Source - RNS
RNS Number : 0979Z
Loungers PLC
16 September 2020
 

16 September 2020

Loungers plc

("Loungers")

 

Audited results for the 52 weeks ended 19 April 2020

 

Strong delivery of strategic and financial goals pre Covid-19 lockdown and material market out-performance post re-opening

 

Loungers ("the Group") is pleased to announce its audited results for the 52 weeks ended 19 April 2020 ("FY20").  Loungers is an operator of 167 café/bar/restaurants across England and Wales under two distinct but complementary brands, Lounge and Cosy Club.  The Group's sites offer something for everyone regardless of age, demographic or gender and the Group operates successfully in a diverse range of different sites and locations across England and Wales.

 

Finance Summary

 


IFRS 16

IAS 17


Year ended 19 April 2020

£000

Year ended 21 April 2019

£000

Change

Year ended 19 April 2020

£000

Year ended 21 April 2019

£000

Change

Revenue

166,502

152,999

+8.8%

166,502

152,999

+8.8%

Adjusted EBITDA (1)

28,767

28,541

+0.8%

18,813

20,582

-8.6%

Adjusted EBITDA margin (%)

17.3%

18.7%

-1.4 ppts

11.3%

13.5%

-2.2 ppts

Loss before tax

(14,781)

(6,700)


(13,020)

(4,989)


Adjusted profit / (loss) before tax (2)

2,002

(6,238)


3,763

(4,527)


Adjusted diluted earnings / (losses) per share (p)

2.4

(35.4)


3.2

(28.0)


Net debt

139,895

254,750


34,956

165,612


 

Financial and Operational Highlights - pre Covid

 

· Strong financial performance ahead of Covid-19 lockdown

· Like for like ("LFL") sales growth of +4.5% and total sales growth of 21.9% in the 44 weeks to 23 February 2020

· 21 new sites opened

· Continued investment in and evolution of both brands in respect of menu, design, and people

 

Financial and Operational Highlights - during Covid

 

· Controlled lockdown ahead of the Government's announcement on 20 March 2020

· £15m additional credit facility arranged and £8.1m (net) new equity raised to provide liquidity in the event of a worst-case scenario prolonged lockdown and to allow the roll-out to restart

· Phased re-opening of the estate with all sites trading by 7 August

 

Current Trading

 

· Significant market out-performance since re-opening with net LFL sales growth of +29.9% from 4 July to 13 September 2020

· LFL sales benefit from the impact of Eat Out to Help Out and the VAT reduction on food and non-alcoholic drinks

· Excluding these positive impacts, LFL sales have been positive over the 9 weeks from 13 July to 13 September 2020

· Non-property net debt at 19 April 2020 of £35.0m improved to £24.5m at 6 September (post adjustment to treat deferred Covid-19 liabilities as if paid)

· Two new sites have opened, and the Group cautiously plans to open four further new sites by the end of the current financial year



 

Nick Collins, Chief Executive Officer of Loungers said:

 

"I am delighted with the strength of our performance since re-opening which highlights how strategically well-positioned we are in both Lounge and Cosy Club.

"Our like for like sales of +30% over the last 10 weeks includes the remarkable four weeks of the 'Eat Out to Help Out' scheme and the government's support for our sector continues to be much appreciated. More importantly, however, having fully re-opened our underlying sales are in growth even without this support. We have focused on providing amazing hospitality, whilst reassuring our teams and customers the Lounges and Cosy Clubs are a safe environment, and our customers have been quick to return. During lockdown we were confident the flexibility of our all-day offer, our suburban and market-town locations and our focus on hospitality and community would ensure we emerged strongly. I believe these results have confirmed that to be the case.

"Clearly we don't know what is around the corner. We anticipate further interruption to trade on either a local or regional basis in the short-term and have the balance sheet and liquidity to withstand significant further Covid impacts. Covid has, however, strengthened our belief in the potential scale of both brands in the longer-term and the behavioural shifts being witnessed further underline this. In the second half of the year we will cautiously re-start the roll-out and we are excited about the property opportunities available to us and getting back to opening 25 sites a year in due course.

"I would like to thank our team across the UK for their extraordinary contribution over the last six months. It has been an immensely challenging period and their determination and hard-work have allowed us to not just get through it, but to emerge a better business ."

(1)  Adjusted EBITDA is calculated as operating profit before depreciation, pre-opening costs, exceptional costs, and share-based payment charges.

(2)  Adjusted profit / (loss) before tax is calculated as profit / loss before tax before exceptional costs.

 

For further information please contact:

 

Loungers plc

Nick Collins, Chief Executive Officer

Gregor Grant, Chief Financial Officer

 

 

Via Instinctif Partners

GCA Altium Limited (Financial Adviser and NOMAD)

Sam Fuller / Katherine Hobbs / Tim Richardson

 

Tel: +44 (0) 20 7484 4040

Liberum Capital Limited (Joint Broker)

Andrew Godber / John Fishley

 

Tel: +44 (0) 20 3100 2000

Peel Hunt LLP (Joint Broker)

Dan Webster / George Sellar

Tel:  +44 (0)20 7418 8900



Instinctif Partners (Financial Public Relations)

Justine Warren / Matthew Smallwood

 

Tel: +44 (0) 207 457 2020

 

This announcement is released by Loungers and contains inside information for the purposes of Article 7 of the Market Abuse Regulations (EU) 596/2014 (MAR), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.  This announcement is being made on behalf of the Company by Nick Collins, Chief Executive Officer of Loungers.



 

 

Notes to Editors

 

Loungers operates through its two complementary brands - Lounge and Cosy Club - in the UK hospitality sector.  A Lounge is a neighbourhood café/bar combining elements of coffee shop culture, the British pub and dining.  There are 137 Lounges nationwide. Lounges are principally located in secondary suburban high streets and small town centres. The sites are characterised by informal, unique interiors with an emphasis on a warm, comfortable atmosphere, often described as a "home from home".  Cosy Clubs are more formal bars/restaurants offering reservations and table service but share many similarities with the Lounges in terms of their broad, all-day offering and their focus on hospitality and culture.  Cosy Clubs are typically located in city centres and large market towns. Interiors tend to be larger and more theatrical than for a Lounge, and heritage buildings or first-floor spaces are often employed to create a sense of occasion.  There are 30 Cosy Clubs nationwide.

Chairman's Statement

Introduction

 

At the turn of the calendar year I imagined that my inaugural Loungers plc Chairman's statement would be a relatively straightforward affair. Whilst we are reporting on FY20, the reality is that we are providing more detailed commentary on the final weeks of FY20 and the subsequent months of the current financial year, in regard to how the business has dealt with the monumental challenge of Covid-19 in particular. Consequently, and for good reason, my statement is a lengthy one. 

 

Having successfully listed the business in April 2019, I think it's fair to say we always expected FY20 would be a challenging year as the business adjusted to life as a plc.  Little did we know that a far greater challenge lay ahead and, that by the end of the financial year, we'd have a business that was generating no revenue and we'd have no certainty as to when we would be permitted to reopen.

 

There are many aspects of the events of the last few months that will live with us for many years to come. The business has faced enormous challenges and I am extremely proud of the roles the Board, the executive/senior management team and the ops team have played in dealing with these challenges head-on and making the right calls at the right time.

 

Putting the impact of Covid aside, it was a historic year for Loungers and, as a co-founder of the business, I am extremely proud that Loungers is a plc.  I am also thrilled that we currently have 480 employees who are now shareholders in the Company and very much look forward to being able to see the success of Loungers shared with an ever-increasing number of our people in future.

 

Strategic

 

The business continued to trade very strongly right up until the week before lockdown and we remained on track to meet the objectives we had set out at the time of the IPO.

 

We continued to deliver sector-leading like for like sales and were expanding at a rate of 25 new sites a year. Pleasingly, we opened some particularly profitable sites over the course of the financial year with FY20 new openings looking like an especially strong vintage.

 

We continued to evolve our offer in both brands, making a number of improvements to our food menus and undertaking a significant and exciting overhaul of our drinks offering. We also continued to see margin improvement as we increasingly reaped the benefits of greater scale.

 

Ultimately FY20 saw an 8.8% increase in net turnover to £166.5m (FY19: £153.0m) and, whilst it is pleasing to register another year of year-on-year growth, Covid-19 clearly stopped us in our tracks in March, five weeks prior to our year end.

 

The Team

 

Having successfully listed the business against a challenging backdrop in April 2019 (as Brexit negotiations to-ed and fro-ed), the executive team immediately set about executing and delivering the plan.

 

We genuinely believe that the Loungers team is operationally one of the finest in the sector.  Under Nick Collins' collaborative and steadfast leadership, everyone has responded to the monumental challenge brought about by Covid-19, clearly demonstrating the talent and tenacity we have within our ranks.

 

I'd like to thank our teams at every level but would like to reserve special praise for the immense effort put in by the small group of head office staff who worked tirelessly throughout lockdown, often in very difficult circumstances, to ensure the business was in the very best possible position to rise to the challenges of the last few months. 

 

The Board

 

I am also delighted at how well the relationship between the executive team and non-executive directors has developed and I'd like to thank the non-executive directors for their guidance and contribution over the last 16 months in bringing challenge, wisdom and experience to the Loungers' table.  When assembling the plc Board, the executive team were keen to ensure that Board meetings retained the same level of intensity and challenge that we'd been accustomed to under private equity partnership and I am delighted that we have achieved this as a public company.

