Ben Richardson, CEO at SulNOx, confident they can cost-effectively decarbonise commercial shipping. Watch the video here.
XP Factory (XPF)
Their latest trading update (18th Jan) failed to address what I really care about - are they on the path to break-even profitability, and proving that they have a business model that can scale profitably?
Lots of information on revenues, Like-for-like revenues, growth rates. Some details on site-level EBITDA, and then really nothing at all below this line in the P&L. Why? I suspect it is a conscious choice of omission because they are horribly in the red, once you go below the site-level EBITDA line.
This is not a surprise. Their Half Year results, where they have to state the entire P&L, showed an operating loss of -£1.6m. I was hoping that, in the seasonally stronger H2, that this would swing wildly into the black and therefore on a FY basis they finally prove they can operate profitably (even on an adjusted level). Unfortunately, they confirmed they are "trading to market expectations”, which if taking the broker forecasts, is still a loss for the FY Mar24.
Quite why they are unable to make a profit, with a chain of 24 Escape Hunt sites and 19 Boom Battle Bar sites, is a mystery. I can forgive them if they had a small chain of less than 10 sites, but there are enough sites now to spread out any central costs, D&A, and interest costs.
The key killer for me, when looking at the P&L, is the huge D&A costs. £3.4m in H1 alone. I’d say the run-rate is probably closer to £7-7.5m/year now, given additional openings and capex investments. That is quite a lot, on a turnover of £44.5m a year. Given this is never going to be a high margin business; they are aiming for only 20-25% site-level EBITDA margins on the Boom Battle bar business, which definitely does not support the level of D&A that is being charged.
So where does this leave me? Still very sceptical if their current business model works. Fundamentally, Boom Battle Bar does not seem a sustainable business model to me yet. For the next 1-2 years, they should be OK in terms of positive cashflow, which will mirror the EBITDA, as they won’t need to invest maintenance and refresh capex for their still-new estate. But I can foresee, from 2025-2026 onwards, that increasing capex needs to keep their estate looking good, would then pressure their cashflows. If they are unable to get their site-level EBITDA margin up to a much higher level.
Lots of investors have gone into this, tempted by the siren song of high growth rates, and a sexy growth sector (experiences). While I think they have created an entertainment format that is a hit with consumers, it remains to be seen whether it can be profitable for investors.
I continue to wait and see on the sidelines.
If iron is at recent highs why haven’t we resumed shipping ore?
Shows the stability and strength of this company to have RCF under 3% … that seems very good and will be a huge advantage funding expansion plans in the current climate…. Pick up some bolt on acquisitions on cheap multiples and they will pay back fairly quick
My issues with Wyn posts is that they are so frequent & long winded & repetitive.
Who wants to hear a monologue from one person?
And more perplexing is who really wants to spend all day sharing their opinion, why is it so important to continuously try and get your point across?
I like to hear a diverse range of views so please tone back on the white noise.
Congratulations Al & the Avacta team!!!
Most here invested in the science & the science is delivering!!
This won’t get them all the way to DFS ?
Boring post
Wow thanks for your bullet pointed advice which makes it easy to follow & thank you for sharing you are obviously well connected. You are indeed a shepherd leading us sheep to safety
Had a listen & doesn’t sound too bad.
They talk about cash generation & how they benefit from rent free period for higher cash flow … so as sites mature and the big chunk of new sites go beyond this point then this will mean less impressive cash generation all-be-it still positive…. But they talked about taking on debt to fund faster expansion as an option.
So what do you make it going forward?
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
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 !
Yeah totally a paper accounting thing.
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
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
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
Yeah too many adjustments … like £2.3M depreciation !
I merely state the obvious —- profit is important. EBITDA is interesting…. But can only drive the SP on its own so far….
By its very nature this is a capital intensive business and I only point out the depreciation not to show the long asset life but the accounting change…
The only thing that isn’t transparent is the book keeping
EBITDA is one thing but needs to make a profit at the end of the day. Too much central costs & not enough actual profit for a capital intensive business. That can come from growth or cost saving initiatives or consolidation with other players. But I think SP will follow up any of these