25 March 2022

Everyman Media Group PLC

("Everyman" the "Company" or the "Group")

Final Results to 30 December 2021

Everyman Media Group plc (AIM: EMAN) today announces its audited final results for the year ended 30 December 2021. The year included normal trading with full capacity for 24 weeks, nine weeks of reduced capacity due to COVID-19 restrictions, and 19 weeks full closure.

Highlights

Promising recovery with positive adjusted operating profit re-established

·      Admissions increased 67% to 2.0m (2020: 1.2m)

·      Group sales of £49.0m (2020: £24.2m), an increase of 102% year on year with 24 weeks normal trading, nine weeks of reduced capacity, and 19 weeks full closure, compared with 10 weeks of normal trading conditions, 17 weeks of disrupted trading due to COVID-19 restrictions and 25 weeks of full closure in 2020.

·      Average Ticket Price¹ was £11.44 (2020: £11.81) and Spend Per Head¹ of £8.96 (2020: £7.08)

·      Increased market share of 4.5% (2020: 4.46%)

·      A return to an adjusted profit from operations² of £8.3m (2020: £0.3m loss)

·      Operating loss reduced by 88% to £2.2m (2020: £18.8m)

Admissions momentum continues

·      Admissions are returning to pre-Covid levels, with H2 admissions 97% of H2 2019 on a non-like-for-like basis.

·      Admissions between re-opening on 17 May and the period end were ahead of management expectations, at 87% of 2019 levels.

New site roll out recommenced

·      Current estate of 36 venues, with one new venue at Borough Yards opened in December 2021.  The total number of screens now operated by the Group is 119 (2020: 117).

·      Committed pipeline for 2022 of 4 new venues, Edinburgh, Plymouth, Marlow, and Egham.

Significant liquidity headroom and positive adjusted operating profit

·      Since re-opening on 17 May 2021, the Group has been adjusted operating profit positive and operating cash generative each month.

·      At the year end, the Group had cash of £4.2m (2020: £0.3m) and net debt of £8.4m (2020: £8.7m). Liquidity headroom is £24.6m, demonstrating continued careful cash management.

Outlook

We are optimistic for the coming year, with customers continuing to appreciate the unique Everyman experience. Alongside this, a strong and varied film slate is anticipated, with a good mix of both the major releases and the well-watched independent films that our customers enjoy. So far in 2022 admissions momentum has continued and we remain focussed on delivering quality customer service throughout food, drink, staff and film.

(1) The average ticket price has been adjusted to remove the benefit of VAT reductions in both 2021 and 2020 to provide a like for like comparison. The unadjusted average ticket price was £12.43 (2020: £11.90). The spend per head has also been adjusted to remove Deliveroo income and the impact of VAT to provide a like for like comparison. The unadjusted spend per head was £10.06 (2020: £7.89). These adjustments have been made to provide a like for like comparison with 2020

(2) Adjusted for pre-opening costs, acquisition expenses, depreciation, amortisation, impairment, and share based payments. IFRS 16 has been applied.

Alex Scrimgeour, Chief Executive Officer of Everyman Media Group PLC said:

"Despite more twists and turns than Kenneth Branagh's "Death on the Nile", these last two years have conclusively proved our belief that Everyman has an enduring place at the hearts of the communities we serve. Thanks in no small part to our loyal customers, we have achieved remarkable levels of admissions, profitability, market share and customer satisfaction since government-imposed restrictions were lifted. We continue to invest in our venues, our people and enhancing the Everyman proposition. Off the back of a return to quasi business as usual, our outlook is increasingly optimistic, consequently we will be looking to accelerate our openings strategy in the short and medium term. Of course, none of this would be possible without our incredible venue teams and head office who have worked tirelessly and selflessly throughout."

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended) ("UK MAR").

About Everyman Media Group PLC:

Everyman is the fourth largest cinema business in the UK by number of venues, and is a premium, high growth leisure brand. Everyman operates a growing estate of venues across the UK, with an emphasis on providing first class cinema and hospitality.

Everyman is redefining cinema. It focuses on venue and experience as key competitive strengths, with a unique proposition:

I.      Intimate and atmospheric venues, which become a destination in their own right

II.     An emphasis on a strong quality food and drink menu prepared in-house

III.    A broad range of well-curated programming content, from mainstream and independent films to theatre and live concert streams, appealing to a diverse range of audiences

IV.   Motivated and welcoming teams

For more information visit http://investors.everymancinema.com/

Chairman's statement

 A year of two halves

Early 2021 was dominated by Covid and Covid-related restrictions. However, by May 21 all venues were open and the Everyman community returned to our venues in very encouraging numbers.

We are very pleased to have been able to re-engage with our customers face to face, with good admissions levels enabling a return to our growth agenda.

Since re-opening we have delivered positive adjusted profits every month as well as enjoying admission levels and average spends higher than our expectations, supported by a strong film slate and our great food and drink offer.

