XP Factory Plc (XPF.L) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the XP Factory Plc Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'm sure the company will be most grateful for your participation. I'd now like to hand over to the management team from XP Factory. Graham, Richard.

Good afternoon, Marc, and good afternoon, everybody else. Thank you so much for joining us this afternoon. It's our pleasure to be talking through our 12-month interim results to December '23. But I thought very briefly, a quick introduction on who we are. So I'm Richard. I'm the CEO here at XP Factory, and he's Graham Bird, who's the CFO.

Good afternoon, everyone.

And obviously, we'll get into our results in a moment. But I'm aware that there might be some people listening today, you are not quite as familiar with what we do with XP Factory. So it might be a helpful precursor just to give you a very brief overview of what our 2 brands are. So XP Factory is the sort of the umbrella company, if you like, that sits over our 2 brands, Escape Hunt and Boom Battle Bar. Escape Hunt is the market-leading escape room provider. We're going to have 45 units trading internationally. We have -- within which we have 23 that are owner operated, we have 22 which are franchised. And for anybody that isn't familiar, escape rooms activities are these deeply themed heavily immersive experiences. They're like theater sets, if you like, that you visit with your group of friends, with your family, with your work colleagues. And once you're in our world, you're immersed in our world, you work together, you find clues, you solve puzzles and ultimately, you look to escape the room. Our other business, which is much newer is Boom Battle Bars, and that sits in this really fast-growing competitive socializing space. Essentially, these are wet-led experiences, they're large format, typically 10,000 to 12,000 square feet. They are anchored by lots of different modular games that may include axe throwing, that may include augmented reality darts. it might be crazier golf. But that environment, that high energy loud environment with cocktails, street food, game is a really, really fun place for us to play. And of course, we're going to talk a lot more about the details of them in just a moment. But we thought it might be helpful just to give you a very, very quick video teaser, one for each brand, just to give you a flavor of what it is that we do. [Presentation]

