Final Results - Year Ending 30 September 2018

10 December 2018

Hollywood Bowl Group plc

 

Final Results for the year ended 30 September 2018

 

CONTINUED STRONG REVENUE AND PROFIT GROWTH ENABLING ENHANCED CASH RETURNS,

ALL DELIVERED THROUGH THE SUCCESSFUL EXECUTION OF OUR STRATEGY

 

Hollywood Bowl Group plc,  ("Hollywood Bowl" or the "Group"), the UK's market leading ten-pin bowling operator, is pleased to announce its audited results for the year ended 30 September 2018 ("FY2018").

 

Financial Highlights

	12 months ended    30 September 2018	12 months ended  30 September 2017 ("FY2017")	% Movement
Total revenues	£120.5m	£114.0m	+5.8%
Like for like (LFL1) revenues	+1.8%	+3.5%
Group adjusted2 EBITDA	£36.2m	£33.4m	+8.3%
Group adjusted2 EBITDA margin	30.0%	29.3%	+70bps
Operating profit	£24.9m	£22.2m	+12.1%
Profit before tax	£23.9m	£21.1m	+13.4%
Basic earnings per share	12.52p	12.17p	+2.9%
Net debt	£2.5m	£8.1m	-69.1%
Interim ordinary dividend paid per share	2.03p	1.80p
Final ordinary dividend per share	4.23p	3.95p	+7.1%
Special dividend per share	4.33p	3.33p	+30.0%
Total dividend per share	10.59p	9.08p	+16.6%

 

Operational Highlights

·    Strong returns on investment across the existing estate - on track to outperform 33% ROI target

o Four Bowlplex rebrands completed in the period and delivering improved returns since completion: all 11 former Bowlplex sites now rebranded as Hollywood Bowl centres and fully integrated into the estate

o Two further rebrands of the AMF estate completed

o Three other refurbishments completed

·    New centre pipeline committed to the end of FY2022, on track to open two new centres per annum

o Opened two new centres in prime locations in Dagenham and Yeovil; both performing in line with expectations

o Two new centres will open in the financial year ending 30 September 2019 ("FY2019"); intu Watford and at the intu Lakeside leisure extension

o Agreed new leases in York, Swindon and Southend, securing our pipeline to FY2022

·    Customer-led strategy and new initiatives driving increased average spend per game

o Average spend per game increased 6.1% to £9.22 (FY2017: £8.70)

o Successful roll out of new Hollywood Diner menu underpinned an increase in food spend per game of 5.4%, boosted by new i-Serve lane ordering system which was introduced in the last quarter of the year and is now in all centres

o All revenue lines in LFL growth year on year

·    Strong cash generation underpinning £15.9m of cash return to shareholders

o Total ordinary dividend for FY2018 of 6.26 pence per share (FY2017: 5.75p)

o Special dividend of 4.33 pence per share (FY2017: 3.33p)

o Total dividend for the year of 10.59 pence per share (FY2017: 9.08p)

o Since IPO in September 2016, the Company will have returned a total of £29.8m to shareholders, including for the year FY2018, representing 12.4% of the Company's market capitalisation at IPO

 

Stephen Burns, Chief Executive of Hollywood Bowl Group, commented:

 

"I am very pleased with the Group's full year performance. Operating our business in line with our customer led strategy has delivered another strong revenue performance which, combined with our continued focus on cost management, has resulted in a year of record profits and significant operating cash generation. The investment into our high quality portfolio of 58 profitable centres continues to deliver significant, above target, returns. Our new centres are performing very well and we have secured a strong pipeline of new openings that will further enhance the quality of our portfolio.

 

We will continue to invest in the overall quality of our estate, in technology initiatives that enhance our industry-leading proposition and in initiatives to attract and retain only the very best talent, all with a view to continually improving the experience for our customers.

 

In line with our capital allocation policy outlined in our FY2017 results, we are pleased to announce a special dividend for the second consecutive year.  Together with the total ordinary dividend, this equals a proposed £15.9m return to shareholders for the year, all funded through internally-generated cash flow.  This will mean that since IPO, we will have returned a total of £29.8m to shareholder in the form of dividends."

