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LOUNGERS.CO.UK
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 16 APRIL 2023
Company number 11910770
WHAT WE DO
COMPANY INFORMATION
MARKET OVERVIEW
Loungers plc (Loungers) operates through its three
complementary brands – Lounge, Cosy Club and
Brightside – in the UK hospitality sector.
At the year end the Group had 222 sites (2022: 195 sites), comprising 186 Lounges,
35 Cosy Clubs and 1 Brightside. Whilst it competes with coffee shops, pubs, restaurants and
local independent operators, 72 per cent of Lounge customers see it as a unique proposition,
rather than categorise it solely as a restaurant, pub or coffee shop. The Group competes
with every element of the trade of a pub chain, coffee shop, or restaurant, whereas each of
those operators only competes for a part of Loungers’ sales. It is this level of differentiation
that has enabled the Group to deliver significant and consistent like for like (“LFL”) sales
outperformance, and in turn, it is this sales outperformance allied to the new site roll-out and
growing scale of the Group that have provided the scope to better withstand the cost pressures
that have afflicted the broader hospitality sector in recent years.
OVERVIEW
What We Do
STRATEGIC REPORT
Chairman’s Statement
Chief Executive’s Statement
Key Strengths
ESG – Loungers as a Force for Good
Directors’ Duties – S172 Statement
Financial Review
Principal Risks and Uncertainties
IFC
3
5
9
10
16
18
22
CORPORATE GOVERNANCE
STATEMENT
Board of Directors
Chairman’s Corporate Governance Statement
Audit Committee Report
Remuneration Committee Report
Nomination Committee Report
Directors’ Report
Independent Auditors’ Report
to the Members of Loungers plc
FINANCIAL STATEMENTS
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Reconciliation of statutory results to alternative
performance measures
Company Information
25
26
31
33
38
39
42
50
51
52
53
54
78
79
80
85
IBC
SOLICITORS
Jones Day
21 Tudor Street
London
EC4Y 0DJ
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
One Chamberlain Square
Birmingham
B3 3AX
REGISTRAR
Link Group
Central square
29 Wellington Street
Leeds
LS1 4DL
BANKERS
Santander Corporate Banking
1st Floor
Alliance House
12 Baldwin Street
Bristol
BS1 1SD
Bank of Ireland
Bow Bells House
1 Bread Street
London
EC4M 9BE
DIRECTORS
A M Reilley
N C E Collins
G Grant
N P Backhouse
A J G Bellamy
R Darwent
J C Little
COMPANY SECRETARY
Link Company Matters Limited
REGISTERED NUMBER
11910770
REGISTERED OFFICE
26 Baldwin Street
Bristol
BS1 1SE
NOMINATED AND FINANCIAL
ADVISER
Houlihan Lokey
1 Curzon Street
London
W1J 5HD
CORPORATE BROKERS
Liberum Capital Limited
25 Ropemaker Street
London
EC2Y 9LY
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
THELOUNGES.CO.UK
COSYCLUB.CO.UK
LOUNGE
A Lounge is a neighbourhood café/bar combining elements
of a restaurant, the British pub and coffee shop culture.
186
LOUNGES
NATIONWIDE
As at the 16 April 2023, there were 186 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”. The Lounge estate has a consistent look and feel but each Lounge is individually named and
tailored to the site and local area, and the design of each Lounge is continually evolving, meaning no
two sites are the same.
The Lounge brand aims to have hospitality and familiarity at its core, driven by an independent
culture and focus on the local community. Each site has its own social media presence and staff are
encouraged to engage with the local community through events, charity, and community groups. 80
per cent of customers live locally, underlining each Lounge’s local neighbourhood credentials.
Every Lounge offers all-day dining, with the same menu served from 9am to 10pm, every day. Sales
are well diversified across all day parts and all days of the week as well as across all food types. In
addition to helping to drive repeat custom and maximise the trading efficiency of the sites, the all-day
offering gives the Group experience in managing operational complexity, particularly in the kitchens,
which the Directors believe is a meaningful barrier to entry for other operators.
COSY CLUB
Cosy Clubs are more formal restaurant-bars 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.
35
COSY CLUBS
NATIONWIDE
Cosy Clubs are typically located in city centres and larger 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. The Cosy Club brand enables the Group to operate in areas where there is
a more occasion-led demographic and offers an opportunity for greater coverage within cities. Sales,
EBITDA and capital expenditure are typically higher for a Cosy Club than for a Lounge. As at the
FY23 year end, there were 35 Cosy Clubs nationwide.
Whilst during the daytime, customers use Cosy Clubs much like they use Lounges (for instance, for
coffee or a quick lunch), in the evenings they are used more formally for drinks and dinner and
frequently host larger tables celebrating a special occasion.
BRIGHTSIDE
Loungers launched its third brand, a roadside dining concept
called Brightside, in November 2022.
1
BRIGHTSIDE
NATIONWIDE
BRIGHTSIDE.CO.UK
The first two Brightside locations are now open, on the A38, south of Exeter, and on the A38 at Saltash
with a further site to open on the A303 in summer 2023.
1
OVERVIEW LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC
REPORT
2
CHAIRMAN’S STATEMENT
I am delighted to report on another year of excellent financial,
operational, and strategic progress for Loungers.
A RECORD YEAR
In the financial year ending 16 April 2023 we opened a record
number of new sites (29), achieved record turnover of £283.5m,
and delivered Adjusted EBITDA of £47.3m. The business grew
overall sales by 19.5% and posted like-for-like sales growth of
7.4% on a one-year basis - or 17.6% on a three-year basis (albeit
an increasingly less relevant metric).
We also opened our 200th site (Cosy Club Chester) and ended
the year on 222 sites including the opening of the first Brightside,
our new roadside restaurant brand, on the A38 near Exeter. The
momentum of FY23 and the quality of our new site openings has
been maintained into the new year, with the recent opening of
Ormo Lounge in Llandudno representing, from a sales perspective,
the biggest Lounge opening in our history.
A STRENGTHENED TEAM
During the year, we made some key hires into newly created roles
for the business: Guy Youll joined the business as Chief People
Officer in the autumn, and has quickly set about delivering a
better, more joined up people strategy. Having a proven people
leader of his calibre is already helping us to substantially build on
great work like The Commitments (our five point covenant with our
employees), and will ultimately only make the business an even
better place in which to work; Kate Lister joined us at the same time
as our first ever Marketing Director, and has made an immediate
impact in helping us to move away from our previous ‘light
touch’ approach to promoting our brands; and, more recently,
Jono Jenkins, who was previously Lounge Head of Food, has been
promoted to Commercial Director. Having someone senior leading
our commercial team should help us deliver not just our immediate
goals, but also our more medium to long term ambitions.
It isn’t all one-way traffic, however, and we are sorry to say
goodbye to Amber Wood who leaves her role as Cosy Club MD
in August. Amber has been an integral part of the Loungers journey
for a number of years now and has achieved a huge amount in
her time with us. We were very lucky to have Amber as part of our
executive team, and I wish her all the very best for the future.
EXCEPTIONAL RESILIENCE IN THE FACE OF MULTIPLE
CHALLENGES
Loungers has been a listed company for over four years now
and in that time it’s fair to say we have had to deal with some
unprecedented challenges, most notably the Covid pandemic.
Despite having to be constantly reactive, and at times having to
roll with multiple punches, the executive team, masterfully led
as ever by Nick Collins, has risen to every challenge. With the
exception of the period in which we were unable to trade due to
the UK hospitality industry being forced to close, the business has
delivered time-and-time again.
Our brands have proved to be exceptionally resilient and, through
constant innovation and evolution, our offer is more relevant and
compelling than it has ever been before. Whilst the majority of
businesses in our sector have struggled, Loungers has thrived, and
whilst many of our peers still talk about ‘recovery’ we have been
back to full speed for over 18 months now - with the business
enjoying significant growth despite the challenging backdrop.
When comparing our FY23 results to our results for FY19, which
was our year end just before the business listed on the London
Stock Exchange, Loungers now has 52% more sites. This in turn
has increased revenue by 85%, generated 66% more Adjusted
EBITDA, and reduced net debt by £21.5m. In short, there is a
great deal for the business to be extremely proud about, not the
least the fact we have created 3,675 new jobs in the last four
years – creating fantastic career opportunities for people from all
backgrounds, all over the UK.
TIME TO CELEBRATE SUCCESS STORIES ACROSS THE
SECTOR: NOT ALL DOOM AND GLOOM
During the pandemic, the UK hospitality industry received
unprecedented levels of government support thanks in no small
part to the tireless efforts of the various trade bodies that represent
the sector. This support was, of course, very much required and
more than justified, given the sector was forced to close entirely
at times due to the various lockdowns. Since emerging from the
Covid period, the industry has been significantly impacted by
soaring energy costs, high inflation, the rising cost of labour,
the cost-of-living crisis, and rail strikes (most acutely felt by
London-centric businesses) and lobbying for more government
support continues. Whilst highlighting the issues the sector
continues to face and seeking more government support is
understandable, it concerns me that hospitality is now viewed as a
sector that is still very much on life-support.
Clearly it is very challenging at the moment, particularly for
smaller independent businesses in our sector who have been hit by
outrageous and unsustainable energy costs. But surely we need to
start to provide some balance to the way the sector portrays itself,
because it is simply not accurate to characterise it as being all
doom and gloom. As our results show, Loungers is doing extremely
well and I make no apology for the success we continue to enjoy.
Operating a hospitality business has always been challenging and
our continued success is down to a number of factors, not least the
hard work and talent of our executive team and our site teams’
dedication to providing consistently great hospitality. However,
3
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023 CHAIRMAN’S STATEMENT
CONTINUED
at the heart of our success has been our ability to make the most
of the cards we have been dealt and to get our heads down and
crack on. This is undeniably a major reason why we emerged
strongly from the Covid lockdowns and is also why we are
successfully navigating the cocktail of challenges the sector faces
post-pandemic.
And Loungers is by no means alone. There are countless other
hospitality businesses that are growing, investing, creating
jobs, building their brands, and being ambitious. A lot of these
businesses, almost all of which are privately owned, are not
making the same mistakes as others, because they have learnt
from them, and instead of pausing their innovation and evolution
post-pandemic they have accelerated it. They are helping to
rejuvenate our high streets and aid the economic recovery and it is
time that we start to shine a light on the success stories of our sector
instead of allowing a message of woe to be promoted.
The investment community too needs to start hearing a
different, more up-to-date message. Just because a number of
over-leveraged casual dining brands have failed over the last few
years doesn’t mean that casual dining is totally broken. Indeed,
most of the growth and innovation in the sector is currently in
casual dining. Likewise, just because certain high-profile operators
are reducing their leisure/retail park estates doesn’t mean that
these types of locations are absolutely off-limits. Indeed, some of
our best performing Lounge sites are in exactly the locations that
sector commentators seem to have condemned.
The UK consumer is on the one hand looking for familiarity but also
for adventure. They are attracted to brands that they feel constantly
deliver a great experience but also, and most importantly, that
they feel are relevant. Brands that have failed in recent years have
done so for a number of reasons; their offer hasn’t evolved, their
sites look tired and under-invested, and the business model that sits
behind the brand is broken. These brands have lost their relevance
and the UK consumer has simply moved on to better, more relevant
brands operated by smart management teams who know not to
repeat the mistakes of others.
EXCITING TIMES AHEAD
On which note, as Loungers enters FY24 we are in a great place,
and I firmly believe that we are armed with the best thought-through
and most realistically deliverable strategic plan that the business has
ever had. We will open another record number of new sites in FY24,
which will be overwhelmingly dominated by Lounge openings,
including our first sites in the North East. Lounge will break through
the 200 sites landmark and, with a sizeable runway ahead of us, we
believe there is scope for at least 600 Lounges across the UK.
We will continue to be selective about Cosy Club opportunities
and look forward to opening our first ever site in Oxford, a city in
which we envisage having at least four Lounge sites in the future,
when we open Cosy Club Oxford in late summer.
At the time of writing our second Brightside has recently opened on
the A38 near Saltash and our third site will open on the A303 near
Honiton in early August. Whilst we have already learnt an awful
lot about operating a roadside brand in just a short space of time,
with three sites open and a summer’s trade ahead there will be a
lot more to learn and the brand will inevitably need to spend some
time ‘in the lab’. However, we are encouraged by how Brightside
has traded to date and remain hugely excited about its potential.
In the case of both Cosy Club and Brightside, we will remain
disciplined in our approach to new openings and will not allow
either brand to distract the business from the overall strategy which,
for the foreseeable future, remains taking full advantage of the
sizeable runway we have identified for new Lounge sites.
Despite the challenging trading conditions, we are, as ever,
working tirelessly to improve the business and our brands. There
is a real ambition within the executive team to make tangible
progress on a number of areas of the business where we believe
we can improve, particularly in light of the key hires that we
made in FY23. Most notably, we believe we can improve
margin, develop even better capex controls, and promote a more
fully-formed, authentic ESG strategy that has total buy-in from
our teams.
A BIG THANK YOU TO ALL OUR PEOPLE
On the subject of our teams, the importance of community
engagement post-pandemic has never been greater, and the
business owes a huge debt of gratitude to our wonderful site
teams and the hardworking, talented ops team that support them.
They not only provide first-rate, genuine hospitality, but also
work tirelessly to help us earn our place on every high street and
in every town centre where we are lucky enough to operate.
As always, my sincere thanks goes to them for their outstanding
commitment, professionalism and enthusiasm for providing
outstanding quality and service to our customers.
Alex Reilley
Chairman
12 July 2023
4
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT
INTRODUCTION
I am pleased to report on a very successful year
for Loungers. We achieved record revenue of
£283.5m, operating profit of £14.8m, opened
a record 29 new sites, and our Adjusted EBITDA
performance of £47.3m represents growth of
66% since our IPO in 2019.
Our LFL sales performance has consistently out-performed the wider
sector, according to the Coffer CGA Tracker and we have successfully
mitigated much of the inflationary pressure, which is now diminishing.
SALES PERFORMANCE AND OUR EVOLVING OFFER
Our sales performance throughout the year was once again
exceptional, achieving underlying LFL sales growth of 7.4%.
In a year of fluctuating consumer sentiment and inconsistent
macro-economic signals, it was hard to ascertain any material
shift in our customers’ attitudes towards going out, or their
behaviour once they were in our premises. Covid, or any lingering
nervousness as a result of it, was certainly not a factor throughout
the year. It continues to be the case that the evolution and value of
our offer, alongside our ability to deliver it well operationally, are
the core factors that drive our sales growth.
We have delivered some fantastic menu evolution during the year,
and I look forward to seeing this momentum continue into FY24.
Over the last three years we haven’t been as bold evolving our
food offer as we might have liked, predominantly as a result of the
trickier employment market and our determination to make life as
easy as possible for our kitchen teams, avoiding more substantial
change. However, the most recent March 2023 menu change
in Lounge saw some really bold and more significant changes,
which have had a material impact on our food sales mix, as have
the more recent changes in Cosy Club. Our development teams
in both food and drink have never been so strong and there is a
healthy restlessness to drive further evolution and improvement.
The table below shows our annual LFL sales performance over
the last ten years. Over this period the estate has grown from
44 sites to 222. The consistency of our performance whilst
having gradually accelerated the roll-out is second to none and
demonstrates the relevance of our offer, our understanding of the
UK consumer and the strength of our team.
CONVERSION AND INFLATIONARY PRESSURE
I am pleased with the way in which we have managed the cost
base in the business in an inflationary environment and we
continue to be very well-placed versus our peers as a result of our
growth and operational flexibility.
In the first half we saw some margin deterioration, predominantly
due to wage inflation. Whilst annual National Living Wage
increases of 10% are of course a significant factor, how
we manage labour is also critically important. Our labour
management, coming out of a very tight labour market, improved
throughout the year, and I was more pleased with our performance
in the second half.
On the food and drink side, we have mitigated inflationary
pressure well, and price increases alongside our rolling supplier
renegotiation program, have allowed us to slightly increase
our food and drink margin. In the second half of the year we
started negotiations in respect of several material food and drink
supply contracts which will see further margin benefit in FY24 as
these negotiations draw to a close. It remains the case that our
significant growth allows us to challenge hard on cost and mitigate
some of the inflationary pressure. We took a further step on the
supply-chain consolidation journey during the year, through our
switch to Bidfood and have learnt more about the actions we will
need to take to optimise the supply chain further.
We continue to benefit from our May 2020 electricity and gas
hedge which runs until September 2024, albeit as a result of
our growth 25% of the estate is hedged at higher levels. This will
continue to have a modest negative impact on our conversion
over the next couple of years, but we will look to offset this as we
challenge our energy efficiency in the sites.
There is no doubt that the inflationary environment has eased,
and whilst wage inflation through annual National Living Wage
increases is here to stay, our medium-term margin outlook is
positive. It’s critical that we strike the right balance between margin
protection and value for money and the 10-year LFL sales chart
above would suggest that we have historically got the balance
right. This year I anticipate maintenance of our gross profit margins
as we move towards our medium-term goal of restoring margins to
their pre Covid levels.
Financial Year
Loungers LfL growth (%)
FY23
7.4%
FY22(1)
FY21(1)
FY20(2)
4.2%
10.7%
4.4%
FY19
6.9%
FY18
6.0%
FY17
5.3%
FY16
2.2%
FY15
3.9%
FY14
5.1%
1
2
Based upon 13 weeks trading not impacted by lockdowns / restrictions
44 weeks ending 23 February 2020
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STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023 CHIEF EXECUTIVE’S STATEMENT
CONTINUED
PEOPLE AND CULTURE
THE ROLL-OUT AND THE OPPORTUNITY IN FRONT OF US
Improving as an employer, and protecting and nurturing the
Loungers culture, continue to be the foundations of our roll-out
strategy. Last year (FY22) we introduced The Commitments,
setting out to our team what we wanted to represent as an
employer, and this year we have worked hard to fulfil these
commitments. We regularly survey our team to understand how
they feel about working for Loungers – the most recent survey
confirmed that we are performing better, but there is still more
that we can do.
Towards the end of the year we restructured our site salaried
team’s pay, transferring some cash away from potential bonus
awards and increasing salaries across the board, resulting in
on average +11% salary increases. This has made us more
competitive from a salary point of view and helped our team
address the cost of living increases that they are experiencing.
For our hourly paid team, whilst we continue to pay slightly
above average rates, we have worked hard to maintain our
appeal through benefits including free staff food and drinks for
all shifts and staff discount alongside the softer aspects such
as not having to wear a uniform, and our annual staff party
Loungefest. One of the consistent messages we hear from our
team is that it’s not all about pay. Working in hospitality should
be rewarding and fun, and this is inherent in the Loungers culture.
For anyone wanting a career in hospitality, there can be no
better home than Loungers. This year saw a record number of
promotions from people working at site level into our operations
team. We have introduced new processes to ensure we are
recognising talent and the desire to progress earlier, and are
allowing people the best opportunity to succeed through
development programs. We have a unique opportunity to shape
careers in hospitality and progress talented individuals early in
their careers.
The appointment of Guy Youll as Chief People Officer in the
second half of the year was an important step in the journey. As
we head into FY24, the People side of the business has never had
more prominence and we are excited about the opportunities
in respect of recruitment, learning and development and
career progression.
I am enormously grateful to our teams across the country for
their commitment and contribution over the year. Working in
hospitality is incredibly rewarding but can also be demanding at
times, and our continued growth and success reflects the efforts
of our amazing teams in Lounge, Cosy Club, Brightside and our
head office.
During the year we opened 29 sites – 24 Lounges, four Cosy
Clubs and our first Brightside. To facilitate this, we managed the
phased introduction of a fifth build team, increasing our annual
site-opening capacity to around 34 sites per year.
We continue to open sites very well, with newer sites increasing the
average level of unit sales and EBITDA and achieving our returns hurdle.
The diversity and quality of site openings during the year really highlights
the opportunity in front of us, particularly from a Lounge perspective.
Lounge’s uniquely consistent success in a variety of location types
clearly demonstrates the relevance of our offer and the positive
impact we have in communities. Over one stretch during March
and April we opened six sites in six weeks, illustrating the roll-out
capability within the business. Our typical Lounge openings are in
small market-towns or secondary-suburbs, but we continue to see
real success in coastal locations and exceptional out-performance
in the occasional retail park. Retail parks are interesting –
historically they have been talked-down, but I think this is more
as a consequence of the quality or relevance of food and drink
offer within them. Our experience suggests that the right locations
with a strong retail and leisure offer and therefore strong footfall,
represent an excellent opportunity for us.
The more sites we have opened, the more we have learnt about the
type of location in which Lounges perform well, and we are now very
confident there is scope for at least 600 Lounges across the UK. We
have a detailed target list which is derived and updated from road
trips carried out by the executive and property teams over the last
20 years; our combined knowledge of small and medium UK towns
is impressive. When we reference the existing Lounge estate and its
performance alongside the estates of other national food and drink
operators, it would suggest 600 is a conservative target. We have
also looked at the Cosy Club list and believe the potential scale here is
realistically between 50 and 65 sites. In FY24 we expect to open one
Cosy Club, and going forward the ratio of Cosy Club new openings
to Lounge new opening is likely to continue to be low as we look for
opportunities in a diminishing pool of potential locations.
Geographically we continue to push further into the North and
the South East with openings in Richmond (North Yorkshire), and
Clacton-on-Sea (Essex). The Lounge new site pipeline continues
to be in excellent shape, with FY24 likely to see further expansion
in the North West and the North East and continued infill across
England and Wales. It remains our strategy to gradually nudge
into new territories so we can pull on culture and team strength to
ensure we open new sites well. We get asked a lot about when we
will get to Scotland, and it feels like the next year or two should
see a Loungers presence there.
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LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT
CONTINUED
On the Cosy Club side, we opened four sites during the year in
Chester, Canterbury, Harrogate and Milton Keynes and are opening
in Oxford towards the end of the summer. The sites have opened well
and highlight the diversity of property type and our design team’s
ability to transform space. Potential Cosy Club locations however
are less numerous and at present, outside of Oxford we don’t have
further Cosy Club opportunities in the pipeline.
BRIGHTSIDE
The first Brightside restaurant, our new roadside dining brand
focused on busy A roads close to towns, opened its doors in Exeter
on 10 February, and post year-end we have opened our second
Brightside in Saltash. It has been a fantastic opportunity for the
talent across the business to come together to create something that
we are all enormously proud of. The sites look fantastic, the food
and drink offer is exceptionally good, and differentiated from the
Lounge and Cosy Club offers, whilst drawing on our core strength
of all-day dining. Whilst Loungers has become a big business,
at its heart is a young, entrepreneurial team and approach, and
Brightside has given us the opportunity to express ourselves.
We have been relatively pleased with the very early sales
performance at Exeter and Saltash and are excited about the
forthcoming opening in Honiton. Customer reaction has been
largely excellent and we have learnt some important lessons
already in the early weeks of trade. The next three months will
be a great test - and opportunity - for the business as the three
west-country locations trade over the busy summer period. We
look forward to providing an update in November with further
thoughts on the brand and its performance.
OUR IMPACT ON SOCIETY AND THE ENVIRONMENT
Community has been at the heart of our business for our 20 year
history and is the core focus of our positive impact. With the
opening of every new Lounge comes new jobs, a place for anyone
in the community to meet and support for local charities, causes
and groups. Through our 29 new openings we have created
around 1,000 new jobs and significantly 21% of these are in
government identified “Levelling Up” areas.
This year we have prioritised both Community and wider Force
for Good activities in our strategy and planning. This has resulted
in the establishment of our first ever Force for Good Committee,
led by our COO, and a Force for Good Roadmap that unites our
commercial, maintenance, people, marketing and food teams.
Highlights include an update to our build specification to make
our sites more energy efficient, an energy reduction and waste
sorting project which will be delivered directly by our 200+ site
teams, the investment in seven Regional Community Managers to
extend our local outreach and a full review of our supply chain
so we have clarity on our ingredients and confidence in our
Modern Slavery Act (“MSA”) Commitments. Whilst our senior
leadership is 36% female we believe that we have significantly
further to go, not least in improving the gender balance within our
operational leadership.
We are pleased to share our first full Scope 1-3 carbon mapping
in this report, in next year’s report you will see our carbon
roadmap including stepped green energy targets and our plans to
convert our full estate to electric only.
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STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023 CHIEF EXECUTIVE’S STATEMENT
CONTINUED
MANAGEMENT TEAM
We remain very focused on evolving and building the strongest
management team in the sector to facilitate the successful roll-out
of our brands. As mentioned above Guy Youll joined us as Chief
People Officer during the year and we also welcomed Kate Lister
who joined as our first Marketing Director. Jono Jenkins was
promoted to Commercial Director following four-years as Lounge
Head of Food. We will continue to seek to internally develop and
progress people where we have the opportunity.
