NOHO PARTNERS INTERIM REPORT FOR 1 JANUARY-31 MARCH 2019: Turnover increased by 63 per cent and operating profit by over 198 per cent
NoHo Partners Plc
INTERIM REPORT 7 MAY 2019 at 8:00
NOHO PARTNERS INTERIM REPORT FOR 1 JANUARY-31 MARCH 2019
Turnover increased by 63 per cent and operating profit by over 198 per cent
TURNOVER AND INCOME
The Group's Income for January-March of 2019
The Group's turnover was MEUR 80.2 (MEUR 49.2), growth of 63.0 per cent. Operating profit was MEUR 2.7 (MEUR 0.9), growth of 198.1 per cent. Earnings per share were EUR 0.14 (EUR 0.03), growth of 367.0 per cent.
The turnover of the restaurant business segment was MEUR 53.3 (MEUR 30.9), growth of 72.4 per cent. Operating profit was MEUR 1.8 (MEUR 0.1), growth of 1,172.9 per cent.
Labour hire business:
The turnover of the labour hire business segment was MEUR 30.3 (MEUR 21.4), growth of 41.4 per cent. Operating profit was MEUR 1.0 (MEUR 0.8), growth of 23.1 per cent.
Figures in parentheses refer to the period last year, unless otherwise stated.
At the beginning of the financial period, the Group adopted the new standard IFRS 16 Leases, effective as of 1 January 2019. The new standard signifcantly affects the Group's EBITDA, as lease costs are presented below EBITDA. The impact of the new standard on operating profit, with the current contract portfolio, in the review period is some MEUR 0.6 improving, and its impact on operating result is slight. Due to these changes and for the sake of clarity, the company abandons the commenting of EBITDA, and in future is focusing on commenting on turnover, operating profit and earnings per share.
In January-March 2019, the Group's turnover amounted to MEUR 80.2 million, growth of 63.0 per cent, and operating profit was MEUR 2.7 growing 198.1 per cent over the corresponding period last year.
In January-March, turnover for restaurants was MEUR 21.6 (40.6 per cent of restaurant segment turnover), an increase of 82.0 per cent over the corresponding period the previous year.
In January-March, turnover for nightclubs and entertainment restaurants was MEUR 18.7 (35.2 per cent of the restaurant segment turnover), an increase of 20.9 per cent over the corresponding period the previous year.
In January-March, turnover for fast casual restaurants was MEUR 8.1 (15.2 per cent of restaurant segment turnover), an increase of 129.7 per cent over the corresponding period the previous year.
In January-March, turnover of international business amounted to MEUR 4.8 (9.0 per cent of restaurant segment turnover). (No comparative information.)
In the restaurant business, factors influencing earnings for the review period were the sales of unprofitable businesses, concept reinventions with their ramp-up and opening costs, and investments in international business. In the review period, the Danish restaurant business was affected by, among other things, costs arising from expansion and investments in the organisation and in a new reporting system. In the first quarter of 2019, earnings per share are significantly affected by the MEUR 2.1 purchase price adjustment recorded in the Danish business operations, concerning the unprofitable investment in The Bird restaurant at Copenhagen Airport. The operations of the unit will be wound up by the turn of the year, which will not generate significant additional expenses to the company.
In the labour hire business, earnings in the review period were affected by organic and regional growth in Finland and the development of new services (Smile Rekry and Smile Import).
At the beginning of the financial period, NoHo Partners Plc has adopted the standard IFRS 16 Leases, effective as of 1 January 2019, the impact of which on operating profit in the review period is some MEUR 0.6 improving and its impact on operating result slight. The introduction of the standard will increase the Group's net liabilities by some MEUR 177. These liabilities comprise the leases of premises, which guarantee the continuity of the Group's business operations. They are, therefore, a significant asset for the Group.
Especially in the restaurant business, most of the profits are made at the end of the year due to the seasonal nature of the business.
