Loungers plc
MAY 2019 “Serving everyone, for every occasion, everywhere” plc board members Extensive consumer experience amongst executive and non-executive board members
Executives
Alex Reilley Nick Collins Gregor Grant Co-founder & Chairman CEO CFO Joined in 2018 Co-founded Loungers in 2002 Joined in 2012 as Finance Director CEO until 2015 when he became Chairman Appointed CEO in 2015 Previously worked at Novus Leisure, Fuddruckers, Eldridge Pope and Morrells of Oxford Previously worked at AIM listed Capital Pub Company plc and Fuzzy’s Grub Qualified ACA with Deloitte in 1992 Non-Executives
Nick Backhouse Jill Little Adam Bellamy James Cocker Senior independent NED Independent NED Independent NED Non-Executive Nomination Committee Chair Remuneration Committee Chair Audit Committee Chair Director
Independent Director at Independent Director of Independent Director of Ten Partner at Lion Capital and Hollywood Bowl Group, Joules, Shaftesbury, Nobia Entertainment Group and led Lion’s investment in Eaton Gate Gaming and Green Jade PureGym Loungers in 2016 Previously at Marston’s, Consultant at El Corte Ingles Previously worked at Previously at McKinsey & Guardian Media Group and Previously worked at John PureGym as CFO, and as Company All3Media Lewis FD at Atmosphere Bars & Previously Deputy CEO at Clubs and D&D London David Lloyd Group
1 Loungers is a winner in an evolving hospitality sector
Only growing all-day operator of scale in the UK
Consistently outperforming the wider UK hospitality sector delivering strong returns across the estate
Broad, nationwide demographic appeal: “Serving Everyone for Every Occasion, Everywhere”
Two distinct but complementary brands to maximise geographic and demographic reach
Focus on hospitality, community, atmosphere and value-for-money
Potential for at least 400 Lounges and 100 Cosy Clubs in the UK
Track record of opening c.20 sites per year
Consistently strong returns and site economics across vintages and locations
Experienced and highly regarded management team
146 £135m £18.1m Sites1 L13P2 Sales L13P2 Adjusted EBITDA3
Notes:
1As at April 2019. 2L13P = 13 four week periods to 7 October 2018 3Adjusted EBITDA excludes exceptional items, site pre-opening costs and non-cash share-based payment charges
2 What is a Lounge?
Neighbourhood café / bar combining eating out, the British pub and coffee shop culture
72% of Lounge customers see it as a unique proposition, rather than categorise it as a restaurant, pub or coffee shop1
Principally located in secondary suburban high streets and small town centres
All-day offer at every site: same menu served from 9am to 10pm
Informal, quirky interiors: a “home from home”
Hospitality and familiarity at the core, driven by an “independent” culture and focus on the local community
122 Lounges nationwide2
Notes: 1November 2018 survey of 1,529 customers undertaken by consultancy firm Market Measures 2As at 21 April 2019
3 Lounges are at the heart of the community
Similar look and feel but tailored to the specific site and local area -- Individually named and not heavily branded -- No two sites are the same; design continually evolving Engaged with the local community through staff out-reach, events, charity and community groups, re-invigorating local high streets
8 in 10 customers live locally1 underlining local neighbourhood credentials
25% of customers visit at least weekly and 67% every month1
Notes: 1November 2018 survey of 1,529 customers undertaken by consultancy firm Market Measures
4 Lounge serves everyone for every occasion
Demographic profile of Lounge customers1 FY18 sales breakdown2
61% Food vs. drink Day part 17% 21% Female 39% Male 10% 12% 15% 8% 24% 20% Morning
18% 29% 41% 46% Afternoon 2 1 2 A 38% Evening For which occasions do you visit a Lounge?1
0
1 41% 59% Mon - Thurs Fri - Sun 2 2 2 2 VS. Week Weekend
90% of Lounge customers visit for multiple occasions
Notes: 1November 2018 survey of 1,529 customers undertaken by consultancy firm Market Measures 2Management Information
