Loungers (LGRS) — Preliminary results

0:01 Good morning, ladies and gentlemen, and welcome to the LOUNGERS PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab. It's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investor meet company dashboard, and we will notify you by email once these are ready for your review. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And now I'd to hand you over to CEO, Nick Collins and CFO, Gregor Grant. Good morning.

0:49 Good morning, everyone. My name is Nick Collins, Chief Executive of Landers. Thank you very much for joining us for our results presentation for the year ending April 2022. I'll take you through some brief highlights, then

1:03 I'll hand over to Gregor, who'll go through our financial performance and position in a bit more depth, then he'll hand back to me to go through the strategic and operational side of the business. But just looking at the first slide now and going through the highlights, it'd be fair to say we're really pleased with our performance during the year ending April 2022. We achieved a record level of sales, a record level of profits, and we opened a record number of sites. And we just did that despite the obvious challenges that COVID presented. And today, we stand at two zero one sites having last week opened both our two hundredth and two hundred and first site. It remains the case that we continue to outperform the market. We always have outperformed the market, but post COVID, we've seen that gap really grow.

1:50 And it's been a significant year of evolution and innovation. And despite the COVID challenges, we've continued to improve as a business for our customers. And that's given us the confidence to add a fifth build team. And what that allows us to do is increase our rollout capacity from our current rate of 25 sites a year to around 32 sites a year. We believe we're uniquely well positioned to weather short term uncertainty whilst continuing to evolve and open new sites. We'll talk about that in a bit more depth. And finally, our current trading remains very, very strong. Gregor and I have been doing our institutional investor meetings over the last few days. It's probably the first question we're getting asked a lot about. We've seen no change in the way our customers are behaving over the last twelve, thirteen weeks since the year end.

2:36 And over to you, Gregor.

2:38 Thank you, Nick, and good morning to you all. If I may, I'll take you through the financials. We'll start off with some highlights and then we'll take a deeper dive into our like for like sales performance. We'll take a look at our margin performance during FY 2022 and some of our expectations and thoughts for how that might develop in FY 2023. And then I'll wrap up if I may with a look at cash flow, our CapEx spend, and finally, our net debt position.

3:07 Financial highlights on slide four. I think first point to make here is that I'm comparing our performance in FY '22 against our performance in FY 2020. Not perfect comparatives, both of these years had elements of COVID impact, but a much better comparative period to use FY 2020 than to use FY 2021, where our sites were only able to trade for just over a third of the available weeks. And I guess the second point to make here is the FY 2022 numbers clearly benefit from elements of government support, most notably the VAT reduction, and the business rate support that the company received. And I guess you you see that, impact of government support. Firstly, when you look at the revenue line, revenue of 237,300,000, that's up 42 on two years previously.

3:55 But it does benefit from just over £15,000,000 of VAT benefit. Albeit when you take that VAT benefit out, it's doing... It's still a very strong two year growth of just over 33%. Moving down the table to adjusted EBITDA, we showed this on both IFRS 16 and IAS 17 basis. If you look at IAS 17, which is after a full rent charge in that EBITDA number, you'll see adjusted EBITDA of 42,300,000 versus 18,800,000 in FY 2020, and an improvement in the EBITDA margin of six fifty basis points. Later on in the presentation, I'll take you through that in detail and show how you bridge those those two numbers 11.3% to 17.8%. And then last but not least, profit before tax 21,600,000 for the year. So our maiden profit before tax as a public company.

4:48 Moving on to slide five and looking at our like for like sales performance. On this page, we're showing three year like for like, so it's comparing our performance in FY twenty two against our performance in FY nineteen pre COVID. And that basically enables us to show that the longest possible period of like for like sales performance. So in this case, forty eight weeks. We reported a headline net like for like sales growth of 22.1%. That's in the table on the top half of the chart. That clearly enjoys the benefit of the VAT reduction, which was worth 7.9%, giving us an underlying three year like for like sales growth of 14.2%. The second half of the chart shows the the performance post year end, and it shows our the twelve week like for like performance on a three year basis from the April 18 through to the July 10.

5:40 And clearly, VAT benefit anymore to be enjoyed, but our underlying sales percent sales performance of 17.9. So very consistent, very strong compared to the 14.2% for the full year. Moving on to slide six, really shows the evolution of that like for like sales performance over the last sixty weeks. So the chart has five orange blocks on it. Each of those orange blocks represents a twelve week trading period, starting on the 05/17/2021 when our sites were able to trade both internally and externally right through to the July 10, so the Sunday before last. I mean, I guess the first thing you see in these blocks is that we have four very consistent blocks and one inconsistent block. And the inconsistent block is the one that covers a twelve week period from the 11/01/2021 to the 01/23/2022.

6:31 And that includes the December trading period, which was severely impacted by the Omicron variant. Indeed, in the four weeks of December, the business was minus 9.1% on a three year like for like basis. Putting that block to one side though, as I say, you see very consistent performance across the other 48. The first twelve weeks, we really enjoyed a very strong trading performance in the first eight weeks post reopening. That May and June period was exceptionally strong for the business, and we came out of the blocks very quickly. August and September, likewise, we enjoyed really strong staycation trading performance. Then as I say, we have that Omicron influenced dip in the winter period. And then most importantly, I think, really as we came back in early February, we've enjoyed twenty four weeks of very strong like for like sales growth on a three year basis, both strong and consistent. So 16.6% for the first twelve weeks from the end of January to the April 17, and then 17.9% from the April 18 to the July 10.

