26th Sep 2006 07:04
Regent Inns PLC26 September 2006 Tuesday, 26 September 2006 PRESS RELEASE Regent Inns PLC Preliminary results for the 52 weeks ended 1 July 2006 Regent Inns plc ("Regent" or "the Company"), the operator of UK late night,entertainment-led venues, today announces its results for the 52 weeks ended 1July 2006. Regent's core brands are Walkabout, and Jongleurs / Bar Risa. It alsoowns Old Orleans restaurants which were acquired subsequent to the end of thereporting period. Financial highlights: Continuing operations • Turnover £127.6m (2005: £131.3m) - reduction primarily due to closures and disposals in both years • Like-for-like sales down 0.4%, held back by challenging trading conditions and the impact of significant legislative change • EBITDA before exceptional items £24.8m (2005: £26.1m) • Profit before tax £5.0m (2005: £6.5m) • Profit before tax, excluding exceptional items £10.6m (2005: £10.8m) • Earnings per share 3.6 pence (2005: 5.7 pence) • Earnings per share excluding exceptional items 7.7 pence (2005: 8.5 pence) • Exceptional item of £5.6m, of which £5.0m is non-cash, resulting from the annual impairment review and relating predominantly to one previously very successful leasehold venue Total Company • Cash generated from operations £23.1m, up 1.9% • Strong balance sheet with net debt reduced by £7.5m to £57.0m • No dividend as focus on reducing net debt following acquisition of Old Orleans post year end Corporate progress: • Agreement on five year replacement debt facilities of £100m with four leading banks • Opening of Walkabout Putney in December 2005, totalling 49 Walkabouts • Acquisition (post year end) of Old Orleans from Punch Taverns plc for £26.0m adding food-orientated brand • Appointment of Russell Scott as Managing Director - Operations on 1 September 2006 • Continued strategy of participating in value-enhancing market consolidation opportunities The Company is reporting its results under IFRS. Commenting on the results, Bob Ivell, Executive Chairman, said: "I am pleased to report the results for the 52 weeks ended 1 July 2006, a yearin which the Group successfully negotiated its way through the most significantlegislative change ever experienced by the sector. Our approach to these changeswas to minimise risk, build on good relationships with the Police and localauthorities, and emerge with the integrity of our brands intact and wellpositioned for the future. "Our acquisition of Old Orleans post the year end represents a significantstrategic opportunity, providing us with a terrific opportunity to rejuvenatethe brand and placing us firmly in the fast growing casual dining sector. "Events post-licensing deregulation have reinforced our belief that operatorsmust consolidate in order to protect business value and in view of this, ourpreviously stated objective of participating in sector consolidation remains apriority." - Ends- Enquiries: Regent Inns plc 020 8327 2540Bob Ivell, Executive ChairmanJohn Leslie, Chief Financial Officer Merlin 020 7653 6620Vanessa Maydon 07802 961 902Rebecca Penney 07795 108 178 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 1 July 2006, a year inwhich the Group successfully negotiated its way through the most significantlegislative change ever experienced by the sector combined with challengingtrading conditions generally in the late night segment and significant corporateactivity. Our approach to the legislative change, given the high profile of our tradingunits, was to minimise risk, build on good relationships with the Police andlocal authorities and emerge with the integrity of our brands intact and wellpositioned for the future. Inevitably, the voluntary capacity reductions, trading hours restrictions, ourstrict adherence to 'Challenge 21' (the industry's gold standard in terms ofdealing with under-age drinking) and security policies resulted in some impacton sales and margins from November 2005 onwards. The year finished, however,with a strong performance from Walkabout during the FIFA World Cup, where itsposition in the market as "the place to watch sport" was reinforced. In line with Regent's strategy to pursue value-enhancing acquisitions, the Groupactively pursued a number of potential acquisitions. In addition, discussionstook place with a potential bidder for the Group at the end of April 2006 whichwere subsequently terminated. Subsequent to the year end, we acquired the 31 Old Orleans trading venues fromPunch Taverns plc for £26m. This transaction, completed on 17 September 2006,was financed entirely out of debt and fulfils our ambition of adding a morefood-orientated brand to the Group. Results Continuing operations Sales from continuing operations for the 52 weeks ended 1 July 2006 decreased2.8% to £127.6m (2005: £131.3m) and were 0.4% below last year on a like-for-likebasis. Operating profit from continuing operations was £9.0m (2005: £12.2m).After adding back exceptional items, operating profit was £14.6m (2005: £16.5m).Profit before tax was £5.0m (2005: £6.5m) and after adding back exceptionalitems was £10.6m (2005: £10.8m). Pre-exceptional earnings before interest, tax and depreciation (EBITDA) were£24.8m (2005: £26.1m). Basic earnings per share from continuing operations was 3.6 pence (2005: 5.7pence) and excluding exceptional items was 7.7 pence (2005: 8.5 pence). Exceptional charges of £5.6m were incurred in the period of which £5.0m wasnon-cash, resulting from the annual impairment review and relating predominantlyto one leasehold venue, Bar Risa/Jongleurs located in Cardiff. This venue,previously a strong performer, experienced a major reduction in trade during theyear due to self imposed operational restrictions associated with the protectionof the licence over the long-term. Discontinued operations At the start of the year, six properties remained from the 58 unbranded pubsidentified for disposal in 2002 when it was decided to focus resources on thebranded businesses. Two leaseholds were assigned during the year but twopreviously assigned leases reverted to the Group leaving the net number ofproperties in discontinued operations unchanged. We continue to actively pursuethe sale of these remaining venues. The post tax loss from discontinued operations was £2.4m (2005: £0.9m) of which£1.8m (2005: £nil) comprises additional provisions for future property costsfollowing a review of the likely timescales and costs of disposing of theremaining properties. The balance reflects trading losses incurred at theseproperties of £0.2m (2005: £0.7m) and losses on disposals of £0.4m (2005 £0.2m). Cash flow and financing Cash generated from operations was £23.1m, £0.4m above last year. Net debtreduced during the course of the year by £7.5m to £57.0m. In September 2005, we