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Individual Restaurant Company plc

('IRC' or 'the Group')

Preliminary results for the 12 months ended 31 December 2008

Highlights

Individual Restaurant Company Plc ('IRC' or 'the Group'), a leading operator of 34 restaurants throughout the UK which trade under the Piccolino (23) and Restaurant Bar & Grill (11) formats, today announces preliminary results for the year ended 31 December 2008.

Another resilient performance during the period

• Trading in line with market expectations across the Group's portfolio

• Revenue increased by 17% to £52.5m (pro-forma 2007*: £45.0m)

• Restaurant EBITDA** increased to £10.2m (pro-forma 2007: £9.7m)

• Average restaurant EBITDA of £0.3m per site

• Clean*** profit before tax of £1.8m (pro-forma 2007: £2.5m); the reduction predominantly due to a £0.5m increase in depreciation in 2008 to £2.6m (pro-forma 2007 £2.1m)

• Clean diluted EPS 2.9p (pro-forma 2007: 6.8p)

Brand evolution

• Bar & Grill roll-out potential as strong as the Piccolino brand

• Both brands working nationally

• Dedicated development team in place for each brand

• Following the successful trial of making fresh pasta at Piccolino in Hale, Bristol and Clitheroe, it is the intention to expand this feature to a number of other Piccolino sites
  

Estate expansion

• Six new restaurants, comprising five Piccolinos (Birmingham, York, Hale, Bristol and Clitheroe) and one Bar & Grill (Harrogate), opened in 2008

• New sites traded slightly ahead of expectations

• Additional leases have been signed in Aberdeen, Knutsford, the City of London and Dorking

Financially strong

• Year-end net debt to EBITDA just under 3 times multiple

• Interest covered five times by EBITDA

• £9.2m capex invested in the estate in the period

• Successful renegotiation of £18.5m banking facility 

Current trading

• Trading for the first 13 weeks of the current year slightly ahead of management expectations 

* Pro-forma means the 12 months ended 31 December 2007 adjusted by removing the impact from the two restaurants disposed of in 2007

** Restaurant EBITDA is defined as EBITDA generated by restaurants after adding back pre-opening costs

*** Clean is defined as before non trading costs

 

Steven Walker, Chief Executive of Individual Restaurant Company, said:

'I am pleased to report another period of progress for the Group both in terms of financial performance and in the continued expansion of our restaurant portfolio. This is a particularly creditable result in what was a challenging trading period for consumer-facing businesses as a whole.'

'Whilst trading conditions are likely to remain tough particularly in the first half of 2009, current trading is slightly ahead of management expectations. The measures we have taken to evolve both of our brands are proving successful. This, together with an ongoing focus on tight cost control, will continue to underpin a resilient performance from both brands and the Directors remain confident about the future prospects for the Group.'

30 March 2009 

Enquiries: 

Individual Restaurant Company Plc
Steven Walker, Chief Executive	020 7457 2020 (today)
Vernon Lord, Finance Director	0161 839 5511 (thereafter)
Altium	0161 831 9133
Mike Fletcher
College Hill	020 7457 2020
Justine Warren

Chairman's statement

Introduction

We are pleased to announce our results for the year ended 31 December 2008. The results reflect another period of expansion with the restaurant estate growing from 28 to 34 premium casual restaurants, trading under either the Piccolino brand (23) or the Bar and Grill brand (11). The new restaurant openings comprised five Piccolino's: Birmingham (June); York (July); Hale (September); Bristol (September); and Clitheroe (December), and one Bar and Grill in Harrogate (November).  

Trading conditions became increasingly challenging as 2008 progressed. Encouragingly, trading strengthened over the Christmas period - the critical trading period for our business. It is particularly pleasing that in a period of reducing consumer spend generally, the Group's restaurants performed well over the period with results for the full year in line with market consensus at a trading level (EBITDA). 

Financial performance

Revenues have increased across the Group by £1.6m (3.1%) to £52.5m (14 months ended December 2007: £50.9m). It is, however, more meaningful to consider revenue growth in 2008 against 'pro-forma' revenue in 2007 (i.e. revenue for the 12 months ended 31 December 2007 adjusted by removing revenue from the two restaurants disposed in 2007). On this basis, revenue in 2008 increased by £7.5m (16.7%) to £52.5m (pro-forma 2007: £45.0m). The uplift in revenue was generated from the full year contribution of the six restaurants opened in 2007 together with the additional revenue contributed by the six restaurants opened throughout 2008. Encouragingly, average new site weekly revenue was 7% ahead of the level predicted in our 'template model site.'  

