This announcement contains Inside Information for the purposes of Article 7 of EU Regulation 596/2014 (which forms part of domestic UK law pursuant to the European Union (Withdrawal) Act 2018).  Upon the publication of this announcement this Inside Information is now considered to be within the public domain.

10 November 2022

Nightcap plc

("Nightcap" or the "Company" or the "Group")

Results for the 53 weeks ended 3 July 2022

Nightcap (AIM: NGHT), the owner of The Cocktail Club, the Adventure Bar Group and the Barrio Familia group of bars, is pleased to announce its audited full year results for the 53 weeks ended 3 July 2022. The Company's Annual Report and Accounts for the 53 weeks ended 3 July 2022 ("Annual Report") and the Notice of Annual General Meeting ("AGM") will be posted to shareholders today.

The Company's Annual Report and the Notice of AGM will be available shortly on the Company's website at: www.nightcapplc.com

The AGM will be held at 10:00 a.m. at the offices of Allenby Capital Limited, 5 St. Helen's Place, London, EC3A 6AB on 6 December 2022.

Sarah Willingham, Chief Executive Officer of Nightcap, commented:

"I am extremely proud to present these excellent audited results for the 53 weeks to 3 July 2022, representing Nightcap's first full year of trading. Our year has been eventful, fun and, at all times, rewarding. During the year the number of bars we operated increased from 19 to 31 and this reflects our strong growth, driven by both new openings and acquisitions. Going from £6m to £36m of revenue and £0.2m to £3.3m of Adjusted EBITDA (IAS17 basis) is impressive growth, but what excites me the most is that we have defined our brands and fine-tuned their business models to optimise the roll out of the individual brands.

"We have opened several more sites post year end taking the total amount of opened bars to 36 and, whilst there are a growing number of outstanding sites available to us on increasingly advantageous terms, build costs have continued to increase and trading in the first 13 weeks of the new financial year (period to 2 October 2022) has been adversely impacted by record warm weather, train strikes and the cost of living crisis. With the uncertainty in the economic climate in mind, we will slow down our expansion plans of new site openings during the current financial year. Our focus will be to maximise returns from our existing and newly opened sites and then continue our roll out programme as market conditions improve."

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CHAIRMAN'S STATEMENT

We have lived with COVID-19 restrictions since March 2020 and at last we appear to be moving away from the more draconian measures, but what the last two years have taught us is that nothing is reliably predictable.

The periods of lockdown were a very difficult time for all of us but especially for those within the hospitality sector. I am pleased that, despite the challenges and uncertainties that have been thrown at us, we have continued to focus on the growth opportunities of the business.  Sarah and the wider executive team at Nightcap have shown exceptional leadership to navigate through the uncertainties over the past year quickly and effectively.

Our focus continues to be on growth, both through acquisition and through organic expansion.  Since acquisition at IPO on AIM at the beginning of 2021, The Cocktail Club has opened a total of seven new sites in prime locations in key cities across the UK.  The biggest Cocktail Club to date opened in September, closely followed by a key site in the financial district of Canary Wharf in October. Since our acquisition of The Adventure Bar Group in May 2021, it has grown with two new site openings in Bristol, one site in Cardiff and a further site opening in Liverpool.  In November 2021 the acquisition of the Barrio Familia Group added a further five sites to the Nightcap portfolio and an additional brand that has exciting growth opportunities with two new sites already opened in Covent Garden and Watford. At the end of the financial year, the Group had grown to a total of 31 sites opened with three further sites in final stages of fit-out and, at the date of this report, 36 sites were open and trading.

We continue to make the investment in our staff (both in recruitment and training) a priority. Our people create the welcome and experience that our customers enjoy and that keeps them coming back, we have no doubt our people are central to the continuing growth of the business.  We launched the Nightcap Bar Academy to provide in-depth training and improve skills but also to improve both retention and recruitment in the face of a challenging recruitment environment post-Brexit.

If the past year continues to show us anything it is that nothing can be taken for granted.  There are significant challenges to overcome with rising inflationary pressures, supply chain disruption as well as the cost of living and cost of energy to be navigated, not to mention recent transport strikes.

It will take resilience, perseverance and innovative approaches from Sarah and the senior management team to overcome the challenges ahead but I am very pleased with the Group's performance and expect the long-term growth to continue in establishing Nightcap as one of the leading bar businesses in the UK.

Gareth Edwards

Chairman

CHIEF EXECUTIVE'S STATEMENT

INTRODUCTION

I am extremely proud to present these excellent audited results for the 53 weeks to 3 July 2022, representing Nightcap's first full year of trading.  Our year has been eventful, fun and, at all times, rewarding. During the year, the number of bars we operated increased from 19 to 31 and this reflects our strong growth, driven by both new openings and acquisition.

We welcomed the Barrio Familia Group, which included four Barrio branded bars and a multi award winning Disrepute bar, to the Group following the completion of its acquisition on 21 November 2021 and these final results therefore include Barrio Familia Group's results from this date. We are delighted with how the Barrio Familia Group has settled into Nightcap alongside The Cocktail Club and the Adventure Bar Group, and we are very excited about the first two new openings of the Barrio concept, in Covent Garden and Watford. With this acquisition, we continue to deliver on our strategy to acquire and grow excellent drinks-led bar and late night businesses across the UK.

Our very experienced executive team successfully continued our roll-out strategy of our key brands, opening five The Cocktail Club bars in Reading, Bristol, Exeter, Cardiff and London, along with one Tonight Josephine in Cardiff and a Blame Gloria in Bristol. At the period end our total portfolio of trading bars was 31, including the five original venues within the Barrio Familia Group, with a further three sites in the fit out stage. Since the year-end, the Group has completed on several further sites taking our total portfolio to 36 bars.

As the financial year progressed, we achieved record daily, weekly and monthly sales across a number of our sites, seeing our total like-for-like* revenue growth finish the year at an impressive increase of 23.6%.

This high like-for-like* growth during the 53 weeks ended 3 July 2022 is all the more impressive against the backdrop of the leisure and hospitality industries having tough moments during the period including: COVID-19 "Plan B" Government advice imposed during the essential and very busy Christmas weeks; ongoing tube and train strikes; and the cost of living crisis with inflation exceeding double figures. 

