Loungers Plc Regulatory News (LGRS)

13 July 2022

Loungers plc

("Loungers" or the "Group")

Audited results for the 52 weeks ended 17 April 2022

A record year of financial and operational progress

Recently opened our 200th site, with ambitious roll-out plans now expanding to 30 sites per year

Loungers, a leading operator of all day café/bar/restaurants across the UK under the Lounge and Cosy Club brands, is pleased to announce its audited results for the 52 weeks ended 17 April 2022 ("FY22").

Finance Summary

Financial and Operational Highlights

· Achieved record revenue of £237.3m (up 203% from FY21) and Adjusted EBITDA of £53.6m (up 286% from FY21)

· Consistent out-performance of the wider sector by more than 15% over the year, according to the Peach Tracker (the established industry sales monitor for the UK pub, bar and restaurant sectors)

· A record 27 new sites opened in the year, with our 200th site just opened

· Balance sheet strength significantly enhanced, with non-property net debt reduced by £33.2m to £1.0m

· Increased to five build teams and now have the capacity to open around 32 new sites per year

· Very strong operational performance facing down the challenges of the "pingdemic", recruitment, and Omicron

· Continuous evolution: re-working of the Cosy Club menu and elevation of the Cosy Club proposition, ongoing kitchen investment and completion of the kitchen management system roll-out

· App ordering now accounts for over 40% of Lounge sales and is leading to higher average spend and faster service

· Further investment in the leadership team and operational structure to ensure we can continue to deliver operational intensity and growth

· Continued investment in and focus on our employer proposition

Current Trading and Outlook

Since the year end our LFL sales have been +17.9% on a three year basis, representing a 15% out-performance of the Peach Tracker. We are delighted with how the business is trading and, despite the well-documented macroeconomic challenges, have not yet seen any shift in how our customers are behaving.

Whilst the short-term outlook is of course uncertain, we remain confident in the future prospects for Loungers given the quality and value of our all-day offering. In addition, our pipeline of new openings is well-developed and we continue to see a wealth of excellent opportunities to occupy prime pitches on the high street. This, combined with our recently expanded fit-out teams, means that we now have the capacity to roll-out over 30 sites a year and expect to have at least 500 sites in the UK across both of our brands in the future.

Nick Collins, Chief Executive Officer of Loungers said:

"These results demonstrate the extent to which Loungers has thrived over the past year, achieving a record number of openings, record underlying like for like sales growth and a record level of profits. We are benefitting from changes in consumer behaviour, with more people staying local, working from home, and supporting their local community and high street. We are delighted to have just opened our 200th site, and to be announcing today that we are increasing our roll-out target for site openings to 30 for this year.

Whilst the short-term economic outlook is challenging, we are in an excellent position to weather the storm and to take advantage of growth opportunities coming out of it. We have a strong balance sheet, a very capable and highly motivated team and an affordable, value for money all-day offer with enormous scope for further expansion across the UK."

Analyst Presentation Webcast

An analyst presentation will be held today, Wednesday 13 July 2022, at 9:30am (BST). Participants wishing to join the webcast should contact loungers@powerscourt-group.com to request details.

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

For further information please contact:

Notes to Editors

Loungers operates through its two complementary brands - Lounge and Cosy Club - in the UK hospitality sector. A Lounge is a neighbourhood café/bar combining elements of coffee shop culture, the British pub and dining. There are 169 Lounges nationwide. Lounges are principally located in secondary suburban high streets and small town centres. The sites are characterised by informal, unique interiors with an emphasis on a warm, comfortable atmosphere, often described as a "home from home". Cosy Clubs are more formal bars/restaurants offering reservations and table service but share many similarities with the Lounges in terms of their broad, all-day offering and their focus on hospitality and culture. Cosy Clubs are typically located in city centres and large market towns. Interiors tend to be larger and more theatrical than for a Lounge, and heritage buildings or first-floor spaces are often employed to create a sense of occasion. There are 32 Cosy Clubs nationwide.

Chairman's Statement

Overview

A record year of financial and operational progress

FY22 was a record year for Loungers, with sales of £237.3m, Adjusted EBITDA of £53.6m (IFRS16), and 27 new sites opened. We have come through the challenges of the Covid period with flying colours, and we are a stronger, more resilient and indeed more ambitious business than ever before. All in all, our performance during the year was a truly outstanding achievement against an extraordinarily challenging and changeable backdrop.  

