Preliminary Results

9th Oct 2007 07:01

Regent Inns PLC09 October 2007 Tuesday 9 October 2007 PRESS RELEASE Regent Inns PLC Financial results for the 52 weeks ended 30 June 2007 Regent Inns plc ("Regent" or "the Group"), the operator of Entertainment Barsand branded Restaurants in the UK, today announces its results for the 52 weeksended 30 June 2007. During the year under review, and in line with its strategyto broaden its earnings base, the Group acquired 31 themed Old Orleansrestaurants. Regent's core brands in Entertainment Bars are Walkabout,Jongleurs, and Bar Risa. Financial highlights: Continuing operations • Turnover of £148.9m increased by 16.7% (2006: £127.6m), including 41 weeks' contribution from the acquired Old Orleans business • Like-for-like sales down by 2.8%, reflecting the impact of the 2006 FIFA World Cup, a difficult trading environment in April and May, and the five month period to the anniversary of licensing deregulation • EBITDA before exceptional items £24.1m (2006: £24.5m) • Profit before tax £6.1m, up 23.5% (2006: £5.0m) • Profit before tax excluding exceptionals £8.3m (2006: £10.6m) • Earnings per share 6.0p, up 67% (2006: 3.6p) • Earnings per share excluding exceptionals 7.5p (2006: 7.7p) • Exceptionals £2.2m (2006: £5.6m) mainly relating to integration costs for Old Orleans and corporate restructuring costs. Total Company • Operating cash flow £24.4m, up 5.8% (2006: £23.1m) • Net debt increased by £17.9m to £74.9m reflecting the £27.4m acquisition of Old Orleans for debt • The Board is not recommending a dividend (2006: nil) as the Group remains focused on managing its debt and on the planned investment in Old Orleans. Corporate progress: • The acquisition of Old Orleans marked an important strategic development, establishing a presence in the attractive eating-out market and broadening the Group's earnings base • An extensive Restaurant refurbishment programme started towards the end of the period - a third of the estate is now refurbished • Thurrock Old Orleans re-opened after a major investment just before year-end; refurbishments completed at a further nine Old Orleans venues; the Old Orleans brand has significant roll out potential • Continuing investment in Entertainment Bars is designed to maintain Walkabout as the leading venue for sport and music, and Jongleurs as the country's leading comedy venues • £1m invested in preparations for the smoking ban which came into effect on 1 July 2007 ensuring the provision of attractive outdoor trading areas for all customers and good facilities for smokers. Current trading and prospects • LFL sales in the 14 weeks to 6 October 2007 were down by 1.0%. LFL Food sales have enjoyed an increase of 8.5%, and venues with outside areas have performed more strongly, up 2.1% on last year • The Group plans to refurbish another 10 Old Orleans venues before the financial year end, investing £4m-£5m in total on Old Orleans refurbishments in the year. The Board is confident these investments will deliver good growth in an attractive market segment • Corporate activity remains a priority and the Board is confident that the business is well placed to deliver value through consolidation. Commenting on the results, Bob Ivell, Executive Chairman of Regent Inns, said: "Our businesses have generally coped well with difficult trading conditions inthe important summer months, especially given the high benchmarks set by lastyear's FIFA World Cup. "Most importantly, the Board is pleased to have acquired Old Orleans and with ita branded Restaurant group with excellent growth prospects. This businessprovides a good platform on which we can now build. We are also very pleasedwith the customer response to the refurbishments and re-openings to date. "We are naturally cautious about the outlook and environment for consumerspending, but Regent's strong brands are well placed for underlying futuregrowth and we continue to invest in achieving that." - Ends - Enquiries: Regent Inns plc 020 8327 2540Bob Ivell, Executive ChairmanJohn Leslie, Chief Financial Officer Merlin 020 7653 6620Paul Downes 07900 244 888Anja Kharlamova 07887 884 788 (Photography: High resolution images are available for the media to view anddownload free of charge from www.vismedia.co.uk) Attached: Chairman's Statement Financial Review Group P&L, Balance Sheet, Cash Flow Statement Reconciliation of movement in shareholders' funds Notes to the Accounts Chairman's Statement I am pleased to report the results for the 52 weeks ended 30 June 2007. Duringthe period we acquired a portfolio of 31 themed Old Orleans and Quincey'srestaurants, thereby establishing a presence in the attractive eating-outmarket. We believe that this significantly enhances the Group's growth prospectsand broadens the future earnings base. At the same time, our Entertainment Barsbusiness, which operates in a more challenging environment, continued to deliverrobust cash flow for the Group. We have succeeded in utilising the cash flows generated by Entertainment Bars toinvest in food-orientated brands. We identified Old Orleans as anunder-performing brand with the potential for recovery. A major element of ourstrategy is to drive growth in this business through investment, initially inimproving the performance of existing venues and then expansion of the estate.Our investment programme in the existing estate commenced, albeit slightly laterthan originally anticipated due to delayed lease assignments, towards the end ofthe reporting period and we are encouraged by the initial results of thisprogramme. Results Continuing operations Sales from continuing operations for the 52 weeks ended 30 June 2006 increasedby 16.7% to £148.9m (2006: £127.6m) and included 41 weeks' contribution from theacquired Old Orleans business. Restaurants contributed £24.6m of sales duringthe year (2006: £nil). Like-for-like sales were 2.8% below last year. Like-for-like sales is a trueuninvested measure comprising units trading for the whole of both the currentand comparative reporting periods, and therefore excludes Restaurant sales.Like-for-like sales are based on 94.6% of total Entertainment Bars' sales. Theoverall like-for-like sales performance is the combination of three distinctlydifferent periods. The first was a 21 week period to the end of November 2006(the anniversary of licensing deregulation) during which sales declined by 5.4%.This was followed by a period of growth of 1.8% for the 27 weeks to thebeginning of June 2007; however, this included the more difficult tradingenvironment in April and May that was below our expectations. Thirdly, asanticipated, the last four weeks of the year, saw a sharp decline in salesagainst the strong comparatives of the 2006 FIFA World Cup. Operating profit from continuing operations was £11.5m (2006: £9.0m). Afteradding back 'exceptionals' (exceptional items, brand amortisation and loss onsale of property, plant and equipment), operating profit was £13.6m (2006:£14.6m). Profit before tax was £6.1m (2006: £5.0m). Basic earnings per share from continuing operations was 6.0p (2006: 3.6p) andexcluding exceptionals was 7.5p (2006: 7.7p). Exceptionals in the period were £2.2m (2006: £5.6m) comprising exceptional itemsfor costs incurred integrating Old Orleans into the Group's normaladministration systems and organisation structure of £1.2m and the cost ofrestructuring the Group's pre-existing brands and related property interests sothat they are also held in separate trading subsidiaries of £0.5m, and lossesfrom property sales of £0.2m (2006: £0.0m), and Old Orleans brand amortisationof £0.2m (2006: £nil). Discontinued operations The post-tax loss from discontinued operations was £1.9m (2006: £2.4m) andprimarily comprised an impairment provision and an increase in onerous leaseprovisions. On-going trading losses of £0.1m and losses on disposals of £0.2mwere both half of last year's levels. During the course of the year five properties, which had previously been eitherassigned or sub-let, reverted to the Group due to tenant's failures to meettheir rental obligations. Provisions have been made for our future obligationsin respect of these properties - including a charge in respect of one propertythat reverted as a consequence of the London & Edinburgh administrativereceivership. However, good progress has been made subsequent to the year endwith deals completed on four properties to either dispose outright, assign orsub-let our interests. Cash Flow and Financing Cash flow from operating activities was £24.4m in the year (2006: £23.1m). Netdebt at the year end was £74.9m, an increase of £17.9m on last year. Old OrleansLimited and Brandasia Limited were acquired during the year entirely with debt,at a total cost of £28.0m. A more comprehensive analysis of the Group's cashflow is provided in the Finance Review. Dividend The Board is not recommending a dividend (2006: nil pence per share), due inpart to the planned investment in Old Orleans and future returns available frominvestment in the Group's assets in general. We remain focused on managing ourdebt and making further acquisitions, where appropriate. Operational Review The most significant event during the year was the acquisition and integrationof Old Orleans themed restaurants. This transaction completed on 17 September2006 at a total acquisition cost of £27.4m, which was funded from debt.Transition onto our systems was completed by the end of January 2007, a new menuwas launched in March 2007 and an extensive refurbishment programme startedtowards the end of the period. Entertainment Bars continued to deliver significant revenues and operatingprofits, although comparisons with last year, as referred to in the resultssection, varied significantly during the period. Entertainment Bars Our Entertainment Bars have two distinct trading periods during the daypotentially appealing to different customers; the more relaxed food-focuseddaytime business, and the