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Hostmore plc

Unaudited results for the 53 weeks ended 2 January 2022

Positive trading performance with strong free cash flow generation

Balance sheet well positioned to capitalise on opportunities ahead  

14 March 2022

Hostmore plc (the "Company" and, together with its subsidiaries, being the "Group"), the hospitality business focused on American-themed casual dining brand, 'Fridays', and the cocktail-led bar and restaurant brand, '63rd+1st', is pleased to announce its unaudited results for the 53 weeks ended 2 January 2022 ("FY21").

Financial Summary

                                                                                                                                53 weeks ended               52 weeks ended

                                                                                                                                2 January 2022                 27 December 2020

Total revenues                                                                                                      £159.0m                               £129.1m

Group adjusted EBITDA    (note 1)                                                                       £43.0m                                 £23.5m

Group adjusted EBITDA pre-IFRS 16 (note 1)                                                                £21.5m                                 £1.5m

Operating profit/(loss)                                                                                       £12.0m                                 (£7.8m)

Operating profit margin                                                                                    7.5%                                      (6.1%)

Group loss after tax                                                                                           (£0.6m)                                 (£17.3m)

Basic loss per share                                                                                           (0.5 p)                                   (14.8 p)

Adjusted basic earnings/(loss) per share (note 2)                                          6.4 p                                      (14.8 p)

Net debt (note 3)                                                                                                   (£12.2m)                              (£28.6m)

Free cash flow (note 4)                                                                                      £31.0m                                 £20.0m

1.    Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) reflects the underlying trade of the overall business. It is calculated as statutory operating profit/(loss) plus depreciation, impairment, amortisation, loss on disposal of assets and any exceptional costs or income. Government grant income is included in Group adjusted EBITDA. Please refer to Chief Financial Officer statement for reconciliation.

2.     Adjusted basic earnings per share represents the net loss after tax before exceptional items, divided by shares issued.

3.     Net debt is defined as cash and cash equivalents less borrowings from bank facilities excluding the unamortised portion of loan arrangement fees.

4.     Free cash flow reflects the cash generated from operations less maintenance capital expenditures.

Key Highlights

Significant demand following reopening 

·    Like-for-like ("LFL") revenue since the gradual lifting of restrictions in May 2021 to period end was +4% ahead of the FY19 comparable despite the impact of the Omicron virus variant in the key December trading period

·    Strong cash generation enabled substantial settlement of arrears trading liabilities and significant reduction in net debt to £12.2m (FY20: £28.6m)

Continued organic expansion being delivered

·    Three 63^rd + 1^st sites (Cobham, Glasgow and Harrogate), and one Fridays site (Lincoln), opened in FY21

·    Six new sites to open in financial year 2022 ("FY22") include Dundee (Fridays and Go), Edinburgh and Cambridge (63^rd + 1^st), and Chelmsford, Barnsley and Durham (Fridays)

Strengthened balance sheet with robust liquidity position

·    A new bank facility of £65m was put in place in July 2021 with a term until 1 October 2023, with an option to extend the term by 12 months with the agreement of all parties

·    Free cash flow of £31.0m in FY21 supported substantial reduction in net debt to £12.2m from £28.6m

·    Cash holdings as at the year-end of £32.1m and balance of undrawn revolving credit facility of £20.0m provide significant liquidity headroom to counter potential risks and fund continued growth

Current Trading

·    LFL revenues for the 8 weeks ending 27 February, adjusted for stadium venues, is c.3% lower than FY19

·    New retail beverage sales channel will support development of dine-out revenue share

·    Early hedging of gas and electricity costs, both volume and pricing, substantially reduced the negative impact on future margins, with recent hedging contracted prior to the start of the Ukraine crisis

·    Net debt of £12.2m on 2 January 2022 increased to £13.2m on 27 February 2022 in line with seasonal trading expectations

Outlook

·    Balance sheet strength and liquidity headroom provides flexibility for expansion via organic growth and acquisitions

·    Maintain net debt to Group adjusted EBITDA range of between 0.75x and 1.5x EBITDA (pre-IFRS)

