XP Factory plc (LON:XPF) has announced its audited final results for the year ended 31 December 2022.
FINANCIAL HIGHLIGHTS
| · | £22.8m Group revenue – up 228% vs prior year (2021: £7.0m) |
| · | £2.6m adjusted EBITDA pre IFRS16 (2021: loss £0.6m) |
| · | £9.8m Escape Hunt™ owner-operated revenue up 62% vs prior year (2021: £6.0m) |
| · | £0.7m Escape Hunt Franchise EBITDA up 75% vs prior year (2020: £0.4m) |
| · | £9.5m Boom Battle Bar™ owner-operated revenue of in its first full year of operation |
| · | £2.9m Boom Battle Bar™ franchise revenue |
| · | £1.3m Group operating profit (2021: loss of £0.5m) |
| · | 35% return on capital across Escape Hunt owner operated estate |
| · | £3.2m cash at year end (2021: £8.2m) and £4.0m on 30 April 2023 |
OPERATIONAL AND STRATEGIC HIGHLIGHTS
| · | Successfully integrated Boom Battle Bar into XP Factory Group |
| · | Opened 27 Boom sites by the end of 2022 – 11 owner operated and 16 franchised |
| · | Acquired Boom franchise sites in Norwich and Cardiff |
| · | Opened 4 new Escape Hunt sites and relocated 1 other, expanding UK estate to 23 venues (2021: 19) |
| · | Achieved 97% customer satisfaction ratings across both brands |
| · | Secured £3.3m credit facility with fit-out providers for new Boom owner operated sites |
POST YEAR END
| · | 3 Boom sites and 1 Escape Hunt currently in build, with a developed pipeline underpinning site roll-out targets for the year |
| · | 44% LFL sales growth delivered across Q1 2023 in the Boom sites that were trading last year, with operating metrics maturing as expected |
| · | Boom franchise sites performing in line with the Board’s expectations |
| · | 32% LFL sales growth across the Escape Hunt owner operated estate, with overall trading ahead of the Board’s expectations in Q1 2023 |
Richard Harpham, Chief Executive of Escape Hunt, commented:
“2022 was a transformational year for XP Factory, delivering outstanding growth and performance, and underpinning our position as a leading operator in the experiential leisure sector. The bold expansion targets we set for ourselves were met, and we ended the financial year with a platform set for significant growth ahead. The strategic decision to buy Boom Battle Bar has been validated and Escape Hunt has continued to perform at levels far exceeding our initial investment assumptions. Trading in the first quarter of 2023 has been strong, with the group as a whole exceeding management expectations. Escape Hunt has performed incredibly well and the Boom estate has shown strong growth and continued progression towards the operating metrics we expect at maturity. The performance in Q1 gives us cause for optimism.”
STRATEGIC REPORT
Chairman’s Statement
I am delighted to be reporting on a transformational and successful year for the group. We set ambitious targets at the start of 2022 to significantly expand our then newly acquired Boom Battle Bar estate from seven sites open when we acquired the business in November 2021 to having 27 Boom sites open by the end of 2022, whilst also expanding our Escape Hunt network. Through an enormous effort by the whole team, our target was achieved. Today we have a business which has critical mass and can justifiably claim to a leading experiential leisure business in the UK.
Whilst attention has been focused on integrating and expanding the Boom Battle Bar business, Escape Hunt has had an exceptional year. The strong performance delivered in the second half of 2021 after the long periods of lockdown during covid continued into 2022. Escape Hunt’s performance has been steadily maturing and the site level margins being delivered has exceeded our original expectations. Investment into the intellectual property of the brand, being games and operating know how, has created a truly unique business operating a leisure concept that is increasingly recognised by the consumer. We believe there is significant further scope for growth and we will continue to nurture and develop Escape Hunt accordingly.
The Boom Battle Bar concept is still relatively new, but the early signs of success suggest there is a very attractive opportunity to grow and generate substantial shareholder value. The targets we set for growing the Boom business in 2022 posed a significant challenge for the team to build the organisational capability whilst maintaining the pace of expansion. Both our marketing and operations capabilities have been boosted during the year and we have successfully created the platform we had aimed to achieve. Margins from the Boom owner operated estate have been steadily improving and it is pleasing to see the positive customer reviews being achieved.
The Board remains resolved to capitalise on the continued growth of experiential leisure, and we believe the foundations that have now been built will enable XP Factory to become a leader in developing the industry. In the short term, the group’s strategy remains focused on building our UK presence, whilst we take some initial steps to test international markets. The return on capital opportunity for both our brands presents a significant shareholder value creation dynamic. For Boom in particular, returns can be further boosted by landlord contributions towards the fit out. Having achieved what we set out to do in 2022, our challenge now is to optimise the pace of roll-out within the constraints of the capital we have available. Escape Hunt has developed strong defensible characteristics through its proprietary games, operations and customer service. Our aim is to do the same within Boom so our focus in Boom will shift towards more owner operated sites whilst we continue to develop the operations, games management and customer service. This means investment into systems and processes and will also allow us to scale more easily. We believe that will set the business well for the future enabling us to more easily replicate owner operated success and also to create an attractive proposition for larger scale franchisees both in the UK and in international markets.
