NOHO PARTNERS PLC HALF-YEAR REPORT 1 JAN–30 JUN 2020: The second quarter was dominated by the coronavirus pandemic: the exceptional situation was brought under control through strong measures – demand has recovered better than anticipated

NoHo Partners Plc

HALF-YEAR REPORT 11 August 2020 at 8:15 a.m.

NOHO PARTNERS PLC HALF-YEAR REPORT 1 JANUARY–30 JUNE 2020

The second quarter was dominated by the coronavirus pandemic: the exceptional situation was brought under control through strong measures – demand has recovered better than anticipated following the lifting of restrictions

As expected, the Group’s result for the second quarter of 2020 was negative due to the impacts of the coronavirus pandemic. Approximately 90% of the Group’s restaurants were closed in April–May. The business losses were minimised by quick and determined adjustment measures as well as government compensation. Starting from June 2020, the company focused on the gradual resumption of its business in a restricted operating environment and financing operations through cash flow. Business resumed better than expected thanks to active customer demand and controlled reopenings. Turnover in June was about MEUR 14 (approximately 55% of the turnover for the corresponding period last year) and turnover in July was about MEUR 20 (approximately 75% of the turnover for the corresponding period last year) while operating cash flow was positive in both months.

TURNOVER AND INCOME

JANUARY–JUNE 2020 IN BRIEF

Group (continuing and discontinued operations):

• Turnover declined by 42.8% to MEUR 69.1 (MEUR 120.9).
• EBIT fell by 211.9% to MEUR -15.0 (MEUR 13.4).
• The EBIT percentage was -21.8% (11.1%), a decrease of 295.7%.
• The result for the financial period was MEUR -18.0 (MEUR 7.6), a decrease of 337.0%.
• Earnings per share were EUR -0.91 (EUR 0.69), a decrease of 231.6%.
• The gearing ratio excluding the impact of IFRS 16 liabilities was 158.5%. Interest-bearing net liabilities excluding the IFRS 16 effect amounted to MEUR 149.5. IFRS 16 liabilities totalled MEUR 154.6. The gearing ratio including the effect of IFRS 16 was 326.3%.

Restaurant business (comparable continuing operations):

• Turnover declined by 42.9% to MEUR 69.1 (MEUR 121.0).
• EBIT fell by 360.6% to MEUR -14.8 (MEUR 5.7).
• The EBIT percentage was -21.4% (4.7%), a decrease of 556.2%.
• Result of the review period attributable to the parent company’s shareholders was MEUR -17.4 (MEUR 5.4), a decrease of 423.6%.
• Earnings per share were EUR -0.95 (EUR 0.28), a decrease of 432.5%.
• Operating cash flow fell by 129.5% to MEUR -3.5 (MEUR 11.8).
• The result for the financial period was affected by write-offs of approximately MEUR 4.6 allocated to discontinued units and units whose revenue generating capacity is estimated to decline in the future. The result for the financial period was also affected by MEUR 0.8 in costs associated with the closure and reopening of restaurants.
• Government support in January–June 2020 totalled approximately MEUR 8.4.
• Reductions in rent amounted to approximately MEUR 3.5 in April–May 2020, representing some 70% of the Group’s leases in Finland.

APRIL–JUNE 2020 IN BRIEF

Group (continuing and discontinued operations):

• Turnover declined by 71.9% to MEUR 19.0 (MEUR 67.7).
• EBIT fell by 200.6% to MEUR -8.4 (MEUR 8.4).
• The EBIT percentage was -44.3% (12.4%), a decrease of 457.7%.
• The result for the financial period was MEUR -9.2 (MEUR 4.8), a decrease of 291.8%.
• Earnings per share were EUR -0.46 (EUR 0.41), a decrease of 214.1%.