 

I would also like to take this opportunity to thank the non-executive directors for their dedication and commitment to the business during the period of closure resulting from Covid-19.



 

 

COVID-19

 

Having temporarily closed the entire business and secure in the knowledge that the livelihoods of our workforce would be protected through the Coronavirus Job Retention Scheme, the executive team worked closely with the Board to set about ensuring the business had sufficient liquidity to survive a prolonged period of full closure, well beyond 2020 should that be required.  We agreed an additional £15m revolving credit facility with our existing lenders and raised a further £8.1m through the issue of equity.  We were grateful and extremely encouraged by the support from our shareholders, which not only ensured the Placing was successful but was ultimately over-subscribed.

 

With the liquidity of the business secured, the executive/senior management team set about tackling a number of significant challenges. The key areas of focus were on culture and communication, rent negotiations and the reopening of 27 sites during lockdown for takeout. We also started planning the reopening of the business and considered what changes we would need to make to menu, service style and site layouts.

 

This was a significant piece of work and required the team to be very entrepreneurial and at times fleet of foot - our 'at-seat' ordering capability being an excellent example of something that has been an undeniable game-changer for the business and was developed and implemented in just four weeks. With regards to social distancing, we adopted a positive mindset and approached what we needed to do with a mentality that we had decided to make the changes ourselves and not because we had been forced to. I genuinely believe that the team could not have done a more sterling job and I believe that the decisions and changes we made, and subsequently implemented, ensured the business was very much on the front foot when we were permitted to reopen. I am also of the view that the unprecedented challenges of lockdown resulted in an acceleration of changes in the business that had been more mid to long term objectives. As a result, we face the future in a much stronger, and better equipped, position. 

 

Over a seven-week period from early June, I made a conscious effort to visit 103 of our sites personally, with our logistics team who were busy removing furniture to go into storage and delivering our bespoke social distancing partitions. This gave me an opportunity to spend time with our operators, to catch up with some of our teams as they returned to work ahead of reopening and to oversee the implementation of our plan to ensure our sites felt safe and reassuring but that, critically, they still retained our unique look and feel and very much felt like a Lounge or Cosy Club. It was a gruelling but hugely rewarding few weeks that left me feeling very positively charged at how our operators and teams felt about the way we had looked after them during lockdown and about how excited they were to welcome back their customers. I was also hugely encouraged at how good, and normal, our sites looked - whilst adhering to Covid-19 social distancing requirements, which I genuinely believe has been a major reason as to why we have reopened so strongly. It was also really encouraging to see how busy the vast majority of the high streets and locations we operate from were ahead of us reopening and I felt cautiously optimistic that we would trade significantly better than we have anticipated. Consequently, I wasn't surprised that within a week of our initial phase of reopening we opted to accelerate the reopening process, which resulted in all 165 sites being reopen by 7th August.

 

Our approach to reopening has had a number of benefits. Most notably, we have learnt and adapted to trading in a Covid-compliant environment, which has enabled us to improve the overall customer experience. We also fully benefitted from the Eat Out to Help Out (EOTHO) initiative which has resulted in record sales for the business during the month of August. We are also delighted to have over 95% of our team back from furlough and doing what they do best.

 

The Future

 

We are clearly still in unprecedented times and the coming weeks and months are almost certainly going to be uncertain at best and possibly challenging. That said I think we have every reason to be optimistic and excited for the future. Trading since we reopened has been remarkable and, whilst we have clearly benefited enormously from the Government's EOTHO scheme, to date trading outside of the EOTHO days has been - and continues to be - very encouraging. Having reopened has given us significant competitive advantage over those businesses that have been slower to do so.

 

With the undeniable change underway in the way people live, and more specifically work, we believe we are extremely well-placed to benefit. The suburban and small town locations of the vast majority of our Lounge estate have remained strong and our large, airy Cosy Club venues - coupled with an offer that is sufficiently differentiated from our competitors - mean that both brands are in a strong position to prosper. Our lack of exposure to central London and travel hubs has meant that the strength of performance across the business is both sustainable and consistent.  This, together with a reduction in the number of food and drink operators, positions Loungers well to benefit from a significant contraction in supply.

 

Following reopening, we are sufficiently confident and excited to be resuming our roll-out - albeit we will do so cautiously and it will take some months for us to get back up to a run-rate of 25 sites a year. However, we have some high quality sites within our current pipeline and will be able to benefit from some exciting opportunities against a backdrop of an extremely soft property market.

 

Our opportunity remains exciting as we have barely reached 30% of the potential scale in the UK of both brands and, in the case of Lounge, our stated target of 400 sites feels increasingly conservative. Our team has the drive, determination, and talent to deliver our long-term objectives but, importantly, working through the challenges of lockdown has further enhanced the entrepreneurial flame inherent within the business.  I genuinely believe this could be 'our time' and the burning ambition within Loungers has never been stronger.

 

 

Alex Reilley

Chairman

16 September 2020

 



 

Chief Executive's Statement

Introduction

It was impossible to imagine that a year which started with the landmark IPO of the Group would end with all our sites closed due to Covid-19.

For the large part of the year the Group continued to achieve the strategic goals it had set out at the time of the IPO:

· Market leading LFL sales growth across all site age cohorts, primarily driven by volume;

· Margin improvement as we continued to benefit from operational gearing and economies of scale;

· Progressing towards a self-financing roll-out;

· Continuation of the roll-out of Lounge and Cosy Club estates at a rate of 25 sites a year, most importantly opening better sites and benefitting from an increasingly tenant friendly property market.;

· Enhancing the customer offer and our hospitality through the evolution of our menus and constantly challenging ourselves to improve our culture and community-led proposition.

Prior to the impact of Covid-19 we were delighted with the progress the business had made and that it had continued to demonstrate how our unique all-day trading model with broad appeal was winning in an evolving sector.

The enormous challenge of closing and subsequently re-opening the estate is one we approached head-on and positively. Our reaction to the challenge will ensure we emerge a better business. We used the period of lockdown to evolve the offer and introduce bold changes which might otherwise have taken significantly longer. The estate was fully reopened by 7th August with our sites reconfigured to provide social distancing and our teams fully trained to reassure customers they are in safe hands. Most importantly hospitality remains at the core of everything we do.

We were confident the business would emerge strongly post-lockdown and this has been evidenced by the strength of our trading since re-opening, with like for like ("LFL") sales of +29.9% on a net of VAT basis in the period from 4 July to 13 September. Our community focus in market towns and suburbs, with no exposure to central London, tourism or business districts has meant our customers have returned quickly to both Lounge and Cosy Club. Our belief in the potential scale of both brands has been strengthened, and we look forward to returning to rolling-out new sites in due course.

The year pre-Covid-19

Evolution

Evolution in both brands continued, benefitting from our broad menus and the fact that we are not wedded to any single cuisine. Our vegan, gluten free and allergen-friendly menus continued to develop and grow and remain a key differentiator. Alongside this, we continued to add more resource to our menu development team, focusing on ingredient rationalisation and quality. Over the course of the year our dishes improved and continued to become more consistent.

On the drinks side we saw considerable change in our draught line-up, switching Stella, Becks Vier and Cruiser, for Moretti, Amstel, and Punk IPA. As a result of this switch we saw higher average spend and improved growth in our evening sales, a previously stated goal.

Our Reset project in the Lounge kitchens continued, with investment in a further 26 sites. This investment is resulting in more efficient processes, improved ticket times, better information and reduced staff turnover. Whilst this project was paused due to Covid-19 we look forward to getting it back on track. The combination of additional resource on the menu development side alongside investment in the kitchens will result in quicker, more consistent service for customers, improvement in our margins and better working conditions for our teams.

Having unique, individual designs for each site ensures the look and feel of the Lounges and Cosy Clubs continues to evolve. Over the course of the year, evolution in terms of our back bars and furniture has helped target evening sales. In addition, we carried out splash and dash investments at seven sites, ensuring each site within the estate is in prime condition and benefits from the continued evolution of our design.

The roll-out, property and pipeline

During the year and prior to the Covid-19 closure we opened 16 Lounges and five Cosy Clubs and were on track to open 25 sites in the financial year. Over the past five years, we have become comfortable with opening sites at this rate and this is reflected in the performance of our FY20 new site openings.

Through 2019 and into 2020 we benefitted from an increasingly tenant friendly property market. As a result of this we secured excellent sites in strong locations with great pitch, and this was reflected in the performance of our new site openings. Loungers typically converts A1 retail premises to A3 use and the increase in retail CVAs has meant we are seeing more opportunities in those targeted locations where we know we will perform strongly. Examples of this are sites such as Fosso Lounge in Wells and Cobrizo Lounge in Newbury.

Our new site openings also continued to demonstrate the underlying potential scale of the Lounge and Cosy Club brands. Our openings in Wells, Carmarthen and Chorley illustrate our ability to trade successfully in towns with relatively small populations across the country, whilst the opening of Cosy Club at Mermaid Quay in Cardiff saw us operating two Cosy Clubs in the same city for the first time.

