TIDMESC
RNS Number : 7445Y
Escape Hunt PLC
13 May 2019
13 May 2019
Escape Hunt plc
("Escape Hunt" or the "Company" or the "Group")
2018 Full Year Audited Results
Escape Hunt plc (AIM:ESC), a global leader in the high growth
"escape rooms sector" announces its audited results for the year
ending 31 December 2018.
Year ended 31 Year Ended
Dec 2017 (GBPm) 31 Dec 2018
(GBPm)
Revenue 0.87 2.17
----------------- -------------
Gross Profit 0.51 0.04
----------------- -------------
Adjusted EBITDA (0.79) (3.09)
----------------- -------------
Loss per share (24.77p) (49.38p)
----------------- -------------
Net Cash GBP10.65m GBP2.66m
----------------- -------------
Operational highlights:
-- Opened eight owner-operated UK sites in Bristol, Birmingham,
Edinburgh, Leeds, Liverpool, Manchester, Oxford and Reading
-- Received outstanding customer feedback on TripAdvisor with
the first four sites to be opened reaching #1, the next three
reaching #2, with the last already at #7
-- Delivered Escape Hunt's first licensed IP deal with the BBC,
opening Doctor Who themed escape rooms for fans and customers
-- Maintained a successful franchise network globally and set
the foundations necessary to attract large partners to roll-out at
scale
-- Built from scratch the infrastructure required for our growth
plan. Included moving the operations from Asia to the UK, creating
a game design studio in London, rolling-out of the new Escape Hunt
Brand across the business, and establishing a capable Head Office
team, all requiring minimal additional expenditure
Financial highlights:
-- UK owner-operated sites delivered sales in line and EBITDA
slightly ahead of expectations for the year
-- Group revenue up 149% to GBP2.17m (2017: GBP0.87m), driven by
the partial first year contribution of the owner-operated sites in
the UK
-- Reduction in gross profits from GBP0.51m to GBP0.04m driven
by the costs of sites in their pre-opening phase and the subsequent
period as these sites grow revenues to maturity
-- Group Adjusted EBITDA loss of GBP3.09m in line with expectations
-- Pre-tax losses of GBP9.98m (2017: GBP4.13m) reflect the
amortisation of the IP purchased at acquisition (GBP3.7m),
exceptional costs relating to the Bangkok closure (GBP0.3m), and an
impairment charge of GBP2.3m for goodwill and IP intangibles,
driven by the decision to delay the roll-out of UK sites in 2017
while we rebranded the business.
-- Cash position of GBP2.66m as at 31 December 2018 (2017: GBP10.65m)
-- Cash reduction of GBP8m reflects the Adjusted EBITDA loss of
GBP3.09m and investment in infrastructure, especially capex of
GBP4.27m and intangible assets of GBP0.49m
-- Basic loss per share ('EPS') of 49.38 pence (2017: 24.77 pence).
Post-period Highlights:
-- Detailed heads of terms have been agreed with a US
franchising partner to roll-out new franchisee sites across the US
and Canada
-- The first tranche of three UK sites continue to trade well
and the second tranche of five less mature sites are so far
building more quickly than the first with both sales and EBITDA
ahead of Board expectations
-- The UK owner-operated estate of nine sites is now generating positive EBITDA as a group.
-- The Company has today announced a proposed equity placing
("Placing") to be undertaken by Stockdale Securities Ltd and Peel
Hunt Ltd to raise a minimum of GBP4m (before expenses) by way of an
accelerated bookbuild primarily to fund the Company's roll-out of
new sites in the UK
Chief Executive Officer, Richard Harpham, comments:
"It has been a significant year of progress with elements of the
business reorganised and eight owner-operated sites successfully
rolled-out across the UK. I am also delighted to report that the
inaugural performance and revenue generated from these sites has
been in line with expectations.
"The strength of the Escape Hunt brand helped us secure a major
licensing agreement with the BBC, to create Doctor Who themed
escape rooms. This was an important milestone for the Group and has
helped us to deliver on our strategy of being the premier brand in
the escape rooms sector. The demand for experiential leisure is
reflected in our success and ability to attract growing footfall
and we look forward to opening more UK sites during 2019 whilst
expanding our franchise overseas."
The Annual Report and Accounts will be sent to shareholders in
due course.
Enquiries
Escape Hunt plc
Richard Harpham (Chief Executive Officer)
Alistair Rae (Chief Financial Officer)
Mustapha Omar (Commercial Director) +44 207 846 3322
Stockdale Securities Ltd - NOMAD and Joint
Broker
Daniel Harris, David Coaten (Corporate Finance) +44 (0) 20 7601
Fiona Conroy (Corporate Broking) 6100
Peel Hunt LLP - Joint Broker
George Sellar +44 (0) 20 7418
Guy Pengelley 8900
Yellow Jersey - Financial PR
Tim Thompson
Harriet Jackson +44 (0) 20 3004
Henry Wilkinson 9512
About Escape Hunt
The Escape Hunt Group is a global leader in providing live
escape-the-room experiences with a network of owner-operated sites
in the UK and a global network of franchised outlets in six
continents. The Company was re-admitted to AIM in May 2017 and has
a strategy of creating high quality premium games and experiences,
which incorporates branded IP content.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
CHAIRMAN'S STATEMENT
I am delighted to report that we have made excellent progress in
executing our strategy, and that trading performance has met our
expectations.