Restaurant EBITDA* increased by £0.5m (5.9%) to £10.2m (pro-forma 2007: £9.7m). Restaurant EBITDA* as a percentage of revenue was 19.5% (2007: 21.3%). The 1.8% decline in margin resulted from three factors: a 0.9% reduction in gross margin due to input cost pressures on food and beverage supplies which have been well documented across the industry; a 0.7% reduction in margin due to like for like increases in fixed costs and a 0.2% reduction in margin due to a decrease in like for like restaurant EBITDA of £0.2m (before the impact of like for like fixed costs). 

Pre-opening costs in the period were £0.7m (pro-forma 2007: £0.8m) at an average per site of £116,000. This was slightly higher than the £100,000 average pre-opening cost per site which has historically been achieved by the Group due to the Piccolino site in Birmingham, an existing restaurant purchased by the Group, which incurred additional costs including the termination of a number of employment and other service contracts.

Central costs in 2008 were £4.2m (pro-forma 2007: £3.7m). As the restaurant estate grows it is natural the absolute level of central costs would increase year on year. However, as a percentage of sales costs should fall which in the year they did by 0.3% (representing a relative cost reduction of £0.2m). The primary driver of the absolute cost increase was an increase in head count to support the growth in the estate. 

After pre-opening and central costs, EBITDA for the year was £5.3m (pro-forma 2007: £5.2m). Clean operating profit before non trading items declined by £0.3m to £2.7m (pro-forma 2007: £3.1m) due to an uplift in depreciation of £0.5m to £2.6m (pro-forma 2007: £2.1m). This increase was driven by the annualised impact of sites opened in 2007 together with the six openings completed in 2008. 

Operating profit for the year fell £1.1m to £2.1m due to the net effect of non-trading items. The operating profit in 2007 included a contribution to profit of £0.5m, being the net amount arising from the disposal of the Bank Aldwych restaurant and business restructuring costs (including a provision in respect of the Zinc restaurant in Birmingham). For the 2008 year the Board has decided to provide a further £0.5m against that restaurant as the effect of the economic downturn has been to extend the realistic date for finding a suitable sub-tenant.  

 

Total finance costs of £1.0m (pro-forma 2007: £0.6m) increased as a result of the increase in net debt.

The tax charge in the period of £0.6m (2007: £0.3m) relates entirely to deferred tax. Tax payable will be £nil (pro-forma 2007: £nil) as the Group continues to benefit from capital allowances generated from new site capital expenditure.  

Clean profit before tax for the year was down £0.7m to £1.8m (pro-forma 2007: £2.5m) which, as already stated was due predominantly to the uplift in depreciation of £0.5m. Clean profit after tax was £1.1m (pro-forma £2.3m). Clean earnings per share for the year was 2.9p (pro-forma 2007: 6.8p).  Profit after tax for the year is £0.5m (2007: £2.3m.) Earnings per share fell from 7.4p to 1.3p There is no impact in 2008 arising from share options.

Cash flow and balance sheet

The Group generates strong cash flow. In 2008 cash flow from operations was £4.7m. After interest, tax and maintenance capital expenditure free cash flow was £2.8m. 

At 31 December 2008 net debt was £15.8m (2007: £6.0m). The drivers of this increase were new site capital expenditure in the year of £8.3m and the payment of a deferred consideration of £4.3m. 

New site capital expenditure in the year of £8.3m included £7.6m invested in sites opened in the year, £0.4m on sites opened in 2007 and £0.3m on sites yet to be opened. 

As reported in last year's Chairman's statement a deferred consideration of £4.3m was due following the Group's acquisition in December 2006 of the entire share capital of Individual Restaurant Company Limited. This sum was paid in April 2008.  

With net debt at £15.8m, gearing was 38% (2007: 15%). Interest costs of £1.0m (pro-forma 2007: £0.6m) were covered by EBITDA generated in the 12 months ended 31 December 2008 by a factor of over five times (2007: eight times). Net debt of £15.8m represented just under three times EBITDA. 

Whilst the year end net debt multiple was just under three times EBITDA and the Group was not in breach of any of its covenants the Group felt some of its future covenant tests were potentially inappropriate for the business. Accordingly, the Board felt it was sensible to agree revised covenants with the Group's bankers, Lloyds Banking Group plc. 

I am pleased therefore to report the Group has successfully renegotiated new banking facility terms to January 2012 including more appropriate covenant tests and test levels. The covenants will be tested every half year on the below basis:

• Net Debt:EBITDA

• EBITDA:Senior Interest

• Cash Flow available for Debt Service (CFADS)

Brand progress and future roll out

In all aspects of the business, the Group continually strives to make progress through innovation and the Board believes that strong progress was made in both brands in 2008.

