FUL.L Regulatory News (FUL)

The Fulham Shore plc

("Fulham Shore", the "Company" or "Group")

Final Results

The Directors of Fulham Shore are pleased to announce the Company's audited results for the year ended 25 March 2018.

HIGHLIGHTS

• Revenues of £54,695,000 (2017: £40,441,000)

• Headline EBITDA* of £7,430,000 (2017: £7,274,000)

• EBITDA* of £5,544,000 (2017: £4,703,000)

• Headline Operating Profit of £3,716,000 (2017: £4,899,000)

• One off impairment charge on property, plant and equipment of £867,000 (2017: £Nil)

• Operating Profit of £142,000 (2017: £1,507,000)

• Loss after tax of £150,000 (2017: profit of £1,209,000)

• Net debt as at 25 March 2018 of £11,991,000 (26 March 2017: £5,909,000)

• Opened 9 new Franco Manca pizzeria and 4 new The Real Greek during the year ended 25 March 2018 in the UK (2017: 13 Franco Manca pizzeria and 3 The Real Greek)

• Opened the first Franco Manca pizzeria franchise in Salina, Italy

• Since the year end:

o 2 further Franco Manca pizzeria opened in Bath and Cambridge

o Closing one underperforming restaurant in Brighton Marina

• Management initiatives have led to an improved revenue performance in the first quarter of the new financial year

The above numbers are for continuing operations.

* as defined in the Financial Review.

Contact:

The Fulham Shore plc Telephone: 020 3026 8129

David Page www.fulhamshore.com

Allenby Capital Limited Telephone: 020 3328 5656

Nick Naylor / Jeremy Porter / James Reeve

Hudson Sandler - Financial PR fulhamshore@hudsonsandler.com

Alex Brennan / Lucy Wollam Telephone: 020 7796 4133

CHAIRMAN'S STATEMENT

Introduction

In the year ended 25 March 2018, Fulham Shore achieved a 35% increase in revenue from continuing operations to £54.7m (2017: £40.4m), an increase in Headline EBITDA from continuing operations to £7.43m (2017: £7.27m) and a loss before taxation from continuing operations of £0.1m (2017: profit of £1.4m).

This increase in both revenue and Headline EBITDA by the Group was achieved against a backdrop of a very difficult environment for retailers and restaurant operators in the UK. The sound foundation upon which Fulham Shore has expanded Franco Manca and The Real Greek has stood the Group in good stead during this time.

Market overview

In last year's Strategic Report, I wrote that an unprecedented amount of capital had been invested in the UK restaurant sector during recent years. Restaurant supply has grown faster than demand across the country initially caused by the fall in demand for retail shop space. Landlords and agents have consequently actively sought to rent the vacant space to restaurant operators.

This structural imbalance of the restaurant industry then hit the brick wall of Brexit and the subsequent fragility of consumer confidence and inflationary pressures in the UK.

Strategic vision and progress

Despite this backdrop, it has been a year of growth and strategic progress for the Group. We believe that this demonstrates that Fulham Shore is well placed to ride out the UK economic turbulence as a dynamic operator with strong and popular businesses and a good portfolio of sites.

During the year we opened: nine new Franco Manca pizzeria, with Oxford and Bristol particularly well received; and four The Real Greek restaurants, also to a great customer reception.

We closed the only site of our third business, a Bukowski franchise, at the year end. Following the year end, we sold the lease and contents for £0.3m net of expenses. We have therefore recognised the loss on this investment of £0.4m. We will now concentrate on expanding our two successful operations.

Also following the year end, we have agreed terms to surrender the lease for Franco Manca Brighton Marina to the landlord as this site has not performed to our expectations. This restaurant is expected to close later in the year. We have taken a cautious view concerning our other property values and have written down the carrying value of three underperforming sites, resulting in an £0.9m impairment charge, of which £0.5m relates to Brighton Marina.

Franco Manca

Between March 2015 and March 2017, we increased the number of Franco Manca pizzeria in London from 10 to 33. This was in response to enormous demand and queues at peak times in our restaurants. As previously reported and as anticipated at the time, the result of this rapid expansion was some sales erosion in the original branches caused by the effect of opening another Franco Manca in close proximity (sometimes less than quarter of a mile apart).

After sharing our existing customers between these (now 35) London locations, new customers are discovering us and the sales in the original branches have stabilised. We still have queues at peak times reflecting the quality and value of the offer, so we will look to open new sites where there is continued demand in particular areas.

