Hollywood Bowl : Half Year Results

Hollywood Bowl Group plc

("Hollywood Bowl", the "Company" or the "Group")

Interim Results

for the Six Months ended 31 March 2024

EXCELLENT PERFORMANCE DRIVEN BY CONTINUED INVESTMENT IN CUSTOMER EXPERIENCE

AND FURTHER GROWTH IN CANADA

Financial summary

	H1 FY2024	H1 FY2023	Change
Revenue	£119.2m	£110.2m5	+8.1%
Group adjusted EBITDA1	£48.3m	£43.9m	+10.0%
Group adjusted EBITDA1 pre-IFRS 16	£38.6m	£35.1m	+10.0%
Group profit before tax	£29.5m	£26.7m	+10.5%
Group profit after tax	£21.9m	£20.9m	+5.0%
Group adjusted profit before tax2	£30.9m	£27.7m	+11.7%
Group adjusted profit after tax2	£23.3m	£21.9m	+6.5%
Adjusted earnings per share2	13.60p	12.80p	+6.2%
Free cash flow3	£16.5m	£15.3m	+7.8%
Net cash4	£41.4m	£44.1m	-6.2%
Interim ordinary dividend per share	3.98p	3.27p	+21.7%

1. Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is calculated as statutory operating profit plus depreciation, amortisation, impairment, loss on disposal of property, right-of-use assets, plant and equipment and software and any exceptional costs or income, and is also shown pre-IFRS 16 as well as adjusted for IFRS 16. These adjustments show the underlying trade of the overall business which these costs or income can distort. The reconciliation to operating profit is set out below.
2. Adjusted group profit before / after tax is calculated as group profit before / after tax, adding back acquisition fees of £0.3m (H1 FY2023: £0.5m)
   and the non-cash expense of £1.1m (H1 FY2023: £0.7m) related to the fair value of the earn out consideration on the Teaquinn acquisition in May 2022. Also, in H1 FY2023 it included the removal of the reduced rate (TRR) of VAT benefit on bowling of £0.2m.
3. Free cash flow is defined as net cash flow pre-exceptional items, cost of acquisitions, debt facility repayment, RCF drawdowns and dividends.
4. Net cash/(debt) is defined as cash and cash equivalents less borrowings from bank facilities excluding issue costs.
5. Group revenue in H1 FY2023 includes £0.2m in respect of TRR of VAT.
6. Revenues in GBP based on an actual foreign exchange rate over the relevant period, unless otherwise stated.

Key highlights

• Excellent financial performance supported by successful execution of proven domestic and Canadian growth strategy
  o Record first half Group revenue of £119.2m (H1 FY2023: £110.2m)
  o Group adjusted EBITDA pre-IFRS 16 increased by 10.0 per cent to £38.6m (H1 FY2023: £35.1m)
  o UK LFL revenue growth of 1.3 per cent and 8.0 per cent in Splitsville centres in Canada o Interim dividend up 21.7% to 3.98 pence per share (H1 FY 2023 interim dividend: 3.27
  pence per share)
  o Cash generative model provides investment capital and balance sheet strength: robust net cash position at 31 March 2024 of £41.4m;
  o Extended undrawn £25m revolving credit facility to December 2025

UK - 71 centres at period end

• Enhancing and expanding our high-quality, profitable UK estate

1. Completed refurbishments of Hollywood Bowl centres in Watford Woodside, Stockton and Cardiff

1. Acquired, re-branded and refurbished centre in Lincoln, with encouraging trading since completion

1. Solar panels installed at two further centres

1. New centre, Hollywood Bowl Dundee, opened in May 2024, post period end

• Constant improvement of customer experience driving 3.2% higher UK spend per game (SPG) and increased customer satisfaction scores to 67% NPS
  o Space optimisations and new game formats across the estate driving 4.5% increase in amusement SPG
  o Installed Puttstars courses in two Hollywood Bowl centres
  o Pins on Strings installed in six centres, increasing total to 90% of UK estate, saving further costs and enhancing the customer experience
  o New core reservation system, delivering improved performance, reliability and efficiencies

Canada - 11 centres at period end

• Canadian business trading in line with management's expectations and performing well with successful execution against growth strategy
  o Total revenue growth of 46.9% to CAD 27m (£15.9m) and pre-IFRS 16 EBITDA of CAD 7.5m (£4.4m)
  o Two centres acquired in Guelph, Ontario and Vancouver, British Columbia
  o First new build centre Waterloo, Ontario due to be completed in June 2024, post period end, and two new centres signed in Calgary and Ottawa
  o Refurbishment of Kingston site due to be completed in June 2024 and Glamorgan and Meridian centres in Calgary due to complete in the second half
  o Successful investment in Canada customer experience, leveraging UK operating model; trialling Pins on Strings in three centres

