Interim Results

RNS Number : 5633V

Loungers PLC

04 December 2019

 

4 December 2019

Loungers plc

Interim Results for the 24 weeks ended 6 October 2019

"Loungers reports continued growth and outperformance, with revenue up 22%, and adjusted EBITDA up 26%"

Loungers plc ("Loungers" or the "Group") is pleased to announce its unaudited Interim results for the 24 weeks ended 6 October 2019 (the "period").  Loungers is an operator of 161 café/bar/restaurants across England and Wales under two distinct but complementary brands, Lounge (133 sites) and Cosy Club (28 sites).  The Group's sites offer something for everyone regardless of age, demographic or gender and the Group operates successfully in a diverse range of different sites and locations across England and Wales.

Financial Highlights

	IFRS 16			IAS 17
	24 weeks ended 6 October 2019 £000	24 weeks ended 7 October 2018 £000	Movement	24 weeks ended 6 October 2019 £000	24 weeks ended 7 October 2018 £000	Movement
Revenue	79,827	65,444	+22.0%	79,827	65,444	+22.0%
Gross profit margin (%)	41.5%	40.6%	+0.9 ppts	41.5%	40.6%	+0.9 ppts
Adjusted EBITDA	14,666	11,681	+25.6%	10,222	8,113	+26.0%
Adjusted EBITDA margin (%)	18.4%	17.8%	+0.5 ppts	12.8%	12.4%	+0.4 ppts
Loss before tax	(2,494)	(4,250)		(1,562)	(3,476)
Adjusted profit / (loss) before tax	2,630	(4,250)		3,562	(3,476)
Adjusted diluted earnings / (losses) per share (p)	2.5	(23.1)		3.4	(19.6)
Net bank debt	29,340	161,979		29,340	161,979

·      Revenue increased 22.0% to £79.8m (2019: £65.4m)

·      Strong like for like sales growth of 5.4%

·      Gross profit margin 0.9% ahead at 41.5% (2019: 40.6%)

·      Adjusted EBITDA (IFRS 16) of £14.7m, up 25.6% (2019: £11.7m)

·      Adjusted PBT (IFRS 16) of £2.6m (2018: pre-tax loss of £4.3m)

·      Net bank debt at period end of £29.3m reflects capital structure introduced at the time of the IPO

Highlights

·      On track to deliver 25 new site openings this financial year and going forward

-       Proven ability to open successfully in an increasingly diverse range of town centre and secondary high street locations

-       10 new sites opened in the period and a further 5 sites opened post the half year end

-       Additional 10 new sites scheduled in H2 (eight Lounges and two Cosy Clubs), bringing the Group total to 171

-       New site pipeline remains strong into 2021/22; strategy is to open 25 new sites per annum

-       H1 results further underline the opportunity for our unique, all-day trading model, with its broad nationwide demographic appeal

·      Continuous evolution of our customer offer and focus on profit conversion

-       New winter food menus and updated drinks ranges launched in October and November, ensuring our offer remains current and at the forefront of industry trends, resonating well with customers

-       Successful renegotiation of the Group's major food and drink supply contracts

-       Increasing scale continues to deliver operational efficiencies and help drive further margin improvement

·      Building a platform for future growth

-       Further strengthening of senior management team with Tom Trenchard appointed as Property Director and the development of in-house purchasing talent

-       Evolution of regional operating structure to support our increasing geographic footprint and ambitious growth plans

-       Continued significant investment in systems and process across the Group

·      Current trading and outlook

-       Continued to trade well and to outperform the market

-       Five new sites opened in H2 to date and on plan to deliver 25 new site openings in the financial year with Lounges in locations such as Sutton, Watford, Sittingbourne and Chorley and Cosy Clubs in Nottingham and Brindley Place, Birmingham

Nick Collins, Chief Executive Officer of Loungers said: 

"I am delighted to announce another strong set of results which continue to highlight our consistent outperformance against the market. This will be the fifth consecutive year we have opened at least 20 new sites and we remain excited by the prospects and potential for both our Lounge and Cosy Club formats and the significant opportunity we have ahead of us.

"We have delivered sector leading like for like sales growth of 5.4% alongside a 0.4% improvement in our EBITDA margin.  This has been achieved alongside opening 10 new sites in H1, delivering impressive overall sales growth of 22% and successfully listing the business on AIM.

"Looking ahead, the strength of our FY20 openings to date and the continued evolution of our offer further underpins our confidence in continuing our current growth rate of 25 new openings per year and the potential for more than 400 Lounges and 100 Cosy Clubs across the UK." 

Use of Alternative Performance Measures

The Interim Results include both statutory and alternative performance measures ("APMs").  APM's are included for the following reasons:

·      They reflect the way in which management report and monitor the financial performance of the Group internally;

·      They improve the comparability of information between reporting periods by adjusting for one-off factors;

·      The IAS 17 presentation reflects the way in which the financial performance of the Group has been presented historically and the Group's financial covenants are tested.

Reconciliations between statutory measures and APM's are presented on pages 6 and 7.

For further information please contact:

Loungers plc Nick Collins, Chief Executive Officer Gregor Grant, Chief Financial Officer	Via Instinctif Partners
GCA Altium Limited (Financial Adviser and NOMAD) Sam Fuller / Katherine Hobbs / Tim Richardson	Tel: [phone]
Liberum Capital Limited (Joint Broker) Andrew Godber / John Fishley	Tel: [phone]
Peel Hunt LLP (Joint Broker) Dan Webster / George Sellar	Tel:  [phone]
Instinctif Partners (Financial Public Relations) Justine Warren / Matthew Smallwood	Tel: [phone]

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 133 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 their 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 28 Cosy Clubs nationwide.

