XP Factory plc (LON:XPF) has announced its audited final results for the 15 months ended 31 March 2024
FINANCIAL HIGHLIGHTS
| · | Group revenue for the 15 month period increased to £57.3m (12 months 2022: £22.8m) demonstrating the significant growth in scale: |
| – Escape Hunt® owner operated site revenue increased to £16.7m (12 months 2022: £9.8m) | |
| – Boom Battle Bar® (“Boom”) owner operated revenue increased to £37.5m (12 month period 2022: £9.5m) | |
| · | Gross margin increased slightly to 64.6% (2022: 64.4%) |
| · | Pre IFRS 16 Group Adjusted EBITDA increased to £6.3m (12 months 2022: £2.6m) |
| · | Site level pre IFRS 16 EBITDA increased to £16.2m (12 months 2022: £8.3m) |
| · | Group Adjusted EBITDA rose to £9.9m (12 months 2022: 4.0m) |
| · | Operating profit1 of £1.9m was £7.0m ahead of prior year (12 months 2022: loss £4.9m) |
| · | Loss after taxation of £0.5m (12 months 2022: £1.0m) |
| · | £11.1m cash generated from operations (12 months 2022: £3.3m) – £8.3m invested in capital expenditure |
| · | £3.9m cash balance at 31 March 2024 (31 Dec 2022: £3.2m) |
OPERATING HIGHLIGHTS
| · | Double digit like-for-like sales growth delivered across both owner-operated brands: |
| – Boom: up 22.4 % in the 65 weeks to 31 March 2024 | |
| – Escape Hunt: up 16.9% in the 65 weeks to 31 March 2024 | |
| · | New owner operated Boom sites opened in Dubai in July 2023, Canterbury in September 2023 and Southend in October 2023 |
| · | Boom franchise sites in Chelmsford and Ealing acquired in June 2023, Glasgow and Liverpool in November 2023, and Watford in December 2023 |
| · | Boom owner operated Pre IFRS16 site level EBITDA margin increased to 17% (2022: 13%) |
| · | Boom Pre IFRS 16 site level EBITDA return on capital of 52% |
| · | New owner operated Escape Hunt site opened in Woking in July 2023 |
| · | Escape Hunt owner operated Pre IFRS 16 site level EBITDA margin of 42% (2022: 42%) continues to exceed internal targets |
| · | Escape Hunt Pre IFRS 16 site level EBITDA return on capital of 48% |
| · | Pipeline of further site openings developed across both brands |
POST PERIOD END HIGHLIGHTS
| · | Three Escape Hunt sites and one Boom currently in build stage, with a developed pipeline underpinning site roll-out targets for the year |
| · | Acquisitions of further Boom franchise sites in Wandsworth and Aldgate completed in May 2024 and Bournemouth in June 2024 |
| · | 1.9% LFL sales growth delivered across the Boom owner operated sites in the 20 weeks to 18 August 2024 |
| · | 1.5% LFL sales growth across the Escape Hunt owner operated estate in the 20 weeks to 18 August 2024 |
| · | Credit approval received for new £10m Revolving Credit Facility from Barclays |
1. Operating profit calculated before fair value gain of £6.2m in 12 months to 31 December 2022; £0.3m fair value loss and £0.5m gain on closure of subsidiary in 15 months to 31 March 2024.
Richard Harpham, Chief Executive of XP Factory, commented:
“I am delighted to report on another exceptional period of growth which has delivered results ahead of market expectations. Our focus on incremental improvements alongside ongoing expansion in the estate has helped deliver market leading returns on investment in both our brands and strong operating cash generation. Since the period end, we have continued to see positive like-for-like growth and performances well ahead of the industry as a whole. With record advance bookings for the busy end of year season and improving consumer sentiment, the Board’s expectations for the full year are unchanged and we continue to view the prospects for the business with optimism.”
STRATEGIC REPORT
Chairman’s Statement
I am delighted to be reporting on another transformational and successful reporting period for the Group. After achieving some very ambitious targets in 2022 to significantly expand our then newly acquired Boom Battle Bar estate whilst also expanding our Escape Hunt network, our focus in the period was much more about optimising the estate, building our capabilities and applying learnings to enhance performance.
It is a credit to the team who delivered turnover of £57.3m in the period, up from £22.8m in the 12 months to 31 December 2022. Adjusted EBITDA of £6.3m pre IFRS16 and £9.9m post IFRS16 and the Group’s first full reporting period operating profit (excluding revaluation gains) of £2.4m, up from a loss of £4.9m in the 12 months to December 2022 resulted in an outcome modestly ahead of market expectations.