 

1         LFL revenue is defined as total revenue excluding any new centre openings from the current financial year until they are LFL (FY2018: £4.9m) and closed centres from the current or prior year and is used as a key measure of constant centre growth.

2         Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) reflects the underlying trade of the overall business.  It is calculated as operating profit plus depreciation, amortisation and any exceptional costs, and is considered by Management to be a measure investors look at to reflect the underlying business. The reconciliation to statutory operating profit is set out in the Finance Review section of this announcement.

 

Enquiries:

 

Hollywood Bowl Group Steve Burns, Chief Executive Laurence Keen, Chief Financial Officer Mat Hart, Chief Marketing and Technology Officer	via Tulchan Communications
Tulchan Communications James Macey White Elizabeth Snow Amber Ahluwalia	+44 (0) 207 353 4200

 

 

CHAIRMAN'S STATEMENT

 

Relentless focus on our purpose

I am very pleased to say that this has been a year of strong delivery against our strategy. In FY2018, the Group continued to focus relentlessly on its purpose of growing the business organically and driving growth through the effective deployment of capital, resulting in Group adjusted EBITDA2 growth of 8.3 per cent and like-for-like (LFL)1 revenue growth of 1.8 per cent.

 

The high-quality family-friendly experience, underpinned by our simple customer-led strategy, has resulted in revenues growing to £120.5m, an increase of 5.8 per cent. This was driven by LFL sales growth1 in the core estate, continued investment in refurbishments and rebrands, as well as the opening of two new centres, Dagenham and Yeovil. Our strong balance sheet has been further strengthened on the back of positive trading, and net debt has reduced to £2.5m, with the net debt to Group adjusted EBITDA2 ratio at 0.07 times.

 

This year's performance reinforces our position as the market leader, and is particularly impressive given the more challenging trading backdrop caused by extreme weather conditions and consumer uncertainty. The significant cash generation from our core business and returns from our ongoing investment programme, combined with our excellence in operations, has enabled the Board to recommend a special dividend for the second year running. In line with our progressive dividend policy we have announced an increase in the final ordinary dividend to 4.23 pence per share (FY2017: 3.95 pence per share) and, I am delighted to say, a special dividend of 4.33 pence per share, resulting in a total of £15.9m returned to shareholders in respect of FY2018.

 

The business continues to invest in its existing centres and we have completed nine transformational refurbishments and rebrands during the year. Our centre in Cribbs Causeway in Bristol is a great example of some of the success we are enjoying. Following a £277,000 refurbishment, completed within five weeks, the centre has delivered one of the highest rates of centre EBITDA growth in the Company. We will continue to invest in our refurbishment programme in FY2019.

 

We have now fully completed the Bowlplex rebrand programme, the success of which reinforces what an excellent investment Bowlplex was. We will continue to enjoy the benefits of that in the next financial year and beyond. Additional innovation, and investment in 'Pins on strings' and our scoring system are delivering customer experience improvements.

 

Alongside these capital investments, and in line with our stated capital structure and cash allocation policy, we continue to seek selective opportunities for profit enhancing acquisitions.

 

Good corporate governance remains a focus for the Board. We are ably supported by a full complement of outstanding Non-Executive Directors (NEDs); Nick, Claire and Ivan, who have all been in office for at least 12 months and who have each established themselves as important members of the Board.

 

Key to the success of the Group is our incredible team and on behalf of the Board, I thank them for the exceptional job they have done in FY2018. The Company has remained committed to delivering against our strategy throughout some difficult weather conditions, and every team member has remained focused on providing an outstanding customer experience. I derive enormous pride from the fact that our financial and customer satisfaction measures clearly indicate that the strength of our team and our customer-focused culture, achieve industry-leading performance.

 

One of the great benefits of my role is the opportunity to go out and have fun at our centres! I am delighted to say that this 'perk' is fully enjoyed by my NED colleagues too. Bowling scores are much discussed when we compete but, importantly, our visits ensure that the Board 'lives the product', stays in touch with our centres and their teams, and fully understands the results of our decisions and the impact they have on our customers.

