TIDMXPF
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
-- GBP22.8m Group revenue - up 228% vs prior year (2021:
GBP7.0m)
-- GBP2.6m adjusted EBITDA pre IFRS16 (2021: loss GBP0.6m)
-- GBP9.8m Escape Hunt(TM) owner-operated revenue up 62%
vs prior year (2021: GBP6.0m)
-- GBP0.7m Escape Hunt Franchise EBITDA up 75% vs prior year
(2020: GBP0.4m)
-- GBP9.5m Boom Battle Bar(TM) owner-operated revenue of
in its first full year of operation
-- GBP2.9m Boom Battle Bar(TM) franchise revenue
-- GBP1.3m Group operating profit (2021: loss of GBP0.5m)
-- 35% return on capital across Escape Hunt owner operated
estate
-- GBP3.2m cash at year end (2021: GBP8.2m) and GBP4.0m 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 GBP3.3m credit facility with fit-out providers
for new Boom owner operated sites
POST YEAR
-- 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
https://www.xpfactory.com/
Richard Harpham (Chief Executive
Officer)
Graham Bird (Chief Financial
Officer)
Kam Bansil (Investor Relations) +44 (0) 20 7846 3322
Singer Capital Markets, NOMAD
and Broker
https://www.singercm.com/
Peter Steel
Alaina Wong
James Fischer
Jake Humphrey +44 (0) 20 7496 3000
IFC Advisory - Financial PR
https://www.investor-focus.co.uk/
Graham Herring
Florence Chandler +44 (0) 20 3934 6630
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/ )
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 GBP22.9m (2021: GBP7.0m)
-- Adjusted EBITDA before IFRS16 of GBP2.6m (2021: loss of GBP0.6m)
-- 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 GBP10m from the owner
operated business represented a 64% increase on the prior year
(2021: GBP6m), 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 (GBP0.7m).
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 GBP9.5m, with the franchise business delivering a
further royalty income to the Group of GBP1.5m, and total revenue
of GBP2.9m. 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 GBP500k), 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 GBP22.9 million compared to
GBP6.9 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
ended ended / (decrease)
31 December 31 December
2022 2021
GBP'000 GBP'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 GBP9.8m from GBP6.0m 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 GBP9.5m. 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 GBP0.7m,
an 18% increase on 2021. In its maiden year, the Boom franchise
network delivered turnover of GBP2.9m. Of this, GBP1.5m was royalty
income. GBP0.8m related to the construction and resale of a
franchise site, against which there is an associated GBP0.5m 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 GBP30m 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 GBP14.7m from GBP5.1m 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 GBP4.1m 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
GBP1.4m, 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
GBP2.7m for the year, compared to a pre IFRS 16 Adjusted EBITDA
loss (before R&D credits) in 2021 of GBP0.6m. After IFRS 16,
the Adjusted EBITDA profit was GBP4.1m.
Escape Escape
Hunt Hunt Boom Boom Unallocated 2022
Owned Franchise Owned Franchise GBP'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 Escape
Hunt Hunt Boom Boom Unallocated 2021
Owned Franchise Owned Franchise GBP'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 Year ended
31 December 31 December
2022 2021
GBP'000 GBP'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 GBP5.9m from GBP4.0 million in
2021 (2021: GBP4.6m 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 GBP1.2m from a loss of GBP0.5m in
2021.
The operating profit is after GBP2.0m pre-opening costs relating
to openings of both Boom and Escape Hunt sites during the year.
GBP1.6m related to Boom sites and GBP0.4m to Escape Hunt sites.
Pre-opening costs comprised the following:
Pre-opening
costs Boom EH Total
GBP,000 GBP'000 GBP'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 GBP1.1m 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 GBP6.2m 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 GBP3.2m of cash as at 31 December 2022, down from
GBP8.2m 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 GBP3.4m cash from operating activities, up
from GBP0.8m 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 GBP6.9m was invested in capital expenditure on Boom
sites (tangible and intangible). Of this, GBP2.5m 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.
GBP2.1m was invested into Escape Hunt, of which GBP0.4m 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 GBP0.4m of cash. The acquisition of Boom Cardiff
required GBP0.5m (net of cash acquired), whilst the acquisition of
Boom Norwich was funded through a vendor loan and resulted in a net
inflow of GBP0.1m on completion. Since the year end a further
GBP0.6m 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 GBP21.8m. 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
GBP12.7 m from GBP5.5m reflecting the capital investment programme,
offset by depreciation in the year. Right of use assets rose to
GBP17.8m from GBP7.6m, 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 GBP2.6m 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 GBP24.0m from GBP8.4m.