Outlook

• Strong balance sheet and cash generative business model supports investment in future growth with new centre pipeline continuing to build across UK and Canada
  o Resilient demand for value for money leisure experiences
  o Further growth of the estate, two UK centres and one Canadian centre due to open in H2 and FY2025, with onward pipeline continuing to build
  o Well-insulated from inflationary pressures with 72% of revenue not subject to cost of goods inflation
  o New UK energy hedge signed to end of FY2027 with increases of <30% for FY2025 o Investment in technology and website will support ecommerce sales and yield
  performance
  o Well positioned to grow Group estate to over 130 centres

Stephen Burns, Chief Executive Officer, commented:

"We are pleased to have welcomed so many families, friends and colleagues to our centres in the first half, demonstrating the continued demand for high-quality,family-friendly leisure experiences at affordable prices, particularly against the backdrop of higher living expenses. I am extremely grateful to our excellent team members whose hard work has resulted in even longer customer dwell times and higher satisfaction score. We are proud to invest in our team and to once again be recognised as a top Company to work for.

"We continue to expect further, modest like-for-like growth, even with the very strong prior year comparative, as a result of our customer-led innovation and investment in our profitable growth strategy. We are confident in the outlook for Hollywood Bowl and in our ability to capture the longer-term opportunity to grow our estate to over 130 centres in the next ten years."

Enquiries:
Hollywood Bowl Group PLC
Stephen Burns, Chief Executive Officer	Via Teneo
Laurence Keen, Chief Financial Officer
Mat Hart, Chief Marketing and Technology Officer
Teneo
Elizabeth Snow	[e-mail]

Laura Marshall

[phone]

CHIEF EXECUTIVE OFFICER'S REVIEW

Hollywood Bowl Group has delivered another strong performance in the first half of the year. The continued successful execution of our customer focused strategy and investment in our estate resulted in further profitable growth. The Group achieved record revenues with an 8.1 per cent increase to £119.2m, even against the strong comparative of last year's outstanding performance. UK like-for-like (LFL) revenues increased by 1.3 per cent, and we were very pleased to achieve over £100m of revenue in the UK for the first time. The Canadian business continues to perform strongly with 8.0 per cent LFL revenue growth on a constant currency basis in the bowling centres.

The Group made further progress with investment in growing the estate in UK and Canada while our overall refurbishment programme remains on track and is delivering returns. These refurbishments continue to evolve our customer proposition, resulting in an increase in the number of games played and spend per game alongside growing customer service scores.

Adjusted profit before tax grew by 11.7 per cent, to £30.9m, whilst adjusted profit after tax grew by 6.5 per cent to £23.3m. Statutory profit before tax grew by £2.8m to £29.5m (H1 FY2023: £26.7m) up 10.5 per cent on the prior period.

The Group's strong earnings growth, coupled with its highly cash generative business model resulted in net cash at the period end of £41.4m. This strong financial position is after the payment of the final ordinary and special dividend for FY2023 as well as our continued investment in new centres and refurbishments during FY2024.

In line with our capital allocation policy, the Board has declared an interim dividend of 3.98 pence per share, representing 21.7 per cent growth on the same period last year.

As UK families continue to face cost of living challenges, we have worked hard to ensure that our customer offer remains a great value for money, high quality experience, keeping our prices low so that a family of four can bowl at peak times for less than £25. Our team members are key to providing these positive customer experiences and we remain focused on ensuring our team are motivated and well rewarded, with opportunities for progression through our in-house training and development programmes.

Growth strategy

We have made good progress with our simple, effective and proven growth strategy, driving returns through investment in the quality and size of our estate and through yield enhancing customer-led initiatives.

We are meeting our ambitious targets for opening new centres in both the UK and Canada and delivering solid returns above target levels from our ongoing refurbishment programme.

Like-for-like growth

Even though the comparison period was extremely strong, Group LFL revenue still increased, with a 1.6 per cent rise during the first half of the financial year. Our UK centres grew by 1.3 per cent, our Canadian centres saw an 8.0 per cent increase and, due to the timing of installations and invoicing, a 14 per cent year on year decline in Striker, the bowling equipment business.

On a LFL basis, UK spend per game increased by 3.2 per cent in the period, to £11.21 in H1 FY2024, whilst volumes, on the back of exceptionally strong growth over the previous two years, were down only 1.6 per cent. In line with our value for money positioning, we increased headline prices by only 1.4 per cent, well below inflation, maintaining affordability for our customers.

