requires the Directors to prepare safeguarding the assets of the company and hence for taking financial statements for each financial year. The Directors reasonable steps for the prevention and detection of fraud are required by the International Accounting Standards (“IAS”) and other irregularities. Regulation to prepare the Group financial statements under International Financial Reporting Standards (“IFRSs”) The Directors are responsible for the maintenance and as adopted by the European Union. The Group financial integrity of the corporate and financial information included statements are also required by law to be properly prepared on the company’s website. Legislation in the United Kingdom in accordance with the Companies Act 2006 and Article 4 governing the preparation and dissemination of financial of the IAS Regulation. statements may differ from legislation in other jurisdictions.
IAS 1 requires that IFRS financial statements present fairly Information provided to auditors for each financial year the Company’s financial position, Each of the current Directors have taken all the steps that financial performance and cash flows. This requires the they ought to have taken to make themselves aware of any faithful representation of the effects of transactions, other relevant information needed by the Company’s auditors for events and conditions in accordance with the definitions and the purpose of their audit and to establish that the auditors recognition criteria for assets, liabilities, income and expenses are aware of that information. The Directors are not aware set out in the International Accounting Standards Board’s of any relevant information of which the auditors are “Framework for the preparation and presentation of financial unaware. This information is given and should be interpreted statements”. In virtually all circumstances, a fair presentation in accordance with the provisions of s418 of the Companies will be achieved by compliance with all applicable IFRSs. Act 2006.
However, Directors are also required to: Going concern • properly select and apply accounting policies; As referred to in the Chief Executive Officer’s review of • present information, including accounting policies, in operations there are significant economic concerns facing the a manner that provides relevant, reliable, comparable United Kingdom and consumer-facing industries in particular. and understandable information; and The Group Finance Director’s report also contains a summary • provide additional disclosures when compliance with the of the cash flows and borrowing position of the Group. specific requirements in IFRSs are insufficient to enable Further information on the Group’s policies for capital risk users to understand the impact of particular transactions, management and financial risk management are set out other events and conditions on the entity’s financial below. Potential risk factors and uncertainties that could position and financial performance. affect the business are listed above.
The Directors have elected to prepare the parent company The Group is highly cash generative, as explained in the financial statements in accordance with United Kingdom Group Finance Director’s report, and enjoys negative working Generally Accepted Accounting Practice (United Kingdom capital as it generally does not give credit to its customers. Accounting Standards and applicable law). The parent The Group has a debt facility of £120m which matures in company financial statements are required by law to give December 2012 and net debt at 2 January 2011 of £46.9m a true and fair view of the state of affairs of the company. (27 December 2009: £66.7m).
In preparing these financial statements, the Directors are Based on the Group’s plans for 2011 and after making required to: enquiries (including preparation of reasonable trading • select suitable accounting policies and then apply forecasts, consideration of current financing arrangements them consistently; and current headroom for liquidity and covenant compliance), • make judgements and estimates that are reasonable the Directors have a reasonable expectation that the Group and prudent; has adequate resources to continue operations for the • state whether applicable UK Accounting Standards foreseeable future. For this reason they continue to adopt the have been followed, subject to any material departures going concern basis in preparing the financial statements. disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
24 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 25 2010 the financial statements, prepared in accordance with the with accordance in prepared statements, financial the view fair and true a give standards, accounting applicable the of profit and position financial liabilities, assets, the of Company and Group; and the Chairman’s statement, Chief Executive Officer’s review report reportand Director’s Finance Group operations, of theof Directors include a fairreview the of development the of position the and business the performance and of Company and Group, together with a description the of uncertaintiesfaced. and risks principal At 2 January 2011 the Group had gross borrowings borrowings gross had Group the January 2011 2 At £50.0m of overdraft) (including interest attracting (2009: and £70.0m) cash (2009: balances £2.7m of £2.8m). Creditor payment policy payments of terms the agree to is policy Company’s The is relationship trading a when and as suppliers its with of terms the that ensures Company The established. agreed the by abide to is policy its and clear are payment obligations. its meets supplier the provided terms, the Company 2 JanuaryAt had no trade creditors. 2011 The Group had an average of 42 days (2009: 41 days) (2009: 41 days 42 of average an had Group The purchases outstanding in trade creditors. Donations made directly been have purposes political for donations No fund events, Charitable year. the during Company the by for restaurants by organised are sponsorship and raising Corporate the in described localityas their in organisations Responsibility section on pages 28. to 26 Meeting General Annual Annual the of mailing the with included is Circular separate A be to resolutions the out setting shareholders Reportto take to is which Meeting, General Annual the at on voted Maclay of offices the at 2011 May 11 on 11am at place OneMurray London & Spens London Wall, 5AB. LLP, EC2Y put be to resolutions proposed the that believes Board The the in are Meeting General Annual the at shareholders the to recommends accordingly, and, shareholders of interests best the as resolutions, the of favour in vote shareholders that beneficial own their of respect in do to intend Directors shareholdings in the Company. Auditors continue to willingness their expressed have LLP Deloitte Annual the at proposed be will resolution a and auditors, as General Meeting for their reappointment. statement responsibilities Directors’ The Directors confirmto the that bestof their knowledge: 1. 2. 2. By Order the of Board, Robert Morgan Company Secretary 9 March 2011
of interest charged during the year on the Group’s debt was was debt Group’s the on year the during charged interest of was rate year-end average the and (2009: 3.56%), 2.81% was interest net results, 2010 On (2009: 4.06%). 2.98% tax, before profit by times) (2009: times 16.0 21.9 covered debt end year on Based items. non-trading and interest would rates interest in rise 1% a 2010, for profits and by items non-trading tax and before profits reduce reduce would cover interest and (2009: 0.5%) 0.2% times (2009: times). 14.9 21.1 to After the impact the of interest swaps, rate the average rate on a payment £0.4m. of (plus margin) and a three year interest swap rate for (plusmargin). 2.975% of rate a £20mat of amount notional a the threeOn 9 February year swap was terminated 2011 Effective from 16 January 2009, the Group entered into into entered Group the January 2009, 16 from Effective rate interest year two a swaps: rate interest further two a swap for a notional amount £20m of 2.70% of at a rate Effective January from 18 2008, the Group entered into a threeyear interest swap rate for a notional amount January £25m,of from January 18 2008 18 to 2011 February 2010 8 margin). On (plus 4.92% of rate fixed a at this swap was terminated on payment £1.0m. of is provided in note 24 to theis provided accounts. to in 24 note Financial risk management risk Financial reviews regularly plc Group Restaurant The of Board The risks the and Group the of requirements financial the complex use not does Group The therewith. associated are instruments financial where and instruments, financial does Group The risk. rate interest reducing for is it used purposes. trading for instruments financial derivative use not retained from financed primarily are operations Group facility). overdraft an (including borrowings bank and earnings Group the primaryinstruments, financial the to addition In debtors, as such instruments financial other has also arise that accruals and creditors trade prepayments, directly operations. from the Group’s Further information In December 2007 the Group completed a refinancing refinancing a completed Group the December2007 In imposed externally has Group the this part of As exercise. revolving £120m a has Group The requirements. borrowing overdraft £10m a and December2012 until place in facility facility. Under revolving the terms facility the of £120m the covenants financing its with comply to required is Group four least at covered be must charges interest net whereby times three exceed not must debt net and EBITDA by times and annually twice tested are covenants These EBITDA. remained Group The basis. regular a on monitored are within its external limits throughout 2010. Capital risk management risk Capital able be will it that ensure to capital its manages Group The maximise to looking while concern going a as continue to Group the of structure capital The shareholders. to returns consists equity of (comprising issued share capital, reserves and cash and leases finance earnings), debt, retained and structure capital its monitors Group The equivalents. cash and projections flow cash through basis regular a on consideration the of cost financing of its capital. Corporate responsibility
The Restaurant Group plc (“TRG”) acknowledges that it has Healthy Catering initiatives and is committed to ensure a significant role to play with regard to the community and that all menus feature lighter options and all children’s meals wider environment in which it operates. This statement sets come with a choice of carbohydrate alternatives and a out the principal areas of focus and activity that the Group complementary portion of salad or vegetables, and to work has undertaken to date, and what the Group is looking at for with our suppliers to source lower salt, saturated fat and future development, in managing its impact on customers, calorie versions of ingredients where possible. employees, communities and the wider environment. Hydrogenated fats This is split into five sections: In light of UK government and consumer focus with • Our market – the area of business that our strategy regard to consumption of products containing high levels is focused on. of fat, particularly saturated fats and artificial hydrogenated • Our people – the Group’s policies and actions towards trans-fats*, which have been linked to potential risks to our 10,000 employees. cardiovascular health, we conducted a detailed review • Our communities – how TRG interacts with those of our suppliers and our menu ingredients in conjunction communities from which our customers and employees with our external food safety consultants. are drawn. • Our environment – the impact of TRG on the wider • We have worked closely with all of our suppliers environment, and how we are seeking to reduce this. to identify the types and levels of fats and oils in • Our shareholders – those that have invested capital in our ingredients to facilitate a programme of removal, the development of The Restaurant Group plc, and to replacement or reduction, whilst maintaining our whom the Directors and management of the Group are required quality standards. accountable. • The vast majority of our ingredients (>99%) are now free from hydrogenated fats and oils. Our market • Since August 2007 we have prohibited the supply of new The Restaurant Group plc has focused its attention on ingredients containing added hydrogenated fats and oils. markets in the United Kingdom which have significant • We continue to work closely with all of our suppliers to growth potential. For a number of years, dining out has been identify and progress opportunities for reducing overall a growing market, and, partially as a result of this, there has levels of saturated fat wherever possible and to provide been an increased focus from customers and regulatory healthier choices. authorities on health issues relating to our sector. We have seen initiatives on alcohol, food (in particular on calorie * Whilst some trans-fats occur naturally and are found in small consumption and fat and salt content) and smoking over amounts in meat and dairy products, concerns have been raised about artificial trans-fats, formed during a food manufacturing recent years and these are set to continue to be a focus. process called hydrogenation that turns oils into solid/semi-solid It is important that the Group continues to monitor closely fats. These hydrogenated fats/oils can be found in products such these developments and ensure that we offer our customers as biscuits, cakes, margarine, processed foods and cooking oils. a broad range of choice in our restaurants, including healthy options. Other initiatives All our red meat is supplied from producers in the UK and Healthy eating Ireland and we have taken significant steps to reduce our Healthy eating is a personal responsibility but TRG “food miles”. This process will continue into 2011, with acknowledges that as a provider of food and drink we have a focus on improving our supply chain efficiency and a role to play in providing appropriate options from which reducing the number of deliveries, and therefore food miles, individuals may choose when they eat out. TRG strongly to our restaurants. Our Concessions division sources eggs believes that we should offer our guests choices on the from The Happy Eggs Company, who operate higher welfare menu. Whilst we do not wish to be prescriptive we aim to standards for their chickens. provide a healthy choice at each menu point, alongside more indulgent options. For many people dining out is a treat, and TRG is a member of the Supplier Ethical Data Exchange therefore the normal restrictions which may be applied to (“SEDEX”), which facilitates measurement and improvement healthy eating on a day-to-day basis are waived in favour of in ethical business practices across the supply chain; enjoyment and experience. For example, whilst completing 120 of our food suppliers and 18 other (non-food) suppliers the weekly shop a consumer may choose chocolate fudge provide information describing their procedures and practices cake for their weekend dessert as opposed to a piece to the Group via SEDEX. of fruit during the week. As in previous years, there continue to be no known The Group is undertaking a process of monitoring nutritional genetically modified foods in any product the Group uses content across its menus and, as part of our ongoing menu and new suppliers are required to confirm that they will not review, will look to develop the healthier options available provide the Group with such products. We are also working to customers and to work with our suppliers to reduce salt with our suppliers to target and remove the “Southampton content and calorific content. The Group has engaged with Institute” colourings that can cause hyperactivity in children the Food Standards Agency and Department of Health and this will remain an ongoing focus during 2011.
26 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 27 2010 The Frankie teams & Benny’s across the country worked with three regional charities. In Scotland raised we over Scotland). in hospices (children’s CHAS with £50,000 based centre cancer leading a Christie, The sponsored We raised also and £40,000, over raised and Manchester, in These charity. cancer Macmillan the for £23,000 over through staff and customers from raised were monies local events, raffles and theme and fancy dress nights. support local to initiative its continues Benny’s & Frankie new providing country, the across sportsteams junior 2010; in teams local 110 than more for sports kit their during 2010 in £7,000 over raised teams Chiquito homeless a Alianza, Casa for fiesta, Mayo de Cinco support to on went brand The Mexico. charityin children’s their of one that hearing on year, the in charitylater this Chiquito down, burned been had homes children’s gained they that “Like” every for 50p donated on Facebook and raised and £1,800; of a total fund-raising small of number a undertake pubs Our initiatives for local charities in their communities. The Group allocates considerable resources to provide high provide to resources considerable allocates Group The day first the on begins Training teams. our to qualitytraining support. and development of process ongoing an is and Our training team is fully qualified and delivers high quality team established and new guiding as well as courses, development. their throughout members communication our that vital is it sites portfolio of our With given are staff branch day Each standard. veryhigh a of is management staff and for weekly meetings briefings; team are held; and weekly communications packs are issued from out are managers senior Our brand. each to office head branch their with daily interact and extensively business the in two-way full ensure to members team and management communication is present throughout the business. of is employees and customers our of safety and health The procedures extensive has Group The importance. paramount far as teams and guests our to risks mitigate we ensure to standards and procedures veryclear have We possible. as auditors external employ we these enforce to and place, in also have We restaurants. our carrybenchmarking of and out significantly increased the levelof training in health and safety further enhance to years recent in Group the across matters staff. and customers our for environment safe clean, the communities Our our around communities local the in involvement Active The importantto is restaurants pub and restaurants successfulnational operate we Whilst plc. Group Restaurant whether communitymarketing local on is focus our brands restaurants, 200 almost with Benny’s, & Frankie for is this community. village a heart of the at pub individual the or activities fundraising supportsstaff Group Restaurant The level. local and brand a at national and local of number a in engaged we 2010 During charitable events: • • • •
We employ approximately 10,000 people and continue continue and people 10,000 approximately employ We business. our expand we as number this increase to The Group opened a further restaurants 24 during 2010 least at employees its of all pays plc Group Restaurant The in tips utilise not does and wage minimum national the any form make up to this All rate. gratuities are paid the to usual the only attracting tips card credit with employees, no competitors, our of some unlike but taxdeductions, administration fee is taken the by company. Our people Our its is have can company any importantasset most The nurture to strive we plc Group Restaurant The At people. potential the has Anyone teams. great build to individuals our give to endeavour we and company our within develop to the is This this. encourage to knowledge and tools the them which of one is team our and successfulbusiness any to key especiallyproud. are we the ensuring on focus stronger a been has there Recently legislation. current with complies teams our of recruitment to visits regular instigating Agency Border UK the With rights employees’ our of validity the check to employers measures robust instigated have we UK the in work to rules. the contravening TRG of possibility the prevent to Smoking legislation the with fully complied have we 2007 July 1 From smoking banned has which Kingdom United the throughout in public areas. of regardless rights equal offer we that ensure policies Our religion. or disability orientation, sexual gender, colour, age, the meet to able employees of group diverse a us gives This open and fair a have We presents. market our challenges recruitment process with clear terms employmentof and we have developed a new website (www.therestaurantgroup. potential for jobs available to access easier allow to jobs) a with provided are staff All Group. our across employees handbookstaff our of copies and employment of contract our of aware is everyone ensure to policies other with along and grievance including procedures, and expectations rules, policy dealings ethical an has Group The disciplinaryissues. bribery on and prohibition strict a incorporates which place in policy, termination defined a has also Group The corruption. should this be required. to under 18’s, even if the alcohol is for consumption with with consumption for is alcohol the if even 18’s, under to a meal. All our of restaurants offer a wide range non- of alcoholic drinks including fruit juices, carbonates, minerals for available is water tap cocktails and non-alcoholic and customersfree charge. of communities local the for jobs 700 approximately created and process. the in Drink aware whereby policy, 21” You “Are an operate restaurants our All appears who anyone to identification of proof for ask will we also We do not permit be underto the sale 21. alcohol of Corporate responsibility continued
We are proud of our Frankie & Benny’s Schools Programme We have installed an equipment monitoring system in one which supports the Primary Key Stages Curriculum. Frankie and Benny’s restaurant to allow us to monitor all This encourages primary school classes to visit their local electrical and gas equipment on a half hourly basis and test Frankie & Benny’s restaurant to learn about the restaurant out new energy saving replacement equipment. This has business, food hygiene and health and safety, and to have the already led to three changes in the equipment that is installed opportunity to make and bake their own pizzas. During 2010 in a standard Frankie and Benny’s and during 2011 we we held approximately 450 such visits across the country – will monitor the savings in energy consumption from this over 12,000 pupils visited Frankie & Benny’s as part of restaurant and we are working with the Carbon Trust and this initiative. other external advisers to develop further environmental efficiencies in our building design and equipment used Our environment in our operations. During 2010 we have undertaken a number of developments regarding the Group’s commitment to mitigating its impact on We opened a new Frankie & Benny’s restaurant in 2010 the environment. Not only are the attitudes and expectations which includes heat recovery systems, energy saving lighting of our customers changing over time but we recognise that and low energy hand dryers as well as solar panels. We will the Group’s activities impact the natural environment, most review the energy performance of this site with a view to significantly with regard to energy consumption (and carbon include energy and financially efficient equipment in other emissions), water consumption and the creation and removal new restaurants. of waste. Innovative regulatory mechanisms are being introduced that may in future create a direct link between • Reducing the resources we use and the waste we environmental outcomes and financial benefits or penalties. generate is also a key objective for the Group. • TRG recycled over 650,000 litres of used cooking oil We have established a close relationship with the Carbon (an increase of approximately one third on the previous Trust, who advise the Group on best practice and ensure year’s level of recycled cooking oil); our contractor energy consciousness is at the heart of our strategic supplies a bio-diesel production facility; objectives covering premises design and construction, • Kids’ packs in Frankie & Benny’s and Chiquito are now heating, lighting, ventilation and food production. TRG is made from 75% recycled material; Frankie and Benny’s working towards achieving the Carbon Trust Standard. packs are now packaged in paper bags rather than plastic to reduce the period required for decay; and We have a multi-disciplinary team working on reducing • Waste glass and cardboard is collected for recycling our energy consumption through operational practices and at over 90% of our businesses where we control staff awareness, premises design and the improved use of the collection. technology to monitor and control our use of energy, water and waste. Our shareholders The Group has had a clear strategy since 2001 – to deliver We recognise that lasting change in energy consumption by value for shareholders by focusing on sectors within the the Group will require changes in behaviour for our whole eating out market that offer high barriers to entry, where team. The provision of accurate and timely management we can generate sustainable and growing cash flows and information covering energy consumption is an essential tool which offer high returns on investment. This has led the supporting the change. A web-based energy-information Group to focus investment into the Leisure division and our portal to provide real time consumption data to restaurants Concessions division, which operates principally on airports. and our operators has been developed in association The Group has had a progressive dividend policy and has with our energy consultants and allows us to target more had a strong track record of growing profits and dividends inefficient sites and challenge our teams through league for shareholders. tables to improve their energy efficiency. The Chairman’s statement, Chief Executive Officer’s review We have also launched an energy saving campaign to all of operations and Group Finance Director’s report provide sites, providing information to help our staff drive energy further detail on the Group’s strategy, performance during efficiency. By February 2011 we had installed Automated 2010 and prospects for the Group. Meter Readers (“AMRs”) to supplement half-hourly monitoring of electricity supplies at 98% of our available Leisure Division businesses, and 96% of available sites for gas supplies.
