ARE.L Regulatory News (ARE)

1 Mar 2007 07:04

Arena Leisure PLC01 March 2007 1 March 2007 ARENA LEISURE PLC PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2006 Arena Leisure Plc ('Arena'), the UK's largest operator of horseracing fixtures,today announces its audited preliminary results for the year ended 31 December2006. Financial highlights • Turnover increased by 11.1% to £45.3m (2005: £40.7m) • Profit before tax increased by 29.6% to £5.8m (2005: £4.5m) • Earnings per share increased by 29.8% to 1.61p (2005: 1.24p) • Adjusted earnings per share increased by 12.9% to 1.49p (2005: 1.32p) • Proposed final dividend of 0.26p per share, giving a total dividend of 0.51p per share - an increase of 13.3% (2005: 0.45p per share) • Profit from the racecourse division increased by 8.5% to £8.7m (2005: £8.0m) • Arena's share of At The Races' adjusted operating loss reduced by 74% to £0.3m (2005: £1.0m) Operating highlights • Record 353 fixtures held (2005: 324), staging 2,388 races (2005: 2,172) and representing around 26% of all UK fixtures and races. • New five year agreement signed with Bookmakers' Afternoon Greyhound Service ('BAGS') for the supply of Arena's live horseracing pictures to Britain's licensed betting shops with an estimated value of around £55m (amount received in 2006: £8.8m). • Wolverhampton Racecourse staged a record 111 fixtures (2005: 91). • Winter Derby at Lingfield Park run for the first time at Group 3 status. Development highlights • Planning permission granted for hotel and leisure development at Lingfield Park Racecourse. • Doncaster Racecourse's £32m redevelopment on schedule to re-open in August 2007 and a planning application for a combined hotel and residential development submitted. • Creation of a catering division within Arena to direct, manage and operate all catering activities across Arena's portfolio of seven racecourses. • Planning application for Wolverhampton Racecourse submitted in February 2007 to expand the current hotel and incorporate a casino to create the UK's first 'racino'. • Wolverhampton City Council recommended to receive a 'small' casino licence by the Casino Advisory Panel in January 2007. Raymond Mould, Arena's Chairman, said today: "I am delighted to report on another successful year for Arena, with solidperformances from both our racecourse division and our joint venture mediarights company, At The Races. Most importantly, advances were made in a numberof strategically important areas that will yield significant value over theforthcoming years. "The UK leisure industry is a dynamic marketplace and, within this, the UKhorseracing industry is no exception. I am confident that, in terms of itspersonnel and the policies that it is pursuing, Arena is well placed tocapitalise on the exciting value enhancing opportunities that it possesses,thereby helping the racing industry as a whole to move forward and continuing todeliver a growing earnings stream for its shareholders." For further information please contact: Mark Elliott, Chief ExecutiveArena Leisure Plc Tel: 020-7495-2277 e-mail: contact@arenaleisureplc.com David Rydell/Geoff CallowBell Pottinger Corporate & Financial Tel: 020-7861-3232 www.arenaleisureplc.com Chairman's Statement I am delighted to report on another successful year for Arena Leisure Plc('Arena'), with solid performances from both our racecourse division and ourjoint venture media rights company, At The Races. Most importantly, advanceswere made in a number of strategically important areas that will yieldsignificant value over the forthcoming years. The major £32m redevelopment of Doncaster Racecourse remains on budget and onschedule for completion in mid-August 2007, in time to stage this year'sLadbrokes St. Leger in September. A planning application for a 120-bedroom hotelwith 34 residential apartments at Doncaster Racecourse was submitted inNovember. Earlier in the year, outline planning permission was received for adevelopment at Lingfield Park incorporating a 120-bedroom hotel, leisure club,restaurant and bar, golf club house and hospitality boxes. In December, we signed a new five year agreement with Bookmakers' AfternoonGreyhound Service ('BAGS') that commenced in January 2007 for the supply of ourlive horseracing pictures to Britain's licensed betting shops. The value of thecontract over the five-years is estimated at around £55m (amount received in2006: £8.8m). The Government also announced the retention of the Levy until such time as asecure and adequate alternative commercial funding arrangement can beidentified. This removed the considerable uncertainty that had recentlysurrounded the racing industry. In 2006, Arena received £20.0m from the Levy(2005: £16.1m), representing 44% (2005: 40%) of our annual turnover. Following an extensive review of the provision of catering services at Arena'sracecourses, we decided to create a new catering division to direct, manage andoperate all catering activities across Arena's portfolio of seven racecourses.This decision was based on the belief that catering is a core element of boththe racing and non-racing customer experiences and that complete ownership ofone of the key aspects of these experiences will enhance and contribute to thelong term success of Arena and each of its racecourses. Arena will start to takeover the on-course catering contracts later this month. On the back of these strategic developments, Arena has been able to improve onits communication with the investment community, which has been reflected inconsiderably increased analyst coverage of the company. The financial results achieved in 2006 have also helped to confirm the operatingimprovements that have already been achieved. Turnover increased by 11.1% to£45.3m (2005: £40.7m) and profit before tax increased by 29.6% to £5.8m (2005:£4.5m). Within these results, the racecourse division performed solidly, increasing itsprofits to £8.7m (2005: £8.0m). This is a very creditable performance,particularly taking into account the impact of the World Cup on attendances inthe middle of the summer, which is traditionally our busiest period, and whichis estimated to have reduced profits by around £0.5m. Attendances, at 510,000,were 4.5% down on the record level in 2005 of 534,000. This reduction compareswith the rest of the UK horseracing industry which saw attendances fall byaround 5% (excluding Ascot related attendances). Although primarily World Cuprelated, our attendances in the second half remained a little softer than hadbeen anticipated. Importantly, our number of 'corporate' customers, who providethe highest spend per head, grew by 1.3% to 48,200 (2005: 47,600). The 2006result was also impacted by higher utility costs. Operationally, At The Races ('ATR'), which is 47.5% owned by Arena, had asuccessful year. Arena's share of ATR's adjusted operating loss (see note 2 fordetails) reduced by 74% to £0.3m (2005: £1.0m) and reflects