PROSPECTS FOR 2019
Profit guidance (as of 14 February 2019):
NoHo Partners estimates that the Group's net sales and profitability will increase this year. The Group aims to achieve, after eliminations, a total net sales of approximately MEUR 390 and a profit margin of approximately 5.8 per cent (approximately MEUR 22.5) by the end of 2019. The restaurant segment aims to achieve net sales of approximately MEUR 250 and a profit margin of over 6 per cent (over MEUR 15). The labour hire segment aims to achieve net sales of approximately MEUR 150 and a profit margin of approximately 5 per cent (approximately MEUR 7.5).
The long-term goal of the Group is to achieve net sales of over MEUR 600 and a profit margin of approximately 7.5 per cent by the end of 2021. The restaurant segment aims to achieve net sales of approximately MEUR 350 and a profit margin of approximately 8 per cent. The labour hire segment aims to achieve net sales of approximately MEUR 300 and a profit margin of approximately 6.5 per cent. The Group will update the estimate for the financial period on an annual basis in conjunction with the publication of the result for the fourth quarter.
|NoHo Partners Group in total|
|(EUR thousand)||1 Jan-31 Mar 2019||1 Jan-31 Mar 2018*||1 Jan-31 Dec 2018|
|KEY FIGURES, entire Group|
|Operating profit, %||3.4%||1.9%||2.2 %|
|Review period result||2,822||401||4,231|
|To shareholders of the parent company||2,666||440||3,494|
|To minority shareholders||157||-39||737|
|Earnings per share (euros) to the shareholders of the parent company||0.14||0.03||0.19|
|Interest-bearing net liabilities||288,878||45,610||138,500|
|Gearing ratio, %||278.9%||97.2%||184.3%|
|Equity ratio, %||21.0%||35.0%||24.6%|
|Return on investment, % (p.a.)||6.2%||4.3%||5.2%|
|Net financial expenses||-114||147||2,478|
|(EUR thousand)||1 Jan-31 Mar 2019||1 Jan-31 Mar 2018*||1 Jan-31 Dec 2018|
|Operating profit, %||3.3%||0.4%||1.1%|
|Material margin, %||74.0%||72.9%||73.9%|
|Staff expenses, %||33.6%||29.9%||32.1%|
|Labour hire business|
|(EUR thousand)||1 Jan-31 Mar 2019||1 Jan-31 Mar 2018*||1 Jan-31 Dec 2018|
|Operating profit, %||3.1%||3.6%||3.9%|
|Staff expenses, %||85.1%||84.6%||82.4%|
*The reference data from 1 January-31 March 2018 was changed to correspond to the Group's changed IFRS 15 accounting practice.
REVIEW BY THE CEO: AKU VIKSTRÖM
In January-March 2019, turnover was MEUR 80.2, an increase of 63 per cent, and operating profit was MEUR 2,7, an increase of more than 198 per cent, with earnings per share at EUR 0.14 (EUR 0.03), an increase of 367 per cent, in comparison with last year's reference period. The improvement in profitability in the review period is a result of the progress of the profitability improvement programmes in the restaurant business, successful business operations, and the continuation of profitable growth in the labour hire segment. In addition, the new IFRS 16 Leases standard has a positive impact of MEUR 0.6 on operating profit. The significant development of earnings per share was influenced by the MEUR 2.1 adjustment on the announced contingent purchase consideration recorded in the Danish business operations.
Of all seasons in the restaurant business, the first quarter is the most challenging because of a fall in demand and a seasonal reduction in eating out. The relative strengthening of our business model and the near doubling of the operating profit percentage (3.4 per cent) compared to the previous year (1.9 per cent) are guiding expectations for the rest of the year as we move towards months of greater turnover. The significance of the year's first quarter remains proportionally the smallest with regard to the result for the entire year. Taking into account that the first quarter is the least profitable in the former Royal Ravintolat units, the review period gives a positive signal about the successful progress of the synergy programmes.
