Annual Report 2017
Introduction
The Restaurant Group operates over
490 restaurants and pub restaurants.
Its principal trading brands are Frankie &
Benny’s, Chiquito and Coast to Coast.
The Group also operates Pub restaurants
and a Concessions business which trades
principally at UK airports.
Our brands
Overview
Financial highlights
Strategic report
Chairman’s statement
Business review
Financial review
Corporate social responsibility
Governance
Corporate governance report
Board of Directors
Audit Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
Senior management Risk Committee
Directors’ responsibility statements
Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated accounts
Company balance sheet
Statement of changes in equity
Notes to the Company accounts
Group financial record
Glossary
Shareholder information
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73
74
75
76
77
109
110
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114
115
116
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02
04
08
13
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28
30
35
38
57
59
61
Financial highlights
Strategic highlights
Total revenue (£m)
Dividend per share (p)
2017
2016
2015
2014
2013
679.3
710.7
685.4
635.2
579.6
2017
2016
2015
2014
2013
17.40
17.40
17.40
15.40
14.00
Adjusted operating profit (£m)
Operating profit (£m)
2017
2016
2015
2014
2013
58.6
79.1
88.9
80.5
74.9
2017
20162
2015
2014
2013
45.4
(47.3)
Adjusted profit before tax (£m)
Profit before tax (£m)
2017
2016
2015
2014
2013
56.7
77.1
86.8
78.1
72.7
2017
20162
2015
2014
2013
43.6
(49.3)
Adjusted EPS (p)
EPS (p)
2017
2016
2015
2014
2013
22.29
30.00
33.80
29.96
28.02
2017
20162
2015
2014
2013
16.44
(23.98)
Adjusted EBITDA (£m)
EBITDA (£m)
88.9
80.5
74.9
86.8
78.1
72.7
33.80
29.96
28.02
2017
2016
2015
2014
2013
95.1
121.0
128.0
117.0
107.8
2017
20162
2015
2014
2013
86.1
62.5
128.0
117.0
107.8
> Proposition enhancements in
Frankie & Benny’s are driving
improving volume momentum
> Good progress across other
Leisure brands
> Pubs business continues to
outperform the market and pipeline of
new opportunities further strengthened
> Concessions business expanding
into new infrastructure hubs, and
with relevant new brands
> Cost reduction programme of £10m
delivered ahead of plan, enabling
reinvestment in Leisure business
> Enhanced senior leadership team
in place
Financial highlights
> Like-for-like sales down 3.0%
> Total sales down 1.8% on a 52 week
comparable basis; down 4.4% on
a statutory basis
> Adjusted1 profit before tax of £56.7m
(2016: £77.1m). Statutory profit before
tax of £43.6m (20162: loss of £49.3m)
> Exceptional pre-tax charge of £13.2m
(20162: £126.5m)
> Adjusted1 EBITDA of £95.1m
(2016: £121.0m)
> Adjusted1 EPS of 22.3p (2016: 30.0p).
Statutory EPS of 16.4p (20162: 24.0p
loss per share)
> Continued strong free cash flow of
£84.9m (2016: £78.9m)
> Operating cash flow of £107.6m
(2016: £122.1m)
> Net bank debt of £21.6m at year-end
(2016: £28.3m)
> Total full year dividend maintained at
17.4p per share, reflecting the Board’s
confidence in delivery of the plan
The highlights reflect the statutory 52 week year
in 2017 versus the statutory 53 week year in
2016 unless stated otherwise.
1 Adjusted reflects pre-exceptional costs and
is further defined in the glossary at the end of
this report.
2 As restated, refer to Note 1 for details.
The Restaurant Group plc Annual Report 2017 01
OverviewStrategic reportGovernanceFinancial statements
Chairman’s statement
2017 has been a transitional year for the Group, with a test
and learn approach allowing us to develop the proposition
of our brands. Despite the challenging market context, we
have continued to make good progress against the four
key elements of our strategy:
• re-establishing the competitiveness of our Leisure brands;
• serving our customers better and more efficiently;
• growing our Pubs and Concessions businesses; and
• building a leaner, faster and more focused organisation.
Total revenues were down 4.4% to £679.3m, with like-for-like
sales for the 52 weeks ended 31 December 2017 down 3.0%,
representing an improvement on the decline in 2016.
Adjusted1 profit before tax was down 26.4% to £56.7m and
Adjusted1 EPS was down 25.7% to 22.3p per share. Statutory
profit before tax was £43.6m and the statutory earnings per
share were 16.4p.
Our investments in price, food quality and marketing drove
progressively improved volume momentum in our Leisure
businesses. Pubs and Concessions both performed well, with
the pipeline of new opportunities in both continuing to grow.
We took a low-key approach to marketing our key brands
while the changes to the proposition were at an early stage.
The latter part of the year has seen us test different media
and we are gaining confidence in our ability to segment and
target the customers of each of our brands. Investment in
digital and social media is beginning to show cut through,
with more targeted marketing.
Debbie Hewitt
Chairman
“ 2017 has been
a transitional year
for the Group, with
a test and learn
approach allowing
us to develop the
proposition of our
brands.”
02 The Restaurant Group plc Annual Report 2017
“ While the market has softened,
the Board is confident that we
have a robust plan and the team
and resources in place to deliver.”
The business continues to generate strong free cash flow,
with £84.9m in 2017. Given our continued confidence in our
plan, the Board is proposing the payment of a final dividend
of 10.6 pence per share to be paid on 5 July 2018 to all
shareholders on the register on 8 June 2018 (ex-dividend
date 7 June 2018). The total dividend for the year is, therefore,
maintained at 17.4 pence per share. The Board will continue
to assess the dividend based on progress against our plan.
The Group employs over 15,000 people and they are the
lifeblood of our business. The Board would like to record our
thanks and appreciation for their hard work and commitment.
We have made solid progress on our strategic initiatives in
2017, resulting in improved volume momentum in our Leisure
business, growth in our Pubs and Concessions business,
a lower cost base across the business and a more focused
growth plan. We continue to benefit from strong cash
generation and a healthy balance sheet. While the market
has softened, the Board is confident that we have a robust
plan and the team and resources in place to deliver.
Debbie Hewitt MBE
Chairman
7 March 2018
The Group has faced well documented external cost
pressures throughout 2017, from the increases in the National
Living Wage and National Minimum Wage, the introduction
of the apprenticeship levy, the revaluation of business rates,
higher energy taxes and increased purchasing costs due to
the combined effects of a devalued pound and commodity
inflation. As we seek to mitigate these cost pressures, our
initiatives to improve the effectiveness of our labour scheduling
and to exploit new technologies are on track and continue
to drive efficiencies.
We have proactively managed Board succession throughout
the year and added new and relevant skills. Barry Nightingale
stepped down as Chief Finance Officer in April 2017 and
Kirk Davis replaced him in February 2018. Kirk has extensive
finance experience within listed leisure and retail businesses
and joins from Greene King plc where he has spent the past
three years as Chief Financial Officer. Sally Cowdry stepped
down from the Board as a Non-executive Director in
August 2017 and Paul May joined as a Non-executive Director
in July 2017. Paul has been the Chief Executive Officer
of Patisserie Holdings plc since 2006. He has extensive
experience of managing public and private companies in the
retail and hospitality sectors. We are looking to recruit a further
Non-executive Director during 2018, with digital credentials.
We have also added to the strength and depth of the senior
leadership team, with the appointment of Murray McGowan
as Managing Director of our Leisure businesses, joining us
from Costa Express and Michael Healy as Chief Marketing
Officer, joining us from Paddy Power Betfair plc.
The Board continues to ensure that we have a rigorous
and disciplined approach to the allocation of capital, and
that the Group’s brand and location strategy is robust.
As a consequence, we have taken action to close
underperforming sites which we do not believe are capable
of generating adequate returns.
The Restaurant Group plc Annual Report 2017 03
OverviewStrategic reportGovernanceFinancial statements
Business review
Introduction
We continue to make good progress on the four key elements
of our strategy that we set out at the beginning of 2017, to:
• re-establish the competitiveness of our Leisure brands;
• serve our customers better and more efficiently;
• grow our Pubs and Concessions businesses; and
• build a leaner, faster and more focused organisation.
We’ve made significant proposition improvements in our
Leisure business focusing on giving our customers better
value and improved food quality along with retrained service
standards, all of which are driving improving volume momentum.
We start 2018 with a significantly more competitive and
improved offering across our Leisure business, an established
expansion programme across our Pubs and Concessions
businesses, an enhanced leadership team and a more
efficient and focused business.
1. Re-establish competitiveness of our Leisure brands
Frankie & Benny’s (259 units)
Our focus has been on enhancing our offer by restoring our
value credentials, deepening the distinctiveness of our offer
to our core family audience and launching a refocused and
refreshed brand nationwide to attract back lapsed customers.
Following the discovery in 2016 that the brand had lost
significant value credentials, we made significant investments
in price in 2017. In January we reintroduced a £9.95 two-
course fixed price menu, our cheapest fixed price menu for
six years. We trialled and subsequently launched our new,
significantly better value core menu in two waves in March and
May. Drawing on customer insight, we launched an optimised
version of this menu in October with main course entry prices
26% lower than the menu we started the year with, and
like-for-like dish prices reduced by 7% on average, positioning
our offering as highly competitively priced relative to our peers.
We have also struck new and extended partnerships with
value-focused affiliates and intensified our promotional activity
to ensure we remain competitive and to encourage retrial
of the brand.
Andy McCue
Chief Executive Officer
“ We start 2018
with a significantly
more competitive
offering in our
Leisure business,
a strengthened
pipeline of growth
opportunities
and a leaner, faster
and more focused
organisation.”
04 The Restaurant Group plc Annual Report 2017
We have deepened the distinctiveness of our offer by investing
in the quality of ingredients, upgrading our menus to align
with our core family audience and introducing new dishes
which have proved popular such as our new hot dog range
and a steakhouse salad which is now our best-selling salad.
In the summer we launched our new kids’ menu, which is
differentiated in the sector and was recently rated the best in
customer satisfaction across our peer set. Our new breakfast
menu has a broader range of healthy options and a tailored
kids offering.
Towards the end of the year, we commenced roll-out of a
refreshed, more contemporary brand look and feel which
will be represented across all brand touchpoints. This month
we complete the rollout of an upgraded website and app,
improving their ease of use for core functions such as
bookings. We have also improved our digital search listings
and we continue to refine and improve our return from media
spend with encouraging activation rates from digital media
investment through our new ‘Parents win at Frankie & Benny’s’
campaign. We are currently building a new CRM platform
which will enable better segmentation of customers and
more targeted communication.
Our customers are recognising the proposition improvements
we’ve made, with the latest external market data showing
a continuing improvement in value for money ratings, net
promoter score and the largest positive movement in revisit
intention scores across our peers.
The proposition changes are driving improving volume
momentum. Our performance suggests that we are taking
volume share, with market data showing declining restaurant
like-for-like sales over the last six months, in spite of significant
price increases by our competitors.
Whilst we are pleased with our progress, we are not
complacent. In the current year we will be launching an
extended range of healthy dishes across our menus,
upgrading our vegetarian and vegan options and introducing
a redesigned desserts range. Alongside these initiatives,
we will continue to improve the quality of our ingredients.
We are trialling a pilot ‘capital refresh’ across 10 of our sites
which we will learn from and optimise before making
a decision on whether to roll-out more widely.
Chiquito (85 units)
Our focus on Chiquito has been to broaden the brand appeal,
making it more accessible and frequented more often by
our customers.
We trialled two versions of a fundamentally changed menu
in the year which showed an improving covers trend versus
the old menu. On the back of this we launched our new menu
nationwide in January 2018. This new menu builds on the
trials and allows greater customisation of dishes with, for
example, ‘build your own’ tortillas with options to vary the
spiciness of the dishes. We have also invested in the quality
of the ingredients whilst at the same time making the menu
more competitively priced with main course entry prices
reduced by 10%, and like-for-like dish prices reduced on
average by 6%. The menu is simpler and easier to navigate,
benefitting from a 30% reduction in the number of main
dishes. This simplicity has also reduced the number of
back-of-house processes involved in preparation and
improved the consistency and speed of service. We are
also making the brand more accessible through new affiliate
partnerships with the likes of Tastecard and Gourmet Society.
In the current year we will accelerate our pace of change
in this brand. We plan to trial a series of new and exciting
product innovations, which if successful will be rolled out
more broadly.
Coast to Coast (19 units)
Coast to Coast’s like-for-like trading performance remains
challenging, albeit the trading trajectory continues to improve
driven, in part, by our competitive discounts. The focus
remains on further developing our new proposition, Firejacks,
which offers high quality flame-grilled steaks and burgers at
highly competitive prices. The first Firejacks was a conversion
of the Coast to Coast in Northampton and opened in August
2017. We are encouraged by its ongoing trading performance
and plan to convert at least three more Coast to Coast sites
to Firejacks in the coming months.
The Restaurant Group plc Annual Report 2017 05
OverviewStrategic reportGovernanceFinancial statements
Business review continued
We have increased our penetration of delivery with Deliveroo,
growing the number of sites that offer this service from
37 at the start of 2017 to 130 in February 2018. We are trialling
delivery services with UberEats and Just Eat which we
expect will further increase our delivery reach and penetration.
In addition, we see opportunities to extend brand reach by
offering multiple delivery brands from an individual restaurant
and will trial a new delivery-only brand in the coming weeks.
3. Grow our Pubs and Concessions businesses
Our Pubs business is well positioned in the market with
a compelling, differentiated food-led offer that consistently
outperforms the pub restaurant sector. Strong operational
execution, along with locally sourced produce, has attracted
a loyal and increasing customer base who rate the offering
highly, relative to competitors.
The Pubs business delivers consistently good and growing
returns, with recent openings consistently delivering EBITDA
returns in excess of 20% (on an assumed leasehold cost
base). Our estate is largely freehold asset backed with a book
value in excess of £80m and requires, relative to fast-changing
casual dining formats, relatively modest levels of ongoing
maintenance capital spend.
We see opportunities to increase like-for-like sales through
optimising our menu pricing architecture and developing
better offerings for previously considered non-core occasions
such as breakfast and afternoon tea. We will continue to look
for ways we can maximise the use of technology, building on
the success we’ve had in driving bookings. We are finding
new ways to maximise available space in our sites by creating
private dining areas and will, later this year, make our first foray
into accommodation.
2. Serve our customers better and more efficiently
During the course of the year we completed the upgrade of
our technology in restaurants in our Leisure and Concessions
businesses. We’ve introduced hand-held terminals enabling
faster ordering and payment processing for our customers.
The terminals also provide our restaurant staff with automated
prompts of, for example, side dishes, which has increased
attachment rates of these items. The new labour management
software solution has led to improved sales forecasting
accuracy and more effective deployment of our teams,
ensuring our labour is increased for peak times to provide the
right level of customer service, and minimised during quieter
periods. We have also improved the flexibility of our workforce
to help better align with our trading patterns. These initiatives
combined have contributed to the labour cost per cover in
our Leisure business declining by 7% in the second half of
2017 compared to the second half of 2016.
Our new simplified service standards have been introduced
across our Leisure front-of-house teams to serve our
customers better and more consistently. We’ve moved
from an overly complex ‘rules-based’ service approach
to a simplified approach of putting the customer experience
at the forefront of everything we do, for example, through
a more natural and warmer welcome upon arrival and
greater encouragement for our restaurant teams to show
their passion for our food and brands.
We continue to invest in new technology to remove customer
pain points and improve the overall customer experience.
Our ‘pay with app’ and ‘click and collect’ trials have been
positively received by our customers and we will roll these
out across our Leisure business in the first half of this year.
We are in the process of developing a mobile order and pay
application, allowing guests to be in control of their service
and even order in advance of arriving at the restaurant. We
have also increased the frequency and accuracy of bookings
via an integrated system of online, telephone and in-restaurant
reservations, and entered a partnership for the first time with
OpenTable. We have trialled and are soon to be launching
a new approach to obtaining guest feedback, moving
away from an online post-meal survey which generated
unrepresentative samples to an ‘at-table’ system where
we can collect real-time feedback in volume, enabling us
to respond to issues much more quickly.
06 The Restaurant Group plc Annual Report 2017
We remain focused on cost efficiencies and see further
opportunities to leverage scale economies and consolidate
suppliers. Our planned transition to a new logistics provider in
2019 will allow us to unlock further supply chain opportunities,
such as cost savings via collection of restaurant waste
and recycling.
Current trading and outlook
Current trading is broadly in line with our expectations.
The trading performance of the business in the first half of
2018 will reflect the significant price investments made in
the middle of last year. We expect to benefit from our strategic
initiatives gaining further traction as the year progresses.
Andy McCue
Chief Executive Officer
7 March 2018
Our pipeline of new pub opportunities has strengthened over
the past year as we have dedicated more resources to site
finding, widened our geographic reach, and embraced new
formats such as town pubs. We expect to open between
five and 10 new pubs in 2018 and more again in 2019.
Our Concessions business operates in an attractive market
segment supported by historically strong levels of passenger
growth and with airport operators who are increasingly
willing to invest in terminal capacity and breadth of food and
beverage offer.
Our trading continues to be strong and we seek further ways
of increasing returns from our existing estate through greater
use of technology to increase through-put of passengers
and menu optimisation to align with customer trends towards
quality branded experiences.
Our unique and market leading capabilities of consistently
delivering high operational standards at high volume and
peak-load intensity, along with our format development and
partnering skills, have enabled us to successfully retain and
win new sites. We expect to open around 10 units this year,
including our first unit in Edinburgh airport, and including
sites with new franchise partners we have recently signed up,
such as Brewdog and Spuntino.
4. Build a leaner, faster, more focused organisation
We have delivered ahead of our original timescale and
reduced the cost base of the business by £10m in 2017,
all of which has supported our reinvestment in price, product
and marketing. We’ve achieved this through restructuring
both our head office and field operations teams, centralising
our purchasing and consolidating our supply base to leverage
the Group’s scale and by closer management of overheads.
We have enhanced our leadership team, which now
reflects a balance of hospitality and other consumer sector
experience, and brings significantly improved analytical and
customer insight capabilities, enabling us to react more swiftly
in a fast changing market.
The Restaurant Group plc Annual Report 2017 07
OverviewStrategic reportGovernanceFinancial statements
Financial review
Results
2017 financial year is a 52 week year compared to a 53 week
year in 2016 financial year. The comparatives set out in this
section reflect the business’s performance versus the
statutory 53 week period in 2016 unless otherwise stated.
Like-for-like sales declined by 3.0% for the year, with total
revenue down 1.8% on a comparable 52 versus 52 week
basis. On a statutory basis, revenue decreased by 4.4%
to £679.3m (2016: £710.7m). The like-for-like sales decline
reflects the investments we made in price and proposition
across our Leisure brands, particularly in the second half of
the year, which were partially offset by a strong like-for-like
sales performance from our Pubs and Concessions businesses.
With declining like-for-like sales, investments made in more
competitive pricing, marketing and product quality and
significant inflationary cost pressures that were only partially
offset by the cost saving initiatives, the Group’s Adjusted1
operating profit (EBIT) fell by 26.0% to £58.6m (2016: £79.2m)
with the Adjusted1 operating margin falling from 11.1% to
8.6%. On a statutory basis, the Group’s operating profit (EBIT)
was £45.4m (20162: loss of £47.3m).
Net interest costs remain broadly in line with 2016, reflecting
the modest levels of net debt within the business. This
resulted in adjusted1 profit before tax for the year of £56.7m
(2016: £77.1m), with Adjusted1 profit after tax of £44.7m
(2016: £60.1m). The Adjusted1 effective tax rate for the Group
reduced to 21.3% (2016: 22.1%), in line with the reduction
to the main rate of corporation tax. On a statutory basis, the
effective tax rate of 24.4% (20162: tax credit 2.7%) reflects
the lower exceptional charges in the year. Adjusted1 earnings
per share were 22.3p (2016: 30.0p). On a statutory basis,
profit before tax was £43.6m (20162: loss before tax of
£49.3m) and EPS was 16.4p (20162: loss per share 24.0p).
Kirk Davis
Chief Financial Officer
“ Operating cash
flows remained
very strong with
free cash flow of
£84.9m in the year
(2016: £78.9m).”
08 The Restaurant Group plc Annual Report 2017
The adjusted measures are summarised below:
Summary cash flow for the year is set out below:
52 weeks
ended
31 December
2017
£m
53 weeks
ended
1 January
2017
£m
% change
Revenue
679.3
710.7
(4.4%)
Adjusted1 EBITDA
95.1
121.0
(21.4%)
Adjusted1 operating
profit
Adjusted1 operating
margin
58.6
79.2
(26.0%)
8.6%
11.1%
Adjusted1 profit
before tax
Tax
Adjusted1 profit
after tax
56.7
(12.1)
77.1
(17.0)
(26.4%)
44.7
60.1
(25.7%)
Adjusted1 EPS (pence)
22.3
30.0
(25.7%)
1 Adjusted measures are stated before exceptional items and are as defined
within the glossary.
2 As restated, refer to Note 1 for details.
Cash flow and net debt
Operating cash flows remained very strong with free cash flow
of £84.9m in the year (2016: £78.9m). This improvement in
free cash flow reflects the lower operating profit offset by a
reduction in maintenance capital expenditure, an improvement
in working capital and lower tax payments in the year, the
latter as a result of the statutory loss for the year ended 2016.
The Group’s net debt at the year-end was £21.6m, a decrease
of £6.7m on the prior year net debt of £28.3m.
Adjusted1 operating profit
Working capital and non-cash
adjustments
Depreciation
Operating cash flow
Net interest paid
Tax paid
Maintenance capital expenditure
Free cash flow
Development capital expenditure
Movement in capital creditors
Dividends
Utilisation of onerous lease
provisions
Exceptional restructuring costs
Other items
Net cash flow
Net bank debt brought forward
Net bank debt carried forward
2017
£m
58.6
12.5
36.5
107.6
(0.7)
(7.1)
(14.9)
84.9
(18.4)
(5.9)
(34.9)
(12.7)
(6.8)
0.5
6.7
(28.3)
(21.6)
2016
£m
79.2
1.1
41.8
122.1
(0.8)
(16.2)
(26.2)
78.9
(28.8)
(10.3)
(34.9)
(3.3)
(3.8)
2.3
0.1
(28.4)
(28.3)
The Group continues to maintain considerable headroom on
the covenants relating to our £140m revolving credit facility,
which is in place until June 2020.
Banking
covenant
2017
2016
Banking covenant
ratios:
EBITDA / Interest
cover
Net debt / EBITDA
Other ratios:
Fixed charge cover
Balance sheet gearing
>4x
<3x
n/a
n/a
66x
0.2x
2.1x
11%
60x
0.2x
2.4x
14%
The Restaurant Group plc Annual Report 2017 09
OverviewStrategic reportGovernanceFinancial statements
Financial review continued
Capital expenditure
During the year the Group invested £33.3m (2016: £55.0m)
in capital expenditure. Our investment in maintenance capital
expenditure reduced to £14.9m (2016: £26.2m) given the
one-off spend in 2016 of £7.0m relating to the Frankie &
Benny’s bar reduction programme and the rephasing of
major refurbishment projects into 2018. Our investment in new
site expenditure reduced to £18.4m (2016: £28.8m) reflecting
the lower number of new site openings in 2017 versus 2016.
Restructuring and exceptional charge
An exceptional pre-tax charge of £13.2m has been recorded
in the year (20162: £126.5m), which includes the following:
– Onerous lease provisions resulted in a charge of £4.2m in
the year (20162: £51.5m, including the prior year restatement
of £9.8m). This comprises:
• a £7.3m credit in respect of unutilised provisions following
the successful exit of 21 sites ahead of expectations; and
During the year we closed 13 sites, including five concessions
which had reached the end of their contractual life and eight
leisure sites which no longer generated acceptable cash
returns. The table below summarises openings and closures
during the year.
Year-end
2016 Opened
Closed Transfers
Year-end
2017
Frankie & Benny’s
Chiquito
Coast to Coast/
Filling Station
Garfunkel’s
Joe’s Kitchen
Pub restaurants
Concessions
Total
258
79
28
8
4
57
59
493
7
6
–
–
–
3
1
17
(6)
–
(2)
–
–
–
(5)
(13)
–
–
–
–
–
–
–
–
259
85
26
8
4
60
55
497
The Group benefits from a strong freehold and long leasehold
property asset base which has been externally valued by
Savills at the year-end at £148.2m compared to the carrying
value of £110.9m.
We expect to open between 16 to 20 units in 2018 which will
be weighted towards Pubs and Concessions with associated
capital expenditure of between £24m-£30m. Refurbishment
and maintenance capital expenditure will range from
£20m-£25m.
• a further charge totalling £11.5m was provided for in
the year. This comprised a release of £4.5m in respect
of certain sites where performance was better than
expected, £5.7m in respect of newly identified onerous
leases and a charge of £10.3m in respect of sites
previously provided for.
– A net impairment charge of £4.2m (2016: £68.1m) was
made against the carrying value of specific restaurant assets
due to recent changes in certain markets. This comprises
an impairment charge of £5.3m partially offset by reversals
of previously recognised impairment losses of £1.1m; and
– A £4.8m charge (2016: £6.9m) relating to costs incurred
in the restructuring projects that were initiated in 2017
to implement the new business strategy and cost saving
initiatives.
Cash expenditure associated with the above exceptional
charges was £19.5m in the year (2016: £7.1m) relating to the
costs associated with the implementation of the new business
strategy £6.8m and the cash cost of the onerous leases of
£12.7m. The tax credit relating to these exceptional charges
was £1.4m (2016: £18.4m).
10 The Restaurant Group plc Annual Report 2017
Prior year restatement
During the year, we identified two historical elements of the
mechanical calculations of the onerous lease provisions
that were either not in line with recent industry practice or
using incorrect data. This resulted in a net movement in the
provision of £9.8m and there was no cash impact (refer to
Note 1 for more details).
These were initially accounted for as exceptional items within
the 2017 half year results. Following the publication of the
Group’s Interim Report the Financial Reporting Council (FRC)
wrote to the Company to determine whether the amendment
should be accounted for within the prior year as the correction
of a prior year error. As a result of this request, the Company
has reviewed the accounting treatment again and taken the
decision to restate the 2016 year-end financial statements
and record these two amendments as corrections of prior
year errors.
This has increased the prior year exceptional onerous lease
charge within the income statement and the provision for
onerous leases by £9.8m. This has also increased the tax
credit on exceptional costs from £16.4m to £18.4m, resulting
in a net impact on statutory profit after tax of £7.8m.
Review of distributable reserves and
rectification of prior dividends
In December 2017, we became aware of a technical matter
relating to the levels of distributable reserves and the payment
of interim and final dividends to our shareholders during
the period from 2006 to 2017 (‘the Relevant Dividends’).
Throughout this period, the Group had adequate reserves
in subsidiary companies to enable payment of the Relevant
Dividends, and each year payment of the final dividends was
approved by the Company’s shareholders at its annual
general meeting. However, a review of historical intra-group
transactions revealed that internal dividends paid up through
the Group structure in the period from 2006 to 2017 did not,
due to a technicality, create distributable reserves in the
manner that had been intended. As a consequence, the
Relevant Dividends were not paid out of distributable reserves
and were therefore not paid in accordance with the
Companies Act 2006.
We are undertaking a series of administrative steps in order
to rectify this issue and put the Company and its subsidiaries,
insofar as possible, in the position that was originally
intended with respect to the creation of distributable reserves.
The majority of these steps were implemented prior to
31 December 2017. In addition, we will in due course put
a resolution to shareholders which, if passed, would put all
potentially affected parties, insofar as possible, in the position
they would be had the Relevant Dividends been paid in
accordance with the requirements of the Companies Act 2006.
Full details will be included in the circular and notice of general
meeting to be sent to shareholders. It is anticipated that the
general meeting to consider the resolution will be held on the
same day as the 2018 AGM.
Tax
The Adjusted1 tax charge for the year was £12.1m (2016: £17.0m),
summarised as follows:
Corporation tax
Deferred tax
Total
Effective adjusted tax rate
2017
£m
10.8
1.3
12.1
21.3%
2016
£m
16.9
0.1
17.0
22.1%
The effective Adjusted1 tax rate for the year was 21.3%
compared to 22.1% in the prior year. This decrease in rate
reflects the ongoing reduction in the main rate of corporation
tax. The Group’s effective tax rate will continue to track
above the headline UK tax rate primarily due to our capital
expenditure programme and the significant levels of
disallowable capital expenditure therein. The statutory
effective tax rate for the year was 24.4%, which increased
from the 20162 rate of 2.7% credit due to the reduction in
exceptional charges in the year.
The Restaurant Group plc Annual Report 2017 11
OverviewStrategic reportGovernanceFinancial statements
Financial review continued
Principal risks and uncertainties
Principal risks and uncertainties faced by the group are
discussed in the senior risk committee report on page 60
and incorporated by reference.
Adjusted Performance Metrics
Throughout the strategic report we use a range of financial
and non-financial metrics to assess our performance.
A number of the financial metrics, adjusted EBITDA, adjusted
operating profit, net debt, free cash flow, adjusted EPS,
adjusted diluted EPS and adjusted profit before tax are not
defined under IFRS, so they are termed Adjusted Performance
Metrics (APMs).
Management uses these metrics to monitor the Group’s
financial performance alongside IFRS metrics because they
help illustrate the underlying financial performance and
position of the Group. We have defined and explained the
purpose of each of these metrics on page 115, where we
provide more detail.
These APMs should be considered in addition to the IFRS
disclosures. APMs are not uniformly defined by all companies,
including those in the Group’s industry. Accordingly, APMs
may not be comparable with similarly titled metrics and
disclosures by other companies.
Kirk Davis
Chief Financial Officer
7 March 2018
Long term viability statement
In accordance with provision C.2.2 of the 2014 revision of the
UK Corporate Governance Code (the ‘Code’), the Directors
have assessed the viability of the Group over a three-year
period to December 2020.
The Directors believe that three years is the appropriate
time-period over which to evaluate long term viability as this
is consistent with the Group’s strategic planning process. The
latest three-year plan was approved by the board in July 2017
(updated to reflect the approved 2018 budget) and covers
the three-year period to the end of the 2020 financial year.
Key assumptions underpinning the three-year plan and the
associated cash flow forecasts are the economic outlook,
revenue growth expectations, impact of expected inflationary
cost pressures and new site development opportunities.
The three-year plan considers cash flows, headroom on
and compliance with the financial covenants contained within
the Group’s revolving credit facility.
The Group’s long term financing is provided by its £140m
revolving credit facility which is in place until June 2020.
The Group also utilises a repayable on demand overdraft
facility which it uses to manage its day-to-day working capital
requirements.
As detailed on page 60 the Board has conducted a robust
assessment of the principal risks facing the business. The
resilience of the Group to the impact of these risks has been
assessed by applying a significant but plausible sensitivity to
the cash flow projections based on past experience. This
includes modelling the effect of reduced consumer confidence
and therefore spending, and the failure of our business to
maintain and develop compelling customer offers.
