Loungers (LGRS) — Interim Results

0:01 Good afternoon, ladies and gentlemen. Welcome to the LOUNGERS PLC interim results investor presentation. At this 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 in the right hand corner of your screen. Simply click q and a, scroll to the bottom, type your question, and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and you'll be notified once they're ready for your review. I'd also like

0:31 to remind you this presentation is being recorded. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Nick Collins, CEO, Griffin Grant, CFO of LOUNGERS PLC. Good afternoon. Good afternoon, everyone. Thank you very much for joining us. My name is Nick Collins. I'm the chief executive of LOUNGERS, and welcome to our results presentation for the twenty four weeks ending 10/03/2021. I'll go through some highlights and then a few more operational side... Slides. Then I'll hand over to Gregor who'll go through some of the financials. Then he'll come back to me, and I'll update on the end in terms of current trading as well and Omicron, etcetera. But looking at slide three and the highlights, first of all, it's been another very strong financial performance for LOUNGERS in the first half. And our market leading like for like sales performance, it to reflect the relevance of our brands and our operational strength. And we've talked about it previously, but every time we've been allowed to open during COVID, we've we've we've consistently outperformed the market.

1:38 And that's been the case this time with underlying like for like performance of of plus 13.6%. We continue to have very strong EBITDA conversion, and we... Whilst we are benefiting from the government's initiatives, our cost pressures are well managed, and we've seen underlying margin expansion of of 0.4% despite the inflationary pressures We further reduced our net debt, and in the first half we opened 12 new sites We opened 11 lounges and one cozy clubs and we've subsequently opened a further five lounges in H2 bringing the total estate to 185 sites to date. So the presentation's actually slightly out of date. We opened the site on Wednesday in Gainsborough. And we expect to open 25 new sites now in this financial year.

2:28 So looking at slide four, and what we thought might be useful here is is to have a few slides which which set out why we continue to outperform the the market so consistently and and perhaps explain why LOUNGERS is so differentiated to the rest of the hospitality and the leisure sector. And this first slide looks at our broad demographic, the broad demographic profile of our customers. So within LOUNGE in particular, we talk about serving everyone for every occasion. The business is ageless and classless. And a few key statistics coming out of that. So 61% of our customers are female. 90% of our customers visit for more than one occasion. And when you look at our ability to generate revenue across the day, that's really critical, that fact that people are visiting for lots of different occasions.

3:18 Looking at the doughnut chart there in the in the at the bottom of that slide, you can see an astonishingly even mix across all cape... Age cohorts of our customers. So you walk into a lounge, and you're as likely to see students as you are grandparents and everything in between. And the cozy clubs have a very similar demographic profile as well. Then looking at the the the the bar chart on the top right of that slide, we've tried to tried to talk about classlessness here. We'll try to demonstrate that, which is quite tricky. But what we've done is we've shown here the average earnings per week in each of the locations where where we operate the lounges. And what you can see here is quite a normal distribution. What's what's really important about the lounges is that that degree of affluence in a community doesn't make... Have any impact on how our business trades.

4:07 The lounges work as well in Warrington as they do in Wokingham. Then looking at the next slide five, lounge... Lounges and the lounges are very much a genuine all day business, and that's what these charts speak to. So, again, just go... Pulling out some key statistics here. Looking at the top left and the sales mix and the week versus the weekend, 46% of our sales are generated between Monday and Thursday. And that's that's quite rare for a leisure business. Typically, leisure businesses, you'll see much, much stronger reliance on Friday, Saturday, Sunday, and particularly the evening trade and alcohol led trade. But within the lounge business, we're generating revenue right the way across Monday to Sunday.

4:53 Then looking at that middle chart at the top there, you can see our sales mix, 60% food sales, and 40% drink sales. So really good balance there. And in the top right hand side, you can see our sales mix by daypart. So 19% of our sales are generated in the morning. 47% of our sales are generated in the afternoon including lunchtime, and 13% of our sales are generated in the evening. It goes back to that point again. We're generating revenue right the way across the day from 09:00 in the morning through to 10:11, 12:00 at night. Then looking at the two bigger charts at the bottom there and just breaking down that sales and looking in a bit more detail about the drink side or the wet side and the food side. Looking at drinks first. So 59% of our sales are alcoholic drinks, Albeit that's from a value point of view on a on a volume basis, the nonalcoholic drinks dominate. They're just at a lower price point.

5:47 19% of our sales are hot drinks. So coffee in particular, really important driver of of sales, in particular in in shoulder periods and early morning. And cocktail sales. Cocktail sales are 1919% of our drink sales. That's a number that's doubled since... During COVID. So pre COVID, we were sub 10%. We're now 19% of sales cocktails. So that's... There's been a real shift in the way that the customer's behaving there. And on the food side, again, you can see just looking at the chart there's there's a very there's very strong mix between lots and lots of different categories. We have a big food menu. We're not wedded to any particular cuisine. We serve that same menu right throughout the day from 09:00 in the morning through 10:00 at night.

