Prelim Results

Esporta PLC 8 March 2001 8th March, 2001 Preliminary Results for Twelve Months to 31 December 2000 Esporta plc, one of the UK's leading operators of health and fitness clubs, announces its preliminary results for the 12 months to 31 December 2000. Financial Highlights - Turnover up 24 per cent to £79.3m (1999: £64m) * - EBITDA up 39 per cent to £22.3m (1999: £16.1m) * - Operating profit margins increased to 16.4 per cent (1999: 14.1 per cent) * - Profit before tax up 77 per cent to £11.0m (1999: £6.2m) - Earnings per share up 100 per cent to 5.27p (1999: 2.63p) - Final dividend of 0.9p making 1.35p for the year Operational Highlights - Membership numbers up 31 per cent to 147,000 - Ahead of strategic objective at flotation to double estate by end of 2002 - Acquisition of first club in Europe and strong pipeline of planned European openings John Grieves, Chairman, said: 'We have made excellent progress in our first year as a listed company. Our strategic objective to double the size of the estate will be comfortably achieved by the end of 2002. We have accelerated our rate of openings in the UK and the new year has started well with comparable sales up 5 per cent. We now have our first club in Europe, a strong pipeline and are well on our way towards becoming one of the market leaders in Iberia. 'We are extremely encouraged by the continuing growth in returns at our existing clubs and by the emerging opportunities for development of new clubs. With our strong management team we are at the forefront of the health and fitness industry in the UK and shortly will be in Europe.' * Before exceptional items Enquiries Graham Coles Chief Executive Esporta plc On 8th March 020 7404 5959 and Mark Beadle Finance Director Esporta plc 0118 912 3506 thereafter Rebecca Blackwood / William Cullum Brunswick 020 7404 5959 Chairman's statement This is a good set of results in Esporta's first year as a listed company. Turnover increased 24 per cent to £79.3m (1999: £64.0m before exceptional revenues of £3.9m) and earnings before interest, taxation, depreciation and amortisation ('EBITDA') increased by 39 per cent to £22.3m (1999: £16.1m before exceptional EBITDA of £2.1m). Operating profit increased 44 per cent to £13.0m (1999: £9.0m before exceptional operating profit of £1.0m). Headline earnings per share increased by 100 per cent per share to 5.27p (1999: 2.63p before 1999 exceptional profits). The Board is recommending a final dividend of 0.9p to be paid on 8 June 2001 to shareholders on the register on 11 May 2001. This means that dividends totalling 1.35p will have been paid in respect of 2000 profits, in addition to a first interim dividend of 0.7p which was paid in relation to 1999 profits. During the year the Group acquired a number of businesses and development opportunities from the Healthland group ('Healthland'). It acquired operating clubs in Glasgow, Milton Keynes and Madrid and contracts to develop four clubs in the United Kingdom, five clubs in Spain, one in Sweden and one in France. This key strategic event not only accelerates the Group's UK development programme, but also represents the start of its expansion into continental Europe bringing exciting opportunities for future growth. The integration of the Healthland estate is proceeding well and the introduction of the Esporta brand and operating standards will be complete by the end of the first quarter of 2001. Esporta opened six clubs in 2000, purchased three and have already opened three in 2001, totalling 34 clubs in operation today. The Group already has a further 14 clubs unconditionally contracted and has a good pipeline of additional sites. The Group's strategic objective at flotation to double the size of its estate by the end of 2002 should therefore be comfortably achieved. TRADING Esporta has also made good progress on the trading front, and as a result, returns are building toward target levels as the estate matures. At the end of 2000 the Group had 147,000 members (including 35,000 children), an increase of 31 per cent. The established estate reported solid gains, and the newer units are building membership numbers in line with expectations. A key element supporting this progress has been the development of the Esporta brand. With the consistent quality of the estate, and with an increasing focus on the family clubs in residential areas, the product will be clearly differentiated in the eyes of the members. The profile of the Esporta brand is increasing through the accelerated development programme, and the process of re-branding the Group's racquets clubs and introducing the Esporta brand into the Riverside estate has begun. Management