TIDMRBG
RNS Number : 9795I
Revolution Bars Group
17 December 2020
17 December 2020
Revolution Bars Group plc (LSE: RBG)
Preliminary results for the 52 weeks ended 27 June 2020
Further liquidity secured; well positioned to emerge
stronger
Revolution Bars Group plc ('the Group'), a leading UK operator
of 74* premium bars, trading under the Revolution and Revolución de
Cuba brands, today announces its preliminary results for the 52
weeks ended 27 June 2020 ('FY20'). The Group's bars were closed
throughout the last 14 weeks of the trading period.
*Bars as at 27 June 2020. The Group currently operates 67
bars.
Results to 27 June 2020
Key Messages
-- FY20 numbers presented under IFRS 16 whereas FY19 comparative remains under IAS 17
-- Improved performance in the first half was followed by strong
trading over the first 10 weeks of the second half of FY20 with
like-for-like(1) sales up 1.6% with growth in both brands
-- Pre COVID-19 impact, refurbished sites continued to perform
well and on track to deliver rapid paybacks and strong returns
-- Swift action taken by the Board to significantly improve the
financial liquidity available to the business and to minimise the
cash burn rate in response to COVID-19 pandemic
-- Six loss-making bars exited through lease surrenders during FY20
Financial Highlights
-- Total revenue of GBP110.1 million down from GBP151.4 million in FY19
-- Adjusted(2) EBITDA of GBP9.8 million (APM(3) : GBP0.1
million) down from GBP11.1 million in FY19
-- Adjusted(2) Loss Before Tax of GBP3.9 million (APM(3) : loss
GBP8.0 million) compared to a profit of GBP3.0 million in FY19
-- Statutory Loss Before Tax of GBP31.7 million (APM(3) : Loss
GBP28.1 million) (FY19: Loss GBP5.6 million) after GBP21.9 million
of exceptional items (FY19: GBP7.1 million) including GBP27.4
million of non-cash asset impairments (FY19: GBP5.2 million)
-- Statutory Loss Per Share 70.3 pence (APM(3) : 56.2 pence)
compared to a statutory loss per share of 10.4 pence in FY19
(1) Like-for-like (LFL) sales are defined as total retail sales
from bars that have traded throughout both the current and prior
reporting periods
(2) Adjusted performance measures exclude exceptional items,
share based payment charges/(credits) and bar opening costs (see
reconciliation table in the Financial Review)
(3) Alternative performance Measure ("APM") restates FY20 on an
IAS 17 basis (from an IFRS 16 basis) to give comparability to
FY19
COVID-19
-- Management team have shown exceptional leadership in very
challenging times, and our teams have remained committed and
resilient throughout the lockdown period, and shown courage in
returning to work under extremely difficult operating
conditions
-- Liquidity secured through an increase in committed debt
facilities from GBP21 million to GBP37.5 million, including a
CLBILS term loan of GBP16.5 million, and an equity fundraising of
GBP15 million at the end of July 2020
-- On 16 December 2020, the Group's bank, NatWest has provided
further support by postponing loan facility amortisation payments
of GBP8.5 million that were originally scheduled by the end of June
2021. Profile of committed facilities over the next 12 months now
as follows:
March 2021 GBP36.8million
June 2021 GBP36.6million
September 2021 GBP34.3million
December 2021 GBP34.1million
-- When free to trade without Government restrictions, the Group
is highly cash generative. Pre COVID-19 in H1, net bank debt
reduced by GBP6.5 million, but COVID-19 has inevitably caused net
bank debt to rise in H2. Net bank debt as of 16 December 2020 was
GBP19.5 million and the Group currently has available liquidity of
GBP17.6 million
-- Government assistance welcomed, but totally inadequate for a
predominately wet-led and late-night business. Government strategy
illogical, misguided and disproportionate. Latest grants offered to
compensate for loss of critical Christmas trading period
demonstrate total misunderstanding of business models and costs
Well positioned to emerge strongly
-- In Q3 FY20 pre-COVID, business had achieved LFL(1) sales
growth in both brands for the first quarter since Q2 FY18
-- Continued investment in the Revolution proposition,
particularly in digital capabilities, including further development
of the Revolution App to include order and pay at table, and our
on-line party booking system
-- Strong results seen from refurbishment programme with an ROI
of 58% on refurbishments carried out in FY20, an increase from the
45% ROI achieved on sites refurbished in FY19
-- Streamlined estate to ensure the group is ready to bounce
back once restrictions ease through lease surrenders since period
end of two further loss-making bars and five sites exited through
Revolution Bars Limited's Company Voluntary Arrangement ("CVA").
CVA also delivered rent savings at a further eight bars
-- The Group's strategic initiatives remain unchanged: to build
guest loyalty; drive sustained profit improvement; and develop the
estate
-- Short term performance remains uncertain and dependent on the
UK Government's operating regulations, but the vaccine is expected
to provide a path towards a gradual recovery towards historical
performance levels from Easter 2021
-- Dynamic and motivated team ready to take advantage of good
value expansion opportunities as improved trading conditions take
hold
Rob Pitcher, Chief Executive Officer, said:
"2020 has been an immensely challenging year but I am incredibly
proud of the dedication shown by our team to steer us through this
period.
Prior to the onset of the pandemic we were reaping the rewards
of the workstreams we introduced last year to improve performance
with both brands in like-for-like sales growth, out-performing our
High Street Bars peer group. We also continued to see strong
results from our refurbishment programme. This work, combined with
our focus on the customer experience through the development of our
App, order and pay at table, and our on-line booking systems, and
the additional financial strength and flexibility we have secured
through the actions taken since the COVID pandemic hit the UK gives
me great confidence that we are well placed to recover and return
to growth once trading restrictions are removed.
The UK Government's actions towards wet-led bars and late-night
hospitality are nothing short of scandalous. It has little evidence
to justify the severe restrictions that have been imposed and it is
deliberately sacrificing businesses and people's livelihoods. The
recent grants of GBP1,000 per pub as compensation for being
deprived of our most important trading period is derisory and
insulting, and underlines a complete lack of understanding of the
costs associated with businesses of this nature (even when they are
shut) or any sympathy for the consequences of their inept
decisions.
The next few months will continue to be challenging and entirely
dependent on imposed operating restrictions. Further meaningful
government support will be required to help safeguard the industry
and avoid further job losses, particularly for young people.
However, given the actions we have taken to secure the future of
the business, I am confident that Revolution will emerge from this
crisis as a more focused business, and in a strong position
relative to our competition, ready to seize any opportunities that
arise."
Enquiries:
Revolution Bars Group plc Tel: 0161 330 3876
Rob Pitcher, CEO
Mike Foster, CFO
FinnCap, NOMAD and Joint Broker Tel: 020 7220 0500
Matt Goode / Simon Hicks / Teddy Whiley
(Corporate Finance)
Tim Redfern / Richard Chambers (ECM)
Peel Hunt LLP, Joint Broker Tel: 020 7418 8900
George Sellar / Andrew Clark
Instinctif (Financial PR) Tel: 07831 379122
Matt Smallwood
Jack Devoy
A presentation will be shared with analysts will today and the
presentation will be made available on the Group's corporate
website at www.revolutionbarsgroup.com .
The person responsible for arranging release of this
announcement on behalf of Revolution Bars Group plc is Mike Foster,
Chief Financial Officer.
Chairman's Statement
I am pleased to report that prior to the COVID driven enforced
closure of our estate, our business continued to make good
progress, achieving improved performance in the first half of the
financial period and into the early weeks of 2020. The business
benefitted from our strategic priorities of investing in our
existing space to improve our underlying like-for-like* sales
performance, redefining and rejuvenating the Revolution brand, and
reducing bank debt. However, the COVID-19 pandemic ('COVID')
severely impacted our reported performance for the full FY20 period
following the UK Government's enforced closure of all UK pubs, bars
and restaurants from 20 March 2020 which meant we were unable to
trade for the final 14 weeks.
Our senior management team has shown exceptional leadership and
resilience in the face of the most extreme circumstances and taken
all appropriate actions to ensure that our bars could reopen safely
when permitted to do so and to protect and safeguard the future of
the business.
Our business
At the end of the reporting period, the Group operated 74
premium bars with a strong presence throughout the UK for its two
high-quality retail brands: Revolution, focused on young adults;
and Revolución de Cuba, which attracts a broader age range. Most of
the Group's sales are derived from drink and food with some
late-night admission receipts driven by entertainment completing
the sales mix.
Our strategy to focus both management resource and investment
capital on the existing estate to improve the underlying
performance of the business and to use surplus cash to reduce debt
continued to gain momentum pre-COVID, following on from the
improving trends seen through the last few months of FY19.
Consistent with our strategy, no new bars were opened in the
period and 11 bars were refurbished at cost of GBP2.4 million. Our
refurbishment programme was cut short by COVID so we were unable to
cover one fifth of the estate consistent with our stated aim of a
five-year cycle. However, we were pleased with the results of the
programme, which delivered an overall sales uplift pre-COVID
consistent with the first wave of eight refurbishments undertaken
in FY19. Good progress was also made with exiting underperforming
bars with six leases surrendered including two bars that had not
traded since 2015. Since the end of the reporting period, two more
loss-making leases have been surrendered and a further five sites
returned to their landlords through a Company Voluntary Arrangement
('CVA') undertaken by the Group's wholly owned subsidiary entity,
Revolution Bars Limited, resulting in an estate of 67 premium bars
as at 16 December 2020. The CVA also delivered rent savings at a
further eight bars. With a streamlining of our Support Centre
resource undertaken post period end and our estate unburdened by a
number of underperforming bars, the Board believes, subject to a
return to normal trading conditions, the Group is well positioned
to operate more efficiently and, longer term, achieve a higher net
margin.
Our results
Sales of GBP110.1 million (2019: GBP151.4 million) were 27.3%
lower than the previous period as result of the COVID lockdown
eliminating all trading for the last 14 weeks of the period.
Like-for-like** sales in the first half were up 1.2% and for the 36
weeks to the end of February 2020, before COVID started to impact
sales performance, were up 1.3%. Adjusted EBITDA*, our preferred
KPI is significantly impacted by the change in reporting resulting
from the implementation of IFRS 16. From next year, when there will
be consistency of reporting, our preferred KPI will become adjusted
EBITDA including rent charges, but for this year the directors
believe that business progress is best measured by the directly
comparable IAS 17 Alternative Performance Measures ('APM')***
measure of adjusted EBITDA* which was GBP0.1 million (FY19: GBP11.1
million). Due to the operational leverage in the business, the full
year adjusted EBITDA* performance was severely impacted by the
closure of sites during the COVID lockdown.
After APM*** exceptional items of GBP20.1 million (2019: GBP7.1
million), bar opening costs of GBPnil (2019: GBP1.5 million) and a
charge from long term incentive plans of GBP0.04 million (2018:
credit GBP0.1 million), the APM*** operating loss was GBP27.5
million (2019: loss GBP4.7 million).
Statutory exceptional items of GBP21.9 million include non-cash
charges of GBP21.5 million for asset impairments, including in the
current period right-of-use assets, and are net of exceptional gain
on disposal of leases included in exceptional finance income (2019:
GBP7.1 million for asset impairments and onerous lease provisions).
Cash exceptional items in the period were GBP0.4 million comprising
expenditure incurred in the admission to AIM (2019: GBPnil). This
gives rise to a statutory operating loss of GBP32.7 million under
IFRS 16.
When free to trade without the imposed COVID restrictions, we
are a highly cash generative business and excellent progress was
made on reducing gross bank debt to GBP11.5 million as at the end
of the first-half of FY20, down GBP6.0 million in six months from
the end of FY19. However, by the end of FY20, due to COVID, gross
bank debt had risen back to GBP24.5 million (FY19: GBP17.5
million).
Our Board
Our Board has remained unchanged throughout the period. The
Board demonstrated significant commitment to the business over the
final four months of the period to deal with the consequences of
COVID and to review and ratify many of the difficult decisions made
by the senior management team and to provide a sounding board and
support to the executive directors given the unprecedented
situation. The Board also showed strong leadership and empathy for
the difficulties that COVID has caused for most of the Group's
workforce by agreeing a 50% reduction in Board salaries with effect
from 1 April 2020 (see Report of the Remuneration Committee for
more details).
At our AGM on 22 December 2020, Mike Foster, our Chief Financial
Officer will retire from the Board. Danielle Davies will be
appointed to the Board in his place. We have known for a while that
Mike was likely to retire at some point and so we started
succession planning well over a year ago. Danielle has been working
with Mike for almost six months during which time she has provided
support and eased the extensive burden of additional work caused by
COVID and considered necessary to safeguard the business.
Therefore, I am very confident that the transition between Mike and
Danielle will be straightforward.
Our team members
At the end of the reporting period, the Group employed over
2,900 people, all of whom strive to provide the outstanding
customer experience that is at the heart of our strategy. 2020 has
been a year like no other in terms of the challenges our team
members at every level of the business have faced and I must pay
tribute to their resilience throughout the lockdown period, their
bravery on returning to work under extremely difficult operating
conditions, and for their whole-hearted support of the management
team in the face of some very difficult actions necessary to
safeguard the business. I must also pay tribute to the senior
management team and indeed all levels of management who have had to
adapt to very different ways of operating and leading and having to
deal with many matters they could not have contemplated a year
ago.
COVID-19
We cannot avoid the fact that the trading backdrop for at least
the next few months remains very uncertain. Whilst acknowledging
that management of the pandemic and balancing the health and
economic consequences is far from easy, the way in which the
hospitality sector appears to have been sacrificed in order to curb
the spread of the virus when all the evidence suggests that the way
in which pubs, bars and restaurants have adapted their operations
has been very effective, seems very disproportionate and completely
misguided. As a wet-led business with a significant element of
trade being late-night and entertainment-led, our business has
suffered disproportionately from the many operating restrictions
imposed on it. Whilst furlough support and relief from business
rates has been necessary and helpful, Eat Out To Help Out and the
VAT reduction were of some limited value to a wet-led predominantly
late-night business, and the grants now being made available to
cover some of the other overheads are woefully short of the levels
necessary to compensate for being sacrificed by the UK Government
in this way. The UK Government has shown a completely inadequate
grasp of our situation and, to date, an obdurate unwillingness to
do anything about it.
The UK Government should recognise that in 2019, the Group
contributed GBP48.4 million to HMG Treasury, equivalent to 44.0% of
its total revenue. Any government support provided to our business
now is protecting a reliable and much larger level of tax revenue
flowing back to HM Treasury as soon as the pandemic is
defeated.
I must also thank our suppliers who have been extremely
supportive by suspending contracts or agreeing deferred payments,
our staff for their salary sacrifices, many landlords who have
part-waived rent, NatWest who has been very supportive and
increasing our committed debt facilities, and our shareholders for
supporting our successful equity fundraising.
