REG - XP Factory PLC - Results for the year ended 31 December 2021
31/05/2022 07:00
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RNS Number : 3171N XP Factory PLC 31 May 2022
31 May 2022
XP Factory plc (AIM: XPF)
("XP Factory", the "Company" or the "Group")
Final results for the year ended 31 December 2021
XP Factory is pleased to announce its audited final results for the year ended
31 December 2021.
FINANCIAL HIGHLIGHTS
· Group revenue up 163% at £7.0m (2020: £2.7m)
· Adjusted EBITDA of £2.7m (2020: loss £1.4m) inclusive of £2.6m R&D
credits, net of associated costs
· Pre-IFRS 16 Adjusted EBITDA profit of £0.5m in the six months to 31 December
2021 (2020: loss £0.9m demonstrating critical mass achieved
· Escape Hunt™ owner-operated revenue up 189% to £6.0m (2020: £2.1m)
· £3.4m positive Site Level EBITDA from owner-operated sites (2020: £0.4m) was
driven by a strong bounce back in trade post lifting of Covid restrictions in
mid-May 2021
· Franchise EBITDA of £0.3m (2020: £0.3m)
· Group operating loss of £0.5m (2020: loss of £6.4m) helped by strong H2
trading and £2.6m R&D credits (net)
· £16.1m net of expenses raised through an equity placing and open offer to
fund acquisition of Boom Battle Bar in November 2021
· Cash at year end £8.2m (2020: £2.7m) and £6.9m on 30 April 2022
OPERATIONAL AND STRATEGIC HIGHLIGHTS
· Successful acquisition of Boom Battle Bar and renaming of the Group to XP
Factory Plc in November 2021
· Post-acquisition, 1 new Boom owner operated site opened at the O2 Arena and 1
new franchise site in Coventry opened in December bringing estate to 2 owner
operated and 7 franchise sites at year end
· Escape Hunt owner-operated estate expanded by 46% to 19 sites (2020: 13
sites), including Watford, Kingston, Lakeside, Milton Keynes and the
acquisition of the French master franchise with owner operated sites in Paris
and Brussels
· New games successfully developed and launched at new Escape Hunt sites
· All nine Escape Hunt sites open for more than 12 months were named by
TripAdvisor™ as a Travellers' Choice Winner in August 2021 and continued
five star TripAdvisor™ ratings across the UK estate
· Acquisition of Middle East master franchise in Q4 2020 fully paid back within
12 months
POST YEAR END
· In the year to date, 6 new Boom sites opened, including owner operated site in
Exeter, co-located with Escape Hunt, and franchise sites in Watford, Ipswich,
Glasgow, Aldgate East and Bath
· Further 6 Boom sites in build and 10 contracts exchanged or in final legals
underpinning site roll-out targets for the year
· Site level economics for Boom being proven by performance at owner-operated
sites
· Boom franchise sites performing in line with the Board's expectations
· Escape Hunt sites performing well with UK owner operated estate and traded
ahead of the Board's expectations in Q1 2022
Richard Harpham, Chief Executive of Escape Hunt, commented:
"2021 was an important year in our journey. It marked the inflexion point at
which we delivered sufficient critical mass to become profitable and was the
year where we best set ourselves up to become a key player in the leisure
space with the acquisition of Boom. The customer demand we have seen since
Covid restrictions were lifted has been overwhelmingly positive and has
reinforced our belief that businesses like ours serve an important role in
bringing people together. With the Escape Room category becoming much more a
part of the mainstream consumer psyche, and with competitive socialising being
such a fast growing sub-sector within the leisure market, we feel that XP
Factory is perfectly positioned through its operating brands Escape Hunt and
Boom respectively.
With such a well-developed pipeline of sites, such encouraging demonstrable
unit economics in both brands, and such a well-positioned business in terms of
customer demand, we have reason to be highly optimistic about the future for
XP Factory."
Enquiries:
XP Factory Plc +44 (0) 20 7846 3322
https://www.xpfactory.com/ (https://www.xpfactory.com/)
Richard Harpham (Chief Executive Officer)
Graham Bird (Chief Financial Officer)
Kam Bansil (Investor Relations)
Shore Capital, NOMAD and Broker +44 (0) 20 7408 4050
https://www.shorecap.co.uk/ (https://www.shorecap.co.uk/)
Tom Griffiths/David Coaten (Corporate Advisory)
IFC Advisory - Financial PR +44 (0) 20 3934 6630
https://www.investor-focus.co.uk/ (https://www.investor-focus.co.uk/)
Graham Herring
Florence Chandler
Notes to Editors:
About XP Factory plc
The XP Factory Group is one of the UK's pre-eminent experiential leisure
businesses which currently operates two fast growing leisure brands. Escape
Hunt is a global leader in providing escape-the-room experiences delivered
through a network of owner-operated sites in the UK, an international network
of franchised outlets in five continents, and through digitally delivered
games which can be played remotely.
Boom Battle Bar is a fast-growing network of owner-operated and franchise
sites in the UK that combine competitive socialising activities with themed
cocktails, drinks and street food in a high energy, fun setting. Activities
include a range of games such as augmented reality darts, Bavarian axe
throwing, 'crazier golf', shuffleboard and others. The Group's products
enjoy premium customer ratings and cater for leisure or teambuilding, in small
groups or large, and are suitable for consumers, businesses and other
organisations. The Company has a strategy to expand the network in the UK and
internationally, creating high quality games and experiences delivered through
multiple formats and which can incorporate branded IP content.
(https://xpfactory.com/ (https://xpfactory.com/) )
STRATEGIC REPORT
Chairman's Statement
Positioned for success
2021 was a transformative year with two very different halves for XP Factory
Plc, and one which saw us exit the year better positioned than ever before to
capitalise on the fast growing market for experiential leisure. We achieved a
significant milestone as for the first time, the business delivered positive
EBITDA in the 6 months to 31 December 2021, with Escape Hunt breaking multiple
weekly sales records. Combined with the acquisition of Boom Battle Bar in
November 2021, a very healthy pipeline of sites and a significantly
strengthened balance sheet, this leaves us poised for significant growth and
cause for optimism about the future.
Escape Hunt
Entering 2021 in national lockdown, with our venues closed and our operating
teams largely on furlough, the first half of the year was very challenging for
businesses in our sector. However, we never wavered from our core belief that
as social beings, we crave togetherness and interaction, and the Board focused
its efforts on best preparing the business to be able to deliver the safe and
enjoyable experiences that our customers had been missing for so many months,
once restrictions were lifted. As customers returned to the venues, I was
delighted to see sales exceeding the Board's expectations, but was also
extremely proud of our teams who worked tirelessly to deliver exceptional
service despite the difficult conditions. The performance within Escape Hunt
continued into 2022, with Q1 being ahead of expectations.
The mental wellbeing of our teams was at the forefront of our minds throughout
the periods when they were on furlough, and we made sure to maintain very
regular contact and keep them engaged with the business. Our extensive
re-training once restrictions were lifted allowed our staff to feel
comfortable on their return, and we have been happy with how natural the
transition back to work has been.
In preparation for reopening our venues, we invested further in the software
platform used in sites to deliver the Escape Hunt experiences, and began to
see the benefits of increased operating leverage and efficiency as customers
returned. When we first launched the business in 2017, we required one games
master for every game that was running, whereas today, one games master can
operate up to 3 games simultaneously. This software, combined with the modular
design of our games rooms which we now install in sites, has dramatically
simplified the build process at new sites, and our new units opened in Milton
Keynes, Watford, Kingston and Lakeside bear testament to this.
The second half of the year exceeded even our own expectations, as the
business was well placed to exploit pent up customer demand and trading in
sites was hugely encouraging. The investment we made in growing our estate
substantially throughout 2020 allowed us to deliver group profitability over
the 6 months to 31 December 2021, and we were delighted to see substantial
growth in the mature sites, as well as stellar performances in the new venues,
where sales were ramping up faster than we had seen before.
It was also good to see our investment in innovation being rewarded with a
£2.6m R&D grant from HMRC (net of fees), and this, when combined with the
underlying trading from sites, contributed to a year which delivered £2.7m
Adjusted EBITDA, despite being closed for the majority of the first 6 months.
Acquisitions
We remain grateful to those of our investors who stood by and supported us
when COVID presented an existential threat to our industry, and particularly
we thank them for supporting the raise of £1.4m (before expenses) in January
2021, which allowed us to buy back our Escape Hunt French and Belgian master
franchise and provided us with further working capital. This acquisition is
proving fruitful for the business, with the existing sites returning to their
pre-COVID levels of demand, and with avenues for future growth being explored.
As with the acquisition of the Dubai franchise last year, the return on
capital is expected to be very strong, and in both cases, we have gained an
engaged and talented team to further develop their respective territories.
In November 2021, we completed our acquisition of Boom Battle Bar - a
competitive socialising business showcasing a selection of games alongside a
menu of cocktails and street food. Supported again by our shareholders, we
raised £16.1m (net of expenses) to complete the purchase and to provide
capital for the planned growth of the estate, and have positioned ourselves to
become the fastest growing leisure business in the UK. With our current
pipeline of over 40 potential sites in development, we anticipate having 27
venues trading by the end of 2022, spread across franchise and owned units.
We believe that this footprint will enable us to become a pre-eminent player
in the industry.
The acquisition of Boom is a good strategic fit alongside Escape Hunt, as the
core customer is in common across both brands, and the experience we have
developed in hosting games in Escape Hunt transfers to the hosting of games at
Boom. The addition of F&B at Boom is new to the business, but many of our
existing management team have their backgrounds in this area. The opportunity
to exploit a property market which has been at its lowest point in a
generation has enabled us to secure an enviable pipeline of sites, at
materially lower rents than would have been achievable previously, and this,
combined with the capital contributions on offer, should allow us to make very
strong returns on the capital we employ.
The Board
I would like to thank my Board for their unwavering confidence, and for their
belief that despite the difficult conditions born of COVID, the business could
nevertheless emerge larger, stronger and better positioned if targeted
investment was deployed in the right areas.
Outlook
2021 represented an inflexion point for XP Factory. Demonstrating that the
Escape Hunt estate had scale enough to deliver group profitability marked a
significant milestone for the business, and combined with the acquisition of
Boom, I am excited about the future. The management team has already made huge
strides towards the integration of Boom into XP Factory, and have opened an
additional 8 sites since its acquisition. There will no doubt be challenges to
be faced with increasing uncertainty from the current macro-economic
environment, inflation and cost pressures and, as a young business, opening so
many sites in a short period of time. However, by the end of 2022, we will
have built a substantial network across our two brands and with Escape Hunt
continuing to grow whilst delivering outstanding customer experiences, the two
brands together form a wonderful foundation for exciting times to come.
Richard Rose
Chairman
31 May 2022
Chief Executive's Report
Last year, in my statement I wrote that despite the unprecedented challenges
of 2020, we chose as a Board to invest heavily in growing our estate in order
that we might emerge from COVID with a critical mass capable of supporting our
cost base, and with a company poised for exceptional growth. The performance
in 2021 validated that strategic decision and, although H1 2021 was materially
affected by lockdown restrictions, I am delighted to highlight below some key
performance metrics for the full year:
· 163% increase in Group revenue to £7.0m (2020: £2.7m)
· Pre-IFRS 16 Adjusted Group EBITDA (before R&D credits) of £480k in the
six months to 31 December 2021 (2020: loss of £890k)
· £63k Adjusted EBITDA (before R&D credits) for the year to 31 December
2021 (2020: loss of £1.4m)
· Including R&D credits received (£2.6m, net of costs), Adjusted Group
EBITDA was £2.7m for the year to 31 December 2021 (2020: loss of £1.4m)
· Group operating loss for the year to 31 December 2021 of £0.5m (2020: loss of
£6.4m)
We were delighted that trading in the second half of the year exceeded our
expectations, and that we were able to offer our customers experiences that
brought them together to make memories after so many months of social lent.
Our teams worked tirelessly to create safe but fun environments and delivered
outstanding customer service despite the challenges. The Escape Hunt
owner-operated footprint increased by 46% in the year (from 13 sites in 2020
to 19 in 2021), and this, combined with improved operational efficiency across
all sites, allowed us to capitalise on pent-up demand. The resulting
performance that delivered a profitable H2 at Group level represents a key
milestone in our journey and serves as the foundation from which we expect to
grow rapidly over the coming months.
In November 2021, we completed the acquisition of Boom Battle Bar, for which
we successfully raised £16.1m after expenses, via an equity placing and open
offer. Combining a portfolio of games with cocktails and street food, Boom is
the fastest growing competitive socialising brand, and its pipeline of 39
sites at 31 December 2021 came with the prospect £12.6m of landlord capital
contributions to assist with build costs. Post-acquisition, we opened an
owner-operated site at the prestigious O2 Arena, and a further franchised site
in Coventry, bringing the total to 2 owned sites and 7 franchises by the year
end. The return on capital for Boom is expected to be extremely strong, and
the aggressive roll out plan will see the Group fast become one of the
pre-eminent leisure operators in the UK.
With an additional brand in our mix, following completion of the acquisition
of Boom, we made the decision to rename the Company XP Factory Plc, although
the trading businesses will continue to operate under Escape Hunt and Boom
Battle Bar respectively.
Escape Hunt
Over the year, we bolstered our Escape Hunt owner-operated footprint with
openings in Watford, Kingston, Milton Keynes and Lakeside, and also bought
back our sites in Paris and Brussels, which were previously operated by our
French master franchisee. Across the board, we were delighted by the pace at
which customers returned to our venues after COVID restrictions began to lift,
and our sites delivered performances that exceeded both our expectations, and
also the comparable run-rates from 2019. In the 6 months to 31 December 2021,
owner-operated revenues exceeded £5m and were more than 130% ahead of the
same period in 2019, driven in part by the new sites growing much faster than
their expected maturity curves, but also by strong like-for-like sales growth
in the mature venues. Operational leverage has continued to improve, and site
level EBITDA for the same period exceeded £3m.
Our team members continued to delight customers and the 5 star ratings in all
sites were maintained across TripAdvisor(TM). Moreover, each eligible site
received a TripAdvisor(TM) Traveller's Choice award, which showcase the top
10% of leisure venues globally. Post COVID, with recruitment of staff being
harder than previously, we have maintained our focus on retention, and were
pleased to make our 100th internal promotion in the year. The energy and
passion with which our teams have returned to the business since furlough has
been humbling, and it is this attitude which underpins our culture.
The modular games rooms have continued to evolve, and Milton Keynes was the
first site to be built in an entirely modular fashion - a blueprint now being
followed in successive builds. This production methodology has significantly
simplified the process and time to open and allows for whole rooms to be
moved. A good example of this would be in Riyadh, where we were paid to
exhibit at the global leisure expo held there, and our modular rooms were
enjoyed for 3 months before being taken down and shipped for installation
elsewhere in the estate.
The shape of the franchise estate changed through the year, partly because we
bought back the French business, but also because some of the smaller, more
marginal sites were unable to survive the pandemic, notably if located within
territories that offered little to no financial support. Whilst the net effect
was to see the estate reduced from 35 sites at the end of 2020, to 27 in 2021,
our economics have not been materially affected, as the key regions have
continued to perform well. With progress significantly slowed in the US due to
the restrictions, it is pleasing to see the site in Houston now showcasing the
best of Escape Hunt with its new games room installed, and record weeks are
being set on a regular basis. This has established a good foundation from
which our partner Proprietor's Capital Holdings can expect to grow.
Overall, Escape Hunt's performance across a challenging year, and in H2
particularly, gave cause for optimism about its future. We continued to
demonstrate consistency in the delivery of our unit economics, which yield
circa 30% EBITDA margins and strong returns on capital, and most importantly,
we delivered a critical mass significant enough to yield group profitability
across H2. Our opening strategy continues as set out in our November 2021
circular to shareholders and we are excited to be bringing our experiences to
more customers around the country.
Boom Battle Bar
In November 2021, we completed the acquisition of Boom Battle Bar, a young
business in the competitive socialising sector. With a variety of games,
including axe throwing, augmented reality darts and crazier golf, Boom is
anchored by street food and cocktails, and is a good complement to our Escape
Hunt business. The elements of hospitality and games hosting transfer across
both brands, and our ethos which brings customers together to make special
memories remains. Strategically, a further benefit in Boom is that it has
allowed us to exploit a timely opportunity in the property market, where large
sites (greater than 10k square foot), have become available for the first time
in many years, and with deals that have not previously been seen. At the point
of acquisition, the business had only 7 sites trading - 1 owner-operated unit
and 6 franchises - but had a property pipeline in excess of 40 sites that were
well progressed. Moreover, this pipeline carried capital contributions of
circa £13m to go towards fit out costs, and we recognised the opportunity to
seize a sizeable position in an exciting marketplace very quickly. Indeed, we
will be the fastest growing leisure business in the UK in 2022.
An advantage of Boom being small at the point of acquisition, is that we have
been able to shape it in our own vision almost from the beginning. Our
specific approaches to customer service and hospitality are being adopted and,
whilst the operation will continue to improve over the coming months, we are
very pleased with the direction of travel. Our team has been bolstered with
some highly experienced hires who are helping lead the opening programme and
associated training, and the overall integration has felt very natural. Where
possible, we are beginning to co-locate Boom Battle Bar with Escape Hunt, such
as in Exeter, Edinburgh and Oxford Street, and encouragingly we are seeing our
customers enjoying both brands.
The roll out plan for Boom is aggressive, and we have stated our target of 27
sites trading by 31 December 2022. In December 2021, we opened an additional
owner-operated site at the O2 Arena in London, and also a further franchise
site in Coventry, bringing the total to 9 units at the year end. We imagine
ending up with a ratio of approximately a third owner-operated sites to
two-thirds franchised, and, within our existing network of franchisees, there
is already significant appetite to do more. Whilst still early days, the sites
have traded as expected, with strong operating leverage making for a high
expected return on capital. Perhaps more importantly, the customer feedback so
far has been very encouraging, and as we continue to hone our model. We expect
to be able to deliver experiences as well rated as those which we consistently
deliver at Escape Hunt.
Strategic objectives
At the time of acquiring Boom Battle Bar, we outlined a four-point strategy to
build shareholder value. These four strategic objectives remain our focus
and, as set out above, we are making steady progress towards their
realisation.
· Maximise the UK footprint by rolling out each brand, either through
direct investment into owner-operated sites or through franchises
We expect to co-locate a number of Escape Hunt sites with Boom Battle Bar as
the estate of owner-operated sites grows. Our short and medium term targets
for the UK are as follows:
ESCAPE HUNT BOOM BATTLE BAR
Existing sites 15 UK sites 3 owner operated
10 franchise
Target: 31 December 2022 21 UK owner operated 7 owner operated
20 franchise
Potential sites (long term - 5yrs+) 50+ 100+
As set out above, our targets have not changed since those made at the time of
the acquisition of Boom Battle Bar.
· Accelerate growth in International territories, predominantly
through franchises
Whilst we believe that there is a significant opportunity for each brand
internationally, the immediacy of international growth will differ for each
operating brand. For Boom, the focus will initially be the UK. There are
opportunities for expansion into territories where we own and operate Escape
Hunt sites, which we are likely to explore. More broadly, international
expansion is likely to be franchise led. For Escape Hunt, our international
focus is on growing our US business in partnership with our Area
Representative, PCH.
· Continue to develop new products and markets which facilitate the
growth of B2B sales
We will continue to innovate and develop products that provide access to a
broader range of customer markets. Our direct sales team has been expanded
and is beginning to address the corporate / business market for both Escape
Hunt and Boom Battle Bar effectively.
· Integrate the businesses, exploit the synergies where possible, and
develop an infrastructure that supports scale and future growth
Whilst more inward looking, the fourth objective is a critical component for
the success of our business. I have been delighted with the progress we have
made so far in embracing the cultures of the two businesses and building on
the DNA and values within the XP Factory Group. The benefits of working
together to take advantage of the unprecedented property opportunity are
evident. Where we are co-located, we are now developing cross marketing
initiatives to ensure that we are able to exploit the natural synergies that
the businesses offer. Further work will be done over the next 12 - 24 months
to upgrade and improve our systems and processes to ensure that we have a
resilient infrastructure capable of supporting the growth we believe is
possible.
Outlook
2021 was an important year in our journey. It marked the inflexion point at
which we delivered sufficient critical mass to become profitable and was the
year where we best set ourselves up to become a key player in the leisure
space with the acquisition of Boom. The customer demand we have seen since
Covid restrictions were lifted has been overwhelmingly positive and has
reinforced our belief that businesses like ours serve an important role in
bringing people together. With the Escape Room category becoming much more a
part of the mainstream consumer psyche, and with competitive socialising being
such a fast growing sub-sector within the leisure market, we feel that XP
Factory is perfectly positioned through its operating brands Escape Hunt and
Boom respectively.
With such a well-developed pipeline of sites, such encouraging demonstrable
unit economics in both brands, and such a well-positioned business in terms of
customer demand, we have reason to be highly optimistic about the future for
XP Factory.
Richard Harpham
Chief Executive Officer
31 May 2022
Financial Review
Group Results
Revenue
Group revenue increased by 163% compared to 2020, reflecting the strong bounce
back of activity in Escape Hunt in the second half of 2021 following the
COVID-19 lockdown periods in H1 2021 and for much of 2020, and the inclusion
of Boom Battle Bar only for December 2021 following its acquisition in
November 2021.
Year Year Increase / (decrease)
ended ended
31 December 31 December
2021 2020
£'000 £'000
New site upfront location exclusivity fees, support and administrative fees 247 268 (8%)
Escape Hunt Franchise revenues 385 309 25%
Boom Franchise revenues* 71 - nm
Escape Hunt owned branch revenues 6,004 2,070 190%
Boom owned branch revenues* 263 - nm
Other 15 11 273%
Total 6,984 2,658 163%
*Boom revenue is only since its acquisition in November 2021
Owner-operated revenues include £263k from Boom in December 2021 and strong
underlying growth within the Escape Hunt network, up 190% year on year. The UK
sites were closed between January and mid-May 2021, and the French and Belgian
sites between January and June 2021. Whilst Dubai remained open throughout
the year, it too was affected by Covid induced reductions in footfall.
The Escape Hunt owner operated network comprised 19 sites at the end of 2021.
Our site in Edinburgh has since closed and is being relocated in a shared
location with our proposed Boom site in Edinburgh, scheduled to open during
the Summer of 2022. This compares to 13 sites open at the end of 2020, with
the estate expanded through the acquisition of sites in Paris and Brussels,
and new sites opening for the first time in 2021 at Kingston, Watford,
Lakeside (co-located with Boom), and Milton Keynes. The Group had two Boom
owner operated sites (at Lakeside and the O2 Arena) as at 31 December 2021
(2020: nil).
Franchise revenue includes a total of £111 from Boom in December 2021,
comprising revenue share of £71k and upfront fees recognised of £41k.
Underlying Escape Hunt franchise revenue share fees were up 25% compared to
2020, reflecting the bounce back of business in the second half of the year.
Note that the conversion of Dubai (in Q4 2020), Paris and Brussels (in Q1
2021) to owner managed sites means underlying revenue growth was stronger
still. Reductions in both new site exclusivity fees and support and admin
fees reflect these conversions as well as changes in a number of the Escape
Hunt franchise agreements and the elimination of the amortisation of historic
upfront fees on sites which have since closed.
Following the acquisitions of sites in Paris and Brussels in the year and some
further rationalisation of our franchise estate, largely Covid-induced
closures, the number of active Escape Hunt franchisees at 31 December 2021 was
25 which compares to 35 at 31 December 2020. In addition, following the
acquisition of Boom Battle Bars, the Group had 7 Boom franchises operating on
31 December 2021 (2020: nil).
Gross profit
Cost of sales includes the variable labour cost at sites and other direct cost
of sales, but not fixed salaries of site staff, whose costs are included as
administration costs. The Board believes this categorisation best reflects the
underlying performance at sites and provides a more useful measure of the
business.
Gross margin rose from 70.7% in 2020 to 72.7% in 2021.
Adjusted EBITDA
The Group recorded its first Adjusted EBITDA profit of £2,653k (2020: loss
£1,445k). Adjusted EBITDA includes £3,236k (gross) R&D claims received
in the year. Net of associated fees, the R&D claims totalled £2,589k,
such that the Group achieved an Adjusted EBITDA profit of £64k excluding the
R&D claims for the full year.
Escape Hunt Escape Hunt Boom Boom Unallocated 2021
Owned Franchise Owned Franchise £'000
Site Level EBITDA before other income 3,057 407 84 111 - 3,659
Centrally incurred overheads (1,479) (130) (2) (30) (2,972) (4,613)
Other income 371 - - - 3,236 3,607
Adjusted EBITDA 1,949 277 82 81 264 2,653
Escape Hunt Escape Hunt Boom Boom Unallocated 2020
Owned Franchise Owned Franchise £'000
Site level EBITDA before other income 312 539 - - 851
Centrally incurred overheads (69) (242) - - (2,379) (2,690)
Other income 321 - - - 73 394
Adjusted EBITDA 564 297 - - (2,306) (1,445)
The performance for the year reflected two very different halves, given that
Covid restrictions were in force for much of the first half. Excluding the
R&D claims, net of fees, Adjusted EBITDA in the six months to 31 December
2021 was £862k on turnover in the same period of £5.8m delivering an
Adjusted EBITDA margin of 15%. On a pre-IFRS16 basis, Adjusted EBITDA in
the second half of the year was £480k confirming, as previously asserted,
that the Group has achieved adequate scale to operate profitably.
A reconciliation between statutory operating loss and Adjusted EBITDA is shown
below.
Year ended Year ended
31 Dec 2021 31 Dec 2020
£'000 £'000
Adjusted EBITDA 2,653 (1,445)
Amortisation of intangibles (471) (2,299)
Rent concessions recognised in the year 148 22
Depreciation of property plant and equipment (1,721) (1,819)
Depreciation of right-of-use assets (613) (380)
Loss on disposal of tangible assets (39) (23)
Loss on disposal of intangible assets (11) (7)
Profit on termination / change of leases 41 -
Branch closure costs (4) (52)
Branch pre-opening costs (103) -
Provision against loan to franchisee (78) (300)
Provision for guarantee leases (8) -
Exceptional professional costs (235) (35)
Foreign currency gains / (losses) (18) -
Share-based payment expense (62) (29)
Operating loss (521) (6,367)
Operating loss
The Group made an operating profit of £1,702k in the six months to 31
December 2021, offsetting a loss of £2,223k in the first half of the year.
For the full year, group operating loss fell significantly to £521k (2020:
loss £6,367k).
COVID-related property grants of £371k (2020: £135k) and the Coronavirus Job
Retention Scheme benefit of £460k (2020: £756k) were received and offset a
proportion of property and employment costs incurred whilst Escape Hunt sites
were closed. A total of £3,236k of R&D claims in respect of 2019 and 2020
have been recognised in the year (2020: £259k). The Group used a consultant
to advise on these grants and net of fees, the grants contributed £2,589k
(2020: £207k). Without the net benefit of the R&D grants, the
operating loss in the six months to 31 December 2021 would have been £886k.
Exceptional professional costs related to work in connection with the
acquisitions of the French and Belgian franchises and of Boom Battle Bar in
2021. Rent concessions reflect the rent reductions granted by landlords during
Covid. Branch pre-opening costs reflect the pre-opening costs for the sites at
Milton Keynes and the O2. Pre-opening costs for Watford, Kingston and
Lakeside have not been separated out as much of the pre-opening activity took
place during lockdown.
Central overheads
Centrally incurred overhead costs, including costs allocated to the
owner-operated and franchise segments, rose to £4.6m (2020: £2.7m) including
£0.6m of costs associated with R&D claims. The increase reflects a
resumption of activity which was stopped during Covid or Government subsidy
received through the CJRS scheme, and increased headcount and other central
costs as part of and following the acquisition of Boom. Unallocated central
costs, excluding the R&D associated fees, was £2.4m, broadly flat on
2020.
Cashflow and capital expenditure
Cash and cash equivalents at the year-end was £8.2m (2020: £2.7m).
Operating cashflow before working capital changes of £2.3m reflects the
positive group Adjusted EBITDA. The net proceeds from R&D grants were
received in January 2022 and therefore show as a significant increase in trade
receivables and also impact trade payables at year end. The resultant cash
generated by operating activities was £0.7m.
Deferred rentals and HMRC payments totalling £299k at the end of 2020 were
all caught up in the course of 2021. All rents and other payments are now up
to date other than a few minor HMRC time to pay arrangements relating to Boom
entities, for which the Group has back-to-back collection arrangements with
the vendors of Boom.