We have always served freshly made pizza, which is as it should be. Some other pizza businesses in the UK use frozen food products and frozen dough. We continue to make our dough every day in each of our pizzeria. Our aim is to keep the price of our Margherita pizza (the No 2 on the menu) well below the price of the frozen product at many high street pizza chains. The only thing we freeze at Franco Manca is our ice cream.

Franco Manca believes in competitive everyday menu pricing - not discounting. We pay at least the Government's national living wage to all our employees including those who are under 25 years old. Our staff keep all their tips and we do not interfere with, or take a proportion of, those tips.

Franco Manca management have committed their time and attention to increasing service quality. When and if a customer has a complaint, they aim to rectify the problem as soon as possible either immediately in the pizzeria or through social media. In this way they attempt never to lose a customer; these efforts have shown through in increasing customer numbers.

This financial year's performance and the opening of our Franco Manca franchise in Italy have encouraged us to investigate, and respond to, the many enquiries we have received to open Franco Manca pizzeria outside the UK. We are now looking around the world for opportunities.

The Real Greek

The Real Greek menu continues to offer great food and great value. Customers can share hot or cold meze, and, when finished, order more if they are still hungry. This eliminates waste, stops customers over-ordering, and keeps them and us happy.

Our Real Greek restaurants have many outdoor eating areas and terraces, so when the sun shines they perform disproportionately well compared to the steak houses and hamburger restaurants trading alongside them.

The Real Greek openings in the year to March 2018 have been in Southampton, Reading, Bournemouth and Bristol - all with large terraces to take advantage of our Greek style summers!

We are being offered many new sites for The Real Greek. This business offers the public and landlords, especially in new retail schemes, a differentiated concept and gives the consumer a popular and healthy alternative to the normal repetitive high street offerings available.

Emphasising the healthy aspect of the traditional Greek diet, the highlight of the year was the launch of our vegan Real Greek menu. This was heavily influenced by Pythagoras, Socrates and Plato, all of whom maintained that this diet was the foundation of democracy. Luckily many of our customers agreed with these ancient sages - and they love it too!

Property

The amount of new restaurant space coming to the market is the greatest for many years. Rents are falling, lease premiums are disappearing and the UK restaurant property market is in a period of turmoil. The capital needed to open a new restaurant is declining due to landlord incentives. Incentives alone, however, are never the right reason to open in a particular location and, if anything, this could continue poor expansion decisions being made in the sector.

We still intend to open a limited number of new restaurants this year and to fund these openings largely from our internally generated cash. Any increase in our openings target would be for stand out and highly profitable locations which would immediately offer above average returns.

Negotiating low rents supports our ability to offer low menu prices. Franco Manca especially concentrates on finding compact sites that may not be in the most prime locations. These off pitch locations are often at lower rents, but there is balance as it may take time for customers to find us and for the individual site to build up trade. We fit the premises out for what they are, hard wearing pizzeria built for very high volumes. Our two design imperatives are Enzo Apicella's original artwork and our industrial and spectacular pizza ovens.

Current trading and outlook

Sales in the first quarter of our current financial year, April to June 2018, have been encouraging in both Franco Manca and The Real Greek. This is a result of some great work from both businesses' management teams and they are to be congratulated. Both teams have concentrated on food quality, price and service. Both businesses have shown overall like for like revenue increases during this quarter despite tough comparatives sales in 2017 as well as the continuous stream of poor UK economic data from the retail and restaurant sector.

We will continue to approach expansion with caution. Our investment strategy will be much more circumspect than in 'normal' times. Careful property transactions will be even more crucial and our aim at present is to expand largely through internally generated funds. We have opened two restaurants since the year end, Franco Manca in Bath and Cambridge. Both are trading well. Franco Manca now has 43 pizzeria across the UK plus one franchise on the island of Salina in Italy, which reopened for its second summer season on 2 June 2018. We have signed a site on South St Andrews St in Edinburgh for Franco Manca in the next calendar year. We are in final stage negotiations on two others which should see Franco Manca starting to build this summer to open this autumn.

Despite the growth we have reported and our positive first quarter in the current financial year, the remainder of the financial year is difficult to predict. Costs will, in all likelihood, continue to rise but maybe not as much as they did during the past financial year.

Both our businesses continue to be leading lights in the restaurant sector. Top quality food and great value prices lead to busy restaurants and we believe that our two businesses continue to have significant growth potential across the UK. As a result and despite the challenging UK backdrop, we are confident that the Group will continue to perform well and we look forward to the current financial year as we continue to grow and develop our brands.