6:33 Brunch sales representing 26% of our sales. So I said in brunch, we've seen a lot of growth in recent years and in the shoulder periods. Burgers at 19% of our sales are a very important part, but they don't dominate too much, and we we still generate 14% of our sales from what we call our classic mains and 11% of our of our food sales from tapas. And we like tapas because we want to encourage people to share their food.

7:00 And then slide six. What what we're trying to do here is is is under... Is take some of those dynamics and look at them in in respect of a specific site. And here we're looking at one of our lounges, Trago Lounge in Portswood. And worth just that. So Portswood's a suburb of Southampton, just on the East Side of Southampton. Thinking about Southampton, we also have a lounge in Shirley on the... Which is a suburb to the west... Well, in the western side of the city center. We've got a lounge in the southern part in Ocean Village called Maratimo Lounge. And then we're also... We're opening a lounge in the Isle Of Wight next summer, and we'd we'd love to open a lounge in Easley to the North of of Southampton as well, but we just haven't found the right opportunity there yet.

7:46 And that... I think that really helps demonstrate how the lounges are located. The suburban lounges tend to cluster around cities, in the suburbs around cities where there are lots of chimney pots. So looking at Tregor, actually, opened in October 2009, so it was about our fourteenth site, so quite an old one, and it's a good performer. It's in our second quartile sales group, and it's achieved LTM EBITDA of 320,000. Total CapEx that's been invested in the site in its twelve year history is 631,000. And worth noting that that this... Obviously, it's quite an old site, we don't build them at that low cost anymore. Average CapEx for a lounge now is around 675,000, and that's just to open the site.

8:34 Now if we consider the competitive landscape in which Trego Lounge operates, looking at the map here, you can see Portsmouth High Street. This is a really typical lounge high street. It's the kind of kind of arena within which we trade. You'll see some... The retailers, the likes of Poundland, Boots, Car Factory, Post Office, probably one or two banks, a couple of supermarkets. And then from a leisure perspective, there's a Coffee One, there's a KFC, there's a Subway. We trade alongside a Green King pub called the Miter. And as I said, that's very typical of the type of environment where the lounges trade. And if you think about... If if we come and open alongside a pub or a coffee shop or a sandwich shop, we're competing with everything that that business does.

9:23 Whereas if they come and open up alongside us, only competing with a very small element of our sales. And thinking more broadly about Southampton, we're about two two and a half... For in Port... In Trager Lounge here, we're about two and a half miles from from the center of Southampton and the West Quay Shopping Center. And that's probably the retail and leisure hub of Southampton. And there you'd find a number of very well known casual dining restaurants. You also find lots of lots of the bigger retailers.

9:54 And in thinking about the potential scale of the lounge business, I think this is really helpful because if you think about those casual dining businesses, they wouldn't be able to open on Portsmouth High Street. They wouldn't generate sufficient revenue. Whereas the lounge model, they're servicing a very, very broad demographic, servicing all the dayparts with a really broad menu. We're able to generate revenue right from 09:00 in the morning all the way through to 11:00 at night. And that allows us to generate strong returns on capital on low rents in in locations which have relatively small populations. Keeping with... Oh, I've clicked on to slide two many, I think. Here we go. Apologies.

10:41 Slide seven, and this looks at another really important concept or principle within our business, which is value for money. Throughout our twenty year history, we've shown great pricing discipline. And And whilst whilst there have been opportunities in the past to take price, we've always wanted to maintain a really strong value for money position. And what we've done in the in recent... In the last few months is we've undertaken a price comparison exercise. In 14 locations in The UK where we trade, we've gone out and we've we've looked at all what we think are the relevant competitors, and we're... We've recorded their pricing. And then we've measured how weak our pricing compares alongside alongside these other operators. And we're doing this for two reasons. I think firstly, we want to reassure ourselves as to how we compare now from a value for money perspective.

11:32 But equally, our sense is that we're moving into an inflationary environment where lots of other operators will be putting up prices. If And that is the case, we want to make sure we've got a really good understanding of of the gap between us and others. And if that gap is broadening, that clearly presents us with with with opportunities. What we can see in this chart here is that Traeger Lounge on the drink side, so the three columns on the left, is is better value for money than most of our competitors, not by a necessarily significant margin. And then on the right side, you can see on the food side, we probably we probably represent slightly better value for And that... That's I think what we would have expected. Earlier this earlier this year, we introduced branded pricing for the first time.

