Noho Partners Plcs’s Interim Report 1 January–31 March 2020: The coronavirus pandemic had a strong impact on the business environment — the Group initiated determined adjustment measures

NoHo Partners Plc

INTERIM REPORT 9 June 2020 at 8:15 a.m.

NOHO PARTNERS PLCS’S INTERIM REPORT 1 JANUARY–31 MARCH 2020

The coronavirus pandemic had a strong impact on the business environment — the Group initiated determined adjustment measures

In March 2020, the Group’s business stopped almost entirely due to the market collapse caused by the coronavirus pandemic. The turnover of the restaurant business for January–February 2020 increased in line with expectations, by approximately MEUR 7.5 compared to the corresponding period in the previous year, while EBIT grew by about MEUR 0.6. The result of the restaurant business decreased by MEUR 9.0 in March due to turnover decreasing MEUR 10.7 from the corresponding month in the previous year due because of the market disruption, and the adjustment measures launched by the company did not yet have effects on the result for March. The Group took immediate action when the market disruption occurred and took determined action to adjust its operations. These included temporary layoffs and cost reductions as well as negotiations concerning rent payments and financing. After the end of the review period, the Group finalised a financing package for the exceptional period caused by the coronavirus pandemic to ensure sufficient liquidity through this time of market disruption. Starting from June 2020, the company will focus on the gradual resumption of its business in a restricted operating environment and financing operations through cash flow.

TURNOVER AND INCOME

JANUARY–MARCH 2020 IN BRIEF

Group (continuing and discontinued operations):

• Turnover declined by 5.9 per cent to MEUR 50.1 (MEUR 53.2).
• EBIT fell by 230.6 per cent to MEUR -6.6 (MEUR 5.0).
• The EBIT percentage was -13.2 per cent (9.5 per cent), a decrease of 238.8 per cent.
• The result for the financial period was MEUR -8.9 (MEUR 2.8), a decrease of 413.7 per cent.
• Earnings per share were EUR -0.45 (EUR 0.15), a decrease of 403.6 per cent.
• The gearing ratio excluding the impact of IFRS 16 liabilities was 138.2 per cent. Interest-bearing net liabilities excluding the IFRS 16 effect amounted to MEUR 139.9. IFRS 16 liabilities totalled MEUR 148.9. The gearing ratio including the effect of IFRS 16 was 286.8 per cent.

Restaurant business (comparable continuing operations):

• Turnover fell by 6.0 per cent to MEUR 50.1 (MEUR 53.3).
• EBIT fell by 477.1 per cent to MEUR -6.7 (MEUR 1.8).
• The EBIT percentage was -13.3 per cent (3.3 per cent), a decrease of 501.1 per cent.
• The result for the review period attributable to the owners of the parent company was MEUR -8.0 (MEUR 2.2), a decrease of 466.0 per cent.
• Earnings per share were EUR -0.46 (EUR 0.12), a decrease of 493.9 per cent.
• The review period’s comparison figures for earnings per share in 2019 include a price adjustment of MEUR 2.1 in the Group’s operations in Denmark, recognised in the financial income.

Significant events in the review period:

• On 17 February 2020, the company redeemed the EUR 25 million hybrid bond issued on 29 March 2019.
• Policies and orders issued by the national authorities in Finland, Denmark and Norway in response to the coronavirus pandemic and changes in customer behaviour brought the restaurant business to a halt in March.
• The national authorities ordered the closure of restaurants from 12 March to 11 May in Denmark and from 13 March to 6 May in Norway.
• The company initiated determined adjustment measures and co-operation negotiations in March, concerning approximately 1,300 employees in Finland.

Significant events after 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.
• During the closure of restaurants, costs external to operating activities amounted to MEUR 2.7 in April and approximately MEUR 2 in May. Reductions in rent totalled about MEUR 3.5 in April–May, representing approximately 70% of the Group’s leases.
• In April, the company reached an agreement on a MEUR 34 financing package for the period of business disruptions caused by the coronavirus crisis.
• 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).
• The Finnish national authorities lifted many of the restrictions on the restaurant business and the company resumed its operations in a restricted operating environment on 1 June 2020. In Denmark and Norway, restaurant operations were resumed on a restricted basis in early May.
• In the first week of June, approximately 130 of the Group’s restaurants were open.