So hopefully that gives you a little flavor for what it is that we do at a site level. But what we're obviously here to do today is really talk about the numbers as we delivered to the 12 months to December last year. So I suppose the overarching narrative of the year really is one of growth. What you're seeing in these numbers is a business that has doubled in size for the second year in a row, the manifestation of which is revenues hitting almost GBP 45 million and most pertinently, adjusted EBITDA that's pre-IFRS 16 EBITDA to GBP 5.5 million. So that GBP 5.5 million is up from GBP 2.6 million in the prior year, the GBP 45 million of sales up from $22 million in the prior year. So really quite a significant period of growth for us as a business. But I think the story that sort of underpins that is one of success in each brands, on both an Escape Hunt and in Boom. You'll be aware, I'm sure that at Escape Hunt is the older of our 2 businesses. Escape Hunt is now 6, 7 years old in some cases, but it's still delivering like-for-like sales growth of 17%, and Boom at 29%, albeit a much younger business. And I think it's really important to understand within these like-for-like numbers that this is entirely volume driven. We have held price across our businesses. So this is volume-driven like-for-like, a very, very strong indication of customer response to our offerings. In terms of our customer satisfaction per se, we continue to be leading the charge against the whole of the competitive socializing set and indeed the broader leisure set at 98%. And so with these things combined, our business which is throwing off good cash flow now a really strong customer satisfaction, these very strong like-for-like growth. We feel that there is a really interesting future for both businesses. If we skip into a little bit more detail around Escape Hunt, as I mentioned, Escape Hunt is the older of the 2 brands, but nonetheless, is still growing at really a very significant rate. 38% sales increase versus prior year saw us deliver GBP 13.5 million in the owner-operated revenue. And as I've already mentioned, the 17% like-for-like growth was really a testament to the work the teams do to drive that customer participation. But I think on here, one of the stats that is most interesting to me is that within our earliest cohort of 7 sites, these are the sites that we opened at the back end of 2017, early '18, still the like-for-like growth of 16%. And that's made all the more interesting by the fact that these sites are still trading the very original games which were built all that time ago. There's been no game reinvestment into these units. So really, really pointing to a business which is enduring a concept which is enduring. And I think that's a positive place to be. For the second year in a row, we've delivered a site level EBITDA sitting ahead of that 40% mark and 42% delivered in the year, quite materially higher than our aspirations were when we set out to create this business 6 years ago. We imagine that the good would see us get to 30%. So being sat 42% again, is a real testament to the team. And of course, that unsurprisingly, perhaps that strong level of EBITDA, which is a really good proxy for cash flow generation results in a very, very high level of return on capital as well. So we're seeing 46% return on capital employed in Escape Hunt. We talked already about these TripAdvisor scores, and Google review scores being really important to us. We've maintained this absolute #1 position in this space, 99% average review is obviously a place that we could be proud to own. We opened a new site last year for Escape Hunt. We opened a great new unit in Woking, which is now kind of building up and moving along its maturity curve. But what also we did was create some additional capacity, if you like. So where we're a little bit constrained in the space, we found space to put 4 incremental games rooms into a number of sites, really sort of bolster and cater for that latent demand that we were seeing. So Overarchingly, a very good performance for Escape Hunt and one that we're proud of. If we move now into sort of an overview of the Boom business. What you see here, again, is another story of growth. You're seeing 200% sales increase and bring us to almost GBP 29 million in the owner-operated estates, 200% over the prior year. And again, as I mentioned, within this, we've got 29% like-for-like sales growth which is obviously very, very powerful given the way that flows all the way through to cash generation. But we opened a few more sites. So we opened 3 sites during the year, Canterbury, Dubai and Southend. But more importantly, almost, we completed on 5 franchise buybacks within the year as well. We do this opportunistically where the sites become available typically on very favorable terms for us. And so it's exciting to be able to see those sites kind of grow with us as a business. It's really important, of course, to see sales growth, but it's almost more important to see the conversion flowing all the way through the P&L. So when we look at Boom for the 12 months, seeing 18% EBITDA delivered over that period is really strong. That was a quite significant increase in H1. So in half 1, we delivered 11%. In half 2, we delivered 23% blending to 18%. And we have set for ourselves this aspirational target of getting to 20% to 25% for a more mature business. I hope you can see that we're very much on that trajectory at the moment. Again, it's a very well-reviewed business, particularly reviewed well reviewed for a Bar business. We sit quite significantly ahead of our peers in that space. And as I'd say whilst we continue to learn more and more about the best ways to operate Boom, once we continue to invest in our existing sites to further increase our efficiency to create better capacity, I hope that you'll see this performance to continue to grow. I just thought this might be an interesting graphical representation of our journey. For anybody that's a little bit newer to the story, what you're seeing here is a very, very, very aggressive rate of growth across both sales and EBITDA over the last 4 or 5 years. You'll see just as we were going into that COVID period, we closed the year of GBP 5 million of sales in round numbers. So we've gone through COVID highlighted in purple on the screen, and then ramped up 10-folds to GBP 45 million, I think, is a testament to the growth that's kind of manifested itself during that period. And of course, the same is true for EBITDA. We went into that COVID period, a loss-making business, and we've kind of grown through sort of EBITDA neutral through GBP 2.6 million last year into GBP 5.5 million this year. And obviously, we expect that trajectory to grow. And in terms of that revenue growth, we thought it might also be interesting just to bridge for you where the drivers of that growth are coming from. So you'll see the sort of the third bar in is I'm showing our close to GBP 22.6 million. The next 2 bars there, which are some to GBP 4.5 million of like-for-like growth. So that's the benefit of that 29% on Boom and that 17% on Escape Hunt going good in pound numbers. You'll see net circa GBP 13.5 million from both Boom and Escape Hunt new sites. So that's the significant benefit that we're seeing from the new sites, which have been opening, obviously materially larger for Boom, given that we opened so many sites through 2022. And it's also the full year effect and the maturing effects of those sites are over and towards the back end of the year. You'll see then the franchise sites, which we've acquired during the year, we just talked about as well. So those are generating almost GBP 5 million in the year for additional revenues to us as business while we bring those sites back into our ownership. I think it's worth pointing out as well that what you're seeing there is a negative GBP 0.9 million on the franchise fees from Boom. Actually, this is possibly a tad misleading and the underlying rate of growth in the franchise site for Boom is positive, It's underlying positive like-for-like. What that GBP 0.9 million represents is on the change to the way that we now report. So previously, the business that we acquired that had a mechanism whereby you were basically sell to franchisee sites and then you'd obviously have an offset further down the P&L. So the bulk of that movement represents the sale of the sites, the benefit and revenue to us. So that's not really a true reflection of the underlying growth in the franchise estate, which is actually positive. But nonetheless, we hope that this is a positive or at least an easy representation of our growth over the last year. I think it's good when you look at the cohort for Escape Hunt to see -- again, I referenced again this enduring business, the enduring nature of this business. So what you're seeing here on this slide is the cohort analysis that we've done showing the average EBITDA per room by cohorts. That is to say how well are the rooms performing that we build in 2018, 2019, 2021 and so on and so forth. And what you'll see in all cases is that each cohort continues to grow. And obviously, that's manifesting itself in the like-for-like growth, but really, really interesting to see that all of these cohorts, even these original ones from way back when are still growing. And if you get even more granular than that, and we take the original 5 games, the very first 5 games that we created back in 2017, even these year-on-year continue to grow. So whilst, yes, we've got a much larger library of new games today and whilst those new games do very, very well, this original cohort also continued to grow. So I think it's really, really important to see just how much further forward escape rooms are becoming in the consumer psyche and why this is a business that is here to stay. The resultant effect of this is a very, very high return on capital. And so what you're seeing here is an average weighted return on capital for Escape Room of 46%, that's represented by the dotted line in the middle. And whilst it's actually very positive to see all sites making a strong return, If you were to flip this chart almost reverse this chart, not quite linearly, but what you would almost see is an increasing rate of return for every newer incidence of Escape Hunt that we build. That is to say that the newer the site, the higher the return on capital in broad terms. And I think the reason for that is twofold. One is that now we are so much more a sort of a cornerstone, if you like, for shopping centers. It is a good thing to have a Escape Hunt in a shopping center. We trade well. We're well reviewed. Landlords typically like us. The result of that is we get better sites. So the sites we achieved today are materially better than the sites we achieved 5 years ago, 6 years ago. And that means that typically, they hit the ground running a little bit faster. They mature a little bit quicker. And in absolute terms, they supercede the target economics, which we'd initially set for them. And that, combined with an underlying capital cost, which has actually diminished. It costs us less to build a site today than it cost us 6 years ago due to the work that we've done in that intervening period, combined with the fact that now we might get a little bit of landlord contribution for Escape Hunt, which is not something we ever saw back in the day, you're seeing this increasing rate of return on capital, which is obviously a very nice position for us to enjoy. In terms of the Boom data, again, very strong return on capital on average. You're seeing 48% there for that return on capital. And again, with a huge exception on the right-hand side -- sorry, on the left-hand side and lower performing site on the far right, what you're seeing is a pretty consistent cluster in and around that number in the middle, which is, of course, what you want to see as an operator. So it leaves us with 2 businesses with, I would suggest, market-leading return on capital. I think it's very, very uncommon to be seeing rates of 46%, 48%. It feels like a very good position for us to be. And as I say, again, it really cements that foundation for growth that we can hopefully enjoy going forward. So I'm going to pass you over to Graham now, who's going to get into a little bit more detail about some of the key aspects of the financial statements.