12:18 Prior to July of this year, all the lounges across The UK had the same price points on one menu. In July of this year, we introduced branded pricing to split splitting the sites into three different bands, and that's given us more opportunity from a pricing perspective, and Greg will come on to talk about that shortly. So looking at slide eight and just revisiting the the concept of all day trading and then looking at perhaps in the context of Trego Lounge which we've been discussing. So that top slide... Top chart there shows average weekly sales per hour. And what you can see there is that Trago lounge is generating meaningful levels of revenue right from 09:00 in the morning all the way through to 11:00 at night And that's very typical for what we see for all of the lounges Then looking at the slide in the the chart in the bottom half you can see Trego Lounge's like for like sales performance over the over the last eight years.

13:16 And this shows what we would expect year on year volume driven like for like sales growth. You can see there are two years where we were in slight decline, and that might... And I don't know the precise reasons, but that might have been for a number of reasons. We might have had the wrong general manager in place. We might not have... One thing that... Trego Lounge is is is one of a small number of lounges where we actually have quite a quite a strong student population living around the lounge. One of the things we've learned with with student populations is that don't get it right in September and October when you get a new a new set of students, then you might have lost them for the year. Then you have to work really hard the next year to get them back. So that might be what's what's happened there. But we want to generate that consistent year on year like for like volume driven growth, and we do that by focusing on hospitality focusing on atmosphere focusing on our involvement with the local community, and and most importantly, to innovate and evolve and make sure that our proposition is as good as it possibly can be.

14:20 So I hope in those slides, I've been able to set out and demonstrate why the lounge model is a very different proposition what you might be more familiar with in terms of casual dining restaurants or pubs.

14:36 And then moving on to slide nine, and the next few slides just cover a few areas which which are... Where we focus a lot more recently. The first one looks at Cozy Club evolution. And we've we've undertaken a really big project elevating the customer experience at Cozy Club, and that's included a full reworking of the menu. It's understanding why have we done this. I think what we saw was we saw an opportunity to be better. We wanted to be a little bit more aspirational. And lockdown three, so at the start of the year, we had a few months where we we were given the opportunity. We were given the time as a senior team to really focus on menu developments. And that's time that we might not otherwise have had. So we've introduced 40 more... 40 new dishes to the menu, slightly elevated, a little bit foodier. We've introduced the concept concept of small plates. We want to encourage people sharing.

15:31 We've reworked all the recipes on the menu. That's not dramatic change in a lot of them, but it's just challenging. Can that ingredient be better quality? We've reduced the discount, and we've also reduced the number of SKUs or ingredients that we have in our kitchens in the coast hubs from 250 to a 180. And that really allows us to introduce more simplicity, more consistency from a margin and yield management perspective and quicker ticket times in terms of getting the feed out to our customers We've also introduced new point of sale materials featuring some really cool art deco designs and we've introduced new furniture across all of the cozy clubs,

16:11 more kind of fitting our beautiful interiors. And what we've... The furniture that we've removed there will go back and will be refurbished and it will go back into new lounge openings. Also enhanced the customer journey through improvements to our steps of service just to make sure that we're really giving the customer lots and lots of attention. And we trialed the... These changes in five cozy clubs throughout the summer, and we we're were really pleased and encouraged with the way our customers reacted. And during October and November, we've rolled out these changes across all thirty one thirty one cozy clubs.

16:48 Next slide, slide 10, and just thinking about evolution on the lounge side of the business. And our kitchen revolution continues. This year, we've completed the installation of the kitchen management system screens that you can see in that picture in all the lounges in the estate. This means that instead of having paper tickets, which which have the orders on for our for our kitchen teams, they can now see them all on screen. And what it allows us to do is is it gives us great intelligence in terms of understanding how long it's taking from the... My point that... From the time the customer orders their dish to this time it's delivered. And now across all all our lounges, every day, we can see where where there are any problems, where ticket times are extended, and that can feed into our operational team so they know whether... Where we need to focus more time from a training point of view, what maybe we need more labor, or indeed in terms of menu developments if there are specific dishes that we've introduced which are taking a very long time for our kitchen teams to deliver.

17:52 And and the... This kitchen management system was one half of what we were calling the kitchen reset project in LOUNG. The the other half involves the introduction of new equipment and the standardize... Standardizing the layouts and the ergonomics of these sites to make life easier for our kitchen teams during peak of service. So So we still have 61 sites to complete from a reset perspective in terms of introducing that new equipment, and we're scheduling that in there for 2022. Another area where the lounge business has improved, I think, really dramatically is in in relation to insights and feedback. When we introduced the app as a result of COVID, we saw a massive increase in the amount of feedback that the the business was receiving. So on the lounge side, we've gone from receiving a thousand pieces of feedback a week to 5,000 pieces of feedback a week. So vast, vast difference.

18:46 And that's great because that gives us that gives us lots and lots of intelligence into what I think our customers think about dish

18:53 items, so where they think we can be better, what they like, what they don't like, etcetera. And we've recently hired a a customer insights manager who's managing and and summarizing all that data for us and and really pulling out the key trends so that we we can improve from a... From an innovation and menu development perspective.