 

Whilst Brexit continues to create an uncertain market backdrop, we are confident that Hollywood Bowl Group is particularly well positioned to face the future. The nature of our business means that we will continue to thrive, given our wide customer appeal, attractive price point and quality customer experience.

 

I look forward to the year ahead with enthusiasm and confidence. We are well placed to create more value for all our stakeholders, with the whole team working every day to deliver the best possible experience for our customers. I am very grateful to those members of the team I work most closely with and would like to express my thanks to Stephen, Laurence, Melanie and Mathew, all of whom lead with distinction and are the embodiment of our culture and relentless desire to succeed.

Peter Boddy

Chairman

10 December 2018

 

1         LFL revenue is defined as total revenue excluding any new centre openings from the current financial year until they are LFL (FY2018: £4.9m) and closed centres from the current or prior year and is used as a key measure of constant centre growth.

2         Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) reflects the underlying trade of the overall business.  It is calculated as operating profit plus depreciation, amortisation and any exceptional costs, and is considered by Management to be a measure investors look at to reflect the underlying business. The reconciliation to statutory operating profit is set out in the Finance Review section of this announcement.

 

 

chief executive's review

 

I am delighted to report FY2018 has been another very successful year for Hollywood Bowl Group. Revenues of £120.5m are 5.8 per cent higher than FY2017, and 1.8 per cent higher on an LFL1 basis. Our simple, customer-led strategy to drive revenue, whilst managing our cost base to improve margin and profit, enabled us to grow Group adjusted EBITDA2 by 8.3 per cent, to £36.2m. Profit before tax also grew, to a record £23.9m, an increase of 13.4 per cent over the prior year.

 

Hollywood Bowl Group remains the UK ten-pin bowling market leader. We have a national presence, operating out of 58 high-quality, leasehold centres. We lead the market not just in size, but also profitability and margin. The shift in customer spending towards experiential leisure continues to play to our advantage, thanks to our all-inclusive, family-focused offer, which delivers an experience that cannot be matched at home. We continue to enhance our offer and develop our brand to strengthen our appeal to our core family customer group, who, as a consequence, are spending more in our centres. We also continue to enhance our relationship with our property partners, delivering best-in-class refurbishments, rebrands and new centres that enhance the quality of the leisure parks from which we operate, making the Group the bowling operator of choice, with the strongest covenant and most innovative product offering.

 

Strategic progress

Our simple and effective strategy remains unchanged. Our strategy is to focus on growing the business organically and drive growth through the effective deployment of capital. We are very pleased with the progress made on this during FY2018.

 

Like-for-like growth

We are very pleased with our LFL revenue growth of 1.8 per cent given that LFL revenues were impacted, to some degree in FY2018, by factors outside of our control, such as the extreme weather and England's World Cup performance.

 

Underpinning the positive LFL numbers is the 5.5 per cent growth in spend per game, with total spend per game up from £8.70 to £9.22 in FY2018. The full-year effect of the dynamic pricing initiative that was rolled out in July 2017, coupled with new pricing trials, helped mitigate the impact of the year-on-year drop in LFL bowling games sold whilst maintaining our competitive price point, still the lowest of the branded bowling operators. Game volumes in the year were marginally down as a result of the snow-affected weeks in the early part of the year as well as the May to July heatwave. The continued investment in our digital marketing and customer relationship management (CRM) capabilities enabled us to effectively deploy tactical offers during the weather-affected trading periods, delivering over £2m of incremental revenue.

 

We continually look for ways to enhance the customer experience and this year, in addition to the rollout of proven initiatives, we have introduced new trials and concepts. The Hollywood Diner menu has been successfully rolled out across the Group, underpinning an increased food spend per game of 5.4 per cent. A new drinks menu was launched, adopting learnings and customer feedback from earlier trials, which helped us grow bar spend per game by 7.0 per cent. New product, exciting game formats and a focus on merchandising standards saw amusement spend per game grow by 8.3 per cent in the year. The amusement 'Play for prizes' redemption offer, now in 47 centres, new virtual reality (VR) game formats, and some encouraging results from the cashless hybrid trials have all helped deliver a very credible performance in this revenue category.

