Loungers (LGRS) — Interim Results

0:02 Good afternoon, and welcome to the LOUNGERS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to Nick Collins, CEO, and Gregor Grant, CFO. Good afternoon. Good afternoon, everyone, and thank you for joining us for our interim results presentation for the twenty four weeks ending 10/02/2022.

0:52 My name is Nick Collins. I'm chief executive. I'm just gonna run through some highlights. I will then hand over to, Gregor, who'll go through the financials, and he'll then hand back to me to talk through some of the strategic and operational side,

1:05 and I will then close. But looking at the first slide, the highlight slide, and I... First, we're really pleased with how the business has performed in the first half. We've continued to consistently outperform the market with some really strong trading. Our like for likes over the period were plus 17% on a three year basis, and that's at least 15% ahead of the market. And we've been consistently 15% ahead of the market for the last eighteen months. That sales uplift reflects both volume growth and price increases. And whilst the balance shifted from where we've been in previous years, I think we're in quite stark contrast to the rest of the sector in terms of the fact we're still building volumes, growing volumes in this environment.

1:50 We believe we remain very well positioned in a recessionary environment through our balance of margin protection and value for money price point. Talk about this a lot, and Greg will come on to cover it in more depth.

2:02 We have a fifth build team up and running, and our new site openings continue to perform well. We've opened 17 sites so far this financial year. We're also introducing our roadside dining brand, BrightSide, and I'll come and talk about that a bit later on. And finally, current trading remains very strong. In the last few weeks, we've seen a slight improvement in our like for like sales beyond the plus 17% that we saw for the first twenty four weeks, and, we approach Christmas with optimism. So I'll hand over to Greg Ornaire. Thank you, Nick, and good afternoon. For those of you who've joined us before, as I take you through the numbers, it's a reasonably familiar format, hopefully. We'll start with some highlights. I'll take a little look at like for like sales performance and the strength of that performance.

2:50 Then we'll take a a deeper look at our margins, some thoughts on inflationary pressures, and then I'll finish off, if I may, with a look at cash flow, our CapEx spend, and the net debt position.

3:08 So the the first slide, highlight slide, and the the first thing to point out on this slide is that I'm comparing our performance in the first half of f y twenty three against our performance three years ago in the first half of f y twenty. So I'm looking at two periods in time where there's there's no impact from COVID, either positive impact of government support measures or negative impact of lockdowns. And and another important point to note when we're talking about the first half is that we're looking at a twenty four week period. And typically within our business, we'd expect to see the sales split about 43% in the first half and 57% in the second half. So some highlights from this slide. In terms of our revenue, £122,300,000.

3:54 That's up just over 53 percent on three years ago, and that growth is driven by the fact that we had an additional 50 sites in the estate. So our estate had grown from a 156 to 206 sites, and equally by a very strong three year like for like sales performance with our like for like sales on a three year basis up plus 17%. Looking further down the p and l account at the group gross profit line, and the lounges on its gross profit line includes a cost of goods sold plus our site labor costs. So gross profit of 47,900,000. That's a margin of 39.2%, and we see there 230 basis points of margin weakening on a three year basis. And we'll look at this in more detail later, but the primary driver behind that is labor costs.

4:43 Further down that p and l, adjusted EBITDA on an IAS 17 basis of 13,500,000. That's an 11% EBITDA margin, and there we see the the margin weakening has reduced to a 180 basis points. So seeing some benefit there from our fixed cost base in particular. And then finally, to pull out on this slide four, our PBT on an IFRS 16 basis of 2,800,000. Moving on to slide five, which is a second of the highlights slide. Here, I'm comparing our performance in the first half of f y twenty three against the first half of f y twenty two. And clear... Clearly, on a year on year basis, our numbers are very distorted, notably on the EBITDA line, and the distortion is really driven by the level of government support that we enjoyed last year, in particular, in respect of VAT, which was worth £9,500,000 to us in the first half of f y twenty two, and secondly, from the business rate support, which in... Which we enjoyed last year as well. That was worth about £2,500,000.

5:44 And it's the absence of those two support measures which leads to the EBITDA margin declining to 15.8% from 26.5% last year. If you strip out those two measures, the year on year decline is about 1.3.

6:01 Moving on to slide six and looking at our like for like sales performance. The top half of this slide looks at our performance on a three year basis, and that's where we reported a three year like for like of plus 17% in the first half. Now rolling that forward by another eight weeks, which takes us up to the November 27, that 17% performance becomes plus 17.4%. So a strengthening in our three year like for like performance, and effectively a like for like of plus 18.5 over those last eight weeks. The second half of the slide looks at our one year like for like performance, and I think as we flagged back in July at the the full year numbers, this is a more subdued performance at least in the first half where we've reported plus 1.5%. However, what you do see is a strengthening in that performance again over the last eight weeks. So on a twenty eight week basis, we're at plus 3.2%, implying a last eight weeks at plus seven and a half percent on a one year basis.

7:00 Moving to slide seven. This chart looks to show how consistent that three year like for like sales performance has been since we reopened the business following the third lockdown in May 2021. Each of these bars is effectively a twelve week period with the exception of the bar on the far right hand side, which is just the final eight weeks. And I think two real standout points here. Firstly, if you exclude the Omicron impact at Christmas of last year, each of these bars is remarkably consistent. And I think the second key point to pull out is that the bar on the right hand side, this last eight weeks at plus 18.5, is the second strongest performance in the business since that immediately immediate post reopening period back in May, June, July of last year.