Investing in our UK estate and new centre openings

Refurbishments and estate investments:

Our refurbishment programme has remained on track during the period, with three refurbishments/space optimisation projects completed in Watford Woodside, Stockton and Cardiff, enlarging the amusement offer, introducing the latest digital signage and new brand treatments. All refurbished centres are trading in line with our expectations.

The refurbishment of our Stockton centre, one of the busiest centres in the Group, included extending into the unit next door, previously occupied by a restaurant operator, enabling us to add five additional bowling lanes, 12 holes of mini- golf and an increased amusements offering. We also agreed a new long-term lease on the centre.

We are currently on-site refurbishing Hollywood Bowl at the London O2 and Portsmouth Gunwharf Quay and will complete at least two further refurbishments during the second half.

Pins on Strings were installed in a further six centres during the first half and by the end of the financial year all but two of our centres will benefit from this cost saving and customer experience enhancing technology.

New centres:

We are currently on site at new centres in Westwood Cross in Kent and Colchester, at the Northern Gateway leisure complex, combining 26 bowling lanes, mini-golf, bar, diner and an amusement offer.

During H1 FY2024, we added one centre to the UK estate. Lincoln Bowl, the 20-lane family owned and operated centre was acquired in October 2023. Located on the outskirts of the City of Lincoln, the centre was a well operated family entertainment business in a strategically important location, filling a location gap between our centres in Sheffield, Derby and Leicester. Following a rebrand and extensive refurbishment that also included a new roof, this new-look Hollywood Bowl boasts a large amusement space, combined reception, bar and diner with 20 lanes of state-of-the-art bowling served by pins on strings. We are very pleased with the early trading performance and customer feedback, and are confident that this site will deliver returns in line with our expectations.

Since the start of the second half of the year, we have opened a new Hollywood Bowl in Dundee, a key market in Scotland at a quality leisure park, co-located with the number one cinema in town and a restaurant offering. This centre opened in late May 2024 and the early trading performance has been encouraging.

Our new centre pipeline is strong with six already signed and more in heads of terms and legals stages. We remain confident in our ability to continue to deliver on our plan of an average of at least three new UK openings a year.

Technology:

We have made excellent progress with the in-house development of our new core reservation system which started to be rolled out to the UK estate in the first half and completes in June. The new system is delivering improved performance and usability for our team members and customers giving us a strong platform to continue to develop functionality and support our Group growth plans.

Continued strong growth in Canada

Our business in Canada continues to perform very well. In the first half, the Canadian business contributed CAD 27.0m (£15.9m) in revenue and CAD 7.5m (£4.4m) of EBITDA on a pre-IFRS 16 basis. Total revenue growth in Canada was

46.9 per cent, with the Canadian Bowling centres growing by 8.0 per cent on a LFL basis. Our growth strategy in Canada is based on four areas: improving the current estate; buying existing businesses that fit our exacting acquisition criteria; opening new centres; and supporting the wider Canadian bowling market with Striker's products and services.

In the half, the Group completed two acquisitions taking the estate to 11 centres. The first was the acquisition of an owner-operated family entertainment centre located on a mixed-use retail and leisure park in the heart of Guelph Ontario, called Woodlawn Bowl, for CAD 4.7m. Woodlawn Bowl is a 36,000 sq. ft. centre boasting 24 lanes of ten-pin and 8 lanes of five-pin bowling and a large amusements area with bar and diner. The second was the acquisition of the assets and lease of a family entertainment centre in Vancouver, for a total consideration of CAD 425k. The centre, which is in need of reconfiguration and refurbishment, is located on a popular leisure scheme with a cinema and ice rink and offers 34 ten-pin and 6 five-pin lanes, a large bar and diner, and a very small amusements area. Both businesses have had temporary signage installed rebranding them to Splitsville and essential maintenance capital invested, prior to their full refurbishments which are due to be completed in early FY2025.

On new builds, works are nearly completed at our new site in Waterloo, Ontario, which is planned to open during June 2024. This is the first new centre we have built in Canada, and we are excited to bring this state-of-the-art family entertainment concept to the market.

Furthermore, we are very pleased to have signed two further new centres at locations in Creekside, Calgary and Kanata, Ottawa. We are due to be on site with construction on both sites commencing during the second half of this financial year and are forecasted to open in FY2025.

Our refurbishment programme has progressed well and we are currently putting the finishing touches to a full makeover of our Kingston site. We are now working on full refurbishments and re-brands for our Glamorgan and Meridian centres in Calgary and will also start work on our Highfield centre in Calgary in late June, all due to be completed during FY2024.