Both Escape Hunt and Boom had exceptional performances in their own ways. Escape Hunt has continued to deliver industry leading margins and return on capital, whilst growing at rates well ahead of its peers. Boom has developed from a business in its infancy to a substantial cash generative division, likewise delivering an industry leading return on capital and affording the opportunity for further investment and shareholder value creation. Importantly, it has been very satisfying to see the exceptional level of turnover growth deliver strong operating cashflow which has enabled us to continue to invest in expanding our estate.
The business has made progress in a number of areas. Notably, our investment in data and technology capabilities is already bearing fruit, evidenced by improved gross margins within Boom and the strong return on capital that we have been able to achieve on investment towards expanding capacity at selected sites.
We achieved our target for new site openings in the period, opening three new Boom sites located in Canterbury, Southend and Dubai respectively, and a further Escape Hunt in Woking. The pipeline for further expansion is well developed and we are currently in build at three further Escape Hunt sites and one new Boom site. Our experience in Dubai will serve as a good test case to expand into other territories in future, whilst our ability to relocate the modular Escape Hunt games provides confidence in the prospect of being able to rotate content in future, cost effectively.
During the year we also bought back five Boom franchise sites, and since the period end have bought back a further three. Our longer term strategy is to build a brand which is attractive to larger scale franchisees capable of managing multiple franchise sites. In the interim we will be opportunistic about buying back sites with a view to improving performance where possible and leveraging our operating platform effectively.
We put significant effort into creating a clear brand identity for Boom, and I am delighted to report that it has been well received by customers and employees alike.
Since the period end, we have received credit approval on agreed terms for a new £10 million Revolving Credit Facility from Barclays, providing us with significant financial headroom, the flexibility to continue our growth at pace, and a development which represents a strong endorsement of the progress we have made.
We are conscious of both our public duty towards and the benefits of developing a culture which embraces environmental, social and governance issues alongside commercial success as we develop our corporate identity and culture. We present our first SECR report this year and internally, the business has recently introduced a number of employee focused incentives and support structures through our THRIVE initiative. As the business is now generating a healthy operating cashflow, we have introduced a bonus scheme for all centrally located staff, linked to business success. We also have equity participation programmes available to all staff and appropriate site level incentivisation for site level employees.
Our board was unchanged during the period under review. We have a highly experienced board of directors who have made a significant contribution to the success of the business thus far, and to whom I would like to extend my thanks.
Finally, I wanted to thank all our people in the Group without whose efforts and dedication the business could not 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 its scale and prospects 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 since the start of the financial year to March 2025 has been positive, with both brands delivering positive volume-driven like-for-like growth, 1.9% in the case of Escape Hunt, and 1.5% in the case of Boom in the 20 weeks to 18 August 2024. Whilst the rate of growth has slowed compared to the same period a year ago, the change reflects the gradual maturing of the estates. Both businesses have maintained margins whilst absorbing significant further labour cost increases, driven by the increases to minimum living wage levels and our desire to continue to pay a premium to attract talent. Whilst the summer uplift in sales in July and August was modest, forward bookings for the end of year peak are well ahead in comparison to previous years providing confidence for the coming months and leaving the Board’s expectations for the full year unchanged. Our recently approved banking facility is a strong endorsement of the progress made within the Group and provides us with flexibility to roll out new sites in line with our strategy and the potential to accelerate our plans as we secure new sites.
With the anticipation of further interest rate cuts on the horizon and a materially lower inflation rate which is now being outstripped by labour inflation, we believe there is scope for improving consumer confidence underpinning optimism in our sector and we view the future with growing confidence.
Richard Rose
Chairman
31 August 2024
Chief Executive’s Report
In the 15 months to 31 March 2024 XP Factory delivered another period of impressive growth, with sales increasing to £57.3m (12 months 2022: £22.8m), and pre-IFRS16 Adjusted EBITDA increasing to £6.3m (12 months 2022: £2.6m). Post IFRS16 Adjusted EBITDA was £9.9m (12 months 2022: £4.0m). A significant milestone was achieved, as the business generated for the first time a positive underlying Operating Profit1 of £1.9m, compared to a loss of £4.9m in 2022. While some of this growth came from the four sites opened in the year (three Boom, one Escape Hunt), most was driven by the underlying momentum in the business, the strong like-for-like sales performances across both brands, and the continual improvements in operating margins.