Strategy of profitable growth progresses
The strategy of pro table growth for this strategy period 2019-2021 announced at the end of 2018 consists of three key elements: improvement in the profitability of the domestic restaurant business, the construction of a foundation for future international growth and profitable growth strategy in the labor hire business.
In the short term, the clear focus is on improving the profitability of the domestic restaurant business and on ensuring that the profitability programmes that support it proceed on schedule. The first profitability programme, the integration of Royal Ravintolat, is proceeding as planned. The consolidation of management and administration (synergy value MEUR +1) was fully completed by the end of 2018, and was boosted in the first quarter of 2019 by streamlining operative management into seven executive roles through natural reduction and continued reorganisation. It was also announced that the composition of the Executive Team would be contracted by two roles. The centralisation of purchase and procurement and better purchase contracts (synergy value MEUR +1.5) are fully evident in the profit for the first quarter, and are ahead of the targets set for the whole year. The new, more flexible staffing structure and operating model (synergy value MEUR +3.5) are already showing in the streamlining and effectiveness of salary costs in the former Royal Ravintolat units. In the review period, the staff expense percentage of the restaurant business operations of the new company was 33.6%. For comparison, the staff expense percentage of Royal Ravintolat was 45.6% in the corresponding period the previous year. This is a major improvement in staff efficiency and promising for a more efficient operating model, the greatest benefits of which will be seen in the coming quarters, as turnover in the units will grow.
Our second profitability programme is the winding up or sale of unprofitable units, which was carried out efficiently during the final quarter of 2018. In addition to the units closed at the end of 2018, after the review period in the second quarter the businesses of the Masu Asian Bistro restaurant in Helsinki and the Roster restaurant in Turku were sold, after which the active stage of closing or selling units was completed. As a result of the restructuring of the portfolio, approximately MEUR 12 worth of unprofitable turnover was removed from the restaurant business in the 2018 financial period.
During the first quarter, the third profitability programme, improvement in the productivity of core businesses, focused on portfolio development work and concept reinventions, particularly utilising our partner model. The ramp-up and opening costs will still show in earnings in the first half of 2019, as profit expectations will be realised in the second half of the year. In restaurants and the fast casual business, the NPS (Net Promoter Score) customer satisfaction indicator was implemented at the beginning of 2019 as part of a programme to develop organic growth, quality and the customer experience. The staff experience and its development that directly influence the core of customer experience play a key role in the next stage of integration work. Staff satisfaction in the restaurant business was measurement during the first quarter, and its overall grade on a scale of 1-5 was 3.8. In spite of a significant organisational change, the results of the survey are rather good at company level, which indicates the strong commitment and attitude of our staff amidst great changes.
Beginning of the year as expected for restaurants
In January-March, turnover for restaurants was MEUR 21.6 (40.6 per cent of restaurant segment turnover), an increase of 82.0 per cent over the corresponding period the previous year. The growth in restaurants came on a broad front, the corporate acquisition of Royal Ravintolat naturally representing the major part of it. In the first quarter, development was especially positive in Lapland and Helsinki, where growth in eating out continues, particularly at weekends. Strong and well-known brands such as Elite, Stefan's Steakhouse, Colorado, Yes Yes Yes, The Cock and Palace grow faster than the market. In the early part of the year, many concept reinventions were carried out. The Sandro Eira concept was changed to Sikke's, Patrona became Taqueria El Rey, and Pizzeria Luca was opened on the premises of Purpur in Tampere. In accordance with our operating model, concept development work at these units has been the responsibility of partners. In March, we announced the establishment of the Financier Group that specialises in fine dining, which in future will manage the business of the Savoy and Palace, the latter of which was awarded a Michelin star in February. In January-March, customer satisfaction at our restaurants was at rather a good level with NPS being 57.2
Competition intensifying in the nightclub market
In January-March, turnover for the nightclubs, pubs and entertainment venues business area was MEUR 18.7 (35.2 per cent of the restaurant segment), an increase of 20.9 per cent over the corresponding period the previous year. Growth in the business area was twofold with competition intensifying in the nightclub business and the pubs and entertainment business correspondingly growing. Growth in the nightclub market is limited as consumer behaviour changes and, correspondingly, consumer expenditure on leisure and entertainment is increasing, which shows as growth in our bowling and gaming businesses. In Helsinki, an increase in the number of wintertime tourists was evident, particularly in the growth of Löyly's business. At the end of March in Helsinki, we opened Alan's Party Bar, a new youth restaurant concept, to better respond to changes in consumer demand. In the Helsinki nightclub market, the target groups for Ravintola Teatteri and Skohan Nightclub were fine-tuned, which showed in an increase in customer numbers at Skohan, particularly.
