TIDMESC
RNS Number : 9110Y
Escape Hunt PLC
18 May 2021
18 May 2021
Escape Hunt plc (AIM: ESC)
("Escape Hunt", the "Company" or the "Group")
Final results for the year ended 31 December 2020
Escape Hunt is pleased to announce its audited final results for
the year ended 31 December 2020.
FINANCIAL HIGHLIGHTS
-- Group Adjusted EBITDA loss reduced to GBP1.4m (2019: loss
GBP1.7m) despite COVID-19 restrictions
-- > 25% like-for-like sales growth on a 12 week rolling
basis in the two months prior to lockdown
-- Group revenue of GBP2.7m (2019: GBP4.9m) was 46% lower than FY19, driven by COVID-19
-- Revenue from digital and other play at home products was GBP230k (2019: nil)
-- GBP0.4m positive site level Adjusted EBITDA from
owner-operated sites (2019: GBP1.0m) was driven by a strong
performance pre-lockdown and encouraging trading when allowed to
open under COVID-19 restrictions
-- Franchise EBITDA of GBP0.3m (2019: GBP0.4m)
-- Group operating loss of GBP6.4m (2019: loss of GBP5.9m)
-- GBP4.0m net of expenses successfully raised through an equity
placing and open offer, share subscription, and a convertible loan
note in July 2020
-- Cash at year end GBP2.7m (2019: GBP2.2m) and GBP3.3m on 31 March 2021
OPERATIONAL HIGHLIGHTS
-- Owner-operated estate expanded by 56% to 14 sites (2019: 9
sites) including Watford (which was scheduled to open on December
27(th) ) and the acquisition of Dubai
-- Record opening performances at each of Norwich and Basingstoke sites
-- All eight sites open for more than 12 months were named by
TripAdvisor(TM) as a Travellers' Choice Winner in August 2020 and
continued five star TripAdvisor(TM) ratings across the UK
estate
-- Transition to new, lower cost games supplier and installation
of first fully modular games in Watford
-- COVID-19 closures of all UK sites resulted in 45% of
available days lost and restrictions impacted a further 36% of
available trading days
-- Estimated 40% of trading days lost by franchise estate due to
COVID-19 closures and a further 42% of days operating under
COVID-19 restrictions
-- Successful launch of digital and remote play propositions
-- Acquisition of Middle East master franchise, including owner-operated site in Dubai
POST YEAR
-- Full UK lockdown enforced shortly after Christmas 2020 with UK sites re-opened on 17 May 2021
-- Acquisition of French and Belgian master franchise including
owner-operated sites in Paris and Brussels
-- Placing to raise GBP1.3m (after expenses) in January 2021 to
fund French and Belgian acquisition and provide further working
capital
-- Majority of French franchise agreements extended for further six years
-- Kingston opened on May 17, taking the owned and operated estate to 17 sites
-- Heads of terms agreed on site in Milton Keynes; legals close to completion
-- Work commencing shortly at new site in Lakeside
-- Inclusive of Milton Keynes and Lakeside, owner operated
estate will have grown 111% compared to 31 Dec 2019
-- Digital and downloadable sales continuing to perform,
generating GBP92k revenue in the 3 months to 31 March 2021.
-- GBP1.0m convertible loan note facility put in place to
provide further flexibility to continue UK roll-out in the event of
further lockdown restrictions or continued adverse impact on
trading from COVID-19
Richard Harpham, Chief Executive of Escape Hunt, commented :
"We are delighted that our UK sites have finally been able to
re-open and are excited to be building on the substantial strategic
progress we have been able to make in the last year,
notwithstanding the extremely tough conditions brought about by
Covid-19. Escape Hunt is in a much stronger position today than it
was twelve months ago, and subject to reasonable assumptions on
demand returning, we are confident that we now have a platform
established capable of supporting a profitable business. We have
significantly grown our owner-operated estate, launched our digital
and remote-play propositions, made progress with our franchisees,
and re-capitalised the business. We are hopeful that consumer and
corporate demand will return strongly in the coming months and look
forward with cautious optimism."
This announcement is available on the Company's website,
https://escapehunt.com/investors/
Enquiries
Escape Hunt plc
Richard Harpham (Chief Executive Officer)
Graham Bird (Chief Financial Officer) +44 (0) 20 7846
Kam Bansil (Investor Relations) 3322
Shore Capital - NOMAD and Joint Broker
Tom Griffiths, David Coaten (Corporate Advisory) +44 (0) 20 7408
Fiona Conroy (Corporate Broking) 4050
Zeus Capital - Joint Broker
John Goold +44 (0) 20 3829
Daniel Harris 5000
IFC Advisory - Financial PR
Graham Herring
Tim Metcalfe +44 (0) 20 3934
Florence Chandler 6630
About Escape Hunt plc
The Escape Hunt Group 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. Its products enjoy
consistent premium customer ratings and cater for leisure or
teambuilding, in small groups or large, and are suitable for
consumers, businesses and other organisations. Having been
re-admitted to AIM in May 2017, the Company has a strategy of
creating high quality premium games and experiences delivered
through multiple formats and which can incorporate branded IP
content. (https://escapehunt.com/)
Facebook: EscapeHuntUK
Twitter: @EscapeHuntUK
Instagram: @escapehuntuk
Chairman's Statement
2020 was undoubtedly the most difficult year for the leisure
industry in recent history, with government enforced closures
impacting businesses in all parts of the world. Notwithstanding the
challenges, the Company has used the time productively, launching
new digital and play-at-home products, significantly expanding its
UK owner-operated estate, establishing improved games manufacturing
and installation processes, progressing the potential for the
business in North America, and acquiring the Middle East master
franchises along with negotiating the acquisition of the French and
Belgian master franchises. As a result, the Group finds itself
significantly better positioned for the future than was the case a
year ago.
The progress would not have been possible without the support of
stakeholders at all levels. Firstly from our shareholders who have
demonstrated their belief in the future of the business, supporting
a GBP4.3m fund raise in July 2020 to provide development and
working capital, and a further GBP1.4m fund raise after the year
end in January 2021 to support the acquisition of our French and
Belgian master franchisee and to provide further working capital.
The Group has also been able to benefit from a number of government
support schemes put in place to help businesses through the
COVID-19 pandemic. Cash has been preserved through effective use of
these schemes and careful management of costs, whilst investment in
new sites has continued. I would also like to extend my thanks to
all our employees who have had to endure through uncertain and
difficult circumstances. Many have spent large portions of the last
year on furlough, whilst all have had to cope with significant
changes to the working environment. Throughout the period they have
continued to work with passion and enthusiasm, helping deliver
innovative new games to support our strategy, implementing the
social distancing requirements at our sites, and accepting changes
to their working conditions. During the first lockdown, all our
head office staff agreed to a pay reduction whilst continuing to
work, a sacrifice which was enormously helpful and appreciated. A
number of our landlords agreed concessions on rent, allowing
deferred or reduced rents, whilst number of our suppliers reduced
or deferred costs. Their support was likewise both welcome and
valued.
Outside of the obvious adverse impact of COVID-19, the Company
delivered on a number of important milestones, further details of
which are provided in the sections of the strategic report that
follow. Importantly costs were managed carefully and cash preserved
where possible, leaving the Company in a stronger position to take
advantage of a return of demand once Government restrictions are
lifted and sites are re-opened. A few highlights from the period in
question are worth mentioning:
-- Strong trading from 1 January 2020 to 29 February 2020 with
revenue and owner-operated site performance comfortably ahead of
the Board's expectations
-- Careful cash management and encouraging return of demand after lockdowns when sites were open
-- Adjusted Group EBITDA loss reduced by 15% to GBP1.45m from GBP1.71m despite Covid closures
-- Raised GBP4.0m net of expenses through an equity placing and
open offer, share subscription, and convertible loan note issue in
July 2020
-- Successful launch of digital and other play at home products
generating revenue of GBP230k (2019: nil)
-- In the year to 31 December 2020, the owner-operated estate
expanded by 56% to 14 sites (2019: 9 sites) including the
acquisition of Dubai
-- Constructive progress within our franchise estate, both in the US and the rest of the world
-- Post year end completion of a new site in Kingston,
acquisition of the France and Belgium master franchises together
with GBP1.4m fundraise by way of an equity placing
The year started positively, with both our owner-operated and
franchise estates entering January 2020 on the back of strong sales
performances over Christmas. Performance in the period before
Covid-19 restrictions came into effect was ahead of the Board's
expectations.
In March, the onset of COVID-19 forced immediate action which
saw significant cost cuts and a period in which the business was
effectively put into hibernation. The team worked proactively to
launch new products which could be played remotely, initially
launching a range of print-and-play games, followed by
'zoom-in-a-room' and other digital propositions. We have been
pleased with the success of these products and it is our
expectation that they will continue to be an important part of our
portfolio of games in future.
At the same time, significant effort was put into seeking
further investment to secure the future of the Company. In July we
were delighted to raise GBP4.3m (GBP4.0m net of expenses) through
an issue of new equity and convertible loan notes which was
supported by our major shareholders as well as a number of new
investors who joined the register. At the same time, the Board
announced a five-point plan as follows to build shareholder
value.
1. Roll-out of our owner-managed network through direct investment
2. Sustain and support growth in performance from our existing franchise network
3. Deliver the US franchise opportunity in partnership with PCH
4. Enhance returns and margins through broadening our product set and target audience
5. Investment in infrastructure and operations to improve efficiency and scalability
I am pleased to report good progress in all of these objectives,
details of which are given in the sections of the strategic report
that follow.
The Board saw a number of changes during the year. Graham Bird
joined as Chief Financial Officer on 3 January 2020 and has worked
extremely well with the existing team, playing an important role in
securing the support of our shareholders in the two fund-raises
whilst adding significant additional experience and capability to
our senior leadership team. Adrian Jones, who was one of the
original management team which established Escape Hunt prior to its
acquisition by Dorcaster and Admission to AIM in 2017, stepped down
from the Board as a Non-Executive Director at the end of May 2020.
At the end of September 2020, we welcomed John Story to the Board
in his place as a Non-Executive Director.
We took steps to ensure that our key employees are aligned with
shareholders, implementing a new executive share incentive scheme
in July 2020. Since the year end, we have implemented a wider
scheme available to all our employees in the UK which will enable
anyone working for the Company to acquire shares in a tax efficient
manner and to be rewarded with matching share awards after a three
year holding period.
The pace at which the vaccination programme is being rolled out
in the UK and the reduction in serious cases of the disease
together with the fact that our UK sites have been able to open on
17 May 2021 as was initially indicated by the Government sets a
positive outlook. Evidence on re-opening after the 2020
spring/summer lockdown was very encouraging and, as a result, the
Board is hopeful that both consumer and corporate demand will
return strongly when the restrictions currently in place are
lifted. At the same time, property market conditions in the UK are
increasingly favourable for those seeking to take on new space and
the Company has been able to capitalise upon that opportunity.
There is clearly a growing demand for experiential leisure and the
Board has been actively exploring ways to broaden our sphere of
activities.
In February 2020, the Company had 9 Escape Hunt branded
owner-operated sites, all in the UK. Post year end, the completion
of the acquisition of our French and Belgian master franchises and
the build-out at Kingston, has expanded the network to 17. Heads of
terms have been signed for a site in Milton Keynes and, in
addition, the Company has carved out a space at a unit at the
Lakeside shopping centre in Essex which was previously trading as
Market Halls. These two further sites will potentially become the
Company's 18(th) and 19(th) owner operated sites respectively.
Further sites are now also in contemplation. When we raised money
in July 2020 we set a target of 20 owner-managed sites within two
years. We expect to achieve this before the end of 2021, six months
ahead of our target. Importantly, with the footprint already
established, the Directors believe that once new site performance
has matured and conditions and demand have normalised post
COVID-19, the Escape Hunt network should be capable of supporting
positive EBITDA and positive cash generation, subject to reasonable
assumptions in other areas of the Group.
On the international front, the Board is excited about the
potential of bringing the French and Belgian master franchises
in-house alongside the Middle East business which was acquired in
September 2020, and the progress being made in the US with partners
Proprietors Capital Holdings, is encouraging. Whilst a small number
of the Company's existing international franchise network look like
they will not survive the challenges of the pandemic, the
opportunity for the other parts of the network to rejuvenate after
COVID-19 is now much closer to being a reality.
Finally, the significant progress made by the Company in
establishing digital and other play-at-home products has provided a
new, scalable revenue stream and growth opportunity, which the
Directors expect to remain an important part of the product suite
in the future.
We are still at an early stage in delivery against the
objectives we set in July last year. However, it has been very
pleasing to see a positive response by the markets so far. Money
was raised at 7.5p per share in July 2020 whilst the placing
conducted in January 2021, partly to fund the French acquisition,
was completed at 17.5p per share.
We remain confident that we have a valuable business and that if
we deliver on our objectives, we have an opportunity to create
significant further value for our shareholders. As a result,
notwithstanding the continued uncertainty that the coming weeks and
possibly months hold for the whole leisure industry, the Board has
reason to look forward with cautious optimism.
Richard Rose
Chairman
17 May 2021
Chief Executive's Report
Notwithstanding the huge disruption caused by COVID-19, the
Group ended the year in a significantly stronger position than
before the onset of the crisis, and much better placed to benefit
from a return of demand. Throughout the year, the team continued
work on delivering the strategic plans across all five areas
identified. With the benefit of the COVID-19 related Government
support schemes, the outturn for the year was better than expected
given the pro-longed enforcement of restrictions.
Importantly, the expansion of the Group's owner-operated network
together with the launch of our digital and other remote-play
products has created a platform which we believe is capable of
supporting a profitable, cash-generative group, once COVID-19
restrictions are removed, trading normalises, new sites have
matured and subject to reasonable assumptions in other parts of the
business.
Owner-Operated site performance
Revenue from our owner-operated sites fell 46% to GBP2.1m (2019:
GBP3.8m), inclusive of digital and remote-play turnover of GBP230k
(2019: GBPnil). The fall in revenue reflects the significant impact
of both enforced closures and social distancing rules prohibiting
households mixing which were implemented by the UK Government in
response to the pandemic.