As we went into lockdown our pipeline remained very strong with contracts exchanged on eight sites which have not yet opened. These include Lounges in Sittingbourne, Wolverhampton and Welwyn Garden City and a Cosy Club in Chelmsford. We remain very confident in the strength of the pipeline. Our rent to revenue ratio in the year was 5.3% and continues to be significantly lower than the sector overall. Given the consistent discipline we have displayed in terms of property deals we believe we are extremely well-placed to take advantage of the current environment.

Since the year end, we have opened Cosy Club Brindleyplace, Birmingham, and Ponto Lounge in Hull which opens today. Both were sites where much of the capex cost had been incurred before the estate was closed due to Covid-19. We have also taken the decision to close two sites. Banco Lounge in Bristol was one of our earliest sites and a combination of its small size and the additional costs of doing business meant that it no longer met our returns criteria. Its lease expires in March 2021 and will not be renewed. We have also closed Allegro Lounge which has not performed as we had hoped since opening in 2018. Whilst we are always willing to give each site time to mature, Northfield has proven to be the wrong location for a Lounge, and we will ensure we learn from that. We are not considering any other sites for closure.

People

The culture within the business continues to be at the heart of our success, and this has never been as important as during the last few months. During the year under review, the continued evolution of our team recruitment, training, development, and communication has contributed hugely to our performance. I am enormously grateful to our 4,500 employees who over the year continued to ensure our customers keep coming back.

Towards the year end we restructured our Regional Operations Structure, reducing further the Site to Operations team ratio. This was done to ensure our sites continue to be intensively managed alongside providing continued capacity across the UK to roll-out new sites. As our geographic footprint grows alongside the number in the operations team, so the impact of new openings is diluted, allowing for smoother openings and less distraction for our teams.

At a senior management level, we welcomed Tom Trenchard into the team as Property Director and have added additional resource in the food, training and development, purchasing, and systems teams. We continue to look forward to ensure we have the right structure in place, commensurate with our continued growth.

Covid-19 and the Closure period

Our priorities during lockdown centred around supporting and communicating with our team, minimising cash burn and ensuring our balance sheet strength was sufficient to withstand the impact of Covid-19, continuing to engage with our customers and communities during the difficult time, and preparing to re-open. We also took advantage of the unique opportunity to think about and evolve the business to ensure we were best positioned when it came to re-opening.

Throughout the Covid-19 period we have focused on looking after our team of 4,500 employees. Through regular communication we have kept them informed and we are appreciative of the Government support via the Coronavirus Job Retention Scheme. Over 99% of our team were furloughed during lockdown with around 30 people working throughout. The Board is enormously appreciative, both of those who worked throughout the period, and those who were on furlough but participated in the numerous forms of engagement which allowed us to keep the culture in the business alive.  In addition, we ensured we continued to engage with our customers and their communities and witnessed many fantastic charitable acts from our site teams as they sought to contribute to beat the virus.



 

To minimise cash burn, as soon as lockdown was imposed, we immediately stopped all non-essential capex and contracts, challenged every recurring cost line in the business and negotiated with our landlords and suppliers. The Board is appreciative of our supply chain who were highly supportive during this period. Our conversations with landlords regarding the waiver or deferral of rent during the closure period are ongoing, but our collaborative approach, engaging with each of our landlords, has proved worthwhile.  During lockdown we secured an additional £15m of banking facilities and carried out an £8m equity placing. The Board recognised the importance of demonstrating we had sufficient funding to survive through any worst case Covid-19 lockdown scenarios, and, critically, to get the roll-out back on track once we reopened. We recognised that post-lockdown the property market would be more tenant-friendly and present a fantastic opportunity to further strengthen our pipeline. As a result of the increased facilities and completion of the placing, the Group had liquidity of £30m in place on 23 April and the strength to withstand a very prolonged lockdown.

The pause in day to day operations during lockdown allowed us to review various aspects of the business and ensure when we reopened, we were well-positioned in respect of operating both in a Covid-19 environment, and more generally. Key activities during this period were:

· Undertaking a maintenance audit. This ensured any critical works that would require closure once reopened, or splash and dash style improvements that were previously planned, were carried out during lockdown. This, alongside a thorough deep clean in every site, ensured when our sites reopened it was in the best condition they had ever been.

· Reconfiguring the sites to suit trading with distancing guidelines in place . Our approach here was to ensure any steps we took were consistent not only with Government guidelines but also with our uniquely obsessive focus on atmosphere and look and feel. Whilst our covers have reduced by between 10% and 15% because of this, the addition of bespoke timber partitioning and the very detailed approval process for the new layouts have ensured the sites are comfortable and recognisable to our customers.

· Challenging the menus and ingredients . Menus in both Lounge and Cosy Club were reduced for re-opening which has provided us with an opportunity to understand how our customers will react to slightly less choice. Alongside this a forensic approach to menu engineering and ingredient lists has provided us with the opportunity to further gain margin and labour efficiency over time.

· Introducing an order at table app . This was something we were always cautious about, but in Lounges in particular, where the service model otherwise involves ordering at the bar, it became a requirement.  App sales now represent 42% of sales in Lounges.

· Trialling takeaway at 27 Lounges . Opening these sites for takeaway allowed us an early opportunity to get the business and supply chain back up and running and to learn a great deal about operating in a socially distanced environment.

· Re-writing our processes and procedures to ensure the safety of our teams and customers . Our objective here was to ensure we could engage with our customers and continue to provide great hospitality, whilst demonstrating we were operating in a safe environment.

Reopening

We adopted a phased approach to re-opening, gradually opening the full estate between the 4th July and 7th August. This allowed us to learn from the initial openings, and feed in any changes required to subsequent openings. It also allowed us to ensure every employee received a full day's training on the new processes in place, and to reassure them that they were working in a safe environment. Our sites look fantastic, our teams and customers feel safe and the steps we took during lockdown have ensured a slick re-opening.



 

 

Current Trading and Outlook

The Group has traded significantly ahead of our expectations. Since re-opening our LFL net sales growth in the period from 4 July to 13 September has been +29.9%. Excluding the positive impacts of EOTHO and the VAT reduction, our underlying LFL sales have been -1.1%, and over the nine weeks ending 13 September 2020 have been positive. This represents a significant outperformance of the market, materially exceeding the sector outperformance we have experienced over the past five years.

Whilst the economic outlook remains uncertain, we take confidence from our performance to date and remain optimistic with regard to future trading. Our value for money, flexible offer, and its broad appeal, alongside the locations in which we operate, mean we continue to be well-placed. As a result of this confidence we have decided to cautiously re-start the roll-out of new site openings. Over the remainder of the current financial year we plan to open six sites (of which Cosy Club Brindleyplace and Ponto Lounge Hull are already open), from those sites where we are already committed. We will also start re-building the pipeline such that we are in a position to accelerate the roll-out towards our pre-lockdown target of opening 25 sites a year.

 

 

Nick Collins

Chief Executive Officer

16 September 2020



 

Financial Review

Financial Performance

The financial results for FY20 reflect another year of significant growth, albeit severely impacted in the latter weeks by the impact of Covid-19.  Revenue growth of 8.8% combines the impact of 21 new site openings and a strong underlying LFL sales performance (+4.5% in the 44 weeks to 23 February 2020).  Adjusted EBITDA grew by 0.8% to £28.8m (2019: £28.5m) under IFRS 16, whilst under IAS 17 it fell by 8.6% reflecting the impact of IAS 17 rent costs during lockdown.

The impact of the Covid-19 lockdown, which commenced on 20 March 2020, and the introduction of IFRS 16 present two challenges to interpreting our financial performance over the year under review, the highlights of which are:


IFRS 16

IAS 17


Year ended 19 April 2020

£000

Year ended 21 April 2019

£000

Change

Year ended 19 April 2020

£000

Year ended 21 April 2019

£000

Change

Revenue

166,502

152,999

+8.8%

166,502

152,999

+8.8%

Adjusted EBITDA

28,767

28,541

+0.8%

18,813

20,582

-8.6%

Adjusted EBITDA margin (%)

17.3%

18.7%

-1.4 ppts

11.3%

13.5%

-2.2 ppts

Loss before tax

(14,781)

(6,700)


(13,020)

(4,989)


Adjusted profit / (loss) before tax

2,002

(6,238)


3,763

(4,527)


Adjusted diluted earnings / (losses) per share (p)

2.4

(35.4)


3.2

(28.0)


Net debt

139,895

254,750


34,956

165,612


 

Throughout the Annual Report we use a range of financial and non-financial measures to assess our performance.  A number of the financial measures, for example Adjusted EBITDA, Adjusted profit / (loss) before tax and Adjusted diluted earnings / (losses) per share are not defined under IFRS and accordingly they are termed Alternative Performance Measures ("APMs").  The Group believes that these APMs provide stakeholders with additional useful information on the underlying trends, performance and position of the Group and are consistent with how business performance is measured internally.  Adjusted EBITDA is also the measure used by the Group's banks for the purposes of assessing covenant compliance.

Reconciliations of statutory numbers to adjusted numbers reported above are included in note 11.

IFRS 16

IFRS 16 Accounting for Leases has been adopted for the first time FY20 using the fully retrospective method. Accordingly, the FY19 comparatives have been re-stated.  The impact of IFRS 16 is essentially twofold:

· firstly, to create a lease liability for rental costs and corresponding right of use asset in the balance sheet, and

· secondly, to remove the rental charge from the income statement and replace it with a depreciation charge in respect of the right of use asset and a finance charge in respect of the unwinding of the lease liability.

