TEN ENTERTAINMENT GROUP PLC - FULL-YEAR RESULTS
52 WEEKS TO 29TH DECEMBER 2019
13TH MAY 2020
DISCLAIMER
The following presentation in relation to Ten Entertainment Group plc and its subsidiaries ("the Group") has been prepared solely for use at this presentation. The presentation is being made only to, and directed only at, persons to whom this presentation may be lawfully communicated ("relevant persons"). Any person who is not a relevant person should not act or rely on the presentation or any of its contents.
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As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward looking statements.
Forward-looking statements in this presentation are currently only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this presentation should be construed as a profit forecast.
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AGENDA
O1 COVID-19 UPDATE
O2 2019 OPERATING REVIEW
O3 2019 FINANCIAL REVIEW
O4 OUTLOOK
The business continued to perform well in the lead-up to the Covid-19 crisis
Sales in the first 11 weeks of FY20 started very strongly and indicated an improving trend
52 weeks to | ||||
29 December | 11 weeks to | |||
Half 1 FY19 | Half 2 FY19 | 2019 | 15 March 2020 | |
Like-for-like sales change | 7.4% | 8.6% | 8.0% | 9.6% |
Sales growth from net new centres | 2.2% | 2.1% | 2.2% | 3.2% |
Total sales change | 9.6% | 10.7% | 10.2% | 12.8% |
February half term execution was strong, delivering a record trading week for the business
Strategic investments were well set to deliver growth for the business
As of 20th March, the business has temporarily closed to protect employees and customers
Primary focus has been on liquidity planning and cash conservation
Our prospects are strong, with a clear ability to sustain a prolonged period of closure
4
The business is well funded
A conservative approach to debt afforded a strong cash position at the point of closure
As at 20th March the business had a net cash balance
A flexible RCF facility with our banks allowed for £25m of debt headroom
A high gross margin business means little waste in the supply chain at the point of closure
A flexible business model allowed swift action to reduce cash consumption
Targeted Government support aimed at leisure operators is welcome
5
There are four main pillars to conserve cash and maximise liquidity
CASH CONSERVATION TO MAXIMISE LIQUIDITY LONGEVITY
INVESTORSGOVERNMENT
BUSINESS | SELF HELP |
PARTNERS | |
5% equity placing on 25th March raised £5m
No final dividend for 2019
Future dividends will be reviewed on exit of crisis
1 year business rates holiday worth >£5m
99% of all staff furloughed allowing for no redundancies
HMRC Time to Pay schemes help manage working capital
Full banking facility in place with all covenants waived until June 2021
Bilateral landlord negotiations reduce rent and service charge
Many long term contracts placed on hold during closure with no penalties
Capital programme held
Directors' voluntary pay cut during closure
Significant cost cutting programme undertaken
6
Summary
The underlying strategy and business model is strong and profitable, and should remain so
The business was in a strong cash position when forced to close in March
Significant measures taken to reduce the short term cash consumption to a bare minimum
All stakeholders made a significant contribution to secure liquidity well into 2021
The Group remains attractive and once restrictions are lifted should return to growth
7
OPERATING REVIEW
FY19 summary financial highlights
+10.2%
Total sales growth to £84.1m
+8.0%
Like-for-like sales growth
+14.7%
Adjusted EBITDA increased to £23.6m
19.1%
Return on Capital Employed
75.1%
Free cash flow conversion £17.7m generated
0.2X
Bank net debt to adjusted EBITDA
+1.1%PT
EBITDA margin grows to 28.0%
+11.5%
Growth in EPS to 14.0p
9
Our growth strategy continued to deliver in 2019
INWARD | TRANSFORMING | EXPANDING THE |
CUSTOMER | ||
INVESTMENT | ESTATE | |
EXPERIENCE | ||
Site refurbishments | Cheshire Oaks | Acquisitions |
