HRC WORLD PLC
NASDAQ FIRST NORTH, COPENHAGEN
TICKER: HRC
ISIN: GB00BZ3CDY20
28 SEPTEMBER 2018
GENERAL ANNOUNCEMENT
The Board of Directors of HRC World Plc ("HRC" or "Company") would like to make the following general announcement as a preamble to the previous announcements so as to bring more clarity to HRC's operations.
Operating structure
As previously announced on 30 July 2018, the Company has changed its operating structure to bring significant benefits to its business operations and economics. Following the agreement for the sale of the ownership of franchise rights and restaurants for $20m as approved at the recent AGM, the Company will operate the Hard Rock Cafés in the Peoples Republic of China through a Restaurant Management Agreement ("RMA") instead of directly owning own the equity in the companies that directly lease the cafés.
The RMA maintains the involvement of the Company in the Hard Rock Cafés in China but on a management role as opposed to being owners of the cafés. The RMA provides for the Company to make available (1) restaurant marketing and promotion support services, (2) tourist based customer acquisition services, and (3) music & event based revenue development. The Company will not be involved in the day-to-day operations of the restaurants engaged under the RMA and further relieves the company of the capex requirements for new cafes.
The RMA will enable the Company to charge periodical management fees as a percentage of revenue for management services provided to each café without having to wait for generic fiscal processes (if it owned the restaurants) such as dividend declaration, audit, withholding taxes, etc. Given the operating margins in the restaurant business both globally and in China, the current structure means that the Group will generate broadly similar returns for a much simplified operation. This reorganisation means that the company will now have direct income from the various cafés in exchange for providing the management services
With the transfer of the ownership of the cafés and replacement of management operating agreement, the Company has reduced its capital intensity considerably with the elimination of the requirement to provide the capital expenditure to finance the roll out of the targeting 38+ cafés throughout China. This will enable the Group focus on the delivery of services to the customers to ensure a high customer experience satisfaction in all the cafés.
Current Cafe Status
As announced on 12 September 2018, following a review of the two existing cafés undertaken by the Group prior to the group reorganisation, the two original cafés are in the process of being relocated to more favourable venues, which have the potential to generate much higher footfall and spend per customer. The cafes were closed during the traditionally quieter months of August, to minimise the financial impact on the Group and are expected to be re-opened in the next few months' time.
Future Café expansion plans
The Hard Rock Café expansion plans will continue as previously planned but will now involve local partners as co-owners of the cafés while the Company will provide its restaurant management services through the RMA as explained above.
Other channel expansion plans
The Company is also able to work with other restaurant chains to provide restaurant management services and expand its revenue base beyond the existing RMA. This provides an additional business opportunity in addition to the Hard Rock Café business; which management are keen to explore and expand. Separately, the Company is working towards developing partnership with other music platforms such that it will be ready to launch its music related activities before the end of the year and in order to further support its RMA related services.
Value proposition
The Company is of the opinion there is significant value to be generated through the roll out of what is an exciting global franchise of restaurants to one of the fastest growing consumer markets in the world, China. The roll out of the Hard Rock Cafes, combined with the potential for value accretive acquisitions in the medium term, means that the group is well position to execute its strategy to become a leading provider of restaurant management services in China.
THE DIRECTORS OF HRC WORLD PLC ACCEPT RESPONSIBILITY FOR THIS ANNOUNCEMENT
About HRC World Plc
HRC World Plc is an England & Wales incorporated public company with registration number 10829936 and is quoted on Nasdaq First North (Copenhagen). HRC World provides café management services for developing tourist-based and event-based revenues in member restaurants as well as implementation of HRC Music initiatives.
Further information may be found at the Company's website: www.hrcplc.co.uk
Company contact details
HRC World Plc
+603 7786 0500
info@hrcplc.co.uk
Certified Adviser
Keswick Global AG
info@keswickglobal.com
+43 1 740 408045