Final Results
Esporta PLC
14 March 2002
14 March 2002
PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2001
Esporta plc, a leading operator of health and fitness clubs in the UK,
announces its preliminary results for the year ended 31 December 2001.
Financial Summary
- Turnover up 26% to £100.2m (2000: £79.3m)
- Turnover for comparable clubs up by 6%
- EBITDA down 7% to £20.8m (2000 Restated: £22.3m) *
- Operating profits down 36% to £8.5m (2000 Restated: £13.2m) *
- Profit before tax of £4.5m (2000 Restated: £10.7m) *
- Earnings per share before exceptional items down to 1.94p (2000
Restated: 5.13p)
- Final dividend of 0.90p per share (2000: 0.90p) making a total of 1.40p
for the year (2000:1.35p in respect of 2000 profits)
Operational Highlights
- Membership numbers up 27% to 182,000 (2000:143,000 excluding Espree)
- 12 clubs opened in 2001 giving a total of 41 open at the year-end
* Before exceptional charges of £11.9m
John Grieves, Chairman, said:
'2001 was a difficult year for the Group. We failed to meet our own
expectations and those of our shareholders. Following the profits warning in
October, the Board took immediate remedial action. Major changes were made at
senior management level and a thorough overhaul of operations was commenced.
'The results of the review of operations conducted by Maurice Kelly, which is
the subject of a separate announcement today, confirm the Board's confidence
in the underlying quality of the assets and the capability of the business to
achieve attractive rates of return. The measures set out in the announcement
constitute straightforward management improvements and this fact gives the
Board confidence that the actions taken will have an immediate and
significant impact. Trading in 2002 has started well, with the number of new
members joining in the crucial first two months of the year increasing by 24%
on a like-for-like basis.'
Enquiries:
Maurice Kelly, Chief Executive Esporta plc On 14 March 020 74045959
Michael Ball, Finance Director Esporta plc 0118 912 3506 thereafter
William Cullum Brunswick 020 7404 5959
Chairman's Statement
2001 was a difficult year for the Group. We failed to meet our own
expectations and those of our shareholders. Following the profits warning in
October, the Board took immediate remedial action. Major changes were made at
senior management level and a thorough overhaul of operations was commenced.
The measures taken, described in more detail below, are already beginning to
show significant benefits.
Results
As previously announced, results for the year ended 31 December 2001 reflect
the Group's change of accounting policy in respect of the capitalisation of
interest on new developments, with all interest now being expensed as
incurred. The impact of the accountancy policy change on the results for 2001
has been to reduce profit before tax by £0.2m. The accounts include a prior
period adjustment and operating profit for the year to 31 December 2000 has
been restated at £13.2m (£13.0m) and profit before tax at £10.7m (£11.0m).
Turnover for the year increased by 26% to £100.2m (2000: £79.3m) but
pre-exceptional earnings before interest, tax, depreciation and amortisation
('EBITDA') decreased to £20.8m (2000 Restated: £22.3m). Consequently,
operating profits before exceptional items also decreased, by 36%, to £8.5m
(2000 Restated: £13.2m). This reflected higher than expected initial trading
losses from new clubs due to lower opening membership numbers, a worse than
expected performance by those clubs acquired from Healthland in 2000, both in
the UK and Continental Europe, and disappointing joiner numbers principally
in the second half of the year.
After charging exceptional items of £11.9m, principally relating to fixed
asset impairment charges, a provision against resaleable memberships at the
Esporta Riverside club in Chiswick and employee termination costs, the Group
incurred an operating loss of £3.4m (2000 Restated Profit: £13.2m). After net
interest charges for the year of £4.0m (2000 Restated: £2.5m), the loss
before tax for the year was £7.4m (2000 Restated Profit: £10.7m).
Pre-exceptional basic earnings per share were 1.94p (2000 Restated: 5.13p)
and, after exceptional items, a loss of 4.99p per share.
Dividend
The Board recommends maintaining the final dividend at 0.90p per share to be
paid on 7 June 2002 to shareholders on the register on 10 May 2002. The total
dividend for the year will be 1.40p, an increase of 4% over last year. This
reflects the Board's confidence in the Group's recovery and in its prospects
for resumed growth.
Clubs
We opened 12 clubs in 2001, including two in Iberia and one in Sweden, and we
have already opened two clubs in 2002 making a current total of 43. We expect
to open a further three clubs this year and, hence, expect to be operating a
total of 46 clubs by the end of 2002. During the year we disposed of the two
City-based Espree clubs and since the year-end rebranded as Esporta the two
adult-only clubs operating as Eden. As a result, all clubs in our estate are
now operating as Esporta.
