Executive Chairman's Introduction

We entered 2020 with a strong sense of optimism after an excellent 2019.  Our strategy continued to deliver excellent returns and good growth and we had an exciting number of new centres in the pipeline.  At the time that the Covid-19 pandemic caused a dramatic halt to operations, we had been trading well, were growing and were confident for the future. Our response to the pandemic has been equally strong.  Within a week of closure, we had raised £4.9m through an equity placing.  We acted swiftly with our business partners and dramatically reduced our cash outflow and we welcomed the unprecedented levels of Government support.  All these actions have helped us to minimise the cash outflow, and we ended the half-year with more liquidity headroom than we had in 2019.

The business is a strong one.  We operate in a market that has seen long-term structural growth, and customers still want to enjoy competitive socialising activities as part of their leisure activities with families and friends.  We have a highly cash generative business that operates on high margins.  This will allow us to rebuild quickly so that we can refocus on our proven strategy.  It is for these reasons that I remain confident for the future.  Five months of Lockdown has enforced a pause in our investment programme, but our cash position remains strong, and once we have certainty of the landscape, we will be able to return to and resume our successful growth model.

We now enter a new phase as we open the business post Lockdown.  I am delighted to have Graham Blackwell at the helm as our new CEO.  He is ideally placed to lead the business back to its previous levels and beyond, having been instrumental in getting the business there once already. 

Chief Executive's Statement and Operating Review

I am pleased to take on the leadership of the Group to guide it through this crucial phase of development and regrowth.  With over 30 years' experience in the industry I remain confident of the enduring appeal of our family entertainment centres.  That appeal remains, and with our operational experience and strong customer proposition, we are well placed to stabilise our position and return to growth.

The Group had an excellent start to the year, with the first 11 weeks delivering double-digit sales growth and good progress on developing the customer experience.  On 20 March the Covid-19 pandemic resulted in widespread Lockdown across the UK and our entire estate was closed and remained so until the majority of centres opened again on 15 August.

Our strong Q1 sales and our prudent approach to cost and cash management meant that we began the closure period in robust financial health.  Swift action from management and strong support from shareholders and many other stakeholders gave the business a good level of liquidity headroom.

In response to the Government's Lockdown measures and the growing crisis, the Board set out clear priorities: to protect our people and their jobs; to preserve the long-term future; and to prepare for reopening.  I am pleased to report that we delivered against those objectives and our business is now fully open with some encouraging early results.

Protecting our people

On 20 March the Government announced the enforced closure of hospitality and leisure businesses throughout the UK.  The Board responded immediately, and within a week had safely secured all centres in the estate in preparation for a period of closure.  During this period, the Government also announced the Coronavirus Job Retention Scheme (CJRS), a mechanism through which staff could be furloughed with their costs covered by a Government rebate.

95% of the 1,170 people in the Group were furloughed by early April, with a small core of support staff remaining in place throughout the closure period.  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. 

Preserving financial security during closure meant that our employees were able to look after their families, develop their skills or help out in their local community.  Many volunteered for charities or the NHS or simply supported their neighbours and friends.  Our commitment to doing the right thing together with the support from the Government ensured that we could reopen our centres with well over 90% of our people able to return to work.  None of our site-based people were made redundant.

Preserving the long-term future

The Group entered Lockdown with £25m of headroom in its financing facility.  The Board responded to the high levels of uncertainty around closure period and decided to take the prudent action of securing an additional £4.9m of equity funding from shareholders.  The successful raise, within a week of the start of Lockdown, secured significant long-term resilience with £30m of available liquidity headroom.

We were delighted with the level of support that we received from our suppliers and partners.  Most of our contractual commitments providing services at our centres were paused.  We halted all our capital investment except where projects were already in progress and committed.  We tightly controlled our spending such that only the essential services such as insurance, security and controls were left in place.

Government support in the form of the Coronavirus Job Retention Scheme (CJRS) and the waiver of business rates was extremely welcome and enabled a significant reduction to an otherwise committed cost base without the need for more draconian action.  Further cash support from the Government in terms of their Time to Pay scheme with HMRC has given the opportunity to improve working capital further.

