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

Good morning, ladies and gentlemen, welcome to the XP Factory plc investor presentation. [Operator Instructions] Before we begin, we would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from XP Factory, Richard, Graham.

Good morning, Jay. Good morning, everybody, on the call. So just by way of introduction for anybody that doesn't know us, I'm Richard, I'm the Chief Executive of XP Factory. Graham here is the Chief Financial Officer. And what we're looking to do is take you through the highlights from our last financial year. It's probably worth just making the point, I'm sure most of you will be aware, but actually, this is a 15-month period that we're reporting on this. We changed our accounting year-end to the 31st of March to align better with other leisure and hospitality businesses. So for this one particular presentation this morning, we are actually talking to 15 month numbers just so everybody is aware. Well I thought just before we get into the slides, again, just in case if anybody new to the business, it might be worth giving a very brief overview of exactly what it is that we do. So at XP Factory, we've got 2 trading brands. We've got a Escape Hunt and we've got Boom Battle Bar. Escape Hunt is now the leading global provider of escape-the-room experiences. And an Escape Room is essentially a really exciting fun immersive experience where you bring your team together, typically 4 to 6 people, we put you together in a heavily themed, almost theater set type environment and you work together to find clues, solve puzzles and escape the room. Boom Battle Bar is a new business for us. It's been trading now just over a couple of years under our ownership and it is very much in that competitive socializing space. So we have large format spaces, the large parts anchors with real variety of games. It might be golf, it might be augmented reality darts, really for high-energy environment. And as I say, across both businesses, we're here today to talk a little bit about results. So diving into that, just excuse me, moving to Slide 3. I suppose a high level overview of the performance to March is that this really was the manifestation of all the hard work we put into the site growth through the previous financial year. So a number of you will be very aware that we went upon -- we embarked on a really aggressive build program through '22, particularly, where we opened a very significant number of sites, circa 25 sites from the Boom side and a few on the Escape Hunt side as well, really to kind of history make the best use of capital and has set the foundation for, hopefully, what was to become a very much more profitable business and a much bigger business. So what you're seeing here, here on, is really the result of that work. You're seeing quite substantial increases in all the major P&L line. So seeing, if you are there, GBP 57 million of revenue delivered for the group, appreciate the factor is a 12-month period, but nonetheless, it gives you a bit of a flavor to scale. That 57 is up from almost 23 in the prior period, and similarly, EBITDA pre IFRS16 is at GBP 6.3 million, a little bit ahead of the market expectation, up from the 2.6 in the previous period. So that substantial growth, as I say, is born in quite a large part from that big expansion program that we built. Operationally, the last year was very much about bringing those sites that we built to life. So it's about holding the operation, it was about getting the best out of our teams, particularly on the Boom side, which is the newer business. If you're looking for opportunities to find efficiencies and operating gains, and we'll talk through some of that detail as we get into it. But I suppose the highlights, at a very high level, is the growth in revenue and the growth in adjusted EBITDA. It's really important, I think, to point out that where that revenue has increased significantly is born off some really strong like-for-like. So you'll see there that Escape Hunt delivered almost 17% like-for-like sales growth with Boom in '22. And what really is exciting for me in those numbers is that they represent entirely volume-driven like-for-like growth. There is no price in this number. We have not taken price as a business. In the context of the kind of the headlines that we read everyday, the challenging consumer headwinds, et cetera. We felt it was appropriate to absorb the electricity price increases, we thought it was appropriate to absorb the wage increases that you've seen through national wage, et cetera. And instead, look to cover those by driving volume-led like-for-like growth, which of course then is passed through the P&L. So I think it's a really strong indication of where both those businesses have been performing from an underlying perspective. And we'll get into a little bit more detail now. So if I move through to talk a little bit about some of the Escape Hunt-specific dynamics. So Escape Hunt delivered almost GBP 17 million of owner-operated sales. And again, the 12-month period that, that compares to was just under 10. So again, that transformative level of growth there born in a very large part from these like-for-likes. But what's been great to see in Escape Hunt is that there's very high-margin businesses continue to trade as such. So there's 42 level -- 42% EBITDA at a site level has held pretty constant to the prior period. And I think it is quite a remarkable place to be, certainly far outside of the expectations, which we as a management team set for ourselves when we embarked upon our journey with Escape Hunt. At the time, Boom would have looked like achieving 30% on sales of about GBP 0.5 million per year per unit, where now we're seeing sort of 42% on sales of around 650,000 on average. So that business has really continued to grow, continued to perform. And alongside that trading performance, obviously, we're seeing this increase in the return on capital as well, 48% return on capital for that business, really born off the fact that the underlying economics are improving within Escape Hunt and have improved quite significantly, but the capital base has really remained stable. We'll talk about that in a little more detail further into the deck, but we haven't had to make anything of the reinvestments that we made, as I mentioned, we could have done. So that return on capital has been very, very high. As a business, we've always prided ourselves on the reviews that we have received from customers. We've maintained that 99% average review score, 5-star review score across the year as well. So it's a really strong sense of customers satisfaction within Escape Hunt. And in terms of the sites themselves, as I say, really the year was about the consolidation of the build that we've done previously, backdriving the efficiencies that we had through the state, be able to demonstrably show the underlying cash generation that we now have. But that said, we did nonetheless open another Escape Hunt, and so you'll continue to see that side grow. And then we have some current sites in build into this current financial year, so sites in Worcester, Cambridge and Glasgow. So those sites there. But a really strong performance for Escape Hunt, as I say, quite dramatically outside the expectations which we originally set for ourselves on that business. So it's really, really nice to year be able to report on. If we move into a little more detail around Boom. Again, with so much of the build program in 2022 being around building that very, very nascent business. At the time, that 5 site business into a business that's now got the first site trading today. Unsurprisingly, with that has followed the quite a significant step-up in revenues, from GBP 9.5 million to GBP 37.5 million over the 15-month period. But again, within there, you're seeing this really strong level of like-for-like growth, 22% like-for-like growth from the sites that have been trading for more than 12 months. And again, I reiterate the point that, that was entirely volume-led growth. So it feels like a really good place to be trending and within the year, we did open a small number of Boom sites additionally. So we opened in Canterbury [indiscernible] but we've also brought back into our owned and operated states a number of additional franchisee sites. And we've stated previously that where there's opportunity to do that and where the economics are really attractive for us this business, we are quite keen to do it. We still believe philosophically, that franchising is an interesting place for us to go maybe at some point in the future, but we think there might be a way to do it a slightly great scale. And part of that, if you like, tidying process, requires us to bring back a few sites into our plot first. And we'll talk a little bit about how those sites have