REG - Hollywood Bowl Group - Final Results - Year Ended 30 September 2022
16/12/2022 07:00
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RNS Number : 9118J Hollywood Bowl Group plc 16 December 2022
Hollywood Bowl Group plc
("Hollywood Bowl" or the "Group")
Final Results for the Year Ended 30 September 2022
INVESTMENT IN UK GROWTH AND INTERNATIONAL EXPANSION DRIVING EXCELLENT
PERFORMANCE AND RECORD REVENUE
Hollywood Bowl Group plc, the UK's largest ten-pin bowling operator, announces
its audited results for the year ended 30 September 2022 ("FY2022").
Financial summary
Financial performance for FY2022 is compared to FY2019, the last period of
uninterrupted trading.
12 months ended 30 September 2022 12 months ended 30 September 2019 Movement
Total revenues £193.7m £129.9m +49.2%
Gross profit £164.3m £111.4m +47.6%
Group adjusted EBITDA(1) £77.5m N/A N/A
Group adjusted EBITDA(1) pre-IFRS 16 £60.6m £38.2m +58.6%
Group profit after tax £37.5m £22.3m +68.1%
Adjusted group profit after tax(2) £39.4m £22.3m +77.0%
Free cash flow(3) £34.8m £14.7m +142.6%
Net cash/(debt)(4) £56.1m (£2.1m)
Interim ordinary dividend per share 3.00 pence 2.27 pence
Final ordinary dividend per share 8.53 pence 5.16 pence
Special dividend per share 3.00 pence 4.50 pence
Total dividend per share 14.53 pence 11.93 pence +21.7%
Key highlights
Excellent FY2022 performance supported by strong customer demand
· 28.3% LFL revenue growth compared to FY2019
· Record revenues of £193.7m, up 49.2% compared with FY2019
(FY2019: £129.9m)
· Group adjusted EBITDA (pre-IFRS) of £60.6m, an increase of 58.6%
to FY2019 (£38.2m)
Innovation and technology investment driving 8.4% higher spend per game (SPG)
and excellent customer satisfaction scores
· Games LFL volumes increased by 18.3%
· Total amusement revenues grew 49.9% compared with FY2019 and food
and drinks revenue increased by 18.6% despite a reduction in average menu
prices
· Continued rollout of Pins on Strings with 15 centres completed in
FY2022, bringing the total completed to 41 (65% of the estate) with returns in
line with expectations
· Improved overall net promotor score to 61%, up 6.1%pts vs. FY2019
New centre openings and ongoing refurbishment strategy continuing to generate
attractive, above target returns
· Six centres refurbished and two AMF centres rebranded to Hollywood
Bowl
· Three new centres opened in FY2022: Hollywood Bowl in Belfast and
Birmingham Resorts World, and Puttstars in Harrow
· Two additional centres (Hollywood Bowl Speke and Puttstars
Peterborough) opened in H1 FY2023 with two new Hollywood Bowl centres due to
start construction during FY2023
· A further 10 centres, at least, targeted for opening before the
end of FY2025
Canadian acquisition performing in line with expectations and growth strategy
underway
· For the four months post acquisition, LFL revenues grew by more
than 20%, with total revenues of £6.2m and EBITDA pre-IFRS 16 of £1.0m
· First new centre acquisition completed in Kingston, Ontario and
the Splitsville brand acquisition pipeline continues to build
· First refurbishment expected to complete in H1 FY2023
· Opportunity to add up to 10 centres over the next five years,
with the potential of at least a further 20 sites over the next 10 years
Ongoing investment in our people to retain and attract the best talent
· Introduced a sector-leading incentive-based bonus scheme for team
members
· One off cost-of-living payment paid in H2 FY2022 totalling £0.6m
· Expanded training and development programmes for team members
Strong balance sheet and continued significant cash generation
· Updated capital allocation policy (with FY2025 net cash ratio(5)
target of 0.5X) focused on profitable growth and shareholder returns
· Final ordinary dividend and special dividend declared
Outlook
Resilient customer demand and significant opportunity to grow the business
· Lowest cost option of the major UK ten-pin bowling operators with
a family of four able to bowl for under £24
· Strong trading momentum at the start of FY2023 with encouraging
pre-bookings for the Christmas period
· Significant longer-term opportunity to grow to more than 110
centres across the three experiential leisure brands: Hollywood Bowl and
Puttstars in the UK and Splitsville in Canada
Well insulated from inflationary pressures
· UK electricity usage costs are hedged to the end of FY2024, and
the solar panel installation programme remains on track with 22 centres now
completed or under construction (c.30% of Group's UK centres)
· Over 74% of revenues are not subject to inflation in cost of
goods sold
· Food and drink costs represent less than 10% of overall costs
with simplification of the menu minimising exposure to supply chain and food
inflation
· Labour costs account for less than 20% of revenue at a centre
level
Strong and flexible balance sheet enables the Group to invest in profitable
growth
· Net cash at year end of £56.1m
· Undrawn £25m revolving credit facility in place to December 2024
Stephen Burns, Chief Executive Officer, commented:
"I am delighted with our excellent performance and record revenue this year,
which demonstrates the continued success of our proven customer-led strategy.
It is also testament to the significant efforts of our team who have provided
consistently great, affordable experiences, appealing to customers facing
increasing pressures during the cost-of-living crisis.
"We are well positioned to continue to grow our business, supported by our
strong balance sheet, highly cash generative business model and our resilience
to inflationary pressures. We are very excited about the growth opportunities
for our Hollywood Bowl, Puttstars and Splitsville brands in the UK and Canada
and our ability to generate further attractive returns through investment in
our customer experience.
"We have had a strong start to the new financial year with an encouraging
number of pre-bookings received ahead of Christmas, demonstrating the
continued strong demand for high quality, great value leisure experiences that
families and friends can enjoy together."
Enquiries
Hollywood Bowl Group PLC Via Tulchan Communications
Stephen Burns, Chief Executive Officer
Laurence Keen, Chief Financial Officer
Mat Hart, Chief Marketing and Technology Officer
Tulchan Communications Hollywoodbowl@tulchangroup.com (mailto:Hollywoodbowl@tulchangroup.com)
Will Palfreyman +44 (0)20 7353 4200
James Macey White
Laura Marshall
1 Group adjusted EBITDA (earnings before interest, tax, depreciation and
amortisation) reflects the underlying trade of the overall business. It is
calculated as operating profit plus depreciation, amortisation, impairment
losses, loss on disposal of property, plant and equipment and right-of-use
assets and software, and any exceptional costs or income and is also shown
pre-IFRS 16 as well as adjusted for IFRS 16. The reconciliation to operating
profit is set out below in this section of the report.
2 Adjusted group profit after tax is calculated as group profit after tax,
adding back the Teaquinn acquisition fees of £1.6m, a non-cash expense of
£0.4m related to the fair value of the earn out consideration on the Teaquinn
acquisition and deducting the non-cash credit in relation to the Teaquinn
bargain purchase of £39,075.
3 Free cash flow is defined as net cash flow pre-exceptional items, cost of
acquisitions, debt facility repayment, RCF drawdowns, dividends and equity
placing.
4 Net cash/(debt) is defined as cash and cash equivalents as per the
statement of financial position less any bank borrowings.
5 Net cash ratio target is defined as proforma net cash divided by Group
adjusted EBITDA pre-IFRS 16. Proforma net cash is defined as cash and cash
equivalents as per the statement of financial position less any bank
borrowings less any final ordinary dividends for the financial year.
Chairman's statement
Each year, I cannot help but enthuse about the people who work with us at
Hollywood Bowl Group, and FY2022 has been no different.
A record year flashed by and, as customers returned in their droves, our
Centre Managers and team members delivered excellent customer service
unfailingly throughout the year.
The Group's excellent financial performance in FY2022 exceeded the Board's
expectations, as well as the FY2019 (the last full year of uninterrupted
trading) revenue levels by 28.3 per cent on a like-for-like (LFL) basis. We
have made further progress against our customer-led strategy, investing in and
growing our estate, including announcing a new milestone for the business this
year with our first international acquisition in Canada. We have continued to
improve our customer experience, and we are proud of the great value for money
we offer families and friends across the UK and Canada. As a result of this
excellent performance we were pleased to reinstate our dividend for the year
and set out the Group's updated capital allocation policy, which centres on
sustainable profit growth and shareholder returns, in the Chief Financial
Officer's review below.
Demand for great value competitive socialising remains strong, and we achieved
four of our five-highest ever revenue months during the year. The UK summer of
travel disruptions in 2021, knocked foreign travel off the agenda for many,
benefiting the domestic leisure and entertainment sector in that period, and
we continued to see the benefit of that during the early months of FY2022. We
also experienced our second-highest revenue month on record during August
2022, despite the heatwave, with our centres also providing our customers a
welcome reprieve from the hot weather.
This excellent performance has been achieved by our teams who have stood up to
the many, well-publicised challenges experienced by businesses throughout the
year, including COVID-19 related absences, labour shortages and supply chain
issues. Our Centre Managers successfully navigated these challenges while
coordinating multiple on-site operations and leading their teams on a daily
basis. I salute their efforts in delivering on our purpose and providing
consistently excellent customer experiences. We were pleased to reward this
significant team effort with a sector-leading bonus scheme in the year.
I am extremely proud of the way our senior leadership team (SLT) has continued
to create stakeholder value while innovating and elevating customer
experiences. We have seized opportunities to make the Group more operationally
efficient, while supporting our Centre Managers to make well-informed
decisions at local level. Together, the Board and SLT remain laser focused on
our strategic growth initiatives.
We have invested further in our portfolio, refurbishing or rebranding eight
centres during the year. We continue to implement and introduce a number of
performance enhancing initiatives, such as optimising the layouts in our
centres to create more lanes and extra space for our amusements. We have
accelerated our digital offering and improved how we interact with customers -
amplifying their experiences to meet heightened expectations. Work included
in-centre digital displays, improved Customer Relationship Management (CRM)
capability, as well as website and IT architecture improvements that
collectively help improve our customers' interactions.
We have grown the portfolio during the year, opening two new Hollywood Bowl
centres in Resorts World Birmingham and in Belfast, both of which are trading
in line with expectations, and we continue to see significant opportunity to
grow the brand in the UK and add to our pipeline.
Since the launch of our new Puttstars leisure brand, a unique and modern twist
on indoor mini-golf, in March 2020, we have been testing the format and
refining the value proposition. COVID-19 halted progress for nearly two years,
however, since the lifting of restrictions, the trial is progressing well.
Informed by customer research and the lessons we have learned, we are refining
the operational delivery and making modifications in the centre environments
and game-play. We opened two new Puttstars during the calendar year, and we
continue to see opportunity to add to our pipeline and grow the brand by
expanding into those five-star locations across the UK where a Hollywood Bowl
centre is not suitable, for example, where there is a smaller available
footprint.
Looking further afield, an exciting highlight of the year was the acquisition
in May of Teaquinn Holdings Inc (Teaquinn) in Canada for an initial
consideration of CAD 17m (approximately £10.6m), which was funded from the
Group's existing cash resources. The business comprises Splitsville, a
Canadian ten-pin bowling brand, and Striker Bowling Solutions, a supplier and
installer of bowling equipment across Canada.
This was an excellent opportunity to acquire a well-operated, freehold-backed
business with an experienced existing management team led by founder Pat
Haggerty. The Canadian bowling market is well established but fragmented and
under invested, and ripe for consolidation. Together with Pat, we see
significant potential for profitable growth in a territory which shares many
characteristics of the UK market of some ten years ago. In addition to
refurbishment opportunities, we have the potential to add up to ten sites to
the portfolio over the next five years. The Board believes this is an
opportunity that aligns well with our strategic growth plans with targeted
returns in line with our financial investment criteria.
In October 2021, we appointed Melanie Dickinson to the Board as Chief People
Officer in recognition of the huge importance we place on our team members,
and the impact that her role has had on the success of the Group. We conducted
full pay reviews and awarded well-earned bonuses to our team members,
recognising their contribution to a stellar performance in FY2022. We did this
on the back of a bonus scheme introduced last year, rewarding our centre teams
for displaying behaviours that align with Group strategy and environmental
performance targets. Excellent service is fundamental to our success, and is
embedded in everything we do and the rewards we offer.
In the context of our focus on our team members, I was delighted that the
Group was recognised as one of The UK's 25 Best Big Companies to Work For in
2022.
We welcomed Julia Porter as an Independent Non-Executive Director on 1
September 2022, and as a member of the Audit, Nomination and Remuneration
Committees.
We will sadly say goodbye to Claire Tiney following a three-month handover
with Julia, who will become Chair of the Remuneration Committee as Claire will
be retiring by rotation at the AGM in January 2023.
I would like to thank Claire for her excellent insights and contribution to
the Group since 2016, and the other members of the Board for their valued
contributions during the year.
Operating sustainably has long been a priority for the Group. Having evolved
our wider environmental, social and governance (ESG) strategy in FY2021, this
year we have further embedded sustainability considerations in the way we
operate, and have extended our targets and stated ambitions.
This year for the first time, we have integrated the Task Force on
Climate-related Financial Disclosures (TCFD) framework and recommendations in
our reporting, giving more visibility on the climate-related risks we face,
the environmental initiatives we are currently undertaking, and the steps
required to meet stakeholder expectations. We are putting additional systems
and processes in place to mitigate against future risks and measure
performance in this area.
We work hard to mitigate business risks, and although inflationary pressures
are expected to continue, we are well placed to withstand them through our
operating model, as well as our multiple revenue streams. We are exceptionally
pleased to have closed FY2022 in a robust cash and liquidity position. With no
current debt we are not directly impacted by interest rate rises.
The investments and refurbishments made to our estate have allowed us to
deliver great value to all of our stakeholders, while keeping true to our
purpose of bringing people together for affordable and healthy competition
that is safe and fun, in a wholly positive environment.
Our strict return on investment hurdle rate currently has sufficient headroom
to allow us to continue our capital investment and refurbishment programmes,
as well as pursue our expansion plans. We are confident in our ability to not
only withstand but to succeed in the face of the current headwinds, and are
committed to keeping our prices affordable for customers so they can continue
to enjoy a family treat at one of our bowling or mini-golf centres.