Yes. Thank you, Richard. I think a lot of the detail that's in here has been touched on to some degree in what Richard has already said. But just sort of going through the P&L, again, just emphasizing that nearly doubling of revenue to GBP 44.8 million with Escape Hunt growing very strongly, both organically and through the full year effect of sites that opened in 2022 and of course, working opening in the current year, giving a 38% overall increase as we saw there. Boom, up 20% and strong margins coming through. I think at a gross margin level, we saw an improvement in Boom from 52% last year up to 58%, borne really of efficiencies. There's certainly, as we've mentioned earlier, there's no price that's been pushed through on Boom. In fact, we had an increase in some of our costs, particularly on drinks and so on, which we didn't pass through. We absorbed that. But the additional gross margin that has come through has been borne of more efficiency in use of labor and also some mix benefits across the piece there. So nice to see that, that margin has improved and has been reasonably stable around that level. Certainly, site level EBITDA margins, Richard has spoken to, so I won't go back on to that. One point to pick up on central costs, where we do sort of lump it all together, where we have a central cost base, which came in at just GBP 8 million. Obviously, that's up on the last year, largely as a reflection of costs which we brought into the business as we scaled in 2022, which we've got the full year effect of in the current year. And also there is some inflationary impact, but we now have pretty much the team that we would need to support a very much more substantial business. It obviously will scale to some extent as we grow, but it should be at a very much slower rate going forward outside of inflationary pressures. Moving on to the cash flow statement. I think this is really the feature of the performance, which I'd like to focus on. Just demonstrating very strong cash generation at an operating level for the business. On a post-IFRS 16 basis, operating cash generated or cash generated from operating activities of GBP 9.5 million. Obviously, that's on a post-IFRS 16 basis. If we take the rent out and go back to good old U.K. GAAP, that would go down to GBP 7.2 million. So which is the GBP 2.3 million of rent payments, which under IFRS 16 come out as lease and interest -- lease payments and interest. So GBP 7.2 million of underlying cash generation, which compares to the GBP 5.5 million of pre-IFRS 16 EBITDA we talk about. So very much stronger cash generation compared to EBITDA. The reason for that really is threefold. There is a one-off benefit in the year. At the end of 2022, there was about -- having just built a number of franchise sites, there were a number of franchisees who were just a bit late on paying their royalties and so on. So we were about GBP 1 million of debtors, which we've collected really in January and February last year, which is I would call a sort of one-off benefit. That process is now very much on -- in hand and franchisees are paying by direct debit. So we get paid weekly on for franchise royalties, which is good. So about GBP 1 million of that GBP 7.2 million is probably one-off. But the balance really reflects the attractive working capital cycle that we have in the business. Obviously, in the early days of sites where we have rent-free periods, there's a significant cash benefit. We're accounting for rent, but you're not paying it. So that gives us a positive benefit. We're coming to the end of some of those rent-free periods, but there's still some more to go. And as we open new sites, we will continue to see some of those. I'll come back to that in a second just to talk about the impact as we go forward. But the final piece, obviously, on that positive working capital piece is, by nature, we are a negative working capital business. We don't hold high stock levels. There's a few drinks and things in bars, but generally, that's only a few days' worth of sales. And our customers generally pay us in advance for games and obviously pay on site when they're in site in Boom, whereas we pay our suppliers in arrears and of course, we pay our employees in arrears. So at the end of the month. So typically, we have a negative working capital benefit. So as we grow, we actually have an inflow of cash rather than outflow of cash into working capital. So that should continue as the business grows. Just coming back to the rent-free period. Obviously, there's a significant cash benefit upfront, which ultimately does unwind over the period of the lease. But just to give you a flavor that actually the impact annually is quite modest compared to the benefit that you get upfront when it reverses. So if you imagine a 15-year lease where we've got GBP 100,000 of rent-free -- rent payment per annum and let's say you've got 3 years of rent free, you're getting GBP 100,000 of cash benefit in years 1, 2 and 3 during which time you accrue a GBP 300,000 accrual on the -- actually, we should on the next slide here, GBP 300,000 on the balance sheet, which then unwinds over a 12-year period, which is the rest of the lease. So actually, the impact on the cash going forward is only sort of GBP 20,000, GBP 2,000 compared to the GBP 100,000 that you have upfront. So just on that. The main feature, of course, of both the balance sheet and cash flow is then the CapEx investment that we've done. We put GBP 6.9 million invested in fixed assets. That was split GBP 1.4 million from Escape Hunt and GBP 5.3 million into Boom. Within Escape Hunt, GBP 900,000 was spent on new sites. Of that, GBP 500,000 or just less than GBP 500,000 was working. And actually, we've already invested about GBP 400,000 into new games, which are in stock and ready to go into new sites in Glasgow, Cambridge and/or other sites as we go forward. So we're not getting the benefit of that yet, but it's ready to go, which means when we get access to those sites, we can move very quickly. We put about GBP 300,000 of expansionary CapEx into Escape Hunt, which as Richard mentioned, going back and adding rooms where we could. So there were a couple of rooms added in Manchester, one in Leeds, one in Oxford. So that provided some additional capacity. And the underlying maintenance CapEx was around about GBP 0.25 million. And that's in addition to the repairs and maintenance bill of about GBP 0.25 million as well, which we spend on that. So the underlying maintenance CapEx for Escape Hunt relatively low. Obviously, as if we get to the point where we start to rotate games, there'll be a modest increase, but underlying business is really maintained through the repairs and maintenance. For Boom, GBP 5.3 million invested, GBP 3.4 million of that was on new sites. Actually, about GBP 700,000 of that related to sites finished in 2022, where we had final bills and things to pay in 2023. So the new sites were bang in line with our expectations of about GBP 900,000 of site, so GBP 2.7 million on 3 new sites to buy Canterbury and Southend and GBP 700,000, which went to finish off the final bills for Oxford Street, Leeds and Birmingham, principally the sites that were finished towards the end of 2022. We put GBP 1 million back into sites to expand capacity. So some good examples there. We went back into the O2 where anecdotally, we found that actually our performance wasn't necessarily stronger on nights where you had big events going on and one wondered why. And actually, what the issue was, was because we had gains downstairs, I think a lot of people walking past thought that you had to have book to go in, and we were missing on passing trade. So we went and reconfigured the site. We've turned the downstairs section in O2 into a cocktail bar, and that's cost us about GBP 0.25 million, and we're seeing an uplift on sales of about GBP 15,000 a week. So that investment should pay back in less than 6 months. So a fantastic way of deploying capital. So having done that, similarly, we went back into sites like Oxford Street. We added some bar capacity. Lakeside, we've done the same thing. And each one of those investments, we're seeing very, very attractive returns. many times months -- under 6 months, those investments are paying back. So we will continue to do that. And then there was about GBP 600,000 of maintenance CapEx, which is added to also around about the same amount, which is over GBP 550,000 of repairs and maintenance, which goes through the P&L for our Boom sites. So those sites are being maintained. I think that's probably the sort of main features on the cash flow statement. If I move on to the balance sheet, we -- again, the main feature of the movements on the balance sheet, you'll see the biggest movements are obviously all related to the CapEx and the acquisitions of the franchise sites. And then, of course, the sort of corollary low down. We have got some debt instruments on the balance sheet. There's no sort of major sort of debt in a conventional sense, but the GBP 4.5 million that we are talking about is made up, as I've set out there. First of all, on the vendor loans, we are able to buy back these franchise sites on very attractive terms. We have quite strict criteria where we will pay a multiple of the incremental profit that we expect to earn from these sites based on their performance. Obviously, we would expect to improve that once under our ownership. And typically, we're buying these franchise sites and paying for them out of the cash flow from the business that we're acquiring. So we don't pay much upfront. Indeed, on the cash flow, you will see that the outflow from acquisitions is only GBP 60,000 for all 5 acquisitions because typically, we will simply leave a loan with the vendor and we'll pay them back monthly from the cash flow from the business that we've actually acquired from them, and that sits as a vendor loan on the balance sheet paid back over 18 months, 24 months or indeed 30 months, I think is the longest we've -- and the interest rates on that are either 0 or at maximum 5%. So that's an attractive way of funding these things. So that's GBP 1.5 million of the GBP 4.5 million. The fit-out finance is largely sort of high purchase type arrangements on equipment that's in the Boom venues where we fund it or finance it over either a 24- or 36-month period. So obviously, the accounting standards require you to gross that up and show it as a finance lease on the balance sheet. So that's what that is. And then the final piece, bank and other borrowings, there is GBP 1 million of loan notes, which we have from an individual, which we utilized, just to sort of help our expansion and as we were going through paying the final deferred considerations on Cardiff and indeed the original Boom acquisition, it was just a useful way of ensuring that we didn't absorb the capital in doing that, and we were able to continue to invest in new sites. So that's GBP 1 million of the GBP 1.3 million and the balance is actually just insurance funding where we spread the cost of insurance over a year. So matched with the cash flow and the P&L recognition there. So that's the balance sheet. And we'll come back to a couple of questions, I think, which have been asked on the balance sheet separately while we get back to the question. So I think that probably covers it, Richard, if you want.