Mark Beadle joined the Board as Finance Director in April 2000 and Douglas Waddell joined in November as UK Operations Director. Esporta has continued to build the senior management team to support the acceleration of the growth programme. Jonathan First and Keith McAlister, both former directors of Healthland Europe, have been recruited. They are key members of the executive management team and head the development function and continental European operations function respectively. As previously announced, Patrick Henchoz resigned from the Board at the end of the year. Current trading At the end of February, following strong sales in the first two months of the year, membership was 157,000 including 37,000 children. This is an increase of 27 per cent and 7 per cent on February and December 2000 respectively. Sales at our clubs opened in 1999 and prior years have increased by 5 per cent in the first two months of the year. The 2000 openings together with Wolverhampton and Chiswick Park (opened in January) are progressing well. The performance of Madrid has also been particularly strong. Outlook and Strategy The UK Market remains strong. Supply and demand are both growing, and the Group expects the current balance to be broadly maintained for the foreseeable future. Differentiated products and high quality service and facilities will become more important as the UK consumer becomes better informed and has more choice of which health and fitness club to join. With clear and consistent brand values, targeted at the premium end, the Group is well placed to take advantage of this. The Group's priority in the UK will be to continue to grow returns each year in existing clubs, and thereby deliver value to shareholders. Esporta will be maintaining its UK organic development programme, and will take advantage of the significant opportunities emerging in continental Europe. Esporta's branded, high quality offer will be received well in Europe where the industry is in its infancy. In addition to Iberia, Scandinavia and France, development opportunities will be reviewed in other continental European territories as and when appropriate. The Group is confident it will be able to develop a significant presence in each of the territories in which it chooses to compete within a reasonable timescale. The continuing growth in returns at the existing clubs and the emerging opportunities for development of new clubs is extremely encouraging. The Board looks forward to the future with confidence. OPERATING AND FINANCIAL REVIEW Trading The strong trading performance was driven both by good progress from the established estate, and the recently opened clubs starting to build their returns in line with expectations. Turnover at clubs opened in 1998 and prior years increased by 5 per cent. This includes the non-core 'Espree' clubs which operate in the intensely competitive corporate environment, and which will not be developed going forward. Excluding the Espree clubs, underlying sales growth of 6 per cent in the core comparable estate was generated. The continuing sales growth has been achieved largely through a growth in membership income. This has been driven both by increases in membership numbers and by increases in subscription yields per member. This growth has offset a decline in joining fee income, which reflects the maturing of the estate and the increasing use of joining fee discounts throughout the market to attract new members. Esporta has one of the highest levels of ancillary income in the industry. The Group will continue to introduce additional ancillary services for members, which augment income and aid membership loyalty. Esporta recently introduced 'Esporta Freeway', an all club membership which allows members to use other Esporta clubs within the estate at no extra cost. The success of Esporta will be driven by continuing to grow sales ahead of the rate of inflation in established units. This will be achieved by continuing to provide a differentiated level of service that meets and exceeds the expectations of members. The key measure of member satisfaction is retention, which in 2000 for core clubs was in excess of 60 per cent. The reduction in the attrition of members is the main priority for operational management. Continued investment in facilities and services will ensure a consistent quality of experience associated with the premium Esporta brand. Overall, the existing estate has made good progress, but the greater part of the increase in turnover has come both from the 2000 openings and from the clubs opened in 1999, contributing for a full year for the first time, where membership levels are reaching and exceeding