Everyman Media Regulatory News (EMAN)

8 April 2021

Everyman Media Group PLC

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

Audited results for the 52 weeks ended 31 December 2020

Everyman Media Group PLC (AIM: EMAN) announces its audited final results for the 52 weeks ended 31 December 2020. The year included 10 weeks of normal trading conditions, 25 weeks of full closure, and 17 weeks of disrupted trading due to COVID-19 restrictions.

Highlights

Underlying offering remains in demand

Business strength maintained

Positioned to perform strongly post-restrictions

Performance review

Outlook

There has been a roadmap set out by the government to reopening on May 17th when, if the vaccine roll out continues as planned, we plan to reopen all our venues. We are highly optimistic for the coming year post-lockdown and continue to be confident in people's appetite to safely socialise and be entertained; we believe we will be in a strong position once it is safe to welcome back our customers and teams.

The coming year's film slate is strong and varied, set to entertain people of all ages and demographics across the UK. We are also looking forward to unveiling an enhanced venue experience in the coming months. We have expanded our menu offering and have upgraded our kitchens in order to provide improved hospitality. We have made light refurbishments in a number of venues and upskilled staff by offering training during lockdown. Whilst uncertainty does of course remain around the future, we are eager to welcome back customers and look forward to providing them with an exceptional experience out, so deserved after nearly a year at home.

Alex Scrimgeour, Chief Executive Officer of Everyman said:

"Whilst it has been an unprecedented and extremely challenging year, it is clear to me that the team has done an excellent job in navigating those challenges. They minimised all costs during periods of closure, strengthened the Group's balance sheet, worked with our landlords to achieve rent concession and not least, remained actively engaged with our people and customers throughout.

During times in the year when our venues were able to open, the Group continued to enjoy the strong demand for the Everyman offering that it has seen for many years previously. Its innovative approach to providing new content was also welcomed, with the exclusive screening of Gorillaz concerts as well as old James Bond films both proving popular, for example. Exciting, exclusive programming will continue to be important to us as we look ahead.

Since joining in January, I have been struck by our strong foundation of supportive staff, customers, shareholders and of course our Board. Moving forward we remain confident that the nation's love of film remains and that our premium offering sets us apart. We will be in a strong position to bounce back, with a great opportunity to return to expansion once more when it is safe to welcome back our customers and our staff in just over a month's time."

About Everyman Media Group PLC:

Everyman is the fourth largest cinema business in the UK by number of venues and a premium 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:

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

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

· 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

· Motivated and welcoming teams

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

Chairman's statement

Navigating a challenging year

We started the financial year in a strong position, gaining on the momentum we had generated in 2019 and executing on our strategy to deliver profitable growth together with the expansion of our estate. This was demonstrated in revenue growth of 47% year-on-year across January and February, as well as the addition of 0.57 percentage points to our market share.

And then COVID-19 hit. On 17 March 2020 we were required to close all 33 of our venues as the UK entered a national lockdown, which lasted four months.

Following a phased re-opening in July, we opened two new sites: King's Road, Chelsea, on 24 July and Lincoln on 21 August, both of which performed strongly enough to suggest that they will make a significant contribution in due course. This took our estate to 35 venues with 117 screens.

By 21 August all venues were open and we enjoyed welcoming our community back to our venues. The release of Christopher Nolan's film 'Tenet' in August helped drive attendance and Everyman's performance far outstripped the market at this time as we delivered over twice our expected market share for the film at 8.95%. We were delighted by the continued demand and support shown by our customers.

From October more severe restrictions began to be re-introduced, until we reached a point on 30 December when all venues were again closed.

Each time we have been forced to close we have focused primarily on the safety of our people, both staff and customers, alongside careful cost management. Upon re-opening, we saw reassuring demand. The importance of entertainment has been re-enforced during lockdown and we are confident that when we are able to re-open the appetite for the Everyman experience will be undiminished.

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 63% down year on year due to the impact of five months with most of the estate closed, and the impact of a reduced film slate. Once the business can re-open, we expect admissions to be above pre-pandemic levels over time.

