REG - Hostmore PLC - Final Results
28/04/2023 18:30
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RNS Number : 9595X Hostmore PLC 28 April 2023
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INDIRECTLY, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
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This announcement contains inside information for the purposes of Article 7 of
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law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of MAR
28 April 2023
Hostmore plc
AUDITED ANNUAL RESULTS, CURRENT TRADING,
COST REDUCTION PROGRAMME, CAPITAL ALLOCATION POLICY
AND NOTICE OF AGM
Hostmore plc ("Hostmore" or the "Company" and, together with its subsidiaries,
the "Group"), the hospitality business with brands including 'Fridays',
'63rd+1st' and 'Fridays and Go', is pleased to announce its audited annual
results for the 52 week period ended 1 January 2023 ("FY22") and to provide an
update on current trading, its cost reduction programme, and its capital
allocation policy.
Key financial highlights
· FY22 EBITDA of £31.1m (FY21 £34.5m)
· FY22 EBITDA FRS 102 of £11.3m (FY21 £13.0m)
· FY22 Free Cash Flow of £16.5m (FY21 £31.0m)
· FY22 Net Debt FRS 102 of £27.7m (FY21 £12.2m)
· Cost reduction exercise completed in Q1 2023, reducing
overheads by £1.8m on an annualised basis
· Covenants recently reset with lending banks at revised levels
to accord with the Group's business plan with an extended term to 1 January
2025
· Agreement with brand franchisor to defer all further new
store opening obligations until FY25, saving an estimated total £13m in
capital expenditure over the two years FY23 and FY24
· Total revenue FY22 £195.7m, 23% higher than FY21 of
£159.0m, with LFL sales revenue of £189.1m +22% increase from FY21 of
£155.0m
· Revenue in the first 16 weeks of FY23, adjusted for the
variance in VAT rate on food sales between FY22 and FY23, is 2% higher than in
2022
· Improving guest opinion scores and net promoter scores at TGI
Fridays resulting from renewed focus on guest experience
· Revised capital allocation policy to prioritise debt
repayment and shareholder distributions
Key operational highlights
Leadership
· In January 2023, Robert B. Cook, the Company's CEO decided to
step down. The Board is delighted that Julie McEwan, previously Chief
Operating Officer of the business, agreed to be our new Interim CEO.
Stable trading against a more challenging consumer backdrop
· Comparable like-for-like ("LFL") revenue up 22% compared to
FY21.
· Trading compared to FY21 stronger in the stadium (events led)
and major shopping centre (retail & entertainment) categories with the
north-east and north-west recording most improvement.
· Group EBITDA FRS 102 of £11.3m in comparison to £13.0m in
FY21 reflecting weaker consumer demand and inflationary pressures but offset
in part by cost mitigation activity and completion of landlord concession
agreements.
Focus on managing inflationary pressures
· Secured £2.3m of landlord concessions in FY22, comprising
waiver of past obligations and confirmation of incentives for extension of
leases on profitable stores.
· Successful hedging of the price of gas and electricity for
the duration of the FY22 period at prices determined in September 2020 when
retail prices were much lower than current levels. Since the middle of April
2023, a programme for entering into new hedges has been commenced with the
intention of having 75% of both gas and electricity forecast volumes hedged by
30 June 2023.
· Food and beverage input cost increases limited by leveraging
existing supplier relationships.
Cash and Debt financing
· Cash generation enabled the following during FY22:
(i) New restaurant openings and other fixed asset purchases
totalling £10.2m;
(ii) Payment of accrued listing costs from 2021 of £6.8m;
(iii) Settlement of pandemic period rent emanating from concessions
secured during the period of £2.3m; and
(iv) Payment of VAT deferred under the Government pandemic
incentives of £0.8m.
· Amendments to the Group's banking facilities assist in
implementing the Board's strategy.
· As a part of the customary year end process and as required
under Company Law, the Group prepared a base case forecast covering the next
fifteen months. The forecasts show that the Group has sufficient liquidity
from its restated facilities to finance its operations for the next fifteen
months to the end of July 2024, including the requisite compliance by the
Group with its banking covenants and debt amortisation as it comes due under
those facilities. The Directors are confident that the business will continue
to trade for a period of at least 15 months following the signing of these
financial statements and therefore that it is appropriate to prepare these
financial statements on a going concern basis.
· The audit report for the period ended 1 January 2023 contains
an emphasis of matter section relating to the Group's forecasts, highlighting
a material uncertainty under a severe but plausible downside scenario, where
the Group is forecast to breach two banking covenants within 12 months from
the date of approval of the financial statements. The audit report is not
qualified. Full detail of the going concern basis of preparation is provided
in note 4.1 to the attached non statutory financial statements.
Organic and new growth across the business
· Creation and launch of the Fridays and Go fast-casual dining
brand.
· Five new openings across our brands during FY22 in
Chelmsford, Barnsley, and Durham (TGI Fridays), Dundee (Fridays and Go) and
Edinburgh (63(rd)+1(st)).
Focus on improving customer and staff proposition
· Improved guest satisfaction scores - TGI Fridays' Guest
Opinion Score at December 2022: 74 (December 2021: 68) - arising from improved
quality of product and speed of service levels.
· Increased levels of staff rewards and a further investment in
training.
Trading Results
The Group's trading results for the 52 week period ended 1 January 2023 are
summarised below:
*Restated
52 weeks ended 53 weeks ended
1 January 2 January
2023 2022
Total revenue £195.7m £159.0m
Gross profit £150.6m £127.7m
Group EBITDA (note 1) £31.1m £34.5m
Group EBITDA FRS102 £11.3m £13.0m
(Loss)/profit from operations (£91.9m) £11.0m
Basic loss per share (77.8p) (1.3p)
Adjusted basic earnings per share (note 2) 3.6p 7.2p
Total assets £236.3m £349.0m
Total liabilities (£209.8m) (£225.0m)
Net debt (£176.3m) (£163.2m)
Net bank debt FRS102 (note 3) (£27.7m) (£12.2m)
Cashflows from operating activities £28.8m £29.7m
Net cash used in investing activities (£10.2m) (£4.1m)
Free cash flow (note 4) £16.5m £31.0m
Adjusted free cash flow (note 5) £23.3m £20.1m
Notes
1. Group EBITDA reflects the underlying trade of the overall
business. It is calculated as statutory operating (loss)/profit adjusted for
depreciation, net interest and bank arrangement fees, impairment,
amortisation, loss on disposal of fixed assets and share based charges.
2. Adjusted basic earnings per share represents the net profit
after tax before impairment and exceptional items, divided by shares in the
Company in issue.
3. Net bank debt FRS102 is borrowings from bank facilities,
excluding the unamortised portion of loan arrangement fees and leases, less
cash and cash equivalents.
4. Free cash flow reflects the cash generated from operations less
maintenance capital expenditures.
5. Adjusted free cash flow is free cash flow (note 4) adjusted for
£6.8m of cash payments relating to listing of the Company's shares in 2021
which were settled in 2022.
* Refer to note 5 to the financial statements. In the 53 week period ended 2
January 2022 exceptional costs have been increased by £965k from £8,121k to
£9,086k, reducing Group EBITDA and Group EBITDA FRS102 as previously
reported, respectively from £35.4m and £14.0m to £34.5m and £13.0m.
Impairments at 1 January 2023
· The Board has assessed the carrying value of the Group's
property, plant and equipment ("PPE") and right of use assets ("RoU assets"),
and goodwill at the period end by reference to the updated business plan and
the higher interest rates now prevailing. This exercise has resulted in
Hostmore recording impairments of £31.2m against PPE and RoU assets and an
impairment of £70.9m against goodwill.