Having proven the popularity of "bottomless brunches" within the Adventure Bar Group, we have successfully rolled them out across the rest of the Group. This has seen millennials and Gen Zs loving our entertainment offerings as they go out as groups for a celebration watching a Mamma Mia drag show at Tonight Josephine, or couples and friends meeting for a fun morning or early afternoon enjoying Samba and a DJ set at Barrio. Embedded in each business model is utilisation of our spaces during the daytime when bars have been historically closed and empty. This has further improved our return on investment as we continue to maximise revenue during all of our trading hours.

The rapid roll out of our brands has been helped by a unique opportunity within the property market. Suitable sites in top locations continue to be available on more favourable terms than they have been for many years. Landlords continue to favour stronger covenants (such as we provide) and we continue to see far less competition for sites.  Whilst there are a growing number of outstanding sites available to us on increasingly advantageous terms, build costs have continued to increase and, with the uncertainty in the economic climate in mind, we will slow down our expansion plans of new site openings during the current financial year. Our focus will be to maximise returns from our existing and newly opened sites and then continue our roll out programme as market conditions improve.

Without a doubt, none of this year's success would have been possible if it were not for our customers who have stayed loyal to our brands throughout the year. They have continued to enjoy mostly unrestricted social nights out with friends and loved ones in the safe and fun environments that we continue to offer.  I would like to take this opportunity to thank them for welcoming us into their towns across the UK, enjoying our opening parties and fun marketing ploys and embracing our weekend brunches.  They bring the fun and the laughs with them each time and make our jobs of delivering a great time and fun nights out easy.

ACQUISITIONS UPDATE

Barrio Familia

With the acquisition, on 21 November 2021, of Barrio Familia Group, we continue to deliver on our ambition to create the leading bar group in the UK, consisting of the most loved brands and concepts, with the highest potential for roll-out across the UK.

The four original Barrio Familia branded bars are Latin American inspired and represent a colourful clash of cultures, serving up Tacos and other Latin American street food. The bars also have regular live music features, from samba bands to house bands and DJs playing funk, soul and Latin music until late. Barrio's drinks offering is Tequila-led, including custom Margaritas and other Latin-themed cocktails. Disrepute was also acquired as part of the Barrio Familia Group and represents a different concept to Barrio, being a '60s inspired deluxe members' cocktail bar that recently won the accolade as the 12^th best Cocktail bar in the UK in the well-respected "Top50CocktailBars" list of bars.

In addition to Barrio Familia's late night offering, it has experienced significant growth in the demand for events from millennials and Gen Zs that are sometimes ticketed, but always pre-booked.  The growth in the popularity of Barrio Familia's "bottomless brunch" is in line with the wider Group strategy to pre-sell periods of the day to efficiently utilise the available space and opening times.

As we get underway with the expansion of this exciting combination of Tequila and Tacos in the Latin inspired Barrio brand, we anticipate substantial potential to grow from the current seven sites up to twenty sites across the UK in the medium term.

The acquisition of Barrio Familia Group further supports the Group's strategy of targeting millennial and Gen Z customers who are moving away from generic mid-market chains and sticky floored nightclubs, and are instead favouring late night bars where they can have a great time, drink high quality drinks and enjoy an experience-led, memorable, safe and fun night out in unique venues.

Adventure Bar Group earn out consideration

When we acquired the Adventure Bar Group in May 2021, part of the transaction included the potential for the Adventure Bar Group shareholders to earn an additional consideration of £1.5 million in Nightcap shares, at an issue price of 21p per share. The strong performance of the Adventure Bar Group led to the achievement of the financial milestones required for all the earn out consideration shares to be issued on a significantly faster timeline than we originally expected. 7,142,856 new ordinary shares were issued in June 2022 to the former owners of the Adventure Bar Group in respect of the deferred consideration earn out.

Realising the full earn-out early was a phenomenal achievement for the founders of the Adventure Bar Group and has benefited the Group.

GROWTH

Going from £6 million to £36 million of revenue and £0.2 million to £3.3 million of Adjusted EBITDA (IAS17 basis) is impressive growth in our first full year.  But what excites me the most is that we have defined our brands and fine-tuned their business models to optimise the roll out of the individual brands. The benchmark is for all new sites to deliver on our market-leading goal of a 75% return on investment at maturity (being the third year post opening) as well as a two-year payback on invested capital. The bar concepts also need to remain attractive and differentiated, as we continue to open them side by side in key towns as part of our expansion across the UK.  For example, in Bristol two The Cocktail Clubs now trade successfully alongside a Blame Gloria and a Tonight Josephine.

ECONOMIC CLIMATE

Coming out of COVID-19 restrictions at the beginning of the financial year resulted in a strong start to the year, as our millennial and Gen Z target demographics relished the opportunity to meet and socialise with friends and loved ones once again.

During the important Christmas weeks in 2021, COVID-19 "Plan B" advice was imposed on the hospitality industry as a whole by the UK Government. This resulted in more than 7,500 bookings being cancelled across the Group. Whilst initially cancelled our sales team worked tirelessly to claw back more than 70% of these bookings, which were then re-scheduled to take place between January and March 2022. This was a fantastic result and resolution to a difficult situation.

Nightcap was created during a distressed time for the hospitality industry, just after coming out of the first national lockdown and well before the roll out of the first vaccine, with an unprecedented opportunity ahead of us.

Since the Nightcap IPO on AIM in January 2021, the property landscape has been even better for Nightcap than we had expected when creating the Company. Lease terms remain very attractive for operators, with even more availability in top city centre locations. The millennial and Gen Z crowd remain resilient consumers as they continue to enjoy great nights out with their friends and we have been able to acquire great businesses, all with national roll out potential, in a very short period of time. However, inflation caused by COVID-19 supply chain disruption has been compounded by the war in Ukraine, and its impact on energy prices and interest rates, has created a cost of living crisis, which will undoubtedly impact all hospitality businesses in the UK. Over the coming period we expect customers will be more cautious about spending their disposable income.

Whilst the rise in prices have increased our fit out costs we are delighted to have entered into competitively priced drinks contracts, along with enhanced retrospective volume rebates for the next financial year which will ensure that there will be very limited price increases in our operational supply chain.