The right business location strategy guides growth in the fast casual business
In January-March, turnover for the fast casual restaurants was MEUR 8.1 (15.2 per cent of restaurant segment turnover), an increase of 129.7 per cent over the corresponding period the previous year. Of the fast casual concepts, growth was particularly driven by the Hanko Sushi and Hook restaurants. Conceptual and qualitative improvement work done at Classic American Diners was reflected as positive development in customer satisfaction and turnover. In January-March, customer satisfaction at our fast casual restaurants was at a good level (NPS 52.9). The market for fast and casual eating out continues its strong growth as it becomes more of an everyday thing. Some of this growth is also attributable to take-away food, as digital channels for ordering and delivery increase. There are large differences in market growth in distribution channels and between shopping centres. The restructuring of the portfolio carried out in 2018 gives our fast casual business good prerequisites for profitable growth now and in future.
Strong stage of growth in international business
In January-March, the turnover of our international business amounted to MEUR 4.8 (9.0 per cent of restaurant segment turnover). Our business in Denmark is at a strong stage of growth: the number of our restaurants has increased from 11 to 22 and turnover has doubled during the year. During the review period, in Copenhagen we opened a Pizzeria Luca restaurant, which has been successful in Finland, and we expanded the Cock's & Cows and The Bird concepts to Århus.
The investment in The Bird restaurant at Copenhagen Airport was not profitable, as a result of which the earn-out additional sales price for the corporate acquisition will not be realised in full. Because of this, a MEUR 2.1 purchase price adjustment has been recorded for the first quarter, which shows as a positive entry in financial expenses. The decision was made to wind up the operations of the unit by the turn of the year.
After our reporting period, we announced our expansion into Norway with 15 restaurants. With high purchasing power, the Norwegian restaurant market is nearly twice the size of Finland in terms of value. This transaction follows our strategy; it is a growth project into a new, intriguing and growing market.
Smile invests in new services and growing sectors
Our subsidiary Smile Henkilöstöpalvelut firmly remains one of Finland's leading labour hire operators. In January-March, turnover in our labour hire business was MEUR 30.3, an increase of more than 41 per cent, and operating profit was MEUR 1,0, an increase of more than 23 per cent in comparison with the previous review period. The labour hire segment remains a field of strong growth, whose overall increase in turnover since the beginning of 2019 has been approximately 8 per cent, demonstrating the continuation of our growth, which is clearly stronger than the general trend of the sector.
Smile's extensive brand work has borne fruit. Nowadays, the company is also known for its cheerful workers whose well-being and skills are invested in. In the job satisfaction survey carried out in early 2019, the overall grade for Smile as an employer was 4.1 on a scale of 1-5.
Although the availability of labour is slightly slowing down Smile's growth rate in comparison with previous years, we have faith in the company's strong future growth. In addition to corporate acquisitions, several other alternatives for growth are seen. Smile's new services, such as Smile Rekry which provides direct recruitment services, and Smile Import which concentrates on the import of foreign labour, are continuing to expand the company's customer base. In future, the company will also invest in growing sectors such as logistics, and will seek growth opportunities from new sectors.