Landlords have been supportive, with over £3m of cash rent saved since closure.  This has been a mix of rent-free periods, rent deferrals and a number of lease regears that have extended our tenure in exchange for cashflow benefits during Lockdown and beyond.

Delivering of over £10m of cash saving is testament to the quality of our supplier relationships, the strength of the Government support, and the effectiveness of our operational teams.  As a result, the cash burn rate was reduced by 70% to £1.4m per month.  Combined with the funds raised from shareholders, this meant that the business could resist a period of closure of around 18 months without taking actions that might cause long-term damage to the underlying successful business model.

Preparing to reopen

The Group has been instrumental in developing the operating protocols for the industry as it exits Lockdown.  Our operational expertise has ensured that we can implement these protocols to the highest standards in order to ensure our employees and customers can enjoy a safe environment and an enjoyable experience.

We have invested in ensuring all our teams undertook a specially designed Covid training programme before they returned to work, as well as a refresher course to remind them of how we help our customers have fun in a safe environment.  We have added new roles in our centres to take extra care of sanitising the lanes as well as introducing greeters at the entrance to help navigate our rules around masks and distancing, and ensuring customers are completing Track and Trace details.

Our centres have been modified to protect our customers with clear signage, one-way systems and protective screens.  Our gaming areas have been reflowed to enable customers to continue to enjoy our activities at a safe distance.  For now, we are limiting capacity and only using every other lane.  However, we have developed protocols that mean we can open all of our lanes when the time is right.

Prior to the closure, two significant refurbishments and a new centre build were in progress.  We took the opportunity during Lockdown to fully complete these programmes.  Both refurbishments have built on what we have learned from our development centre at Cheshire Oaks which we refurbished in 2019, with some brand-new trial concepts.  We have developed these trials and have now implemented our very latest thinking on design, customer flow and entertainment experience at two of our busiest and most important centres.  Manchester Printworks, which opened last week, is the Group's first new build development.  This too has the very latest in design and entertainment experience.

Our busy Acton centre now has additional lane capacity as well as a modernised bar area, improved machines and best-in-class lighting and lane effects to create a fully immersive bowling experience.  We have added space for Escape Rooms which we will be opening there shortly.  Star City in Birmingham has also benefited from a modern new bar and dining area and we have introduced karaoke booths and increased the number of Escape Rooms. 

Manchester Printworks opened in mid-September and offers the very best in metropolitan competitive socialising, including state of the art lane effects, Beer Pong, Shuffleboard and an exciting balcony viewing area to watch the bowling and enjoy a drink.  This is the Group's first new build brownfield development, giving the opportunity to design the centre from scratch and deliver a truly unique bowling experience.  We have used contemporary local designers to enhance the aesthetic and have developed a bespoke menu that is well suited to the city centre customer base.

During Lockdown we increased our social media presence, and our engagement with our customers was strong, with games, competitions and offers.  Facebook engagement doubled and we increased our presence on Instagram to broaden the customer reach.  Since we have reopened there has been a fundamental shift in customer behaviour.  Advanced bookings online have more than doubled and now make up the majority of our bowling sales.  This helps us to plan and manage capacities carefully and would not have been possible without the website development we completed in January.  Our new digital platforms have allowed us to communicate better with our customers during Lockdown as well as to ensure we have very strong Track and Trace capabilities and best practice Covid security measures.

We have developed a web-based ordering system for food and drink which is already proving successful.  Customers can now use their phones to order and pay in a completely contact-free environment and to have their meals and drinks delivered directly to their lane or table. This not only helps social distancing but allows us to increase ancillary spend and give customers a better service.  We have been pleased to see that average spend per head has been maintained since reopening.

These preparations made us ready to open strongly, and while mid-August was later than we had hoped, we did benefit from the last two weeks of the school summer holidays and we were pleased to see that our customers were happy to return, with some excellent feedback on the experience.