completed a successful refinancing of the business with afive year £100m bank debt facility provided by four leading banks onsignificantly improved terms. This facility provided us with the flexibility totake advantage of market consolidation opportunities. The impact of theacquisition of Old Orleans on the bank debt facility is explained in "Post yearend development" below. Dividend The Board has not recommended a dividend given the significant cash outflowshortly after the period end required to fund the acquisition of Old Orleans andthe continuing importance of reducing net debt and maintaining our ability totake advantage of acquisition opportunities as they arise (2005: nil pence pershare). International Financial Reporting Standards (IFRS) These accounts are the first audited accounts to be prepared in accordance withIFRS. This has required restatement of comparative information and has changedthe format of the financial statements. Operational Review The year started strongly with steady sales growth through the first quarter,particularly in Walkabout which was helped by the country's enthusiasm for theAshes cricket tests boosting day-time business in August and early September.Overall like-for-like sales for the first quarter were 2.0% above last year. Sales performance in the second quarter softened as certain operational tradingcontrols were enhanced ahead of licensing deregulation to minimise ourcompliance risks and to ensure good relationships with the Police and licensingauthorities were maintained. These changes included: • Voluntary trading restrictions at certain major venues in advance of licence hearings. • Reduction in capacity and trading hours in particular at Walkabout Bournemouth and Bar Risa/Jongleurs Cardiff. • Substantial increases in security personnel. • Introduction of polycarbonate glasses and bottles at many venues. Certain local authorities also imposed conditions in connection with newlicences, including increased door security and polycarbonates which have beenboth costly to implement and have affected trade. Given that licensing deregulation coincided with the run up to the importantChristmas trading period, the underlying effect of deregulation did not becomeapparent until the early weeks of 2006. There is no doubt that the increasedcompetition from additional late licences has adversely affected some of ourvenues. There were also fewer outstanding sports viewing opportunities duringthe period from January to May compared with the previous period which adverselyaffected Walkabout's sales growth. Overall like-for-like performance for the 22 weeks from the beginning of January2006 was 4.3% below last year. June was dominated by the FIFA World Cup, with Walkabout benefitingsignificantly on England and Australia match days but offset to some degree inJongleurs due to the reluctance of customers to pre-book shows during thisperiod. Overall like-for-like performance in June was +15.6%. The World Cup wasa priority for Walkabout given that major football tournaments only occurbiannually and are the best opportunity for Walkabout to showcase itself to newand infrequent or lapsed customers. £0.4m was invested in High Definition TVsacross 16 Walkabouts immediately prior to the World Cup to ensure that thesevenues offered the best customer experience and remained the supporter'sdestination of choice. Overall like-for-like sales performance for the Group for the full 52 weekperiod was 0.4% below last year. Like-for-like sales in Walkabout were positive for the year, however Bar Risa/Jongleurs like-for-like sales were below last year. Jongleurs performed steadilythroughout the year with like-for-like ticket sales level with last year. BarRisa feeder bars have seen significant downturns in a small number of units,including Cardiff, where we have taken an impairment charge (as referred tounder exceptional charges). Minor refurbishments were undertaken during the yearat four Bar Risas (Leeds, Southampton, Birmingham and Reading) at an averagecost of £0.25m. Birmingham and Leeds were both refurbished in response to newcompetition and this helped to stabilise their performance by the end of theyear. Reading performed strongly following its refurbishment but Southampton isyet to show satisfactory improvement. We continue to focus on sites that areexperiencing poor like-for-like performance including reviewing theirpositioning and format. Jongleurs already operates very successfully alongside Walkabout in threelocations and therefore we are converting Leicester Bar Risa into a Walkabout,which will open on 28 September and we are investigating a similar conversion ofBar Risa Oxford which would take place during the first quarter of 2007. We arealso working on a new evolution of the Walkabout brand which can form a templatefor future developments. We are keen to ensure that when venues are refurbished,we can deliver a different experience for customers whilst retaining the brandintegrity. Post year end development - acquisition of Old Orleans On 17 September 2006, the Company acquired Old Orleans from Punch Taverns plcfor £26m on a cash-free and debt-free basis. The acquisition was fully funded bybank debt following a £16m increase in the existing facility provided by ourfour banks. The total cost of acquisition was £27.6m, including associatedtransaction expenses, although there will be an adjustment to the aggregateconsideration payable to reflect the actual working capital position atcompletion. Old Orleans comprises a portfolio of 31 themed outlets located across the UK, ofwhich 29 are branded Old Orleans and two are branded Quincey's. Three outletsare freehold, one is long leasehold and 27 are short leasehold. For the 12 months ended 20 August 2005, the 31 outlets generated turnover of£35.3m and outlet EBITDA of £5.3m. For the 6 months ended 18 February 2006, the31 outlets generated turnover of £17.5m and outlet EBITDA of £2.3m. The Board believes that the acquisition represents a significant strategicopportunity. Old Orleans has been largely neglected in recent years throughseveral changes of ownership when it has been traded as part of much largergroups. During that period the estate has been under-invested both in terms ofcapital and management and it should therefore benefit from being a significantpart of a smaller group. Some of the Company's current directors and seniormanagement have extensive prior experience of managing the Old Orleans outletsduring the period of ownership by Scottish & Newcastle plc up to 2003. Board changes Nigel Batchelor, Non-Executive Director and Chairman of the Audit Committee anda member of the Remuneration & Appointments Committee, stepped down from theBoard on 22 November 2005. John Laurie was appointed to the