 

Refurbishments and rebrand programme

Nine full refurbishments were completed in FY2018, including the rebranding of four Bowlplex centres and two further rebrands of the AMF estate to the Hollywood Bowl brand. The final Bowlplex centre was rebranded as Hollywood Bowl at the end of the financial year, meaning the estate now consists of 50 Hollywood Bowl and 8 AMF centres. We continue to push the design brief with our refurbishments and rebrands, taking into account customer feedback and resulting in impressive returns from the capital deployed. The nine refurbishments are on track to outperform the 33 per cent targeted return on investment.

 

Property portfolio

We successfully opened two new prime location centres in FY2018. Hollywood Bowl Dagenham, previously trading as Namco Funscape which was an acquisition brought to us by the landlord at nil cost, opened in October 2017. After a net capital spend of £391,000, the centre is trading in line with management expectations. Hollywood Bowl Yeovil, a 23,000 square feet centre, also brought to us for nil cost by the landlord, is co-located with cinema on a high footfall leisure park. It opened its doors in March, and after a net capex spend of £630,000 is on track to pay back this investment in under 18 months.

 

AMF Gravesend closed in July following an end of lease redevelopment plan, but our new centre in Lakeside, scheduled for a second half FY2019 opening, should attract customers from this catchment area. Our rent per centre continues to be a focus for the Group, ensuring we are maintaining our position of having no loss-making centres in the portfolio. The average rent per centre reduced to £245,701 from £247,785.

 

Property pipeline

We have a strong pipeline of new centres secured to the end of FY2022 and a delivery plan of an average of two new openings per annum. We are opening two centres during FY2019 including at the intu scheme in Watford, where we are creating a 14 lane, 20,000 square feet centre scheduled to open pre-Christmas 2018. We are also on site at the intu Lakeside leisure extension. At 34,000 square feet and 24 lanes, Lakeside will be the largest bowling centre to be opened in the UK in the last ten years. It is scheduled for completion early in the second half of FY2019.

 

This year we have agreed leases for new bowling centres in York, Swindon and Southend, all of which are in locations which meet our investment criteria for a successful centre: ample parking; co-location with the area's number one cinema; limited competition; and a strong local demographic to attract through our doors. In line with our medium to long term growth strategy, we have agreed a lease on a first floor unit above the new centre in York, where we will trial our new indoor putting concept.  Both York sites will open in FY2020.

 

Our people

We have continued to invest in training to ensure that we can provide an even higher level of service to all of our valued customers. We are delighted that our Net Promoter Scores have been maintained, and our overall satisfaction scores have improved during FY2018. Our team continues to be an integral part of the success of our business, and to that end we have implemented Long Term Incentive Plans for centre managers, assistant managers and senior support centre team members. As a result of our strategy to support our team members in developing a rewarding career, 103 team members successfully completed our internal management training programmes during the financial year.

 

I am incredibly fortunate to be supported by such a hard-working, entrepreneurial team. They are growth leaders who are proud of our culture and pleased to serve our customers. I thank them for all their efforts this year.

 

Technology-driven growth

Developing our technology platforms and our consumer marketing capability are both key drivers for further sustainable growth.

 

Our online channels continue to perform well as revenue increased by 27 per cent year-on-year, with 37 per cent revenue gains from mobile. This performance has been supported by strong sales growth from our performance digital advertising channels, the returns from which recovered quickly after a temporary downturn following the introduction of the General Data Protection Regulation (GDPR) in May.

 

Our contactable marketing database has increased above its pre-GDPR levels. It remains a key revenue driver for us, facilitating tactical and automated email campaigns to our closed user groups.

 

At the start of the year, we centralised all of our social media activity and have seen followers and engagement levels increase as a result. We are working with a number of social influencers to extend the reach of our public relations activity through social media channels and I am pleased to report signs of success from these initiatives.