SUMMARY

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

Operationally, the year got off to a good start and the Group’s turnover in January–February 2020 grew by approximately MEUR 7.5 compared to the corresponding period last year and EBIT increased by MEUR 0.6 year-on-year. The rapid spread of the coronavirus pandemic and the consequent policies and orders issued by the authorities — as well as changes in customer behaviour — meant that the Group’s business was brought to an almost complete halt in March. Turnover in March was MEUR 10.7 lower than in the corresponding period in the previous year, while EBIT decreased by MEUR 9.0. The result for the review period was affected by rent and employee expenses in March and the costs of suspending business operations.

In Denmark and Norway, government financial support amounting to approximately MEUR 0.9 was recognised during the period 1 January–31 March 2020.

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 first quarter got off to a strong start but ended in highly exceptional circumstances. The coronavirus outbreak became a global pandemic and brought restrictions that had a very significant impact on our business from March onwards. 

The impact was seen in all of our geographical markets, with the governments and health authorities in various countries imposing very strict restrictions on movement and interaction. The restaurant closures ordered by the national authorities in Finland, Denmark and Norway reduced the turnover of our restaurants to nearly zero.

I wish to thank our personnel for operating in a very challenging environment in accordance with the recommendations and guidelines issued by the governments and health authorities in our operating countries. Our employees went through a demanding process of change last year. I hoped that, this year, they would finally be able to focus on developing our business and creating excellent customer experiences. Instead, we were faced with a situation that forced us to quickly adjust our cost structure to a level corresponding to a 95 per cent drop in turnover during the lockdown. We had to temporarily lay off nearly all of our employees in response to this pressure to implement changes.

While we have had to manage our business in highly exceptional circumstances since March, we have simultaneously proved the effectiveness of our operating model and found that our performance is strong, even during these highly challenging exceptional conditions. Our partner model has also proved its flexibility in these exceptional times, for which I would like to thank our entrepreneur shareholders.  We navigated our company through the worst of the exceptional situation by reacting fast and taking tough measures, such as temporary layoffs, quick cost reductions and urgent negotiations concerning rent payments and financing. At the same time, we succeeded in rapidly developing digital sales channels and take away business models and completed the Friends & Brgrs acquisition in the challenging situation, which brought a significant addition to our business portfolio. In late May 2020, we finalised our funding package for the period of exceptional circumstances, and our focus is now on the resumption of our business and ensuring the continuity of our operations.

Our goal remains to be the most meaningful restaurant operator in Northern Europe, but our road map has now changed as far as the year 2020 is concerned. We have prepared a three-stage action plan for managing the impacts of the coronavirus pandemic. In the first phase, we implemented determined adjustment measures in the exceptional operating environment. Now, in the second phase of the plan, we are operating in a restricted business environment and resuming our business operations in a managed and gradual manner over the coming months. Decisions on the resumption of business will be made on a weekly basis and separately for each business location. Our goal is to ensure a positive operating cash flow, even in the restricted operating environment, as the restaurant industry gradually recovers. In the third phase, we will focus on strengthening our competitiveness and capital structure in the post-coronavirus pandemic restaurant market.

Restaurant sales and reservations during the first weeks after reopening indicate that customer demand is recovering in Finland and in our international markets. The recently confirmed financing structure will provide us with the flexibility to survive exceptional times, even in case of limited demand.

We have engaged in active and regular communication with our stakeholders during this highly exceptional situation. We regularly update the Investor Q&A page we published in April. We will also provide monthly reports on the development of our business during these exceptional circumstances. Together with our employees and stakeholders, we are committed to navigating our company through the current crisis, which is the hardest our industry has ever faced. I am confident that, even after the coronavirus pandemic, our company will be in a good market position to benefit from its competitive advantage and implement its value creation strategy. Achieving our goal is currently not entirely in our own hands, which is why we will update our strategic objectives and timetables later this year.

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

NoHo Partners has cancelled the financial targets previously set for 2021 and will specify the targets later this year.