COSTS

Nightcap is exposed to the current cost of living crisis and inflation in four main ways:

·      Energy:

We have entered into a number of fixed two-year energy contracts and therefore the vast majority of our sites currently have fixed energy costs. These contracts expire between March 2023 and March 2024. The UK Government's support of energy costs for businesses such as ours is welcomed.

·      Supply chain price pressures:

Most of our direct costs relate to spirits and mixers that go into creating our cocktails, along with some beer, food and prosecco. Due to our fast growth, we have achieved very competitively priced contracts for these products, along with enhanced retrospective volume rebates and ongoing marketing support and are therefore not expecting margin erosion from supply side pressures in the next year.

·      Capital Expenditure:

Capital expenditure costs have recently increased up to 10% on new site fit outs. Despite this, for every new site that we have opened, total capital expenditure still meets our 75% return on investment model.

·      Wage inflation and staff retention:

Reduced availability of personnel in the hospitality sector and the very low national unemployment rate has created pressure on wages across all hospitality related skill sets. Whilst Nightcap did not experience significant overall wage pressures during the financial year, because we were already paying living wage across all of our bar functions, we are conscious that continued pressure on wages could result in increased wage costs across the Group. We have seen significant improvements in staff retention across the Group through improvements in training and development of our newly opened Nightcap Bar Academy.

FINANCIAL POSITION

We started the year with a net cash position of £8.5 million (excluding IFRS 16 leases liabilities) which includes cash of £13.2 million. The majority of this cash was earmarked for capital expenditure as we continued our roll out programme.

With seven new sites opened, four sites refurbished and the additional five sites from the acquisition of Barrio Familia Group, along with further sites in various stages of fit-out, we ended the year with a net debt position of £0.2 million (excluding IFRS 16 leases) which includes £5.4 million of cash.

As we embarked on our company and new site acquisition programme last year, we planned to consolidate our debt facilities with the right banking partner when the time was right. Post year end we completed a refinancing with HSBC Bank increasing our debt facilities from £5.5 million at year end to £10.0 million, with the additional £4.5 million earmarked to support our site expansion plans. After a competitive process, we were delighted to be partnering with HSBC Bank, who are long-term supporters of our sector.

The current financial position, alongside the cash generation from operations, puts Nightcap in a solid financial position as we continue to deliver on our promise to create the leading bar group in the UK over the coming years.

PEOPLE

I am often asked what the secret is to the Nightcap success. Without a shadow of a doubt, it is down to our people. Never before have I worked with such talented individuals at all levels. Generally speaking, recruitment and retention have been hard this year. The result of fewer overseas workers in hospitality as a consequence of Brexit, along with more people leaving hospitality during COVID-19 lockdowns, and its aftermath, has meant far fewer people looking for work in our industry. As a direct consequence we are determined to invest more in training and retention than ever before. We believe that a happy, motivated and driven team will only continue to deliver the absolute best experiences for our customers.

I am particularly proud that we have greatly increased the number of women working across the business. We have a strong female representation in our senior executive team (50% women), and I am delighted that through reputation we are now attracting more female talent. The split of women to men cross the business is 47:53. Bar tending, just like hospitality as a whole, has traditionally been a job for men and I am delighted to see so many more brilliant women shine in these roles. Aside from gender, we are determined to continue to welcome all types of diversity, from LGBTQ team members and staff from diverse religious and racial backgrounds. Nightcap will always be a home for anyone who wants to work with the best in the hospitality industry and will commit to working hard in a high energy, rewarding and fun environment.

It was great to see the support for Ukraine across all of our teams when we decided to ban Russian Vodka from our bars after Russia's appalling unprovoked invasion of Ukraine, as well as launching our special Lyubov cocktail, the proceeds of which went to support the refugee crisis caused by the war.

We are very excited and proud to have launched our Nightcap Bar Academy. We expect to see approximately 800 employees trained at this academy over the next year. The days that I have spent watching our new recruits training and being inspired has positively re-enforced time and time again why I love this industry. Going out around the country to see these teams of young people in action, demonstrates why this was an essential decision in order to support the fast but sustainable growth of our brands across the UK by championing recruitment, education, training and excellence.

SUSTAINABILITY

Last year we committed to making progress on reducing our carbon footprint. As a result, we teamed up with a sustainability consultancy to reduce our energy consumption in each of our bars, amongst other initiatives. Following the successful initial trial in three of The Cocktail Club bars, we are installing energy monitoring devices across all of our bars during the coming financial year. This will provide us with weekly reports that identify inefficient equipment that may need servicing or upgrading as well as the ability to monitor and streamline the energy consumption. The initial trial demonstrated a potential 25% reduction in energy consumption, which is now our energy saving target.

We are currently examining new energy storage solutions, options for clean energy generation and how to incentivise staff to meet energy reduction goals. These are intended to reduce our carbon footprint as well as form part of our long-term cost saving initiatives.

CURRENT TRADING AND PROSPECTS

Since the beginning of the new financial year, Nightcap has seen a flurry of activity, with several of the sites planned and announced in the last financial year all successfully open and trading on time. This takes the Group to 36 opened bars, in line with management's expectations.

A lot of the recent openings are significantly larger than the Group's historic sites, thus further increasing their revenue potential. In addition, many of these new sites are in enviable prime city centre locations with excellent trading potential and on attractive terms and incentives from landlords who are keen to work with us. We have opened multiple bar brands in Bristol and Cardiff, which are all trading very well alongside each other and we are excited to roll-out this model across the UK.

Trading in the first 13 weeks of the new financial year (period to 2 October 2022) has been adversely impacted by record warm weather, train strikes and the cost of living crisis. Warm weather over the summer (which reduced the demand for socialising in basement bars) was offset by record weeks at our outdoor venues, Bar Elba and Luna Springs, as customers enjoyed our large outdoor spaces.

Unaudited Group revenue was £10.3 million for the 13-weeks ended 2 October 2022 ("Q1 FY2023") resulting in a 35.5% increase compared to Group revenue of £7.6 million for the equivalent period in FY2022. Revenue for this 13-week period represents a 15% like-for-like* decrease compared to the equivalent period for FY2021 (due to the reasons set out above) and a 10.8% like-for-like* increase compared to the equivalent period in FY2019.

