Loungers (LGRS) — Investor Presentation

0:01 Good afternoon, and welcome to the LOUNGERS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives to the meeting itself. Have the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Nick Collins, CEO. Good afternoon to you, sir.

0:31 Good afternoon. Good afternoon, everyone. That sounds a little bit better. Apologies about that. Thank you very much for joining us for our interim results presentation for the twenty four weeks ending the October 1. My name is Nick Collins. I'm the chief executive. I'll go through some highlights. I'll then hand over to Gregor, our CFO, who's gonna talk through the financial performance, who will then hand back to me to go through the and operational side of the business. So in terms of highlights, we're delighted with another strong financial performance in the first half. We've seen our like for like sales grow by 7.7%, And importantly, they're up 25% on a full year basis.

1:16 Adjusted EBITDA under I a s... IAS 17 basis of 17,300,000 is materially up on the 13,500,000 we saw at the same time last year. And our margins improved against 11.6%, up 60 basis points, and we can see a clear path to pre COVID conversion. The rollout continues very successfully. Our continue to perform very strongly, and I'll talk through some examples in due course. And the property market remains very much in our favor. Rent as as a proportion of sales has now reduced to 4.4%, And current trading remains strong. We're approaching Christmas with optimism. Last week and this week have been good, and we've seen no change in the way that our customers are behaving despite the economic backdrop.

2:07 And finally, before I hand over to Gregor, as you may have seen, Gregor notified the board of his decision to step down as CFO at the end of July twenty twenty four. After five years in managers, he's decided he's had enough of the commute from Dorset to Bristol. Goes without saying that we're enormously grateful for his massive contribution over the last five very challenging years. But he's not off yet. He's here till the end of July and be joining us for the road... Brilliant freedom's roadshow at the year end. And there's a recruitment process underway, and Greg was very kindly allowed us plenty of time to ensure there's a smooth smooth handover. So then I'll hand over to you, Greg. Thank you, Nick. I'll follow a pretty well from past, if I may, with some financial highlights and then a little people look at our life by sales performance, our margin performance and inflation pressures, little cash flow, CapEx, year end net debt position, and then finally, just what the impact of us having a fifty three week year will be on our our final results in July.

3:16 So in terms of highlights, I think the overwhelming highlight for me is the fact that I'm able to share some numbers with you, which are not having to be adjusted for the impacts of COVID with lockdowns or government support measures. So it's it's quite a pleasure to have two columns of numbers which are clean.

3:35 And, clearly, there are some really significant highlights within them as well. So revenue is just under 150,000,000. That's up 22.3% year on year. And what you see there is a combined benefit of an additional 32 sites added by the end of first half f y twenty four versus first half f y twenty three. But then those new sites underpinned by a really strong like for like performance in the mature states, so up 7.7% on the year. Talk a little bit about that like for like sales performance in the slides time. And I think the other really big highlight on that first page is the adjusted EBITDA performance under IAS 17. So after a full rate of charge and and very much the measure we look at internally. So EBITDA growth there are just over 28%.

4:20 As Nick says, it's 17,300,000,000, and what you're seeing there is a benefit of that 60 basis points improvement in The UK margin, driven principally by cost of goods sold and and better leverage over our site fixed cost base in terms of rents and rates, and those two positives offset by higher energy costs with check, which were well flagged. Finally, down on our front page, PBT for the period of 3,900,000. That's up 39% year on year. In terms of our like for like sales performance, 7.7% for the first twenty four weeks of the year. When we roll that forward another eight weeks to the close of last Sunday, point 6% for the first thirty two weeks. So a continuation of that that strong like for like performance.

5:07 And as ever, I think when you're looking at like for like sales and business like ours, it's really important to have some context. But context here is the fact that in the the four years post pre COVID effectively going back to 2019, we delivered like for like sales growth in the business of 25%. And that growth combines both price and volume. So we've got probably probably about about 55% worth of volume growth relative to pre COVID, and there aren't many in the sector that can say that. And I think when you look at the the like for like sales that are reported in each of the the four half years since post COVID, you the really important message is this isn't a business that at any stage just have to take a big step backwards. Even in those immediate weeks of of reopening post lockdown one, when we took out all the one off benefits of EatApp to help out and what have you, you know, the business still traded effectively flat despite having to take out covers and so forth. So really strong like for like message there.

6:06 The next slide, what we do is we split down our 7.7% like for like sales performance and show how different age cohorts within the estate contributed to it. And once again, I think the really strong message is that when you look at those older cohorts, so sites opened effectively before April 2015, of which there were 55, see that those three cohorts have contributed as strongly as any other cohorts effectively to that like for like sales performance. So once again, I think that talks to the the high standard of maintenance of those sites, the fact that they age exceptionally well, and and then just the underlying level of evolution and development within the business, which is helping to drive sales in those older sites.

6:48 Moving on to margins and inflation thoughts. So our underlying margin in the first half is up 60 points year on year. 60 basis points growth coming on the cost of goods sold line... The cost of sales line. Sorry. And that cost of sales line includes both cost of goods sold and site labor. And effectively, all of that 60 basis points is on the cost of goods sold line. So seeing benefit from moderating inflation, which is allowing us to hang on to more of the price we put on the menu. Also, the benefits of new supply contracts entered into, but also operational efficiencies at site as well. So less less wastage and a reduction in the differential between the theoretical gross margin the site should achieve and the actual gross margin it does achieve. The labor ratio year on year was flat.

7:35 So effectively, the business has absorbed the 9.7%, actually, the wage increase through in April '23, and that's positive. Clearly, we have more challenge with the national living wage next year, but I think the fact that we successfully absorbed this April's increase puts us in good stead for the future. In terms of site variable costs, they were negative 10 basis points year on year, and effectively all of that was sitting on the maintenance line, which raised from 1.7% of revenue last year to 1.8% this year. Energy costs were a negative 50 basis points year on year for us, and that was very much expected. But this has entered into a hedge for its energy purchases back in May 20, which runs through to September '24, and that covered the 165 sites in the estate at the time. Subsequent to that, we put more sites into the estate. Their energy has also been brought forward through September 24, but at materially higher prices.

