REG - XP Factory PLC - Final results for the year ended 31 December 2022
23/05/2023 07:00
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RNS Number : 3230A XP Factory PLC 23 May 2023
XP Factory Plc
23 May 2023
XP Factory plc (AIM: XPF)
("XP Factory", the "Company" or the "Group")
Final results for the year ended 31 December 2022
XP Factory is pleased to announce its audited final results for the year ended
31 December 2022.
FINANCIAL HIGHLIGHTS
· £22.8m Group revenue - up 228% vs prior year (2021: £7.0m)
· £2.6m adjusted EBITDA pre IFRS16 (2021: loss £0.6m)
· £9.8m Escape Hunt™ owner-operated revenue up 62% vs prior year (2021:
£6.0m)
· £0.7m Escape Hunt Franchise EBITDA up 75% vs prior year (2020: £0.4m)
· £9.5m Boom Battle Bar™ owner-operated revenue of in its first full year of
operation
· £2.9m Boom Battle Bar™ franchise revenue
· £1.3m Group operating profit (2021: loss of £0.5m)
· 35% return on capital across Escape Hunt owner operated estate
· £3.2m cash at year end (2021: £8.2m) and £4.0m on 30 April 2023
OPERATIONAL AND STRATEGIC HIGHLIGHTS
· Successfully integrated Boom Battle Bar into XP Factory Group
· Opened 27 Boom sites by the end of 2022 - 11 owner operated and 16 franchised
· Acquired Boom franchise sites in Norwich and Cardiff
· Opened 4 new Escape Hunt sites and relocated 1 other, expanding UK estate to
23 venues (2021: 19)
· Achieved 97% customer satisfaction ratings across both brands
· Secured £3.3m credit facility with fit-out providers for new Boom owner
operated sites
POST YEAR END
· 3 Boom sites and 1 Escape Hunt currently in build, with a developed pipeline
underpinning site roll-out targets for the year
· 44% LFL sales growth delivered across Q1 2023 in the Boom sites that were
trading last year, with operating metrics maturing as expected
· Boom franchise sites performing in line with the Board's expectations
· 32% LFL sales growth across the Escape Hunt owner operated estate, with
overall trading ahead of the Board's expectations in Q1 2023
Richard Harpham, Chief Executive of Escape Hunt, commented:
"2022 was a transformational year for XP Factory, delivering outstanding
growth and performance, and underpinning our position as a leading operator in
the experiential leisure sector. The bold expansion targets we set for
ourselves were met, and we ended the financial year with a platform set for
significant growth ahead. The strategic decision to buy Boom Battle Bar has
been validated and Escape Hunt has continued to perform at levels far
exceeding our initial investment assumptions. Trading in the first quarter of
2023 has been strong, with the group as a whole exceeding management
expectations. Escape Hunt has performed incredibly well and the Boom estate
has shown strong growth and continued progression towards the operating
metrics we expect at maturity. The performance in Q1 gives us cause for
optimism."
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)
Singer Capital Markets, NOMAD and Broker +44 (0) 20 7496 3000
https://www.singercm.com/ (https://www.singercm.com/)
Peter Steel
Alaina Wong
James Fischer
Jake Humphrey
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
I am delighted to be reporting on a transformational and successful year for
the group. We set ambitious targets at the start of 2022 to significantly
expand our then newly acquired Boom Battle Bar estate from seven sites open
when we acquired the business in November 2021 to having 27 Boom sites open by
the end of 2022, whilst also expanding our Escape Hunt network. Through an
enormous effort by the whole team, our target was achieved. Today we have a
business which has critical mass and can justifiably claim to a leading
experiential leisure business in the UK.
Whilst attention has been focused on integrating and expanding the Boom Battle
Bar business, Escape Hunt has had an exceptional year. The strong performance
delivered in the second half of 2021 after the long periods of lockdown during
covid continued into 2022. Escape Hunt's performance has been steadily
maturing and the site level margins being delivered has exceeded our original
expectations. Investment into the intellectual property of the brand, being
games and operating know how, has created a truly unique business operating a
leisure concept that is increasingly recognised by the consumer. We
believe there is significant further scope for growth and we will continue to
nurture and develop Escape Hunt accordingly.
The Boom Battle Bar concept is still relatively new, but the early signs of
success suggest there is a very attractive opportunity to grow and generate
substantial shareholder value. The targets we set for growing the Boom
business in 2022 posed a significant challenge for the team to build the
organisational capability whilst maintaining the pace of expansion. Both our
marketing and operations capabilities have been boosted during the year and we
have successfully created the platform we had aimed to achieve. Margins from
the Boom owner operated estate have been steadily improving and it is pleasing
to see the positive customer reviews being achieved.
The Board remains resolved to capitalise on the continued growth of
experiential leisure, and we believe the foundations that have now been built
will enable XP Factory to become a leader in developing the industry. In the
short term, the group's strategy remains focused on building our UK presence,
whilst we take some initial steps to test international markets. The return
on capital opportunity for both our brands presents a significant shareholder
value creation dynamic. For Boom in particular, returns can be further
boosted by landlord contributions towards the fit out. Having achieved what
we set out to do in 2022, our challenge now is to optimise the pace of
roll-out within the constraints of the capital we have available. Escape
Hunt has developed strong defensible characteristics through its proprietary
games, operations and customer service. Our aim is to do the same within
Boom so our focus in Boom will shift towards more owner operated sites whilst
we continue to develop the operations, games management and customer
service. This means investment into systems and processes and will also
allow us to scale more easily. We believe that will set the business well for
the future enabling us to more easily replicate owner operated success and
also to create an attractive proposition for larger scale franchisees both in
the UK and in international markets.
During the year we took the opportunity to buy back two franchised Boom sites
in Cardiff and Norwich respectively. The returns profile from these
acquisitions has to date been attractive with the acquisition of Boom Norwich
already paid back. These opportunistic acquisitions follow similar
successful acquisitions of our Escape Hunt Dubai master franchise in 2020 and
the Escape Hunt French and Belgium master franchises in 2021, both of which
have also delivered very attractive returns. Where these types of
opportunities arise on favourable terms, we expect to take them up.
As the business grows, we are also mindful of our wider ESG objectives. The
group's purpose is to bring people closer together through shared experiences
as we believe that enriches lives. Consistent with this objective, it has been
pleasing to see the seeds of a strong and growing corporate culture within the
enlarged business. We have implemented a number of initiatives internally to
support our people and our goal is to offer our workforce an enriching and
supportive work environment. Our recruitment approach to create a more
inclusive workforce is working as is evident from the rich mix of cultures and
backgrounds across the organisation. There is also ongoing focus to
implement local initiatives to improve our environmental habits and we work
closely with our major suppliers with these objectives in mind.
During the year we made a number of changes to the board. Having served on
the board since the company's formation, Karen Bach left in June 2022. Her
support and insight in the early Escape Hunt journey and through the difficult
period over the pandemic was much appreciated. At the same time we were
delighted to welcome Martin Shuker and Philip Shepherd to the board. Martin
brings a wealth of experience in the consumer leisure sector and brings
considerable franchising know-how from his time at KFC. Philip, who is our
audit committee chairman, likewise brings considerable experience in the
experiential leisure sector. More details on each of the board members is
set out on page 25 of this report.
Finally, I wanted to thank all our people in the group without whose efforts
and dedication the business could not have survived the pandemic nor
successfully built the platform we have today.
Outlook
The opportunity presented by the growth of experiential leisure remains as
attractive today as it was when XP Factory (then Escape Hunt) started its
journey. The addition of Boom Battle Bar to the group has significantly
enhanced the scale and prospects for the group and we are well placed to
continue to benefit from attractive property opportunities. Escape Hunt's
financial performance has settled into an attractive rhythm, producing high
site level margins and highly attractive return on capital, whilst Boom's
performance has proven that our initial expectations of the opportunity were
well founded.
Trading in the first quarter of 2023 has been strong, with the group as a
whole performing ahead of management expectations. Escape Hunt had an
exceptionally strong first quarter with like for like revenues, adjusted for
the VAT benefit in 2022, up by 32%. Within this, it has been particularly
satisfying to see the oldest seven sites in the UK estate delivering like for
like growth of 18%. Margins continue to meet or beat our internal targets.
The franchise estate has delivered modest year on year growth.
Boom is still a very new business with very little historic trading against
which to compare. The four owner operated sites which traded the full Q1 in
2022 delivered like for like growth of 44%. The rest of the estate has also
shown strong growth and continued progression towards the operating metrics we
expect at maturity. The franchise estate has performed in line with
expectations.
Overall, whilst mindful of the ongoing pressures on the consumer and on our
cost base, the performance in Q1 of 2023 gives us cause for optimism.
Richard Rose
Chairman
23 May 2023
Chief Executive's Report
It is wonderful to be reporting a transformational year of outstanding growth
and performance, as XP Factory continues to position itself as a leading
operator in the experiential leisure sector. The bold expansion targets we set
for ourselves were met, and we ended the financial year with a platform set
for significant growth ahead. The strategic decision to buy Boom Battle Bar
has been validated and Escape Hunt has continued to perform at levels far
exceeding our initial investment assumptions. It is therefore a delight to
highlight some of the key performance measures for the full year to December
2022:
· Group revenue increased 228% to to £22.9m (2021: £7.0m)
· Adjusted EBITDA before IFRS16 of £2.6m (2021: loss of £0.6m)
· 27 Boom Battle Bar sites open as at 31 December 2022 (2021: 9)
· 23 owner-operated Escape Hunt sites open as at 31 December 2022
(2021: 19)
· 97% customer satisfaction score earned on both businesses
The pace of growth in the year would have been tough for many larger, longer
established businesses to deliver, but adding 18 Boom sites in the year and 20
to a base of only 7 since acquisition in November 2021 represented a
significant challenge to our teams. It was humbling to see the passion,
tenacity and at times resilience with which they embraced the task, and I
could not have been prouder of their execution. Most notably, they not only
opened the sites in quick succession, but they did so in a way that embodied
the best of our culture, our values and our unique form of hospitality, the
manifestation of which saw our customers reward us with a 97% satisfaction
rating.
Within the year we made two acquisitions, buying back our Boom franchises in
each of Norwich and Cardiff. They have each proved to be highly successful,
with Norwich fully paying back on a cash basis within 5 months, and Cardiff
continuing to operate as a high revenue, highly profitable unit, which
delivered 11% LFL sales growth in the period between acquisition and the year
end.
It felt almost symbolic that our year closed with the opening of a flagship
site on Oxford Street, perhaps the culmination of everything our teams have
been working towards over the last 6 years. The unit sits proudly across 15k
square feet and showcases the best of both Escape Hunt and Boom Battle Bar.
Three years ago, as we were attempting to navigate the pandemic, it would have
been unimaginable to think that we'd be opening our doors on one of the most
iconic streets in the world. However, the team took it within their stride,
and trading in both brands has exceeded our expectations so far.
Notwithstanding the challenges posed by the Omicron variant at the beginning
of the year, and the significant disruption caused by strike action in Q4
2022, the Company delivered Group Adjusted EBITDA in line with expectations
and enters 2023 from a true position of strength.
Escape Hunt
Escape Hunt bolstered its owner-operated estate throughout the year, opening a
further 5 sites in Exeter, Norwich (a second unit), Edinburgh (relocating the
previous Edinburgh site), Bournemouth and Oxford Street (London). Revenue of
almost £10m from the owner operated business represented a 64% increase on
the prior year (2021: £6m), albeit H1 in 2021 was affected by forced closures
related to the pandemic. However, across H2 2022, perhaps a more fair
comparison, like-for-like sales were 14% ahead on an underlying basis. The
international franchise business also saw H2 sales growth of 18% vs 2021, and
continues to provide a meaningful revenue contribution to the group (£0.7m).
Margins within Escape Hunt have continued to be exceptional, with the owned
estate delivering 42% site-level EBITDA across the year. This flows clearly to
the return on capital metrics, and the annualised cash return on invested
capital in the UK business is in excess of 35%. Overall the business is
demonstrably exceeding the mature targets we set for it, and even the most
mature sites, opened in 2017, continue to deliver healthy like for like sales
growth from the original game rooms first installed 6 years ago.
Our labour controls within Escape Hunt have continued to improve, bolstered by
our investment in the proprietary software platform we implemented, and
leveraged against higher sales. This has provided us with good cover in the
face of rising costs and wage pressures, since we have been able to absorb the
effect of our desire to invest in our teams and maintain wages well ahead of
the industry. Moreover, since Escape Hunt has no meaningful cost of goods, the
business is naturally insulated against much of the inflationary dynamics of
the market, and has been able to maintain customer pricing, which we feel is
important at a time when disposable income is being stretched.