Board as a Non-Executive Director on 1 December2005. John has held senior positions at Scottish & Newcastle plc during a careerof over 30 years with the group, latterly as Group Financial Services Director.He has taken over the chair of the Audit Committee and sits on the Remuneration& Appointments Committee. Subsequent to the end of the reporting period, the Company announced on 31 July2006 that David Turner, Operations Director, would step down from the Board on 1November 2006. We welcomed Russell Scott to the Board as Managing Director -Operations on 1 September 2006. Russell has significant prior operationalexperience as Chief Executive of Capital Radio Restaurants plc and of HarryRamsden's PLC, and in senior operational positions within Whitbread and Scottish& Newcastle Retail. His experience in the leisure sector will be a great assetto the Company. Following our acquisition of Old Orleans restaurants, Alan Jackson decided tostep down as a Non-Executive Director in order to avoid any possible conflict ofinterest given his position as Chairman of The Restaurant Group plc. Alan wasChairman of the Remuneration and Appointments Committee and a member of theAudit Committee. I would like to thank Alan for his considerable contribution tothe development of the Company over the last two years. We will appoint areplacement Non-Executive Director in due course. People The period under review has been very challenging for many of our staff.Operational staff have had to adapt to many changes and control issues resultingfrom licensing deregulation and our head office staff have had to deal withspeculation regarding their future following the approach received by theCompany and the relocation of our head office. I am grateful to all of ouremployees for their commitment and hard work during the year. Current trading, plans and prospects In terms of the regulatory changes which have formerly impacted the business,the effects of licensing deregulation is stabilising and the Group continues toprepare for the extension of the smoking ban in enclosed public areas. On theacquisition front, the Group continues to focus on the successful integration of31 Old Orleans restaurants acquired from Punch Taverns plc. Since the end of the period under review, trading has continued to be difficultbut in line, we believe, with the experience of other late night operators. Julysales suffered from the inevitable World Cup hangover and also the exceptionallyhot weather which particularly affected our venues without external drinkingareas. Walkabout had challenging comparables to contend with in August and earlySeptember, where intense enthusiasm for the 2005 Ashes cricket test matches wasnot matched by sporting interest this year. Recent weeks have shown a smallimprovement. In the current more competitive trading environment, and in particular given allof the regulatory pressures currently being experienced, excellence inoperational execution has taken on even greater importance. We will play to ourstrengths and better exploit the reason why customers choose our venues.Primarily, our brands are focused on late night entertainment, our venues arelarge scale and have first-class facilities in place to provide qualityentertainment and a party atmosphere. Many of our competitors do not have thesame facilities and resources and are unable to compete as effectively. Webelieve we are well positioned to exploit these advantages and will notcompromise on operational standards during difficult trading periods. Whilst our late-night business is our primary focus at Walkabout and Bar Risa,there is undoubtedly an opportunity to better utilise our assets during theday-time. Efforts to address a decline in off-peak like-for-like performanceexperienced during the year under review through more competitive pricingpolicies and active marketing have shown success. In addition, whilst food hasalways been a core part of our offer, it has not represented a significantproportion of our total business and following the Old Orleans acquisition, wehave the resources in place to provide more volume without additional investment. Our acquisition of the 31 Old Orleans restaurants provides us with a terrificopportunity to rejuvenate the brand given that many of the Group's seniormanagement team were responsible for its early development. The acquisition alsoplaces us firmly in the fast growing casual dining sector. Its addition to ourportfolio of brands gives us further options for under-performing sites and is acrucial step towards transforming the shape and prospects of the Group. Webelieve that Old Orleans will benefit from being a core part of the Group andour experienced retailing focus. We are confident that we can enhanceoperational performance through carefully targeted capital investment, improvedfood and entertainment offerings, and marketing. A successful turnaround of thebrand will provide a platform from which to make further acquisitions in thisgrowth sector. The Board expects that the acquisition will be marginallyearnings dilutive in the current financial year and will become earningsenhancing in the following financial year. Events post-licensing deregulation have reinforced our belief that operatorsmust consolidate in order to protect business value and in view of this, ourpreviously stated objective of participating in sector consolidation remains alonger-term priority. Bob IvellExecutive Chairman25 September 2006 FINANCE REVIEW Basis of presentation The reported statutory results cover the 52 weeks to 1 July 2006 and comparatives for the 52 weeks to 2 July 2005. Accounting policies and standards The principal accounting policies of the Group are referred to 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. Accounting changes Adoption of International Financial reporting Standards (IFRS) These are our first accounts prepared in accordance with IFRS. All comparativeinformation has been restated to be on a consistent basis with IFRS with theexception of IAS 32 and IAS 39 as the Group opted to defer implementation to 3July 2005. The key areas of change are: - Recognition of all share based payment obligations, primarily employee share option schemes - Recognition of lease incentives received over the full term of the lease rather than up to the date of the first rent review - Recategorisation of lease incentives paid as additional rent over the lease term rather than depreciation - Goodwill is no longer amortised but is subject to an annual impairment test - Financial instruments are included at fair value - Recognition of additional deferred tax liabilities and assets on temporary timing differences - principally roll-over relief Overview of performance 2006 2005 Change £m £m Total sales - continuing 