RESTAMAX PLC INTERIM REPORT FOR 1 JANUARY-30 SEPTEMBER 2018: Turnover increased by 71 per cent - exceptionally large non-recurring items reduced profitability, guidance updated

Restamax Plc

INTERIM REPORT 6 NOVEMBER 2018 at 8:00

RESTAMAX PLC INTERIM REPORT FOR 1 JANUARY-30 SEPTEMBER 2018

Turnover increased by 71 per cent - exceptionally large non-recurring items reduced profitability, guidance updated

TURNOVER AND INCOME

The Group's Income for the Third Quarter of 2018

Entire Group:

The Group's turnover was MEUR 102.4 (MEUR 55.9), growth of 83.1 per cent. EBITDA was MEUR 9.2 (MEUR 7.5), growth of 23.6 per cent. Operating profit was MEUR 0.5 (MEUR 4.4), decrease of 88.7 per cent.

Restaurant business:

The turnover of the restaurant business segment was MEUR 66.2 (MEUR 33.2), growth of 99.5 per cent. EBITDA was MEUR 6.4 (MEUR 4.9), growth of 30.3 per cent. Operating profit was MEUR -1.2 (MEUR 2.6), decrease of 145.8 per cent.

Labour hire business:

The turnover of the labour hire business segment was MEUR 39.9 (MEUR 26.1), growth of 52.8 per cent. EBITDA was MEUR 2.8 (MEUR 2.7), growth of 4.4 per cent. Operating profit was MEUR 1.7 (MEUR 1.8), decrease of 7.0 per cent.

The Group's Income for January-September 2018

Entire Group:

The Group's turnover was MEUR 224.8 (MEUR 131.5), growth of 71.0 per cent. EBITDA was MEUR 21.1 (MEUR 14.7), growth of 44.2 per cent. Operating profit was MEUR 4.5 (MEUR 6.4), decrease of 29.3 per cent.

Restaurant business:

The turnover of the restaurant business segment was MEUR 142.1 (MEUR 87.8), growth of 61.8 per cent. EBITDA was MEUR 14.9 (MEUR 10.4), growth of 43.1 per cent. Operating profit was MEUR 1.1 (MEUR 3.4), decrease of 68.7 per cent.

Labour hire business:

The turnover of the labour hire business segment was MEUR 92.9 (MEUR 52.2), growth of 77.9 per cent. EBITDA was MEUR 6.2 (MEUR 4.7), growth of 33.6 per cent. Operating profit was MEUR 3.5 (MEUR 3.0), growth of 14.0 per cent.

Figures in parentheses refer to the period last year, unless otherwise stated.

SUMMARY

Between January and September, turnover increased by 71.0 per cent and EBITDA by 44.2 per cent, and operating profit decreased by 29.3 per cent from the corresponding period the previous year. In July-September, turnover increased by 81.3 per cent, EBITDA increased by 23.6 per cent and operating profit decreased by 88.7 per cent from the corresponding period in the previous year.

During the review period, the result was affected in the restaurant segment by unusually large non-recurring items connected to the sale or discontinuation of unprofitable business, which amounted to approximately MEUR 3.2, including a MEUR 2.8 write-off of fixed assets. Other factors that affected the result of the restaurant business in the review period were the integration costs of the Royal Ravintolat deal and investments in international business. The write-offs have no cash flow implications.

In the labour hire segment, significant investments were made during the review period to carry out the IPO of Smile Henkilöstöpalvelut Oyj and to list the company on the Nasdaq Helsinki Ltd Stock Exchange. Costs connected to the IPO amounted to approximately MEUR 1.5, which included approximately EUR 859,000 of finance costs and approximately EUR 641,000 of other operating expenses.

Especially in the restaurant business, most of the profits are made in the second half of the year due to the seasonal nature of the business.

PROSPECTS FOR 2018

Profit guidance (as of 6 November 2018):

In accordance with its strategy, Restamax estimates the Group's turnover to increase and profitability (as measured by EBITDA) to remain at a good level in both segments in the 2018 financial period. The restaurant segment is expected to reach a turnover of over MEUR 200, and in labour hire, a turnover of approximately MEUR 125 is expected, the total turnover being some MEUR 310 after eliminations.

Restamax will further specify its long-term financial targets during the 2018 financial period.