During the year, £2.7m (2020: £2.0m) was utilised for capital investment, of
which £2.6m was on property plant and equipment, including new games and site
fit out, and £0.1m on intangibles, much of it capitalised staff costs. The
majority of this expenditure was for the new sites at Kingston, Watford,
Lakeside and Milton Keynes, but also includes capital expenditure of £0.4m on
the Boom site at O2, post-acquisition of Boom in November 2021.
In January 2021, the Company raised £1.3m (net of expenses) through a placing
to fund the acquisition of the France and Belgium master franchise and to
provide further working capital. The acquisition completed on 7 March 2021,
with total consideration paid of £507k, comprised £278k cash, £86k vendor
loan and £247k estimated earnout.
In November 2021, the Company raised a further £16.1m (net of expenses)
through a placing, subscription and open offer to fund the acquisition of Boom
and to finance the proposed organic expansion of the business. The total
consideration payable for Boom was £19,554k, of which £9,606k was paid in
cash, £8,950k is contingent share consideration which is payable by the issue
of up to 25m shares (valued for the purposes of the accounts at 35.8p per
share) dependent on the achievement of certain financial metrics in the first
year of ownership, £637k payable as a working capital and net debt adjustment
post acquisition, and the balance of £360k by means of a vendor loan note,
repayable on the first anniversary of completion. The acquisition gave rise
to acquired intangibles of £4,385k, being the Directors' assessment of the
value of franchise contracts acquired, and goodwill of £15,856k which
includes £1,096k relating to a deferred tax liability required to be
recognised on the acquired intangibles under IFRS.
Return on capital
Return on capital is a key performance measure for the Company, with each site
being commissioned based on an anticipated cash return on investment, payback
and net present value generated. For the 14 Escape Hunt UK sites that
operated throughout the second half of the year, the annualised cash return on
investment (calculated as site EBITDA divided by total investment in the site)
was 34%. However, as previously stated, the investment in the very early
sites was substantially higher than has been required in more recent sites, as
the benefits of our new modular games have been realised. Using an estimate
of what the revised build cost would be, the annualised cash return on
investment in the Escape Hunt UK owner operated estate would have been 43% in
the second half of 2021.
The cash return on investment for our acquisitions of the Middle Eastern and
French and Belgian master franchises is likewise looking very attractive.
The acquisition of the Middle East master franchise paid back within six
months of its acquisition, whilst the cash on cash return to date from our
France and Belgian acquisition is running at an annualised return of 43%
notwithstanding the Covid impact in the early months of ownership.
Balance sheet
On 31 December 2021, the Group had a total of £1,653k in loan notes and other
loans (2020: £289k). In 2020, the Group issued £340k convertible loan notes
of which £272k was regarded as debt and the balance classed as equity.
Interest is rolled up at 10 percent per annum on the principal of the
convertible loan notes, and the total outstanding as at 31 December 2021,
including rolled up interest, was £328k (2020: £289k). In early January
2022, the Company received a Noteholder Notice of Conversion in relation to
all of its outstanding convertible loan notes. As a result, 4,378,082 new
ordinary shares were issued on 2 February 2022 at 9.0p per share in respect of
the principal amount and rolled up interest on the convertible loan notes.
During the year, £86k (€100k) vendor loan notes were issued in respect of
the acquisition of the French and Belgian master franchise which carried
interest at 4 per cent. per annum. The Belgian and French Escape Hunt business
also had bank loan of which £15k remained outstanding at year end. A £360k
loan was issued in November 2021 to the vendors of Boom Battle Bar which is
held as a retention against which any warranty claims would be offset. The
loan is repayable on the first anniversary of the acquisition of Boom and
carries interest at 5 per cent. per annum.
Other loans totalling £876k relate to fit-out finance within the Boom
estate. Of these, £494k came with the acquisition of Boom and have
back-to-back arrangements with franchisees or the vendors such that the
Company's liability is offset by a receivable with cashflows matched
accordingly. £367k relates to fit out finance on the Boom O2 Arena site and
is repayable over five years.
The Company expects to use fit-out finance and other facilities when available
to facilitate the funding of new Boom and Escape Hunt owner-operated sites in
future.
Key Performance Indicators
The Directors and management have identified the following key performance
indicators ('KPIs') that the Company tracks for each of its operating brands.
These will be refined and augmented as the Group's business matures:
· Numbers of owner-operated sites (31 Dec 2021: 19 Escape Hunt sites and
2 Boom Battle Bar sites)
· Numbers of franchised sites (31 Dec 2021: 27 Escape Hunt and 7 Boom
Battle Bar)
· Site level revenue (Year to 31 Dec 2021: £6.2m)
· Site level EBITDA (Year to 31 Dec 2021: £4.0m)
· Franchise revenue (Year to 31 Dec: £0.7m)
· Central costs (Year to 31 Dec 2021: £4.7m)
· Adjusted EBITDA for the Group (Year to 31 Dec 2021: £2.7m)
The Company monitors performance of the owner-operated sites on a weekly
basis. The Board also receives monthly updates on the progress on site
selection, site openings and weekly as well as monthly information on
individual site revenue and site operating costs. Monthly management accounts
are also reviewed by the Board which focuses on revenue, site profitability
and adjusted EBITDA as the key figures within the management accounts.
Both the number of franchised branches as well as their financial performance
are monitored by the management team and assistance is provided to all
branches that request it in terms of marketing advice as well as the provision
of additional games.
The key weekly KPIs by which the UK and owner-operated business is operated
are the site revenue (including UK franchise sites), gross margins (in the
case of Boom sites) marketing spend and staff costs and consequent ratio of
staff costs to revenue. Total revenue is tracked against budget, adjusted for
seasonality, number of rooms open and the stage in the site's maturity cycle.
Staff costs are measured against target percentages of revenue. The
effectiveness of marketing is assessed by observing revenue conversion rates
and the impact on web traffic, bookings and revenue from specific marketing
campaigns. With effect from January 2021, management of digital marketing
has been brought in-house with the requisite skills being developed within the
team.
The Company's systems track performance on both a weekly and a monthly basis.
These statistics provide an early and reliable indicator of current
performance. The profitability of the business is managed primarily via a
review of revenue, adjusted EBITDA and margins. Working capital is reviewed
by measures of absolute amounts.
Graham Bird
Chief Financial Officer
31 May 2022
Corporate Responsibility
The Company takes its responsibilities as a corporate citizen seriously. The
Board's primary goal is to create shareholder value but in a responsible way
which serves all stakeholders.
Governance
The Board considers sound governance as a critical component of the Group's
success and the highest priority. The Company has an effective and engaged
Board, with a strong Non-Executive presence from diverse backgrounds and
well-functioning governance committees. Through the Group's compensation
policies and variable components of employee remuneration, the Remuneration
Committee of the Board seeks to ensure that the Company's values are
reinforced in employee behaviour and that effective risk management is
promoted.
More information on our corporate governance can be found below.
Employees and their development
The Company is dependent upon the qualities and skills of its employees and
the commitment of its people plays a major role in the Group's business
success. The Company invests in training and developing its staff through
internally arranged knowledge sharing events and through external courses.
Employees' performance is aligned to the Group's goals through a performance
review process and via incentive programmes. The Group provides employees with
information about its activities through regular briefings and other media.
The Group operates a number of incentive schemes and a share option scheme
operated at the discretion of the Remuneration Committee. An employee share
incentive scheme has been put in place and is available to all UK-based
employees who have been employed within the Group for at least three months.
Diversity and inclusion
The Group does not discriminate on the grounds of age, gender, nationality,
ethnic or racial origin, non-job-related-disability, sexual orientation or
marital status. The Group gives due consideration to all applications and
provides training and the opportunity for career development wherever
possible. The Board does not support discrimination of any form, positive or
negative, and all appointments are based solely on merit.
Health and Safety
The Group endeavours to ensure that the working environment is safe and
healthy and conducive to the well-being of employees who are able to balance
work and family commitments. The Group has a Health and Safety at Work policy
which is reviewed regularly by the Board. The Group is committed to the health
and safety of its customers, employees and sub-contractors and others who may
be affected by the Group's activities. The Group provides the information,
instruction, training and supervision necessary to ensure that employees are
able to discharge their duties effectively. The health and safety procedures
used by the Group ensure compliance with all applicable legal and regulatory
requirements as well as its own internal standards.
Principal Risks and Uncertainties
The Directors consider that the principal risks and uncertainties facing the
Group and a summary of the key measures taken to mitigate those risks are as
follows:
Further outbreak of COVID-19 or other pandemics
COVID-19 had a dramatic impact on the leisure sector as a whole. Measures
introduced by governments around the world to combat the spread of COVID-19
included temporary closures, the introduction of social distancing rules,
rules over the number of people permitted in gatherings, use of face
coverings, cleaning protocols, and other measures which have a direct impact
on the operation of sites for both owned and operated sites and franchisee
sites. Whilst in most jurisdictions the most strenuous measures have now
been lifted, there can be no certainty that previous restrictions will not be
re-imposed or new restrictions introduced in the UK or in any of the
territories where franchisees operate, including full closure. The
re-imposition of such measures, or new measures could have a materially
adverse impact on the Group's ability to operate and could result in the
business model becoming unviable or forcing closure.
During much of 2020 and 2021, whilst the UK Government's imposition of
COVID-19 restrictions were in force, the Company was able to benefit from UK
Government support through the Job Retention Scheme, the reduction of business
rates, and through grants introduced directly as a result of COVID-19.
Without this support, the Group would have had to make much more severe
decisions regarding staffing and costs and may not have been in a position to
re-open without incurring significant additional costs. There can be no
certainty that any of these schemes, or any other support measures provided by
the UK or other governments in other jurisdictions, would be re-introduced in
the event of a further outbreak of COVID-19 or any other pandemic. The company
has taken action to implement more flexible employment contracts and, where
possible, more flexible leases to reduce the breakeven point at sites, as well
as launching new revenue streams which are not dependent on sites being open.
These actions will serve to mitigate some of the impact of a future outbreak.
Economic and political risks
The impact of the COVID-19 pandemic has been widely felt and all major global
economies in which the group operates experienced a significant contraction in
2020 and depressed output in early 2021. Whilst most economies have
experienced a bounce back of activity, inflation has risen sharply and supply
chains around the world remain disrupted. Energy prices in particular have
increased significantly. Russia's recent invasion of Ukraine has led to
significant political tension globally, further impacting energy prices and
creating significant uncertainty. Sanctions imposed by Western economies are
expected to have a severe impact on Russia, whilst the war in Ukraine will
impact the region's ability as a major agricultural producer, both factors
in turn impacting food prices. It is possible that the combination of all
these factors leads to a broader consumer recession which might adversely
impact consumer discretionary spending. The Group's activities are exposed
directly to discretionary spend, and as a result, a consumer recession would
be expected to have an adverse impact on performance. The Board regularly
reviews the Group's ability to cope with a downturn and the associated need
for maintaining sufficient financial headroom to be able to absorb the impact
of reduced sales activity.
Financial risks
The effective management of its financial exposures is central to preserving
the Company and Group's profitability. The Group is exposed to financial
market risks and may be impacted negatively by fluctuations in foreign
exchange rates, which may create volatility in the Group's results from its
international franchise operations to the extent that they are not effectively
hedged. The Group does not hedge its foreign exchange rate exposures.
The Group's finance team provides support to management to ensure accurate
financial reporting and tracking of business performance. Reporting on
financial performance is provided on a monthly basis to senior management and
the Board. Weekly reports provide high level summaries of site-by-site
performance for Escape Hunt and are now being introduced to Boom sites.
The Group has invested in the improvement of its systems and processes in
order to ensure sound financial management and reporting during the year.
Roll-out of owner-operated sites
The XP Factory Group has opened a number of Escape Hunt owner-operated
sites. Following the recent acquisition of Boom Battle Bar, the pipeline of
sites has increased and includes a number of larger sites which will open as
owner-operated sites under the Boom Battle Bar brand. This expansion of
owner-operated sites under the Group's two brands offer the Group growth
opportunities.
The Group plans to open more sites and was in negotiations with a number of
landlords at the end of the year. However, there is no guarantee that the XP
Factory Group will be able to locate or secure a sufficient number of
appropriate sites to meet its growth and financial targets. As announced
previously, obtaining sites, together with appropriate planning permissions
and completing legal documentation impacted the roll-out pace in 2018 and 2019
and with the consequent impact on revenues and profits. It is also possible
each site may take some time from its opening date to reach profitable
operating levels due to inefficiencies typically associated with new sites,
including lack of awareness, competition, the need to hire and train
sufficient staff and other factors. Furthermore, Boom Battle Bar is a new and
relatively untested concept which may not achieve the site level performances
expected. The Group has worked to reduce this risk through strong staff
recruitment and training processes and investment in both operational and
marketing activities.
Opening new sites is capital intensive. However, in the case of most of the
proposed Boom Battle Bar sites, the Group has been able to secure favourable
lease terms which in most cases include substantial capital contributions from
the landlords. These capital contributions significantly reduce the total
capital required to open a new site. The Board believes that the real estate
market for signing new leases has generally moved in tenants' favour,
particularly since COVID-19. As such, the Directors believe that the future
return profile for new sites will be stronger than what has been delivered on
the original Escape Hunt sites to date. However, there is no guarantee that
this will be the case and anecdotal evidence would suggest that property
conditions in certain parts of the country are again normalising such that it
is becoming harder to achieve the level of capital contributions achieved
during COVID.
The ability of the Company to fund the capital expenditure is dependent on
access to funding in the form of internally generated cashflow, landlord
contributions, equity or debt. The Company was able to raise £17.2m (before
expenses) in November 2021 through a placing, share subscription and an open
offer to fund the acquisition of Boom Battle Bar and to provide working
capital to support the roll out of new Escape Hunt and Boom Battle Bar
sites. The directors believe that by investing the cash so earmarked from
the fundraise into the network of owner-managed sites in the Group portfolio,
they will create a network able to support a profitable and cash generative
business in future. However, any expansion beyond the immediate plans or any
significant change in the costs associated with building new sites would
require additional funding which may be more than that generated by the
business and may therefore require additional external funding. There can be
no certainty that such additional funding will be available.
Franchise estate
Revenue from the franchise estate currently accounts for a material proportion
of both revenue and operating cashflow for the XP Factory Group. Within the
Escape Hunt network, a number of the franchisees have been materially
adversely affected by COVID-19 in their respective jurisdictions, placing them
under significant financial pressure. In a number of cases, franchisees have
fallen behind on their financial obligations to Escape Hunt. Whilst Escape
Hunt has been working with the franchise network to support them during this
unprecedented period, the Group is not in a position to be able to provide
financial support to the network and there can be no certainty that all the
franchisees will fully recover. This could have an adverse impact on future
performance and results.
Within the Boom network, franchisees are new and the Boom concept is
relatively unproven. It is therefore possible that the performance of
franchise sites may not achieve expectations and franchisees could come under
financial pressure and be unable to make the payments for which they are
contracted to companies in the XP Factory group or in respect of property
lease payments. XP Factory is co-tenant or guarantor on the lease for most
of the Boom franchise network and, as such, could be called on by the landlord
to make any such defaulted lease payments. The Franchise contracts have
consequently been set up within Boom to allow XP Factory to step into any
franchise site which is in default and to take over the assets and operations
of the site. The directors believe that this right substantially mitigates
the risks as the site would effectively become an owner-operated site without
any significant capital outlay. XP Factory has the know-how and resources
to manage the sites and believes that it would do so in a manner to ensure
that any financial exposure can be minimised.
While the XP Factory Group currently plans to continue to open new franchise
sites in the UK and around the world, it is more likely that franchise
agreements going forwards would be focussed towards fewer agreements requiring
a larger number of sites to be opened in a particular territory. These
potential partners include those who already operate other leisure facilities
but there is no guarantee that these will come to fruition. The Company cannot
guarantee that the Escape Hunt Group will be able to achieve its franchise
expansion goals or that the new sites will generate the expected levels of
revenue and therefore revenue share. This may adversely impact on the Group's
ability to increase turnover.
The threat of new entrants into both the escape room market and the market in
which Boom operates is high
A single site or a small number of sites offering an escape game experience
would be relatively simple for a new entrant to establish. The barriers to
entry for such competition at that level is relatively low and there is a risk
that such entrants could dilute the market place or adversely impact the
consumer's perception of escape game experiences in the event that the quality
of experience offered by these new entrants was poor or at worst, attracted
negative publicity related to the health and safety of participants in escape
room games or poor customer reviews which adversely affect the perception of
the industry. The escape game experience market is in its infancy and consumer
perceptions may be more easily influenced by a poor quality offering or
negative publicity due to their limited experience which in turn could
negatively impact on the perception of the Group's business and could
adversely affect profitability and results of operations.
However, the Group's strategy is to develop an international quality escape
room experience and the Directors believe the barriers to entry for new global
entrants adopting the same strategy are higher than a single-site opening due
to the complexities of designing games and managing them across international
operations. However, there is a risk that established corporations in the
leisure market, who may have the capital and resources to compete with the
Group's business, may wish to enter the escape room market.
Boom Battle Bar is a competitive socialising bar concept which is an area
attracting a lot of interest and many new concepts are being developed and
opened generating growing competition for the concept. The games operated by
Boom Battle Bar are generally not unique and the directors do not believe that
they offer any competitive advantage on an individual basis. However, the
directors believe that the combination of multiple games in a single site,
with the ability to swap out underperforming games with different games
provides flexibility to react to competitive threats quickly and
effectively. The directors also believe that the sites that have been chosen
and developed are in strong locations capable of delivering against the
competition. Operationally, the Group is focused on customer satisfaction.
These factors lead the directors to believe that the Group is well placed to
respond to any potential competitive threats.
The market is immature and therefore forecast growth and application of
regulation is unpredictable
The market for both escape game experiences and the competitive socialising
concepts offered by Boom Battle Bar is immature and growth will be
characterised by changes in consumer needs and expectations, continued
evolution in technology and increased competition. If the Group fails to
develop new offerings or modify or improve existing offerings in a timely and
cost-effective manner in response to these changes in technology, consumer
demands and expectations, competition or product introductions, the Group's
business, results of operations and financial condition may be adversely
affected.
Changing trends could impact on the Group's revenues and profits as well as
the Group's goodwill. Whilst the Directors believe that the Group's own escape
game designs and Boom Battle Bar concepts have longevity and, therefore the
potential to deliver substantial growth in sales, there can be no guarantee
that they will evolve to fulfil this potential. The Group will also need to
innovate and create new experiences which are market leading. This applies to
not just the number of new experiences which are created but the quality and
reflection of consumer tastes in the experiences. If the Group fails to
anticipate, identify or react swiftly enough to trends in consumer preferences
then this could result in lower sales, margins and profits for the Group.
The Group's owner-operated sites are leased. Increases in rental payments or
the early termination of any of the Group's leases, or the failure to renew or
extend the terms of any of the Group's leases could adversely affect the
Group's profitability
The Group's operating performance depends in part on its ability to secure and
retain leases in desired locations at rents it believes to be reasonable. The
leases for the Group's new owner-operated sites may generally require that
their annual rent be reviewed on a periodic basis and which may be on an
"upwards-only" basis. The annual rent for the premises then becomes the
greater of such open market rental value and the previous contractually agreed
rent. As a result, the Group may be unable to predict or control the amount of
any future increases in its rental costs arising from the review of rents it
pays for its sites and would be unable to benefit from any decline in the open
market rental value of its sites. Any substantial increase in the business
rates or rent paid by the Group on its owner-operated sites or the early
termination of any of its leases could adversely affect the Group's business,
financial and other conditions, profitability and results of operations.
However, the Group believes that the sustained pressure on the high street,
exacerbated by COVID-19 could decrease overall future lease costs as prices
may be reducing as a result of changes in the retail environment, notably as a
result of the failure of a number of large format stores such as Debenhams and
BHS.
The Group analyses the suitability of all new sites prior to opening, however
this is not a guarantee that any new site will be a success. If a site is not
successful, the Group may need to cease its operations on that site and seek
to assign or sub-let the premises. However, suitable tenants may not be found
and any lease may have restrictions on assignment or subletting which may mean
that this is either prevented or delayed. A failure to find tenants and/or a
prohibition or delay in assigning or sub-letting unsuccessful sites would
result in the Group paying rent and satisfying the tenant's obligations under
the lease of a site which is not operational and with total rental costs being
higher than necessary.
The Group works closely with a number of key suppliers. Termination of any
of these key relationships could adversely affect performance in the short
term
The Group has invested significant time and resource into relationships with a
number of key suppliers, notably those involved in the production, delivery
and installation of escape games as well as the technology used to run the
games and in the production and fit-out of Boom Battle Bar sites. Whilst the
Group owns the intellectual property related to the escape games and these
relationships can be replaced, the games played in Boom sites are mostly
generic games available to competitors. The replacement of a key supplier
could take time and could adversely affect the pace and cost at which the
Group is able to execute its growth plans in the short term. It could also
adversely impact the short term ongoing maintenance cost of existing games
where the key supplier has been involved. Within Boom in particular, the
directors believe that this risk is mitigated by the fact that the games and
fit-out is less specialised than for an Escape Hunt site.
Performance of franchisees
The Group depends, in large part, on the Escape Hunt and Boom Battle Bars
brands. The vast majority of sites in both networks are today owned and
operated by franchisees who are responsible for delivering the high standards
of the relevant XP Factory owned brand to consumers. Whilst franchisees are
required to operate within the Group's standards for site operation, they are
given a degree of autonomy to ensure they operate in a way that suits their
local area. The XP Factory Group provides that franchisees must adhere to
quality, safety and image regulations that the XP Factory Group promotes
through the implementation of training and careful monitoring, funded by both
the franchisees and the XP Factory Group, and through appraisals. Despite
these controls and absent a decision to remove such franchisees from its
business, the Group may be unable to prevent its franchisees from operating
outside of the Group's operational regulations, franchise manual and business
model.
The Board has responded to these risks by appointing directors and staff with
the appropriate skills and experience and by identifying KPIs that will show
how well these risks are being managed. In particular, the franchise
agreements have been considerably strengthened for all new franchisees which
will enable the Group to exercise greater control over new franchisees. In
the case of the Boom Battle Bar franchise agreements, a breach of standards
could result in forfeit of the franchise by the franchisee.
A small franchisee team has now been formed for each of the Escape Hunt and
Boom Battle Bar brands to assist the respective franchise network with better
marketing advice which is expected to raise revenue for both the franchisee
and therefore the Group. The closer collaboration also strengthens the
communication and relationship between the Group and the franchise network.
Ability to recruit and retain staff and the impact of wage inflation
As the XP Factory Group grows, the need for experienced personnel with
specific skill is expected to grow too. Salary expectations in certain
professions have recently increased significantly, driven by growing demand
for specific skills and a shortage of supply. XP Factory's growth plans are
supported by growth in the employee base and rely on the Group being able to
fill the positions earmarked. For certain positions, the time taken to
recruit people has become more extended and the costs have increased. The
Group has also been impacted by increases in the minimum wage and national
living wage. Tax changes have also increased the rate of national insurance
payable by employees, adding to the total cost of employment. These
increased employment costs, coupled with the longer time taken to recruit
certain roles could have an adverse impact on the Group's financial results
and ability to execute on its strategy.
Information Technology
The Group relies on technology for the operation of its escape games. A
number of the activities offered in Boom Battle Bars also rely on
technology. Other functions within the Group, such as marketing, finance,
the Group's internal legal department, operations at sites, bookings,
e-commerce, staff rotering and other functions all rely on technology for
their efficient operation. Failure in any one or more critical technology
solution, could have a material adverse impact on the short term performance
of the Group and / or could incur fines if as a result, GDPR regulations were
seen to have been breached. The Group regularly reviews the risks associated
with technology, has appropriate policies and controls in place and carries
cyber insurance. The directors also believe that the overall risk associated
with technology failure, including the susceptibility to cyber-attack, is
mitigated by using cloud based solutions from different suppliers who are not
connected.
Statement by the Directors in performance of their statutory duties in
accordance with s172(1) Companies Act 2006
The Directors of the Group must act in accordance with a set of general
duties. These duties are detailed in section 172(1) of the U.K. Companies Act
2006, which is summarised as follows:
'A Director of a Company must act in the way he/she considers, in good faith,
would be most likely to promote the success of the Company for the benefit of
its members as a whole, and in doing so have regard (amongst other matters)
to:
· The likely consequences of any decision in the long term;
· The interests of the Company's employees;
· The need to foster the Company's business relationships with suppliers,
customers and others;
· The impact of the Company's operations on the community and the environment;
· The desirability of the Company maintaining a reputation for high standards of
business conduct; and
· The need to act fairly as between members of the Company.
The Board considers that it has fulfilled its duties in accordance with
section 172(1) of the UK Companies Act 2006 and have acted in a way which is
most likely to promote the success of the Group for the benefit of its
stakeholders as a whole in the following ways:
Long term benefit
Our strategy was designed to have a long-term beneficial impact on the Company
and to contribute to its success in delivering an engaging and enjoyable
service for customers across the world. The Board's strategy to increase the
range of experiential brands within the group through the acquisition of Boom
Battle Bars and to expand both the owner-operated and franchise estates within
both experiential brands as well as developing new digital and remote play
options is aimed at building long term value for shareholders and other
stakeholders alike.
Shareholders
The Board engages regularly with its shareholders and seeks to build a mutual
understanding of the objectives of shareholders and those of the Board by
discussing long-term strategy, shorter term challenges and issues and to
receive feedback. For further information see page 31.
Within the practical constraints of being able to access all shareholders
directly, the Board actively seeks to treat all shareholders equally. In
November 2021 the Board opted to offer all shareholders the opportunity to
participate in the fund raising by making an open offer available to all
shareholders.
Employees
The XP Factory Group is reliant on the quality and performance of its
employees and the commitment of its staff plays a crucial role in the success
of the business. Staff in sites are given regular training to ensure they
are able to fulfil their roles successfully and the Group maintains a regular
two-way communication with all staff both centrally and through individual
sites to ensure employee matters are identified and addressed.
The safety of our staff is of utmost importance to the Board. As such, the
Board implemented a 'work from home' policy for all office based staff on
13(th) March 2020 in light of the COVID-19 outbreak. In each owner-operated
site the board has implemented protocols and standards to safeguard employees
who are not able to work from home. The board receives a report on all
health and safety issues on a monthly basis. Since the lifting of
restrictions related to COVID-19, many of the policies allowing more flexible
working have been retained to allow employees flexibility and choice.
Customers
As an experiential leisure business, a primary goal is to delight our
customers and provide the best immersive experience we can. TripAdvisor
ratings is one of our key internal measures and we continually seek to improve
the user journey before, during, and after their experience.
Suppliers
The group works closely with a number of suppliers in different disciplines.
We aim to promote collaborative engagement and to build long term partnerships
with our suppliers with an objective to minimise risk and optimise costs
through the full lifecycle of our relationship. We seek to balance this with
the need to ensure the company is not overly reliant on any single supplier.
Community and environment
The Board has overall responsibility for Corporate Social Responsibility
("CSR").
The Group is committed to maintaining and promoting high standards of business
integrity. The XP Factory Group's values, which incorporate the principles of
corporate social responsibilities (CSR) and sustainability, guide the Group's
relationships with clients, employees and the communities and environment in
which it operates. The XP Factory Group's approach to sustainability addresses
both environmental and social impacts, supporting the XP Factory Group's
vision to remain an employer of choice, while meeting client demands for
socially responsible partners.
The XP Factory Group respects laws and customs while supporting international
laws and regulations. These policies have been integral in the way group
companies have done business in the past and continue to play a central role
in influencing the Group's practice in the future.
Specific CSR initiatives are promoted by the senior executive management and
are communicated to others in the organisation as needed. Initiatives
include matters such as recycling and minimising waste, recognition of
companies and individuals in the community for whom we have offered discounted
or free participation in our games, as well as local community issues and
interests such as encouraging furloughed employees to volunteer locally. Many
of our employees are actively engaged with charities and other causes for
which we will allow the use of company property and facilities.
Culture and values
The Board actively seeks to establish and maintain a corporate culture which
will attract both future employees, customers and suppliers. The Company
promotes honesty, integrity and respect and all employees are expected to
operate in an ethical manner in all their dealings, whether internal or
external. We do not tolerate behaviour which goes against these values which
could cause reputational damage to the business or create ongoing conflict or
unnecessary tension internally.
This Strategic Report was approved by the Board on 31 May 2022 and signed by
order of the Board by the Chief Executive Officer.