 

Our technology team and partners have been working hard on exciting key initiatives that will be introduced next year, including a new website and upgraded booking engine, the next iteration of our dynamic pricing functionality, as well as our next generation scoring system which will be rolled out to the whole estate over the next two years.

 

Brexit

Given the nature of our activities, which have huge customer appeal throughout the country and through all economic cycles, we do not believe the exit of the UK from the EU will have an impact on the underlying performance of the business.

 

 

Outlook

We have a well thought out, and proven, capital investment plan to continue the refurbishment of our estate, opening of new centres that will enhance the quality of our portfolio and investment in technology to further boost our industry-leading proposition. I am confident that our plan for the coming year will continue our strong growth trajectory, strengthen the business and deliver value for our shareholders.

 

Stephen Burns

Chief Executive Officer

10 December 2018

 

1         LFL revenue is defined as total revenue excluding any new centre openings from the current financial year until they are LFL (FY2018: £4.9m) and closed centres from the current or prior year and is used as a key measure of constant centre growth.

2         Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) reflects the underlying trade of the overall business.  It is calculated as operating profit plus depreciation, amortisation and any exceptional costs, and is considered by Management to be a measure investors look at to reflect the underlying business. The reconciliation to statutory operating profit is set out in the Finance Review section of this announcement.

 

 

 

FINANCE REVIEW

 

	30 September 2018	30 September 2017	Movement
Number of centres	58	57	+1
Average spend per game	£9.22	£8.70	+6.1%
Revenue1	£120.5m	£114.0m	+5.8%
Gross profit margin	86.1%	86.5%	-0.4%pts
Group adjusted EBITDA2	£36.2m	£33.4m	+8.3%
Group profit before tax margin	19.9%	18.5%	+1.3%pts
Group profit before tax	£23.9m	£21.1m	+13.4%
Net debt	£2.5m	£8.1m	-69.1%
Group adjusted operating cash flow3	£24.7m	£26.7m	-7.2%
Group expansionary capital expenditure	£4.3m	£6.9m	-37.4%

 

1     FY2017 excludes Dagenham which was acquired on 18 September 2017 but did not open until 4 October 2017.

2     Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) reflects the underlying trade of the overall business. It is calculated as operating profit plus depreciation, amortisation and any exceptional costs, and is considered by Management to be a measure investors look at to reflect the underlying business. A reconciliation between Group adjusted EBITDA and statutory operating profit is provided in note 3 to the financial statements

3     Group adjusted operating cash flow  is calculated as Group adjusted EBITDA less working capital movements and maintenance capital expenditure.

 

We are pleased to have delivered a strong set of financial results with total revenue growth of 5.8 per cent and Group adjusted EBITDA2 growth of 8.3 per cent.

 

The growth in Group adjusted EBITDA2 has been achieved as we continued to focus on delivering an exceptional customer experience, which led to increased spend per game and LFL revenue growth in all areas of the business, despite the closure of our AMF centre in Gravesend and the periods of extreme weather experienced in the year.

 

This, alongside managing our cost base effectively without negatively impacting on the customer experience, has contributed to record profits before tax of £23.9m, an increase of £2.8m (13.4 per cent) on FY2017. Group adjusted operating cash flow3 was £24.7m in FY2018, a slight decrease on FY2017. The decrease was driven by a lower working capital movement in FY2018 than the prior year, and an incremental £2.1m in corporation tax paid in the financial year given the increased profitability of the Group, partially offset by an increase in Group adjusted EBITDA2 of £2.8m.

 

Revenue growth

The 5.8 per cent increase in revenue has been driven through LFL revenues growing at 1.8 per cent as well as 4.3 per cent from new centre openings, offset by the closure of our centre in AMF Gravesend (0.3 per cent). This resulted in record revenues of £120.5m, over the 12 months to 30 September 2018.

 

Game volumes were marginally down year-on-year, with LFL games slightly impacted by the snow-affected weeks earlier in the year, as well as the summer heatwave experienced across the country. We are pleased to see average spend per game grow by 6.1 per cent as customers continued to spend more across all areas of the business and consequently, all areas saw LFL revenue growth in FY2018.