·    Investment in digital, supported by improved guest satisfaction scores, will provide basis for improving revenue per customer

·    Strong cash generation, to support our capital allocation framework, prioritising expansion and the introduction of an appropriate dividend policy in due course

·    Notwithstanding the potential for ongoing uncertainties regarding Covid-19 and the Ukraine crisis, and the impact thereof on both consumer demand and the cost environment, we remain positive about our prospects for the year ahead  

Robert B. Cook, Hostmore plc's Chief Executive Officer, commented:

"I am delighted to report a strong financial performance, in our maiden results as a publicly listed company, considering the challenges of the past two years. My colleagues in-store, at the support centre, and all stakeholders, have positively contributed to trading and the strengthening of our balance sheet. Consequently, we are well prepared to meet the expansionary goals which gave rise to Hostmore.

I am equally appreciative of the ongoing loyalty of our many guests that continued to support us by visiting our restaurants and indicated their appreciation of the improvements in quality and service which have resulted in higher and more consistent levels of guest satisfaction. 

Whilst we will no doubt face new macro-economic challenges as we proceed this year, together with the challenges raised by the Ukraine crisis, we are now well positioned to consider opportunities for both organic growth via our existing brands, including the very first Fridays and Go quick service concept restaurant which opens in Dundee later this week, and the acquisition of small disruptor brands that are seeking investment capital to grow.

The growth of the Group will provide existing and new employees the reward of enhanced career progression whilst delivering on our goals to the benefit of all stakeholders, including our loyal shareholders."

ENDS

Investor and Analyst Presentation

Robert B. Cook, Chief Executive Officer, and Alan Clark, Chief Financial Officer, will present Hostmore plc's Preliminary Results at 9.00am today.

The presentation will be held both online, via a live video webcast, and in person, at Numis Securities Limited, 45 Gresham Street, London EC2V 7BF.

To attend the live video webcast, please register using the following link: https://webcasting.brrmedia.co.uk/broadcast/6218a6a127256437f864e315

Alternatively, attendees may dial in using the conference call facility:

Phone Number:                                                         +44 (0)330 336 9601 (UK)

+1 646 828 8073 (US)

Confirmation Code:                                                   3858417

If you would like to attend in person at Numis Securities Limited, please contact Angela Schwartz to register: [email protected]

A Q&A session will be held after the presentation. Online attendees may submit questions during the presentation via the live webcast Q&A function or alternatively will be able to ask questions via the associated conference call.

The presentation slides will be available to download from 9.00am from the Company's website: https://www.hostmoregroup.com/results-reports-presentations

ENQUIRIES

Hostmore plc

Robert B. Cook, Chief Executive Officer

Alan Clark, Chief Financial Officer

[email protected]

+44 330 460 5588

Vico Partners

Sofia Newitt  

020 3957 5045

NOTES TO EDITORS

Hostmore plc is a growing hospitality business with its current operations focused on the American-themed casual dining brand, 'Fridays', and the cocktail-led bar and restaurant brand, '63rd+1st'.  While Fridays has been trading for over three decades in the UK, Hostmore was established in 2021 to provide a platform for the development of hospitality brands under the leadership of an experienced management team that has a track record of building businesses in the hospitality and leisure sectors.  Hostmore's businesses are defined by their iconic brand experience and vibrant heritage. As of 14 March 2022, Hostmore operates 87 restaurants in the United Kingdom and Jersey, a majority of which are in high footfall locations, including retail parks, shopping centres and city centres.  Hostmore is exploring opportunities with TGI Friday's, Inc., the franchisor of Fridays, to expand its existing brands into new franchise territories and is seeking to add rapidly growing, early-stage businesses to its portfolio of complementary hospitality brands, as well as to extend its offering in other experience-led, leisure concepts.

Cautionary Statement

This announcement may contain certain forward-looking statements with respect to the business, strategy and plans of the Group and its current goals and expectations. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement and Hostmore plc undertakes no obligation to update these forward-looking statements. Nothing in this statement should be construed as a profit forecast." 