19:13 Turning to the next slide, slide 11, and looking at build and property. And during the last few months, we've done a a lot lot of of work work evolving the build and property team structure. So Tom Trenshard, who's our property director, he was previously responsible for the acquisitions and the property side of the estate side of the business. Now additionally taking control of of the build side, the construct... Construction side of our business. And we've introduced a new person, a new head of construction within the business, splitting the development side and the construction side.

19:50 So we've... And we've done... Gone through these changes for for a number of reasons. I think, firstly, we want to future proof our organizational structure. And it... I... The construction side previously reported into me, and then having them report into Tom allows me more time to spend into the sites looking other... Looking at other aspects of the business. I think it will also allow us to challenge and manage more efficiently our CapEx spend. I still think there's more we can do from a labor perspective and from the the way way that we schedule our jobs. And thirdly, having this structure will allow us to introduce a fifth building when when and if we feel that that's the that's the right thing to do. And And in terms of the pipeline, we've talked in the past a lot about how we're seeing really good pipeline opportunities, and that continues to be the case. It's a trend that we were seeing pre COVID.

20:42 And we continue to benefit from retail CVAs and see really excellent quality prime pitch opportunities in locations right across The UK. And that's reflected in the way that we're opening sites. Opening sites very well, increasing the average level of of unit EBITDA in the business. Looking at slide 12 and the last one one from me before I hand over to Greg. Looking at people recruitment and retention. And and recruitment and retention within the hospitality sector remains challenging. It's been quite... It's been talked about quite a lot in the press. I guess it it... Some points around that. It... It's not everywhere. I think that's quite important.

21:28 It was... In Devon and Cornwall over the summer, it was incredibly challenging. What we saw was a real boom in demand as a result of staycation.

21:37 And equally, we saw that from an accommodation perspective, it's very challenging finding temporary accommodation for people living down there, which which which made the problem a great deal worse. And then in market towns as well, I think we found it harder. Cities and suburbs have been a little bit easier. Market towns have been a little bit trickier. Our sense though is it... The situation is improving a little bit. I think once we were out of September into October, the the staycation kind of boom kind of eased off a little, and we saw students going back as well. I think that probably helped from a recruitment point of view. In terms of the impact this is having on our business, it's having a negligible impact on sales. There's one or two sites from time to time where we're having to either close early just because we don't have sufficient sufficient team members. But that's not... As I said, that's not having a a material impact on sales. It's quite negligible.

22:34 And it's worth reflecting that we continue to open sites. As I mentioned at the start, we've opened 17 sites this year. And when we open a new site, we need to recruit a team that might be between twenty five and thirty five people to to open and and work in that site. And we're managing to do that, which would suggest that, you know, we are obviously finding people. I think what's what's really critical is is that the situation makes it really tough on our existing teams. And our team have worked astonishingly hard over the the summer demonstrating real commitment to produce this fantastic trading performance. And for us, it's a really fine balance. We need to make sure that we're not asking too much of our team else that exasperates the problem. And what are we doing? In the recent months, we've had a lot of engagement and consultation with our teams, and and that will continue into the new year.

23:25 I think it's really important that we address the root cause and we talk about work life balance a lot. One thing that's become clear as a result of COVID is that that a portion of people who are working in the hospitality sector pre COVID then went on lockdown and got exposure and experience in other sectors of the economy. And and in some instances, they found that that was easier or they were like... They're able to work more sociable hours or less... In a less stressful environment. And And so so I think both as a sector and in terms of lounges as an employer, it's important that we recognize that and that we need to introduce behaviors which will allow our teams to to have a better work life balance. We've investing in... We are investing in apprenticeships, and it really increased our focus in terms of how we train our teams in the kitchens.

24:16 And equally, we're shouting about what we're good at as a business. Given the... Our rate of growth, offer amazing progression opportunities to people who want careers in hospitality. And equally, we... We're good on share ownership. So that's it from me. I will then hand over to Greg on that.

24:38 Thank you, Nick, and good afternoon. I think as as Nick opened, it has been a very strong financial performance in the first half, but I think even more important, it's been a really strong underlying financial performance. And I guess as we've maybe got used to over the last eighteen months, these numbers are are once again impacted. For example, on the negative side, I've had first four weeks of the period, we could either trade internally externally or or or our sites were closed. And then throughout the period, on the positive side, we clearly benefited from government support measures, most notably the VAT reduction. So what I look to do over the next few slides is really try and explain the strength of that underlying performance, get beneath the headlines. Typically, I'm doing that by comparing our performance in the first half of FY twenty two.

