REG - Loungers PLC - Interim Results
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: +44 (0) 20 7484 4040
Liberum Capital Limited (Joint Broker)
Andrew Godber / John Fishley
Tel: +44 (0) 20 3100 2000
Peel Hunt LLP (Joint Broker)
Dan Webster / George Sellar
Tel: +44 (0)20 7418 8900
Instinctif Partners (Financial Public Relations)
Justine Warren / Matthew Smallwood
Tel: +44 (0) 207 457 2020
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
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Recent news on Loungers
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