the fact that, atthis level, the company operated at around break-even in the second half of2006, which bodes well for 2007. Arena's share of ATR's post tax result was aloss of £0.8m (2005: loss of £1.5m). Included within this was an exceptionalcharge of £0.4m (2005: £0.9m) and a tax credit of £nil (2005: £0.5m credit forconsortium relief). The exceptional charges arise from two areas of litigation.Earlier this year, ATR's claim for rebates from the 30 racecourses notaffiliated to it, following the termination of media rights agreements in 2004,was settled with ATR receiving a contribution of £1.0m, ATR withdrawing itsclaims and the courses withdrawing their counterclaim. Arena's central overheadof £2.5m (2005: £2.1m) includes a one-off cost of around £0.1m incurred inconnection with this litigation (2005: £nil). ATR also incurred costs indefending an appeal by the British Horseracing Board ('BHB') against a decisionin 2005 in which the judge found in favour of ATR, ruling that the BHB hadabused its dominant position. The appeal decision in February 2007 surprisinglyfound in the BHB's favour and the exceptional charge includes a provision inrelation to the decision. Overall, earnings per share increased by 29.8% to 1.61p (2005: 1.24p). Adjustingfor one-off gains and losses in both 2006 and 2005 in order to give a moreuseful indication of underlying performance (see note 4 for details), adjustedearnings per share increased by 12.9% to 1.49p (2005: 1.32p). As a result of the strong performance this year, an interim dividend of 0.25pper share was paid in October and the Board has proposed a final dividend for2006 of 0.26p per share (2005: 0.20p). This will give a total dividend inrelation to 2006 of 0.51p per share - an increase of 13.3% over the 0.45p pershare declared for 2005. This total dividend is covered 2.9 times by adjustedearnings per share, in line with our stated strategy. This dividend is proposedto be paid on 4 May 2007 to shareholders on the register on 30 March 2007. I took over as Chairman from Roger Withers in May 2006 and would like to thankRoger for his dedication and professionalism during his five-years on the Boardand the strong position in which he left the business. Martin McGann, with anextensive background in property and finance, joined the Board in June 2006 as anon-executive director. I am extremely grateful to all of our employees for their dedication and hardwork. Without their contribution, the successes that Arena has enjoyed would nothave been possible. Their focus and determination to give every one of ourcustomers the best experience possible is fundamental to the success of Arena. 2007 has started well. Arena has acquired an additional 12 fixtures as a resultof further delay in the opening of the proposed new racecourse at Great Leighs.Arena is well positioned to acquire further fixtures should they becomeavailable. Our revised planning application for the significant development ofWolverhampton Racecourse was submitted at the beginning of February, followingthe City of Wolverhampton having been recommended for one of the new 'small'casino licences by the Casino Advisory Panel. We look forward to progressingwith this application during 2007. The UK leisure industry is a dynamic marketplace and, within this, the UKhorseracing industry is no exception. I am confident that, in terms of itspersonnel and the policies that it is pursuing, Arena is well placed tocapitalise on the exciting value enhancing opportunities that it possesses,thereby helping the racing industry as a whole to move forward and continuing todeliver a growing earnings stream for its shareholders. Arena looks forward to the future with confidence. Raymond Mould Chairman28 February 2007 Chief Executive's statement and review of operations 2006 has been a successful year for Arena, particularly with regard to the manyexciting growth opportunities within the business. In my statement last year, I set out Arena's strategy for generating added valuefor its shareholders from our asset base. This can be summarised as: • Deliver consistent profit growth through the provision of excellent services and facilities to our customers and the greater utilisation of our assets on both race days and the many days in between. • Invest in new or expanded profit generating opportunities on our racecourses that compliment our existing activities. • Realise value from any surplus or under-utilised land within our 1,070 acres of freehold land. • Build on our core strengths, adding value through acquisitions where appropriate. Such acquisitions will be opportunistic in their nature. Underlying this strategy are Arena's core values of passion, innovation andexcellence. Significant advances were made in the year, particularly in thefirst two areas. Throughout 2006, Arena owned and operated six racecourses at Royal Windsor,Lingfield Park, Wolverhampton, Southwell, Folkestone and Worcester. Our seventhracecourse, at Doncaster, was closed as it undergoes a major redevelopment, withthe majority of its fixtures transferred around the Arena group. These coursestypically stage around 25% of all horseracing in the UK. Arena's skills are verymuch in venue management, providing a great product and a high quality ofservice for its customers. The media rights associated with our racing product have great commercial valueand it is through our At The Races joint venture that we seek to derive as muchvalue for these rights as possible. Racecourse division The Racecourse division made an operating profit of £8.7m (2005: £8.0m). Thiswas achieved despite a considerable impact on attendances caused by the WorldCup in the traditionally busiest summer period. We estimate that the attendancerelated impact of the World Cup was to reduce profits by around £0.5m. 2006 wasalso impacted by higher utility costs, with the increase estimated at around£0.2m. Total attendance in 2006 at our six operating courses of 510,000 was 4.5% downon the record level in 2005 of 534,000. Whilst primarily World Cup related,attendances in the second half were a little softer than had originally beenanticipated. This reduction compares with the rest of the UK horseracingindustry which saw attendances fall by around 5% (excluding Ascot relatedattendances). Importantly, our number of 'corporate' customers, who provide thehighest spend per head, grew by 1.3% to 48,200 (2005: 47,600). Within anenvironment of reduced attendance levels, this was a pleasing result, reflectingour focus on this important customer base; one that not only generates thehighest spend per head, but also offers a market that we believe has stronggrowth potential. A key requirement of this division, particularly with its three all-weatherracecourses, is for greater utilisation of its assets. During 2006, we againstaged a record number of fixtures at 353 (2005: 324), representing 26% of theUK horse racing fixture list. These fixtures featured a total of 2,388 races(2005: 2,172), again equating to around 26% of the UK total. 