Ten Entertainment : Full Year Results presentation 13 May 2020

TEN ENTERTAINMENT GROUP PLC - FULL-YEAR RESULTS

52 WEEKS TO 29TH DECEMBER 2019

13TH MAY 2020

DISCLAIMER

The following presentation in relation to Ten Entertainment Group plc and its subsidiaries ("the Group") has been prepared solely for use at this presentation. The presentation is being made only to, and directed only at, persons to whom this presentation may be lawfully communicated ("relevant persons"). Any person who is not a relevant person should not act or rely on the presentation or any of its contents.

The information contained in this presentation does not purport to be comprehensive and has not been independently verified. Information in this presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments. This presentation does not constitute an offering of securities or to otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company with Ten Entertainment Group plc ("the Group").

The presentation may contain 'forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial performance condition, performance, results, strategic initiatives and objectives. Generally, words such as "may", "could", "will", "expect", "intend", "estimate", "anticipate", "aim", "outlook", "believe", "plan", "seek", "continue" or similar expressions identify forward-looking statements.

These forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuation in interest rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation or regulations in the jurisdictions in which the Group operates.

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward looking statements.

Forward-looking statements in this presentation are currently only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this presentation should be construed as a profit forecast.

The presentation also contains certain non-GAAP financial information. The Group's management believe these measures provide valuable information in understanding the performance of the Group or the Group's business because they provide measures used by the Group to assess performance. Although these measures are important in the management of the business, they should not be viewed as replacements for, but rather as complementary to, the GAAP measures.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of section 10 of the Securities Act 1933, as amended ("the Securities Act"), or pursuant to an exemption from the registration requirement under section 5 of the Securities Act.

AGENDA

O1 COVID-19 UPDATE

O2 2019 OPERATING REVIEW

O3 2019 FINANCIAL REVIEW

O4 OUTLOOK

The business continued to perform well in the lead-up to the Covid-19 crisis

Sales in the first 11 weeks of FY20 started very strongly and indicated an improving trend

			52 weeks to
			29 December	11 weeks to
	Half 1 FY19	Half 2 FY19	2019	15 March 2020
Like-for-like sales change	7.4%	8.6%	8.0%	9.6%
Sales growth from net new centres	2.2%	2.1%	2.2%	3.2%
Total sales change	9.6%	10.7%	10.2%	12.8%

February half term execution was strong, delivering a record trading week for the business

Strategic investments were well set to deliver growth for the business

As of 20th March, the business has temporarily closed to protect employees and customers

Primary focus has been on liquidity planning and cash conservation

Our prospects are strong, with a clear ability to sustain a prolonged period of closure

4

The business is well funded

A conservative approach to debt afforded a strong cash position at the point of closure

As at 20th March the business had a net cash balance

A flexible RCF facility with our banks allowed for £25m of debt headroom

A high gross margin business means little waste in the supply chain at the point of closure

A flexible business model allowed swift action to reduce cash consumption

Targeted Government support aimed at leisure operators is welcome

5

There are four main pillars to conserve cash and maximise liquidity

CASH CONSERVATION TO MAXIMISE LIQUIDITY LONGEVITY

INVESTORSGOVERNMENT

BUSINESS	SELF HELP
PARTNERS

5% equity placing on 25th March raised £5m

No final dividend for 2019

Future dividends will be reviewed on exit of crisis

1 year business rates holiday worth >£5m

99% of all staff furloughed allowing for no redundancies

HMRC Time to Pay schemes help manage working capital

Full banking facility in place with all covenants waived until June 2021

Bilateral landlord negotiations reduce rent and service charge

Many long term contracts placed on hold during closure with no penalties

Capital programme held

Directors' voluntary pay cut during closure

Significant cost cutting programme undertaken

6

Summary

The underlying strategy and business model is strong and profitable, and should remain so

The business was in a strong cash position when forced to close in March

Significant measures taken to reduce the short term cash consumption to a bare minimum

All stakeholders made a significant contribution to secure liquidity well into 2021

The Group remains attractive and once restrictions are lifted should return to growth