Chair's statement

Having had responsibility for the stewardship of the TGI Fridays brand over the last five years as Chairman of Electra Private Equity PLC, I am now delighted to present the inaugural Chair's Statement of Hostmore plc as an independent listed business. In any circumstances the listing process is not one to be undertaken lightly and it is to the great credit of the Hostmore leadership team that this was accomplished as we emerged from what we hope will prove to be the worst phases of the coronavirus pandemic whilst delivering the trading performance reported today.

The successful demerger of Hostmore in November 2021 marked a pivotal moment in the long and successful history of the Fridays brand in the UK. Having initially transformed the UK casual dining market following its launch in 1986, the TGI Fridays brand has now traded successfully in the UK for over 35 years, consistently growing whilst generating profit and cash. Evolving consumer requirements led to a relaunch of the brand under the leadership of our new CEO Robert B. Cook in 2020. With the brand simplified to Fridays, and with a renewed mantra of quality, relevance and simplicity through all aspects of customer experience and operations, the core Fridays proposition is in good health and well positioned for growth in a market that has seen a significant and much needed reset driven by the COVID pandemic.

Prior to joining the company in December 2019, Robert worked with the Electra team to conduct a thorough review of the Fridays business and the market opportunity. This work formed the foundation of the Fridays '4D strategy' for growth and demonstrated the scale of the opportunity not only for Fridays but for other well managed and focused brands that may be added in the future. Whilst the emergence of the pandemic produced many challenges, Robert and the evolving leadership team performed exceptionally well.

The transformation of the Fridays brand, the development of the '63rd+1st' brand and proposition and the definition of what is now the Hostmore strategy were all accomplished whilst managing the business through the pandemic and outperforming the market. Robert and the team worked, and continue to work, closely with our landlords, our suppliers and our superb people to ensure that Fridays emerged from the pandemic much stronger than it went in, with a strong foundation for growth and now accentuated by the exciting new '63rd+1st' business.

Prior to the emergence of the pandemic the casual dining market was suffering from significant oversupply characterised by discounting and widespread brand erosion. With the combination of the permanent closure of somewhere between 15-20% of restaurants as a result of the pandemic and a growing acceptance from consumers that pricing has to reflect value, there is an opportunity for well managed businesses in the hospitality industry to generate sustainable value. The results for 2021 reported today demonstrate clearly that Hostmore is a profitable and cash generative business delivering industry leading returns. Our strategy for growth is robust and with Robert, Alan Clark and their team in place the Board is confident in the ability of the Group to successfully navigate the undoubted challenges ahead and generate value through building a truly attractive and sustainable business.

With a robust balance sheet and a strongly cash generative business, it is the intention of the Board that Hostmore will instigate a dividend policy when it is prudent to do so after taking account of exceptional and material pandemic, macro-economic or geopolitical market disruption.

As indicated in the listing documents, my role as Chair of Hostmore was to ensure the successful transition to an independent listed business. It is therefore my intention to step down as planned at the Annual General Meeting in May. As a newly listed business, the Board believes continuity of stewardship is particularly important and I am therefore delighted that, subject to his election as a director of the Company, Gavin Mason will succeed me as Chair. I would like to thank the Board, Robert and his management team and all the Fridays and 63rd+1st teams for their efforts and dedication in getting to where we are now, and look forward to the continued successful development of Hostmore with great confidence.

Neil Johnson
Chair

Chief Executive Officer's statement

After a year of constant challenge and difficulties for our business, our venues and the wider hospitality sector as a whole, I must open with a statement of thanks to our entire team and community; a community which is the lifeblood of the business, within a culture of engagement and reward. These are the USPs of the Fridays' brand and have been since its inception in 1965.

Similarly, the support from our stakeholders in the early stages of plc life has been invaluable. Our in-store teams and in particular our General Managers, on a daily basis at the sharp end of the COVID-19 disruptions, have been professional and hardworking throughout. On behalf the Hostmore Board, we are truly grateful to the entire team for their resilience and efforts in this very difficult period.