Richard Harpham
Chief Executive Officer
31 May 2022
DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2021
The Directors present their report together with the audited financial
statements of the Group for the year ended 31 December 2021.
Principal activities
The principal activities of the Group are that of operating consumer facing
leisure brands offering immersive experiences.
The Group currently operates two brands, each of which is developing a network
of locations, either owned and operated directly or franchised. Escape Hunt is
a global leader in providing escape-the-room experiences delivered through a
network of owner-operated sites in the UK, an international network of
franchised outlets, and through digitally delivered games which can be played
remotely.
Boom Battle Bar is a fast-growing network of owner-operated and franchise
sites in the UK that combine competitive socializing activities with themed
cocktails, drinks and street food in a setting aimed to be high energy and
fun.
Cautionary statement
The review of the business and its future development in the Strategic Report
has been prepared solely to provide additional information to shareholders to
assess the Company's strategies and the potential for these strategies to
succeed. It should not be relied on by any other party for any other purpose.
The review contains forward looking statements which are made by the Directors
in good faith based on information available to them up to the time of the
approval of the reports and should be treated with caution due to the inherent
uncertainties associated with such statements.
Results and dividends
The results of the Company are set out in detail in the Financial Statements.
Given the nature of the business and its growth strategy, it is unlikely that
the Board will recommend a dividend in the next few years. The Directors
believe the Company should improve performance to generate profits to fund the
Company's growth strategy over the medium term.
Business review and future developments
Details of the business activities and developments made during the period can
be found in the Strategic Report and in Note 1 to the Financial Statements
respectively.
Disclosure of information to auditor
The Directors who held office at the date of approval of this Directors'
report confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditor is unaware; and each director has
taken all the steps that he / she ought to have taken as a director to make
himself/ herself aware of any relevant audit information and to establish that
the Company's auditor is aware of that information.
Financial instruments and risk management
Disclosures regarding financial instruments are provided within Note 29 to the
Financial Statements.
Capital structure and issue of shares
Details of the Company's share capital, together with details of the movements
during the period are set out in Note 22 to the Financial Statements. The
Company has one class of ordinary share which carries no right to fixed
income.
Post balance sheet events
Since the year end, energy prices have risen very materially, notably since
the invasion of Ukraine by Russian armed forces. The impact is yet to be fully
felt, although inflationary pressures are already evident. Whilst the cost
of energy represents only a small component of the Group's costs, the
potential impact on consumers from higher inflation may impact consumer
spending and the viability of certain sites, including franchised sites. These
are considered to be non-adjusting post balance sheet events and so the
measurement of assets and liabilities in the accounts have not been adjusted
for their potential impact.
On 11 January 2022, the Company announced that it had received a Noteholder
Notice of Conversion in relation to all of its outstanding Convertible Loan
Notes together with accrued interest. As a result, the Company issued
4,378,082 new XP Factory Shares on 2 February 2022 in full settlement of the
Convertible Loan Notes and outstanding interest.
During January 2022, the Group received payments from HMRC in relation to
research and development claims made by the Company and certain of its
subsidiaries under the SME R&D Scheme in relation to research and
development expenditure incurred in 2019. Since the grant related to a claim
which was made prior to the year end, the receipt of cash is considered an
adjusting post balance sheet event. Consequently, the receipt of the grants
has been recognised in the consolidated financial performance and position of
the Group as at the reporting date.
Board of Directors
The Directors of the Company who have served during the year and at the date
of this report are:
Director Role Date of appointment Date of resignation Board Committee
Richard Rose Independent Non-Executive Chairman 25/5/2016 N A R
Richard Harpham Chief Executive Officer 3/5/2017
Graham Bird Chief Financial Officer 6/1/2020
Karen Bach Independent Non-Executive Director 3/5/2017 N A R
John Story Non-Executive Director 28/9/2020 2/8/2021
Richard Harpham was first appointed on 25 May 2015 and resigned on 15 June
2016. He was subsequently re-appointed on 3 May 2017.
Board Committee abbreviations are as follows: N = Nomination Committee; A =
Audit Committee; R = Remuneration Committee
The Board comprises two Executive and two Non-Executive directors.
Richard Rose, Independent Non-Executive Chairman
Richard has a wealth of experience chairing high profile boards. Previously he
has been CEO of two multi-site quoted businesses where he significantly
increased shareholder value. Since then he has held a number of Chairman roles
including Booker Group plc (retiring in 2015 after three terms) and AO World
plc where he retired in 2016. He has been Non-Executive Chairman of Watchstone
Group plc since May 2015 is also Chairman of IB Group Ltd since October 2018.
Richard is a member of the Remuneration Committee, the Audit Committee and the
Nomination Committee of the Company.
Richard Harpham, Chief Executive Officer
Richard joined the Company on its admission to AIM in May 2017 having worked
since November 2016 with the Escape Hunt (now XP Factory) management team.
Richard's prior role was with Harris + Hoole, having been Chief Financial
Officer and then Managing Director, responsible for its turnaround. Before
this, Richard spent over four years at Pret A Manger as Global Head of
Strategy. Richard has also held a number of strategic and financial positions
at companies including Constellation Brands, Shire Pharmaceuticals and Fujitsu
Siemens Computers.
Graham Bird, Chief Financial Officer
Graham, who joined the Company in January 2020, has significant experience in
financial and City matters and in growing small businesses. He is a chartered
accountant, having qualified with Deloitte in London, and has worked in
advisory, investment, commercial and financial roles. Prior to joining XP
Factory, Graham was one of the founding employees at Gresham House plc
("Gresham House") where, in addition to supporting the growth of Gresham
House, he was responsible for establishing and managing the successful
strategic equity business unit which focuses on both quoted and unquoted
equity investments. Prior to joining Gresham House, Graham spent six years in
senior executive roles at PayPoint Plc ("PayPoint"), including director of
strategic planning and corporate development and executive chairman and
president of PayByPhone. Before joining PayPoint, he was head of strategic
investment at SVG Investment Managers, having previously been at JPMorgan
Cazenove, where he served as a director in the corporate finance department.
Karen Bach, Independent Non-Executive Director
Karen who joined the Company on its admission to AIM in May 2017 is a Chair
and Non-Executive Director with strong technology, scale-up and transactional
expertise. In addition to being the Senior Independent Non-Executive Director
of XP Factory, Karen is Chairman and non-executive director of four growing
tech businesses and is also CEO of IX Acquisition Corp., a Nasdaq-listed blank
check company.
Previously, she was Chairman of IXCellerate Limited, a Non-Executive Director
of Belvoir Lettings Plc and KRM22 plc and trustee of the Learning Foundation.
Karen gained much experience internationally as Chief Financial Officer at
growing technology businesses IXEurope Plc, ACS Plc and Kewill Plc and with
blue chip multi-nationals. Karen is also a member of the 30% Club which
supports boards to appoint more female directors and increase the pipeline of
upcoming female talent. Karen is Chair of the Remuneration Committee, the
Audit Committee and the Nomination Committee of the Company.
Directors' interests in shares
Directors' interests in the shares of the Company at the date of this report
are disclosed below. Directors' interests in contracts of significance to
which the Company was a party during the financial period are disclosed in
note 27 to the Financial Statements.
Director Ordinary shares held % held
Richard Rose 53,666 0.04
Richard Harpham 874,345 0.58
Graham Bird 1,790,275 1.19
Karen Bach 259,067 0.17
XP Factory Plc owns all the ordinary shares in its subsidiary, Escape Hunt
Group Ltd ("EHGL"). EHGL issued a total of 1,000 Growth shares in 2017 to
three directors and employees. In 2019, following the departure of one of the
individuals, 280 shares were repurchased by the Company. In 2021, the Company
purchased the remaining Growth shares for a total £1 consideration. As at 31
December 2021, XP Factory owns 100% of the Growth shares. The Growth shares
carry no voting rights and are not entitled to any dividends that may be paid
by EHGL.
Directors' interests in options
The following options have been granted to certain Directors under the Escape
Hunt Plc 2020 EMI Share Option Scheme. The options vest over three years and
are subject to achieving certain performance conditions related to share price
appreciation over a four year period.
Director Options held Exercise price Options vested Date of Grant Expiry date
Richard Harpham 5,333,333 7.5 pence 1,777,778 16 July 2020 16 July 2025
Graham Bird 3,733,333 7.5 pence 1,244,444 16 July 2020 16 July 2025
Substantial interests
As at 31 March 2022 the Company has been advised of the following significant
interests (greater than 3%) in its ordinary share capital:
Shareholder Ordinary shares held % held
Canaccord Genuity Wealth Management 32,946,854 21.9
Crux Asset Management 14,458,731 9.6
Hargreaves Lansdown stockbrokers 13,212,266 8.8
JO Hambro Capital Management 9,500,00 6.3
Stephen Lucas 7,233,024 4.8
John Story 5,999,999 4.0
UBS Collateral account 5,124,680 3.4
Allianz Global Investors 5,000,000 3.3
Except as referred to above, the Directors are not aware of any person who was
interested in 3% or more of the issued share capital of the Company or could
directly or indirectly, jointly or severally, exercise control.
Donations
No political or charitable donations have been made in the year ended 31
December 2021.
Directors' insurance
The Company has maintained throughout the year directors' and officers'
liability insurance for the benefit of the Company, the Directors and its
Officers.
Independent auditors
A resolution formalising the appointment and proposing the re-appointment of
HW Fisher LLP as auditor of the Company is to be proposed at the forthcoming
Annual General Meeting.
Going Concern
The time horizon required for the Going Concern Statement is a minimum of 12
months from the date of signing the financial statements. Consistent with
prior periods, the Directors have adopted an assessment period of 18 months
from the year end date of 31 December 2021.
In determining whether there are material uncertainties, the Directors
consider the Group's business activities and principal risks. The Directors'
reviewed the Group's cash flows, liquidity positions and borrowing facilities
for the going concern period.
There has been no material uncertainty identified which would cast significant
doubt upon the Group's ability to continue using as a going concern. As such,
the Directors considered it appropriate to adopt the going concern basis of
accounting in the preparation of the Group's financial statements.
Annual General Meeting
The Annual General Meeting (AGM) will be held on 29 June 2022.
Signed by order of the board
Graham Bird
Chief Financial Officer and Company Secretary
31 May 2022
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF XP FACTORY PLC (FORMERLY ESCAPE
HUNT PLC)
Opinion
We have audited the financial statements of XP Factory Plc (formerly Escape
Hunt Plc) (the 'Parent Company') and its subsidiaries (the 'Group') for the
year ended 31 December 2021, which comprise the:
· the consolidated Statement of Comprehensive Income;
· the consolidated and Parent Company Statements of Financial Position,
· the consolidated and Parent Company Statement of Changes in Equity;
· the consolidated Statement of Cash Flows;
· the related notes to the Consolidated and Parent Company financial statements
including significant accounting policies.
The financial reporting framework that has been applied in the preparation of
the Group financial statements is applicable law and UK-adopted International
Accounting Standards ('IAS'). The financial reporting framework that has been
applied in the preparation of the Parent Company financial statements is
applicable law and United Kingdom Accounting Standards, Financial Reporting
Standard 102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
In our opinion;
· the financial statements give a true and fair view of the state of the Group's
and of the Parent Company's affairs as at 31 December 2021 and of the Group's
loss for the year then ended;
· the Group's financial statements have been properly prepared in accordance
with UK-adopted International Accounting Standards ('IAS');
· the Parent Company financial statements have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice; and
· the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the Group and Parent Company in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Summary of our audit approach
Context
There are twenty-eight components of the Group, twenty-two located and
operating in the United Kingdom and 6 located and operating overseas. The
audits of XP Factory Plc (formerly Escape Hunt Plc) and its UK subsidiary
undertakings requiring statutory audits were conducted from the UK by the
audit engagement team. Financial information from other components not
considered to be individually significant was subject to limited review
procedures carried out by the audit engagement team.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
The key audit matters that we identified in the current year were:
· Revenue recognition arising from occurrence, completeness and cut-off in the
period;
· Management override of controls;
· IFRS 9 and the resultant expected credit loss from franchisees;
· IFRS 16 and the adoption of IFRS 16;
· Valuation and impairment of goodwill and other intangible assets arising from
business combinations;
· Valuation of contingent consideration arising from business combinations; and
· Going Concern.
Our application of materiality
In planning and performing our audit we applied the concept of materiality. An
item is considered material if it could reasonably be expected to change the
economic decisions of a user of the financial statements. We used the concept
of materiality to both focus our testing and to evaluate the impact of
misstatements identified.
Based on our professional judgement, we determined overall materiality for the
Group financial statements as a whole to be £145,000, based on 1% of Group
turnover.
An overview of the scope of our audit
The key audit matters identified above are discussed further in this section.
This is not a complete list of all risks identified by our audit.
We identified going concern as a key audit matter and have detailed our
response in the conclusions relating to going concern section below.
Area of focus How our audit addressed the area of focus
Revenue recognition arising from occurrence, completeness and cut-off in the Our audit work included, but was not restricted to the following:
period
· We evaluated the sales controls system in place to determine the
There is a presumed risk of misstatement arising from lack of completeness or controls surrounding the income.
inaccurate cut-off relating to revenues.
· We checked a sample of the franchise agreements and contracts through
to the income recognised in the accounts and invoices.
· We checked a sample of sales from the booking system through to the
income recognised in the accounts.
· We also completed checks on deferred and accrued income.
· We reviewed the revenue recognition accounting policy to ensure the
application was consistent.
Based on our audit work detailed above, we confirm that we have nothing
material to report, and or draw attention to in respect of these matters.
Management override of controls Our audit work included, but was not restricted to the following:
Management is in a unique position to override controls that otherwise appear · We undertook testing on the Company and Group's controls, we extended
to be operating effectively. our audit testing to perform enhanced management override procedures.
· We undertook a review to gain an understanding of the overall
governance and oversight process surrounding management's review of the
financial statements.
· We examined the significant accounting estimates and judgements
relevant to the financial statements for evidence of bias by the directors.
· We reviewed the financial statements and considered whether the
accounting policies are appropriate and have been applied consistently.
· We undertook a review of the journals posted through the nominal
ledger for significant and unusual transactions and investigated them,
reviewing and confirming the journal entry postings.
· We undertook a review of the consolidation journals to ensure they
were reasonable.
Based on our audit work detailed above, we confirm that we have nothing
material to report, and or draw attention to in respect of these matters.
IFRS 9 and the resultant expected credit loss from franchisees Our audit work included, but was not restricted to the following:
The Company is a co-tenant or has provided a guarantee on a number of property · We obtained management's calculation of the expected credit loss
leases for which a franchisee is the primary lessee. IFRS 9 requires the provision and discussed the key inputs into the assessment with management.
recognition of expected credit losses in respect of financial guarantees,
including those provided by the Group. Where there has been a significant · We reviewed the lease agreements to verify the terms of the lease
increase in credit risk, the standard requires the recognition of the expected which act as a basis for the calculation.
lifetime losses on such financial guarantees.
· We reviewed the calculation for completeness based on our knowledge
of the business.
The assessment of whether there has been a significant increase in credit risk · We reviewed the appropriateness of the disclosures made and its
is based on whether there has been an increase in the probability of default consistency with our knowledge of the agreements.
occurring since previous recognition.
Based on our audit work detailed above, we confirm that we have nothing
The assessment of the probability of default is inherently subjective and material to report, and or draw attention to in respect of these matters.
requires management judgement.
IFRS 16 and the adoption of IFRS 16; Our audit work included, but was not restricted to the following:
The Group holds multiple property leases and judgement is required regarding · We obtained management's calculation of recognition of right of use
the recognition of right of use assets and lease liabilities. assets and lease liabilities.
· We reviewed the lease agreements and re-performed calculations to
verify the accuracy the calculation.
· We reviewed the calculation for completeness based on our knowledge
of leases within the business.
· We reviewed the significant judgements made in the recognition of the
right of use assets and lease liabilities, particularly with respect to the
discount rate implicit in the lease based on the Group's incremental borrowing
rate, which is assessed at 6.2%.
· We reviewed the appropriateness of the disclosures made and its
consistency with our knowledge of the lease agreements and the application of
IFRS 16.
Based on our audit work detailed above, we confirm that we have nothing
material to report, and or draw attention to in respect of these matters.
Valuation and impairment of goodwill and other intangible assets arising from Our audit work included, but was not restricted to the following:
business combinations
Valuation
The Group's intangibles comprise of goodwill, trademarks, intellectual
property, franchise agreements, and the portal. · We obtained management's valuation of the acquired intangibles and
discussed the key inputs into the assessment with management.
· We performed procedures, including challenge regarding reasonableness
Intangibles arising from business combinations amounted to £21.5m. of the inputs into the model.
· We reviewed the significant judgements made in the model,
particularly with respect to the discount rate applied, the calculation of tax
The total carrying value of intangible assets was £22.0m (2020: £0.9m). amortisation benefits and the recognition of deferred tax liabilities.
· We tested to ensure the mathematical accuracy of the model presented.
The continued losses and impact of COVID-19 combined with the uncertainty of
future cash flows indicate there could be an impairment in the carrying value
of the intangible assets and such as we considered this to be a key audit Impairment
matter.
· We obtained management's assessment of impairment and discussed the
key inputs into the assessment with management.
· We performed procedures, including challenge regarding reasonableness
of the inputs into the model.
· We considered management's sensitivity analysis and also performed an
additional range of sensitivities to assess whether a reasonably likely change
to a key input would result in an impairment charge.
· We tested to ensure the mathematical accuracy of the model presented.
Based on our audit work detailed above, we confirm that we have nothing
material to report, and or draw attention to in respect of these matters.
Valuation of contingent consideration arising from business combinations Our audit work included, but was not restricted to the following:
There is contingent consideration of £8.95m arising on the acquisition of the · We obtained management's calculation of the fair value at the date of
Boom Group. acquisition and at the expected date of issue and discussed the key inputs
into the assessment with management.
· We performed procedures, including challenge regarding reasonableness
Contingent consideration includes a preliminary estimate on the earnout of the inputs into the model.
payable in respect of the acquisition, recognised at fair value at the date of
acquisition. · We reviewed the significant judgements made in the model,
particularly with respect to the cost of equity rate applied.
· We tested to ensure the mathematical accuracy of the model presented.
The contingent consideration is payable by means of an issue of up to
25,000,000 Consideration Shares. · We reviewed the appropriateness of the disclosures made and its
consistency with our knowledge of the transaction.
Based on our audit work detailed above, we confirm that we have nothing
material to report, and or draw attention to in respect of these matters.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting included obtaining and
reviewing the forecast financial projections.
Management prepared two main scenarios for the future business following the
planned opening of new sites in the UK. As part of their assessment, the
following scenarios were presented:
· A central case for which revenue forecasts are based on a regression analysis
of previous performance for the twelve months to February 2020, prior to the
impact of COVID-19, adjusted for seasonality. Sales are not expected to be
affected by COVID-19, following the removal of all COVID-19 related
restrictions. The central case includes the planned roll out of new sites and
is based on existing property deals which are in legal stages, heads of terms
or final negotiations and management have a high degree of visibility. The
central case represents the targets considered achievable by divisional
management.
· A downside case which reflects a combination of downside sensitivities in each
of the Boom and Escape Hunt businesses. Sensitivities include a sales
reduction of 10% leading to reduced margins, cost inflation of a further 3%,
closure of all sites for one month as a result of the COVID-19 pandemic with
government support, a delay in the timing of the opening of new sites by 60
days, a reduction of the number of new sites rolled out and a 10% increase in
building costs.
In both scenarios the Group has surplus working capital to meet its working
capital requirements for the foreseeable future.
We performed audit procedures, including but was not restricted to the
following:
· We reviewed the forecast revenues and resulting cash flows within the
assessment period;
· We compared the forecast to available management information for the business
post year-end;
· We considered management's sensitivity analysis and also performed an
additional range of sensitivities to assess whether a reasonably likely change
to a key input would result in an erosion of the revised headroom on working
capital available in the downside model used by management.
· We reviewed the announcements and considered if any items will have a
financial impact affecting the going concern;
· We reviewed the appropriateness of the disclosures made and its consistency
with our knowledge of the business.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group or Company's ability to
continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
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 the 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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent
Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
· the Parent Company financial statements are not in agreement with the
accounting records and returns; or
· certain disclosures of directors' remuneration specified by law are not made;
or
· we have not received all the information and explanations we require for our
audit.
Responsibilities of directors
As explained more fully in the Directors' responsibilities statement, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group's and the Parent Company's ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
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:
As part of our planning process:
· We enquired of management the systems and controls the Group and Company has
in place, the areas of the financial statements that are most susceptible to
the risk of irregularities and fraud, and whether there was any known,
suspected or alleged fraud. The Group and Company did not inform us of any
known, suspected or alleged fraud.
· We obtained an understanding of the legal and regulatory frameworks applicable
to the Group and Company. We determined that the following were most relevant:
UK-adopted International Accounting Standards and Companies Act 2006.
· We considered the incentives and opportunities that exist in the Group and
Company, including the extent of management bias, which present a potential
for irregularities and fraud to be perpetuated, and tailored our risk
assessment accordingly.
· Using our knowledge of the Group and Company, together with the discussions
held with the Group and Company at the planning stage, we formed a conclusion
on the risk of misstatement due to irregularities including fraud and tailored
our procedures according to this risk assessment.
The key procedures we undertook to detect irregularities including fraud
during the course of the audit included:
· Identifying and testing journal entries and the overall accounting records, in
particular those that were significant and unusual.
· Reviewing the financial statement disclosures and determining whether
accounting policies have been appropriately applied.
· Reviewing and challenging the assumptions and judgements used by management in
their significant accounting estimates.
· Assessing the extent of compliance, or lack of, with the relevant laws and
regulations.
· Testing key revenue lines, in particular cut-off, for evidence of management
bias.
· Performing a physical verification of key assets.
· Obtaining third-party confirmation of material bank and loan balances.
· Documenting and verifying all significant related party and consolidated
balances and transactions.
· Reviewing documentation such as the Group and Company's board minutes for
discussions of irregularities including fraud.
· Testing all material consolidation adjustments.
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements even though we have properly planned and performed our audit in
accordance with auditing standards. The primary responsibility for the
prevention and detection of irregularities and fraud rests with the directors.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
http://www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report
Use of our audit report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent
Company's members as a body, for our audit work, for this report, or for the
opinions we have formed.
Gary Miller (Senior Statutory Auditor)
For and on behalf of HW Fisher LLP
Chartered Accountants
Statutory Auditor
Acre House
11/15 William Road
London
NW1 3ER
United Kingdom
Date: 31 May 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended 31 December 2021
All figures in £'000s Year ended Year ended
31 December 31 December
Continuing operations Note 2021 2020
Revenue 4 6,984 2,658
Cost of sales 6 (1,904) (778)
Gross profit 5,080 1,880
Other income 32 3,607 394
Administrative expenses 6 (9,208) (8,641)
Operating loss 6 (521) (6,367)
Adjusted EBITDA 2,653 (1,445)
Amortisation of intangibles 12 (471) (2,299)
Rent concessions recognised in the year 11 148 22
Depreciation of property plant and equipment 10 (1,721) (1,819)
Depreciation of right-of-use assets 11 (613) (380)
Loss on disposal of tangible assets 10 (39) (23)
Loss on disposal of intangible assets 12 (11) (7)
Profit on termination / change of leases 11 41 -
Branch closure costs (4) (52)
Branch pre-opening costs (103) -
Provision against loan to franchisee 15 (78) (300)
Provision for guarantee leases 21 (8) -
Exceptional professional costs 6 (235) (35)
Foreign currency gains / (losses) (18) -
Share-based payment expense 24 (62) (29)
Operating loss (521) (6,367)
Interest charged (131) (17)
Lease finance charges 11 (233) (180)
Loss before taxation (885) (6,564)
Taxation 8 11 (15)
Loss after taxation (874) (6,579)
Other comprehensive income:
Items that may or will be reclassified to profit or loss:
Exchange differences on translation of foreign operations (3) (62)
Total comprehensive loss (877) (6,641)
Loss attributable to:
Equity holders of XP Factory Plc (formerly Escape Hunt plc) (877) (6,579)
Non-controlling interests - -
(877) (6,579)
Total comprehensive loss attributable to:
Equity holders of XP Factory Plc (formerly Escape Hunt Plc) (877) (6,641)
Non-controlling interests - -
(877) (6,641)
Loss per share attributable to equity holders:
Basic and diluted (Pence) 9 (0.93) (12.36)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
As at As at
31 December 31 December
Note 2021 2020
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 10 5,516 3,885
Right-of-use assets 11 7,602 2,940
Intangible assets 12 22,046 913
Rent deposits 44 26
Loan to franchisee 15 84 2
35,292 7,766
Current assets
Inventories 17 24 16
Trade receivables 16 848 182
Other receivables and prepayments 16 4,142 691
Stocks and work in progress 17 438
Cash and cash equivalents 18 8,225 2,722
13,677 3,611
TOTAL ASSETS 48,969 11,377
LIABILITIES
Current liabilities
Trade payables 19 1,527 606
Contract liabilities 20 1,201 441
Loan Notes 23 404
Other loans 23 256
Lease liabilities 11 393 489
Other payables and accruals 19 2,889 815
Provisions 21 637
7,307 2,351
Consolidated Statement of Financial Position
As at 31 December 2021 (continued)
As at As at
31 December 31 December
2021 2020
Note £'000 £'000
Non-current liabilities
Contract liabilities 20 491 152
Provisions 21 9,248 128
Loan notes 23 373 289
Other loans 23 620
Deferred tax liability 8 1,101
Lease liabilities 11 8,012 3,253
19,845 3,822
TOTAL LIABILITIES 27,152 6,173
NET ASSETS 21,817 5,204
EQUITY
Capital and reserves attributable to equity holders of XP Factory Plc
(formerly Escape Hunt Plc)
Share capital 22 1,825 1,005
44,366 27,758
Share premium account 26 2
7
,
7
5
8
Merger relief reserve 26 4,756 4,756
Convertible loan note reserve 23 68 68
Accumulated losses 26 (29,317) (28,444)
Currency translation reserve 26 (83) (81)
Capital redemption reserve 26 46 46
Share-based payment reserve 26 158 96
21,817 5,204
Non-controlling interests - -
TOTAL EQUITY 21,817 5,204
The notes are an integral part of these financial statements.
The financial statements were approved by the Board of Directors and
authorised for issue on 30(th) May 2021 and are signed on its behalf by:
Graham Bird
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Attributable
to owners of the parent
Year ended Share capital Share premium account Merger relief reserve Currency translation reserve Capital redemption reserve Share-based payment reserve Accumulated losses Total
31 Dec 2021
Convertible loan note reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1,005 27,758 4,756 (81) 46 96 68 (28,444) 5,204
1 Jan 2021
Loss for the year - - - - - - - (874) (874)
Other comprehensive income - - - (3) - - - - (3)
Total comprehensive loss - - - (3) - - - (874) (877)
Issue of shares 820 17,819 - - - - - - 18,639
Issue of convertible loan notes - - - - - - - - -
Share issue costs - (1,211) - - - - - - (1,211)
Share-based Payment Charges - - - - - 62 - - 62
Transactions with owners 820 16,608 - - - 62 - - 17,491
Balance as at 31 Dec 2021 1,825 44,366 4,756 (83) 46 158 68 (29,317) 21,817
Year ended 31 Dec 2020:
Adjusted balance as at 1 Jan 2020 336 24,717 4,756 (19) 46 67 - (21,803) 8,100
Loss for the year - - - - - - - (6,641) (6,641)
Other comprehensive income - - - (62) - - - - (62)
Total comprehensive loss - - - (62) - - - (6,641) (6,703)
Issue of shares 669 3,342 - - - - - - 4,011
Issue of convertible loan notes - - - - - - 68 - 68
Share issue costs - (301) - - - - - - (301)
Share-based payment charges - - - - - 29 - 29
Disposal of subsidiary - - - - - - - - -
Transactions with owners 669 3,041 - - - 29 68 - 3,807
Balance as at 31 Dec 2020 1,005 27,758 4,756 (81) 46 96 68 (28,444) 5,204
The notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Cash flows from operating activities
Loss before income tax (885) (6,564)
Adjustments:
Depreciation of property, plant and equipment 10 1,721 1,819
Depreciation of right-of-use assets 11 613 380
Amortisation of intangible assets 12 472 2,299
Movement in provision against franchisee loan 15 78 300
Loss on disposal of plant and equipment 10 41 23
Loss on write off of intangibles 12 11 7
Net foreign exchange differences (3) -
Share-based payment expense 24 62 29
Lease interest charge 11 233 180
Rent concessions received 11 (148) (22)
Profit on closure / modification of leases 11 (41) -
Interest charge / (income) 131 17
Operating cash flow before working capital changes 2,285 (1,532)
Decrease in trade and other receivables 16 (2,628) (30)
Decrease / (increase) in inventories 17 26 (3)
Decrease in stock and work in progress 17 67 -
(Decrease) / increase in provisions 21 (270) 54
Increase / (decrease) in trade and other payables 19 202 296
Increase / (decrease) in deferred income 20 1,075 (30)
Cash used in operations 757 (1,245)
Income taxes paid 8 (15) (12)
Net cash generated / (used) in operating activities 742 (1,257)
Cash flows from investing activities
Purchase of property, plant and equipment 10 (2,584) (1,809)
Purchase of intangibles 12 (119) (237)
Payment of deposits (18) -
Loan made to master franchisee 15 (187) (2)
Proceeds from new loans 23 728 -
Acquisition of subsidiaries, net of cash acquired 14 (9,732) 35
Interest received / (charged) / - (17)
Net cash used in investing activities (11,912) (2,030)
Cash flows from financing activities
Proceeds from issue of ordinary shares 22 18,639 3,976
Proceeds from issue of convertible loan note 23 - 340
Share issue costs 24 (1,211) (301)
Lease interest charge payment 11 - (180)
Repayment of leases 11 (759) (1)
Net cash from financing activities 16,669 3,834
Net increase in cash and cash equivalents 5,499 547
Cash and cash equivalents at beginning of year 2,722 2,171
Effects of exchange rate changes on the balance of cash held in foreign 4 4
currencies
Cash and cash equivalents at end of year 8,225 2,722
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General Information
The Company was incorporated in England on 17 May 2016 under the name of
Dorcaster Limited with registered number 10184316 as a private company with
limited liability under the Companies Act 2006. The Company was re-registered
as a public company on 13 June 2016 and changed its name to Dorcaster Plc on
13 June 2016. On 8 July 2016, the Company's shares were admitted to AIM.
Until its acquisition of Experiential Ventures Limited on 2 May 2017, the
Company was an investing company (as defined in the AIM Rules for Companies)
and did not trade.
