RTN.L Regulatory News (RTN)

The Restaurant Group plc

Final results for the 52 weeks ended 31 December 2017

Strategic highlights

· 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

Andy McCue, Chief Executive Officer, commented:

"As expected, 2017 was a transitional year for the Group, with significant investments made in price and proposition within our Leisure business, which is driving improving volume momentum. We start 2018 with a significantly more competitive offering in our Leisure business, a strengthened pipeline of growth opportunities in both our Pubs and Concessions businesses, and a leaner, faster and more focused organisation. I'd like to thank our colleagues for embracing the change agenda and for their contribution to stabilising the business."

Enquiries:

Investor and analyst conference call facility

In conjunction with today's management presentation meeting, a live conference call facility will be available starting at 8:45am. If you would like to participate, please call Harshita Nandni at Instinctif Partners for dial-in details on 0207 427 1445 or email harshita.nandni@instinctif.com.

The presentation slides will be available to download from 8:30am from the Company's website https://www.trgplc.com/investors/reports-and-presentations

Notes:

1. The Restaurant Group plc currently operates 498 restaurants and pub restaurants throughout the UK. Its principal trading brands are Frankie & Benny's, Chiquito, Coast to Coast and Brunning & Price. It also operates a multi-brand Concessions business which trades principally in UK airports.

2. Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences are "forward-looking statements" within the meaning of the United States federal securities laws. These forward-looking statements reflect the Group's current expectations concerning future events and actual results may differ materially from current expectations or historical results.

3. The Group's Adjusted performance metrics ('APMS') such as like-for-like sales, Adjusted measures and free cash flow are defined within the glossary at the end of this report.

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.

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 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

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 re-introduced 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 re-trial of the brand.

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.

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.

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.

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.

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.

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).

The adjusted measures are summarised below:

1Adjusted measures are stated before exceptional items and are as defined within the glossary.

2As 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.

Summary cash flow for the year is set out below:

The Group continues to maintain considerable headroom on the covenants relating to our £140m revolving credit facility, which is in place until June 2020.

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 re-phasing 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.

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.

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 predominantly within our Pubs and Concessions businesses with associated capital expenditure of between £24m to £30m. Refurbishment and maintenance capital expenditure will range from £20m to £25m.

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

- 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).

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:

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

Notes to the accounts

For the year ended 31 December 2017

1 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.

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:

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.

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.

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; and

- 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).

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.

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 assets and long leasehold at £148.2m versus a book value of £110.9m.

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.

14 Basis of preparation

The Group's preliminary announcement and statutory accounts in respect of 2017 have been prepared on the going concern basis. The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2017 or 1 January 2017 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting. The 2017 statutory accounts are prepared on the basis of the accounting policies stated in the 2016 statutory accounts. The auditor has reported on those accounts; their reports were unqualified and unmodified and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

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.