Within the year we began to experiment with co-located sites in some cities,
where we took large spaces and split them between Escape Hunt and Boom.
Notably we have done this in Oxford Street, Lakeside, Edinburgh and Exeter. We
will continue to assess how these sites perform relative to standalone units,
but the early indications are positive, with the effect of materially lower
property costs per square foot driving strong cash generation for Escape Hunt.
We would expect to refine the way we bring the two brands together over time,
but already it is clear that there is a commonality of customer between both
businesses.
Overall we remain confident that we have a jewel of a business in Escape Hunt.
The consistency of returns, the high level of these returns, and the
overwhelmingly positive reactions that we still garner from customers underpin
our continued roll-out strategy. It is therefore exciting to be bringing our
experiences to new cities over the coming months.
Boom Battle Bar
In its maiden year for the Group, Boom Battle Bar's foundations were firmly
set in 2022, and the year closed with 27 sites open across the UK. This pace
of growth and execution against such a small base is likely unprecedented in
our industry, and the delivery highlighted for me what an extraordinary team
we have built over the last few years.
Without exception, our staff stepped up to the challenge and embraced every
element of the job in hand. Whether the integration of Boom with Escape Hunt,
the building of 18 sites in the year and a total of 20 since the acquisition,
the training and recruitment of staff, or the delivery of our values and
hospitality to customers, both I and my management team were deeply humbled by
the execution. Several members of our team, who have been with the business
since the beginning, were able to adopt leadership roles in the enlarged
Group, and watching them take responsibility for large swathes of our growth
strategy has been singularly rewarding. Moreover, seeing the resultant passion
and culture that exudes from our staff at site level, and the positive impact
it has on our customers, is a stark reminder of why we do what we do.
Whilst early in its evolution, the performance within Boom to date has been
highly encouraging. Revenue from the owned estate was approximately £9.5m,
with the franchise business delivering a further royalty income to the Group
of £1.5m, and total revenue of £2.9m. Moreover, the conversion to gross
profit and EBITDA has been in line with our expectations for a maturing
business. Even though the opening of the sites in 2022 was somewhat weighted
towards the back end of the year, and despite the fact that the units are
expected to operate at a loss in their first few weeks of opening, Boom
nevertheless generated pre IFRS 16 site EBITDA of 13%. This provides
significant comfort that the medium term target operating EBITDA margins of
between 20% and 25% are realistic, and indeed we are seeing this level and
beyond in many of the more established locations already.
We remain confident that the high expectations for return on capital are
achievable, as the build costs per square foot are being well managed, and
this, combined both with the strong cash generation from the units and the
capital contributions we are typically receiving from landlords (often circa
£500k), result in forecast paybacks of between 1 and 2 years. Given this
performance, it seems prudent to continue our site-opening strategy at a pace,
and whilst we will not repeat the 18 Boom units achieved in 2022, we have cash
and debt options to continue the rollout at pace.
There are of course many areas of the Boom operation which we continue to
adapt and experiment with so early on in our journey, but already we are
creating environments that customers are enjoying. Our satisfaction ratings of
97% are a testament to the delivery by our site teams, and the significant
level of returning corporate business further reinforces that we are servicing
an important market. Since the years of social lent born of COVID, we are
seeing ever increasing numbers of companies looking to book our venues for
their staff on a fairly regular basis, as Boom represents an ideal way to
bring people together in a fun, relaxed and enjoyable environment. We only
envisage this dynamic becoming more and more apparent, and indeed we have been
forced to triple the size of our corporate sales team in order to cope with
the in-bound demand.
Overall we are delighted with what we achieved with Boom over the course of
2022, and feel that it has set us up for success going forwards. We are
through the required threshold of critical mass and the company is already
showing itself to be cash generative in a way that has transformed our
outcomes relative to where we were only two years ago.
Strategic objectives
At the time of acquiring Boom Battle Bar, we outlined a four-point strategy to
build shareholder value. Almost 18 months on, we have been pleased with our
progress against these strategic imperatives, and have touched on the
highlights below:
1. Maximise the UK footprint by rolling out each brand, either through
direct investment into owner-operated sites or through franchises
During 2022, we embarked upon an aggressive site opening strategy in the UK,
and between Boom and Escape Hunt we opened 23 units. Importantly, we
co-located a number of Escape Hunt sites with Boom Battle Bar and will
continue to assess how these sites perform relative to stand-alone sites.
Early indications are positive and it is likely that in certain venues,
co-location of sites will make sense.
We will continue to build the network for both brands, with a greater relative
emphasis in the short term on Boom and owner operated sites.
2. 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 remains in the UK although we are
testing our first international market with a Boom site in Dubai. More
broadly, international expansion is likely to be franchise led, as it has been
for Escape Hunt.
3. 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 materially
expanded and is addressing the corporate / business market for both Escape
Hunt and Boom Battle Bar effectively.
4. 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 during 2022 in embracing the cultures of the two businesses and building
on the DNA and values within the XP Factory Group. Our focus is now on
implementing systems and operational practices which further differentiate our
businesses and create an operating methodology which can be easily be scaled
and which larger scale franchisees will value.
Outlook
The opportunity presented by the growth of experiential leisure remains as
attractive today as it was when XP Factory (then Escape Hunt) started its
journey. The addition of Boom Battle Bar to the group has significantly
enhanced the scale and prospects for the group and we are well placed to
continue to benefit from attractive property opportunities. Escape Hunt's
financial performance has settled into an attractive rhythm, producing high
site level margins and highly attractive return on capital, whilst Boom's
performance has proven that our initial expectations of the opportunity were
well founded.
Trading in the first quarter of 2023 has been strong, with the group as a
whole performing ahead of management expectations. Escape Hunt had an
exceptionally strong first quarter with like for like revenues, adjusted for
the VAT benefit in 2022, up by 32%. Within this, it has been particularly
satisfying to see the oldest seven sites in the UK estate delivering like for
like growth of 18%. Margins continue to meet or beat our internal targets.
The franchise estate has delivered modest year on year growth.
Boom is still a very new business with very little historic trading against
which to compare. The four owner operated sites which traded the full Q1 in
2022 delivered like for like growth of 44%. The rest of the estate has also
shown strong growth and continued progression towards the operating metrics we
expect at maturity. The franchise estate has performed in line with
expectations.
Overall, whilst mindful of the ongoing pressures on the consumer and on our
cost base, the performance in Q1 of 2023 gives us cause for optimism.
Richard Harpham
Chief Executive Officer
23 May 2023
Financial Review
Group Results
Revenue
Group revenue increased by 228% to £22.9 million compared to £6.9 million in
2021, reflecting the significant increase in scale of the business following
the acquisition of Boom Battle Bars in November 2021 as well as the period of
closure in the comparative period between January and May 2021 when most of
the Escape Hunt sites were closed due to Covid restrictions.
Year Year Increase / (decrease)
ended ended
31 December 31 December
2022 2021
£'000 £'000
New site upfront location exclusivity fees, support and administrative fees 1,368 247 453%
Franchise revenues 2,012 456 341%
Owned branch game revenues 13,535 6,025 125%
Owned branch food and drinks revenues 5,149 214 2302%
Other 770 41 1778%
Total 22,834 6,984 227%
Within the Escape Hunt owner operated estate, revenue grew 63% to £9.8m from
£6.0m in 2021. As mentioned, Escape Hunt sites were closed for much of the
period between January and May 2021 in the comparative year, whilst they
benefitted from a VAT reduction of 15% for the remainder of 2021. Adjusting
for the VAT benefit in the comparative, it was pleasing to see strong
annualised like for like growth of 14% across the estate in the final 26 weeks
of the year. Even the seven most mature sites in the estate which were
originally opened in 2018 saw 7.4% like for like growth calculated on the same
basis.
The Boom owner operated estate delivered revenue of £9.5m. At the start of
the year only 2 owner operated sites were open, and a further 9 owner operated
sites were opened / acquired during the course of 2022. The results also
include turnover from the site in Swindon, which is managed by our team
through an operating agreement but is counted as a franchise site in our site
numbers.
The Escape Hunt franchise network delivered turnover of £0.7m, an 18%
increase on 2021. In its maiden year, the Boom franchise network delivered
turnover of £2.9m. Of this, £1.5m was royalty income. £0.8m related to
the construction and resale of a franchise site, against which there is an
associated £0.5m cost of sale. It is no longer our policy to build sites on
behalf of franchisees, so this will not repeat. The balance comprises site
upfront location exclusivity fees, support and administration fees.
The Board estimates that the Group exited the year at an underlying run rate
turnover in excess of £30m per annum.
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 188% to £14.7m from £5.1m in 2021. Gross margin at group
level is impacted by the mix of sales between Boom and Escape Hunt and between
franchise and owner operated performance. Gross margin within the Escape Hunt
network fell from 74% to 69%. This was largely due to the loss of the 15% VAT
relief that was enjoyed during 2021 within the Escape Hunt UK business. Boom
gross margins improved marginally from 49% to 52% although the 2021 figure
represented only a single site for a short period only.
Site level EBITDA and Adjusted EBITDA
Site level Adjusted EBITDA is a key performance measure for the business and
is calculated before IFRS 16 adjustments. Escape Hunt delivered £4.1m pre
IFRS 16 site level EBITDA, a 66% increase on 2021, and representing a 42%
EBITDA margin. The margin achieved is significantly higher than the internal
target of 30% set when the business started out in 2018 and demonstrates the
success of the business model to date. Whilst the result includes some VAT
benefit from Q1 in 2022, it nevertheless represents a marginal improvement on
the 41% margin achieved in 2021 which had the VAT benefit throughout the
period of trading.
Boom owner operated estate delivered a site level EBITDA of £1.4m,
representing a margin of 15%. Whilst our target for Boom is to achieve
EBITDA margins between 20% and 25%, the achievement is extremely pleasing
given the early stage of trading for most of the estate during the year.
Sites are expected to, and generally do, run at a loss in the early weeks and
months after opening as operations are improved, labour trained and awareness
of the venue builds. EBITDA margins have continued to improve during Q1 2023
and we remain confident of achieving the targeted range between 20% and 25%.
Adjusted EBITDA is a key performance indicator for the company. The Group
recorded its first pre-IFRS16 Adjusted EBITDA profit of £2.7m for the year,
compared to a pre IFRS 16 Adjusted EBITDA loss (before R&D credits) in
2021 of £0.6m. After IFRS 16, the Adjusted EBITDA profit was £4.1m.
Escape Hunt Escape Hunt Boom Boom Unallocated 2022
Owned Franchise Owned Franchise £'000
Pre IFRS 16 Adjusted site level EBITDA 4,095 703 1,270 2,279 - 8,347
Site level EBITDA margin 42% 100% 13% 80% 37%
Other income 141 - - - 6 147
Centrally incurred costs (63) (134) (188) (105) (5,449) (5,939)
Pre-IFRS Adjusted EBITDA 4,173 569 1,082 2,174 (5,443) 2,555
IFRS adjustments (net of pre-opening) 613 - 787 - - 1,400
Adjusted EBITDA 4,785 569 1,869 2,174 (5,443) 3,955
Escape Hunt Escape Hunt Boom Boom Unallocated 2021
Owned Franchise Owned Franchise £'000
Pre IFRS 16 Adjusted site level EBITDA 2,477 407 21 111 - 3,016
Site level EBITDA margin 41% 69% 8% 100% 43%
Other income 371 - - - - 371
Centrally incurred costs (1,479) (130) (2) (30) (2,363) (4,004)
Pre-IFRS Adjusted EBITDA 1,369 277 19 81 (2,363) (617)
R&D Grant (net of fees) 2,590 2,590
IFRS adjustments Net of pre-opening) 580 - 63 - 37 680
Adjusted EBITDA 1,949 277 82 81 264 2,653
A reconciliation between statutory operating loss and Adjusted EBITDA is shown
below.
Year ended 31 December 2022 Year ended 31 December 2021
£'000 £'000
Pre IFRS 16 and pre R&D Adjusted EBITDA 2,555 (616)
IFRS 16 adjustments (excl pre-opening) 1,400 680
R&D Grant - 2,589
Adjusted EBITDA 3,955 2,653
Depreciation and amortisation (5,165) (2,805)
Loss on disposal of tangible assets (126) (50)
Profit on closure/modification of leases and rent credits 123 189
Branch closure costs and other exceptional costs (399) (239)
Branch pre-opening costs (2,018) (103)
Provision against loan to franchisee (26) (78)
Foreign currency gains / (losses) (1,133) (18)
IFRS 9 provision for guarantee losses (68) (8)
Fair value adjustment 6,210 -
Share-based payment expense (81) (62)
Operating profit / (loss) 1,272 (521)
Centrally incurred costs rose to £5.9m from £4.0 million in 2021 (2021:
£4.6m including costs relating to the successful R&D claim) reflecting
the increased head office function following the Boom acquisition.
