The Restaurant Group plc has reported Final results for the 52 weeks ended 28 December 2014, with Douglas Jack of Numis commenting positively:
“We believe there is upgrade risk to our 2015E forecasts (PBT: £86.3m; consensus £88.2m), which anticipate 11% earnings growth, based on 3% LFL sales, 10bps margin growth and no change in debt. We expect RTN to be a beneficiary of rising consumer disposable income and a strong cinema film slate in both 2015E and 2016E.”
Highlights
- Revenues up 10% to £635m
- EBITDA £117m, up 8.5%
- Group operating profit £80.5m up 7%
- Profit before tax up 7.4% to £78.1m
- EPS up 7% to 30.0p per share
- Excellent cash flow generation with operating cash flow of £125m and free cash flow of £85.5m (up 11%)
- Proposed full year dividend increased to 15.4p per share, up 10%
- 40 new sites opened during the year
- 42- 50 new sites expected for 2015
- Over 1,300 new jobs created in 2014
- Strong start to the new financial year with total sales up 9.5% and like-for-like sales up 2.5% for the 8 weeks to 22 February 2015
Danny Breithaupt, Chief Executive said:
“TRG has delivered another strong set of results in 2014 with growth in turnover, profits and cash flow. We have continued the acceleration of our opening programme with 40 great new restaurants and pubs opened in the year, and a further increase expected in 2015.
“TRG is a people business and these results have only been achieved as a result of the hard work, skill and commitment of the whole team. I would like to record my thanks to all of our people for producing another great set of results and I am looking forward to leading them through the next exciting phase of TRG’s development.
“Looking forward, with our strong portfolio of brands and offerings, a great team of people and an improving UK economy, I am confident that TRG will continue to grow and prosper in 2015 and over the coming years.”
Alan Jackson, Chairman’s Statement
The Group has delivered another record set of results in the 2014 financial year with significant growth in revenues, profits and cash flow. These results have been achieved following more than a decade of consistent year on year growth in earnings, underscoring the strength of the Group’s business.
Like-for-like sales were 2.8% ahead of the previous year and I am very encouraged that this positive trend has continued into 2015. We again increased our openings programme during 2014 with a total of 40 new restaurants opened in the year. Since 2009 we have increased the number of new site openings every year, and we fully expect this trend to continue going forward. We have excellent visibility on our opening programme over the next few years.
During the year the Group passed a number of key milestones, with turnover exceeding £600m and the total number of restaurants in our portfolio increasing to over 470. The continued growth and success of the Group is the product of the hard work, experience and dedication of our Directors, senior management and staff. On behalf of the Board I would like to record our thanks and appreciation to all of our teams across the country.
As a result of the strong financial performance in the year, the Board is recommending a final dividend of 9.3p per share to give a total for the year of 15.4p, an increase of 10% on the prior year. This dividend is covered almost two times by earnings per share, in line with our stated dividend policy. Subject to shareholder approval at the Annual General Meeting to be held on 14 May 2015, the final dividend will be paid on 8 July 2015 and the shares will be marked ex-dividend on 18 June 2015.
Danny Breithaupt took over as Chief Executive of the Group on the 1 September 2014, following the retirement of Andrew Page. I am delighted to report that the transition has gone extremely smoothly and Danny has already clearly demonstrated that he is the right person to lead The Restaurant Group through the next stage of its evolution. During the year Sally Cowdry joined the Board as a non-executive Director and is making a valuable contribution to the work of the Board. Since the year-end we have announced that Debbie Hewitt will be joining the Board from 1 May as non-executive Director, further strengthening and broadening the skill base of the Board.
The new financial year has started well with total sales growth of 9.5% and like-for-like sales growth of 2.5% for the first eight weeks of the year. We have an outstanding business with market leading brands across a range of segments in the eating out market and an experienced management team with real strength and depth. With these core strengths and an improving UK economy, I am confident that TRG is well placed to continue making further profitable progress in 2015 and over the coming years.