The intangibles balance of GBP23.0m 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 GBP5.4m. The balance includes GBP4.1m of contingent
consideration (2021: GBP9.0m). 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 GBP1.5m of loans. GBP0.4m
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. GBP0.8m 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.
GBP112k 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: GBP19.3m in the year to 31 December 2022
-- Site level EBITDA: GBP7.7m in the year to 31 December 2022
-- Franchise revenue: GBP3.6m in the year to 31 December 2022
-- Central costs: GBP5.9m in the year to 31 December 2022
-- Adjusted EBITDA, before IFRS 16 for the Group: GBP2.6m 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 pro tability 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 YEARED 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 Date of Board Committee
appointment resignation
---------------- -------------------------- ------------- ------------- ----------------
Richard Rose Independent Non-Executive 25/5/2016 N A R
Chairman
Richard Harpham Chief Executive Officer 3/5/2017
Graham Bird Chief Financial Officer 6/1/2020
Martin Shuker Independent Non-Executive 29/6/2022 N A R
Director
Philip Shepherd Independent Non-Executive 29/6/2022 N A R
Director
Karen Bach Independent Non-Executive 3/5/2017 29/6/2022 N A R
Director
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 GBP2.3 billion in sales and GBP120
million of profit.
As MD of KFC UK, he more than doubled sales in the UK to GBP1.3
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.
Ordinary shares
Director 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 GBP1 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.
Options Exercise Options Date of Grant Expiry
Director held price vested date
----------------- ---------- ---------- ---------- -------------- --------
16 July
Richard Harpham 5,333,333 7.5 pence 3,555,556 16 July 2020 2025
16 July
Graham Bird 3,733,333 7.5 pence 2,488,888 16 July 2020 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:
Ordinary shares
Shareholder 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
INDEPENT 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 Our audit work included, but was not
arising from occurrence, restricted to the following:
completeness and cut-off
in the period * We evaluated the sales controls system in place to
determine the controls surrounding the income.
There is a presumed
risk of misstatement
arising from lack * We checked a sample of the franchise agreements and
of completeness or contracts through to the income recognised in the
inaccurate cut-off accounts and invoices.
relating to revenues.
* 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 Our audit work included, but was not
of controls restricted to the following:
* We undertook a review to gain an understanding of the
Management is in a overall governance and oversight process surrounding
unique position to management's review of the financial statements.
override controls
that otherwise appear
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 Our audit work included, but was not
expected credit loss restricted to the following:
from franchisees
* We obtained management's calculation of the expected
The Group and Parent credit loss provision and discussed the key inputs
Company is a co-tenant into the assessment with management.
or has provided a
guarantee on a number
of property leases * We reviewed the lease agreements to verify the terms
for which a franchisee of the lease which act as a basis for the
is the primary lessee. calculation.
IFRS 9 requires the
recognition of expected
credit losses in respect * We reviewed the calculation for completeness based on
of financial guarantees, our knowledge of the business.
including those provided
by the Group. Where
there has been a significant * We reviewed the appropriateness of the disclosures
increase in credit made and their consistency with our knowledge of the
risk, the standard agreements.
requires the recognition
of the expected lifetime
losses on such financial
guarantees. Based on our audit work detailed above,
we confirm that we have nothing material
The assessment of to report, and or draw attention to
whether there has in respect of these matters.
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.
The assessment of
the probability of
default is inherently
subjective and requires
management judgement.
-------------------------------------------------------------
IFRS 16 and the adoption Our audit work included, but was not
of IFRS 16 restricted to the following:
The Group holds multiple * We obtained management's calculation of recognition
property leases and of right of use assets and lease liabilities.
judgement is required
regarding the recognition
of right of use assets * We reviewed the lease agreements and re-performed
and lease liabilities. 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 Our audit work included, but was not
of goodwill and other restricted to the following:
intangible assets
arising from business Valuation
combinations * We obtained management's valuation of the acquired
intangibles and discussed the key inputs into the
The Group's intangibles assessment with management.
comprise of goodwill,
trademarks, intellectual
property, franchise * We performed procedures, including challenge
agreements, and the regarding reasonableness of the key inputs into the
portal. model.
Intangibles arising
from business combinations * We reviewed the significant judgements made in the
in the year amounted model, particularly with respect to the discount rate
to GBP1.6m (2021: applied, the calculation of tax amortisation benefits
GBP21.5m). and the recognition of deferred tax liabilities.
The total carrying
value of intangible * We tested to ensure the mathematical accuracy of the
assets was GBP23.0m model presented.
(2021: GBP22.0m).