It does. So we thought it might just be interesting just to give you a little flavor for how we've been trading post period. And so in calendar Q1 this year, like-for-likes have remained remarkably resilient actually. So we're circa 10% of the business overall. And I think it's important to mention that we're tracking actually, particularly for Boom, a very, very, very strong period of growth in the factual year in 2023. And the reason for that is that if we go back as far as 2022 and Christmas specifically in 2022, some of you may recall that there were so many train strikes and tube strikes, et cetera, that really the Christmas trading in '22 was pretty badly disrupted. And so many of those Christmas parties, corporate bonds, especially got shoved back into January of '23. So that's the period that we're now sort of comparing to. So the fact we're showing strong like-for-like growth even against such a strong counterfactual, I think, is another reason to be fairly confident that hopefully, good things can fall ahead for the business. What you'll continue to see us doing at the moment post period is really focusing in, as Graham said, on those sort of high-level site level investments that Graham has talked about. Particularly for Boom, we opened such a lot of sites so quickly back in 2022. that we didn't get everything right. We made some mistakes. We've had a lot of learnings since that. And we're not too proud to put our hands up and say, actually, we got that wrong. That's not the best flow for customers. We got this wrong, that incidence of that game is not as effective as this one would be, let's change it out. We're not too proud to sit back and say that our operation has got continuing improvements. There is still too much capacity at some of the bars. How do we release that? How do we get more drinks into more hands more quickly. So you'll continue to see us really focusing in on these sorts of investments to really drive utilization within the existing estate as well obviously as continuing to grow. So in terms of I suppose, sort of summarizing the key aspects of the presentation, points I'd love you to take away would be that if the markers of a strong site-based business are great customer response, good like-for-likes and really healthy conversion to EBITDA, which we use as a proxy for cash, then I hope you can take away that we're ticking those boxes on both businesses. In Escape Hunt, we've got a business which continues to exceed our expectations and Boom is absolutely following the maturity curve that we hope for it. So we have a lot of reasons to believe that it will get to that 20%, 25% EBITDA that we're targeting at a level. As I said, we will continue to focus pretty unrelentingly on the customer experience, where we can improve it, how we can make it more efficient, how we can create more special moments across both businesses, but particularly for Boom, which is younger. But most pertinently, we remain very, very excited that there is a real opportunity to make an underpenetrated market here in the U.K., particularly. We've talked about this aspiration of getting to 50 sites for Escape Hunt, 100 sites for Boom. Clearly, the market, in our opinion, very much exists in order to fulfill that. So hopefully, you'll see an exciting year ahead. That's probably it for the presentation. Obviously, there are some questions which we'd love to talk on as well.

[Operator Instructions] I'd just like to remind you the recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor company dashboard. Richard, Graham, you've received a number of questions ahead of today's event, and you also received a number of questions throughout your presentation. So firstly, thank you to everybody for your engagement. If I may just hand back to you, guys, if I could just ask you to read out the questions, and I'll pick up from you at the end.

