Hollywood Bowl Group H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 17, 2024

There are 6 speakers on the call.

Operator

Good morning and thank you for joining us for our financial year 2024 full year results presentation. I plan to take you through the highlights of FY 2024, our operational highlights for the UK business, the UK market review including an update on our property progress on both refurbishments and new centers in the UK and a full review of our Canadian operations. Lawrence will take you through the numbers and take through a financial outlook for the year ahead. Now whilst I appreciate those here today are very familiar with our growth strategy, for those looking at us for the first time, we lay out our key investment highlights on slide 3. We operate a high quality business with a compelling investment case and a proven strategy for growth.

Operator

The new center opening program is on track on both the UK and Canada. We continue to grow like for like revenues through the improvement of the existing estate and our refurbishment program continues to deliver above our returns hurdle rate, all resulting in sustainable profitable growth. Financial year 2024 was another very successful period for the Group. Despite the very tough comps in 2023, the group generated record revenues of CHF230.4 million which was up 7.1% on FY2023. We grew revenues in both the UK and Canada and have delivered a 5.9% compound annual growth rate on our like for like revenues over the last 5 years.

Operator

We posted EBITDA on a pre IFRS basis of £67,700,000 and closed the period with £28,700,000 of net cash on the balance sheet. That's after paying dividends of £26,000,000 and spending £31,000,000 on growth and maintenance capex in the year. In line with our progressive dividend policy paying our 55 percent of profit after tax, we propose to pay total ordinary dividend of GBP12.06 per share. In the UK, revenues were up 3.8 percent, The bowling businesses were up 0.3% on a Like 5 basis with the mini golf businesses showing decline, resulting in overall revenues coming in flat against a very tough comparative year. 10 centers were refurbished and 4 new centers opened, generating a blended return of 33.7 percent on invested capital.

Operator

Spend per game was up 3% driven through a mixture of increased dwell time and small price increases of just 0.9%. In Canada, revenues were up 42.2% overall and up 6.3% on a like for like basis as we benefited from the full year effect of the operational changes made last year. We completed 2 refurbishments and started on-site in 2 others, acquired 3 centers and opened 1 new center in the year, driving a blended return on invested capital of 42.4%. The changes to the offer in both the existing and refurbished estate have been well received by our customers with service scores increasing significantly during the period. I'll now hand over to Laurence.

Speaker 1

Thanks, Steve. On Slide 7, we talk about revenue. On the back of an exceptionally strong FY 2022 and FY2023, it's pleasing to see total revenue growth of 7.1% and encouraging to continue to see growth in both the UK and Canada. The UK first saw like for like revenues flat, although the Hollywood Bowl Estate were actually up 0.3% with a decline in putt stars. We saw like for like spend per game growth of 3.3 percent taking like for like average spend per game to £11.19 and a decline in like for like game volumes.

Speaker 1

Our like for like revenues along with the performance of our new UK centers resulted in record UK revenues of £199,700,000 growth of 3.8% compared to the very strong underlying revenues in the prior year. As Steve mentioned since FY 2019 the UK business has seen 5.9% compound annual growth with average spend per game up 2.9% CAGR and centers played per center up over 3% on a CAGR basis over that 5 year period. Canadian like for like revenues reviewed in Canadian dollars was up 6.3% and alongside this strong like for like revenue growth, new centers performed well and resulted in total revenues of CAD53 million, which is growth of 42.2 percent on a constant currency basis. Splitsville bowling centers on their own accounted for CAD45,300,000 of that CAD53 million and were up 50.4% on an annual growth rate. On Slide 8, we set out the historic growth of the business and show how from FY 2019 we've grown from just under $130,000,000 of revenue to just over $230,000,000 in FY 2024, which is a compound annual growth rate over that period of 11.7%.

Speaker 1

And in UK, as I mentioned earlier, like for likes were up 5.9% CAGR. We see further growth in like for like and also annual revenue growth further into FY 2025 and beyond. On Slide 9, we set out the income statement. Gross profit on cost of goods sold was 83%, which was up 7.7% on the previous year and 0.4 percentage points up year over year. Gross profit on the UK business had a margin of 83.9%, which was up 20 basis points on the prior year.