Most significantly, the Group has now experienced a lengthy period of successful trading for both brands in the south of England (six Piccolinos and three Bar & Grills), demonstrating that the Group has established two genuinely national brands.  

In respect of Piccolino, the Board believes that this brand has always set itself apart from its competition through the quality of its design, fit out, food and service. Further progress was made in 2008 with the introduction of freshly made pasta on site at Hale, Bristol and Clitheroe. In 2009 this will be extended to a number of other Piccolino restaurants, as we have already done so in our York site this year.

Both brands have their own dedicated development teams which we believe underlines consistent quality and individuality. 

Looking ahead, leases have been signed on four sites, Aberdeen, Knutsford, the City of London and Dorking. The Aberdeen site, which had been planned to open at the end of 2008, experienced delays in planning and licensing. Future openings, including Aberdeen, will be funded out of cash flow and the existing bank facilities. The quantum and timing of openings will be determined by trading performance and available headroom in these facilities.  

Future outlook and current trading

The Group anticipates that trading conditions in 2009 will be at least as challenging as those experienced in the latter months of 2008. Furthermore, many operators have increased the level of discounting in the opening months of this year. However, the Group will continue with its strategy of avoiding the margin erosion resulting from such policies, concentrating instead on the quality of its people, food, customer service and restaurant cleanliness. 

Nevertheless, the Group expects to come under further gross margin pressure in both food and beverage as suppliers strive to offset their rising costs resulting from the weakness in Sterling. A number of utility contracts are also subject to renewal in the year. To meet this challenge, a number of cost saving initiatives have been implemented which are expected to save around £2.0m in 2009. Lastly, the Group will benefit from a full year contribution from the six sites - most of which were opened towards the end of 2008. 

Encouragingly, trading for the first 13 weeks of the year has been slightly ahead of management expectations.

The Board believes that the Group's brands and business model are robust and remains confident of the future prospects for Individual Restaurant Company.

Robert Breare

Chairman

30 March 2009 

 (*) Restaurant EBITDA is defined as EBITDA generated by restaurants after adding back pre-opening costs

Consolidated income statement

		Year	14 months
		ended	ended
	Note	31 December	31 December
		2008	2007
		£'000	£'000
Revenue		52,472	50,852
Cost of sales		(13,328)	(13,094)
Gross profit		39,144	37,758
Other operating expenses		(36,424)	(34,393)
Operating result before non-trading costs		2,720	3,365
Profit on disposal of assets		-	1,267
Business restructuring costs		-	(784)
Reversal of impairment of non-current assets		996	-
Impairment of non-current assets		(996)	-
Share option charge		(108)	(108)
Increase in provision for onerous leases		(500)	(500)
Operating profit		2,112	3,240
Finance income		-	17
Finance cost		(957)	(676)
Profit before taxation		1,155	2,581
Income tax		(639)	(251)
Profit from continuing operations		516	2,330
Profit for the period attributable to equity holders
of parent		516	2,330
Earnings per share from continuing operations:	2
Basic		1.34p	7.41p
Diluted		1.34p	6.86p

Consolidated balance sheet

 

				As at		As at
				31 December		31  December
				2008		2007
				£'000		£'000
ASSETS
Non-current assets
Property, plant and equipment				36,909		29,353
Intangible assets				38,647		38,647
Total non current assets				75,556		68,000
Current assets
Inventories				1,059		809
Trade and other receivables				2,492		1,999
Derivative financial instrument				7		17
Cash and cash equivalents				2,686		4,455
Total current assets				6,244		7,280
Total assets				81,800		75,280
LIABILITIES
Current liabilities
Trade and other payables				(11,867)		(10,539)
Provisions				(177)		(110)
Deferred consideration				-		(4,248)
Short term borrowings				(18,500)		(10,500)
Total current liabilities				(30,544)		(25,397)
Non-current liabilities
Provisions				(500)		(390)
Deferred taxation				(9,707)		(9,068)
Total non current liabilities				(10,207)		(9,458)
Total liabilities				(40,751)		(34,855)
Net assets				41,049		40,425

 

 

 

				As at  31 December 2008		As at 31 December 2007
				£'000		£'000
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT
Share capital				13,826		12,409
Share premium account				11,663		8,832
Merger reserve				22,034		22,034
Shares to be issued				216		4,356
Retained earnings				(6,690)		(7,206)
Total equity				41,049		40,425