I would also like to acknowledge the outstanding efforts of Kate
Nicholls, who has represented the hospitality sector with
unwavering vigour, dedication and determination throughout this
challenging period.
Our dividend
The Group suspended dividend payments in March 2019 in order to
prioritise the reduction in bank debt. Given the material
uncertainties caused by COVID, this situation continues to
prevail.
Our Future
Overall revenue generated in the first 24 weeks of FY21 is
GBP20.6 million, down significantly on the same weeks in FY20
(GBP72.1 million) due to the cautious and phased reopening of our
bars from 6 July 2020 and as a result of the severe and constantly
evolving operating restrictions including further national and
local lockdowns, table service only and the 10pm curfew. However,
the Board is encouraged by the recent announcements of the COVID
vaccine and currently expects that the business will gradually
recover to its previous performance levels over the course of the
six months from April 2021, being the date the UK Government expect
restrictions to materially ease.
Since the end of FY20, the business has taken steps to
substantially increase its liquidity including increasing its
committed bank facilities, completing a GBP15.0 million equity
fundraising, which was used to pay down debt, negotiating further
rental support from landlords and undertaking a CVA in Revolution
Bars Limited (as referred to above under 'Our business'). The
Financial Review on page 13 provides information on liquidity and
going concern and also the full going concern disclosures, which
include references to material uncertainty, in note 1.
The business achieved a much-improved performance in the first
half year and remained on a good track until COVID struck in March
since when it has dominated our agenda. However, the management
team have taken all necessary actions available so that the
business is able to recover quickly once normalized trading
conditions return.
Keith Edelman
Non-Executive Chairman
16 December 2020
*Adjusted performance measures exclude exceptional items,
share-based payment (credits)/charges and bar opening costs (see
reconciliation table on page 13 of the Financial Review)
**Like-for-like (LFL) sales are defined as total retail sales
from bars that have traded throughout both the current and prior
reporting periods
*** APM refers to Alternative Performance Measure being measures
reported on an IAS 17 basis that are directly comparable to FY19
reported measures
COVID-19 - Our Response
All our bars were closed by order of the UK Government as part
of the measures to stem the spread of COVID on 20 March 2020 and
trading was not permitted until after the end of FY20 on 4 July
2020. The Group adopted a cautious approach to reopening to ensure
that it could operate safely and viably and chose not to reopen on
Saturday 4 July 2020 as the Board considered that a potentially
very busy Saturday was not a sensible way of testing many of our
new systems for delivering a safe environment for our staff and
customers. Initially, we opened six bars for two weeks and then
opened our bars in further tranches until 65 of our bars were
trading by 21 September 2020. There have been a number of
challenges during this period, with numerous changes to the
operating rules and restrictions imposed by the various governing
authorities, and our revenue has been subject to large fluctuations
with weekly sales varying between GBPnil, -100% on last year, to
90% of last year. The occurrence of Board and senior management
meetings have increased to ensure the Group could adapt quickly to
the frequent changes in the industry. Our priority throughout both
the closure period and since reopening has been the safety of our
guests and teams and safeguarding the future of the business and
our response is summarised as follows:
Health and safety - preparation of our bars for reopening by
-- installing separation screens and other protective measures
such as table spacing and signage in order to ensure social
distancing protocols were followed, sanitiser stations in key areas
of our bars;
-- health screening of our teams and developing new training
programmes to deal with all aspects of operating safely and keeping
each other safe;
-- implementing digital daily and weekly management checks along
with monthly senior management audits to ensure compliance with
COVID secure measures;
-- removal of cash payments from the business to further reduce the possibility of infection.
Safeguarding the future - we recognised at an early stage that
our business model being wet-led and with a late-night focus was
going to be severely impacted by COVID and the imposed
restrictions. Therefore, a number of steps were taken to both
improve the liquidity available to the business and to minimise the
cash burn rate as follows:
-- support from the Group's bank, NatWest, to increase available
debt facilities from GBP21.0 million (in March 2020 and due to
decrease to GBP18.0 million in June 2020), to GBP37.5 million
effective 6 July 2020 (including a Coronavirus Large Business
Interruption Scheme ('CLBILS') term loan of GBP16.5 million);
-- an equity fundraising of GBP15.0 million by way of a Firm
Placing and a Placing and Open Offer that completed shortly after
the end of FY20 on 27 July 2020;
-- transferring the Company's stock market listing from the Main
Market to AIM so that the Company was better placed to raise
further funds quickly and more cheaply should that become
necessary;
-- securing agreement with our key suppliers to extend credit,
in some cases until trading recommenced, and to suspend contracts
whilst we were unable to trade;
-- putting 98.5% of our staff on furlough during the enforced
closure period and, whilst we topped-up pay to 80% of salary for
those above the furlough threshold, the salaries of the senior team
who remained in work were reduced to 80% and Board salaries were
reduced to 50%;
-- taking advantage of other support measures from the UK
Government such as 100% relief for business rates and deferring
GBP2.1 million of VAT until March 2022 and GBP1.6 million of PAYE
under Time to Pay being repaid in instalments to March 2021;
-- reorganisation of the central support team in line with
future business needs, reducing the headcount by 12%;
-- securing agreements with landlords to share the pain of
enforced closure. Initially, progress was slow in this area but
accelerated as the moratorium period against forfeiture was
extended through FY21 and an increasing number of consensual deals
were completed. Overall savings in rent payments from the March
2020 rent quarter day to the end of FY21 are GBP4.1 million - see
note 1 to the financial statements for more detail; and
-- undertaking a Company Voluntary Arrangement (CVA) in November
2020 in respect of the Group's wholly owned subsidiary entity
Revolution Bars Limited that resulted in exiting five loss-making
leases and reduced rental terms on eight others for the duration of
the two-year CVA period.
Team member engagement - we recognised that with so many of our
2,900 team members on furlough there would be challenges keeping
team members engaged with the business and the rest of the
Revolution family and sustaining their physical and mental
well-being. To that end we:
-- provided weekly briefings for all team members via a mixture
of newsletters, emails and Microsoft Teams calls and encouraged
feedback, questions and interaction;
-- held several virtual events to keep our team members interested in the business;
-- developed a monthly digitally interactive company newsletter;
-- delivered refresher training to all our team members at regular intervals during lockdown;
-- were delighted when many of them came together to organise
the Revs runners relay from Inverness to Plymouth to London to
raise funds for Shelter and the NHS.
Brand innovation / customer engagement - in order to keep our
brands front of our customers' minds during the lockdown, we:
-- broadcast on-line Revolution DJ sets;
-- partnered with Pernod Ricard, Bacardi and Diageo to host rum
tasting masterclasses live on Instagram;
-- developed our online gifting platform/shop to include branded
cocktail making kits and ready to drink cocktails for home
delivery;
-- used our IT resource during lockdown to expand the
functionality of our booking system to make it fully automated so
that customers can fulfil all their booking needs on-line without
talking to a member of our sales team or venue staff;
-- developed order and pay at table for the Revolution App and
entered into a partnership with Omnifi to create order and pay at
table for Revolución de Cuba facilitating a safer operation on
reopening; and
-- created on-line cocktail masterclasses for COVID secure group bookings.
Chief Executive Officer's statement
Business review
Our business has made good steps forward this year despite the
massive disruption caused by COVID in the second half of the
year.
Our first half financial performance was very encouraging with
like-for-like** sales growth at 1.2% and APM*** adjusted EBITDA*
10.6% higher than FY19. Our like-for-like** sales performance
tracked ahead of the Bars sector, as measured by the CGA Peach
tracker, driven by an outstanding performance in Revolución de Cuba
at +5.0%. Revolution at -0.4% was much improved on FY19: -4.6%, as
the multiple workstreams we had initiated during the prior year to
rejuvenate the brand started to gain customer appeal.
The good start to FY20 continued into the first 10 weeks of the
second half with like-for-like** sales up 1.6% with Revolution in
growth at +0.5% and Revolución de Cuba strengthening further to
+3.9%. However, from the second week of March 2020, COVID started
to adversely affect sales and ultimately the UK Government ordered
all pubs, bars and restaurants to cease trading with effect from 20
March 2020. We were unable to trade for the remainder of FY20, a
period of just over 14 weeks although our sales had been adversely
impacted for at least two weeks longer.
The strategic priorities we set for FY20 were delivered despite
the distraction of COVID with some of the highlights set out
below:
Investing on our team :
- started with creating new Purpose, Vision and Values
statements for the business at our annual conference in early
August, which we then used as a central part of our team training
throughout the year to ensure everyone was aligned with our
business goals and their role in achieving them;
- we launched a new benefits programme 'Revs with benefits' in
February for all of our team members to support their financial,
physical and mental well-being;
- an apprenticeship scheme was launched for our kitchen teams in February;
- early in 2020, and in response to feedback from hourly paid
team members, we offered the option of minimum hour contracts
(effective from April) in place of zero-hour contracts and these
were taken up by 48% of those team members.
Investing in our brands and guest experience:
- further customer research was commissioned into the Revolution
brand proposition as part of our work to reimagine Revolution for
the next generation and to maintain the momentum of the brand
development;
- an acceleration of our digital capabilities, the urgency for
which became much greater in order to operate effectively under the
imposed COVID restrictions. This included enhancing our internally
developed booking system to become fully automated and accessible
by customers on-line so that they are now able to fulfil all their
basic booking needs at any of our bars without talking to a member
of the sales team, a significant and necessary enhancement in the
new COVID-19 ('COVID') environment. There has also been further
development of the Revolution App to include order and pay, with
the benefit of significantly increasing users of the App to 545,000
registered users, up from 230,000 in February 2020. At the same
time we partnered with Omnifi to deliver
order and pay at table across our Revolución de Cuba bars; and
- the guest experience metrics in both brands moved forward (as
measured by Reputation.com); Revolution from 4.3 stars at June 2019
to 4.5 stars at February 2020, the last time it was possible to
accurately measure
feedback, and Revolución de Cuba from 4.3 stars to 4.4 stars over the same time period.
Investing in our estate:
- in the 36 weeks of FY20, when it was possible to operate
without restrictions, we refurbished 11 bars at a cost of GBP2.4
million. Based on their trading in the weeks following
refurbishment, these bars were collectively delivering sales growth
7.1% higher than the remainder of the non-refurbished estate and is
an improvement on the first wave of 8 bars refurbished in FY19.
This represents a return on capital of 58%;
- focusing management attention on our existing estate has also
enabled us to address some of our legacy and under-performing sites
and during the year we surrendered six leases including two that
had not traded since FY15. Five of these leases were with one
landlord as a result of a sale and leaseback financing transaction
in 2007, which over time had seen the leases become unviable. The
exit cost for all six leases was initially agreed at GBP3.9 million
but was subsequently reduced to GBP2.6 million to facilitate the
completion payments after COVID restricted the Group's cash flows.
The lease surrenders save annual losses of GBP1.3 million so
represented a good use of capital; and
- two further lease surrenders of underperforming bars have been
completed subsequent to the end of FY20 (see current trading and
liquidity).
Our Team
The last four months of FY20 and subsequent months, dealing with
COVID and the related fall-out in terms of its impact on our
business and the many difficult decisions we have had to make to
safeguard its future, has been an immense challenge for all our
team members. Throughout this period, I have been amazed and
uplifted by unsolicited feedback and support from our team members
acknowledging the efforts and achievements of the senior team to
keep the Revolution family together and their generosity of spirit
in dealing with those very difficult decisions and the
circumstances generally. I feel very proud and very humble to lead
such a great team and I know that when our business is free to
trade once more unshackled by the pandemic and the burden of
related operating restrictions imposed upon us, the character and
togetherness of our team will be even stronger.
Group strategic objectives
Our three strategic objectives are now more relevant than ever;
these being:
-- Building guest loyalty;
-- Driving sustained profit improvement; and
-- Development of our estate.
These three pillars continue to be our guiding principles and
drive our long-term decision-making. Our three-year plan, mapped
out well over 18 months ago, made clear that our initial focus was
on the first two objectives but suggested that we expected to be
able to start planning for estate expansion at the end of FY20.
Whilst the disruption caused by COVID has set back our timescales
for expansion, we believe that post COVID, our market place and the
competitive landscape will be fundamentally different and there may
be good opportunities for both our brands to expand their estates
at a much lower level of investment.
Strategic priorities for FY21
Due to the later publication of this Annual Report, we are
already almost half-way through the FY21 reporting period with the
first half of that period also totally dominated by COVID;
necessarily our day to day actions have focused on adapting our
operations in accordance with the constantly changing rules and
guidance issued by the various UK statutory authorities, and our
priorities remain the health and safety of all our staff and
customers, ensuring that we can trade viably and doing everything
possible to safeguard the future of the business. Against that
backdrop and mindful that COVID will continue to dominate our day
to day actions for several more months, we remain committed to the
following strategic priorities in FY21:
Investing in our team:
- developing and rolling out a new immersive induction progamme
for new recruits to both brands as our business builds back up;
- establishing Diversity and Inclusion champions across the business; and
- remapping and reinvigorating the career paths for both front
of house and back of house team members.
Investing in our brands and guest experience:
- refining the customer service journey through further
development of order and pay at table to relieve the issues of
queuing at bar;
- rolling out our new brand proposition for Revolution focusing
on bringing people back together in real life in a place for high
quality interactions but allowing for conscious escapism in an
ethical and sustainable way;
- taking Revolución de Cuba into people's homes with the
development of our on-line product offering and to outside events
and private functions with our Cuban party van;
- creating many new reasons to visit our bars through the
evolution of our 'event space' customer offering;
- further development of our bookings platform and our order and pay at table technology.
Investing in our estate:
- restarting our refurbishment programme in the last quarter (three bars targeted); and
- accelerating our sustainability agenda and completing our
planning to announce in the next 12 months our specific goals to
become carbon neutral.
Debt reduction:
- closely managing debt mindful of our long-term target that net
bank debt should be no more than one times adjusted EBITDA* (IAS
17).
Relaunch our business:
- using our workstream methodology, requiring workgroups from a
mixture of relevant disciplines across our business led by one or
more members of the senior executive team to relaunch all elements
of our business .
Market outlook
The outlook for our business in recent weeks has been brightened
significantly by the news of successful vaccine trials; that the UK
Government has secured significant stocks of vaccine and that a
vaccination programme to deal with this terrible disease is now
underway. As COVID disproportionately threatens those in our
population who are older and the medically vulnerable, and given
that the vaccination programme will rightly prioritise those
groups, we believe it should be possible for operating restrictions
to be lifted once that part of the vaccination roll-out has been
completed. Notwithstanding, it is apparent from the UK Government
announcements during late November that there is unlikely to be a
significant loosening of operating restrictions until Easter 2021
and, therefore, the levels at which we may be able to trade until
then are uncertain. It is reasonable to assume our business may be
able to trade in a more normal manner from April 2021, subject only
to consumer confidence. There is both an economic risk, given the
fall-out from COVID with soaring unemployment, lower earnings and,
longer term, potentially higher taxes to start repaying the
government borrowing caused by COVID, and a health and safety
confidence risk given that the UK authorities scapegoating of
hospitality may have undermined customer confidence. There are,
however, several reasons for us to remain positive about the
future, including:
- our target customers, due to our focus on young adult age
groups, are at lower risk from COVID health issues;
- there is likely to be huge pent up demand given that normal
operations will have been suspended for over twelve months; and
- our marketplace may be less competitive as some operators may not survive this period.