28 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 29 2010 Basic annual salary and benefits; Annual bonus payments; Incentive Plan (“LTIP”)Long-Term awards; and Pension arrangements. There are four main elements of the remuneration package package remuneration the of elements main four are There for executive Directors: • • • • Policy review remuneration the of review comprehensive a 2010, During was This undertaken. was Directors executive for policy the first such review overin five years. The Committee has considered how best to structure the Company’s Company’s the structure to best how considered has retain and incentivise to continue to policy remuneration the management team as it continues drive to the business forward and deliver superior returns shareholders. to aspects main four the of each considered Committee The part As Directors. executive for package remuneration the of shareholders largest Company’s the of ten process, the of consulted. were bodies representative shareholder major and would it that determined Committee the review, the Following bonus of maximum level the increase to appropriate be Executive Chief the to performance, outstanding for available, the increase to and Director, Finance Officer Group and In LTIP. the under granted be may that maximumaward the of provision salary pension basic and the addition, becoming were which of (both Director Finance Group increasingly below market) were reviewed and aligned with detail more in out set are changes These levels. market align changes these that believes Committee The below. the to available remuneration variable potential of level the executive management team with their peer group. Basic salary An executive basic Director’s salary is determined the by when and year each of beginning the to prior Committee deciding In responsibility. or position changes individual an Group the considers Committee the levels, appropriate other at levels remuneration to reference by and whole a as sectors. hospitality and leisure the in companies Directors executive the from recommendation a Following determined Committee Remuneration the salaries, hold to the to increase no that salary December2008 review the at the for applied be would Directors executive salary basic of was it review, 2009 December the At year. financial 2009 determined that basic salaries for executive Directors should increase modestly financial with such foryear, the 2010 salary average the below was This 1.5%. at capped increases Group. the in employees other to provided 2% of increase Remuneration the 2011, for salary levels of review a Following Critoph Stephen salary for the that concluded Committee Critoph Mr bring to £270,000, to increased be should closer in line with mid-market levels and recognising his Page Andrew salariesfor basic the to performance.Increases other for average the below were 2011 for Corzine Trish and employees 3%. of
None of the Committee has any personal financial interest interest financial personal any has Committee the of None shareholders).Committee as The than (other Company the in makes recommendations the Board. to No Director plays Unaudited information Unaudited RemunerationCommittee Committee Remuneration a established has Company The (“theCommittee”) which is constituted in accordance with the of members The Code. Combined the of recommendations Simon Hughes, Tony were year the during Committee the Cloke (from March and 26 John 2010) Jackson (to 6 May Directors. non-executive independent were who 2010), The Committee Hughes. is chaired Tony by Remunerationpolicy attract, to designed are packages remuneration Executive calibre high the of Directors executive retain and motivate reward to and Group the develop and progress to needed performanceenhancing and quartilesector top for them performance The measurement shareholders. to value theof executive Directors and the determination their of the undertakenby are package remuneration annual the determines Committee the addition, In Committee. the of remuneration The Chairman. the for remuneration other non-executive Directors is determined the by Board. of proportion substantial a that is policy Company’s The the remuneration the of executive Directors should be performancerelated. The Act requires the auditors to report to the Company’s Company’s the reportto to auditors the requires Act The members on the part the of Directors’ remuneration report subject audit to in their and state whether, to opinion, that accordance in prepared properly been reporthas the partof the under Regulations Accounting the of 8 Schedule with Companies Act 2006. The report has therefore been divided separateinto sections for audited and unaudited information. Hewitt Aon of name (atrading Street Bridge New Hewitt adviser independent the is Corporation) Aon part of Limited, Bridge New Hewitt Neither Committee. Remuneration the to other provided Corporation Aon part of other any nor Street services the Company to during the year. of theof Listing Rules the of Financial Services Authority of Principles the applied has Board the describeshow and the in remuneration Directors’ to relating Governance Good resolution a Regulations, the by required As Code. Combined GeneralAnnual the at proposed be reportwill the approve to at Meeting the of Company May 2011) (to be held on 11 approval. to subject are statements financial the which remuneration. own his about discussion any partin a the for remuneration Directors’ executive the determining In (non-executive Jackson Alan consulted Committee the year proposals. its Chairman) about
Introduction Schedule with accordance in prepared been reporthas This Act Companies the under Regulations Accounting the of 8 2006. The report also meets the relevant requirements Directors’ remuneration report Directors’ remuneration report continued
2008 2009 2010 2011 Subject to shareholder approval, total LTIP opportunity will Basic salary £ £ £ £ therefore be 200% of basic salary, subject to 50% of basic Andrew Page 535,000 535,000 543,000 558,000 salary being invested into the matching plan. Stephen Critoph 240,000 240,000 243,500 270,000 Trish Corzine 230,000 230,000 233,500 240,000 For awards to be made in 2011, Conditional Award levels will be set at 150% of basic salary for the Chief Executive Officer In addition to basic salary, the executive Directors receive and 100% of salary for the Group Finance Director and pension contributions and certain benefits-in-kind, principally the Executive Director of the Concessions Division, and a car (or car allowance), and health and life insurance. Matching Award levels will be up to 50% of basic salary for all three individuals. Awards will continue to be structured Annual bonus payments with a combination of total shareholder return (“TSR”) and The annual bonus is based on the achievement of stretching earnings per share (“EPS”) performance conditions: profit before tax targets and personal objectives. Performance • The performance condition attached to 50% of the targets are set annually as part of the budgeting process and Conditional Awards will require average annual EPS performance is reviewed against those targets at the end growth from 3 January 2011 to 31 December 2013 of of the financial year. Following the review by the Remuneration between RPI plus 4% to RPI plus 10% per annum for Committee described above, the maximum bonus that can between 30% and 100% of this part of the award be paid in respect of performance in 2011 will be increased to vest (i.e. between 15% and 50% of the total award). from 100% of basic salary to 150% of basic salary for the Chief • The performance condition attached to the other 50% of Executive Officer and to 125% of basic salary for the Group the Conditional Awards will be based on TSR performance Finance Director. The bonus will remain at 100% of basic salary measured against the constituents of the FTSE Travel & for the Executive Director of the Concessions Division. Leisure Index (excluding airlines) over a single three-year period from 2011 to 2014 In return for the increased bonus potential, the Committee • Awards will vest on a straight line basis between minimum has set commensurately tougher performance targets and and maximum thresholds. any bonus payment above 100% of basic salary must be • For Matching Awards, there will be a 0.3:1 match for invested in Company shares which must be held for three average EPS growth of RPI plus 4% per annum rising on years. Actual bonus payments for 2010 are presented in the a straight line basis to the full 1:1 match for average EPS emoluments table on page 32. growth of RPI plus 10% per annum.
Long-term incentives The combination of EPS and TSR performance conditions The Company operates the 2005 Long-Term Incentive provides a balance between rewarding management for Plan (“LTIP” or “Plan”), and the 2003 Save As You Earn growth in sustainable profitability and stock market out- (“SAYE”) Scheme under which awards may be granted performance. The EPS target range will require growth to executive Directors. from the current all time high level of profitability and the TSR condition will be based from a strong recent Long-Term Incentive Plan share price performance. The 2005 LTIP is the primary long-term incentive scheme of the Company. Under the Plan, individuals may receive Performance against the TSR and EPS targets will be an award of conditional free shares (“Conditional Awards”) independently calculated and reviewed by the Committee. with a face value at grant of up to 100% of salary per annum, vesting three years after grant subject to performance Shareholding guidelines conditions and continued employment. In addition, the Plan The Company operates shareholding guidelines for executive has the flexibility to grant conditional awards on a matching Directors, linked to the out-turn of the Plan. At the time basis, pro rata to the number of shares purchased via the Conditional and Matching Awards vest under the Plan annual bonus (“Matching Awards”). Matching Awards may (or any other executive plan established in the future), there be granted over shares worth up to 37.5% of basic salary is a requirement to retain no fewer than 50% of the shares, per annum. net of taxes, vesting under an LTIP award until a shareholding with a market value (calculated by reference to purchase During 2010, the Committee has reviewed the composition price) in line with the policy is achieved. Following the of award limits under this scheme. Following this review and Committee’s review, shareholding guidelines have been in consultation with the Company’s major shareholders increased to 200% of basic salary in respect of the Chief and representative bodies, the Committee concluded that Executive Officer and 150% in respect of the Group Finance shareholder approval should be sought at the forthcoming Director. The guideline for the Executive Director of the Annual General Meeting to increase: Concessions Division remains at 100% of basic salary. • the Conditional Award limit from 100% to 150% of basic salary; and • the Matching Award limit from 37.5% to 50% of basic salary, pro rata to the number of shares purchased via the annual bonus.
30 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
Nil Nil 1 year Notice period Notice Notice period Notice Date of Director 7 July 2004 1 year Date of contract 31 March31 2003 1 year non-executive 28 August28 2002 1 year 26 March26 2010 appointmentas 1 January 2008 TheRestaurant Group plc Annual Report 31 2010 Alan Jackson was previously Executive Chairman of the Company, Company, previouslythe Executive Chairman was AlanJackson of January 1 has 2006he From 2001. March in appointed was and held the position of non-executive Chairman. Simon Cloke Simon Trish CorzineTrish Group the Appointmentsoutside appointments accept to entitled are Directors Executive requirement no is there and Group or Company the outside plc. Group Restaurant The to fees any remit to Directors for plc Leisure Arena of director non-executive a is Page Andrew Arena of director non-executive a as fees received and Leisure (2009: plc £50,000 of in 2010 £45,000). Directors Non-executive The service contracts the of non-executive Directors were renewable (thereafter period three-year initial an for set each submit to required are years).They three of periods for in and years three every re-election for themselves accordance compliance with the Group’s with best practice make will Code, Governance Corporate UK the under basis annual an on re-election for available themselves The non-executivegoing Directors’ forward from 2011. follows: as made were appointments Tony Hughes Tony Stephen Critoph Stephen Alan Jackson* 9 November 2005 * of terms specific have Directors non-executive All of exception the (with remuneration their and engagement review a on based Board the by determined is Jackson) Alan companies similar of Directors non-executive to paid fees of of responsibilities and commitment time the reflects and Directors non-executive the to paid fee basic The role. each (2009: £50,000 was year the in Jackson) Alan (excluding fee, service). of Jackson’s Alan tenure by £50,000)rated (pro £300,000 was Committee, Remuneration the by set is which non-executive of fees (2009:the £300,000). to increases No Directors have been made in respect 2011. of Andrew Page Directors’ contracts Directors’ should Directors executive that policy Company’s the is It a for providing term indefinite an with contracts have occasionally may it However, notice. year’s one maximumof new to periods notice initial longer offer necessary be to are which contracts have Directors executive All Directors. subject notice one to either year’s by party. In the event of control of change a following (including termination early for provide contracts Directors’ the Company), the in period. notice contractual their with line in compensation The details the of executive Directors’ contracts are summarised in the table below: The Restaurant Group FTSE All-Share Index FTSE and 350 Leisure Travel Index 0 50
The FTSE 350 Travel and Leisure Share Index has been has Index Share Leisure and Travel 350 FTSE The selected for this comparison because it is the index most performance. relative Company’s the gauging to relevant of December2010, 31 by value, the shows graph This December 31 on plc Group Restaurant The in invested £100 2005 compared with invested the value in the FTSE £100 of Leisure and Travel 350 FTSE the and Index All-Share Share Index. Performancegraph compares below graph the Regulations, the by required As Travel 350 FTSE the performance with TSR Company’s the and Leisure Share Index for each the of past fiveyears. Pension arrangements Pension arrangements pension individual have Directors Executive makes Company The plans. pension personal of form the in a contribution 20% of basic of salary for the Chief Executive latter’s the (with Director Finance Officer Group and salary from basic of 10% from increased contribution Director Executive the salary for of 10% and January2011) executive each funding towards Division Concessions the of funding this that extent the To plan. pension Director’s may surplus the limit, HMRC current relevant the exceeds unfunded no are There salary a supplement. as paid be Directors. for arrangement similar or promises pension SAYE Scheme SAYE The Company also operates Share Option an SAYE Scheme at granted be may options which under employees eligible for employees Eligible value. market of 20% to up of discount a have who Directors executive and employees time full are terms the Under year. one least at for Group the for worked to able are employees eligible the scheme, SAYE the of Awards contract. savings three-year a under shares purchase 2008 2006, 2004, in made were scheme SAYE the under eligible to employeesand 2010 and Directors. 31 Dec 05 31 Dec 06 31 Dec 07 31 Dec-08 31 Dec 09 31 Dec 10 300 250 200 150 100 Value (£) Value Source: Thomson Reuters Source: Directors’ remuneration report continued
Audited information Aggregated Directors’ remuneration
The total amounts for Directors’ remuneration were as follows: 2010 2009 Executive Non-executive Total Total £’000 £’000 £’000 £’000 Emoluments 2,096 440 2,536 2,632 Money purchase pension contributions 156 – 156 155 2,252 440 2,692 2,787
(a) Emoluments (i) Executive 2010 2009 Benefits Basic salary Bonus in kind Total Total £’000 £’000 £’000 £’000 £’000 Andrew Page 543 543 29 1,115 1,204 Stephen Critoph 244 244 15 503 544 Trish Corzine 233 233 12 478 449 1,020 1,020 56 2,096 2,197
The annual bonus payments recognise the strong financial, operational and personal performance of the executive Directors over 2010, which resulted in the stretching profit before tax range set at the start of the year being exceeded.