Membership
Total membership of clubs increased by 27% to 182,000 (December 2000: 143,000
excluding the Espree clubs), with adult membership reaching 139,000 (December
2000: 107,000 excluding Espree). Retention levels within the UK have
continued to be satisfactory, with over 67% of those who were members of
Esporta on 31 December 2000 still members twelve months later. In Continental
Europe, retention levels in respect of our clubs at Las Rozas and Valles have
been lower than expected as memberships originally sold at lower Healthland
rates are renewed at higher Esporta determined prices.
Management Changes
Graham Coles left the Group on 21 October 2001 and, with effect from 11
January 2002, was replaced as Chief Executive by Maurice Kelly. We are
delighted to welcome Maurice to the Board. His extensive experience of the
development and operation of multi-site consumer-facing businesses, gained
with both Granada and the Easy Group, is already proving to be of
considerable benefit to the Group. On behalf of the Board, I would also like
to express thanks to Michael Cairns who, at short notice, acted as Chief
Executive during the interim period and who has now reverted to his
non-executive role.
Mark Beadle left the Group on 20 July 2001 and was replaced as Finance
Director by Michael Ball. Michael has already made a major contribution and
the Board is pleased to have secured his services.
A number of other senior management changes have taken place. These include
the resignations of Keith McAlister and, since the year-end, Jonathan First,
both of whom joined Esporta from Healthland shortly after the acquisition, in
2000, of some of the latter's clubs.
Current Trading
Under the leadership of Maurice Kelly, trading in 2002 has started well. At
the end of February, total membership stood at 196,000, including 151,000
adults, representing an increase of 25% against the February 2001 closing
number on a like-for-like basis and an increase of 8% against December 2001.
This is above budgeted expectations and will benefit membership income.
It is encouraging to note that, in the crucial first two months of 2002, the
number of new members joining our clubs opened in 2000 and prior years has
increased by 24% on a like-for-like basis. In addition, several of the clubs
that opened in 2001 with disappointing initial membership numbers have grown
strongly in the first two months of 2002.
Joiner numbers have benefited from the decision to adopt a more flexible
approach to charging joining fees in response to local market conditions and
the increased use of direct marketing techniques. The use of direct marketing
has been instrumental in increasing the level of enquiries and Esporta has
continued to convert a high proportion of enquiries into
joiners, reflecting the underlying quality of the facilities. The Board is
confident that in locations where joining fees are not being charged, the
short-term reduction in joining fee income will be more than compensated by
the consequent and ongoing increase in membership fee income, despite the
possibility of increased attrition. Revenue for the two months to the end of
February 2002 for our clubs opened in 2000 and prior years has increased by
over 5% on a like-for-like basis, despite the reduction in joining fee
income.
Our clubs in Belfast and Kingston opened on 1 March 2002 and initial
membership numbers were ahead of those achieved in eight out of the nine UK
clubs opened in 2001. Adult membership numbers are now over 1,700 and 2,000,
respectively.
Outlook
After the difficulties of 2001, the Board's overriding objective is to manage
the existing assets of the Group to their full potential and this focus is
reflected in the reduced development programme for 2002 and 2003.
The Group has unconditionally contracted for a further eight sites, three of
which are expected to open in the current year and five in 2003. We are
examining ways in which we can reduce the construction and fit-out costs of
these clubs, without any significant detriment to the quality of the
facilities, and have plans to phase in ancillary facilities and associated
staffing costs only as membership numbers grow. In this way, we expect to be
able to reduce initial trading losses, achieve lower capital costs and
improve the cashflow profile associated with each development.
In relation to Board approved sites which are not yet contractually
committed, a similar detailed review will be conducted. Revised feasibilities
will be prepared for evaluation by the Board prior to any contractual
commitments being made.
The results of the review of operations conducted by Maurice Kelly, which is
the subject of a separate announcement today, confirm the Board's confidence
in the underlying quality of the assets and the capability of the business to
achieve attractive rates of return. The measures set out in the announcement
constitute straightforward management improvements and this fact gives the
Board confidence that the actions taken will have an immediate and
significant impact. Annualised cost savings of £4.2m have been identified and
measures have been taken to realise the majority of these so that a high
proportion will benefit the 2002 financial year, principally in the second
half. The Group is also in discussions with third parties with a view to
contracting out non-core activities including food and beverage and club
maintenance which is expected to yield further annualised cost savings of
£0.5m. These actions are expected not only to have significant benefits for
the financial performance of the Group but also to improve the level of
service to members and to enable our club managers to focus more effectively
on driving sales and profit.