TRG Review of operations:
Introduction
The Group is in robust shape with strong brands and an excellent management team. Our objective over the coming years is to build on the firm foundations that are in place. The Group’s strategy will continue to be focused on building like-for-like sales and the disciplined roll out of new sites. We intend to accelerate and broaden the expansion programme, as described in more detail later in this report.
TRG has an excellent track record of delivering consistent year on year growth in cash flows and profit, combined with high returns on investment, and this will continue to be our focus. Building on the solid growth that has been achieved over the past decade, TRG delivered another year of profitable progress in 2014 with growth in sales, profits and cash flow as described in more detail in the financial review.
Our people and our business
TRG is a people business. We employ more than 15,000 people throughout the UK and during 2014 more than 1,300 new team members joined the Group. Our people and the culture within the Company are crucial factors in the continuing success of TRG. We are therefore putting in place a number of initiatives to make further improvements in this area, such as our “Proud to be TRG” and recently announced “Family Matters” employee engagement initiatives.
Throughout the Group we aim to continually evolve and improve our offering in terms of food, service standards and facilities. Menus in all of our brands are reviewed on a regular basis to take account of evolving trends. We also aim to ensure that all of our menus have healthy options and to ensure we have something to match all of our customers’ requirements. As part of our ongoing health and safety assurance processes we regularly conduct testing of ingredients and facilities at our suppliers.
The Group has an active programme of supporting charities with which we are proud to be involved. During 2014 the key charities we supported were Leukaemia and Lymphoma Research, Children’s Hospital Association Scotland and Caudwell Children. During the year we raised over £500,000 for these and other charities. In 2015 we are partnering with Rays of Sunshine, a charity for children with life limiting illnesses.
Our brands
Frankie & Benny’s (247 units)
Frankie & Benny’s traded well during the year with growth in turnover and profit. During the year we introduced a number of menu initiatives, notably the introduction of a chicken section on the menu which has proved to be hugely successful. We also took further steps to strengthen the management team as the brand continues its rapid rate of growth. During the year we opened 19 new restaurants, reaching a total of almost 250, an increase of some 20% in the size of the estate in the last three years. As in previous years these are in a range of different locations including new developments, the extension of existing schemes and the conversion of units from other operators. Trading at our new openings has been strong and they are set to deliver excellent returns. We anticipate opening between 14 and 18 new Frankie & Benny’s in 2015. The strength of the Frankie & Benny’s brand, its breath of appeal, high levels of customer recognition and strong family appeal all contribute to a consistent track record of success. This gives us great confidence about the continuing success and further roll out of this brand.
Chiquito (80 units)
Chiquito had an excellent year with strong growth in turnover and profits. Several years ago we made some significant management changes in this brand. This has been supplemented in the last 18 months by an evolution of both the fit out and the menu. The strong improvement in financial performance is clear testament to the success of these initiatives and we are now confident in increasing the rate of openings in Chiquito. During 2014 we opened eight new restaurants (compared to four in the previous year). These are trading superbly and are set to deliver strong returns. In 2015 we expect to open between eight and ten new Chiquito restaurants. Most of our Chiquito restaurants are co-located with Frankie & Benny’s, either as part of a new development or as a new site on a scheme where we already successfully trade with the Frankie & Benny’s brand. We are excited about the prospects for Chiquito and are confident that this is a style of cuisine which is becoming more mainstream and familiar across the UK.
Coast to Coast (13 units)
Coast to Coast also had an excellent year financially with substantial increases in turnover and profit. Following its launch at the end of 2011 in Brighton, Coast to Coast is now a well established and successful part of the Group’s portfolio of brands. Most of our Coast to Coast restaurants are co-located with Frankie & Benny’s and in a number of cases both Frankie & Benny’s and Chiquito. It has a distinct market position and as a result we see negligible levels of cannibalization in such co-located situations. Our location strategy for Coast to Coast tends to be on leisure and retail schemes in larger markets. We are also confident that the brand can work well in some UK city centre locations, following the successful Birmingham Broad Street opening at the end of 2013. During the year we opened three Coast to Coast restaurants all of which are performing well and set to deliver strong returns. In 2015 we expect to open between seven and ten Coast to Coast restaurants. We are also delighted to have secured our first Coast to Coast restaurant in an airport environment as part of the major redevelopment at Stansted, which will open during the first half of the year.