Amber Wood has decided to leave in August following eight
successful years with Loungers plc, including the last six as Cosy
Club Managing Director. Amber has played a really important role
in the growth and success of the Cosy Club brand, and leaves with
my enormous gratitude for a job very well done. We are currently
recruiting for her replacement.
CURRENT TRADING AND OUTLOOK
We continue to feel very positive about the outlook for our brands.
Over the 12 weeks since the year end our LFL sales have been
+5.7% despite the impact of Easter timing and we are pleased with
our performance and trajectory. Our new site openings continue to
perform exceptionally well, achieving record levels of sales, and
our pipeline of new sites is as strong as ever.
We ended FY23 by accelerating many of the initiatives that have
underpinned Loungers’ resilience in FY23; opening six sites in
six weeks across March and April, launching new innovative
menus in Lounge and Cosy Club and restructuring benefits for
our salaried staff. We are confident that the good momentum we
are seeing across the business, as well as the investment that we
continue to make in our operational structure, puts us in the best
possible position to deliver further growth and profitability in FY24.
Nick Collins
Chief Executive Officer
12 July 2023
8
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT KEY STRENGTHS
The Directors believe that the Group has the following key
strengths and competitive advantages:
WELL INVESTED CENTRAL INFRASTRUCTURE TO SUPPORT
GROWTH
We have continued to invest to build an operational and head
office structure capable of supporting our growth plans, in addition
to having a well-developed roadmap for continued investment.
EXPERIENCED MANAGEMENT TEAM
The Group’s senior management team combines entrepreneurial
spirit with significant sector experience and has a track record
of meeting openings, sales, and profitability targets. Two of the
original founders, Alex Reilley and Jake Bishop, remain active in
the Group while Nick Collins and Gregor Grant each have nearly
20 years of experience within the hospitality industry.
The Directors consider that within the key strengths identified above
the following are of particular relevance in the current economic
environment:
Broad demographic customer base – there is no reliance on
any single demographic segment
Wide geographic spread – limits exposure to any one
geographic area or region
Value for money all-day offer – there is limited reliance on
peak trading periods
Focus on suburbs and market towns – very limited exposure
to city centre office communities
BROAD, NATIONWIDE DEMOGRAPHIC APPEAL
We offer something for everyone regardless of age, demographic or
gender and operate successfully in a diverse range of site types and
locations across England and Wales.
VALUE FOR MONEY ALL-DAY OFFER
We are the only growing all-day operator of scale in the UK
with a strong reputation for value for money which offers proven
resilience in a tighter and more competitive consumer spending
environment. The strength of our all-day trade and repeat custom
enables us to trade successfully in smaller, secondary locations
which typically have lower rents and less competition.
THREE DISTINCT BUT COMPLEMENTARY BRANDS
Our three brand approach, with Lounges, Cosy Clubs and
Brightsides, allows us to maximise our geographic and
demographic reach. We can open Lounges in a broad range of
smaller secondary locations in suburban high streets and market
towns, as well as opening Cosy Clubs in larger market towns and
city centres, and Brightsides on A Roads within close distance
of towns.
RESILIENT AND CONSISTENT OUTPERFORMANCE, RETURNS
AND ECONOMICS
Like-for-like sales have consistently and significantly outperformed
the Coffer CGA Tracker which is seen as the benchmark for the
UK hospitality sector. This like-for-like sales outperformance to
date has been primarily driven by volume, rather than price. Our
sites have delivered consistently strong returns and site economics
across vintages and locations.
CLEAR, PROVEN GROWTH POTENTIAL
Independent analysis has identified the potential for more than
400 Lounges and more than 100 Cosy Clubs in England and
Wales. This is supported by a consistent track record of successful
openings and a strong pipeline of sites.
STRONG PIPELINE OF NEW SITES AND TRACK RECORD OF
SUCCESSFUL OPENINGS
We opened 29 new sites in FY23 and 27 new sites in FY22.
We introduced a fifth build team in FY23 and anticipate that we will
be able to open 32-34 sites per year going forwards.
9
9
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
ESG – LOUNGERS AS A FORCE FOR GOOD
From its first days in 2002, Loungers has
sought to be a positive force as an integral
part of the communities in which it operates,
providing jobs and great hospitality to the
local population.
In our last annual report, we reported for the first time on our
ESG strategy and achievements, setting out the four pillars of our
framework. In the year to April 2023, we have continued to evolve
our plans and put structures in place to define ambitious goals and
deliver our objectives.
During the year we established a Sustainability Committee
to coordinate our ESG activities and provide oversight and
governance on behalf of the Board. The Committee is chaired by
Eve Bugler, Chief Operating Officer, and contains representatives
from key functions including Commercial, People, Finance,
Compliance, Marketing and Property, as well as an external
sustainability expert. It is tasked with managing our response to
the growing focus on ESG from consumers, our teams and external
stakeholders and setting out policies and initiatives to deliver our
goal of Loungers as a “Force for Good.”
PEOPLE – LOOKING AFTER OUR TEAMS
WELL AND BEING AN INCLUSIVE EMPLOYER
Our teams have always been at the heart of what we do, and we
continue to strive to make Loungers a great place to work for our
teams. To support that, this year we have been joined by our new
Chief People Officer, upweighting the focus on supporting and
developing our teams as we grow.
At the end of FY22 we launched “The Commitments,” which set
out what our site-based teams could expect from working at
Loungers, and through FY23 we have worked to embed these in
our operations and ensure that our teams benefit from fair rotas,
working patterns that suit them, fair pay (including overtime),
development and progression and an environment in which they
can be themselves. This has been recognised in the results of
the bi-annual employee survey, which last year indicated that
out of a scale of 10, our average score of how much our teams
enjoy working at Loungers was 7.5. And on the statement ‘I feel
accepted and can be myself at work’ it was 8.5/10; evidence
that our team really believe we’re an inclusive employer and
somewhere they feel they can truly be themselves.1
By the end of the year, Loungers employed approximately
7,500 people, creating around 1,0002 new jobs over the course of
FY23. Importantly for us, 21% of these jobs were in priority areas
targeted by the Government’s “Levelling Up” initiative, reflective
of the role that Loungers plays in promoting social mobility and
creating opportunities.
Successes this Year
Created around 1,000 new jobs
Loungefest 2022 – Hospitality’s biggest free staff party
with over 3,000 of our team attending and all sites closed
for a whole day.
Review undertaken of total reward structure for our teams
Over 1,000 team members benefit from share awards in
Loungers
2,000 responded to team engagement survey
Launch of a Level 5 Apprenticeship programme
Focus going Forwards
Ensuring that our senior leadership reflects the diversity of our
workforce through recruitment and a targeted approach to
development/training
Continuing to embed the Commitments and ensure these are
at the heart of decisions
Learning and Development funding for staff from ethnic
minority backgrounds to support attraction and career
development
The introduction of private healthcare for a number of our
senior operational roles
Launch of structured Manager development programs
(“Step Up”)
Loungefest 2023
COMMUNITIES AND CUSTOMERS – BRINGING
JOY TO LOCAL PLACES ACROSS THE COUNTRY
We opened 29 new café/bars and restaurants over the past
twelve months and each one has stayed true to our original vision
of being a “home from home” in the local community. Keeping that
community feel and focus as we expand has been a key challenge
for us and to ensure that we retain that ethos we have trialled a
new “Regional Community Manager” role to help our sites engage
with their local communities. In the trial regions, we have increased
the number of community events from 16 to 61 per month, through
initiatives and partnerships with local groups including arts and
crafts groups, new parent groups and quiz groups.
1
2
Based on 2022 team engagement survey
Jobs created at sites opened between 18 April 2022 and 16 April 2023
10
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT
ESG – LOUNGERS AS A FORCE FOR GOOD
CONTINUED
We have continued to work with local charities through our
“LoungeAid” project, which sets aside two months per year for
fundraising initiatives focused on local charities chosen by the
sites. In FY23, our sites supported 93 different charities and
raised money through a variety of activities from sponsored head
shaves to bake sales. Our site openings also continued to benefit
local charities through our launch donation programme in which
50p from every burger and 20p from every coffee sold in our
opening week is donated to charity. In the last financial year, this
amounted to £31,000.
We are also developing national relationships with selected
partners to help us welcome people of all ages and from all walks
of life, such as our initiative with Peanut, an organisation which
connects new mums and helps to combat loneliness for new
parents at a time in their lives which can be challenging.
Our customers come from a variety of demographics and include
many regular visitors. We encourage our teams to develop positive
relationships with our customers, and seek to amplify their efforts
through our “Random Acts of Kindness” (RAKs) programme in
which staff have discretion to offer a free coffee or cake to make
someone’s day better. Our customer satisfaction is monitored daily
through our Feeditback insight tool and our operations team review
and respond to customers to ensure that concerns are addressed
and praise is passed on.
Successes this Year
3 new Regional Community Managers trialled
£57,500 donated to LoungeAid charities
£31,000 new opening product donations
£582,000 RAKS given by our sites
Focus going Forwards
SUPPLIERS – BEING PROUD OF WHAT WE PUT
ON THE PLATE
We remain very proud of what we put on our plates. We offer a
menu with different options across the day, covering a wide range
of options and flavours, specific menus offering wide choice of
vegetarian, vegan and gluten-free options – and all at price points
that represent good value for money.
Every time a customer visits us, we are acutely aware that
they have chosen us. The reasons for choosing where they eat
increasingly factor in considerations about where food comes from
and how responsibly it has been produced. Over the past year, we
have increased the size of our in-house supply chain team to boost
our supply chain assurance capabilities and enable us to focus on
the provenance and sustainability of the ingredients that we buy.
To evolve that further, we have joined SEDEX, which will help
us gain greater visibility over our supply chain in terms of
sustainability and best practice, enabling us to make the right
decisions about procurement.1 Over the next few months, we will
be assessing our supply chain to ensure that it is consistent with our
goals and working with suppliers to address any concerns.
At all times, we continue to prioritise customer safety, with allergen
training mandatory for our teams and allergen matrices available
in every site.
Successes this Year
Consolidated our delivery slots from daily to three times per
week, saving 15,000 delivery trips annually
Implemented reusable portioning scoops, reducing waste
and removing single use plastic portion bags
Moved slaw and ciabatta to side options rather than plated
as standard, reducing waste
Embed a Regional Community Manager in each region
Joined SEDEX
Host 5,000 community events
Raise £50,000 through LoungeAid for local charities
(before company matching)
Minimum of two national partnerships focusing on bringing
people together
Invested in our in-house supply chain assurance resource so
we can carry out more supply chain diligence
Focus going Forwards
Sustainable supply built into wider procurement process
Innovation in plant based dishes
Establishing goals for food waste reduction
Carrying out a full ingredient review of our supply chain to
understand use of palm oil or non free range eggs within it
1
SEDEX is a supply chain mapping organisation which provides visibility on sustainability practices within supply chains.
11
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
ESG – LOUNGERS AS A FORCE FOR GOOD
CONTINUED
ENVIRONMENT – DELIVERING OUR
HOSPITALIT Y SUSTAINABLY
TCFD REPORT
We take our commitment to sustainable hospitality very seriously,
recognising that with the pace of our growth, our potential to impact
on our environment will only get bigger. In common with the majority
of our peers in the hospitality sector, Loungers is targeting to achieve
Net Zero across our own operations by 2040. The implementation of
the Sustainability Committee to drive our strategy in this area is a key
part of managing our approach. We have also engaged an external
expert to review our climate impacts as part of our TCFD reporting, in
which we have measured our scope 1 to 3 emissions for the first time.
This has given us a baseline for understanding where we can target
initiatives to drive the most change and will be a key focus for the
Sustainability Committee over the next year.
Loungers is uniquely positioned to respond quickly to potential energy
saving opportunities in that the majority of our build and fit out is done
by an in-house team. We continue to use LED lighting as standard in
all of our sites and, over the past year, we have finalised our kitchen
reset programme, which has included installing more energy efficient
equipment such as induction hobs. We have also trialled our first
installation of solar panels at our new Brightside site at Exeter and are
monitoring the results of this to inform future developments. We will
continue to evolve our build specifications with energy efficiency in
mind over the next year.
We have launched an electric car scheme for our head office and
operations teams to incentivise greener travel options. Through our
partnership with our energy consultants, we have also increased
operational focus on energy usage in site, reviewing site consumption
for any inefficiencies or anomalies. Energy usage and reduction will
be a key focus for us over the next year as we seek to embed the right
behaviours across the business.
Successes this Year
Established Sustainability Committee
First TCFD review and modelling
First full scope 1-3 carbon mapping
Solar panel trial
Electric car scheme introduced
External consultant instructed to advise on further
improvements around the sustainability of our build
Focus going Forwards
Optimise energy efficient build specification and approval process
Target setting for energy transition to renewables
Develop Roadmap to Net Zero
All sites built as electric only unless exceptional reasons
requiring Exec Board sign off
Galvanise and engage our teams around behavioural
change to reduce waste and energy use
Review volume of red meat served – the largest contributor to
our scope 3 footprint
In FY23 for the first time we have reported under the framework
proposed by the Task Force for Climate Related Financial Disclosure
(“TCFD”). As part of this we have considered our obligations under
the four pillars and reassessed our governance and processes
accordingly. In addition, we have worked with an external third
party to create our first full TCFD report, which is available to view
on our website. While we are still developing our thinking and
targets in some areas, we are pleased to have started the journey
and look forward to evolving our strategy over the next year.
GOVERNANCE
The Board is responsible for setting the strategic direction of the Group
and ensuring the long term success of the business. As part of ensuring
that success, it ensures that risks are identified, considered and
appropriate actions are taken to limit any negative impact to Loungers.
The Board delegates oversight of financial risks and opportunities to
the Audit Committee and operational risks and opportunities to the
Executive Board. The Executive Board is kept informed of key risk and
actions through the operation of specific committees, including the
Health and Safety Committee and the new Sustainability Committee.
The Sustainability Committee has been established during the year
ended 16 April 2023 to deliver the Board’s ESG objectives, including
monitoring and responding to risks and opportunities arising from
climate change. As such, it includes representatives from key areas
of the business (Commercial, Finance, Operations, Marketing,
Compliance, Property and People) as well as an external expert, with
the remit of setting Loungers’ agenda and targets in this area.
STRATEGY
Loungers’ strategy is to support long term business growth whilst
minimising its impact on the environment and operating in a
verifiably ethical and responsible way. As part of this, the Board
considered the risks and opportunities associated with climate
change as part of its annual assessment of risk in April 2023.
While there are significant risks associated with climate change,
there are some limited opportunities which Loungers may be able to
take advantage of in the future. These include:
Opportunity to reduce reliance on overseas supply of products
such as wine, which currently require hotter climates to grow
Opportunity to differentiate ourselves through the quality of our
sustainable offerings both to customers (for example through the
variety of our vegan menu) and staff (for example through our
electric car salary sacrifice scheme)
Opportunity to save costs through focus on efficiency and
reducing waste
12
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT
ESG – LOUNGERS AS A FORCE FOR GOOD
CONTINUED
Where we are aware of significant risk or opportunity, the
Sustainability Committee is responsible for coordinating the
response from the wider business to ensure that we are building the
appropriate actions into our operational and financial planning.
This includes identifying projects such as energy efficiency as well
as working with suppliers to ensure that we have a secure and
ethical supply chain.
In assessing how these risks might impact us, we have applied
the guidance from the London Stock Exchange which prompts the
business to define whether it would still be profitable if:
All countries were successful in achieving goals of the Paris
Agreement and there is an orderly transition to a low carbon
economy
There is an abrupt and disorderly transition as countries
belatedly catch up on climate crisis management
There is a failure to transition
While it is difficult to predict the answers to those questions with
certainty, Loungers believes that we will be able to develop plans
that enable us to respond effectively to these scenarios and takes
some comfort from the agility of our response to the Covid-19
pandemic, which severely impacted the hospitality industry but
from which we have emerged strongly.
RISK MANAGEMENT
The principal risks are regularly reviewed by the Board such that
our business longevity, reputation and environmental footprint are
managed in a way which protects the interests of our business and
its stakeholders.
Critical risks are identified as those which would prevent the
business operating or have a significant impact on profitability
or reputation. These form part of our risk register reviewed by the
Board. Key risks are those which the business needs to consider
and mitigate in the normal course of business. The Sustainability
Committee has responsibility for monitoring and formulating
appropriate actions plans to respond to both critical and key risks
in terms of mitigation, transfer, acceptance or control of these risks
and reports to the Board to ensure that sufficient progress is made.
The table below represents the critical risks that Loungers is
exposed to as a result of climate change. These have been
classified as “physical” – i.e., risks due to longer term shifts in
climate patterns – or “transitional” – risks in transitioning to a
lower carbon economy, in line with the TCFD framework. Further
detail on the key environmental risks is set out in our TCFD report
available on our website.
Risk Identified
Impact
Increased rainfall over UK
winters increases flood risk
A minimal number of our sites are in coastal or riverside locations at
risk of flooding. The risk of flooding is considered as part of the SAR
process when selecting new sites and monitored through the annual
insurance process.
Type
Timeframe
Physical
Short
Drier/ hotter summers leads to
droughts / water shortages
Water stress in sites, increased energy costs for refrigeration and cooling
at sites
Physical
Short
Extreme weather events cause
disruption in supply chains
Global droughts may impact our suppliers, particularly with regards to
products such as coffee
Physical
Long
Compliance and cost risk from
new government regulation
Increased cost to comply with new government regulation to meet
climate targets, such as packaging tax, carbon taxes, EPC standards
etc. Potential financial penalties and reputational damage for non
compliance
Transitional
Medium
Cultural shift to prioritising
sustainability
Increased focus from both customers and teams on sustainability.
Impact on menus - lower food miles, vegan choices. Recruitment /
retention/ reputational impacts if we’re not seen to be driving change
Transitional
Medium
Timeframe: Short - 1-5 years, Medium 5-10 years, Long - 10 years plus
13
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
ESG – LOUNGERS AS A FORCE FOR GOOD
CONTINUED
METRICS AND TARGETS
Loungers is targeting to achieve net zero by 2040, in line with the
majority of our peers in the hospitality sector. The key metric at
board level for carbon emissions is tonnes CO2e/£m turnover.
In FY23 we engaged a specialist consultancy to calculate the
carbon footprint of the whole supply chain from procurement of
purchased goods and services through operations and included
the impact of sold goods and services. As part of this process, we
have used a spend based model to estimate Scope 3 emissions
(those emissions from activities outside our control but for which
we are indirectly responsible up and down our value chain)
in addition to the Scope 3 energy component as set out in the
SECR reporting.
We will use the baseline year of 2022 as a springboard to
enable us to track our progress to net zero. We are in the process
of establishing our carbon roadmap which will also identify the
interim targets that we will need to meet to ensure that we are on
track to achieve our net zero goal. At the point at which these
targets are set and become deliverable we would look to include
them in the performance objectives by which senior leaders
are measured.
STREAMLINED ENERGY AND CARBON REPORTING
The data below relates wholly to the United Kingdom and covers the 52 week periods to 16 April 2023 and 17 April 2022.
Grid electricity
Natural gas
Transport fuel (purchased and reimbursed)
Total
Scope 1
Scope 2
Scope 3
Total
Intensity ratio
Annual revenue (£000)
Total CO2e tonnes per £m revenue
2023
Energy Usage
(kWh)
32,696,804
30,188,963
3,819,067
66,704,834
30,773,728
32,696,804
3,234,302
66,704,834
2023
GHG Emissions
(CO2e tonnes)
2022
Energy Usage
(kWh)
2022
GHG Emissions
(CO2e tonnes)
26,106,974
28,945,216
2,109,924
57,162,114
29,418,525
26,106,974
1,636,615
57,162,114
7,739
5,554
939
14,232
5,701
7,161
1,370
14,232
283,507
50.2
6,034
5,875
519
12,428
5,992
5,543
893
12,428
237,291
52.4
14
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT
ESG – LOUNGERS AS A FORCE FOR GOOD
CONTINUED
QUANTIFICATION AND REPORTING METHODOLOGY
INVESTORS AND GOVERNMENT
We have followed 2019 HM Government environmental reporting
guidelines to ensure compliance with the SECR requirements. The
DEFRA issued 2022 conversion figures for CO2e were used along
with the fuel property figures to determine the kWh content for
unknown liquid fuels used in transport.
INTENSITY MEASUREMENT
The chosen intensity measurement ratio is £m turnover.
MEASURES TAKEN TO IMPROVE ENERGY EFFICIENCY
Loungers continues to strive for energy and carbon reduction arising
from their activities. During this reporting period, the Group has:
Over the past year we have sought to be transparent about our
ESG strategy and policies with our investor community. As more
sustainability focused legislation is rolled out that may influence
our operations, we will continue to engage with investors and
regulatory bodies to understand the impact of this and ensure that
we are prepared.
We continue to ensure that we provide fair, balanced and
understandable information to shareholders and investment
analysts and work to ensure that they have a strong understanding
of our strategy and performance, through regular investor
meetings, market updates, roadshows and consultations.
Introduced weekly energy monitoring with our energy
consultants
Consolidated its food deliveries into three deliveries per week
rather than daily, saving 15,000 trips annually
Continued to use LED lighting and vintage furnishings in its site
fit out
Continued to reuse materials in its sites, such as reclaimed
flooring and vintage lampshades
Continued to collect used cooking oil from its sites for recycling
into bio-fuel
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
15
DIRECTORS’ DUTIES - S172 STATEMENT
The Directors are aware of their duty under Section 172(1) of the
Companies Act 2006, to act in the way they consider, in good
faith, would be most likely to promote the success of the Group for
the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to:
The likely consequence of any decision in the long term;
The interests of the Group’s employees;
The need to foster the Group’s business relationships with
suppliers, customers and others;
The impact of the Group’s operations on the community and
the environment;
RECRUITMENT AND RETENTION
The Group monitors retention rates and conducts exit interviews
with all salaried employees. Following a number of regional
recruitment shortages, the Executive Directors and the brand
Managing Directors sought to address key themes being raised
by employees through a specific paper on Recruitment and
Retention. The responses to the issues raised were developed into
“The Commitments” in 2022, as referenced in the ESG section of
the Strategic report on pages 10 to 12. During the year the Board
continued to evaluate the success of these initiatives in order to
maintain the focus on ensuring that our sites were appropriately
staffed to deliver the levels of hospitality that Loungers wishes to
deliver to its customers.
The desirability of the Group maintaining a reputation for high
standards of business conduct; and
BRIGHTSIDE
The Board appraised and appropriately challenged the investment
theory behind Brightside as the concept was developed ahead of
the acquisition of the two Route companies.
NEW SITES
The Board is mindful of the positive impact that opening a Lounge,
Cosy Club or Brightside can have on local communities, but also
of ensuring that the Group has the operational capability to deliver
new sites. During the year the Board approved a new internal
structure for the Property and Build teams to ensure that the Group
was well positioned to deliver on the property pipeline.
The need to act fairly as between members of the Company.
The Directors consider the Group’s key stakeholders to be its
employees, its customers, its suppliers, the communities in which
it operates and its shareholders. Details about how the Group
interacts with these stakeholders can be found in the ESG section of
the Strategic Report on pages 10 to 12.
The following disclosure describes how the Directors have had
regard to the matters set out in Section 172(1)(a) to (f) and
together with the information set out in the ESG section of the
Strategic Report on pages 10 to 12 forms the Directors’ statement
under section 414CZA of the Companies Act 2006.
The Board considers the impact upon the key stakeholders as part
of all decision making. It seeks engagement from stakeholders
through a variety of methods, including briefings from Executive
Directors and senior leaders within the business, customer
feedback and staff surveys. During the year ended 16 April 2023,
measures adopted to improve awareness of stakeholder impact
included the inclusion of enhanced monthly reporting focused on
People (the Group’s staff) and Health and Safety (the Group’s
customers) as well as a more detailed quarterly update to the
board by the CEO following the meetings of the Health and
Safety Committee.
During the year, the key strategic issues under discussion by the
Board included how to respond to issues facing the hospitality
industry such as cost inflation and recruitment, the launch of the
Brightside brand and how to progress the Group’s pipeline of
new sites.
16
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
17
FINANCIAL REVIEW
OVERVIEW
In last year’s financial review I reflected upon a year in which we had
very much seen a return to normality, at least in the context of being
able to trade free of restrictions. With hindsight, and looking back
upon a year in which inflation really took hold, such references to
normality look rather optimistic. That said the financial highlights below
continue to demonstrate strong rates of revenue growth, both in terms
of like for like sales from our mature estate and from new site openings,
and when the positive impacts of government support measures in the
prior year are adjusted out, a solid operating margin % performance
against a challenging backdrop.