high energy late-night business of which entertainmentis a key element. In Walkabout, we have sought to more clearly differentiateeach period through distinct marketing approaches - 'Sun-up' and 'Sun-down'. A number of daytime initiatives saw food sales increase by 11.4% on last year: • Great value food offers in Walkabout and a revised menu and presentation in Jongleurs; • Opening certain venues for breakfasts and investing in premium coffee machines and promoting coffee offers; • Introducing assisted table service; • Increasing the number of covers; • Some TV screens featuring music videos for significant periods; • Wifi internet access trials; • Training, resulting in an improvement of more than 5% in service levels as monitored by our 'mystery visit' scores. Our late-night business has been more challenging. Door income, which is a keymeasurement of our success in the late-night business, was 1.2% below last yearand drink sales were down by 5.7%. Consistent with other late-night operators,the reduction in sales reflects increased competition following licensingderegulation and a pattern of customers going out later on the high street andconsequently spending less on liquor. We continue to strive to counter thesetrends by focusing on all elements of our entertainment offering to attractcustomers. In Walkabout, entertainment focuses on both sport and music. The sportingcalendar during the period to June 2007 did not feature any major world cuptournaments, with the exception of the Cricket World Cup which did not generatea great deal of enthusiasm within the UK. The benefit from the Ashes series inAustralia was also less than expected. However, overall interest in thePremiership and sport in general continues to grow. Investment in plasma screensin many venues coupled with the ability to show more than one sport at any timecontinues to keep Walkabout as the recognised number one venue for all sportsfixtures. Walkabout is very often the only place in town able to follow all ofthe major sporting events concurrently, and offers a great atmosphere with largeprojector screens. We are reinvesting substantial sums in new projection systemsand screens at our premier venues to stay ahead of the game and keep Walkaboutas the number one venue for sport. Traditional rock bands have replaced R&B and dance music as the dominant genrein the music charts and this trend has led to a resurgence in interest inguitar-based live music which has always been a core part of the Walkaboutapproach. Now in its second year, the JD Soundcheck, 'battle of the bands'competition has reinforced Walkabout's credentials as the home of live music. At Jongleurs, our comedy shows continue to be highly rated and we achievedparticular success with a new 'all inclusive' format at Christmas, both in termsof sales value and customer feedback scores, which has given us the confidenceto increase the number shows on offer for Christmas 2007 by 27%. In both Walkabout and Jongleurs, we are trialling fast-pour super-chilleddraught beer and have achieved industry leading speeds of dispense. We believethis will benefit sales and labour productivity given that both trading formatscan require large volumes to be served in a short time period, particularlyduring show intervals or immediately before and at half time for major sportingevents. In last year's report, I emphasised our determination to maintain operationalstandards during difficult trading periods. We have not waivered from thisbelief as evidenced by the recognition received from a number of industry awardsincluding: • Winner of the Responsible Retailing Award 2006 • Winner - 2006 Smirnoff Shine Award for the country's most responsible venue (Bournemouth Walkabout) • Winner - Best Bar None Awards (12 venues) • Finalist - Publican Awards 2007, Managed Pub Company of the Year (100+ outlets) We are not complacent in our approach and continue to implement new ways ofenhancing customer safety as well as protecting our licences. In particular, wecontinue to invest in training to ensure staff are able to properly deal withthe operational issues surrounding under-age drinking, and we have invested inID scan technology to strengthen the checking mechanisms for door security atcertain venues. We work closely with the police and other agencies to ensurethat we are continually implementing best practice and we have voluntarilyintroduced polycarbonate glasses at certain sites and at certain times of theday where glass poses an unacceptable risk. Responsible retailing remains at thetop of our agenda. Restaurants On completing the acquisition of Old Orleans Limited, our priorities were: • to exit the transitional services arrangements as quickly as possible; • to secure the supply of new menu products and food distribution to facilitate the launch of a new menu; • to invest capital into a neglected estate that had seen minimal investment for several years. We succeeded in exiting the transitional services arrangements two months aheadof the contractual deadline. By the end of January 2007 we had moved all unitson to our own systems and support infrastructure allowing us to control allaspects of operational performance. All accounting and other support functions,with the exception of food purchasing, were successfully transferred to our headoffice within the same deadline and we were able, therefore, to control mostaspects of operational performance. New food products and supply and distribution agreements were put in place atthe beginning of March 2007 enabling us to launch a new menu which was afundamental step towards rejuvenating the brand by taking it back to itsauthentic, southern American roots. A wider drinks range, including somesouthern American beers and more emphasis on cocktails, was also introduced. Our capital investment plans were delayed due to the slow process of leaseassignments. By January 2007, many landlords had agreed in principle to assignthe leases to Regent; however, completing the process took significantly longerthan we had expected. We adopted a cautious approach in not commencinginvestment until the lease assignment had been completed and our refurbishmentapproved by landlords. I am now pleased to report that we have receivedlandlords' approval to assign all but three of the leases; of these, two areagreed in principle. The most significant investment was the refurbishment of the paddle steamer atLakeside shopping centre, Thurrock. This venue closed for redevelopment on 25March 2007 and re-opened on 14 June 2007. This refurbishment represents ourtemplate for the future design, ambiance, product offer, menu and service. Italso includes new technology to support the management of service standards andsignificantly improve service times. The refurbishment incorporated increasedcapacity and smoking provision by creating a 'top deck' on the roof area. We arepleased with the venue's performance in the 15 full weeks from reopening to theend of September 2007 with sales 56.8% above the same weeks last year. On 10 February 2007 one of the other key sites in the estate, Epping, suffered aserious fire, resulting in its closure for the rest of the financial year.Although we are covered by insurance for property reinstatement and loss ofprofits, an early reopening was rendered impossible due to the scale of therebuild task. This site re-opened to the public on 7 September, againrepresenting our vision of the future In the three full weeks of trade sincereopening, sales are up by 58.6% on the same weeks last year. Thurrock and Epping have benefited from a significantly higher level ofinvestment than is appropriate for the remainder of the estate due to thespecial circumstances at these units but their success has confirmed that ourtemplate is sound. At the remaining venues, our investment will be focused onfront of house effects, kitchen equipment replacement, the order/kitchenmanagement system and essential dilapidation works. The average spend per siteis expected to be approximately £250k. In addition to Thurrock and Epping, the following sites have recently reopenedfollowing investment: Derby 14 August 2007Watford 16 August 2007Ipswich 21 August 2007Cheshire Oaks 4 September 2007Enfield 11 September 2007Sheffield 18 September 2007Coventry 25 September 2007Oxford 4 October 2007 These projects have suffered much less disruption in terms of loss of trade withclosure periods of typically 10 days to three weeks We are encouraged by thesales improvements being achieved at these venues. One third of the estate is now refurbished, and we plan to complete a furtherthird during the balance of the period to June 2008. We have recently appointed an Acquisitions Manager to seek new sites for afuture rollout. This will enable us to drive further value from the brand and tocomplete the final phase of the recovery plan we set out at acquisition. During the year we acquired the share capital in Brandasia Limited, and with it,exclusive rights for the Asha's brand in the UK and Republic of Ireland. Wecurrently trade under this brand from one restaurant in Birmingham. Financialreturns do not justify further roll out of this brand as yet. Preparations for the Smoking Ban A major focus during the year was our preparations for the smoking ban, whichcame into effect in Wales on 1 April 2007 and in England on 1 July 2007. Thesmoking ban had already taken effect in Scotland in March 2006. We have invested in excess of £1m across the estate to substantially improve theattractiveness of our outdoor trading areas for all customers and to providegood facilities for smokers. Over 35% of our units have external licensedtrading areas all of which have been upgraded, typically with fixed or canopystyle shelters, plasma screens, heaters, lighting and new furniture. Wherepossible, these facilities have been designed to feel like an extension of theinterior, through imaginative decor and furnishings. Board Changes Alan Jackson