Growth Company Index 2019

JUNE 2019 Restaurants, Hospitality & Leisure GROWTH COMPANY INDEX 2019 The AlixPartners Growth Company Index, now in its eighth year, has become a beacon for the UK’s very best restaurant, pub and bar companies, highlighting excellent financial performance. This year’s list highlights that both fledgling and its biggest site to date in Chelsea. The company also established businesses can thrive, through offering a operates sites in its homeland Denmark and launched strong customer experience and an innovative approach, in Berlin last year, and has a further opening lined up in allied to operational discipline and robust management— central London, in Beak Street. That would take its total despite the ongoing headwinds buffeting the eating and estate to 22 sites, including nine in the UK. The company drinking out sector. says this culture of what it calls ‘measured expansion’ allows them to fully focus on giving guests a great New entrant Sticks‘n’Sushi, the Copenhagen-based experience alongside a great product restaurant group backed by Maj Invest Equity and specialising in premium sushi and yakitori sticks, topped A look at the 2019 index shows that all parts of the diverse this year’s list, generating a compound annual growth eating and drinking out sector are represented; from rate (CAGR) of 129.2%. Its position at the summit follows the fast-growing trend of experiential and competitive an impressive recent performance from the company, socialising formats to traditional family brewers; from founded in 1994 by the Danish-Japanese brothers Jens exciting new entrants to the long-established perennials of and Kim Rahbek Hansen. It joins previous distinguished the list—Loungers, TGI Fridays and Pret A Manger. While winners of the 50-strong index such as Bill’s, Côte, the cost environment remains testing for all operators, the BrewDog and New World Trading Company. list serves as a roll call of leading companies, large and small, that tackle these challenges through a culture of Sticks‘n’Sushi emerged ahead of its competitors in a innovation, creativity and commitment to excellence. period in which the group opened in Victoria and launched Collective sector profit growth dips Given the (up to) nine-month lead time Across the list, there is further evidence between a company’s financial year end and of growth being dampened by headwinds, accounts being posted at Companies House, with the licensed sector now in net outlet the numbers analysed for this latest index number decline—albeit a very modest one. broadly capture the three-year trading period Average Profit across the top 10 companies from 2016 to 2018. This period has witnessed (£4.6 million) and the entire index the so-called ‘casual dining crunch’ with (£11.9 million) has dipped slightly year-on- market conditions deteriorating to become year, and significantly since 2017 levels when the toughest in many years, characterised by average Profit across the top 50 stood at hundreds of outlet closures and several £17.0 million. high-profile Company Voluntary Agreements (CVAs) across the sector. Given this state What about the growth rate required to make the of affairs, how does growth compare to top 10? Smaller operators dominate this tranche, previous years? including three new entrants, reflective of the challenge to maintain the pace of growth as Looking back, the 2017 index was a businesses expand. This year, the 10th placed high-water mark for the level of growth company Flat Iron delivered CAGR of 38.1%, required by companies to make the top below the level in the majority of prior years, but 50: That year, D&D London, in 50th place, a small uplift on last year’s figure (35.9%). delivered CAGR of 10.6% and last year TGI Fridays took the final spot, with CAGR of 6.9%. In this year’s list, new entrant Gusto recorded CAGR of just 2.7%, illustrating the challenges of delivering consistent growth. New entrants reflect evolving market Our top-ranked company Sticks‘n’Sushi trail. Arc Inspirations is gearing up for wasn’t the only notable new entry to this the next stage of growth by appointing year’s index. Fresh, exciting concepts continue AlixPartners to advise on future funding to feature prominently among the 12 new options, following the opening of landmark entrants (2018:13), illustrating the dynamic sites in Leeds, Manchester and Newcastle. and evolving nature of the market, with All have added to their estates over the Flat Iron joined by Arc Inspirations in 11th index period following investment in key place (delivering CAGR of 36.7%), Honest new sites—expect more of the same Burgers in 22nd place (16.9%) and Hickory’s this year. in 38th place (8.3%) all making their debuts. Flat Iron secured funding from Piper Private A word here on Oakman Inns, which Equity two years ago and has continued debuted in this year’s