Final Results

The Restaurant Group plc

Final results for the 52 weeks ended 28 December 2014

· Acceleration of roll out

o 40 new sites opened during the year

o 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".

27 February 2015

Enquiries:

Notes:

1. The Restaurant Group plc ("TRG" "the Group") operates over 470 restaurants and pub restaurants in the UK. Its principal trading brands are Frankie & Benny's, Chiquito, Coast to Coast and Garfunkel's. The Group also operates Pub restaurants and a Concessions business which trades principally at UK airports.

2. Nothing in this announcement should be construed as a profit forecast.

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.

Alan Jackson

Chairman

27 February 2015

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

Financial review

Results

TRG performed strongly in 2014, despite another challenging year for the sector, as summarised in the table below:

Total revenue increased by 9.6%, reflecting 2.8% like-for-like sales growth and the impact of new site openings. Total EBITDA for the year was £117m, an increase of 8.5% on the prior year, and operating profit at £80.5m grew by 7.4%. Group operating margin for the year was 12.7%, a 20 basis points decline on the previous year. This was primarily driven by two factors: firstly by a high level of new openings at the end of the year and associated pre-opening costs, and secondly wage cost inflation during the second half of the year, partly driven by increases in the national minimum wage, but also tightening labour market conditions.

After interest costs Group profit before tax of £78.1m was up by 7.4% on the prior year. The average tax rate in the year was 23%, which was a little higher than the prior year average tax rate of 22.7% for the reasons described later in this report. This resulted in EPS of 29.96p, an increase of 6.9% on the prior year.

Cash flow

Cash generation was again strong with a healthy rate of profit conversion into cash. Operating cash flow increased by 7% to £125m (2013: £117m) Free cash flow (after interest, tax and maintenance capex) was £85.5m, an increase of 11% on the prior year. After development capex of £50.1m, dividends payable and other sundry items, the Group had net positive cash flow of just over £3m, resulting in year-end net debt of £39m. Set out below is a summary cash flow for the year:

Non-trading item

On 17 April 2014 the Group disposed of part of its interest in the Living Ventures Group. TRG received £7m of cash proceeds in respect of this disposal and the resulting profit on disposal of £6.9m, net of costs, is reported as a non-trading item. The net proceeds of the disposal were distributed by way of a special dividend of 3.45p per share on 9 July 2014. Following the disposal, TRG's only remaining interest in the Living Ventures Group is a £4m loan note which has been fully provided against.

Cost inflation

Food cost inflation continued to be subdued during 2014. This is due to a variety of factors including good global crop harvests in both 2013 and 2014, a significant strengthening in Sterling against the Euro over the last two years (roughly half of our food imports are sourced from the Eurozone) and further rationalisation of our supply chain to take out costs. We currently anticipate this benign environment on food cost inflation will continue during 2015.

The national minimum wage increased by 3% in October 2014, the highest increase we have seen for a number of years. This combined with some tightening in the labour market has resulted in stronger wage cost inflation than we have seen since before the onset of the financial crisis. As the UK economy continues to strengthen, we expect this trend to continue.

Our two other largest cost inputs are rent and utilities. We are seeing very modest increases in the levels of rental inflation reflecting a strengthening in the UK economy. In relation to utility costs our key electricity contracts are fixed until October 2016 and gas until March 2016. Although the current environment for wholesale energy costs remains benign, increases in tax, environmental and infrastructure levies mean that we continue to see mid-single digit inflation on our utility costs.

Capital expenditure

During the year the Group invested a total of £70.1m in capital expenditure compared to £76.6m in the prior year. This includes £20m maintenance and refurbishment expenditure and £50.1m of development expenditure. During the year we opened a total of 40 sites and these are typically generating levels of turnover and return ahead of feasibility. The table below summarises openings and closures during the year:

Financing and key financial ratios

The Group currently has a £140m five year credit facility in place which runs until October 2016. There are two covenants under this facility which are summarised in the table below, together with other key financial ratios:

As can be seen, the Group has substantial headroom against both banking covenants and continues to be in a strong financial position. This enables us to continue to increase the acceleration of our opening programme over the coming years whilst at the same time investing and maintaining the existing estate.

Tax

The total tax charge for the year was £17.9m analysed as follows:

The effective tax rate for the year was 23%, compared to 22.7% in the prior year. In 2013 we benefitted from a one off credit of £2.1m, arising from the revaluation of our deferred tax liability at the then newly enacted eventual corporation tax rate of 20%. Without that credit the average tax rate in 2013 would have been 25.6%. We expect to see the tax rate fall again in 2015 in line with the implementation of the final reduction in the headline rate of corporation tax to 20%. As noted in previous reports, the Group's effective tax rate will continue to be higher than the headline UK tax rate primarily due to our capital expenditure programme and the significant levels of disallowable capital expenditure therein.

There is no comprehensive income other than the profit for the year in the year ended 28 December 2014 or the year ended 29 December 2013.

1 Segmental analysis

The Group trades in one business segment (that of operating restaurants) and one geographical segment (being the United Kingdom). The Group's brands meet the aggregation criteria set out in paragraph 22 of IFRS 8 "Operating Segments" and as such the Group report the business as one reportable segment.

4 Non-trading item

On 17 April 2014 The Restaurant Group disposed of part of its interest in The Living Ventures group following the sale of the Gusto business.

The Group received £7m of cash proceeds in respect of this disposal and the resulting profit on disposal of £6.9m, net of costs, is reported as a non-trading item in the 52 weeks ended 28 December 2014. The net proceeds of the disposal were distributed by way of a special dividend of 3.45 pence per share on 9 July 2014. Following the disposal, TRG's only remaining interest in the residual business is a £4m loan note which has been fully provided against as a result of a detailed review of the trading performance of the business.

The Finance Act 2012 introduced a reduction in the main rate of corporation tax from April 2014 from 23% to 21% resulting in a blended rate of 21.5% being used to calculate the tax liability for the 52 weeks ended 28 December 2014.

A further rate reduction to 20% from April 2015 was substantively enacted on 2 July 2013, therefore the deferred tax provision at the balance sheet date has been calculated at 20%.

The additional non-statutory earnings per share information for 2014 (where non-trading items, described in note 4, have been added back) has been provided as the Directors believe it provides 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.

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 14 May 2015 and is not recognised as a liability in these financial statements. The proposed final dividend payable reflects the number of shares in issue on 28 December 2014, adjusted for the 1.6m shares owned by the employee benefit trust for which dividends have been waived.

10 Reconciliation of changes in cash to the movement in net debt

11 Basis of preparation

The Group's preliminary announcement and statutory accounts in respect of 2014 have been prepared on a going concern basis. The financial information set out above does not constitute the Group's statutory accounts for the years ended 28 December 2014 or 29 December 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting. The 2014 statutory accounts are prepared on the basis of the accounting policies stated in the 2013 statutory accounts. The auditor has reported on those accounts; their reports were unqualified and unmodified and did not contain statements under s498 (2) or (3) of the Companies Act 2006.