25:24 So looking at typically April to September 2021 against the first half of FY twenty, which was April to September twenty nineteen. So a pre COVID period of time where the margins are much more realistic, if you like, in terms of of the underlying business. So just in terms of headlines on slide 14, revenue was up just over 28% to a 102,400,000. Our adjusted EBITDA on the IAS 17 basis, so after a full rental charge, over 22,000,000. That was up a 115%. And we saw an adjusted EBITDA margin of 21 and a half percent, which was up 870 basis points. And we'll get behind that that 870 basis points in a couple of slides time, and I'll show you that we've got underlying margin improvement across that period of 40 basis points. And then finally, a profit before tax period of 12,800,000,000.

26:21 So moving on to slide 15 and looking at our revenue performance, our like for like sales, two charts on this page. At the top right hand corner, we're looking at total revenue. So that 102,400,000,000 across the twenty four weeks. What I've then done is take out the impact of p one, the first four weeks of the of the year for us, where we, as I say, trade externally or our sites weren't trading at all. Then I've also removed the positive benefit of VAT impact. So that was a reduction in the VAT rate to five percent on food and nonalcoholic drinks, which essentially we retained. So those two adjustments give us underlying sales for the twenty weeks, May 17 to the October 3 of 88,500,000.

27:06 That's an increase of 32.3% over h one f y twenty. And then when you look at that over the period, we've had an average open number of sites at a 174 versus a 152 back in f y twenty. So that gives you gross average weekly sales of 30,500 versus 26,000 thousand 400 two years ago. So growth of just over 15%. And the main driver of that growth of 15% has been the really strong underlying like for like sales performance. So we reported in the first half headline like for like sales growth of 26.6%. That includes the benefit of the VAT reduction, which was worth 13%. And taking that out, we've got underlying like for like growth of 13.6%. The chart on the bottom right effectively shows the progression of our like for like sales performance across first of the nine weeks from the May to the July 18.

27:57 That was effectively the eve of a Freedom Day. The second column shows twenty weeks from the May 17 to the October 3 with headline 26.6% like for like sales. The column on the left hand side shows the full twenty eight twenty eight weeks from the May 17 to the November 28. And what you see there across those three columns is, firstly, you see a really strong performance in the eleven weeks essentially from the middle of July to the end of September. So So that that key key summer trading period where the performance, as I say, was really strong, very supercharged. Then what you see in the last sort of eight weeks of that twenty eight week period is a a reduction, and they're coming back to what we see as a much more normal lounge like for like sales performance where, historically, historically, over the last five or so years, we typically delivered annual like for like sales growth of five to 6%.

28:48 Flipping over to slide 16, and this is a a really important and a really key feature, I think, of lounges performance over the years. And what it shows is that there's a consistency across the the different age cohorts of the lounges at stake in terms of their like for like performance. So if you think of that dotted line with the 26.6% like headline like for like sales across the first half, all of those age cohorts are very much consistently grouped around that number. There are one or two which is slightly below. So for example, FY '13 and earlier cohorts, those are our very earliest sites on the left hand side. Within that cohort of the estate, we've got some of the earliest sites which are a little bit smaller than the lounges we we open nowadays, and therefore, more impacted by the reduction in covers and social distancing rules.

29:38 The FY fifteen cohort, for example, also slightly below average. You've got a couple of sites in there that were restricted more by COVID closures and restricted hours. And then on the other side of that, for example, the FY fourteen and the FY seventeen cohorts, they they include a couple of our really strong performing staycation sites. As I say, that that that consistency of like for like sales performance has been a real measure of of the lag performance over the years.

30:06 Moving on to margin on slide 17. What I've looked at in this table is to is to reconcile the underlying margin of 12.8% we achieved in the first half of FY twenty to 21 and a half percent margin we achieved in the first half of this year. And the top half of the table looks at the the underlying margin elements, and the bottom half of the table shows the impact of either the closures and the external trading only in period one, those first four weeks of the half, other thing that the then the that the underlying margin expansion in the first half across the 20 from the May 17 to the October 3 was worth 40 basis points.

30:56 And breaking that down, our cost of sales performance, that includes our cost of goods sold plus site labor, adverse 60 basis points. And importantly, when you look across the twenty weeks and see how that margin developed, what you see is over the first eight weeks post reopening, you see an element of labor inefficiency. We're still incurring additional COVID related labor costs. It It was was time of the pandemic. And then you see, as we get to the middle of July, we take a little bit of price with the introduction of price differentiation, which which Nick referred to earlier. And that was the introduction of three different price bands across the estate and essentially taking approximately approximately 3% in price. We then saw a much stronger margin performance over the final twelve weeks of the half. Variable costs were worth 30 basis points to us as we saw improving leverage across the estate.

31:46 And then most importantly, we saw even more leverage when you think of it in terms of site rent and service charge where we saw 70 basis points improvement. Typically, the business has has historically talked about having a site rent to revenue ratio of 6% or lower, and that in itself is a very strong performance. But over the twenty weeks of the first half, our site rent to revenue ratio fell to 4.8. So the first time, it's been sub 5% and a very strong performance.