stepped down as Non-Executive Director in September 2006, in orderto avoid any possible conflict of interest following the Group's acquisition ofOld Orleans. His position as Senior Independent Director and Chairman of theRemuneration and Appointments Committee has been filled by Jim Glover, who hasserved as Non-Executive Director since April 2005. On 26 June 2007, Tanith Dodge was appointed as Non-Executive Director. Tanith isGroup Human Resources Director of WH Smith Plc and has previously held senior HRpositions at InterContinental Hotels Group, Diageo Plc and Allied Domecq. Herwealth of experience in HR, and, in particular, the management of change in anorganisation will be invaluable to the Group. I would like to take this opportunity to thank all our Non-Executive Directorsfor their valuable contributions throughout the year, and in particular inhelping me to steer the Group through a period of considerable change againstthe backdrop of a challenging marketplace. With regard to Executive Board members, Russell Scott joined the Group asManaging Director - Operations on 1 September 2006, replacing David Turner whostepped down from his position on the Board as Operations Director on 1 November2006. People Well-trained and highly motivated management and front-line teams are criticalto achieving success in a customer-focused hospitality business. Investment inour staff, therefore, is a cornerstone of our strategy. As an example of ourcommitment in this area, roll-out of our "El-box" computer-based training systemhas proved a valuable tool, and during the year 15,000 training modules werecompleted, covering subjects as varied as customer service and cellarmanagement. Integration of Old Orleans represented a major task for our head office teamsand one which was met with commitment and dedication. As a result, we were ableto exit transitional services two months ahead of schedule and I am grateful toall those involved for their part in the success of this exercise. Differences in interpretation of licensing rules and restrictions between localauthorities, together with a turbulent high street trading environmentthroughout the year, have meant that maintaining our responsible retailingpolicies has been more challenging than ever. Nevertheless, our success in thisarea, as recognised by numerous awards, could only be achieved by theprofessionalism and hard work of our front-line staff and management. I offer mythanks to all of them. Current trading, plans and prospects The venue business normally benefits during summer months from its outsideareas, however, the beginning of the new financial year has coincided with anumber of challenges. 1 July 2007 saw the smoking ban extended to England, wherewe have the majority of our venues, and the subsequent period was the wettestsummer on record. As a result, the investment in outside areas, (as referred toin the 'Preparations for the Smoking Ban' section of this statement) has notderived as much benefit as might have been the case, particularly from earlyevening trade. Furthermore, this year's sales performance is measured againststrong comparable figures which included the benefits of the hot summer of 2006and the final stages of the FIFA World Cup. In our favour, we have had somebenefit from the early stages of the Rugby World Cup, albeit interest in theGroup stages was somewhat limited. Like-for-like sales in the 14 weeks to 6 October 2007 were down by 1.0%, withJongleurs venues enjoying a marginally better performance than the Walkaboutestate. We have continued to see significant growth in food sales since the yearend, with like-for-likes up 8.5% and, as expected, venues with outside areashave performed more strongly, up 2.1% on last year. We remain cautious, however,in our outlook for Entertainment Bars for the remainder of the 2008 financialyear. There is an increasing likelihood of a slow down in consumer spending dueto interest rate pressures with many retailers predicting a difficult Christmas,the full impact of the smoking ban is unlikely to be apparent until after thewinter and England's qualification for Euro 2008 is not yet assured. As thesespecial factors become clearer, we will adapt our plans accordingly. The focus of our activity in Old Orleans is the refurbishment programme. We nowhave 10 completed and plan to complete at least the same again before the end ofthe 2008 financial year, investing between £4m and £5m in total. We areconfident that this investment, together with the significant improvements tothe menu already undertaken, planned marketing and promotional activity andstaff retraining, will deliver good growth in an attractive market segment. Corporate activity remains a priority for the Board, and we are confident thatthe business is well placed to deliver value through consolidation. Bob Ivell Executive Chairman Finance Review Basis of presentation The reported statutory results cover the 52 weeks to 30 June 2007 and comparatives for the 52 weeks to 1 July 2006. Accounting policies and standards The principal accounting policies of the Group are set out in note 1 to theaccompanying financial statements and a description of certain key measures andpolicies are included in the review of the trading results below. The financialstatements have been prepared in accordance with International FinancialReporting Standards. Overview of performance 2007 2006 Change £m £mTotal sales - continuing 148.9 127.6 +16.7%Like for like sales - continuing 117.6 121.0 -2.8%Operating profit - continuing 11.5 9.0 +28.3%Underlying* operating profit 13.6 14.6 -6.2%Net interest charges (5.3) (4.0) +34.3%Underlying* profit before tax 8.3 10.6 -21.4%Exceptionals** (2.2) (5.6) -61.4%Profit before tax - continuing 6.1 5.0 +23.5%Loss from discontinued operations before tax (2.0) (2.7) -25.2%Profit before tax 4.1 2.3 +82.5% * Where the table makes reference to 'underlying' profit, this refers to profitexcluding exceptional items and discontinued operations. ** Exceptionals includes exceptional items, brand amortisation and loss on saleof property, plant and equipment. Like-for-like sales are sales in those venues which traded throughout both thewhole of the current and comparative financial periods, and which did notreceive the benefit of any significant capital investment during either period.It is therefore an uninvested measure and excludes the entire Old Orleans andBrandasia businesses acquired during the year. Total sales increased year-on-year due to the acquisition of 31 Old Orleansrestaurants and Asha's indian restaurant (Brandasia) during the currentfinancial period. There was one disposal - Bar Risa Jongleurs Manchester. In thecomparative period, one venue was opened - Walkabout Putney, and one disposal -Stonehouse, Hampton Hill, Twickenham. Like for Like sales - continuing comprises all but five of the venues that wereopen at the beginning of the financial period: Bar Risa Jongleurs Manchester andWalkabout Putney as referred to above, Walkabout Wigan which was refurbished inSeptember 2005, Walkabout Bournemouth which suffered significant licensingrestrictions during the comparative period, and Bar Risa Jongleurs Leicesterwhich was converted to Walkabout Jongleurs in September 2006. The 2.8% reductionin like-for-like sales was significantly impacted by the FIFA World Cup whichran for the last 4 weeks of the comparative period. Excluding the last 4 weeksof the reporting period results in like-for-like sales at 1.4% below last year. Underlying operating profit at £13.6m was 6.2% below last year due partly to thedecline in like-for-like sales of 2.8%, increases in regulatory costsparticularly relating to minimum wage and door security, significant increasesin utility costs, and losses incurred by the acquired Old Orleans business. Net Interest charges were £1.4m higher at £5.3m and included a £0.4m credit(2006: £0.9m credit) from the reduction in the fair value liability of swapsthat had not qualified for hedge accounting on implementation of IAS 32. Theseswaps expired shortly after the period end and therefore this benefit nowceases. The underlying increase in interest of £0.9m was primarily attributableto the acquisition of Old Orleans Limited for £27.4m including costs, inSeptember 2006, which was entirely debt funded. After taking account of interest, underlying pre-tax profit fell by 21.4% to£8.3m. Exceptionals of £2.2m (2006: £5.6m) were incurred during the period. Thesecomprised: - costs of £1.2m incurred in connection with the integration of the acquired OldOrleans business in to the Group's normal administrative processes andorganisational structure. - costs of £0.6m incurred in connection with a corporate restructuring of thebusiness so that the Group's brands and related property interests are held inseparate trading subsidiaries consistent with the acquired Old Orleans and Ashasbusinesses. - loss on sale of Bar Risa Jongleurs Manchester £0.2m - amortisation of the Old Orleans brand £0.2m The £5.6m of exceptional items incurred in 2006 comprised an impairmentprovision of £5.0m, aborted corporate consolidation activity £0.4m, and therelocation of the corporate head office £0.2m. The associated tax credit on the exceptional items in the period was £0.5m(2006: £1.0m). Pre-tax losses from Discontinued operations of £2.0m were £0.7m less than lastyear. Trading losses from these venues were £0.1m (2006: £0.3m) and losses onproperty disposals were £0.2m (2006: £0.4m). The most significant element of theloss relates to adjustments to onerous lease and impairment provisions £1.7m(2006: £2.0m). The provision for the current period includes £0.9m in respect ofa property that reverted under guarantee as a result of the London & Edinburghadministrative receivership with the balance of £0.8m primarily relating toproperties previously sub-let but where tenants have failed to fulfil theirrental obligations, and increases as a result of the Government's decision