Prior to COVID, the first two months of 2020 were very strong
for the business and we saw continued growth across all Escape Hunt
branded UK sites, with target site economics for turnover and
EBITDA contribution being met. Moreover, the like-for-like sales
growth was particularly encouraging, with even the most mature
sites delivering 25% growth vs prior year on a 12 week rolling
basis.
Table 1: Like-for-Like Growth in first two months of 2020
Year-on-Year Growth
(Rolling average period)
Data as at 1 March 2020 4 weeks 12 weeks 24 weeks
------------------------- -------- --------- ---------
First 3 sites 18% 25% 30%
Next 5 sites 70% 99% N/A
All 8 mature sites 44% 59% N/A
-------------------------- -------- --------- ---------
The impact of COVID
Around the second week in March 2020, the impact of COVID-19
began to be felt, culminating in the implementation of the first UK
national lockdown on 23 March 2020.
In July 2020 we raised GBP4.0m (net of expenses) by way of a
placing, open offer, share subscription and convertible loan note
issue. This additional funding enabled the group to continue its
planned roll-out of sites and provided working capital to survive
the pandemic.
Whilst all UK sites were closed during the national lockdowns,
sites were also affected differently during periods when the UK
Government applied a tiered regional approach to restrictions. In
total, we estimate 45% of trading days in the year were completely
lost due to closures and a further 36% of trading days in the year
were impacted by varying levels of restrictions, such as the 'rule
of six', bans on household mixing or other social distancing
measures.
Notwithstanding the restrictions, we were encouraged by the
performance of our sites between July and October, after re-opening
at the end of the first national lockdown. In the first eight weeks
after re-opening, sales grew from an initial level of around 25% of
the equivalent week's sales in 2019 to over 90% of the equivalent
prior year sales in each of the last two weeks of the first
eight-week period. In September, the pace of recovery softened as
expected, notably as the UK Government began to implement
incrementally stringent social distancing and mixing rules.
Nevertheless, revenue inclusive of digital and remote sales over
the week beginning 26 October 2020, which coincided with schools'
half term week, was 25% ahead of the same period in 2019. During
that week, on a like-for-like basis, the Company's eight mature UK
sites traded at 96% of the 2019 level, despite four of the sites
being adversely affected by either the Government's tier 2, tier 3
or the Scottish COVID-related restrictions.
Throughout the year, when sites were open, we continued to
delight our customers. Before the onset of the pandemic, all nine
of our sites had five star ratings on TripAdvisor(TM) and in August
2020, all eight of our sites that had been opened for more than 12
months were named by TripAdvisor(TM) as a Travellers' Choice
Winner. The awards placed all our longer standing sites in the top
10% of attractions worldwide. We were equally delighted that our
then newest site at Birmingham Resorts World, which only opened in
December 2019, was ranked the top attraction in Birmingham and the
West Midlands, and #7 across the whole of the UK. We have continued
to receive positive customer feedback, and at the time of writing,
all our UK sites are five star rated by TripAdvisor(TM).
The strong performance prior to the onset of the pandemic,
coupled with encouraging trading performance after the first
lockdown and positive consumer feedback gave us confidence to
continue with the UK site roll-out strategy we outlined in July
2020. During the year and subsequently, we expanded our Escape Hunt
branded owner-operated estate by 89% from 9 to 17 sites, inclusive
of the acquisitions of our Middle East master franchisee ("EHE
LLC"), and French and Belgian master franchises ("BGP") which
brought sites in Dubai, Paris and Brussels into our owner-managed
estate respectively. All three of these were previously franchised
sites.
We opened a new site in Norwich on 23 September 2020. The site
had originally been planned to be opened in the spring, but had to
be delayed when all capital expenditure was put on hold and
construction work was halted in the first national lockdown. We
were delighted with the performance of the site in the few weeks
during which trading was permitted, as performance was in line with
a number of our mature sites.
Basingstoke was opened on 29 October 2020 only a few days before
the second national lockdown came into force on 3 November 2020.
Trading in its opening three days was the strongest of any of the
Company's new sites to date.
A new site in Cheltenham opened on 3 December 2020. Early
trading was encouraging, although the tiered restrictions and
subsequent closures in the run up to Christmas curtailed any
meaningful launch.
Two additional sites have been able to open in the week
beginning May 17 2021. Watford was completed and was due to open
before the year end, but was prevented from doing so by the
COVID-19 restrictions. Kingston too is now complete, and at both we
have newly recruited teams that are excited to begin welcoming
customers.
Work is soon to begin on a unit in Lakeside shopping centre in
Essex, where Escape Hunt has carved out 4,000 square feet in a
space that was previously trading as Market Halls. Lakeside is a
very high dense and popular retail and entertainment destination,
and the business will be well positioned amid some strong adjacent
operators. The site is expected to open in Q4 2021.
Additionally, we have also ordered games for a further site,
most likely Milton Keynes, where we have agreed heads of terms and
are in the final stages of legal agreements.
Government support through COVID
A total of 152 employees in the Group were registered on the UK
Government's Coronavirus Job Retention Scheme ("CJRS") at some
point during the year to 31 December 2020. Of these, 145 were
employed within the owner-operated segment. The total benefit
received from the CJRS during the year was GBP756k, of which
GBP699k is attributable to the owner-operated segment.
Importantly, the 'flexible furlough' version of the scheme was
critical in ensuring that sites were able to make a positive
contribution when they re-opened but remained subject to
restrictions. This flexibility led us to re-examine our service
contracts to ensure that the business will be able to manage
fluctuations in revenue better in future, when the scheme will no
longer be in place. In November we implemented changes which have
enabled us to convert over 80% of what were previously fixed costs
to variable costs. This change will result in lower break-even
points at all our UK sites and ultimately should lead to higher
operating margins as a result of the better flexibility the changes
afford.
The pandemic has been extraordinarily tough on all kinds of
businesses and people, and many of our owner-operated employees
have spent a large proportion of the year on furlough, facing
uncertainty about the future. However, I have been humbled by the
loyalty and dedication shown by our teams, and am delighted to
welcome everybody back to once again delight our customers as we
reopen.
Franchise network
Our franchise network has had a broadly similar experience of
2020 as our owner-operated segment. Whilst the impact of the
pandemic has differed regionally, turnover from our franchise
network fell 46% to GBP0.6m (2019: GBP1.1m), whilst EBITDA from the
segment fell 18% to GBP297k (2019: GBP361k).
In total, we estimate that our franchisee base lost 40% of their
potential trading days in 2020 to government mandated closures,
whilst a further 42% of trading days would have been impacted by
some form of COVID-19 restrictions.
The pandemic has put many of our franchisees under tremendous
financial strain. In some parts of the world there has been little
or no financial assistance. Sadly, as a result, a number of our
franchisees have closed permanently, including Amman and Jeddah,
and since the year end, two sites in Buenos Aires look certain to
close. Dubai became an owner-operated site, joined by Paris and
Brussels post year end. At the date of writing, we have 29
franchise sites in the estate.
Given the uncertainty from the pandemic, there was little we
could do by way of direct financial assistance to our franchise
network. However, we have provided support by way of relief against
fixed fees whilst franchisee sites have been closed and, in
addition, we have made our digital and remote play propositions
available to the network. Where taken on by the franchisees, these
remote-play products have contributed meaningfully to their
respective underlying performance.
In the USA, progress was slowed by the pandemic, but we have
nevertheless moved forward. We achieved an important milestone when
our first US franchise disclosure document was filed in December
2020. This enables our area representative, PCH through its
subsidiary GoXperia, to begin selling proactively. Since the year
end, we have held our first 'discovery day' for potential
franchisees and conversions in the US, and the pipeline of
potential franchisees is beginning to build. GoXperia has recruited
a senior brand director to augment its team and we remain
optimistic about the potential for the region.
During the year we have invested in our communications and user
journeys for franchisees, introduced new global communications
tools and forums, improved the user experience on our websites,
introduced country level homepages and made other enhancements to
the service provided to the network.
With the majority of our existing franchisee base now converted
to the catalogue approach and our improving level of interaction
and communication with the network, we are again beginning to look
at opportunities to expand our franchise estate, and plan to
leverage the capabilities and experience which have joined the
Group through our Middle Eastern, French and Belgian acquisitions.
Whilst the size of the network has reduced during the pandemic, it
has been pleasing to a number of sites recording strong recovery
performances in the early months of 2021. We have seen sites in
both the Middle East and Australia performing at record levels. We
believe that the changes made during the last year are a step
towards significantly improving the level of service we provide our
franchisees and will, in time, lead to a stronger, larger and more
profitable network.
Content strategy
A year ago we outlined our strategy to broaden our customer mix
and to create games which are not constrained by the size and
capacity of our physical sites.
During the year we introduced three new remote-play formats
including print-and-play, 'zoom-in-a-room' and digital games. In
total, our remote games generated GBP230k of revenue within our
owner-operated network. Of this print-and-play contributed GBP94k
and GBP21k came from 'zoom-in-a-room'. The balance of GBP115k was
almost all earned in December, shortly after launching our digital
products aimed predominantly at the corporate market as part of our
EH for Business proposition.
We currently have 20 remote play products in the portfolio which
we intend to expand further.
We have made progress in building our product set for EH Retail.
As mentioned above, the downloadable print-and-play games have
proved successful and are aimed predominantly at a retail audience.
Whilst we launched our first virtual reality rooms in December 2019
at our site in Birmingham Resorts World, the onset of the pandemic
has meant that it is still too early to judge the full potential of
this format. We have nevertheless established VR rooms at all our
new sites opened since then, bringing the total number of VR rooms
that will be open in May to 7 and eagerly await for the return of
customers. We have also invested in the outdoor formats, utilising
the software license signed in the Autumn, which enables us to
develop our own content for outdoor games.
The success of our digital products in particular, has advanced
our EH for Business proposition. In December we were delighted with
the response from corporates and now have a truly scalable
proposition. In the run up to Christmas performance surpassed our
expectations, as we received over 200 bookings, comprising over
1000 corporate teams and 6000 individuals. The largest single game
had 347 people playing, split between 57 teams playing from
multiple countries.
EH for Brands saw a major success in September when we secured
an agreement with Netflix(TM) to develop a game based on the
Netflix(TM) original film, Enola Holmes(c). The game, which was
free to download, led to c.19k downloads from individuals, many of
whom have since returned and purchased other Escape Hunt products.
We also launched a Doctor Who themed print-and-play game, "The
Hollow Planet" in conjunction with the BBC. This followed the
launch of our newest Doctor Who escape game, "A Dalek Awakens",
which was launched just before the pandemic struck in March 2020.
We plan to roll out further instances of "A Dalek Awakens" at a
number of our new sites.
We are in discussions with other IP owners about forming
partnerships which make sense for both parties, and believe that
there is a role for these types of opportunities. However, we have
also found that games built around IP that is out of copyright,
such as Aladdin and Alice in Wonderland, have proved hugely
successful and are much more cost-effectively deployed. We
therefore expect to continue with a product portfolio which has a
mix of genre, copyright-free IP and bigger brands.
Strategic progress and objectives
In June 2020, the Board set out a five point plan for value
creation which was implemented following our fundraising in July
2020. As set out above, significant progress has been made in all
aspects of the plan since then, placing the business in a
substantially stronger position to benefit from any recovery in
demand when COVID-19 restrictions are lifted.
The progress since July 2020 under each of the five components
of the strategic plan is summarised as follows:
1. Roll out of owner operated sites
-- 89% increase vs 2019 in the size of the Escape Hunt branded
owner-operated estate, including sites acquired and completed post
31 December 2020
o 5 sites completed in the UK
o Acquisition of the Escape Hunt Middle East master franchise,
including Dubai as owner-operated site
o Post year end acquisition of BGP Escape and the resulting
addition of the Paris and Brussels sites to the owner operated
estate
-- Heads of terms signed for Milton Keynes; games ordered
-- Lakeside due to open in Q4 2021; work commencing shortly
-- Expect to achieve target of 20 owner-operated sites by end of 2021, six months ahead of plan
2. US Franchise network progress
-- Franchise disclosure document filed in December 2020
-- Decision to use the Houston site as the 'master site' and education centre for North America
-- Two instances of the new generation games have been ordered
and are in transit to be installed in Houston. A pipeline of both
new and potential conversion franchisees is now in active
development
-- Two ,discovery days' held with potential franchisees
3. International Franchise network progress
-- Acquisition of Middle East master franchise
-- Acquisition of France and Belgium master franchises
-- Australian franchisees moved to catalogue approach with new terms
-- Majority of French franchisees extended to 2027 and moved to catalogue approach
4. New products and markets
-- Launch of first remote-play products, generating GBP230k revenue in 2020
-- Proof of concept for large scale, scalable products
-- Development of 'Escape Hunt for Business' concept
5. Investment in Infrastructure
-- Completion and implementation of software with allows games
masters to manage multiple games at the same time at new sites
Whilst a number of other projects to improve efficiency and
improve scalability have been identified, the Board intends to
delay further work on these until COVID-19 restrictions are
lifted.
Strategic objectives for 2021
The Board plans to build on the success in progressing the
strategic objectives in 2020 and believes that the focus for
delivering growth by continuing to focus on the same objectives. At
the same time, property market conditions in the UK are
increasingly favourable for those seeking to take on new space and
we are therefore actively looking at ways in which we can
capitalise on the opportunity and build our platform to cater for
the growing demand for experiential leisure activities and
engagement. We believe there will be opportunities to expand the
range of products and markets we serve in the wider experiential
market.