5 What is a Cosy Club?
More formal bar / restaurants offering reservations and table service -- Similar all-day offer and focus on hospitality and culture Typically located in city centres and large market towns -- Maximises geographic and demographic reach Tend to be larger and more theatrical, frequently in heritage buildings, to create a sense of occasion and discovery
Sales and EBITDA typically higher than for a Lounge
Offers an opportunity for greater coverage within individual cities (e.g. Birmingham with nine Lounges and one Cosy Club)
24 Cosy Clubs nationwide1
Notes: 1As at 21 April 2019
6 Broad demographic appeal but more occasion-led than Lounge
Demographic profile of Cosy Club customers1 FY18 sales breakdown2
57% Food vs. drink Day part
20% 20% Female 43% Male 5% 6% 7% 8%
19% Morning 26% 41% 15% 41% 43% Afternoon 2 1 2 A 49% Evening For which occasions do you visit Cosy Club?1
0 2 37% 63% 0 Mon - Thurs Fri - Sun VS. Week Weekend
Notes: 1December 2017 survey of 860 customers undertaken by consultancy firm Market Measures 2Management Information
7 Cocktails Focus on value c.£7.00 for money
Lounge Sundae Strong reputation for value for money, a core £5.95 value for both brands Range of price points to fill the middle ground on local high streets Halloumi & Veggie Sweetcorn Pancake -- Substantial, good quality meal for less than £10 Breakfast Jumbo Oats £7.95 Porridge -- Coffee at least in line with price point of national £7.65 coffee chains £3.95 Same menu and price point nationwide Very limited and focused price increases historically No need to discount Offers resilience in a tighter consumer spending environment -- Opportunity to capture consumers trading down
Avocado Brunch Lounge Triple-stacked £7.75 Breakfast Buttermilk Pancakes £7.65 £6.75 Latte £2.30
Halloumi Burger Supergreen Salad £8.50 £7.95 Tapas £3.95
Source: Company websites
8 Proven rollout track record with well-managed capex
Highly refined rollout model includes a dedicated property function In-house build teams manage entire fit-out process providing significant savings Opened 20+ sites in each of the last three years -- Opened 25 sites during FY19 -- Plan to continue to open 25 sites per year: c.20 Lounges and where contracts c.5 Cosy Clubs 13 have been sites 1 Growth capex well-managed and tightly controlled exchanged -- Typical capex of £625k for a Lounge and £1m for a Cosy Club Consistent performance across vintages and locations -- Average CROCI c.34%2 -- No loss-making mature sites 35 in legal -- Closed only four sites – one at end of lease and three sites documentation or under-performers Heads of Terms1 No need to undertake wholesale rebranding or refurbishment across the estate: -- Estate is well-maintained -- The “lived in” feel of interiors means sites age well with minimal maintenance capex (<£10k per site in FY18) 54 -- Occasional “splash and dash” refurbishments to introduce new sites currently under design features to older sites (8 in FY18 at c.£94k per site) consideration1
Source: Management accounts L13P = 13 four week periods to 7 October 2018. Mature sites defined as sites open 18 four week periods or more
Notes: 1As at 29th March 2019 2CROCI is calculated by taking Site EBITDA over the last 13 four week periods and dividing it by the cumulative capex spent on each site, net of landlord contributions and including pre-opening costs Site EBITDA is Gross Profit less site labour costs, site variable costs and site property costs
9 Successful across a nationwide footprint in varied sites and locations
Consistently strong returns wherever Loungers opens; Brands have the ability to cluster around cities operating successfully in city centres, market towns, high with new units opening in close proximity to an streets, secondary suburban high streets and retail centres existing site without cannibalising sales
