Ten Entertainment : Interim results announcement 24 September 2019

Half-Year Results

24 September 2019

Results for the 26 weeks to 30 June 2019

24th September 2019

Ten Entertainment Group plc

Half-Year Results 26 weeks ended 30th June 2019

"REVENUE AND PROFITS AT RECORD LEVELS; STRATEGICALLY, FINANCIALLY AND OPERATIONALLY WELL SET"

Ten Entertainment Group plc, a leading UK operator of family entertainment centres, today announces its half year results for the 26 weeks to 30 June 2019.

	26 weeks	26 weeks	Change
	to 30 June	to 1 July
	2019	2018
	(H1 19)	(H1 18)
Total sales	£41.4m	£37.8m	+9.6%
Like-for-like sales growth	7.4%	3.1%
Group adjusted EBITDA1	£11.2m	£9.8m	+14.2%
Group adjusted profit before tax1	£7.3m	£6.4m	+14.2%
Reported profit after tax	£4.7m	£3.8m	+22.1%
Earnings per share	7.19p	5.89p	+22.1%
Interim dividend per share	3.7p	3.3p	+12.1%

• The Group has performed well during the first half of FY19, with strong sales growth and good progress on improving the customer experience
• Like-for-likesales growth increased to 7.4%. Around 2% benefit arose from more typical weather patterns in May and June
• Group adjusted profit before tax was up 14.2% and reported profit after tax increased to £4.7m

Our growth strategy continues to deliver:

Inward investment: refurbishment completed at Edinburgh, with two further refurbishments planned for H2. Pins & Strings continues to be rolled out and is on target for 70% of sites converted by year end.

Transforming customer experience: We are encouraged by early performance of HyperBowl and have reached agreement for a joint venture with Houdini's to roll out Escape Rooms nationally. A concept site is under development to trial further customer innovations.

Expanding the estate: Southport and Falkirk were acquired in the first half. In H2 we have secured a new site for development in Manchester Printworks with heads of terms agreed on three additional development sites as part of our 2020 pipeline.

Outlook:

• The Company anticipates long term average growth in like-for-like of 4-6%
• We continue to expand our estate and improve our customer experience through inward investment and product innovation
• Highly cash generative, self-financed growth, strong balance sheet with even better banking terms agreed to grow the business

Nick Basing, Chairman, commented:

Our growth strategy continues to generate record sales, profits and earnings for shareholders. Our new, strong management team have made a confident start and have accelerated the execution of our core

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strategy. We look forward to further tapping into the potential of our strengthening position in the rapidly growing experiential leisure market.

Duncan Garrood, Chief Executive Officer, commented:

We have had a strong first half delivering to our expectations. Operationally, we continue to make progress building an even better business and providing customers with an excellent experience. We are excited about our plans to unlock the potential inherent in the business.

Enquiries:
Ten Entertainment Group plc	via Instinctif Partners
Duncan Garrood	Chief Executive Officer
Antony Smith	Chief Financial Officer and Company Secretary
Instinctif Partners		Tel: [phone]
Matthew Smallwood
Jack Devoy

There will be a presentation today at 9.00 am to analysts and investors at Instinctif Partners (65 Gresham Street, London, EC2V 7NQ). The supporting slides will also be available on the Group's website, www.tegplc.co.uk, later in the day.

Forward-looking statements

This announcement contains forward-looking statements regarding the Group. These forward-looking statements are based on current information and expectations and are subject to risks and uncertainties, including market conditions and other factors outside of the Group's control. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Group undertakes no obligations to publicly update any forward-looking statement contained in this release, whether as a result of new information, future developments or otherwise, except as may be required by law and regulation.

1 These are non-IFRS measures used by the Group in understanding its underlying earnings. Group adjusted EBITDA consists of earnings before interest, taxation, depreciation, amortisation costs, exceptional items, profit or loss on disposal of assets and adjustments to onerous lease and impairment provisions. Group adjusted profit before tax is defined as profit before exceptional items, profit or loss on disposal of assets, amortisation of acquisition intangibles and adjustments to onerous lease and impairment provisions. Adjusted basic earnings per share represents earnings per share based on adjusted profit after tax. Like-for-like sales are a measure of growth of sales adjusted for new or divested sites over a comparable trading period.

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CHIEF EXECUTIVE'S STATEMENT

The business has performed well in the first half of the year and we are pleased with the progress made both financially and in the execution of our strategy for the longer term. Strong sales growth of 9.6% has been converted into growth in EBITDA of 14.2% resulting in a 14.2% increase in group adjusted PBT to £7.3m for the first half.

Good progress has been made across the three main areas of our strategy: investing in improving our existing estate; transforming the customer experience through innovation; and expanding our estate.

We continue to invest in our high-quality estate to ensure that our customers have a great experience. We have over the past few years been consistently improving, refurbishing and modernising those sites that require it.

We have continued to make our sites more efficient with the proven successful roll-out of Pins & Strings, completing five further sites in the first half which takes the total to 24. By the end of the year we expect to have more than two thirds of our sites operating with this more reliable and efficient technology, assisting in driving utilisation and returns.

We have also made good progress in pursuing innovation and are encouraged by the early results from HyperBowl and Escape Rooms. We are in advanced negotiations with Houdini's Escape Rooms to build a long term joint venture to roll out this industry leading customer experience nationally.

We have stated that in each year we intend to acquire and operate between two to four additional new sites. We continue to deliver that goal. We acquired bowling centres in Falkirk and Southport in the first half. We are pleased to also announce today that we have secured a lease in Manchester city centre to build a new bowling centre, which we expect to open by the end of the year. We are in negotiations on three further sites which will bring the 2019 new sites to the upper end of guidance and establish a good pipeline for 2020 to continue the expansion of the estate.