Restaurant business (comparable continuing operations):

• Turnover declined by 71.9% to MEUR 19.0 (MEUR 67.7).
• EBIT fell by 308.1% to MEUR -8.1 (MEUR 3.9).
• The EBIT percentage was -42.7% (5.8%), a decrease of 840.0%.
• Result of the review period attributable to the parent company’s shareholders was MEUR -8.5 (MEUR 3.2), a decrease of 366.6%.
• Earnings per share were EUR -0.45 (EUR 0.17), a decrease of 364.4%.
• Operating cash flow fell by 103.0% to MEUR -0.2 (MEUR 6.4).
• The result for the financial period was affected by write-offs of approximately MEUR 4.6 allocated to discontinued units and units whose revenue generating capacity is estimated to decline in the future. The result for the financial period was also affected by MEUR 0.8 in costs associated with the closure and reopening of restaurants.
• Government support in April–June 2020 totalled approximately MEUR 7.4.
• Reductions in rent amounted to approximately MEUR 3.5 in April–May 2020, representing some 70% of the Group’s leases in Finland.

Significant events in the review period:

• The Group acquired a majority stake in the hit chain Friends & Brgrs Ab Oy on 3 April 2020. A special share issue was carried out as part of the acquisition and the newly issued shares in the company were registered in the Trade Register on 8 April 2020.
• The national authorities ordered the closure of restaurants from 4 April to 31 May 2020 in Finland.
• In April, the company reached an agreement on a MEUR 34 financing package for the period of business disruptions caused by the coronavirus pandemic. As the final part of the financing package, the company agreed in May on a debt of EUR 10 million with a right to conversion with Finnish Industry Investment Ltd (Tesi).
• As restrictions on restaurants were partially lifted, the Group gradually resumed its business operations in a restricted operating environment in Finland starting from 1 June 2020. In Denmark and Norway, restaurant operations were resumed on a restricted basis in May.
• Alcohol serving hours in restaurants were extended from 10 p.m. to 1 a.m. starting from 22 June 2020 and buffet tables were allowed again. The permitted customer volume was increased from 50% to 75% of normal capacity.
• The Group’s turnover in June was approximately MEUR 14, which is about 55% of the turnover for the corresponding period last year.
• Approximately 30% of the Group’s restaurants were closed at the end of June.
• Approximately 75% of the Group’s entire personnel had returned to work either full-time or part-time by the end of June.

Significant events after the review period:

• The restrictions on opening hours, alcohol serving hours and customer volume were lifted starting from 13 July 2020 In Finland. Indoor and outdoor events attended by more than 500 people will be permitted starting from 1 August 2020.
• The Group’s turnover in July was approximately MEUR 20, which is about 75% of the turnover for the corresponding period last year.
• Approximately 15% of the Group’s restaurants remained closed at the end of July.
• Approximately 95% of the Group’s entire personnel had returned to work either full-time or part-time by the end of July.

SUMMARY

The sudden market changes caused by the coronavirus pandemic had a significant impact on the Group’s result in January–June 2020.

Due to the coronavirus pandemic and the subsequent orders issued by the authorities, the Group’s business was brought to an almost complete halt from April until the end of May, which resulted in nearly MEUR 60 in lost turnover in the second quarter of 2020. The restaurant business was resumed gradually in Denmark and Norway in May and in Finland at the beginning of June in a restricted operating environment. Following the reopening of restaurants, sales have developed favourably in all of the Group’s business areas.

The Group’s turnover in June 2020 was approximately MEUR 14, which is roughly 55 per cent of the turnover in the corresponding period last year. In July 2020, the Group’s turnover was approximately MEUR 20, or about 75 per cent of the turnover in the corresponding period last year. Thanks to the recovery of customer demand, the lifting of restrictions and operational efficiency, the Group’s operating cash flow was positive in June and July.

The result for April–June 2020 was affected by write-offs of approximately MEUR 4.6, with approximately half being allocated to discontinued units and half to about 10 units whose revenue generating capacity is estimated to decline in the future. The write-offs will reduce depreciation by approximately MEUR 1.0 per year for the next four years. The result for the second quarter of 2020 was also affected by non-recurring expenses of approximately MEUR 0.8 arising from the closure and resumption of business.