7:45 Flicking on to slide eight, and again, this is a really important standout feature, I think, of the lounges business. And what I'm looking to do here is to show how the plus 17.4% like for like, which is represented by the dotted line, is split across the different age cohorts within the estate. So the bar on the left hand side, which is entitled f y 13 and pre, that represents a 29 sites within our estate that opened prior to April 2013. So at least nine years old, these sites. And what's important is that those sites delivered 14.7% of our like for like sales performance. So again, a really consistent performance across the entire estate. It's not a like for like sales result, is driven by our new site openings. As I say, consistent across the entire range of sites.

8:34 Moving on to look at margin on slide nine. What I've done here is is bridge effectively the 12.8% IAS 17 adjusted EBITDA margin of FY twenty to the 11% that we're reporting for the first half of this year. And as you can see, it's a cost of sales line, which is cost of goods sold plus site labor, which accounts for the bulk of that decline, accounting for 230 basis points. And within that 230 basis points, it's very pleasing to report that we have a positive 60 basis points in terms of cost of goods sold. So still benefiting from the food and drink supply contracts that were put in place back in 2019. Labor though is 290 basis points negative, and that's a continuation of the trend that we reported on a two year basis, excuse me, back in July, where we were looking at a 130 basis points negative at that point.

9:27 Variable costs account for 20 basis points negative, and within that utilities account for 30 basis points. We then see the benefit of, spreading our our sales over a fixed cost base in terms of rent predominantly, with 90 basis points of benefit in terms of rent and service charge. And then finally, we have central costs giving us 20 basis points negative over the three year period, and that really reflects continued investment to support our growth. And then if you look at individual lines of pain, there's a little bit of pain on both the print and the insurance cost lines.

10:03 Moving to slide 10, and looking at our margin outlook and the inflationary pressures within the business at the moment. This slide is an update on our expectations that we shared back in July. Back in July, clearly very early in the financial year, and I think we acknowledged at that time that there were plenty of unknowns still still to come. I think what we see in broad, comparing our July expectations to our updated November expectations is that clearly, you know, we're at the top end of our July expectations and typically plus a percentage point or so. So in terms of cost of goods sold on the food line, whereas in July, we were looking at an expectation for the full year of six to 9%, we're now thinking that's more likely to be nine to 10%. And with inflationary pressures having calmed down over the summer period, as we entered October and November, we saw an uptick again in some of those pressures, notably in respect of winter produce, and more recently the dairy basket, where we're seeing about an 11% increase in terms of milk and cheese costs.

11:05 Labor, where we were expecting back in July to be six to 8%, we're now expecting about 9% for the full year. And when we look at our labor spend on a week by week basis, typically, rate of pay that... Per hour that we spend is increasing each week, year on year by about eight to 9%. In terms of selling price, we thought we would be taking between 36% for the full year, and we've come out at the top end of that range expecting now to take about 7% year on year for the full year. That's 3% that we took back in April and another 4% that we've taken in October of this year. Looking forward, initiatives that we've talked about in the past in respect of consolidated distribution and our food and supply drink contracts, We expect to see significant progress on that in the first half of calendar twenty three, not least where we have all of our food and drink supply contracts up for renegotiation and renewal.

11:58 And that should help to support our cost of goods sold margin during f y twenty

12:02 four. In terms of the living wage, there's an... Increase has been announced at 9.7% to £10.42 for those 23 years old and over, and that'll come into effect on the April 1 next year. So when we look forward to our FY twenty four margins, our expectation is at the moment is that they will be in line with FY twenty three. We expect to see a lessening in the pressure in terms of food and drink cost of goods sold, but we see labor continuing to be a pressure on margins.

12:33 Moving forward to slide 11. Clearly, the business works very hard to drive its top line revenue to grow share and volume, but at the same time, we have a focus on making sure that we are efficient in terms of our cost base. It's fair to say that there's no one single action within the business to cut to cut our costs, but the opportunities do exist to cut waste and deliver savings across a wide range of our cost lines. And these are often about changing long ingrained working practices and behaviors. I give a few examples on slide 11 of of opportunity within the business. I won't focus on all of these, but a couple to mention, for example, are minimizing energy consumption. Consumption. So whilst the business is benefiting significantly from the energy hedges that we put in place back in May 20 and which run through to the end of September twenty four, it's still really important that we do everything within our within our control to reduce our consumption.

13:28 So we're monitoring on a site by site basis, on a weekly basis. We're looking for all those examples where sites are, for example, leaving on their air conditioning overnight, not closing walk in fridge doors and the like. A second example would be improving our fryer oil yields. It's a very significant area of expenditure for the business, with prices having increased by 44% year on year. So that's really about making sure that we're only changing the oil when we need to, that we're testing it and filtering the oil, and introducing efficient working practices throughout the business. There are a couple of areas though which it's really important to note that we're not touching. The first of those is to make sure that we do nothing to impact ingredient quality or portion sizes. They're key parts of our value for money offer and proposition.

14:13 And secondly, our ability to deliver great service and hospitality. It's really important to driving the top line, and there's absolutely nothing we would want to do which would which would introduce, for example, a blunt reduction on hours. So whilst we'll continue to be really careful in terms of how we forecast our sales on a weekly basis and make sure that our roaches are efficient and appropriate, as I say, there'll be no blunt, blunt reduction in labor hours. Moving on then to look at cash flow, CapEx, and net debt. On slide 12, you'll see that we generated cash from operations of £7,300,000 in the first half. And what marks out the first half in our business typically is that you see a working capital outflow, and that's purely a function of timing.

