XP Factory Plc Group revenue up 228% vs prior year

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XP Factory Plc (LON:XPF) has announced its audited final results for the year ended 31 December 2022.

FINANCIAL HIGHLIGHTS

·	£22.8m Group revenue – up 228% vs prior year (2021: £7.0m)
·	£2.6m adjusted EBITDA pre IFRS16 (2021: loss £0.6m)
·	£9.8m Escape Hunt™ owner-operated revenue up 62% vs prior year (2021: £6.0m)
·	£0.7m Escape Hunt Franchise EBITDA up 75% vs prior year (2020: £0.4m)
·	£9.5m Boom Battle Bar™ owner-operated revenue of in its first full year of operation
·	£2.9m Boom Battle Bar™ franchise revenue
·	£1.3m Group operating profit (2021: loss of £0.5m)
·	35% return on capital across Escape Hunt owner operated estate
·	£3.2m cash at year end (2021: £8.2m) and £4.0m on 30 April 2023

OPERATIONAL AND STRATEGIC HIGHLIGHTS

·	Successfully integrated Boom Battle Bar into XP Factory Group
·	Opened 27 Boom sites by the end of 2022 – 11 owner operated and 16 franchised
·	Acquired Boom franchise sites in Norwich and Cardiff
·	Opened 4 new Escape Hunt sites and relocated 1 other, expanding UK estate to 23 venues (2021: 19)
·	Achieved 97% customer satisfaction ratings across both brands
·	Secured £3.3m credit facility with fit-out providers for new Boom owner operated sites

POST YEAR END

·	3 Boom sites and 1 Escape Hunt currently in build, with a developed pipeline underpinning site roll-out targets for the year
·	44% LFL sales growth delivered across Q1 2023 in the Boom sites that were trading last year, with operating metrics maturing as expected
·	Boom franchise sites performing in line with the Board’s expectations
·	32% LFL sales growth across the Escape Hunt owner operated estate, with overall trading ahead of the Board’s expectations in Q1 2023

Richard Harpham, Chief Executive of Escape Hunt, commented:

“2022 was a transformational year for XP Factory, delivering outstanding growth and performance, and underpinning our position as a leading operator in the experiential leisure sector. The bold expansion targets we set for ourselves were met, and we ended the financial year with a platform set for significant growth ahead. The strategic decision to buy Boom Battle Bar has been validated and Escape Hunt has continued to perform at levels far exceeding our initial investment assumptions. Trading in the first quarter of 2023 has been strong, with the group as a whole exceeding management expectations. Escape Hunt has performed incredibly well and the Boom estate has shown strong growth and continued progression towards the operating metrics we expect at maturity. The performance in Q1 gives us cause for optimism.”

The XP Factory Group is one of the UK’s pre-eminent experiential leisure businesses which currently operates two fast growing leisure brands. Escape Hunt is a global leader in providing escape-the-room experiences delivered through a network of owner-operated sites in the UK, an international network of franchised outlets in five continents, and through digitally delivered games which can be played remotely.

Boom Battle Bar is a fast-growing network of owner-operated and franchise sites in the UK that combine competitive socialising activities with themed cocktails, drinks and street food in a high energy, fun setting. Activities include a range of games such as augmented reality darts, Bavarian axe throwing, ‘crazier golf’, shuffleboard and others. The Group’s products enjoy premium customer ratings and cater for leisure or teambuilding, in small groups or large, and are suitable for consumers, businesses and other organisations. The Company has a strategy to expand the network in the UK and internationally, creating high quality games and experiences delivered through multiple formats and which can incorporate branded IP content.

STRATEGIC REPORT

Chairman’s Statement

I am delighted to be reporting on a transformational and successful year for the group. We set ambitious targets at the start of 2022 to significantly expand our then newly acquired Boom Battle Bar estate from seven sites open when we acquired the business in November 2021 to having 27 Boom sites open by the end of 2022, whilst also expanding our Escape Hunt network. Through an enormous effort by the whole team, our target was achieved. Today we have a business which has critical mass and can justifiably claim to a leading experiential leisure business in the UK.

Whilst attention has been focused on integrating and expanding the Boom Battle Bar business, Escape Hunt has had an exceptional year. The strong performance delivered in the second half of 2021 after the long periods of lockdown during covid continued into 2022. Escape Hunt’s performance has been steadily maturing and the site level margins being delivered has exceeded our original expectations. Investment into the intellectual property of the brand, being games and operating know how, has created a truly unique business operating a leisure concept that is increasingly recognised by the consumer. We believe there is significant further scope for growth and we will continue to nurture and develop Escape Hunt accordingly.

The Boom Battle Bar concept is still relatively new, but the early signs of success suggest there is a very attractive opportunity to grow and generate substantial shareholder value. The targets we set for growing the Boom business in 2022 posed a significant challenge for the team to build the organisational capability whilst maintaining the pace of expansion. Both our marketing and operations capabilities have been boosted during the year and we have successfully created the platform we had aimed to achieve. Margins from the Boom owner operated estate have been steadily improving and it is pleasing to see the positive customer reviews being achieved.

The Board remains resolved to capitalise on the continued growth of experiential leisure, and we believe the foundations that have now been built will enable XP Factory to become a leader in developing the industry. In the short term, the group’s strategy remains focused on building our UK presence, whilst we take some initial steps to test international markets. The return on capital opportunity for both our brands presents a significant shareholder value creation dynamic. For Boom in particular, returns can be further boosted by landlord contributions towards the fit out. Having achieved what we set out to do in 2022, our challenge now is to optimise the pace of roll-out within the constraints of the capital we have available. Escape Hunt has developed strong defensible characteristics through its proprietary games, operations and customer service. Our aim is to do the same within Boom so our focus in Boom will shift towards more owner operated sites whilst we continue to develop the operations, games management and customer service. This means investment into systems and processes and will also allow us to scale more easily. We believe that will set the business well for the future enabling us to more easily replicate owner operated success and also to create an attractive proposition for larger scale franchisees both in the UK and in international markets.