The Group has recognised approximately MEUR 8.4 in financial support from the Finnish, Danish and Norwegian governments for the period 1 January–30 June 2020. Reductions in rent totalled about MEUR 3.5 in January–June 2020, representing approximately 70 per cent of the Group’s leases.

In a normal operating environment in the restaurant business, most of the profits are made during the second half of the year due to the seasonal nature of the business.

REVIEW BY THE CEO: AKU VIKSTRÖM

The second quarter of 2020 was dominated by the coronavirus pandemic. Due to the orders issued by the authorities and the general circumstances, we closed approximately 90 per cent of our more than 230 restaurants in three countries and lost nearly MEUR 60 in turnover during the second quarter. Our EBIT was MEUR 8.4 in the negative due to the lockdown in April–May. Considering the highly exceptional business environment, the result for the review period is better than we expected. When our business gradually resumed in June, customer demand exceeded our expectations.

The loss for the review period consisted of MEUR 3.8 in business losses (restaurant business MEUR -3.5 and the profit effect of Eezy Plc MEUR -0.3) and write-offs of approximately MEUR 4.6. The losses from business operations were successfully minimised through quick decision-making, strong responses and government compensation.

In response to the coronavirus pandemic and the changed market environment, we have assessed the assets on our balance sheet and recognised write-offs of approximately MEUR 4.6. Approximately half of the write-offs are allocated to discontinued units and half to about 10 units whose revenue generating capacity is estimated to decline in the future. Following these write-offs, our depreciation will be reduced by approximately MEUR 1 per year for the next four years.

When the coronavirus pandemic hit, we shifted from profit-oriented decision-making to cash flow-oriented decision-making. Our quick and determined adjustment measures enabled us to keep our operating cash flow at our target level for the duration of the lockdown. In June, our business resumed in a restricted operating environment significantly better than expected. Higher-than-anticipated consumer demand combined with the controlled reopening of restaurants generated positive operative cash flow in June. Our turnover for June totalled approximately MEUR 14, exceeding the estimate we issued at the beginning of June by about 75 per cent. At the end of June, 30 per cent of our restaurants remained closed.

During the review period, we successfully stabilised the Group’s financing structure and secured our liquidity for the duration of the exceptional circumstances. Our net debt stood at MEUR 149.5 at the midpoint of the year (excluding the IFRS 16 effect), which is in line with the forecast we issued in our Q1/2020 report. In spite of the coronavirus situation, our medium-term objective remains to achieve the target ratio of net debt to normal operating cash flow of less than 3. Provided that the current demand situation continues, we estimate that our net debt will decline during the second half of the year. We have prepared for quick changes in demand during the remainder of the year and we are maintaining our cash and cash equivalents at a substantially higher level than usual. At the end of July, we had approximately MEUR 22 in cash and cash equivalents along with MEUR 16 in unwithdrawn limits. Our position in terms of liquid assets means that we are prepared for potential new changes in the market. We have successfully carried out cash flow positive business operations in spite of the restrictions on restaurants and prepared for the continuation of our operations in a restricted operating environment as well as the potential reintroduction of stricter restrictions.

As the future outlook remains foggy, we will continue to manage our business with a strong focus on cash flow and keep investments to a minimum. We have prepared three different future scenarios with action plans for each. We are currently moving ahead in accordance with our basic scenario, in which sales will be approximately 70–85 per cent of the normal level and the operating cash flow will be positive for the rest of the year. Demand has remained strong after the end of the review period. Our turnover in July totalled approximately MEUR 20, which is approximately 75 per cent of the turnover in the corresponding period last year. The turnover of our basic business operations without the summer’s concert and event sales was approximately 90 per cent of the figure in last year’s July. At this level of turnover, we estimate that our operating cash flow in July will amount to approximately MEUR 3.