127.6 131.3 -2.8%Like for like sales - continuing 115.8 116.2 -0.4%Operating profit - continuing 9.0 12.2 -26.6%Underlying* operating profit 14.6 16.4 -11.5%Net interest charges (4.0) (5.7) -30.3%Profit before tax 5.0 6.5 -23.4%Underlying* pre tax profit 10.6 10.8 -2.2%Exceptional items (5.6) (4.3) +29.9%Discontinued operations (2.7) (1.2) naProfit before tax 2.3 5.3 -57.5% * Where the table makes reference to 'underlying' profit, this refers to profitsexcluding exceptional items and discontinued operations. Like-for-like sales are sales in those venues which have traded throughout thewhole of the current financial year and the comparative period, and which havenot received the benefit of any significant capital investment over that timeperiod. It is therefore an uninvested measure. Total sales have declined year-on-year primarily due to closures and disposalsof poorly performing sites during the course of both years. However, voluntaryrestrictions on certain major venues, increased high-street competition fromderegulation and a less favourable sporting calendar have also had an adverseimpact. During 2005, Walkabout Leicester and PALS Croydon were closed andWalkabout Shoe Lane and Freedom, Soho, were sold. In 2006, Stonehouse, HamptonHill, Twickenham was sold. One new venue was opened in the year, a Walkabout atPutney, London. Underlying operating profit at £14.6m was 11.5% below last year due to thelike-for-like sales decline together with cost pressures primarily in wages.Security labour was significantly higher as a consequence of additionallicensing requirements and minimum wage increases also impacted about 40% ofstaff wages. Utility costs increased well ahead of inflation as our two year gascontract came to an end in January and Sky once again imposed their customarysubstantial annual increase. Interest charges were £1.7m lower at £4.0m but the reduction included an £0.8mbenefit (relative to the comparative) as a consequence of the implementation ofIAS 32 which requires interest rate derivatives not qualifying for hedgeaccounting to be stated at fair value at their balance sheet dates. Inaccordance with IAS 32, the opening balance was adjusted but not the comparativeP&L item. The underlying improvement in interest of £0.9m was attributable toboth the reduced level of debt and the negotiation of a lower interest ratemargin on completion of the bank refinancing in September 2005. After taking account of interest, underlying pre-tax profit fell by 2.2% to£10.6m. Exceptional charges of £5.6m (2005: £4.3m) were incurred during the year. Thesecomprised: - a provision for impairment against the carrying value of fixed assets of £5.0m. - costs incurred in connection with aborted corporate activity of £0.4m. - costs incurred in connection with the relocation of the corporate head office of £0.2m. The provision for impairment is a non-cash item resulting from the annualimpairment review and relates predominantly to one venue, Bar Risa/JongleursCardiff, where we have experienced a substantial reduction in trade during theyear partly due to new competition and partly due to self imposed operationalrestrictions associated with protection of the licence longer-term. None of thevenues impaired are freeholds. Costs of £0.4m in connection with the aborted corporate consolidation activityrelated to professional fees incurred in pursuing acquisition opportunities andalso related to an approach received by the Company. A decision to relocate our corporate head office from Muswell Hill in northLondon to Borehamwood was taken during the year under review. The relocationcompleted shortly after the year end at a cost of £0.2m and is expected toreduce office rental costs on an annual basis over the term of the lease. The £4.3m of exceptional items incurred in 2005 comprised the cost ofrenegotiating bank facilities of £1.9m, costs of reorganising the business of£1.6m and the write-off of aborted site acquisition costs of £0.8m. The associated tax credit on the exceptional items in the year was £1.0m (2005:£1.2m). Pre tax profit of £2.3m was £3.0m below last year due to increased exceptionalcharges of £5.6m, up £1.3m on last year and an increase in the losses fromDiscontinued businesses, up £1.5m to £2.7m. £5.0m of the exceptional chargesrelated to the annual impairment review and was therefore non-cash as was £2.1mof the losses from Discontinued businesses which related to an increase in theprovision for onerous leases. Key financial measures 2006 2005 ChangeTaxation rate % - Effective 34.8% 33.1% na - Cash 22.0% 6.8% na Underlying earnings per share pence 7.7 8.5 -9.2%Basic earnings per share pence 1.5 4.9 -68.3% EBITDA before exceptional items £m 24.5 25.0 -1.9%Operating cash flows £m 23.1 22.7 +1.9%Free cash flow £m 8.9 11.4 -21.5%Net debt £m (57.0) (64.5) -11.7%Net bank debt £m (51.0) (58.5) -12.9%Net assets £m 62.7 61.0 +2.9%Interest cover times 5.1 4.4 naFixed cover times 2.2 2.1 naGearing 91% 106% naAverage debt financing cost 7.7% 8.2% na Underlying earnings per share is based on earnings from continuing operationsbefore exceptional items. EBITDA is earnings before interest, tax, depreciation and amortisation from bothcontinuing and discontinued businesses. The derivation of this figure is set outin note 16 of the Accounts. Free cash flow is derived in the table under cash flow later in this document. 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 divided bynet 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 gains arising on the movement in fair value of interest rate swaps havebeen excluded from the net interest charge for these calculations. Taxation The effective tax rate on profits from continuing operations was 34.8% (2005:33.1%). The effective tax rate is calculated as the tax charge divided by profitexcluding exceptional items from both profit and tax and the effects of anyadjustments to the tax charge in respect of prior periods. As certain accountingcharges do not qualify for tax relief, the most significant of which isdepreciation relating to buildings, the effective rate exceeds the UKcorporation tax rate of 30%. However, the cash tax charge is much lower at 22.0%(2005: 6.8%). The cash tax rate for continuing operations is calculated in thesame way as for the effective rate but in respect of the current tax charge onlyi.e. excluding deferred tax. This rate is below the prevailing rate of UKcorporation tax due to the availability of accelerated capital allowancesresulting from the Group's historic capital development programme. Thatprogramme has been curtailed in recent years - hence the increase in the cashrate for 2005. Going forward, the Group expects to continue to be able to claimcapital allowances in excess of depreciation in the short-term