We have taken steps to ensure that we can continue to pursue our
strategic objectives notwithstanding the continuing uncertainty
over the ongoing impact of COVID-19 on our trading, or the
possibility of a further temporary lockdown and have therefore
established a GBP1.0m convertible loan note facility with one of
the Company's non-executive directors, John Story. The availability
of this facility ensures we can continue to commit to capital
expenditure in new sites such as Lakeside and Milton Keynes without
the need to preserve cash in the event of further, unforeseen
adverse impacts from COVID-19. There is no obligation to draw any
of the facility. Details of the facility are given in note 35 of
the consolidated financial statements.
Our key performance indicators by which we monitor progress and
performance are set out in the Financial Review below.
Outlook
The pace at which the vaccination programme is being rolled out
in the UK and the reduction in cases attributable to COVID-19
together with the fact that our UK sites have been able to open on
17 May 2021 sets a positive outlook which we have planned for. Many
economic commentators are expecting a strong recovery in the UK
economy in the second half of the year, which would be positive for
Escape Hunt. As mentioned above, evidence on re-opening after the
2020 spring/summer lockdown was very encouraging and, as a result,
the Board is hopeful that both consumer and corporate demand will
return strongly when the restrictions are lifted. At the same time,
property market conditions in the UK are increasingly favourable
for those seeking to take on new space. We have already been able
to benefit from these favourable conditions in recent property
negotiations and the Board is actively looking at further ways in
which the Company can capitalise on the opportunity and build on
the platform to cater for the growing demand for experiential
leisure activities and engagement.
Within Escape Hunt, we are confident we can build on the
progress we have made in our owner-operated estate, and look
forward to working closely with our new colleagues in France and
Belgium and the UAE. We believe all these acquisitions will
contribute meaningfully in future. Progress in the US remains
encouraging, and our challenge now is to provide the level of
support to allow it to reach its true potential, which itself could
be transformational for the business as a whole.
Finally, the significant progress made by the Company in
establishing digital and other play-at-home products has provided a
new, scalable revenue stream and growth opportunity, which we
expect to remain an important part of our product suite in the
future.
As a result, notwithstanding the continued uncertainty that the
coming weeks and possibly months hold for the whole leisure
industry, the Board has reason to look forward with cautious
optimism.
Richard Harpham
Chief Executive Officer
17 May 2021
Financial Review
Group Results
Revenue
Group revenue fell by 46% to GBP2.7m from GBP4.9m as a result of
the impact of COVID-19 on both our owner-operated estate and the
franchise network.
Year Year Increase
ended ended / (decrease)
31 December 31 December
2020 2019
GBP'000 GBP'000
New site upfront location
exclusivity fees 122 138 (12%)
Support and administrative
fees 146 221 (34%)
Franchise revenues 309 717 (57%)
Owned branch revenues 2,070 3,832 (46%)
Other 11 7 57%
2,658 4,915 (46%)
------------ ------------ --------------
Owner-operated revenues included GBP230k from digital and remote
play propositions launched during the year and, in aggregate,
constituted 78% of revenue (2019: 78%).
Within the franchise business, recognition of upfront location
exclusivity fees fell modestly, largely as a result of the
termination of a small number of contracts in 2019 which led to the
accelerated recognition of upfront fees in 2019, but revenue
recognised from this source was in line with 2018. Fees linked to
franchise revenues were down 57% compared to the prior year,
reflecting the significant impact of COVID-19 on our network. We
estimate that our franchise network lost 40% of available days
during the year due to full closures, whilst a further 42% of
trading days in the year were impacted by COVID-19 related
restrictions imposed in different parts of the world between March
and December 2020.
Gross profit
Cost of sales includes the variable labour cost at sites and
other direct cost of sales, but not fixed salaries of site staff,
whose costs are included as administration costs. The Board
believes this categorisation best reflects the underlying
performance at sites and provides a more useful measure of the
business.
Gross margin rose from 67% in 2019 to 70% in 2020. The primary
driver of this improvement was the flexible furlough scheme which
was operating when sites were open, which afforded more flexibility
to manage labour costs than previously. As set out above, we have
since made changes to our labour contracts to maintain as much of
this flexibility as possible to safeguard the business against
future, unexpected revenue fluctuations and to lower the breakeven
levels at each site.
Adjusted EBITDA
Group Adjusted EBITDA loss reduced by 15% from GBP1.7m to
GBP1.4m and is a key performance measure for the Group. This
reduction was achieved notwithstanding the significant adverse
impact of COVID-19 on trading. The Adjusted EBITDA result is after
recognising the benefit of GBP135k property-related grant income,
GBP259k of Research and Development claims made under the SME
Scheme, and GBP756k from the Coronavirus Job Protection Scheme
("CJPS"). However, it also includes GBP187k of pre-opening losses
relating to new sites in Norwich, Basingstoke, Cheltenham and
Watford and bad debt provisions relating to historic franchise fees
of GBP105k. Whilst some of this pre-dates the onset of the
Coronavirus pandemic, the financial strain placed on the underlying
franchisees as a result of the pandemic has meant it has become
significantly less likely that we will be able to recover the full
amounts. A reconciliation between statutory operating loss and
Adjusted EBITDA is shown below.
2020 2019 Increase
/ (decrease)
GBP'000 GBP'000 GBP'000
------- ------- -------------
Owner-operated EBITDA - Site level 446 976 (530)
Centrally incurred overheads (69) (99) 30
Other income 186 - 186
------- ------- -------------
Owner-operated EBITDA after central
overheads 563 877 (314)
Franchise EBITDA after central overheads 297 361 (64)
Unallocated central costs (2,305) (2,945) 640
------- ------- -------------
Adjusted Group EBITDA (1,445) (1,707) 262
------- ------- -------------
Operating loss
Group operating loss increased by 7.5% to GBP6.4m (2019:
GBP5.9m). The extraordinary circumstances brought about by COVID-19
in 2020 means that there are several significant items in the 2020
result which might be considered one-off and it is therefore
difficult to draw a meaningful comparison from underlying
performance alone. COVID-related property grants of GBP135k and the
CJPS benefit of GBP756k were received and offset a proportion of
property and employment costs incurred whilst sites were closed. At
total of GBP259k of R&D claims made under the SME Scheme in
respect of 2018 have been recognised, whilst the result also
includes a GBP300k provision against a loan to a franchisee which
is doubtful as the franchisee is expecting to be evicted from its
most profitable site. Further provisions of GBP105k have been made
against other franchisee balances due to their impaired financial
position.
2020 2019
GBP'000 GBP'000
Operating loss (6,367) (5,932)
Amortisation of intangibles 2,299 2,124
Depreciation 1,819 1,733
Rent concessions recognized (22)
Depreciation of right of use
assets 380 347
Loss on disposal of assets 30 -
Branch closure costs 52 -
Provision against loan to franchisee 300
Exceptional professional fees 35 7
Foreign currency losses 1
Share-based payment expense 29 12
Adjusted Group EBITDA (1,445) (1,707)
------- -------
Owner-Operated sites
Three new sites were opened during 2020, whilst a further site
had been scheduled to open before the year end, but was unable to
do so due to Coronavirus restrictions. These new sites contributed
GBP72k to revenue, whilst incurring a total of GBP186k costs before
they were open. In addition, an existing franchise site in Dubai
was acquired and has become an owner managed site and is included
in the owner-operated result for three months, contributing GBP57k
to revenue. Digital and other remote-play products are also
included in the owner-operated
site revenue and contributed GBP230k to the segment revenue. As mentioned above, revenue from our owner-operated sites fell to GBP2.1m from GBP3.8m in 2019.
Site level EBITDA fell 55% to GBP446k from GBP976k in 2019,
driven by the COVID-19 restrictions and closures, but also impacted
by a number of one-off items as described above. Total site labour
as a percentage of total sales is, under normal circumstances, a
key performance indicator. Although nominally the ratio was 41.7%
for the year, a further improvement on 2019, it is not considered
meaningful in the context of irregular sales and the operation of
the flexible operation of the CJRS. Whilst the costs were
controlled, the ratio is not meaningful in comparison to 2019.
Franchise estate
Revenue from our franchise estate fell 46% to GBP577k. We were
able to reduce the costs directly associated with managing our
franchise estate such that adjusted EBITDA from our franchise
estate fell only 18% to GBP297k from GBP361k in 2019. Following the
acquisition in the year and some further rationalisation of our
franchise estate, t he number of active franchisees at the end of
the year was 35 which compares to 40 at the end of 2019. Since the
year end, a further two sites have been acquired and will form part
or our owner-operated estate, and there have been further
rationalisations driven by the pandemic. The number of active
franchisees at the date of this report is 29.
Central overheads
In March 2020, the Company took immediate action to reduce
overheads and defer capital expenditure to preserve cash as the UK
went into its first national lockdown. We were able to maintain
many of the cost savings implemented during the first lockdown such
that the centrally incurred overhead costs, including costs
allocated to the owner-operated and franchise segments, reduced to
GBP2.8m from GBP3.9m in 2019. Whilst we expect to retain some of
the benefit of the cost savings on an ongoing basis, the savings
include GBP56k from CJRS grants which will not continue once the
scheme ends and other costs will also return as business activity
normalises.
Cashflow and capital expenditure
Cash and cash equivalents at the year-end was GBP2.7m (2019:
GBP2.2m).
In July 2020, the Company raised GBP4.0m (net of expenses)
through a placing, open offer, share subscription and convertible
loan note issue. Hence, total cash used during the year was
GBP3.5m. EBITDA losses absorbed approximately GBP1.5m whilst
working capital movements released GBP0.6m. We expect this to
reduce in future as the benefit of deferred rent and taxes is
caught up. Hence the net cash used in operations was restricted to
GBP0.9m.
The total deferred rentals and HMRC payments at the year end
which are expected to be caught up in the course of 2021 was
GBP299k.
GBP2.0m was utilised for capital investment, of which GBP1.8m
was on property plant and equipment, including new games and site
fit out, and GBP0.2m on intangibles, much of it capitalised staff
costs. The majority of this expenditure was for the new sites at
Norwich, Basingstoke, Cheltenham and Watford, but also including
the production of the new Doctor Who game, "A Dalek Awakens"
launched in Reading and Birmingham Resorts World in March 2020.
The balance (GBP0.5m) was property rental which under IFRS 16 s
accounted for as repayment of finance leases and interest, together
with other sundry items.
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.
Key Performance Indicators
The Directors and management have identified the following key
performance indicators ('KPIs') that the Company tracks. These will
be refined and augmented as the Group's business matures :
-- Numbers of owner-operated sites
-- Numbers of franchised sites
-- Site level revenue and like-for-like growth
-- Site level EBITDA
-- Adjusted EBITDA for the Group
-- Head office costs
The Company monitors performance of the owner operated sites on
a weekly basis. Investment is being made into data management
solutions which will provide faster and easier access to management
information across sites. 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 Group changed its approach in 2018 to issuing new franchises
to focus on its Master Franchisees as well as larger, well
capitalised businesses which can open large numbers of owner
operated branches. The agreement signed with PCH in the US in
September 2019 is the first agreement signed since this new
approach. Since then, the Group has bought the master franchises in
the Middle East, France and Belgium in-house. The acquisitions have
brought these regions closer to the business' core, giving greater
control over the future strategic direction. In each of these
cases, the core management teams have been retained and provide
monthly performance updates to the Group senior leadership
team.
The key weekly KPIs by which the UK and owner-operated business
is operated are the site revenue, marketing spend and staff costs
and consequent ratio of staff costs to revenue. Total revenue is
tracked against budget, adjusted for seasonality, number of rooms
open and the stage in the site's maturity cycle. Staff costs are
measured against target percentages of revenue. The effectiveness
of marketing is assessed by observing revenue conversion rates and
the impact on web traffic, bookings and revenue from specific
marketing campaigns. With effect from January 2021, management of
digital marketing will be brought in-house with the requisite
skills being developed within the team.
The Company's systems track performance on both a weekly and a
monthly basis. These statistics provide an early and reliable
indicator of current performance. The 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
17 May 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF ESCAPE HUNT PLC
Opinion
We have audited the financial statements of Escape Hunt PLC (the
"Parent Company") and its subsidiaries (the "Group") for the year
ended 31 December 2020, which comprise the:
-- Consolidated statement of comprehensive income;
-- Consolidated and Parent Company statement of financial position;
-- Consolidated and Parent Company statement of changes in equity;
-- Consolidated statement of Cash Flows;
-- the notes to the Consolidated and Parent Company financial
statements, including a summary of significant accounting
policies;
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. 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, including 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 2020 and of the Group's loss for the period then
ended;
-- the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
-- the Parent Company financial statements have been properly
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
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, 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.
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.
We obtained management's assessment of the impact of Covid-19 to
the business of the Group and the forecast financial
projections.
Management prepared three main scenarios for the future business
following the planned re-opening of sites in the UK. As part of
their assessment, the following scenarios were presented:
-- a central case where sales levels recover by the end of
August 2021, where there is no impact on the capacity or occupancy
levels, no further lockdowns or major restrictions and the UK site
roll-out continues in accordance with plans previously
announced;
-- a central conservative case where the scenario assumes no
debt facility, no further opening of sites in 2021 other than those
already contracted, the remaining assumptions remain the same as
the central case presented above;
-- a downside where franchise revenues take longer to return to
pre-lockdown levels, planned UK site expansion is reduced, US
Franchise expansion is delayed, sites in the UK do not reopen until
mid-June, sales in the UK do not recover until the end of October
2021 and there is a permanent 5% reduction in capacity enforced on
the business until the end of 2023.
In all scenarios the group has surplus working capital following
the share issue in the year to meet its working capital
requirements for the foreseeable future.
We performed audit procedures, including challenge regarding
reasonableness on the inputs into the model as follows:
-- reviewed the revised forecast revenues and resulting cash
flows within the assessment period;
-- compared the forecast to available management information for the business post year end;
-- considered the overall impact on the forecast of those parts
of the business, such as franchises, were these are likely to be
significantly impacted by slower vaccination rollouts and the
restart of business due to health and safety requirements enforced
on the business;
-- considered the timing and financial impact of reduced support
mechanisms instigated by government, including the Coronavirus Job
Retention Scheme and business rates relief; and
-- reviewed and challenged the financial impact of the steps
taken by the directors to protect and manage the business during
the coming period, including the expected initial reduction across
the business following re-opening, reduced government support and
the impact of delay to planned capital investment projects.