Taking account of the company’s current position, principal
risks and the sensitivity analysis discussed above, as well
as the potential mitigating actions that the company can take,
and the experience that the company has in adapting the
business to change, the Board has a reasonable expectation
that the company will be able to continue in operation and
meet its liabilities as they fall due over the three-year period
of assessment.
12 The Restaurant Group plc Annual Report 2017
Corporate social responsibility
We are committed to doing business responsibly and
acknowledge that The Restaurant Group has a significant role
to play in the communities and the wider environment in which
we operate. This report sets out the principal areas of focus
and activity for 2017 in the areas of nutrition, sustainable and
ethical sourcing, nurturing and developing our employees,
engaging with our communities and reducing the environmental
impact of the Group on the wider environment.
Sustainable and ethical sourcing
We practice responsible sourcing throughout our supply
chain ensuring our customers get great quality, high welfare
and sustainable food on their plates.
All of our suppliers must be certified to the British Retail
Consortium Food standard or equivalent as a minimum and
we conduct routine supplier audits ourselves to ensure our
suppliers are operating to our high standards.
We are committed to sourcing sustainable fish and as such
introduced a detailed policy in 2016, within which we commit
to source Marine Stewardship Council (MSC) certified fish
where available. We also work with our suppliers and farmers
(both UK and non-UK) to provide further emphasis and
guidance on farm-antibiotic use.
We committed to sourcing all our shell eggs and mayonnaise
from cage-free and/or free-range sources by the end of 2017,
and this was achieved in November 2017 when all shell eggs
used in our restaurants converted to RSPCA Assured™ Free
Range. Furthermore, we are committed to ensuring that eggs
used as an ingredient in our supply chain will be cage-free
and/or free-range by the end of 2023 at the latest. Work is
already underway to achieve this goal.
We are a member of the Supplier Ethical Data Exchange
(Sedex), which facilitates measurement and improvement in
ethical business practices across the supply chain. We require
all of our suppliers to be registered and risk assessed with
Sedex. All suppliers must also meet the requirements of
our Responsible Sourcing Policy which has been introduced
to our direct suppliers and disseminated throughout each
supply chain.
In order to benchmark our sustainability performance in
our sector we are members of The Sustainable Restaurant
Association. In 2017 we obtained a 2 Star rating, an increase
from 1 Star in 2016.
As in previous years, there continues to be no genetically
modified foods or artificial trans fats in any of our products,
and we have banned colours that cause hyperactivity in
children from any of our products served to children.
Nutrition and Health
We are committed to offering a healthy choice for our
customers. We offer a free side of vegetables with all kid’s
meals and use fresh fruit and vegetables in many of our
dishes. The nutritional balance of menus is incorporated into
the design process and we are committed to increasing the
number of lower calorie, salt and sugar options available on
all future menus. Our nutrition policy challenges us always
to have a number of healthy choices on our menus.
In 2017, we implemented initiatives to reduce sugar in our
dishes in line with the UK Government’s Childhood Obesity
Plan. Our Frankie & Benny’s Kid’s menu was relaunched in
the summer, within which the range of fruit and vegetables
on offer was increased, and further fruit based desserts and
drinks were added. In addition, portion sizes were adjusted,
and the promotion of sugar-containing carbonated soft drinks
was removed.
We’ve reduced the amount of salt in our bespoke products
purchased directly from suppliers, in line with the Department
of Health Responsibility Deal for 2017. 95.3% of all products
purchased adhere to 2017 Salt targets.
Allergens
Frankie & Benny’s and Chiquito offer a Coeliac UK accredited
Gluten Free menu to cater for those with Coeliac Disease.
This menu offers a wide range of dishes, and in 2017 we
introduced gluten free burgers, pastas and pizzas in Frankie
& Benny’s to add further choice to our guests.
Our allergen information is available online on our brand
websites which allows us to provide accurate information to
our guests and can be updated daily. It allows guests to create
their own bespoke menu based on their particular allergies,
intolerances, or vegetarian and vegan preferences.
The Restaurant Group plc Annual Report 2017 13
OverviewStrategic reportGovernanceFinancial statements
Corporate social responsibility continued
Serving alcohol responsibly
We operate Challenge 25 in Scotland and Challenge 21
in England, Wales and Northern Ireland.
We continue to support Drinkaware and all menus now
display the Drinkaware logo to promote responsible drinking.
We offer very low alcohol beer and a wide range of alcohol
free mocktails, soft drinks and milkshakes. Many of our
Concessions restaurants also offer a low alcohol wine option.
Food safety
The health and safety of our customers and employees is
of paramount importance to us. The Group has extensive
procedures to ensure we mitigate risks to our guests and
teams as far as possible. We have very clear procedures and
standards in place, and to enforce these we employ external
auditors to perform a rolling programme of independent
safety audits and carry out benchmarking of our restaurants.
As at 31 December 2017, over 98% of our restaurants scored
4 stars or above (including pass in Scotland) under the Food
Hygiene Rating Scheme, a sign of excellence in both food
safety and hygiene, with 90% at 5 stars or a pass in Scotland.
We have invested significant time and resources in health and
safety matters across the Group to further enhance the clean,
safe environment for our customers and staff.
Our people
As a hospitality Group where a great customer experience
is key to business success, we have always believed that
our most important assets are our people. With over 15,200
employees (at the end of December 2017) our focus during
2017 has been on robust performance management and
objective setting, allowing us to identify and grow our internal
talent, and support our managers to develop their own
careers within the Group whilst building great teams.
At the beginning of 2017 we conducted a review of the
structure and processes across our central support office
and field teams. Through process improvements, removing
organisational layers and increasing spans of control, we
were able to remove 53 roles. We have reinvested some
of these savings into growing areas that will improve revenue
and the guest experience, such as Food Innovation,
Operational Excellence and Marketing.
During 2017 the Group successfully opened a further
17 restaurants and pubs creating new jobs within local
communities. As part of the ongoing commercial review
of our estate we also took the difficult decision to close
13 sites. We were however able to redeploy and retain
many of the employees from these sites.
The Restaurant Group is committed to a policy of being a fair
and inclusive employer. Employment with the Group offers
everyone equal rights, and career development and promotion
prospects, regardless of age, race, gender, sexual orientation,
disability or religion. We ensure as far as possible that the
diversity of our teams reflects the diversity of the customers
we serve. Details relating to the gender diversity of our
employees are contained in the corporate governance report
on page 24.
If an employee is disabled in any way, or becomes disabled
during their employment with us, then our policy is to offer
assistance and explore ways of overcoming any difficulties
they may have at work, and make adjustments to help them
wherever possible.
Our commitment to equality and human rights is discussed
in the induction for all employees and covered in the on line
policies and employee handbook which are accessible to all.
The policies include an Equality and Diversity Policy, a
Family Friendly Policy, and a Harassment and Bullying Policy.
The various management skills courses offered cover the
responsibilities of the management team in upholding these
policies to ensure a safe and respectful working environment.
Regarding anti-corruption and bribery, it is our policy to
conduct all of our business in an honest and ethical manner.
We take a zero-tolerance approach to bribery and corruption
and are committed to acting professionally, fairly and with
integrity in all our business dealings and relationships.
All employees must declare and keep a record of all hospitality
or gifts given or received, and all expenses claims relating
to hospitality, gifts, or payments to third parties must be
submitted in accordance with our expenses policy and record
the reason for expenditure. Anyone offered, or asked to
make, a bribe, or who suspects any bribery or corruption
has occurred, is obliged to notify the Company Secretary
without delay. So far as we are aware, there were no
incidences of bribery or corruption during 2017.
14 The Restaurant Group plc Annual Report 2017
The Group pays all of its employees at least the National
Minimum Wage (or for over 25’s the National Living Wage)
appropriate to their age. Tips are not included in this rate,
and all gratuities are additional to their hourly rate and are
paid directly to the employees. Cash tips are self-declared,
and only the tips paid by credit card have tax deducted by
the Company. Also, unlike some of our competitors, no card
processing administration fee is taken by the Company.
We conducted an all employee engagement survey in 2017
and were pleased that engagement levels were high with
85% of employees ‘Proud to work for TRG’ and over 90% of
respondents saying that they respect their manager and feel
they can make a contribution to TRG. We followed up the
survey with focus groups to gain more understanding of how
our teams feel and have already taken action to address
some of the lower scoring areas such as work life balance,
staff uniforms and performance management.
In 2017 all employees from the Leisure brands were given
the opportunity to vote for their choice of Charity Partner,
and Cancer Research UK was a clear winner from a shortlist
of four charities. We will be encouraging employees to
undertake volunteering activity as well as fundraising at
a local and national level.
We need to ensure that communications remain accessible,
relevant and interesting to all of our employee population,
for a significant proportion of whom English is not their
first language. There will be further development of our
communication channels and messaging this year, and as
well as regular business updates there will be more focus on
‘softer’ areas such as charity fund raising, health and wellness.
During 2017 we introduced a number of performance related
employee incentive schemes and launched a Suggestion
Scheme. We also launched another Save As You Earn share
option scheme in 2017, which all employees with more than
three months’ employment were invited to join.
In 2017, we reported 58 accidents under the Reporting of
Injuries, Diseases and Dangerous Occurrences Regulations
2013, with no deaths or dangerous occurrences. This was
a significant reduction on both our 2016 and 2015 figures.
Nurturing and developing our people
We have a dedicated learning and development team whose
aim is to ensure all our employees are the best they can be.
We have simplified and digitalized many of the development
tools and activities and they are linked to a ‘Leisure Career
Path’ for each role, thus encouraging cross brand movement
and providing more opportunities for everyone to progress
their hospitality career with The Restaurant Group.
In 2017, to coincide with the launch of the apprentice levy
and the new learning frameworks, we launched five new
apprenticeship schemes across the Group. In Leisure brands
and Concessions, we launched Level 2 TRG chef apprenticeship
and Level 3 TRG Hospitality Management, and in the Pubs,
we launched L2 and L3 Professional Cookery and Level 3
Hospitality Supervisor. Over 100 learners are already live and
there is a lot of interest in the Level 4 Senior Hospitality
Management Apprenticeship due to be launched in 2018.
We continue to focus on identifying talent and using these
identified ‘talent pools’ for succession planning and internal
promotion. During 2017, 624 of our employees were promoted
internally into management roles or promoted into higher
management, including 140 General Manager appointments.
303 members of management were recruited externally.
We hope that with our new career pathways and the pipeline
of management apprentices, we can maintain, or even further
increase, internal promotions across the Group.
Online learning and workshops
Everyone in the Group now has access to our FLOW
eLearning centre, which holds a host of TRG specific learning
materials that support employees from their first day with the
Group and ensures they are able to perform their role safely
and effectively. FLOW also holds more generic learning
materials for our managers on key topics such as leadership,
coaching and performance management. 74,000 eLearning
modules were completed on the FLOW system in 2017, which
was nearly double the number from the previous year.
As well as online learning and tests we also recognise the
importance of face-to-face learning, and in 2017 there were
225 workshops run by our in-house teams and, for more
senior managers, our external training partners. The new
management induction programme and all the workshops
are now run cross brands and give our management teams
the chance to learn from each other, share best practice,
and build on their development plans.
For our senior leaders, we retained membership of the Henley
Business School Partnership which provides access to the
latest thinking on a wide range of leadership topics. We filled
50 workshop places in 2017, which was double the number
of the previous year, and used these events to supplement
the development of our up-and-coming talent.
The Restaurant Group plc Annual Report 2017 15
OverviewStrategic reportGovernanceFinancial statements
Corporate social responsibility continued
Managers in Training
All new managers into our restaurants are enrolled on the
Manager in Training (MIT) programme. This gives managers
a structured pathway to be a successful manager with us.
The programme covers all aspects of operational management
and hospitality, as well as leadership skills, and is designed
to reflect the culture, behaviours and values of the Group.
External hires and internally promoted management work with
experienced managers in restaurants designated as ‘Centres
of Excellence’ for up to six weeks. During their training they
experience a variety of learning events and are supported by
their line manager and the learning and development team.
Team member training and development
On the job learning is critical for the development of our
people and forms the majority of their training with TRG.
However, to give them the technical knowledge required in
areas such as Allergens and Food Safety, and to check their
understanding, there are also eLearning modules and tests
that must be completed. Management across the business,
as well as the learning and development team, are always
on hand to guide and support people throughout their career
with The Restaurant Group.
Recruitment
We have been working on building the TRG external
recruitment brand to enable us to attract the best of the
available external talent through low cost methods. We have
increased our presence on LinkedIn and other key recruitment
sites and relaunched the employee referral scheme across
the Leisure business. We now have nearly 10,000 followers on
LinkedIn, and we recruited 10 roles through LinkedIn in 2017.
Our internal recruitment team recruited over 300 managers
into our restaurants and pubs for Assistant, Deputy and
General Management roles, and as a result of the brand and
awareness building activity we reduced the cost of each hire
by 67% in 2017.
The new Applicant Tracking System ‘Harri’ went live in 2017
and provides a seamless recruitment and on boarding
process. It is more engaging for the candidate and more
efficient for us as a business to recruit our future talent.
Our communities
We are passionate about engaging with our communities
and actively support our teams in their fundraising efforts
and community engagements. Over many years we have
supported a number of local and national charities.
The brands that make up our
Leisure Division include
Frankie & Benny’s, which had
a long standing partnership
with Children in Need, raising
large amounts for a charity
close to our hearts as a family brand. In more recent years
Frankie & Benny’s has assisted children’s charities such
as Rays of Sunshine, and Together for Short Lives.
Also in the Leisure Division,
Chiquito has raised money for
Children with Cancer UK
with the funds going towards
supporting families during
extremely difficult times.
Other Leisure brands have
linked with Global’s Make Some Noise, and the
Children’s Hospice Association Scotland (CHAS).
In 2018 we are proud to announce that we have joined
together for the very first time to form a different kind of
partnership with a national charity. Each employee was
given the opportunity to vote for our charity partner and
they chose Cancer Research UK. The team of over
12,000 colleagues will concentrate their efforts on making
a difference physically by giving up their precious spare
time volunteering, and financially by raising money through
special events throughout the year. We are very excited
about the new style partnership and look forward to
a successful 2018.
Our Concessions Division, mainly based in airport
locations around the country, work extremely hard for
a range of charities.
16 The Restaurant Group plc Annual Report 2017
The School Club Zambia charity was founded in 2011 to
work in partnership with community schools in Zambia to
ensure children have access to a relevant and sustainable
education, helping them become financially self-sufficient,
up-scale their vocational education, and improve their
employment potential in the community. Since our
partnership began in December
2013, we have raised nearly
£40,000 with donations largely
coming from a proportion of the
sale of selected dishes sold at
some of our Concessions pub
brands.
Our team at Joe’s Kitchen, Manchester Airport,
has been working with Manchester Enterprise Academy
since 2013 to create curriculum visits, which amongst other
things gives students the opportunity to visit our restaurants
to practice life skills and broaden their appreciation of food
and eating out through fun activities including designing their
own smoothies and pizzas.
The Prince’s Trust is a youth charity that supports 13 to 30
year olds who are unemployed or struggling at school
and at risk of exclusion. Our Concessions team support
The Prince’s Trust programme by enabling 18 to 30 year
olds to work in our units at London Luton Airport. We give
them an insight into working life for two weeks, which in
some cases has led to participants being employed as
permanent team members.
Since 2009, the Concessions team have also fundraised
for The Guide Dogs for the Blind Association and
sponsored 17 Guide Dogs through various fundraising
activities and sponsored events. In 2016, they raised £5,000
for the Name a Puppy scheme, naming their first puppy
‘Simba’. During 2017 they have raised enough to name
another Puppy and are awaiting further details.
Our Pubs Division is situated in locations that are in the
very heart of their local communities.
Each individual pub works hard to engage with and support
many individual groups and events directly within their
local area.
Additionally, multiple pubs often get together to support
national charities, including throwing themselves into
‘National Jumper Day’ raising money for Save the
Children, and participating in ‘National coffee morning
week’ for Macmillan nurses.
Two employees from the Hayhurst Arms recently completed
a huge canoe challenge where they canoed 266 miles for
the Joshua Tree charity, which supports families affected
by childhood cancer. Also, a team member from the Armoury
walked the Cornish coastline for Shrewsbury Ark, a local
homeless charity, and the Brain Tumour Society.
As our pubs are very dog friendly, they encourage widespread
backing for dogs charities, joining in local dog walks and
supporting The Guide Dogs for the Blind Association
and Dog’s Trust.
Educational Support
We also engage with local schools, hosting educational
workshops in our restaurants where pupils learn about
Frankie & Benny’s and see the work we do first hand.
Charities Aid Foundation Give As You Earn
In early 2014, the Group teamed up with the Charities Aid
Foundation to allow our team members the facility to donate to
their favourite charities directly from their salary. This enables
employees to make a regular donation in a tax efficient way
to registered charities and also local clubs, parent teacher
associations and even Scout or Brownie groups.
We will continue to work hard to ensure we make a difference
both to our local community and the wider world around us.
The Restaurant Group plc Annual Report 2017 17
OverviewStrategic reportGovernanceFinancial statements
Corporate social responsibility continued
Our environment
The Group recognises its responsibility to minimise its impact
on the natural environment and continues in its commitment
to reduce its energy consumption and carbon emissions,
water usage and waste.
Energy Consumption and Carbon Emissions
We continue to promote our energy saving campaign to all
restaurants through the timely supply of accurate reporting.
Operational managers have the information they need to
allow them to monitor and reduce energy consumption
levels through an online portal and centralised data resource.
During 2017 the group trialed several energy control systems
which passed proof of concept, but we found better value
to be had by improving and increasing our behavioral change
as detailed below.
The Group still maintains Carbon Saver Gold Standard
accreditation, showing seven years commitment to reducing
carbon emissions. The Group also continued to be accredited
by the Sustainable Restaurant Association, scoring highly
in the Environment section. 2017 showed an 8th consecutive
year of LFL energy consumption reduction as illustrated
below. The reduction of over 3,800,000 kWh is equivalent
to nearly 1,500 tonnes of carbon. This equates to a saving
of 3.8% on LFL measurable sites and is a significant
improvement on the 2016 reduction. This was achieved by
continuing to use low energy lighting, including an install at our
head office with sensors and timers; but mostly it was due
to the increased use of data to target and control exceptional
usage. Reporting to site, area and regional points have all
been improved as has support to sites, all of which contribute
to increased operational understanding and engagement.
Monthly electricity consumption 2016 v 2017 (KWh)
10,000,000
9,500,000
9,000,000
8,500,000
8,000,000
7,500,000
7,000,000
6,500,000
%
0
2
.
1
%
2
3
.
6
-
%
2
4
.
2
-
%
8
7
.
4
-
%
5
0
.
2
-
%
1
8
.
0
-
%
4
5
.
4
-
%
6
0
.
6
-
%
6
6
.
5
-
%
7
6
.
6
-
%
2
3
.
1
-
%
7
9
.
5
-
Jan
Feb Mar Apr May
Jun
Jul
Aug Sep Oct
Nov
Dec
2016
2017
2016 vs. 2017 % Change: -3.75%
Number of sites included: 377 (like-for-like period)
In 2016 we significantly improved our data coverage and
accuracy for gas, which meant that in 2017 we were for the
first time able to track and impact our gas volumes using
the same operational engagement strategy as electricity.
As shown below, the result was a reduction of over 3,100,000
kWh, which is equivalent to nearly 600 further tonnes of
carbon. This equates to a saving of 4.4% on LFL measurable
sites.
Monthly gas consumption 2016 v 2017 (KWh)
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
%
0
8
.
0
%
0
6
.
7
-
%
2
8
.
2
1
-
%
5
7
.
9
-
%
3
5
.
2
-
%
9
4
.
1
%
8
6
.
% -
7
6
2
.
6
-
%
0
8
.
1
-
%
1
8
.
2
-
%
2
7
.
0
-
%
5
7
.
1
Jan
Feb Mar Apr May
Jun
Jul
Aug Sep Oct
Nov
Dec
2016
2017
2016 vs. 2017 % Change: -4.37%
Number of sites included: 309 (like-for-like period)
Greenhouse gas emissions
We report Scope 1 and 2 emissions defined by the
Greenhouse Gas protocol as follows:
• Scope 1 (Direct emissions): combustion of fuel and
operation of facilities; and
• Scope 2 (Indirect emissions): consumption of purchased
electricity, heat or steam.
Greenhouse gas emissions data
Emissions data in respect of the 2016 reporting period,
on the financial control reporting basis, is as follows:
Emission Type
Scope 1:
Operation of Facilities
Combustion
Total Scope 1 Emissions
Scope 2:
Purchased Energy (UK)
Total Scope 2 Emissions
Total Emissions
CO2e tonnes
(location-based method)
2017
2016
734
18,237
18,971
45,865
45,865
64,836
930
19,667
20,597
55,349
55,349
75,946
18 The Restaurant Group plc Annual Report 2017
Greenhouse gas emissions intensity ratio
2017
2016
Year-on-
Year
Variance
Waste
The Group has further improved its diversion from landfill
to 99%; up from 90% in 2016. A significant number of sites
divert 100% of their waste from landfill. Year on year progress
in this area is illustrated below:
Total Footprint
(Scope 1 and
Scope 2) – CO2e
Turnover (£)
Intensity Ratio –
Scope 2 location
based method
(tCO2e/£100,000)
Scope and methodology:
64,836
679.2m
75,946
710.7m
-11,110
-4.43%
0.095
0.107
-11.21%
• Our methodology has been based on the principles of the Greenhouse
Gas Protocol, taking account of the 2015 amendment which sets out
a ‘dual reporting’ methodology for the reporting of Scope 2 emissions.
TRG only report the Location based method.
• We have reported on all the measured emissions sources required under
The Companies Act 2006 (strategic report and Directors’ report) Regulations
2013, except where stated.
• The period of our report is the calendar year 2017.
• This includes emissions under Scope 1 and 2, except where stated,
but excludes any emissions from Scope 3.
Monthly waste diversion (%)
100
90
80
70
60
50
40
30
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct
Nov
Dec
2014
2015
2016
Pages 2 to 19 form the strategic report.
Approved by the Board of Directors and signed on its behalf by:
• Conversion factors for UK electricity (location-based methodology), gas
and other emissions are those published by the Department for Environment,
Food and Rural Affairs for 2016.
• Decrease in location-based methodology primarily due to reduced
Kirk Davis
Chief Financial Officer
electricity consumption and lower carbon factor with an additional decrease
in LPG usage.
7 March 2018
Water
For water the Group benchmark restaurants and pubs by
average daily usage and use data validation to highlight high
or anomaly users. Where usage increases or is marked as
high the restaurant or pub is surveyed for reduction initiatives
and leak fixes, ensuring that we prevent water wastage and
remain commercially controlled in this area. We now have
ongoing savings of nearly £120,000.
The group also took advantage of the de-regulation of the
water market. We conducted a full market tender exercise
and were able to extend our Scottish deal for preferable terms.
We were also able to consolidate purchasing of English sites
for the first time, taking advantage of commercial benefits
as well as added value benefits such as centralised billing,
supplier contacts and Account Management.
The Restaurant Group plc Annual Report 2017 19
OverviewStrategic reportGovernanceFinancial statements
Corporate governance report
Debbie Hewitt MBE
Chairman’s introduction
The Board has a wide range of responsibilities and my overall objective is to ensure
that we have the right mix of skills and experience to leverage the opportunities
and overcome the challenges that the Company faces and that it works effectively
as a team to identify, prioritise, communicate and review the delivery of our goals.
With the appropriate skills and experience in place, my specific role is to ensure
that there is the right mix of challenge and support to the executive Directors from
the non-executives and that it is done in the context of a culture that reflects strong
levels of corporate governance.
The non-executive Directors discuss and agree the strategy with the executive
Directors and hold the executives accountable for its execution; we ensure that
we have the most talented team to execute this strategy and we set the tone
for governance.
The Board is committed to creating and maintaining a culture where these strong
levels of governance thrive throughout the organisation, specifically ensuring
that we send out consistent messages on the core values of the Company and
acceptable behaviours from our people, our suppliers and our advisers. We have
continued our progress in moving towards best practice and we will regularly
review the context, progress and maintenance of these standards, for the benefit
of all of our stakeholders.
Debbie Hewitt MBE
Chairman
20 The Restaurant Group plc Annual Report 2017
In 2017, the Board was further strengthened by two new
appointments. Paul May was appointed a non-executive
director in July 2017, bringing substantial current experience
of managing public and private companies in the retail and
hospitality sectors. He is currently the Chief Executive of AIM
listed Patisserie Valerie. In August 2017, we announced the
decision to appoint Kirk Davis as Chief Financial Officer
following the departure of Barry Nightingale earlier in the year.
He brings extensive finance experience within listed leisure
and retail businesses. After serving his notice with Greene
King plc, Kirk joined our business in February 2018.
During the year, the business has made good progress on
implementing our strategic priorities of re-establishing the
competitiveness of our Leisure brands, serving our customers
better and more efficiently, growing our Pubs and Concessions
businesses and building a leaner, faster and more focused
organisation. The Board continues to recognise and embrace
its role in challenging and supporting senior management
through this transitional phase.
Statement of compliance with the
UK Corporate Governance Code
The Company is required to measure itself against the
UK Corporate Governance Code 2016 (the ‘Code’) which
is available on the Financial Reporting Council website
(www.frc.org.uk).
Throughout 2017 the Company complied with the principles
set out in the Code with the exception that, since the
resignation of Sally Cowdry on 31 August 2017, the
Remuneration Committee has comprised two independent
non-executive directors (in addition to the Company
Chairman) instead of three. It is intended that a third
independent non-executive Director will be appointed to the
Remuneration Committee during 2018. Further explanations
of how the Main Principles of the Code have been applied
are set out below and also in the Directors’ remuneration
report and the Audit Committee report.
Leadership
Role of the Board
The Board’s role is to provide strong value-based leadership
of the Company, within a framework of prudent and effective
controls, which enable risk to be assessed and appropriately
managed. The Board reviews the Group’s business model
and strategic objectives and looks to ensure that the
necessary financial and human resources are in place to
achieve these objectives, to sustain them over the long-term
and to review management performance in their delivery.
The Board sets the tone of the Company’s values and ethical
standards and manages the business in a manner to meet its
obligations to shareholders and other stakeholders. The Board
is responsible for reviewing, challenging and approving the
strategic direction of the Group.
The Restaurant Group plc Annual Report 2017 21
OverviewStrategic reportGovernanceFinancial statements
Corporate governance report continued
The Directors who held office during 2017 were as follows:
Director
Debbie Hewitt
Andy McCue
Simon Cloke
Mike Tye
Graham Clemett
Paul May
Barry Nightingale
Sally Cowdry
Role
Chairman
Chief Executive Officer
Non-executive Director and
Senior independent Director
Non-executive Director and
Chairman of Remuneration Committee
Non-executive Director and
Chairman of Audit Committee
Non-executive Director
Chief Financial Officer
Non-executive Director
Details
Appointed Chairman May 2016,
non-executive Director from May 2015
Appointed September 2016
Appointed March 2010, previously
Chairman of Audit Committee
Appointed April 2016
Appointed June 2016
Appointed July 2017
Resigned April 2017
Resigned August 2017
The Board has a formal schedule of matters specifically
reserved for its consideration which includes items such as:
the approval of the annual budget and business plan; approval
of the Group’s interim and year-end reports; review and
approval of significant capital expenditure; significant
disposals of assets; and acquisitions or disposals of
businesses. Any matter not formally reserved to the Board
is generally delegated to management, unless it has some
unusual or significant feature which makes it appropriate for
it to be considered by the Board.
The Board considers each of the non-executive Directors
to be independent, including the Chairman of the Board,
as set out in the Code. Each Director demonstrates the
skills and experience the Board requires for the success of
the Group. Biographies of the current Directors are set out
on pages 28 and 29.
Division of responsibilities
Andy McCue, Chief Executive Officer, together with the senior
management team, is responsible for the day-to-day running
of the Group and regularly provides reports on performance
to the Board.
Non-executive Directors maintain an ongoing dialogue with
the executive Directors, which includes constructive challenge
of performance and the Group’s strategy. The non-executive
Directors are provided with insightful and appropriate
information to allow them to monitor, assess and challenge
the executive management of the Group.
The senior independent non-executive Director, Simon Cloke,
is available to liaise with shareholders who have concerns
that they feel have not been addressed through the normal
channels of the Chairman, Chief Executive Officer and
Chief Financial Officer.
22 The Restaurant Group plc Annual Report 2017
Meetings and attendance
A summary of each Director’s attendance at meetings that they were eligible to attend of the Board and its Committees during
2017 is shown below. Unless otherwise indicated, all Directors held office throughout the year:
Debbie Hewitt
Andy McCue
Simon Cloke
Mike Tye1
Graham Clemett2
Paul May3,4
Committee appointments
Nom/Rem
n/a
Audit/Nom
Audit/Nom/Rem
Audit/Nom/Rem
Audit/Nom
Board
14/14
14/14
14/14
12/14
13/14
7/8
Audit
Committee
Nomination
Committee
Remuneration
Committee
n/a
n/a
3/3
3/3
3/3
1/2
4/4
n/a
4/4
4/4
3/4
1/1
8/8
n/a
n/a
8/8
7/8
n/a
1 Mike Tye missed two Board meetings due to the short notice on which they were called. Both meetings were held by conference call and dealt with a single item
of business. Mike Tye gave his input to these meetings ahead of the calls.
2 Graham Clemett missed one Board, one Remuneration Committee and one Nomination Committee meeting (which were held on the same day) due to the
short notice on which they were called. All the meetings were held by conference call and dealt with a single item of business. Graham Clemett gave his input
to these meetings ahead of the calls.
3 Paul May was appointed independent non-executive Director in July 2017.
4 Paul May missed one Board and one Audit Committee meeting (which were held on the same day) due to a previous commitment prior to joining the Board.
Comprehensive Board papers are provided to the Directors
prior to Board meetings, and financial information packs are
provided on a monthly basis. The non-executive Directors
have the opportunity to meet without the executive Directors
to examine, among other matters, targets set and performance
achieved by management.
Directors’ and Officers’ liability (‘D&O’) insurance
The Company maintains D&O insurance to cover the cost
of defending civil and criminal proceedings brought against an
individual acting in their capacity as a Director or Officer of the
Company (including those who served as Directors or Officers
during 2017).
Effectiveness
Board composition and diversity
As required by the Code, at least 50% of the Board, excluding
the Chairman, are independent non-executive Directors.
The Board currently comprises two executive Directors, four
independent non-executive Directors and the non-executive
Chairman, in compliance with the Code. The Board considers
that all of the non-executive Directors, including the Chairman,
are independent.
Independent advice
All Directors have access to the advice and services of
the Company Secretary and it has been agreed that in the
furtherance of their duties, Directors are entitled to take
independent professional advice if necessary, at the expense
of the Company.
Conflicts of interest and independence
The Board reviews potential conflicts of interest and
independence where necessary at each meeting. Directors
have continuing obligations to update the Board on any
changes to these conflicts or matters which may impinge
upon their independence.