On 2 May 2017, the Company ceased to be an investing company on the completion
of the acquisition of the entire issued share capital of Experiential Ventures
Limited. Experiential Ventures Limited was the holding company of the Escape
Hunt Group, the activities of which related solely to franchise.
On 2 May 2017, the Company's name was changed to Escape Hunt Plc and became
the holding company of the enlarged Escape Hunt Group. Thereafter the group
established the Escape Hunt owner operated business which operates through a
UK subsidiary. All of the Escape Hunt franchise activity was subsequently
transferred to a UK subsidiary. On 22 November 2021, the Company acquired BBB
Franchise Limited, together with its subsidiaries operating collectively as
Boom Battle Bars. At the same time, the group took steps to change its name
to XP Factory Plc with the change taking effect on 3 December 2021.
XP Factory Plc currently operates two fast growing leisure brands. Escape
Hunt is a global leader in providing escape-the-room experiences delivered
through a network of owner-operated sites in the UK, an international network
of franchised outlets in five continents, and through digitally delivered
games which can be played remotely.
Boom Battle Bar is a fast-growing network of owner-operated and franchise
sites in the UK that combine competitive socialising activities with themed
cocktails, drinks and street food in a high energy, fun setting. Activities
include a range of games such as augmented reality darts, Bavarian axe
throwing, 'crazier golf', shuffleboard and others.
The Company's registered office is Belmont House, Station Way, Crawley,
England, RH10 1JA.
The consolidated financial information represents the audited consolidated
results of the Company and its subsidiaries, (together referred to as "the
Group").
Basis of preparation
The audited consolidated financial statements have been prepared in accordance
with UK-adopted International Accounting Standards ("IFRSs").
The audited financial statements are presented in Pounds Sterling, which is
the presentational currency for the financial statements. All values are
rounded to the nearest thousand pounds except where otherwise indicated. They
have been prepared under the historical cost convention, except for financial
instruments that have been measured at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Company's accounting
policies.
Changes in accounting policy
a) New standards, interpretations and amendments effective from 1 January
2021
New standards impacting the Group adopted in the annual financial statements
for the year ended 31 December 2021, and which have given rise to changes in
the Group's accounting policies are:
· IFRS 9 - Financial Instruments
In the year ended 2021 the company has been required to report more
extensively on financial guarantee contracts.
Financial guarantee contracts relate to leases where the Group has signed as
co-tenant or has provided a guarantee for a site operated by a franchisee.
At the end of the reporting period, the directors of the Company have assessed
the past due status of the debts under guarantee, the financial position of
the debtors as well as the economic outlook of the industries in which the
debtors operate. There has been no change in the estimation techniques or
significant assumptions made during the reporting periods in assessing the
loss allowance for these financial assets.
The Directors do not expect any material impact on the Group's reporting from
new accounting standards, interpretations and amendments not yet effective but
currently under contemplation by the International Accounting Standards Board.
2. Significant accounting policies
The principal accounting policies applied in the preparation of the audited
consolidated financial information set out below have, unless otherwise
stated, been applied consistently throughout.
Basis of consolidation
The audited consolidated financial information incorporates the preliminary
financial statements of the Company and its subsidiaries. Subsidiaries are
entities over which the Group has control. The Group controls an investee if
the Group has power over the investee, exposure to variable returns from the
investee, and the ability to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate that there may
be a change in any of these elements of control.
Subsidiaries are consolidated from the date on which control is obtained by
the Group up to the effective date on which control is lost, as appropriate.
Under the acquisition method, the results of the subsidiaries acquired or
disposed of are included from the date of acquisition or up to the date of
disposal. At the date of acquisition, the fair values of the subsidiaries' net
assets are determined and these values are reflected in the Consolidated
Financial Statements. The cost of acquisition is measured at the aggregate of
the fair values, at the date of exchange, of assets given, liabilities
incurred or assumed, and equity instruments issued by the Group in exchange
for control of the acquiree. Any excess of the purchase consideration of the
business combination over the fair value of the identifiable assets and
liabilities acquired is recognized as goodwill. Goodwill, if any, is not
amortised but reviewed for impairment at least annually. If the consideration
is less than the fair value of assets and liabilities acquired, the difference
is recognized directly in the statement of comprehensive income.
Acquisition-related costs are expensed as incurred.
Intra-group transactions, balances and recognized gains on transactions are
eliminated. Unrealised losses are also eliminated unless cost cannot be
recovered. Where necessary, adjustments are made to the Financial Statements
of subsidiaries to ensure consistency of accounting policies with those of the
Group.
The financial statements of the subsidiaries are prepared for the same
reporting period as that of the Company, using consistent accounting policies.
Where necessary, accounting policies of subsidiaries are changed to ensure
consistency with the policies adopted by other members of the Group.
Changes in the Group's interest in a subsidiary that do not result in a loss
of control are accounted for as equity transactions. The carrying amounts of
the Group's interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiary. Any
difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to owners of the Company.
When the Group loses control of a subsidiary it derecognises the assets and
liabilities of the subsidiary and any non-controlling interest. The profit or
loss on disposal is calculated as the difference between (i) the aggregate of
the fair value of the consideration received and the fair value of any
retained interest and (ii) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and any
non-controlling interests. Amounts previously recognised in other
comprehensive income in relation to the subsidiary are accounted for (i.e.
reclassified to profit or loss or transferred directly to retained earnings)
in the same manner as would be required if the relevant assets or liabilities
were disposed of.
Going Concern
The financial statements have been prepared on a going concern basis which
contemplates the continuity of normal business activities and the realisation
of assets and the settlement of liabilities in the ordinary course of
business.
The Directors have assessed the Group's ability to continue in operational
existence for the foreseeable future in accordance with the Financial
Reporting Council's Guidance on the going concern basis of accounting and
reporting on solvency and liquidity risks issued in April 2016.
The Board has prepared detailed cashflow forecasts covering a three year
period from the reporting date.
In May 2021, the Company entered into a convertible loan note facility with
one of its then directors, through which the Company has access to a further
£1m in funding. The Company is able to draw down the funds as required.
Details of the convertible loan note facility are given in note 35. This
facility was entered into to enable the Company to continue to invest in new
sites notwithstanding the continued uncertainty brought about by the COVID-19
lockdown rules. The facility has not been drawn.
The Group plans to continue the roll out new sites under both the Escape Hunt
and Boom Battle Bar brands in the UK which are expected to contribute to
performance in future.
The central case is based on opening a number of new Escape Hunt and Boom
owner operated sites in the UK in line with the Board's stated strategy. Sites
are expected to take a period of time to reach maturity based on previous
experience. The central case does not assume any further impact from
COVID-19. In the central case the Group does not need to utilise the
convertible loan facility and believes it has sufficient resources for its
present needs.
The Group has also considered a 'downside' scenario. In this scenario the
Group has assessed the potential impact of a reduction in sales across the
group, reduced capacity within the Escape Hunt UK sites, delays in the opening
of sites, cost increases and a substantial reduction in the pace of
roll-out. The 'downside' scenario also considers a further lockdown of one
month, which assumes that government support would be available to cover site
level salaries only. The scenario also considers a delay in progress in the
US. In the 'downside' scenario, the Group believes it can take mitigating
actions to preserve cash. Principally the roll-out of further sites would be
stopped and cost saving measures would be introduced at head office. The Group
has previously made significant reductions in its head office property costs,
and further cost reductions could be targeted in both people and areas such as
IT, professional services and marketing. Other areas of planned capital
expenditure would also be curtailed. These include planned expenditure on
website and system improvements. Taking into account the mitigating factors,
the Group believes it would have sufficient resources for its present needs,
with or without access to the convertible loan note facility.
Based on the above, the Directors consider there are reasonable grounds to
believe that the Group will be able to pay its debts as and when they become
due and payable, as well as to fund the Group's future operating expenses. The
going concern basis preparation is therefore considered to be appropriate in
preparing these financial statements.
Merger relief
The issue of shares by the Company is accounted for at the fair value of the
consideration received. Any excess over the nominal value of the shares issued
is credited to the share premium account other than in a business combination
where the consideration for shares in another company includes the issue of
shares, and on completion of the transaction, the Company has secured at least
a 90% equity holding in the other company. In such circumstances the credit is
applied to the merger relief reserve.
Foreign currency transactions and translation
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency are recorded at the
rate of exchange prevailing on the date of the transaction.
The functional currency of the Company's formerly active subsidiaries based
overseas, namely Escape Hunt Operations Limited and E V Development Co.
Limited are the US Dollar and Thai Baht respectively. Likewise, the functional
currency of the Company's subsidiary Escape Hunt USA Franchises Limited, which
is intended to operate franchises in North America, is the US Dollar and the
functional currency of the company's subsidiary Escape Hunt Entertainment LLC,
purchased in September 2020 and operating in the Middle East is the Arab
Emirates Dinar. The Company's subsidiaries, BGP Escape France and BGP
Entertainment Belgium, both purchased in March 2021 both have the functional
currency Euros. These subsidiaries, when recording their own foreign
transactions follow the principles below. At the end of each financial year,
monetary items denominated in foreign currencies are retranslated at the rates
prevailing as of the end of the financial year. Non-monetary items carried at
fair value that are denominated in foreign currencies are retranslated at the
rates prevailing on the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary items, and on
retranslation of monetary items are included in profit or loss for the period.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations (including comparatives) are
expressed in the presentational currency which is Pounds Sterling using
exchange rates prevailing at the end of the financial year. Income and expense
items (including comparatives) are translated at the average exchange rates
for the period, unless exchange rates fluctuated significantly during that
period, in which case the exchange rates at the dates of the transactions are
used. Exchange differences arising are recognised initially in other
comprehensive income and accumulated in the Group's foreign exchange
reserve.
On disposal of a foreign operation, the accumulated foreign exchange reserve
relating to that operation is reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses.
Where parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items of property, plant and
equipment.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and
equipment. Land is not depreciated. The estimated useful lives are as follows:
Office equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Computers 3 years
Games 2 years
Depreciation methods, useful lives and residual values are reviewed at each
reporting date.
Research and development expenditure
Research expenditure is recognised as an expense when it is incurred.
Development expenditure is recognised as an expense except that costs incurred
on development projects are capitalised as long-term assets to the extent that
such expenditure is expected to generate future economic benefits. Development
expenditure is capitalised if, and only if an entity can demonstrate all of
the following:-
· its ability to measure reliably the expenditure attributable to the asset
under development;
· the product or process is technically and commercially feasible;
· its future economic benefits are probable;
· its ability to use or sell the developed asset; and
· the availability of adequate technical, financial and other resources to
complete the asset under development.
Capitalised development expenditure is measured at cost less accumulated
amortisation and impairment losses, if any. Certain internal salary costs
are included where the above criteria are met. These internal costs are
capitalised when they are incurred in respect of new game designs which are
produced and installed in the UK owner-operated sites, where the ensuing
revenue is tracked on a weekly basis at each site by each game. Development
expenditure initially recognised as an expense is not recognised as assets in
subsequent periods.
Intangible assets
Expenditure on internally generated goodwill and brands is recognised in the
income statement as an expense as incurred.
With the exception of goodwill, intangible assets that are acquired by the
Group are stated at cost less accumulated amortisation and accumulated
impairment losses.
Game design and development costs are expensed as incurred unless such
expenditure meets the criteria to be capitalised as a non-current asset.
Amortisation is charged to the income statement on a straight-line basis over
the estimated useful lives of intangible assets unless such lives are
indefinite.
The estimated useful lives are as follows:
Trademarks 3 years
Intellectual property:
- Trade names and domain 3 years
names
- Rights to system and business 3 years
processes
- Internally generated intellectual property 3 years
Franchise agreements Term of franchise
App development 2 years
Portal 3 years
Impairment of assets
Financial assets
A financial asset not carried at fair value through profit or loss is assessed
at each reporting date to determine whether there is objective evidence that
it is impaired. A financial asset is impaired if objective evidence indicates
that a loss event has occurred after the initial recognition of the asset, and
that the loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost
is calculated as the difference between its carrying amount and the present
value of the estimated future cash flows taking into account credit risk. The
present value of the future cash flows represents the expected value of the
future cash flows discounted at the appropriate rate. Interest on the
impaired asset continues to be recognised through the unwinding of the
discount. When a subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets are reviewed at each
reporting date to determine whether there is any indication of impairment. If
any such indication exists, then the asset's recoverable amount is estimated.
For goodwill, and intangible assets that have indefinite useful lives or that
are not yet available for use, the recoverable amount is estimated each year
at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of
its value in use and its fair value less costs to sell. For the purpose of
impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other
assets or groups of assets (the "cash-generating unit"). The goodwill acquired
in a business combination, for the purpose of impairment testing, is allocated
to cash-generating units, or ("CGU"). Subject to an operating segment ceiling
test, for the purposes of goodwill impairment testing, CGUs to which goodwill
has been allocated are aggregated so that the level at which impairment is
tested reflects the lowest level at which goodwill is monitored for internal
reporting purposes. Goodwill acquired in a business combination is allocated
to groups of CGUs that are expected to benefit from the synergies of the
combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU
exceeds its estimated recoverable amount. Impairment losses are recognised in
profit or loss. Impairment losses recognised in respect of CGUs are allocated
first to reduce the carrying amount of any goodwill allocated to the units,
and then to reduce the carrying amounts of the other assets in the unit (group
of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other
assets, impairment losses recognised in prior periods are assessed at each
reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
Employee benefits
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is
recognised for the amount expected to be paid under short-term cash bonus or
profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Revenue recognition
The Group is operating and developing a network of franchised, licensed and
owner-operated branches and offsite "escape the room" type games under the
Escape Hunt™ brand and a network of owner-operated and franchised
competitive socialising cocktail bar venues under the Boom Battle Bar™
brand.. The Group receives revenues from its directly owned branches but also
from franchisees, master-franchisees and sub-franchisees.
The Group, as franchisor, develops original escape games and other fun
competitive socialising games and supporting materials and provides
management, creative, technical and marketing services based on its knowledge
of and expertise in the relevant disciplines to enable delivery of
proprietary consumer experiences.
The Group considers that its contracts with franchisees, master-franchisees
and sub-franchisees provide a customer with a right to access the Group's
intellectual property throughout the franchise term which is typically for a
minimum term of ten years. Accordingly, the Group satisfies each of its
performance obligations by transferring control of goods and services to the
customer over the period of the franchise agreement. Franchise revenues are
therefore recognised over time.
The Group derives "upfront exclusivity fees'' as well as training fees and
documentation fees from the sale and set up of franchises and subsequent
"Service Revenues" in the form of revenue shares, administration fees, and
other related income.
New branch upfront location exclusivity fees
The initial non-refundable upfront exclusivity fees relate to the transfer of
promised goods or services which are satisfied throughout the life of the
franchise agreement. Payment of the initial upfront exclusivity fee is due
immediately on the signing of a franchise agreement.
The Group, as franchisor, supplies a manual and grants to a franchisee during
the term of a franchise agreement, the exclusive rights to carry on its
business and to utilise the know-how, intellectual property rights and games
within a territory. The franchise term typically provides for an initial term
of 10 years, with automatic rights for renewal of successive 10-year periods.
The Group offers to:
· Assist the franchisee to establish, manage and operate the business within the
territory;
· Provide advice on the choice of branch location;
· Identify equipment, furniture, props and other items required to conduct the
business;
· Assist in designing the layout and fit-out of any chosen branch location;
· Provide full game and other activity design to be installed in each branch;
· Provide guidance on setting up website, booking and other online services;
· Provide the franchisee with the franchise manual;
· Train the franchisee and its staff;
· Give the franchisee continuing assistance and advice for the efficient running
of the franchise business;
· Regularly update the franchisee on any changes to the services and know-how;
· Design and provide territory-specific, and branch-specific, logos for use in
advertising, merchandise and uniforms; and
· Communicate at all times with the franchisee in a timely manner.
The initial fee is recognised as revenue on a straight-line basis over the
period of the franchise agreement where this is 10 years (or less in case of
sub-franchise agreements, where the term of the sub-franchise agreement
typically equals to the remaining term of the master franchise agreement).
Where the franchise term is not specified or is greater than 10 years, revenue
is recognised over 10 years to reflect a lack of certainty over the actual
duration of the franchise arrangement. See Note 3 for more details.
Fees related to future periods are carried forward as deferred income within
current and non-current liabilities, as appropriate. The amounts of deferred
revenue at each reporting date are disclosed in Note 21 to the financial
statements.
IFRS 15 also requires the Group to consider if there is a financing element to
such long-term contracts. However, it is considered that there is no such
financial element provided by the Group to franchisees as payment is received
at the time of signing the franchise agreement and at the commencement of the
delivery of the various services under such agreement.
Under a Master Franchise Agreement, the Group is entitled to a one-off upfront
exclusivity fee representing an advance payment for a number of branches with
all branches paid at a fixed rate, payable on signing of the Agreement. The
contract is not deemed to be fulfilled and in force until this payment is
received in full by the franchisor. This fee is recognised over the franchise
term, or 10 years if this is greater than 10 years, in the same manner as in a
single franchise arrangement.
Where the Group, through a Master Franchisee, enters into contracts with
sub-franchisees, the initial fee is recognised in the same manner as contracts
with direct franchisees (i.e. spread over 10 years), where not already covered
in the fees attributed to the Master Franchisee. In the event of termination
of a franchise agreement, any remaining deferred income related to this
contract is immediately recognised in full.
Documentation fees are recognised when the franchise agreement and associated
leases and other legal documents are exchanged and have reached practical
completion. Training fees are recognised when the franchise site is opened.
In some instances, the Group will take on the full responsibility on a
franchise new build, fitting out a franchise site and will have a direct
relationship with the suppliers. The cost of the build will then be billed
to the franchisee in stage payments, including a markup to cover internal
costs and provide margin. In these instances, the cost of the build is carried
as work in progress until it is invoiced to the franchisee. The total value
of the build is recognised as revenue when invoiced. Profit is not
recognised until completion of the build.
Franchise revenues
As part of each franchise agreement, the Group receives franchise service
revenues at a fixed percentage of a franchisee's monthly revenues which are
recognised as the income is earned.
Service revenues comprise:
· An agreed share of the franchisee's monthly revenues, payable weekly or
monthly;
· Fixed monthly fees payable quarterly in advance;
· Extra costs in respect of site visits and website set-up fees; and
· Fees charged for additional services, such as management of marketing and
social media on behalf of a franchisee, for which franchisees opt in.
Revenue shares, support and administration and other related revenues are
recognised as and when those sales occur. Amounts billed in advance are
deferred to future periods as deferred revenue.
Owner-operated branch and offsite games
Revenues from the owner-operated branch and offsite activities include
entrance fees and the sale of food and beverages and merchandise. Such
revenues are recognised as and when those sales occur. Where customers book in
advance, the recognition of revenue is deferred until the customer
participates in the experience.
Deferred revenue
The amounts of deferred revenue at each reporting date are disclosed in Note
21.
Contract costs
Where the game design costs relate to games for individual franchisees, the
costs are not capitalised but expensed as in line with the delivery of
services to franchisees, unless these costs are significant and other
capitalisation criteria are met.
Government Grants
Grants relating to revenue are recognised on the performance model through the
consolidated statement of comprehensive income by netting off against the
costs to which the grants were intended to compensate. Where the grant is not
directly associated with costs incurred during the period, the grant is
recognised as 'other income'. Grants relating to assets are recognised in
income on a systematic basis over the expected useful life of the asset.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
· Leases of low value assets; and
· Leases with a duration of 12 months or less.
IFRS 16 was adopted 1 January 2019 without restatement of comparative figures.
The following policies apply subsequent to the date of initial application, 1
January 2019.
Identifying Leases
The Group accounts for a contract, or a portion of a contract, as a lease when
it conveys the right to use an asset for a period of time in exchange for
consideration. Leases are those contracts that satisfy the following criteria:
· There is an identified asset;
· The Group obtains substantially all the economic benefits from use of the
asset; and
· The Group has the right to direct use of the asset.
In determining whether the Group obtains substantially all the economic
benefits from use of the asset, the Group considers only the economic benefits
that arise use of the asset, not those incidental to legal ownership or other
potential benefits.
In determining whether the Group has the right to direct use of the asset, the
Group considers whether it directs how and for what purpose the asset is used
throughout the period of use. If there are no significant decisions to be made
because they are pre-determined due to the nature of the asset, the Group
considers whether it was involved in the design of the asset in a way that
predetermines how and for what purpose the asset will be used throughout the
period of use. If the contract or portion of a contract does not satisfy these
criteria, the Group applies other applicable IFRSs rather than IFRS 16.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
Group's incremental borrowing rate on commencement of the lease is used.
The discount rate is the rate implicit in the lease, if readily determinable.
If not, the Company's incremental borrowing rate is used which the Company has
assessed to be 6.2%. The Group currently has no borrowings and consequently
there is no available interest rate to use as the basis for this calculation.
However, as a small company which has been loss-making, a calculation has been
performed to include an appropriate level of risk to the risk-free rate of
borrowing.
Variable lease payments are only included in the measurement of the lease
liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments are
expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also
includes:
· amounts expected to be payable under any residual value guarantee;
· the exercise price of any purchase option granted in favour of the Group if it
is reasonably certain to assess that option;
· any penalties payable for terminating the lease, if the term of the lease has
been estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received, and increased for:
· lease payments made at or before commencement of the lease;
· initial direct costs incurred; and
· the amount of any provision recognised where the Group is contractually
required to dismantle, remove or restore the leased asset (typically leasehold
dilapidations - see Note 22).
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a
straight-line basis over the remaining term of the lease or over the remaining
economic life of the asset if, rarely, this is judged to be shorter than the
lease term.
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted at
the discount rate appropriate at the time of revision. The carrying value of
lease liabilities is similarly revised when the variable element of future
lease payments dependent on a rate or index is revised. In both cases an
equivalent adjustment is made to the carrying value of the right-of-use asset,
with the revised carrying amount being amortised over the remaining (revised)
lease term.
Nature of leasing activities (in the capacity as lessee)
During the financial year, the Group leased its head office and a number of
its owner-operated escape room branches. The Group also leases certain items
of plant and equipment, but these are not significant to the activities of the
Group.
Financing income and expenses
Financing expenses comprise interest payable, finance charges on shares
classified as liabilities and finance leases recognised in profit or loss
using the effective interest method, unwinding of the discount on provisions,
and net foreign exchange losses that are recognised in the income statement
(see foreign currency accounting policy). Borrowing costs that are directly
attributable to the acquisition, construction or production of an asset that
takes a substantial time to be prepared for use, are capitalised as part of
the cost of that asset. Financing income comprise interest receivable on funds
invested, dividend income, and net foreign exchange gains.
Interest income and interest payable is recognised in profit or loss as it
accrues, using the effective interest method. Dividend income is recognised in
the income statement on the date the entity's right to receive payments is
established. Foreign currency gains and losses are reported on a net basis.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the
reporting date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the temporary
difference can be utilised.
Share-based payment arrangements
Equity-settled share-based payments to employees are measured at the fair
value of the equity instruments at the grant date. Equity-settled share based
payments to non-employees are measured at the fair value of services received,
or if this cannot be measured, at the fair value of the equity instruments
granted at the date that the Group obtains the goods or counterparty renders
the service. Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in note 26 to the
consolidated financial statements.
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 Group's estimate of equity instruments that will eventually vest, with
a corresponding increase in equity. Where the conditions are non-vesting, the
expense and equity reserve arising from share-based payment transactions is
recognised in full immediately on grant.
At the end of each reporting period, the Group revises its estimate of the
number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to other reserves.
Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows,
cash and cash equivalents include cash on hand, deposits held at call with
financial institutions, other short-term highly liquid investments with
original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of
changes in value, and bank overdrafts.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment.
Impairment provisions for current and non-current trade receivables are
recognised based on the simplified approach within IFRS 9 using a provision
matrix in the determination of the lifetime expected credit losses. In the
process, the probability of the non-payment of the trade receivables is
assessed. This probability is multiplied by the amount of the expected loss
arising from default to determine the lifetime expected credit loss for the
trade receivables.
Inventories and Work in Progress
Inventories are stated at the lower of cost and net realisable value. Cost is
based on the weighted average principle and includes expenditure incurred in
acquiring the inventories and other costs in bringing them to their existing
location and condition. Work in progress includes the cost associated with
fit-out work on sites which are subsequently sold to a franchisee and is
recognised at the point of transaction. Work in progress is derecognised when
an invoice is raised to a franchisee or when it is determined that it is not
recoverable.
Provisions
A provision is recognised when the Group has a present obligation, legal or
constructive, as a result of a past event and it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation, and a reliable estimate can be made. Provisions are reviewed at
each reporting date and adjusted to reflect the current best estimate. If it
is no longer probable that an outflow of economic resources will be required
to settle the obligation, the provision is reversed. Where the effect of the
time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific to the
liability. When discounting is used, the increase in the provision due to the
passage of time is recognised as an interest expense.
The Group has recognized provisions for liabilities of uncertain timing or
amount including those for leasehold dilapidations, contingent consideration
and losses arising of financial guarantee contracts.
Dilapidation provisions
Provisions for dilapidations are recognised on a lease by lease basis over the
period of time landlord assets are being used and are based on the Group's
best estimate of the likely committed cash outflow.
Contingent and deferred consideration
Contingent consideration is consideration that is payable in respect of
acquisitions which is contingent on the achievement of certain performance or
events after the date of acquisition. Deferred consideration is
consideration payable in respect of acquisitions which is deferred, but is not
dependent on any future performance or events.
The likely value of contingent consideration is estimated based on the
anticipated future performance of the business acquired and a probability of
the necessary performance being achieved. The expected future value of the
contingent consideration is discounted from the anticipated date of payment to
the present value. For cash settled contingent consideration, the discount
rate is the risk free rate together with the Consumer Price index for
inflation. For Equity settled contingent consideration, the future value is
discounted using the Director's assessment of the company's cost of equity.
The present value is recognised as a liability at the date of transaction.
The implied interest is recognised over the period between the date of
acquisition and anticipated date of payment of the contingent consideration.
Deferred consideration is recognised as a liability at its face value at the
date of acquisition.
Losses arising on financial guarantee contracts
Provision for losses on financial guarantee contracts uses the simplified
approach within IFRS 9 using a provision matrix in the determination of the
lifetime expected losses. In the process, the probability of the guarantee
being called is assessed. This probability is multiplied by the amount of the
expected loss arising from default to determine the lifetime expected credit
loss for the financial guarantee contract.
