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Below link is the investor meet presentation
Some interesting discussions over the last few days.
For me i'm somewhere in the middle - disappointed that overall PBT is a small loss but encouraged by revenue and EBITDA growth, EBITDA margins increasing and a healthy cash generated from operations figure.
Whilst EBITDA can be 'fudged' a bit it is still a useful, and dare i say it the main, indicator for a growing company where they are reinvesting all income so the PBT figure will always be low.
To say EBITDA is not important is also disingenuous. Many companies sell all or part of the business based on this, often between 7 to 10 times EBITDA. Two companies i own did this recently, Croma and EAAS.
Eaas is a good example. A growing company (rev increased from £22m to £33m 2022 to 2023) but due to cashflow issues and therefore high funding PBT is only c£1m. Total value of business was low at c£20m, yet they recently sold part of their business for £29m based on an EBITDA multiplier.
I suspect if either Escape or Boom was approached both would command more than the current SP so the growth is adding value.
Cash generation is key for me - in the results just published cash generated was c£9m, of which c£6m was used to invest in the business (new sites and buying franchises etc) and c£2m on finances (paying for leases etc). Therefore, bottom line cash increased by c£1m.
To say where has the gross profit gone maybe compare this to revolution bar group, RBG. It had revenues of over £150m and made gross profits of £117m, however, failed to make an overall profit. Both companies have a similar business model, however, compared to RBG i'd say XPF are doing quite well
So what do you make it going forward?
They have gone from a 4.9 million operating loss, year end 22 to a 6.1million taxable profit, depreciation added back in ,before capital allowances end 23
you will see its the fair value adustments relating to share based contingent consideration of 6.2 million that muddied the waters year end 22
Sorry if that’s frustrating you!
But I’m not minded to put more investment here on the back of growth alone and selectively choosing metrics ( they can push the book entries around to land EBITDA where they want it)
Let me flip the question —- what’s your forecast for profit for the next few years bottom line
Pippy back to deramping again - SIGH
They are not doing anything to blind anyone.
They shows the EBITDA at site level which is super helpful - it helps me model out the growth The central Opex is clearly segregated as this wll not grow in line with revenue - with sensible cost managemnet it should decrease as a % of revenue and we'll see EBITDA margin improves as the number of venues grow.
We've all already agreed that depreciation and amortisation is a paper exercise - this compnay has already invested £50m to put into place it's current infrastructure
They dont have £2m Financing costs - they have minimal debt and only paid £200k interest in 2023. You are muddling up their lease costs .
As I have said in many posts already....
XP has a network of 80 venues; this is fully paid for. We know from the lastest RNS that:
1. XP are continuing to see L4L growth of their current estate (Escape Hunt - 17% in 2023, 11% YTD in 2024 and (Boom Battle Bar - 19%, 9% YTD in 2024)
2. The change in depreciation shows that they believe the life of the games is longer than previoulsy thought
3. These 80 venues require only a modest amount of annual maintence CAPEX
4. These 80 venues represent a paid for Asset that delivers a miniumum +£10m Cash per annum and +£10m EBITDA
5. Bigger CAPEX undertakings (Full Refit of existing Venue or New Venues) to be funded organically through the +£10m cashh flow it generates + combined with a small amount of 'low cost' vendor financing when opening new venues
one of the things i’m most excited about is the double digit lfl growth in both escape hunt (the more mature business) at 17% and boom at 29%. and considering a lot of these sites hadn’t fully opened yet or been open long it would’ve taken a while to gain traction. so i think that’s very impressive. i think you can also add the fact richard is always looking at the data and looking at how they can optimise sites. like i said before he’s mentioned adding a ****tail bar at the o2 venue to increase drink spend before concerts or adding an extra escape room at sites where there’s more capacity. i think they’ll continue to achieve more double digit growth and this will be turbo charged if/when the market recovers.
So essentially they can only afford to sticky plaster repair the escape rooms and boom sites… and still not turn a profit.