The average ticket price grew by 5% with two factors at play, the positive being the benefit to the Group from the temporary reduction in VAT, then partially offset by a greater proportion of admissions being from venues outside London where ticket prices are lower.

Food and beverage spend per head has grown by 11%, this is mainly the result of takeaway sales from a number of our venues during periods of closure.

On-going COVID-19 response

Since March 2020 we have concentrated on reducing capital expenditure and operating costs to a minimum. This included Directors salary cuts, and the use of furlough. All but 18 of our staff were put on furlough by April and the Government supported 80% of wages up to a maximum of £2,500 per month for people who had been in place since the end of February. We have continued to use the Government furlough scheme throughout the year and currently have all but a handful of staff furloughed whilst our whole portfolio remains closed.

Further Government support was received in terms of rates relief, the VAT reduction and the Retail, Hospitality and Leisure Business Grant. We are grateful for the support received thus far 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 worked closely with our landlords throughout the year to successfully achieve variations to lease agreements. Concessions have been agreed on 85% of the estate, and further discussions are still ongoing. We would like to take this opportunity to again thank our landlords for their support and understanding.

We have also delayed a number of site refurbishments and new site openings. In some cases, and as previously communicated in our interim results, we have agreed to exit existing Agreements for Lease. These actions have significantly reduced the Group's future capital commitments with no obligations to open new venues in 2021, whereas previously 9 were due to open in 2021. We now have a pipeline for 2022/23 of 7 new venues.

With social distancing measures remaining until 21 June at the earliest, we will continue to operate at 30% less seating capacity and will remain focussed on managing costs to mitigate the impact of any shortfalls in revenue.

Our financial position

On 8 April we raised £16.9m net through an accelerated bookbuild in order to strengthen the Group's balance sheet, protect its venues against an extended closure period, to ensure prudent levels of debt and to allow the Group to re-engage with its expansion and investment programme in due course. The Placing was oversubscribed, and we again sincerely thank our shareholders for their support.

Our banking partners have also been supportive and have made appropriate changes to the covenants on the Group credit facility. The Group will remain within its banking covenants for the next 12 months, and has significant remaining headroom, with Bank net debt of £8.7m (2019: £9.7m). Post-period end we announced an increase in our debt facilities from £30m to £40m, improving our liquidity position so we are able to take advantage of the many growth opportunities we see going forward.

Continued engagement with key stakeholders

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

Our Everyman 'lockdown house parties' continued to be particularly successful, with households watching the same films simultaneously on a Saturday evening, and associated social media remaining strong. Our Instagram, Twitter and Facebook followers have increased year-on-year +29% to 87k; +1% to 34k and +7% to 126k, respectively.

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.

Regular engagement with our team, focused on supporting their wellbeing, has taken place throughout the period.

Business Model

Everyman's business model remains simple, our aim is to further build our portfolio of venues. Additionally, growing our existing estate by bringing together great food, drink, atmosphere, service and of course film, to create exceptional experiences for our customers.

During 2020 the ability to execute this model was hampered by the impact of the pandemic on our business, however our ambitions remain the same.

Our growth strategy is multi-faceted:

- Expanding the 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.

Our model is one 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 grow, we also benefit from increasingly efficient central costs, allowing top line revenue growth to reflect in EBITDA growth.

Innovation

As a leader in cinema, innovation has and always will be essential, and it is something that we take great pride in. This year more than any other it has been critical to embrace innovation to produce a compelling slate of programming.

Examples of our innovation include teaming up with Blue Peter star Peter Duncan to co-produce a pantomime 'Jack and the Beanstalk', the first pantomime to be filmed for use in the cinema. The home-produced pantomime premiered at Everyman's King's Cross cinema on Saturday 5 December, before being rolled out across further Everyman venues in December. On Sunday 13 December Everyman live streamed Gorillaz: Song Machine Live, making our venues the only place where you could watch the concert with an audience.

In addition, when tier three restrictions were in place during December, Everyman was able to trade Deliveroo at the following sites: Crystal Palace, Hampstead, Barnet, Lincoln, Esher, Wokingham, Horsham and Altrincham, reinforcing the strength of the Group's food and drink offering.