· Group revenue increased to £57.3m (12 months 2022: £22.8m)
· Adjusted EBITDA pre IFRS16 rose to £6.3m (12 months 2022: £2.6m)
· 20 owner-operated and 10 franchise Boom Battle Bar sites open as at 31 March 2024 (31 Dec 2022: 11 owner-operated and 16 franchise sites)
· 23 owner-operated and 22 franchise Escape Hunt sites open as at 31 March 2024 (2022: 23 owner-operated and 23 franchise sites)
· 98% customer satisfaction score earned on both businesses (Source: Feed It Back)
1. Underlying operating profit is before fair value gains / losses (2022: gain £6.2m; 15 Months to 31 March 2024, loss £0.3m) and profit on closure of subsidiary (15 months to 31 March 2024 £0.5m)
Following a year of significant opening activity in 2022, the 15 month period has been much more about optimising the estate and using the learnings from sites that have been operating for over a year to apply to new sites and retrospectively make changes to existing sites. Whilst the pace of new site roll-outs has been more gradual, revenue has continued to build driven by strong like-for-like growth, the full year effects of sites opened in 2022, and further new site openings in the period. Our investment into data and technology capability is already paying off and we are confident that the business continues to improve day by day.
The strong cash generation from the business has been a particular highlight, with £11.1m of cash generated from operations (£7.9m on a post IFRS16 basis) enabling us to continue to invest in growing the Group. The business has remained resilient in the face of the widely publicised cost of living crisis and high inflation impacting consumers and the leisure sector as a whole. In view of these challenges, we have deliberately avoided price increases in all but a few selected instances, instead aiming to absorb the additional costs and focus on driving volumes. To date, we believe this has been the right approach evidenced by our ability to grow both sales and margin.
The business has made further strategic progress, not only by continuing the roll out of new sites and the buy-back of franchise sites, but also in our approach to data and information within the business and at sites. Using insights learned from existing sites we are improving the layout of both new and existing sites, optimising the combination of games and the mix of sales and understanding our customers better. The period under review also saw the formal relaunch of the Boom Battle Bar brand identity which has put new energy into a number of sites and underpins the Group ethos, enabling both our customers and employees feel that they are winning at life!
Since the year end, we have received credit approval from Barclays for a new £10 million Revolving Credit Facility. This represents a significant milestone for the Group, and an endorsement of the progress we have made in creating a more stable, mature business over the last few years. Whilst we plan to remain conservative in our use of debt, the facility will give us the flexibility to sign new sites and potentially accelerate plans for growth and shareholder value creation.
Escape Hunt
Escape Hunt’s performance in the period was exceptional. The Escape Hunt owner operated division delivered turnover of £16.7m, up 71% compared to the 12 month period to 31 December 2022. A new venue was added in Woking, opening in July 2023. We also consolidated our two venues in Norwich as planned into one site, providing our first real evidence of our ability to move the modular games which are now being produced. The result was that we ended the period with 23 owner operated Escape Hunt venues, the same number as at 31 December 2022. The underlying turnover growth therefore came from the full year effects of sites opened in 2022 and the strong like-for-like growth of 16.9% generated by existing sites over the 15 month period. Whilst double digit like-for-like growth is not expected to continue, the delivery of such a strong performance during a period of consumer weakness is testament to the team and the proposition. Corporate sales grew in line with consumer growth, representing 5% of total sales.
Pre IFRS16 site level EBITDA margins remained very strong at 42% (FY22 42%). This is notwithstanding the loss of the VAT benefit enjoyed in the first three months of 2022 which did not continue in 2023.
Consumer ratings have always been a key performance indicator for the business and we were delighted that, once again, to have so many of our sites being awarded the Tripadvisor™ consumer choice award. Ratings are monitored by third parties on our behalf, and it has been enormously satisfying to see average review ratings maintained at 98%, well above the experiential leisure industry as a whole.
The strong EBITDA conversion within Escape Hunt is driving attractive return on capital. Across the UK portfolio of owner operated sites, Escape Hunt delivered an annualised 48% return on capital over the 15 month period, significantly ahead of the Group’s cost of capital, highlighting the attractions of continuing to invest in the business to grow shareholder value.
The consumer appeal for Escape Hunt’s products within the experiential leisure sector seems to be continuing to grow, and evidence would suggest that the business is winning market share, underpinning the attractions of the segment and giving confidence to our strategy of further investment.
