30 Jul 2009 07:00
ARENA LEISURE PLC
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2009
Arena Leisure Plc ('Arena' or the 'Group'), the UK's leading operator of horseracing fixtures which owns and operates seven racecourses in the UK comprising Doncaster, Royal Windsor, Folkestone, Lingfield Park, Southwell, Wolverhampton and Worcester, today announces its results for the six month period from 1 January 2009 to 30 June 2009 (the 'period'). The highlights of the statement are as follows:
Financial:
Operations:
Outlook and current trading:
·; New LBO media rights contract with Satellite Information Services (‘SIS‘) was signed on 22 July 2009 for a five year term commencing on 1 January 2012. Total revenues receivable under the contract are estimated at £106m - compared to the current contract that delivers an estimated £55m over its five year term - and results in an annual increase in profitability from 2012 of an estimated £10m. Advanced payments of £32m are receivable over the next two years.
Raymond Mould, Arena’s Chairman, said
"The SIS media rights contract, with £32m in upfront payments and an estimated £10m per annum increase in Group profits from 2012, confirms the strength of Arena Leisure Plc and positions it very well to face the current uncertain short term economic situation. It is a fundamental step forward and a salient reminder of the value of the Group's assets and will provide a strong cashflow position enabling the Group to exploit its strategic development opportunities.
"Arena has continued to perform creditably and maintain the profitability of the underlying racecourse business in tough conditions. This performance has been achieved through operational efficiencies and the resilience of industry revenue streams which have offset a weaker private and corporate hospitality market.
"Arena has made exciting progress on its estate strategy, especially at Folkestone and Lingfield Park.
"Whilst business trends remain difficult, the increased number of fixtures in the remainder of the year and our success in implementing operational efficiency measures are encouraging signs for the second half."
30 July 2009
Enquiries:
Arena Leisure Plc Tel: 020 7632 2080
Mark Elliott, Chief Executive
Tony Harris, Finance Director
College Hill Tel: 020 7457 2020
Justine Warren
Matthew Smallwood
Forward-looking statements
This report may contain certain statements about the future outlook for Arena. Although we believe our expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
www.arenaleisureplc.com
HALF YEAR REVIEW
Overview
The first half of 2009 has seen Arena continue to perform well in a difficult market with average attendances at Arena's racecourses showing a slight 1.6% drop in line with the UK racing industry. Profitability of the underlying racecourse business has been maintained at the same level as the first six months of 2008, with the Group staging eight fewer fixtures during the period. This performance has been achieved through the success of the cost saving initiatives that were established at the end of 2008 and through the continued progress of the in-house catering operation. These operational improvements, coupled with increased income from the current licensed betting office ('LBO') media rights contract, fully mitigated a predicted shortfall in private and corporate hospitality business.
The announcement on 22 July 2009 of the LBO media rights contract with Satellite Information Services Limited ('SIS') secures a very important revenue stream for Arena and reflects the value of Arena's media rights product in the UK market. The five-year new contract will lead to a substantial uplift in profitability of an estimated £10m per annum from 2012, and the advanced payments due under this contract will allow the Group to reduce its net borrowings and significantly enhance future operating cash flows.
Arena has made further progress on its estate development strategies. Notably, Shepway Council has included Folkestone Racecourse in its recent development consultation document with an allocation of at least 400 residential homes as part of a mixed use scheme that will secure the future of racing on the site. The exciting hotel and leisure project at Lingfield Park Racecourse is progressing towards its Spring 2010 opening date and remains on schedule and on budget.
Operational Review
Arena staged 197 fixtures during the period (2008: 205). 19 were additional unscheduled fixtures (2008: 16), of which 16 resulted from Great Leighs Racecourse entering administration in January 2009 and being unable to race from that date. Arena has also acquired a further 22 fixtures for the second half of 2009 that were originally scheduled to be staged at Great Leighs. These help bring the current expected total fixtures for 2009 to 370 (2008: 363), after allowing for the seven fixtures that were abandoned due to weather conditions in the period. Arena's fixture calendar is therefore more weighted towards the second half of the year than in 2008.