Whilst trading in October 2022 has continued on the same trend as Q1 FY2023, we are greatly encouraged by trading at our new sites, with several of these performing better than expected. The Board rightly remains cautious about the future due to the challenges presented by continuing train strikes, ongoing inflationary pressures, recent interest rate rises and the cost of living crisis. However, corporate bookings over the Christmas period for all our brands are at record levels, giving us encouragement for the important Christmas trading period.

The Group's balance sheet remains strong. As at 2 October 2022, the Group's cash at bank was £6.8 million with bank debt of £9.8 million. This bank debt is from the Group's new HSBC Bank facility, which was announced on 17 August 2022. In addition to capital expenditure and pre-opening costs of £6.4 million during the last financial year, a further £4.1 million was invested in new site openings in Q1 FY2023 taking the total capital investment in our bars to £10.5 million since the beginning of FY2022.

With a resilient and less affected millennial/Gen Z customer base, we have been trading well given current economic issues facing the sector. Being well capitalised and profitable allows us to remain focussed on leasing the best sites in the best locations across the country on the most advantageous terms, with less competition than during times of positive economic growth. We have acquired businesses on attractive terms and, as we move through the economic downcycle, we will continue to seek out great businesses with fundamentally attractive propositions who may have struggled with both the aftermath of COVID-19 trading restrictions and the current economic downturn.

Sarah Willingham-Toxvaerd

Chief Executive Officer

* Like-for-like revenue is same site revenue defined as revenue at only those venues that traded in the same week in both the current year and comparative reporting periods in FY2019, FY2020 and FY2021 uninterrupted by Covid-19 lockdowns.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOW

Basis of Preparation

The financial information included in this announcement does not constitute statutory accounts of the Group for the 53 weeks ended 3 July 2022 and 52 weeks ended 27 June 2021 but is derived from those accounts. Statutory accounts for the 53 weeks ended 3 July 2022 will be delivered to the Registrar of Companies following the Group's Annual General Meeting. The auditors have reported on those accounts: their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Notes to the Consolidated Financial Statements

1.   General information

Nightcap plc ("the Company") and its subsidiaries ("the Group") is an award-winning independent operator of 36 themed bars. At 9 November 2022 the Group operates 16 bars under The Cocktail Club brand, 13 under the Adventure Bar Group ("ABG") brand and seven under the newly acquired Barrio Familia Group brand.

On 21 November 2021 the Company acquired 100% of the shares of Barrio Familia Limited. Through the acquisition, Nightcap became the operator of an additional five bars, which comprise: i) four Latin American inspired, Tequila-led, cocktail bars in popular areas of London which trade under the 'Barrio' brand; and ii) a high end '60s themed members' cocktail bar which trades under the 'Disrepute' brand in London's Soho area (collectively the "Barrio Bar Group"). Further information on this acquisition is provided in Note 32 of the Annual Report.

The Company is a public limited company whose shares are publicly traded on AIM of the London Stock Exchange and is incorporated and registered in England and Wales.

The registered office address of the Company is c/o Locke Lord (UK) LLP, 201 Bishopsgate, London, EC2M 3AB.

2.   Accounting policies

2.1.    Basis of preparation of financial statements

The consolidated financial statements of Nightcap plc have been prepared in accordance with International Accounting Standards as adopted for use in the United Kingdom ("UK adopted IAS") and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The Company was incorporated on 23 September 2020 as the vehicle for the purposes of achieving admission of its ordinary shares to trading on the AIM market of the London Stock Exchange ("Admission") and the Company had no significant transactions prior to Admission on 13 January 2021. The Company acquired the entire share capital of The London Cocktail Club Limited in a share for share exchange. The introduction of the Company into the Group has been accounted for as a reverse acquisition. In doing so the comparatives for the 52 weeks ended 27 June 2021 have been presented as if the Group had always existed in its current form.

The accounting policies adopted in the preparation of the Financial Statements have been consistently applied to all years presented, unless otherwise stated. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The financial statements have been prepared under the historical cost convention.

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all periods presented, unless otherwise stated.

Judgements made by the Directors in the application of the accounting policies that have a significant effect on the consolidated financial statements and estimates with significant risk of material adjustment in the next year are discussed in Note 3 of the Annual Report.

Due to rounding, numbers presented in the Financial Statements may not add up precisely to the totals provided and percentages may not precisely reflect the presented figures as the underlying calculations are referenced from absolute values, whereas numbers presented have been rounded to thousands.

2.2.    Going concern

In concluding that it is appropriate to prepare the financial statements for the 53 weeks ended 3 July 2022 on the going concern basis, the Directors have considered the Group's cash flows, liquidity and business activities.

As at 3 July 2022 the Group had cash balances of £6m including cash in transit.  Subsequent to the year-end the Group has refinanced its legacy debt with an amortising term loan (£3m) and a Revolving Credit Facility (up to £7m) repayable in June 2025.

Based on the Group's forecasts, the Directors have adopted the going concern basis in preparing the Financial Statements. The Directors have made this assessment after consideration of the Group's cash flows and related assumptions and in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting 2014 published by the UK Financial Reporting Council.

In making the assessment the Directors have made a current consideration of any future potential impact of the Covid-19 pandemic as well as the current economic and inflationary cost pressures facing consumers as set out in the Strategic Report. The Directors have considered the impact of these on the cash flows and liquidity of the Group over the next 12-month period and has sensitised these forecast accordingly.

Based on these assessments the Group forecasts to comply with its banking covenant obligations, and accordingly the Directors have concluded that it is appropriate to prepare the financial statements on the going concern basis.

2.3.    Basis of consolidation

A subsidiary is an entity controlled by the Group. Control is the power to govern the financial and operating policies of an entity to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

2.4.    Alternative performance measures

The Group has identified certain measures that it believes will assist the understanding of the performance of the business. These alternative performance measures ("APMs") are not defined or specified under the requirements of UK adopted IAS.