· Neither of these adjustments have any impact on operational
cash performance of the Group which remains unaffected by these non-cash
charges.
· The goodwill impairment, by the nature of it being a
non-reversible one-off adjustment, has been accounted for as an exceptional
item while the PPE and RoU assets impairments may reverse to the credit of the
Group's earnings from increases in profitability.
Current Trading
· Revenue in the first 16 weeks of FY23, adjusted for the
variance in the VAT rate on food sales between FY22 and FY23, is 2% higher
than 2022.This reflects the impact of anticipated softer consumer demand which
has been offset by an improvement in the spend per head.
· The guest opinion scores for TGI Fridays improved further to
80 at March 2023 which represents the highest level in the past year.
· No new openings planned for FY23 or FY24 to facilitate debt
reduction.
· Net bank debt FRS 102 increased from £27.7m at 1 January
2023 to £32.2m in the 13 weeks since the period end in line with the
traditionally quieter trading period of the year. Net bank debt is expected to
remain at this level for the half year and is forecast to continue to peak at
quarter ends due to the timing of the quarterly payments of rent and VAT.
· Considering both the uncertain consumer demand and the
enduring inflationary environment, LFL revenue expectations for the first half
are forecast to be similar to the FY22 comparative period with improvement
thereafter due to the success of the revenue enhancing initiatives implemented
in Q1 2023 and an anticipated improvement in consumer sentiment.
· Our current year and future business operations are commented
on in detail in the Interim Chief Executive Officer's Statement.
Cost Reduction Programme
· The costs in the business had been increased in previous
years to facilitate a multi-brand platform, to support an increase in new
store openings, and as a result of the costs of becoming a publicly traded
company.
· The Company announces that it has completed an initial review
of the fixed cost base, which has resulted in £1.8m of annualised savings
being removed from the business, most of which is from central overheads.
The implementation of the reductions has utilised £0.3m of cash.
· Substantially all affected employees and service providers
relating to these reductions have now left the Group with cost reductions
commencing from 1 April 2023. Accordingly, the reductions are expected to
benefit FY 2023 results by approximately £1.2m, with the full annualised
saving to benefit FY 2024 results.
· The Board continues to review all opportunities to improve
the Group's financial results.
Capital Allocation Policy
· The Board has established a revised capital allocation policy
to prioritise debt repayment and shareholder distributions over new store
openings.
· The US-based franchisor of the TGI Fridays brand is
supportive of the Group and has deferred the requirement for new TGI Fridays
store openings under the development agreement for FY 2023 and 2024 to FY2025
and 2026. It is now the Company's expectation that no new store openings
will occur until at least FY 2025, which is estimated will save the Group
approximately £15m in cash over the period. This is planned to be
substantially used in repayment of the Group's loans and borrowings.
Gavin Manson, Chairman, commented:
"Hostmore's first full year of being an independent listed company has been
challenging for the economy and consumers - and for the Company.
The impact on consumer confidence of the rapidly increasing inflationary
pressures arising from the Russian invasion of Ukraine in February 2022
changed the nature of the market in which we are operating. We have adapted
our marketing and capital allocation policy to these new circumstances and are
now firmly focused on delivering improved performance from our core TGI
Fridays estate; not undertaking new site openings for our brands in FY23 and
FY24; and continuing our cost reduction and debt repayment.
In January 2023, Robert B. Cook, who as CEO of TGI Fridays from late 2019 had
seen us through Covid-19 when many other businesses had failed, decided, with
the Board's approval, to step down. Earlier in 2022, Robert had recruited
Julie McEwan as Chief Operating Officer and the Board is delighted that Julie
has agreed to become our Interim CEO. Whilst conducting an external search, we
are also working with Julie to give her every opportunity to build on the
extremely encouraging start she has made as Interim CEO.
The Board has every confidence in its brands, its products and its people."
Results webcast
Stephen Welker, Chairman-Designate, Julie McEwan, Interim Chief Executive
Officer, and Alan Clark, Chief Financial Officer, will be hosting a webcast
with a live Q&A for investors and analysts at 10:00am on Tuesday 2 May
2023.
Please email Hostmore@dentonsglobaladvisors.com
(mailto:Hostmore@dentonsglobaladvisors.com) or call 020 7664 5095 to receive
the details.
The attached abridged financial statements are not the Company's statutory
accounts. All statutory accounts of the Company in previous years had
unqualified audit reports and have been delivered to the registrar of
companies. As referred to above, in the Group's base case forecasts, the Group
has sufficient liquidity from its restated facilities to finance its
operations for the next fifteen months to the end of July 2024, including the
requisite compliance by the Group with its banking covenants and debt
amortisation as it comes due under those facilities. The Directors are
confident that the business will continue to trade for a period of at least 15
months following the signing of these financial statements and therefore that
it is appropriate to prepare the financial statements on a going concern
basis. The audit report for the period ended 1 January 2023 contains an
emphasis of matter section relating to the Group's forecasts, highlighting a
material uncertainty under a severe but plausible downside scenario, where the
Group is forecast to breach two banking covenants within 12 months from the
date of approval of the financial statements. The audit report is not
qualified. Full detail of the going concern basis of preparation is provided
in note 4.1 to the attached non-statutory financial statements.
Hostmore has also published the following documents:
· Annual Report and Financial Statements for the 52 week period ended 1
January 2023 (the "Annual Report and Financial Statements 2022").
· Notice of 2023 Annual General Meeting (the "Notice of AGM").
In accordance with Listing Rule 9.6.1, a copy of each of these documents has
been uploaded to the National Storage Mechanism and will be available for
viewing shortly at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
The Annual Report and Financial Statements 2022 and the Notice of AGM are also
available on the Company's website:
https://www.hostmoregroup.com/results-reports-presentations
(https://www.hostmoregroup.com/results-reports-presentations)
The 2023 Annual General Meeting of the Company (the 'AGM') will be held on
Wednesday 7 June 2023 at 12.00 p.m. at the offices of finnCap Limited, One
Bartholomew Close, London, EC1A 7BL. Full details of the AGM (including how to
participate in the AGM) and the resolutions that will be put to shareholders
are set out in the Notice of AGM. On 26 January 2023, the Company announced
that Gavin Manson would retire as Chairman of the Company at the end of the
2023 AGM, which was proposed to be held on 25 May 2023. As the AGM is now to
be held on 7 June 2023, Gavin Manson will retire as Chairman of the Company at
the end of the 2023 AGM on 7 June 2023 and Stephen Welker will succeed Gavin
as Chairman at that time.
In conformity with DTR 6.3.5(1A), the regulated information required under DTR
6.3.5 is available in unedited full text within the Annual Report and
Financial Statements 2022 as uploaded and available on the National Storage
Mechanism and on the Company's website as noted above.
ENDS
Enquiries
Hostmore plc
Gavin Manson,
Chairman
Tel: +44 (0)330 460 5588
Alan Clark, Chief Financial
Officer
Email: enquiries@hostmoregroup.com
Dentons Global Advisors
Jonathon Brill, James
Styles
Tel: +44 (0)20 7664 5095
Email: Hostmore@dentonsglobaladvisors.com
INTERIM CHIEF EXECUTIVE'S STATEMENT
Reflections on 2022
The early part of 2022 showed that the 'whiplash of COVID-19' was still
evident across the hospitality sector and in our business, as the challenges
continued. In addition to the COVID-19 disruption, we faced the adverse
effects on our sector of the Russian invasion of Ukraine, the cost-of-living
crisis, heightened inflationary pressures and various industrial strikes.