DM Page

Chairman

23 July 2018

FINANCIAL REVIEW

Fulham Shore's performance in the year ended 25 March 2018 is summarised in the table below:

* Reconciliation of profit before taxation to Headline EBITDA for continuing operations:

Total Group revenue from continuing operations grew by 35.4%, driven primarily by new openings within the UK during the year. We opened four The Real Greek and nine Franco Manca pizzeria in the UK and closed our Bukowski franchise, taking the total restaurants operated by the Group in the UK to 57 (2017: 45) at year end. During the year, our franchisee in Italy also opened a Franco Manca pizzeria on the island of Salina.

Summer of 2017 should have been one of the busiest periods of our financial year and the weak trading across the dining out market that we also experienced has impacted this year's overall revenue performance. Some of our pre-2017 restaurants, particularly in the London suburbs, were experiencing revenue below the equivalent period a year earlier with increased volatility and some expected cannibalisation from our new restaurants in nearby locations. However, revenue from these restaurants have seen slight improvements and stabilisation in the second half of the financial year and further improvements following the year end.

Group Headline EBITDA (as reconciled above) from continuing operations continues to be a key measure for the Group as well as industry analysts as it is indicative of ongoing EBITDA of the businesses. Headline EBITDA from continuing operations for the year was £7.4m (2017: £7.3m), an increase of 2.1% on the prior year while the Group's EBITDA increased 17.9% to £5.5m (2017: £4.7m). During the year, the Group incurred the full year impact of and the benefit from the broader management team put in place in Franco Manca during the previous financial year to support the brand's opening programme.

Group depreciation and amortisation, excluding amortisation of the Franco Manca brand, increased 56.4% to £3.7m (2017: £2.4m) following the number of new restaurants opened during the year and the previous year. The Group incurred a number of one off costs in the year including £0.9m (2017: £Nil) impairment charge for three restaurants which are underperforming management's expectations. All three restaurants are still trading but Franco Manca Brighton Marina is due to close and be surrendered back to the landlord later in the year. Together, these have led to a decrease of operating profit by 90.6% to £0.1m.

With our new openings, we have invested more than £1.2m (2017: £1.9m) in pre-opening costs. Finance costs have increased 88.1% to £0.3m as the Group drew down on its revolving credit facilities, as planned, to support the increased opening programme for both Franco Manca and The Real Greek. Overall this has resulted in a loss before taxation of £0.1m (2017: £1.4m profit before tax).

The Group's tax rate has increased to 36.4% (2017: 11.9% of profit before tax) of loss before tax due to a number of factors. The tax charge for the year was made up of two parts: £0.3m charge relating to the current year and £0.2m credit relating to prior years. The latter, £0.2m credit adjustment to taxation for prior years, has arisen from our work on capital allowances on the capital expenditure over the past two years, correction of tax rates used for forecasting to the current enacted 17%, correction of tax treatment of certain property, plant and equipment and correction of deferred tax asset on share based payments. More detailed breakdown of deferred tax recognised during the year can be found in note 16 to the financial statements. The £0.3m tax charge for the year is high as a percentage of loss before tax due to a number of non tax deductible one of costs being recognised in the year as well as a deferred tax charge as a result of the Group's share price being lower at the year end and therefore a reduced deferred tax asset on share based payments. Excluding the taxation credit adjustment in relation to prior years, the Group's loss after tax from continuing and discontinued operations would have been £0.8m (2017: £1.0m profit after tax).

Our basic and diluted earnings per share from continuing operations decreased from 0.2p to 0.0p while Headline diluted earnings per share reduced by 14.3% to 0.6p.

Cost inflation

During the year, the weakness of Sterling against both the Euro and the US Dollar following the Brexit vote has continued to put pressure on food cost inflation. Where possible we have benefited from additional volume discounts due to our opening programme which has helped to mitigate some of the cost pressures. 

We also saw 4.2% increase in the Government's National Living Wage for over 25 year old employees at the beginning of the financial year. All our businesses have chosen to treat all staff members the same irrespective of age.

Our other two material cost items are rent and utility costs. Rental inflation of our estate continues to increase modestly. Utility cost inflation continues to be volatile as the wholesale cost of energy has been impacted by the movement of Sterling and global economic adjustments.

Cash flows and balance sheets

The Group's cash flow from operating activities has decreased 56.3% to £4.5m (2017: £10.3m) as the benefit from short term supplier trading credit facilities at the previous year end reversed during the year.

We invested £10.0m (2017: £12.4m) in development capital primarily in new restaurants but also including investment in IT systems to introduce advanced customer relationship management facilities to both businesses.