At the start of the financial year, we only had roughly a third of our estate open - and even then those sites were only able to trade outside. On 17 May 2021 the entire estate recommenced trading, which for some of our sites was the first time that they had been able to welcome customers since early November 2020. We had planned meticulously to ensure that we hit the ground running as quickly as possible, and as a result our sites were busy straight from the off.  

However, as we went into a very busy summer, the 'pingdemic', rising Covid cases, and significant recruitment challenges caused severe disruption to our ability to trade normally. We found ourselves having to take extremely difficult decisions and to make compromises about how we operated. Throughout this time, the commitment, professionalism and dedication of our teams never wavered, and it was humbling to witness the way in which they helped to navigate the business through the unprecedented challenges of that summer. 

As we went into autumn, a certain amount of stability returned and we regrouped with a sense of optimism that the pandemic and its consequences might finally be behind us. However, we could already see then the warning signs of economic trouble ahead as inflation started to soar, and we began to plan accordingly.  

As it transpired, Covid was far from over and the Omicron variant wreaked havoc throughout the Christmas season, which is of course a critically important time for the hospitality sector. Whilst sales at Lounge held up well during December, we saw widespread Christmas party cancellations at our 31 Cosy Clubs. Although some of those parties rebooked with us in the new year, it clearly wasn't enough to compensate for the momentum that was lost in December. We are hopeful that, given the pent-up consumer demand after two years of lost Christmas party celebrations, December 2022 should be a bumper month. 

As we entered 2022, we found ourselves up against a new set of challenges, and the short-term outlook is looking exceptionally uncertain for many businesses. However, in the case of Loungers, our consistent outperformance relative to the wider hospitality sector is evidence of a team and a business that knows how to deliver on its strategic objectives whilst having to deal with all manner of challenges and distractions. Our performance in FY22 is clear evidence of that ability, and I see absolutely no reason why this will be any different in FY23 and beyond - especially as we have emerged from Covid as a more resilient, agile and adaptive business than ever before.  

Looking ahead 

Further challenges on the horizon, but well placed to take advantage given previous experience of trading successfully through a downturn 

The next few months will undoubtedly be challenging, albeit at the time of writing we are not seeing much in our trading performance to suggest that there has been any change to consumer sentiment.  

However, we have been planning for these headwinds for months now and I believe we are not only positioned to weather a significant decline in consumer spending - or even a recession - but that we can actually take advantage of the circumstances. 

The reason for this confidence is that as a business we have experience of dealing with a seismic economic shock before, having traded successfully through the 2008 financial crisis. In 2005/06 the economy was buoyant and consumer spending was elastic, which was exploited by the sector, and specifically by casual dining operators who confidently increased their prices. As a small management team at the time, we took the view then that we should minimise any price increases and hold on to our value for money credentials. We resisted making short-term gains in exchange for being fully prepared should a recession happen. Ultimately this approach paid dividends, and when recession hit in the autumn of 2008 we didn't need to alter our proposition or change our pricing as the consumer recognised that we already offered great value for money.

By contrast, many of our peers found they had driven price increases too strongly and resorted to discounting in a desperate attempt to drive volume, which ultimately ended up undermining their offer for years afterwards. 

By early 2009 we were confident that we would not only continue to trade well - and ahead of our peers - but also that we should continue to accelerate our rate of growth. As our peers retrenched we expanded, taking advantage of an uncompetitive landscape for new sites and attracting talent to a business that was recognised to be winning. In September 2008 we had nine sites and by the end of 2011 we had 20 sites, with a further nine new sites planned for 2012. We were brave, ambitious, creative, and believed that we could build something special, and these same attributes have never been more alive in the business as they are today.

In my view, there are similar trends at play as we sit here 14 years on. Following the end of the third lockdown in 2021 we have seen prices in the hospitality sector surge. While some of these increases have been driven by a degree of necessity as supplier prices increased, some have also been driven by businesses trying to make up for months of lockdown. We have had to increase our prices in a targeted way, but by nowhere near as much as our peers. We have deliberately held back from doing so because we remember our experience in 2008 and how offering great value for money in an environment where the consumer is squeezed puts you at a distinct advantage. We are also extremely well placed to meet the challenges of incoming cost pressures to the business, as detailed in the CEO report. 