19 of thesefixtures were staged at very short notice due to the delayed opening of the newracecourse at Great Leighs and a further five were staged as a result of Ascot'srebuilding works in the first half of the year. Wolverhampton Racecourse, withits floodlit all-weather surface, staged almost one-third of all our fixtures at111 (2005: 91). The benefit obtained from the additional fixtures in the secondhalf of the year mitigated the reduced attendances in the summer. In 2007, Arena is currently scheduled to stage 347 fixtures, with this numberexpected to rise in 2008 to around 353. Arena is well positioned to acquirefurther fixtures should they become available during the course of any year. Throughout 2006, Doncaster Racecourse was closed for redevelopment. The majorityof its 29 fixtures were transferred to other Arena racecourses, although itsflagship event, the St Leger festival, was very successfully staged for one yearonly at York. The success of the latter gives great reassurance that the crowdswill return in ever greater numbers to the new Doncaster Racecourse when itre-opens later this year. Ladbrokes are the sponsor of the St Leger itself, theoldest classic race in the world. We are delighted that this relationship hasbeen extended for a further four years through to 2011. Arena provided record levels of prize money in 2006, with owners benefiting froma 19.3% increase in prize money to £14.6m (2005: £12.2m). Both years includedsignificant contributions to fixtures transferred from Ascot. The Racecourse division's long-term aim is to deliver consistent profit growththrough the provision of great product, superior quality service to ourcustomers and the greater utilisation of our assets on both race days and themany non-race days in between. Major advances were made this year. As part of Arena's drive towards greater efficiency and as a result of the scaleof our operations as the UK's leading operator of horseracing fixtures, wereview where cost savings can be made and services brought in-house, therebyavoiding the need for extensive set-up costs on each raceday. Early in 2006 the'camera patrol' operation was successfully brought in-house, augmenting the'photofinish' and 'starting stalls' operations which had similarly been broughtin-house in 2005. In these areas of operation, the service can be provided muchmore efficiently through the investment in our own, racecourse-based staff andequipment, and this has been achieved without impacting on the quality of theservice provided. A review was undertaken of the provision of catering services on our racecoursesand, in particular, the direction this should take in the future. The review wasprompted by the expiry at the end of March 2007 of the current contracts withLetheby & Christopher covering all of our racecourses. Catering is a fundamentalpart of the customer experience on a racecourse and, in recent years, it hasbecome a core aspect of a successful and enjoyable day at the races. We take theview that core activities should not be outsourced - only a dedicated, in-houseoperation can provide the passion, innovation and excellence that we demand forthe benefit of our customers. On-course catering is also an area that we believeis capable of improvements in both service to the customer and quality of food.As a consequence, the decision was taken to set up a new catering divisionwithin Arena which will take over the direction, management and operation of allcatering activities across Arena's portfolio of seven racecourses from the endof March 2007. It is expected that, over the next few years, the division willwork with our racecourse managers to significantly improve the current food andbeverage offering to our customers, thereby increasing repeat business and spendper head, with the consequent increase in bottom line profitability. We have nowrecruited a hugely enthusiastic and experienced central catering management teamwho relish the opportunity that has been created, of building a catering companywhose objectives are perfectly aligned with those of the venue, namely customersatisfaction and the generation of profitable growth. We also reviewed the introduction of an integrated ticketing and admissionsystem into our racecourses to both ensure that admissions procedures arestandardised and tightened and that we capture a greater level of information onour customers for marketing purposes. The new ticketing system has beenintroduced at Doncaster and was successfully launched with the sale on 1February 2007 of tickets for the 2007 St Leger festival. This ticketing systemplus the physical admission system will be introduced across the Arena groupduring the course of 2007 and it is expected that it will comfortably exceed ourcriteria for return on investment. We also undertook a review of our websites, which culminated in the launch of acompletely new suite of websites for Arena and each of its racecourses. Thesewebsites now profile the extensive range of facilities and activities on ourracecourses in a very clear and user-friendly format. The new Doncaster websiteplayed a major role in the successful sales launch of this year's St Legerfestival. In December, we simultaneously entered into a new five year agreement withBookmakers' Afternoon Greyhound Service ('BAGS') for the supply of our livehorseracing pictures to Britain's licensed betting shops and into newsponsorship arrangements with various individual bookmakers. These new contractscommenced on 1 January 2007 and replaced the previous five year contract withBAGS that had commenced in 2004. The combined value of these contracts over thefive year period is estimated at around £55 million. For comparison purposes,Arena received £8.8 million from the same sources in 2006. There are noadditional costs to Arena associated with the operation of these new contracts. Racing industry developments: The uncertainty over the future of the Levy, which is the major source offunding for the UK racing industry, was resolved with the UK Government'sannouncement in December of the Levy's extension until such time as a secure andadequate alternative commercial funding arrangement can be identified. In 2006,Arena received £20.0m from the Levy (2005: £16.1m), representing 44% of ourturnover (2005: 40%), the vast majority of which is used to fund prize moneypayments. The majority of the increase in 2006 arose from the increased numberof fixtures staged during the year and the higher levels of levy paymentreceivable in respect of Doncaster race meetings. In addition, responsibilityfor certain regulatory costs has passed from the Levy Board to the racecourses,together with the corresponding funding. As a consequence, the majority of thisincrease was matched by a similar increase in our 'costs of sale'. The method for