Xp Factory Regulatory News (XPF)

28 September 2022

XP Factory plc

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

Interim Results

XP Factory plc (AIM: XPF), a global leader in the experiential leisure sector, is pleased to announce its unaudited interim results for the six months ended 30 June 2022 ("H1 2022").

FINANCIAL HIGHLIGHTS

OPERATING HIGHLIGHTS

POST PERIOD-END HIGHLIGHTS

Recent performance across the estate has been encouraging with no discernible impact from consumer weakness. The Board remains focussed on providing the best possible customer experience to an ever growing number of customers across the UK and beyond and will keep a careful eye on consumer behaviour in the context of the macro-economic environment and be ready to react if there is any sign of an impact.

Notwithstanding the encouraging recent performance, the Group's full year results are heavily weighted to the final quarter's trading and will be influenced by, inter alia, the dates on which sites currently in build are able to open, how quickly the performance at those sites tracks through the maturity curve, and the strength of pre-Christmas trading generally.

Richard Harpham, Chief Executive of XP Factory, commented: "2022 represents an important year in our evolution as we continue to build the platform for a sustainable, cash generative and profitable experiential leisure business.

We have made significant progress towards our goals, growing the Boom estate to 21 sites today from only seven when we acquired it in November 2021. We have also grown our Escape Hunt business to 21 owner operated sites today, with the brand continuing to perform well, generating strong returns at a site level.

With each successive week, Boom's trading performance reinforces our belief that it is a very attractive proposition, capable of delivering strong margins and an exceedingly attractive return on capital. We are delighted with the progress we have made and believe that by the end of the year, the foundations will be firmly set for the business in 2023 and beyond."

[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.

Market Abuse Regulation (MAR) Disclosure

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

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 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 first half of 2022 has been transformational. In November 2021 we acquired Boom Battle Bar ("Boom") and renamed the Group XP Factory plc, creating one of the UK's pre-eminent experiential businesses, operating two fast growing bands, Escape Hunt™ and Boom Battle Bar™. At the time of acquisition, Boom was a very young business, with just seven UK sites open; six of which were franchised and one of which was owner operated and all of which had less than twelve months' operating history.

We set ambitious targets to grow the footprint alongside our existing Escape Hunt network. Activity in the first half of the year has been focused on bringing the businesses together, executing on the ambitious site roll-out plans and investing in the operations of the new business. As at 30 June 2022, the Boom estate stood at 17 opened sites; four owner operated and 13 franchises.

We also extended our Escape Hunt estate, adding a site in Exeter, co-located with Boom, bringing the owner operated estate to 19. Since 30 June 2022, we have further extended the estate, acquiring former Boom franchise sites in both Cardiff and Norwich, opening a further co-located owner-operated Boom and Escape Hunt site in Edinburgh, opening a new Escape Hunt site in Norwich, opening a new Boom owner operated site in Plymouth, and opening Boom franchise sites in Sheffield and Chelmsford. Several more sites are in build as set out below.

This activity has set the scene for a year which will deliver a group of significantly larger scale and capability compared to a year ago. The objective for the year is to build the foundations of a network of Boom Battle Bar and Escape Hunt owner operated and franchise sites capable of delivering strong cashflows and a high return on capital for years to come. Alongside the efforts to open new sites, we have also focused on building capability in our operational teams, who are now delivering the financial model we believed Boom could be capable of, whilst continuing to nurture Escape Hunt. We are delighted to have made such significant progress towards these goals.

With such an aggressive rate of new site openings relative to the Group's small size at the beginning of the year, it would be almost impossible to predict with total accuracy the specific week in which each new site would open. Whilst most of our owner operated builds have been delivered broadly in line with our expectations, there have been delays in the openings of certain owner-operated sites and in a number of the franchise sites, but nonetheless the Board remains confident that its target of 27 open sites for the year end will be achieved. We are of course acutely aware of the current pressures on consumer discretionary spend. As a high margin business we feel as confident as we can be that we can absorb the inflationary pressures and weather the storm by continuing to focus on providing an outstanding customer experience and value for money. Indeed we have been very encouraged by the resilience in trading in the weeks post 30 June 2022.

