Tasty Regulatory News (TAST)

Tasty plc

("Tasty" or the "Company")

Preliminary results for the 53 weeks ended 1 January 2017

· Revenue up 28% to £45.8m (2015: £35.8m)

· Gross profit up 26% to £5.3m (2015: £4.2m) 

· Headline operating profit before pre-opening costs and non-trading items was up 21% to £4.8m (2015: £4.0m)

· Thirteen Wildwood and Wildwood Kitchen restaurants opened during the period

· Since the year end the Company has opened a further two Wildwood sites and there are a further two Wildwood sites that are due to open imminently

· Trading since year has proved challenging and the Directors are now expecting headline operating profit for 2017 to be below that achieved in 2016

28 March 2017

Enquiries:

Tasty plc Tel: 020 7637 1166

Jonny Plant, Chief Executive

Cenkos Securities Tel: 020 7397 8927

Bobbie Hilliam

Harry Pardoe

This announcement contains inside information.

Chairman's statement

I am pleased to be reporting on the Group's annual results for the 53 week period ended 1 January 2017 and the comparative 52 week period ended 27 December 2015.

Results

The Group continued its expansion this year with revenue increasing 28% on last year to £45,847,000 (2015 - £35,794,000). Headline Operating profit was £4,792,000 up from £3,951,000 in the previous period and pre-opening costs for the period totalled £642,000 (2015 - £644,000).

The Board does not recommend the payment of a dividend at this stage of the Group's development.

OpeningsThirteen Wildwood restaurants were opened during the year: Abingdon, Braintree, Letchworth and Ilkley all opened in the first half of the year. Crawley, Cheam and Lincoln opened in Quarter three and Bournemouth, Llandudno, Worcester Park, Edinburgh, York and Northwich all opened in Quarter four.

Since the year end the Company has continued its expansion programme with two new sites opened, two sites under construction and a number of other sites at various stages of completion and negotiation.

Review of the business

The Group has implemented its programme of operational improvements during the period which has included changes to the central kitchen infrastructure and upgrades to a number of key systems. Appointments have been made across the Group in: Operations, Marketing, Finance and HR departments to support future openings and the Group's expansion. The Group websites and the wider digital marketing strategy continue to be developed as planned.

During the year the Group undertook a comprehensive review of its estate and has recognised impairment charges against a number of sites. Turnaround strategies have been implemented at these sites in an effort to bring performance of these restaurants in line with the rest of the estate. Overall, the Group traded in line with expectations. After taking into account all non-trade adjustments the Group has a stated loss after tax for the period of £848,000 (2015 - profit £2,467,000)

At the end of the period the Group operated 61 restaurants. Currently, the Group has 63 restaurants in operation - 7 Dim T and 56 Wildwood.

Cash flows

Net cash outflow for the period before financing was £6,883,000 (2015- £4,759,000). This is largely represented by capital expenditure on the expansion of the business through the opening of the above sites. Cash flows generated from operations were £5,368,000 (2015 - £5,076,000). 

During the year the Group updated its banking facility with Barclays, increasing the facility to £12,000,000 (2015 - available facility of £8,000,000) to be used for future capital expenditure. As at 1 January 2017 the Company had drawn £7,000,000 of the available facility.

The Company issued Ordinary shares during the period resulting in a cash inflow of £8,630,000 (2015 - £52,000). Cash and cash equivalents held at the end of the period were £5,004,000 (2015 - £2,221,000). The Group is cash generative and has a strong capital footing for the future. 

Pre-opening costs and accounting adjustments

Pre-opening costs have been highlighted in the income statement as these costs represent revenue expenses, such as rent, rates and training costs, which are necessarily incurred in the period before a new unit is opened, but which are specific to the opening of that unit and not part of the Group's normal ongoing trading performance.

The Group recognises a number of charges in the accounts which arise under accounting rules which have no transactional cash impact. These charges include share based payments.

Staff

As ever, it is our dedicated staff that have contributed significantly throughout the year to the Group's much improved performance, and I would like to take this opportunity of thanking them again for their hard work and effort.

Current Trading

Post year end trade has been below expectations and the Directors believe that the trading environment for the coming 12 months will remain challenging. As a result, the Group has revised down the planned number of openings for the current year from 15 to 7 and expects that headline operating profit will be below that achieved in 2016. The Group is undertaking a full review of the estate and operational structure and is implementing a number of strategies to improve performance.

The Directors believe the Group's core 'Wildwood' brand remains attractive to customers and the Group is taking positive action to address the expected financial performance and ensure growth in the future.