Revenue
Operating profit
Operating margin (%)
Profit before tax
Fully diluted earnings per share (p)
Net cash generated from operating activities
Net debt
IFRS 16
Year ended
16 April
2023
£000
Year ended
17 April
2022
£000
283,507
237,291
14,751
5.2%
7,334
6.5
28,437
12.0%
21,605
17.0
51,107
69,626
140,859
120,589
Year on year revenue was up by 19.5% to a record £283.5m. Whilst
our sales growth benefitted from the absence of any negative Covid
impact, it also reflects strong one year like for like sales growth of 7.4%
(over the 48 weeks to 16 April 2023) and the positive impact of our
new site opening programme, with 29 sites opened in the financial
year. The headline reduction in operating margin from 12.0% to 5.2%
in large part reflects the cessation of government support measures to
assist the hospitality sector during Covid. The reduction in VAT alone,
which ceased on 31 March 2022, was responsible for incremental
sales and operating profit of £15.1m in FY22; adjusting out this
benefit reduces FY22 operating profit to £13.4m and operating
margin to 6.0%. Further detail on profit margins pre and post Covid is
provided below.
Net cash generated from operations of £51.1m represented 108%
(2022: 130%) of IFRS 16 Adjusted EBITDA and reflects the working
capital benefits accruing from the strong like for like sales performance
and the new site opening programme. The reduction from FY22
reflects the one-off working capital rebuild enjoyed in FY22 as the
estate returned to unrestricted trading after the third lockdown. Post
investing and financing outflows, which included the acquisition of
three freeholds for a net £3.7m, cash balances decreased by £4.9m
to £26.4m. Total IFRS 16 net debt increased by £20.3m to £140.9m,
the increase driven by taking on new leases with a capital value of
£24.5m at inception.
We use a range of financial and non-financial measures to assess our
performance. A number of the financial measures, for example Like
for Like (“LFL”) sales and Adjusted EBITDA 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
below are included after the financial statements as an annex to this
Strategic Report on pages 85 to 86.
The table overleaf summarises the key APM’s under both IFRS 16 and
IAS 17 and covers the past two financial years as well as the financial
year ending 21 April 2019. The rationale for including the FY19
numbers is twofold:
It provides a clean non-Covid impacted comparative against
which more meaningful comparisons of profit margins can be
made, and
It serves to demonstrate the significant growth achieved by the
business in the four years post IPO, in spite of the significant
challenges that have arisen in that period.
18
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
Sites at year end
New sites opened
Revenue
Adjusted EBITDA – IFRS 16
Adjusted EBITDA margin (%) – IFRS 16
Adjusted EBITDA – IAS 17
Adjusted EBITDA margin (%) – IAS 17
Net debt – IAS 17
(1)
Proforma net debt on IPO on 29 April 2019
Year ended
16 April
2023
£000
222
29
283,507
47,349
16.7%
34,221
12.1%
6,022
Year ended
17 April
2022
£000
195
27
237,291
53,639
22.6%
42,319
17.8%
1,025
Year ended
21 April
2019
£000
146
25
152,999
28,541
18.7%
20,582
13.5%
27,500(1)
Revenue of £283.5m compares to £237.3m in the year to
17 April 2022, headline growth of 19.5% and if the one-off
benefit of the VAT support is excluded from FY22 revenue growth
of 27.6%. Over the four years since IPO the Group has grown
revenue by 85.3%, a function of growing the estate by 52%
and consistently strong like for like sales performance, whether
measured on a one year, three year or four year basis.
One year
LFL
Three year
LFL
Four year
LFL
Gross – excluding VAT benefit
+7.4%
+17.6%
+22.8%
Adjusted EBITDA (IFRS 16) of £47.3m delivers a margin of 16.7%,
some 5.9% down on FY22. As noted earlier FY22 does not
provide a particularly helpful comparison, impacted as it was to
the downside by restricted trading for the first four weeks and then
suffering the effects of the Omicron strain over Christmas, whilst to
the upside it benefited from the VAT reduction (worth £15.1m) and
business rates support (worth £3.3m). Whilst somewhat historic,
the four year comparison against FY19 is perhaps more useful in
understanding how the Group’s profitability has developed, firstly
in response to the changes brought about over the Covid period
and secondly over the period of significant cost inflation and allied
pressure on the consumer over the past year.
Over the four year period Adjusted EBITDA (IFRS 16) has grown
by 65.9%, with a more modest decline in Adjusted EBITDA margin
of 2.0%. The Group has worked hard to balance the impacts
of cost inflation with the need to retain its core value for money
principles, and whilst it is always disappointing to report a margin
decline, we believe that the correct balance has been struck. The
damage has largely been done at the gross profit margin line, with
a decline of 1.4% over the four years and improvements in food
and drink gross margins not being sufficient to offset the labour
cost pressures from a combination of a very tight labour market
and significant national living wage increases.
The IFRS 16 Adjusted EBITDA measure does of course exclude
the benefit delivered from our strong control of property costs and
the continued reduction in our rent to revenue ratio, down to 4.6%
in FY23 from 5.2% in FY19. Accordingly, on the IAS 17 basis the
margin decline versus FY19 is reduced to 1.4%.
Non-property net debt increased to £6.0m, a year on year
increase of £5.0m. This largely reflects the acquisition of Route
Restaurants Limited and Nightlife Leisure (South West) Limited in
order to gain access to two freehold sites for the development of
the Group’s Brightside brand and the increase in the build pipeline
and related capex costs at the year end in FY23.
IMPAIRMENT COSTS
The statutory operating profit of £14.8m is after incurring net
impairment charges of £1.6m. These costs include
£2.9m relating to the impairment of right of use assets
£0.5m relating to the impairment of property, plant and
equipment
The release of impairment provisions totaling £1.8m that were
established in FY20.
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 FY24 through FY26 which incorporated
assumptions regarding future trading, and a full allocation of
central costs and maintenance capex spend. The release of
excess impairment provisions created in FY20 relates to the
improved trading performance in a number of sites relative to the
assumptions about future trading made in FY20.
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
19
FINANCIAL REVIEW
CONTINUED
LONG TERM EMPLOYEE INCENTIVES
Employee engagement and retention remains a key area of focus,
and share awards continue to play a significant role in these
efforts. During the year the Group granted further share awards
under the employee share plan (471,500 shares) and the senior
management restricted share plan (537,653 shares). These awards
were made to a total of 1,055 employees who work across the
business, predominantly at site level, and in hourly paid and
salaried positions. In addition, awards covering 770 employees
and in respect of 724,483 shares vested in the year.
The Group recognised a share based payment charge in the year
of £4.0m (2022: £3.2m), the charge covering the employee share
plan, the senior management restricted share plan and the value
creation plan.
FINANCE COSTS AND NET DEBT
Finance costs of £7.6m (2022: £6.9m) include IFRS 16 lease
liability finance costs of £6.1m (2022: £5.7m) and bank interest
payable of £1.5m (2022: £1.2m). The Group received interest of
£0.2m (2022: £nil) on its positive cash balances to leave net bank
interest payable broadly flat year on year.
Net debt at the year end including property leases of £140.9m
(2022: £120.6m) reflects the impact of adding new lease liabilities
of £24.5m in the year.
At year end the Group’s capital structure included a £32.5m
term loan and a £10m revolving credit facility (“RCF”) due for
repayment in April 2024. Subsequent to the year end the Group
has refinanced its borrowing facilities with its existing lenders,
paying down £12.5m of the term loan to leave a term loan debt of
£20.0m and extending the RCF to £22.5m to leave total facilities
unchanged at £42.5m. The new facilities run for three years
to June 2026. The Group’s interest rate hedging arrangements
ended in July 2022, and whilst the Group’s positive cash balances
provided an element of natural interest rate hedge the new capital
structure will be more efficient in minimizing interest costs. The
Board continues to consider the options for hedging the interest
rate risk on the outstanding term loan.
TAXATION
The Group has reported a tax charge of £0.4m for the financial year
to 16 April 2023 (2022: charge of £3.7m) and at year end carried
a corporation tax receivable of £0.1m (2022: £0.1m receivable)
and a deferred tax asset of £0.9m (2022: £1.4m). The corporation
tax charge represents 5.5% of profit before tax (2022: 17.3%),
benefiting from the 130% capital allowance super deduction, and
without which the corporation tax rate would have been 20.9%.
CASH FLOW AND CAPITAL EXPENDITURE
Net cash generated from operating activities of £51.1m
(2022: £69.6m) reflects a working capital cash inflow of £7.3m
(2022: cash inflow of £19.7m). The reduced working capital cash
inflow reflects the one-off benefit to working capital in FY22 as the
Group emerged from lockdown and rebuilt its negative working
capital position.
Cash outflows in the year in respect of capital expenditure totalled
£37.0m (2022: £22.8m) and compare to the cost of fixed asset
additions (excluding right of use assets) recognised in the year of
£39.2m (2022: £26.2m). Capital expenditure incurred in the year
of £39.2m (2022: £26.2m) included £29.6m in respect of new
site openings, of which £26.9m related to the 29 sites opened in
the year (2022: total new site capex spend of £19.6m of which
£18.2m related to the 24 sites built and opened in the year). In
addition capital expenditure in the year included £2.7m on the
Lounge kitchen reset programme, completed in May 2023 (2022:
£0.6m) and a further £0.9m in respect of the freehold purchase of
our Cosy Club Canterbury site.
As referenced earlier, the Group invested a further £2.7m in the
acquisition of Route Restaurants Limited and Nightlife Leisure
(South West) Limited.
20
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT FINANCIAL REVIEW
CONTINUED
KEY PERFORMANCE INDICATORS (“KPIs”)
The KPIs, 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:
Year ended
16 April 2023
Year ended
17 April 2022
Year ended
21 April 2019
29
£39.2m
+7.4%(1)
19.5%
16.7%
27
£26.2m
+14.2%(2)
302.9%
22.6%
25
£23.2m
+6.9%
26.4%
18.7%
New site openings
Capital expenditure (excluding IFRS16 RoU assets)
LFL Sales growth
Total sales growth
Adjusted EBITDA margin (IFRS16)
(1)
(2)
One year LFL calculated over 48 weeks from16 May 2022
Three year LFL calculated over 48 weeks from 17 May 2021 and excluding VAT benefit
GOING CONCERN
In concluding that it is appropriate to prepare the financial statements
for the year to 16 April 2023 on the going concern basis attention
has been paid both to the current sector headwinds in terms of
consumer confidence and inflationary pressures and also longer term
risks such as climate change.
The Group has traded successfully over the past year, and ended the
year with net debt (including property leases) of £140.9m and total
liquidity of £36.4m.
In the downside scenario it has been assumed that sales volumes fall
by 10% from the base case with an associated reduction in labour
and variable cost efficiency and a resultant 38% decline in adjusted
EBITDA. Under this scenario the Group is able to maintain its new
site opening programme and continues to have significant liquidity
and banking covenant headroom and accordingly the Directors have
concluded that it is appropriate to prepare the financial statements for
the year ending 16 April 2023 on the going concern basis.
In order to assess the Group’s going concern position the Board
has considered a base case and downside case scenario. The
base case assumes below inflation selling price increases and flat
volumes and reflects current assumptions in respect of future cost
inflation and incorporates increases in energy costs to reflect the
continued opening of new sites whose energy costs are hedged at
current rates. The base case scenario indicates that the Group has
significant headroom in respect of both its liquidity position and its
banking covenants.
Gregor Grant
Chief Financial Officer
12 July 2023
STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
21
PRINCIPAL RISK AND UNCERTAINTIES
The Group has continued to develop and adhere to its risk management disciplines and managed risks in line with good practice. The Group
continually assesses risks and take appropriate action to mitigate risks that could impact the achievement of the Group’s objectives.
The Directors consider the following to be the principal risks faced by the Group:
KEY RISKS
RISK DESCRIPTION
MITIGATING ACTIONS
Consumer
confidence
Cost
inflation
The Group derives all its profits from the United Kingdom and
is therefore sensitive to fluctuations in the UK economy. The
Group’s performance depends to a certain extent on several
factors outside of the control of the Group which impact on
consumer sentiment.
The Group operates in a sector that has seen significant
cost pressures over the past year, notably staff costs driven
by annual increases in the National Living Wage (“NLW”),
utilities and food and drink input cost inflation. The value for
money principles of the Group’s offer require the Group to
manage cost inflation tightly.
The Group’s existing offer has value for money as a core
principle and the Directors believe this will provide a level of
resilience in the event of a consumer slow down.
The increasing scale of the Group and its attractiveness to
suppliers has assisted in mitigating cost inflation in respect
of food and drink products. Utility costs are hedged until
September 2024 and the Group is in the process of reviewing
energy hedge options from 1 October 2024 onwards. The
Group continues to monitor its supply chain constantly and
seeks to optimise efficiency through a number of initiatives.
Health and
safety and
food safety
The health and safety of the Group’s employees and guests
is of key concern and the Group is required to comply with
health and safety legislation that includes fire safety, food
hygiene, and allergens.
The Group invests significantly in the training of its employees
and in third party specialists to ensure adherence to legislation
and the safety of our employees and guests. Allergen training is
mandatory for all employees in sites.
The Group has established a Health and Safety Committee to
oversee the operation and development of health and safety
policies and health and safety matters are formally reported to
the plc Board.
Employee engagement and satisfaction is a key focus of
management. Employees are incentivised through a mixture of
competitive pay scales, bonus and equity awards. The Group is
also committed to offering a fair and supportive workplace.
The Group continues to strengthen its recruitment and training and
development teams to assist in recruiting and retaining the best
talent.
In the current economic environment there is considerable
new site acquisition opportunity in a more tenant friendly
environment. The Group continues to strengthen its property
team to ensure that we can respond to the right opportunities in
a timely fashion.
Recruitment
and
retention
The success of the business to date and our ability to maintain
our roll-out programme is in large part down to our ability
to recruit and retain the best teams in our sites. Recruitment
remains challenging across the hospitality sector. The increased
level of competition has the potential to put additional pressure
on wage inflation.
The Group’s growth strategy includes an expectation that
we can continue to open up to 34 new sites per annum.
The Board only approves new site investment where strict
economic criteria are met. The availability of sites, with the
correct rent levels, cost of investment, and demographics, are
critical to the delivery of the roll-out programme.
Availability
of new sites
Information
technology
and data
security
The Group is increasingly reliant on information technology
and the risk of failure leading to disruption of trading, loss of
data and reputational damage.
The Group continues to invest in its IT platforms to ensure
that upgrades are implemented on a timely basis and that
appropriate data protection measures are in place.
The Group recognises that cyber threats pose a significant risk
and works to continually assess and manage these risks.
Environment
and
sustainability
The Group recognises that climate change may impact
on its ability to operate, through weather related impacts
(flooding closing sites, disruption to supply chain) and shifts in
consumer behaviour towards sustainable choices.
Loungers seeks to deliver a credible ESG agenda for its
customers and employees. The Group has established a
Sustainability Committee to monitor climate related risks, set
targets for efficiency and decarbonisation and deliver initiatives
to meet those targets effectively.
The Strategic Report, from pages 3 to 22, was approved by the Board of Directors and signed on its behalf by:
Nick Collins
Chief Executive Officer
12 July 2023
22
LOUNGERS PLC ANNUAL REPORT 2023 STRATEGIC REPORT STRATEGIC REPORT LOUNGERS PLC ANNUAL REPORT 2023
23
CORPORATE
GOVERNANCE
STATEMENT
24
BOARD OF DIRECTORS
ALEX REILLEY
EXECUTIVE CHAIRMAN
Alex co-founded the Group in 2002, acting as Managing Director until 2015
when he assumed the role of Executive Vice Chairman. In 2016, following the
investment from Lion Capital, Alex assumed the role of Executive Chairman
and remains heavily involved in the branding and look and feel of the
Loungers estate. Prior to founding Loungers, Alex had several roles within the
leisure sector including as Operations Manager at Glass Boat Co., where he
spent seven years.
NICK COLLINS
CHIEF EXECUTIVE OFFICER
Nick joined the Group in January 2012 as Finance Director, becoming
Chief Operating Officer in January 2014 and Chief Executive Officer in
January 2015. He has overseen the expansion of the Group from 56 sites
as at January 2015 to 222 sites at 16 April 2023. Prior to joining the
Group, Nick spent three years as Finance Director at AIM quoted Capital
Pub Company plc, leaving when that company was sold to Greene King
plc in 2011. Prior to that Nick founded Fuzzy’s Grub, a sandwich business
in London, which he grew to eight outlets and a central production facility
over five years. Nick also spent five years in corporate finance at Arthur
Andersen where he qualified as a chartered accountant in 2001.
GREGOR GRANT
CHIEF FINANCIAL OFFICER
Gregor joined the Group in August 2018 as Chief Financial Officer. Gregor
qualified as a chartered accountant with Deloitte and Touche in 1992 and,
after leaving Deloitte in 1998, has spent the last 24 years in a variety of CFO
roles, primarily in the hospitality sector. Prior to joining the Group, Gregor
spent two years as interim CFO at Colosseum Dental UK Ltd (2016 – 2018),
the third largest provider of NHS dental services in the UK, three years as
Finance Director at Novus Leisure Ltd (2013 – 2016), and acted as interim
CFO at ETrawler Unlimited (trading as CarTrawler) (2011 – 2012) and CFO
at Fuddruckers Inc., a US hamburger chain based in Austin, Texas (2007 –
2010). Gregor was also part of the management buy in team that acquired
regional brewers Morrells of Oxford Ltd in 1998, which was subsequently
sold to Greene King plc in 2002, and Eldridge, Pope & Co. Ltd in 2004
which was subsequently sold to Marston’s plc in 2007.
NICK BACKHOUSE
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
Nick joined the Board in March 2019 as an Independent Non-Executive
Director and is the Senior Independent Director of the Board and chair
of the Nomination Committee. Nick has extensive public company,
finance, and leisure sector experience. He currently also serves as Senior
Independent Director of Hollywood Bowl Group plc (2016 – Present) and as
Non-Executive Chairman of Giggling Restaurants Limited (2019 – Present).
Nick has also held positions as Senior Independent Director at Hyve Group
plc (2019 - 2023) and Guardian Media Group Plc (2007 – 2017) and as
Non-Executive Director at Marston’s Plc (2012 – 2018) and All3Media Ltd
(2011 – 2014). Nick started his career at Baring Brothers where he became
a Board Director (1989 - 99) following which he held CFO positions at
Freeserve Plc (1999 – 2001), The Laurel Pub Company Ltd (2002 – 2005)
and National Car Parks Ltd (2006 – 2007), and was Managing Director
and Deputy CEO of David Lloyd Leisure Ltd (2008 – 2011).
ADAM BELLAMY
INDEPENDENT NON-EXECUTIVE DIRECTOR
Adam joined the Board in March 2019 as an Independent Non-Executive
Director and chair of the Audit Committee. Adam is also the Chairman
at Ten Entertainment Group plc (2018 – Present) and a Non-Executive
Director at Gymfinity Kids Limited (2020 - Present). Adam was a
Non-Executive Director of In the Style plc from 2021-2023. During his
executive career Adam held a number of finance positions at multi-site
retail and leisure businesses, he was previously CFO (2012-2018) and then
a Non-Executive Director (2018-2020) at Pure Gym Ltd, prior to which he
was Finance Director at Atmosphere Bars & Clubs Ltd (2009 – 2012) and
Finance Director at D&D London Ltd (2006 – 2009).
JILL LIT TLE
INDEPENDENT NON-EXECUTIVE DIRECTOR
Jill joined the Board in March 2019 as an Independent Non-Executive
Director and chair of the Remuneration Committee. Jill also held positions
as Non-Executive Director at Joules Group plc (2016-2022), Nobia AB
(2017 – 2020) and Shaftesbury plc (2010 – 2020), as an adviser to El Corte
Ingles S.A. (2012 – 2020), Europe’s largest department store group, and as
Chairman of the National Trust Commercial Group (2014 – 2021). Jill spent the
majority of her executive working life at John Lewis Partnership (1975 – 2012)
where she held positions including Merchandise Director, Strategy &
International Director and Business Development Director.
ROBERT DARWENT
NON-EXECUTIVE DIRECTOR
Robert Darwent is a Founding Partner and member of the Investment
Committee of Lion Capital. Prior to founding Lion Capital, Robert served
with Hicks, Muse, Tate & Furst for six years. Prior to joining Hicks Muse, he
was employed in the private equity group of Morgan Stanley in London.
Robert received his BA and MA from Cambridge University.
25
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023 CHAIRMAN’S CORPORATE GOVERNANCE
STATEMENT
CHAIRMAN’S STATEMENT
As Loungers’ Chairman, I am responsible for
leading the Board and for ensuring the overall
effectiveness of the Company’s governance
arrangements, particularly at Board level.
The Board supports high standards of corporate governance and
considers that the Company’s continuing success on AIM is enhanced
by a strong corporate governance framework.
COMPLIANCE WITH THE QCA CODE
The Company has chosen to adopt and report against the
Quoted Companies Alliance Corporate Governance Code 2018
(the “QCA Code”). This Corporate Governance Statement for the
year to 16 April 2023 provides an account of how Loungers has
applied and complied with the principles of the QCA Code and
summarises how the Board and its Committees operate, highlighting
key activities during the year. The Board expects to provide at least
annual updates on the Company’s compliance in the manner
recommended by the QCA Code and required by the AIM rules.
Whilst as a Board we believe the ten principles of the QCA Code
have been applied during the year, we recognise the need for
continued evolution of our governance practices and disclosures in
order to ensure they support the growth and strategic progress of the
business and the effective application of the principles going forwards.
APPLICATION OF THE QCA CODE PRINCIPLES
Delivering Growth
The Board has collective responsibility for setting the strategic
aims and objectives of the Group. These aims are articulated in
the Strategic Report on pages 3 to 22. The Board held its annual
strategy day in May 2023, part of which was attended by senior
members of the management team. In addition to consideration
of the Group’s operational strategy, the session provided an
opportunity for discussion around other topics of key strategic
importance, including:
the current strategic priorities;
the leadership survey;
the network plan and the development of new locations;
what customers and employees are likely to expect from
hospitality business in the future;
how the Group can get more from its listing.
The Board intends to hold at least one such session each year
dedicated to strategy, with input from senior members of the
management team and, where appropriate, senior advisers. In the
course of implementing the agreed strategic aims, the Board takes
into account the expectations of the Company’s shareholder base
and also its wider stakeholder and social responsibilities.
The Board is committed to an open and ongoing engagement with
the Company’s shareholders. It takes collective responsibility for
ensuring a satisfactory dialogue with shareholders takes place and
reviews and discusses the make-up of the Company’s shareholder
base at Board meetings.
The Company takes its corporate social responsibilities very seriously.
The Board recognises that, for the Company to achieve long-term
success, effective working relationships must be maintained across
a wide range of stakeholders, including shareholders, employees,
existing and new customers, suppliers and others that it collaborates
with as part of its business strategy. In order to further governance and
transparency in this area, the Board has established a Sustainability
Committee, chaired by the Chief Operating Officer, to develop and
deliver the Group’s ESG objectives.
Effective risk management is also critical to meeting the Company’s
strategic objectives and the Company operates a risk management
and internal control framework. The Board has overall responsibility
for determining the Company’s risk management objectives and
policies and for keeping under review the Company’s systems for
risk management and internal control. The Company’s principal risks
can be found on page 22. The Board regularly monitors the risks the
Company faces and takes appropriate action where necessary. This
has continued to be an area of focus for the Board as the Company
has navigated through UK economic concerns and increased
business costs. The Board is particularly cognisant of the recent
further increases in inflation and interest rates and the impact this
could have on consumer discretionary spending.
Maintaining a Dynamic Management framework
As Chairman, I consider both the operation of the Board as a whole
and the performance of individual Directors regularly. We carry out an
annual Board performance evaluation, in compliance with principle 7
of the QCA Code, which was conducted in August 2022.
We continue to believe that, taken as a whole, the Board represents
a suitable balance of independence and detailed knowledge of the
Company and is well positioned to fulfil its roles and responsibilities
as effectively as possible. Future Board appointments will continue to
consider diversity, including gender and race, alongside commercial
and experience-based suitability criteria, to complement the current
balance of skills on the Board.
26
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE
CHAIRMAN’S CORPORATE GOVERNANCE STATEMENT
CONTINUED
The Company promotes a culture of integrity, honesty, trust and
respect and all employees are expected to operate in an ethical
manner in all their internal and external dealings. The Company’s
staff handbook and policies promote this culture and include
such matters as whistleblowing, social media, anti-bribery,
communication and general conduct of employees.
The Board places significant importance on the promotion of ethical
values and good behaviour within the Company and takes ultimate
responsibility for ensuring that these are promoted and maintained
throughout the organisation and that they guide the Company’s
business objectives and strategy.
Build Trust
The Board recognises the importance of understanding the
expectations of our shareholders and wider stakeholders, and
a description of our activity in this area is set out on page 15 as
well as in the ESG section of the Strategic Report on pages 10
to 12. The Chief Executive Officer is the primary contact for the
Company’s shareholders and is responsible for ensuring that
the links between the Board and the shareholders are strong
and efficient. The Board as a whole is responsible for the good
management of the Company and its principal aim is to enhance
the Company’s long-term value for the benefit of shareholders
whilst having regard to its wider stakeholders.