Our full year outcome is skewed heavily towards performance in the second half of the year, notably the final quarter, and this is further amplified in the current year given the number of additional site opening that are still to come. However, we believe the results for the first half represent a solid performance which sets the business up well for the remainder of the year and beyond.

BOOM BATTLE BARS

Much focus during the period has been on Boom Battle Bars; the expansion of the network in line with previously announced plans, both owner operated and franchised sites; the integration of the business into the Group; and development of the operational processes and teams to deliver on Boom's potential.

Owner operated

We have made excellent progress towards our objectives. At the start of the year, we had two owner operated sites open; one at Lakeside shopping centre in Essex and one in the O2 Arena. The O2 site was opened shortly before Christmas, although we delayed the formal launch due to the spread of the Omicron virus and subsequent cancellation of all events at the O2 during January and most of February 2022. Although open in the intervening period, the O2 Boom held its formal opening event in April 2022. We also opened a new site co-located with Escape Hunt in Exeter in late April and our fourth site, located in Manchester, opened in late June 2022. At the end of the period we had four owner operated sites open.

All four sites have shown encouraging performance in the months of operating, in line with an expected maturity curve typical for hospitality businesses. We expect sites to run at a loss for a number of weeks as awareness grows and translates into revenue growth, whilst labour and other costs will start higher than the longer-term target and be brought down as the sites find their operating rhythm. The owner operated estate delivered unaudited revenue of £2.2m in the six months to 30 June 2022 and a site EBITDA loss of £164k (£729k loss before IFRS16) reflecting the maturity curve of the new sites. Performance across the estate has shown the steady improvement we would expect, with target margins being achieved as the sites mature. We remain confident that the business model and returns profile for sites will be delivered, with target EBITDA margins in excess of 20% and a target cash return on capital of over 40%.

Our sites in central London (Oxford Street) and in Edinburgh have caused some frustrations. In both cases, planning and other landlord-related formalities have resulted in significant delays compared to our original plans. We are pleased that our Edinburgh site recently opened on 23 September 2022, and we are now 7 weeks into the build at our site on Oxford Street, which is scheduled to open before Christmas. 

We are not immune to inflationary cost pressures, notably in energy prices. We also anticipate wage pressure as inflation filters through the system. The former represents a relatively low proportion of our costs whilst we are confident the latter can be managed through labour flexibility and, in future, by passing on an element of our increased costs through prices. As a result, we have no reason to believe our expectation of the potential margins from our sites should change meaningfully.

Since 30 June 2022, we have commenced builds on four owner-operated sites, in London (Oxford Street), Birmingham, Plymouth and Leeds. Plymouth opened on 22 September 2022 and the others are all expected to open during Q4 2022. We have also completed the acquisition of the former franchise sites in Cardiff and Norwich. Together with the owner operated sites in Edinburgh and Plymouth that have since opened, these developments will take our owner operated estate to 11, well ahead of our previously announced objective of 7 by the end of 2022 and establishing a strong baseline for 2023.

Franchise

The Boom franchise network was expanded significantly in the six months to 30 June 2022 with the addition of a further seven franchise sites. As at 30 June 2022 there were 13 franchise sites open. Two further franchise sites have since opened; the first in Sheffield opened in July, and a second in Chelmsford opened in September. Another two sites are currently in build in Bournemouth and Southampton. A further site in Telford has been signed and several more sites are in advanced legals. Whilst we factor in potential delays to franchise site openings, timing is not in our control. On average, sites have been several months later to open than initially indicated.

Boom franchise activities delivered unaudited revenue of £1.4m and EBITDA of £0.9m in the six months ended 30 June 2022. 