Operating profit
Operating profit rose to £1.2m from a loss of £0.5m in 2021.
The operating profit is after £2.0m pre-opening costs relating to openings
of both Boom and Escape Hunt sites during the year. £1.6m related to Boom
sites and £0.4m to Escape Hunt sites. Pre-opening costs comprised the
following:
Pre-opening costs Boom EH Total
£,000 £'000 £'000
Admin costs 486.2 83.5 569.7
Rates and service charge 264.3 43.1 307.4
Cost of sales - consumables 64.4 0.6 65.0
Training 363.7 69.4 433.1
Central staff marketing and training 464.2 178.8 643.1
Post IFRS 16 1,642.8 375.5 2,018.2
Rent accruals 610.4 53.8 664.2
Pre IFRS 16 2,253.2 429.3 2,682.5
Operating profit includes £1.1m of foreign exchange costs. These relate
principally to an intercompany balance between Experiential Ventures and
Escape Hunt IP Limited, both 100% owned subsidiaries within the Group.
Experiential Ventures is in the process of being voluntarily wound down an on
completion, the balances will be offset. There is no cash impact.
Branch closure and exceptional costs comprise predominantly the write off of
inter-company balances on the dissolution of EHO and EVD, the former Malaysian
and Thai companies in the group which were finally dissolved during 2022, as
well as restructuring charges and the closure of the previous Escape Hunt site
in Edinburgh.
The fair value adjustment of £6.2m relates to the contingent liability
connected with the acquisition of Boom. A detailed explanation is given in
note 3 on page 71.
Cashflow and capital expenditure
The Group had £3.2m of cash as at 31 December 2022, down from £8.2m at 31
December 2021. The reduction in cash is as a result of the significant
capital investment in new sites during the year.
The Group generated £3.4m cash from operating activities, up from £0.8m in
2021. The cash generated from operating activities was boosted by positive
working capital movements. A significant proportion of this relates to
deferred rent payments, where companies in the group have rent-free periods
early in their leases, significantly boosting the cashflow dynamics for those
sites. The underlying working capital position is favourable, with the
majority of revenue being received in advance or on the day of sale. Whilst
the group does hold stock at sites, money tied up in stock is more than offset
by trade and other creditors.
A total of £6.9m was invested in capital expenditure on Boom sites (tangible
and intangible). Of this, £2.5m was funded from landlord contributions.
Most of this expenditure related to the new Boom sites opened in Exeter,
Manchester, Plymouth, Leeds, Edinburgh and London Oxford Street.
£2.1m was invested into Escape Hunt, of which £0.4m was funded from landlord
contributions. The majority of this investment went into new sites opened in
Exeter, Norwich, Edinburgh, Bournemouth and London Oxford Street.
Acquisitions of Boom Battle Bar franchised sites in Cardiff and Norwich
utilised £0.4m of cash. The acquisition of Boom Cardiff required £0.5m
(net of cash acquired), whilst the acquisition of Boom Norwich was funded
through a vendor loan and resulted in a net inflow of £0.1m on completion.
Since the year end a further £0.6m has been paid in respect of the Cardiff
acquisition. A final payment which is expected to be de-minimus is due in
September 2023.
Other movements within investing activities are largely fit-out loan
repayments.
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.
The UK Escape Hunt network generated an annualised return on capital (defined
as EBITDA divided by gross investment in the sites) of 35%, demonstrating the
attractions of the business model.
Whilst it is arguably still too early to conclude on the performance of the
Boom estate, initial indications are very positive. The annualised return on
capital (calculated in the same way as for Escape Hunt) during Q1 of 2023 has
exceeded 30% for Boom sites. This return does not take account of the
considerable rent-free periods enjoyed by most of the Boom sites which further
boosts the actual cash on cash return in the short term. As the Boom sites'
performance matures, return on capital is expected to improve and the board's
estimate is that the annualised return on capital will exceed 50% for the Boom
owner operated estate as a whole.
The cash return on investment for our acquisitions has also proved very
strong. The acquisition of the Boom Norwich site has already paid back on a
cash basis. Likewise the acquisition of the Boom Cardiff business is expected
to pay back within 18 months.
Balance sheet
Net assets at the end of the year were £21.8m. The most significant
movements relate to the site roll out programme undertaken in the year.
The net book value of property plant and equipment rose to £12.7 m from
£5.5m reflecting the capital investment programme, offset by depreciation in
the year. Right of use assets rose to £17.8m from £7.6m, reflecting the IFRS
16 treatment of new leases signed in the year in Exeter, Plymouth, Manchester,
London Oxford Street, Leeds, Edinburgh and Dubai, as well as acquisitions in
Norwich and Cardiff. Landlord contributions of £2.6m are offset against the
value of right of use assets in accordance with IFRS treatment. The increase
is reciprocated by an increase in lease liabilities to £24.0m from £8.4m.
The intangibles balance of £23.0m predominantly includes goodwill and
acquired intangibles (franchise contracts) from the acquisitions in prior
years of Boom, the French, Belgian and Middle East master franchises for
Escape Hunt, and in 2022 the acquisitions of Boom in Cardiff and Boom in
Norwich.
The total balance in provisions has reduced significantly during the year to
£5.4m. The balance includes £4.1m of contingent consideration (2021:
£9.0m). The reduction arose from a fair value adjustment of the contingent
consideration which is expected to be settled by the issue of approximately
23.5m XP Factory plc shares to MFT Capital Ltd, the former owner of Boom
Battle Bars. For further details of the fair value revaluation see note 3 on
page 71 of the financial statements. There will be no cash impact from the
settlement of the contingent consideration and the number of shares is fixed
and not influenced by the share price.
The balance sheet includes a total of £1.5m of loans. £0.4m of this
relates to loans issued in connection with the acquisitions of the French and
Belgian Escape Hunt master franchise and the acquisition of Boom Battle Bars
both in 2021. £0.8m relates to fit-out funding within the Boom estate and
the balance is bank and other borrowings.
The deferred tax liability was recognised to offset future amortisation of
acquired intangibles (franchise contracts) arising from the acquisitions of
the French and Belgian Escape Hunt master franchise and the acquisition of
Boom Battle Bars both in 2021. £112k has been credited to the statement of
comprehensive income during the period.
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: 23 Escape Hunt sites and 11 Boom
Battle Bar sites as at 31 December 2022
· Numbers of franchised sites: 23 Escape Hunt and 16 Boom Battle Bar
sites as at 31 December 2022
· Site level revenue: £19.3m in the year to 31 December 2022
· Site level EBITDA: £7.7m in the year to 31 December 2022
· Franchise revenue: £3.6m in the year to 31 December 2022
· Central costs: £5.9m in the year to 31 December 2022
· Adjusted EBITDA, before IFRS 16 for the Group: £2.6m in the year to 31
December 2022
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.
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
23 May 2023
DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
The Directors present their report together with the audited financial
statements of the Group for the year ended 31 December 2022.
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 socialising 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.
Research and development activities
The Group has historically invested in research and development activities
relating to software and intellectual property that supports the Group's
experiential leisure activities. It remains part of the Group's strategy to
further invest in selected areas which will enhance the Group's operating and
data analytic capabilities. Further details of the group's strategic
objectives are set out in the strategy report.
Employment policies
The Group has employment policies which give full and fair consideration for
the employment of disabled persons, having regard to their particular
aptitudes and abilities. Where possible, the Group will make appropriate,
sympathetic changes and provide training to continue the employment of any
employees who become disabled whilst in the employment of the Group and will
otherwise provide training and support the career development and promotion of
any such employees.
Employee engagement
The Group attaches importance to good communications and relations with
employees. Information that is or may be relevant to employees in the
performance of their duties is circulated to them on a regular basis, or
immediately if it requires their immediate attention. There is regular
consultation with employees through meetings or other lines of communication,
so that their views are known and can be taken into account in making
decisions on matters that will or may affect them. Employee participation in
their venue's performance is encouraged and there is regular communication
with all employees on the performance of their particular venue or central
function and on the financial and economic factors affecting the overall
performance of the Group.
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 30 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 23 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, the failure of Silicon Valley Bank and fears over the
strength of the international banking system, coupled with persistently high
inflation and rising interest rates have fuelled further macroeconomic
concerns, adding to the uncertainty already apparent from the ongoing war in
Ukraine, high energy prices and the growing tension between China, Russia and
the West. Whilst these conditions may have a detrimental impact on
sentiment, they do not provide any further information impacting the financial
performance or position of the Group as at 31 December 2022.
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
Martin Shuker Independent Non-Executive Director 29/6/2022 N A R
Philip Shepherd Independent Non-Executive Director 29/6/2022 N A R
Karen Bach Independent Non-Executive Director 3/5/2017 29/6/2022 N A R
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 three 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.
Martin Shuker, Independent Non-Executive Director
Martin has had a long and distinguished career with Yum Brands, the US Fortune
500 Global hospitality business. He spent 24 years in a variety of leadership
roles, most recently as Managing Director KFC Western Europe where he had full
strategic, growth and operational responsibility over 1,700 restaurants and
165 franchisees which generated £2.3 billion in sales and £120 million of
profit.
As MD of KFC UK, he more than doubled sales in the UK to £1.3 billion and met
or exceeded targets in 11 of 13 years.
Martin has demonstrated his ability in consistently achieving growth and
bottom-line performance of established owner-operated and franchise businesses
over a long period of time and has relevant experience in entering new
territories through franchise routes. He successfully opened new markets in a
number of European countries and has demonstrated his ability to both manage
an established franchise network as well as establishing new networks in new
territories.
Prior to YUM, Martin had a variety of marketing roles with United Biscuits.
Martin is chairman of the Company's Remuneration Committee.
Philip Shepherd, Independent Non-Executive Director
Philip is a former partner of PricewaterhouseCoopers ("PwC"), where he
originally trained in audit and tax, qualifying as an ACA in 1987.
Following a career in corporate finance and transaction advisory services,
Philip returned to PwC in 2004 working both in the UK and overseas, leading
Strategy and Deals practices, with a particular focus on the hospitality and
leisure sectors. Since leaving PwC in 2018, he has held a number of board and
advisor roles, again with a focus on hospitality and leisure. He regularly
travels abroad where he advises, and speaks, on the experiential leisure
market and start up opportunities. Philip combines his experience in
accounting and audit with deal evaluation and execution, and has a deep
understanding of the hospitality and leisure markets both in the UK and
globally.
Philip is chairman of the Company's Audit Committee.
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 28 to the Financial Statements.
Director Ordinary shares held % held
Richard Rose 53,666 0.04
Richard Harpham 895,163 0.59
Graham Bird 1,911,093 1.27
Martin Shuker Nil 0.00
Philip Shepherd Nil 0.00
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 2022, 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 3,555,556 16 July 2020 16 July 2025
Graham Bird 3,733,333 7.5 pence 2,488,888 16 July 2020 16 July 2025
No directors exercised any options during the year.
Substantial interests
As at 31 March 2023 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 15,633,731 10.4
Hargreaves Lansdown stockbrokers 12,621,375 8.4
JO Hambro Capital Management 9,100,00 6.0
Interactive investor 7,681,457 5.1
Stephen Lucas 7,233,024 4.8
Allianz Global Investors 7,100,000 4.7
John Story 6,525,003 4.3
Sankofa Investment Management 4,543,194 3.0
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 2022.
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 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
and run forecasts for a three year period from the year end date of 31
December 2022.
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 26 June 2023.
Signed by order of the board
Graham Bird
Chief Financial Officer
31 May 2022
STAtement of directors' responsibilities in respect of the ANNUAL REPORT AND
the financial statements
The Directors are responsible for preparing the Annual Report and the Group
and parent Company financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under the AIM Rules of the
London Stock Exchange they are required to prepare the Group financial
statements in accordance with UK-adopted International Accounting Standards as
issued by the International Accounting Standards Board and applicable law and
they have elected to prepare the parent Company financial statements in
accordance with UK accounting standards and applicable law (UK Generally
Accepted Accounting Practice), including FRS 102 The Financial Reporting
Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and parent Company and of their profit or loss for that
period. In preparing each of the Group and Parent company financial
statements, the directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant, reliable
and prudent;
· for the Group financial statements, state whether they have been
prepared in accordance with UK-adopted International Accounting Standards;
· for the parent Company financial statements, state whether applicable
UK accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
· assess the Group and parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease operations, or have
no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the parent Company's transactions and disclose
with reasonable accuracy at any time the financial position of the parent
Company and enable them to ensure that its financial statements comply with
the Companies Act 2006. They are responsible for such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report and a Directors' Report that complies with that
law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Website publication
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website. Financial statements are published
on the Company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company's website is the responsibility of the Directors. The Directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors' Confirmations
The Directors consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group and parent Company's position and
performance, business model and strategy.
