Corporate Governance Statement – April 2019
Dear Loungers Shareholders
On behalf of the board of directors of Loungers (the “Board”), I am pleased to make this statement which sets out the Board’s approach to corporate governance.
The Company’s issued ordinary shares (“Ordinary Shares”) were admitted to trading on the AIM Market of the London Stock Exchange (“AIM”) on 29 April 2019 (“Admission”). The admission document published and dated 24 April 2019 and containing full details of the Company and the Ordinary Shares (the “Admission Document”) can be found here.
The Board is required by the AIM Rules for Companies to apply a recognised code to its corporate governance practices. The Board supports high standards of corporate governance and considers that the Company’s continuing success on AIM will be enhanced by a strong corporate governance framework. Therefore, with effect from Admission, the Board has formally adopted the Quoted Companies Alliance Corporate Governance Code 2018 (the “QCA Code”).
The QCA Code is a set of guidelines, intended as a minimum standard, consisting of ten broad principles of good corporate governance and recommendations for reporting corporate governance matters, including on the Company’s website and in its annual report and accounts (“Annual Report”). In order to claim that the QCA Code has been adopted, the Company must apply the ten principles and publish the related disclosures. As Loungers Chairman, one of my responsibilities is to ensure that the Company adheres to and applies the standards of corporate governance the Board has adopted.
A summary of how the Company complies with the QCA Code is set out below. The Board expects to provide at least annual updates on the Company’s compliance in the manner recommended by the QCA Code.
Further information on the Company’s corporate governance procedures can be found in the investor relations section of the Company’s website and in the Admission Document.
Compliance with the QCA Code
Principle 1 – Establish a strategy and business model which promote long-term value for shareholders
As at Admission, the Company operated 146 café/bar/restaurants across England and Wales under its two distinct but complementary brands, Lounge and Cosy Club. The Company is the only growing all-day operator of scale in the UK, with a strong reputation for value for money and sites that offer something for everyone regardless of age, demographic or gender.
The Company has a proven track record of sales growth, profitability and operating cash generation. This growth has been driven primarily by the rollout of new Lounge and Cosy Club sites but also by strong like-for-like sales growth in the existing estate. To enhance shareholder value, the Board intends to continue with the current rollout strategy and is targeting 25 new sites per annum over the medium term, of which approximately 20 are expected to be Lounges and approximately five are expected to be Cosy Clubs
Further details of the Company’s business model and strategy can be found in Part I of the Admission Document.
The Board will hold at least one session each year dedicated to strategy, which will include input from senior members of the management team and any necessary external advisers. A strategic report reflecting the outcome of such sessions will be included in the Annual Report.
Examples of the principal risks that the Company faces are set out in Part II of the Admission Document. The Board will continue to monitor the risks facing the Company on a regular basis and will take appropriate action to ensure that it is able to manage and limit any adverse effects from these risks and to confront day-to-day challenges.
Further information regarding the Company’s strategy and business model will be provided in each Annual Report.
Principle 2 – Seek to understand and meet shareholder needs and expectations
The Board is committed to an open and ongoing engagement with the Company’s shareholders. It takes collective responsibility for ensuring a satisfactory dialogue with shareholders takes place and will review and discus the make-up of the Company’s shareholder base at Board meetings.
The main methods of communication with the Company’s shareholders will be the Annual Report, the half year and full year results announcements, trading updates (where required or appropriate) the Annual General Meeting and the Company’s website.
The Chief Executive Officer will be the primary point of contact for shareholders and there is a dedicated email address (email@example.com) for shareholder questions and comments.
Regular meetings will be held between the Chief Executive Officer, the Chief Financial Officer and institutional investors and analysts to ensure that the Company’s strategy, financials and business developments are communicated effectively.
The Independent Non-Executive Directors will also be available to discuss any matters that shareholders wish to raise and discuss, in particular the Senior Independent Director.
On Admission, funds managed by Lion Capital LLP (“Lion”) have retained a holding of 38.6 per cent. of the issued Ordinary Shares. The Company has entered into a relationship agreement with Lion to ensure the Company is at all times capable of carrying on its business independent of Lion, given its shareholding. Pursuant to the agreement, and for so long as it maintains a holding of Ordinary Shares in excess of 10%, Lion have the right to appoint a Representative Director to the Board as a Non-Executive Director. James Cocker is the Lion Representative Director. Lion also has the right to a Board Observer for so long as it maintains a holding in excess of 15%. The relationship agreement terminates on the earlier of (i) Lion withdrawing its Representative Director and Board Observer and indicating to the Board that it no longer wishes to exercise its right to appoint a Representative Director and a Board Observer and (ii) the Lion shareholding falling below the threshold that gives it the right to appoint a Representative Director and a Board Observer.
