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First things first, I don’t have shares in XPFactory, I’ve followed it for a while and wanted to see what discussions were taking place following the results.
Everyone is bullish, but I might have an answer for why the price has gone down.
Cash at bank has increased by £1.2mil, but receivables have dropped by £0.7mil with trade payables going up by £1.3mil. So that’s a £2mil massaging of the numbers, I.E. holding off paying suppliers and trying to get receivables in at year end.
I believe the cash is artificially high due to this and should sit nearer to £2mil.
Based on this, and these sort of business being capex heavy, I don’t think the cashflow is as good as management make out.
Happy to have a sensible back and forth on here, if this turns into a typical “he’s negative therefore let’s chase him off the board” then I’ll happily comply, but I’m hoping for some proper discussion as to why I’m wrong with my numbers and that I’m missing something
See your point but this isn’t year end so let’s see how 31st March looks
Yes, that’s a fair point, shouldn’t be long now until an update comes on the new year end.
Any thoughts on what capex will look like on an ongoing basis, I.E. how regularly buildings will be refurbed?
This was in the RNS….
The Board has re-assessed the useful life of certain of the Group's fixed assets, notably games and leasehold improvements. Previously, games in both Escape Hunt® and in Boom Battle Bar® were depreciated over two years, whilst leasehold improvements were depreciated over five years. The success of the early Escape Hunt sites which have continued to show strong like for like growth with the original games installed over five years ago, has provided strong evidence that the policy for games was aggressive. The games are regularly maintained with maintenance costs expensed as incurred. The Board has therefore re-assessed the useful life of games to be five years for games in both Escape Hunt® and Boom. Similarly, the leasehold improvements were being depreciated over five years on the basis that the original Escape Hunt® leases had five-year break clauses. Boom sites generally have break clauses after ten years and the success of Escape Hunt® has given confidence that the useful life of leasehold improvements is expected to be at least ten years. The change is regarded as a change in estimate rather than a change in accounting policy. As such, no change has been made to prior year numbers, but depreciation in the twelve months to 31 December 2023 reflects the new estimates. The impact in the current period has been a reduction in depreciation of approximately £2.3m compared to what would have been charged under the previous estimates.
My take on this —- they have focussed on affordability and as such put efforts into making existing sites as efficient as possible, building out capacity where possible. This is working at top line and makes it cash generative as well…. But they need to run it this way for a while as they don’t want capital intensive refits anytime soon… if you take off £2.3M to account the depreciation change then they were lower profit year on year… so yes they are massaging the numbers again… but think the overall strategy is the right one…. Keep it affordable and careful capex allocation
Thanks pippi, that makes sense, 5 year rolling capex would be less than the initial on new fittings.
As for the other post, I’m here to discuss, call it a deramp, whatever, I’m here to have an open conversation. Currently
I’m not seeing the cash generation that the ceo is, and I expect neither is the market.
If it comes, then I would expect a big rerate and that’s the inflection point I’m waiting for. But currently all cash is being eaten by capex.
PippyLS
You are correct to point out the depreciation change - but is is both very normal and 'required' for accountants and auditors to review depriation and amortisation policy on an annual basis.
ON the other side of things, FY22 benefited from a one off +£6.2m fair value adj. So the YOY improvment in profitability is bigger than than it looks.
New Profit is a historical measure because it relies on assumptions around depreciation and valuation of assets etc. That is why most compnaies focus on EBITDA and Cash which is a good indicator of how the compnay performs in a 1 year time frame.
EBITDA more than double in 2023 amd I expect it to double again in the 12mth to March 2025 by 60-70%. And operating cashflow to show a similar growth which will allow them to grow more quickly
Ofcourse the cash is being eaten up by CAPEX - That is their stated strategy.
This compnay will continue to use its increasing operating cash flow to invest back in the business - i suggest you take a listen to Richard's interview with Vox Markets.
XP generated (through operations) +£3m in 2022, +£9.5m in FY23 and i expect it to be at least £15m in 2024. It will then use this cash to invest in new venues and improve existing ones - and will maintain a cash balance of c£3m based on recent updates.
Here is the Link to the Richards Interview
https://www.youtube.com/watch?v=JEnCMTGXRLU
And we get another formal, detailed interview this week which I am very much looking forward to .