Starbucks files UK and EMEA accounts for fiscal year ended September 2018

Starbucks UK-registered EMEA businesses and UK Coffee Company today filed accounts for the financial year ending September 30, 2018.

Operational highlights

• Deal signed with Nestlé in May for the exclusive licencing of Starbucks food service and consumer packaged goods business
• Opened over 300 stores in the period, including first entry into Italy with launch of Milan Roastery in September
• Ongoing review of UK store estate to adapt to changing customer behaviour and preferences

Combined financial highlights Starbucks EMEA Companies

Financial highlights Starbucks UK Coffee Company

Business Overview from Martin Brok, President of Starbucks Europe, Middle East & Africa

Doing business in EMEA continues to be challenging for Starbucks. From the changing consumer landscape to high rents and political uncertainty, there are ongoing pressures across the region.

While our 2018 figures show that we have made progress – boosted primarily by a large one-off gain from the deal signed with Nestle last May – our UK business recorded a loss in spite of a similar top line performance.

On a combined basis the EMEA companies delivered a taxable profit of $99.5m and paid $23.6m of tax in the UK, an effective rate of 23.7%.

Starbucks announced its refreshed global strategic priorities in 2018 to refocus on maximising total shareholder return. To that end, the EMEA business received dividends from its regional subsidiaries of $148m and paid dividends after tax to its ultimate parent company, Starbucks Corporation, of $448m.

For the UK operations, SBUX UK’s revenues rose by 4.1%, offset by an increase in our cost of sales, which was driven by our efforts to improve our food menu with higher quality ingredients and more fresh food. We have seen early evidence that this is a successful strategy, but gross profit nonetheless fell by 21% in the period to £56m.

Combined with a 7% rise in administrative expenses resulting from one-off charges relating to the renegotiation of leases, store closures, higher distribution and payroll costs, resulted in a loss of £17.2m during the period.

Nevertheless, Starbucks UK paid corporation tax of £4m in the period, as a result of £20m of lease provisions that are not tax deductible, and our ongoing policy of not using all available capital allowances.

While not reflected in these results, we have already identified a clear strategy to respond to the ongoing pressures, focusing on long term strategic growth in the region. In the autumn of 2018, we deepened our relationship with our long-standing licensee partner Alsea, in our efforts to support investment in France, the Netherlands, Belgium and Luxembourg. In line with these changes we have also consolidated our EMEA support centre functions within our London headquarters to better serve an increasingly-licensed regional strategy.

Our presence will also start to feel different across the region. We are continuing to look for ways to further develop our brand and find new opportunities to offer a differentiated experience to our customers. For example, the licencing deal with Nestle, to create and distribute Starbucks coffee in Nespresso capsules, is a clear demonstration of how we plan to build new income streams that fit with the changing needs and habits of consumers. We also opened our third Starbucks Reserve Roastery in Milan, in September 2018, one of the most immersive, premium retail environments we offer, for which we are already seeing a ticket three to four times that of a standard Starbucks store.

In addition, we are continuing to look at options to provide the convenience that customers are looking for while constantly evaluating the health of our overall store portfolio. Through smaller retail formats and by expanding our Drive Thru presence in the region, we are creating a suite of varied store environments where we can ensure that we are meeting our customers needs no matter where they are in their day.

Addressing our customer needs also means finding ways to innovate within the Starbucks brand. Following successful trials in the US, in early 2019 we launched Starbucks Delivers in the U.K. in partnership with UberEats. While initially trialled in a handful of stores, we will see this offering expand to all customers in London this summer and other UK, European and Middle Eastern cities later this year.

As a company we believe that making a profit is not in conflict with the pursuit of doing good, and we reflect these values in EMEA. Examples of this include the recent announcement to provide 100% tuition coverage for online university degree programmes with Arizona State University (ASU) (to eligible* partners (employees) in the United Kingdom), expanding on a successful programme established in the US. We are also offering a £1million fund to kickstart paper cup recycling programmes in cities across the UK. and have partnered with Gatwick airport on a reusable cup trial. Globally, we are using our scale to commit $10m to develop a fully recyclable and compostable hot cup, through the NextGen Cup Challenge.

We remain committed to our customers in this region and I would like to thank our partners for their continued support and dedication to our business.