but at a slightlylower level than in the current year. Earnings per share Basic earnings per share was 1.5 pence (2005: 4.9 pence). Underlying earningsper share, which is earnings per share from continuing operations beforeexceptional items is, in the opinion of the Directors, a more representativemeasure of the Company's trading performance. Underlying earnings per share was7.7 pence, a reduction of 9.2% on last year. Cash flow and net debt 2006 2005 £m £m Operating cash flows- Continuing operations 23.9 24.2- Discontinued operations (0.8) (1.5) ------- -------- Total 23.1 22.7Net interest paid (5.4) (5.5)Tax received - 2.8Capital expenditure on existing estate (8.8) (8.6) ------- -------Free cash flow 8.9 11.4Expansionary capital expenditure (1.0) -Proceeds from disposals of fixed assets 0.2 1.1New bank facility arrangement fees (1.1) -Issue of shares 0.5 0.1 ------- -------Movement in net debt 7.5 12.6Opening net debt (64.5) (77.1) ------- -------Closing net debt (57.0) (64.5) ======= ======= Operating cash flow from continuing operations was £23.9m a reduction of £0.3mon last year, but an improvement of £0.7m on operating cash flow fromdiscontinued operations left total operating cash flow at £23.1m, an improvementof £0.4m on last year. Net interest paid was only marginally below last year despite the significantlyreduced net charge to the Income statement as a consequence of repaying alloutstanding interest at the time of the refinancing of the bank facility. Lastyear's cash flow also benefited from the refund of £2.8m on-account tax paymentsmade in the prior year. Capital expenditure on the existing estate, primarily onmaintenance and minor refurbishment projects was marginally ahead of last yearat £8.8m (2005: £8.6m) and compares very favourably with the annual depreciationcharge of £10.3m (2005: £9.6m). The resultant free cash flow of £8.9m (2005:£11.4m) represents 7.9 pence per share (2005: 10.1 pence). Current liquidity At the year end, the Group had net debt of £57.0m, a reduction of £7.5myear-on-year. Net debt comprises £51.0m of bank debt and £6.0m of convertibleloan stock. The bank funding facility is part of a £100m facility committed toSeptember 2010 and comprises a £40m term loan repayable at £3m per annum eachJune (currently stands at £37m), a revolving credit facility of £57.5m of which£14m was drawn at the year end and an overdraft facility of £2.5m. Under theterms of the bank funding facility, interest is payable at prevailing LIBOR plusa margin that can vary between 0.75% and 1.25% 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 have given guarantees under the revolving credit facility in respectof the convertible loan stock and therefore had available to it £39.2m ofundrawn committed facilities at the year end. Subsequent to the year end, thebank funding facility has been increased to £116m in order to providecomfortable head room following the acquisition of the Old Orleans restaurantsfor £27.6m (including associated transaction expenses). The Group is in compliance with its bank covenants which are measured twiceyearly. The key funding capacity measures of Interest cover, fixed cover andgearing have all improved as a result of the reduction in net debt. 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 does not have any outlets overseasand is not dependent on supplies from overseas and therefore has no foreigncurrency exposure. To manage the Group's exposure to fluctuations in interest rates, the majorityof borrowings are hedged using interest rate swaps. At the balance sheet date,the Group had in place £62m of interest rate swap agreements. £50m of theseswaps agreements expired very shortly after the year end and have recently beenreplaced fixing interest for periods of between two and five years at ratesvarying between 5.15% and 5.25%. The remaining £12m swap, which expires inSeptember 2007, fixes interest at 7.33%. The Group maintains business and cash flow models that forecast requirements inthe short, medium and long term. These forecasts are reviewed regularly by theBoard. John Leslie Chief Financial Officer AUDITED CONSOLIDATED INCOME STATEMENT for the 52 weeks ended 1 July 2006 Note 52 weeks 52 weeks ended ended 1 July 2006 2 July 2005 Total Total £'000 £'000 Continuing operations Revenue 2 127,641 131,272 Cost of sales (28,662) (30,687)--------------------------------------------------------------------------------Gross profit 98,979 100,585 Operating costs (90,028) (88,382) Operating profit before exceptional items 14,553 16,437(Loss)/profit on sale of fixed assets (28) 57Exceptional items 3 (5,574) (4,291) -------------------------------------------------------------------------------- Operating profit 8,951 12,203 Interest payable and similar charges 4 (5,030) (5,852)Interest receivable 4 1,056 149-------------------------------------------------------------------------------- Profit before taxation 5 4,977 6,500Taxation 6 (887) (164)-------------------------------------------------------------------------------- Profit from continuing operations 4,090 6,336 Discontinued operations Loss on trading activities 7 (205) (728)Provision for onerous leases 7 (1,779) -Loss on sale of fixed assets 7 (367) (160) Loss from discontinued operations 7 (2,351) (888) --------------------------------------------------------------------------------Profit for the period attributable to equityshareholders 1,739 5,448-------------------------------------------------------------------------------- Earnings per share - basic 9 1.5p 4.9p --------- ---------- - diluted 9 1.5p 4.8p --------- ---------- Earnings per share from continuing operations - basic 9 3.6p 5.7p --------- ---------- - diluted 9 3.6p 5.6p --------- ---------- STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY -------------------------------------------------------------------------------- Share Share Capital Convertible Equity Profit Total Capital Premium Reserve Bond Reserve and own Reserves loss share account -------------------------------------------------------------------------------- £'000 £'000 £'000 £'000 £'000 £'000 £'000At 3 July 2004 5,615 49,951 (322) - 108 (181) 55,171Ordinaryshares issued 10 129 - - - - 139Profit for theperiod - - - - - 5,448 5,448Share-basedpaymentexpense - - - - 204 - 204Excess taxrelief onshare-basedpayments - - - - (4) - (4)--------------------------------------------------------------------------------At 2 July 2005 5,625 50,080 (322) - 308 5,267 60,958Adjustment forimplementationof IAS 32 - - - 60 - - 60Adjustment for implementation ofIAS 39 - - - - - (904) (904) --------------------------------------------------------------------------------Restatedbroughtforward 5,625 50,080 (322) 60 308 4,363 60,114at 3 July 2005Ordinaryshares 