Resultant net debt from our activities at 25 March 2018 was £12.0m (2017: £5.9m). This is financed by our facilities with HSBC Bank PLC, made up of a £14.25m revolving credit facility and a £0.75m overdraft.

Following the year end, the Group has reduced its opening programme to take account of market uncertainty. As a result, the Group will be looking to fund future openings largely through existing operational cash flow where possible.

People

During the year, the Group's key operations were within the UK. With our opening programme, the Group created more than 250 new jobs during the year (2017: 360 new jobs). We continue to invest in our staff through training, incentives and personal development.

Post balance sheet event

Following the year end, the Group sold its lease and contents in D'Arblay Street, Soho, London, that operated the Bukowski franchise as described in notes 23 and 24 to the financial statements. This has been treated as discontinued operations in the financial statements with a cost to the business of £0.4m recognised during the year.

In July 2018, the Group agreed terms to surrender the lease for the Franco Manca Brighton Marina restaurant for a surrender fee payment of £0.1m as the restaurant has performed significantly below management expectation. This restaurant has been subject to an impairment charge of £0.5m during the year which is included in the £0.9m impairment charge recognised in the statement of comprehensive income.

Principal risks and uncertainties

The Directors consider the following to be the principal risks faced by the Group:

Economic conditions

The Group's performance depends to a large degree on the economic conditions and consumer confidence in the UK. Over recent months, the UK economy has seen reducing levels of unemployment but weaker consumer spending. However, there continue to be rapid changes to the UK economy, with the result of the EU Referendum creating considerable political and economic uncertainty. The Group's existing restaurants offer an exceptional customer value experience which the Directors believe positions the business well in dealing with continued volatility in the UK economy.

Development programme

The Group's development programme is dependent on securing the requisite number of new properties at sensible rents. The UK restaurant property market remaining competitive at the right locations and rents. To mitigate these issues, the Group has an experienced property team concentrating on securing new sites for the Group. 

Supply chain

The Group focuses on the freshness and quality of the produce used in its restaurants. It is exposed to potential supply chain disruptions due to the delay or losses of inventory in transit. The Group seeks to mitigate this risk through effective supplier selection and an appropriate back-up supply chain.

Employees

The Group's performance depends largely on its management team and its restaurant teams. The inability to recruit people with the right experience and skills could adversely affect the Group's results. The result of the EU Referendum has created considerable uncertainty over the immigration status of EU nationals. To mitigate these issues the Group has invested in its human resources teams and has implemented a number of incentive schemes designed to retain key individuals.

Competition

The Group operates in a competitive and fragmented market which regularly sees new concepts come to the market. However, the Directors believe that the strength of the existing restaurant brands, value offer and constant strive towards delivering the best product and service will help the business to mitigate competitive risk.

Cyber security

The Group has introduced an online "click and collect" service which relies on online systems that may experience cyber security failure leading to loss of revenue or reputation loss. The Group utilises robust supplier selection processes and third party reviews and testing on a regular basis to identify weaknesses and improve on existing protection and processes.

Regulatory compliance

The Group is growing quickly and the government is increasing the number of areas requiring additional regulatory compliance including GDPR which may increase expenditure to ensure compliance and the Group may experience a failure to comply thus leading to significant fines. The Group reviews regulatory changes on a regular basis.

Risks are formally reviewed by the Board and appropriate processes put in place to monitor and mitigate them.

Financial risk management

The Board regularly reviews the financial requirements of the Group and the risks associated therewith. The Group does not use complicated financial instruments, and where financial instruments are used it is for reducing interest rate risk. The Group does not trade in financial instruments. Group operations are primarily financed from equity funds raised, bank borrowings and retained earnings. In addition to the financial instruments described above, the Group also has other financial instruments such as receivables, trade payables and accruals that arise directly from the Group's operations. Further information is provided in note 15 to the financial statements.

Key performance indicators

The Board receives a range of management information delivered in a timely fashion. The principal measures of progress, both financial and non-financial, that are reviewed on a regular basis to monitor the development of the Company and the Group are shown in the table at the beginning of this section.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 25 March 2018

CONSOLIDATED AND COMPANY BALANCE SHEETS

25 March 2018

The loss for the financial year dealt with in the financial statements of the Company is £1,566,000 (2017: £436,000).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 25 March 2018

COMPANY STATEMENT OF CHANGES IN EQUITY

for the year ended 25 March 2018

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

for the year ended 25 March 2018

ACCOUNTING POLICIES

GENERAL INFORMATION

The Fulham Shore PLC is a public limited company incorporated and domiciled in England and Wales with registration number 07973930 and registered office at 1st Floor, 50-51 Berwick Street, London, W1F 8SJ, United Kingdom. The Company's ordinary shares are traded on the AIM Market.