Whilst we faced these headwinds, our high-quality brands were robustly placed
to navigate through the economic uncertainty and dynamically shift to reflect
changes in customer behaviour.
The Omicron variant of COVID-19 in the early part of 2022 saw stadium events
cancelled which adversely affected our restaurants in these areas and city
centre trade was affected as customers continued to work from home. Our
like-for-like revenue improved significantly on the prior year and we
proactively managed inflationary pressures with landlord concessions, the
hedging of utilities and the mitigation of food and beverage costs by
leveraging supplier relations.
Strategy
Our 4D strategy is focused on the development of our hospitality brands,
underpinned by quality, relevance, and simplicity. At the heart of this is a
customer-centric approach which aims to deliver memorable experiences through
'Dine-in', 'Delivery' and 'Drive To', enhanced by harnessing 'Digital'
journeys and the data these provide as a key enabler across all our customer-
facing channels.
Our 'Dine-In' experience is our primary focus for 2023, remaining as it does
at the heart of the TGI Fridays, Fridays and Go and 63rd+1st experience. We
deliver it with pride.
The TGI Fridays iconic brand is associated with the original 'corner bar', a
place in the local community to 'drop in and catch up' with friends, where one
feels welcome and can step into a place of fun and warmth and where delicious
food and drinks can be enjoyed. Given that TGI Fridays is famous for great
food, it is pleasing that the investment in our menu and service improvements
has delivered a positive impact on the overall guest experiences as evidenced
by our guests' feedback. We have sought to achieve this whilst maintaining
pricing discipline, particularly given the pressures on our customers'
disposal income. To complement our offering and widen our appeal to new
audiences, we have implemented our 'Raising the Bar' strategy in 2023. This
seeks to build on TGI Fridays' heritage and values by introducing fun and
innovative offers and concepts, such as the TGI Fridays Cocktail Masterclasses
and new celebration packages. These will showcase the very best of our brand.
Delivery remains an important channel to our customers. In Q3 2022, we signed
a contract with Uber Eats to enable our products to be ordered via their
platform. This is in addition to the existing relationships we have with
Deliveroo and JustEat. We believe our relationships with our delivery partners
are stronger going into 2023 after a root and branch overhaul of the way in
which we implement delivery. We now have dedicated leadership and assigned
manpower, already improving our metrics and, ultimately, our delivery offer to
our customers.
In terms of the 'Drive to' component of our strategy, we created our quick
service restaurant offering, Fridays and Go, and opened our first restaurant
under this brand. This is an exciting new proposition in trial stage, with the
potential to offer valuable diversification of future growth and brand
development.
Digital transformation
A significant digital transformation is underway across the business,
particularly at our TGI Fridays brand. This is underpinned by an omnichannel
approach heading towards a single customer view that informs, enhances, and
grows our customer proposition. Accompanied with highly focused marketing
activity around our refreshed TGI Friday's brand, leveraging existing heritage
and loyalty with our customers, will consolidate the brand and the TGI
Friday's experience more effectively.
Considering the ongoing trading pressures, securing consumer spend is
increasingly challenging. By taking a data-led approach, we are seeking to
enhance the guest experience, optimise marketing, and leverage the power of
digital to establish a competitive advantage. I look forward to reporting back
during the current financial year on the progress of the digital
transformation programme.
Employees
It is important that I pay tribute to our dedicated and passionate teams in
our restaurants, particularly our General Managers, for their continued focus
and resilience in the challenges they have faced throughout the year. Their
professionalism, focus and engagement throughout the period has been obvious
and we are extremely proud of their efforts. During 2022, our subsidiary that
employs almost the whole of the Group's workforce, partnered with Great Place
to Work on an engagement survey. The survey consisted of 60 questions focused
on the employee/manager relationship, culture and values and an overall view
of the business performance. Following completion of this, and reflecting the
positive feedback provided in the survey, the company was accredited with
being a "Great Place to Work", a major accolade for the Group as a whole.
We are well positioned with our continuous investment in attracting,
developing, and retaining great talent across our brands, which is critical to
our overall future success. We launched our new Learning Management System for
all employees in 2022. In addition, Q3 2022 saw the launch of our Aspire High
Potential Development programme, which seeks to develop leading talent for the
next level in our business. The first pool of Operations Managers and General
Managers who have been participating in the programme are due to graduate in
April 2023. We are delighted to report that three out of the eight individuals
in this pool have already been promoted within the organisation. The second
pool of candidates embarked on the programme in April 2023.
We have also been delivering intensive bar training which has resulted in us
certifying over 200 individuals as being Master Bartenders. These individuals
stand ready to assist us in successfully delivering our 2023 "Raising the Bar"
strategy.
We remain committed to building a leaner and more focused organisation. Cost
base efficiencies have been achieved for 2023, with both our operations teams
and support centre having been restructured over the course of Q4 2022 and Q1
2023
Guest feedback
As we entered the final quarter of 2022 and the economic turbulence continued,
trading remained challenging. Guest sentiment however was extremely positive
in respect of TGI Fridays. Our Net Promoter Score for TGI Fridays ended the
year at 30 which is on the boundary of "Good" and "Great" (FY21: 18). We also
exited the year with a Trip Advisor score for TGI Fridays of 4.5 out of 5
(having been at 3.6 out of 5 at the end of 2021), with customers notably
scoring TGI Fridays highly on 'value for money' and indicating that our
promotions were well received. We cater for the fact that our guests are
looking for more experiential occasions, as well as personalisation, while
they keep an eye on costs and continue to expect value for their money.
Supply chain
In 2022, securing quality and reliable food supplies at economic prices was
more challenging, following the re-opening of global trade as the effects of
COVID-19 lessened. In addition, we have had to contend with the conflict in
Ukraine affecting energy supply and driving increased costs in manufacturing
and logistics, as well as shortages of key commodity crops driven by the war.
The result of these challenges culminated in food product inflation across our
sector of +24% relative to FY21 (Prestige Purchasing 2022 Foodservice
Inflation Model, published Jan 2023).
Despite these challenging conditions, the Group's procurement team worked
closely with our key partners to develop and implement strategies to limit the
impact of inflation, whilst ensuring quality was not compromised. Where
possible we secured additional stock ahead of rising costs, reduced our
product range where beneficial and expanded the country of origin or source to
benefit from more competitive prices. The result of these multiple strategies
was to exit 2022 with food product inflation of just +9% relative to FY21
prices. The value of these mitigation strategies against the market norm of
+24% delivered a saving of £5m to the Group.
In 2022, we also engaged with a new beef processor and developed a partnership
with Red Tractor, an assurance scheme ensuring the beef we use in our burgers
is of a high standard, responsibly sourced and fully traceable. As a
consequence, a new burger was introduced on our menus in February 2023,
reflecting these attributes.
The 2022 drinks market was not as volatile as food, with drink inflation at
+4% in 2022. To reduce the risks of supply chain challenges, we secured a
contract with a UK-based spirits manufacturer in November 2022. Moving to a
UK-based manufacturer for our key spirits reduced the risks related to long
lead times for the supply of products and high shipping costs, as well as
removing the administration burden of HMRC compliance on alcohol consignments
when they are shipped into the UK. We continue to experience increased costs
associated with beer, cider, wine, and soft drinks production. Inflation on
drinks products for 2023 has been forecasted to continue and we are working
closely with our partners to seek ways to minimise this exposure.