7:29 As Nick said earlier, I think, you know, on the base of that like for like sales performance, really seeing no change in consumer sentiment or customer behavior. Importantly, though, for the last eight weeks, we've now been able to look at a one year like for like. It's not particularly helpful, I don't think running a business where everybody's looking at three year like for likes and numbers of plus 18 plus 20% and so. So over the last eight weeks on a one year basis, our like for likes have been plus 2.3%. Admittedly, that's a little lower than we've become used to in lounges, but I think very much reflects in particular the first four weeks of that period, comping against a very strong reopening performance middle of May to middle of June twenty twenty two... '21, sorry. Moving on to slide seven, if I may, this is a really important chart and one that I think really spells out one of the key strengths of lounges.

8:16 What I'm doing on this chart is showing how the underlying FY '22 like for like sales performance of 14.2% is is delivered by the various site age cohorts in the estate. So essentially, if you look at the left hand block, which is described as FY '13 and pre and has an 11.9% number on it, what that's telling us is that the 29 sites in the estate which date back to FY '13 and earlier, so they have an average age of just under twelve years, contributed 11.9% of like for like sales growth. And as you see broadly across the different age cohorts, all are contributing to that 14.2% like for like sales number. It's not a function of our new sites driving that like for like performance. It's very evenly spread across the entire estate.

9:03 Moving now on to margins on slides eight and nine. Slide eight, it's a busy slide, I'm afraid. It's got a lot of numbers on it, quite a lot of words. But what it's looking to do is to bridge that to 11.3% adjusted EBITDA margin from FY twenty at the top of the chart, down to the 17.8% adjusted EBITDA margin for FY twenty two. The important bit to focus on is the is the block in the middle with the the bold border. And I guess what I've done either side of that that block in the bold border is basically to take out at the bottom of the slide, the benefit of rates and VAT in FY '22. And then at the top of the slide, the benefit of having a full Christmas trading period in FY twenty. So p nine, I mean, Christmas isn't hugely material for the business in terms of sales, but the extra £2,500,000 of sales or so we generate in p nine over a regular month is exceptionally profitable for us.

9:54 Looking in that bold box, effectively what I'm saying is that on an underlying basis, our margin excluding p nine in FY twenty was 10%, and that grew to 10.4% in FY twenty two, so 40 basis points of margin improvement. Breaking that down, we saw 80 basis points negative on the cost of sales and site labor line. That was a positive in terms of cost of goods sold, and a negative in terms of site labor. So very similar to performance for that which reported at the end of the first half. Then we've got 20 basis points improvement on variable cost lines, and 100 basis points improvement on-site rent and service charge. So starting to see the benefits of leveraging those higher sales levels over a relatively fixed rent and service charge cost base. Looking forward to FY twenty twenty three on slide nine, clearly, it's very early in the year and there are a number of unknowns that remain out there, but we've had a look at setting out our expectations in the table on that page.

10:53 I guess in terms of selling price, we're expecting over the course of the year to be taking somewhere between 36% in terms of price. If you were to look at a lounge menu today and compare it to one from three sixty five days ago, you'd see this is about 4.5% price in that menu. And if we do nothing for the rest of the year and get to April 2023, there'll be about 3% of price left in that menu. So we have a little bit more price to take if we're going to get to six percent for the full year. I think the big decision really for is is what we'll do in October when we launch our next lounge menu. Clearly, value for money is absolutely key to the business. It's a... It's an underlying principle. So I think that will always be at the top of our thought processes.

11:39 And it remains really incredibly important that we not only maintain that value for money principle, but also that we continue to drive volume growth in the business. That's really important to us. Looking further down the the p and l in terms of cost of goods sold, food and drink, we're expecting inflation of six to 9% in food and four to 5% in drink. There's a range here because not only are the one or two... Well, a number of elements of... That are still at the moment in terms of how pricing will develop over the remainder of the year. But equally, we have opportunities in terms of our menu, in terms of evolution of that menu, design of that menu, switching products and suppliers to enable us to mitigate some of those inflationary pressures. In terms of labor, we're expecting inflation of 6% to 8% for the full year. We monitor our hourly labor rates very closely. And if I look back over the last two weeks, year on year, we're seeing inflation of about 6.1% to 6.2%, so currently towards the bottom of that 6% to 8% range.

12:34 And then finally, one area that isn't proving too challenging for us at the moment is utilities. It's clearly a big issue out there, but we're hedged with our utility costs in the core estate through September 2024. Just a couple of points at the bottom in terms of consolidated distribution, which has been a medium term strategic goal for the business to bring more efficiency into our distribution process. Historically, the businesses have most of its sites receiving three or four deliveries pretty much five or six days a week. Therefore, reducing those number of deliveries, reducing the wheels on the road gives us an economic potential economic benefit. At the moment, that project is ongoing. We're looking to be moving to tender at the back end of this year, early next calendar year. In the last three weeks, we've made a move in terms of our supply of non meat and non produce into the estate. And one of the things that's enabling us to do is improve our internal disciplines and efficiencies. Key to us in order to deliver consolidated distribution is reducing the number of order days and deliveries into the estate. And part of that process that we're underway at the moment is reducing deliveries of these food products to just three days a week into the estate. That'll make us much more attractive when we go to tender consolidated distribution.

13:47 Moving on, if I may, to slide 10, eleven and twelve, looking at cash flow, capital expenditure and net debt. In terms of cash flow, operating cash generated in the year of 57,400,000. That's driven by a really strong EBITDA performance with adjusted EBITDA of 42.3, and then aided by £19,300,000 of working capital inflows. And that working capital inflow is really just a function of the rebuilding of the negative working capital within the business as we reopen for full trade on the May 17. Indeed, that 19,300,000 of working capital inflow is net of £11,500,000 of outflows in respect of settling deferred COVID liabilities, which were typically rents to landlords and VAT to HMRC.

