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

Good afternoon, ladies and gentlemen, and welcome to the XP Factory plc Investor Presentation. [Operator Instructions] And I would now like to hand you over to the executive management team from XP Factory plc. Richard, good afternoon, sir.

Good afternoon, and thank you to everybody who's managed to join us this afternoon. What we're obviously here to do today is speak predominantly to our year results to March 31, 2025. But also we'll talk a little bit about current trading, a bit of a reminder around the strategy that we've laid out for ourselves and how we're doing towards that. But most importantly, we very much want to encourage questions. We plan to take a fairly speedy approach to talking certainly about the last year's numbers to hopefully free up enough time for questions should they arise. So today, for anybody that hasn't met me, I'm Richard, I'm the CEO here at XP Factory. I'm joined by Graham, who's the CFO, and we're going to take the presentation sort of bit by bit, person by person. But if I sort of kick off with a bit of an overview of the year to March 31, 2025. And I suppose It's important just to start some of you will be familiar with our story, and you'll remember that in the prior year, we actually ran a 15-month period. So in order to make our comparables a little bit more relevant, we are talking to the equivalent 12-month period when we are referring back to the prior year. So hopefully, that will make sense to everybody. And on that basis, if we jump across to the slide that really summarizes our performance, you'll see here some key metrics that really demonstrate the growth that we had in the year. So sales delivery of almost GBP 58 million was 19% up on that 12-month equivalent period in the prior year. And indeed, group EBITDA of GBP 6.6 million was up 30% from GBP 5.1 million. So this in and of itself represents quite a significant period of growth yet again for the business. I guess when we get into the detail, we're really happy that it has been born of performance in both our brands in Escape Hunt and in Boom Bottle Bars, and we'll talk to the details of those businesses shortly into the presentation. One of the key operational metrics for us and in fact, the thing that our teams have set about is being consistently at the very, very top of the tree when it comes to customer ratings, customer reviews, et cetera. And so on an aggregated basis, when we look across TripAdvisor, Google My Business, Facebook, et cetera, we've yet again sat right at the very, very top of the tree across all businesses in leisure and experience, kind of #1 and 2 with an overarching satisfaction rating of 98%. And as I say, that for us is a really, really key metric. It's a likely indicator of future success. So we're very, very proud of what the teams have delivered there. In terms of our brands, starting, first of all, with Escape Hunt, it was yet another really strong year for Escape Hunt, which really is proving to be quite a jewel of a business. We've grown sales at the top line 7% up year-on-year, 14% -- sorry, GBP 14 million delivered in the owned and operated estate within which we had 3.2% of like-for-like growth volume driven. We didn't take price in the year. So a very good sales performance. But actually, the sales performance is good as it was, really belies quite an extraordinary performance on EBITDA. And we've seen 44% EBITDA delivered on average across all owned and operated sites in the year to March 31. If I'm honest, we probably haven't imagined seeing an uplift like that. When we were talking a year ago about having just delivered 42%, that felt like a really standout performance. And when you consider that within the last year's numbers, we still have pretty aggressive wage inflation, particularly, which is the kind of key cost line that affects us at Escape Hunt, nonetheless, to be able to offset that and indeed surpass it in terms of an EBITDA delivery feels like a really strong performance, especially since we didn't take price in order to mitigate that at all. Perhaps not surprisingly with such strong performance in that business, seeing our return on capital delivered again north of 50% is great to see. I'd say it's a very strong reflection of the business. And in Escape Hunt, we continue to have this slightly bizarre dynamic where our marginal rate of return on capital is actually increasing year-on-year. You see that where we were at 48% in the prior year, 51% this. And really it's for 2 reasons. One is that typically, the new sites that we open are opening in better and better locations. They hit the ground running a little bit quicker. They get up to maturity a little bit faster. Therefore, they generate more cash a little bit more quickly, and combined with the fact that we are really controlling our costs well on the build side and are getting better use and better -- we are more likely to receive capital contributions from landlords as well, something that we didn't use to. So top line is going up, bottom line coming down and overarchingly, the return on capital continues to improve. So a really nice year for Escape Hunt. We've obviously grown that state a little bit in the year as well, opening as we did new sites in Worcester in Cambridge and in Glasgow. All those sites are performing exactly as we would wish