Longer term, the UK Government must recognise that it needs to
provide continuing support to enable hospitality companies to be
able to repay the debt funding built up as a result of the
operating restrictions imposed upon them during the pandemic. The
best way of achieving this would be to extend the reduced VAT rate
of 5% to all sales of food and drink until at least the end of 2021
and to extend the relief for business rates into the 2021/22 fiscal
year. Now that there appears to be a clear path back to 'normal'
trading conditions, the UK Government should lay out its package of
longer term support to aid recovery so that hospitality businesses
and their funding partners can start planning their route back to
full recovery.
Also, longer term, we believe that there may be good property
opportunities, both in terms of availability and lower investment
cost, as a result of business failures and, connected to this, a
decrease in rental levels.
Current Trading and liquidity
We commenced a cautious reopening of our bars from 6 July 2020
with an initial tranche of six bars and by 21 September we were
trading 65 bars. As expected, sales were well below normal levels
given the operating restrictions around the maximum sizes of
customer groups, table service only severely reducing our operating
capacity and the ban on live entertainment and dancing.
Nevertheless, our customers enthusiastically returned to our bars
and sales rose steadily on a weekly basis with some additional help
from Eat Out To Help Out during August giving us momentum into
September. In the four weeks between 1 August and 31 August,
comparable venue sales were 82.2% of last year, which in the
circumstances was very encouraging. However, the imposition of the
10pm curfew on 24 September resulted in an immediate downturn in
sales trend by approximately 19.3%, and the introduction of
regional lock-downs and further operating restrictions under the
tier systems further reduced sales before the latest four week
national lockdown took effect on 5 November. Overall, sales in our
ongoing estate for the first 24 weeks of the new financial period
were 41.4% of last year.
During this period, we surrendered leases on loss-making bars at
Cavern Quarter - Liverpool (Revolution) and Huddersfield (
Revolución de Cuba) eliminating annual EBITDA losses of GBP0.3
million at a cost of GBP0.5 million. As a result of the CVA
undertaken by Revolution Bars Limited (see Chairman's statement on
page 4 and section on our COVID response on page 7 for further
details), the Group exited a further five sites and therefore at
the date of this report the Group now trades from 67 bars.
Christmas trading has traditionally been a key trading period
for the business and responsible for a significant proportion of
the Group's annual profit, but this year Christmas trading has been
effectively wiped out by the imposed operating restrictions. From 4
December 2020, when the four-week lockdown period had ended in
England, new restrictions were implemented in Wales and different
versions of the tier system were active across the UK, the Group
effectively had one bar in tier 1, 32 bars in tier 2 and 34 bars in
tier 3. Tier 3 bars are unable to trade and as tier 2 bars are only
allowed to serve alcohol with a substantial meal their viability is
at best marginal. It is now clear that trading in the first quarter
of 2021 (the Group's third quarter), is also likely to be severely
compromised and therefore the FY21 financial period will incur a
substantial loss.
At 16 December 2020, the Group had net bank debt of GBP19.5
million compared with total committed bank facilities of GBP37.1
million. As a result of the Group's banker, NatWest, agreeing to
defer both a GBP7.5 million reduction in debt facilities at the end
of March 2021 and GBP1.0 million reduction at the end of June 2021
(more detail on page 13 of the Financial Review), committed bank
facilities will now reduce to GBP36.6 million at the end of June
2021 to GBP34.1 million at the end of December 2021 and to GBP32.6
million at June 2022. The Group estimates that if it is unable to
trade then under the current arrangements for the Coronavirus Job
Retention Scheme, minimal benefits from government grants, and
current agreements with landlords, its cash burn rate is just over
GBP0.4 million per week. Please see the going concern disclosures,
which include references to material uncertainty, in note 1.
Rob Pitcher
Chief Executive Officer
16 December 2020
*Adjusted performance measures exclude exceptional items,
share-based payment (credits)/charges and bar opening costs (see
reconciliation table on page 13 of the Financial Review)
**Like-for-like (LFL) sales are defined as total retail sales
from bars that have traded throughout both the current and prior
reporting periods
*** APM refers to Alternative Performance Measure being measures
reported on an IAS 17 basis that are directly comparable to FY19
reported measures
Financial Review
Financial Review
Summary
-- The headline numbers are difficult to interpret because, as
permitted, current year numbers are presented under IFRS 16 whilst
the comparative period is presented under IAS 17. Alternative
Performance Measures ("APM") for the current period under IAS 17
are given equal prominence in this review because, in the opinion
of the Directors, these provide a better guide to the underlying
performance of the business relative to the prior period.
-- When considering the results for the period, it should also
be noted that due to a government enforced closure of pubs, bars
and restaurants on 20 March 2020, the business was unable to trade
in the last 14 weeks of the period.
-- Revenue in the period was GBP110.1 million (2019: GBP151.4
million), a 27.3% decrease. Prior to the enforced closure of the
estate, revenue was 1.3% like-for-like ('LFL') ahead of the
comparable prior period.
-- The underlying result, as measured by adjusted EBITDA*, was
GBP1.3 million lower at GBP9.8 million (APM: GBP0.1 million) (2019:
GBP11.1 million).
-- The Group incurred an operating loss of GBP32.7 million (APM:
GBP27.5 million) (2019: loss GBP4.7 million) after charging
non-cash exceptional items of GBP27.4 million (APM: GBP19.7
million) (2019: GBP7.1 million) and cash exceptionals of GBP0.4
million (APM: GBP0.4 million) (2019: GBPnil).
-- The Group generated net cash flow from operating activities
in the period of GBP6.5 million, GBP4.1 million less than in the
prior period (2019: GBP10.6 million).
-- Net bank debt at period end was GBP22.0 million (2019:
GBP14.9 million).
IFRS 16
The Group adopted IFRS 16 with effect from 30 June 2019. The
Group applied the standard using the modified retrospective
approach and thus comparative information has not been restated and
is presented, as previously reported, under IAS 17.
The impact of IFRS 16 is twofold:
-- to create a lease liability in the balance sheet measured at
the present value of remaining lease payments discounted
appropriately, and a corresponding right-of-use asset, adjusted for
prepaid and accrued lease payments; and
-- to remove the rental charge from the income statement and
replace it with a depreciation charge in respect of the
right-of-use asset and a finance charge in respect of the unwinding
of the lease liability.
Further details on implementation of this standard, and a
reconciliation of profit under the previous lease accounting
standard, IAS 17, to the statutory figures are included in note 1
to the financial statements.
Presentation of results
As noted above, IFRS 16 became effective in the current
reporting period and comparative disclosures have not been restated
and continue to be shown on an IAS 17 basis. Given that IFRS 16
materially impacts the presentation of several of the Group's KPIs,
a pro forma income statement and supporting notes are presented in
note 21 as APM to show how the results would have been presented
under IAS 17. The Board considers that this is necessary for the
FY20 reporting period only in order to show true comparability
against the prior year. Note 1 to the financial statements provides
a reconciliation of the two measures. There have been no other
changes to accounting policies in the period under review.
The Directors have, for many years, relied upon the performance
measures, adjusted EBITDA*, adjusted operating profit* and adjusted
pre-tax profit*, to give a clearer indication of the underlying
performance of the business as these measures exclude exceptional
items, one-off bar opening costs that are a function of the timing
of the new bar development programme rather than the underlying
trade, and non-cash charges relating to long-term incentive schemes
that tend to reflect changes in the management team rather than the
underlying business performance.
However, it should be noted that adjusted EBITDA* is also
significantly impacted by IFRS 16 and, therefore, from next year,
when both periods reported will be reported on an IFRS 16 basis,
the preferred alternative performance measure will become adjusted
EBITDA* including rent charges. In the current reporting period,
because of changes to the basis of the rent charge, it is not
appropriate to simply deduct rent from adjusted EBITDA* to derive
an accurate figure comparable with last year's IAS 17 reported
number due to different accounting treatments for rent-free periods
and onerous lease provisions. Accordingly, the Directors continue
to rely (for the FY20 reporting period only) on the APM adjusted
EBITDA* as being their preferred measure of underlying business
performance.
Results
Owing to the COVID-19 pandemic ('COVID'), FY20 comprised two
very contrasting halves. The first half saw improvements on the
previous year, with like-for-like** sales improving by 1.2% and APM
adjusted EBITDA* stepping forward by GBP0.7 million to GBP7.6
million (2019: GBP6.9 million). This was a direct result of the
turnaround plan launched a year earlier gaining momentum and
included the benefit of a successful Christmas period, bar
refurbishments, improved late-night entertainment experiences and
other promotional activity. However, the second half was severely
impacted by the enforced closure of all our bars from 20 March 2020
and all income was foregone for just over the last 14 weeks of the
period. Accordingly, management efforts focused on cost reduction,
cash liquidity and stakeholder communication. APM adjusted EBITDA*
in the second half was a loss of GBP7.5 million (FY19: profit
GBP4.3 million).
Revenue for the full period was GBP110.1 million (2019: GBP151.4
million), down 27.3% compared with the prior period. The underlying
result, as measured by APM adjusted EBITDA* (see note 21), was
GBP11.0 million lower at GBP0.1 million (2019: GBP11.1 million).
Statutory adjusted EBITDA* was GBP9.8 million (2019: GBP11.1
million).
During the enforced closure, the Group took advantage of all
applicable Government support. The Group utilised HMRC's Time to
Pay and tax deferral schemes in respect of PAYE and VAT liabilities
amounting to GBP3.1 million of liabilities that were due for
payment being deferred until after the end of the period. All bar
teams and a majority of our support centre staff were placed on
furlough under the rules of Coronavirus Job Retention Scheme
(CJRS). A small number of general managers and most area managers
were retained to visit sites and stay in contact with staff. Board
directors and other members of the senior management team agreed to
take voluntary pay cuts of up to 50% for the Board and 20% for
other managers. Many suppliers agreed to extended payment terms
and/or to suspend contracts, and before the period end a small
number of landlords agreed to waive some or all rent during part or
all of the closure periods. Agreements with landlords predominantly
waived or reduced rent with very little rent deferred. Subsequent
to the year end, further rent waivers and lease regears have been
completed that related to the FY20 period as did the Company
Voluntary Arrangement (CVA) undertaken by the Group's wholly owned
subsidiary entity Revolution Bars Limited, which was approved by
creditors on 13 November 2020. Any element of the earnings benefit
of these deals relating to FY20 is to be recorded in FY21 when the
agreements were executed.
COVID has impacted the Group's results extensively and
consideration was given to separately reporting within the accounts
all associated costs and any related grant support and other
reliefs. To do so would have been a massive exercise but the Board
adjudged it would be very difficult to ensure that such disclosures
were complete and accurate and ultimately it was somewhat
meaningless given the ongoing nature of the disruption and
therefore all such items have been treated as part of normal income
and expenditure.
In the accounting period and prior to the period of enforced
closure, lease surrenders were negotiated on six underperforming
sites, three of which were already closed, and a further site was
closed for sub-let. These difficult decisions were taken to
safeguard the rest of the business for the longer term.
Central costs of GBP8.6 million (2019: GBP8.8 million) represent
7.8% of revenue compared to 5.1% in the prior period and equates to
GBP109,000 per bar (2019: GBP97,000).
The Group incurred an APM operating loss of GBP27.5 million
(2019: loss of GBP4.7 million) after charging non-cash exceptional
items of GBP19.7 million (2019: GBP7.1 million) and cash
exceptionals of GBP0.4 million (2019: GBPnil). The Group reported
an APM pre-tax loss for the period of GBP28.1 million (2019: loss
GBP5.6 million) impacted by the exceptional costs detailed
above.
Underlying profitability
The Board's preferred profit measures are APM adjusted EBITDA*
and APM adjusted* pre-tax (loss)/profit as shown in the tables
below. The APM adjusted measures exclude exceptional items, bar
opening costs and charges/credits arising from long term incentive
plans.
Number 2020 2019
of bars GBPm GBPm
APM adjusted EBITDA*
Like-for-like** estate
EBITDA 69 9.2 19.9
Bars opened in prior period
(FY19) 5 0.2 0.5
----------------------------- ---------- ------- -----------------------------------------
Trading venue EBITDA 74 9.4 20.4
Bars closed in current
period (FY20) 5 (0.7) (0.5)
APM adjusted EBITDA from
bars 79 8.7 19.9
Central support costs (8.6) (8.8)
APM adjusted EBITDA 0.1 11.1
============================= ========== ======= =========================================
2020 2019
GBPm GBPm
APM reported pre-tax loss (28.1) (5.6)
Add back Exceptional items 20.1 7.1
Add back Bar opening costs - 1.5
Add back Charge/(Credit)
arising from long-term
incentive plans 0.0 (0.1)
------- ------
APM adjusted pre-tax (loss)/profit (8.0) 3.0
Add back Finance costs 0.6 0.9
Add back Depreciation 7.5 7.2
APM adjusted EBITDA 0.1 11.1
------- ------
Exceptional items, bar opening costs and accounting for
long-term incentive plans
Exceptional items , by virtue of their size, incidence or
nature, are disclosed separately in order to allow a better
understanding of the underlying trading performance of the Group.
The statutory exceptional position of GBP21.9 million, is GBP1.8
million higher than the APM exceptionals GBP20.1 million due to
additional impairment on right-of-use assets, methodology changes
to fixed asset impairments, and accounting treatment changes on the
surrender of leases and onerous lease provisions, all as a result
of the implementation of IFRS 16.
The charge of GBP21.9 million comprises GBP27.4 million (FY19:
GBP7.1 million) of non-cash exceptionals relating to fixed asset
and right-of-use impairment charges offset by a gain on disposal
recognised under IFRS 16 upon surrender of leases of GBP5.9
million, included as exceptional finance income. It also includes
cash exceptionals of GBP0.4 million (FY19: GBPnil) relating to
moving the listing of the Company's shares from the London Stock
Exchange premium segment to AIM. In the prior reporting period,
non-cash exceptionals related to the impairment of fixed assets and
an increase in the onerous lease provision. A full analysis of
exceptional items is given in note 3 to the financial
statements.
Bar opening costs refer to one-off costs incurred in getting new
bars fully operational and primarily include costs incurred before
opening and in preparing for launch. The most significant element
of these costs relates to property overheads incurred between
signing the lease and opening for trading. There were no openings
in the current period and five in the prior period.