ESCAPE HUNT

Owner operated

The Escape Hunt owner operated estate generated unaudited revenue of £4.3m, representing a 361% increase on the £0.9m delivered in the same period in 2021, although all our UK venues and our venues in Paris and Brussels were closed for the majority of the comparable period in 2021. Site level EBITDA rose to £2.1m from £0.2m. On a pre-IFRS16 basis, site level EBITDA was £1.7m (H1 2021: loss £46k), representing a margin of 39%, significantly ahead of our internal target of 30% EBITDA margin. The margin outperformance was helped by the reduced VAT rate and business rates reduction applied between January and March 2022 and which ended on 1 April 2022. Underlying EBITDA margins, excluding the VAT benefit, continue to track ahead of our internal target.

We have made further progress on the growth of the network and integration with Boom. A new owner operated site, co-located with Boom Battle Bar opened in Exeter in late April 2022. We opened a second owner-operated site in Norwich shortly after the period end in August 2022 and, after frustrating delays, opened a third co-located site in Edinburgh on 23 September 2022. Two further sites are in build in London (Oxford Street), co-located with Boom, and in Bournemouth, where our site is adjacent to a Boom franchise site, also in build.

The network today comprises 21 owner-operated sites and the completion of sites in Bournemouth and Oxford Street will take the total to 23. 

Franchise

The franchise estate delivered unaudited revenue of £0.2m. The Australian network performed in line with the same period in 2021 and we have seen a recovery within the European network compared to the same period in 2021 during which many of the sites were closed. This increase is offset by lower upfront and other fixed fees.

Some modest progress was made in the USA in late 2021. The franchise site in Houston, which is operated by our partners, Proprietary Capital Holdings, added two new generation games in December 2021 and is now set up as a reference site to demonstrate to potential franchise partners in North America. Performance in Houston has been tracking strongly in 2022. Franchise recruitment activity all but ceased during Covid and has been slow to re-start. We expect to give greater attention to the US potential in 2023.

FINANCIAL REVIEW

Financial performance

Unaudited group revenue in the six months to 30 June 2022 was £8.1m, an increase of 589% over the same period in 2021. The period to 30 June 2022 includes £3.6m of revenue from Boom owner-operated and franchise activities (2021: nil.. The increase also reflects that the majority of Escape Hunt venues were closed for much of the first half of 2021 due to Covid restrictions.

Site level EBITDA was £3.1m (2021: £0.4m), offset by central costs of £2.0m (2021: £1.2m). As a result, Group Adjusted EBITDA was £.1.1m compared to a loss of £0.8m in H1 of 2021. 

Of the £881k of branch pre-opening costs, £52k related to Escape Hunt owner operated sites, £821k related to Boom Battle Bar owner operated sites, and £7k related to Boom Battle Bar franchise sites. Pre-opening costs (whilst not all cash) include costs accrued before the site is opened to the public, such as rent and other property costs, staff recruitment and training costs. 

The branch closure costs and the loss on disposal of tangible assets relate to the closure of the Escape Hunt Edinburgh site and the final liquidation of Escape Hunt's original subsidiaries in Malaysia and Thailand, for which the process has taken several years to complete.

Unaudited group operating loss was £2.4m (2021: £2.2m)

Cashflow

The Group generated £0.8m of cash from operations (2021: cash utilised of £0.1m). £3.4m (net of capital contributions) was invested in plant and equipment and intangibles. This comprised total investment of £3.4m offset by £0.8m of capital contributions for Boom owner-operated sites and £0.8m investment in Escape Hunt owner operated sites. 

Cash at 30 June 2022 was £5.2m (30 Jun 2021: £2.4m) and £3.7m as at 31 August 2022.

Financial position

The increase in property plant and equipment reflects the investment in owner operated sites outlined above, offset by depreciation. The increase in right of use assets is matched by an increase in lease liabilities and relates to the IFRS 16 accounting for new owner operated sites signed during the six month period. The finance lease receivable relates to the IFRS 16 accounting for a sub-let of the Bournemouth venue to a Boom Battle Bar franchisee as XP Factory holds the master lease. 

The largest movement in current assets related to the receipt of the £1.8m (net) R&D credit paid in January 2022.