14:34 Beneath the 57,400,000 of cash generated from operations, we've got 6,200,000 of CapEx spend on non new site CapEx spend, so non expansionary CapEx, just over a million pounds of interest paid to give us free cash flow of 50,000,000 against which £16,700,000 went on new site expansionary CapEx and £7,000,000 was used to repay RCF drawings for a net cash inflow in the year of just over 26,000,000, leaving us with cash at the end of the year of 31,300,000. On slide 11, looking a little more closely at our CapEx spend in the year. If you look at the bottom of the chart, cash outflow of £22,900,000 that ties back to the cash flow statement we've just looked at. We then have £3,300,000 of buildup in our CapEx creditors effectively.

15:21 Our CapEx working capital was rebuilt as well to give us a total CapEx spend in the year of £26,200,000. 19,600,000 of that was on new sites. That covered the 27 new sites that were opened in the year. Three of those were essentially fully built and in the locker ready to open. So if you exclude those, we spent £18,200,000 on the 24 new sites that were built and opened in the year. That was an average spend per site of just over £750,000. Maintenance CapEx in the year of 2,400,000 represents 1.4% of revenues, so very consistent with pre COVID times. And in addition to that maintenance CapEx, we've got p and l maintenance spend, which amounts to 1.9% of revenue, that's 4,500,000.

16:06 And again, very consistent with where we were pre COVID. We took the opportunity during the year, having removed an awful lot of our furniture and put it into storage for social distancing purposes back in April and May 2020. We took that opportunity rather than just to send that furniture back to sites, but having got it into one place to have it all refurbished and put back to as new condition. So we spent just under £600,000 on that. And then we spent £1,500,000 on our project Finesse and Cozy Club, which something that Nick will go on to talk about a little more in detail. And that was largely on the cost of new furniture. Now the old furniture which came out of Cozy Club, again, will be refurbished and will be used in our lounge new site openings during FY 2023. And then finally, if I may, on slide 17, non property net debt. So we closed the year with £31,300,000 of cash. We had a term loan of £32,500,000 So non property net debt, just 1,200,000.

17:04 We still have £1,400,000 of deferred COVID liability. So underlying net debt down to 2,700,000 from £47,500,000 in FY 2021. And I guess a really important point to make here is at the time of the IPO three years ago, business had net debt of $27,500,000 We're very close now to being in a net cash position, so balance sheet significantly strengthened and enhanced. And on that page, I'll go back to Nick, if I May. Thank you, Gregor. I will move on to Slide number 14. And one of the points we've been trying to get across is the results we're announcing today portray a business that's fundamentally bigger and more profitable than it was pre COVID. And this chart on Slide 14 just sets that out and it looks at the year we're reporting on year ending April 2022 against year ending April 2020, which was almost normal. We traded for most of that year, but for the last four weeks.

18:03 So, moving down that table for a number of sites, obviously, we've continued to open sites. We opened a record number of sites in the year '27. And at the year end, we were at 195, so up 18% from 165%. And as you would expect, the underlying sales has grown significantly as well. So, underlying sales, so removing any benefit from the VAT discount, we saw a 33% increase in our sales. And our run rate turnover now is in excess of a $0.02 £5,000,000,000 From a like for like perspective, we are running at around 4.5% pre COVID. Now in the year after COVID, we're at plus 14.2%. What we've seen is since lockdown three, the mature states are generating materially higher level of sales than they were pre COVID.

18:52 And we talk about how we perform against the PEACH tracker. The PEACH tracker is the industry tracker, which amalgamates all the restaurants and bar and pub sales figures, and it's a benchmark against which we measure ourselves. Again, pre COVID plus four point two percent. In post COVID, we were up at plus eighteen point nine percent. So, a really stark contrast to the rest of the sector. And it asks the question why, why are we outperforming everyone else to such a degree? I think there's two points here. Firstly, it's due to the way that we're positioned and the way our brands are positioned. And secondly, importantly, I think it's due to how we've reacted to the challenges that COVID has presented. And I'll come on and talk about those two in a bit more depth. Our underlying EBITDA has grown up 28%, so we're converting the additional sales. As you would expect for a business that's growing, our employees have increased. And as Greg sets out, our balance sheet is a great deal more conservative.

19:50 Looking at Slide 15 and just considering in a little more depth that track record sales performance and looking at how we compare pre COVID versus the year we're reporting on and then indeed the last twelve weeks. And this chart shows in the first line our underlying like for like sales. The second line shows the peach tracker. And then the third line shows the degree to which we've outperformed the PEACH tracker. And it shows really consistent trends. So for the three years pre COVID, our underlying like for like sales were around plus 5%, plus 6%. So, volume driven like for like sales growth is what LOUNGERS has done for the last decade. And then what we've seen post COVID is that's lapped up to plus 14%. Then coming down and looking at how the tracker, so how's the rest of the sector performed during the same periods.

20:39 So, the three years pre COVID, the sector was pretty flat, round about zero. And then in that first year post COVID, the sector was down 5%. So, looking at the bottom line there and outperformance. So, as I said, our outperformance of the tracker is not new. We've consistently outperformed. And you can see there in the three years pre COVID, we were up 4%, five six percent. But post COVID, the degree to which we're outperforming really stands out.

21:08 So, moving on to Slide 16. And I said, our success is due to both how we're positioned and how we've reacted. And Slide 16 goes through how we've reacted and it demonstrates the degree to which we've used COVID this COVID period to transform the business operationally. I won't belabor some of these points, Glenn. We've talked about them in the past, but obviously you can ask questions on them afterwards. But going through in turn, we introduced an order at table app in the lounge business and that's had a massive impact. It now accounts for over 40% of our sales in lounge. And as a result, we've seen a higher average spend, we're seeing faster ticket times and that's having a positive impact on our sales. Second point is around our kitchens. We've introduced kitchen management system across all our kitchens, and we've continued to invest in the kitchen resets, which is changing the layouts and the equipment within our kitchens.