Further revenue enhancing actions already taken are expected to yield a
minimum of £0.3m of non-volume related revenue per annum.
As a consequence of these actions, the Board's confidence in the future of
the business has increased considerably. However, before committing to
further expansion, the Board wishes to be satisfied that the strategy now in
place, to rectify the short-term operational issues that have impacted the
business, is proving to be effective. We are confident of seeing substantial
benefits from these actions and, when these have been realised, we intend to
resume the development of our estate.
Notice of Approaches
The Board announced on 11 January 2002 that it had received approaches that
may or may not lead to an offer or offers being made for Esporta. The Board
has made it clear that it is entirely open-minded about these approaches and
willing to give appropriate consideration to any firm proposal made in an
acceptable form. Following the review of operations conducted by the Chief
Executive, the Board has a benchmark against which it can evaluate any such
proposal if received. In conducting any such evaluation, the Board's
overriding objective will be to maximise shareholder value.
John Grieves
Chairman
Operating and Finance Review
Trading
Sales increased by 26% to £100.2m (2000: £79.3m). Earnings before interest,
tax, depreciation and amortisation ('EBITDA') before exceptional items
decreased by 7% to £20.8m (2000 Restated: £22.3m) and operating profits
before exceptional items fell to £8.5m (2000 Restated: £13.2m).
The increase in sales was driven by a solid performance from our established
clubs and from the acceleration of our opening programme in 2001, including
our expansion into Continental Europe. During the year, nine clubs were
opened in the UK and three in Continental Europe. These clubs contributed
revenue of £8.5m during the year. Within our existing estate, turnover at
clubs opened in 1999 and prior years increased by 6% on a comparable basis.
This excludes the non-core Espree clubs sold in August 2001. Turnover from
clubs opened in 2000 has also increased substantially as they contributed for
a full year for the first time and membership levels are continuing to grow
towards maturity.
The growth in sales is derived largely from higher membership income, which
in turn has been driven by increases in membership numbers, primarily from
clubs opened in 2001, and from the continuing development of the 2000
openings. Joining fee income was also higher than in 2000 reflecting the
increased number of new openings in 2001.
Esporta continues to have good levels of ancillary income. The decision to
contract out our food and beverage services, as set out in the Chief
Executive's Review announced today, will reduce reported revenue but is
expected to improve profits. We will continue to look to introduce additional
ancillary services for members which will augment our profits and improve
member retention. In 2001, we launched 'Esporta Freeway', an initiative that
allows members to use other Esporta clubs within particular bandings at no
additional cost, and this has been well received by members.
In early 2002, the decision was taken to rebrand as Esporta the two clubs
operating under the Eden name to facilitate more efficient marketing of the
Group's businesses. However, these clubs, at Chislehurst and Repton Park,
Chigwell, will continue to offer an ambience and facilities aimed at the more
mature and affluent customer who appreciates a child-free environment.
Operating profits before exceptional items for the year were impacted by
disappointing joiner numbers in the second half of the year, initial trading
losses associated with the acceleration of the opening programme in 2001, and
from losses arising at the two UK clubs which were acquired from Healthland
in 2000. In aggregate, the twelve clubs opened in 2001 made operating losses
in the year, a reflection of pre-opening costs and of the maturity profile as
membership levels are built up, and these losses were higher than
expectations. The nine UK clubs opened in 2001 contributed operating losses
of £3.9m but in aggregate are expected to be profitable in 2002. The three
clubs opened in Continental Europe contributed operating losses of £2.1m and
are not expected to be profitable in 2002.
Within Continental Europe, Esporta now has three clubs open in Iberia. Two of
these clubs, Las Rozas in Madrid and Valles near Barcelona, have a high
proportion of members at the lower membership rates sold by Healthland Spain,
the business acquired in November 2000. The renewal of memberships at higher
prices, determined by Esporta, has led to significantly greater attrition in
these clubs. These renewal prices, whilst generally ahead of the local
market, are at a lower level than in the UK, although prices will be
increased once the Esporta offering is established. Membership levels at Las
Rozas are now growing and the club has continued to be profitable. The club
at Kungens Kurva, Stockholm, which opened in July 2001, has traded below
expectations and is expected to continue to make operating losses in 2002.
The 2001 results were further reduced by the impact of several exceptional
charges during the year, which in total amounted to £11.9m. In the light of
their actual and anticipated trading performance, an exceptional impairment
charge of £6.0m has been recognised against the carrying value of assets in
respect of the clubs at Finnieston, Milton Keynes, Stoke on Trent and Kungens
Kurva. There were further charges in respect of the severance and recruitment
of certain directors and senior management amounting to approximately £1
million, an impairment charge of £1.3m against the carrying value of the two
Espree clubs prior to their disposal and, finally, a charge of £3.6m in
respect of the recognition of liabilities arising from the redemption of
resaleable memberships at the Esporta Riverside club in Chiswick.