Keith Lassman

Chairman

28 March 2017

Strategic report for the 53 weeks ended 1 January 2017

Business review

Revenue for the period increased 28% on last year to £45,847,000 (2015 52 weeks - £35,794,000). Headline EBITDA before pre-opening costs and non-operating items was £7,070,000 (2015 - £5,831,000). Pre-opening costs for the period totalled £642,000 (2015 - £644,000).

In the previous period the Group identified a number of structural improvements that needed to be made in response to the growing number of sites being operated. Structural changes are still ongoing and are set to be completed in H1 of 2017.

In order to simplify the roll out plan, improve operational performance and to recognise a number of cost savings all Wildwood Kitchen sites were converted into Wildwood sites during Quarter 4 resulting in exceptional costs of £55,000 (2015 - £nil).

A number of site impairments have been made during the year, primarily of Wildwood Kitchen sites opened in 2014 and 2015 resulting in an impairment charge of £3,576,000 (2015 - £nil). The Group has implemented turnaround strategies at these sites, including rebranding, in an effort to bring performance of these restaurants in line with the rest of the estate and will be assessing the success of these changes in the coming months and will take additional corrective steps where necessary. 

In order to meet the increasing challenges of maintaining brand values as the geographical footprint of the Group grows, an extensive management training programme has been designed and implemented. Focussed on the store management team, the 4 week programme has had a very positive response from staff and is one of a number of strategies that the Group is using to increase staff engagement and reduce employee turnover. 

Overall, the Group traded in line with expectations for the period. Margins for the year have been depressed as a result of the one off structural improvement programme that has been undertaken. Headline operating profit increased in the year to £4,792,000 (2015 - £3,951,000) and the group achieved a pre-tax loss (after exceptional items) of £88,000 (2015 - profit £3,067,000).

Key performance indicators

The Directors utilise a large number of detailed performance indicators which are used to manage the business but, as with most businesses, the focus in the income Statement at the top level is on sales, Headline EBITDA and Headline operating profit compared to budget and the previous year. Increase in revenue and Headline operating profit are in line with expectations and are achieved as a result of the Group's expansion plan.

The Directors recognise the importance of customer relations and staff are extensively trained in this regard. Performance is monitored by reference to the results of regular mystery diner visits and staff bonuses are calculated with the results and comments arising from these visits and other customer feedback.

Consolidated statement of comprehensive incomefor the 53 weeks ended 1 January 2017

Consolidated statement of changes in equityfor the 53 weeks ended 1 January 2017

Consolidated balance sheetat 1 January 2017

Consolidated cash flow statementfor the 53 weeks ended 1 January 2017

Significant non-cash transactionDuring the period the Company issued share capital for net proceeds of £8,630,000 (2015 - £52,000). The cash receipt was processed by the trading subsidiary and as such the transaction has been recorded through the inter-company account between the Company and the trading subsidiary.

Notesforming part of the financial statements for the 53 weeks ended 1 January 2017

1 Accounting policies

(a) Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by European Union ("adopted IFRSs").

(b) Basis of preparation

The financial statements cover the 53 week period ended 1 January 2017, with a comparative period of the 52 week period ended 27 December 2015. The financial statements are presented in sterling, rounded to the nearest thousand and are prepared on the historical cost basis.

(c) Changes in accounting policy

Standards, amendments and interpretations, issued by the IASB or the International Financial Reporting Interpretations Committee (IFRIC) and endorsed by the EU, which were effective for the first time in the current financial year did not have a significant impact on these financial statements.

The following standards and interpretations (including updates and amendments) are not yet effective and have not been early adopted by the Group. The Group is assessing the impact these standards and interpretations will have on the presentation of results in future periods.

· IFRS 15 'Revenue from contracts with customers' - effective from 1 January 2018

· IFRS 9 'Financial Instruments' - effective from 1 January 2018

· IFRS 16 'Leases' - effective date to be confirmed

(d) Basis of consolidation

The consolidated financial statements incorporate the results of the Company and its subsidiary, Took Us A Long Time Limited. The accounting period of the subsidiary is co-terminous with that of the parent undertaking.

The merger method of accounting was used to consolidate the results of the subsidiary undertaking because the transaction was a Group reconstruction. The merger of the two companies took place on 26 June 2006 and the shares issued were recorded in the Company's balance sheet at nominal value of the shares issued plus fair value of any additional consideration. The difference between the nominal value of the shares issued and the nominal value of the shares acquired was taken to a merger reserve in the Group accounts.

(e) Revenue 

Revenue represents amounts received and receivable for goods and services provided (excluding value added tax) in the normal course of business. Revenue is recognised at the point goods and services are provided.

(f) Pre-opening costs 

Property rentals and other related overhead expenses incurred prior to a new restaurant opening are written off to the income statement in the period that they are incurred. Similarly, the costs of training new staff during the pre-opening phase are written-off as incurred. These expenses are specific to the opening of that unit and not part of the Group's normal ongoing trading performance.