8:29 So we're seeing the impact of that in our in our energy costs. And And in in the the first half of this year, energy represented 3.2% of revenue. Site fixed costs have given us 60 basis points improvement, and that's both in terms of rent. The rent to revenue ratio has declined to 4.4% from 4.7% last year, but also in terms of business rates, which were down to 2.2% of revenue, really a reflection of the new rates list which was introduced on the 04/01/2023 and saw the rates of values in a number of our sites reduced. Central costs as a percentage of revenue were flat year on year, and that clearly remains a good opportunity for the business as it continues to grow to see leverage of that fixed cost base.

9:15 Final point, EBITDA margin up to 11.6% in the first half. It's worth remembering that margins in the second half of the year typically much stronger in this business. So last year, we did 11% margin in the first half, 12.9% margin in the second And that really reflects the benefit of of Christmas trading, particularly in Cozy Club, but also the benefit of the fact that we'll take a little bit more price to be clear in the autumn winter menus, which are launched in October, and that extra price is setting a relatively little cost pressure in the second half of the business with national living wage, for example, being set in April. In terms of inflation outlook, back in July when we met, we talked about those inflationary pressures moderating, and I think nothing has changed in our viewpoint.

10:03 And when you look at our expectations for the full year in November relative to where we were in July, there is very little change. What we have done is taken slightly more price. We'll take up 7% over the course of this full financial year. We took about 4% in in March, April, the spring summer menus, and then another 3% in October with the autumn winter menus. In terms terms of of food inflation, when we look at the twelve months end of September twenty two to end of September twenty three, we've got food inflation just over 10%. That number was just over 13% when we reported back in July. But I I think think more importantly, when you look at how prices of our top 20 products have changed over the course of the first half, so looking at end of September twenty three versus end of April twenty three, only 0.2% increase over that time. So that's a real evidence of that moderating pressure.

10:56 By the same token, the top 20 drinks products, they're up 2% over the first half of FY twenty four, and we don't see any pressure in the second half on those lines. A little bit more in terms of energy pressure. So as I said, that May 20 hedge will come to an end at the 09/30/2024. We're currently buying our energy ahead from from that period onwards. At the moment, we have about just under 50% of our electricity needs for the year ending September 25 purchase, and then a quarter of our electricity needs for the following year ending September 26 purchase. And all in, that's coming in at about... Paying just over twenty five year kilowatts, right, kilowatts out of that electricity at the moment. And that's that's about 14% higher than our current price in the business. And finally, in terms of the national living wage, how I've been presenting a couple of weeks ago, I would I would have been quite confident, I think, in telling you that I thought the rate would go for about £11.15 and a 7% or so increase.

11:54 And I think we've seen that as a a positive movement in terms of returning the nationality wage increases to the five or 6% that we used to see pre pre COVID. The announcement was higher than that at 9.8 going to £11.44. And I think fundamentally what that means is that our views on price will change slightly, and in reality, we'll need to take a little bit more price next year than perhaps we thought we would. But importantly, as I mentioned earlier, the 9.7% increase went through in April 23 has been successfully absorbed by the business. Couple of slides on cash flow. The first looks at our cash generation over the first half of the year, and what we see is an increase in our cash generated from operations, climbing from 7,300,000 last year to 14,900,000 this year. So growth both in terms of our EBITDA driving that, but also better working capital performance. And in reality, that working capital performance in the first half is a little bit flattered. Typically, we would expect to see a greater working capital outflow in the first half just due to the timing of the calendar.

12:58 Over a full year, we continue to see a working capital inflow driven by like for like sales growth and the new sites happening to the estate. And And typically, typically, in a one year, you'd expect over the course of the full year, it will be about a £5,000,000 worth of capital inflow. I think more importantly and more interesting, thinking on to the next slide, I'm looking at the cash flow performance over a full twelve month period. So this is looking at our cash flow performance over the twelve months to the end of the first half f y twenty four. And in that time, I'm very... Mind you in that time, we've opened 34 new sites that we've built out and opened. What you see is cash generated from operations of just under 44,000,000. Then when we take off that, effectively, all our CapEx spend, which is not new site related, so both maintenance CapEx of a genuine nature, plus also project CapEx spend of 8,400,000, interest paid of 1,500,000.

13:52 You come down to free cash flow of 33.7, and that is effectively 97% of the 34,800,000 spent on new site CapEx. So what we see in FY twenty four is very much the business reaching that status of being effectively able to fully fund the new site rollout at that accelerated rate of 34 sites per year from cash generated from operations and working capital.

14:18 Looking at what we spent CapEx on in the first year... In the first half of the year, sorry. So total spend on CapEx of 22,100,000. We have our CapEx credits increasing by a million. So our net cash outflow, you can see in the cash flow for the first half of 21,100,000,000. And what was in... Within that, we spent 18,100,000 of net CapEx on new sites. So that's a a gross gross spend of 20,100,000 and then reduced by £2,000,000 of landlord contributions. That spend of 18,100,000 included 14,500,000 on 16 new sites that were built and opened in the first half. Compares to opening 11 new sites in the first half of FY twenty three, so that growth of 11 to 16 sites is what drives that increase in spend. The 16 new sites included 14 lounges and two bright sides, and the typical cost of a new lounge within that period is £800,000.

15:12 The spend does include within the first half £1,100,000 of all low lounge, very successful opening in Clandungno in North Wales, they and they can can talk talk to to that that later. The £2,000,000 of landlord contributions is pretty much in line with the previous year. We expect to receive about £4,000,000 in respect of landlord contributions for the full year. Maintenance CapEx, maintenance nature in the first half of two point three million pounds. That represents one and a half percent of revenue, so a little bit higher than last year where we were 1.3. And now I'd that maintenance CapEx spend, which is sitting in the balance sheet. We have a p and l maintenance spend of 1.8 of revenue. Again, 10%... 10 basis points up on the previous year. Other elements of capital spend in the first half were a continuation of splashing cash investment of 600,000.