15:00 If you compare the end of the first half on the October 2 to the end of the full year previously on the April 17, that October 2 end of the first half comes just after we've paid the, the September liabilities, and importantly, the September rent quarter. We'd expect that working capital outflow at the half year to be normalized in the full year and give us a working capital inflow, which is typical of our business growing its like for like sales and opening new sites. That £7,300,000 of cash from operations, you'll see £3,400,000 has been spent on maintenance CapEx to leave us with free cash flow of 3,300,000, and then out of that, we spent 10,300,000 on new site CapEx and 1,300,000 on one freehold and one leasehold premium, leaving us at the end of the half year with £23,000,000 of cash.

15:54 On slide 13, we break down that CapEx spend. And within the the the cash outflow of 15,000,000 after a creditors movement of point nine, that's a total net spend of £15,900,000. And within that, 11,200,000 was on our new site CapEx spend. And within that, in turn, we spent £9,700,000 on the 11 new sites that were built and opened in the first half. The average cost of a lounge in the first half of £750,000 have moved up slightly from the 735 for a lounge that we reported, back in July. Further down that CapEx analysis, maintenance CapEx of £1,600,000 represents 1.3% of revenue, very much in line with f y twenty two. And at the same time, our p and l maintenance spend represents 1.7% of revenue.

16:45 Other areas of spend include continuation of the kitchen reset program, which was in full flow prior to COVID and which we have worked to complete with 22 sets completed in the second... 22 resets completed in the first half of this year, and we'll look to finish the remainder in the second half. And then final element of furniture refurb spend of 600,000 in the first half. This was a cost of refurbishing furniture, which was taken out of our sites for social distancing measures at the beginning of COVID and has now been returned to our sites. And then the final element, that £1,300,000 of freehold leasehold premium spend, that included a spend of £850,000 on our cosy club Canterbury site and a reverse premium paid in respect of a lounge which we'll look to open in the second half of this year.

17:34 And then finally, in terms of our closing net debt position, we finished the year with finished the half year, sorry, with net debt of £9,500,000. And important to look at that if you like on a year on year basis, so at the first half of f y twenty two, we finished the first half with 7 point... £17,500,000 of net debt. So year on year improvement of £8,000,000 in a year in which we spent just over £31,000,000 on CapEx and also seen a cash outflow in respect of our final settlement of our COVID liabilities in respect of rent, and VAT balances of just under 6,000,000. So against that context, a strong improvement in our net debt, as I say, to £9,500,000. And we finished the half with a strong balance sheet and a very well funded business. And on that basis, I will hand back to Nick, if I may.

18:23 Thank you very much, Gregor. So in the next few slides, I will endeavor to give you some insights in terms of how the business has moved on in the first half and indeed what's been driving the the strong performance that Gregor has just set out. This this first slide just looks at our... The food in the business, and our food really hasn't ever been quite this as good as it is now. I think after COVID, eighteen months ago when we came back after lockdown three, we had smaller menus, and we had a very confused workforce, and it was very much a case of getting everything back open and and and and serving our customers. And I think what we've seen over the last eighteen months is the menus get back up to to to full length, so increase the number of dishes.

19:09 And also our development teams, I think they've really helped move move the menus on. So looking at the pictures here, just to give you a little bit of insight. In the middle of the top there, you can see the lounge breakfast. So this is a dish that's been on our menu for the last twenty years. It's our best selling dish. We sell around 30,000 of those a week. And beneath that, you can see a burger. And indeed, we sell... We have about six or seven different burgers on the lounge menu, we sell around 40,000 burgers a week. Now when we think about menu innovation and evolution, it's not just putting new dishes onto the menu, but it's also changing and adapting and improving dishes which are always gonna be on the menu, which we sell an awful lot. And that might just mean tweaking the the source of the egg or the source of the bread on the lunch breakfast, and that might be either to improve the dish for the customer. It might be, to help us from a gross margin or a value for money perspective, or indeed it might be to make life easier in our kitchens to make the dish simpler to deliver and therefore make it easier for our teams to to produce quickly.

20:12 But then I guess the other side of of of, menu evolution is introducing new dishes to our menu. So on the top left there, you can see the Miami brunch. That's a dish that came on about six weeks ago. We sell around three and a half thousand of those a week. Bottom left, you can see our vegetarian biryani bowl. We sell around two and a half, 3,000 of those a week. And in the bottom right, you can see the lounge flatbread, and we sell around 4,000 of those a week. And it's this... The lounge and cozy club menus neither are wedded to any specific cuisine. So two or three times a year, we can introduce new dishes whenever we want. We can put whatever we want onto the menu. And it's this innovation that drives the repeat visits. Lots of our customers come two, three, maybe four times a week, and that they are the ones who need to see different dishes on the menu. And as I said, going back, we've got we've got real strength and depth in our food development teams now, and the menus never have been this good.

21:11 Looking at the next slide and, and again, thinking about evolution and how our design goes from strength to strength. And in the last last six, twelve months, we've invested in our in house design team. We now have three in house designers and an in house architect, and they're introducing new elements to both LOUNGERS and Cozy Club. It's really important, I think, for people who aren't familiar with our business, you may well think of 212 sites out there across England and Wales, and they all look the same, but but that really couldn't be further from the truth. And each site being different and each site giving a nod to its local community or its local high street is really fundamental to our continued success. And that's what I've tried to show in some of these pictures here. So looking at the top picture in the middle, you can see, that's the bar and the back bar of our lounge, the Berto Lounge in Egham, which opened earlier this year.