In the case of each Director in office at the date the Directors' Report is
approved:
· so far as the Director is aware, there is no relevant audit
information of which the Group and parent Company's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Group and parent Company's auditors are aware of
that information.
Signed by order of the Board
Richard Rose
23 May 2023
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF XP FACTORY PLC
Opinion
We have audited the financial statements of XP Factory Plc (the 'Parent
Company') and its subsidiaries (the 'Group') for the year ended 31 December
2022, which comprise:
• 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 2022 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 thirty one components of the Group, twenty five located and
operating in the United Kingdom (UK) and six located and operating overseas.
One of the components located and operating in the UK is not a subsidiary of
the Group, but has been consolidated as part of the results of the Group on
the basis of control. Please refer to Note 15 to the Consolidated financial
statements for more information. The audits of XP Factory 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;
• The completeness and valuation of dilapidation provisions; and
• Going Concern.
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:
· We undertook a review to gain an understanding of the overall
governance and oversight process surrounding management's review of the
Management is in a unique position to override controls that otherwise appear financial statements.
to be operating effectively.
· 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 Group and Parent Company is a co-tenant or has provided a guarantee on a · We obtained management's calculation of the expected credit loss
number of property leases for which a franchisee is the primary lessee. IFRS 9 provision and discussed the key inputs into the assessment with management.
requires the recognition of expected credit losses in respect of financial
guarantees, including those provided by the Group. Where there has been a · We reviewed the lease agreements to verify the terms of the lease
significant increase in credit risk, the standard requires the recognition of which act as a basis for the calculation.
the expected 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 their
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
the recognition of right of use assets and lease liabilities. use 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 the Company has assessed to be 6% above base rates.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
Intangibles arising from business combinations in the year amounted to £1.6m reasonableness of the key inputs into the model.
(2021: £21.5m).
· We reviewed the significant judgements made in the model,
particularly with respect to the discount rate applied, the calculation of tax
amortisation benefits and the recognition of deferred tax liabilities.
The total carrying value of intangible assets was £23.0m (2021: £22.0m).
· We tested to ensure the mathematical accuracy of the model
presented.
The uncertainty of future cash flows indicate there could be an impairment in
the carrying value of the intangible assets and as such we considered this to
be a key audit matter. Impairment
· 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 key 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:
In 2021, there was contingent consideration of £8.95m arising on the · We obtained management's calculation of the fair value at the
acquisition of the Boom Group. date of acquisition and at the expected date of issue and discussed the key
inputs into the assessment with management.
· We performed procedures, including challenge regarding
Contingent consideration includes a preliminary estimate on the earnout reasonableness 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
The value of the contingent consideration was initially estimated assuming all presented.
25,000,000 shares potentially due under the provisions of the sale agreement
would be issued. · We reviewed the appropriateness of the disclosures made and its
consistency with our knowledge of the transaction.
The fair value of the contingent consideration has been re-assessed based on
the performance of the Boom Group during the earnout period, which ended on 31 Based on our audit work detailed above, we confirm that we have nothing
December 2022. Approximately 94 per cent of the contingent consideration is material to report, and or draw attention to in respect of these matters.
expected to be paid. This would lead to the issue of 23,501,137 shares.
This resulted in a fair value adjustment of £6.2m which has been recognised
in the Statement of Comprehensive Income. Please refer to Note 21 of the
Consolidated financial statements for more information.
The completeness and valuation of dilapidation provisions Our audit work included, but was not restricted to the following:
Provisions for dilapidations are recognised on a lease-by-lease basis over the · We obtained management's calculation of the expected dilapidation
period of time landlord assets are being used and are based on the provision and discussed the key inputs into the assessment with management.
Management's best estimate of the likely committed cash outflow. This estimate
requires judgement and is unique to each individual site. · We reviewed the calculation for completeness based on our
knowledge of the business.
· We recalculated the estimated cost per sqft and reviewed this
analytically and against RICs professional estimates for reasonableness.
· We reviewed the appropriateness of the disclosures made and its
consistency with our knowledge of the agreements.
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.
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 £454,000, based on 2% of Group
turnover.
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 Group's and Parent
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, adjusted
for seasonality. 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. Central case produces a cash generative, profitable business.
• A downside case which reflects a combination of downside
sensitivities in each of the Boom and Escape Hunt businesses. The downside
case reflects a reduction in activity for both Boom and Escape Hunt.
Sensitivities include a sales reduction of 10% in Escape Hunt and 5% in Boom
leading to reduced margins, cost inflation of a further 2% in Boom, a
reduction of discretionary capex by 50%, controllable central costs reduced by
30%, a delay in the construction and timing of the opening of new sites. The
downside case demonstrates that even if a wide range of targets are missed,
the business has sufficient cash to meet its obligations.
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 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's or Parent 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
Parent 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 Parent 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 Parent Company. We determined that the
following were most relevant: UK-adopted International Accounting Standards,
FRS 102, Companies Act 2006, Planning Consent, Alcohol Licencing, Health &
Safety Standards, Food Hygiene, US Regulations relating to US Franchises.
• We considered the incentives and opportunities that exist in the
Group and Parent 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 Parent Company, together with
the discussions held with the Group and Parent 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 and stock items.
• 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's and Parent 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. 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…………………………
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended 31 December 2022
All figures in £'000s Year ended Year ended
31 December 31 December
Continuing operations Note 2022 2021
Revenue 4 22,834 6,984
Cost of sales 6 (8,122) (1,904)
Gross profit 14,712 5,080
Other income 33 74 3,607
Fair value adjustment on contingent consideration 22 6,210 -
Administrative expenses 6 (19,724) (9,208)
Operating profit / (loss) 6 1,272 (521)
Adjusted EBITDA 3,954 2,653
Amortisation of intangibles 13 (886) (471)
Rent concessions recognised in the year 12 33 148
Depreciation of property plant and equipment 11 (2,825) (1,721)
Depreciation of right-of-use assets 12 (1,453) (613)
Loss on disposal of tangible assets 11 (126) (39)
Loss on disposal of intangible assets 13 - (11)
Profit on termination / change of leases 12 90 41
Branch closure costs (106) (4)
Branch pre-opening costs (2,018) (103)
Provision against loan to franchisee 16 (26) (78)
Provision for guarantee leases 22 (68) (8)
Exceptional professional costs 6 (293) (235)
Foreign currency losses) (1,133) (18)
Fair value movements on provisions 22 6,210 -
Share-based payment expense 25 (81) (62)
Operating profit / (loss) 1,272 (521)
Net Interest charged 8 (1,292) (131)
Lease finance charges 12 (1,086) (233)
Loss before taxation (1,106) (885)
Taxation 9 112 11
Loss after taxation (994) (874)
Other comprehensive income:
Items that may or will be reclassified to profit or loss:
Exchange differences on translation of foreign operations 363 (3)
Total comprehensive loss (631) (877)
Loss attributable to:
Equity holders of XP Factory Plc (994) (874)
Non-controlling interests - -
(994) (874)
Total comprehensive loss attributable to:
Equity holders of XP Factory Plc (631) (877)
Non-controlling interests - -
(631) (877)
Loss per share attributable to equity holders:
Basic and diluted (Pence) 10 (0.66) (0.93)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
As at As at
31 December 31 December
Note 2022 2021
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 11 12,753 5,516
Right-of-use assets 12 17,842 7,602
Intangible assets 13 22,696 22,046
Finance Lease receivable 12 1,273 -
Rent deposits 61 44
Loan to franchisee 16 - 84
54,625 35,292
Current assets
Inventories and work in progress 18 323 462
Trade receivables 17 1,934 848
Other receivables and prepayments 17 1,839 4,142
Cash and cash equivalents 19 3,189 8,225
7,285 13,677
TOTAL ASSETS 61,910 48,969
LIABILITIES
Current liabilities
Trade payables 20 1,837 1,527
Contract liabilities 21 1,029 1,201
Loans Notes 23 45 404
Other loans 23 1,012 256
Lease liabilities 12 1,073 393
Other payables and accruals 20 5,259 2,889
Provisions 22 4,970 637
15,225 7,307
Consolidated Statement of Financial Position
As at 31 December 2022 (continued)
As at As at
31 December 31 December
2022 2021
Note £'000 £'000
Non-current liabilities
Contract liabilities 21 455 491
Provisions 22 413 9,248
Loan notes 24 - 373
Other loans 24 423 620
Deferred tax liability 9 832 1,101
Lease liabilities 12 22,965 8,012
25,088 19,845
TOTAL LIABILITIES 40,313 27,152
NET ASSETS 21,597 21,817
EQUITY
Capital and reserves attributable to equity holders of XP Factory Plc
Share capital 23 1,883 1,825
44,705 44,366
Share premium account 27 4
4
,
3
6
6
Merger relief reserve 27 4,756 4,756
Convertible loan note reserve 24 - 68
Accumulated losses 27 (30,312) (29,318)
Currency translation reserve 27 279 (84)
Capital redemption reserve 27 46 46
Share-based payment reserve 27 240 158
21,597 21,817
Non-controlling interests - -
TOTAL EQUITY 21,597 21,817
The notes on pages 52 to 109 are an integral part of these financial
statements.
The financial statements were approved by the Board of Directors and
authorised for issue on 23 May 2023 and are signed on its behalf by:
Graham Bird
Director
Registered company number 10184316
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
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 2022
Convertible loan note reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1,825 44,366 4,756 (83) 46 158 68 (29,318) 21,817
1 Jan 2022
Loss for the year* - - - - - - - (994) (994)
Other comprehensive income - - - 363 - - - - 363
Total comprehensive loss - - - 363 - - - (994) (631)
Issue of shares 3 - - - - - - - 3
Redemption of convertible loan notes 55 339 - - - - (68) - 326
Share-based Payment Charges - - - - - 82 - - 82
Transactions with owners 58 339 - - - 82 (68) - 411
Balance as at 31 Dec 2022 1,883 44,705 4,756 279 46 240 - (30,312) 21,597
Year ended 31 Dec 2021:
Balance as at 1 Jan 2021 1,005 27,758 4,756 (81) 46 96 68 (28,444) 5,204
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
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 (29,318) 21,817
* Includes amortisation of intangible assets
The notes on pages 52 to 109 are an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Cash flows from operating activities
Loss before income tax (1,106) (885)
Adjustments:
Depreciation of property, plant and equipment 11 2,825 1,721
Depreciation of right-of-use assets 12 1,453 613
Amortisation of intangible assets 13 886 472
Fair value movements 22 (6,210) -
Movement in provision against franchisee loan 16 26 78
Loss on disposal of plant and equipment 11 126 41
Loss on write off of intangibles 13 - 11
Net foreign exchange differences 348 (3)
Share-based payment expense 25 81 62
Lease interest charge 12 1,086 233
Rent concessions received 12 (33) (148)
Profit on closure / modification of leases 12 (90) (41)
Interest charge 8 1,292 131
Operating cash flow before working capital changes 684 2,285
Decrease / (increase) in trade and other receivables 1,359 (2,628)
Decrease (increase) in inventories and work in progress 184 93
(Decrease) in provisions (160) (270)
Increase in trade and other payables 1,571 202
(Decrease) / increase in deferred income (317) 1,075
Cash generated in operations 3,321 757
Income taxes paid 9 - (15)
Net cash generated in operating activities 3,321 742
Cash flows from investing activities
Purchase of property, plant and equipment 11 (8,998) (2,584)
Purchase of intangibles 13 (217) (119)
Landlord incentives received 12 2,914 -
Payment of deposits (16) (18)
Loan made to master franchisee 16 84 (187)
Acquisition of subsidiaries, net of cash acquired 15 (436) (9,732)
Interest received 82 -
(554)
Net cash used in investing activities (6,587) (12,640)
Cash flows from financing activities
Proceeds from issue of ordinary shares 23 6 18,639
Share issue costs 25 - (1,211)
Proceeds from new loans 24 820 728
Repayment of loans 25 (1,271) -
Interest paid (147) -
Repayment of leases and lease interest 12 (1,185) (759)
Net cash (used) / generated from financing activities (1,777) 17,397
Net (decrease) / increase in cash and cash equivalents (5,043) 5,499
Cash and cash equivalents at beginning of year 8,225 2,722
Effects of exchange rate changes on the balance of cash held in foreign 7 4
currencies
Cash and cash equivalents at end of year 3,189 8,225
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 Group's accounting
policies.