Market developments

Whilst cinemas have been largely closed, film studios have begun to experiment with various new film delivery models, however 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.

Following a year that has disrupted many people's social lives, we believe there will be a strong level of demand for experience-led cinema. This view is reflected in PWC's recent report1: 'Where next for Travel and Leisure', where it is stated that during the lockdown, people will have missed experiences and there will be pent-up demand. Consumption of film has been strong during lockdown, and with it having been shown in previous years2 that there is a positive relationship between cinema attendance and streaming behaviour, this bodes well for demand on reopening.

Outside of the UK there are encouraging signs that the pent-up demand for cinema is being satisfied in countries where cases of COVID-19 have fallen and lockdown has been eased. China, for example, reported record-breaking box office sales over February, with movie ticket sales totalling 11.2 billion yuan (US$1.7 billion). In the US, where cinemas have already re-opened, the release of Tom & Jerry has been popular, selling millions more tickets than expected. These trends indicate that consumers are eager for a social trip to the cinema, where they can enjoy an authentic movie experience following months of watching films in their own homes.

1https://www.strategyand.pwc.com/uk/en/reports/strategy-where-next-for-travel-and-leisure.pdf

2https://www.natoonline.org/wp-content/uploads/2019/01/2020-Theatrical-and-Streaming-Study.pdf

Expansion of our geographical footprint

We had planned to open six new venues in 2020 but following the impact of the pandemic we worked closely with landlords to push out the spend on new venues, helping preserve our cash position.

However, both Chelsea and Lincoln were completed during the period and opened in the summer. Both delivered encouraging performances whilst open.

The Group currently has venues in the following locations:

*New venues in 2020

People

Following the resignation of Crispin Lilly, who served as CEO for six years, in September the Group was delighted to confirm that Alex Scrimgeour would be joining as CEO. Alex assumed the role of CEO post period-end on 18 January 2021.

In Alex we have found an experienced leader whose understanding of the leisure sector resonates well with the Group. The Board is confident that Alex's commitment to strategy and innovation, as well as experience in leading a highly motivated workforce to success, will be vital in taking the Everyman brand forward in years to come.

We recognise that this has been an incredibly 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 did re-open during the year, our staff showed true professionalism and made sure that customers felt safe and comfortable. We look forward to welcoming our staff back as soon as we can.

Outlook

After spending the best part of a year at home, we believe that people's appetite to socialise and to be entertained will be stronger than ever. The financial performance of Everyman for the current year will however be influenced by a number of factors outside the control of the Group, including but not limited to lifting of restrictions on social gatherings and the timing of new film releases. Due to the prevailing environment, the Directors do not believe it appropriate to provide market guidance at this time, although they will do so as and when appropriate. However, we remain confident that, upon reopening the Everyman offer of film, food and fun in a safe environment will be as popular around the country as it was previously.

Paul Wise Executive Chairman7 April 2021

Strategic Report

The Directors present their strategic report for the Group for the year ended 31 December 2020 (comparative period: 52 weeks 2 January 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 £20,478,000 (2019: £1,729,000 profit - 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

Since the pandemic, the growth strategy has been paused and the focus has been on securing the balance sheet and increasing liquidity, together with reducing costs. This has been achieved by working closely with our partners including suppliers, landlords and banks.

Chief Executive's Statement

Everyman is a quality brand with a passionate and dedicated team, and it is these traits of the business that I identify with and what originally drew me to joining the Company.

Since joining, I have been further struck by our strong foundation of supportive staff, customers and shareholders. Whilst I have only been with the business a couple of months, and under very unusual circumstances, it is evident that Everyman is a much-loved contemporary consumer brand and that the Group has significant scope for expansion. Even during lockdown, we have been assessing our offering and have identified several opportunities that will allow us to modernise the experience for our customers' needs, such as enhancing our technology and finance systems.