The Escape Hunt franchise estate now represents only a small proportion of the Group’s activities. The underlying business performed satisfactorily after a couple of difficult years as a result of COVID. Activity was broadly flat as franchise revenue was £0.8m in the 15 month period, an increase of 18% compared to the 12 month period to 31 December 2022, delivered by a slightly reduced estate which comprised 22 sites at 31 March 2024.
Boom Battle Bar
The 15 month period represents the first period of Boom’s trading during which we have been able to start benchmarking performance with the benefit of some history. The owner operated estate delivered turnover of £37.5m in the 15 month period, up from £9.5m in the 12 month period to 31 December 2022. The growth was delivered by full year effects of sites opened or acquired in 2022, new site openings in the period, franchisee acquisitions and robust like-for-like growth of 22.4%. Christmas 2023 was the first festive season where we had significant inventory available well ahead of the critical corporate booking season, and this enabled strong corporate sales growth. Corporate sales in the 15 month period totalled £4.5m, representing 12% of sales up from 10% in 2022.
Margins in the business continue to improve in line with our expectations. Gross margins in the owner operated estate improved to 59% from 52%, helped by the positive benefits of operational gearing on labour costs as well as the significant operational efficiencies afforded by the implementation of new systems at site level. Pre IFRS 16 site level EBITDA margins were 17%, up from 13% in 2022. Whilst these remain below our longer term aspirations for the division of 20% – 25%, pre IFRS 16 site level EBITDA was 23% in the six months between July and December 2023. The overall year has been impacted by younger sites which typically operate at lower margins, and by certain of the franchise acquisitions, which in the period have tended to be smaller, less well performing sites where we believe performance can be improved under our ownership. We are already seeing steady improvement at sites we have bought back, and together with the maturity benefits from maturing younger sites, we remain confident that our mid-term aspiration of achieving a 20% – 25% EBITDA margin is realistic.
Return on capital within the Boom owner operated estate for the 15 month period was a market leading 53% annualised (based on sites owned and operated for twelve months to 31 March 2024). The high returns are helped by significant landlord contributions which we have typically been able to secure, but underpinned by an attractive operating model. During the year, we opened new sites in Canterbury and Southend in the UK, which together received £0.95m of capital contributions. We also opened a new site in Dubai, which is a good test to how we might be able to leverage the concept into new territories.
Boom’s business model is inherently more exposed to cost pressures from suppliers than Escape Hunt. Despite significant increases in utilities, cost of sales and labour costs, we have sought to maintain prices and absorb the cost increases through volume growth. The improvement in gross margins delivered underpins that decision as we seek to maintain a strong customer proposition and build customer loyalty.
Operationally, we have continued to focus on improving our customer journey and adapting processes and layouts in line with our learnings. In a number of sites, we have built additional bar capacity where we were constrained previously, and across the board we have refined our offering significantly. This catalogue of small improvements has manifested itself in an average customer satisfaction score of 96% which sits materially ahead of the competition.
People and culture
XP Factory has grown significantly over the last two years in particular. As the business matures, we are investing in our people, systems and capability to ensure the business is both sustainable and scalable. We aim to build a culture which nurtures and develops talents, embraces best practices, and operates with integrity, honesty and enthusiasm. A number of initiatives have been put in place to support employees in their roles and, importantly, the Group is investing in areas of the business which will help drive performance.
The investment made into data and technology is of paramount importance. Examples include the upgrades made to our POS systems and the online booking systems, as well as how we are using our CRM system. Further work will continue in this area as we aim to use insights gained from existing sites to improve customer experiences and ultimately business performance. Our data analysis is already being used to inform decisions on location and layout of sites, pricing, promotional activity and a range of other operational decisions. We are beginning to look at how AI might become a tool to further develop our customer propositions, capabilities, reporting and efficiency.
We are also increasingly aware of our environmental, social and governance responsibilities. Information is provided separately this year in our first SECR Report. We have also launched a new internal programme called THRIVE, which aims to enhance employee wellbeing and engagement.
Strategic objectives
Continued execution of our strategic priorities
Our strategic priorities remain as set out previously and we have continued to make progress in each of these areas during the period:
1. Maximise the UK footprint by rolling out each brand, either through direct investment into owner operated sites or through franchise arrangements
Following the aggressive roll-out in 2022, we consciously moderated the pace of roll out during 2023 to ensure we optimise the performance and operations within the enlarged estate. During the period, we opened a new Escape Hunt site in Woking and new Boom in Dubai, Canterbury and Southend. We also acquired former Boom franchise sites in Chelmsford, Ealing, Liverpool, Glasgow and Watford. We completed our plan to merge our two Escape Hunt sites in Norwich into the larger unit, bringing the combined owner operated estate to 23 Escape Hunt venues and 19 Boom Battle Bar venues. Since the period end, we have made further acquisitions of franchise sites in Aldgate, Wandsworth and Bournemouth.