Total attendance at Arena's racecourses in the period was 288,000 (2008: 305,000). The average attendance for the period was 1,464 (2008: 1,488), a decrease of 1.6%, which is in line with the average fall in attendance across all UK racecourses, based on preliminary statistics from the Racecourse Association. We have indicated in previous statements over the last 18 months that corporate and private hospitality business has been the revenue most susceptible to the current economic conditions and the period has seen hospitality attendances of 15,000 (2008: 20,000) across the Group, with a consequent negative profit impact of £0.4m compared to the same period in 2008. As anticipated, lead times for bookings of hospitality packages have shortened, with each racecourse operating discount and promotional offers in order to secure business. We are able to offer a highly flexible product across multiple price points, from hospitality boxes to restaurants to admission-only packages and, where customers are prepared to buy, we are generally successful in securing business. The quality of the Group's catering offering has become a key strength of the Arena business since bringing that operation in-house during 2007. Not only does this provide an opportunity to drive important revenue contributions both from an increasingly recognised product and through the flexibility of the packages we can offer, but it also enables us to deliver operational margin improvements which have helped to protect profits. Sponsorship levels have remained relatively robust helped by new arrangements entered into with DFS for major sponsorship at the St Leger in September.
The Group's income from its current LBO media rights contract increased to £6.3m (2008: £6.0m), despite a reduced number of fixtures. This increase was driven by a contractual increase in the standard per race fee, together with a reduced proportion of races with less than eight runners - the latter causing a reduction in the standard fee. The Levy, which largely funds prize money and is generated from the UK bookmakers' domestic horseracing profits, has been settled at £91.6m for 2008/09, substantially lower than the windfall level in 2007/08 of £115.3m. The reduction in 2008/09 could potentially be an indication of future reduced Levy contributions into the industry.
Doncaster Racecourse, which was reopened in August 2007 following a major redevelopment, has faced a challenging market over the last 18 months. In late 2008, a review of the operational base at Doncaster resulted in a significant cost saving programme being implemented and 2009 has seen the benefit of this. The new facilities are proving successful in attracting a variety of conference and other non race day business and the two St Leger festivals in September 2007 and 2008 were the most profitable in the Racecourse's history. Following the success of the 'Madness' concert in June 2008, we expanded the programme of race-music nights in 2009 to three. Although these events have not seen attendance numbers as high as those for the first event in 2008, they continue to form part of our core strategy of expanding the utilisation of the Group's racecourse assets and we will continue to explore these and other raceday events in order to broaden our customer base and further increase revenues.
In 2008, £0.5m (2009: £nil) of insurance proceeds were recognised in relation to lost profits resulting from the flooding of Southwell Racecourse in 2007. The Racecourse has now been fully operational for more than one year.
On 16 January 2009, Great Leighs Racecourse closed and entered administration and has not reopened since that date. Arena had managed the racing operations at the course under an operating agreement that generated £0.3m profit in the six months to 30 June 2008 (2009: £nil). In the second half of 2008, Arena recorded no net income from Great Leighs after providing for amounts receivable from the Racecourse of £0.3m. The Group has, however, benefited from 16 unscheduled meetings which were re-allocated from Great Leighs to Arena's courses during the period as a result of Great Leighs being non-operational.
Newton Abbot Racecourse has signed as an Arena associate member and will benefit from the expertise and experience within Arena as well as having access to the many in-house operations in which Arena specialises. This model could potentially be replicated with other independent UK racetracks should the opportunity arise.
At The Races ('ATR'), in which Arena holds a 45.85% shareholding, recorded revenues of £7.4m in the period (2008: £7.9m). Arena's share of ATR's operating profit and profit after tax for the period was £0.2m (2008: £0.3m) and £nil (2008: £0.1m), respectively. This reduction resulted, in part, from tougher market conditions for advertising revenues but also from the impact of lower incomes from certain European markets received in two months at the beginning of the year. ATR has continued to make progress in developing its business model both online and internationally and the company has been recognised with two major industry awards.
Media Rights
Post the period end on 22 July 2009, Arena contracted with SIS for the provision of coverage of horse racing content from the Group's seven racecourses into licensed betting offices in the UK and Ireland. The contract will replace Arena's current contract with BAGS at its expiry on 31 December 2011 and has a term of five years to 31 December 2016. Total revenues receivable under the contract over this period are estimated at £106m, which compares to revenues under the existing five year contract of an estimated £55m, and results in an annual increase in profitability from 2012 of an estimated £10m. Arena received an initial advanced payment from SIS of £12.5m. Further advanced payments of £12.5m and £7.0m are due on 22 July 2010 and 22 July 2011, respectively and are dependent upon the provision of appropriate security by Arena. The balance of the estimated revenues will be received by Arena throughout the five year term on a per race basis.