The uncertainty of
future cash flows Impairment
indicate there could * We obtained management's assessment of impairment and
be an impairment in discussed the key inputs into the assessment with
the carrying value management.
of the intangible
assets and as such
we considered this * We performed procedures, including challenge
to be a key audit regarding reasonableness of the key inputs into the
matter. 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 Our audit work included, but was not
consideration arising restricted to the following:
from business combinations
* We obtained management's calculation of the fair
In 2021, there was value at the date of acquisition and at the expected
contingent consideration date of issue and discussed the key inputs into the
of GBP8.95m arising assessment with management.
on the acquisition
of the Boom Group.
* We performed procedures, including challenge
Contingent consideration regarding reasonableness of the inputs into the
includes a preliminary model.
estimate on the earnout
payable in respect
of the acquisition, * We reviewed the significant judgements made in the
recognised at fair model, particularly with respect to the cost of
value at the date equity rate applied.
of acquisition.
The value of the contingent * We tested to ensure the mathematical accuracy of the
consideration was model presented.
initially estimated
assuming all 25,000,000
shares potentially * We reviewed the appropriateness of the disclosures
due under the provisions made and its consistency with our knowledge of the
of the sale agreement transaction.
would be issued.
The fair value of
the contingent consideration Based on our audit work detailed above,
has been re-assessed we confirm that we have nothing material
based on the performance to report, and or draw attention to
of the Boom Group in respect of these matters.
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.
This resulted in a
fair value adjustment
of GBP6.2m 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 Our audit work included, but was not
and valuation of dilapidation restricted to the following:
provisions
* We obtained management's calculation of the expected
Provisions for dilapidations dilapidation provision and discussed the key inputs
are recognised on into the assessment with management.
a lease-by-lease basis
over the period of
time landlord assets * We reviewed the calculation for completeness based on
are being used and our knowledge of the business.
are based on the Management's
best estimate of the
likely committed cash * We recalculated the estimated cost per sqft and
outflow. This estimate reviewed this analytically and against RICs
requires judgement professional estimates for reasonableness.
and is unique to each
individual site.
* 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
GBP454,000, 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 GBP'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
GBP'000 GBP'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 GBP'000 GBP'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
1,883 1,825
Share capital 23 44,705 44,366
Share premium account 27 44,366
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 Convertible
ended Share Merger Currency Capital Share-based loan
31 Dec Share premium relief translation redemption payment note Accumulated
2022 capital account reserve reserve reserve reserve reserve losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- --------- ------------ ----------- ------------ ------------------
Balance
as at
1 Jan
2022 1,825 44,366 4,756 (83) 46 158 68 (29,318) 21,817
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
GBP'000 GBP'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
currencies 7 4
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(TM) brand and a network of
owner-operated and franchised competitive socialising cocktail bar
venues under the Boom Battle Bar(TM) 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 GBP22.3m, 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 GBP12.9m (2021: GBP13.8m) 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 GBP5.6m (2021: GBP5.7m) 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 GBP2.8m (2021: GBP3.5m) 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 GBP1.0m (2021:
GBP1.8m) 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 GBP204k (year ended 31 December 2021:
GBP299k).
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 GBP995k (year
ended 31 December 2021: GBP669k).
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
GBP340,000 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 GBP272,251 of the principal related to the debt
component of the Convertible Notes with the balance of GBP67,749
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. GBP340,000 principal, together with GBP54,027of 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
GBP51,222 and GBP17,313 in respect of awards made in the year to 31
December 2021. The charge recognized in the year ended 31 December
2022 was GBP69k (2021: GBP53k).
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 GBP12k (2021: GBP9k) 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
GBP93,505 (2021: GBP25,548).
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 Increase in Expected
applied loss provision (GBP'000)
----------------------- ------------- ----------------
2022 2021
----------------------- ------------- ---------------- ------------- -------------
Discount rate 6.2% 1% decrease 4.7 1.7
10% increase
Probability of Individually in probability
default assessed of default 9.4 2.5
Proportion of
defaulted leases
giving rise to Increase
a loss 16.67% by 3.33% 18.7 5.1
(1 in 6) (1 in 5)
Proportion of
liability not
covered by guarantee 10% increase
/ step-in right 50% 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 GBP1.3m
being recognised in the year to 31 December 2022 (2021:
GBP105k).
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 GBP6.2m 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 GBP95k (2021:
GBP8k), would reduce the expected charge in 2023 by GBP16k and
would have reduced the revaluation gain by GBP103k.
Estimation of valuation of acquired intangibles
As part of the acquisition of Boom Battle Bars, the Directors
recognised GBP4,386k 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
GBP3.48m.
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 GBP116k, but would not lead to an
impairment of the carrying value.