todiscontinue 50% relief for general rates on empty properties. Profit before tax of £4.1m was £1.9m better than last year due to reducedexceptional charges, down £3.7m, and reduced losses from discontinuedoperations, down £0.7m. Segmental performance During the year, Old Orleans Limited and Brandasia Limited were acquired. Bothof these businesses are food-led operations whereas the Group's other operationsare liquor and entertainment-led. Accordingly, the Group's results have beensegmented between Entertainment Bars and Restaurants (the acquired businesses).As the Group operates a central administration and business support functionserving all of its businesses, this cost has not been allocated to the incomegenerating segments but is shown as a separate segment. Revenue and operatingprofit, both before and after exceptionals are segmented as follows: 52 weeks ended 30 June 2007 52 weeks ended 1 July 2006 ------------------------------------------------------------------ Entertain- Restau- Administ- Total Entertain-Restau- Adminisi Total ment Bars aunts ration ment rants tration £m £m £m £m £m £m £m £mRevenue 124.3 24.6 - 148.9 127.6 - - 127.6 Operatingprofitexcludingexceptionals 20.1 0.6 (7.0) 13.7 20.9 - (6.3) 14.6Exceptionals (0.2) (1.4) (0.6) (2.2) (5.0) - (0.6) (5.6)Operatingprofit afterexceptionals 19.9 (0.8) (7.6) 11.5 15.9 - (6.9) 9.0 Key financial measures 2007 2006 Change Underlying earnings per share (p) 7.5 7.7 -2.4%Basic earnings per share (p) 4.3 1.5 +181.0%EBITDA before exceptional items (£m) 24.1 24.5 -2.0%Operating cash flows (£m) 24.4 23.1 +5.8%Free cash flow (£m) 9.3 8.9 +5.0%Net debt (£m) (74.9) (57.0) +31.4%Net bank debt (£m) (68.8) (51.0) +34.9%Net assets (£m) 68.8 62.7 +9.7%Net interest cover (times) 4.2 5.1Fixed charge cover (times) 1.9 2.2Gearing 109% 91%Average debt financing cost 7.8% 7.7% Taxation rate %- Effective 36.1% 34.8%- Cash 19.0% 22.0% Underlying earnings per share is based on earnings from continuing operationsbefore exceptionals. EBITDA is earnings before interest, tax, depreciation and amortisation from bothcontinuing and discontinued businesses. The derivation of this figure is set outin note 18 of the Accounts. Free cash flow is derived in the table set out under cash flow later in thisreview. Net debt is bank debt plus convertible loan stock less cash and cashequivalents. Net interest cover is EBITDA before exceptional items, divided by net interest*. Fixed charge cover is EBITDA before exceptional items plus rent costs, dividedby net interest* plus rent costs. Gearing is closing net debt divided by net assets. Average debt financing cost is net interest* divided by the weighted averagelevel of net debt in the year. * the gain arising on the movement in fair value of interest rate swaps has beenexcluded from the net interest charge for these calculations. Taxation Taxation on profits from continuing operations was a credit of £0.6m. Thiscredit arose as a result of prior year adjustments to both current taxliabilities of £0.6m and deferred tax provisions of £0.9m following thefinalisation of prior year computations, and the reduction in the future rate ofcorporation tax from 30% to 28% giving rise to a release of deferred taxprovision of £1.5m. The effective tax rate on profits from continuing operations was 36.1% (2006:34.8%). The effective tax rate is calculated as the tax charge divided by profitexcluding exceptionals from both profit and tax and the effects of anyadjustments to the tax charge in respect of prior periods and the change infuture rate of tax. As certain accounting charges do not qualify for tax relief,the most significant of which is depreciation relating to buildings, theeffective rate exceeds the UK corporation tax rate of 30%. The effective ratehas increased slightly as a result of the reduction in underlying profit whereascharges not qualifying for tax relief are relatively fixed. The cash tax charge for continuing operations of 19.0% (2006: 22.0%) issignificantly lower than the effective rate. The cash tax rate for continuingoperations is calculated in the same way as for the effective rate but inrespect of the current tax charge only i.e. excluding deferred tax. This rate isbelow the prevailing rate of UK corporation tax due to the availability ofaccelerated capital allowances resulting from the Group's historic capitaldevelopment programme and from the tax written down value of assets acquiredwith Old Orleans Limited. In the short-term, the Group expects the cash tax rateto remain significantly below the prevailing rate of corporation tax. Earnings per share Basic earnings per share was significantly better than last year at 4.3 pence(2006: 1.5 pence). Underlying earnings per share, which is earnings per sharefrom continuing operations before exceptionals is, in the opinion of theDirectors, a more representative measure for tracking the Company's tradingperformance from year to year. Underlying earnings per share was 7.5 pence, 2.4%lower than last year. Cash flow and net debt 2007 2006 £m £m Opening cash flows- Continuing operations 25.7 23.9- Discontinued operations (1.3) (0.8) -------- ------- - Total 24.4 23.1Net interest paid (3.9) (5.4)Tax paid (0.8) -Capital expenditure on existing estate (10.4) (8.8) -------- -------Free cash flow 9.3 8.9Expansionary capital expenditure - (1.0)Proceeds from disposals of fixed assets 1.3 0.2Acquisitions (28.0) -New bank facility arrangement fees - (1.1)Issue of shares - (0.5)Purchase of own shares (0.2) - -------- -------Movement in net debt (17.6) 7.5Debt taken on with subsidiary acquisition (0.3) -Opening net debt (57.0) (64.5) -------- -------Closing net debt (74.9) (57.0) ======== ======= Operating cash flow from continuing operations was £25.7m, up £1.8m on lastyear, but cash flow from discontinued operations declined by £0.5m primarily due to sub-let rental income shortfalls to leave total operating cash flow at £24.4m, an improvement of £1.3m on last year. Net interest paid at £3.9m was £1.5m less than last year despite the increasedlevel of debt due in part to the consolidation of facility draw downs into sixmonth maturities and in part to the comparative period when bank facilities wererefinanced requiring all outstanding draw downs and the interest thereon to bepaid-up. Tax payments totalled £0.8m comprising £0.2m for the balance due in respect ofthe previous financial period and £0.6m as an on account payment in respect ofthe current period. Capital expenditure amounted to £10.4m but included £1.9m for the purchase ofthe freehold of a discontinued venue to extinguish an onerous lease. Thisfreehold purchase was completed shortly before the period end and was sold for£0.5m shortly after the end of the reporting period. The loss resulting fromthis transaction had been fully provided for in previous years. The balance ofexpenditure, £8.5m, relating to the existing estate was in line with last yearand compares favourably with the annual depreciation charge of £10.5m (2006:£10.3m). The resultant free cash flow of £9.3m (2006: £8.9m) represented 8.3 pence pershare (2006: 7.9 pence). The freehold of Bar Risa Jongleurs Manchester was sold for net proceeds of£1.3m. This venue had struggled to achieve break-even in recent years andtherefore a decision was made to sell the venue. Acquisitions of £28.0m comprised Old Orleans Limited for £27.4m and BrandasiaLimited for £0.6m. Current liquidity At the balance sheet date, the Group had net debt of £74.9m, an increase of£17.9m year-on-year. Net debt comprised £73.3m of bank debt, £6.0m ofconvertible loan stock and £0.1m of finance leases, less cash at bank and cashequivalents of £4.5m. At the beginning of the reporting period, Bank fundingfacilities of £97m were available to the Group; these were increased by £16m atthe time of the Old Orleans acquisition and subsequently, in accordance with theterms of the facilities, £3m of the term loan has been repaid. Therefore, at thebalance sheet date, £110m of bank funding facilities were available to the Groupin the form of a term loan of £34m, a revolving credit facility of £73.5m and anoverdraft facility of £2.5m. These facilities expire in September 2010. Underthe terms of the bank funding facility, interest is payable at prevailing LIBORplus a margin that varies between 0.75% and 1.5% depending on the net debt toEBITDA ratio. The convertible loan stock, on which interest is fixed at 5.6%, isredeemable in November 2007. The Group has given guarantees under the revolving credit facility in respect ofthe convertible loan stock and therefore had available £30m of undrawn committedfacilities at the year end. The Group is in compliance with its bank covenants which are measured twiceyearly. The covenant test measures are all cash-based, comprising interestcover, fixed cover and net debt to EBITDA. Treasury policy The Group's treasury policy is to ensure the availability of funds to meet itsfuture requirements and to minimise exposure to fluctuations in interest rates.The Board monitors and approves treasury policy and approves all interest ratehedging transactions. The Group does not engage in speculative derivativetransactions. The key financial risks relate to meeting debt repayments as theyfall due and interest rate risks. The Group has no outlets overseas and is notdependent on supplies from overseas and therefore has no foreign currencyexposure. To manage the Group's exposure to increases in interest rates, a significantproportion of borrowings are hedged using interest rate swaps. At the balancesheet date, the Group had in place £62m of interest rate swap agreements,equivalent to 85% of its bank debt. £12m of these swap agreements fixinginterest at 7.33%, expired in September 2007, shortly after the end of thereporting period, and did not qualify for hedge accounting; a liability of £41kwas carried forward in respect of these swaps at the balance sheet date. Theremaining £50m comprises five swaps