gone on to perform for us post acquisition to further into the deck. In terms of the overall EBITDA generated by Boom, we are obviously still very much a growing business for Boom, 17% EBITDA across the group was delivered, 4% up from the prior periods. And it's worth reminding people that we set for ourselves a target of getting to 20%, 22%, 25% EBITDA over time for the group as a whole for Boom. So since 17% at this stage feels very much like the right kind of numbers, we're on the right trajectory, you've got to remember that when we have young sites maturing and the opening new sites, they will lose money before they make money. And so you have this dilutive effect born of maturity. So when that blends out to a number of 17% despite the relatively immature state and some new sites coming on board in the year, we feel pretty confident that target that we've set for ourselves is very much achievable and indeed that we're on track for. Customer reviews are again very, very high in this business materially higher than the industry per se. Again, testament to the operating teams that we have in the business. So overarchingly, it's been a really strong performance, I think, for both brands. It's great to see the overall economics for XP are really starting to come through. Great to see proper cash flow being generated, which Graham will talk to in a moment. And I think a really exciting foundation from which to grow. We thought it would be interesting just to remind you a little bit about the metrics which we see as being the most important as we consider performance in the business. And for us, this return on capital metric is the thing that normalizes kind of the big size and the small size. It normalizes for us between Escape Hunt and Boom, and it is the thing that allows us to consider where we better deploy our capital as we go forward. So here, we have a chart showing the return on capital for the Escape Hunt business. And I mentioned a moment ago that we've now reached 48% return on capital, which I think you might agree is very, very high. And what's exciting here is that, as performance grows, we just haven't seen a need yet to reinvest, particularly in these sites. Obviously, maintenance capital, et cetera, in the last kind of running through the P&Ls on the site. It's captured in EBITDA. And there's a little bit of maintenance that sits outside, which Graham will talk to, that comes from below the line. But the big point here is that even our oldest site, our 7-year trading sites, are still trading the same gains as we originally built and are still showing this really demonstrably high levels of volume-driven like-for-like growth. So accordingly, the return of capital has been really strong and continued actually to improve, at least as we sit here today. If we move though to Boom, you're seeing another sort of similar story. Now Boom has actually, on average, a slightly higher return on capital than Escape Hunt, albeit marginally, circa 52%. What we haven't yet got in the bulk of the boom state is the benefit of that maturing economic profile. So if we're right and if the businesses continue to grow and, therefore, EBITDA continues to grow, and if indeed sort of the requirement for additional capital kind of stays in line with our expectations today, I imagine you might start to see a little bit of improvement here as well. But nonetheless, it's a very, very good place for us to be. And I think having a point of equivalent where both businesses in round numbers are generating 50% of total capital, it's a great place for us as a management team to be because it means we're considering which sites that we do -- do we do we do one brand ahead of the other. The answers are quite straight now. We look for the best sites that we can find. If they fall for Escape Hunt, we go to Escape Hunt. If they fall for Boom, we build Boom. I think it's a really nice place for us to be. I mentioned that one of the other sort of real facets of last year strategically was to try and find these opportunities to build additional capacity in both businesses. And what we've shown here on this chart, and this happens to be for one of our Escape Hunt sites, happens to be for our Escape Hunt site in Oxford. And what we've done here is we've looked at the days, Monday, Tuesday or Wednesday, where demand is not constrained by supply. And what we can see is these demand curves are fairly well normalized across states. And when you then overlay that normalized demand curve on a day, a Saturday for example, where really all of our game rooms are just sold out and you've got this latent demand, that gap between the gray boxes and curve that you see is essentially pointing to a demand opportunity that we're unable to service, given the lack of capacity that we have in the business. So classically, a pricing consultant might point to it and say, look, this is where you get into airline pricing. This is where you push your prices up in these points. We're quite reluctant to do that. We're firm believers on holding to price and trying to remain a great value proposition for customers, irrespective of the day that you come. So instead, we've approached it by trying to find more opportunities to create space. So in Oxford, in this particular example, we were able to take the corporate room that we had previously and turned that into a game room. And similarly, another VR space and we're able to turn into a game room, too. So adding a little bit more capacity, you can see that, that theory is kind of coming together because I think you can hopefully see on the slide now, where the dotted line is kind of showing that the additional theoretical capacity that we've now created and indeed the expense which the demand is naturally fed into it. So it's been a really nice way to start to close that gap without having to go to price. So hopefully, that gives you an idea on Escape Hunt where some of the work over the year has been intended, certainly Graham will talk the numbers on the capital allocation that we put towards this expansion capital. If we move on to the next slide, it's showing a kind of similar thing, but for Boom. And in Boom, again, we have a lot of analysis that sits around this latent demand and where indeed we're fully capped out on games particularly. So the starting point on this analysis was to say, well, look, if we -- what we need to understand is what the marginal return is for every additional incidence of a game and in what order. So for example, if I already have 3 axe lanes in a site, is it better for me on a rate of return per square foot to put in a fourth axe lane or actually it would be better putting in dart lane #6, I hope you take -- you understand the premise. And so we've kind of worked through that and we've understood it. And so, here, we've been able in a number of sites that's come back, really think about how we rejig -- how we add new games opportunities where we do that and how. So rather than it just being a gut-feel thing, as we grow and as we learn our analytics are getting lot better, we're getting a little tight on data, and indeed, we're starting to see some really good results from that within the capacity-constrained businesses. We thought that it would be worth just touching on the performance of some franchise acquisitions, et cetera. So when we talked to Boom a little bit about sort of propensity to take back a few of franchise sites. And what I think has been good to see is that at the point where we're taking that sites back, as we start to bring them back on to our owned platform, as they start to see the benefit of our team, our ops, our marketing, et cetera, we're seeing this kind of uptick in performance as well. So from, again, from a return on capital perspective, we feel that these are really good things to do. There's a strategic benefit to it as well as we've discussed. But actually, transactionally, these acquisitions are tending to return really well for us, notwithstanding the fact that we typically don't pay for the upfront in cash. We typically simply use the cash flow generated from the site to pay the vendors for them over a period of time. But that notwithstanding, if you normalize for the capital, the returns are looking attractive in a large part because we typically see this kind of uptick in performance. So we thought it might just be important just to point out to you on the call, that's sort of that's why transactionally, we're doing what we're doing, aside from the strategic benefit of bringing that platform together and normalizing the performance somewhat through the franchise. But I think that gives you a flavor of what we've been doing operationally, obviously really happy to take any questions. But I thought it might good to pass over to Graham to get a little bit more in depth into the financial statements.