Charge relating to long-term incentive schemes resulted from
equity-settled share-based payment transactions. No awards vested
in either the current period or prior period.
Finance costs
The significant increase in finance costs to GBP4.9 million
(2019: GBP0.9 million) related to IFRS 16 interest charges (GBP4.3
million). Charges related to the Company's committed revolving
credit facility with NatWest (the "Facility") including commitment
fees relating to any undrawn element of the Facility, and the
amortisation of arrangement fees over the life of the Facility were
lower than the prior period due primarily to lower average bank
debt levels during the year as a result of reduced borrowings until
the very end of the year when all trade over the last 14 weeks was
foregone.
Liquidity
As at the date of the consolidated financial position, the
Facility provided GBP30.0 million committed funding to December
2021 of which GBP24.5 million (2019: GBP17.5 million) was utilised.
Shortly after the end of the reporting period, the Company received
from NatWest a GBP16.5 million Coronavirus Large Business
Interruption Loan (CLBIL) in the form of a three-year term loan
which was used to pay down the Facility and the Facility commitment
was reduced to GBP21.0 million and its term extended to June 2022.
This provided the Company with committed facilities of GBP37.5
million of which GBP7.5 million was due to be prepaid at the end of
March 2021 with the Facility reducing by a further GBP1.0 million
at the end of June each year. The CLBIL was due to amortise by
GBP1.0 million per annum.
On 27 July 2020, the Group completed an equity fundraising of
GBP15.0 million, receiving net proceeds of GBP14.1 million. These
net proceeds were used to repay all remaining outstanding loan draw
downs on the Facility.
On 16 December 2020, NatWest agreed to defer both the GBP7.5
million prepayment on the committed facilities due at the end of
March 2021 and the GBP1.0 million reduction on the Facility due at
the end of June 2021 and accordingly the Company now has committed
Facilities as follows:
RCF - "The
Facility" CLBILS Total
GBPm GBPm GBPm
31 December
2020 21.0 16.1 37.1
30 June 2021 21.0 15.6 36.6
31 December
2021 19.6 14.5 34.1
30 June 2022 18.6 14.0 32.6
The Facility is repayable in full at 30 June 2022. CLBILS is a
three-year term loan expiring 6 July 2023,
Taxation
There is no tax payable in respect of the current period. The
charge of GBP3.5 million (2019: credit GBP0.4 million) principally
arises from the derecognition of the deferred tax asset that was
created on the implementation of IFRS 16 given the difficult
trading outlook resulting from COVID.
Earnings/(loss) per share
Basic loss per share for the period was 70.3 pence (2019: loss
10.4 pence). Adjusting for exceptional items, non-recurring opening
costs and credits arising from long-term incentive plans resulted
in an adjusted loss per share for the period of 37.3 pence (2019:
earnings of 3.4 pence).
Operating cash flow and net bank debt
The Group generated net cash flow from operating activities in
the period of GBP6.5 million (2019: GBP10.6 million), but after
deducting both the principal and finance elements of lease payments
this reduces to a net cash out-flow of GBP0.9 million. The Group
focused on minimising its cash outflow and liquidity in the last
quarter of the year under the lockdown conditions to ensure that
the business would be in a strong position to resume trading when
conditions permitted. The cessation of trading from 20 March 2020
presented a risk of a significant negative working capital unwind.
However, this was mitigated through payment deferral arrangements
with the Group's largest suppliers, rent waivers agreed with a
limited number of landlords, utilisation of the Coronavirus Job
Retention Scheme and HMRC Time to Pay schemes, reduction of capital
expenditure and reduction of costs wherever possible.
Capital expenditure payments of GBP4.2 million (2019: GBP11.6
million), lease surrender payments of GBP1.4 million (2019:
GBPnil), bank loan interest GBP0.6 million (2019 GBP0.8 million)
and dividends of GBPnil (2019: GBP1.7 million) all contributed to a
net cash outflow in the period of GBP0.1 million (2019: GBP1.4
million) increasing net bank debt from GBP14.9 million (2019:
GBP11.5 million) to a closing position of GBP22.0 million (2019:
GBP14.9 million).
Capital expenditure
The Group made capital investments of GBP4.2 million (2019:
GBP11.6 million) during the period; this was incurred entirely on
the existing bars, comprising bar refurbishments, building
renovation works, equipment replacement and IT investment. Of the
GBP11.6 million in the prior period, GBP6.6 million related to new
openings and GBP5.0 million related to the existing estate.
Post balance sheet event
On 13 November 2020, the Group announced the completion of a
Company Voluntary Arrangement ('CVA') of its largest trading
subsidiary entity, Revolution Bars Limited. This entity holds all
but four of the Revolution branded bars; the CVA resulted in the
Group permanently exiting five underperforming bars and benefitting
from the waiver of rent arrears and the imposition of turnover
rents for the next two years at several other bars.
Dividend
As notified previously, the Board had suspended payments of
dividends. Furthermore, (a) a condition of taking on the CLBIL
facility is that the Company is unable to pay a dividend whilst the
CLBIL remains outstanding and (b) as a result of the CVA referred
to above under post balance sheet event, the Company's subsidiary
entity, Revolution Bars Limited, is unable to pay a dividend for a
period of three years until 13 November 2023. A restriction on the
Group's principal trading subsidiary being unable to make a
dividend payment to its parent company may significantly impact the
Company's ability to make a dividend payment until after 13
November 2023. There was no dividend paid or declared in the prior
period in relation to FY19.
Going concern
Under the terms of its banking facilities with NatWest, the
Company has one financial covenant - 'minimum liquidity headroom'
between its net bank debt and its committed bank debt facilities.
The directors have modelled both a management base case forecast
scenario and a severe but plausible downside scenario. No forecast
breach of the banking covenant arises under either forecast
scenario but there is very limited headroom under the severe but
plausible downside forecast scenario under which headroom is
minimised to GBP1.2 million at the end of March 2021.
The low level of liquidity headroom under the severe but
plausible downside forecast scenario relative to the minimum
liquidity covenant and the material uncertainty caused by COVID
coupled with forecasting difficulties as a result of constantly
changing operating restrictions means that the Group cannot be
assured that it will not breach the minimum liquidity covenant. A
breach of covenant would require the bank to grant a waiver or for
the Company to renegotiate its banking facilities or raise funds
from other sources, none of which is entirely within the Group's
control. A breach of the covenant would also result in the
reclassification of GBP24.5 million non-current borrowings to
current borrowings as at the date of consolidated financial
position. The directors have assessed, however, that given a strong
underlying business, particularly post lease surrenders of
under-performing bars and the CVA undertaken during 2020, the
Group's existing relationships with its main creditors, its success
in recent years in obtaining covenant waivers and renegotiating its
banking facilities and a recent equity fundraising, that a request
for a waiver of a covenant breach or renegotiation of the banking
facilities would be successful.
The severe disruption to the Group's trade during the last nine
months caused by COVID and the resultant and frequently changing
operating restrictions imposed by the UK Government and the
devolved authorities means that there is a material uncertainty
over the going concern of the Group. This uncertainty exists
because of the unpredictability of the nature, extent and duration
of COVID, the vaccination programme, and the imposed operating
restrictions in the calendar year 2021 and how this will impact the
Group's operational performance and, in particular, the level of
sales and EBITDA generated that will in turn determine the Group's
covenant compliance.
Notwithstanding the material uncertainty, after due
consideration the Directors have a reasonable expectation that the
Company and the Group have sufficient resources to continue in
operational existence for the period of 12 months from the date of
approval of these financial statements. Accordingly, the financial
statements continue to be prepared on the going concern basis.
However, the trading conditions indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's (and the Company's) ability to continue as a going concern.
The financial statements do not contain the adjustments that would
arise if the Group (and the Company) were unable to continue as a
going concern.
A more comprehensive disclosure on going concern including the
banking facilities, liquidity and the detailed assumptions behind
both forecast scenarios is given in note 1 to the financial
statements on pages 22 to 24.
Mike Foster
Chief Financial Officer
16 December 2020
*Adjusted performance measures exclude exceptional items,
share-based payment (credits)/charges and bar opening costs (see
reconciliation table on page 13 of the Financial Review)
**Like-for-like (LFL) sales are defined as total retail sales
from bars that have traded throughout both the current and prior
reporting periods
*** APM refers to Alternative Performance Measure being measures
reported on an IAS 17 basis that are directly comparable to FY19
reported measures
Consolidated statement of profit or loss and other comprehensive
income
for the 52 weeks ended 27 June 2020
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
Note GBP'000 GBP'000
-------------------------------------------- ---- --------- ---------
Revenue 2 110,074 151,404
Cost of sales (26,571) (36,643)
-------------------------------------------- ---- --------- ---------
Gross profit 83,503 114,761
-------------------------------------------- ---- --------- ---------
Operating expenses:
- operating expenses, excluding exceptional
items 2 (88,388) (112,350)
- exceptional items 3 (27,770) (7,127)
-------------------------------------------- ---- --------- ---------
Total operating expenses 2 (116,158) (119,477)
-------------------------------------------- ---- --------- ---------
Operating loss 4 (32,655) (4,716)
Finance expense 5 (4,934) (858)
Exceptional finance income 5 5,869 -
-------------------------------------------- ---- --------- ---------
Loss before taxation (31,720) (5,574)
Income tax 6 (3,461) 352
-------------------------------------------- ---- --------- ---------
Loss and total comprehensive expense for
the period (35,181) (5,222)
-------------------------------------------- ---- --------- ---------
Loss per share:
- basic and diluted (pence) 7 (70.3) (10.4)
Dividend declared per share (pence) - -
-------------------------------------------- ---- --------- ---------
Non-GAAP measures
Revenue 110,074 151,404
--------------------------------------- -------- -------
Operating loss (32,655) (4,716)
Exceptional items 27,770 7,127
Charge/(credit) arising from long-term
incentive plans 42 (64)
Bar opening costs 3 - 1,484
--------------------------------------- -------- -------
Adjusted operating (loss)/profit (4,843) 3,831
--------------------------------------- -------- -------
Finance expense (4,934) (858)
Adjusted (loss)/profit before tax (9,777) 2,973
--------------------------------------- -------- -------
Depreciation 14,612 7,230
Amortisation 1 -
Finance expense 4,934 858
Adjusted EBITDA 9,770 11,061
--------------------------------------- -------- -------
Consolidated statement of financial position
at 27 June 2020
27 June 29 June
2020 2019
IFRS 16 IAS 17
Note GBP'000 GBP'000
--------------------------------------- ---- --------- --------
Assets
Non-current assets
Right-of-use assets 8 70,689 -
Property, plant and equipment 8 41,222 59,325
Intangible assets 20 9
--------------------------------------- ---- --------- --------
111,931 59,334
--------------------------------------- ---- --------- --------
Current assets
Inventories 9 3,593 4,086
Trade and other receivables 10 3,429 12,276
Tax receivable 50 51
Cash and cash equivalents 11 2,502 2,627
--------------------------------------- ---- --------- --------
9,574 19,040
--------------------------------------- ---- --------- --------
Total assets 121,505 78,374
--------------------------------------- ---- --------- --------
Liabilities
Current liabilities
Trade and other payables 12 (15,795) (24,901)
Lease liabilities 13 (10,203) -
Provisions 14 - (1,269)
(25,998) (26,170)
--------------------------------------- ---- --------- --------
Net current liabilities (16,424) (7,130)
--------------------------------------- ---- --------- --------
Non-current liabilities
Lease liabilities 13 (102,960) -
Interest-bearing loans and borrowings 15 (24,500) (17,500)
Deferred tax liability 16 - (413)
Provisions 14 (1,019) (9,687)
Rent-free creditor - (3,184)
--------------------------------------- ---- --------- --------
(128,479) (30,784)
--------------------------------------- ---- --------- --------
Total liabilities (154,477) (56,954)
--------------------------------------- ---- --------- --------
Net (liabilities)/assets (32,972) 21,420
--------------------------------------- ---- --------- --------
Equity attributable to equity holders
of the parent
Share capital 50 50
Merger reserve 11,645 11,645
(Accumulated losses)/Retained earnings (44,667) 9,725
--------------------------------------- ---- --------- --------
Total equity (32,972) 21,420
--------------------------------------- ---- --------- --------
Consolidated statement of changes in equity
for the 52 weeks ended 27 June 2020
Reserves
Retained
earnings
Share Merger / (Accumulated Total
capital reserve losses) equity
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- --------------- --------
At 1 July 2018 50 11,645 16,665 28,360
Loss and total comprehensive expense
for the period - - (5,222) (5,222)
Credit arising from long-term incentive
plans - - (68) (68)
Dividends paid - - (1,650) (1,650)
---------------------------------------- -------- -------- --------------- --------
At 29 June 2019 as originally presented 50 11,645 9,725 21,420
Impact of change in accounting policy
(note 21) - - (23,127) (23,127)
Tax impact of change in accounting
policy - - 3,874 3,874
---------------------------------------- -------- -------- --------------- --------
At 29 June 2019 after adjustment 50 11,645 (9,528) 2,167
Loss and total comprehensive expense
for the period - - (35,181) (35,181)
Charge arising from long-term incentive
plans - - 42 42
At 27 June 2020 50 11,645 (44,667) (32,972)
---------------------------------------- -------- -------- --------------- --------
Consolidated statement of cash flow
for the 52 weeks ended 27 June 2020
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
Note GBP'000 GBP'000
-------------------------------------------------- ---- ----------------- --------
Cash flow from operating activities
Loss before tax from operations (31,720) (5,574)
Adjustments for:
Net finance expense 5 4,934 858
Exceptional finance income 5 (5,869) -
Depreciation of property, plant and equipment 8 7,397 7,230
Depreciation of right-of-use assets 8 7,215 -
Impairment of property, plant and equipment 3 8,727 5,215
Impairment of right-of-use assets 3 19,566 -
Lease modification 3 (897) -
Working Capital and Other movements 18 (2,883) 2,857
Net cash flow generated from operating activities 6,470 10,586
-------------------------------------------------- ---- ----------------- --------
Cash flow from investing activities
Purchase of intangible assets (12) (9)
Purchase of property, plant and equipment 8 (4,213) (11,575)
-------------------------------------------------- ---- ----------------- --------
Net cash flow used in investing activities (4,225) (11,584)
-------------------------------------------------- ---- ----------------- --------
Cash flow from financing activities
Equity dividends paid 17 - (1,650)
Interest paid 5 (599) (750)
Lease surrender premiums paid 5 (1,369) -
Principal element of lease payments 13 (3,067) -
Interest element of lease payments 13 (4,335) -
Repayment of borrowings (12,000) (12,000)
Drawdown of borrowings 19,000 14,000
-------------------------------------------------- ---- ----------------- --------
Net cash outflow generated from financing
activities (2,370) (400)
-------------------------------------------------- ---- ----------------- --------
Net decrease in cash and cash equivalents (125) (1,398)
Opening cash and cash equivalents 2,627 4,025
-------------------------------------------------- ---- ----------------- --------
Closing cash and cash equivalents 11 2,502 2,627
-------------------------------------------------- ---- ----------------- --------
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
1. General information
(a) Basis of preparation
The accounting period runs to the Saturday falling nearest to 30
June each year and therefore normally comprises a 52-week period
but with a 53-week period arising approximately at five-year
intervals. The period ended 27 June 2020 was a 52-week period; the
period ended 29 June 2019 was also a 52-week period. The period end
3 July 2021 will be a 53-week period. The consolidated financial
statements have been prepared under the historical cost convention
in accordance with those parts of the Companies Act 2006 applicable
to companies reporting under IFRS. References to 2020 or FY20
relate to the 52-week period ended 27 June 2020 and references to
2019 or FY19 relate to the 52-week period ended 29 June 2019 unless
otherwise stated. The consolidated financial statements are
presented in Pounds Sterling with values rounded to the nearest
thousand, except where otherwise indicated. These policies have
been applied consistently unless otherwise stated.