7

OPERATING REVIEW

FY19 summary financial highlights

+10.2%

Total sales growth to £84.1m

+8.0%

Like-for-like sales growth

+14.7%

Adjusted EBITDA increased to £23.6m

19.1%

Return on Capital Employed

75.1%

Free cash flow conversion £17.7m generated

0.2X

Bank net debt to adjusted EBITDA

+1.1%PT

EBITDA margin grows to 28.0%

+11.5%

Growth in EPS to 14.0p

9

Our growth strategy continued to deliver in 2019

INWARD	TRANSFORMING	EXPANDING THE
CUSTOMER
INVESTMENT	ESTATE
EXPERIENCE

Site refurbishments	Cheshire Oaks	Acquisitions
Pins & Strings	Houdini's Escape Rooms	New developments
Machines & amusements	Food and beverage	Strengthening pipeline
Lease renewals	Digital and CRM

10

Inward investment kept the estate modern and relevant and costs well controlled

INWARD INVESTMENT

REFURBISH	PINS	MACHINES &	RENEW
&
SITES	AMUSEMENTS	LEASES
STRINGS

Four lanes added in	Roll-out 71% complete,	Partnership with Namco	Focus on securing tenure
Edinburgh	32 of 45 centres	Refresh of gaming estate	and re-gears
Cheshire Oaks refurbished		Four leases re-geared
Continued strong returns	14.2% sales growth
as concept centre		Prioritise lowest cash
Site cost savings and
Cambridge and Parrs	improved sales		cost for property
Wood centres refurbished

11

Developments in the customer experience helped drive incremental footfall to our centres

TRANSFORMING CUSTOMER EXPERIENCE

CHESHIRE	HOUDINI'S	FOOD AND	DIGITAL &
ESCAPE
OAKS	BEVERAGE	CRM
ROOMS

Extensive refurbishment	Joint venture with	New menu trialled across	Fully responsive website
as concept centre	Houdini's Escape Rooms	20% of estate	Improved customer
Piloting innovations	Now in three centres	Enhanced upselling	journey and booking
Excellent feedback		New drinks contract	New CRM opportunities

12

We strengthened the estate through two strong acquisitions and a new development for 2020

EXPANDING THE ESTATE

ACQUIRE	DEVELOP NEW	GROW THE
BOWLING
CENTRES	PIPELINE
CENTRES

Southport - Tenpinisation complete,	Manchester Printworks bowling
trading in line with expectations	centre in late stages of development
Falkirk - significant refurbishment,	Smaller footprint but strong footfall
trading ahead of expectations	and city centre location
	Build costs and returns similar to
	acquisition and refurbishment

New brownfield developments in retail and leisure locations

Acquisition potential remains

Balance sheet strength compared to others in the sector

13

Chief Executive's summary

FY19 ACHIEVEMENTS

8.0% like-for-like sales growth driven principally by increased footfall with profit growing ahead of sales Strategy remains focused on three key areas and execution well under way

Continuing to invest and innovate to ensure customers have a great experience Strong improvements delivered in food and service

OPPORTUNITY

Continued roll out of improvements to enhance spend per head

Improved at lane service needs development of systems and processes

Refurbishments and product innovation continue to demonstrate strong growth

FUTURE PLANS - CURRENTLY ON HOLD DUE TO COVID-19

Improved food offering to be rolled out to full estate

Ongoing investment in cost saving opportunities, such as Pins & Strings, to maximise cash generation Accelerated roll-out of escape rooms in partnership with Houdini's

Continued progress on building pipeline of new developments and acquisitions

14

FINANCIAL REVIEW

FY19 financial highlights

10.2% total sales growth to £84.1m (FY18: £76.4m)

8.0% like-for-like sales growth

Footfall by far the biggest driver at +6.4%

Spend per head showing modest increase of 1.6% Group adjusted EBITDA up 14.7% at £23.6m

Low levels of bank net debt; FY19 £4.1m (FY18: £4.2m)

REVENUE (£M)

GROUP ADJUSTED EBITDA (£M)

16

Income statement

52 weeks to	29 December	30 December
2019	2018
Revenue	84.1	76.4
Cost of sales	(10.4)	(8.8)
Gross margin	73.7	67.5
Margin	87.7%	88.5%

Change	Total revenue £84.1m, growth of 10.2%
10.2%		Like-for-like sales growth of 8.0%
		Growth from net additional sites of 2.2%

Total operating costs	(40.9)	(38.9)
% of revenue	48.6%	51.0%
Central & Support office costs	(9.3)	(8.1)
% of revenue	11.1%	10.6%
Total Costs	(50.2)	(47.0)
% of revenue	59.7%	61.5%
Group adjusted EBITDA	23.6	20.6
Adjusted EBITDA margin	28.0%	26.9%

5.0%

15.3%

14.7%

Operating costs grew 5%. On a like-for-like site basis, up 2.5% in line with inflation.