Looking ahead there are numerous reasons for confidence, beginning with the fact that Everyman is a much loved consumer brand with a unique offering, which we are confident will be in demand post-reopening. Beyond this, we have an encouraging film slate developing, we have identified opportunities to improve the Everyman experience, and the impact of COVID-19 on site availability has been to greatly increase the number of potential new venues across the UK, often at much more attractive financial arrangements. We have good liquidity, and supportive stakeholders across the business and therefore look forward to what can be achieved over the coming years.

Alex Scrimgeour CEO7 April 2021

Chief Financial Officer's Statement

Summary

Revenue and Operating Profit

The business traded well until 16 March 2020, with revenue in January and February ahead of the same period in 2019 by 47% due to the level of admissions and the impact of five new venues opened in 2019. After March 16 all venues were shut, until a phased re-opening commenced from 4 July with all venues open by 21 August albeit with social distancing measures in place which reduced capacity by around 40%. Two new venues were opened at this time Kings Road Chelsea on 24 July and Lincoln on 21 July. From the middle of September new restrictions were introduced in areas with high rates of infection and in October the Government introduced a Tier system for levels of lockdown. The Tier system marked the start of venues being closed by the Government in certain areas and this spread to a national lockdown in November affecting all venues, Although the lockdown came to an end on 2 December, it was replaced with a strengthened 3 tier system, and by mid-December all venues in London and the South East were closed again. This situation then extended to nationwide by Christmas, and all venues have remained closed since then.

As a result, revenue in the period was down 63%

Reported gross margin was 62.2% (2019: 61.6%), with the increase due to a greater proportion of food and beverage revenue which carries a higher margin,

Other operating income of £6.2m is from Government support through the Job Retention Scheme (JRS) and the Business Support Grants (BSG). The Group received £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 has topped up their pay to 80%. Post the year end the business has continued to benefit from the JRS and will continue to do so where necessary until the end of the scheme in September 2021.

In addition to the JRS support from the Government the business also received £285k in BSG, and £78k in Local Restrictions Support Grant (Closed) (LRSGC). Since the year end the business continues to receive the LRSGC grants and will qualify for the Closed Business Lockdown Payment (CBLP) of up to £9k per venue.

Further Government assistance in the form of a rates holiday resulted in a saving of £1.1m.

Since March 2020 the focus has been on preserving the cash position of the business and reducing costs where possible. The business has worked closely with landlords to reach agreement on rent concessions. As at the date of signing these have been achieved in all but 5 venues, and the cash savings in 2020 equate to £1.4m. We have also received temporary reductions in service costs from a number of our suppliers. We would like to thank all our partners for the support they have given throughout the period.

Further savings were achieved through a 50% cut in Directors pay and a restructure of roles in head office and venues resulting in reduced headcount.

Within the operating loss there is a charge of £5.6m for impairment of goodwill, 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 impact of COVID -19 on the net present value of future cash flows, four venues were identified as having a lower value in use value than the carrying value of the assets associated with the venue. Details of the review carried out and the allocation of the impairment against classes of assets is in note 17.

During the period the Board reviewed all future property commitments and where desirable, and possible has exited to protect future liquidity by reducing capital commitments. This has resulted in some charges for exiting (£625k) as well as the write off of costs already incurred on projects (£862k). The total of these charges is £1.5m.

The operating loss of £19.3m has therefore been materially impacted by the disruption from COVID-19, compared with a profit in 2019 of £4.7m

Non-GAAP adjusted loss from operations

Non-GAAP adjusted loss from operations was £1.1m, compared with a profit in 2019 of £15.6m. In addition to performance measures directly observable in the financial statements, additional performance measures (Non-GAAP adjusted 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 and 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 on page 38.

Cash Flows

The Group raised £16.9m (net) from shareholders in April to strengthen the balance sheet at the start of the pandemic, building in resilience for the closure of venues required by the UK Government response to the pandemic and the subsequent social distancing measures required when venues were able to open. At the same time the banking covenants were waived to remove the threat of breaching under the exceptional circumstances, and a new liquidity covenant introduced, which resulted in significant covenant headroom.

The Directors believe the Group balance sheet remains well capitalised, with sufficient working capital to service all of its day-to-day requirements. Net debt at the balance sheet date was £8.7m (2019: £9.7m). The funds raised from shareholders have been used to fund EBITDA losses during periods of closure and existing capital commitments.