Review of the business

Our share of the box office has grown to 4.5% from 4.46% in 2020. We remain the fifth largest UK cinema business, as defined by gross box office revenue (source: ComScore) reinforcing our position as a respected and highly regarded UK leisure brand.

In the year we were excited to open Borough Yards and to fully refurbish our Belsize Park venue, With 36 venues now open we continue to be proud of the positive impact that our venues have on the high streets and communities, breathing new life into public spaces through regeneration, or new developments.

We were delighted that Alex Scrimgeour joined us as CEO on 18 January 2021. Alex's contribution has been impactful from the start with a number of new initiatives across the business. We were also very pleased to welcome Maggie Todd to the Board as an independent non-executive Director on 14 July, bringing with her a wealth of experience working with Disney and its associated brands.

We are conscious that our successful return has depended in large part on our teams, who have been amazing through what has been a year with some exceptionally difficult moments.

Outlook

We remain confident of people's appetite to enjoy making and watching films, as demonstrated by the strong demand seen for our offering once reopened. Everyman remains a great place to enjoy films of all genres, great hospitality, and to have an entertaining, affordable night out.

Current trading is in line with our expectations, and we look to the future with optimism.

Paul Wise                                                                                                                                             
Executive Chairman
25 March 2022

The Directors present their strategic report for the Group for the year ended 30 December 2021 (comparative period: 52 weeks 31 December 2020). Comprising the Chief Executive's statement and the Chief Financial Officer's statement.

Chief Executive's Statement

Business Model

Everyman's business model remains simple, it is to bring together great food, drink, atmosphere, service and of course film, to create exceptional experiences for our customers.

Our model is a premium cinema experience that delivers benefits, with the premium experience warranting a premium price point and with more revenue generating activities offered than the traditional cinema. As we emerge from the pandemic and return to sustained growth, we will also benefit from increasingly efficient central costs, allowing top line revenue growth to reflect in adjusted profit/(loss) from operations growth.

Our growth strategy is multi-faceted:

-      Expanding our geographical footprint by establishing new venues in order to reach new customers.

-      Continually evolving the quality of experience and breadth of choice we offer at our venues.

-      Engaging in effective marketing activity.

During 2021 the ability to execute this model was hampered by the impact of the pandemic on our business, however our ambitions remain the same, and leaving 2021 we are increasingly confident in a return to the execution of our multi-faceted strategy.

KPIs

The Group uses the following key performance indicators, in addition to total revenues, to monitor the progress of the Group's activities:

Admissions were up 69% year on year, and since re-opening on 17 May 2021 admissions have been ahead of management expectations. For the period from 17 May 2021 to the year end admissions have been 87% of 2019 levels for the same period (on a non-like-for-like basis), and since restrictions were lifted towards the end of July, admissions have been 103% of 2019 for the same period (on a non-like-for-like basis).

*The impacts of the different VAT rates throughout 2020 and 2021 have been removed from the Average Ticket Prices (ATP) above. The reduction in ATP of 3% is due to the film slate year on year resulting in the proportion of children's tickets being 6.5% higher in 2021, together with the regional split of ticket sales which was 5% higher outside London and the South East in 2021 vs. 2020.

**The Spend Per Head (SPH) has been adjusted to remove Deliveroo income and the impact of the different VAT rates throughout 2020 and 2021. Food and beverage spend per head has grown by 27%, driven by the roll out of hand-held ordering units, kitchen upgrades and consumer confidence growing, with customers showing a desire to treat themselves on returning to hospitality.

Expansion of our geographical footprint

Pre-pandemic we had planned to open six new venues in 2021 but following the work we did last year to reduce our capital commitments the pipeline of new openings was successfully pushed out. Once we were able to re-open and restart our growth plans, we were able to progress the development of our new two screen venue in Borough Yards, and were delighted to open to the public on 14 December 2021.

We have a pipeline of at least four new openings this year, Edinburgh (April), followed by Egham, Plymouth and Marlow We also have two new venues signed and due to open in 2023 (Northallerton and Aberdeen), and have a strong pipeline under legal negotiations which will add to this list for 2023 over the coming weeks.

The Group currently has venues in the following locations:

*One new venue opened in 2021 at Borough Yards, London

COVID-19 response

With venues closed until 17 May 2021, the Group continued to work hard to preserve cash through working with our partners and using Government support. Whilst we continue to monitor the situation closely, since being able to re-open and the relaxation of all COVID restrictions, we are optimistic for the future.

Government support was received in terms of rates relief, the VAT reduction, and the grants for the hospitality sector. We are grateful for the support received and have used it in the spirit it was intended, to protect jobs and our business, and safeguard its future.

A significant part of our costs are property related, and we are therefore pleased to have continued to work closely with our landlords. We would like to take this opportunity to again thank our landlords for their support and understanding throughout the pandemic.