During the year we took the opportunity to buy back two franchised Boom sites in Cardiff and Norwich respectively. The returns profile from these acquisitions has to date been attractive with the acquisition of Boom Norwich already paid back. These opportunistic acquisitions follow similar successful acquisitions of our Escape Hunt Dubai master franchise in 2020 and the Escape Hunt French and Belgium master franchises in 2021, both of which have also delivered very attractive returns. Where these types of opportunities arise on favourable terms, we expect to take them up.

As the business grows, we are also mindful of our wider ESG objectives. The group’s purpose is to bring people closer together through shared experiences as we believe that enriches lives. Consistent with this objective, it has been pleasing to see the seeds of a strong and growing corporate culture within the enlarged business. We have implemented a number of initiatives internally to support our people and our goal is to offer our workforce an enriching and supportive work environment. Our recruitment approach to create a more inclusive workforce is working as is evident from the rich mix of cultures and backgrounds across the organisation. There is also ongoing focus to implement local initiatives to improve our environmental habits and we work closely with our major suppliers with these objectives in mind.

During the year we made a number of changes to the board. Having served on the board since the company’s formation, Karen Bach left in June 2022. Her support and insight in the early Escape Hunt journey and through the difficult period over the pandemic was much appreciated. At the same time we were delighted to welcome Martin Shuker and Philip Shepherd to the board. Martin brings a wealth of experience in the consumer leisure sector and brings considerable franchising know-how from his time at KFC. Philip, who is our audit committee chairman, likewise brings considerable experience in the experiential leisure sector. More details on each of the board members is set out on page 25 of this report.

Finally, I wanted to thank all our people in the group without whose efforts and dedication the business could not have survived the pandemic nor successfully built the platform we have today.

Outlook

The opportunity presented by the growth of experiential leisure remains as attractive today as it was when XP Factory (then Escape Hunt) started its journey. The addition of Boom Battle Bar to the group has significantly enhanced the scale and prospects for the group and we are well placed to continue to benefit from attractive property opportunities. Escape Hunt’s financial performance has settled into an attractive rhythm, producing high site level margins and highly attractive return on capital, whilst Boom’s performance has proven that our initial expectations of the opportunity were well founded.

Trading in the first quarter of 2023 has been strong, with the group as a whole performing ahead of management expectations. Escape Hunt had an exceptionally strong first quarter with like for like revenues, adjusted for the VAT benefit in 2022, up by 32%. Within this, it has been particularly satisfying to see the oldest seven sites in the UK estate delivering like for like growth of 18%. Margins continue to meet or beat our internal targets. The franchise estate has delivered modest year on year growth.

Boom is still a very new business with very little historic trading against which to compare. The four owner operated sites which traded the full Q1 in 2022 delivered like for like growth of 44%. The rest of the estate has also shown strong growth and continued progression towards the operating metrics we expect at maturity. The franchise estate has performed in line with expectations.

Overall, whilst mindful of the ongoing pressures on the consumer and on our cost base, the performance in Q1 of 2023 gives us cause for optimism.

Richard Rose

Chairman

23 May 2023

Chief Executive’s Report

It is wonderful to be reporting a transformational year of outstanding growth and performance, as XP Factory continues to position itself as a leading operator in the experiential leisure sector. The bold expansion targets we set for ourselves were met, and we ended the financial year with a platform set for significant growth ahead. The strategic decision to buy Boom Battle Bar has been validated and Escape Hunt has continued to perform at levels far exceeding our initial investment assumptions. It is therefore a delight to highlight some of the key performance measures for the full year to December 2022:

· Group revenue increased 228% to to £22.9m (2021: £7.0m)

· Adjusted EBITDA before IFRS16 of £2.6m (2021: loss of £0.6m)

· 27 Boom Battle Bar sites open as at 31 December 2022 (2021: 9)

· 23 owner-operated Escape Hunt sites open as at 31 December 2022 (2021: 19)

· 97% customer satisfaction score earned on both businesses

The pace of growth in the year would have been tough for many larger, longer established businesses to deliver, but adding 18 Boom sites in the year and 20 to a base of only 7 since acquisition in November 2021 represented a significant challenge to our teams. It was humbling to see the passion, tenacity and at times resilience with which they embraced the task, and I could not have been prouder of their execution. Most notably, they not only opened the sites in quick succession, but they did so in a way that embodied the best of our culture, our values and our unique form of hospitality, the manifestation of which saw our customers reward us with a 97% satisfaction rating.

Within the year we made two acquisitions, buying back our Boom franchises in each of Norwich and Cardiff. They have each proved to be highly successful, with Norwich fully paying back on a cash basis within 5 months, and Cardiff continuing to operate as a high revenue, highly profitable unit, which delivered 11% LFL sales growth in the period between acquisition and the year end.

It felt almost symbolic that our year closed with the opening of a flagship site on Oxford Street, perhaps the culmination of everything our teams have been working towards over the last 6 years. The unit sits proudly across 15k square feet and showcases the best of both Escape Hunt and Boom Battle Bar. Three years ago, as we were attempting to navigate the pandemic, it would have been unimaginable to think that we’d be opening our doors on one of the most iconic streets in the world. However, the team took it within their stride, and trading in both brands has exceeded our expectations so far.