I would like to thank all the suppliers, landlords, partners, shareholders and
other stakeholders that have worked with us to ensure our business could
deliver such an outstanding performance, and I hope you will continue to share
in the Group's success in the years ahead.
Peter Boddy
Non-Executive Chairman
15 December 2022
Chief Executive Officer's review
I am very pleased to report another excellent performance for Hollywood Bowl
Group in FY2022. For the first time since FY2019, trading has been largely
uninterrupted. Our results are reflective of the effectiveness of our
industry-leading operating model, the execution of our clear and consistent
strategy, and the continued strong customer demand for fantastic
value-for-money family entertainment experiences.
This excellent performance is also due to the efforts of our team members who
have worked hard to deliver great value-for-money and family-friendly
experiences, as shown by the consistently high customer satisfaction scores
achieved throughout the year.
We started the financial year with real momentum and trading has remained
strong throughout the year. Our strong financial position enabled us to take
advantage of the favourable market environment to invest in growing our
portfolio in the UK. We marked a key milestone for the business with our first
international expansion into Canada via an acquisition in May 2022. The
quality of our overall estate is constantly improving, with new centre
openings and refurbishments generating attractive returns and enhancing our
customer experience.
A record performance across all revenue lines
The profit before tax grew by £46.2m when compared to FY2021, to £46.7m and
was £19.1m (69.2 per cent) ahead of FY2019 (our last year of uninterrupted
trading). Group adjusted EBITDA pre-IFRS 16 was £60.6m vs £38.2m in FY2019.
Each of our centres, that has been open for at least 12 months, had a positive
contribution with an average EBITDA for FY2022 (on a pre-IFRS 16 basis) of
£1.15m per centre, which is an industry-leading result.
The free cash flow of £34.8m demonstrates our highly cash generative business
model, and with net cash of £56.1m at the end of FY2022, the business is in
excellent financial health.
Total revenues grew to £193.7m, a 49.2 per cent increase when compared to
FY2019, with all revenue lines seeing considerable growth driven by increases
in footfall and spend. Games volumes grew by 18.3 per cent on a LFL basis
compared to FY2019, whilst LFL spend per game grew by 8.4 per cent, up from
£9.64 in FY2019 to £10.45 in FY2022.
As well as increased game volumes, the improvements and investments we have
made in our centres have continued to drive average spend per game. We have
optimised the layout of centres to increase the space allocated to amusements,
and have also added additional lanes in certain centres. Amusement spend per
game benefited from this increased density, as well as new game formats and
improvements in payment technology which remove barriers to play. Food and
beverage LFL revenue saw an increase of 18.6 per cent compared to FY2019,
despite a reduction in average menu pricing. This was a result of our
strategic decision to simplify our menus during the COVID-19 period, to focus
on speed of delivery and quality at accessible price points which in turn
increased our order volume.
We have been pleased with the trading we have seen in Canada since our
acquisition. Total revenue was CAD 9.6m with EBITDA pre-IFRS 16 of CAD 1.6m.
COVID-19 restrictions were lifted in Canada at the end of March 2022, and the
result reflects a similar 'bounce' in demand that was experienced in the UK
from May 2021.
An outstanding, committed team
I cannot praise our team members enough for their hard work and dedication,
and for delivering great customer experiences throughout the year, as
reflected by our net promoter score which has increased by 6.1 percentage
points compared to FY2019. This was achieved against a backdrop of challenges
experienced across the leisure sector including supply chain issues and
COVID-19 related absences, particularly during the peak of the Omicron wave.
We recognised and incentivised these efforts with a generous review of our pay
and benefits packages and bonus schemes reflecting our long-held belief that
the Group's success should be shared appropriately.
Incentive-based bonuses paid out to our Centre Managers in FY2022 were on
average 135 per cent of base pay, whilst our Assistant Managers received an
average 24 per cent of base pay. Furthermore, 64 per cent of our hourly rate
team members received bonuses measured against financial, environmental and
customer satisfaction performance criteria, which equated to £0.7m in FY2022.
These payments were well deserved in an excellent year and our teams have
entered FY2023 stronger than ever.
We have worked very hard on our people initiatives to continue to attract and
retain the very best talent in an increasingly competitive labour market. We
have expanded our industry-leading training and development programmes,
introducing talent programmes for our Technicians and Contact Centre team for
the first time. In total, 25 new candidates joined our Centre Manager in
Training programme and 75 candidates joined our Assistant Manager in Training
programme.
We are acutely aware that the cost of living crisis has the potential to
impact our team members over the coming months. We therefore took the decision
to further support them by providing a one-off cost of living payment to team
members in September which totalled £0.6m.
We were enormously proud to have been recognised as one of the UK's Best Big
Companies To Work for in 2022. This accolade is a testament to the fantastic
working culture we have built, and the importance we place on creating
outstanding workplaces, which is one of the three pillars of our
sustainability strategy.
Innovating and investing
We have continued to generate attractive returns on the investments in our
portfolio during the year and our new centre pipeline is progressing well.
We are pleased to have opened two new Hollywood Bowl centres in Resorts World
Birmingham and Belfast, as well as a Puttstars in Harrow. At the end of
FY2022, our UK estate consisted of 67 centres, including four Puttstars. We
opened two new centres, Hollywood Bowl Speke and Puttstars Peterborough, at
the start of FY2023, and are due on site at two new Hollywood Bowl locations
in FY2023. Our pipeline continues to build and we are targeting to open a
further ten UK centres before the end of FY2025.
We refurbished or rebranded eight centres during the year, all of which are
delivering returns in line with our hurdle rate of 33 per cent or above. As
part of our refurbishment strategy, we have invested in enhancing the customer
experience in our centres resulting in higher spend per game. The combination
of our dining and bar areas means that they can be managed more efficiently,
and has also increased the capacity and density of family-friendly games and
amusement machines. This initiative, alongside the introduction of payment
technology that removes barriers to play, has helped drive revenues in
amusements. We plan to commence at least seven further refurbishments or
rebrands in FY2023, including converting our last two AMF Bowling centres to
Hollywood Bowl.
A total of 15 centres have benefited from the installation of Pins on Strings
technology in the period, taking the total of the estate now completed to 41
centres (65 per cent of the estate).
Investment in all aspects of the digital customer journey has continued. Since
lockdowns ended, there has been a shift in the way customers make bookings,
with the majority now made online. We have made further investments in our
website and booking engine to improve sales conversions, encourage early
bookings and improve dynamic pricing, allowing us to offer better value for
customers at non-peak periods, driving overall capacity utilisation, whilst
also automatically driving yield during the peak periods. We have also
improved our CRM capabilities, enabling us to be more selective and targeted
in our marketing to improve engagement and conversion rates.
During the year, we continued to introduce dynamic digital displays to
encourage customer engagement and friendly competition at our centres.
Positioned strategically, these displays publish live scoring leader boards
and showcase food and drink content that reflect customer profile changes
through the day. To stimulate food and beverage sales further, we have
upgraded our WIFI networks in all centres to support at-lane ordering.
We continue to significantly invest in our technology initiatives and grow our
IT team. We have recently appointed a new IT and Digital Transformation
Director who takes on a strategic role in the ongoing development of our IT
capability, as the digital customer journey becomes ever more important.
International expansion and acquisition
In May 2022, we were delighted to announce the acquisition of Teaquinn,
comprising Splitsville, an operator of five ten-pin bowling centres, and
Striker Bowling Solutions, a B2B supplier and installer of bowling equipment,
for an initial consideration of CAD 17m (approximately £10.6m). This
acquisition is a key milestone for the Group as we take our first steps
internationally, in line with our long-term growth plan.
The company is a well-operated, freehold asset-backed business that provides
us with an exciting platform for growth in the fragmented and under-invested
Canadian market. Bowling is well established in Canada; it is a popular
pastime and there are more established leagues and regular, committed players
when compared to the UK, but we believe there is an opportunity to leverage
our customer-led operating model, technology and digital marketing experience
to meet unmet demand for affordable family leisure experiences.
The Canadian market is ripe for consolidation with many centres under single
ownership and few groups operating more than three centres. In addition, there
are a number of well-populated urban areas that are currently under-served by
family entertainment offers where we see potential for growth.
We will work with Pat Haggerty, Founder and President of Teaquinn, and his
management team, to grow our portfolio in this new market while maintaining
our typical 'test and learn' approach. Since the acquisition, we have focused
on putting in place the financial systems and structure that will support this
growth, including recruiting a VP of Operations, Head of Marketing and
Director of Finance.
We have completed our first acquisition in Kingston, Ontario, bringing the
number of centres we own in Canada to six; five in Ontario and one in British
Columbia.
We have an identified pipeline of new site opportunities with the potential
that at least ten sites can be added over the next five years, and at least a
further 20 sites over the next ten years. Our mid-term goal is to open two new
sites per year on average.
Similar to our UK strategy, we will continue to apply a rolling refurbishment
programme that fits within our strict return on investment criteria. Our first
refurbishment is expected to complete in H1 FY2023, and we also plan to
refurbish the recently acquired centre in Kingston, Ontario. Striker supplies
and maintains a large number of bowling centres across Canada, which will
benefit us and allow us to fit out our own centres
at cost, as we build the business.
We have been very pleased with the trading results since the acquisition.
COVID-19 restrictions were lifted fully in March 2022, and trading has
followed a similar pattern to the UK with an initial rebound in demand. We
achieved double digit LFL revenue growth against 2019 for the four months to
30 September 2022.
Placing sustainability at the heart of our business
Energy efficiency remains a key focus, and the Group's programme of solar
panel installations remained on track with a total of 22 centres now completed
or under construction, with more than 30 per cent of our centres close to, or
actively generating, their own energy. We will continue to negotiate with our
landlords if we see a feasible opportunity to install solar panels; we believe
that circa. 50 per cent of our UK current estate could benefit from this
approach.
We are making good progress with our waste reduction and recycling targets,
with our team members' bonus allocation in part being measured against how
effectively waste is managed and recycled. This has supported an excellent
performance with eight centres recycling over 85 per cent of all waste
produced. On average, 77.7 per cent of our waste in FY2022, in the UK, was
recycled, compared to 71.6 per cent in FY2021.
We continue to embed more targets and stated ambitions in our ESG strategy and
have, for the first time this year, integrated the TCFD framework and
recommendations in our reporting. By doing so we are giving our stakeholders
more visibility on the climate-related risks we face, and the current and
developing plans to mitigate against them.
In recognition of our commitment to sustainability, in FY2023 we are
establishing a Corporate Responsibility Committee that will report directly to
the Board and will be headed by Ivan Schofield.
Well insulated from inflationary pressures
We are mindful of the increasing cost pressures and have continued to focus on
controlling our costs throughout the year and we remain well insulated from
wider inflationary pressures. Our UK electricity usage costs are hedged to the
end of FY2024 and over 70 per cent of our revenues are not subject to
inflation in cost of goods sold. Labour costs account for less than 20 per
cent of revenue at centre level, and food and drink costs represent less than
10 per cent of overall costs and through the work undertaken to simplify our
menus, we have reduced our exposure to supply chain and food inflation.
This enables us to keep our prices low, and our headline price remains the
lowest of all the branded bowling operators - a family of four is able to bowl
with us for less than £24.
Outlook
We have continued the momentum from FY2022 into the start of the current
financial year with strong demand and encouraging pre-bookings for the
Christmas period.
Against the backdrop of the increasing cost of living, we believe our great
value-for-money offer will remain attractive to families seeking affordable,
family-friendly leisure experiences. We are committed to continuing to invest
in and supporting our team members to deliver these positive customer
experiences.
We are focused on continuing to execute our customer-led strategy and generate
attractive returns through investing in the overall quality of the estate via
new centre openings, refurbishments and rebrands, innovation of the customer
offer and technology enhancements.
The strength of our balance sheet, alongside our highly cash generative
business model, means we are in an excellent position to pursue our growth
strategy, and we see the potential in the future to grow our business to more
than 110 centres, through our Hollywood Bowl and Puttstars brands in the UK,
and Splitsville in Canada.
I would like to thank each and every member of our team for their efforts last
year and look forward to another successful and exciting year ahead.
Stephen Burns
Chief Executive Officer
15 December 2022
Chief Financial Officer's review
Group financial results
FY2022 FY2021 FY2019 Movement
FY2022 vs
FY2019
Revenue £193.7m4 £71.9m £129.9m +49.2%
Gross profit £164.3m £61.6m £111.4m +47.6%
Gross profit margin 84.8% 85.7% 85.7% -0.9%pts
Administrative expenses £108.9m £54.9m £82.9m +31.3%
Group adjusted EBITDA1 £77.5m £30.6m N/A N/A
Group adjusted EBITDA1 pre-IFRS 16 £60.6m £15.1m £38.2m +58.6%
Group profit after tax £37.5m £1.7m £22.3m +68.1%
Adjusted group profit after tax2 £39.4m £1.7m £22.3m +77.0%
Free cash flow3 £34.8m £8.7m £14.4m +142.6%
Total dividend per share 14.53p nil 11.93p +21.8%
1 Group adjusted EBITDA (earnings before interest, tax, depreciation
and amortisation) reflects the underlying trade of the overall business. It is
calculated as statutory operating profit plus depreciation, amortisation,
impairment, loss on disposal of property, right-of-use assets, plant and
equipment and software and any exceptional costs or income, and is also shown
pre-IFRS 16 as well as adjusted for IFRS 16. Government grant income of £2.8m
is included in Group adjusted EBITDA for FY2021. The reconciliation to
operating profit is set out below in this section of the report.
2 Adjusted group profit after tax is calculated as group profit after
tax, adding back the Teaquinn acquisition fees of £1.6m, the non-cash expense
of £0.4m related to the fair value of the earn out consideration on the
Teaquinn acquisition and deducting the non-cash credit in relation to the
Teaquinn bargain purchase of £39,075.