Having spent time positioning our brand to underpin our
ambitious roll-out plans, we are delighted with the very positive
customer feedback, as evidenced by achieving #1 on TripAdvisor at
all of our UK mature sites. Our brand strength also enabled us to
achieve a very significant IP deal with the BBC to secure exclusive
rights to Doctor Who, which has since been rolled-out across our UK
network with great success.
We have completed building the team and infrastructure to
underpin and support our growth plans. We have also made good
progress in building a robust supply chain, overcoming some
challenges we faced in our early days of operation, by moving our
games design facility from Bangkok to London, and by working with a
number of UK based production houses (one of which we have invested
in).
The first eight owner-operated sites were opened during the
year. Despite some challenges in opening these as quickly as we had
originally hoped (as previously reported) and which have led to the
impairment charge in 2018 mentioned in the financial review, they
have achieved the desired sales levels, whilst slightly exceeding
our EBITDA expectations. The first three of these have reached
mature trading levels and continue their strong progress and for
the five new owner-operated sites both sales and EBITDA performance
are ahead of our expectations. With the marketing experience gained
and applied, the subsequent five new sites are seeing higher
initial revenues than the first three sites at their equivalent
stage of development.
Our success and ability to attract footfall has been recognised
by many retail landlords who are now offering attractive potential
sites and fit-out / lease incentives which will further enhance our
site investment case going forward.
Our established franchise network performed to plan during the
year. We have previously stated that we wish to accelerate our
overseas footprint by partnering with established operators who
have sufficient scale and financial resource to achieve meaningful
penetration in our chosen territories. We were recently delighted
to announce the first such partnership where exclusive heads of
terms have been agreed to effect a franchise roll-out across the US
and Canada.
The cash raised during our IPO in May 2017 has been invested in
building the infrastructure, enhanced games design capability and
central resource and in setting up the first eight owner-operated
sites and funding their initial trading losses. With our UK sites
now being cash generative, our fit-out model now refined and
landlord fit-out contributions expected, the new cash we are
raising will be directed to executing our growth plans and to
provide working capital.
We feel we have achieved key milestones we set ourselves during
the year under review and have demonstrated our site investment
case and now look forward to executing our growth plans with
confidence, enthusiasm and vigour.
Richard Rose
Non-Executive Chairman
13 May 2019
STRATEGIC REPORT
2018 was an exciting year for Escape Hunt, which saw the
business execute against its strategy of developing an
owner-operated business in the UK, create from scratch a game
design studio in London, and set the foundations for significant
future growth. We were delighted to sign our first licensed IP deal
with the BBC to bring Doctor Who to life in our rooms, and have
been proud of the incredible customer feedback received across the
estate.
The unit economics of the eight newly opened owner-operated
sites have performed in line with Board expectations, and the
broader market for experiential leisure continues to flourish.
UK Owner-Operated Sites - Escape Hunt opened three sites in the
first half of 2018 and a further five in Q4 2018 to take the total
of newly opened venues to eight. Showcasing games designed by our
London Studio, customer feedback has been outstanding, with the
first four sites to open reaching #1 on TripAdvisor, the next three
reaching number #2 so far, and the last to open already at #7 and
climbing.
Within the nine owner-operated sites, 38 game rooms were opened
last year, a further nine rooms have opened already in 2019 and the
remaining two rooms are scheduled to open in Q2 2019, so the full
revenue benefit from these sites will accrue in the second half of
2019. As mentioned in our trading statement in January, the first
tranche of three sites continue with their strong progress, and
although still relatively immature, we are pleased to see that the
second tranche of five sites opened in Q4 2018 is on a steeper
revenue trajectory than the first. The relatively fixed nature of
the cost base means that the majority of incremental sales flow to
EBITDA, reinforcing our confidence in the overall economic model.
The results for the year have been materially impacted by
pre-opening costs associated with a significant roll-out of new
owner-operated sites, in addition to a full year of the head office
cost burden without the full scale of operating businesses being in
place to support them. The decision to delay the roll-out of
owner-operated sites as the business was rebranded has driven its
outstanding customer feedback and helped secure the Doctor Who
licensing agreement with the BBC, but has also resulted in an
impairment charge(described further in Note 2) since the time to
break even has extended.
Branded IP Content - Escape Hunt identified the strategic
importance of branded IP in driving occupancy and further
differentiating us. The first IP content deal was signed in July
2018 with BBC Worldwide for a five-year exclusive licence to create
Doctor Who themed escape rooms in the UK. The installation of the
first Doctor Who game was completed in December 2018 and these
games are currently playing in six UK sites. The roll-out of the
second Doctor Who game is due to be completed in the coming months.
There have been strong forward bookings for Doctor Who themed rooms
from the outset and the average room occupancy has been running at
approximately 60% in the few weeks from opening until the end of
February, which is in line with expectations and well above
expected occupancy rates of unbranded rooms.
The Company believes that IP will continue to play an important
role in the content strategy of the business and is considering
several similar opportunities to bring branded IP alive for
customers and fans.