Environmental, social and governance

Our NHS Heroes campaign resulted in over 7,000 NHS staff registering for free bowling with their families.  We have now extended this successful offer to other keyworkers and we are pleased to be welcoming and thanking those who have worked so hard over the Lockdown.

We helped our employees with the transition to furlough with additional financial support.  We maintained their wages at 100% throughout April to ensure families could manage their existing financial commitments.  In addition, we supported those employees unfortunate enough to miss the transition date of the end of February and have paid their furlough costs throughout Lockdown.

The Board's scrutiny of the financial position and swift action to secure long-term liquidity has been robust.  The Board have embraced video conferencing as a platform to meet and make decisions and have met during Lockdown more than a dozen times to ensure that actions taken are in the best interests of all the business stakeholders.

Strategic priorities

Prior to Lockdown we had been making very pleasing progress on our strategic priorities giving us confidence that they remain the right focus for growth. However, we decided to pause our investment programme for all projects apart from those already in progress.  We will continue to review our cash position and intend to reignite our strategic investment when there is more certainty.

Transforming the customer experience - We are delighted that our investment last year in our digital platforms was completed in January.  This was timely, giving the business a far stronger tool to communicate with customers during Lockdown. Customer engagement on social media actually increased during the period of closure.  We have developed an improved menu and secured a new food supplier which we expect will enable us to benefit from the reduction in supply in the casual dining sector.  Absent refurbishments, which are on hold, this is the least capital-intensive area of our strategy and will become our principal focus in the short term.  We will further develop our food and beverage offering; we can enhance and maximise our new digital platforms; and our great customer service will continue to ensure that our customers have a great time whenever they visit.

Houdini's, our Escape Room joint venture, was of course also affected by Lockdown but has conserved cash and is now back open and trading.  We will continue to roll out new Escape Rooms in our estate. 

Inward investment - The refurbishments during Lockdown at Acton and Birmingham Star City have significantly enhanced the estate.  In the first quarter we added a further six Pins & Strings centres, bringing the total to 38 out of 46 (83%).  We will reinstate the programme when our cash position allows. 

Expanding our estate - We were delighted to welcome Manchester Printworks to the estate last week.  This exciting new development in the heart of Manchester's Northern Quarter is the Group's first new build centre for some time.  Further estate expansion is under review, with the existing pipeline being fully reassessed in the light of the Covid-19 pandemic and the availability of investment capital. 

Initial trading

We opened our Welsh centres first at the beginning of August, with the majority of our centres opening in England on 15 August, followed by our Scottish centres towards the end of the month.  We now have all 46 of our centres opened, including our brand new centre at Manchester Printworks, which had its opening night last week.

Initial trading has been encouraging.  In the five weeks from 17 August to 20 September, like-for-like sales have been at 83% of the same period last year and spend per head has been maintained.  At this level the business is profitable and cash generative.

All centres are operating with every other lane out of use in order to comply with guidelines on social distancing.  This capacity restriction does limit sales growth, although the impact during holidays is less pronounced than at other times as the business has more scope to use its daytime weekday capacity.

Customer feedback has been positive.  Our customers understand the restrictions in place and have been complimentary about the way our centres have been set up to help keep them safe.  Structurally our centres benefit from being large and open spaces with discrete places for customers to enjoy their game away from other groups.  The new "Rule of 6" is well suited to the bowling environment where games are already limited to six people per lane. 

With the addition of easier smartphone-based ordering for food and drink, our centres are ideally placed to provide safe and socially distanced family activities and fun.  The principal issue we have encountered is in respect of waiting times at peak which is a function of the reduced lane capacity.  We continue to work to improve capacity management.

We have increased staffing to meet and greet our customers to remind them of rules, enforce capacity constraints and to help them navigate the centre, including lane booking and food and drink ordering.  We have also added specific roles responsible for cleaning and sanitising the lanes and machine areas and ensuring a fast turnaround such that we can keep our customers safely moving to a clean and discrete area within their groups.  These roles are performing well in ensuring we have great customer feedback on our Covid security measures as well as helping us to increase customer spend per head.  The additional costs are manageable, and savings have been identified elsewhere to partially mitigate the impact.