Notwithstanding the challenges posed by the Omicron variant at the beginning of the year, and the significant disruption caused by strike action in Q4 2022, the Company delivered Group Adjusted EBITDA in line with expectations and enters 2023 from a true position of strength.

Escape Hunt

Escape Hunt bolstered its owner-operated estate throughout the year, opening a further 5 sites in Exeter, Norwich (a second unit), Edinburgh (relocating the previous Edinburgh site), Bournemouth and Oxford Street (London). Revenue of almost £10m from the owner operated business represented a 64% increase on the prior year (2021: £6m), albeit H1 in 2021 was affected by forced closures related to the pandemic. However, across H2 2022, perhaps a more fair comparison, like-for-like sales were 14% ahead on an underlying basis. The international franchise business also saw H2 sales growth of 18% vs 2021, and continues to provide a meaningful revenue contribution to the group (£0.7m).

Margins within Escape Hunt have continued to be exceptional, with the owned estate delivering 42% site-level EBITDA across the year. This flows clearly to the return on capital metrics, and the annualised cash return on invested capital in the UK business is in excess of 35%. Overall the business is demonstrably exceeding the mature targets we set for it, and even the most mature sites, opened in 2017, continue to deliver healthy like for like sales growth from the original game rooms first installed 6 years ago.

Our labour controls within Escape Hunt have continued to improve, bolstered by our investment in the proprietary software platform we implemented, and leveraged against higher sales. This has provided us with good cover in the face of rising costs and wage pressures, since we have been able to absorb the effect of our desire to invest in our teams and maintain wages well ahead of the industry. Moreover, since Escape Hunt has no meaningful cost of goods, the business is naturally insulated against much of the inflationary dynamics of the market, and has been able to maintain customer pricing, which we feel is important at a time when disposable income is being stretched.

Within the year we began to experiment with co-located sites in some cities, where we took large spaces and split them between Escape Hunt and Boom. Notably we have done this in Oxford Street, Lakeside, Edinburgh and Exeter. We will continue to assess how these sites perform relative to standalone units, but the early indications are positive, with the effect of materially lower property costs per square foot driving strong cash generation for Escape Hunt. We would expect to refine the way we bring the two brands together over time, but already it is clear that there is a commonality of customer between both businesses.

Overall we remain confident that we have a jewel of a business in Escape Hunt. The consistency of returns, the high level of these returns, and the overwhelmingly positive reactions that we still garner from customers underpin our continued roll-out strategy. It is therefore exciting to be bringing our experiences to new cities over the coming months.

Boom Battle Bar

In its maiden year for the Group, Boom Battle Bar’s foundations were firmly set in 2022, and the year closed with 27 sites open across the UK. This pace of growth and execution against such a small base is likely unprecedented in our industry, and the delivery highlighted for me what an extraordinary team we have built over the last few years.

Without exception, our staff stepped up to the challenge and embraced every element of the job in hand. Whether the integration of Boom with Escape Hunt, the building of 18 sites in the year and a total of 20 since the acquisition, the training and recruitment of staff, or the delivery of our values and hospitality to customers, both I and my management team were deeply humbled by the execution. Several members of our team, who have been with the business since the beginning, were able to adopt leadership roles in the enlarged Group, and watching them take responsibility for large swathes of our growth strategy has been singularly rewarding. Moreover, seeing the resultant passion and culture that exudes from our staff at site level, and the positive impact it has on our customers, is a stark reminder of why we do what we do.

Whilst early in its evolution, the performance within Boom to date has been highly encouraging. Revenue from the owned estate was approximately £9.5m, with the franchise business delivering a further royalty income to the Group of £1.5m, and total revenue of £2.9m. Moreover, the conversion to gross profit and EBITDA has been in line with our expectations for a maturing business. Even though the opening of the sites in 2022 was somewhat weighted towards the back end of the year, and despite the fact that the units are expected to operate at a loss in their first few weeks of opening, Boom nevertheless generated pre IFRS 16 site EBITDA of 13%. This provides significant comfort that the medium term target operating EBITDA margins of between 20% and 25% are realistic, and indeed we are seeing this level and beyond in many of the more established locations already.

We remain confident that the high expectations for return on capital are achievable, as the build costs per square foot are being well managed, and this, combined both with the strong cash generation from the units and the capital contributions we are typically receiving from landlords (often circa £500k), result in forecast paybacks of between 1 and 2 years. Given this performance, it seems prudent to continue our site-opening strategy at a pace, and whilst we will not repeat the 18 Boom units achieved in 2022, we have cash and debt options to continue the rollout at pace.

There are of course many areas of the Boom operation which we continue to adapt and experiment with so early on in our journey, but already we are creating environments that customers are enjoying. Our satisfaction ratings of 97% are a testament to the delivery by our site teams, and the significant level of returning corporate business further reinforces that we are servicing an important market. Since the years of social lent born of COVID, we are seeing ever increasing numbers of companies looking to book our venues for their staff on a fairly regular basis, as Boom represents an ideal way to bring people together in a fun, relaxed and enjoyable environment. We only envisage this dynamic becoming more and more apparent, and indeed we have been forced to triple the size of our corporate sales team in order to cope with the in-bound demand.

Overall we are delighted with what we achieved with Boom over the course of 2022, and feel that it has set us up for success going forwards. We are through the required threshold of critical mass and the company is already showing itself to be cash generative in a way that has transformed our outcomes relative to where we were only two years ago.