Additional Sales Opportunities - Escape Hunt's site performance
to date has been driven predominantly by B2C sales and corporate
entertainment. The Company identified an additional opportunity to
tap into the market for gamified learning and launched its
proprietary corporate learning and development ("L&D")
proposition in February 2019. Designed to provide an immersive,
gamified, experiential solution for employee engagement, its use
spans staff recruitment, retention and development programmes for
companies. Escape Hunt is exploiting two routes to market by
contacting potential corporate clients directly and also indirectly
via other L&D firms who are selling the offering to their
client base. Escape Hunt expects to generate high margin,
additional sales at the start of the week where customer occupancy
is typically lower, whilst improving the level of repeat business
by forging relationships with businesses.
Franchise Network - Two thirds of Escape Hunt's franchise
business is generated by four master franchisees, namely
France/Benelux, Australia/NZ, the Middle East and the Nordics.
These territories have continued to perform well and have expanded
with several new site openings.
Escape Hunt rationalised an element of its franchise tail
through the year, and closed a number of weak franchise performers
in territories with low GDP/Capita or under-performing management.
At the year end, Escape Hunt had 42 franchise sites compared with
43 at the end of 2017. Most businesses in the network have now been
rebranded and the remaining few will be completed in 2019.
Management's strategy to grow the franchise network by identifying
well capitalised and experienced players able to open and manage
multiple units is beginning to bear fruit and Escape Hunt has been
negotiating a deal with a potential US partner to commence a
significant roll-out of franchises across the USA and Canada. A
detailed heads of terms, incorporating the key commercial terms,
was signed on 26 April 2019.
Strategy for 2019
Conditional upon completing the Placing, the two immediate
strategic targets for the Group are to open a further 4-6 sites in
2019 (taking the total UK estate to 13-15) and to embark upon the
franchisee roll-out in North America.
In order to fund the UK owner-operated roll-out, the Company has
announced separately today that it is conducting a Placing to raise
a minimum of GBP4m, before expenses.
Additional focus for the Management team in 2019 will
include:
-- Securing new sites with significant landlord contributions
towards build costs, recognizing landlord demand for experiential
leisure in retail schemes
-- Identifying franchise partners for the remaining territories
within Europe and conclude two large scale franchise deals
(including the US deal mentioned above)
-- Securing further brand IP license deals to bolster the content strategy of the business.
-- Growing the Learning & Development offering to corporates
with the ultimate objective of corporate clients using an Escape
Hunt branded tool to assess their staff's capabilities.
Growth Strategy and Outlook
-- The Group's strategy is to continue the roll-out of
owner-operated sites in the UK, with an aim to reach 50 in the
medium term, and to grow the franchise estate by two to three times
over the medium term in conjunction with well-resourced
partners
-- We will continue our focus on game production cost reduction
and monetisation and to further drive occupancy through securing
new IP content deals
-- We have been pleased with the customer reception to our games
at our UK sites which we opened in 2018 and our game design team is
currently designing the next series of games for future sites
-- Trading in the first three months of 2019 has been in line
with expectations and although still immature, the UK
owner-operated estate is already generating positive EBITDA as a
group of nine sites
Richard Harpham
Chief Executive Officer
13 May 2019
FINANCIAL REVIEW
Group results
Revenue for the year grew from GBP872k in 2017 to GBP2,172k. The
increase was partly due to a full 12 months contribution of
GBP1,095k from the franchisee business in 2018, compared to only
eight months in 2017 (GBP798k). The major increase in revenue was
driven by the first year contribution of the owner-operated sites
in the UK, which was GBP1,002k (2017: GBP74k). The first three
sites in the UK were opened during March 2018 and the next five
sites were all opened on time in the last quarter of the year.
The operating loss for the year was GBP10,012k (2017: Loss of
GBP4,134k) and the adjusted loss before tax, depreciation,
amortisation and interest ("Adjusted EBITDA") was a loss of
GBP3,087k (2017: GBP790k). Set out below is a reconciliation
between the operating loss and the Adjusted EBITDA loss:-
2018 2017
GBP'000 GBP'000
Operating loss (10,012) (4,134)
Amortisation of intangibles 3,656 2,375
Impairment of intangible
assets 2,345 -
Depreciation 545 22
Write-off of assets 45 -
Branch closure costs 291 -
Foreign currency losses 31 34
Transaction costs - 870
Share-based payment
expense (12) 43
-------- -------
Adjusted EBITDA (3,087) (790)
The EBITDA loss has been adjusted for the write-off of GBP45k of
assets in the Bangkok business at the time of the closure of the
office and the branch, the cash costs of GBP291k which were
principally the employee redundancy and notice period payments to
the employees and former owner of the business and the costs of
vacating the two properties. A further GBP12k has been charged to
income for the share-based payment expense which relates to the
growth shares for three of the senior management which were issued
in 2017. No new share options were issued in 2018.
These costs and items as shown above have been deducted from
EBITDA loss to arrive at the Adjusted EBITDA loss since they are
either non-cash costs or are required to be adjusted in order to
provide a consistent comparison to last year in that they are
one-off items which will not be expected to recur in future
periods. EBITDA is used as the basis of this performance measure as
it most appropriately captures the ongoing ability of the business
to generate operating cash flows which contribute to capital
investment that supports further growth.
Amortisation in 2018 was GBP3,656k (2017: GBP2,375k) and is
comprised largely of the annual charge of GBP3.4m for the IP of
GBP10.2m that was acquired at the time of the acquisition of the
business in May 2017 and which is being written down over three
years. The balance comprises the writing down of other intangible
assets as they come into use. This includes both third party and
staff costs for the creation of certain games that have been
designed in the UK and the app that was acquired with the business
in 2017. These are written down over two years.