Returns on capital employed have continued to improve for clubs opened prior
to 31 December 2000. This is illustrated in the table below showing the
estate categorised by year of opening and the improvement in performance of
clubs as they become established. The clubs opened in 2001, including three
in Continental Europe, have a combined negative return on capital employed
higher than anticipated and this has diluted overall returns.
Return on Capital Employed* Number
Of Clubs 2001 2000 1999
________ ____ ____ ____
Established clubs 15 21% 20% 16%
1999 openings 5 10% 2% (10%)
2000 openings 8 4% (3%) -
2001 openings 9 (25%) - -
Total UK 37 11% 15% 13%
Continental Europe 4 (34%) - -
Total 41 10% 15% 13%
* Return on capital employed is calculated excluding central administration
costs from unit profit and capital employed. Dividends and taxation are
excluded from capital employed. The Espree clubs sold during 2001 have been
excluded from the numbers shown.
Development
In 2001, we opened nine clubs in the UK (in Chiswick Park, Wolverhampton,
Friern Barnet, Romford, Chelmsford, Repton Park, Rugby, Leeds and Wandsworth)
taking the size of our UK estate to 37 clubs at 31 December 2001. Since the
year-end, we have opened a further two clubs in Belfast and Kingston. We have
no further UK club openings scheduled for 2002 but have two further
developments in the UK, in Birmingham and Hemel Hempstead, to which we are
unconditionally contracted and which are planned to open in 2003. We also
have two UK sites to which we are conditionally contracted, dependent on
planning issues, which should open in 2003, if the planning issues are
resolved.
In Continental Europe, we opened three clubs during the year; in Valles, near
Barcelona, Can Drago in Barcelona and at Kungens Kurva in Stockholm, which,
together with the Las Rozas club in Madrid acquired in late 2000, makes four
clubs in Continental Europe in total. We expect to open three further clubs
in Iberia during 2002 and we are unconditionally contracted in respect of
sites in Valencia, Lisbon and Lille with projected opening dates in 2003.
Good opportunities for growth remain both in the UK and in Continental
Europe, but the Board recognises the need to demonstrate that existing assets
are being managed to their full potential before committing further funds to
expansion. This is reflected in the reduced estate development plan in place
for 2002 and 2003.
Financing
The Group has in place a syndicated revolving credit facility of £125m, which
is due to run until June 2004, and an unsecured overdraft facility of £10m.
Until 5 March 2002, the Group also had in place two £25m bilateral
facilities, renewable on an annual basis. In the light of the reduced estate
development plan for 2002 and 2003, the facilities are considered to be
surplus to requirements and have not been renewed.
Tax
The effective rate of tax for 2001 is 30% excluding exceptional items (2000:
20%). The principal reason for the increase has been the expansion into
Continental Europe where the higher than expected initial trading losses
arising are not relievable against the profits generated by the more mature
UK estate. The combination of non-relievable Continental European losses and
the lower profits in the UK have had an exaggerated impact on the overall
effective tax rate for 2001.
The effective tax rate for the UK business has remained at around 20% and its
main determinant has been the continued significant expenditure on new units
resulting in claims for capital allowances being significantly higher than
the depreciation charge. Given the reduced expansion plans for 2002 and 2003,
the underlying tax rate in the UK will increase towards 30% in those years.
The underlying cash tax rate for the Group as a whole is likely to be further
impacted by trading losses in Continental Europe.
For the year ended 31 December 2002, the reported tax rate will reflect the
adoption of FRS19 Deferred Taxation. This requires full provision to be made
for deferred taxation and will therefore tend to increase the reported tax
rate ahead of the underlying cash tax rate.
Cash Flow
Net cashflow from operating activities was £21.4m (2000 Restated: £23.5m).
After capital expenditure, net of disposal proceeds of £0.9m, of £43.0m
(2000: £30.2m) and payments for taxation, interest and dividends totalling
£8.3m (2000: £5.5m), net debt increased by £29.9m to £73.1m at 31 December
2001, well within the level of committed borrowing facilities.
The directors accept responsibility for the information contained in this
document and, to the best of their knowledge and belief (having taken all
reasonable care to ensure that such is the case), the information contained
in this document is in accordance with the facts and does not omit anything
likely to affect the import of such information.