3 Free cash flow is defined as net cash flow pre exceptional items,
cost of acquisitions, debt facility repayment, RCF drawdowns, dividends and
equity placing.
4 During FY2020 the Chancellor announced the reduced rate (TRR) of VAT
on hospitality activities from which bowling activities were initially
excluded. The Tenpin Bowling Proprietors Association has been lobbying on the
industry's behalf, since that date, for the sector to be treated in line with
the hospitality industry. We received confirmation on 12 April 2022 that HMRC
agreed that there is indeed a clear distinction between the sport of
competitive bowling and the leisure activity of bowling - with the latter
being able to benefit from TRR of VAT retrospectively.
Following the introduction of the new lease accounting standard IFRS 16, the
Group has decided to maintain the reporting of Group adjusted EBITDA on a
pre-IFRS 16 basis, as well as on an IFRS 16 basis. This is because the
pre-IFRS 16 measure is consistent with the basis used for business decisions,
as well as a measure investors use to consider the underlying business
performance. For the purposes of this review, the commentary will clearly
state when it is referring to figures on an IFRS 16 or pre-IFRS 16 basis.
The trading periods of FY2020 and FY2021 were disrupted due to a combination
of COVID-19 lockdowns and trading restrictions once open; therefore
comparisons for this FY2022 financial review are made with FY2019 (the last
full year of uninterrupted trading) unless otherwise stated.
All LFL revenue commentary excludes the impact of TRR of VAT on bowling and
revenue relating to the Group's Canadian business, which was acquired in May
2022, as well as any new centres opened from FY2019 onwards.
Revenue
The Group continued its trajectory of strong momentum from FY2021 into FY2022,
with significant LFL growth at 28.3 per cent when compared to the same period
in FY2019. It is worth noting that the warm summer weather in the UK did not
impact negatively on revenues, with August 2022 recording the second-highest
revenue month (after August 2021) at £17.8m.
LFL revenue growth was a combination of a growth in spend per game of 8.4 per
cent, as well as game volume growth of 18.3 per cent. The exceptionally strong
LFL growth, alongside the performance of the Group's new UK centres, resulted
in record UK revenues of £181.7m, and growth of 37.6 per cent compared to
FY2019. This excludes the prior periods impact of TRR of VAT on bowling
activities which was worth £5.8m.
The Group is very pleased with the performance of our Canadian business
Teaquinn since its acquisition in May 2022. Total revenues were CAD 9.6m,
(£6.2m) with Splitsville accounting for CAD 6.4m.
Total statutory revenue for FY2022 (including the prior periods impact of TRR)
was £193.7m.
Gross profit margin
Statutory gross profit was £164.3m with margin at 84.8 per cent.
Gross profit for the UK business was £160.2m with a margin of 85.4 per cent.
Excluding the prior periods impact of TRR of VAT, gross profit was £154.4m at
a margin of 85.0 per cent, a decline of 70 basis points compared to FY2019,
which was in line with expectations.
Revenues grew across all categories, but the strongest growth was seen in
amusements, with LFL revenue growth of over 40 per cent, outstripping other
revenue lines. Given the amusements' lower margin rate, this has impacted on
the overall gross profit margin but equated to more gross profit overall.
Gross profit for Teaquinn was in line with expectations at CAD 6.4m (£4.1m),
with a margin of 66.2 per cent. This lower margin rate when compared to the UK
business is as guided on acquisition, and is due to a combination of the
higher food and drink mix in the Splitsville centres, the lower amusement
gross margin as well as the effect of the lower gross profit margin of the
Striker business (which as a gross profit margin of circa. 30 per cent).
Administrative expenses
Following the adoption of IFRS 16 in FY2020, administrative expenses exclude
property rents (turnover rents are not excluded), and include the depreciation
of property right-of-use assets.
Administrative expenses on a statutory basis were £108.9m. On a pre-IFRS 16
basis, administrative expenses were £114.1m, compared to £82.9m during the
corresponding period in FY2019.
Employee costs in centres increased to £33.7m, an increase of £8.7m when
compared to FY2019, due to a combination of salary increases over the periods
and the impact of higher revenues. The balance of the increase compared to
FY2019 is in respect of new centres in the UK and the employee costs in the
Canadian business of CAD 2.5m (£1.8m).
Total property-related costs, accounted for under pre-IFRS 16, were £34.5m,
with £33.3m for the UK business (FY2019: £30.6m). Property costs in the UK
increased by £2.7m, with new centre costs of £4.5m, whilst business rates
were lower due to the government implemented COVID-19 concession in the first
half of FY2022.
Energy costs continue to be a focus for the Group. UK electricity usage costs
are hedged to the end of FY2024, and we continue to work closely with our
landlords to install solar panels on more centres. In all, 17 centres had
solar panels installed in FY2022 resulting in nearly 30 per cent (22 centres)
of our UK estate benefiting from this technology. The Group generated
1,865,982 kWh of electricity from its solar panels and used 20,480,858 kWh of
electricity in total. It is estimated that on an annual basis, solar will
generate up to 20 per cent of electricity used.
Total property costs, under IFRS 16, were £35.9m, including £9.8m accounted
for as property lease assets depreciation and £8.5m in implied interest
relating to the lease liability under IFRS 16.
Corporate costs include all central costs as well as the out-performance bonus
for centres. Total corporate costs increased by £10.2m when compared to
FY2019, to £22.1m. The main driver of this increase is centre management
out-performance bonuses, which account for £6.4m incremental cost. This is
reflective of the hard work and commitment of our outstanding centre teams
across the estate. Other increases have been seen in marketing spend, of
£0.9m, and £1.4m in the support centre headcount as we continue to invest in
our teams.
Group adjusted EBITDA and operating profit
FY2022 FY2021
£'000 £'000
Operating profit1 55,449 9,580
Depreciation and impairment 25,052 20,472
Amortisation 624 477
Loss on property, right-of-use assets, plant and equipment and software 18 29
disposal
Exceptional items (3,688) -
Group adjusted EBITDA under IFRS 16 77,455 30,558
IFRS 16 adjustment2 (16,850) (15,416)
Group adjusted EBITDA pre-IFRS 16 60,605 15,142
1 Operating profit in FY2021 includes government grant income of
£2.8m (FY2022: nil).
2 IFRS 16 adoption has an impact on EBITDA, with the removal of rent
from the calculation. For Group adjusted EBITDA pre-IFRS 16, it is deducted
for comparative purposes and is used by investors as a key measure of the
business.
Cash flow and net debt
FY2022 FY2021
£'000 £'000
Group adjusted EBITDA under IFRS 16 77,455 30,558
Movement in working capital 8,814 6,905
Maintenance capital expenditure (9,323) (5,951)
Taxation (6,616) -
Payment of capital elements of leases (14,450) (9,420)
Adjusted operating cash flow (OCF)1 55,881 22,092
Adjusted OCF conversion 72.2% 72.3%
Expansionary capital expenditure2 (12,508) (3,631)
Disposal proceeds 2 -
Net bank loan interest paid (104) (1,207)
Lease interest paid (8,452) (7,952)
Debt repayments3 - (600)
Free cash flow (FCF)4 34,819 8,702
Exceptional items 4,091 -
Acquisition of Teaquinn Holdings Inc (8,099) -
Cash acquired in Teaquinn Holdings Inc 415 -
Debt facility repayment3 - (24,900)
(Repayment)/drawdown of RCF3 - (4,000)
Dividends paid (5,132) -
Equity placing (net of fees) 30 29,356
Net cash flow 26,124 9,158
1 Adjusted operating cash flow is calculated as Group adjusted EBITDA
less working capital, maintenance capital expenditure, taxation and payment of
the capital element of leases. This represents a good measure for the cash
generated by the business after taking into account all necessary maintenance
capital expenditure to ensure the routine running of the business. This
excludes exceptional items, net interest paid, debt drawdowns and any debt
repayments.
2 Expansionary capital expenditure includes refurbishment and new
centre capital expenditure.
3 Note 16 to the Financial Statements includes the aggregated amounts
debt repayments, debt facility repayment and repayment/drawdown of the RCF.
4 Free cash flow is defined as net cash flow pre exceptional items,
cost of acquisitions, debt facility repayment, RCF drawdowns, dividends and
equity placing.
The statutory depreciation, amortisation and impairment charge for FY2022 was
£25.7m compared to £20.9m in FY2021. Excluding property lease assets
depreciation, this charge in FY2022 was £14.1m. This is due to the continued
capital investment programme, including new centres and refurbishments.
Detailed impairment testing resulted in an impairment charge in the year of
£2.5m against property, plant and equipment and £1.8m against right-of-use
assets for three centres. The discount rate used for the weighted average cost
of capital (WACC) is calculated with reference to the latest market
assumptions for the risk-free rate, equity risk premium and the cost of debt.
These discount rates were impacted by the volatility in the debt markets as at
30 September 2022. The WACC discount rate (pre-tax) is 16.0 per cent (FY2021:
12.7 per cent).
Exceptional items
As a result of the HMRC position on TRR of VAT, the Group made a retrospective
claim for overpaid VAT, and the prior period amounts have been classified as
exceptional items. The total exceptional income in relation to this, net of
associated expenses, is £5.6m. Note 5 to the financial statements includes
more detail on the impact of TRR of VAT included in the full year results.
Exceptional costs relate to the acquisition of Teaquinn. Acquisitions costs
totalled £1.6m. The earn out consideration for Pat Haggerty has been
recognised as an exceptional cost of £0.5m in FY2022. The earn out
consideration is considered as a post acquisition employment expense and not
in the scope of IFRS 3., but instead is accounted for under IAS 19. The earn
out has a cost impact in the following financial years up to and including at
least FY2025.
More detail on this and the acquisition of Teaquinn is shown in note 20 to the
Financial Statements.
Group adjusted EBITDA and operating profit
Group adjusted EBITDA pre-IFRS 16 (excluding the prior periods impact of TRR
of VAT on bowling activities) increased to a record £60.6m and includes a
contribution of £1.0m from Teaquinn.
Compared to FY2019 this was an increase of 58.6 per cent. The increase is
primarily due to the increased revenue performance and the Group's relatively
fixed cost base.
The reconciliation between statutory operating profit and Group adjusted
EBITDA on both a pre-IFRS 16 and under-IFRS 16 basis is shown in the table
below.
Share-based payments
During the year, the Group granted further Long Term Incentive Plan (LTIP)
shares to the senior leadership team. These awards vest in three years
providing continuous employment during the period, and attainment of
performance conditions relating to earnings per share (EPS), as outlined on
page 102 of the Annual Report. The Group recognised a total charge of
£939,812 in relation to the Group's share-based LTIP arrangements.
Share-based costs are not classified as exceptional costs.
Financing
Finance costs decreased to £8.8m in FY2022 (FY2021: £9.1m) comprising mainly
of implied interest relating to the lease liability under IFRS 16 of £8.2m.
An amount of £0.2m is associated with the Group bank borrowing facility.
The Group's bank borrowing facilities are a revolving credit facility (RCF) of
£25m at a margin rate of 1.75 per cent above SONIA and an agreed accordion of
£5m. The loan term runs to the end of December 2024; and the RCF remains
fully undrawn.
Cash flow and liquidity
The liquidity position of the Group remains strong, with a net cash position
of £56.1m as at 30 September 2022, compared to £29.9m at 30 September 2021.
Detail on the cash movement in the year is shown in the table above.
Capital expenditure
During the financial year, the Group invested net capex of £21.8m. A total of
£3.6m was invested into the refurbishment programme, with eight UK centres
completed including a rebrand of AMF to Hollywood Bowl in Shrewsbury, as well
as interim spends of £0.8m on two Canadian centres.
New UK centre capital expenditure was a net £9.2m. This relates to the three
centres opened in the year (£7.7m) as well as interim payments totalling
£1.5m in relation to Hollywood Bowl Speke and Puttstars Peterborough, which
opened in early FY2023.
The Group's strong balance sheet ensures that it can continue to invest in
profitable growth with plans to open more locations during FY2023 and beyond.
Despite inflationary pressures, returns on these refurbishments are expected
to continue to exceed the Group's hurdle rate of 33 per cent.
The Group spent £9.3m on maintenance capital in the UK. This includes £4.1m
for the continued rollout of Pins on Strings technology across the Group with
15 centres completed in FY2022, bringing the total to 41 centres; as well as
£1.5m spent on installing further solar panels, with 22 centres now
benefitting from this technology.
Investments were also made to in-centre digital displays as well as the
Group's CRM, website and IT architecture to increase performance and to
continue to improve our customers' digital experience.
In light of the rolling refurbishment programme, maintenance capital, as well
as new centres in the UK and Canada, we expect capital expenditure to be in
the region of £21m to £23m in FY2023.
Taxation
The Group's tax charge for the year is £9.2m arising on the profit before tax
generated in the period.
Earnings
Statutory profit before tax for the year was a record £46.7m, and 69.2 per
cent higher than FY2019, the last comparable period.
The Group delivered profit after tax of £37.5m (FY2021: £1.7m and FY2019:
£22.3m) and basic earnings per share was 21.91 pence (FY2021: 1.05 pence and
FY2019: 14.86 pence).
Adjusted profit after tax is £39.4m. This is calculated to take account of
the impact of the costs associated with the Teaquinn acquisition.
It is calculated as statutory profit after tax, adding back the Teaquinn
acquisition fees of £1.6m, the non-cash expense of £0.4m related to earn out
consideration on the Teaquinn acquisition and deducting the non-cash credit in
relation to the Teaquinn bargain purchase of £39,075.
Dividend and capital allocation policy
The Board has declared a final dividend of 8.53 pence per share, based on an
adjusted profit after tax of £39.4m (adjusted earnings per share of 23.07
pence).
Given the Group's strong liquidity position, the Board has reviewed its
capital allocation policy with the priorities for the use of cash as follows:
• Capital investment into the existing centres through an effective
maintenance and refurbishment programme
• Investments into new centre opportunities, including expansion in
both the UK and Canada
• To pay and grow the ordinary dividend every year with a payout of
50 per cent of adjusted profit after tax
• Any excess cash will be available for additional distribution to
shareholders as the Board deems appropriate, without impacting on our ability
for investment in the growth of the business.