Thanks, Richard. Yes, so just adding to what Richard has already talked about in terms of performance, if we start with the P&L and where the business has performed in the last 15 months. Clearly, as Richard emphasized, big feature is a significant increase in revenue, creating a business of much greater scale, nearly GBP 60 million of turnover in that 15 months. And driven by those really strong like-for-like growth statistics from both Escape Hunt and from Boom. Some of that like-for-like, obviously, we've talked about the focus in the last year around operational improvements and around capacity utilization, using the data analytics, which we've really invested in, in the last year to be able to bring that sort of science to the 4. And that's really -- part of the reason, we see the strong like-for-like is the improvements we were able to make in some of those sites through utilizing capacity better in the last year. If we look at the gross margins, really pleasing to see Boom gross margins, in particular, improving from 52% up to 59%, that's really driven by 2 main aspects. Number one is just improved labor utilization. There is obviously a cost of sale -- labor that sits in cost of sale, which is your sort of variable labor cost. Part of that is maturity of the sites, which we talked about early on, sites will tend to make a loss, it will take a higher labor ratios in early days. And as we get more efficient, that labor ratio can come down. So that manifestation of that is seeing that gross margin improvement in Boom. The other aspects of Boom gross margin is a gain around the operational improvement approach which we took last year, we implemented new systems into our stores. So we now have an upgrade and sort of industry-leading solution point of sale booking systems, which is managing gross margin much better. So we've got real consistency now across the state in terms of our gross margins, particularly on trades. So that's getting over about a couple of percentage points which have improved the implementation of those systems. Escape Hunt's EBITDA margins sustained at 42%. And again, that's significantly higher than we had originally anticipated and it seems to have settled down at that rate, which is a really, really strong result. Obviously, very nice cash-generative high-contribution businesses with relatively low direct cost of sales. So any increase in sales since the drop, the very vast majority of that tends to drop to the bottom line. Richard has already spoken about Boom site-level EBITDA margins, so I won't go on that much more. But obviously, part of that improvement is also an improvement in the gross margin, which again comes back to labor and our management of fees. The fee target was the adjusted EBITDA pre IFRS basis of GBP 6.3 million post IFRS16 to GBP 9.9 million obviously for those who aren't aware IFRS16 pushes rate costs to interest and depreciation, just the way the capital leases and so on. So we certainly manage the business on the basis of rent is an operating cost we need to cover. So we focus on that GBP 6.3 million, which is ahead of where the market was at GBP 6.1 million, so a pleasing result to come out ahead of where we had anticipated. The other sort of feature, obviously, group operating profit this year -- or this 15 months, of GBP 1.9 million versus a loss of GBP 4.9 million. And that was -- after last year, there was a fair value adjustment of GBP 6.2 million profit, which would have taken an overall profit last year. That's again, IFRS noncash adjustments. So taking those out in the current year, there was a loss of GBP 300,000, which I reversed out. And also there was a notional profit on the closure of one of our subsidiaries of GBP 400,000. So adjusting for those 2 items, the GBP 1.9 million profit versus a loss of GBP 4.9 million last year is the correct comparable in my view. So I think that sort of covers most of the points that we have on there. Obviously, central costs, you'll see coming through at 10 million for the 15 months versus 6 million for 12 months. So on a pro rata basis, it would have been plus -- within that, there are some questions on that, we'll come back and give a bit more detail as we answer those questions. If we turn to the cash flow, really, this is the focus of the business. It's all about cash generation, notwithstanding what sits in the P&L. The business is now significantly cash profitable, cash positive. On a post-IFRS16 basis, we've got GBP 11.1 million of cash generated from operating activities. Again, if I take off the rent payments which we made, was GBP 7.9 million kind of underlying cash generation from the business, which compares to the GBP 6.3 million of EBITDA. So again, a very strong and positive working capital movement. We do expect that to continue albeit probably not at quite the same rate. We are inherently a negative working capital type of business. So as we grow, we will tend to generate more cash than we grow. And the reason for that, of course, is certainly, in Escape Hunt and to the extent for Boom as well. Our customers pay in advance and we typically repay our purchases in arrear. So you have that positive working capital benefit. In the shorter term, we also have a very significant benefit from new sites where typically we have a year, 2 years or even as much as 4 years of either 0 rent pay or reduced rent. But we are accounting for the full rent through the P&L, so you're getting a positive working capital benefit certainly in those early years. So that's the reason we're seeing a significant additional cash generation when you compare it to the EBITDA. Again, if I look at the sort of underlying profitability of the business, that 10.9 million, we invested significantly into fixed assets and expansion, of that 8.1 million or 8.3 million would be between tangible fixed assets and intangible fixed assets. Majority of that is on new sites. So Richard mentioned opening Canterbury, [South Bend Dubai] and working in the last year. There was also some CapEx from the very back end of 2022, where we've just opened sites such as Oxford Street, Leeds, Birmingham all opened towards the back end of 2022. There was some CapEx, which we paid and finalized going into January. So of that GBP 8.1 million, GBP 4.3 million was on new sites. We also spent GBP 32.5 million of expanding capacity again, talking speaking to those slides that Richard was talking about in terms of utilizing going into additional demand, both in Escape Hunt and in Boom. So we characterize that as expansion in CapEx, some of which would have driven some of the like-for-like growth that we've spoken about. And then it's just over GBP 1.1 million of what I would call true maintenance CapEx. Going forward, often, I get this question is what is the ongoing maintenance CapEx level within this business. We've done a bit of work around this. We're not there yet. But I think, longer term, we're probably going to be running around about 3% of sales. I think it's a good proxy for what maintenance CapEx would be. We'll spend a bit less than that, I think, in the current year. But if you work on that as a basis, you can see that the underlying business is very cash profitable. So again, if you just take this as a proxy, you say we generated GBP 7.9 million tons worth of operating cash flow if we were to spend GBP 1.8 million, which is 3% of, roughly, GBP 60 million, that could have left us with just over GBP 6 million of business in free cash flow. We don't have a lot of debt, so there's not a huge interest -- there's not much interest to pay and we don't have a tax bill. So, essentially, that GBP 6 million is free cash flow, which is enabling us to continue to grow our estate. So that's the way I think of the business in terms of it is a profitable business. It made GBP 6 million worth of cash profit last year after accounting for what would be a normalized level of maintenance CapEx. So very, very strong cash generation that's coming out of the business and giving us that opportunity by allocating that capital to new sites. If we look at the acquisitions, Richard spoke about the acquisitions for some of the franchise sites. We actually -- there was only GBP 50,000 of cash which we pay upfront for those. As mentioned, what the model typically is to pay a modest amount upfront and then defer the remainder of ePayments, which over a 3-year period on a low interest rate and it's generally aimed to be funded out of the cash that's generated from the side who's taken over. So you would have seen an increase on the balance sheet in vendor loans, and that's what that is. So it's the deferred payments to former franchisees. Within the cash flow in terms customer's debt and debt movement, we did pay the thick end of GBP 1 million. GBP 900,000 is the final deferred consideration on the division Boom acquisition and also the final deferred consideration on the acquisition of Cardif, which we paid out. We also made 1.8 million on loan repayments during the year, offset by 2.1 million of additional vendor finance, which came in, which is movements on the balance sheet rather than cash inflow, but nevertheless it appears in the cash flow statement. I think that sort of covers everything. The IFRS 16 payments repayment, the 3.1 million, is what I would add. That's really rent payments. So hence, the difference between the GBP 11 million of cash generated to the GBP 7.9 million of what I would call pre-IFRS 16, the true sort of operating cash generation in the business. If we move on to the balance sheet. The big movements clearly are those associated with the investment program that we had in the last year. So you've seen a significant increase in property parts and equipment fixed assets as a result of that investment program and also from the acquisitions, which we made, where we brought in, obviously, this fixed asset base, which comes in from those acquisitions, which previously wouldn't have been on our balance sheet. So that's really a main feature. Cash, up slightly on last year, although net debt -- the net cash position, given the additional vendor finance and time that we brought on has fallen modestly over the year, just with the taking on of that vendor finance. The right of use assets and lease liabilities increased in line with the new sites opening and also the acquisitions, which we would have to account for, so 2.5 million increase in right of use assets is really directly from [indiscernible] working and also the acquisitions we brought on. And so you will see that following through. In terms of the debt at the end of the year, GBP 3.9 million of debt on the balance sheet. Of that, really only GBP 1.2 million is what I would call sort of traditional debt. The first half finance of GBP 1.5 million is mostly sort of hire purchase type arrangements where you've got leases that actually take ownership of the equipment at the end of the term. So for example, our shuffle wards and things like that actually pay monthly rates and after 3 years we'll own the equipment. So we account for it as finance fees or split our finance in that way, and that sits on the balance sheet as it. And then the balance, you can see there, just over GBP 1 million of vendor loans, which is those deferred consideration that's still due on the acquisition of the franchisees. I think a really, really good news. Big news for us is we received full credit approval for a GBP 10 million revolving credit facility from Barclays. We -- which gives us significant flexibility. It is not our intention to take on significant debt onto the balance sheet. But what this does do is it gives us a pretty significant cash headroom that we can manage day-to-day. So in terms of working capital through the year, where, typically, we have a quieter period beginning of the year. You all be aware how important the Christmas and end-of-year season is for us, and that generates a lot of cash. What this enables us to do is to smooth out the timing of opening new sites and building new sites so we can utilize the facility without having to wait until we generate the cash. It also means that as our pay down the vendor loan, given that we're sitting in a sort of net -- 0 net cash net debt position, slightly net cash at the end of the year, as I pay down those vendor loans, I would otherwise have to see the net cash balance building up just to create headroom against as of day-to-day performance with the ability to -- with the facility in place, I can now -- as I repay those, I can replace it with bank debt, maintain our sort of position of close to 0 net cash net debt, that's how we manage it. And that just gives us an ability to accelerate our rollout to go out with more confidence when we're talking to landlords to secure new sites and be more proactive about that rather than having to wait until we build the cash balance out before we start taking on those obligations. So really, really, I think, a significant step forward for us. The other point which clearly signals, we keep talking about the fact that we have -- we developed enormous over the last few years, if you think where we come from in terms of scale of the business. This is a real, I think, standard approval from the banks, endorsing the fact that we're now a significantly more stable, mature predictable business, which they prepare to lend a decent amount of money to. So a very, very good step forward. I think, with that, I'll pass back to Richard. He can talk a little bit about our period highlights and how trading has been going.