Yes, sure. So hopefully, we're picking up certainly on the main themes, if you like. There are a few questions which are a little bit similar. So we'll try and combine if that's okay. So one of the questions, if I'm going to take 2 actually in the same place. So we had a question that came through, firstly, how does the company ensure balanced and accurate information is presented during interviews, especially those potentially funded by the company? And then I think in a related question, we had one that says in updates to the market, can the company start providing commentary on actual profit, not EBITDA and operating profit, both of which adjust garbage. So I'd like to pick up both of those things, I suppose, in the round. When we do investor interviews like this one, we are, of course, honing in on the things that we, as a management team, think are the most pertinent as they relate to creating value into the longer term. And the way we think about the business is very much about box economics first. And by that, I mean site profitability and its constituent parts. And so for us, health in a business is viewed very much along those lines that I just said, a healthy business has got strong like-for-like sales, which are volume-driven. That's really important. A really healthy business has got really good conversion to cash, which is why we do use EBITDA as a proxy because it's the best proxy for cash that we have. The fact that our cash flow actually is generated at a higher level than our EBITDA should only serve to be a benefit. But nonetheless, EBITDA is a very, very powerful thing. And of course, the way you're reviewed by customers is essential because this is the thing that allows you to play into the future. So when we talk to investors, we talk about these things because we think they are the fundamental building blocks for a high-value business going forward. And so yes, absolutely, we're delighted to talk about PBT, et cetera. And we can do that. But actually, some of the movements below EBITDA through into profit before tax are very much noncash and the health of the business should be around generating cash flow, positive cash flows and so on and so forth. So there's a bit of an interpretation here. We think these are the most important things for you to focus on. Obviously, we talk about PBT. We've got a full suite of accounts to get into as well. But we talk about them because we think they're the most important thing for garnering value. And in terms of the sort of the implication that we only put a positive spin on the stuff that we talk about. I think actually, we're really, really candid about the stuff that we've got wrong. As I said, we got a lot of stuff wrong when we build the sites, particularly for Boom. There's a lot of improvements we're going back and making. We identify a lot of things that we could have done better, and that's what we're trying to go back to fix. So we're certainly not looking to pull wall over eyes. We're just talking about things that we genuinely believe are the most important drivers of long-term value in the business. There's sort of a similar question actually, I think which...

I take that one?

Yes, do you want to read the question.

So another question which came out, and I think probably you may have seen published somewhere was around balance sheet concerns. So the question was the note mentioned a GBP 9 million deficit between right-of-use assets and the lease liabilities. Can you elaborate on the reasons behind this deficit? Does it suggest there might be a higher number of loss-making Boom Battle Bar locations than previously acknowledged? So firstly, what I would just point out is I think this question probably just highlights the complexities of IFRS 16 and sort of misunderstanding in some degree as to how that's applied. So just to be absolutely clear, there is no impact on either the right-of-use assets or the lease liability from underlying trading performance in any of the sites. So if I can -- the differences do arise, as you probably pointed out, the idea that when you start a new lease, the right-of-use asset is equivalent to the lease liability and those 2 things should offset themselves. So the question, why does that gap between the 2 arise? And in our case, that gap is now GBP 9 million. So how has that arisen? Well the reason really comes from 3 things. The first and most important in our case is that under IFRS 16, any landlord incentives such as a landlord contribution is netted off against the right-of-use asset. So in a case where you've got GBP 0.5 million of landlord contribution, on day 1, the right-of-use asset will be GBP 0.5 million less than the lease liability. So that accounts for -- those sort of things accounts for nearly GBP 5 million of the GBP 9 million difference. The other 2 reasons that you get differences is that depreciation is on a straight-line basis, whereas, of course, with leases, interest tends to be higher at the beginning as the balance is higher and then it comes down as you pay down the so-called liability. And so you get a bit of a mismatch where initially the right-of-use asset will actually go down quicker than the lease liability just because of that factor. So a further GBP 2 million of the difference is just that timing difference between the 2 things. And then finally, with rent-free periods where you're not actually paying down the lease liability, actually, what happens at the beginning of the lease is the lease liability goes up because it's accruing interest on it, but you're not paying the cash flow. And only when you start paying cash, does that come down, whereas the right-of-use asset from day 1 is being depreciated. So that will also give rise to differences. And that accounts for a further GBP 2 million of difference. So that accounts for the GBP 9 million. So just to be absolutely clear, there is no underlying operating performance, which impacts that. And what we've said about our Boom sites, the Boom sites generating 18% EBITDA margins is pretty -- is across the piece. And in fact, that slide where you saw the return on capital generated by sites, you can see that all of those 11 sites, which have been operating for a year are showing positive returns, albeit one was quite small, but offset by very, very high performance on the other side and most of them clustered in the middle. So hopefully, that answers the question.

So then there's a question around the latest broker note outlining around 10% revenue increase for FY 2025. Given current like-for-likes almost double that, are you expecting like-for-likes not to grow as fast? So I think here, I think what is possibly a little confusing in the broker note is the fact we're moving from a 15-month period to a 12-month period. So I'm sure most of you around the call will be familiar with the fact that we're changing our accounting year-end to the 31st of March, in fact, in a couple of days' time. And so that will have us in a 15-month period basically that we're closing out right now. And so when people are talking about that 10% growth, I think what they're comparing is 15 months moving into 12. So that's where that 10% is coming from, sort of circa 55-ish moving to 58. What actually is the better comparison is sort of the 12 months. So we're talking about 12 months here to December of GBP 45 million of sales moving into GBP 58 million for the period in '25. So that represents something closer to just above 25% sales growth. But -- so hopefully, that clears that up. And apologies if it wasn't clear before. Specific to the like-for-likes, would we be sat here today expecting like-for-likes to be maintained at 17% for Escape Hunt, 29% for Boom? No, you wouldn't because you'd expect them to come down with the maturity curve over a period. But nonetheless, would we expect very positive like-for-like sales volume led. Yes, we would.