The Group believes that these APMs, which are not considered to be a substitute for, or superior to, UK adopted IAS measures, provide stakeholders with additional useful information on the underlying trends, performance and position of the Group and are consistent with how business performance is measured internally. Adjusted EBITDA is also one of the measures used by the Group's banks for the purposes of assessing covenant compliance. The APMs are not defined by UK adopted IAS and therefore may not be directly comparable with other companies' alternative performance measures.

The key APM that the Group uses is Adjusted EBITDA. This APM is set out on page 85 of the Annual Report including an explanation of how it is calculated and how it reconciles to a statutory measure where relevant.

These measures exclude exceptional items, as defined below, non-cash share-based payment charges, pre-opening costs and acquisition related costs.

Exceptional items

The Group classifies certain one-off charges or credits that have a material impact on the Group's financial results as 'exceptional items'. These are disclosed separately to provide further understanding of the financial performance of the Group. Management splits out these costs for internal purposes when reviewing the business.

Non-cash share based payment charges

Charges/credits relating to share-based payments arising from the Group's long-term incentive schemes are not considered to be exceptional but are separately identified due to the scope for significant variation in charges/credits.

Pre-opening costs

Pre-opening costs can vary significantly depending on the number of new sites acquired and opened in any period, and so do not reflect the costs of the day-to-day operations of the business. These costs are therefore split out in order to aid comparability with prior periods. Site pre-opening costs refer to costs incurred in getting new sites operational, and primarily include costs incurred before opening and in preparing for launch.

Acquisition-related costs

Acquisition-related costs are costs incurred to effect a business combination. Those costs include advisory, legal, accounting, valuation and other professional or consulting fees including employees bonuses in connection with the successful completion of a transaction.  Acquisition-related costs are expensed in the period in which the costs are incurred and the services are received.

2.5.    Revenue

The Group has recognised revenue in accordance with IFRS 15. The standard requires revenue to be recognised when goods or services are transferred to customers and the entity has satisfied its performance obligations under the contract, and at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Revenue predominantly arises from the sale of food and drink to customers in the Group's bars for which payment in cash or cash equivalents is received immediately and as such revenue is recognised at point of sale.

The Group operates in a single geographical region (the UK) and hence all revenues are impacted by the same economic factors.

'Retro' payments and listing fees are spread over the life of the contract. The income is recognised as a credit within cost of sales. Revenue is shown net of value added tax, returns and discounts.

Customer deposits received in advance of events and bookings are recorded as deferred revenue on the balance sheet. They are recognised as revenue along with any balancing payment from the customer when the associated event / booking occurs.

2.6.    Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants that are receivable as compensation for losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. This income is recognised within Other income. Where the income relates to a distinct identifiable expense, the income is offset against the relevant expense for example, income received under the Coronavirus Job Retention Scheme has been offset against staff costs.

2.7.    Finance costs

Finance costs are charged to the Statement of Comprehensive Income over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

2.8.    Intangible assets goodwill

Goodwill represents the difference between amounts paid on the cost of a business combination and the acquirer's interest in the fair value of the identifiable assets and liabilities of the acquiree at the date of acquisition.

Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicated that they may be impaired.

2.9.    Intangible assets - trademarks, licenses and brands

Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation and any accumulated impairment losses.

Intangible assets acquired as part of a business combination are only recognised separately from goodwill when they arise from contractual or other legal rights, are separable, the expected future economic benefits are probable and the cost or value can be measured reliably.

2.10.  Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.

Depreciation is provided on the following basis:

The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Consolidated Statement of Comprehensive Income.

2.11.  Inventories

Stocks are stated at the lower of cost and net realisable value, being the estimated selling price less costs to complete and sell. Cost is based on the cost of purchase on a first in, first out basis.

At each reporting date, stocks are assessed for impairment. If stock is impaired, the carrying amount is reduced to its selling price. The impairment loss is recognised immediately in profit or loss.

2.12.  Impairment

Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicated that it might be impaired. Goodwill is not allocated to individual cash generating units ("CGUs") but to a group of CGUs encompassing all bars operating under certain brands, including any additional new sites.  The brands that make up that group of CGUs is defined by the original acquisition group.

The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.

2.13.  Cash and cash equivalents

Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Payments taken from customers on debit and credit cards for which cash remains outstanding at any reporting date ("cash in transit") are recognised as trade receivables.  The trade receivable is converted to cash within 3 days of processing.  The Directors view these trade receivables as cash when monitoring cash flows and forecasts internally.

2.14.  Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Initial recognition

The Group initially recognises trade receivables, trade payables, deposits, loans and borrowings on the date on which they are originated. All other instruments are recognised on the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.

All financial instruments are recognised initially at fair value plus or minus, in the case of assets not at fair value through the Statement of comprehensive income, transaction costs that are attributable to the acquisition of the financial asset or liability.

Financial assets

The Group financial assets are measured at amortised cost.

A financial asset is measured at amortised cost when assets that are held for collection of contractual cash flows and where those cash flows represent solely payments of principal and interest. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on de-recognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses.

Trade and other receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade and other receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.

Payments taken from customers on debit and credit cards for which cash remains outstanding at any reporting date ("cash in transit") are recognised as trade receivables.  The trade receivable is converted to cash within 3 days of processing.

Impairment losses are presented as separate line item in the statement of profit or loss.

The Group assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade and other receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Loss allowances for expected credit loss ("ECLs") are presented in the statement of financial position as a deduction from the gross carrying amount of the assets. In the profit or loss, the amount of ECL is recognised as an Impairment gain or loss.

Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Financial liabilities

Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profit or loss or as financial liabilities measured at amortised cost, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

The Group's financial liabilities include trade and other payables, loans and borrowing and other financial liabilities and accrued liabilities that are classified as measured at amortised cost.

Short-term creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest rate method.

Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognised respectively in interest and other revenues and finance costs. For substantial and non-substantial modifications the Group derecognises a financial liability from the statement of financial position when the obligation specified in the contract or arrangement is discharged, cancelled or expires.

2.15.  Leased assets

Under IFRS 16, the Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. Unless the Group is reasonably certain to obtain ownership of the leased assets at the end of the lease term, the recognised right-of-use assets are depreciated over the shorter of its estimated useful life and lease term. Right-of-use assets are subject to impairment testing as described further in Note 15 of the Annual Report. At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification or a change in the lease term. The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense in the Statement of Comprehensive Income.