16:04 The final spend in respect to the kitchen reset program of 600,000. That program ended in May. And then 200,000 on the central spend and 300,000 in respect of the voucher purchases... Bulk purchases of lighting and wood flooring in particular, which will roll into new sites opening CapEx in due course. Final couple from myself in terms of nonproperty net debt. Net debt at the end of the first half, 4 point... 14,300,000,000. That's a £4,800,000 increase on 9,500,000 at the end of the first half last year. That £4,800,000 increase in net debt needs to be received in the context of a total capital spend of 43,200,000 over the last twelve months, plus 2,700,000 to fund the Root acquisition and 700,000,000 to fund modest purchase of our own shares and the cash settlement of share awards.

16:59 During the first half, we refinanced our bank facilities. The term loan was reduced from 32,500,000 to 20,000,000,000 with a £12,500,000 repayment. At the same time, we added £12,500,000 to our RCS. Effectively, no change in total liquidity. There was no change in our covenants under which we have significant headroom, and that facility was extended through to June 2026. So So very much leaving at the end of the first half with a continuing strong balance sheet and funding position. And then finally, I guess, having the ability to have a nice clean set of numbers this year, I'm slightly complicated about the detail of fifty three week year. We operate typically with fifty two weeks, so we need every five or six years to have a fifty three week year. And what that will do will add approximately £6,800,000 of revenue, just over £1,000,000 of our IFRS 16 EBITDA, and about about £800,000 of our IAS 17 EBITDA.

17:56 So you'll see a one off uplift in results this year to reflect that fifty third week. And with that, I'll hand back to Nick, if I may. Thank you very much, Greg. And so before I get into a little bit more detail, I just thought worth highlighting how we continue to deliver on the strategy that we set out at the time of the IPO four years ago despite all the the challenges that we've had to face. It's a consistent sector leading like for like sales growth, and as Greg's already talked through, and improving margins as we benefit from scale purchasing and operational gearing, and we firmly believe there's more to come there. Very comfortable operationally delivering 35 site openings per annum, and I think these overall results demonstrate that.

18:45 And that 34 site rollout is financed through internally generated cash flow, Net net debt, very conservative at less than 0.5 times EBITDA. Like, which we talked about when we did our previous, there's a proven potential scale of an excess of 600 lounges and 65 cozy clubs, and we we have have real confidence in those numbers. And that's driven by the strength of our new site openings. And we believe we have a best in class management team, and that management team continues to evolve as the business grows. Just thinking about sales and and the consumer, probably the question we get asked the most, we haven't seen any shift in the way that our customers are behaving across the brands. That's consistently been the case for the last eighteen months. No evidence that that they're changing their behavior as a result of reduced discretionary spending.

19:36 However, historically, our growth has been volume driven. Typically, we'd be three, 4% volume growth, one or two percent price. And volumes are currently flat with price dominating our like for like sales growth of around six, 7%. I think what's really important here is that our volumes are, however, materially ahead of where they were pre COVID. And we think we're pretty unique in that regard versus the competitor set. As such, we're we're optimistic with regards to the outlook, and we expect to see a return to volume growth in the short to medium term. And why is that? Well, it's because we represent excellent value for money across all our brands. We... Without a doubt, taking a lot less price than most of other operators.

20:22 And secondly, our constantly evolving all they offer in all brands is relevant and has never been better. And finally, our new site openings are performing very well. Now the plan here was to to show you a video of land. We've taken that out, but you can actually see it on our on our website, on our lounges.co.ukplc website. What I wanna do is just just spend a few minutes going... It... Just just going back on what the basics are of the lounge and what's driving this outperformance. Chart on the screen now looks at our sales mix. And what delivers this sales mix is our all day offer. They have... Lounge competes with coffee shops. It competes with sandwich shops, bakeries, restaurants, and pubs, and that's really important.

21:12 Looking charts on the screen here on the left, you can see our overall mix, 59% food, 41% drinks. Then looking at the pie charts in the middle of the breakdown of our food sales by category, and And you you see see brunch at twenty eight percent of our food sales, a really important category for us. Burgers, 19%. And in our other mains, you can see how some of that... Those sales are shifting towards vegan food, more Asian food, sandwiches and at 10% is a very important category as is tapas at 11%. And then tapas really helps to drive our evening sales. And then looking at the drinks mix on the right hand side, hot drinks, 25%, so predominantly coffee there. Coffee is over 10% of our overall sales.

21:59 And, again, it's a really important driver of customer loyalty and return visits. Soft drinks, 20%, alcoholic and drinks represent 22% of our overall sales. The bar chart in the bottom left there shows how our sales vary across the day of the week, And this is really important. 45% of our sales are generated between Monday and Thursday. There's a real balance to the way that our sales fluctuates across the week. Typically, with leisure operators, you'd see a... Monday, you'd expect to see stronger bias towards the weekend. And then the line chart in the bottom right shows how across the day our sales fluctuates. And, again, we're generating meaningful levels of revenue right from 09:00 in the morning through to eleven or 12:00 at night.

22:52 And it remains the case that this all day offer is constantly evolving. From a food perspective, we're not wedded to any specific cuisine, which means we can sell what we want. And our six monthly menu changes keep us relevant and ensure that we provide our customers with choice. Introduction of lamb flatbreads and lamb curry has been a great example of food evolution in the last six months whilst we've ensured we're protecting our teams from a complexity point of view and indeed enhancing our gross margin. And we've introduced some new cauliflower dishes which should really help strengthen our vegan offer. We've also enhanced our cold drinks range with investment in a in a new blended drinks offer. We've been... Introduced new blenders across all the sites. We've vastly improved our milkshake offer and really upscale our iced coffee section. And that's given a 50% like for like sales growth in iced coffee sales.