distributing Levy funds is currently being re-evaluated. We hopefor a more fair, equitable and commercial distribution mechanism to beintroduced; one in which there is an increased emphasis on both betting turnoverand betting gross profits and whereby a racecourse receives a greater proportionof its Levy income based on the amount of Levy that its races actually generate. The related modernisation of the racing industry is now close to conclusion. Theseparate regulatory and governance functions will be combined into a new, singlebody - the British Horseracing Authority ('BHA') - which is expected to comeinto effect in mid-2007. I am delighted that Ian Renton, Arena's RacingDirector, was elected to the board of the BHA as the representative of the UK's59 racecourses. Racing Enterprises Limited will be established as the industry'scommercial entity, jointly owned by the UK racecourses and the Horsemen's Group. The Gambling Act 2005, which comes into effect later in 2007, will allow theevening opening of betting shops, which in turn has allowed for an expansion ofthe fixture list. Arena has gained additional fixtures in the second half of2007 and, in due course, would expect to receive further fixtures in the firstthree months of 2008. These fixtures will be held at our floodlit WolverhamptonRacecourse which, with its newly re-launched viewing restaurant, will look toattract a new, midweek evening crowd to horseracing. A bidding process for the acquisition of fixtures on a leasehold basis wasintroduced in 2005. In the bidding for 2007 fixtures conducted in June 2006,Arena acquired 66 fixtures on a mixture of one, two and three year leases, witha resultant annual prize-money commitment of £813,000 (2005: 66; all one yearleases; prize money commitment £418,000). We were happy with this outcome, giventhe increased competition for these fixtures, particularly from Kempton Park,with its new floodlit all-weather track, and the promised all-weather racecourseat Great Leighs. We have subsequently acquired a further 12 fixtures, atnegligible cost, for the early part of 2007 following further delays in theopening of Great Leighs. As a consequence, Arena is now scheduled to stage 347fixtures in 2007 (2006: 357), out of 1,415 in the UK (2006: 1,393), maintainingour position of staging around one-quarter of all racing in the UK. Arena iswell positioned to acquire further fixtures should they become available duringthe course of this year. A key objective for 2006 was for the extension of 48-hour declarations to all UKflat racing as a prerequisite for UK racing securing greater internationaldistribution of its product. This extension was achieved in August 2006 and hasallowed UK racing to start to compete with its international counterparts on alevel playing field and thereby begin the process of maximising its revenuepotential in overseas markets. At The Races Arena owns a valuable portfolio of media rights in the form of the races stagedat its courses. This value is delivered through At The Races ('ATR'), a jointventure in which Arena has a 47.5% shareholding, together with BSkyB (47.5%) andAscot Racecourse (5%). ATR has media rights agreements with 30 UK racecourses (including the proposednew racecourse at Great Leighs), providing ATR with the exclusive right in 2007to broadcast nearly 60% of all UK fixtures, and also exclusive rights tobroadcast racing from all 27 Irish racecourses and thereby over 250 Irishhorseracing fixtures a year. ATR broadcasts more than 1,000 UK and Irishmeetings each year. ATR maximises the value of the media rights licensed to it by making its racingproduct as widely available as possible, both domestically and internationally.It generates revenue through both the facilitation of bets placed with itsbetting partners and the driving of ancillary revenues such as sponsorship andadvertising. At the operating level, ATR progressed well during 2006. ATR experienced a 22.9%growth in turnover to £13.4m (2005: £10.9m). As a consequence, Arena's share ofATR's adjusted operating loss reduced by 74% to £0.3m (2005: £1.0m) and reflectsthe fact that, at this level, the company operated at around break-even in thesecond half of 2006. It is important to note that ATR's profits arise aftermaking annual payments to ATR's racecourse partners of around £2.5m. Arenareceives income from ATR within its turnover of around £1.5m each year. During 2006, the ATR television channel remained the UK and Ireland's mostwatched dedicated horseracing channel, with up to 1.45m individual viewers permonth (2005: 1.2m) and an average of 50,000 people watching at any time duringlive racing. The channel also had an average daily audience reach of over200,000 different individuals. On one day alone, 420,000 different individualstuned into the channel. The re-opening of Ascot in May provided a boost to thebusiness, with nearly 800,000 different individuals tuning in during the RoyalMeeting. Innovations to the television service include the introduction of an 'Lbar' on the main broadcast channel for the continual provision of racing andbetting information during live programming and commercial breaks, and thelaunch of ATR Active, which offers a second video channel to Sky subscribersbehind the red button. The channel broadcasts 24-hours a day and is free to viewwithin basic subscription packages. It is currently available to over 11 millionmulti-channel homes across the UK and Ireland through Sky, Virgin Media and NTLIreland. A successful year was completed with ATR being named "Best SpecialistChannel" at the 2006 Broadcast Digital Channel Awards. The judges noted that "AtThe Races targets its audience with exactly what it wants to see" and praisedthe channel for its financial success, "fresh" content and its ability to makehorseracing accessible to viewers. As further testament to the continuing highstandards of the ATR presentation team, Mike Cattermole was named Broadcaster ofthe Year by the Horserace Writers and Photographers Association, becoming thesecond ATR team member to win the award following Robert Cooper's victory in2005. ATR's website, attheraces.com, which is run in partnership with SkySports.com,is the UK's fastest growing domestic horseracing website. The number of pageimpressions rose by 82% to 357m (2005: 196m) and the number of monthly uniqueusers increased by 67%. In total, there were 4,793,829 monthly unique users ofattheraces.com across the year. It now has around 400,000 average monthly uniqueusers (2005: nearly 300,000) and over 33 million monthly page impressions.Recent statistics reveal that the ATR website is the UK's eighth most visitedsports betting website. With 48-hour declarations having been secured in August 2006, ATR was immediately able to commence the supply of UK racing product to Australia. This was followed by a long-term deal for the reciprocal provision of racing content between the US and the UK and