The decision in 2017 to delay the UK roll-out of sites whilst we
rebranded the business has proven successful, as it has underpinned
our outstanding TripAdvisor scores and enabled us to secure the
Doctor Who licensing agreement with the BBC. However, it had the
effect of pushing back the break-even point for the business, which
has led to an impairment charge of GBP2,345k (2017: GBPnil).
Goodwill of GBP1,393k relating to the Experiential Ventures Ltd
acquisition in 2017 was written off, alongside a further impairment
charge of GBP952,000, which together comprise the impairment charge
against the carrying value of intellectual property, driven by the
delay in the start of our UK roll-out schedule. This non-cash
balance sheet adjustment has no bearing on performance going
forwards.
Franchisee business
In dollar terms the revenue was $1,386k (2017: $1,650k). This
has been calculated by translating revenues into US dollars based
on the prevailing rate at the time of invoicing, noting most of the
franchisees are invoiced in US dollars. This has been presented as
such in order to provide an indicator of overall performance by our
franchisees in a manner which is unaffected by movements in foreign
exchange rates during the year. For those franchisees who are not
invoiced in US dollars, conversion to US dollars is made at the
prevailing US dollar rate when the invoices are raised.
Franchisee numbers at 31 December 2018 were 42 (2017: 43.).
Smaller and unprofitable single site franchisees closed and 7 new
sites opened. These new sites were mainly additional sites opened
by master franchisees entering into further sub-franchisee
agreements or, in the case of the Scandinavian Master Franchise
Agreement, opening new wholly owned sites. The operating profit was
GBP239k and after adding back depreciation of GBP118k resulted in
an EBITDA of GBP357k (2017: GBP273k). Account management staff were
recruited in the UK, together with games design staff, ahead of
closing the Bangkok studio in July. A total of 42 new games,
including adaptations of older games were produced by both the UK
and the Bangkok teams in 2018 for franchisees, together with eight
games that were produced in London for the UK owner-operated sites.
Of these, five have already been taken up by franchisees.
The new Escape Hunt brand was rolled-out to the franchisees
progressively during 2018 and this programme is due to complete
shortly. Escape Hunt assisted the franchisees in the process with
new digital marketing collateral and contributions to each site's
capital costs. The new website and improved booking engine are also
due to be rolled-out to franchisees in the first half of 2019 after
the investment and testing in the UK in 2018.
The franchising activities recorded an operating profit of
GBP239k (2017:GBP183k); which is an encouraging result given the
redomiciling of the business from Bangkok to London and additional
work to enhance the offering to the customers of the franchisees
was undertaken during the year.
Owner-operated business
The total revenue of the owner-operated business was GBP1,077k,
of which GBP1,002k was generated in the UK and the balance of
GBP75k from the Bangkok branch. The cost of sales was GBP1,950k to
give a gross loss of GBP873k. Cost of sales comprises site property
and utility costs, site staff costs as well as directly
attributable marketing costs. The gross loss reflects the fact that
all the Escape Hunt sites were opened during the course of the year
and in addition to bearing pre-opening costs, the majority have yet
to reach their full maturity, with most of the sites only opening
from October onwards.
Administrative costs and other overheads of GBP825k were
incurred, being principally central marketing and agency costs and
game design management costs.
As noted above, the IP of GBP10.2m that was acquired as part of
the consideration at the time of the acquisition is being amortised
over three years and which results in an annual charge of GBP3.4m.
This has been charged to the owner-operated activity and forms the
majority of the amortisation charge of GBP3,656k across the Group
and of the GBP4,109k of amortisation and depreciation charges in
the owner-operated activity. The impairment charge of GBP2,345k
relates to the owner-operated business as a result of the Company
updating the assumptions from those in place during the original
acquisition including the growth of the owner-operated estate
arising over a more extended period of time than first
anticipated.
Central overheads
The administrative and overhead charges were GBP2,113k,
comprising the management and marketing staff, advisory fees and
the head office property costs. Staff numbers in the London office
increased during the year as the business transitioned from Bangkok
to London and as the owner-operated sites in the UK developed,
requiring marketing, finance and operational staff.
Cashflow and capital expenditure
The operating cashflow before working capital changes was an
outflow of GBP3,380k, and reduced to GBP2,916k after working
capital changes. GBP4,276k was incurred in fixed asset capital
expenditure, of which GBP2,204k was in leasehold site fit-out costs
and GBP1,813k in games and props assets. A further GBP495k was
incurred on a wide range of intangible assets, including GBP302k on
acquiring game software, game intellectual property, third party
game design costs as well as GBP74k of Escape Hunt game design
staff costs.
Cash at 31 December 2018 was GBP2.66m.
IFRS 16
From 1 January 2019, the Group has adopted the new accounting
standard, IFRS 16. The standard requires companies for the first
time with leasehold properties to capitalise all leases on the
balance sheet as a right of use asset and also to recognise on the
balance sheet the present value of the obligations to make lease
payments. The rents which are currently charged to the Income
Statement (GBP388k in 2018) will instead be replaced by a
depreciation charge and a finance charge. In 2018, these would have
been GBP302k and GBP158k respectively had the Standard been adopted
for the whole of 2018.