2. Accelerate growth in international territories, ultimately through franchise
We opened our first international Boom Battle Bar in Dubai and continue actively to explore possibilities in other territories. In the short term, as before, our focus for both brands will remain the UK with the aim of developing a robust, defensible business capable of international franchise.
3. Continue to develop new products and markets which facilitate the growth of B2B sales
We put significant investment into our B2B sales capability at the start of the reporting period with both Boom and Escape Hunt benefitting from strong growth in corporate sales revenue. Escape Hunt has also developed a new range of outdoor experiences which were rolled out across the estate during 2023 providing additional sales potential and catering to new customers.
4. Integrate the businesses, exploit synergies where possible and develop an infrastructure that supports scale and future growth
This final objective has taken a greater degree of importance in the period under review as we aim to optimise the performance of the existing business and create a platform that is defensible, attractive to larger scale franchisees and capable of supporting a significantly larger business. During the year, we upgraded our in-store point of sale systems as well as migrating to new online booking solutions across the Boom estate. The new systems set the business on a stronger platform and will allow us to scale more efficiently in future.
Current position and longer-term opportunity
The Group is now beginning to see the benefits of our enhanced scale providing the foundations for improved efficiency and expanding our competitive advantage. By design, our model is capital efficient, with rapid payback and high return on investment, as well as being eminently scalable with an objective to achieve accelerated market share, superior returns and deliver a consistent customer experience. We aim to continue to receive industry leading satisfaction scores. Our key strengths are as follows:
· Modular formats – standardised lay-outs and automated games
· Growing data sets, learning what does and does not work – all accelerating timescales for sites to reach maturity
· Increasingly trusted brand with strong customer review scores and industry recognition
· Cost advantages of room build through modular off-site construction with fit-out completed on-site
· Ability to achieve favourable rent conditions with frequent landlord incentives provided on new-builds
· Scaling of supplier relationships with the prospect of margin enhancement
The above factors are all helping to drive attractive unit economics, with the potential for enhanced returns in the future. Areas of further potential opportunity include upgrading our games offering in existing sites, widening our food choice, harnessing data insights to a greater extent to optimise site layouts and game offering and using technology to enhance customer experience.
In summary, the experiential leisure industry has proven to be exceptionally robust despite the current pressures on the consumer. However, it remains in its infancy in terms of the wider leisure opportunity in the UK. Competitive socialising participation is growing quickly at 13% p.a. and the Group is ideally positioned to benefit from these structural growth trends. In the short-term, we are seeking to optimise the pace of site roll-out at the pace at which we are able to generate capital. We remain vigilant of evolving trends and continue to actively manage our existing estate as well as evaluating new opportunities to drive profitable growth. We have invested in our capability to analyse data from our sites more thoroughly, both to improve existing sites and to identify the optimal locations for new sites. Initial analysis supports our expectation that in the longer-term, we see an opportunity to scale the business considerably domestically and internationally, with a market opportunity of 50+ Escape Hunt and 100+ Boom Battle Bar sites in the UK alone.
Post period end trading and 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 since the start of the financial year to March 2025 has been positive, with both brands delivering positive volume-driven like-for-like growth, 1.9% in the case of Escape Hunt, and 1.5% in the case of Boom in the 20 weeks to 18 August 2024. Whilst the rate of growth has slowed compared to the same period a year ago, the change reflects the gradual maturing of the estates. Both businesses have maintained margins whilst absorbing significant further labour cost increases, driven by the increases to minimum living wage levels and our desire to continue to pay a premium to attract talent. Whilst the summer uplift in sales in July and August has been modest, forward bookings for the end of year are well ahead in comparison to previous years providing confidence for the coming months and leaving the Board’s expectations for the full year unchanged. Our recently approved banking facility is a strong endorsement of the progress made within the Group and provides us with flexibility to roll out new sites in line with our strategy and potentially to accelerate our plans for growth and shareholder value creation.
With the anticipation of further interest rate cuts on the horizon and a materially lower inflation rate which is being outstripped by labour inflation, we believe there is scope for improving consumer confidence underpinning optimism in our sector and we view the future with growing confidence.
Richard Harpham
Chief Executive Officer, XP Factory
31 August 2024
