4 December 2024

XP Factory plc

("XP Factory", the "Company" or the "Group")

Interim Results

XP Factory plc (AIM: XPF), one of the UK's pre-eminent experiential leisure businesses operating the Escape Hunt® and Boom Battle Bar® brands, is pleased to announce its unaudited interim results for the six months ended 30 September 2024 ("H1 FY2025"). 

 FINANCIAL HIGHLIGHTS

OPERATING HIGHLIGHTS

¹ H1 2023 interim results previously published were for the six months to 30 June 2023.

² Earnings before interest, tax, depreciation and amortization, calculated before pre-opening losses, exceptional items, and other non-cash items.  2023 comparative restated

³ Cash generated from operations, after IFRS16 lease payments, interest and tax, before capital expenditure

POST PERIOD-END HIGHLIGHTS

ANNOUNCEMENT OF MEDIUM TERM GROWTH TARGETS

Richard Harpham, Chief Executive of XP Factory, commented: "I am delighted to report on another period of positive, cash generative growth in the six months to 30 September 2024, with Group revenue increasing by 33.2% compared to our first half in 2023. This performance reflects continued volume-driven like-for-like growth across both of our brands, ahead of industry levels. Consumer sentiment weakened in the summer and ahead of the UK Budget, softening first half performance and, whilst we are encouraged by strong early indicators for the all-important festive season, with corporate pre-bookings significantly ahead of 2023, we remain laser focused on maximising the Christmas trade that is so important in delivering the full year's results.  This is a testament to the strength of our offering, the loyalty of our customer base, and the hard work of our teams.

"We have also achieved important milestones to support our expansion goals. The completion of a £10m revolving credit facility with Barclays provides us with the financial  ability to execute our clear plan to double Group EBITDA over the next four years. In addition, we are planning a balance sheet re-organisation to enable share buy-backs and to create capacity for dividend payments in future, should we deem it appropriate.  With a solid foundation in place, we remain confident in our ability to deliver sustainable growth and significant long-term value creation."

XP Factory will provide a trading update after the Christmas period in late January 2025.

About XP Factory plc

The XP Factory Group is one of the UK's leading 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 franchised sites in the UK that combine competitive socialising activities with themed cocktails, drinks and street food in a high energy 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. (https://xpfactory.com/)

CHIEF EXECUTIVE'S REPORT

INTRODUCTION

We are pleased to report another six-month period of further progress with good growth in both our Escape Hunt and Boom Battle Bar brands. Both businesses achieved positive like-for-like sales growth against strong prior year comparatives despite an environment characterised by weaker consumer sentiment particularly in the run up to and immediate aftermath of the UK budget announcement. 

Escape Hunt continues to perform exceptionally well; site level EBITDA margins improved to 42% (H1 2023: 40.2%), with strong cash generation and outstanding customer feedback.  We continue to see significant further growth opportunities for the brand, and plan to accelerate the roll out within the UK.  We are also in the early stages of investigating new international opportunities.

Following a very strong year of growth in 2023, Boom has continued to deliver positive like-for-like sales growth, whilst maintaining healthy gross margins and producing strong free cash generation. As a more seasonal business, site level EBITDA is always lower in the first half of the year than as the second half is significantly bolstered by the important Christmas period which has started positively with corporate pre-bookings significantly up compared to November and December in 2023. Boom is now in its third year of operation under XP's ownership and with the data and learnings garnered, the strong cash return on capital and in particular the opportunities for further roll-out in high footfall and high population areas, we believe the runway for Boom remains highly attractive.

Our £10m revolving credit facility with Barclays is now in place, providing the funding to accelerate our growth with a clear target to double EBITDA within four years.  More detail is set out below.  Whilst there will be additional costs on the business driven by the Government's recent budget, we have plans in place to mitigate the impact which can largely be absorbed without the need for significant price increases. We remain optimistic for both our businesses for the coming year.

ESCAPE HUNT

The Escape Hunt owner operated business delivered £6.5m of revenue in the period with continued positive like-for-like sales growth of 3.5% across the UK estate, achieved with negligible increases in pricing. The performance in the period was adversely impacted in the final two weeks of the football European Championships, when England played in the knock-out games, and we also experienced a significant reduction in activity during the two weekends in late July / early August when rioting in the UK kept consumers at home.  Several of our sites were forced to close in locations where rioting was close to the venue. Excluding the final two weeks of the Euros and the weeks impacted by riots, like-for-like sales growth in the UK was 6.7%. 