CHIEF EXECUTIVE REVIEW

Highlights

The Group has traded strongly in the 24 weeks ended 6 October 2019, with highlights including:

·      Revenue growth of 22.0% to £79.8m (2019: £65.4m)

·      Strong like for like sales growth of +5.4%

·      IFRS 16 adjusted EBITDA margin up by 0.5% to 18.4% (2019: 17.8%)

·      IAS 17 adjusted EBITDA margin up by 0.4% to 12.8% (2019: 12.4%)

·      10 site openings in the period to take the Group to 156 sites at the period end, comprising 130 Lounges and 26 Cosy Clubs

·      Successful renegotiation of all the Group's major food and drink supply contracts

·      The successful IPO of the Group and admission to trading on AIM

Revenue growth in the period reflected the positive impact both of new site openings and strong underlying sales growth in our existing estate, where we have continued to outperform materially the broader hospitality sector (as measured by the Coffer Peach Tracker). The advantages of our unique trading model, which combines elements of coffee shop culture, pub and restaurant, together with our broad demographic appeal and focus on hospitality, community and a relaxed home from home ambience at an affordable price point, have driven continued rapid sales growth. Pleasingly, this sales growth has been accompanied by improved margins, both at the gross and adjusted EBITDA level, with our adjusted EBITDA margin (IAS 17) ahead by 0.4%.  This margin improvement, delivered against well documented sector cost headwinds and the impact of the increased costs of being a publicly traded company, reflects the benefits of increasing scale within the business and a continued focus on driving operational efficiency. 

Operating review

Roll-out and pipeline

The Group has opened 10 new sites in the period, comprising eight Lounges and two Cosy Clubs, with a further five sites opened since the period end.  The eight Lounges opened in the period continue to evidence the broad geographical opportunity the business has, with new openings ranging from Southsea in the south to Barnsley in the north, and Abergavenny in the west to King's Lynn in the east.  Initial trading has been pleasing, with Poco Lounge in King's Lynn setting a new Lounge record for first full week sales.  The two Cosy Clubs opened in the first half were in Cardiff Bay - the first time we have opened a second Cosy Club in a city - and in Durham, providing further evidence of our ability to expand our geography.  We remain on track to open 25 new sites in the 2020 financial year and the new site opening pipeline remains strong.

Brand development

Both Lounge and Cosy Club continue to work hard to evolve and develop their customer proposition.  New drinks ranges were introduced across the business in November to ensure our range reflects current trends and that we benefit from our increasing scale. We are pleased with the initial customer reaction to these changes, which include a new draught beer and wine range.  October saw the roll-out of our new winter food menus with continued innovation, not only of the menu but also in kitchen processes and efficiency.

We have continued the roll-out of the kitchen re-set programme to improve the efficiency of our kitchens and the working environment of our back-of-house teams.  This initiative has been completed in 58 sites within the Lounge estate to date with work on the re-set programme due to recommence in January 2020 and continue into the 2021 financial year. 

People

The success of the Group remains due in large part to the commitment of our people and the excellent hospitality which they consistently provide our customers with each and every day.  I would like to thank our teams for their continued hard work and dedication.

In order to accommodate our continued geographic expansion and growth we have continued to evolve and invest in the Group's regional operating structure.

We have further strengthened the management team with the appointment of Tom Trenchard as Property Director and the recruitment of a Head of Supply Chain.

Current trading and prospects

The Group has continued to trade well and outperform the market.  Five new sites have opened in H2 to date and we are on plan to deliver a total of 25 new site openings in the financial year.

I remain confident in our prospects for the remainder of 2020 and for the on-going roll-out of Lounges and Cosy Clubs.

Financial review

IFRS 16

IFRS 16 has been adopted for the first time in the period.  Prior year comparatives have been restated (see notes 2 and 12 below for details) and the financial highlights on page 1 are presented both pre and post the adoption of IFRS 16.

Financial Performance

The financial results for the period reflect further significant growth in sales and profitability, with revenue ahead by 22.0% and IAS 17 adjusted EBITDA ahead by 26.0% (IFRS 16 adjusted EBITDA: +25.6%).

The Group's IAS 17 adjusted EBITDA margin has improved to 12.8% (2019: 12.4%).

The key drivers of the improvement in IAS 17 adjusted EBITDA margin are as follows:

·      An improvement in gross margin of 0.9%

·      Improving operational leverage adding 0.2%, offset by:

·      Increased utility and pension costs of 0.4%

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

The improvement in gross margin reflects improvements in both cost of goods sold margin, including the positive impacts of selling price changes, the initial impact of purchasing improvements and operational efficiencies at site, and site labour costs.

Statutory operating profit margin (pre-IPO related exceptional costs) has improved to 7.1% (2019: 6.8%).

Exceptional costs of £3.7m relating to the IPO are included within administrative expenses, these costs include a £2.2m charge in respect of IPO related share awards.

Finance costs and net debt

Finance costs for the period have reduced to £4.5m (2019: £8.7m) reflecting the Group's post IPO capital structure.  Finance costs include £2.5m (2019: £2.0m) of IFRS 16 lease interest charges and a charge of £1.4m in respect of the write off of unamortised loan arrangement fees relating to the Group's pre-IPO banking facilities.