Speaker 1

Whilst in Canada, the margin was 76.8%, which is up 3.2% on the previous year. This margin increase is due in part to the significant growth seen in the splits for bowling centers, which now make up a significantly larger portion of total revenue in Canada versus our Stryker equipment business. To put it into context, the splits for centers have a gross profit margin of 84.8%, which is in line with expectations. Centre level admin costs excluding depreciation and amortization were up 12.6 percent to £98,600,000 and of that £98,600,000 employee costs of £45,700,000 of that. That's an increase of £5,000,000 compared to the prior year due to a combination of the higher than inflationary national minimum and living wage, as well as higher like for like revenues, new centers and the significant growth in the Canadian business.

Speaker 1

Of the £45,700,000 of employee costs, £13,600,000 but £7,800,000 were Canadian and the balance of £37,900,000 was to do with the UK. Given the national living wage and national insurance announcements in the recent budget, we expect to see an increase in employee costs in UK like for like centers in excess of 8% for the second half of FY twenty twenty five, with the national insurance costs being in excess of $1,200,000 on an annualized basis. Total property related costs accounted for under pre IFRS 16 were $42,000,000 with $37,400,000 of those in the UK and that was up AUD 3,500,000 on the prior year. Rent costs account for nearly 50% of total property costs as you can see on Slide 9 at AUD 19,800,000 dollars And of those $19,800,000 $18,300,000 was in the UK and that was up $600,000 on the prior year, which is less than 1%. In the year, we received business rates rebates in the second half of £2,000,000 in relation to claims made in respect of the FY 2023 revaluation, of which we expect half of that £2,000,000 to be in the base numbers going forward and therefore we'll continue to see that in FY 2025.

Speaker 1

Underlying business rates are due to increase by 1.7 percent in the second half of the year, which is based on the inflation number of September 2024. Canadian property costs were in line with expectations at CAD7.9 million, an increase of CAD3.4 million all down to the size of the estate increase year over year. Utility costs increased compared to the same period in the previous year by CAD1.9 million with UK centers accounting for £1,700,000 of this, mostly due to the hedge sell off that we spoke about in FY2023, which was worth over £1,000,000 Onto corporate costs, which decreased margin year on year by £4,900,000 to £24,900,000 We actually saw a reduction in the UK, but that was more than offset by the corporate cost increases we saw in Canada as we continue to grow the support team. The Canadian corporate cost now of £3,800,000 of the £24,900,000 Group adjusted EBITDA pre IFRS 16 increased by 4.3 percent to £67,700,000 and the UK was £62,300,000 of that while Canada was £5,400,000 It is worth noting that we do have a Forex exchange difference year over year in Canada. In FY 2023, the Forex translation was 1.66.

Speaker 1

In FY 2024, it was 1.73. On a pound basis that actually costs GBP 250,000 in terms of translation. But what I would say is given we're not repatriating any money to the UK, having a weaker Canadian dollar whilst not great from statutory reporting perspective when sending money over to Canada that benefits us quite significantly. Exceptional costs in the year relate to 3 areas. The first is the acquisition costs in relation to the 4 centers, 1 in the UK and 3 in Canada, which totaled €900,000 The second is the earn out consideration for the former owner of the Canadian business, which is £1,900,000 and then we also received £0,600,000 in compensation for the closure of our Surrey Quay Centre and it is worth noting that Surrey Quay Centre was worth £1,500,000 EBITDA in FY 2024, £3,100,000 in terms of revenue.

Speaker 1

You can see the effects of IFRS 16 on the accounts here as we set out the add back of £19,800,000 for rent and a depreciation and interest charge of £23,500,000 Normal depreciation increased year on year by CHF 1,800,000 due to the continued capital investment program in new centers and also the refurbishments. We undertook detailed impairment testing in the year, which resulted in an impairment charge of GBP 5,300,000 which relates to our PUTSAR centers. These results support the decision to focus on the continued expansion of our Hollywood Bowl and our splitsville locations. Group adjusted profit before tax excluding the exceptional cost of the earn out is £45,000,000 and actually when you exclude the non cash impairment of £5,300,000 it's £50,300,000 and if you do the same on the previous year, adjusted PBT is up 1% to $50,300,000 and earnings per share were 21.92p per share. Lots of detail there guys.