23:48 I... And I mentioned that because I think it really helps people understand the the the lounge model. Iced coffees are relatively small parts of what we do, but the the mantra within the business is that there's always something that we can materially improve. There's always something that we can do better. And what we talk about in the business is what's the next iced coffee? What's the next part of our food or drink sales mix which we can materially improve? In the top right there, you can see a couple of images of coffee, and there's a real focus in the business. And they take us into 2024 in terms of improving what is an already very good coffee offer. And we're trying new crockery and a new blend of coffee. And in the lounge business, Christmas bookings are now available for tables of six plus, and there's no need for a deposit. I haven't got a degree more confidence now in in how we drive Christmas bookings in the lounge business.

24:41 Lounge isn't overly... Like, the lounge business is very balanced from a from a seasonality perspective, and Christmas isn't a vastly important part of its sales. But what we are learning is that there's probably a little bit more for us to take from a Christmas booking... Bookings point of view.

25:00 We talk a lot about value for money. And as I mentioned at the start, how we believe it's a a real significant driver of our sort of strong performance and how do as we we look look ahead ahead to 2024? We think that's gonna continue to be the case. And this slide here, which looks quite busy, but it... It's updating on the slide that we showed a year ago. What it does is it looks looks at at our our pricing in Prospero Lab, which is a lab we opened in November last year in Stratford,. That orange box in the middle takes a few core products that we sell and how our pricing column, that was where we were... Our pricing a year ago, our pricing today in the blue column, and then you can see the percentage increase in our pricing on on on the right hand side. And then what we've done in the boxes around is look at the prices of our main competitors in Stratford or Nayton. And, again, seeing how they've shifted across the last year.

25:56 And in the the triangles represent whether the red triangle suggests that the same product is more expensive than our price, whereas the green arrow is suggesting that those those competitors are are cheaper than us. Now Stratford and Oygen is a... It's only one location. It's a snapshot, but it's interesting. And it's worth bearing in mind as well, this is all kind of collected verbally by our team. So it might not be a bit kind of completely accurate. But as I said, I think it it it gives us a snapshot. What were my main takeaways when I look at this? I think, firstly, just looking at this chart and looking at the other competitors, virtually everyone else is in... Is seeing double digit like for like sales increase... Price increases over the last twelve months, whereas we've seen six, 7%.

26:43 And I think that's on the back of 2022 where the different... Where the price... Prices our competitors took... Where the the uplift was more pronounced again. So I think it really helps understand why we were becoming more competitive. Second point is looking at the main main... The the main coffee operators, Costa, Starbucks, etcetera. They're $20.25 pence more expensive than our coffee. And I firmly believe that our coffee is a far superior product, which you can eat, drink in a in a in a much nicer environment, and you'll be served by much friendly, more hospitable team members. Burgers, Burgers, I I think, think, are fascinating. Our entry level burger with fries is £11.75. Looking across these competitors in Stratford On Avon, burgers are $14.15, $16.17 pounds.

27:35 And I think it really helps demonstrate how we represent great value for money. And if you think about the national living wage increase, which Greg will reference earlier, I think that's undoubtedly gonna cause investors to increase their prices more. And I think that'll give us another opportunity to really highlight our value for money credentials.

27:57 So the next slide, I think, just helps us really summarize the model and why why we achieve such strong returns on capital. And whilst the last few slides have referred to lounge, I think that this rep... This applies to closing club just as much as it does to lounge. Starting on the left, if you take our amazing hospitality and and atmosphere, add to that the very freshly cooked menu with really consistency and that value for money that's so important, and that means that we have really broad appeal. And we have people coming to us on multiple occasions, all all sorts of times throughout the day, throughout the week. Then means that we're generating meaningful levels of revenue across both the day and the evening. If you put that alongside our low rents, so 4.4% rent to revenue ratio, the lowest in the sector by some distance, our low CapEx to the fact that we're building these sites ourselves with our own internal build teams, that's what allows us to deliver consistent 13% plus returns on capital as we have done for the last decade.

29:05 Moving on to talk about Cozy Club. And we're forming the view, and I think we've had this view for a while, that there's a real opportunity for us to build on the existing level of sales in Cozy Club. And We've seen a new managing director join, Lucy Knowles, join, and she brings both significant operational expertise alongside sales and marketing experience. Previously, group markings... Marketing director at SSP. And prior to that, Lucy was a MD of Corneau Barrow. And so we've also seen, much like in that, seen the new autumn win... Autumn winter menu launch, and that's in the menu further strengthened. And I know Lucy's really keen to influence our first menu change, which will be our spring summer menu, start of the New Year.

29:53 Looking at the top right, we've launched Cozy Club at Oxford in October, which is our thirty sixth Cozy Club. It's a fantastic fit out over eight and a half thousand square feet on the 1st Floor. And last week, we achieved sales there of 85,000, put it in the top five within the estate. And and what we anticipate there, and this is what we do see in other cozy clubs, is that we'll see steady sales growth as the days... Daypart in particular matures. And that takes a little bit longer in Cozy Club than it does in lounge. Christmas bookings are ahead versus last year. And unlike lounge, the four weeks of Christmas in Cozy Club represented a material amount of sales. It's 12% of sales.

30:40 And closing up returns on capital, as I've mentioned, in line with land, but we think there's more in the tank. We think that there's more that we can do to drive sales and really maximize the way that we fill up tables in the restaurants. Then moving on to talk about Bright Side, our new roadside dining concept. And and the journey so far, we've opened in the first half of this year our second and third sites in Solsach and Monoton. They launched in June and August, and that was a really hectic period to to to open them... Those meet those sites. I mean, school holidays when they're they're very busiest. We've seen average weekly sales of £22,500, and we're really happy with that. We rep... Think it represents a really solid start for BrightSide.

31:27 We've seen strong representation from people living locally, and we're happy with that because the community market's one that we know really well from our lounge business.