22:04 As a result of this investment, we get much, much better management information, and that's allowing us to increase our consistency and deliver food quicker, again, which is delivering better experiences for our customers and has a knock on impact, a positive impact on sales. Over the last couple of years, we've really invested in the management team. We've added a COO about eighteen months ago, and most recently, we've just appointed a Chief People Officer to further strengthen the exec team. We've also reworked and invested in our operational structure. And this is really important. It allows us to focus on the sites more and focus on improving and developing from a customer perspective. And finally, we've restructured our property and build teams. Then last point there, we've had to adapt our operating processes to evolving demand, and the customer has changed a little bit as a result of COVID.

22:58 We've seen significantly higher cocktail sales, we're selling more second drinks, and we're selling more puddings. We're now hosting in the lounges. So previously, when you walked into a lounge, you'd go straight up to the bar or straight to a table, whereas now we're greeting people at the door. And we've seen significant menu evolution in both the lounge and cozy club businesses over the last eighteen months. So, in summary, I think where we set ourselves apart from other operators is we viewed the challenges that COVID presented as a positive challenge. I think we've definitely emerged a better business on the other side.

23:37 The second kind of group point I wanted to make was around how we're positioned and the degree to which that impacts our really strong performance. And the best way to look at this, we found historically is by looking at case studies. So, here in the next few slides go through a lounge in Sittingbourne called Centado Lounge. And we opened in Sittingbourne in October 2020, so right in the height of COVID. It was a pretty crazy time to open and it was really difficult. We're just going into tears and all that stuff. You can't really see it from the picture because it's a bit dark, but it's a new build site, and it's not the prettiest. We're under a travel lodge there and next to a cinema. Looking at Slide 18, you can see a map of Sittingbourne Town Centre, and you can see how we're positioned.

24:27 So, just at the top of the map there, you can see the railway station. And moving down, you can see Centado Lounge. We're very near the Nando's and the Costa Coffee. And you might not be able to see it there, but you can see the light cinema Sittingbourne. And then to the right is the Forum Shopping Center. And then below that is the traditional high street. And Sittingmore population is about 60,000. So, it's quite a big town for us. We operate lounges in towns with populations as low as 10,000 or 12,000. But what you can see here is it's a really typical retail and leisure lineup. It's very typical of the types of high streets where we trade. So, looking at it from a retail perspective, there's a Wilco, there's a Smiths, a Car Factory, a Boots, there'll be a couple of banks, post office, there's an M and K.

25:14 And then looking at it from a leisure point of view, there's a JD Weatherspoon, there's a Greggs, a Starbucks, and a Costa. And as I said, it's really typical of the leisure and retail lineup that we trade in from a lounge point of view. And there are thousands of high streets like this across The UK, where we can open lounges. And I think if you're trying to consider the potential scale of our business, and we've talked historically about 400 lounges and 100 cozy clubs, it's worth considering the scale of some of the businesses that you can see on this chart. There are over 2,000 Costas in The UK, over 800 JD Weatherspoon pubs, over 1,000 Starbucks and over 500 Nandos. I think that really helps kind of understand why we believe the 400 number for lounges is very conservative in particular.

26:04 So, moving on to Slide 19, and how do we perform in Sittingbourne? What do the numbers look like? So, in the top left there, can just see the basics of the property deal. So, as I said, we opened in October 20. It's a fifteen year lease. The rent is $60,000 so that's pretty bang on average for a lounge. And the landlord package, the blend of cash contribution and rent free period that we secured when we entered into the lease was total of eighteen months. That's as we will come on to see, that's a bit low for us. And gross average weekly sales of $36,500 So, it's a really good site, top quartile site. And the LTM EBITDA of $468,000 it really converts.

26:50 And net CapEx of $679,000 One of the things we see, this was a shell unit. So, it was a purpose built unit. Now, typically what we do on in lounge and in Cozy Club is we convert retail units or former banks, and we take them and we convert them into restaurant use. That's more expensive than when we're converting a purpose built unit, because it's a more straightforward build, hence the relatively low CapEx here. And the return on capital, 61%. So, clearly a really, really strong performing site for us. But that's not specifically why we picked it. Clearly, we want to show you good sites. But the real reason we picked this is because going back to that map with the high street, it's a really good reflection of the types of locations where the lounges trade.

27:36 So, now moving around the charts. Looking at that chart on the bottom left there, you can look at our hourly sales across the day. And what we want to demonstrate here is the degree to which the lounges generate revenue, right from 09:00 in the morning all the way through to eleven or 12:00 at night. And we're being used for lots and lots of different occasions there. So, come in the morning for coffee, for a bacon sandwich, for a brunch, for avocado, go through to late morning and then into early lunch, there were sandwiches or burgers or tapas for lunch. Coming into the afternoon, pop in for a tea and a slice of cake or a glass of wine, then we're into evening where you can come in for cocktails or pints or dinner, and that might be as a couple, as a group, or even celebrating a birthday or something. So, right the way across the day, we're generating revenue.

28:25 Looking at the green line here, which represents Centado lounge versus the dotted line, which is the lounge average, you can see that Centado performs particularly well in the evenings. And that's because we're located alongside a cinema. And so, we see a little bit more business in the evenings. Then looking at the chart in the top right hand corner there, you can see our gross average weekly sales by day. And what you'll see, if you compare this to other operators, you'll see there's far less reliance in our business on the weekend. There's far less reliance on the typically busy shifts of Friday night, Saturday daytime, Saturday night. We're generating really meaningful levels of revenue, Monday through to Sunday. And then looking in the pie chart in the bottom right, you can see our sales mix. So, across the business, we're 55 food, 45% drinks.