Speaker 1

On Slide 10, we lay out the 5 year trend of growth seeing 12.1% CAGR growth on EBITDA. And again, we continue to see growth in that number in FY 2025 and beyond as like for likes return to positive growth and we continue to add to the portfolio. FY 2024 has been a record investment into new centers as shown on Slide 11. We added a record 8 centers to the estate, growing the estate to 72 centers in the UK and 13 in Canada. The group spent 8,000,000 pounds on maintenance CapEx including the investment into our new booking engine of 1,500,000 which Steve will talk about later, continued spend on the rollout of our pins on strings technology at 1,800,000 pounds and solar panel installs as well as the current the current extensions to the current installations of £1,000,000 Along with the payment of corporation tax in the year and the rent being split between capital and interest, we still have significant cash to invest in the growth of the business And we spent GBP 11,500,000 on our refurbishment program with GBP 0.10 is refurbished in the UK as well as 2 started and finished in Canada and another one started which is finished in FY 2025.

Speaker 1

New centre capex was a net £19,500,000 this was in relation to the 4 new openings in the year in the in Colchester, Westwood Cross, Dundee and Waterloo, as well as 70% of the spend of our recent new opening in Swindon, the GBP 2,000,000 into last year's numbers relates to Swindon opening in this year which opened in November and just under GBP 1,000,000 on our 2 centers that we've started on-site in Canada in Kanata and Creekside. Post these spends, the business generated free cash flow of £16,900,000 and it's also worth noting that we paid out £26,200,000 on the final dividends and interim dividends, as well as over GBP 13,000,000 on the 4 sites that we acquired in the year. All of this has still left us with a very healthy cash balance at the end of the year GBP 28,700,000 as well as an undrawn revolving credit facility of GBP 25,000,000 and accordion of GBP 5,000,000 as well. On Slide 12, we lay out a reminder of our capital allocation policy through maintenance CapEx, transformational refurbishments, investments within our new centers and acquisitions. And then in line with this policy around our ordinary dividend, we propose a final dividend of 8.08p per share, which gives a total dividend in the year of 12.06p per share.

Speaker 1

On slide 13, we look at the outlook for FY 2025 and despite the government's budget, we've got a very positive outlook for FY25. We've seen a return to like for like growth in the UK with like for likes positive in the early part of the year in line with analyst expectations and we've already opened up one new centre in Swindon. With the full year effect of the new centres, refurbishments in both the UK and Canada and the new FY 2025 centres, we look forward to an even higher revenue growth in FY 2025 than we saw in FY 2024. We're mindful of the inflationary pressures, but are well positioned to manage these increases due to our P and L dynamics. Payroll and business rates inflation was as expected, excluding obviously the national insurance increase, and with electricity usage now hedged to the end of FY 2027, we've only got upside on our electricity costs.

Speaker 1

As a reminder, our P and L dynamics of 70% of our revenue not subject to cost of goods inflation and a payroll ratio of less than 20%, This puts us in a strong position to mitigate the further inflationary pressures. We've also been extremely prudent on our price increases, which Steve will talk about later on, which gives us opportunity to look at price later in the year. Now moving on to the recent budget, the employers national insurance threshold change will have the biggest impact for us as an employer in our sector, where part time hours are the norm. The cost for an average hourly pay team member working 20 hours per week on National Living Wage would increase from just under £400 per annum for Employers National Insurance to just over £11.55 per annum. Now a reminder to everybody that we don't pay National Insurance sorry, nobody pays National Insurance, not we.

Speaker 1

Nobody pays National Insurance for anybody under the age of 21 unless they exceed the upper boundary, which is £966 per week in terms of earnings. Now look, as a people led business, our success hinges on having great people who deliver the best possible experience to our customers and we will continue to prioritize investment into our teams, attracting and retaining top talent and this won't change as a result of these new measures. In terms of the use of capital in FY 2025, we're planning at least 10 refurbishments with at least 4 of those in Canada. We'll open at least 6 new centers with 1 already open and continue the investment in solar as well as pins on strings, although we've actually already completed 4 of the remaining 6 centers in terms of pins on strings as at today. Total CapEx is forecasted between £40,000,000 45,000,000 for FY 2025 and our allocation policy remains unchanged at 55% of profit after tax.

Operator

Thanks, Laurence. So turning our attention to a review of the U. K. On Slide 15. We continue to drive growth through the continuous improvement we made to our offer.