Previous profit guidance (as of 7 August 2018):

In accordance with its strategy, Restamax expects the Group's turnover to increase and profitability to remain at a good level in both segments in the 2018 financial period. The restaurant segment is expected to reach a turnover of over MEUR 200, and in labour hire, a turnover of approximately MEUR 110 is expected, the total turnover being some MEUR 300 after eliminations.

Restamax will further specify its long-term financial targets during the 2018 financial period.

*) The labour hire reference data for 2017 presented in the table has been adjusted to correspond to the application method of the IFRS 15 standard adopted in the labour hire segment in 2018.


CEO AKU VIKSTRÖM

From a transition phase towards profitable growth

In January-September 2018, the Group's turnover increased by 71 per cent, EBITDA increased by more than 44 per cent, and operating profit decreased by more than 29 per cent in comparison with last year's reference period. Restamax is going through a period of transition that started in the second quarter of 2018. Strong growth has created challenges for business, and the integration phase of Royal Ravintolat has consumed the company's resources, which has also reflected in operative activities. During the third quarter, the company experienced major changes while preparing to list its subsidiary Smile Henkilöstöpalvelut, initiating transformative action in order to develop the profitability of its core business, and building a growth platform for international expansion in the future.

The result of the review period was affected by exceptionally large non-recurring items, the most important of which involved the sale or discontinuation of unprofitable business in the restaurant segment, front-loaded investments in international business, integration costs of the Royal Ravintolat acquisition as well as direct costs resulting from the Smile listing initiative. Consequently, the company's result for the third quarter is weak. In the medium term, however, we see that the ongoing significant and goal-oriented transformation efforts constitute a sustainable road towards profitable growth already during 2019. We are now going through a significant transformation process, the aim of which is to lead the company, stronger than ever, towards an era of profitable growth. This goal is supported by a new strategy, the preparation of which is well under way.

Restamax is one of Finland's fastest-growing listed companies, and it has experienced strong, steady growth from the beginning of its history (2006-2017 CAGR +32%). Over this time period, it has grown from a company with MEUR 8 turnover into a Group whose estimated turnover will be more than MEUR 300 this year, while becoming Finland's largest company in the restaurant industry and one of the largest operators in the labour hire field. The company's strong market position and size have brought about long-term competitive and scale advantages in terms of procurement, HR management, management and administration as well as the development of back-end systems. The necessary non-recurring items and reorganisation measures entailed in the transformation will take place over the latter half of 2018 and will start to show results during 2019. In this context, the company will specify its own goals and operating models ranging from EBITDA-oriented business to relative profitability, which will be measured by the operating profit percentage starting from 2019.

The company's strategy of profitable growth divides into two categories. In the short term, the objective is to return the company's profitability to a historically good level after a phase of strong growth. Simultaneously in the long term, the company's strategy of profitable growth is based on developing organic growth and creating new profitable growth platforms.

The short term (2018-2019) profitability programmes consist of 1) Royal Ravintolat integration, 2) Portfolio restructuring, and 3) the Core business development programme. In the long term, the key profitable growth programmes are 1) Investing in sales and marketing, 2) Selected big and profitable new projects, and 3) Building an international growth platform.

Aiming to achieve synergy benefits of at least MEUR 6

The first short-term profitability programme, integrating Royal Ravintolat into the Group, has proceeded as planned. The key business metrics of customer satisfaction, personnel satisfaction and EBITDA have remained at a good level in restaurant units in the midst of change. The company's integration into the Group is expected to bring about synergy benefits of at least MEUR 6 by the end of 2019.

Synergies are estimated to mainly comprise three areas: consolidating management and administration (synergy value MEUR +1), the purchase and procurement synergy benefits entailed in the new company's volume (synergy value MEUR +1.5), and the introduction of a new, more flexible staffing structure (synergy value MEUR +3.5). The last item mentioned above has required updates to the work contract structure in restaurant operations, enabling units to meet the fluctuation of demand more effectively by increasing workforce during peak periods and, similarly, reducing staff during quiet weekdays and periods. This change was implemented together with the staff in compliance with the cooperation procedure, and the negotiations will result in the reduction of 200 positions and in the shifting to part-time work of 40 positions. The arrangements apply to both clerical and regular employees. The results of the cooperation negotiations were announced on 5 November 2018.