Sure. So thank you, Graham. Obviously, there are a couple of questions that have come through as well in and around this. So one of the comments -- one of the things that we talked about in our post period trading is the fact that, obviously, yes, there are still positive like-for-likes and still very much volume driven. They are, as you can see, obviously a little lower than -- somewhat lower than they have been historically. So I wanted to talk a little bit about that and why we think that is. So I guess the positive news is the like for likes, first of all, are following huge counterfactuals. So 22% in Boom and 17% in Escape Hunt. So those are the numbers that we're tracking. So if you took anything of a smooth approach on the like-for-like growth, then, obviously, these are still very, very high numbers. But then seeing [indiscernible] Boom offset on Escape Hunt is lower than we've obviously reported previously. So there's actually a bit of a story within that, that I think is worth explaining. And it's kind of twofold, actually and it reinforces why we're actually still fairly confident in the number, which is in the market at the moment, sort of 5% for the year, again, all volume driven and why we think we'll trade back to that. So when -- the first couple of months of our financial year, so April, May into June, likewise were good, and they were strong. The thing that's negatively impacted them was -- majorly the 2 weeks of riots in August which met on our Boom business, we actually had to close very early in a number of units for the 2-week period if we could open at all, there were certainly quite large times for us where people were just simply not going out for fear of what was going on the street. And that did really have a very negative effect on us, it pushed us obviously into place we haven't been before. And what I would say now is that, that having been an isolated incident already now we've seen our like-for-like kind of recover back through that. So you have quite lot of dilution in August, but the underlying trend is very much back to where we hoped new would be. Now can we continue to deliver like-for-like to 20% year-on-year. Obviously, not that's clearly impossible. But do we think that, that target that we have for ourselves at circa 5% is still very much on, yes, we do. So ultimately, repeating, we're feeling very confident with where trading is going and reinforced by some very good pre-bookings already for that all-important Q4, calendar Q4 period. So as we trade into Christmas already now, we're starting to see much bigger corporate bookings than we've seen, significantly bigger than we've seen this kind of time of the year previously, some very large numbers. The team have worked extremely hard to work at how we get more capacity out of some of the bigger sites, particularly on the Boom site, where last year, we would have been selling a couple of slots in a day. So you Oxford Street would be a good example, you might sell 2-, 4-hour slots on exclusive hire. But we've worked out now how to sell up to 6 in an equivalent day. So we put more capacity into the business. We're getting a little bit braver as a brand. Last year, we would have been very much taking all the revenue opportunities that was coming at us, whereas now we're actually holding back and we're saying, actually, this booking is not of a significant enough scale. We're not going to take it, we'll put you on a waiting list right now, but we're not actually going to take it today because we're confident we'll be able to find much, much larger bookings to kind of fill that space. So as we sat today, we're as optimistic we can be about how calendar Q4 will trade, that gives a lot of confidence for the numbers overall. And I think overarchingly, we feel we're in a really exciting place. We've got clearly the benefit of the RCF, as Graham, discussed, which should see us start to nudge up the pace of growth again. It's been a real privilege to be able to open nonetheless or being built on sort of 5 or 6 sites already this year organically funded, that's a step change from where we've been historically. So I think all these things coming together, I would suggest stands in fairly good stead. But in terms of picking up some of the questions I've got it here, I'm not going to take this in any sort of particular order but obviously, the like-for-like question has come up a number of times. Hopefully, that has given you a little bit more flavor as to why it has been a little bit lower on average over the period, but why we expect that to come back and what it was specifically impacted negatively. Just looking at some of the questions here. We've got a question around the ROCE figures, which is asking and saying, given that you executed sites that haven't been open for a year, what would you say is the average payback for the project, as ROCE circa 45% half year, is it okay to assume that it's around 3, 3.5 years payback. No, the payback is quicker than that. So if you were to do -- I think what that question is alluding to is on what the results would look like if you did a fully cash on cash payback, i.e. I thought about the fact we made losses as we open sites. And therefore, that would be dilutive hence when we're talking about the return we take the coming year 1 and beyond LCM for EBITDA. But actually, if you were doing cash on cash, the dynamics that would go in your favor, you have a greater offset in the rent-free period that you also achieved. So one would more than offset the other. So a long-winded way of saying that actually the paybacks are much more 2 to 2.5 years from 3 to 3.5. So hopefully that answers that question. Is rent included? Yes, it is. It's fully accounted for irrespective of whether or we pay i.e., even if it's a rent free period, we still take in the there. Question, would we consider to buy the land and the properties that we operate? No. We think that leasing is the right thing for us. We're not a property company. We're an operations company. So I think leasing...