Innovation
A number of innovation issues were identified in 2017 and 2018
which have led the management to develop an innovation programme
for the Group. These issues related, for example, to developing
puzzles for new games combined with site fit-out and site
construction and which have been commented on in our trading
statements during 2018. Finding suitable production partners has
also been one of the problems which management have had to
overcome.
A decision was made in 2018 to apply for a Research and
Development grant from Scottish Enterprise to establish a programme
of innovation in Scotland with three separate objectives. The first
is to improve the understanding of how customers solve clues and
the typical time taken so that the design of puzzles can be
improved; the second is to use gaming data to analyse human
behaviour in an escape room setting and provide this data to
corporate clients. This brings together psychometrics and video
tracking for example, together with experienced facilitators to
provide an informative analysis for clients on team performance.
The third is to understand how to develop puzzles that can be
delivered in alternative format, such as through virtual reality or
tablet based applications.
A grant for GBP2m was agreed in March 2019 and will now be
activated. The grant commencement date is April 2018, which was
when the application was first lodged and the grant period is two
and a half years. Accordingly, the Company will now establish a
total of three sites in Scotland, one of which was established in
2018, containing an average of six rooms at each site to conduct
these activities. Each site will be able to carry out normal
commercial activities and indeed needs to do so in order to achieve
each of the three objectives outlined above.
To assist in resolving elements of the game design process,
Escape Hunt Innovations Ltd subscribed a nominal sum in cash for a
51% interest in a small design and production workshop near
Edinburgh in December 2018.
Two patents were also applied for in 2018. The first patent
relates to a process to make an escape room more or less difficult,
based on the identity of the player and the second relates to a
process to obtain identity consent. The related work for these
patents is expected to be performed in Scotland.
Advance Assurance was applied for to the HMRC in February 2019
for Research and Development tax credits for the years 2017, 2018
and 2019. Separate to the work being carried out in Scotland, the
London based game design studio continues to use and enhance the IP
acquired at the time of the acquisition, which inter alia consisted
of the large library of games and the design process. In addition,
development work has been carried out in England on developing and
trialling both new puzzles and prop construction with a number of
manufacturers.
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2018
All figures in GBP'000s Year ended Year ended
31 December 31 December
Continuing operations 2018 2017
Revenue 2,172 872
Cost of sales (2,137) (364)
Gross profit 35 508
Transaction expenses - (957)
Administrative expenses (10,047) (3,685)
Operating loss (10,012) (4,134)
Adjusted EBITDA (3,087) (790)
Amortisation of intangibles (3,656) (2,375)
Impairment of intangible assets (2,345) -
Depreciation (545) (22)
Loss on disposal of tangible assets (45) -
Branch closure costs (291) -
Foreign currency losses (31) (34)
Transaction costs - (870)
Share-based payment expense (12) (43)
----------- -----------
Operating loss (10,012) (4,134)
------------------------------------------------- ----------- -----------
Interest received 34 9
Loss before taxation (9,978) (4,125)
Taxation (26) (4)
Loss after taxation (10,004) (4,129)
Other comprehensive income:
Items that may or will be reclassified
to profit or loss:
Exchange differences on translation
of foreign operations 26 (15)
Total comprehensive loss (9,978) (4,144)
Loss attributable to:
Equity holders of Escape Hunt plc (10,004) (4,129)
Non-controlling interests - -
----------- -----------
(10,004) (4,129)
Total comprehensive loss attributable
to:
Equity holders of Escape Hunt plc (9,978) (4,144)
Non-controlling interests - -
----------- -----------
(9,978) (4,144)
----------- -----------
Loss per share attributable to equity
holders:
Basic and diluted (Pence) (49.38) (24.77)
----------- -----------
Consolidated Statement of Financial Position
As at 31 December 2018
As at As at
31 December 31 December
2018 2017
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 4,366 670
Intangible assets 4,792 10,280
Rent deposits 36 32
Loan to franchisee 300 -
9,494 10,982
Current assets
Inventories 15 -
Trade receivables 121 15
Other receivables and prepayments 501 305
Cash and bank balances 2,657 10,645
3,294 10,965
TOTAL ASSETS 12,788 21,947
LIABILITIES
Current liabilities
Trade payables 670 507
Deferred income 244 83
Other payables and accruals 967 479
1,881 1,069
Consolidated Statement of Financial Position
As at 31 December 2018 (continued)
As at As at
31 December 31 December
2018 2017
GBP'000 GBP'000
Non-current liabilities
Deferred income 419 456
Provisions 40 -
459 456
TOTAL LIABILITIES 2,340 1,525
NET ASSETS 10,448 20,422
EQUITY
Capital and reserves attributable to
equity holders of Escape Hunt Plc
253 253
Share capital 21,076 21,076
Share premium account 21,076
Merger relief reserve 4,756 4,756
Accumulated losses (15,741) (5,737)
Currency translation reserve 11 (15)
Capital redemption reserve 46 46
Share-based payment reserve 55 43
10,456 20,422
Non-controlling interests (8) -
TOTAL EQUITY 10,448 20,422
Consolidated Statements of Changes in Equity
For the year ended 31 December 2018
Attributable to owners of the parent
Share Merger Currency Capital Share-based
Share premium relief translation redemption payment Accumulated Non-controlling
capital account reserve reserve reserve reserve losses Total interest Total
Year ended
31 December
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Balance
as at
1 January
2018 253 21,076 4,756 (15) 46 43 (5,737) 20,422 - 20,422