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 availability in the
downside model used by management.
We tested to ensure the mathematical accuracy of the model
presented.
We reviewed the appropriateness of the disclosures made and its
consistency with our knowledge of the business as well as the
impact of Covid-19 on the business as part of management's
assessment.
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 and the 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.
Overview of our audit approach
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
GBP115,000 (2019: GBP100,000), based on approximately 5% (2019: 5%)
of EBITDA. As the group is in an early stage of trading this is
used as a key figure of investors to demonstrate the underlying
trading performance.
We use a different level of materiality ('performance
materiality') to determine the extent of our testing for the audit
of the financial statements. Performance materiality is set based
on the audit materiality as adjusted for the judgements made as to
the entity risk and our evaluation of the specific risk of each
audit area having regard to the internal control environment.
Where considered appropriate performance materiality may be
reduced to a lower level, such as, for related party transactions
and directors' remuneration.
We agreed with the Audit Committee to report to it all
identified errors in excess of GBP5,500 (2019: GBP2,500). Errors
below that threshold would also be reported to it if, in our
opinion as auditor, disclosure was required on qualitative
grounds.
Parent Company materiality was assessed as GBP55,000 based on
approximately 5% of its EBITDA.
Overview of the scope of our audit
There are seven components of the Group located and operating in
the United Kingdom, the audits of Escape Hunt PLC and its UK
subsidiary undertakings were conducted from the UK by the
engagement team. Financial information from other components not
considered to be individually significant individually was subject
to limited review procedures carried out by the audit 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) that we identified. These matters included 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.
We identified going concern as a key audit matter and have
detailed our response in the conclusions relating to going concern
section above.
This is not a complete list of all risks identified by our
audit.
Key audit matter How the scope of our audit addressed
the key audit matter
Revenue recognition Our audit procedures included the
Note 4 of the Group financial statements following:
The group has various streams of revenue. We carried out procedures to test
The main source of revenue relates each different revenue stream and
to game revenue where revenue is recognised to consider whether the revenue recognition
at the point of sale. Other streams policy applied to the revenue stream
such as franchise income where there was appropriate, having regard to
is an ongoing contractual term and the contractual terms and obligations.
obligation and recognised over the We agreed the performance obligations
contractual term as the obligations identified by management to a sample
are satisfied. Errors in revenue recognition of contracts to ensure the adopted
could materially influence, the view accounting policy was appropriate.
of a user of the financial statements. For a sample of transactions, we obtained
contracts with the franchisee and
As a key reporting metric, revenue reviewed their terms and conditions.
is also subject to the risk of fraudulent Based on this understanding, we considered
misrepresentation to achieve a certain if the underlying income was recognised
accounting presentation. in accordance with the stated accounting
policy and IFRS 15.
During the year, to gain assurance
of completeness of income recognised.
Members of the audit team played two
games remotely putting transactions
into the system which we followed
up during our testing.
-------------------------------------------------------------
Impairment of intangible assets (including We obtained management's assessment
goodwill) of impairment and discussed the key
Note 12 of the Group financial statements inputs into the assessment with management.
The Group's intangible assets comprise We performed audit procedures, including
of intellectual property, trademarks, challenge regarding reasonableness
franchise agreements, goodwill and on the inputs into the model as follows:
the portal. * the forecast cash flows within the assessment period;
The total carrying value of the intangible
assets was GBP0.9m at 31 December
2020 (31 December 2019: GBP2.9m). * the expected growth rate; and
The continued losses and the impact
of Covid-19 indicate there could be
an impairment in the carrying value * the discount rate applied to the forecast.
of the intangible assets and as such
we considered this to be a key audit
matter. We reviewed management's assessment
to ensure that expected reductions
in trading levels for the continued
Covid-19 restrictions have been taken
account.
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; and
We reviewed the appropriateness of
the disclosure made and its consistency
with our knowledge of the impairment
assessment.
-------------------------------------------------------------
Our audit procedures in relation to these matters were designed
in the context of our audit opinion as a whole. They were not
designed to enable us to express an opinion on these matters
individually and we express no such opinion.
Other information
The directors are responsible for the other information
contained within the annual report. The other information comprises
the information included in the annual report, other than the
financial statements and our auditor's report thereon. 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 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.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our
audit
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and directors' report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and the
Parent Company and their 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
where 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 the directors for the financial
statements
As explained more fully in the directors' responsibilities
statement set out on page 37 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 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:
We gained an understanding of the legal and regulatory framework
applicable to the Company and Industry in which the company
operates, and considered the risk of acts by the Company which were
contrary to applicable laws and regulations, including fraud. These
included but were not limited to compliance with Companies Act
2006, Listing rules and Tax legislation.
Our procedures involved enquiries with management, review of the
reporting to the directors with respect to compliance with laws and
regulation, review of board meeting minutes and review of legal
correspondence.
We focused on laws and regulations that could give rise to a
material misstatement in the Company financial statements. Our
tested included by were not limited to:
-- agreement of the financial statement disclosures to underlying supporting documentation;
-- enquiries of management;
-- testing of journal postings made during the year to identify
potential management override of controls;
-- review of minutes of board meetings throughout the period; and
-- obtaining an understanding of the control environment in
monitoring compliance with laws and regulations.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Matthew Stallabrass (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London
17 May 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended 31 December 2020
All figures in GBP'000s Year ended Year ended
31 December 31 December
Continuing operations Note 2020 2019
Revenue 4 2,658 4,915
Cost of sales 6 (778) (1,279)
Gross profit 1,880 3,636
Other income 34 394 -
Administrative expenses 6 (8,641) (9,568)
Operating loss 6 (6,367) (5,932)
Adjusted EBITDA (1,445) (1,707)
Amortisation of intangibles 12 (2,299) (2,124)
Rent concessions recognised in the
year 11 22 -
Depreciation of property plant and
equipment 10 (1,819) (1,733)
Depreciation of right-of-use assets 11 (380) (347)
Loss on disposal of tangible assets 10 (23) -
Loss on disposal of intangible assets 12 (7) -
Branch closure costs (52) -
Provision against loan to franchisee 15 (300) -
Costs arising from subsidiary liquidation (35) (7)
Foreign currency gains / (losses) - (1)
Share-based payment expense 25 (29) (12)
----------- -----------
Operating loss (6,367) (5,932)
------------------------------------------ ---- ----------- -----------
Gain on disposal of subsidiary 13 - 30
Interest (charged)/received (17) 33
Lease finance charges 20 (180) (171)
Loss before taxation (6,564) (6,040)
Taxation 8 (15) (4)
Loss after taxation (6,579) (6,044)
Other comprehensive income:
Items that may or will be reclassified
to profit or loss:
Exchange differences on translation
of foreign operations (62) (30)
Total comprehensive loss (6,641) (6,074)
Loss attributable to:
Equity holders of Escape Hunt plc (6,579) (5,993)
Non-controlling interests - (51)
----------- -----------
(6,579) (6,044)
Total comprehensive loss attributable
to:
Equity holders of Escape Hunt plc (6,641) (6,023)
Non-controlling interests - (51)
----------- -----------
(6,641) (6,074)
----------- -----------
Loss per share attributable to equity
holders:
Basic and diluted (Pence) 9 (12.36) (24.78)
----------- -----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
As at As at
31 December 31 December
Note 2020 2019
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 10 3,885 3,935
Right-of-use assets 11 2,940 2,470
Intangible assets 12 913 2,906
Rent deposits 26 26
Loan to franchisee 15 2 300
7,766 9,637
Current assets
Inventories 17 16 12
Trade receivables 16 182 370
Other receivables and prepayments 16 691 473
Cash and cash equivalents 18 2,722 2,171
3,611 3,026
TOTAL ASSETS 11,377 12,663
LIABILITIES
Current liabilities
Trade payables 19 606 317
Contract liabilities 21 441 360
Lease liabilities 20 489 304
Other payables and accruals 19 815 948
2,351 1,929
Consolidated Statement of Financial Position
As at 31 December 2020 (continued)
As at As at
31 December 31 December
2020 2019
Note GBP'000 GBP'000
Non-current liabilities
Contract liabilities 21 152 262
Provisions 22 128 74
Convertible loan notes 25 289 -
Lease liabilities 20 3,253 2,298
3,822 2,634
TOTAL LIABILITIES 6,173 4,563
NET ASSETS 5,204 8,100
EQUITY
Capital and reserves attributable to
equity holders of Escape Hunt Plc
1,005 336
Share capital 23 27,758 24,717
Share premium account 28 24,717
Merger relief reserve 28 4,756 4,756
Convertible loan note reserve 25 68 -
Accumulated losses 28 (28,444) (21,803)
Currency translation reserve 28 (81) (19)
Capital redemption reserve 28 46 46
Share-based payment reserve 28 96 67
5,204 8,100
Non-controlling interests - -
TOTAL EQUITY 5,204 8,100
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Attributable to owners of the parent
Convertible
Year ended Share Merger Currency Capital Share-based loan
31 Dec Share premium relief translation redemption payment note Accumulated Non-controlling
2020 capital account reserve reserve reserve reserve reserve losses Total interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Balance
as at
1 Jan
2020 336 24,717 4,756 (19) 46 67 - (21,803) 8,100 - 8,100
Loss for
the year - - - - - - - (6,641) (6,641) - (6,641)
Other
comprehensive
income - - - (62) - - - - (62) - (62)
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Total
comprehensive
loss - - - (62) - - - (6,641) (6,703) - (6,703)
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Issue
of shares 669 3,342 - - - - - - 4,011 - 4,011
Issue
of
convertible
loan notes - - - - - - 68 - 68 68
Share
issue
costs - (301) - - - - - - (301) - (301)
Share-based
Payment
Charges - - - - - 29 - 29 - 29
Disposal
of subsidiary - - - - - - - - - - -
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Transactions
with owners 669 3,041 - - - 29 68 - 3,807 - 3,807
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Balance
as at
31 Dec
2020 1,005 27,758 4,756 (81) 46 96 68 (28,444) 5,204 - 5,204
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Year ended
31 Dec
2019:
Adjusted
balance
as at
1 Jan
2019 253 21,076 4,756 11 46 55 - (15,810) 10,387 (8) 10,379
Loss for
the year - - - - - - - (5,993) (5,993) (51) (6,044)
Other
comprehensive
income - - - (30) - - - - (30) - (30)
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Total
comprehensive
loss - - - (30) - - - (5,993) (6,023) (51) (6,074)
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Issue
of shares 83 3,917 - - - - - - 4,000 - 4,000
Share
issue
costs - (276) - - - - - - (276) - (276)
Share-based
payment
charges - - - - - 12 - - 12 - 12
Disposal
of subsidiary - - - - - - - - - 59 59
------------ ------------
Transactions
with owners 83 3,641 - - - 12 - - 3,736 59 3,795
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
Balance
as at
31 Dec
2019 336 24,717 4,756 (19) 46 67 - (21,803) 8,100 - 8,100
-------- -------- -------- ------------ ----------- ------------ ------------ ------------ -------- ---------------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
Loss before income tax (6,564) (6,040)
Adjustments:
Depreciation of property, plant and
equipment 1,819 1,733
Depreciation of right-of-use assets 380 347
Amortisation of intangible assets 2,299 2,124
Gain on disposal of subsidiary - (30)
Provision against non-current assets 300 -
Loss on disposal of plant and equipment 23 -
Loss on write off of intangibles 7 -
Share-based payment expense 29 12
Lease interest charge 180 171
Rent concessions received (22) -
Interest charge / (income) 17 (33)
Operating cash flow before working
capital changes (1,532) (1,716)
Decrease / (Increase) in trade and
other receivables (30) (224)
Decrease / (increase) in inventories (3) 3
Increase in provisions 54 34
Increase / (decrease) in trade and
other payables 296 (287)
Increase / (decrease) in deferred
income (30) (41)
Cash used in operations (1,245) (2,231)
Income taxes paid (12) (23)
Net cash used in operating activities (1,257) (2,254)
Cash flows from investing activities
Purchase of property, plant and equipment (1,809) (1,308)
Purchase of intangibles (237) (266)
Receipt / (payment) of deposits - 10
Loan made to master franchisee (2) -
Acquisition of subsidiary, net of
cash acquired 35 -
Cash less overdrafts on disposal of
subsidiary - 29
Interest (charged) / received (17) 33
Net cash used in investing activities (2,030) (1,502)
Cash flows from financing activities
Proceeds from issue of ordinary shares 3,976 4,000
Proceeds from issue of convertible
loan note 340 -
Share issue costs (301) (276)
Lease interest charge payment (180) (171)
Repayment of leases (-1) (284)
Net cash from financing activities 3,834 3,269
Net increase / ( decrease) in cash
and cash equivalents 547 (487)
Cash and cash equivalents at beginning
of year 2,171 2,657
Effects of exchange rate changes on
the balance of cash held in foreign
currencies 4 1
Cash and cash equivalents at end of
year 2,722 2,171
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 owner operated business which
operates through a UK subsidiary. All of the franchise activity has
subsequently been transferred to a UK subsidiary. Escape Hunt Group
is now a global provider of live 'escape the room' experiences
through a network of franchised, licensed and owner-operated
branches and offsite "escape the room" type games
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 International Financial Reporting Standards as
adopted by the EU ("Adopted IFRSs").
The audited financial statements are presented in Pounds
Sterling, which is the presentational currency for the financial
statements. All values are rounded to the nearest thousand pounds
except where otherwise indicated. They have been prepared under the
historical cost convention, except for financial instruments that
have been measured at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Company's accounting policies.