of £10m with maturities between July 2008and September 2011 at rates varying between 5.15% and 5.25%; these swaps, whichdo qualify for hedge accounting, had a gross asset value of £1.5m at the balancesheet date which amount net of tax has been credited directly to shareholdersfunds. The Group maintains business and cash flow models that forecast requirements inthe short, medium and long term. These forecasts are reviewed regularly by theBoard. Calendar Details of the key calendar dates for the 2007/08 financial year can be found onthe inside of the back cover of this annual report as well as on our websitewww.regentinns.co.uk John Leslie Chief Financial Officer CONSOLIDATED INCOME STATEMENT for the 52 weeks ended 30 June 2007 Note 52 weeks 52 weeks 52 weeks 52 weeks ended ended ended ended 30 June 30 June 30 June 1 July 2007 2007 2007 2006 Continuing Acquisitions Total Total £'000 £'000 £0,000 £'000 Continuing operations Revenue 2 124,275 24,652 148,927 127,641 Cost of sales (28,170) (6,623) (34,793) (28,662)--------------------------------------------------------------------------------Gross profit 96,105 18,029 114,134 98,979 Operating costs 5 (83,775) (18,873) (102,648) (90,028)-------------------------------------------------------------------------------- Operating profit 12,330 (844) 11,486 8,951--------------------------------------------------------------------------------Analysed as:Operating profit beforeexceptional items andbrand amortisation 13,091 560 13,651 14,553Loss on sale of property,plant and equipment (206) - (206) (28)Exceptional items 3 (555) (1,175) (1,730) (5,574) Brand amortisation - (229) (229) --------------------------------------------------------------------------------- Interest payable andsimilar charges 4 (5,859) - (5,859) (5,030)Interest receivable 4 521 - 521 1,056-------------------------------------------------------------------------------- Profit before taxation 6,992 (844) 6,148 4,977Taxation 6 644 - 644 (887)-------------------------------------------------------------------------------- Profit from continuingoperations 7,636 (844) 6,792 4,090 Discontinued operations Loss on trading 7 (51) (205)activitiesImpairment provision 7 (1,368) -Provision for onerous 7 (249) (1,779)leasesLoss on sale of fixed 7 (242) (367)assets Loss from discontinuedoperations 7 (1,910) (2,351) --------------------------------------------------------------------------------Profit for the periodattributable to 4,882 1,739shareholders -------------------------------------------------------------------------------- Earnings per share - basic 9 4.3p 1.5p --------------------- - diluted 9 4.2p 1.5p --------------------- Earnings per share fromcontinuing operations - basic 9 6.0p 3.6p --------------------- - diluted 9 5.9p 3.6p --------------------- STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Share Capital Convertible Equity Retained Total Capital Premium Reserve Bond Reserve earnings Reserve------------------------------------------------------------------------------- £'000 £'000 £'000 £'000 £'000 £'000 £'000At 3 July 2005 5,625 50,080 (322) 60 308 4,363 60,114Ordinaryshares issued 39 506 - - - - 545Profit for theperiod - - - - - 1,739 1,739Share-basedpaymentexpense - - - - 300 - 300--------------------------------------------------------------------------------At 1 July 2006 5,664 50,586 (322) 60 608 6,102 62,698Ordinaryshares issued 2 32 - - - - 34Profit for theperiod - - - - - 4,882 4,882Gains arisingon interestrate hedgesnet ofdeferred tax - - - - - 1,044 1,044Own sharesacquired - - (187) - - - (187)Share-basedpaymentexpense - - - - 294 - 294--------------------------------------------------------------------------------At 30 June 2007 5,666 50,618 (509) 60 902 12,028 68,765================================================================================ CONSOLIDATED BALANCE SHEET at 30 June 2007 30 June 2007 1 July 2006 Note £'000 £'000AssetsNon-current assets Intangible assets 10 24,643 6,776Property, plant and equipment 12 154,823 143,980Derivative financial instruments 1,450 -Other non-current assets 2,361 2,504-------------------------------------------------------------------------------- 183,277 153,260Current assetsInventories 1,972 1,839Trade and other receivables 13 8,246 6,870Cash and cash equivalents 4,463 -Assets held for sale 721 210-------------------------------------------------------------------------------- 15,402 8,919Current liabilitiesFinancial liabilitiesBorrowings (2,787) (2,735)Interest rate swaps (41) (95)Unsecured convertible loan notes (5,940) -Finance leases (36) -Trade and other payables 14 (22,571) (15,614)Current tax liabilities (874) (1,347)Provisions 15 (1,200) (800)-------------------------------------------------------------------------------- (33,449) (20,591)--------------------------------------------------------------------------------Net current liabilities (18,047) (11,672)-------------------------------------------------------------------------------- Total assets less current liabilities 165,230 141,588 Non-current liabilitiesFinancial liabilitiesBorrowings (69,858) (47,402)Interest rate swaps - (347)Unsecured convertible loan notes - (5,940)Finance leases (66) -Deferred tax liabilities 15 (21,125) (19,026)Other non-current liabilities (1,991) (2,095)Provisions 15 (3,425) (4,080)-------------------------------------------------------------------------------- (96,465) (78,890)--------------------------------------------------------------------------------Net assets 68,765 62,698================================================================================ Capital and reservesCalled up share capital 5,666 5,664Share premium account 50,618 50,586Capital reserve - own shares (509) (322)Convertible bond reserve 60 60Equity reserve 902 608Retained earnings 12,028 6,102--------------------------------------------------------------------------------Total equity 68,765 62,698================================================================================ CONSOLIDATED CASH FLOW STATEMENT for the 52 weeks ended 30 June 2007 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 Note £'000 £'000Cash flows from operating activities Cash generated from operations 16 24,439 23,100 Interest received 120 206Interest paid (3,990) (5,610)Tax paid (770) ---------------------------------------------------------------------------------Net cash from operating activities 19,799 17,696 Cash flows from investing activitiesProceeds from sale of property, plant andequipment 1,317 208Purchase of property, plant and equipment (10,461) (9,817)Acquisition of subsidiaries, net of cashacquired (27,997) ---------------------------------------------------------------------------------Net cash used in investing activities (37,141) (9,609)--------------------------------------------------------------------------------Cash flows from financing activities Net proceeds from issue of ordinary sharecapital 34 545Net proceeds from issue of new bank loan 208,217 51,000Repayment of borrowings (186,217) (63,196)Finance lease principal payments (32) -New bank facility fees - (1,100)Purchase of own shares (187) ---------------------------------------------------------------------------------Net cash used in financing activities 21,815 (12,751)-------------------------------------------------------------------------------- Net (decrease)/ increase in cash and cashequivalents 4,473 (4,664)--------------------------------------------------------------------------------Cash and cash equivalents at 1 July 2006 and2 July 2005 (10) 4,654-------------------------------------------------------------------------------- Cash and cash equivalents at 30 June 2007 and1 July 2006 4,463 (10)-------------------------------------------------------------------------------- NOTES for the 52 weeks ended 30 June 2007 1. Accounting Policies Basis of preparation Authorisation of financial statements and statement of compliance with IFRSs The preliminary announcement for the 52 week period ended 30 June 2007 has beenprepared in accordance with International Financial Reporting Standards asadopted by the European Union at 30 June 2007. Details of the accountingpolicies adopted in this preliminary announcement are set out within thefinancial performance section of the Company's website, www.regentinns.co.uk. These preliminary statements do not constitute statutory accounts within themeaning of Section 240 of the Companies Act 1985. They have, however, beenextracted from the statutory accounts for the period ended 30 June 2007 on whichan unqualified report has been made by the company's auditors. The 2006 statutory accounts have been filed with Registrar of Companies. The2007 statutory accounts will be sent to shareholders in October 2007 and will befiled with the Registrar of Companies following their adoption at theforthcoming Annual General Meeting. 