Renato Lounge (Jan-17)
Quinto Lounge Verdo Lounge – (Jan-15) Secondary High St. (May-12) Novello Lounge – Telford, Shopping Centre (Sep-16)
Sutton Coldfield Perry Barr Erdington
Hodge Ladywood Hill Cappello Lounge – Birmingham Cosy Club Newcastle-under-Lyme, (May-15) Yardley Market Town (Jan-16) Edgbaston Hall Green
Selly Oak
Arco Lounge Northfield (Jan-10) Paramo Lounge Cosy Club Loco Lounge Lounge (Mar-18) (Mar-11) Sorrento Lounge Allegro Lounge Desco Lounge (Mar-18) (Nov-18) (Jul-14)
10 Potential for in excess of 400 Lounges and 100 Cosy Clubs in the UK
1 Analysis by CACI has identified the potential for > 400 Current estate sizes of major UK hospitality operators Lounges and > 100 Cosy Clubs in England and Wales1 Currently has three sites within the M25 and, whilst no plans to open in Central London, the Group sees further 2 opportunity within Greater London in locations which have a similar demographic profile to the existing estate Management believe that the Lounge number is conservative, given recent performance across a range 0 of catchments 1
122 At 400 sites, the Lounge estate will still be less than half the size of the current estates of certain other comparable 1 0 operators in the UK hospitality sector
1
Plan to continue to open 25 sites per year: c.20 Lounges 20 and c.5 Cosy Clubs -- Will continue to adhere to rigorous site selection 90 criteria and disciplined rollout model -- FY18 rent as % of sales: 5.4%
12 Management typically seek 15 year leases -- Secures attractive rental terms and landlord incentive 19 packages -- Coupled with ability to trade all day, allows successful 909 operation in low population locations 2 0
Notes: 1January 2019 analysis of market capacity based on historic performance and market characteristics undertaken by CACI. Lounge and Cosy Club numbers as at 21 April 2019.
11 Growth driven by rollout and LfL outperformance
Rollout has been a significant driver of growth over LfL sales have also significantly outperformed the UK sector the last five years benchmark. Principally driven by volume rather than price, and not delivery
Number of units at year-end, by brand Group LfL Sales vs Coffer Peach Business Tracker
29% 1 Number of Units 121 2 2 CAGR FY14-FY18 99 21 2 1 0 0 9 1 1 1 1 122 100 0 2
1 0 1 2 1 2 1 Y1 Y1 Y19 Y1 Y1 Y1 Y1 Y1 Y19
Sales and Adjusted EBITDA1 (£m) H1 FY19 Group LfL Sales by vintage 38% 39% Sales CAGR Adjusted EBITDA 9 9 FY14-FY18 CAGR FY14-FY18
1 121 2 92 0 1 1 12 1 Y1 Y1 Y1 Y1 Y1 Y1 Y1 Y1 Y1 1 Y1 A A
Source: Management accounts LfL sites defined as sites open 18 four week periods or more. Market as measured by the Coffer Peach Business Tracker H1 FY19 = 6 four week periods ended 7 October 2018, L13P = 13 four week periods to 7 October 2018
Notes: 1Adjusted EBITDA excludes exceptional items, site pre-opening costs and non-cash share-based payment charges 12 Loungers delivers resilient and consistently strong economics
Maintained consistent gross profit and Adjusted Gross profit margin EBITDA margins despite well documented consumer sector pressures 0 0 -- Rigorous focus on managing costs 0
0 0 2 0 Top 5 suppliers accounted for 42% of all 20 0 third-party invoices during FY18 1 0 10 0 0 Current review of supply chain -- Retendering of several key suppliers Y1 Y1 Y1 1 A
Further scope to optimise the cost base through the introduction of central distribution Adjusted EBITDA margin -- Reduce number of daily deliveries to sites
1 0
Current investment in back-of-house reset project 12 0 -- Introduction of kitchen screens, new 10 0 equipment and improved layouts 0 -- Improve working conditions and efficiency 0 of kitchens 0 2 0
A A A Y1 Y1 Y1 1
A A A A A
13 Well-invested central infrastructure