Changes in accounting policy
a) New standards, interpretations and amendments effective from 1 January 2020
New standards impacting the Group adopted in the annual
financial statements for the year ended 31 December 2020, and which
have given rise to changes in the Group's accounting policies
are:
-- IFRS 3 Business Combination (Amendment - Definition of a Business)
-- COVID-19-Related Rent Concessions (Amendments to IFRS 16)
Effective 1 June 2020, IFRS 16 was amended to provide a
practical expedient for lessees accounting for rent concessions
that arise as a direct consequence of the COVID-19 pandemic and
satisfy the following criteria:
(a) The change in lease payments results in revised
consideration for the lease that is substantially the same as, or
less than, the consideration for the lease immediately preceding
the change;
(b) The reduction is lease payments affects only payments
originally due on or before 30 June 2021; and
(c) There are is no substantive change to other terms and
conditions of the lease.
Rent concessions that satisfy these criteria may be accounted
for in accordance with the practical expedient, which means the
lessee does not assess whether the rent concession meets the
definition of a lease modification. Lessees apply other
requirements in IFRS 16 in accounting for the concession.
The Group has elected to utilise the practical expedient for all
rent concessions that meet the criteria. The practical expedient
has been applied retrospectively, meaning it has been applied to
all rent concessions that satisfy the criteria, which in the case
of the Group, occurred from March 2020 to June 2020 and again in
November 2020.
Accounting for the rent concessions as lease modifications would
have resulted in the Group remeasuring the lease liability to
reflect the revised consideration using a revised discount rate,
with the effect of the change in the lease liability recorded
against the right-of-use asset. By applying the practical
expedient, the Group is not required to determine a revised
discount rate and the effect of the change in the lease liability
is reflected in profit or loss in the period in which the event or
condition that triggers the rent concession occurs.
The effect of applying the practical expedient is disclosed in
note 11.
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 recognised 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
recognised directly in the statement of comprehensive income.
Acquisition-related costs are expensed as incurred.
Intra-group transactions, balances and unrealised 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 forecasts take into
account the impact of COVID-19 on the business during the period
between 1 January 2021 and 17 May 2021 when all the Group's UK
owner-operated sites are expected to be closed based on UK
Government enforced temporary closures. During the same period,
many of the Group's franchisee operators likewise have been and are
expected to remain closed and have generally not been able to pay
regular service fees. The Group has agreed to grant payment
holidays for fixed fees during periods of closure. In addition,
various payments have been and, in some cases, continue to be
deferred during the current and earlier lockdown periods, including
employment tax and national insurance payments and, in the case of
certain sites, rent payments. In a number of cases the Group has
reached agreement with landlords to reduce the rent payable during
some or all of the period since Covid first impacted in March 2020,
however all other deferred payments will need to be caught up. Work
continues at a number of new sites and there are other capital
expenditure initiatives under consideration. It is also possible
that there will be a need for additional expenditure to ensure that
existing sites are able to re-open in accordance with guidelines in
May. These factors have all been taken into account in the
forecasts.
On 28 January 2021, the Group completed a fund-raising process
which resulted in the receipt of GBP1.4 million (before expenses)
raised through the issue of new shares by means of a placing.
Approximately GBP350k of the funds were raised to fund the
acquisition of the French and Belgian master franchise with the
balance being available to support the working capital needs of the
Group.
In addition, since the year end, the Company has entered into a
convertible loan note facility with one of the directors, through
which the Company has access to a further GBP1m in funding. The
Company is able to draw down the funds as required. Details of the
convertible loan note facility are given in note 35. This facility
has been entered into to enable the Company to continue to invest
in new sites notwithstanding the continued uncertainty brought
about by the COVID-19 lockdown rules.
Taking into account the receipt of both the new equity funding
and the convertible loan note facility the Group has considered a
number of potential scenarios for a recovery of trading once the
sites have been permitted to reopen. The Group plans to continue
the roll out new sites in the UK which are expected to contribute
to performance in future.
The central case is based on the re-opening of UK and franchise
sites in mid May 2021 with volumes initially substantially below
the levels achieved prior to entering lockdown. The model assumes
that it takes thirteen weeks for trading to normalise post
COVID-19. Resumption of activity at franchise sites is expected
broadly to mirror that of the UK. During this time the Group
expects to continue its roll out of new sites and plans to open its
recently completed site in Watford, and to complete and open sites
in Kingston and Lakeside, both of which are currently in build. The
forecasts assume a further three sites are built before the end of
2021. With these sites completed, and taking into account the
acquisitions in Dubai, France and Belgium, the Company will have 21
owner-operated sites, exceeding its objective of 20 UK
owner-operated sites within two years of the July 2020 fund
raising. In the central case the Group does not need to utilise the
convertible loan facility and believes it has sufficient resources
for its present needs.
The Group has also considered a 'downside' scenario. In this
scenario the Group has assessed the potential impact of a further
delay of four weeks before sites re-open with re-openings delayed
until 14 June 2021. The pace of recovery is assumed to be much
slower, with trading taking 26 weeks to resume to 'normal' levels.
The scenario also considers a delay in progress in the US. In this
scenario, the Group believes it can take mitigating actions to
preserve cash. Principally the roll-out of further sites beyond the
two already in build would be stopped and cost saving measures
would be introduced at head office. The Group has already made
significant reductions in its head office property costs, and
further cost reductions could be targeted in both people and areas
such as IT, professional services and marketing. Other areas of
planned capital expenditure would also be curtailed. These include
planned expenditure on website and system improvements. Taking into
account the mitigating factors, the Group believes it would have
sufficient resources for its present needs, with or without access
to the convertible loan note facility.
Based on the above, the Directors consider there are reasonable
grounds to believe that the Group will be able to pay its debts as
and when they become due and payable, as well as to fund the
Group's future operating expenses. The going concern basis
preparation is therefore considered to be appropriate in preparing
these financial statements.
Merger relief
The issue of shares by the Company is accounted for at the fair
value of the consideration received. Any excess over the nominal
value of the shares issued is credited to the share premium account
other than in a business combination where the consideration for
shares in another company includes the issue of shares, and on
completion of the transaction, the Company has secured at least a
90% equity holding in the other company. In such circumstances the
credit is applied to the merger relief reserve.
Foreign currency transactions and translation
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency are recorded at the rate of exchange prevailing
on the date of the transaction.
The functional currency of the Company's formerly active
subsidiaries based overseas, namely Escape Hunt Operations Limited
and E V Development Co. Limited are the US Dollar and Thai Baht
respectively. Likewise, the functional currency of the Company's
subsidiary Escape Hunt USA Franchises Limited, which is intended to
operate franchises in North America, is the US Dollar. 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 fittings 5 years
Leasehold property 5 years
Computer hardware 3 years
Escape 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
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. 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
supporting materials and provides management, creative, technical
and marketing services based on its knowledge of and expertise in
Escape Hunt to enable delivery of a proprietary 'escape the room'
game experience.
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 both "upfront exclusivity fees" from the sale
of franchises and subsequent "Service Revenues" in the form of
revenue shares, administration fees, game design 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 design for each game 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 20 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.
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 monthly;
-- Fixed monthly fees payable quarterly in advance in respect of
location-specific game design fees for an agreed number of game
themes (with additional game themes charged separately) and
franchisee location support fees; and
-- Extra costs in respect of site visits and website set-up fees.
Revenue shares, support and administration and game design fees
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 escape the
room type games 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
escape the room experience.
Deferred revenue
The amounts of deferred revenue at each reporting date are
disclosed in Note 20.
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 6.2%. The Group currently
has no borrowings and consequently there is no available interest
rate to use as the basis for this calculation. However, as a small
company which has been loss-making, a calculation has been
performed to include an appropriate level of risk to the risk-free
rate of borrowing.
Variable lease payments are only included in the measurement of
the lease liability if they depend on an index or rate. In such
cases, the initial measurement of the lease liability assumes the
variable element will remain unchanged throughout the lease term.
Other variable lease payments are expensed in the period to which
they relate.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value guarantee;
-- the exercise price of any purchase option granted in favour
of the Group if it is reasonably certain to assess that option;
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised .
Right of use assets are initially measured at the amount of the
lease liability, reduced for any lease incentives received, and
increased for:
-- lease payments made at or before commencement of the lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the Group is
contractually required to dismantle, remove or restore the leased
asset (typically leasehold dilapidations - see Note 21).
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset
if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted at the discount
rate appropriate at the time of revision. The carrying value of
lease liabilities is similarly revised when the variable element of
future lease payments dependent on a rate or index is revised. In
both cases an equivalent adjustment is made to the carrying value
of the right-of-use asset, with the revised carrying amount being
amortised over the remaining (revised) lease term.
Nature of leasing activities (in the capacity as lessee)
During the financial year, the Group leased its head office and
a number of its owner-operated escape room branches. The Group also
leases certain items of plant and equipment, but these are not
significant to the activities of the Group .
Financing income and expenses
Financing expenses comprise interest payable, finance charges on
shares classified as liabilities and finance leases recognised in
profit or loss using the effective interest method, unwinding of
the discount on provisions, and net foreign exchange losses that
are recognised in the income statement (see foreign currency
accounting policy). Borrowing costs that are directly attributable
to the acquisition, construction or production of an asset that
takes a substantial time to be prepared for use, are capitalised as
part of the cost of that asset. Financing income comprise interest
receivable on funds invested, dividend income, and net foreign
exchange gains.
Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method. Dividend
income is recognised in the income statement on the date the
entity's right to receive payments is established. Foreign currency
gains and losses are reported on a net basis.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
Share-based payment arrangements
Equity-settled share-based payments to employees are measured at
the fair value of the equity instruments at the grant date.
Equity-settled share based payments to non-employees are measured
at the fair value of services received, or if this cannot be
measured, at the fair value of the equity instruments granted at
the date that the Group obtains the goods or counterparty renders
the service. Details regarding the determination of the fair value
of equity-settled share-based transactions are set out in Notes 23
and 24 to the consolidated financial statements.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group's estimate of
equity instruments that will eventually vest, with a corresponding
increase in equity. Where the conditions are non-vesting, the
expense and equity reserve arising from share-based payment
transactions is recognised in full immediately on grant.
At the end of each reporting period, the Group revises its
estimate of the number of equity instruments expected to vest. The
impact of the revision of the original estimates, if any, is
recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to
other reserves.
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.
Inventories
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.
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.
Dilapidation provisions
Provisions for dilapidations are recognised on a lease by lease
basis over the period of time landlord assets are being used and
are based on the Group's best estimate of the likely committed cash
outflow.
Contingent 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.
Share capital
Proceeds from issuance of ordinary shares are classified as
equity. Incremental costs directly attributable to the issuance of
new ordinary shares or options are shown in equity as a deduction
from the proceeds.
3. Critical accounting estimates and judgements
In the application of the Company's accounting policies, which
are described in Note 2 above, the Directors are required to make
judgements and estimates about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors, including expectations of future
events that may have a financial impact on the entity and that are
believed to be reasonable under the circumstances. Actual results
may differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period.
The key estimates and underlying assumptions concerning the
future and other key sources of estimation uncertainty at the
statement of financial position date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial period are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future periods. 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 GBP16m, as the
uncertainties mean it is not yet considered probable that
sufficient future taxable profit will be available against which
the unused tax losses and unused tax credits can be utilised. 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. Management have reflected the risk relevant to the
recognition of deferred tax assets by looking at forecasts where a
reliable estimate of taxable profits can be made.
Additionally, the owner-operated segment is in its early stages
of development, pro-longed by the onset of COVID-19, and the
Directors envisage that there will be an extended period (and thus
increasing uncertainty as time progresses) before it expects to
recoup net operating losses. The analysis indicates that the unused
losses may not be used in the foreseeable future as the Group does
not yet have a history of taxable profits nor sufficiently
convincing evidence that such profits will arise within the
foreseeable future.
Recognition of R&D credits and other government grants
Research and development credits and other government grants are
recognised as an asset when it has become probable that the grant
will be received.
Companies within the Group have made applications for grants
relating to research and development and, more recently, in respect
of support related to the COVID-19 pandemic.
In relation to research and development grants, claims have been
made relating to activity undertaken in 2017 and 2018. A further
claim relating to activity in 2019 is possible but has not yet been
made. The total claims in respect of 2017 and 2018 amount to
GBP1.52m spread across a number of subsidiaries. Claims amounting
to GBP73k have been received in cash and a further GBP186k claims
have been credited to the respective subsidiary tax accounts, but
not yet paid. These have all been recognised. The remaining claims
of GBP1.26m are still being reviewed by HMRC and are thus pending.
Recognition of these claims involves a judgement by management.
Given the ongoing review of the claims and length of time that has
elapsed since the first claim was lodged in December 2018,
Management does not yet consider it sufficiently probable that the
remaining claims will be paid and, as such, these claims have not
been recognised as an asset.
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.
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:
Occupancy rates
If the occupancy rate achieved is 1% lower in each site within
the UK owned and operated estate than as set out int the strategic
plan, this would lead to reduction in the net present value of
intellectual property of GBP0.6m (2019: GBP0.6m) but would not
result in the need for an impairment charge.
Discount rate
A 100 basis point increase in the discount rate reduces the net
present value of intellectual property across the group by GBP1.3m
(2019: GBP1.1m) but would not result in the need for an impairment
charge.
EBITDA growth
If EBITDA was on average GBP100,000 lower in each year, the net
present value of intellectual property across the group would fall
by GBP0.9m (2019: GBP0.8m) but would not result in the need for an
impairment charge.
Long-term perpetuity growth rates
The terminal rate used for the fair value calculation 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 GBP1.2m (2019: GBP0.7m) 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 GBP0.4m (2019:
GBP0.5m) 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 GBP203k (year ended 31 December 2019:
GBP1.0m).
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 34.2% (2019: 31.1%) 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 GBP1.02m
(year ended 31 December 2019: GBP1.3m).
Estimation of the debt and equity components of Convertible Loan
notes
Debt securities which carry an option to convert into equity
accounted for as a debt component and an equity component.