22:02 Each back bar is individually designed for each lounge. So that one there, we could... Egham is near Runnymede, is where the Magna Carta was signed. And what you can see there on the back bar, our designers and our decorators have taken an image from the Magna Carta and and and replicated it on our back bar. And as I said, that happens in all the lounges right across the country. Another way that we could give that nod to the local community is in terms of what a site is called. In the bottom right there, you can see Prospero Lounge, which is a lounge which opened in Stratford On Avon about six weeks ago. Prospero character from the Tempest and the the the obvious connection to Stratford On Stratford On Avon. So as long as they end in an o, normally, we'll try and make sure each lounge gives it has some sort of connection with it... With with the local high street or the local town.

22:51 Then in the top left there, there's a there's a picture of the interior of our our lounge in Richmond, which opened earlier this year, and that's Richmond, North Yorkshire, not Richmond, West London. That's an example of where we take... It took a former HSBC bank. We really enjoy dealing with period, or heritage properties. And I don't know how well you can see it for that photo, but you can see the beautiful corner scene. We... Our decorators and our design teams love working with period property. The estate remains very well maintained, and one of the things that we talk about is if you go into any of our sites, it's very hard to determine whether it's eight years old or eight months old just because they're in such good condition. We... There's... We have no kind of fixed refurbishment cycle. What we do do is every now and again is if we look at a site and we think, is there anything that we can do better?

23:40 And we call that a splash and a dash. And there are eight sites programmed in for splash and dash in FY twenty three straight twenty four, and they're varying in scope. Some of them that will be very straightforward. Simple work might be just redecorating one wall or with a couple of them, it might be more complete work.

24:00 Next slide just touches on Christmas, and the emphasis in... On Christmas is is different across the two brands. For the lounge business, we have quite limited seasonality into when we look at our sales across the year. And over the four weeks of Christmas, lounge sales represent 8% represent 8% of total lounge sales, which is only marginally more than what we'd expect in an in an average period. Cozy Club, on the other hand, Christmas is much more important. It represents 12 of our sales. It is a big time of year for the Cozy Club business. Over the next few weeks, we'll serve 80,000 covers, prebooked covers, and big groups, smaller groups celebrating Christmas parties. In terms of how we've evolved in dealing with the Christmas period, on the lounge side, we've introduced a new online booking system, which we didn't have before.

24:52 And in the cozy clubs, we're using dynamic pricing, which you can just see in the bottom right there of the screen. This is something we introduced last year, but so we didn't really get a chance to see how how well it was received by our customers because of Omicron and because of lots of cancellations. But effectively, what we're doing is over the peak, the busier days of Christmas where we know they're gonna get booked up first, we've introduced higher higher rates for two or three quarters, and then it's less... It's it's slightly cheaper on on the on the less popular days. And what we've seen over the over the past few months from the way the bookings have built up is that those more expensive days haven't impacted the way that people choose to book. And as I mentioned earlier, Christmas is the one time of year where we have quite good visibility about how we're going to trade, just because of those advanced Christmas bookings, And our bookings are pretty much in line with where they were back in 2019, and we're approaching the period with optimism.

25:49 The next slide talks about insights and the and the significant volumes of data that we have driving innovation and focus in the business. We now receive over 15,000 pieces of feedback per month, and that's mainly either via the app, which we use in the lounge, which which represents 40% of sales, or it's through the Cozy Club bookings mechanism. In addition, this summer, we also carried out a large survey, a more in-depth survey where we asked 35,000 of our customers, who they were and how they felt about lounge and Cozy Club. And we did that piece of work because, one, we hadn't done it since we we did a similar piece of work in 2018, and we wanted to see if our customers had changed at all or if they... The way they felt about the business had changed at all, or indeed if any of the changes that had come about as a result of COVID, if they felt particularly strongly about those.

26:41 So loads and loads of data, lots of feedback. And then the dish specific feedback, so you can just see on the top right there, we have rankings for all the dishes now through that feedback. That really helps drive our menu evolution. Really good example of that is when we started getting this data, it soon became very apparent through the feedback that we weren't providing enough maple syrup with our breakfast pancakes dish. Again, it's just a small thing, but it's something that's really easy to to adapt to once you... Once the customers told you. And site specific feedback and data, that really helps us determine our operational focus. It helps make sure that we're directing our teams into the right place where where help is most needed. You can see on the right there in the middle, we... There are some, tick... What we call ticket times. So these are hot drink times over fifteen minutes and food times over forty minutes. So this is where where customers have to waste an unacceptable amount of time for either their hot drink or their food. And these are real traffic like signals for us to tell the simple sites doing well or operationally, it's struggling, and that might be because of staff... Staffing issues or training, etcetera.

27:46 So having that data and through the kitchen management system, it really allows us to understand what's happening in the business at any point in time. And then brand level feedback gives us a great steer on how we're doing and where we can get better. I think in summary, we're definitely not short of people telling us what they think.