That gets them some cash & a bit of year end hokey pokey with the cash flow gets it higher —- but some fine margins here
Yes but operating profit has barely increased despite the making £2.3M adjustment & despite x2 on revenue —— so why not?
Don’t get blinded by EBITDA —- they are using accounting rules to paint that rosey as possible —— where did £28.7M of gross profit go?
£16.1m site level operating costs
£5.4M of D&A; which could have been £2.3M higher
£8.5M central costs
£2M financing costs
Poof!! There goes profit!!
Don’t expect a rerate or shareholder return !
Pippi - at last we are in agreement about something
I'm an accountant myself - we do all our business cases, forecasts, budgets and post investment reviews on EBITDA and cashflows as that is what is actually happening.
As you say the rest is just a paper thing that dictates when and where things get accounted for. It's not massaging the numbers - its following the very clear rules that get checked by the auditors each year. Failure to follow the rules is a serious issue. It's not about makin numbers better.
Equally on cashflow - every business should be doing their best to improve cashflow. Getting your money in quicker and taking the allowable time to pay your bills is good business sense.
XP appear very good at managing cash - they have only a small trade debtor balance and their trade creditors seems consistent - growing as their business grows (more venues > more customers > more alcohol, more food, more energy to pay for so the amount owing at any given time will grow broadly in line with COS.
maimus and wavecrest - i'm in complete agreement with you both
sadly, it is just derampers fabricating a storm in a teacup.
i believe we are invested in a very special company - it has acheived everything it said it would in the years that i have followed it. and it has achieved this at a time when the economy has put so much pressure on small businesses.
i cannot emphasise enough how important their people are - people are such a key asset and seeing the culture, the energy and the creativity from their team in the field continues to blow me away. this is testament to a good leadership team.
the majority of customer reviews are great - happy customers, happy employees - a ****tail for success
Yeah totally a paper accounting thing.
Just to add from the 4.130 mill of taxable liabilities they will claim their capital allowances, which is how their tax liabilities are reduced not depreciation!!!!!
Hi Everyone a few points to make
Depreciation is not a tax deductable expense it is deducted from the operating profit but added back on the cashflow it is just paper accounting to show you the theoretical cost of owning a asset as it depreciates over its theoretical life ,when their tax liability is calculated by HMRC this would be added back in so they would have a tax liability after finance costs of 4.130 million
2 They didnt need to put cash aside to pay tax they already stated they have 6.1million to set against tax liabilities
The fuss has been over the depreciation being spread over a longer period improving the PBT on the accounts but it is irrelevant really ,it never made sense to spread these costs over short period.
3 they spent 6.9 mill on plant and machinery[growing the business]
4 spreading asset depreciation means they dont think they will need to spend as much on renews/maintenance which is good for us
You have to understand they are investing most of their generated cash into the business its not going into our pockets anytime soon only to grow the business, some have said they might need additional funds to grow the business quicker, the jury is out on that one
But how is it smoke and mirrors? They’ve explained the change and it’s perfectly acceptable. So why suggest that change is the reason they’re in operating profit? They understand the lifecycles of the games more accurately for example. Do you get what I’m saying? You’re suggesting that they did that on purpose to put them into an operating profit when that simply isn’t the case.
You say it’s hard to make profit in the leisure industry. And I completely agree it’s been difficult. Hence why you have to give Xpf a lot of credit for what they’ve achieved in such tough times. BUT interest rates will fall this summer. Inflation is dropping. We’re in for an epic recovery in aim and the leisure industry and I believe Xpf is the best positioned leisure company to benefit from this. Can you name me a better one?
In itself it isn’t particularly. But when you consider operating profit from £44m revenues was £1.4m and the depreciation adjustment was £2.3m then that decision swung it from operating loss. Then financing costs come off to make PBT a loss… So it’s a bit of smoke and mirrors to paint a positive picture.
What it really does is demonstrate the tightrope they walk to generate a return from their assets before they need to be renewed. Because they need the cash to reinvest to drive the top line and this is while they are careful not to push through pricing —- because they need to fill their capacity to make the economics work.
Which for me just shows they ain’t going to be a money printing machine anytime soon.