Pins & Strings | Houdini's Escape Rooms | New developments |
Machines & amusements | Food and beverage | Strengthening pipeline |
Lease renewals | Digital and CRM |
10
Inward investment kept the estate modern and relevant and costs well controlled
INWARD INVESTMENT
REFURBISH | PINS | MACHINES & | RENEW |
& | |||
SITES | AMUSEMENTS | LEASES | |
STRINGS | |||
Four lanes added in | Roll-out 71% complete, | Partnership with Namco | Focus on securing tenure |
Edinburgh | 32 of 45 centres | Refresh of gaming estate | and re-gears |
Cheshire Oaks refurbished | Four leases re-geared | ||
Continued strong returns | 14.2% sales growth | ||
as concept centre | Prioritise lowest cash | ||
Site cost savings and | |||
Cambridge and Parrs | improved sales | cost for property | |
Wood centres refurbished |
11
Developments in the customer experience helped drive incremental footfall to our centres
TRANSFORMING CUSTOMER EXPERIENCE
CHESHIRE | HOUDINI'S | FOOD AND | DIGITAL & |
ESCAPE | |||
OAKS | BEVERAGE | CRM | |
ROOMS | |||
Extensive refurbishment | Joint venture with | New menu trialled across | Fully responsive website |
as concept centre | Houdini's Escape Rooms | 20% of estate | Improved customer |
Piloting innovations | Now in three centres | Enhanced upselling | journey and booking |
Excellent feedback | New drinks contract | New CRM opportunities |
12
We strengthened the estate through two strong acquisitions and a new development for 2020
EXPANDING THE ESTATE
ACQUIRE | DEVELOP NEW | GROW THE |
BOWLING | ||
CENTRES | PIPELINE | |
CENTRES | ||
Southport - Tenpinisation complete, | Manchester Printworks bowling |
trading in line with expectations | centre in late stages of development |
Falkirk - significant refurbishment, | Smaller footprint but strong footfall |
trading ahead of expectations | and city centre location |
Build costs and returns similar to | |
acquisition and refurbishment |
New brownfield developments in retail and leisure locations
Acquisition potential remains
Balance sheet strength compared to others in the sector
13
Chief Executive's summary
FY19 ACHIEVEMENTS
8.0% like-for-like sales growth driven principally by increased footfall with profit growing ahead of sales Strategy remains focused on three key areas and execution well under way
Continuing to invest and innovate to ensure customers have a great experience Strong improvements delivered in food and service
OPPORTUNITY
Continued roll out of improvements to enhance spend per head
Improved at lane service needs development of systems and processes
Refurbishments and product innovation continue to demonstrate strong growth
FUTURE PLANS - CURRENTLY ON HOLD DUE TO COVID-19
Improved food offering to be rolled out to full estate
Ongoing investment in cost saving opportunities, such as Pins & Strings, to maximise cash generation Accelerated roll-out of escape rooms in partnership with Houdini's
Continued progress on building pipeline of new developments and acquisitions
14
FINANCIAL REVIEW
FY19 financial highlights
10.2% total sales growth to £84.1m (FY18: £76.4m)
8.0% like-for-like sales growth
Footfall by far the biggest driver at +6.4%
Spend per head showing modest increase of 1.6% Group adjusted EBITDA up 14.7% at £23.6m
Low levels of bank net debt; FY19 £4.1m (FY18: £4.2m)
REVENUE (£M)
GROUP ADJUSTED EBITDA (£M)
16
Income statement
52 weeks to | 29 December | 30 December |
2019 | 2018 | |
Revenue | 84.1 | 76.4 |
Cost of sales | (10.4) | (8.8) |
Gross margin | 73.7 | 67.5 |
Margin | 87.7% | 88.5% |
Change | Total revenue £84.1m, growth of 10.2% | |
10.2% | Like-for-like sales growth of 8.0% | |
Growth from net additional sites of 2.2% | ||
Total operating costs | (40.9) | (38.9) |
% of revenue | 48.6% | 51.0% |
Central & Support office costs | (9.3) | (8.1) |
% of revenue | 11.1% | 10.6% |
Total Costs | (50.2) | (47.0) |
% of revenue | 59.7% | 61.5% |
Group adjusted EBITDA | 23.6 | 20.6 |
Adjusted EBITDA margin | 28.0% | 26.9% |
5.0%
15.3%
14.7%
Operating costs grew 5%. On a like-for-like site basis, up 2.5% in line with inflation.