I think on that, in any event, the sites that performed best certainly for estate hunt have tended to be in sort of the popular high footfall shopping centers and sites, where obviously, one can't buy those sites. You are leasing from landlord. So that's certainly the approach that we've taken on that.

When do you anticipate making a profit after tax? So we anticipate -- okay, you answer.

Actually that is -- I've spoken about where I think we are in terms of cash profit. I do think in the next 12 months, we should be pretty close to -- I would hope to be a positive profit after tax. But if you look at the forecast, it's sort of there or thereabouts. The interesting point is and then thereafter, we sort of move quite quickly into profit. Had we been accounted under U.K. GAAP in the current year, we would have shown a profit after tax of over GBP 1 million. So we're not being penalized under IFRS 16. And the reason for that is because we are young business, all of our leases are towards the beginning of the period, which means that the interest charge that we're charging on those leases is at its highest. It's also exacerbated we spoke about this before by the fact that because we have rent-free period, the value of the lease actually goes up on the balance sheet rather than coming down, which means the interest charges has increased as a result of that because you're charging it on a higher balance. So we've got this sort of slightly noncash anomaly where you're having a big charge against -- for your property costs, which is penalizing you because they're all at the start of the leases rather than averaging it out. So under U.K. GAAP, you would average out the rent over the entire period of the lease and you would charge same amount each year to our P&L. Under IFRS, out front load all of that and you have a much higher charge at the beginning where you have a high interest charge and a lower charge towards the end. So had we accounted under U.K. GAAP, we would have been showing just over GBP 1 million profit after tax in the current year. So certainly, again, the way I look at it is, as I described it, if you want to really see is the business making money, is it profitable? Look at the cash flow statement. As I said, GBP 7.9 million of operating cash flow, even if you -- so assume we're paying, let's say, GBP 200,000 of interest charge in the year, you take that off and the other obligation would be a maintenance CapEx number, which in real money terms, replaces depreciation. And our maintenance CapEx at a full run rate on the current numbers would have been something like GBP 1.5 million to GBP 1.8 million. So you can see from that, that the underlying business is really is cash profitable. So hopefully, that answers your question.