Management are required to estimate the split by valuing the
underlying debt with reference to a similar debt instrument which
has no conversion rights and / or by reference to the value of the
option inherent in the conversion right. These calculations involve
the estimate of a number of key components such as appropriate
interest rates, the expected volatility of the company's share
price, the company's future dividend policy, and the likelihood and
future date of conversion. On 2 July 2020, the company issued
GBP340,000 convertible loan notes repayable on 3 July 2025 if not
previously converted or redeemed. Management have estimated that
GBP272,251 of the principal related to the debt component and
GBP67,749 related to the equity component.
Estimation of share base payment charges
The calculation of the annual charge in relation to share based
payments requires management to estimate the fair value of the
share-based payment on the date of the award. The estimates are
complex and take into account a number of factors including the
vesting conditions, the period of time over which the awards are
recognized, the exercise price of options which are the subject of
the award, the expected future volatility of the company's share
price, interest rates, the expected return on the shares, and the
likely future date of exercise. A new executive scheme was
established during the year ended 31 December 2020 and awards were
made under the scheme, 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. The charge
recognised in period was GBP23,477.
4. Revenue
Year Year
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
New branch upfront location exclusivity
fees 122 138
Support and administration fees 146 221
Franchise revenue share 309 717
Game revenues from owned branches 2,070 3,832
Other 11 7
2,658 4,915
------------ ------------
Revenues from contracts with customers:
Year Year
ended Ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Revenue from contracts with
franchise customers 577 1,076
Revenue from customers at owner
operated branches 2,081 3,839
Total revenue from contracts with customers 2,658 4,915
------------ ------------
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 GBP2.08m (2019: GBP3.83m) 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 two operating segments.
Revenues are reviewed based on the nature of the services provided
as follows:
1. The franchise business, where all franchised branches are
operating under effectively the same model; and
2. The owner-operated branch business, which as at 31 December
2020 consisted of 13 sites in the UK and one in Dubai.
The Group operates on a global basis. As at 31 December 2020,
the Company had active franchisees in 17 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.
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.
Owner Franchise Unallocated Total
operated operated
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000
2020
Revenue 2,081 577 - 2,658
Cost of sales (740) (38) - (778)
--------- --------- ----------- -------
Gross profit/(loss) 1,341 539 - 1,880
Site level operating
costs (1,030) - - (1,030)
Other income 135 - - 135
Site level EBITDA 446 539 - 985
Centrally incurred overheads (69) (242) (2,379) (2,690)
Other income 186 - 73 259
EBITDA 563 297 (2,306) (1,445)
Interest charges - - (17) (17)
Lease charges (168) - (12) (180)
Depreciation and amortisation (1,817) (19) (2,282) (4,118)
Depreciation - right-of-use
assets (310) - (70) (380)
Share-based payment
expenses - - (29) (29)
Loss of disposal of
assets (30) - - (30)
Exceptional Professional
& Branch Closure Costs (52) (29) (6) (87)
Rent credits recognised 22 - - 22
Provision against loan
to franchisee - - (300) (300)
Profit/(loss) before
tax (1,792) 249 (5,022) (6,564)
Taxation - (15) - (15)
--------- --------- ----------- -------
Profit/(loss) after
tax (1,792) 234 (5,022) (6,579)
--------- --------- ----------- -------
Other information :
Non-current assets 6,588 42 1,136 7,766
--------- --------- ----------- -------
Owner Franchise Unallocated Total
operated operated
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000
2019
Revenue 3,837 1,078 - 4,915
Cost of sales (1,275) - (4) (1,279)
--------- --------- ----------- -------
Gross profit/(loss) 2,562 1,078 (4) 3,636
Site level operating
costs (1,586) - - (1,586)
Site level EBITDA 976 1,078 (4) 2,050
Centrally incurred overheads (99) (717) (2,941) (3,757)
EBITDA 877 361 (2,945) (1,707)
Interest income - - 32 32
Finance lease charges (155) - (16) (171)
Depreciation and amortisation (1,702) (18) (2,137) (3,857)
Depreciation - right-of-use
assets (278) - (69) (347)
Foreign currency gains - - (1) (1)
Share-based payment
expenses - - (12) (12)
Exceptional Professional
Costs - (7) - (7)
Gain on disposal of
subsidiary - - 30 30
Profit/(loss) before
tax (1,258) 336 (5,118) (6,040)
Taxation - - (4) (4)
--------- --------- ----------- -------
Profit/(loss) after
tax (1,258) 336 (5,122) (6,044)
--------- --------- ----------- -------
Other information :
Non-current assets 8,780 857 - 9,637
--------- --------- ----------- -------
In 2020, the company has made a provision against the full
amount of a loan made to a franchisee in 2018 as a result of the
impact of COVID-19. The loan was made to provide funding for the
fit-out of sites in the Nordic region, has previously been held as
a non-current asset, and is not related to trading activity. The
company does not have a policy of lending money to franchisees and
for this reason the provision is separately disclosed.
Significant customers:
No customer provided more than 10% of total revenue in either
the year ended 31 December 2020 or 2019.
6. Operating loss before taxation
Loss from operations has been arrived at after charging /
(crediting):
Year Year
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Auditor's remuneration:
* Audit of the financial statements 33 33
* Review of interim financial statements 2 3
Impairment of trade receivables 101 117
Exceptional impairment of loan 300 -
to franchisee
Foreign exchange losses / (gains) (21) (7)
Staff costs including directors,
net of amounts capitalized 2,656 3,764
Depreciation of property, plant
and equipment (Note 10) 1,819 1,733
Depreciation of right-of-use
assets (Note 11) 395 347
Amortisation of intangible
assets (Note 12) 2,299 2,124
Impairment of intangible assets - -
(Note 11)
Share-based payment costs (non-employees) 29 12
Detailed information on statement of profit or loss items:
Cost of sales Year Year
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Wages and salaries 608 1,068
Food and beverages 10 44
Other costs of sale 160 167
778 1,279
------------ ------------
Administrative expenses Year Year
ended ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Depreciation of property, plant
and equipment 1,819 1,732
Depreciation of right-of-use
assets 395 347
Amortisation 2,299 2,123
Write-off of assets 30 -
Staff costs including directors,
net of amounts capitalized 1,535 2,001
Share-based payments 29 12
Foreign currency (gains) /
losses (21) 26
Other administrative expenses 2,570 3,327
8,656 9,568
------------ ------------
7. Staff costs
Year Year
Ended Ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Wages salaries and benefits (including
directors) 2,796 2,868
Share-based payments 29 12
Social security costs 227 239
Other post-employment benefits 111 108
Less amounts capitalised (286) (146)
Less amounts received under the (756) -
CJRS scheme
2,138 3,081
------------ ------------
Key management personnel:
Year Year
ended Ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Wages, salaries and benefits (including
directors) 544 581
Share-based payments 24 12
Social security costs 71 75
Other post-employment benefits 35 39
Less amounts capitalised (87) (23)
Less amounts received under the
CJRS scheme (40)
547 684
------------ ------------
Key management personnel are the directors and one member of
staff. Their remuneration was as follows:
Year ended 31
December 2020 Salary Share-based Other
and fees payments benefits Total
GBP'000 GBP'000 GBP'000 GBP'000
Graham Bird 137 6 10 153
Richard Rose 47 - 4 51
Richard Harpham 198 10 12 220
Adrian Jones 4 - - 4
Karen Bach 26 - - 26
John Story 8 - - 8
Other key management 124 8 9 141
----------- -------------- ----------- --------
545 24 35 603
Amounts capitalised (87) - - (87)
Furlough claims (40) (40)
Profit and loss
expense 417 24 35 476
----------- -------------- ----------- --------
Year ended 31 December Salary Share-based Other
2019 and fees payments benefits Total
GBP'000 GBP'000 GBP'000 GBP'000
Richard Rose 60 0 8 68
Richard Harpham 220 6 14 240
Alistair Rae 126 4 4 134
Adrian Jones 20 0 0 20
Karen Bach 30 0 2 32
Other key management 125 2 11 138
----------- -------------- ----------- --------
581 12 39 632
Amounts capitalised (23) - - (23)
Profit and loss expense 558 12 39 609
----------- -------------- ----------- --------
The average monthly number of employees was as follows:
Year ended Year ended
31 December 31 December
2020 2019
No. No.
Management 4 4
Administrative 22 21
Operations 120 110
146 134
------------ ------------
8. Taxation
The Group has made no provision for taxation as it has not yet
generated any taxable profits. A reconciliation of income tax
expense applicable to the loss before taxation at the statutory tax
rate to the income tax expense at the effective tax rate of the
Group is as follows:
Year Year
Ended Ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Loss before taxation (6,564) (6,040)
Tax calculated at the standard
rate of tax of 19% (2019:19%) (1,247) (1,148)
Tax effects of:
Non-deductible expenditure 118 58
Unrecognised tax losses 1,113 1,026
Capital allowances less depreciation 4 197
Other 27 (129)
15 4
------------ ------------
The Group had losses for tax purposes of approximately GBP21m as
at 31 December 2020 (GBP16m as at 31 December 2019) which, subject
to agreement with taxation authorities, are available to carry
forward against future profits. The tax value of such losses
amounted to approximately GBP4m (GBP2.78m as at 31 December
2019).
A deferred tax asset in respect of these losses and temporary
differences has not been established as the Directors have assessed
the likelihood of future profits being available to offset such
deferred tax assets to be uncertain.
A deferred tax liability has not been recognised in respect of
the intangible assets arising on acquisition. The Directors had
plans, at the time of the acquisition to move the IP to the UK for
a number of commercial reasons and the ability to do so without any
obstacles, as a result of which a tax base for such assets was
established in the UK.
9. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to equity holders by the weighted average number of
ordinary shares in issue during the period. Diluted net loss per
share is calculated by dividing net loss by the weighted average
number of shares in issue and potential dilutive shares outstanding
during the period.
Because Escape Hunt is in a net loss position, diluted loss per
share excludes the effects of ordinary share equivalents consisting
of stock options and warrants, which are anti-dilutive. The total
number of shares subject to share options and conversion rights
outstanding excluded from consideration in the calculation of
diluted loss per share for the year ended 31 December 2020 was
19,699,481 shares (year ended 31 December 2019: 1,967,507
shares).
Year Year
Ended Ended
31 31 December
December
2020 2019
Loss after tax attributable
to owners of the Company (GBP'000) (6,641) (5,993)
Weighted average number of
shares:
* Basic and diluted 53,720,694 24,186,199
Loss per share
* Basic and diluted (Pence) (12.36) (24.78)
10. Property, plant and equipment
Leasehold Office Computers Furniture Escape Total
improvements equipment and fixtures games
-------------- ----------- -------------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost:
At 1 January 2019 2,751 11 69 167 1,872 4,870
Additions 25 7 6 71 1,199 1,308
Disposals - (9) - - - (9)
As at 31 December
2019 2,776 9 75 238 3,071 6,169
Additions 793 6 35 24 980 1,838
Additions arising
from acquisition 336 - 12 - - 347
Disposals - - - - (89) (89)
-------------- ----------- ---------- -------------- -------- --------
As at 31 December
2020 3,905 15 122 262 3,962 8,266
-------------- ----------- ---------- -------------- -------- --------
Accumulated depreciation:
As at 1 January
2019 (232) (2) (4) (5) (260) (504)
Depreciation charge (517) (7) (30) (45) (1,133) (1,732)
Disposals - 1 - - - 1
As at 31 December
2019 (749) (8) (34) (50) (1,393) (2,234)
Additions arising
from acquisition (318) - (9) - - (327)
Depreciation charge (584) (5) (43) (60) (1,128) (1,820)
Disposals - - - - - -
-------------- ----------- ---------- -------------- -------- --------
As at 31 December
2020 (1,651) (13) (86) (110) (2,521) (4,381)
-------------- ----------- ---------- -------------- -------- --------
Net book value
As at 31 December
2020 2,254 2 36 152 1,441 3,885
-------------- ----------- ---------- -------------- -------- --------
As at 31 December
2019 2,027 1 41 188 1,678 3,935
-------------- ----------- ---------- -------------- -------- --------
The amount of expenditure recognised in the carrying value of
leasehold improvements in the course of construction at 31 December
2020 is GBP62,000 (2019: GBPnil).
11. Right-of-use assets
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Land and buildings - right-of-use
asset 3,127 3,119
Closures / leases ended for (336) -
renegotiation during the year
Additions during the year 1,034 8
Newly negotiated leases 152 -
Less: Accumulated depreciation
b/f (657) (310)
Depreciation charged for the
year (380) (347)
Net book value 2,940 2,470
------------ ------------
The Group leases land and buildings for its offices and escape
room venues under agreements of between five to fifteen years with,
in some cases, options to extend. The leases have various
escalation clauses. On renewal, the terms of the leases are
renegotiated.
During the year ended 31 December 2020, GBP22k of rent
concessions have been recognised in the profit and loss 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.
12. 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'000 GBP'000 GBP'000
Cost
At 1 January
2019 1,422 78 10,195 302 802 100 269 13,168
Additions arising
from internal
development - - - 266 - - - 266
Disposals (29) - - - - - - (29)
----------- ----------- ------------- ----------- ------------ -------- -------- ---------
At 31 December
2019 1,393 78 10,195 568 802 100 269 13,405
Additions arising
from internal
development - - - 294 - - - 294
Additions arising
from acquisition 19 - - - - - - 19
Disposals - - - (7) - - - (7)
----------- ----------- ------------- ----------- ------------ -------- -------- ---------
As at 31 December
2020 1,412 78 10,195 855 802 100 269 13,711
----------- ----------- ------------- ----------- ------------ -------- -------- ---------
Accumulated
amortisation
At 1 January
2019 (1,393) (11) (6,616) (21) (191) (83) (61) (8,376)
Amortisation
for the year - (18) (1,737) (130) (115) (17) (106) (2,123)
Impairment
provision - - - - - - - -
----------- ----------- ------------- ----------- ------------ -------- -------- ---------
At 31 December
2019 (1,393) (29) (8,353) (151) (306) (100) (167) (10,499)
Amortisation
for the year - (18) (1,842) (254) (114) - (71) (2,299)
Disposals - - - - - - - -
----------- ----------- ------------- ----------- ------------ -------- -------- ---------
As at 31 December
2020 (1,393) (47) (10,195) (405) (420) (100) (238) (12,798)
----------- ----------- ------------- ----------- ------------ -------- -------- ---------
Carrying amounts
At 31 December
2020 19 31 - 450 382 - 31 913
=========== =========== ============= =========== ============ ======== ======== =========
At 31 December
2019 - 49 1,842 417 496 - 102 2,906
=========== =========== ============= =========== ============ ======== ======== =========
Goodwill and acquisition related intangible assets recognised
have arisen from the acquisition of Experiential Ventures Limited
in May 2017 and of Escape Hunt Entertainment LLC in September 2020.