Accordingly, and relative to the previous lease accounting standard IAS 17, IFRS 16 sees the Group report:

· a higher level of adjusted EBITDA.  EBITDA no longer includes the IAS 17 rent cost;

· a higher level of adjusted operating profit.  The depreciation on the right of use asset is lower than the IAS 17 rent charge;

· a higher level of loss before tax.  The combined IFRS 16 charges for depreciation of the right of use asset and interest on the lease liability exceed the IAS 17 rent charge.  This reflects the relative immaturity of the Group's lease portfolio as, whilst over the life of a lease these costs will equal out, in the early years the combination of a straight line depreciation charge and a higher interest charge leads to a total IFRS 16 charge exceeding the rent payable charge under IAS 17; and

· a higher level of net debt.  Reflecting the inclusion of the capitalised lease liabilities within net debt.

 

Whilst the shape of the income statement may have changed with the introduction of IFRS 16 the decision to adopt on a fully retrospective basis does mean that the reported numbers for FY20 and FY19 are directly comparable.  Further details on the adoption of IFRS 16 are provided in note 3.

 

Covid-19 Impact

The Group reports internally on the basis of 13 four week periods and in order to explain the impact of Covid-19 on the Group's FY20 financial performance the table below presents adjusted EBITDA (under IFRS 16) for the first 11 periods (the 44 weeks to 23 February 2020) and the final two periods (the 8 weeks to 19 April 2020).


44 Weeks ended

8 Weeks ended

52 Weeks ended


23 February 2020

19 April 2020

19 April 2020


£000

£000

£000





Turnover

154,876

11,626

166,502

LFL Sales

4.5%

(61.4%)

(6.4%)





Cost of sales

(89,404)

(7,503)

(96,907)





Gross profit

65,472

4,123

69,595

Gross profit %

42.3%

35.5%

41.8%





Administrative expenses

(36,334)

(4,494)

(40,828)





Adjusted EBITDA

29,138

(371)

28,767

Adjusted EBITDA margin

18.8%

(3.2%)

17.3%

 

The impact of the lockdown on 20 March 2020 is stark.  Whilst the Group traded relatively normally in the three weeks ending 15 March 2020 (LFL sales were +2.0%) sales tailed off dramatically as we moved through the days immediately prior to 20 March 2020. LFL sales that were running at +4.5% for the first 44 weeks of the year declined to -6.4% for the full year on the back of a severely impacted week 48 and complete closure for weeks 49 to 52.

The impact on margins was equally pronounced, with the gross profit margin declining from 42.3% after 44 weeks to 41.8% for the full year and the adjusted EBITDA margin declining from 18.8% after 44 weeks to 17.3% for the full year.  The Group moved very quickly to adapt to a world of zero sales, with site teams being furloughed from 22 March 2020 and head office staff from 31 March 2020, and all non-essential spend halted.  However, the final 5 weeks of the year continued to be impacted by the costs of shutting down the estate, fixed property costs and incremental staff costs, notably holiday pay.

Over the first 44 weeks of the year the Group had performed very well.  The table below sets out the financial performance on an IFRS 16 adjusted EBITDA basis for the 44 weeks to 23 February 2020 versus the same 44 week period in the prior year.

Like for like sales growth of 4.5% supplemented the impact of new site openings to deliver total revenue growth of 21.9%.  Continued focus on managing the cost base was reflected in an improvement in the adjusted EBITDA margin from 18.7% to 18.8%, with adjusted EBITDA increasing by 22.7% over the 44 week period.



 


44 Weeks ended

44 Weeks ended

Year on Year


23 February 2020

24 February 2019

Change


£000

£000






Turnover

154,876

127,101

+21.9%





Cost of sales

(89,404)

(74,071)






Gross profit

65,472

53,030


Gross profit %

42.3%

41.7%

+0.6%





Administrative expenses

(36,334)

(29,280)






Adjusted EBITDA

29,138

23,750

+22.7%

Adjusted EBITDA margin

18.8%

18.7%

+0.1%

 

The major drivers behind the improvement in the IFRS 16 adjusted EBITDA margin were as follows:

· Improvement in gross margin of 0.6%, and

· Operational leverage across central costs of 0.4%, offset by:

· Increased utility and pension costs of 0.3%

· Increased business rates costs of 0.2%, and

· Incremental costs associated with being a publicly traded company of 0.3%

 

The improvement in gross margin reflected both the success of the re-tendering of food and drink suppliers that was conducted through the first half of 2019, with the implementation completed in November 2019, and the continued focus on menu and range development and control of site labour costs.

Exceptional Costs

The statutory operating loss of £6.7m is after charging exceptional costs totalling £15.3m.  Exceptional costs include:

· £0.9m relating to the write off of stock on the forced closure of the estate due to Covid-19;

· £1.5m in respect of costs incurred in the Group's IPO.  Further IPO related costs of £3.7m have been charged directly to reserves as they relate to the raising of equity share capital;

· £2.9m of IPO related share based payment awards; and

· £9.8m relating to the impairment of property, plant, and equipment (see below).

 

The Covid-19 pandemic and associated lockdown was a clear indicator of potential impairment and accordingly a detailed impairment review of each individual site was undertaken.  The result of this review was an impairment charge of £9.8m (2019: £nil), split £7.2m against the right of use asset and £2.6m against leasehold improvements and fixtures.

The impairment methodology included the calculation of a value in use for all sites.  This valuation was based upon three year site cash flow forecasts covering FY21 through FY23 which incorporated the impact of lockdown closure and assumptions regarding post reopening recovery, and a full allocation of central costs and maintenance capex spend.

Finance Costs and Net Debt

Finance costs of £8.1m (2019: £19.5m) include IFRS 16 lease liability finance costs of £5.5m (2019: £4.7m) and a non-cash exceptional charge of £1.4m in respect of the write off of unamortised loan arrangement fees relating to the Group's pre IPO banking facilities.  Bank interest payable in the year was £1.2m (2019: £4.3m).

The significant reduction in year on year finance costs is a function of the Group's IPO and the resulting change in capital structure.  Excluding IFRS 16 lease liabilities net debt has reduced from £165.6m at 21 April 2019 to £35.0m at 19 April 2020.



 

Cash Flow

Net cash generated from operating activities declined by 13.8% to £24.4m (2019: £28.3m).  The reduction in cash generation was wholly a function of the introduction of lockdown and the initial impact of the resulting working capital unwind.  The most significant element of the working capital unwind pre year end related to payroll liabilities, with all our employees being paid at the end of March and no subsequent rebuild of the net liability as the site teams and the majority of head office employees transferred to the Coronavirus Job Retention Scheme.

Cash outflows in the year in respect of capital expenditure totalled £23.1m (2019: £21.1m).  Prior to the lockdown the Group was on course to be self-funding in terms of capital expenditure, with cash generated from operating activities exceeding the cash out flow on capital expenditure.  Capital expenditure in the year included a spend of £17.4m (2019: £18.5m) in respect of new site openings. FY20 new site spend of £17.4m included £2.1m in respect of five sites where work was halted due to lockdown.

Key Performance Indicators ("KPI's")

The KPI's, both financial and non-financial, that the Board reviews on a regular basis in order to measure the progress of the Group are as follows:


FY20

FY20 to

FY19



23 February 2020






New site openings (net)

21

19

25

Capital expenditure (IAS 17)

£22.8m

£22.4m

£21.8m

Like for like sales growth

(6.4%)

4.5%

6.9%

Total sales growth

8.8%

21.9%

26.4%

Adjusted EBITDA margin (IFRS 16)

17.3%

18.8%

18.7%

 

Going Concern

In concluding that it is appropriate to prepare the FY20 financial statements on the going concern basis attention has been paid to the impact of Covid-19 on the Group, both experienced to date and potentially foreseeable in the future.

Covid-19 actions taken to mitigate the impact of lockdown

It is important to note that the strong financial performance of the business prior to lockdown on 20 March 2020 meant it was as well placed as possible to respond to a significant period of lockdown. The actual period of lockdown ranged between 15 and 19 weeks across our sites.

As the likelihood of lockdown increased during early March 2020 an immediate halt was put on the new site opening programme, all discretionary expenditure was stopped, and discussions commenced with our lenders Santander and Bank of Ireland to agree additional borrowing facilities.  Additional immediate actions to preserve liquidity within the Group included:

· Transferring all site employees and the majority of head office employees (in total 99% of employees) into the Coronavirus Job Retention Scheme;

· Reaching agreement with our suppliers to extend credit terms and restrict the level of working capital unwind. Our supportive supply partners were typically paid an amount on account during lockdown, with the deferred balance settled in full post re-opening;

· Seeking to agree rent waivers and deferrals with our landlords, and taking advantage of the moratorium on enforcement by landlords;

· Taking advantage of HMRC's VAT deferral scheme and agreeing to defer payment of PAYE/NI liabilities due for payment in March and April; and

· Agreeing salary reductions with those employees who had not been furloughed.