We also continued to delay a number of site refurbishments and new venue openings, which significantly reduced the Group's capital commitments in the first half of 2021. With the removal of Government restrictions we have returned to our growth strategy and were able to open one new venue in December 2021 and have at least four new openings in 2022.

Continued engagement with key stakeholders

At the heart of Everyman's proposition are our customers and our people, we have consistently engaged with all our key stakeholders throughout the pandemic.

We used social media to maintain a wide dialogue with customers during the period of closure at the beginning of the year. By the end of 2021 the website had seen 6.5 million users, up 55% on 2020.   

We continued to engage with our loyal members through digital communications and the sending of small gifts and cards. Our members' ongoing support and enthusiasm for film has been greatly appreciated during lockdown. It has been incredibly pleasing to see this engagement reciprocated since reopening, with our loyal members returning to our venues.

Supporting the wellbeing of staff during the pandemic has been paramount. Regular engagement with our team during the period of closure at the beginning of the year has continued since we re-opened.

Innovation

As a leader in cinema, innovation has and always will be essential, and it is something in which we take great pride in. This year it has continued to be critical to embrace innovation to produce a compelling slate of programming, as well as innovating in our food and beverage offering.

We have used the period of closure to our advantage in terms of a programme of minor kitchen upgrades and relatively small refurbishments. Kitchen upgrades have been completed in 22 venues, with ordering, payment and kitchen technology upgrades in all 36 venues.

We have successfully launched a new seafood range with additions to the offering including the shrimp burger and tempura prawns.

Since 5 January 2022, across all venues, we have added some exciting new items such as Nduja, caramelised onion and fresh oregano pizza, vegan artichoke and sun-dried tomato pizza, truffle artichoke dip and flat bread, hot honey halloumi, and a vegan Bischoff milkshake. In addition, we added buttermilk chicken, truffle burger and a vegan cheeseburger to our Spielburger venues.

Market developments

As a result of the pandemic and its impact on theatrical releases, film studios began to experiment with various new film delivery models. Notwithstanding this experimentation, we firmly believe there will always be a strong demand for cinema. Cinema offers a unique experiential component and at Everyman we provide customers with not just the chance to enjoy a film, but a chance to enjoy it as part of a social event - an evening of entertainment with food, drink, and exceptional service.

Since re-opening, the industry has moved away from the 16-week window and towards a minimum of 31 or 45 days based on the scope of the release. We do not anticipate this having a significant impact on the box office as historically films take the bulk of their revenue in the first few weeks. What it has led to is greater flexibility on show requirements, which has allowed us to screen a broader range of titles and diversify our offering.

We are also seeing an increase in films being released into the market, notably from streamers such as Netflix, Amazon and Apple. We continue to believe that streaming and cinema can not only co-exist but in fact complement each other, paving the way for more creative opportunities and partnerships.

People                                                                                                                                  

We recognise that this has been another challenging period for our team, and we would like to thank them for their ongoing patience and understanding during such unprecedented times. When our sites re-opened on 17 May, our staff showed true professionalism and made sure that customers felt safe and comfortable.

While for some weeks during the year we faced the same recruitment challenges that were felt across the whole of the hospitality industry, Everyman is an attractive proposition, and we were therefore able to fill our vacancies.

Our staff also rose to the challenge as we headed into winter and the Omicron variant started to dominate, and were very flexible in filling in gaps and moving locations to ensure that we maintained our signature level of hospitality.

I would like to thank all our dedicated staff for their commitment and enthusiasm to our customers, to each other and to the business.

Outlook                                                                                                                                

Since full re-opening on 21 July 2021, we have been encouraged by a strong recovery in admissions levels, with interest generated across all venues and excellent customer feedback. Admission levels since 21 July have reached 103% of 2019 levels (on a non-like-for-like basis) for the same period, exceeding management expectations and signalling the sustained consumer demand for a premium cinema experience. Highlights since re-opening include hosting the world premiere of 'Cinderella' at Broadgate, Everyman parties across all sites on the opening night of 'No Time To Die', premieres in collaboration with Netflix and an opening party for Everyman Borough Yards in collaboration with Disney, recreating a scene from 'West Side Story' to mention just a few.

Looking ahead we are optimistic. Everyman is a much loved consumer brand with a unique offering, which we are confident will be in demand for the longer term. The 2022 film slate is very strong, we have good opportunities to further develop the Everyman experience, and to increase the number of potential new venues across the UK. We have significant liquidity, with a strong balance sheet, and supportive stakeholders across the business and therefore look forward to returning to our growth strategy. 

Alex Scrimgeour                                 
CEO
25 March 2022    

Strategic Report

The Directors present their strategic report for the Group for the year ended 30 December 2021 (comparative period: 52 weeks 31 December 2020). Comprising the Chief Executive's statement and the Chief Financial Officer's statement.