Net cash used in operating activities was £5,394,000 (2019: £15,889,000 generated). Net cash outflows for the year, before financing, were £13,938,000 (2019: £8,217,000). This includes £8,074,000 on the acquisition of property plant and machinery (2019: £23,154,000), which was contracted spend relating to ongoing projects.

Cash held at the end of the year was £328,000 (2019: £4,271,000).

The Group had banking facilities totalling £30m in place at the year end, under a 5 year revolving credit facility (RCF) ending January 2024. At the year end the Group had drawn down £9.0 m (2019: £14.0 m) of the available funds, and therefore £21m of the facility was undrawn (2019: £16.0m).

Since the year end the facility has been amended to provide longer term liquidity if required, should the roadmap out of the pandemic extend further than anticipated. £5m of the £30m Revolving Credit Facility (RCF) has been transferred to a new Government backed Coronavirus Large Business Interruption Loan Scheme (" CLIBILS") RCF, in addition a further £10m CLIBILS RCF has been granted, bringing the total facility to £40m. Charges have been put in place over the net assets of the Group as collateral against the loan balance. New liquidity and EBITDA loss covenants have been agreed which will be reviewed again in May 2022. The liquidity covenant requires cash plus undrawn facility to exceed £7m, and there is a last twelve months rolling EBITDA covenant set at 30% above management estimates. The Board has reviewed forecast scenarios and believes the business can operate with sufficient headroom.

Pre-opening costs

Pre-opening costs, which have been expensed within administrative expenses, were £419,000 (2019: £1,044,000). Included within depreciation and financial expense is £0.1m also relating to pre-opening operating lease expenditure in the prior year. 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 3 prior year adjustments relating to accounting for leases under IFRS16. 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 10:00am on 2 June 2021 at Everyman Cinema Hampstead, 5 Holly Bush Vale, London NW3 6TX.

Elizabeth LakeCFO7 April 2021

Consolidated statement of profit and loss and other comprehensive income for the year ended 31 December 2020

**Includes legal and professional, HR and other one off expenses incurred as a result of the pandemic

Consolidated balance sheet at 31 December 2020

*See note 2 for details regarding the restatement.

These financial statements were approved by the Board of Directors on 7 April 2021 and signed on its behalf by:

Alex Scrimgeour

CEO

Consolidated statement of changes in equity for the year ended 31 December 2020

*See note 2 for details regarding the restatement.

Consolidated cash flow statement for the year ended 31 December 2020

The Group had £21,000,000 of undrawn funds available (2019: £16,000,000) of the loan facility at the year end.

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 31 December 2020 has been prepared in accordance with the recognition and measurement criteria of International Accounting Standards in conformity with the requirements of the Companies Act 2006. The accounting policies applied are consistent with those set out in the Everyman Media Group plc Annual Report and Accounts for the year ended 31 December 2020.

The financial information contained within this final results announcement for the year ended 31 December 2020 and the year ended 3 January 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 3 January 2020 have been filed with the Registrar of Companies and those for the year ended 31 December 2020 will be filed following the Company's annual general meeting. The auditors' report on the statutory accounts for the year ended 31 December 2020 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

In early 2020, the outbreak of COVID-19 was declared a global pandemic by the World Health Organisation. In response, Everyman introduced enhanced cleaning protocols and reduced capacity in theatres to promote social distancing and comply with Government guidelines. On 17 March 2020, the Group closed all venues as the UK entered a national lockdown, lasting four months. Following a phased re-opening all venues were trading by 21 August before more severe restrictions began to be re-introduced in October. By the year- end all venues were closed and this remains the case at the date of approval of these financial statements. The Group experienced reassuring demand each time venues re-opened providing confidence demand will return when restrictions are lifted.

To mitigate the negative impact of COVID-19 a variety of measures were introduced including cost reduction and the postponement of new sites, refurbishments and other capital expenditure projects. As significant part of the Group's costs are property-related and variations to lease agreements have been agreed with 85% of the estate to reduce cash costs to the business.