Operator

So starting with the bowling environment, we've continued the rollout of pins on strings technology, as Laurence has just mentioned, and coupled with the investments in the other aspects of the back of house operation, seeing record levels of reliability this year. Front of house, the refurbished and new centers boast the very latest in lighting and sound, allowing us to create the perfect environment for the very different customer groups that we get during the week. 4 bowling centers now boast a mini golf offer as we've leveraged the learnings from PUTSTARS, installing the offer as park space optimization and new center projects. Our industry leading amusement offer has seen significant investment in the year with over £5,500,000 invested, buying 322 additional machines and the swapping out of 205 of the older pieces. The tiered pricing tests and new payment options have been rolled out to more centers, helping drive both game volumes, spend per game, which was up 6.1% year on year and overall amusement revenue, which was up 7% year on year.

Operator

In our food and drink offer, our well tested mantra of delivering a quality product served quickly, consistently at a value for money price point continues to resonate with our customers with value for money scores up 2 percentage points on the prior period. Further refinements to the menu were made in the year, keeping pace with the trend in shareable food offers and maintaining our low price point. The improvements to the at lane and at table ordering delivered some very solid results with revenue through the self-service platform up 53% on the prior period. Our key part of our growth strategy centers around the returns we generate from the revenue generating capital we invest. On Slide 16, you'll see the results from our endeavors this year.

Operator

We completed 10 projects in the year, that's in the UK, a mixture of full refurbishments, rebrands of acquisitions and space optimization projects. We have an impressive track record of delivering returns in excess of our targeted 33% return hurdle. Despite our estate being very well invested, the 2nd and third generation refurbishments continue to deliver at or ahead of our target as we roll all the learnings from the new centers into the site refreshes. We plan to complete at least 6 further refurbishments in FY 2025 and rebrand all the Puttstar centres to put in play by Hollywood Bowl. FY24 was another great year for new centre openings with 4 new centres opened in the year.

Operator

We acquired Lincoln Bowl at the very beginning of the financial year completing its full refurbishment and rebrand in April 24. The centre is trading nicely ahead of expectation. We opened a new Hollywood Bowl in Dundee in May 24 next to the number one cinema in town. It opened strongly and is delivering in line with expectations. Hollywood Bowl Colchester that opened in July is the largest center we've opened to date over 2 floors boasting 26 lanes of bowling, 20 holes of mini golf for large and diverse arcade and our tried and tested food and beverage offer.

Operator

This center is also trading in line with expectation. In August, we opened Hollywood Bowl Westwood Cross. It's in a predominantly retail led scheme in Kent and has been the most successful new opening in our recent history. Since the start of FY 2025, we opened Hollywood Bowl Swindon in November, taking our UK portfolio to 73 centers, and we have 3 further openings scheduled for this financial year. We also have a healthy pipeline of new centers for the UK and remain confident we can open at least 2 new centers a year over the next 5 years, which is in line with guidance.

Operator

On Slide 18, we look at our investments in technology. Over the last 12 months, we've been developing our own bespoke booking system, Compass. As our business has evolved, we were very aware that the current off the shelf systems are not suitable for the size and complexity of our business. Compass was launched during the second half of the financial year and after a successful pilot rolled out to all centers in the UK. The system is on test in a third of the Canadian centers and will be fully rolled out across the Canadian businesses over the next 8 weeks.

Operator

The immediate benefits of the EU system include increased speed across all three channels, that's the web, the customer's contact center as well as customers that come to us in person. It's delivered improved reliability and a significant reduction in costs compared to the older system, generating a 32% return on the GBP 1,500,000 we invested from cost savings alone. Savings we will be reinvesting into improvements to the digital journey using our new system as the core enabler for growth. We do have an ambitious development roadmap for the new system which will include enhancing functionality to better improve our self-service options, customer engagement as well as some operational efficiencies. Turning to ESG, we have a focus on 3 core areas as

Speaker 2

part of

Operator

our ESG strategy as laid out on slide 19, operating safe and inclusive leisure destinations, creating outstanding workplaces and a commitment to operating sustainable centers. In FY24 over 1,000,000 concessionary games were bowled by of special needs groups and their carers, school groups and local community support groups as we strengthened the relationships within the local communities we operate. We also raised over £85,000 for our nominated charity Macmillan, a charity partner chosen by our team members. We have a great pride in our industry leading in house training and development programs. This year, we achieved record attendance in our management development programs and we're delighted that 58% of internal management promotions were achieved through internal appointments, with 11% of our team members participating in development programs.