Strategic objectives

At the time of acquiring Boom Battle Bar, we outlined a four-point strategy to build shareholder value. Almost 18 months on, we have been pleased with our progress against these strategic imperatives, and have touched on the highlights below:

1. Maximise the UK footprint by rolling out each brand, either through direct investment into owner-operated sites or through franchises

During 2022, we embarked upon an aggressive site opening strategy in the UK, and between Boom and Escape Hunt we opened 23 units. Importantly, we co-located a number of Escape Hunt sites with Boom Battle Bar and will continue to assess how these sites perform relative to stand-alone sites. Early indications are positive and it is likely that in certain venues, co-location of sites will make sense.

We will continue to build the network for both brands, with a greater relative emphasis in the short term on Boom and owner operated sites.

2. Accelerate growth in International territories, predominantly through franchises

Whilst we believe that there is a significant opportunity for each brand internationally, the immediacy of international growth will differ for each operating brand. For Boom, the focus remains in the UK although we are testing our first international market with a Boom site in Dubai. More broadly, international expansion is likely to be franchise led, as it has been for Escape Hunt.

3. Continue to develop new products and markets which facilitate the growth of B2B sales

We will continue to innovate and develop products that provide access to a broader range of customer markets. Our direct sales team has been materially expanded and is addressing the corporate / business market for both Escape Hunt and Boom Battle Bar effectively.

4. Integrate the businesses, exploit the synergies where possible, and develop an infrastructure that supports scale and future growth

Whilst more inward looking, the fourth objective is a critical component for the success of our business. I have been delighted with the progress we have made during 2022 in embracing the cultures of the two businesses and building on the DNA and values within the XP Factory Group. Our focus is now on implementing systems and operational practices which further differentiate our businesses and create an operating methodology which can be easily be scaled and which larger scale franchisees will value.

Outlook

Overall, whilst mindful of the ongoing pressures on the consumer and on our cost base, the performance in Q1 of 2023 gives us cause for optimism.

Richard Harpham

Chief Executive Officer

23 May 2023

Financial Review

Group Results

Revenue

Group revenue increased by 228% to £22.9 million compared to £6.9 million in 2021, reflecting the significant increase in scale of the business following the acquisition of Boom Battle Bars in November 2021 as well as the period of closure in the comparative period between January and May 2021 when most of the Escape Hunt sites were closed due to Covid restrictions.

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	Yearended	Yearended	Increase / (decrease)
	31 December2022	31 December2021
	£’000	£’000
New site upfront location exclusivity fees, support and administrative fees	1,368	247	453%
Franchise revenues	2,012	456	341%
Owned branch game revenues	13,535	6,025	125%
Owned branch food and drinks revenues	5,149	214	2302%
Other	770	41	1778%
Total	22,834	6,984	227%

Within the Escape Hunt owner operated estate, revenue grew 63% to £9.8m from £6.0m in 2021. As mentioned, Escape Hunt sites were closed for much of the period between January and May 2021 in the comparative year, whilst they benefitted from a VAT reduction of 15% for the remainder of 2021. Adjusting for the VAT benefit in the comparative, it was pleasing to see strong annualised like for like growth of 14% across the estate in the final 26 weeks of the year. Even the seven most mature sites in the estate which were originally opened in 2018 saw 7.4% like for like growth calculated on the same basis.

The Boom owner operated estate delivered revenue of £9.5m. At the start of the year only 2 owner operated sites were open, and a further 9 owner operated sites were opened / acquired during the course of 2022. The results also include turnover from the site in Swindon, which is managed by our team through an operating agreement but is counted as a franchise site in our site numbers.

The Escape Hunt franchise network delivered turnover of £0.7m, an 18% increase on 2021. In its maiden year, the Boom franchise network delivered turnover of £2.9m. Of this, £1.5m was royalty income. £0.8m related to the construction and resale of a franchise site, against which there is an associated £0.5m cost of sale. It is no longer our policy to build sites on behalf of franchisees, so this will not repeat. The balance comprises site upfront location exclusivity fees, support and administration fees.

The Board estimates that the Group exited the year at an underlying run rate turnover in excess of £30m per annum.

Gross profit

Cost of sales includes the variable labour cost at sites and other direct cost of sales, but not fixed salaries of site staff, whose costs are included as administration costs. The Board believes this categorisation best reflects the underlying performance at sites and provides a more useful measure of the business.

Gross margin rose 188% to £14.7m from £5.1m in 2021. Gross margin at group level is impacted by the mix of sales between Boom and Escape Hunt and between franchise and owner operated performance. Gross margin within the Escape Hunt network fell from 74% to 69%. This was largely due to the loss of the 15% VAT relief that was enjoyed during 2021 within the Escape Hunt UK business. Boom gross margins improved marginally from 49% to 52% although the 2021 figure represented only a single site for a short period only.

Site level EBITDA and Adjusted EBITDA

Site level Adjusted EBITDA is a key performance measure for the business and is calculated before IFRS 16 adjustments. Escape Hunt delivered £4.1m pre IFRS 16 site level EBITDA, a 66% increase on 2021, and representing a 42% EBITDA margin. The margin achieved is significantly higher than the internal target of 30% set when the business started out in 2018 and demonstrates the success of the business model to date. Whilst the result includes some VAT benefit from Q1 in 2022, it nevertheless represents a marginal improvement on the 41% margin achieved in 2021 which had the VAT benefit throughout the period of trading.

Boom owner operated estate delivered a site level EBITDA of £1.4m, representing a margin of 15%. Whilst our target for Boom is to achieve EBITDA margins between 20% and 25%, the achievement is extremely pleasing given the early stage of trading for most of the estate during the year. Sites are expected to, and generally do, run at a loss in the early weeks and months after opening as operations are improved, labour trained and awareness of the venue builds. EBITDA margins have continued to improve during Q1 2023 and we remain confident of achieving the targeted range between 20% and 25%.