(b) Going concern
Going concern
The directors have adopted the going concern basis in preparing
these financial statements after careful assessment of identified
principal risks and, in particular, the possible adverse impact on
financial performance, specifically on revenue and cash flows of
restrictions imposed by the UK Government and the devolved
authorities in response to COVID. The going concern status of the
Company is intrinsically linked to that of the Group.
Liquidity
At the end of the reporting period, the Group had net bank debt
of GBP22.0 million relative to a GBP30.0 million Revolving Credit
Facility ('RCF') although terms were agreed with the Group's
lending bank, NatWest, to increase the total debt facilities to
GBP37.5 million by utilising the Coronavirus Large Business
Interruption Loan Scheme ('CLBILS') loan of GBP16.5 million and
using the proceeds of this loan to partially pay down the RCF and
to reduce the RCF commitment to GBP21.0 million. The CLBILS loan,
which is a three-year term loan amortising at GBP1.0 million per
annum in equal monthly repayments, was drawn down shortly after the
period end on 6 July 2020.
On 27 July 2020, the Company completed an equity fundraising of
GBP15.0 million, the net proceeds of which were fully received by 3
August 2020 and used to repay the remaining outstanding balance of
the RCF. At that date of repayment, the Group had CLBILS of
GBP16.5m but GBP26.1 million of liquidity by way of cash at bank of
GBP5.1 million and an undrawn committed RCF of GBP21.0 million.
When the total debt facilities were increased to GBP37.5 million,
it was agreed that, contingent on a successful equity fundraising,
the debt facilities would be reduced by GBP7.5 million on 31 March
2021, this amount to be applied pro rata to the RCF and CLBILS.
However, this reduction in facilities together with a previously
agreed GBP1.0m reduction in the RCF at the end of June 2020 were
amended by NatWest on 16 December 2020 in favour of an alternative
amortisation profile of the facilities as follows:
Facility Commitment Expiry Amortisation
RCF GBP21.0m 30 June 2022 GBP1.6 million on 30 September 2021
and GBP1.0 million on 30
June 2022
CLBILS GBP16.1m 5 July 2023 GBP0.4 million on 30 September 2021
and GBP1.0 million per
annum in equal monthly instalments
In accordance with these arrangements and subject to compliance
with financial covenants, the Group will have committed funding
facilities available during the going concern assessment period as
follows:
December 2020 GBP37.1 million
March 2021 GBP36.8 million
June 2021 GBP36.6 million
September 2021 GBP34.3 million
December 2021 GBP34.1 million
March 2022 GBP33.8 million
Current Net bank debt and available liquidity
At the date of these financial statements the Group's net bank
debt was approximately GBP19.5 million, and therefore the Group has
available liquidity of GBP17.6 million.
Covenants
The facilities are subject to one financial covenant only, which
is that the Group is required to maintain minimum liquidity
headroom between its net bank debt and the committed facilities on
a six-month look forward basis. The required headroom under the
covenant varies on a monthly basis, as it is set in conjunction
with the modelling of a severe but plausible downside scenario (see
below for further details), between GBP10.0 million at its highest
at the end of December 2020 and GBP1.3 million at its lowest at the
end of March 2021. The effect of the covenant is that the base case
is within the covenant requirement, whereas the severe but
plausible downside case is only slightly above the covenant level
(i.e. has only very limited headroom over the covenant level) over
the 2021 calendar period. Cash flow forecasts are updated daily and
submitted to NatWest weekly and should two successive weekly
forecasts show a breach of the minimum liquidity headroom, then the
Group would need to consult with NatWest. If a solution to the
breach cannot be agreed, for example by the granting of a waiver,
or an amendment to the facilities then the bank could require the
Group to take various actions that may determine the Group's
future.
The Group has remained in close contact with NatWest since it
became clear in late February that the COVID-19 pandemic ('COVID')
could potentially have a significantly adverse effect on the
Group's trading performance and cash generation. NatWest have been
very supportive of the Group throughout this period providing
support by amending debt facilities as required in April 2020 and
in May 2020 and most recently for this going concern assessment
period. NatWest also consented to the necessary facility waivers
and adjustments to the covenant to allow the Company Voluntary
Arrangement ('CVA') undertaken by the Group's wholly owned
subsidiary entity, Revolution Bars Limited, in November 2020 to
proceed.
Significant judgements and base case
The financing arrangements referred to in this going concern
section are expected to provide a sufficient platform for the
business to meet the trading uncertainty that lies ahead as the
COVID immunisation programme is rolled out and the UK economy
recovers from the devastation caused by COVID. During the last nine
months, the Group's sales have been severely impacted by the
operating restrictions imposed by the UK Government and the
devolved authorities; half of that period being subject to a forced
closure of all bars, and significant operating restrictions
operating for the other half, including 10pm curfews (latterly
moved to 11pm), reduced capacities, limited party sizes, table
service only, and a banning of alcohol sales other than with a
substantial meal. It is not clear what level of trade may be
possible in the coming months although the UK Government has stated
its intention to complete the COVID vaccination programme by Easter
2021, by which time it would seem reasonable to expect that all
restrictions imposed since March 2020 will be significantly
reduced. If that is indeed the case, then sales from April 2021 are
likely to be influenced by the level of pent up demand and consumer
confidence surrounding both the economy and health and safety. The
directors believe that based on the Group's sales levels being
better than anticipated following the reopening of venues in July
2020 and through to the end of September 2020 before the 10pm
curfew was introduced, and the Group's target young adult customer
groups being least affected by COVID, that consumer confidence and
demand for the Group's product should not be a significant issue
and it is reasonable to expect a return to historic trading levels
once the COVID vaccination programme has been successfully
delivered. However, the directors also acknowledge that the Group's
sales remain vulnerable to factors that are entirely beyond its
control, such as: (i) the degree of operating restrictions that
remain in force when the current arrangements are reviewed and
whilst the vaccination programme is being rolled-out and how
quickly such restrictions may be lifted once that roll-out has been
completed; (ii) a reliable supply of the vaccine; (iii) the take up
of the vaccination programme; and (iv) that the vaccine works as
expected.
The level of sales that the Group generates drives EBITDA and
cash generation, which in turn impacts the level of liquidity
required and compliance with the covenant test.
In reaching their assessment that the financing arrangements are
expected to be sufficient for the business, the directors have
reviewed a base case forecast scenario which assumes that the
operational arrangements currently in force from 2 December remain
in force until the end of March 2021 (Easter). Currently, the Group
is trading only 33 of its bars: 1 in tier 1 and 32 in tier 2
locations, and therefore forecasts sales in the January 2021 to
March 2021 quarter are expected to be at 16% of their historical
pre-COVID levels. From April 2021 to June 2021, all 67 of the
Group's bars are expected to be trading but with some operating
restrictions still in force with sales forecast at an average 75%
of their historical level before improving to 90% in July 2021 and
August 2021 as all remaining restrictions are expected to be lifted
with consumer confidence expected to increasingly return, with
sales returning to normal historical levels for the remainder of
2021. Hence the Group's base case forecast scenario is for sales in
calendar year 2021 to be at 73% of the levels achieved in the last
12 months pre-COVID. Operating margins in the early months of 2021
are forecast to be consistent with those achieved during the period
of trading under severe operating restrictions in recent
months but then slowly improving to pre-COVID levels over the
remainder of 2021. The Group expects to continue to qualify for
support from the UK Government through relief from business rates,
a reduction in VAT from non-alcohol sales, and access to flexible
furlough under the Coronavirus Job Retention Scheme through to the
end of March 2021. GBP1.75 million of capital expenditure has been
forecast for the 12 months to June 2021 including GBP0.5m to
undertake three bar refurbishments between April 2021 and June
2021.
Under the base case forecast, there is no forecast breach of the
banking covenant. The forecast average amount of headroom for net
bank debt relative to the minimum liquidity covenant between
December 2020 and December 2022 is GBP4.5 million with the lowest
point of GBP2.5 million in March 2021.
Severe but plausible downside scenario
The directors have also reviewed a severe but plausible downside
scenario which assumes that the business is subject to an enforced
lockdown (zero sales) until the end of March 2021 (Easter) with
sales return at 60% of the normal historical pre-COVID levels
between April 2021 and June 2021, after which trading is similar to
the base case forecast for the remainder of 2021, as detailed
above. Other assumptions regarding operating margins and support
from the UK Government are also similar to the base case forecast
scenario but the capital expenditure forecast for the 12 months to
June 2021 is GBP0.5 million lower.
Under the severe but plausible downside scenario, net bank debt
is approximately GBP2.5 million greater than under the base case
forecast scenario. This adverse movement is relatively small
because there is marginal EBITDA benefit in the base case from
trading only one bar under tier 1 and 32 bars under tier 2 of the
UK Government operating restrictions where alcohol sales are only
permitted with a substantial meal. The severe but plausible
downside scenario shows no forecast breach of the banking covenant
but, as would be expected, the forecast average amount of net bank
debt headroom relative to the minimum liquidity covenant between
December 2020 and December 2021 is lower at GBP1.8 million with the
lowest point of GBP1.2 million in March 2021.
The directors believe that there should be no further downside
to the severe but plausible downside scenario for the period to the
end of March 2021 given that no trade is forecast for this period,
and that a sales forecast at 60% of historical pre-COVID levels for
April 2021 to June 2021 is prudent relative to the same bars
year-on-year sales performances achieved when bars were reopened
between July 2020 and September 2020 prior to the introduction of
the 10pm curfew and tier restrictions. If there is any residual
risk not accounted for in the severe but plausible downside
scenario, it is that if there is a significant problem with the
vaccine efficacy or roll-out, that results in a delay to the
reopening of bars in March 2021 or that severe ongoing restrictions
continue whilst such a problem is resolved. Whilst there are
currently no indications that this may be the case, the directors
note the unprecedented scale and challenge of the vaccination
roll-out is such that there can be no certainty that it will run
completely to plan. However, the directors also believe that if
severe operating restrictions remain in place after March 2021 the
financial effects could potentially be mitigated wholly or
partially by a number of factors that are not reflected in the
severe but plausible downside scenario, but which are not all
wholly within the control of the directors, including some trading
pre March 2021, a further extension of the Coronavirus Job
Retention Scheme beyond March 2021 may be made, further rent
mitigation if discussions with a number of landlords conclude
favourably, receipt of local authority grants as these are made
available but which have not been included in the Group's
forecasts, and any extension to business rates relief beyond April
2021.
The low level of liquidity headroom relative to the minimum
liquidity covenant and the material uncertainty caused by COVID
coupled with forecasting difficulties as a result of constantly
changing operating restrictions means that the Group cannot be
assured that it will not breach the minimum liquidity covenant. A
breach of covenant would require the bank to grant a waiver or for
the Company to renegotiate its banking facilities or raise funds
from other sources, none of which is entirely within the Group's
control. A breach of the covenant would also result in the
reclassification of GBP24.5 million of non-current borrowings to
current borrowings as at the date of the consolidation statement of
financial position. The directors have assessed, however, that
given a strong underlying business, particularly post lease
surrenders of under-performing bars and the CVA undertaken during
2020, the Group's existing relationships with its main creditors,
its success in recent years in obtaining covenant waivers and
renegotiating its banking facilities and a recent equity
fundraising, that a request for a waiver of a covenant breach or
renegotiation of the banking facilities would be successful.
Going concern statement
The severe disruption to the Group's trade during the last nine
months caused by COVID and the resultant and frequently changing
operating restrictions imposed by the UK Government and the
devolved authorities indicates the existence of a material
uncertainty which may cast significant doubt over the ability of
the Group and Company to continue as a going concern. This
uncertainty exists because of the unpredictability of the nature,
extent and duration of COVID, the vaccination programme, and the
imposed operating restrictions in the calendar year 2021 and how
this will impact the Group's operational performance and in
particular the level of sales and EBITDA generated that will in
turn determine the Group's covenant compliance.
Notwithstanding the material uncertainty, after due
consideration the Directors have a reasonable expectation that the
Company and the Group have sufficient resources to continue in
operational existence for the period of 12 months from the date of
approval of these financial statements. Accordingly, the financial
statements continue to be prepared on the going concern basis. The
financial statements do not contain the adjustments that would
arise if the Group (and the Company) were unable to continue as a
going concern.
(c) New and amended standards adopted by the Group
IFRS 16 Leases
The Group adopted IFRS 16 with effect from 30 June 2019. The
Group applied the standard using the modified retrospective
approach and thus comparative information has not been restated and
is presented as previously reported under IAS 17.
The new standard results in all property and vehicle leases
being recognised on the Statement of Financial Position as, from a
lessee perspective, there is no longer any distinction between
operating and finance leases. Under IFRS 16, an asset, based on the
right to use a leased item over a long-term period, and a financial
liability to pay rentals are recognised. The only exceptions are
short-term and low-value leases.
As at 30 June 2019, the Group sub-let three properties, being
partial elements of properties. Under IFRS 16, lessor accounting
remains largely unchanged, with lessors continuing to account for
leases as either operating or finance leases, depending on whether
the lease transfers substantially all the risk and rewards
incidental to ownership of the underlying asset, and whether the
present value of the sublease payments amount to at least
substantially all of the fair value of the underlying asset, which
in this case is the head-leases.
The Group leases both properties and vehicles, which under IAS
17 were classified as a series of operating lease contracts with
payments made (net of any incentives received from the lessor)
charged to profit or loss as arising over the period of the lease.