Operator

For the 3rd year running, we ranked amongst the top 25 UK Best Big Companies to Work For. We also retained the top 3 star ranking for our working practices at our Hamilt Emsley Group Support Office. Our UK centers also received a coveted 2 star award from Workout. These results explain why we have relatively low team member turnover rates compared to the wider leisure market. Building a sustainability focus within our centers, 80 2.9% of all waste was recycled in the year.

Operator

We installed solar panels on 3 more of our properties. 30 centers now have solar arrays on their roofs, generating an annual yield of over 5,000,000 kilowatt hours. Now with an increased competitive set, it's more important than ever to protect our value for money proposition. Now we've been able to swallow all of the recent inflation led pressures and to a large extent, the unexpected tax burden put on us by the new government. We have been able to do this due to our unique operating model.

Operator

It certainly helps having close to 50% of our revenues attracting 0 cost of sale. The relative price of a game of bowling at Hollywood Bowl has actually fallen since 2021 as demonstrated on the graph at the bottom of the slide. An adult game of bowling is 59.1% of an hour's pay at the national living wage rate, down from 79.7% in 2018. We remain the lowest priced of all the branded bowling operators and use our dynamic pricing to encourage bookings in our shoulder periods and drive yield by effective use of our technology rather than simply increasing the headline price. There are further opportunities to become more sophisticated without pricing and we do have a number of trials scheduled for the coming months.

Operator

Our approach to pricing is a key competitive advantage with 20 new competitors expected to be coming into the markets in which we operate over the next 12 months. The pricing gap between us and other comparable activities is growing, making Hollywood Bowl all the more attractive to our core group of customers. Turning our attention to Canada, as you saw from the early financial operational slides, FY 2024 was another very successful year for our North American operation. We set out a market update on slide 22 demonstrating the progress we've made to date and also the size of the opportunity in Canada. From learnings of both owning and operating a Canadian business coupled with the customer research completed.

Operator

Now whilst there are some nuances in the market that can't be ignored, there are huge amounts of similarities between the UK and UK customer base. There's a large target customer base and demand for indoor family entertainment with, as we have in the UK, weather being a driver for choice. Bowling has a strong foothold in Canada and high levels of participation. There are over 170 10pin bowling Centres in Canada as well as a whole load of other operators with Candlepin and 5pin, with the vast majority of them underinvested independently operated businesses. Now we got busy in the early part of our ownership acquiring the most obvious assets growing from 5 to 13 centers and becoming the market leader on size and profitability.

Operator

There are still a number of other acquisition targets and we're increasingly excited about the new center opening potential. Retail in Canada is starting to follow the same trends as Europe and America and landlords of the high footfall, very well located shopping centers and out of town retail parks have been impressed with what we've created out in Canada and coupled with our strong covenant we are building a reputation as the leisure tenant of choice. Quebec also presents opportunity albeit with some risk, Dual language requirements as well as different taxation, liquor and people laws are all areas that will require careful consideration before we enter this territory. As laid on Slide 23, it's been a very busy year for the team out in Canada. 3 full center refurbishments and rebrands were completed in the year and 1 new center opened.

Operator

Now these are transformational refurbishments and expensive property development projects, fixing decades of underinvestment, installing the latest technology and the revamped Splitsville brand. Early performance has been very positive with Kingston as an example showing like for like growth of over 80% in the 1st few months post completion of the refurbishment. The centralization of marketing, finance, people and property has helped speed up the implementation of operational improvement initiatives and the customer experience. A number of trials to more closely align the Canadian offer with the UK way of doing things has yielded very positive results, bolding your own shoes, dynamic pricing and the installation of pins on strings, just some examples of the initiatives underpinning the growth. Slide 24 gives more detail on the first new opening completed in Canada, Waterloo in the Greater Toronto Area.

Operator

The site and old nightclub co located with an escape room and 5th fitness centre has 3 large universities on its doorstep and a strong local family demographic within a 15 minute drive time. The build cost was $6,000,000 and whilst the delays were frustrating, provided a fabulous learning opportunity for the next raft of new openings slated for FY 2025. The targeted return on investment for the center is 15%. Now that's 4 percentage points lower than the UK, that's due to the increased cost of building. We're expecting a slower maturity profile for the first few new centers out in Canada that should accelerate as the splitsville brand gains traction.