Sales growth - continued strong underlying momentum

We are pleased to report another half of strong sales growth, with total sales of £41.4m in the first half, an increase of 9.6% compared to 2018. Like-for-like sales were strong at 7.4% with the majority of the growth driven by increased footfall and enhanced by a modest increase in spend per head ("SPH"). Growth was seen in all categories, with particularly strong performance from the refresh of the machine offering in partnership with our key suppliers. The balanced growth across all categories demonstrates the underlying strength of the customer proposition and it remains a core focus to continue to deliver sales growth across the business.

The first half benefited from extreme weather comparatives which we estimate accounts for around 2%pts of the half year growth. Absent this weather impact, we are experiencing a consistent underlying 4-6% of like-for-like growth providing an excellent base for continued strong profit growth.

Sales have continued to be strong since the end of June, and the YTD sales to 22nd September are +9.6% in total and +7.5% on a like-for-like basis reflecting the ongoing comparative against last year's summer. We are encouraged by this performance; however, it should be noted that 2019 has also seen some extreme climatic conditions that have made trading variable particularly over the summer period.

Inward investment - ongoing improvements for our customers

Our ongoing investment in the existing estate has continued. The extension at Star City in Birmingham last year has started to deliver in 2019, with strong double-digit sales growth achieved as a result of the improved customer environment and increased capacity from the new lanes. A similar project has now been completed in Edinburgh's Fountain Park in H1, and although these benefits will not be seen until the second half of this year, the initial results have been encouraging.

Two further site refurbishments have begun which will refresh the bar and reception and improve the gaming area to improve the customer experience and increase dwell time and spend per head.

Our programme of installing Pins & Strings continues to deliver strong returns. We have already installed Pins & Strings at five sites in H1 and will have completed installation in more than two thirds of the total estate by the end of the year, with an estimated completion of the full estate by mid-2021. The continued roll-out has delivered further substantial improvement in games played per stop, up by 53%.

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Transforming customer experience - developing new products and games

Work has accelerated in H1 2019 in developing the next stage of customer innovation to ensure that we remain relevant and have a competitive advantage. This has been combined with the continued roll-out of established investments to ensure sales growth remains robust with tightly controlled costs.

We have made targeted investments developing the customer experience. A new menu to better suit our customers' preferences has been rolled out and we have secured a much-improved drinks contract with a new supplier enabling greater localisation of product offering and on improved terms. Food and beverage sales remain an important ancillary income stream to the bowling experience and whilst we will not target becoming a destination for food sales, we do believe that our improved menu and wider range of snacking choices, combined with better "at lane" service, will contribute to giving customers a more memorable experience and increase dwell time.

We are very pleased with the early signs seen from the introduction of the innovative Escape Rooms and HyperBowl concepts which has delivered positive customer feedback and encouraged us to move both of these into a broader trial phase. We have reached agreement on a joint venture with Houdini's Escape Rooms, subject to contract. This will combine their industry expertise with our national footprint and leisure infrastructure to enable a national roll-out.

In addition, one site is being refurbished as a concept site to showcase a range of customer innovations and concepts and to trial these prior to rolling them out. This concept site will, by its nature, have a higher capital spend on the initial development work than a standard refurbishment and as a result will deliver a lower return on investment. The insights gained will be invaluable for continuing to develop a leading edge customer experience.

2019 has been a year of infrastructure work on the website and CRM programme, and progress on enhancing these has been slower than originally anticipated. The new website will go live by the end of the year as will an improved CRM proposition. These remain critical for engaging with our customers and driving new footfall into our centres, and we expect that the cost investments made in 2019 will drive benefits in 2020.

Expanding the estate - progress on acquisitions and development of new centres

In the first half of the year we have successfully acquired and integrated two existing bowling sites at Southport and Falkirk into the Tenpin estate.

Southport is already performing well and progress is advanced in our Tenpinisation process, with a modest capital investment needed to bring the site up to our operating standards. Sales are already encouraging and showing good progress compared to the previous ownership. Falkirk was a different proposition requiring more investment and this was reflected in the consideration paid. Consequently, it is expected that this site will take longer to contribute profit than would ordinarily be expected. Nevertheless, the Tenpinisation and refurbishment programme has begun and we are confident that by 2020 the site will generate good returns.

We are pleased to announce today our first success in securing leases on existing properties to build new bowling centres. We have agreed a new lease in the Printworks in Manchester city centre on the site of a casino. This is an exciting opportunity to develop our city centre proposition in a vibrant and popular part of a major metropolitan area and we anticipate opening it early in 2020.

The costs of this new centre approximately match the cost of acquiring existing operations, albeit with the capital focused on build rather than acquisition cost, and as such we are confident we can generate continued strong returns from this site. There will be a development cost in H2, and the site is expected to contribute from 2020.

We are in advanced negotiations on three other opportunities and are confident of developing at least one of these in 2019, with work beginning on the others in 2020. Expanding the remit to include existing retail and leisure space, as well as acquisition of existing bowling centres has opened up the pipeline and gives the business a clearer runway for growth going forwards. We remain returns focused and will continue to acquire sites that deliver a consistent profit delivery.

Acquisitions cost, including the new lease in 2019, will be at the higher end of guidance with the split of new build and acquisition expected to be typical of the approach we will take in future. Therefore it is anticipated that the income and profit from new sites in 2019 is likely to be lower than previously guided as a result of the longer lead time required to develop and build rather than acquire a site. Medium term guidance is unchanged.

Work is continuing to secure further sites for ongoing development in 2020 and beyond, and we are confident that there remains a good pipeline of opportunity for both acquisition and new leases for the foreseeable future.

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