Consolidated statement of changes in shareholders' equity

		Share capital		Other reserves		Shares to be issued		Retained earnings		Total
		£'000		£'000		£'000		£'000		£'000
At 1 November 2006		1,125		7,925		-		(9,536)		(486)
Profit for the period		-		-		-		2,330		2,330
Reclassification of preference shares
from debt		17		833		-		-		850
Exercise of share options		37		74		-		-		111
Shares issued on acquisition		11,230		22,996		-		-		34,226
Transaction costs of share issue		-		(962)		-		-		(962)
Deferred consideration shares to
be issued		-		-		4,248		-		4,248
Share based payments to be issued		-		-		108		-		108
At 31 December 2007		12,409		30,866		4,356		(7,206)		40,425
Profit for the year		-		-		-		516		516
Deferred consideration shares		1,417		2,831		(4,248)		-		-
Share based payments to be issued		-		-		108		-		108
At 31 December 2008		13,826		33,697		216		(6,690)		41,049

Other reserves represent the share premium account and the merger reserve.

Consolidated cash flow statement

 

				Year ended		14 months ended
				31 December		31 December
				2008		2007
				£'000		£'000
Cash flows from operating activities
Profit after taxation				516		2,330
Adjustments for:
Depreciation, impairment and amortisation charges				2,609		2,306
Share based administrative expense				108		108
Interest expense				957		676
Interest received				-		(17)
Movement in deferred tax provision				639		251
Movement in provisions				177		500
Profit on sale of property, plant and equipment				-		(1,267)
(Increase) in trade and other receivables				(493)		(141)
(Increase) in inventories				(250)		(278)
Increase in trade payables				432		810
Cash flow from operations				4,695		5,278
Interest paid				(965)		(676)
Net cash from operating activities				3,730		4,602
Cash flows from investing activities
Purchase of property, plant and equipment				(9,251)		(10,595)
Purchase of subsidiary				(4,248)		(15,923)
Net cash acquired with subsidiary				-		1,408
Proceeds from sale of property, plant and equipment				-		3,500
Interest received				-		17
Net cash used in investing activities				(13,499)		(21,593)
Cash flows from financing activities
Proceeds from issue of share capital				-		32,111
New bank loans raised				8,000		14,000
Repayment of loan				-		(7,218)
Repayment of loans acquired with subsidiary				-		(17,106)
Net cash from financing activities				8,000		21,787
Net (decrease)/increase in cash and cash equivalents				(1,769)		4,796
Cash and cash equivalents at beginning of year				4,455		(341)
Cash and cash equivalents at end of the year				2,686		4,455

 

Notes to the financial statements

1. Basis of preliminary statement

The financial information set out above does not constitute the Group's statutory accounts for the year ended 31 December 2008 but is derived from those accounts, which are prepared in accordance with International Financial Reporting Standards.

The financial statements for the year ended 31 December 2008 have not yet been filed at Companies House, but will be in due course. The auditor has reported on those accounts; their report was unqualified and did not contain a statement under section 237 (2) of the Companies Act 1985.

The 2008 statutory accounts are prepared on the basis of the accounting policies stated in the Consolidated Interim report for the period ended 30 June 2008.

Copies of the June 2008 interim report can be found on the Company's website at:
www.individualrestaurantcompanyplc.co.uk.

Going concern

The Group has re-negotiated its financial covenants with Lloyds TSB Plc. Based on heavily sensitised forecasts to 31 March 2010 the Group will remain compliant with these covenants. The Group has a revolving credit facility of £18.5m repayable in January 2012, subject to annual review, the next such review being March 2010. The revolving credit facility is subject to amortisation prior to maturity, the first payment of which (£1m) is due in December 2009.

The Directors have prepared heavily sensitised forecasts. Reasonable enquires have been made and assumptions taken with regard to cashflow and prudent sensitivities. The Board is satisfied that should the lower of these estimates be achieved the Group will generate sufficient working capital to meet all of its liabilities through implementing a number of cost saving initiatives which could be easily implemented should the need arise. 

It is the opinion of the Directors that forecasted profit will be achieved and that the Group will continue to attract customers to its restaurants. In addition, support from the Group's bankers has been confirmed. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

  2. Earnings per share 

The calculation of earnings per share (basic and diluted) is based on Group profit after taxation, and the weighted average number of ordinary shares.

 

	Year ended 31 December 2008
	Earnings	Weighted Average number of shares	Per share
	£'000	'000	p
Basic and diluted EPS	516	38,490	1.34

	14 months ended 31 December 2007
	Earnings	Weighted average number of shares	Per share
	£'000	'000	p
Basic EPS	2,330	31,415	7.41
Effect of share options	-	2,540	-
Diluted EPS	2,330	33,955	6.86

 

 

The outstanding options at 31 December 2008 do not have a dilutive effect on the weighted average number of shares as the exercise price of options during the year exceeded the average market price of ordinary shares.

ENDFR SEUEFWSUSELD