BASIS OF PREPARATION

The above audited financial information does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The above figures for the period ended 25 March 2018 have been extracted from the Group's financial statements which have been reported on by the Group's auditors and received an audit opinion which was unqualified. The Group's statutory financial statements for the year ended 26 March 2017 have been lodged with the Registrar of Companies. These financial statements received an audit report which was unqualified and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying their report or a statement under section 498(2) or section 498(3) of the Companies Act 2006. The financial statements for the year ended 25 March 2018 will be dispatched to the shareholders and filed with the Registrar of Companies. The preliminary announcement was approved by the Board and authorised for issue on 24 July 2018.

The financial statements for the years ended 25 March 2018 and 26 March 2017 have been prepared under the historical cost convention and, as permitted by EU Law, the Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). This financial information has been prepared on a basis consistent with the accounting policies adopted in the financial statement but does not contain all the information required to be disclosed in financial statements prepared in accordance with IFRS.

This financial information for the year ended 25 March 2018 are presented in Sterling because that is the primary currency of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

The parent company has not presented its own income statement, statement of total comprehensive income and related notes as permitted by section 408 of the Companies Act 2006.

At the date of authorisation of these financial information, the following Standards and Interpretations relevant to the Group operations that have not been applied in these financial statements were in issue but not yet effective:

IFRS 2 (Amendment) Classification and Measurement of Share Based Payment Transactions

IFRS 9 Financial instruments

IFRS 12 (Amendment) Disclosure of interest in Other Entities

IFRS 15 Revenue from contracts with customers

IFRS 16 Leases

IFRIC 22 Foreign Currency Transactions and Advance Considerations

IFRIC 23 Uncertainty over income tax treatments (not yet endorsed)

IAS 28 (Amendment) Investments in Associates and Joint Ventures

The Directors anticipate that the adoption of these Standards and Interpretations as appropriate in future years will have no material impact on the financial statements of the Group other than the new IFRS 16 Leases which will be mandatory for accounting periods beginning on or after 1 January 2019. This new standard will significantly change how restaurant leases will be accounted for. The Group is preparing its assessment project to identify the impact of the new lease accounting standard on the Group's existing and future restaurant leases.

GOING CONCERN

The consolidated financial statements have been prepared on a going concern basis. Given the risk analysis undertaken by the Directors and after reviewing the Group's net current liabilities position as at 25 March 2018, the budget for the next financial year, other longer term plans and financial resources including undrawn but available short term and long term facilities described in note 14 and operational cash flow where cash from revenues are received within 3 days, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore the Board is satisfied that, at the time of approving the financial statements, it is appropriate to adopt the going concern basis in preparing the financial statements.

SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated financial statements incorporate those of The Fulham Shore PLC and all of its subsidiary undertakings for the period. Subsidiaries acquired are consolidated from the date that the Group has the power to control, exposure or rights to variable returns, and the ability to use its power over the returns and will continue to be consolidated until the date that such control ceases.

Although the legal form of the transaction during the period ended 29 June 2015 was an acquisition of Kefi Limited by The Fulham Shore PLC, the substance is the reverse of this. Accordingly the business combination has been prepared using reverse acquisition accounting.

The acquisition of other subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are expensed to the Statement of Comprehensive Income. The acquiree's identifiable assets and liabilities are recognised at their fair values at the acquisition date.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.

INTANGIBLE ASSETS

Goodwill

Goodwill arising on the acquisition of an entity represents the excess of the cost of an acquisition over the Group's interest in the fair value attributed to the net assets at acquisition. Goodwill is not subject to amortisation but is tested for impairment at least annually. After initial recognition, goodwill is stated at cost less any accumulated impairment losses. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Goodwill is allocated to an associated operating segment made up of a group of cash generating units for the purpose of impairment testing. Each of these groups of cash generating units represents the Group's investment in a subsidiary which is equivalent to an operating segment of the Group. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Trademarks and licenses

The fair value of the intangible assets acquired through the reverse acquisition was determined using discounted cash flow models. The key assumptions for the valuation method are those regarding future cash flows, tax rates and discount rates. The cash flow projections were based on management forecasts for the subsequent four years period. The estimated useful lives range from 4 to 20 years on a straight-line basis.