From 30 June 2019, under IFRS 16, leases are recognised as a
right-of-use asset with a corresponding lease liability from the
date at which the leased asset becomes available for use by the
Group. Each lease payment is allocated between the liability and a
finance cost. The finance cost is charged to profit or loss over
the lease period using the effective interest method. The
right-of-use asset is depreciated over the shorter of the asset's
useful life and the determined lease term, which is the shorter of
the remaining lease term and first opportunity to break the lease,
on a straight-line basis.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- In determining whether existing contracts meet the definition
of a lease, the Group has not reassessed those contracts previously
identified as leases and has not applied the standard to those
contracts not previously identified as leases;
-- Short-term leases (leases of less than 12 months) and leases
with less than 12 months remaining as at the date of adoption of
the new standard are not within the scope of IFRS 16;
-- Leases for which the asset is of low value (IT equipment and
small items of office equipment) are not within the scope of IFRS
16;
-- The use of a single discount rate to its portfolio of leases
with reasonably similar characteristics.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases previously classified as 'operating leases'
under the principles of IAS 17 Leases. For all leases, these
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's weighted average
incremental borrowing rate as of 30 June 2019, which was 3.91%.
This was deemed appropriate given that the Group's leases have
reasonably similar characteristics. The rate was determined as the
borrowing rate under the Revolving Credit Facility, as then
existed, with appropriate adjustments made to reflect the increased
term and amount of borrowing required for a similar lease
portfolio, as well as changes to risk rating.
IFRS 16 defines the lease term as the non-cancellable period of
a lease together with the options to extend or terminate a lease if
the lessee is reasonably certain to exercise that option. Where a
lease includes the option for the Group to terminate a lease term
early, the Group makes a judgement as to whether it is reasonably
certain that the lease termination option will be taken.
This predominantly takes into the account the length of time
remaining before the option is exercisable, current trading
performance, future trading forecasts, and the level and type of
future capital investment. The current average remaining lease
length of the Group's leases, as at the date of adoption of IFRS
16, was 14 years as profiled below:
Remaining lease length Proportion
------------------------ -----------
< 5 years 13%
5 - 10 years 17%
10 - 15 years 27%
> 15 years 43%
------------------------- -----------
The associated right-of-use assets were measured using the
approach set out in IFRS 16.C8(b)(ii), whereby right-of-use assets
are equal to the lease liabilities adjusted by the amount of any
prepaid or accrued lease payments, including unamortised lease
incentives such as rent free periods, onerous lease provisions, and
an estimate of the dismantling, removal and restoration costs
required under the terms of the lease. Under IFRS 16, the
right-of-use assets are tested for impairment in accordance with
IAS 36 'Impairment of Assets'. This replaces the previous
requirement to recognise a provision for onerous leases. An
impairment assessment of the cash generating unit ("CGU") assets
was performed on transition at 30 June 2019 with an initial
impairment charged through opening reserves.
In the consolidated cash flow statement, depreciation of the
right-of-use-asset is included in operating activities and the
repayment of lease liabilities is included in financing activities
whereas under IAS 17 operating lease rental payments were included
in operating activities. The impact on the consolidated cash flow
statement is an increase in cash inflow from operations of GBP7.4
million and a decrease in the cash outflow from financing
activities of GBP7.4 million.
The effect of the accounting policy change on the consolidated
statement of financial position at implementation on 30 June 2019
was:
As at 29 IFRS 16 As at 30
June 2019 adjustments June 2019
GBP'000 GBP'000 GBP'000
---------------------------------- ----------- ------------- -----------
Assets
Property, plant and equipment 59,325 (6,193) 53,132
Right-of-use assets - 94,666 94,666
Prepayments 8,412 (2,403) 6,009
Deferred tax asset - 3,874 3,874
Change in total assets 89,944
----------------------------------- ----------- ------------- -----------
Liabilities
Lease liabilities - Current - 7,113 7,113
Lease liabilities - Non-current - 116,498 116,498
Onerous lease provision 10,556 (10,556) -
Accruals 6,796 (445) 6,351
Rent-free creditor - Current
(within accruals) 229 (229) -
Rent-free creditor - Non-current 3,184 (3,184) -
----------------------------------- ----------- ------------- -----------
Change in total liabilities 109,197
----------------------------------- ----------- ------------- -----------
Retained earnings 9,725 (23,127) (13,402)
Retained earnings - deferred
tax - 3,874 3,874
Change in equity (19,253)
----------------------------------- ----------- ------------- -----------
The adoption of IFRS 16 reduced opening retained earnings as at
30 June 2019 by GBP19.3 million. This represents the initial
impairment review upon adoption less the deferred tax thereon. As
part of this impairment testing, the net book value of property,
plant and equipment at ten of the Group's bars was written down on
implementation, and 28 of the right-of-use assets were also written
down.
The table below presents a reconciliation from operating lease
commitments disclosed at 29 June 2019 to lease liabilities
recognised at 30 June 2019.
GBP'000
-------------------------------------------- ---------
Operating lease commitments disclosed at
29 June 2019 182,123
Break-clause dates(1) (3,572)
Increased rent-reviews(2) 1,090
Exclusion of service charges(3) (10,293)
Effect of discounting(4) (45,737)
--------------------------------------------- ---------
Lease liabilities recognised as at 30 June
2019 123,611
--------------------------------------------- ---------
Of which are:
Current lease liabilities 7,113
Non-current lease liabilities 116,498
Lease liabilities recognised as at 30 June
2019 123,611
--------------------------------------------- ---------
(1) The operating lease commitments were calculated using the
lease-end termination date, whereas the IFRS 16 calculations
include judgements where an earlier lease break date has been
used;
(2) A number of outstanding rent-reviews have been finalised
since the end of FY19; these were not included in the operating
lease commitments disclosed at 29 June 2019;
(3) The Group policy was previously to include contractual
service charges in the operating lease commitments figure; these
are excluded from IFRS 16;
(4) Previously, disclosures of lease commitments were
undiscounted whilst under IFRS 16 lease commitments are discounted
based on the Group's incremental borrowing rate.
The split of right-of-use assets and lease liabilities following
the adoption of IFRS 16, as well as the movement of each over the
period, can be found in notes 8 and 13 respectively.
During the 52 weeks ended 27 June 2020, the application of IFRS
16 resulted in increased adjusted EBITDA, as reported in the
Consolidated Statement of Comprehensive Income, of GBP9.7 million
in comparison to treatment under IAS 17. There was a decrease to
operating profit of GBP6.1 million. The differences have arisen as
operating lease payments under IAS 17 were replaced by a
depreciation charge on right-of-use assets, and adjustments to
impairment, onerous lease provisions, rent free periods and
dilapidation provisions. Profit before taxation decreased by a
total of GBP4.5 million with the inclusion of GBP4.3 million of
finance costs under the new standard.
GBP'000
------------------------------------------------------- --------
Add: Operating lease costs under IAS 17 8,164
Add: Adjustment to onerous lease provision 1,521
Impact on adjusted EBITDA for the 52 weeks ended
27 June 2020 9,685
------------------------------------------------------- --------
Less: Depreciation of right-of-use assets for leases
previously recognised as operating leases under
IAS 17 (7,215)
Add: Impact on fixed asset depreciation 54
Less: Impact on impairment reviews (9,217)
Less: Onerous lease provision reversal (2,405)
Add: Cash exceptionals included in exceptional
finance income 3,024
Add: modification of lease under IFRS 16 897
Impact on operating loss for the 52 weeks ended
27 June 2020 (5,177)
------------------------------------------------------- --------
Less: Finance costs associated with lease liabilities
for leases previously recognised as operating leases
under IAS 17 (4,335)
Add: Onerous lease interest not incurred 48
Add: Exceptional gain on disposal 5,869
Impact on loss before taxation for the 52 weeks
ended 27 June 2020 (3,595)
------------------------------------------------------- --------
The table below reconciles operating profit between IAS 17 and
the new standard, IFRS 16.
2. Segmental information
The Group's continuing operating businesses are organised and
managed as reportable business segments according to the
information used by the Group's Chief Operating Decision maker
("CODM") in its decision making and reporting structure.
The Group's internal management reporting is focused
predominantly on revenue and adjusted EBITDA, as these are the
principal performance measures and drives the allocation of
resources. The CODM receives information by trading venue, each of
which is considered to be an operating segment. All operating
segments have similar characteristics and, in accordance with IFRS
8, are aggregated to form an 'Ongoing business' reportable segment.
Within the ongoing business, assets and liabilities cannot be
allocated to individual operating segments and are not used by the
CODM for making operating and resource allocation decisions.
The Group performs all its activities in the United Kingdom. All
the Group's non-current assets are located in the United Kingdom.
Revenue is earned from the sale of drink and food with a small
amount of admission income.
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------------------------------- --------- ---------
Revenue 110,074 151,404
Cost of sales (26,571) (36,643)
------------------------------------------------- --------- ---------
Gross profit 83,503 114,761
------------------------------------------------- --------- ---------
Operating expenses:
- operating expenses excluding exceptional items (88,388) (112,350)
- exceptional items (27,770) (7,127)
------------------------------------------------- --------- ---------
Total operating expenses (116,158) (119,477)
------------------------------------------------- --------- ---------
Operating loss (32,655) (4,716)
------------------------------------------------- --------- ---------
3. Operating expenses
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------- -------- --------
Sales and distribution 101,161 106,503
Administrative expenses 14,997 12,974
------------------------- -------- --------
Total operating expenses 116,158 119,477
------------------------- -------- --------
Exceptional items
Exceptional items, by virtue of their size, incidence or nature,
are disclosed separately in order to allow a better understanding
of the underlying trading performance of the Group. Exceptional
(credits)/charges comprised the following:
52 weeks 52 weeks
ended ended
27 June 2020 29 June
Note IFRS 16 2019
GBP'000 IAS 17
GBP'000
Administrative expenses:
- impairment of right-of-use assets 19,566 -
- impairment of property, plant
and equipment 8,727 5,215
- lease modification (897) -
- delist from Main market and
admission to AIM 19 371 -
- movement on onerous lease provisions - 1,912
- other 3 -
Total exceptional items 27,770 7,127
--------------------------------------- ------ ------------- --------
Following implementation of IFRS 16, impairment reviews now also
include right-of-use assets relating to leases. The net book value
of property, plant and equipment at 37 of the Group's bars (2019:
26) was written down, including right-of-use asset write-downs at
37 bars. Eight of these bars had not been subject to impairment
charges previously. The impairment charge is attributable to the
combined effect of the creation of the right-of-use asset and the
impact of COVID-19 on trading performance. The directors considered
that trading at these bars is unlikely to recover in the
foreseeable future to a level that would justify their current book
value.
A gain on modification of leases was recognised where the
respective IFRS 16 creditors had reduced following a reduction in
rental amount or length of lease. Where a lease modification
reduces the scope of a lease, the gain is netted against the
related right-of-use asset. Where the right-of-use asset is fully
impaired, the gain is taken as a credit to administrative
expenses.
Following adoption of IFRS 16, which requires the carrying value
of the right-of-use asset to be assessed at each balance sheet
date, onerous lease provisions are no longer relevant and
accordingly all existing provisions have been incorporated as part
of the opening adjustments on implementation of IFRS 16.
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------ -------- --------
Bar opening costs - 1,484
------------------ -------- --------
Bar opening costs relate to costs incurred in getting new bars
fully operational and primarily include costs incurred before the
opening and preparing for launch, even if the bars do not open in
the period. The most substantial parts of the cost are for rent and
rates incurred between the start of the lease and opening. In the
52 weeks ended 27 June 2020, no new bars were opened (2019: five)
following a period of consolidation.
4. Group operating loss
Group operating loss is stated after charging:
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Depreciation of property, plant and equipment 7,397 7,230
Depreciation of right-of-use assets 7,215 -
Impairment of property, plant and equipment 8,727 5,215
Impairment of right-of-use assets 19,566 -
Amortisation of intangibles 1 -
Auditors' remuneration:
- audit fees payable to the Company's auditors
for the audit of these financial statements 151 149
Fees payable to the Company's auditors for:
- audit of financial statements of subsidiary companies 76 35
- interim review 21 21
-------------------------------------------------------- -------- --------
5. Finance expense and income
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
---------------------------------------------- -------- --------
Interest payable on bank loans and overdrafts 599 750
Interest on lease liabilities 4,335 -
Interest on onerous lease provisions - 108
---------------------------------------------- -------- --------
Interest payable 4,934 858
---------------------------------------------- -------- --------
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------------------- -------- --------
Gross gain on disposal (8,893) -
Surrender premiums paid in year 1,369 -
Related surrender costs paid in year 405 -
Surrender premiums to be paid 1,250 -
Total exceptional finance income (5,869) -
------------------------------------- -------- --------
During the period, the Group closed five bars (Liverpool Wood
Street, Swansea, Macclesfield, Lincoln, and Fallowfield). The
leases for each of these sites other than Swansea, together with
the Group's two other non-trading properties (Lancaster and
Wolverhampton that closed in 2014) were surrendered.
Exceptional gains on disposal occurred in respect of these lease
surrenders as a result of extinguishing IFRS 16 lease liabilities,
and is net of surrender premiums paid and payable to landlords;
this net position is classified as exceptional finance income.
6. Income tax
The major components of the Group's tax credit for each period
are:
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Analysis of credit in the period
Current tax
UK corporation tax on the loss for the period - -
Adjustment in respect of prior periods - (74)
------------------------------------------------------ -------- --------
- (74)
------------------------------------------------------ -------- --------
Deferred tax - Profit and loss account
Origination and reversal of timing differences (413) (278)
IFRS 16 deferred tax unwinding 310 -
Write-off of IFRS 16 deferred tax asset 3,564 -
------------------------------------------------------ -------- --------
3,461 (278)
------------------------------------------------------ -------- --------
Deferred tax - Reserves
Tax impact of change in accounting policy (3,874) -
------------------------------------------------------ -------- --------
Total deferred tax (413) (278)
------------------------------------------------------ -------- --------
Total tax credit (413) (352)
------------------------------------------------------ -------- --------
Factors affecting current tax credit for the period
Loss before taxation (31,720) (5,574)
------------------------------------------------------ -------- --------
Loss at standard rate of UK corporation tax (2020:
19.0%; 2019: 19.0%) (6,027) (1,059)
Effects of:
- expenses not deductible for tax and other permanent
differences 1,463 706
- adjustment in respect of prior periods (111) (32)
- changes in expected tax rates on deferred tax
balances 3 33
- deferred tax not recognised 8,133 -
Total tax charge/(credit) for the period 3,461 (352)
------------------------------------------------------ -------- --------
At 27 June 2020, the Group has carried forward tax losses of
GBP13.8 million (2019: GBP2.8 million) available to offset against
future losses for which no deferred tax asset has been recognised
(2019: GBP484k recognised), and has also not recognised a deferred
tax asset in relation to disclaimed capital allowances of GBP0.7
million (2019: GBP0.9 million deferred tax liability
recognised).
The Finance Bill 2016 enacted provisions to reduce the main rate
of UK corporation tax to 17% from 1 April 2020. However, in the
March 2020 Budget it was announced that the reduction in the UK
rate to 17% will now not occur and the Corporation Tax Rate will be
held at 19%. The Group has recognised deferred tax in relation to
UK companies at 19% accordingly.