The Company has not had an Annual General Meeting since Admission but at its first such meeting and going forward, it envisages proactively engaging with any shareholders that do not vote in favour of any resolutions to understand their motivation for doing so.
The Company is advised by its Financial and Nominated Adviser, GCA Altium, its Joint Brokers, Liberum and Peel Hunt and its Financial Public Relations Adviser, Instinctif Partners.
Principle 3 – Take into account wider stakeholder and social responsibilities and their implications for long term success
The Company takes its corporate social responsibilities very seriously. The Board recognises that the Company’s long-term success will necessitate the maintenance of effective working relationships across a wide range of stakeholders, as well as shareholders, being primarily its employees, existing and new customers, suppliers and others that it collaborates with as part of its business strategy.
The Executive Directors in particular maintain an ongoing and collaborative dialogue with such stakeholders and take all feedback into consideration as part of the decision- making process and day-to-day running of the Company.
Details of the Company’s CSR policy will be included in its Annual Report.
Principle 4 – Embed effective risk management, considering both opportunities and threats, throughout the organisation
Effective risk management is critical to meeting the strategic objectives of the Company. Examples of the material risks relating to the Company and the sector in which the Company operates are set out in Part II of the Admission Document. A review of these risks will be carried out at least on an annual basis and included in the Annual Report.
The Company operates a risk framework, including a risk register that is managed by the Chief Financial Officer. The risk register will be signed off annually by the Board and included in the Annual Report.
The Board has overall responsibility for the determination of the Company’s risk management objectives and policies and has also established an Audit Committee, further details of which are set out below.
Principle 5 – Maintain the board as a well-functioning, balanced team led by the chair
The Board comprises seven Directors: the Founder Chairman, four Non-Executive Directors and two Executive Directors. Three of the Non-Executive Directors, Nick Backhouse, Adam Bellamy and Jill Little, are considered by the Board to be independent, the fourth, James Cocker is not considered to be independent because of his relationship with Lion, a substantial shareholder of the Company. James Cocker was a member of the board of Loungers predecessor company for more than two years and has an extensive knowledge of the Company and its operations. The Non-Executive Directors were selected with the objective of increasing the breadth of skills and experience of the Board and bringing independent judgment to it. The Board as a whole represents a suitable balance of independence and detailed knowledge of the Company and is well positioned to fulfil its roles and responsibilities as effectively as possible.
The biographies of the Directors are included in the “About Us” section of the website and in Part I of the Admission Document.
The Board will meet regularly (at least eight times a year) and will be responsible for strategy, performance, approval of any major capital expenditure and the framework of internal controls.
Briefing papers will be distributed to all Directors in advance of Board meetings and all Directors will have access to the advice and services of the Chief Financial Officer and Company Secretary, who will be responsible for ensuring that Board procedures are followed, that each Director is at all times provided with such information as is necessary for him or her to discharge their duties and that applicable rules and regulations are complied with, in accordance with the QCA Code. In addition, all Directors can obtain independent professional advice in the furtherance of their duties, if necessary at the Company’s expense.
All Directors will be subject to regular re-election by shareholders at the Annual General Meeting and any new Directors appointed during a financial year must be formally elected at the Annual General Meeting following their appointment.
Principle 6 – Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
The skills and experience of the Directors are set out in the “About Us” section of the website and in Part I of the Admission Document.
The Board believes that it has the appropriate balance of diverse skills and experience in order to deliver on its core objectives.
The Nominations Committee, comprising the Independent Non-Executive Directors, will regularly review the composition of the Board to ensure that it has the necessary depth of skills and experience to support the ongoing development of the Company.
Principle 7 – Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
As Admission has only recently occurred, the Company does not yet have a formal process for evaluating the performance of the Board and of the individual Directors, including the Chairman, against objectives to ensure that all are committed, independent (where relevant) and provide a relevant and effective contribution. The Board intends to establish these procedures in the short term.
The Senior Independent Director will be responsible for establishing a formal process for appraising the Chairman’s performance and will undertake such evaluation at least annually and otherwise as deemed appropriate from time to time
Principle 8 – Promote a corporate culture that is based on ethical values and behaviours
The Company promotes a culture of integrity, honesty, trust and respect and all employees are expected to operate in an ethical manner in all their internal and external dealings. The Company’s staff handbook and policies promote this culture and include such matters as whistleblowing, social media, anti-bribery, communication and general conduct of employees.