(ii) Non-executive 2010 2009 Benefits Fees in kind Total Total £’000 £’000 £’000 £’000 Alan Jackson 300 30 330 335 Tony Hughes 50 1 51 50 Simon Cloke (from 26 March 2010) 38 – 38 – John Jackson (to 6 May 2010) 21 – 21 50 409 31 440 435
(b) Pension schemes The executive Directors are members of money purchase schemes. Where an executive Director’s entitlement to a contribution exceeds the allowable limit set by HMRC, a salary supplement may be payable up to but not exceeding the level of entitlement. Contributions paid as pension contributions or salary supplements by the Group in respect of the executive Directors were as follows: 2010 2009 £’000 £’000 Andrew Page 109 108 Stephen Critoph 24 24 Trish Corzine 23 23 156 155
32 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
date Expiry 5.6.2011 3.9.2010 3.9.2010 3.9.2010 3.9.2010 3.9.2010 3.9.2010 1.12.2013 6 months months 6 6 months months 6 6 months months 6 6 months months 6 6 months months 6 6 months months 6 6 months months 6 6 months months 6 6 months months 6 months 6 6 months months 6 after vesting after vesting after vesting after vesting after vesting after vesting after vesting after vesting after vesting after vesting after vesting after vesting which 1.6.2011 1.12.2011 1.6.2011 1.12.2011 1.6.2013 9.3.2011 9.9.2011 9.3.2011 9.9.2011 9.3.2011 9.9.2011 9.3.2011 9.9.2011 9.3.2011 9.9.2011 9.3.2011 9.9.2011 4.7.2006 4.7.2013 3.3.2010 3.3.2010 3.3.2010 3.3.2010 3.3.2010 3.3.2010 4.4.2008 4.4.2015 4.4.2008 4.4.2015 4.4.2008 4.4.2015 4.4.2008 4.4.2015 5.6.2004 Date from 4.10.2007 4.10.2014 4.10.2007 4.10.2014 4.10.2007 4.10.2014 4.10.2007 4.10.2014 exercisable 2011 results 2011 2011 results 2011 2011 results 2011 2011 results 2011 2011 results 2011 2011 results 2011 2012 results 2012 2012 results 2012 2012 results 2012 2012 results 2012 2012 results 2012 2012 results 2012 Publication of Publication of Publication of Publication of Publication of Publication of Publication of Publication of Publication of Publication of Publication of Publication of – – – – – – – – – – – – – – – – – – price 97.7p 97.7p 97.7p 97.7p 67.4p 45.0p 125.0p 134.4p 134.4p 134.4p 125.0p 134.4p 184.0p Exercise TheRestaurant Group plc Annual Report 33 2010 –– – –– – – – – – –– –– – –– –– – At 2011 7,6 8 0 7,6 8 0 4,932 71,874 58,188 97,8 6 5 42,073 54,310 75,000 90,084 43,902 111,457 118,780 237,9 31 113,902 287,50 0 248,275 264,878 780,208 100,000 100,000 645,689 300,000 2 January (39,171) (52,413) (56,156) (18,433) (20,340) (50,000) (90,000) (178,114) (127,679) (118,533 ) (150,000) (100,000) (235,000) (200,000) (200,000) (200,000) Exercised –– –– –– –– –– –– Lapsed (12,103 ) (12,968) ( 27,3 9 6 ) –– –– –– –––––– –– ––– ––– –– ––– ––– ––– –––– –– ––– ––– ––– ––– –– –– ––––––––– – –– ––– ––– 4,932 42,073 43,902 Granted 118,780 113,902 264,878 – 97,865 – – – – – – – – At 2009 7,6 8 0 7,6 8 0 39,171 71,874 69,124 58,188 64,516 54,310 18,433 75,000 20,340 90,084 50,000 90,000 178,114 111,457 227,679 237,9 31 287,50 0 248,275 145,929 780,208 250,000 100,000 645,689 235,000 200,000 200,000 200,000 300,000 28 December28 2003 2003 2003 2003 2003 2003 2003 2003 2003 LTIP (1) LTIP LTIP (1) LTIP LTIP (1) LTIP LTIP (7) LTIP LTIP (7) LTIP LTIP (7) LTIP LTIP (4) LTIP LTIP (4) LTIP LTIP (4) LTIP LTIP (2) LTIP LTIP (2) LTIP LTIP (2) LTIP LTIP (5)LTIP LTIP (5)LTIP LTIP (5)LTIP LTIP (3)LTIP LTIP (3)LTIP LTIP (8)LTIP LTIP (3)LTIP LTIP (6)LTIP LTIP (8)LTIP LTIP (6)LTIP (8)LTIP LTIP (6)LTIP One-off Scheme 2008 SAYE 2008 SAYE 2010 SAYE 2010 Andrew Page Stephen Critoph Stephen Name of Director Alan Jackson Long-term incentives Long-term the by held or to granted incentives long-term the for amounts any include not do above disclosed emoluments Aggregate outstanding the out sets below table the reportand this in earlierdescribed is incentives long-term for policy The Directors. awards held executive by Directors. Trish CorzineTrish Directors’ remuneration report continued
LTIP (1) – Conditional Awards. Vesting of 50% of these awards was based on EPS growth of the 2009 results compared with the 2006 results and 50% based on relative TSR performance over the three financial years to 31 December 2009. The EPS performance condition range of RPI+4%-10% p.a. was achieved in full and consequently those shares pertaining to the EPS criteria vested in full. For the TSR performance condition, the performance of the Group was between the median and upper quartile for the relevant period and consequently 62.5% of the TSR element of the award vested. LTIP (2) – Matching Awards. Vesting was based on EPS growth of the 2009 results compared with the 2006 results and the RPI+4%-10% p.a. performance condition was met in full. Consequently the Matching Shares vested in full. LTIP (3) – Conditional Awards. Vesting of 50% of these awards was based on EPS growth of the 2010 results compared with the 2007 results and 50% based on TSR performance over the three financial years to 31 December 2010. The RPI+4%-10% p.a. EPS growth range was achieved partially and 82.5% of the EPS part of the award will vest. For the TSR performance condition the performance of the Group was above upper quartile, so the condition was achieved in full. LTIP (4) – Matching Awards. Vesting was based on EPS growth of the 2010 results compared with the 2007 results. The RPI+4%-10% p.a. EPS growth range was achieved partially and 82.5% of the award will vest. LTIP (5) – Conditional Awards and LTIP (6) – Matching Awards. Vesting is based on TSR performance of the Group against a comparator group comprising the FTSE 350 Travel and Leisure Sector (excluding airlines) over the three years to 1 March 2012, with 30% of the award vesting at median performance and full vesting for top quartile performance. LTIP (7) – Conditional Awards. Vesting of 50% of the award is based on TSR performance of the Group against a comparator group comprising the FTSE 350 Travel and Leisure Sector (excluding airlines) over the three years to 31 December 2012, with 30% of this part of the award vesting at median performance and full vesting of this part of the award for top quartile performance. The remaining 50% of the award is based on EPS growth of the 2012 results compared with the 2009 results, with a requirement for average annual growth of between RPI+4%-10% p.a.. LTIP (8) – Matching Awards. Vesting is based on EPS growth of the 2012 results compared with the 2009 results, with a requirement for average annual growth of between RPI+4%-10% p.a..
During 2010 certain Directors exercised options under the 2003 options schemes, Long Term Incentive Plan and SAYE scheme that had vested. Details of these transactions during 2010 are detailed below: Gain on Number of Market price exercise options Exercise at date of before tax Name of Director Scheme exercised price exercise (£’000) Alan Jackson One-off 200,000 45.0p 215.3p 341 2003 scheme 178,114 67.4p 224.5p 280 2003 scheme 200,000 97.7p 224.5p 254 2003 scheme 150,000 134.4p 230.0p 143
Andrew Page 2003 scheme 200,000 97.7p 226.0p 257 2003 scheme 127,679 134.4p 226.0p 117 LTIP 157,70 4 – 226.0p 356
Stephen Critoph 2003 scheme 235,000 97.7p 215.3p 276 2003 scheme 50,000 134.4p 215.3p 40 LTIP 76,496 – 215.0p 164
Trish Corzine LTIP 70,846 – 215.0p 152 2003 scheme 100,000 97.7p 230.0p 132 2003 scheme 90,000 134.4p 230.0p 86
34 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
8 5 2 2 311 191 372 193 (£’000) Gain onGain exercise exercise before tax 129.2p 129.2p 140.0p 154.0p 154.0p 150.0p 155.0p 194.8p exercise at date of Market price price Market – – – – price 97.7p 134.4p 134.4p 160.0p Exercise TheRestaurant Group plc Annual Report 35 2010 5,843 22,321 15,000 options 10,000 247,874 136,277 exercised Number of LTIP LTIP 149,411 LTIP LTIP 241,070 2003 2003 2003 SAYE Scheme Trish CorzineTrish Tony HughesTony Chairman the of Remuneration Committee Stephen Critoph Stephen Approval by: behalf its on signed and 2011 March 9 on Directors of Board the by approved reportwas This Andrew Page Alan Jackson Name of Director For comparative information, during 2009 the following exercises shares of were made Directors: by Audit Committee report
This report sets out the work carried out by the Audit Committee of the Board with reference to the Guidance on Audit Committees (“the Smith Report”) attached to the Combined Code on Corporate Governance.
Audit Committee composition The Audit Committee is appointed by the Board from the non-executive Directors of the Company. The Committee was chaired by John Jackson until his retirement from the Board on 6 May 2010 and has been chaired by Simon Cloke since. Tony Hughes is also a member of the Committee. During 2010, the Audit Committee has not been in compliance with the best practice guidelines of the Smith Report due to the number of non-executive Directors on the Board of The Restaurant Group plc.
The Committee regularly invites the external auditors, the Chairman of the Board, the Chief Executive Officer and the Group Finance Director to its meetings. The Company Secretary attends the meetings and is secretary to the Committee. Discussions are held in private when appropriate.
Responsibilities of the Audit Committee The responsibilities of the Audit Committee are set out in its terms of reference and the principal matters are to: • provide additional assurance regarding the integrity, quality and reliability of financial information used by the Board and in financial statements issued to shareholders and the public; • review the Company’s internal procedures for control and compliance with regard to financial reporting to satisfy itself that these are adequate and effective; • review the principles, policies and practices adopted in the preparation of the Group’s financial statements to ensure they comply with statutory requirements and generally accepted accounting principles; • receive reports from the Group’s external auditors concerning external announcements, in particular the Annual Report and Accounts and the Interim Report; • develop and oversee the Company’s policy regarding the engagement of external auditors, review the independence of the external auditors, review the provision of non-audit services provided by the external auditors and review remuneration paid to the external auditors; and • consider any other matter that is brought to its attention by the Board or the external auditors.
The Board as a whole reviews the risks facing the Group, and the processes on mitigating those risks, on a regular and formal basis. The Board also reviews the work carried out by the Internal Audit function.
Audit Committee frequency The Committee meets at least twice a year. Two meetings of the Committee were held during 2010 with full attendance.
Audit Committee process The Committee discharges its responsibilities, as defined in its terms of reference, through Audit Committee meetings during the year at which detailed reports are presented for review. From time to time the Committee commissions reports from external advisers or Company management, either after consideration of the Company’s major risks or in response to developing issues. The Committee has the opportunity to meet privately with the external auditors at least twice a year and liaises with Company management in considering areas for review.
During the year, the Committee considered the following matters: • interim and full year financial results; • the scope and cost of the external audit; • the external auditor’s interim and full year reports; • non-audit work carried out by the external auditors in accordance with the Committee’s policy to ensure the safeguard of audit independence; • the effectiveness of the external auditors and consideration of their reappointment; and • the suitability of the Group’s accounting policies and practices.
The Company’s public financial statements are reviewed by the Committee in advance of their consideration by the Board.
36 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 37 2010 the external auditors’ plan for the current noting the role year, the of senior statutory audit partner who signs the audit report and who, in accordance with professional rules, has not held officefor more than five years; the arrangements for management day-to-day the of audit relationship; a report from the external auditors describing their arrangements identify, to report andthe manageof any conflictsapproval case-by-case of interest;its to addition in auditors, external the by services provided non-audit of extent overall the and auditors; external the services by non-audit of provision 2007. in appointed first were who auditors the service of past the objectivity; independenceand auditors’ external the ensuring for arrangements the the external auditors’ fulfilmentof the agreed audit plan; and the robustness and perceptiveness the of auditors in their handling the accounting of key and audit judgements. and local statutory accounts; and certain specified tax services, including tax compliance, tax planning and tax advice. audit related services, including work related to the annual Group financial statements audit, subsidiary audits subsidiary audits audit, statements financial Group annual the to related work services, including related audit Simon Cloke Simon 9 March 2011 On behalf the of Audit Committee, To assess theTo effectiveness the of external auditors, the Audit Committee takes account: into Overview terms its with accordance in acted has it that concluded has Committee Audit the year, the during work its of result a As and auditor external as LLP Deloitte of objectivity independenceand the reviewed has Committee The reference. of recommends their re-appointment shareholders by at the Annual General May 2011. Meeting be held to on 11 To fulfil its responsibility regarding the independence of the external auditors, the Audit Committee takes into account account into takes Committee Audit the auditors, external the of independence the regarding responsibility its fulfil To the following: • • • • • • • • Other work to be carried out by the external auditors is subject to review by the Audit Committee. Audit the by review to subject is auditors external the by carriedout be to work Other • • External auditor’s independence independence auditor’s External compliance in is which work non-audit for auditors external the of use the on policy a adopted has Committee The follows: as summarised be services may pre-approved The Code. Combined the with Independent auditor’s report to the members of The Restaurant Group plc
We have audited the Group financial statements of The Opinion on other matter prescribed by the Restaurant Group plc for the 53 weeks ended 2 January Companies Act 2006 2011 which comprise the consolidated income statement, In our opinion the information given in the Report of the the consolidated statement of comprehensive income, Directors for the financial year for which the Group financial the consolidated statement of changes in equity, the statements are prepared is consistent with the Group consolidated balance sheet, the consolidated cash flow financial statements. statement and the related notes 1 to 28. The financial reporting framework that has been applied in their Matters on which we are required to report preparation is applicable law and International Financial by exception Reporting Standards (“IFRSs”) as adopted by the We have nothing to report in respect of the following: European Union. Under the Companies Act 2006 we are required to report This report is made solely to the Company’s members, to you if, in our opinion: as a body, in accordance with Chapter 3 of Part 16 of the • certain disclosures of Directors’ remuneration specified Companies Act 2006. Our audit work has been undertaken by law are not made; or so that we might state to the company’s members those • we have not received all the information and explanations matters we are required to state to them in an auditor’s report we require for our audit. and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone Under the Listing Rules we are required to review: other than the company and the company’s members as • the Directors’ statement contained within the Report a body, for our audit work, for this report, or for the opinions of the Directors in relation to going concern; and we have formed. • the part of the corporate governance statement relating to the company’s compliance with the nine provisions of Respective responsibilities of Directors and auditor the June 2008 Combined Code specified for our review; As explained more fully in the Directors’ responsibilities • certain elements of the report to shareholders by the statement, the Directors are responsible for the preparation Board on Directors’ remuneration. of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit Other matter and express an opinion on the Group financial statements in We have reported separately on the parent company financial accordance with applicable law and International Standards statements of The Restaurant Group plc for the 53 week on Auditing (UK and Ireland). Those standards require us to period ended 2 January 2011 and on the information in the comply with the Auditing Practices Board’s Ethical Standards Directors’ remuneration report that is described as having for Auditors. been audited.