Financial Review
Revenue in the period was broadly flat at £30.9m (2008: £31.2m).
Profit from the underlying racecourse operations was £2.7m (2008: £2.7m, excluding £0.3m fee received from Great Leighs and £0.5m of Southwell insurance proceeds), despite the impact of the eight fewer fixtures and a reduction in contribution from private and corporate hospitality in the first half. The Group's profit from operating activities reduced to £1.6m (2008: £2.2m), after mitigation by a £0.2m decrease in central overheads to £1.1m (2008: £1.3m).
The net interest expense for the period reduced to £0.5m (2008: £0.9m), mainly as a result of the prevailing lower interest reference rates on the Group's bank debt. A non-cash charge of £0.2m (2008: £0.2m) has been recognised as a result of the IFRS treatment of interest free loans and a non-cash credit of £0.2m (2008: £nil) resulted from the revaluation of the Group's interest rate hedge instruments. As a consequence, profit before tax decreased by £0.3m (17%) to £1.1m (2008: £1.4m), with earnings per share similarly reducing to 0.33 pence (2008: 0.40 pence).
During the period the Group repaid £0.75m of bank facilities. At 30 June 2009, the Group had £60.25m of available bank facilities, including overdrafts, of which £45.2m was drawn. Following the period end, the advanced payment received from SIS as part of the new LBO media rights contract reduced net borrowings by a further £12.5m. The earliest loan maturity, other than the Group's overdraft, is a £10.0m credit facility due in October 2010, the repayment of which the Group expects to meet from existing facilities. The Group is projected, taking into account reasonable possible changes in trading performance, to continue to be able to operate within the level and covenant conditions of its bank facilities.
Related party transactions that have taken place in the period are disclosed in Note 16 to the condensed set of interim financial statements.
Development Projects
Good progress has been made on our strategy for the utilisation of surplus land at Folkestone Racecourse based on a part residential and part leisure development. The Racecourse has been included in Shepway Council's Local Development Framework - Core Strategy Preferred Options document, which was recently published for consultation. In the document, the Racecourse is recommended for a high quality mixed use development that would improve, and hence secure the future of, the Racecourse and provide a site for at least 400 new homes.
The Lingfield Park Marriott Hotel and Country Club development is progressing to budget and on schedule for its planned opening in Spring 2010. An experienced General Manager has been recruited and he is working actively to build his team towards the hotel's opening.
The 'racino' scheme, which incorporates an extension to the existing hotel and a new casino at Wolverhampton Racecourse, remains a strategic objective and is dependent upon obtaining a 'small' casino license in the envisaged local government tender process. The timing of the tender process has yet to be confirmed and the status is therefore unchanged from previous statements. Other ongoing projects include a hotel and residential development at Doncaster Racecourse, for which planning consent exists, and the potential for an improvement scheme at Royal Windsor Racecourse. We continue to make progress on these estate strategies as well as reviewing the appropriate timing for development projects based on the economic cycle and the cost and availability of financing.
Employees
Arena's employees make a significant contribution to the performance of the business through their hard work and dedication. The Board would like to recognise and thank all of the Group's employees for their continuing efforts in making Arena the leading racecourse operator in the UK.
Dividend
In line with the decision not to pay a final dividend for 2008, the Board has decided not to pay an interim dividend for 2009 (2008: 0.25p per share).
Outlook and Current Trading
Arena's performance has proved to be relatively resilient in the period with operational improvements and enhanced industry revenue streams having mitigated the impact of the anticipated reduction in the number of corporate and private hospitality guests. Current trading in the initial weeks of the second half continued this trend. Forward bookings for the remaining summer period and Doncaster's St Leger festival in September, which is an important constituent of the overall result for the year, are continuing to display shorter lead times.
As a result of Great Leighs' closure, Arena will host an additional 22 fixtures in the second half of 2009, bringing the expected total number of meetings for the six months to 31 December 2009 to 173 (2008: 158).