(g) Retirement benefits: Defined contribution schemes

Contributions to defined contribution pension schemes are charged to the consolidated income statement in the period to which they relate.

(h) Share based payments

The Company operates a number of equity-settled share-based payment schemes under which share options are granted to certain employees. The costs of equity-settled transactions are measured at fair value at the date of grant. Fair value is measured using the Black-Scholes or binomial model. In determining fair value, no account is taken of any vesting conditions, other than conditions linked to the price of the Company's shares (market-based conditions).

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided all other conditions are satisfied. The fair value determined at the grant date is then expensed on a straight line over the vesting period, based on the directors' best estimate of the number of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions. The movement in the cumulative expense since the previous balance sheet date is recognised in the Income Statement, with the corresponding movement taken to equity.

Where the terms and conditions of options are modified before they vest or where options have been cancelled and reissued with modified terms, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period.

The grant by the Company of options over its equity instruments to the employees of its subsidiary in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

(i) Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. The amortisation expense is included within the cost of sales line in the consolidated income statement.

The significant intangibles recognised by the Group and their useful economic lives are as follows:-

(j) Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses.

Depreciation is provided to write off the cost or valuation, less estimated residual values, of all fixed assets, evenly over their expected useful lives and it is calculated at the following rates:-

Restaurants under construction are included in Property, plant and equipment. No depreciation is provided on restaurants under construction until the asset is available for use.

All property, plant and equipment is reviewed for impairment in accordance with IAS36 Impairment of Assets, when there are indications that the carrying value may not be recoverable.

Property, plant and equipment are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset or a cash generating unit (CGU) exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to dispose of the asset), the asset is written down accordingly. The Group view each restaurant as a separate CGU. Value in use is calculated using cash flows over a 10 year period discounted at 10%.

Impairment charges are classed as an exceptional expense and are shown on the face of the consolidated statement of comprehensive income.

(k) Onerous contracts

Provisions for onerous contracts are recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligation under the contract.

(l) Loans and receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost, less provision for impairment.

Impairment provisions are recognised when there is objective evidence that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. The Company's loans and receivables comprise only inter-Company receivables. Cash and cash equivalents include cash in hand and deposits held with banks.

(m) Financial liabilities

Financial liabilities include trade payables, accrued lease charges and other short term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost.

(n) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is based on estimated selling price less costs incurred up to the point of sale.

(o) Leased assets

Leases are classified as finance leases whenever the terms of the lease are such that they transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases. The Group currently has no finance leases. Assets leased under operating leases are not recorded on the balance sheet.

The total rentals payable under the operating leases are charged to the consolidated income statement on a straight-line basis over the lease term. Where the Group sub-let sites to tenants, the rental income and expense are offset within administrative expenses.

Lease incentives received, primarily rent-free periods, are capitalised and then systematically released to the income statement over the period of the lease term. Payments made to acquire operating leases are treated as pre-paid lease expenses and are amortised over the term of the lease.

(p) Taxation

Tax on the profit and loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on:

· The initial recognition of goodwill

· The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

Deferred tax is provided using the balance sheet liability method, providing for all temporary differences between the carrying amounts of assets and liabilities recorded for reporting purposes and the amounts used for tax purposes.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

(q) Business combinations

The financial statements incorporate the results of business combinations using the purchase method. In the balance sheet, the identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

(r) Goodwill

Goodwill represents the difference between the fair value of consideration paid and the carrying value of the trade and assets for each cash generating unit (CGU) acquired as going concerns.

Goodwill is stated as originally calculated less any accumulated provision for impairment. Goodwill is allocated to individual CGUs where each CGU is a restaurant and is subject to an impairment review at each reporting date.

(s) Share capital

The Group's ordinary shares are classified as equity instruments.

(t) Operating profit

Operating profit is stated after all expenses, but before financial income or expenses. Non-trading items are items of income or expense which because of their nature and the events giving rise to them, are not directly related to the delivery of the Company's restaurant service to its patrons and merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

2 Critical accounting estimates and judgements

The Group makes certain estimates and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below.

(a) Share based payments

The Group operates equity share-based remuneration schemes for employees. Employee services received and the corresponding increase in equity are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options is estimated by using valuation models, such as Black Scholes or binomial on the date of grant based on certain assumptions. Those assumptions are described in note 27 and include, among others, the dividend growth rate, expected volatility, expected life of the options (for options with market conditions) and number of options expected to vest.

