Preliminary results 12 months ended 30 Sept 2017

Patisserie Holdings PLC ('the Group')

Preliminary results for the 12 months ended 30 September 2017

Patisserie Holdings PLC, the leading UK branded café and casual dining group, today reports its preliminary results for the 12 months ended 30 September 2017

Financial summary

Financial highlights

· Revenue up 9.7% to £114.2m (2016: £104.1m)

o Online sales up 26% to £4.8m (2016: £3.8m)

· Gross profit of £89.3m up by 9.8% (2016: £81.3m)

o Gross margin of 78.2% (2016: 78.1%)

· EBITDA of £25.6m up 15.7% (2016: £22.2m)

· Excellent growth in pre-tax profit to £20.2m up 17.1% (2016: £17.2m)

· Diluted earnings per share of 16.20 pence up 19.1% (2016: 13.60 pence per share)

· Net cash at year end of £21.5m (2016: £13.3m) with operating cash inflows of £24.4m (2016: £22.0m)

· Average store payback period of 23 months (ahead of our 24 month target)

· Final dividend of 2.40 pence per share proposed up 20.0% (2016: 2.00 pence per share)

Operational highlights

· Successfully opened 20 stores in the year including stores in 12 new geographical locations

o Expansion outside of England continues with two stores opened in Republic of Ireland, a second store opened in Northern Ireland and two new stores in Scotland

o First store opened under the Philpotts brand

o All new stores profitable from first day of trading and funded from operating cash flows

· Trading from 199 stores at end of year (2016:184)

· 20 new stores targeted for 2018 with four opened since the financial year end

· Entered into a supply only agreement with Sainsbury's during the year, trading from 18 Sainsbury's counters by the year end

· Costs tightly controlled with inflationary wage and ingredient cost pressures mitigated in the year

Luke Johnson, Executive Chairman, said

"We have delivered another year of excellent financial results, achieving our targets in a challenging environment. We opened 20 new stores many of which are performing ahead of expectations, and the performance of our new bakeries in the Republic of Ireland is encouraging. Our indulgent, affordable treats remain attractive to customers, and our flexible business model has enabled us to mitigate inflationary cost pressures. With a highly cash generative group, strong brands and a focused management team I remain confident of another year of growth and achievement."

Enquiries

Luke Johnson, Executive Chairman

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Chris Marsh, Finance Director

Nomad and Broker

Bruce Garrow

Chris Connors

Financial Public Relations

James Devas

Jonathan Cook

Chief Executive's Review

Overview

I am pleased to report the results for the year ended 30 September 2017 which has been another strong year for the Group. The management team delivered record sales and profit, against the backdrop of a challenging economic and operating environment. We also achieved our target of opening 20 new stores.

In the year we have tested a number of new markets, including expansion into the Republic of Ireland, opening our first Philpotts branded store, trialling our Patisserie Valerie product within Sainsbury's and the development of a number of new product lines.

In the prior year we opened our first store in Belfast in Northern Ireland and the store was fitted with a bakery to support expansion in this area. Following a strong performance at this first store in Belfast, in the year we opened our second Northern Irish store and our first and second international stores in the Republic of Ireland. All of these stores have been well received by our new customers and are performing ahead of expectations. These openings give management confidence that the brand has international appeal and expansion potential.

In 2014 we acquired the Philpotts brand which is a premium sandwich and salad retailer. In the year under review we opened our first store under this brand in Manchester's financial and professional services hub at Spinningfields. Since opening, this store has consistently ranked in the top three performers under the Philpotts offering. The success of this store provides potential for a roll-out of the Philpotts brand.

We continue to engage with our customers via social medial platforms. We have run a number of online competitions in the year, one of which resulted in the customer designed Madame Valerie gateau. This type of engagement has boosted our Facebook followers by over 100% to 140,000 followers (2016: 70,000 followers). Cake Club membership continues to grow and is up 11.9% to 404,000 members (2016: 361,000 members) with pleasing growth on other platforms such as Twitter and Instagram. All of these online channels help increase our brand profile, and contributed to an increase in online sales of 26% to £4.8m (2016: £3.8m).