Refer to Notes 13 and 14 for further details.
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash generating units ('CGUs') that are
expected to benefit from that business combination. Management
considers that the goodwill is attributable to the owner-operated
business because that is where the benefits are expected to arise
from expansion opportunities and synergies of the business of the
escape the room concept.
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 four 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 GBP4.6 million over the three years has
been assumed. Growth in years 4- 6 is assumed at 3% per annum. The
terminal 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 GBP10,195,000
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 (CACs) - The projections assumed
after returns are paid/charged to complementary assets which are
used in conjunction with the valued asset to generate the earnings
associated with it. The only CAC identified by management is the
charge relating to IP - a charge has been included to take into
account the Intellectual Property used within the franchise
operation. This is considered key in generating earnings at the
franchised sites. Management has applied the same royalty rate of
10% used to value this asset.
- Discount Rate - The Capital Asset Pricing Model ("CAPM") has
been used to calculate a discount rate of 13.7%.
- Taxation - At the time of acquisition, the franchise profits
were earned within a group subsidiary which was incorporated in the
Labuan province of Malaysia. The tax rate applicable in Labuan was
applied to the earnings generated from franchise operations.
The carrying amount of the franchise agreements has been
considered on the basis of the value in use derived from the
expected future cash flows.
13. Subsidiaries
Details of the Company's subsidiaries as at 31 December 2020 are
as follows:
Name of subsidiary Country of incorporation Principal activity Effective equity
interest held
by the Group
(%)
Former holding
Experiential Ventures company - In
Limited Seychelles dissolution 100
England and Operator of
Escape Hunt Group Limited Wales escape rooms 100
Former operator
Escape Hunt Operations of escape rooms
Ltd Malaysia - In dissolution 100
Formerly game
E V Development Co. design - In
Ltd Thailand dissolution 99.9
England and
Escape Hunt IP Limited Wales IP licensing 100
England and
Escape Franchises Limited Wales Franchise holding 100
Escape Hunt Innovations England and
Limited Wales Game design 100
England and
Escape Hunt USA Limited Wales Franchise holding 100
Escape Hunt USA Franchises England and
Ltd Wales Franchise holding 100
Operator of
Escape Rooms
in Dubai and
master franchise
Escape Hunt Entertainment United Arab to the Middle
LLC Emirates East 100
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 incorporated in England and Wales is
directly held by the Company. The overseas subsidiaries are held
indirectly.
The registered address of each overseas subsidiary is as
follows:
Experiential Ventures Limited
103 Sham Peng Tong Plaza, Victoria, Mahe, Seychelles.
Escape Hunt Operations Ltd
Lot A020, Level 1, Podium Level, Financial Park Labuan, Jalan
Merdeka,8700 Labuan, Malaysia.
E V Development Co. Ltd
No. 689 Bhiraj Tower at EmQuartier, Sukhumvit (Soi 35) Road,
Klongton-Nua Sub-district, Bangkok, Thailand.
Escape Hunt Entertainment LLC
Retail Space 26, Galleria Mall, Al Wasl Road, Bur Dubai,
Dubai,
14. Business Combination
On 30 September 2020, Escape Hunt Plc acquired 100% of the
equity interest in Escape Hunt Entertainment LLC (EH LLC), thereby
obtaining control. EH LLC holds the master franchise for the
territory of the Middle East and runs an owner operated escape room
venue in Dubai.
We applied the amendment to IFRS 3 for accounting periods
starting 1 January 2020 regarding the definition of a business
combination. We consider this acquisition to be classified as such
and have consolidated in full.
The details of the business combination are as follows:
GBP'000
Fair value of consideration transferred
Amounts settled in cash 39
Total purchase consideration 39
--------
There were no shares or other contingent consideration to be
included in the total purchase price.
Further acquisition related costs of GBP8k that were not
directly attributable to the issue of shares are included in
administrative expenses under the owner operated segment.
GBP'000
Assets and liabilities recognised as a result of the
acquisition
Cash 74
Trade receivables (net of provisions) 5
Other receivables and deposits 15
Property, plant and equipment 21
Trade payables (8)
Provisions (3)
Dividends payable (85)
--------
Net identifiable assets acquired 20
Goodwill arising on consolidation 19
--------
Net assets acquired 39
--------
The fair value of acquired trade receivables is GBP5k. The gross
contractual amount for trade receivables due is GBP14k of which
GBP9k had been provided against as at the date of acquisition.
The dividend payable relates to post tax profit from the period
prior to acquisition that has been formally authorised by the
company to be paid to the former shareholders. The cash for this
dividend was paid on 4 October 2020.
Goodwill of GBP19k is primarily related to growth expectations,
expected future profitability and the expertise and experience of
EH LLC's workforce. Goodwill has been allocated to the owner
operated segment and is not expected to be deductible for tax
purposes.
EH LLC contributed revenues of GBP57k and net profits of GBP15k
in the three months between acquisition and 31 December 2020. If
the acquisition had occurred on 1 January 2020, consolidated
revenue would have been GBP86k higher, however consolidated net
profits would have been GBP80k lower due to reduced revenues in
2020 during the COVID-19 pandemic.
15. Loan to franchisee
A secured 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 2021 and
June 2023. The loan is secured by means of an option agreement with
the franchisee which gives the lender the rights to take over the
locations operated by the borrower in the event of any default.
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 has
caused the franchisee to fall into arrears on rent and as a result,
it may not be economic for the company to exercise its right to
take over locations operated by the borrower unless a compromise
can be reached between the franchisee and the respective landlords.
As at 31 December 2020 this loan has been provided for in full.
16. Trade and other receivables
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Trade receivables (customer contract
balances) 182 370
Prepayments 208 328
Accrued income (customer contract balances) 20 78
Accrued interest - 10
Deposits and other receivables 491 57
901 843
------------ ------------
The Group's exposure to credit risk and impairment losses
related to trade receivables is disclosed in Note 31.
Significant movements in customer contract assets during the
year ended 31 December 2020 are summarised below:
Year ended 31 December 2020: Trade Accrued income
Receivables
GBP'000 GBP'000
Contract assets:
Balance at 1 January 2020 370 78
Transfers from contract assets recognised at
the beginning of the period to receivables 78 (78)
Net increases as a result of changes in the
measure of progress (82) 20
Provisions for doubtful amounts (184) -
Balance at 31 December 2020 182 20
------------- ---------------
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, amounts are
billed within five working days of a month end and settlement is
due by the 14(th) of the month.
Accrued income relates to our conditional right to consideration
for our completed performance under the contract, primarily in
respect of franchise revenues. Accounts receivable are recognised
when the right to consideration becomes unconditional.
17. Inventories
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Branch consumables (at cost) 16 12
Total inventories 16 12
------------ -------------
18. Cash and cash equivalents
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Bank balances 2,722 2,171
Cash and cash equivalents in the statement of
cash flow 2,722 2,171
------------ -------------
The currency profiles of the Group's cash and bank balances are
as follows:
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Pounds Sterling 2,337 1,656
Australian Dollars 34 197
United States Dollars 7 174
Euros 235 117
Others 108 27
2,722 2,171
------------ ------------
19. Trade and other payables (current)
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Trade payables 606 317
Accruals 652 733
Deferred income 441 360
Taxation 17 4
Other taxes and social security 82 180
Other payables 65 31
1,861 1,625
------------ -------------
20. Lease liabilities
Year ended Year ended
31 Dec 31 Dec
2020 2019
GBP'000 GBP'000
In respect of right-of-use assets
Balance at beginning of period / recognised
on adoption of IFRS 16 on 1 January 2019 2,602 2,878
Closures / leases ended for renegotiation (317) -
during the year
Additions during the year 1,034 8
Newly negotiated leases 152 -
Interest incurred 180 171
Rent concessions received (22) -
Repayments during the period (181) (454)
Reallocated from accruals and trade payables 294
Lease liabilities at end of period 3,742 2,602
----------- -----------
As at As at
31 Dec 31 Dec
2020 2019
GBP'000 GBP'000
Maturity
Current 489 304
Non-current 3,253 2,298
Total lease liabilities 3,742 2,602
----------- -----------
In the accounts for the year ended 31 December 2019, part of the
lease liability balance was presented in accruals. During the year
ended 31 December 2020 it was deemed more relevant to show all
balances relating to lease liabilities as part of the lease
liability balance and therefore accrued rental items have been
reclassified to lease liabilities to ensure total liabilities are
all presented together. No adjustment has been made to previous
period numbers.
21. Deferred income
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Contract liabilities (deferred
income):
Balance at beginning of year 622 663
Revenue recognised in the year that was included
in the deferred income balance at the beginning
of the year (335) (200)
Increases due to cash received, excluding amounts
recognised as revenue during the period 343 284
Decreased on termination of franchises (35) (136)
Translation differences (3) 11
Transaction price allocated to the remaining
performance obligations 592 622
------------ -------------
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
2020 2019
GBP'000 GBP'000
Upfront exclusivity fees 212 368
Escape room advance bookings 13 129
Gift vouchers 367 125
592 622
------------ ------------
As at As at
Upfront exclusivity fees 31 December 31 December
2020 2019
GBP'000 GBP'000
Within one year 60 106
After more than one year 152 262
212 368
------------ ------------
Deferred revenues in respect of upfront exclusivity fees are
expected to be recognised as revenues over the remaining lifetime
of each franchise agreement. The average remaining period of the
franchise agreements is approximately four years. All other
deferred revenue is expected be recognised as revenue within one
year.
22. Dilapidation provisions
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Within one year - -
After more than one year 125 74
125 74
------------ ------------
Provisions represent future liabilities for property
dilapidations and are recognised on a lease by lease basis based on
the Group's best estimate of the likely committed cash outflow. No
amounts have been used or reversed during the year.
The leases expire between January 2023 and February 2032.
23. Share capital
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Issued and fully paid:
At beginning of the year: 26,925,925
(2019: 20,259,258) Ordinary
shares of 1.25 pence each 336 253
Issued during the year: 53,443,119
Ordinary shares 669 83
As at end of period / year
- 80,369,044 (2019: 26,925,925)
Ordinary shares of 1.25 pence each 1,005 336
------------ ------------
Escape Hunt plc does not have an authorised share capital and is
not required to have one.
Subsequent to the period end, a further 8,251,047 shares have
been issued. The number of shares in issue at 31 December 2020 was
80,369,044 and at the date of approval of these financial
statements is 88,620,091 ordinary shares of 1.25 pence each.
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 2020, the following changes in
the issued share capital of the Company occurred:
- On 1 July 2020 the Company issued 53,017,013 new shares at 7.5
pence per share in a fund raise comprising a placing, open offer
and share subscription, raising GBP4.0 million (before expenses of
GBP301,000). The expenses have been deducted from the premium of
GBP3,313,563 arising from the fund raise. On the same date a
further 426,106 new shares were issued at 7.5 pence per share to
certain executives as pay reduction catch up equity, partially
compensating the executives for a voluntary reduction in salary
during April, May and June 2020 whilst the group's sites were
closed due to restrictions related to COVID-19.
- The resultant 53,443,119 new shares were admitted to trading on AIM on 2 July 2020
24. Warrants
A warrant instrument was entered into by way of deed poll on 13
April 2017 under which the Company created and issued warrants to
Stockdale Securities to subscribe for 202,592 Ordinary Shares on
the terms and conditions of the instrument. The warrants were
issued to Stockdale Securities on Admission and may be exercised
within 3 years of the date of the instrument at a price of GBP1.35
per Ordinary Share (being equal to the Placing Price) subject to
the terms and conditions of the instrument. The sum of GBPnil has
been recognised as a share-based payment and charged to the Income
Statement in the year ended 31 December 2019 (year ended 31
December 2018: GBPnil).
The weighted average fair value of the warrants granted was
0.15p per share.
No warrants were exercised during the year ended 31 December
2020 and as such all warrants expired during the year.
25. Convertible loan notes
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Amounts due in more than one
year:
Principal 272 -
Rolled up interest 17 -
As at end of period / year 289 -
------------ ------------
On 1 July 2020, the Company issued GBP340,000 convertible loan
notes ("Notes"). The Notes are unsecured and interest rolls up at a
fixed rate of 10 per cent. per annum. The Notes are repayable in
full on 2 July 2025, inclusive of rolled up interest, although they
may be prepaid in whole or in part at the Company's discretion
after the period of 18 months from the date of issue, provided that
the holders of the Convertible Loan Notes will first be given the
opportunity to serve notice to convert their respective Notes and
unpaid interest into new Ordinary Shares.
The Notes are convertible at the election of the holders of the
Notes at any time up until and including the date of repayment at
the price which is the lower of 9 pence for each new Ordinary Share
or the placing price of the most recent placing by the Company of
new Ordinary Shares prior to conversion.
At the date of issue, the Company determined that GBP272,251 of
the principal related to the debt component of the loan note with
the balance of GBP67,749 be classified as the equity component of
the convertible loan note. This gives an effective underlying
interest rate on the Notes of 13.4% per annum.
Application will not be made for the Convertible Loan Notes to
be admitted to trading on AIM or any other exchange. The Company
has adequate authority to issue the maximum number of new Ordinary
Shares which could result from the conversion of all the Notes. Any
new Ordinary Shares arising on conversion will rank pari passu with
the Ordinary Shares in issue at that time and application for
admission to trading on AIM will be made at the appropriate
time.
