The directors present the strategic report for the year ended 28 February 2024.
The following business review relates to the NQ64 group of companies as a whole. NQ64 Holdings Limited is purely a holding company within the group.
Twelve month revenue for the year was £17.2m (2023: £12.8m). Adjusted earnings before interest, tax, depreciation and amortisation. (“EBITDA”), was a profit of £4.1m after adjusting for exceptional items of £1.3m relating to the pre-opening costs of new sites in the year and costs incurred in raising an additional £7.5m of bank funding.
The additional funding was used in part to complete the share buyback of the minority shareholding of Imbiba Private Equity, generating a six times multiple for the private equity firm in two years.
Three new sites were opened in the year in Bristol, Shoreditch and Manchester, bringing the total number of venues to 12. The board is pleased to report that all three locations are trading ahead of their pre-investment expectations. Excluding the consolidation adjustments the group made a profit after taxation for the 12 months ended 28 February 2024 was £0.5m (2023: £1.2m).
The Group continues to pursue its strategy to expand across the UK. At the time of filing the financial statements, the Group operates 13 venues in the UK after a recent opening in Leeds.
The Group continues to plan expansion in the coming years and has several sites with deals agreed for 2024-2025.
The directors believe that the principal risks and uncertainties that the Group faces are recruitment and consumer demand. Recruitment remains highly competitive and shortages across the hospitality industry are well documented. The Group has a business model that facilitates recruiting and retaining the best people and we are working hard to ensure that this remains at the heart of our business.
The industry continues to face significant inflationary cost pressures across drink, wages and energy cost lines. The Group has agreed distribution deals with drinks suppliers until 2026 and energy costs have been fixed until June 2027.
The Directors’ key decisions are made with due regards to the Group’s key stakeholders. Each Director ensures that they act in the best interests of the Group’s success when making decisions.
The Directors act to support employees to benefit from working for the Group. Employees are provided with regular communication on operational performance, new site openings and strategy of the business and staff are encouraged to provide feedback to management.
Key management decisions included new site openings to further improve profitability, grow the brand and enhance customer experience. Management continually reviews the offering of our sites and regularly refresh each site, through new drinks ranges and games line-up refreshes via feedback from both our customers and employees.
Key suppliers are managed through strong relationships with major suppliers many of which have been developed over several years. These range from our building contractors delivering our new sites, to those providing security services, to all of our drinks suppliers.
The Group is committed to minimising the environmental impact of our operations and looks to continuously improve its performance.
The principal KPIs for the Group are as follows:
Revenue – like-for-like sales and versus pre-investment expectations
Gross Margin
EBITDA
Staff turnover
Management continues to measure both financial and non-financial KPIs on an ongoing basis. Non-financial KPIs include customer feedback, staff engagement and site audit scores.
On behalf of the board
The directors present their annual report and financial statements for the year ended 28 February 2024.
The results for the year are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, PM+M Solutions for Business LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we have considered the following:
the nature of the industry and sector, control environment and business performance including the design of the Company's remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
results of our enquiries of management about their own identification and assessment of the risks of irregularities;
the matters discussed among the audit engagement team and relevant specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud;
any matters we identified having obtained and reviewed the Company's documentation of their policies and procedures relating to:
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas: timing of recognition of commercial income, posting of unusual journals and complex transactions; and manipulating the Company's performance profit measures and other key performance indicators to meet remuneration targets and externally communicated targets. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included UK Companies Act, employment law, health and safety regulations, pensions legislation and tax legislation.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we have considered the following:
the nature of the industry and sector, control environment and business performance including the design of the Company's remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
results of our enquiries of management about their own identification and assessment of the risks of irregularities;
the matters discussed among the audit engagement team and relevant specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud;
any matters we identified having obtained and reviewed the Company's documentation of their policies and procedures relating to:
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas: timing of recognition of commercial income, posting of unusual journals and complex transactions; and manipulating the Company's performance profit measures and other key performance indicators to meet remuneration targets and externally communicated targets. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included UK Companies Act, employment law, health and safety regulations, pensions legislation and tax legislation.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
NQ64 Holdings Limited is a private company limited by shares incorporated in England and Wales. The registered office is 12 Hilton Street, Manchester, England, M1 1JF.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
The financial statements of the company are consolidated in the financial statements of NQ64 Topco Limited. These consolidated financial statements are available from its registered office, 12 Hilton Street, Manchester, England, M1 1JF.
In the prior period, the bank loan was incorrectly recorded within a subsidiary, NQ64 Arcade Bars Ltd, when the legal obligation was with the company. A restatement journal has been made to move the bank loan into the company and reclassify the creditor in NQ64 Arcade Bars Ltd to amounts due to the company. All bank interest and loan arrangement fees have also been moved which has adjusted the retained earnings in the prior period.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The average monthly number of persons (including directors) employed by the company during the year was:
On 1 April 2023, the corporation tax rate changed to 25% from 19%. This resulted in an effective tax rate for the period 24.49%.
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 28 February 2024 are as follows:
NQ64 Nottingham Ltd and NQ64 Leeds Ltd are dormant as at 28 February 2024.
The investments in subsidiaries are all stated at cost.
Amounts owed by group undertakings are interest free and repayable on demand.
The long-term loans are secured by fixed and floating charges over all assets of the company.
On 1 May 2023 the company refinanced the borrowings with TC Loans Limited.
On this date the company borrowed £10,000,000, which was subject to an interest rate of 7.75% plus base rate. The capital element of the borrowing is repayable in full 60 months after the drawdown date. Of the total loan. £5,500,000 is subject to an additional interest of 5%. All interest accrued is repayable immediately.
On 24 July 2024 the company secured further funding of £500,000. This is subject to the same terms as the existing borrowings.