Canada remains an exciting growth opportunity for the Group. We continue to learn more about our Canadian customers and how we can apply our proven UK operating model to this market. We have received excellent feedback from customers, particularly in recently rebranded centres and we continue to explore opportunities to innovate the customer experience as we learn more. The market is highly fragmented and often under-invested, with many opportunities to acquire single-owned centres or small group-owned business, as well as opportunity for organic growth through our new centre pipeline.

The Striker business continues to grow as a result of increased investment into bowling centres across the country. Revenues totalled CAD 2.5m (£1.4m) and the order book is strong with multiple installation and maintenance projects signed to commence in H2 FY2024.

Growing sustainably

Running and growing our business in a sustainable manner remains a key focus for the Group and we have continued to make good progress delivering against our ESG strategy and our targets in the first half. Waste recycling percentages improved in the first half and we continued the rollout of solar panels in the UK estate taking our centre total to 29, with additional panels being installed in four existing roof locations. Our People team has made further progress with our industry-leading training and development programme and internal candidates represented more than 60 per cent of management appointments. We also continue to play an important role in our local communities, increasing the number of concessionary access games played.

Outlook

We remain focused on the Group's future growth through investment in the size and quality of our estate and in our customer experience. We are on course to achieve our key strategic goals for the year and are trading in line with the Board's financial expectations.

Offering a great value for money, high quality customer experience remains our key priority, particularly as our customers continue to face the challenges of higher living costs and interest rates. We provide an affordable experience that they can enjoy with family or friends. Through our investment in our centres, and in our customer experience, we can continue to attract more visits from new and returning customers and increase the time they spend in our centres.

We remain fully committed to our ongoing investment programme across the business, supported by our strong balance sheet and cash generative business model, which along with our wider strategy for sustainable, profitable, growth, gives the Board every confidence in our future outlook.

Stephen Burns

Chief Executive Officer

3 June 2024

CHIEF FINANCIAL OFFICER'S REVIEW

Group financial results

	H1 FY2024	H1 FY2023	Change
Revenue	£119.2m	£110.2m5	+8.1%
Gross profit on cost of goods sold1	£99.4m	£91.3m	+8.9%
Gross profit margin on cost of goods sold1	83.4%	82.8%	+60bps
Administrative expenses1	£65.0m	£60.0m	+8.3%
Group adjusted EBITDA2	£48.3m	£43.9m	+10.0%
Group adjusted EBITDA2 pre-IFRS 16	£38.6m	£35.1m	+10.0%
Group profit before tax	£29.5m	£26.7m	+10.5%
Group profit after tax	£21.9m	£20.9m	+5.0%
Group adjusted profit before tax3	£30.9m	£27.7m	+11.7%
Group adjusted profit after tax3	£23.3m	£21.9m	+6.5%
Free cash flow4	£16.5m	£15.3m	+7.8%
Interim dividend per share	3.98p	3.27p	+21.7%

1. Gross profit on cost of goods sold is calculated as revenue less directly attributable cost of goods sold and excludes any payroll costs. This is how we report in the business monthly and at centre level, as labour costs are judged as material and thus reported separately within administrative expenses.
2. Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is calculated as statutory operating profit plus depreciation, amortisation, impairment, loss on disposal of property, right-of-use assets, plant and equipment and software and any exceptional costs or income, and is also shown pre-IFRS 16 as well as adjusted for IFRS 16. These adjustments show the underlying trade of the overall business which these costs or income can distort. The reconciliation to operating profit is set out below.
3. Adjusted group profit before / after tax is calculated as group profit before / after tax, adding back acquisition fees of £0.3m (H1 FY2023: £0.5m)
   and the non-cash expense of £1.1m (H1 FY2023: £0.7m) related to the fair value of the earn out consideration on the Teaquinn acquisition in May 2022. Also, in H1 FY2023 it included the removal of the reduced rate (TRR) of VAT benefit on bowling of £0.2m.
4. Free cash flow is defined as net cash flow pre-exceptional items, cost of acquisitions, debt facility repayment, RCF drawdowns and dividends.
5. Group revenue in H1 FY2023 includes £0.2m in respect of TRR of VAT.
6. Revenues in GBP based on an actual foreign exchange rate over the relevant period, unless otherwise stated.

Following the introduction of the lease accounting standard IFRS 16, the Group continues to maintain the reporting of Group adjusted EBITDA on a pre-IFRS 16 basis, as well as on an IFRS 16 basis. This is because the pre-IFRS 16 measure is consistent with the basis used for business decisions, as well as a measure that investors use to consider the underlying business performance. For the purposes of this review, the commentary will clearly state when it is referring to figures on an IFRS 16 or pre-IFRS 16 basis.