Profitability development creating a promising trend for the rest of the year
Profitability development in the first quarter was successful and is, in terms of prospects for the rest of the year, promising. The significance of the quarter on whole-year earnings is, however, limited, and it should rather be viewed as a good start to the updated strategy. Growth prospects for the rest of the year in the restaurant and labour hire markets are good, and consumer confidence in the economy has remained steady. Advance bookings in the restaurant business for private functions in the important summer season and the high season at the end of the year are on a good level. The intensifying of competition in the nightclub market is creating its own risks for business operations. Additionally, Veikkaus's decision to end its table gaming activities will influence the result of our nightclub business from the second quarter of the year on. Short-term risks can be seen in the ramp-up phases of concept changes and in their durations. The company's strengthened restaurant portfolio, better purchase and procurement agreements and modification work on the staff efficiency operating model that is proceeding at a good speed are maintaining targets and prospects up to the end of the year.
With regard to international business, in 2019 after a period of strong growth we are focusing on developing the profitability of the Danish business and on the integration of Norwegian restaurant units. We expect the integration to progress more quickly than before as a result of lessons learnt and experiences gained from Denmark. In the labour hire business, we will single-mindedly continue the implementation of Smile's profitable growth strategy, and we will calmly evaluate the different alternatives for expanding the ownership base.
The issue of a hybrid loan, which took place towards the end of the review period, improves our company's capital structure and creates new opportunities to continue business development, both in Finland and in international markets. The company's funding situation is stable thanks to increased equity, and strong cash flow is taking care of our debt servicing capacity as we move towards more profitable quarters. Under the new standard IFRS 16 Leases, the leases of premises are to be recorded as liabilities, due to which the introduction of the standard increases our net liabilities by some MEUR 177. These liabilities comprise the leases of our premises, which guarantee the continuity of our business operations. They are, therefore, a significant asset for our company.
Aku Vikström, CEO
PRESS CONFERENCE FOR MEDIA, ANALYSTS AND INVESTORS AT 10:00AM
A press conference for media, analysts and investors will be held today Tuesday 7 May 2019 starting 10:00am at Restaurant Presto at Eteläesplanadi 14, 00130 Helsinki. At the event, NoHo Partners CEO Aku Vikström and Group subsidiary Smile Henkilöstöpalvelut Oyj Managing Director Sami Asikainen will go through the key events of early 2019, present the result for the first quarter of 2019, and discuss the company's future outlook.
The event can be viewed in a live webcast at https://noho.videosync.fi/2019-q1-tulosinfo. The event will be held in Finnish. The presentation material and a recording of the event will become available on the company's website later today.
The full NoHo Partners Interim Report for January-March 2019 is appended to this release in PDF format. The Interim Report is also available on the company's website at www.noho.fi.
NOHO PARTNERS PLC
Board of Directors
APPENDIX: NoHo Partners Plc Interim Report Q1/2019
Aku Vikström, CEO, tel +358 44 011 1989
Jarno Suominen, CFO, tel +358 40 721 5655
NoHo Partners Plc is a Finnish group established in 1996, specialising in restaurant services and labour hire. The company, which was listed on NASDAQ Helsinki in 2013 and became the first Finnish listed restaurant company, has continued to grow strongly throughout its history. The Group companies include some 220 restaurants in Finland, Denmark and Norway. Well-known restaurant concepts of the company include Elite, Savoy, Teatteri, Yes Yes Yes, Stefan's Steakhouse, Palace, Löyly, Hanko Sushi and Cock's & Cows. In 2018, NoHo Partners Plc's net sales were MEUR 323.2 and EBITDA MEUR 28.4. Depending on the season, the Group employs approximately 4,500 people when converted into full-time workers. NoHo Partners Plc's subsidiary Smile Henkilöstöpalvelut Oyj employed approximately 10,000 people during the 2018 financial period.
NoHo Partners corporate website: www.noho.fi
NoHo Partners consumer websites: www.ravintola.fi and www.royalravintolat.fi
Smile Henkilöstöpalvelut: www.smilepalvelut.fi