Contingent liabilities
Contingent liabilities are possible obligations whose existence depends on the
outcome of uncertain future events or present obligations where the outflow of
resources is uncertain or cannot be measured reliably. Contingent liabilities
are not recognised in the financial statements but are disclosed unless they
are remote.
Financial Liabilities and equity
Financial liabilities and equity ae classified according to the substance of
the financial instrument's contractual obligations rather than the financial
instrument's legal form. Financial liabilities, excluding convertible debt
and derivatives are initially measured at transaction price (including
transaction costs) and subsequently held at amortised cost.
Financial liabilities
Basic financial liabilities, including trade and other payables, bank and
other loans and loans from fellow group companies that are classified as debt
are initially recognized at transaction price unless the arrangement
constitutes a financing transaction, where the debt instrument is measured at
the present value of the future payments discounted at a market rate of
interest.
Det instruments are subsequently carried at amortised cost, using the
effective interest rate method.
Derecognition of financial liabilities
Financial liabilities are derecognized when, and only when, the Company's
contractual obligations are discharged, cancelled or they expire.
Equity instruments
Equity instruments including share capital issued by the Company are recorded
at the proceeds received, net of direct issue costs. Dividends payable on
equity instruments are recognized as liabilities one they are no longer at the
discretion of the company.
3. Critical accounting estimates and judgements
In the application of the Company's accounting policies, which are described
in Note 2 above, the Directors are required to make judgements and estimates
about the carrying amounts 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, including expectations of
future events that may have a financial impact on the entity and that are
believed to be reasonable under the circumstances. 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.
The key estimates and underlying assumptions concerning the future and other
key sources of estimation uncertainty at the statement of financial position
date, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial period
are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized 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. In particular:
Key judgements
Initial upfront exclusivity
fees
Note 2 describes the Group's policies for recognition of revenues from initial
upfront exclusivity fees. In making their judgement, the Directors consider
that the upfront non-refundable exclusivity fee provides the customer with a
right to access the Group's intellectual property throughout the franchise
term which is typically for a minimum term of ten years. The Group's service
obligations include a requirement to advise, assist and update the customer
throughout the term of the agreement.
However, certain franchise contracts are for the unspecified term which
theoretically can run in perpetuity. Furthermore, for term franchise contracts
certain factors could reduce the franchise term (such as early termination)
whilst franchises may be extended beyond their initial term. No franchises
have yet been in place for a full term and in the absence of sufficient track
record the Directors made a judgement that until a clear pattern of
terminations and extensions of franchises becomes clear, it is reasonable to
assume that franchises will on average run for 10 years, hence the initial
upfront exclusivity fees are recognised over this estimated period.
Recognition of deferred tax assets
The Group's tax charge on ordinary activities is the sum of the total current
and deferred tax charges.
A deferred tax asset is recognised when it has become probable that future
taxable profit will allow the deferred tax asset to be recovered. Recognition,
therefore, involves judgement regarding the prudent forecasting of future
taxable profits of the business and in applying an appropriate risk adjustment
factor.
Based on detailed forward-looking analysis and the judgement of management, it
has been concluded that a deferred tax asset should not be recognised for the
carry forward of unused tax losses and unused tax credits totalling
approximately £21m, as the timing and nature of future taxable profits
remains uncertain given the relatively young stage of development of the group
and the rate of planned expansion. As such the Directors do not yet regard
it sufficiently probable that future taxable profit will be available against
which the unused tax losses and unused tax credits can be utilised in the near
term. In forming this conclusion, management have considered the same cash
flow forecasts used for impairment testing purposes. Impairment testing
adjusts for risk through the discounting of future cash flows and focus on
cash generation rather than taxable profits.
Additionally, the owner-operated segment is in its early stages of
development, and the Directors envisage that there will be an extended period
(and thus increasing uncertainty as time progresses) before it expects to
recoup net operating losses. The analysis indicates that the unused losses may
not be used in the foreseeable future as the Group does not yet have a history
of taxable profits nor sufficiently convincing evidence that such profits will
arise within the foreseeable future.
Recognition of R&D credits and other government grants
Research and development credits and other government grants are recognised as
an asset when it has become probable that the grant will be received.
Companies within the Group have previously made successful applications for
grants relating to research and development and in respect of support related
to the COVID-19 pandemic.
In relation to research and development grants, no claims are outstanding, but
the company expects to make claims in respect of activity undertaken in
2021. The amount of such potential claim is not yet known. Notwithstanding
previous success in making such claims, recognition of these claims involves a
judgement by management. Given the uncertainty of the amount and detailed
nature of potential claims relating to 2021, Management does not consider it
sufficiently probable that claims relating to 2021 will be paid and, as such,
no claims in relation to 2021 have been recognised as an asset.
Contingent consideration
The likely value of contingent consideration is estimated based on the
anticipated future performance of the business acquired and a probability of
the necessary performance being achieved. The expected future value of the
contingent consideration is discounted from the anticipated date of payment to
the present value. For cash settled contingent consideration, the discount
rate is the risk free rate together with the Consumer Price index for
inflation. For Equity settled contingent consideration, the future value is
discounted using the Director's assessment of the company's cost of equity,
being 13.7 per cent. The present value is recognised as a liability at the
date of transaction. The implied interest is recognised over the period
between the date of acquisition and anticipated date of payment of the
contingent consideration.
Key estimates
Impairment of intangible assets
IFRS requires management to undertake an annual test for impairment of
indefinite lived assets and, for finite lived assets, to test for impairment
if events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Impairment testing is an area involving management judgement in determining
estimates, requiring assessment as to whether the carrying value of assets can
be supported by the net present value of future cash flows derived from such
assets using cash flow projections which have been discounted at an
appropriate rate. In calculating the net present value of the future cash
flows, certain assumptions are required to be made in respect of highly
uncertain matters including management's expectations of:
· growth in EBITDA, calculated as adjusted operating profit before depreciation
and amortisation;
· the forecast occupancy rate (and growth thereof) for each escape room using
regression analysis based on historic experience from similar rooms;
· the level of capital expenditure to open new sites and the costs of disposals;
· long-term growth rates; and
· the selection of discount rates to reflect the risks involved.
The Group prepares and approves a detailed annual budget and strategic plan
for its operations, which updated regularly to take account of actual activity
and which are used in the fair value calculations. The forecasts perform a
detailed analysis for three years, apply an anticipated growth rate for years
4 and 5 and apply a 2% growth rate thereafter. Further details are
provided in the sensitivity analysis below.
Changing the assumptions selected by management, in particular the discount
rate and growth rate assumptions used in the cash flow projections, could
significantly affect the Group's impairment evaluation and hence results.
The current strategic plan for the group indicates an excess of the net
present value of future cashflows compared to the carrying value of intangible
assets.
The sensitivity of impairment tests to changes in underlying assumptions is
summarised below:
Site level EBITDA
If the site level EBITDA is 10% lower in each business unit within the Group
than as set out in the strategic plan, this would lead to reduction in the net
present value of intellectual property of £13.8m (2020: not measured) but
would not result in the need for an impairment charge.
Discount rate
The discount rate used for the fair value calculation has been assumed at
13.7%. A 100 basis point increase in the discount rate reduces the net present
value of intellectual property across the group by £5.7m (2020: £1.3m) but
would not result in the need for an impairment charge.
Long-term growth rates
The growth rate used for the fair value calculation has been assumed at 2% per
annum after year five. If this rate was decreased by 100 basis points the net
present value of intellectual property across the group would fall by £3.5m
(2020: £1.2m) but would not result in the need for an impairment charge.
Capital expenditure
If capital expenditure over the forecast period were to be 10% higher than in
the strategic plan, the net present value of intellectual property across the
group would fall by £1.8m (2020: £0.4m) but would not result in the need for
an impairment charge.
Estimation of useful life and amortisation rates for intellectual property
assets
The useful life used to amortise intangible assets relates to the expected
future performance of the assets acquired and management's estimate of the
period over which economic benefit will be derived from the asset.
The estimated useful life principally reflects management's view of the
average economic life of each asset and is assessed by reference to historical
data and future expectations. Any reduction in the estimated useful life would
lead to an increase in the amortisation charge. The average economic life of
the intellectual property has been estimated at 3 years. If the estimation of
economic lives was reduced by one year, the amortisation charge for IP would
have increased by £299k (year ended 31 December 2020: £203k).
Estimation of useful life and depreciation rates for property, plant and
equipment of the owner- operated business
The useful life used to depreciate assets of the owner-operated business
relates to the expected future performance of the assets acquired and
management's estimate of the period over which economic benefit will be
derived from the asset.
Property, plant and equipment represent a significant proportion of the asset
base of the Group being 11% (2020: 34%) of the Group's total assets.
Therefore, the estimates and assumptions made to determine their carrying
value and related depreciation are critical to the Group's financial position
and performance.
The charge in respect of periodic depreciation is derived after determining an
estimate of an asset's expected useful life and the expected residual value at
the end of its life. Increasing an asset's expected life or its residual value
would result in a reduced depreciation charge in the consolidated income
statement. The useful lives and residual values of the Group's assets are
determined by management at the time the asset is acquired and reviewed
annually for appropriateness. The lives are based on historical experience
with similar assets as well as anticipation of future events which may
impact their life such as changes in technology. Historically changes in
useful lives and residual values have not resulted in material changes to the
Group's depreciation charge.
The useful economic lives of property, plant and equipment has been estimated
at between 2 and 5 years. If the estimation of economic lives was reduced by
one year, the depreciation charge for property, plant and equipment would have
increased by £669k (year ended 31 December 2020: £1.02m).
Estimation of the value of right of use assets and lease liabilities arising
from long term leases under IFRS16
The estimation of the value of right of use assets and the associated lease
liability arising from long term leases is done by calculating the net present
value of future lease payments. In doing so, the Directors have used a
discount rate of 6.2 per cent.
Estimation of the debt and equity components of Convertible Loan notes
Debt securities which carry an option to convert into equity accounted for as
a debt component and an equity component. Management are required to
estimate the split by valuing the underlying debt with reference to a similar
debt instrument which has no conversion rights and / or by reference to the
value of the option inherent in the conversion right. These calculations
involve the estimate of a number of key components such as appropriate
interest rates, the expected volatility of the company's share price, the
company's future dividend policy, and the likelihood and future date of
conversion. On 2 July 2020, the company issued £340,000 convertible loan
notes repayable on 3 July 2025 if not previously converted or redeemed.
Management have estimated that £272,251 of the principal related to the debt
component and £67,749 related to the equity component.
Estimation of share base payment charges
The calculation of the annual charge in relation to share based payments
requires management to estimate the fair value of the share-based payment on
the date of the award. The estimates are complex and take into account a
number of factors including the vesting conditions, the period of time over
which the awards are recognized, the exercise price of options which are the
subject of the award, the expected future volatility of the company's share
price, interest rates, the expected return on the shares, and the likely
future date of exercise. A new executive scheme was established during the
year ended 31 December 2020 and awards have been made under the scheme in both
2020 and 2021, details of which are set out in note 26. Management has
estimated the annual charge related to the awards made in the year to 31
December 2020 to be £51,222 and £17,313 in respect of awards made in the
year to 31 December 2021. The charge recognised in the year ended 31
December 2021 was £53,073 (2020: £23,477). Further details are provided in
note 24.
Estimation of liabilities arising from Financial Guarantee Contracts -
Franchise lease guarantees
The Company is a co-tenant or has provided a guarantee on a number of property
leases for which a franchisee is the primary lessee. IFRS 9 requires the
recognition of expected credit losses in respect of financial guarantees,
including those provided by the Group. Where there has been a significant
increase in credit risk, the standard requires the recognition of the expected
lifetime losses on such financial guarantees. The assessment of whether there
has been a significant increase in credit risk is based on whether there has
been an increase in the probability of default occurring since previous
recognition. An entity may use various approaches to assess whether credit
risk has increases. The assessment of the probability of default is inherently
subjective and requires management judgement.
In all cases where the Group is co-tenant or has provided guarantees for
underlying leases, the Group has taken security in the form of personal
guarantees from the lessee and, in addition, has step-in rights which enable
the relevant company in the group to take over the assets and operations of
the franchisee and to operate the site as an owner-operated site. Management
believes that the personal guarantees and step in rights significantly reduce
the probability of incurring losses and provide a mechanism to mitigate any
adverse impact on the group in the event of any guarantees being called upon.
Details of the number of lease guarantees provided, the average length of the
guarantee and the average annual rental are given in note 22.
Each guarantee is assessed separately. Management's view of the probability
of the lessee defaulting on its lease obligations is assigned to the specific
guarantee. Lessees are categorized on a rating of 1 - 5, which allocates a
probability of default to each banding, with category 1 representing very
limited risk, and 5 representing extreme risk. Management then assesses the
likelihood of the personal guarantee from the lessee, together with the
step-in rights being insufficient to cover in full the payments required to be
made under the guarantee provided to the landlord. This is based on historic
experience of the former owner of Boom Battle Bars which has, in a number of
occasions, taken on existing franchisees within other parts of its business
which have either been re-sold or have since become owner-operated sites.
Based on this experience and taking account of the current economic
environment, Management has judged that 1 in 6 sites where the guarantee is
called would result in a loss. Finally, management applies an assessment as
to the proportion of the future lease liability that might be suffered in the
event that the guarantee is not fully covered by the personal guarantees and /
or the step in rights. The proportion used in the calculation was 50%.
This cumulative probability is applied to the net present value of the future
lease liability. The net present value is calculated by reference to the
expected future cash payments required under the lease using a discount rate
of 6.2%, which is consistent with the rate used to assess the company's
property lease liabilities under IFRS 16.
In the year to December 2021, the average probability of default used across
the portfolio was assessed as 10% (2020: not applicable). This was made on the
basis that the franchisees are all relatively new and remain inexperienced in
operating Boom sites. The overall expected loss provision at 31 December
2021 was £25,548 (2020: not applicable).
Sensitivities.
The key assumptions impacting the assessment of the expected loss provision
are the discount rate used to calculate the net present value of the leases
under guarantee; the probability of default assigned to each guaranteed lease;
the proportion of defaulted leases that would give rise to a credit loss; and
the proportion of the total liability that would not be covered by security
and step-in rights. The sensitivity to each of these assumptions in each of
the three years to 31 March is shown in the table below:
Assumption Base case Sensitivity applied Increase in Expected loss provision (£'000)
2021 2020
Discount rate 6.2% 1% decrease 1.7 na
Probability of default Individually assessed 10% increase in probability of default 2.5 na
Proportion of defaulted leases giving rise to a loss 16.67% Increase by 3.33% 5.1 na
(1 in 6) (1 in 5)
Proportion of liability not covered by guarantee / step-in right 50% 10% increase in loss 5.1 na
Estimation of the value of Contingent consideration and implied interest
charges
The value of the contingent consideration in relation to Boom Battle Bars has
been estimated using a share price of 35.8p per XP Factory share, being the
share price on 23(rd) November 2021, the date that the Acquisition of Boom
Battle Bars completed, and assuming all 25,000,000 shares potentially due
under the provisions of the sale agreement are issued. The valuation is
considered a level 2 valuation under IFRS 13, indicating that it is a
financial liability that does not have regular market pricing, but whose value
can be determined using other data values or market prices. The future value
of the contingent consideration, which is due to be settled on completion of
the audit for the group for the year ended 31 December 2022 (assumed to be 18
months after the acquisition) has been calculated using a cost of capital of
13.7 per cent and an implied share price of 43.4 pence per share. The
difference between the fair value at acquisition and the future value will be
recognised as a finance charge over the 18 months between the date of
acquisition and the expected date of settlement as set out below. The
estimated consideration assumes the contingent consideration will be payable
in full.
A 1% reduction in the in the discount rate used would reduce the implied
interest charge in 2021 by £8k and by £142k over the 18 month period.
Estimation of valuation of acquired intangibles
As part of the acquisition of Boom Battle Bars, the Directors have recognised
£4,386k as relating to franchise contracts in place at the date of
acquisition. The valuation takes into account the forecasts revenue from the
relevant franchise contracts over the remaining life of the contracts, net of
tax and allocated costs to service the contracts, discounted at the estimated
cost of capital, 13.7 per cent.
A 1% increase in the cost of capital applied would reduce the value of
acquired intangibles in the year by £153k.
4. Revenue
Year Year
ended ended
31 December 31 December
2021 2020
£'000 £'000
Upfront location exclusivity fees, support and administration fees 247 268
Franchise revenue share 456 309
Game revenues from owned branches 6,240 2,070
Other 41 11
6,984 2,658
Revenues from contracts with customers:
Year Year
ended Ended
31 December 31 December
2021 2020
£'000 £'000
Revenue from contracts with franchise customers
703 577
Revenue from customers at owner operated branches
6,281 2,081
Total revenue from contracts with customers 6,984 2,658
In respect of contracts from franchise customers, the satisfaction of
performance obligations is treated as over a period of up to 10 years. The
typical timing of payment from customers is a mixture of upfront fees, payable
at the start of the contract, fixed fees payable quarterly or monthly during
the term of the contract and variable consideration typically received shortly
after the month in which the revenue has been accrued.
Future upfront exclusivity fee income that has been deferred on the balance
sheet is certain as the amount has already been received. Support and
administrative fees and other fees are considered to be reasonably certain and
unaffected by future economic factors, except to the extent that adverse
economic factors would result in premature franchise closure. Revenue based
service fees are dependent on and affected by future economic factors,
including the performance of franchisees.
A total of £6.28m (2020: £2.08m) of revenues relate to the owner-operated
segment. All other revenues in the table refer to the franchise segment as
detailed in Note 5 (Segment Information).
Upfront exclusivity fees are billed and received in advance of the performance
of obligations. This generally creates deferred revenue liabilities which
are greater than the amount of revenue recognised from each customer in a
financial year.
Revenue share income is necessarily billed monthly in arrears (and accrued on
a monthly basis).
5. Segment information
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the group of
executive directors and the chief executive officer who make strategic
decisions.
Management considers that the Group has four operating segments. Revenues are
reviewed based on the nature of the services provided under each of the Escape
Hunt™ and Boom Battle Bar™ brands as follows:
· The Escape Hunt franchise business, where all franchised branches are
operating under effectively the same model;
· The Escape Hunt owner-operated branch business, which as at 31 December 2021
consisted of 16 Escape Hunt sites in the UK, one in Dubai, one in Paris and
one in Brussels; and
· The Boom Battle Bar franchise business, where all franchised branches operate
under the same model within the Boom Battle Bar™ brand.;
· The Boom Battle Bar owner-operated branch and franchise business comprising 2
Boom Battle Bar sites in the UK.
The Group operates on a global basis. As at 31 December 2021, the Company had
active Escape Hunt franchisees in 10 countries. The Company does not presently
analyse or measure the performance of the franchising business into geographic
regions or by type of revenue, since this does not provide meaningful analysis
to managing the business. The geographic split of revenue was as follows:
Year Year
ended ended
31 December 31 December
2021 2020
£'000 £'000
United Kingdom 5,094 2,081
Europe 880 204
Rest of world 1,011 373
6,984 2,658
Segment results, assets and liabilities include items directly attributable to
a segment as well as those that can be allocated on a reasonable basis.
The cost of sales in the owner-operated business comprise variable site staff
costs and other costs directly related to revenue generation.
Escape Hunt Escape Hunt Boom Boom
Owner Franchise operated Owner Franchise operated Unallocated Total
operated operated
Year ended 31 December 2021 £'000 £'000 £'000 £'000 £'000
6,018 592 263 111 - 6,984
Revenue
Cost of sales (1,585) (185) (134) - - (1,904)
Gross profit/(loss) 4,433 407 129 111 - 5,080
(1,974) - (108) - - (2,082)
Site level operating costs
Other income 371 - - - - 371
IFRS 16 adjustment 598 - 63 - - 661
Site level EBITDA 3,428 407 84 111 - 4,030
Centrally incurred overheads (1,479) (130) (2) (30) (3,009) (4,651)
Other income - - - - 3,236 3,236
IFRS 16 adjustment - - - - 37 37
EBITDA 1,949 277 82 81 264 2,653
Interest charges - - - - (131) (131)
Lease charges (208) - (25) - - (233)
Depreciation and amortisation (1,706) (16) (15) - (455) (2,192)
Depreciation - right-of-use assets (578) - (35) - - (613)
Foreign currency losses - - - - (18) (18)
Share-based payment expenses - - - - (62) (62)
Provision against loan to franchisee - (78) - - - (78)
Provision for guarantee losses - - (8) - - (8)
Loss of disposal of assets - - - - (50) (50)
Exceptional Professional & Branch Closure Costs (4) - - - (235) (239)
Branch pre-opening costs (54) - (49) - - (103)
Profit on closure / modification of leases 41 - - - - 41
Rent credits recognised 148 - - - - 148
Profit/(loss) before tax (412) 183 (50) 81 (687) (885)
Taxation - - 11 11
Profit/(loss) after tax (412) 183 (50) 81 (676) (874)
Other information:
Non-current assets 12,155 405 956 4,349 17,427 35,292
Escape Hunt Escape Hunt Boom Boom
Owner Franchise operated Owner Franchise operated Unallocated Total
operated operated
Year ended 31 December 2020 £'000 £'000 £'000 £'000 £'000 £'000
2,081 577 - - - 2,658
Revenue
Cost of sales (740) (38) - - - (778)
Gross profit/(loss) 1,341 539 - - - 1,880
(1,030) - - - (1,030)
Site level operating costs -
Other income 135 - - - - 135
Site level EBITDA 446 539 - - - 985
Centrally incurred overheads (69) (242) - - (2,379) (2,690)
Other income 186 - - - 73 259
EBITDA 563 297 - - (2,306) (1,445)
Interest charges - - - - (17) (17)
Lease charges (168) - - - (12) (180)
Depreciation and amortisation (1,817) (19) - - (2,282) (4,118)
Depreciation - right-of-use assets (310) - - - (70) (380)
Share-based payment expenses - - - - (29) (29)
Loss of disposal of assets (30) - - - - (30)
Exceptional Professional & Branch Closure Costs (52) (29) - - (6) (87)
Rent credits recognised 22 - - - - 22
Provision against loan to franchisee - - - - (300) (300)
Profit/(loss) before tax (1,792) 249 - - (5,022) (6,564)
Taxation - (15) - - - (15)
Profit/(loss) after tax (1,792) 234 - - (5,022) (6,579)
Other information:
Non-current assets 6,588 42 - - 1,136 7,766
In 2020, the company made a provision against the full amount of a loan made
to a franchisee in 2018 as a result of the impact of COVID-19. The loan was
made to provide funding for the fit-out of sites in the Nordic region, has
previously been held as a non-current asset, and is not related to trading
activity. The company does not have a policy of lending money to franchisees
and for this reason the provision is separately disclosed.
Significant customers:
No customer provided more than 10% of total revenue in either the year ended
31 December 2021 or 2020.
6. Operating loss before taxation
Loss from operations has been arrived at after charging / (crediting):
Year Year
ended ended
31 December 31 December
2021 2020
£'000 £'000
Auditor's remuneration:
· Audit of the financial statements 75 33
· Review of interim financial statements
2 2
Impairment of trade receivables 56 101
Exceptional impairment of loan to franchisee - 300
Foreign exchange losses / (gains) 18 (21)
Staff costs including directors, net of amounts capitalized
3,739 2,656
Depreciation of property, plant and equipment (Note 10)
1,721 1,819
Depreciation of right-of-use assets (Note 11)
613 395
Amortisation of intangible assets (Note 12)
471 2,299
Impairment of intangible assets (Note 12) - -
Share-based payment costs (non-employees)
62 29
Research and development grants 3,236 259
Professional fees paid in respect of R&D grants 647 52
Detailed information on statement of profit or loss items:
Cost of sales Year Year
ended ended
31 December 31 December
2021 2020
£'000 £'000
Wages and salaries 1,395 608
Food and beverages 92 10
Other costs of sale 417 160
1,904 778
Administrative expenses Year Year
ended ended
31 December 31 December
2021 2020
£'000 £'000
Depreciation of property, plant and equipment 1,721
1,819
Depreciation of right-of-use assets 613 395
Amortisation 471 2,299
Write-off of assets 50 30
Staff costs including directors, net of amounts capitalised 3,739 1,535
Share-based payments 62 29
Foreign currency (gains) / losses 18 (21)
Other administrative expenses 2,534 2,570
9,208 8,656
Exceptional professional costs of £235k incurred during year relate to fees
paid in respect of elements of the acquisition of Boom Battle Bars which were
aborted.
7. Staff costs
Year Year
Ended Ended
31 December 31 December
2021 2020
£'000 £'000
Wages salaries and benefits (including directors) 3,897 2,796
Share-based payments 63 29
Social security costs 313 227
Other post-employment benefits 153 111
Less amounts capitalised (164) (286)
Less amounts received under the CJRS scheme (460) (756)
3,802 2,121
Key management personnel:
Year Year
Ended Ended
31 December 31 December
2021 2020
£'000 £'000
Wages, salaries and benefits (including directors) 644 544
Share-based payments 40 24
Social security costs 83 71
Pensions 23 22
Other post-employment benefits 6 13
Less amounts capitalised (56) (87)
Less amounts received under the CJRS scheme (56) (40)
685 547
Key management personnel are the directors and one member of staff. Their
remuneration was as follows:
Year ended 31 December 2021
Salary and fees Share-based payments Pension contributions Other benefits
Total
£'000 £'000 £'000 £'000 £'000
Graham Bird 167 12 7 3 189
Richard Rose 60 - - - 60
Richard Harpham 224 17 10 1 252
Karen Bach 30 - - - 30
John Story 18 - - - 18
Other key management 146 11 6 2 165
644 40 23 6 737
Amounts capitalised (56) - - - (56)
Furlough claims (56) - - - (56)
Profit and loss expense 533 40 23 6 602
Year ended 31 December 2020 Salary and fees Share-based payments Pension contributions Other benefits
Total
£'000 £'000 £'000 £'000 £'000
Graham Bird 137 6 7 4 153
Richard Rose 47 - - 4 51
Richard Harpham 198 10 9 3 220
Adrian Jones 4 - - - 4
Karen Bach 26 - - - 26
John Story 8 - - - 8
Other key management 124 8 6 3 140
544 24 22 13 602
Amounts capitalised (87) - - - (87)
Furlough claims (40) - (40)
Profit and loss expense 417 24 22 13 476
The average monthly number of employees was as follows:
Year ended Year ended
31 December 31 December
2021 2020
No. No.
Management 4 4
Administrative 27 22
Operations 191 120
222 146
8. Taxation
The Group has made no provision for taxation as it has not yet generated any
taxable profits. A reconciliation of income tax expense applicable to the loss
before taxation at the statutory tax rate to the income tax expense at the
effective tax rate of the Group is as follows:
Year Year
Ended Ended
31 December 31 December
2021 2020
£'000 £'000
Loss before taxation (885) (6,564)
Tax calculated at the standard rate of tax of 19% (2020:19%) (168) (1,247)
Tax effects of:
Expenses not deductible for tax purposes 53 118
Non-taxable income (597)
Enhanced relief for qualifying additions (35)
Unrecognised tax losses 625 1,113
Foreign operations (29)
Non qualifying amortisation 33
Depreciation on ineligible assets 81
Increase in dilapidation provision 14
Capital allowances in excess of depreciation - 4
Notional interest on contingent consideration 20 -
Other (8) 27
(11) 15
The Group has tax losses of approximately £18,839k as at 31 December 2021
(£15,195k as at 31 December 2020) which, subject to agreement with taxation
authorities, are available to carry forward against future profits. The tax
value of such losses amounted to approximately £3,579k (£2,887k as at 31
December 2020). A deferred tax asset has been recognised in respect of £572k
(2020: £Nil) of these losses to offset the deferred tax liability in respect
of fixed asset temporary differences. A deferred tax asset has therefore not
been recognised in respect of the remaining tax losses of £18,267k (2020:
£15,195k).
Recognised temporary differences as at 31 December
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Fixed asset temporary differences 143 -
Unused tax losses (143) -
- -
Tax expense (continued)
Changes in tax rates and factors affecting the future tax charge
Changes to the UK corporation tax rates were made as part of the 2021 Budget.
These were substantially enacted on 24 May 2021. This included an increase to
the main rate from 19% to 25% from April 2023. The company will be taxed at a
rate of 25% unless its profits are sufficiently low enough to qualify for a
lower rate of tax, the lowest being 19%.
A deferred tax liability arises on fixed asset temporary differences.