Site level EBITDA was £2.7m, a 12% increase on the site level EBITDA reported in H1 2023. The Minimum Living Wage (MLW) increased by 9.8% in April 2024 and in order to maintain our premium to the MLW, labour costs increased accordingly.  However, we have largely been able to absorb the cost increases at site level through improved efficiencies, leading to increased EBITDA margins in the period of 42.0%.  Performance across the estate has been consistent, characterised by strong cash generation and high return on capital metrics.

We opened one new site in the period in Worcester, which is trading well, and since the period end we have opened a further site in Glasgow, with a site in Cambridge opening  to the public on 6^th December 2024.  We have developed a further pipeline of towns and cities to target and, as explained below, plan to accelerate the roll out of Escape Hunt sites using cash generated from operations and our credit facility.

Our content strategy has also made significant strides and continues to prove extremely popular with our customers.  Our new Excalibur game is now operating in four sites and we have a new Dracula game in two.  An exciting new game, Jewel of India, is in production and new games themed around the Chocolate Factory and carnival style Fiesta have been launched for our franchisees.  All games are proprietary to Escape Hunt and the growing content library, together with the production know-how provides growing differentiation and represents a significant barrier to entry for competition.

BOOM BATTLE BARS

Owner operated

The Boom owner operated business delivered turnover of £17.6m, representing a 56% increase compared to the previously reported H1 2023 (H1 2023: £11.3m).  Like-for-like growth in the 26 weeks to 29 September 2024 was 4.4%. As for Escape Hunt, the underlying like for like growth in the period was negatively impacted during two weeks in August 2024 when riots took place across the country.  The prior year comparative also benefitted from international rugby games in Cardiff over two weekends in August, which delivered exceptionally high sales in our Cardiff site.  Excluding these two factors, the underlying like-for-like growth was 10.3% across our UK owner operated estate.

Site level EBITDA of £2.1m represents a margin of 11.8%. However, the margin has been diluted in particular by two former franchise units which were struggling, one of which we have taken over at no cost and the other with a termination payment due from the franchisee.  Excluding these two sites, the underlying site level EBITDA margin for the UK estate was 13.6%. 

Three former franchise sites were acquired during the period in Aldgate, Wandsworth and Bournemouth. The sites in Aldgate and Wandsworth were both owned by the same franchisee who had significant outstanding debts and had fallen in arrears.  In each case, we stepped in to take over the site to avoid brand and lease guarantee exposure with a termination payment due from the franchisee payable over a three-year period.  Aldgate is a high performing site with potential to deliver strong margins.  Wandsworth has been a more difficult venue and we have since restructured the lease, reduced the footprint and are confident of turning the site's performance around.  Bournemouth has historically been a good performer, and we expect to generate attractive returns from the acquisition.  Since the period end, we have bought back the strong performing site in Southampton and have stepped into the Ipswich site in return for a termination payment.  Both sites will form part of our owner operated estate in future.

Franchise

Franchise revenue in the period was £0.5m, a 51% decrease on H1 2023 (£1.1m). The deliberate decrease is as a result of the reduction in the number of franchisees following the acquisitions completed in late 2023 and further acquisitions during the current period.  There are currently five franchise sites in the Boom estate, and it is likely that a number of these will also be brought back into the owner operated estate.

STRATEGY

We recognised the significant growth opportunity for XP Factory some time ago, and our extensive data points around market-leading customer validation, high returns on capital and runway have only served to further cement that view for both brands. The challenge, however, was how to fund such growth in the most effective way for shareholders. Now that we have access to a £10m revolving credit facility from Barclays, we are pleased to communicate our plan to double Group Pre IFRS 16 EBITDA over 4 years, targeting run-rate sales of £100m at 15% EBITDA in the medium term, whilst maintaining modest net debt ratios.   

The consistently strong returns generated by Escape Hunt and experience in cities such as Norwich, where we proved two sites could operate very profitably alongside each other has given us confidence in a significantly longer runway than we first imagined, with scope for around 100 sites rather than 50. Furthermore, we are increasingly being able to secure landlord contributions for smaller Escape Hunt sites, which previously were not available, reducing the net investment required to open a new site. 

In the case of Boom, with three years of experience, we have learnt much about the factors that drive success, which enables a more nuanced approach to locating new sites.

As a Group, our vision is to deliver £90m of sales and £13m Group EBITDA margin within four years, with an underlying run-rate revenue of £100m and targeting a 15% Group EBITDA margin. This will be delivered by focusing principally on growing the owner operated estate and leveraging the head office platform we have in place already.

Escape Hunt performs highly consistently across all sites, all of which are similar sized with six games rooms on average. Expanding the estate rapidly across the UK in this format remains the focus, and additionally we now have data that supports the building of larger sites in areas of particularly high traffic.