Review of the business   

The Group made a loss after tax of £5,430,000 (2020: £20,119,000 - restated).

The Chief Financial Officers report contains a detailed financial review. Further details are also shown in the Chairman's statement and consolidated statement of profit and loss and other comprehensive income, together with the related notes to the financial statements.

Impact of COVID-19 on strategy

Due to the pandemic, the growth strategy was paused and the focus shifted to securing the balance sheet and increasing liquidity, together with reducing costs. This was achieved by working closely with our partners including suppliers, landlords, banks and shareholders.

Since re-opening on 17 May 2021 we have seen a strong return of customers to Everyman venues and have returned to our growth strategy, albeit with a prudent level of caution, whilst we navigate through to what hopefully appears to be the end of the pandemic.

Situation in Ukraine

Following the year end we have seen the geopolitical situation deteriorate with the Russian invasion of Ukraine. This has brought further uncertainties outside the normal range of risks we see. The Board has considered the potential impacts on the business and have concluded that there is no current material impact. Whilst one of the immediate results of the war has been to see a significant rise in energy prices, the Group has a fixed rate agreement in place with one of the largest energy suppliers which continues until October 2023.

In response to the humanitarian issues that have resulted Everyman is donating £1 for every Spielburger that is sold from our Spring menu.

The principal risks and uncertainties reflect the new risks that have arisen due to the pandemic.

Principal risks and uncertainties

The Board considers risk assessment to be important in achieving its strategic objectives. There is a process of evaluation of performance targets through regular reviews by senior management to forecasts. Project milestones and timelines are reviewed regularly. A risk register is in place which the Board reviews and updates on an ad-hoc basis during meetings.

Financial risks

The pandemic created a liquidity risk due to the business having to close venues through the Government response to controlling the pandemic. The business successfully mitigated this risk through raising shareholder funds in 2020 and negotiating new banking covenants in March 2021. The Group reverts to the original banking covenants in June 2022 and is already operating within those covenants as at 24 March 2022. The Board monitors this risk on a regular basis through reviewing forecasts and working closely with banking partners.

The Group has direct exposure to interest rate movements in relation to interest charges on bank borrowings, with a 1% increase in rates resulting in an increase in interest charges of £0.2m on current forecast borrowings over the next twelve months. The Board manages this risk by minimising bank borrowings and reviewing forecast borrowing positions.

The Group takes out suitable insurance against property and operational risks where considered material to the anticipated revenue of the Group.

Chief Financial Officer's Statement

Summary

·      Since re-opening on 17 May 2021 the business has performed well with admissions ahead of management expectations.

·      The COVID-19 pandemic had a material impact in the performance of the business during 2021 due to closure of all venues until 17 May 2021.

·      Group revenue however increased by 102% to £49.0m (2020: £24.2m) with trading returning close to pre-pandemic levels once the venues re-opened and all restrictions had been lifted on 21 July. In 2021 we were closed for 4.7 months, with a further 2 months at 50% capacity, compared with 2020.

·      Non-GAAP adjusted profit from operations was £8.3m (2020: £0.3m loss).

·      Operating loss of £2.2m (2020: £18.8m loss).

·      Net banking debt £8.4m (2020: £8.7m) with significant headroom in facilities.

Revenue and Operating Profit

The business was closed except for Deliveroo trade from a handful of venues until 17 May 2021. Since re-opening the business has traded well, reaching 87% of 2019 admissions (on a non-like-for-like basis), despite a further two months of 50% capacity restrictions. Since venues have been fully opened with no capacity restrictions, admissions have been 103% of 2019 admissions (on a non-like-for-like basis). The prior year was impacted by five full months of closure and then further localised closures and restrictions on capacity and operations. 

During the period since re-opening on 17 May 2021, average spend per head excluding Deliveroo and the VAT benefit has grown 27%, driven by handheld ordering technology, menu enhancements and customers desire to treat themselves when returning to cinema. The film slate has been much stronger compared with 2020 as studios had more confidence to release films as the risks of further lockdowns receded.

As a result, revenue in the period was up 102%.

Reported gross margin was 63.0% (2020: 62.2%), with the increase due to a greater proportion of food and beverage revenue which carries a higher margin.

Other operating income of £3.8m (2020: £6.1m) is from Government support through the Job Retention Scheme (JRS) and the Business Support Grants (BSG). The Group received £2.8m (2020: £5.7m) in JRS income and has taken full advantage of the scheme with all but a skeleton staff working during periods of closure. For staff where 80% of their pay is above the £2,500 maximum supported by the scheme, the business topped up their pay to 80%.

In addition to the JRS support from the Government the business also received £1.0m (2020: £0.4m) in BSG. In December 2021 further support was announced for the hospitality sector, in the form of one-off grants of up to £6k per premises, which is being administered by local authorities, and Everyman has claimed these additional grants.