28:07 So value for money being a significant driver of our volume growth. We talk an awful lot about this. And I think I... If, again, if people aren't familiar with our business, then I think this slide helps understand what we mean when we talk about value for money. So what this slide does is it compares our pricing in Prospero Lounge, which is the one I mentioned earlier in Stratford Upon Avon with the the competitor set around it. Now most lounges don't have many obvious national competitors. A typical lounge on a high street will trade alongside a Costa, maybe a Greg's and a and a JD Weatherspoon, and that's about it. But we do have some which are in more competitive locations like Prospero and Stratford On Avon, and that's useful because we can set out and understand how we compare against other national operators.

28:56 So looking at Prosper in the middle there, you can see a latte at £3.30 going down to the lounge burger at ten pounds ninety five. So looking at coffee first, coffee is, as I said, that we do trade along side coffee nationals in pretty much all the locations where we operate. So that's quite easy to benchmark. So our latte at £3.30... It's £3.35 in Costa and £3.45 in the Starbucks. So we're cheaper. But I think when you think about value for money, it's really important. It's not just about price. Yes. Our coffee is a little bit cheaper than the nationals, but our coffee is a much, much better quality. You get to drink it in a much better environment, and you get served by much more hospitable and friendly staff. And I think all those things together, they... That's what really represents value for money.

29:44 Moving down, we're looking at the burger. So that's the lounge burger, which comes with fries at £10.95. And this really struck me when I asked our team to to to kind of get this data and carry out this piece of work a week and a half ago. If you look around that table, the encore on the top, which is a Mitchell's and Butler pub, their entry level burger is £17.95, all by $112.95, Miller and Carter £15.50, and Green King... The Green King pub, pounds 95. So you can really see there the degree to which which other operators have taken potentially more price and how the lounge burger remains really, really well priced. Then at the bottom there, can see JD Weatherspoons. We get asked a lot about how we compare against JD Weatherspoons. I don't think we really compete for the same customer. We don't... They attract a bit similar demographics.

30:36 And as you might expect, their prices were a lot keener than ours. But looking at that slide overall, there's very little green on it. And I think that's that we've been in the fortunate position, as Greg also said, about margins whereby we have been able to mitigate a lot of the inflation pro... Inflationary pressure that we've seen, and we're getting that balance right about protecting our price points such that we continue to buy... We continue to achieve volume growth. So the next few slides just talk through a couple of case studies. Again, if you've seen our presentations before, it it will be a format that you might be familiar with. But I think for people who don't know what we do or haven't visited our sites, it helps understand the business a little little bit better.

31:23 And this first one looks at Romano Lounge, which is a lounge in Colchester. And the last next slide just shows a map, a map of Colchester. This site opened about a year ago. And looking at the map, again, a bit like Prospero Lounge, actually. This is... We we operate against quite a lot of national competitors in Colchester. But what you can see from the map is Romano Lounge there in the bottom right and all the other leisure operators up on the high street in the top left. And what you can't see from this is that, actually, we're we're close... Very close to the majority of the retail. So from a pitch perspective, we're very close to a very strong retail pitch, potentially a a little bit weaker from a leisure point of view. Then in terms of looking at the the the the kind of metrics for Romano land on slide 23, it's one year old, so we're just over one year old, fifteen year lease again, which is fairly typical, and rent of £75,000, just just a little bit above average for a land.

32:24 Landlord package of thirty six months. So the landlord package is a combination of capital contribution and rent free period, which we receive from the landlord as an incentive to enter into the lease. And it's one of the things that's changed a bit over the last few years, Whereas two or three years ago, we might have been looking at twenty four month packages, we're now looking at thirty six month packages. Then sales here at 29,400 a week gross, which is a little bit above average. The net CapEx was 704,000, and we're generating a crockie of 32%, which is just about bang in line with with average. And that's a number that will improve as Romano Lounge gradually grows and increases volume sales year on year, then that crockie will will will increase.

33:10 Looking at the bottom left there in that chart showing average weekly sales by the hour, you can see that the lounge is generating meaningful levels of revenue right from 09:00 in the morning all the way through to eleven or 12:00 at night. And this is the fundamental all day nature of of how a lounge and a cozy club indeed trades, and it's that ability to be used for a whole variety of different occasions with really, really broad appeal and really high visit frequency, that allows us to achieve strong returns on capital. And you can walk in, you'll see people having toast, full breakfast, coffees, coffees moving through to lunch. They'll be having sandwiches or tapas or burgers. Into the afternoon, maybe a glass of wine or a cup of tea or a cup of coffee. And into the evening, people using us for celebrations, for dinners, for dates, for coming for a couple of pints or or a couple of cocktails.

34:01 And then looking up on the top right there, you can see our average sales by day. And, again, unlike many operators, we're generating meaningful levels of revenue seven days a week, including Monday to Thursday. That's really important. One of the things just going... Looking at the Colchester chart and map and noticing that we weren't that close to the leisure, you can see just looking at the bottom left there, we're a bit below average in terms of evening sales, and it's a little bit quieter than we might expect the typical lounge to be Monday to Thursday. And I think just because the pitch in... Our pitch in Colchester is is a little bit off pitch from a leisure perspective, I'd expect those evening sales to grow, to grow really well over the coming years as more and more people discover us or remember to use us in the evenings.

34:46 Then in the bottom right, you can see our sales mix, 55% food, 45% drinks, alcohol representing around 27% of our total sales.