4. Revenue
Year Year
ended ended
31 December 31 December
2022 2021
GBP'000 GBP'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
GBP'000 GBP'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 GBP19.45m (2021: GBP6.28m) 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(TM) and Boom Battle Bar(TM) 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(TM) 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
GBP'000 GBP'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 Escape
Hunt Hunt Boom Boom
Owner Franchise Owner Franchise
operated operated operated operated Unallocated Total
Year ended 31 December
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 9,773 703 9,501 2,857 - 22,834
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 Escape
Hunt Hunt Boom Boom
Owner Franchise Owner Franchise
operated operated operated operated Unallocated Total
Year ended 31 December
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 6,018 592 263 112 - 6,985
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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 GBP293k 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
GBP'000 GBP'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
GBP'000 GBP'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 Share-based Pension Other
and fees payments contributions benefits Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Salary Share-based Pension Other
2021 and fees payments contributions benefits Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 GBP22,338k as at 31
December 2022 (GBP18,839k 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 GBP5,585k (GBP3,579k as at 31 December 2020). A
deferred tax asset has been recognised in respect of GBP3,025k
(2021: GBP572k) 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 GBP19,313k (2020: GBP18,267k).
Recognised temporary differences as at 31 December:
Year ended Year ended
31 December 31 December
2021 2021
GBP'000 GBP'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 GBP1,112k. 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 (GBP'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 Office Computers Furniture Games Total
improvements equipment and fixtures
-------------- ----------- -------------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 12 1,227
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 GBP36,625 (2021: GBPnil).
12. Right-of-use assets and lease liabilities
Year ended Year ended
Right-of-use assets 31 December 31 December
2022 2021
GBP'000 GBP'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
GBP'000 GBP'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, GBP33k of rent
concessions have been recognised in the profit and loss (2021:
GBP148k) 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
GBP'000 GBP'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
GBP'000 GBP'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 GBP7k (2021: GBP7k).
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
GBP191k (2021: GBP99k).
As at 31 December 2022 there were no leases that had not
commenced to which the group were committed.
13. Intangible assets
Internally
Intellectual generated Franchise App
Goodwill Trademarks property IP agreements Quest Portal Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'00' GBP'000 GBP'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 - 149 - - 61 218
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) - (265) (160) - (34) (472)
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) - (302) (563) - (9) (886)
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 GBP9.4 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 GBP10,195k 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 Principal activity Effective Ref
incorporation equity interest
held by the
Group (%)
Former holding
Experiential Ventures company - In
Limited Seychelles dissolution 100 #2
England and Operator of
Escape Hunt Group Limited Wales escape rooms 100 #1
Escape Hunt IP Limited England and IP licensing 100 #1
Wales
Escape Hunt Franchises England and Franchise holding 100 #1
Limited Wales
Escape Hunt Innovations England and Game design 100 #1
Limited Wales
Escape Hunt Limited England and Dormant 100 #1
Wales
Escape Hunt USA Franchises England and Franchise holding 100 #1
Ltd Wales
Escape Hunt Entertainment United Arab Operator of 100 #3
LLC Emirates Escape Rooms
in Dubai and
master franchise
to the Middle
East
BGP Escape France France Operator of 100 #1
Escape Rooms
in Paris and
master franchise
to France, Belgium
and Luxembourg
BGP Entertainment Belgium Belgium Operator of 100 #1
Escape Rooms
in Brussels
BBB Franchise Limited England and Franchise holding 100 #1
Wales
BBB Ventures Limited England and Intermediate 100 #2
Wales holding company
BBB UK Trading Limited England and Previous head 100 #2
Wales office for Boom
group
Boom BB One Limited England and Operator of 100 #2
Wales battle bar Lakeside
Boom BB Two Limited England and Operator of 100 #2
Wales battle bar -
allocated to
Canterbury
BBB Three Limited England and Operator of 100 #2
Wales battle bar -
location TBC
BBB Six Limited England and Operator of 100 #2
Wales battle bar -
Edinburgh
BBB Seven Limited England and Operator of 100 #2
Wales battle bars
in O2, Leeds
and Birmingham
BBB Eleven Limited England and Operator of 100 #2
Wales battle bar Plymouth
BBB Twelve Limited England and Operator of 100 #2
Wales battle bar Manchester
BBB Thirteen Limited England and Operator of 100 #2
Wales battle bar Oxford
Street
BBB Fourteen Limited England and Operator of 100 #2
Wales battle bar -
Exeter
BBB Fifteen Limited England and Operator of 100 #2
Wales battle bar -
location TBC
BBB Sixteen Limited England and Operator of 100 #2
Wales battle bar -
location TBC
BBB Seventeen Limited England and Holder of Boom 100 #2
Wales IP
Boom East Limited England and Operator of 100 #2
Wales battle bar -
Norwich
Boom Battle Bar Cardiff England and Operator of 100 #2
Limited Wales battle bar -
Cardiff
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
GBP47k 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:
GBP'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 GBP8.3k. The balance payable as at 31 December 2022 was
GBP66.7k
Further acquisition related costs of GBP5k that were not
directly attributable to the issue of shares are included in
administrative expenses under the owner operated segment.