That's good. In light of the fact that the share price is declining while performance is improving and cash generation is solid, would you consider share buybacks -- share buybacks, sorry? If you lack alternative reinvestment opportunities. I think the quick answer to that is yes, we would. We consider that obviously, return on capital and return on equity, sort of 2 dynamics. Given that we are returning on capital of circa 50%, it's always quite difficult to make the case to say that we should be buying back our own shares, albeit you could make a very strong case to argue that the return on equity will be strong if we did. So yes, it is something that we consider and with an RCF, it might be something that we might do. You said that Dubai test pilot for expansion, what countries will be on top of the list for expansion, Germany, France, Spain? Dubai is a test bed for expansion. Certainly, we are learning a lot about how to operate an owned site from here, and that's been really, really valuable. There are a couple of points on the strategic approach to international expansion. One, and I would stress this is that as we stand in the here and now, there is an awful lot to go after in the U.K. We've said for quite a long time now that we think there are at least 50 Escape Hunts in the U.K. and at least 100 Booms. And with an elevated sort of capital facility now to be able to go after those, we really do think that while we're returning the way that we are here in a market that we understand backwards, forwards and in every which way, the U.K. should be the focus and it will be our focus for a while. That said, obviously, we do consider where you might go at a point in time. I think one of the things that makes it a little bit easier to expand generally is where English is prominent as a language. And the reason for that is that brand and tone of voice is a really important thing in consumer-facing brands and trying to find tone of voice in a translated language, that's really, really difficult. So that's a consideration. Runway is obviously a consideration. It's not worth doing unless we can have quite a significant number of sites over -- given that you have to put a small head office in place, given that you have to have feet on the ground. I think the very, very obvious answer for both businesses is the U.S. There should be a runway for a very substantial number of sites in the U.S. Is that something that we're thinking about? Obviously, it's something that we consider. Is it something we're likely to do in the very near term? No, we don't feel that we're in the right place as a business given the opportunity in the U.K. to yet need to be doing that in the U.S. So hopefully, that answers that question. In terms of the next one, how do you see emerging concepts like virtual reality stores impacting our business. VR is interesting. We've done a lot of VR ourselves. Actually, the data is stuck. It does not do as well as the physical games. And in fact, we've taken our virtual reality business out almost entirely to replace with physical games and certainly we're on a journey just to do the last few. Our performance has been a step change every time we've done that. So I think VR, maybe one day, that is a great place to play. I think right now, it's a little bit early. Technology is still long way to go. And fundamentally, the thing that we do, which is bringing people together to have a good time together, that's the thing I think that makes Escape Hunt such an attractive business and VR somewhat removes you from that. So we're not seeing that as a particular threat. How does return on capital chart on the slides, how is it sorted, the number representing the number of the order of the stores open? No, it's not. The numbering is simply kind of ranking return on capital high to low. It's -- on Escape Hunt for what it's worth, it is broadly speaking, the case that the lower the return on capital, the older the site. And the reason for that is that typically the newer sites have hit the ground running better as we've been able to attract higher kind of a property now that it's a more established business. and we build them for quite a lot less money. So you've got a denominator and a numerator benefit on both sides in Escape Hunt. So that's what we're seeing there. Boom, obviously, it being very much a younger business is a little bit more random in terms of which site we open in what order. But that would be interesting to see if that goes on to follow a similar path -- a similar path as the performances mature somewhat. How is the newly acquired -- sorry, forgive me, my eyes are terrible, how the newly opened and acquired Boom sites performed relative to our expectations? Can you please also comment on the current pipeline for further site openings and how you prioritize locations and assess new site developments? So in the main, we've been really happy with the new sites that we've opened. In fact, in one particular case, we've been stunned. We opened a site in Canterbury over the last year. And it's definitely true to say that, that has dramatically superseded our expectations for that site. It really has kind of hit that site there in Canterbury. So that's been really exciting. Dubai, we've talked about a little bit already, but Dubai is doing what we hope that Dubai would do sort of right sort of in the midpoint of our expectations and Southend, again, is exactly in line with the expectation from the model. So those kind of feel like a good place to be. In terms of the second part of that question, how do we consider new sites to go into. We're learning with every new site that we open, and those learnings get compiled into a data analytics model. Ostensibly, we try to normalize for the things that are unique to our site. We try to normalize for the size of the units, the quality of the team, the newness of the teams and so on and so forth. And then once we've done that, we take that performance and we overlay lots of city type dynamics. So that might be population densities, worker densities. It might be affluent scores. It might be adjacencies, i.e., other leisure and hospitality businesses. And in so doing, you build essentially a multiple regression model that says, we believe that the 6 or 7 variables that are most linked to performance look like this. And therefore, here are the cities and towns where these characteristics are best exhibited. So there is a bit of a science to it. I would stress that there is never an exact science. And even if that data takes you to the right town, you've still got to find the right site and even if you find the right site, the right site has to become available. So it is certainly ain't exact science, but there is a degree of science behind it, if that makes sense. We have in the room, so share price has fallen to a year regardless of the performance of the company. What is the management doing to actively improve the share price, and when will the company show a post-tax profit? Well, Graham has already talked to the post-tax profit. And we have actually done quite a lot in terms of trying to mix up the share register a little bit. I mean, Graham, do you want to talk about that?