More profitable portfolio through restructuring

The second short-term profitability programme focuses on restructuring the company's unit portfolio. Strong growth, the acquisition of Royal Ravintolat in the biggest market in Helsinki and a strategy of profitable growth have enabled a critical inspection of the unit portfolio in terms of profitability. Units whose profitability does not meet the company's target level or whose circumstances are not considered adequate in terms of their lease agreement and concept have been sold or discontinued. These units include the restaurants Enso and Hieta in Helsinki, the Colorado restaurants in Tampere and at Hernesaaren Ranta in Helsinki, and Bella Roma in Tampere.

Non-recurring items with related write-offs resulting from the restructuring measures encumbered the third quarter result by more than MEUR 3. The write-offs have no cash flow implications. The restructuring of the restaurant portfolio will be carried out in a committed fashion during this year's third and fourth quarters to ensure that the company's focus, both in terms of financial and staffing resources, can be fully shifted towards developing the profitable growth of core business starting from 2019. The biggest write-offs took place during the third quarter, and the programme will be completed during 2018.

Focus on developing core business

The third short-term profitability programme is related to developing the company's core business. Our portfolio includes more than 200 restaurants across four business lines: food restaurants, fast casual restaurants, nightclubs and entertainment restaurants as well as restaurants operating abroad. Restamax has a strong market position in Finland's key growth centres and value-based market segments. The company has started redesigning concepts for approximately ten restaurants, aiming to strengthen the restaurants' business ideas and put them back on the path of profitable growth during 2019.

By redesigning the concepts, we are utilising our significant competitive advantage by forming subsidiaries with long-term restaurant entrepreneurs. We consider the entrepreneurship-based operating model an effective one and an important part of developing our business. One of the cornerstones of our business involves our partners' strong commitment to developing and marketing the concepts and operating the daily restaurant business while having the support of a large company, increasing the purchase volume and utilising their solid financial know-how.

Sales and marketing operations as accelerators of organic growth

The first long-term profitable growth programme is related to developing the sales and marketing operations of the Group in order to accelerate organic growth. Restamax's business operations have been developed extensively over the course of the third quarter of 2018. We have started centralising the sales service operations of Tampere and Helsinki to Helsinki and are aiming to consolidate the operations by the end of 2018. Centralisation enhances the efficiency of the organisation's cross sales, improves customer service and creates cost savings. In the meantime, we have increased the sales organisation's key customer services both for contractual customers and the acquisition of new customers. The aim is to increase the number of profitable customers and purchases and improve the customer experience, which is facilitated by our extensive restaurant portfolio.

Sales systems integration and development is proceeding as planned. Furthermore, the organisation's internal marketing department has been reinforced both in terms of staffing resources and digital tools. Developing the organisation's digital presence is one of our key business priorities.

Big projects with future potential

The second long-term profitable growth programme entails investing in big projects, such as hall and event projects. We see a great number of future business opportunities in this growing and interesting market. Our extensive and diversified restaurant portfolio makes the simultaneous offering of high-quality service experiences to various customer segments possible. The plan is to initiate new ventures on this growth market by carefully selecting profitable targets. Sizeable new projects are in the pipeline, to be published in the near future.

Internationalisation fuelling future growth

The third long-term profitable growth programme consists of developing our international business operations. In April 2018, we expanded our restaurant business to Denmark, acquiring 11 new restaurants in our portfolio. Since April, we have continued our expansion in Denmark by opening two restaurants in the new restaurant district at Copenhagen Airport, which is visited by approximately 20 million passengers annually. The restaurants Cock's & Cows and The Bird constitute a significant investment into future growth and visibility. During the third quarter, our restaurants and the airport's new restaurant area were gradually ramped up. Integration of the operations takes time, and the costs of building the new business growth structure are visible in the restaurants' result for the year, but the business prospects for the rest of the year and next year are rather favourable.

We are expanding our business operations abroad according to strategy. We are actively developing our business in Denmark and are currently discussing the expansion of our operations in Denmark and possibly accessing a new market.

Smile continues to grow despite cancelled listing

In the labour hire segment, the main focus of the review period was on carrying out the initial public offering (IPO) of Smile Henkilöstöpalvelut Oyj and the listing of the company on the Nasdaq Helsinki Ltd Stock Exchange. The IPO was cancelled as the lead manager, Nordea Bank Oyj, withdrew from the IPO. The withdrawal was not connected to Smile's operations or financial position. The requirements for carrying out the IPO set by Nasdaq Helsinki would have been met, and subscriptions to the IPO exceeded the requirements laid down in the prospectus.