I think the next question was, please show the calculation for ROCE communicated 48% doesn't add up. There are a number of questions on that. It's obviously referring to the Boom ROCE. It's not all that easy to find your way through in the numbers that are disclosed because obviously, this is a sort of divisional ROCE, but let me just explain. So the way we calculate our ROCE, which is an EBITDA ROCE over the gross capital invested net of landlord -- and we say gross is pre-depreciation, net of landlord contributions, i.e., the total that was put in. We calculated over the stores that have been opened for 12 months. So obviously, our calculation excludes Dubai, Canterbury and Southend, and it doesn't include the franchisee sites that we have acquired. But actually, if you did include those and gross up their performance for the back half of the year, it actually gives you an even higher number because, of course, they were through Christmas. So it's not quite like-for-like. So we've left those out. But actually, if you -- just to sort of square back to what's disclosed, if you take the site EBITDA for Boom of GBP 5.2 million, about GBP 1.5 million of that related to sites acquired during the year or new sites built during the year. So that leaves you with around about GBP 3.6 million of EBITDA. If you look within the fixed asset notes, I don't -- it's not broken down by division, but I can tell you that the -- if you take the opening gross investment on Boom and the closing gross investment on Boom, you take off the landlord contributions, you take off the acquisitions during the year and you take off the new investment during the year, you come out with an average of about GBP 7.5 million. And if you take that GBP 3.6 million of EBITDA from those sites over the 7.5 million, that gives you a 48% ROCE. So that's -- it does all come out of the numbers is just because you're applying it to the sites that have been open, it's not always directly visible. I mean just to take the example, if you take back, right, the difference of GBP 1.6 million on the sites that we acquired and we built during the year, and add back the CapEx that was spent on them and averaging out, it actually gives you a ROCE from those sites annualized at about 120%. But that's largely because we went through Christmas at the end of the year. So once you put the seasonality in, I would expect it to be much more normalized from that perspective. So hopefully, that explains it. But essentially, what we're doing is we're taking the EBITDA from the sites that have been open for 12 months, and we're dividing it over the gross -- the average gross CapEx on that site during the year.

So I've got a question on cash runway. So with the current cash balance of circa GBP 4.5 million and a slow site opening program, can you elaborate on the company's cash runway for continued operations and future investments? So I think what I'm going to do here is reference a couple of numbers, which Graham spoke to when he was going through the cash flow. And what Graham mentioned was that on a sort of pre-IFRS 16 basis, GBP 7.2 million was being generated in cash from the GBP 5.5 million of EBITDA, which we reported. And then he explained that GBP 1 million of that was, if you like, a sort of a debtor clawback, so to speak. So really, you're talking about GBP 6.2 million of cash being generated from that GBP 5.5 million. So with that as given, obviously, there are certain things which we have to spend below the line. There will always be a degree of maintenance CapEx. There will be a degree of interest payments, et cetera, et cetera. But with all others given, we think we have somewhere in and around GBP 3.5 million to spend on new sites should we wish to place our capital there at our current scale. And obviously, you would imagine that, that number increases as you grow. So GBP 3.5 million, we should be able to organically fund 6 or 7 sites between both Escape Hunt and Boom should that be what we wish to do. Now I would make the point that we will always look for the highest returning opportunity first. So if there is an opportunity to go back into the existing estate with some of that capital, you might see 1 less site, 2 less sites as we instead make a very high return investment in the existing site, a little like the bar in the O2 that Graham mentioned, putting additional capacity into Escape Hunt, find new rooms, et cetera. But fundamentally, from the organically generated cash flow, we should be able to create 6 to 7 sites, I would suggest, as we stand today. Now I suppose the secondary point is that given that we've gone through that 3-year journey that I showed you graphically, and we've gone from really kind of stepping up through our cash generation and profitability, I think our likelihood to be able to put in place a very vanilla debt facility and RCF is probably a little higher than it's been in the past. And whilst we do not want to be a highly levered business, this idea that maybe we could manage to net debt equals 0, if we were to achieve such a facility, then that would allow us to go a little bit faster than the 6 or 7 sites that we could organically fund. So hopefully, that answers that question.

So I think the next question was adjusted EBITDA and operating profit calculations. Many investors rely on EBITDA and operating profit metrics for financial analysis. Can you explain the significant difference between reported operating profit and the excluded lease finance charges of GBP 1.8 million. can you justify excluding these costs when evaluating profitability? I mean, first of all, obviously, again, this is an IFRS 16 issue. If I'm honest, I disagree with the approach of IFRS 16, but that is the standard that we are required to follow. There are also other IFRS impacting issues such as the impact that we had to revalue the contingent consideration, which was all settled in a fixed number of shares, which led to a GBP 313,000 charge to our P&L. So actually, if you strip that out, again, it's just the way that we're required to report these things. From a profitability point of view, the reason that we focus on the site level economics and particularly, we talk about the GBP 5.5 million pre-IFRS 16 EBITDA, that is after those rent charges. Internally, we absolutely see rent as an operating cost and not a debt repayment. So that is how we manage the business, and we manage to cash flow and cash returns and hence, our focus on ROCE. Ultimately, by getting strong cash generation out of those units and even after maintenance CapEx, this business should become very profitable. So can you justify excluding these costs when evaluating profitability? The answer is we don't. Internally, we look very much before that. Obviously, the way we have to report is that those are shown as below the line. Just coming back to the maintenance CapEx point on that. And one of the questions which I think will come out is to what extent do you think the ongoing maintenance CapEx or how big is that? If you take Boom as an example, whilst it's still a new business, I mentioned that we've done GBP 600,000 of maintenance CapEx or GBP 700,000 of maintenance CapEx in the year. That's probably not at a run rate for Boom. when you build a Boom site, GBP 900,000 of investment, usually about 60% of that is the infrastructure in the building, which is going to last the term, so it's the toilets, the and engine and those sort of things. And about 40%, so GBP 350,000 to GBP 400,000 is games and sort of cosmetics. So if you think if you did a major refurb every 3 or 4 years, where you spent, let's say, GBP 0.25 million or something along those lines, it would be significant compared to that sort of decoration. You're talking about an average of, let's say, somewhere between GBP 60,000 and GBP 80,000 a year on average per Boom site. Well, if a Boom site on average is doing somewhere between GBP 1.8 million and GBP 2 million of turnover, you can see that that's going to come out somewhere between 3% and 5% of turnover. So again, that probably is more of the sort of long-term rate. So if you're making a 20% margin at a Boom, that gives you 15% free cash margin after maintenance CapEx at the sort of maturity and sort of future level, which again, compared to the investment cost, you're still making between 30% and 45% return on capital after maintenance CapEx. So that will drop through to the bottom line. And those are really the metrics we look at for evaluating profitability. And ultimately, with growth, the accounting standards, we will be profitable. But there is quite a lot of noise between the sort of fundamental operating metrics of the business and the bottom line because of these standards, which require you to value things in different ways. So hopefully, that answers the question.