Central & Support office cost growth of 15%

Cost growth driven by investment in support centre resource, increased marketing and customer proposition development

Group adjusted EBITDA £23.6m, growth of 14.7%

17

Income statement

52 weeks to	29 December	30 December	Change
2019	2018
Group adjusted EBITDA	23.6	20.6	14.7%
Depreciation & amortisation of software	(7.4)	(6.4)
Net interest	(0.8)	(0.7)
Group adjusted profit before tax	15.4	13.5	14.5%
Exceptional items	(2.3)	(1.7)
Loss on disposal of assets	(0.9)	(0.6)
Amortisation of acquisition intangibles	(0.3)	(0.5)
Profit before tax	11.8	10.7	10.6%
Tax	(2.9)	(2.5)
of which: tax attributable to Group Adj Profit	(2.9)	(2.7)
Profit after tax	9.0	8.1	11.0%
Basic earnings per share (pence)	14.0	12.5	15.5%
Adjusted profit after tax1	9.0	8.0	11.9%
Adjusted basic earnings per share (pence)1		19.3	16.6	16.4%
Full-year dividend (pence per share)		3.7p	11.0p	(66.4%)

1. Adjusted Profit after tax and adjusted basic earnings per share are based on Group adjusted profit after tax

Increased depreciation from ongoing investments in the customer experience

Group adjusted profit before tax up 14.5%

Exceptional costs of £2.3m;

Tax provision of £0.8m

Inventory write off

Property costs to regear the portfolio Loss on disposal of assets from accelerated depreciation on bowling equipment

Amortisation arising on fair valued assets on acquisition, decreasing as these reach nil NBV

Adjusted basic earnings per share of 19.2p, up 15.5% on last year

Total dividend of 3.7p down (66.4%) on last year owing to cash conservation measures in place from Covid-19

18

Cash flow - investments funded from cash generation

52 weeks to	29 December	30 December	Change
2019	2018
EBITDA	23.6	20.6	3.0
Maintenance capital	(2.4)	(2.4)	0.0
Movement in working capital	1.8	2.0	(0.2)
Finance lease and taxation payments	(5.3)	(5.3)	(0.0)
Free cash flow		17.7		14.8	2.9
Dividends paid	(7.2)	(6.5)	(0.7)
Cash flow available for investment	10.6	8.3	2.2
Inward investment	(4.2)	(4.1)	(0.1)
Transforming customer experience				(0.3)	(1.9)
(2.2)
Expanding the estate	(2.6)	(6.0)	3.4
Exceptionals & share based payments	(1.4)	(1.7)	0.3
Cash flow after investment	0.1	(3.8)	3.9

£2.9m increase in free cashflow is driven by the £3.0m increase in EBITDA in the year

Transformative capex spend related to:

£1.1m on site of the future

£0.4m on the acquisition of Houdini's and opening of rooms at 3 sites and;

£0.7m on new products such as HyperBowl and the website

19

Balance sheet & net debt

	Balance sheet as at	29 December	30 December	Change
	2019	2018
	£m
	Assets
	Goodwill & other intangible assets	30.3	29.0	1.3
	Property, plant and equipment	47.2	41.7	5.5
	Inventories	1.3	1.5	(0.2)
	Trade and other receivables	4.9	4.3	0.6
	Cash and cash equivalents	2.2	5.3	(3.1)
	Total assets	86.0	81.8	4.1
	Liabilities
	Finance lease liabilities	(8.1)	(6.5)	(1.6)
	Bank borrowings	(6.1)	(9.4)	3.3
	Trade and other payables & provisions	(11.5)	(8.5)	(3.0)
	Other liabilities	(3.3)	(2.6)	(0.7)
	Total liabilities	(29.1)	(27.0)	(2.1)
	Net assets	56.9	54.9	2.0
	Net debt as at	29 December	30 December	Change
	2019	2018
	£m	2.2	5.3	(3.1)
	Closing cash and cash equivalents
	Bank loans / RCF	(6.3)	(9.5)	3.3
	Bank net debt	(4.1)	(4.2)	0.1
	Finance leases	(8.1)	(6.5)	(1.6)
	Statutory net debt	(12.2)	(10.7)	(1.5)