We have serviced the Group over the last few years from our main bakery in Birmingham and from seven satellite bakeries across the UK. Although we have excess capacity in our bakeries, as our geographical footprint expands, we have started to review how we best serve our estate from a production and logistical stand point. We are currently reviewing options for an additional production facility in the Manchester area with capacity to serve approximately 70 stores as well as instore baking of morning goods from within all of our stores. Both of these initiatives will provide additional capacity to the Group as well as releasing savings and efficiency and improving product quality.

We finished the year encouragingly and this momentum has carried into the first eight weeks of 2018. We have just launched our new festive range, which includes two new limited edition slices, and are looking forward to another successful year ahead.

Financials

Revenue for the year is £114.2m, an increase of £10.1m or 9.7% (2016: £104.1m). EBITDA is £25.6m, an increase of £3.4m or 15.7% (2016: £22.2m) and profit before tax is £20.2m, an increase of £3.0m or 17.1% (2016: £17.2m).

Basic earnings per share are 16.36 pence per share (2016: 13.74 pence per share) and diluted earnings per share are 16.20 pence per share (2016: 13.60 pence per share), an increase of 19.1%.

Revenues from our largest brand, Patisserie Valerie, which trades from 152 stores, are £84.3m, up £10.4m or 14.1% (2016: £73.9m from 135 stores) and revenues from our other brands are £29.9m, down £0.4m or 1.3% due to two store closures (2016 £30.2m).

In the first half of the year we experienced rising costs with prices returning to normalised levels in the second half of the year. We worked hard with our suppliers to manage costs and also realised production efficiencies from investment in our bakeries in the prior year which resulted in a stable gross profit margin of 78.2% (2016: 78.1%). Although the inflationary environment appears to be easing, we remain alert to any pricing pressures.

Minimum wage increases from 1 October 2016 and National Living wage increases from April 2017 had an impact during the year of £0.3m.

Other costs have remained relatively stable in the year with modest rent increases offset by savings made in operating costs.

Estate Development

The Board's strategy for organic growth targets 20 new store openings per annum. During the year we successfully achieved this target, opening 20 stores across counter and full menu offerings. The openings were predominantly in high-street and retail parks locations, (11 stores) however we also developed our partnership with Debenhams. We opened one store at St Pancras train station and one Philpotts store. During the year, leases on five stores expired and as these stores were no longer in prime locations they were closed, taking the total number of trading stores to 199 at the end of the year (2016: 184).

As discussed above, new markets in which we have opened stores in the year include our second store in Northern Ireland, our first and second international stores in the Republic of Ireland and our first Philpotts branded store. All of these stores are performing ahead of expectations and give management confidence in these territories.

Three of the openings this year were in retail outlets: McArthur Glenn Ashford, Rushden Lakes Northampton and The Lexicon Bracknell, bringing the total number of stores in retail outlets to seven. Performance at all of our stores in retail outlets remain consistently strong.

We continue to target new towns and cities for store openings and in the year opened in twelve new geographical locations. Many of these stores are performing ahead of expectations and reinforces the demand for the Patisserie Valerie brand.

Due to the highly cash generative nature of the business, the rollout programme is funded entirely from operating cash flows. All of our new stores were profitable from the first week of trading and we expect all of these stores to achieve the payback target of 24 months.

Since the year end we have opened four new stores with two store due to open in the next two weeks, exchanged contracts for two stores and are in advanced negotiations at a further five locations. The strong performance of our new stores, especially at new geographical locations, continues to provide confidence in our ability to grow our estate across the UK and Ireland.

Cash flow and financing

The group generated operating cash flow of £24.4m, up £2.4m or 10.9% (2016: £22.0m). Income tax payments of £4.0m were made and £9.4m was used for investing activities, leaving free cash flows of £11.0m (2016: £9.9m).