Ireland with US broadcaster, TVG. TVG is the market leading broadcaster of live horseracing in the United States and is the official TV and interactive wagering partner of the National Thoroughbred Racing Association. TVG is available in nearly 20 million US households, in all 50 states. In certain of these states, TVG operates the country's leading advanced deposit wagering service which allows its customers to bet online, by automated telephone, mobile phone or interactive television. In 2005, almost $400 million was bet through TVG. ATR's UK and Irish racing will be broadcast exclusively on TVG on a daily basis, with a potential audience of nearly 20 million households. ATR will also become TVG's exclusive broadcast partner in the UK, showing racing from the best US tracks on a daily basis. ATR generates commissions from both bets placed on US races with UK bookmakers that are commingled into the US pools and from bets placed in the US on ATR's races. The reciprocal provision of racing content started on 3 January 2007 and so it is still too early to determine the level of profitability that will arise from this arrangement. Other important international territories include Italy and South Africa. On 5January 2007, racing from Wolverhampton generated a record €1.1m in turnover onthe Italian tote, netting Arena around £10,000 in media rights income. With the second half of 2006 having achieved a break-even position, ATR is setto move into profit in 2007. It is in a strong financial and operationalposition and is well positioned to build further on the successes achieved in2006. Developments Significant progress was made in 2006 in the development of our major new or expanded profit generating opportunities. A number of these require considerable capital expenditure and planning permission from the relevant local authority. In evaluating these major investments, we look for a 15% return on the net cash cost although, in exceptional circumstances, we may accept a return as low as 10% which is, nevertheless, still well ahead of our cost of capital. The first of these projects that will come to fruition is the redevelopment ofDoncaster Racecourse. Doncaster Racecourse is one of the UK's major racecourses,hosting the opening race of the flat racing season, as well as the last classicof the season - the 230-year old St Leger. The St Leger is currently sponsoredby Ladbrokes and is the oldest classic horserace in the world. The £32mredevelopment commenced in January 2006 with the demolition of the old, outdatedYorkshire Stand and exhibition hall. These will be replaced by state-of-the-artfacilities which will provide Doncaster's customers with the quality ofenvironment that they should expect from such a prestigious racecourse.Elsewhere around the racecourse, there will be a refurbishment of the adjacentSt Leger Stand and construction of a new stable block next to the racecourse,with an adjoining new stable lads' hostel. We remain on schedule to re-open inAugust 2007 and to stage the Ladbrokes St Leger on 15 September. As the projecthas progressed, additional investment opportunities have arisen. The originalworks assumed that a contract caterer would finance the installation of cateringequipment to the value of £1.0m in return for a 10-year contract. This contractwill now be undertaken by Arena's new catering division which will also fund thepurchase of the equipment. In addition, two further potential catering outletsare being evaluated which could have a combined cost of a further £0.75m. Oncethe redevelopment is complete, an 81% owned Arena subsidiary (with the localcouncil owning the remaining 19%) will operate Doncaster Racecourse on a 99-yearlease. Over the first 30 years of the racecourse's operation following itsredevelopment, Arena will receive 92.5% of the profits, with the local councilreceiving the balance. In the second phase of Doncaster's development, a detailed planning applicationfor a combined 120-bedroom four-star hotel with associated restaurant and barareas on the lower floors and 34 residential apartments on the upper floors, forwhich underground car parking facilities will also be provided, was submitted inNovember 2006. The gross cost of the development is estimated at around £17.5mwhich, after the sale of the residential apartments, is expected to result in anet cost of around £10.5m. The preferred operator of the hotel is Millennium &Copthorne. Our aim is that, subject to the receipt of planning permission,construction will be complete for the 2008 St Leger festival. The new hotel willoperate closely with the extensive new facilities on the Racecourse, for thebenefit of both, and will play an integral role in helping to transformDoncaster Racecourse into a world class leisure, business and racing venue. Following the refurbishment of the main grandstand and provision of a newall-weather track at Lingfield Park within the last few years, in March 2006Arena submitted an outline planning application for a redevelopment of part ofthe Racecourse and a detailed planning application for the conversion of theexisting leisure and squash club into 22 residential apartments, together withthe provision of a further three houses within its grounds. The improvementswill complete the transformation of the Racecourse, with the overall schemecomplementing the Racecourse's picturesque Green Belt surroundings and enhancingthe customer experience. A total of 22 buildings will be demolished, to bereplaced by a new integrated leisure building incorporating a 120-bedroom hotel,a new golf club house, extensive new leisure facilities including a leisure clubwith a swimming pool, restaurant and bars, as well as improvements to the racingfacilities. In July, the local council resolved to grant planning permission forboth applications and in September, the Government Office for the South Eastconfirmed the applications were not to be called-in by the Secretary of State.As a consequence, planning permission for the significant improvements at theRacecourse has now been secured, subject to finalising legal agreements with theCouncil, which should occur shortly. A reserved matters application should besubmitted late in the first half of 2007. The estimated net cost of the tworelated developments is in the region of £25m. The Doncaster and Lingfield projects were our priorities during 2006. Wenevertheless continued to review the development opportunity at Royal WindsorRacecourse. We believe that a development on the Racecourse is important inhelping to ensure its future success. We remain committed to only taking forwarda planning application that has a realistic possibility of achieving fullplanning consent, considering the sensitive nature of the site in planning termsdue to its Green Belt location. It is expected that the scale of developmentthat we will seek will be finalised during 2007. We have stated a desire to build