During the year we took the opportunity to buy back two franchised Boom sites in Cardiff and Norwich respectively. The returns profile from these acquisitions has to date been attractive with the acquisition of Boom Norwich already paid back. These opportunistic acquisitions follow similar successful acquisitions of our Escape Hunt Dubai master franchise in 2020 and the Escape Hunt French and Belgium master franchises in 2021, both of which have also delivered very attractive returns. Where these types of opportunities arise on favourable terms, we expect to take them up.
As the business grows, we are also mindful of our wider ESG objectives. The group’s purpose is to bring people closer together through shared experiences as we believe that enriches lives. Consistent with this objective, it has been pleasing to see the seeds of a strong and growing corporate culture within the enlarged business. We have implemented a number of initiatives internally to support our people and our goal is to offer our workforce an enriching and supportive work environment. Our recruitment approach to create a more inclusive workforce is working as is evident from the rich mix of cultures and backgrounds across the organisation. There is also ongoing focus to implement local initiatives to improve our environmental habits and we work closely with our major suppliers with these objectives in mind.
During the year we made a number of changes to the board. Having served on the board since the company’s formation, Karen Bach left in June 2022. Her support and insight in the early Escape Hunt journey and through the difficult period over the pandemic was much appreciated. At the same time we were delighted to welcome Martin Shuker and Philip Shepherd to the board. Martin brings a wealth of experience in the consumer leisure sector and brings considerable franchising know-how from his time at KFC. Philip, who is our audit committee chairman, likewise brings considerable experience in the experiential leisure sector. More details on each of the board members is set out on page 25 of this report.
Finally, I wanted to thank all our people in the group without whose efforts and dedication the business could not have survived the pandemic nor successfully built the platform we have today.
Outlook
The opportunity presented by the growth of experiential leisure remains as attractive today as it was when XP Factory (then Escape Hunt) started its journey. The addition of Boom Battle Bar to the group has significantly enhanced the scale and prospects for the group and we are well placed to continue to benefit from attractive property opportunities. Escape Hunt’s financial performance has settled into an attractive rhythm, producing high site level margins and highly attractive return on capital, whilst Boom’s performance has proven that our initial expectations of the opportunity were well founded.
Trading in the first quarter of 2023 has been strong, with the group as a whole performing ahead of management expectations. Escape Hunt had an exceptionally strong first quarter with like for like revenues, adjusted for the VAT benefit in 2022, up by 32%. Within this, it has been particularly satisfying to see the oldest seven sites in the UK estate delivering like for like growth of 18%. Margins continue to meet or beat our internal targets. The franchise estate has delivered modest year on year growth.
Boom is still a very new business with very little historic trading against which to compare. The four owner operated sites which traded the full Q1 in 2022 delivered like for like growth of 44%. The rest of the estate has also shown strong growth and continued progression towards the operating metrics we expect at maturity. The franchise estate has performed in line with expectations.
Overall, whilst mindful of the ongoing pressures on the consumer and on our cost base, the performance in Q1 of 2023 gives us cause for optimism.
Richard Rose
Chairman
23 May 2023
Chief Executive’s Report
It is wonderful to be reporting a transformational year of outstanding growth and performance, as XP Factory continues to position itself as a leading operator in the experiential leisure sector. The bold expansion targets we set for ourselves were met, and we ended the financial year with a platform set for significant growth ahead. The strategic decision to buy Boom Battle Bar has been validated and Escape Hunt has continued to perform at levels far exceeding our initial investment assumptions. It is therefore a delight to highlight some of the key performance measures for the full year to December 2022:
· Group revenue increased 228% to to £22.9m (2021: £7.0m)
· Adjusted EBITDA before IFRS16 of £2.6m (2021: loss of £0.6m)
· 27 Boom Battle Bar sites open as at 31 December 2022 (2021: 9)
· 23 owner-operated Escape Hunt sites open as at 31 December 2022 (2021: 19)
· 97% customer satisfaction score earned on both businesses
The pace of growth in the year would have been tough for many larger, longer established businesses to deliver, but adding 18 Boom sites in the year and 20 to a base of only 7 since acquisition in November 2021 represented a significant challenge to our teams. It was humbling to see the passion, tenacity and at times resilience with which they embraced the task, and I could not have been prouder of their execution. Most notably, they not only opened the sites in quick succession, but they did so in a way that embodied the best of our culture, our values and our unique form of hospitality, the manifestation of which saw our customers reward us with a 97% satisfaction rating.