The Board has a schedule of matters that are reserved for its
decision, which include corporate governance, strategy, major
investments, financial reporting and internal controls.
The Board has also established an Audit Committee,
a Remuneration Committee and a Nomination Committee, each
with written terms of reference. The responsibilities and current
membership of these committees are set out in their respective
reports, which can be found on pages 31, 33 and 38, respectively.
From time to time, separate committees may be set up by the Board
to consider and address specific issues, as and when they arise.
BOARD STRUCTURE AND OPERATION
The Board comprises seven Directors: the Founder Chairman,
four Non-Executive Directors and two Executive Directors. Three
of the Non-Executive Directors, Nick Backhouse, Adam Bellamy
and Jill Little are considered by the Board to be independent and
are members of each of the three principal Committees. The fourth
Non-Executive Director, Robert Darwent, is not considered to
be independent because of his relationship with Lion Capital LLP
(“Lion Capital”), a substantial shareholder of the Company, and is
not a member of any Committee.
The Chairman leads the Board and is responsible for its
governance structures, performance and effectiveness. The
Independent Non-Executive Directors are responsible for bringing
independent and objective judgement to Board decisions. The
Chief Executive Officer and the Chief Financial Officer are
responsible for the day-to-day management of the Company
and for implementing the strategic goals agreed by the Board.
The non-independent Non-Executive Director, Robert Darwent,
represents Lion Capital, a substantial shareholder of the Company,
on the Board. A relationship agreement is in place between the
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
27
27
CHAIRMAN’S CORPORATE GOVERNANCE STATEMENT
CONTINUED
Company and Lion Capital to ensure their ongoing relationship
is at arm’s length and on a normal commercial basis. The skills
and experience of the Board are set out in their biographies on
page 25. Further details of the roles of the Board can be found on
the Company’s website: www.loungers.co.uk.
The Board meets regularly (at least eight times a year, and met
10 times during the year under review) and is responsible for
strategy, performance, approval of any major capital expenditure
and the framework of risk management and internal control.
Briefing papers are distributed to all Directors in advance of Board
meetings and all Directors have access to the advice and services
of the Chief Financial Officer and Company Secretary, who are
responsible for ensuring that Board procedures are followed,
that each Director is at all times provided with such information
as is necessary for him or her to discharge their duties and that
applicable rules and regulations are complied with, in accordance
with the QCA Code and AIM Rules. In addition, all Directors
can obtain independent professional advice in the furtherance
of their duties at the Company’s expense, if requested. The rules
governing the appointment and replacement of Directors are set
out in the Company’s Articles of Association, which can be found
on the Company’s website: www.loungers.co.uk. In accordance
with the Company’s Articles of Association, one-third of Directors
are subject to re-election by shareholders at the Annual General
Meeting and any new Directors appointed during a financial year
must be formally elected at the Annual General Meeting following
their appointment.
The Articles of Association may be amended by special resolution
of the Company’s shareholders.
BOARD AND COMMITTEE MEETINGS
During the year the Board has met formally 10 times, the Audit
Committee three times, the Remuneration Committee three times and
the Nomination Committee twice. Board and Committee meetings
are also convened on an ad-hoc basis from time to time in order
to consider specific corporate activities and various other ad-hoc
approvals as required.
When possible, the location of Board and Committee meetings is
varied so that the Directors visit different sites and have the opportunity
to meet with local management teams. During the year meetings
were held in Bristol, London, Guildford, Exeter and Norwich with the
majority of people attending in person.
Directors are expected to attend all meetings of the Board and the
Committees on which they sit, and the Non-Executive Directors are
expected to devote sufficient time to the Company to enable them to
fulfil their duties as Directors. The Board is satisfied that the Chairman
and each of the Non-Executive Directors is able to devote sufficient
time to the business, and they each maintain open communication with
the Executive Directors and senior management between the formal
scheduled meetings. During the year the Nominations Committee
reviewed the amount of time spent by the Non-Executive Directors
fulfilling their duties and all confirmed they had sufficient capacity to
meet the Company’s needs.
Scheduled
Board Meetings
Audit
Committee Meetings
Remuneration
Committee Meetings
Nomination
Committee Meetings
10/10
10/10
10/10
10/10
9/10
2/10
10/10
NA
NA
NA
3/3
3/3
NA
3/3
NA
NA
NA
4/4
3/4
NA
4/4
NA
NA
NA
2/2
2/2
NA
2/2
Director
Chairman
Alex Reilley
Executive Directors
Nick Collins
Gregor Grant
Non-Executive Directors
Nick Backhouse
Adam Bellamy
Robert Darwent
Jill Little
28
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE CHAIRMAN’S CORPORATE GOVERNANCE STATEMENT
CONTINUED
Only the independent Non-Executive Directors are Committee
Members.
Other Directors regularly attend Committee meetings.
Other members of the senior management team attend Board and
Committee meetings at the invitation of the Board.
Adam Bellamy missed a scheduled Board meeting on 24 June
2022 due to a family emergency. Robert Darwent, a Non-Executive
Director, missed eight Board meetings over a period of 10 months.
The Board did not consider there to be a need to appoint an
alternative director because of the attendance at those meetings
of a full complement of long standing Independent Non-Executive
Directors. Further ad hoc meetings were held during the year to deal
with ad-hoc approvals and other specific corporate activities.
The Board has an agreed schedule of activity covering regular
business updates, financial, operational and governance matters.
Each Board Committee also has a schedule of work to ensure that all
areas for which the Board has overall responsibility are addressed
and reviewed during the course of the year. These schedules of
activity are reviewed at least annually to ensure that key matters and
developments are discussed at the appropriate time.
BOARD COMMITTEES
The Board has delegated specific responsibilities to the Audit
Committee, the Remuneration Committee and the Nomination
Committee.
Each Committee has written terms of reference setting out its duties,
authority and reporting responsibilities. The terms of reference
of each Committee are reviewed on an annual basis to ensure
they remain appropriate and reflect any changes in legislation,
regulation or best practice. The terms of reference are available on
the Company’s website: www.loungers.co.uk.
EXTERNAL ADVISERS
The Board seeks advice and guidance on various matters from its
Financial and Nominated Advisor, Houlihan Lokey, its Joint Brokers,
Liberum Capital Limited and Peel Hunt LLP and its Financial Public
Relations Adviser, Powerscourt. The Board also uses the services of
an external company secretarial provider, Link Company Matters
Limited (“Company Matters”).
As company secretary Company Matters provides corporate
governance advice, financial reporting and AGM support and
board and committee support, including attending meetings,
preparing papers and drafting minutes.
CONFLICTS OF INTEREST
At each meeting of the Board or its Committees, the Directors are
required to declare any interests in the matters to be discussed and
are regularly reminded of their duty to notify any actual or potential
conflicts of interest. The Company’s Articles of Association provide
for the Board to authorise any actual or potential conflicts of interest
if deemed appropriate to do so. The Board has effective procedures
in place to monitor and manage conflicts of interests.
RISK MANAGEMENT AND INTERNAL CONTROL
The Board has ultimate responsibility for the Group’s system of
risk management and internal control and for the ongoing review
of its effectiveness. The system of risk management and internal
control can only identify and manage risk and not eliminate it
entirely. As a result, such a framework cannot provide an absolute
assurance against misstatement or loss. The Board considers that
the framework which has been established and implemented is
appropriate for the size, complexity and risk profile of the Group.
The Board continues to review the system of risk management and
internal control to ensure it is fit for purpose and appropriate for the
size and nature of the Company’s operations and resources.
BOARD AND COMMITTEE EVALUATION
Every year the Company completes an internal evaluation of the
performance of the Board as a whole and of its Committees, by way
of questionnaires issued to the Board, results of which are tabled to
the Board. Questionnaires elicit feedback on the performance of
individual Directors, including the Chairman, in order for the Board to
satisfy itself that all are committed, independent (where relevant) and
provide a relevant and effective contribution.
The questionnaire evaluating the function of the Board covers the
following topics:
Strategy
Board effectiveness
Chairmanship and leadership
Succession and composition
Stakeholders
Board processes
Committee questionnaires include questions regarding Committee
constitution and composition, as well as the running of meetings
and other topics relevant to each Committee’s area of responsibility.
The most recent evaluation was conducted in August 2022, overall
the results showed a positive view on the functioning of the Board
and its Committees, but noted 2023’s review would involve a more
in depth and detailed questionnaire and review.
29
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
CHAIRMAN’S CORPORATE GOVERNANCE STATEMENT
CONTINUED
STAKEHOLDER ENGAGEMENT
The Board places a strong emphasis on the standards of good
corporate governance and maintaining effective engagement with
its shareholders and key stakeholders, which it considers to be
integral to longer term growth and success.
The principal methods of communication with shareholders are the
Annual Report, the half-year and full-year results announcements,
trading updates (where required or appropriate), Annual General
Meetings and the investor relations section of the Company’s
website (in particular the ‘AIM Rule 26’): www.loungers.co.uk.
The Company has continued to use Investor Meet to enable retail
investors to view and ask questions on the interim and full year
financial results presentations. The Company has seen a positive
uptake by investors to this system.
The Company’s website is updated with information regarding the
Company’s activities and performance. The Company’s reports
and presentations and notices of Annual General Meetings are
made available on the website when available, as are the results
of voting at shareholder meetings. The Company will publish an
explanation around any actions it proposes to take on votes where a
significant proportion of independent votes have been cast against
any resolution, being those where 20 per cent or more of votes have
been cast against the Board recommendation for a resolution.
ANNUAL GENERAL MEETING (“AGM”)
Shareholders will have an opportunity to raise questions with the
Board at the Group’s Annual General Meeting, which will be
held at Cosy Club, 14 Tunsgate Quarter, Guildford GU1 3QY on
13 October 2023. Details of the business to be transacted at the
AGM are set out in the Notice of AGM, which is available on the
Company’s website.
Alex Reilley
Chairman
12 July 2023
3030
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE
AUDIT COMMITTEE REPORT
On behalf of the Board, I am pleased to
present the Audit Committee Report for the
52 weeks ended 16 April 2023.
The Committee consists of the three independent Non-Executive
Directors and is chaired by myself. The Board is satisfied that I, as
Chairman of the Committee, have recent and relevant financial
experience. I am a chartered certified accountant with experience
as a Finance Director in multi-site leisure and hospitality operations.
The Committee met three times during the year, and all members
of the committee attended each meeting. Although not members of
the Audit Committee, our Executive Chairman, Non-Independent
NED, CEO and CFO are also invited to attend meetings unless
they have a conflict of interest.
ROLES AND RESPONSIBILITIES
The Audit Committee is responsible for ensuring that the financial
performance of the Group is properly reported on and reviewed.
Its role includes monitoring the integrity of the Group’s financial
statements and results announcements, reviewing significant
financial reporting issues, reviewing the effectiveness of the
Group’s internal control and risk management systems and
overseeing the relationship with the external auditors (including
advising on their appointment, agreeing the scope of the audit and
reviewing the audit findings). It is also responsible for establishing,
monitoring and reviewing procedures and controls for ensuring
compliance with the AIM Rules. The detailed duties of the Audit
Committee are set out in its Terms of Reference which are reviewed
by the Committee on an annual basis. At the meeting in July
2023, the Board approved an expansion of the scope of the
Audit Committee to include a wider range of risk and compliance
responsibilities, which will be in place for FY24.
The principal areas of focus for the Committee have been as
follows:
Approving the external auditors’ plan for the audit of the
Group’s annual financial statements, including key audit
matters, key risks, confirmation of auditors’ independence and
terms of engagement;
Reviewing the Group’s draft financial statements and interim
results statements and reviewing the external auditors’ detailed
reports including their analysis of key audit matters and risks;
Meeting the external auditors and their team during the year,
to review the audit plan, timetables, specific matters relating to
the audit work and any issues arising;
Reviewing the performance of the external auditors;
Considering new accounting standards and their implications
for the Group; and
Reviewing the Group’s risk management processes, key risk
register and risk mitigations.
SIGNIFICANT ISSUES
The significant issues considered by the Audit Committee in respect
of the FY23 Annual Report are as follows:
Impairment of tangible fixed assets and right of use assets –
management has undertaken an impairment review at individual
site level, taking account of economic factors such as cost of living,
energy costs and supply chain inflation. The key assumptions
underpinning cash flow forecasts, future growth rates and discount
rates were reviewed by the Committee and the decision taken
to impair ten sites, but to release impairment provisions made
in 2020 against five sites, resulting in an overall net impairment
charge of £1.6m.
Impairment of goodwill – similarly to the review of tangible
fixed assets, the Committee has reviewed key assumptions
and forecasts for the Group and is satisfied that no impairment
charge is required to be taken in the year in respect of the
pre-existing goodwill.
Accounting for acquisitions – following the acquisition of Route
Restaurants Limited and Nightlife Leisure (South West) Limited
earlier in the year, the Committee has reviewed the accounting
estimates made and is satisfied that the acquisition values have
been fairly represented in the Group’s financial statements.
Going concern – The Committee has considered the impact
of the base and downside case on the profitability, cash flows
and liquidity of the Group. The Committee is satisfied that the
Group has sufficient liquidity to support the assessment that it
is appropriate to prepare the FY23 financial statements on the
going concern basis.
Task Force for Climate Related Disclosure (TCFD) – this is
the first year that the Group will report under the new TCFD
framework. The Committee has reviewed the reporting
prepared by the Chair of the Sustainability Committee and
is satisfied that the reporting is an accurate representation of
Loungers’ position.
31
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
AUDIT COMMITTEE REPORT
CONTINUED
ROLE OF THE EXTERNAL AUDITORS
TAX STRATEGY
The Audit Committee monitors and oversees the relationship with
the external auditors, PricewaterhouseCoopers LLP, to ensure that
external auditor independence and objectivity are maintained.
The Committee assesses the independence of the external auditors
and effectiveness of the external audit process before making
recommendations to the Board in respect of their re-appointment.
The Audit Committee seek confirmation from the external auditors
that they have remained independent within the meaning of the
APB Ethical Standards of Auditors.
FY23 is the first audit conducted by Sarah Phillips, the new
PricewaterhouseCoopers LLP audit partner, following the rotation
of our former audit partner as per APB and FRC ethical standards
requirements. The Committee has welcomed the new perspective
and challenge brought by our new partner and looks forward to a
constructive relationship moving forwards.
RISK MANAGEMENT AND INTERNAL CONTROLS
The principal risks relating to the ongoing operations of the
business, including climate change risk, were reviewed with the
wider Board in April. The Audit Committee is responsible for
reviewing the internal financial control systems that identify, assess,
manage and monitor financial risks, in addition to other internal
control and risk management systems. During the year, the Audit
Committee reviewed key processes and controls with a focus on
developing new system solutions to reduce the Group’s reliance
on manual processes as it increases in size and complexity.
This began in 2022 with the rollout of invoice automation and
a roadmap has been established for the wider development of
financial reporting and sales analysis.
Following the financial performance in the 52 weeks ended
17 April 2022 the Group is now classed as a large company
by HMRC, having exceeded the £200m turnover threshold.
This requires the Group to provide more detail publicly around
its tax strategy and its approach to considering tax risk and the
Committee has therefore reviewed the policies and processes
developed in conjunction with the Group’s tax advisors. The Group
has committed to managing its tax affairs in accordance with both
the letter and the spirit of the law, working transparently with the
UK tax authorities, and the Committee is satisfied that the relevant
governance is in place to ensure that this is achieved.
SHARE DEALING, ANTI-BRIBERY AND WHISTLEBLOWING
Loungers adopted, with effect from Admission, a share dealing
code (the “Code”) for the Directors and all employees, which is
appropriate for a company whose shares are admitted to trading
on AIM and which is subject to Rule 21 of the AIM Rules. The Group
takes all reasonable steps to ensure compliance by the Directors and
any other applicable employees with the terms of the Code.
The Group promotes a culture of integrity, honesty, trust and respect
and all employees are expected to operate in an ethical manner in
all their internal and external dealings. The Group’s staff handbook
and policies promote this culture and include such matters as
whistleblowing, social media, anti-bribery, communication, and
general conduct of employees. The Group’s whistleblowing and
anti-bribery policies are overseen by the Audit Committee. The Audit
Committee believes, based on experience to date, that these policies
are effective and staff members are aware of them.
Other areas of review included payroll processes and controls in
the light of legislative developments in the year, specifically in the
areas of employee tips and holiday pay calculations, which have
a particular impact on the hospitality industry.
Adam Bellamy
Audit Committee Chairman
12 July 2023
32
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE REMUNERATION COMMITTEE REPORT
On behalf of the Board, I am pleased to
present the Remuneration Committee Report
for the 52 weeks ended 16 April 2023.
The Committee consists of the three independent Non-Executive
Directors and is chaired by myself. The Committee met four times
during the year, and as shown in the Chairman’s Corporate
Governance Statement on page 26, all members of the Committee
attended all the meetings with the exception of Adam Bellamy who
missed one meeting in June 2022 due to a family emergency.
DUTIES
The Committee has responsibility for:
Determining the policy for the remuneration of the Chairman,
Executive Directors, and any employees that the Board
delegates to it;
Within the terms of the agreed policy, determining individual
remuneration packages including bonuses, incentive payments,
share options, pension arrangements and any other benefits;
Giving due regard to the comments and recommendations of
the QCA Corporate Governance Code and the AIM Rules for
Companies;
Being informed of and where appropriate advising on any
major changes in employee benefit structures; and
The Executive Chairman, Chief Executive Officer, Chief Financial
Officer and Chief People Officer occasionally attend meetings
and provide information and support as requested. Executive
Directors are not present when their own remuneration package is
considered.
The Committee continues to have access to external remuneration
advisors for ongoing support and advice as required.
REMUNERATION – EXECUTIVE DIRECTORS
As outlined in last year’s Remuneration Committee Report, the
remuneration structure for the Executive Directors has evolved
to reflect a more market standard approach following a
comprehensive review of the remuneration policy and practices.
The current on-going structure consists of the following elements:
Base salary – Set at a level resulting in fixed pay broadly in
line with other companies of a similar size
Benefits & Pensions – none operated in 2022/23
Annual bonus – cash bonus up to a normal maximum of 100%
of base salary subject to achieving stretching financial and
non-financial targets
Long Term Incentive Place (“LTIP”) – awards of free shares
worth up to 150% of base salary each year which vest
three years later, subject to continued employment and the
satisfaction of performance conditions.
Monitoring the level and structure of remuneration for senior
managers below Board level as determined.
The full approach to the individual elements of Executive
Remuneration is detailed below:
The detailed duties of the Remuneration Committee are set out in its
Terms of Reference, which can be found on the corporate website. These
are reviewed by the Committee on an annual basis, and no material
changes were made to the Terms of Reference during the year.
The principal objective in setting the Group’s remuneration policy
is to ensure the recruitment and retention of executives with the
appropriate skills and qualities to drive the company’s strategy
and deliver value for shareholders. To achieve this, our policy on
executive remuneration is designed to:
Fixed pay
Fixed pay (e.g. base salary, pension and benefits) is reviewed
annually in May in light of a number of factors, including the
approach to salary reviews more generally across the Group and
the performance of the individuals and the Group. The fixed pay
levels are set broadly in line with the median level seen in other
companies of a similar size.
The Remuneration Committee has approved a 5% salary increase
for the Executive Directors with the following salaries becoming
effective 1 May 2023.
Include a competitive mix of base salary and short and long-
term incentives, with an appropriate proportion of the package
determined by stretching targets linked to the Group’s performance;
Promote the long-term success of the Group, in line with our
strategy and focus on profitability and growth; and
Provide appropriate alignment between the interests of
shareholders and executives.
Alex Reilley
£242,550
Nick Collins
£392,700
Gregor Grant £231,000
The 5% increases are aligned with the general workforce average.
33
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
REMUNERATION COMMITTEE REPORT
CONTINUED
In addition to the pay reviews and after a review of a comparator
group of similar sized listed companies, the Committee approved
the addition of private healthcare as an optional benefit for
Executive Directors. This optional benefit has also been introduced
for a significant number of senior managers across the Group as
part of the Group’s drive to ensure we support work-life balance
and prioritise our teams’ health and mental wellbeing
Annual Bonus
All Executive Directors have a bonus opportunity at a normal
maximum of 100% of base salary. For the 2022/23 financial year
payout was based on a mix of stretching financial metrics (using
Adjusted EBITDA – IAS17) and measurable non-financial targets
linked to the Group’s strategy. The Remuneration Committee set
the financial targets by reference to Group budgets and analysts’
forecasts. Payments under the annual bonus plan are subject to
typical malus and clawback provisions.
The Committee intends for the 2023/24 financial year to continue
to have a payout based on a mix of stretching financial metrics
(Adjusted EBITDA – IAS17) as well as measurable non-financial
targets.
Long-term Incentives
In 2022 the Committee adopted a more market standard
approach to long term incentive provision by making awards
under a Performance Share Plan (“PSP”). Free shares up to
150% of base salary are made each year which vest three years
later, subject to continued employment and the satisfaction of
performance conditions. Awards are subject to typical malus and
clawback provisions. The 2022/23 awards over Ordinary Shares
were approved to Executive Directors of the following value:
Alex Reilley
100% of base salary
Nick Collins
150% of base salary
Gregor Grant 125% of base salary
Key members of senior management also participate in the plan.
The Committee acknowledged the preference of some
shareholders for relative targets and therefore 50% of awards were
based on TSR performance against a bespoke group of hospitality
and leisure comparators. TSR performance is measured on a
sliding scale between median and upper quartile performance
against the comparator group.
34
Group TSR for FY 2023,
2024 and 2025
Upper quartile or better
Median
Below median
Part of the award
that may vest
100%
25%
0%
The remaining 50% of awards are based on stretching EPS
targets, which the Committee considers incentivises management
to both grow revenue and manage costs in a balanced way. The
performance range is determined by the Committee by reference
to Group budgets and analysts’ forecasts. Full details of the
targets for the 2022/23 awards are as follows with a sliding
scale operating between the thresholds.
Group EPS for FY 2025(1)
20.1p or more
18.4p
16.7p
16.0p
Less than 16.0p
Part of the award that may
vest
100%
75%
50%
25%
0%
(1)
The EPS Measure is adjusted IFRS16 EPS with the impact of share-based payments
excluded
The Committee intends to make further awards in 2023/24 up to
150% salary under the PSP to the Executive Directors retaining the
structure introduced last year with 50% of the award being based on
TSR and 50% of the award being based on EPS. The Committee will
conduct a thorough review of the EPS targets and Comparator Group
prior to any awards being made, and full details of the award will be
disclosed in next year’s Directors Remuneration Report.
2022/23 INCENTIVE PLAN PAYOUTS
As outlined elsewhere in the Annual Report, the Group continues to
report strong like for like sales growth resulting in delivery of record
total revenue of £283.5m, Adjusted EBITDA (IFRS16) of £47.3m
and the opening of 29 new sites.
Annual bonuses for 2022/23 were driven by a mix of Adjusted
EBITDA (IAS17) performance (70%) and performance against two
measurable non-financial targets linked to the Group’s strategy (30%).
Based on the performance during the year, the bonus will pay
out at 17.5% of the maximum performance level resulting in the
following payments:
Alex Reilley
£40,425
Nick Collins
£65,450
Gregor Grant £38,500
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE REMUNERATION COMMITTEE REPORT
CONTINUED
There were no long-term incentives vesting in relation to the year
ended 16 April 2023 and no Committee discretion has been
applied to FY23 remuneration outcomes.
REMUNERATION – NON-EXECUTIVE DIRECTORS
The remuneration policy for the non-executive directors is to pay
fees necessary to attract the individual of the calibre required,
taking into consideration the size and complexity of the business
and the time commitment of the role, without paying more than is
necessary. The fees of the non-executive directors are determined
by the executive directors.
Non-executive directors may be eligible to receive benefits such as
travel, the use of secretarial support and other expenses relevant to the
performance of their roles. None of the non-executive directors are
eligible to participate in any of the Group’s incentive arrangements.
EMPLOYEE SHARE SCHEMES
The directors recognise the importance of ensuring that all
employees are well motivated and aligned with the broader
success of the Group. Accordingly, the Directors consider equity
participation to be an important element of attracting, retaining,
and incentivising key staff. To this end the Group operates
two share schemes: the senior management restricted share plan
(“RSP”) and the all employee share plan (“ESP”). Further details
are provided in Note 21.
SINGLE TOTAL FIGURE OF REMUNERATION TABLE (AUDITED)
The RSP is a discretionary executive share plan. Awards are made
on an annual basis, and as proposed by the executive Directors,
at the discretion of the Remuneration Committee. There will be
an overall cap on the number of shares that can be issued under
the RSP equal to the dilution limit of 10 per cent in 10 years (such
amount to be reduced by any dilution arising from the VCP and/
or the Employee Share Plan). The Group has also established
a subplan to the RSP which permits the grant of RSP Awards
designed to meet the requirements of a company share option
plan (“CSOP”) for the purposes of Schedule 4 to the Income Tax
(Earnings and Pensions) Act 2003 (“CSOP Options”).