32:15 Moving on to slide 18 and in terms of margin outlook. So clearly, we were able to develop... To to deliver margin expansion in the first half against a much talked about background inflation repression. That's evidence of us being able to use both our our growing scale and also our ability to take modest price to manage our margins. It's fair to say that, I think, in the first half, we probably saw relatively modest impacts from from inflation in terms of food and drink costs. They weren't far out of what we would consider to be our typical experience. Equally, though, when we look ahead over the next eighteen months, we model inflation out to pressures throughout there. We're clearly expecting to see a little bit more inflation. When we we think think of of food food costs, we're probably looking at 6% inflation, and drink costs probably sort of 3%. So you might be looking at blended four and a half percent or so of food and drink cost inflation over the next eighteen months.

33:13 One project that we have talked about in the past has been our ability as we scale the business and get to approximately 200 sites to start looking at how we can bring out an efficiency to our distribution systems and think about moving towards a more consolidated distribution model. If you think about the business at the moment, typically, sites will receive four or five visits from different suppliers and different trucks on four or five different days of the week. A very labor intensive, energy intensive, and relatively inefficient model. That, if you like, is at one end of the the distribution spectrum. If you think of what pipe exists at the other end of the spectrum, you've got the likes of a Costco or Premier Inn, for example, where where their their sites will be visited in the middle of the night by a single truck no more than six or so nights a week.

34:01 Clearly, that's a long way from where we are at the moment, but we are commencing a project. We've just commenced the project to to start that journey to a more efficient distribution system. There are a number of hybrid hybrid models between the two ends of the spectrum, which I've just described, and we'll be working over the next six to nine months to work out exactly which of those hybrids should be our first stopping point on the journey. In terms of labor costs, we have a 6.6% increase in the national living wage due April next year. That's a little bit higher than, I guess, we've become used to over the years, but we have become used to dealing with 55% increase, and that's been very much the norm for the last four or five years. And I think we will continue to exhibit a strong track record in dealing with the national and wage increases.

34:47 In terms of utilities, we are hedged with our electricity in gas cost through September 24, and that was done at May 20 prices. In terms of property costs, as I touched on earlier, there's very little upward rent pressure at the moment. And as I say, that rent to revenue ratio dropped to 4.8 percentage points during the first half.

35:08 Moving on to slide 19 and and moving now to cash flow and CapEx and net debt. In the first half of the year, we generated cash from operations of 29,900,000. That was driven by clearly very strong underlying trading performance, but also the positive impact of those government support measures, and then also the positive benefit of rebuilding our working capital position. So we benefited from a £9,200,000 working capital inflow as the bill... As the business emerged from lockdown, and we rebuilt our our balances. Coming off that 29,900,000, it was a CapEx cash outflow of 6,500,000. We repaid the 7,000,000 that was drawn down under the RCF. And so we finished the half of 22,600,000 in net cash and no drawings under the RCF.

35:56 Moving on to slide 20 in terms of our CapEx performance in the first half. So we had a cash outflow of 6,500,000 in the half, as I just referred to. We had a buildup in our CapEx creditor as we restart the new site rollout program. So we saw our liabilities to our CapEx providers growing by 3,500,000, and that gives us a net spend in the first half of just over 10,000,000,000 on new CapEx. Within that 10,000,000,000, there was a new site CapEx spend of 8,400,000. And, again, getting behind that number, we opened 12 new sites in the first half. Three of those were effectively completed during lockdown three and were in the locker range we reopened in the half. So, essentially, we opened nine new sites which were built and opened in the first half, and they had a total cost of 7,100,000.

36:43 So slightly higher average site cost than we've seen historically, but that was largely due to the fact that those sites included four Pizza Express sites, which we we took out of the Pizza Express CBA, and those sites didn't come with any level of contribution. That was part of the reason why the level of contributions in the half at 675 k are a little bit lower than we would typically see. However, we are expecting annual contributions for the full year to be in the region of 2,500,000, and that will work to bring our average site cost back into line with what we've seen historically. In terms of other CapEx over the first half, we spent just under £1,000,000 on maintenance CapEx, which represents 1% of revenue consistent with our spend in FY twenty. And in addition to that was p and l maintenance spend of 1.9% of revenue, again, consistent with where we were.

37:33 And then finally, the kitchen spend, introduction of the kitchen screen, which Nick referred to earlier, that was a spend of just over 300,000. And then finally, in terms of net debt liquidity, we ended the first half with 20,600,000 of of cash. We have a term loan due to April 24 of 32,500,000. So net debt is 11,900,000 as reported. In addition to that, we still have 5,600,000 of what I would refer to as COVID nineteen nineteen liabilities, which are red, deferred VAT, and VAT scheme. And those deferred COVID liabilities of 5,600,000 will be paid out over the second half. So that gives us an underlying net debt at the end of the first half of 17,500,000. And that compares to 29,420,000 at the end of the first half of FY twenty. So pre COVID, so an improvement in our net debt of 11,800,000.