Previous profit guidance (as of 5 March 2020):

NoHo Partners estimates that, during the financial period 2020, the Group will achieve a total turnover of approximately MEUR 300 and an EBIT margin of approximately 9 per cent. The turnover of the restaurant business (comparable continuing operations) is estimated to be approximately MEUR 300 and the EBIT margin to exceed 7.5 per cent.

In terms of the Group’s restaurant business, the goal is to achieve a turnover of approximately MEUR 350 and an EBIT margin of approximately 8 per cent by the end of 2021. 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.

* The restaurant business in Norway became part of the Group after the Q1/2019 review period, on 1 April 2019.

CASH FLOW, INVESTMENTS AND FINANCING

The Group’s operating net cash flow in January–March 2020 was MEUR 3.8 (MEUR 5.7).

Growth investments made during the review period included the opening of new restaurants, such as Wallis and Hook in Levi, Madonna in Helsinki, Space Bowling & Billiards in Oulu and the launch of Cloud Kitchen virtual restaurant.

The Group’s gearing ratio excluding the impact of IFRS 16 liabilities was 138.2 per cent. Interest-bearing net liabilities excluding the IFRS 16 effect amounted to MEUR 139.9. IFRS 16 liabilities totalled MEUR 148.9. The Group’s interest-bearing net liabilities (including IFRS 16 liabilities) at the end of March 2020 were MEUR 288.8 (MEUR 288.9). Adjusted net finance costs in January–March 2020 were MEUR 3.3 (MEUR 2.0). The equity ratio was 22.6 per cent (21.0 per cent) and the gearing ratio was 286.8 per cent (278.9 per cent).

The finance costs for the review period include a significant exchange rate difference item of MEUR 1.5 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 Group’s restaurant business faced a dramatic turn of events in March 2020 when the coronavirus (COVID-19) pandemic and the policies imposed by the national authorities led to the closure of restaurants in Finland and internationally. Prior to the coronavirus crisis, NoHo Partners was in a strong position as it entered the new financial year. The company’s operational business was at a good level in January–February 2020.

Due to the pandemic and significant market disruption caused by the coronavirus that arrived in Finland in March, the Group’s business operations was contracted almost completely. Once the impact of the COVID-19 crisis became apparent, the company reacted immediately by starting determined adjustment measures and preparing for the changed market conditions. The company’s largest fixed costs are staff expenses and business premises expenses. When the market disruptions occurred, the company focused on quickly reducing expenses, laying off personnel and balancing its finances while restrictions on its business are in place.

In accordance with the orders issued by the Finnish Government on 12 March 2020, the Group immediately cancelled all public events of more than 500 people until the end of May 2020. On 13 March 2020, the Group cancelled its previous profit guidance for 2020 due to the uncertain market situation. The company announced negotiations in accordance with the Act on Co-operation within Undertakings on 13 March 2020 and their rapid progress on 18 March 2020, at which time the company reported that, due to the sudden change in the circumstances of the coronavirus pandemic and the recommendations and orders issued by the authorities and the Finnish Government, it had made a decision concerning layoffs without prior co-operation negotiations. The layoffs are temporary, with a duration of 90 days at most, and they concern all of the Group’s personnel in Finland, totalling approximately 1,300 employees. On 15 May 2020, the company announced that it will begin co-operation negotiations on continuing temporary layoffs due to the uncertain market situation. The final number of laid off employees and the duration of the layoffs will be specified at a later time.

In April, the company negotiated a two-month rent exemption for approximately 70 per cent of its leases. In Denmark and Norway, the national government covers approximately 80 per cent of leases during the crisis. The Group is currently negotiating on leases for the next couple of months with its lessors.

The Finnish Government decided to close restaurants throughout the country starting from 4 April 2020, until the end of May, to prevent the spread of the coronavirus. The company closed its nightclubs before the official order of the Finnish Government to close down all restaurants. In Denmark and Norway, restaurants were closed in compliance with the orders issued by the authorities on 12–13 March 2020.

