Leon calls for action over rates and rents as revenue increases fail to reap rewards

Leon Restaurants has said action is needed over business rates and rents after increased revenue failed to reap rewards in a "challenging year for the hospitality industry".

Revenue from all Leon sites was up by £17.9m year on year in the 52 weeks to 31 December 2017, reaching £76.3m.

Despite this the company recorded a pre-tax loss of £1.8m, compared to a loss of 931,033 the previous year.

Documents filed with Companies House read: "2017 was a challenging year for the hospitality industry during which the sector saw subdued customer spending together with increased costs, driven by currency devaluation, business rates revaluations, rent reviews, wage inflation and the new apprenticeship levy, all of which contributed to significant sector margin erosion."

The company reported a year-on-year reduction in EBITDA margin of 340 basis points in mature restaurants in between 2016 and 2017, adding that if it had experienced no sales growth between 2014 and present day, inflationary pressures would have reduced profitability by 120 basis points.

Rents and business rates were highlighted by the company as areas where action is urgently needed, citing that its own business rates rose from £1.05m in 2016 to £2.5m in 2017.

The report reads: "There are two things that need to happen if our sector and the high street is to stand a chance of returning to prosperity. In the private sector, landlords must realign their expectations significantly and the current status quo of upwards-only rent reviews needs looking at by government and the current commercial norm that market rents are rebased and reviewed by benchmarking with the highest comparable rent paid by anyone in the locality also needs to change. With the advent of on-line retail there is a significant inequality in the proportion of local authority collected business rates borne by the out of town warehouse e-tailers and that borne by the high street tenants. the industry has been lobbying for this through its trade bodies for a number of years now, and the urgency needs to be recognised."

Positivity was expressed in regards to the increased consumer attention on healthy, vegetarian and vegan cuisine, a market in which Leon has positioned itself at the "forefront".

Like-for-like sales were up by 0.9% in 2017, compared to 7.6% growth in 2016.

The company said it is continuing UK expansion, pursuing new markets in Europe and testing US markets aided by a £6.5m boost provided by Spice Private Equity, agreed in August 2017.

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