We have just opened our 200th site - a Cosy Club in Chester - and on 27 August the business will celebrate 20 years since we opened our first tiny 10-table café/bar called Lounge on North Street in Bedminster, Bristol. After two decades of sustained growth, we now employ over 6,000 people and we have a remarkably talented team lead by CEO Nick Collins and supported by a really engaged Board. Despite the near-term challenges, we remain hugely optimistic and ambitious for the future - particularly as it genuinely feels as if we are still just getting started. 

Alex Reilley

Chairman

13 July 2022

Chief Executive's Statement

Introduction

I am pleased to report on a very successful year for Loungers. One in which we, on the whole, had the opportunity to put Covid behind us and begin to truly demonstrate the strength of the Loungers offer, the quality of both our brands, and the expertise of our people. To pick just a few highlights from what was a record year, we:

· Delivered a sector leading three year LFL sales performance of 22.1% (including VAT benefit)

· Opened a record 27 new sites

· Reduced net debt (excluding IFRS16 lease liabilities) to £1.03m

· Delivered IFRS16 Adjusted EBITDA of £53.6m, a record for the business

Whilst we continue to face a number of well-publicised headwinds, Loungers is uniquely well-placed within the leisure sector to thrive through a period of economic uncertainty and emerge stronger on the other side. Our key strengths include:

· Broad appeal across all parts of the day

· Value for money offer benefits from trading down

· Community driven offer benefitting from working from home and staying local

· Scale purchasing opportunities and operational gearing mitigating margin pressure

· Excellent property opportunities driving roll-out

· Self-financing roll-out

· Best in class management team, and outstanding talent across the entire business

Record sales performance

Throughout the year the business consistently out-performed the sector by in excess of 15%, delivering robust like for like sales growth in both our Lounge and Cosy Club brands. This out-performance shouldn't be a surprise - Loungers has consistently out-performed the market for more than seven years. The table below shows our LFL sales performance for the 48 weeks from full re-opening on 17 May 2021 to 17 April 2022 on both a net (including the benefit of the VAT reduction) and gross (excluding the one-off benefit of the VAT reduction) basis.

The reasons for this out-performance are simple, we are serving more customers than we were pre-Covid and our customers are on average spending more. This isn't a post-Covid blip; it is the product of our relentless focus on our strategic priorities, combined with shifts in consumer behaviour.

· We continue to innovate and evolve our food and drink menus, with our focus on value for money remaining at the forefront of our thinking.

· We continue to benefit from our focus on hospitality, atmosphere and community at a time when other operators are finding it more difficult to maintain standards in the face of recruitment difficulties.

· We continue to benefit from an increase in average spend as a result of the introduction of our order at table app, which now accounts for 40% of all Lounge sales.

· We are serving our customers more quickly and more consistently as a result of our focus on kitchen systems, processes and training, and

· We are benefitting from changes in consumer behaviour, with more people staying local, working from home, and supporting their local community and local high street.

While there is little doubt we are entering into a period in which consumer discretionary spending will come under pressure we remain confident that we are well-placed to continue to grow our sales within this environment:

· We remain excellent value for money. Over the past 12 months we have taken considerably less price than the sector in general as we recognise value is a key differentiator.

· We have a broad, all-day offer in both Lounge and Cosy Club, with customers enjoying both venues for a variety of occasions across the day and evening. We are not overly reliant on any specific day-part or celebration spend.

· We know from the 2008 recession that we benefit from people being more discerning about their leisure spend, and people staying local.

Scale and operational flexibility

Along with the rest of the sector, we are experiencing significant input cost inflation. We aren't immune to this pressure, but we believe we are better placed than most to mitigate it.