In 2017, Paul May and Mike Tye were potentially conflicted in
relation to a proposed new operation due to their involvement
with other businesses which operated on the same site.
Accordingly, both Paul May and Mike Tye left the relevant
Board meeting at the appropriate time and did not participate
in the Board’s discussion and subsequent decision in relation
to the matter.
The Restaurant Group plc Annual Report 2017 23
OverviewStrategic reportGovernanceFinancial statements
Corporate governance report continued
Director induction
Paul May joined the Board in July 2017 and Kirk Davis
joined the Board in February 2018. Both were provided
with an induction on appointment, which included visits
to the Group’s operations, meetings with operational and
executive management, and where appropriate meetings
with shareholders, suppliers and company advisers.
Each Director’s induction is tailored to their experience and
background with the aim of enhancing their understanding
of the Group’s business, its brands, employees, shareholders,
suppliers, advisers and processes, and the Board’s role in
setting the tone of the culture and governance standards.
Director training and development
The Company acknowledges the importance of developing
the skills of the Directors to run an effective Board. To assist
in this, Directors are given the opportunity to attend relevant
courses and seminars to acquire additional skills and
experience to enhance their contribution to the ongoing
progress of the Group. Presentations by external advisers
are also given at Board meetings on specific regulatory and
governance topics, and in 2017 a presentation was given
on the Market Abuse Regulation (MAR).
Board effectiveness review
Following the deferral in 2016, an externally facilitated Board
and committee evaluation was conducted in December 2017.
The external facilitator was Lintstock Limited, which has
no other connection with the Company.
The evaluation process involved the completion of
comprehensive, bespoke to The Restaurant Group, individual
Director feedback questionnaires on all aspects of the Board,
its committees and all individual Directors, including the
Chairman (which was overseen by the Senior independent
Director). The completed questionnaires were collated and
analysed by Lintstock, who subsequently attended a Board
meeting to discuss the findings, which were benchmarked
to other high performing Boards.
The principle of Board diversity is strongly supported by the
Board. It is the Board’s policy that appointments to the Board
will always be based solely on merit without any discrimination
relating to age, gender or any other matter that has no bearing
on an individual’s ability to fulfil the role of Director. This is so
that the Board has the right individuals in place, recognising
that diversity of thought, approach and experience is seen
as an important consideration as part of the selective criteria
used to assess candidates to achieve a balanced Board.
Further details on the Board’s and the Group’s policy on
diversity are contained in the Nomination Committee report
on page 36 and the corporate social responsibility report
on page 14.
The table below sets out the position of the Group on a
gender basis as at 31 December 2017:
Main Board
Executive Committee1
Direct Reports to
Executive Committee
TRG Employees at
December 2017
1 Excluding the executive Directors.
Female
1 (17%)
3 (38%)
Male
5 (83%)
5 (62%)
12 (36%)
21 (64%)
7,535 (49.9%)
7,536 (50.1%)
Details of the Directors’ respective experience are set out
in their biographical profiles on pages 28 to 29. The Board
considers that each Director is able to allocate sufficient time
to the Company to discharge their responsibilities effectively.
Annual re-election
In accordance with the Code, Paul May and Kirk Davis are
subject to election by shareholders at the Annual General
Meeting (AGM) in May 2018. All other Directors are subject
to re-election annually. Details setting out why each Director
is deemed to be suitable for re-election will be included with
the AGM papers circulated to shareholders.
Board committees
The Board is supported by three committees: Audit,
Nomination and Remuneration. The terms of reference of
these committees are available at http://www.trgplc.com/
investors/corporate-governance. Full reports for each of
the committees are set out on pages 30 to 56.
24 The Restaurant Group plc Annual Report 2017
Results
The evaluation identified changes which would improve the
working of the Board, including:
• The recruitment of a non-executive Director with digital
expertise.
• A review to understand the factors impacting employee
engagement with the business.
• A review of advisers.
• Continued external input to the Board on topical issues such
as cyber security, the General Data Protection Regulation
(GDPR) and digital.
Individual Director appraisal process
Individual performance evaluations of all members of the
Board are carried out by the following individuals:
Director being appraised
Appraiser
Chairman
Chief Executive
Officer
Chief Financial
Officer
Non-executive
Directors
Reviewed by the executive and
non-executive Directors excluding the
Chairman and feedback facilitated by
the Senior independent non-executive
Director.
Reviewed by all of the non-executive
Directors and Chief Financial Officer
and feedback facilitated by the
Chairman.
Reviewed by the Chief Executive
Officer and all of the non-executive
Directors and feedback facilitated by
the Chief Executive Officer and
Chairman.
Reviewed by the executive Directors
and by their non-executive Director
peers and feedback collated and given
by the Chairman.
Accountability
Risk management
The Board has ultimate responsibility for ensuring the
business risks are effectively managed. The Board has
delegated regular review of the risk management procedures
to the Audit Committee and collectively reviews the overall risk
environment on an annual basis. The day-to-day management
of business risks are the responsibility of the senior
management team together with the senior management
Risk Committee. For the report of the Risk Committee see
pages 59 to 60.
Internal controls
The Group has a system of internal controls which aim to
support the delivery of strategy by managing the risk of failing
to achieve business objectives and the protection of assets.
As such the Group can only provide reasonable and not
absolute assurance.
The Group insures against risks, but certain risks remain
difficult to insure, due to the breadth and cost of cover. In
some cases, external insurance is not available at all, or not
at an economical price. In such cases the Group identifies
and agrees to accept such a risk. The Group regularly reviews
both the type and amount of external insurance that it buys.
There were no meaningful changes to the policy undertaken
in 2017.
Risk map
The Board annually reviews the Group’s risk map, which
includes the principal risks and mitigation process as set out
on page 60.
Remuneration
For information on remuneration see the Remuneration
Committee report on pages 38 to 56.
Relations with shareholders
Share capital structure
The Company’s issued share capital at 1 January 2018
consisted of 201,067,400 ordinary shares of 28 1⁄8 pence
each. There are no special control rights, restrictions on share
transfer or voting rights, or any other special rights pertaining
to any of the shares in issue, and the Company does not have
preference shares. During the year 4,355 new shares were
issued under the Company’s all employee Save As You Earn
scheme.
As far as is reasonably known to management, the Company
is not directly or indirectly owned or controlled by another
Company or by any government.
As granted at the 2017 AGM, the Directors currently have
authority to allot shares in the Company up to an aggregate
nominal amount of £18,849,660. This authority will lapse at
the 2018 AGM, where it is intended that a resolution granting
a similar authority will be put to shareholders.
The Restaurant Group plc Annual Report 2017 25
OverviewStrategic reportGovernanceFinancial statements
Corporate governance report continued
As granted at the 2017 AGM, the Company is currently
authorised to purchase its own shares and to cancel or
hold in treasury such shares provided that: (a) the maximum
aggregate number of shares authorised to be purchased is
20,106,305 (representing 10% of the Company’s then issued
share capital); (b) the minimum price (exclusive of expenses)
which may be paid for each share is 28.125p (being equal to
the nominal value of each share); and (c) the maximum price
(exclusive of expenses) which may be paid for each share is
the higher of (i) an amount equal to 105% of the average of the
middle market quotations for the shares as derived from the
London Stock Exchange Daily Official List for the five business
days preceding the date of purchase, and (ii) the higher of the
price of the last independent trade and the highest current
independent bid on the London Stock Exchange Daily Official
List at the time of the purchase. This authority will lapse at
the 2018 AGM, where it is intended that a resolution granting
a similar authority will be put to shareholders.
Board engagement with shareholders
Communications with shareholders are given high priority.
There is a regular dialogue with institutional investors including
presentations after the Company’s year-end and interim
results announcements. A programme of meetings takes
place throughout the year with major institutional shareholders,
with both executive and non-executive Directors attending,
and private shareholders have the opportunity to meet the
Board face-to-face and ask questions at the AGM.
In addition to the Board’s regular engagement with
shareholders in 2017, the Chairman consulted with major
shareholders on the appointment of key executives, and
the Chairman of the Remuneration Committee wrote to
substantial shareholders in October 2017 to explain the
proposed changes to the remuneration policy and to invite
feedback on the proposals.
Board shareholder updates
Feedback from major institutional shareholders is provided
to the Board on a regular basis and, where appropriate, the
Board takes steps to address their suggestions, concerns
and recommendations.
Re-engaging with ‘gone away’ shareholders
We have engaged ProSearch to locate shareholders with
unclaimed dividends. The programme has been successful
at reunifying both lost shares and unclaimed dividends.
Review of distributable reserves and rectification of
prior dividends
In December 2017, the Company became aware of a technical
matter relating to the levels of distributable reserves and
the payment of interim and final dividends to its shareholders
during the period from 2006 to 2017 (‘the Relevant
Dividends’). Throughout this period, the Group had adequate
reserves in subsidiary companies to enable payment of
the Relevant Dividends, and each year payment of the final
dividends was approved by the Company’s shareholders
at its annual general meeting. However, a review of historical
intra-group transactions revealed that internal dividends
paid up through the Group structure in the period from 2006
to 2017 did not, due to a technicality, create distributable
reserves in the manner that had been intended. As a
consequence, the Relevant Dividends were not paid out
of distributable reserves and were therefore not paid in
accordance with the Companies Act 2006.
The Group is undertaking a series of administrative steps
in order to rectify this issue and put the Company and its
subsidiaries, insofar as possible, in the position that was
originally intended with respect to the creation of distributable
reserves. The majority of these steps were implemented prior
to 31 December 2017. In addition, the Company will in due
course put a resolution to shareholders which, if passed,
would put all potentially affected parties, insofar as possible,
in the position they would be had the Relevant Dividends been
paid in accordance with the requirements of the Companies
Act 2006. Full details will be included in the circular and notice
of general meeting to be sent to shareholders. It is anticipated
that the general meeting to consider the resolution will be held
on the same day as the 2018 AGM.
26 The Restaurant Group plc Annual Report 2017
Substantial shareholdings
As at 31 December 2017, the Company had been notified
of the following interests of 3% or more in the issued share
capital of the Company under the UK Disclosure and
Transparency Rules:
Directors’ shareholdings
For details of Directors’ shareholdings, remuneration and
interests in the Company’s shares and options, together with
information on service contracts, see pages 53 to 56 of the
Directors’ remuneration report.
Number
of shares
% of issue
share capital
FMR LLC
Aberforth Partners LLP
Schroders Plc
Ameriprise Financial Inc
M&G Investment
Management Ltd
J O Hambro Capital
Management
Wellington Management
Company
Rathbones
Artemis Fund Managers Ltd
Royal London Asset
Management Ltd
BlackRock Inc
19,341,883
16,273,984
15,403,828
13,986,964
11,514,782
8,908,078
8,608,075
7,926,352
7,913,803
7,311,495
6,462,517
9.62
8.09
7.66
6.96
5.73
4.43
4.28
3.94
3.94
3.64
3.22
Since 31 December 2017 and up to the date of this report the
Company has been notified of the following interests of 3%
or more in the issued share capital of the Company:
Norges Bank
J O Hambro Capital Management
6,197,609
10,081,492
3.08
5.01
Number
of shares
% of issue
share capital
Annual General Meeting
The AGM is an opportunity for shareholders to vote on
certain aspects of Group business and provides a useful
forum for communication with private shareholders. At the
AGM shareholders receive presentations on the Company’s
performance and may ask questions of the Board. The
Chairman seeks to ensure that all Directors attend and that
the Chairmen of the Audit, Remuneration and Nomination
Committees answer relevant questions at the meeting.
The 2018 AGM will be held at 10am on Wednesday 23 May 2018
at the offices of Instinctif Partners, 65 Gresham Street,
London EC2V 7NQ. The notice convening this meeting has
been sent to shareholders at the same time as publication
of this Annual Report and Accounts and is available at
www.trg.com/investors/reports-and-presentations.
By order of the Board
Debbie Hewitt MBE
Chairman
7 March 2018
The Restaurant Group plc Annual Report 2017 27
OverviewStrategic reportGovernanceFinancial statements
Board of Directors as at 7 March 2018
Debbie Hewitt MBE
Non-executive Chairman
N R
Andy McCue
Chief Executive Officer
Debbie was appointed as a non-executive Director
on 1 May 2015 and Chairman on 12 May 2016. She is
currently non-executive Chair of Moss Bros Group plc,
White Stuff Ltd, and senior non-executive Director of
Redrow plc (which she steps down from in November
2018), NCC Group plc (which she steps down from in
March 2018), BGL Ltd and non-executive Director of
Visa Europe and Domestic and General Ltd.
Her executive career was spent at RAC plc where she was
latterly Group Managing Director and prior to that she was
in retail management with Marks and Spencer. She is a
Fellow of the Chartered Institute of Personnel Development,
and was awarded the MBE for services to Business and
the Public Sector in 2011.
Andy joined the Company as Chief Executive Officer on
19 September 2016. He was previously Chief Executive
of Paddy Power plc, where he embedded a new growth
strategy which delivered record revenues and profits, as
well as playing a pivotal role in the merger with Betfair plc.
Prior to that, he led the Paddy Power UK and Irish retail
businesses, transforming profitability and overseeing its
growth for eight years. Andy joined Paddy Power from
OC&C Strategy Consultants where he was a Principal.
Andy is currently also a non-executive Director, senior
independent Director, and Chairman of the remuneration
committee of Hostelworld Group plc.
Kirk Davis
Chief Financial Officer
A Member of the Audit Committee
N Member of the Nomination Committee
R Member of the Remuneration Committee
Committee Chairman
Kirk joined the Company as Chief Financial Officer on
5 February 2018. He has extensive finance experience
within listed leisure and retail businesses, and was previously
Chief Financial Officer at Greene King plc for three years.
Prior to that he was Finance Director at JD Wetherspoon plc,
and he has also held senior finance roles at Tesco plc and
Marks & Spencer plc. He is a member of the Chartered
Institute of Management Accountants.
28 The Restaurant Group plc Annual Report 2017
Simon Cloke
Senior independent
non-executive Director
A N
Mike Tye
Independent
non-executive Director
A N R
Simon was appointed as a non-executive Director of
the Company in March 2010. Formerly Global Head of
Industrials at Dresdner Kleinwort Wasserstein, he was
appointed Managing Director of HSBC’s Diversified
Industries Group in 2005 and is currently responsible
for managing HSBC’s business with some of its largest
UK corporate clients.
Mike was appointed as a non-executive Director on
4 April 2016. He has extensive experience of the retail,
leisure and hospitality sectors and was, until 2015, Chief
Executive of Spirit Pub Company plc, where he led its
successful establishment as a public company following
the demerger from Punch Taverns and the subsequent
turnaround and sale of the business. Prior to that, he held
a number of senior executive roles in Whitbread, including
Managing Director of David Lloyd Leisure, Premier Inn
and Costa Coffee. Mike is currently also Chairman of
Moto Hospitality Ltd (the motorway services operator),
non-executive Director and Trustee of Prostate Cancer
UK, and non-executive Chairman Designate of Haulfryn
Group Ltd.
Graham Clemett
Independent
non-executive Director
A N R
Paul May
Independent
non-executive Director
A N
Graham was appointed as a non-executive Director on
1 June 2016. Graham is currently Chief Financial Officer
of Workspace Group PLC. He was previously Finance
Director for UK Corporate Banking at RBS Group PLC
where he worked for five years. Prior to RBS, Graham
spent eight years at Reuters Group PLC, latterly as Group
Financial Controller. He qualified as a chartered accountant
with KPMG.
Paul was appointed as a non-executive Director of
the Company on 3 July 2017. He has extensive current
experience of managing public and private companies
in the retail and hospitality sectors. He is currently the
Chief Executive Officer of Patisserie Valerie Holdings plc,
having been appointed in 2006. During his tenure, he has
overseen the profitable expansion of the company and its
successful IPO. Paul is also a non-executive Director at
GRA Ltd, a privately owned sports facilities and hospitality
group.
The Restaurant Group plc Annual Report 2017 29
OverviewStrategic reportGovernanceFinancial statements
Audit Committee report
The Committee is appointed by the Board and comprises four independent
non-executive Directors, and is chaired by Graham Clemett. It met three times
during the year. Membership and attendance is set out below:
Graham Clemett
Membership
• Graham Clemett (Chairman)
• Simon Cloke
• Mike Tye
• Paul May (appointed July 2017)
Director
Graham Clemett
Simon Cloke
Mike Tye
Paul May
Attendance
3/3
3/3
3/3
1/21
1 Paul May missed one meeting due to a previous commitment prior to joining the Board.
In accordance with the UK Corporate Governance Code (Code) the Board considers
that Graham Clemett has significant, recent and relevant financial experience.
Biographies of all Committee members, including a summary of their experience,
appear on pages 28 to 29.
On an ongoing basis the Board reviews the composition of the Committee to ensure
that it remains proportionate to the task and provides sufficient scrutiny of risk
management and internal and external controls.
The Committee regularly invites the external audit lead partner, the Chairman of the
Board, the other non-executive Directors, the Chief Executive Officer and the Chief
Financial Officer to its meetings. The Committee meets privately with the external
auditor at least twice a year and liaises with Company management in considering
areas for review.
Role of the Audit Committee
The Committee is responsible for monitoring and reviewing the integrity of the
Company’s financial reporting in advance of its consideration by the Board,
reviewing the adequacy of the Company’s internal controls and risk management
systems, and making recommendations to the Board in relation to the external auditor.
30 The Restaurant Group plc Annual Report 2017
Key responsibilities
The Committee discharges its responsibilities through
Committee meetings during the year at which detailed reports
are presented for review. From time to time, the Committee
commissions reports from external advisers or Company
management in relation to the Company’s major risks or in
response to developing issues.
The Committee’s key responsibilities are to:
• provide additional assurance regarding integrity, quality and
reliability of financial information used by the Board and in
financial statements issued to shareholders and the public;
• review the Company’s internal procedures on control and
compliance for financial reporting to satisfy itself that these
are adequate and effective;
• review the principles, policies and practices adopted in the
preparation of the Group’s financial statements to ensure
they comply with statutory requirements and generally
accepted accounting principles;
• review the adequacy and effectiveness of the Company’s
risk management and internal control systems;
• receive reports from the Group’s external auditor concerning
external announcements, in particular the Annual Report
and Accounts and the Interim Report;
Financial and narrative reporting:
• reviewed the full year and interim results and associated
announcements;
• considered whether taken as a whole the Annual Report
and Accounts were fair, balanced and understandable
and whether they provided the necessary information for
shareholders to assess the Company’s position,
performance, business model and strategy;
• reviewed the suitability of the Group’s accounting policies
and practices; and
• discussed the Group’s long-term viability and going concern
statements.
External audit:
• recommended the reappointment of Deloitte as external
auditor following an audit tendering process;
• received the external auditor review report on the Annual
Report and Accounts and Interim Report process and
discussed the 2017 year-end audit;
• considered the scope and cost of external audit;
• considered the effectiveness of the external audit process;
• discussed the Board representation letter;
• considered the appropriateness of the Group’s accounting
• develop and oversee the Company’s policy regarding the
policies and practices; and
external audit process, review the external auditor’s
independence, review the provision of non-audit services
they provide and review and approve their remuneration;
• discussed the non-audit work carried out by the external
auditor and its impact on safeguarding audit independence.
• review the whistleblowing arrangements whereby employees
may, in confidence, raise concerns about possible
improprieties in financial reporting or other matters, to
ensure there are proportionate and independent procedures
in place; and
• consider any other matter that is brought to its attention
by the Board or the external auditor.
Internal control and risk management:
• reviewed the Group’s principal risk factors (see page 60);
• reviewed risk management and internal controls;
• received updates on the Group’s General Data Protection
Regulation (GDPR) compliance project;
• received updates on the internal review of cyber security;
2017 Committee activities
As required by its terms of reference, three formal meetings
of the Committee were held during 2017 to discharge its
responsibilities. The Committee considered the following
matters:
and
• received updates and the minutes from the senior
management Risk Committee.
Committee governance:
• reviewed the Committee terms of reference; and
• conducted an externally facilitated Committee effectiveness
review.
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Audit Committee report continued
Significant financial judgements
In recommending the Annual Report and Accounts to the Board for approval, the Committee reviewed in particular the
accounting and disclosure of the following key judgements:
Matter considered
Action taken by the Committee
Impairment of property, plant
and equipment
Onerous contracts and provisions
associated with the review of the
operating estate
The Committee reviewed the proposals prepared by management setting out their
approach and challenged the key judgements made relating to impairment, such as
forecast performance and discount rates, as well as reviewing this topic in discussion
with the external auditor.
The provision requires judgement and assessment of the facts across a range of likely
outcomes, which inherently involves significant estimation. The Committee considered
management’s approach to the calculation of the provisions, again with particular attention
paid to the key assumptions such as the expected time to exit, sublet, or cover the fixed
cost base and the discount rate applied.
During the year, management identified two historical elements of the mechanical
calculations of the property provisions that were either not in line with recent industry
practice or using incorrect data. This resulted in a net movement in the provision of £9.8m
(see Note 1). The accounting for these changes was discussed at length by the Audit
Committee with significant input provided by management and the external auditor. It was
agreed that it would be accounted for initially as exceptional costs within the Group’s
interim results with the full support of the external auditor. Following the publication of the
Group’s Interim Report the Financial Reporting Council (FRC) wrote to the Company to
determine whether the amendment should be accounted for within the prior year as the
correction of a prior year error. As a result of this request, the Audit Committee reviewed
the accounting treatment again and has taken the decision to restate the 2016 year-end
financial statements and record the two amendments as corrections of prior year errors.
Other areas considered included:
• management override of controls and consideration of bias
underlying key estimates or judgements; and
• completeness of revenue recognition, in terms of whether all
of the cash and credit card receipts received at restaurants
are recognised in the financial statements.
No issues arose from our consideration of these matters.
Interaction with the Financial Reporting Council (FRC)
The FRC wrote to the Company in relation to its Annual Report
and Accounts for the year ended 1 January 2017 as part of its
annual monitoring activities. The Committee was extensively
involved in the correspondence with the FRC and, as a result
of these enquiries along with significant debate with the
Board, management and the external auditors, has
determined that two prior year restatements were required
in relation to the classification of exceptional cash flows within
the consolidated cash flow statement and the accounting
for onerous lease provisions. These restatements are fully
explained in Note 1 of the financial statements.
Review of distributable reserves
and rectification of prior dividends
In December 2017, the Company became aware of a technical
matter relating to the levels of distributable reserves and the
payment of interim and final dividends to its shareholders
during the period from 2006 to 2017, as explained in more
detail in the corporate governance report and Note 5 to
the Company accounts. The Committee was fully involved
in resolving this matter and oversaw the thorough review by
management into the historical position and the administrative
steps taken to rectify the position.
Fair, balanced and understandable
The Committee carried out an assessment of whether the
Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position,
performance, business model and strategy. This assessment
included a review for consistency of the narrative reporting
and the financial statements and forms the basis of the advice
given by the Committee to the Board to assist them in making
this statement.
32 The Restaurant Group plc Annual Report 2017
The Committee also considered the use of Adjusted
Performance Metrics (APMs) in view of new guidance from
the European Securities & Markets Association, the equal
prominence of such metrics and the definitions and
reconciliations of these.
Long-term viability and going concern statements
The Committee considered, with reference to a detailed
management paper, the Group’s going concern and long-term
viability statements. The factors used when assessing the
Group’s viability for the next three years, together with the
statement, are set out on page 12 and the Group’s going
concern statement on page 58.
External audit
The Committee has primary responsibility for overseeing the
relationship with, and performance of, the external auditor.
Annually the Committee undertakes a review of the objectivity
and effectiveness of the audit process.
Auditor effectiveness
When considering the suitability of the external auditor for
reappointment, the Committee takes account of:
• the findings set out in the Financial Reporting Council’s
(FRC’s) Audit Quality Review team’s public report on Deloitte
and its reports on other auditors in its sample;
• the ability of the external auditor to add value through
observations from the audit process and interactions with
the Company’s management;
• the arrangements for ensuring the independence and
objectivity of the external auditor;
• the external auditor’s fulfilment of the agreed audit plan;
• the robustness and perceptiveness of the auditor in their
handling of the key accounting and audit judgements; and
• the external auditor’s conclusions with regard to existing
management and control processes.
The Committee has informally discussed the effectiveness of
the external audit for the 2017 year-end, a formal assessment
will be conducted after the approval of the financial statements
in March 2018. The evaluation to date focused on: robustness
of the audit process, quality of delivery, timeliness of addressing
key matters, reporting and people.
Audit tender
Following a full tender process, Deloitte were reappointed as
auditor at the AGM on 26 May 2017. In 2017 the Deloitte audit
lead partner changed to Georgina Robb.
The Company continues to adopt a policy of tendering the
external audit contract at least every 10 years and the rotation
of the external audit lead partner every five years. This policy
will be reviewed again on completion of the formal evaluation
of the external audit process in March 2018.
Auditor independence
To ensure the external auditor remains independent upon
reappointment the Committee takes into account the following:
• the external auditor’s plan for the current year, noting the role
of the external audit lead partner and their length of tenure;
• the arrangements for day-to-day management of the
external audit relationship;
• a report from the external auditor describing their
arrangements to identify, report and manage any conflicts
of interest;
• the overall extent of non-audit services provided by the
external auditor, in addition to its case-by-case approval of
the provision of non-audit services by the external auditor;
and
• the past service of the external auditor.
Non-audit work and pre-approval policy
The Company has an audit engagement policy in place which
is regularly reviewed. Where non-audit work is carried out
by the external auditor, robust processes are put in place
to prevent auditor objectivity and independence being
compromised. Pre-approved services within the policy can
be summarised as follows:
• audit-related services, including work relating to the annual
Group financial statements audit, subsidiary audits and
statutory accounts;
• review of the Group’s Interim Report; and
• certain extraction reporting services.
The Company is committed to keeping non-audit fees
low, and in 2017 spend fell to £44,000, a ratio of 1:0.3
(2016: 1:0.8).
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Audit Committee report continued
Committee effectiveness review
An externally facilitated effectiveness review was carried out
by way of a questionnaire in December 2017 by Lintstock
Limited, a Board Effectiveness and Governance advisory
firm. This covered topics such as the composition and
management of the Committee, the quality of information
it receives, its effectiveness in reviewing key areas of its
responsibility, and potential areas for improvement in the
Committee’s performance. The review did not identify any
changes that would materially improve the working of
the Committee.
On behalf of the Audit Committee
Graham Clemett
Chairman of the Audit Committee
7 March 2018
To safeguard objectivity and independence the Committee
also assesses whether the fees are appropriate to enable
an effective, high quality audit to be conducted and
independence maintained. Further details on non-audit
services can be found in note 4 on page 85.
Internal controls and risk management
Internal audit function
The Committee keeps under regular review the scope of the
internal audit function, which is currently solely focused on site
level reviews. The Committee continues to review the need
for internal audit of the corporate function. If an issue were
to arise, the appropriate internal individuals and external
advisers with the requisite skills would form a working group
to discharge these responsibilities.
Senior management Risk Committee
In October 2016, the senior management Risk Committee
was established and the Committee approved its terms
of reference. As set out in the Risk Committee’s terms
of reference, the Committee Chairman received regular
reports on its activities during 2017. For further details on the
membership, roles and responsibilities and Risk Committee
activities during 2017, see page 59.
The Group’s principal risk factors are set out on page 60.
Committee Governance
Committee terms of reference
In November 2017, the Committee reviewed its terms of
reference and concluded that no changes were necessary.
The full terms of reference are available on the Company’s
website at http://www.trgplc.com/investors/corporate-
governance.
34 The Restaurant Group plc Annual Report 2017
Nomination Committee report
The Committee is appointed by the Board and comprises four independent
non-executive Directors (excluding the Chairman of the Board) and is chaired
by Debbie Hewitt. It met four times during the year. Membership and attendance
is set out below:
Membership
• Debbie Hewitt (Chairman)
• Simon Cloke
• Mike Tye
• Graham Clemett
Debbie Hewitt MBE
• Paul May (appointed July 2017)
Director
Debbie Hewitt
Simon Cloke
Mike Tye
Graham Clemett
Paul May
Attendance
4/4
4/4
4/4
3/41
1/1
1 Graham Clemett missed one meeting due to the short notice on which it was called. He however gave
his input on the matter to be discussed to the Chairman prior to the meeting.
Biographies of all Committee members, including a summary of their experience,
appear on pages 28 to 29.
Role of the Nomination Committee
The principal role of the Committee is to identify, evaluate and recommend candidates
for appointment to the Board, to review the structure, size and composition of the
Board and its committees, and to keep under review the Group’s executive leadership
needs, together with Board and executive committee succession planning.
Key responsibilities
The Committee discharges its responsibilities through regular meetings during
the year.
The Committee’s key responsibilities are to:
• review the structure, size and composition (including the skills, knowledge,
experience and diversity) of the Board and make recommendations of any changes;
• give full consideration to succession planning for Directors and the executive
leadership and executive succession needs of the Group;
• recommend to the Board Directors for annual re-election, and keep under review
Directors being re-elected for a term exceeding six years; and
• make recommendations for new Director appointments to the Board.
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Nomination Committee report continued
2017 Committee activities
The Committee is required to hold two meetings per year
as set out in its terms of reference. However, in 2017 four
formal meetings were held. The Committee considered the
following matters:
Board and senior management diversity
On an ongoing basis, the Committee keeps under review the
tenure and qualifications of the executive and non-executive
Directors to ensure the Board has an appropriate and diverse
mix of skills, experience, knowledge and diversity.
• appointment of a new Chief Financial Officer;
• appointment of a new non-executive Director;
• the potential need for a further non-executive Director; and
• appointment of a new Company Secretary.
In addition, the Committee conducted an externally facilitated
effectiveness review.
Board changes during the year
In April 2017 Barry Nightingale resigned as Chief Financial
Officer. An extensive search was undertaken to recruit
a successor using an external search consultant, Odgers
Berndtson, and in August 2017 the Board announced the
appointment of Kirk Davis as Chief Financial Officer. Kirk
brings extensive finance experience within listed leisure
and retail businesses. After serving his notice with Greene
King plc, Kirk joined the business on 5 February 2018.
As part of the Board succession planning, Sally Cowdry
stepped down from the role of non-executive director in
August 2017 and the Board was then further strengthened
by the appointment of Paul May as non-executive director in
July 2017. Paul was chosen after an extensive search using
an external search consultant, Sam Allen Associates, to target
candidates with current experience of managing public and
private companies in the retail and hospitality sectors. He is
currently the Chief Executive of AIM listed Patisserie Valerie.
Neither Sam Allen Associates nor Odgers Berndtson have
any other connection with the Company.
The Committee continues to be aware of, and embrace, the
Hampton-Alexander Review on Improving Gender Balance in
FTSE Leadership and its targets of 33% female representation
on the executive committee and in their direct reports by
2020. Although these recommendations do not apply to the
Group, as it sits outside the FTSE 100, the Board is aligned
on these ambitions. As at the date of this report, the Board
reflects 14% female representation and the executive
committee (excluding the executive Directors) reflects 38%
female representation.