 

Over the past year, we have continued on our investment strategy, completing the final four Bowlplex rebrands, rebranding two further AMFs to Hollywood Bowls and refurbishing three further centres. These investments are transformational for the customer experience and are leading to increased average spend as well as higher overall revenue. The average returns continue to be above our 33 per cent hurdle rate.

 

LFL revenue is defined as total revenue excluding any new centre openings (FY2018: £4.9m) and closed centres (FY2018: £1.1m) from the current or prior year and is used as a key measure of constant centre growth.

 

Gross margin

Gross profit margin for FY2018 was 86.1 per cent, in line with management expectations. Gross profit margin reduced slightly year-on-year, in part due to a slightly higher amusement revenue mix, as well as customers trading up into more premium drink products within our packages. Our focus on gross profit has seen it grow to £103.8m (+5.3 per cent) from £98.6m in FY2017. Cost of sales includes the cost of food and drink, as well as amusements.

 

Administrative expenses

Administrative expenses increased by £2.4m, up 3.2 per cent on the prior year.

 

The increase is primarily due to new centres at £2.8m and depreciation of £0.5m. These increases were netted off by a decrease in constant centre costs of £0.3m, a smaller loss on disposal of property, plant and equipment against the prior year, of £0.5m, and the closure of AMF Gravesend which resulted in lower administrative costs in that centre, of £0.1m.

 

The largest cost within administrative expenses is property costs, of which rent accounts for £14.1m (FY2017: £13.5m). Total property costs increased by £1.7m, with new centres accounting for £1.5m of this increase year-on-year. Centre employee costs form a significant part of administrative costs and increased from £21.6m to £22.3m for the 12-month period to 30 September 2018. On a constant centre basis, the centre employee costs decreased by £0.4m (1.7 per cent), through the tight controls exhibited in centres through the second half, offset by the increase in National Living / Minimum wage (NL/NMW) increases, where we have continued to maintain the differential for our team members. With the recent announcement of the April 2019 NL/NMW increases, we expect constant centre employee costs in FY2019 to increase by 3.8 per cent on a normalised weather basis.

 

Corporate costs were in line with FY2017, at £10.9m, with cost increases offset by lower bonus payments for the year. As a percentage of total sales, corporate costs reduced to 9.0 per cent in FY2018, against 9.5 per cent in FY2017.

 

Group adjusted EBITDA and operating profit

Group adjusted EBITDA2 increased by 8.3 per cent during the year, mainly due to revenue growth, tight cost control and the solid performance of the two new centres opened. Constant centre EBITDA continued to grow and increased by 2.9 per cent compared with the prior period. Depreciation increased by £0.5m to £10.5m, largely as a result of the new centres. As a percentage of total sales, depreciation represented 8.7 per cent in FY2018, against 8.8 per cent in FY2017. Operating profit margin increased by 1.2 percentage points, to a record 20.6 per cent of total sales in FY2018. The new openings in the year, Dagenham and Yeovil, continued to perform well.

 

Management use EBITDA adjusted for exceptional items (Group adjusted EBITDA) as a key performance measure of the business.

 

	30 September 2018 £'000	30 September 2017 £'000
Operating profit	24,892	22,201
Depreciation	10,494	9,990
Amortisation	504	540
Loss on property, plant and equipment and software	148	640
EBITDA	36,038	33,371
Exceptional items	118	3
Group adjusted EBITDA	36,156	33,374

 

Exceptional costs

Exceptional costs continue to be low in FY2018. The Group has a clear policy that exceptional costs should be one-off costs which are not forecast to continue, will not affect future years and are not a trend, and therefore should not be included in the underlying trade of the business.

 

	30 September 2018 £'000	30 September 2017 £'000
VAT rebate1	-	80
IPO related expenses2	-	(102)
Non-recurring expenditure on strategic projects3	(118)	(100)
Bank charges4	-	(116)
Dilapidations provision5	-	235
	(118)	(3)

 

1     The Group was able to make a one-off retrospective reclaim in respect of overpaid VAT relating to customers who were 'no-shows' and childrens' shoe hire. This was classified as other income in the consolidated statement of comprehensive income for the year ended 30 September 2017. The amount recognised in FY2017 relates to a historic claim for no shows from FY2015 to FY2016.

