The directors present the strategic report for the Period ended 30 December 2022.
The loss for the period has been included in these financial statements for £32,648,714 (2021: loss of £12,579,621).
The Company is focused on developing real-estate technology and brand for Sonder Holdings’ EMEA operations. The Company did not generate revenue from its operations and is expected to report losses until Sonder’s EMEA operations mature.
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 traveler demographic, is dependent on discretionary consumer spending levels. Downturns in worldwide or regional economic conditions, such as the 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 management
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. See going concern disclosures for further information.
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 30 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.
Going forward, the Company will focus its operations on developing real-estate technology and brand for Sonder Holdings’ EMEA operations. Since the Company is not expected to generate revenue from it’s operations, it is expected that it will report losses for the foreseeable future until Sonder’s EMEA operations become profitable.
Section 172 (1) statement
Sonder Europe 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.
Employees
The Company does not have any employees of its own; instead, its workforce is provided under the Group. The Company's directors are in ongoing contact with the workforce, allowing them to understand and action any concerns and feedback on ad-hoc basis.
Customers, suppliers and business contacts
As a holding company the Company has no customers. The Company's suppliers are primarily the Group's subsidiaries, 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 Period ended 30 December 2022.
The results for the Period are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the Period 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 1.3 to the financial statements.
We have audited the financial statements of Sonder Europe Ltd (the 'company') for the Period ended 30 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 1.3 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 1.3, 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 Period 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 for the audit of the financial statements is located on the Financial Reporting Council’s website at: 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 Europe 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.
On 20 December 2019, Sonder Holdings, a newly created entity incorporated under the laws of Delaware, became the new ultimate Parent company, succeeding Sonder Canada, Inc. (“Sonder Canada”). In connection with that transaction, the Company's shares were transferred to Sonder International Holdings Ltd, a newly created entity incorporated under the laws of the United Kingdom and a wholly owned subsidiary of the ultimate parent company ("Sonder International"). The Company's shares were subsequently transferred in 2020 to Sonder Group B.V., a wholly owned subsidiary of Sonder International.
The Parent company is a corporation incorporated in Delaware, USA, with its registered address, at the date these financial statements were approved, at 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.
During 2021 Sonder Europe Ltd transferred all business to Sonder Hospitality UK. During the prior year Sonder Europe Ltd. provided short and long-term rentals that brought together the authenticity of home rental plus the dependable elevated services of a hotel. The Company offered modern and furnished accommodations in central, desirable neighbourhoods in each of its operating cities. The Company also owns and develops technology and brand for Sonder Holdings’ Europe and the Middle East (“EMEA”) operations.
As part of a reorganisation as at the 1st January 2021, the Company transferred the trade and assets of the real estate operations to Sonder Hospitality UK, a company under control. This allowed Sonder Europe to focus on developing real-estate technology and brand for Sonder Holdings’ EMEA operations.
In the current reporting period the financial year-end was changed from 31 December 2022 to 30 December 2022. As a result, the financial statements for the current year cover a period of 364 days, from 1 January 2022 to 30 December 2022, compared to the previous year's 365 days, from 1 January 2021 to 31 December 2021.
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 categories of financial instrument and the nature and extent of risks arising on these financial instruments;
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;
capital management;
standards not yet effective;
certain disclosure in respect of revenue from contracts with customers;
impairment of assets.
Where relevant, equivalent disclosures have been given in the group financial statements of Sonder Holdings Inc. These financial statements are presented in British pounds sterling because that is the currency of the primary economic environment in which the Company operates.
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 principal accounting policies adopted are set out below.
The company recognises revenue from the following major sources:
Cost Sharing Revenue from group company
Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.
Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.
Amortisation 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:
Acquired technology 4 years
Acquired trade names 4 years
Debt and equity instruments are classified as either financial liabilities or equity in accordance with the substance of the contractual arrangement.
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.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
The tax expense represents the sum of the tax currently payable and deferred tax.
Share-based payment arrangements in which the Company receives goods or services as consideration for equity instruments of Sonder Holdings Inc are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non market-based vesting conditions.
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 equity instruments that will eventually vest. At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the income statement such that the cumulative expense reflects the revised estimate, with the corresponding adjustment to equity reserves.
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.