38:27 And clearly, element of that is the £8,000,000 equity raise we undertook in FY twenty. But I think most importantly, it shows the underlying strength of the balance sheet, and that is one of the things that gives us confidence to to resume the full new site rollout of 25 sites per year. If I may return to you, Nick. Thank you. Yeah. So looking at the the the last slide and us looking ahead with confidence in it, as we've hopefully set out, the the business continues to trade very well. And if we think about Christmas, I guess the first thing it's important to consider about Christmas is that the lounge business, which represents around 80% of our sales, isn't overly reliant on Christmas. It's... The lounges are relatively flat seasonally, the busiest time of the year for lunch is actually summer.

39:15 Whereas Cozy Club is more like a restaurant business in that respect, and Christmas is important. The four weeks of Christmas for Cozy Club represent about 12% of their annual sales. Thinking about Christmas bookings, which is a big part of the Coastal Club side of business. On the lounge side, we don't take bookings, but on the Coastal Club side, we do. And what we normally see in the run up to Christmas is the bookings come in in a typical year. They start coming in in early September. They peak around mid October, but then they'll continue right through to to late November, early December. What we saw this year was that that all shifted quite a lot later, so the bookings didn't really start till we were in October. Ultimately, when we looked looked back ten days ago and looking at the level of bookings that we'd achieved within Cozy Club for the Christmas period, I think we were really happy with how how we compared on a like for like basis.

40:11 Thinking about Omicron and and and the impact that that that has had, up until yesterday or day before yesterday, it had had very little impact. We hadn't seen any shift in the way our customers were behaving as a result of as a result of the the the variance. I think more recently in the last two days with with the the introduction of plan b, we immediately saw yesterday quite a significant drop in the... In in terms... Or increase in the number of cancellations on the CoScore side of the business as a result of that instruction. I think it'd be interesting to see how... What happens over the next few over the next few days and the next few weeks. It's very early, and we don't know. And lots of it will depend on sentiment and nervousness and consumer confidence. I think more broadly, we're optimistic with regards to performance in both brands as we've hopefully demonstrated by the way that they've they've traded over the last seven months.

41:09 And as Greg will said, our growth and operational discipline...

41:12 Discipline mean we're very well managed... Well placed to manage and miss... Mitigate most of the inflationary pressure. And And as I've said, our new site openings are performing very well. We have an excellent pipeline. And as a team, we believe the potential scale of both brands continues to be very exciting. So that concludes the presentation. We'll move to the q and a now. Fantastic. Nick, Gregor, thank you very much indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions using the q and a tab situated on the right hand corner of your screen. Just while the team take a few moments to review those investor questions submitted already, I'd like to remind you that the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard on the Investor Meet company platform.

41:57 Also, I'd to remind you that your feedback is important to the team. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. Nick Grego, we have had several questions submitted from attendees today. If I may just ask you just to click on that q and a tab, and where appropriate to do so, just to read out the question and give you a response, please. Great. Thank you. So the first one from Simon, what are you seeing from a site acquisition standpoint? And what levers do you have to increase sales per site? So I guess taking that in two parts. I mean, from an site acquisition perspective, the position has never been better. It's important probably just going back to basics a little. We don't...

42:44 We typically convert retail premises. So we convert a one use to a a three. That's the bread and butter of of of the types of units where we open lounges and cozy clubs. And what we've seen over the last three or four years is is is some of the retail... Retailers have... The the demise of some of the retailers has resulted in us taking more opportunities for us to open lounges and cozy clubs. And and that was happening pre COVID. There were lots of retail CVAs pre COVID. Obviously, as a result of COVID, we've seen more. Our KG one probably being one of the most relevant, and that's that's that's... I mean, just... It's allowing us to secure prime pitch property in in really strong target locations where we've been looking for a number of years.

43:30 A good example would be the site we opened earlier this year. We opened in the former Dorothy Perkins there. It's the best unit in town for us for us to have a lounge kind of combining both the retail pitch within Saint Neillot's and the leather pitch... The the leisure pitch within within Saint Neillot's. So from a site acquisition perspective, we're in a really strong place. In in terms of levers to to increase sales per site, hopefully, as as we talked through during the slides, we've... Over the last six or seven years, we've achieved roughly on average five, six, 7% like for like sales growth, and that's that's normally been achieved about one third price, two thirds volume. And one of the great things about trading all day from 09:00 right the way through to eleven, 12:00 is that there are so many different occasions for us to target, for us to innovate, evolve, to get better at.