Further Government assistance in the form of a rates holiday and reduced rates since April 2021 resulted in a saving of £0.8m (2020: £1.1m). Further assistance was received through the reduction in VAT rates with the standard rate for hospitality (excluding alcoholic beverages) of 5% from May to September, increasing to 12.5% from October.

Further landlord discussions were held to complete agreements on rent concessions. The cash savings from variations to lease agreements were £0.9m in the year (2020: £1.4m). We would like to thank all our partners for the support they have given throughout the period.

Within the operating loss there is a reversal of £2.5m for impairment of right-of-use assets and property, plant and equipment. The Board carried out a full impairment review at the year end, based on judgement of future cash flows by each venue. Due to the improved outlook compared with 31 December 2020, forecast performance has improved and therefore the impairment review resulted in a reversal for all four venues. Details of the review carried out and the allocation of the impairment against classes of assets is in note 5.

During the period there was a development in IFRS relating to software capitalisation following an IFRIC agenda decision in April 2021. This decision relates to the treatment of customisation and configuration costs in cloud/SaaS computing arrangements. Historically implementation costs have been capitalised in line with Everyman accounting policy, however in light of the IFRIC decision the policy has been changed in 2021 to expense the costs to the P&L as incurred. This has resulted in a charge to administrative expenses of £0.5m. There is no material impact on amounts capitalised in previous periods. The impact in the current period arises due to the implementation of a new ERP system and developments to other back office systems.

The operating loss of £2.2m has improved significantly compared with the loss in 2020 of £18.8m.

Non-GAAP adjusted loss from operations

Non-GAAP adjusted profit from operations was £8.3m, compared with a loss in 2020 of £0.3m. In addition to performance measures directly observable in the financial statements, additional performance measures (Non-GAAP) adjusted profit/(loss) from operations, Admissions, Average Ticket Price and Spend per Head are used internally by management to assess performance. Management believes that these measures provide useful information to evaluate performance of the business as well as individual venues, to analyse trends in cash-based operating expenses, and to establish operational goals and allocate resources.

Non-GAAP adjusted loss from operations is defined as earnings before interest, taxes, depreciation, amortisation, impairment, share based payments and one-off lease costs arising due to COVID-19.

The reconciliation between operating loss and non-GAAP adjusted loss from operations is shown at the end of the consolidated statement of profit and loss above.

Cash Flows

The Directors believe the Group balance sheet remains well capitalised, with sufficient working capital to service all of its day-to-day requirements. Net banking debt at the balance sheet date was £8.4m (2020: £8.7m). The funds raised from shareholders in April 2020 have been used to fund losses during periods of closure and existing capital commitments.

Net cash generated in operating activities was £12.2m (2020 restated: £5.4m outflow). Net cash inflows for the year, before financing, were £4.4m (2020 restated: £13.9m outflow). This includes £7.4m on the acquisition of property plant and machinery (2020: £8.1m), which was contracted spend relating to ongoing projects.        

Cash held at the end of the year was £4.2m (2020: £0.3m).

The Group has banking facilities totalling £40m in place at the year end. £25.0m is in a Revolving Credit Facility (RCF) and £15.0m is in a Government backed Coronavirus Large Business Interruption Loan Scheme ("CLIBILS") RCF, both of which mature in January 2024. At the year end the Group had drawn down £12.5 m (2020: £9.0m) of the available funds, and therefore £27.5m of the facility was undrawn (2019: £21.0m).

As part of extending banking facilities from a £30.0m RCF at the end of 2020 to the facilities above, new liquidity and EBITDA loss covenants were agreed which are in place until June 2022 to support the business through the pandemic. The liquidity covenant requires cash plus undrawn facility to exceed £7.0m, and there is a last twelve months rolling EBITDA covenant set at 30% below management estimates. The Board reviews forecast scenarios on an ongoing basis and believes the business can operate with sufficient headroom.

From June the arrangements revert to the original covenants, from December 2021 the business has been operating within the original covenants and the current forecasts show that the business will remain within the covenants going forward.

Pre-opening costs

Pre-opening costs, which have been expensed within administrative expenses, were £0.1m (2020: £0.2m restated). These costs include expenses which are necessarily incurred in the period prior to a new venue being opened but which are specific to the opening of that venue.   

Restatement of accounting for leases

The financial statements include the correction of prior period errors in respect of two leases and a change in accounting policy relating to the application of the practical expedient for Covid related rent concessions which impact lease payments prior to June 2022. A detailed explanation and reconciliation of previously reported numbers is included in Note 2.

Annual general meeting

The annual general meeting of the Company will be held at 09:30am on 1 June 2022 at Everyman Cinema Hampstead, 5 Holly Bush Vale, London NW3 6TX.