The Levy and LBO media rights income streams have proven to be resilient in nature. The composition of Arena's portfolio of seven racecourses, encompassing flat, jump and all-weather racing, as well as the increasing levels of non raceday business, mainly as a result of our development programme, gives a degree of diversification to trading risk. The Group's cost base is largely fixed in nature. All costs, including the variable costs incurred, in particular, on race days, have been realigned to current trading levels and are very carefully monitored to ensure that they remain at an appropriate level.
Estate development projects undergo rigorous market assessment before commencement, have suitably experienced project management and utilise fixed price construction contracts with experienced main contractors. The Board is comfortable that, from a financial and development risk perspective, the Group's short and medium term gearing levels and operational leverage will remain at acceptable levels.
In this last reporting period, Arena has proven its ability to stabilise operating performance in the current difficult trading environment with effective management action at an operational level and as a result of the resilience of its industry revenue sources.
The SIS media rights contract, with £32m in upfront payments and an estimated £10m per annum increase in Group profits from 2012, confirms the strength of Arena Leisure Plc and positions it very well to face the current uncertain short term economic situation. It is a fundamental step forward and a salient reminder of the value of the Group's assets and will provide a strong cashflow position enabling the Group to exploit its strategic development opportunities.
Raymond Mould Mark Elliott
Chairman Chief Executive
29 July 2009
| Condensed Consolidated Interim Statement of Comprehensive Income | ||||||
| Six months | Six months | Year | ||||
| ended | ended | ended | ||||
| 30 June 2009 | 30 June 2008 | 31 December 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| Note | £'000 | £'000 | £'000 | |||
| Continuing Operations | ||||||
| Revenue | 6 | 30,878 | 31,189 | 64,825 | ||
| Cost of sales | (22,965) | (23,044) | (47,270) | |||
| Gross profit | 7,913 | 8,145 | 17,555 | |||
| Other operating income | 7 | - | 529 | 2,427 | ||
| Administrative expenses | (6,353) | (6,486) | (12,848) | |||
| Profit from operating activities | 6 | 1,560 | 2,188 | 7,134 | ||
| Share of post-tax profit of joint venture | 17 | 116 | 310 | |||
| Profit before interest and taxation | 1,577 | 2,304 | 7,444 | |||
| Finance expense | 8 | (859) | (1,095) | (4,519) | ||
| Finance income | 8 | 407 | 152 | 1,091 | ||
| Net finance expense | 8 | (452) | (943) | (3,428) | ||
| Profit before taxation | 1,125 | 1,361 | 4,016 | |||
| Income tax expense | 9 | - | - | - | ||
| Profit for the period | 1,125 | 1,361 | 4,016 | |||
| Other comprehensive income | - | - | - | |||
| Total comprehensive income for the period | 1,125 | 1,361 | 4,016 | |||
| Profit and total comprehensive income attributable to: | ||||||
| Owners of the Company | 1,201 | 1,440 | 4,083 | |||
| Minority interest | (76) | (79) | (67) | |||
| Profit for the period | 1,125 | 1,361 | 4,016 | |||
| Pence | Pence | Pence | ||||
| Earnings per share | 10 | |||||
| Basic earnings per share | 0.33 | 0.40 | 1.12 | |||
| Diluted earnings per share | 0.33 | 0.40 | 1.12 | |||
| Condensed Consolidated Interim Statement of Cash Flows | ||||||
| Six months | Six months | Year | ||||
| ended | ended | ended | ||||
| 30 June 2009 | 30 June 2008 | 31 December 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| Note | £'000 | £'000 | £'000 | |||
| Cash flows from operating activities | ||||||
| Profit for the period | 1,125 | 1,361 | 4,016 | |||
| Adjustment for: | ||||||
| Depreciation | 1,748 | 1,645 | 3,370 | |||
| Dilution gain in respect of At The Races | 7 | - | - | (129) | ||
| Deferred business interruption income in respect of Southwell Racecourse | 7 | - | (529) | (631) | ||
| Share-based payment expense | 15 | 11 | 172 | 220 | ||
| Net finance expense | 8 | 452 | 943 | 3,428 | ||
