27 September 2023

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 June 2023 ("H1 2023").

 FINANCIAL HIGHLIGHTS

OPERATING HIGHLIGHTS

¹ Earnings before interest, tax, depreciation and amortization, calculated before pre-opening losses, exceptional items, and other non-cash items.  A full reconciliation to operating loss is provided below in the text of the announcement.

² Comparatives adjusted for VAT benefit in 2022.

POST PERIOD-END HIGHLIGHTS

Richard Harpham, Chief Executive of XP Factory, commented: "We are delighted to have delivered such transformational growth compared to the same period in 2022, driven by the aggressive rollout of Boom Battle Bar. The performance in Escape Hunt® has been outstanding and we are delighted to see the young Boom business continue to mature with ongoing improvements to its operating metrics.  Performance since the end of June 2023 has been encouraging with both Boom and Escape Hunt® delivering strong like for like growth over the summer months. Experiential leisure has displayed robust demand despite the current economic environment and our strategy to drive profitable growth and take market share continues to progress. Whilst mindful of ongoing short-term pressures on consumers and the second half weighting of the industry, we remain optimistic for the performance of both businesses over the short and medium term and expect to report full year numbers in line with market expectations."

About XP Factory plc

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® 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

The six-month period to 30 June 2023 represents the results of a transformed business, illustrated by the significant growth in all our key financial and operating metrics.  The rapid expansion of our Boom Battle Bar® estate during 2022, and in particular the second half of 2022, saw the Group start 2023 with a footprint of 27 Boom Battle Bar® sites, of which 11 were owner operated, and 46 Escape Hunt®  sites, of which 23 were owner operated.  By comparison, we started 2022 with only nine Boom sites, of which two were owner-operated, and 41 Escape Hunt® sites, of which 18 were owner-operated. 

Following the rapid expansion in 2022, focus in the first half of 2023 has been on optimising the performance within these new sites.  In a number of cases, we have identified value adding changes that can be made through incremental capital expenditure which is expected to generate a rapid return.  We have also re-assessed a number of the systems and operating procedures in sites with a view to increasing efficiency, accountability and providing better performance information.  Within Escape Hunt®, we have re-invested in a number of sites by adding additional rooms.  The early results of these efforts are being seen in the ongoing improvements in gross margins and other operating metrics in line with an expected maturity curve as well through strong like for like sales growth.  

The experiential leisure sector continues to demonstrate robust structural growth, well ahead of more conventional leisure offerings. Both Boom and Escape Hunt® concepts continue to achieve above industry average return metrics with a strong focus on ROCE and margins in particular. Our older formats continue to experience strong LFL growth, demonstrating the resilience and longevity of our model and the ability to deliver strong returns over time. Whilst we will continue to actively manage our existing estate and will continue to add new sites in both formats, our strategic focus over the short term will remain on similar improvement and optimisation opportunities as we aim to create a robust platform to support the longer-term aspirations for significant further site expansion both in the UK and abroad.

BOOM BATTLE BARS

Owner operated

The Boom owner operated business delivered turnover of £11.3m, a 416% increase over the same period in 2022 (H1 2022: £2.2m).  Like for like growth in the 26 weeks to 2 July 2023 was 19.6%.  Performance was ahead of expectations over the first quarter and April, although the seasonally quieter periods in May and June 2023 were exacerbated somewhat by hotter weather and train strikes. Pleasingly, performance in July and August 2023 saw an acceleration with like for like growth for the 8 weeks to 27 August at 27%.

We have made significant progress in a number of areas within the Boom owner-operated estate.  At the start of the year, we invested in our corporate sales capability.  As a result, we have seen the average order value for B2B sales grow 30% compared to the same period in 2022.  Whilst we have significantly more inventory to sell with the expanded estate, it has nevertheless been extremely satisfying to see corporate bookings grow six-fold in the period to 30 June 2023. Bookings have continued to increase month on month since the period end, with Christmas bookings already well-advanced underpinning confidence in the expected performance for the rest of the year.