 

Significant work was undertaken throughout March and April 2020 to model a range of potential scenarios.  The key variables within these scenarios included:

 

· The length of lock-down. The management case scenario included a lockdown period of 16 weeks, with the estate re-opening 13 July 2020;

· The level of sales decline on the re-opening of the estate and the period over which sales recovered. The management case assumed that sites would re-open with LFL sales running at negative 50% and would finish the FY21 financial year at negative 10%;

· The labour cost of operating at depressed sales levels and the required additional investment in labour to support post re-opening Covid-19 protocols; and

· Working capital impacts of potentially amended credit terms post re-opening.

 

The management base case underpinned the decision to agree an additional £15m revolving credit facility ("RCF") with our lenders and to proceed with an equity placing of 9.25m new shares raising net proceeds of £8.1m.  At 19 April 2020, the Group had cash of £4.1m and net debt of £35.4m, having drawn down £7m under the Group's existing £10m RCF.  On completion of the equity placing on 23 April, and with the additional RCF in place, the Group had total liquidity of £30.0m.  Based on an assumed further working capital unwind of £9m and with an average weekly cash outflow of £0.48m (assuming all rents paid as they fell due) this provided the Group with approximately 44 weeks of liquidity in the event of a prolonged total lockdown.

Performance post lockdown

Commencing with the full re-opening of 24 Lounges on 4 July 2020 the Group adopted a phased re-opening programme with 165 sites opened and fully trading by 7 August.  Trading in the 10 weeks post re-opening has been significantly ahead of that modelled in the management case referred to above, with like for like sales growth (including the impact of the VAT reduction on food and non-alcoholic drinks) of 29.9%.  Underlying trading has been stronger than that modelled in the management case scenario and there has been significant additional benefit coming from:

· The support measures announced by the Chancellor on 8 July 2020, including the reduction in the VAT rate on food and non-alcoholic drinks from 20% to 5% for the period 15 July 2020 to 12 January 2021, the Eat Out to Help Out scheme in August 2020; and

· The support of the Group's supply partners in maintaining their pre Covid-19 credit terms.

 

The strength of initial trading post lock down, allied to the various initiatives detailed above and the additional capital raised in the equity placing have significantly offset the negative impact of the lockdown period.  As at 6 September net debt, adjusted to reflect deferred liabilities to landlords and HMRC as if they had been paid, was £24.5m.  This compares favourably to net debt of £26.5m on the corresponding date last year and to net debt of £28.8m on 22 March 2020, immediately post the start of lockdown.

Cash flow and covenant models

The management case scenario has been updated to reflect the impact of the events noted above.  Under this scenario borrowing under the Group's total RCF facility of £25m would not exceed £5.0m and the Group would be in compliance with its bank covenants.  The Group is subject to leverage and interest cover covenant tests.  The amendment to the Group's banking facilities agreed in April 2020 included the waiver of the covenant tests scheduled for 12 July 2020 and 4 October 2020, and amendments to the tests running through to 3 October 2021. The Group was in compliance with its covenants throughout the FY20 financial year.

Additional downside scenarios have been modelled against the management case.  These downsides have included:

· The closure of 20 sites from early September 2020 through the remainder of FY21 to reflect the potential impact of a series of regional lockdowns;

· The closure of an additional 20 sites through a 12 week period covering November 2020 to January 2021 to reflect the potential for more rigorous localized lockdowns over the Christmas trading period;

· Increases in the level of LFL sales decline for the remainder of FY21 from the negative 10% in the management case to a range from negative 10% to negative 25%; and

· Continued LFL sales decline throughout FY22 of between 10% and 25%.

 

The impact of reflecting all these downside scenarios is to reduce expectations of Adjusted EBITDA by approximately 64% for FY21 and 61% for FY22 relative to Board expectations pre Covid-19.  Under this downside scenario the Group is forecast to remain within its borrowing facilities and to be in compliance with its covenant obligations, and accordingly the Directors have concluded that it is appropriate to prepare the FY20 financial statements on the going concern basis.

 

Gregor Grant

Chief Financial Officer

16 September 2020

Consolidated Statement of Comprehensive Income

For the 52 Weeks Ended 19 April 2020

 



Year ended

19 April 2020

£000

Year ended

21 April 2019

£000


Note


Restated*





Revenue


166,502

152,999

Cost of sales


(98,523)

(89,485)

Gross profit


63,514





Gross profit before exceptional items


68,882

63,514

Exceptional items included in cost of sales

6

(903)

-





Administrative expenses


(74,695)

(50,811)

Operating (loss) / profit

4

(6,716)

12,703





Operating profit before exceptional items


8,620

13,165

Exceptional items included in cost of sales

6

(903)

-

Exceptional items included in administrative expenses

6

(14,433)

(462)





Finance income


50

54

Finance costs

5

(8,115)

(19,457)





Finance costs before exceptional items


(6,668)

(19,457)

Exceptional finance cost

5

(1,447)

-





Loss before taxation


(14,781)

(6,700)

Tax credit / (charge) on loss

7

1,960

(460)

Loss for the year


(12,821)

(7,160)





Other comprehensive expense:




Items that may be reclassified to profit or loss




Cash flow hedge - change in value of hedging instrument


(332)

(333)

Other comprehensive expense for the year


(332)

(333)

Total comprehensive expense for the year


(13,153

(7,493)

 

Earnings per share


Year ended

19 April 2020

Pence

Year ended

21 April 2019

Pence


Note







Basic earnings / (losses) per share

8

(14.0)

(37.5)

Diluted earnings / (losses) per share

8

(14.0)

(37.5)

 

*See note 3 for details regarding the restatement as a result of the adoption of IFRS 16.



 

Consolidated Statement of Financial Position

As at 19 April 2020

 

 

 

Note

At 19 April 2020

At 21 April 2019

At 22 April 2018




Restated*

Restated*



£000

£000

£000

Assets





Non-current





Intangible assets


113,227

113,227

113,227

Property, plant and equipment

9

166,447

149,261

121,256

Deferred tax assets


236

-

-

Finance lease receivable


752

831

907

Total non-current assets


280,662

263,319

235,390






Current





Inventories


815

1,500

1,065

Trade and other receivables


6,850

4,883

4,139

Derivative financial instruments


-

-

323

Cash and cash equivalents


4,083

6,500

7,669

Total current assets


11,748

12,883

13,196






Total assets


292,410

276,202

248,586






Liabilities





Current liabilities





Trade and other payables


(34,118)

(32,440)

(27,715)

Lease liabilities


(6,160)

(4,946)

(3,759)

Derivative financial instruments


(332)

(10)

-

Total current liabilities


(40,610)

(37,396)

(31,474)






Non-current liabilities





Borrowings

10

(39,039)

(172,112)

(157,368)

Lease liabilities


(98,779)

(84,192)

(69,405)

Deferred tax liabilities


-

(1,594)

(2,001)

Total liabilities


(178,428)

(295,294)

(260,248)






Net liabilities


113,982

(19,092)

(11,662)






Called up share capital


1,025

53

53

Share premium


-

4,184

4,172

Hedge reserve


(332)

(10)

323

Other reserve


14,278

51

-

Retained earnings / (accumulated losses)


99,011

(23,370)

(16,210)

Total equity


113,982

(19,092)

(11,662)

 

*See note 3 for details regarding the restatement as a result of the adoption of IFRS 16.



 

Consolidated Statement of Changes in Equity

For the 52 Weeks Ended 19 April 2020

 

 

 

 

 

Called up share capital

Share premium

Hedge reserve

Other reserve

Retained profits / (accumulated losses)

Total equity


£000

£000

£000

£000

£000

£000















At 22 April 2018

53

4,172

323

-

(13,945)

(9,397)








IFRS 16 Transition

-

-

-

-

(2,265)

(2,265)








At 22 April 2018 restated

53

4,172

323

-

(16,210)

(11,662)








Share transactions during the 52 week year

-

12

-

51

-

63








Total transactions with owners

-

12

-

51

-

63








Loss for the year

-

-

-

-

(7,160)

(7,160)

Other comprehensive expense

-

-

(333)

-

-

(333)








Total comprehensive expense for the 52 week year

-

-

(333)

-

(7,160)

(7,493)















At 21 April 2019

53

4,184

(10)

51

(23,370)

(19,092)








Redeemable preference shares issued

100

-

-

-

-

100

Share for share exchange - ordinary shares

8,408

(4,184)

-

(4,224)

-

-

Preference debt for equity swap

66,193

-

-

18,451

-

84,644

Ordinary shares issued

3

-

-

-

-

3

Ordinary shares issued on IPO

308

61,288

-

-

(3,655)

57,941

Capital reduction

(74,040)

(61,288)

-

-

135,328

-

Share based payment charge

-

-

-

-

3,539

3,539








Total transactions with owners

972

(4,184)

-

14,227

135,212

146,227








Loss for the year

-

-

-

-

(12,821)

(12,821)

Other comprehensive expense

-

-

(322)

-

(10)

(332)








Total comprehensive expense for the 52 week period

-

-

(322)

-

(12,831)

(13,153))















At 21 April 2019

1,025

-

(332)

14,278

99,011

113,982



 

Consolidated Statement of Cash Flows

For the 52 Weeks Ended 19 April 2020

 



Year ended

19 April 2020

 

£000

Year ended

21 April 2019

Restated*

£000



19 April 2020

21 April 2019

Cash flows from operating activities



Loss before tax

(14,781)

(6,700)