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 ability to reopen, availability of film content and recovery profile of admissions.

Liquidity

On 8 April 2020 the Group raised £16.9m net through an accelerated book build in order to strengthen the balance sheet, protect venues against an extended closure period, ensure prudent levels of debt and to allow the Group to re-engage with its expansion and investment programme in due course. 

For the full 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 debt position was £8.6m, 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. This resulted in significant headroom in the Group's banking facilities.

Since the year end the facility has been amended to provide more liquidity if required, should the roadmap out of the pandemic extend further than anticipated  £5m of the £30m Revolving Credit Facility (RCF) has been transferred to a new Government backed Coronavirus Large Business Interruption Loan Scheme ("CLIBILS") RCF, in addition a further £10m CLIBILS RCF has been granted, bringing the total facility to £40m. Charges have been put in place over the net assets of the Group as collateral against the loan balance. New liquidity and EBITDA loss covenants have been agreed which will be reviewed again in May 2022. The liquidity covenant requires cash plus undrawn facility to exceed £7m, and there is a last twelve months rolling EBITDA covenant set at 30% above management estimates, reflecting the uncertainty that still remains. At the date of this report the undrawn facility is £26m The Board has reviewed forecast scenarios and believes the business can operate with sufficient headroom.

Base case Scenario

The Board's latest forecasts are based on a scenario where the business remains closed until 17 May 2021 in line with the current Government roadmap. The forecast assumes reduced admissions, around 25% of pre-pandemic admits, from re-opening until October 2021 as there is uncertainty around the film slate at this period. From October the Board have assumed that the last 3 months of the year will deliver 75% of 2019 admissions, as a number of high-profile new films are scheduled for release. The Board have assumed that 2022 admits return to 2019 levels as social distancing measures are removed, this excludes the impact of increased capacity available from the two new venues opened in the year.

All of the continued Government support is included in the forecasts, this includes JRS continuing until the end of September 2021, 5% VAT until the end of September 2021 followed by 12.5% VAT until the end of March 2022. The Business Restart Grant is assumed to be received in May 2021 and the extension of the rates holiday until the end of June 2021 followed by a one third reduction until the end of March 2022.

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

Stress testing

Given the continued uncertainty around the impact of COVID-19 over the next 12 months and difficulties forecasting the impact on consumer behaviour and admission profile the Board has also considered the scenario of complete closure continuing until there is a breach in the banking covenants. This scenario assumes that the Government would extend JRS, the rates holiday and 5% VAT until the month of re-opening. In this scenario the business would need to remain shut until the end of December 2021 to cause a breach in the last twelve months rolling EBITDA covenant. The business would still have significant liquidity covenant headroom in this scenario.

The Board has also considered a severe but plausible downside scenario whereby, after reopening in May 2021 as planned, all venues are required to close for two months during Autumn 2021 as part of a circuit break imposed to contain a resurgence of the virus or its variants. Under this scenario the Group forecast continued compliance with banking covenants and sufficient liquidity.

The forecasts are under continuous review given current market conditions associated with COVID-19. 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.

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 closure until December 2021 is unlikely and that the Group has sufficient headroom to navigate the severe but plausible downside scenario described above. Therefore 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.

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 on page 38.

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

For the Kings Cross venue, a length of lease of 25 years had been used to calculate the transition to IFRS16 on 2 January 2019. The length of the lease is 15 years and therefore the right of use asset, lease liability, depreciation and finance charge have been recalculated to correct the figures from 1 January 2019 when IFRS16 was adopted.

The result was a reduction in the right of use asset of £1,023,000 and a corresponding reduction in the lease liability of £1,140,000. This also gave rise to an increase in the depreciation charge within Administrative expenses of £36,000 and a reduction in the finance charge of £82,000. Therefore, the net impact was an increase in profit of £46,000.

Restatement 2

Under the terms of the Group's leases an estimated dilapidations provision should have been accounted for to recognise the potential future liability at the point of signing the leases. Correcting for this omission has given rise to a prior year adjustment.