All LFL revenue commentary excludes the impact of TRR of VAT on bowling. New centres in the UK and Canada are included in LFL revenue after they complete the calendar anniversary of their opening date.

Further details on the alternative performance measures used are at the end of this report.

Revenue

On the back of significant growth over the past two years and record revenues in FY2023, it is pleasing to see continued LFL growth in the UK and Canada centres. UK centre LFL revenue growth was 1.3 per cent with spend per game growth of 3.2 per cent, taking LFL average spend per game to £11.21, and a marginal decline in LFL game volumes. The LFL growth, alongside the performance of the new UK centres, resulted in record UK revenues exceeding £100m in the first half for the first time, at £103.3m and growth of 4.4 per cent compared to the very strong underlying revenues in H1 FY2023. It is worth noting that the UK business has seen 5.9 per cent compound annual revenue growth since FY2019.

Canadian LFL revenue growth, when reviewing in Canadian Dollars (CAD) to allow for disaggregating the foreign currency effect (constant currency), was 8.0 per cent. Alongside this strong LFL revenue growth, new centres performed well and resulted in total revenue of CAD 27m (£15.9m), growth year on year in Canada of 46.9 per cent on a constant currency basis. Splitsville bowling centre revenue was up CAD 9.0m (58.1 per cent) to CAD 24.5m.

Total Group revenue for H1 FY2024 was £119.2m, 8.1 per cent growth on H1 FY2023.

Gross profit on cost of goods sold

Gross profit on cost of goods sold is calculated as revenue less directly attributable cost of goods sold and does not include any payroll costs. Gross profit on cost of goods sold was £99.4m, 8.9 per cent growth on the same period in FY2023 with gross profit margin on cost of goods sold at 83.4 per cent in FY2024.

Gross profit on cost of goods sold for the UK business was £86.7m with a margin of 83.9 per cent, up 10 bps on H1 FY2023.

Gross profit on cost of goods sold for the Canadian business was in line with expectations at CAD 21.6m (£12.7m), with a margin of 80.0 per cent (H1 FY2023: 73.6 per cent). This margin increase is due in part to the significant revenue growth seen in the Splitsville bowling centres which make up a larger proportion of total revenue in Canada versus our Striker equipment business. Splitsville had a gross profit margin on cost of goods sold of 84.8 per cent, in line with expectations. Striker generated revenue of CAD 2.5m (H1 FY2023: CAD 2.9m) in the year, the year-on-year decline is in the main because of installation contracts that were not certified as finished, coupled with an increase year-on-year in respect of the supply and installation of equipment into the Splitsville centres, which is counted as intra-group revenue and eliminated on consolidation.

Administrative expenses

Following the adoption of IFRS 16 in FY2020, administrative expenses exclude property rents (turnover rents are not excluded) and include the depreciation of property right-of-use assets.

Total administrative expenses, including all payroll costs, were £65.0m. On a pre-IFRS 16 basis, administrative expenses were £69.2m, compared to £63.6m in H1 FY2023.

Employee costs in centres were £22.3m, an increase of £2.3m when compared to H1 FY2023, due to a combination of salary increases, the impact of higher LFL revenues, new UK centres, as well as the significant revenue growth in Canadian centres. Total centre employee costs in Canada were CAD 6.4m (£3.8m), an increase of CAD 1.9m (£1.0m), whilst UK centre employee costs were £18.5m, an increase of £1.4m when compared to H1 FY2023. The increase in LFL employee costs in the UK were 4.8 per cent, but we expect this to increase to the region of 8-9 per cent in the second half as we see the impact of the higher than inflationary increase in national minimum and living wage from April 2024.

Total property-related costs, accounted for under pre-IFRS 16, were £20.6m, with £18.7m for the UK business (H1 FY2023: £17.6m). Rent costs account for nearly 50 per cent of total property costs in the UK and increased to £9.2m (H1 FY2023: £8.8m) and were up less than two per cent on a LFL basis. We received further business rates rebates

in the first half, in relation to claims made in respect of the 2015 revaluation finally being agreed. The benefit in the first half was £0.9m, whilst underlying business rates increased by over 4.5 per cent.

Canadian property centre costs were in line with expectations at CAD 3.2m (£1.9m), an increase of CAD 1.3m due to the increased size of the estate in the half when compared to H1 FY2023.

As noted in the FY2023 preliminary results, we were pleased to have agreed a new electricity commodity price hedge up to the end of FY2027, with FY2025 forecasted to increase by 33 per cent (£1.0m) compared to our FY2024 costs, whilst still being able to take advantage of lower costs should such market conditions prevail during this period. Utility costs increased in H1 FY2024 compared to the same period in FY2023, by £1.1m, with UK centres accounting for £1.0m of this increase due to a combination of an increase in the cost per unit and the hedge sell off during H1 FY2023, with the balance in relation to the increased number of centres in Canada.