31:36 But we've also seen that the seasonality is very pronounced. School holiday is exceptionally busy. Looking at the sales mix in in Brightside, 75% food, 25% drinks, which is quite different to lounge and place. By the way, we see a stronger... A more even mix between drinks and food. But interestingly, the best selling dishes are the breakfast and the burger, which is really consistent with the best selling dishes in lounge and place. Customer

32:04 feedback has been excellent. I think we're really confident with delivering a great product and experience and and the negativity... We experienced the negativity right at the start when we launched BrightSight, but those legacy more value driven customers have now largely moved on. We do have a need to grow sales, and we do that through building awareness and familiarity. I think what's important is that Bright is very different from the lounge and the coaster cup. We open the lounge or a coaster cup, they're immediately a captive audience. They're walking fast basis, whereas within... With Bright side, we need to get people to stop the car. The marketing strat... Strategy continues to evolve, and we're learning what works and what doesn't work. I think what's important is the journey's just starting. It's too early, far too early to talk about scale, long term ambitious, long term ambition. But what I can say is that we're really excited about it and its potential.

32:59 And I think as these results demonstrate, us opening BrightSide certainly hasn't distracted from the land and Kosovo rollouts.

33:11 Moving on to talking about property and some property headlines. As Greg mentioned, we've opened 16 sites this year in the first half, and we've opened a further seven. So we're now up to 23 new sites out into this financial year, and we're on track to deliver the 34.

33:29 Talked about rents and how that's reduced to 4.4% of sales, and that's less than the sector. If I look at the the the the spread of those new site openings, there's a slight bias towards the Northeast and the Southeast and those areas where we're we're less less represented, there's still plenty of inflow opportunity right across The UK. And there's no doubt the property market continues to be very tenant friendly. We continue to source prime pitch opportunities, predominantly former retail or bank units, and landlord packages remain very competitive. Although we do anticipate with interest rates rising that we'll see that that split between capital and rent free period moving a little bit further towards rent free as... In in the future.

34:18 Now we're using more footfall and demographic data to draw conclusions about the existing estate, new opportunities, and the overall potential scale of brands. As we have done in the past, take a few of the case studies just to understand the types of sites and locations that we're opening. And first one is at Navio Lounge in Natswich, which is a really beautiful form of Barclays Bank. We opened here in July of this year. And looking at the the kind of the property metrics, very typical for a lounge. Fifteen year lease, rent of 60,000, just below our average, and an annual package of twenty four months in this case, which was all in capital. Gross average weekly sales of 37,000, put in probably second quartile, and net CapEx of 840,000.

35:07 Great forecast return of 36%.

35:11 And looking at the map on the right showing the town center, it's really typical in terms of competitor set, particularly from from an an f and b point of view. Main main line coffee brands include Costa, Cafe Neros. And what's quite interesting here is that there's no JD Wellerspoon. One of the reference points we talk about in terms of potential scale of business when we say there's capacity for

35:37 at least 600 lounges across The UK. JD Butterspoon is an interesting reference point. There are over 800 JD Butterspoons across The UK, and there there are a number of times where we trade where there isn't one. So So I think that helps. Case study looks at all our land in London, though. And then... Well, we wish all our land just was performed as well as this one. We've always had a high level of confidence in terms of how we trade in London, though. It's... We trade really well in Wales. We know that we trade really well in coastal locations. We opened here in May 2023. It's in a former clothing clothing shop. It's a really, really beautiful property.

36:24 And looking down, CapEx, 1,300,000. That's a big, big number for a lounge, well above the average, but worth it. We... As I said, we had real confidence in how we perform here, and I think that's the way that the business has evolved over the last few years is that is that, yeah, we've got more confidence in terms of the levels of sales that we're gonna generate in locations, and that allows us to spend a little bit more on CapEx. So it might have to spend a little bit more in terms of rent. Rent is very competitive. It stands at £64,000. But gross average weekly sales over the first twenty seven weeks of of £63,000, which is right up there in the top five lounges. It's a record opening in the summer. It is seasonal, but not as seasonal as you might expect.

37:12 And there are sites in Bangor, Cleo Lounge, 21 miles away in Pristatin, Torello Lounge, and there's more opportunity for us in in in North Wales.

37:26 One of the things that's great about the lounge model is the versatility of it and how how we trade really strongly in a variety of different types of locations. Our bread and butter historically has been secondary suburban high streets, market towns, but as these slides show, yeah, it is very versatile. Looking at them in turn in the top left, Armando Lounge in Plymouth is on the Barbican. And we have Seco Lounge, is probably three or four miles away, and a Cozy Club, which is just one mile away from here. And this was in a former Edinburgh, Bulletville and has achieved a great average weekly level of sales of 41,000, albeit that's likely to come down a little bit as as as we go through the winter. And we opened there in May of this year. In the the bottom bottom left, we have Camelera lounge in Leeds, which is in the Springs Shopping Center, just the East of Leeds.

38:16 We opened in there February last... February of this year. And we're seeing real success in some of these mixed use retail leisure parks. Form a minority of of of of of the kind of type of sites within our state, but they do perform really, really well. Whether you have confidence that that these schemes have great footfall throughout the day and the evening, then we really enjoy putting lounges in them. And we've got similar similar lounges in Brushton Lakes, in The Midlands, in Foster Park, and in Leicester. Gloucester Quay is another good example.

38:50 In the top right there, you can see Martino Lounge in Morbeth, which we opened in August. That's in the former Laura Ashley. And we've also opened sites in Hexham more recently and indeed on Wednesday of this late week opening Crablington. So all three suburbs of Newcastle, we think there's probably six or seven sites in opportunity for us in the suburbs of Newcastle.

39:15 Then bottom right, Acordo Lounge in Deal. So great example of a coastal town lounge. And as I've already mentioned, we trade really well by the coast. Opened here in August and delighted with the way that the site's performing.