The Board believes that setting a proforma net cash1 to Group adjusted EBITDA
pre-IFRS 162 ratio target (net cash ratio target), provides a good guide for
the future allocation of surplus cash within the business. The Board has set a
net cash ratio target of 0.5 times and will look for this target to be
achieved by the end of FY2025, as set out below.
• End of
FY2022 0.600X
• End of
FY2023 0.570X
• End of
FY2024 0.535X
• End of
FY2025 0.500X
In line with this strategy, the Board has proposed a special dividend of 3.0
pence per share be paid to shareholders alongside the ordinary dividend of
8.53 pence per share, bringing the full year dividend to 14.53 pence per
share.
Subject to approval from shareholders at the AGM, the ex-dividend date is 2
February 2023, with a record date of 3 February 2023 and a payment date of 24
February 2023.
Going concern
In assessing the going concern position of the Group for the Consolidated
Financial Statements for the year ended 30 September 2022, the Directors have
considered the Group's cash flow, liquidity, and business activities, as well
as the principal risks identified in the Group's Risk Register.
As at 30 September 2022, the Group had cash balances of £56.1m, no
outstanding loan balances, no COVID-19 concession deferrals and an undrawn RCF
of £25m, giving an overall liquidity of £81.1m.
The Group has undertaken a review of its liquidity using a base case and a
severe but plausible downside scenario.
The base case is the Board approved budget for FY2023 as well as the first
three months of FY2024 which forms part of the Board approved five-year plan.
Under this scenario there would be positive cash flow, strong profit
performance and all covenants would be passed. It should also be noted that
the RCF remains undrawn.
The most severe downside scenario stress tests for reasonably adverse
variations in the economic environment leading to a deterioration in trading
conditions and performance. Under this severe but plausible downside scenario,
the Group has modelled revenues dropping by 4 per cent and 5 per cent for
FY2023 and FY2024 respectively, from the assumed base case and inflation
continues at an even higher rate than in the base case, specifically around
cost of labour. The model still assumes that investments into new centres
would continue, whilst refurbishments in the early part of FY2024 would be
reduced and the Pins on Strings would be delayed until FY2025. These are all
mitigating factors that the Group has in its control. Under this scenario, the
Group will still be profitable and have sufficient liquidity within its cash
position to not draw down the RCF, with all financial covenants passed.
Taking the above and the principal risks faced by the Group into
consideration, the Directors are satisfied that the Group has adequate
resources to continue in operation for the foreseeable future, a period of at
least 12 months from the date of this report.
Accordingly, the Group continues to adopt the going concern basis in preparing
these Financial Statements.
Outlook and guidance
We remain in a strong position to continue to take full advantage of the
opportunities we have both in the UK and Canada. Our entry into Canada
presents us with a significant opportunity to apply our successful business
model in a similarly fragmented and underfunded market as the UK was ten years
ago.
With UK electricity usage costs hedged to the end of FY2024 and labour costs
representing less than 20 per cent of revenue at centre level, we have the
ability to absorb most inflationary pressures through the dynamics of our
business.
We will continue to provide great value for money through focused pricing, and
we believe any price increases we may need to pass on in FY2023 will be
minimal. Our capital deployment programmes remain unaffected. We believe we
are able to achieve our hurdle rate of 33 per cent return on investment in the
seven refurbishments taking place in FY2023. As a result of our improved
centre environments, together with the continued roll out of Pins on Strings,
dwell time should increase further and therefore encourage higher customer
spend.
Laurence Keen
Chief Financial Officer
15 December 2022
1 Proforma net cash is defined as cash and cash equivalents as per the
statement of financial position less any bank borrowings less any final
ordinary dividends for the financial year
2 Group adjusted EBITDA pre-IFRS 16 is calculated as shown on page 45
of the Annual Report and excluding any impact from TRR of VAT in current and
prior periods
Note on alternative performance measures (APMs)
The Group uses APMs to enable management and users of the financial statements
to better understand elements of the financial performance in the period. APMs
referenced earlier in the report are explained as follows. It should be noted
that trading periods for FY2020 and FY2021 were disrupted due to a combination
of COVID-19 lockdowns and trading restrictions once open, therefore
comparisons in this financial review use FY2019 as a base.
Like-for-like (LFL) revenue for FY2022 is calculated as:
• Total revenues £193.7m, less
• TRR of VAT for prior periods £5.8m, less
• TRR of VAT for FY2022 £3.0m, less
• New centres revenues from FY2019 onwards £12.2m, less
• Teaquinn revenues £6.2m
New centres are included in the LFL revenue after they complete the calendar
anniversary of their opening date.
LFL comparatives for FY2019 are £129.9m.
Group adjusted EBITDA (earnings before interest, tax, depreciation and
amortisation) reflects the underlying trade of the overall business. It is
calculated as statutory operating profit plus depreciation, amortisation,
impairment, loss on disposal of property, right-of-use assets, plant and
equipment and software and any exceptional costs or income, and is also shown
pre-IFRS 16 as well as adjusted for IFRS 16. The reconciliation to operating
profit is set out in this report.
Free cash flow is defined as net cash flow pre-dividends, exceptional items,
acquisition costs, bank funding and any equity placing.
Spend per game is defined as UK revenue in the year (excluding any revenues
relating to TRR of VAT for prior years (£5.8m) and TRR of VAT for FY2022
(£3.0m)) divided by the number of bowling games and golf rounds played in the
UK.
Adjusted operation cash flow is calculated as Group adjusted EBITDA less
working capital, maintenance capital expenditure, taxation and payment of the
capital element of leases. This represents a good measure for the cash
generated by the business after taking into account all necessary maintenance
capital expenditure to ensure the routine running of the business. This
excludes exceptional items, net interest paid, debt drawdowns and any debt
repayments.
Expansionary capital expenditure includes all capital on new centres,
refurbishments and rebrands only.
Adjusted profit after tax is calculated as statutory profit after tax, adding
back the Teaquinn acquisition fees of £1.6m, the non-cash expense of £0.4m
related to the fair value of the earn out consideration on the Teaquinn
acquisition, as well as deducting the non-cash credit in relation to the
Teaquinn bargain purchase. This adjusted profit after tax is also used to
calculated adjusted earnings per share.
Consolidated income statement and statement of comprehensive income
Year ending 30 September 2022
Note Before exceptional Exceptional Total 30 September
items items (note 5) 30 September 2021
30 September 30 September 2022 £'000
2022 2022 £'000
£'000 £'000
Revenue 3 187,949 5,792 193,741 71,878
Cost of sales (29,392) - (29,392) (10,257)
Gross profit 158,557 5,792 164,349 61,621
Other income - - - 2,814
Gain on bargain purchase 20 - 39 39 -
Administrative expenses 6 (106,796) (2,143) (108,939) (54,855)
Operating profit 51,761 3,688 55,449 9,580
Finance income 8 12 - 12 -
Finance expenses 8 (8,774) (22) (8,796) (9,118)
Profit before tax 42,999 3,666 46,665 462
Tax (charge)/credit 9 (8,135) (1,079) (9,214) 1,266
Profit for the year attributable to equity shareholders 34,864 2,587 37,451 1,728
Other comprehensive income
Retranslation gain of foreign currency denominated operations 411 - 411 -
Total comprehensive income for the year attributable to equity shareholders 35,275 2,587 37,862 1,728
Basic earnings per share (pence) 10 21.91 1.05
Diluted earnings per share (pence) 10 21.78 1.04
Consolidated statement of financial position
As at 30 September 2022
Note 30 September 30 September
2022 2021
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 11 68,641 49,036
Right-of-use assets 12 147,455 132,342
Goodwill and intangible assets 13 81,794 77,948
Deferred tax asset 17 1,647 6,290
299,537 265,616
Current assets
Cash and cash equivalents 56,066 29,942
Trade and other receivables 14 5,130 3,300
Corporation tax receivable 271 650
Inventories 2,148 1,461
63,615 35,353
Total assets 363,152 300,969
LIABILITIES
Current liabilities
Trade and other payables 15 28,681 18,142
Lease liabilities 12 11,557 13,811
40,238 31,953
Non-current liabilities
Other payables 15 3,000 565
Lease liabilities 12 176,812 160,129
Provisions 4,682 3,635
184,494 164,329
Total liabilities 224,732 196,282
NET ASSETS 138,420 104,687
Equity attributable to shareholders
Share capital 1,711 1,706
Share premium 39,716 39,691
Merger reserve (49,897) (49,897)
Foreign currency translation reserve 411 -
Retained earnings 146,479 113,187
TOTAL EQUITY 138,420 104,687
Consolidated statement of changes in equity
For the year ended 30 September 2022
Share Share Merger Foreign currency Retained Total
capital premium reserve translation reserve earnings £'000
£'000 £'000 £'000 £'000 £'000
Equity at 30 September 2020 1,575 10,466 (49,897) - 111,350 73,494
Shares issued during the year 131 29,225 - - - 29,356
Share-based payments - - - - 16 16
Deferred tax on share-based payments - - - - 93 93
Profit for the year - - - - 1,728 1,728
Equity at 30 September 2021 1,706 39,691 (49,897) - 113,187 104,687
Shares issued during the year 5 25 - - - 30
Dividends paid - - - - (5,132) (5,132)
Share-based payments - - - - 944 944
Deferred tax on share-based payments - - - - 29 29
Retranslation of foreign currency denominated operations - - - 411 - 411
Profit for the year - - - - 37,451 37,451
Equity at 30 September 2022 1,711 39,716 (49,897) 411 146,479 138,420
Consolidated statement of cash flows
For the year ended 30 September 2022
Note 30 September Restated 1
2022 30 September
£'000 2021
£'000
Cash flows from operating activities
Profit before tax 46,665 462
Adjusted by:
Depreciation of property, plant and equipment (PPE) 11 8,721 7,740
Depreciation of right-of-use (ROU) assets 12 12,010 11,882
Amortisation of intangible assets 13 624 477
Impairment of PPE and ROU assets 11, 12 4,321 850
Net interest expense 8 8,784 9,118
Loss on disposal of property, plant and equipment and software 18 29
COVID-19 rent concessions1 - (2,110)1
Gain on bargain purchase 20 (39) -
Share-based payments 944 16
Operating profit before working capital changes 82,048 28,4641
Increase in inventories (423) (121)
Increase in trade and other receivables (1,248) (1,446)
Increase in payables and provisions 9,983 8,456
Cash inflow generated from operations 90,360 35,3531
Interest received 12 -
Income tax paid - corporation tax (6,616) -
Bank interest paid (115) (1,207)
Lease interest paid (8,452) (7,952)
Net cash inflow from operating activities 75,189 26,1941
Cash flows from investing activities
Acquisition of subsidiaries 20 (8,099) -
Subsidiary cash acquired 20 415 -
Purchase of property, plant and equipment (21,653) (9,330)
Purchase of intangible assets (178) (252)
Sale of assets 2 -
Net cash used in investing activities (29,513) (9,582)
Cash flows from financing activities
Repayment of bank loan - (29,500)
Payment of capital elements of leases (14,450) (7,310)1
Issue of shares 30 29,356
Dividends paid (5,132) -
Net cash used in financing activities (19,552) (7,454)1
Net change in cash and cash equivalents for the year 26,124 9,158
Cash and cash equivalents at the beginning of the year 29,942 20,784
Cash and cash equivalents at the end of the year 56,066 29,942
1 Following the FRC's corporate reporting review of the Group's Annual
Report and Accounts to 30 September 2021, £2,110,000 of COVID-19 rent
concessions disclosed as payment of capital elements of leases under cash
flows from financing activities in the 2021 financial statements have been
restated as adjustments to cash flows from operating activities within the
2021 comparative above. The effect of this change is a decrease of £2,110,000
in net cash used in financing activities and a decrease in net cash inflow
from operating activities. There is no impact to the net change in cash and
cash equivalents for the year. See note 21 'Cash flow information'.
Notes to the financial statements
For the year ended 30 September 2022
1. General information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 30 September 2022 or 2021, but is
derived from these accounts. Statutory accounts for 2021 have been delivered
to the registrar of companies, and those for 2022 will be delivered in due
course. The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters which the auditor
drew attention by way of emphasis without qualifying their report and (iii)
did not contain a statement under section 498 (2) or (3) of the Companies Act
2006.
Hollywood Bowl Group plc (together with its subsidiaries, 'the Group') is a
public limited company whose shares are publicly traded on the London Stock
Exchange and is incorporated and domiciled in England and Wales. The
registered office of the Parent Company is Focus 31, West Wing, Cleveland
Road, Hemel Hempstead, HP2 7BW, United Kingdom. The registered company number
is 10229630.
On 24 May 2022, the Company acquired Teaquinn Holdings Inc. (Teaquinn).
Teaquinn comprises of Splitsville, an operator of ten-pin bowling centres and
Striker Bowling Solutions, a supplier and installer of bowling equipment,
based in Canada. Teaquinn is consolidated in Hollywood Bowl Group plc's
Financial Statements with effect from 24 May 2022.
The Group's principal activities are that of the operation of ten-pin bowling
and mini-golf centres, and a supplier and installer of bowling equipment as
well as the development of new centres and other associated activities.
The Directors of the Group are responsible for the consolidated Financial
Statements, which comprise the Financial Statements of the Company and its
subsidiaries as at 30 September 2022.
2. Accounting policies
The principal accounting policies applied in the consolidated Financial
Statements are set out below. These accounting policies have been applied
consistently to all periods presented in these consolidated Financial
Statements. The financial information presented is as at and for the financial
years ended 30 September 2022 and 30 September 2021.
Statement of compliance
The consolidated Financial Statements have been prepared in accordance with
UK-adopted International Account Standards and the requirements of the
Companies Act 2006. The functional currency of entities in the Group are
Pounds Sterling and Canadian Dollars. The consolidated Financial Statements
are presented in Pounds Sterling and all values are rounded to the nearest
thousand, except where otherwise indicated.