Loss for
the year - - - - - - (10,004) (10,004) - (10,004)
Other
comprehensive
income - - - 26 - - - 26 - 26
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Total
comprehensive
loss - - - 26 - - (10,004) (9,978) - (9,978)
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Acquisition
of subsidiary - - - - - - - - (8) (8)
Share-based
payment
charge - - - - - 12 - 12 - 12
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Transactions
with owners - - - - - 12 - 12 (8) 4
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Balance
as at
31 December
2018 253 21,076 4,756 11 46 55 (15,741) 10,456 (8) 10,448
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Year ended
31 December
2017:
Balance
as at
1 January
2017 125 8,941 - - - - (1,608) 7,458 - 7,458
Loss for
the period - - - - - - (4,129) (4,129) - (4,129)
Other
comprehensive
income - - - (15) - - - (15) - (15)
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Total
comprehensive
loss - - - (15) - - (4,129) (4,144) - (4,144)
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Issue
of shares 174 13,870 4,756 - - - - 18,800 - 18,800
Share
issue
costs - (1,689) - - - - - (1,689) - (1,689)
Buy-back
of shares (46) (46) - - 46 - - (46) - (46)
Share-based
payment
charges - - - - - 43 - 43 - 43
Transactions
with owners 129 12,135 4,756 - 46 43 - 17,109 - 17,109
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Balance
as at
31 December
2017 253 21,076 4,756 (15) 46 43 (5,737) 20,422 - 20,422
-------- -------- -------- ------------ ----------- ------------ ------------ --------- ---------------- ---------
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
Year Year
ended ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Loss before income tax (9,978) (4,125)
Adjustments:
Depreciation of property, plant and
equipment 545 22
Amortisation of intangible assets 3,655 2,375
Impairment of intangible assets 2,345 -
Write-off of non-current assets 45 -
Gain on disposal of plant and equipment (1) -
Net foreign exchange differences 31 -
Share-based payment expense 12 43
Interest income (34) (9)
Operating cash flow before working
capital changes (3,380) (1,694)
Increase in trade and other receivables (273) (161)
Increase in inventories (11) -
Increase in provisions 40 1
Increase in trade and other payables 584 298
Increase / (decrease) in deferred
income 124 (48)
Cash used in operations (2,916) (1,604)
Income taxes paid (8) (28)
Net cash used in operating activities (2,924) (1,632)
Cash flows from investing activities
Purchase of property, plant and equipment (4,276) (585)
Purchase of intangibles (495) (240)
Payment of deposits (4) (32)
Loan made to master franchisee (300) -
Acquisition of subsidiary, net of
cash acquired (10) (7,044)
Interest received 34 9
Net cash used in investing activities (5,051) (7,892)
Cash flows from financing activities
Proceeds from issue of ordinary shares
(net of buy-back) - 13,954
Proceeds from issue of G shares - 1
Share issue costs - (1,688)
Net cash from financing activities - 12,267
Net (decrease)/ increase in cash and
cash equivalents (7,975) 2,743
Cash and cash equivalents at beginning
of year 10,645 7,923
Effects of exchange rate changes on
the balance of cash held in foreign
currencies (13) (21)
Cash and cash equivalents at end of
year 2,657 10,645
NOTES TO THE FINANCIAL STATEMENTS
1. General Information
Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board and the Companies Act 2006
applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical
cost convention.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2018
or 2017 but is derived from those accounts. Statutory accounts for
2017 have been delivered to the registrar of companies, and those
for 2018 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
Going concern
As at 31 December 2018 the Group has current assets of
GBP1,414,000 and cash and bank balances of GBP2,657,000. During the
year the Group suffered a loss after tax of GBP10,004,000 and had
net cash outflows from operating activities of GBP2,939,000. The
cash flows for the current year have had to bear both pre-opening
costs at our newly opened owner-operated businesses and a full year
of head office costs without a full year of trade from the
owner-operated sites, and as such the Directors are expecting a
substantially improved profit and cash generation in the coming
year. These accounts have been prepared on a going concern basis as
described below.
In order to fund the business strategy of growth via new
openings, the Group is undergoing a fundraising via a
non-pre-emptive secondary placing which is expected to raise a
minimum of GBP4m before expenses. The Placing is subject to
approval by shareholders at a General Meeting to be held on 31 May
2019.
The Directors have considered alternatives for the business in
the event of the placing failing to complete in accordance with its
terms and have developed a secondary business plan which would be
activated in event this were necessary. This would involve
increased focus on the less capital-intensive franchise business
and generating cost savings by scaling the head office function to
match the size of the business. When preparing cash flow forecasts
for the secondary business plan, the directors have also considered
the key risks affecting the business including Brexit and consider
that the Group has sufficient cash reserves that it reasonably
expects to be sufficient to meet its liabilities as they fall due.
Accordingly, the Directors consider that the Group has adequate
financial resources to continue operating for the next 12 months
and that it is therefore appropriate to adopt the going concern
basis in preparing the financial statements.
2. Significant accounting policies
Key estimates in the current year
Impairment reviews
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;
-- average occupancy rate of an escape room;
-- 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
five-year strategic plan for its operations, 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.