list in third spot with to grow its impressive steak-led concept a very impressive CAGR of 95.8% and is across the capital. Hickory’s, the north rapidly adding to its estate of premium pubs west and Midlands-based BBQ concept, also across the south under the leadership of Piper-backed, has returned to the expansion Peter Borg-Neal. Growth Company Index 2019 2 Wet-led resurgence and diverse ownership A resurgent drinking out sector continues to fifth. Holt’s growth has been driven by to dominate the top 50, spanning 60% of a combination of concentrating on its core index constituents for the first time. This activities and developing the five pubs more positive outlook is demonstrated by it acquired during the previous year. The the buoyant M&A activity in the sector with Alchemist has been a key player in the bar trade and private equity buyers turning their sector’s renaissance and evolution over gaze to pub and bar assets. This reflects not the past 18 months, and the period saw the only the saturation of certain parts of the group increase its presence both regionally restaurant market, but also the combination and in the capital. of reduced supply and the continued rise of quality wet-led pub and bar operators. The ownership of the list constituents Growing wet-led operators such as Fever remains as diverse as ever, with private Bars (acquired by Stonegate) and Redcomb equity-owned businesses featuring Pubs (acquired by Young’s) are likely to have alongside family-owned and privately- debuted in this year’s index, had they not owned companies. While PE’s share of the completed successful sales in the lead up to index has increased significantly since the the index closing date. first edition, it dipped in percentage terms compared to last year (42% versus 48%) as The highest climbers in this year’s list were many PE-backed businesses are having to north west brewer and retailer Joseph Holt’s, re-trench following a rapid initial roll-out, up 14 places to 30th and Palatine Private with a greater number of privately-owned Equity-backed The Alchemist, up 13 places firms featuring. Perennial performers Beyond the new entrants, re-entries and Also a note of recognition for McMullen and highest climbers, it is the companies on the BrewDog who have both featured in the last index that have become perennial constituents seven editions of the index, having missed that never cease to impress. Loungers, which out on the inaugural index in 2012. has just floated on London’s AIM index, has been an ever present and remains rooted in This perhaps serves as a lesson to all the top 10; TGI Fridays and Pret have also those new to the list and those companies made their homes on the list (alongside Amber aspiring to appear on it. A diverse group Taverns, Glendola Leisure and St Austell of relative newcomers such as Flight Brewery, who have also featured in all eight Club, Daisy Green, Urban Pubs and Bars, editions). This is testament to the exceptionally Island Poké and Swingers are all tipped high quality of these businesses, in regards to feature in future editions. The Growth to their consumer appeal, consistently high Company Index demonstrates that, despite standards, financial management, and the the well-documented industry challenges, fantastic guest experiences they deliver. the bar remains set at a very high level. Growth Company Index 2019 3 METHODOLOGY PROFIT MEASURE TIME FRAME In the AlixPartners Growth Company Index— Profit growth is taken as the compound produced in partnership with leisure insight growth rate during the previous two years, and business intelligence house MCA—Profits covering three sets of annual accounts. are defined as EBITDA (earnings before Companies that filed their 2018 accounts interest, taxes, depreciation and amortization), will have Profit growth measured from 2016 with directors’ remuneration added back in. to 2018; companies that did not file 2018 The research for this year’s index largely accounts will have Profit growth measured involved identifying the correct parent trading from 2015 to 2017. The cut-off point for company and then adding back depreciation inclusion in this year’s edition was submission and amortization to individual companies’ of audited accounts by 20 February 2019. operating profit figures after removing exceptional items. Because not all companies report pre-opening costs separately, those QUALIFYING COMPANIES costs are not treated as exceptional. Qualifying companies must show turnover Profits are defined as EBITDA of at least £3 million in their latest accounts, (earnings before interest, taxes, Profit of at least £300,000 in their last three sets of accounts and must have filed a more depreciation and amortization) with recent set of audited accounts since the directors’ remuneration added back in.

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