Basis of preparation
The consolidated Financial Statements have been prepared on a going concern
basis under the historical cost convention, except for fair value items on
acquisition (see note 20).
The Company has elected to prepare its Financial Statements in accordance with
FRS 102, the Financial Reporting Standard applicable in the UK and Republic of
Ireland. On publishing the Parent Company Financial Statements here together
with the Group Financial Statements, the Company has taken advantage of the
exemption in s408 of the Companies Act 2006 not to present its individual
income statement and statement of comprehensive income and related notes that
form a part of these approved Financial Statements.
Basis of consolidation
The consolidated financial information incorporates the Financial Statements
of the Company and all of its subsidiary undertakings. The Financial
Statements of all Group companies are adjusted, where necessary, to ensure the
use of consistent accounting policies. Acquisitions are accounted for under
the acquisition method from the date control passes to the Group. On
acquisition, the assets, liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill, or a gain on bargain purchase if
the fair values of the identifiable net assets are below the cost of
acquisition. Intragroup balances and any unrealised gains and losses or income
and expenses arising from intragoup transactions are eliminated in preparing
the consolidated financial statements.
The results of Teaquinn are included from the date of acquisition on 24 May
2022.
Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax
and the weighted average number of ordinary shares in issue during the year.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The Group has two types of dilutive potential ordinary shares, being
those unvested shares granted under the Long Term Incentive Plans and
Save-As-You-Earn plans.
Standards issued not yet effective
At the date of authorisation of this financial information, certain new
standards, amendments and interpretations to existing standards applicable to
the Group have been published but are not yet effective, and have not been
adopted early by the Group. These are listed below:
Standard/interpretation Content Applicable for financial
years beginning on/after
IAS 1 Classification of liabilities as current or non-current In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to 1 October 2023
specify the requirements for classifying liabilities as current or
non-current.
IAS 1 Presentation of financial statements and IFRS Practice Statement 2 The amendments change the requirements in IAS 1 with regard to disclosure of 1 October 2023
making materiality judgements-disclosure of accounting policies accounting policies. The amendments replace all instances of the term
'significant accounting policies' with 'material accounting policy
information'.
IAS 8 Definition of accounting estimates The amendments replace the definition of a change in accounting estimates with 1 October 2023
a new definition of accounting estimates. Under the new definition, accounting
estimates are 'monetary amounts in financial statements that are subject to
measurement uncertainty'.
IAS 12 Deferred tax related to assets and liabilities arising from a single The amendments introduce a further exception from the initial recognition 1 October 2023
transaction exemption. Under the amendments, an entity does not apply the initial
recognition exemption for transactions that give rise to equal taxable and
deductible temporary differences. Following the amendments to IAS 12, an
entity is required to recognise the related deferred tax asset and liability.
IFRS 17 Insurance contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a 1 October 2023
comprehensive new accounting standard for insurance contracts covering
recognition and measurement, presentation and disclosure. Once effective, IFRS
17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005.
Annual improvements to IFRS Standards 2018-2020 The annual improvements include amendments to four Standards: IFRS 1 1 October 2022
First-time adoption of International Financial Reporting Standards, IFRS 9
Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture.
IFRS 3 Reference to the conceptual framework In May 2020, the IASB issued amendments to IFRS 3 Business Combinations - 1 October 2022
Reference to the Conceptual Framework.
IAS 16 Property, plant and equipment: proceeds before intended use In May 2020, the IASB issued property, plant and equipment: proceeds before 1 October 2022
intended use, which prohibits entities deducting from the cost of an item of
property, plant and equipment any proceeds from selling items produced while
bringing that asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
IAS 37 Provisions, contingent liabilities and contingent assets In May 2020, the IASB issued amendments to specify which costs a company 1 October 2022
includes when assessing whether a contract will be loss making.
None of the above amendments are expected to have a material impact on the
Group.
Going concern
In assessing the going concern position of the Group for the Consolidated
Financial Statements for the year ended 30 September 2022, the Directors have
considered the Group's cash flow, liquidity, and business activities, as well
as the principal risks identified in the Groups Risk Register.
As at 30 September 2022, the Group had cash balances of £56.1m, no
outstanding loan balances, no COVID-19 concession deferrals and an undrawn RCF
of £25m, giving an overall liquidity of £81.1m.
The Group has undertaken a review of its liquidity using a base case and a
severe but plausible downside scenario.
The base case is the Board approved budget for FY2023 as well as the first
three months of FY2024 which forms part of the Board approved five-year plan.
Under this scenario there would be positive cash flow, strong profit
performance and all covenants would be passed. It should also be noted that
the RCF remains undrawn. Furthermore, it is assumed that the Group adhere to
its capital allocation policy as outlined in the Chief Financial Officer's
review.
The most severe downside scenario stress tests for reasonably adverse
variations in the economic environment leading to a deterioration in trading
conditions and performance.
Under this severe but plausible downside scenario, the Group has modelled
revenues dropping by circa 4 and 5 per cent from the assumed base case for
FY2023 and FY2024 respectively and inflation continues at an even higher rate
than in the base case, specifically around cost of labour.
The model still assumes that investments into new centres would continue,
whilst refurbishments in the early part of FY2024 would be reduced and further
Pins on Strings installs would be delayed until FY2025. These are all
mitigating factors that the Group has in its control. Under this scenario, the
Group will still be profitable and have sufficient liquidity within its cash
position to not draw down the RCF, with all financial covenants passed.
Taking the above and the principal risks faced by the Group into
consideration, the Directors are satisfied that the Group has adequate
resources to continue in operation for the foreseeable future, a period of at
least 12 months from the date of this report.
Accordingly, the Group continues to adopt the going concern basis in preparing
these Financial Statements.
In preparing the financial statements management has considered the impact of
climate change, taking into account the relevant disclosures in the Strategic
report, including those made in accordance with the recommendations of the
Task Force on Climate-related Financial Disclosure.
The expected environmental impact of climate change on the business has been
modelled. The current available information and assessment did not identify
any risks that would require the useful economic lives of assets to be reduced
in the year or identify the need for impairment that would impact the carrying
values of such assets or have any other impact on the financial statements.
The impact assessments will be continuously updated to reflect the latest
available information on the impact of climate change.
Leases
The Group as lessee
The Group assesses whether a contract is, or contains, a lease, at inception
of the contract. The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee from the date at which the leased asset becomes available for use by
the Group, except for short-term leases (defined as leases with a lease term
of 12 months or less) and leases of low-value assets. For these leases, the
Group recognises the lease payments as an operating expense on a straight-line
basis over the term of the lease unless another systematic basis is more
representative of the time pattern in which economic benefits from the leased
assets are consumed.
Right-of-use assets are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognised, less any lease incentives received. Right-of-use
assets are depreciated on a straight-line basis over the shorter of the lease
term and the estimated useful lives of the assets. The lease term is the
non-cancellable period for which the lessee has the right to use an underlying
asset plus periods covered by an extension option if an extension is
reasonably certain. The majority of property leases are covered by the
Landlord and Tenant Act 1985 (LTA) which gives the right to extend the lease
beyond the termination date. The Group expects to extend the property leases
covered by the LTA. This extension period is not included within the lease
term as a termination date cannot be determined as the Group are not
reasonably certain to extend the lease given the contractual rights of the
landlord under certain circumstances.
Lease liabilities are measured at the present value of lease payments to be
made over the lease term. The lease payments include fixed payments (including
in-substance fixed payments) less any lease incentives receivable and variable
lease payments that depend on an index or a rate. Variable lease payments that
do not depend on an index or a rate are recognised as expenses in the period
in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because the interest
rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change
in the lease term or a change in the lease payments (e.g. changes to future
payments resulting from a change in an index or rate used to determine such
lease payments).
The Group applies IAS 36 to determine whether a right-of-use asset is impaired
and accounts for any identified impairment loss as described in the
'impairment' policy.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease
components, and instead account for any lease and associated non-lease
components as a single arrangement. The Group has not used this practical
expedient. For contracts that contain a lease component and one or more
additional lease or non-lease components, the Group allocates the
consideration in the contract to each lease component on the basis of the
relative stand-alone price of the lease component and the aggregate
stand-alone price of the non-lease components.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases of machinery and equipment (i.e. those leases that have a lease term of
12 months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered to be low value. Lease
payments on short-term leases and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
Amendments to IFRS 16: COVID-19 Related Rent Concessions
On 28 May 2020, the IASB issued COVID-19-Related Rent Concessions - amendment
to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS
16 guidance on lease modification accounting for rent concessions arising as a
direct consequence of the COVID-19 pandemic. As a practical expedient, a
lessee may elect not to assess whether a COVID-19-related rent concession from
a lessor is a lease modification. A lessee that makes this election accounts
for any change in lease payments resulting from the COVID-19-related rent
concession the same way it would account for the change under IFRS 16, if the
change were not a lease modification. The practical expedient was adopted by
the Group and the impact on the consolidated Financial Statements is outlined
in note 12.
Summary of critical accounting estimates and judgements
The preparation of the consolidated Group Financial Statements requires
management to make judgements, estimates and assumptions in applying the
Group's accounting policies to determine the reported amounts of assets,
liabilities, income and expenditure. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions applied prospectively.
Judgements made by the Directors in the application of these accounting
policies that have a significant effect on the consolidated Group Financial
Statements are discussed below.
Critical accounting judgements
Dilapidation provision
A provision is made for future expected dilapidation costs on the opening of
leasehold properties not covered by the LTA and is expected to be utilised on
lease expiry. This also includes properties covered by the LTA where we may
not extend the lease, after consideration of the long-term trading and
viability of the centre. Properties covered by the LTA provide security of
tenure and we intend to occupy these premises indefinitely until the landlord
serves notice that the centre is to be redeveloped. As such, no charge for
dilapidations can be imposed and no dilapidation provision is considered
necessary as the outflow of economic benefit is not considered to be probable.
Key sources of estimation uncertainty
The key estimates are discussed below:
Property, plant and equipment and right-of-use asset impairment reviews
Plant and equipment and right-of-use assets are reviewed for impairment when
there is an indication that the assets might be impaired by comparing the
carrying value of the assets with their recoverable amounts. The recoverable
amount of an asset or a CGU is typically determined based on value-in-use
calculations prepared on the basis of management's assumptions and estimates.
The key assumptions in the value-in-use calculations include growth rates of
revenue and expenses, and discount rates. The carrying value of property,
plant and equipment and right-of-use assets have been assessed to reasonable
possible changes in key assumptions and these would not lead to a material
impairment.
Further information in respect of the Group's property, plant and equipment
and right-of-use assets is included in notes 11 and 12 respectively.
Other estimates
The acquisition of Teaquinn Holdings Inc. has been accounted for using the
acquisition method under IFRS 3. The identifiable assets, liabilities and
contingent liabilities are recognised at their fair value at date of
acquisition (note 20). The fair value of the net assets identified were
determined with assistance from independent experts using professional
valuation techniques appropriate to the individual category of asset or
liability. Calculating the fair values of net assets, notably the fair values
of contingent consideration, freehold property and intangible assets
identified as part of the purchase price allocation, involves estimation and
consequently the fair value exercise is recorded as an other accounting
estimate. The depreciation and amortisation charge is sensitive to the value
of the freehold property and intangible asset values, so a higher or lower
fair value calculation would lead to a change in the depreciation and
amortisation charge in the period following acquisition. These estimates are
not considered key sources of estimation uncertainty as a material adjustment
to the carrying value is not expected in the following financial year.
3. Segmental reporting
Management consider that the Group consists of 2 operating segments, as it
operates within the UK and Canada (30 September 2021: UK only, no exceptional
income). No single customer provides more than ten per cent of the Group's
revenue. Within these two operating segment there are multiple revenue streams
which consist of the following:
Before exceptional Exceptional income Total UK Canada Total 30 September
income UK UK (note 5) 30 September 30 September 30 September 2021
30 September 30 September 2022 2022 2022 £'000
2022 2022 £'000 £'000 £'000
£'000 £'000
Bowling 86,409 5,792 92,201 2,253 94,454 34,769
Food and drink 46,660 - 46,660 1,067 47,727 17,396
Amusements 46,510 - 46,510 773 47,283 18,625
Mini-golf 1,973 - 1,973 - 1,973 1,076
Installation of bowling equipment - - - 2,040 2,040 -
Other 176 - 176 88 264 12
181,728 5,792 187,520 6,221 193,741 71,878
The UK operating segment includes the Hollywood Bowl, AMF Bowling and
Puttstars brands. The Canada operating segment includes the Splitsville and
Striker Bowling Solutions brands.
Year ended 30 September 2022 UK Canada Total
£'000 £'000 £'000
Revenue 187,520 6,221 193,741
Group adjusted EBITDA as defined in note 4 76,289 1,166 77,455
Operating profit 54,673 776 55,449
Finance income - 12 12
Finance expense 8,541 255 8,796
Depreciation and amortisation 20,965 390 21,355
Impairment of PPE and ROU assets 4,321 - 4,321
Profit before tax 46,132 533 46,665
Non-current asset additions - Property, plant and equipment 21,750 322 22,072
Non-current asset additions - Intangible assets 108 70 178
Total assets 339,194 25,492 364,686
Total liabilities 208,549 17,717 226,266
4. Reconciliation of operating profit to Group adjusted EBITDA
30 September 30 September
2022 2021
£'000 £'000
Operating profit 55,449 9,580
Depreciation of property, plant and equipment (note 11) 8,721 7,740
Depreciation of right-of-use assets (note 12) 12,010 11,882
Amortisation of intangible assets (note 13) 624 477
Impairment of property, plant and equipment (note 11) 2,535 299
Impairment of right-of-use assets (note 12) 1,786 551
Loss on disposal of property, plant and equipment, right-of-use assets and 18 29
software (notes 11-13)
Exceptional items (note 5) (3,688) -
Group adjusted EBITDA 77,455 30,558
Group adjusted EBITDA (earnings before interest, tax, depreciation and
amortisation) reflects the underlying trade of the overall business. It is
calculated as operating profit plus depreciation, amortisation, impairment
losses, loss on disposal of property, plant and equipment, right-of-use assets
and software and exceptional items. Operating profit in FY2021 includes
government grant income of £2,814,000.