35:00 Looking at the next case study, and and this is of our Cozy Club in Lincoln. And I won't I won't go over it and spend too long on it, but I think the main points that we want to get across here is is just how similar the characteristics of the Cozy Club are to those of the lounge. So that's how I work. Just going back, it's worth noting. This is on the Corn Exchange in, in Lincoln, and it really is an absolutely stunning 1st Floor site. You walk up the stairs and you walk into this amazing dining hall, which hopefully you can see from that from that photo. Then looking at the map, we're down in the middle there or middle right hand side, alongside some other good operators, Tortia Foes, Botanist, and there's an Everyman Cinema. What's quite interesting about Lincoln is that there's another pitch, the Braeford Pool pitch on the left there where you can see a Wagamama, a ZZ, and a JD Weatherspoon, and a Ask Italian. I think we... If we came across a lounge opportunity in that pitch, we'd open a lounge there as well because they're two very separate pitches, and I think a lounge would trade well there.

36:02 But moving on to look at how Lincoln performs. So open just under five years ago. It's a twenty year lease, which is quite rare for us. Rent, 75,000. That is a little bit... That's quite cheap for a cozy club. Landlord package of 24. As I said, that's increased to thirty six months typically now. Then looking at the financials, gross average weekly sales of 47,500, EBITDA of 409,000, and and CapEx of 1,100,000. So everything's just a bit higher than a lounge, but the return on capital, 33%, very, very consistent with the lounges. And this is the important part. We get asked a lot about cozy clubs and being more competitive, and they are in a more competitive space. But the cozy clubs are genuine all day businesses, and that's what these two charts demonstrate here, I think. Just looking at the bottom left there, in the hourly sales, you can see that cozy club in Lincoln generating really good levels of sales right from 09:00 in the morning through to 11:00 at night.

36:59 Then on on the top right there, again, really great meaningful levels of sales seven days a week. And it's only in that sales mix in the bottom right that you start to see some of the differences between lounge and cozy club. So brunch being a smaller proportion of sales, alcohol and mains being a higher proportion of sales. So I mentioned it was at the start that we were opening sites very well, and and that's been a continuation of a theme that we've been talked about for the last couple of years. We're opening sites with higher average levels of sales and higher average levels of unity EBITDA. Here are just three examples. On the right hand side, you can see our cozy club in Canterbury, which opened in, August of, of this year. Weekly... Average weekly sales of 50,000, so really, really strong sales, and they've been consistent right from the point of opening.

37:50 Gregor mentioned, that we bought a freehold. This was the freehold of Cozy Club Canterbury. And this is obviously not our typical model, but, we... Was a one off opportunity. We we sought to to... Where the appreciation of of value from buying the freehold would outweigh, the proposed capital contribution that the land was landlord was was offering. But then we will sell and leaseback that site in due course, and that will enhance our return on capital. In the top left there, one I mentioned earlier, Morrowland, which is in Richmond, North Yorkshire, and this is an old HSBC bank. Weekly sales of 29,700 and rent of 50,000. It's... When we said we were opening a site in Richmond, lots of people assumed we were talking about Richmond, West London, but this is really typical of a lounge location town in North Yorkshire, small population.

38:42 And it's great that we're establishing more of a presence up in the North. And then bottom left, Prospero Lounge, the third time that I've mentioned in Strathcon on Avon. Been open five or six weeks now. It started really strongly, weekly sales of 49,000, which is high for a lounge. That... It will be experiencing what we call honeymoon honeymoon sales. We'd expect those sales to drop off in the New Year and and settle down to a sensible yet very strong rate. Then just coming on to talk about people, and I saw one of the questions on the, q and a coming through asking about people. We continue to invest in our team. It's, when we get asked what keeps us awake at night, and I think most people assume we're gonna answer consumer or inflationary pressure, it's the people side of the business, which is by far the most complex.

39:35 So as I said, we've continued to invest in our team. Our in house recruitment team was already significantly strengthened last year when we appoint... When we introduced regional recruiters. And then we've now have, Guy Yule, who's joined us as our chief people officer. And he's focusing on evolving our people strategy, including strengthening our recruitment, ensuring our our l and d spend is best targeted, and evolving our reward strategy and and EVP. It's a really exciting time, on the people side of the business. We're good, but we could be better. I think it's the first time we've had someone of Guy's caliber and experience leading that side of the business. I think over the next couple of years, we'll go on a journey which will make us a much better employer.

40:21 We've also have the new role of marketing director, and Kate Lister's joined us. I think there's a real opportunity here in both LOUNGERS and Cozy Club. We've not had a marketing director before, and it's gonna be fascinating and see how she... How Kate improves what we do both on the lounge community side. So we don't really talk about marketing in lounge. It's more about community and how we can impact and and and and contribute to that local community. And then on the Cozy Club side, which is more of a a traditional brand, and... With with marketing. And we're also realizing the investment we've made in our op structure last year. I think if we look to our really, really strong performance, that investment we made last year whereby we reduced the number of sites to ops ratio, is really help... Helping our performance.

41:13 So BrightSide. As you can imagine, over the last few days on our roadshow, we've been answering lots of questions about BrightSide. And this was BrightSide's... Roadside dining is is something that we started looking at two or three years ago. Our sense was that there was an opportunity, and we we spend an awful lot of time on the road either looking at existing sites or looking at potential sites. And if you think about what's happened in roadside over the last few years, all the evolution, all the innovation, all the investment has been in convenience. It's been in drive through. It's all about speed. And our sense was that there's still a real demand for people who want to stop, pause, and have an enjoyable meal, receive real hospitality on the side of the road. And that...

41:59 That's what... How BrightSide came about. BrightSide's roadside dining restaurants on a rows, typically alongside, petrol stations where people eat in.