Our continued growth means we are attractive to suppliers and can benefit from increasing scale. During FY23 we will tender some of our food purchasing as we seek to consolidate our supply chain and take logistics costs out of the business. This is an ongoing process as we move over the medium-term towards a fully consolidated model. In addition, our food development teams continue to evolve the menu in the face of ingredient shortages and price increases. We don't have a reliance on any single cuisine, we can sell whatever we want, and this allows us to move with trends and be very fleet of foot. We have significant expertise in both food and drink development and can engineer our menus away from ingredients that have seen short-term cost increases and use stretch to protect our margin whilst maintaining value for money. Added to this, we continue to see the benefit from our investment in our 'kitchen Resets' and the margin upside from increased uniformity across the estate.

Our utility costs were hedged in May 2020 until September 2024, giving us protection from price rises in the medium term. Elsewhere on the P&L we expect to benefit from operational gearing as our central costs are spread over an increasing number of sites.

Loungers has a fantastic track record of delivering consistent like for like sales growth across the whole estate, in both older and newer sites. We have achieved this via an unwavering focus on the customer, our product and our hospitality. This will remain unchanged in FY23, and I anticipate that any resulting margin impacts will be modest, short-term and compensated for by our sales performance.

Investing in our team

It has been an important year in the evolution of our People strategy. Covid and the various lockdowns (and to a lesser degree Brexit) have resulted in a shift in attitudes towards working in hospitality. As a result of this Loungers, along with the rest of the hospitality sector, had to re-evaluate both our role as an employer and how we make ourselves more attractive as an employer, in particular to the younger generations. During the year it became apparent that there was a real recruitment and retention challenge in our sector, varying in impact across England and Wales. It rarely impacted our ability to trade at full capacity, and it did not impact our roll-out and the opening of new sites.

During the year we launched 'the Commitments' setting out very publicly to our team (and prospective employees) the values that we want to represent as an employer. Included within these were commitments to (i) respect everyone's time off, (ii) to pay fairly, (iii) to rota fairly, (iv) to focus on everyone's development and progression and (v) to ensure everyone is made welcome. These weren't new values to Loungers, but we wanted to make sure everyone in the business knew what we stood for and to be held to account. There are no easy wins here - the sense we get from our team is that it is not about pay. It is about flexibility, working hours, team environment, progression and development, fairness and respect. By setting out our values, we want our team to hold us to account, which will allow us to become an even better employer. 

Towards the end of the year we significantly restructured the operations team within the Lounge business. With the continued growth of the business, this is necessary every two to four years. The restructure saw us add one Operations Director, two Regional Operations Managers and five Operations Managers/Chefs. It also saw us reduce the 'site to ops team ratio' at every level. At the Operations Managers/Chefs level we now have a ratio of 5:1, which is unprecedented in our sector. This consistently low ratio has allowed for our intensity of operation and our focus on detail. Pleasingly all of the new roles were filled with internal promotion candidates. We continue to lead the way in providing outstanding career progression opportunities within our sector.

New site openings and roll-out

During the year we opened 27 sites, a record number of new openings, and after an enforced pause due to Covid, our roll-out programme is very much back on track. We are opening high-performing sites, achieving above average levels of sales and EBITDA. This reflects the market for new sites and we continue to see really strong opportunities for prime pitch Lounges and Cosy Clubs in target high street locations where we know we will trade well. The year saw a bias towards Lounge openings - of which there were 26 vs one Cosy Club - which is a reflection of how Lounges can thrive in different location types. Highlights include openings in:

· Smaller towns such as Matlock (Ostello Lounge) and Pontypridd (Gatto Lounge)

· Larger towns such as Basildon (Orleto Lounge) and Shrewsbury (Floro Lounge)

· Greater London locations such as Ealing (Castano Lounge)

· Retail centres such as Fosse Park in Leicester (Volpo Lounge)

· Coastal locations benefiting from staycations such as Aberystwyth (Athro Lounge) and Bognor Regis (Bonito Lounge)

The pipeline is well-developed and we continue to see a wealth of excellent opportunities, whilst maintaining our sector-leading sub 6% rent to revenue ratio. It remains the case that we typically convert former retail units or bank units, occupying prime pitches on the high street. As a result of our confidence in both our operational performance in opening sites and the range of opportunities we are seeing, we have decided to increase the rate of roll-out. We have recently been opening at a rate of around 25 sites per year, using four in-house site fit-out teams. In the coming weeks we will be increasing to five fit-out teams and this will give us annual capacity of around 32 sites a year. For this year (FY23) we expect to open around 30 sites given the mid-year introduction of the additional team. We continue to have real confidence over the potential scale of the business, with the capacity to open at least 500 sites across both brands in the UK.