Increase in goodwill and PP&E driven by acquisitions and refurbishment investment less depreciation

Finance lease liability largely relates to Namco amusement machines from expanded estate and machines replacing expired leases

Increase in payables principally driven by the increase in trade creditors and provisions due to timing of payments

Low levels of bank debt with a £3.3m decrease versus prior year

Statutory net debt £12.2m, 0.5x group adjusted EBITDA on par with prior year

20

OUTLOOK

The business is ready to open when allowed, with a clear focus on cash management

At time of publishing, it is not clear when the business is likely to be allowed to re-open, although it may be as soon as July

We have a detailed reopening plan to ensure that our business is "Covid Secure"

Our business model is well suited to a post Covid "New Normal"

Our cash position remains strong, and we have clear priorities for cash allocation:

Investment in critical safety measures

Reduce debt to insulate against a second wave closure risk

Invest in stimulating demand and managing costs

Critical maintenance to preserve customer experience

Balancing Shareholder returns through strategic investments and resumption of dividend

22

Our model has structural advantages over many in the leisure sector

STRUCTURAL ADVANTAGES IN A POST COVID-19 WORLD

LARGE SITES

PHYSICALEXCELLENT

EXPERIENCEVALUE

STRONG

CASH

POSITION

Average footprint 29k sqft

Easy lane separation allows social distancing

Controlled online booking and yield management

Dedicated car parking

Few on-line or "at home" alternatives to bowling

Entertainment not reliant on significant employee interaction

Food and beverage may become more attractive

Affordable family entertainment

High margins allow for price flexibility to manage supply and demand

Variety of entertainment enables choices on level of spend per visit

High margin cash generation from existing asset base

Little need to re-invest in stock or working capital

£25m banking facility undrawn at the start of the crisis

23

Although Social Distancing may restrict lane utilisation, this will impact only at the very peak times

SOCIAL DISTANCING

Ideally placed to enable social distancing

Limits on lane capacities may need to be applied, which could result in a clipping of peak demand

May need other measures on amusements, table placements and food & drink service

POTENTIAL IMPACT

Restrictions in capacity are only likely to impact the very peak times of weekend evenings

Regional variations will occur, but overall a reduction in capacity will have a lesser impact on total sales

MITIGATION

Good experience of managing yield throughout peak periods, with demand to shoulder periods

Changes in social trends may accelerate as customers choose to avoid periods of peak

24

The Group is well placed to operate in the "new normal" of a post Covid-19 UK

READINESS

RELEVANCE

RESILIENCE

Employees highly engaged Covid-Secure workplace Clear Social Distancing Plan Hygiene materials and processes

Large sites for social distancing	Strong cash position
Breadth of offer under one roof	Rigorous cost management
Family focused entertainment	Cash resilience for a 2nd wave
Excellent value for money	Cash generative model

25

FY20 FINANCIAL CALENDAR

18TH JUNE 2020

COMPANY ANNUAL GENERAL MEETING

FOR INVESTOR INFORMATION AND RELATED SERVICES, INCLUDING COPIES OF ALL PRESENTATIONS, VISIT:

HTTPS://WWW.TEGPLC.CO.UK/

26

APPENDICES

2019 STRATEGY UPDATE IFRS 16 UPDATE FOR 2020

Inward investment - Pins & Strings

FY19 ACHIEVEMENTS

71% of the estate now equipped with Pins & Strings pinsetter technology Installed at 14 centres this year, bringing the total to 32 centres Games played per stop (GPS) increased 56% to 662

OPPORTUNITY

Lower running costs with reduced cost of maintenance and spare parts Labour cost saving with reduced need for experienced technicians More efficient yield management

Better overall customer experience

FUTURE PLANS

Roll-out to continue helping manage costs down

Target to have all centres equipped as soon as conditions allow

York

Halo

28

Transforming customer experience - Cheshire Oaks

FY19 ACHIEVEMENTS

Extensive refurbishment of Cheshire Oaks to become our concept centre

Best in class bowling experience, zoning of customer activities

Includes latest offerings such as Virtual Reality gaming and Houdini's Escape Room

Strong increase in sales since relaunch

OPPORTUNITY

Use as a testbed for new entertainment developments

Increase frequency of visit and customer loyalty

Continuing to broaden the family entertainment offering

FUTURE PLANS

Design features to be incorporated into future developments
Continue to test future offerings and entertainment concepts
Drive the enhanced food offering	BesX scoring