Awards made under the RSP plan carry no performance conditions
but are subject to a three-year vesting period from the date of
grant subject to continued employment with the Group. During the
year 537,653 nil cost options were awarded to 112 employees
under the RSP.
The ESP is a discretionary all-employee share plan under which
senior management may, within certain limits, grant to any
employee a conditional award (i.e. a conditional right to acquire
Ordinary Shares), at their discretion. The ESP has no performance
conditions, other than continued employment over the vesting
period. During the year awards over 471,500 shares were made
to 943 employees under the ESP.
Salary / Fees
Benefits / Pension
Annual Bonus
Long-term incentives2
Total
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
Alex Reilley
Nick Collins
Gregor Grant
Nick Backhouse
Adam Bellamy
Jill Little
Robert Darwent1
Total
231
374
220
55
50
50
-
980
175
285
200
55
50
50
-
815
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40
65
39
-
-
-
-
263
428
300
-
-
-
-
56
148
74
-
-
-
-
144
991
278
-
-
-
-
-
-
-
-
327
587
333
55
50
50
-
438
713
500
55
50
50
-
1,402
1,806
1.
2.
Robert Darwent is a Director of Lion Capital and receives no remuneration from the Group.
Long term incentives are recognized on the date that share awards vest, valued at the share price on the date of vesting
35
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023 REMUNERATION COMMITTEE REPORT
CONTINUED
DIRECTORS’ INTERESTS (AUDITED)
As at 16 April 2023 the Directors of the Group held the following number of 1p ordinary shares.
Alex Reilley
Nick Collins
Gregor Grant
Nick Backhouse
Adam Bellamy
Jill Little
Beneficially owned at
16 April 2023
Vested, unexercised share
awards at
16 April 2023
6,951,432
1,086,276
180,148
13,903
13,903
13,903
29,789
529,430
89,715
-
-
-
Robert Darwent is a Director of Lion Capital. At 16 April 2023 funds managed by Lion Capital were interested in 26,728,524 shares.
OUTSTANDING DIRECTORS’ SHARE AWARDS (AUDITED)
Scheme
At 18 April
2022
Granted
At 16 April
2023
Share price
at grant
Exercise
price
Date of
Grant
Exercisable
from(1)
Expiry Date
Alex Reilley
RSP- VCP
-
89,359
Nick Collins
RSP – IPO
450,000
-
RSP – VCP
-
238,292
Gregor Grant RSP – IPO
50,000
-
RSP – VCP
-
119,146
89,359
450,000
238,292
50,000
119,146
£2.51
£2.00
£2.51
£2.00
£2.51
Nil
Nil
Nil
Nil
Nil
April 2022
July 2022
April 2032
April 2019
April 2020
April 2029
April 2022
July 2022
April 2032
April 2019
April 2020
April 2029
April 2022
July 2022
April 2032
(1)
(2)
(3)
(4)
The RSP-IPO awards disclosed above in respect of a total of 500,000 shares are exercisable in three equal tranches from 29 April 2020, 29 April 2021 and 29 April 2022.
As outlined in last year’s report, the performance period under the VCP ended in April 2022. The measurement of performance over the performance period resulted in the following
nil cost options awarded to each of the Executive Directors: Alex Reilley – 89,359 shares, Nick Collins – 238,292 shares and Gregor Grant – 119,146 shares. The 446,797 shares are
exercisable in three equal tranches from 13 July 2022, 29 April 2023 and 29 April 2024.
As outlined in last year’s report, the following one-off retention awards were granted as nil cost options to each of the Executive Directors on 2 May 2023: Alex Reilley – 107,569 shares,
Nick Collins – 131,143 shares and Gregor Grant – 131,265 shares. These share entitlements are exercisable in two equal tranches from 25 July 2023 and 25 July 2024.
As outlined in last year’s report, the following PSP Awards were awarded as nil cost options to each of the Executive Directors on 1 June 2023: Alex Reilley – 110,262 shares, Nick
Collins – 267,780 shares and Gregor Grant – 131,264 shares. These share entitlements are exercisable at the end of the 3 year performance period. The attached TSR and EPS
performance conditions are outlined above.
Jill Little
Remuneration Committee Chairman
12 July 2023
36
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
3737
NOMINATION COMMITTEE REPORT
On behalf of the Board, I am pleased to
present the Nomination Committee Report
for the 52 weeks ended 16 April 2023.
The Committee consists of the three independent Non-Executive
Directors and is chaired by myself. The Committee met twice in the
year, and all members of the Committee attended.
DUTIES
The Committee is responsible for, inter alia:
Ensuring that the Board and its Committees have the right
balance of skills, knowledge, and experience;
Considering and planning for the orderly succession of Directors
and other senior managers; and
Identifying and nominating suitable candidates to fill Board
vacancies.
ACTIVITY DURING THE YEAR
There have been no changes to the Group’s Board during the
year, and the Committee has therefore continued to prioritize its
oversight of succession planning and development in the business.
Detailed discussions have been held in both of the Committee’s
meetings during the year on succession planning, which remains
a standing item on the Committee’s agenda. Furthermore, the
Committee has reviewed the composition of the Board and its
Committees, the time commitments of the Non-Executive Directors
and its own terms of reference. A summary of the Committee’s
discussion on each of those areas is given below.
Succession Planning
As the business continues to grow at pace, the Committee has
given particular consideration to the structure and leadership
required to facilitate future scale. Key appointments made in the
year include the creation of a new Chief People Officer role, filled
by Guy Youll, and a Marketing Director role filled by Kate Lister.
With the launch of the Brightside brand a new MD role has been
created which provides further development opportunity for the
senior operational leadership team.
The Committee believes that the Group is taking appropriate
steps to ensure that talent is recruited and retained for key roles
and that processes are in place to develop leadership within the
operational and head office teams.
Board and Committee composition
During the year, the Committee undertook a review of the Board
and its Committees, encompassing the balance of independence,
skills, experience and diversity. All Committees comprise only
independent Non-Executive Directors, and half the Board
(excluding the Chair) are independent Non-Executive Directors.
Diversity remains an area of challenge within the confines of the
size of the Board, but the Committee is satisfied that there will be
opportunities to address this with future appointments.
Non-Executive Director time commitments
The Committee reviewed the time commitment required of each
Non-Executive Director as set out in their letters of appointment and
confirmed that the time commitment remained appropriate. Each of
the Non-Executive Directors confirmed to the Committee that they
continue to have the capacity to devote appropriate time to the
affairs of the Group in order to discharge their duties as directors.
All Non-Executive Directors will have served two three-year terms by
the time of the AGM in 2025 and therefore the Committee has begun
to consider the process for recruitment of new Non-Executive Directors
(bearing in mind the opportunity to address diversity challenges as
noted above) and an orderly transition of responsibility.
Terms of reference
In accordance with good governance practice, the Committee
conducted its annual review of its terms of reference and no
changes were recommended.
Board and Committee evaluation
In line with the growth of the business, the Committee has proposed
a more comprehensive review for the Board evaluation in 2023, to
be undertaken over the summer. This will enable the Committee to
ensure that key areas are addressed in a timely manner.
Nick Backhouse
Nomination Committee Chairman
12 July 2023
38
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE
DIRECTORS’ REPORT
The Directors present their report and the audited
consolidated financial statements of Loungers
plc for the 52 weeks ended 16 April 2023.
Brief biographical details for each of the Directors are given on
page 25.
DIRECTORS’ INTERESTS
The Corporate Governance Statement on pages 25 to 30 also
forms part of this Directors’ Report.
A table showing the Directors’ interests in the share capital of Loungers
plc is set out in the Directors’ Remuneration Report on page 33.
PRINCIPAL ACTIVITY
GOING CONCERN
The principal activity of the Group is the operation of café bars and
café restaurants.
INCORPORATION
The Company was incorporated on 28 March 2019 and was
admitted to trading on the AIM market on 29 April 2019.
RESULTS AND DIVIDENDS
The consolidated statement of comprehensive income is set out on
page 50 and shows the comprehensive income for the year.
There were no dividends paid or proposed in the year under review.
The Board announced, in its half year results on 30 November 2022,
its intention to retain Group earnings in the short-term to bolster
liquidity and balance sheet strength and for re-investment in the
roll-out of new sites. However, it is the Board’s ultimate intention to
pursue a progressive dividend policy, subject to the need to retain
sufficient earnings for the future growth of the Group.
STRATEGIC REPORT
Information in respect of the Business Review, Future Outlook of the
Business, Section 172 reporting, SECR and TCFD disclosures and
Principal Risks and Uncertainties are not shown in the Directors’
Report because they are presented in the Strategic Report.
ANNUAL GENERAL MEETING (“AGM”)
The Group’s next Annual General Meeting will be held at Cosy Club,
14 Tunsgate Quarter, Guildford GU1 3QY on 13 October 2023.
Details of the business to be transacted at the AGM are set out in the
Notice of AGM, which is available on the Group’s website.
DIRECTORS
The Directors who served during the year, and up to the date of this
report, unless otherwise stated, were as follows:
Alex Reilley
Nick Collins
Gregor Grant
Nick Backhouse
Adam Bellamy
Robert Darwent
Jill Little
In adopting the going concern basis for preparing the financial
statements, the Directors have considered the business activities
as set out on pages 3 to 9 as well as the Group’s principal risks
and uncertainties as set out on page 22, including the downside
sensitivities outlined on page 21 and in note 2.2. The Group
entered into new financing facilities in June 2023 and based on
its cash flow forecasts and projections, the Board is satisfied that
the Group will be able to operate within the level of these facilities
for the foreseeable future. For this reason, the Board considers it
appropriate for the Group to adopt the going concern basis in
preparing its financial statements.
SHARE CAPITAL
Details of the issued share capital, together with details of
movements during the year are shown in note 22 to the
Consolidated Financial Statements.
The Company has one class of Ordinary share and each Ordinary
share carries the right to one vote at general meetings. The
Company also has one class of non-voting Preference shares.
There are no restrictions on the transfer of Ordinary shares in the
capital of the Company other than those restrictions which may from
time to time be imposed by law, for example, insider trading law.
AUTHORITY FOR THE COMPANY TO PURCHASE ITS OWN
SHARES
Subject to authorisation by shareholder resolution, the Company may
purchase its own shares in accordance with the Companies Act 2006.
Any shares which have been bought back may be held as treasury
shares or cancelled immediately upon completion of the purchase.
At the AGM on 14 October 2022 the Company was generally
and unconditionally authorised by its shareholders to make market
purchases (within the meaning of section 693 of the Companies
Act 2006) of up to a maximum of 10,328,799 of its Ordinary
shares. The Company did not repurchase any of its Ordinary
shares under this authority in the year ended 16 April 2023, which
is due to expire at the date of this year’s AGM. Post year end, on
8 June 2023 the Company repurchased 195,000 ordinary shares
which are now held in treasury.
39
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
DIRECTORS’ REPORT
CONTINUED
SUBSTANTIAL SHAREHOLDINGS
EMPLOYEE ENGAGEMENT
The Company is aware that the following had an interest of 3%
or more of the issued Ordinary share capital of the Company at
28 June 2023, the last practicable date before the publication of
this report:
Funds managed by Lion Capital
26,728,524
25.7%
No of ordinary
shares
% of share
capital
Slater Investments
Alex Reilley
Jake Bishop
Canaccord Genuity Wealth
Management
Invesco
8,338,617
6,951,432
6,507,432
6,489,000
5,406,194
AXA Framlington Investment Managers
5,245,259
Gresham House Asset Management
M&G Investment Management
Highclere International Investors
BGF
4,073,206
3,998,251
3,517,734
3,224,222
8.0%
6.7%
6.3%
6.2%
5.2%
5.1%
3.9%
3.9%
3.4%
3.1%
As at 12 July 2023 the Company’s ordinary issued share capital
was 103,861,945 ordinary shares of 1p each, each carrying one
right to vote in general meeting.
Robert Darwent is a non-executive director on the Board of
Loungers plc and represents Lion Capital, a substantial shareholder
of the Company. A relationship agreement is in place between the
Company and Lion Capital to ensure their ongoing relationship is
at arm’s length and on a normal commercial basis.
EMPLOYMENT POLICY
Our policy is to promote equal opportunity in employment
regardless of gender, race, colour or disability, subject only to
capability and suitability for the task and legal requirements.
Where existing employees become disabled, it is our policy
to provide continuing employment under equivalent terms and
conditions, and to provide equal opportunity for promotion to
disabled employees wherever appropriate.
The Board recognises that Loungers’ performance and success
are directly related to our ability to attract, retain and motivate
high-calibre employees. We are committed to linking reward
to business and individual performance, giving employees
the chance to share in the Group’s financial success. Eligible
employees are typically provided with financial incentives related
to the Group’s performance in the form of annual bonuses. The
Group also operates incentive plans and share plans.
We keep our team members regularly updated with issues affecting
the running of the business and obtain their views on any key
matters, all of which is in accordance with our obligations under the
Information and Consultation Regulations 2004. The dissemination
of information is achieved in many ways including weekly and
quarterly newsletters, regular regional and area meetings, our
Company intranet and Directors and Managers briefings. These
are opportunities for team members to express their views and
ask questions. Outside of these specific events, we welcome any
questions that team members may have about the business. Further
information on employee engagement is provided on page 10.
FINANCIAL RISK MANAGEMENT
The Group finances its operations through a combination of
intra-Group funding and bank debt. The Group uses various
financial instruments (Note 19) in the form of cash, third-party bank
debt and other items, such as trade payables, that arise directly
from its operations. The main purpose of these financial instruments
is to fund the Group’s operations. These financial instruments
expose the Group to several financial risks, principally liquidity
and interest rate risks.
The Group seeks to meet liquidity risk through assessment of
short-, medium- and long-term cash flow forecasts to ensure the
adequacy of committed debt facilities. On 7 June 2023 the Group
entered into a new senior facilities agreement with its existing
lenders Santander Corporate Banking and Bank of Ireland. Under
the terms of the new agreement the Group reduced its term loan
from £32,500,000 to £20,000,000 and increased its RCF from
£10,000,000 to £22,500,000. The new facility terminates on
7 June 2026. The term loan is non-amortising and bears interest
at between 1.75% and 2.5% over SONIA subject to the Group’s
leverage. At inception of the new facility the Group was paying a
margin of 1.75%. The term loan and RCF are subject to financial
covenants relating to leverage and interest cover, these are
unchanged from the original facility.
DIRECTORS’ LIABILITY INSURANCE AND INDEMNITY
The Group has arranged insurance cover in respect of legal action
against its Directors. To the extent permitted by UK law, the Group
also indemnifies the Directors. These provisions are qualifying third
party indemnity provisions which were in force throughout the year
and in force at the date of this report.
POLITICAL DONATIONS
During the year ended 16 April 2023 the Group made no political
donations (2022: £nil).
40
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE DIRECTORS’ REPORT
CONTINUED
POST BALANCE SHEET EVENTS
On 4 May 2023 the Company allotted and issued 359,000
ordinary shares of 1 pence each in the Company following the
vesting of awards made to 718 Group employees pursuant to the
Company’s Employee Share Plan. At the same time the Company
applied for a block listing of 477,962 ordinary shares of 1 pence
each to satisfy such options as might be exercised from time to time
under the Senior Management Restricted Share Plan award which
vested on the 29th April 2023.
On 7 June 2023 the Group entered into a new senior facilities
agreement with its existing lenders Santander and Bank of Ireland.
Under the terms of the new agreement the Group reduced its term
loan from £32,500,000 to £20,000,000 and increased its RCF
from £10,000,000 to £22,500,000. The new facility terminates
on 7 June 2026. The term loan is non-amortising and bears interest
at between 1.75% and 2.5% over SONIA subject to the Group’s
leverage. At inception of the new facility the Group was paying a
margin of 1.75%. The term loan and RCF are subject to financial
covenants relating to leverage and interest cover, these are
unchanged from the original facility.
On 8 June 2023 the Group repurchased 195,000 ordinary shares
which are now held in treasury.
DIRECTORS’ RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Annual Report and
Financial Statements and the financial statements in accordance with
applicable law and regulation.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the Group financial statements in accordance with UK-adopted
international accounting standards and the Company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 102 “The Financial Reporting Standard applicable
in the UK and Republic of Ireland”, and applicable law).
Under Company law, Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. In preparing the financial
statements, the Directors are required to:
Select suitable accounting policies and then apply them
consistently;
State whether applicable UK-adopted international accounting
standards have been followed for the Group financial
statements and United Kingdom Accounting Standards,
comprising FRS 102 have been followed for the Company
financial statements, subject to any material departures
disclosed and explained in the financial statements;
Make judgements and accounting estimates that are reasonable
and prudent; and
Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are responsible for safeguarding the assets of the
Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
Group’s and Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
Company and enable them to ensure that the financial statements
comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
DISCLOSURE OF INFORMATION TO AUDITORS
So far as each of the Directors is aware, there is no relevant audit
information that has not been disclosed to the Group’s auditors
and each of the Directors believes that all steps have been taken
that ought to have been taken to make them aware of any relevant
audit information and to establish that the Group’s auditors have
been made aware of that information.
INDEPENDENT AUDITORS
The auditors, PricewaterhouseCoopers LLP, have indicated their
willingness to continue in office.
This report was approved by the Board of Directors and signed on
its behalf.
G Grant
Chief Financial Officer
12 July 2023
41
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF LOUNGERS PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
Loungers plc’s group financial statements and company financial statements (the “financial statements”) give a true and fair view of the
state of the group’s and of the company’s affairs as at 16 April 2023 and of the group’s profit and the group’s cash flows for the 52 week
period then ended;
the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as
applied in accordance with the provisions of the Companies Act 2006;
the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic
of Ireland”, and applicable law); and the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), which comprise:
consolidated and company statements of financial position as at 16 April 2023; the consolidated statement of comprehensive income, the
consolidated statement of cash flows and the consolidated and company statements of changes in equity for the period then ended; and the
notes to the financial statements, which include a description of the significant accounting policies.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to other listed entities of public interest, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
We have provided no non-audit services to the company or its controlled undertakings in the period under audit.
OUR AUDIT APPROACH
Overview
Audit scope
The group is comprised of six components, each a legal entity. Following our assessment of the risk of material misstatement we selected
the parent company and the trading company, Loungers UK Limited, for full scope audits and performed specified audit procedures over
certain balances in one intermediate holding company. This work was conducted by the PwC Group team. In addition, we also performed
audit procedures for transactions and balances that arose as part of the Group’s consolidation process. This included the impairment
review of goodwill, property, plant and equipment, IFRS 16 accounting, and the Group’s elimination and consolidation entries.
Key audit matters
Impairment of property, plant and equipment (group)
Impairment of investments (parent)
Materiality
Overall group materiality: £2,835,000 (2022: £2,370,000) based on 1% of revenue.
Overall company materiality: £1,692,000 (2022: £870,000) based on 1% of total assets (2022: an allocation of group reporting materiality).
Performance materiality: £2,125,000 (2022: £1,777,000) (group) and £1,269,000 (2022: £672,500) (company).
42
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LOUNGERS PLC
CONTINUED
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Impairment of investments is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Impairment of property, plant and equipment (group)
Refer to notes 2, 3, and 12 of the Consolidated
financial statements.
The continued effects of the cost of living/cost
inflation crisis continue to unfold across the UK
economy and business. The possible impact
on consumer behaviour and margins on site
profitability creates a risk of impairment of the
carrying value of property, plant and equipment
including right of use assets.
The carrying value of property, plant and
equipment is £228.4m (2022: £188.4m).
Management performed an impairment trigger
event analysis and then prepared a value in
use model for assets considered to be at risk of
impairment. The key assumptions in the model
include the discount rate, the long term growth
rate, revenue growth and food and labour costs.
An impairment of assets of £3.4m was
recognised, alongside an impairment reversal of
previous impairment of £1.8m.
We focussed on this area, as the estimation
of future discounted cash flows is inherently
subjective and involves judgement, including
the assessment of the potential impact of climate
change. This assessment is also susceptible to
management bias.
We obtained management’s assessment of impairment trigger events at a site level and challenged key
assertions within it. The primary judgement was that sites that have been open for less than two years
are considered to not have any impairment trigger. We obtained historical sales and profit data to
validate that it takes sites on average two years to meet consistent profit levels, as well as considering the
qualitative assessment around operational performance.
For sites where a trigger event had been identified, we obtained management’s value in use model, and:
•
•
•
•
•
●
●
●
●
●
validated the carrying amounts that were attributed to each site cash generating unit to the
accounting records
we tested the mathematical accuracy and technical integrity of the model to ensure that it had been
performed in line with the guidance provided in IAS 36
we used internal valuation experts to determine whether management’s discount rate was
appropriate and calculated the impact of it being outside of our acceptable range, which was not
material
we used internal valuation experts to determine if the long term growth rate of 2% was appropriate
and concluded that it was reasonable
we challenged management on the basis for the short term forecasts used in the model. This included
but was not limited to:
–
–
–
–
–
–
agreeing forecasts to the Board approved budget and supporting strategic plans;
challenging the revenue growth rates with reference to the historical growth rate trends and
external research sources of expected growth in the sector;
challenged management on the food and labour cost inflation assumptions, which we validated
against external data sources and sensitised the impact of inflation remaining at the higher
market forecast rate than that forecast by management for the short term;
agreed central cost allocations were performed on a reasonable basis;
reviewed management’s historical accuracy of forecasting; and
obtained management’s paper on the assessment of climate change risk impacting the sites.
We also performed sensitivity analysis to understand the impact that possible changes in assumption
might have.
We assessed the adequacy of disclosures made in the financial statements. After our challenges were
addressed we concurred with the carrying value of property, plant and equipment.
43
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LOUNGERS PLC
CONTINUED
Key audit matter
How our audit addressed the key audit matter
Impairment of investments (parent)
Refer to notes 2 and 6 of the Company financial
statements.
At 16 April 2023, the company reported
investments with a carrying value of £148.4m.
This balance remains the largest single balance
in the Company’s accounts and so has been the
principal focus of our audit effort in the current
year. Any potential impairment loss could be
material to the Company.
In order to address the identified risk we discussed with management their impairment trigger assessment
which concluded that no trigger event was identified. We challenged the trigger assessment by reviewing
the Group’s market capitalisation and found it was in excess of the carrying value. We also considered
other qualitative and quantitative factors such as the Group’s value in use model used to support Group
goodwill. We concluded that management’s trigger assessment was reasonable and that no impairment
was required.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate. The
group consists of the parent company, four holding companies and one trading company, with the accounting function of all entities based in the
head office in Bristol. All entities are audited by the PwC Group team. Following our assessment of the risk of material misstatement we selected
the parent company, and the trading company, Loungers UK Limited, for full scope audits and performed specified audit procedures over certain
balances in one intermediate holding company. The Group consolidation, financial statement disclosures and a number of centralised functions
were audited by the Group team. These included, but were not limited to, central procedures over tax, IFRS 16 accounting, and impairment
assessments. Taken together, these reporting entities where we performed audit work accounted for approximately 100% of group revenue and in
excess of 99% of group profit before tax.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the group’s and
company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of climate risk.
Our procedures did not identify any material impact as a result of climate risk on the group’s and company’s financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements - group
Financial statements - company
Overall materiality
£2,835,000 (2022: £2,370,000).
£1,692,000 (2022: £870,000).
How we determined it
1% of revenue
1% of total assets (2022: an allocation of group
reporting materiality)
Rationale for benchmark
applied
Due to the high level of turnover and relatively low level of
profit before tax, using 1% of revenue is considered to be the
most appropriate benchmark, which is the same materiality
benchmark as used in the prior year.
As the entity is a holding company, we consider that
total assets is the most appropriate benchmark to
assess materiality.
44
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LOUNGERS PLC
CONTINUED
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £927,000 and £2,693,000. Certain components were audited to a local statutory
audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% (2022: 75%) of overall materiality, amounting to £2,125,000 (2022: £1,777,000) for the group
financial statements and £1,269,000 (2022: £672,500) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements identified during our audit above £140,000
(group audit) (2022: £115,000) and £85,000 (company audit) (2022: £43,000) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of accounting
included:
●
●
We obtained management’s paper that supports the Board’s assessment and conclusions with respect to the disclosures provided around
going concern;
We discussed with management the assumptions applied in the going concern review so we could understand and challenge the rationale for
those assumptions, using our knowledge of the business;
●●
We reviewed post year end trading results to June 2023, and compared to management’s budget, and considered the impact of these actual
results on the future forecasts;
●
●
●
We obtained the new financing facilities documentation, entered into on 7 June 2023, and confirmed the levels of available liquidity and
financial covenant terms. We then assessed the availability of liquid resources under the different scenarios and the associated covenant tests
applicable;
We reviewed management’s sensitivity scenarios including their severe but plausible downside. This includes potential mitigating actions
available to the Group that are achievable and within management’s control; and
We have assessed the disclosures and consider them appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s
ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
45
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LOUNGERS PLC
CONTINUED
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures
to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters
as described below.