In the early part of 2021 our focus was on reopening whilst preserving cash, halting our capital programme and managing our outgoings as effectively as possible. We worked closely with our landlords on pandemic related rent concessions, and our supply chain, who all collaborated with us in achieving a positive trading outcome for the year, for which we are grateful.

Our customers have remained loyal and came back in droves as we moved out of lockdown and welcomed "Freedom Day" with open doors. Trading since mid-May has been strong and the evident pent-up demand for friends and families to get out and socialise came back to near normality.

As we entered the final quarter of the year, we could see the gathering storm of the Omicron variant and inflationary headwinds approaching. Whilst trading was challenging in the fourth quarter due to Omicron, we were able to successfully mitigate these pressures and have restored our balance sheet to a healthy level as we entered 2022.

Despite the challenges faced by our sector, our business is in a position of strength and we have positive momentum. I share this positivity for our near-term future and beyond.

Our loyal customers remain, new customers are joining and we have a heathy pipeline of growth for both the Fridays and 63rd+1st brands. Demand for our well-loved brands continued with like-for-like revenue growth of 4%, when compared to FY19, since restrictions were lifted in May to the end of the reporting period.

Regardless of the pandemic and its challenges, we have been developing our sustainability strategy and have set ourselves ambitious goals as we move towards Net Zero with regards to carbon neutrality. The focus has also been on our wider ESG strategy, with particular attention on our supply chain compliance, energy consumption through our "Fridays Green Mission", and on our new menu and nutritional objectives to reduce the calorie count across both our brands. We have made good progress on these key focus areas within our ESG strategy and are maintaining good momentum as we go forward.

Whilst we recognise the significance of the evolving impact that the Ukraine crisis may have on consumer demand and inflation, our stronger balance sheet and liquidity nevertheless place us in the enviable position of looking forward to the opportunities ahead, including building our brands and optimising their potential and presence in the UK market.

We continue to work towards and beyond this ambition.

Robert B. Cook

Chief Executive Officer

Chief Financial Officer's review

Trading Results

The revenue generation of the Group for the financial year was significantly affected by the impact of the Covid-19 pandemic and the legislative measures taken to restrict its spread. This resulted in a material reduction in revenues compared to financial year 2019 as the stores in England were reduced to dine-out and collection operations, and other online revenue channels, until 12 April when outdoor dining was again permitted. From 17 May restrictions were further eased to allow for dine-in operations with social distancing requirements, with all restrictions finally being discontinued from 19 July. Varying levels of trading restrictions were also introduced in Scotland, Wales and Jersey, where the regional governments also acted to contain the spread of the virus.

However, whilst the revenues for the full year therefore remained substantially lower than normal, I was pleased with the trading performance during the period post-reopening with revenues being ahead of the comparable financial year for 2019. This had a consequential positive impact on cash flow.

The Group also took action to mitigate the reduction in revenue through a program of Government support measures, and cost and efficiency actions. These included, amongst others, the following:

•     Government support: This included benefits from the introduction of a combination of schemes made available to the hospitality sector by the Government:

-  The Coronavirus Job Retention Scheme (CJRS). This was available until 30 September albeit the Group substantially reduced its reliance on the Scheme from May onwards as full employment again became possible with the opening of restaurants for dine-in. This program also ensured the ongoing employment of many valuable colleagues during the lockdown trading periods;

-  Reduced VAT rates. The reduction in the output VAT rates from 20% to 5% until 30 September 2021 provided an important opportunity for hospitality sector businesses to rebuild their balance sheets and settle accrued liabilities. A reduced level of 12.5% has been in effect from 1 October 2021 and will apply until 31 March 2022 at which time it will revert to 20% ; and

-  Reduced business rates and grants. The waiver of business rates until the end of the first quarter of 2021, followed by a reduced level from then until March 2022, also contributed to improving the financial standing of the Group.

•     Landlord concessions: Ongoing from the prior financial period, the Group has continued to engage in a proactive manner with its landlords to determine a fair treatment of any arrear obligations. The value of concessions contracted have been accounted for in the current period unless they are enduring by nature which has resulted in such concessions being recognised over the term of the benefit.