them to, really good validation of the property strategy there in that business. So a very, very good year for Escape Hunt. As we move across into Boom, again, another big period of growth for that business. We've seen sales increase 30% from GBP 32 million to GBP 42 million underlying like-for-like growth, volume driven again at 2.3%, where the delta in sales growth is coming both from the franchise sites, which we brought back into the owned and operated states, so 5 of those and also the newer sites, which were maturing through last year. So very strong performance on the sales line. But again, bringing it back to our own targets that we talked about here on this platform as we talked about more broadly where we expect to see a midterm EBITDA delivery of 20 or so percent for this business rising hopefully over time closer to 25%. We're very much on that journey. And EBITDA as a group increased to 18% this year, up from 16.6% the year prior, so almost 1.5% increase in EBITDA, very much moving in the right direction. And within that number, we have actually got a couple of dilutive sites. We've talked before about a couple of tail sites within Boom business, which we are dealing with at the moment, but those have nonetheless diluted the 18% in the period. And were it not for those, we would have been at that 20% target that we set for ourselves. But nevertheless, the direction of travel is very strong. Return on capital has been strong in Boom really since its inception and 54%, I suggest, is very strong, is a very encouraging place for us to be. We've talked quite a lot about our strategy for Boom, which is to do fewer, better sites as we go forward. We understand that there is a marked difference between the sites that really are in the right locations with the highest footfall with the great adjacencies and those are the ones that truly outperform the sector and where we get super returns. So our desire now is to do fewer sites but more that sit towards upper end, and on that note, we opened a site in Cambridge in December of last year. We have actually post period opened a site in Reading as well. But as real validation to that strategy, both those sites already sit within the top 5 performers within the estate overall and are really extremely pleasing as we watch their economics continue to grow. We thought it might also be interesting to talk a little bit about the sectors that we sit in and examine some of the dynamics that we're seeing around both the Escape Room industry and also the competitive socializing industry where Boom designs. The Escape Room industry has been really interesting. It's obviously young, as you know. 10 years ago, no one really knew what escape rooms were. There were very few operators. But post that point, there are a lot of entrants into the market, lots and lots of escape rooms popping up all over the place. And the characteristics of them was generally kind of similar. They were typically a little bit underinvested. They were typically a little bit hobbyist. They were typically appealing to that gamer audience. They were typically a little bit out of hand. And what we've seen over the last couple of years is a real net reduction in new site openings, i.e., openings are rising less quickly than closures are occurring. So fewer sites -- so the industry is contracting. But against that backdrop, we have continued to grow very, very well and more importantly, have benefited on a unit-by-unit basis when you look at our economics. I refer you back to the 44% EBITDA that we just talked about. And I think what this is highlighting is the significant advantage we have now in this sector of scale. It's allowing us to take the most prime units. It's allowing us to fit them in a way that our competitors might not be able to. It's allowing us to market them appropriately, to staff them appropriately to really create the hospitality experiences that we can all be proud of. And I think that -- and this market is contracting, it really is playing very, very much to or better than that we are sat there slightly arrogant, yes, at the top of the tree certainly in terms of scale. And so if you then take those learnings and you consider what maybe that goes on to look like within the competitive socializing industry, which is a little younger, really born of COVID and slightly beyond. We would expect to see some similar dynamics beginning to unravel over the next couple of years. Again, we sit in a really strong position as Boom. Again, at the top of the tree by a number of sites, we have the scale, we have the economics. We are able to invest in those areas that are really, really important to drive customer engagement. But this market is definitely ramped up very, very quickly just after the escape rooms one, but is now starting to come off the pace of growth, although it is still growing, has definitely declined quite significantly. It is getting a lot harder out there on the high street. And we feel that very similar to Escape Hunt and the escape rooms industry, we might well go on to have similar benefits for Boom within the competitive socializing set. But we thought nonetheless, it might be quite interesting to share those sort of views with you. But as we move forward, I'm going to hand over to Graham just to give you a run-through of the key financial metrics, which we look at daily.