At the reporting date the Group has applied the practical relief available during the Covid-19 pandemic, which provides lessees with relief from applying lease modification accounting to Covid-19 related rent concessions.

For leases acquired as part of a business combination the lease liability is measured at the present value of the remaining lease payments at the acquisition date with the right of use asset being measured at the same value.  The discount rate applied to the remaining lease payments is the incremental borrowing rate of the acquiree.

2.16.  Pensions

The Group operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Once the contributions have been paid the Group has no further payment obligations.

The contributions are recognised as an expense in the Consolidated Statement of Comprehensive Income when they fall due. Amounts not paid are shown in accruals as a liability in the Statement of Financial Position. The assets of the plan are held separately from the Group in independently administered funds.

2.17.  Provisions

Provisions are made where an event has taken place that gives the Group a legal or constructive obligation that probably requires settlement by a transfer of economic benefit, and a reliable estimate can be made of the amount of the obligation.

Provisions are charged as an expense to the Consolidated Statement of Comprehensive Income in the period that the Group becomes aware of the obligation, and are measured at the best estimate at the Statement of Financial Position date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties. When payments are eventually made, they are charged to the provision carried in the Statement of Financial Position.

2.18.  Share based payments

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 26 of the Annual Report.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting year, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserve.

2.19.  Current and deferred taxation

The tax expense for each reporting period comprises current and deferred tax. Tax is recognised in the Consolidated Statement of Comprehensive Income, except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the Statement of Financial Position date, except that:

·     The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;

·      Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and

·      Where they relate to timing differences in respect of interests in subsidiaries, associates, branches and joint ventures and the Group can control the reversal of the timing differences and such reversal is not considered probable in the foreseeable future.

Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same tax authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

2.20.  Related party transactions

The Group discloses transactions with related parties which are not consolidated and not wholly owned within the Group. Where appropriate, transactions of a similar nature are aggregated unless, in the opinion of the Directors, separate disclosure is necessary to understand the effect of the transactions on the Group Financial Statements.

2.21.  New standards, amendments and interpretations adopted

The Group has applied the same accounting policies and methods of computation in its Financial Statements as in the prior period.

There are a number of standards, amendments to standards, and interpretations, which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early.

The following amendments are effective for the period beginning on or after 1 January 2023:

·      Definition of Accounting Estimate (Amendments to IAS 8)

·      Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

·      Classification of liabilities as current or non-current (amendments to IAS 1).

In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments were originally effective for annual reporting periods beginning on or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023.Nightcap Plc is currently assessing the impact of these new accounting standards and amendments. The Group does not believe that the amendments to IAS 1 will have a significant impact on the classification of its liabilities.

Other

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the group.

The following is a list of other new and amended standards which, at the time of writing, had been issued by the IASB but which are effective in future periods. The amount of quantitative and qualitative detail to be given about each of the standards will depend on each entity's own circumstances.

·      IFRS 17 Insurance Contracts (effective 1 January 2023)- in June 2020, the IASB issued amendments to IFRS 17, including a deferral of its effective date to 1 January 2023.

·     Deferred tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12 Income taxes- effective 1 January 2023).

·      Lease liability in a Sale and Leaseback (Amendments to IFRS 16- effective 1 January 2024).

3.   Critical accounting judgements and estimation uncertainty

The preparation of consolidated financial information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

Estimates and underlying assumptions are reviewed on an on-going basis and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Although these judgements, estimates and associated assumptions are based on management's best knowledge of current events and circumstances, the actual results may differ. Revisions to accounting estimates are recognised in the period in which the revision takes place and in any future periods affected.

The key assumptions concerning the future and other key sources of estimation and uncertainty at the date of the statement of financial position that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial period are set out below.

The Directors consider the principal judgements made in the Financial Statements to be:

KEY JUDGEMENTS

Operating Segments

The Directors have taken a judgement that individual bars meet the aggregation criteria in IFRS 8 and hence have concluded that the Group only has a single reporting segment, as discussed in Note 4 of the Annual Report.

Determining the rate used to discount lease payments

At the commencement date of property leases the lease liability is calculated by discounting the lease payments. The discount rate used should be the interest rate implicit in the lease. However, if that rate cannot be readily determined, which is generally the case for property leases, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. As the Group has external borrowings, judgement is required to compute an appropriate discount rate which was calculated based on UK bank borrowings and adjusted by an indicative credit premium that reflects the credit risk of the Group. The weighted average discount rate applied to those leases that pre-dated the Group's IPO was 4.75%. Leases entered into post IPO have been discounted with a weighted average discount rate of 4.25%. For the lease liabilities at 3 July 2022 a 0.1% increase in the discount rate used would have reduced the total liabilities by £218,000.

Consolidation of Waterloo Sunset Limited

Waterloo Sunset Limited ("Waterloo Sunset") is a subsidiary that runs and operates the Bar Elba bar in Waterloo, London. The Group has a 50% economic interest in Waterloo Sunset with each partner holding 50% of the voting rights. The Group maintains an agreement to operate Waterloo Sunset and charges a management fee of 10% to Waterloo Sunset.

The Directors have determined that the Company exerts significant influence and control because it has the power to direct all significant activities of Waterloo Sunset and has a higher economic interest in it as compared to its unrelated venture partner, and as a result consolidates Waterloo Sunset in these financial statements with a 50% non-controlling interest representing the 50% of the equity the Group does not own.

Exceptional items

Exceptional items are those where, in management's opinion, their separate reporting provides a better understanding of the Group's underlying business performance; and which are significant by virtue of their size and nature. In considering the nature of an item, management's assessment includes, both individually and collectively, whether the item is outside the principal activities of the business; the specific circumstances which have led to the item arising; the likelihood of recurrence; and if the item is likely to recur, whether it is unusual by virtue of its size.

No single criterion classifies an item as exceptional, and therefore management must exercise judgement when determining whether, on balance, presenting an item as exceptional will help users of the financial statements understand the Group's underlying business performance.