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ Report
for the period ended 16 April 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and Directors’ Report.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
46
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LOUNGERS PLC
CONTINUED
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to health and safety, food safety, and employment laws, and we considered the extent to which non-compliance might have
a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial
statements such as the Companies Act 2006, financial reporting standards, AIM Rules and taxation laws. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting unusual journal entries to increase revenue and profits or the manipulation of
accounting estimates which could be subject to management bias. Audit procedures performed by the engagement team included:
●
●
●
●
●
●
●
Confirmation and enquiry of management and those charged with governance over compliance with employment legislation and
financial reporting and taxation legislation, including consideration of actual or potential litigation and claims;
Reviewing relevant minutes of director board meetings;
Evaluation of management’s controls designed to prevent and detect irregularities, in particular the whistleblowing policy and
employee code of conduct;
Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to
impairment of property, plant and equipment, useful economic lives of property, plant and equipment and share based payments;
Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and
regulations; and
Identifying and testing journal entries, in particular any entries posted with unusual account combinations
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a
conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
47
GOVERNANCE LOUNGERS PLC ANNUAL REPORT 2023
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LOUNGERS PLC
CONTINUED
OTHER REQUIRED REPORTING
COMPANIES ACT 2006 EXCEPTION REPORTING
Under the Companies Act 2006 we are required to report to you if, in our opinion:
●
●
●
●
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Sarah Phillips (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
12 July 2023
48
LOUNGERS PLC ANNUAL REPORT 2023 GOVERNANCE
FINANCIAL
STATEMENTS
4949
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE 52 WEEK YEAR ENDED 16 APRIL 2023
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit
Finance income
Finance costs
Profit before taxation
Tax charge on profit
Profit for the year
Other comprehensive (expense) / income:
Items that may be reclassified to profit or loss
Cash flow hedge – change in value of hedging instrument
Other comprehensive (expense) / income for the year
Total comprehensive income for the year
Earnings per share
Basic earnings per share
Diluted earnings per share
The accompanying notes form an integral part of these consolidated financial statements.
Year ended
16 April 2023
£000
283,507
(170,350)
113,157
(98,406)
-
14,751
204
(7,621)
7,334
(405)
6,929
(38)
(38)
6,891
Year ended
17 April 2022
£000
237,291
(134,369)
102,922
(76,975)
2,490
28,437
44
(6,876)
21,605
(3,727)
17,878
269
269
18,147
Year ended
16 April 2023
Pence
Year ended
17 April 2022
Pence
6.7
6.5
17.4
17.0
Note
4
5
5
7
8
9
Note
10
10
50
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 16 APRIL 2023
Assets
Non-current
Goodwill
Property, plant and equipment
Deferred tax assets
Finance lease receivable
Total non-current assets
Current
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Corporation tax payable
Lease liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Total liabilities
Net assets
Called up share capital
Share premium
Hedge reserve
Other reserve
Retained earnings
Total equity
Note
At 16 April 2023
£000
At 17 April 2022
£000
11
12
20
14
13
14
18
15
16
17
18
17
23
24
24
24
24
114,722
228,414
945
-
344,081
2,475
8,722
-
26,370
37,567
381,648
(69,708)
(59)
(10,247)
(80,014)
(32,392)
(124,590)
(236,996)
144,652
1,133
8,066
-
14,278
121,175
144,652
113,227
188,363
1,355
579
303,524
1,919
5,466
38
31,250
38,673
342,197
(56,214)
-
(8,475)
(64,689)
(32,275)
(111,127)
(208,091)
134,106
1,127
8,066
38
14,278
110,597
134,106
The financial statements on pages 50 to 77 were approved and authorised for issue by the Board of Directors on 6 July 2023 and were signed on its
behalf by:
Nick Collins
Chief Executive Officer
12 July 2023
G Grant
Chief Financial Officer
51
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE 52 WEEK YEAR ENDED 16 APRIL 2023
At 18 April 2021
Ordinary shares issued
Share based payment charge
Total transactions with owners
Profit for the year
Other comprehensive income
Total comprehensive income for the
52 week year
At 17 April 2022
Ordinary shares issued
Share based payment charge
Total transactions with owners
Profit for the year
Other comprehensive expense
Total comprehensive income for the
52 week year
Called up
share capital
£000
Share
premium
£000
1,124
8,066
Hedge
reserve
£000
(231)
Other
reserve
£000
14,278
Retained
earnings
£000
Total
equity
£000
89,680
112,917
3
-
3
-
-
-
-
-
-
-
-
-
1,127
8,066
6
-
6
-
-
-
-
-
-
-
-
-
-
-
-
-
269
269
38
-
-
-
-
(38)
(38)
-
-
-
-
-
-
-
(3)
3,042
3,039
17,878
-
17,878
-
3,042
3,042
17,878
269
18,147
14,278
110,597
134,106
-
-
-
-
-
-
(6)
3,655
3,649
6,929
-
6,929
-
3,655
3,655
6,929
(38)
6,891
14,278
121,175
144,652
At 16 April 2023
1,133
8,066
52
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF
CASH FLOWS
FOR THE 52 WEEK YEAR ENDED 16 APRIL 2023
Note
25
22
Net cash generated from operating activities
Cash flows from investing activities
Purchase of subsidiary undertakings (net of cash acquired)
Purchase of property, plant and equipment
Interest received
Net cash used in investing activities
Cash flows from financing activities
Shares issued on exercise of employee share awards
Bank loans repaid
Interest paid
Principal element of lease payments
Interest paid on lease liabilities
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
26
Year ended
16 April 2023
£000
51,107
Year ended
17 April 2022
£000
69,626
(2,719)
(36,978)
204
(39,493)
(190)
-
(1,334)
(8,824)
(6,146)
(16,494)
(4,880)
31,250
26,370
-
(22,837)
3
(22,834)
(135)
(7,000)
(1,101)
(6,903)
(5,315)
(20,454)
26,338
4,912
31,250
53
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE 52 WEEK YEAR ENDED 16 APRIL 2023
1. GENERAL INFORMATION
Loungers plc (“the Company”) and its subsidiaries (“the Group”) operate café bars and café restaurants through three complementary brands, Lounge, Cosy
Club and Brightside.
The Company is a public company limited by shares whose shares are publicly traded on the Alternative Investment Market (“AIM”) of the London Stock
Exchange and is incorporated and domiciled 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. ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements of the Loungers plc Group have been prepared in accordance with UK adopted International Accounting Standards
and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
The accounting policies adopted in the preparation of the Financial Statements are consistent with those applied in the preparation of the financial statements
of the Group for the year ended 17 April 2022.
The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and 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 principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies have been consistently
applied to all years presented, unless otherwise stated.
Judgements made by the Directors in the application of the accounting policies that have a significant effect on the consolidated financial statements and
estimates with significant risk of material adjustment in the next year are discussed in note 3.
2.2 GOING CONCERN
In concluding that it is appropriate to prepare the FY23 financial statements on the going concern basis the Directors have considered the Group’s cash
flows, liquidity and business activities in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting
2014 published by the UK Financial Reporting Council.
As at 16 April 2023 the Group had cash balances of £26.4m (2022: £31.3m) and undrawn facilities of £10m (2022: £25m), providing total liquidity of
£36.4m (2022: £41.3m). The Group did not utilise its RCF facilities during the year to 16 April 2023. Subsequent to the year end, the Group has refinanced
its banking facilities, using its excess cash balances to pay down £12.5m of its term loan. At the same time the Group’s RCF was increased to £22.5m to
leave total bank facilities unchanged.
The Group has modelled financial projections for the going concern period to the 4 August 2024 based upon two scenarios, a base case and a downside
case. The base case incorporates the Board approved budget for FY24 as well as the first 16 weeks of the FY25 business plan. The base case assumes
below inflation selling price increases and flat volumes. It reflects current assumptions in respect of future cost inflation and incorporates increases in energy
costs to reflect the continued opening of new sites whose energy costs are hedged at current rates. The base case scenario indicates that the Group has
significant headroom in respect of both its liquidity position and its banking covenants.
In the downside scenario it has been assumed that sales volumes fall by 10% from the base case with an associated reduction in labour and variable cost
efficiency and a resultant 38% decline in adjusted EBITDA. Under this scenario the Group is able to maintain its new site opening programme and continues
to have significant liquidity and banking covenant headroom.
The Group has also performed a reverse stress test to identify the level of sales and EBITDA decline that the Group could withstand before breaching any
banking covenants or hitting liquidity issues. On the basis that the Group mitigates its financial position by ceasing its new site opening programme, with no
new sites opening after 3 September 2023, the Group could absorb a sales volume decline of c18% before breaching its leverage covenants. Beyond the
cessation of the new site opening programme this reverse stress test incorporates no other mitigating actions, for example reductions in non-essential capital
expenditure and other cost reduction initiatives.
The Directors have also considered the potential impact of climate change on going concern and have concluded that there is not expected to be any impact
on the business during the going concern period.
Based upon the forecasts described above the Directors deem it appropriate to prepare the FY23 financial statements on the going concern basis.
54
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2.3 BASIS OF CONSOLIDATION
A subsidiary is an entity controlled by the Group. Control exists when the Group possesses power over the investee, has exposure to variable returns from its
involvement with the entity and has the ability to use its power over the investee to affect its returns. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
2.4 ALTERNATIVE PERFORMANCE MEASURES (“APM’S”)
The Group has identified certain measures that it believes will assist the understanding of the performance of the business. These APMs are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for, or superior to, IFRS measures, 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. The APMs are not defined
by IFRS and therefore may not be directly comparable with other companies’ alternative performance measures.
The key APMs that the Group uses include: Like for Like (LFL) sales growth %, Adjusted EBITDA and Adjusted operating profit. These APMs are set out on
page 19 including explanations of how they are calculated and how they are reconciled to a statutory measure where relevant.
Like for like sales are calculated using all sites within the estate that have been open for at least 18 months. It is generally the case that when a new site
opens it enjoys a “honeymoon” period of above trend performance. Starting the LFL calculation from 18 months post opening removes the impact of this
above trend trading period.
The Adjusted EBITDA and Adjusted operating profit measures exclude adjusting items and site pre-opening costs, as defined below, and non-cash
share-based payment charges. The calculation of these measures aligns to the way in which they are calculated by the Group’s lenders for the purpose of
testing compliance with its covenants.
Adjusting items
The Group classifies certain charges or credits as ‘adjusting’. These are disclosed separately to provide further understanding of the financial performance
of the Group. Management splits out these costs for internal purposes when reviewing the business. Adjusting items include exceptional items, impairment
charges and reversing credits, profit or loss on disposal of fixed assets, and acquisition related transaction costs.
Site pre-opening costs
Site pre-opening costs refer to costs incurred in getting new sites fully operational, and primarily include costs incurred before opening and in preparing for
launch. These costs are disclosed separately to provide a more accurate indication of the Group’s underlying financial position.
2.5 REVENUE
The Group has recognised revenue in accordance with IFRS 15. The standard requires revenue to be recognised when goods or services are transferred
to customers and the entity has satisfied its performance obligations under the contract, and at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for those goods or services. The Group has one revenue stream which comprises food and beverage sales at café bars
and café restaurants and therefore represent one performance obligation that is satisfied when control is transferred to the customer at the point of sale when
payment is received and therefore no contract assets or contract liabilities are created.
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and provision of services in the ordinary course of the
Group’s activities. Revenue is shown net of sales/value added tax, returns and discounts.
2.6 GOVERNMENT GRANTS
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the
grants will be received. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving
immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. Where
the income relates to a distinct identifiable expense, the income is offset against the relevant expense for example, income received under the Coronavirus
Job Retention Scheme has been offset against staff costs. Where an expense is not distinctly identifiable or the income relates to multiple expenses, the
income is recognised within Other income.
2.7 FINANCE COSTS
Finance costs are charged to the Statement of Comprehensive Income over the term of the debt using the effective interest rate method so that the amount
charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
55
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2.8 BUSINESS COMBINATIONS AND GOODWILL
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred and the
amount of any non-controlling interest in the acquiree. The consideration transferred is measured at the acquisition date fair value. The non-controlling interest is
measured as the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in adjusting items.
Goodwill represents the difference between amounts paid on the cost of a business combination and the acquirer’s interest in the fair value of the identifiable
assets and liabilities of the acquiree at the date of acquisition.
Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicated that they
may be impaired.
2.9 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes
expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended
by management.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method. Freehold
land is not depreciated.
Depreciation is provided on the following basis:
Leasehold building improvements
- straight-line over the life of the lease
Motor vehicles
Fixtures and fittings
Freehold buildings
- 25% straight-line
- 6.67% - 33% straight-line or over the life of the lease
- 2% straight line
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a
significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Consolidated Statement of
Comprehensive Income.
2.10 RIGHT OF USE ASSETS
The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated
depreciation and impairment losses and adjusted for any remeasurement of lease liabilities, for example resulting from rent reviews. The cost of right-of-use
assets includes the amount of lease liabilities recognised, and lease payments made at or before the commencement date less any lease incentives received.
Right-of-use assets are related to the property leases and are depreciated on a straight-line basis over the lease term.
2.11 INVENTORIES
Stocks are stated at the lower of cost and net realisable value, being the estimated selling price less costs to complete and sell. Cost is based on the cost of
purchase on a first in, first out basis.
At each reporting date, stocks are assessed for impairment. If stock is impaired, the carrying amount is reduced to its selling price. The impairment loss is
recognised immediately in profit or loss.
2.12 TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing
components, when they are recognised at fair value. The Group holds the trade and other receivables with the objective of collecting the contractual cash
flows and therefore measures them subsequently at amortised cost using the effective interest rate method.
2.13 IMPAIRMENT
Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicated that it might be impaired. Goodwill is not allocated
to individual cash generating units (CGUs) but to a group of CGUs. As the business has a single operating segment as disclosed in note 4, and goodwill is not
disaggregated for internal management purposes, goodwill impairment testing is performed for the business as a whole, in accordance with IAS 36.
The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or
groups of assets (cash-generating units).
Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
56
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2.14 CASH AND CASH EQUIVALENTS
Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents
are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash
with insignificant risk of change in value. Payments taken from customers on debit and credit cards are recognised as cash.
2.15 FINANCIAL INSTRUMENTS
The Group enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other debtors and
creditors, and loans from banks and other third parties.
Debt instruments (other than those wholly repayable or receivable within one year), including loans and other accounts receivable and payable, are initially
measured at the present value of the future cash flows and subsequently at amortised cost using the effective interest rate method. Debt instruments that are
payable or receivable within one year, typically trade debtors and creditors, are measured, initially and subsequently, at the undiscounted amount of the
cash or other consideration expected to be paid or received.
Fees paid on the establishment of loan facilities are recognised as transactional costs of the loan and the fee is capitalised as a pre-payment for liquidity
services and amortised using the effective interest rate method over the period of the facility to which it relates.
Financial assets that are measured at cost and amortised cost are assessed at the end of each reporting year for objective evidence of impairment. If
objective evidence of impairment is found, an impairment loss is recognised in the Statement of Comprehensive Income.
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is an enforceable right to set off the
recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
2.16 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Group uses interest rate swaps to hedge its exposure to interest rate fluctuations on its variable rate bank loans. Interest rate swaps are initially measured
at fair value, if any, and carried on the balance sheet as an asset or liability. The Group has adopted cash flow hedge accounting and subsequent
measurement is at fair value, with the effective portion of the gain or loss on an interest rate swap recognised in other comprehensive income, whilst
any ineffective portion is recognised immediately in finance costs. When a hedging instrument expires or is sold, terminated or exercised, or no longer
qualifies for hedge accounting, amounts previously recognised in other comprehensive income are held there until the previously hedged transaction
affects the Statement of Comprehensive Income. If the hedged transaction is no longer expected to occur, the cumulative gain or loss recognised in other
comprehensive income is immediately transferred to finance costs.
2.17 TRADE AND OTHER PAYABLES
Short-term creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Other financial
liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the
effective interest rate method.
2.18 LEASED ASSETS: THE GROUP AS LESSEE
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease
term. The lease payments include lease payments less any lease incentives receivable. In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the
carrying amount of lease liabilities is remeasured if there is a modification, for example a rent review or a change in the lease term.
2.19 PENSIONS
The Group operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Group pays fixed
contributions into a separate entity. Once the contributions have been paid the Group has no further payment obligations.
The contributions are recognised as an expense in the Consolidated Statement of Comprehensive Income when they fall due. Amounts not paid are shown in
accruals as a liability in the Statement of Financial Position. The assets of the plan are held separately from the Group in independently administered funds.
2.20 PROVISIONS
Provisions are made where an event has taken place that gives the Group a legal or constructive obligation that probably requires settlement by a transfer of
economic benefit, and a reliable estimate can be made of the amount of the obligation.
Provisions are charged as an expense to the Consolidated Statement of Comprehensive Income in the year that the Group becomes aware of the obligation
and are measured at the best estimate at the Statement of Financial Position date of the expenditure required to settle the obligation, taking into account
relevant risks and uncertainties. When payments are eventually made, they are charged to the provision carried in the Statement of Financial Position.
57
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Onerous contracts are contracts in which the unavoidable costs of meeting obligations under the contract exceed the economic benefits expected to be
received under it, where the unavoidable costs are defined as the lower of the cost of fulfilling the contract and any compensation or penalties arising
from failure to fulfill it. As soon as a contract is assessed to be onerous, a provision is recognised in the Balance Sheet and charged as an expense to the
Statement of Comprehensive Income.
2.21 SHARE BASED PAYMENTS
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the
effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in
note 22.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line or a graded basis over the vesting
period as appropriate, based on the Group’s estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its
estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to
equity reserve.
2.22 CURRENT AND DEFERRED TAXATION
The tax expense for each reporting year comprises current and deferred tax. Tax is recognised in the Consolidated Statement of Comprehensive Income,
except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is
also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the Statement of Financial Position date,
except that:
•
The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities
or other future taxable profits;
•
Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
•
Where they relate to timing differences in respect of interests in subsidiaries, associates, branches and joint ventures and the Group can control the
reversal of the timing differences and such reversal is not considered probable in the foreseeable future.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised
on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of
liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using tax rates and laws that have been enacted or substantively
enacted by the reporting date.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax
balances relate to the same tax authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
2.23 RELATED PARTY TRANSACTIONS
The Group discloses transactions with related parties which are not wholly owned within the Group. Where appropriate, transactions of a similar nature
are aggregated unless, in the opinion of the directors, separate disclosure is necessary to understand the effect of the transactions on the Group Financial
Statements.
2.24 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED
Amendments to accounting standards applied from 18 April 2022 included amendments to:
• Scope amendments to IAS1, IFRS Practice Statement 2 and IAS8 regarding accounting policy disclosures
• Amendments to IAS12 – deferred tax related to assets and liabilities arising from a single transaction
The application of the above did not have a material impact on the Group’s accounting treatment and have therefore not resulted in any material changes.
Certain new accounting standards and interpretations have been published that are not mandatory for 16 April 2023 reporting periods and have not
been early adopted by the group. These standards are not expected to have a material impact on the entity in the current or future reporting periods an on
foreseeable future transactions.
58
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATION UNCERTAINT Y
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are addressed below:
KEY JUDGEMENTS
Determining the rate used to discount lease payments
At the commencement date of property leases the lease liability is calculated by discounting the lease payments. The discount rate used should be the
interest rate implicit in the lease. However, if that rate cannot be readily determined, which is generally the case for property leases, the lessee’s incremental
borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the
right-of-use asset in a similar economic environment with similar terms, security and conditions. In the year ended 16 April 2023, new leases have been
discounted at a rate of 4.5%. For the lease liabilities at 16 April 2023 a 0.1 per cent change in the discount rate used would have adjusted the total liabilities
by £684,000.
Determining the value of business combinations
When assets are acquired, management determines whether the assets form a business combination. Business combinations must involve the acquisition of a
business, which generally have three elements: inputs, process, and output.
A fair value exercise of both the consideration paid and the net assets acquired is performed once it is determined that a business combination has taken
place. If the fair value of the consideration is in excess of the fair value of the net assets acquired, the difference is recognised as goodwill. If the opposite
occurs, the difference is recognised in the income statement. The group makes judgements in relation to the fair value of the consideration, the net assets
acquired and whether the purchase represents a business combination. The consideration paid for the business combinations acquired during the period was
solely cash. The impact of business combinations undertaken during the year on the financial statements is set out in notes 11 and 22.
KEY ESTIMATES
Impairment of property plant and equipment
Annually, the Group considers whether tangible assets are impaired. Where an indication of impairment is identified the estimation of recoverable value
requires estimation of the recoverable value of the CGUs. This requires estimation of the future cash flows from the CGUs and also selection of appropriate
discount rates in order to calculate the net present value of those cash flows. Individual sites are viewed as separate CGUs in respect of the impairment of
property, plant and equipment. Details of the sensitivity of the estimates used in the impairment exercise are provided in note 12.
Useful economic lives of property, plant and equipment
The depreciation charge in each year is sensitive to the assumptions used regarding the economic lives of assets. A 10% increase in the average useful
economic lives results in approximately a 9.1% (£1,215,000) decrease in depreciation. More information on useful economic lives is presented in note 2.9.
4. SEGMENTAL REPORTING
IFRS 8 “Operating Segments” requires operating segments to be based on the Group’s internal reporting to its Chief Operating Decision Maker (“CODM”).
The CODM is regarded as the Chief Executive together with other Board Members who receive financial information, including commentary, at a whole
business level with further supplementary analysis provided down to a site-by-site level. The Group trades in one business segment (operating café bars and
café restaurants).
The CODM uses Adjusted EBITDA (IFRS16 and IAS17) as the primary measure for assessing the Group’s results on an aggregated basis.
Revenue
Revenue arises from the sale of food and drink to customers in the Group’s sites for which payment in cash or cash equivalents is received immediately.
The Group operates in a single geographical region (the UK) and hence all revenues are impacted by the same economic factors. Accordingly, revenue is
presented as a single category and further disaggregation is not appropriate or necessary to gain an understanding of the risks facing the business.
59
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
5. OPERATING PROFIT
The operating profit is stated after charging / (crediting):
Note
12
12
12
12
12
Depreciation of tangible fixed assets
Depreciation of right of use assets
Net impairment on property, plant and equipment
Net impairment on Right of Use assets
Loss on disposal of tangible fixed assets
Inventories – amounts charged as an expense
Fees payable to the company’s auditors and its associates for the audit of parent
company and consolidated financial statements
Fees payable to company’s auditors and its associates for other services:
- for statutory audit services (subsidiary companies)
Staff costs (excluding share based payments)
CJRS Grant income
Government support grant income
Pre-opening costs
6. EMPLOYEES AND DIRECTORS
The average monthly number of employees, including the directors, during the year was as follows:
Management, administration and maintenance
Site
Staff costs were as follows:
Wages and salaries
Social security costs
Share based payments
Other pension costs
CJRS Grant income
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
13,364
9,861
309
1,298
317
68,023
85
85
123,008
-
-
3,323
11,187
8,451
-
-
-
53,815
75
75
95,779
(2,045)
(2,490)
2,344
Year ended
16 April 2023
Year ended
17 April 2022
198
7,228
7,426
176
5,461
5,637
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
114,116
7,464
4,024
1,428
127,032
-
127,032
88,801
5,820
3,220
1,158
98,999
(2,045)
96,954
Additional payroll costs of £2,523,000 (2022: £1,804,000) relating to the build team have been capitalised.
60
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
The key management personnel are considered to be the Directors of the Company and details of their remuneration are disclosed
below.
The following table shows a breakdown of the remuneration of individual Directors who served in all or part of the year.
Alex Reilley
Nick Collins
Gregor Grant
Nick Backhouse
Adam Bellamy
Jill Little
Robert Darwent1
Total
Salary / Fees
Annual Bonus
Share Award
Total
2023
£000
2022
£000
2023
£000
2022
£000
2023
£000
2022
£000
2023
£000
2022
£000
231
374
220
55
50
50
-
980
175
285
200
55
50
50
-
815
40
65
39
-
-
-
-
263
428
300
-
-
-
-
56
148
74
-
-
-
-
144
991
278
-
-
-
-
-
-
-
-
327
587
333
55
50
50
-
438
713
500
55
50
50
-
1,402
1,806
1
Robert Darwent is a Director of Lion Capital and receives no remuneration from the Company.
Further information in respect of Directors’ remuneration is provided in the Remuneration Committee Report on pages 33 to 36.