Scope of the audit of the financial statements Timothy Steel (Senior statutory auditor) An audit involves obtaining evidence about the amounts for and on behalf of Deloitte LLP and disclosures in the financial statements sufficient to give Chartered Accountants and Statutory Auditor reasonable assurance that the financial statements are free London, United Kingdom from material misstatement, whether caused by fraud or error. 9 March 2011 This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
Opinion on financial statements In our opinion the Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 2 January 2011 and of its profit for the 53 week period then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
38 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
Financial Instruments Related Party Disclosures Classificationof Rights Issues Extinguishing Financial Liabilities with Equity Instruments Requirement Funding Prepayments of a Minimum Minimum a of Prepayments
TheRestaurant Group plc Annual Report 39 2010 IFRS 9 IAS 24 (amended)IAS 24 IAS (amended) 32 IFRIC 19 (amended) 14 IFRIC (May2010) IFRSs to Improvements Change in accounting policies accounting in Change adopted has Group the year, financial current the In “Business 3 ReportingStandard Financial International Combinations” (revised 2008) and International Accounting Standard “Consolidated 27 and Separate Financial impact no been 2008).has (revised There Statements“ adoption on statements financial consolidated the on theseof standards. policies accounting Future statements, financial these of authorisation of date the At not have which Interpretations and Standards following the issue in were statements financial these in applied been but not yet effective (and in some cases had not yet been adopted the by EU): • • • • • • the of adoption the that expect not do Directors The standards listed above will have a material impact on the periods. future in Group the of statements financial (d) Basis of consolidation (i)Subsidiaries Control Company. the by controlled entities are Subsidiaries indirectly, or directly power, the has Company the when exists entity an of policies operating and financial the govern to so obtain as to benefits from its activities. In assessing exercisable are presently that rights voting potential control, or convertible are taken account, into regardless of warrant. or option that exercise to intention management’s the in included are subsidiaries of statements financial The control that date the from statements financial consolidated commences until the date that control ceases. (ii)Associates has Group the which in entities those are Associates and financial the over control, not but influence, significant statements financial consolidated The policies. operating and gains recognised total the of share Group’s the include the from basis, equityaccounted an on associates of losses that date the until commences influence significant that date significant influence ceases. Whenshare of theGroup’s Group’s the associate, an in interest its exceeds losses recognition £nil and to reduced be carryingwould amount that extent the to except discontinued furtheris losses of obligations constructive or legal incurred has Group the or made payments on behalf an of associate.
if the revision affects only that period, or in the period of the the of period the in or period, that only affects revision the if current both affects revision the if periods future and revision periods. future and The estimates and underlying assumptions are reviewed The preparation of financial statements in conformity with with conformity in statements financial of preparation The estimates judgements, make to management requires IFRS and policies of application the affect that assumptions and and income liabilities, and assets of amounts reported are assumptions associated and estimates The expenses. based on historical experience and various other factors that the circumstances, the under reasonable be to believed are judgments the making of basis the form which of results not are that liabilities and assets carryingof about values may results Actual sources. other from apparent readily differ from these estimates. to the nearest thousand. They have been prepared on the the on prepared been have They thousand. nearest the to instruments financial derivative except basis cost historical and assets Non-current value. fair their at held are which carrying of lower the at stated are sale for held assets sell. to costs less value fair and amount estimates accounting to Revisions basis. ongoing an on are recognised in the period in which the estimate is revised The financial statements are presented in sterling,rounded or 53 week period. (c) Basis of preparation seven within Sunday a to runs year accounting The Decemberdays 31 of each year which will be a 52 (b)concernbasis Going on prepared been have statements financial consolidated The enquires, appropriate making after as, basis concern going a Group the that expectation reasonable a have Directors the existence operational in continue to resources adequate has financial the approving of time the at future foreseeable the for the uncertaintiesfacing and risks principal The statements. out set are concern going on further comments and Group in the report the of Directors on 25. pages to 21 (a)compliance of Statement in prepared been have statements financial consolidated The ReportingStandards Financial International with accordance International the by adopted interpretations (“IFRSs”)its and Accounting Standards Board (“IASB”) and as adopted the by Union. European 2 January 2011 comprise the Company and its subsidiaries its and Company the comprise January 2011 2 interest Group’s the and “Group”) the as to referred (together associate. its in
Significant accounting policies accounting Significant The Restaurant Group plc (the “Company”) is a company consolidated The Scotland. in registered and incorporated financial statementsof the Companyfor theyear ended Accounting policies for the consolidated accounts Accounting policies for the consolidated accounts continued
(iii) Transactions eliminated on consolidation Leases in terms of which the Group assumes substantially Intragroup balances and any gains and losses or income and all the risks and rewards of ownership are classified as expenses arising from intragroup transactions are eliminated finance leases. The owner-occupied property (excluding land in preparing the consolidated financial statements. Unrealised element) acquired by way of finance lease is stated at an gains arising from transactions with associates are eliminated amount equal to the lower of its fair value and the present to the extent of the Group’s interest in the entity. Unrealised value of the minimum lease payments at inception of the losses are eliminated in the same way as unrealised gains, lease, less accumulated depreciation (see below) and but only to the extent that there is no evidence of impairment. impairment losses (see accounting policy l). Lease payments are accounted for as described in accounting policy s. (e) Foreign currency Assets and liabilities in foreign currencies are translated Subsequent costs into sterling at the rates of exchange ruling at the date of The Group recognises in the carrying amount of an item the balance sheet. Transactions in foreign currencies are of property, plant and equipment the cost of replacing part translated into sterling at the rate of exchange at the date of such an item when that cost is incurred if it is probable of the transaction. The profit and loss accounts for overseas that the future economic benefits embodied with the item will operations are translated at the average rate of exchange for flow to the Group and the cost of the item can be measured the periods covered by the accounts. Exchange differences reliably. All other costs are recognised in the income that relate to the net equity investment in overseas activities statement as an expense as incurred. are taken directly to reserves. Depreciation (f) Derivative financial instruments Depreciation is charged to the income statement on a The Group uses derivative financial instruments, where straight-line basis over the estimated useful lives of each part appropriate, to hedge its exposure to interest rate risks arising of an item of property, plant and equipment. The estimated from operational, financing and investment activities. In useful lives are as follows: accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. Freehold land Indefinite However, derivatives that do not qualify for hedge accounting Freehold buildings 50 years are accounted for as trading instruments. Long and short leasehold property Term of lease or 50 years, whichever is lower Derivative financial instruments are recognised initially at Fixtures and equipment 3-10 years cost. Subsequent to initial recognition, derivative financial Motor vehicles 4 years instruments are stated at fair value. The gain or loss on Computer equipment 3-5 years remeasurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for (h) Intangible assets – Goodwill hedge accounting, recognition of any resultant gain or loss All business combinations are accounted for by applying the depends on the nature of the item being hedged. None of acquisition method. Goodwill represents amounts arising the Group’s derivatives currently qualify for hedge accounting. on acquisition of subsidiaries, associates and joint ventures. In respect of business acquisitions that have occurred since The fair value of interest rate swaps is the estimated amount 1 January 2004, goodwill represents the difference between that the Group would receive or pay to terminate the swap the cost of the acquisition and the fair value of the net at the balance sheet date, taking into account current identifiable assets acquired. interest rates and the current creditworthiness of the swap counterparties. The classification and accounting treatment of business combinations that occurred prior to 1 January 2004 has not (g) Property, plant and equipment been reconsidered in preparing the Group’s opening IFRS Items of property, plant and equipment are stated at cost less balance sheet at 1 January 2004. accumulated depreciation (see below) and impairment losses (see accounting policy l). Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and Where parts of an item of property, plant and equipment have is formally tested bi-annually for impairment (see accounting different useful lives, they are accounted for as separate items policy l). In respect of associates, the carrying amount of of property, plant and equipment. goodwill is included in the carrying amount of the investment in the associate.
Any excess of fair value of net assets over consideration on acquisition is recognised directly in the income statement.
40 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 41 2010 (n)Provisions the when sheet balance the in recognised is provision A as obligation constructive or legal present a has Group outflow an that probable is it and event, past a of result a obligation. the settle to required be will benefits economic of If the effect is material, provisions are determined by rate pre-tax a at flows cash future expected the discounting that reflects current market assessmentsof the timevalue to specific risks the appropriate, where and, money of the liability. (o) Deferred and current tax taxableprofit the on provided is taxpayable Corporation respect in recognised taxis Deferred rate. current the at not but originated have differencestemporary that all of extent the to except date, sheet balance the at reversed of recognition initial the from taxarises deferred the that differences betweendifferences are Temporary goodwill. the carrying amount assets the of and Group’s liabilities and their tax base. expected are that taxrates the at measured taxis Deferred differencestemporary the which in periods the in apply to are that laws and taxrates on based reverse to expected are enacted, or substantively enacted, the by balance sheet date. Deferred tax is measured on a non-discounted basis. (p) Pensions The Group makes contributions for selected employees into defined contribution pension plans and these contributions become they as statement income the to charged are defined any operate not does Group The payable. benefit plans. (q)Onerouscontracts the when recognised is contracts onerous for provision A contract a from Group the by derived be to benefits expected obligations its meeting of cost unavoidable the than lower are under the contract. (r) Revenue for receivable and received amounts represents Revenue tax added value (excluding provided services goods and and voluntary gratuities left customers by for the benefit sale. of point the at recognised is and employees) of
(m) Share-based payment transactions to employees Group allows programme option share The acquire shares the of Company and all options are equity- an as recognised is granted options of value fair The settled. employee expense with a corresponding increase in equity. the over spread and date grant at measured is value fair The unconditionally become employees the which during period granted options the of value fair The options. the to entitled account into taking model, Stochastic a using measured is were options the which upon conditions and terms the adjusted is expense an as recognised amount The granted. reflectto the actual numberof share options thatvest except not conditions based market to due only is forfeiture where achieving the threshold for vesting. For property, plant and equipment, the carrying value the equipment, and plant property, For its (“CGU”)to unit compared is generating cash each of based are calculations use in Value use. in value estimated on discounted cash flowsover the remaining useful lifeof life, useful indefinite an have that assets and goodwill For the recoverable amount is estimated at each balance sheet carrying the whenever recognised is loss impairment An date. its exceeds unit generating cash its or asset an of amount in recognised are losses Impairment amount. recoverable the income statement and are not subsequently reversed. (l) Impairment reviewed are assets Group’s the of carrying The amounts is there whether determine to date sheet balance each at any indication impairment. of used rate discount years). The 50 and (between 2 CGU the associated risks the reflect to Board the by believed rate the is the in recognised are losses Impairment CGU. each with statement. income (k) Cash and cash equivalents and balances cash comprise equivalents cash and Cash demand on repayable are that overdrafts Bank deposits. call management cash Group’s the part of integral an form and equivalents cash and cash of component a as included are flows. cash of statement the of purpose the for (j) Stock value. realisable net and cost of lower the at stated is Stock the in price selling estimated the is value realisable Net of costs estimated the less business, of ordinarycourse completion and selling expenses. (i) and Trade other receivables and other receivablesTrade are stated at their cost less l). policy (seeaccounting losses impairment Accounting policies for the consolidated accounts continued
(s) Expenses b) Impairment of goodwill and property, plant (i) Operating lease payments and equipment Payments made under operating leases are recognised in The Group formally determines whether property, plant and the income statement on a straight-line basis over the term equipment and goodwill are impaired on a bi-annual basis. of the lease. Incentives to enter into an operating lease are This requires the Group to determine the lowest level of also spread on a straight-line basis over the lease term as assets which generate largely independent cash flows a reduction in rental expense. (cash generating units or “CGU”) and to estimate the value in use of these assets or CGUs; and compare these to their (ii) Finance lease payments carrying value. Cash generating units are deemed to be Minimum lease payments are apportioned between the individual units, a collection of units or a brand depending on finance charge and the reduction of the outstanding liability. the nature of the trading environment in which they operate. The finance charge is allocated to each period during the Calculating the value in use requires the Group to make an lease term so as to produce a constant periodic rate of estimate of the future cash flows of each CGU and to choose interest on the remaining balance of the liability. a suitable discount rate in order to calculate the present value of those cash flows. The discount rate used in the (iii) Pre-opening expenses year ended 2 January 2011 for all CGUs was based on the Property rentals and related costs incurred up to the Group’s weighted average cost of capital of 9.5% (year ended date of opening of a new restaurant are written off to the 27 December 2009: 10.96%) as the Directors believe there income statement in the period in which they are incurred. are broadly equal risks associated with each CGU. No Promotional and training costs are written off to the income impairment is required in the year ended 2 January 2011. statement in the period in which they are incurred.
(iv) Borrowing costs Debt is stated net of borrowing costs which are spread over the term of the loan. All other borrowings costs are recognised in the income statement in the period in which they are incurred.
(t) Dividend policy In accordance with IAS 10, “Events after the Balance Sheet Date”, dividends declared after the balance sheet date are not recognised as a liability at that balance sheet date, and are recognised in the financial statements when they have received approval by shareholders.
Critical accounting judgements and key sources of estimation and uncertainty In the process of applying the Group’s accounting policies as described above, management has made a number of judgements and estimations of which the following are the most significant. a) Impairment of carrying value of associate The investment in Living Ventures Restaurants Group Limited and the loan note of £10.4m receivable from a subsidiary of that company were fully provided against in the years ended 30 December 2007 and 31 December 2006. Following a review of the trading performance of the company, the Directors have concluded that this treatment is appropriate and no adjustment has been made in either the current or the previous year. Further details are provided in note 13.