This slide was an important one just to demonstrate the progress that the business has made and just to see the underlying improvement, both in profitability but also scale that has been achieved. If you go back to 2018, this was a brand-new business. That was when the first Escape Hunt rooms were opened. Obviously, we've had the period of COVID in between. But you can see very clearly from these 2 charts the progress that the business has made from a small business back in 2021 to delivering GBP 60 million of turnover in the last financial year. The benefits of that are clearly through the operational gearing in the business that we've gone from a business which was losing GBP 2.5 million at EBITDA level to making GBP 6.5 million in the last year. And that sort of flow-through of that growth was very evident. I think the most important feature of all of that is when you look at the key sort of financial metrics within the business. And what this is showing is really a continuous improvement in both the scale but also the quality of the business. On Escape Hunt, certainly before COVID and when the business was set up, we were looking aspirationally at EBITDA margin, site EBITDA margins at sort of 30% or a little bit north of that. What we found is we've achieved significantly better than that, born of 2 things. One, the additional scale and market share that we won at a site level. So typically, sites are doing higher turnover than we had originally envisaged, and that's partly by winning market share, partly by growing the market. As we know, post-COVID, the whole idea of escape rooms is something that families do together has much -- has become more to the fore in social consciousness and it is something which people naturally think about doing. So definitely a significant increase in the addressable market at a time when we've also seen shrinking supply as demonstrated in that previous slide that Richard was talking about. That benefited us through increased sales, and we have been winning in that battle. But also the investment that was made before and during COVID, which resulted particularly in the R&D, that resulted in a GBP 3.5 million R&D credit back from HMRC has gone into improving operations at the site and has reduced labor ratios. All of those things have contributed towards these fantastic EBITDA margins which we're achieving within Escape Hunt. So again, consistently above 40%, further improvement between last year and this year. And certainly, even with the increase in labor costs we've experienced this year through national insurance and minimum wage, we would certainly hope to maintain those sort of EBITDA margins going forward. Importantly, within Boom much newer business. When we launched the business, we -- it was brand new. We really didn't know for certain what sort of margins that business was going to deliver, but we set ourselves a target of 20% to 25% EBITDA margins. We said at the time it would take time to get there as we implement learnings, we improve operational efficiency. We learn more about what sort of labor ratios and we get better at choosing the best sites. And that's fairly evident now and you can see in the 4 years since we've been operating Boom, those margins have consistently improved, achieving 18% last year, up from 16.5% the year before. So another further improvement in those EBITDA margin. Our target, as we've said, is to achieve 20% to 25%. We noted in the announcement, there are a couple of sites that we've taken on from that legacy that's inherited, estates with inherited pipeline that we took on which have diluted those returns. One or two closed since then and there's one other particularly which we will be closing shortly. And just taking out those 2 or 3 sites at the bottom end, which we are dealing with, would already put us above the 20% margin that we aspire to. So things very much moving in the right direction, evidence that the original strategy was sound, and we've been able to deliver on that. The third aspect, of course, at a group level is how well we can leverage our fixed cost, our central costs. We've set a target again in our strategy of getting to 10% to 12.5%, which would -- 10% would be a sort of mature business in the leisure sector where you have central costs of around 10%. We are still a smallish business. We have aspirations to be a lot bigger, and we have a central cost base, which can deliver on a bigger base. that is what we're working towards. Nevertheless, we've seen that ratio coming down year-on-year and in the last year was 15%. So strong evidence of the operational gearing beginning to show through and delivering on the group EBITDA margin. If we turn to the next slide. I was just going to talk a little bit about cash generation. Fundamentally, this business is a strong cash generative business. We don't have significant working capital. We actually have a sort of typically a negative working capital position. So underlying it all, we generate very good cash. Of course, in the last year, there is -- on this occasion, there is actually a negative -- an adverse working capital movement of GBP 1.6 million, which may seem strange given what I've just said to you. And that was driven really by 3 things. One was we have moved the dates on which we invoice for our retros to our suppliers, which meant that there was the thick end of GBP 600,000 of debt is raised in March, which was sitting on the balance sheet. That is obviously an annual thing. So whilst that cash comes back in April and May, it's a timing issue rather than anything different to that. But that accounts for a reasonable chunk of that. The other 2 items is there has been an element of credit to unwind, difficult to believe, but actually post-COVID for a number of utilities and indeed councils particularly councils that were in arrears on rates and actually, we just hadn't had formal ratings on a number of the new sites. We were accruing costs, but actually haven't been billed and those are gradually catching up. So we're pretty much caught up now. But with that and some utility bills as well, which were just not fully billed as we caught those up, that has led to a bit of an outflow of working capital, but those will be one-off, and we wouldn't expect to see that happening again. There were also some CapEx creditors on the balance sheet at the back end of last year, but those wash themselves through in the CapEx cycle. So although we've had a negative movement in the current year, I would typically expect to see neutral slightly positive working capital flows as the business grows, given that inherently, we are working capital light. Fundamentally, our customers pay us either in advance or on sale, and we pay our creditors typically a month or 45 days in arrears. So we have that benefit and we don't carry a lot of stock. So you should see that normalize going forward. In terms of the underlying business, therefore, we -- after the working capital flows, we generated GBP 2.8 million of free cash. GBP 1.7 million of that we spent on maintenance CapEx, which is in line with our sort of longer-term view of where we would land 3% of sales. So that left us with a net positive cash generation, which even at the current share price is a very, very healthy free cash generation ratio. So annualized 20% free cash there. If we look at where we spent the cash, we started the year with just under GBP 4 million of cash on the balance sheet, obviously generated some free cash. We had some landlord contributions coming in, which augmented that. And if we go back, take off the maintenance capital, that left us with a healthy cash balance to invest in growth. We put just over GBP 6 million into growth capital. Majority of that -- I guess, bulk of that was into new sites, principally Cambridge in the case of Boom and Escape Hunt, but also Worcester and Glasgow. There's also some expenditure in there the new sites which have opened post year-end, so Canterbury in the case of Escape Hunt and Reading in the case of Boom. So GBP 6 million was invested into growth. We also expanded capacity in a number of Boom sites by adding axe lanes, dart lanes, additional shuffle boards, and that has an incremental impact on revenue. And in Escape Hunt, some refurbs of typically VR rooms, which we had rolled out and underperform our physical rooms quite significantly. So we've taken those out and we put physical rooms in where we get significantly better returns from those. So that's also what we would regard as growth CapEx with its increasing capacity. So GBP 600,000 went out on acquisitions that was to do with the franchise buybacks. You'll remember that our model typically is not to pay a huge amount upfront. We paid out GBP 600,000 in respect of 5 different acquisitions. So as you can see, not significant outlays. In fact, in a couple of those acquisitions, we took them back actually for a net contributions from the franchisee as they were in arrears on various things and so on. So we sort of fixed that. And the result of that was those additional 5 sites coming on board. As I said to you, that left us -- that utilized the cash. As you know, in October last year, we signed our first sort of formal bank facility with Barclays, a GBP 10 million revolving credit facility. We used that during the year. At the end of the year, we've drawn just under half of it, GBP 4.5 million. And you can see from that chart where the money has gone, largely towards that growth CapEx. But in addition, we repaid a reasonable chunk of debt during the year, which was we had some shareholder loans, specific high net worth loan that we used to advance our expansion in the prior year, vendor finance relating to previous franchise acquisitions and of course, some finance lease debt on equipment. So net-net, that left us at the end of the year with just over GBP 1 million of cash and net debt of GBP 4.9 million. With that, I will hand back to Richard.