39:32 Next slide, we thought we'd pull together just because I think it's it's it's interesting to see what we're replacing on the high street. We're a big business now approaching 250 sites. So, you know, what what are we replacing, and where have our sites come from? And this slide shows out of the 60 sites that we've opened over the course of calendar years 2022 and '23,

39:55 what are we replacing?

39:57 And, typically, our bread and butter is Columns 1, which is former retail units, and column three, which is former banks, and then the fourth column, which is where developers are creating new space for us, typically, when they're putting something down and putting something... Putting a new development up in up in its place. And you can see just there from the names on the left, the changing nature of the community high street and and some of them really well known names that we're replacing, in particular clothing retailers and the likes of Arcadia, Topshop, Versus, etcetera, and M and Co. Interestingly, in that second column, how there are more formal restaurants. That's a function of how many have have closed over the last few years. We've always been really cautious about opening in former restaurant premises, largely because of the legacy impact, and that that legacy can have a negative effect on on people's perception of those sites.

40:53 Then thinking about new developments and the lounges PLC covenant is really attractive to new developers and continues to get more and more attractive as the business grows and as our debt reduces.

41:09 Next slide talks about the good stuff, which is our internal name for for ESG. And, historically, we we haven't really shouted about it, but there's an awful lot that we've done really, really well. And I think over the course of the last kind of six, twelve months, we've recognized the importance of it and and particularly with regard to how how it impacts our teams and how it impacts the communities in which we serve.

41:35 And so we have a committee now which is monthly to drive the agenda. What this slide represents is is our ambition from an ESG perspective. I don't propose to go through it all in detail, I'm picking off some of my personal items from it. Hosting on... Picking on the left hand side and thinking about community. Community is such a central part of our business, and that ambition to host 10,000 community events is something that we do so so well. And when we think about community, when we think about charity, we don't think about it from a national point of view or from a company point of view. We think about how it touches the individual lounges within those communities. Then, again, looking at community, that that... That's ambition to provide 10,000 free meals to people in need. Right? We have a real opportunity to help address food policy and the locations where we trade.

42:30 Thinking about our teams and that ambition to have 50% of management roles to be filled by our internalized by 2028. Internal progression is really, really important to us as a as a senior team. I think given our growth and our scale, we have a real opportunity. People want careers in hospitality, then there can't be a better provider in The UK, and so we want to be really ambitious there. And then thinking about the planet and our ambition to increase our recycling by 10% and food composting by 20% by the end of twenty twenty four. I think there's definitely an awareness that we can do better, and it's something that our teams want us to do better. And then thinking about our teams, we continue to invest in our people. And this next slide just talks through some of the headlines.

43:20 And the recruitment landscape definitely continues to gradually be more employer friendly. One of the key trends that we're seeing is that trend of a younger team wanting fewer hours across the week. That's obviously having a marked impact on our workforce. We reworked our bonus structures during the first half of the year at to make sure there's realignment in terms of incentivization. And a real focus for us going into 2024 is to our team development and progression. We want to be famous for building careers in hospitality. And the second half, we'll see our emphasis on an investment in learning and development really ratchet up. Loungefest, which is the kind of the real pinnacle of our people calendar.

44:05 Loungefest twenty twenty three is a great success.

44:08 Our investment of 700,000, I think it's really worthwhile, but we will start to get our supply base to start funding that from 2024. So just to conclude, I'm not Alex, the executive chairman. But just by way of conclusion, the consistency of the sale performance highlights the relevance of our brands and the opportunity in front of us. And there really is so much for us to go for if, and this is really important, we continue to evolve and protect and nurture the culture. But I think we've really demonstrated there for the last ten years that we are very good at that. And that 650 plus site target for lounge and cozy club really feels conservative as we continue to open sites in new locations, and those locations perform really well for us.

45:00 We do believe we've got a significant role to play in the transformation of the high street. I think we're really proud of what we do from a community perspective through job creation, through investment, and just providing great places where locals can spend time. And finally, we do believe we've got the strongest senior team in the sector and have an opportunity to have a real influence on eating and drinking out in The UK for years to come. So So on that, Nick, I'm gonna stop, and then we're gonna answer some of the questions. Yep. Perfect. Nick, Gregor, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. Just while the company take a few moments to review the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

45:52 As you can see, we received a number of questions throughout today's presentation. And Greg, if I could just hand over to you just to share the Q and A, I'll pick up from you at the end. Lovely. I'll I'll read the questions, and Nick and I'll answer them. The first one is from ENS, and he's asking what are the company's expectations and preparations for the upcoming Christmas trading period, and how does this fit into the broader outlook for the financial year? I I... Shall I begin? I... More of the same, really. I mean, I'm... We... I talked... We touched briefly on saying that we're optimistic in terms of Christmas. I think there's buoyancy in the sector about Christmas. We have the benefit of four bookings in case in Atlanta with GreenLounge. And I think the way Christmas falls this year is helpful.

46:39 It being it being at the start of the week. And and, yeah, so as I said, more of the same. I think it's easy to look at like for like sales over shorter periods, yeah, they can fluctuate as a result of weather, bank holiday timings, etcetera, etcetera. But, you know, as I mentioned right at the start, we anticipate the returns of volume growth. We'll take some more price, and we think, you know, from a competitive perspective, we're really well positioned. Think a really important point on Christmas in the lounge business is that the four weeks of December account for 8% of lounge's annual sales. So it's not a massive period. It doesn't have the the peaks that you'd expect most of the talent companies to have. Cozy Cozy Club is a little bit more focused with with party bookings where the four weeks represent about 13% of its annual sales. Next question from Samuel Lee asking what steps are you taking to attract new customers and to retain existing?

47:37 I think the the the same steps that we've we've taken for the for the last decade decade, really, in terms of... In particularly within the lounge business. When... I mean, in lounge, we're not a very sales and marketing led We're a community business, and that's how we think about it. So from a product perspective, it's constantly evolving. There's a restlessness within the business to make sure that we are delivering as well as we can from a food and drink development point of view. Constantly challenging as I said with the with the example of the the iced coffees, but exactly the same with the food and just gently pushing our customers, I think, a little. I mentioned the breakfast and the burger. The the breakfast and burger will always be our best selling dishes.

