NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic 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:

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 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

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

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