New restaurant openings and closures
Our plan for the development of TGI Fridays continued as we delivered three
new restaurant openings during 2022. We also opened our first restaurant under
our new quick service offering brand, Fridays and Go, in Dundee. In addition,
we opened a new 63rd+1st restaurant in Edinburgh. In 2022, we closed our TGI
Fridays restaurants in Covent Garden and Guildford and our 63rd+1st restaurant
in Harrogate. These restaurants were not generating the returns on investment
which we expected and removing them from the estate was therefore a positive
development.
Looking ahead, we are taking a prudent approach bearing in mind the current UK
economic environment and not undertaking any new restaurant openings in the
near term.
Conclusion
As our business continues to ride the economic headwinds that the sector is
experiencing, our dedication to our brand values remains. This dedication,
coupled with our innovative digital strategy, will make our guests' experience
as compelling as ever. This continues to inspire our teams across all venues
and disciplines, who are such an important element of our success. "A world of
more" perfectly captures this approach for 2023 and beyond.
Julie McEwan
28 April 2023
Calculation of key performance indicators and alternative performance measures
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. The
following information on the KPIs includes reconciliations to the nearest IFRS
measures where relevant.
Sales
Like-for-like ("LFL") sales measure the performance of the Group on a
consistent year-on-year basis. The table below includes sites that were open
for all of 2021 for comparability and separately includes sites opened since
2021 or subsequently disposed of.
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
LFL sales 189,087 154,987
Additions since January 2021 6,422 2,516
Disposals since January 2021 359 1,129
Deferred revenue provisions (148) 362
Total 195,720 158,994
EBITDA
EBITDA is Group's earnings before interest and bank arrangement fees, tax,
depreciation, amortisation, impairment and share based payment charges.
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Loss before tax (104,345) (2,549)
Depreciation 20,339 22,339
Net interest and bank arrangement fees 12,478 13,597
Net impairment of property, plant and equipment and right of use assets 31,179 1,019
Impairment of goodwill 70,858 -
Share based payment charge 581 78
EBITDA 31,090 34,484
* Refer to note 5 to the financial statements. In the 53 week period ended 2
January 2022 exceptional costs have been increased by £965k from £8,121k to
£9,086k, increasing the loss before tax as previously reported from £1,584k
to £2,549k.
EBITDA FRS102
EBITDA FRS102 is Group's earnings calculated in accordance with IFRS16,
adjusted for rent paid to lessors and rent received from subleases.
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Loss before tax (104,345) (2,549)
Depreciation 20,339 22,339
Net interest and bank arrangement fees 12,478 13,597
Net impairment of property, plant and equipment and right of use assets 31,179 1,019
Impairment of goodwill 70,858 -
Share based payment charge 581 78
EBITDA IFRS16 31,090 34,484
Less: Rent paid (19,931) (21,669)
Add: Sublease income 101 231
EBITDA FRS102 11,260 13,046
* Refer to note 5 to the financial statements. In the 53 week period ended 2
January 2022 exceptional costs have been increased by £965k from £8,121k to
£9,086k, decreasing EBITDA (IFRS16) from £35,449k to £34,484k and
decreasing EBITDA (pre-IFRS16) from £14,011k to £13,046.
Free cash flow
Free cash flow is the cashflow from operating activities for the period,
adjusted for working capital movements, rental income from sub-leases,
corporation tax and maintenance capex.
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Cashflow from operating activities 28,800 29,658
Change in working capital (8,070) 1,931
Rental income from subleases 105 337
Corporation taxes (paid)/recovered (857) 978
Cash generated from operations 19,978 32,904
Maintenance capex (3,496) (1,929)
Free cash flow 16,482 30,975
* Refer to note 5 to the financial statements. In the 53 week period ended 2
January 2022 exceptional costs have been increased by £965k from £8,121k to
£9,086k, reducing cashflow from operating activities as previously reported
of £30,623k to £29,658k.
Net debt
Net debt, calculated in accordance with IFRS16, is the Group's long-term
borrowings (excluding issue costs) and lease liabilities less cash and cash
equivalents at each period end.
1 January 2 January
2023 2022
£'000 £'000
Gross bank loans and borrowings (36,800) (44,299)
Lease liabilities (148,555) (150,994)
Cash & cash equivalents 9,091 32,080
Net debt (176,264) (163,213)
% Cash conversion
% Cash conversion is calculated as free cash flow divided by EBITDA IFRS16.
1 January 2 January
2023 2022
£'000 £'000
Free cash flow 16,482 30,975
EBITDA IFRS16 31,090 34,484
% Cash conversion 53% 90%
Refer to note 5 to the financial statements. In the 53 week period ended 2
January 2022 exceptional costs have been increased by £965k from £8,121k to
£9,086k, decreasing EBITDA as previously reported from £35,449k to
£34,484k.
Return on capital employed (ROCE)
ROCE is calculated as EBITDA IFRS16 divided by total assets less current
liabilities.
1 January 2 January
2023 2022
£'000 £'000
EBITDA IFRS16 31,090 34,484
Total assets less current liabilities 188,113 292,367
ROCE 17% 12%
Refer to note 5 to the financial statements. In the 53 week period ended 2
January 2022 exceptional costs have been increased by £965k from £8,121k to
£9,086k, decreasing both EBITDA as previously reported from £35,449k to
£34,484k and total assets less current liabilities from £293,332k to
£292,367k.
Consolidated statement of comprehensive income for the 52 week period ended 1
January 2023
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Note
Revenue 195,720 158,994
Cost of sales (45,103) (31,256)
Gross profit 150,617 127,738
Underlying administrative expenses (141,152) (121,773)
Exceptional items* 6 (70,858) (9,086)
Administrative expenses 5 (212,010) (130,859)
Impairment reversal of property, plant and equipment and
right of use assets 10, 11 5,712 -
Impairment of property, plant and equipment and right of
use assets** 10, 11 (36,891) (1,019)
Other operating income 705 15,188
(Loss)/profit from operations (91,867) 11,048
Finance income 7 78 6
Finance expense 7 (12,556) (13,603)
Loss before tax (104,345) (2,549)
Tax credit 8 6,801 1,017
Loss for the period (97,544) (1,532)
Total comprehensive expense (97,544) (1,532)
* Refer to note 5 for further details.
** In prior periods, impairment of property, plant and equipment and right of
use assets were disclosed as part of administrative expenses but are now
disclosed separately to provide greater analysis of trading operations.
All operations are continuing operations.
There are no amounts recognised within other comprehensive income in the
current or prior period.
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
(Loss)/earnings per share in pence Note
Basic loss per share* 9 (77.8) (1.3)
Diluted loss per share* 9 (77.8) (1.3)
Adjusted basic earnings per share 9 3.6 7.2
Adjusted diluted earnings per share 9 3.6 7.2
* Refer to note 5 for further details.
Adjusted basic and diluted earnings per share excludes impairments and
exceptional items
Consolidated statement of financial position at 1 January 2023
* Restated
1 January 2 January
2023 2022
£'000 £'000
Note
Assets
Non-current assets
Property, plant and equipment 10 36,140 42,781
Right of use assets 11 94,568 116,388
Goodwill 12 75,121 145,979
Net investment in subleases 95 106
Deferred tax assets 8 12,801 6,192
Total non-current assets 218,725 311,446
Current assets
Inventories 1,464 1,489
Trade and other receivables* 6,285 3,870
Current tax assets 740 -
Net investment in subleases 12 98
Cash and cash equivalents 9,091 32,080
Total current assets 17,592 37,537
Total assets 236,317 348,983
Liabilities
Non-current liabilities
Loans and borrowings 13 23,146 33,931
Lease liabilities 133,261 131,980
Provisions 5,143 2,430
Total non-current liabilities 161,550 168,341
Current liabilities
Trade and other payables* 18,136 26,033
Contract liabilities 1,004 1,024
Current tax liabilities - 309
Loans and borrowings 13 13,295 9,491
Lease liabilities 15,294 19,014
Provisions 475 745
Total current liabilities 48,204 56,616
Total liabilities 209,754 224,957
Net current liabilities (30,612) (19,079)
Net assets 26,563 124,026
* Refer to note 5 for further details.