The coronavirus crisis has brought our entire organisation and our stakeholders closer together. The Group’s ability to operate in extreme circumstances has been put to the test, our cash situation is significantly better than when the market shock occurred in the late winter and we are well-prepared even for rapid changes in our operating environment. Thanks to these factors, along with our highly committed personnel and broad customer base, my view of the future is now much more confident than it was in the early stages of the coronavirus pandemic.

Aku Vikström, CEO

OUTLOOK FOR 2020

The market

The coronavirus pandemic has had a serious impact on the company’s market and the restaurant industry as a whole, and the sudden change in the market has also considerably affected the company’s operations starting from March 2020. Potential measures introduced to reduce the spread of the coronavirus pandemic would have a substantial impact on the company’s business.

Profit guidance

On 13 March 2020, NoHo Partners cancelled its previously issued profit guidance for 2020 due to the impact of the coronavirus pandemic. At this time, the company will not specify its turnover and profitability forecast for this year due to the uncertain market situation. The financial impact of the pandemic on the Group’s business and outlook cannot be fully determined at present.

The profit guidance will be updated when visibility is improved and the overall impact of the coronavirus pandemic on the operating environment and the Group’s business can be assessed more accurately. The changes in the restrictions on business operations and the global economic uncertainty will have a significant impact on the Group’s turnover and financial result for the remainder of the year.

The company will specify its profit guidance for 2020 later this year.

The company will also provide monthly reports on the development of its business during these exceptional circumstances.

Financial targets

The Group cancelled the financial targets previously set for 2021 on 9 June 2020 and will specify its targets later this year.

CASH FLOW, INVESTMENTS AND FINANCING

The Group’s operating net cash flow in January–June 2020 was MEUR 5.7 (MEUR 20.1).

The Group made a growth investment in the second quarter of 2020. The acquisition of Friends & Brgrs was completed in accordance with the plan published in February 2020 and finalised on 3 April 2020.

The Group’s gearing ratio excluding the impact of IFRS 16 liabilities was 158.5%. Interest-bearing net liabilities excluding the IFRS 16 effect amounted to MEUR 149.5. IFRS 16 liabilities totalled MEUR 154.6. The Group’s interest-bearing net liabilities (including IFRS 16 liabilities) at the end of June 2020 were MEUR 304.2 (MEUR 322.4). Adjusted net finance costs in January–June 2020 were MEUR 5.4 (MEUR 4.2). The equity ratio was 19.9% (19.7%) and the gearing ratio was 326.3% (311.6%).

The finance costs for January–June 2020 include an exchange rate difference item of approximately MEUR 1.0 recognised due to a change in the rate of the Norwegian krone.

THE IMPACT OF THE COVID-19 PANDEMIC ON THE GROUP’S BUSINESS

The COVID-19 pandemic has had a significant impact on the Group’s business since March 2020. Once the business impacts of the COVID-19 pandemic became apparent in March, the Group reacted immediately by initiating determined adjustment measures and preparing for the changed market conditions. The Group reacted to the change by quickly driving down costs, temporarily laying off personnel and balancing its finances. On 13 March 2020, the Group cancelled the profit guidance for 2020 it had issued earlier in March due to the uncertain market situation and initiated negotiations pursuant to the Act on Co-operation within Undertakings on fixed-term part-time or full-time layoffs of 90 days at most, concerning all of the Group’s personnel in Finland, or approximately 1,300 people.

The Finnish Government ordered the closure of restaurants throughout the country starting from 4 April 2020, until the end of May, to prevent the spread of the coronavirus pandemic. The Group closed its nightclubs and a number of other restaurants in accordance with the recommendations of the authorities before the official order of the Finnish Government to close down all restaurants was issued. In Denmark and Norway, restaurants were closed in compliance with the orders issued by the authorities on 12–13 March 2020. In accordance with the recommendations issued by the Finnish Government, the Group cancelled all public events of more than 500 people from March until the end of July.