In the current year we anticipate opening at least four Cosy Clubs (including Chester, Milton Keynes, Harrogate and Canterbury). Operating in city centres and larger market towns, there are fewer Cosy Club opportunities overall than Lounge and as a result, the number of Cosy Club openings each year can vary. The Cosy Clubs continue to go from strength to strength and this year is an opportune time to have several openings to capitalise on the momentum within the brand. We are particularly pleased with the impact of the Project Finesse roll-out, which incorporated a more elevated menu and guest experience alongside more sophisticated design and furniture that is more fitting for the Cosy Club surroundings.

Innovation and evolution

The most significant change during the year was the re-working of the Cosy Club food menu. We saw the opportunity to elevate the proposition and take even greater pride in the offer. The new menu launched across the business last autumn, and saw the introduction of small plates on the menu, wider stretch with more expensive dishes at one end whilst retaining our value for money at the other. The menu launch was accompanied by an overhaul of our steps of service and an investment in our furniture which has altogether really pushed the brand on. We are delighted with the impact this is having across the Cosy Club estate.

Right at the end of the year we saw a considerable menu change in Lounge with some 40% of the dishes either being replaced or improved.

Our investment in the kitchens continues, with the final 60 Lounges now being improved via our Reset programme, benefitting from the new equipment and standardised layouts.

We have also more formally defined our ESG strategy. I believe it is important that this is driven by our teams rather than purely in the boardroom and as such it is based around four core pillars:

1. Looking after our teams well and being an inclusive employer

2. Bringing joy to local places across the country

3. Delivering our hospitality sustainably

4. Being proud of what we put on the plate

We already achieve a great deal within these categories, but importantly have identified areas where we can improve and are building a framework to allow us to deliver.

Management team

We remain very focused in evolving and building the strongest management team in the sector to facilitate the successful roll-out of our brands. During the year Tom Trenchard, Property Director, took over responsibility for the construction side of the business, joining together the site acquisitions and build businesses under one leader. I am also delighted to announce the appointment of Guy Youll as Chief People Officer. Guy joins the business in the autumn and will lead the people side of the business and build on the important work we have done this year. We continue to focus a great deal on developing our employees' careers and there continue to be many positive internal success stories as we grow.

Nick Collins

Chief Executive Officer

13 July 2022

Financial Review

Overview

The year to 17 April 2022 represents the first year in our three years as a public company where we have ended the year with all our sites open, trading, and free of Covid restrictions. Indeed, if we exclude the first four weeks of the year where we could trade external areas only, and excepting the impact of Omicron on our Christmas trading, then the past year has very much seen a return to normality.

The financial highlights below demonstrate the underlying resilience and relevance of the Loungers business, and the positive benefits of that return to normality.

Year on year revenue was up by £158.9m to a record £237.3m. Whilst Covid restrictions meant our sites could only trade in 34% of the available weeks in the comparative year, strong like for like ("LFL") sales growth and the strength of our new site openings also played a significant role in delivering the year on year sales uplift. Accompanying the sales growth, operating profit increased to £28.4m from an operating loss of £7.7m in the prior year, with operating margins growing to 12.0%. We continued to benefit from various government support measures during the year (notably the VAT reduction) and they played a part in delivering our strong operating margin performance.

The strong trading and profit performance, allied to the recovery in the Group's negative working capital position that the resumption of full trading allowed, resulted in net cash generated from operations of £69.6m. Post investing and financing outflows net cash balances increased by £26.3m and were instrumental in the reduction in net debt of £24.2m.

Throughout this document 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.

The table below summarises the key APM's under both IFRS16 and IAS17 and covers the past three financial years. The negative impact of Covid restrictions and the positive impact of government support continues to make comparisons difficult. The year ended 19 April 2020 is arguably a more sensible comparator in that its broadly five weeks of total lockdown and two weeks of Covid impact is not wholly dissimilar to the four weeks of limited external trading and the Omicron impacted December 2021 that was suffered in the year to 17 April 2022.