Yes. I mean I think certainly from a sort of public perspective, the big change, which you will see in the share register was you will recall that when we bought Boom, the sellers of the Boom, former owners was MFT Capital, who owned just under 15% of the company. I suspect that may have been a fear a bit of an overhang at some point. That stake was placed out in its entirety in May this year with the British Business Growth Fund, BGF taking the entire stake. So we've got a very, very supportive shareholder there that has come on the register. There was quite a lot of sort of retail interest, particularly during COVID. We had a number of fairly sizable retail shareholders on the register who have moved on, and that's all been cleared up as well. So there's been quite a lot of work around the register. It's in, I think, in a very good shape now. We've got some good institutional support coming in. Obviously, we would like to see more of the retail interest coming back and our focus in the next period is to spend a bit more time with some of these retail forums, this being one. We are presenting things like share society. We're going to -- we will look at the Mello Events and things like that. I think just starting to talk with a bit more confidence around the performance of the business, the fact that we have the credit facility and therefore, we can be much more assertive around the pace at which we grow the business. I think all of those things should happen. Clearly, it's a big frustration for you and for us.

Why franchisees sell to you if the business is so good? Are the prices for buyback of the franchise sites attractive for XP Factory? The bulk of our franchise position was somewhat inherited through the early stages of the Boom acquisition. And a number of our franchisees do not have the capital to grow into 5, 6, 7 sites. And the challenge inherent in that is that even if you're only trading one site, you still need to have marketing, ops, finance, all the stuff that you have that would otherwise get leveraged across a number of sites. So it is very much harder to operate one site and beat it financially that is than several. So that is given and also combined with the fact that actually running operations like this is hard work. It is late, it is great. You have to be on the ground, you have to be in store, you have to be understanding the consumer dynamics, you have to be present. It's not an easy business to invest in and allow to grow. So I think for some of the early franchisees, it has just become apparent that they would need to have far more time in their sites and/or have far more scope in order to have big teams in place to run them than perhaps they have available to them at the point. So on that basis, it's been quite attractive for us to buy them back. The specific question about, is it attractive for XP Factory? The obvious answer to that is yes. Otherwise, we wouldn't do it. We consider buying them back in the same way as we consider returning on any capital that we spend. So the ratios in terms of incremental EBITDA to us are still going to be low. And moreover, because we typically vendor finance them that from a cash perspective, they're very, very attractive, plus then you've got the brand overlay, the strategic synergy, et cetera, et cetera. So hopefully, that answers that question. This is a slightly embarrassing one. I didn't get answers from corporate at xpfactory.com. Is that e-mail address still right? It is still correct. I don't know why that would have been, we'll look into it. Apologies for that. Can you confirm the central costs are under control, i.e., have you already geared the cost base in advance and what you have in place is enough? It seems a very high number, even though I appreciate the rationale for investing to support the business growth. Graham, do you want to take that one?

Yes, sure. So if we look at the cost base, as you pointed out in terms of what's there was GBP 10 million, and I mentioned as I was talking through that GBP 8 million on a pro rata basis. So an increase obviously about 35% on the full year in the previous year. I should just sort of go back, if you look at where that increase came from, the majority of it was in people. So there was a full year effect. As we grew in 2022, in particular, we added quite a lot of central costs through people. If you think of what's -- about 55%, 60% of our total central cost base is people. So who is that? So obviously, we've got the marketing teams for each of Boom and for Escape Hunt. Those costs are allocated to some extent in the segmental analysis, but a lot of it sits in head office. Certainly, I don't see a need to be expanding that much, so that can support a much bigger business. We've got a finance team, which should be able to support a much bigger business. Where you will see sort of incremental increases as the business grows is in the operations team where we have got sort of regional operators and so on. So every time you add 5 sites, you're probably looking at another regional manager. So there will be some incremental increase. There are some other areas where some modest increases will come in. But again, you've got the core of what's there. I think one of the bigger increases you would have seen is that historically, we've never had -- we've never paid any variable compensation. Looking forward, we are looking across the entire group to introduce a bonus scheme for all of our head office staff. So that obviously adds probably 10% or 15% to your people cost once you do that. So that is certainly in the budget, but it's not committed and would always be dependent on performance anyway. So you've got that as a sort of variable cost. I think to answer the question is, yes, I think the central costs are under control. Obviously, things like audit fees, professional fees have gone up quite a lot in the last year, just from an inflationary perspective, but also with the growth of the business, there's been a very significant increase in those sorts of areas. I believe we've got those under control. We will see some small incremental increases as we add a few more people as the business grows. But in general speak, you should have a much, much stronger leverage on that central cost as we move forward.

Graham, probably another one for you. Can the company provide some information to why trade payables have doubled to GBP 3.8 billion, provide some context to what those payments are?

Yes. I can certainly give some color on that. Obviously, the business is bigger. So just in terms of the relative size of turnover compared to where we were, what we've got is obviously normal sort of trade payables. Somewhat embarrassing, I suppose, I would say, one of the biggest reasons for the increase is just because of the way we account for business rates. And what happens, obviously, at the end of March is you get the full business rates bill for all of your sites for the coming financial year. And the way that, that is accounted for is we put 100% of that -- the full year's worth of rates into trade creditors and there's an offset in prepayments to the extent that it hasn't been paid even though those are actually only paid over 12 months. So there's about the thick end of GBP 1 million of that increase is actually business rates which is just for the coming year. So it's not immediately payable. It is actually paid over the period of the year. So that is the biggest change in that. And because we have -- because it's a March year-end, you get that sort of impact rather than in December. So that's probably the biggest reason. The other big-ish impact in the current year is a lot of our sites have turnover rent. And in particular, Oxford Street, where our biggest site and the biggest component of turnover rent, the year that we measure that turnover rent runs to the end of March. So the turnover rent accrual, which would have been invoiced at that point comes in. So that would be a one-off change in the current year. So other than that, as your normal trade creditors, there's no -- we're not -- we're not in arrears. We're not holding back creditors or anything like that, if that's your concern.