Changes in accounting policy
a) New standards, interpretations and amendments effective from 1 January
2022
There are no new standards impacting the Group adopted in the annual financial
statements for the year ended 31 December 2022. 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.
The Group plans to continue the roll out of 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 limited 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 openings other than
sites for which leases have already been secured.
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, delays in the opening of sites, and cost increases. In the 'downside'
scenario, the Directors believe 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 and in capital expenditure.
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 and capital expenditure at
sites. Taking into account the mitigating factors, the Group believes it
would have sufficient resources for its present needs.
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 or over the period of the lease
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:-
(i) its ability to measure reliably the expenditure
attributable to the asset under development;
(ii) the product or process is technically and commercially
feasible;
(iii) its future economic benefits are probable;
(iv) its ability to use or sell the developed asset; and
(v) 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
names
3 years
- Rights to system and business
processes
3 years
- 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
22.
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:
a) There is an identified asset;
b) The Group obtains substantially all the economic benefits from use of the
asset; and
c) 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% above base rates.
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 provisions 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 owner-operated escape room and
Boom Battle Bar venues. The Group also leases certain items of plant and
equipment, but these are not significant to the activities of the Group.
Nature of leasing activities (in the capacity as lessor)
During the financial year, the Group sub-let part of the space in Bournemouth
which the group leases under a master lease agreement. The sub-let a to a Boom
Battle Bar franchisee. The sub-let is treated as a finance lease receivable.
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 25 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 Directors'
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 Directors' 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 recognised 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 derecognised when, and only when, the Group'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 recognised as liabilities one they are no longer at the
discretion of the Company.
3. Critical accounting estimates and judgements
In the application of the Group'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 £22.3m, as the timing and nature of future taxable profits
remains uncertain given the relatively young stage of development and the 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 near term.
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
and 2022. The amount of such potential claims 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 and 2022, Management
does not consider it sufficiently possible to estimate the value of the claims
at this time and as such, no claims in relation to 2021 or 2022 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 of between 3% and 10% per annum 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 £12.9m (2021: £13.8m) 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 £5.6m (2021: £5.7m) but
would not result in the need for an impairment charge.
The discount rate used was the same as in prior years, notwithstanding the
significant increase in base interest rates between 31 December 2021 and 2022,
impacting the risk free rates and cost of borrowing used in the calculations
of the group's weighted average cost of capital. Whilst interest rates
have increased, it is the Directors' view that the risk premium associated
with XP Factory will have reduced significantly over the same period given the
following:
· The group has achieved a scale at which it is capable of operating
profitably where previously it lacked such scale
· The group is significantly more diversified with the addition of the
Boom business to the group
· The network of owner operated sites is significantly more diversified
with a much larger estate and the group is consequently less exposed to any
single site
· The group has developed a proven operating history with Escape Hunt
in particular, operating at attractive growth rates and margins
· The group exited 2022 with sites generating positive cashflow and
EBITDA. This has continued into 2023.
Furthermore, external estimates of the group's cost of capital, which are
based on historic numbers which do not take account of these factors, indicate
a level not materially different to the director's assessment. The cost of
capital indicated for similar competitors further supports the directors'
view.
Long-term growth rates
The growth rate used for the fair value calculation after
year 5 has been assumed at 2% per annum. If this rate was decreased by 100
basis points the net present value of intellectual property across the group
would fall by £2.8m (2021: £3.5m) 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 £1.0m (2021: £1.8m) 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 £204k (year ended 31 December 2021: £299k).
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 16% (2021: 11%) 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 £995k (year ended 31 December 2021: £669k).
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 thea
discount rate of 6.2 per cent 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% above base rates.
Estimation of dilapidations provision
The estimation of the provision for dilapidations is done by estimating the
cost of stripping out a site at the end of the contracted lease to restore the
property to the condition required under the terms of the lease. The
liability is accrued over the period of the lease. The estimation of the
cost of the strip out is based on a management estimate and represents a key
estimate.
Estimation of the debt and equity components of Convertible Loan note
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 1 July
2020, the Company issued £340,000 convertible loan notes ("Convertible
Notes"). The Convertible Notes were unsecured and interest rolled up at a
fixed rate of 10 per cent. per annum. 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 was classified as the
equity component of the Convertible Notes. This gave an effective underlying
interest rate on the Notes of 13.4% per annum. The Convertible Notes carried
rights to early redemption, exercisable by the Company only, but with
preferential rights to early conversion, exercisable by the Noteholder.
On 4 January 2022, the Company gave notice to the Noteholder of its intention
to redeem the Convertible Notes on 2 February 2022 unless the Noteholder first
served a Noteholder Conversion Notice to convert the Convertible Notes. On 5
January 2022 the Noteholder served a Noteholder Conversion Notice to the
Company formally electing to convert the principal amount of the Convertible
Notes together with accrued interest into ordinary shares at 9.0 pence per
share. £340,000 principal, together with £54,027of accrued interest was
converted at 9.0 pence per share on 2 February 2022 resulting in the issue of
4,378,082 ordinary shares. All 4,378,082 ordinary shares were admitted to
trading on AIM on 3 February 2022.
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 recognised, 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 were made under the scheme in both 2020
and 2021, details of which are set out in note 25. 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 recognized in the year ended 31 December 2022 was
£69k (2021: £53k).
The Group also operates a broader share based Incentive scheme available to
all employees, allowing employees to purchase shares tax efficiently each
month. For each share purchased (a "Partnership Share"), the employee is
granted a further matching share ("Matching Share"). The Management has
estimated the cost of the Matching Shares recognized in the year ended 31
December 2022 was £12k (2021: £9k) Further details are provided in note 25.
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 2022, the average probability of default used across
the portfolio was assessed as between 10% and 15% (2021: 10%). 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 2022 was £93,505 (2021: £25,548).
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 two years to 31 December is shown in the table below:
Assumption Base case Sensitivity applied Increase in Expected loss provision (£'000)
2022 2021
Discount rate 6.2% 1% decrease 4.7 1.7
Probability of default Individually assessed 10% increase in probability of default 9.4 2.5
Proportion of defaulted leases giving rise to a loss 16.67% Increase by 3.33% 18.7 5.1
(1 in 6) (1 in 5)
Proportion of liability not covered by guarantee / step-in right 50% 10% increase in loss 9.4 5.1
Estimation of the value of Contingent consideration and implied interest
charges
The value of the contingent consideration in relation to Boom Battle Bars was
initially 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) was 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 was being
recognised as a finance charge over the 18 months between the date of
acquisition and the expected date of settlement. This gave rise to a notional
interest charge of £1.3m being recognised in the year to 31 December 2022
(2021: £105k).
The fair value of the contingent consideration has been revalued at 31
December 2022 based on the Directors' revised estimate of the liability. The
revised value of the contingent consideration has been estimated using a share
price of 17.5 pence per share, the share price as at 31 December 2022, and
assuming that 23,501,137 shares will be issued, based on the actual
performance of the Boom owner operated sites during the year to 31 December
2022. The future value of the contingent consideration, which is due to be
settled shortly after the publication of this annual report, was calculated
using a cost of capital of 13.7 per cent and an implied share price of 18.5
pence per share. The difference between the fair value as at 31 December
2022 and the date of settlement will be recognised as a finance charge in
2023.
The revised estimate of the consideration gave rise to a reduction in the
estimated liability of £6.2m which has been recognised as a revaluation gain
through the statement of consolidated income.
A 1% reduction in the in the discount rate used would have reduced the implied
interest charge in 2022 by £95k (2021: £8k), would reduce the expected
charge in 2023 by £16k and would have reduced the revaluation gain by £103k.
Estimation of valuation of acquired intangibles
As part of the acquisition of Boom Battle Bars, the Directors recognised
£4,386k as relating to franchise contracts in place at the date of
acquisition. The valuation took into account the forecast 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. During the year to 31 December 2022, two of
the franchise sites were acquired, and a third became operated by the Group
under an operating agreement, the results of which are consolidated within the
Group results. The value of the acquired intangibles attributable to these
three sites as at 31 December 2021 has been reclassified to goodwill
associated with the acquisition Boom Battle Bars. The remaining value of
acquired intangibles will be amortised over the remaining franchise term. As
at 31 December 2022, the value of acquired intangibles was £3.48m.
The Directors have re-assessed the value of the acquired intangibles based on
the latest forecasts for specific franchisee sites and an allocation of
central costs using a cost of capital of 13.7 per cent to determine whether an
impairment was necessary. The analysis concluded that no impairment is
necessary. A 1% increase in the cost of capital applied would reduce the
value of acquired intangibles in the year by £116k, but would not lead to an
impairment of the carrying value.
4. Revenue
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Upfront location exclusivity fees, support and administration fees 1,368 247
Franchise revenue share 2,012 456
Revenues from owned branches 13,535 6,026
Food and drinks revenue from owned branches 5,149 214
Other 770 41
22,834 6,984
Revenues from contracts with customers:
Year Year
ended Ended
31 December 31 December
2022 2021
£'000 £'000
Revenue from contracts with franchise customers 3,380 703
Revenue from customers at owner operated branches 19,454 6,281
Total revenue from contracts with customers 22,834 6,984
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 £19.45m (2021: £6.28m) 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:
1. The Escape Hunt franchise business, where all franchised branches are
operating under effectively the same model;
2. The Escape Hunt owner-operated branch business, which as at 31 December
2022 consisted of 23 Escape Hunt sites, comprising 20 in the UK (2021: 16),
one in Dubai, one in Paris and one in Brussels; and
3. The Boom Battle Bar franchise business, where all franchised branches
operate under the same model within the Boom Battle Bar™ brand.;
4. The Boom Battle Bar owner-operated business comprising 12 Boom Battle
Bar sites in the UK (2021: 2)
The Group operates on a global basis. As at 31 December 2022, 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
2022 2021
£'000 £'000
United Kingdom 20,872 5,094
Europe 1,291 880
Rest of world 671 1,011
22,834 6,984
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 2022 £'000 £'000 £'000 £'000 £'000
9,773 703 9,501 2,857 - 22,834
Revenue
Cost of sales (2,990) - (4,541) (591) - (8,122)
Gross profit/(loss) 6,783 703 4,960 2,266 - 14,712
Site level operating costs (3,227) - (6,008) - - (9,235)
Other income 141 - - - - 141
IFRS 16 adjustment 666 - 1,399 - - 2,065
Site level EBITDA 4,363 703 351 2,266 - 7,683
Centrally incurred overheads (156) (188) (188) (173) (6,847) (7,552)
Depreciation and amortization (2,552) (136) (1,798) (439) (240) (5,165)
Other income - - - - 6,216 6,216
IFRS 16 adjustment 90 - - - - 90
Operating profit 1,745 379 (1,635) 1,654 (871) 1,272
Adjusted EBITDA 4,782 569 1,870 2,174 (5,440) 3,955
Depreciation and amortisation (2,102) (136) (795) (439) (240) (3,712)
Depreciation - right-of-use assets (450) - (1,003) - - (1,453)
Foreign currency losses - 4 - - (1,137) (1,133)
Share-based payment expenses - - - - (81) (81)
Provision against loan to franchisee - (26) - - - (26)
Provision for guarantee losses - - - (68) - (68)
Gain / (loss) of disposal of assets (126) - - - - (126)
Exceptional Professional & Branch Closure Costs (107) (31) (64) (13) (184) (399)
Branch pre-opening costs (375) - (1,643) - - (2,018)
Profit on closure / modification of leases 90 - - - - 90
Fair value adjustments - - - - 6,210 6,210
Rent credits recognised 33 - - - - 33
Operating profit 1,745 380 (1,635) 1,654 (872) 1,272
Interest expense/receipt - - (56) 39 (1,275) (1,292)
Finance lease charges (229) - (857) - - (1,086)
Profit / (Loss) before tax 1,516 380 (2,548) 1,693 (2,147) (1,106)
Taxation - 2 - 110 - 112
Profit/(loss) after tax 1,516 382 (2,548) 1,803 (2,147) (994)
Other information:
Non-current assets 6,851 195 24,473 4,559 18,247 54,325
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
6,018 592 263 112 - 6,985
Revenue
Cost of sales (1,585) (185) (134) - - (1,904)
Gross profit/(loss) 4,433 407 129 112 - 5,081
Site level operating costs (1,974) - (108) - - (2,082)
Other income 371 - - - - 371
IFRS 16 adjustment 598 - 63 - - 661
Site level EBITDA 3,428 407 84 112 - 4,031
Centrally incurred overheads (1,348) (207) (59) (30) (3,376) (5,020)
Depreciation and amortization (2,284) (16) (50) - (455) (2,805)
Other income - - - - 3,236 3,236
IFRS 16 adjustment - - - - 37 37
Operating profit (204) 184 (25) 82 (558) (521)
Adjusted EBITDA 1,949 278 81 82 262 2,652
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)
Gain / (loss) of disposal of assets - - - - (50) (50)
Exceptional Professional & Branch Closure Costs (4) - - - (235) (239)
Branch pre-opening costs (54) - (48) - - (102)
Profit on closure / modification of leases 41 - - - - 41
Fair value adjustments - - - - - -
Rent credits recognised 148 - - - - 148
Operating profit (204) 184 (25) 82 (558) (521)
Interest expense/receipt - - - - (131) (131)
Finance lease charges (208) - (25) - - (233)
Profit / (Loss) before tax
Taxation
Profit/(loss) after tax (412) 184 (50) 82 (689) (885)
Other information:
Non-current assets 12,156 405 955 4,349 17,427 35,292
Significant customers:
No customer provided more than 10% of total revenue in either the year ended
31 December 2022 or 2021.
6. Operating loss before taxation
Loss from operations has been arrived at after charging / (crediting):
Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Auditor's remuneration:
- Audit of the financial statements 150 75
- Review of interim financial statements 13 2
Impairment of trade receivables 21 56
Foreign exchange (gains) / losses 1,133 18
Staff costs including directors, net of amounts capitalized 4,997 3,739
Depreciation of property, plant and equipment (Note 11) 2,825 1,721
Depreciation of right-of-use assets (Note 12) 1,453 613
Amortisation of intangible assets (Note 13) 886 471
Share-based payment costs (non-employees) 81 62
Research and development grants - 3,236
Professional fees paid in respect of R&D grants - 647
Detailed information on statement of profit or loss items:
Cost of sales Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Wages and salaries 4,254 1,395
Food and beverages 1,880 92
Other costs of sale 1,988 417
8,122 1,904
Administrative expenses Year Year
ended ended
31 December 31 December
2022 2021
£'000 £'000
Depreciation of property, plant and equipment 2,825 1,721
Depreciation of right-of-use assets 1,453 613
Amortisation 886 471
Write-off of assets - 50
Staff costs including directors, net of amounts capitalised 4,997 3,739
Share-based payments 81 62
Foreign currency losses 1,133 18
Other administrative expenses 8,348 2,534
19,724 9,208
Exceptional professional costs of £293k incurred during year relate to a
combination of the liquidation of the Thailand and Malaysian entities, both
the costs involved but also the write off of debts owed, staff restructuring
in head office and late recognition of costs relating to the Boom acquisition.
7. Staff costs
Year Year
Ended Ended
31 December 31 December
2022 2021
£'000 £'000
Wages salaries and benefits (including directors) 8,820 3,897
Share-based payments 81 63
Social security costs 675 313
Other post-employment benefits 272 153
Less amounts capitalised (596) (164)
Less amounts received under the CJRS scheme - (460)
9,251 3,802
Included in cost of sales 4,254 1,395
Included in Admin expenses 4,997 2,407
9,251 3,802
Key management personnel:
Year Year
Ended Ended
31 December 31 December
2022 2021
£'000 £'000
Wages, salaries and benefits (including directors) 653 644
Share-based payments 40 40
Social security costs 90 83
Pensions 26 23
Other post-employment benefits 8 6
Less amounts capitalised (85) (56)
Less amounts received under the CJRS scheme - (56)
732 685
Key management personnel are the directors and one member of staff. Their
remuneration was as follows:
Year ended 31 December 2022
Salary and fees Share-based payments Pension contributions Other benefits
Total
£'000 £'000 £'000 £'000 £'000
Graham Bird 188 12 9 3 212
Richard Rose 60 - - - 60
Richard Harpham 218 17 10 2 247
Karen Bach 15 - - - 15
Philip Shepherd 15 - - - 15
Martin Shuker 15 - - - 15
Other key management 142 11 7 4 164
653 40 26 8 728
Amounts capitalised (85) - - - (85)
Profit and loss expense 568 40 26 8 643
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
Only two directors are accruing retirement benefits, being Richard Harpham and
Graham Bird. Both make personal contributions and receive company
contributions into defined contribution (money purchase) pensions schemes.
There are no defined benefit schemes in the group and the Group has no pension
commitments other than monthly contributions for employees.
The average monthly number of employees was as follows:
Year ended Year ended
31 December 31 December
2021 2021
No. No.
Management 4 4
Administrative 49 27
Operations 663 191
716 222
8. Interest
Year Year
Ended Ended
31 December 31 December
2022 2021
£'000 £'000
Interest income 82 17
Interest expense (1,376) (148)
Net interest (expense) / income (1,292) (131)
9. Taxation
Year Year
Ended Ended
31 December 31 December
2022 2021
£'000 £'000
Current tax expense
Current tax on profits for the year - -
Total Current tax - -
Deferred tax expense
Origination and reversal of Temporary differences (269) 1,101
Effects of Business combinations 157 (1,112)
Total deferred tax (112) (11)
Total tax expense (112) (11)
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
2022 2021
£'000 £'000
Loss before taxation (1,106) (885)
Tax calculated at the standard rate of tax of 19% (2020:19%) (210) (168)
Tax effects of:
Expenses not deductible for tax purposes 280 53
Non-taxable income (1,132) (597)
Enhanced relief for qualifying additions (101) (35)
Unrecognised tax losses 619 625
Foreign operations 224 (29)
Non qualifying amortisation 22 33
Depreciation on ineligible assets 186 81
Increase in dilapidation provision 28 14
Notional interest on contingent consideration - 20
Other (28) (8)
(112) (11)
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 in
the main rate from 19% to 25% from 1 April 2023. The company is 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%.
Deferred tax
Deferred tax assets have been recognised in respect of all tax losses and
other temporary differences giving rise to deferred tax assets where the
directors believe it is probable that these assets will be recovered.
The Group has tax losses of approximately £22,338k as at 31 December 2022
(£18,839k as at 31 December 2021) which, subject to agreement with taxation
authorities, are available to carry forward against future profits. The tax
value of such losses amounted to approximately £5,585k (£3,579k as at 31
December 2020). A deferred tax asset has been recognised in respect of
£3,025k (2021: £572k) 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
£19,313k (2020: £18,267k).
Recognised temporary differences as at 31 December:
Year ended Year ended
31 December 31 December
2021 2021
£'000 £'000
Fixed asset temporary differences 756 143
Unused tax losses (756) (143)
Intangibles acquired through business combination 832 1,101
832 1,101
Estimates and assumptions, including uncertainty over income tax treatments
The Group is subject to income tax in several jurisdictions and significant
judgement is required in determining the provision for income taxes. During
the ordinary course of business, there are transactions and calculations for
which the ultimate tax determination is uncertain. As a result, the Group
recognises tax liabilities based on estimates of whether additional taxes and
interest will be due.
These tax liabilities are recognised when, despite the Directors' belief that
its tax return positions are supportable, the Directors believe it is more
likely than not that a taxation authority would not accept its filing
position. In these cases, the Group records its tax balances based on either
the most likely amount or the expected value, which weights multiple potential
scenarios. The Directors believe that its accruals for tax liabilities are
adequate for all open audit years based on its assessment of many factors
including past experience and interpretations of tax law.
No material uncertain tax positions exist as at 31 December 2022. This
assessment relies on estimates and assumptions and may involve a series of
complex judgments about future events. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such
differences will impact income tax expense in the period in which such
determination is made.
In the year ended 31 December 2021 upon 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 were 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 were recognised in the period ended 31 December
2021 and are being amortised over the same periods as the acquired intangible.
10. 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 XP Factory 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 2022 was
19,699,481 shares (year ended 31 December 2021: 19,699,481 shares).
Year Year
Ended Ended
31 31
December December
2022 2021
Loss after tax attributable to owners of the Company (£'000)
(994) (874)
Weighted average number of shares:
- Basic and diluted 150,043,518 93,846,053
Loss per share
- Basic and diluted (Pence) (0.66) (0.93)
11. Property, plant and equipment
Leasehold improvements Office equipment Computers Furniture and fixtures Games Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost:
At 1 January 2021 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 1,227
12
Disposals (22) (1) (8) (18) (49) (98)
As at 31 December 2021 5,465 50 165 824 5,526 12,030
Additions 6,968 1 135 425 1,470 8,999
Additions arising from acquisition 1,001 - 32 389 67 1,489
Disposals (246) - (7) (29) (302) (584)
As at 31 December 2022 12,888 51 325 1,609 6,761 21,634
Accumulated depreciation:
As at 1 January 2021 (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)
Additions arising from acquisition (195) - (7) (94) (14) (310)
Depreciation charge (1,335) (1) (46) (193) (1,250) (2,825)
Translation differences 3 - - - 4 7
Disposals 147 - 7 30 277 461
As at 31 December 2022 (4,165) (50) (147) (527) (4,292) (9,181)
Net book value
As at 31 December 2022 9,023 1 178 1,082 2,469 12,753
As at 31 December 2021 2,680 1 64 554 2,217 5,516
The amount of expenditure recognised in the carrying value of leasehold
improvements in the course of construction at 31 December 2022 is £36,625
(2021: £nil).
12. Right-of-use assets and lease liabilities
Year ended Year ended
Right-of-use assets 31 December 31 December
2022 2021
£'000 £'000
Land and buildings - right-of-use asset cost b/f 8,920 3,884
Closures / leases ended for renegotiation during the year (411) (211)
Additions during the year, including through acquisition 15,018 5,400
Lease incentives (2,914)
Newly negotiated leases - 86
Less: Accumulated depreciation b/f (1,318) (944)
Depreciation charged for the year (1,453) (613)
Net book value 17,842 7,602
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 the Group entered into a lease on a premises in Bournemouth
where a portion of the property is sub-let to a Boom franchisee. The total
value of the master lease is recognised within lease liabilities whilst the
underlease has been recognised as a finance lease receivable.
Year ended Year ended
Finance lease receivable 31 Dec 31 Dec
2022 2021
£'000 £'000
Balance at beginning of period - -
Additions during the year 1,234 -
Interest charged 39 -
Payments received - -
Balance at end of period 1,273 -
During the year ended 31 December 2022, £33k of rent concessions have been
recognised in the profit and loss (2021: £148k) 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
2022 2021
£'000 £'000
In respect of right-of-use assets
Balance at beginning of period 8,405 3,742
Closures / leases ended for renegotiation during the year (501) (253)
Additions during the year 16,252 5,400
Newly negotiated leases - 87
Interest incurred 1,086 233
Rent concessions received (33) (148)
Repayments during the period (1,186) (759)
Reallocated (to) / from accruals and trade payables 16 103
Lease liabilities at end of period 24,039 8,405
As at As at
31 Dec 31 Dec
2022 2021
£'000 £'000
Maturity
Current
< 1 month 76 42
1 - 3 months 119 84
3 - 12 months 878 290
Non-current 22,965 7,989
Total lease liabilities 24,039 8,405
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 the full period of the lease as it is assumed the break
clause will not be enacted, whereas where the break clause is both ways,
leases are accounted for over the period to the initial break clause years.
In the Boom group of companies, leases are generally over 15 years with a 10
year tenant only break clause. Leases with a 10 year break are accounted for
over 10 years. Leases without a break are accounted for over 15 years.
The group has no short term leases of properties.
None of the 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 2022
for these computers was £7k (2021: £7k). 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 2022 was £191k (2021: £99k).
As at 31 December 2022 there were no leases that had not commenced to which
the group were committed.