Revenue of £237.3m compares to £166.5m in the year to 19 April 2020 and reflects the positive impacts of strong LFL sales performance, a record 27 new sites opened during the financial year, and the reduced VAT rates on food and non-alcoholic drinks that ran to 31 March 2022, and delivered a benefit of £15.1m. The Group has delivered consistently strong LFL sales, whether measured on a two year (40 weeks where trading not impacted by lockdown in the current or comparative year) or three year basis (48 weeks where trading not impacted by lockdown in the current year) and whether including or excluding the benefit of the VAT reduction:

Adjusted EBITDA (IAS17) of £42.3m compares to £18.8m in the year to 19 April 2020, with a corresponding increase in Adjusted EBITDA margin from 11.3% to 17.8%. The reduction in the VAT rate on food and non-alcoholic drink was the most substantial part of that margin expansion, contributing 5.6% to the margin growth of 6.5%.

Non-property net debt reduced to £1.0m, a year on year reduction of £33.2m. This reflects not only the strong trading and EBITDA performance but also the rebuilding of the Group's negative working capital position.

Impact of UK Government Support Initiatives

In addition to the VAT reduction referenced above the Group benefited over the year from the continuation of a number of UK Government initiatives introduced to mitigate the impact of Covid-19, notably:

· The Coronavirus Job Retention Scheme ("CJRS") - The Group continued to benefit from the CJRS through to the ending of the scheme on 30 September 2021. During the year under review the Group received a total of £4.1m of funding under the CJRS. A total of £2.1m was recognised in the statement of comprehensive income in the year, offsetting site payroll costs on the cost of sales line and head office payroll costs on the administrative expenses line. Cash receipts included £2.0m that was recognised in the FY21 results.

· Business Rates Relief - The Group's sites have benefitted from the business rates holiday that ran to 30 June 2021, and subsequently from the 66% reduction (capped at £2.0m) that ran to 31 March 2022. During the year to 17 April 2022 the Group has benefitted by £3.3m.

· Support Grant Funding - In the year under review the Group has recognised £2.5m of grant funding received under the Restart Grant scheme. This income has been recognised under other income.

The Corporate Insolvency and Governance Bill provided a range of protections for tenants and allowed the Group to continue to work collaboratively with all of its landlords, seeking to reach agreement over an equitable share of the pain of lockdowns and trading restrictions. The Group has recognised £0.8m in the year in respect of rent waivers.

Long Term Employee Incentives

The focus on employee engagement and retention has been unstinting throughout the year, 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 (574,000 shares) and the senior management restricted share plan (435,334 shares). These awards were made to a total of 1,206 employees who work across the business, predominantly at site level, and in hourly paid and salaried positions. In addition, awards covering 673 employees and in respect of 338,664 shares vested in the year.

The Group recognised a share based payment charge in the year of £3.2m (2021: £2.0m), 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 £6.9m (2021: £7.0m) include IFRS 16 lease liability finance costs of £5.7m (2021: £5.6m) and bank interest payable of £1.2m (2021: £1.4m).

Net debt at the year end including property leases of £120.6m (2021: £144.8m) represented a significant decrease over the prior year, with strong trading and profitability, allied to the rebuilding of the Group's negative working capital position, offsetting the impact of adding new lease liabilities of £16.4m.

The Group's capital structure includes a £32.5m term loan due for repayment in July 2024. The Group entered into an interest rate hedge to fix SONIA at 0.7% until July 2022. Whilst the Group's significant positive cash balances provide an element of natural interest rate hedge the Board continues to consider the options for hedging the interest rate risk on the outstanding term loan.

In April 2020 the Group entered into an incremental £15m RCF facility to provide additional liquidity should it be required during the Covid lockdowns. It is envisaged that this facility, which has never been drawn upon, will be allowed to expire at its term date in October 2022.

Taxation

The Group has reported a tax charge of £3.7m for the year to 17 April 2022 (2021: credit of £3.6m) and at year end carried a corporation tax receivable of £0.1m (2021: £nil payable or receivable) and a deferred tax asset of £1.4m (2021: £3.8m). The corporation tax payable in respect of the year of £1.3m benefits from the introduction of the 130% capital allowance super deduction. During the year corporation tax payments on account of £1.4m were made.