Goodwill of GBP1.4m relating to the acquisition of EV in 2017
was allocated to the owner-operated business and represents a group
of Cash Generating Units ("CGU") and tested for impairment as of
the reporting date. The carrying value of the owner-operated
business was tested for impairment on the basis of fair value less
costs to sell, including a discount rate of 16.2% based on the rate
that would be used by a market participant. These impairment tests
indicated an impairment loss is required and this loss has been
first taken to reduce the carrying value of goodwill, with the
remaining impairment allocated to intellectual property.
The sensitivity of impairment tests to changes in underlying
assumptions is summarised below:
Occupancy rates
The impairment tests have assumed an average occupancy rate of
the owner-operated escape rooms of 42% of available rooms. If the
occupancy rate achieved is 1% lower than budget, this would lead to
the recognition of an additional impairment loss on the
intellectual property of GBP1.37m.
Discount rate
If the discount rate was increased by 1%, this would have led to
the recognition of an additional impairment loss on the
intellectual property of GBP1m.
EBITDA growth
If growth in EBITDA was on average GBP100,000 lower in each
year, this would lead to the recognition of an additional
impairment loss on the intellectual property of GBP628,000.
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 1%, this
would have led to the recognition of an additional impairment loss
on the intellectual property of GBP593,000.
Capital expenditure
Total capital expenditure of GBP6,740,000 over the five-year
strategic plan has been assumed. If such expenditure was 10% higher
than budgeted, this would lead to the recognition of an additional
impairment loss on intellectual property of GBP533,000.
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 GBP1,709,000 (year ended 31 December
2017: GBP1,133,000).
3. Revenue
Year Year
ended ended
31 December 31 December
2018 2017
GBP'000 GBP'000
New branch upfront location exclusivity
fees 123 101
Game design fees 118 88
Support and administrative fees 94 65
Franchise revenues 741 540
Owned branch revenues 1,077 75
Other 19 3
2,172 872
------------ ------------
4. 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.
The Company was an investing company and did not trade until its
acquisition of Experiential Ventures Limited ("EV") on 2 May 2017.
Since the acquisition, 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 currently consists of 9 sites in the UK.
The Group operates on a global basis. At present, the Company
has active franchisees in 22 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 site
staff costs, premises costs, including rent, rates, service charges
and utilities, and site-specific marketing and also including any
pre-opening costs. Cost of sales also includes site pre-opening
costs. In the franchisee business, the cost of sales comprises
principally game design fees and game design staff costs.
Owner- Franchise- Unallocated Total
operated operated
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000
2018
Revenue 1,077 1,095 - 2,172
Cost of sales (1,950) (187) - (2,137)
--------- ---------- ----------- --------
Gross profit/(loss) (873) 908 - 35
Profit/(loss) from operations
Interest income - - 34 34
Expenses
- Administrative (825) (551) (2,113) (3,489)
- Depreciation and amortisation (4,109) (118) - (4,227)
- Impairment losses (2,345) - - (2,345)
- Share-based payment
expenses - - (12) (12)
Profit/(loss) from operations
before tax (8,126) 239 (2,091) (9,978)
Taxation (26) - - (26)
--------- ---------- ----------- --------
Profit/(loss) for the
year (8,152) 239 (2,091) (10,004)
--------- ---------- ----------- --------
Other information:
Non-current assets 8,508 986 - 9,494
--------- ---------- ----------- --------
Owner- Franchise- Unallocated Total
operated operated
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000
2017
Revenue 74 798 - 872
Cost of sales (55) (275) (34) (364)
--------- ---------- ----------- -------
Gross profit/(loss) 19 523 (34) 508
Profit/(loss) from operations
Interest income - - 9 9
Expenses
- Administrative (18) (250) (977) (1,245)
- Depreciation and amortisation (2,307) (90) - (2,397)
- Transaction - - (957) (957)
- Share-based payment
expenses - - (43) (43)
Profit/(loss) from operations
before tax (2,306) 183 (2,002) (4,125)
Taxation (2) (2) - (4)
--------- ---------- ----------- -------
Profit/(loss) for the
year (2,308) 181 (2,002) (4,129)
--------- ---------- ----------- -------
Other information:
Non-current assets 10,056 893 - 10,949
--------- ---------- ----------- -------
5. Staff costs
Year Year
Ended ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Wages salaries and benefits
(including directors) 1,921 626
Share-based payments 12 13
Social security costs 180 69
Other post-employment benefits 36 22
Less amounts capitalised (150) (45)
1,999 685
------------ ------------
6. Property, plant and equipment
Leasehold Office Computers Furniture Escape Total
property equipment and fixtures games
---------- ----------- -------------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost:
At 1 January 2017 - - - - - -
Additions 576 16 37 5 59 693
Currency translation
differences (1) (1) (1) - - (3)
As at 31 December
2017 575 15 36 5 59 690
Additions 2,204 18 70 171 1,813 4,276
Disposals (28) (22) (37) (9) - (96)
---------- ----------- ---------- -------------- -------- --------
As at 31 December
2018 2,751 11 69 167 1,872 4,870
---------- ----------- ---------- -------------- -------- --------
Accumulated depreciation:
As at 1 January - - - - - -
2017
Depreciation charge (5) (3) (12) (1) (1) (22)
Currency translation
differences 1 - 1 - - 2
As at 31 December
2017 (4) (3) (11) (1) (1) (20)
Depreciation charge (241) (5) (24) (16) (259) (545)
Disposals 13 6 31 11 - 61
---------- ----------- ---------- -------------- -------- --------
As at 31 December
2018 (232) (2) (4) (5) (260) (504)
---------- ----------- ---------- -------------- -------- --------
Net book value
As at 31 December
2018 2,519 9 65 161 1,612 4,366
---------- ----------- ---------- -------------- -------- --------
As at 31 December
2017 571 12 25 4 58 670
---------- ----------- ---------- -------------- -------- --------
The amount of expenditure recognised in the carrying value of
leasehold improvements in the course of construction at 31 December
2018 is GBP153,000 (2017: GBP215,000).