It is part of a picture that demonstrates how hard it is to be a profitable leisure business.
Doesn’t mean they haven’t done a decent job, doesn’t mean it can’t succeed…. But not an easy one for them to do —- they need a bunch more sites yet
It is desperate. Explain to me why the change in depreciation is a problem? Their explanation is perfectly reasonable. They have a better understanding of life cycles of games for example and upped them from 2 to 5 years. If you read singers broker note they said exactly that. Singers broker note also said; “This amounts to depreciation (non-IFRS16) at 6% of sales vs 12% historically. We welcome this move given the previous policy was aggressive and brings XPF in line with peers Hollywood Bowl at 5% and Ten Entertainment at 6%.“
I wouldn’t take it as far as to say they are desperate adjusting the depreciation. But it is a sleight of hand trick to paint the EBITDA picture you crave. No one denies the growth but don’t expect the SP to shoot up until the make some actual profit… unless one of those PE buyers come in.
Take the blinkers off and look at the full picture.
This company may make it but has a way to go yet.
Bottom drawer and wait for next year
Bottom line, there’s no better company to do well in the leisure industry when the market recovers. Interest rates likely to drop in summer. And the stock market is forward thinking. Name me one better leisure company that will benefit when the market recovers? Amazing growth, double digit lfl growth. These boom and sites haven’t been open that long?! Imagine another 12-18months of traction compounded with their market leading reviews and growth in corporate sales.
Why are people listening to these ppl trying to control this negative narrative. It’s mental! Even Paul Scott has allowed himself to be swayed. I just listened to his podcast and he had contact from the ceo and cfo having to correct him on some of his comments and FairPlay he apologised and acknowledged he got it wrong. And even suggested he may buy back in.
These numbers have been during a cost of living crisis, interest rates rising, train strikes. Having to contend with Covid, war in Ukraine, the aim market on its knees. This company has only done one fundraise and that was for rapid growth. It hasn’t done one fundraise since! We should be championing what a fantastic performance these guys have done in this new and exciting market - experiential leisure and clearly that market is still growing. I have no doubt this will have an epic recovery… if it doesn’t get bought out before then.
The depreciation comments just show how desperate they’ve become.
PippLongStockin - Have you not read or understood my posts?
I categorically addressd your accusation about the December Cash position - not managed at all, all very normal and it is not even their year end anymore
I do not agree that it is a capital intensive business - it's all relative, it depends what are you comparing it agains. Far less capital intenive vs Miners, Manufacturers, Mobile phone Networks and many tech businesses. (i could go on...)
I dont see your point about 'managing' EBITDA
Profit is important - they are many metrics that measure profit. EBITDA is one, as is Gross Margin as is Net profit. They all offer different perspectives. My point is Private Equality will be more focussed on EBITDA which offers a better view of how a company performed in eth current year. Let's foe one moment assume XP paid twice as much as they did from Boom - that would impact net profit but it's history now and is irrlevant.
What is important now is: The cash generation, goring the business, growing EBITDA
You seem to just keep spurting out the same stuff without acknowledging the points I have made
What bit do you not agree with?
That they manage the December cash position?
That they manage how they report EBITDA?
That it’s a capital intensive business?
That profit is important?
Not saying that the company isn’t interesting but simply growing the top line is not the full story.
And the full story will influence the share price.
Otherwise you may as well curl up in a ball like a HedgeHog — eyes closed to the world around
Keep going chaps, you are both just showing your pure ignorance.
Yeah too many adjustments … like £2.3M depreciation !
At this market cap they are valued at net assets, so it won’t take much of an increase in net profit (not ebitda) to shift the price of this company.
The reason I’ve mentioned capex a lot is because it’s not an income statement item therefore ebitda will never be accurate for this sort of business.
When I’m talking cashflow I’m talking pure bottom line, and this year has seen debt go up and net cash drop to £0mil. Scale should improve that and once it does it’ll likely attract a lot more attention.
But if you think my comments are “keeping the share price low” then you are deluded, as none of us on these bulletin boards have any influence over the share price of a business