The Group’s largest fixed costs are staff expenses and business premises expenses. The Group negotiated a rent exemption mainly for April–May for 70 per cent of its leases in Finland. In Denmark and Norway, approximately 80 per cent of lease expenses and other fixed expenses were covered by the state during the crisis. The Danish state covered 80 per cent of wage expenses until 8 July 2020. The Group also prepared payment plans for trade payables with its suppliers until the end of 2020 in Finland, Denmark and Norway.

At the same time, the company negotiated a financing package of EUR 34 million with its funding partners in Finland, Denmark and Norway, of which Finnvera guaranteed EUR 15 million. In late May, the company finalised a refinancing programme for its maturing debt as part of its overall financing package. As the final part of the financing package, the company agreed on a debt of EUR 10 million with a right to conversion with the Finnish Industry Investment Ltd (Tesi). The financing is for stabilisation provided by Tesi in the coronavirus situation. The management of the Group estimates that this financing package, together with other financing arrangements, is sufficient to ensure the company’s working capital for the next 12 months in spite of the potential prolongation of the uncertain market situation caused by the coronavirus pandemic.

Cooperation negotiations were continued in May due to the uncertain market situation. As a result of the two-week negotiations, the continuation of the layoffs, either full-time or part-time, concerned approximately 550 employees in Finland.

Restaurant operations resumed in Denmark and Norway in May subject to country-specific restrictions. Once the gradual resumption of business operations in Finland began on 1 June 2020 in a restricted operating environment, the company has focused on the gradual resumption of its operations and financing its operations through cash flow.

Starting from the beginning of June, restaurants, entertainment venues and fast casual restaurants were reopened gradually and in a controlled manner. Approximately 30 per cent of the Group’s restaurants remained closed at the end of June. Nightclubs were reopened gradually starting from 26 June 2020 as the restrictions were relaxed and more extensively starting from 13 July 2020 as the restrictions on opening hours and alcohol serving hours were lifted.

Approximately 15 per cent of the Group’s restaurants remained closed at the end of July. Staff restaurants will reopen in August. The Group’s restaurants that are open by reservation, event restaurants and some nightclubs and other restaurants remain closed. By July, approximately 95 per cent of the Group’s employees had returned to work full-time or part-time.

Restrictions on restaurants

Restaurants in Finland were reopened at the beginning of June subject to restrictions on opening hours, alcohol serving hours and customer volumes. Starting from 22 June 2020, alcohol serving hours were extended from 10 p.m. to 1 a.m. and the permitted customer volume was increased from 50 per cent to 75 per cent of normal capacity. The restriction of the number of customers did not apply to terraces and outdoor premises, but the safety of customers had to be ensured in these premises as well. The restrictions on restaurant opening hours, alcohol serving hours and permitted customer volumes were lifted on 13 July 2020. From that date on, restaurants have been required to provide a seat for each customer. Restaurants are also still required to provide customers with instructions on the prevention of infectious diseases, such as hand washing and maintaining safe distances. Outdoor events attended by more than 500 people have been permitted in July subject to special restrictions. Indoor events attended by more than 500 people were also permitted starting from the beginning of August. The Finnish Government will review the necessity of the restrictions regularly and amend them as required based on the development of the coronavirus pandemic situation.

In Denmark and Norway, restaurants serving food were allowed to reopen in May. In Denmark, the number of customers in the indoor areas of restaurants is restricted, restaurants must close at midnight and gatherings of more than 500 people have been cancelled until the end of August 2020. Nightclubs and cocktail bars will remain closed until the end of August. In Norway, alcohol licences were reactivated for food-serving restaurants in Oslo on 6 May 2020 and the alcohol licences of other restaurants were reactivated at the beginning of June. The number of customers in the indoor areas of restaurants is restricted and food and beverages must be served at tables. Restaurants other than those categorised as restaurants serving food were allowed to reopen on 1 June 2020. Gatherings of more than 200 people are cancelled until further notice.