Consolidated profit and loss account
for the year ended 31 December 2001
Before
exceptional Exceptional
items items Total Restated
2001 2001 2001 2000
Note £m £m £m £m
______________________________________________________________________________
Turnover 1/2 100.2 - 100.2 79.3
Cost of sales (84.2) (10.9) (95.1) (59.9)
______________________________________________________________________________
Gross profit 16.0 (10.9) 5.1 19.4
Administrative (7.5) (1.0) (8.5) (6.2)
expenses
______________________________________________________________________________
Operating 2 8.5 (11.9) (3.4) 13.2
(loss)/profit
______________________________________________________________________________
EBITDA 20.8 (4.6) 16.2 22.3
Depreciation and 4 (12.3) (7.3) (19.6) (9.1)
amortisation
______________________________________________________________________________
Operating 8.5 (11.9) (3.4) 13.2
(loss)/profit
______________________________________________________________________________
Net interest
payable and 5 (4.0) (2.5)
similar
charges
______________________________________________________________________________
(Loss)/profit on
ordinary 4 (7.4) 10.7
activities
before taxation
Tax on 6 (0.9) (2.2)
(loss)/profit on
ordinary
activities
______________________________________________________________________________
(Loss)/profit (8.3) 8.5
for the
financial year
Dividends paid 7 (2.3) (3.4)
and proposed
______________________________________________________________________________
Retained
(loss)/profit (10.6) 5.1
for the
financial year
______________________________________________________________________________
Basic and
diluted 8 (4.99p) 5.13p
(loss)/earnings
per
ordinary share
(FRS 14)
Basic and
diluted headline 8 (0.59p) 5.13p
(loss)/
earnings per
ordinary share
(IIMR)
Basic and
diluted headline 8 1.94p 5.13p
earnings per
ordinary share
before
exceptional
items
______________________________________________________________________________
Exceptional items are analysed in note 3.
The profit and loss account for the year ended 31 December 2000 has been
restated to reflect the change in accounting policy referred to in note 1.
All amounts relate to continuing operations.
EBITDA - Earnings before interest, tax, depreciation and amortisation.
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2001
Restated
Note 2001 2000
£m £m
______________________________________________________________________________
Profit for the financial year before 3.2 8.5
exceptional items
Exceptional items 3 (11.9) -
Tax effect of exceptional items 6 0.4 -
______________________________________________________________________________
(Loss)/profit for the financial year (8.3) 8.5
Exchange loss on retranslation of foreign (0.4) -
assets
______________________________________________________________________________
Total recognised gains and losses relating to (8.7) 8.5
the year
Prior year adjustment (note 1) (1.5)
______________________________________________________________________________
Total gains and losses recognised since last (10.2)
annual report
Consolidated reconciliation of movement in Shareholders' funds
for the year ended 31 December 2001
Restated
2001 2000
£m £m
______________________________________________________________________________
(Loss)/profit for the financial year (8.3) 8.5
Exchange loss on retranslation of foreign assets (0.4) -
Dividends 7 (2.3) (3.4)
Increase in merger reserve 2.7 -
______________________________________________________________________________
Net (decrease)/increase in Shareholders' funds (8.3) 5.1
Opening Shareholders' funds (originally £129.4m
before deducting prior 127.9 122.8
year adjustment of £1.5m)
______________________________________________________________________________
Closing Shareholders' funds 119.6 127.9
______________________________________________________________________________
Consolidated cash flow statement
for the year ended 31 December 2001
Restated
2001 2000
Note £m £m
______________________________________________________________________________
Net cash inflow from operating activities 9 21.4 23.5
Return on investments and servicing of (4.5) (2.7)
finance
Taxation (1.5) (0.9)
Capital expenditure (43.9) (30.2)
Acquisitions and disposals 0.9 (6.9)
Equity dividends paid (2.3) (1.9)
______________________________________________________________________________
Net cash outflow before financing (29.9) (19.1)
Financing 25.4 6.7
______________________________________________________________________________
Decrease in cash in the year 10 (4.5) (12.4)
Reconciliation of net cash flow to movement in net debt
for the year ended 31 December 2001
2001 2000
£m £m
______________________________________________________________________________
Decrease in cash in the year (4.5) (12.4)
Cash inflow from increase in debt (25.4) (6.7)
______________________________________________________________________________
Movement in net debt resulting from cash flows (29.9) (19.1)
Finance leases acquired with subsidiary - (2.3)
undertakings
______________________________________________________________________________
Movement in net debt in the year (29.9) (21.4)
Net debt at beginning of year (43.2) (21.8)
______________________________________________________________________________
Net debt at end of year 10 (73.1) (43.2)
Consolidated and Company balance sheets
as at 31 December 2001
Group Company
Restated
2001 2000 2001 2000
£m £m £m £m
______________________________________________________________________________
Fixed assets
Goodwill 0.4 - - -
Tangible assets 220.5 197.4 - -
Investments - - 148.6 151.3
______________________________________________________________________________
220.9 197.4 148.6 151.3
Current assets
Stocks 0.8 0.7 - -
Debtors 11.5 7.8 71.4 48.5