The Committee is also aware of, and embraces, the
Parker Review on the ethnic diversity of boards, and its
recommendations concerning the representation of people
of colour on boards and in the senior management and
executive ranks of an organisation. The Board recognises
the value of, and strongly supports, the principle of diversity
generally, and over the coming years will work to ensure that
the Group maximises the benefits that a diverse management
and workforce can bring.
The aim of the Board’s approach to diversity is to ensure
that the Group has in place the most appropriate Board,
management and workforce to deliver value to shareholders,
and to operate the business as effectively as possible for
the benefit of all its stakeholders.
Further details on the Group’s policy on diversity are included
in the corporate governance report on pages 23 to 24 and the
corporate social responsibility report on page 14.
36 The Restaurant Group plc Annual Report 2017
Committee Governance
Terms of reference
The full terms of reference are available on the Company’s
website at http://www.trgplc.com/investors/corporate-
governance.
Annual effectiveness review
An externally facilitated effectiveness review of the Nomination
Committee was carried out in December 2017 by Lintstock
Limited, a Board Effectiveness and Governance advisory
firm, as part of the review of all aspects of the Board and
its Committees. The review covered topics such as the
composition of the Committee, the quality of information
it receives, its performance in reviewing the composition
of the Board, and potential areas for improvement in the
Committee’s performance. The review concluded that the
Committee generally worked well, and that it was timely to
commence the recruitment of an additional non-executive
director with digital marketing expertise. The review also
resulted in individual one to one performance appraisals for
each of the directors, delivered by the Chairman, and for
the Chairman, delivered by the Senior independent Director.
On behalf of the Nomination Committee
Debbie Hewitt MBE
Chairman of the Nomination Committee
7 March 2018
Director induction
On joining the Board, Directors receive an induction on the
business, its strategy, the Board’s role in setting the tone of
the Group’s culture, and the Director’s role and requirements
in influencing behaviour. A series of meetings takes place with
key management and Board colleagues, and non-executive
Directors are actively encouraged to meet with operational
management and to visit the Group’s restaurants to enhance
their understanding of the business, its brands, employees
and processes.
Training and development
The Company acknowledges the importance of developing
the skills of the Directors to run an effective Board. To assist
in this, Directors are given the opportunity to attend relevant
courses and seminars to acquire additional skills and
experience to enhance their contribution to the business.
The Board also has collective training sessions on relevant
topics from time to time. In 2017 the Board had specific
training on the Market Abuse Regulation (MAR).
Succession planning
The Nomination Committee keeps under review executive
committee succession planning to ensure the Company has
a strong leadership pipeline. The Committee also monitors
the tenure of non-executive Directors to ensure their
independence is maintained. The Board currently has one
Director (14%) who has Board tenure of more than six years.
The Board has commenced a search to replace that Director
in 2019, when he will have completed a tenure of nine years
on the Board. The Committee has debated and determined
the skill set of candidates to be considered, and the profile
reflects digital marketing skills.
Annual re-election of Directors
As required by the Code, all Directors are subject to annual
re-election and as such, details setting out why each Director
is deemed to be suitable for reappointment will be included
with the AGM papers circulated to shareholders.
The Restaurant Group plc Annual Report 2017 37
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Directors’ remuneration report
Mike Tye
Dear Shareholder,
I am pleased to provide the Directors’ remuneration report for the year ended
31 December 2017. This was a busy year for the Committee, particularly with
the full review of the Remuneration Policy and changes to the board. The current
Directors’ Remuneration Policy was adopted at the 2015 AGM and in line with
regulatory requirements, the updated version will be put to a binding vote at the
forthcoming Annual General Meeting (AGM).
As usual, the annual statement and annual report on remuneration, which provide
details of the remuneration earned by Directors in the year to 31 December 2017
and how the Policy will be implemented for the 2018 financial year will be subject
to an advisory shareholder vote at this year’s AGM, on 23 May 2018.
Policy review
In preparation for the triennial shareholder vote on the Directors’ Remuneration
Policy, the Committee has undertaken a thorough review of the existing remuneration
structures in place for our executive directors. The Committee has concluded
that the existing policy, in relation to both the levels of remuneration and their
linkage to achievement of increasing shareholder value, remain both relevant
and appropriate. Accordingly, the Committee intends to make only a few
important changes to the policy to be submitted for a binding vote at the AGM.
The proposed key changes are as follows:
1. Annual bonus deferral – reflecting the current deferral requirement for the
Chief Executive, the proposed policy will require 50% of any bonus to be
deferred (the current policy requires any bonus over 100% of salary to be
deferred). The proposed policy also extends the potential mechanisms for
the deferral and will allow for deferral in the form of nil-cost options.
2. Introduction of malus and clawback provisions – reflecting best practice the
proposed policy will be updated to include malus and clawback provisions
in both the annual bonus scheme and long-term incentive plan.
3. Long-term incentive plan (LTIP) metrics – the current policy limits the long-term
incentive plan metrics to TSR versus comparator group and financial metrics.
The Committee proposes to revise the policy wording to enable future metrics
to be introduced if they are deemed, at the time, to be aligned to the long term
interests of the Company and its shareholders. For 2018 the metrics will remain
TSR versus comparator group and EPS.
4. Contractual provisions – under the current policy the Committee may make a
payment to an executive director in lieu of notice based on salary, pension and
benefits. Consistent with the service contracts of the current Chief Executive and
Chief Financial Officer, the proposed policy will limit this payment to salary only.
38 The Restaurant Group plc Annual Report 2017
Remuneration in 2017
As expected, 2017 was a transitional year for the Group as is explained in the
Business review. Accordingly, in relation to bonus, the Committee set challenging
Adjusted PBT targets with stretching guest satisfaction and like-for-like (LFL)
covers targets. As a result a bonus of 52% of the maximum available was awarded
to the Chief Executive. 50% of the award will be deferred in shares for three years.
No LTIP awards vested for executive Directors during 2017 (for a definition of
Adjusted PBT, see the glossary on page 115).
During the year, the Committee made remuneration related decisions concerning
the changes in the Executive team. In agreeing the exit and joining terms the
Remuneration Committee was conscious of the approved policy. The departing
Chief Financial Officer received his six month basic salary contractual payment
in lieu of notice by way of monthly instalments, subject to mitigation. There is no
entitlement to a bonus in respect of the financial year ended 31 December 2017.
All Performance Share Plan awards held lapsed on cessation of employment.
Details of the incoming Chief Financial Officer’s package can be found on page 48
of this report. He will not receive any payments or awards in respect of incentive
pay forfeited from his previous employer.
The Committee also spent time in the year considering the existing arrangements
for the Chief Executive and consulted major shareholders on three revisions, which
are in line with the current policy. These changes were made against the backdrop
of re-establishing the competitiveness of our Leisure brands by improving pricing
and menu choices, delivery of upgraded technology to enhance customer service,
and growth in the Pubs and Concessions businesses, all while reducing the cost
base to build a leaner, faster and more focused organisation:
• An additional LTIP award of 25% of salary was made on 2 October 2017, taking
the aggregate value of awards granted in 2017 to 200% of the CEO’s salary,
which is within the current policy. The Committee decided to award the full
quantum of LTIP to ensure appropriate retention is in place for the long term.
• As originally planned and communicated when Andy McCue joined the
Company in September 2016, his notice period from both the Company and
the Individual increased from 6 months to 12 months, with effect from 1 October
2017. The Committee believes that he has established his credentials for leading
the business and that it is now appropriate to have a notice period
commensurate with a Chief Executive of this scale and complexity of business.
• The Committee has altered the £300,000 relocation expense provision agreed
on recruitment as the Chief Executive has decided to keep his main home in
Ireland due to personal reasons. Instead the Company will pay him for a three-
year period until 30 September 2020 the annual sum of £100,000 (in respect of
his temporary living costs in London), which shall be paid monthly at the same
time as his salary, subject to deductions for income tax and national insurance.
The Company will continue to pay for his weekly trips to and from Ireland during
this period.
During the year, the Committee also spent time reviewing the gender pay gap
data which has been published in line with regulatory requirements.
The Restaurant Group plc Annual Report 2017 39
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Directors’ remuneration report continued
Remuneration for 2018
For 2018, the maximum annual bonus for the Chief Executive and Chief Financial
Officer will be 150% and 120% of salary respectively. 50% of any bonus earned
will be deferred in shares for three years. The Committee intends to grant
LTIP awards of 200% and 150% of salary respectively, based on stretching
total shareholder return (TSR) and Adjusted earnings per share (EPS) targets
(for a definition of Adjusted EPS, see the glossary on page 115).
A 2% salary increase was awarded to the Chief Executive for 2018 (effective
1 January), which is in line with the rest of the head office team. Non-managerial
staff in restaurants and pubs are determined in line with changes to the National
Minimum and National Living Wage and this was higher than 2%.
We are committed to ensuring that the remuneration practices promote the
attraction, retention and incentivisation of high calibre executives to deliver the
Group’s strategy and align executives to the interests of shareholders. We hope
that you will be supportive of the resolutions to approve the remuneration policy
and the annual report on remuneration at this year’s AGM.
Yours faithfully,
Mike Tye
Chairman of the Remuneration Committee
40 The Restaurant Group plc Annual Report 2017
Consideration of employment
conditions elsewhere in the Group
In determining the remuneration of the Directors, the
Committee takes into account the pay arrangements and
terms and conditions across the Group as a whole. The
Committee seeks to ensure that the underlying principles
which form the basis for decisions on Directors’ pay are
consistent with those on which pay decisions for the rest of
the workforce are taken. For example, the Committee takes
into account the general salary increase for the head office
team when conducting the salary review for the executive
Directors. Increases for the non-managerial staff in restaurants
and pubs are determined in line with changes to the National
Minimum and National Living Wage.
Key elements of the new
Remuneration Policy for Directors
Set out below is a summary of the main elements of the new
Remuneration Policy for executive Directors and non-executive
Directors, together with further information on how these
aspects of remuneration operate. The key changes are:
• 50% of any annual bonus is deferred in shares for three-
years (reflecting the implementation of the policy over the
last two years) and the policy allows for deferral in the form
of nil-cost options.
• Introduction of malus provisions into the annual bonus and
long-term incentive schemes.
• Removal of pension and benefits from the calculation of
payments in lieu of notice.
Directors’ Remuneration
Policy report
This report sets out the policy of the Group on executive
Directors’ and Non-executive Directors’ remuneration. The
Policy Report will be put to shareholders for approval at the
AGM to be held on 23 May 2018 and, subject to approval,
will be operated from that date. The current policy, approved
by shareholders in 2015, will continue to apply until the new
policy is approved.
Policy overview
The objective of our Remuneration Policy is to attract, retain
and incentivise a high calibre of senior management who
can direct the business and deliver the Group’s core objective
of growth in shareholder value by building a business that
is capable of delivering long-term, sustainable and growing
earnings.
To achieve this objective, executive Directors and senior
management receive remuneration packages with elements
of fixed and variable pay. Fixed pay elements (basic salary,
pension arrangements and other benefits) are set at a level
to recognise the experience, contribution and responsibilities
of the individuals and to take into consideration the level of
remuneration available from a range of the Group’s broader
competitors.
Variable pay elements (annual bonus and Long-Term Incentive
Plan awards) are set at a level to incentivise executive Directors
and senior management to deliver outstanding performance
in line with the Group’s strategic objectives.
Consideration of shareholders’ views
The Committee considers feedback from shareholders
received during the year, including at the AGM, and feedback
from additional engagement as part of any review of executive
remuneration. The Committee engages pro-actively with
shareholders and ensures that they are consulted in advance
where any material changes to the Remuneration Policy
are proposed. During 2017, a consultation exercise was
undertaken with major shareholders to seek feedback on the
proposed changes to the Policy Report and the amendments
made to the Chief Executive package.
The Restaurant Group plc Annual Report 2017 41
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Directors’ remuneration report continued
Key elements of the new Remuneration Policy for Directors
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Basic salary
Attract and retain key
personnel of the right
calibre.
Reflects individual
responsibilities, skills
and achievement
of objectives.
Salary levels (and subsequent
increases) are set based on role,
experience, performance and
consideration of the general
workforce pay review and
competitor pay levels.
Salaries are paid monthly.
Benefits
To provide market
consistent benefits.
Pension
Rewards sustained
contribution.
Normally reviewed annually with
any changes taking effect from
1 January or when an individual
changes position or responsibility.
Benefits packages typically
comprise a car (or car allowance),
health insurance, and life assurance
although other benefits may be
provided where appropriate,
including relocation and expatriation
expenses as outlined on page 50
of this report.
Contribution to a personal pension
plan (no defined benefit schemes
operate) and/or a salary supplement
(e.g. where HMRC limits would
be exceeded).
No prescribed
maximum annual
increase. The
Committee is guided
by the general
increase for the
companies general
workforce, but on
occasions may need
to recognise, for
example, an increase
in the scale, scope
or responsibility of
the role.
No maximum limit.
None.
None.
Up to 20% of base
salary.
None.
42 The Restaurant Group plc Annual Report 2017
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Annual bonus Rewards the
achievement of annual
financial targets and
other key performance
indicators, depending
on job responsibilities,
which are aligned to
the strategic needs
of the business.
Maximum of 150%
of base salary.
Normally based on a
one year performance
period.
The annual bonus
is subject to the
achievement
of stretching
performance
measures. Financial
measures will
account for the
majority, normally
based on Group
Adjusted profit before
tax or an alternative
profit measure.
The Committee may
vary the metrics and
weightings from year
to year according
to Group strategy.
Bonus level is determined by the
Committee after the year-end
based on performance conditions
drawn up before the financial year
commences.
50% of any bonus is payable
in cash.
50% of any bonus is deferred
in shares or nil-cost options with
awards normally vesting after
a three-year period.
Not pensionable.
A malus and clawback mechanism
operates. The Committee has
the authority to apply a malus
adjustment to all, or a portion of,
an outstanding award in specific
circumstances. The Committee
also has the authority to recover
(clawback) all, or a portion of,
amounts already paid in specific
circumstances and within a defined
timeframe. These provisions apply
to both the cash and deferred
elements of the annual bonus.
The Restaurant Group plc Annual Report 2017 43
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Long-Term
Incentive Plan
(LTIP)
Promotes achievement
of long-term strategic
objectives of increasing
shareholder value and
delivering sustainable
and expanding
earnings.
Annual grant of Conditional Awards
in the form of nil-cost options.
Maximum of 200%
of base salary.
Conditional Awards vest three years
after grant subject to performance
conditions and continued
employment.
Two year post-vesting holding period
applies to the net of tax shares for
awards granted from 2016.
Dividend equivalents may be
payable.
A malus and clawback mechanism
operates. The Committee has
the authority to apply a malus
adjustment to all, or a portion, of
an outstanding award in specific
circumstances. The Committee
also has the authority to recover
(clawback) all, or a portion of,
amounts already paid in specific
circumstances and within a defined
timeframe.
Save As You
Earn scheme
(SAYE)
Encourages employee
share ownership and
therefore increases
alignment with
shareholders.
HMRC approved plan under which
eligible employees are able to
purchase shares under a three-year
savings contract at a discount of
up to 20% of market value at grant.
Prevailing HMRC
limits.
Normally based
on a three-year
performance period.
Awards are subject
to performance
conditions which are
set prior to the grant
of each award.
The awards for 2018
are based on TSR
versus comparator
group and Adjusted
EPS.
Different measures,
targets and/or
weightings between
measures may be
made for future
awards.
Up to 25% of an
award vests at
threshold
performance
increasing to full
vesting at maximum
performance.
None.
Shareholding
guidelines
Increase alignment
with shareholders.
Provides tax advantages to UK
employees.
Executive Directors must build
up and maintain a shareholding
equivalent to 200% of base salary.
Requirement to retain no fewer than
50% of the net of tax shares vesting
under an LTIP award until the
required shareholding is achieved.
N/A
None.
44 The Restaurant Group plc Annual Report 2017
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Non-executive
Directors’
fees
Attract and retain a
high-calibre Chairman
and Non-executive
Directors by offering
market-competitive
fee levels.
Reflects fees paid
by similarly sized
companies.
Reflects time
commitments and
responsibilities of
each role.
Fees are normally reviewed annually.
Fees paid in cash.
Chairman is paid a single fee.
Non-executive Directors are paid
a base fee. A Committee Chair fee
and a Senior Independent Director
fee is payable to reflect additional
responsibility.
The Chairman and the Non-
executive Directors are entitled
to reimbursement of reasonable
expenses including any tax due
on such payments. They may
also receive limited travel or
accommodation-related benefits
in connection with their role as
a Director.
None.
The Group’s Articles
of Association place a
limit on the aggregate
annual fees of the
Non-executive
Directors of
£500,000.
As per executive
Directors, there is no
prescribed maximum
annual increase.
The Committee is
guided by the general
increase in the
non-executive
director market and
for the broader UK
employee population
but on occasions may
need to recognise, for
example, an increase
in the scale, scope or
responsibility of the
role.
Differences between the Policy Report and that previously approved by shareholders can be found on page 46.
Performance measures
The Committee chooses performance measures in the
annual bonus and long-term incentive plans which align to
the Group’s profitability and the strategic plan. This enables
the executive Directors to be incentivised to achieve the
Group strategy, aligning interests with those of shareholders.
Financial performance measures (Adjusted profit before tax,
Adjusted earnings per share (EPS) and total shareholder
return (TSR) are used as the key performance indicators
(KPIs). The combination of Adjusted EPS and TSR
performance conditions provides a balance between
rewarding management for growth in sustainable profitability
and stock market outperformance. TSR is a clear indicator
of the relative success of the Group in delivering shareholder
value and, as a performance measure, firmly aligns the
interests of Directors and shareholders. The Adjusted EPS
target range will require growth in profitability and the TSR
condition will be based on recent share price performance.
Performance against EPS and TSR targets are reviewed
by the Committee. For the annual bonus plan, non-financial
measures relate to strategic priorities such as the number of
covers and the results of the employee engagement survey.
Committee discretions
The Committee operates share plans in accordance with their
respective rules and in accordance with the Listing Rules and
HMRC where relevant. The Committee, consistent with market
practice, retains discretion over a number of areas relating to
the operation and administration of these plans.
These include (but are not limited to) the following:
• selecting the participants;
• the timing of grant and/or payment;
• the size of grants and/or payments (within the limits set out
in the Policy table above);
• the extent of vesting based on the assessment of
performance;
• determination of a ‘good leaver’ and where relevant the
extent of vesting in the case of the share-based plans;
• treatment in exceptional circumstances such as a change
of control, in which the Committee would act in the best
interests of the Company and its shareholders;
The Restaurant Group plc Annual Report 2017 45
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
Legacy arrangements
For avoidance of doubt, in approving this Directors’
remuneration policy report, authority is given to the Company
to honour any prior commitments entered into with current
or former Directors.
External appointments
Executive Directors are entitled to accept one appointment
outside the Group and there is no requirement for Directors
to remit any fees to The Restaurant Group plc. Details of
any appointments are provided in the annual report on
remuneration section.
Illustration of application of remuneration policy
The chart below shows the value of the executive Directors’
packages under three performance scenarios, minimum,
on-target and maximum.
£2,536
41%
30%
£1,685
34%
23%
£732
0
0
0
’
£
n
o
i
t
a
r
e
n
u
m
e
R
3,000
2,500
2,000
1,500
1,000
500
0
100%
43%
29%
£436
100%
Minimum
Target
CEO
Maximum
Minimum
Long-term incentives
Annual bonus
Fixed pay
£1,394
38%
31%
31%
Maximum
£942
31%
23%
46%
Target
CFO
Notes:
• Salary levels are based on those applying from 1 January 2018.
• The value of benefits receivable in 2018 is estimated and pension is based
on 20% of salary.
• The on-target level of bonus is taken to be 50% of the maximum bonus
opportunity (150% of salary for the CEO and 120% for the CFO).
• The on-target level of vesting under the LTIP is taken to be 55% of the face
value of the 2018 LTIP awards at grant and the maximum value is taken to be
100% of the face value of the intended 2018 awards at grant (200% of salary
for the CEO and 150% for the CFO).
• No share price appreciation has been assumed for the deferred bonus
shares and LTIP awards.
• making the appropriate adjustments required in certain
circumstances (e.g. rights issues, corporate restructuring
events, variation of capital and special dividends);
• cash settling awards; and
• the annual review of performance measures, weightings
and setting targets for the discretionary incentive plans from
year to year.
Any performance conditions may be amended or substituted
if one or more events occur which cause the Committee to
reasonably consider that the performance conditions would
not, without alteration, achieve their original purpose. Any
varied performance condition would not be materially less
difficult to satisfy in the circumstances.
Annual effectiveness review
An externally facilitated effectiveness review of the
Remuneration Committee was carried out in December 2017
by Lintstock Limited, a Board Effectiveness and Governance
advisory firm, as part of the review of all aspects of the Board
and its Committees. The review covered topics such as the
composition of the Committee, the quality of information it
receives, its performance in reviewing the remuneration of
the Executive, and potential areas for improvement in the
Committee’s performance. The review concluded that the
Committee generally worked well, and that it was timely to
commence the recruitment of an additional non-executive
director to join the Committee, ideally with senior executive
remuneration committee expertise; to continue to monitor
the performance of the external advisers and the timing for
retendering the external adviser role; to continue to monitor
executive Director remuneration packages in the context
of retention, as well as reflecting strategic priorities and
shareholder alignment.
Differences between the Policy Report
and the policy on employee remuneration
There are no material differences in the structure of
remuneration arrangements for the executive Directors and
the senior management team. There are some operational
differences such as quantum, which reflect the fact that a
greater emphasis is placed on performance-related pay for
executive Directors and the most senior individuals in the
management team. Outside the senior management team,
the Company aims to provide remuneration structures for
employees which reflect market norms.
46 The Restaurant Group plc Annual Report 2017
Service contracts and payments for loss of office
Contractual provisions
It is the Company’s policy that any new executive Director
appointment should have a service contract with an indefinite
term which is subject to up to a year’s notice by either party
with provision, at the Board’s discretion, for early termination
by way of a payment in lieu of salary, with the ability to
phase payments and mitigate such payments if alternative
employment is obtained.
There will be no provisions in respect of a change of control.
Directors’ service contracts are available for inspection at the
central support office of the Group during normal business
hours and will be available for inspection at the AGM.
Outstanding incentive awards
The annual bonus may be payable with respect to the period
of the financial year worked, although it will be pro-rated for
time and paid at the normal pay-out date.
Any share-based entitlements granted to an executive Director
under the Company’s share plans will be determined based
on the relevant plan rules. Any unvested deferred bonus plan
awards will ordinarily vest on the normal vesting date, save
where the departure is as a result of summary dismissal in
which case the awards will lapse on cessation of employment.
Any outstanding LTIP awards will normally lapse on cessation
of employment. However, in certain prescribed circumstances,
such as death, ill-health, disability, retirement or other
circumstances at the discretion of the Committee, ‘good
leaver’ status may be applied. Awards held by executive
Directors will normally vest on their scheduled vesting date,
subject to the satisfaction of the relevant performance
conditions at that time and reduced pro-rata to reflect the
proportion of the performance period actually served.
However, the Committee has discretion to determine that
awards vest at cessation and/or to dis-apply time pro-rating.
Approach to recruitment and promotions
The remuneration package for a new executive Director
would be set in accordance with the terms of the Company’s
prevailing approved Remuneration Policy at the time of
appointment and take into account the skills and experience
of the individual, the market rate for a candidate of that
experience and the importance of securing the relevant
individual.
Salary would be provided at such a level as required to attract
the most appropriate candidate and may be set initially at
a below mid-market level on the basis that it may progress
towards the mid-market level once expertise and performance
has been proven and sustained. Benefits and pensions would
be provided in line with the prevailing approved policy. The
annual bonus potential would be limited to 150% of salary
and grants under the LTIP would be limited to a maximum of
200% of salary. Where necessary, specific annual bonus and
LTIP targets may be introduced for an individual for the first
year of appointment if it is appropriate to do so to reflect the
individual’s responsibilities and the point in the year at which
they joined the Board. In addition, the Committee may offer
additional cash and/or share-based elements to replace
deferred or incentive pay forfeited by an executive leaving
a previous employer. It would seek to ensure, where possible,
that these awards would be consistent with awards forfeited
in terms of vesting periods, expected value and performance
conditions.
For an internal executive Director appointment, any variable
pay element awarded in respect of the prior role may be
allowed to pay out according to its terms. In addition, any
other ongoing remuneration obligations existing prior to
appointment may continue.
For external and internal appointments, the Committee may
agree that the Company will meet certain relocation and/or
incidental expenses as appropriate, so as to enable the
recruitment of the best people including those who need
to relocate.
Notice periods for executive Directors are normally 12 months.
If appropriate, the Committee may agree, on the recruitment
of a new executive Director, to a notice period of 6 months
but with the ability to increase this to 12 months over
a specified period.
The Restaurant Group plc Annual Report 2017 47
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
In the event of a takeover (or other corporate event such
as demerger, delisting, special dividend or other similar
event which, in the opinion of the Remuneration Committee,
would affect the market price of shares to a material extent)
all awards will vest early subject to the extent that the
performance conditions have been (or would have been, in the
opinion of the Remuneration Committee) satisfied at that time
and pro-rated to reflect the reduced period between grant
and vesting relative to the normal vesting period (although the
Committee can decide not to pro-rate an award if it regards
it as inappropriate to do so in the particular circumstances).
In the event of an internal reorganisation, awards may be
exchanged for equivalent new awards over shares in the
new holding company.
Non-executive Directors
Letters of appointment for the non-executive Directors were
each set for an initial three-year period (renewable thereafter
for periods of three years). Non-executive Directors are
required to submit themselves for re-election every year.
The notice period for the Chairman, Debbie Hewitt, is six
months by either party. The notice period for the non-executive
Directors is set at three months under arrangements that
may generally be terminated at will by either party without
compensation.
Directors’ letters of appointment are available for inspection
at the central support office of the Group during normal
business hours and will be available for inspection at the AGM.
Fees payable for a new non-executive Director appointment
will take into account the experience and calibre of the
individual and current fee structure.
Annual report on remuneration
Implementation of the Remuneration Policy for the
2018 financial year
Executive Directors’ salaries for 2017 and applying with effect
from 1 January 2018 are:
Basic salary
Andy McCue
Kirk Davis1
2018
(from 1 January)
2017
£505,000
n/a
£515,500
£355,000
Increase
2.08%
n/a
1 Salary effective from date of appointment (5 February 2018).
The Committee considered that a 2% increase for the Chief
Executive was in line with the rest of the head office team.
The average increase for managerial employees across
the Group was 2.2% for the 2018 pay review. Restaurant
management and general restaurant employees receive
their pay award in April 2018, and where applicable the
non-management increases will be aligned to the National
Living Wage and the National Minimum Wage increases.
The Committee is informed of the base pay review budget
applicable to other employees and is aware of the National
Living Wage and the National Minimum Wage.
Pension and benefits
Pension and benefits will continue to be provided in line with
the stated policy. Andy McCue and Kirk Davis each receive
a salary supplement of 20% of base salary in lieu of pension
contributions.
Performance targets for the annual bonus in 2018
For 2018, the annual bonus will be based on Group financial
measures (70%) and strategic KPIs (30%) and capped at
150% of salary for the Chief Executive and 120% of salary for
the Chief Financial Officer. Kirk Davis’s annual bonus will be
pro-rated in 2018 reflecting the month of joining. The financial
measure will be Adjusted profit before tax (PBT). The strategic
KPIs will focus on improvement in like-for-like covers and in
employee engagement metrics. The Committee has chosen
not to disclose, in advance, the performance targets for the
forthcoming year as these include items which the Committee
considers commercially sensitive. However retrospective
disclosure in respect of the 2018 targets will be provided
in next year’s report. In line with the new Policy (and
implementation in 2017) executive Directors are required
to defer 50% of any bonus earned for three years.
We have disclosed the 2017 targets relating to the payment
to Andy McCue on page 51 of this report. As Kirk Davis joined
in 2018, he was not eligible for a 2017 bonus.
48 The Restaurant Group plc Annual Report 2017
Performance targets for LTIP awards to be granted in 2018
The LTIP awards intended to be granted to executive Directors in 2018 will be over shares equal to 200% of salary for
Andy McCue and 150% of salary for Kirk Davis, with performance targets based on:
• TSR element (50%) – the Company’s TSR vs the constituents of the FTSE 250 (excluding investment trusts). Nothing vests
below median. Threshold vesting for median performance; 100% vests for upper quartile performance, with a straight-line
scale between these two points; and
• Adjusted EPS element (50%) – the Company delivers Adjusted EPS growth. Nothing vests for growth below 4% pa. Threshold
vesting for growth of 4% pa; 100% vests if growth of 10% pa is achieved, with a straight-line scale between these two points.
Last year the Committee decided to reduce the quantum of LTIPs vesting at threshold from 25% to 10%, thus ensuring that
the executives were fully aligned in sharing restoration of value to shareholders, as the turnaround of the business progresses.
The Committee has decided to revert to 25% vesting at threshold for the 2018 awards.
We have disclosed the 2017 LTIP targets relating to the two awards made to the Chief Executive on page 52 of this report.
Non-executive Directors
As detailed in the Remuneration Policy, the Company’s approach to setting non-executive Directors’ fees is by reference to
fees paid at similar sized companies and reflects the time commitment and responsibilities of each role. A summary of current
fees is as follows:
Chairman
Non-executive Directors’ base fee
Committee Chair/senior independent Director fee
1 From 1 January 2017 or date of appointment.
2018
(from
1 January
2018)
£215,000
£55,000
£5,000
20171
£215,000
£55,000
£5,000
Increase
0%
0%
0%
Non-executive Director fees were reviewed by the Board on 19 January 2018. A decision was taken to award no increase to
either the Chairman or the non-executive Directors, with the exception of Simon Cloke. During 2017, Simon received a single
fee of £57,900 reflecting the fee structure in place at the time of his appointment. The decision was taken to bring his fees in line
with the structure for non-executive Directors who joined after April 2016. Accordingly, his base fee is now set at £55,000 and
he receives £5,000 to reflect his role as senior independent Director (making a total of £60,000, an increase of £2,100). This
took effect from 1 January 2018.
The Restaurant Group plc Annual Report 2017 49
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
Remuneration received by Directors (audited)
The table below sets out the remuneration received by the Directors in relation to performance for the year ended 31 December
2017 (or for performance periods ending in 2017 in respect of long-term incentives) and the year ended 1 January 2017.