Net bank debt at the period end was £29.3m (2019: £162.0m) and reflects the Group's term loan facility of £32.5m net of cash balances of £3.2m.  A margin of 2.0% is payable on the Group's term loan facility and during the period the Group entered a three-year interest rate SWAP that fixed LIBOR at 0.7%.

Cash flow

Net cash generated from operating activities under IAS 17 grew by 44.6% to £9.2m (2019: £6.4m).  The Group's cash conversion continues to benefit from the negative working capital generated by the roll-out programme and the positive underlying sales growth.  Cash conversion in the half year (relative to the full year) is negatively impacted by the timing of the September quarter end rent payments and September month end creditor payments, which fall immediately prior to the half year end.

Cash outflows in the period in respect of capital expenditure totaled £11.2m (2019: £9.8m).

Dividend policy

As disclosed at the time of the IPO, in the short term, the Board intends to retain the Group's earnings for re-investment in the roll-out of new Lounge and Cosy Club sites.  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.

Nick Collins

Chief Executive Officer

3 December 2019

Reconciliation of Statutory Results to Alternative Performance Measures

		24 weeks ended	24 weeks ended	52 weeks ended
	Note	6 October 2019	7 October 2018	21 April 2019
		£000	£000	£000
		Unaudited	Unaudited	Audited
			Restated (1)	Restated (1)
Operating profit		2,029	4,435	12,703
Exceptional items	3	3,677	-	462
Share based payment charge / (credit)		524	246	(87)
Site pre-opening costs		1,158	1,081	2,251
Adjusted operating profit		7,388	5,762	15,329
Depreciation (pre IFRS 16 right of use asset charge)		4,385	3,580	8,147
IFRS 16 Right of use asset depreciation		3,090	2,469	5,694
IFRS 16 Leasehold depreciation		(189)	(130)	(294)
(Profit) / loss on disposal of fixed assets		(8)	-	12
Adjusted EBITDA (IFRS 16)		14,666	11,681	28,888
IAS 17 Rent charge		(4,444)	(3,568)	(8,306)
Adjusted EBITDA (IAS 17)		10,222	8,113	20,582
Loss before tax		(2,494)	(4,250)	(6,700)
Exceptional administrative expenses	3	3,677	-	462
Exceptional finance costs		1,447	-	-
Adjusted profit / (loss) before tax (IFRS 16)		2,630	(4,250)	(6,238)
IAS 17 Rent charge		(4,444)	(3,568)	(8,306)
IFRS 16 Right of use asset depreciation		3,090	2,469	5,694
IFRS 16 Leasehold depreciation		(189)	(130)	(294)
IFRS 16 Lease interest charge		2,499	2,028	4,671
IFRS 16 Lease interest income		(24)	(25)	(54)
Adjusted profit / (loss) before tax (IAS 17)		3,562	(3,476)	(4,527)
Loss before tax		(2,494)	(4,250)	(6,700)
IAS 17 Rent charge		(4,444)	(3,568)	(8,306)
IFRS 16 Right of use asset depreciation		3,090	2,469	5,694
IFRS 16 Leasehold depreciation		(189)	(130)	(294)
IFRS 16 Lease interest charge		2,499	2,028	4,671
IFRS 16 Lease interest income		(24)	(25)	(54)
Loss before tax (IAS 17)		(1,562)	(3,476)	(4,989)

(1)   See notes 2 and 12 for details regarding the restatement as a result of the adoption of IFRS 16

Reconciliation of Statutory Results to Alternative Performance Measures (continued)

		24 weeks ended	24 weeks ended	52 weeks ended
	Note	6 October 2019	7 October 2018	21 April 2019
		£000	£000	£000
		Unaudited	Unaudited	Audited
			Restated (1)	Restated (1)
Adjusted profit / (loss) before tax (IFRS 16)		2,630	(4,250)	(6,238)
Tax credit / (charge)		429	(163)	(460)
Tax effect of exceptional items		(749)	-	(69)
Adjusted profit / (loss) after tax (IFRS 16)		2,310	(4,413)	(6,767)
IAS 17 Rent charge		(4,444)	(3,568)	(8,306)
IFRS 16 Right of use asset depreciation		3,090	2,469	5,694
IFRS 16 Leasehold depreciation		(189)	(130)	(294)
IFRS 16 Lease interest charge		2,499	2,028	4,671
IFRS 16 Tax effect		(159)	(132)	(290)
Adjusted profit / (loss) after tax (IAS 17)		3,107	(3,746)	(5,292)
Basic weighted average number of shares		90,953,614	19,110,695	19,110,695
Diluted weighted average number of shares		92,745,419	19,110,695	19,110,695
Basic earnings / (losses) per share (p)		3.4	(19.6)	(27.7)
Diluted earnings / (losses) per share (p)		3.4	(19.6)	(27.7)