So conscious of time, there are quite a number of questions. I'll just go through a few of them very quickly, if that's okay. So when a new Boom or Escape Hunt is opened, how long does it take to maximum sales capacity is reached? Are the low like-for-like, I presume that's the post period, a result of the quick ramp-up of sales after opening. So, it's very hard to answer that because given that even last year, Escape Hunt did 17% like-for-like and in some of that case, that's a 7-year-old business. And obviously, it's still maturing and that is -- even strongly suggest that is therefore still maturing. However, typically, you would suggest that the site should probably grow aggressively for the first year, a little bit less so in the second, start to kind of come down in year 3 and then normalize, you would hope from that point onwards. Are the low like-for-likes as a result of a quick ramp-up of sales after opening? No, at the start, we've talked about the like-for-likes in the post period and the impact there. But the more general point is, it is absolutely true to say that like-for-likes on average get bolstered quite significantly by the number of sites that you open, i.e. given that you'd expect year 1 like-for-like to be the highest of any year, the more sites you open in a period, when those sites become like-for-like, you would expect to see quite a significant bolstering because of that. So hopefully, that answers that question. How we see competition for sites, lots of other attractive businesses. We're not struggling to attract sites. Our covenant is getting better -- it's getting better. Our customer reviews have been very strong forever and a day and landlords like that. So we are not struggling to achieve sites. Would we consider a takeover another competitive socializing provider now you have an RCF? I think there's a big opportunity to do that. Is it the right time to do that right now? I'm not sure with the markets where they are, but is it something that we would consider at a point? Absolutely, it is in line with all the other strategic options that we have available to us. Over what period of time of vendor loans typically taken out, so this is for the acquisition of the franchise stores, typically around 3 years. What period is the GBP 1.2 million of outstanding vendor loans payable over, as I say, typically, they're done over 3 years, so then depending on where they are on average.

The balance of that, there is a breakdown in the slide I showed you, I think there's -- if I remember at the top, yes, GBP 900,000 is actually payable in the next year just because it dates back to the -- a couple of them were over 2 years and a couple of them over 3 years. So that's...

Yes. So what do you think about the penetration of Escape and Booms in the U.K.? Are there any data points to suggest that this concept can grow within the country or in other countries? I think the penetration -- well, if you take our data, so we're the largest provider and our growth has been stellar. And indeed, when we open new sites, they have been really consistently high performing. So I would suggest that, that in and of itself suggests that there is a lot of penetration to go after. When you combine that with our property modeling that we discussed earlier, it points to quite a number of locations where we're not and where we should be. We have this conservative estimate, I would suggest of 50 units in the U.K. I still think that is more than achievable. I actually think the number might be bigger than that. Does that play out in other countries? Quickly, the answer to that is yes. We in our own franchise business see just how well that plays out in other countries. Australia, France would be 2 really good examples where we've got a bit of density. And can you extrapolate the same kind of variables that make Escape and Boom attractive here in other markets? Absolutely, you can. Could we test dynamic pricing for peak times? Yes, we could test it. We debate this internally a lot. We have chosen instead to go after capacity rather than price, largely because we feel that's the best thing in the long-term interest of keeping customers close and having those customers our brand ambassadors. It's not to say that we wouldn't do it at a point in time. It is something that we think about and model a lot. But so far, we have not felt the need to do it. [indiscernible] capital and the sites are really steady state, would it be appropriate to expect the site to generate operating cash flow return on total capital employed of 11% to 12% I think you've already touched on that, Graham, you've gone through the kind of the cash generation...

At site level, it would be quite significant based on where we are, it would be quite significantly higher, 3x that...

Yes. Sorry, we are running out of time. more. So do we expect to continue to get rent-free periods? Yes, is the quick answer to that. If some of them takes franchise back to you, what's the economics? We've actually touched on that already. So -- and the second part of that question is whether or not that attracts you, it makes it easier or harder to attract new franchisees. A lot of the reason why we're doing what we're doing is in order to set the tone to be able to attract the high-caliber franchisee, we can actually back 10 sites. So bringing the sites back into owner operation, getting those performance gains as we've already talked about in the deck and then being able to normalize performance, I think, sets us up better to be able to sell to more sophisticated franchisees further down the line. I'm afraid there are still a few questions left, not so many, but I am very conscious of your time. So we'll go through anything else. We'll answer and feedback to [ IMC ]. But Jay, can I hand back to you?

Absolutely, Richard, Graham. That's great, and thank you very much for your presentation and for answering all of those questions that came in from investors this morning. And of course, we will be able to give you back all of the questions that were submitted today. We'll give you those back just for you to review to then add any additional responses, and of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But Richard, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Sure. So I guess the point I want you to leave today with is hopefully that real feeling of the continued momentum in the business. So I think we've had a pretty transformational effect of the -- through the site builds that we did in the prior year. You started to really see that coming together to generate a business which is throwing off quite a lot of cash for its size, I would suggest. We're really excited about what that means. We're really excited about the fact that, that has facilitated this organic sort of new build program through the current year that we're in right now. When you then combine that with the new news that is the RCF, I think really excitingly, where you can hopefully understand that, that allows us to nudge up our openings profile again, it doesn't require us to come back to the markets for equity. So I hope you'd all see that as a very, very positive thing. In terms of the underlying metrics, as I say, all of them are moving in the directions that we wish. We've got a very stable business in Escape Hunt, sitting at a very, very profitable level. And we've got really strong trajectories in Boom. That sort of 7-point margin gain over the last year is one of those reference points that movement towards that aspirational 20%, 22%, 25% EBITDA is very much on track. So we've got a business that's throwing off really good cash. We've got great operating metrics. We're the highest reviewed business in the customer by customers of anybody in our sector, and we've got significant runway to go after and now a facility to fund that. So I suppose I would just close just to say thank you ever so much for your support. Please do come back to us if there are more questions that we haven't had a chance to answer. And hopefully, we'll see you again in a small number of months.

Perfect. Richard, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only 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 would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.