29

Transforming customer experience - Houdini's

FY19 ACHIEVEMENTS

Entered into joint venture with Houdini's Escape Rooms £300k investment to purchase 50% of the business

Opened Houdini's Escape Rooms at three centres; Southampton, Star City and Cheshire Oaks

OPPORTUNITY

Gives customers access to a new exciting family activity within our bowling centres	HyperBowl - Star City
Currently number one escape room experience in the UK on TripAdvisor
Experienced and knowledgeable team continuing to run the business

FUTURE PLANS

Accelerate growth of Houdini's

Explore ways to maximise Houdini's Escape Gaming pedigree through online and other offerings

BesX scoring

30

Transforming customer experience - digital

FY19 ACHIEVEMENTS

Launch of fully responsive website

New CRM partner and platform acquired

Acquired experienced talent

OPPORTUNITY

Far greater personalisation of customer communications

Better customer journey and improved booking system

Online booking for non bowling products

Increased Social Media presence and reach

FUTURE PLANS

Launch local marketing toolkit

Free bowling for NHS and healthcare workers

Better customer communications to manage yield and smooth peak trading periods

Key products relaunch (Birthdays, Christmas and student deals)

31

Expanding the estate - balancing the pipeline

FY19 ACHIEVEMENTS

Two acquisitions made of existing bowling centres - Southport and Falkirk

Falkirk sales growth in particular has been phenomenal, with a fourfold increase post relaunch Lease secured on a major metropolitan city centre site in Manchester for development Similar cost to acquisitions, with capital focused on build rather than acquisition cost

OPPORTUNITY

Opportunity to grow the estate in new areas

Good pipeline of opportunity for new leases

New build gives more flexibility in designing centres to meet customer needs

Potential pipeline of attractive new locations in ex-retail space

Maintain target of 2 - 4 new sites per year

FUTURE PLANS

Continue to progress acquisitions, new lease and development opportunities

Complete build of Manchester Printworks to open in 2020

Prioritise debt repayment, but develop pipeline for appropriate resumption of expansion

Southport

Manchester Printworks

32

IFRS 16 approach

OUR APPROACH

IFRS 16, the new standard on leases, applies to all companies with accounting dates starting 1 January 2019

TEG plc financial year commenced on 31 December 2018 and so the Group has decided not to early adopt this standard The Group plans to adopt the modified retrospective approach for FY20 which commenced on 30 December 2019

IMPACT OF IFRS 16

The average lease length of the Group is 16 years (reflected below) after the re-gears negotiated with a number of landlords

Interest is front loaded as the lease liability is at its highest at the beginning of the lease. As the liability is repaid, the interest cost decreases while pre IFRS 16 the rent cost is spread equally over the term of the lease as reflected below

Site example - front loading of interest

	600
	550
£000	500
450
	400

350

300

1	2	3	4	5	6	7	8	9
			Years
	Rent (pre IFRS 16)		Interest & depreciation (Post IFRS 16)

£m

Average lease length left "16 yrs"

45.00

40.00

35.00

30.00

25.00

20.00

15.00

10.00

5.00

-

1	3	5	6	7	8	9	10 12 14 15 17 18 19 20 22 23 24 25 29
							Lease length "years"
					Liability £m		Number of leases

33

IFRS 16 - P&L and balance sheet impact

PRESENTATIONAL IMPACT ON BALANCE SHEET

£153.2m would be recognised under Property, Plant and Equipment as right of use assets relating to the 46 lease sites

£164.8m would be recognised as lease liabilities related to the long term leases with the landlords for the 46 sites

£8.7m of impairment is recognised on the right of use assets and charged to retained earnings on transition. The balancing £2.6m net decrease in the net asset position is due to the maturity of the leases with our estate being relatively young after the number of re- gears completed. IFRS 16 front loads the interest and lease liability while the assets are depreciated on a straight-line basis

The current average lease length left is 16 years

PRESENTATIONAL IMPACT ON P&L

£12.6m of rent is added back since rent payments will now be paying off the lease liability on the balance sheet. EBITDA will increase by this amount

£11.2m of depreciation will be charged to the P&L having arisen on the capitalised right of use assets in the balance sheet

£4.2m of interest will be charged on the lease liability and recognised in the P&L

The £2.9m net decrease in PBT as reflected in the P&L is due to the impact of the front loading of interest in the early years of the leases