29:13 Centado's mix is a little bit more skewed towards drinks, again, because of that cinema factor, but many of the lounges have different quirks or trade slightly vary slightly from the norm. And you can see there hot drinks, 6% brunch, 12% of our sales, so 18% of our sales pre midday, just about. And in a normal lounge, that would typically be higher. Alcohol, 27% here. Again, in an average lounge, that might be a little bit lower, 23%, 24%. But what you can see from that pie chart is there's a really broad mix of sales across lots of different categories. And then coming on to Slide 20, trying to encapsulate or understand why does our all day model work so well? Why are we performing so well?

29:59 And what we if you take it from the left hand side, so we're providing amazing hospitality and amazing atmosphere with a large, varied, freshly cooked menu. And we offer great value for money. As Gregor said earlier, value for money is absolutely paramount to what we do. And if you take that as a result of that, we have really broad appeal. We refer to the business as being ageless and classless. So, every... Walk into a lounge, you're as likely to see school kids to grandparents and everything in between. And then we serve people for lots and lots of different occasions, and we have a really high frequency of visit. And then take that and then that would help explain why we're generating revenue, both right across both the day and the evening. And what that allows us to do is it allows us to open in locations with smaller populations.

30:48 We're not reliant on as restaurant business would be on two very specific meal times, and we're not reliant as a pub would be on the evenings and on the weekends and more biased towards the weekends. As those charts hopefully shown in sittingboard, we're generating revenue all the days and right across the day. And if you coincide that revenue with our low rent model, so we're sub 6% rent to revenue, the best in the sector, and with our low CapEx model, because we're building the sites ourselves with our own build teams, it helps demonstrate and understand why we're achieving consistent 30 plus percent returns on capital.

31:31 So, we opened 27 sites during FY 2022. Moving on to Slide 21. And we're really pleased with how those sites are performing. 26 lounges, one cozy club. And what you can see from that map on the right there is that there was a really good geographic spread across England and Wales. And that's really important from an operational perspective. We don't want to overload such operational areas with too many openings. So, if there's a good spread, it increases our chances of opening those sites well. And the FY 2022 openings have performed really well from a financial perspective. Average weekly sales of 30,600 compares against a mature lounge average of 27,600. So, you can see we're outperforming, we're opening better sites.

32:17 Average net CapEx of 7 and 35,000. As I mentioned, the sitting board number was quite low because it was a shell unit. An average landlord package of twenty nine months. Again, looking at that alongside the sitting more number, you can see that it's the sitting more number was a bit lower. And rent is a proportion of turnover 5.5%. Then just looking at the different types of openings, I won't go through all of them, but we can open lounges in lots and lots of different types of locations. Sittingborn is a larger town, we open in small towns. We love trading by the sea. We've got a high number of coastal sites and we opened five during the year. And they always performed very well for us. So looking at Slide 22, what's the size of the price?

33:04 And we've always said there's a lot for us to go for, conservatively believe there's room for 400 lounges and 100 cozy clubs. What we've done here is we've taken two parts of the country and just use those to help kind of demonstrate that. So, Greater London on the left there, we get asked a lot about London, particularly from the investment community. And it's an area where we see lots of opportunity. Last year, we opened one site in Greater London. This year, we've already opened sites in Uxbridge, in Wembley, in Egham, and we'll be due to be opening in Rislip shortly. And you can see that the green blobs represent locations where we're very confident we can open a lounge, and the red blobs represent locations where we already have a lounge, and then the yellow blobs are locations where we believe we can open that cozy class.

33:53 And London is interesting. We don't trade any differently in London than we do anywhere else in the country. And the degree of competition really has no bearing whatsoever on how we trade in these locations. Looking at the left of that London chart, you can see Egham, where you might be able to see Egham if you've got good eyesight. And we opened in Eggem, as I mentioned, a few weeks ago and just next to that, we've been trading in Staines for a number of years now. And our picture in Staines is very competitive. We trade alongside lots of casual dining restaurants, pubs, sandwich shops, etcetera. There's dozens of other leisure operators there versus Eggham where we where we literally are just about the only show in town. Very trading very well, and we trade very confidently in both of those both of those locations.

34:41 Then looking at the map on the right hand side, you can see a map of the Northeast. And this is an area that's relatively untouched for us. And our expansion model has typically been moving from Bristol and inch edging out of our heartland as we go across the country. We don't like to jump from one to one location, because then we find we don't have a depth of culture and we don't have experience in that location. And that makes opening sites operationally well more difficult. So, looking at the Northeast there, you can see we opened during the year in Rippon, in North Alliston and in Scarborough, the three red dots. There's a whole host of green dots there, lots and lots of opportunity for us. So, how are we looking at or thinking about the rollout in FY 2023?

35:26 So, I guess, one big bit of news for us is that we're adding a fifth build team. So, we're moving up to 32 to 34 openings a year. It's important to note, this isn't necessarily a massive jump for us. For the last four years where we've been allowed to open sites, we've opened at least 25 sites. And for about the last seven or eight years, we've opened in excess of 20 sites. And so, we don't see it as necessarily as a big jump. And we anticipate 30 sites in this current year FY 2023, just because we're adding that build team midway

35:58 through the year. Site availability remains excellent. I hope, as I've demonstrated from the sites we opened in the year ending April 2022, we're opening sites well and that's a function of the quality of sites that we're seeing. Our site pipeline remains very well advanced. We're now putting sites into FY24.

36:19 And indeed, the quality of opportunities remains first rate. I've spent time out on the road in the last couple of weeks looking at opportunities in South Wales, in Preston, in Alteringham, and it continues to be this case that we're seeing great sites. And this year, we'll see us open four cosy clubs at least versus the one cosy club we opened last year. It's important to note because there are fewer overall opportunities for the cozy clubs, then finding appropriate sites, it tends to be a little bit lumpier. It does happen where we'll go from just having one site to opening more sites in the following year. But we're really excited about the Cozy Clubs and how that brand is positioned at the moment. So, since the end of lockdown three, it's performed exceptionally well from a sales perspective.