Condensed Consolidated Statement of Comprehensive Income

For the 24 Week Period Ended 6 October 2019

		24 weeks ended	24 weeks ended	52 weeks ended
	Note	6 October 2019	7 October 2018	21 April 2019
		£000	£000	£000
		Unaudited	Unaudited	Audited
			Restated (1)	Restated (1)
Revenue		79,827	65,444	152,999
Cost of sales		(46,662)	(38,842)	(89,485)
Gross profit		33,165	26,602	63,514
Administrative expenses		(31,136)	(22,167)	(50,811)
Operating profit		2,029	4,435	12,703
Operating profit before exceptional items		5,706	4,435	13,165
Exceptional items included in administrative expenses	3	(3,677)	-	(462)
Finance income		24	25	54
Finance costs	4	(4,547)	(8,710)	(19,457)
Finance costs before exceptional items		(3,100)	(8,710)	(19,457)
Exceptional finance cost		(1,447)	-	-
Loss before taxation		(2,494)	(4,250)	(6,700)
Tax credit / (charge) on loss	5	429	(163)	(460)
Loss for the period		(2,065)	(4,413)	(7,160)
Other comprehensive (expense) / income:
Cash flow hedge - change in value of hedging instrument		(135)	(42)	333
Other comprehensive (expense) / income for the period		(135)	(42)	333
Total comprehensive expense for the period		(2,200)	(4,455)	(6,827)

Earnings per share

Basic	6	(2.3)	(23.1)	(37.5)
Diluted	6	(2.2)	(23.1)	(37.5)

Condensed Consolidated Statement of Financial Position

As at 6 October 2019

	Note	6 October 2019	7 October 2018	21 April 2019
		£000	£000	£000
		Unaudited	Unaudited	Audited
			Restated (1)	Restated (1)
Assets
Non-current
Intangible assets		113,227	113,227	113,227
Property, plant and equipment	8	164,936	132,584	149,261
Total non-current assets		278,163	245,811	262,488
Current
Inventories		1,338	1,173	1,500
Trade and other receivables		4,995	4,311	5,714
Derivative financial instruments		-	281	-
Cash and cash equivalents		3,160	767	6,500
Total current assets		9,493	6,532	13,714
Total assets		287,656	252,343	276,202
Liabilities
Current liabilities
Trade and other payables		(31,823)	(26,662)	(32,440)
Lease liabilities		(5,408)	(4,360)	(4,946)
Derivative financial instruments		(135)	-	(10)
Total current liabilities		(37,366)	(31,022)	(37,396)
Non-current liabilities
Borrowings	9	(31,966)	(161,146)	(172,112)
Other non-current liabilities		(64)	-	-
Lease liabilities		(93,049)	(74,476)	(84,192)
Deferred tax liabilities		(1,607)	(1,753)	(1,594)
Total liabilities		(164,052)	(268,397)	(295,294)
Net assets / (liabilities)		123,604	(16,054)	(19,092)
Called up share capital	10	1,025	53	53
Share premium		-	4,184	4,184
Hedge reserve		(135)	281	(10)
Other reserves		14,278	51	51
Accumulated profits / (losses)		108,436	(20,623)	(23,370)
Total equity		123,604	(16,054)	(19,092)

Condensed Consolidated Statement of Changes in Equity

For the 24 Week Period Ended 6 October 2019

	Share Capital	Share Premium	Hedge Reserve	Other Reserve	Accumulated Profits/ (Losses)	Total Equity
	£000	£000	£000	£000	£000	£000
At 22 April 2018	53	4,172	323	-	(13,945)	(9,397)
IFRS 16 Transition	-	-	-	-	(2,265)	(2,265)
At 22 April 2018 restated	53	4,172	323	-	(16,210)	(11,662)
Share transactions during the 24 week period	-	12	-	51	-	63
Loss for the period	-	-	-	-	(4,413)	(4,413)
Other comprehensive income	-	-	(42)	-	-	(42)
At 7 October 2018	53	4,184	281	51	(20,623)	(16,054)
Loss for the period	-	-	-	-	(2,747)	(2,747)
Other comprehensive expense	-	-	(291)	-	-	(291)
At 21 April 2019	53	4,184	(10)	51	(23,370)	(19,092)
Redeemable preference shares issued	100	-	-	-	-	100
Share for share exchange - ordinary shares	8,408	(4,184)	-	(4,224)	-	-
Preference debt for equity swap	66,193	-	-	18,451	-	84,644
Ordinary shares issued	3	-	-	-	-	3
Ordinary shares issued on IPO	308	61,288	-	-	(3,802)	57,794
Capital reduction	(74,040)	(61,288)	-	-	135,328	-
Share based payment charge	-	-	-	-	2,355	2,355
Loss for the period	-	-	-	-	(2,065)	(2,065)
Other comprehensive expense	-	-	(125)	-	(10)	(135)
At 6 October 2019	1,025	-	(135)	14,278	108,436	123,604

Condensed Consolidated Statement of Cash Flows

For the 24 Week Period Ended 6 October 2019

		24 Weeks ended	24 Weeks ended	52 Weeks ended
	Note	6 October 2019	7 October 2018	21 April 2019
		Unaudited	Unaudited	Audited
			Restated (1)	Restated (1)
		£000	£000	£000
Net cash generated from operating activities	11	12,695	9,383	28,287
Cash flows from investing activities
Purchase of property, plant and equipment		(11,179)	(9,775)	(21,162)
Disposal of property, plant and equipment		12	-	-
Net cash used in investing activities		(11,167)	(9,775)	(21,162)
Cash flows from financing activities
Issue of ordinary shares		57,794	12	12
Capital contribution		-	51	51
Bank loans advanced		31,912	-	6,000
Bank loans repaid		(71,000)	(1,000)	(2,000)
Repayment of other loans		(17,950)	-	-
Interest paid		(620)	(1,806)	(4,066)
Finance lease liabilities paid		(2,567)	(1,799)	(3,744)
Finance lease interest paid		(2,499)	(2,028)	(4,668)
Finance lease receivables		62	60	121
Net cash used in financing activities		(4,868)	(6,510)	(8,294)
Net decrease in cash and cash equivalents		(3,340)	(6,902)	(1,169)
Cash and cash equivalents at beginning of the period		6,500	7,669	7,669
Cash and cash equivalents at end of the period		3,160	767	6,500

Notes to the Condensed Consolidated Interim Financial Statements

1. General information

The Directors of Loungers plc (the "Company") and its subsidiaries (the "Group") present their interim report and the unaudited condensed financial statements for the 24 weeks ended 6 October 2019 ("Interim Financial Statements").

