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AmRest hospitality calms fears, says profitability deterioration as temporary

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Listed restaurant operator AmRest believes that the profitability deterioration is temporary and in Q1 the company suffered higher costs related to integration of new businesses and pressure on wages, management board member Wojciech Mroczynski said, as quoted in the company's press statement

"Management of AmRest shares the belief that weakening of profitability improvement is temporary," Mroczynski wrote. "Going forward, AmRest will focus on finalizing ongoing M&A projects and profitability improvement in acquired businesses, which should enhance future margins for the Group."

"Observed pressure on payroll in most of the markets, along with increased expenditures related to integration of acquired businesses were the main drivers behind decreasing margins in Q1 2017," Mroczynski admitted. At the same time, "[i]t should be noted that in many markets positive business trends continued, leading to further margin enhancement (e.g. Spain, Czech Republic, Romania and Hungary)."

AmRest also pointed to "great improvement" in China, with Blue Frog reaching 7.4% EBITDA margin.

AmRest will also focus on "accelerating the pace of organic growth to further expand the scale of the business," Mroczynski said. "Expected 200+ new openings this year will be mostly focused on the markets of Central Europe and Spain.”

AmRest recorded PLN 20.6 mln attributable net profit in Q1 2017, way below consensus expectations for PLN 40.6 mln net profit, as cost increases clearly beat expectations. EBITDA measured PLN 117 mln, with EBITDA margin at 10.2%, down 3.3 pps y/y. Rising wage pressure in Russia, the Central Europe and Spain resulted in a 1 pp decline in EBITDA margin, while acquisition of lower-margin businesses in Germany depressed EBITDA margin by 1.8 pps, the Q1 report showed.

2017-05-19



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