Adjusted EBITDA is a key performance indicator for the company. The Group recorded its first pre-IFRS16 Adjusted EBITDA profit of £2.7m for the year, compared to a pre IFRS 16 Adjusted EBITDA loss (before R&D credits) in 2021 of £0.6m. After IFRS 16, the Adjusted EBITDA profit was £4.1m.

	Escape Hunt	Escape Hunt	Boom	Boom	Unallocated	2022
	Owned	Franchise	Owned	Franchise		£’000
Pre IFRS 16 Adjusted site level EBITDA	4,095	703	1,270	2,279	–	8,347
Site level EBITDA margin	42%	100%	13%	80%		37%
Other income	141	–	–	–	6	147
Centrally incurred costs	(63)	(134)	(188)	(105)	(5,449)	(5,939)
Pre-IFRS Adjusted EBITDA	4,173	569	1,082	2,174	(5,443)	2,555
IFRS adjustments (net of pre-opening)	613	–	787	–	–	1,400
Adjusted EBITDA	4,785	569	1,869	2,174	(5,443)	3,955

	Escape Hunt	Escape Hunt	Boom	Boom	Unallocated	2021
	Owned	Franchise	Owned	Franchise		£’000
Pre IFRS 16 Adjusted site level EBITDA	2,477	407	21	111	–	3,016
Site level EBITDA margin	41%	69%	8%	100%		43%
Other income	371	–	–	–	–	371
Centrally incurred costs	(1,479)	(130)	(2)	(30)	(2,363)	(4,004)
Pre-IFRS Adjusted EBITDA	1,369	277	19	81	(2,363)	(617)
R&D Grant (net of fees)					2,590	2,590
IFRS adjustments Net of pre-opening)	580	–	63	–	37	680
Adjusted EBITDA	1,949	277	82	81	264	2,653

A reconciliation between statutory operating loss and Adjusted EBITDA is shown below.

	*Year ended 31 December 2022*	*Year ended 31 December 2021*
	*£’000*	*£’000*
Pre IFRS 16 and pre R&D Adjusted EBITDA	2,555	(616)
IFRS 16 adjustments (excl pre-opening)	1,400	680
R&D Grant	–	2,589
Adjusted EBITDA	3,955	2,653
Depreciation and amortisation	(5,165)	(2,805)
Loss on disposal of tangible assets	(126)	(50)
Profit on closure/modification of leases and rent credits	123	189
Branch closure costs and other exceptional costs	(399)	(239)
Branch pre-opening costs	(2,018)	(103)
Provision against loan to franchisee	(26)	(78)
Foreign currency gains / (losses)	(1,133)	(18)
IFRS 9 provision for guarantee losses	(68)	(8)
Fair value adjustment	6,210	–
Share-based payment expense	(81)	(62)

Operating profit / (loss)	1,272	(521)

Centrally incurred costs rose to £5.9m from £4.0 million in 2021 (2021: £4.6m including costs relating to the successful R&D claim) reflecting the increased head office function following the Boom acquisition.

Operating profit

Operating profit rose to £1.2m from a loss of £0.5m in 2021.

The operating profit is after £2.0m pre-opening costs relating to openings of both Boom and Escape Hunt sites during the year. £1.6m related to Boom sites and £0.4m to Escape Hunt sites. Pre-opening costs comprised the following:

Pre-opening costs	*Boom*	EH	*Total*
	*£,000*	*£’000*	*£’000*
Admin costs	486.2	83.5	569.7
Rates and service charge	264.3	43.1	307.4
Cost of sales – consumables	64.4	0.6	65.0
Training	363.7	69.4	433.1
Central staff marketing and training	464.2	178.8	643.1
Post IFRS 16	1,642.8	375.5	2,018.2
Rent accruals	610.4	53.8	664.2
Pre IFRS 16	2,253.2	429.3	2,682.5

Operating profit includes £1.1m of foreign exchange costs. These relate principally to an intercompany balance between Experiential Ventures and Escape Hunt IP Limited, both 100% owned subsidiaries within the Group. Experiential Ventures is in the process of being voluntarily wound down an on completion, the balances will be offset. There is no cash impact.

Branch closure and exceptional costs comprise predominantly the write off of inter-company balances on the dissolution of EHO and EVD, the former Malaysian and Thai companies in the group which were finally dissolved during 2022, as well as restructuring charges and the closure of the previous Escape Hunt site in Edinburgh.

The fair value adjustment of £6.2m relates to the contingent liability connected with the acquisition of Boom. A detailed explanation is given in note 3 on page 71.

Cashflow and capital expenditure

The Group had £3.2m of cash as at 31 December 2022, down from £8.2m at 31 December 2021. The reduction in cash is as a result of the significant capital investment in new sites during the year.

The Group generated £3.4m cash from operating activities, up from £0.8m in 2021. The cash generated from operating activities was boosted by positive working capital movements. A significant proportion of this relates to deferred rent payments, where companies in the group have rent-free periods early in their leases, significantly boosting the cashflow dynamics for those sites. The underlying working capital position is favourable, with the majority of revenue being received in advance or on the day of sale. Whilst the group does hold stock at sites, money tied up in stock is more than offset by trade and other creditors.

A total of £6.9m was invested in capital expenditure on Boom sites (tangible and intangible). Of this, £2.5m was funded from landlord contributions. Most of this expenditure related to the new Boom sites opened in Exeter, Manchester, Plymouth, Leeds, Edinburgh and London Oxford Street.