Central & Support office cost growth of 15%
Cost growth driven by investment in support centre resource, increased marketing and customer proposition development
Group adjusted EBITDA £23.6m, growth of 14.7%
17
Income statement
52 weeks to | 29 December | 30 December | Change | ||
2019 | 2018 | ||||
Group adjusted EBITDA | 23.6 | 20.6 | 14.7% | ||
Depreciation & amortisation of software | (7.4) | (6.4) | |||
Net interest | (0.8) | (0.7) | |||
Group adjusted profit before tax | 15.4 | 13.5 | 14.5% | ||
Exceptional items | (2.3) | (1.7) | |||
Loss on disposal of assets | (0.9) | (0.6) | |||
Amortisation of acquisition intangibles | (0.3) | (0.5) | |||
Profit before tax | 11.8 | 10.7 | 10.6% | ||
Tax | (2.9) | (2.5) | |||
of which: tax attributable to Group Adj Profit | (2.9) | (2.7) | |||
Profit after tax | 9.0 | 8.1 | 11.0% | ||
Basic earnings per share (pence) | 14.0 | 12.5 | 15.5% | ||
Adjusted profit after tax1 | 9.0 | 8.0 | 11.9% | ||
Adjusted basic earnings per share (pence)1 | 19.3 | 16.6 | 16.4% | ||
Full-year dividend (pence per share) | 3.7p | 11.0p | (66.4%) | ||
- Adjusted Profit after tax and adjusted basic earnings per share are based on Group adjusted profit after tax
Increased depreciation from ongoing investments in the customer experience
Group adjusted profit before tax up 14.5%
Exceptional costs of £2.3m;
Tax provision of £0.8m
Inventory write off
Property costs to regear the portfolio Loss on disposal of assets from accelerated depreciation on bowling equipment
Amortisation arising on fair valued assets on acquisition, decreasing as these reach nil NBV
Adjusted basic earnings per share of 19.2p, up 15.5% on last year
Total dividend of 3.7p down (66.4%) on last year owing to cash conservation measures in place from Covid-19
18
Cash flow - investments funded from cash generation
52 weeks to | 29 December | 30 December | Change | ||
2019 | 2018 | ||||
EBITDA | 23.6 | 20.6 | 3.0 | ||
Maintenance capital | (2.4) | (2.4) | 0.0 | ||
Movement in working capital | 1.8 | 2.0 | (0.2) | ||
Finance lease and taxation payments | (5.3) | (5.3) | (0.0) | ||
Free cash flow | 17.7 | 14.8 | 2.9 | ||
Dividends paid | (7.2) | (6.5) | (0.7) | ||
Cash flow available for investment | 10.6 | 8.3 | 2.2 | ||
Inward investment | (4.2) | (4.1) | (0.1) | ||
Transforming customer experience | (0.3) | (1.9) | |||
(2.2) | |||||
Expanding the estate | (2.6) | (6.0) | 3.4 | ||
Exceptionals & share based payments | (1.4) | (1.7) | 0.3 | ||
Cash flow after investment | 0.1 | (3.8) | 3.9 |
£2.9m increase in free cashflow is driven by the £3.0m increase in EBITDA in the year
Transformative capex spend related to:
£1.1m on site of the future
£0.4m on the acquisition of Houdini's and opening of rooms at 3 sites and;
£0.7m on new products such as HyperBowl and the website
19
Balance sheet & net debt
Balance sheet as at | 29 December | 30 December | Change | ||
2019 | 2018 | ||||
£m | |||||
Assets | |||||
Goodwill & other intangible assets | 30.3 | 29.0 | 1.3 | ||
Property, plant and equipment | 47.2 | 41.7 | 5.5 | ||
Inventories | 1.3 | 1.5 | (0.2) | ||
Trade and other receivables | 4.9 | 4.3 | 0.6 | ||
Cash and cash equivalents | 2.2 | 5.3 | (3.1) | ||
Total assets | 86.0 | 81.8 | 4.1 | ||
Liabilities | |||||
Finance lease liabilities | (8.1) | (6.5) | (1.6) | ||
Bank borrowings | (6.1) | (9.4) | 3.3 | ||
Trade and other payables & provisions | (11.5) | (8.5) | (3.0) | ||
Other liabilities | (3.3) | (2.6) | (0.7) | ||
Total liabilities | (29.1) | (27.0) | (2.1) | ||
Net assets | 56.9 | 54.9 | 2.0 | ||
Net debt as at | 29 December | 30 December | Change | ||
2019 | 2018 | ||||
£m | 2.2 | 5.3 | (3.1) | ||
Closing cash and cash equivalents | |||||
Bank loans / RCF | (6.3) | (9.5) | 3.3 | ||
Bank net debt | (4.1) | (4.2) | 0.1 | ||
Finance leases | (8.1) | (6.5) | (1.6) | ||
Statutory net debt | (12.2) | (10.7) | (1.5) |
Increase in goodwill and PP&E driven by acquisitions and refurbishment investment less depreciation
Finance lease liability largely relates to Namco amusement machines from expanded estate and machines replacing expired leases
Increase in payables principally driven by the increase in trade creditors and provisions due to timing of payments
Low levels of bank debt with a £3.3m decrease versus prior year
Statutory net debt £12.2m, 0.5x group adjusted EBITDA on par with prior year
20
OUTLOOK
The business is ready to open when allowed, with a clear focus on cash management
At time of publishing, it is not clear when the business is likely to be allowed to re-open, although it may be as soon as July