Consolidated statement of financial position at 1 January 2023 continued
* Restated
1 January 2 January
2023 2022
£'000 £'000
Issued capital and reserves attributable to owners of the Company
Share capital 25,225 25,225
Share premium reserve 14,583 14,583
Merger reserve (181,180) (181,180)
Share based payment reserve 634 53
Retained earnings* 167,301 265,345
Total equity 26,563 124,026
* Refer to note 5 for further details.
Consolidated statement of changes in equity for the 52 week period ended 1
January 2023
Share premium reserve Share based
Share capital £'000 Merger reserve payment reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
At 28 December 2020 - - - 4,054 (30,646) (26,592)
Comprehensive expense for the period
Loss for the period - - - - (567) (567)
Total comprehensive expense for the period
- - - - (567) (567)
Correction of error* - - - - (965) (965)
Total comprehensive
expense for the period (restated) - - - - (1,532) (1,532)
Contributions by and distributions to owners
Issue of share capital 1,518 11,624 - - - 13,142
Acquisition of subsidiaries by Hostmore 20,477 144,278 (164,755) - - -
Transfer of share capital of a subsidiary to Hostmore
138,930 - - - - 138,930
Capital reduction in a subsidiary (137,541) - - - 137,541 -
Share issue proceeds extinguishing shareholder loan
1,841 14,584 (16,425) - - -
Cancellation of share premium - (155,903) - - 155,903 -
Reclassification of share based reserve to retained earnings on lapse of share
incentives
- - - (4,079) 4,079 -
Share based payment charge - - - 78 - 78
Total contributions by and distributions to owners
25,225 14,583 (181,180) (4,001) 297,523 152,150
At 2 January 2022 (restated)* 25,225 14,583 (181,180) 53 265,345 124,026
* Refer to note 5 for further details.
Share premium reserve Share based
Share capital £'000 Merger reserve payment reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
At 3 January 2022 (restated) 25,225 14,583 (181,180) 53 265,345 124,026
Comprehensive expense for the period
Loss for the period - - - - (97,544) (97,544)
Total comprehensive expense for the period
- - - - (97,544) (97,544)
Contributions by and distributions to owners
Share purchases by EBT - - - - (500) (500)
Share based payment charge - - - 581 - 581
Total contributions by and distributions to owners
- - - 581 (500) 81
At 1 January 2023 25,225 14,583 (181,180) 634 167,301 26,563
Consolidated statement of cash flows for the 52 week period ended 1 January
2023
* Restated
52 weeks 53 weeks
ended ended
1 January 2 January
2023 2022
Note £'000 £'000
Cash flows from operating activities* 14 28,800 29,658
Movements in working capital:
(Increase)/decrease in trade and other receivables (2,415) 2,711
Decrease/(increase) in inventories 25 (787)
(Decrease)/increase in trade and other payables* (8,071) 163
Increase/(decrease) in provisions and employee benefits 2,391 (156)
Cash generated from operations 20,730 31,589
Corporation taxes (paid)/recovered (857) 978
Rental income from finance subleases 105 337
Net cash from operating activities 19,978 32,904
Cash flows from investing activities
Purchases of property, plant and equipment (10,311) (4,075)
Interest received 70 -
Net cash used in investing activities (10,241) (4,075)
Cash flows from financing activities
Repayment of bank borrowings (18,000) (26,500)
Payment of loan arrangement fees - (816)
Receipt of bank borrowings 10,500 5,000
Interest paid on bank borrowings (2,291) (1,751)
Proceeds from share issue - 13,094
Share purchases by EBT (500) -
Payment of lease liabilities (22,435) (22,977)
Net cash used in financing activities (32,726) (33,950)
Net cash decrease in cash and cash equivalents (22,989) (5,121)
Cash and cash equivalents at the beginning of period 32,080 37,201
Cash and cash equivalents at the end of the period 9,091 32,080
• Refer to note 5 for further details.
Notes to the consolidated financial statements for the 52 weeks ended 1
January 2023
1. Reporting entity
Hostmore plc (the 'Company') is a public limited company incorporated and
domiciled in the United Kingdom. The Company's registered office is at
Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH and the Company's
registered number is 13334853. These consolidated financial statements
comprise the Company and its subsidiaries (collectively the 'Group' and
individually 'Group companies'). The Group is primarily involved in the
development and operation of branded restaurants and bars and ancillary
activities.
2. Basis of preparation
The Group's consolidated financial statements have been prepared in accordance
with UK-adopted International Accounting Standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards.
On 31 December 2020 EU-adopted IFRS was brought into UK law and became
UK-adopted international accounting standards, with future changes to IFRS
being subject to endorsement by the UK Endorsement Board. The consolidated
financial statements transitioned to UK-adopted international accounting
standards with effect from 3 January 2022.
The Group reports its results for the 52 week or 53 week period ending on the
nearest Sunday to 31 December. The results for 2022 are for the 52 weeks that
ended 1 January 2023 and those for 2021 are for 53 weeks ended 2 January 2022.
Details of the Group's accounting policies are included in the Hostmore plc
Annual Report for the period ended 1 January 2023.
In preparing these financial statements, management has made judgements,
estimates and assumptions that affect the application of the Group accounting
policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to estimates are
recognised prospectively.
3. Functional and presentation currency
These consolidated financial statements are presented in pounds sterling,
which is the Group's functional currency. All amounts have been rounded to the
nearest thousand pounds ("£'000"), unless otherwise indicated.
4. Selected accounting policies
4.1 Going concern
The financial statements have been prepared on a going concern basis. The
impact on consumer confidence of the rapidly increasing inflationary pressures
arising from the Russian invasion of Ukraine in February 2022, together with
increases in interest rates, adversely affected the nature of the market in
which the Group operates. Having started 2022 well, Hostmore's market became
more challenging during the year in terms of gaining new customers, despite a
continuing improvement in product quality. The Board responded proactively to
these changes. The Group's capital allocation policy was re-set to focus
primarily on delivering improved performance from the core TGI Fridays estate,
with substantial improvements to marketing, operating effectiveness, and site
management. The Board also negotiated an amendment to the development
agreement with the brand's US franchisor, resulting in no new site openings
being required during the two years ending 31 December 2023 and 31 December
2024. These actions will result in an immediate improvement in net cash
generation by the Group. These actions have also been complemented by a major
cost reduction programme and resultant debt repayment programme, all of which
are reflected in the Group's forecasts for FY 2023 and 2024.
The Group has prepared forecasts of the expected position for the next 15
months from the date of approval of these financial statements, which includes
a severe but plausible downside scenario. Due to an anticipated breach of
covenants at the end of March 2023, the banking facilities available to the
Group and the Company have been revised. These changes involve an extension of
the term from 1 October 2024 to 1 January 2025, a reduction in the size of the
revolving credit facility by £8.5m, a reduction in the minimum liquidity
required to be maintained by the Group by £11.0m, as well as revised adjusted
leverage and EBITDA requirements and a new covenant of monthly EBITDA
performance, referred to in more detail in note 13. The restated facility also
waives the previous fixed charge cover covenant. Under the restated facility,
the Group will provide increased quarterly reporting to the banks,
confirmation that no new restaurant openings will be actioned during the term
of the facility in line with the amended development agreement with the
brand's franchisor (resulting in no new site openings being required during
the two years ending 31 December 2024 ensures that capital expenditure has
been further reduced), and confirmation that the Group will seek to refinance
the bank facility during 2023 with this being internally scheduled to be
undertaken during the third quarter of 2023. Having already successfully
implemented a range of revenue initiatives and a substantial reduction in
central costs, the Board is confident that these actions will create the basis
for an improvement in cash generation as the trading environment improves.