Cash Flow and Capital Expenditure

Net cash generated from operating activities of £69.6m (2021: £12.0m) reflects a working capital cash inflow of £19.7m (2021: cash outflow of £1.3m). The working capital cash inflow has been achieved in spite of a significant reduction in deferred Covid liabilities. At year end the Group had settled all bar £1.4m of its deferred Covid liabilities in respect of outstanding rents and all of its HMRC liabilities (2021: £12.9m outstanding).

Cash outflows in the year in respect of capital expenditure totalled £22.8m (2021: £7.8m) and compare to the cost of fixed asset additions (excluding right of use assets) recognised in the year of £26.2m. The lower cash outflow reflects the rebuild of capital expenditure creditors as the new site opening programme returned to its pre Covid pace during the year. Capital expenditure in the year of £26.2m (2021: £5.1m) included £19.6m (2021: £2.8m) in respect of new site openings.

Key Performance Indicators ("KPI's")

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

(1) Three year LFL calculated over 48 weeks from 17 May 2021 and including VAT benefit

Going Concern

In concluding that it is appropriate to prepare the financial statements for the year to 17 April 2022 on the going concern basis attention has been paid both to the potential impact of further Covid-19 outbreaks on the Group and also to the current sector headwinds in terms of consumer confidence and inflationary pressures.

The Group has very successfully navigated the Covid-19 challenges of the past two years and has emerged with a significantly strengthened balance sheet, with IAS17 net debt reduced to £1.0m at 17 April 2022 and total liquidity, excluding the incremental £15m RCF which is assumed to expire in October 2022, of £41.3m.

In order to assess the Group's going concern position the Board has considered three downside scenarios of the Group's business plan.

- The first scenario assumes a re-emergence of Covid-19 in similar fashion to the Omicron outbreak of 2021. A sales decline of 20% relative to the FY23 budget for 12 weeks across December 2022, January and February 2023 has been modelled. This is significantly worse than the impact felt from the 2021 Omicron variant.

- The second scenario looks to model a weakening in consumer confidence, commencing in July 2022 and accelerating in October 2022 with sales between 5% and 10% below budget, allied to continuing cost of goods sold and labour inflation reducing gross margins by 1%.

- The third scenario combines both the above scenarios, resulting, for example, in sales being 30% below budget across December 2022 to February 2023.

The impact of reflecting the third scenario is to reduce expectations of Adjusted EBITDA by approximately 54% for FY23 relative to the Group's budget. Under this scenario the Group is forecast to remain comfortably within its borrowing facilities and to be in compliance with its covenant obligations, and accordingly the Directors have concluded that it is appropriate to prepare the financial statements for the year ending 17 April 2022 on the going concern basis.

Gregor Grant

Chief Financial Officer

13 July 2022

Consolidated Statement of Comprehensive Income

For the 52 Weeks Ended 17 April 2022

Consolidated Statement of Financial Position

As at 17 April 2022

Consolidated Statement of Changes in Equity

For the 52 Weeks Ended 17 April 2022

Consolidated Statement of Cash Flows

For the 52 Weeks Ended 17 April 2022

NOTES TO THE PRELIMINARY FINANCIAL INFORMATION

1. General information

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

The Company is a public company limited by shares whose shares are publicly traded on the 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. Basis of preparation

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 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 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 18 April 2021.

The auditors' reports on the accounts for the 52 weeks ended 17 April 2022 and 18 April 2021 for Loungers plc were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

The financial statements for Loungers plc for the year to 17 April 2022 will be delivered to the Registrar of Companies shortly. The financial information contained within this preliminary announcement for the periods ended 17 April 2022 and 18 April 2021 does not comprise the statutory financial statements of Loungers plc.

In concluding that it is appropriate to prepare the financial statements for the year to 17 April 2022 on the going concern basis attention has been paid both to the potential impact of further Covid-19 outbreaks on the Group and also to the current sector headwinds in terms of consumer confidence and inflationary pressures.

The Group has very successfully navigated the Covid-19 challenges of the past two years and has emerged with a significantly strengthened balance sheet, with IAS17 net debt reduced to £1.0m at 17 April 2022 and total liquidity, excluding the incremental £15m RCF which is assumed to expire in October 2022, of £41.3m.

