The Restaurant Group saw adjusted pre-tax profits fall 26.4% to £56.7m over what it described as a “transitional” year in 2017.

As previously announced like-for-like sales were down 3% with total sales dropping 1.8% on a 52-week comparable basis.

The group did not reveal any trading figures for the start of the current financial year but said it was “in line with our expectations” and that H1 performance would “reflect the significant price investments made in the middle of last year”.

The group said proposition enhancements across 259-strong Frankie & Benny’s portfolio were driving improving volume momentum. In October TRG slashed main course entry price across the brand to 26% lower than the menu which started the year, with like-for-like dish prices reduced by 7% on average. In the current year it is launching an extended range of healthy dishes across the menus, upgrading its vegetarian and vegan options and introducing a redesigned desserts range. It is also trialling a pilot ‘capital refresh’ across 10 of its sites, which will be monitored and optimised before any decision is taken on rollout.

The group said there had also been “good progress across other Leisure brands”. In the 85-strong Chiquito the number of menu items has been slashed by 30% while entry prices reduced by 10%, and like-for-like dish prices reduced on average by 6%.

It said Coast to Coast’s like-for-like trading performance remained “challenging” and that the focus remained on developing the fledgling Firejacks brand, with at least three more Coast to Coast sites to Firejacks conversions planned for the coming months.

TRG said its Brunning & Price pubs business “delivers consistently good and growing returns, with recent openings consistently delivering EBITDA returns in excess of 20%”. Ten new openings are expected this year with an increased rollout planned for 2019.

It said the Concessions business had also performed strongly with 10 news units expected this year, including sites with new franchise partners such as Brewdog and Spuntino.

The group grew its partnership with Deliveroo during the year, from 37 sites at the start of 2017 to 130 in February 2018. It is also now trialing delivery services with UberEats and Just Eat.It said it also sees 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.  

TRG opened 17 new sites in the 2017 (seven Frankie & Benny’s; six Chiquitos, three pubs and one concession, while 13 were closed (six Frankie & Benny’s; two Coast to Coasts and five concessions) leaving a total estate of 497. It expects to open 16 to 20 sites in 2018, predominantly within pubs and concessions.

TRG said its cost reduction programme of £10m had delivered ahead of plan, enabling reinvestment in Leisure business.

Chief executive Andy McCue said: “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.”

Four pillars of success

Chairman Debbie Hewitt said: “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.

“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.”

Analysts corner

Analysts at Liberum said: ”The scale of the heavy-lifting in 2017 should not be under-estimated; RTN is in a substantially better position now than this time last year. The fact FY17 has come in marginally ahead of expectations and FY dividend maintained is testament to management’s decisive actions. There is more to do with investment in technology, site refresh and acceleration in openings across Pubs & concessions. The market backdrop remains tough and given the timing of the price investments, FY18E will have a H2 bias. The shares have been very weak and now trade on c11x PE and EV/EBITDA of 5.2x which implies 2.0x for the leisure division. This is a 7.3% dividend and 6.6% FCF yield. Additionally with c.£150m of freehold assets we see RTN as severely undervalued.”