The severe but plausible downside scenario assesses the position in a severely
depressed trading environment and worsening of performance by the Group's
restaurants, with limited recovery in the second half of 2023 from the factors
that affected performance in 2022 and the first four months of 2023. This
includes, amongst other assumptions, a reduction in covers on the prior year
regardless of the opening of five new restaurants in FY22, and a materially
slower growth expectation from the restaurants opened in FY22. These scenarios
are based on the business plan of the Group but apply a downturn in trading of
its restaurants for the remainder of 2023 and into 2024, with a worsening
profit conversion and cash generation of the Group. As a result, they also
model the impact this would have on the covenant calculations of the Group.
In the Group's forecasts, the Group has sufficient liquidity from its restated
facilities to finance its operations for the next fifteen months to the end of
July 2024, including the requisite compliance by the Group with its banking
covenants and debt amortisation as it comes due under those facilities. In the
severe but plausible downside case, the Group has forecast a potential
covenant breach in the third quarter of 2023 and a restricted liquidity
position in the first quarter of 2024. In such a downside scenario without
corrective action by the Board, or the ongoing support of the lending banks,
there would be a breach of covenants resulting in the loans being repayable on
demand, creating a material uncertainty about the Group's and the Company's
ability to continue as a going concern. This in turn would affect the ability
of the Group and the Company to continue realising its assets and discharging
its liabilities in the normal course of business.
The Directors are confident that the business will continue to trade for a
period of at least 15 months following the signing of these financial
statements and therefore that it is appropriate to prepare these financial
statements on a going concern basis. The Directors have continued to adopt the
going concern basis in preparing these financial statements, and the financial
statements do not include 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.
4.2 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as
established at the date of acquisition of the business less accumulated
impairment losses, if any.
Goodwill does not generate cash flows independently of other assets or groups
of assets and is required to be allocated to each cash generating unit ("CGU")
or group of CGUs that benefits from the business combination that gave rise to
the goodwill. The Group does not allocate goodwill to individual CGUs as it is
deemed to represent the ongoing value of the existing business and brand and
it cannot be allocated to individual restaurants on a non-arbitrary basis.
Therefore, the goodwill is allocated to all CGUs as a group. Consequently, the
Group tests all CGUs for impairment at each reporting date on a value-in-use
basis and where a CGU is considered impaired, its carrying value is reduced to
its recoverable amount. The impairment loss is allocated pro-rata between the
assets of the CGU on the basis of the carrying amount of each asset. After
this initial allocation of impairment losses, if the combined carrying amount
of the CGUs and goodwill is higher than the recoverable amount of the group of
all CGUs, the residual impairment losses are allocated to goodwill.
4.3 The Group as a lessee
The principal leasing activity of the Group is the leasing of property for the
operation of restaurants.
· A lease liability is measured at the present value discounted using
an appropriate incremental borrowing rate for each lease depending on the
remaining lease term ranging from 2.55% for leases with shorter terms to 7.5%
for leases with longer terms. Payments included in initial measurement are all
fixed payments. Any variable payments that are based on an index or a rate,
are initially measured using the index or rate at the commencement date.
· A right-of-use (RoU) asset is measured at an amount equal to the
lease liability, adjusted by any prepaid or accrued lease payments, and net of
any dilapidations and onerous lease provisions.
· The Group does not recognise leases with remaining term of 12 months
or less or where the underlying asset is considered of low value.
Subsequent to initial measurement, lease liabilities are reduced for lease
payments made and increase as a result of interest charged at a constant rate
on the balance outstanding. Where lease payments depend on an index, any
changes in future lease payments resulting from a change in the index lead to
a re-assessment of the lease liability using a revised discount rate. RoU
assets are amortised on a straight-line basis over the remaining term of the
lease.
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to be made over the revised term, which are discounted
at a revised discount rate. An equivalent adjustment is made to the carrying
value of the RoU asset, with the revised carrying amount being amortised over
the remaining revised lease term.
4.4 Impairment of tangible and intangible assets other than goodwill
At each reporting date, the Group assesses whether an item of property, plant
and equipment is impaired. Each restaurant is considered to be a separate CGU
of property, plant and equipment. The Group tests all CGUs for impairment at
each reporting date on a value-in-use basis and where a CGU is considered
impaired, its carrying value is reduced to its recoverable amount. The
impairment loss is allocated pro-rata between the assets of the CGU on the
basis of the carrying amount of each asset.
Where there is an indication that an impairment loss recognised in prior
periods for an asset other than goodwill no longer exists, the impairment loss
is reversed and credited to the consolidated statement of comprehensive
income. The reversal is allocated to the CGU's assets on a pro-rata basis. The
carrying amount of an individual asset is not increased above the higher of
its recoverable amount or its historical depreciated cost.
5. Prior period restatement
The Company has restated prior period administrative expenses (exceptional
costs) associated with the listing of the Company's ordinary shares on the
London Stock Exchange, by increasing this amount by £965k within
administrative expenses. The restatement was due to a late invoice not being
accrued for at the prior period end. Additionally, other receivables of
£1,709k relating to VAT on property rent demands have been reclassified, of
these £937k remained unpaid and have therefore been reclassified as a
deduction to trade payables. The paid proportion of £772k that will be
settled with the VAT payable, has been reclassified as a deduction to tax and
social security. In the prior period, impairments of property, plant and
equipment and right of use assets were disclosed as part of administrative
expenses, with these now being disclosed separately for clarity of disclosure,
constituting only a change in presentation.
This reclassification has no effect on net assets of the Group at 2 January
2022. The under accrual and reclassification has been corrected by restating
each of the affected financial statement line items for the prior period as
follows:
Previously reported 53 weeks
ended 2 January * Restated
2022 53 weeks
£'000 Inclusion of ended 2 January
under accrual 2022
Consolidated statement of comprehensive income (extract) £'000 £'000
Administrative expenses (excluding impairment of property, plant and equipment
and right of use assets)
(129,894) (965) (130,859)
Impairment of property, plant and equipment and right of use assets (1,019) - (1,019)
Administrative expenses (including impairment of property, plant and equipment
and right of use assets)
(130,913) (965) (131,878)
Profit from operations 12,013 (965) 11,048
Finance income 6 - 6
Finance expense (13,603) - (13,603)
Loss before tax (1,584) (965) (2,549)
Tax credit 1,017 - 1,017
Loss for the period (567) (965) (1,532)
Previously reported 53 weeks
ended 2 January * Restated
2022 53 weeks
£'000 Inclusion of ended 2 January
under accrual 2022
Consolidated statement of comprehensive income (extract) £'000 £'000
Basic loss per share (pence) (0.5) (0.8) (1.3)
Previously reported 2 January Inclusion of other receivables reclassification
2022 Inclusion of £'000 * Restated
£'000 under accrual 2 January
£'000 2022
Consolidated statement of financial position (extract) £'000
Trade and other receivables 5,579 - (1,709) 3,870
Total current assets 39,246 - (1,709) 37,537
Total assets 350,692 - (1,709) 348,983
Trade and other payables 26,777 965 (1,709) 26,033
Total current liabilities 57,360 965 (1,709) 56,616
Total liabilities 225,701 965 (1,709) 224,957
Net current liabilities (18,114) (965) - (19,079)
Net assets 124,991 (965) - 124,026
Previously reported 53 weeks
ended 2 January * Restated
2022
£'000
Inclusion of other receivables reclassification 53 weeks
Inclusion of £'000 ended 2 January
under accrual 2022
£'000 £'000
Consolidated statement of cash flows (extract)
Cash flows from operating activities 30,623 (965) - 29,658
Movement in working capital
Decrease in trade and other receivables 1,002 - 1,709 2,711
Increase in trade and other payables 907 965 (1,709) 163
6. Exceptional items
Exceptional items are those items that, by virtue of their unusual nature or
size, warrant separate, additional disclosure in the financial statements to
fairly assess the underlying performance of the Group.