Garfunkel’s (15 units)
Garfunkel’s is a good business generating significant cash flows and excellent returns on investment. As other parts of the Group continue to grow rapidly, Garfunkel’s is becoming a smaller proportion of the total. We do not have any specific roll out strategy for Garfunkel’s, but will consider new sites on an opportunistic basis.
Pub restaurants (52 units)
Our Pub restaurant business had a very strong year with substantial increases in turnover and profits. The Pub business is focused on delivering exceptional food and drink in attractive buildings and locations and as a result has won a number of national and regional awards including the 2015 Good Pub Guide, Best Town Pub of the Year awarded to the Old Harker’s Arms in Chester.
During the year we opened three new pubs, all of which are performing well and are set to deliver strong returns. In 2015 we expect to open between three and five new pubs. Our Pub business has the potential to grow over the medium-term to be a substantial business as a nationwide operator of high quality, food-led pubs.
Concessions (58 units)
Concessions had another really strong year with good growth in turnover and profits. We have a strong market position in most of the leading UK airports. During the year we opened seven new sites, including taking over all of the catering operations at Southampton Airport and opening the very successful Wondertree restaurant in the new Heathrow Terminal 2. We are delighted with the performance of our new openings this year all of which are set to deliver strong returns. In 2015 we expect to open between five and seven outlets in our Concessions business. This includes three outlets in the re-developed Stansted airport, including the first Coast to Coast in an airport, as described earlier.
TRG business model and strategy
Our core objective is to grow shareholder value by building a business capable of delivering long-term sustainable and growing cash flows. We do this by providing great food, drink and service in well-appointed restaurants and pubs. Within the eating out market we focus on sectors where there are some barriers to entry, good growth prospects and strong returns. Our growth model is primarily based on organic roll out of new sites. While most such sites are leasehold, we also acquire freehold premises where these give a satisfactory level of return. Although not a core part of our development plans, we remain open to evaluating acquisitions of existing businesses where there is a clear strategic rationale and where this would enhance shareholder value.
Our business model is to grow through a combination of like-for-like sales growth and new site development. The profits from this growth are converted into cash at a healthy rate, which we use to maintain our existing estate in good order, pay dividends and invest in more new sites generating high levels of return. This has proven to be a very successful and value-accretive business model which has enabled the Group to grow in a predominately organic way funded principally by internally generated cash flows. This model delivers high returns, growth and income for shareholders in the form of dividends.
Key to achieving all of this is that we continue to provide great service and food in our restaurants, and evolve our brands and offerings in line with changing consumer trends.
Future prospects
Since 2008, in line with most consumer-facing businesses, TRG has faced challenging trading conditions. As is well documented, real incomes have been in decline for most of this period but notwithstanding this TRG has continued to grow sales, profits and cash flows every year. We have also continued to roll out new sites at an accelerating rate, as well as investing in our existing portfolio. In the last two years we have had to contend with disappointing film release schedules and associated reductions in UK cinema admissions.
Looking forward, there are a number of external factors which should be much more positive for the business. In recent months, the UK has at last started to see an increase in real consumer incomes. In addition, both 2015 and 2016 have much stronger film release schedules than we have seen in the last two years and this is expected to generate growth in cinema admissions levels. Combined with an accelerating rate of new site openings, this augurs well for the future prospects of the Group. In order to capitalise on these improving trends we will continue to:
- stick to our areas of expertise
- focus on our customers by providing excellent value, choice and service
- maintain high standards of operational efficiency and execution
- add high quality new restaurants that meet our investment criteria
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