42 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
186 Total 8.00 £’000 18.82 18.90 (1,477) (4,686) 37, 272 77,377 52,834 48,334 53,360 (11,062) (24,017) 435,743 (356,889) (358,366) – – – – – – – – (526) (526) (526) Non- £’000 4,497 2,802 (1,169 ) (1,695) trading – 186 17.40 17.4 8 £’000 (1,477) (3,517) 77,377 34,470 Trading 50,029 53,360 53,360 (24,017) (15,559) 52 weeks52 ended December 27 2009 435,743 business (356,889) (358,366)
TheRestaurant Group plc Annual Report 43 2010 – 114 9.00 Total £’000 20.11 20.16 (1,591) (2,192 ) 40,125 56,478 84,845 58,556 58,556 (16,353) (26,289) 465,704 (379,268) (380,859) – – – – – – – – – – 429 596 596 Non- £’000 trading – 114 £’000 19.95 19.90 (1,591) (2,788) 53weeksended January 2 2011 39,696 55,882 84,845 58,556 58,556 Trading (16,186) (167) (26,289) 465,704 (379,268) business (380,859)
4 4 8 7 9 9 5 7 3 10 Note 1
activities before tax ordinary activities ordinary The dividend per share of 9.00p is the interim and proposed final dividend in respect (8.00p2010 of is the two interim dividends and the final dividend in respect2009). of
Profit/(loss) on ordinary Pre-opening costs profit/(loss) on from Tax
Cost of sales: costs pre-opening Excluding Gross profit Interest payable Interest Earnings per share (pence) Basic Diluted Dividend per share (pence) 1 Administration costs assets fixed of disposal on Loss Interest receivable Profit for the year
Revenue Consolidated Consolidated income statement Operating profit/(loss) Operating Trading profit Consolidated statement of comprehensive income
53 weeks 52 weeks ended ended 2 January 27 December 2011 2009 £’000 £’000 Profit for the year 40,125 37, 272 Exchange differences on translation of foreign operations (5) (140)
Total comprehensive income for the year 40,120 37,132
44 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
(5) 29 810 525 998 (140) Total £’000 1,140 1,900 2,098 2,235 (1,433) 40,125 (3,854) 40,120 37,272 93,606 (14,887) (15,706) 144,713 115,932 115,932 – – – – – – – – 29 810 525 1,140 £’000 40,125 37, 272 71,192 40,125 37,272 37,132 45,108 45,108 21,884 (14,887) (15,706) earnings Retained – – – – – – – – – – – – – – Other £’000 2,235 2,098 (1,433) (7,104) (7,104) (3,854) (6,302) (5,348) reserves TheRestaurant Group plc Annual Report 45 2010 – – – – – – – – – – – – – – (5) (5) 493 493 633 488 (140) (140) £’000 reserve Foreign currency translation – – – – – – – – – – – – – – – – 763 £’000 Share 1,367 21,104 21,867 21,867 23,234 premium – – – – – – – – – – – – – – 235 533 £’000 Share capital 56,101 55,333 55,568 55,568
of foreignof operations taken directly equity to taken directly equity to of foreignof operations taken directly equity to taken directly equity to Exchange differences on translation Profitfor theyear
Balance at 28 December 2009 Consolidated statement of changes in equity in changes of statement Consolidated Total comprehensive Total incomethe year for – Issue new of shares Dividends Share-based payments – credit equity to Employee benefit trust – purchaseof shares payments share-based taxon Current Balance at 2 January 2011 Deferred tax on share-based payments Balance at 29 December 2008 Profitfor theyear Total comprehensive Total incomethe year for Issue new of shares – Exchange differences on translation translation differences Exchange on Dividends Share-based payments – credit equity to Current tax on share-based payments payments share-based taxon Current Employee benefit trust – purchaseof shares Deferred tax on share-based payments Balance at 27 December 2009 Consolidated balance sheet
At At 2 January 27 December 2011 2009 Note £’000 £’000 Non-current assets Intangible assets 11 26,433 26,241 Property, plant and equipment 12 259,583 254,841 286,016 281,082
Current assets Stock 14 3,630 4,122 Trade and other receivables 15 5,573 5,042 Prepayments 13,541 12,951 Cash and cash equivalents 2,738 2,831 25,482 24,946
Total assets 311,498 306,028
Current liabilities Corporation tax liabilities (8,539) (9,298) Trade and other payables 16 (81,945) (80,326) Financial liabilities – derivative financial instruments 24 (618) (2,242) Other payables – finance lease obligations 25 (296) (276) Provisions 17 (602) (928) (92,000) (93,070)
Net current liabilities (66,518) ( 68,124)
Non-current liabilities Long-term borrowings 23 (49,662) (69,515) Other payables – finance lease obligations 25 (2,772) (2,718) Deferred tax liabilities 18 (19,091) ( 21,161) Provisions 17 (3,260) (3,632) (74,785) ( 97,026 )
Total liabilities (166,785) (190,096)
Net assets 144,713 115,932
Equity Share capital 19 56,101 55,568 Share premium 23,234 21,867 Foreign currency translation reserve 488 493 Other reserves 20, 21 (6,302) ( 7,10 4 ) Retained earnings 71,192 45,108 Total equity 144,713 115,932
The financial statements of The Restaurant Group plc (company registration number SC030343) on pages 39 to 68 were approved by the Board of Directors and authorised for issue on 9 March 2011 and were signed on its behalf by:
Alan Jackson Stephen Critoph ACA
46 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
186 463 998 2009 £’000 5,470 2,831 (2,377) (2,639) (3,854) ended 61,160 77,075 (13,724) (31,519) (14,887) ( 32,743 ) (31,056) (15,000) 52 weeks 27 December27 – (93) 114 2011 £’000 2,738 1,900 2,831 (1,433) 67,128 ended (3,289) 87,821 (17,518 ) (15,706) (31,982) (31,982) (20,000) (35,239) 53 weeks 2 January 10 23 23 20 22 Note TheRestaurant Group plc Annual Report 47 2010
Interest received paid Interest paid Tax Net cash flows from operating activities Investing activities Investing Purchase property, of plant and equipment equipment and plant property, of sale from Proceeds Net cash flows used in investing activities Financing activities Financing Net proceeds from issue ordinaryof share capital Employee benefit trust – purchaseof shares Net repayments loan of draw downs Dividends paid shareholders to Net cash flows used in financing activities Cash and cash equivalents at beginning of year Net decrease in cash and cash equivalents Cash and cash equivalents at end of year
Operating activities Operating Cash generated from operations statement cashflow Consolidated Notes to the accounts
1 Segmental analysis
53 weeks ended 2 January 2011 EBITDA Operating Operating Turnover EBITDA margin profit profit margin £’000 £’000 % £’000 % Leisure 373,720 95,067 25.4% 72,946 19.5% Concessions 91,984 18,789 20.4% 14,234 15.5% Principal trading brands 465,704 113,856 24.4% 87,180 18.7% Non-core – (744) – (744) – Total all brands 465,704 113,112 24.3% 86,436 18.6% Pre-opening costs (1,591) (0.3%) (1,591) (0.3%) Administration costs (23,480) (5.0%) (24,054) (5.2%) Share-based payments (2,235) (0.5%) (2,235) (0.5%) Total before non-trading items 85,806 18.4% 58,556 12.6% Loss on disposal of fixed assets – Operating profit 58,556 Total net interest charges (2,078) Profit on ordinary activities before tax 56,478
52 weeks ended 27 December 2009 EBITDA Operating Operating Turnover EBITDA margin profit profit margin £’000 £’000 % £’000 % Leisure 353,552 89,525 25.3% 69,076 19.5% Concessions 82,184 15,862 19.3% 11,040 13.4% Principal trading brands 435,736 105,387 24.2% 80,116 18.4% Non-core 7 (787) – (1,262) – Total all brands 435,743 104,600 24.0% 78,854 18.1% Pre-opening costs (1,477) (0.3%) (1,477) (0.3%) Administration costs (21,384) (4.9%) (21,919) (5.0%) Share-based payments (2,098) (0.5%) (2,098) (0.5%) Total before non-trading items 79,641 18.3% 53,360 12.2% Loss on disposal of fixed assets (526) Operating profit 52,834 Total net interest charges (4,500) Profit on ordinary activities before tax 48,334
EBITDA is operating profit before depreciation, amortisation and non-trading items.
48 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
£’000 £’000 7,9 62 8,441 6,487 87,820 12,072 49,912 13,856 50,660 64,516 71,003 61,984 70,425 111,513 liabilities liabilities Segment Segment 166,785 925 954 £’000 £’000 6,224 6,691 assets assets 10,181 8,158 10,304 26,601 26,084 266,977 262,585 311,498 Segment Segment 293,578 289,623 306,028 190,096 294,503 288,669 – – – – 69 60 £’000 £’000 5,797 4,983 Capital Capital 31,519 31,913 31,913 25,662 26,930 31,982 31,459 31,459 additions additions TheRestaurant Group plc Annual Report 49 2010 53 weeks ended 2 January 2011 52 weeks52 ended December 27 2009 – – – 574 475 535 £’000 £’000 4,822 4,555 22,121 20,449 25,746 27,250 26,676 26,676 25,271 26,281 Depreciation Depreciation
Administration Group Total Unallocated items Concessions brandsall Total Principal trading brands trading Principal Non-core Leisure Concessions brands trading Principal Group Total Leisure
Non-core brandsall Total Administration Unallocated items Assets and liabilities are allocated to divisions where possible. Unallocated assets include trade and other receivables, receivables, other and trade include assets Unallocated possible. where divisions to allocated are liabilities and Assets certain prepayments and cash and cash equivalents. Unallocated liabilities include borrowings, current and deferred tax, derivative financial instruments and certain accruals andother creditors. of assessment and allocation resource of purposes the Officer for Executive Chief Group’s the to reported Information segment performance is focussed on two divisions. reportable The Group’s segments under IFRS 8 are therefore Leisure and Concessions. Notes to the accounts continued
2 Additional non-statutory information Results are stated excluding non-trading items
Additional non-statutory income statement information is provided as a useful guide to underlying trading performance. The 2010 and 2009 results include a number of items which are of a one-off nature or are unrelated to the year’s result and hence are not representative of the underlying trading performance of the business. The following segmental analysis excludes these non-trading items, as described in note 5, and is provided to aid understanding of the income statement and should be read in conjunction with, rather than as a substitute for, the reported information.
53 weeks ended 2 January 2011 Operating EBITDA Operating profit Turnover EBITDA margin profit margin £’000 £’000 % £’000 % Leisure 373,720 95,067 25.4% 72,946 19.5% Concessions 91,984 18,789 20.4% 14,234 15.5% Principal trading brands 465,704 113,856 24.4% 87,180 18.7% Non-core – (744) – (744) – Total all brands 465,704 113,112 24.3% 86,436 18.6% Pre-opening costs (1,591) (0.3%) (1,591) (0.3%) Administration costs (23,480) (5.0%) (24,054) (5.2%) Share-based payments (2,235) (0.5%) (2,235) (0.5%) EBITDA/adjusted operating profit 85,806 18.4% 58,556 12.6% Total net interest charges ( 2,674) Adjusted profit before tax 55,882 Tax (16,186 ) Adjusted profit after tax 39,696 Earnings per share (pence) – trading business Basic 19.95 Diluted 19.90
52 weeks ended 27 December 2009 Operating EBITDA Operating profit Turnover EBITDA margin profit margin £’000 £’000 % £’000 % Leisure 353,552 89,525 25.3% 69,076 19.5% Concessions 82,184 15,862 19.3% 11,040 13.4% Principal trading brands 435,736 105,387 24.2% 80,116 18.4% Non-core 7 (787) – (1,262) – Total all brands 435,743 104,600 24.0% 78,854 18.1% Pre-opening costs (1,477) (0.3%) (1,477) (0.3%) Administration costs (21,384) (4.9%) (21,919) (5.0%) Share-based payments (2,098) (0.5%) (2,098) (0.5%) EBITDA/adjusted operating profit 79,641 18.3% 53,360 12.2% Total net interest charges (3,331) Adjusted profit before tax 50,029 Tax (15,559) Adjusted profit after tax 34,470 Earnings per share (pence) – trading business Basic 17.48 Diluted 17.40
Financial information regarding segmental assets and liabilities is detailed in note 1.
EBITDA is operating profit before depreciation, amortisation and non-trading items.
50 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
77 54 39 93 63 140 186 233 2009 2009 2009 2009 £’000 £’000 £’000 £’000 1,477 3,493 6,833 (3,493) 50,105 26,281 43,272 101,695 435,743 134,353 439,422 356,889 358,366 81 40 66 114 147 142 102 289 2010 2010 2010 2010 £’000 £’000 £’000 £’000 7,083 1,591 3,527 (3,527) 47,495 27,250 54,578 145,581 465,704 106,690 379,268 469,345 380,859 TheRestaurant Group plc Annual Report 51 2010 Fees payable the Company’s auditors to for the audit the of Company’s annual accounts their associates for other services to the Group The audit the of Company’s subsidiaries pursuant legislation to Other services Tax servicesTax to paid fees the subsidiaryof undertaking. All a by borne are Company the to relating total above the in included fees Audit and 2009auditors were expensed in 2010 as administration costs. Staff costs (see 6) note Rental income Minimum lease payments Total incomethe year for Total 4 Profit for the year Interest income
Total cost of salesthe year for of cost Total Auditors’ remuneration: Auditors’ Pre-opening costs Purchases theauditorspayableCompany’s Fees to and non-audit fees Total Profitfor theyear has been arrived at after charging/(crediting): Depreciation Cost sales of consists the of following: costs pre-opening excluding business Continuing Total audit fees Total auditors’ remuneration Total Contingent rents operatingTotal lease rentals land of and buildings Other income not included within revenuein the income statement: Rental income Income for the year consists the of following: Revenue from continuing operations 3 Revenue Notes to the accounts continued
5 Non-trading items 2010 2009 Note £’000 £’000 Items classified as non-trading within ordinary activities: Loss on disposal of fixed assets i (2) (564) Creation of accrual for disposal of assets i – (80) Amounts receivable i – 113 Other asset disposal included within operating profit i 2 5 Loss on disposal of fixed assets – (526)
Finance credit/(charge) arising from remeasurement of interest rate swaps ii 596 (1,169 ) Profit/(loss) on ordinary activities before tax 596 (1,695) Tax on non-trading items iii (167) 4,497 Total non-trading items after tax 429 2,802 i) During 2009 the Group disposed of fixed assets and realised a net loss of £0.5m. ii) The Group has taken a credit of £0.6m (2009: £1.2m charge) in respect of the remeasurement of its interest rate swaps. Further details are provided in note 24. iii) In the year ended 2 January 2011, the Group has recognised a non-trading tax charge of £0.2m. In the year ended 27 December 2009, the Group recognised a non-trading tax credit of £4.5m. Included within this amount is a credit of £3.6m in relation to the release of a number of provisions created in 2005 following agreement with HMRC on the treatment of a number of transactions.
6 Staff costs and numbers 2010 2009 a) Staff numbers (including executive Directors) Restaurant staff 10,257 9,858 Administration staff 223 212 10,480 10,070
2010 2009 £’000 £’000 b) Staff costs (including Directors) comprise: Wages and salaries 132,900 122,742 Social security costs 9,947 9,028 Share-based payments 2,235 2,098 Pension costs 499 485 145,581 134,353 c) Directors’ remuneration Emoluments 2,536 2,632 Money purchase (and other) pension contributions 156 155 2,692 2,787 Charge in respect of share-based payments 1,326 1,237 4,018 4,024
Further details of the Directors’ emoluments and the executive pension schemes are given in the Directors’ remuneration report on pages 29 to 35, of which the information on pages 32 to 35 has been audited.
52 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
– – (6) 29 169 342 289 (110 ) (186) (180) (756) (293) 2009 2009 2009 1,169 £’000 £’000 £’000 1,546 2,886 4,686 4,500 (1,183 ) (3,813) (4,240) (3,057) 11,062 11,062 15,302 16,058 13,534 48,334 – – (2) 110 142 350 460 (114) (112 ) 2010 2010 2010 (781) (781) (146) (291) (286) (596) (288) (930) £’000 £’000 £’000 2,192 1,978 1,642 2,078 17,571 15,814 17,283 56,478 16,353 16,353 TheRestaurant Group plc Annual Report 53 2010
standard UK corporation tax rate of 28% (2009: 28%) 28% of taxrate corporation UK standard 8 Tax be to required is rate this and 2011, April 1 from 27% to 28% taxfrom corporation of rate the reduced 2010 Act Finance The statement income the in taxcredit a in resulted has This date. sheet balance the at taxprovisions deferred calculating in used £0.8m.of The Government has also indicated that it intends enact to future reductions in the main corporation each tax year 1% of rate reducing The future main the main tax 1% April by tax reductions rate 2014. down rate 24% to are expected have a similar to impact on the financial statements as the currenthowever the actualyear, impact will be dependent on the deferred tax time. that at position Other adjustments tax charge theyear for Total Utilisation of capital losses brought forward brought losses capital of Utilisation b) Factors affecting the tax charge for the year The tax charge for the year varies from the standard UK corporation tax 28% (2009: of rate 28%) due the following to factors: Total tax charge theyear for Total Adjustments in respect previous of years Adjustments in respect previous of years Deferred tax Origination and reversal timing of differences a) The tax charge comprises: Current tax (2009: 28%) 28% taxat corporation UK Bank interest payable 7 Net finance charges Other interest payable Interest on obligations under finance leases Bank interest receivable Other interest receivable Total interest receivable Total Net finance charges Profit on ordinary activities before tax Profit on ordinary activities before tax multipliedby the Expenses/(gain) not deductible for tax purposes
Effects of: non-qualifying assets on Depreciation years previous of respect in Adjustment Credit in respect change rate of Change in fair value interest of swaps rate borrowing costs Total Loss on disposal of non-qualifying assets of disposal on Loss Credit in respect change rate of on deferred tax liability Notes to the accounts continued
9 Earnings per share 2010 2009 a) Basic earnings per share: Weighted average ordinary shares in issue during the year 199,026,844 197, 212,4 37 Total basic profit for the year (£’000) 40,125 37, 272 Basic earnings per share for the year (pence) 20.16 18.90 Total basic profit for the year (£’000) 40,125 37, 272 Effect of non-trading items on earnings for the year (£’000) (429) (2,802) Earnings excluding non-trading items (£’000) 39,696 34,470 Adjusted earnings per share (pence) 19.95 17.4 8 b) Diluted earnings per share: Weighted average ordinary shares in issue during the year 199,026,844 197, 212,4 37 Dilutive shares to be issued in respect of options granted under the share option schemes 495,532 884,472 199,522,376 198,096,909 Diluted earnings per share (pence) 20.11 18.82 Adjusted diluted earnings per share (pence) 19.90 17.40
The additional non-statutory earnings per share information (where non-trading items, described in note 5, have been added back) has been provided as the Directors believe they provide a useful indication as to the underlying performance of the Group.