Included within the (loss)/profit from operations are items which are
considered to be exceptional in nature. These are as follows:
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Costs associated with the listing of Hostmore's shares on the London Stock - 9,086
Exchange
Impairment of goodwill 70,858 -
70,858 9,086
* Further to note 5, in the 53 week period ended 2 January 2022 exceptional
costs have been increased by £965k from previously reported of £8,121k to
£9,086k.
7. Finance income and expense
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Finance income
78 6
Other interest receivable
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Finance expense
Bank interest payable 2,569 2,576
Amortisation of loan arrangement fees 209 804
Interest on lease liabilities 9,726 10,165
Unwinding of discount on provisions 52 58
Total finance expense 12,556 13,603
8. Tax credit
8.1 Tax credit recognised in consolidated statement of comprehensive
income
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Current tax credit/(charge)
Current tax on profits for the period - (1,217)
Adjustments in respect of prior periods 192 528
Total current tax credit/(charge) 192 (689)
Deferred tax credit
Origination and reversal of temporary differences 4,842 (142)
Adjustments in respect of prior periods 27 328
Change in future tax rate 1,740 1,520
Total deferred tax credit 6,609 1,706
Tax credit for the period 6,801 1,017
* Further to note 5, in the 53 week period ended 2 January 2022 exceptional
costs have increased by £965k from previously reported £8,121k to £9,086k,
increasing the loss before tax from previously reported £1,584k, to £2,549k.
Deferred tax assets
Deferred tax assets in the consolidated statement of financial position arose
as follows:
Recognised in consolidated statement of comprehensive
income
£'000
3 January 1 January
2022 2023
£'000 £'000
Deferred tax assets in relation to:
Property, plant and equipment differences 1,970 1,141 3,111
Other temporary differences 71 5 76
Losses carried forward - 228 228
Deferred tax arising from leases 4,151 5,235 9,386
Total deferred tax assets 6,192 6,609 12,801
Recognised in consolidated statement of comprehensive
income
£'000
28 December 2 January
2020 2022
£'000 £'000
Deferred tax assets in relation to:
Property, plant and equipment differences 1,318 652 1,970
Other temporary differences 44 27 71
Losses utilised 410 (410) -
Deferred tax arising from leases 2,714 1,437 4,151
Total deferred tax assets 4,486 1,706 6,192
Deferred tax unwinding within the next 12 months from 1 January 2023 is
expected to be immaterial.
9. (Loss)/earnings per share
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
Basic loss per share
Weighted average outstanding number of shares ('000) 125,427 118,463
Loss after tax for the period (£'000) (97,544) (1,532)
Basic loss per share (pence) (77.8) (1.3)
Diluted loss per share
Weighted average outstanding number of shares ('000) 125,427 118,463
Dilutive shares ('000) - -
125,427 118,463
Loss after tax for the period (£'000)
(97,544) (1,532)
Diluted loss per share (pence) (77.8) (1.3)
Adjusted basic earnings per share
Weighted average outstanding number of shares ('000) 125,427 118,463
Loss after tax for the period (£'000) (97,544) (1,532)
Exceptional items (£'000) (note 6) 70,858 9,086
Net impairment of property, plant and equipment and right of use assets 31,179 1,019
(£'000)
Adjusted profit for the period (£'000) 4,493 8,573
Adjusted basic earnings per share (pence) 3.6 7.2
Adjusted diluted earnings per share
Weighted average outstanding number of shares ('000) 125,427 118,463
Dilutive shares ('000) 656 -
126,083 -
Loss after tax for the period (£'000) (97,544) (1,532)
Exceptional items (£'000) (note 6) 70,858 9,086
Net impairment of property, plant and equipment and right of use assets 31,179 1,019
(£'000)
Adjusted profit for the period (£'000) 4,493 8,573
Adjusted diluted earnings per share (pence) 3.6 7.2
* The calculation of adjusted earnings per share and adjusted diluted earnings
per share excludes the impairment of property, plant and equipment, right of
use assets and exceptional items. In the 53 week period ended 2 January 2022,
adjusted earnings per share and adjusted diluted earnings per share have been
increased from the previously reported 6.4 pence to 7.2 pence in line with
details included in note 5. The exceptional items within this calculation have
also been restated in line with note 5.
10. Property, plant and equipment
Leasehold property improvements
£'000 Plant and machinery Fixtures and fittings
£'000 £'000 Total
£'000
Cost
At 3 January 2022 9,874 50,665 90,058 150,597
Additions - 4,322 5,699 10,021
Disposals - (397) (88) (485)
At 1 January 2023 9,874 54,590 95,669 160,133
Accumulated depreciation and impairment
At 3 January 2022 9,874 43,846 54,096 107,816
Depreciation charge for the period - 3,096 5,510 8,606
Impairment reversal for the period - - (757) (757)
Impairment charge for the period - - 8,756 8,756
Disposals - (392) (36) (428)
At 1 January 2023 9,874 46,550 67,569 123,993
Net book value
At 2 January 2022 - 6,819 35,962 42,781
At 1 January 2023 - 8,040 28,100 36,140
11. Right of use assets
Motor vehicles
Property £'000 Total
£'000 £'000
Cost
At 3 January 2022 158,521 262 158,783
Additions and modifications 13,093 - 13,093
At 1 January 2023 171,614 262 171,876
Accumulated depreciation and impairment
At 3 January 2022 42,177 218 42,395
Depreciation charge for the period 11,701 32 11,733
Impairment reversal for the period (4,955) - (4,955)
Impairment charge for the period 28,135 - 28,135
At 1 January 2023 77,058 250 77,308
Net book value
At 2 January 2022 116,344 44 116,388
At 1 January 2023 94,556 12 94,568
Impairment losses recognised in the period
The Group performs an impairment assessment at the end of each reporting
period. For the purposes of impairment of right of use assets, each restaurant
in the Group is considered a separate cash generating unit ("CGU"). An
impairment charge is recognised when the recoverable amount is less than the
carrying value of the right of use assets. Where there is an indication that
an impairment loss recognised in prior periods no longer exists, the
impairment loss is reversed and credited to the consolidated statement of
comprehensive income.
The recoverable amount is based on value-in-use calculations, using discounted
forecasted cashflows of each restaurant and its ability to cover its costs,
including an allocation of central overheads, marketing and maintenance
standards of assets. The recoverable amount is assessed over the lease term of
each restaurant, using the Group's budget of performance for 2023,
significantly risked from the target 2023 budget, and the business plan growth
rate for the next two years, applying a long-term growth rate of 2%. The
discount rate applied in the value-in-use calculations has been calculated by
reference to the Group's weighted average cost of capital and similar
benchmarks in the industry. A pre-tax discount rate of 14.2% (2021: 11.7%) has
been applied in the value-in-use calculations.
The Directors have assessed the carrying value of property, plant and
equipment and right of use assets at the period end by reference to the
Group's updated business plan and the higher interest rates now prevailing.