expectations. The first Eden club at Chislehurst opened in August and is growing steadily toward maturity, albeit at a slower pace than originally anticipated. It is now trading with nearly 1,500 members. This represents 60 per cent of its third anniversary target after eight months. With its emphasis on relaxation and tranquillity, it is aimed at a more mature and affluent customer who appreciates a childfree environment. Another Eden club in Repton Park, Chigwell is under development and will open in September 2001 following which the scope for further development of the brand in the UK and Europe will be reviewed. Operating margins increased from 14 per cent to 16 per cent and operating profits by 44 per cent. This strong growth reflects the benefit that operational gearing has on profits as the club profile matures. Returns on capital employed across every category of the core estate have continued to improve. This is clearly seen when this estate is categorised by year of opening, demonstrating the improvements in performance of clubs as they become established: Return on Capital Employed* ____________________ _______ _______ _______ ______ Number of Clubs 1998 1999 2000 per per per cent cent cent ____________________ _______ _______ _______ ______ Established units 10 15 16 17 1998 openings 5 3 19 34 1999 openings 5 (10) 2 2000 openings 9 (3) Total core 29 12 13 15 * 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, and the Bayswater club sold during 2000, are not part of the core Estate. The returns of the core established units continue to improve. The 1998 openings are generating outstanding returns. The 1999 clubs are in line with expectations. The 2000 clubs have made a good start. DEVELOPMENT Organic growth continues to be the primary route for development. In 2000, Esporta opened six clubs (in Edinburgh, Oxford, Northampton, Chislehurst, Lichfield and Enfield), which together with the three purchased clubs took the estate to 31 at the end of December. Three further units have been opened in 2001 (Chiswick Park, Wolverhampton and Friern Barnet) and 13 Esporta clubs and one Eden are now unconditionally contracted to open in the UK and continental Europe in 2001 and 2002. The Group will thus have achieved its strategic objective, outlined in the Listing Particulars published in November 1999, of increasing its estate to 46 clubs by the end of 2002. It will continue to seek opportunities for development of new clubs from both traditional and non- traditional routes for site acquisition. The opportunities for growth in continental Europe are significant. The Board expects the focus of the Group's development programme to shift towards Europe over the next three years. Financing Esporta was originally a division of First Leisure Corporation PLC, which financed its health and fitness business using inter-company interest-bearing loans. Following the demerger, Esporta had net borrowings of £21.8m after capitalising some £70m of intercompany debt. This contributed to the reduction in the interest charge from £3.8m in 1999 to £2.0m in 2000. The net cash outflow from the Group during 2000 was £19.1m, which together with the £2.3m of finance leases following the Healthland acquisition resulted in net debt at the year-end of £43.2m. Borrowings have been accommodated in 2000 through a syndicated revolving credit facility of £100m, which is due to run until November 2003. Interest is paid on drawings at a margin above LIBOR. In addition to these committed borrowing facilities referred to above, the Group has unsecured overdraft facilities of £10m. Since the year-end the Group has arranged two £25m bilateral facilities, increasing committed facilities to £150m. This provides substantial funding headroom for the Group's accelerated organic development. Consolidated profit and loss account for the year ended 31 December 2000 Consolidated profit and loss account for the year ended 31 December 2000 Before exceptional Exceptional items (see note 3) Total 2000 1999 1999 1999 Note £m £m £m £m _________________________ _____ ______ __________ ____________ _______ Turnover 2/3 79.3 64.0 3.9 67.9 Cost of sales (60.1) (48.6) (1.9) (50.5) _________________________ _____ ______ __________ ____________ _______ Gross profit 19.2 15.4 2.0 17.4 Administrative expenses (6.2) (6.4) (1.0) (7.4) _________________________ _____ ______ __________ ____________ _______ Operating profit 2 13.0 9.0 1.0 10.0 _________________________ _____ ______ __________ ____________ _______ EBITDA 22.3 16.1 2.1 18.2 Depreciation 4 (9.3) (7.1) (1.1) (8.2) _________________________ _____ ______ __________ ____________ _______ Operating profit 13.0 9.0 1.0 10.0 _________________________ _____ ______ __________ ____________ _______ Net interest payable and similar charges 5 (2.0) (3.8) _________________________ _____ ______ __________ ____________ _______ Profit on ordinary activities before taxation 4 11.0 6.2 Tax on profit on ordinary activities 6 (2.2) (1.2) _________________________ _____ ______ __________ ____________ _______ Profit on ordinary activities after taxation 8.8 5.0 Equity minority interests - (0.3) _________________________ _____ ______ __________ ____________ _______ Profit for the financial year 8.8 4.7 Dividends paid and proposed 7 (3.4) - _________________________ _____ ______ __________ ____________ _______ Retained profit for the financial year 5.4 4.7 _________________________ _____ ______ __________ ____________ _______ Basic and diluted earnings per ordinary share (FRS 14) 8 5.27p 2.83p Basic and diluted headline earnings per ordinary share (IIMR) 8 5.27p 3.49p Basic and diluted headline earnings per ordinary share before exceptional items 8 5.27p 2.63p _________________________ _____ ______ __________ ____________ _______ Note: EBITDA - Earnings before interest, tax, depreciation and amortisation. Consolidated statement of total recognised gains and losses for the year ended 31 December 2000 2000 1999 £m £m _______________________________________________________ ______ ______ Profit for the financial year before exceptional items 8.8 4.4 Exceptional items - 1.0 Tax effect of exceptional items - (0.7) _______________________________________________________ ______ ______ Total recognised gains and losses relating to the year 8.8 4.7 _______________________________________________________ ______ ______ Consolidated reconciliation of movement in Shareholders' funds for the year ended 31 December 2000 2000 1999 £m £m __________________________________________ ___________ ______ _______ Profit for the financial year 8.8 4.7 Acquisition of minority interests - 14.9 Dividends (3.4) - __________________________________________ ___________ ______ _______ Net increase in Shareholders' funds 5.4 19.6 Opening Shareholders' funds 124.0 104.4 __________________________________________ ___________ ______ _______ Closing Shareholders' funds 129.4 124.0 __________________________________________ ___________ ______ _______ Consolidated cash flow statement for the year ended 31 December 2000 2000 1999 Note £m £m ______________________________________________ _______ ______ _______ Net cash inflow from operating activities 9 23.5 23.0 Return on investments and servicing of finance (2.7) (4.1) Taxation (0.9) (1.3) Capital expenditure (30.2) (31.6) Acquisitions (6.9) - Equity dividends paid (1.9) - ______________________________________________ _______ ______ _______ Net cash outflow before financing (19.1) (14.0) ______________________________________________ _______ ______ _______ Financing 6.7 16.7 (Decrease)/increase in cash in the year 10 (12.4) 2.7 ______________________________________________ _______ ______ _______ Reconciliation of net cash flow to movement in net debt for the year ended 31 December 2000 2000 1999 £m £m _______________________________________________ ______ ________ ______ (Decrease)/increase in cash in the year (12.4) 2.7 Cash inflow from increase in debt (6.7) (16.7) _______________________________________________ ______ ________ ______ Movement in net debt resulting from cash flows (19.1) (14.0) Finance leases acquired with subsidiary undertakings (2.3) - Movement in net debt in the year (21.4) (14.0) Net debt at beginning of year (21.8) (7.8) _______________________________________________ ______ ________ ______ Net debt at end of year 10 (43.2) (21.8) _______________________________________________ ______ ________ ______ _______________________________________________ ______ ________ ______ Consolidated and Company balance sheets as at 31 December 2000 Group Company 2000 1999 2000 1999 £m £m £m £m ______________________________ _______ ______ _______ ________ ______ Fixed assets Tangible assets 198.9 166.2 - - Investments - - 151.3 - ______________________________ _______ ______ _______ ________ ______ 198.9 166.2 151.3 - Current assets Stocks 0.7 0.6 - - Debtors 7.8 5.8 48.5 0.1 Cash at bank and in hand 4.1 16.5 - - ______________________________ _______ ______ _______ ________ ______ 12.6 22.9 48.5 0.1 Creditors: amounts falling due within one year (33.5) (25.9) (2.6) - ______________________________ _______ ______ _______ ________ ______ Net current (liabilities)/ assets (20.9) (3.0) 45.9 0.1 Debtors: amounts falling due after more than one year 0.9 1.5 0.9 - ______________________________ _______ ______ _______ ________ ______ Total