7. Loss per share
The calculation of loss per Ordinary Share is based on the
results for the period, as set out below.
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
------------------------------------------------------ -------- --------
Loss for the period (GBP'000) (35,181) (5,222)
------------------------------------------------------ -------- --------
Weighted average number of shares - basic and diluted
('000) 50,029 50,029
------------------------------------------------------ -------- --------
Basic loss per Ordinary Share (pence) (70.3) (10.4)
------------------------------------------------------ -------- --------
Loss for the period was impacted by one-off exceptional costs
and bar opening costs. A calculation of adjusted earnings per
Ordinary Share is set out below.
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
Adjusted EPS GBP'000 GBP'000
----------------------------------------------------- -------- --------
Loss on ordinary activities before taxation (31,720) (5,574)
Exceptional items, share-based payments and bar
opening costs 27,812 8,547
Exceptional finance income (5,869) -
----------------------------------------------------- -------- --------
Adjusted (loss)/profit on ordinary activities before
taxation (9,777) 2,973
Taxation (charge)/credit on ordinary activities (3,461) 352
Taxation on exceptional items and bar opening costs (5,447) (1,636)
Adjusted (loss)/profit on ordinary activities after
taxation (18,685) 1,689
Basic and diluted number of shares ('000) 50,029 50,029
Adjusted basic and diluted (loss)/earnings per share
(pence) (37.3) 3.4
----------------------------------------------------- -------- --------
On the 27th July 2020 an additional 75,017,495 of shares were
issued as part of the Group's admission to AIM and Fundraising,
taking the total issued share capital to 125,046,654. If the share
Fundraising had occurred before period end this would have changed
the number of ordinary shares significantly.
8. Property, plant and equipment and right-of-use assets
Property, plant and equipment Freehold Short leasehold Fixtures IT equipment
- Group land premises and fittings and
and buildings GBP'000 GBP'000 office
GBP'000 furniture Total
GBP'000 GBP'000
------------------------------ -------------- --------------- ------------- ------------ ---------
Cost
At 1 July 2018 1,426 74,719 49,762 7,608 133,515
Additions - 6,149 4,817 609 11,575
------------------------------ -------------- --------------- ------------- ------------ ---------
At 29 June 2019 1,426 80,868 54,579 8,217 145,090
Additions - 1,872 1,667 674 4,213
At 27 June 2020 1,426 82,740 56,246 8,891 149,303
------------------------------ -------------- --------------- ------------- ------------ ---------
Accumulated depreciation
and impairment
At 1 July 2018 (1,216) (27,458) (38,479) (6,167) (73,320)
Provided in the period - (3,977) (2,491) (762) (7,230)
Impairment charges - (3,755) (1,433) (27) (5,215)
------------------------------ -------------- --------------- ------------- ------------ ---------
At 29 June 2019 (1,216) (35,190) (42,403) (6,956) (85,765)
Provided in the period - (3,709) (2,880) (808) (7,397)
Impairment charges - (11,853) (2,997) (69) (14,919)
------------------------------ -------------- --------------- ------------- ------------ ---------
At 27 June 2020 (1,216) (50,752) (48,280) (7,833) (108,081)
------------------------------ -------------- --------------- ------------- ------------ ---------
Net book value
At 27 June 2020 210 31,988 7,966 1,058 41,222
------------------------------ -------------- --------------- ------------- ------------ ---------
At 29 June 2019 210 45,678 12,176 1,261 59,325
------------------------------ -------------- --------------- ------------- ------------ ---------
At 30 June 2018 210 47,261 11,283 1,441 60,195
------------------------------ -------------- --------------- ------------- ------------ ---------
Right-of-use assets - Group Short leasehold Vehicles
premises GBP'000 Total
GBP'000 GBP'000
------------------------------------------ --------------- -------- --------
Cost
At 29 June 2019 - - -
Recognition of right-of-use assets 94,268 398 94,666
------------------------------------------ --------------- -------- --------
Right-of-use assets recognised at
30 June 2019 94,268 398 94,666
Reassessment/modification of assets
previously recognised 2,767 10 2,777
Additions - 27 27
------------------------------------------ --------------- -------- --------
At 27 June 2020 97,035 435 97,470
------------------------------------------ --------------- -------- --------
Accumulated depreciation and impairment
At 30 June 2019 - - -
Provided in the period (7,035) (180) (7,215)
Impairment charges (19,566) - (19,566)
------------------------------------------ --------------- -------- --------
At 27 June 2020 (26,601) (180) (26,781)
------------------------------------------ --------------- -------- --------
Net book value
At 27 June 2020 70,434 255 70,689
------------------------------------------ --------------- -------- --------
At 30 June 2019 94,268 398 94,666
------------------------------------------ --------------- -------- --------
The reassessment/modification of leases relates to changes in
rent and extensions to lease terms agreed during the reporting
period to 27 June 2020 for leases that were in place on 30 June
2019 following the adoption of IFRS 16. Depreciation and impairment
of property, plant and equipment and right-of-use assets are
recognised in operating expenses in the consolidated statement of
profit or loss and other comprehensive income, aside from GBP6.2
million of property, plant and equipment impairment that was
incurred as part of IFRS 16 implementation and was charged to
opening reserves.
The Group has determined that for the purposes of impairment
testing, each bar is a cash generating unit ("CGU"). The bars are
tested for impairment in accordance with IAS 36 "Impairment of
Assets" when a triggering event is identified. The recoverable
amounts for CGUs are predominantly based on value in use, which is
derived from the forecast cash flows generated to the end of the
lease term discounted at the Group's weighted average cost of
capital.
In the 52 weeks ended 27 June 2020, the Group impaired the
property, plant and equipment of 37 CGUs (2019: 26 CGUs) and the
right-of-use assets of 37 CGUs, either partially or in full, based
on the value in use of the CGU being lower than the prevailing net
book value. When an impairment loss is recognised, the asset's
adjusted carrying value is depreciated over its remaining useful
economic life.
Impairment testing methodology
At the end each reporting period, a filter test is used to
identify whether the carrying value of a CGU is potentially
impaired. This test compares a multiple of run rate EBITDA,
adjusted for an allocation of central overheads, to the carrying
value of the CGU. If this test indicates a potential impairment, a
more detailed value in use review is undertaken using cash flows
based on Board-approved forecasts covering a three-year period.
These forecasts combine management's understanding of historical
performance and knowledge of local market environments and
competitive conditions to set realistic views for future growth
rates. Cash flows beyond this three-year period are extrapolated
using a long-term growth rate to the end of the lease term. The
cash flows assume a 5-year refurb cycle, with an increase in
revenue factored after refurbishments based on historical
refurbishment outcomes.
Historically, the multiple of earnings applied in the filter
test has been multiplied by the shorter of the remaining lease term
or eight years. However, in the current period, a lower multiple of
seven has been used in recognition of the severely adverse trading
impact of COVID raising the prospect of more widespread CGU
impairments that may only be revealed by detailed value in use
reviews. Using the lower multiple naturally flags more CGUs for the
more detailed value in use review.
The key assumptions in the value in use calculations are
typically the cash flows contained within the Group's trading
forecasts, the long-term growth rate and the risk-adjusted pre-tax
discount rate as follows:
-- Trading performance across all venues in FY21 will be
adversely impacted by the ongoing operating restrictions imposed to
mitigate the health risks of COVID. At the balance sheet date and
in the period immediately following during which these financial
statements were prepared it was extremely difficult to forecast
reliably on an individual venue basis given many unknown factors
including precise reopening dates for each venue, the government's
timetable for lifting operating restrictions, and indeed what turns
the pandemic and all the associated factors such as government
response and vaccines, would take. The Group modelled a number of
scenarios at a macro level that were used extensively as part of
the admission to AIM and equity fundraise process in June/July 2020
and this included a 'base case' that assumed all venues reopening
in August 2020 and trading at 55% of last year levels slowly rising
by 5% of last year during September 2020 and October 2020 before
jumping more significantly to 85% in November 2020 and 90% in
December 2020 and not getting to 100% of historical trading
revenues until June 2021. The most fundamental factor in the leap
in performance between October 2020 and November 2020 was an
assumed lifting of government imposed operating restrictions that
would enable the Group's late-night business to operate freely. As
well as a 'Base case' model, a 'Reasonable worst-case' model was
also used, which assumed the Group's venues would be unable to
reopen until November 2020 but that this would be without the
imposition of operating restrictions; hence November was modelled
at 75% of last year sales and December at 80% with a gradual
increase during the first six months of calendar year 2021 to also
reach 100% of historical numbers by June 2021. The difference
between the two models in terms of FY21 EBITDA amounted to cGBP2m;
this number was not as significant as may have been expected
because many venues do not generate EBITDA operating at c60% of
last year's sales levels (assumed average for August to October in
the Base case) and therefore makes little difference to individual
venue impairment calculations.
Management continue to believe that the Base case used for the
admission to AIM and equity fundraise process in June/July 2020,
and which was the subject of a working capital report by an
independent reporting accountant, provided the most appropriate
basis at the year-end for considering whether the assets were
impaired at the balance sheet date and, therefore, has adopted
these assumptions in all of the detailed value in use reviews.
Clearly, much has happened since the balance sheet date
including better than the assumed trading performance at venues
reopened between July and September but weaker trading than
expected following the imposition of the 10 pm curfew from the end
of September and subsequently the introduction of various tier
systems and further periods of complete lockdown. There have been
significant variations in trading across this period and there
remains significant uncertainty as to the trading potential of the
next few months. One feature that the base case did not have was
another full lockdown and the impact of this is assessed under the
sensitivity analysis section of this note. We estimate that a
typical equivalent month used for sensitivity purposes results in
approximately GBP11.2 million of sales and GBP0.4 million of
adjusted EBITDA. The absence of such a month's operations in our
impairment forecast would likely amount to circa GBP1.4 million of
additional impairment.
-- The long-term growth rate has been applied from July 2021 at
1.0 per cent (2019: 2.0 per cent).
-- Pre-tax discount rate: 8.2 per cent (2019: 11.7 per cent)
based on the Group's weighted average cost of capital.
Sensitivity analysis has been performed on each of the long-term
growth rate and pre-tax discount rate assumptions with other
variables held constant. Increasing the pre-tax discount rate by 1
per cent would result in additional impairments of GBP2.7 million.
A 0.1 per cent decrease in the long-term growth rate would result
in additional impairments of GBP1.1 million. As referred to above,
a November lockdown period, removing all sales during that period
would result in an increase in the impairment charge of circa
GBP1.4 million.
9. Inventories
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
---------------------- -------- --------
Goods held for resale 2,525 2,337
Sundry stocks 1,068 1,749
---------------------- -------- --------
3,593 4,086
---------------------- -------- --------
Sundry stocks include items such as glasses, packaging, uniform
and drinks decorations.
The cost of inventories is recognised as an expense in cost of
sales as follows:
52 weeks 52 weeks
ended ended
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
--------------------- -------- --------
Cost of inventories 26,571 36,643
--------------------- -------- --------
An inventory provision of GBP810,000 was recognised within cost
of sales in respect of Covid-19 related obsolete inventory.
10. Trade and other receivables
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------------------ -------- --------
Amounts falling due within one year
Trade and other receivables 661 3,151
Accrued rebate income 114 713
Prepayments 2,054 8,412
Other debtors 600 -
------------------------------------ -------- --------
3,429 12,276
------------------------------------ -------- --------
The above Other Debtors relates to a furlough claim for GBP762k
made on 18 July 2020 for the period 21 June 2020 - 30 June 2020.
GBP600k of this relates to FY20 and is therefore recognised as a
debtor.
In total, amounts of GBP7.6m have been claimed relating to FY20,
of which GBP7.0 million was received pre year-end. A further GBP6.0
million has been claimed as at the date of this report relating to
FY21.
11. Cash and cash equivalents
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
-------------------------- -------- --------
Cash and cash equivalents 2,502 2,627
-------------------------- -------- --------
Cash and cash equivalents consist entirely of cash at bank and
on hand, including cash floats held at bars. Balances are
denominated in Sterling. The Directors consider that the carrying
value of cash and cash equivalents approximates to their fair
value.
12. Trade and other payables
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
-------------------------------------- -------- --------
Trade payables 5,587 14,438
Other payables 24 26
Accruals and deferred income 7,364 6,796
Other taxes and social security costs 2,820 3,641
-------------------------------------- -------- --------
15,795 24,901
-------------------------------------- -------- --------
Trade and other payables are non-interest bearing and are
normally settled 30 days after the month of invoice. Trade payables
are denominated in Sterling. The Directors consider that the
carrying value of trade and other payables approximates to their
fair value. The value of trade payables and accruals is
substantially lower at 27 June 2020 as a result of the business not
trading in the last 14 weeks of the period, as well as the
implementation of IFRS 16 removing rental payables.
13. Lease liabilities
Group Short leasehold Vehicles
properties GBP'000 Total
GBP'000 GBP'000
----------------------------------------- --------------- -------- --------
At 29 June 2019 - - -
Recognition of lease liability under
IFRS 16 123,213 398 123,611
----------------------------------------- --------------- -------- --------
Opening lease liabilities recognised
at 30 June 2019 123,213 398 123,611
----------------------------------------- --------------- -------- --------
Reassessment/modification of liabilities
previously recognised 2,767 10 2,777
Modifications taken as a credit to
administrative expenses (note 3) (897) - (897)
Additions - 27 27
Surrender of leases (note 5) (8,893) - (8,893)
Lease liability payments (7,608) (189) (7,797)
Finance costs 4,321 14 4,335
----------------------------------------- --------------- -------- --------
At 27 June 2020 112,903 260 113,163
----------------------------------------- --------------- -------- --------
The reassessment/modification of leases relates to changes in
rent and extensions to lease terms agreed during the reporting
period for leases that were in place on 30 June 2019 following the
adoption of IFRS 16.
The Lease liability payments amount in the table above includes
GBP395k of concessions waived by landlords. Cash payments in the
year comprise interest of GBP4.3 million and principal of GBP3.1
million.
Lease liabilities are comprised of the following balance sheet
amounts:
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------------------- -------- --------
Amounts due within one year 10,203 -
Amounts due after more than one year 102,960 -
------------------------------------- -------- --------
113,163 -
------------------------------------- -------- --------
14. Provisions
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
------------------------ -------- --------
Onerous lease provision - 10,556
Dilapidations provision 1,019 400
------------------------ -------- --------
1,019 10,956
------------------------ -------- --------
Current - 1,269
Non-current 1,019 9,687
------------------------ -------- --------
1,019 10,956
------------------------ -------- --------
Onerous lease Dilapidations Total
provision provision GBP'000
GBP'000 GBP'000
---------------------- ------------- ------------- ---------
At 30 June 2019 10,556 400 10,956
Movement on provision (10,556) 619 (9,937)
At 27 June 2020 - 1,019 1,019
---------------------- ------------- ------------- ---------
The Group provides for unavoidable costs associated with lease
terminations and expiries against all leasehold properties across
the entire estate, built up over the period until exit.