Perfect. Thank you, Graham. So I thought where we should then pick up is a little bit of an update around our strategic progress this current year. So I suppose it makes sense to start off just by reminding anybody that isn't already familiar with what exactly it is that our strategic objectives lay out. And we laid out maybe a year ago that by the end of FY '28, we would have a business that will be generating GBP 90 million of sales at GBP 13 million of EBITDA. So basically doubling EBITDA from where we were. And we said that we would do that by purely growing our businesses organically. For Escape Hunt, which currently does in round numbers around GBP 15 million, the plan is to double the scale in that business. And then for Boom, which is currently doing circa GBP 45 million, it is to add another 1/3, and that's where you get your GBP 90 million. And so in round numbers, much as -- this isn't the way we would think about it, it means that we are likely to be doing somewhere between 6 and 8 Escape Hunts a year and somewhere between 1 and 3 Booms a year in order to make those numbers. And so with that a given, I suppose, first of all, it's important to note that progress is really good against that vision. We still see the runway, we still see the opportunity. We still absolutely believe in what it is that we're doing. And indeed, we've made good progress on site numbers. So we've opened up units in Canterbury for Escape Hunt already this year. We've opened Boom Reading as we've discussed. We've -- it is technically an expansion in so far as we have doubled the size of Resorts World in Birmingham, but to all intents and purposes, that is a new site. It has literally doubled in size, but we still benefit from it being under the same lease. So that has already happened. Sheffield has been built. We have another sort of 4 or 5 sites which will fall into build and will be progressed by the end of the year on the Escape Hunt side. So really good progress in terms of site openings. I think the thing that has been a little tougher this year has been the early part of the financial quarter. So our financial Q1 was pretty tough for trading. Whilst we may have done a little better than the market per se, for businesses like ours that are essentially indoor businesses, when it's as hot as it has been with as little rainfall as we have had, unseasonally so, we definitely get affected. And that did force us into negative like-for-like territory for the first time. We've never seen that before as a business. And when combined with that, we've had quite a lot of uncertainty around our corporate customers who are, in fact, if I'm honest, a little nervous about the impact of national insurance and national living wage, about business sentiments more generally, wondering what's going to come next re tax, wondering what's going to come next re initiatives. And that has certainly impacted us and certainly did impact us in Q1 fiscal. In fact, on the Boom side, particularly where corporates make up a slightly larger chunk of the business, and we saw consumer kind of flat year-on-year, very close to flat year-on-year and our negative like-for-likes have gone almost entirely of a fairly significant drop in corporate business. And I suppose there are a couple of points there that are worth exploring. Number one is that it's not really a dissimilar dynamic to what we saw in September last year. So in September last year, there was a lot of nervousness around what was going to come to bear in the budget in October. And we saw this manifest itself in corporate bookings falling off the edge of the cliff. We've been on a really, really, really strong trajectory on the Boom side, and we were very, very excited about where that would take us. And September came, uncertainty got delivered and all of a sudden, we fell away very, very aggressively. Now fortunately, once the budget was then announced in October, not least because the impact of which were largely going to get felt from April of this year, that momentum kind of refound itself, trajectory has improved and then we went on to have an extraordinarily good Christmas as we've talked about previously. It feels very like that or at least it did feel very like that in fiscal Q1. It felt that this unease about what's going to come, the lack of coherence, the lack of obvious next steps were putting a lot of businesses in a state of unease. And from a data perspective, we saw the very large companies that aren't really so much affected to professional services, et cetera, are still making the big bookings. That's great. It was the smaller SME type companies that have 15 people to come out spending GBP 7,000, GBP 8,000, whatever the number might be, that's where we were losing the business. So whilst that's a tale of doom and gloom, there are an awful lot of reasons still to be positive, and so one is that the impact of that soft Q1 in trading will be broadly offset by a lot of other levers that we've pulled elsewhere in the business, one of which I'll talk to in more detail, but it's specifically around the renegotiation of some supplier contracts, and I'll come back to that in a moment. Other reasons to be positive are that corporates now are really starting to fill back up again. And in fact, the funnel for bookings is greater now than it was this time last year, both in absolute terms and in like-for-like terms. So that's a lot of reason to, again, be confident. Now of course, we still need to convert those bookings. Historically, our conversion has always been really strong. We expect that to remain strong. But nonetheless, it's really good to see that funnel really starting to grow again now. It gives you a very much heightened sense of confidence as we move into the all-important Q4. I think also, it's really impressive to see Escape Hunt having already made back its full year-to-date deficit on negative like-for-likes. So it's already grown sufficiently enoughly to pay back all that deficit that it had in calendar Q -- sorry, in fiscal Q1 and is now on a nice trajectory again. Boom is not quite there yet. Boom is moving very much in the right direction, and we need these corporate bookings to land, particularly as we go into Q4. But nonetheless, there are lots of reasons to be confident that we've turned the corner and we're sort of seeing some really positive signs. And I think when we wrote in our trading statement about having that sense of cautious optimism, it is born of those reasons. Q4 calendar is a really big deal for us as a business. We make a significant sum of our year's profit and cash in calendar Q4. And so that period still lies ahead. It is not in the bank yet today, but the early foundations are now well and truly being set. So we would hope that we see a very successful period for us there. But aside from that, it probably is worth fleshing out one of these other levers that I've just mentioned there, and it's the renegotiation of our drinks contract, which is the major cost line or a major cost line for our Boom business. So we've been with our incumbent now for almost 5 years. And really excitingly, we have now done another deal for another 5 years as we go forward, whereby we receive for the first time ever, listing fees upfront in cash. And so these listing fees, the monies that we will receive yearly 4, 5 years just to stock that incumbent's products. So that's a really nice place to start. It's money that we didn't have previously. Secondly, our GPs are going to improve. We expect them to move by about 1% to 1.5%, which is significant when set against the market where costs are going up, our GPs are going up, our effective cost is kind of coming down in that area. And our retros are really strong. So it's a big deal for us this. It's over 5 years. It's got some go-forward benefits as much as it has some short-term cash benefits today. So we feel that's been a really good win for the business and a good sort of validation, I guess, of the work that we're doing on the ground that big large suppliers want to come to us, want to work with us and want to put these sorts of market-leading deals on the table. So with all those things coming together, I would say there are lots and lots of reasons to be cautiously optimistic. We are clearly going to make sure we're constantly keeping an eye on cash. When the climate is a little bit softer like this, if we have to ever slightly slow down the rate of rollout, that doesn't seem like anything more than a short-term challenge. So cash is king. We're going to watch that very, very carefully. But hopefully, we're going to enjoy this trajectory turn and see out a successful end to the year. So I think from our side, Graham, unless you have anything else, that sort of concludes the more formal part of the presentation. I think we probably look to flip to questions, Jake.