Outlook

We have successfully positioned ourselves for a return to profitability and growth.  Rigorous control of costs, excellent supplier relationships and strong support from shareholders and our bank have allowed us to limit the cash impact of the five month Lockdown.  As at 20 September, the Group still retains over £15m of available liquidity headroom which will continue to provide resilience and security in these uncertain times.

Our initial trading has been encouraging and has enabled the business to return to profit and cash generation.  We are confident that when capacity restrictions are lifted, we will be able to improve our sales further.  However, the situation across the UK remains uncertain, with local lockdowns still likely to impact some of our centres and with changing Government guidance under constant review.

Our focus is to continue to build the confidence of our customers to enjoy their experience with us and to welcome them back to our centres.  We have a strong model that resonates with our customer base, providing great value family entertainment in large centres that we have worked hard to make Covid secure. 

Our capacity constraints, particularly in respect of alternate lane usage and the 10pm curfew, limit our scope for delivering sales growth in the short term.  We are working closely with the Department for Digital, Culture, Media and Sport (DCMS) to address this and to agree and implement safe protocols for opening all our estate's lane capacity when appropriate to do so. 

In the short term we are focused on the customer experience and sales growth.  In the medium to long term our strategy remains unchanged.  We will develop our customer experience; invest in our existing centres; and grow our estate.  Our business remains relevant and well positioned to provide good value entertainment to a broad range of customers with their friends or families.

Graham Blackwell

Chief Executive Officer

23 September 2020

Financial Review

The results are presented on an IFRS 16 basis and on an IAS 17 basis to enable comparatives to H1 19.  For the purposes of this review, unless otherwise stated the commentary will refer to the figures on an IAS 17 basis.

The first half of 2020 is very clearly split into two distinct trading periods.  The business traded until 20 March and then was fully closed in Lockdown for the remainder of the period.  During this Lockdown, the business generated no income.  The split is trading for 11.7 weeks and was closed for the remaining 14.3 weeks: a 45% open and 55% closed split of the period.

As a result, total sales were £22.5m which is a reduction of (45.8%) on H1 19.  This had a knock-on impact on the gross margin which ended the period at £19.4m, a (46.8%) reduction year-on-year.  The gross margin rate for the Group remained high at 86.3% which reflects the nature of our business model where 47% of revenue comes from bowling sales which have no associated COGS.  Gross margin fell by 160bps compared to last year.  This was principally a result of increased waste as the Group entered Lockdown where c.£0.4m of fresh food and drink was written off due to the centre closures.  Absent this write off, underlying gross margin remained broadly at last year's levels.

The enforced closure created a focus on reducing the operating costs of the Group in the second quarter in order to minimise the cash outflow and conserve the liquidity of the business.  Total operating costs for H1 20 were £15.7m, a saving of £4.5m compared to H1 19.  This 22.4% year-on-year reduction reflects the strong work by the Operations and Commercial teams to reduce costs while the business was in Lockdown.  During the 14 weeks of Lockdown, the cost reduction was 50% and was principally a result of reduced staffing costs with the support of the Government's Coronavirus Job Retention Scheme (CJRS) and the rate cut for the hospitality sector.  These Government measures benefited the business by £3.7m with further savings generated through reduced contractual payments, lower use of site consumables and energy.  The cost savings were in part offset by one-off expenses to clean, sanitise and make safe our centres as they were mothballed.  It should be noted that rent on an IAS 17 basis continued to be charged to the P&L, although cash savings were made through negotiations with the landlords to preserve cashflow. 

Central and Support costs increased in H1 20 by 3.1% to £5.1m (H1 19: £5.0m).  Significant savings were made to the support office cost base but these were more than offset by the increased costs incurred in order to secure liquidity.  Savings included support office staff savings through the CJRS scheme.  In line with the site-based teams, the Group supported the payment of salaries at 100% in April and then moved to the Government supported 80% for the balance of Lockdown.  We also elected to top up salaries to a full 80% for those individuals who earn more than the CJRS £2,500 monthly threshold.  Staff furloughing and CJRS relief on Support Centre staff saved £0.2m in the HY 20 Central and Support cost base.  Other savings were made by deferrals and waivers of contractual commitments and a reduction in marketing spend.  However, many contracts for essential services, such as IT infrastructure, insurance, and professional services remained in place to manage the business in Lockdown. 