Valuation of intangible assets and goodwill

Allocation of the purchase price affects the results of the Group as finite lived intangible assets are amortized, whereas indefinite lived intangible assets, including goodwill, are not amortized and could result in differing amortisation charges based on the allocation to indefinite lived and finite lived intangible assets.

During the period, the Group acquired the businesses known as the Barrio Familia Group for total consideration of £5.6m. Details of the acquisition is set out in Note 32 of the Annual Report. In accordance with IFRS 3, the identifiable assets acquired and liabilities and contingent liabilities assumed should be measured at fair value at the acquisition date in order to determine the difference between the cost of acquisition and the fair value of the Group's share of net assets acquired, which should then be recognised as goodwill on the balance sheet or recognised in the income statement.

In determining the fair value, management has recognised brand values totaling £1.9m in respect of the two brands acquired. Key estimates used in arriving at the brand valuation include growth rates, discount rate, cashflow assumptions including working capital estimates, appropriate royalty rates and useful economic lives. Further information is provided in Notes 14 and 32 of the Annual Report.

Valuation of intangible assets and goodwill

The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management's judgement.

KEY ESTIMATES

Impairment of non current assets

Annually, the Group considers whether non current assets are impaired. Where an indication of impairment is identified the estimation of recoverable value requires estimation of the recoverable value of the cash generating units (CGUs). This requires estimation of the future cash flows from the CGUs and also selection of appropriate discount rates and the longer term growth rate in order to calculate the net present value of those cash flows. Individual bars are viewed as separate CGUs in respect of the impairment of property, plant and equipment. Details of the sensitivity of the estimates used in the impairment exercise are provided in Notes 14 and 15 of the Annual Report.

Forecast business cashflows

For purposes of the going concern assessment and as an input into the impairment assessment, the Group make estimates of likely future cash flows which are based on assumptions given the uncertainties involved. The assumptions include timings for new sites commencing to trade, performance and growth of existing bars, capital expenditure, cost of labour and supplies and working capital movements. These assumptions are made by management based on recent performance and management's knowledge and expertise of the cashflow drivers

Share-based payments

The charge for share based payments in respect of the Nightcap plc Share Option Plan is calculated in accordance with the methodology described in Note 26 of the Annual Report. The model requires subjective assumptions to be made including the future volatility of the Company's share price, expected dividend yield, risk-free interest rates, expected time of exercise and employee attrition rates. Changes in such estimates may have a significant impact on the original fair value calculation at the date of grant and therefore the share based payments charge.

Amortisation of intangible assets

Amortisation is recorded to write down intangible assets to a residual value of nil over their useful economic lives (UELs). Management must therefore estimate the appropriate UELs to apply to each class of intangible asset. Changes in the estimated UELs would alter the amount of amortisation charged each year, which could materially impact the carrying value of the assets in question over the long term. UELs are therefore reviewed on an annual basis to ensure that they are in line with policy and that those policies remain appropriate.

4.   Segmental reporting

The Group's continuing operating businesses are organized and managed as reportable business segments according to the information used by the Group's Chief Operating Decision maker ("CODM") in its decision making and reporting structure. The CODM is regarded as the Chief Executive together with other Board Members who receive financial information at a bar-by-bar level.

The Group's internal management reporting is focused predominantly on revenue and adjusted EBITDA, as these are the principal performance measures and drive the allocation of resources. The CODM receives information by trading venue, each of which is considered to be an operating segment. All operating segments have similar characteristics and, in accordance with paragraph 12 of IFRS 8, are aggregated to form an 'Ongoing business' reportable segment. Economic indicators assessed in determining that the aggregated operating segments share similar economic characteristics include expected future financial performance, operating and competitive risks and return on investment. These common risks include, but are not limited to, Covid-19, cost inflation, recruitment and retention, Brexit and supply chain disruption, consumer confidence, availability of new sites, health and safety and food and drink safety, These risks are discussed in more detail in the "Principal Risks and Uncertainties" section of this Annual Report. The risks are managed, discussed and monitored at a Board level across the Group.

The Group performs all its activities in the United Kingdom. All the Group's non-current assets are located in the United Kingdom. Revenue is earned from the sale of drink and food with a small amount of admission income.

Revenue

Revenue arises from the sale of food and drink to customers in the Group's bars for which payment in cash or cash equivalents is received immediately. The Group operates in a single geographical region (the UK) and hence all revenues are impacted by the same economic factors. Accordingly, revenue is presented as a single category and further disaggregation is not appropriate or necessary to gain an understanding of the risks facing the business.

5.   OPERATING PROFIT

The operating profit is stated after charging/ (crediting):

6.   EMPLOYEES AND DIRECTORS

The average monthly number of employees, including the Directors, during the period was as follows:

Staff costs were as follows:

All of the Group's employees were based in the United Kingdom in the current and prior periods.

The following table shows a breakdown of the remuneration of individual Directors who served in all or part of the period.

Further information in respect of Directors' remuneration is provided in the Remuneration Committee Report.

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the company listed above.

7.   EARNINGS PER SHARE

Basic earnings / (loss) per share is calculated by dividing the profit/(loss) attributable to equity shareholders by the weighted average number of shares outstanding during the year, excluding unvested shares held pursuant to The Nightcap plc Share Option Plan. Further details of the share options that could potentially dilute basic earnings per share in the future are provided in Note 26 of the Annual Report.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares. During the 53 weeks ended 3 July 2022 and the 52 weeks ended 27 June 2021 the Group had potentially dilutive shares in the form of unvested shares options pursuant to the above long-term incentive plan.

During a period where the Group or Company makes a loss, accounting standards require that 'dilutive' shares for the Group be excluded in the earnings per share calculation, because they will reduce the reported loss per share.

8.   BORROWINGS

Secured bank loans

During the 53 weeks ended 3 July 2022, the Group had six loans with Barclays bank of which £958,329 remained outstanding at 3 July 2022. Loans one to five bore an interest rate of 5.75 per cent. (4.5 per cent. + Base Rate). Loan six bore an interest rate of 4.25 per cent. (3 per cent.+ Base Rate). All six loans were secured by a debenture on LCC's assets.