Significant investment over the past 3 years to build Underlying support systems an operational and head office structure to support the Company’s growth plans Ongoing reviews ensure systems are upgraded to industry standard
Both brands have standalone regional operating structures, supported by central finance, property, IT and HR teams Finance EPOS -- Central head office functions largely provided in house, certain functions (e.g. IT support) are out-sourced
High ratio of operations staff to sites Labour scheduling & HR Property maintenance -- Provides the capacity to support the roll-out and ensure intensity of site management
Investment in building and developing the Company’s capabilities has continued during FY19 -- Appointment of first People Director and Head of IT and strengthening of the property team with a new Property Director
Well-developed roadmap to equip the business for continued growth: -- Additional brand-specific food resource -- Additional brand-specific training and development resource -- Continued investment in technology – labour productivity, property maintenance and EPOS upgrades
Source: Management information
14 Experienced and highly regarded management team
The Loungers senior management Two of the three founders remain The team has a proven track record team combines entrepreneurial spirit engaged and active in the business of hitting openings, sales and with significant sector experience profitability targets
Alex Reilley Nick Collins Gregor Grant Co-founder & Chairman CEO CFO
Co-founded Loungers in 2002 Joined in 2012 as Finance Director Joined in August 2018 CEO until 2015 when he became Chairman Appointed CEO in 2015 Previously worked at Novus Leisure, Previously worked at AIM listed Capital Pub Fuddruckers, Eldridge Pope and Company plc and Fuzzy’s Grub Morrells of Oxford Qualified ACA with Deloitte in 1992
Jake Justin Amber Rob Bishop Carter Wood Walls Co-founder & Property Lounge MD Cosy Club MD Commercial Director Director
Lounge MD Joined Loungers in August 2015 Co-founded Loungers in 2002 Joined Loungers in January 2019 Joined Loungers in January 2015 Previously spent nine years at Previously at Halfords, Pets at Previously Ops Director at Fullers Novus Leisure Home, Home Retail Group Founded Elbow Rooms and Brantano
15 What makes Loungers unique?
Broad All day Flexible Low sales Works appeal offer menu Competition model everywhere
Wide Operates demographic Innovative successfully appeal, across and evolving; No single and generates Lounges can Managing all day- can adapt competitor; can returns on operate in operational parts, driving to changing co-exist with all capital on populations as complexity repeat trade tastes and cost other operators1 relatively low low as 10,000 over multiple dynamics average weekly occasions sales
Notes: 1January 2019 analysis of market capacity based on historic performance and market characteristics undertaken by CACI
16 Well-placed to withstand sector headwinds
Staff Consumer Scale Brexit turnover / Home Dietary Rent & downturn shortages delivery requirements Rates
Historical Group rent recession has averaged resilience; c.5% of sales Loungers’ low and Focus on between focus is on competitive group culture FY16 and Can exploit bringing price point Only 14% of and listening FY18 supply chain people Vegan and employees to employees opportunities together; gluten-free Opportunity from EU Operates and absorb chooses not menus to benefit (exc. UK) Simplifying outside of cost pressures to participate from back-of- London, in delivery consumers house process typically market trading down in less in any future competitive recession locations1
Notes: 1January 2019 analysis of market capacity based on historic performance and market characteristics undertaken by CACI