Adjustments for:



Depreciation of property, plant and equipment

9,630

7,852

Depreciation of right of use assets

7,177

5,694

Impairment of property, plant and equipment

9,829

-

Share based payment transactions

4,026

(87)

Profit on disposal of tangible assets

(5)

(29)

Finance income

(50)

(54)

Finance costs

8,115

19,457

Changes in inventories

685

(435)

Changes in trade and other receivables

(732)

(703)

Changes in trade and other payables

1,793

4,310

Cash generated from operations

25,687

29,305

Tax paid

(1,290)

(1,018)

Net cash generated from operating activities


24,397

28,287





Cash flows from investing activities




Purchase of property, plant and equipment


(23,058)

(21,162)

Disposal of property, plant and equipment


10

-

Net cash used in investing activities


(23,048)

(21,162)





Cash flows from financing activities




Issue of ordinary shares


57,941

12

Capital contribution


-

51

Bank loans advanced


38,924

6,000

Bank loans repaid


(71,000)

(2,000)

Repayment of other loans 


(17,950)

-

Interest paid


(1,099)

(4,066)

Finance lease liabilities principal element paid


(5,228)

(3,744)

Finance lease interest paid


(5,478)

(4,668)

Finance lease receivables


124

121

Net cash used in financing activities


(3,766)

(8,294)





Net decrease in cash and cash equivalents


(2,417)

(1,169)





Cash and cash equivalents at beginning of the period


6,500

7,669





Cash and cash equivalents at end of the period


4,083

6,500

 

*See note 3 for details regarding the restatement as a result of the adoption of IFRS 16.



 

 

NOTES TO THE PRELIMINARY FINANCIAL INFORMATION

 

1. General information

 

Loungers plc ("the company") and its subsidiaries ("the Group") operate café bars and café restaurants through two complementary brands, Lounge and Cosy Club.

 

The Company is a public company limited by shares whose shares are publicly traded on the AIM Market ("AIM") of the London Stock Exchange and is incorporated in the United Kingdom and registered in England and Wales.

 

The registered address of the Company is 26 Baldwin Street, Bristol, United Kingdom, BS1 1SE.

 

2. Basis of preparation

 

The consolidated financial statements of the Loungers plc Group, from which the financial information in this announcement is derived, have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union applicable to companies reporting under IFRS.

 

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial liabilities (including derivatives) at fair value through profit and loss.  The financial statements are presented in thousands of pounds sterling ('£000') except where otherwise indicated.

 

The Company was incorporated on 28 March 2019 as the vehicle for the purposes of achieving admission to trading on the AIM market of the London Stock Exchange ("Admission") and the Company had no significant transactions prior to Admission on 29 April 2019.  The Company acquired the entire share capital of Lion/Jenga Topco Limited ("Topco") on 24 April 2019 in a share for share exchange.  The introduction of the Company into the Group has been accounted for as a capital reorganisation.  In doing so the comparatives for the 52 weeks ended 21 April 2019 have been presented as if the Group had always existed in its current form.

 

The accounting policies adopted in the preparation of the Financial Statements are consistent with those applied in the preparation of the Topco consolidated financial statements for the year ended 21 April 2019, except for the adoption of IFRS 16 effective as of 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The auditors' reports on the accounts for the 52 weeks ended 19 April 2020 for Loungers plc and for the 21 April 2019 of Topco were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006 (or Jersey Law equivalent).

 

The financial statements for Loungers plc for the year to 19 April 2020 will be delivered to the Registrar of Companies shortly.  Topco is registered in Jersey and accordingly statutory accounts have not been delivered to the Registrar of Companies.

 

The financial information contained within this preliminary announcement for the periods ended 19 April 2020 and 21 April 2019 does not comprise the statutory financial statements of Loungers plc.

 

In concluding that it is appropriate to prepare the FY20 financial statements on the going concern basis the Directors have considered the Group's cash flows, liquidity and business activities.  Particular attention has been paid to the impact of Covid-19 on the business, both experienced to date and potentially foreseeable in the future.

 

As at 19 April the Group had cash balances of £4.1m and undrawn facilities of £3.0m.  On 22 April 2019 the Group raised gross proceeds of £8.3m through the issue of 9,250,000 ordinary shares and agreed an additional £15m revolving credit facility with its bankers, providing total liquidity of £30.2m.

 

Based on the Group's forecasts, the Directors have adopted the going concern basis in preparing the Financial Statements.  The Directors have made this assessment after consideration of the Group's cash flows and related assumptions and in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting 2014 published by the UK Financial Reporting Council.

 

In making this assessment the Directors have made a current consideration of the potential impact of the Covid-19 pandemic on the cash flows and liquidity of the Group over the next 12 month period. This assessment has considered:



 

 

· Measures put in place during lockdown to preserve and to increase liquidity

· The impact of Government measure to support industry, and in particular the hospitality industry.  These measures include the Coronavirus Job Retention Scheme, the business rates holiday, the temporary VAT reduction to 5% on food and non-alcoholic drinks and the EOTHO Scheme

· Initial trading during the period post the resumption of trading on 4 July 2020

 

The Group's forecasts assume a level of like for like sales decline, resulting from the impact of Covid-19 on consumer behaviour, that exceeds that experienced in the period post re-opening (adjusted to exclude the positive impact of EOTHO).

 

The Directors have also considered a more severe downside set of assumptions.  These include:

 

· The closure of 20 sites from early September through the remainder of FY21 to reflect the potential impact of a series of regional lockdowns

· The closure of an additional 20 sites through a 12 week period covering November to January to reflect the potential for more rigorous localized lockdowns over the Christmas trading period

· Further increases in the level of LFL sales decline for the remainder of FY21

· Continued LFL sales decline throughout FY22

 

The impact of these downside scenarios is to reduce expectations of Adjusted EBITDA by approximately 64% for FY21 and 61% for FY22 relative to Board expectations pre Covid-19.  Under this downside scenario the Group is forecast to remain within its borrowing facilities and to be in compliance with its covenant obligations, and accordingly the Directors have concluded that it is appropriate to prepare the FY20 financial statements on the going concern basis.

 

3. New standards, amendments and interpretations adopted

 

The Group has applied the same accounting policies and methods of computation in its Financial Statements as in the Topco 2019 annual financial statements, with the following exception of the adoption of IFRS 16 Leases.

 

There are no other new standards, amendments or interpretations not yet adopted by the Group that are expected to have a material impact on these consolidated financial statements.

 

IFRS 16 "Leases"

 

IFRS 16 supersedes IAS 17 and sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model. The Group has adopted IFRS 16 using the fully retrospective method with the date of initial application being 23 April 2018.

 

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard: 

· the use of a single discount rate to a portfolio of leases with reasonably similar characteristics

· relying on previous assessment of whether a lease is onerous

· the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and

· the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

 

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

 

The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

 

In accordance with the fully retrospective method of adoption, the Group applied IFRS 16 at the date of initial application as if it had already been effective at the commencement date of existing lease contracts. Accordingly, the comparative information in these consolidated financial statements has been restated, as summarised below.



 

 

Adjustments recognised on the adoption of IFRS 16

 

The impact of adopting IFRS 16 on the Group's consolidated statement of comprehensive income, consolidated statement of financial position and consolidated statement of cash flows is presented in the following tables.

 


Reported

IFRS 16

Restated


Year ended

Transition

Year ended


21 April 2019


21 April 2019


£000


£000





Revenue

152,999

-

152,999

Cost of sales

(89,485)

-

(89,485)





Gross profit

63,514

-

63,514





Administrative expenses

(53,717)

2,906

(50,811)





Operating profit

9,797

2,906

12,703





Operating profit before exceptional items

10,259

2,906

13,165

Exceptional items included in administrative expenses

(462)

-

(462)





Finance income

-

54

54

Finance costs

(14,786)

(4,671)

(19,457)





Loss before taxation

(4,989)

(1,711)

(6,700)





Tax credit / (charge) on loss

(750)

290

(460)





Loss for the year

(5,739)

(1,421)

(7,160)





Other comprehensive expense:








Cash flow hedge - change in value of hedging instrument

(333)

-

(333)





Other comprehensive expense for the year

(333)

-

(333)





Total comprehensive expense for the year

(6,072)

(1,421)

(7,493)

 



 

 

Adjustments recognised on the adoption of IFRS 16 (continued)

 

The adjustments to the consolidated statement of financial position are as follows:

 


Reported

IFRS 16

Restated


Reported

IFRS 16

Restated


at 22 April 2018

Transition

at 22 April 2018


at 19 April 2019

Transition

at 21 April 2019


£000


£000


£000


£000









Assets








Non-current








Intangible assets

113,227

-

113,227


113,227

-

113,227

Property, plant and equipment

59,006

62,250

121,256


74,073

75,188

149,261

Total non-current assets

172,233

62,250

234,483


187,300

75,188

262,488









Current








Inventories

1,065

-

1,065


1,500

-

1,500

Trade and other receivables

5,182

(136)

5,046


6,289

(575)

5,714

Derivative financial instruments

323

-

323


-

-

-

Cash and cash equivalents

7,669

-

7,669


6,500

-

6,500

Total current assets

14,239

(136)

14,103


14,289

(575)

