The directors present the strategic report for the year ended 31 December 2022.
The profit for the year has been included in these Accounts for £147,206 (2021: profit of £10,017).
Sonder Hospitality UK is revolutionizing hospitality through innovative, tech-enabled service and inspiring, thoughtfully designed accommodations combined into one seamless experience. The Company provides a variety of accommodation options — from spacious rooms to fully-equipped suites and apartments. Revenues grew from £20,016,504 in 2021 to £28,450,774 in 2022, a 42% increase.
Business risk
The Group’s business is particularly sensitive to trends in the travel, hospitality, and real estate markets, and trends in the general economy, which are unpredictable. Travel, including demand for accommodations, is highly dependent on discretionary spending levels. As a result, hospitality sales tend to decline during general economic downturns and recessions, and times of political or economic uncertainty, as consumers engage in less discretionary spending, are concerned about unemployment or inflation, have reduced access to credit or experience other concerns or effects that reduce their ability or willingness to travel. Leisure travel, which accounted for a substantial majority of Sonder’s pre-COVID-19 pandemic traveller demographic, is dependent on discretionary consumer spending levels. Downturns in worldwide or regional economic conditions, such as the current downturn resulting from the COVID-19 pandemic, have led to a general decrease in leisure travel and travel spending, and similar downturns in the future may materially adversely impact demand for the Group’s accommodations. Such a shift in consumer behaviour could materially and adversely affect the Group’s business, results of operations, and financial condition.
Financial risk management objectives and policies
The Company’s objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Company’s activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Company’s continuing success.
The Board of Directors supervises and is ultimately responsible for the overall risk management of the Company. The Board’s considerations of key financial risks impacting the business is set out below.
Liquidity risk is the potential that, although remaining solvent, the Company does not have sufficient liquid financial resources to enable it to meet its obligations as they fall due, or can secure them only at excessive cost.
In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Company is dependent on its parent, Sonder Holdings, which provides ongoing support both directly, in the form of making available cash funding, and indirectly through settling certain liabilities directly on behalf of the Company. The company has received confirmation from Sonder Holdings that it will ensure that the Company has access to sufficient resources to enable it to settle its liabilities as they fall due for a period of at least one year from the date of approval of these financial statements.
Credit risk management
The Company’s credit risk is primarily attributable to its receivables and cash balances. The amounts presented in the Balance Sheets are presented net of allowances for doubtful receivables where required. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flow; however, no material allowance for impairment was required at 31 December 2022.
In the case of trade receivables, the Company manages credit risk through requiring payment for its services either in advance or through credit cards provided by reputable international providers of high credit standing. In the case of intercompany trade receivables, the Directors have assessed the credit worthiness of its affiliates, and management expects all Group companies to be fully funded and meeting their financial obligations. In the case of other counterparties, the Company manages its credit risk through credit checks of those counterparties. In the case of its cash balances, the Company believes that its credit risk is limited because it uses banks with high credit ratings as assigned by international credit rating agencies.
The Company does not have additional exposure to credit risk beyond what is recognised on its balance sheet.
Other risk management
The Company undertakes a limited number of transactions denominated in foreign currencies; consequently, the impact of exposure to exchange rate fluctuations is immaterial. The Company is exposed to interest rate risk because the Company’s cash balances earn interest at variable interest rates, but the impact of interest rate changes is immaterial. The Company is exposed to interest rate risk because the Company’s cash balances earn interest at variable interest rates, but the impact of interest rate changes is immaterial. See going concern disclosures for further information.
Going forward, the Company will handle the real estate operations of Sonder in the United Kingdom. The company is expected to operate at a near breakeven level for the foreseeable future due to accommodation and market support agreements with other entities of the Group.
Section 172 (1) statement
Sonder Hospitality UK Ltd is a UK based subsidiary of Sonder Group BV (the "Group"). The company is a special purpose company created to hold the Group's investments in Europe and the Middle East. In identifying key stakeholders and ensuring that their needs are considered in decision-making, the Company follows the policies, procedures and governance arrangements of the Group.
In performing their duties under section 172, the directors of the Company have had regard
to the matters set out in section 172(1) as follows:
Shareholder
The directors of the Company are officers of the Group and ensure that any long-term decisions are in line with the Group's long-term goals as set in the Group's plan.
The Company's suppliers are primarily the Company's landlords, with which it is in ongoing contact to understand their requirements and collaborate effectively.
Tax authorities and regulators
The directors understand the importance of compliance and seeks to ensure the Company develops and maintains transparent, collaborative and professional relationships with tax authorities and regulators. The Company expects the highest standards of integrity from its officers and service providers and seeks to comply with relevant tax legislation and regulations.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2022.
The results for the year are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, PKF Littlejohn LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The Company has received confirmation of support from its ultimate parent undertaking, Sonder Holdings Inc, that it will ensure the Company has access to sufficient resources to enable it to settle its liabilities as they fall due for a period of at least one year from the date of approval of these financial statements. Sonder Holdings Inc has acknowledged that there may be a need to secure additional debt or equity financing in order to support the Company.