On the acquisition of both the French master franchise in March 2021 and the
Boom group of companies in November 2021, there were intangibles acquired as
part of the purchase. These acquired intangibles have been deemed to create a
deferred tax liability and calculated at 25.75% for France and 25% for Boom.
In total, these amounted to £1,112k. These deferred tax liabilities have been
recognised in the period and are been amortised over the same periods as the
acquired intangibles in each group.
9. Loss per share
Basic loss per share is calculated by dividing the loss attributable to equity
holders by the weighted average number of ordinary shares in issue during the
period. Diluted net loss per share is calculated by dividing net loss by the
weighted average number of shares in issue and potential dilutive shares
outstanding during the period.
Because Escape Hunt is in a net loss position, diluted loss per share excludes
the effects of ordinary share equivalents consisting of stock options and
warrants, which are anti-dilutive. The total number of shares subject to share
options and conversion rights outstanding excluded from consideration in the
calculation of diluted loss per share for the year ended 31 December 2021 was
19,699,481 shares (year ended 31 December 2020: 19,699,481 shares).
Year Year
Ended Ended
31 31 December
December
2021 2020
Loss after tax attributable to owners of the Company (£'000)
(874) (6,641)
Weighted average number of shares:
· Basic and diluted 93,846,053 53,720,694
Loss per share
· Basic and diluted (Pence) (0.93) (12.36)
10. Property, plant and equipment
Leasehold improvements Office equipment Computers Furniture and fixtures Games Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost:
At 1 January 2020 2,776 9 75 238 3,071 6,169
Additions 793 6 35 24 980 1,838
Additions arising from acquisition 336 - 12 - - 347
Disposals - - - - (89) (89)
As at 31 December 2020 3,905 15 122 262 3,962 8,266
Additions 965 - 32 37 1,601 2,635
Additions arising from acquisition 617 36 19 543 12 1,227
Disposals (22) (1) (8) (18) (49) (98)
As at 31 December 2021 5,465 50 165 824 5,526 12,030
Accumulated depreciation:
As at 1 January 2020 (749) (8) (34) (50) (1,393) (2,234)
Additions arising from acquisition (318) - (9) - - (327)
Depreciation charge (584) (5) (43) (60) (1,128) (1,820)
Disposals - - - - - -
As at 31 December 2020 (1,651) (13) (86) (110) (2,521) (4,381)
Additions arising from acquisition (322) (34) (1) (92) - (449)
Depreciation charge (822) (3) (22) (78) (796) (1,721)
Translation differences (2) - - - (18) (20)
Disposals 12 1 8 10 26 57
As at 31 December 2021 (2,785) (49) (101) (270) (3,308) (6,514)
Net book value
As at 31 December 2021 2,680 1 64 554 2,217 5,516
As at 31 December 2020 2,254 2 36 152 1,441 3,885
The amount of expenditure recognised in the carrying value of leasehold
improvements in the course of construction at 31 December 2021 is £nil (2020:
£62,000).
11. Right-of-use assets and lease liabilities
Year ended Year ended
Right-of-use assets 31 December 31 December
2021 2020
£'000 £'000
Land and buildings - right-of-use asset cost b/f 3,884 3,127
Closures / leases ended for renegotiation during the year (211) (336)
Additions during the year, including through acquisition 5,400 1,034
Newly negotiated leases 86 152
Less: Accumulated depreciation b/f (944) (657)
Depreciation charged for the year (613) (380)
Net book value 7,602 2,940
The Group leases land and buildings for its offices and escape room and battle
bar venues under agreements of between five to fifteen years with, in some
cases, options to extend. The leases have various escalation clauses. On
renewal, the terms of the leases are renegotiated.
During the year ended 31 December 2021, £148k of rent concessions have been
recognised in the profit and loss (2020: £22k) to reflect credits provided by
landlords during the COVID-19 pandemic. Only those rent concessions which
adequately fulfil the criteria of paragraph 46A of the amendment to IFRS 16 on
this subject have been included in the profit and loss.
Where leases have been renegotiated during the year due to the COVID-19
pandemic, these have been treated as modifications of leases and included as
separate items in the note above.
Year ended Year ended
Lease liabilities 31 Dec 31 Dec
2021 2020
£'000 £'000
In respect of right-of-use assets
Balance at beginning of period 3,742 2,602
Closures / leases ended for renegotiation during the year (253) (317)
Additions during the year 5,400 1,034
Newly negotiated leases 87 152
Interest incurred 233 180
Rent concessions received (148) (22)
Repayments during the period (759) (181)
Reallocated (to) / from accruals and trade payables 103 294
Lease liabilities at end of period 8,405 3,742
As at As at
31 Dec 31 Dec
2021 2020
£'000 £'000
Maturity
Current
< 1 month 42 41
1 - 3 months 84 81
3 - 12 months 290 367
Non-current 7,989 3,253
Total lease liabilities 8,405 3,742
In the Escape Hunt group of companies, leases are generally 10 years with a 5
year break clause. Where the break clause is tenant only the leases are
accounted for over 10 years as it is assumed the break clause will not be
enacted, whereas where the 5 year break clause is both ways, leases are
accounted for over 5 years.
In the Boom group of companies, leases are generally over 15 years with a 10
year tenant only break clause, so leases are accounted for over 10 years. The
group has no short term leases of properties.
None of these leases imposed restrictions or covenants.
The group also leases laptops for a small number of staff on leases of 3
years. The charge to the profit and loss for the year ended 31 December 2021
for these computers was £7k (2020: £1k). These leases are all cancellable on
short notice.
There are a small number of properties for which turnover rent is payable. The
amount charged to the profit and loss for these turnover rent payments in the
year ended 31 December 2021 was £99k (2020: £14k).
As at 31 December 2021 there were no leases that had not commenced to which
the group were committed.
12. Intangible assets
Goodwill Trademarks Intellectual property Internally generated IP Franchise agreements App Quest Portal Total
£'000 £'000 £'000 £'000 £'000 £'00' £'000 £'000
Cost
At 1 January 2020 1,393 78 10,195 568 802 100 269 13,405
Additions arising from internal development - - - - - - 294
294
Additions arising from acquisition 19 - - - - - - 19
Disposals - - - (7) - - - (7)
At 31 December 2020 1,412 78 10,195 855 802 100 269 13,711
Additions arising from internal development - - - - - - 119
119
Additions arising from acquisition 16,284 - - 752 4,446 - 47 21,529
Disposals - - - (10) - - - (10)
As at 31 December 2021 17,696 78 10,195 1,715 6,668 100 316 35,349
Accumulated amortisation / impairment
At 1 January 2020 (1,393) (29) (8,353) (151) (306) (100) (167) (10,499)
Amortisation for the year - (18) (1,842) (114) - (72) (2,299)
(254)
Impairment provision - - - - - - - -
At 31 December 2020 (1,393) (47) (10,195) (404) (420) (100) (239) (12,798)
Amortisation for the year - (13) - (160) - (34) (472)
(265)
Additions arising from acquisition - - - - - - (30) (30)
Translation differences - - - - - - (3) (3)
Disposals - - - - - - - -
As at 31 December 2021 (1,393) (60) (10,195) (669) (591) (100) (306) (13,303)
Carrying amounts
At 31 December 2021 15,238 18 - 1,046 6,077 - 10 22,046
At 31 December 2020 19 31 - 450 382 - 31 913
Goodwill and acquisition related intangible assets recognised have arisen from
the acquisition of Experiential Ventures Limited in May 2017, Escape Hunt
Entertainment LLC in September 2020 and of BGP Escape France and BGP
Entertainment Belgium in March 2021 plus the Boom group of companies in
November 2021. Refer to Notes 13 and 14 for further details.
Goodwill acquired in a business combination is allocated, at acquisition, to
the cash generating units ('CGUs') that are expected to benefit from that
business combination. Management considers that the goodwill is attributable
to the owner-operated business because that is where the benefits are expected
to arise from expansion opportunities and synergies of the business.
No value was attributed to the brand and customer relationships as the Board's
strategic review of the business and a repositioning of our branding exercise
enabled the Group to clearly define its quality, service and values, and make
it more attractive to new customers and partners. Furthermore, the value of
any existing brand and customer relationships which was separately
identifiable from other intangible assets was insignificant.
The Group tests goodwill annually for impairment or more frequently if there
are indications that these assets might be impaired. The recoverable amounts
of the CGU are determined from fair value less costs to sale. The value of the
goodwill comes from the future potential of the assets rather than using the
assets as they are (i.e. there is assumed expansionary capex which supports
growth in revenues and the value of the business and therefore goodwill).
The key assumptions for the fair value less costs to sale approach are those
regarding capital expenditure which supports a consequent growth in revenues
and associated earnings and a discount rate. The Group monitors its pre-tax
Weighted Average Cost of Capital and those of its competitors using market
data. In considering the discount rate applying to the CGU, the Directors have
considered the relative sizes, risks and the inter-dependencies of its CGUs.
The impairment reviews use a discount rate adjusted for pre-tax cash flows.
The Group prepares cash flow forecasts derived from the most recent financial
plan approved by the Board and extrapolates revenues, net margins and cash
flows for the following three years based on forecast growth rates of the CGU.
Cash flows beyond this period are also considered in assessing the need for
any impairment provisions. A discount rate of 13.7% and capex of £15.9
million over the three years has been assumed. Growth in years 4- 6 is assumed
at 3% per annum. The growth rate used for the fair value calculation
thereafter is 2%. The directors consider these assumptions are consistent
with that which a market participant would use in determining fair value.
Intellectual property
The Intellectual Property relates to the valuation of the Library of Game Wire
Frame Templates of games, the process of games development and the inherent
know how and understanding of making successful games.
The fair value of these assets on acquisition of £10,195k was determined by
discounting estimated future net cash flows generated by the asset where no
active market for the assets exists.
The Group tests intellectual property for impairment only if there are
indications that these assets might be impaired. An impairment loss is
calculated as the difference between its carrying amount and the present value
of the estimated future cash flows.
Franchise agreements
The intangible asset of the Franchise Business was the net present value of
the net income from the franchisee agreements acquired.
The approach selected by management to value the franchise agreements was the
Multi-Period Excess Earnings Method ("MEEM") which is within the income
approach. The multi-period excess earnings method estimated value is based on
expected future economic earnings attributable to the agreements.
The key assumptions used within the intangible asset valuation were as
follows:
· Economic life - The valuation did not assume income for a period longer than
the asset's economic life (the period over which it will generate income). The
contractual nature of the Franchise Agreements (with terms typically between 6
and 10 years) means it is possible to forecast with a reasonable degree of
certainty the remaining term of each agreement and therefore the period in
which it will generate revenue. Only contracts which were signed at the
acquisition date were included.
· Renewal - No provision for the renewal of existing Franchise Contracts has
been included with the valuation. This reflects the fact that potential
contract renewals will only take place several years in the future, and the
stated strategy of management has been to focus on the development of
owner-managed sites rather than renewing the franchises when they are due for
renewal - as they may be bought out.
· Contributory Asset Charges (CAC-) - The projections assumed after returns are
paid/charged to complementary assets which are used in conjunction with the
valued asset to generate the earnings associated with it. The only CAC
identified by management is the charge relating to IP - a charge has been
included to take into account the Intellectual Property used within the
franchise operation. This is considered key in generating earnings at the
franchised sites. Management has applied the same royalty rate of 10% used to
value this asset.
· Discount Rate - The Capital Asset Pricing Model ("CAPM") has been used to
calculate a discount rate of 13.7%.
· Taxation - At the time of acquisition, the franchise profits were earned
within a group subsidiary which was incorporated in the Labuan province of
Malaysia. The tax rate applicable in Labuan was applied to the earnings
generated from franchise operations for franchise contracts acquired at that
time. The acquisitions in France and the UK during 2021 have used anticipated
tax rates of 25.75% and 25% respectively
The carrying amount of the franchise agreements has been considered on the
basis of the value in use derived from the expected future cash flows.
13. Subsidiaries
Details of the Company's subsidiaries as at 31 December 2021 are as follows:
Name of subsidiary Country of incorporation Principal activity Effective equity interest held by the Group (%) Ref
Experiential Ventures Limited Seychelles Former holding company - In dissolution 100 #2
Escape Hunt Group Limited England and Wales Operator of escape rooms 100 #1
Escape Hunt Operations Ltd Malaysia Former operator of escape rooms - In dissolution #2
100
E V Development Co. Ltd Thailand Formerly game design - In dissolution 99.9 #2
Escape Hunt IP Limited England and Wales IP licensing 100 #1
Escape Franchises Limited England and Wales Franchise holding 100 #1
Escape Hunt Innovations Limited England and Wales Game design 100 #1
Escape Hunt Limited England and Wales Dormant 100 #1
Escape Hunt USA Franchises Ltd England and Wales Franchise holding 100 #1
Escape Hunt Entertainment LLC United Arab Emirates Operator of Escape Rooms in Dubai and master franchise to the Middle East 100 #3
BGP Escape France France Operator of Escape Rooms in Paris and master franchise to France, Belgium and 100 #1
Luxembourg
BGP Entertainment Belgium Belgium Operator of Escape Rooms in Brussels 100 #1
Boom BB One Limited England and Wales Operator of battle bar Lakeside 100 #2
BBB Seven Limited England and Wales Operator of battle bar O2 100 #2
BBB UK Trading Limited England and Wales Previous head office for Boom group 100 #2
BBB Seventeen Limited England and Wales Holder of Boom IP 100 #2
BBB Franchise Limited England and Wales Franchise holding 100 #1
BBB Thirteen Limited England and Wales Operator of battle bar Oxford Street 100 #2
BBB Ventures Limited England and Wales Intermediate holding company 100 #2
Boom BB Two Limited England and Wales Operator of battle bar - location TBC 100 #2
BBB Sixteen Limited England and Wales Operator of battle bar - location TBC 100 #2
BBB Six Limited England and Wales Operator of battle bar - Edinburgh 100 #2
BBB Eleven Limited England and Wales Operator of battle bar - Location TBC 100 #2
BBB Fifteen Limited England and Wales Operator of battle bar - location TBC 100 #2
BBB Twelve Limited England and Wales Operator of battle bar - Manchester 100 #2
BBB Three Limited England and Wales Operator of battle bar - location TBC 100 #2
BBB Fourteen Limited England and Wales Operator of battle bar - Exeter 100 #2
Each of the companies incorporated in England and Wales have their registered
office at Belmont House, Station Way, Crawley, RH10 1JA.
Each of the subsidiaries for which reference #1 is shown is directly held by
the Company. Those referenced #2 are held indirectly through one of the
directly held subsidiaries. Those referenced #3 are held via nominee
arrangements.
The registered address of each overseas subsidiary is as follows:
Experiential Ventures Limited
103 Sham Peng Tong Plaza, Victoria, Mahe, Seychelles.
Escape Hunt Operations Ltd
Lot A020, Level 1, Podium Level, Financial Park Labuan, Jalan Merdeka,8700
Labuan, Malaysia.
E V Development Co. Ltd
No. 689 Bhiraj Tower at EmQuartier, Sukhumvit (Soi 35) Road, Klongton-Nua
Sub-district, Bangkok, Thailand.
Escape Hunt Entertainment LLC
Retail Space 26, Galleria Mall, Al Wasl Road, Bur Dubai, Dubai,
BGP Escape France
112 bis rue cardinet 75017, France
BGP Entertainment Belgium
13-15 rue de Livourne, 1060 Brussels
14. Business Combination
Acquisition of French and Belgium master franchise
On 9th March 2021, XP Factory Plc acquired 100% of the equity interest in
BGP Entertainment Belgium and BGP Escape France, thereby obtaining control.
BGP Entertainment Belgium runs an owner operated escape room in Brussels and
BGP Escape France holds the master franchise for the territory of France,
Belgium and Luxembourg and also runs an owner operated venue in Paris.
The details of the business combination are as follows:
£'000
Fair value of consideration transferred
Amounts settled in cash 278
Net loan receivable (19)
Contingent consideration 248
Total purchase consideration 507
Contingent consideration includes a preliminary estimate on the earnout
payable on the owned and operated sites.
There were no shares or other contingent consideration to be included in the
total purchase price.
Further acquisition related costs of £66k that were not directly attributable
to the issue of shares are included in administrative expenses under the owner
operated segment.
Book Value Fair Value Adjustment £'000 Fair Value £'000
£'000
Assets and liabilities recognised as a result of the acquisition
Cash 139 - 139
Trade receivables (net of provisions) 78 - 78
Other receivables and deposits 19 - 19
Property, plant and equipment 95 - 95
Right of use assets 282 - 282
Intangible assets 17 - 17
Trade payables (161) - (161)
Lease liabilities (282) - (282)
Other payables (135) - (135)
Net identifiable assets acquired 52 - 52
Valuation of acquired intangibles - 61 61
Goodwill arising on consolidation - 410 410
Deferred tax liability recognised - (16) (16)
Total 52 455 507
The fair value of acquired trade receivables is £78k. The gross contractual
amount for trade receivables due is £128k of which £50k had been provided
against as at the date of acquisition.
The excess of the total consideration over the net identifiable assets
acquired of £456k has been analysed and £61k has been recognised on the
balance sheet as an intangible asset relating to the future cashflows from the
franchise agreements active in the region. The remaining £395k of goodwill is
primarily related to growth expectations, expected future profitability and
the expertise and experience of BGP Entertainment and BGP Escape's workforce.
A further £16k has been recognised as Goodwill related to the deferred tax
liability recognised on the £61k intangible asset. Goodwill has been
allocated to the owner operated segment and is not expected to be deductible
for tax purposes. The intangible assets have been allocated to the franchise
segment and are being amortised over 6 years to reflect the average length of
time remaining on the franchise agreements.
BGP Entertainment and BGP Escape together contributed revenues of £634k and
net losses of (£1k) in the nine months between acquisition and 31 December
2021. If the acquisition had occurred on 1 January 2021, consolidated revenue
would have been £50k higher, however consolidated net profits would have been
£35k lower due to the Brussels site being closed due to COVID for most of the
period.
Acquisition of Boom Battle Bars
On 22(nd) November 2021, XP Factory Plc acquired 100% of Boom Battle Bars
Group, thereby obtaining control. The group consists of fifteen companies,
their individual activities as listed in Note 13, however at the time of
purchase there was one overall holding company, one IP Holding company, one
head office company, one franchise holding company and eleven operating
companies intending to each run a Boom Battle Bar location, of which one was
already live and five more had sites allocated and intending to open.
The details of the business combination are as follows:
£'000
Fair value of consideration transferred
Amounts settled in cash 9,607
Vendor Loan 360
Contingent consideration 8,950
Deferred consideration 637
Total consideration 19,554
Contingent consideration includes a preliminary estimate on the earnout
payable in respect of the acquisition, discounted to present value at a rate
of 4.7 per cent. Deferred consideration represents the amount estimated to
be payable as a result of the net debt adjustment which will be finalised with
the completion of the audits of the Boom companies acquired. The contingent
consideration is payable by means of an issue of up to 25,000,000
Consideration Shares. The deferred consideration is expected to give rise to
an additional £637k payable to the vendors.
The issue of the Consideration Shares is conditional on the performance of the
Boom Battle Bars Group following completion of the acquisition. The
Consideration Shares are subject to an earn-out and will only be issued if the
performance of the Boom Battle Bars Group in the financial year ending 31
December 2022 meets a combination of the turnover and site roll-out targets
set out below. The Consideration Shares are expected to be issued during
the first half of 2023 and are be subject to lock-in until 15 July 2023.
The turnover component comprises 66.7 per cent. of the earn-out calculation
and the site roll-out plan makes up the balance of 33.3 per cent, (with 20 per
cent. linked to owner operated sites and 13.3 per cent. linked to franchise
sites). There is a limited ability for an over-performance against one
target to compensate for potential under-performance against another such that
the turnover component can comprise a maximum of 75% of the earn-out
calculation, if the turnover target is exceeded but the site roll-out target
is not achieved, and the site roll-out plan a maximum of 40% of the earn-out
calculation, if the site roll-out plan is exceeded but the turnover earn-out
target is not achieved. .
The earn-out target numbers are:
· £10.96 million combined turnover from the owner-operated Boom sites and from
the Boom franchise revenue share in the year to 31 December 2022;
· 7 owner operated sites open by 31 December 2022; and
· 20 franchise sites open by 31 December 2022.
If each of these earn-out targets is achieved in full then the maximum number
of Consideration Shares will be issued to the seller.
If the earn-out targets are not satisfied in full then there is a reducing
straight line sliding scale for the partial achievement of each component of
the earn-out down to the minimum criteria. If the minimum criteria are not
met in every element of the earn-out then no Consideration Shares will be
issued. The minimum criteria for each element of the earn-out are:
· £8.15 million combined turnover from the owner-operated sites and from the
franchise revenue share in the year to 31 December 2022;
· 13 franchise sites open by 31 December 2022; and
· 5 owner operated sites open by 31 December 2022.
Further acquisition related costs of £99k that were not directly attributable
to the issue of shares are included in administrative expenses under the owner
operated segment.
Book Value Fair Value Adjustment £'000 Fair Value £'000
£'000
Assets and liabilities recognised as a result of the acquisition
Cash 15 - 15
Inventory 34 - 34
Trade receivables (net of provisions) 351 - 351
Other receivables 1,036 - 1,036
Stock and work in progress 510 - 510
Property, plant and equipment 725 - 725
Intangible assets 752 - 752
Right of use assets 4,818 - 4,818
Trade payables (900) - (900)
Accruals, deferred income and other payables (1,739) - (1,739)
Loans (375) - (375)
Lease liabilities (4,818) - (4,818)
Net identifiable assets acquired 409 - 409
Valuation of acquired intangibles - 4,385 4,385
Goodwill arising on consolidation - 15,874 15,874
Deferred tax liability recognised - (1,096) (1,096)
IFRS 9 provision - (18) (18)
Total 409 19,145 19,554
The fair value of acquired trade receivables is £351k. The gross contractual
amount for trade receivables due is £351k of which none had been provided
against as at the date of acquisition.
The excess of the total consideration over the net identifiable assets
acquired of £19,145k has been analysed and £4,386k has been recognised on
the balance sheet as an intangible asset relating to the future cashflows from
the franchise agreements active in the UK. The remaining £14,759k of goodwill
is primarily related to growth expectations, expected future profitability and
the expertise and experience of the team. A further £1,096k has been
recognised as Goodwill related to the deferred tax liability recognised on the
£4,386 intangible asset. Goodwill has been allocated to the owner operated
segment and is not expected to be deductible for tax purposes. The intangible
assets have been allocated to the franchise segment and are being amortised
over 10 years to reflect the average length of time remaining on the franchise
agreements.
The Boom Group of companies together contributed revenues of £374k and net
losses of (£76k) in period between acquisition and 31 December 2021. If the
acquisition had occurred on 1 January 2021, consolidated revenue would have
been £2,953k higher but consolidated net profits would have been £150k lower
due to pre-opening costs of both the Lakeside and O2 venues.
15. Loan to franchisee
A loan of £300,000 is due from a master franchisee which bears interest at 5%
per annum plus 2% of the franchisee's revenues and is repayable in instalments
between January 2020 and June 2023.
The majority of income receivable under the terms of the loan relates to
interest at a fixed rate. The impact of COVID-19 on the borrower in 2020 has
been significant, as a result of which it is considered unlikely that the loan
will be repaid. The pandemic caused the franchisee to fall into arrears on
rent and on loan repayments. A compromise has been reached between the
franchisee and the respective landlord, but payments have not resumed. As at
31 December 2021 this loan has been provided for in full.
£84k has been loaned to our area representative in the US in return for an
enhanced revenue share from the Houston site. The agreement entitles the
group to an additional 25 per cent revenue share from certain games in the
Houston site and rolls up interest at 20 per cent per annum. Repayments
commence six months after the installation of the games, which were completed
in November 2021.
16. Trade and other receivables
As at As at
31 December 31 December
2021 2020
£'000 £'000
Trade receivables (customer contract balances) 848 182
Prepayments 666 208
Accrued income (customer contract balances) 122 20
Accrued interest - -
Deposits and other receivables 3,354 491
4,990 901
The Group's exposure to credit risk and impairment losses related to trade
receivables is disclosed in Note 29.
Significant movements in customer contract assets during the year ended 31
December 2021 are summarised below:
Year ended 31 December 2021: Trade Accrued income
Receivables
£'000 £'000
Contract assets:
Balance at 1 January 2021 182 20
Transfers from contract assets recognised at the beginning of the period to 20 (20)
receivables
Net increases as a result of changes in the measure of progress 910 122
Provisions for doubtful amounts (264) -
Balance at 31 December 2021 848 122
The amount of revenue recognised from performance obligations satisfied in
previous periods is nil.
We receive payments from customers based on terms established in our
contracts. In the case of franchise revenues in Escape Hunt, amounts are
billed within five working days of a month end and settlement is due by the
14(th) of the month. In the case of franchise revenues in Boom Battle Bar,
amounts are billed every Tuesday and settlement is due by Friday each week.
Accrued income relates to our conditional right to consideration for our
completed performance under the contract, primarily in respect of franchise
revenues. Accounts receivable are recognised when the right to consideration
becomes unconditional.
17. Inventories
As at As at
31 December 31 December
2021 2020
£'000 £'000
Branch consumables (at cost) 24 16
Stocks and Work in Progress 438
Total inventories 462 16
Inventories are stated at the lower of cost and net realisable value. Cost is
based on the weighted average principle and includes expenditure incurred in
acquiring the inventories and other costs in bringing them to their existing
location and condition. As items are sold, the costs of those items are drawn
down from the value of inventory and recorded as an expense under costs of
sale in the profit and loss for the period.
Work in progress includes the cost associated with fit-out work on sites which
are subsequently sold to a franchisee and is recognised at the point of
transaction. Work in progress is derecognised when an invoice is raised to a
franchisee or when it is determined that it is not recoverable.
The movement in stocks and work in progress was as follows:
As at As at
31 December 31 December
2021 2020
£'000 £'000
Balance brought forward 16 12
Utilised in the year (218) (10)
Acquired through acquisition 544 -
Purchases / const incurred 120 14
Total inventories 462 16
18. Cash and cash equivalents
As at As at
31 December 31 December
2021 2020
£'000 £'000
Bank balances 8,225 2,722
Cash and cash equivalents in the statement of cash flow 8,225 2,722
The currency profiles of the Group's cash and bank balances are as follows:
As at As at
31 December 31 December
2021 2020
£'000 £'000
Pounds Sterling 7,202 2,337
Australian Dollars 192 34
United States Dollars 350 7
Euros 339 235
Others 142 108
8,225 2,722
19. Trade and other payables (current)
As at As at
31 December 31 December
2021 2020
£'000 £'000
Trade payables 1,527 606
Accruals 2,065 652
Deferred income 1,201 441
Taxation - 17
Loans due in < 1yr 404 -
Other taxes and social security 605 82
Other payables 219 65
6,021 1,861
20. Deferred income
As at As at
31 December 31 December
2021 2020
£'000 £'000
Contract liabilities (deferred income):
Balance at beginning of year 592 622
Revenue recognised in the year that was included in the deferred income
balance at the beginning of the year
(229) (335)
Increases due to cash received, excluding amounts recognised as revenue during 614 343
the period
Increases on acquisition of new businesses 754
Decreased on termination of franchises (42) (35)
Translation differences 3 (3)
Transaction price allocated to the remaining performance obligations 1,692 592
All of the above amounts relate to contracts with customers and include
amounts which will be recognised within one year and after more than one year.
The amounts on the early termination of upfront franchise fees were recognised
as revenue as all performance obligations have been satisfied.
As at As at
31 December 31 December
2021 2020
£'000 £'000
Upfront exclusivity, legal and training fees 859 212
Escape room advance bookings 356 13
Boom Battle Bar advance bookings 15 -
Gift vouchers 462 367
1,692 592
As at As at
Upfront exclusivity, legal and training fees 31 December 31 December
2021 2020
£'000 £'000
Within one year 368 60
After more than one year 491 152
859 212
Deferred revenues in respect of upfront exclusivity fees are expected to be
recognised as revenues over the remaining lifetime of each franchise
agreement. Deferred legal fees are recognised on the earlier of the date of
completion of the franchise lease and the date of occupation and training fees
are recognised on the date the franchise site is opened. The average remaining
period of the Escape Hunt franchise agreements is approximately four years.
The average remaining life on all Boom franchise leases is 10 years. All
other deferred revenue is expected be recognised as revenue within one year.