Provisions of £9.9m includes deferred and contingent consideration relating to the acquisition of Boom Battle Bars in November 2021. £9.4m is the valuation of contingent consideration, inclusive of 13.7% p.a. notional interest rolled up from the date of acquisition, the payment of which depends on the achievement of certain turnover and site numbers from the Boom acquisition in the year to 31 December 2022. Details of the contingent consideration are outlined in the Company's Annual Report for the year to 31 December 2021. The contingent consideration is payable by the issue of up to 25m XP Factory plc shares, valued at the date of acquisition at 35.8p. The balance relates to a working capital and net debt adjustment for the Boom acquisition, provided for post acquisition.

£340k of convertible loan notes issued in July 2020, together with £54k of rolled up interest were converted to equity on 2 February 2022 at 9.0p per share, resulting in the issue of 4.4m shares. There were no convertible loan notes in issue at 30 June 2022. £404k of vendor loan notes (£360k relating to the acquisition of Boom in November 2021 and £44k relating to the acquisition of the French master franchise in March 2021) remained outstanding at 30 June 2022. Other loans outstanding at 30 June 2022 totalling £755k relate to fit-out finance for Boom sites, of which £418k is offset by corresponding back-to-back receivable amounts.

Net assets as at 30 June 2022 stood at £18.8m (31 December 2021: £21.8m)

STRATEGY

At the time of the acquisition of Boom Battle Bars in November 2021 we set out a four-point plan to increase shareholder value. Progress has made in each of these medium-term objectives as set out above. Our objectives are to:

Details of our progress in growing the UK footprint and the integration of Boom have been described in some detail above. We have intentionally de-emphasised international expansion in the period as we focused on the intensive roll-out strategy in the UK. We expect to place greater emphasis on international opportunities once we have a period of profitable operating experience in the UK. Our efforts to build a greater B2B business are being rewarded, particularly within Boom. Corporate sales represented approximately 6% of sales in the six months to 30 June 2022. In the period since then, we have seen a marked increase in corporate sales, and in the period since 30 June 2022 corporate sales have grown to represent approximately 12% of sales. We expect this to grow further in Q4 2022.

POST PERIOD END TRADING AND OUTLOOK

Trading since 30 June 2022 has continued positively. In the 10 weeks to 12 September 2022 UK Escape Hunt owner-operated estate generated unaudited turnover of approximately £1.7m, an increase of 11% compared to the same ten-week period in 2021. Adjusting for the VAT benefit received in 2021, the underlying increase was 27%, reflecting an enlarged network and 8% like-for-like growth from sites which were open in the same period in 2021. Escape Hunt site level EBITDA margins continue to exceed the Board's internal benchmark of 30%.

The Boom owner operated sites[2] delivered unaudited turnover of approximately £1.4m for the ten weeks to 12 September 2022 and each of the Group's sites has proved capable of delivering margins in line with our expected box economics within the first few months of operating, underpinning confidence in the Group's business model. Boom franchise royalties in the 10 weeks to 12 September 2022 totalled approximately £0.3m.

2 6 weeks with 4 sites open; 3.5 weeks with 5 sites open; and 0.5 weeks with 6 sites open.

This performance provides the Board with continued confidence for the future potential for the Group.

Recent performance across the estate has been encouraging with no discernible impact from consumer weakness. The Board remains focussed on providing the best possible customer experience to an ever growing number of customers across the UK and beyond. The Board will keep a careful eye on consumer behaviour in the context of the macro-economic environment and be ready to react if there is any sign of an impact.

Notwithstanding the recent performance, the Group's full year results are heavily weighted to the final quarter's trading and will be influenced by, inter alia, the dates on which sites currently in build are able to open and how quickly the performance at those sites tracks through the maturity curve, and the strength of pre Christmas trading generally

Richard Harpham 

Chief Executive Officer

27 September 2022

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:

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

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022 (continued)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to owners of the parent

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

NOTES TO THE UNAUDITED INTERIM REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2022

1. General information

The Company was incorporated in England on 17 May 2016 under the name of Dorcaster Limited with registered number 10184316 as a private company with limited liability under the Companies Act 2006. The Company was re-registered as a public company on 13 June 2016 and changed its name to Dorcaster Plc on 13 June 2016. On 8 July 2016, the Company's shares were admitted to AIM.