48:23 I spelled just the best selling dishes, but that doesn't mean that they can't get better. And then on the the dishes which might sell lower volume on the menu, again, just looking at what's happening in London, elsewhere, and elsewhere in the open world, and involving the menu, introducing new flavors, etcetera. Yeah. That... That's how we've kind of maintained the really consistent level of life of our sales growth that we have historically. I think just on the Cozy Club side, and I mentioned how we think there's more in the tank, and that Cozy Club is more sales and marketing driven. So Cozy Club is a brand. We market it more as a brand. And I think, as I said, with Lucy's introduction to business as Cozy I think we're excited about about pushing more there.

49:11 The next question is from Richard s. It follows on from Samuels pretty neatly. First of all, Richard, thanks us for talking to him. Well, I'm talking to you all. It's a pleasure. And the question from Richard is given that lounges don't really mark essentially, what's the parameter drive into 2024? Referencing more of peak offers and increase the focus on community events and get more people through the door when prices have left quite a bit. I mean, it's really a good question. I mean... And I think offers know, and and I think in in, you know, really fundamental part of the of the lounge model. And we don't do kind of loyalty schemes, and we we like the informality, and we like the flexibility of saying to us, if you want to give someone a free coffee or a free pint or a free slice slice of of cake cake or a free burger, please go for it. You know? They have, you know, they have that autonomy, and that's that's fundamental to to how we trade. Right? Increase the focus on community events. Absolutely.

50:12 We're always looking to to to kind of enhance that community focus. And one of the things we've done this year is we've introduced kind of regional community champions, and they're not there to tell the sites what to do. They're there to kind of encourage best practice, to share best practice, to encourage someone within a site to take the lead and to make sure... To make sure that they're reaching out, that they're thinking creatively, and and that they understand that there aren't any rules. You know, we're very happy for them to engage how they like with their community. I think fundamentally, though, to Nick's point from earlier, it's not just continued focus on evolving the offer and giving more and more opportunities to people who want to come and visit us every week. Next one from Marcus A.

51:01 How is the increased capital expenditure aligned with the company's growth strategy, and what areas have been prioritized for investment? Well, I I think, fundamentally, our our capital expenditure plans each year are are driven by that new site opening program. And, clearly, our new sites are are 75% plus of our total capital expenditure in any one year. And still there is a new site CapEx. You know, we have relatively modest amounts of investment in terms of splash and dash. It's not a business that has a fixed cycle for reinvestment in sites, so that's not a drain on CapEx. And then clearly, we have elements of central CapEx spend to ensure that we're investing correctly in systems and process to to support the growth, but also projects, for example, like the backup house reset program, which we're focused on on operational efficiency and making life as easy as possible for those of our teams who are working at the at the sharp end.

51:57 So it's funny. How are we managing the balance between implementing necessary price increases and maintaining customer loyalty in in the face of inflation. And we've clearly talked about this a little bit already, but I think what's really important is is, yes, we've increased our prices. And, you know, in the old days, pre COVID, we were taking one or 2% a year. And, you know, we've recently taken 7%, and there's a big difference. But think what's critical here, going back to that slide that highlights of the price differentials in Stratford On Avon, our view is that we represent great value for money, and and and we... And we're constantly becoming better value for money. Lastly, because we're in a very strong position from a margin point of view. We continue to grow.

52:43 We have the benefits of scale. We have the benefits of operational gearing. And if you compare us to a more mature business that doesn't have that benefit, they're... Just to maintain margins, they're having to push so much price through. I think one of the big conversations we have within the business and with our PLC board is, are we taking enough price? As a team, we're very cautious. We're going back to that burger in Stratford and Avon. Our £11.75. There's probably a strong argument that that's too cheap and take a little bit more price. But I think we're... I'm really happy that we're on the on the cautious side of that, and and we'll constantly challenge them, you know, kind of how much price we should be taking. Got a couple of questions now for Richard S. The first one is price and volume, which I think we've probably covered.

53:30 But the second one is asking us what are the one or two new things you'll do in 2024 to get to eight out of 10 people enjoying working at lounges? That's a really good question. And and we've done a lot in 2023, and a lot of what we want to do in 2024 is embedding what we've done in 2023. And we pay... We're an average pay. So we're we're we're not the best. We're good for for younger team members. We probably... We are above average for younger team members. But working in hospitality, I... Then I... There's two ways of looking at it. One really want to get better at is learning and development and providing career paths.

54:17 And with all the growth, we should be the best place for anyone in The UK who wants a career in hospitality. And so 2024 and the first half in particular was the guy, our chief people officer, ensuring that anyone... You know, we've really... A clear path for anyone who wants to progress and that we're making it really easy for them to progress. And so that's probably, I guess, I guess, the the top thing. But beyond that, we have something which we call the commitments, which sets out kind of the values that we want to have as an employer and making sure that we that we that we kind of... We're consistent with them. The biggest risk in a business like us, we employ eight and a half thousand people is that somewhere within the chain of command, you have someone who who isn't behaving consistently with those values.

55:07 And with those values, we're all about paying fairly, people's time off with with with appropriate consideration and making sure that we're protecting people's mental health and their work life balance. All... One of the... So I guess the second strand is making sure that, you know, 2024, we are really kind of being held to account in respect of those, and we have lots of employee surveys and other things to make sure that that's the case. One from Tom w here on public markets, not not seeming to fully reflect the value of the business through the share price. The recent takeover of the of the group by Apollo, a very modest premium. What do you think needs to happen in order for the markets to better reflect the intrinsic value of the business?