Consolidated statement of profit and loss and other comprehensive income for the year ended 30 December 2021

*See note 2 for details regarding restatement

Consolidated balance sheet at 30 December 2021

*See note 2 for details regarding the restatement.

These financial statements were approved by the Board of Directors on 25 March 2022 and signed on its behalf by:

Alex Scrimgeour

CEO

Consolidated statement of changes in equity for the year ended 30 December 2021

*See note 2 for details regarding the restatement

Consolidated cash flow statement for the year ended 30 December 2021

The Group had £27,500,000 of undrawn funds available (2020: £21,000,000) of the loan facility at the year end.

*See note 2 for details regarding the restatement.

1    General information

Everyman Media Group PLC and its subsidiaries (together, the Group) are engaged in the ownership and management of cinemas in the United Kingdom. Everyman Media Group PLC (the Company) is a public company limited by shares registered, domiciled and incorporated in England and Wales, in the United Kingdom (registered number 08684079). The address of its registered office is Studio 4, 2 Downshire Hill, London NW3 1NR. All trade takes place in the United Kingdom.        

2   Basis of preparation and accounting policies

This final results announcement for the year ended 30 December 2021 has been prepared in accordance with the  UK adopted International Accounting Standards. The accounting policies applied are consistent with those set out in the Everyman Media Group plc Annual Report and Accounts for the year ended 30 December 2021.

The financial information contained within this final results announcement for the year ended 30 December 2021 and the year ended 31 December 2020 is derived from but does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 have been filed with the Registrar of Companies and those for the year ended 30 December 2021 will be filed following the Company's annual general meeting. The auditors' report on the statutory accounts for the year ended 30 December 2021 is unqualified, does not draw attention to any matters by way of emphasis, and does not contain any statement under section 498 of the Companies Act 2006.

Going concern

At the beginning of the year the Group had a Revolving Credit Facility ("RCF") in place for £30m, this was agreed on 16 January 2019 and is repayable in full on or before 15 January 2024. As at 31 December 2020, the Group had drawn down £9m of this facility and closed the year with £0.4m of cash, therefore the net opening debt position in January 2021 was £8.7m, with the undrawn facility at £21.4m. The banking covenants for the facility had been waived for the period April 2020 to March 2021, and a single liquidity covenant introduced for the period.

The Group's financing arrangements were amended in the first quarter of 2021 to provide longer term liquidity if required should the roadmap out of the pandemic extend further than anticipated.  The arrangement consists of a £25m Revolving Credit Facility ("RCF") and a £15m Coronavirus Large Business Interruption Loan Scheme ("CLIBILS") and both are repayable in full on or before 15 January 2024. 

The facility covenants were amended temporarily to provide liquidity through the pandemic, when the facility amendments were made in the first quarter of 2021. The liquidity covenant requires cash plus undrawn facility to exceed £7m, and there is a last twelve months rolling EBITDA covenant set at 30% below management estimates.

From June 2022, the covenants return to the pre-pandemic tests based on leverage and fixed cover charge. Since December 2021 the business has operated within all sets of covenants.

The continuing uncertainty due to the COVID-19 pandemic has been considered as part of the Group's adoption of the going concern basis. In particular the recovery profile of admissions in the sensitivity of forecasts. The forecast period considered is the 15 months from the balance sheet date up to 31 March 2023.

Base case Scenario

The Board approved budget and latest forecasts are based on a scenario where the business remains open with no further Government enforced closures. The forecast assumes admits return to pre-pandemic levels on a non-like-for-like basis in 2022, excluding the impact of increased capacity from venues opened since 2019. Increases in forecast costs reflect the current inflationary environment and the increases announced in national insurance rates. New openings are forecast at 4 for 2022, with the corresponding capital investments.

In this scenario the Group maintains significant headroom in its banking facilities.

Stress testing

The Board is cognisant of the potential for COVID-19 to impact further whilst the pandemic continues. Given this possibility the Board have considered a severe but plausible scenario of reduced admissions on the basis that COVID-19 may continue to affect consumer behaviour and there could potentially be further disruption to the film slate . A reduction in budgeted admissions of 20% each month from January 2022 has been modelled and a corresponding reduction in capital expenditure for non-committed projects This scenario would cause a breach in the leverage covenant in October 2022.

If this scenario were to arise there are a number of levers to secure the financial position and covenants that would be brought into play, including mothballing projects to reduce borrowings and reducing costs to reduce the impact on EBITDA. Taking mitigating actions into consideration, the leverage covenant would not be breached in October 2022.

The Directors believe that the Group is well placed to manage its financing and other business risks satisfactorily and have a reasonable expectation that the Group will have adequate resources to continue in operation for at least 12 months from the signing date of these consolidated financial statements. The Board considers that an 20% reduction in budgeted admissions is plausible but unlikely, particularly in light of business performance in January and February 2022 and the current film slate,  and that the Group has sufficient levers to navigate the severe but plausible downside scenario described above. As a result, the Board does not believe this to represent a material uncertainty, therefore the Board consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements. The forecasts are under continuous review given current market conditions. The business has the ability to remain trading for a period of at least 12 months from the date of signing of these financial statements.