7. FINANCE INCOME
Bank interest receivable
Lease interest income
8. FINANCE COSTS
Bank interest payable
Other interest payable
Finance cost on lease liabilities
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
204
-
204
-
41
41
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
1,475
-
6,146
7,621
1,190
4
5,682
6,876
61
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
9. TAX CHARGE ON PROFIT
The income tax charge is applicable on the Group’s operations in the UK.
Taxation charged to the income statement
Current income taxation
Total current income taxation
Deferred Taxation
Origination and reversal of temporary timing differences
Adjustments to tax charge in respect of prior years
Adjustment in respect of change of rate of corporation tax
Total deferred tax
Total taxation charge in the consolidated income statement
The above is disclosed as:
Income tax charge – current year
Income tax (credit) / charge – prior year
Further information on the movement on deferred taxation is given in note 20.
Factors affecting the tax charge / (credit) for the year
Profit before tax
At UK standard rate of corporation taxation of 19% (2022: 19%).
Expenses not deductible for tax purposes
Fixed asset permanent differences
Adjustments to tax charge in respect of prior years
Adjustment in respect of change of rate of corporation tax
Total tax charge for the year
10. EARNINGS PER SHARE
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
-
-
1,069
(911)
247
405
405
1,316
(911)
405
1,266
1,266
2,408
109
(56)
2,461
3,727
3,618
109
3,727
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
7,334
1,393
801
(1,125)
(911)
247
405
21,605
4,105
384
(815)
109
(56)
3,727
Basic 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 16 April 2023 the Group had potentially dilutive shares in the form of unvested shares pursuant to the
above long-term incentive plans.
62
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Profit for the year after tax
Basic weighted average number of shares
Adjusted for share awards
Diluted weighted average number of shares
Basic earnings per share (p)
Diluted earnings per share (p)
Year ended
16 April 2023
£000
6,929
103,243,015
3,375,062
106,618,077
6.7
6.5
Year ended
17 April 2022
£000
17,878
102,728,430
2,464,588
105,193,018
17.4
17.0
Adjusted earnings per share is based on profit for the year before the following adjusting items: impairment charges and reversing credits, profit or loss on
disposal of fixed assets, and acquisition related transaction costs.
Profit for the year before tax
Net impairment charge
Loss on disposal of fixed assets
Transaction costs
Adjusted profit before tax
Tax charge
Tax effect of adjusting items
Adjusted profit after tax
Basic weighted average number of shares
Adjusted for share awards
Diluted weighted average number of shares
Basic adjusted earnings per share (p)
Diluted adjusted earnings per share (p)
11. GOODWILL
Cost
At beginning of year
Additions
At end of year
Year ended
16 April 2023
£000
7,334
1,607
317
102
9,360
(405)
(324)
8,631
103,243,015
3,375,062
106,618,077
8.4
8.1
Year ended
17 April 2022
£000
21,605
-
-
-
21,605
(3,727)
-
17,878
102,728,430
2,464,588
105,193,018
17.4
17.0
16 April 2023
£000
17 April 2022
£000
113,227
1,495
114,722
113,227
-
113,227
Goodwill of £113,227,000 arose on the acquisition of a majority stake in the Group by the former controlling party, Lion Capital LLP, on 19 December 2016.
Goodwill of £1,495,000 arose on the acquisition of Route Restaurants Limited and Nightlife Leisure (South West) Limited on 1 December 2022
Goodwill is not amortised, but an impairment test is performed annually by comparing the carrying amount of the goodwill to its recoverable amount.
The recoverable amount is represented by the greater of the business’s fair value less costs of disposal and its value in use.
Goodwill is monitored at the operating segment level identified in note 4. For assessing impairment at 16 April 2023 and 17 April 2022 a value in use
calculation has been performed using a discounted cash flow method based on the forecast cash flows and a terminal growth rate. The cash flows used in
this assessment are based on a three year business plan to April 2026, the cash flows include ongoing capital expenditure required to maintain the sites but
exclude any growth capital. The discount rate used to determine the present value of projected future cash flows is based on the Group’s Weighted Average
Cost of Capital (“WACC”) and the Group’s current view of achievable long-term growth. The post-tax discount rate and terminal growth rate used in the
63
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
discounted cash flow model were 9.0% and 2.0% respectively (2022: 9.0% and 2.0% respectively). The pre-tax discount rate used in the discounted cash
flow model was 11.1% (2022: 11.1%).
The estimation of value in use is most sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond the
forecast year. The sensitivity of key inputs and assumptions used was tested by recalculating the recoverable amount using reasonably possible variances
to those assumptions. The discount rate was increased by 1%, the terminal growth rate was decreased by 1%, and future cash flows were reduced by 10%.
As at 17 April 2022 and 16 April 2023, no reasonably possible change in an individual key input or assumption, as described, would result in the carrying
amount exceeding its recoverable amount based on value in use.
12. PROPERT Y, PLANT AND EQUIPMENT
Freehold
Land and
Buildings
£000
Leasehold
Building
Improvements
£000
Motor
Vehicles
£000
Fixtures and
Fittings
£000
-
369
-
369
-
-
-
-
56,668
10,821
-
67,489
13,919
4,018
-
17,937
81
148
(19)
210
53
32
(19)
66
Right of
use asset
£000
132,977
16,404
-
Total
£000
245,516
42,558
(19)
55,790
14,816
-
70,606
149,381
288,055
23,521
7,137
-
30,658
42,580
8,451
-
51,031
80,073
19,638
(19)
99,692
369
49,552
144
39,948
98,350
188,363
369
832
1,500
(250)
2,451
-
14
-
-
-
14
67,489
17,076
-
(451)
84,114
17,937
4,771
381
(157)
(405)
22,527
2,437
61,587
210
-
-
(9)
201
66
48
-
-
(3)
111
90
70,606
21,273
-
(175)
149,381
24,519
-
-
288,055
63,700
1,500
(885)
91,704
173,900
352,370
30,658
8,531
85
-
(160)
39,114
51,031
9,861
2,937
(1,639)
-
99,692
23,225
3,403
(1,796)
(568)
62,190
123,956
52,590
111,710
228,414
Cost
At 19 April 2021
Additions
Disposals
At 17 April 2022
Accumulated depreciation
At 19 April 2021
Provided for the year
Disposals
At 17 April 2022
Net book value
At 17 April 2022
Cost
At 18 April 2022
Additions
Acquisition of subsidiaries
Disposals
At 16 April 2023
Accumulated depreciation
At 18 April 2022
Provided for the year
Impairment
Impairment reversal
Disposals
At 16 April 2023
Net book value
At 16 April 2023
The above includes assets in the course of construction with a total cost of £2,467,000 (2022: £1,031,000) which have not been depreciated to date.
64
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. All sites were reviewed in FY20 following the first national lockdown and an impairment of
£9,829,000 was booked in the FY20 financial statements. Following reopening a number of those sites have generated sufficient cashflows to justify an
assessment that impairment is no longer necessary and consequently a reversal of £1,796,000 has been released to the income statement (2022: £nil).
Conversely, the assessment carried out at the end of FY23 indicated that a further ten sites showed potential impairment and a £3,403,000 charge has been
recognised in respect of these sites (2022: £nil).
The value in use of each CGU is calculated based upon the Group’s latest three-year forecast. 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% (2022: 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 9.0% (2022: 9.0%).
The cash flows used within the impairment model are based upon Board approved forecasts. 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 incremental impairment charge of £1,000,000 (2022: £2,984,000). A 100 basis point increase in the discount rate would result in an
impairment charge of £400,000 (2022: £1,431,000) and a 50 basis point reduction in the terminal growth rate would result in an impairment charge of
£100,000 (2022: £295,000).
13. INVENTORIES
Food and beverages for resale
16 April 2023
£000
17 April 2022
£000
2,475
2,475
1,919
1,919
There is no material difference between the replacement cost of inventories and the amounts stated above. Inventories are charged to cost of sales in the
consolidated statement of comprehensive income.
14. TRADE AND OTHER RECEIVABLES
Included within current assets
Trade receivables
Corporation tax recoverable
Finance lease receivable
Other receivables
Prepayments
Included within non-current assets
Deferred tax assets
Finance lease receivable
Receivables are denominated in sterling.
16 April 2023
£000
17 April 2022
£000
925
146
-
166
7,485
8,722
945
-
464
146
89
303
4,464
5,466
1,355
579
The Group held no collateral against these receivables at the balance sheet dates. The Directors consider that the carrying amount of receivables are
recoverable in full and that any expected credit losses are immaterial. At each year end, there were no overdue receivable balances.
65
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
15. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
16 April 2023
£000
26,370
26,370
17 April 2022
£000
31,250
31,250
Cash and cash equivalents comprise cash at bank and in hand. The fair value of cash and cash equivalents is the same as the carrying value of
£26,370,000 (2022: £31,250,000).
16. TRADE AND OTHER PAYABLES
Included in current liabilities:
Trade payables
Other taxation and social security
Other payables
Accruals and deferred income
16 April 2023
£000
17 April 2022
£000
33,058
13,824
13,882
8,944
69,708
27,270
9,092
9,140
10,712
56,214
Trade payables were all denominated in sterling and comprise amounts outstanding for trade purchases and ongoing costs and are non-interest bearing.
The Directors consider that the carrying amount of trade payables approximate to their fair value.
17. LEASES
This note provides information for leases where the Group is the lessee.
The Group leases the vast majority of its estate as well as its Head Office. The leases are non-cancellable, with varying terms, escalation clauses and
renewal rights and in some cases include variable payments that are not fixed in amount but based upon a percentage of sales. Rental contracts are
typically made for fixed years of between 10 and 25 years, the average lease runs for 16.0 years from commencement.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease
payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable, and
•
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases
in the Group, the lessee’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an
asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
66
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Amounts recognised in the balance sheet
Right of use assets – leasehold properties
Lease liabilities
Current
Non-current
16 April 2023
£000
111,710
10,247
124,590
134,837
17 April 2022
£000
98,350
8,475
111,127
119,602
Additions to right of use assets during the year ended 16 April 2023 were £24,519,000 (2022: £16,404,000).
A maturity analysis of gross lease liability payments is included within note 19.
Amounts recognised in the consolidated statement of comprehensive income
Depreciation charge of right of use assets
Net impairment of right of use assets
Interest expense (included in finance cost)
Total cash outflow for leases in 2023 was £14,970,000 (2022: £12,218,000).
18. BORROWINGS
Long term borrowings:
Secured bank loans
Loan arrangement fees
16 April 2023
£000
17 April 2022
£000
9,861
1,607
6,146
8,451
-
5,682
16 April 2023
£000
17 April 2022
£000
32,500
(108)
32,392
32,500
(225)
32,275
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 SONIA. In June 2023 the Group completed a refinancing of it debt arrangements,
reducing the term loan to £20,000,000 and increasing the RCF by £12,500,000.
As a consequence of Covid-19, on 22 April 2020 the Group agreed an incremental £15,000,000 RCF with its lenders, providing a total RCF of
£25,000,000. This facility was not renewed when it expired in October 2022.
The term loan and RCF are subject to financial covenants relating to leverage and interest cover. There were no breaches of these tests in the years to 17 April
2022 or 16 April 2023.
At 16 April 2023 the term loan was fully drawn while nothing was drawn on any of the revolving facilities (2022: term loan fully drawn and £nil drawn
down under the RCF). On 7 June 2023 £12,500,000 was repaid on the term loan, leaving a balance of £20,000,000.
67
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
19. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
The Group’s capital management strategy seeks to maintain an optimal structure, facilitating the ongoing investment in new sites while maintaining a strong financial
position from which to generate shareholder value. The Board reviews key metrics such as return on capital on an achieved and forecast basis at the end of every
period. Headroom against key covenant metrics such as the ratio of net debt to adjusted EBITDA and interest cover is also reviewed at the end of every period.
The Group finances the business through a mixture of equity and debt, with the debt being comprised of bank funding and lease liabilities. Further funding
needs are met through the management of working capital.
The Group is exposed to the risks that arise from its use of financial instruments. Derivative instruments may be transacted solely for risk management purposes.
The management consider that the key financial risk factors of the business are liquidity risks, interest rate risk and market risks. The Group operates solely within
the UK and therefore has limited exposure to foreign exchange risk. The Group’s exposure to credit risk is limited due to insignificant receivables balances.
The Group enters into interest rate swap transactions, which create derivative assets and liabilities, their purpose being to manage the interest rate risk arising
from the Group’s borrowings.
This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them.
Interest rate risk
The Group’s exposure to the variable interest element of its term loan was fully hedged by an interest rate swap through to 31 July 2022. The Group
continues to review its options for mitigating interest rate exposure.
Commodity price risk
The Group is exposed to movements in the wholesale prices of foods and drinks. Like many others in the hospitality sector, following the conflict in Ukraine
the group is exposed to increases in input prices. Prices are typically fixed for periods of 3-6 months to address seasonality, with suppliers hedging foreign
exchange risk across these years. The Group benchmarks and verifies any potential cost changes from suppliers and also has the ability to flex its menu
items to mitigate specific product related cost pressures. The Group hedged its energy costs in May 2020 for the estate at that time; subsequent sites are also
hedged. All sites are hedged to September 2024 and therefore the Group has had reduced exposure to the increase in energy costs in the years to 17 April
2022 and 16 April 2023.
Liquidity risk
The Group’s primary objective is to ensure that it has sufficient funds available to meet its financial obligations as they fall due. Subsequent to the year end
the Group has refinanced its debt to reduce its ongoing interest costs, while retaining a more flexible financing facility. The Directors continue to monitor
cashflow in order to ensure access to sufficient liquidity.
Capital risk
The Group manages its capital to ensure it will be able to continue as a going concern while maximising the return to shareholders through optimising the
debt and equity balance.
The Group monitors cash balances and prepares regular forecasts, which are reviewed by the board. In order to maintain or adjust the capital structure, the
Group may, in the future, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group is subject to capital requirements from its lenders in respect of the term loan and revolving credit facility, which obliged the Group to maintain
a leverage ratio of Net Debt (IAS 17 basis) to Adjusted EBITDA (IAS17) of less than 2.50. As at 16 April 2023 the leverage ratio of the Group was
0.18 compared with a threshold of 2.50. At 17 April 2022 the leverage ratio of the Group was 0.03 compared with a threshold of 2.50.
Reconciliation of net debt (IAS 17) and adjusted EBITDA (IAS17) to the statutory results can be found on pages 85 to 86.
Financial assets and liabilities
Financial assets and liabilities consist of the following:
Financial Assets
Financial assets that are debt instruments measured at amortised cost
Financial assets held at fair value
Financial liabilities
Financial liabilities measured at amortised cost
Financial liabilities held at fair value
16 April 2023
£000
17 April 2022
£000
27,461
-
(214,170)
-
32,685
38
(188,287)
-
Financial assets held at amortised cost include trade and other receivables, finance lease receivables and cash. Financial liabilities held at amortised cost
include trade and other payables, lease liabilities and borrowings.
68
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Financial assets held at fair value represent interest rate swaps. Interest rate swaps are valued at the present value of the estimated future cash flows based
on observable yield curves and hence are considered to be level 2 of the fair value hierarchy under IFRS 13.
There are no material differences between the carrying values of financial assets and liabilities held at amortised cost and their fair values.
Hedging
The Group previously entered into an interest rate swap for £32.5m to fix its floating rate loan at a rate of 0.7% above SONIA as described above which
qualifies as a cashflow hedge. The hedge was allowed to expire on 31 July 2022. The movements in fair value have been recognised as follows:
Derivative liability at 17 April 2022
Recognised through other comprehensive expense
Derivative asset at 16 April 2023
£000
38
(38)
-
Maturity analysis
The maturity analysis table below analyses the Group’s contractual undiscounted cash flows (both principal and interest) for the Group’s financial liabilities,
after taking into account the effect of interest rate swaps.
Less than
1 year
£000
Between
1 and 5 years
£000
More than
5 years
£000
1,858
16,431
46,941
65,230
1,064
13,951
36,410
51,425
32,541
64,078
-
96,619
33,659
55,730
-
89,389
-
95,718
-
95,718
-
86,376
-
86,376
Total
£000
34,399
176,227
46,941
257,567
34,723
156,057
36,410
227,190
As at 16 April 2023
Secured bank loans
Lease liabilities
Trade and other payables
As at 17 April 2022
Secured bank loans
Lease liabilities
Trade and other payables
The secured bank loans include the impact of cash flow hedges.
20. DEFERRED TAX ASSETS
At 18 April 2021
Recognised in income statement
At 17 April 2022
Recognised in income statement
Acquired with subsidiary
At 16 April 2023
Accelerated
capital
allowances
£000
2,065
(3,428)
(1,363)
(4,285)
(5)
(5,653)
Losses
£000
375
(375)
-
2,795
-
2,795
Acquisition
accounting
£000
Share schemes
£000
(907)
129
(778)
255
-
(523)
842
396
1,238
520
-
1,758
Other
£000
1,441
817
2,258
310
-
2,568
Total
£000
3,816
(2,461)
1,355
(405)
(5)
945
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences where it is probable that these assets will be recovered.
Based on its current business plan, the Group anticipates that future taxable profits will be generated in excess of the profits arising from the reversal of
existing taxable temporary differences.
The Group had no unrecognised deferred tax assets at 16 April 2023 or 17 April 2022.
69
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
21. SHARE BASED PAYMENTS
The Group had the following share based payment arrangements in operation during the year:
•
Loungers plc Employee Share Plan
•
Loungers plc Senior Management Restricted Share Plan
•
Loungers plc Value Creation Plan
In accordance with IFRS 2 Share Based Payments, the value of the awards is measured at fair value at the date of the grant. The fair value is expensed on a
straight-line basis over the vesting period, based on management’s estimate of the number of shares that will eventually vest. The Group recognised a total
charge of £3,655,000 (2022: £3,042,000) in respect of the Group’s share based payment plans and related employer’s national insurance of £369,000
(2022: £178,000). The total charge of £4,024,000 is split by scheme as follows:
Employee share plan
Senior management restricted share plan:
RSP
PSP
Retention award
Value creation plan
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
811
925
346
802
1,140
4,024
1,118
1,007
-
-
1,095
3,220
A summary of the movements in each scheme is outlined below:
Employee share plan
356,500
471,500
(356,500)
(112,500)
359,000
Outstanding at
17 April 2022
Number
Granted during
the year
Number
Exercised during
the year
Number
Lapsed during
the year
Number
Outstanding at
16 April 2023
Number
Senior management restricted share plan
RSP
PSP
Retention award
Value creation plan
2,006,913
537,653
(236,869)
(149,317)
2,158,380
-
-
-
-
-
595,729
-
-
-
-
-
-
2,363,413
1,604,882
(593,369)
(261,817)
-
-
595,729
3,113,109
Employee Share Plan
Share grants over 574,000 shares were made on the 21 May 2021. These awards had no performance conditions other than continued employment for one
year from grant date and on 29 April 2022 a total of 356,500 shares were issued in respect of these awards. Awards over a further 471,500 shares were
made on 26 July 2022 and post year end a total of 359,000 shares were issued in respect of those awards.
Senior Management Restricted Share Plan – RSP award
Share options in respect of 625,000 shares were granted at the time of the IPO. These options vested at the date of grant. The option price is £0.01 and the options
are exercisable in equal instalments on the first, second and third anniversary of the IPO.
During the year ended 19 April 2020, 472,069 nil cost options were awarded. These options had no performance conditions, other than continued employment
for three years post grant, and are exercisable on the third anniversary of issue. A total of 106,576 options in respect of this award had lapsed prior to awards over
365,493 shares vesting on 24 July 2022, and as at 16 April 2023 options had been exercised in respect of 222,540 shares.
During the year ended 18 April 2021, 718,766 nil cost options were awarded. These options have no performance conditions, other than continued employment
for three years post grant, and are exercisable on the third anniversary of issue. A total of 164,492 options in respect of this award had lapsed at year end, whilst
options had been exercised over 14,329 shares.
70
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
During the year ended 17 April 2022, 435,334 options were granted. These options have no performance conditions, other than continued employment for three
years post grant, and are exercisable on the third anniversary of issue. A total of 81,529 options in respect of this award had lapsed at year end.
During the year ended 16 April 2023, 537,653 options were granted. These options have no performance conditions, other than continued employment for three
years post grant, and are exercisable on the third anniversary of issue. A total of 40,976 options in respect of this award had lapsed at year end.
Senior Management Restricted Share Plan – PSP award
During the year ended 16 April 2023, the Group adopted a more market standard approach to long term incentive provision for senior executives by making
awards under a Performance Share Plan (“PSP”). 50% (378,162 shares) of this award is based on TSR performance against a bespoke group of hospitality and
leisure comparators and 50% (378,162) is based on achieving stretching adjusted EPS targets. The award was granted in June 2023 however based on the
communication of the clear intention to grant the awards, the cost is being recognized over the three year vesting period to April 2025. A charge of £346,000
(2022: nil) has therefore been recognized in respect of this award in the year ended 16 April 2023.
The fair value of the total shareholder return (“TSR”) element of the award was estimated at the grant date using a stochastic (Monte Carlo) simulation model, taking
into account the terms and conditions upon which the awards were granted. This model simulates the TSR and compares it against a group of comparator companies.
It uses historic dividends and share price fluctuations to predict the distribution of relative share price performance. The shares are potentially dilutive for the purposes
of calculating diluted earnings per share. The following assumptions were used:
Share price at date of grant
Exercise price
Expected volatility
Term until exercised
Maximum dilution
Risk free interest rate
Expected dividend yield
£2.08
Nil
24%
2.4 years
0.36%
3.53%
0.00%
The element of the PSP relating to expected payout on the adjusted EPS target has been expensed over the 3 year vesting period.
Senior Management Restricted Share Plan – Retention award
In 2022 the Group announced its intention to grant one off retention awards to the Executive directors. These took the form of 572,792 nil cost options and
were granted in May 2023. Based on the communication of the clear intention to grant the awards, the cost of the awards was apportioned over the two
year vesting period. A charge of £706,000 (2022: £32,000) has been recognised in the year ended 16 April 2023.
Value Creation Plan
The Value Creation Plan (“VCP”) was a discretionary executive share plan under which awards were granted at the time of the IPO in April 2019.
The fair value of the total shareholder return (“TSR”) element of the award was estimated at the grant date using a Monte Carlo simulation model, taking
into account the terms and conditions upon which the awards were granted. This model simulates the TSR and compares it against a group of comparator
companies. It uses historic dividends and share price fluctuations to predict the distribution of relative share price performance. The shares are potentially
dilutive for the purposes of calculating diluted earnings per share. The following assumptions were used:
Share price at date of grant
Exercise price
Expected volatility
Term until exercised
Maximum dilution
Risk free interest rate
Expected dividend yield
£2.00
Nil
35%
3 years
6.00%
0.74%
0.00%
The fair value of the VCP at the time of grant in April 2019 was £2,600,000. At this time it was not anticipated that there would be a Covid related equity
raise in April 2020. As reported in the Remuneration Committee Report external advice was taken as to how the impact of the equity raise might be
reflected in the VCP scheme, and it was decided to replicate the thresholds and vesting conditions of the original scheme in respect of the April 2020 equity
raise, with a start date of April 2020.
The performance period for the VCP ended on 29 April 2022 and it was determined that a total of 595,729 shares would be issued to executive directors
and senior management in respect of the VCP. These shares vest in three equal instalments in July 2022, April 2023 and April 2024. The original fair value
calculation of £2,600,000 did not reflect the impact of the April 2020 equity raise and accordingly a further fair value charge of £1,477,000 is required to
be recognised over the period to April 2024. As a result a charge of £692,000 (2022: £525,000) was taken in respect of the additional fair value charge
of £1,477,000 during the year ended 16 April 2023.
The weighted average remaining contractual life of options across all schemes outstanding at the year end was 6.5 years.
71
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
22. BUSINESS COMBINATIONS
In accounting for acquisitions, adjustments are made to the book values of the net assets of the companies acquired to reflect their fair values to the Group.
During the year ended 16 April 2023 the Group acquired Route Restaurants Limited and Nightlife Leisure (South West) Limited. These two entities were
related and the acquisition was a single transaction.
Non-current assets
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Corporation tax
Non-current liabilities
Deferred tax
Total liabilities
Net identifiable assets of businesses acquired
Purchase consideration
Goodwill recognised on purchase
£000
1,500
4
199
1,703
(137)
(138)
(5)
(280)
1,423
2,918
1,495
The two entities were acquired in order to provide access to two freehold sites for conversion to the Group’s roadside dining brand Brightside. The acquired
businesses ceased to trade as at the date of acquisition and accordingly contributed nil revenue and nil profit after tax in the period from 1 December 2022
to 16 April 2023. Had the entities not ceased trading they would have added in the region of £2,000,000 to the Group’s turnover on an annualised basis.
At the balance sheet date, a disposal of £250,000 was recognised in respect of one of the properties, reflecting the partial demolition of the building.