So Escape Hunt still using the original games in those sites. When will you need to replace a refresh? Are you ready for this with new games? How much spending needed to swap the new games? So yes, excitingly, they are and indeed, as we mentioned, those original sites are still growing at 16%. So what that tells us is there's no need yet to be thinking about replacing and refreshing those games. However, the way that we build now is such that we build our sites, we have a wonderful production partner that allows us to build games ahead of time, keep them in storage and these games are indeed now modular. So the extent to which we do need to start replacing games. I suppose there's 2 things. If we're putting in a new game from scratch, that will cost us around GBP 50,000. But if we are moving one of the modular games that we have from another site to an existing site, i.e., simply refreshing content, then we think that would be more GBP 15,000, something that sort of ballpark. But excitingly, we've not yet had to do it, as I say, because of the underlying like-for-like growth in those sites.

Yes. So just moving on. We've got a few more questions. We've got a few minutes we've got. So question, why has there not been more communications sent out to potential investors over the past year? I think probably the way to answer this is say, well, looking forward, what are the communication points going to be into the current year. Obviously, with the change of year-end, we've got our financial year at the end of this month, which means the sort of, I suppose, scheduled events, which we'll have for announcement and hopefully updates to the market are. We will do a trading update post our close. So that's probably sort of mid to -- early to mid-May on trading, just to give us a sort of view of where we are for our year-end. We will, of course, also be attending various retail events we plan to during the year. And then we've got results will be published in late summer, AGM and probably a statement at that point in September. We thought interims in November, December, we'll have a Christmas trading statement probably back end of January. So hopefully, that means every sort of 3 months or so, we'll have a reason to speak to the market.

So a number of investors on our forum were anticipating significant expansion overseas, and particularly in the U.S., where we felt this would be an amazing business. Is the U.S. still a possibility? So you're right. We had initially talked about potentially growing the Escape Hunt business specifically via franchise in the U.S. And at the point when we were talking about that, we were very, very, very much smaller business. We were still learning the way, so to speak. And whilst I think that the opportunity is still really interesting in the U.S., what it's worth, I think the opportunity is probably very significant for both businesses in the U.S. Given the number of strategic options we have available to us, we have deprioritized it. And the reason for that, I guess, is probably multifold. One, you've got the obvious strategic option about do you play out in the U.K. or abroad? Two, do you own and operate or do you franchise? And what we're seeing now is such participation in the U.K., particularly that the idea of really doubling down and scaling out across the U.K. feels like a very smart thing to do. And then when we talk specifically about ownership structure in the context of Escape Hunt. Escape Hunt's dynamics are such that it is a low sales, very high-margin business. And so to put that in numbers, if an average franchise Escape Hunt were to trade at, let's say, $0.5 million a year, which would be a little bit lower than we achieved O&O, but let's assume it trades at $0.5 million a year, we would receive a $50,000 royalty on that against which we've got costs. So maybe we net USD 30,000. When you consider that the average EBITDA from a U.K. site today is GBP 225,000 on Escape Hunt, it is -- and we return capital of 46%. I'd argue that it's a much better use of our efforts today to go after that owner-operated business. So that's why you're not seeing so much in and around the U.S.

Great. Next question, which is on the live panel and was actually submitted before, but could you break down the main items of GBP 7.3 million of other payables and accruals? Yes, it is relatively sort of generic sort of stuff. Most of it is likely to continue. It's made up -- I'll just give you some detail. There's obviously -- there's a VAT payable of about GBP 1.8 million, which will be bigger than normal because it was after Christmas. PAYE and other taxes of about GBP 0.3 million. There's rent accruals on the balance sheet, which principally relate to sites where either there was no IFRS 16 liability just because of the structure of the lease or to some extent where there's some turnover rent involved, although that's relatively modest or pre-IFRS 16 is GBP 2.3 million. That will unwind over a period of about 12 years. So quite sort of modest as that happens. There's then just general rates and utility accruals of GBP 700,000, other sort of audit fees, bonus provision, labor accruals to do with the close of the year because we pay payroll before Christmas of GBP 700,000. And then just generally other invoiced costs, things like security, our cleaning bills and what have you, we tend to only get the invoices later several weeks afterwards. There's GBP 1.4 million of those. So of all of those, the only one which will actually unwind to some extent, you'll get these in cycles, obviously, depending on activity levels in the business. But the only one that really unwinds is the rent accrual, and that will unwind over a period of about 10 to 12 years. So the rest of it, we do have a relatively high level. And it just speaks to this negative working capital cycle that we have in the business.