In order to assess the Group's going concern position the Board have considered three downside scenarios of the Group's business plan.

- The first scenario assumes a re-emergence of Covid-19 in similar fashion to the Omicron outbreak of 2021. A sales decline of 20% relative to the FY23 budget for 12 weeks across December 2022, January and February 2023 has been modelled. This is significantly worse than the impact felt from the 2021 Omicron variant.

- The second scenario looks to model a weakening in consumer confidence, commencing in July 2022 and accelerating in October 2022 with sales between 5% and 10% below budget, allied to continuing cost of goods sold and labour inflation reducing gross margins by 1%.

- The third scenario combines both the above scenarios, resulting, for example, in sales being 30% below budget across December 2022 to February 2023.

The impact of reflecting the third scenario is to reduce expectations of Adjusted EBITDA by approximately 54% for FY23 relative to the Group's budget. Under this scenario the Group is forecast to remain comfortably within its borrowing facilities and to be in compliance with its covenant obligations, and accordingly the Directors have concluded that it is appropriate to prepare the financial statements for the year ending 17 April 2022 on the going concern basis.

3. New standards, amendments and interpretations adopted

Amendments to accounting standards applied from 19 April 2021 were as follows:

· Interest Rate Benchmark Reform - Phase 2 impacts on IFRS9, IAS39, IFRS 7, IFRS4 and IFRS16 (effective 1 January 2021).

The application of the above did not have a material impact on the group's accounting treatment and has therefore not resulted in any material changes.

4. Operating profit / (loss)

The operating profit / (loss) is stated after charging / (crediting):

Government support grant income of £2,490,000 relates to income received under the Re-Start Grant Scheme. The prior year total of £4,054,000 also included income received under the Retail, Leisure and Hospitality Scheme, and The Local Restrictions Support Grant Scheme.

5. Finance Costs

6. Exceptional Items

The Covid-19 related costs included in cost of sales are in respect of the write-off of food and drink inventories resulting from the forced closure of all sites on 4 November 2020, and 30 December 2020.

The Covid-19 related costs included in administrative expenses include the costs of the removal and storage of furniture and soft furnishings to enable compliance with social distancing and professional fees incurred in respect of the amendments made to the Group's banking facilities.

7. Tax credit on loss

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

8 Earnings / (losses) per share

The share awards are not considered to be dilutive in the year ended 18 April 2021 as they would have the impact of reducing the losses per share.

9 Property, plant and equipment

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 £9.8m was booked in the FY20 financial statements. All sites have been tested for impairment in FY22, however following the successful reopening of all sites in April and May 2021, no further impairment has been booked.

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% (2021: 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% (2021: 8.0%).

On the basis of the impairment test undertaken the Group has not recognised any impairment charge in the year to 17 April 2022 (2021: £nil). The cash flows used within the impairment model are based upon assumptions which, while prudent, are sources of estimation uncertainty. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in the key assumptions. A reduction in site cash flows of 10% in each year would result in an impairment charge of £2,984,000. A 100 basis point increase in the discount rate would result in an impairment charge of £1,431,000 and a 50 basis point reduction in the terminal growth rate would result in an impairment charge of £295,000.

10 Borrowings

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. A three-year interest rate swap through to July 2022 was entered into that fixes SONIA on the full term loan facility at 0.7%.

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 incremental facility was originally due to expire in October 2021, however, given the prolonged Covid-19 lockdowns on 16 April 2021 the facility was extended for a further 12 months to October 2022. It is not anticipated that this facility will be renewed in October 2022.

The term loan and RCF are subject to financial covenants relating to leverage and interest cover. The agreement reached with lenders on 16 April 2021 included a waiver of the covenant tests due at 18 April 2021 and amendment of the covenant tests scheduled for 11 July 2021, 3 October 2021 and 26 December 2021. There were no breaches of these tests in the year to 17 April 2022.

At 17 April 2022 the term loan was fully drawn while nothing was drawn on either of the revolving facilities (2021: term loan fully drawn and £7,000,000 drawn under the RCF).

11 Analysis of changes in net debt

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

12 Reconciliation of statutory results to alternative performance measures