| Share of post-tax profit of joint venture | (17) | (116) | (310) | |||
| Profit on sale of property, plant and equipment | (4) | - | (1,615) | |||
| Grant amortisation | (35) | (35) | (71) | |||
| Cash flows from operating activities before changes in working capital and provisions | 3,280 | 3,441 | 8,278 | |||
| (Increase)/decrease in trade and other receivables | (1,975) | (3,640) | 776 | |||
| Increase in inventories | (3) | (36) | (129) | |||
| Increase/(decrease) in trade and other payables | 64 | 961 | (372) | |||
| Net cash from operating activities | 1,366 | 726 | 8,553 | |||
| Cash flows from investing activities | ||||||
| Purchases of property, plant and equipment | (7,381) | (6,133) | (13,905) | |||
| Proceeds from sale of property, plant and equipment | 11 | - | 1,760 | |||
| (Increase)/decrease in loans to joint venture | (49) | (153) | 14 | |||
| Interest received | 229 | 153 | 1,091 | |||
| Net cash used in investing activities | (7,190) | (6,133) | (11,040) | |||
| Net cash used in financing activities | ||||||
| Proceeds from bank and other borrowings | 14 | 5,000 | 643 | 6,243 | ||
| Repayment of loans | 14 | (750) | (835) | (3,243) | ||
| Increase/(repayment) of finance lease liabilities | 12 | (1) | 14 | |||
| Interest paid | (1,037) | (859) | (3,083) | |||
| Dividends paid | 11 | - | (1,093) | (2,003) | ||
| Net cash used in financing activities | 3,225 | (2,145) | (2,072) | |||
| Decrease in cash and cash equivalents | (2,599) | (7,552) | (4,559) | |||
| Net cash and cash equivalents at beginning of the period | (824) | 3,735 | 3,735 | |||
| Net cash and cash equivalents at end of the period | (3,423) | (3,817) | (824) | |||
| Condensed Consolidated Interim Statement of Financial Position | ||||||
| At | At | At | ||||
| 30 June | 30 June | 31 December | ||||
| 2009 | 2008 | 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| Note | £'000 | £'000 | £'000 | |||
| | ||||||
| Non-current assets | ||||||
| Property, plant and equipment | 12 | 125,087 | 113,971 | 119,734 | ||
| Intangible assets | 13 | 5,596 | 5,596 | 5,596 | ||
| Investment in joint venture - Share of gross assets | 2,936 | 2,713 | 2,699 | |||
| - Share of gross liabilities | (6,293) | (6,410) | (6,073) | |||
| (3,357) | (3,697) | (3,374) | ||||
| Goodwill in respect of joint venture | 1,580 | 1,580 | 1,580 | |||
| Loans to joint venture | 5,014 | 5,132 | 4,965 | |||
| 3,237 | 3,015 | 3,171 | ||||
| Total non-current assets | 133,920 | 122,582 | 128,501 | |||
| Current assets | ||||||
| Inventories | 547 | 451 | 544 | |||
| Trade and other receivables | 7,390 | 9,831 | 5,415 | |||
| Assets classified as held for sale | 100 | - | 100 | |||
| Cash and cash equivalents | 405 | 170 | 179 | |||
| Total current assets | 8,442 | 10,452 | 6,238 | |||
| Total assets | 142,362 | 133,034 | 134,739 | |||
| Current liabilities | ||||||
| Bank overdraft | (3,828) | (3,987) | (1,003) | |||
| Trade and other payables | (6,509) | (5,922) | (7,850) | |||
| Loans and borrowings | 14 | (2,952) | (3,080) | (2,940) | ||
| Accruals and deferred income | (7,290) | (9,016) | (6,691) | |||
| Total current liabilities | (20,579) | (22,005) | (18,484) | |||
| Non-current liabilities | ||||||
| Loans and borrowings | 14 | (44,875) | (36,905) | (40,448) | ||
| Accruals and deferred income | (3,128) | (3,273) | (3,163) | |||
| Total non-current liabilities | (48,003) | (40,178) | (43,611) | |||
| Total liabilities | (68,582) | (62,183) | (62,095) | |||
| Total net assets | 73,780 | 70,851 | 72,644 | |||
| Equity | ||||||
| Share capital | 18,210 | 18,210 | 18,210 | |||
| Share premium | 223 | 223 | 223 | |||
| Merger reserve | 5,417 | 5,417 | 5,417 | |||
| Retained earnings | 48,197 | 45,204 | 46,985 | |||
| Total equity attributable to equity holders of the Company | 72,047 | 69,054 | 70,835 | |||
| Minority interest | 1,733 | 1,797 | 1,809 | |||
| Total equity | 73,780 | 70,851 | 72,644 |
| Condensed Consolidated Interim Statement of Changes in Equity | ||||||||||||||||||||
| Attributable to the equity holders of the Company | ||||||||||||||||||||