Perfect. Richard, Graham, if I may just jump back in, thank you very much indeed for your presentation this afternoon. [Operator Instructions] So just while the team takes a few moment to review those questions that have been submitted already, just wanted to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can all be accessed via your investor dashboard. Guys, you can see that we have received number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Thank you.

Yes. No worries. Thank you, Jake. So I think the first question I'll read out. Can you provide more color on the marketplace? Is it single unit shutting down or looking to buy escape rooms with purchased socializing? Or you like to see any interesting sites? Are you interested in developing a different proposition to Escape Hunt and Boom? So I think we've probably talked already about the market and indeed that consolidation dynamic. So I don't know that we need to revisit that other than to say that it is both single units and small groups that are shutting down in both instances. Does that mean that more sites become available? Yes, it absolutely does. In terms of the second part of that question, are we interested in developing a different proposition to Escape Hunt and Boom? I think we've said this for a while that we feel that our story as we move further into it will likely include another proposition at a point in time. But as we've sat here today, we have an enormous runway of sites to go after. We have -- just had that validated by some fantastic work done externally for us that would see Escape Hunt well north of an opportunity of 100 sites, Boom well north of sort of 50, 60. So there is a lot to be going after, and that's just in the U.K. before we ever even gave thought to international. So whilst I'm sure there might be a point in our journey where another proposition gets considered, it won't be in the short term.

Next question is having restructured the balance sheet and following a disciplined rollout process, are there any plans to use part of your cash generation towards shareholder returns? I think the answer to this, Richard touched on our sort of view on cash at the moment and just being cautious around making sure that we -- in the context of a weaker first quarter, but also an ambitious growth plan, is how quickly we utilize cash. We've got a very, very good pipeline of opportunity, particularly in Escape Hunt, which we would like to go after. And when you're making 52% return on capital, it's very attractive to do that. However, I think there is a valid argument. The return on equity that can be gained by buying back shares, for example, is very attractive. So although there are no short-term immediate plans to do that, we have constantly talked about being tactical around when and how we might use those and they are very much on the agenda. So I think that's probably all I would say.