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 62,698================================================================================ AUDITED CONSOLIDATED BALANCE SHEET at 1 July 2006 1 July 2006 2 July 2005 Note £'000 £'000AssetsNon-current assets Goodwill 6,776 6,776Property, plant and equipment 10 143,980 150,931Other non-current assets 2,504 2,647-------------------------------------------------------------------------------- 153,260 160,354Current assetsInventories 1,839 1,548Trade and other receivables 11 6,870 5,915Cash and cash equivalents - 4,654-------------------------------------------------------------------------------- 8,709 12,117Assets held for sale 210 210-------------------------------------------------------------------------------- 8,919 12,327Current liabilitiesFinancial liabilitiesBorrowings (2,735) (63,196)Interest rate swaps (95) -Trade and other payables 12 (15,614) (16,803)Current tax liabilities (1,347) (443)Provisions 13 (800) (987)-------------------------------------------------------------------------------- (20,591) (81,429)--------------------------------------------------------------------------------Net current liabilities (11,672) (69,102)-------------------------------------------------------------------------------- Total assets less current liabilities 141,588 91,252 Non-current liabilitiesFinancial liabilitiesBorrowings (47,402) -Interest rate swaps (347) -Unsecured convertible loan notes (5,940) (6,000)Deferred tax liabilities 13 (19,026) (19,805)Other non-current liabilities (2,095) (2,184)Provisions 13 (4,080) (2,305)-------------------------------------------------------------------------------- (78,890) (30,294)--------------------------------------------------------------------------------Net assets 62,698 60,958================================================================================ Capital and reservesCalled up share capital 5,664 5,625Share premium account 50,586 50,080Capital reserve - own shares (322) (322)Convertible bond reserve 60 -Equity reserve 608 308Profit and loss account 6,102 5,267--------------------------------------------------------------------------------Total shareholders' equity 62,698 60,958================================================================================ AUDITED CONSOLIDATED CASH FLOW STATEMENT for the 52 weeks ended 1 July 2006 52 weeks 52 weeks ended ended 1 July 2006 2 July 2005 Note £'000 £'000Cash flows from operating activities Cash generated from operations 14 23,100 22,664 Interest received 206 306Interest paid (5,610) (5,836)Tax received - 2,792--------------------------------------------------------------------------------Net cash from operating activities 17,696 19,926 Cash flows from investing activitiesProceeds from sale of property, plant andequipment 208 1,168Purchase of property, plant and equipment (9,817) (8,642)--------------------------------------------------------------------------------Net cash used in investing activities (9,609) (7,474)-------------------------------------------------------------------------------- Cash flows from financing activities Net proceeds from issue of ordinary sharecapital 545 139Net proceeds from issue of new bank loan 51,000 -Repayment of borrowings (63,196) (7,100)New bank facility fees (1,100) ---------------------------------------------------------------------------------Net cash used in financing activities (12,751) (6,961)-------------------------------------------------------------------------------- Net (decrease)/ increase in cash and cashequivalents (4,664) 5,491--------------------------------------------------------------------------------Cash and cash equivalents at 3 July 2005 and 4July 2004 4,654 (837)--------------------------------------------------------------------------------Cash and cash equivalents at 1 July 2006 and 2July 2005 (10) 4,654-------------------------------------------------------------------------------- NOTES for the 52 weeks ended 1 July 2006 1. Accounting Policies Basis of preparation The Group has previously prepared its financial statements under UK GenerallyAccepted Accounting Principles, (UK GAAP). Following a directive by the EuropeanParliament in July 2002, the Group is required to prepare its 2005/6consolidated financial statements in accordance with International FinancialReporting Standards as adopted by the European Union (IFRS). The accountingpolicies adopted are those published within the financial performance section ofthe 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. The preliminary statementshave been extracted from the statutory accounts for the period ended 1 July2006. PricewaterhouseCoopers LLP, the Company's auditors, reported on thoseaccounts; their report was unqualified. Statutory consolidated financial statements for the Group for the 52 weeks ended2 July 2005, prepared in accordance with UK GAAP, on which the auditors gave anunqualified opinion, have been filed with the Registrar of Companies. Exceptional items are defined as items which arise from events or transactionswhich fall within the ordinary activities of the group and which individually,or, if of similar type, in aggregate, need to be disclosed by virtue of theirsize or incidence. 2. Revenue All revenue arises in the UK. 3. Exceptional items 52 weeks 52 weeks ended ended 1 July 2006 2 July 2005 £'000 £'000-------------------------------------------------------------------------------- Impairment provision (4,995) - Fees in respect of aborted corporate transactions (379) - Head office relocation (200) - Renegotiation of bank debt facilities - (1,853) Reorganisation costs - (1,617) Aborted site acquisition costs - (821)-------------------------------------------------------------------------------- (5,574) (4,291)-------------------------------------------------------------------------------- The tax credit relating to exceptional items was £1,042,000 (2005: £1,167,000). The impairment provision predominantly relates to one trading venue, Cardiff BarRisa Jongleurs, for £4,064,000. This venue experienced a significant downturn intrade due to local issues. Additionally, £1,451,000 of accelerated depreciationhas been recognised in respect of head office assets following the decision torelocate the head office. Impairment charges on 5 other venues totaling£1,650,000 were offset by credits of £2,170,000 in respect of 3 previouslyimpaired venues which have seen full or partial recoveries in tradingperformance. 