At the same time, the company negotiated a financing package of EUR 34 million 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 the financing package is sufficient to ensure the company’s working capital until the end of 2020 in spite of the potential prolongation of the uncertain market situation caused by the coronavirus pandemic. Once restaurants reopen, the company will focus on the gradual resumption of its operations and financing its operations through cash flow.

The gradual resumption of business operations in Finland began on 1 June 2020 in a restricted operating environment. Restaurant operations resumed in Denmark and Norway in early May subject to country-specific restrictions. The company has prepared for the reopening of restaurants by drafting special safety and hygiene instructions aimed at protecting the personnel and customers in accordance with the national recommendations and guidelines.

Restrictions on restaurants

According to the practical restrictions imposed by the Finnish Government, restaurants can be open from 6 a.m. to 11 p.m. as of the beginning of June, and alcohol can be served from 9 a.m. to 10 p.m. The number of restaurant customers is limited to one-half of the number specified in the licence to serve alcohol. The restriction of the number of customer does not apply to terraces and outdoor premises, but the safety of customers must be ensured in these premises as well. Tentatively, the restrictions of restaurant operations are intended to remain in force until the end of October 2020. 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 early 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 remain closed. 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. Restaurants other than those categorised as restaurants serving food were allowed to reopen on 1 June 2020. Public events of more than 50 people are cancelled until 15 June 2020.

Government assistance during the state of emergency

The Finnish Parliament has approved legislation on compensating restaurants for the losses suffered due to their forced closure. As a rule, the compensation will take the form of mass payments, without separate applications, for the period from 4 April to 31 May 2020. The compensation amounts are based on reductions in sales in April 2020, using the average sales in April–May 2019 or the average sales in January–February 2020 as the point of comparison. The compensation will represent 15% of the reduction in sales up to one million euros and 5% of the reduction in sales for the proportion exceeding one million euros.
Re-employment support will be paid in the amount of EUR 1,000 per employee. Eligibility for the re-employment support is subject to the employee in question being paid total wages of at least EUR 2,500 during the period from 1 June to 31 August 2020, or the costs of a leased employee being at least EUR 4,500 for the same period.

The total compensation amount for the entire Group is estimated to be approximately MEUR 5 million, including entrepreneur-driven subsidiaries. The Group’s parent company NoHo Partners Plc is estimated to receive approximately MEUR 0.5 of the total compensation amount.

In Denmark, the company has received a direct subsidy for the interruption of business. Up to 75% of monthly salaries and 90% of hourly salaries will be compensated up to a maximum of EUR 4,000. About 80% of fixed expenses will be compensated in increments in proportion to the decrease in turnover. The subsidy is in effect for the period from 12 March to 8 July 2020.

In Norway, the government grants a direct subsidy by paying approximately 80 per cent of fixed expenses. Also in Norway, the government made layoffs easier and took on 12 days worth of salaries for the layoff period, which the company normally would be obligated to pay for 14 days. The subsidy is in effect for the period from 1 March to 1 August 2020.

The financial support received by the Group from the Danish and Norwegian governments for the period 1 January–31 March 2020 will amount to approximately MEUR 0.9. For the second quarter of 2020, the financial support will total approximately MEUR 2.6.

DESCRIPTION OF ACCOUNTING PRINCIPLES

• 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 Interim Report.
• In the interim 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 interim report, the Group’s continuing and discontinued operations as well as the comparable continuing operations of the restaurant business are presented separately.
• 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 9 June 2020 at 10:00 a.m. at restaurant Palace, Eteläranta 10, 00130 Helsinki. In the briefing, NoHo Partners CEO Aku Vikström will review the most significant events in the first quarter of 2020, financial performance and future outlook.

The briefing is also available as a live webcast at https://noho.videosync.fi/2020-q1-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 interim report for January–March 2020 is attached to this release as a PDF file. The interim report is also available at www.noho.fi.

Tampere, 9 June 2020

NOHO PARTNERS PLC

Board of Directors

ATTACHMENT: NoHo Partners Plc Interim report Q1/2020

More information available from:                                                                                                     
Aku Vikström, CEO, tel. +358 44 011 1989
Jarno Suominen, Deputy CEO, 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
NoHo Partners consumer website: www.ravintola.fi