The Board places significant importance on the promotion of ethical values and good behaviour within the Company and is taking ultimate responsibility for ensuring that these are promoted and maintained throughout the organisation and that they guide the Company’s business objectives and strategy.
Principle 9 – Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
The Chairman leads the Board and is responsible for its governance structures, performance and effectiveness.
The Independent Non-Executive Directors are responsible for bringing independent and objective judgement to Board decisions.
The Chief Executive Officer and the Chief Financial Officer are responsible for the day-to-day management of the Company and for implementing the strategic goals agreed by the Board. The Chief Executive Officer is the primary contact for the Company’s shareholders and is responsible for ensuring that the links between the Board and the shareholders, are strong and efficient.
The Senior Independent Director is appointed by the Board and has the following key responsibilities in respect of the Company’s corporate governance procedures:
- to act as chair of the Board when matters concerning the chairman are considered;
- to act as a conduit to the Board for the communication of shareholder concerns when such concerns cannot be raised through the normal channels of the chair and / or the Executive Directors;
- to ensure the views of the other Non-Executive Directors are given due consideration;
- to make himself available for confidential discussions with the other Non-Executive Directors who may have concerns which they believe have not been properly considered by the Board as a whole; and
- to lead a meeting of the Non-Executive Directors without the Chairman present at least annually to appraise the Chairman’s performance and ion such other occasions as deemed appropriate
The non-independent Non-Executive Director represents Lion, a substantial shareholder, on the Board. A relationship agreement is in place between the Company and Lion to ensure their ongoing relationship is at arm’s length and on a normal commercial basis.
The Board as a whole is responsible for the good management of the Company and its principal aim is to enhance the Company’s long-term value for the benefit of shareholders. The Board has adopted terms of reference which have a clear and specific schedule of matters that are reserved for the Board and which include corporate governance, strategy, major investments, financial reporting and internal controls.
The Board has also established an Audit Committee, a Remuneration Committee and a Nomination Committee each with written terms of reference. The responsibilities and current membership of these committees are set out below. From time to time, separate committees may be set up by the Board to consider and address specific issues, as and when they arise.
The Company has established an Audit Committee, which will comprise Adam Bellamy as Chairman, Nick Backhouse and Jill Little. It will meet at least three times each year and at any other time when it is appropriate to consider and discuss audit and accounting related issues. The Audit Committee is responsible for determining the application of the financial reporting and internal control principles, including reviewing regularly the effectiveness of the Group’s financial reporting, internal control and risk-management procedures and the scope, quality and results of the external audit.
The Company has established a Remuneration Committee, which will comprise Jill Little as Chairman, Nick Backhouse and Adam Bellamy, which will review the performance of the Executive Directors and set the scale and structure of their remuneration and the basis of their service agreements with due regards to the interests of shareholders. In determining the remuneration of Executive Directors, the Remuneration Committee will seek to enable the Company to attract and retain executives of the highest calibre. The Remuneration Committee also makes recommendations to the Board concerning the allocation of awards under and the administration of the Company’s equity incentive plans. No Director is permitted to participate in discussions or decisions concerning their own remuneration.
The Group has established a Nomination Committee, which will comprise Nick Backhouse as Chairman, Adam Bellamy and Jill Little and will be responsible for reviewing the structure, size and composition of the Board, preparing a description of the role and capabilities required for a particular appointment and identifying and nominating candidates to fill Board positions as and when they arise.
The Board believes the Company’s corporate governance framework as described herein is fit for purpose. It is envisaged that the governance framework will be reviewed on an annual basis to ensure that it remains effective and appropriate for the Company going forward.
Principle 10 – Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board places a strong emphasis on the standards of good corporate governance and maintaining an effective engagement with its shareholders and key stakeholders, which it considers to be integral to longer term growth and success.
The principal methods of communication with shareholders will be the Annual Report, the half year and full-year results announcements, trading updates (where required or appropriate) the Annual General Meetings and the investor relations section of the Company’s website (in particular the “AIM Rule 26” page).
The Company’s website will be updated regularly with information regarding the Company’s activities and performance. The Company’s reports and presentations and notices of Annual General Meetings will be made available on the website when available, as will the results of voting at shareholder meetings. The Company will publish an explanation around any actions it proposes to take on votes where a significant proportion of independent votes have been cast against any resolution.