Brand

The fair value of the brand intangible assets acquired through an acquisition of a subsidiary was determined using discounted royalty relief models. The key assumptions for the valuation method are those regarding future cash flows, tax rates and discount rates. The cash flow projections were based on management forecasts for the subsequent ten year period.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of brand from the beginning of the financial year that they are available for use. The estimated useful lives are 10 years on a straight-line basis.

Computer Software

Computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised over their estimated useful lives, being between 3 and 5 years. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that are expected to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development, employee costs and directly attributable overheads. Software integral to a related item of hardware equipment is accounted for as property, plant and equipment. Costs associated with maintaining computer software programmes are recognised as an expense when they are incurred.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at historical cost less depreciation and any recognised impairment loss. The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and installation.

Depreciation is provided on property, plant and equipment at rates calculated to write each asset down to its estimated residual value evenly over its expected useful life, as follows:-

Leasehold properties and improvements over lease term or renewal term

Plant and equipment 20% to 33% straight line

Furniture, fixtures and fittings 10% to 20% straight line

Assets in the course of construction are carried at cost, less any recognised impairment loss. Depreciation of these assets commences when the assets are ready for their intended use.

Residual values, useful lives and methods of depreciation are reviewed and adjusted if appropriate on an annual basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

IMPAIRMENT OF ASSETS

Goodwill is not subject to amortisation but is tested for impairment annually or whenever there is an indication that the asset may be impaired. For the purpose of impairment testing, assets which have separately identifiable cash flows, known as cash generating units, are grouped into their operating segment. If the recoverable amount of a group of cash generating units is less than the carrying amount of that group's assets, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the group of cash generating units and then to the other assets of the group pro-rata on the basis of the carrying amount of each asset in the group. Impairment losses recognised for goodwill are not reversed in a subsequent period. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit, predominantly an individual restaurant for the purposes of property, plant and equipment, to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in the income statement. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in the income statement.

OTHER INVESTMENTS

Other investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the relevant timeframe, and are initially measured at fair value, including transaction costs.

Other investments classified as loans and receivables are stated at amortised cost using the effective interest method, less any impairment.

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities, in respect of financial instruments, are recognised on the balance sheet when the Group becomes a party to the contractual provisions of the instrument.

INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first in, first out basis. Net realisable value is based upon estimated selling price less further costs expected to be incurred to completion and disposal. Provision is made for obsolete and slow-moving items.

TRADE AND OTHER RECEIVABLES

Receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently measured at their amortised cost using the effective interest method less any provision for impairment. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default on payments), that amounts will not be recovered in accordance with original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow, discounted using the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the income statement.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash in hand and call deposits and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

TRADE AND OTHER PAYABLES

Payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.

SHARE CAPITAL

Share capital represents the nominal value of ordinary shares issued.

SHARE PREMIUM

Share premium represents the amounts subscribed for share capital in excess of nominal value less the related costs of share issue.

MERGER RELIEF RESERVE

In accordance with Companies Act 2006 S.612 'Merger Relief', the company issuing shares as consideration for a business combination, accounted at fair value, is obliged, once the necessary conditions are satisfied, to record the excess of the consideration received over the nominal value of the shares issued to the merger relief reserve.

REVERSE ACQUISITION RESERVE

Reverse accounting under IFRS 3 'Business Combinations' requires the difference between the equity of the legal parent and the issued equity instruments of the legal subsidiary pre-combination to be recognised as a separate component of equity.

RETAINED EARNINGS

Retained earnings represents the cumulative profit and loss net of distributions.

FOREIGN CURRENCIES

Assets and liabilities denominated in foreign currencies are translated into sterling, the presentational and functional currency of the Group, at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the income statement.

FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities and includes no obligation to deliver cash or other financial assets. Interest bearing loans and overdrafts are initially measured at fair value (which is equal to cost at inception), and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowing. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

TAXATION

Income tax expense represents the sum of the current tax payable and deferred tax.

Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because some items of income or expense are taxable or deductible in different years or may not be taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit or the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they either relate to income taxes levied by the same taxation authority on either the same taxable entity or on different taxable entities which intend to settle the current tax assets and liabilities on a net basis.

Tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the tax is also recognised directly in equity.

LEASES

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments as determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement.

Rentals payable under operating leases are charged to the income statement on a straight line basis or other systematic basis if representative of the time pattern of the user's benefit over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

PROVISIONS

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.

RETIREMENT BENEFITS

The amount charged to the income statement in respect of pension costs is the contributions payable to money purchase schemes in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.

REVENUE RECOGNITION

Revenue represents the fair value of the consideration received or receivable, net of Value Added Tax, for goods sold and services provided to customers outside the Group after deducting discounts. Revenue is recognised when the significant risks and rewards of ownership are transferred.

