XP Factory plc (LON:XPF) Chief Executive Officer Richard Harpham caught up with DirectorsTalk for an exclusive interview to discuss financial highlights from the interim results, progress at Boom Battle Bar & Escape Hunt, post period highlights and what we can expect from the company going forward.
Q1: XP Factory has now released its interim results with revenues up 130% from the first half last year. Could you just talk us through the financial highlights please?
A1: Well I think the first one is precisely that, revenues of £18.6 million in H1 compared to £8 million in the equivalent period last year so obviously very significant levels of growth there. I think probably interesting to talk to you about what’s driving that.
You mentioned that we have the two businesses that sit underneath the XP banner: Escape Hunt and Boom Battle. Escape Hunt’s driving a 40% revenue increase, so that’s £6.1 million delivered for Escape Hunt versus £4.3 million last year. Boom Battle, which of course is the younger business that opened fairly aggressively through last year, saw over a 400% increase delivering as it did £11.3 million worth of sales in the half versus £2.2 million last year. So I’d tell you that that’s certainly one of the key highlights for us.
I suppose importantly it’s really good to see that that sales growth is flowing through the P&L as well so seeing H1, EBITDA, this is pre-IFRS 16, close to £1.1 million versus £280,000 last year sets us in a really good stead. When that’s all compounded by some really strong like-for-like growth, 20% like-for-likes up to July, I’d say that it’s been a pretty successful half year.
Q2: You mentioned double-digit growth there for like-for-like sales, growth delivered across both owner-operated brands that is, could you first start telling us about Boom Battle Bar, that side of the business and how it’s doing?
A2: So, Boom Battle Bar has grown really very aggressively over the last 18 months and I would say is the driving force behind what I would consider to be fairly transformational economics. As I just mentioned, you’re seeing that in half on revenues that have moved from £2.2 million last year to £11.3 this.
Within that of course, we do have some sites, albeit not so many, four or five sites which were open last year in the equivalent period and those sites have grown by 20% like-for-like. So, obviously it’s great to see sales growth born of new site openings but that fundamental drive of like-for-like sales is really important.
Again we’re starting to see some really encouraging signs through the Boom kind of conversion metrics as I like to refer to them, so of the sites that have been trading for 12 months or more, EBITDA on the first half was 19%. When you also recognise that H1 always trades lower than H2, you get the sales leverage benefit from God willing a very strong Q4, this is exactly where we would want to be at this early stage in our development.
So, it feels that there’s a lot to like about the Boom economics and most importantly, for me, customers are still really continuing to like it and our review scores continue to sit very much at the top of the tree when compared to the market.
Q3: Just moving to Escape Hunt, how is that side of the business performing?
A3: Well, Escape Hunt always makes me chuckle because it just continues to fly if I’m honest. I think against any objective measure Escape Hunt is still continuing to do brilliantly and that’s a business that’s now six and a half years old.
Escape Hunt revenues were up 40% as we mentioned, £6.1 million versus £4.3 million and again with 20% like-for-likes on a pretty large cohort of sites in the first half. Again, it’s the conversion economics that remain quite outstanding if I’m honest so landing 40% EBITDA margins in the half is amazing. Obviously, Escape Hunt has a far lower cost base than Boom Metal World so its conversion will always be higher but nonetheless delivering 40% is an extraordinary performance I would suggest.
Again, set against absolute market leading customer review scores so we feel very positive about that part of the business.
Q4: Now, in the announcement you made several post period highlights, can you talk us through some of the main ones?
A4: I think the main one is probably just to address the concerns that I think have been raised of consumer facing businesses over summer so I’m sure many of your followers and listeners will have heard and read narrative around some have been pretty soft.
So, I think we’ve been really really encouraged to see that actually post-period in the weeks to September, the beginning of September, we’ve actually seen 25% like-for-like sales on Boom and 23% on Escape Hunt. So, really still driving forwards with that momentum post period and I think that gives us a fair degree of optimism around where we can go for the year.
More strategically, we’ve got some sites coming on board so Canterbury and Southend opened for Boom within a fortnight so that’s quite exciting. We’ve brought back Chelmsford and Ealing which were formerly two franchise sites for Boom and we’ve got Woking open as well.
So, lots going on, we certainly never take the foot off the gas.
Q5: Just looking forward, what can we expect to see from XP Factory over the next year?
A5: Much more of the same if I’m honest, so you’ll continue to see us obsessing about finessing the operation. I talk about this a lot but you us it is never good enough, there is always more we can do on that customer journey so you’ll continue to see us experiment, test, hopefully learn, hopefully adapt and change elements of that customer journey. In so doing, we would expect to see you know all being equal a continuation of the strong like-for-like growth that we’ve been achieving so far, and with that, we should expect to see enhanced leverage flowing through the operating model.
So, as a business you should expect to continue to see growth organically from the sites that we have but of course, we’re fortunate to be generating cash at a fairly decent rate. We talk about cash on the balance sheet at H1 at £3.7 million versus £3.2 million at December and that’s after the opening of new sites and capital expenditure and so on and so forth. That capital does allow us to continue to open new sites and obviously we’re very excited to do that.