Cash at bank and in hand 1.3 4.1 - -
______________________________________________________________________________
13.6 12.6 71.4 48.5
Creditors: amounts falling due (39.6) (33.5) (2.1) (2.6)
within one year
______________________________________________________________________________
Net current (liabilities)/assets (26.0) (20.9) 69.3 45.9
Debtors: amounts falling due 1.5 0.9 0.9 0.9
after one year
______________________________________________________________________________
Total assets less current 196.4 177.4 218.8 198.1
liabilities
Creditors: amounts falling due
after more than (73.7) (49.5) (68.0) (45.0)
one year
Provisions (3.1) - - -
______________________________________________________________________________
Net assets 119.6 127.9 150.8 153.1
______________________________________________________________________________
Capital and reserves
Called up share capital 41.5 41.5 41.5 41.5
Merger reserve 72.7 70.0 100.0 100.0
Profit and loss account 5.4 16.4 9.3 11.6
______________________________________________________________________________
Equity Shareholders' funds 119.6 127.9 150.8 153.1
______________________________________________________________________________
Notes
(forming part of the financial statements)
1 Principal accounting policies
Other than as set out below, the following principal accounting policies have
been applied consistently in dealing with items which are considered material
to the financial statements.
Basis of preparation
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards. The Group
has adopted FRS 18 Accounting Policies and has taken advantage of the
transitional provisions of FRS 17 Retirement Benefits in these financial
statements.
Change to accounting policy
The Group has changed its accounting policy in respect of interest
capitalisation. Previously, a proportion of interest incurred financing new
units during their construction had been capitalised and depreciated over the
life of the underlying asset. The policy is now to write off all interest as
incurred. The effect of this change, which has been shown as a prior year
adjustment, has been to decrease the profit for the financial year ended 31
December 2000 by £0.3m, and to reduce shareholders' funds at that date by
£1.5m. Had the previous policy been applied in the year ended 31 December
2001 the loss for the financial year would have decreased by £0.2m.
Basis of consolidation
The Esporta Group was created on 30 January 2000 by the separation of the
undertakings of ISL Leisure Limited and Riverside Limited from First Leisure
Corporation PLC to a previously dormant company, Esporta plc. The
consolidated financial statements have been prepared in accordance with the
principles of merger accounting as set out in FRS 6 Acquisitions and Mergers
and Schedule 4A to the Companies Act 1985. By adopting this accounting
treatment the Group presents its consolidated financial statements so as to
show the results of the combined entity as though the combination had
occurred prior to 1 January 1998.
FRS 6 and the Companies Act 1985 set out certain conditions to be
met in order that merger accounting may be adopted. Not all of these
conditions were met by the reorganisation of ISL Leisure Limited and
Riverside Limited, however the directors believe that it is necessary to
apply merger accounting to present a true and fair view. Had acquisition
accounting been applied only post acquisition results would have been
reported, and certain adjustments would have been made to fair values. The
directors do not believe that this would give a true and fair view of the
results and state of affairs of the Group. It is not practicable to quantify
the effect of this departure.
Subsidiary undertakings acquired during the year are recorded under
the acquisition method and their results are included from the date control
passes.
As permitted by section 230 of the Companies Act 1985 the Company has not
presented its own profit and loss account. The relevant loss retained for the
financial year after dividends, dealt with in the accounts of the holding
company, is £2.3m (2000: £11.6m).
Notes (continued)
2 Segmental information
Throughout the two years ended 31 December 2001 the Group operated solely
within the health and fitness market.
A geographical split of the results for the year is shown below
2001 2000 (restated)
United Continental United Continental
Kingdom Europe Total Kingdom Europe Total
£m £m £m £m £m £m
______________________________________________________________________________
Turnover 97.1 3.1 100.2 79.0 0.3 79.3
Operating 10.7 (2.2) 8.5 13.2 - 13.2
profit /
(loss)
(before
exceptionals)
Operating 0.8 (4.2) (3.4) 13.2 - 13.2
profit /
(loss)
(after
exceptionals)
Net assets 113.2 6.4 119.6 126.8 1.1 127.9
______________________________________________________________________________
3 Exceptional items
The exceptional operating charges included in the profit and loss account for
the year ended 31 December 2001 are as follows:
______________________________________________________________________________
£m
Impairment of fixed assets - Espree clubs 1.3
- Other 6.0
Provision for purchase of resaleable memberships 3.6
Re-organisation costs 1.0
______________________________________________________________________________
Total 11.9
______________________________________________________________________________
The exceptional impairment charge of £1.3m represents a charge for impairment
of two of the Group's properties owned by Espree Leisure Limited, a wholly
owned subsidiary of Esporta plc. Espree Leisure Limited was disposed of in
August 2001 to Top Notch Health Limited for consideration of £2.2m. Following
the impairment charge, no gain or loss arose on the subsequent disposal.