2     Costs associated with the IPO of Hollywood Bowl Group plc on the London Stock Exchange on 21 September 2016. Costs include legal and accounting transaction fees along with corporate banking costs.

3     Costs (comprising legal and professional fees) relating to an aborted acquisition.

4     Card payment processing fees relating to prior periods that were not previously invoiced.

5     The release of a dilapidation provision for a site that was exited in FY2018 with no associated costs expected.

 

Share-based payments

During the year, the Group granted further Long Term Incentive Plan (LTIP) shares to the senior leadership team, including the CEO and CFO. These awards vest in three years providing continuous employment during this period and certain performance conditions are attained relating to earnings per share (EPS). The Group recognised a charge of £403,537 (FY2017: £139,408) in relation to these non-cash share-based payments.

 

We opened our first Sharesave scheme to all team members in February 2018. We had over 200 employees join the scheme. The scheme will vest in three years subject to continued employment and the Group recognised a charge of £15,498 (FY2017: nil) in relation to the Sharesave scheme.

 

None of the above costs are classified as exceptional costs.

 

Finance costs

Finance costs decreased from £1.1m to £1.0m as a result of margin reductions in line with the bank quarterly covenant tests. The Group currently has gross debt of £28.5m with the next debt repayment of £0.75m due in December 2018. The Group has an undrawn revolving credit facility of £5.0m and capital expenditure facility of £5.0m.

 

Taxation

The Group has incurred a tax charge of £5.1m for the year which represents an effective tax rate on statutory profit before tax of 21.5 per cent. Within this charge is an amount of £0.6m, which is an adjustment in respect of prior years and relates to an Advance Thin Capitalisation Agreement tax liability. This is still being finalised with HMRC. The normalised tax charge would be £4.6m, which represents an effective tax rate on statutory profit before tax of 19.1 per cent.

 

Earnings

Profit before tax for the year was £23.9m, which was higher than the comparable period in the prior year by £2.8m (13.4 per cent) as a result of the factors discussed above.

 

The Group delivered an increased profit after tax of £18.8m (FY2017: £18.3m) and basic earnings per share was 12.52 pence (FY2017: 12.17 pence).

 

Dividend and special dividend

For the year ended 30 September 2018, the Board is recommending a final ordinary dividend of 4.23 pence per share, giving a total ordinary dividend for the year of 6.26 pence per share.

 

The final dividend will be paid, subject to shareholder approval at the Company's AGM on 31 January 2019, on 27 February 2019 to shareholders on the register on 1 February 2019.

 

As outlined in our capital and cash allocation policy in our FY2017 results, our top priority is to maintain a strong balance sheet. As at 30 September 2018, net debt stood at £2.5m (0.07 times Group adjusted EBITDA).

 

Our priorities for use of cash continue to be:

 

·   capital investment in existing centres as well as new centre opportunities;

·   appropriate acquisition opportunities;

·   to pay and grow the ordinary dividend every year within a cover ratio of approximately 2 times; and

·   thereafter, any excess cash will be available for additional distribution to shareholders as the Board deems appropriate.

 

To the extent that there is surplus cash within the business, the Board continues to expect to return the surplus to shareholders.

 

In line with this strategy, this year the Board has proposed a special dividend of 4.33 pence per share be paid to shareholders alongside the ordinary dividend. This will mean that the Group has returned a total of £15.9m in cash to shareholders for the year, equating to 10.59 pence per share. All of the dividend will be paid using cash on the balance sheet.  Since IPO we will have returned a total of £29.8m to shareholders, including for the year FY2018.

 

 

Cash flow

The Group continues to deliver strong cash generation with Group adjusted operating cash flow at £24.7m with an increase in EBITDA and small working capital movement in FY2018, offset by £5.0m in corporation tax payments in the financial year and maintenance capital spend of £6.7m.