Salary
& fees
Taxable
benefits1
Pension2
Annual
bonus3
SAYE
vesting
Long-Term Incentive Plan
Value of
vesting
award
at grant
Increase
in value due
to rise in
share price
Dividend
equivalent
Value
of award
£’000
Debbie Hewitt4
2017
2016
Andy McCue5
2017
2016
Simon Cloke
2017
2016
Mike Tye6
2017
2016
Graham
Clemett7
2017
2016
Paul May8
2017
2016
Former
Directors
Barry
Nightingale9
2017
2016
Sally Cowdry10
2017
2016
215
158
505
146
58
58
60
45
60
35
28
n/a
104
179
41
58
–
–
113
29
–
–
–
–
–
101
29
–
–
–
–
–
397
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
215
158
1,116
242
58
58
60
45
60
35
–
n/a
–
n/a
–
n/a
–
n/a
–
n/a
–
n/a
–
n/a
–
n/a
28
n/a
4
5
–
15
27
–
40
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123
251
41
58
1 Taxable benefits comprise car allowance, health care, life assurance and relocation allowance.
2 This comprises contributions to the Directors’ personal pension plans and/or salary supplements.
3 For 2017, this relates to the payment of the annual bonus for the year ended 31 December 2017. Further details of this payment are set out below.
4 Debbie Hewitt was appointed as Chairman on 12 May 2016.
5 Andy McCue was appointed as Chief Executive Officer on 19 September 2016.
6 Mike Tye was appointed as a non-executive Director on 4 April 2016.
7 Graham Clemett was appointed as a non-executive Director on 1 June 2016.
8 Paul May was appointed as a non-executive Director on 3 July 2017.
9 Barry Nightingale was appointed as Chief Financial Officer on 20 June 2016 and left the board on 21 April 2017.
10 Sally Cowdry resigned as a non-executive Director on 31 August 2017.
50 The Restaurant Group plc Annual Report 2017
Annual bonus payments for the year ended 31 December 2017 (audited)
The annual bonus for the year under review for the Chief Executive was based on Adjusted PBT performance, guest satisfaction
improvement targets and a like-for-like covers improvement target. The structure of the targets and the actual performance
against the targets are set out below.
Annual bonus payments
70% of the annual bonus was based on Adjusted PBT, which was updated during the course of the year, with the following
targets and outturn:
< Threshold
>Threshold
Maximum
Outcome
1 Pro-rata payout between the targets.
Group Adjusted PBT targets
CEO % of salary1
< £55.3m
£55.3m
> or = £61.2m
£56.7m
0%
37.5%
105%
53.8%
A maximum of 10% of the bonus (15% of salary) was payable for Guest Satisfaction and a maximum of 20% of the bonus (30%
of salary) was payable for achieving like-for-like covers improvement targets across the Group. For this additional 30% of bonus
potential to be payable, the threshold of £55.3m Adjusted profit before tax had to be achieved.
Guest Satisfaction measure¹
‘Value for Money’
(Frankie & Benny’s)
‘Consideration’
(Frankie & Benny’s)
‘Positive Buzz’
(Frankie & Benny’s)
‘Consideration’
(Chiquito)
CEO % of salary
Outcome
3.75%
3.75%
3.75%
3.75%
3.75%
3.75%
3.75%
3.75%
1 The bonus percentage for each measure is earned independently. For the 3.75% to be earned in each case, improvement must be shown in the relevant score
on the relevant report scorecard for December 2017 vs December 2016.
The target for like-for-like covers improvement was partially met, giving a bonus achievement of 6.5% of the bonus potential
(9.75% of salary) as shown below:
Like-for-like covers
< Threshold
Threshold
Maximum
Outcome
CEO % of salary
0%
7.5%
30%
9.75%
The total bonus for the CEO amounted to 78.5% of salary, which is 52% of his potential bonus. 50% of this payment will be
deferred for three years and paid as shares.
Vesting of LTIP awards in year under review (audited)
No LTIP awards vested to executive Directors in the year.
The Restaurant Group plc Annual Report 2017 51
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
Outstanding share awards
The table below sets out details of executive Directors’ outstanding share awards (which will vest in future years, subject to
performance and/or continued service).
Name of
Director
Andy
McCue
At
1 January
2017
Scheme
Granted
Exercised
Lapsed
At
31 December
2017
Exercise
price
Date from
which
exercisable
2016 LTIP1
2017 LTIP1
2017 LTIP1
–
–
–
282,675
236,424
41,502
–
–
–
–
–
–
282,675
236,424
41,502
–
–
–
14.10.20192,3
17.03.20202,3
02.10.20202,3
Expiry date
6 months
after vesting3
6 months
after vesting3
6 months
after vesting3
1 2016 Conditional Award: Details of the performance conditions can be found on page 47 of last year’s report. 2017 Awards: Details of the performance
conditions can be found in the next section of this report.
2 A two year post vesting holding period applies to all net of tax shares together with a 200% of salary share ownership guideline.
3 Date from which first exercisable and expiration of the exercise period may be impacted if the Directors are prohibited from trading in the Company’s shares
at that time.
Long-term incentives granted during the year (audited)
During the year, the following LTIPs were granted to executive Directors:
Basis of award
granted
175% of salary
of £505,000
25% of salary
of £505,000
200% of salary
of £505,000
Share price
at date
of grant
Number
of shares
over which
award was
granted
% of face
value that
would vest
at threshold
performance
Face value
of award (£)1
Date of
award
Date of
vesting
360.0p
236,424
£883,750
10% 17.03.2017 17.03.2020
302.5p
41,502
£126,250
10% 02.10.2017 02.10.2020
£1,010,000
Executive
Type of award
Conditional
Awards –
nil-cost option
Conditional
Awards –
nil-cost option
Andy McCue
Total
Past Directors
Barry
Nightingale2
Conditional
Awards –
nil-cost option
130% of salary
of £335,000
360.0p
116,507
£435,500
10% 17.03.2017 17.03.2020
1 Based on a share price of 373.8p on 13 March 2017 for the March award, and an average of 304.2p for the five days preceding the October 2017 award.
2 Barry Nightingale stood down as a Director on 21 April 2017 at which time his 2017 LTIP lapsed in full.
Details of the performance targets are as follows:
Weighting
(% of total award)
Below threshold
(0% vesting)
Threshold
(10% vesting)
Maximum
(100% vesting)
TSR1 against FTSE 250
(excluding investment trusts)
Adjusted Earnings per share2 (EPS)
50%
50%
Below median
Less than 6% pa
Median
6% pa
Upper Quartile
12% pa
1 The TSR performance is benchmarked against the base return index averaged over each weekday in the three month period ending 1 January 2017 to 2020.
2 Company EPS growth based on budgeted PBT for 2017.
3 Vesting is determined on a straight-line basis between threshold and maximum performance.
52 The Restaurant Group plc Annual Report 2017
Payments on cessation of office (audited)
As announced on 21 April 2017, effective immediately, Barry Nightingale ceased to be a Director and employee of the Company.
In line with his contractual terms Barry Nightingale was paid his base salary in lieu of notice for his six month notice period, paid
in monthly instalments. There was no payment for pension and benefits during the notice period and no payment was made
in lieu of annual bonus. He was not entitled to an annual bonus in respect of the financial year ending 2017. Provisions were in
place to reduce the instalments, totalling £167,500, by any monies that Barry Nightingale received from alternative employment
during the notice period.
Under the Deferred Bonus Plan, Barry Nightingale has a total of 5,964 shares relating to the 2016 annual bonus awards. The
Remuneration Committee has determined that such awards should vest, subject to the rules of the Deferred Bonus Plan, on
31 March 2020. The awards will continue to be subject to the relevant malus and clawback provisions. Participants in the plan
are also entitled to a cash payment of an amount equal to the value of dividends that would have been paid on the deferred
shares in relation to dividend record dates occurring between the date of grant and the date that the awards vest. Accordingly,
the Remuneration Committee has determined that he will be entitled to a Dividend Accrual payment on the 5,964 shares,
subject to the rules of the plan.
All Long Term Incentive Plan awards held by Mr Nightingale (in respect of the 2016 and 2017 awards, totalling 267,932 shares
under award) and his outstanding Save As You Earn awards (5,863 options) lapsed on cessation of his employment.
Payments to former Directors’ (audited)
Danny Breithaupt and Stephen Critoph left in 2016 and in accordance with the terms outlined on page 48 of last year’s annual
report, they have received monthly instalments in lieu of their respective notice. There was no payment for loss of office and no
payment made in lieu of annual bonus. All Performance Share Plan awards held by both former Directors lapsed on cessation
of employment.
Statement of Directors’ shareholdings and share interests (audited)
Director
Debbie Hewitt
Andy McCue
Simon Cloke
Mike Tye
Graham Clemett
Paul May
Past Directors
Barry Nightingale
Sally Cowdry
Beneficially
owned at
1 January
2017
35,642
50,000
7,000
7,284
14,218
n/a
13,617
1,000
Beneficially
owned at
31 December
2017
Outstanding
LTIP awards at
31 December
2017
Shareholding %
of salary at
31 December
2017
53,638
75,617
7,000
7,284
14,218
0
19,5811
1,0002
n/a
560,601
n/a
n/a
n/a
n/a
0
n/a
n/a
45%
n/a
n/a
n/a
n/a
n/a
n/a
Guideline
n/a
No
n/a
n/a
n/a
n/a
n/a
n/a
1 As at 21 April 2017, his date of resignation.
2 As at 31 August 2017, her date of resignation.
The Chief Executive Officer and Chief Financial Officer are required to hold shares in the Company worth 200% of salary.
For the 2016 and 2017 LTIP awards, Andy McCue must retain no fewer than 100% of the shares, net of taxes, vesting under
the awards until the required shareholding is achieved. Andy McCue bought shares during the year and continues to build his
shareholding following appointment to the Board during 2016.
As at the date this report was approved by the Board, there have been no changes in respect of the numbers of shares
presented in the table above.
The Restaurant Group plc Annual Report 2017 53
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
Performance graph and Chief Executive Officer pay
The graph below compares the Company’s TSR performance and that of the FTSE 250 Index, the FTSE Small Cap Index and
the FTSE 350 Travel & Leisure Index over the past eight years, all rebased from 100. The FTSE 350 Travel & Leisure Index has
been selected for this comparison because it is the index most relevant to gauging the Company’s relative performance. This
graph shows the value, by 31 December 2017, of £100 invested in The Restaurant Group plc on 28 December 2008 compared
with the value of £100 invested in the FTSE 250 Index, the FTSE Small Cap Index and the FTSE 350 Travel & Leisure Index.
On this basis the value, as at 31 December 2017, of £100 invested is as follows:
The Restaurant Group plc (dividends reinvested)
FTSE 250 Index
FTSE Small Cap Index
FTSE 350 Travel & Leisure
£ 369
£ 441
£ 447
£ 403
Total shareholder return
)
d
e
s
a
b
e
r
(
)
£
(
l
e
u
a
V
800
700
600
500
400
300
200
100
0
28 Dec 08
27 Dec 09 02 Jan 11 01 Jan 12 30 Dec 12 29 Dec 13
28 Dec 14
27 Dec 15
01Jan 17
31 Dec 17
Year-end
This graph shows the value, by 31 December 2017, of £100 invested in The Restaurant Group on 28 December 2008,
compared with the value of £100 invested in the FTSE 250, FTSE SmallCap and FTSE 350 Travel & Leisure Index Indices
on the same date.
The Restaurant Group
FTSE 250
FTSE SmallCap
FTSE 350 Travel & Leisure Index
Source: Datastream (Thomson Reuters)
54 The Restaurant Group plc Annual Report 2017
The table below shows the total remuneration for the Chief Executive Officer for each of the last seven years:
Andrew Page
Danny Breithaupt
Andy McCue
2011
4,241
86%
100%
2012
3,070
100%
82%
2013
3,840
100%
93%
2014 to
30.08.2014
2014 from
01.09.2014
4,559
75%
100%
913
75%
94%
2015
1,429
69%
93%
2016 to
12.08.2016
19.09.2016 to
01.01.2017
387
0%
–
242
20%
–
2017
1,116
52%
–
Total remuneration
Annual bonus1
Annual LTIP Vesting1
1 As a percentage of maximum.
Percentage change in Chief Executive Officer’s remuneration
The table below shows the percentage change in the Chief Executive Officer’s salary, benefits and annual bonus between the
financial year ended 31 December 2017 and 1 January 2017, compared to all employees of the Group.
Chief Executive Officer1
All employees1
1 Bonus change is calculated on a pro-rate basis vs the prior year.
2 Salary change is calculated compared to all staff, including restaurant staff.
3 Bonus change is calculated excluding restaurant staff.
Salary
change
2.0%
3.5%2
Benefits
change
0%
0%
Bonus
change
201%
1%
Relative importance of spend on pay
The following table shows the Company’s actual spend on pay (for all employees) relative to dividends.
£m
Staff costs
Dividends1
Retained profits1
2016
239.2
34.9
60.1
2017
% change
237.0
34.9
44.7
(0.9%)
0%
(25.6%)
1 Dividends and retained profits are as reported for the trading business and exclude the non-trading items.
Appointments outside the Group
Executive Directors are entitled to accept appointments outside the Company or Group and there is no requirement for
Directors to remit any fees to The Restaurant Group plc. Currently, Andy McCue is a non-executive director of Hostelworld
Group PLC and is paid fees of €74,000, which he is allowed to keep.
Additional information
Following a review by the Committee, the Company has altered the £300,000 relocation expense provision as the Chief Executive
has decided to keep his main home in Ireland due to personal reasons. Instead the Company will pay him for a three-year period
until 30 September 2020 the annual sum of £100,000 (in respect of his temporary living costs in London), which shall be paid
monthly at the same time as his salary, subject to deductions for income tax and national insurance. The Company will continue
to pay for his weekly trips to and from Ireland during this period.
As originally planned and communicated when Andy McCue joined the Company in September 2016, his notice period from
both the Company and the Individual increased from 6 months to 12 months, with effect from 1 October 2017. The Committee
believes that he has established his credentials in the role and that it is now appropriate to have a notice period commensurate
with a CEO of this scale and complexity of business.
The Restaurant Group plc Annual Report 2017 55
OverviewStrategic reportGovernanceFinancial statements
Directors’ remuneration report continued
NBS is a signatory to the Remuneration Consultants’ Code
of Conduct. The Committee has reviewed the operating
processes in place at NBS and is satisfied that the advice
that it receives is objective and independent.
Statement of shareholder voting
The Directors’ remuneration report received the following
votes from shareholders at the last AGM, held on 26 May 2017:
Directors’ remuneration report
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
98.85%
1.15%
151,032,992
1,749,753
152,782,745
1,251,670
The Directors’ remuneration policy was last put to shareholders
at the AGM held on 14 May 2015 on a binding basis. The voting
outcomes were as follows:
Directors’ remuneration policy
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
98.45%
1.55%
139,800,144
2,202,116
142,002,260
151,592
This report was approved by the Board of Directors and
signed on its behalf by:
Mike Tye
Chairman of the Remuneration Committee
7 March 2018
Kirk Davis has a service contract with an indefinite term
which is subject to six months’ notice by either party.
As communicated at the time of his appointment, this will
increase to 12 months’ notice by either party on completion
of one year’s service.
In respect of the Chief Executive Officer, in the event of early
termination by the Company, the Company shall make a
payment in lieu of notice equivalent to 12 months of base
salary only. Under the Chief Financial Officer’s contract, the
Company shall make a payment in lieu of notice equivalent
to six months of base salary only, rising to 12 months on
completion of one year’s service. There are no provisions
in respect of change of control within either contract.
Consideration by the Directors of matters relating
to Directors’ remuneration
The Committee is constituted in accordance with the
recommendations of the UK Corporate Governance Code,
with the exception that it currently comprises two independent
non-executive Directors in addition to the Company Chairman,
instead of three. It is intended that a third independent
non-executive director will be appointed to the Committee
during 2018. Mike Tye is the Committee Chairman and the
other members of the Committee are Graham Clemett and
Debbie Hewitt. Sally Cowdry resigned from the Committee
in August 2017 on her departure from the Board. None of the
Committee has any personal financial interest in the Company
(other than as shareholders).
The Committee makes recommendations to the Board.
No Director plays a part in any discussion about his or her
own remuneration. In determining the executive Directors’
remuneration for the year, the Committee consults the
non-executive Chairman about its proposals. In determining
the Company Chairman’s fees, the Committee (excluding
the Company Chairman) consults with the Chief Executive
and the Senior Independent Director. The Board (including
the Company Chairman but excluding the non-executive
Directors) determines the non-executive Directors’ fees.
New Bridge Street (NBS), part of Aon plc, were appointed by
the Committee and act as its independent advisers, providing
services encompassing all elements of the remuneration
packages. Neither NBS nor any other part of Aon plc
provided any other services to the Group during the year.
Total fees paid to NBS in respect of its services were £60,784
(2016: £44,432) with increased workload regarding the full
policy review & implementation.
56 The Restaurant Group plc Annual Report 2017
Directors’ report
The Directors present their annual report together with the
audited financial statements of the Company and the Group
for the year ended 31 December 2017. The year ended
31 December 2017 was a 52 week period, with the
comparative year to 1 January 2017 being a 53 week period.
The Directors’ report comprises these pages 57 to 58 and the
other sections and pages of the Annual Report and Accounts
cross-referred to below which are incorporated by reference.
As permitted by legislation, certain disclosures normally
included in the Directors’ report have instead been integrated
into the strategic report (pages 2 to 19).
Results and dividends
The results for the year are set out in the consolidated income
statement on page 73. This shows a Group Adjusted profit
after tax of £44.7m (2016: profit £60.1m). After charging
exceptional items, the Group recorded a statutory profit
after tax of £32.9m (2016 restated: loss after tax of £48.0m).
The closing mid-market price of the ordinary shares on
29 December 2017 (the last trading day before 31 December
2017) was 301.0p and the range during the financial year was
274.9p to 384.3p.
Directors and Directors’ interests
The names of all persons who were Directors during the year
can be found on page 22. Directors’ interests in the shares
of the Company can be found on page 53.
Directors’ and officers’ liability (‘D&O’) insurance
Details of the D&O insurance maintained by the Company
can be found on page 23.
Articles
The Company’s Articles may only be amended by special
resolution and are available on the Company’s website at
www.trgplc.com/investors/corporate-governance.
Greenhouse gas reporting
The disclosures concerning greenhouse gas emissions
are included in the corporate social responsibility report
on pages 18 to 19.
Disabled employees
The Company’s policy towards disabled employees is included
in the corporate social responsibility report on page 14.
Dividend
Interim dividend
Paid on 12 October 2017
Final dividend
Subject to shareholder approval,
payable on 5 July 2018 to
shareholders on the Register
of Members at the close of
business on 8 June 2018
Total dividend payable in respect
of 2017
Increase/
decrease
Employee participation
The action taken during the year in relation to employee
participation is included in the corporate social responsibility
report on pages 14 to 16.
6.8p per share
0%
Employee benefit trust (EBT) and share awards
Details of the Company’s EBT arrangements can be found
on page 97 (note 19). Dividends on shares held by the EBT
are waived.
10.6p per share
17.4p per share
0%
0%
The Company has an all employee Save As You Earn scheme
and a Long-Term Incentive scheme. Details of share-based
payments during the year can be found on pages 98 to 102
(note 20).
For more information on the Company’s dividends, see
note 10 on page 90 and for details on our dividend policy
see page 81.
For definitions of the Adjusted Performance Metrics used
by the Group and how these reconcile to statutory measures,
see the glossary on page 115.
Substantial shareholdings
Details of substantial shareholdings can be found on page 27.
The Restaurant Group plc Annual Report 2017 57
OverviewStrategic reportGovernanceFinancial statements
Directors’ report continued
Capital risk management
The Group manages its capital to ensure that it will be able to
continue as a going concern while looking to maximise returns
to shareholders. The capital structure of the Group consists
of equity (comprising issued share capital, other reserves
and retained earnings), borrowings and cash and cash
equivalents. The Group monitors its capital structure on a
regular basis through cash flow projections and consideration
of the cost of financing its capital.
The Group is subject to externally imposed capital
requirements in respect of its bank loan. The Group is required
to maintain a required net debt to EBITDA ratio and EBITDA
to net interest charge ratio. These requirements are monitored
as part of the capital management process on a regular basis
and have been complied with for the current financial period.
Details of the Company’s share capital structure can be found
on page 25.
Financial instruments and financial risk management
The Group’s policy on the use of financial instruments is
set out in note 1 to the financial statements. The Group’s
financial instruments and financial risk management are
set out in note 23 to the financial statements.
Significant agreements and change of
control provisions
The Group has a £140m revolving credit facility in place until
June 2020 and a £10m overdraft facility. Under the terms of
the £140m revolving credit facility the Group is required to
comply with its financing covenants whereby net interest
charges must be covered at least four times by EBITDA
and net debt must not exceed three times EBITDA. The
margin (on interest rates) applied to the revolving credit facility
is dependent on the ratio of net debt to EBITDA. The banking
facility covenants are tested twice a year and are monitored
on a regular basis. The Group remained within its banking
facility covenant limits throughout 2017.
The Group has entered into various contracts, including
leases, during the course of ordinary business which may be
terminated in the event of a change of control of the Company.
Corporate governance
The Company’s statement on corporate governance can be
found in the corporate governance report on pages 20 to 27
of these financial statements. The corporate governance
report forms part of this Directors’ report and is incorporated
into it by cross-reference.
Disclosure of information to the external auditor
In the case of each of the persons who are Directors at the
time the report is approved, the following applies:
• as far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware;
and
• the Director has taken all of the steps that he/she ought to
have taken as a Director in order to make him/herself aware
of any relevant audit information and to establish that the
Company’s auditors are aware of that information.
Going concern
The strategic report contains a summary of the cash flow and
borrowing position of the Group on page 9. The Group is
highly cash generative and as a retail business with trading
receipts settled by cash or credit or debit cards enjoys
favourable working capital movements.
Information on the Group’s policies for capital risk
management and financial risk management are set out
above. The principal risk factors and uncertainties that could
affect the business are detailed on page 60.
Based on the Group’s plans for 2018 and after making
enquiries (including preparation of reasonable trading
forecasts, consideration of current financing arrangements
and current headroom for liquidity and covenant compliance),
the Directors have a reasonable expectation that the Group
has adequate resources to continue operations for the
foreseeable future. For this reason they continue to adopt
the going concern basis in preparing the financial statements.
By order of the Board
Kirk Davis
Chief Financial Officer
7 March 2018
58 The Restaurant Group plc Annual Report 2017
Senior management Risk Committee
The Committee was established in October 2016 and held
four meetings in 2017.
Membership
The Committee’s membership comprises the Chief Executive
Officer, the Chief Financial Officer and not less than three
other members of the senior management team. It currently
includes the Financial Controller, the Chief Information Officer,
the Group HR Director, the Purchasing Director and the
Chief Marketing Officer. In addition, employees from across
the business attend Committee meetings by invitation in
order to assist the Committee in discharging its duties.
The Risk Committee is chaired by the Chief Financial Officer
and is required to meet at least four times a year. The minutes
of the meetings are tabled at the subsequent Audit Committee
meeting and the Chief Financial Officer reports to the Audit
Committee on its proceedings.
Role of the Risk Committee
Board
Overall responsibility for risk management
Risk management process
Each business unit or functional area of the Group is
responsible for identifying and assessing its risks half yearly.
This process identifies the gross risk, the likelihood of
occurrence, impact to the Group along with the mitigating
controls in place. The Risk Committee formally reviews the
individual risk registers, aggregates them from across the
business to form the consolidated view of the Group’s
principal risks.
Given that some risks are external and not fully within our
control, the risk management processes are designed to
manage risks which may have a material impact on our
business, rather than to fully mitigate all risks.
Risk appetite
The UK Corporate Governance Code requires companies to
determine their risk appetite in terms of the nature and extent
of the principal risks faced and those they are willing to take
in achieving strategic objectives. The Board regularly assesses
the risks faced by the business and considers these when
setting the business model and strategic objectives for the
Group to ensure the business operates within appropriate
risk parameters.
Audit Committee
Delegated responsibility regular review
of risk management procedures
Risk Committee
Day-to-day responsibility, review individual business
risks and aggregation of Group risk register
The Board has ultimate responsibility for ensuring
business risks are effectively managed. The Board
has delegated regular review of the risk management
procedures to the Audit Committee and collectively
reviews the overall risk environment on an annual basis.
The day-to-day management of business risks are
the responsibility of the individual executives and the
compliance and governance of those processes is
the accountability of the Risk Committee.
The Restaurant Group plc Annual Report 2017 59
OverviewStrategic reportGovernanceFinancial statements
Senior management Risk Committee
continued
Principal risk factors
Set out below is a list of what the Directors, in conjunction with the Risk Committee, consider to be the current principal risks
of the Group together with the mitigation plans and risk management strategy. This list is not presumed to be exhaustive and is,
by its very nature, subject to change.
Risks
Mitigation plans/Risk management strategy
Health, safety and food hygiene/allergens
Damage to reputation due to failures in environmental
health compliance in the restaurants or from contamination
of products.
Key suppliers
Major failure of key suppliers to deliver products into
restaurants.
Economic and political climate
Adverse economic conditions and a decline in consumer
confidence and spend in the UK impacting top line growth.
lmpact of Brexit coupled with cost inflation, FX pressures
across the key supply chain and likely shortage of foreign
workers.
Regulatory risk
Damage to reputation and potential fines as a result of major
breach of applicable rules and regulations, including Listing
Rules, Disclosure and Transparency Rules, Market Abuse
Regulation, General Data Protection Regulation, or
Companies Act.
Cyber, data security and disaster recovery
Cyber security failure leading to data loss, disruption
of services and trading or reputational damage.
Personnel
Loss of key personnel or failure to manage succession
planning.
Brand
Failure to provide customers with brand-standard value
for money offerings and service levels.
Training of restaurant and pub teams; detailed health and
safety manual; regular auditing of all sites; auditing of supply
chain and suppliers.
Contingency planning for supply chain and suppliers; regular
monitoring of suppliers performance; back up supplier in
place for all key product lines.
Regular monitoring of economic climate and appropriate
action plans.
Cross training of existing employees including apprentices,
as a mechanism to internally develop the required skills.
Looking at other candidate sources such as long term
unemployed or out of sector workers who can undergo
intensive training on joining.
Regular monitoring of legislative changes, and ensuring
internal systems and controls to maintain compliance.
External advisors and advice sort where necessary.
GDPR project established with a plan to ensure compliance
in line with new regulations.
Ongoing employee training and development to support
changes in legislation.
Ongoing investment in security controls, processes and
systems.
Improving data controls, processes and awareness and
education including General data Protection Regulations.
Third party systems and controls aligned to risk appetite.
Benchmarking of remuneration packages; analysis of staff
turnover; performance appraisal and review system to retain
and develop existing talent; Long-Term Incentive plan.
Re-established competitiveness of our leisure brands through
significant investment in core menu pricing, re-introduction
of a two-course value menu and an increase in promotional
activity.
New service standards training rolled out across Leisure
business.
Ongoing review and monitoring of customer satisfaction
through mystery diner visits, customer feedback, user survey
and internal quality control testing.
60 The Restaurant Group plc Annual Report 2017
Directors’ responsibility statements
Financial statements and accounting records
The Directors are responsible for preparing the Annual
Report and Accounts in accordance with applicable law
and regulations. Company law requires the Directors to
prepare the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS
Regulation and have chosen to prepare the Parent Company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice FRS101 (United
Kingdom Accounting Standards and applicable law). Under
company law the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view
of the state of affairs of the Company and of the profit or loss
of the Company for that period.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company,
and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
Disclosure and Transparency Rules
The Board confirms that to the best of its knowledge:
• properly select and apply accounting policies;
• present information, including accounting policies, in
a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position
and financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
In preparing the Parent Company financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards have
been followed; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
• the financial statements, prepared in accordance with the
IFRSs as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included
in the consolidation taken as a whole; and
• the strategic report includes a fair review of the development
and performance of the business and the position of
the Company and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
UK Corporate Governance Code
The Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provide the necessary
information for shareholders to assess the Company’s
performance, business model and strategy.
For and on behalf of the Board.
Andy McCue
Chief Executive Officer
Kirk Davis
Chief Financial Officer
7 March 2018
7 March 2018
The Restaurant Group plc Annual Report 2017 61
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report
to the members of The Restaurant Group plc
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the Parent Company financial statements is applicable law
and United Kingdom Accounting Standards, including FRS
101 ‘Reduced Disclosure Framework’ (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit
of the financial statements section of our report.
We are independent of the Group and the Parent Company
in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including
the FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 December 2017 and of the Group’s profit for the year
then ended;
• the group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
• the Parent Company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice including Financial
Reporting Standard 101 ‘Reduced Disclosure Framework’;
and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the
IAS Regulation.
We have audited the financial statements of The Restaurant
Group plc (the ‘Parent Company’) and its subsidiaries
(the ‘Group’) which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and Parent Company balance sheets;
• the consolidated and Parent Company statements
of changes in equity;
• the consolidated cash flow statement;
• the accounting policies for the consolidated and Company
accounts; and
• the notes to the accounts 1 to 27 and notes to the Parent
Company financial statements.
62 The Restaurant Group plc Annual Report 2017
Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current year were:
• Impairment of property, plant and equipment (PPE)
• Provision for onerous leases
Within this report, any new key audit matters are identified with
same as the prior year identified with
.
and any key audit matters which are the
Materiality
The materiality that we used for the group financial statements was £2.8m which was determined on the
basis of 5% of Adjusted profit before tax, calculated by adjusting statutory profit before tax for the exceptional
charge for impairments, onerous lease costs and costs associated with strategic reviews.
60
50
40
m
£
30
20
10
0
£43.5
£4.2
£4.2
£4.8
£56.7
Statutory profit
before tax
Impairment
of PPE
Onerous lease
costs
Other exceptional
costs
Adjusted profit
before tax
Scoping
Our group audit scope focused on the Group’s head office in London and the Pub’s business office in
Chester, which were subject to a full audit by our London based audit team. This represents 100% of the
Group’s net assets, revenue and profit before tax.
Significant
changes
in our
approach
We have reconsidered our view of the recognition of commercial discounts.
We previously identified a key audit matter in respect of commercial discounts. Due to improvements in
management’s processes, and also because the majority of contracts run concurrently with the Group’s
year-end, we no longer consider it to be a key audit matter.
The Restaurant Group plc Annual Report 2017 63
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report continued
Conclusions relating to going concern, principal risks and viability statement
We confirm that we have nothing material to
report, add or draw attention to in respect of
these matters.
We confirm that we have nothing material to
report, add or draw attention to in respect of
these matters.
Going concern
We have reviewed the directors’ statement in note 1(b) to the financial
statements about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing them and
their identification of any material uncertainties to the Group’s and
Company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial statements.
We are required to state whether we have anything material to add
or draw attention to in relation to that statement required by Listing
Rule 9.8.6R(3) and report if the statement is materially inconsistent
with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering
whether they were consistent with the knowledge we obtained in the
course of the audit, including the knowledge obtained in the evaluation
of the directors’ assessment of the Group’s and the Company’s ability
to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:
• the disclosures on page 60 that describe the principal risks
and explain how they are being managed or mitigated;
• the directors’ confirmation on page 61 that they have carried out a
robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity; or
• the directors’ explanation on page 12 as to how they have assessed
the prospects of the Group, over what period they have done so
and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications
or assumptions.
We are also required to report whether the directors’ statement
relating to the prospects of the Group required by Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit.