The Company is a public limited company, incorporated and domiciled in England and Wales, under the company registration number 11910770.  The registered office of the company is 15-16 Lower Park Row, Bristol BS1 5BN.

The Interim Financial Statements were approved by the Board of Directors on 3 December 2019.

The Interim Financial Statements have not been audited or reviewed by the auditors.  The financial information shown for the 24 weeks ended 6 October 2019 does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

The information shown for the 52 week period ended 21 April 2019 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 and has been extracted from the Annual Report and Financial Statements of Lion/Jenga Topco Limited ("Topco"), save for the restatements necessary to reflect the capital reorganisation undertaken ahead of the IPO of the Group on 29 April 2019 and the adoption of IFRS 16 (see notes 2 and 12).

The Interim Financial Statements should be read in conjunction with the Annual Report and Financial Statements of Topco for the period ended 21 April 2019, which were prepared in accordance with European Union endorsed International Financial Reporting Standards ("IFRS") and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  Topco is registered in Jersey and accordingly statutory accounts have not been delivered to the Registrar of Companies, these accounts are available on the Group's website.  The Independent Auditors' Report on Topco's Annual Report and Financial Statements for 2019 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

2. Basis of preparation

The Interim Financial Statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as endorsed by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.  They do not include all of the information required for a complete set of IFRS financial statements.  However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.

The Interim Financial Statements are presented in Pounds Sterling, rounded to the nearest thousand Pounds, except where otherwise indicated; and under the historical cost convention as modified through the recognition of financial liabilities at fair value through the profit and loss.

The Company was incorporated on 28 March 2019 as the vehicle for the purposes of achieving admission to trading on the AIM market of the London Stock Exchange ("Admission") and the Company had no significant transactions prior to Admission on 29 April 2019.  The Company acquired the entire share capital of Topco on 24 April 2019 in a share for share exchange.  The introduction of the Company into the Group has been accounted as a capital reorganisation.  In doing so the comparatives for the 24 weeks ended 7 October 2018 and the 52 weeks ended 21 April 2019 have been presented as if the Group had always existed in its current form.

The Directors consider that the principal risks and uncertainties faced by the Group are as set out in the Annual Report and Financial Statements of Topco for the 52 week period ended 21 April 2019.

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

New standards, interpretations, and amendments adopted by the Group

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

IFRS 16 supersedes IAS 17 and sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.

The Group has adopted IFRS 16 using the fully retrospective method with the date of initial application being 23 April 2018.

2. Basis of preparation (continued)

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

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

-       relying on previous assessment of whether a lease is onerous

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

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

Before the adoption of IFRS 16, the Group was required to assess and classify each of its leases at the inception date as either a finance lease or an operating lease. All leases have previously been classified as operating leases. In an operating lease, the leased asset was not capitalised, and the lease payments were recognised as rent expense in the income statement on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under prepayments and trade and other payables, respectively.

Under IFRS 16, the Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. Unless the Group is reasonably certain to obtain ownership of the leased assets at the end of the lease term, the recognised right-of-use assets are depreciated over the shorter of its estimated useful life and lease term. Right-of-use assets are subject to impairment testing.

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 fixed payments less any lease incentives receivable.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if 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 lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification or a change in the lease term.

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

In accordance with the fully retrospective method of adoption, the Group applied IFRS 16 at the date of initial application as if it had already been effective at the commencement date of existing lease contracts. Accordingly, the comparative information in these interim condensed consolidated financial statements has been restated, as summarised and set out in Note 12.

Going concern

The Directors have, at the time of approving these interim financial statements, a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, the Directors continue to adopt the going concern basis in preparing the interim financial statements.

Accounting estimates and judgements

In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements of Topco for the 52 week period ended 21 April 2019.

3. Exceptional Items

	24 Weeks ended	24 Weeks ended	52 Weeks ended
	6 October 2019	7 October 2018	21 April 2019
	£000	£000	£000
	Unaudited	Unaudited	Audited
IPO Related costs	1,521	-	462
IPO Related share based payment charge	2,156	-	-
	3,677	-	462

The IPO related costs relate to costs incurred in the preparation and execution of the Group's IPO which completed on 29 April 2019.  The IPO related share awards relate to one-off share awards made on completion of the Group's successful IPO.

Further costs of £3,802,000 directly related to the issuance of equity have been deducted from equity.

4. Finance costs

	24 Weeks ended	24 Weeks ended	52 Weeks ended
	6 October 2019	7 October 2018	21 April 2019
	£000	£000	£000
	Unaudited	Unaudited	Audited
Bank interest payable	566	2,036	4,327
Other loan interest payable	18	910	2,058
Preference share interest	17	3,736	8,401
IFRS 16 lease interest	2,499	2,028	4,671
Exceptional write off of loan arrangement fees	1,447	-	-
	4,547	8,710	19,457

The IPO process saw the preference shares and accrued dividends in Topco exchanged for ordinary shares in Loungers plc and the repayment of the unsecured loan stock.