£2.1m was invested into Escape Hunt, of which £0.4m was funded from landlord contributions. The majority of this investment went into new sites opened in Exeter, Norwich, Edinburgh, Bournemouth and London Oxford Street.

Acquisitions of Boom Battle Bar franchised sites in Cardiff and Norwich utilised £0.4m of cash. The acquisition of Boom Cardiff required £0.5m (net of cash acquired), whilst the acquisition of Boom Norwich was funded through a vendor loan and resulted in a net inflow of £0.1m on completion. Since the year end a further £0.6m has been paid in respect of the Cardiff acquisition. A final payment which is expected to be de-minimus is due in September 2023.

Other movements within investing activities are largely fit-out loan repayments.

Return on capital

Return on capital is a key performance measure for the Company, with each site being commissioned based on an anticipated cash return on investment, payback and net present value generated.

The UK Escape Hunt network generated an annualised return on capital (defined as EBITDA divided by gross investment in the sites) of 35%, demonstrating the attractions of the business model.

Whilst it is arguably still too early to conclude on the performance of the Boom estate, initial indications are very positive. The annualised return on capital (calculated in the same way as for Escape Hunt) during Q1 of 2023 has exceeded 30% for Boom sites. This return does not take account of the considerable rent-free periods enjoyed by most of the Boom sites which further boosts the actual cash on cash return in the short term. As the Boom sites’ performance matures, return on capital is expected to improve and the board’s estimate is that the annualised return on capital will exceed 50% for the Boom owner operated estate as a whole.

The cash return on investment for our acquisitions has also proved very strong. The acquisition of the Boom Norwich site has already paid back on a cash basis. Likewise the acquisition of the Boom Cardiff business is expected to pay back within 18 months.

Balance sheet

Net assets at the end of the year were £21.8m. The most significant movements relate to the site roll out programme undertaken in the year.

The net book value of property plant and equipment rose to £12.7 m from £5.5m reflecting the capital investment programme, offset by depreciation in the year. Right of use assets rose to £17.8m from £7.6m, reflecting the IFRS 16 treatment of new leases signed in the year in Exeter, Plymouth, Manchester, London Oxford Street, Leeds, Edinburgh and Dubai, as well as acquisitions in Norwich and Cardiff. Landlord contributions of £2.6m are offset against the value of right of use assets in accordance with IFRS treatment. The increase is reciprocated by an increase in lease liabilities to £24.0m from £8.4m.

The intangibles balance of £23.0m predominantly includes goodwill and acquired intangibles (franchise contracts) from the acquisitions in prior years of Boom, the French, Belgian and Middle East master franchises for Escape Hunt, and in 2022 the acquisitions of Boom in Cardiff and Boom in Norwich.

The total balance in provisions has reduced significantly during the year to £5.4m. The balance includes £4.1m of contingent consideration (2021: £9.0m). The reduction arose from a fair value adjustment of the contingent consideration which is expected to be settled by the issue of approximately 23.5m XP Factory plc shares to MFT Capital Ltd, the former owner of Boom Battle Bars. For further details of the fair value revaluation see note 3 on page 71 of the financial statements. There will be no cash impact from the settlement of the contingent consideration and the number of shares is fixed and not influenced by the share price.

The balance sheet includes a total of £1.5m of loans. £0.4m of this relates to loans issued in connection with the acquisitions of the French and Belgian Escape Hunt master franchise and the acquisition of Boom Battle Bars both in 2021. £0.8m relates to fit-out funding within the Boom estate and the balance is bank and other borrowings.

The deferred tax liability was recognised to offset future amortisation of acquired intangibles (franchise contracts) arising from the acquisitions of the French and Belgian Escape Hunt master franchise and the acquisition of Boom Battle Bars both in 2021. £112k has been credited to the statement of comprehensive income during the period.

Key Performance Indicators

The Directors and management have identified the following key performance indicators (‘KPIs’) that the Company tracks for each of its operating brands. These will be refined and augmented as the Group’s business matures:

· Numbers of owner-operated sites: 23 Escape Hunt sites and 11 Boom Battle Bar sites as at 31 December 2022

· Numbers of franchised sites: 23 Escape Hunt and 16 Boom Battle Bar sites as at 31 December 2022

· Site level revenue: £19.3m in the year to 31 December 2022

· Site level EBITDA: £7.7m in the year to 31 December 2022

· Franchise revenue: £3.6m in the year to 31 December 2022

· Central costs: £5.9m in the year to 31 December 2022

· Adjusted EBITDA, before IFRS 16 for the Group: £2.6m in the year to 31 December 2022

The Company monitors performance of the owner-operated sites on a weekly basis. The Board also receives monthly updates on the progress on site selection, site openings and weekly as well as monthly information on individual site revenue and site operating costs. Monthly management accounts are also reviewed by the Board which focuses on revenue, site profitability and adjusted EBITDA as the key figures within the management accounts.

Both the number of franchised branches as well as their financial performance are monitored by the management team and assistance is provided to all branches that request it in terms of marketing advice as well as the provision of additional games.

The key weekly KPIs by which the UK and owner-operated business is operated are the site revenue (including UK franchise sites), gross margins (in the case of Boom sites) marketing spend and staff costs and consequent ratio of staff costs to revenue. Total revenue is tracked against budget, adjusted for seasonality, number of rooms open and the stage in the site’s maturity cycle. Staff costs are measured against target percentages of revenue. The effectiveness of marketing is assessed by observing revenue conversion rates and the impact on web traffic, bookings and revenue from specific marketing campaigns.

The Company’s systems track performance on both a weekly and a monthly basis. These statistics provide an early and reliable indicator of current performance. The proﬁtability of the business is managed primarily via a review of revenue, adjusted EBITDA and margins. Working capital is reviewed by measures of absolute amounts.