There are two elements to the provision. For leases where there is a strip out clause, the cost of stripping out at the end of the lease has been estimated and discounted using the appropriate risk free rate of 1.03% (2019:1.133%, 2018: 1.717%). This has given rise to an adjustment in the balance sheet as at 2 January 2019 of £429,000 to create the provision with the corresponding debit going to Property, Plant and Equipment. In addition, the Group has a number of full repairing leases and a provision of £308,000 has been made for those venues in the balance sheet as at 3 January 2019, with the debit going to retained earnings. The overall restatement in the balance sheet as at 2 January 2019 is a total provision of £737,000.

After this date IFRS 16 has been adopted and the provision is recognised differently, with the strip out provision being recognised in the ROU asset. With the addition of 7 venues to the estate in 2019, a further increase in the provision was needed, and can be seen in the table above.

Restatement 3

Since the implementation of IFRS 16, lease payments and landlord capital contributions have been shown separately within the consolidated cash flow statement as part of financing activities. In the comparative cash flow statement the cash flows were presented as a net inflow of £850,000. In accordance with IFRS the cash flows should have been presented gross and are now reported as an outflow of £3,830,000 in respect of lease payments and inflow of £4,680,000 in respect of landlord capital contributions.

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. All deferred balances at the beginning of the year (£3,813,000) were recognised in the profit and loss during the year. All deferred income at the end of the year (£3,028,000) is due to be recognised within 12 months.

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 6.6m potentially issuable Ordinary shares (2019: 4,278,000) 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 £1.8m (2019: £1,470,000).

*See note 2 for details regarding the restatement.

5 Goodwill, intangible assets and impairment

All intangibles in the company were disposed of in the period ended 2 January 2020 and balance is therefore also £nil at 31 December 2020.

Impairment Review

An impairment of £5,635,000 has been made in the period, caused by the impact of COVID-19 on future cash flows due to periods of closure, social distancing measures and the lack of new film content. Whilst these impacts are short-term they result in 4 venues where the value-in-use was lower that the carrying value of the assets.

Value-in-use calculations are performed annually and at each reporting date for 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 pre-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:

Most revenue streams have experienced significant reductions since the pandemic's effects became widespread. The Company considered the reduced sales and reductions in budgeted revenue as indicators of impairment, 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 (70% weighting): Venues remain closed until the end of May, with admission and CGU cash generation levels not returning to close to pre-pandemic levels until October 2021 due to timing of film releases and continuing social distancing measure in venues. 2022 cash generation levels per CGU are assumed at the same level of 2019 (pre-pandemic) plus 2% growth, and then 2023 grows at 6%, and 2024-2025 grow 5%.

2. Positive case (10% weighting): The assumptions in this case are the same as the base case except that cash generation levels per CGU increase by 8% between 2023-2025.

3. Downside case (20% weighting): Further closures assumed with cash generated per CGU reducing by 25% from the base case in 2021. For 2022 each CGU's cash generation has been assumed at 90% of 2019, plus 2% allowance for growth. All other assumptions thereafter remain the same as the base case.

The terminal value includes a growth rate of 2%, which is set to be consistent with the UK historic growth rate.

The cash flows were discounted at a rate of 9.8%, which represents the time value of money and risks specific to the Group's industry, which were not reflected in the value in use cash flows.

The results of this review showed 4 cash generating units where the carrying value of the assets exceeded their recoverable amount.

The impairment 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) 5 further venues being impaired, and

(II) an increase in the impairment charge of £4,169,000; or

· Adjustment in the assumptions used in in the base case (i.e. the most likely case) cash flow scenario, decreasing the 2022 expected cashflows to 70% of 2019 levels for each venue results in:

(I) 1 further venue being impaired, and

(II) An increase in the impairment charge of £588,000

6 Property, plant and equipment

(Group)

For impairment considerations of tangible fixed assets this was considered using the value in use basis disclosed in Note 9.

*See note 2 for details regarding 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, 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

(Group)

*See note 2 for details regarding the restatement.

Lease Liabilities

(Group)

*See note 2 for details regarding the restatement.

Rent Concessions

Due to Government policy, the Group had to suspend trading across all venues during 2020 for differing time periods.

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 £813,355. 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.