37:07 And we've invested a lot of time during lockdown three looking at the offer and

37:12 elevating the food and we're delighted as are our customers with the outlook. Thinking about construction costs and inflation, we're not seeing a material inflationary impact. We are seeing it on some lines, but I think we can mitigate it through the fact that we own the build process ourselves and we're focusing more on bulk purchasing and more on efficiency. And we've restructured the property team. So, Tom, who's our property director, he previously just looked after acquisitions, but he now has the construction side of the business reporting into him, and that's helping drive that efficiency. And also, we've invested in more acquisitions resource and more construction resource.

37:55 Looking at the people side of the business, and I get asked a lot about what keeps me awake at night. I think most people expect the answer to be inflationary and cost inflation and cost pressures and things like that. And whereas it's not, it's the it's the people side of the business. It was... Would have been pre COVID and it certainly is post COVID. People are obviously fundamental to our success. We are a people business.

38:18 And last year, we created over 700 jobs across those 27 openings. We're really proud of everything that we do as an employer. Recruitment remains a real area of focus. It's got a little bit easier than last summer. I think last summer after lockdown three, it was particularly challenging, really tough in some of the staycation locations as we went through summer twenty twenty one. Where we sit now, I think it is a bit easier in most locations. I think it's the market towns where it's really challenging. In those more rural areas where we're not anchored by a city, we do find it tougher. But we've invested coming out of COVID, we had two people in the recruitment team. We've now got 10.

39:04 We've got eight regional recruitment managers operating out in the field, supporting our ops teams, helping them recruit and find people to fill the gaps. And importantly, it's not impossible. I think I'd go back to the point I made about 27 openings. We are finding people to work in our sites. We've also reworked our operational structure and we've added an ops director increasing from one to two on the lounge site. We've gone from five regional operations managers to seven, and we've added a further six ops managers or ops chefs. And that investment, that's what fuels our growth. It allows us to grow. It allows us to focus on improving for the customer. And it allows us to focus on progression and talking about progression.

39:50 And progression is one of the really unique things about our business. I mentioned our regional

39:55 ops managers, the fact that we've increased from five to seven. So, these guys who look after between twenty and thirty sites, and typically will be responsible for revenue in excess of £20 £30,000,000 Of those seven regional ops managers, six were previously general managers in charge of their own sites. And I think it really helps set out the progression opportunities that we can provide people within managers.

40:21 We also launched the commitments across the business and you can see that in the image of the poster on the right hand side. And the commitment sets out what our team can expect from us as an employer. And what's important is that there's nothing new here. But I think what we really wanted to do was make sure that it was really clear in the business what our team could expect and that we could be held to account. And there's no doubt that coming out of COVID, the attitude of working in the hospital, some people working in the hospitality sector has changed. And the work life balance, mental health, flexibility are really, really important to them. And we as a business alongside our sector as a whole, we need to make sure that we're reacting to that. And I also mentioned earlier, we've appointed a new Chief People Officer. So, chap called Guy Yule joins the business in the autumn, and there's a real opportunity for him to make our employer brand more visible and more clearly defined and build on the work that we've done during the year.

41:21 Looking at Slide 25, and this goes through LOUNGERSFEST, which is our annual Christmas party, which we have in June. And hopefully, you can see from the picture here, was beautiful sunny day. It's the first one we've had for three years for obvious reasons, but it's without a doubt the best thing we do in the business culturally. We close all the sites for the day and the nights. We coach everyone into the Cotswolds. I think we had over 130 coaches

41:49 bringing our team and it's an investment of over £05,000,000 But as I mentioned, it's a really unique driver of culture within the business and it's a great celebration. Then just looking at ESG strategy, and this is something we've talked about a fair amount within the business over the course of the last six months.

42:11 Importantly, think we have a strategy now. And previously, we've always known that there's lots that we are very good at. We don't necessarily shout about it. I guess the second point was that we're a business that employs over 6,000 young people. And I... If we're going to have an ESG strategy, it's really important that it's driven by them and it's derived by our teams rather than derived by the likes of Gregor and myself sitting around a board table. So the strategy we come up with is based around four pillars. First, when looking after our teams, want to be an inclusive employer, and probably the most important. And as I said, we talk about progression a lot. We offer great opportunities, and it's really important we're a flexible employee. And over the course of the last year, we've improved as an employer, but there's more that we can do.

43:00 Bringing joy to local places across the community... Across the country, we are a community business, particularly on the lounge side. Community is a word that we use a lot. And the values of charity and kindness are fundamental to everything that we try and do in lounge. We support hundreds of small charities across The UK. And whilst we don't make a big song and dance about as a business, how much we contribute to one national charity, Our individual team members are out there constantly raising money or supporting local charities, which are really important to them or important to one of their customers.

43:37 Third pillar is delivering our hospitality sustainably. Again, there's lots we do really well here, but we haven't necessarily talked about in the past with 0% to landfill. And on the build side in particular, we're really good at using recycled materials and vintage stuff and LED bulbs, etcetera, and being proud of what we put on the plate. Again, from free range eggs to how we source our chicken, we're good, but there's more that we can do. And I think over the course of the year, the next year, we'll continue to focus on this and set ourselves more challenging targets.

44:13 So, just coming on to some closing remarks, I'll move on to Slide 28. How will we fare if discretionary spending decreases? And it's an important question. And one, as I'm sure you can imagine, we've been asked an awful lot over the last couple of days. And it's our firm belief that LOUNGERS is really well placed if there is an economic downturn. Importantly, we've already traded through. Back in two thousand and eight, twenty ten, we had nine sites moving to 20 sites as we traded through that period. And what did we learn? I think we learned that value for money is absolutely critical. And we've always protected price and that's never been more been the case than over the course of the last twelve months. We're monitoring really closely what everyone else is doing and making sure that we retain our value for money credentials.