The maturity of the loans is set out below:

During the 53 weeks ended 3 July 2022, the Group had two loans with Oaknorth Bank of which £3,003,000 (gross of debt issue costs of £70,000) remained outstanding at 3 July 2022 (27 June 2021 - £3,003,000). The loans bore a cash interest rate of 3.49% and 3.88% respectively. The interest rate was based on a margin of 1.24% and 1.63% over Bank of England base rate plus a 1% British Business Bank fee. There was a floor of 0.71% below which the rate could not fall. Both loans were secured by a debenture on ABG's assets. In addition to the cash interest rate, both loans bore PIK interest at a rate of 1.25%. The PIK interest accrued is convertible into ordinary 1p shares of the Company at price equal to 21p. The PIK interest is convertible at any time after 12 May 2021 and in any event within 24 months of the earlier to occur of either:

(a)  repayment of all outstanding amounts of principal and interest on the Oaknorth loans

(b)  the maturity date of the Oaknorth loans

(c)  the occurrence of an event of default; or

(d)  a change of control

The Group had a CBILS loan with NatWest of which £263,000 remained outstanding at 3 July 2022 (27 June 2021 - £350,000). The loan bore an interest rate of 3.87%. The interest rate was based on a margin of 2.62% over Bank of England base rate. The loans were secured by a debenture on ABG's assets.

The Group had a loan with Natwest of which £286,000 (gross of debt issue costs of £5,000) remained outstanding at 3 July 2022. The loans bore a fixed interest rate of 5.08%. The loan was secured by a debenture on Barrio Bars' assets.

The Group had a CBILS loan with NatWest of which £1,080,000 remained outstanding at 3 July 2022. The loan bore an interest rate of 4.64%. The interest rate was based on a margin of 3.39% over Bank of England base rate. The loan was secured by a debenture on Barrio Bars' assets.

Unsecured bank loan

The Group has an unsecured bank loan with Paragon Banking Group plc which bears an interest rate of 12.5%. The balance due at 3 July 2022 was £7,000 (27 June 2021 was £35,000).

Since the year-end, the Group has refinanced its borrowings from three individual lenders under multiple tranches with new debt facilities from HSBC Bank to provide support to the business as we execute on the roll out strategy. The new £10m HSBC facility, replaces £5.5m of legacy debt that we acquired from acquisitions, which had a blended interest margin of 4%, with the new facility bearing a margin of 3% above SONIA on the £3m term loan and 3.25% above SONIA on the £7m Revolving Credit Facility. The remaining £4.5m of new debt facility is to support the fit out of the new sites that we have in the pipeline for 2022-23. The Group has taken out an interest rate cap on its reference base rate at 3% on £8m out of £10m of its HSBC facility.

On 14 May 2021 the Group acquired the Adventure Bar Group. As part of the acquisition the Group assumed certain loans from Oaknorth Bank to the Adventure Bar Group. These loans were repaid to Oaknorth as part of the Group's post period end August 2022 bank refinancing (which was announced on 17 August 2022). A material part of the Adventure Bar Group's cash was held by Bar Elba, which is part of the Adventure Bar Group, but was not part of Oaknorth's security package. During the bank refinancing process, the Adventure Bar Group obtained a waiver from Oaknorth in June 2022 in relation to its minimum cash holding covenant.

9.   RELATED PARTY TRANSACTIONS

Related parties are considered to be the Directors of Nightcap plc, The Cocktail Club and Adventure Bar Group and significant shareholders. Transactions with them are detailed below:

The companies listed below are deemed to be related parties due to having common shareholders with the Company. These transactions are split by related party as follows:

Amounts owed to related parties were as follows:

In May 2021, Mark Ward subscribed for 5,470,870 new ordinary shares in the Company, representing an amount of £1,258,300 at an issue price. At that point in time, Mr Ward held more than 10 per cent. of the Company's ordinary shares, so this subscription by him was deemed to be a related party transaction pursuant to Aim Rule 13 of the AIM Rules for Companies.

10.  BUSINESS COMBINATIONS

On 21 November 2021, Nightcap plc acquired 100% of the shares of Barrio Familia Limited, for the total consideration of £5,602,931 comprising cash of £3,628,000, 5,682,609 shares issued and accounted for at a price of 19.5p (£1,108,109) and deferred consideration in relation to the completion accounts process of £866,822. Through the acquisition, Nightcap has become the operator of an additional five bars, which comprise: i) four Latin American inspired, Tequila-led, cocktail bars in popular areas of London which trade under the 'Barrio' brand; and ii) a high end '60s themed members' cocktail bar which trades under the 'Disrepute' brand in London's Soho area (collectively the "Barrio Bar Group").

The acquired business contributed revenues of £5,652,000 and profit before tax of £694,000 (in accordance with IFRS) to the consolidated Group for the period from 21 November 2021 to 3 July 2022.

The Group has made certain estimates and judgements in arriving at the valuation of intangible assets and goodwill.

In accordance with IFRS 3, the identifiable assets acquired and liabilities and contingent liabilities assumed should be measured at fair value at the acquisition date in order to determine the difference between the cost of acquisition and the fair value of the Group's share of net assets acquired, which should then be recognised as goodwill on the balance sheet or recognised in the income statement. In determining the fair value, management has recognised brand values totalling £1.9m in respect of the brands acquired. Key estimates used in arriving at the brand valuation include growth rates, discount rate, cashflow assumptions including working capital estimates, appropriate royalty rates and useful economic lives.

In addition, the Group has made certain estimates in determining the deferred consideration payable as part of the completion accounts process.

The main factors leading to the recognition of goodwill are:

•        The expected future benefit the Group expects from the roll out and growth of the existing bars

•        The presence of certain intangible assets, such as the assembled workforce of the acquired entity, which do not qualify for separate recognition

•        cost savings and synergies through better buying and enhancing the customer offering, which result in the Group being prepared to pay a premium, and

•        The fact that a lower cost of capital is ascribed to the expected future cash flows of the entire operation acquired than might be to individual assets.

The goodwill recognised will not be deductible for tax purposes.

Acquisition costs of £352,000 arose as a result of the transaction (Note 11 of the Annual Report). These have been included as transaction related costs as part of administrative expenses in the statement of comprehensive income

RECONCILIATION OF STATUTORY RESULTS TO ALTERNATIVE PERFORMANCE MEASURES ("APMS")