Diluted earnings per share information is based on adjusting the weighted average number of shares in issue in respect of notional share awards made to employees in respect of share option schemes. No adjustment is made to the reported earnings for 2010 or 2009.
10 Dividend 2010 2009 £’000 £’000 Amounts recognised as distributions to equity holders during the year: Second interim dividend for the 52 weeks ended 27 December 2009 of 6.30p (2008: nil) per share 12,146 – Final dividend for the 52 weeks ended 27 December 2009 of 0.30p (2008: 6.30p) per share 580 12,188 Interim dividend for the 53 weeks ended 2 January 2011 of 1.54p (2009: 1.40p) per share 2,980 2,699 Total dividends paid in the year 15,706 14,887 Second interim dividend for the 53 weeks ended 2 January 2011 of nil (2009: 6.30p) per share – 12,146 Proposed final dividend for the 53 weeks ended 2 January 2011 of 7.46p (2009 actual proposed and paid: 0.30p) per share 14,440 580
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 11 May 2011 and is not recognised as a liability in these financial statements. The proposed final dividend payable reflects the number of shares in issue on 2 January 2011, adjusted for the 5.9m shares owned by the employee benefit trust for which dividends have been waived. Further details are provided in note 20.
54 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
192 £’000 26,241 26,433
TheRestaurant Group plc Annual Report 55 2010 1 The additional consideration represents amounts paid the to previous shareholders of Brunning and Price Limited, as agreedterms under of the purchase the agreement, being monies received on outstanding negotiations relating the to pre-acquisition period. Additional consideration Additional more or review, impairment bi-annual a to subject is amortisedbut not is combinations business on arising Goodwill acquisition on arising goodwill Therefore, impaired. be might it that indicate circumstances in changes or events if frequently is monitored and an impairment test is carried out which compares the value in use each of cash generating unit (“CGU”) Brunning and Limited Blubeckers of acquisition the on arising amounts represents goodwill The carrying value. the to and Price Limited, which now trade as Pub Restaurants. Previously, the goodwill arising on each acquisition was assessed the with line in more them bring to sites Blubeckers former modifying the of program the following but, individually aggregate. in them evaluate to appropriate considered now is it operation, styleof Price & Brunning Value in use calculations are based on cash flowforecasts derived from the most recent financial 2%.budgets of and three rate year growth annual an with perpetuity in extrapolated then are flows Cash Board. the by approved plans business the of nature the and estate the in freeholds of proportion significant the to due reasonable be to believed is Perpetuity rate the is which 10.96%) (2009: 9.5% is projections flow cash to applied rate discount pre-tax The properties. leasehold believed the by Directors reflect to the risks associated with the CGU. (2009: £50.4m). £50.4m reservesis realised against off written goodwill of amount cumulative the January 1989 1 Since available. readily not are date this to prior periods for Records 1 Cost and carrying amount December 29 At 2008 and and December at 28 27 2009 11 Intangible11 assets At 2 JanuaryAt 2011 Notes to the accounts continued
12 Property, plant and equipment Fixtures, Land and equipment buildings and vehicles Total £’000 £’000 £’000 Cost At 29 December 2008 273,831 99,124 372,955 Exchange movement (215) (86) (301) Additions 18,510 13,009 31,519 Disposals (3,775) (2,410) ( 6,185 ) At 27 December 2009 288,351 109,637 397,988 Accumulated depreciation and impairment At 29 December 2008 76,389 45,844 122,233 Exchange movement (153) (56) (209) Provided during the year 13,920 12,361 26,281 Disposals (3,017) (2,141) ( 5,158 ) At 27 December 2009 87,139 56,008 143,147
Cost At 28 December 2009 288,351 109,637 3 97,9 8 8 Exchange movement 42 17 59 Additions 22,097 9,885 31,982 Disposals ( 3,740 ) (2,460) (6,200) At 2 January 2011 306,750 117,079 423,829 Accumulated depreciation and impairment At 28 December 2009 87,13 9 56,008 143,147 Exchange movement 34 13 47 Provided during the year 13,659 13,591 27, 250 Disposals ( 3,740 ) (2,458) (6,198) At 2 January 2011 97,092 67,154 164,246 Net book value as at 27 December 2009 201,212 53,629 254,841 Net book value as at 2 January 2011 209,658 49,925 259,583
2010 2009 £’000 £’000 Net book value of land and buildings: Freehold 58,454 58,353 Long leasehold 2,707 1,656 Short leasehold 148,497 141,203 209,658 201,212
2010 2009 £’000 £’000 Assets held under finance leases Cost at the beginning and end of the year 1,961 1,961 Depreciation At the beginning of the year 1,099 1,074 Provided during the year 25 25 At the end of the year 1,124 1,099 Net book value at the end of the year 837 862
56 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
(103)
2009 2009 2009
1,154 £’000 £’000 £’000 7,9 92 5,042 2,263 3,888 (5,647)
(9,583) 11,944 12,347 26,607 23,593 80,326 (18,143 ) 33,380
2010 2010 2010 (461) 1,117 £’000 £’000 £’000 5,573 5,487 4,456 2,460 (5,979) 36,613 81,945 10,859 12,948 26,897 24,232 (17,384) (10,044) TheRestaurant Group plc Annual Report 57 2010
Stock comprises raw materials and consumables and have been valued at the lower of cost and estimated net realisable net estimated and cost of lower the at valued been have and consumables and materials raw comprises Stock value. The replacement is not cost considered at 2 January the by Directors 2011 be materially to different from the balance sheet value. purchases The of Group recognised as (2009: an expense £106.7m in 2010 £101.7m). Trade and15 other receivables 14 Stock Living 2 JanuaryAt Ventures Restaurants 2011 Group Limited wascontractually capital of committed expenditure £0.01m to (27 December 2009: £0.02m). 14 Other creditors Net loss Accruals Revenue Other tax and social security Amounts falling due within one year: creditorsTrade Amounts falling due within one year: debtors Trade Non-current assets is accounted for using the equity method. Living Ventures Restaurants Group Limited has an accounting year end date date end year accounting an has Limited Group Restaurants Ventures Living equitymethod. the using for accounted is March 31 andof as there is no material benefit in making the accountingyear end co-terminus with the no Group, change with “Associates IAS and 28 Joint Ventures” as the investment has a carrying value £nil. of Interest is receivable Finance LIBOR. from of at a rate Limited LV In the 53 weeks on the loan ended £10.4m of note interest of has accrued which of £0.1m the2 January Group has recognised 2011 £nil (2009:receivable £0.2minterest which of of the Group £1.2m date, that at outstanding £10.4m of note loan the to addition £nil). in recognised Consequently had accrued, which, of under the terms the of agreement, all was overdue. Summarised financial information on LivingVentures Restaurants Group Limited is follows:as Current assets liabilities Non-current liabilities Current Equity 13 Investment13 in associate The Restaurant Group plc holds a 38% investment in Living Ventures Restaurants Group Limited and this investment has been made. As a result detailed a of review the of trading performance Living of Ventures Restaurants Group Limited, the investment has been recorded plus at £nil interest and receivable a loan £10.4m of note Finance due from Limited, LV a subsidiary Livingof Ventures Restaurants Group Limited, was fully provided against December and 27 as at 2 January 2009. 2011 January 2011 2 ended year the for Limited Group Restaurants Ventures Living of result post-tax the of share Group’s The (2009:was a loss loss £0.18m of £0.04m). of This loss has not been recognised in the income statement, in accordance Trade and16 other payables Other debtors Notes to the accounts continued
17 Provisions 2010 2009 £’000 £’000 Provision for onerous lease contracts: Balance at the beginning of the year 4,560 4,873 Additional provisions made 177 1,056 Amounts utilised (899) (961) Provisions released (645) (143) Adjustment for change in discount rate 239 (645) Unwinding of discount 430 380 Balance at the end of the year 3,862 4,560 Analysed as: Amount due for settlement within one year 602 928 Amount due for settlement after one year 3,260 3,632 3,862 4,560
The provision for onerous contracts is in respect of lease agreements and covers the element of expenditure over the life of those contracts which are considered onerous, expiring in 2-36 years.
18 Deferred tax 2010 2009 £’000 £’000 Balance at the beginning of the year 21,161 26,211 Depreciation in advance of capital allowances credited to the income statement (392) (344) Other timing differences 243 (3,896) Credit in respect of rate change (781) – Deferred tax taken directly to the income statement (see note 8) (930) (4,240) Tax on share-based payments (1,214) (810) Credit in respect of rate change 74 – Deferred tax taken through equity (1,140 ) (810) Balance at the end of the year 19,091 21,161
2010 2009 £’000 £’000 Deferred tax consists of: Capital allowances in advance of depreciation 22,564 23,792 Capital gains rolled over 523 543 Other timing differences (3,996) ( 3,174) 19,091 21,161
19 Share capital Number £’000 Authorised: 1 At 27 December 2009 and 2 January 2011 (ordinary shares of 28 ⁄8p each) 284,444,444 80,000 Issued, called up and fully paid: At 29 December 2008 196,738,838 55,333 Exercise of share options 8 37,025 235 At 27 and 28 December 2009 197,575,863 55,568 Exercise of share options 1,895,029 533 At 2 January 2011 199,470,892 56,101
58 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
488 £’000 1,421 1,433 1,433 1,945 3,854 Number 600,000 (482,383) 2,018,000 5,791,257 5,100,200 5,908,874 (1,326,943) 750,000 268,000 600,000 1,000,000 TheRestaurant Group plc Annual Report 59 2010 Purchase shares of on 2 November 2009 at an average per price share £1.808 of At 29 December 2008 share per £1.931 of price average an at 2009 September 2 on shares of Purchase Purchase shares of on 1 December 2009 per share at an average price £1.881 of Net cash outflowinclusive of in the yearcosts £1.4m, (yearwas ended ended 2 January27 December 2011 2009: £3.9m, inclusive costs). of 20 Employee benefit trust An employee benefit trust (“EBT”)was established 2007 in in orderto satisfy theexercise vestingor existingof and future share Incentive awards under Plan. The the Long-Term purchases EBT shares in the market, using funds provided the by basedCompany, on expectations future of requirements. the Trustees, DividendsJanuary 2 At are waived the by 2011, EBT. Appleby (Jersey) Trust Limited, held shares 5.9m in the Company (27 December 2009: shares). 5.8m The charge recorded in the financial statementsof the Groupfor theyear endedin respect 2 Januaryof share-based2011 payments is (2009: £2.2m £2.1m). The other reserve account in the balance sheet reflects the creditto equity made in respectof the chargefor share-based payments made through the income statement and the purchase shares of in the market in order satisfy to the vesting of existing and future share Incentive awards under Plan the (see Long-Term 20). note Executive Share Option Plans (“ESOPs”) The Group has in place three scheme, ESOPs, the 1998 the 2003 scheme and a one-off scheme. Under these schemes, the Remuneration Committee may grant options over shares in The Restaurant Group plc employees to the of Group. Awards under the ESOPs are generally reserved for senior management level and above. The contractualearnings in growth life an of to option subject is ten years.grant, of date the anniversary of third the on exercisable become ESOPs under granted Options per share exceeding RPI growth more by than (under 4% scheme) the 1998 (under or 2.5% the 2003 scheme). Exercisemodel. pricing option of Stochastic a using valued were Options Group. the within employment continued to subject is options No performance conditions were included in the fair value calculations. 21 Share-based payment schemes remuneration Directors’ the in provided are which of details schemes, payment share-based of number a operates Group The report on pages The 35. to 29 Group has taken advantage the of exemption under IFRS 2 “Share-based payments” not to account for share options granted before 7 November 2002. Transfer of shares of Transfer satisfy to the exercise shareof awards At 27 and 28 December 2009 share per £2.372 of price average an at 2010 April 27 on shares of Purchase shares of Transfer satisfy to the exercise shareof awards At 2 January 2011 Details options of granted under share the schemes Group’s are given in 21. note Notes to the accounts continued
21 Share-based payment schemes continued Year ended 2 January 2011: Outstanding Outstanding Exercisable Period during which Exercise at beginning at end at end options are exercisable price of year Granted Exercised Lapsed of year of year 1998 Scheme 2003 – 2010 48.6p 3,015 – (3,015) ––– Total number 3,015 – (3,015) ––– Weighted average exercise price 48.6p – 48.6p ––– 2003 Scheme 2006 – 2013 67.4p 186,887 – (179,853) – 7,034 7,034 2007 – 2014 97.7p 1,074,710 – (939,355) – 135,355 135,355 2008 – 2015 134.4p 929,679 – (568,679) – 361,000 361,000 Total number 2,191,276 – (1,687,887) – 503,389 503,389 Weighted average exercise price 110.7p – 106.8p – 123.6p 123.6p One-off scheme (see note below) 2004 – 2011 45.0p 200,000 – (200,000) ––– Total number 200,000 – (200,000) ––– Weighted average exercise price 45.0p – 45.0p ––– Total number 2,394,291 – (1,890,902) – 503,389 503,389 Weighted average exercise price 105.1p – 100.2p – 123.6p 123.6p
Year ended 27 December 2009: Outstanding Outstanding Exercisable Period during which Exercise at beginning at end at end options are exercisable price of year Granted Exercised Lapsed of year of year 1998 Scheme 2003 – 2010 48.6p 3,015 – – – 3,015 3,015 Total number 3,015 – – – 3,015 3,015 Weighted average exercise price 48.6p ––– 48.6p 48.6p 2003 Scheme 2006 – 2013 67.4p 186,887 – – – 186,887 186,887 2007 – 2014 97.7p 1,445,710 – (371,000) – 1,074,710 1,074,710 2008 – 2015 134.4p 1,419,000 – (429,321) (60,000) 929,679 929,679 Total number 3,051,597 – (800,321) (60,000) 2,191,276 2,191,276 Weighted average exercise price 112.9p – 117.4p 134.4p 110.7p 110.7p One-off scheme (see note below) 2004 – 2011 45.0p 200,000 – – – 200,000 200,000 Total number 200,000 ––– 200,000 200,000 Weighted average exercise price 45.0p ––– 45.0p 45.0p Total number 3,254,612 – (800,321) (60,000) 2,394,291 2,394,291 Weighted average exercise price 108.7p – 117.4p 134.4p 105.1p 105.1p
During 2010, the weighted average market price at date of exercise was 224.6p per share (2009: 157.1p).
Note: The one-off scheme is in respect of Alan Jackson’s share options granted on 5 June 2001. During the year Alan Jackson exercised 200,000 options under this scheme, and as at 2 January 2011 there are no share options outstanding. No charge to the income statement is recognised in respect of Alan Jackson’s share options as they were granted prior to 7 November 2002.
