Good morning from Paul & Graham.

Right to reply - XP Factory (LON:XPF) - we're always happy to talk to companies if they think we've got something wrong in the SCVRs. I had a call yesterday from a rather miffed CEO of this experiential leisure company. He said that the deficit on the lease entries on its balance sheet was due to netting off landlord contributions (creditors - for rent-free periods and reverse premiums) against the Right of Use Asset. That sounds plausible, so I've asked for more information, and will publish that here when it comes through. Just wanted to flag it straight away.

Here we are, XPF's CFO explains the lease entries - many thanks for this - it certainly puts a much better picture on the lease entries on XPF's balance sheet. So my apologies for jumping to an incorrect assumption about these entries in yesterday's report. I think we're all learning as we go along re IFRS 16, which almost everyone agrees is a terrible accounting standard, a big backward step!

Subject: Response to Paul Scott's comment
Whilst I will leave you to form you own opinions on the XP Factory performance, there is at least one factual inaccuracy in your comment which I believe is misleading. You state that the “balance sheet shows a large deficit on the lease entries, suggesting BOOM must have a significant number of loss-making sites”. The company has been the beneficiary of significant cash contributions from landlords on the majority of its Boom sites and on some Escape Hunt sites. Under IFRS 16, these landlord incentives are netted off against the Right of Use asset. Ordinarily, at the lease inception, the right of use asset would exactly set off the leasehold liability. However, when a landlord contribution is received, the Right of Use Asset is reduced by the contribution, meaning it will be smaller than the lease liability. Once the lease commences, the lease and the right of use asset will amortise down and slightly different rates, depending on the rental payment profile, which will lead to a further mismatch. However, the substantial majority of the difference in the case of XP Factory is due the cash benefit from landlord contributions – ie a benefit to the company. It has nothing to do with the performance of the individual sites, which within Boom generated an 18% EBITDA margin…

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