assets less current liabilities 178.9 164.7 198.1 0.1 Creditors: amounts falling due after more than one year (49.5) (40.7) (45.0) - ______________________________ _______ ______ _______ ________ ______ Net assets 129.4 124.0 153.1 0.1 ______________________________ _______ ______ _______ ________ ______ Capital and reserves Called up share capital 41.5 41.5 41.5 0.1 Merger reserve 70.0 70.0 100.0 - Profit and loss account 17.9 12.5 11.6 - ______________________________ _______ ______ _______ ________ ______ Equity Shareholders' funds 129.4 124.0 153.1 0.1 ______________________________ _______ ______ _______ ________ ______ Notes (forming part of the financial statements) 1 Principal accounting policies 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. Additionally the Group has adopted FRS 16 Current Taxation in these financial statements. Basis of consolidation The 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 consideration for the separation was satisfied by the issue to Shareholders of First Leisure Corporation PLC of one ordinary share of 25p each in Esporta plc, credited as fully paid, for each ordinary share previously held in First Leisure Corporation PLC, plus 103 pence in cash. Since the above reorganisation did not occur until 30 January 2000, the Company was dormant prior to this date. The consolidated financial statements for the year ended 31 December 2000 and the comparative information for the year ended 31 December 1999 has 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 to Esporta plc, however the Directors of Esporta plc 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 the departure. Subsidiary undertakings acquired during the year are recorded under the acquisition method and their results are included from the date control passes. 2 Segmental information Throughout the two years ended 31 December 2000 the Esporta Group operated solely within the health and fitness market. Throughout 1999 the Esporta Group operated solely in the UK. In November 2000 the Group acquired a subsidiary in Spain. A geographical split of the year's results is shown below: Turnover Operating profit Net Assets £m £m £m __________________________________ __________ _________________ _________ United Kingdom 79.0 13.0 128.3 Spain 0.3 - 1.1 __________________________________ __________ _________________ _________ Total 79.3 13.0 129.4 __________________________________ __________ _________________ _________ 3 1999 Exceptional items Turnover and operating profit for the year ended 31 December 1999 included £3.9m and £3.1m respectively reported as exceptional principally relating to membership and joining fee income for certain clubs which, as a result of the legal structure of those clubs, was exempt from VAT. Customs and Excise introduced legislation, from 1 January 2000, which rendered such income subject to VAT. The Directors believed that the resulting VAT charge could not be passed on to club members and therefore that this element of income was not sustainable. Other exceptional cost of sales in the year ended 31 December 1999 of £1.1m represented a charge for impairment of one of the Group's properties in accordance with FRS 11 Impairment of Fixed Assets and Goodwill. This property was subsequently disposed of during 2000. No gain or loss arose on the disposal. Exceptional administrative expenses in the year ended 31 December 1999 of £1.0m related to recruitment, redundancy, relocation and reorganisation costs incurred on the creation of Esporta plc and the establishment of a central head office and management structure. 4 Profit on ordinary activities before taxation Profit on ordinary activities before taxation is stated after charging: 2000 1999 £m £m ____________________________________________________ _________ ______ Depreciation of tangible fixed assets - normal 9.3 7.1 - exceptional - 1.1 Rentals payable under operating leases - plant and machinery 0.7 0.4 - land and buildings 4.1 3.1 ____________________________________________________ _________ ______ The remuneration of the auditors for both the Company and the Group audits was £0.1m (1999: £0.1m). Fees paid to the auditors and their associates in respect of other services to the Company and Group were £0.2m (1999: £0.8m). The fees paid to the auditors and their associates in the year ended 31 December 2000 principally related to the acquisition of Healthland Spain SA and the provision of tax services. In the year ended 31 December 1999, the fees were in respect of services carried out in relation to the reorganisation and listing of Esporta plc by First Leisure Corporation PLC. During the year acquired businesses contributed £0.8m to turnover and £0.8m of cost of sales of the Group resulting in a profit of nil. The exceptional charge for depreciation in the year ended 31 December 1999 relates to the impairment of one of the Group's clubs, as explained in note 3. 