64 The Restaurant Group plc Annual Report 2017
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Impairment of property, plant and equipment
Key audit matter description
Property, plant and equipment (PPE) is the most quantitatively significant item on the
balance sheet with a net book value at 31 December 2017 of £335.0m (2016: £346.0m).
The PPE balance is primarily comprised of freehold and leasehold buildings and the plant
and equipment therein that support the Group’s restaurant operations. There are 497
(2016: 493) separate restaurant sites.
The assessment of the carrying value of property, plant and equipment requires
evaluating whether any indicators of impairment exist in the asset base by reference to
expected future profitability of cash-generating units (CGUs) within the restaurant estate.
Management reviews all restaurant operations annually for impairment. Other than where
restaurants are located together in a cluster (such as concessions in airports), CGUs are
individual restaurant sites. If indications for impairment are identified, the carrying value
of each CGU is compared to its estimated value in use. For the impairment test at
31 December 2017 a weighted average cost of capital (WACC) of 10.2% was used
(2016: 10.6%). Management has stated in the Accounting Policies note that this discount
rate used is the rate believed by the Board to reflect the risks associated with each CGU.
For the period ended 31 December 2017 the Group has recorded an impairment charge
of £5.3m which relates to 14 underperforming sites which do not generate adequate
levels of return to support the value of their PPE. The Group has also reversed
impairments on two sites with a total value of £1.1m.
This is recognised as a critical judgement and a major source of estimation uncertainty
in the accounting policies in Note 1 of the financial statements. See also note 12 to the
financial statements.
The Restaurant Group plc Annual Report 2017 65
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report continued
Impairment of property, plant and equipment
How the scope of our audit
responded to the key audit
matter
We assessed management’s process for identification of sites for potential impairment,
including reviewing the analysis performed by management and that assets were
appropriately impaired.
We also considered the indicators of impairment identified by management for each
CGU, if any, and performed an analysis to challenge their assumptions. Our work
included:
• obtaining evidence, including market based evidence, to support the growth and
discount rates used;
• testing the mechanics of management’s impairment model;
• performing analysis to assess and challenge the assumptions underpinning the model.
This included analysis of forecast site performance, taking into account: historical
performance of the sites and the overall brand, management’s strategy and
expectations for the sites and recent local market trends;
• assessing completeness of management’s process by considering other market-based
factors indicating other potential site impairments such as low historical profitability;
• engaging our valuation specialists to evaluate the weighted average cost of capital
and then performing sensitivity analysis using this independently calculated rate; and
• in addition, holding discussions with business heads to corroborate and challenge the
assumptions used in determining the value in use of both impaired sites and other sites
not subject to an impairment.
Given recent operating performance and the number of challenges faced by the Leisure
brands, as set out in the strategic report, we concluded that the assumptions in respect
of future performance built into the impairment model are not unreasonable. Therefore,
based on our testing and challenge of the assumptions, we conclude that the amount
recognised as an impairment charge is materially appropriate.
Key observations
Provision for onerous leases
Key audit matter description
Management has performed a site by site review of the Group’s property portfolio which
makes an assessment of:
• the estimated period of time it will take to agree an exit or sublet arrangement for
onerous leases;
• costs of void period prior to sublet; and
• any value of lease incentive required and the likely sublet rental income rate when
compared to the passing rent in the lease.
As set out in note 16, provisions relating to onerous leases totalled £41.8m as at
year-end (2016 Restated: £51.1m). Note 16 sets out the movements in the provision
during the financial year.
66 The Restaurant Group plc Annual Report 2017
The net impact of these changes has resulted in charges to the income statement of
£4.5m of which £4.2m has been noted as an exceptional cost and described in Note 6
(2016 Restated: £51.5m).
In the 2016 financial year the Group recorded an exceptional charge against profit before
tax of £126.5m (Restated) of which £51.5m related to provisions for onerous leases and
£68.0m related to the impairment of property, plant and equipment at underperforming
or sites expected to be exited.
Consistent with the 2016 Annual Report, and in accordance with IAS 1, under critical
accounting judgements in Note 1 of the financial statements management identifies
onerous contract provisions as a major source of estimation uncertainty that has
a significant risk of resulting in a material adjustment to the carrying amounts of assets
and liabilities within the next financial year.
Based on the Accounting Policy in Note 1(n) of the financial statements, management
recognises a provision for onerous leases when the expected benefits to be derived by
the Group from a contract are lower than the unavoidable cost of meeting its obligations
under the contract. Provisions by their nature are inherently judgemental and could result
in a range of possible outcomes. Management’s calculation of these provisions involves
significant assumptions in respect of the estimated future cash flows from sites that
remain trading, the discount rate to be applied and also includes an estimate of the time
taken to sublet or exit sites, the amount of sublet income that might be achieved and/or
the costs of exit in due course.
Therefore there is a wide range of possible scenarios and considerable estimation
uncertainty involved.
Based on the level of judgement and assumptions used in the accounting for onerous
leases and the calculation of the related provisions we identified a significant risk of
material misstatement and a risk for potential fraud in financial reporting in this area.
During the current year, management improved their analysis of onerous leases to
provide greater clarity over this highly judgemental area and identified two historical
elements of the mechanical calculations of the onerous lease provisions that were either
not in line with recent industry practice or using incorrect data.
They changed the discount rate applied to the provisions from the Group’s WACC of
10.6% to a risk free rate and corrected certain lease end dates used in the calculation.
Applying the new discount rate to the gross projected cash flows determined at
1 January 2017 resulted in an increase in the onerous lease provision of £19.1m and
the correction of the errors in lease length resulted in a decrease in the onerous lease
provision of £9.3m, together a net increase in the charge to the income statement during
the year of £9.8m.
Following queries from the Financial Reporting Council (FRC) in respect of these items
during 2017, the net charge of £9.8m, which was initially accounted for within exceptional
items in the 2017 half year results, has now been recognised as a prior year adjustment
in the financial statements as of 31 December 2017 as disclosed in Note 1(u) of the
financial statements.
The Restaurant Group plc Annual Report 2017 67
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report continued
Provision for onerous leases
How the scope of our audit
responded to the key audit
matter
To audit this key audit matter we have performed a range of procedures including:
• challenging the assumptions and estimates supporting the amount of provision
provided with reference to contractual rent obligations and third party evidence to
support the estimated cost of void periods;
• reviewing the calculation of onerous lease provisions and assessing its completeness
by challenging all sites with negative EBITDA;
• where sites have been exited, agreeing terms to completion statements;
• performing sensitivity analysis flexing the data for various variables including like-for-like
revenues, margins and discount rates; and
• assessing the appropriateness of the discount rate used against the relevant market
benchmark.
Within those procedures we have discussed site by site assumptions with senior brand
management and the Group Property Director and we have agreed the underlying
assumptions for a sample of property disposal provisions to correspondence with
landlords and other supporting evidence.
In respect of the decision to record the impact of the change in discount rate and errors
in lease length determination as a prior year error, we have challenged whether it was
appropriate to record a prior year adjustment and in particular whether the various
matters reflect a prior period error or a change in accounting estimate, as defined by
International Accounting Standard 8 ‘Accounting Policies, Changes in Accounting
Estimates and Errors’ and whether they represent a material omission or misstatement.
We consider that recording these changes as a prior year adjustment facilitates
comparability of the provision from 2016 to 2017, as it results in the provision being
prepared on the same basis in both years. Whilst we remain satisfied overall that the
original amounts provided in the 2016 financial statements were appropriate, we
recognise that the restated provision would still be within a range of possible outcomes.
In respect of the provision as at 31 December 2017, whilst we noted an immaterial
misstatement and an element of prudence in the provision, based on our audit work,
our challenges of the assumptions and estimates and our sensitivity analysis on the data,
we concur that the provision calculated by management is materially appropriate within
a reasonable range of outcomes, and again concur that it is identified as a major source
of estimation uncertainty.
Key observations
68 The Restaurant Group plc Annual Report 2017
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£2.8m (2016: £3.5m)
£2.3m
Group financial statements
Parent Company financial statements
We determined materiality for the Parent
Company to be £2.3m based on 1.5%
of its net assets.
We consider net assets an appropriate
benchmark for the measure of the
materiality for the Parent Company on the
basis that it is the Group’s ultimate parent
and is a non-trading company.
Basis for determining
materiality
Rationale for the
benchmark applied
We have used 5% (2016: 4.5%) of adjusted
profit before tax, calculated by adjusting
statutory profit before tax for the exceptional
charge for impairments, onerous leases
and other exceptional costs.
We consider a profit measure the most
appropriate basis for determining materiality
as this is the measure on which business
performance is analysed.
During the year the Group continued
to incur a significant exceptional charge
(£13.2m) relating to onerous leases,
impairment and other exceptional costs.
This has impacted the statutory profit
before tax.
We have therefore chosen profit before tax
adjusted for the exceptional charges as
the basis for determining our materiality to
provide a consistent year on year basis and
to exclude the impact of exceptional items.
PBT £56.7m
PBT
Group materiality
Group materiality
£2.8m
Audit Committee
reporting threshold
£0.14m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £142,500
(2016: £70,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
The Restaurant Group plc Annual Report 2017 69
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report continued
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the Group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the Group level.
Based on this assessment, and as in the prior year, our group audit scope focused on the Group’s head office in London and
the Pub’s business office in Chester, which were subject to a full audit. This represents 100% of the Group’s net assets, revenue
and profit before tax. Our audit work was executed at levels of materiality applicable to each individual subsidiary entity, which
were lower than group materiality, ranging from £2.3m to £0.3m. All audit work was carried out by the group audit team.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the Annual Report, other than the financial
statements and our auditor’s report thereon.
We have nothing to report
in respect of these matters.
Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected
material misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that
they consider the annual report and financial statements taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit
committee does not appropriately address matters communicated by us to the
audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance
Code – the parts of the directors’ statement required under the Listing Rules relating
to the company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.
70 The Restaurant Group plc Annual Report 2017
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained
in the course of the audit, we have not identified any material misstatements in the strategic report or the Directors’ report.
The Restaurant Group plc Annual Report 2017 71
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report continued
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in
respect of these matters.
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting
records and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made or the part of the Directors’
remuneration report to be audited is not in agreement with the accounting records
and returns.
Other matters
We have nothing to report in
respect of these matters.
Auditor tenure
We were appointed by the Company at its annual general meeting on 16 May 2007 to audit the financial statements of the
Company for the period ended 31 December 2007 and subsequent financial periods. Following a competitive tender process,
we were reappointed as auditor of the Company for the period ending 31 December 2017 and subsequent financial periods.
Our total uninterrupted period of engagement is 11 years, covering periods ended 31 December 2007 to 31 December 2017.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
Georgina Robb FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London
7 March 2018
72 The Restaurant Group plc Annual Report 2017
Consolidated income statement
52 weeks ended 31 December
2017
53 weeks ended 1 January
2017
Exceptional
(Note 6)
£’000
Total
£’000
Trading
business
£’000
Exceptional
(Note 6)
Restated
(Note 1)
£’000
Total
Restated
(Note 1)
£’000
–
679,282
710,712
–
710,712
Trading
business
£’000
679,282
(589,490)
(8,386)
(597,876)
(598,136)
(119,546)
(717,682)
Note
3
4
Revenue
Cost of sales
Gross profit/(loss)
89,792
(8,386)
81,406
112,576
(119,546)
(6,970)
Administration costs
(31,188)
(4,772)
(35,960)
(33,420)
(6,944)
(40,364)
Operating profit/(loss)
58,604
(13,158)
45,446
79,156
(126,490)
(47,334)
Interest payable
Interest receivable
7
7
(1,911)
51
–
–
(1,911)
51
(2,073)
66
–
–
(2,073)
66
Profit/(loss) on ordinary
activities before tax
Tax on profit/(loss) from
ordinary activities
56,744
(13,158)
43,586
77,149
(126,490)
(49,341)
8
(12,076)
1,423
(10,653)
(17,043)
18,368
1,325
Profit/(loss) for the year
44,668
(11,735)
32,933
60,106
(108,122)
(48,016)
Earnings/(loss) per share
(pence)
Basic
Diluted
9
9
22.29
22.18
16.44
16.36
30.02
29.84
(23.98)
(23.98)
The table below is provided to give additional information to shareholders on a key performance indicator:
Earnings before interest, tax,
depreciation and amortisation (EBITDA)
Depreciation and impairment
95,118
(36,514)
(8,973)
(4,185)
86,145
(40,699)
120,965
(41,809)
(58,440)
(68,050)
62,525
(109,859)
Operating profit/(loss)
58,604
(13,158)
45,446
79,156
(126,490)
(47,334)
The Restaurant Group plc Annual Report 2017 73
OverviewStrategic reportGovernanceFinancial statements
Consolidated balance sheet
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Stock
Other receivables
Prepayments
Cash and cash equivalents
Corporation tax receivable
Total assets
Current liabilities
Overdraft
Corporation tax liabilities
Trade and other payables
Other payables – finance lease obligations
Provisions
Net current liabilities
Non-current liabilities
Long-term borrowings
Other payables – finance lease obligations
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
At
31 December
2017
£’000
Note
At
1 January
2017
Restated
(Note 1)
£’000
11
12
13
14
22
22
15
24
16
22
24
17
16
26,433
335,029
361,462
26,433
345,952
372,385
5,930
14,949
17,473
9,611
–
47,963
5,632
18,782
15,824
9,568
688
50,494
409,425
422,879
–
(2,129)
(124,238)
(164)
(10,408)
(136,939)
–
–
(121,850)
(393)
(15,415)
(137,658)
(88,976)
(87,164)
(31,223)
(2,548)
(5,127)
(31,688)
(70,586)
(37,882)
(2,950)
(4,434)
(38,369)
(83,635)
(207,525)
(221,293)
201,900
201,586
18
19,20
56,551
25,554
(7,753)
127,548
201,900
56,550
25,542
(9,987)
129,481
201,586
The financial statements of The Restaurant Group plc (company registration number SC030343) on pages 73 to 108 were
approved by the Board of Directors and authorised for issue on 7 March 2018 and were signed on its behalf by:
Andy McCue (CEO)
Kirk Davis (CFO)
74 The Restaurant Group plc Annual Report 2017
Consolidated statement
of changes in equity
Balance at 28 December 2015
Loss for the year (Restated)
Issue of new shares
Dividends
Share-based payments – credited to equity
Other reserve movements
Current tax on share-based payments
taken directly to equity
Deferred tax on share-based payments
taken directly to equity
Balance at 1 January 2017
restated (Note 1)
Balance at 2 January 2017
Profit for the year
Issue of new shares
Dividends
Share-based payments – credited to equity
Deferred tax on share-based payments
taken directly to equity
Note
Share
capital
£’000
56, 518
Share
premium
£’000
25,255
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
(11,080)
212,867
283,560
–
32
–
–
–
–
–
–
287
–
–
–
–
–
–
–
–
1,323
(230)
–
–
(48,016)
–
(34,862)
–
–
(48,016)
319
(34,862)
1,323
(230)
73
73
(581)
(581)
56,550
25,542
(9,987)
129,481
201,586
56, 550
25,542
(9,987)
129,481
201,586
–
1
–
–
–
–
12
–
–
–
–
–
–
2,158
32,933
–
(34,866)
–
32,933
13
(34,866)
2,158
76
–
76
18
10
17
18
10
17
Balance at 31 December 2017
56,551
25,554
(7,753)
127,548
201,900
There is no comprehensive income other than the profit/loss for the year ended 31 December 2017 or the year ended
1 January 2017.
Other reserves represents the Group’s share-based payment transactions and the shares held by the employee benefit trust.
The Restaurant Group plc Annual Report 2017 75
OverviewStrategic reportGovernanceFinancial statements
Consolidated cash flow statement
52 weeks
ended
31 December
2017
£’000
107,637
55
(751)
(7,068)
(12,738)
(6,792)
80,343
Note
21
6
6
53 weeks
ended
1 January
2017
Restated
(Note 1)
£’000
122,148
41
(865)
(16,223)
(3,315)
(3,759)
98,027
(39,275)
828
(38,447)
(65,280)
2,219
(63,061)
13
(7,000)
(34,866)
(41,853)
319
7,000
(34,862)
(27,543)
43
7,423
9,568
2,145
9,611
9,568
10
22
22
Operating activities
Cash generated from operations
Interest received
Interest paid
Tax paid
Cash outflows from exceptional onerous leases provisions
Cash outflows from exceptional restructuring costs
Net cash flows from operating activities
Investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash flows used in investing activities
Financing activities
Net proceeds from issue of ordinary share capital
Net (repayments)/withdrawals of borrowings
Dividends paid to shareholders
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
76 The Restaurant Group plc Annual Report 2017
Notes to the consolidated accounts
for the year ended 31 December 2017
1 Accounting policies for the
consolidated accounts
Significant accounting policies
The Restaurant Group plc (the ‘Company’) is a public
listed company incorporated and registered in Scotland. The
consolidated financial statements of the Group for the year
ended 31 December 2017 comprise the Company and its
subsidiaries (together referred to as the ‘Group’). The principal
activity of the Group during the period continued to be the
operation of restaurants and pubs.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if
the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current
and future periods.
Future accounting policies
At the date of authorisation of these financial statements, the
Group has not applied the following new and revised IFRSs
that have been issued but are not yet effective and in some
cases have not yet been adopted by the EU:
(a) Statement of compliance
The consolidated financial statements have been prepared
in accordance with International Financial Reporting
Standards (IFRSs) and IFRS interpretations as adopted
by the European Union.
IFRS 9
IFRS 15
IFRS 16
IFRS 2 (amendments)
Financial Instruments
Revenue from Contracts with
Customers
Leases
Classification and Measurement
of Share-based Payment
Transactions
(b) Going concern basis
The consolidated financial statements have been prepared
on the going concern basis as, after making appropriate
enquires, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future at the time of approving
the financial statements. The principal risks and uncertainties
facing the Group and further comments on going concern
are set out in the report of the Directors.
(c) Basis of preparation
The accounting year runs to a Sunday within seven days of
31 December each year which will be a 52 or 53 week period.
The year ended 31 December 2017 was a 52 week period,
with the comparative year to 1 January 2017 being a 53 week
period.
The financial statements are presented in sterling, rounded
to the nearest thousand. They have been prepared on the
historical cost basis.
The preparation of financial statements in conformity with
IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are
based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ
from these estimates.
The directors do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the Group in future periods, except as noted
below:
• IFRS 16 (applicable for year ending 2020) will have a
material impact on the reported assets, liabilities and income
statement of the Group given the extensive portfolio of
operating leases held. Under IFRS 16, the Group will be
required to account for its operating leases by recognising
a right-of-use asset and related lease liability on the balance
sheet. This will additionally impact the depreciation and
interest amounts recognised in the income statement. The
measurement of overall cash flows of the Group will remain
unchanged, although there will be classification changes
within the cash flow statement as a result of adopting
IFRS 16. Furthermore, extensive disclosures will be required
by IFRS 16. As shown in Note 24, the Group has lease
commitments of £850m at 31 December 2017 across
leases of varying remaining length and age. The impact of
the standard on the Group is currently being assessed and
it is not yet practicable to quantify the effect of IFRS 16 on
these consolidated financial statements.
Beyond the information above, it is not practicable to provide
a reasonable estimate of the effect of these standards until
a detailed review has been completed.
The Restaurant Group plc Annual Report 2017 77
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
1 Accounting policies for the consolidated accounts
continued
(d) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control
exists when the Company possess power over the investee,
has exposure to variable returns from its involvement with the
entity and has the ability to use its power over the investee to
affect its returns. In assessing control, potential voting rights
that presently are exercisable or convertible are taken into
account, regardless of management’s intention to exercise
that option or warrant. The financial statements of subsidiaries
are included in the consolidated financial statements from
the date that control commences until the date that control
ceases.
(ii) Transactions eliminated on consolidation
Intra-group balances and any gains and losses or income and
expenses arising from intra-group transactions are eliminated
in preparing the consolidated financial statements.
(e) Foreign currency
Assets and liabilities in foreign currencies are translated into
sterling at the rates of exchange ruling at the date of the
balance sheet. Transactions in foreign currencies are
translated into sterling at the rate of exchange at the date
of the transaction.
(f) Property, plant and equipment and intangible assets
Items of property, plant and equipment are stated at cost less
accumulated depreciation (see below) and impairment losses
(see accounting policy k). Cost is the amount of cash or cash
equivalents paid or the fair value of the other consideration
given to acquire an asset at the time of its acquisition
or construction.
Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items
of property, plant and equipment.
Finance leases
Leases in which the Group assumes substantially all the risks
and rewards of ownership are classified as finance leases.
The owner-occupied properties (excluding land element)
acquired by way of finance lease are stated at an amount
equal to the lower of their fair value and the present value of
the minimum lease payments at inception of the lease, less
accumulated depreciation (see below) and impairment losses
(see accounting policy k).
Subsequent costs
The Group recognises in the carrying amount of an item
of property, plant and equipment the cost of replacing part
of such an item when that cost is incurred if it is probable
that enhanced future economic benefits embodied with the
item will flow to the Group and the cost of the item can
be measured reliably. All other costs are recognised in the
income statement as an expense as incurred.
Depreciation
Depreciation is charged to the income statement on a
straight-line basis to the residual value over the estimated
useful lives of each part of an item of property, plant and
equipment. The estimated useful lives are as follows:
Freehold land
Freehold buildings
Long and short leasehold property Term of lease or
Indefinite
50 years
Fixtures and equipment
Motor vehicles
Computer equipment
50 years, whichever
is lower
3-10 years
4 years
3-5 years
The estimated useful lives and residual values applied are
reviewed at each reporting date with any changes in estimates
being applied prospectively.
Intangible assets – Goodwill
All business combinations are accounted for by applying the
acquisition method. Goodwill represents amounts arising on
acquisition of subsidiaries. In respect of business acquisitions
that have occurred since 1 January 2004, goodwill represents
the difference between the cost of the acquisition and the fair
value of the net identifiable assets acquired.
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is allocated to cash-generating units.
Goodwill is not subject to amortisation but is formally tested
for impairment at least annually or when an impairment trigger
has arisen (see accounting policy k).
(g) Financial assets
Classification
The Group classifies its financial assets as loans and
receivables. The classification depends on the purpose
for which the financial assets were acquired. Management
determines the classification of its financial assets at initial
recognition.
78 The Restaurant Group plc Annual Report 2017
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are included in current assets, except
for maturities greater than 12 months after the end of the
reporting period. These are classified as non-current assets.
The Group’s loans and receivables comprise ‘cash and cash
equivalents’ and ‘other receivables’ in the balance sheet.
(i) Stock
Stock is stated at the lower of cost and net realisable value.
Cost is determined in accordance with the weighted average
stock costing model, including applicable commercial
discounts. Net realisable value is the estimated selling price
in the ordinary course of business, less the estimated costs
of completion and selling expenses.
Other receivables are amounts due from suppliers or sub
tenants in the ordinary course of business. Other receivables
are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method, less
provision for impairment (see accounting policy k).
Recognition and measurement
Financial assets are recognised when the Group becomes
party to the contractual provisions of the instrument and are
subsequently carried at amortised cost using the effective
interest rate method, less provisions for impairment. Impairment
of financial assets is based on management’s estimate of
future cash inflows.
Offsetting financial instruments
Financial assets and liabilities are offset and the net
amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there
is an intention to settle on a net basis or realise the asset and
liability simultaneously. The legally enforceable right must not
be contingent on future events and must be enforceable in
the normal course of business and in the event of default,
insolvency or bankruptcy of the company or the counterparty.
(h) Financial liabilities – Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
carried at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption
value is recognised in the income statement over the period
of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are
recognised as transaction costs of the loan to the extent that
it is probable that some or all of the facility will be drawn down.
In this case, the fee is deferred until the draw-down occurs.
To the extent there is no evidence that it is probable that some
or all of the facility will be drawn down, the fee is capitalised
as a prepayment for liquidity services and amortised over
the period of the facility to which it relates.
(j) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and debit
and credit card payments received within 48 working hours.
Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included
as a component of cash and cash equivalents for the purpose
of the statement of cash flows.
(k) Impairment
The carrying amounts of the Group’s assets are reviewed
annually to determine whether there is any indication of
impairment.
The Group formally determines whether property, plant
and equipment are impaired by considering indicators of
impairment annually. This requires the Group to determine
the lowest level of assets which generate largely independent
cash flows (cash-generating units or CGU) and to determine
their recoverable amount, based on estimating the value-in-
use of these assets or CGUs; and compare these to their
carrying value. Cash-generating units are deemed to be
individual units or a cluster of units depending on the nature
of the trading environment in which they operate. We only
consider sites as a cluster of units, i.e. as a single CGU, where
they are in a single, shared location, such as an airport, such
that demand at one unit can directly affect that of other units
in the same location. The discount rate applied in the value-in-
use calculations is the Group’s weighted average cost of
capital. We apply any CGU specific risks to the underlying
cash flow assumptions in calculating the value-in-use and
therefore apply the same discount rate to each CGU.
Impairment losses are recognised in the income statement.
For goodwill and assets that have an indefinite useful life,
the recoverable amount is estimated annually. An impairment
loss is recognised whenever the carrying amount of an asset
or its cash-generating unit exceeds its recoverable amount.
Goodwill Impairment losses are recognised in the income
statement and are not subsequently reversed. All goodwill
stated on the balance sheet relates to the acquisition of
Blubeckers Limited and Brunning & Price Limited.
The Restaurant Group plc Annual Report 2017 79
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
1 Accounting policies for the consolidated accounts
continued
(l) Share-based payment transactions
The Group operates a number of share-based payment
schemes. These schemes allow Group employees to acquire
shares of the Company and all options are equity-settled.
The fair value of options granted is recognised as an employee
expense with a corresponding increase in equity. The fair
value is measured at grant date and spread over the period
during which the employees become unconditionally entitled
to the options. The Stochastic, Black-Scholes and Finnerty
valuation models are used to measure the fair value of the
options granted. The type of award and conditions attached
to the award determine which valuation model is used. At the
end of each reporting period, the group revises its estimates
of the number of options that are expected to vest based on
the non-market vesting conditions and service conditions.
It recognises the impact of the revision to original estimates,
if any, in the income statement, with a corresponding
adjustment to equity.
(m) Provisions
A provision is recognised in the balance sheet when the
Group has a present legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect
is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money.
(n) Onerous lease provisions
A provision for onerous lease is recognised when the
expected benefits to be derived by the Group from a lease
are lower than the unavoidable cost of meeting its obligations
under the lease.
The Group provides for its onerous obligations under
operating leases where the property is closed or vacant and
for properties where the fixed cost is in excess of income.
The amount provided is based on the lowest net cost of
exiting the contract. Estimates have been made with respect
to the time to exit, sublet or cover the fixed cost base, along
with other associated exit costs as well as an evaluation of
the cost of void period prior to sublet and the value of lease
incentive which may be required to be paid as part of the
sublet process.
(o) Deferred and current tax
Corporation tax payable is provided on the taxable profit at
the current rate. Deferred tax is recognised in respect of all
temporary differences that have originated but not reversed at
the balance sheet date, except to the extent that the deferred
tax arises from the initial recognition of goodwill. Temporary
differences are differences between the carrying amount
of the Group’s assets and liabilities and their tax base.
Deferred tax is measured at the tax rates that are expected
to apply in the periods in which the temporary differences
are expected to reverse based on tax rates and laws that are
enacted, or substantively enacted, by the balance sheet date.
Deferred tax is measured on a non-discounted basis.
(p) Pensions
The Group makes contributions for eligible workers into
defined contribution pension plans and these contributions
are charged to the income statement as they are accrued.
The Group does not operate any defined benefit plans.
(q) Revenue
Revenue represents amounts received and receivable for
goods provided (excluding value added tax and voluntary
gratuities left by customers for the benefit of employees) and
is recognised at the point of sale. Where the Group operates
a Concession unit under a franchise agreement, it acts as
principal in this trading arrangement. All revenue from
franchise arrangements is recognised by the Group at the
point of sale and licencing fees are recorded in cost of sales
as the goods are sold. The Group does not act as a franchisor
in any trading relationship.
(r) Other income – rental income
Rental income is derived from sites where the Group is the
lessor. Rental income is recognised in the income statement
as earned. Provisions are made for any doubtful debts.
Where any lease incentives are provided to the lessee (such
as rent-free periods), such incentives are accounted for as
a reduction in lease income over the lease term.
80 The Restaurant Group plc Annual Report 2017
(s) Expenses
Operating lease payments
Fixed payments made under operating leases are recognised
in the income statement on a straight-line basis over the
term of the lease. Contingent rents, such as turnover related
rents, are recognised in the income statement as incurred.
Incentives to enter into an operating lease are spread on a
straight-line basis over the lease term as a reduction in rental
expense.
Exceptional items
In order to illustrate the trading performance of the Group,
presentation has been made of performance measures
excluding those exceptional items which it is considered
would distort the comparability of the Group’s results.
Exceptional items are defined as those items that, by virtue
of their unusual nature or size, warrant separate additional
disclosure in the financial statements in order to fully
understand the performance of the Group.
Finance lease payments
Minimum lease payments are apportioned between the
finance charge and the reduction of the outstanding liability.
The finance charge is allocated to each period during the
lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Pre-opening expenses
Property rentals and related costs incurred up to the date
of opening of a new restaurant are written off to the income
statement in the period in which they are incurred. Promotional
and training costs are written off to the income statement
in the period in which they are incurred.
Borrowing costs
Debt is stated net of borrowing costs which are spread
over the term of the loan. All other borrowings costs are
recognised in the income statement in the period in which
they are incurred.
Commercial discount
Commercial discounts represent a reduction in cost of
goods and services in accordance with negotiated supplier
contracts, the majority of which are based on purchase
volumes. Commercial discounts are recognised in the
period in which they are earned and to the extent that any
variable targets have been achieved in that financial period.
The Group’s income statement provides a reconciliation of the
adjusted profitability measures, excluding exceptional items to
the equivalent unadjusted IFRS measures. Exceptional items
are then further detailed in Note 6.
(t) Dividends
In accordance with IAS 10 ‘Events after the Balance Sheet
Date’, dividends declared after the balance sheet date are
not recognised as a liability at that balance sheet date, and
are recognised in the financial statements when they have
received approval by shareholders.
(u) Restatement of comparatives
During the year, management identified two historical
elements of the mechanical calculations of the onerous lease
provisions that were either not in line with recent industry
practice or using incorrect data. This resulted in a net
movement in the provision of £9.8m, which can be split
across these two areas as follows:
• £19.1m charge to the income statement as a result of
changing the discount rate applied to the provisions
from the Group’s WACC of 10.6% to a risk free rate; and
• £9.3m credit to the income statement as a result of
correcting certain lease end dates used in the calculation
of the provision to the break clause date.
These were initially accounted for as exceptional items within
the 2017 half year results. Following the publication of the
Group’s Interim Report the Financial Reporting Council (FRC)
wrote to the Company to ask for reconsideration of whether
this should be accounted for within the prior year as the
correction of a prior year error. As a result of this request,
the Company has reviewed the accounting treatment again
and taken the decision to restate the 2016 year-end financial
statements and record these two elements as corrections
of prior year errors.