Following a review of the carrying value of Group properties in accordance
with FRS11 Impairment of Fixed Assets and Goodwill, a further four properties
were considered to be impaired at 31 December 2001 and consequently an
additional impairment charge of £6.0m has been recognised.
During 2001, the Company took the decision to offer to redeem rights to
membership ('rights') sold under the resaleable membership category at the
Esporta Riverside club in Chiswick as the after-sales market for those rights
had diminished. Members wishing to leave the club were therefore unable to
recover the costs of their rights to membership on a timely basis.
Historically, the Company had not recognised any liability in respect of
these rights, as there was a ready market for transfers of those rights to
replacement members. Having considered this matter, the directors are of the
opinion that the offer by the Company to redeem these rights constitutes a
liability for the Company. Accordingly, a provision of £3.6 million has been
recognised. The provision has been discounted assuming the memberships will
be purchased over a 10 year period using a discount rate of 7%.
Exceptional re-organisation costs of £1.0m relate to termination payments
made to certain directors and senior management, and recruitment costs
arising from those terminations.
Notes (continued)
4 (Loss)/profit on ordinary activities before taxation
(Loss)/profit on ordinary activities before taxation is stated after
charging:
Restated
2001 2000
£m £m
______________________________________________________________________________
Depreciation of tangible fixed assets
- owned assets (normal) 12.2 9.1
- assets held under finance leases (normal) 0.1 -
- exceptional 7.3 -
Rentals payable under operating leases
- plant and machinery 0.9 0.7
- land and buildings 7.8 4.1
______________________________________________________________________________
The remuneration of the auditors for both the Company and the Group audits
was £0.1m (2000: £0.1m). Fees paid to the auditors and their associates in
respect of other services to the Company and Group were £0.1m (2000: £0.2m).
The fees paid to the auditors and their associates in these years principally
related to the acquisition of Healthland Spain SA and the provision of tax
services in relation to Esporta plc and First Leisure Corporation PLC.
The exceptional charge for depreciation in the year ended 31 December 2001
relates to the impairment of a number of the Group's clubs, as explained in
note 3.
5 Net interest payable and similar charges
Restated
2001 2000
£m £m
______________________________________________________________________________
Interest on loans from former parent undertaking - (0.1)
Interest on bank loans and overdrafts wholly repayable (4.0) (3.4)
within five years
Interest on finance leases (0.3) -
______________________________________________________________________________
(4.3) (3.5)
Interest receivable 0.3 1.0
______________________________________________________________________________
(4.0) (2.5)
______________________________________________________________________________
Notes (continued)
6 Tax on (loss)/profit on ordinary activities
2001 2000
£m £m
______________________________________________________________________________
UK corporation tax at 30% (2000: 30%) on taxable profits
for the year
- normal 1.3 2.2
- exceptional (0.4) -
______________________________________________________________________________
0.9 2.2
______________________________________________________________________________
The underlying tax rate for the Group for the year ended 31 December 2001 is
30% (2000: 20%). This rate is inflated by taxable losses in Spain and Sweden
which are not immediately relievable against profits in the UK. The
underlying tax rate for UK remained at 20% (2000: 20%). The difference
compared with the mainstream corporation tax rate of 30% is principally due
to capital allowances in excess of depreciation. This timing difference is
not expected to reverse in the foreseeable future and therefore no provision
has been made for deferred taxation.
The £0.4m tax credit on exceptional items for the year ended 31 December 2001
relates to the exceptional re-organisation costs and the provision for the
purchase of resaleable memberships of £1.0m and £3.6m respectively. The
exceptional fixed asset impairment charge is not allowable for corporation
tax.