We have a detailed reopening plan to ensure that our business is "Covid Secure"
Our business model is well suited to a post Covid "New Normal"
Our cash position remains strong, and we have clear priorities for cash allocation:
Investment in critical safety measures
Reduce debt to insulate against a second wave closure risk
Invest in stimulating demand and managing costs
Critical maintenance to preserve customer experience
Balancing Shareholder returns through strategic investments and resumption of dividend
22
Our model has structural advantages over many in the leisure sector
STRUCTURAL ADVANTAGES IN A POST COVID-19 WORLD
LARGE SITES
PHYSICALEXCELLENT
EXPERIENCEVALUE
STRONG
CASH
POSITION
Average footprint 29k sqft
Easy lane separation allows social distancing
Controlled online booking and yield management
Dedicated car parking
Few on-line or "at home" alternatives to bowling
Entertainment not reliant on significant employee interaction
Food and beverage may become more attractive
Affordable family entertainment
High margins allow for price flexibility to manage supply and demand
Variety of entertainment enables choices on level of spend per visit
High margin cash generation from existing asset base
Little need to re-invest in stock or working capital
£25m banking facility undrawn at the start of the crisis
23
Although Social Distancing may restrict lane utilisation, this will impact only at the very peak times
SOCIAL DISTANCING
Ideally placed to enable social distancing
Limits on lane capacities may need to be applied, which could result in a clipping of peak demand
May need other measures on amusements, table placements and food & drink service
POTENTIAL IMPACT
Restrictions in capacity are only likely to impact the very peak times of weekend evenings
Regional variations will occur, but overall a reduction in capacity will have a lesser impact on total sales
MITIGATION
Good experience of managing yield throughout peak periods, with demand to shoulder periods
Changes in social trends may accelerate as customers choose to avoid periods of peak
24
The Group is well placed to operate in the "new normal" of a post Covid-19 UK
READINESS | RELEVANCE | RESILIENCE |
Employees highly engaged Covid-Secure workplace Clear Social Distancing Plan Hygiene materials and processes
Large sites for social distancing | Strong cash position |
Breadth of offer under one roof | Rigorous cost management |
Family focused entertainment | Cash resilience for a 2nd wave |
Excellent value for money | Cash generative model |
25
FY20 FINANCIAL CALENDAR
18TH JUNE 2020 | COMPANY ANNUAL GENERAL MEETING |
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HTTPS://WWW.TEGPLC.CO.UK/
26
APPENDICES
2019 STRATEGY UPDATE IFRS 16 UPDATE FOR 2020
Inward investment - Pins & Strings
FY19 ACHIEVEMENTS
71% of the estate now equipped with Pins & Strings pinsetter technology Installed at 14 centres this year, bringing the total to 32 centres Games played per stop (GPS) increased 56% to 662
OPPORTUNITY
Lower running costs with reduced cost of maintenance and spare parts Labour cost saving with reduced need for experienced technicians More efficient yield management
Better overall customer experience
FUTURE PLANS
Roll-out to continue helping manage costs down
Target to have all centres equipped as soon as conditions allow
York
Halo
28
Transforming customer experience - Cheshire Oaks
FY19 ACHIEVEMENTS
Extensive refurbishment of Cheshire Oaks to become our concept centre
Best in class bowling experience, zoning of customer activities
Includes latest offerings such as Virtual Reality gaming and Houdini's Escape Room
Strong increase in sales since relaunch
OPPORTUNITY
Use as a testbed for new entertainment developments
Increase frequency of visit and customer loyalty
Continuing to broaden the family entertainment offering
FUTURE PLANS
Design features to be incorporated into future developments | |
Continue to test future offerings and entertainment concepts | |
Drive the enhanced food offering | BesX scoring |
29
Transforming customer experience - Houdini's
FY19 ACHIEVEMENTS
Entered into joint venture with Houdini's Escape Rooms £300k investment to purchase 50% of the business
Opened Houdini's Escape Rooms at three centres; Southampton, Star City and Cheshire Oaks
OPPORTUNITY
Gives customers access to a new exciting family activity within our bowling centres | HyperBowl - Star City |
Currently number one escape room experience in the UK on TripAdvisor | |