5 Net interest payable and similar charges 2000 1999 £m £m ___________________________________________________ _________ ______ Interest on loans from former parent undertaking (0.1) (5.1) Interest on bank loans and overdrafts wholly (3.4) - repayable within five years ___________________________________________________ _________ ______ (3.5) (5.1) Interest capitalised 0.5 0.5 Interest receivable 1.0 0.8 ___________________________________________________ _________ ______ (2.0) (3.8) ___________________________________________________ _________ ______ 6 Tax on profit on ordinary activities 2000 1999 £m £m ___________________________________________________ _________ ______ UK corporation tax at 30 per cent (1999: 30.2 per cent) on taxable profits for the year - normal 2.2 0.5 - exceptional - 0.7 ___________________________________________________ _________ ______ 2.2 1.2 ___________________________________________________ _________ ______ The underlying tax rate for the year ended 31 December 2000 is 20 per cent (1999: 10 per cent). The difference compared with the mainstream corporation tax rate of 30 per cent (1999: 30 per cent) 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 1999 tax rate was significantly lower than that in 2000 due primarily to the high interest charge in 1999 resulting from a higher level of inter company debt which was capitalised as part of the restructuring. The £0.7m tax payable on exceptional items for the year ended 31 December 1999 relates to the exceptional profit of £3.1m resulting from VAT exempt membership and joining fees less allowable costs of £0.9m included within the total exceptional reorganisation costs of £1.0m. The exceptional fixed asset impairment charge was not allowable for corporation tax. 7 Dividends 2000 1999 £m £m _______________________________________________________ _________ _______ First interim dividend paid of 0.7p (1999: nil) per ordinary share 1.2 - Second interim dividend paid of 0.45p (1999: nil) per ordinary share 0.7 - Final proposed dividend of 0.9p (1999: nil) per ordinary share 1.5 - _______________________________________________________ _________ _______ Total dividends 2.05p (1999: nil) per ordinary share 3.4 _______________________________________________________ _________ _______ The final proposed dividend of 0.9p per share will be paid on 8 June 2001 to Shareholders on the register at close of business on 11 May 2001. 8 Earnings per ordinary share The calculation of basic earnings per share is based on profit after tax and minority interests divided by the weighted average number of shares in issue during the year. Headline earnings per ordinary share before asset impairments, as based on the recommendations of the Institute of Investment Management and Research (IIMR), is stated below. 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 earnings 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. Diluted earnings per share is presented in order to show the potential dilutive impact of outstanding share options. Profit for the Weighted average financial year number of ordinary shares in issue 2000 1999 2000 1999 £m £m m m ________________________________ _______ ______ _________ _______ Basic earnings 8.8 4.7 166.2 166.2 Potential dilutive shares issued under option - - 0.1 - ________________________________ _______ ______ _________ _______ Diluted earnings 8.8 4.7 166.3 166.2 ________________________________ _______ ______ _________ _______ Undiluted Diluted 2000 1999 2000 1999 pence pence pence pence ________________________________ _______ ______ _________ _______ Earnings per ordinary share (FRS 14) 5.27 2.83 5.27 2.83 Add back: asset impairments - 0.66 - 0.66 ________________________________ _______ ______ _________ _______ Headline earnings per ordinary share (IIMR) 5.27 3.49 5.27 3.49 Deduct: profit derived from other exceptional items - (1.26) - (1.26) tax effect of other exceptional items - 0.40 - 0.40 ________________________________ _______ ______ _________ _______ Headline earnings per ordinary share excluding exceptional items 5.27 2.63 5.27 2.63 ________________________________ _______ ______ _________ _______ 9 Reconciliation of Group operating profit to net cash inflow from operating activities 2000 1999 £m £m _____________________________________________________ _______ ______ Group operating profit 13.0 10.0 Depreciation and other amounts written off fixed assets 9.3 8.2 Increase in stocks (0.1) (0.2) Increase in debtors (0.5) (1.5) Increase in creditors 1.8 6.5 _____________________________________________________ _______ ______ Net cash inflow from operating activities 23.5 23.0 _____________________________________________________ _______ ______ The operating cash flows for the year ended 31 December 1999 include an inflow of £3.9m in respect of exceptional turnover, as disclosed in Note 1, and an outflow of £0.7m in respect of other exceptional costs. 