Graham Bird

Chief Financial Officer

23 May 2023

DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2023

The Directors present their report together with the audited financial statements of the Group for the year ended 31 December 2022.

Principal activities

The principal activities of the Group are that of operating consumer facing leisure brands offering immersive experiences.

The Group currently operates two brands, each of which is developing a network of locations, either owned and operated directly or franchised. Escape Hunt is a global leader in providing escape-the-room experiences delivered through a network of owner-operated sites in the UK, an international network of franchised outlets, and through digitally delivered games which can be played remotely.

Cautionary statement

The review of the business and its future development in the Strategic Report has been prepared solely to provide additional information to shareholders to assess the Company’s strategies and the potential for these strategies to succeed. It should not be relied on by any other party for any other purpose. The review contains forward looking statements which are made by the Directors in good faith based on information available to them up to the time of the approval of the reports and should be treated with caution due to the inherent uncertainties associated with such statements.

Results and dividends

The results of the Company are set out in detail in the Financial Statements.

Given the nature of the business and its growth strategy, it is unlikely that the Board will recommend a dividend in the next few years. The Directors believe the Company should improve performance to generate profits to fund the Company’s growth strategy over the medium term.

Business review and future developments

Details of the business activities and developments made during the period can be found in the Strategic Report and in Note 1 to the Financial Statements respectively.

Research and development activities

The Group has historically invested in research and development activities relating to software and intellectual property that supports the Group’s experiential leisure activities. It remains part of the Group’s strategy to further invest in selected areas which will enhance the Group’s operating and data analytic capabilities. Further details of the group’s strategic objectives are set out in the strategy report.

Employment policies

The Group has employment policies which give full and fair consideration for the employment of disabled persons, having regard to their particular aptitudes and abilities. Where possible, the Group will make appropriate, sympathetic changes and provide training to continue the employment of any employees who become disabled whilst in the employment of the Group and will otherwise provide training and support the career development and promotion of any such employees.

Employee engagement

The Group attaches importance to good communications and relations with employees. Information that is or may be relevant to employees in the performance of their duties is circulated to them on a regular basis, or immediately if it requires their immediate attention. There is regular consultation with employees through meetings or other lines of communication, so that their views are known and can be taken into account in making decisions on matters that will or may affect them. Employee participation in their venue’s performance is encouraged and there is regular communication with all employees on the performance of their particular venue or central function and on the financial and economic factors affecting the overall performance of the Group.

Disclosure of information to auditor

The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each director has taken all the steps that he/ she ought to have taken as a director to make himself/ herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

Financial instruments and risk management

Disclosures regarding financial instruments are provided within Note 30 to the Financial Statements.

Capital structure and issue of shares

Details of the Company’s share capital, together with details of the movements during the period are set out in Note 23 to the Financial Statements. The Company has one class of ordinary share which carries no right to fixed income.

Post balance sheet events

Since the year end, the failure of Silicon Valley Bank and fears over the strength of the international banking system, coupled with persistently high inflation and rising interest rates have fuelled further macroeconomic concerns, adding to the uncertainty already apparent from the ongoing war in Ukraine, high energy prices and the growing tension between China, Russia and the West. Whilst these conditions may have a detrimental impact on sentiment, they do not provide any further information impacting the financial performance or position of the Group as at 31 December 2022.

Board of Directors

The Directors of the Company who have served during the year and at the date of this report are:

Director	Role	Date of appointment	Date of resignation	Board Committee
Richard Rose	Independent Non-Executive Chairman	25/5/2016		N A R
Richard Harpham	Chief Executive Officer	3/5/2017
Graham Bird	Chief Financial Officer	6/1/2020
Martin Shuker	Independent Non-Executive Director	29/6/2022		N A R
Philip Shepherd	Independent Non-Executive Director	29/6/2022		N A R
Karen Bach	Independent Non-Executive Director	3/5/2017	29/6/2022	N A R

Richard Harpham was first appointed on 25 May 2015 and resigned on 15 June 2016. He was subsequently re-appointed on 3 May 2017.

Board Committee abbreviations are as follows: N = Nomination Committee; A = Audit Committee; R = Remuneration Committee

The Board comprises two Executive and three Non-Executive directors.

Richard Rose, Independent Non-Executive Chairman

Richard has a wealth of experience chairing high profile boards. Previously he has been CEO of two multi-site quoted businesses where he significantly increased shareholder value. Since then he has held a number of Chairman roles including Booker Group plc (retiring in 2015 after three terms) and AO World plc where he retired in 2016. He has been Non-Executive Chairman of Watchstone Group plc since May 2015 is also Chairman of IB Group Ltd since October 2018.

Richard is a member of the Remuneration Committee, the Audit Committee and the Nomination Committee of the Company.

Richard Harpham, Chief Executive Officer

Richard joined the Company on its admission to AIM in May 2017 having worked since November 2016 with the Escape Hunt (now XP Factory) management team. Richard’s prior role was with Harris + Hoole, having been Chief Financial Officer and then Managing Director, responsible for its turnaround. Before this, Richard spent over four years at Pret A Manger as Global Head of Strategy. Richard has also held a number of strategic and financial positions at companies including Constellation Brands, Shire Pharmaceuticals and Fujitsu Siemens Computers.