45:05 And what we saw last time is that lounge really benefits from people both trading down and staying local. And one thing, I mean, I I spent a lot of time out and about looking at our competitors' prices. In lounge, our entry level burger and fries is £9.50, and it's an excellent, excellent burger. In casual dining restaurants now, you could be spending £13 £14 £15 £16 on a burger of lesser quality. And pubs, exactly the same. And if you think about, we operate lots of suburban sites and lots of people in those suburbs, when faced with reduced discretionary spending, they have the choice of, say, the suburbs of Birmingham, going in Central Birmingham, getting a taxi in, spending more money on their nice house or staying local, go to their local lounge and we know we benefit from that.

45:53 And equally, I think people seek quality, they seek consistency and familiarity. And again, I think those are concepts that COVID has really reinforced and that we're incredibly well placed in that regard. Gregor mentioned how we can react quickly from a menu development perspective. And we really believe that we're entering what's likely to be a challenging period in a position of real strength. We've got an excellent balance sheet. We've got a really strong management team. And I think importantly, there's real momentum in the business. We're winning. So, last one from me. We're looking ahead with confidence. And as I said, if we think the business is really well positioned and a recession could present us with a real opportunity. And how could that opportunity present itself? Well, I think it is and it will continue to present itself in terms of property.

46:45 As we retain our value for money and we retain the quality and the consistency of our offer, we can take market share. And importantly, as we continue to grow and we provide great progression opportunities, we can recruit better people. So, that concludes the presentation for me. We will be very happy now and try and answer the questions. Nick, Gregor, that's great. And thank you very much indeed for your presentation this morning. And gentlemen, please do continue to submit your questions just by using the q and a tab that's situated in the right hand corner of your screen. But just while the team takes a few moments to review those questions that were submitted already, I would 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.

47:30 Nick, Gregor, as you can see, we have received a number of questions that came in throughout today's presentation, and thank you to all investors for submitting their questions. If I could please just hand back to you to run through that q and a tab, and where appropriate to do so, if you could please just read out the questions and give your response, and then I'll pick up from you at the end. Thank you. Okay. So we'll get through them in order. First one for Andy, are you managing recruitment as you scale out sites? Is this a big consideration?

47:57 And hopefully, I've answered that. 100% it's a big consideration, and it's what we talk about most in the business. But I think we're dealing with it. We're improving and we're managing to open those sites, and we're performing really well. Greg, would you want to take the next one?

48:16 This is for Matthew, a question on debt ratios. I think it's fair to say that when we IPO ed the business and subsequent to that, we were very happy with a debt ratio of circa one times. Now I'm talking about old style, I guess, IAS 17, so non property net debt and EBITDA after a full rent charge. Clearly, today, we're in a position where we have very modest net debt, £1,200,000 and significant cash on the balance sheet. That's pretty inefficient in some respects, albeit it hasn't been at a great cost over the last two or three years with interest rates so low. But as Matthew points out, interest rates are rising and therefore that inefficiency potentially becomes a little bit more expensive. Equally, though, I guess the other side of that inefficiency is it's been a good position to be in such a liquid position over the last eighteen months to two years. That liquidity has really helped us.

49:07 I So guess where we are today, we have £30,000,000 or so of cash on the balance sheet, £32,500,000 of a term loan. In terms of getting into a cash positive position, our first goal, I guess, always was to accelerate the rollout. And as Nick described, we've now moved up to five build teams and we're looking to open 32 to 34 sites in a full year going forward. So that then leaves us with a position, I guess, of looking at either reducing our reducing our term loan potentially. And I think that's next on the list. So that's something which we are considering very strongly at the moment and we'll be reviewing around the board table over the coming weeks. Next question from Bill asks again about the impact of Brexit on our ability to recruit good quality staff.

49:56 Brexit is going be pre Brexit. We had about 10% of our team were EU employees. And we're not far below that now actually. So, Brexit hasn't probably had a direct impact, but it certainly had an indirect impact in that

50:10 when lots of the chef community, in particular, the European chef community that is left the restaurant industry in London and left the restaurant industry in those cities. That then meant that those restaurant industries were pulling more on The UK pool of chefs. And that in turn made it more challenging for us. But as I've said, we're recruiting teams for our new site openings and our existing sites, and they're performing well. I guess there were a couple more sub questions from Matthew, which I completely failed to address. Oh, sorry. No. No. Not at all. No. And he also asked about customer spend. And I guess I guess the the point there is, you know, when we look at our like for like sales performance and how robust that has been over the last twenty four weeks, really, really no sign of any change in consumer behavior or sentiment.

50:59 And as you can imagine, we're looking for all those usual telltale signs such as lower spend, early weeks, greater spend on paid weekends and so forth. And I'm going to also ask about the app impact. And again, one of the benefits we're seeing from the introduction of the app, which is Nick said in lounges now, just over 40% of our sales is, it does encourage increased average spend per head because it becomes so much easier to order that second cocktail, the pudding, the coffee after your meal.

51:26 Thanks, Greg. Ian asks concerns ask about do we have any concerns about potential competition from other operators looking to replicate all day cafe bar formats and mention specifically Citypub Group's dams and wild brands. So over the last ten years, we've seen a number of the big boys and public companies typically

51:53 replicate try and what we do very kind of blatantly. And and they haven't done very well. And and there's... I guess there's a number of reasons to that. I guess you can replicate the menu to a degree, and you can replicate the look and feel, albeit that's... It's still challenging because it's something that as we've got bigger, we've got very, very good at. I think the biggest barrier to entry in what we do is the complexity of trading all day and managing that flow. We don't have any control over the flow of customers into our business. So, because we don't take reservations. So, people just come in and say, we can go from empty to full very, very quickly. And where a restaurant would normally stagger that, we just have to deal with it.