Total property costs, under IFRS 16, were £21.9m, including £5.5m accounted for as property lease assets depreciation and £5.5m in implied interest relating to the lease liability.

Total corporate costs increased by £0.6m to £12.3m when compared to H1 FY2023. UK corporate costs reduced by £0.4m to £10.6m. As we continue to build out our support team in Canada for growth, corporate costs increased to CAD 2.8m (£1.7m) from CAD 1.1m (£0.7m).

The statutory depreciation, amortisation and impairment charge for H1 FY2024 was £12.7m compared to £11.7m in

H1 FY2023. Excluding property lease assets depreciation, this charge in H1 FY2024 was £7.3m (H1 FY2023: £6.5m). This is due to the continued capital investment programme, including new centres and refurbishments, as well as the full year impact of Canada.

Canadian performance

The Group has continued to grow its footprint in Canada, with 11 centres at the end of H1 FY2024 (H1 FY2023: 9). During the first half of FY2024 the Group acquired two centres - Woodlawn Bowl in Ontario; and Lucky 9 Bowling Centre Limited as well as its associated restaurant and bar, Monkey 9 Brewing Pub Corp ("Riverport") in British Columbia. Both acquisitions are trading in line with management expectations and will benefit from refurbishment investment in FY2025.

Since the end of the first half, we are also pleased to see our first greenfield centre open in Waterloo, Ontario.

The business continues to trade strongly, with total revenues in Canada of CAD 27m (£15.9m), and just over CAD 7.6m (£4.4m) of EBITDA on a pre-IFRS 16 basis. Bowling centres contributed CAD 24.5m of revenues with EBITDA on a pre-IFRS 16 basis of CAD 10.2m, an increase of CAD 4.2m on the same period in FY2023.

Given the growth in our Canadian portfolio, it is important we continue to invest in our support team in Canada as well as utilise our UK support teams' expertise and experience. This resulted in corporate costs in Canada increasing to CAD 2.9m (£1.7m) from CAD 1.1m (£0.7m).

Gross profit on cost of goods sold for the Canadian business was in line with expectations at CAD 21.6m (£12.7m), with a margin of 80.0 per cent (H1 FY2023: 73.6 per cent).

Exceptional costs

Exceptional costs in H1 FY2024 totalled £1.4m (H1 FY2023: £1.0m) and relate to two areas. The first is the acquisition costs in relation to the acquisition of three centres - one in the UK and two in Calgary, which totalled £0.3m. The second is the earn out consideration for Teaquinn President Pat Haggerty, which is an exceptional cost of £1.1m in the first half, of which £0.9m is in administrative expenses and £0.2m is in interest expenses. See the table below for exceptional items included in the Group adjusted EBITDA and operating profit reconciliation. More detail on these exceptional costs is shown in note 5 to the Financial Statements.

Group adjusted EBITDA and operating profit

Group adjusted EBITDA pre-IFRS 16 increased 10 per cent, to £38.6m and includes a contribution of £4.4m (CAD 7.6m) from the Canadian business. The increase is due to a combination of LFL revenue performance in both the UK and Canada as well as the new centre growth across both territories when compared to the same period in FY2023. The reconciliation between statutory operating profit and Group adjusted EBITDA on both a pre-IFRS 16 and under- IFRS 16 basis is shown in the table below.

	H1 FY2024	H1 FY2023
	£'000	£'000
Operating profit	34,368	31,248
Depreciation	12,271	11,303
Amortisation	431	395
Loss on property, right-of-use assets, plant and equipment and software disposal	15	42
Exceptional items	1,197	899
Group adjusted EBITDA under IFRS 16	48,282	43,886
IFRS 16 adjustment	(9,663)	(8,775)
Group adjusted EBITDA pre-IFRS 161	38,619	35,112

1 IFRS 16 adoption has an impact on EBITDA, with the removal of rent from the calculation. For Group adjusted EBITDA pre-IFRS 16, it is deducted for comparative purposes and is used by investors as a key measure of the business. The IFRS 16 adjustment is in relation to all rents that are considered to be non-variable and of a nature to be captured by the standard.

Share-based payments

During the first half of the year, the Group granted further Long-Term Incentive Plan (LTIP) shares to the senior leadership team as well as starting a new save as you earn scheme (SAYE) for all team members. The LTIP awards vest in three years providing continuous employment during the period, and attainment of performance conditions relating to earnings per share (EPS), as outlined on page 103 of the FY2023 Annual Report. The Group recognised a total charge of £0.8m (H1 FY2023: £0.5m) in relation to the Group's share-based arrangements. Share-based costs are not classified as exceptional costs.