Use of non-GAAP profit and loss measures

The Group believes that along with operating profit, the 'adjusted profit from operations' provides additional guidance to the statutory measures of the performance of the business during the financial year. The reconciliation between operating profit and non-GAAP loss from operations is shown above the Profit and Loss statement.

Adjusted profit or loss from operations is calculated by adding back depreciation, amortisation, pre-opening expenses and certain non-recurring or non-cash items. Adjusted profit is an internal measure used by management as they believe it better reflects the underlying performance of the Group beyond generally accepted accounting principles.

Restatement of accounting for leases

Restatement 1 - Prior period error

The previously reported results have been restated to correct errors identified in respect of two leases as follows:

Canary Wharf

An assumption was made that rent would increase from March 2020, however, this was not the case. Due to this error the opening lease liability and right of use asset were wrong as the discounted cashflows were greater than actually payable.

Correcting this error led to a reduction in the right of use asset of £223,000 with a corresponding decrease in the lease liability of £344,000 and increase in retained earnings of £160,000.

This also gave rise to a decrease in depreciation charge of £45,000 and decrease in finance charge of £24,000. An adjustment to the gain on concession was made to reduce the gain by £21,000.

Chelmsford

Implicit in the lease is a contractual 2.5% compound increase in rent every 5 years. This meets the definition of an in-substance fixed payment and so should have been accounted for when discounting the future cash flows upon recognition of the lease.

Accounting for this error has led to an increase in right of use asset of £1,174,000 with a corresponding increase of £1,462,000 to the lease liability and a decrease in retained earnings of £197,000.

Correcting this error led to an increase in depreciation charge of £103,000 and an increase in finance charge of £107,000.

The net impact of both adjustments in restatement one is a reduction in profit across 2019 and 2020 of £199,000.

Restatement 2 - Change in accounting policy - rent concessions

After finalisation of the prior period financial statements there was a change to the Practical Expedient for rental concessions to include those effecting lease payments up to 30 June 2022. The original practical expedient was limited to arrangements that impacted rent payments up to 30 June 2021. This meant that some concessions that had previously been treated as modifications, could now be accounted for using the Practical Expedient. 

Accounting for these concessions using the practical expedient gave rise to an increase in the group right of use assets of £406,000 and an increase in the lease liability of £58,000.

Gain on concessions was increased £474,000, finance charge and depreciation increased and as a result of changing profits the deferred tax asset was reduced by £49,000

The net impact to group profits in 2020 of restatement 2 was an increase of £443,000.

The impact of the change in accounting policy above impacts certain leases in the parent Company. The impact of the change in accounting policy on the parent Company balance sheet is to increase net assets by £18,000.

3   Revenue

All trade takes place in the United Kingdom.

The following provides information about opening and closing receivables, contract assets and liabilities from contracts with customers.

Deferred income relates to advanced consideration received from customers in respect of memberships, gift cards and advanced screenings.

4   Earnings per share

Basic earnings per share values are calculated by dividing net profit/(loss) for the year attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary shares outstanding during the year. The shares issued in the year in the above table reflect the weighted number of shares rather than the actual number of shares issued.

The Company has 7m potentially issuable Ordinary shares (2020: 6.6m) all of which relate to the potential dilution from share options issued to the Directors and certain employees and contractors, under the Group's incentive arrangements. In the current year these options are anti-dilutive as they would reduce the loss per share and so haven't been included in the diluted earnings per share.

The Company made a post-tax profit for the year of £2,528,000 (2020: £1,825,000).

*See note 2 for details regarding the restatement.

5   Goodwill, intangible assets and impairment

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows.

Impairment Review

The Group evaluates assets for impairment annually or when indicators of impairment exist. As of 30 December 2021, there was no indicator that an impairment exists as forecasts were improved from the year ended 31 December 2020. As required by IAS 36, the Group assessed whether there was an indication that a previously recognised impairment no longer exists or may have decreased. A reversal of an impairment loss should only be recognised if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised.

The recoverable amount of a CGU is the higher of value-in-use or fair value less cost of disposal. The Group determines the recoverable amount with reference to its value-in-use. Where the recoverable amount is less than the carrying value, an impairment charge to reduce the assets down to recoverable amount is recognised.