Government assistance during the state of emergency

The support received by the Group from the Finnish state totalled approximately MEUR 4.3 in January–June. Also in January–June, the Group received support amounting to approximately MEUR 2.9 from the Danish state and MEUR 1.2 from the Norwegian state. The financial support received by the Group from the Finnish, Danish and Norwegian governments for the period 1 January–30 June 2020 totalled approximately MEUR 8.4.

A more detailed account of government assistance, the distribution thereof and an estimate for the remainder of 2020 is presented in Note 5 Government grants in the Half-year report.

DESCRIPTION OF ACCOUNTING PRICIPLES

• NoHo Partners divested its labour hire business in August 2019. Starting from September 2019, the Group only has one segment: the restaurant business.
• Due to the divestment of the labour hire business, the Group has started to present alternative performance measures that improve comparability. These alternative performance measures are intended to improve the market’s understanding of the development and financial situation of the restaurant business. The most significant item added to the comparable result is the Group’s internal staffing service purchases that took place before the transaction. In the future, these will be presented as outsourced services. The calculation principles of the key figures that improve comparability are presented in more detail in Note 2 in the Half-year report.
• In the Half-year report’s comparison figures, the labour hire segment is treated as a discontinued operation and a separate item in the income statement. The comparison figures have been adjusted accordingly. For more information, see Note 2.
• In the Half-year report, the Group’s continuing and discontinued operations as well as the comparable continuing operations of the restaurant business are presented separately.
• The Group adopted operating cash flow as a new performance measure effective from 1 April 2020. (Calculation formula: EBIT + depreciation, amortisation and impairment losses – share of associated company’s result – translation of IFRS 16 lease expenses to be cash flow based.) This performance measure presents the cash flow generated by the company before investments, taxes and finance costs. It is intended to illustrate the cash flow generated by the restaurant business.
• Unless otherwise stated, figures in parentheses refer to the corresponding period last year.

BRIEFING FOR THE MEDIA, ANALYSTS AND INVESTORS AT 10:00 A.M.

A briefing for the media, analysts and investors will be organised today, Tuesday 11 August 2020 at 10:00 a.m. at restaurant Löyly, Hernesaarenranta 4, 00150 Helsinki. In the briefing, NoHo Partners CEO Aku Vikström will review NoHo Partners Plc's Q2/2020 financial performance, key events, the current state of business and the market outlook.

The briefing is also available as a live webcast at https://noho.videosync.fi/2020-q2-tulosinfo. The briefing will be held in Finnish. The presentation materials and a recording of the briefing will be available on the company’s website later today.

NoHo Partners’ full Half-year report for January–June 2020 is attached to this release as a PDF file. The Half-year report is also available at www.noho.fi.

Tampere, 11 August 2020

NOHO PARTNERS PLC

Board of Directors

ATTACHMENT: NoHo Partners Plc Half-year report Q2/2020

More information available from:                                                                                                     
Aku Vikström, CEO, NoHo Partners Plc, tel. +358 44 011 1989
Jarno Suominen, Deputy CEO, NoHo Partners Plc, tel. +358 40 721 5655
                                                                                                            
NoHo Partners Plc
Hatanpään valtatie 1 B
FI-33100 Tampere

www.noho.fi

NoHo Partners Plc is a Finnish group established in 1996, specialising in restaurant services. 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 250 restaurants in Finland, Denmark and Norway. The well-known restaurant concepts of the company include Elite, Savoy, Teatteri, Yes Yes Yes, Stefan’s Steakhouse, Palace, Löyly, Hanko Sushi, Friends & Brgrs and Cock’s & Cows. In 2019, NoHo Partners Plc’s turnover was MEUR 272.8 and EBIT MEUR 30.6. Depending on the season, the Group employs approximately 2,100 people converted into full-time workers.

NoHo Partners corporate website: www.noho.fi/en
NoHo Partners consumer website: www.ravintola.fi/en