2. Segmental information All revenue arises in the UK. During the reporting period, Old Orleans Limited and Brandasia Limited wereacquired. Both of these businesses are food-led operations whereas the Group'spre-existing operations are all wet-led. Accordingly, the Group's incomegenerating operations have now been organised into separate business segments,Entertainment Bars and Restaurants. As the Group operates a centraladministration and business support function servicing both income-generatingsegments, central costs are shown as a separate segment. The segment results for the 52 week periods ended 30 June 2007 and 1 July 2006were as follows: 52 weeks ended 30 June 2007 52 weeks ended 1 July 2006 Entertain- Restaur- Central/ Group Entertain- Resta- Central/ Group ment ants unallo- ment urants unallo- Bars cated Bars cated £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000ContinuingoperationsRevenue 124,275 24,652 - 148,927 127,641 - - 127,641Cost ofsales (28,170) (6,623) - (34,793) (28,662) - - (28,662)--------------------------------------------------------------------------------Gross profit 96,105 18,029 - 114,134 98,979 - - 98,979Operating (75,939) (17,469) - (93,408) (78,111) - - (78,111)costs --------------------------------------------------------------------------------Venue profit 20,166 560 - 20,726 20,868 - - 20,868Admini-strativecosts - - (7,075) (7,075) - - (6,315)(6,315)--------------------------------------------------------------------------------Operatingprofit beforeexceptionalitems andbrandamortisation 20,166 560 (7,075) 13,651 20,868 - (6,315) 14,553-------------------------------------------------------------------------------- Other segment items included in the income statement are as follows: 52 weeks ended 30 June 2007 52 weeks ended 1 July 2006 Entertain- Restau- Central/ Group Entert- Restau- Central/ Group ment rants unallo- aiment rants unallo- Bars cated Bars cated £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ContinuingoperationsDepreciation* 9,336 1,129 - 10,465 10,279 - - 10,279Amortisationof franchisefees* - 8 - 8 - - - -Amortisationof brands - 229 - 229 - - - -Loss on saleof property,plant andequipment 206 - - 206 28 - - 28Exceptionalitems -Integration costs - 1,175 - 1,175 - - - --Restructuring costs - - 555 555 - - - - -Impairment - - - - 4,995 - - 4,995 -Fees in respect of aborted corporate transactions - - - - - - 379 379 -Head office relocation - - - - - - 200 200 * Charged to operating costs The segment assets and liabilities at 30 June 2007 and capital expenditure forthe 52 weeks then ended are as follows: Entertainment Restaurants Central/ Group Bars unallocated £'000 £'000 £'000 £'000 Assets 154,100 34,768 9,831 198,699---------------- ----------- ---------- ----------- ----------- Liabilities 9,663 6,638 113,633 129,934---------------- ----------- ---------- ----------- ----------- Capital expenditure 7,408 2,133 1,777 11,318---------------- ----------- ---------- ----------- ----------- Segment assets consist primarily of property, plant and equipment, intangibleassets, inventories, and trade and other receivables. Unallocated assetscomprise cash and cash equivalents and assets held for resale. Segment liabilities comprise operating liabilities. Unallocated liabilitiescomprise items such as borrowings including interest rate swaps, current taxliabilities, deferred tax liabilities and provisions. Capital expenditure comprises additions to property, plant and equipment. The segment assets and liabilities are reconciled to entity assets and liabilities as follows: Assets Liabilities £'000 £'000Segment assets/liabilities 188,868 16,301Unallocated:Property, plant and equipment 2,817 -Trade and other receivables 2,629 -Cash and cash equivalents 4,385 -Current borrowings - 8,706Non-current borrowings - 69,670Trade and other liabilities - 13,258Current tax liabilities - 874Deferred tax liabilities - 21,125-------------------------------------------------------------------------------- Total 198,699 129,934-------------------------------------------------------------------------------- The segment assets and liabilities at 1 July 2006 and capital expenditure for the 52 weeks then ended are as follows: Entertainment Restaurants Central/ Group Bars unallocated £'000 £'000 £'000 £'000 Assets 158,547 - 3,632 162,179---------------- ----------- ---------- ----------- ----------- Liabilities 10,649 - 88,832 99,481---------------- ----------- ---------- ----------- ----------- Capital expenditure 9,414 - 288 9,702---------------- ----------- ---------- ----------- ----------- Capital expenditure comprises additions to property, plant and equipment. The segment assets and liabilities are reconciled to entity assets and liabilities as follows: Assets Liabilities £'000 £'000Segment assets/liabilities 158,547 10,649Unallocated:Property, plant and equipment 989 -Trade and other receivables 2,643 -Current borrowings - 2,830Non-current borrowings - 53,689Trade and other liabilities - 11,940Current tax liabilities - 1,347Deferred tax liabilities - 19,026--------------------------------------------------------------------------------Total 162,179 99,481-------------------------------------------------------------------------------- 3. Exceptional items 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000-------------------------------------------------------------------------------- Integration of Old Orleans Limited (1,175) - Restructure fees (555) - Impairment provision - (4,995) Fees in respect of aborted corporate transactions - (379) Head office relocation - (200)-------------------------------------------------------------------------------- (1,730) (5,574)-------------------------------------------------------------------------------- 'One-off' items of expenditure associated with integrating the acquired OldOrleans business in to the Group's normal administrative processes andorganisation structure have been categorised as exceptional. During the year, the Group acquired the Old Orleans and Asha's Indian restaurantbusinesses through new subsidiaries Old Orleans Limited and Brandasia Limited.These acquisitions prompted management to consider the optimum corporatestructure for the Groups pre-existing businesses. Accordingly, four newsubsidiary companies have been established two to separately hold each brand andits trading venues, another to hold certain properties held for resale andanother to set-up an intra-group financing structure. Costs associated with thiscorporate restructure have been categorised as exceptional. The costs primarilyrelate to professional advice in the restructuring and the transfer of theproperty leases. The tax credit relating to exceptional items was £519,000 (2006: £1,042,000). 4. Finance costs 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000 --------- ---------Interest payable and similar charges Bank loans and overdraft (5,117) (4,283)Amortisation of set-up costs of bank loan (275) (227)Convertible loan notes (422) (417)Other interest payable (45) (103)-------------------------------------------------------------------------------- (5,859) (5,030)-------------------------------------------------------------------------------- Interest receivable Short term bank deposits 120 49Gains arising on interest rate swaps 401 850Other interest receivable - 157-------------------------------------------------------------------------------- 521 1,056-------------------------------------------------------------------------------- 5. Profit before taxation 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000--------------------------------------------------------------------------------The following items have been included in arriving at operating profit: Staff costs 35,422 28,006 Cost of inventories recognised as an expenses(included in cost of sales) 34,793 28,662 Depreciation of property, plant and equipment 10,465 10,279 Amortisation of brands and franchises 237 - Amortisation of lease premiums 143 143 Share-based payments 294 300 Loss on disposals of property, plant andequipment 206 28 Auditor's remuneration Audit services - Fees payable to the Company auditor's for the audit of parent company and consolidated accounts 62 62 - The audit of the Company's subsidiaries pursuant to legislation 8 - Non-Audit services - Fees payable to the Company's auditor and its associates for other services: - Tax advice relating to corporate restructuring 142 - Operating lease rentals: land and buildings 15,220 11,300Operating lease rentals: equipment and vehicles 118 101Pre-opening costs 79 42-------------------------------------------------------------------------------- Fees of £210,000 were also paid to the Company's auditor in connection with theacquisitions of Old Orleans Limited and Brandasia Limited. These fees, whichwere primarily for due diligence and work in connection with the shareholders'circular for the acquisition of Old Orleans Limited, have been included in thecost of acquisitions. 6. Taxation Group (a) Analysis of tax charge in the period The charge based on the profit for the period comprises: 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 Total Total £'000 £'000Current tax - continuing operations - Current year (977) (1,693) - Adjustment in respect of prior years 552 415-------------------------------------------------------------------------------- Total current tax (425) (1,278)-------------------------------------------------------------------------------- Deferred tax - continuing operations - Current year (1,350) (939) - Changes in respect of changes in tax rate 1,476 - - Adjustment in respect of prior years 943 1,330--------------------------------------------------------------------------------Total deferred tax 1,069 391-------------------------------------------------------------------------------- Tax credit/(charge) 644 (887)-------------------------------------------------------------------------------- (b) Factors affecting tax charge for the period 52 weeks ended 52 weeks ended 30 June 2007 1 July 2006 Total Total £'000 £'000 Corporation tax at the statutory rate of 30%applied to continuing operations profitbefore tax (1,844) (1,493)Effects of:Expenses not deductible for tax purposes (105) (372)Accounting depreciation not eligible for taxpurposes (642) (625)Impairment not eligible for tax purposes - (517)Loss on sale of property, plant andequipment (62) 55Other adjustment 210 -Exceptional items disallowed - (114)Adjustment in respect of changes in taxrates 1,476 -Utilisation of tax losses (10) 388Deduction in respect of share based payments 126 46Adjustments relating to prior yearscorporation tax 552 1,745Adjustments relating to prior years deferredtax 943 ------------------------------------- -------- -------- Total tax credit/(charge) on continuingoperations 644 (887)------------------------------------ -------- -------- 7. Discontinued operations 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000-------------------------------------------------------------------------------- Revenue 2,193 2,055Expenses (2,266) (2,348)---------------------------------- --------- ----------Loss before tax (73) (293)Attributable tax credits 22 88---------------------------------- --------- ----------Post tax loss from trading activities (51) (205) --------- ----------Impairment provision (note 12) (1,368) -Attributable tax credits - - --------- ----------Post tax loss on impairment provision (1,368) - --------- ----------New provision for onerous leases (note 15) (2,440) (2,065)Onerous lease provisions released (note 15) 2,085 -Attributable tax credits 106 286 --------- ----------Post tax loss on onerous leases (249) (1,779) --------- ----------Loss on sale of fixed assets (242) (367)Attributable tax credits - - --------- ----------Post tax loss on sale of fixed assets (242) (367)---------------------------------- --------- ----------Net loss attributable to discontinued operations (1,910) (2,351)-------------------------------------------------------------------------------- Discontinued operations comprises unbranded venues which the Group decided todivest in 2002. 