The return of more normalised trading demand from June brought with it supply chain challenges in logistics as well as staffing. I am very appreciative of the teams at both the restaurant level and our central support centre who worked tirelessly to address these in a manner that resulted in our restaurants being materially unaffected for any significant periods.

Cost mitigation measures included successfully hedging our gas and electricity demand for the duration of the period at prices determined in September 2020 when retail prices were substantially lower than current levels. Such hedging, based on financial year 2019 volumes, has recently been increased to reflect the following:

•     Gas - 100% until December 2022;

•     Electricity - 100% until March 2022, then 80% until September 2022, then 70% until March 2023, and then c.35% until December 2023.

The costs of the demerger from Electra and subsequent listing of the Company on the London Stock Exchange have been accounted for as an exceptional item.

The Group measured its business performance in 2021 on the FRS 102 approach to lease accounting which is consistent with prior years but does not include the impact of IFRS 16. On this basis, an Group adjusted EBITDA of £21.5m (2020: £1.5m profit) is reported which includes the impact of the pandemic measures highlighted above.

By including the impact of IFRS 16, the Adjusted EBITDA was £43.0m (2020: £23.5m profit). The basic loss per share is (0.5p) (2020: (14.8p)), and the adjusted basic earnings per share (being the loss after tax plus exceptional items) is 6.4p (2020: (14.8p)).

Cash Flow and Net Debt

Cash generated from operations was very strong at £31.6m, which also included the partial unwinding of trade creditors and HMRC obligations which had been deferred because of pandemic trading conditions.

To protect the business, capital expenditure was reduced throughout the year as the Group focused on rebuilding its balance sheet and cash reserves. New stores were limited to the development and opening of the 63rd+1st stores at Cobham, Glasgow and Harrogate and the Fridays store in Lincoln.

In advance of the listing date an amount of £13.1m was raised by way of an issuance of ordinary shares to Electra to fund costs incurred, both absolute and contingent, because of the listing process. The financial advisers' performance fee, due to the contingent nature of its value computation, has neither been accrued for nor paid at the reporting date and will not be payable due to the criteria thereof not being met.

The combination of strong trading and cash on hand at the beginning of the reporting period, enabled £20m of the previously drawn RCF facility to be repaid by the reporting date to reduce the gross interest cost to the Group.

Net debt (being cash and cash equivalents less borrowings from bank facilities excluding the unamortised portion of loan arrangement fees) has reduced from £28.6m to £12.2m which represents a Net Debt/Adjusted EBITDA ratio of 0.3 times. The group has a target leverage range of between 0.75x and 1.50x Adjusted EBITDA.

Under the terms of the facility agreement the Group had available cash and undrawn facilities of £42.2m at the year-end which was more than the minimum liquidity requirement of £10.0m.

The increase in liquidity headroom is intended to provide the Group with the ability to pursue opportunistic acquisitions which may become available in the year ahead.

Refinancing

On 8 July 2021 a subsidiary of the Company signed a new debt package with its principal lending banks to replace the existing term loan facility with a more appropriate combination of a £40m term loan and a £25m revolving credit facility ("RCF").

Both the term loan and the RCF were subsequently fully drawn down on 8 July 2021 to settle the expiring facility obligations.

The new agreement, using FRS102 reporting standards as a guide, includes financial covenants which are tested on a quarterly basis, including among others, that the Group total net debt to adjusted EBITDA, calculated according to FRS 102 guidelines, shall not exceed (i) 3.0 times between September 2022 and December 2022 and (ii) 2.5 times from March 2023.

The remaining debt is repayable in quarterly instalments of £500k for March 2022, increasing to £1.5m from June 2022. The balance is repayable in full on the termination date of 1 October 2023, subject to there being no further extension by another 12 months to 1 October 2024 by agreement with the lenders.

Formation and Listing

The creation of Hostmore plc had the primary purpose of enabling its parent, Electra, to realise value for its shareholders by disposing of its casual dining businesses in line with a previous publicly declared strategy.