Yes. So if I take the next couple, do you see any opportunities to extend the Boom or Escape Hunt brands internationally? Or is the current focus squarely on the U.K. expansion? I think we certainly see an opportunity to extend both brands internationally. In fact, I think in certain markets, the opportunity would be really quite significant. There are some obvious go-tos. The U.S. clearly is a de facto answer. But actually, there are even some really interesting markets within Europe that we think would work very well for both businesses. That said, doing that properly is expensive. And given where the markets are, we don't feel that it is the right time to be asking shareholders for money in order to go and do an international expansion. We don't feel that it is the best use of our debt given that we can return on capital as we are at the moment north of 50% doing what we're doing with the runway that we have in play. But where the markets to pick up somewhat and where we to have made a little bit further progress into the U.K. and just deliver a little bit more runway there, it would seem like a very sensible thing to us to be exploring some more international markets. Second question. Do you think XP Factory could potentially be an acquisition target for private equity in the leisure space? Look, I suppose the obvious answer to that has to be yes. In so far as if you look at a business that has got the growth dynamics that we have demonstrated over the last 5 years, you would suggest in what has been a fairly tricky market, that is an interesting place to play. If you look at a business that's got return on capital in two brands north of 50%, that should be an interesting place to play. If you look at the cash flow generation within the business that at current prices is yielding free cash flows to the north of 20%, that should be an interesting place to play. So would it be beyond the wit of man to imagine that, that becomes interesting to some at this point in time? No, it wouldn't. Do we see broad trends, less alcohol consumption, more healthy nutrition, less going out negatively affecting Boom? No, we haven't really, albeit we're probably quite young in some of these trends really to kind of have a proper benchmark for it. And so if you think about some specifics, there's a lot of chat about are youngsters not drinking as much alcohol, for example. Firstly, we don't see that in our data. No-and-lows are not a very significant part of our overall share. So we don't really see that in our data, albeit it is also true to say that maybe our core customer is a little bit older than the demographic that is currently sort of experiencing such a shift. I suppose the reason that doesn't concern me overly either way and where it's become sort of an expanding trend doesn't really bother me is that the whole point of being in a Boom is that you are there to engage with the games or engage with your friends to do things other than drinking. That's the whole reason why I think these sort of business is successful is because actually if you don't drink, you can still come, have a lot of fun, be absolutely in the thick of it, create -- enjoy a high energy environment without the need to drink alcohol. So might we see that trend shift? Possibly. Give me -- with your share price of 10p, does it make sense to continue to invest to grow? Or should you consider buying back shares? I think that Graham has just covered that off. Yes, I don't think we need to go into that other than to say it is definitely a balance that we have to make as a management team. Are we considering another acquisition? No is the quick answer to that. Right now, we are not considering any other acquisitions. Do we think that at a point in time having an acquisition to bolster the group is interesting? Yes, of course, we do. Do we feel that we have the team to do that? Absolutely. And we kind of proved that when we did Boom with the existing Escape Hunt team back in the day, but we just don't feel this is the right time given the climate. Do you have an updated estimation on maintenance CapEx as a percentage of total revenue for Boom, Escape Hunt? It would help investors to estimate further future cash flows when -- sorry, free cash flows when expansion is not the cost driver anymore. Graham, unless you want to answer it any other way than saying we think it's 3%, it's playing out and modeled at 3%.

Yes. It's a little higher in Escape Hunt and a little lower in Boom and averages out to 3% on the group, and we haven't changed that guidance.

Yes. Graham, do you want to take the next one about extraordinary charges?

Yes, sure. So in the year, we had GBP 857,000 of exceptionals, which you would have seen in the annual report, broadly that was broken down. There was GBP 0.5 million of onerous lease -- onerous contracts written off. That was to do with an early termination of a very expensive media contract that we had and we've come out of it, just wasn't paying. So we weren't getting the benefits of that. And in fact, a lot of the sort of sports and things that we can show, you can get on terrestrial television or you can pay per view. So we took an early hit on that and just closed down those contracts so that it didn't continue to eat into our margins. There's about GBP 0.25 million worth of restructuring costs. You will remember in November -- December last year, we announced we had done some restructuring within our existing and planned cost base at central head office and we took out a chunk of cost and there was a cost associated with doing that. And the balance was just to do with sort of exceptional legal and early debt redemption fees in relation to the new revolving credit facility, but also the sort of the capital reorganization and so on. So that's what made those up.

So what's the average length of the lease when you open a new site? Typically, that is 10 years on Escape Hut with a 5-year growth and typically Boom is 15 years with a 10-year growth. When you spend CapEx on a new site, what's the depreciation period on the assets and how does that differ to the real economic life? Graham, do you want to do that one?