The IPO included a re-financing of the Group's bank debt.  This re-financing necessitated the write off of loan arrangement fees incurred in the Group's May 2017 financing.  This was a non-cash charge.

5. Tax on loss

	24 Weeks ended	24 Weeks ended	52 Weeks ended
	6 October 2019	7 October 2018	21 April 2019
	£000	£000	£000
	Unaudited	Unaudited	Audited
Taxation charged to the income statement
Current income taxation	(442)	412	918
Amounts (under)/over provisioned in earlier years	-	-	(51)
Total current income taxation	(442)	412	867
Deferred Taxation
Origination and reversal of temporary differences
Current period	13	(249)	(420)
Prior period	-	-	8
Effect of changes in tax rates	-	-	5
Total deferred tax	13	(249)	(407)
Total taxation (credit) / expense in the consolidated income statement	(429)	163	460

The income tax expense was recognised based on management's best estimate of the effective income tax rate expected for the full financial year, applied to the loss before tax for the 24 weeks ended 6 October 2019.  The effective tax rate used is 17.2% (2019: (3.8%)).

6. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of shares outstanding during the period, 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 period ended 6 October 2019 the Group had potentially dilutive shares in the form of unvested shares pursuant to the above long-term incentive plans.

	24 Weeks ended	24 Weeks ended	52 Weeks ended
	6 October 2019	7 October 2018	21 April 2019
	Unaudited	Unaudited	Audited
	£000	£000	£000
Loss for the period after tax	(2,065)	(4,413)	(7,160)
Basic weighted average number of shares	90,953,614	19,110,695	19,110,695
Adjusted for share awards	1,791,805	-	-
Diluted weighted average number of shares	92,745,419	19,110,695	19,110,695
Basic losses per share (p)	(2.3)	(23.1)	(37.5)
Diluted losses per share (p)	(2.2)	(23.1)	(37.5)

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

	24 Weeks ended	24 Weeks ended	52 Weeks ended
	6 October 2019	7 October 2018	21 April 2019
	Unaudited	Unaudited	Audited
	£000	£000	£000
Loss for the period before tax	(2,494)	(4,250)	(6,700)
Exceptional items	3,677	-	462
Exceptional write off of loan arrangement fees	1,447	-	-
Adjusted profit for the period before tax	2,630	(4,250)	(6,238)
Tax credit / (charge)	429	(163)	(460)
Tax effect of exceptional items	(749)	-	(69)
Adjusted Profit / (loss) for the period after tax	2,310	(4,413)	(6,767)
Basic earnings / (losses) per share (p)	2.5	(23.1)	(35.4)
Diluted earnings / (losses) per share (p)	2.5	(23.1)	(35.4)

7. Share based payments

The Group had the following share based payment arrangement in operation during the period:

-       Loungers plc Employee Share Plan

-       Loungers plc Senior Management Restricted Share Plan

-       Loungers plc Value Creation Plan

The Group recognised a total charge of £2,355,000 in respect of the Group's share based payment plans and related employer's national insurance of £325,000.  The total cost of £2,680,000 includes £2,156,000 that relates to awards made at IPO and in recognition of the Group's successful IPO.  These costs have been treated as exceptional IPO related costs.  A further charge of £524,000 relates to ongoing share based payments in respect of the above three plans.

8. Fixed assets

	Leasehold Building Improvements	Motor Vehicles	Fixtures and Fittings	Right of Use Asset	Total
	£000	£000	£000	£000	£000
Cost
At 23 April 2018 (as previously stated)	39,413	104	28,167	-	67,684
Adoption of IFRS 16	(3,859)	-	-	80,998	77,139
At 23 April 2018 (as restated)	35,554	104	28,167	80,998	144,823
Additions	4,303	7	5,465	7,472	17,247
Disposals	-	-	(73)	-	(73)
At 7 October 2018	39,857	111	33,559	88,470	161,997
Additions	5,357	30	6,641	12,385	24,413
Disposals	(287)	(58)	(239)	(221)	(805)
At 22 April 2019	44,927	83	39,961	100,634	185,605
Additions	4,308	10	6,761	11,886	22,965
Disposals	-	(12)	(30)	-	(42)
At 6 October 2019	49,235	81	46,692	112,520	208,528
Depreciation
At 23 April 2018 (as previously stated)	3,348	29	5,301	-	8,678
Adoption of IFRS 16	(535)	-	-	15,424	14,889
At 23 April 2018 (as restated)	2,813	29	5,301	15,424	23,567
Provided for the period	1,186	12	2,252	2,469	5,919
Disposals	-	-	(73)	-	(73)
At 7 October 2018	3,999	41	7,480	17,893	29,413
Provided for the period	1,486	15	2,901	3,225	7,627
Disposals	(286)	(56)	(230)	(124)	(696)
At 21 April 2019	5,199	-	10,151	20,994	36,344
Provided for the period	1,382	16	2,798	3,090	7,286
Disposals	-	(12)	(26)	-	(38)
At 6 October 2019	6,581	4	12,923	24,084	43,592
Net book value
At 6 October 2019	42,654	77	33,769	88,436	164,936
At 21 April 2019	39,728	83	29,810	79,640	149,261
At 7 October 2018	35,858	70	26,079	70,577	132,584
At 22 April 2018 (as restated)	32,741	75	22,866	65,574	121,256

9. Borrowings

	6 October 2019	7 October 2018	21 April 2019
	£000	£000	£000
	Unaudited	Unaudited	Audited
Non-current
Bank loan	32,500	66,000	71,000
Loan arrangement fees	(534)	(1,600)	(1,447)
	31,966	64,400	69,553
Loans from related parties	-	16,784	17,932
Preference shares	-	79,962	84,627
	31,966	161,146	172,112

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

As part of the IPO process, a share for share exchange saw the preference shares and accrued dividends in Topco (21 April 2019: £84,627,000) reclassified as ordinary shares in Loungers plc.  Net proceeds of £57,794,000 raised from the IPO and a new term loan facility of £32,500,000 were utilised to repay outstanding loan stock (21 April 2019: £17,932,000) and bank debt (21 April 2019: £71,000,000).