Our Boom estate comprises some large sites in very high footfall areas, but also some smaller sites in more neighbourhood towns. Whilst the business works in both, the returns are disproportionately higher when the sites are larger, more prime and in large towns, so these opportunities will be our focus over the coming periods.  

The group's target can be achieved from a portfolio comprising 50 - 60 Escape Hunt sites, requiring growth on average of 8 - 10 of our current sized sites per annum, alongside 35 - 40 Boom sites, requiring growth on average of 2 - 4 new sites per annum from the current base.  This can be achieved with modest leverage, aiming to keep average Debt:EBITDA ratios around 1.0x on a pre-IFRS16 basis.

The accelerated growth strategy provides an exciting and clear path to value creation, capitalising on the growing and positive long-term trends in favour of experiential leisure.  We plan to host a capital markets day in Q1 2025 to provide greater insight to investors.   

FINANCIAL REVIEW

Financial performance

Following our change of year end, the unaudited results for the six months to 30 September 2024 represent a different period to the period previously reported in our interims in 2023. Sales and gross profit information is provided for the comparison purposes.  Group revenue in the six months to 30 September was £24.9m, an increase of 19% over the same period in 2023 (six months to Sep 2023: £20.9m) and an increase of 33% over the six months to June 2023 as previously reported (six months to June 2023: £18.7m).  The increase is driven by positive like-for-like growth, all of which was volume driven, coupled with growth in the Boom estate comprising both new site openings in late 2023 and the acquisition of former franchise sites.

Revenue and gross profit in the three relevant six month periods were as follows:

Group Adjusted EBITDA pre IFRS16 was £1.5m and increase of 31% over the £1,1m for the six months to June 2023.  Adjusted EBITDA after IFRS16 was £3.2m, up 30% compared to the £2.4m reported in the six months to June 2023.  

£307k of expenditure in the period related to pre-opening costs covering the new Boom site in Cambridge and new Escape Hunt sites in Cambridge, Worcester and Glasgow. The £384k contract termination and other exceptional costs includes an onerous contract provision relating to TV subscriptions which we have removed from the majority of our Boom sites, as there has been no discernible benefit from the significant cost associated with the service.

At a site level, Escape Hunt owner operated segment continued to perform strongly, delivering site-level EBITDA of £2,733k at a margin of 42.0%.  The underlying site level EBITDA margins achieved in Boom (11.8%) reflect the seasonality in Boom's business but more significantly were diluted by the losses/lower margins generated from two previous franchise sites.  We have taken over the two franchise sites in question as we had lease exposure, and the franchisee was unable to operate the site satisfactorily.  Outside of these two sites, the estate delivered site level EBITDA margins of 13.6%.

Central costs of £4.1m represent a 3.5% increase on the six-month period to June 2023, and increased largely as a result of inflationary pay rises awarded earlier in the year.  Since the period end, we have identified and implemented a number of cost savings within our head office cost base with a run rate of c.£1m per annum. It is our intention to leverage the central cost base against further growth in the business in future. 

Interest costs of £195k reflect the additional fit out and vendor finance utilised. 

Unaudited Group operating loss was £0.9m (six months to June 2023: loss £2.2m) leading to a reduction in the loss per share from 1.58p to 1.26p.

Cashflow

The Group generated £4.2m of cash from operations (H1 2023: £3.4m) on a post IFRS16 basis, and £2.3m pre IFRS16 (H1 2023: £2.4m), demonstrating the strong cashflow characteristics of the business.  £3.6m was invested in plant and equipment and intangibles, offset by £0.4m landlord contributions received. This investment comprised capital expenditure of £2.1m within Boom owner-operated sites, of which £0.1m represented 'maintenance' capex, capital expenditure of £1.4m in Escape Hunt owner operated sites, of which £0.1m represented maintenance capex, and £94k of central capital expenditure, the majority of which was related to intellectual property protection.  

£0.9m of loan repayments were made, predominantly vendor and fit out finance, and £0.1m was utilised towards acquisitions of former franchise sites.  

Rental payments, classified under IFRS16 as capital and interest payments totalled £1.9m, whilst £195k was paid in interest on fit out finance and other loans. 

Since the period end, the Group has formalised the revolving credit facility with Barclays.  £2.5m was drawn in October 2024 of which £1.1m was used to refinance existing debt and the balance is being used on site expansion, notably in Cambridge.   

Cash at 30 September 2024 was £1.9m, offset by £3.2m of debt leaving net debt of £1.3m.  (31 Mar 2024: £0.0m).

Financial position

Movements on the balance sheet largely reflect the capital investment, acquisitions of former franchise sites and related funding undertaken during the period. 

Current assets reduced to £5.8m, driven by a reduction in receivables and cash.   