on our core strengths, adding value through acquisitions where appropriate, but have also made it clear that Arena has a large number of value-enhancing growth opportunities and these remain our prime focus. For this reason, we view ourselves as being opportunistic with regard to acquisitions. During the early part of 2006, we played a major role in a consortium of racing interests that attempted to buy the Tote from the UK Government. An offer was made that was ultimately not accepted, at which point, Arena withdrew from the process. A second consortium has now lodged a bid for the Tote that appears to match the Government's asking price. The Racecourse Association is part of this consortium and is the trade body for the UK racecourses. As a consequence, if the bid is successful, Arena will have a small interest in the privatised Tote, at no cost to Arena. A decision on the bid from the UK Government is expected shortly. The Tote owns 540 betting shops and has the exclusive licence to run pool betting on horseracing in the UK. We also seek to realise value from any surplus or under-utilised land assets. A process has begun that involves reviewing the future of Folkestone Racecourse and in particular the surplus land associated with it. Some preliminary discussions have taken place with the relevant local authority. This will be a long term project and it is likely that the benefits of this project, if any, will be seen in the medium to longer term. A review of the surplus land at Lingfield Park will commence once the hotel project is underway. Throughout 2006, we also worked on a new planning application for a majorredevelopment of Wolverhampton Racecourse. The original plans to introduce acasino and expand the hotel were rejected in 2005 by the Office of the DeputyPrime Minister, despite support from Wolverhampton City Council, and, at thatstage, we wrote-off £0.4m of costs incurred on the project. The development wasviewed as negatively impacting upon the 'openness' of the Green Belt location inwhich it is situated. Nevertheless, the concept of the extension and the synergybetween the component parts were supported by the local planning authority, theCall-In Inquiry Inspector and the Secretary of State. A detailed planningapplication for the revised scheme was submitted to Wolverhampton City Councilin February 2007. The new application incorporates a fundamental redesign toovercome the reasons for the previous refusal. The development includes theexpansion of the current hotel from 54 to 170-bedrooms, the construction of anew conference, exhibition and banqueting suite, a new leisure facilityincluding a swimming pool, and the incorporation of a casino within theRacecourse, thereby creating the UK's first 'racino'. The proposed expansion offacilities will play a crucial role in securing the long-term future ofWolverhampton Racecourse and will further enhance its status as a leadingracing, conferencing and leisure destination for the West Midlands region. Weare optimistic that the revised plans have fully addressed the cause of theearlier failure. The cost of the development is estimated at £23 million, andwill generate up to 280 additional jobs once fully operational. In a related development, the City of Wolverhampton was recently recommended asa location for a 'small' casino by the Casino Advisory Panel. WolverhamptonRacecourse played a prominent role in the City's application and the proposedracino is physically capable of accommodating a small casino. The Panelcommented that: "Wolverhampton well satisfies all of our criteria and if thecasino happens to end up at the racecourse it would add to its uniqueness andprovide an interesting and unusual social impact test". Arena acknowledges thatthe Panel's recommendations have to be endorsed by Parliament and that it willbe Wolverhampton City Council that determines the granting of the casinopremises licence. The integrated nature of what we are proposing, together withthe jobs that are both safeguarded and indeed created, would make a casino atWolverhampton Racecourse a very exciting addition to the City of Wolverhampton.We therefore naturally hope that Wolverhampton Racecourse will be chosen as thebest site within Wolverhampton for such a casino, although do not expect adecision to be announced before the end of 2007. Also at Wolverhampton Racecourse, we are currently in the middle of a £0.6mrefurbishment of the 370-seat racecourse viewing restaurant. This restaurant hadpreviously been one of the busiest and most popular restaurants in racing, withaverage occupancy on a Saturday evening very close to full capacity. However, ithas become dated in all aspects of the customer offering and the number ofcustomers has decreased considerably. The refurbishment will completelyre-invigorate the customer experience. Air conditioning will be introduced;granite tables and leather chairs will be provided throughout; and the top bar,betting and entrance area will be expanded in order to create a larger,multi-functional space. The aim is to produce a modern, contemporary restaurantthat will re-launch Wolverhampton Racecourse as a premier dining venue withinthe West Midlands, allowing it to attract both customers back to the Racecourseand also a wider array of events. The restaurant will re-launch on 21 April asHorizons and, under the management of the new Arena catering division, isexpected to revive what has been an extremely popular dining experience. Withtypically around 95 fixtures each year, including the increased midweek eveningopportunities provided by the introduction of the Gaming Act 2005, Horizons willnot only generate a return in excess of the desired 15% for Arena projects, butit will also serve as a fitting complement to the proposed hotel and casinodevelopment at the Racecourse. Overall, Arena possesses a number of exciting growth opportunities. 