17 Why IPO?
Long been the ambition of management and founders to see Loungers become a plc
Admission to trading on AIM will: -- Position Loungers for the next phase of growth; -- Open up wider employee ownership and incentivisation; and -- Provide a pathway to exit for Lion Capital
Funds raised used to: -- Reduce senior debt (including Lion Capital’s shareholder loans) -- Provide liquidity for Lion Capital and other shareholders
Founders and management remain highly committed and will remain significant shareholders post listing
Loungers will comply with QCA corporate governance guidelines -- Board comprises Alex, Nick, Gregor and four non-executives, three of whom are independent non-executives: -- Nick Backhouse, Senior Independent Non-Executive, Nomination Committee Chair -- Jill Little, Remuneration Committee Chair -- Adam Bellamy, Audit Committee Chair
18 Current trading
Sales in the 24-week period to 7 October 2018: £65m (2018: £52m) -- 27% YoY growth -- +6.4% LfL sales growth
Over the 24-week period ended 24 March 2019 -- +7.7% LfL sales growth -- Maintains track record of consistently outperforming the wider hospitality sector
Since 24 March 2019 and through its FY19 year end, the Group has continued to trade in line with the Directors’ expectations
Current estate of 1461 -- 122 Lounges -- 24 Cosy Clubs -- 25 new openings during FY19
Notes: 1As at 21 April 2019
19 Appendix
20 Historical financial performance
FY16 FY17 FY18 H1 FY18 H1 FY19 Loungers’ financial year is made up of YEAR END (£000s) 24-Apr-16 23-Apr-17 22-Apr-18 08-Oct-17 07-Oct-18 13 four week periods ending in late April Revenue 68,475 91,753 121,067 51,662 65,444 Cost of Sales (41,415) (52,856) (70,479) (30,475) (38,842) H1 numbers cover the first 6 periods to early October and H2 will include the Gross Profit 27,060 38,897 50,588 21,187 26,602 final 7 periods of the year Margin 39.5% 42.4% 41.8% 41.0% 40.6% Successful rollout resulting in strong sales Administrative Expenses (25,242) (39,828) (43,592) (19,156) (23,396) growth
Operating Profit / (Loss) 1,818 (931) 6,996 2,031 3,206 Stable gross and EBITDA margins
Exceptional items 452 5,869 542 327 - Pre-opening costs include operational Share based payment charge 249 380 533 246 246 costs incurred prior to opening a unit Site pre-opening costs 1,710 1,585 2,001 701 1,081 Exceptional costs typically relate to Adjusted operating profit 4,229 6,903 10,072 3,305 4,533 corporate transactions / consultancy fees
Depreciation 4,429 5,779 6,567 3,349 3,580 Clean audit history
Adjusted EBITDA 8,658 12,682 16,639 6,654 8,113 Margin 12.6% 13.8% 13.7% 12.9% 12.4%
Source: IFRS financial statements H1 FY19 = 6 four week periods ended 7 October 2018, H1 FY18 = 6 four week periods ended 8 October 2017
21 Cash flow
FY16 FY17 FY18 H1 FY18 H1 FY19 Strong operating cash flow YEAR END (£000s) 24-Apr-16 23-Apr-17 22-Apr-18 08-Oct-17 07-Oct-18 conversion, averaging over 110% in recent years (before pre-opening Net cash generated from operating activities 12,490 11,288 19,201 7,009 6,443 costs)
Cash flows from investing activities Positive cash flow effect from Purchase of subsidiary, net of cash acquired - (94,406) - - - working capital Purchase of property, plant and equipment (17,354) (13,909) (18,595) (7,947) (10,539) Working capital swings depending Net cash used in investing activities (17,354) (108,315) (18,595) (7,947) (10,539) on timing of period end -- All suppliers etc paid to terms Cash flows from financing activities Issue of ordinary shares - 2,737 - - - Rollout expected to be self-funding Issue of preference shares - 42,771 - - - by FY21 Bank loans advanced 7,250 3,000 65,000 61,500 - Other loans advanced - 52,726 - - - Need to balance the need to retain Bank loans repaid - - (21,050) (21,050) (1,000) sufficient earnings to fund the rollout Repayment of Loans - - (39,272) (39,272) - against desire to pay dividends Interest paid (919) (839) (4,786) (2,715) (1,806) Net cash from financing activities 6,331 100,395 (108) (1,537) (2,806) Intend to pursue a progressive dividend policy in due course
Net increase (decrease) in cash and cash equivalents 1,467 3,368 498 (2,475) (6,902)
Cash and Cash equivalents at beginning of the period 2,336 3,803 7,171 7,171 7,669
Cash and Cash equivalents at end of the period 3,803 7,171 7,669 4,696 767