Until 30 June 2020, the Company accounted for value added tax (“VAT”) on its supplies under the Tour Operator’s Margin Scheme (“TOMS”), which required it to account for VAT at 20% on the supply of UK accommodations based on its gross margin (ie the difference between the price a guest pays for accommodations and the price paid by the Company to a property owner).
If VAT had been due outside the TOMS and if accommodation owners did not charge VAT to the Company, the Company would have been required to account for VAT at 20% on all revenue received from guests.
The Company’s application of the relevant definitions in the VAT legislation to determine whether the Company’s particular circumstances placed it within the TOMS has been challenged by HM Revenue & Customs.
This situation will be closely monitored, and adjustments made in future periods if relevant factors indicate that such adjustments are appropriate.
Since 2020, Sonder Europe Ltd has gone to the First Tier Tribunal ("FTT") to support the application of TOMS in the UK on its supplies. In July 2023, the FTT affirmed Sonder Europe's position on the above. HMRC has since appealed the decision and the appeal is scheduled at the Upper Tribunal in December 2024.
This situation is still closely monitored, and adjustments made in future periods if relevant factors indicate that such adjustments are appropriate.
Acquired finite-lived intangible assets consist primarily of developed technology and brand acquired as part of the plan of reorganisation following the Corporate Inversion (see Note 1) and are amortised over the assets’ estimated useful economic lives of four years. Refer to Note 9 for details. The Company will also be required to test its intangible assets for potential impairment whenever events or conditions indicate that the carrying values of such assets may exceed their recoverable amounts.
Identification of indicators of impairment requires the application of judgement by management. Should indicators of impairment be identified, the recoverable amount of the assets will be measured by a comparison of their carrying values to the higher of their fair value or value-in use, based on the future discounted cash flows the assets are expected to generate. If such review indicates that the carrying value of intangible assets is not recoverable, the carrying amount of such assets will be reduced to their recoverable amounts.
The average monthly number of persons (including directors) employed by the company during the Period was:
Their aggregate remuneration comprised:
Wages and salaries included share-based payments £651,161 (2021:£328,041) for the Period ended 30 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, non-employees, officers and directors:
| Period ended 30 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 30 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 Period can be reconciled to the loss 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 loss in the year a rate of 19% will be applied.
Acquired technology and brand are amortised over their estimated useful lives, which is 4 years.
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.
Marriott Agreement
On 19 August 2024, Sonder Holdings Inc, the ultimate parent of Sonder Europe Ltd ,announced that it had entered into a long-term strategic licensing agreement with Marriott International, Inc. Through this strategic agreement over 9,000 live Sonder units are expected to join the Marriott portfolio by the end of 2024, with additional units anticipated to join the Marriott system at later dates. Sonder properties are expected to be fully integrated with Marriott’s extensive distribution channels and are expected to participate in the Marriott Bonvoy travel program with over 201 million members. Full integration with Marriott’s digital channels and platform will occur in 2025.
Management expects this strategic agreement to unlock significant opportunities for increased revenue and efficiency, including:
Increasing revenue by integrating with Marriott’s commercial engine.
Delivering cost savings through synergies and scale.
Powering future growth.
Sonder Holdings Inc is a related party because it is the Company’s parent undertaking. All other related parties are fellow subsidiaries of Sonder Holdings Inc.
The amounts outstanding are unsecured, interest free and will be settled in cash, except for intercompany loans from Sonder Canada Inc. and promissory notes from Sonder USA Inc (see Note 15). For certain leases, Sonder Europe received guarantees from Sonder Canada in lieu of deposits. No provisions have been made for doubtful debts in respect of the amounts owed. Expenses charged to the company by related parties in the period have been disclosed in Note 4.
As discussed in Note 2, the Company has assessed that, until 30 June 2020, it was required to account for VAT on its supplies under the TOMS. If the Company was deemed to be making supplies that did not fall under TOMS, the Company would have been required to account for VAT at 20% on all revenue received from guests, net of any recoverable input VAT. This would result in the recognition of an additional liability of approximately £2,800,000 at 30 December 2022 (2021 £2,800,000).
Subsequent to the balance sheet date, the Tax Tribunal ruled in favour of Sonder Europe Limited (Decision Number TC 08852), HMRC do have the ability to appeal this decision, however, based on the Judgement of the Tax Tribunal, the Company now believes that the risk of any liability is remote.