2007 will bea crucial year in the delivery of a number of them and I am optimistic that theCompany is well placed to achieve this. Mark Elliott Chief Executive28 February 2007 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 Notes £'000 £'000 ------- --------- --------- Turnover 2 45,259 40,747Cost of sales (30,033) (26,235)------------------------ ------- --------- ---------Gross profit 15,226 14,512Other operating income 133 -Profit on sale of investments - 834Administrative costs (9,031) (8,619)------------------------ ------- --------- ---------Profit from operations 2 6,328 6,727Share of post tax results of joint venture 2 (812) (1,529)Share of post tax results of associate - 17Reversal/(creation) of provision against investment inassociate 100 (315)------------------------ ------- --------- ---------Profit before interest and taxation 5,616 4,900------------------------ ------- --------- ---------Finance expense (848) (761)------------------------ ------- --------- ---------Finance income 353 350Other finance gain 696 ------------------------- ------- --------- ---------Net finance income/(expense) 201 (411)------------------------ ------- --------- ---------Profit before taxation 2 5,817 4,489Taxation 3 - ------------------------- ------- --------- ---------Profit for the year 5,817 4,489------------------------ ------- --------- ---------Attributable to: - Equity shareholders of the parent company 5,850 4,489 - Minority interest (33)------------------------- ------- --------- --------- 5,817 4,489 ------- --------- --------- Earnings per share 4 Pence Pence ------- --------- --------- Basic earnings per share 1.61 1.24Diluted earnings per share 1.60 1.23------------------------ ------- --------- --------- Changes in shareholder's equity 2006 2005 £'000 £'000 ------- --------- --------- Total recognised income and expense 5,817 4,489Share-based payment expense 34 5Issue of new ordinary shares for cash 287 71Dividends paid 5 (1,639) (1,988)------------------------ ------- --------- --------- 4,499 2,577Total equity at the beginning of the period 59,773 57,196------------------------ ------- --------- ---------Total equity at the end of the period 64,272 59,773------------------------ ------- --------- ---------Attributable to: - Equity shareholders of the parent company 64,305 59,773- Minority interest (33) - ------- --------- --------- 64,272 59,773 ------- --------- --------- CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2006 2006 2005 Notes £'000 £'000 -------- --------- ---------Non-current assetsProperty, plant and equipment 86,054 70,615Intangible assets 5,596 5,596------------------------ -------- --------- ---------Investment in joint venture:Share of gross assets 1,770 3,188Share of gross liabilities (5,368) (5,974)------------------------ -------- --------- --------- (3,598) (2,786)Goodwill in respect of joint venture 1,580 1,580Loans to joint venture 3,976 3,284------------------------ -------- --------- --------- 1,958 2,078Investment in associate 100 ------------------------- -------- --------- ---------Total non-current assets 93,708 78,289 Current assetsInventories 17 19Trade and other receivables 6,454 4,785Other financial assets 58 -Cash and cash equivalents 50 69------------------------ -------- --------- ---------Total current assets 6,579 4,873------------------------ -------- --------- ---------Total assets 100,287 83,162------------------------ -------- --------- --------- Current liabilitiesBank overdraft (2,920) (3,267)Trade and other payables (11,664) (9,368)Other financial liabilities (135) (315)Corporation tax liability - ------------------------- -------- --------- ---------Total current liabilities (14,719) (12,950)------------------------ -------- --------- --------- Non-current liabilitiesFinancial liabilities (18,641) (7,632)Accruals and deferred income (2,655) (2,807)------------------------ -------- --------- ---------Total non-current liabilities (21,296) (10,439)------------------------ -------- --------- ---------Total liabilities (36,015) (23,389)------------------------ -------- --------- --------- Total net assets 64,272 59,773------------------------ -------- --------- --------- EquityShare capital 6 18,210 18,100Share premium 7 223 46Merger reserve 7 5,417 5,417Retained earnings 7 40,455 36,210------------------------ -------- --------- ---------Equity attributable to shareholders of the parent company 64,305 59,773Minority interest 7 (33) ------------------------- -------- --------- ---------Total equity 64,272 59,773------------------------ -------- --------- --------- CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 Notes £'000 £'000 -------- -------- --------Operating activitiesProfit for the year 5,817 4,489Adjustments for:Depreciation 2,051 1,847Impairment provision - Wolverhampton development - 400Share-based payment expense 34 5Net finance (income)/expense (201) 411Share of loss of joint venture 812 1,529Share of income of associate - (17)(Reversal)/creation of provision against investment in associate (100) 315Profit on sale of property, plant and equipment (14) (69)Profit on sale of SIS shares - (834)Taxation provision released - (5)Grant amortisation (53) (53)------------------------------- -------- -------- --------Operating profit before changes in working capital and provisions 8,346 8,018------------------------------- -------- -------- -------- Increase in trade and other receivables (1,165) (881)Decrease in inventories 2 11Decrease in trade and other payable (1,463) (961)------------------------------- -------- -------- -------- Cash flows from operating activities 5,720 6,187------------------------------- -------- -------- -------- Investing activitiesPurchases of property, plant and equipment (14,505) (4,409)Sale of property, plant and equipment 144 184Proceeds from sale of SIS shares - 1,179Loans to joint venture (692) (174)Investment in Doncaster Racecourse Management Co Ltd - (718)Investment in joint venture - (206)Interest received 353 231------------------------------- -------- -------- -------- (14,700) (3,913) -------- -------- --------Financing activitiesIssue of ordinary shares 287 71Proceeds from bank and other borrowings 11,812 -Repayment of loans (302) (1,326)Repayment of finance lease creditors (2) (14)Interest paid (848) (725)Dividends paid 5 (1,639) (1,988)------------------------------- -------- -------- -------- 9,308 (3,982) -------- -------- --------Increase/(decrease) in cash and cash equivalents 328 (1,708)Net cash and cash equivalents at beginning of year (3,198) (1,490) -------- -------- ---------------------------------------Net cash and cash equivalents at end of year 8 (2,870) (3,198)------------------------------- -------- -------- -------- Notes to the accounts 1. The figures for the year ended 31 December 2005 are based on the accounts which have been filed with the Registrar of Companies and have been prepared under International Financial Reporting Standards ('IFRS') as adopted by the EU. The auditors' report on the accounts filed with the Registrar of Companies was unqualified and did not contain a statement under Section 237(2)/(3) of the Companies Act 1985. These accounts do not comprise statutory accounts within the meaning of Section 240. 