Operator

On Slide 25, we look at our most recent acquisition, a site in Saskatoon, Saskatchewan. Unlike in the UK, there are large spaces available for leisure operators in high quality locations. And as the Canadian business model is in its infancy, we thought it prudent to test as many options as possible. Stobed was a family owned business opened in 2020 with a very high quality fit out, meaning that it required no immediate capital expenditure from us and has some notable differences to the Splitzville offer. In addition to the 15 lanes of bowling, the restaurant is full service with an extensive menu.

Operator

It has a large competition size indoor electric powered go kart track, a large owned arcade and an indoor high ropes course with a big zip wire. That was rather amusing watching Laurence fly down. We paid $11,000,000 for the business. We've retained the very strong management team and are learning a huge amount from the operation should any other suitable locations become available. The property pipeline is healthy in Canada as laid out on slide 26.

Operator

We are on-site in 2 new builds, both in very different locations to enable us to make controlled tests for the offer. In addition to the SOLUS location test in Waterloo and the multi activity centre in Saskatchewan, the new centre in Kanata, Ottawa will be the 1st centre co located with retail and leisure and the 1st site to closely mirror the UK offer, selling games with a UK style food offer. The centre is in an ex electrical retail unit and will be the only 10 pin bowling offer in Ottawa. Creekside in Calgary, also due to open in H1 of FY 2025, is in an old retail unit, co located with retail and fitness centres to the north of the city of Calgary. We have one further centre agreed and signed that it's due to open in the age of 1 of 26 and we're in advanced discussions with landlords and a number of other opportunities.

Operator

So in summary, it's been another very busy and successful year for the group. Demand for our offer remains strong and we've worked hard to keep our prices and price increases well below inflation and the cost of our product fabulous value for money. We've got a strong balance sheet with a simple proven business model and a capital allocation policy focused on providing progressive shareholder returns. We'll start with questions from the room first before we move on to the phones, if that's okay with everybody.

Speaker 3

Maybe just to start on like for like growth. So you're saying up to 5.9% in the UK has been very impressive since 2019. Obviously, this year was a bit weaker because comps and because maybe a moderation. So as we're thinking about like for like growth in the 2025, 26, 27, are you still comfortable in obtaining, say, a low single digit like for like across the UK centers?

Speaker 1

Yes. Yes. I mean, we've the analysts have all got estimates between sort of 2.33% like for like. We're comfortable with the forecast along with new centers that would give us high single digit growth in the UK.

Speaker 3

Perfect. And then maybe just on the recent acquisition, Stokes. So obviously, there's a couple of different ancillary sort of revenue streams there. Could we see this as almost similar to what you did with POTS Stars and this is a perfect opportunity to look for new ancillaries that could potentially roll back in other UK centers? Or is it more of the this was just a really well invested center that you want to get your hands on, see what happens then potentially more lanes could be put in or amusements could be put in.

Speaker 3

What's the rationale there?

Operator

It's probably more relevant for Canada than it is the UK. What's different about I suppose in Canada is there's a lot more space in higher quality locations at affordable rents. To try and recreate something like stoked in the UK, you just need kind of 60,000 square foot and in the locations that we want to be in the UK that space just isn't available, not certainly in the rents that we can afford. So this was a fab opportunistic buy that was fabulous return on the invested capital and will trade really well, but does give us a great opportunity to test a multi activity offer. And I think now the learnings for that sure, we can retranslate over into the UK certainly like in Colchester where we have gone with a multi activity offer which also dovetails into the one that we've got in York and in Uxbridge, a new site that we'll be opening with Bowling and another offering be it Duffy Bowling or Mini Golf offers in terms of what might be available there.

Speaker 1

I think we've got time to review this. We've got time to continue to see EBITDA come through on that site without having to rush and make a decision on its success or otherwise. And as Steve mentioned, this is more of a Canadian opportunity rather than one in the UK.

Speaker 2

Yes. You're saying about the UK having 20 new competitive site openings in 2025. How many have you had in 2024 opening up against you? And how big is the UK market now in terms of the number of building sensors because it has been increasing quite a bit over the last couple of years. In terms of Canada, are you seeing any increase in peso or excellency there?

Operator

Yes, sure. So I mean, in terms of the new sites that were opened in markets this year, I think from memory it was 18, but I'll just have to double check that and I'll get back to you and clarify it. Yes, I mean, it's there has been a huge increase in experiential leisure offerings post COVID. I think if anything what we're seeing is that start to settle down a bit more now really. There's lots of offerings coming in what we would deem as Tier 2 locations rather than the top quality locations that we're trading in.