Book Value Fair Value Fair
GBP'000 Adjustment Value
GBP'000 GBP'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 GBP81k 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 GBP376k and net profits of
GBP34k in the period between acquisition and 31 December 2022. If
the acquisition had occurred on 1 January 2022, consolidated
revenue would have been GBP521k higher, however consolidated net
profits would have been GBP11.7k 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:
GBP'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 GBP34k that were not
directly attributable to the issue of shares are included in
administrative expenses under the owner operated segment.
Book Value Fair Value Fair
GBP'000 Adjustment Value
GBP'000 GBP'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 GBP2k. The gross
contractual amount for trade receivables due is GBP2k 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 GBP1,351krelates 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 GBP1.236m and
net profits of GBP41k in the period between acquisition and 31
December 2022. If the acquisition had occurred on 1 January 2022,
consolidated revenue would have been GBP2.432m higher but
consolidated net profits would have been GBP681k 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 Fair
GBP'000 Adjustment Value
GBP'000 GBP'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 GBP247k and a loss of
GBP114k 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 GBP622k
higher, and consolidated net profits would have been GBP301k
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 GBP624,805. This amount, net of the associated deferred
tax asset of GBP156,201 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 GBP300,000 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
GBP'000 GBP'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
Receivables income
GBP'000 GBP'000
Contract assets:
Balance at 1 January 2021 848 122
Transfers from contract assets recognised at
the beginning of the period to receivables 122 (122)
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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 the period 686 614
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
GBP'000 GBP'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 31 December 31 December
and training fees 2022 2021
GBP'000 GBP'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
GBP'000 GBP'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. GBP6,210k 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 Deferred Dilapi-dations Financial Other Total
consideration consideration guarantee
contracts
--------------- --------------- --------------- ----------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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. GBP1,267k was recognised in the year to 31 December 2022
(2021:GBP106k).
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
GBP'000 GBP'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 1,267 -
the year to 31 December 2022
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 GBP226k 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
GBP'000 GBP'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 (GBP'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
GBP'000 GBP'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
- 150,633,180 (2021: 146,005,098)
Ordinary shares of 1.25 pence each 1,883 1,825
------------ ------------
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 GBP340,000 convertible loan notes together with
GBP54,027 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
GBP'000 GBP'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 GBP340,000 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 GBP272,251 of the
principal related to the debt component of the Convertible Notes
with the balance of GBP67,749 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. GBP340,000 principal, together with GBP54,027 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.
EUR100,000 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 GBP45k equivalent.
On 22 November 2021, the Company issued GBP360,000 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
GBP67k 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 GBP693k. Bank and other loans totalled
GBP315k.
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 GBP68,535 has been recognised as a share-based
payment and charged to the profit and loss during the year (2021:
GBP53,073). 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 GBP10 per month, but may not, in aggregate, exceed
GBP1,800 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 GBP12,592 (2021: GBP9,478) 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
GBP'000 GBP'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
GBP'000 GBP'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): GBP'000 GBP'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
GBP'000 GBP'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: GBPnil).
Liquidity risk
The ageing of financial liabilities at the reporting date was as
follows:
As at As at
31 December 31 December
2022 2021
GBP'000 GBP'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 GBP2,912k (2021: GBP7,202k) 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
GBP1,837k (2021: GBP1,527k), which is considerably less than the
Group's cash held at the year-end of GBP3,189k (2021: GBP8,225k).
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 United Euro Australian Other Total
Sterling States Dollar
Dollar
As at 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2022
-------------------------- ---------- -------- -------- ----------- -------- --------
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 United Euro Australian Other Total
Sterling States Dollar
Dollar
As at 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2021
-------------------------- ---------- -------- -------- ----------- -------- --------
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)
GBP'000 GBP'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
GBP36,625 (2021: GBPnil).
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
GBP'000 GBP'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 GBP458k (2021: GBP230k)
Other income in the year ended 31 December 2022 includes GBP6k
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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END
FR SEFSEDEDSEFI
(END) Dow Jones Newswires
May 23, 2023 02:00 ET (06:00 GMT)
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