55:52 Are we looking at share buybacks, progressive dividend policy, achieving greater mass through more site openings, and the cost of wind trusts, etcetera? Well, I think we agree with Tom in this... You know, we're not appropriately valued. And you could imagine over the course of the last, you know, twelve months, we've had many conversations with our advisers, brokers, Nomad, etcetera, and within the PLC board as to whether we should be doing anything differently to enhance shareholder value. And it's fascinating because when we speak to our institutional shareholders, we continue... Some will say one thing, some will say another share buybacks, dividend policy. And that one that I hope we've done better where we have reacted is in terms of of making ourselves available to retail shareholders and and trying to be kind of more out there from from that perspective.

56:48 I think at the end of the day, ultimately, our perspective is that we need to really focus on what we do well, which is delivering that strategy that we set out at the time of the IPO, management and closing clubs, you know, and and increasing the profitability of the business and and demonstrating the strength of us as a management team. And and, hopefully, we're achieving that. Thank you. Another one from here in terms of headline chatter that the average high speed is already saturated as far as restaurants and bars are concerned. How does languages know that they're not late to and at the end of the rollout party? I mean, what we do is is so different to anyone else than anything else out there. I think that's really important. And, you know, in the last decade or more, we've seen countless dining rollouts and and, yeah, and so... But businesses which have gone from zero to hero and back down to zero again.

57:51 The likes of Jamie's Italian is a is a really good example. Not a casual dining business. I think this is so, so important. We're not a restaurant business. I'll go back to when I talked about the lounge model. We compete with coffee shops. We compete with bakeries. We compete with restaurants. We compete with pubs, sandwich shops. We compete with everything and everyone. And if you look at the typical high street where we open a lounge, there aren't any restaurant chains. As I said, you'll typically see a Costa. You'll see a Starbucks. You'll see a Greg's. You'll see see a JD Weatherspoon pub, and that's pretty much it. You might see a pizza operator. That's that's the... Those are the locations where we trade, and we trade so, so well there. And we we see continued and enhanced success in those in in those those in those types of locations.

58:44 Couple here from Peter S who asks, what metrics will you need to see from Bright side to continue the rollout? What level of weekly sales, for example? I think our initiative... Probably the the the easiest way or the initial way that we think about it is the level of sales has to get to where it allows. So an average landfills of the sales is 30,000 a week gross. So I'd say that's number one goal, and I think we acknowledge that's gonna take time. And when we open the lounge, we we land on a high street, and and everyone in that community has seen us coming because they watch us developing it. And they will come in. And that just happens, and it's great. The Bright side is quite different. And and so it's gonna take a little bit of time to get up to that batch of sales, but but we have real confidence I think in terms of KPIs, the the... I guess, the two really important things... Well, the first two things we'll look at will be sales and and and customer feedback.

59:45 You know, are our customers telling us they like what we do? And I think, secondly, over the course of the next twelve months, we'll look to understand the the return on capital in more depth. You know? How should these Brightsides convert at an EBITDA level? What's a mature CapEx number? What's a a kind of an ongoing CapEx number for for a new bright side? And then if we look at that overall return on capital, how does that compare to the 30, 35% that we've achieved in Landry and Kosykap? Should it should it be competing for... In the future with lounge and cozy club for kind of funding for rollout? Should it be incremental? Should it be additional?

1:00:25 Or, potentially, is it not worth it? Would we be better focused than... Better just focusing on. It will have to be really clear, bright size and experiment, one that we're really excited about. And in twelve months' time, I think we'll form a view as to to what next. Second one from Peter S is asking about London. Putney High Street meters. I know Putney High Street very well. So... And, again, we work... Probably work quite well in Putney High Street. It's when we typically think of London, we think of of Greater London. And Greg and I were in our were in our site in Ealing earlier in the week at RiseNet, Epsom,, etcetera.

1:01:16 One one of... It's interesting. The closer you get to zone zone Zone 2 and Zone 1, one of the we... I suspect we find is that, a, is is... Will the return on capital be as strong as it will be in North Wales?

1:01:33 That's not a revenue perspective. That's more from a rent point of view, and the property cost is just competitive. The second thing with with with with some areas of London is will the daytime trade be as strong? If if everyone's working and if everyone's commuting and going in, then there's a risk that we don't do quite as well from a daytime sales perspective. And the final question is from Steve White asking, sorry if I missed it, but have LOUNGERS considered a loyalty card scheme? And if so, what were your thoughts? Is it... You might have heard me mention earlier, Steve, but we... Basically, from a a loyalty point of view, we prefer the informality of of what what we call random.

1:02:19 So allowing our teams to... You know, if they recognize that Nick's come in... Comes in every day for a latte at 11:00 in the morning, it's every now and again giving Nick his latte on the house and just saying it. Because, well, I think we we much prefer that more natural level of hospitality rather than a than, you know, six stamps on a on a on a card and you get your free coffee. That said, I'd say two kind of caveats to that is one is it's really important that we challenge if we can use technology better. And whilst we're probably naturally quite technology averse and we believe that the best hospitality is the interaction between our team and our customers. It's important that we challenge that. I think the second thing that we really ought to consider, and we haven't, is whether for our shareholders, whether that there's something that we can do for our shareholders to to recognize their kind of faith in us by by giving them some sort of discount in trading business.

1:03:23 Perfect. Nick, Gregor, thanks for that. I think you actually managed to address every single question from investors. Investors. And of course, the company will review all those questions submitted today and we'll publish those responses on the Investor Meet company platform. But just before redirecting investors to provide you their feedback, which is important to you both, Nick, could I just ask you for a few closing comments? Absolutely. Thank you very much. Well, thank you for joining us, and I'd just like to reiterate that, you know, we really are continuing to deliver on the strategy that we set out for the IPO, delivering consistent set to meeting like for like sales growth, delivering improving margins at a time when our competitors' margins are shrinking. And we're really comfortably delivering the rollout of 34 sites per annum. I've got greater confidence than ever in the potential scale of the business to grow in excess of 600 sites in the coming years.

1:04:15 Thank you. Perfect. Thank you once again for updating investors today. Could I please ask investors not to close this session as you'll 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, but I'm sure it'll be greatly valued by the company. On behalf of the management team for LOUNGERS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.