10 Analysis of movement in net debt At 19 Cash At 31 Acquisition Cash At 31 January flow December (excl cash) flow Decembe r 1999 1999 2000 £m £m £m £m £m _________________ _______ _______ ________ ___________ _______ _______ Cash at bank and in hand 13.8 2.7 16.5 - (12.4) 4.1 Overdrafts and intercompany loans (21.6) 21.6 - - - - _________________ _______ _______ ________ ___________ _______ _______ (7.8) 24.3 16.5 - (12.4) 4.1 Debt due after one year - (38.3) (38.3) - (6.7) (45.0) Finance leases - - - (2.3) - (2.3) _________________ _______ _______ ________ ___________ _______ _______ Net debt (7.8) (14.0) (21.8) (2.3) (19.1) (43.2) _________________ _______ _______ ________ ___________ _______ _______ The reconstruction of First Leisure Corporation PLC during 1999 resulted in the Company assuming net debt of £23.0m at 31 October 1999 and the remaining inter-company debt owed by the Company to First Leisure Corporation PLC at this date being capitalised by way of the issue of shares in ISL Leisure Limited to First Leisure Corporation PLC. The movement in net debt between 31 October 1999 and 31 December 1999 of £1.2m reflects cash generated by the Group during this period. 11 Acquisitions On 14 November 2000 the Group acquired the entire share capital of Healthland Spain SA for £1.3m in cash plus costs of £0.2m. At the date of acquisition Healthland Spain SA was the holding company of one health club operating in Spain and a further five clubs in various stages of development throughout Spain. On the same date, the Group also acquired leases to develop two further clubs, one in Sweden and one in France. On 20 October 2000 and 15 November 2000 the Group also acquired the trade and assets of two health clubs in Milton Keynes and Finnieston for aggregate consideration, including costs of £5.8m. The book and fair value of assets on the acquisitions is as follows: Book Accounting Fair value Fair value value policy adjustments of assets adjustments acquired £m £m £m £m Tangible fixed assets 8.7 1.7 0.5 10.9 Cash 0.1 - - 0.1 Debtors 2.2 (1.3) (0.5) 0.4 Intragroup debt 0.1 - - 0.1 Creditors (2.6) (0.9) (0.7) (4.2) ________________________ _______ ____________ ___________ ____________ Net assets 8.5 (0.5) (0.7) 7.3 ________________________ _______ ____________ ___________ ____________ Consideration 7.3 ________________________ _______ ____________ ___________ ____________ Excluding intragroup debt of £0.1m and cash of £0.1m, net consideration paid was £7.1m. At 31 December 2000 £0.2m of the consideration was unpaid. The accounting policy adjustments relate to the recognition of landlord's fit out contributions which are accounted for as finance leases, and the alignment of accounting policies. The fair value adjustments relate to valuation of fixed assets, certain debtors in Spain which were considered to be irrecoverable and the recognition of prepaid membership contracts which Esporta plc has agreed to honour. 12 Borrowing facilities The Group has unsecured overdraft facilities of £10m and unsecured revolving credit facilities of £100m. Interest is payable on amounts drawn down under these facilities at rates which vary with LIBOR. The unsecured revolving credit facility is repayable in November 2003. At 31 December 2000 £45.0m of the facility was drawn down. Subsequent to the year end the Group has arranged two bilateral facilities totalling £50.0m. 13 Basis of preparation The financial information contained in this preliminary announcement does not constitute statutory accounts. The results for the years ended 31 December 2000 and 31 December 1999 have been extracted from the Groups annual report and financial statements for the year ended 31 December 2000 on which the auditors have issued an unqualified audit report. 14 Interim report and financial statements Copies of the 2000 annual report and financial statements, which will be posted to Shareholders in the week commencing 9 April 2001, 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 8 March 2001. Copies of the slides from the presentation are available from the Company's registered office, and on the Company's website at www.esporta.co.uk.

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