13,714









Total assets

186,472

62,114

248,586


201,589

74,613

276,202









Liabilities








Current liabilities








Trade and other payables

(27,723)

8

(27,715)


(33,095)

655

(32,440)

Lease liabilities

-

(3,759)

(3,759)


-

(4,946)

(4,946)

Derivative financial instruments

-

-

-


(10)

-

(10)

Total current liabilities

(27,723)

(3,751)

(31,474)


(33,105)

(4,291)

(37,396)









Non-current liabilities








Borrowings

(157,368)

-

(157,368)


(172,112)

-

(172,112)

Lease liabilities

-

(69,405)

(69,405)


-

(84,192)

(84,192)

Accruals and deferred income

(8,183)

8,183

-


(9,312)

9,312

-

Deferred tax liabilities

(2,465)

464

(2,001)


(2,348)

754

(1,594)

Provisions

(130)

130

-


(118)

118

-









Total liabilities

(195,869)

(64,379)

(260,248)


(216,995)

(78,299)

(295,294)









Net liabilities

(9,397)

(2,265)

(11,662)


(15,406)

(3,686)

(19,092)









Called up share capital

53

-

53


53

-

53

Share premium

4,172

-

4,172


4,184

-

4,184

Hedge reserve

323

-

323


(10)

-

(10)

Other reserve

-

-

-


51

-

51

Accumulated profits / (losses)

(13,945)

(2,265)

(16,210)


(19,684)

(3,686)

(23,370)

Total equity

(9,397)

(2,265)

(11,662)


(15,406)

(3,686)

(19,092)

 

 



 

Adjustments recognised on the adoption of IFRS 16 (continued)

 

The adjustments to the consolidated statement of cash flows are as follows:

 


Reported

IFRS 16

Restated


Year ended

Transition

Year ended


21 April 2019


21 April 2019


£000


£000





Cash Flows from operating activities




Loss before Tax

(4,989)

(1,711)

(6,700)





Adjustments for:




Depreciation of property, plant and equipment

8,147

(295)

7,852

Depreciation of right of use assets

-

5,694

5,694

Share based payment transactions

(87)

-

(87)

Profit on disposal of tangible assets

12

(41)

(29)

Finance Income

-

(54)

(54)

Finance Costs

14,786

4,671

19,457

Changes in inventories

(435)

-

(435)

Changes in trade and other receivables

(1,074)

371

(703)

Changes in trade and other payables

6,089

(1,779)

4,310

Changes in provisions

(12)

12

-

Cash generated from operations

22,437

6,868

29,305

Tax paid

(1,018)

-

(1,018)

Net cash generated from operating activities

21,419

6,868

28,287





Cash flows from investing activities




Purchase of property, plant and equipment

(22,585)

1,423

(21,162)

Disposal of property, plant and equipment

-


-

Net cash used in investing activities

(22,585)

1,423

(21,162)





Cash flows from financing activities




Issue of ordinary shares

12

-

12

Capital contribution

51

-

51

Bank loans advanced

6,000

-

6,000

Bank loans repaid

(2,000)

-

(2,000)

Interest paid

(4,066)

-

(4,066)

Finance lease liabilities paid

-

(3,744)

(3,744)

Finance lease interest paid

-

(4,668)

(4,668)

Finance lease receivables

-

121

121

Net cash used in financing activities

(3)

(8,291)

(8,294)





Net decrease in cash and cash equivalents

(1,169)

-

(1,169)





Cash and cash equivalents at beginning of the year

7,669

-

7,669





Cash and cash equivalents at end of the year

6,500

-

6,500

 

 

 



 

4. Operating Profit

 

Operating profit is after charging / (crediting):


Year ended

Year ended


19 April 2020

21 April 2019



Restated


£000

£000

Depreciation of tangible fixed assets

9,630

7,852

Depreciation of right of use assets

7,177

5,694

Impairment of property, plant and equipment

9,829

-

Inventories- amounts charged as an expense

40,876

38,968

Auditors' remuneration



  for statutory audit services

94

80

  for other assurance services

-

75

  for tax compliance services

48

24

  for tax advisory services

351

28

Staff costs (excluding share based payments)

65,143

57,377

Share based payments

1,125

(87)

Pre- opening costs

2,220

1,904

Exceptional costs

15,336

462

 

5. Finance Costs

 


Year ended

Year ended


19 April 2020

21 April 2019



Restated


£000

£000

Bank interest payable

1,155

4,327

Finance cost on lease liabilities

5,478

4,671

Other loan interest payable

18

2,058

Preference share interest

17

8,401

Exceptional write off of loan arrangement fees

1,447

-


8,115

19,457

 

6. Exceptional Items

 


Year ended

Year ended


21 April 2019

22 April 2018


£000

£000

Included in cost of sales



  Covid-19 related

903

-

Included in administrative expenses



  Change of ownership

1,528

462

  IPO Related share-based awards

2,901

-

  Impairment of property, plant and equipment

9,829

-

  Head office relocation

175

-


15,336

462

 

The Covid-19 related costs are in respect of the write-off of food and drink inventories resulting from the forced closure of all sites on 20 March 2020.

 

The change of ownership costs in the year ended 19 April 2020 relate to costs incurred in the IPO of the business which completed on 29 April 2019.  These costs include employee bonuses and professional fees.  The costs incurred in the year to 21 April 2019 relate to costs incurred in the preparation for the IPO of the business.

 

The IPO Related share-based award charge relates to awards made to 485 employees where the shares vested either at IPO or on first the anniversary of the IPO.

 

The impairment charge in respect of property, plant and equipment, and the calculation methodology is set out in note 9.

 



 

 

7. Tax on loss

 

The income tax charge is applicable on the Group's operations in the UK.

 


Year ended

Year ended


19 April 2020

21 April 2019



Restated


£000

£000




Taxation charged to the income statement



Current income taxation

-

918

Amounts (under)/over provisioned in earlier years

(130)

(51)

Total current income taxation

(130)

867




Deferred Taxation



Origination and reversal of temporary timing differences



Current period

(1,940)

(420)

Prior period

-

8

Adjustment in respect of change of rate of corporation tax

110

5

Total deferred tax

(1,830)

(407)




Total taxation expense in the consolidated income statement

(1,960)

460




The above is disclosed as:






Income tax expense - current period

(1,940)

498

Income tax expense - prior period

(20)

(38)


(1,960)

460

 

Factors affecting the tax charge for the period




Year ended

Year ended


19 April 2020

21 April 2019



Restated


£000

£000

Loss before tax

(14,781)

(6,700)




At UK standard rate of corporation taxation of 19% (2019: 19%).

(2,808)

(1,273)

Expenses not deductible for tax purposes



 - Preference share interest

3

1,596

 - Share based payments

545

-

 - Other

661

404

Fixed asset differences

183

(229)

Movement in unrecognised deferred tax

(524)

-

Adjustments to tax charge in respect of prior periods

(130)

(43)

Adjustment in respect of change of rate of corporation tax

110

5

Total tax charge for the period

(1,960)

460




 

8. Earnings per share

 

Basic (losses) / earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of shares outstanding during the year, excluding unvested shares held pursuant to the following long-term incentive plans:

· Loungers plc Employee Share Plan

· Loungers plc Senior Management Restricted Share Plan

· Loungers plc Value Creation Plan

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.  During the year ended 19 April 2020 the Group had potentially dilutive shares in the form of unvested shares pursuant to the above long-term incentive plans.

 

 

8. Earnings per share (continued)

 


Year ended

Year ended


19 April 2020

21 April 2019



Restated


£000

£000




Loss for the year after tax

(12,821)

(7,160)




Basic weighted average number of shares

91,786,283

19,110,695

Adjusted for share awards

1,734,508

-

Diluted weighted average number of shares

93,520,791

19,110,695




Basic losses per share (p)

(14.0)

(37.5)

Diluted losses per share (p)

(14.0)

(37.5)

 

The share awards are not considered to be dilutive as they would have the impact of reducing the losses per share.

 

Adjusted earnings per share is based on profit for the year before exceptional items and the associated tax effect.