44:26 And that's typically where where that comes from... Where where that growth comes from. And if if into a lounge or a cozy club, Saturday

44:35 lunch or Saturday night or a Friday night, they're very, very busy, and they're likely to be full. And indeed Sunday Sunday lunchtime in a in a in a lounge and cozy club. But but there's lots and lots of times throughout the week when they're not full. So from a from from a sales growth perspective, it's not it's not a case of capacity constraint. But there's clearly lots more that we can do to deliver quicker, to turn tables quicker, to increase average spend, and we've seen some great evolution from the introduction of the app in the way that our customers are spending more money. And equally in terms of stretch and menu stretch and introducing more stretch of our menus again to nudge up the average spend of our customers. Looking at the second question from Peter, has management considered offering franchises as a way to expand and dominate the market?

45:25 I... The quick answer to that is no. We haven't. And I think one of the biggest barriers to entry is... Which I think we've seen we've seen a couple of businesses rep... Try and replicate what we do, big operators, and they've struggled. And and the biggest barrier to entry, I think, is the operational complexity of all day trading. And if you consider a a normal restaurant, those restaurants, they they take reservations and they have table service. And as a result of that, they can control the the flow of orders into the kitchen. And that means the kitchen is inundated and the kitchen can deliver consistently. If you think about a lounge, and in a lounge, it's very informal. So you walk in and you either go to the bar or you or you order a table on the app, but you can't reserve a table. And so the lounges can go from empty to full very, very quickly.

46:21 And that puts a lot of pressure on our kitchen teams. And they're generating revenue throughout the day, and that can vary quite a lot. And so that... There's a lot of labor management complexity associated with that. And I think that operational complexity wouldn't work well in a franchise environment, suit our managed model very, very well as hopefully demonstrated by the by the numbers. Gregor, do you want to answer Michael's question? I will. So Michael's question, what percentage of revenue do you redeploy for the year on repair and maintenance to keep your site to stay fresh? Is a sharp lounge more productive than an older site? How is this managed? I guess in terms of the headline numbers, we we spend to be 1% of revenue each year in terms of maintenance CapEx, and we'll have another p and l maintenance spend at approximately 1.9% of revenue each year.

47:18 And I think one thing that really differentiates Languages is the fact that it it keeps all of its sites in very good nick from day one. And equally, it doesn't have a recurring, if you like, reinvestment cycle. There is no requirement within the lounge business to go back every four or five years and reinvest reinvest in a in a substantial refurbishment.

47:41 And I think, certainly, when I joined the business, the the thing that most excited me was the fact that it was back on-site 16 in the presentation today, you know, the evidence of the manner in which we maintain our sites and the very well kept nature of them is one of the things that delivers that really consistent like for like sales performance across all the age cohorts. You see no tailing off in your like for like sales just because because it's a site which is maybe ten years old or so. Thanks, Greg. Question from Matt. He's asked, do we have capacity and other plans to look at a fresh concept or brand without distracting from the existing management cozy ops teams? In in short, I... Would we... We might have the capacity, but there are certainly no plans to look at a fresh concept or brand. I think if we look at, obviously, the strategy that we set out at the time of the IPO back in April 2019 was to open 25 sites a year with the potential scale of the business being 400 lounges and a 100 cozy clubs. And as we sit here today with a 185 sites, I... A, we're opening sites better and better, and the availability of property has never been so good. I think our confidence in the potential scale of the lounge brand in particular

49:00 has grown and grown. And that 400 number looks very, very conservative. And so we we... There's plenty for us to be keeping busy with. And and so our focus is very much on fulfilling that strategy. That's fantastic. Mick, Greg, thank you very much indeed for addressing those questions from investors. And, of course, if there any further questions that do come through, the team will have the ability to review those questions, and we'll publish responses where appropriate to do so on the investment company platform. Nick, perhaps before I redirect the attendees to give you some feedback, we'd just ask for a closing snapshot, please. Yeah. Of course. Well, I think LOUNGERS has put in another really strong performance in the first half, and we continue to materially outperform the rest of the markets. And as we come out of COVID, both lounge and cozy club have never looked so relevant.

49:50 We've opened 17 new sites so far this year. The new sites are performing extremely well. We're seeing fantastic opportunities from a pipeline perspective, and and our... The potential scale of the business of 400 lounges and a 100 cozy clubs looks looks looks very, very conservative. And whilst, yes, there is short term uncertainty as a result of Omicron, we're very optimistic as we look ahead to 2022. That's fantastic. Nick, Gregor, thank you once again for updating investors today. Could I please ask investors not to close the session? It should be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete and is be greatly valued by the company. On behalf of the management team of LOUNGERS PLC, we'd like to thank you very much indeed for attending today's presentation. That concludes today's session. Thank you, and good afternoon.