52:40 And we're really good at dealing with it. And one of the things we look at a lot is the ratio of our number of sites to ops team. And in our business, that ratio is about five:one, whereas typically in most other businesses, it would be between 10 and twenty:one. And because we have that low ratio, we can really focus on the day to day operations and make sure we're delivering consistently. And I think all the expertise, the expertise on the kitchen side, labor management, which is absolutely crucial to everything that we do and making sure that we're not overstuffed, but we can satisfy the demand when it comes. We believe it's a pretty significant barrier to entry. And I think that the pub companies that have tried to replicate us

53:24 would agree with that. Obviously, Clive, who is my former boss from CityPulc, I've known him very well. I haven't actually been into DAMs in a while. And Clive and his team are fantastic operators. So, look forward to visiting.

53:43 Just regarding cost mitigation measures for a moment, what sorts of gross food cost inflation is the business experiencing?

53:50 At the moment, our expectation for FY twenty three is probably see food cost inflation of between 69%. And that range reflects the fact that there are clearly some uncertainties out there and equally, we have opportunities to mitigate that. It's fair to say though that individual lines show, you know, very different very different inflationary impact. So things like chicken and burgers, you've seen much higher percentages than the six to nine range. But as a blend, six to nine is what we're looking for FY '23. Rod asked question, another one around competition and asked about the big one of the big brewers talked recently about reinvesting a lot in suburban sites due to working from home, etcetera. It's interesting. If you look at the type of property that we open, so lounges typically open in former retail units.

54:40 So, we've really benefited from... In the old days, the CVAs of businesses like Blockbuster Videos, and more recently, the Mother Cares and Arcadia and Maplins and... Yeah. And so we typically take wide frontages, lots and lots of glazing. Then you can open, so they're open sign if they're on high streets. And when we open sites, we specifically look for... What we need is we need really strong retail footfall during the daytime, and we need strong leisure footfall in the evening. Because we need... As I mentioned earlier, we need to benefit from trade right the right the way across the day. And and, yeah, one of the one of the disadvantages that the pubs and the brewers have and the pubs have is that their sites are typically not located in those types of locations.

55:31 And they're typically... They're a lot more imposing. They're less female friendly. They have less natural light, and they're not the types of place where you feel as comfortable nipping in at 09:30 for a coffee and a croissant or nipping in at 12:00 for a sandwich and early lunch with moms and babies. They're they're generally hardest to get into,

55:50 less natural light, etcetera. So... And going back to how people have tried to copy us in the past. Yeah. We'll we'll never get overconfident, but we we, you know, we we constantly focus on making sure that we're improving our offer, improving our menus, improving our drinks lists, etcetera. Gregor, can you join us? Can you read that one? I can indeed. I think we will remain for the time being as leasehold business. It's... You know, there are others who have focused on freehold reversions and and that's something I guess for for another day. But at the moment, it's very much funding that accelerated rollout and keeping our net debt under control. And when are we going to pay dividends?

56:35 It's not on the horizon just yet, but it's clearly something that we keep under pretty close review. And then the last one currently, Bradley asked a question saying London Trading Week and landlord rental demands are still low. Why not use Now as a platform to accelerate city expansion before rents creep back up? I think what we've seen is the rental discipline within the business has always been really good. And we've always been sub 6% rent to revenue ratio. And if you look at what's caused the demise of many of the restaurant casual dining businesses, particularly private expat ones, I think is when in a rush to open sites, they've snatched the property opportunities and they've paid too high rents.

57:30 Our rent to revenue ratio is excellent. It's consistently been 5.5. And it's still now, when we're looking at sites and we've our property team and myself and Alex, our founder, we're on the road a lot looking at sites. There's still quite a lot of competition out there for good sites. And that might be against leisure operators, it might be against other retailers. So, sometimes we'll find ourselves where there's no competition and we can drive a really hard bargain. Then sometimes we can we'll find ourselves in a competitive position. What's really good is that there's sufficient supply of property that if we see the number one site opportunity in that town that we want, and it's getting competitive, we can walk away because we know that there are dozens and dozens of other towns and suburbs for us to look at.

58:21 And so, don't have to kind of hang in there and end up overpaying. So, our sense is that rents are pretty consistent with where they have been. And in terms of city expansion, in terms of if that's in relation to Central London, I think Central London is whilst I showed that chart, which showed lots and lots of opportunity in kind of Zones 456 out towards the M25. I think it would still remain the case for us that we're unlikely to open in Covent Garden or in Kenai Street or I want to probably clap them just because the rental term there is still too high that we wouldn't generate that 5.5% rent to revenue ratio and we wouldn't achieve the same return on capital as we would do opening in North Alliston or somewhere else.

59:13 And at the end of the day, it's all about return on capital. So hopefully that helps. I think that's it from a question point of view. Nick, Gregor, that's great. And thank you very much indeed for taking the time to address all of those questions that came in from investors this morning. And of course, ladies and gentlemen, any further questions that are submitted today, we'll make these available to the team immediately after the presentation has ended for their review, and we'll publish all those responses where it's appropriate to do so on the Investor Meet company platform. Nick, perhaps for redirecting those on the call to provide you with their feedback, which I know is particularly important to yourselves and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great. Yes, of course. And so our results the year ending April 2022 set out a performance where we've achieved record sales, record profits, and we've opened a record number of sites.

1:00:03 And what we've seen since COVID is that whilst we continue to outperform the market, the degree of outperformance has really, really grown now. And we believe we're uniquely well positioned to weather any short term uncertainty whilst continuing to evolve and open new sites. Current trading remains really, really strong. And it's our firm belief that a recession can present us with a real opportunity in terms of property, in terms of gaining market share and in terms of recruiting better people. Thank you very much. Nick, that's great. And Gregor as well, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations.

1:00:48 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 of LOUNGERS PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.