42:09 And there'll be an emphasis on warmth, hospitality, adventure, and a degree of nostalgia and family. And if you think about it, it really plays to our strengths. What we do at LOUNGERS and Cozy Club really well, we trade all day, as... And and Bright Side will indeed be all day in a no reservations environment. So we can't make reservations, which makes operating that site much more complex. Really good value and a large fresh menu. And the other thing that we've learned as we've been exploring, roadside is that roadside restaurants provide a service to local communities as well as to people who are just passing by driving from a to b. Quite often when we're on the road looking looking at lounge opportunities, we'll come by smaller towns or communities where there's no way we'd be able to put a lounge because there's not enough footfall or retail density to justify that investment on a high street. But what we have seen is that roadside... Our roadside Brightside will provide a service to small local communities where we wouldn't be able to put a lounge.

43:13 So the first four Brightside sites, and we've exchanged contracts to acquire three roadside restaurants in the in the Southwest, and they're located on the A 38 South Of Exeter, the A 303 near Honiton and the A 38 near Saltash. So we bought an existing business called Root Restaurant, US diner business. We are completely... Well, we've closed those sites now. We are completely refurbished them and rebranding them as Brightside

43:43 and extending them quite significantly in two cases. And the first one will be opening in February of this year, and the remaining two will be opening in in early May. And and thinking about the financial model, we anticipate the returns will be consistent with LOUNGERS and COZY CLUB. So around that mid 30% level. And thinking about revenue and CapEx, again, it will sit somewhere in between. And one of the great things about the... Having bought the three route restaurant sites is that we know how they how they were performing prior. And that gave us real confidence in terms of, in terms of the opportunity here, with each of them already generating meaningful levels of sales and our sense that we can go in and that that with BrightSide, we can really make an investment into them and and improve them from a menu and a hospitality point of view.

44:33 And we've also exchanged contracts on a fourth new build site just off the A 1 M in Rutland, to open in 2024. So how do we see the future for BrightSide? As we've said, we're really excited about the opportunity, and we said that there's sense there's something here. And we have real confidence as said in how these initial sites will trade. In terms of newer... And new openings in the future, what we've said is that that, we... We've said we'll open 30 sites this year and 32 to 34 sites next year. And within that, there'll be one BrightSide unit this year and two BrightSides within the 32 to 34 in FY '24.

45:15 Beyond that, the potential opportunity for BrightSide is really significant. I think right now what's important for us is that we get these sites open and that when we were doing our final results in July, we come back and talk to you, a, about how we found initial trading trading in those three sites. And second... But secondly, also about how we might view a pipeline, and... Because it is different to a lounge pipeline or a lounge and cozy club. On the lounge and cozy club side, we're typically taking retail premises on high streets. It's something that we've been doing for twenty years, and we've demonstrated, I think, consistently that that property is quite easy to find. And bright side, the model is slightly different, and it's gonna take us time to kind of understand that. And and as I said, understand how how we can build up a pipeline and indeed how those first three three sites have traded.

46:04 So just moving on for some final thoughts. It it remains the case that LOUNGERS is uniquely well positioned. Our focus on evolution and value for money is driving that market leading sales points. Yes. There is uncertainty post Christmas, but we believe we're really well positioned. If you go back to that, the the... Looking at the slide, rep demonstrating value for money in Stratford On Avon, we think our value for money price points, our hospitality put us in a really strong position. We are managing inflationary pressures through our continued growth, and we are very fortunate in that respect and that we continue to grow. We're attractive to to us, to our supply chain and that we're increasing our sales, increasing what we're purchasing from them. And equally, there's more that we can do from how our supply chain is structured.

46:54 We continue to invest in our people and have one of the strongest senior teams in the sector. And as I said, we're opening sites really well. The pipeline's in good shape, and there's real... There's significant runway for both LOUNGERS and Cozy Club. And on Bright side, as I've said, we're really excited about it and its growth potential. So I will pause there. I think we move on to questions now. Nick, Gregor, thank you very much indeed for your presentation. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Nick, Gregor, as you can see, we have received several questions throughout today's presentation, and thank you to our investors for submitting their questions.

47:47 Nick, could I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Thank you. Absolutely. Thank you. Simon's asked, with the accelerating site growth, how are we managing recruitment process and turnover turnover of staff? As as I mentioned during the presentation, it's, it's it's one of the most difficult aspects of operating at the moment. It's, but I guess, well, first point is, you know, we've opened 17 sites so far this year. We've created an excess of 400 jobs, and we are filling those jobs. So whilst it's difficult, it's not impossible. We are finding people.

48:27 And I mentioned how we've invested in the recruitment side of the business and indeed invested bringing on a a new chief chief people officer. I think when we think about the turnover of staff, it's... You know, around 40% of our workforce are under the 21 who... They typically work front of house, and they're brilliant. They're young. And that's been something that's been a shift, I think, that we've seen over the last over the last three or four years. But predominantly, where we really focus on from a turnover perspective is in our kitchens and is in our site management, site leadership. And from a kitchen point of view, so much of our work over the last three, four, five years has been about making the job easier, making the job more enjoyable. And we've made real progress. There's still lots more that we can do.