The Group also bore additional one-off Central and Support costs during Lockdown of £0.5m.  These included development and roll-out of Covid security protocols and measures; HR support to control the furlough process; IT investment to develop essential Covid security apps (Track and Trace and Web based F&B ordering); and legal and professional fees to enact changes to contractual arrangements including lease regears.

The business has not reported any exceptional items in the period.  The continued work on lease regears is now incorporated into the central costs.

Financing

Statutory net debt

The increase in the cash balances by £11.1m to £13.3m is detailed in the cash flow below and has mainly arisen from the £4.9m in net proceeds from the share placement in March 2020 and the higher drawdown of the bank loans which increased from (£6.3m) at FY19 to (£20.0m) at HY20.

The Group increased its bank borrowings to ensure that it had sufficient cash resources during the uncertainty of the Covid-19 pandemic and Lockdown period. The Group still has a further £5.0m of the RCF bank loan facility available to draw down if required.

On an IAS 17 comparative basis, the business has only increased net debt by £2.1m to (£14.3m) in the period between the year end and the half-year results.  This is a function of strong cash generation in the first quarter, shareholder funds raised and a robust approach to cash conservation.

With the adoption of IFRS 16 by the Group from 30 December 2019, as explained further on note 5, the Group now recognises a finance lease liability for its property lease which as at H1 20 amounts to (£182.9m). 

Cash flow

Free cash flow has been significantly impacted by the Lockdown which halted sales generation for the last 14 weeks of the period.  As a result, an EBITDA loss was generated.  A robust approach to cash management restricted maintenance capital spend to only 25% of last year's level and finance lease and tax payments were reduced following negotiation with suppliers.  A significant improvement in the working capital position arose from initiatives such as HMRC's Time to Pay scheme as well as concessions from suppliers and landlords.  These measures ensured that despite the Lockdown, the underlying business only consumed (£0.9m) of free cash flow in H1 20.

The business raised a net £4.9m from an equity placing on 25 March which helped improve the liquidity headroom further.

At the start of Lockdown there were a number of capital programmes that were already committed and in progress.  These projects were all completed, the main ones being the completion of Manchester Printworks and refurbishments at Acton and Star City, as well as six implementations of Pins & Strings and the finalisation of the IT development started in 2019.  The total of £4.0m of capital spend is all anticipated to be returns generating once the business rebuilds from Lockdown.

Accounting standards and use of non-GAAP measures

The Group has prepared its consolidated financial statements based on International Financial Reporting Standards for the 26 weeks ended 28 June 2020.  The basis for preparation is outlined in note 2 to the financial statements.

The Group uses certain measures that it believes provide additional useful information on its underlying performance.  These measures are applied consistently but as they are not defined under GAAP they may not be directly comparable with other companies adjusted measures.  The non-GAAP measures are outlined in note 4 to the financial statements.

IFRS 16

The Group has applied IFRS 16 as at 30 December 2019. A right-of-use asset and a lease liability is included on the balance sheet, and interest and depreciation has been charged to the consolidated income statement instead of existing rental expenses. A charge to retained earnings has been recognised for the impairment that has been calculated on adoption of IFRS 16 for the amount by which the assets carrying amount exceeds its recoverable amount. The adoption of IFRS 16 doesn't impact on the operation of the business and has no changes to the cash flows of the Group. The Group has adopted the modified retrospective method under which comparative data is not restated and the cumulative effect of applying IFRS 16 is recognised in retained earnings at the date of initial application.

A summary of the impact on the Group consolidated income statement and consolidated statement of financial position is as below:

Impact on the Group consolidated statement of financial position from the following entries upon adoption of the standard:

Further detail of the adoption of IFRS 16 is included in note 5.