The Restaurant Group plc Annual Report 2017 81
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
1 Accounting policies for the consolidated accounts continued
This has increased the prior year exceptional onerous lease charge within the income statement and the provision for onerous
leases by £9.8m. This has also increased the tax credit on exceptional costs from £16.4m to £18.4m, resulting in a net impact
on statutory loss after tax of £7.8m.
The amount of correction for each financial line item affected and for basic and diluted earnings per share is as follows:
Consolidated income statement
Exceptional cost of sales
Cost of sales
Exceptional tax credit
Tax on loss from ordinary activities
Loss for the year
Consolidated balance sheet
Corporation tax (liabilities)/receivable
Provisions – current
Provisions – non-current
Retained earnings
As originally
disclosed
£’000
(109,732)
(707,868)
16,405
(638)
(40,165)
Restatement
£’000
As restated
£’000
(9,814)
(9,814)
1,963
1,963
(7,851)
(119,546)
(717,682)
18,368
1,325
(48,016)
(1,275)
(16,391)
(27,579)
137,332
1,963
976
(10,790)
(7,851)
688
(15,415)
(38,369)
129,481
Basic and diluted earnings per share
Weighted average ordinary shares for the purposes of basic earnings per share
Total loss for the year (£’000)
200,230,299
(40,165)
– 200,230,299
(48,016)
(7,851)
Basic loss per share for the year (pence)
Diluted loss per share (pence)
(20.06)
(20.06)
(3.92)
(3.92)
(23.98)
(23.98)
The retained earnings balance as at 28 December 2015 has not been restated, as the impact is considered immaterial.
The FRC also asked the Company to review the classification of the net cash flows relating to exceptional items within the
cash flow statement of £7.1m in the year ended 1 January 2017. The Company reconsidered the underlying cash flows and
concluded that these would be more appropriately classified as operating cash flows. As a result, the prior year cash flow
has been restated to reflect this change in presentation.
82 The Restaurant Group plc Annual Report 2017
Critical accounting judgements
In the process of applying the Group’s accounting policies
as described above, management has made a number of
judgements and estimations of which the following are the
most significant:
Critical accounting estimates and assumptions
a) Onerous lease provisions
Provisions for onerous leases are identified as major sources
of estimation uncertainty and by their nature are inherently
judgemental. The Group provides for its onerous obligations
under operating leases where the property is closed or vacant
and for properties where the fixed cost is in excess of income.
The amount provided is based on the lowest net cost of
exiting the contract.
Estimates have been made with respect to the time to exit,
sublet or cover the fixed cost base, along with other associated
exit costs as well as an evaluation of the cost of void periods
prior to sublet and the value of lease incentive which may be
required to be paid as part of the sublet process.
In determining the provision, the risk adjusted cash flows
have been discounted on a pre-tax basis using a risk free rate.
Changes in the EBITDA performance of each site could impact
on the value of the provision. It is estimated that, a 10%
decline in the EBITDA performance of the sites included in
the provision would generate an additional provision of £0.5m.
Additionally, it is estimated that, should all leases with more
than ten years remaining on the committed lease term be
exited two years ahead of expiry, the provision would reduce
by £2.4m.
A 1% increase in the risk free rate would reduce the provision
by £1.8m while a reduction of similar magnitude would result
in an additional provision of £2.0m.
b) Impairment of property, plant and equipment
The Group formally determines whether property, plant
and equipment are impaired by considering indicators of
impairment annually. This requires the Group to determine
the lowest level of assets which generate largely independent
cash flows (cash-generating units or CGU) and to determine
their recoverable amount, based on estimating the value-in-
use of these assets or CGUs; and compare these to their
carrying value. Cash-generating units are deemed to be
individual units or a cluster of units depending on the nature
of the trading environment in which they operate. We only
consider sites as a cluster of units, i.e. as a single CGU, where
they are in a single, shared location, such as an airport, such
that demand at one unit can directly affect that of other units
in the same location.
Calculating the value-in-use requires the Group to make an
estimate of the future cash flows of each CGU and to choose
a suitable discount rate in order to calculate the present value
of those cash flows. The estimated future cash flows for each
CGU are based on past experience and trading at the specific
CGU. The discount rate used in the year ended 31 December
2017 for all CGUs was based on the Group’s weighted
average cost of capital of 10.2% (year ended 1 January 2017:
10.6%). The Directors believe the risks associated with each
CGU are the same, considering they are all UK based, the
nature of assets being tested for impairment is consistent,
all CGUs are within the restaurant sector and cash flow
projections are compiled in the same way for every CGU.
The key assumptions in the value-in-use calculations are the
discount rate applied and the forecast cash flows. An increase
or decrease of 1% in the discount rate would give rise to an
additional or reduction in impairment of approximately £0.7m.
The forecast cash flows are based on Board approved
budgets and long term business plans covering the period
to December 2020. These forecasts take into account
management’s experience of the specific sites and its long
term expectations of the market. A 10% reduction in these
forecast cash flows would result in an additional impairment
of circa £1.3m.
The Restaurant Group plc Annual Report 2017 83
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
2 Segmental analysis
The Group trades in one business segment (that of operating restaurants) and one geographical segment (being the
United Kingdom). The Group’s brands meet the aggregation criteria set out in paragraph 22 of IFRS 8 ‘Operating Segments’
and as such the Group reports the business as one reportable segment.
3 Revenue
All revenue has been generated from principal trade activities within the United Kingdom.
4 Profit/(loss) for the year
Cost of sales consists of the following:
Continuing business excluding pre-opening costs
Pre-opening costs
Trading cost of sales
Exceptional charge
Total cost of sales for the year
Profit/(loss) for the year has been arrived at after charging/(crediting):
Depreciation (see Note 12)
Impairment of property, plant and equipment
Purchases of food, beverages and consumables
Staff costs (see Note 5)
Minimum lease payments
Contingent rents
Total operating lease rentals of land and buildings
Rental income
Net rental costs
84 The Restaurant Group plc Annual Report 2017
2016
Restated
(Note 1)
£’000
2017
£’000
587,347
2,143
589,490
594,756
3,380
598,136
8,386
119,546
597,876
717,682
2017
£’000
2016
£’000
36,514
4,185
147,079
236,981
41,809
68,050
144,467
239,297
73,905
10,093
83,998
(2,007)
81,991
74,616
10,906
85,522
(2,260)
83,262
Auditor’s remuneration:
Fee payable to the Company’s auditor for the audit of the
Group’s annual accounts
Fees payable to the Company’s auditor and
their associates for other services to the Group:
The audit of the Company’s subsidiaries
Total audit fees
Audit-related assurance services
Other assurance services
Tax compliance services
Other tax advisory services
Other services
Total non-audit fees
Total auditor’s remuneration
2017
£’000
2016
£’000
158
175
12
170
25
19
–
–
–
44
214
12
187
20
19
50
29
33
151
338
Audit fees included in the above total relating to the Company are borne by a subsidiary undertaking. All of the auditor’s
remuneration in 2017 and 2016 was expensed as administration costs.
The Restaurant Group plc Annual Report 2017 85
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
5 Staff costs and numbers
a) Average staff numbers during the year (including executive Directors)
Restaurant staff
Administration staff
b) Staff costs (including Directors) comprise:
Wages and salaries
Social security costs
Share-based payments
Pension costs
c) Directors’ remuneration
Emoluments
Termination benefits
Money purchase (and other) pension contributions
Charge/(credit) in respect of share-based payments
2017
£’000
2016
£’000
14,484
315
14,799
15,222
348
15,570
2017
£’000
2016
£’000
217,533
15,722
2,158
1,568
236,981
221,815
14,560
1,323
1,599
239,297
2017
£’000
2016
£’000
1,584
167
116
1,867
378
2,245
1,627
983
144
2,754
(662)
2,092
Further details of the Directors’ emoluments and the executive pension schemes are given in the Directors’ remuneration report
on pages 38 to 56.
86 The Restaurant Group plc Annual Report 2017
6 Exceptional items
Release of onerous lease provision in respect of closed sites now disposed
Onerous lease provision in respect of distressed and other sites
Impairment of property, plant and equipment
Restructuring and strategic review costs
Exceptional cost before tax
Credit in respect of tax rate change
Tax effect of exceptional Items
Net exceptional cost for the year
2016
Restated
(Note 1)
£’000
–
51,496
68,050
6,944
126,490
2017
£’000
(7,299)
11,500
4,185
4,772
13,158
67
(1,490)
(1,423)
(261)
(18,107)
(18,368)
11,735
108,122
An exceptional pre-tax charge of £13.2m has been recorded in the year (2016: £126.5m), which includes the following:
• onerous lease provisions resulted in a charge of £4.2m in the year (2016: £51.5m, including the prior year restatement
of £9.8m). This comprises;
– a £7.3m credit in respect of unutilised provisions following the successful exit of 21 sites ahead of expectations;
– a further charge totalling £11.5m was provided for in the year. This comprised a release of £4.5m in respect of certain assets
where performance was better than expected, £5.7m in respect of newly identified onerous leases and a charge of £10.3m
in respect of sites previously provided for.
• a net impairment charge of £4.2m (2016: £68.1m) was made against the carrying value of specific restaurant assets due to
recent changes in certain markets. This comprises an impairment charge of £5.3m partially offset by reversals of previously
recognised impairment losses of £1.1m; and
• a £4.8m charge (2016: £6.9m) relating to costs incurred in the restructuring projects that were initiated in 2017 to implement
the new business strategy and cost saving initiatives.
Cash expenditure associated with the above exceptional charges was £19.5m in the year (2016: £7.1m) relating to the costs
associated with the implementation of the new business strategy £6.8m and the cash cost of the onerous leases of £12.7m.
The tax credit relating to these exceptional charges was £1.4m (2016: £18.4m).
The Restaurant Group plc Annual Report 2017 87
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
7 Net interest charges
Bank interest payable
Other interest payable
Facility fees
Interest on obligations under finance leases
Total interest payable
Bank interest receivable
Other interest receivable
Loan note interest receivable (see Note 14)
Total interest receivable
Net interest charges
8 Tax
a) The tax charge comprises:
Current tax
UK corporation tax at 19.25% (2016: 20.00%)
Adjustments in respect of previous years
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of previous years
Charge/(credit) in respect of rate change on deferred tax liability
Credit in respect of property, plant and equipment
writedowns and disposals
2017
£’000
746
409
365
391
1,911
–
(2)
(49)
(51)
2016
£’000
834
465
387
387
2,073
(5)
(8)
(53)
(66)
1,860
2,007
Trading
2017
£’000
Exceptional
2017
£’000
Total
2017
£’000
12,266
(1,463)
10,803
(1,698)
780
(918)
10,568
(683)
9,885
94
1,190
(11)
–
1,273
–
–
67
(572)
(505)
94
1,190
56
(572)
768
Total
2016
Restated
(Note 1)
£’000
7,034
(116)
6,918
27
121
(261)
(8,130)
(8,243)
Total tax charge for the year
12,076
(1,423)
10,653
(1,325)
88 The Restaurant Group plc Annual Report 2017
b) Factors affecting the tax charge for the year
The tax charged for the year varies from the standard UK corporation tax rate of 19.25% (2016: 20.00%) due to the
following factors:
Profit/(loss) on ordinary activities before tax
Trading
2017
£’000
56,744
Exceptional
2017
£’000
Total
2017
£’000
(13,158)
43,586
2016
Restated
(Note 1)
£’000
(49,341)
Profit/(loss) on ordinary activities before tax multiplied
by the standard UK corporation tax rate of 19.25% (2016: 20.0%)
10,923
(2,533)
8,390
(9,868)
Effects of:
Depreciation/impairment on non-qualifying assets
Expenses/(income) not deductible for tax purposes
Charge/(credit) in respect of rate change on deferred tax liability
Release of tax provisions
Business combinations
Share options
Adjustment in respect of previous years
Total tax charge for the year
1,454
446
(11)
(478)
(182)
197
(273)
12,076
234
29
67
–
–
–
780
(1,423)
1,688
475
56
(478)
(182)
197
507
10,653
6,633
3,237
(261)
–
–
–
(1,066)
(1,325)
The Finance (No.2) Act 2015 introduced a reduction in the main rate of corporation tax from 20% to 19% from April 2017 and
from 19% to 18% from April 2020. These reductions were substantively enacted on 26 October 2015. This resulted in a blended
rate of 19.25% being used to calculate the tax liability for the 52 weeks ended 31 December 2017 (20% for the 53 weeks to
1 January 2017).
The Finance Act 2016 introduced a further reduction in the main rate of corporation tax to 17% from April 2020. This was
substantively enacted on 6 September 2016. The deferred tax provision at the balance sheet date has been calculated at this
rate, resulting in a £0.1m tax charge.
The Restaurant Group plc Annual Report 2017 89
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
9 Earnings per share (EPS)
a) Basic earnings per share:
Weighted average ordinary shares for the purposes of basic earnings per share
Profit/(loss) for the year after tax (£’000)
Basic earnings per share for the year (pence)
Total profit/(loss) for the year (£’000)
Effect of exceptional items on earnings for the year (£’000)
Earnings excluding exceptional items (£’000)
Adjusted earnings per share (pence)
b) Diluted earnings per share:
Weighted average ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Dilutive shares to be issued in respect of options granted under the share option schemes
Shares held by employee benefit trust
Diluted earnings per share (pence)
Adjusted diluted earnings per share (pence)
2016
Restated
(Note 1)
2017
200,376,258 200,230,299
(48,016)
(23.98)
(48,016)
108,122
60,106
30.02
32,933
16.44
32,933
11,735
44,668
22.29
200,376,258 200,230,299
280,084
688,276
404,829
814,855
201,344,618 201,449,983
(23.98)
29.84
16.36
22.18
Diluted earnings per share information is based on adjusting the weighted average number of shares for the purposes of basic
earnings per share in respect of notional share awards made to employees in regards of share option schemes and the shares
held by the employee benefit trust. The calculation of diluted earnings per share does not assume conversion, exercise or other
issue of potential ordinary shares that would have an antidilutive effect on earnings per share.
10 Dividend
Amounts recognised as distributions to equity holders during the year:
Final dividend for the 53 weeks ended 1 January 2017 of 10.60p (2015: 10.6p) per share
Interim dividend for the 52 weeks ended 31 December 2017 of 6.80p (2016: 6.80p) per share
Total dividends paid in the year
Proposed final dividend for the 52 weeks ended 31 December 2017 of 10.6p
(2016 actual proposed and paid: 10.60p) per share
2017
£’000
2016
£’000
21,240
13,626
34,866
21,237
13,625
34,862
21,240
21,240
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 23 May 2018
and is not recognised as a liability in these financial statements. The proposed final dividend reflects the number of shares in
issue on 31 December 2017, adjusted for the 0.7m shares owned by the employee benefit trust for which dividends have been
waived.
Further details are provided in Note 19.
90 The Restaurant Group plc Annual Report 2017
11 Intangible assets
Cost and carrying amount
27 December 2015, 1 January 2017 and 31 December 2017
£’000
26,433
Goodwill arising on business combinations is not amortised but is subject to an impairment review annually, or more frequently
if events or changes in circumstances indicate that it might be impaired. Therefore, goodwill arising on acquisition is monitored
and an impairment test is carried out which compares the value-in-use of each cash-generating unit (CGU) to its carrying value.
The intangible assets reported on the balance sheet represent goodwill arising on the acquisition of Blubeckers Limited and
Brunning and Price Limited, which now trade as Pub restaurants.
Value-in-use calculations are based on cash flow forecasts derived from the most recent financial budgets and three-year
business plans approved by the Board and which are based on management’s best estimates at the time. Cash flows are then
extrapolated in perpetuity with an assumed annual growth rate. Perpetuity is believed to be reasonable due to the significant
proportion of freeholds in the estate and the nature of the leasehold properties. The pre-tax discount rate applied to cash flow
projections is 10.2% (2016: 10.6%) which is the rate believed by the Directors to reflect the risks associated with the CGU.
The key assumptions in the value-in-use calculations are the discount rate applied and the forecast cash flows.
The Group has conducted a sensitivity analysis taking into consideration the impact on key assumptions arising from a range
of possible trading and economic scenarios. The scenarios have been performed separately with the sensitivities summarised
as follows:
• An increase in the discount rate of 1%.
• A decrease of 5% on forecast cash flows.
The sensitivity analysis shows that no impairment would result from either an increase in the discount rate or a decrease in
forecast cash flows.
The Restaurant Group plc Annual Report 2017 91
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
12 Property, plant and equipment
Cost
At 28 December 2015
Additions
Disposals
At 1 January 2017
Accumulated depreciation and impairment
At 28 December 2015
Charged during the year
Impairment
Disposals
At 1 January 2017
Cost
At 2 January 2017
Additions
Disposals
Transfers to provisions
At 31 December 2017
Accumulated depreciation and impairment
At 2 January 2017
Charged during the year
Impairment
Disposals
At 31 December 2017
Net book value as at 1 January 2017
Net book value as at 31 December 2017
Land and
buildings
£’000
Fixtures,
equipment
and vehicles
£’000
489,885
38,445
(6,536)
521,794
154,526
22,533
54,807
(3,991)
227,875
521,794
16,192
(17,459)
500
521,027
227,875
20,609
3,322
(14,177)
237,629
293,919
283,398
181,836
16,558
(6,801)
191,593
113,555
19,276
13,243
(6,514)
139,560
191,593
17,146
(8,440)
–
200,298
139,560
15,905
863
(7,661)
148,667
52,033
51,631
Total
£’000
671,721
55,003
(13,337)
713,387
268,081
41,809
68,050
(10,505)
367,435
713,387
33,337
(25,899)
500
721,325
367,435
36,514
4,185
(21,838)
386,296
345,952
335,029
The impairment charge comprises a charge of £5.3m partially offset by reversals of previously recognised impairment losses
of £1.1m.
Included within the book value of property, plant and equipment are assets under construction of £0.7m (2016: £2.3m) which
are not depreciated.
92 The Restaurant Group plc Annual Report 2017
Net book value of land and buildings:
Freehold
Long leasehold
Short leasehold
Assets held under finance leases – Land and Buildings
Costs at the beginning of the year
Disposals during the year
Costs at the end of the year
Depreciation
At the beginning of the year
Provided during the year
Impairment
Disposals during the year
At the end of the year
Net book value at the end of the year
2017
£’000
2016
£’000
108,418
3,640
171,340
283,398
109,525
3,915
180,479
293,919
2017
£’000
1,961
(366)
1,595
1,681
25
–
(272)
1,434
161
2016
£’000
1,961
–
1,961
1,249
25
407
–
1,681
280
External valuation of freehold properties
All freehold properties of the Group held were valued by Savills (UK) Limited, an independent and qualified professional valuer,
in January 2018. The valuation has been performed in accordance with the RICS Red Book using market comparable data to
determine fair value. This valued the Group’s freehold and long leasehold assets at £148.2m versus a book value of £110.9m.
13 Stock
Stock comprises raw materials and consumables and has been valued at the lower of cost and estimated net realisable value.
The replacement cost at 31 December 2017 is not considered by the Directors to be materially different from the balance sheet
value. The Group recognised £147.1m of purchases as an expense in 2017 (2016: £144.5m).
The Restaurant Group plc Annual Report 2017 93
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
14 Other receivables
Amounts falling due within one year:
Other receivables
Provision for bad debts
2017
£’000
2016
£’000
15,861
(912)
14,949
19,023
(241)
18,782
The 2016 comparative has been reclassified as other receivables from trade receivables, following a detailed review of the
substance of the receivable.
Movements in the Group provision for other receivables is as follows:
At the beginning of the year
Provided for during the year
At the end of the year
2017
£’000
(241)
(671)
(912)
2016
£’000
(241)
–
(241)
The Group has an outstanding long-term receivable of £2.9m from Black House Newco Limited (formerly BH Restaurants Limited),
which was fully provided against in 2014 as a result of a detailed review undertaken of the trading performance of Black House
Newco Limited and management’s assessment and estimate of future cash flows.
Interest was receivable from Black House Newco Limited on a loan note of £2.9m at a rate of LIBOR + 1%. In the 52 weeks
ended 31 December 2017, £0.1m of interest accrued (2016: £0.1m). Refer to Note 23 and 27 for further details.
2017
£’000
2016
£’000
38,206
21,621
10,389
54,022
124,238
42,812
20,317
10,182
48,539
121,850
15 Trade and other payables
Amounts falling due within one year:
Trade payables
Other tax and social security
Other payables
Accruals
94 The Restaurant Group plc Annual Report 2017
16 Provisions
Provision for onerous leases
Other provisions
Balance at the end of the year
Analysed as:
Amount due for settlement within one year
Amount due for settlement after one year
Balance at 2 January 2017 (Restated – Note 1)
Release of onerous lease provision in respect of closed sites now disposed
Onerous lease provision in respect of distressed and other sites
Provision in respect of restructuring & strategic review costs
Amounts utilised
Unwinding of discount
Balance at 31 December 2017
2017
£’000
41,805
291
42,096
10,408
31,688
42,096
Onerous lease
provisions
£’000
Other
provisions
£’000
51,054
(7,299)
11,785
–
(14,138)
403
41,805
2,730
–
–
4,772
(7,211)
–
291
2016
Restated
(Note 1)
£’000
51,054
2,730
53,784
15,415
38,369
53,784
Total
£’000
53,784
(7,299)
11,785
4,772
(21,349)
403
42,096
The onerous lease provisions are for onerous contracts in respect of lease agreements. The provision comprises the onerous
element of expenditure over the life of those contracts which are considered onerous, expiring in 1 to 30 years, and exit costs
including the costs of strip out and dilapidations and the costs expected to be incurred over the void period until the property
is sublet.
• onerous lease provisions resulted in a charge of £4.5m in the year (2016: £57.6m, including the prior year restatement of
£9.8m referred to in Note 1). This comprises;
– a £7.3m credit in respect of unutilised provisions following the successful exit of 21 sites ahead of expectations;
– a further charge totalling £11.8m was provided for in the year. This comprised a release of £4.5m in respect of certain assets
where performance was better than expected, £5.7m in respect of newly identified onerous leases and a charge of £10.6m
in respect of sites previously provided for.
Other provisions are for committed costs arising from the strategic review project. These costs represent the continuation of
the restructuring and consulting projects that were initiated in 2016.
The Restaurant Group plc Annual Report 2017 95
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
17 Deferred taxation
Capital
allowances
£’000
Share
options
£’000
Balance at the beginning of the year
Movement in deferred tax balances (net of exceptional credit)
Adjustments in respect of previous years
Other temporary differences
Charge/(credit) in respect of rate change
Exceptional credit in respect of fixed asset writedowns
and disposals
Deferred tax taken directly to the income statement
(see Note 8)
Tax on share-based payments
Charge in respect of rate change
Deferred tax taken through equity
Balance at the end of the year
4,533
(366)
1,897
–
43
–
1,574
–
–
–
6,107
(59)
(218)
–
–
25
–
(193)
(86)
10
(76)
(328)
2017
Total
£’000
4,434
(477)
1,190
–
56
2016
Total
Restated
£’000
12,096
334
121
(307)
(261)
Other
£’000
(40)
107
(707)
–
(12)
–
–
(8,130)
(612)
–
–
–
(652)
769
(86)
10
(76)
5,127
(8,243)
581
–
581
4,434
The prior year balances have been restated as both the ‘other temporary differences’ item and the ‘accelerated capital
allowances’ figure were overstated by equal and opposite amounts of £8.1m. This restatement only affects the reconciliation
itself, and had no impact on the amounts reported in profit or loss or in the balance sheet.
Deferred tax consists of:
Capital allowances in advance of depreciation
Share options
Capital gains rolled over
Capital losses
Other temporary differences
2017
£’000
2016
£’000
6,107
(328)
330
(330)
(652)
5,127
4,533
(59)
330
–
(370)
4,434
96 The Restaurant Group plc Annual Report 2017
18 Share capital
Issued and fully paid
At 28 December 2015
Exercise of share options
At 1 and 2 January 2017
Exercise of share options
At 31 December 2017
Number
£’000
200,950,672
112,373
201,063,045
4,355
201,067,400
56,518
32
56,550
1
56,551
The shares have a par value of 28.125p each (2016: 28.125p).
19 Employee benefit trust
An employee benefit trust (EBT) was established in 2007 in order to satisfy the exercise and vesting of existing and future share
awards under the Long-Term Incentive Plan. The EBT purchases shares in the market, using funds provided by the Company,
based on expectations of future requirements. Dividends are waived by the EBT. At 31 December 2017, the Trustees, Estera
Trust (Jersey) Limited, held 0.7m shares in the Company (1 January 2017: 0.7m shares).
There were no cash transactions in the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017: nil).
At 28 December 2015
Transfer of shares to satisfy the exercise of share awards
At 2 January 2017 and 31 December 2017
Details of options granted under the Group’s share schemes are given in Note 20.
Number
1,177,229
(488,953)
688,276
The Restaurant Group plc Annual Report 2017 97
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
20 Share-based payment schemes
The Group operates a number of share-based payment schemes, details of which are provided in the Directors’ remuneration
report.
A charge has been recorded in the income statement of the Group in respect of share-based payments of £2.2m (2016: £1.3m).
The other reserves account in the balance sheet reflects the credit to equity made in respect of the charge for share-based
payments made through the income statement and the purchase of shares in the market by the EBT in order to satisfy the
vesting of existing and future share awards under the Long-Term Incentive Plan (see Note 19).
Long-Term Incentive Plan
The Group operates the 2005 Long-Term Incentive Plan (LTIP), details of which are provided in the Directors’ remuneration
report.
Awards under the LTIP are granted to executive Directors and senior management in the form of nil-cost options.
Conditional Award share options and Matching Award share options are granted to Directors and selected employees.
In respect of the Matching Award share options, the respective Director or employee is required to acquire a number of shares
by a specified date, known as ‘deposited shares’, and retain these shares until the Matching Award share options vest, for
these Matching Award share options to be exercisable. The table below summarises the dates of awards under the LTIP and
the dates by which Directors and employees were required to acquire their deposited shares.
Date of award
27 February 2014
3 March 2015
Date by which deposited
shares must be acquired
30 June 2014
30 June 2015
Vesting of share options under the LTIP is dependent on continuing employment or in accordance with ‘good leaver’ status
as set out in the scheme rules.
In exceptional circumstances, employees may be permitted to exercise options before the normal vesting date.
The Conditional and Matching Awards granted on 27 February 2014 became exercisable on 27 February 2017. The
performance criteria was based on total shareholder return (TSR) and Adjusted earnings per share (EPS). For the TSR element
of the award, The Restaurant Group plc was ranked in the lower quartile against its comparator group and consequently, none
of the TSR element of the award vested. In respect of the Adjusted EPS element of the award, the growth in Adjusted EPS
did not meet the performance criteria and therefore none of this part of the award vested.
For those awards granted on 3 March 2015 that vest in 2018, the performance criteria were based on TSR and Adjusted EPS.
For the TSR element of the award, The Restaurant Group plc was ranked in the lower quartile against its comparator group
and consequently the TSR element of the award will not vest.
The Adjusted EPS element of this award will not vest based on the 2017 performance.
The options from the LTIP scheme will be satisfied through shares purchased via a trust. Further details are provided in Note 19.
98 The Restaurant Group plc Annual Report 2017
Year ended 31 December 2017
Period during
which options
are exercisable Type of award
2017
2017
2017
2017
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2020
2020
Total number
Conditional – TSR element
Conditional – EPS element
Matching – TSR element
Matching – EPS element
Conditional – TSR element
Conditional – EPS element
Matching – TSR element
Matching – EPS element
Conditional – TSR element
Conditional – EPS element
Continued Employment
Conditional – TSR element
Conditional – EPS element
Conditional – TSR element
Conditional – EPS element
Conditional – TSR element
Conditional – EPS element
Conditional – TSR element
Conditional – EPS element
Conditional – TSR element
Conditional – EPS element
Outstanding
at the
beginning
of the year
Fair value
Granted
Exercised
Lapsed
Outstanding
at the end
of the year
Exercisable
at the end
of the year
431.8p
658.5p
431.8p
658.5p
417.5p
731.5p
417.5p
731.5p
50.4p
395.1p
395.1p
141.1p
259.9p
212.5p
331.7p
201.7p
333.2p
157.4p
292.3p
134.9p
274.7p
138,801
138,805
52,201
52,201
164,965
164,967
52,879
52,879
405,241
405,241
201,907
75,713
75,712
141,338
141,337
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
503,826
503,826
48,930
48,929
20,751
20,751
2,264,186 1,147,013
–
(138,801)
–
–
(138,805)
–
–
(52,201)
–
–
(52,201)
–
87,677
(77,289)
–
87,677
(77,290)
–
30,727
(22,152)
–
30,727
(22,152)
–
216,001
(189,239)
–
216,001
(189,239)
–
144,000
(57,907)
–
–
(75,713)
–
–
(75,712)
–
141,338
–
–
141,337
–
–
409,830
(93,996)
–
409,830
(93,996)
–
48,930
–
–
48,929
–
–
20,751
–
–
–
20,751
–
– (1,356,693) 2,054,506
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Restaurant Group plc Annual Report 2017 99
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
20 Share-based payment schemes continued
Year ended 1 January 2017
Period during
which options
are exercisable
2016
2016
2016
2016
2017
2017
2017
2017
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
Total number
Type of award
Fair value
Outstanding
at the
beginning
of the year
Granted
Exercised
Lapsed
Outstanding
at the end
of the year
Exercisable
at the end
of the year
Conditional – TSR element
Conditional – EPS element
Matching – TSR element
Matching – EPS element
Conditional – TSR element
Conditional – EPS element
Matching – TSR element
Matching – EPS element
Conditional – TSR element
Conditional – EPS element
Matching – TSR element
Matching – EPS element
Conditional – TSR element
Conditional – EPS element
Continued Employment
Conditional – TSR element
Conditional – EPS element
Conditional – TSR element
Conditional – EPS element
214.9p
418.9p
214.9p
418.9p
431.8p
658.5p
431.8p
658.5p
417.5p
731.5p
417.5p
731.5p
50.4p
395.1p
395.1p
141.1p
259.9p
212.5p
331.7p
198,077
198,076
78,150
78,153
177,664
177,665
63,170
63,170
240,041
240,040
80,978
80,978
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
541,602
541,602
225,720
75,713
75,712
141,338
141,337
1,676,162 1,743,024
(183,424)
(183,423)
(57,647)
(57,650)
(1,861)
(1,861)
–
–
(1,544)
(1,544)
–
–
–
–
–
–
–
–
–
(488,954)
(14,653)
(14,653)
(20,503)
(20,503)
(37,002)
(36,999)
(10,969)
(10,969)
(73,532)
(73,530)
(28,099)
(28,099)
(136,361)
(136,361)
(23,813)
–
–
–
–
–
–
–
–
138,801
138,805
52,201
52,201
164,965
164,966
52,879
52,879
405,241
405,241
201,907
75,713
75,712
141,338
141,337
(666,046) 2,264,186
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100 The Restaurant Group plc Annual Report 2017
Save As You Earn
Under the Save As You Earn (SAYE) scheme, the Board may grant options over shares in The Restaurant Group plc to
UK-based employees of the Group. Options are granted with a fixed exercise price equal to 80% of the average market price of
the shares for the five days prior to invitation. Employees pay a fixed amount from their salary into a savings account each month
for the three-year savings period. At the end of the savings period, employees have six months in which to exercise their options
using the funds saved. If employees decide not to exercise their options, they may withdraw their funds saved and the options
expire. Exercise of options is subject to continued employment within the Group. In exceptional circumstances, employees
may be permitted to exercise these options before the end of the three-year savings period. Options were valued using the
Stochastic share pricing model.