Within the year we made two acquisitions, buying back our Boom franchises in each of Norwich and Cardiff. They have each proved to be highly successful, with Norwich fully paying back on a cash basis within 5 months, and Cardiff continuing to operate as a high revenue, highly profitable unit, which delivered 11% LFL sales growth in the period between acquisition and the year end.
It felt almost symbolic that our year closed with the opening of a flagship site on Oxford Street, perhaps the culmination of everything our teams have been working towards over the last 6 years. The unit sits proudly across 15k square feet and showcases the best of both Escape Hunt and Boom Battle Bar. Three years ago, as we were attempting to navigate the pandemic, it would have been unimaginable to think that we’d be opening our doors on one of the most iconic streets in the world. However, the team took it within their stride, and trading in both brands has exceeded our expectations so far.
Notwithstanding the challenges posed by the Omicron variant at the beginning of the year, and the significant disruption caused by strike action in Q4 2022, the Company delivered Group Adjusted EBITDA in line with expectations and enters 2023 from a true position of strength.
Escape Hunt
Escape Hunt bolstered its owner-operated estate throughout the year, opening a further 5 sites in Exeter, Norwich (a second unit), Edinburgh (relocating the previous Edinburgh site), Bournemouth and Oxford Street (London). Revenue of almost £10m from the owner operated business represented a 64% increase on the prior year (2021: £6m), albeit H1 in 2021 was affected by forced closures related to the pandemic. However, across H2 2022, perhaps a more fair comparison, like-for-like sales were 14% ahead on an underlying basis. The international franchise business also saw H2 sales growth of 18% vs 2021, and continues to provide a meaningful revenue contribution to the group (£0.7m).
Margins within Escape Hunt have continued to be exceptional, with the owned estate delivering 42% site-level EBITDA across the year. This flows clearly to the return on capital metrics, and the annualised cash return on invested capital in the UK business is in excess of 35%. Overall the business is demonstrably exceeding the mature targets we set for it, and even the most mature sites, opened in 2017, continue to deliver healthy like for like sales growth from the original game rooms first installed 6 years ago.
Our labour controls within Escape Hunt have continued to improve, bolstered by our investment in the proprietary software platform we implemented, and leveraged against higher sales. This has provided us with good cover in the face of rising costs and wage pressures, since we have been able to absorb the effect of our desire to invest in our teams and maintain wages well ahead of the industry. Moreover, since Escape Hunt has no meaningful cost of goods, the business is naturally insulated against much of the inflationary dynamics of the market, and has been able to maintain customer pricing, which we feel is important at a time when disposable income is being stretched.
Within the year we began to experiment with co-located sites in some cities, where we took large spaces and split them between Escape Hunt and Boom. Notably we have done this in Oxford Street, Lakeside, Edinburgh and Exeter. We will continue to assess how these sites perform relative to standalone units, but the early indications are positive, with the effect of materially lower property costs per square foot driving strong cash generation for Escape Hunt. We would expect to refine the way we bring the two brands together over time, but already it is clear that there is a commonality of customer between both businesses.
Overall we remain confident that we have a jewel of a business in Escape Hunt. The consistency of returns, the high level of these returns, and the overwhelmingly positive reactions that we still garner from customers underpin our continued roll-out strategy. It is therefore exciting to be bringing our experiences to new cities over the coming months.
Boom Battle Bar
In its maiden year for the Group, Boom Battle Bar’s foundations were firmly set in 2022, and the year closed with 27 sites open across the UK. This pace of growth and execution against such a small base is likely unprecedented in our industry, and the delivery highlighted for me what an extraordinary team we have built over the last few years.
Without exception, our staff stepped up to the challenge and embraced every element of the job in hand. Whether the integration of Boom with Escape Hunt, the building of 18 sites in the year and a total of 20 since the acquisition, the training and recruitment of staff, or the delivery of our values and hospitality to customers, both I and my management team were deeply humbled by the execution. Several members of our team, who have been with the business since the beginning, were able to adopt leadership roles in the enlarged Group, and watching them take responsibility for large swathes of our growth strategy has been singularly rewarding. Moreover, seeing the resultant passion and culture that exudes from our staff at site level, and the positive impact it has on our customers, is a stark reminder of why we do what we do.
Whilst early in its evolution, the performance within Boom to date has been highly encouraging. Revenue from the owned estate was approximately £9.5m, with the franchise business delivering a further royalty income to the Group of £1.5m, and total revenue of £2.9m. Moreover, the conversion to gross profit and EBITDA has been in line with our expectations for a maturing business. Even though the opening of the sites in 2022 was somewhat weighted towards the back end of the year, and despite the fact that the units are expected to operate at a loss in their first few weeks of opening, Boom nevertheless generated pre IFRS 16 site EBITDA of 13%. This provides significant comfort that the medium term target operating EBITDA margins of between 20% and 25% are realistic, and indeed we are seeing this level and beyond in many of the more established locations already.