Management use Group adjusted EBITDA as a key performance measure of the
business and it is considered by management to be a measure investors look at
to reflect the underlying business.
5. Exceptional items
Exceptional items are disclosed separately in the Financial Statements where
the Directors consider it necessary to do so to provide further understanding
of the financial performance of the Group. They are material items or expenses
that have been shown separately due to, in the Directors judgement, their
significance, one-off nature or amount:
Exceptional items: 30 September 30 September
2022 2021
VAT rebate 1 5,792 -
Administrative expenses 2 (144) -
Acquisition fees 3 (1,557) -
Gain on bargain purchase 4 39 -
Contingent consideration 5 (464) -
Exceptional items before tax (3,666) -
Tax charge (1,079) -
Exceptional items after tax (2,587) -
1 During the year, HMRC conducted a review of its policy position on
the reduced rate of VAT for leisure and hospitality and the extent to which it
applies to bowling. Following its review, HMRC now accepts that leisure
bowling should fall within the scope of the temporary reduced rate of VAT for
leisure and hospitality, as a similar activity to those listed in Group 16 of
schedule 7A of the VAT Act 1994. As a result, the Group made a retrospective
claim for overpaid output VAT for the period 15 July 2020 to 30 September 2021
totalling £5,792,000, included within bowling revenue.
2 Expenses associated with the VAT rebate, relating to additional
turnover rent, profit share due to landlords and also professional fees, which
are included within administrative expenses.
3 Legal and professional fees relating to the acquisition of Teaquinn
during the year (note 20).
4 Gain on bargain purchase in relation to the acquisition of Teaquinn
during the year (note 20).
5 Contingent consideration of £442,000 in administrative expenses and
£22,000 of interest expense in relation to the acquisition of Teaquinn during
the year (note 20).
6. Expenses and auditor's remuneration
Included in profit from operations are the following:
30 September 30 September
2022 2021
£'000 £'000
Amortisation of intangible assets 624 477
Depreciation of property, plant and equipment 8,721 7,740
Depreciation of right-of-use assets 12,010 11,882
Impairment of property, plant and equipment 2,535 299
Impairment of right-of-use assets 1,786 551
Operating leases 57 43
Loss on disposal of property, plant and equipment, right-of-use assets and 18 29
software
Exceptional items (note 5) (3,666) -
Loss on foreign exchange 154 16
Auditor's remuneration:
- Fees payable for audit of these Financial Statements 317 228
Fees payable for other services:
- Audit of subsidiaries 66 82
- Other services 16 11
399 321
7. Staff numbers and costs
The average number of employees (including Directors) during the year was as
follows:
30 September 30 September
2022 2021
Directors 7 6
Administration 91 58
Operations 2,432 1,723
Total staff 2,530 1,787
The cost of employees (including Directors) during the year was as follows:
30 September 30 September
2022 2021
£'000 £'000
Wages and salaries 42,808 15,853
Social security costs 3,600 1,648
Pension costs 475 336
Share-based payments 944 16
Total staff cost 47,827 17,853
FY2022 wages and salaries includes £442,000 of contingent consideration in
relation to the acquisition of Teaquinn (note 20).
FY2021 wages and salaries includes £8,287,000 of Coronavirus Job Retention
Scheme government grant received.
8. Finance income and expenses
30 September 30 September
2022 2021
£'000 £'000
Interest on bank deposits 12 -
Finance income 12 -
Interest on bank borrowings 199 1,155
Other interest 2 3
Finance costs on lease liabilities 8,452 7,952
Unwinding of discount on contingent consideration 46 -
Unwinding of discount on provisions 97 8
Finance expense 8,796 9,118
9. Taxation
30 September 30 September
2022 2021
£'000 £'000
The tax expense/(credit) is as follows:
- UK corporation tax 6,436 (384)
- Adjustment in respect of prior years 10 20
- Foreign tax suffered 250 -
- Effects of foreign exchange 3 -
Total current tax 6,699 (364)
Deferred tax:
Origination and reversal of temporary differences 2,431 287
Effect of changes in tax rates 95 (1,202)
Adjustment in respect of prior years (11) 13
Total deferred tax 2,515 (902)
Total tax expense/(credit) 9,214 (1,266)
Factors affecting current tax credit:
The tax assessed on the profit for the period is different to the standard
rate of corporation tax in the UK of 19 per cent (30 September 2021: 19 per
cent). The differences are explained below:
30 September 30 September
2022 2021
£'000 £'000
Profit excluding taxation 46,665 462
Tax using the UK corporation tax rate of 19% (2021: 19%) 8,866 88
Change in tax rate on deferred tax balances 95 (1,202)
Non-deductible expenses 388 22
Non-deductible acquisition related exceptional costs 296 -
Effects of overseas tax rates 66 -
Effects of capital allowances super deduction (577) (137)
Share-based payments 81 (69)
Adjustment in respect of prior years (1) 32
Total tax expense/(credit) included in profit or loss 9,214 (1,266)
The Group's standard tax rate for the year ended 30 September 2022 was 19 per
cent (30 September 2021: 19 per cent).
At Budget March 2021, the government confirmed that the corporation tax main
rate would remain at 19 per cent and increase to 25 per cent from 1 April
2023. As such, the rate used to calculate the deferred tax balances has
increased from 19 per cent to a blended rate up to 25 per cent depending on
when the deferred tax balance will be released.
10. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of Hollywood Bowl Group plc by the weighted average number of
shares outstanding during the year.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. During the years ended 30 September 2022 and 30
September 2021, the Group had potentially dilutive ordinary shares in the form
of unvested shares pursuant to LTIPs and SAYE schemes.
30 September 30 September
2022 2021
Basic and diluted
Profit for the year after tax (£'000) 37,451 1,728
Basic weighted average number of shares in issue for the period (number) 170,949,286 164,607,791
Adjustment for share awards 963,218 859,432
Diluted weighted average number of shares 171,912,504 165,467,223
Basic earnings per share (pence) 21.91 1.05
Diluted earnings per share (pence) 21.78 1.04
11. Property, plant and equipment
Freehold Long leasehold Short leasehold Lanes and Plant and Total
property property property pinspotters machinery, £'000
£'000 £'000 £'000 £'000 fixtures and
fittings
Cost
At 1 October 2020 - 1,240 28,652 12,269 36,157 78,318
Additions - - 1,435 1,489 6,406 9,330
Disposals - - (424) (448) (406) (1,278)
At 30 September 2021 - 1,240 29,663 13,310 42,157 86,370
Additions - - 8,127 5,238 8,707 22,072
Acquisition of Teaquinn Holdings Inc. (note 20) 7,061 - 872 284 237 8,454
Disposals - - (24) (796) (595) (1,415)
Effects of movement in foreign exchange 345 - 48 14 12 419
At 30 September 2022 7,406 1,240 38,686 18,050 50,518 115,900
Accumulated depreciation
At 1 October 2020 - 292 11,011 4,347 14,448 30,098
Depreciation charge - 48 2,773 694 4,225 7,740
Impairment charge - - - - 299 299
Disposals - - (38) (428) (337) (803)
At 30 September 2021 - 340 13,746 4,613 18,635 37,334
Depreciation charge 24 48 3,047 706 4,896 8,721
Impairment charge - - 2,088 - 447 2,535
Disposals - - (24) (785) (522) (1,331)
At 30 September 2022 24 388 18,857 4,534 23,456 47,259
Net book value
At 30 September 2022 7,382 852 19,829 13,516 27,062 68,641
At 30 September 2021 - 900 15,917 8,697 23,522 49,036
Plant and machinery, fixtures and fittings includes £2,916,000 (30 September
2021: £2,162,000) of assets in the course of construction, relating to the
development of new centres.
Impairment
Impairment testing is carried out at the CGU level on an annual basis at the
balance sheet date, or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired. A CGU is the smallest
identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. Each
individual centre is considered to be a CGU.
An initial impairment test was performed on all seventy three centres
assessing for indicators of impairment. A detailed impairment test based on a
base case was then performed on nine centres, where the excess of value-in-use
over the carrying value calculation was sensitive to changes in the key
assumptions.
Property, plant and equipment and right-of-use assets for nine centres have
been tested for impairment by comparing the carrying value of each CGU with
its recoverable amount determined from value-in-use calculations using cash
flow projections based on financial budgets approved by the Board covering a
five-year period. This base case assumes all centres remain open during
FY2023, and the financial years thereafter, and there are no further trading
restrictions associated with the COVID-19 pandemic.
The key assumptions used in the value-in-use calculations are the potential
adverse variations in the economic environment leading to a deterioration in
trading conditions and performance during FY2023 and FY2024. Cash flows beyond
this two-year period are included in the Board-approved five-year plan and
assume a recovery in the economy and the performance of our centres. The other
assumptions used in the value-in-use calculations were:
2022 2021
Discount rate (pre-tax) 16.0% 12.7%
Growth rate (beyond three years) 2.5% 2.5%
Discount rates reflect current market assessments of the time value of money
and the risks specific to the industry. This is the benchmark used by
management to assess operating performance and to evaluate future capital
investment proposals. These discount rates are derived from the Group's
weighted average cost of capital. Changes in the discount rates over the years
are calculated with reference to latest market assumptions for the risk-free
rate, equity risk premium and the cost of debt. These discount rates were
impacted by the volatility in the debt markets at the time of calculation, 30
September 2022.
Detailed impairment testing resulted in the recognition of an impairment
charge in the year of £2,535,000 (FY2021: £299,000) against property, plant
and equipment assets and £1,786,000 (FY2021: £551,000) against right-of-use
assets for three UK centres (note 12). Following the recognition of the
impairment charge, the carrying value of property, plant and equipment is
£3,456,000 and right-of-use assets is £3,151,000 for these three UK centres
(note 12).
Sensitivity to changes in assumptions
The estimate of the recoverable amounts for six centres affords reasonable
headroom over the carrying value of the property, plant and equipment and
right-of-use asset, and an impairment charge of £2,535,000 for three centres
under the base case. Management have sensitised the key assumptions in the
impairment tests of these nine centres under the base case.
A reduction in revenue of four and five percentage points down on the base
case for FY2023 and FY2024 respectively and an increase in operating costs to
reflect higher inflation would not cause the carrying value to exceed its
recoverable
amount for these six centres. Therefore, management believe that any
reasonable possible changes in the key assumptions would not result in an
impairment charge. A further impairment of £400,000 would arise under this
sensitised case in relation to three centres where we have already recognised
an impairment charge in the year.
12. Leases
Group as a lessee
The Group has lease contracts for property and amusement machines used in its
operations. The Group's obligations under its leases are secured by the
lessor's title to the leased assets. The Group is restricted from assigning
and subleasing the leased assets. There are ten (FY2021: eight) lease
contracts that include variable lease payments in the form of revenue-based
rent top-ups.
The Group also has certain leases of equipment with lease terms of 12 months
or less and leases of office equipment with low value. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition exemptions for
these leases.
Set out below are the carrying amounts of right-of-use assets recognised and
the movements during the year:
Right-of-use assets Property Amusement Total
£'000 machines £'000
£'000
Cost
At 1 October 2020 139,699 7,662 147,361
Lease additions 2,581 587 3,168
Lease surrenders - (140) (140)
Lease modifications 6,442 - 6,442
At 30 September 2021 148,722 8,109 156,831
Lease additions 7,805 3,462 11,267
Acquisition of Teaquinn Holdings Inc. (note 20) 11,510 - 11,510
Lease surrenders - (332) (332)
Lease modifications 5,640 - 5,640
Effects of movement in foreign exchange 583 - 583
At 30 September 2022 174,260 11,239 185,499
Accumulated depreciation
At 1 October 2020 9,742 2,443 12,185
Depreciation charge 9,339 2,543 11,882
Impairment charge 551 - 551
Lease surrenders - (129) (129)
At 30 September 2021 19,632 4,857 24,489
Depreciation charge 9,846 2,164 12,010
Impairment charge 1,786 - 1,786
Lease surrenders - (241) (241)
At 30 September 2022 31,264 6,780 38,044
Net book value
At 30 September 2022 142,996 4,459 147,455
At 30 September 2021 129,090 3,252 132,342
Set out below are the carrying amounts of lease liabilities and the movements
during the year:
Lease liabilities Property Amusement Total
£'000 machines £'000
£'000
At 1 October 2020 167,100 6,704 173,804
Lease additions 2,581 587 3,168
Accretion of interest 7,836 116 7,952
Lease modifications 6,442 (11) 6,431
Payments1 (15,429) (1,986) (17,415)
At 30 September 2021 168,530 5,410 173,940
Lease additions 7,805 3,462 11,267
Acquisition of Teaquinn Holdings Inc. (note 20) 11,510 - 11,510
Accretion of interest 8,354 98 8,452
Lease modifications 5,640 (157) 5,483
Payments2 (19,873) (2,994) (22,867)
Effects of movement in foreign exchange 584 - 584
At 30 September 2022 182,550 5,819 188,369
Current 9,027 2,530 11,557
Non-current 173,523 3,289 176,812
At 30 September 2022 182,550 5,819 188,369
Current 11,644 2,167 13,811
Non-current 156,886 3,243 160,129
At 30 September 2021 168,530 5,410 173,940
1 In FY2021, as a result of COVID-19 rent concessions, £991,000 of
property payments and £745,000 of amusement machine payments noted above were
deferred during the year and are netted off the payments. A further
£2,110,000 of rent savings were taken to profit or loss as a credit to
variable lease payments within administrative expenses.
2 In FY2022, £35,000 (FY2021: £43,000) of rent payments were part of
the working capital movements in the year.