13. 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 2021 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 - - - (11) - - - (11)
At 31 December 2021 17,696 78 10,195 1,715 5,248 100 316 35,348
Additions arising from internal development - 8 - - - 61 218
149
Additions arising from acquisition 1,475 - - - - - - 1,475
Transfers arising from acquisition 469 - - - (625) - - (156)
Disposals - - - - - - - -
As at 31 December 2022 19,640 86 10,195 1,864 4,623 100 377 36,885
Accumulated amortisation / impairment
At 1 January 2021 (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)
At 31 December 2021 (1,393) (60) (10,195) (669) (580) (100) (306) (13,303)
Amortisation for the year - (12) - (563) - (9) (886)
(302)
Additions arising from acquisition - - - - - - - -
Translation differences - - - - - - - -
Disposals - - - - - - - -
As at 31 December 2022 (1,393) (72) (10,195) (971) (1,143) (100) (315) (14,189)
Carrying amounts
At 31 December 2022 18,247 14 - 893 3,480 - 62 22,696
At 31 December 2021 16,303 18 - 1,046 4,668 - 10 22,046
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, BGP Escape France, BGP Entertainment
Belgium in March 2021 and the Boom group of companies in November 2021, plus
Boom East in August 2022 and Boom Battle Bar Cardiff in September 2022.
Goodwill has also been recognised on the consolidation of BBB Nine Limited
(Boom Battle Bar Swindon) which is managed by the group under an operating
agreement. Refer to Notes 14 and 15 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 £9.4 million
over the three years has been assumed. Growth in years 4- 6 is assumed at 5%
per annum. The 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") was 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.
During the year ended 31 December 2022, the Franchise businesses Boom East Ltd
and Boom Battle Bar Cardiff were purchased and the group entered into an
operating agreement to manage the site held by BBB Nine Ltd in Swindon. As
such amounts that were previously being held as Franchise agreement
intangibles have been transferred to goodwill to reflect the new group
ownership and management of these companies.
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.
14. Subsidiaries
Details of the Company's subsidiaries as at 31 December 2022 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 IP Limited England and Wales IP licensing 100 #1
Escape Hunt 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
BBB Franchise Limited England and Wales Franchise holding 100 #1
BBB Ventures Limited England and Wales Intermediate holding company 100 #2
BBB UK Trading Limited England and Wales Previous head office for Boom group 100 #2
Boom BB One Limited England and Wales Operator of battle bar Lakeside 100 #2
Boom BB Two Limited England and Wales Operator of battle bar - allocated to Canterbury 100 #2
BBB Three 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 Seven Limited England and Wales Operator of battle bars in O2, Leeds and Birmingham 100 #2
BBB Eleven Limited England and Wales Operator of battle bar Plymouth 100 #2
BBB Twelve Limited England and Wales Operator of battle bar Manchester 100 #2
BBB Thirteen Limited England and Wales Operator of battle bar Oxford Street 100 #2
BBB Fourteen Limited England and Wales Operator of battle bar - Exeter 100 #2
BBB Fifteen 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 Seventeen Limited England and Wales Holder of Boom IP 100 #2
Boom East Limited England and Wales Operator of battle bar - Norwich 100 #2
Boom Battle Bar Cardiff Limited England and Wales Operator of battle bar - Cardiff 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 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
Previously held entities
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.
During the year the liquidations of Escape Hunt Operations Ltd and E V
Development Co. Ltd were finalised. The subsequent writing off of final
intercompany balances owed gave rise to a loss of £47k which has been
presented on the P&L as part of exceptional costs.
15. Business Combination
Acquisition of Boom East Ltd
On ( )12 August 2022, XP Factory Plc acquired 100% of the equity interest in
Boom East Ltd, thereby obtaining control. Boom East Ltd runs an owner operated
Boom Battle Bar site situated in Norwich.
The details of the business combination are as follows:
£'000
Fair value of consideration transferred
Amounts settled in cash -
Vendor loan 100
Total purchase consideration 100
The vendor loan is being paid off in twelve monthly instalments of £8.3k. The
balance payable as at 31 December 2022 was £66.7k
Further acquisition related costs of £5k 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 115 - 115
Other receivables and deposits 22 - 22
Property, plant and equipment 374 - 374
Right of use assets 1,025 - 1,025
Trade payables (2) - (2)
Inventory 9 9
Lease liabilities (1,025) - (1,025)
Loans (47) - (47)
Other payables (452) - (452)
Net identifiable assets acquired 19 - 19
Goodwill arising on consolidation - 81 81
Total 19 81 100
There were no trade receivables present in the company as at the date of
acquisition.
The excess of the total consideration over the net identifiable assets
acquired of £81k has been analysed and it has all been recognised as
goodwill. This goodwill is primarily related to growth expectations, expected
future profitability and the expertise and experience of Boom East Ltd's
workforce. Goodwill has been allocated to the owner operated segment and is
not expected to be deductible for tax purposes.
Boom East Ltd contributed revenues of £376k and net profits of £34k in the
period between acquisition and 31 December 2022. If the acquisition had
occurred on 1 January 2022, consolidated revenue would have been £521k
higher, however consolidated net profits would have been £11.7k lower due to
the recognition of rent accruals during the rent free period which had
previously not been accounted for .
Acquisition of Boom Battle Bar Cardiff Ltd
On 9 September 2022, the XP Factory Group acquired 100% of Boom Battle Bar
Cardiff Ltd, thereby obtaining control. Boom Battle Bar Cardiff Ltd runs an
owner operated Boom Battle Bar site situated in Cardiff.
The details of the business combination are as follows:
£'000
Fair value of consideration transferred
Amounts settled in cash 558
Vendor loan 601
Loan receivable (240)
Offset against franchise fees due and director's loans 76
Total consideration 995
The vendor loan is due to be paid in March 2023 and as such is held in current
liabilities on the Statement of Financial Position. The loan receivable was
novated to XP Factory plc from a third party and has as a result been treated
as a reduction in the fair value of the consideration.
Further acquisition related costs of £34k 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 4 - 4
Inventory 24 - 24
Trade receivables (net of provisions) 2 114 116
Other receivables 87 - 87
Property, plant and equipment 479 - 479
Right of use assets 1,032 - 1,032
Trade payables (61) - (61)
Accruals, deferred income and other payables (549) - (549)
Loans (456) - (456)
Lease liabilities (1,032) - (1,032)
Net identifiable liabilities acquired (470) 114 (356)
Goodwill arising on consolidation - 1,351 1,351
Total (470) 1,465 995
The fair value of acquired trade receivables is £2k. The gross contractual
amount for trade receivables due is £2k 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 £1,351krelates to goodwill and is primarily related to growth
expectations, expected future profitability and the expertise and experience
of the Boom Battle Bar Cardiff Ltd team. Goodwill has been allocated to the
owner operated segment and is not expected to be deductible for tax purposes.
Boom Battle Bar Cardiff contributed revenues of £1.236m and net profits of
£41k in the period between acquisition and 31 December 2022. If the
acquisition had occurred on 1 January 2022, consolidated revenue would have
been £2.432m higher but consolidated net profits would have been £681k lower
due to the writing off of bad and doubtful debts in the prior period and
recognition of rent accruals not previously accounted for.
Consolidation of BBB Nine Ltd
On 10 September 2022, BBB Franchise Ltd entered into an operating agreement
with BBB Nine Ltd. The agreement dictated that the XP Factory group would take
over management of the venue and as such the risks and rewards of managing the
company would accrue to the group. Although BBB Nine Ltd was not formally
acquired, it has been consolidated as part of the results of the group on the
basis of control as the following criteria have been met:
- Power - The XP Factory Group has the right to direct the relevant
activities of the company
- Rights - The XP Factory Group has rights to the returns of the company
- Exposure - The XP Factory Group is exposed to both positive and
negative returns as a result of the company's performance, although has no
obligation to support the entity through providing working capital.
Book Value Fair Value Adjustment £'000 Fair Value £'000
£'000
Assets and liabilities recognised as a result of the consolidation of BBB Nine
Limited
Cash 3 - 3
Inventory 11 - 11
Trade receivables (net of provisions) 8 - 8
Other receivables 12 - 12
Property, plant and equipment 301 - 301
Intangibles 25 - 25
Trade payables (41) - (41)
Accruals, deferred income and other payables (362) - (362)
Net identifiable liabilities acquired (43) (43)
Goodwill arising on consolidation 43 43
Total (43) 43 -
The net liabilities acquired have been treated as goodwill, is primarily
related to growth expectations, expected future profitability and the
expertise and experience of the Boom Battle Bar Swindon team. Goodwill has
been allocated to the owner operated segment and is not expected to be
deductible for tax purposes.
BBB Nine Limited contributed revenues of £247k and a loss of £114k in the
period between acquisition and 31 December 2022. Had the operating contract in
respect of BBB Nine been entered into on 1 January 2022, consolidated revenue
would have been £622k higher, and consolidated net profits would have been
£301k lower.
As at 31 December 2021, the franchise contracts associated with Boom East Ltd,
Boom Battle Bar Cardiff Ltd and BBB Nine Ltd were valued at £624,805. This
amount, net of the associated deferred tax asset of £156,201 was reclassified
to goodwill associated with the purchase of Boom Battle Bars as the sites are
no longer operated as franchise sites.
16. 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 at one of his sites and on loan repayments. As at 31 December 2022 this
loan, together with accrued interest, has been provided for in full.
17. Trade and other receivables
As at As at
31 December 31 December
2022 2021
£'000 £'000
Trade receivables (customer contract balances) 1,934 848
Prepayments 1,140 666
Accrued income (customer contract balances) 421 122
Deposits and other receivables 278 3,354
3,773 4,990
The Group's exposure to credit risk and impairment losses related to trade
receivables is disclosed in Note 30.
Significant movements in customer contract assets during the year ended 31
December 2022 are summarised below:
Year ended 31 December 2022: Trade Accrued income
Receivables
£'000 £'000
Contract assets:
Balance at 1 January 2021 848 122
Transfers from contract assets recognised at the beginning of the period to 122 (122)
receivables
Net increases as a result of changes in the measure of progress 1,306 538
Provisions for doubtful amounts (341) (26)
Balance at 31 December 2021 1,934 511
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.
18. Inventories
As at As at
31 December 31 December
2022 2021
£'000 £'000
Branch consumables (at cost) 323 24
Stocks and Work in Progress - 438
Total inventories 323 462
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
2022 2021
£'000 £'000
Balance brought forward 462 16
Utilised in the year (2,316) (218)
Acquired through acquisition 44 544
Purchases / const incurred 2,133 120
Total inventories 323 462
19. Cash and cash equivalents
As at As at
31 December 31 December
2022 2021
£'000 £'000
Bank balances 3,189 8,225
Cash and cash equivalents in the statement of cash flow 3,189 8,225
The currency profiles of the Group's cash and bank balances are as follows:
As at As at
31 December 31 December
2021 2021
£'000 £'000
Pounds Sterling 2,644 7,202
Australian Dollars 92 192
United States Dollars 77 350
Euros 272 339
United Arab Emirates Dirhams 103 142
3,189 8,225
20. Trade and other payables (current)
As at As at
31 December 31 December
2022 2021
£'000 £'000
Trade payables 1,837 1,527
Accruals 3,657 2,065
Deferred income 1,438 1,201
Loans due in < 1yr 1,101 649
Other taxes and social security 957 605
Other payables 645 219
9,635 6,266
21. Deferred income
As at As at
31 December 31 December
2022 2021
£'000 £'000
Contract liabilities (deferred income):
Balance at beginning of year 1,692 592
Revenue recognised in the year that was included in the deferred income
balance at the beginning of the year and from balances acquired during the
year (1,002) (229)
Increases due to cash received, excluding amounts recognised as revenue during 686 614
the period
Increases on acquisition of new businesses 109 754
Decreased on termination of franchises (8) (42)
Translation differences 7 3
Transaction price allocated to the remaining performance obligations 1,484 1,692
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
2022 2021
£'000 £'000
Upfront exclusivity, legal and training fees 550 859
Escape room advance bookings 135 356
Boom Battle Bar advance bookings 233 15
Gift vouchers 566 462
1,484 1,692
As at As at
Upfront exclusivity, legal and training fees 31 December 31 December
2022 2021
£'000 £'000
Within one year 95 368
After more than one year 455 491
550 859
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 three years.
The average remaining life on all Boom franchise leases is nine years. All
other deferred revenue is expected be recognised as revenue within one year.
22. Provisions
The following provisions have been recognised in the period:
Year ended Year ended
31 Dec 31 Dec
2022 2021
£'000 £'000
Provision for contingent consideration 4,113 9,056
Provision for deferred consideration 857 637
Dilapidations provisions 314 162
Provision for financial guarantee contracts 94 26
Other provisions 5 5
Total 5,383 9,885
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.
£6,210k of the provision for contingent consideration at 31 December 2021 has
been reversed in the year to reflect the fair value of the expected contingent
consideration payable in respect of the acquisition of the Boom Battle Bar
businesses in November 2021. Further details are provided below.