4. Finance costs 52 weeks 52 weeks ended ended 1 July 2006 2 July 2005 £'000 £'000--------------------------------------------------------------------------------Interest payable and similar charges Bank loans and overdraft (4,283) (5,329)Amortisation of set-up costs of bank loan (227) -Convertible loan notes (417) (409)Other interest payable (103) (114)-------------------------------------------------------------------------------- (5,030) (5,852)-------------------------------------------------------------------------------- Interest receivable Short term bank deposits 49 149Gains arising on interest rate swaps 850 -Other interest receivable 157 --------------------------------------------------------------------------------- 1,056 149-------------------------------------------------------------------------------- 5. Profit before taxation 52 weeks 52 weeks ended ended 1 July 2006 2 July 2005 £'000 £'000--------------------------------------------------------------------------------The following items have been included in arriving atoperating profit: Staff costs 28,006 30,057 Cost of inventories recognised as an expense(included in cost of sales) 28,662 30,687 Depreciation of property, plant and equipment 10,279 9,560 Amortisation of lease premiums 143 143 Share-based payments 300 204 Loss/(profit) on disposal of property, plant andequipment 28 (57) Auditor's remuneration: audit services 62 60 Auditor's remuneration: other services - - Operating lease rentals: land and buildings 11,300 12,300Operating lease rentals: equipment and vehicles 101 172Pre-opening costs 42 73-------------------------------------------------------------------------------- 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 1 July 2006 2 July 2006 Total Total £'000 £'000Current tax - continuing operations- Current year (1,693) (340)- Adjustment in respect of prior years 415 777-------------------------------------------------------------------------------- Total current tax (1,278) 437-------------------------------------------------------------------------------- Deferred tax - continuing operations- Current year (939) (2,069)- Changes in recoverable amounts of deferred tax assets - 1- Adjustment in respect of prior years 1,330 987- IFRS adjustment relating to capital gains - 480--------------------------------------------------------------------------------Total deferred tax 391 (601)-------------------------------------------------------------------------------- Tax payable (887) (164)-------------------------------------------------------------------------------- (b) Factors affecting tax charge for the period 52 weeks 52 weeks ended ended 1 July 2006 2 July 2005 Total Total £'000 £'000 Corporation tax at the statutory rate of 30% (1,493) (1,950) Effects of:Expenses not deductible for tax purposes (372) (16)Accounting depreciation not eligible for taxpurposes (625) (582)Impairment not eligible for tax purposes (517) -(Profit)/loss on sale of fixed assets 55 14Exceptional items disallowed (114) (120)Utilisation of tax losses 388 216Deduction in respect of share based payments 46 30Adjustments relating to prior years corporationtax 1,745 1,764IFRS adjustment relating to capital gains - 480--------------------------------------------------------------------------------Total tax on continuing operations (887) (164)-------------------------------------------------------------------------------- 7. Discontinued operations 52 weeks ended 52 weeks ended 1 July 2006 2 July 2005 £'000 £'000-------------------------------------------------------------------------------- Revenue 2,055 2,975Expenses (2,348) (4,015)--------------------------------------------------------------------------------Loss before tax (293) (1,040)Attributable tax credits 88 312--------------------------------------------------------------------------------Post tax loss from discontinued operations (205) (728) New provision for onerous leases (note 13) (2,065) -Attributable tax credits 286 - Post tax loss on onerous leases (1,779) - Loss on sale of fixed assets (367) (160)Attributable tax credits - - Post tax loss on sale of fixed assets (367) (160)================================================================================Net loss attributable to discontinuedoperations (2,351) (888)================================================================================ In 2002, the Group decided to divest unbranded venues and to focus resources onexpanding branded businesses. Of 58 unbranded venues originally earmarked fordisposal, 6 remain at 1 July 2006 (2005: 6). These are classified asheld-for-sale. 8. Dividends There were no dividends paid (2005: £nil) by the Group during the year and theBoard has not proposed a dividend in respect of the 52 weeks ended 1 July 2006. 9. Earnings per share Earnings per share has 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 adjust 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 the opinion of thedirectors, earnings per share from continuing operations and earnings per sharefrom continuing operations before exceptional items are more representativeindicators of the company's trading performance. 52 weeks 52 weeks ended 1 ended July 2006 2 July Earnings per Earnings 2005 average number per Weighted Earnings Earnings of shares share Earnings average per £'000 '000 pence £'000 number share of shares pence--------------------------------------------------------------------------------Total EPSBasic 1,739 112,622 1.5 5,448 111,804 4.9Dilutionimpact ofoptions - 2,191 - - 828 ---------------------------------------------------------------------------------Diluted 1,739 114,813 1.5 5,448 112,632 4.8Excludediscontinuedoperations 2,351 - - 888 - ---------------------------------------------------------------------------------EPS fromcontinuingoperationsDilutedexcludingdiscontinuedoperations 4,090 114,813 3.6 6,336 112,632 5.6Basicexcludingdiscontinuedoperations 4,090 112,622 3.6 6,336 111,804 5.7-------------------------------------------------------------------------------- Excludeexceptionalitems andloss on saleof fixedassets net oftaxation 4,560 - - 3,124 - ---------------------------------------------------------------------------------Adjusted EPS Basic oncontinuingoperations 8,650 112,622 7.7 9,460 111,804 8.5Diluted oncontinuingoperations 8,650 114,813 7.5 9,460 112,632 8.4--------------------------------------------------------------------------------EPS fromdiscontinuedoperationsBasic ondiscontinuedoperations (2,351) 112,622 (2.1) (888) 111,804 (0.8)-------------------------------------------------------------------------------- 10. Property, plant and equipment Land & buildings-------------------------------------------------------------------------------- Leasholds Leasholds longer between Leasholds Equipment than 20 and less than fixtures Freeholds 50 years 50 years 20 years & fittings Total £'000 £'000 £'000 £'000 £'000 £'000--------------------------------------------------------------------------------Cost At 2 July 2005 26,841 2,790 