Operator

And as you've seen from our numbers, we've managed to comp what was an incredibly strong year last year, so despite the increased competitors that are in the market. I think as well the types of people coming in aren't really what we would class as direct competitors in terms of the all inclusive family entertainment offer at a really good value for money price point. And as we've seen, the price gap has continued to grow between us and these new entrants and new competitors because their payroll model is very different, their cost of sale model is very different, their gross profit model is different and they're paying higher rents. Their pricing has to be quite a big way away from where we are. So I do feel as though we're better placed than most to be able to make the most of the increased levels of customers that we've got coming through as well as the increased levels of costs that everybody else is going to be seeing.

Operator

In Canada, no, not yet. We haven't seen significant increases in competition over in the Canadian market. There's already some quite well established all inclusive operators out there, the likes of The Rec Rooms, Dave and Buster's, other operators that are currently trading there. But yes, time will tell. It's one of the downsides of being listed is that you have to tell everybody how well you're doing.

Operator

So opportunity for copying for sure.

Speaker 4

Yes. Can you talk a bit about cost savings and what you can do on labor? Hinge on strings presumably is very cost effective. Also, I mean, is there automation checking that kind of thing? So obviously that goes up a big cost to look at.

Speaker 4

Yeah, that's my first question.

Operator

So I mean on payroll, we do need to be really careful. We are a hospitality business and customers come to us to be hosted. So whilst we can do check-in and we've never been able to do automated check ins before with our new system, we are going to develop out some testing on automated check-in, but we need to do it really carefully to make sure that we aren't damaging the hosted experience that we offer. Yes, 18.6% payroll to revenue is pretty low and pretty lean as it is now. So I'm of the mind that going harder on that may compromise the offer that we deliver to our customers.

Operator

And we are really proud of the customer service scores that we're able to deliver year on year. So I think it's a case of us making sure that all of the cost lines are being as keenly managed as they possibly can. But yes, increased taxation isn't helpful for hospitality businesses for sure.

Speaker 4

And part of STARZ obviously very much on cash to write down. When you say what happens now, Brazilian sites aren't EBITDA negative. And do you do you exit them 1 by 1 as the leases come up?

Speaker 1

I mean, look, it's early to say whether you'd exit them and actually having taken the impairment on them. Actually, they'd be contributing, strangely, in a strange way. But we do have breaks on the leases. However, we're not going to be flagging that we're coming out of those. The breaks are, you know, 10 year breaks and the first site opened in 2020.

Speaker 1

But what we're not going to be doing is opening up soulless pop star sites.

Operator

I think as we go forward, we've mentioned, we've rebranded the multiple play by Hollywood Bowl. It was really difficult to get a new brand to gain traction. We did open them up in the post kind of boom period of the in just before COVID and then they did incredibly well in those 1st 2 years. Post COVID, what we've seen is a kind of normalized levels of trade and seeing the numbers that have been put out by likes of Brian Peer and other mini golf offerings, they're kind of trading in similar kind of levels to those types of operators. So still contributing, as Laurence mentioned, I mean, part of the big write down was because of the way that the leasing has to be adjusted for post IFRS 16, which is a little bit painful.

Operator

I think on a more normalized basis, you won't be seeing that same levels of impairment coming out. Notwithstanding that, it's not something we're going to be rolling out. Putting under the Hollywood Bowl brand gives us the ability to leverage that through the website, the increased levels of customer traffic that we're seeing, as well as if they continue trading as they are now, we'd be quite happy with that really rather than expecting to see improved levels of growth. Thank you.

Speaker 5

Yes, got the questions. Just in terms of your comments on sort of pricing, obviously, talk about the gaps widened structurally with peers. Are you happy to see that gap widen further or do you think now's the time to start seeing prices move in line with peers?

Operator

I don't think now's the time to be doing price increases. There is consumer confidence is mixed. I think this year has felt much more like a normalized year, Greg. And then those kind of post COVID years didn't matter whether we were boiling hot or chucking it down with rate, we were still full. This year, we saw a similar normalized pattern that we'd seen in 2016, 2017, 2018 and 2019.