7. 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
2017 - - - - - - - -
Additions through
business
combinations 11 - - - - - 50 61
Arising on
purchase price
allocation 1,393 - 10,195 - 802 - - 12,390
Additions arising
from internal
development - - - - - - 50 50
Other additions - 13 - - - 141 154
Transfers - - - - - 100 (100) -
----------- ----------- ------------- ----------- ------------ -------- -------- --------
At 31 December
2017 1,404 13 10,195 - 802 100 141 12,655
Additions through
business
combinations 29 - - - - - - 29
Additions arising
from acquisition - 65 - - - - 128 193
Additions arising
from internal
development - - - 302 - - - 302
Disposals (11) - - - - - - (11)
----------- ----------- ------------- ----------- ------------ -------- -------- --------
As at 31 December
2018 1,422 78 10,195 302 802 100 269 13,168
----------- ----------- ------------- ----------- ------------ -------- -------- --------
Accumulated
amortisation
At 1 January
2017 - - - - - - -
Amortisation
for the year - - (2,266) - (76) (33) - (2,375)
----------- ----------- ------------- ----------- ------------ -------- -------- --------
At 31 December
2017 - - (2,266) - (76) (33) - (2,375)
Amortisation
for the year - (11) (3,398) (21) (115) (50) (61) (3,656)
Impairment
provision (1,393) - (952) - - - - (2,345)
----------- ----------- ------------- ----------- ------------ -------- -------- --------
As at 31 December
2018 (1,393) (11) (6,616) (21) (191) (83) (61) (8,376)
----------- ----------- ------------- ----------- ------------ -------- -------- --------
Carrying amounts
At 31 December
2018 29 67 3,579 281 611 17 208 4,792
=========== =========== ============= =========== ============ ======== ======== ========
At 31 December
2017 1,404 13 7,929 - 726 67 141 10,280
=========== =========== ============= =========== ============ ======== ======== ========
.
8. 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 majority of income receivable under the terms of the loan
relates to interest at a fixed rate. The valuation of this loan
also takes account of the expected income under the revenue share;
however, the impact of this estimate is not significant to the
valuation. The carrying value of the loan approximates fair value.
Credit risk is not considered to be significant.
9. Trade and other payables (current)
As at As at
31 December 31 December
2018 2017
GBP'000 GBP'000
Trade payables 670 507
Accruals 796 259
Deferred income 244 83
Taxation 23 5
Other taxes and social security 112 185
Other payables 36 30
1,881 1,069
------------ -------------
10. Deferred income
As at As at
31 December 31 December
2018 2017
GBP'000 GBP'000
Contract liabilities (deferred
income):
Balance at beginning of year 539 -
Revenue recognised in the year that was included
in the deferred income balance at the beginning (103) -
of the year
Arising on business combination - 666
Increases due to cash received, excluding amounts
recognised as revenue during the period 218 139
Decreases in deferred income as a result of
changes in the measure of progress (release
on recognition of revenue arising from contract
liabilities) (4) (202)
Decreased on termination of franchises (17) (39)
Translation differences 30 (25)
Transaction price allocated to the remaining
performance obligations 663 539
------------ -------------
11. Operating leases
As at the reporting date, the Group had commitments for future
minimum lease payments under non-cancellable operating leases as
follows:
As at As at
31 December 31 December
2018 2017
GBP'000 GBP'000
Within one year 388 82
Between one and five years 1,610 664
More than five years 1,981 710
3,979 1,456
------------ -------------
Amount recognised in profit or loss:
Lease expenses 476 60
---- ---
12. 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:
A salary of GBP33,000 and other benefits of GBP2,000 were paid
to close family members of two of the directors (2017: salary of
GBP14,000) on an arm's length basis.
Interests in the share capital of the Company
Details of the Directors' interests in the share capital and
share options of the Company are disclosed in the Directors
Report.
13. Subsequent events
There have been two events that have occurred since the year end
that require disclosure. After the year end, the Group agreed a
grant with Scottish Enterprise whereby Scottish Enterprise would
make GBP2m available as a contribution to the development of the
Group's activities in Scotland, including the site which opened in
Edinburgh in October 2018. In addition to its commercial
activities, the Group will base certain game design functions and
activities in Scotland.
In order to fund the business strategy of growth via new
openings, the Group is undergoing a fundraising via a
non-pre-emptive secondary placing which is expected to raise a
minimum of GBP4m before expenses. The Placing is subject to
approval by shareholders at a General Meeting to be held on 31 May
2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KMGMKLZDGLZM
(END) Dow Jones Newswires
May 13, 2019 02:00 ET (06:00 GMT)
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