Update on Corporate Transactions and Trading

Hostmore PLC

06 August 2024

 

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.

6 August 2024

Hostmore plc

Update on Corporate Transactions and Trading

Hostmore plc (the "Company" and, together with its subsidiaries, the "Group"), provides an update on corporate transaction activity and current trading.

Corporate Transactions Update

The Board continues to work to reach binding terms regarding the proposed all-share acquisition of TGI Fridays, Inc. ("TGI Fridays") which was announced on 16 April 2024 (the "Acquisition").

Assuming that the Acquisition is completed, the Company and TGI Fridays now intend that the combined business (the "Combined Group") will transition to an "asset light" fully franchised model with no corporate stores. Under this structure, TGI Fridays' 92 existing corporate stores and the Group's 87 corporate stores will be sold to existing or new franchisees, who will then operate the stores and pay a royalty to the Combined Group. This transition has already commenced at both the Group and TGI Fridays, with TGI Fridays having entered into agreements to sell a substantial portion of its corporate stores for in excess of $40 million.

A prerequisite to entering into binding terms for the Acquisition had been the completion of a refinancing at closing for the Combined Group. As a result of the revised business model, ongoing funding requirements of the Combined Group will be significantly reduced and, therefore, a new long-term debt financing package is no longer the preferred outcome. Instead, the parties are in discussions with their lenders and other stakeholders to repay or reduce existing indebtedness using proceeds from the sale of corporate stores and/or new facilities from related parties.

This revised business model and financing structure, while ultimately more cost-effective and accretive to shareholder value, involves a longer timeline than the third-party refinancing process that had been commenced earlier in the year. As a result, the Acquisition, assuming terms are agreed, will likely not close by the end of Q3 2024 as previously announced. The Board and TGI Fridays continue to work closely and collaboratively towards a positive result, as the Boards of both businesses believe that the Acquisition is the optimal outcome for both sets of shareholders.

In addition to undertaking a sale process for the Group's corporate stores as a part of the Acquisition, the Board is working with advisers to evaluate other potential options to secure value for the Group should the Acquisition ultimately not complete (the "Strategic Review").

A further update on the Acquisition and the Strategic Review will be provided in due course.

Trading Update

Hostmore's H1 2024 LFL sales declined by 10%, which is in-line with the 10% decline through 26 May as announced on 3 June 2024. Sales in June were variable, with LFL sales for the first two weeks declining by 2%, while the final two weeks declined by 20% due to the Euros football tournament and unseasonably warm weather, both of which had a similar effect on the Group's competitors in the casual dining sector.

These conditions continued into July, resulting in LFL sales for the first three weeks of July declining 23% and taking year-to-date LFL sales to a decline of 12% compared to the same period in 2023.

EBITDA (FRS102) in H1 2024 delivered a loss of £1.2 million, which was £2.6 million better than the £3.8 million loss in H1 2023.  It is noteworthy that this improvement in EBITDA was after a reduction in revenue of £9.5 million for the period and, therefore, the EBITDA delivered underscores the positive impact of the cost reduction programme implemented in 2023 and the Group's ongoing strong operational discipline.

As a result of trading in the period, H1 2024 ending net debt (FRS102) was £29.7 million as compared to £25.1 million at 31 December 2023.

The Board continues to expect that the Group's standalone peak net debt for the year, without giving effect to the closing of the Acquisition or any sales of the Group's corporate stores, will occur around the end of Q3 2024 due to routine working capital outflows, lower revenues in the period, and payment of transaction fees relating to the Acquisition. Borrowings during this period are likely to exceed the Group's existing borrowing capacity and so, as a part of the Strategic Review, the Board is in discussions with various parties regarding additional financing.

The person responsible for releasing the announcement is Matthew Bibby, CFO of Hostmore plc.

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Enquiries

Hostmore plc

Matthew Bibby, Chief Financial Officer

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DGA Group

Jonathon Brill, James Styles

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