So in terms of the depreciation period, really, you can sort of class them into sort of four categories. We've got leasehold improvements which are depreciated over 10 years. Typically, actually, if we stay -- to answer your question on that, if we're in a site for 15 years, a lot of those leasehold improvements, I think, would probably last 15 years because we are maintaining them. So some of the big CapEx items in there would be things like your air conditioning or your heating units, your fire safety, all of that sort of thing, but we depreciate those over 10 years as we have an exit option. These acquisition costs which relate to are sort of set up over the period of the lease. We've got furnitures and fittings, typically they're over 5 years. Again, we are maintaining, but you would expect those to probably be about the right term. Games, we depreciate over 5 years. In Boom, we've yet to see whether that's right or wrong. We do maintain them. So I suspect that there is an argument to say they could last longer. But Escape Hunt, if you remember, we originally depreciated over 2 years. We've changed that to 5 years. But actually, even those original games that we had -- that we still have in some of those early sites launched in 2018 are still playing and playing very well. So again, I think there is an argument to say we're probably being slightly overly conservative on those. And then the fourth category, typically sort of computer equipment and that sort of stuff, which we depreciate over 3 years. And given the pace at which technology moves, I'd imagine that's probably about right. And this might be going -- this we'll get to last a little bit longer but I think that's what we've got right.

Yes. Graham, do you want to take the next question?

So the post period in this [indiscernible] across the Boom sites, what else is it and do you have the forecast range for? And I presume you're talking about the forecast range for net debt at the end of '26. We'll need to look at the analyst sort of forecast for that. The drawdown of the net debt, I went through on that slide, which just shows where we utilized cash during the year. Although yes, it is higher than the new sites, we did, of course, refinance GBP 1 million worth of debt on the date that we took down the revolving credit facility. So that was where first GBP 1 million went. And actually, there has also been the repayment of other debt during that period. Again, that detail is included on the slide, so you'll be able to see exactly where it's gone.

It might be worth, as Graham said, looking at within that number, we prepurchased quite a lot of our escape room games.

Yes, that is also true. So in our CapEx number for last year, there's about GBP 700,000 worth of games acquisitions so where we've actually bought games or paid for games or certainly did the first payments -- down payments on games for sites that have not yet been opened. So it's effectively this year's CapEx paid for last year. So there's gains in stock at the moment sufficient to catch up at least four new sites, I think it is at the moment, from my count. So we obviously we're in build in Sheffield, which we've mentioned, and that site opens relatively soon. And the idea of doing that was that we can shorten the lead time. Lead time on games is 2 or 3 months as a minimum. So if we can get ahead of that, then obviously, as we sign leases, get it on site, we can actually open much quicker.

So what do you think of the new competition in the Escape Hunt category like action games like Activate? I think the quick answer to that is Activate is a great example. We think it's awesome. We think it's a fantastic business. It's a lot of fun. And anything that is bolstering our sector, we would consider to be a very good thing. I think what we do specifically within Escape Hunt, we do very well. But clearly, our customers do that and like to enjoy a lot of other activities in and around the margin. And the more stuff, if you like, that comes to the sector that is keeping people close to experience and close to leisure, the better in my view. What trends have we seen within the F&B sales at your Boom sites in the year-to-date? Are consumers spending less, the same? How are you developing your F&B offering going forward? So the trends, it's quite a boring answer really. Spends are very, very similar to that which they have been. And there hasn't really been any sort of paradigm shift from one category to another, from one product into another, et cetera. It's been very, very much a consistent operation over the years that we've been trading it. In terms of what we're doing specifically to develop, on the drink side, the development comes with the contracts that we just talked about a little earlier in the deck and movement into obviously some new lines there with some new -- we've constantly got cocktail innovation, product innovation and so on going on anyway. So that's almost like a sort of a de facto position for us to take. In terms of the food, we've put a lot of work into food and continue to do so. Menu is evolving very much for the better, I would suggest, and continues to do so. So that is something that we talked about previously that we'll be looking to enhance. We are enhancing it. It's moving in a good direction. One of our listeners is new to the story and would like some color related to Escape Hunt. Do the same customers keep returning? Or do they -- or do you -- are we required to refresh a site continuously in order to ensure that traffic remains strong? I think Graham has kind of picked up on that already indirectly in reference to the depreciation on the escape rooms. And the key point there is that even in our earliest sites, which were built back in 2018, we are still seeing in many of those games, volume-driven like-for-like growth which tells you that you don't need to be constantly changing content, et cetera. Now obviously, we do like to have existing customers come back. And typically, a site will have six different themes for you to play. And if our data is even half right around the average customer playing a couple of times a year, that sort of keeps you interested for 3 years in new games just within that one site. And obviously, we have other games playing elsewhere as well. I think for what it's worth, if you played a game 3 years ago, the chances of you remembering the idiosyncrasies if you were to come back and play it again after that period of time would be low. So I think you still enjoy it again. But nevertheless, the games today are built in a modular fashion such that should we see a greater need to rotate content at a point in time, we can do exactly that, rotate content between sites rather than fully needing to build from scratch again, which really was the driving force behind our desire to modularize the production of the games, as Graham has already discussed. So hopefully, that helps. When refreshing an EH site, do you normally change theme of the escape or simply refresh the deck or mechanics, et cetera? If we were changing out a room, it would almost certainly be a completely new room. The maintenance is the thing that has some of the mechanics and some of the tech, et cetera, being changed and that does gets P&L expense and you see it within the numbers. And where we do a full change, it would likely be to a new theme.