Each cash-generating unit (CGU) which represents each site acquired. Value-in-use was calculated as the net present value of the projected risk-adjusted post-tax cash flows plus a terminal value of the CGU. A post-tax discount rate was applied to calculate the net present value of pre-tax cash flows. The discount rate was calculated using a market participant weighted average cost of capital. Whilst there is some sensitivity to the inputs, the methodology is not significantly impacted by reasonable fluctuations in inputs. Goodwill and indefinite life intangible assets considered significant in comparison to the Group's total carrying amount of such assets have been allocated to CGUs or groups of CGUs as follows:

The recoverable amount of each CGU has been calculated with reference to its value-in-use. The key assumptions of this calculation are shown below:

The Group considered the budgets and forecasts in light of the trading environment and reasonable expectations going forward which has resulted in forecast future revenue increasing versus the expectations at 31 December 2020, and therefore determined the recoverable amount for all of its cash generating units. The recoverable amount is the higher of fair value less costs of disposal and value in use.

The cash flow forecasts were probability weighted based on the following scenarios:

1.     Base Case (65% weighting): Venues remain open going forward, with non-like-for-like admissions, and CGU cash generation levels returning to  pre-pandemic levels by 2022 Cash generation levels per CGU are assumed to grow at 3% in 2023 and then 5% per annum in 2024-2026.

2.     Positive case (15% weighting): The assumptions in this case are the same as the base case except that cash generation levels per CGU increase by 5% in 2023 and 8% between 2024-2026.

3.     Downside case (20% weighting): The assumptions in this case are the same as the base case except that cash generation levels per CGU and reduced by 10% in 2022, and then annual growth from the lower base is at 3% for 2023-2026. The terminal value includes a growth rate of 2%, which is set to be consistent with the UK historic growth rate.

Under IAS 38, goodwill cannot be written back once impaired and therefore the £1,559,000 goodwill impaired in 2020 was excluded from the calculations

The results of this review showed all 4 cash generating units that were impaired in 2020 had higher recoverable amounts at 31 December 2021 and therefore a reversal of £2,504,000 previously recognised impairment has been made. This is shown in the table below.

The write back of the Group's assets is summarised as follows:

The amount by which the impairment changes is sensitive to the discount rate used and the assumptions on future trading levels, the potential impact is demonstrated in the scenarios below (independent of each other);

·      Increasing the discount rate by 1% in the base case results in

(I)    1 further venue being impaired, and

(II)   An impairment increase of £513,000.

·      Adjustment in the assumptions used in in the base case (i.e. the most likely case) cash flow scenario, decreasing the 2022 expected cashflows by 10% for each venue results in:

(I)    1 further venue being impaired, and

(II)   An increase in the impairment charge of £614,000

6   Property, plant and equipment

For impairment considerations of tangible fixed assets this was considered using the value in use basis disclosed in note 5.

*See note 2 for details of the restatement.

7   Leases

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the group's incremental borrowing rate on commencement of the lease is used. On initial recognition a weighted average incremental borrowing rate of 3.2% was applied to all leases across the portfolio.

On initial recognition, the carrying value of the lease liability also includes:

·      amounts expected to be payable under any residual value guarantee;

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

·      lease payments made at or before commencement of the lease;

·      initial direct costs incurred; and

·      the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations).

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

If the group revises its estimate of the term of any lease it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. An equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

Nature of leasing activities

The group leases a number of properties in the towns and cities from which it operates. In some locations, depending on the lease contract signed, the lease payments may increase each year by inflation or and in others they are reset periodically to market rental rates. For some property leases the periodic rent is fixed over the lease term.

The group also leases certain vehicles. Leases of vehicles comprise only fixed payments over the lease terms.

The percentages in the table below reflect the current proportions of lease payments that are either fixed or variable. The sensitivity reflects the impact on the carrying amount of lease liabilities and right-of-use assets if there was an uplift of 5% on the balance sheet date to lease payments that are variable.

The percentages in the table below reflect the proportions of lease payments that are either fixed or variable for the comparative period.

Right-of-Use Assets

*See note 2 for details regarding the restatement.

Rent Concessions

Due to Government policy, the Group had to suspend trading across all venues at the beginning of the year until 21 May.

Due to Government policy, the Group had to suspend trading across all venues at the beginning of the year until 17 May.
The Group has received numerous forms of rent concessions from lessors due to the Group being unable to operate for significant periods of time, including:

-      Rent forgiveness (e.g. reductions in rent contractually due under the terms of lease agreements); and

-      Deferrals of rent (e.g. payment of April - June rent on an amortised basis from January to March 2021).

As discussed in note 2 the Group has elected to apply the practical expedient introduced by the amendments to IFRS 16 to all rent concessions that satisfy the criteria. Substantially all of the rent concessions entered into during the year satisfy the criteria to apply the practical expedient. For any of the modifications that did not meet the practical expedient requirements; the lease liability was remeasured using the discount rate applicable at the date of modification, with the right of use being adjusted by the same amount.

The application of the practical expedient has resulted in the reduction of total lease liabilities of £701,000 (Restated 2020: £1,265,000). The effect of this reduction has been recorded as a gain in the period in which the event or condition that triggered those payments occurred.