The IPO attracted interest from institutions, personnel and the public. The number of subscription offers exceeded 90 per cent of the number of shares offered in the IPO, excluding the greenshoe option. In the offering to institutional investors, subscription offers totalled approximately 98 per cent, the offering to personnel was oversubscribed, and the public offering's subscription offers amounted to approximately 38 per cent of the preliminary maximum under the terms of the IPO, which would have been enough to carry out the IPO.

Despite the cancellation of the listing, we believe in Smile's value now and in the future. Smile is one of the most profitable and quickly growing labour hire businesses in Finland in one of the country's most quickly growing markets. In 2015-2017, the company tripled its turnover, and the cancellation of the listing does not affect its business operations. After the listing process, the foundation of Smile's business is stronger than ever, and the company will continue its profitable growth as a part of Restamax Group.

The listing costs in the review period amounted to approximately MEUR 1.5, which included approximately EUR 859,000 of finance costs and approximately EUR 641,000 of other operating expenses. In addition to the listing, during the review period, Smile worked systematically to integrate acquired businesses into the company's operations, which work will continue during the rest of the year. For example, in March 2018, Smile acquired a majority in construction industry labour hire company Adicio Oy, which specialises in the import of foreign construction labour into Finland. The concept of the company, which currently operates under the name Smile Import Oy, works well, and the import of foreign labour is seen as having significant future growth potential.

The growth prospects of the labour hire market are positive. There is a labour shortage evident in the market, which has partly slowed down Smile's operational growth. The IPO was organised to finance Smile's future growth. Smile has its sights on the growth targets laid down in its strategy and, during the rest of the year, will actively explore options for facilitating future growth.

Moving on to the next strategic phase

Our operations stand on three cornerstones: a strong market position in Finland, a promising start in international restaurant operations, and labour hire operations performing rather well. Right now, we are in the midst of great change as we move on to the strategic phase of profitable growth.

The corporate acquisition of Royal Ravintolat and opening of international operations with the corporate acquisition in Denmark are choices of our growth strategy. Restamax aims to be the most significant restaurant company in Northern Europe. With market leadership, the company will move from the strategy of strong growth to a phase of profitable growth. The work to achieve this change was launched during the third quarter of 2018 by the new management team. Our growth strategy also requires external funding, for which the company has available various financial instruments. Relative to next year's strong cash flow, the company's debt ratio is good and the company's MEUR 142 net liabilities are controlled.

The company will announce its new name as well as update the new strategy of profitable growth and long-term targets during the 2018 financial period.

Aku Vikström, CEO

Press conference for media and analysts at 10:00 am

There will be a press conference for media and analysts today, Tuesday 6 November 2018, starting 10:00 am at Restaurant Palace at Eteläranta 10, 00130 Helsinki. Restamax Plc's CEO Aku Vikström and Smile Henkilöstöpalvelut Oyj's CEO Sami Asikainen will present the result for the review period and speak about topical issues and future prospects. The presentation material and a video recording will become available on the company website later today.

The full Restamax Interim Report for January-September 2018 is appended to this release in PDF format. The interim report is also available on the company's website at www.restamax.fi.

RESTAMAX PLC

Board of Directors

APPENDIX: Restamax Plc Interim Report Q3/2018

Additional information:
Aku Vikström, CEO, tel. +358 44 011 1989
Jarno Suominen, CFO, tel. +358 40 721 5655

Distribution:
NASDAQ Helsinki
Major media
www.restamax.fi

Restamax 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, nightclubs and entertainment centres all over Finland. The company also has restaurant business operations in Denmark. In June 2018, the company purchased Royal Ravintolat. Well-known restaurant concepts of the Group include Stefan's Steakhouse, Viihdemaailma Ilona, Classic American Diner, Hanko Sushi, Sandro, Savoy and Teatteri. In 2017, Restamax Plc's turnover was MEUR 185.9 and EBITDA MEUR 22.4. Depending on the season, the Group employs approximately 4,000 people converted into full-time workers. Restamax's subsidiary Smile Henkilöstöpalvelut Oyj employs approximately 10,000 people during the 2018 financial period.

Restamax company website: www.restamax.fi, Restamax consumer website: www.ravintola.fi, Royal Ravintolat: www.royalravintolat.fi, Smile Henkilöstöpalvelut: www.smilepalvelut.fi