For Hostmore plc, this was finally completed by the listing of the Company on the London Stock Exchange on 2 November 2021 with existing shareholders of Electra each receiving three Hostmore plc shares for every Electra share held immediately prior to the demerger.

The effect of the demerger resulted in the Fridays and 63rd+1st group of companies, now the major operating division of the Group, becoming wholly independent of Electra.

Hostmore plc is now well positioned to undertake a strategic process of expansion through both organic means as well as via the acquisition or creation of fledgling brands that operate within the wider hospitality sector.

Going Concern

The directors have adopted the going concern basis in preparing the Annual Report after assessing the Group's principal risks, primarily those attributable to the enduring Covid-19 virus which has had a significant impact on the hospitality sector. Consideration has been given to the possibility of future restrictions again being imposed, the impact that such restrictions may have on revenues using historical evidence, the more recent macro-economic and geopolitical factors that may change consumer demand, and the financing arrangements in place to mitigate negative cash flows.

The consideration by the directors included the assumptions made for the preparation of the underlying annual budget, as well as a more challenging stress case which assumes a reduction in consumer demand arising from the combination of events highlighted above and/or the social consequences on consumer demand arising therefrom.

In both the budget and the stress case, the Group has sufficient liquidity via its existing facilities to finance its operations for the next twelve months to the end of March 2023, including the requisite compliance of the Group with the banking covenants and the debt amortisation as they come due. Both models, beyond the period of assessment for going concern purposes, anticipate either the extension of the current facility agreement, as provided therein, beyond its current scheduled repayment date of 1 October 2023, or by concluding the refinancing of the debt prior to that date.

Accordingly, as the directors continue to adopt the going concern basis in preparing these accounts, they do not include any adjustments to the carrying amounts or classification of assets and liabilities that would result if the Group was unable to continue as a going concern.

Tax

The Tax credit for the year was £1.0m (2020: tax credit of £2.9m), summarised as follows:

                                                                                                                                                    2021                       2020

                                                                                                                                                   £'000                     £'000

               Corporation tax                                                                                                         (689)                       710

               Deferred tax                                                                                                             1,706                    2,168

               Total tax                                                                                                                    1,017                     2,878

The loss in the year has resulted in a tax credit, in addition to an adjustment to the tax charge in respect of prior years which relates to carrying back 2020 losses against the tax paid in relation to 2019 profits.

The deferred tax credit in FY21 includes recognition of the change in the corporation tax rate from 19% to 25% from 1 April 2023.

The amount of tax charged is lower than the UK corporation tax rate of 19% due to restrictions in the amount of interest that can be deducted and other costs not deductible for tax purposes.

IFRS 16

The Group has adopted IFRS 16 in its accounts in line with the format of presentation of its restated historic accounts for purposes of its listing on the London Stock Exchange. The Group, at that time, decided to adopt the standard with effect from 1 January 2019 to enable an appropriate level of comparability of the financial data presented within this report.

The impact of IFRS 16 is two-fold:

•     Firstly, to create a lease liability for rental costs and corresponding right of use asset in the balance sheet; and

•     Secondly, to remove the rental charge from the income statement and replace it with a depreciation charge in respect of the right of use asset and a finance charge in respect of the unwinding of the lease liability.

Key Performance Indicators

The Group uses several key performance indicators ("KPIs") to track the financial and operating performance of its business. These measures are derived from the Group's internal systems. Some of the KPIs are alternative performance measures ("APMs") that are not defined or recognised under IFRS. They may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for analysis of the Group's operating results as reported under IFRS. 

EBITDA & Adjusted EBITDA

Exceptional Items

Exceptional costs are those items that, by virtue of their unusual nature or size, warrant separate, additional disclosure in the financial statements to fully assess the performance of the Group. For the year ended 2 January 2022, these principally related to costs associated with the listing of the Company's ordinary shares on the London Stock Exchange. These costs principally comprised fees related to financial, legal, tax and accounting advice, consultancy fees, listing fees and separate audit costs relating to the listing.

Alan Clark
Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ending 2 January 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ending 2 January 2022

CONSOLIDATED STATEMENT OF CASH FLOWS