This exercise resulted in an impairment charge totaling £36,891k (2021:
£1,019k) and an impairment reversal of £5,712k (2021: nil) against these
assets. This is a non-cash charge to the statement of comprehensive income
during the period ended 1 January 2023 by reference to today's market
conditions. This impairment charge does not have an impact on the operational
cash performance of the Group which is unaffected by this charge.
12. Goodwill
£'000
Cost
At 3 January 2022 and 1 January 2023 155,284
Accumulated impairment
At 3 January 2022 9,305
Impairment charge for the period 70,858
At 1 January 2023 80,163
Net book value
At 2 January 2022 145,979
At 1 January 2023 75,121
The Directors consider that the TGI Fridays brand is the sole cash generating
unit of goodwill as it cannot be allocated to individual restaurants on a
non-arbitrary basis. The Group continues to assess goodwill for impairment at
each reporting date. At 1 January 2023, the combined carrying amount of the
CGUs and goodwill was assessed to be £70,858k higher than the recoverable
amount of all CGUs. An impairment charge of £70,858k has therefore been
recorded at that date and reflected in these financial statements. This is a
non-cash charge to the statement of comprehensive income for the period ended
1 January 2023. This impairment charge does not have an impact on the
operational cash performance of the Group which is unaffected by this charge.
The value-in-use calculations are based on future projected cashflows of the
operating business, over the life of the leases, assuming profitable stores'
leases will be extended, discounted back using a pre-tax discount rate of
15.8%.
13. Loans and borrowings
1 January 2 January
2023 2022
£'000 £'000
Secured bank loans and borrowings
Non-current 23,146 33,931
Current 13,295 9,491
Total secured bank loans and borrowings 36,441 43,422
The Group completed an extension and restatement of the bank loan facilities
on 28 April 2023. The restated facility agreement now consists of a £26.1m
term loan and a £21.5m (previously £30.0m) revolving credit facility, with a
term date of 1 January 2025. Arrangement fees of £190k were incurred in
respect of this refinancing exercise. At the period end, £7.5m had been drawn
on the revolving credit facility. The Group's loans are denominated in pounds
sterling. There is no foreign exchange risk on the Group's loan arrangements.
The carrying value of loans and borrowings classified as financial liabilities
are measured at amortised cost, which approximates to their fair value. The
balances at the period end are summarised below:
Nominal interest rate 1 January 2 January
Date of maturity Repayment schedule 2023 2022
Loan Facility £'000 £'000
Secured bank loan Margin plus compound reference rate based on SONIA 1 January 2025 £1.5m per quarter from June 2022, with balance on maturity 36,800 44,299
Unamortised loan arrangement fees (359) (877)
36,441 43,422
The Group complied with all covenants within its bank facilities during the 52
week period ended 1 January 2023 which have continued to the date of approval
of these financial statements. The leverage ratio covenant required that the
Group's total net debt to adjusted EBITDA not exceed 3.0 times between 30
September 2022 and 31 December 2022, and the fixed cost cover ratio required
EBITDA, adjusted for rental payments, to be not less than 1.5 times the
aggregation of such rental payments and bank interest charges. The minimum
liquidity covenant was to not fall below £12.5m of both cash balance and
undrawn RCF and the aggregated capital expenditure was not to exceed 110% of
the budget measured for the full financial year.
The restated facility agreement includes the following covenants:
• a minimum liquidity covenant tested on a two-weekly basis,
requiring an aggregated cash balance and undrawn RCF of no less than £1.5m
(previously £12.5m) tested by reference to quarterly forward forecasts;
• adjusted leverage covenant that is tested on a quarterly basis
from June 2023. For the 2023 financial year, the leverage ratio covenant
requires that the Group's total net debt to EBITDA must not exceed prescribed
ratios set out in the restatement agreement, and thereafter no more than 2.5
times from 31 March 2024;
• cumulative monthly EBITDA covenant that is tested monthly from
30 June 2023 to 31 December 2023, and reverts to a 12-month 'look back' EBITDA
test from 31 March 2024. The covenant requires the Group's EBITDA for the test
period to exceed prescribed values as set out in the restatement agreement;
and
• capital expenditure covenant that is tested annually on 31
December, requiring the Group to have not incurred capital expenditure greater
than prescribed values as set out in the restatement agreement.
As a part of the facility extension agreed in September 2022, a credit support
undertaking of £2.5m was extended until 30 June 2023 but this has been
discontinued under the restated facility agreement. A fixed charge cover ratio
covenant which was applicable under the previous facility agreement has also
been discontinued.
Interest on the Group's loan facilities is payable at the aggregate of a
compound reference rate based on SONIA plus a margin of no greater than 4% per
annum. A margin rachet applies, with any increase or decrease on the margin as
a result of the margin rachet applying from the beginning of the next interest
quarter.
Margin % per annum
Interest rate margin payable in addition to SONIA
Adjusted leverage
Greater than or equal to 2.0x 4.00
Less than 2.0x but greater than or equal to 1.5x 3.75
Less than 1.5x but greater than or equal to 1.0x 3.50
Less than 1.0x 3.25
In addition, under the restatement agreement, a further interest charge will
accrue at a rate of 5% per annum on the amount of bank debt in excess of 2.5x
adjusted leverage. This additional interest will become payable on the earlier
of repayment of the loan, including under a refinancing, or at maturity of the
loan on 1 January 2025.
The borrower and guarantor Group companies under the facilities agreement have
provided English law fixed and floating charges over all of their assets in
support of their obligations under the facilities agreement.
Hostmore Group Limited has also provided third party security in respect of
the shares that it holds in its wholly owned subsidiary Wednesdays (Bidco)
Limited.
The term loan continues to be repayable in quarterly instalments of £1.5m
from 30 June 2023. The remaining balance is due for repayment at the end of
the facility on 1 January 2025. At 1 January 2023, and in accordance with the
terms of the facility agreement, there was £544k of interest owed to the
lender which has been accrued in these financial statements.
Undrawn facilities
The Group had committed floating rate facilities available to be drawn at 1
January 2023 as follows:
1 January 2 January
2023 2022
£'000 £'000
Expiring between 1 and 2 years 22,500 20,000
Undrawn loan facilities incur a charge at 40% of the interest rate margin on
the drawn facilities.
Movement of loans 1 January 2 January
2023 2022
£'000 £'000
At the beginning of period 43,422 65,260
Loans drawn down 10,500 5,000
Loans repaid (18,000) (26,500)
Amortisation of loan arrangement fees 209 804
Loan arrangement fees waived 325 -
Loan arrangement fees incurred in period (15) (1,142)
Balance at end of period 36,441 43,422
14. Cash flows from operating activities
* Restated
52 weeks 53 weeks
ended 1 January ended 2 January
2023 2022
£'000 £'000
Loss for the period (97,544) (1,532)
Adjustments for non-cash items and amounts disclosed separately:
Depreciation of property, plant and equipment and right of use assets 20,339 22,339
Impairment reversal of property, plant and equipment and right of use assets (5,712) -
Impairment of property, plant and equipment and right of use assets 36,891 1,019
Impairment of goodwill 70,858 -
Lease exit income - (616)
Finance income (78) (6)
Finance expense 12,556 13,603
Covid-19 rent concessions (2,290) (4,210)
Income tax credit (6,801) (1,017)
Share based payment charge 581 78
Cash flows from operating activities 28,800 29,658
* Further to note 5, in the 53 week period ended 2 January 2022 exceptional
costs have increased by £965k from the previously reported £8,121k to
£9,086k, increasing the loss after tax from £567k, to £1,532k.
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