7 Dividends
2001 2000
£m £m
______________________________________________________________________________
First interim dividend paid of nil (2000: 0.7p) per - 1.2
ordinary share
Second interim dividend paid of 0.5p (2000: 0.45p) per 0.8 0.7
ordinary share
Final proposed dividend of 0.9p (2000: 0.9p) per ordinary 1.5 1.5
share
______________________________________________________________________________
Total dividend of 1.4p (2000: 2.05p) per ordinary share 2.3 3.4
______________________________________________________________________________
8 (Loss)/earnings per ordinary share
The calculation of basic (loss)/earnings per share is based on (loss)/profit
after tax and minority interests divided by the weighted average number of
shares in issue during the year.
Headline (loss)/earnings per ordinary share before asset impairments, as
based on the recommendations of the Institute of Investment Management and
Research (IIMR), is stated below.
(Loss)/earnings per share excluding exceptional items is presented in order
to give a better indication of the underlying performance of the Group. This
measure is calculated by using (loss)/profit before exceptional items and
adjusting for the tax effect of these transactions or charges. Exceptional
items and the related tax effects are shown in notes 3 and 6 respectively.
Notes (continued)
8 (Loss)/earnings per ordinary share (continued)
Diluted (loss)/earnings per share is presented in order to show the potential
dilutive impact of outstanding share options.
(Loss)/profit for the Weighted average number
financial year of ordinary shares in
issue
Restated
2001 2000 2001 2000
£m £m m m
______________________________________________________________________________
Basic (8.3) 8.5 166.2 166.2
(loss)/earnings
Potential dilutive - - - 0.1
shares issued under
option
______________________________________________________________________________
Diluted (8.3) 8.5 166.2 166.3
(loss)/earnings
______________________________________________________________________________
Undiluted and diluted
Restated
2001 2000
pence pence
______________________________________________________________________________
(Loss)/earnings per (4.99) 5.13
ordinary share (FRS 14)
Add back: asset 4.40 -
impairments
______________________________________________________________________________
Headline (loss)/earnings per ordinary share (IIMR) (0.59) 5.13
Add back: loss derived from other exceptional items 2.80 -
tax effect of other exceptional items (0.27) -
______________________________________________________________________________
Headline earnings per ordinary share excluding
Exceptional items 1.94 5.13
______________________________________________________________________________
9 Reconciliation of Group operating (loss)/profit to net cash inflow from
operating activities
Restated
2001 2000
£m £m
______________________________________________________________________________
Group operating (loss)/profit (3.4) 13.2
Depreciation and other amounts written off fixed 12.3 9.1
assets - normal
- exceptional 7.3 -
Increase in stocks (0.1) (0.1)
Increase in debtors (1.0) (0.5)
Increase in creditors 6.3 1.8
______________________________________________________________________________
Net cash inflow from operating activities 21.4 23.5
______________________________________________________________________________
The operating cash flows for the year ended 31 December 2001 include an
outflow of £1.4m in respect of exceptional costs.
Notes (continued)
10 Analysis of movement in net debt
At 1 Acquisition Cash At 31 Cash At 31
January (excl cash) flow December flow December
2000 2000 2001
£m £m £m £m £m £m
______________________________________________________________________________
Cash at bank 16.5 - (12.4) 4.1 (2.8) 1.3
and in hand
Overdrafts - - - - (1.7) (1.7)
______________________________________________________________________________
16.5 - (12.4) 4.1 (4.5) (0.4)
Debt due (38.3) - (6.7) (45.0) (23.0) (68.0)
after one
year
Finance - (2.3) - (2.3) (2.4) (4.7)
leases
______________________________________________________________________________
Net debt (21.8) (2.3) (19.1) (43.2) (29.9) (73.1)
______________________________________________________________________________
11 Borrowing facilities
At 31 December 2001 the Group had unsecured overdraft facilities of £10m and
unsecured revolving credit facilities of £125m, and further unsecured
bilateral facilities of £50m. Interest is payable on amounts drawn down under
these facilities at rates which vary with LIBOR. The unsecured revolving
credit facility of £125m is repayable in June 2004. Subsequent to the year
end the Company has decided not to renew the bilateral facilities of £50m.
This is effective from March 2002.
12 Basis of preparation
The financial information contained in this preliminary announcement does not
constitute statutory accounts. The results for the years ended 31 December
2001 and 31 December 2000 have been extracted from the Group's annual report
and financial statements for the year ended 31 December 2001 on which the
auditors have issued an unqualified audit report.
13 Annual report and financial statements
Copies of the 2001 annual report and financial statements, which will be
posted to Shareholders in the week commencing 15 April 2002, may be obtained
from the registered office at Trinity Court, Molly Millars Lane, Wokingham,
Berkshire, RG41 2PY. A presentation of the results will be made to analysts
on 14 March 2002. Copies of the slides from the presentation are available
from the Company's registered office.
This information is provided by RNS
The company news service from the London Stock Exchange
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