Experienced and knowledgeable team continuing to run the business |
FUTURE PLANS
Accelerate growth of Houdini's
Explore ways to maximise Houdini's Escape Gaming pedigree through online and other offerings
BesX scoring
30
Transforming customer experience - digital
FY19 ACHIEVEMENTS
Launch of fully responsive website
New CRM partner and platform acquired
Acquired experienced talent
OPPORTUNITY
Far greater personalisation of customer communications
Better customer journey and improved booking system
Online booking for non bowling products
Increased Social Media presence and reach
FUTURE PLANS
Launch local marketing toolkit
Free bowling for NHS and healthcare workers
Better customer communications to manage yield and smooth peak trading periods
Key products relaunch (Birthdays, Christmas and student deals)
31
Expanding the estate - balancing the pipeline
FY19 ACHIEVEMENTS
Two acquisitions made of existing bowling centres - Southport and Falkirk
Falkirk sales growth in particular has been phenomenal, with a fourfold increase post relaunch Lease secured on a major metropolitan city centre site in Manchester for development Similar cost to acquisitions, with capital focused on build rather than acquisition cost
OPPORTUNITY
Opportunity to grow the estate in new areas
Good pipeline of opportunity for new leases
New build gives more flexibility in designing centres to meet customer needs
Potential pipeline of attractive new locations in ex-retail space
Maintain target of 2 - 4 new sites per year
FUTURE PLANS
Continue to progress acquisitions, new lease and development opportunities
Complete build of Manchester Printworks to open in 2020
Prioritise debt repayment, but develop pipeline for appropriate resumption of expansion
Southport
Manchester Printworks
32
IFRS 16 approach
OUR APPROACH
IFRS 16, the new standard on leases, applies to all companies with accounting dates starting 1 January 2019
TEG plc financial year commenced on 31 December 2018 and so the Group has decided not to early adopt this standard The Group plans to adopt the modified retrospective approach for FY20 which commenced on 30 December 2019
IMPACT OF IFRS 16
The average lease length of the Group is 16 years (reflected below) after the re-gears negotiated with a number of landlords
Interest is front loaded as the lease liability is at its highest at the beginning of the lease. As the liability is repaid, the interest cost decreases while pre IFRS 16 the rent cost is spread equally over the term of the lease as reflected below
Site example - front loading of interest
600 | |
550 | |
£000 | 500 |
450 | |
400 |
350
300
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
Years | ||||||||
Rent (pre IFRS 16) | Interest & depreciation (Post IFRS 16) | |||||||
£m
Average lease length left "16 yrs"
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
-
1 | 3 | 5 | 6 | 7 | 8 | 9 | 10 12 14 15 17 18 19 20 22 23 24 25 29 |
Lease length "years" | |||||||
Liability £m | Number of leases | ||||||
33
IFRS 16 - P&L and balance sheet impact
PRESENTATIONAL IMPACT ON BALANCE SHEET
£153.2m would be recognised under Property, Plant and Equipment as right of use assets relating to the 46 lease sites
£164.8m would be recognised as lease liabilities related to the long term leases with the landlords for the 46 sites
£8.7m of impairment is recognised on the right of use assets and charged to retained earnings on transition. The balancing £2.6m net decrease in the net asset position is due to the maturity of the leases with our estate being relatively young after the number of re- gears completed. IFRS 16 front loads the interest and lease liability while the assets are depreciated on a straight-line basis
The current average lease length left is 16 years
PRESENTATIONAL IMPACT ON P&L
£12.6m of rent is added back since rent payments will now be paying off the lease liability on the balance sheet. EBITDA will increase by this amount
£11.2m of depreciation will be charged to the P&L having arisen on the capitalised right of use assets in the balance sheet
£4.2m of interest will be charged on the lease liability and recognised in the P&L
The £2.9m net decrease in PBT as reflected in the P&L is due to the impact of the front loading of interest in the early years of the leases
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Disclaimer
Ten Entertainment Group plc published this content on 13 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 May 2020 11:19:01 UTC