The following are the amounts recognised in profit or loss:
2022 2021
£'000 £'000
Depreciation expense of right-of-use assets 12,010 11,882
Impairment charge of right-of-use assets 1,786 551
Interest expense on lease liabilities 8,452 7,952
Expense relating to leases of low-value assets (included in administrative 57 43
expenses)
Variable lease payments (included in administrative expenses) 788 581
COVID-19 rent savings (included in administrative expenses) - (2,110)
Total amount recognised in profit or loss 23,093 18,899
The Group has contingent lease contracts for ten (FY2021: eight) sites. There
is a revenue-based rent top-up on these sites. Variable lease payments include
revenue-based rent top-ups at ten (FY2021: six) centres totalling £716,000
(FY2021: £320,000). It is anticipated that top-ups totalling £737,000 will
be payable in the year to 30 September 2023 based on current expectations.
Impairment testing is carried out as outlined in note 11. Detailed impairment
testing resulted in the recognition of an impairment charge in the year of
£1,786,000 (FY2021: £551,000) against right-of-use assets for three UK
centres (FY2021: one UK centre).
13. Goodwill and intangible assets
Goodwill Brands 1 Trademark 2 Customer Software Total
£'000 £'000 £'000 relationships £'000 £'000
£'000
Cost
At 1 October 2020 75,034 3,360 798 - 1,860 81,052
Additions - - - - 252 252
At 30 September 2021 75,034 3,360 798 - 2,112 81,304
Additions 70 - - - 108 178
Acquisition of Teaquinn Holdings Inc. (note 20) 90 3,888 - 314 - 4,292
At 30 September 2022 75,194 7,248 798 314 2,220 85,774
Accumulated amortisation
At 1 October 2020 - 1,020 316 - 1,543 2,879
Amortisation charge - 168 50 - 259 477
At 30 September 2021 - 1,188 366 - 1,802 3,356
Amortisation charge - 335 50 8 231 624
At 30 September 2022 - 1,523 416 8 2,033 3,980
Net book value
At 30 September 2022 75,194 5,725 382 306 187 81,794
At 30 September 2021 75,034 2,172 432 - 310 77,948
1 This relates to the Hollywood Bowl, Splitsville and Striker Bowling
Solutions brands.
2 This relates to the Hollywood Bowl trademark only.
Impairment testing is carried out at the CGU level on an annual basis. A CGU
is the smallest identifiable group of assets that generates cash inflows that
are largely independent of the cash inflows from other assets or groups of
assets. Each individual centre is considered to be a CGU. However, for the
purposes of testing goodwill for impairment, it is acceptable under IAS 36 to
group CGUs, in order to reflect the level at which goodwill is monitored by
management. The UK Group is considered to be the CGU, for the purposes of
goodwill impairment testing, on the basis that the goodwill relates mainly to
the UK operating segment.
The recoverable amount of the CGU is determined based on a value-in-use
calculation using cash flow projections based on financial budgets approved by
the Board covering a five-year period. This base case assumes all centres
remain open during FY2023, and the financial years thereafter, and there are
no further trading restrictions associated with the COVID-19 pandemic.
Cash flows beyond this period are extrapolated using the estimated growth
rates stated in the key assumptions. The key assumptions used in the
value-in-use calculations are:
2022 2021
Discount rate (pre-tax) 16.0% 12.7%
Growth rate (beyond three years) 2.5% 2.5%
Discount rates reflect current market assessments of the time value of money
and the risks specific to the industry. This is the benchmark used by
management to assess operating performance and to evaluate future capital
investment proposals. These discount rates are derived from the Group's
weighted average cost of capital. Changes in the discount rates over the years
are calculated with reference to latest market assumptions for the risk-free
rate, equity risk premium and the cost of debt.
Sensitivity to changes in assumptions
Management has sensitised the key assumptions in the impairment tests of the
CGU under the base case scenario.
The key assumptions used and sensitised were forecast growth rates and the
discount rates, which were selected as they are the key variable elements of
the value-in-use calculation. The combined effect of a reduction in revenue of
4.4 percentage points on the base case for FY2023 and FY2024, an increase in
the discount rate applied to the cash flows of the CGU of one per cent and a
reduction of one per cent in the growth rate (beyond five years), would reduce
the headroom by £57.3m. This scenario would not cause the carrying value to
exceed its recoverable amount. Therefore, management believes that any
reasonable possible change in the key assumptions would not result in an
impairment charge.
14. Trade and other receivables
30 September 30 September
2022 2021
£'000 £'000
Trade receivables 836 611
Other receivables 245 89
Prepayments 4,049 2,600
5,130 3,300
Trade receivables have an ECL against them that is immaterial. There were no
overdue receivables at the end of either year.
15. Trade and other payables
30 September 30 September
2022 2021
£'000 £'000
Current
Trade payables 5,306 5,121
Other payables 1,310 1,131
Accruals and deferred income 17,000 7,421
Taxation and social security 5,065 4,469
Total trade and other payables 28,681 18,142
30 September 30 September
2022 2021
£'000 £'000
Non-current
Other payables 3,000 565
Accruals and deferred income includes a staff bonus accrual of £7,758,000 (30
September 2021: £1,405,000) and deferred consideration of £164,000 (30
September 2021: £nil) in relation to the acquisition of Teaquinn Holdings
Inc. Deferred income includes £983,000 (30 September 2021: £746,000) of
customer deposits received in advance and £160,000 relating to bowling
equipment installations, all of which is recognised in the income statement
during the following financial year.
Non-current other payables includes £464,000 (30 September 2021: £nil) of
contingent consideration and £1,841,000 (30 September 2021: £nil) of
deferred consideration in respect of the acquisition of Teaquinn Holdings Inc.
(note 20). The additional consideration to be paid is contingent on the future
financial performance of Teaquinn Holdings Inc in FY2025 or FY2026. This is
based on a multiple of 9.2x Teaquinn's EBITDA pre-IFRS 16 in the financial
period of settlement and is capped at CAD 17m. The contingent consideration
has been accounted for as post acquisition employee remuneration in accordance
with IFRS 3 paragraph B55 and recognised over the duration of the employment
contract to FY2026. The present value of the contingent consideration has been
discounted using a WACC of 13 per cent. There is a range of possible outcomes
for the value of the contingent consideration based on Teaquinn forecasted
EBITDA pre-IFRS 16 and the year of payment. This ranges from a payment
(undiscounted) in FY2025 of £6,000,000 (undiscounted) to a payment in FY2026
of £9,015,000 (undiscounted), using the FY2022 year-end exchange rate. The
fair value of the contingent consideration will be re-assessed at every
financial reporting date, with changes recognised in the income statement.
16. Loans and borrowings
30 September 30 September
2022 2021
£'000 £'000
Loans and borrowings brought forward - 29,038
Repayment during the year - (29,500)
Drawdown during the year - -
Issue costs - -
Amortisation of issue costs - 462
Loans and borrowings carried forward - -
On 29 September 2021, the Group repaid and cancelled its borrowing facilities
with Lloyds Bank plc, and on the same day entered into a new £25m revolving
credit facility (RCF) with Barclays Bank plc.
The RCF has a termination date of 31 December 2024. Interest is charged on any
drawn balance based on the reference rate (SONIA), plus a margin of 1.75 per
cent.
A commitment fee equal to 35 per cent of the drawn margin is payable on the
undrawn facility balance. The commitment fee rate as at 30 September 2022 and
30 September 2021 was therefore 0.6125 per cent.
Issue costs of £135,000 were paid to Barclays Bank plc on commencement of the
RCF. These costs are being amortised over the term of the facility and are
included within prepayments.
The terms of the Barclays Bank plc facility include the following Group
financial covenants:
(i) For the 7-month period ending 31 December 2021, the ratio of total
net debt to Group adjusted EBITDA pre-IFRS 16 shall not exceed 1.75:1.
(ii) For the 12-month period ending on each reference date, commencing 31
March 2022 and each quarter thereafter, the ratio of total net debt to Group
adjusted EBITDA pre-IFRS 16 shall not exceed 1.75:1.
The Group operated within the covenants during the year and the previous year.
17. Deferred tax assets and liabilities
30 September 30 September
2022 2021
£'000 £'000
Deferred tax assets and liabilities
Deferred tax assets 7,050 7,809
Deferred tax liabilities (5,403) (1,519)
1,647 6,290
30 September 30 September
2022 2021
£'000 £'000
Reconciliation of deferred tax balances
Balance at the beginning of the year 6,290 5,295
Deferred tax credit for the year - in profit or loss (2,543) 915
Deferred tax credit for the year - in equity (29) 93
On acquisition of Teaquinn (note 20) (2,040) -
Effects of foreign exchange (43) -
Adjustment in respect of prior years 12 (13)
Balance at the end of the year 1,647 6,290
The components of deferred tax are:
30 September 30 September
2022 2021
£'000 £'000
Deferred tax assets
Fixed assets 6,314 6,706
Trading losses - 439
Other temporary differences 736 664
7,050 7,809
Deferred tax liabilities
Property, plant and equipment (3,694) (721)
Intangible assets (1,709) (798)
(5,403) (1,519)
Deferred tax assets and liabilities are measured using the tax rates that are
expected to apply to the periods when the assets are realised or liabilities
settled, based on tax rates enacted or substantively enacted at 30 September
2022.
18. Related party transactions
30 September 2022 and 30 September 2021
During the year, and the previous year, there were no transactions with
related parties.
19. Dividends paid and proposed
30 September 30 September
2022 2021
£'000 £'000
The following dividends were declared and paid by the Group:
Interim dividend year ended 30 September 2022 - 3.00 pence per ordinary share 5,132 -
Proposed for the approval by shareholders at AGM (not recognised as a
liability at 30 September 2022):
Final dividend year ended 30 September 2022 - 8.53 pence per ordinary share 14,598 -
Special dividend year ended 30 September 2022 - 3.00 pence per ordinary share 5,132 -
20. Acquisition of Teaquinn Holdings Inc.
On 24 May 2022, the Company acquired 100% of the issued share capital and
voting rights of Teaquinn Holdings Inc., the holding company of Splitsville
and Striker Bowling Solutions, based in Canada. Splitsville is an operator of
ten-pin bowling centres and Striker Bowling Solutions, a supplier and
installer of bowling equipment. The purpose of the acquisition was to grow the
Group's core ten-pin bowling business by expanding into a new geographical
region.
Teaquinn is consolidated in Hollywood Bowl Group plc's financial statements
with effect from the completion of the acquisition on 24 May 2022.
The details of the business combination are as follows (stated at acquisition
date fair values):
£'000
Fair value of consideration transferred
Amount settled in cash 10,080
Recognised amounts of identifiable net assets
Property, plant and equipment 8,454
Right-of-use assets 11,510
Intangible assets 4,292
Other non-current assets 6
Inventories 265
Trade and other receivables 631
Cash and cash equivalents 415
Current tax liability (425)
Trade and other payables (1,479)
Lease liabilities (11,510)
Deferred tax liabilities (2,040)
Identifiable net assets 10,119
Gain on bargain purchase 39
Consideration for equity settled in cash 10,080
Cash and cash equivalents acquired (415)
Net cash outflow on acquisition 9,665
Acquisition costs paid charged to expenses 1,557
Net cash paid relation to the acquisition 11,222
The fair value of the consideration transferred of £10,080,000 includes the
fair value of deferred consideration of £164,000 and £1,817,000, included
within current and non-current liabilities respectively at 30 September 2022,
which is expected to be settled in FY2023 and FY2026 respectively.
In addition to the net cash outflow on acquisition, contingent consideration
of £464,000 has been recognised in administrative expenses in the year. The
contingent consideration has been accounted for as post acquisition employee
remuneration in accordance with IFRS 3 paragraph B55. This amount is included
within non-current liabilities at 30 September 2022, and is expected to be
settled in FY2026 for a total of £8,360,000 (undiscounted) using the FY2022
year-end exchange rate. The contingent consideration is to be paid based on a
multiple of 9.2x Teaquinn's EBITDA pre-IFRS 16 in the financial period of
settlement and is capped at CAD 17m. The present value of the contingent
consideration has been discounted using a WACC of 13 per cent. There is a
range of possible outcomes for the value of the contingent consideration based
on Teaquinn forecasted EBITDA pre-IFRS 16 and the year of payment. This ranges
from a payment (undiscounted) in FY2025 of £6,000,000 (undiscounted) to a
payment in FY2026 of £9,015,000 (undiscounted), using the FY2022 year-end
exchange rate.
The gain on bargain purchase arose as a result of the contingent consideration
aspect of the acquisition price relating to post acquisition employee
remuneration as opposed to forming part of the purchase consideration. The
gain on bargain purchase is disclosed as a separate line item in the
consolidated income statement.
Acquisition related costs of £1,557,000 are not included as part of the
consideration transferred and have been
recognised as an expense in the consolidated income statement within
administrative expenses.
The fair value of the identifiable intangible assets acquired includes
£3,770,000 and £118,000 in relation to the Splitsville and Striker Bowling
Solutions brand names respectively, and £314,000 in relation to customer
relationships. The brand names have been valued using the relief from royalty
method and customer relationships have been valued using the multi-period
excess earnings method.
The fair value of property, plant and equipment includes freehold land and
buildings of £7,061,000, an uplift of £5,504,000 on the carrying value prior
to the acquisition. The fair value adjustment is based on the open market
value using the direct comparison approach of two properties that were valued
by third party experts in accordance with the Canadian Uniform Standards of
Professional Appraisal Practice as developed by the Standards Board of the
Appraisal Institute of Canada.
The fair value of right-of-use assets and lease liabilities were measured as
the present value of the remaining lease payments, in accordance with the
Group's policy on page 135 of the Annual report.
The fair value and gross contractual amounts receivable of trade and other
receivables acquired as part of the business combination amounted to
£618,000. At the acquisition date the Group's best estimate of the
contractual cash flows expected not to be collected amounted to £nil.
In the period since acquisition to 30 September 2022, the Group recognised
£6,221,000 of revenue and £383,000 of profit after tax in relation to the
acquired business. Had the acquisition occurred on 1 October 2021, the
contribution of Teaquinn to the Group's revenue would have been £12,795,000
and the contribution to the Group's profit before tax for the period would
have been £2,187,000.