49:15 And indeed, thinking about site management, it's one of the really critical things that we can offer where we have an advantage is in terms of career development and progression. With our growth, if if we have people who want careers in hospitality, we're quite unique in that we can take them on a journey quickly if they're if they're if they're good. And, you know, we've got people now who who run $20.30, £40,000,000 part... Turnover parts of our business who relatively recently, three, four, five years ago, might have been on something near minimum wage. So there's lots that we can do to help, encourage careers. But as I said, it's... We're not bad at it, but, I think there's much more that we can do. But as as in terms of how we are as a... As an employer, and it's, it's an area that we definitely would guide in the business that we want to improve on in the coming coming months.

50:12 And again, from Simon, he's asked competition. What trends are we seeing here? And I think the number one trend that we're probably seeing is is prices going up. It's it's it's... You know, I'm constantly amazed at just how much everything's increasing. And, yeah, it's interesting being in London doing the roadshows and and and speaking to our investors. But, again, it gives us real insight into into how much people are putting their prices up. So that's probably the number one trend. I think another thing I'd say is that a lot of people, you know, as a result of COVID and the various lockdowns, there are quite a lot of closures. That some businesses use... That use that as an opportunity to change the shape of their estate. But everyone... Or not everyone, but a lot of operators use it as an opportunity to get better as indeed lounges did. They use that downtime to refocus it. One of things that's saying that's really good from a consumer perspective is that a lot of people are really at the top of their game from an operational point of view.

51:10 I'd say the third thing we're probably seeing or third thing we're is that the massive growth in delivery that that we that we saw over the over the first twelve months post lockdown three. I think that's starting to cool down a bit. And then finally and sadly, I think we're we're starting to see some of our competitors close. Like, we're seeing some independents, close as a result of the financial pressure, and I think that's something that's gonna... We're gonna see continue into the new year.

51:41 Next question from David. How are we... Bright side. How are we targeting locations? What's the cost per site versus lounge, cozy club? As I mentioned, evolving, a roadside pipeline is is is different to evolving a lounge or a cozy club pipeline. I think there are probably two two ways of doing it. One is is in terms of us picking off or acquiring existing businesses in what might be former Little Chef unit. So all three of the Root restaurants sites that we acquired were were, previously little chefs weren't one happy eater. And then the other way that we do it is by dealing with the larger forecourt operators, the likes of MFG, and, agreeing deals with them to to... For them to build sites for us.

52:30 But it's... We... We've been we've been exploring this for... In the re... In recent months. And and what's interesting is, clearly, we don't have a reputation yet, and BrightSide doesn't exist yet. It looks very pretty on the slides, but, it's not actually out of the ground. And I think once we've got a a trading business and we've started to develop a track record and investors, owners, forecourt operators can see, how good it is, then I think we'll find we'll we'll we'll we'll we'll find evolving a pipeline will be easier. So we're working at it. The property team, we're working at it. And I think when we update in in July with our final year results, it'll be an opportunity for us to to to kind of set out how how we're getting on. I think, ultimately, you know, we don't know. Assuming BrightSide works really, really well and and and the returns are fantastic, and it's something that we want to pursue, then we see that as an opportunity in excess of... Or in addition to the 32 to 34 lounges and cozy clubs that we've we've set out that we're going to open each year.

53:34 In terms of cost per site, versus lounge and cozy club, say, as Gregor mentioned earlier, lounge net CapEx is about 750,000. A cozy club is about 1,100,000. And

53:47 our sense is that Bright side will be average around the... In in between the two, so around 900,000 potentially, is what we're looking at for the... For those first three. But as I said, I think return on capital on that basis will be very, very similar. Gregor, I think the next one might be one for you. I I think I'll take it. There's a question from Matt g, and the question is, how do you calculate like for like sales? And specifically, how long is a site operated for before entering the calculation, and what is the basis for any sites being excluded? So what we do in lounges is we include sites in that like for like calculation once they have been open for eighteen months. And the logic there is that we basically exclude the first six months that a site is open because it's during that time that they would experience that honeymoon period post opening that Nick referred to earlier. I think when he was talking about Prospero Lounge in Stratford Upon Avon with its average weekly sales of 49,000.

54:45 So effectively by excluding the first six months in the case of Prospero, we'll be putting it into the like for like calculation when it's reached its its mature and sustainable sales level. In terms of excluding sites, essentially, we don't exclude any sites. Once they're in, they're in. I guess what's been different over the last few years clearly is the impact of COVID and lockdown. So that's primarily the reason why you'll see us reporting a three year like for like at the moment, comparing ourselves back to 2019 pre COVID and pre lockdown. And then when we were looking at our one year like for likes earlier, you might have noticed that was covering a twenty week period, and that's because it excluded the first four weeks post reopening back in May 21 when we had the external trading anyway.

55:31 Thank you, Gregor. Nick, Gregor, that's great. And thank you very much indeed for taking the time to address all those questions that came in from investors this afternoon. And of course, ladies and gentlemen, the company will review all questions submitted today, and we will publish those responses on the Investor Meet company platform. Nick, perhaps before directing investors to provide you with a feedback, which I know is particularly important to the company, Could I please ask you for a few closing comments? Thank you. Yep. Thank you very much for for joining us today. We've delivered another fantastic financial performance, and our focus on evolution and value for money is driving that outperformance. We've continued consistently to be 15% ahead of the rest of the sector for the last eighteen months.

56:18 And whilst there is uncertainty post Christmas, we are very well positioned through our value for money price points, and we're managing inflationary pressures through our continued growth. So we believe LOUNGERS is uniquely well positioned. Thank you. Nick, that's great. And Gregor as well. Thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of LOUNGERS PLC, we would like to thank you for attending today's presentation. That concludes today's meeting. Good afternoon to you all.