Hostmore plans to move to an “asset light” fully franchised model with no corporate stores following its acquisition of TGI Friday’s in the US. The group, which owns the TGI Friday’s UK franchise, aims to sell all its corporate stores to franchisees.
These franchisees will then run the stores and pay royalties to Hostmore.
Currently, Hostmore operates 87 corporate sites, while TGI Friday’s has 92. The transition has already started, with TGI Friday’s having agreements to sell a significant portion of its corporate stores for over $40 million.
Hostmore is still finalizing the terms of the proposed all-share reverse takeover of TGI Friday’s, valued at £177 million, which was announced in April. According to Hostmore’s latest update, completing a refinancing at the closing of the transaction is a prerequisite to entering binding terms for the acquisition.
With the new business model, the funding needs of the combined group will be significantly lower, making long-term debt financing less attractive. Instead, Hostmore is discussing with lenders and stakeholders to repay or reduce existing debt using proceeds from the sale of corporate stores or new facilities.
Hostmore noted that while this revised business model and financing structure are more cost-effective and beneficial to shareholders, it will take longer than the earlier refinancing process. Consequently, the acquisition may not close by the end of Q3 2024 as initially planned.
A spokesperson for Hostmore said, “The board and F continue to work closely and collaboratively towards a positive result, as the boards of both businesses believe that the acquisition is the optimal outcome for both sets of shareholders.” Additionally, the board is exploring other options to secure value for the group should the acquisition not be completed.
Revenue Decline And EBITDA Improvement in Half-Year Results
Hostmore also released its half-year results (H1 2024), showing a 10% decline in like-for-like (LFL) sales, consistent with the 10% decline reported through 26 May. Sales in June varied, with LFL sales for the first two weeks falling by 2% and the final two weeks dropping by 20% due to the Euros football tournament and unusually warm weather.
These trends continued into July, with LFL sales for the first three weeks declining by 23%, resulting in a year-to-date LFL sales decline of 12% compared to the same period in 2023.
Despite a loss of £1.2 million in earnings before interest, taxes, depreciation, and amortisation (EBITDA) for H1 2024, this was an improvement of £2.6 million compared to the £3.8 million loss in H1 2023. Hostmore attributed this improvement to the cost reduction program implemented in 2023 and strong operational discipline.
As a result of trading in the period, Hostmore’s net debt at the end of H1 2024 was £29.7 million, up from £25.1 million reported on 31 December 2023. The board is in discussions with various parties regarding additional financing.