Graham Bird, Chief Financial Officer

Graham, who joined the Company in January 2020, has significant experience in financial and City matters and in growing small businesses. He is a chartered accountant, having qualified with Deloitte in London, and has worked in advisory, investment, commercial and financial roles. Prior to joining XP Factory, Graham was one of the founding employees at Gresham House plc (“Gresham House”) where, in addition to supporting the growth of Gresham House, he was responsible for establishing and managing the successful strategic equity business unit which focuses on both quoted and unquoted equity investments. Prior to joining Gresham House, Graham spent six years in senior executive roles at PayPoint Plc (“PayPoint”), including director of strategic planning and corporate development and executive chairman and president of PayByPhone. Before joining PayPoint, he was head of strategic investment at SVG Investment Managers, having previously been at JPMorgan Cazenove, where he served as a director in the corporate finance department.

Martin Shuker, Independent Non-Executive Director

Martin has had a long and distinguished career with Yum Brands, the US Fortune 500 Global hospitality business. He spent 24 years in a variety of leadership roles, most recently as Managing Director KFC Western Europe where he had full strategic, growth and operational responsibility over 1,700 restaurants and 165 franchisees which generated £2.3 billion in sales and £120 million of profit.

As MD of KFC UK, he more than doubled sales in the UK to £1.3 billion and met or exceeded targets in 11 of 13 years.

Martin has demonstrated his ability in consistently achieving growth and bottom-line performance of established owner-operated and franchise businesses over a long period of time and has relevant experience in entering new territories through franchise routes. He successfully opened new markets in a number of European countries and has demonstrated his ability to both manage an established franchise network as well as establishing new networks in new territories.

Prior to YUM, Martin had a variety of marketing roles with United Biscuits.

Martin is chairman of the Company’s Remuneration Committee.

Philip Shepherd, Independent Non-Executive Director

Philip is a former partner of PricewaterhouseCoopers (“PwC”), where he originally trained in audit and tax, qualifying as an ACA in 1987.

Following a career in corporate finance and transaction advisory services, Philip returned to PwC in 2004 working both in the UK and overseas, leading Strategy and Deals practices, with a particular focus on the hospitality and leisure sectors. Since leaving PwC in 2018, he has held a number of board and advisor roles, again with a focus on hospitality and leisure. He regularly travels abroad where he advises, and speaks, on the experiential leisure market and start up opportunities. Philip combines his experience in accounting and audit with deal evaluation and execution, and has a deep understanding of the hospitality and leisure markets both in the UK and globally.

Philip is chairman of the Company’s Audit Committee.

Directors’ interests in shares

Directors’ interests in the shares of the Company at the date of this report are disclosed below. Directors’ interests in contracts of significance to which the Company was a party during the financial period are disclosed in note 28 to the Financial Statements.

Director	Ordinary shares held	% held
Richard Rose	53,666	0.04
Richard Harpham	895,163	0.59
Graham Bird	1,911,093	1.27
Martin Shuker	Nil	0.00
Philip Shepherd	Nil	0.00

XP Factory Plc owns all the ordinary shares in its subsidiary, Escape Hunt Group Ltd (“EHGL”). EHGL issued a total of 1,000 Growth shares in 2017 to three directors and employees. In 2019, following the departure of one of the individuals, 280 shares were repurchased by the Company. In 2021, the Company purchased the remaining Growth shares for a total £1 consideration. As at 31 December 2022, XP Factory owns 100% of the Growth shares. The Growth shares carry no voting rights and are not entitled to any dividends that may be paid by EHGL.

Directors’ interests in options

The following options have been granted to certain Directors under the Escape Hunt Plc 2020 EMI Share Option Scheme. The options vest over three years and are subject to achieving certain performance conditions related to share price appreciation over a four year period.

Director	Options held	Exercise price	Options vested	Date of Grant	Expiry date
Richard Harpham	5,333,333	7.5 pence	3,555,556	16 July 2020	16 July 2025
Graham Bird	3,733,333	7.5 pence	2,488,888	16 July 2020	16 July 2025

No directors exercised any options during the year.

Substantial interests

As at 31 March 2023 the Company has been advised of the following significant interests (greater than 3%) in its ordinary share capital:

Shareholder	Ordinary shares held	% held
Canaccord Genuity Wealth Management	32,946,854	21.9
Crux Asset Management	15,633,731	10.4
Hargreaves Lansdown stockbrokers	12,621,375	8.4
JO Hambro Capital Management	9,100,00	6.0
Interactive investor	7,681,457	5.1
Stephen Lucas	7,233,024	4.8
Allianz Global Investors	7,100,000	4.7
John Story	6,525,003	4.3
Sankofa Investment Management	4,543,194	3.0

Except as referred to above, the Directors are not aware of any person who was interested in 3% or more of the issued share capital of the Company or could directly or indirectly, jointly or severally, exercise control.

Donations

No political or charitable donations have been made in the year ended 31 December 2022.

Directors’ insurance

The Company has maintained throughout the year directors’ and officers’ liability insurance for the benefit of the Company, the Directors and its Officers.

Independent auditors

A resolution proposing the re-appointment of HW Fisher LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting.

Going Concern

The time horizon required for the Going Concern Statement is a minimum of 12 months from the date of signing the financial statements. Consistent with prior periods, the Directors have adopted an assessment period of 18 months and run forecasts for a three year period from the year end date of 31 December 2022.

In determining whether there are material uncertainties, the Directors consider the Group’s business activities and principal risks. The Directors’ reviewed the Group’s cash flows, liquidity positions and borrowing facilities for the going concern period.

There has been no material uncertainty identified which would cast significant doubt upon the Group’s ability to continue using as a going concern. As such, the Directors considered it appropriate to adopt the going concern basis of accounting in the preparation of the Group’s financial statements.

Annual General Meeting

The Annual General Meeting (AGM) will be held on 26 June 2023.

Signed by order of the board

Graham Bird

Chief Financial Officer

31 May 2022