21. Cash flow information
Restatement of comparative cash flow information
Following the FRC's corporate reporting review of the Group's Annual Report
and Accounts to 30 September 2021 it was felt that, with respect to the
comparative for that period, it would be more appropriate for the £2,110,000
in rent concessions to be presented within the adjustments to cash flows from
operating activities, and not within the payment of capital leases as
originally disclosed.
As a result of this review, the comparative consolidated cash flow statement
has been restated as follows:
Year ended 30 September 2021 Previously Restatement Restated
reported £'000 £'000
£'000
Cash flow statement line item
Operating profit before working capital changes 30,574 (2,110) 28,464
Net cash inflow from operating activities 28,304 (2,110) 26,194
Payment of capital elements of leases (9,420) 2,110 (7,310)
Net cash used in financing activities (9,564) 2,110 (7,454)
There is no adjustment to the net change in cash and cash equivalents for the
year.
The FRC's enquiries, which were limited to a review of the September 2021
Annual Report and Accounts, are now complete. The FRC review does not benefit
from detailed knowledge of our business or an understanding of the underlying
transactions entered into, and accordingly the review provides no assurance
that the Annual Report and Accounts are correct in all material respects.
Risk management
Our approach to risk
The Board and senior management take their responsibility for risk management
and internal controls very seriously, and for reviewing their effectiveness at
least bi-annually. An effective risk management process balances the risk and
rewards as well as being dependent on the judgement of the likelihood and
impact of the risk involved. The Board has overall responsibility for ensuring
there is an effective risk management process in place and to provide
reasonable assurance that they are fully understood and managed.
When we look at risk, we specifically consider the effects it could have on
our business model, our culture and therefore our ability to deliver our
long-term strategic purpose.
We consider both short and long-term risks and split them into the following
groups: financial, social, operational, technical, governance and
environmental risks.
Risk appetite
This describes the amount of risk we are willing to tolerate as a business. We
have a higher appetite for risks accompanying a clear opportunity to deliver
on the strategy of the business.
We have a low appetite for, and tolerance of, risks that have a downside only,
particularly when they could adversely impact health and safety or our values,
culture or business model.
Our risk management process
The Board is ultimately responsible for ensuring that a robust risk management
process is in place and that it is being adhered to. The main steps in this
process are:
Department heads
Each functional area of the Group maintains an operational risk register,
where senior management identifies and documents the risks that their
department faces in the short term, as well as the longer term. A review of
these risks is undertaken on at least a bi-annual basis to compile their
department risk register. They consider the impact each risk could have on the
department and overall business, as well as the mitigating controls in place.
They assess the likelihood and impact of each risk.
The Executive team
The Executive team reviews each departmental risk register. Any risks which
are deemed to have a level above our appetite are added to/retained on the
Group risk register (GRR) which provides an overview of such risks and how
they are being managed. The GRR also includes any risks the Executive team is
managing at a Group level. The Executive team determines mitigation plans for
review by the Board.
The Board
Challenges and agrees the Group's key risks, appetite and mitigation actions
at least twice yearly and uses its findings to finalise the Group's principal
risks.
The principal and emerging risks are taken into account in the Board's
consideration of long-term viability as outlined in the Viability statement.
Risk management activities
Risks are identified through operational reviews by senior management;
internal audits; control environments; our whistleblowing helpline; and
independent project analysis.
The internal audit team provides independent assessment of the operation and
effectiveness of the risk framework and process in centres, including the
effectiveness of the controls, reporting of risks and reliability of checks by
management.
We continually review the organisation's risk profile to verify that current
and emerging risks have been identified and considered by each head of
department.
Each risk has been scaled as shown on the risk heat map.
Principal risks
The Board has identified 12 principal risks which are set out below. These are
the risks which we believe to be the most material to our business model,
which could adversely affect the revenue, profit, cash flow and assets of the
Group and operations, which may prevent the Group from achieving its strategic
objectives.
We acknowledge that risks and uncertainties of which we are unaware, or which
we currently believe are immaterial, may have an adverse effect on the Group.
Financial risks
Risk Risk and impact Mitigating factors
1 · Change in economic conditions in particular a recession due to · An economic contraction is likely, impacting consumer confidence
the after-effects of COVID-19, as well as inflationary pressures and the and discretionary income. The Group's has low customer frequency per annum and
Economic environment current war in Ukraine also the lowest price per game of the branded operators. Therefore, whilst it
would suffer in such a recession, the Board is satisfied that the majority of
· Adverse economic conditions, including, but not limited to, centre locations are based in high-footfall locations which should better
increases in interest rates/ inflation may affect Group results withstand a recessionary decline
Increasing
· A decline in spend on discretionary leisure activity could · Along with appropriate financial modelling and available
negatively affect all financial as well as non-financial KPIs liquidity, a focus on opening new centres in high-quality locations only with
appropriate property costs, as well as capital contributions, remains key to
the Group's new centre-opening strategy
· We have an unrelenting focus on service, costs and value, along
with electricity hedged until September 2024. Plans are developed to mitigate
many cost increases, as well as a flexible labour model, if required, in an
economic downturn
2 · The banking facility, with Barclays Plc, has quarterly leverage · The potential for future pandemic lockdowns has elevated this
covenant tests which are set at a level the Group is comfortably forecasting risk, and financial resilience has therefore become central to our
Covenant breach to be within decision-making and will remain key for the foreseeable future
· Covenant breach could result in a review of banking arrangements · The current RCF is £25m, with a margin of 175bps above SONIA as
and potential liquidity issues well as an accordion of £5m. Net leverage covenants are 1.75x and are tested
Decreasing
quarterly. The facility is currently undrawn
· Group revenue and profit performance since reopening in May 2021
have been above internal and external forecasts, which has resulted in a net
cash position of £56.1m at the end of FY2022
· Appropriate financial modelling has been undertaken to support
the assessment of the business as a going concern. The Group has headroom on
the current facility with leverage cover within its covenant levels, as shown
in the monthly Board packs. We prepare short-term and long-term cash flow,
EBITDA (pre-IFRS 16) and covenant forecasts to ensure risks are identified
early. Tight controls exist over the approval for capital expenditure and
expenses
· The Directors consider that the combination of events required to
lower the profitability of the Group to the point of breaching bank covenants
is unlikely
3 · Competitive environment for new centres results in less new Group · The Group uses multiple agents to seek out opportunities across
centre openings the UK
Expansion/ growth
· New concepts appear more attractive to landlords · Continued focus with landlords on initial investment as well as
refurbishment and maintenance capital
· Higher rents offered by short-term private groups
NEW · Strong financial covenant provides forward-looking landlords with
both value and comfort
· Relaunched property flyer in June 2022, with good success
Operational risks
Risk Risk and impact Mitigating factors
4 · Failure in the stability or availability of information through · All UK core systems (non-cloud based) are backed up to our
IT systems could affect Group business and operations disaster recovery centre
Core systems
· Customers not being able to book through the website is a bigger · The reservation systems, provided by a third party, are hosted by
risk given the higher proportion of online bookings compared to prior years Microsoft Azure Cloud for added resilience and performance. This also has full
business continuity provision and scalability for peak trading periods. The
Unchanged · Inaccuracy of data could lead to incorrect business decisions CRM/CDP system is hosted by a third party utilising cloud infrastructure with
being made data recovery contingency in place
· The reservations system also has an offline mode, so in-centre
customers could still book but the Customer Contact Centre (CCC) and online
booking facility would be down. A back-up system exists for CCC to take credit
card payments offline. A full audit process exists for offline functionality
· All technology changes which affect core systems are authorised
via change control procedures
· The Group undertakes periodic strategic reviews of its core
system set-up with associated market comparisons of available operating
systems to ensure that it has the most appropriate technology in place
5 · Operational business failures from key suppliers (non-IT) · The Group has key UK suppliers in food and drink under contract
with tight service level agreements (SLAs). Alternative suppliers that know
Suppliers (non-amusements) · Unable to provide customers with a full experience our business could be introduced, if needed, at short notice. Centres hold
between 14 and 21 days of food, drink and amusement products. Regular reviews
and updates are held with external partners to identify any perceived risk and
its resolution. This process has been required since reopening in 2021, with
Unchanged substitute products available in all scenarios. A policy is in place to ensure
the safe procurement of food and drink within allergen controls
· Splitsville uses Xtreme Hospitality (XH), a group buying company,
to align itself with tier one suppliers in all service categories including
food and drink. If XH is unable to provide a service or product, Splitsville
is able to source directly itself
6 · Any disruption which affects Group relationship with amusement · Regular key supplier meetings between our Head of Amusements, and
suppliers Namco and Inspired Gaming. There are half-yearly meetings between the CEO, the
Amusement supplier
CFO and Namco
· Customers would be unable to utilise a core offer in the centres
· Namco is a long-term partner that has a strong UK presence and
supports the Group with trials, initiatives and discovery visits
Unchanged
· Namco also has strong liquidity which should allow for a
continued relationship during or post any consumer recession
· Player 1 is the amusements supplier to Splitsville. Player 1 is a
subsidiary Cineplex Inc which is listed on the Canadian stock market.
Quarterly meetings are held with Player 1
7 · Loss of key personnel - centre managers · The Group runs Centre Manager in Training (CMIT) and Assistant
Manager in Training (AMIT) programmes annually, which identify centre talent
Management retention and recruitment · Lack of direction at centre level with effect on customer and develop team members ready for these roles. Centre managers in training
experience run centres, with assistance from their regional support manager as well as
experienced centre managers from across the region, when a vacancy needs to be
· More competitive recruitment landscape due to Brexit and COVID-19 filled at short notice
pandemic
· The Group bonus schemes were reviewed for the estate reopening in
· More difficult to execute business plans and strategy, impacting May 2021, to ensure they were still a strong recruitment and retention tool.
on revenue and profitability The incentives now benefit all team members in-centre including hourly and
salaried team. The hourly scheme has paid out to over 64 per cent of Team
Members since the start of FY2022
· All 18-21 year olds are paid 20p above NMW/NLW, once they have
completed their probation period
· Wellbeing guides were issued across the business during the
pandemic, as well as frequent Group Zoom Q&A sessions and updates via our
team member app, to improve team engagement
8 · Major food incident including allergen or fresh food issues · Food and drink audits are undertaken in all centres based upon
learnings of the prior year and food incidents seen in other companies, as
Food safety · Loss of trade and reputation, potential closure and litigation well as for health, safety and legal compliance. online training, which
includes allergen and intolerance issues, is reviewed, understood and complied
Unchanged with by team members
· Allergen awareness is part of our team member training matrix
which needs be completed before team members can take food or drink orders.
Information is regularly updated and remains a focus for the centres. This was
enhanced further in the latest menu, along with an online allergens list which
is available for all customers. A primary local authority partnership is in
place with South Gloucestershire covering health and safety, as well as food
safety
· In conjunction with the supply chain risk the Allergen Control
Policy has been reviewed and updated
· All food menus have an allergen disclaimer
· All food menus have a QR code linking the customer to up-to-date
allergen content for each product, updated through the 'Nutritics' system
Technical risks
Risk Risk and impact Mitigating factors
9 · Data protection or GDPR breach. Theft of customer email addresses · The Group adopts a multi-faceted approach to protecting its IT
and impact on brand reputation in the case of a breach networks through protected firewalls and secure two-factor authentication
GDPR and cyber security
passwords, as well as the frequent running of vulnerability scans to ensure
· Risk of cyber-attack/terrorism could impact the Group's ability integrity of the firewalls
to keep trading. More bookings are being taken online currently, which
increases this risk · A Data Protection Officer has been in position for a number of
Increasing years and attends external courses to continue to build knowledge
· All team members have been briefed via online presentations. A
training course on GDPR awareness was created on STARS (online training tool)
and all team members have to complete this before being able to work on shift
· A cyber security partner is in place to handle any cyber security
breaches and will work with the Group on a priority basis - 365x24x7 - if
necessary
· Periodic penetration testing is conducted through a third-party
cyber security company
· In FY2023 we will be upgrading the IT infrastructure and networks
in our Canadian business to move from centres based operations to centrally
hosted and managed services
10 * Website hack * The Group has an externally hosted website by Fortrabbit in a secure
*Increased threat of targeted hack post COVID-19 reopening infrastructure using AWS under ISO 27001 and PCI accreditation
Targeted IT threat / attack
*Prevent customers from booking online
*It deploys proactive security on its infrastructure in the form of regular
*PCI accreditation patching and upgrades as well as penetration testing
*Non-accreditation can lead to acquiring bank removing transaction processing
*AWS enforces a high level of physical security to safeguard its data centres,
with military grade perimeter controls for example
NEW
*The web site and booking site are protected by Cloudflare WAF with Distributed
Denial of Service (DDoS) protection
*There is active protection of the network against a DDoS attack
*Aquarterly review meeting is held with the card acquirer, to keep abreast of
market developments and any new technical requirements for PCI and security
*APCI gap analysis is performed annually to ensure the business infrastructure
is in line with the current published PCI standards. Recommendations from the
latest review are being addressed in a project to select and implement new
payment devices, services and processes to further reduce this risk
Regulatory risk
Risk Risk and impact Mitigating factors
11 · Failure to adhere to regulatory requirements such as listing · Expert opinion is sought where relevant. We run regular training
rules, taxation, health and safety, planning regulations and other laws and development for appropriately qualified staff
Compliance
· Potential financial penalties and reputational damage · The Board has oversight of the management of regulatory risk and
ensures that each member of the Board is aware of their responsibilities
Unchanged · Compliance documentation for centres to complete for health and
safety, and food safety, is updated and circulated twice per year. Adherence
to Company/legal standards is audited by the internal audit team
Environmental risk
Risk Risk and impact Mitigating factors
12 · Increasing carbon taxes · Significant progress already made with solar panel installations
and transitioning energy contracts to renewable sources
Climate change · Business interruption and damage to assets
· Corporate Responsibility Committee created to closely monitor and
· Cost of transitioning operations to net zero report on climate related risks and opportunities
NEW · Extended range of climate related targets created
· TCFD disclosure completed in FY2022 including scenario planning
to understand materiality of risks
· Net zero plan and target being created in FY2023
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