Year ended 31 December 2017
Period during which
options are exercisable
Exercise
price
525.0p
546.0p
307.0p
243.8p
2017 – 2018
2018 – 2019
2019 – 2020
2020 – 2021
Total number
Weighted average
exercise price
Year ended 1 January 2017
Exercise
price
283.0p
525.0p
546.0p
307.0p
Period during which
options are exercisable
2015 – 2016
2017 – 2018
2018 – 2019
2019 – 2020
Total number
Weighted average
exercise price
Outstanding
at the
beginning
of the year
315,784
244,275
1,794,762
–
2,354,821
Granted
Forfeited
Exercised
Lapsed
Outstanding
at the end
of the year
Exercisable
at the end
of the year
–
–
–
1,022,907
1,022,907
(141,846)
(23,818)
(146,159)
–
(311,823)
–
–
(4,355)
–
(4,355)
–
(96,958)
(857,358)
(34,259)
173,938
123,499
786,890
988,648
(988,575) 2,072,975
173,938
–
–
–
173,938
361.0p
243.8p
424.4p
307.0 p
328.3p
309.4p
525.0p
Outstanding
at the
beginning
of the year
Granted
Forfeited
Exercised
Lapsed
119,815
1,025,474
785,884
–
–
–
–
1,838,962
1,931,173 1,838,962
–
(51,707)
(65,677)
(7,035)
(124,419)
(111,993)
(380)
–
–
(112,373)
(7,822)
(657,603)
(475,932)
(37,165)
(1,178,522)
Outstanding
at the end
of the year
–
315,784
244,275
1,794,762
2,354,821
Exercisable
at the end
of the year
–
–
–
–
–
518.5p
307.0p
523.8p
283.8p
525.0p
361.0p
During 2017, the weighted average market price at date of exercise was 322.2p per share (2016: 499.4p). The weighted average
remaining contractual life for the shares outstanding at the end of the period is 2.18 years (2016: 2.54 years).
The Restaurant Group plc Annual Report 2017 101
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
20 Share-based payment schemes continued
Assumptions used in valuation of share-based payments granted in the year ended 31 December 2017:
Scheme
Grant date
Share price at grant date
Exercise price
No of options originally granted
Minimum vesting period
Expected volatility1
Contractual life
Risk free rate
Expected dividend yield
Expected forfeitures
Fair value per option
March 2017 LTIP Award
July 2017 LTIP Award
October 2017 LTIP Award
2017 SAYE
TSR element
17/03/2017
Adjusted
EPS element
17/03/2017
TSR element
04/07/2017
Adjusted
EPS element
04/07/2017
TSR element
02/10/2017
Adjusted
EPS element
02/10/2017
360p
n/a
503,826
3 years
44.0%
5 years
0.07%
0.00%
0%
201.8p
360p
n/a
503,826
3 years
n/a
5 years
n/a
0.00%
0%
333.3p
319.4p
n/a
48,930
3 years
46.3%
5 years
0.33%
0.00%
0%
156.4p
319.4p
n/a
48,929
3 years
n/a
5 years
n/a
0.00%
0%
292.6p
302.5p
n/a
20,751
3 years
49.2%
5 years
0.51%
0.00%
0%
135.7p
302.5p
n/a
20,751
3 years
n/a
5 years
n/a
0.00%
0%
276.8p
20/10/2017
300.9p
243.76p
1,022,907
3 years
42.0%
3.5 years
0.57%
5.78%
0%
77.36p
1 Expected volatility is the measure of the amount by which the share price is expected to fluctuate during a period. In order to calculate volatility, the movement
in the return index has been calculated (share price plus dividends reinvested) over a period prior to the grant date equal in length to the remaining period over
which the performance condition applies. For the discount for the TSR performance condition for the March, July and October 2017 Awards, the calculated
volatility based on the movement in the return index over a period of 3 years prior to the grant has been used. For the discount for the SAYE scheme, the
calculated volatility based on the movement in the return index over a period of 3.3 years prior to the grant has been used.
21 Reconciliation of profit before tax to cash generated from operations
2017
£’000
43,586
1,860
4,185
8,973
2,158
36,514
(298)
2,185
8,474
107,637
2016
Restated
(Note 1)
£’000
(49,341)
2,007
68,050
56,674
1,323
41,809
757
(5,973)
6,842
122,148
Profit/(loss) before tax
Net interest charges
Impairment of property, plant and equipment
Onerous lease and other property provisions
Share-based payments
Depreciation
(Increase)/decrease in stocks
Decrease/(increase) in receivables
Increase in creditors
Cash generated from operations
102 The Restaurant Group plc Annual Report 2017
22 Reconciliation of changes in cash to the movement in net debt
Net debt:
At the beginning of the year
Movements in the year:
Net repayments/(withdrawals) of borrowings
Non-cash movements in the year
Net cash inflow/(outflow)
At the end of the year
Represented by:
Cash and cash equivalents
Overdraft
Bank loans falling
due after one year
At
28 December
2015
£’000
Cash flow
movements
in the year
£’000
Non-cash
movements
in the year
£’000
2,983
(838)
(30,527)
(28,382)
6,585
838
(7,000)
423
At
1 and 2
January
2017
£’000
9,568
–
–
–
(355)
(355)
(37,882)
(28,314)
2017
£’000
2016
£’000
(28,314)
(28,382)
7,000
(341)
43
(21,612)
(7,000)
(355)
7,423
(28,314)
Cash flow
movements
in the year
£’000
Non-cash
movements
in the year
£’000
At
31 December
2017
£’000
43
–
7,000
7,043
–
–
9,611
–
(341)
(341)
(31,223)
(21,612)
Cash and cash equivalents are comprised of cash at bank and cash floats held on site. The non-cash movements in bank loans
are in relation to the amortisation of prepaid facility costs. Bank loans falling due after more than one year are the only liabilities
arising from financing activities and the cash flows and non-cash changes are shown above.
23 Financial instruments
The Group finances its operations through equity and borrowings.
Management pay rigorous attention to treasury management requirements and continue to:
• ensure sufficient committed loan facilities are in place to support anticipated business requirements;
• ensure the Group’s debt service will be supported by anticipated cash flows and that covenants will be complied with; and
• manage interest rate exposure with a combination of floating rate debt and interest rate swaps when deemed appropriate.
The Board closely monitors the Group’s treasury strategy and the management of treasury risk.
Further details on the business risk factors that are considered to affect the Group are included in the strategic report and more
specific financial risk management (including sensitivity to increases in interest rates) are included in the Directors report.
Further details on market and economic risk and headroom against covenants are included in the strategic report.
The Restaurant Group plc Annual Report 2017 103
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
23 Financial instruments continued
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while looking to maximise returns to
shareholders. The capital structure of the Group consists of equity (comprising issued share capital, other reserves and retained
earnings), borrowings and cash and cash equivalents. The Group monitors its capital structure on a regular basis through cash
flow projections and consideration of the cost of financing its capital.
The Group is subject to externally imposed capital requirements in respect of its bank loan. The Group is required to maintain
a required net debt to EBITDA ratio and EBITDA to net finance charge ratio. These requirements are monitored as part of the
capital management process on a regular basis and have been complied with for the current financial period.
Financial assets and liabilities
Financial assets
The financial assets of the Group, all of which are classified as loans and receivables at amortised cost, comprise:
Cash and cash equivalents
Other receivables
Total financial assets
2017
£’000
9,611
14,949
24,560
2016
£’000
9,568
18,782
28,350
Cash and cash equivalents include £0.5m (2016: £0.4m) held on account in respect of deposits paid by tenants under the terms
of their rental agreement.
Financial liabilities
The financial liabilities of the Group, all of which are classified as other financial liabilities at amortised cost, comprise:
Overdraft
Trade and other payables
Finance lease payable
Short-term financial liabilities
Long-term borrowings – at floating interest rates*
Bank fees
Finance lease payable
Long-term financial liabilities
Total financial liabilities
2017
£’000
–
102,621
164
102,785
32,000
(777)
2,548
33,771
136,556
2016
£’000
–
101,533
393
101,926
39,000
(1,118)
2,950
40,832
142,758
* Total financial liabilities attracting interest were £32.0m (2016: £39.0m). Interest is payable at floating interest rates which fluctuate and are dependent on LIBOR
and base rate. The average rate of interest charged during the year on the Group’s debt was 2.22% (2016: 2.26%).
104 The Restaurant Group plc Annual Report 2017
On 2017 results, net interest was covered 65.6 times (2016: 60.3 times) by earnings before interest, tax, depreciation and
exceptional items (‘Adjusted EBITDA’). Based on year-end debt and earnings for 2017, a 1% rise in interest rates would reduce
interest cover to 53.5 times (2016: 50.3 times).
At 31 December 2017 the Group had a cash balance of £9.6m (2016: £9.6m).
The Group has a £10m overdraft facility, which is repayable on demand, on which interest is payable at the bank’s overdraft rate.
At 31 December 2017 the Group has £108.0m of committed borrowing facilities in excess of gross borrowings (1 January 2017:
£101.0m) and £10.0m of undrawn overdraft (1 January 2017: £10.0m of undrawn overdraft).
The maturity profile of anticipated gross future cash flows, including interest, relating to the Group’s non-derivative financial
liabilities, on an undiscounted basis, are set out below:
At 31 December 2017
Within one year
Within two to five years
After five years
At 1 January 2017
Within one year
Within two to five years
After five years
Overdraft
£’000
–
–
–
–
Trade
and other
payables
£’000
102,621
–
–
102,621
Overdraft
£’000
Trade and other
payables
£’000
–
–
–
–
101,533
–
–
101,533
Floating
rate
loan
£’000
669
33,204
–
33,873
Floating
rate
loan
£’000
8,009
32,348
–
40,357
Finance
lease
payable
£’000
164
658
8,140
8,962
Finance
lease
payable
£’000
393
1,572
11,676
13,641
Total
£’000
103,454
33,862
8,140
145,456
Total
£’000
109,935
33,920
11,676
155,531
The Restaurant Group plc Annual Report 2017 105
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
23 Financial instruments continued
Offsetting financial assets and financial liabilities
Financial assets
At 31 December 2017
Cash and cash equivalents
At 1 January 2017
Cash and cash equivalents
Gross amount
of recognised
financial assets
£’000
23,121
Gross amount
of recognised
financial assets
£’000
21,514
Gross amounts
of recognised
financial liabilities
set off in the
balance sheet
£’000
(13,510)
Gross amounts
of recognised
financial liabilities
set off in the
balance sheet
£’000
(11,946)
Net amount of
financial assets
presented in the
balance sheet
£’000
9,611
Net amount of
financial assets
presented in the
balance sheet
£’000
9,568
Fair value of financial assets and liabilities
All financial assets and liabilities are accounted for at amortised cost and the Directors consider the carrying value to
approximate to their fair values.
Financial risk management
(a) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial losses to the Group.
Counterparties for cash balances are large established financial institutions. The Group is exposed to credit related losses in
the event of non-performance by the financial institutions but does not expect them to fail to meet their obligations.
As a retail business with trading receipts settled either by cash or credit and debit cards, there is very limited exposure from
customer transactions. The Group is exposed to credit risk in respect of commercial discounts receivable from suppliers but
the Directors believe adequate provision has been made in respect of doubtful debts and there are no material amounts past
due that have not been provided against. Receivables that are neither past due nor impaired are expected to be fully recoverable.
The Group has an outstanding long-term receivable of £2.9m from Black House Newco Limited (formerly BH Restaurants
Limited). As a result of a detailed trading review of the business, the Board made full provision against the loan note due within
the financial year ended 2014 (further details are provided in Note 14).
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represent the
Group’s maximum exposure to credit risk.
106 The Restaurant Group plc Annual Report 2017
(b) Liquidity risk
The Group has built an appropriate mechanism to manage liquidity risk of the short, medium and long-term funding and
liquidity management requirements.
Liquidity risk is managed through the maintenance of adequate cash reserves and bank facility by monitoring forecast and
actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group’s loan facility, which matures
in June 2020 (as set out in Note (a) above) ensures continuity of funding, provided the Group continues to meet its covenant
requirements (as detailed in the Directors report).
(c) Foreign currency risk
The Group is indirectly exposed to changes in foreign currency rates through its supply chain and does not use foreign
exchange forward contracts.
(d) Interest rate risk
Exposure to interest rate movements has been controlled historically through the use of floating rate debt and interest rate
swaps to achieve a balanced interest rate profile. The Group does not currently have any interest rate swaps in place as the
continued reduction in the level of debt combined with current market conditions results in a low level of exposure. The Group’s
exposure will continue to be monitored and the use of interest rate swaps may be considered in the future.
24 Lease commitments
Future lease payments in respect of finance leases are due as follows:
Within one year
Within two to five years
After five years
Less: future interest payments
Present value of lease obligations
Analysed as:
Amount due for settlement within one year
Amount due for settlement after one year
Present value of lease obligations
Minimum lease
payments
Present value of
minimum lease
payments
2017
£’000
164
658
8,140
8,962
(6,250)
2,712
2016
£’000
393
1,572
11,676
13,641
(10,298)
3,343
2017
£’000
164
627
1,921
2016
£’000
393
1,204
1,746
2,712
3,343
164
2,548
2,712
393
2,950
3,343
Lease commitments are in respect of property leases where the initial term of the lease is in excess of 25 years and the
conditions of the lease are in keeping with a finance lease. There are no finance leases where the Group itself is the lessor.
The interest rate applied in calculating the present value of the payments is the incremental borrowing cost of the Group in
relation to each lease.
The Restaurant Group plc Annual Report 2017 107
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated accounts
continued
24 Lease commitments continued
The total future minimum rentals payable and receivable under operating leases over the remaining lives of the leases are:
Payments due:
Within one year
Within two to five years
After five years
Payable
2017
£’000
Receivable
2017
£’000
73,606
263,256
512,931
849,793
2,037
6,499
17,312
25,848
Payable
2016
£’000
74,494
264,390
547,689
886,573
Receivable
2016
£’000
2,138
7,485
18,301
27,924
The Group has entered into a number of property leases on standard commercial terms, both as lessee and lessor. There
are no restrictions imposed by the Group’s operating lease arrangements, either in the current or prior year.
Included within the minimum rentals are amounts payable on properties where the rental payment is based on turnover. For
these properties, primarily in the Group’s Concessions business, the amount included above is the minimum guaranteed rent
as detailed in the concession agreement.
25 Capital commitments
Capital expenditure contracted for at the end of the year but not yet incurred is as follows:
Authorised and contracted for:
2017
£’000
2016
£’000
23,450
37,268
26 Contingent liabilities
The Group has assigned a number of leases to third parties that were originally completed prior to 1 January 1996 and are
therefore unaffected by the Landlord and Tenant (Covenants) Act 1995 and also a number of leases completed after this date
that were the subject of an Authorised Guarantee Agreement. Consequently, should the current tenant default, the landlord
has a right of recourse to The Restaurant Group plc, or its subsidiaries, for future rental payments. As and when any liability
arises, the Group will take whatever steps necessary to mitigate the costs. The possibility of any outflow is deemed to be
remote, however, we estimate contingent liabilities to be £2.0m (2016: £2.0m) on an undiscounted basis and represents terms
of 3 to 6 years.
27 Related party transactions
There were no related party transactions in the 52 weeks ended 31 December 2017, other than as described below.
In the 52 weeks ended 31 December 2017, the Group received £0.1m (2016: £0.1m) of loan note interest from Black House
Newco Limited (formerly BH Restaurants Ltd), all of which was recognised in the income statement. Capital repayments of
£0.4m (2016: £0.3m) were received in the year. The Group holds a convertible loan note receivable of £2.9m (2016: £3.3m),
which confers the Group the right to vote on certain matters. This is considered a related party given the Group’s significant
influence over Black House Newco Limited. The loan note receivable has been fully provided for in prior years; refer to Note 14
for further details.
Remuneration in respect of key management personnel, defined as the Directors for this purpose, is disclosed in Note 5.
Further information concerning the Directors’ remuneration is provided in the Directors’ remuneration report 38 to 56.
108 The Restaurant Group plc Annual Report 2017
Company balance sheet
Fixed assets
Investments in subsidiary undertakings
Current assets
Debtors
Amounts falling due within one year from Group undertakings
Total assets
Creditors
Amounts falling due within one year to Group undertakings
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ funds
At
31 December
2017
£’000
Note
At
1 January
2017
£’000
2
146,952
143,029
56,855
334,937
203,807
477,966
(50,433)
(322,614)
6,422
12,323
153,374
155,352
153,374
155,352
56,551
25,554
(6,586)
77,855
153,374
56,550
25,542
(8,744)
82,004
155,352
The Company’s profit for the year was £30.7m (2016: 30.7m).
The financial statements of The Restaurant Group plc (company registration number SC030343) on pages 109 to 113 were
approved by the Board of Directors and authorised for issue on 7 March 2018 and were signed on its behalf by:
Andy McCue (CEO)
Kirk Davis (CFO)
The Restaurant Group plc Annual Report 2017 109
OverviewStrategic reportGovernanceFinancial statements
Statement of changes in equity
Balance at 28 December 2015
56,518
25,255
(9,838)
86,149
158,084
Share
capital
£’000
Share
premium
£’000
Other
reserves
£’000
Profit and
loss account
£’000
Total
£’000
Note*
Issue of shares
Employee share-based payment schemes
Other reserve movements
Total comprehensive income
Dividends
Balance at 1 January 2017
Balance at 2 January 2017
Issue of shares
Employee share-based payment schemes
Total comprehensive income
Dividends
Balance at 31 December 2017
18
10
18
10
32
–
–
–
–
56,550
287
–
–
–
–
25,542
–
(442)
1,536
–
–
(8,744)
–
–
–
30,717
(34,862)
82,004
319
(442)
1,536
30,717
(34,862)
155,352
56,550
25,542
(8,744)
82,004
155,352
1
–
–
–
56,551
12
–
–
–
25,554
–
2,158
–
–
(6,586)
–
–
30,717
(34,866)
77,855
13
2,158
30,717
(34,866)
153,374
* Refers to the relevant note in the consolidated financial statements.
Other reserves represent the Group’s share-based payment transactions and the shares held by the employee benefit trust.
110 The Restaurant Group plc Annual Report 2017
Notes to the Company accounts
1 Accounting policies and basis of preparation
Basis of preparation
The Company accounts have been prepared under the historical cost convention and in accordance with UK Accounting
Standards. As permitted under FRS 101, the Company has taken advantage of the disclosure exemptions available under that
standard in relation to share-based payments, business combinations, financial instruments, fair values, presentation of a cash
flow statement and certain related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements.
The financial statements are presented in sterling, rounded to the nearest thousand.
Going concern basis
The financial statements have been prepared on a going concern basis as, after making appropriate enquiries, the Directors
have a reasonable expectation that the Company has adequate resources to continue in operational existence for the
foreseeable future at the time of approving the financial statements.
Investments
Investments are valued at cost less any provision for impairment.
Dividends
In accordance with IAS 10 ‘Events after the Balance Sheet Date’, dividends declared after the balance sheet date are not
recognised as a liability at that balance sheet date, and are recognised in the financial statements when they have received
approval by shareholders.
Share-based payment transactions
The Group operates a share option programme which allows employees of the Group to acquire shares in the Company.
The fair value of options granted is recognised as an employee expense in the company in which the employees are employed
with a corresponding increase in capital contribution. The Company recognises an increase in the investment held by the
Company in the subsidiary in which the employees are employed.
The fair value of the options is measured at grant date and spread over the period during which the employees become
unconditionally entitled to the options. The Stochastic, Black-Scholes and Finnerty valuation models are used to measure
the fair value of the options granted, taking into account the terms and conditions upon which the options were granted.
The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture
is only due to market based conditions not achieving the threshold for vesting. Refer to note 20 in the consolidated financial
statements for further details.
The Restaurant Group plc Annual Report 2017 111
OverviewStrategic reportGovernanceFinancial statements
Notes to the Company accounts
continued
2 Investment in subsidiary undertakings
Cost
At 1 January 2017
Share-based payment schemes
Reclassification of amounts falling due from subsidiary undertakings
At 31 December 2017
Amounts written off
At 1 January 2017 and 31 December 2017
Net book value at 1 January 2017
Net book value at 31 December 2017
The Company’s subsidiaries are listed below:
Registered office address
Long term
loans and
capital
contributions
£’000
52,622
2,158
1,765
56,545
534
52,088
56,011
Shares
£’000
91,829
–
–
91,829
888
90,941
90,941
Total
£’000
144,451
2,158
1,765
148,374
1,422
143,029
146,952
Proportion of
voting rights
and ordinary
shares held
Status
Direct subsidiary
TRG (Holdings) Limited
Indirect subsidiaries
The Restaurant Group (UK) Limited
Chiquito Limited
Blubeckers Limited
Caffe Uno Limited
Factmulti Limited
Adams Rib Limited
G.R. Limited
Strikes Restaurants Limited
Black Angus Steak Houses Limited
J.R. Restaurants Limited
DPP Restaurants Limited
Garfunkels Restaurants Limited
Frankie & Benny’s (UK) Limited
City Centre Restaurants (UK) Limited
Est Est Est Group Limited
Number One Leicester Square Limited
Brunning and Price Limited
5-7 Marshalsea Road, Borough, London, SE1 1EP
Holding
100%
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
5-7 Marshalsea Road, Borough, London, SE1 1EP
1 George Square, Glasgow, G2 1AL
Yew Tree Farm Buildings, Saighton, Chester,
Cheshire, CH3 6EG
Trading
Trading
Trading
Dormant
Holding
Dormant
Holding
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Holding
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Trading
100%
The Company’s operating subsidiaries are registered in England and Wales, and operate restaurants in the United Kingdom.
All other subsidiary undertakings are wholly owned by the Company or one of its subsidiaries and are either non-trading or dormant.
112 The Restaurant Group plc Annual Report 2017
3 Profit attributable to members of the Company
As permitted by section 408 of the Companies Act 2006, a separate profit and loss account has not been presented for
the Company. During the year the Company recorded a profit of £30.7m, representing paid and accrued intra-group preference
dividend income (2016: £30.7m representing paid and accrued intercompany internal preference dividend income).
Remuneration of the auditor is borne by a subsidiary undertaking (refer to note 4 in the consolidated financial statements).
4 Employee costs and numbers
All costs of employees and Directors are borne by a subsidiary undertaking. At 31 December 2017 the Company employed
six persons, being the directors (1 January 2017: seven persons). Refer to the Directors remuneration report for further details
of remuneration paid for services.
5 Related parties
In December 2017, the Company became aware of a technical matter relating to the levels of distributable reserves and the
payment of interim and final dividends to its shareholders during the period from 2006 to 2017 (‘the Relevant Dividends’).
Throughout this period, the Group had adequate reserves in subsidiary companies to enable payment of the Relevant
Dividends, and each year payment of the final dividends was approved by the Company’s shareholders at its annual general
meeting. However, a review of historical intra-group transactions revealed that internal dividends paid up through the Group
structure in the period from 2006 to 2017 did not, due to a technicality, create distributable reserves in the manner that had
been intended. As a consequence, the Relevant Dividends were not paid out of distributable reserves and were therefore not
paid in accordance with the Companies Act 2006.
The Group is undertaking a series of administrative steps in order to rectify this issue and put the Company and its subsidiaries,
insofar as possible, in the position that was originally intended with respect to the creation of distributable reserves. The majority
of these steps were implemented prior to 31 December 2017. In addition, the Company will in due course put a resolution to
shareholders which, if passed, would put all potentially affected parties, insofar as possible, in the position they would be had
the Relevant Dividends been paid in accordance with the requirements of the Companies Act 2006. Full details will be included
in the circular and notice of general meeting to be sent to shareholders. The general meeting to consider the resolution will be
held on 23 May 2018.
The Restaurant Group plc Annual Report 2017 113
OverviewStrategic reportGovernanceFinancial statements
Group financial record
Revenue
Adjusted operating profit
Net interest charges
Adjusted profit before tax
Exceptional (charges)/credits
Profit/(loss) on ordinary activities before tax
Tax
Profit/(loss) for the year
Basic earnings per share
Adjusted earnings per share
Proposed total ordinary dividend per share for the year
Special dividend per share
Dividend cover (excluding exceptional items and special
dividends)
Employment of finance
Property, plant and equipment
Other non-current assets
Net current liabilities
Long-term liabilities
Financed by:
Equity
Net debt
Gearing
2017
£’000
679,282
58,604
(1,860)
56,744
(13,158)
43,586
(10,653)
32,933
16.44p
22.29p
17.40p
–
2016
Restated
(Note 1)
£’000
710,712
79,156
(2,007)
77,149
(126,490)
(49,341)
(638)
(49,979)
(23.98)
30.02p
17.40p
–
2015
£’000
685,381
88,891
(2,046)
86,845
–
86,845
(17,959)
68,886
34.55p
33.80p
17.40p
–
2014
£’000
635,225
80,450
(2,385)
78,065
6,862
84,927
(17,928)
66,999
33.39p
29.96p
15.40p
3.45p
2013
£’000
579,589
74,916
(2,231)
72,685
–
72,685
(16,495)
56,190
28.02p
28.02p
14.00p
–
1.28
1.73
1.94
1.95
2.00
335,029
26,433
(88,976)
(70,586)
201,900
345,952
26,433
(87,164)
(83,635)
201,586
403,640
26,433
(98,398)
(48,115)
283,560
368,576
26,433
(92,224)
(58,261)
244,524
337,519
26,433
(80,168)
(67,819)
215,965
201,900
201,586
283,560
244,524
215,965
(21,612)
10.7%
(28,314)
14.0%
(28,382)
10.0%
(38,578)
15.8%
(41,857)
19.4%
114 The Restaurant Group plc Annual Report 2017
Glossary
The directors believe the Adjusted Performance Metrics used within this report, and defined below, provide additional useful
information for shareholders to evaluate and compare the performance of the business from period to period. These are also
the KPIs used by the directors to assess performance of the business. The adjusted metrics are reconciled to the statutory
results for the year on the face of the income statement and the relevant supporting notes.
Trading business
Like-for-like (LFL) sales
Adjusted EBITDA
EBITDA
Net debt
Free cash flow
Represents the performance of the business before exceptional costs and is considered
as the key metrics for shareholders to evaluate and compare the performance of the
business from period to period.
This measure provides an indicator of the underlying performance of our existing
restaurants. There is no accounting standard or consistent definition of ‘like-for-like sales’
across the industry. Group like-for-like sales are calculated by comparing the performance
of all mature sites in the current period versus the comparable period in the prior year. Sites
that are closed, disposed or disrupted during a financial year are excluded from the LFL
calculation.
Earnings before interest, tax, depreciation, amortisation and exceptional items. Calculated
by taking the Trading business operating profit and adding back depreciation.
Earnings before interest, tax, depreciation and amortisation.
Net debt is calculated as the net of the long-term borrowings less cash and cash
equivalents.
EBITDA less working capital and non-cash movements (excluding exceptional items),
tax payments, interest payments and maintenance capital expenditure.
Adjusted operating profit
Earnings before interest, tax and exceptional items.
Adjusted EPS
Adjusted diluted EPS
Calculated by taking the profit after tax of the business pre-exceptional items divided
by the weighted average number of shares in issue during the year.
Calculated by taking the profit after tax of the business pre-exceptional items divided
by the weighted average number of shares in issue during the year, including the effect
of dilutive potential ordinary shares.
Adjusted profit before tax
Calculated by taking the profit before tax of the business pre-exceptional items.
The Restaurant Group plc Annual Report 2017 115
OverviewStrategic reportGovernanceFinancial statements
Shareholder information
Directors
Debbie Hewitt
Non-executive Chairman
Andy McCue
Chief Executive Officer
Kirk Davis
Chief Financial Officer
Simon Cloke
Senior independent non-executive Director
Graham Clemett
Independent non-executive Director
Mike Tye
Independent non-executive Director
Paul May (from 3 July 2017)
Independent non-executive Director
Company Secretary
Ace Company Services Limited (from 9 March 2018)
Head office
(and address for all correspondence)
5-7 Marshalsea Road
London SE1 1EP
Telephone number
020 3117 5001
Company number
SC030343
Registered office
1 George Square
Glasgow G2 1AL
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
0371 384 2426
Auditor
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Solicitors
Slaughter and May
One Bunhill Row
London EC1Y 8YY
Goodman Derrick LLP
10 St Bride Street
London EC4A 4AD
Brokers
JPMorganCazenove
25 Bank Street
London E14 5JP
Numis Securities Limited
The London Stock Exchange Building
One Paternoster Square
London EC4M 7LT
Annual General Meeting
Wednesday 23 May 2018
Proposed final dividend – 2017
Announcement – 7 March 2018
Ex-dividend – 7 June 2018
Record date – 8 June 2018
Payment date – 5 July 2018
116 The Restaurant Group plc Annual Report 2017
The paper used in this report is 100% recycled and FSC® certified.
Printed in the UK using vegetable based inks which have lower VOC emissions
(Volatile Organic Compounds), are derived from renewable sources and less
hazardous than oil-based inks.
The printer is ISO 14001 accredited and Forest Stewardship Council® (FSC®) chain
of custody certified. Under the framework of ISO 14001 a structured approach is
taken by the company to measure, improve and audit their environmental status on
an ongoing basis. FSC® ensures there is an audited chain of custody from the tree
in the well-managed forest through to the finished document in the printing factory.
Designed and produced by Instinctif Partners www.creative.instinctif.com
The Restaurant Group plc
5-7 Marshalsea Road
London SE1 1EP
Tel: 020 3117 5001
www.trgplc.com
www.trgplc.com
By using Cocoon Silk rather than a
non-recycled paper, the environmental
impact was reduced by:
535 kg of landfill
20,881 litres of water
1,227 kWh of energy
72 kg CO2 and greenhouse gases
870 kg of wood
Sources : Water and energy savings are based on a
comparison between a recycled paper manufactured at
Arjowiggins Graphic mills versus an equivalent virgin fibre
paper according to the latest European BREF data available
(virgin fibre paper manufactured in a non-integrated
paper mill). CO2 emission savings is the difference between
the emissions produced at an Arjowiggins Graphic mill for
a specific recycled paper compared to the manufacture of
an equivalent virgin fibre paper. Carbon footprint data
evaluated by Labelia Conseil in accordance with the Bilan
Carbone® methodology.
Results are obtained according to technical information and subject
to modification.