Outflow of cash to acquire subsidiary, net of cash acquired
Cash consideration
Less: cash acquired
Net outflow of cash
£000
2,918
(199)
2,719
Acquisition related costs of £102,000 are included in administrative expenses in the statement of profit or loss and in operating cash flows in the statement of
cash flows.
72
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
23. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid ordinary shares
Redeemable preference shares
Ordinary shares at £0.01 each
Redeemable preference shares at £49,999 each
16 April 2023
£000
17 April 2022
£000
1,033
100
1,133
16 April 2023
Number
103,332,033
2
1,027
100
1,127
17 April 2022
Number
102,738,664
2
The table below summarises the movements in share capital for Loungers plc during the year ended 16 April 2023:
At 19 April 2021
Shares issued
At 17 April 2022
Shares issued
At 16 April 2023
Ordinary
Shares
£0.01 NV
102,400,000
338,664
102,738,664
593,369
103,332,033
Redeemable
Preference
Shares
£49,999 NV
2
-
2
-
2
£000
1,124
3
1,127
6
1,133
On 4 May 2022 the Company allotted and issued 356,500 ordinary shares of 1 pence each in the Company following the vesting of awards made to 710
Company employees pursuant to the Company’s Employee Share Plan.
During the year to 16 April 2023 the Company allotted 236,839 ordinary shares of 1 pence each in the Company following the vesting of awards made to
Company employees under the Senior Management Share Plan.
Rights of shareholders
The redeemable preference shares carry no right to vote. They have the right to be redeemed at nominal value by the Company.
24. EQUIT Y
The Group’s Equity comprises the following:
Called-up share capital
Called-up share capital represents the nominal value of the shares issued.
Share premium account
The share premium account records the amount above the nominal value received for shares sold.
Hedge reserve
The hedge reserve represents the cumulative profits or losses on the mark-to-market at the balance sheet of the Group’s interest rate hedge.
73
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Other reserve
The other reserve comprises:
At 17 April 2022 and 16 April 2023
Other
Reserve
£000
18,451
Merger
Reserve
£000
(4,224)
Capital
Contribution
Reserve
£000
51
Total
Other
Reserves
£000
14,278
The other reserve and the merger reserve arose on the share for share exchange between Loungers plc and Lion/Jenga Topco Limited.
The capital contribution reserve represents additional contributions from shareholders.
Retained Earnings
The retained earnings account represents cumulative profits or losses, net of dividends paid and other adjustments.
25. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended
16 April 2023
£000
Year ended
17 April 2022
£000
7,334
13,364
9,861
309
1,298
4,024
317
(204)
7,621
(557)
(3,134)
10,950
51,183
(76)
51,107
21,605
11,187
8,451
-
-
3,220
-
(44)
6,876
(1,145)
(2,699)
23,593
71,044
(1,418)
69,626
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right of use assets
Impairment of property, plant and equipment
Impairment of right of use assets
Share based payment transactions
Loss on disposal of tangible assets
Finance income
Finance costs
Changes in inventories
Changes in trade and other receivables
Changes in trade and other payables
Cash generated from operations
Tax paid
Net cash generated from operating activities
74
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
26. ANALYSIS OF CHANGES IN NET DEBT
Cash in hand
Bank Loans – due after one year
Lease liabilities
Net debt
Derivatives
Interest-rate swaps liability
Total derivatives
Net debt after derivatives
Cash in hand
Bank Loans – due after one year
Lease liabilities
Net debt
Derivatives
Interest-rate swaps liability
Total derivatives
Net debt after derivatives
19 April
2021
£000
4,912
(39,157)
(110,578)
(144,823)
(231)
(231)
Cash flows
£000
26,338
7,000
12,218
45,556
Non-cash
movement
£000
-
(118)
(21,242)
(21,360)
-
-
269
269
17 April
2022
£000
31,250
(32,275)
(119,602)
(120,627)
38
38
(145,054)
45,556
(21,091)
(120,589)
18 April
2022
£000
31,250
(32,275)
(119,602)
(120,627)
38
38
Cash flows
£000
(4,880)
-
14,970
10,090
-
-
Non-cash
movement
£000
-
(117)
(30,205)
(30,322)
(38)
(38)
16 April
2023
£000
26,370
(32,392)
(134,837)
(140,859)
-
-
(120,589)
10,090
(30,360)
(140,859)
Non-cash movements in bank loans due after one year relate to the amortisation of bank loan issue costs.
27. PENSION COMMITMENTS
The Group operates a defined contributions pension scheme. The assets of the scheme are held separately from those of the Group in an independently
administered fund. The pension cost charge represents contributions payable by the Group.
Pension cost
The following Contributions were payable to the fund and are included in creditors:
Pension contributions payable
Year ended
16 April 2023
£000
1,428
16 April 2023
£000
604
Year ended
17 April 2022
£000
1,158
17 April 2022
£000
517
75
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
28. LESSOR
The Group leases out un-utilised property space under non-cancellable operating leases. During the course of the year the Group returned one of these
sites to the landlord and terminated the sub-lease in respect of a second site. The Group is due to receive minimum lease payments under non-cancellable
operating leases as follows:
Within one year
In two to five years
After five years
16 April 2023
£000
17 April 2022
£000
-
-
-
-
125
496
207
828
29. RELATED PART Y TRANSACTIONS
A Reilley and J Bishop, a director of the Company’s subsidiary, Loungers UK Limited, are partners in Colombe D’Or Property LLP (formerly Loungers Property
LLP); the Group leases three properties from Colombe D’Or Property LLP. The Group undertook the following transactions, stated net of VAT:
Purchases from related parties:
Colombe D’Or Property LLP
Amounts owed to related parties:
Colombe D’Or Property LLP
16 April 2023
£000
17 April 2022
£000
173
-
201
6
A Reilley is a director and shareholder of Reilley Properties Limited. The Group leases two properties from Reilley Properties Limited and undertook the
following transactions:
Purchases from Reilley Properties Limited
Amounts owed to Reilley Properties Limited
30. LEGAL ENTITIES
16 April 2023
£000
17 April 2022
£000
250
-
242
2
The following table presents the investments in which the Group owns a portion of the nominal value of any class of share capital:
Direct Subsidiary Holding
Lion/Jenga Topco Limited
Indirect Subsidiary Holding
Lion/Jenga Midco Limited
Lion/Jenga Bidco Limited
Loungers Holdings Limited
Loungers UK Limited
Ordinary 100%
Holding company
Ordinary 100%
Ordinary 100%
Ordinary 100%
Ordinary 100%
Holding company
Holding company
Holding company
The development, operation and management of all day neighbourhood
café/bars and bar/restaurants.
Route Restaurants Limited
Ordinary 100%
Nightlife Leisure (South West) Limited
Ordinary 100%
Dormant
Dormant
The registered office of all seven subsidiaries is 26 Baldwin Street, Bristol, BS1 1SE.
76
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
31. POST BALANCE SHEET EVENTS NOTE
On 4 May 2023 the Company allotted and issued 359,000 ordinary shares of 1 pence each in the Company following the vesting of awards made to
718 Company employees pursuant to the Company’s Employee Share Plan. At the same time the Company applied for a block listing of 477,962 ordinary
shares of 1 pence each to satisfy such options as might be exercised from time to time under the Senior Management Restricted Share Plan award which
vested on the 29th April 2023.
On 7 June 2023 the Group entered into a new senior facilities agreement with its existing lenders Santander Corporate Banking and Bank of Ireland.
Under the terms of the new agreement the Group reduced its term loan from £32,500,000 to £20,000,000 and increased its RCF from £10,000,000 to
£22,500,000. The new facility terminates on 7 June 2026. The term loan is non-amortising and bears interest at between 1.75% and 2.5% over SONIA
subject to the Group’s leverage. At inception of the new facility the Group was paying a margin of 1.75%. The term loan and RCF are subject to financial
covenants relating to leverage and interest cover, these are unchanged from the original facility.
On 8 June 2023 the Group repurchased 195,000 ordinary shares which are now held in treasury.
77
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 COMPANY STATEMENT OF
FINANCIAL POSITION
AS AT 16 APRIL 2023
Assets
Non-current
Investments
Total non-current assets
Current assets
Trade and other receivables
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Called up share capital
Share premium account
Other reserves
Retained earnings
Brought forward
Loss for the year attributable to the owners
Other changes in retained earnings
Total equity
Note
At 16 April 2023
£000
As restated
At 17 April 2022
£000
6
7
8
9
11
148,353
148,353
20,879
20,879
169,232
(50)
(50)
(50)
169,182
1,133
8,066
18,451
138,478
(595)
3,649
141,532
169,182
144,698
144,698
21,474
21,474
166,172
(50)
(50)
(50)
166,122
1,127
8,066
18,451
135,977
(538)
3,039
138,478
166,122
The financial statements on pages 78 to 84 were approved and authorised for issue by the Board and were signed on its behalf by:
Nick Collins
Chief Executive Officer
12 July 2023
G Grant
Chief Financial Officer
78
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS COMPANY STATEMENT OF
CHANGES IN EQUITY
FOR THE 52 WEEK YEAR ENDED 16 APRIL 2023
At 18 April 2021 – as reported
Share based payments
At 18 April 2021 – as restated
Ordinary shares issued
Share based payments (restated) (note 11)
Total transactions with owners (restated)
Loss for the financial year
Total comprehensive expense for the 52 week year
Called up
share capital
£000
1,124
-
1,124
3
-
3
-
3
Share
premium
£000
8,066
-
8,066
-
-
-
-
-
Other
reserves
£000
18,451
-
18,451
-
-
-
-
-
Retained
earnings
(restated)
£000
130,621
5,356
135,977
(3)
3,042
3,039
(538)
(538)
Total
equity
(restated)
£000
158,262
5,356
163,618
-
3,042
3,042
(538)
(538)
At 17 April 2022 (restated)
1,127
8,066
18,451
138,478
166,122
Ordinary shares issued
Share based payments
Total transactions with owners
Loss for the financial year
Total comprehensive expense for the 52 week year
6
-
6
-
-
-
-
-
-
-
-
-
-
-
-
(6)
3,655
3,649
(595)
(595)
-
3,655
3,655
(595)
(595)
At 16 April 2023
1,133
8,066
18,451
141,532
169,182
79
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE COMPANY
FINANCIAL STATEMENTS
FOR THE 52 WEEK YEAR ENDED 16 APRIL 2023
1. GENERAL INFORMATION
Loungers plc (“the Company”) is incorporated and domiciled in the United Kingdom and registered in England and Wales, with company number 11910770.
The registered address of the Company is 26 Baldwin Street, Bristol, United Kingdom, BS1 1SE.
The Company was incorporated on 28 March 2019 and was admitted to trading on the AIM market on 29 April 2019.
The Company is a public company limited by shares whose shares are publicly traded on the Alternative Investment Market (“AIM”) of the London Stock
Exchange.
The principal activity of the Company and the nature of the Company’s operations is as a holding entity.
2. ACCOUNTING POLICIES
A summary of the significant accounting policies is set out below. These have been applied consistently in the Financial Statements.
2.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The Financial Statements have been prepared in accordance with Financial Reporting Standard 102, ‘The Financial Reporting Standard applicable in the
United Kingdom and the Republic of Ireland’ (‘FRS 102’) and the Companies Act 2006.
The financial statements have been prepared under the historical cost convention. The financial statements are presented in thousands of pounds sterling
(‘£000’) except where otherwise indicated.
The Company is a qualifying entity for the purposes of FRS 102, as it prepares publicly available consolidated financial statements, which are intended
to give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group. The Company has therefore taken advantage of the
exemptions from the following disclosure requirements in FRS 102:
• Section 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;
• Section 7 ‘Statement of Cash Flows’ – Presentation of a statement of cash flows and related notes and disclosures;
•
Section 11 ‘Basic Financial Instruments’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument
not measured at fair value through profit or loss, and information that enables users to evaluate the significance of financial instruments;
• Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.
These financial statements present information about the Company as an individual entity and not about its Group.
As permitted by section 408(3) of the Companies Act 2006, no profit and loss account has been presented for the Company. The loss for the financial year
dealt with in the Financial Statements of the Parent Company is £595,000 (2022: £538,000).
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies have been consistently
applied to all years presented, unless otherwise stated.
2.2 GOING CONCERN
The directors have concluded that it is appropriate for the financial statements to be prepared on the going concern basis (see note 2.2 to the consolidated
financial statements).
2.3 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED
No new standards have been adopted during the year.
2.4 INVESTMENTS
Investments held as fixed assets are stated at cost less provision for any impairment. The carrying value of investments are reviewed for impairment when
events or changes in circumstances indicate that the carrying amount may not be recoverable.
2.5 FINANCIAL INSTRUMENTS
The Company has chosen to adopt sections 11 and 12 of FRS102 in respect of financial instruments.
Basic financial assets, including trade and other receivables, cash and bank balances are initially recognised at transaction price, unless the arrangement
constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Such
assets are subsequently carried at amortised cost using the effective interest method.
80
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
Financial assets that are measured at cost and amortised cost are assessed at the end of each reporting year for objective evidence of impairment.
If objective evidence of impairment is found, an impairment loss is recognised in the Statement of Comprehensive Income.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates, or joint ventures, are initially measured at fair value,
which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss.
Basic financial liabilities including trade and other payables, bank loans, loans from fellow group companies and preference shares that are classified as
debt are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the
present value of the future receipts, discounted at a market rate of interest. Debt instruments are subsequently carried at amortised cost, using the effective
interest rate method.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is an enforceable right to set off the
recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
2.6 CURRENT AND DEFERRED TAXATION
The tax expense for each reporting year comprises current and deferred tax.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the Statement of Financial Position date,
except that:
•
The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities
or other future taxable profits;
•
Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax
balances relate to the same tax authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
2.7 RELATED PARTY TRANSACTIONS
The Company discloses transactions with related parties which are not wholly owned within the Group. Where appropriate, transactions of a similar nature
are aggregated unless, in the opinion of the directors, separate disclosure is necessary to understand the effect of the transactions on the Company Financial
Statements.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATION UNCERTAINT Y
There were no matters of material accounting judgement or estimation uncertainty within the Company financial statements.
4. INFORMATION INCLUDED IN THE NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Some of the information included in the notes to the consolidated financial statements is directly relevant to the financial statements of the company. Please
refer to the following:
Note 5 – Auditors’ remuneration
Note 21 – Share based payments
Note 31 – Post balance sheet events
81
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
5. STAFF COSTS
Loungers plc has no employees other than the Directors. Details of Directors’ emoluments are disclosed in the Remuneration Committee Report on
pages 33 to 36 and in note 6 of the notes to the consolidated financial statements.
6. INVESTMENTS
At 17 April 2022 (restated)
Additions (consolidated statements note 21)
At 16 April 2023
Shares in subsidiary
undertakings
£000
144,698
3,655
148,353
Additions represent the value of share based payment arrangements related to shares in the Company issued to employees of one of the Company’s
subsidiaries, Loungers UK Limited. The Company’s subsidiary undertakings are shown in note 29 to the Consolidated Financial Statements.
7. TRADE AND OTHER RECEIVABLES
Included within current assets
Amounts owed by Group undertakings
Other debtors
Amounts owed by Group undertakings are repayable on demand and are non-interest bearing.
8. TRADE AND OTHER PAYABLES
Included within current liabilities
Amounts owed to Group undertakings
Amounts owed to Group undertakings are payable on demand and are non-interest bearing.
16 April 2023
£000
17 April 2022
£000
20,776
103
20,879
21,371
103
21,474
16 April 2023
£000
17 April 2022
£000
50
50
50
50
82
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
9. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid ordinary shares
Redeemable preference shares
Ordinary shares at £0.01 each
Redeemable preference shares at £49,999 each
At 16 April 2023
£000
At 17 April 2022
£000
1,033
100
1,133
1,027
100
1,127
At 16 April 2023
Number
At 17 April 2022
Number
103,332,033
102,738,664
2
2
The table below summarises the movements in share capital for Loungers plc during the year ended 16 April 2023:
At 17 April 2022
Shares issued
At 16 April 2023
Ordinary Shares
£0.01 NV
102,738,664
593,369
103,332,033
Redeemable
Preference Shares
£49,999 NV
2
-
2
£000
1,127
6
1,133
On 4 May 2022 the Company allotted and issued 356,500 ordinary shares of 1 pence each in the Company following the vesting of awards made to
710 Company employees pursuant to the Company’s Employee Share Plan.
During the year to 16 April 2023 the company allotted 236,839 ordinary shares of 1 pence each in the Company following the vesting of awards made to
Company employees under the Senior Management Share Plan.
Rights of shareholders
The redeemable preference shares carry no right to vote. They have the right to be redeemed at nominal value by the Company.
10. EQUIT Y
The Group’s Equity comprises the following:
Called-up share capital
Called-up share capital represents the nominal value of the shares issued.
Share premium
The share premium account records the amount above the nominal value received for shares sold.
Other reserve
The other reserve arose on the share for share exchange between Loungers plc and Lion/Jenga Topco Limited.
Retained Earnings
The retained earnings account represents cumulative profits or losses, net of dividends paid and other adjustments.
83
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
11. PRIOR YEAR ADJUSTMENT
The Group operates a number of share based payment arrangements, as explained more fully in Note 21 to the consolidated financial statements. Under
these schemes the Company issues shares in reward for services provided to the Group through their employment by Loungers UK Limited. The cost of these
awards has been correctly reflected in Loungers UK Limited and the consolidated financial statements of Loungers plc, but in prior years was not reflected in
the standalone financial statements of the entity. However in accordance with FRS 102, the Company has restated its comparatives to recognise the fair value
of these awards within the Company as an addition to its cost of investment in Loungers UK Limited. Accordingly a prior year adjustment has been made to
increase the cost of investment at 17 April 2022 by £8,398,000, with a corresponding increase in reserves of £8,398,000.
The adjustments to the statement of financial position are as follows:
Reported
At 17 April 2022
£000
Note
Restated
At 17 April 2022
£000
Adjusted
6
7
8
9
136,300
136,300
21,474
21,474
157,774
(50)
(50)
(50)
157,724
1,127
8,066
18,451
130,621
(538)
(3)
130,080
157,724
8,398
8,398
-
-
8,398
-
-
-
8,398
-
-
-
5,356
-
3,042
8,398
144,698
144,698
21,474
21,474
166,172
(50)
(50)
(50)
166,122
1,127
8,066
18,451
135,977
(538)
3,039
138,478
166,122
Assets
Non-current
Investments
Total non-current assets
Current assets
Trade and other receivables
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Called up share capital
Share premium account
Other reserves
Retained earnings
Brought forward
Loss for the year attributable to the owners
Other changes in retained earnings
Total equity
84
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS RECONCILIATION OF STATUTORY RESULTS TO
ALTERNATIVE PERFORMANCE MEASURES
Operating profit
Net impairment charge
Loss on disposal of fixed assets
Transaction costs
Share based payment charge
Site pre-opening costs
Adjusted operating profit
Depreciation (pre IFRS 16 right of use asset charge)
IFRS 16 right of use asset depreciation
Adjusted EBITDA (IFRS 16)
Adjusted EBITDA % (IFRS 16)
IAS 17 Rent charge
IAS 17 Rent charge included in IAS 17 pre-opening costs
Adjusted EBITDA (IAS 17)
Adjusted EBITDA Margin % (IAS17)
Profit before tax (IFRS16)
Net impairment charge
Loss on disposal of fixed assets
Transaction costs
Adjusted profit before tax (IFRS16)
Adjusted profit before tax
Tax charge
Tax effect of adjusting items
Adjusted profit after tax (IFRS16)
Basic weighted average number of shares
Adjusted for share awards
Diluted weighted average number of shares
Basic adjusted earnings per share (p)
Diluted adjusted earnings per share (p)
Profit before tax (IFRS 16)
IAS 17 Rent charge
IAS 17 Leasehold depreciation (re landlord contributions)
IFRS 16 Right of use asset impairment
IFRS 16 Right of use asset depreciation
IFRS 16 Lease interest charge
IFRS 16 Lease interest income
Profit before tax (IAS 17)
Year ended
16 April 2023
£000
14,751
1,607
317
102
4,024
3,323
24,124
13,364
9,861
47,349
16.7%
(13,459)
331
34,221
12.1%
7,334
1,607
317
102
9,360
9,360
(405)
(324)
8,631
Year ended
17 April 2022
£000
28,437
-
-
-
3,220
2,344
34,001
11,187
8,451
53,639
22.6%
(11,745)
425
42,319
17.8%
21,605
-
-
-
21,605
21,605
(3,727)
-
17,878
103,243,015
3,375,062
106,618,077
102,728,430
2,464,588
105,193,018
8.4
8.1
7,334
(13,459)
(945)
1,298
9,861
6,145
-
10,234
17.4
17.0
21,605
(11,745)
(675)
-
8,451
5,682
(41)
23,277
85
FINANCIAL STATEMENTS LOUNGERS PLC ANNUAL REPORT 2023 RECONCILIATION OF STATUTORY RESULTS TO
ALTERNATIVE PERFORMANCE MEASURES
CONTINUED
Net debt (IFRS 16)
Property lease liability
Net debt (IAS 17)
Year ended
16 April 2023
£000
140,859
(134,837)
6,022
Year ended
17 April 2022
£000
120,627
(119,602)
1,025
The Group references Like for Like (LFL) sales growth as a key APM. LFL sales growth excludes the sales from sites that have been open for less than
18 months. During the year ended 16 April 2023, the comparator periods are the 48 weeks ended 17 April 2022 for the one-year like for like (excluding
the four weeks ended 16 May 2021 when sites could trade external areas only) and the 44 weeks to 23 February 2020 for the three-year like for like
(excluding the eight weeks to 19 April 2020 when the business was impacted by the onset of Covid and the first national lockdown). The four year like for
like period is on a comparable 52 week basis. The benefit from the VAT reduction during the Covid-19 pandemic is excluded in calculating the LFL result.
86
LOUNGERS PLC ANNUAL REPORT 2023 FINANCIAL STATEMENTS WHAT WE DO
COMPANY INFORMATION
MARKET OVERVIEW
Loungers plc (Loungers) operates through its three
complementary brands – Lounge, Cosy Club and
Brightside – in the UK hospitality sector.
At the year end the Group had 222 sites (2022: 195 sites), comprising 186 Lounges,
35 Cosy Clubs and 1 Brightside. Whilst it competes with coffee shops, pubs, restaurants and
local independent operators, 72 per cent of Lounge customers see it as a unique proposition,
rather than categorise it solely as a restaurant, pub or coffee shop. The Group competes
with every element of the trade of a pub chain, coffee shop, or restaurant, whereas each of
those operators only competes for a part of Loungers’ sales. It is this level of differentiation
that has enabled the Group to deliver significant and consistent like for like (“LFL”) sales
outperformance, and in turn, it is this sales outperformance allied to the new site roll-out and
growing scale of the Group that have provided the scope to better withstand the cost pressures
that have afflicted the broader hospitality sector in recent years.
OVERVIEW
What We Do
STRATEGIC REPORT
Chairman’s Statement
Chief Executive’s Statement
Key Strengths
ESG – Loungers as a Force for Good
Directors’ Duties – S172 Statement
Financial Review
Principal Risks and Uncertainties
IFC
3
5
9
10
16
18
22
CORPORATE GOVERNANCE
STATEMENT
Board of Directors
Chairman’s Corporate Governance Statement
Audit Committee Report
Remuneration Committee Report
Nomination Committee Report
Directors’ Report
Independent Auditors’ Report
to the Members of Loungers plc
FINANCIAL STATEMENTS
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Reconciliation of statutory results to alternative
performance measures
Company Information
25
26
31
33
38
39
42
50
51
52
53
54
78
79
80
85
IBC
SOLICITORS
Jones Day
21 Tudor Street
London
EC4Y 0DJ
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
One Chamberlain Square
Birmingham
B3 3AX
REGISTRAR
Link Group
Central square
29 Wellington Street
Leeds
LS1 4DL
BANKERS
Santander Corporate Banking
1st Floor
Alliance House
12 Baldwin Street
Bristol
BS1 1SD
Bank of Ireland
Bow Bells House
1 Bread Street
London
EC4M 9BE
DIRECTORS
A M Reilley
N C E Collins
G Grant
N P Backhouse
A J G Bellamy
R Darwent
J C Little
COMPANY SECRETARY
Link Company Matters Limited
REGISTERED NUMBER
11910770
REGISTERED OFFICE
26 Baldwin Street
Bristol
BS1 1SE
NOMINATED AND FINANCIAL
ADVISER
Houlihan Lokey
1 Curzon Street
London
W1J 5HD
CORPORATE BROKERS
Liberum Capital Limited
25 Ropemaker Street
London
EC2Y 9LY
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
L
O
U
N
G
E
R
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
3
LOUNGERS.CO.UK
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 16 APRIL 2023
Company number 11910770