Financing

Finance costs (net of finance income) increased to £4.8m in H1 FY2024 (H1 FY2023: £4.5m) comprising mainly of implied interest relating to the lease liability under IFRS 16 of £5.4m. Bank interest costs in relation to the Group's undrawn revolving credit facility of £0.1m were offset by the interest received (£1.0m) on the Group's bank balances.

In the first half the year, the Group agreed a 12-month extension to the £25m RCF and £5m accordion, resulting in a margin rate reduction to 1.65 per cent above SONIA effective from 22 March 2024. The RCF term now runs to the end of December 2025 and remains fully undrawn.

Cash flow and liquidity

The liquidity position of the Group remains strong, with a net cash position of £41.4m as at 31 March 2024. Detail on the cash movement in the year is shown in the table below.

Capital expenditure

The Group invested £23.5m in the first half of the year, including £7.5m on the acquisition of three centres, one of which, Lincoln Bowl, was in the UK. Net capex (excluding acquisitions) in H1 FY2024 was £16.0m.

On 2 October 2023, the Group purchased the assets, including the long leasehold, of Lincoln Bowl for total of £4.5m, of which £2.0m was allocated to the long leasehold.

In Canada, two centres were acquired in H1 FY2024. The first was a family entertainment centre in Guelph, Ontario for CAD 4.7m (£2.8m), on 7 November 2023. The second was the acquisition of the assets and lease of a centre in Vancouver, for consideration of CAD 0.4m (£0.3m). Both centres have been rebranded and our centre in Vancouver will undergo a significant refurbishment which will complete in the first half of FY2025.

More information on all of these acquisitions is provided in note 17 to the Financial Statements.

A total of £5.7m was invested into the refurbishment programme, with three UK centres (£3.0m) refurbished as well as investments into the Canadian estate (£2.7m).

A significant proportion of the refurbishment spend in the UK, nearly £2m, was in relation to the extension and refurbishment of our centre in Stockton. This centre was already one of the most successful in the estate and we have now increased its potential. In conjunction with a new lease for a period of 15 years and investment into the existing space, the Group also extended into the adjacent unit, adding an extra five lanes, a Puttstars mini-golf course and large amusements area. The refurbishment was completed in time for Easter trading and early signs are very encouraging.

Despite inflationary pressures, returns on the UK refurbishments continue to exceed the Group's hurdle rate of 33 per cent.

New centre capital expenditure was a net £4.8m. This relates, in the main, to two centres that open in H2 FY2024 - Hollywood Bowl Dundee (£2.2m) and Splitsville Waterloo, Canada (£1.9m).

The Group's strong balance sheet ensures it can continue to invest in profitable growth with plans to open more locations during FY2024 and beyond.

The Group spent £5.7m on maintenance capital in the UK, including continued spend on the rollout of Pins on Strings technology (£1.0m) and solar panel installations as well as extensions of current installs (£0.6m). At the end of the first half of FY2024, Pins on Strings were in 58 centres and solar panels on 29 centres.

Technology investment was £0.8m as we continue to develop our new in-house core reservations platform (Compass) which has now been rolled out in the UK. It is expected that Compass will start to roll out in Canada during the second half of the financial year. We also upgraded our websites, payment platform and customer data platform, and maintained a continued focus on our cyber security.

We expect total capital expenditure for FY2024, including acquisitions completed in the first half, to still be in the region of £35m to £40m.

Cash flow and net debt

	H1 FY2024	H1 FY2023
	£'000	£'000
Group adjusted EBITDA under IFRS 16	48,282	43,886
Movement in working capital	(340)	(2,997)
Maintenance capital expenditure	(5,685)	(4,362)
Taxation	(4,964)	(4,269)
Payment of capital elements of leases	(5,995)	(5,540)

Adjusted operating cash flow (OCF)1	31,298	26,719
Adjusted OCF conversion	64.8%	60.9%
Expansionary capital expenditure2	(10,273)	(6,934)
Net bank interest received/(paid)	960	287
Lease interest paid	(5,453)	(4,741)
Free cash flow (FCF)3	16,532	15,331
Exceptional items	(297)	(278)
Acquisition of centres in Canada	(3,060)	(7,574)
Cash acquired in Canada acquisitions	20	320
Acquisition of centres in UK	(4,475)	-
Share (buyback) / issue	(379)	6
Dividends paid	(19,351)	(19,724)
Net cash flow	(11,010)	(11,918)

1. Adjusted operating cash flow is calculated as Group adjusted EBITDA less working capital, maintenance capital expenditure, taxation and payment of the capital element of leases. This represents a good measure for the cash generated by the business after considering all necessary maintenance capital expenditure to ensure the routine running of the business. This excludes exceptional items, net interest paid, debt drawdowns and any debt repayments.
2. Expansionary capital expenditure includes refurbishment and new centre capital expenditure.
3. Free cash flow is defined as net cash flow pre-exceptional items, cost of acquisitions, debt facility repayment, debt drawdowns, dividends and equity placing.