(b) Accruals

In order to provide for all valid liabilities which exist at the balance sheet date, the Group is required to accrue for certain costs or expenses which have not been invoiced and therefore the amount of which cannot be known with certainty. Such accruals are based on management's best judgement and past experience. Delayed billing in some significant expense categories such as utility costs can lead to sizeable levels of accruals. The total value of accruals as at the balance sheet date is set out in note 18.

(c) Useful lives of property, plant and equipment

Property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness.

(d) Impairment reviews

In carrying out an impairment review in accordance with IAS 36 it has been necessary to make estimates and judgements regarding the future performance and cash flows generated by individual trading units which cannot be known with certainty. Past performance is often used as a guide in estimating future performance, or comparison with similar sites. Where the circumstances surrounding a particular trading unit have changed then forecasting future performance becomes extremely judgemental and for these reasons the actual impairment required in the future may differ from the charge made in the financial statements.

(e) Deferred tax

The deferred tax liability provided in the accounts is based on temporary difference between the tax written down values of assets and liabilities and their carrying values in the accounts and as such it is dependent on assumptions made in the Company's corporation tax computations. The assumptions on the proportion of certain elements of capital expenditure which will be eligible for tax relief are subjective and the final calculations agreed with HMRC could differ from the provision made in the financial statements.

3 Revenue and segmental analysis

The Group's activities, comprehensive income, assets and liabilities are wholly attributable to one operating segment (operating restaurants) and arises solely in one geographical segment (United Kingdom).

4 Operating profit

5 Non-trading items - charged to administrative expenses

During the year a review of impairments and site performance was undertaken resulting in an impairment charge of £3,576,000 (2015 - £nil). In addition to writing down property, plant and equipment, in cases where lease premium has been paid to acquire a site which has subsequently been identified for impairment under IAS 36, this lease premium has been impaired.

Share based payments are valued at the date of grant and amortised over the vesting period, the current year charge is £100,000 (2015 - £133,000). 

6 Finance expense

7 Employees

The average number of persons, including directors, employed by the Group during the period was 1,019 of which 1,005 were restaurant staff and 14 were administration staff, (2015 - 846 of which 836 were restaurant staff and 10 were administration staff). 

No staff are employed by the Company.

Of the total staff costs £17,191,000 was classified as cost of sales (2015 - £13,028,000) and £1,027,000 as administrative expenses (2015 - £835,000).

8 Directors and key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, and represent the Directors of the Group.

In addition to the above, benefits in kind for the period were provided to J Plant of £nil (2015 - £5,000), S Kaye of £3,000 (2015 - £4,000) and A Kaye of £3,000 (2015 - £4,000). 

Share based payments for the period that are attributable to the directors are £36,000 to J Plant (2015 - £31,000), £20,000 to S Kaye (2015 - £20,000), £20,000 to A Kaye (2015 - £20,000) and £12,000 to T Cundy. 500,000 (2015 - nil) options were exercised by Directors during the period, the gain on exercise was £225,000 (2015 - £nil).

CompanyThe Company paid no director emoluments during the year.

9 Income tax expense

The tax charge for the period is lower than the standard rate of corporation tax in the UK. The differences are explained below:

10 Earnings per share

Due to the loss created by the impairment of PPE, all share options are considered anti-dilutive. 3,063,635 share options would otherwise be considered dilutive (2015 - 1,263,785). In the previous period 2,900,000 share options were excluded when calculating the adjusted diluted EPS as they were anti-dilutive.

11 Dividend

No final dividend has been proposed by the Directors (2015 - nil).

12 Intangibles

The recoverable amount of goodwill has been determined on a value in use basis. This has been based on the performance of the units since they were acquired and management's forecasts, which assume the sites will perform at least as well as the market generally. The forecast cash flows cover a period of 5 years, assuming a growth rate of 2% and are discounted at a rate of 10%. Management has performed sensitivity testing on all inputs to the model and noted no highly sensitive variables. Goodwill has been allocated to CGUs as follows;

13 Property, plant and equipment

14 Prepaid operating leases

Prepaid operating leases represent lease premiums paid on the acquisition of sites, amortised evenly over the lease term.

15 Investments

The Company's investments are wholly related to a 100% ordinary shareholding in Took Us a Long Time Limited, a company registered in England and Wales with registered offices at 32 Charlotte Street, London. Took Us a Long Time Limited is primarily engaged with the operation of restaurants.

16 Inventories

In the Directors' opinion there is no material difference between the replacement cost of stocks and the amounts stated above. Inventory purchased and recognised as an expense in the period is £10,560,000 (2015 - £8,410,000).

17 Trade and other receivables

During the year the Company issued shares and passed the net proceeds of £8,630,000 (2015 - £52,000) to its subsidiary.

18 Trade and other payables

19 Provisions

20 Deferred tax

21 Borrowings