The increase in current liabilities of £1.5m comes from a combination of increased trade creditors, much of which is capex related to Cambridge and the new Escape Hunt sites opened in September and October, coupled with an increase in contract liabilities comprising deferred revenue, being pre-bookings.

Net assets as at 30 September 2023 stood at £22.7m (31 March 2024: £25.0m).  Group net debt was £1.3m (31 Mar 2024: £0.0m).

UK BUDGET

The Budget announcement on 29 October 2024 has been widely criticised as anti-business due, in large part, to the 6.7% increase in MLW and the increase in the rate payable for employer's national insurance coupled with the lower threshold at which employer's national insurance becomes payable.  These two changes have a direct impact on the hospitality and retail industries in particular, and much has been written in the ensuing weeks regarding the additional costs the changes will place on the industry.  We have analysed the potential impact of the changes and believe that the increased costs can largely be absorbed within our existing cost forecasts, alongside mitigating actions to reduce overall costs.  The impact within head office salaries is confined to the NI changes with the overall increase representing approximately 1% of the total employee cost.  Our cost forecasts assume increased employee costs in future years, and we believe this increase can be absorbed within those assumptions.

Within the Boom and Escape Hunt owner operated sites, the impact is greater.  Although we have historically paid a premium to the MLW, in many cases, the new MLW level is higher than existing hourly rates. We have also not historically differentiated hourly pay based on age and around 40% of Escape Hunt's hourly paid staff  and 50% of Boom's hourly paid staff have not previously worked sufficient hours to reach the threshold at which employer's NI was payable.  However, under the new thresholds, about half of these employees would now fall into the banding.  We have a number of ways in which the impact of the total increase can be mitigated, including changing the allocation of hours, hourly rates and the employee mix. Labour represents c.30% of sales in Escape Hunt and c.28% of sales in Boom. Our estimates suggest that the NI changes will lead to labour cost increase of approximately 3.5%, whilst the changes to MLW would add between 2.5% and 5.0% in Escape Hunt and between 1.2% and 5% in Boom. As such we believe total labour cost increases at site level of between 5% and 9% are likely, dependent on the decisions we make regarding potential mitigating actions.  The bottom of the range is within our existing cost forecasts whilst the top end of the range would see additional costs of c.£0.8m before any further mitigating actions.   

We have already taken action to address our overall cost base, notably at head office where we have restructured post period-end to take out annualised costs of c.£1m. We are also looking at ways that we can use technology to further reduce the growth of labour costs as we grow the estate and, with the benefit of learnings from our Boom estate, have been able to remove certain subscription costs which are not providing a return.  These and further actions will significantly mitigate any additional impact not already reflected in our forecasts.  Whilst it is possible we may have to pass some of the additional cost on to customers, with all these actions, we believe the increased costs arising from the budget can largely be offset without the need to look for significant price increases. 

PROPOSED BALANCE SHEET REORGANISATION

As the business has grown and is now generating strong cashflows, the board has made the decision to reorganise the balance sheet to enable share buy-backs and to create capacity for dividend payments in future.  The process to enable this will commence in the final quarter of the financial year.

POST PERIOD END TRADING AND OUTLOOK

The last two years have been characterised by a tough macro environment and the considerable headwinds facing consumers.  More recently, the deterioration in consumer sentiment in the run up to the UK Budget was widely reported and XP Factory has not been immune to these dynamics which softened the performance in the first half of our financial year.  Against this backdrop, we are pleased to have delivered another period of growth in all areas and positive, volume-driven like-for-like sales in both Escape Hunt and Boom Battle Bars.  As we enter the Christmas period, the most important trading weeks of the year for the hospitality industry and the period which is critical to delivering a successful full year outcome for XP Factory, we are pleased with our levels of pre-booked revenues in both brands, and are laser focused on maximising the trade that delivers so much of the year's result and investible capital.  

With both brands having achieved a return on capital of circa 50% and a significant runway for new sites ahead, we have always been excited about the growth opportunity for XP Factory. Backed with funding from our new £10m facility with Barclays, we are therefore pleased to be able to set out our plans to grow sales 50% whilst doubling Group EBITDA to create a business with £90m sales and £13m Pre IFRS 16 Adjusted EBITDA by March 2028. There are many reasons to be optimistic, with falling interest rates, lower inflation and rising real wages which should improve consumer sentiment, although these will undoubtedly be counterbalanced by the impact of tax rises imposed by the recent UK Budget and the knock-on effects thereof. The recent performance of XP Factory during a tough economic environment has been robust, and we therefore remain cautiously optimistic for the future and confident in our ability deliver sustainable long term value creation. 

Richard Harpham 

Chief Executive Officer

4 December 2024

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPT 2024

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPT 2024