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

At 6 October 2019 the term loan was fully drawn.  The revolving credit facility was undrawn.

10. Share capital

	6 October 2019	7 October 2018	21 April 2019
	£000	£000	£000
	Unaudited	Unaudited	Audited
Allotted, called up and fully paid ordinary shares	925	53	53
Redeemable preference shares	100	-	-
	1,025	53	53
Ordinary shares at £0.01 each	92,500,000	-	-
Ordinary A shares at £0.01 each	-	2,737,281	2,737,281
Ordinary B shares at £0.01 each	-	946,052	946,052
Ordinary C shares at £0.09 each	-	129,999	129,999
Ordinary D shares at £0.01 each	-	417,086	417,086
Redeemable preference shares	2	-	-

The table below summarises the movements in share capital for Loungers plc during the period ended 6 October 2019:

	Ordinary	Ordinary	Preference	Deferred	Redeemable	£000
	Shares	Shares	Shares	Shares	Preference
					Shares
	£1.00 NV	£0.01 NV	£0.50 NV	£0.01 NV	£49,999 NV
	Number of shares
At date of incorporation	1	-	-	-	1	50
Share for share exchange	8,460,835	-	132,386,444	-	1	74,704
Share conversion	-	42,322,050	(132,386,444)	6,577,000,150	-	-
Share subdivision	(8,460,836)	19,110,695	-	826,972,905	-	-
Shares issued	-	269,158	-	-	-	-
Shares issued on IPO	-	30,798,097	-	-	-	311
Capital reduction	-	-	-	(7,403,973,055)	-	(74,040)
At 7 October 2019	-	92,500,000	-	-	2	1,025

The Company was incorporated on 28 March 2019 with one ordinary share of £1 and one redeemable preference share of £49,999.

10. Share capital (continued)

On 23 April 2019 the shareholders of Topco exchanged their ordinary and preference shares in Topco for ordinary shares of £1.00 and preference shares of £0.50 in the Company.  There immediately followed a share conversion whereby the preference shares of £0.50 in the Company were exchanged for ordinary shares of £0.01 and deferred shares of £0.01, and a share subdivision and conversion whereby the ordinary shares of £1.00 in the Company were converted into ordinary shares of £0.01 and deferred shares of £0.01.

On 29 April 2019 the Company allotted a further 31,067,255 ordinary shares of £0.01, raising gross proceeds of £61,599,000.

On 10 September 2019 the Court approved the cancellation of 7,403,973,055 deferred shares of £0.01.

11. Note to the cash flow statement

		24 Weeks ended	24 Weeks ended	52 Weeks ended
	Note	6 October 2019	7 October 2018	21 April 2019
		£000	£000	£000
Cash flows from operating activities
Loss after tax		(2,065)	(4,413)	(7,160)
Adjustments for:
Depreciation of property, plant and equipment		4,196	3,451	7,852
Depreciation of right of use assets		3,090	2,469	5,694
Share based payment transactions		2,680	246	(87)
Profit on disposal of fixed assets		(8)	-	(29)
Interest receivable		(24)	(25)	(54)
Interest payable		4,547	8,710	19,457
Taxation (credit) / expense		(429)	163	460
Changes in inventories		162	(108)	(435)
Changes in trade and other receivables		780	804	(703)
Changes in trade and other payables		390	(1,417)	4,310
Cash generated from operations		13,319	9,880	29,305
Tax paid		(624)	(497)	(1,018)
Net cash generated from operating activities		12,695	9,383	28,287

12. Restatement on adoption of IFRS 16

Interim consolidated income statement

	24 weeks ended	IFRS 16	24 weeks ended
	7 October 2018	Transition	7 October 2018
	£000	£000	£000
	Unaudited		Unaudited
			Restated
Revenue	65,444	-	65,444
Cost of sales	(38,842)	-	(38,842)
Gross profit	26,602	-	26,602
Administrative expenses	(23,396)	1,229	(22,167)
Operating profit	3,206	1,229	4,435
Finance income	-	25	25
Finance costs	(6,682)	(2,028)	(8,710)
Loss before taxation	(3,476)	(774)	(4,250)
Tax credit / (charge) on loss	(295)	132	(163)
Loss for the period	(3,771)	(642)	(4,413)

	52 weeks ended	IFRS 16	52 weeks ended
	21 April 2019	Transition	21 April 2019
	£000	£000	£000
	Audited		Audited
			Restated
Revenue	152,999	-	152,999
Cost of sales	(89,485)	-	(89,485)
Gross profit	63,514	-	63,514
Administrative expenses	(53,717)	2,906	(50,811)
Operating profit	9,797	2,906	12,703
Finance income	-	54	54
Finance costs	(14,786)	(4,671)	(19,457)
Loss before taxation	(4,989)	(1,711)	(6,700)
Tax credit / (charge) on loss	(750)	290	(460)
Loss for the period	(5,739)	(1,421)	(7,160)