Following the adoption of IFRS 16, which requires the carrying
value of the right-of-use asset to be assessed at each balance
sheet date, it is no longer necessary to hold onerous lease
provisions and accordingly all existing provisions have been
incorporated as part of the opening adjustments to accommodate IFRS
16 implementation. Thereafter, any onerous lease obligations are
recognised as impairments of the relevant CGU assets.
15. Interest-bearing loans and borrowings
27 June 29 June
2020 2019
IFRS 16 IAS 17
GBP'000 GBP'000
-------------------------- -------- --------
Revolving credit facility 24,500 17,500
-------------------------- -------- --------
As at the date of the consolidated financial position, the Group
had a revolving credit facility (the "Facility") of GBP30.0 million
expiring in December 2021. Shortly after the end of the reporting
period, the Facility was reduced to GBP21.0 million and the Group
received a GBP16.5m Coronavirus Large Business Interruption Loan
(CLBIL). The CLBIL is a three-year term loan, the proceeds of which
were used to pay down the Facility. See note 1 under sub-heading
Going concern for further details of the Facility and the CLBIL.
The Facility and the CLBIL are secured and supported by debentures
over the assets of Revolution Bars Group plc, Revolución De Cuba
Limited, Revolution Bars Limited, Revolution Bars (Number Two)
Limited and Inventive Service Company Limited, and an unlimited
guarantee.
All borrowings are held in Sterling. There is no material
difference between the fair value and book value of the Group
interest-bearing borrowings. For more information on the Group's
exposure to interest rate risk, see note 22 of the full financial
statements.
16. Deferred tax
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting periods:
Share-based Disclaimed Brought-forward
payments or not used losses
GBP'000 Capital Allowances GBP'000 Total
GBP'000 GBP'000
-------------------------- ----------- ------------------- ---------------- --------
At 1 July 2018 19 (709) - (690)
(Charge)/credit to income - (207) 484 277
--------------------------- ----------- ------------------- ---------------- --------
At 29 June 2019 19 (916) 484 (413)
Credit/(charge) to income (19) 916 (484) 413
--------------------------- ----------- ------------------- ---------------- --------
At 27 June 2020 - - - -
--------------------------- ----------- ------------------- ---------------- --------
27 June 29 June
2020 2019
GBP'000 GBP'000
------------------------- -------- --------
Deferred tax assets - 503
Deferred tax liabilities - (916)
---------------------------- -------- --------
Total - (413)
---------------------------- -------- --------
Upon implementation of IFRS 16, a deferred tax asset of GBP3.9
million was recognised predominantly relating to impairment.
Furthermore, as at the reporting date, the Group had unused tax
losses of GBP13.9 million (2019: GBP2.8 million) available for
offset against future taxable profits, but has not recognised a
deferred tax asset in relation to these (or any other credits,
including for Capital Allowances) due to uncertain trading
conditions. The IFRS 16 deferred tax asset was written off for the
same reason.
17. Dividends
The Directors are not recommending a final dividend in respect
of the 52 weeks ended 27 June 2020. There was no interim dividend
during the period, and thus the total dividend for the 52 weeks
ended 27 June 2020 is nil pence per share (2019: nil pence per
share).
18. Note to accompany the consolidated statement of cash
flow
52 weeks
52 weeks ended
ended 29 June
27 June 2019
2020 Restated*
IFRS 16 IAS 17
Note GBP'000 GBP'000
---------------------------------------------- ----- -------- ----------
Cash flow from operating activities
Loss before tax from operations (31,720) (5,574)
Adjustments for:
Net finance expense 4,934 858
Exceptional finance income (5,869) -
Depreciation of property, plant and equipment 7,397 7,230
Depreciation of right-of-use assets 7,215 -
Impairment of property, plant and equipment 8,727 5,215
Impairment of right-of-use assets 19,566 -
Lease modification (897) -
Working Capital and Other movements (further
analysed below) (2,883) 2,857
Amortisation of intangibles 1 -
Charge/(Credit) arising from long-term
incentive plans 42 (68)
----------------------------------------------------- -------- ----------
Operating cash flows before movement in
working capital 9,396 7,661
Decrease/(Increase) in inventories 493 (193)
Decrease/(Increase) in trade and other
receivables 6,444 (802)
(Decrease)/Increase in trade and other
payables (10,483) 2,649
(Decrease)/Increase in provisions 619 979
----------------------------------------------------- -------- ----------
6,469 10,294
Tax refunded 1 292
----------------------------------------------------- -------- ----------
Net cash flow generated from operating
activities 6,470 10,586
----------------------------------------------------- -------- ----------
Within the Working Capital and Other movements analysis, the
prior year comparatives have been corrected to remove an incorrect
Tax (Credit)/Charge line of GBP352k, increasing trade and other
payables by GBP274k, and increasing tax refunded by GBP78k. There
was no impact on the net cash flow generated from operating
activities or on the net decrease in cash and cash equivalents for
the period to 29 June 2019.
19. Post-balance sheet events
Changes to committed borrowing facilities
As at the date of the consolidated financial position, the Group
had a revolving credit facility ("RCF") of GBP30.0 million expiring
in December 2021.Shortly after the end of the reporting period
effective 6 July 2020, the Group's total committed borrowing
facilities ("Facilities") were increased to GBP37.5 million through
the receipt of a GBP16.5m Coronavirus Large Business Interruption
Loan (CLBIL) and reduction in the RCF to GBP21.0 million. The term
of the RCF was also extended to June 2022. On 16 December 2020, the
amortisation profile of the Facilities was changed to postpone
reductions due to take place in March 2021 and June 2021. Further
details of the Facilities, their duration, amortisation profiles,
future availability of committed funding and financial covenant are
set out under the going concern section of note 1 to the financial
statements.
Delist to AIM and fundraising
On 5 June 2020, the Group announced its intention to raise gross
proceeds of up to GBP15.0 million by way of a Firm Placing and a
Placing and Open Offer at 20 pence per New Ordinary Share, as well
as to delist from the Main Market and admit to trading on AIM. The
admission to AIM was completed on 27 July 2020 together with the
Fundraising of gross proceeds of GBP15.0 million and net proceeds
of GBP14.1 million and from that date the total number of Ordinary
Shares with voting rights in the Company was 125,046,654.
Company Voluntary Arrangement ('CVA')
On 13 November 2020, Revolution Bars Limited which is an
indirect wholly owned subsidiary entity of Revolution Bars Group
plc, completed a Company Voluntary Arrangement (CVA) proposed on 27
October 2020. This entity comprises the majority of the Group's
Revolution branded bars. As part of the CVA, rent arrears to the
value of GBP1.0 million on 13 bars were waived and are not payable.
This credit will be shown in the FY21 financial statements as the
liability was released after the period end. Additionally, the
lease liabilities on five of these bars were compromised for the
remainder of the lease term and seven bars were moved to a turnover
based rent for a period of two years.
UK Government COVID-19 announcements
On 31 October 2020, the UK Government announced a second
national lockdown effective in England from 5 November 2020 to 2
December 2020 resulting in the mandatory closure of all the Group's
bars in England for that period. Following the national lockdown,
the UK Government announced revised tier structure operating
restrictions that resulted in 35 of the Group's bars remaining
closed and all but one of the remaining bars operating under tier 2
severely suppressing income generation. The impact of these
measures was included in the going concern assessment as detailed
in note 1 to these financial statements. However, the impairment
review of property, plant and equipment and right-of-use assets
were performed using less onerous trading conditions as were
forecast at the balance sheet date. As such, those forecasts did
not include the impact of a second national lockdown or the
punitive tier restrictions but rather assumed a continuing recovery
in trading performance towards the end of calendar year 2020. The
estimated impact of this on impairment is considered using
sensitivity analysis in note 8.
20. Key Risks
The directors believe that the principal risks and uncertainties
faced by the business are as set out below. Occurrence of any of
these risks or a combination of them may significantly impact the
achievement of the Group's strategic goals;
-- COVID-19
-- Dependence on key sites
-- Acquisition of new sites
-- Consumer demand
-- Discounting
-- Health and safety
-- Leasehold rent increases
-- Supplier concentration
-- National minimum/living wage legislation
The Group's operating environment is severely impacted by
COVID-19, significantly restricting the its ability to trade at
normal levels due to social distancing measures and periods of
enforced closure and reduced opening hours. There is a risk of
further ongoing extensive local or national lockdowns until the
vaccination programme is successfully completed.
The Group's Board notes the extreme uncertainty surrounding
Brexit and in particular the short term disruption that a "no deal"
Brexit would bring, the implications of which cannot be planned or
fully covered because there are many unknowns and factors beyond
the Group's ability to control them. The Group's supplies of food
and drink are sourced through wholesalers who have provided
assurances that they have taken all reasonable steps to safeguard
supplies. However, Brexit may have short-term impacts on consumer
prosperity and disposable income, which may adversely affect demand
for the Group's services.
The financial information set out in the preliminary statement
of annual results has been extracted from the Group's financial
statements which have been approved by a resolution of the Board
and agreed with the Company's auditor.
21. Alternative Performance Measures - Consolidated Statement of
Comprehensive Income - Non-IFRS 16 Basis
The re-presented Statement of Comprehensive Income set out below
does not form part of the condensed consolidated financial
statements for the 52 weeks to 27 June 2020. It is included to
provide an understanding of the underlying performance for the 52
weeks to 27 June 2020, given that IFRS 16 Leases has been adopted
for the current period without restatement of the comparative
period. The re-presented statement consists of:
-- The reported Statement of Comprehensive Income for the current period;
-- A pro forma Statement of Comprehensive Income for the current
period assuming IFRS 16 had not been adopted.
The pro forma Statement of Comprehensive Income for the current
period is an estimation of the results for the period when applying
the previous accounting standard for leases, IAS 17 Leases and the
resulting impact on onerous lease provisions and impairment of
assets.
52 weeks
52 weeks ended
ended 27 27 June
June 2020 Impact 2020
IFRS 16 of IFRS IAS 17
Reported 16 Pro forma
GBP'000 GBP'000 GBP'000
------------------------------------- ---------------- ---------- -----------
Revenue 110,074 - 110,074
Cost of sales (26,571) - (26,571)
------------------------------------- ---------------- ---------- -----------
Gross profit 83,503 - 83,503
------------------------------------- ---------------- ---------- -----------
Operating expenses
- operating expenses, excluding
exceptional items (88,388) (2,524) (90,912)
- exceptional items (27,770) 7,701 (20,069)
------------------------------------- ---------------- ---------- -----------
Total operating expenses (116,158) 5,177 (110,981)
------------------------------------- ---------------- ---------- -----------
Operating loss (32,655) 5,177 (27,478)
Finance expense (4,934) 4,287 (647)
Exceptional finance income 5,869 (5,869) -
------------------------------------- ---------------- ---------- -----------
Loss before taxation (31,720) 3,595 (28,125)
Tax (3,461) 2 (3,459)
------------------------------------- ---------------- ---------- -----------
Loss and total comprehensive income
for the period (35,181) 3,597 (31,584)
------------------------------------- ---------------- ---------- -----------
(Loss) per share
Basic and diluted (pence) (70.3p) (56.2p)
Adjusted basic and diluted (pence) (37.3p) (19.8p)
------------------------------------- ---------------- ---------- -----------
Non-GAAP alternative performance
measure
Operating loss (32,655) 5,177 (27,478)
Exceptional items 27,770 (7,701) 20,069
Credit arising from long-term
incentive plans 42 - 42
Bar opening costs - - -
------------------------------------- ---------------- ---------- -----------
Adjusted operating loss (4,843) (2,524) (7,367)
Finance expense (4,934) 4,287 (647)
Adjusted loss before tax (9,777) 1,763 (8,014)
------------------------------------- ---------------- ---------- -----------
Depreciation 14,612 (7,161) 7,451
Amortisation 1 - 1
Finance expense 4,934 (4,287) 647
Adjusted EBITDA 9,770 (9,685) 85
---------------- ----------
The pro forma Statement of Comprehensive Income has been
prepared using the reported results for the current period and
replacing the accounting entries related to IFRS 16 Leases, on
adoption and during the period, with an estimate of the accounting
entries that would have arisen when applying IAS 17 Leases. The
effective tax rate has been assumed to be unaltered by this change.
Impairment assumptions have been re-geared for an IAS 17
perspective, and the onerous lease provision movement has been
included.
The pro forma Statement of Comprehensive Income for the current
period has been prepared by adjusting the reported Statement of
Comprehensive Income for the current period to:
-- Increase of GBP2.5 million in operating expenditure
Impact of
IFRS 16
GBP'000
------------------------------------------- ----------
Rental expenditure incurred (8,166)
Net utilisation of onerous lease movement (1,520)
IFRS 16 depreciation reversal 14,612
IAS 17 depreciation incurred (7,450)
Total increase in operating expenses (2,524)
--------------------------------------------- ----------
-- Decrease of GBP7.7 million in exceptional items
Impact of
IFRS 16
GBP'000
------------------------------------- ----------
IFRS 16 impairment reversal 28,293
IAS 17 Cash exceptionals (3,024)
IAS 17 impairment incurred (19,076)
IFRS 16 lease modification reversal (897)
Net onerous lease movement 2,405
Total Decrease in exceptional items 7,701
--------------------------------------- ----------
-- Reduction of GBP4.3 million in finance expense
Impact of
IFRS 16
GBP'000
----------------------------------- ----------
IFRS 16 finance cost reversal 4,335
Onerous lease interest incurred (48)
Total decrease in finance expense 4,287
------------------------------------- ----------
An exceptional finance income of GBP5.9 million is also
recognised under IFRS 16 relating to the net gain on disposal of
leases.
Exceptional items are comprised of:
52 weeks 52 weeks
ended ended
27 June 27 June
2020 2020
IFRS 16 IAS 17
GBP'000 GBP'000
Administrative expenses:
- impairment of right-of-use assets 19,566 -
- impairment of property, plant and equipment 8,727 19,076
- lease modification (897) -
- delist from Main market and admission to AIM 371 371
- surrender premiums and bar closure costs - 3,024
- movement on onerous lease provisions - (2,405)
- other 3 3
Total exceptional items 27,770 20,069
----------------------------------------------- -------- --------
The financial information set out above does not constitute the
company's statutory accounts for the 52-week periods ended 27 June
2020 or 29 June 2019. Statutory accounts for the 52 weeks ended 29
June 2019 have been delivered to the Registrar of Companies, and
those for 2020 will be delivered following their approval at a
General Meeting of the Company expected to be held on 15 February
2021. The auditor reported on those consolidated accounts; their
report was (i) unqualified, (ii) included a material uncertainty
relating to going concern, and (iii) did not contain a statement
under section s.498 (2) or (3) of the Companies Act 2006.
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