60 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
–
of year at end Exercisable 7 May 2006 –––– 30 June 2010 30 June 2007 30 June 2008 30 June 2009 of year at end 346,418 346,418 – 482,759 482,759 – 531,904 531,904 – 531,905 531,905 – 376,546 376,546 – 626,292 1,275,820 1,275,820 – 6,499,244 – Outstanding ––– (9,794) (9,795) (9,894) Lapsed (15,957) (13,689) (93,857) (56,626) (109,951) (585,383) – TheRestaurant Group plc Annual Report 61 2010 (94,295) (119,869 ) (268,219) Exercised (482,383) Date which by Deposited Shares must be acquired ––– Granted 486,497 – 541,699 – – – 541,699 – of year 284,176 284,176 – 360,107 360,107 – – 119,869 119,869 – 150,921 150,921 – 492,653 492,653 – – 626,292 5,997,115 5,997,115 1,569,895 1,369,677 1,369,677 – – 2,593,420 2,593,420 – – (265,820) 2,327,600 – Outstanding at beginning at Fair Fair value 83.1p 89.9p 89.9p 144.0p 146.0p 146.0p 240.9p 208.9p 208.9p 336.0p 336.0p
Matching Conditional – TSR element Conditional – TSR element Conditional – EPS element Conditional – EPS element Matching Conditional – EPS element Conditional Matching Matching Conditional – TSR element 4 March 2010 8 March 2007 Total number Total 2011 2011 2013 2010 Period duringPeriod options which are exercisable of award Type Year endedYear 2 January 2011: 7 December 2005 On publication results, the Conditional the of 2010 and Matching Awards granted on 6 March 2008 become exercisable. The options scheme from the LTIP will be satisfied through share purchases via a trust.Further details are provided20. in note Date of Award 6 March 2008 5 March 2009 Vesting share of options under is dependent the LTIP on continuing employment. In exceptional circumstances, employees exercisable. are they which in period normal the before options exercise to permitted be may The vesting criteria Shareholder for the Total Return (“TSR”) element the of Conditional Award were met in full and consequently, 100% this of part the of award will vest. Earnings per share Conditional (“EPS”)the of element resultsEPS growth comparedthe the of of 2010 82.5% consequently, and +10% RPI and +4% RPI between was results 2007 the with andAward the Matching will Award vest. 2010 2010 2011 2012 2012 2013 Long-Term Incentive Plan Incentive Long-Term In employees. selected and Directors to granted are options share Award Matching and options share Award Conditional respect the of Matching Award share options, the respective Director or employeefor is requiredvest, acquire to a number options share shares of Award Matching the until shares these retain and shares”, “Deposited as known date, specified a by these Matching Award share options be valid. to The table below summarises the dates awards of under and the the LTIP dates which by Directors and employees were required acquire to their deposited shares. On 9 November 2005 an Extraordinary General Meeting of The Restaurant Group plc approved the adoption of a new new a of adoption the approved plc Group Restaurant The of Extraordinary an Meeting General2005 November 9 On Incentive Plan (“LTIP”)Long-Term for the Group, detailswhich of are provided in the Directors’ remuneration report on pages 36. Awards under are to 29 generally the LTIP reserved for senior management level and above. 2013 Notes to the accounts continued
21 Share-based payment schemes continued Year ended 27 December 2009:
Period during Outstanding Outstanding Exercisable which options Fair at beginning at end at end are exercisable Type of award value of year Granted Exercised Lapsed of year of year 2009 Conditional – TSR element 99.0p 340,135 – ( 340,135 ) ––– 2009 Conditional – EPS element 153.0p 625,150 – ( 617,9 8 0 ) ( 7,170 ) –– 2009 Matching 153.0p 373,385 – (368,828) (4,557) –– 2010 Conditional – TSR element 240.9p 150,921 – – – 150,921 – 2010 Conditional – EPS element 336.0p 293,859 – – (9,683) 284,176 – 2010 Matching 336.0p 158,920 – – (39,051) 119,869 – 2011 Conditional – TSR element 83.1p 626,292 ––– 626,292 – 2011 Conditional – EPS element 146.0p 1,402,535 – – (32,858) 1,369,677 – 2011 Matching 146.0p 360,107 – – – 360,107 – 2012 Conditional 89.9p – 2,611,370 – (17,9 50 ) 2,593,420 – 2012 Matching 89.9p – 757,999 – (265,346) 492,653 – Total number 4,331,304 3,369,369 (1,326,943) (376,615) 5,997,115 –
Save As You Earn Scheme Under the Save As You Earn (“SAYE”) scheme, the Board may grant options over shares in The Restaurant Group plc to UK-based employees of the Group. Options are granted with a fixed exercise price equal to 80% of the average market price of the shares for the five days prior to invitation. Employees pay a fixed amount from their salary into a savings account each month for the three-year savings period. At the end of the savings period, employees have six months in which to exercise their options using the funds saved. If employees decide not to exercise their options, they may withdraw their funds saved and the options expire. Exercise of options is subject to continued employment within the Group. In exceptional circumstances, employees may be permitted to exercise these options before the end of the three-year savings period. Options were valued using the Stochastic share pricing model.
Year ended 2 January 2011:
Period during Outstanding Outstanding Exercisable which options Exercise at beginning at end at end are exercisable price of year Granted Exercised Lapsed of year of year 2011 125.0p 602,609 – (4,127) (50,245) 548,237 – 2013 184.0p – 357,274 – ( 38,163 ) 319,111 – Total number 602,609 357,274 (4,127) (88,408) 867,348 –
Year ended 27 December 2009:
Period during Outstanding Outstanding Exercisable which options Exercise at beginning at end at end are exercisable price of year Granted Exercised Lapsed of year of year 2009 160.0p 130,514 – (36,704) (93,810) –– 2011 125.0p 731,321 – – (128,712) 602,609 – Total number 861,835 – (36,704) (222,522) 602,609 –
During 2010, the weighted average market price at date of exercise was 251.7p per share (2009: 187.4p).
62 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
758 526 (161) (189) 15% 2009 2009 1.9% 2.8% £’000 £’000 88.7p 2,098 4,500 (2,639) (5,233) 77,075 48.0% 235.1p 26,281 15,000 184.0p 48,334 (78,884) 357,274 357,274 (66,684) scheme 2010 SAYE 2010 19/04/2010 – nil (93) 492 409 (147) 2010 2010 30% £’000 £’000 2,078 2,235 (1,121) Award 87,821 27,250 56,478 20,000 (46,924) 486,497 (66,684) 2010 LTIP 2010 Matching nil n/a n/a 208.9p 208.9p TheRestaurant Group plc Annual Report 63 2010 04/03/2010 04/03/2010 EPS element nil n/a n/a n/a 10% 10% 3.0% 3.0% 3.0% 50.7% 144.0p 208.9p 208.9p 208.9p 3 years 3 years 3 years 3 years 541,699 541,699 3.5 years3.5 years 3.5 years 3.5 years 3.5 04/03/2010 TSR element 2010 LTIP Conditional LTIP 2010 Award
1 Expected volatility is the measure of the amount by which the share price is expected to fluctuate during a period. In order to calculate to order In period. a during fluctuate to expected priceis share whichthe by amount the measureof Expected the volatilityis length equalin date grant the period(share priorto a dividends index priceplus return re-invested)over the in movement the volatility, discount the for and awards performance whichthe remainingSAYE period the the over conditionFor applies been calculated. has to for the TSR performance condition for the relevant Conditional Awards, the calculated volatility based on the movement in the return indexover a period years of 3.25 and 3 years respectively prior the to grant has been used.
Major non-cashtransactions Major There were no major non-cash transactions in the 53 weeks ended or weeks the 52 ended 2 January December 27 2011 2009. 23 Reconciliation of changes in cash to the movement in net debt Increase/(decrease)creditors in Depreciation Decrease/(increase) in stocks debtors in (Increase)/decrease operations from generated Cash Share-based payments Loss on disposal of fixed assets fixed of disposal on Loss At the end of the year Net debt: At the beginning of the year Net finance charges Movements in the year: Repayments loan of draw downs Non-cash movements in the year Cash outflow Profit before tax 22 Reconciliation of profit before tax to cash generated from operations Share price at grant date Exercise price Scheme 21 Share-based payment schemes continued Assumptions used invaluation share-based of payments granted in the year ended 2 January 2011 1 Fair value per option Contractual life Risk free rate Grant date Minimum vesting period volatility Expected No options of originally granted Expected forfeitures Expected dividendyield Notes to the accounts continued
23 Reconciliation of changes in cash to the movement in net debt continued
At 29 Cash flow Non-cash At 27 and 28 Cash flow Non-cash At 2 December movements movements December movements movements January 2008 in the year in the year 2009 in the year in the year 2011 Represented by: £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cash and cash equivalents 5,470 (2,639) – 2,831 (93) – 2,738 Bank loans falling due after one year (84,354) 15,000 (161) (69,515) 20,000 (147) (49,662) (78,884) 12,361 (161) (66,684) 19,907 (147) (46,924)
24 Financial instruments and derivatives The Group finances its operations through equity and borrowings. The Group borrows at floating rates and during 2010 and 2009, used interest rate swaps to generate the desired interest profile. The use of any financial instruments is carefully controlled and monitored by the Board in line with the Group’s treasury strategy and the terms and conditions of its facilities.
Management’s approach to treasury is to: • ensure sufficient committed loan facilities are in place to support anticipated business requirements; • ensure the Group’s debt service will be supported by anticipated cash flows and that covenants will be complied with; and • manage interest rate exposure with a combination of floating rate debt and interest rate swaps, when appropriate.
Further details on the business risk factors that are considered to affect the Group and more specific financial risk management (including sensitivity to increases in interest rates) are included in the report of the Directors on pages 18 to 25. Further details on market and economic risk is included in the Chief Executive Officer’s review of operations on pages 6 to 11. Further detail on headroom against covenants is included in the Group Finance Director’s report on pages 12 to 15.
(a) Financial assets and liabilities Financial assets The financial assets of the Group comprise: 2010 2009 £’000 £’000 Cash and cash equivalents – Sterling 2,470 2,398 Cash and cash equivalents – Euro 268 433 2,738 2,831 Trade and other receivables 5,573 5,042 Total financial assets 8,311 7,873
Cash and cash equivalents include balances held on account in respect of deposits paid by tenants under the terms of their rental agreement.
Financial liabilities The financial liabilities of the Group comprise: 2010 2009 £’000 £’000 Trade and other payables excluding tax 68,997 67,979 Derivative financial instruments 618 2,242 Finance lease debt 296 276 Short-term financial liabilities 69,911 70,497 Long-term borrowings – at floating interest rates* 49,662 69,515 Finance lease debt 2,772 2,718 Long-term financial liabilities 52,434 72,233 Total financial liabilities 122,345 142,730
* Total financial liabilities attracting interest were £50.0m (2009: £70.0m). Interest is payable at floating interest rates which fluctuate and are dependent on LIBOR and base rate. The average weighted year end interest rate for these borrowings was 1.30% (2009: 1.22%). After taking into account the effect of the interest rate swaps, the average weighted year end interest rate for these borrowings was 2.98% (2009: 4.06%).
64 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
Total Total
£’000 £’000 6,016 6,299
(6,862) 70,219 75,461 69,401 52,354 (10,673) 151,161 121,727 140,488 128,589 276 296 debt debt lease lease 1,103 7,678 £’000 £’000 7,49 6 6,016 2,994 6,299 3,068
(4,428) (4,684) Finance Finance – – rate rate 926 loan loan 1,146 £’000 £’000 51,170 1,184 (2,434) (5,989) 69,515 74,358 75,504 52,096 49,662 Floating Floating TheRestaurant Group plc Annual Report 65 2010 – – – – – – other other £’000 £’000 67,979 67,979 67,979 68,997 68,997 68,997 payables payables Trade and Trade Trade and Trade excluding tax excluding excluding tax excluding
December 27 At 2009 After fiveyears Within one year Within one year The maturity profile of anticipated gross future cash flows, including interest, relating to the Group’s non-derivative financial non-derivative Group’s the to relating interest, including flows, cash future gross anticipated of profile maturity The liabilities, on an undiscounted basis, are set out below; 2 JanuaryAt 2011 On 19 DecemberOn 19 the 2007 Group entered a 5 year facility agreement which was utilised January for £120m from 17 2008. Interest is payable on the amount drawn down at LIBOR plus mandatory cost and margin, the bank’s which is dependent on the debt EBITDA The ratio. to Group overdraft has a £10m facility, which is repayable on demand, on which interest is payable at overdraft the bank’s rate. the Group committed of 2 January hasAt £70.0m borrowing 2011 facilities in excess gross of borrowings December (27 2009: £50.0m) undrawn of overdraft and £10.0m (27 December undrawn of 2009: overdraft). £10.0m Within two fiveyears to Less: Future interest payments 24 Financial instruments and derivatives continued The fixedfor therate durationof the threeyears 4.695%.was Effective January from 18 2008 the Group entered an into interest swap rate on for a notionalterminated amount was £25m of swap for three years.rate interest the February 2010 8 On 4.92%. was years three the of duration the for rate fixed The payment £1.0m. of Effective January from 16 2009 the Group entered an into interest swap rate for a notional amount £20m of for two years. The fixedfor therate durationof the years two 2.70%. was Effective January from 16 2009 the Group entered an into interest swap rate for a notional amount £20m of for three years. The fixedfor therate durationof the three the interestyears FebruaryOn 9 2.975%. swap terminatedwasrate was 2011 After fiveyears Less: Future interest payments rising £20m, of amount notional initial an for swap rate interest an into entered Group the January 2006, 16 from Effective £50mto April from 2006 18 January until 16 2008, when it reduced £30m to January until 16 2009, when it terminated. on payment £0.4m. of Within two fiveyears to Notes to the accounts continued
24 Financial instruments and derivatives continued Fair value of financial assets and liabilities At 2 January 2011, the Group had derivative financial instruments relating to interest rate swaps and these have been valued in accordance with IAS 39. The fair value measurement of these financial instruments is categorised as Level 1, being derived from quoted prices in active markets for identical liabilities.
The fair value of these instruments was £0.6m and this is accounted for as a liability in the consolidated balance sheet (2009: £2.2m liability). The movement in fair value, after taking into consideration the £1.0m cash paid on termination of one of the swaps, has been recorded as a non-trading item in the consolidated income statement.
All financial assets and liabilities, excluding the interest rate swaps, are accounted for at cost and the Directors consider the carrying value to approximate their fair value.
(b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial losses to the Group. Counterparties for cash and derivative balances are with large established financial institutions. The Group is exposed to credit related losses in the event of non-performance by the financial institutions but does not expect them to fail to meet their obligations.
As a retail business with trading receipts settled either by cash or credit and debit cards, there is very limited exposure from customer transactions. The Group is exposed to credit risk in respect of retrospective discounts receivable from suppliers but the Directors believe adequate provision has been made in respect of doubtful debts and there are no material amounts past due that have not been provided against.
The Group has an outstanding long-term receivable of £10.4m plus interest due from LV Finance Limited, a subsidiary of the Group’s associate company Living Ventures Restaurants Group Limited. This debt is secured on the assets of Living Ventures Restaurants Limited, but is subject to a prior ranking behind LV Finance Limited’s bank. In 2007, following a detailed review of the carrying value of the business including the loan note receivable, the Board made full provision against the loan note due (further details are provided in note 13).
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represent the Group’s maximum exposure to credit risk.
(c) Liquidity risk The Group has built an appropriate mechanism to manage liquidity risk of the short, medium and long-term funding and liquidity management requirements. Liquidity risk is managed through the maintenance of adequate cash reserves and bank facilities by monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group’s loan facilities, which mature in 2012 (as set out in note (a) above) ensure continuity of funding, provided the Group continues to meet its covenant requirements (as detailed in the report of the Directors on pages 18 to 25).
(d) Foreign currency risk As the Group operates primarily within the United Kingdom any transactional or translational exposure to changes in foreign exchange rate is limited. The Group operates three restaurants in Spain that are serviced by local Euro denominated debt. The Group is not materially exposed to changes in foreign currency rates and does not use foreign exchange forward contracts.
(e) Interest rate risk Exposure to interest rate movements has been controlled historically through the use of floating rate debt and interest rate swaps to achieve a balanced interest rate profile. The Group no longer has an interest rate swap, following the early repayment of the swap scheduled to terminate in 2012, as the reduction in the level of debt throughout 2010 combined with current market conditions results in a low level of exposure. The Group’s exposure will continue to be monitored and the use of interest rate swaps may be considered in the future.