12. Restatement on adoption of IFRS 16 (continued)

Consolidated statement of financial position

	7 October 2018	IFRS 16 Transition	7 October 2018		21 April 2019	IFRS 16 Transition	21 April 2019
	£000		£000		£000		£000
	Unaudited		Unaudited		Audited		Unaudited
			Restated				Restated
Assets
Non-current
Intangible assets	113,227	-	113,227		113,227	-	113,227
Property, plant and equipment	65,965	66,619	132,584		74,073	75,188	149,261
Total non-current assets	179,192	66,619	245,811		187,300	75,188	262,488
Current
Inventories	1,173	-	1,173		1,500	-	1,500
Trade and other receivables	4,906	(595)	4,311		6,289	(575)	5,714
Derivative financial instruments	281	-	281		-	-	-
Cash and cash equivalents	767	-	767		6,500	-	6,500
Total current assets	7,127	(595)	6,532		14,289	(575)	13,714
Total assets	186,319	66,024	252,343		201,589	74,613	276,202
Liabilities
Current liabilities
Trade and other payables	(27,338)	676	(26,662)		(33,095)	655	(32,440)
Lease liabilities	-	(4,360)	(4,360)		-	(4,946)	(4,946)
Derivative financial instruments	-	-	-		(10)	-	(10)
Total current liabilities	(27,338	(3,684)	(31,022)		(33,105)	(4,291)	(37,396)
Non-current liabilities
Borrowings	(161,146)	-	(161,146)		(172,112)	-	(172,112)
Lease liabilities	-	(74,476)	(74,476)		-	(84,192)	(84,192)
Accruals and deferred income	(8,504)	8,504	-		(9,312)	9,312	-
Deferred tax liabilities	(2,348)	595	(1,753)		(2,348)	754	(1,594)
Provisions	(130)	130	-		(118)	118	-
Total liabilities	(199,466)	(68,931)	(268,397)		(216,995)	(78,299)	(295,294)
Net assets / (liabilities)	(13,147)	(2,907)	(16,054)		(15,406)	(3,686)	(19,092)
Called up share capital	53	-	53		53	-	53
Share premium	4,184	-	4,184		4,184	-	4,184
Hedge reserve	281	-	281		(10)	-	(10)
Other reserve	51	-	51		51	-	51
Accumulated profits / (losses)	(17,716)	(2,907)	(20,623)		(19,684)	(3,686)	(23,370)
Total equity	(13,147)	(2,907)	(16,054)		(15,406)	(3,686)	(19,092)

12. Restatement on adoption of IFRS 16 (continued)

Consolidated statement of cash flows

	24 Weeks ended	IFRS 16 Transition	24 Weeks ended		52 Weeks ended	IFRS 16 Transition	52 Weeks ended
	7 October 2018		7 October 2018		21 April 2019		21 April 2019
	£000	£000	£000		£000	£000	£000
Cash flows from operating activities
Loss after tax	(3,771)	(642)	(4,413)		(5,739)	(1,421)	(7,160)
Adjustments for:
Depreciation of property, plant and equipment	3,580	(129)	3,451		8,147	(295)	7,852
Depreciation of right of use assets	-	2,469	2,469		-	5,694	5,694
Share based payment transaction	246	-	246		(87)	-	(87)
Profit / (loss) on disposal of fixed assets	-	-	-		12	(41)	(29)
Interest receivable	-	(25)	(25)		-	(54)	(54)
Interest payable	6,682	2,028	8,710		14,786	4,671	19,457
Taxation expense	295	(132)	163		750	(290)	460
Changes in inventories	(108)	-	(108)		(435)	-	(435)
Changes in trade and other receivables	380	424	804		(1,074)	371	(703)
Changes in trade and other payables	(427)	(990)	(1,417)		6,089	(1,779)	4,310
Changes in provisions	-	-	-		(12)	12	-
Cash generated from operations	6,877	3,003	9,880		22,437	6,868	29,305
Tax paid	(497)	-	(497)		(1,018)	-	(1,018)
Net cash generated from operating activities	6,380	3,003	9,383		21,419	6,868	28,287
Cash flows from investing activities
Purchase of property, plant and equipment	(10,539)	764	(9,775)		(22,585)	1,423	(21,162)
Net cash used in investing activities	(10,539)	764	(9,775)		(22,585)	1,423	(21.162)
Cash flows from financing activities
Issue of ordinary shares	12	-	12		12	-	12
Capital contribution	51	-	51		51	-	51
Banks loan advanced	-	-	-		6,000	-	6,000
Bank loans repaid	(1,000)	-	(1,000)		(2,000)	-	(2,000)
Interest paid	(1,806)	-	(1,806)		(4,066)	-	(4,066)
Finance lease liabilities paid	-	(1,799)	(1,799)		-	(3,744)	(3,744)
Finance lease interest paid	-	(2,028)	(2,028)		-	(4,668)	(4,668)
Finance lease receivables	-	60	60		-	121	121
Net cash used in financing activities	(2,743)	(3,767)	(6,510)		(3)	(8,291)	(8,294)
Net decrease in cash and cash equivalents	(6,902)	-	(6,902)		(1,169)	-	(1,169)
Cash and cash equivalents at beginning of period	7,669	-	7,669		7,669	-	7,669
Cash and cash equivalents at end of period	767	-	767		6,500	-	6,500

 

END

 

 

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