21. Provisions
The following provisions have been recognised in the period:
Year ended Year ended
31 Dec 31 Dec
2021 2020
£'000 £'000
Provision for contingent consideration 9,056 -
Provision for deferred consideration 637 -
Dilapidations provisions 162 125
Provision for financial guarantee contracts 25 -
Other provisions 5 3
Total 9,885 128
Provisions represent future liabilities and are recognised on an item by item
basis based on the Group's best estimate of the likely committed cash outflow.
No amounts have been used or reversed during the year.
Movements on provisions can be illustrated as follows:
Contingent consideration Deferred consideration Dilapi-dations Financial guarantee contracts Other Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost:
As at 31 December 2020 - - 125 - 3 128
Additions arising from acquisition 8,950 637 - 17 - 9,604
Provisions recognised 106 - 46 8 3 163
Releases recognised - - (10) - - (10)
As at 31 December 2021 9,056 637 162 25 5 9,885
The ageing of provisions can be split as follows:
As at As at
31 December 31 December
2021 2020
£'000 £'000
Within one year 637 -
After more than one year 9,248 128
9,885 128
The contingent consideration is in respect of the Boom acquisition, please see
Note 14 for more details.
The value of the contingent consideration has been estimated using a share
price of 35.8p per XP Factory share, being the share price on 23(rd) November
2021, the date that the Acquisition of Boom Battle Bars completed, and
assuming all 25,000,000 shares potentially due under the provisions of the
sale agreement are issued. The valuation is considered a level 2 valuation
under IFRS 13, indicating that it is a financial liability that does not have
regular market pricing, but whose value can be determined using other data
values or market prices. The future value of the deferred consideration,
which is due to be settled on completion of the audit for the group for the
year ended 31 December 2022 (assumed to be 18 months after the acquisition)
has been calculated using a cost of capital of 13.7 per cent and an implied
share price of 43.4 pence per share. The difference between the fair value
at acquisition and the future value will be recognised as a finance charge
over the 18 months between the date of acquisition and the expected date of
settlement as set out below.
As at As at
31 December 31 December
2021 2020
£'000 £'000
Fair value of contingent consideration at acquisition 8,950 -
Financing charges recognized in year to 31 December 106 -
Provision for contingent consideration as at 31 December 9,056 -
The recognition of the financing charges is expected to be as follows:
£'000
Finance charge in the year to 31 December 2021 106
Finance charge in the year to 31 December 2022 1,267
Finance charge in the year to 31 December 2023 528
Total 1,901
Financial guarantee contracts relate to leases where the Group has signed as
co-tenant or has provided a guarantee for a site operated by a franchisee.
31 Dec 31 Dec
2021 2020
£'000 £'000
Provision for financial guarantee contracts acquired 18
Additional provision in year 8
Provision at 31 December 2021 26 -
Number sites for which guarantees provided 2 -
Average term of lease remaining (years) 14.8 -
Average annual rent (£'000) 175 -
At the end of the reporting period, the directors of the Company have assessed
the past due status of the debts under guarantee, the financial position of
the debtors as well as the economic outlook of the industries in which the
debtors operate. There has been no change in the estimation techniques or
significant assumptions made during the reporting periods in assessing the
loss allowance for these financial assets.
22. Share capital
As at As at
31 December 31 December
2021 2020
£'000 £'000
Issued and fully paid:
At beginning of the year: 80,369,044 (2020: 26,925,925) Ordinary shares of
1.25 pence each
1,005 336
Issued during the year: 65,636,054 Ordinary shares
820 669
As at end of period / year 1,825 1,005
- 146,005,098 (2020: 80,369,044)
Ordinary shares of 1.25 pence each
XP Factory Plc (formerly Escape Hunt Plc) does not have an authorised share
capital and is not required to have one.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
During the year ended 31 December 2021, the following changes in the issued
share capital of the Company occurred:
· On 27 January 2021 the Company issued 8,036,904 new shares at 17.5
pence per share in an equity placing raising £1.4m (before expenses of
£64,200). The expenses have been deducted from the premium of £1.3m arising
from the fund raise. The Company also issued a further 89,143 new ordinary
shares at 17.5 pence per share to one of its advisers as consideration for
fees connected to the placing. The total 8,126,047 shares were admitted to
trading on AIM on 28 January 2021.
· On 4 February 2021 the company issued 125,000 new shares at 1.25
pence per share to the trustees of the Company's Share Incentive Scheme
("SIP") to meet anticipated demand for Matching Shares. Details of the
Company's SIP share scheme are given in note 26.
· On 22 November 2021 the Company issued 57,385,007 new shares at 30.0
pence per share in a fund raise comprising a placing, open offer and share
subscription, raising £17.2 million (before expenses of £1.1m). The expenses
have been deducted from the premium of £16.3m arising from the fund raise.
All 57,385,007 new shares were admitted to trading on AIM on 23 November 2021.
23. Loan notes
As at As at
31 December 31 December
2021 2020
£'000 £'000
Amounts due within one year
Loan notes 401 -
Rolled up interest on vendor loan notes 3 -
Other loans 256
660 -
Amounts due in more than one year:
Vendor loan notes 43
Rolled up interest on vendor loan notes 2
Convertible loan notes 272 272
Rolled up interest on convertible loan notes 56 17
Other loans 620
As at end of period / year 1,653 289
On 1 July 2020, the Company issued £340,000 convertible loan notes
("Convertible Notes"). The Convertible Notes are unsecured and interest rolls
up at a fixed rate of 10 per cent. per annum. The Convertible Notes are
repayable in full on 3 July 2025, inclusive of rolled up interest, although
they may be prepaid in whole or in part at the Company's discretion after the
period of 18 months from the date of issue, provided that the holders of the
Convertible Notes will first be given the opportunity to serve notice to
convert their respective Convertible Notes and unpaid interest into new
Ordinary Shares.
The Convertible Notes are convertible at the election of the holders of the
Convertible Notes at any time up until and including the date of repayment at
the price which is the lower of 9 pence for each new Ordinary Share or the
placing price of the most recent placing by the Company of new Ordinary Shares
prior to conversion.
At the date of issue, the Company determined that £272,251 of the principal
related to the debt component of the Convertible Notes with the balance of
£67,749 be classified as the equity component of the Convertible Notes.
This gives an effective underlying interest rate on the Notes of 13.4% per
annum.
Application will not be made for the Convertible Notes to be admitted to
trading on AIM or any other exchange. The Company has adequate authority to
issue the maximum number of new Ordinary Shares which could result from the
conversion of all the Convertible Notes. Any new Ordinary Shares arising on
conversion will rank pari passu with the Ordinary Shares in issue at that time
and application for admission to trading on AIM will be made at the
appropriate time.
€100,000 vendor loan notes were issued on 9 March 2021 ("France Notes") as
part of the consideration for the acquisition of the French and Belgian master
franchise. The France Notes carry interest at 4 per cent per annum and are
repayable, together with accrued interest, in two equal tranches on the first
and second anniversary of issue. The France Notes are secured by means of a
pledge of the shares in BGP Entertainment Belgium.
On 22 November 2021, the Company issued £360,000 vendor loan notes as part of
the consideration for the acquisition of Boom Battle Bars ("Boom Notes").
The Boom Notes are unsecured and carry interest at 5 per cent per annum. They
are repayable on the first anniversary of issue.
Convertible Loan note facility
The company has entered into a Convertible Loan Note facility with John Story,
a former non executive director. Under the terms of the facility, John Story
has undertaken to subscribe for up to £1m in convertible loan notes, subject
to receiving a drawdown notice from the company. The principal terms of the
notes are as follows:
· The term of the Convertible Loan Note facility is from the date of issue to 30
June 2023
· The notes can be issued in denominations of £50,000;
· The notes can be issued by the company at any time during the term, subject to
providing 10 days notice of a drawdown; John Story has undertaken to subscribe
for up to £1m principal notes
· The notes carry a 7 per cent coupon, payable quarterly;
· the notes are repayable on 30 June 2023 if not previously repaid or converted
· The Noteholder has the right to convert the notes into ordinary shares on a
Conversion Date
· A Conversion Date is any date on which the company undertakes an equity issue
for cash comprising 5 per cent or more of the company's issued share capital;
30 June 2022; or 30 June 2023
· The notes are convertible at the issue price of any new equity raise
undertaken before 30 September 2021 subject to a 2 per cent early redemption
fee; or at a 10 per cent discount to any new equity raise undertaken after 30
September 2021 but before 30 June 2023.
· If converted on 30 June 2022 or 30 June 2023, the conversion price is
calculated as a 10 per cent discount to the volume weighted average trading
price of the shares in the 30 days before the conversion.
· The notes are unsecured.
As at 31 December 2021, the Convertible Loan Note facility remained undrawn.
24. Share option and incentive plans
XP Factory Plc (formerly Escape Hunt Plc) Enterprise Management Incentive Plan
On 15 July 2020, the Company established the Escape Hunt Plc Enterprise
Management Incentive Plan ("2020 EMI Plan"). The 2020 EMI Plan is an HMRC
approved plan which allows for the issue of "qualifying options" for the
purposes of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003
("Schedule 5"), subject to the limits specified from time to time in paragraph
7 of Schedule 5, and also for the issue of non qualifying options.
It is the Board's intention to make awards under the 2020 EMI Plan to attract
and retain senior employees. The 2020 EMI Plan is available to employees
whose committed time is at least 25 hours per week or 75% of his or her
"working time" and who is not precluded from such participation by paragraph
28 of Schedule 5 (no material interest). The 2020 EMI Plan will expire on
the 10(th) anniversary of its formation.
The Company has made three awards to date as set out in the table below. The
options are exercisable at their relevant exercise prices and vest in three
equal tranches on each of the first, second and third anniversary of the
grants, subject to the employee not having left employment other than as a
Good Leaver. The number of options that vest are subject to a performance
condition based on the Company's share price. This will be tested on each
vesting date and again between the third and fourth anniversaries of awards.
If the Company's share price at testing equals the first vesting price, one
third of the vested options will be exercisable. If the Company's share price
at testing equals the second vesting price, 90 per cent of the vested options
will be exercisable. If the Company's share price at testing equals or exceeds
the third vesting price, 100% of the vested options will be exercisable. The
proportion of vested options exercisable for share prices between the first
and second vesting prices will scale proportionately from one third to 90 per
cent. Similarly, the proportion of options exercisable for share prices
between the second and third vesting prices will scale proportionately from 90
per cent to 100 per cent.
The options will all vest in the case of a takeover. If the takeover price
is at or below the exercise price, no options will be exercisable. If the
takeover price is greater than or equal to the second vesting price, 100 per
cent of the options will be exercisable. The proportion of options
exercisable between the first and second vesting prices will scale
proportionately from nil to 100 per cent.
If not exercised, the options will expire on the fifth anniversary of award.
Options exercised will be settled by the issue of ordinary shares in the
Company.
Awards #1 #2 #3
Date of award 15-Jul-20 18-Nov-21 23-Nov-21
Date of expiry 15-Jul-25 18-Nov-26 23-Nov-26
Exercise price 7.5p 35.0p 35.0p
Qualifying awards - number of shares under option 13,333,332 700,001 533,334
Non-qualifying awards - number of shares under option 2,400,000 0 0
First vesting price 11.25p 43.75p 43.75p
Second vesting price 18.75p 61.25p 61.25p
Third vesting price 25.00p 70.00p 70.00p
Proportion of awards vesting at first vesting price 33.33% 33.33% 33.33%
Proportion of awards vesting at second vesting price 90.00% 90.00% 90.00%
Proportion of awards vesting at third vesting price 100% 100% 100%
As at 31 December 2021, 16,966,667 options were outstanding under the 2020 EMI
Plan (2020: 15,733,332).
As at As at
31 December 31 December
2021 2020
'000 '000
Options outstanding at the beginning of the period 15,733 -
Awards made during the year 1,233 15,733
Options exercised - -
Options lapsed or forfeited - -
Options outstanding at the end of the year 16,966 15,733
The sum of £53,073 has been recognised as a share-based payment and charged
to the profit and loss during the year (2020: £23,477). The fair value
of the options granted during the period has been calculated using the Black
& Scholes formula with the following key assumptions:
Awards #1 #2 #3
Exercise price 7.5p 35.0p 35.0p
Volatility 34.60% 31% 31%
Share price at date of award 7.375p 33.50p 32.00p
Option exercise date 15-Jul-24 18-Nov-25 23-Nov-25
Risk free rate -0.05% 1.55% 1.55%
The performance conditions were taking into account as follows:
The value of the options have then been adjusted to take account of the
performance hurdles by assuming a lognormal distribution of share price
returns, based on an expected return on the date of issue. This results in
the mean expected return calculated using a lognormal distribution equalling
the implied market return on the date of issue validating that the expected
return relative to the volatility is proportionately correct. This was then
used to calculate an implied probability of the performance hurdles being
achieved within the four year window and the Black & Scholes derived
option value was adjusted accordingly.
Time based vesting: It has been assumed that there is between a 90% and 95%
probability of all share option holders for each award remaining in each
consecutive year thereafter.
The weighted average remaining contractual life of the options outstanding at
31 December 2021 is 43.7 months (2020: 54.5 months).
An option-holder has no voting or dividend rights in the Company before the
exercise of a share option.
Escape Hunt Employee Share Incentive Scheme
On 25 November 2020, the Company established an employee share incentive plan
("SIP") which is available to all employees, including executive directors, in
the Group once they have completed three months of employment. The scheme
allows employees to acquire ordinary shares in the Company each month from
pre-tax income, such shares being 'Partnership Shares'. Shares are be
purchased monthly by the SIP trustee on behalf of the participating employees
at the prevailing market price and are funded by deductions from
payroll. For each Partnership Share so acquired, the participant is
granted a 'Matching Share'. Matching Shares must normally be held in the SIP
for a minimum holding period of 3 years and, other than in certain exceptional
circumstances, will be forfeited if, during that period, the participant in
question ceases employment or withdraws their corresponding Partnership Shares
from the Plan. The SIP is administered by an independent trustee who holds all
Partnership and Matching shares for the benefit of the participants.
The SIP has been adopted to promote and support the principles of wider share
ownership amongst all the Company's employees.
On 4 February 2021, the Company issued 125,000 shares to the trustee of the
scheme to be allocated to individuals as Matching Shares during the operation
of the scheme.
As at 31 December 2021, 54,073 matching shares had been awarded and were held
by the trustees for release to employees pending satisfaction of their
retention conditions. A charge of £9,478 (2020: £nil) has been recognised
in the accounts in respect of the Matching Shares awards.
25. Capital management
The Board defines capital as share capital and all components of equity.
The Board's policy is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of
the business. In particular, the Company has raised equity as a means of
executing its acquisition strategy and as a sound basis for operating the
acquired Escape Hunt business in line with the Group's strategy. The Board of
Directors will also monitor the level of dividends to ordinary shareholders.
The Company is not subject to externally imposed capital requirements.
26. Reserves
The share premium account arose on the Company's issue of shares and is not
distributable by way of dividends.
The share-based payment reserve represents the cumulative charge for share
options over the vesting period with such charges calculated at the fair value
at the date of the grant.
The merger relief reserve arises from the issue of shares to by the Company in
exchange for shares in Experiential Ventures Limited and is not distributable
by way of dividends.
In the case of the Company's acquisition of Experiential Ventures Limited,
where certain shares were acquired for cash and others on a share for share
basis, then merger relief has been applied to those shares issued on a share
for share basis.
The convertible loan note reserve represents the equity component of the
convertible loan notes on the date of issue
The translation reserve represents cumulative foreign exchange differences
arising from the translation of the Financial Statements of foreign
subsidiaries and is not distributable by way of dividends.
The capital redemption reserve has arisen following the purchase by the
Company of its own shares pursuant to share buy-back agreements and comprises
the amount by which the distributable profits were reduced on these
transactions in accordance with the Companies Act 2006.
27. Related party transactions
Related parties are entities with common direct or indirect shareholders
and/or directors. Parties are considered to be related if one party has the
ability to control the other party in making financial and operating
decisions.
Details of the convertible loan note facility entered into with John Story,
who was a director during the year, are set out in note 25 of the consolidated
financial statements.
During the period under review, other than those disclosed elsewhere in the
financial statements there were no significant related party transactions.
28. Directors and key management remuneration
Details of the Directors' remuneration are set out in Note 7 above.
29. Financial risk management
General objectives, policies and processes
The overall objective of the Directors is to set policies that seek to reduce
risk as far as possible without unduly affecting the Company's competitiveness
and flexibility. Further details regarding these policies are set out below.
The Directors review the Company's monthly reports through which they assess
the effectiveness of the processes put in place and the appropriateness of the
objectives and policies it sets.
Categories of financial assets and liabilities
The Company's activities are exposed to credit, market and liquidity risk. The
Company's overall financial risk management policy focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on its financial performance.
The principal financial instruments used by the Company, from which financial
instrument risk arises, are as follows:
· cash and cash equivalents;
· trade and other receivables; and
· trade and other payables;
The financial assets and financial liabilities maturing within the next 12
months approximated their fair values due to the relatively short-term
maturity of the financial instruments.
The Company had no financial assets or liabilities carried at fair values. The
Directors consider that the carrying amount of financial assets and
liabilities approximates to their fair value.
A summary of the financial instruments held by category is provided below:
Financial assets at amortised cost:
As at As at
31 December 31 December
2021 2020
£'000 £'000
Trade receivables 848 182
Other receivables and deposits 3,476 511
Cash and cash equivalents 8,225 2,722
12,550 3,415
Financial liabilities at amortised cost:
As at As at
31 December 31 December
2021 2020
£'000 £'000
Trade payables 1,527 606
Accruals and other payables 3,930 815
Loan notes 417 3,742
Other loans 1,236 -
Deferred consideration 637
Contingent consideration 9,056 -
16,803 5,163
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from
customers.
The Group manages its exposure to credit risk by the application of credit
approvals, credit limits and monitoring procedures on an ongoing basis. For
other financial assets (including cash and bank balances), the Group minimises
credit risk by dealing exclusively with high credit rating counterparties.
Management have assessed the increase in credit risk over the last 12 months
and have adjusted the carrying values of receivables where appropriate. In
aggregate, Management does not consider there to have been a significant
change in credit risk since initial recognition of receivables balances.
Management reviews credit risk on an ongoing basis taking into account the
circumstances at the time.
Impairment of financial assets
As described in Note 2 above, the Group applies the "expected loss" model
which focuses on the risk that a loan or receivable will default rather than
whether a loss has been incurred.
The carrying amount of financial assets in the statement of financial position
represents the Group's maximum exposure to credit risk, before taking into
account any collateral held. The Group does not hold any collateral in respect
of its financial assets.
Concentration of credit risk relating to trade receivables is limited due to
the Group's many varied customers. The Group's historical experience in the
collection of accounts receivable falls within the recorded allowances. Due to
these factors, management believes that no additional credit risk beyond the
amounts provided for collection losses is inherent in the Group's trade
receivables. The ageing of trade receivables at the reporting date was as
follows:
As at As at
31 December 31 December
2021 2020
Gross amounts (before impairment): £'000 £'000
Not past due 666 94
Past due 0-30 days 32 8
Past due 31-60 days 22 7
Past due more than 60 days 402 447
1,112 556
Impairment losses:
The movement in the allowance for impairment losses in respect of trade
receivables during the year was as follows:
As at As at
31 December 31 December
2021 2020
£'000 £'000
At beginning of year (184) (100)
Impairment losses recognised (117) (104)
Bad debts written off 38 20
At end of year (264) (184)
The allowance account for trade receivables is used to record impairment
losses unless the Group is satisfied that no recovery of the amount owing is
possible; at that point the amounts considered irrecoverable are written off
against the trade receivables directly.
The Group assesses collectability based on historical default rates expected
credit losses to determine the impairment loss to be recognised. Management
has reviewed the trade receivables ageing and believes that, except for
certain past due receivables which are specifically assessed and impaired, no
impairment loss is necessary on the remaining trade receivables due to the
good track records and reputation of its customers.
During the year ended 2020 the Group recognised an impairment in full against
both the capital and accrued interest potions of the loan receivable from a
master franchise. Therefore as at 31 December 2021 the net balance outstanding
on this loan per these financial statements is nil (2020: £nil).
Liquidity risk
The ageing of financial liabilities at the reporting date was as follows:
As at
31 December
2021
£'000
Not past due 15,604
Past due 0-30 days 790
Past due 31-60 days 22
Past due more than 60 days 387
16,803
As at 31 December 2021 £7,202k (2020: £2,387k) of the cash and bank
balances, as detailed in Note 18 to the financial statements are held in
financial institutions which are regulated and located in the UK, which
management believes are of high credit quality. Management does not expect any
losses arising from non-performance by these counterparties.
The concentration of credit risk is limited due to the fact that the customer
base is large and unrelated.
Liquidity risk arises from the Company's management of working capital. It is
the risk that the Company will encounter difficulty in meeting its financial
obligations as they fall due.
The Company's policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. The principal
liabilities of the Group arise in respect of trade and other payables which
are all payable within 12 months. At 31 December 2021, total trade payables
within one year were £1,527k (2020: £606k), which is considerably less than
the Group's cash held at the year-end of £8,225k (2020: £2,722k). The Board
receives and reviews cash flow projections on a regular basis as well as
information on cash balances.
Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will affect the Group's
income or the value of its holdings of financial instruments. The objective of
market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
The Company has insignificant financial assets or liabilities that are exposed
to interest rate risks.
Foreign currency risk
The Group has exposure to foreign currency movements on trade and other
receivables, cash and cash equivalents and trade and other payables
denominated in currencies other than the respective functional currencies of
the Group entities. It also exposed to foreign currency risk on sales and
purchases that are denominated in foreign currencies. The currencies giving
rise to this risk are primarily the United States ("US") dollar, the Euro
("EUR"), Australian ("AUD") dollars, and Thai Baht ("THB"). Currently, the
Group does not hedge its foreign currency exposure. However, management
monitors the exposure closely and will consider using forward exchange or
option contracts to hedge significant foreign currency exposure should the
need arise.
The Group's exposure to foreign currency risk expressed in Pounds was as
follows:
UK Pound Sterling United States Dollar Euro Australian Dollar Other Total
As at 31 December 2021 £'000 £'000 £'000 £'000 £'000 £'000
Financial assets:
Trade receivables 647 - 41 - 160 848
Other receivables and deposits 3,207 130 139 - 1 3,476
Cash and bank balances 7,202 350 339 192 142 8,225
11,056 479 519 192 303 12,550
Financial liabilities:
Trade payables 1,303 7 186 0 30 1,527
Other payables and accruals 3,474 25 220 0 211 3,930
Loan notes 417 - - - - 417
Other loans 1,236 1,236
Deferred consideration 637 637
Contingent consideration 9,056 - - - - 9,056
16,079 32 613 0 314 16,803
Foreign currency exposure (net) 0 447 (94) 192 (12) 534
UK Pound Sterling United States Dollar Thai Bhat Euro Australian Dollar Other Total
As at 31 December 2020 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Financial assets:
Trade receivables 172 - - - - 10 182
Other receivables and deposits 509 2 - - - - 511
Cash and bank balances 2,264 81 36 235 34 72 2,722
2,945 83 36 235 34 82 3,415
Financial liabilities:
Trade payables 584 6 - - - 15 606
Other payables and accruals 771 43 - - - 1 815
Lease liabilities 3,649 - - - - 93 3,742
5,004 49 - - - 109 5,163
Foreign currency exposure (net)
- 34 36 235 34 (27) 312
Sensitivity analysis
A 10% strengthening of the Pound against the following currencies at 31
December 2021 would increase/(decrease) profit or loss by the amounts shown
below. This analysis assumes that all other variables, in particular interest
rates, remain constant.
Increase/ Increase/
(Decrease) (Decrease)
£'000 £'000
2021 2020
Effects on profit after taxation/equity
United States Dollar:
- strengthened by 10% (48) (8)
- weakened by 10% 48 8
Thai Bhat:
- strengthened by 10% - (4)
- weakened by 10% - 4
Euro:
- strengthened by 10% (52) (24)
- weakened by 10% 52 24
Australian Dollar:
- strengthened by 10% (19) (3)
- weakened by 10% 19 3
30. Commitments
As at 31 December 2021, the Group had capital expenditure commitments in
respect of escape rooms games and leasehold improvements totalling £nil
(2020: £152,921).
31. Contingencies
The Directors are not aware of any other contingencies which might impact on
the Company's operations or financial position.
32. Government grants
The following Government grants have been recognised during the period:
Year ended Year ended
31 Dec 31 Dec
2021 2020
£'000 £'000
Local authority Small Business Grants 371 135
R&D Claims made under the SME Scheme 3,236 259
Total 3,607 394
In addition, the Company benefitted from Business Rates Relief introduced for
the retail, hospitality and leisure industries. The benefit in the period
was £230k (2020: £188k)
The Group also benefitted from the Coronavirus Job Retention Scheme from
furloughing some of its staff. The benefit in the period was £460k (2020:
£756k)
The claim made under the SME R&D Scheme related to 2019 and 2020. As at
the date of signing these accounts, £3,236k of these monies had been
received.
33. Events after the reporting period
Convertible Loan Notes
In early January, the Company received a Noteholder Notice of Conversion in
relation to all of its outstanding Convertible Loan Notes. As a result,
4,378,082 new ordinary shares were issued on 2 February 2022 at 9.0p per share
in respect of the principal amount and rolled up interest on the Convertible
Loan Notes. The conversion of the loan notes is considered a non-adjusting
post balance sheet event.
34. Ultimate controlling party
As at 31 December 2021, no one entity owns greater than 50% of the issued
share capital. Therefore,
the Company does not have an ultimate controlling party.
Company Statement of Financial Position (registered company number: 10184316)
As at 31 December 2021 As at As at
20122012 20122012
31 December 31 December
2021 2020
Note £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 4 17 17
Fixed asset investments 5 20,177 117
Loan receivable 7 105 -
Deposits 26 26
20,325 160
Current assets
Trade and other receivables 322 90
Prepayments 52 52
Amounts due from subsidiaries 6 14,311 13,333
Cash and bank balances 8 6,337 2,037
21,023 15,512
TOTAL ASSETS 41,348 15,672
LIABILITIES
Current liabilities
Trade and other payables 9 555 245
Other provisions 11 637
Loan notes 10 404
Non-current liabilities
Loan Notes 10 373 289
Other provisions 11 9,056 -
TOTAL LIABILITIES 11,025 534
NET ASSETS 30,322 15,138
EQUITY
Share capital 11 1,825 1,006
Share premium account 13 44,365 27,758
Merger relief reserve 13 4,756 4,756
Accumulated losses (20,896) (18,592)
Capital redemption reserve 13 46 46
Share-based payment reserve 13 158 96
Convertible loan note reserve 13 68 68
TOTAL EQUITY 30,322 15,138
The Company has taken advantage of Section 408 of the Companies Act 2006 and
has not included a Profit and Loss account in these separate financial
statements. The loss attributable to members of the Company for the year ended
31 December 2021 is £2,306,320 (2020: £1,957,617).
The notes form an integral part of these Financial Statements. The Financial
Statements were authorised for issue by the board of Directors on 30 May 2022
and were signed on its behalf by.
Richard Harpham
Director
Company Statement of Changes in Equity
For the year ended 31 December 2021
Share capital Share premium account Merger relief reserve Capital redemption reserve Share-based payment reserve Convertible loan note reserve Accumulated Total
losses
£'000 £'000 £'000 £'000 £'000 £'000
£'000 £'000
For the year ended 31 December 2021:
Balance as at 1 January 2021 1,006 27,758 4,756 46 96 68 (18,592) 15,138
- - - - - - (2,306) (2,306)
Loss for the year
Issue of shares 819 17,819 - - - 68 - 18,638
Share-based payment charge - - - - 62 - - 62
Share issue costs - (1,212) - - - - - (1,212)
Rounding 2 2
Transactions with owners 819 16,607 - - 62 - (2,304) 15,184
1,825 44,365 4,756 46 158 68 (20,896) 30,322
Balance as at 31 December 2021
For the year ended 31 December
2020:
Loss for the year - - - - - - (1,958) (1,958)
Issue of shares 669 3,342 - - - 68 - 4,079
Share-based payment charge - - - - 29 - - 29
Share issue costs - (301) - - - - - (301)
Transactions with owners 669 3,041 - - 29 68 (1,958) 1,850
Balance as at 31 December 2020 1,006 27,758 4,756 46 96 68 (18,592) 15,138
The notes are an integral part of these financial statements.