Source: IFRS financial statements H1 FY19 = 6 four week periods ended 7 October 2018, H1 FY18 = 6 four week periods ended 8 October 2017
22 Balance sheet - pre-IPO capital structure
FY16 FY17 FY18 H1 FY18 H1 FY19 Existing debt repaid on Admission YEAR END: (£000s) 24-Apr-16 23-Apr-17 22-Apr-18 08-Oct-17 07-Oct-18 £27.5m net debt on Admission Assets -- £32.5m term loan Non-current -- £5m cash on balance sheet Intangible Assets 21,372 113,227 113,227 113,227 113,227 -- £10m RCF facility (undrawn at IPO) Property, plant and equipment 38,898 46,978 59,006 51,576 65,965 Total non-current assets 60,270 160,205 172,233 164,803 179,192
Current Inventories 720 932 1,065 923 1,173 Trade and Other receivables 2,889 4,201 5,182 3,411 4,906 Other - - 323 - 281 Cash and Cash equivalents 3,803 7,171 7,669 4,696 767 Total current assets 7,412 12,304 14,239 9,030 7,127
Total assets 67,682 172,509 186,472 173,833 186,319
Liabilities Current liabilities Trade and other payables (17,082) (22,348) (27,723) (22,108) (27,338) Other - - - (21) - Borrowings (23,248) (27,994) - - - Total current liabilities (40,330) (50,342) (27,723) (22,129) (27,338)
Non-current liabilities Borrowings (18,024) (115,810) (157,368) (148,475) (161,146) Other (4,816) (8,850) (10,778) (10,239) (10,982)
Total liabilities (63,170) (175,002) (195,869) (180,843) (199,466)
Net Assets/(Liabilities) 4,512 (2,493) (9,397) (7,010) (13,147)
Source: IFRS financial statements H1 FY19 = as at 7 October 2018, H1 FY18 = as at 8 October 2017
23 IFRS 16
IFRS 16 effective for accounting periods starting on or after 1 January 2019 -- No intention to early adopt -- Applicable for FY20 -- Management intend to apply the fully retrospective method of adoption -- The standard has no economic impact on the Group. It has no effect on how the business is run, nor on cash flows for the Group. It does however have a significant impact on the way the assets, liabilities and the income statement of the Group are presented
Review completed to quantify impact
Balance sheet impact at 23 April 2018 will be: -- A lease liability of approximately £72 million -- A right of use asset of approximately £63 million -- Accruals and deferred income reduced by approximately £8 million -- Prepayments reduced by approximately £1 million -- Onerous contract provision of £0.1 million derecognised -- Overall decrease in net assets of approximately £2 million
Impact on the income statement for the year ended 22 April 2018 will be to: -- Increase operating profit by approximately £2.2 million -- Increase interest expense by approximately £3.7 million -- Decrease profit before taxation by £1.5 million
Impact on the income statement for the 24 weeks ended 7 October 2018 will be to: -- Increase operating profit by approximately £1.2 million -- Increase interest expense by approximately £1.9 million -- Decrease profit before taxation by £0.7 million
Post adoption, the Group intends to provide additional disclosure that continues to show results on a pre-IFRS 16 basis during a transitionary period and will consider including other metrics to assist with an assessment of the underlying business
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Neither the US Securities and Exchange Commission nor any securities regulatory body of any state or other jurisdiction of the United States of America, nor any securities regulatory body of any other country or political subdivision thereof, has approved or disapproved of the Presentation Materials or the securities discussed herein or the accuracy or adequacy of the contents of the Presentation Materials. Any representation to the contrary is a criminal offence in the United States. The securities will also not be registered under the applicable securities laws of Canada, Japan, the Republic of South Africa or Australia and, subject to certain exemptions, may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption from and in compliance with any applicable securities laws. By attending this presentation and/or accepting a copy of the Presentation Materials, you agree to be bound by the foregoing limitations and, in particular, will be taken to have represented, warranted and undertaken that you have read and agree to comply with the contents of this notice.
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