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Mon 1st May 2023 - Hostmore: No new store openings will occur until at least FY 2025, covenants reset with banks
Hostmore – no new store openings will occur until at least FY 2025, covenants reset with banks: Hostmore – the parent company of TGI Fridays and 63rd+1st – has said it has reached agreement with its brand franchisor to defer all further new store opening obligations until FY25, saving it an estimated £13m in capital expenditure over the two years FY23 and FY24. At the same time, the company said its covenants were recently reset with its lending banks at revised levels to accord with the group’s business plan, with an extended term to 1 January 2025. The group said it had also completed a cost reduction exercise in Q1 2023, reducing overheads by £1.8m on an annualised basis. It comes as the business reported total revenue for the year to 1 January 2023 of £195.7m, 23% higher than FY21 of £159m, with like-for-like sales revenue of £189.1m (FY21: £155m). FY22 Ebitda stood at £31.1m (FY21 £34.5m), while it reported a loss from operations of £91m (FY 2021: £11m). The company said revenue in the first 16 weeks of FY23, adjusted for the variance in VAT rate on food sales between FY22 and FY23, was 2% higher than in 2022. The company said: “This reflects the impact of anticipated softer consumer demand which has been offset by an improvement in the spend per head.” Its FY22 net debt stood at £27.7m (FY21 £12.2m). It said: “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.” The group said it had seen improving guest opinion scores and net promoter scores at Fridays resulting from “renewed focus on guest experience”. It said its revised capital allocation policy would prioritise debt repayment and shareholder distributions. The company said it had seen stable trading last year compared to FY21, with its performance stronger in the stadium (events-led) and major shopping centre (retail and entertainment) categories, with the north east and north west recording most improvement. It said group Ebitda FRS 102 of £11.3m, in comparison to £13.0m in FY21, reflected “weaker consumer demand and inflationary pressures, but offset in part by cost mitigation activity and completion of landlord concession agreements”. It said it secured £2.3m of landlord concessions in FY22, comprising waiver of past obligations and confirmation of incentives for extension of leases on profitable stores. The company said: “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 were limited by leveraging existing supplier relationships. 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 15 months. The forecasts show that the group has sufficient liquidity from its restated facilities to finance its operations for the next 15 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 business opened five new sites across its brands during FY22 –  in Chelmsford, Barnsley, and Durham (TGI Fridays), Dundee (Fridays and Go) and Edinburgh (63rd+1st). In 2022, it closed TGI Fridays restaurants in Covent Garden and Guildford and its 63rd+1st restaurant in Harrogate. The business said: “These restaurants were not generating the returns on investment which we expected, and removing them from the estate was therefore a positive development.” The company said it generated improved guest satisfaction scores – TGI Fridays’ guest opinion score at December 2022 was 74 (December 2021: 68) – arising from “improved quality of product and speed of service levels”. It said guest opinion scores for TGI Fridays improved further to 80 at March 2023, which represents the highest level in the past year. The company said: “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.” Gavin Manson, Hostmore chairman, said: “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 chief executive 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 chief executive. 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 chief executive. The board has every confidence in its brands, its products and its people.”


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