Operator

This year as well, we've seen more people looking for the value offers, which has been great for us because it's melded we've been able to fill those shoulder periods where we've got the offers available and free up capacity for the busier times of day. That says to me that customers are looking for value. And if we don't need to put pricing up, I'd rather keep it in my back pocket. So we haven't made any of the immediate changes to pricing like a lot of others have done with the changes that are coming in April from National Insurance Contributions and some of the hits. Equally though, I don't think we've seen fully the impact of what that will mean for us.

Operator

All of our supply chain is facing the same issues as everybody else on the National Insurance Contributions. They have yet to start moving their prices. I think taking a call in April to see where we are, given that we don't need to in the short term, I think would be the prudent thing to do. Let's trade through this peak trade period, keeping our prices as competitive as they are, which again puts us in good stead for the summer months when our customers might look to come back to us when the kids are next on holiday.

Speaker 5

One for Laurence. So quite a lot of capital is going into Canada now. What's the sort of return on capital in that business set or leading to?

Speaker 1

So in terms of new centers, as Steve mentioned, it's going to take time for the brand to come out of its infancy and therefore the maturity curve on new centers will be slower than it is in the UK, but that will get better as the brand gets known more. You can open up a center in the UK, it can be 3 hours away, but everyone still knows Hollywood Bowl in Sheffield or Liverpool, etcetera. You open up to a bowl in Ottawa, as Steve mentioned, in Kanata, you are 2 hours away from the closest center in terms of the Holy Spirit Bowl, sorry, in terms of the Spitzville. So I think they will be slower. We're targeting a return in our refurbishment of 25%.

Speaker 1

And again, as Steve mentioned, we're correcting decades of underinvestment in terms of maintenance CapEx. Now there's an argument that says that over 4,000,000 that we spent in Kanata, probably half of that was maintenance CapEx, replacing powers, having to do electrical changes, having to take out asbestos, etcetera. But we don't split it, we never have, but I'm still confident we get more than 25% return on the Kanata site. We'll be doing that again in a number of sites within Canada through FY 2025 as well. So I think it's going to be a the first lot of refurbs, we're going to be spending significant amounts of capital to work some of these maintenance capital to catch up CapEx in terms of maintenance.

Speaker 1

But then after that, when they get their second lot of refurbishments, which should be in years to come, there'll be less of that, but the return should still be really strong. On new sites? On new sites, we have as the brand grows, the year 3 ROI will be 20%, the year 1 will be around 15%. And acquisitions will be slightly different dependent on what we're buying it for.

Speaker 5

Just going back to sort of just on pricing and sort of current trading, you've seen any just your comments about people looking for value. Is that a shift that you've seen in recent months or is that sort of we've seen through the cost of living as well as on that sort of the student market that area was

Operator

It was it's just definitely a trend that was really prevalent during the whole period of last year. Students have felt the pinch for sure because their student rents have gone up, the access to debt has been the same and employment isn't as high as it has been before. It was really, really challenging to recruit team members. Now it seems a bit more so much more like it was normally as there's less jobs around. And certainly the students will have been feeling the pinch on that, but then students represent less than 6% of our revenues.

Operator

It's not a big part of our overall market. And that's why it helps us sort of fill those shoulder periods and help us drive incremental yields on the more premium times of the day and the weeks.

Speaker 1

I think, well, the other piece around that will be, again, as we said, until we get through April May in June time, I don't think we're really going to see the effects of the government changes around insurance, cash insurance, and even the national living wage and minimum wage impact around what it might do to inflation, what it might do to interest rates, doing something now, it could be full hardy if you have to roll it back. So we'll be waiting to see what we do to set the price level. Thank you.

Speaker 5

Can you give us an indication of what you would expect to happen in 2025 per type of item?

Speaker 1

I mean, we don't split it out. So I'm not going to sort of put it

Speaker 5

out there.

Speaker 1

In terms of the UK like for like growth of 3%, we expect a third of it to come from volume and 2 thirds of it to come from spend. And that will be a mixture of there might be some prices that you mentioned earlier, we'll wait and see where that is, but otherwise it will be increased dwell time and therefore increased spend when they're in with us.

Speaker 5

And do you expect also like for likes to go up for ad stars in terms of 25?

Speaker 1

I mean the rebrand will help, but it is a small proportion of our estate. So we're looking at 5¢ here, so I wouldn't be too focused one way or the other it's not going to move them the dial.

Operator

Great, thanks very much everyone.

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Earnings Conference Call
Hollywood Bowl Group H2 2024
00:00 / 00:00