Until its acquisition of Experiential Ventures Limited on 2 May 2017, the Company was an investing company (as defined in the AIM Rules for Companies) and did not trade. 

On 2 May 2017, the Company ceased to be an investing company on the completion of the acquisition of the entire issued share capital of Experiential Ventures Limited. Experiential Ventures Limited was the holding company of the Escape Hunt Group, the activities of which related solely to franchise.

On 2 May 2017, the Company's name was changed to Escape Hunt plc and became the holding company of the enlarged Escape Hunt Group. Thereafter the group established the Escape Hunt owner operated business which operates through a UK subsidiary. All of the Escape Hunt franchise activity was subsequently transferred to a UK subsidiary. On 22 November 2021, the Company acquired BBB Franchise Limited, together with its subsidiaries operating collectively as Boom Battle Bars. At the same time, the Group took steps to change its name to XP Factory Plc with the change taking effect on 3 December 2021.

XP Factory Plc 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 franchise sites in the UK that combine competitive socialising activities with themed cocktails, drinks and street food in a high energy, fun setting. Activities include a range of games such as augmented reality darts, Bavarian axe throwing, 'crazier golf', shuffleboard and others.

The Company's registered office is Belmont House, Station Way, Crawley, RH10 1JA.

The consolidated interim financial information represents the unaudited consolidated results of the Company and its subsidiaries, (together referred to as "the Group"). The Consolidated Interim Financial Statements are presented in Pounds Sterling, which is the currency of the primary economic environment in which the Company operates.

2. Basis of preparation

These interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2021 annual report. The statutory financial statements for the year ended 31 December 2021 were prepared in accordance with International Financial Reporting Standards in accordance with the requirements of the Companies Act 2006. The auditors reported on those financial statements; their Audit Report was unqualified.

The interim financial information is unaudited and does not constitute statutory accounts as defined in the Companies Act 2006.

The interim financial information was approved and authorised for issue by the Board of Directors on 27 September 2022.

3. Going concern

The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

The directors have assessed the Group's ability to continue in operational existence for the foreseeable future in accordance with the Financial Reporting Council's Guidance on the going concern basis of accounting and reporting on solvency and liquidity risks issued in April 2016.

The Board has prepared detailed cashflow forecasts covering a thirty-month period from the reporting date. The forecasts take into account the Group's plans to continue to expand the network of both Boom Battle Bar and Escape Hunt sites through organic growth. The forecasts consider downside scenarios reflecting the potential impact of an economic slowdown, delays in the roll out of sites and inflationary pressures. Based on the assumptions contained in the scenarios considered and taking into account mitigating actions that could be taken in the event of adverse circumstances, the directors consider there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable, as well as to fund the Group's future operating expenses. The going concern basis preparation is therefore considered to be appropriate in preparing these financial statements.

4. Significant accounting policies

The Company has applied the same accounting policies, presentation, methods of computation, significant judgements and the key sources of estimation of uncertainties in its interim consolidated financial statements as in its audited financial statements for the year ended 31 December 2021, which have been prepared in accordance with International Financial Reporting Standards in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

5. Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the group of executive directors and the chief executive officer who make strategic decisions.

Management considers that the Group has four operating segments. Revenues are reviewed based on the nature of the services provided under each of the Escape Hunt™ and Boom Battle Bar™ brands as follows:

1. The Escape Hunt franchise business, where all franchised branches are operating under effectively the same model;

2. The Escape Hunt owner-operated branch business, which as at 30 June 2022 consisted of 16 Escape Hunt sites in the UK, one in Dubai, one in Paris and one in Brussels;

3. The Boom Battle Bar franchise business, where all franchised branches operate under the same model within the Boom Battle Bar™ brand; and

4. The Boom Battle Bar owner-operated business, which as at 30 June 2022 comprised 4 Boom Battle Bar sites in the UK.

The Group operates on a global basis. As at 30 June 2022, the Company had active Escape Hunt franchisees in 10 countries. The Company does not presently analyse or measure the performance of the franchising business into geographic regions or by type of revenue, since this does not provide meaningful analysis to managing the business.