Covid-19 financial update

As highlighted previously, all centres were closed on 20 March, in line with government guidance but the three Welsh centres reopened on 5 August 2020 and 35 centres in England opened on 15 August 2020 and the remaining centres reopening on a staggered basis in August and September. The closure of the centres had a significant impact on the performance of the Group but the following schemes offered by the government were taken up:

·      12 months rates relief which provided a £5.0m cash saving, with £1.3m received in H1;

·      Time to Pay for the VAT quarter to March 2020 providing a £1.7m cash saving; and

·      furlough relief from the Government's Coronavirus Job Retention Scheme (CJRS) providing a £2.6m cash saving as at the end of the interim period.

The Group increased it bank drawings to (£20.0m) to ensure it had sufficient cash during the Lockdown period. The Group had cash and cash equivalents of £13.3m leaving net debt of (£6.7m) as at the interim period end and still has £5.0m of the bank facility available to draw on.

The Board has always adopted a prudent approach to the Group's cost base and capital expenditure and identified self-help initiatives by working with suppliers and landlords to reduce the cost base in the short term to ensure the Group remains in a strong financial position. 

Going concern

As part of the adoption of the going concern basis, the Group has considered the uncertainty caused by the recent Covid-19 outbreak. All of the Group's centres were closed for trade from 20 March 2020 with the three Welsh centres only reopening on 5 August 2020, 35 centres in England opening on 15 August 2020 and the remaining centres reopening on a staggered basis in August and September. In response to the Covid-19 pandemic, in the period since 20 March 2020, the Group has:

·      raised £4.9m in cash resources from its shareholders after completing the Placing announced on

25 March 2020;

·      taken advantage of the business rates relief available until March 2021;

·      claimed furlough relief from the Government's Coronavirus Job Retention Scheme (CJRS);

·      taken advantage of the VAT payment deferral up to 30 June 2020;

·      increased its drawdown on its bank borrowings with Royal Bank of Scotland (RBS) to £20m, with £5m still available;

·      obtained a waiver letter setting aside any potential breaches of the financial covenants until the end of June 2021; and

·      negotiated rent deferrals and rent regears with landlords.

As part of the review and the potential impact of the Covid-19 outbreak on the Group's results for the next 12 months, a base case and a downside scenario were prepared. The base case assumed resumption of business in August, with trade ramping up until the end of FY21 at levels of between 60% and 90%, while still factoring the impact of socially distanced operations on the revenue and cost lines. A downside scenario was prepared using the following key assumptions:

·      trade levels assumed at 20% down on the base case scenario;

·      a "second wave" lockdown occurred and there was no trade in December and January;

·      all administration costs remained as normal during this two month closure, with no furlough claims reflected;

·      trade resumed from February 2021 onwards for the rest of the year at levels of between 65% to 70% of 2019 levels

The downside scenario would still provide sufficient liquidity within its £25m debt financing facilities such that the business would still have headroom of over 20% of the facility throughout the downside case. The waiver letter with RBS expires at the end of June 2021 and the financial covenants will need to be reported on to RBS at the end of September 2021. Under the base case scenario the covenants will be passed but under a downside scenario they would not be met. An extension of the waiver letter would need to be negotiated and the Directors believe that it is likely that an agreement could be reached with RBS in these circumstances.

Accepting the risks as described above, the Directors have concluded that the potential impact of the Covid-19 pandemic and uncertainty over possible mitigating actions to prevent a breach of covenants, represents a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Nevertheless, having assessed these options and the impact of a potential liquidity shortfall in the event of further periods of closure the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next 12 months. The interim financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.

The Group continues to adopt the going concern basis as set out in note 3 to the financial statements.

Antony Smith

Chief Financial Officer

23 September 2020

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 26 week period ended 28 June 2020

IFRS 16 was adopted on 30 December 2019 without restating prior year figures as permitted by the standard. As a result, the primary statements are shown on an IFRS 16 basis for the 26 weeks ended 28 June 2020 and on an IAS 17 basis for the 26 weeks ended 30 June 2019 and year ended 29 December 2019. Note 5 provides a reconciliation of the two measures.