We remain confident that the high expectations for return on capital are achievable, as the build costs per square foot are being well managed, and this, combined both with the strong cash generation from the units and the capital contributions we are typically receiving from landlords (often circa £500k), result in forecast paybacks of between 1 and 2 years. Given this performance, it seems prudent to continue our site-opening strategy at a pace, and whilst we will not repeat the 18 Boom units achieved in 2022, we have cash and debt options to continue the rollout at pace.
There are of course many areas of the Boom operation which we continue to adapt and experiment with so early on in our journey, but already we are creating environments that customers are enjoying. Our satisfaction ratings of 97% are a testament to the delivery by our site teams, and the significant level of returning corporate business further reinforces that we are servicing an important market. Since the years of social lent born of COVID, we are seeing ever increasing numbers of companies looking to book our venues for their staff on a fairly regular basis, as Boom represents an ideal way to bring people together in a fun, relaxed and enjoyable environment. We only envisage this dynamic becoming more and more apparent, and indeed we have been forced to triple the size of our corporate sales team in order to cope with the in-bound demand.
Overall we are delighted with what we achieved with Boom over the course of 2022, and feel that it has set us up for success going forwards. We are through the required threshold of critical mass and the company is already showing itself to be cash generative in a way that has transformed our outcomes relative to where we were only two years ago.
Strategic objectives
At the time of acquiring Boom Battle Bar, we outlined a four-point strategy to build shareholder value. Almost 18 months on, we have been pleased with our progress against these strategic imperatives, and have touched on the highlights below:
1. Maximise the UK footprint by rolling out each brand, either through direct investment into owner-operated sites or through franchises
During 2022, we embarked upon an aggressive site opening strategy in the UK, and between Boom and Escape Hunt we opened 23 units. Importantly, we co-located a number of Escape Hunt sites with Boom Battle Bar and will continue to assess how these sites perform relative to stand-alone sites. Early indications are positive and it is likely that in certain venues, co-location of sites will make sense.
We will continue to build the network for both brands, with a greater relative emphasis in the short term on Boom and owner operated sites.
2. Accelerate growth in International territories, predominantly through franchises
Whilst we believe that there is a significant opportunity for each brand internationally, the immediacy of international growth will differ for each operating brand. For Boom, the focus remains in the UK although we are testing our first international market with a Boom site in Dubai. More broadly, international expansion is likely to be franchise led, as it has been for Escape Hunt.
3. Continue to develop new products and markets which facilitate the growth of B2B sales
We will continue to innovate and develop products that provide access to a broader range of customer markets. Our direct sales team has been materially expanded and is addressing the corporate / business market for both Escape Hunt and Boom Battle Bar effectively.
4. Integrate the businesses, exploit the synergies where possible, and develop an infrastructure that supports scale and future growth
Whilst more inward looking, the fourth objective is a critical component for the success of our business. I have been delighted with the progress we have made during 2022 in embracing the cultures of the two businesses and building on the DNA and values within the XP Factory Group. Our focus is now on implementing systems and operational practices which further differentiate our businesses and create an operating methodology which can be easily be scaled and which larger scale franchisees will value.
Outlook
The opportunity presented by the growth of experiential leisure remains as attractive today as it was when XP Factory (then Escape Hunt) started its journey. The addition of Boom Battle Bar to the group has significantly enhanced the scale and prospects for the group and we are well placed to continue to benefit from attractive property opportunities. Escape Hunt’s financial performance has settled into an attractive rhythm, producing high site level margins and highly attractive return on capital, whilst Boom’s performance has proven that our initial expectations of the opportunity were well founded.
Trading in the first quarter of 2023 has been strong, with the group as a whole performing ahead of management expectations. Escape Hunt had an exceptionally strong first quarter with like for like revenues, adjusted for the VAT benefit in 2022, up by 32%. Within this, it has been particularly satisfying to see the oldest seven sites in the UK estate delivering like for like growth of 18%. Margins continue to meet or beat our internal targets. The franchise estate has delivered modest year on year growth.
Boom is still a very new business with very little historic trading against which to compare. The four owner operated sites which traded the full Q1 in 2022 delivered like for like growth of 44%. The rest of the estate has also shown strong growth and continued progression towards the operating metrics we expect at maturity. The franchise estate has performed in line with expectations.
Overall, whilst mindful of the ongoing pressures on the consumer and on our cost base, the performance in Q1 of 2023 gives us cause for optimism.
Richard Harpham
Chief Executive Officer
23 May 2023