INTEREST INCOME

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

SHARE BASED PAYMENTS

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

Fair value is measured using a Black-Scholes valuation model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Non-current assets (disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale.

A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held for sale, and (a) represents a separate line of business or geographical area of operations; and (b) is a part of a single coordinated plan to dispose of a separate line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with a view to sell.

Non-current assets held for sale and discontinued operations are carried at the lower of carrying amount or fair value less cost to sell. Any gain or loss from disposal, together with the results of these operations until the date of disposal, is reported separately as discontinued operations. The financial information of discontinued operations is excluded from the respective captions in the Consolidated financial statements and related notes for all periods presented. Comparatives in the balance sheet are not re-presented when a non-current asset or disposal group is classified as held for sale. Comparatives are re-presented for presentation of discontinued operations in the Statement of cash flow and Statement of comprehensive income.

Adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period are classified separately in discontinued operations. Circumstances to which these adjustments may relate include resolution of uncertainties that arise from the terms of the disposal transaction, such as the resolution of purchase price adjustments and indemnifications, resolution of uncertainties that arise from and are directly related to the operations of the component before its disposal, such as environmental and product warranty obligations retained by the Company, or the settlement of employee benefit plan obligations provided that the settlement is directly related to the disposal transaction.

ACCOUNTING PERIOD

The consolidated group accounts have been prepared for the year to 25 March 2018 with the comparative year to 26 March 2017.

The Company accounts have been prepared for the same periods as the Group.

ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of the Group's accounting policies, described above, with respect to the carrying amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting year. These judgements, estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, including current and expected economic conditions. Although these judgements, estimates and associated assumptions are based on management's best knowledge of current events and circumstances, the actual results may differ. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised and in any future years affected.

The judgements, estimates and assumptions which are of most significance to the Group are detailed below:

Assessment of the recoverable amounts in respect of assets tested for impairment

The Group tests goodwill for impairment on an annual basis or more frequently if there are indications that amounts may be impaired. For property, plant and equipment and intangible assets, other than goodwill, the Group tests for impairment when there is an indication of impairment.

The impairment analysis for such assets is principally based upon discounted estimated future cash flows from the use and eventual disposal of the assets (see notes 7 and 8). Such an analysis includes an estimation of the future anticipated results and cash flows, annual growth rates, whether short term or long term, future capital expenditures and the appropriate discount rates (see notes 7 and 8 for key assumptions). Changes in the estimates which underpin the Group's forecasts and selection of appropriate discount rate could have an impact on the value in use of the cash generating units and group of cash generating units being tested.

Valuation of share based payments

The charge for share based payments is calculated in accordance with the methodology described in note 18. The model requires highly subjective assumptions to be made including the future volatility of the Company's share price, expected dividend yield, risk-free interest rates, expected time of exercise and employee attrition rates. Changes in such estimates may have a significant impact on the original fair value calculation at the date of grant and the employee attrition rate will impact the judgement relating to the number of share based incentives that would vest and therefore the share based payments charge.

Deferred taxation

The recognition of deferred taxation assets or liabilities are further described in note 16.

Recognition of deferred tax assets on tax losses, is based upon whether management judge that it is probable that there will be sufficient and suitable taxable profits in the relevant legal entity or tax group against which to utilise the assets in the future. Judgement is required when determining probable future taxable profits. The Group assesses the availability of future taxable profits using the same cash flow forecasts for the Group's operations as are used in the Group's value in use calculations for impairment testing purposes. Where tax losses are forecast to be recovered beyond the five year period, the availability of taxable profits is assessed using the cash flows and long‑term growth rates used for the value in use calculations.

Changes in the estimates which underpin the Group's forecasts could have an impact on the amount of future taxable profits and could have a significant impact on the period over which the deferred tax asset would be recovered and whether the deferred tax assets should have been recognised.

Deferred taxation assets on share based payments are calculated based on the intrinsic value of the share based incentives at the year end, Company's share price, availability of tax deduction on exercise of the share based incentives and employee leave rates. Changes in the number of share based incentives that are expected to vest (as described above), availability of tax deduction and other assumptions will have an impact on the value of deferred taxation assets.

Deferred tax liabilities on capital allowances are calculated using estimates of the proportion of property, plant and equipment acquired during the year that qualifies for capital allowances and the appropriate rates of allowances and estimates of tax rates applicable in the future. Management make such estimates based on experience with similar historic property, plant and equipment acquired. Changes in the make-up of the building components in one of these assets may have an impact on capital allowances claimable and therefore the quantum of the deferred tax liabilities.

