The Restaurant Group plc (TRG) operates over 480 restaurants and pub restaurants across the UK, and its principal trading brands are Frankie & Benny’s, Chiquito and Coast to Coast. It has just reported strong trading performance across all brands for the 26 weeks ended 28 June 2015 with good growth in turnover, profit and margins.
Douglas Jack of Numis commented:
“Despite a 12% increase in the interim dividend and c.45 new openings, we expect net debt to be unchanged over the full year. Our Buy recommendation reflects high and increasing returns, strong market positioning (away from high streets where the majority of market expansion is occurring) and a strong site pipeline.”
Danny Breithaupt, Chief Executive of The Restaurant Group plc commented as follows:
“The Restaurant Group has delivered another strong set of results, with good growth across all key performance measures and excellent progress on our strategy of increasing the pace of roll out in a more balanced way between our brands.
“These results reflect the hard work that has gone in to driving the continued evolution of the Group and I would like to record my thanks to our teams across the country for delivering another excellent performance.
“The strengthening UK economy, increasing wages and disposable incomes, combined with the secular trends driving ongoing expansion of the eating out market, give me great confidence that TRG is well set for continued strong growth this year and beyond.”
Highlights
- Total revenue increased 8% to £334m (2014: £308m)
- Like-for-like sales increased by 2.5%
- Operating profit margins increased by 10bps
- EBITDA increased by 8% to £57.4m (2014: £53.2m)
- Profit before tax increased by 10% to £36.9m (2014: £33.7m)
- EPS rose 12% to 14.3p (2014: 12.8p)
- Operating cash flow of £60.0m (2014: £55.9m)
- Interim dividend increased by 11.5% to 6.8p per share (2014: 6.1p)
- Accelerating new site development:
- 12 new sites opened in the first half
- A further 9 new sites opened so far in the second half
- 43-48 new sites expected for 2015
- Year to date like-for-like sales for the 34 weeks to 23 August 2015 up 2%
- Board is confident of another year of good progress in 2015
Statement from Alan Jackson, Chairman:
I am pleased to report that the Group has traded strongly during the first six months of the year with good growth in turnover, profits and margins. Total sales in the first half grew by 8.4%, like-for-like sales were 2.5% ahead of the prior year and Group profit before tax was up 10%.
For the 34 weeks to 23 August like-for-like sales are up 2%. We are pleased with performance over the last two months, set against a period of very strong trading during July and August last year.
During the first six months of the year we opened 12 new restaurants. In July and August we opened a further nine bringing the total number of new sites opened so far this year to 21. The programme for the balance of the year is very well advanced and we expect to open a total of between 43 and 48 restaurants for the year as a whole.
Trading results
During the first half of the year the Group made good progress on all the key metrics. Total revenue was up by 8.4% to £333.8m, EBITDA grew by 7.9% to £57.4m, operating profit rose by 9.3% to £38.1m and profit before tax increased by 9.6% to £36.9m. Earnings per share were up 11.7% to 14.3p, benefitting from a lower tax rate.
There is no doubt that trading conditions in the year so far have been tough but these results once again demonstrate the resilience of the Group’s business.
During the first half we made further progress on margins, with Group operating margin for the first half increasing by 10 basis points to 11.4%.
Since the autumn of 2014 we have seen higher levels of wage cost inflation and we have also increased investment in the Head Office structure to support our growth. However these cost pressures have been more than offset by the benefits of operational efficiencies and minimal food cost inflation, resulting in the margin expansion referred to above.
We note the recently announced Government plans to introduce the Living Wage from April 2016, effectively a new tier of National Minimum Wage for those aged 25 and over. Whilst this will clearly have some cost implications, we are actively taking steps to mitigate the impact with our continued focus on operational efficiencies.
Interim dividend
As a result of the strong financial performance the Board is declaring an interim dividend of 6.8p per share, an increase of 11.5% on the prior year. The interim dividend will be paid on 8 October 2015 to shareholders on the register on 11 September 2015 and shares will be marked ex dividend on 10 September 2015.
Frankie & Benny’s (251 units)
Frankie & Benny’s traded well during the first half delivering good growth in turnover and profits combined with some margin improvements. During the first half we opened four new Frankie & Benny’s restaurants, with a further two opening since the end of June. These new sites are all performing well and are set to deliver strong returns. We expect to open a total of 13 to 15 new Frankie & Benny’s restaurants in the full year.