Taxation

The Group's tax charge for the year is £7.6m arising on the profit before tax generated in the period. The increase in the Group's effective rate of tax to 25.7 per cent is due in the main to the increase in the UK corporation tax rate from 19 per cent to 25 per cent from April 2023, resulting in an increase of 3.9 percentage points on the effective rate of tax year when compared to the prior period.

Earnings

Statutory profit before tax for the year was £29.5m and 10.5 per cent higher than H1 FY2023.

The Group delivered profit after tax of £21.9m (H1 FY2023: £20.9m) and basic earnings per share was 12.78 pence

(H1 FY2023: 12.21 pence).

Group adjusted profit before tax is £30.9m, whilst Group adjusted profit after tax is £23.3m and a basic adjusted earnings per share of 13.60 pence per share (H1 FY2023: 12.80 pence per share).

The adjustments are made to reflect the underlying trade of the Group. These adjustments are adding back acquisition fees of £0.3m and the non-cash expense of £1.1m related to the fair value of the earn out consideration on the Canadian acquisition in May 2022. For more detail see note 4 to the Financial Statements.

Dividend and capital allocation policy

In line with the Group's capital allocation policy, the Board has declared an interim dividend of 3.98 pence per share.

The ex-dividend date is 13 June 2024, with a record date of 14 June 2024 and a payment date of 10 July 2024.

Going concern

As detailed in note 2 to the Financial Statements, the Directors are satisfied that the Group has adequate resources to continue in operation for the foreseeable future, a period of at least 12 months from the date of this report.

Laurence Keen

Chief Financial Officer

3 June 2024

Note on alternative performance measures (APMs)

The Group uses APMs to enable management and users of the financial statements to better understand elements of the financial performance in the period. APMs referenced earlier in the report are explained as follows.

UK like-for-like(LFL) revenue for H1 FY2024 is calculated as:

• Total Group revenues 119.2m, less
• New UK centre revenues for H1 FY2023 and H1 FY2024 that have not annualised £3.3 m, less
• Canada revenues for H1 FY2024 of £15.9m

New centres are included in the LFL revenue after they complete the calendar anniversary of their opening date. LFL UK comparatives for H1 FY2023 are £98.8m.

Gross profit on cost of goods sold is calculated as revenue less directly attributable cost of goods sold and excludes any payroll costs. This is how we report in the business monthly and at centre level, as labour costs are judged as material and thus reported separately within administrative expenses. These amounts are presented separately on the consolidated income statement for ease of reconciliation.

Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) reflects the underlying trade of the overall business. It is calculated as statutory operating profit plus depreciation, amortisation, impairment, loss on disposal of property, right-of-use assets, plant and equipment and software and any exceptional costs or income, and is also shown pre-IFRS 16 as well as adjusted for IFRS 16. The reconciliation to operating profit is set out in this report.

Free cash flow is defined as net cash flow pre-dividends, exceptional items, acquisition costs, bank funding and any equity placing. Useful for investors to evaluation cash from normalised trading.

LFL spend per game is defined as LFL revenue in the year divided by the number of bowling games and golf rounds played.

Adjusted operating cash flow is calculated as Group adjusted EBITDA less working capital, maintenance capital expenditure, taxation and payment of the capital element of leases. This represents a good measure for the cash generated by the business after considering all necessary maintenance capital expenditure to ensure the routine running of the business. This excludes exceptional items, acquisitions, share buyback/issue, dividends paid, net interest paid, debt drawdowns and any debt repayments.

Expansionary capital expenditure includes all capital on new centres, refurbishments and rebrands only. Investors see this as growth potential.

Adjusted profit after tax is calculated as statutory profit after tax, adding back the acquisition fees in Canada of £0.3m (H1 FY2023: £0.5m) and the non-cash expense of £1.1m (H1 FY2023: £0.7m) related to the fair value of the earn out consideration on the Canadian acquisition in May 2022. This adjusted profit after tax is also used to calculate adjusted earnings per share.

Constant currency exchange rates are the actual periodic exchange rates from the previous financial period and are used to eliminate the effects of the exchange rate fluctuations in assessing certain KPIs and performance.