 


Year ended

Year ended


19 April 2020

21 April 2019



Restated


£000

£000




Loss for the year before tax

(14,781)

(6,700)

Exceptional items

15,336

462

Exceptional write off of loan arrangement fees

1,447

-

Adjusted profit for the year before tax

2,002

(6,238)

Tax credit / (charge)

1,960

(460)

Tax effect of exceptional items

(1,719)

(69)

Adjusted profit / (loss) for the year after tax

2,243

(6,767)




Basic adjusted earnings / (losses) per share (p)

2.4

(35.4)

Diluted adjusted earnings / (losses) per share (p)

2.4

(35.4)

 



 

 

9. Property, plant and equipment

 


Leasehold Building Improvements

Motor Vehicles

Fixtures and Fittings

Right of use asset

Total


£000

£000

£000

£000

£000

Cost






At 23 April 2018 (as previously stated)

39,413

104

28,167

-

67,684







Adoption of IFRS 16

(3,859)

-

-

80,998

77,139







At 23 April 2018 (as restated)

35,554

104

28,167

80,998

144,823







Additions

9,660

37

12,106

19,857

41,660

Disposals

(287)

(58)

(312)

(221)

(878)







At 21 April 2019

44,927

83

39,961

100,634

185,605







Accumulated depreciation






At 23 April 2018 (as previously stated)

3,348

29

5,301

-

8,678







Adoption of IFRS 16

(535)

-

-

15,424

14,889







At 23 April 2018 (as restated)

2,813

29

5,301

15,424

23,567







Provided for the year

2,672

27

5,153

5,694

13,546

Disposals

(286)

(56)

(303)

(124)

(769)







At 21 April 2019

5,199

-

10,151

20,994

36,344







Net book value






At 21 April 2019

39,728

83

29,810

79,640

149,261







Cost






At 22 April 2019

44,927

83

39,961

100,634

185,605







Additions

9,571

10

13,217

21,029

43,827

Disposals

-

(12)

(31)

(183)

(226)







At 19 April 2020

54,498

81

53,147

121,480

229,206







Accumulated depreciation






At 22 April 2019

5,199

-

10,151

20,994

36,344







Provided for the year

3,160

34

6,436

7,177

16,807

Impairment

2,166

-

400

7,263

9,829

Disposals


(12)

(26)

(183)

(221)







At 19 April 2020

10,525

22

16,961

35,251

62,759







Net book value






At 19 April 2020

43,973

59

36,186

86,229

166,447

 

 

 

 

 

 

 



 

 

9. Property, plant and equipment (continued)

 

Impairment of property, plant and equipment and right of use assets

 

The Group has determined that each site is a separate CGU for impairment testing purposes.  Each CGU is tested for impairment at the balance sheet date if there exists at that date any indicators of impairment.  The Covid-19 pandemic and the associated national lockdown introduced on 20 March 2020 are considered an indicator of potential impairment, accordingly all sites have been tested for impairment.

 

The value in use of each CGU is calculated based upon the Group's latest three-year forecast, incorporating the impact of the Covid-19 lockdown and assumptions concerning the rate at which site level cash flows will recover.  The site cash flows include an allocation of central costs and ongoing capital expenditure to maintain the sites.  The cash flows exclude any growth capital.  Cash flows beyond the three-year period are extrapolated using the Group's estimate of the long-term growth rate, currently 2.0%.

 

The key assumptions in the value in use calculations are the like for like sales projections for each site, changes in the operating cost base, the long-term growth rate and the pre-tax discount rate. The post-tax discount rate is derived from the Group's WACC and is currently 8.0%.

 

During the year the Group has recognised an impairment of charge of £9,829,000 (2019: £nil).  The cash flows used within the impairment model are based upon assumptions which are sources of estimation uncertainty.  Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in the key assumptions.  A reduction in site cash flows of 10% in each year would result in an increase in the impairment charge of £797,000.  A 100 basis point increase in the discount rate would result in an increase in the impairment charge of £1,354,000 and a 50 basis point reduction in the terminal growth rate would result in an increase in the impairment charge of £438,000.

 

10. Borrowings

 


19 April 2020

21 April 2019


£000

£000

Long term borrowings:



Secured bank loans

39,500

71,000

Loan arrangement fees

(461)

(1,447)

Loans from related parties

-

17,932

Preference shares

-

84,627


39,039

172,112

 

As part of the IPO process, a share for share exchange saw the preference shares and accrued dividends in Lion/Jenga Topco (21 April 2019: £84,627,000) reclassified as ordinary shares in Loungers plc.  Net proceeds of £57,941,000 raised from the IPO and a new term loan facility of £32,500,000 were utilised to repay outstanding loan stock (21 April 2019: £17,932,000) and bank debt (21 April 2019: £71,000,000).

 

Secured bank loans

 

The Group's bank borrowings are secured by way of fixed and floating charges over the Group's assets.

 

The facilities entered into at the time of the IPO provide for a term loan of £32,500,000 and a revolving credit facility ("RCF") of £10,000,000.  The term loan is a five-year non-amortising facility with a margin of 2% above LIBOR.  A three-year interest rate swap has been entered into that fixes LIBOR on the full term loan facility at 0.7%.

 

The term loan and RCF are subject to financial covenants relating to leverage and interest cover.  The Group has been in compliance with all of the covenants during the periods under review.

 

At 19 April 2020 the term loan was fully drawn and £7,000,000 had been drawn down under the revolving credit facility.

 



 

 

10. Analysis of changes in net debt

 


At 23 April 2018

Cash flows

Non-cash movement

At 21 April 2019


Restated



Restated


£000

£000

£000

£000






Cash in hand

7,669

(1,169)

-

6,500

Bank Loans

(65,268)

(4,000)

(285)

(69,553)

Lease liabilities

(73,164)

8,412

(24,386)

(89,138)

Unsecured loan stock

(15,874)

-

(2,058)

(17,932)

Preference shares

(76,226)

-

(8,401)

(84,627)

Net debt

(222,863)

3,243

(35,130)

(254,750)






Derivatives





Interest-rate swaps asset / (liability)

323

-

(333)

(10)

Total derivatives

323

-

(333)

(10)






Net debt after derivatives

(222,540)

3,243

(35,463)

(254,760)

 


At 22 April 2019

Cash flows

Non-cash movement

At 19 April 2020


Restated





£000

£000

£000

£000






Cash in hand

6,500

(2,417)

-

4,083

Bank Loans - due after one year

(69,553)

32,076

(1,562)

(39,039)

Lease liabilities

(89,138)

10,706

(26,507)

(104,939)

Unsecured loan stock - due after one year

(17,932)

17,950

(18)

-

Preference shares - due after one year

(84,627)

-

84,627

-

Net debt

(254,750)

58,315

56,540

(139,895)






Derivatives





Interest-rate swaps liability

(10)

10

(332)

(332)

Total derivatives

(10)

10

(332)

(332)






Net debt after derivatives

(254,760)

58,325

56,208

(140,227)

 

Non-cash movements in bank loans due after one year relate to the amortisation of bank loan issue costs.

 

11. Reconciliation of statutory results to alternative performance measures

 



Year ended

Year ended


Note

19 April 2020

21 April 2019



£000

£000





Operating (loss) / profit


(6,716)

12,703

Exceptional items


15,336

462

Share based payment charge / (credit)


1,125

(87)

Site pre-opening costs


2,220

1,904

Adjusted operating profit


11,965

14,982





Depreciation (pre IFRS 16 right of use asset charge)


9,630

7,853

IFRS 16 Right of use asset depreciation


7,177

5,694

(Profit) / loss on disposal of fixed assets


(5)

12

Adjusted EBITDA (IFRS 16)


28,767

28,541





IAS 17 Rent charge


(10,380)

(8,306)

IAS 17 Rent charge included in IAS 17 pre-opening costs


426

347





Adjusted EBITDA (IAS 17)


18,813

20,582

 

11. Reconciliation of statutory results to alternative performance measures (continued)

 



Year ended

Year ended


Note

19 April 2020

21 April 2019



£000

£000





Loss before tax (IFRS 16)


(14,781)

(6,700)

Exceptional administrative expenses


15,336

462

Exceptional finance costs


1,447

-

Adjusted profit / (loss) before tax (IFRS 16)


2,002

(6,238)





IAS 17 Rent charge


(10,380)

(8,306)

IAS 17 Leasehold depreciation (re landlord contributions)


(464)

(294)

IFRS 16 Right of use asset depreciation


7,177

5,694

IFRS 16 Lease interest charge


5,478

4,671

IFRS 16 Lease interest income


(50)

(54)

Adjusted profit / (loss) before tax (IAS 17)


3,763

(4,527)













Loss before tax (IFRS 16)


(14,781)

(6,700)

IAS 17 Rent charge


(10,380)

(8,306)

IAS 17 Leasehold depreciation (re landlord contributions)


(464)

(294)

IFRS 16 Right of use asset depreciation


7,177

5,694

IFRS 16 Lease interest charge


5,478

4,671

IFRS 16 Lease interest income


(50)

(54)

Loss before tax (IAS 17)


(13,020)

(4,989)













Adjusted profit / (loss) before tax (IFRS 16)


2,002

(6,238)

Tax credit / (charge)


1,960

(460)

Tax effect of exceptional items


(1,719)

(69)

Adjusted profit / (loss) after tax (IFRS 16)


2,243

(6,767)





IAS 17 Rent charge


(10,380)

(8,306)

IAS 17 Leasehold depreciation (re landlord contributions)


(464)

(294)

IFRS 16 Right of use asset depreciation


7,177

5,694

IFRS 16 Lease interest charge


5,478

4,671

IFRS 16 Lease interest income


(50)

(54)

IFRS 16 Tax effect


(423)

(290)

Adjusted profit / (loss) after tax (IAS 17)


3,581

(5,346)













Basic weighted average number of shares


91,786,283

19,110,695

Diluted weighted average number of shares


93,520,791

19,110,695





Adjusted basic earnings / (losses) per share (p) IFRS 16


2.4

(35.4)

Adjusted diluted earnings / (losses) per share (p) IFRS 16


2.4

(35.4)





Adjusted basic earnings / (losses) per share (p) IAS 17


3.9

(28.0)

Adjusted diluted earnings / (losses) per share (p) IAS 17


3.8

(28.0)













Net cash generated from operating activities (IFRS 16)


24,397

28,287

IAS 17 Rent charge


(10,380)

(8,306)

Movement in working capital


2,616

1,438

Net cash generated from operating activities (IAS 17)


16,633

21,419

 

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