Frankie and Benny’s has broad appeal, particularly among families. Service and value are important drivers within this market and we have worked hard in 2015 to ensure we remain ahead of the competition on these issues. The ‘Family Matters’ program, which represents a step change in service culture, launched across all sites at the beginning of the year. Both this and our Red Sauce Revolution menu implemented in August have been designed to deliver further long-term improvements in performance. We believe that both of these significant developments will ensure this brand is well positioned for growth both now and long into the future.
Chiquito (79 units)
The rejuvenation of the Chiquito brand, which started some two years ago, has continued apace. During H1 Chiquito recorded the strongest growth in both sales and profits of all our brands. We opened one new Chiquito during the first half, have opened three subsequently and expect to open a total of 8 to 10 in the full year. We are extremely pleased with the performance of recent openings, all of which are set to deliver strong returns.
Major recent areas of focus include the development of the breakfast, dessert and cocktail offerings, all of which are contributing to strong sales growth. We are confident that Chiquito will become an increasingly important part of TRG’s success going forward and that it will further strengthen its position as a market leader in its sector.
Coast to Coast (13 units)
Coast to Coast is now a well-established part of the TRG brand portfolio and has delivered a strong financial performance. Although we did not open any new Coast to Coast restaurants during the first half of the year, we have subsequently opened in three new locations. Two of these sites (Aberdeen and Northampton) sit alongside existing successful TRG units. The third new Coast to Coast opening is in Chester city centre.
We believe Coast to Coast has the diversity of appeal to operate in multiple location types, as evidenced by the successful Birmingham city centre opening last year. The strong performance of our openings gives us great confidence in the future of this brand and that Coast to Coast will become an increasingly significant part of The Restaurant Group’s success and diversification over time.
Pubs (53 units)
Our Pub restaurant business had an excellent first half with strong growth in turnover and profitability. In the first half we opened one new pub and we expect to open a total of 3 to 4 in the full year. We have a well-established model for our Pub business which is scalable and capable of delivering sustained high levels of return on investment. Over the last nine months we have deliberately strengthened the team in several areas to support the acceleration of new pub openings.
The Pub business has now reached the scale at which it helps with diversification, trading well through hot summer months and providing good balance to the TRG portfolio. This business will only get better going forward as we accelerate the pace of new openings over the next few years.
Concessions (60 units)
The Concessions business traded strongly during the first half with good growth in turnover, margins and profits. During the first half we opened five new units, including a very strong roster of three outlets in the re-developed Stansted departures lounge, and our first airside unit at Birmingham Airport. We expect to open at least two more units in the balance of the year, making a total of at least seven new openings for the full year.
This business continues to be a real success story for TRG. Our focus on concept development and customer service levels continues to generate levels of sales growth ahead of UK passenger growth numbers and excellent returns on investment. With a stronger economic outlook we expect to see travel hubs become busier in the coming years and we are well positioned to take advantage of this going forward.
Cash flow & balance sheet
Cash generation during the first half was once again extremely strong with net cash flow from operations of £60m. Free cash flow (after interest, tax and maintenance expenditure) of £44m represents an increase of over 20% on the comparable period last year. The strong conversion of operating profits into cash, combined with high returns on investment from new site openings, means that we can open an increasing number of new sites while at the same time continuing to increase the level of dividend payment each year. As will be noted from the cash flow of the Group over recent years, the increasing levels of new site openings and dividend have been entirely financed out of internally generated cash flow.
During the first, half total capital expenditure was £21.2m. This comprised £14.4m of development expenditure on new sites and £6.8m on maintenance and refurbishment investment. The total level of capex during the first half was somewhat lower than during the comparable period last year, primarily due to the slightly lower level of new openings. However, by the year end, we expect total capital expenditure to be higher than the prior year, in the range of £75m to £80m, reflecting an increase in the number of new restaurants we will have opened by the end of the year.
In June we finalised a five year extension of our £140m debt facility, so that we now have secure funding in place until June 2020.
Outlook
Danny Breithaupt has now completed his first full year as CEO of the Group. I am delighted with the progress that has been made under his leadership both financially and culturally within the business, as clearly evidenced by these results which represent an outperformance against our sector.
The Group benefits from operating in market segments with barriers to entry and excellent growth prospects which have proved to be resilient over many years. We have a strong portfolio of complementary brands and an impressive pipeline of new sites in terms of both quality and quantity. We also have a focussed senior management team which has been strengthened and reenergised over the last 12 months
All of these factors mean that the Group is now well positioned to deliver on the strategy of doubling in size with a more balanced portfolio over the next 8 to 10 years.
With continuing improvements in the UK economy, a strong pipeline of new sites and an exciting cinema release schedule, I am confident that the Group will continue to make excellent and profitable progress both in this year and future years.
Alan Jackson, Chairman, 28 August 2015