Notes to the Company Financial Statements for the year ended 31 December 2021
1. General Information
The Company was incorporated in England on 17 May 2016 under the name of
Dorcaster Limited with registered number 10184316 as a private company with
limited liability under the Companies Act 2006. The Company was re-registered
as a public company on 13 June 2016 and changed its name to Dorcaster Plc on
13 June 2016. On 8 July 2016, the Company's shares were admitted to AIM.
Until its acquisition of Experiential Ventures Limited on 2 May 2017, the
Company was an investing company (as defined in the AIM Rules for Companies)
and did not trade.
On 2 May 2017, the Company ceased to be an investing company on the completion
of the acquisition of the entire issued share capital of Experiential Ventures
Limited. Experiential Ventures Limited is the holding company of the Escape
Hunt Group which is is a global provider of live 'escape the room' experiences
through a network of franchised, licensed and owner-operated branches and
offsite "escape the room" type games.
On 2 May 2017, the Company's name was changed to Escape Hunt Plc.
On 3rd December 2021, the Company's name was changed to XP Factory Plc
The Company's registered office is Belmont House, Station Way, Crawley, RH10
1JA.
2. Summary of significant accounting policies
(a) Basis of preparation
These financial statements have been prepared in accordance with applicable
United Kingdom accounting standards, including Financial Reporting Standard
102 - 'The Financial Reporting Standard applicable in the United Kingdom and
Republic of Ireland' ('FRS 102'), and with the Companies Act 2006.
These financial statements are prepared under the historical cost convention.
Historical cost is generally based on the fair value of the consideration
given in exchange of assets. The principal accounting policies are set out
below.
The Company has taken advantage of Section 408 of the Companies Act 2006 and
has not included a Profit and Loss account in these separate financial
statements. The loss attributable to members of the Company for the year ended
31 December 2021 is £2,306,309 (year ended 31 December 2020: loss of
£1,957,617).
The Company has taken advantage of the following disclosure exemptions in
preparing these Financial Statements, as permitted by FRS 102 "The Financial
Reporting Standard applicable in the UK and Republic of Ireland":
· the requirements of Section 7:
Statement of Cash Flows
· the requirements of Section 11:
Financial Instruments
· The disclosure of the compensation of Key Management Personnel of the Company
· The disclosures required by Section 26 Share Based Payments in respect of
Group settled share-based payments for its own separate financial statements.
The Company produces true and fair consolidated accounts which include the
results of the Company.
(b) Going Concern
The financial statements have been prepared on a going concern basis which
contemplates the continuity of normal business activities and the realisation
of assets and the settlement of liabilities in the ordinary course of
business.
The Directors have assessed the Company's ability to continue in operational
existence for the foreseeable future in accordance with the Financial
Reporting Council's Guidance on the going concern basis of accounting and
reporting on solvency and liquidity risks issued in April 2016.
The Board has prepared detailed cashflow forecasts covering a three year
period from the reporting date.
In May 2021, the Company entered into a convertible loan note facility with
one of its then directors, through which the Company has access to a further
£1m in funding. The Company is able to draw down the funds as required.
Details of the convertible loan note facility are given in note 10. This
facility was entered into to enable the Company to continue to support
investment in new sites within its subsidiaries notwithstanding the continued
uncertainty brought about by the COVID-19 lockdown rules. The facility has not
been drawn.
The Company plans to continue to support the roll out new sites under both the
Escape Hunt and Boom Battle Bar brands in the UK which are expected to
contribute to performance in future.
The central case is based on opening a number of new Escape Hunt and Boom
owner operated sites in the UK in line with the Board's stated strategy. Sites
are expected to take a period of time to reach maturity based on previous
experience. The central case does not assume any further impact from
COVID-19. In the central case the Group does not need to utilise the
convertible loan facility and believes it has sufficient resources for its
present needs.
The Company has also considered a 'downside' scenario. In this scenario the
Directors have assessed the potential impact of a reduction in sales across
the group, reduced capacity within the Escape Hunt UK sites, delays in the
opening of sites, cost increases and a substantial reduction in the pace of
roll-out. The 'downside' scenario also considers a further lockdown of one
month, which assumes that government support would be available to cover site
level salaries only The scenario also considers a delay in progress in the US.
In the 'downside' scenario, the Directors believe there are mitigating actions
that can be taken to preserve cash. Principally the roll-out of further
sites would be stopped and cost saving measures would be introduced at head
office. The Company has previously made significant reductions in its head
office property costs, and further cost reductions could be targeted in both
people and areas such as IT, professional services and marketing. Other
areas of planned capital expenditure within subsidiaries would also be
curtailed. These include planned expenditure on website and system
improvements. Taking into account the mitigating factors, the Directors
believe the Company has sufficient resources for its present needs, with or
without access to the convertible loan note facility.
Based on the above, the Directors consider there are reasonable grounds to
believe that the Company will be able to pay its debts as and when they become
due and payable, as well as to fund its future operating expenses. The going
concern basis preparation is therefore considered to be appropriate in
preparing these financial statements.
(c) Fixed asset investments
Fixed asset investments are carried at cost less, where appropriate, any
provision for impairment.
(d) Loans to subsidiaries
Loans to subsidiaries are measured at the present value of the future cash
payments discounted at a market rate of interest for a similar debt instrument
unless such amounts are repayable on demand. The present value of loans that
are repayable on demand is equal to the undiscounted cash amount payable
reflecting the Company's right to demand immediate repayment.
(e) Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the contracted rate or
the rate of exchange ruling at the reporting date and the gains or losses on
translation are included in the profit and loss account.
(f) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, bank balances, deposits with
financial institutions and short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
(g) Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method,
less provision for impairment.
(h) Income taxes
Income tax expense represents the sum
of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the statement of comprehensive
income because of items of income or expense that are taxable or deductible in
other years and items that are never taxable or deductible. The Company's
liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting period.
Deferred tax is provided on timing differences which arise from the inclusion
of income and expenses in tax assessments in periods different from those in
which they are recognised in the financial statements. The following timing
differences are not provided for: differences between accumulated depreciation
and tax allowances for the cost of a fixed asset if and when all conditions
for retaining the tax allowances have been met; and differences relating to
investments in subsidiaries, to the extent that it is not probable that they
will reverse in the foreseeable future and the reporting entity is able to
control the reversal of the timing difference. Deferred tax is not
recognised on permanent differences arising because certain types of income or
expense are non-taxable or are disallowable for tax or because certain tax
charges or allowances are greater or smaller than the corresponding income or
expense.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of
deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and
liabilities.
Current or deferred tax for the year is recognised in profit or loss, except
when they relate to items that are recognised in other comprehensive income or
directly in equity, in which case, the current and deferred tax is also
recognised in other comprehensive income or directly in equity
respectively.
(i) Provisions
A provision is recognised when the Company has a present obligation, legal or
constructive, as a result of a past event and it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation, and a reliable estimate can be made. Provisions are reviewed at
each reporting date and adjusted to reflect the current best estimate. If it
is no longer probable that an outflow of economic resources will be required
to settle the obligation, the provision is reversed. Where the effect of the
time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific to the
liability. When discounting is used, the increase in the provision due to the
passage of time is recognised as an interest expense.
The Company has recognized provisions for liabilities of uncertain timing or
amount including contingent and deferred consideration.
Contingent and deferred consideration
Contingent consideration is consideration that is payable in respect of
acquisitions which is contingent on the achievement of certain performance or
events after the date of acquisition. Deferred consideration is
consideration payable in respect of acquisitions which is deferred, but is not
dependent on any future performance or events.
The likely value of contingent consideration is estimated based on the
anticipated future performance of the business acquired and a probability of
the necessary performance being achieved. The expected future value of the
contingent consideration is discounted from the anticipated date of payment to
the present value. For cash settled contingent consideration, the discount
rate is the risk free rate together with the Consumer Price index for
inflation. For Equity settled contingent consideration, the future value is
discounted using the Director's assessment of the company's cost of equity.
The present value is recognised as a liability at the date of transaction.
The implied interest is recognised over the period between the date of
acquisition and anticipated date of payment of the contingent consideration.
Deferred consideration is recognised as a liability at its face value at the
date of acquisition.
(j) Leases
Assets that are held by the Company under leases which transfer to the Company
substantially all the risks and rewards of ownership are classified as being
held under finance leases. Leases which do not transfer substantially all the
risks and rewards of ownership to the Company are classified as operating
leases. Operating lease rentals are charged to profit and loss on a
straight-line basis over the period of the lease.
(k) Share-based payment arrangements
Equity-settled share-based payments to employees are measured at the fair
value of the equity instruments at the grant date. Equity-settled share based
payments to non-employees are measured at the fair value of services received,
or if this cannot be measured, at the fair value of the equity instruments
granted at the date that the Company obtains the goods or counterparty renders
the service. Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in Notes 23 and 24 to the
consolidated financial statements.
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 Group's estimate of equity instruments that will eventually vest, with
a corresponding increase in equity. Where the conditions are non-vesting, the
expense and equity reserve arising from share-based payment transactions is
recognised in full immediately on grant.
At the end of each reporting period, the Group revises its estimate of the
number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to other reserves.
(l) Trade and other payables
Trade and other payables are initially recognised at fair value and thereafter
stated at amortised cost using the effective interest method unless the effect
of discounting would be immaterial, in which case they are stated at cost.
(m) Share capital
Proceeds from issuance of ordinary shares are classified as equity.
Incremental costs directly attributable to the issuance of new ordinary shares
or options are shown in equity as a deduction from the proceeds.
(n) Financial instruments
Financial instruments are recognised in the statements of financial position
when the Company has become a party to the contractual provisions of the
instruments.
Financial instruments are classified as liabilities or equity in accordance
with the substance of the contractual arrangement. Interest, dividends, gains
and losses relating to a financial instrument classified as a liability are
reported as an expense or income. Distributions to holders of financial
instruments classified as equity are charged directly to equity.
Financial instruments are offset when the Company has a legally enforceable
right to offset and intends to settle either on a net basis or to realise the
asset and settle the liability simultaneously.
A financial instrument is recognised initially at its fair value plus, in the
case of a financial instrument not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition or issue
of the financial instrument.
Financial instruments recognised in the statements of financial position are
disclosed in the individual policy statement associated with each item.
(i) Financial liabilities
Financial liabilities are recognised when, and only when, the Company becomes
a party to the contractual provisions of the financial instrument.
All financial liabilities are recognised initially at fair value plus directly
attributable transaction costs and subsequently measured at amortised cost
using the effective interest method other than those categorised as fair value
through profit or loss.
Fair value through profit or loss category comprises financial liabilities
that are either held for trading or are designated to eliminate or
significantly reduce a measurement or recognition inconsistency that would
otherwise arise. Derivatives are also classified as held for trading unless
they are designated as hedges. There were no financial liabilities classified
under this category.
A financial liability is derecognised when the obligation under the liability
is discharged, cancelled or expires. When an existing financial liability is
replaced by another from the same party on substantially different terms, or
the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognised in the profit or loss.
(ii) Equity instruments
Ordinary shares are classified as equity. Dividends on ordinary shares are
recognised as liabilities when approved for appropriation.
(iii) Other financial instruments
Other financial instruments not meeting the definition of Basic Financial
Instruments are recognised initially at fair value. Subsequent to initial
recognition other financial instruments are measured at fair value with
changes recognised in profit or loss except as follows:
· investments in equity instruments that are not publicly traded and whose fair
value cannot otherwise be measured reliably shall be measured at cost less
impairment; and
· hedging instruments in a designated hedging relationship shall be recognised
as set out below.
(o) Merger relief
The issue of shares by the Company is accounted for at the fair value of the
consideration received. Any excess over the nominal value of the shares issued
is credited to the share premium account other than in a business combination
where the consideration for shares in another company includes the issue of
shares, and on completion of the transaction, the Company has secured at least
a 90% equity holding in the other company. In such circumstances the credit is
applied to the merger relief reserve.
In the case of the Company's acquisition of Experiential Ventures Limited,
where certain shares were acquired for cash and others on a share for share
basis, then merger relief has been applied to those shares issued in exchange
for shares in Experiential Ventures Limited.
(p) Government Grants
Grants relating to revenue are recognised on the performance model through the
consolidated statement of comprehensive income by netting off against the
costs to which the grants were intended to compensate. Where the grant is not
directly associated with costs incurred during the period, the grant is
recognised as 'other income'. Grants relating to assets are recognised in
income on a systematic basis over the expected useful life of the asset.
3. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Company's accounting policies, which are described
in Note 2, management is required to make judgements, estimates and
assumptions about the carrying values of assets and liabilities that are not
readily apparent from other sources. The estimates and underlying 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 key sources of judgment that have a significant effect on the amounts
recognised in the financial statements are described below.
Impairment of fixed asset investments and amounts due from subsidiaries
As described in Note 2 to the financial statements, fixed asset investments
are stated at the lower of cost less provision for impairment. The present
value of loans to subsidiaries that are repayable on demand is equal to the
undiscounted cash amount payable reflecting the Company's right to demand
immediate repayment.
At each reporting date fixed asset investments and loans made to subsidiaries
are reviewed to determine whether there is any indication that those assets
have suffered an impairment loss. If there is an indication of possible
impairment, the recoverable amount of any affected asset is estimated and
compared with its carrying amount. If estimated recoverable amount is lower,
the carrying amount is reduced to its estimated recoverable amount, and an
impairment loss is recognised immediately in profit or loss. The Directors
have carried out an impairment test on the value of the loans due from
subsidiaries and have concluded that no further impairment provision (2020:
£Nil) is required to write down the loans to their estimated recoverable
amount.
If an impairment loss subsequently reverses, the carrying amount of the asset
is increased to the revised estimate of its recoverable amount, but not in
excess of the 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 immediately in profit or loss.
The investments in and loans to subsidiaries are supported by the intangible
assets in the subsidiaries, most notably intellectual property and franchise
agreements as well as tangible fixed assets, cash and receivables.
The Company tests the receivables and intangible assets for impairment only if
there are indications that these assets might be impaired. The Company
considers that there are no such indications of impairment and impairment
testing has not been performed. Accordingly, the Company considers that the
value of investments in and loans to subsidiaries are not impaired.
Estimation of the debt and equity components of Convertible Loan notes
Debt securities which carry an option to convert into equity accounted for as
a debt component and an equity component. Management are required to
estimate the split by valuing the underlying debt with reference to a similar
debt instrument which has no conversion rights and / or by reference to the
value of the option inherent in the conversion right. These calculations
involve the estimate of a number of key components such as appropriate
interest rates, the expected volatility of the company's share price, the
company's future dividend policy, and the likelihood and future date of
conversion. On 2 July 2021, the company issued £340,000 convertible loan
notes repayable on 3 July 2025 if not previously converted or redeemed.
Management have estimated that £272,251 of the principal related to the debt
component and £67,749 related to the equity component.
Estimation of share base payment charges
The calculation of the annual charge in relation to share based payments
requires management to estimate the fair value of the share-based payment on
the date of the award. The estimates are complex and take into account a
number of factors including the vesting conditions, the period of time over
which the awards are recognized, the exercise price of options which are the
subject of the award, the expected future volatility of the company's share
price, interest rates, the expected return on the shares, and the likely
future date of exercise. A new executive scheme was established during the
year ended 31 December 2021 and awards were made under the scheme, details of
which are set out in note 26. Management has estimated the annual charge
related to the awards made in the year to 31 December 2021 to be £25,611 and
recognized this charge accordingly
Contingent consideration
Where acquisitions include an element of consideration which is contingent on
the performance of the business acquired, an estimate is made of the amount
which the Directors believe will become payable based on the anticipated
performance of the business acquired and the probability of the performance
requirements being met. Where these amounts are significant, the estimated
total contingent consideration is discounted back to the present value at the
date of acquisition using the risk free rate of interest and the consumer
price inflation index at the date of acquisition for cash settled contingent
consideration and the Directors' estimate of the cost of equity for equity
settled contingent consideration. The discounted value is recognised as part
of the consideration. The implied interest is recognised in the period between
acquisition and the expected date of payment of the contingent consideration.
4. Property, plant and equipment
Computer equipment Furniture and fittings Office equipment
Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2020 21 22 15 58
Additions 1 5 - 6
At 31 December 2020 22 27 15 64
Additions 16 - - 16
Disposals (6) (18) (1) (25)
At 31 December 2021 32 9 14 55
Accumulated depreciation
At 1 January 2020 15 9 8 32
Depreciation charge for the year 5 5 15
5
At 31 December 2020 20 14 13 47
Depreciation charge for the year 3 2 7
2
Disposals (5) (1) (1) (17)
At 31 December 2021 18 6 14 38
Carrying amounts
At 31 December 2021 14 3 - 17
At 31 December 2020 2 13 2 17
5. Fixed asset investments
As at As at
Investments in subsidiary undertakings 31 December 31 December
2021 2020
£'000 £'000
Balance brought forward 117 1
Additions 20,060 116
Balance at end of year 20,177 117
The Company's investments comprise 100% holdings in the issued ordinary share
capital of the following companies:
· Escape Hunt Group Limited
· Escape Hunt Franchises Limited
· Escape Hunt IP Limited
· Escape Hunt Innovations Limited
· Escape Hunt USA Limited
· Escape Hunt USA Franchises Limited
· Escape Hunt Entertainment LLC (registered in Dubai)
· BGP Escape France
· BGP Entertainment Belgium
· Boom BB One Limited
· BBB Seven Limited
· BBB UK Trading Limited
· BBB Seventeen Limited
· BBB Franchise Limited
· BBB Thirteen Limited
· BBB Ventures Limited
· Boom BB Two Limited
· BBB Sixteen Limited
· BBB Six Limited
· BBB Eleven Limited
· BBB Fifteen Limited
· BBB Twelve Limited
· BBB Three Limited
· BBB Fourteen Limited
No impairment provision has been made against the investments
in subsidiaries.
Note 13 to the consolidated financial statements contains
further information on the Company's holdings in subsidiaries including their
activities and address of registered office.
6. Amounts due from subsidiaries
As at As at
31 December 31 December
2021 2020
£'000 £'000
Gross receivable 23,333 21,660
Provision made in prior years (10,000) (10,000)
Balance brought forward at beginning of year 13,333 11,660
Amounts advanced 978 1,673
Balance at end of year 14,311 13,333
The amounts owing from subsidiaries are unsecured, interest-free and repayable
on demand. The amounts owing are to be settled in cash. The present value of
amounts that are repayable on demand is equal to the undiscounted cash amount
payable reflecting the Company's right to demand immediate repayment.
7. Loan to master franchisee
As at As at
31 December 31 December
2021 2020
£'000 £'000
Balance brought forward - 300
Trading balances converted to loan 47 31
New loans recognised 105 -
Provision against balance (47) (331)
Balance carried forward 105 -
The loan to the Norway master franchisee is unsecured, bears interest at 5%
per annum plus 2% of the franchisee's revenues. During the year, the
repayment terms of the loan were deferred and the a repayment plan was set
which would result in the loan was agreed to be being repaid in instalments
between July 2021 and October 2023. The amounts owing are to be settled in
cash.
The majority of income receivable under the terms of the loan relates to
interest at a fixed rate. The valuation of this loan also takes account of
the expected income under the revenue share; however, the impact of this
estimate is not significant to the valuation.
8. Cash and cash equivalents
As at As at
31 December 31 December
2021 2020
£'000 £'000
Bank balances 6,337 2,037
Cash and cash equivalents 6,337 2,037
9. Trade and other payables
As at As at
31 December 31 December
2021 2020
£'000 £'000
Trade payables 104 65
Accruals 363 142
Taxes and social security 84 36
Other payables 3 1
Amounts due to subsidiaries 1 1
555 245
The amounts owing to subsidiaries are unsecured, interest-free and repayable
on demand. The amounts owing are to be settled in cash.
Accruals includes an amount for the audit of the parent financial statements
for the year ended 31 December 2021 of £25k.
The directors consider that the carrying amounts of amounts falling due within
one year approximate to their fair values.
10. Loan Notes
As at As at
31 December 31 December
2021 2020
£'000 £'000
Amounts due within one year
Loan notes 401 -
Rolled up interest on vendor loan notes 3 -
404 -
Amounts due in more than one year:
Vendor loan notes 43
Rolled up interest on vendor loan notes 2
Convertible loan notes 272 272
Rolled up interest on convertible loan notes 56 17
As at end of period / year 373 289
On 1 July 2021, the Company issued £340,000 convertible loan notes ("Notes").
The Notes are unsecured and interest rolls up at a fixed rate of 10 per cent.
per annum. The Notes are repayable in full on 2 July 2025, inclusive of
rolled up interest, although they may be prepaid in whole or in part at the
Company's discretion after the period of 18 months from the date of issue,
provided that the holders of the Convertible Loan Notes will first be given
the opportunity to serve notice to convert their respective Notes and unpaid
interest into new Ordinary Shares.
The Notes are convertible at the election of the holders of the Notes at any
time up until and including the date of repayment at the price which is the
lower of 9 pence for each new Ordinary Share or the placing price of the most
recent placing by the Company of new Ordinary Shares prior to conversion.
At the date of issue, the Company determined that £272,251 of the principal
related to the debt component of the loan note with the balance of £67,749 be
classified as the equity component of the convertible loan note. This gives
an effective underlying interest rate on the Notes of 13.4% per annum.
Application will not be made for the Convertible Loan Notes to be admitted to
trading on AIM or any other exchange. The Company has adequate authority to
issue the maximum number of new Ordinary Shares which could result from the
conversion of all the Notes. Any new Ordinary Shares arising on conversion
will rank pari passu with the Ordinary Shares in issue at that time and
application for admission to trading on AIM will be made at the appropriate
time.
€100,000 vendor loan notes were issued on 9 March 2021 as part of the
consideration for the acquisition of the French and Belgian master
franchise. The notes carry interest at 4 per cent per annum and are
repayable, together with accrued interest, in two equal tranches on the first
and second anniversary of issue.
£360,000 vendor loan notes were issued on 22 November 2021 as part of the
consideration for the acquisition of Boom Battle Bars. The notes carry
interest at 5 per cent per annum and are repayable, together with accrued
interest, on the first anniversary of issue.
Convertible Loan note facility
The company has entered into a Convertible Loan Note facility with John Story,
a former non executive director. Under the terms of the facility, John Story
has undertaken to subscribe for up to £1m in convertible loan notes, subject
to receiving a drawdown notice from the company. The principal terms of the
notes are as follows:
· The term of the Convertible Loan Note facility is from the date of issue to 30
June 2023
· The notes can be issued in denominations of £50,000;
· The notes can be issued by the company at any time during the term, subject to
providing 10 days notice of a drawdown; John Story has undertaken to subscribe
for up to £1m principal notes
· The notes carry a 7 per cent coupon, payable quarterly;
· the notes are repayable on 30 June 2023 if not previously repaid or converted
· The Noteholder has the right to convert the notes into ordinary shares on a
Conversion Date
· A Conversion Date is any date on which the company undertakes an equity issue
for cash comprising 5 per cent or more of the company's issued share capital;
30 June 2022; or 30 June 2023
· The notes are convertible at the issue price of any new equity raise
undertaken before 30 September 2021 subject to a 2 per cent early redemption
fee; or at a 10 per cent discount to any new equity raise undertaken after 30
September 2021 but before 30 June 2023
· If converted on 30 June 2022 or 30 June 2023, the conversion price is
calculated as a 10 per cent discount to the volume weighted average trading
price of the shares in the 30 days before the conversion
· The notes are unsecured.
As at 31 December 2021, the Convertible Loan Note facility remained undrawn.
11. Provisions
The following provisions have been recognised in the period:
Year ended Year ended
31 Dec 31 Dec
2021 2020
£'000 £'000
Provision for contingent consideration 9,056 -
Provision for deferred consideration 637 -
Total 9,693 -
Provisions represent future liabilities and are recognised on an item by item
basis based on the Group's best estimate of the likely committed cash outflow.
No amounts have been used or reversed during the year.
The value of the contingent consideration has been estimated using a share
price of 35.8p per XP Factory share, being the share price on 23(rd) November
2021, the date that the Acquisition of Boom Battle Bars completed, and
assuming all 25,000,000 shares potentially due under the provisions of the
sale agreement are issued. The valuation is considered a level 2 valuation
under IFRS 13, indicating that it is a financial liability that does not have
regular market pricing, but whose value can be determined using other data
values or market prices. The future value of the contingent consideration,
which is due to be settled on completion of the audit for the group for the
year ended 31 December 2022 (assumed to be 18 months after the acquisition)
has been calculated using a cost of capital of 13.7 per cent and an implied
share price of 43.4 pence per share. The difference between the fair value
at acquisition and the future value will be recognised as a finance charge
over the 18 months between the date of acquisition and the expected date of
settlement as set out below.
As at As at
31 December 31 December
2021 2020
£'000 £'000
Fair value of contingent consideration at acquisition 8,950 -
Financing charges recognized in the year to 31 December 106 -
Provision for contingent consideration as at 31 December 9,056 -
The ageing of provisions can be split as follows:
As at As at
31 December 31 December
2021 2020
£'000 £'000
Within one year 637 -
After more than one year 9,056 128
9,693 128
12. Share capital
Details of the Company's allotted, called-up and fully paid share capital are
set out in Note 22 to the Consolidated Financial Statements.
13. Reserves
The share premium account arose on the Company's issue of shares and is not
distributable by way of dividends.
The merger relief reserve arises from the issue of shares to by the Company in
exchange for shares in Experiential Ventures Limited and is not distributable
by way of dividends.
The share-based payment reserve arises from the requirement to value share
options and warrants in existence at the year end at fair value (see Notes 24
and 26 to the Consolidated Financial Statements).
The convertible loan note reserve represents the equity component of the
convertible loan notes on the date of issue.
The capital redemption reserve has arisen following the purchase by the
Company of its own shares pursuant to share buy-back agreements and comprises
the amount by which the distributable profits were reduced on these
transactions in accordance with the Companies Act 2006.
14. Share based payments
Details of the Company's share options and warrants are contained in Notes 24
and 26 to the Consolidated Financial Statements.
15. Segment information
Operating segments are identified on the basis of internal reports about
components of the Company that are regularly reviewed by the Board. Until its
acquisition of Experiential Ventures Limited on 2 May 2017, the Company was an
investing company (as defined in the AIM Rules for Companies) and did not
trade. On the completion of the acquisition of Experiential Ventures Limited
and its subsidiaries, the Company became the holding company of the Group. Its
subsidiaries provide live 'escape the room' experiences through a network of
franchised, licensed and owner-operated branches and offsite "escape the room"
type games.
The Company has one segment, namely that of a parent company to its
subsidiaries. Accordingly, no segmental analysis has been provided in these
financial statements.
16. Employees
Year Year
Ended Ended
31 December 31 December
2021 2020
£'000 £'000
Wages salaries and benefits (including directors) 1,048 874
Share-based payments 52 24
Social security costs 126 108
Other post-employment benefits 6 13
Less amounts capitalized (56) (87)
Less amounts received under the CJRS scheme (70) (56)
3,802 2,138
The average monthly number of employees including directors
was as follows:
Year ended Period ended
31 December 31 December
2021 2020
No. No.
Management 3 3
Administrative 10 8
13 11
17. Related party transactions
The only key management personnel of the Company are the Directors. Details of
their remuneration are contained in Note 7 to the Consolidated Financial
Statements.
Details of amounts due between the Company and its subsidiaries are shown in
Notes 6 and 9 above.
Details of the convertible loan note facility entered into with John Story,
who was a director during the year, are set out in note 10.
18. Subsequent events
Convertible Loan Notes
In early January, the Company received a Noteholder Notice of Conversion in
relation to all of its outstanding Convertible Loan Notes. As a result,
4,378,082 new ordinary shares were issued on 2 February 2022 at 9.0p per share
in respect of the principal amount and rolled up interest on the Convertible
Loan Notes. The conversion of the loan notes is considered a non-adjusting
post balance sheet event.
19. Contingent Liabilities
For the financial year ended 31 December 2021, the below subsidiaries are
exempt from the requirements stipulating that they be audited since they
fulfil all the conditions for exemption under section 479A of the Companies
Act 2006.
Boom BB Two Limited
BBB Three Limited
BBB Six Limited
BBB Eleven Limited
BBB Twelve Limited
BBB Fourteen Limited
BBB Fifteen Limited
BBB Sixteen Limited
The outstanding liabilities at the balance sheet date of the above subsidiary
undertakings have been guaranteed by XP Factory Plc pursuant to s479A to s479C
of the Companies Act 2006. The aggregate liabilities of these subsidiaries at
31 December 2021 was £15,634.
20. Ultimate controlling party
As at 31 December 2021, no one entity owns greater than 50% of the issued
share capital. Therefore, the Company does not have an ultimate controlling
party.
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