	30 September 2018 £'000	30 September 2017 £'000
Group adjusted EBITDA	36,156	33,374
Movement in working capital	278	2,052
Maintenance capital expenditure1	(6,660)	(5,856)
Taxation	(5,030)	(2,905)
Adjusted operating cash flow (OCF)2	24,744	26,665
Adjusted OCF conversion	68.4%	79.9%
Expansionary capital expenditure	(4,316)	(6,896)
Disposal proceeds	24	-
Exceptional items	(234)	(3,153)
Net interest paid	(606)	(961)
Cash flows from financing activities	(1,500)	-
Dividends paid	(13,964)	(2,985)
Net cash flow	4,148	12,670

 

1     In this table, maintenance capital expenditure includes amusements capital.

2     Adjusted operating cash flow is calculated as Group adjusted EBITDA less working capital, maintenance capital expenditure and taxation. This represents a good measure for the cash generated by the business after taking into account all necessary maintenance capital expenditure to ensure the routine running of the business. This excludes one-off exceptional items and net interest paid.

3     Working capital excludes any exceptional items. These are noted separately above.  Working capital includes an amount relating to share based payments for LTIPs of £0.4m in FY2018 (FY2017: £0.1m).

 

Strong cash generation in the past 12 months has resulted in a decrease in net debt to £2.5m.

 

Capital expenditure

Total net capital expenditure was down 5.6 per cent year-on-year, to £12.4m. The largest decrease was in respect of new centres, where during FY2017 we spent £4.0m (net of landlord contributions) compared with £1.0m (net of landlord contributions) in FY2018. FY2018 includes capital for the two new centres opened in the year, plus £0.5m for the new Watford centre which will open pre-Christmas 2018. As we continued on our refurbishment and rebrand programme, this expenditure increased year-on-year, by £0.3m, to £3.3m.

 

Laurence Keen

Chief Financial Officer

10 December 2018

 

Consolidated statement
of comprehensive income

Year ending 30 September 2018

 

 

 

	Note	30 September 2018 £'000	30 September 2017 £'000
Revenue		120,548	113,968
Cost of sales		(16,748)	(15,349)
Gross profit		103,800	98,619
Administrative expenses	5	(78,908)	(76,498)
Other income		-	80
Operating profit		24,892	22,201
Underlying operating profit		25,010	22,204
Exceptional items	4	(118)	(3)
Finance income	7	18	12
Finance expenses	7	(976)	(1,158)
Movement in derivative financial instrument		-	55
Profit before tax		23,934	21,110
Tax expense	8	(5,150)	(2,848)
Profit for the year attributable to equity shareholders		18,784	18,262
Other comprehensive income		-	-
Total comprehensive income for the year attributable to
equity shareholders		18,784	18,262
Basic earnings per share (pence)	9	12.52	12.17
Diluted earnings per share (pence)	9	12.49	12.17

 

 

 

 

Consolidated statement
of financial position

As at 30 September 2018

 

	Note	30 September 2018 £'000	30 September 2017 £'000
ASSETS
Non-current assets
Property, plant and equipment	10	41,077	39,709
Intangible assets	11	78,648	78,867
		119,725	118,576
Current assets
Cash and cash equivalents		26,042	21,894
Trade and other receivables		6,563	7,144
Inventories		1,254	1,189
		33,859	30,227
Total assets		153,584	148,803
LIABILITIES
Current liabilities
Trade and other payables	12	16,626	16,857
Loans and borrowings	13	1,380	1,380
Corporation tax payable		2,840	2,461
		20,846	20,698
Non-current liabilities
Other payables	12	7,616	6,145
Loans and borrowings	13	26,763	28,143
Deferred tax liabilities		487	746
Accruals and provisions		2,934	3,308
		37,800	38,342
Total liabilities		58,646	59,040
NET ASSETS		94,938	89,763
Equity attributable to shareholders
Share capital		1,500	1,500
Merger reserve		(49,897)	(49,897)
Retained earnings		143,335	138,160
TOTAL EQUITY		94,938	89,763