In the year £5.1m was invested in new stores, £1.5m of capital expenditure on refreshing the existing estate and £2.1m on central infrastructure. We continue to measure the ROI of our stores against a 24 month payback period and are pleased that the substantial majority of stores perform within this target.

From free cash flows, dividend payments of £3.2m were made to shareholders. We also generated £0.4m, of proceeds from the exercise of employee share options. Net cash at the end of the year was £21.5m (2016: £13.3m). The group remains solely funded from operating cash flows and is well positioned to make strategic acquisitions.

Dividends

In the year, we paid £2.0m in relation to the final dividend for FY2016 of 2.0 pence per share and an interim dividend costing £1.2m for FY2017 of 1.20 pence per share. The group is cash generative and the Board is committed to a progressive dividend policy for its shareholders. The Board is recommending a final dividend for FY2017 of 2.40 pence per share which represents a 20% increase over the final dividend paid in relation to FY2016. Subject to shareholder approval at the Annual General Meeting, to be held on 30th January 2018, the final dividend will be paid on 9th February 2018 to shareholders on the register at 12th January 2018.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE 12 MONTHS ENDED 30 SEPTEMBER 2017

CONSOLIDATED BALANCE SHEET

AT 30 SEPTEMBER 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE 12 MONTHS ENDED 30 SEPTEMBER 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE 12 MONTHS ENDED 30 SEPTEMBER 2017

NOTES TO THE PRELIMINARY RESULTS

1. This preliminary results announcement was approved by the Board of Directors on 24th November 2017. 

1.1. The financial information set out above does not constitute the Group's statutory financial statements for the years ended 30 September 2017 or 2016, but is derived from those accounts. Statutory financial statements for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered in due course. The Independent Auditors' Report on the Annual Report and Financial Statements for both periods was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.

1.2. For the year ended 30 September 2017 the consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), and the Companies Act 2006 applicable to companies reporting under IFRS.

1.3. This financial information has been prepared in accordance with the accounting policies stated in the Group's financial statements for the year ended 30 September 2017. The financial statements have been prepared on the historical cost basis. There are a number of new accounting standards, amendments to existing standards and interpretations which are mandatory for the year ended 30 September 2017. No changes arising from new or revised accounting standards have had a material impact on the consolidated financial statements of the Group.

2. Earnings per Share

3. Segmental Analysis

Management has determined the operating segments based on the reports reviewed by the Chief Operating Decision Maker ("CODM") comprising the Board of Directors. The segmental information is split on the basis of those same profit centres, however, management report only the contents of the income statement and therefore no balance sheet information is provide on a segmental basis in the following tables:

\* The reconciling items relate to year-end consolidation adjustments and reclassification for statutory reporting purposes.

Revenue within each trading segment is derived from income from restaurant, takeaway, online and wholesale sales. Revenue within overheads relates to income received centrally which is not allocated to individual operating segments.

Segmental revenues are reported gross of sales to other reportable segments. Flour Power revenues include £1.8m (2016: £1.7m) made to other operating segments. Other operating segments report sales to external customers only.

All of the Group's revenue from continuing operations has been generated from UK operations except for £361k which is generated in Republic of Ireland. All non-current assets are held in the UK except for £369k held in Republic of Ireland.

The Group does not have any customers whom account for more than 10% of external revenue.

4. Earnings before interest, tax, depreciation and amortisation (EBITDA)

5. Taxation

Factors affecting current tax charge:

The tax assessed on the profit for the period is different to the standard rate of corporation tax in the UK. The differences are explained below:

6. Property, Plant and Equipment

The Financial Statements for the 12 months ended 30 September 2017 will be posted to shareholders and laid before the Company at the Annual General Meeting; this will be held on 30th January 2018 at 10.30 a.m. at Patisserie Valerie Spitalfields, 37 Brushfield Street London E1 6AA.

Copies of The Financial Statements will be available from the Company Secretary at Patisserie Holdings PLC, 146-156 Sarehole Road, Birmingham, B28 8DT or from the Company's website https://www.patisserie-valerie.co.uk.