Sonder Holdings Inc has demonstrated the ability to successfully fundraise and, should the need arise, they are confident the funds can be raised as needed. However, the timing and success of those endeavors are inherently uncertain, giving rise to the material uncertainty in respect of going concern.
The directors conclude that there are material uncertainties about the ability of the Company to continue as a going concern after consideration of mitigating actions. Material uncertainties arise from the fact that while Sonder Holdings Inc has announced significant cash flow streams to support the group, those funds have not been received in their entirety.
The directors continue to adopt the going concern basis in preparing the financial statements. Further details regarding the going concern basis can be found in Note 1.2 to the financial statements.
We have audited the financial statements of Sonder Hospitality UK Ltd (the 'company') for the year ended 31 December 2022 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
Material uncertainty related to going concern
We draw attention to note 1.2 in the financial statements, which indicates that the company’s activities and finances are solely dependent on its parent company, Sonder Holdings Inc. Although the company has received a letter of support from Sonder Holdings Inc, Sonder Holdings Inc has acknowledged that they could need to secure additional debt or equity financing in order to support the company. Whilst Sonder Holdings Inc plans to secure the additional financing required, the plans are not entirely within Sonder Holdings Inc’s control and as such, cannot be assessed as being certain.
As stated in note 1.2, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We obtained an understanding of the company and the sector in which it operates to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, industry research and review of minutes of board meetings.
We determined the principal laws and regulations relevant to the company in this regard to be those arising from the Companies Act 2006, local tax legislation and the United Kingdom Generally Accepted Accounting Practice.
We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the company with those laws and regulations. These procedures included, but were not limited to discussions with management regarding potential instances of non-compliance with laws and regulations and performing a review of legal and professional expenditure.
We also identified the risks of material misstatement of the financial statements due to fraud. Save from the non-rebuttable presumption of a risk of fraud arising from management override of controls, we identified a significant fraud risk arising from revenue recognition was addressed through to ensuring that the revenue recognised is on commercial terms and has been invoiced in line with the terms and conditions as per the intragroup management agreements.
As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to the testing of journals; reviewing accounting estimates for evidence of bias and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities is available on the Financial Reporting Council's website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Sonder Hospitality UK Ltd is a private company limited by shares incorporated in England and Wales. The registered office is 1 Bartholomew Lane, London, United Kingdom, EC2N 2AX. The company's principal activities and nature of its operations are disclosed in the directors' report.
The Company is a wholly-owned subsidiary undertaking of Sonder International Holdings Ltd, a company incorporated in the United Kingdom and is an indirect wholly-owned subsidiary of Sonder Holdings Inc. (the “Parent company” or “Sonder Holdings”).
The Parent company is a corporation incorporated in Delaware, USA, with its registered address, c/o Corporation Service Company 251 Little Falls Drive, Wilmington, Delaware 19808. The address of the Parent company is 447 Sutter St. Suite 405 #542, San Francisco, California 94108, USA.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
As permitted by FRS 101, the company has taken advantage of the following disclosure exemptions from the requirements of IFRS:
presentation of a statement of cash flows and related notes;
disclosure of the objectives, policies and processes for managing capital;
the effect of financial instruments on the statement of comprehensive income;
a reconciliation of the number and weighted average exercise prices of share options, how the fair value of share-based payments was determined and their effect on profit or loss and the financial position;
related party disclosures for transactions with the parent or wholly owned members of the group;
standards not yet effective;
certain disclosure in respect of revenue from contracts with customers;
impairment of assets.
Where required, equivalent disclosures are given in the group accounts of Sonder Holdings Inc. The group accounts of Sonder Holdings Inc are available to the public and can be obtained as set out in note 19.
These financial statements are separate financial statements. The Company is exempt from the preparation and delivery of consolidated financial statements, because it is included in the Group financial statements of Sonder Holdings Inc, which are available to the public.
The financial statements have been prepared under the historical cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The company recognises revenue from the following major sources:
Accommodation Fee
Market Support Fee
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
An item of property, plant, and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is included in the statement of comprehensive results.
At inception of a contract, the Company assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether all of the three criteria below are met:
the contract involves the use of an identified asset - this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of an asset if not physically distinct. If the supplier has a substantive substitution right, then the asset is not identifiable;
the Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
the Company has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used.
The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for:
short-term leases (defined as leases with a lease term of 12 months or less); and
leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones).
For these leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee, and the cost of any options that the company is reasonably certain to exercise, such as the exercise price under a purchase option, lease payments in an optional renewal period, or penalties for early termination of a lease.
Lease payments included in the measurement of the lease liability comprise:
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
Payments of penalties for terminating the lease if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The Company did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the right-of-use asset. The depreciation starts at the commencement date of the lease.
Debt instruments are classified as either financial liabilities or equity in accordance with the substance of the contractual arrangement.
Financial liabilities
The Company classifies non-derivative financial liabilities in the ‘other financial liabilities’ category.
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs, and subsequently at amortised cost.