Our marketing team has been active with a number of initiatives focused on specific events and also in partnership with our suppliers promoting a range of activities.  These initiatives have been successful both in generating new revenue and in building our brand.   We have also continued to evolve our offering and develop our drinks and food menus.

Evidence of progress within the operations of Boom can be seen in the improving gross margin (after variable labour costs), which rose to 54% from 45% in the comparable prior period.  It has been encouraging to see site level EBITDA margins reach 19% in sites open for 12 months, and given the seasonal nature of hospitality businesses, we would hope to see this improve through H2 with enhanced sales leverage. Importantly, we are seeing underlying improvements as sites progress through their expected maturity curves.  On our internal EBITDA return on net capital invested metric, the first three owner operated sites which we have each been operating for more than 15 months, have generated a return of 42% in the 12 months to August 2023.

Whilst no new sites were opened in the period, the team has been active on three new sites.  Our first international Boom site opened in Dubai on 21 July 2023 and performance to date has been encouraging.  Dubai provides an excellent opportunity for us to develop our international capability as we develop and optimise the support structures that can be provided from within the UK which will assist future international expansion accordingly.  Further sites are due to open in Canterbury on 29 September 2023 and in Southend in mid- October.   

The team remains resolutely focused on customer experience, so it is pleasing to see Boom's overall ratings consistently ahead of its peers and the industry as a whole.  Boom achieved an overall customer satisfaction score of 97%, ahead of the 94% achieved by the competitive socialising industry as a whole, and significantly ahead of the broader leisure industry rating of 87%.

As at the date of approval of these interim results, the Group had 15 owner operated Boom sites, including the international site in Dubai.

Franchise

Boom franchise activities delivered unaudited revenue of £1.1m and EBITDA of £1.1m in the six months ended 30 June 2022.  (H1 2022, revenue £1.4m and EBITDA of £0.9m). The prior period included £0.8m of revenue associated with the sale of a franchise venue, offset by £0.5m cost of sale.  Hence the underlying growth of franchise fees was 83%. This was largely due to the number of franchise sites opened during 2022.

In June 2023, we opportunistically bought back the franchise sites operating in Chelmsford and Ealing with the acquisition funded by vendor loans. We expect the acquisition to deliver a highly attractive cash on cash return and we are likely to do similar deals in the future where the opportunity arises and the risk adjusted returns match the returns we can make from opening new sites.

Today our Boom franchise estate comprises 14 sites.  We have no new franchise sites currently in build or in the advanced pipeline but are working with a number of existing and new potential franchisees to support future growth.

Escape HUNT®

Owner operated

The Escape Hunt® owner operated business delivered £6.1m of revenue, a 41% increase over the same period in 2022 (H1 2022: £4.3m). Like for like growth in the 26 weeks to 2 July 2023 was 20.4%.  Within this, the original seven Escape Hunt® sites opened in 2018 delivered like for like growth of 15.1%, a pleasing result given they are still playing the same games installed at launch. The Board believes the strong like for like performances provide evidence of the attractions and enduring nature of the Escape Hunt® business and underpin the high return on capital thesis on which the concept has been developed.  Corporate sales have also grown, with average order values for group bookings rising 31% compared to the same period in 2022 and the sales team delivering 29% growth in corporate sales in the first six months of the year. Corporate and block-booked sales represented approximately 5% of total sales within Escape Hunt® in H1 2023, with scope to grow significantly.

Site level EBITDA margins continued to exceed 40% during the period, despite meaningful wage increases which took effect over the first half of the year.  We have been careful to maintain pricing in the face of considerable pressures on the consumer, such that the strong growth has been delivered largely through increased utilisation.  On our internal EBITDA return on net capital invested metric, the UK sites opened before June 2022 have delivered a 40% return over the 12 months to August 2023.

Escape Hunt® continues to enjoy excellent consumer ratings, achieving a 97% customer satisfaction rating and all eligible Escape Hunt®  sites in the UK again received the TripAdvisor Traveller's Choice ® award in 2023, a performance significantly ahead of the industry as a whole.