So got a question. You've held off price increases in 2023 and explained the reasons clearly in your statements. However, where the prices for Boom and Escape Hunt sit against your competitors? And is there scope should you wish to, to increase prices without losing customers? So good question. As I've spoken, I think, quite extensively about the fact we feel philosophically that being very affordable for customers, particularly in a market that has some prevailing headwinds is a really, really important thing to be able to do. And we think that actually driving volume-led like-for-like growth is a much more powerful marker of future success. than just kind of forcing price, which we consider to be quite a short-termist sort of activity, which typically comes to bite you a little bit further down the line. So in my experience, at least, you put prices up, you look great for 6 months and then all of a sudden, things start to fall off. That said -- sorry, to pick up on the first part, where do we sit relative to the market for both businesses? Well, Escape Hunt, it definitely sits at the premium end of the escape rooms market. I would suggest that given the quality of the fit out, quality of the sites, quality of the team and the investment that we put into the sites, I'd say that the value proposition is very, very strong for Escape Hunt. I would suggest that whilst we might be a little bit more expensive than some of our competitors, from a value perspective, I think we index incredibly well in that business. And as for Boom, we're definitely sort of upper mid-level, I would say. So if we were to take a bar analogy, we're not weather screens. We said above weather screens, but we're also not -- in the social world, we're not a [indiscernible] we're not a flight club. Those are upper premium. We're sort of more the excessively premium all bar one type level, if you like, I'd suggest that's sort of how we're positioned. And in so doing, we think that we attract a much larger audience, and we think that it provides us with this big runway opportunity to go after. So that's why we like that positioning. Could we write -- could we increase prices? I suppose the obvious answer to that is probably yes, insofar as there would seem to be scope given very, very obvious measured latent demand, and we can map that quite clearly. But we believe that a smarter way to fill latent demand is try to create additional capacity and go after volume instead. So I hope that answers that question. And Graham, there's a few questions on the screen, some of which I think we've already touched on.

This first one speaks to price. You've already answered that.

Yes, bear with me. I think we touched on sites. Do you consider share buybacks based on the low stock valuation? We certainly consider. It's a very difficult thing. Obviously, we clearly, as I'm sure most management teams do feel that the stock is materially underpriced relative to where it should be. Do we, therefore, consider buying shares back? Yes, we do. But the tricky thing for us is because we return on capital so well, it kind of feels like the better longer-term place should be to invest there. But yes, it's something that we consider. We've talked about changing the game for Escape Hunt.

I've talked about...

Yes, exactly right. Do we measure visits per annum for every unique customer and what steps you take to drive this up. This is quite a weak area of data for us. Being honest with you, we don't have accurate figures for the number of customer returns that we have in either business. And there's a whole bunch of reasons for that, that I don't probably need to bore you with other than it gets complicated because the person that books typically books for 4 people. So if another person, if one of that 4 then rebooks, you kind of lose a little bit of the clarity around the data. So we need to work to get better at that. What we do, do is understand where people who have booked certainly for Escape Hunt, a game, how likely is it that they're going to come back and play again. So our better-performing games will show you that in 18% of instances, people that have played so and such a game come back to play another one within a 12-month period, but we need to improve our data on that. If you open 5 to 8 sites a year, will you focus on Boom Battle Bars or Escape Hunt, this is interesting. If you'd asked me this question a year ago, I would have told you that we would probably focus on escape hunt -- I'm sorry, forgive me, we would probably focus on Boom Battle Bars because we anticipated the capital return to be quicker because of the benefit of landlord contribution. As it is now and as we've discussed, with a rate of return on capital that's broadly equivalent, actually, this is a great position for us to be. So we're broadly indifferent where we put our capital. The deciding factor will be the quality of the unit that we see as being available. Let me see your good question. Will the National Living Wage increase next month impact the business? I suppose the short answer to that is yes. Everybody is aware that the National Living Wage is increasing by 10%. Whilst the effect through the P&L for us won't be as high as that, it will obviously be fairly significant. And we would want it to be such. We pay a premium to the market. We think it's the right thing to do, and we will continue to do so. To put that in context, on Escape Hunt, labor is around 30% of sales on Boom's around 25%. So you're talking about a 3% impact and a 2.5% impact were the full 10% to flow through, as I say, it won't be that much. So how are we going to deal with that? Well, we have a number of levers. Obviously, the key one for us is continuing to drive sales. the extent to which we can drive sales over and above that 2.5% or 3% is the extent to which we can at least stay still. And because of that and because of a few other dynamics which are going in our favor. So for example, if I take Boom, operationally, we're getting more and more efficient. We're getting a little bit better at what we do. So that will drive natural efficiency through the P&L. We're going to get quite a good utilities benefit back through that business this year as well. Obviously, utilities, as you went through the roof last year. We absorbed that cost in the numbers. That will now reverse out as we normalize through the year. So that gives us quite a lot of benefit back. And similarly, we've done quite well winning quite a lot of rates arguments, business rates arguments, too. So it's a long-winded way of saying, yes, it will impact us, but we believe that we can build and increase margins without needing to pass it through to the customer.

Well, that's great. And Richard, Graham, you've taken all the questions from investors, and thank you once again to everybody for your engagement. If any more questions come through, guys, we'll make those available to you post today's meeting. Richard, Graham, I know investor feedback will be important to you both, and I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps for one more time, Richard, if I may just come back to you for a couple of closing comments.

Well, firstly, thanks ever so much, Mark, to you and to your platform. Thank you ever so much for listening to us for the last hour. Hopefully, you've come away with a sense that this is a really exciting business that's gone through the really hard yards of getting scale. We're now starting to generate the cash flows in the sort of quantums that I hope you would expect to see. And hopefully, you can be excited to sort of stay with us on our journey with the foundation well set for a lot of future growth to come.

That's great. Richard, Graham, thanks once again. Can I please ask investors not to close this session as we'll now automatically redirect you for you to provide your feedback in order that the guys can probably understand your views and expectations. This may take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of XP Factory Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.