Derecognition of financial liabilities
The Company derecognises financial liabilities only when the Company’s obligations are discharged, cancelled or they expire.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The tax expense represents the sum of the tax currently payable and deferred tax.
Impairment
At the end of the reporting period, the Company reviews the carrying amounts of its property, plant and equipment, and Right of Use Assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.
Foreign currencies
The financial statements of the Company are presented in the currency of the primary economic environment in which it operates, or its functional currency, which is British Pounds Sterling.
Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Translation differences are recorded in the statements of comprehensive results.
Nature of the Company’s operations
As part of a reorganisation as at the 1st January 2021, the Company received the trade and assets of the real estate operations from Sonder Europe, a company under common control. This allowed Sonder Europe to focus on developing real-estate technology and brand for Sonder Holdings’ EMEA operations. As of that date, Sonder Europe Ltd transferred its property rental business to the Company, and with that the entirety of its leases and operating assets at book value as of the transfer date.
Sonder Hospitality UK Ltd is set up to help the Group's expansion plan in the United Kingdom. From 1 January 2021 it has operated the Group's hospitality business for the local market which brings together the authenticity of home rental plus the dependable elevated services of a hotel. The company provided short and long-term rentals and offered modern and furnished accommodations in central, desirable neighbourhoods in each of its operating cities.
In the current year, the following new and revised Standards and Interpretations have been adopted by the company and have an effect on the current period or a prior period or may have an effect on future periods:
At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not yet been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
All of the amendments listed above did not have any impact on the amounts recognised in current period and are not expected to significantly affect future periods.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.
Revenues are derived from the Company’s market support service for the group expansion plan in the United Kingdom as well as inter-group accommodation services based on revenue from accommodations and other ancillary guest services received by the parent company, as the spaces are occupied and the services are rendered.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
Wages and salaries included share-based payments £83,029 (2021:£24,194) for the year ended 31 December 2022.
The Company participates in a share option scheme for all employees. Options are exercisable on the shares of the parent Company at a price equal to the estimated fair value of the parent Company’s shares on the date of grant. The vesting period is four years, and options are forfeited if the employee leaves the Company before the options vest.
The Company recognises only the portion of the option award granted that is ultimately expected to vest as compensation expense and elects to recognize gross share-based compensation expense with actual forfeitures as they occur. The fair value of the Company’s stock options is estimated using the Black-Scholes option-pricing model, which uses the fair value of the ultimate parent company’s common stock and requires the input of the following subjective assumptions:
Expected term. The expected term for options granted to employees is based on the historical pattern of option exercise behaviour and the period of time they are expected to be outstanding.
Expected volatility. The expected volatility is based on the average volatility of similar public entities within the parent company’s peer group as the parent company’s common stock has not been trading publicly for a long enough period to rely on its own expected volatility.
Expected dividends. The dividend assumption is based on the parent company’s historical experience. To date, the parent company has not paid any dividends on its common stock.
Risk-free interest rate. The risk-free interest rate used in the valuation is the implied yield currently available on the United States Treasury zero-coupon issues, with a remaining term equal to the expected life term of the Company’s options.
The following table summarises the key assumptions used to determine the fair value of the Company’s stock options granted to employees:
| Year ended 31 December 2022 | Year ended 31 December 2021 |
|
|
|
Expected term (in years) | 4.09 - 6.25 | 3.99 - 4.02 |
Expected volatility | 50.0% - 55.4% | 62.7% - 64.2% |
Dividend yield |
|
|
Risk-free interest rate | 1.79% - 4.34% | 0.40% - 1.00% |
Weighted-average grant date fair value per share | £14.43 - £35.33 | £3.37 - £4.89 |
The weighted average share price at the date of exercise for share options exercised during the prior period was £14.69. The options outstanding at 31 December 2022 had exercise prices ranging from £11.11 to £145.79, and a weighted average remaining contractual life of 8 years.
The charge for the year can be reconciled to the profit per the income statement as follows:
The UK Government announced from April 2023 the rate of Corporation Tax will increase to 25% on profits which exceed £250,000. As the company made a profit under £250,000 in the year a rate of 19% will be applied.
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
More information on impairment movements in the year is given in note 9.
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
Amounts due to group undertakings are unsecured, interest free, have no fixed date of repayment and repayable on demand.
Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
The Company’s ultimate parent, Sonder Holdings Inc, issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of when the shares will vest and adjusted for the effect of non-market based vesting conditions. The corresponding impact is a credit to other reserves.
Amounts recognised in profit or loss as an expense during the period in respect of lease arrangements are as follows:
The 2021 statement of comprehensive loss, balance sheet, and statement of changes in equity have been restated for the correction of errors and reclassification as stated below.
On 1 January 2019, International Financial Reporting Standards (“IFRS”) 16 introduced a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right of-use (“ROU”) asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
Following the completion of the prior year financial statements, the Company identified that certain leases entered into and accounted for in 2021 had errors in lease expense recognition patterns, errors in commencement dates, or other errors which required that the balances be restated herein. The following tables present the line items affected by the correction as discussed above, as indicated by the column entitled “restatements.”