Franchise

The Escape Hunt®  franchise business returned to growth and delivered revenue of £282k, up 17% on the same period in 2022 (H1 2022: £241k).  The international franchise estate pre-dates the UK owner operated estate with many of the games at franchise sites having been in operation for five years or more.  As with our older owner operated sites, this performance provides further evidence of the longevity and resilience of the business.

STRATEGY

Overview

Following our recent expansion, the group is the largest escape room and competitive socialising operator in the UK. This is a fast growing and resilient niche of the leisure sector, with our sites benefiting from industry leading unit economics with further improvement potential. Our experience to date demonstrates the opportunity to expand in the UK and logic for taking our proven concept overseas with reduced execution risk. Our strategy to deliver profitable growth is supported by a clear focus on the strength and longevity of returns on capital employed available, with accelerated payback periods following initial investment.

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 have consciously moderated the pace of roll out to ensure we optimise the performance and operations within the enlarged estate.  Since the period end, we have opened a new Escape Hunt® site in Woking, and new Boom sites are due to open in Canterbury on 29 September 2023, and Southend in mid-October 2023.

2.     Accelerate growth in international territories, ultimately through franchise

We opened our first international Boom Battle Bar® in Dubai and are actively exploring possibilities in other territories.  In the short term, however, our focus 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 year 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 are being rolled out across the estate 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

As mentioned previously, 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.

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

·      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 improve unit economics, with the potential for enhanced returns into 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 recently invested in 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.

Internationally, our Dubai site has opened ahead of expectations and we see a significant opportunity in time to roll out our proven concept overseas with reduced execution risk.

FINANCIAL REVIEW

Financial performance

Unaudited Group revenue in the six months to 30 June 2023 was £18.7m, an increase of 130% over the same period in 2022.  The increase reflects the significant site expansion undertaken in 2022 together with strong like for like growth. Escape Hunt® owner-operated revenue grew 41% to £6.1m, reflecting the addition of turnover from new sites opened in H2 2022 in Edinburgh, Bournemouth and London Oxford Street, together with 20% like for like growth from the existing estate.  Boom owner operated revenue grew 416%, reflecting like for like growth of 19.6% and the growth of the owner operated estate from 2 sites in January 2022 to 13 as at 30 June 2023.

Group adjusted EBITDA before IFRS16 grew strongly from £275k to £1.049m and to £2.356m (H1 2022: £1.07m) after IFRS 16 adjustments. 

£188k of expenditure in the period related to pre-opening costs, largely for the new Boom sites in Dubai and Canterbury, as well as the new Escape Hunt® site in Woking.  The £312k fair value movement arose on the final settlement of contingent consideration through the issue of 23.9m shares to MFT Capital Ltd and reflects the difference between the market value of the expected share issue as at 31 December 2022 and actual value on the date on which they were issued.

At a site level, Escape Hunt® owner operated segment continued to perform strongly, delivering site-level EBITDA of £2.4m at a margin of 40%.  Within the Boom Battle Bar® owner operated segment, gross margins (inclusive of variable labour) improved strongly to 54% from 45% in the same period in 2022. The underlying site level EBITDA margins achieved (11%) reflect the seasonality in Boom's business but more significantly were diluted by the expected losses/lower margins generated from more recently opened sites with 19% EBITDA delivered by the more mature sites. It is nonetheless encouraging to see improvements continuing to be made in aggregate as the individual sites progress through their expected maturity curves.

Central costs of £2.6m reflect the full year effects of growth in 2022 to support the larger estate, covering operations, marketing, finance and other support functions.  There has also been an impact from inflation as salaries and other central costs have risen in line with market rates. 

Interest costs of £115k reflect the additional fit out and vendor finance utilised. 

Unaudited Group operating loss was £1.6m (2022: £2.4m) leading to a reduction in the loss per share from 2.2p to 1.58p.

Cashflow

The Group generated £3.4m of cash from operations (H1 2022: £0.8m).  £2.8m was invested in plant and equipment and intangibles.  This comprised total investment of £1.8m within Boom owner-operated sites and £1.0m investment in Escape Hunt® owner operated sites.  Within Boom, £0.9m was invested in new sites in Dubai, Canterbury and Southend, £0.8m was directed to existing sites to make improvements to the original plans as management believes this expenditure will produce attractive returns, whilst £0.1m reflected maintenance capex. Within Escape Hunt®, £0.45m was invested in the new site in Woking with a further £0.25m being invested in extending existing sites through the addition of new rooms, and £0.2m represented maintenance capex. 