The Group only considers substantively enacted tax laws when assessing the amount and availability of tax losses to offset against the future taxable profits and availability of capital allowances.

Finite lived intangible assets

Intangible assets include amounts spent by the Group acquiring brands and the costs of purchasing and/or developing computer software.

Where intangible assets are acquired through business combinations and no active market for the assets exists, the fair value of these assets is determined by discounting estimated future net cash flows generated by the asset. Estimates relating to the future cash flows and discount rates used may have a material effect on the reported amounts of finite lived intangible assets.

The useful life over which intangible assets are amortised depends on management's estimate of the period over which economic benefit will be derived from the asset. Reducing the useful life will increase the amortisation charge in the consolidated income statement. Useful lives are periodically reviewed to ensure that they remain appropriate.

Property, plant and equipment

Property, plant and equipment represents 48.7% (2017: 44.8%) of the Group's total assets; estimates and assumptions made may have a material impact on their carrying value and related depreciation charge. The depreciation charge for an asset is derived using estimates of its expected useful life and expected residual value, which are reviewed periodically. Increasing an asset's expected life or residual value would result in a reduced depreciation charge in the consolidated income statement. Management determines the useful lives and residual values for assets when they are acquired, based on experience with similar assets and taking into account other relevant factors such as any expected changes in technology. The useful life of equipment is assumed not to exceed the duration of restaurant property lease unless there is a reasonable expectation of renewal or ability for the equipment to be transferred for use in another restaurant.

Accounting treatment of other investments

Investments are recognised at fair value at the time of acquisition. Management judgement is used to determine whether the Group has significant influence or control over the investment which would give rise to different accounting methodology being applied as an associate or subsidiary.

OPERATING SEGMENTS

The Group considers itself to have two key operating segments, being the management and operation of The Real Greek restaurants and the management and operation of Franco Manca restaurants. The Group operates in only one geographical segment, being the United Kingdom.

DEFINITIONS

OPERATING PROFIT

Operating profit is defined as profit before taxation, finance income and finance costs.

HEADLINE OPERATING PROFIT

Headline operating profit is defined as operating profit before amortisation of brand, impairment of property, plant and equipment, impairment of goodwill and intangible assets, onerous lease costs, restructuring costs, costs of reverse acquisition, cost of acquisition, share based payments, loss on disposal of property, plant and equipment and pre-opening costs.

HEADLINE PROFIT BEFORE TAXATION

Headline profit before taxation is defined as profit/loss before taxation before amortisation of brand, impairment of property, plant and equipment, impairment of goodwill and intangible assets, onerous lease costs, restructuring costs, costs of reverse acquisition, costs of acquisition, share based payments, loss on disposal of property, plant and equipment and pre-opening costs.

PRE-OPENING COSTS

The restaurant pre-opening costs represent costs incurred up to the date of opening a new restaurant that are written off to the profit and loss account in the period in which they are incurred.

EBITDA

EBITDA is defined as operating profit before depreciation, amortisation and impairment.

HEADLINE EBITDA

Headline EBITDA is defined as EBITDA before onerous lease costs, restructuring costs, costs of reverse acquisition, cost of acquisition, share based payments, loss on disposal of property, plant and equipment and pre-opening costs.

HEADLINE EPS

Headline EPS is defined in note 6.

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 25 March 2018

For management purposes, the Group was organised into two operating divisions during the year ended 25 March 2018. These divisions, The Real Greek and Franco Manca, are the basis on which the Group reports its primary segment information as identified by the chief operating decision maker which is the Group's board of directors.

For the year ended 25 March 2018:

Head office and PLC costs, previously treated as an operating segment, are not related to the Group's two business segments and are therefore included in other unallocated and are not part of a business segment.

For the year ended 26 March 2017:

The Group's two business segments primarily operate in one geographical area which is the United Kingdom.

DIRECTORS' REMUNERATION

The remuneration of Directors, who are the key management personnel of the company, is set out in aggregate below. Further details of directors' emoluments can be found in the tables of directors' remuneration on pages 18 to 21.

NJ Donaldson exercised Nil share options in the year ended 25 March 2018 (2017: 1,115,972) realising a gain of £Nil (2017: £184,000).

Included above are fees paid to related parties for the provision of directors' services which are further described in note 22.

The Directors are the only employees of the Company. The Directors' remuneration above is the only staff costs for the Company.

Further information on the movement on deferred taxation is given in note 16.