I think another thing just to add in there is that the way we've built these games is they are sort of built in modules that can be moved. A lot of the technology is integrated into the sort of flat back panels as it were. So it's not that you're just going to change the odd puzzle here and there. The whole point is that we can manufacture these in scale and much more efficiently by doing that. So it's quite easy. It doesn't cost nothing, but it's quite easy to basically pick up the entire game, pack it up, move it on to a new site and put a new one in. So that's part of the advantage of the way in which the games have been designed.

Yes. Perfect. Graham, do you want to pick up the next question?

So the subsequent event noted that GBP 4.5 million has been drawn on your year-end. What was this spent on? There's GBP 1 million which is spent, so there's only GBP 2 million. I think we already answered...

And then second question, I suppose, sort of related theme-ish. Do you want to take that?

With a weaker Q1 and cash leakage on exceptionals, et cetera, have you considered a reduction in the head office cost? Also in December, you said you would reduce exceptional costs by GBP 1 million. With north of GBP 0.5 million with year-end run rate coming at GBP 8.2 million to 12 months versus GBP 8.7 million, are you going to see the cost reduction? So to answer that question in two points is that we always keep a good eye on our head office costs and are looking constantly to take out costs where it's unnecessary. Obviously, as we grow, we have said that there will be a gradual increase in the head office cost, but at a much, much slower rate than we grow the business. So short answer is yes, we keep that under consideration. In December, we said we'd take out central costs of GBP 1 million. If you remember at the time, we also said that it was based on our run rate at the time and also the sort of forecast that we had out in the market in terms of what we were expecting to spend. Yes, you have seen an increase, but actually, all of that increase, in fact, more than all of that increase would have been the full year contribution from costs that actually came into the business in the prior year. So within that GBP 8.2 million, at that point, the business was running at probably just over GBP 9 million annualized based on sort of hiring and so on that has gone in during that year. So we reduced that run rate. And also, obviously, we reduced the pace at which it was going to grow. So from our perspective, yes, the GBP 1 million has come out of that central cost base. I should also note that in the GBP 8.7 million, there is some -- there is obviously a sort of variable component, which is a head office bonus scheme, which goes to everyone in head office, all 48-odd employees. And that is only paid from out of our performance against the forecast. So obviously, that's something which is within that GBP 8.7 million.

Is the weather really seasonal? It feels like the new normal. I think that's not necessarily a bad question. I think that it is possible that trends are shifting weather up. It is definitely true to say that against any demonstrable comparable, the weather over fiscal Q1 was extraordinary as compared to anything certainly in the sort of 5 or 6 years prior. That said, I think the point is a good one that maybe this does somewhat rebase and maybe we do start to see a little bit more of this going forward. So then I suppose the question becomes, well, what can you do about it given that you're an indoor business. And so the quick answer to that is it's going to be quite hard for Escape Hunt to change what it does, but then Escape Hunt has been remarkably resilient, as I already said, has made back its year-to-date deficit already. On the Boom side, it is certainly causing us to think about sites with more outdoor space. That's not something that we've had historically in our estate per se. We've got a few outdoor areas, but very, very few. Whereas now having decent outdoor space is something that we are looking for a little bit more where it is appropriate. So Cambridge as a good example, we have the facility to develop a rooftop terrace, which will be a pretty cool addition to that site. We haven't yet done that, but we will almost certainly do that for that site. It gives a really kind of cool vibe, the outdoor space, to kind of give you a small hedge against weather. Reading has an outdoor area, et cetera. And as I say, going forward, that becomes a little bit more of a criteria. The only other comment there is, are we buying back shares, sure, maybe GBP 1 million to GBP 2 million per year. We -- I think we've already discussed that certainly that is on our radar.

Perfect. If I may just jump back in there, thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Richard, perhaps before now just really 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 just to wrap up with, that would be great.

Certainly. Well, I guess, first of all, thank you so much for finding the time to spend with us this afternoon. Obviously, it's [Technical Difficulty]. Hopefully that we've answered everything that you have wanted us to. Please do follow up with us if there is anything else. But by way of closure, I think we're in a really exciting place as a business. I think you have seen now demonstrably over 2 or 3 years some real delivery in growth in numbers in top line, bottom line, operating lines. I think the direction of travel and the momentum has now been demonstrably proven over 2 or 3 years to be really strong. I think returns in both businesses, which land north of 50% are a great place to play. And I think anything that is yielding free cash flows north of 20% at current prices would suggest a business that is certainly not quite recognized yet appropriately by the market and one that has areas to grow. So my -- I think you'll expect to see from us continual progress against our strategic target. We absolutely expect to hit that GBP 90 million. We absolutely expect to hit that GBP 13 million of EBITDA. You'll see much the same. And hopefully, we'll be sat here having another conversation in 6 months' time when we've improved it a little bit more.

Perfect. Richard, Graham, thank you once again for updating investors this afternoon. 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 the management team can 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 afternoon to you all.