8. Dividends There were no dividends paid (2006: £nil) by the Group during the year and theBoard has not proposed a dividend in respect of the 52 weeks ended 30 June 2007. 9. Earnings per share Earnings per share have been calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue duringthe period excluding those held in the ESOT which have been treated ascancelled. Diluted earnings per share adjusts for those share options granted to employeesand the holders of convertible loan stock where the exercise price is less thanthe average price of the company's shares during the period. The table below shows the basis of calculation of basic earnings per share anddiluted earnings per share, and also sets out the steps to exclude discontinuedoperations and exceptional items from the calculations in order to deriveadjusted earnings per share. In the opinion of the director's, earnings pershare from continuing operations and adjusted earnings per share, being earningsper share from continuing operations before exceptional items, brandamortisation and loss on sale of property, plant and equipment are morerepresentative indicators of the company's underlying trading performance. 52 weeks ended 52 weeks 30 June 2007 ended 1 July Weighted Earnings 2006. average per Weighted number share average of pence number of Earnings Earnings shares Earnings shares per share £'000 000 £'000 000 pence--------------------------------------------------------------------------------Total EPS Basic 4,882 112,512 4.3 1,739 112,622 1.5Dilutionimpact ofoptions - 2,532 - - 2,191 ---------------------------------------------------------------------------------Diluted 4,882 115,044 4.2 1,739 114,813 1.5Excludediscontinuedoperations 1,910 - - 2,351 - ---------------------------------------------------------------------------------EPS fromcontinuingoperations Dilutedexcludingdiscontinuedoperations 6,792 115,044 5.9 4,090 114,813 3.6 Basicexcludingdiscontinuedoperations 6,792 112,512 6.0 4,090 112,622 3.6--------------------------------------------------------------------------------Excludeexceptionalitems, brandamortisationand loss onsale ofproperty,plant andequipment netof taxation 1,646 - - 4,560 - ---------------------------------------------------------------------------------Adjusted EPS Basic oncontinuingoperations 8,438 112,512 7.5 8,650 112,622 7.7Diluted oncontinuingoperations 8,438 115,044 7.3 8,650 114,813 7.5--------------------------------------------------------------------------------EPS fromdiscontinuedoperations Basic ondiscontinuedoperations (1,910) 112,512 (1.7) (2,351) 112,622 (2.1)-------------------------------------------------------------------------------- 10. Intangibles Group Goodwill Brands Franchises Total £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Cost At 2 July 2005 and 1 July 2006 8,549 - - 8,549 Acquisitions (note 11) - Old Orleans Limited 11,254 6,012 - 17,266 - Brandasia Limited(provisional valuation) 663 - 175 838------------------------------------------------------------------------------- At 30 June 2007 20,466 6,012 175 26,653-------------------------------------------------------------------------------- Accumulated amortisation At 2 July 2005 and 1 July 2006 1,773 - - 1,773 Charge for the period - 229 8 237-------------------------------------------------------------------------------- At 30 June 2007 1,773 229 8 2,010-------------------------------------------------------------------------------- Net book value At 30 June 2007 18,693 5,783 167 24,643-------------------------------------------------------------------------------- At 1 July 2006 6,776 - - 6,776-------------------------------------------------------------------------------- Goodwill Goodwill brought forward from previous years arose on the acquisition ofJongleurs Comedy Clubs in 2000. For the purposes of the annual impairmentreview, future pre-tax cash flows for the Jongleurs branded venues wereprojected at an annual growth rate of 2.25% and using a discount rate of 7.5%based on the company's weighted average cost of capital. The collective value inuse of Jongleurs venues exceeded their carrying value by more than the value ofgoodwill and hence no impairment of goodwill was required. Goodwill arose in the year on the acquisition of Old Orleans Limited andBrandasia Limited. An extensive exercise was undertaken during the year to fairvalue the assets and liabilities at acquisition of Old Orleans Limited andtherefore testing for impairment was considered to be unnecessary. The goodwillarising on the acquisition of Brandasia Limited is a provisional value pendingfinalisation of the fair values at acquisition. Brands Brand value arising on the acquisition of Old Orleans Limited is being amortisedover 20 years. Franchises Brandasia Limited has a franchise agreement with Asha's RestaurantsInternational Limited. The franchise is being amortised over 10 years, the termof the agreement. 11. Acquisitions Old Orleans Limited On 17 September 2006, the Company acquired the entire share capital of OldOrleans Limited. In the 41 weeks between the Company's investment and the periodend, Old Orleans Limited achieved an operating loss of £619,000. The directors have undertaken a detailed exercise, in conjunction withprofessional advisors, to fair value the assets and liabilities acquired asfollows: Fair value of assets acquired Book value Fair value Fair value adjustment £'000 £'000 £'000Property, plant andequipment 32,094 (18,242) 13,852Stock 325 - 325Receivables 449 - 449Payables (1,001) - (1,001)Deferred tax - (2,762) (2,762)Provisions - (700) (700)-------------------------- -------- ------------ ----------Fair value of net assets 10,163Intangibles - Goodwill 11,254 - Brand name 6,012-------------------------- -------- ------------ ---------- 27,429================================================================================Satisfied by:Cash 25,773Fees 1,656-------------------------- -------- ------------ ---------- 27,429================================================================================ Fair values were derived as follows: • Fixed assets were valued at the lower of the underlying property value (based on a fit-out at current prices discounted to take account of the relevant age of each site and a standard profile of asset mix) and its realisable value (based on the current annual cashflows forecast over the remainder of each lease at a sales growth rate of 2.5% per annum and a cost increase at 2.0% per annum, and using a discount factor of 9.1%, being the deemed weighted average cost of capital for Old Orleans Limited). • Net current liabilities were the value agreed with the vendor. • Provisions reflects one onerous lease, based on the rent and rates cost to the end of the lease term, discounted at a risk-free cost of capital of 5.1%. • Brand valuation was derived on the basis of a notional saving in royalties equivalent to 2% sales over a 20 year period, discounted at the weighted average cost of capital of 9.1%. • Deferred tax relates to, firstly, the difference between the tax base of assets acquired and their net book value, and secondly, the fair value of the brand for which there is no tax value. • Goodwill represents the value of the assembled and trained workforce, the strength of site locations, the potential for significant improvements in the underlying business performance and brand roll-out, and synergies with the Group's existing business. Brandasia Limited On 14 December 2006, the Company invested in Brandasia Limited through aconvertible loan of £500,000. The convertible loan entitled the Company toconvert the whole or part of the loan, at any time over a period of 10 yearsfrom the date of the loan, into ordinary shares of Brandasia Limited at theconversion rate of 2.5 ordinary shares of 10 pence for each £1 of convertibleloan. At the time of the investment, full conversion of the loan would haveresulted in the Company owning 58% of Brandasia Limited. The principalshareholder and managing director of Brandasia was Russell Scott, the Group'sManaging Director - Operations, and accordingly the transaction was a 'relatedparty transaction' for the purpose of the Listing Rules of the UK ListingAuthority. All of the relevant notifications were made to the UK ListingAuthority and clearance duly received prior to the Company's investment. Since investment in the Company and the period end, Brandasia Limited achievedan operating loss of £225,000. On 31 March 2007, the Company acquired the shareholding of Russell Scott,amounting to 92% of the issued share capital, for £nil consideration. Theremaining 8% of issued shares were compulsory acquired under the terms of theCompany's Articles of Association. The Directors have undertaken a preliminary fair value exercise of the assetsacquired as set out below