26. Share option and incentive plans
2018 EMI Scheme
On 24 January 2019, the Company issued options to subscribe for
137,931 ordinary shares of 1.25 pence each at an exercise price of
87 pence per share to an employee of the Company, under the terms
of the Escape Hunt Plc Enterprise Management Incentive Scheme 2018
("2018 EMI Scheme"). No options were exercised prior to 15 July
2020 on which date all the options were cancelled. The 2018 EMI
Scheme has since been withdrawn. As at 31 December 2020, there were
no options outstanding under the scheme and no further awards will
be made pursuant to the scheme.
The charge to profit and loss during the year was GBPnil (2019:
GBPnil) due to the immateriality of the value of the options.
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.
On 15 July 2020, in aggregate 13,333,332 qualifying options and
2,400,000 non-qualifying options were awarded to four executives,
including two executive directors of the Company. The options are
exercisable at 7.5 pence per share 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 is 11.25 pence (being 1.5 times the issue price), one third
of the vested options will be exercisable. If the Company's share
price at testing is 18.75 pence (being 2.5 times the issue price),
90 per cent of the vested options will be exercisable. If the
Company's share price at testing is 25 pence (being 3.33 times the
issue price), 100% of the vested options will be exercisable. The
proportion of vested options exercisable for share prices between
11.25 pence and 18.75 pence will scale proportionately from one
third to 90 per cent. Similarly, the proportion of options
exercisable for share prices between 18.75 pence and 25 pence 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 7.5 pence per share, no options will be
exercisable. If the takeover price is 18.75 pence per share, 100
per cent of the options will be exercisable. The proportion of
options exercisable between 7.5 pence and 18.75 pence per share
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.
As at 31 December 2020, 15,733,332 options were outstanding
under the 2020 EMI Plan (2019: nil) all exercisable at 7.5 pence
per share. No options were exercised during the period, and no
options expired or had lapsed and none had vested or were
exercisable as at 31 December 2020.
The sum of GBP23,477 has been recognised as a share-based
payment and charged to the profit and loss during the year (2019:
GBPnil). The fair value of the options granted during the period
has been calculated using the Black & Scholes formula with the
following key assumptions:
Exercise price 7.5 pence per share
Volatility 34.6%
Share price at the date of award 7.375p
Option exercise 15 July 2024
Risk free rate -0.05%
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 of 16.8% per annum. This results in the mean expected return
calculated using a lognormal distribution equalling the implied
market return on the date of issue validating that the expected
return relative to the volatility is proportionately correct. This
was then used to calculate an implied probability of the
performance hurdles being achieved within the four-year window and
the Black & Scholes derived option value was adjusted
accordingly.
Time based vesting: It has been assumed that all four executives
remain employed on the first anniversary and that there is a 95%
probability of remaining in each consecutive year thereafter.
The weighted average remaining contractual life of the options
outstanding at 31 December 2020 is 54.5 months.
An option-holder has no voting or dividend rights in the Company
before the exercise of a share option.
Share incentive plan
The Escape Hunt plc Executive Growth Share Plan ("EGSP") was
established on 2 May 2017. Three individuals who are full-time
employees, including two directors of the Company were invited to
participate under the EGSP.
Under the EGSP invitations were issued to two directors and an
employee to subscribe for a specified number of G Shares each at a
specified price per G Share. Two Directors and one employee
subscribed for a total of 1,000 shares under the EGSP at a cost of
GBP1 per share in the year ended 31 December 2017. The price
payable for a G Share pursuant to an invitation is also determined
by the Remuneration Committee. The vesting period for the G Shares
was 3 years.
The sum of GBP5,000 has been recognised as a share-based payment
and charged to the profit and loss during the year (2019:
GBP12,000).
In accordance with EGSP's Articles of Association, a Put Option
Period commenced on 3 May 2020 which entitled a holder of G Shares
at his discretion within the Put Option Period to serve notice to a
Designated Purchaser (being EHGL or its majority shareholder,
Escape Hunt plc) to acquire all of that holder's Growth Shares at
the 'G Share Put Price'. Similarly, a Designated Purchaser has a
reciprocal Call Option which can be exercised during a Call Option
Period (which similarly commenced on 3 May 2020) by serving notice
on the holder of Growth Shares to acquire the Growth Shares at the
'G Share Call Price'. Both the G Share Put Price and G Share Call
price are calculated with reference to the share price of Escape
Hunt plc up to 3 May 2020. The scheme has now ended and both the G
Share Put price and G Share Call prices have been determined to be
GBPnil per share. No options were exercised during the year.
Subsequent to year end, Escape Hunt plc has issued notice to
exercise its Call Option and the Growth Shares, which are now
valueless, are held by Escape Hunt plc.
27. Capital management
The Board defines capital as share capital and all components of
equity.
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. In particular, the Company has
raised equity as a means of executing its acquisition strategy and
as a sound basis for operating the acquired Escape Hunt business in
line with the Group's strategy. The Board of Directors will also
monitor the level of dividends to ordinary shareholders.
The Company is not subject to externally imposed capital
requirements.
28. 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.
29. 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, in addition to those disclosed
elsewhere in these financial statements, the following significant
transactions took place at terms agreed between the parties:
Fees of GBP4,875 and other benefits of GBP92 were paid to a
close family member of one of the directors (2019: salary of
GBP27,558 and other benefits of GBP1,128).
30. Directors and key management remuneration
Details of the Directors' remuneration are set out in Note 7
above.
31. 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
2020 2019
GBP'000 GBP'000
Trade receivables 182 370
Other receivables and deposits 511 471
Cash and cash equivalents 2,722 2,171
3,415 3,012
------------ ------------
Financial liabilities at amortised cost:
As at As at
31 December 31 December
2020 2019
GBP'000 GBP'000
Trade payables 606 317
Accruals and other payables 815 764
Lease liabilities 3,742 2,602
5,163 3,683
------------ ------------
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
2020 2019
Gross amounts (before impairment): GBP'000 GBP'000
Not past due 94 197
Past due 0-30 days 8 24
Past due 31-60 days 7 38
Past due more than 60 days 447 211
556 470
------------ ------------
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
2020 2019
GBP'000 GBP'000
At beginning of year (100) (5)
Impairment losses recognised (104) (95)
Bad debts written off 20 -
At end of year (184) (100)
------------ ------------
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 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
2020 the net balance outstanding on this loan per these financial
statements is nil (2019: GBP300,000).
As at 31 December 2020 GBP2,509,000 (2019: GBP2,068,000) of the
cash and bank balances, as detailed in Note 17 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
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 2020, total trade payables within one year were
GBP822,000 (2019: GBP317,000), which is considerably less than the
Group's cash held at the year-end of GBP2,722,000 (2019:
GBP2,171,000). The Board receives and reviews cash flow projections
on a regular basis as well as information on cash balances.
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the return.
The Company has insignificant financial assets or liabilities
that are exposed to interest rate risks.
Foreign currency risk
The Group has exposure to foreign currency movements on trade
and other receivables, cash and cash equivalents and trade and
other payables denominated in currencies other than the respective
functional currencies of the Group entities. It also exposed to
foreign currency risk on sales and purchases that are denominated
in foreign currencies. The currencies giving rise to this risk are
primarily the United States ("US") dollar, the Euro ("EUR"),
Australian ("AUD") dollars, and Thai Baht ("THB"). Currently, the
Group does not hedge its foreign currency exposure. However,
management monitors the exposure closely and will consider using
forward exchange or option contracts to hedge significant foreign
currency exposure should the need arise.
The Group's exposure to foreign currency risk expressed in
Pounds was as follows:
UK Pound United Thai Euro Australian Other Total
Sterling States Bhat Dollar
Dollar
As at 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Financial assets:
Trade receivables 172 - - - - 10 182
Other receivables and
deposits 509 2 - - - - 511
Cash and bank balances 2,264 81 36 235 34 72 2,722
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
2,945 83 36 235 34 82 3,415
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Financial liabilities:
Trade payables 584 6 - - - 15 606
Other payables and
accruals 771 43 - - - 1 815
Lease liabilities 3,649 - - - - 93 3,742
5,004 49 - - - 109 5,163
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Foreign currency exposure
(net) - 34 36 235 34 (27) 312
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
UK Pound United Thai Euro Australian Other Total
Sterling States Bhat Dollar
Dollar
As at 31 December 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Financial assets:
Trade receivables 256 - 4 110 - - 370
Other receivables and
deposits 470 1 - - - - 471
Cash and bank balances 1,656 174 11 117 197 16 2,171
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
2,382 175 15 227 197 16 3,012
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Financial liabilities:
Trade payables 317 - - - - - 317
Other payables and
accruals 3,359 7 - - - - 3,366
3,676 7 - - - - 3,683
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Foreign currency exposure
(net) - 168 15 227 197 16 623
--------------------------- ---------- -------- -------- -------- ----------- -------- --------
Sensitivity analysis
A 10% strengthening of the Pound against the following
currencies at 31 December 2020 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
------------------------- ------------ ------------
2020 2019
------------------------- ------------ ------------
Effects on profit after
taxation/equity
United States Dollar:
- strengthened by 10% (8) (17)
- weakened by 10% 8 17
------------------------- ------------ ------------
Thai Bhat:
- strengthened by 10% (4) (2)
- weakened by 10% 4 2
------------ ------------
Euro:
- strengthened by 10% (24) (12)
- weakened by 10% 24 12
------------------------- ------------ ------------
Australian Dollar:
- strengthened by 10% (3) (20)
- weakened by 10% 3 20
32. Commitments
As at 31 December 2020, the Group had capital expenditure
commitments in respect of escape rooms games and leasehold
improvements totalling GBP152,921 (2019: GBP70,000).
33. Contingencies
The Directors are not aware of any other contingencies which
might impact on the Company's operations or financial position.
34. Government grants
The following Government grants have been recognised during the
period:
Year ended Year ended
31 Dec 31 Dec
2020 2019
GBP'000 GBP'000
Local authority Small Business Grants 135 -
R&D Claims made under the SME Scheme 259 -
Total 394 -
------------- -------------
In addition, the Company benefitted from Business Rates Relief
introduced for the retail, hospitality and leisure industries. The
benefit in the period was GBP188k (2019: GBPnil)
The Group also benefitted from the Coronavirus Job Retention
Scheme from furloughing some of its staff. The benefit in the
period was GBP756k (2019: GBPnil)
The claim made under the SME R&D Scheme related to 2018. As
at the date of signing these accounts, GBP73k of these monies had
been received.
35. Events after the reporting period
COVID-19
Since the year end, it has become clear that the spread of the
COVID-19 coronavirus will continue to have a material impact on
many economies globally both through the effects of the virus
itself and the measures taken by governments to restrict its
spread.
Given the emergence and spread of the COVID-19 virus is not
considered to provide more information about conditions that
existed as at the reporting period end date, this is considered to
be a non-adjusting post balance sheet event and so the measurement
of assets and liabilities in the accounts have not been adjusted
for its potential impact. The directors have set out the post year
end impact on going concern in the relevant section to the
Directors Report.
Fund raise
On 28 January 2021 the Company announced a placing to raise
GBP1.4m (before expenses) to fund the acquisition of the French and
Belgian master franchises and to provide additional working
capital.
The fund raise resulted in the issue of 8,036,904 Ordinary
Shares at 17.5 pence per share.
R&D Credits
In 2019 and again in 2020, the company and certain of its
subsidiaries submitted claims for R&D tax credits under the SME
Scheme relating to R&D expenditure incurred in 2017 and 2018.
The total claims in respect of 2017 and 2018 amount to GBP1.52m
spread across a number of subsidiaries. Since the year end, claims
amounting to GBP73k have been received in cash and a further
GBP186k claims have been credited to the respective subsidiary tax
accounts, but not yet paid. Since these payments and credits relate
to claims which were made prior to the year end, they are treated
as events which give information about circumstances that existed
at the reporting period end date and those elements of the claims
have all been recognised accordingly. The remaining claims of
GBP1.26m are still being reviewed by HMRC and are thus pending.
Recognition of these claims involves a judgement by management.
Given the ongoing review of the claims and length of time that has
elapsed since the first claim was lodged in December 2018,
Management does not yet consider it sufficiently probable that the
remaining claims will be paid and, as such, these claims have not
been recognised as an asset.
Convertible Loan note facility
The company has entered into a Convertible Loan Note facility
with John Story, a non executive director. Under the terms of the
facility, John Story has undertaken to subscribe for up to GBP1m in
convertible loan notes, subject to receiving a drawdown notice from
the company. The principal terms of the notes are as follows:
-- The term of the Convertible Loan Note facility is from the date of issue to 30 June 2023
-- The notes can be issued in denominations of GBP50,000;
-- The notes can be issued by the company at any time during the
term, subject to providing 10 days notice of a drawdown; John Story
has undertaken to subscribe for up to GBP1m principal notes
-- The notes carry a 7 per cent coupon, payable quarterly;
-- the notes are repayable on 30 June 2023 if not previously repaid or converted
-- The Noteholder has the right to convert the notes into ordinary shares on a Conversion Date
-- A Conversion Date is any date on which the company undertakes
an equity issue for cash comprising 5 per cent or more of the
company's issued share capital; 30 June 2022; or 30 June 2023.
-- The notes are convertible at the issue price of any new
equity raise undertaken before 30 September 2021 subject to a 2 per
cent early redemption fee; or at a 10 per cent discount to any new
equity raise undertaken after 30 September 2021 but before 30 June
2023.
-- If converted on 30 June 2022 or 30 June 2023, the conversion
price is calculated as a 10 per cent discount to the volume
weighted average trading price of the shares in the 30 days before
the conversion.
-- The notes are unsecured.
36. Ultimate controlling party
As at 31 December 2020, no one entity owns greater than 50% of
the issued share capital. Therefore,
the Company does not have an ultimate controlling party.
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