99,543 13,924 53,377 196,475Additions 450 223 2,757 1,193 5,079 9,702Transfers - - (23,974) 23,974 - -Disposals (596) - (2,854) - (469) (3,919)-------------------------------------------------------------------------------- At 1 July 2006 26,695 3,013 75,472 39,091 57,987 202,258-------------------------------------------------------------------------------- Accumulateddepreciation At 2 July 2005 2,087 377 14,419 4,986 23,675 45,544 Charge for theperiod 143 71 3,049 823 6,193 10,279 Impairmentadjustments - - (398) 3,478 1,915 4,995 Transfers - - (4,125) 4,125 - - Disposals - - (2,213) - (327) (2,540)-------------------------------------------------------------------------------- At 1 July 2006 2,230 448 10,732 13,412 31,456 58,278-------------------------------------------------------------------------------- Net book value At 1 July 2006 24,465 2,565 64,740 25,679 26,531 143,980-------------------------------------------------------------------------------- At 2 July 2005 24,754 2,413 85,124 8,938 29,702 150,931-------------------------------------------------------------------------------- The historical cost of land and buildings includes capitalised interest of£2,635,000 (2005: £2,648,000). The charge for impairment of £4,995,000 including the reallocation of previousimpairments of £2,170,000 is explained in note 3. Transfers arise as a consequence of the unexpired lease periods at 11 venuesdeclining from 20 years to less than 20 years during the year. 11. Trade and other receivables 1 July 2006 2 July 2005 £'000 £'000-------------------------------------------------------------------------------- Amounts falling due within one yearTrade receivables 1,082 993Other debtors 201 458Prepayments and accrued income 5,587 4,464-------------------------------------------------------------------------------- 6,870 5,915-------------------------------------------------------------------------------- 12. Current trade and other payables 1 July 2006 2 July 2005 £'000 £'000-------------------------------------------------------------------------------- Trade payables 4,462 4,711Tax and social security 2,302 2,264Accruals and deferred income 8,709 9,382Other payables 141 446-------------------------------------------------------------------------------- 13. Provisions Onerous Deferred Total leases taxation £'000 £'000 £'000--------------------------------------------------------------------------------Cost:At 2 July 2005 3,292 19,805 23,097Adjustment for implementation of IAS39 - (388) (388)Charged to the income statement 2,065 (391) 1,674Utilised (477) - (477)-------------------------------------------------------------------------------- At 1 July 2006 4,880 19,026 23,906-------------------------------------------------------------------------------- Within onerous leases, £800,000 (2005: £987,000) is due to be utilised withinone year. 14. Cash generated from operations 52 weeks ended 52 weeks ended 1 July 2006 2 July 2005 £'000 £'000-------------------------------------------------------------------------------- Continuing operationsNet profit 4,090 6,336Adjustment for:Taxation 887 164Depreciation 10,279 9,560Impairment provision 4,995 -Loss/(profit) on disposal of property, plant and equipment 28 (57)Exceptional items 579 4,172Interest income (1,056) (149)Interest expense 5,030 5,852Share-based payment expense 300 204Lease premiums 143 143-------------------------------------------------------------------------------- 25,275 26,225Changes in working capital(Increase)/ decrease in inventories (293) 487(Increase) in trade and other receivables (1,012) (87)Increase in trade and other payables 299 895--------------------------------------------------------------------------------Cash generated from continuing operationsbefore exceptionals 24,269 27,520 Cash flows resulting from exceptionals (378) (3,372)-------------------------------------------------------------------------------- Cash generated from continuing operations 23,891 24,148-------------------------------------------------------------------------------- Discontinued operationsNet loss (2,351) (888)Taxation (374) (312)Loss on disposal of property, plant andequipment 367 160New provision for onerous leases 2,065 --------------------------------------------------------------------------------- (293) (1,040)Changes in working capitalDecrease/(increase) in inventories 2 (10)Decrease in trade and other receivables 57 105(Decrease)/increase in trade and otherpayables (47) 70--------------------------------------------------------------------------------Cash generated from discontinued operationsbefore exceptionals (281) (875) Cash flows resulting from exceptionals (510) (609)-------------------------------------------------------------------------------- Cash flow from discontinued operations (791) (1,484)-------------------------------------------------------------------------------- Cash generated from operations 23,100 22,664================================================================================ 15. Post Balance Sheet Events On 10 August 2006, the Group entered into an agreement to purchase 31 venuesbranded as Old Orleans from Punch Taverns for a cost of £26 million, on a cashfree and debt free basis. This purchase was formally approved by shareholders on13 September 2006 and the transaction completed on 17 September 2006. Theacquisition was fully funded by bank debt following a £16 million increase inthe existing facility. The total cost of acquisition was £26.7 million,including associated transaction expenses, although there will be an adjustmentto the aggregate consideration payable to reflect the actual working capitalposition at completion. 16. EBITDA - before Exceptional Items Earnings before interest, Tax, Depreciation and Amortisation (EBITDA) is asfollows: 52 weeks ended 52 weeks ended 1 July 2006 2 July 2005 £'000 £'000-------------------------------------------------------------------------------- Continuing operations Operating profit before exceptional items 14,553 16,437Depreciation 10,279 9,560-------------------------------------------------------------------------------- 24,832 25,997Discontinued operations Operating loss before exceptional items (293) (1,040)-------------------------------------------------------------------------------- 24,539 24,957-------------------------------------------------------------------------------- 17. Miscellaneous The report and financial statements will be sent to all shareholders in the weekcommencing 30 October 2006 and copies will be available from the Company's registeredoffice 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 24 November 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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