and in accordance with IFRS 3 "Business combinations",the assets have been included in the balance sheet as at 30 June 2007 atprovisional values. Estimated fair value of assets acquired Book value Fair value Provisional adjustment Fair value £'000 £'000 £'000Property,plant andequipment 951 (551) 400Stock 16 - 16Receivables 182 - 182Payables (484) - (484)Bank loans andfinance leases (384) - (384)-------------------------- ----------- ---------- -----------Fair value ofnet assets (270)Intangibles - Goodwill 663 - Franchise 175-------------------------- ----------- ---------- ----------- 568================================================================================ Satisfied by:Convertibleloan 500Fees 68-------------------------------------------------------------------------------- 568================================================================================ Brandasia Limited's assets principally comprise a franchise agreement withAsha's Restaurants International Limited and the first Asha's restaurant openedin Birmingham in December 2006. The franchise agreement gives Brandasia Limitedexclusive rights to operate restaurants under the Asha's name in the UnitedKingdom and Ireland. Asha's is the trading name of an up-market Indianrestaurant operation with trading venues in Kuwait and Dubai, established byAsha Bhosle, a Bollywood singing star. 12. Property, plant and equipment Land & buildings Freeholds Leaseholds Leaseholds Leaseholds Equipment, Total longer than between less fixtures & 50 years 20 and than fittings 50 years 20 years £'000 £'000 £'000 £'000 £'000 £'000--------------------------------------------------------------------------------Cost At 1 July 2006 26,695 3,013 75,472 39,091 57,987 202,258Additions 1,961 - 375 483 8,499 11,318Acquisitionsof subsidiaryundertakings 4,748 - 3,337 2,564 3,603 14,252Transfers toassets heldfor sale (1,879) - - - - (1,879)Disposals (2,897) - (359) - (643) (3,899)-------------------------------------------------------------------------------- At 30 June 2007 28,628 3,013 78,825 42,138 69,446 222,050-------------------------------------------------------------------------------- Accumulateddepreciation At 1 July 2006 2,230 448 10,732 13,412 31,456 58,278 Charge for theperiod 272 122 2,123 1,579 6,369 10,465 Impairmentadjustments 1,368 - - - - 1,368 Transfers toassets heldfor sale (1,368) - - - - (1,368) Disposals (1,164) - - - (352) (1,516)-------------------------------------------------------------------------------- At 30 June 2007 1,338 570 12,855 14,991 37,473 67,227-------------------------------------------------------------------------------- Net book value At 30 June 2007 27,290 2,443 65,970 27,147 31,973 154,823-------------------------------------------------------------------------------- At 1 July 2006 24,465 2,565 64,740 25,679 26,531 143,980-------------------------------------------------------------------------------- The historical cost of land and buildings for the Group and the Company includescapitalised interest of £2,573,000 (2006: £2,635,000) and £107,000 (2006: £2,635,000) respectively. There was £nil (2006: £nil) interestcapitalised in the year. Transfers to group undertakings took place following the corporate restructuringwhich resulted in the establishment of four new wholly-owned subsidiaries; Regent Inns Walkabout Limited, Regent Inns Bar RisaLimited, Regent Inns Finance Limited and Regent Inns Property Limited. The charge for impairment relates to a freehold property acquired during theyear in order to extinguish an onerous lease relating to discontinued operationsof £1,368,000. The property was subsequently transferred to assets held for saleand a disposal achieved for a small profit relative to its impaired value. The group owns assets held under finance leases which have a net book value of£135,000 (2006: £nil) and accumulated depreciation of £11,000 (2006: £nil). 13. Trade and other receivables --------- --------- 30 June 1 July 2007 2006 £'000 £'000----------------------------------- --------- --------- Amounts falling due within one yearTrade receivables 1,334 1,082Other debtors 1,318 201Prepayments and accrued income 5,594 5,587----------------------------------- --------- --------- 8,246 6,870----------------------------------- --------- --------- 14. Current trade and other payables ----------------------------------- --------- --------- 30 June 1 July 2007 2006 £'000 £'000----------------------------------- --------- --------- Trade payables 5,831 4,462Tax and social security 2,654 2,302Accruals and deferred income 13,901 8,709Other payables 185 141----------------------------------- --------- --------- 22,571 15,614----------------------------------- --------- --------- 15. Provisions Onerous Deferred Total leases taxation £'000 £'000 £'000------------------------------ --------- --------- --------Cost:At 1 July 2006 4,880 19,026 23,906Arising on acquisition of Old OrleansLimited 700 2,762 3,462New provisions charged to the incomestatement 2,440 - 2,440Provisions released to the incomestatement (2,085) (1,069) (3,154)Provision arising on gain on derivativefinancial instrument - 406 406Utilised (1,310) - (1,310)------------------------------ --------- --------- -------- At 30 June 2007 4,625 21,125 25,750------------------------------ --------- --------- -------- Within onerous leases, £1,200,000 (2006: £800,000) is due to be utilised withinone year. 16. Cash generated from operations 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000-------------------------------------------------------------------------------- Continuing operationsNet profit 6,792 4,090Adjustments for:Taxation (644) 887Depreciation 10,465 10,279Amortisation of brands and franchises 237 -Impairment provision - 4,995Loss on disposal of property, plant and equipment 206 28Exceptional items 1,730 579Interest income (120) (206)Gains arising on interest rate swaps (401) (850)Interest expense 5,859 5,030Share-based payment expense 294 300Lease premiums 143 143------------------------------------- --------- --------- 24,561 25,275Changes in working capitalIncrease in inventories (119) (293)Increase in trade and other receivables (548) (1,012)Increase in trade and other payables 3,483 299------------------------------------- --------- ---------Cash generated from continuing operations beforeexceptional items 27,377 24,269 Cash flows resulting from exceptional items (1,645) (378)------------------------------------- --------- --------- Cash generated from continuing operations 25,732 23,891------------------------------------- --------- --------- Discontinued operationsNet loss (1,910) (2,351)Adjustments for:Taxation (128) (374)Impairment provision 1,368 -Loss on disposal of property, plant and equipment 242 367New provision for onerous leases 2,440 2,065Onerous lease provisions released (2,085) -------------------------------------- --------- --------- (73) (293)Changes in working capitalDecrease inventories 1 2Decrease in trade and other receivables 41 57Increase/(decrease) in trade and other payables 2 (47)------------------------------------- --------- ---------Cash generated from discontinued operationsbefore exceptional items (29) (281) Cash flows resulting from exceptional items (1,264) (510)------------------------------------- --------- --------- Cash flow from discontinued operations (1,293) (791)------------------------------------- --------- --------- Cash generated from operations 24,439 23,100================================================================================ 17. Reconciliation of net cash flow to movement in net debt 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000 Increase/(decrease) in cash in the period 4,473 (4,664)Cash (inflow)/outflow from (increase)/decrease inloans (22,000) 12,196------------------------------------- --------- ---------- (Increase)/reduction in net debt resulting fromcashflows (17,527) 7,532Loans acquired with subsidiary undertakings (250) -Finance leases acquired with subsidiaryundertakings (134) -Repayment of finance leases during the period 32 -Other non cash changes - amortisation ofarrangement fees (268) 873 Net debt at beginning of period (56,137) (64,542)------------------------------------- --------- ---------- Net debt at end of period (74,284) (56,137)===================================== ========= ========== Prepaid arrangement fees of £605,000 (2006: £873,000) have been set-off againstthe net debt figures. 18. EBITDA - before Exceptional Items Earnings before interest, Tax, Depreciation and Amortisation (EBITDA) is asfollows: 52 weeks 52 weeks ended ended 30 June 2007 1 July 2006 £'000 £'000-------------------------------------------------------------------------------- Continuing operations Operating profit before exceptional items andbrand amortisation 13,651 14,553Depreciation 10,465 10,279Amortisation of franchises 8 -------------------------------------- --------- ---------- 24,124 24,832Discontinued operations Operating loss before exceptional items (73) (293)------------------------------------- --------- ---------- 24,051 24,539================================================================================ 19. Post balance sheet events On 17 August 2007, a discontinued operations asset held for resale with acarrying value at 30 June 2007 of £511,000 was disposed of for a negligibleprofit. 20. Miscellaneous The report and financial statements will be sent to all shareholders in the weekcommencing 29 October 2007 and copies will be available from the Company'sregistered office at Rowley House, South Herts Office Campus, Elstree Way,Borehamwood, Hertfordshire WD6 1JH. The Annual General Meeting of the Company will be held at Farmers & FletchersHall, 3 Cloth Street, London EC1A 7LD at 11.00am on Monday 3 December 2007. This information is provided by RNS The company news service from the London Stock Exchange

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