£600k was paid for the second deferred consideration instalment for the acquisition of Boom Cardiff (shown within movements in provisions).  The final instalment of €50k together with accrued interest was paid on the vendor loan relating to the acquisition of the Escape Hunt® master franchise in France and Belgium.  The acquisitions of Boom Chelmsford and Boom Ealing were funded by vendor loans such that the acquisitions led to a modest inflow of cash on completion as the Group received the benefit of existing cash balances totalling £84k.

Rental payments, classified under IFRS16 as capital and interest payments totalled £1.03m, whilst £115k was paid in interest on fit out finance and other loans. 

The Group has utilised various funding facilities during the period, comprising either vendor finance related to the acquisition of Chelmsford and Ealing, or fit-out finance supporting the capital expenditure programme.  In total, £1.4m of new loans were raised, and £0.5m of repayments were made. 

Cash at 30 June 2023 was £3.7m (30 Jun 2022: £5.2m; 31 Dec 2022: £3.2m).

Financial position

Movements on the balance sheet largely reflect the capital investment and related funding undertaken during the period.  Fixed assets increased in aggregate by £4.0m, reflecting £2.8m of internal capex, £1.1m of fixed asset additions from the acquisitions of Chelmsford and Ealing Boom franchise sites, £1.5m of additional right of use assets from leases in Dubai and Southend as well as the acquisitions of Boom Chelmsford and Boom Ealing, offset by associated depreciation.  The increase in right of use assets, which is stated net of landlord incentives, is offset by an increase in lease liabilities.

Current assets remained stable at £7.3m, masking an underlying reduction in franchisee debtors which was offset by an increase in prepayments and other debtors. 

The reduction in short term provisions from £5.0m to £0.4m reflects the settlement of the Boom contingent consideration in June 2023.

As mentioned above, the Group has utilised various forms of funding to finance the ongoing expansion of the estate both through building new sites and the buy-back of franchise sites in Chelmsford and Ealing. 

Net assets as at 30 June 2023 stood at £23.6m (31 December 2022: £21.6m).  Group net cash / net debt was £nil (31 Dec 2022: net cash £0.8m).

As announced on 4 August 2023, the Company's year-end has been moved to 31 March.  As a result of the change, the Group's current financial year will comprise 15 months from 1 January 2023 to 31 March 2024.  Following these unaudited interim results for the six months to 30 June 2023, the Board intends to report as follows, in each case with appropriate comparatives:

•              Unaudited interim results for the twelve months to 31 December 2023 - publication by 31 March 2024

•              Audited final results for the fifteen months to 31 March 2024 - publication by 30 September 2024

•              Unaudited interim results for the six months to 30 September 2024 - publication by 31 December 2024

POST PERIOD END TRADING AND OUTLOOK

Trading bounced back strongly in July after the seasonally quieter months of May and June.  The resilient performance continued throughout the summer.  Like for like growth within the Boom owner operated estate was 25% and within the Escape Hunt® owner operated estate was 23% in the nine weeks to 3 September 2023.  Margins within Boom saw further, steady improvements and Escape Hunt® has continued to operate at margins in line with those achieved in the first six months of the year.  Whilst remaining alert to the ongoing pressures on consumers, cost pressures in the business and the seasonal significance of the end of the year, strong corporate sales and ongoing operational improvements provide confidence of an outcome for the full year in line with current market expectations.

Richard Harpham 

Chief Executive Officer

27 September 2023

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE CONDENSED INTERIM REPORT AND CONDENSED FINANCIAL STATEMENTS

The directors confirm that the condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', and that the Interim Report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

The directors of XP Factory plc are listed on page 28 of this report. A list of current directors is maintained on the Company's web site: https://www.xpfactory.com/investors/key-people

By order of the Board

Richard Rose

Non-Executive Chairman

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2022