66 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
276 276 845 2009 2009 2009 £’000 £’000 2,718 £’000 1,873 9,043 3,229 2,994 2,994 11,287 44,578 30,062
Receivable
907 296 296 lease payments 2010 2009 2010 £’000 £’000 £’000 2,772 1,865 3,068 3,068 44,904 13,251 Payable 166,751 348,197 559,852 Present value of minimum of value Present
276 2010 2009 1,103 7,678 £’000 £’000 2,994 6,299 3,399 (4,684) 11,124 28,682 43,205 TheRestaurant Group plc Annual Report 67 2010 Receivable Minimum 296 lease payments 2010 2010 £’000 £’000 1,184 7,496 6,016 3,068 47,719 (4,428) Payable 170,417 590,461 372,325
Payments due: The future total minimum rentals payable and receivable under operating leases over the remaining lives the of leases are: Analysed as: Amount due for settlement within one year Amount due for settlement after one year Present value lease of obligations Lease commitments are in respect property of leases where the initial term the of lease isin excess years 25 of and the conditions the of lease are in keeping with a finance lease. There are no finance leases whereGroup thethe Group of itself cost is the borrowing lessor. incremental the is payments the of value present the calculating in applied rate interest The in relation each to lease. The fair value the of lease (2009: payments is estimated £3.0m). as £3.1m Less: Future interest payments Present value lease of obligations Within two fiveyears to After fiveyears
Within one year Within one year 25 Lease commitments Future lease payments in respect finance of leases are due follows:as Authorised and contracted for: The Group has entered a number into property of leases on standard commercial terms, both as lesseeyear. prior andor lessor. current the in either arrangements, lease operating Group’s the by imposed restrictions no are There turnover. on based is payment rental the propertieswhere on payable amounts are rentals minimum the within Included guaranteed minimum the is above included amount the division, Concession Group’s the in primarily properties, these For rent as detailed in the concession agreement. Where there is no minimum guaranteed rent, the amount included is based on the estimated amount payable. 26 Capital commitments Within two fiveyears to After fiveyears Notes to the accounts continued
27 Contingent liabilities The Group has assigned a number of leases to third parties that were originally completed prior to 1 January 1996 and therefore unaffected by the Landlord and Tenant (Covenants) Act 1995 and also a number of leases completed after this date that were the subject of an Authorised Guarantee Agreement. Consequently, should the current tenant default, the landlord has a right of recourse to The Restaurant Group plc, or its subsidiaries, for future rental payments. As and when any liability arises, the Group will take whatever steps necessary to mitigate the costs.
28 Related party transactions Living Ventures Restaurants Group Limited is a related party to The Restaurant Group plc through the Group’s 38% holding. A loan note of £10.4m is due from LV Finance, a subsidiary of Living Ventures Restaurants Group Limited, which attracts interest at the rate of LIBOR. During the year ended 2 January 2011, £0.1m of interest was accrued of which the Group recognised £nil (2009: £0.2m of which the Group recognised £nil). Consequently, in addition to the £10.4m loan note outstanding at 2 January 2011, £1.2m interest had accrued, of which all was overdue under the terms of the agreement. Further details are provided in note 13.
Alan Jackson is a non-executive director of Charles Wells Limited, an independent brewing, pub and distribution company. During 2005, The Restaurant Group plc entered into a lease for a site owned by Charles Wells Limited and subsequently this site was converted into a Frankie & Benny’s restaurant. No premium was paid by the Group to Charles Wells Limited. The Group has entered into the lease with Charles Wells Limited, on an arm’s length basis, with an annual rent of £73,850 per annum. In addition, the Group purchased products with a value totalling £0.7m (2009: £0.9m) from Charles Wells Limited during the year, on an arm’s length basis. No balance was directly outstanding at the year end. Alan Jackson received no remuneration or compensation in respect of these transactions.
Remuneration in respect of key management personnel, defined as the Directors for this purpose, is disclosed in note 6. Further information concerning the Directors’ remuneration is provided in the Directors’ remuneration report on pages 29 to 35, of which pages 32 to 35 are audited.
68 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
TheRestaurant Group plc Annual Report 69 2010 audited has been properly prepared in accordance with the Companies Act 2006; and for Directors the Report of the in given information the are statements financial the which for year financial the company parent the with consistent is prepared financial statements. adequate accounting records have not been the kept by have audit our for adequate returns or company, parent not been received from branches not visited us; by or partof the and statements financial company parent the not are audited be reportto remuneration Directors’ the in agreement with the accounting records and returns; or specified remuneration Directors’ of certaindisclosures law by are not made; or have we not received all the information and explanations requirewe for our audit. the part of the Directors’ remuneration report to be be reportto remuneration Directors’ the part of the • • Mattersarerequiredwhich on we report to by exception have nothingWe report to in respect the of following matters you reportto to us requires 2006 Act Companies the where in ourif, opinion: • • • • Other matter financial Group the on separately reported have We week 53 the for plc Group Restaurant The of statements January 2011. 2 ended period TimothySteel (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Kingdom United London, 9 March 2011 Opinionother on matters prescribed the by CompaniesAct 2006 In our opinion:
give a true and fair view of the state of the Company’s Company’s the of state the of view fair and true a give affairs as at 2 January 2011; United with accordance in prepared properly been have and Practice; Accounting Accepted Generally Kingdom requirements the with accordance in prepared been have theof Companies Act 2006. Opinion on financial statements In our opinion the parent company financial statements: Scope of the audit of the financial statements amounts the about evidence obtaining involves audit An give to sufficient statements financial the in disclosures and free are statements financial the that assurance reasonable frommaterial misstatement, whether caused fraud by or error. accounting the whether of: assessment an includes This company’s parent the to appropriate are policies and applied consistently been have and circumstances significant reasonablenessof the disclosed; adequately the and directors; the by made estimates accounting statements. financial the of presentation overall • • • Respective responsibilities of Directors and auditor responsibilities Directors’ the in fully more explained As preparation the for responsible are Directors the statement, being for and statements financial company parent the of responsibility Our view. fair and true a give they that satisfied company parent the on opinion an express and audit to is financial statements in accordance with applicable law and Ireland).(UKThose and Auditing on Standards International Practices Auditing the with comply to us require standards EthicalBoard’s Standards for Auditors. This report is made solely to the Company’s members, members, Company’s the to solely made reportis This the of 16 Part of 3 Chapter with accordance in body, a as undertakenbeen has work audit Our 2006. Act Companies so that might we the Company’s members state to those report auditor’s an in them to state to required are we matters by permitted extent fullest the To purpose. other no for and anyone to responsibility assume or accept not do we law, as members Company’s the and Company the than other opinions the for or report, this for work, audit our for body, a have we formed. We have audited the parent company financial statements statements financial company parent the audited have We endedperiod week 53 the for plc Group Restaurant The of balance Company the comprise which January 2011 2 reporting financial (v). The (i) to notes related the and sheet is preparation their in applied been has that framework Standards Accounting Kingdom United and law applicable Practice). Accounting Accepted Generally Kingdom (United
to the members of The Restaurant Group plc Group The Restaurant members of the to Independent auditors’ report Independent auditors’ Company financial statements – under UK GAAP
Company balance sheet At At 2 January 27 December 2011 2009 Note £’000 £’000 Fixed assets Investments in subsidiary undertakings i 129,117 126,882 129,117 126,882 Current assets Debtors Amounts falling due within one year from Group undertakings 150,636 102,001 150,636 102,001 Creditors Amounts falling due within one year to Group undertakings ii (136,792) (121,553) Net current liabilities 13,844 (19,552) Total assets less current liabilities 142,961 107,3 3 0 Net assets 142,961 107,3 3 0 Capital and reserves Called up share capital v 56,101 55,568 Share premium account v 23,234 21,867 Other reserves v (6,302) ( 7,10 4 ) Profit and loss account v 69,928 36,999 Shareholders’ funds 142,961 107,3 3 0
The financial statements of The Restaurant Group plc (company registration number SC030343) on pages 70 to 71 were approved by the Board of Directors and authorised for issue on 9 March 2011 and were signed on its behalf by:
Alan Jackson Stephen Critoph ACA
Accounting policies and basis of preparation
Basis of accounting The accounts for the Company have been prepared under UK Generally Accepted Accounting Practice, whilst the Group accounts have been prepared under International Financial Reporting Standards. The Company accounts have been prepared under the historical cost convention in accordance with applicable UK accounting standards and on a going concern basis.
Investments Investments are valued at cost less any provision for impairment.
Dividends In accordance with FRS 21, “Events after the Balance Sheet Date”, dividends declared after the balance sheet date are not recognised as a liability at that balance sheet date, and are recognised in the financial statements when they have received approval by shareholders.
Share-based payment transactions The share options have been accounted for as an expense in the company in which the employees are employed, using a valuation based on the Stochastic simulation model.
In accordance with an available election in FRS 20, share-based payment awards granted before 7 November 2002 have not been subject to a charge. An increase in the investment held by the Company in the subsidiary in which the employees are employed, with a corresponding increase in equity, is recognised in the accounts of the Company. Information in respect of the Company’s share-based payment schemes is provided in note 21 to the consolidated financial statements.
The value is accounted for as a capital contribution in the relevant Group subsidiary that employs the staff members to whom awards of share options have been made.
70 The Restaurant Group plc Annual Report 2010 Introduction Business review Governance Financial statements
Total Total
£’000 £’000 1,900 2,235 1,422 100% 100% 100% 100% 100% 100% (1,433) 129,117
126,882 128,304 107,330 142,961 130,539 – – – at 2 January 2011 Proportion of voting Proportionvoting of 534 £’000 £’000 2,235 2,235 Loans rights and shares held 37,717 37,18 3 39,418 48,635 48,635 39,952 69,928 (15,706) (15,706) 36,999 and other Profit and Profit loss account loss
Holding – – – – 888 Other £’000 £’000 2,235 (1,433) (7,104) Shares (6,302) 90,587 89,699 89,699 90,587 reserves Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares Ordinary shares TheRestaurant Group plc Annual Report 71 2010
– – – – £’000 Share 1,367 21,867 23,234 premium – – – – 533 £’000 Share capital 56,101 55,568 At 2 January 2011 Dividends Details share of issues during the year are given the of consolidated in 21 note accounts and details the of dividends paid accounts. consolidated the of 10 note in given are year the during proposed and Profitfor theyear Issue shares of The Company’s operating subsidiaries, listed are held below, an by intermediateholding company (TRG (Holdings) Limited): Net book value at 2 January 2011 Net book value December at 27 2009 Employee share option schemes Employee benefit trust – purchaseof shares At 28 December 2009 City Centre Restaurants (UK) Limited Additions – share option scheme At 2 January 2011 Amounts written off At 28 December 2009 and 2 January 2011 Cost At 28 December 2009 i) Investment in subsidiary undertakings Chiquito Limited Chiquito Blubeckers Limited Blubeckers Brunning and Price Limited Limited Price and Brunning Frankie S.L. & Benny’s DPP Restaurants Limited Limited Restaurants DPP iii) Profit attributableto members of the holding Company As permitted section by 408 the of Companies Act 2006, a separate profit and loss account has not been presented All other subsidiary undertakings are wholly owned the by Company or one its of subsidiaries, and are dormant. ii) Creditors – amounts falling due within one year financial these in liability a as recorded not is 2010 of respect in dividend final proposed the 21, FRS with accordance In statements as it was declared after the balance sheet date and is subject approval to shareholders. by and Wales, and England in registered are subsidiaries operating principal Company’s the S.L., Benny’s & Frankie than Other Spain. in restaurants three operates and registered is S.L. Benny’s and Frankie Kingdom. United the in restaurants operate internal accrued and paid representing £48.6m, of profit a recorded Company the year the During Company. holding the for Remuneration December2009. 27 ended year the to related (2009: £17.9m income dividend which £nil) of preference accounts). consolidated the in 4 note subsidiary undertakingto a (refer by borne is auditors the of iv) Employee costs and numbers All costs employees of and Directors are borne a subsidiary by undertaking. the Company 2 JanuaryAt employed 2011 three persons (27 December 2009: three persons). v) Share capital and reserves Group financial record
2010 2009 2008 2007 2006 £’000 £’000 £’000 £’000 £’000 Revenue 465,704 435,743 416,530 366,710 314,748 Adjusted operating profit 58,556 53,360 54,231 48,207 39,187 Underlying interest (2,674) (3,331) (5,306) (3,978) (3,254) Share of post-tax result in associated undertaking – – – (749 ) (917) Adjusted profit before tax 55,882 50,029 48,925 43,480 35,016 Non-trading credits/(charges) 596 (1,695) (1,794) (660) (13,437) Profit on ordinary activities before tax 56,478 48,334 47,131 42,820 21,579 Tax (16,353) (11,062) (14,914) (13,644) (11,163 ) Profit on ordinary activities after tax 40,125 37, 272 32,217 29,176 10,416 Profit on sale of businesses net of tax – – – – 3,950 Profit for the year 40,125 37, 272 32,217 29,176 14,366
Basic earnings per share 20.16p 18.90p 16.38p 14.90p 7.26 p Adjusted earnings per share 19.95p 17.4 8 p 16.67p 14.64p 11.50p Proposed total dividend per share for the year 9.00p 8.00p 7.70 p 7.25p 6.00p Dividend cover (excluding non-trading items) 2.22 2.19 2.16 2.02 1.92
Employment of finance Property, plant and equipment 259,583 254,841 250,722 228,757 174,035 Other non-current assets 26,433 26,241 26,241 26,516 19,960 Net current liabilities (66,518) ( 68,124) (66,092) ( 67,524 ) (59,612) Long-term liabilities (55,694) (75,865) (91,054) (85,207) (52,932)
163,804 137,0 9 3 119,817 102,542 81,451
Financed by: Equity shareholders’ funds 144,713 115,932 93,606 77,15 4 65,204 Deferred tax 19,091 21,161 26,211 25,388 16,247
163,804 137,0 9 3 119,817 102,542 81,451
Net debt (46,924) (66,684) (78,884) (76,573) (47,482) Gearing 32.4% 57.5% 84.3% 99.2% 72.8% Interest cover before non-trading items (times) 21.9 16.0 10.2 12.1 12.0
72 The Restaurant Group plc Annual Report 2010 Contents Shareholder information
The Restaurant Group plc operates 389 restaurants and pub restaurants. Its principal trading brands are Frankie & Benny’s, Chiquito Directors Registrar and Garfunkel’s and it also operates a Pub Alan Jackson Equiniti Limited Non-executive Chairman Aspect House restaurant business as well a Concessions Spencer Road Andrew Page Lancing division which trades on over 50 sites, Chief Executive Officer West Sussex BN99 6DA principally at UK airports. Stephen Critoph Auditors Group Finance Director Deloitte LLP Hill House Trish Corzine 1 Little New Street Executive Director, Concessions London EC4A 3TR Introduction Financial highlights 01 Tony Hughes Solicitors At a glance 02 Non-executive Maclay, Murray & Spens LLP One London Wall Simon Cloke London EC2Y 5AB Non-executive Slaughter and May Company Secretary One Bunhill Row Robert Morgan London EC1Y 8YY Business review Registered office Brokers Chairman’s statement 04 Until 14 March 2011: JPMorgan Cazenove Chief Executive Officer’s review of operations 06 151 St Vincent Street 20 Moorgate Group Finance Director’s report 12 Glasgow G2 5NJ London EC2R 6DA
From 14 March 2011: Panmure Gordon 1 George Street Moorgate Hall Glasgow G2 1AL 155 Moorgate London EC2M 6XB Governance Head office Board of Directors 16 5-7 Marshalsea Road Financial calendar Report of the Directors 18 London SE1 1EP Annual General Meeting – 11 May 2011 Corporate responsibility 26 Directors’ remuneration report 29 Telephone number Proposed final dividend – 2010 Audit Committee report 36 020 3117 5001 Announcement – 9 March 2011 Ex-dividend – 18 May 2011 Company number Record date – 20 May 2011 SC030343 Payment date – 17 June 2011 Financial statements Independent auditors’ report 38 Accounting policies for the consolidated accounts 39 Consolidated income statement 43 Consolidated statement of comprehensive income 44 Consolidated statement of changes in equity 45 Consolidated balance sheet 46 Consolidated cash flow statement 47 Notes to the accounts 48 Independent auditors’ report – company accounts 69 Company financial statements – under UK GAAP 70 Group financial record 72 Shareholder information 73
The Restaurant Group plc Annual Report 2010 73 The Restaurant Group plc Annual Report 2010 Strong brands The Restaurant Group plc 5-7 Marshalsea Road London SE1 1EP Focused strategy Tel: 020 3117 5001 Annual Report 2010 www.trgplc.com
The paper used in this report is source from well-managed forests and is FSC accredited.
Printed in the UK using vegetable based inks which have lower VOC emissions (Volatile Organic Compounds), are derived from renewable sources and less hazardous than oil-based inks.
The printer is ISO 14001 accredited and Forest Stewardship Council (FSC) chain of custody certified. Under the framework of ISO 14001 a structured approach is taken by the company to measure, improve and audit their environmental status on an ongoing basis. FSC ensures there is an audited chain of custody from the tree in the well-managed forest through to the finished document in the printing factory.
If you have finished reading this report and no longer wish to retain it please pass it to interested readers, return it to The Restaurant Group plc or dispose of it in your recycled paper waste. Thank you.
Designed and produced by The College www.thecollege.uk.com