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 2021 9,056 637 162 26 5 9,886
Additions arising from acquisition - 600 - - - 600
Provisions recognised 1,267 - 152 68 - 1,487
Fair value revaluation (6,210) - - - - (6,210)
Releases recognised - (380) - - - (380)
As at 31 December 2022 4,113 857 314 94 5 5,383
The ageing of provisions can be split as follows:
As at As at
31 December 31 December
2022 2021
£'000 £'000
Within one year 4,970 637
After more than one year 413 9,248
5,383 9,885
The contingent consideration relates to an earnout payment in connection with
the Boom acquisition in the prior year. 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 value of the contingent consideration was initially estimated using a
share price of 35.8p per XP Factory share, being the share price on 23rd
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 would be issued. 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) was 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 was expected to be recognised as a finance
charge over the 18 months between the date of acquisition and the settlement
date. £1,267k was recognised in the year to 31 December 2022 (2021:£106k).
The fair value of the contingent consideration has been re-assessed based on
the performance of Boom during the earnout period, which ended on 31 December
2022, approximately 94 per cent of the contingent consideration is expected to
be paid. This would lead to the issue of 23,501,137 shares. The fair value
of the contingent consideration has been re-calculated as at 31 December 2022
using a share price of 17.5 pence per share (the share price as at 31 December
2022) and the estimated 23,501,137 shares expected to be issued. The revised
estimate of the future value of the deferred consideration, which is to be
settled on completion of the audit for the group for the year ended 31
December 2022 (for the purposes of the revaluation assumed to be 18 months
after the acquisition) was calculated using a cost of capital of 13.7 per cent
and an implied share price of 18.5 pence per share. The difference between
the revised fair value as at 31 December 2022 and the value on the expected
settlement date will be recognised as a finance charge over the period between
the 31 December 2022 and the settlement date.
As at As at
31 December 31 December
2022 2021
£'000 £'000
Fair value of contingent consideration at acquisition 8,950 8,950
Financing charges recognised in year to 31 December 2021 106 106
Financing charges recognised during the year to 31 December 2022 1,267 -
Fair value adjustment (6,210) -
Provision for contingent consideration as at 31 December 2022 4,113 9,056
Based on the revised valuation of the contingent consideration, a finance
charge of £226k is expected to be charged in 2023.
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
2022 2021
£'000 £'000
Provision for financial guarantee contracts acquired 26 18
Additional provision in year 68 8
Provision at 31 December 2022 94 26
Number sites for which guarantees provided 7 2
Average term of lease remaining (years) 14.2 14.8
Average annual rent (£'000) 166 175
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.
23. Share capital
As at As at
31 December 31 December
2022 2021
£'000 £'000
Issued and fully paid:
At beginning of the year: 146,005,098 (2021: 80,369,044) Ordinary shares of
1.25 pence each
1,825 1,005
Issued during the year: 4,628,082 Ordinary shares
58 820
As at end of period / year 1,883 1,825
- 150,633,180 (2021: 146,005,098)
Ordinary shares of 1.25 pence each
XP Factory 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 2022, the following changes in the issued
share capital of the Company occurred:
- 2 February 2022 the Company issued 4,378,082 new shares at 9.0 pence
per share in consideration for the conversion of the principal amount of
£340,000 convertible loan notes together with £54,027 in accrued interest.
The total 4,378,082 shares were admitted to trading on AIM on 2 February
2022.
- On 10 October 2022 the company issued 250,000 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 25.
24. Loan notes
As at As at
31 December 31 December
2022 2021
£'000 £'000
Amounts due within one year
Vendor loan notes 40 401
Rolled up interest on vendor loan notes 5 3
Other loans 1,012 256
1,057 660
Amounts due in more than one year:
Vendor loan notes - 43
Rolled up interest on vendor loan notes - 2
Convertible loan notes - 272
Rolled up interest on convertible loan notes - 56
Other loans 423 620
As at end of period / year 1,480 1,653
On 1 July 2020, the Company issued £340,000 convertible loan notes
("Convertible Notes"). The Convertible Notes were unsecured and interest
rolled up at a fixed rate of 10 per cent. per annum. 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 was classified
as the equity component of the Convertible Notes. This gave an effective
underlying interest rate on the Notes of 13.4% per annum. The Convertible
Notes carried rights to early redemption, exercisable by the Company only, but
with preferential rights to early conversion, exercisable by the Noteholder.
On 4 January 2022, the Company gave notice to the Noteholder of its intention
to redeem the Convertible Notes on 2 February 2022 unless the Noteholder first
served a Noteholder Conversion Notice to convert the Convertible Notes. On 5
January 2022 the Noteholder served a Noteholder Conversion Notice to the
Company formally electing to convert the principal amount of the Convertible
Notes together with accrued interest into ordinary shares at 9.0 pence per
share. £340,000 principal, together with £54,027 of accrued interest was
converted at 9.0 pence per share on 2 February 2022 resulting in the issue of
4,378,082 ordinary shares. All 4,378,082 ordinary shares were admitted to
trading on AIM on 3 February 2022.
€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. The balance outstanding as
at 31 December 2022 including rolled up interest, was £45k equivalent.
On 22 November 2021, the Company issued £360,000 vendor loan notes to MFT
Capital Limited 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. During 2022, the redemption date for the Boom Notes
was extended to the second anniversary of the transaction in connection with
the acquisition of Boom Battle Bar Cardiff Limited. The acquisition of Boom
East Limited (Boom Norwich) also utilised vendor financing, of which £67k was
outstanding at 31 December 2022.
The Group has utilised asset backed fit-out finance in certain Boom locations,
has a number of small bank loans in certain subsidiaries, and uses a loan
facility to spread the cost of insurance over the year. The total fit-out
finance outstanding as at 31 December 2022 was £693k. Bank and other loans
totalled £315k.
25. 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 10th 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 2022, 16,700,000 options were outstanding under the 2020 EMI
Plan (2021: 16,966,667).
As at As at
31 December 31 December
2022 2021
'000 '000
Options outstanding at the beginning of the period 16,966 15,733
Awards made during the year - 1,233
Options exercised - -
Options lapsed or forfeited (266) -
Options outstanding at the end of the year 16,700 16,966
The sum of £68,535 has been recognised as a share-based payment and charged
to the profit and loss during the year (2021: £53,073). 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 equaling
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 2022 is 31.7 months (2021: 43.7 months).
An option-holder has no voting or dividend rights in the Company before the
exercise of a share option.
During the year 266,667 options lapsed due to a vesting condition not being
met. No adjustment has been made to the share based payment charge as a
result.
Escape Hunt Employee Share Incentive Scheme
In January 2021, the Company established the Escape Hunt Share Incentive Plan
("SIP").
The SIP has been adopted to promote and support the principles of wider share
ownership amongst all the Company's employees. The Plan is available to all
eligible employees, including Escape Hunt's executive directors, and invites
individuals to elect to purchase ordinary shares of 1.25p each in the Company
via the SIP trustee using monthly salary deductions. Shares are be purchased
monthly by the SIP trustee on behalf of the participating employees at the
prevailing market price. Individual elections can be as little as £10 per
month, but may not, in aggregate, exceed £1,800 per employee in any one tax
year. The Ordinary Shares acquired in this manner are referred to as
"Partnership Shares" and, for each Partnership Share purchased, participants
are awarded one further Ordinary Share, known as a "Matching Share", at nil
cost.
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.
As at 31 December 2022, 173,904 matching shares (31 December 2021, 54,073) had
been awarded and were held by the trustees for release to employees pending
satisfaction of their retention conditions . A charge of £12,592 (2021:
£9,478) has been recognised in the accounts in respect of the Matching Shares
awards.
26. 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 in the past raised equity as a
means of executing its acquisition strategy and as a sound basis for operating
the acquired Escape Hunt and Boom Battle Bar businesses 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.
27. 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.
28. 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.
During the period under review, other than those disclosed elsewhere in the
financial statements there were no significant related party transactions.
29. Directors and key management remuneration
Details of the Directors' remuneration are set out in Note 7 above.
30. 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
2022 2021
£'000 £'000
Trade receivables 1,934 848
Other receivables and deposits 2,132 3,476
Cash and cash equivalents 3,189 8,225
7,256 12,550
Financial liabilities at amortised cost:
As at As at
31 December 31 December
2022 2021
£'000 £'000
Trade payables 1,837 1,527
Accruals and other payables 5,259 2,889
Loan notes 45 417
Other loans 1,435 1,236
Deferred consideration 857 637
Contingent consideration 4,113 9,056
13,546 15,762
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
2022 2021
Gross amounts (before impairment): £'000 £'000
Not past due 983 656
Past due 0-30 days 271 32
Past due 31-60 days 98 22
Past due more than 60 days 923 402
2,275 1,112
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 2021
£'000 £'000
At beginning of year (264) (184)
Impairment losses recognised (77) (117)
Bad debts written off - 38
At end of year (341) (264)
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 2022 the net balance outstanding
on this loan per these financial statements is nil (2021: £nil).
Liquidity risk
The ageing of financial liabilities at the reporting date was as follows:
As at As at
31 December 31 December
2022 2021
£'000 £'000
Not past due 12,427 15,604
Past due 0-30 days 567 790
Past due 31-60 days 171 22
Past due more than 60 days 381 387
13,546 16,803
As at 31 December 2022 £2,912k (2021: £7,202k) of the cash and bank
balances, as detailed in Note 19 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 2022, total trade payables
within one year were £1,837k (2021: £1,527k), which is considerably less
than the Group's cash held at the year-end of £3,189k (2021: £8,225k). 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 Group 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 UAE Dirham ("AED"). 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 2022 £'000 £'000 £'000 £'000 £'000 £'000
Financial assets:
Trade receivables 1,453 8 420 0 53 1,934
Other receivables and deposits 2,011 0 122 0 0 2,132
Cash and bank balances 2,506 41 446 92 104 3,189
5,970 49 987 92 157 7,256
Financial liabilities:
Trade payables 1,697 1 108 31 1,837
Other payables and accruals 5,068 6 185 5,259
Loan notes 0 45 45
Other loans 1,419 16 1,435
Deferred consideration 857 857
Contingent consideration 4,113 4,113
13,154 7 353 - 31 13,546
Foreign currency exposure (net) 0 43 634 92 126 895
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 1,304 7 186 - 30 1,527
Other payables and accruals 3,474 25 220 - 211 3,930
Loan notes 417 - - - - 417
Other loans 1,236 - - - - 1,236
Deferred consideration 637 - - - - 637
Contingent consideration 9,056 - - - - 9,056
16,124 32 406 - 241 16,803
Foreign currency exposure (net) - 447 (94) 192 (11) 534
Sensitivity analysis
A 10% strengthening of the Pound against the following currencies at 31
December 2022 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
2022 2021
Effects on profit after taxation/equity
United States Dollar:
- strengthened by 10% (4) (48)
- weakened by 10% 4 48
Euro:
- strengthened by 10% (63) (52)
- weakened by 10% 63 52
Australian Dollar:
- strengthened by 10% (9) (19)
- weakened by 10% 9 19
31. Commitments
As at 31 December 2022, the Group had capital expenditure commitments in
respect of leasehold improvements totalling £36,625 (2021: £nil).
32. Contingencies
The Directors are not aware of any other contingencies which might impact on
the Company's operations or financial position.
33. Government grants
The following Government grants have been recognised during the period:
Year ended Year ended
31 Dec 31 Dec
2022 2021
£'000 £'000
Local authority Small Business Grants 68 371
R&D Claims made under the SME Scheme - 3,236
Total 68 3,607
In addition, the Company benefitted from Business Rates Relief introduced for
the retail, hospitality and leisure industries. The benefit in the period
was £458k (2021: £230k)
Other income in the year ended 31 December 2022 includes £6k not related to
government grants.
34. Events after the reporting period
There are no significant events since the reporting date that require
disclosure.
35. Ultimate controlling party
As at 31 December 2022, no one entity owns greater than 50% of the issued
share capital. Therefore,
the Company does not have an ultimate controlling party.
COMPANY INFORMATION
Directors
Richard Rose, Independent Non-Executive Chairman
Richard Harpham, Chief Executive Officer
Graham Bird, Chief Financial Officer
Martin Shuker, Non-Executive Director
Philip Shepherd, Non-Executive Director
Company secretary
Joanne Briscoe
Company number
10184316
Registered address
Belmont House
Station Way
Crawley
RH10 1JA
Independent auditors
HW Fisher LLP
Acre House
11-15 William Road,
London NW1 3ER
Nominated adviser and Broker
Singer Capital Markets Advisory LLC
One Bartholomew Lane
London
EC2N 2AX
Registrars
Link Market Services Limited
29 Wellington Street
Leeds
LS1 4DL
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