2. Additional profit disclosure Turnover Profit/(loss) ------------ ------------- 2006 2005 2006 2005 £'000 £'000 £'000 £'000 ------- ------- ------- -------- Racecourse operations 45,259 40,747 8,701 8,021Central costs - - (2,506) (2,128)------------------------------ ------- ------- ------- --------Turnover and profit from operations before one-off items 45,259 40,747 6,195 5,893 ------- ------- ------- -------- ------------------------------One-off items:Other operating income --- release of unclaimed share proceeds on purchase of subsidiary undertaking 133 -Profit on sale of SIS shares - 834------------------------------ ------- ------- ------- --------Profit from operations 6,328 6,727 Share of post tax results of At The Races:------------------------------ ------- ------- ------- --------Operations (269) (1,042)Finance costs (158) (89)Exceptional items (434) (862)Tax credit 49 464------------------------------ ------- ------- ------- -------- (812) (1,529)Share of post tax results of associate: - 17Reversal/(creation) of provision against investment in associate 100 (315) ------- -------Finance expense (848) (761)Finance income 353 350Finance gain re: present value of interest free loans on initial recognition 638 -Other finance gain - derivatives 58 ------------------------------- ------- ------- ------- --------Net finance income/(expense) 201 (411)------------------------------ ------- ------- ------- --------Profit on ordinary activities before taxation 5,817 4,489 Taxation - ------------------------------- ------- ------- ------- --------Profit for the year 5,817 4,489------------------------------ ------- ------- ------- --------Attributable to: - Equity shareholders of the parent company 5,850 4,489- Minority interest (33) - ------- ------- ------- -------- 5,817 4,489 ------- ------- ------- -------- Profits and losses from operations are stated before any intra-group managementcharges. Central costs consist principally of expenditure incurred in respect ofthe management, control and administration of the group. The main charges relateto directors' pay, other general administrative staff and public relationscosts. 3. Taxation There is no current year tax charge (2005: no tax charge) due to theavailability of tax losses. At 31 December 2006, corporation tax lossesrepresenting trading and non-trading losses of £57,148,000 (2005: £54,777,000)were available for utilisation in future years subject to agreement with HMRevenue & Customs. 4. Earnings per share Earnings 2006 2005 £'000 £'000 --------- ---------Profit for the year attributable to equity holders of the parent company 5,850 4,489 --------- ---------Adjustments:Finance gain re: present value of interest free loans on (638) -Other operating income --- release of unclaimed share proceed on purchase of subsidiary undertaking (133) -Impairment provision - Wolverhampton development - 400Reversal/(creation) of provision against investment in associate (100) 315Arena share of At The Races exceptional items 434 862Arena share of At The Races consortium relief - (464)Profit on sale of SIS shares - (834)--------------------------------- --------- ---------Adjusted profit for year used in calculation of adjusted earnings per share 5,413 4,768 ---------------------------------- --------- -------- An adjusted earnings figure is included in the Chairman's statement as, in theopinion of the Directors, this gives a more useful indication of underlyingperformance. Weighted average number of shares 2006 2005 No.'m No.'m------------------------------- ---------- ---------Weighted average number of shares used in the calculation of basic and adjusted EPS 364.12 361.52Dilutive potential of ordinary shares:Employee share options 1.00 2.20------------------------------- ---------- ---------Weighted average number of shares used in the calculation of diluted EPS 365.12 363.72------------------------------- ---------- --------- Certain employee options have not been included in the calculation of dilutedEPS because their exercise is contingent on the satisfaction of specificcriteria that had not been met at the end of the year. In addition, certainemployee options have also been excluded from the calculation of diluted EPS astheir exercise price is greater than the weighted average share price during theyear (i.e. they are out-of-the-money) and therefore would not be dilutive. Thetotal number of share options excluded in 2006 was 7.25 million (2005: 4.72million). 5. Dividends 2006 2005 £'000 £'000---------------------------------- --------- ---------Final dividend of 0.2 pence (2005: 0.3 pence) per ordinary share proposed and paid during the year relating to the previous year's results 728 1,084Interim dividend of 0.25 pence (2005: 0.25 pence) per ordinary sharepaid during the year relating to the current year's results 911 904---------------------------------- --------- ---------Dividends paid in the year 1,639 1,988---------------------------------- --------- --------- The directors have proposed a final dividend of 0.26 pence (2005: 0.2 pence) pershare totalling £947,000 (2005: £728,000). This dividend has not been accrued atthe balance sheet date. 6. Share capital Authorised ---------- --------- --------- --------- 2006 2006 2005 2005 Number £'000 Number £'000-------------------- ---------- --------- --------- ---------Ordinary shares of 5p each 429,353,724 21,468 429,353,724 21,468-------------------- --------- --------- --------- --------- Issued and fully paid --------- --------- --------- --------- 2006 2006 2005 2005 Number £'000 Number £'000-------------------- --------- --------- --------- ---------At beginning of the year 361,995,535 18,100 361,495,535 18,075Exercise of employee share options 2,206,472 110 500,000 25-------------------- --------- --------- --------- ---------At end of the year 364,202,007 18,210 361,995,535 18,100-------------------- --------- --------- --------- --------- 7. Reserves 2005 Share Premium Merger Retained Minority account reserve earnings interest £'000 £'000 £'000 £'000--------------------- ---------- --------- --------- ---------At 1 January 2005 - 5,417 33,704 -Exercise ofemployee share options 46 - - -Profit for the year - - 4,489 -Dividends paid - - (1,988) -Share-based payment expense - - 5 ---------------------- ---------- --------- --------- ---------At 31 December 2005 46 5,417 36,210 ---------------------- ---------- --------- --------- --------- 2006 Share premium Merger Retained Minority account reserve earnings interest £'000 £'000 £'000 £'000--------------------- ---------- --------- --------- ---------At 1 January 2006 46 5,417 36,210 -Exercise of employee share options 177 - - -Profit for the year - - 5,817 -Minority interest - - 33 (33)Dividends paid - - (1,639) -Share-based payment expense - - 34 ---------------------- ---------- --------- --------- ---------At 31 December 2006 223 5,417 40,455 (33)--------------------- ---------- --------- --------- --------- 8. Statement of net debt At 31 At 31 December December 2006 2005 £'000 £'000------------------------------------ ---------- -------Cash and cash equivalents 50 69Bank overdrafts (2,920) (3,267)------------------------------------ --------- -------Net cash and cash equivalents (2,870) (3,198)Bank loans (14,750) (7,000)HBLB loans (3,725) (644)Finance lease - Worcester Racecourse (301) (303)------------------------------------ ---------- -------Closing net debt (21,646) (11,145)------------------------------------ ---------- ------- This information is provided by RNS The company news service from the London Stock Exchange