| Share capital | Share premium | Merger reserve |
Retained earnings | Total | Minority interest | Total equity | ||||||||||||||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||||
| Balance at 1 January 2008 | 18,210 | 223 | 5,417 | 44,685 | 68,535 | 1,876 | 70,411 | |||||||||||||
| Profit for the period | - | - | - | 1,440 | 1,440 | (79) | 1,361 | |||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | |||||||||||||
| Total comprehensive income for the period | - | - | - | 1,440 | 1,440 | (79) | 1,361 | |||||||||||||
| Dividends to equity holders | 11 | - | - | - | (1,093) | (1,093) | - | (1,093) | ||||||||||||
| Share-based payment expense | - | - | - | 172 | 172 | - | 172 | |||||||||||||
| Total transactions with owners | - | - | - | (921) | (921) | - | (921) | |||||||||||||
| Balance at 30 June 2008 (Unaudited) | 18,210 | 223 | 5,417 | 45,204 | 69,054 | 1,797 | 70,851 | |||||||||||||
| Profit for the period | - | - | - | 2,643 | 2,643 | 12 | 2,655 | |||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | |||||||||||||
| Total comprehensive income for the period | - | - | - | 2,643 | 2,643 | 12 | 2,655 | |||||||||||||
| Dividends to equity holders | 11 | - | - | - | (910) | (910) | - | (910) | ||||||||||||
| Share-based payment expense | - | - | - | 48 | 48 | - | 48 | |||||||||||||
| Total transactions with owners | - | - | - | (862) | (862) | - | (862) | |||||||||||||
| Balance at 31 December 2008 (Audited) | 18,210 | 223 | 5,417 | 46,985 | 70,835 | 1,809 | 72,644 | |||||||||||||
| Profit for the period | - | - | - | 1,201 | 1,201 | (76) | 1,125 | |||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | |||||||||||||
| Total comprehensive income for the period | - | - | - | 1,201 | 1,201 | (76) | 1,125 | |||||||||||||
| Dividends to equity holders | 11 | - | - | - | - | - | - | - | ||||||||||||
| Share-based payment expense | 15 | - | - | - | 11 | 11 | - | 11 | ||||||||||||
| Total transactions with owners | - | - | - | 11 | 11 | - | 11 | |||||||||||||
| Balance at 30 June 2009 (Unaudited) | 18,210 | 223 | 5,417 | 48,197 | 72,047 | 1,733 | 73,780 | |||||||||||||
Notes to the Condensed Consolidated Interim Financial Statements
1 Reporting entity
Arena Leisure Plc (the 'Company') is a company domiciled in the United Kingdom. The condensed consolidated interim financial statements of the Company as at and for the six months ended 30 June 2009 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interests in associates and jointly controlled entities.
The consolidated financial statements of the Group as at and for the year ended 31 December 2008 are available on the Company's website at: www.arenaleisureplc.com.
The condensed consolidated interim financial statements of the Group as at and for the six months ended 30 June 2009 will also be available on the Company's website.
2 Basis of preparation
Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2008.
The comparative figures for the financial year ended 31 December 2008 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
These condensed consolidated interim financial statements were approved by the Board of Directors on 29 July 2009.
These condensed consolidated interim financial statements have not been subject to an audit or review pursuant to Auditing Practices Board guidance on Review of Interim Financial Information.
Going concern
The Group has sufficient bank facilities to enable it to complete its committed development expenditure and to continue to meet day-to-day working capital requirements. The Group continues to be a cash-generative operational business with good quality assets. Revenues are generated from a variety of sources including industry funding through the Horserace Betting Levy Board and long-term contracted income from media rights (see Note 17), both of which have proven to be highly resilient to economic downturn. Despite the current uncertain economic outlook, the Directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these condensed consolidated interim financial statements.
Notes to the Condensed Consolidated Interim Financial Statements (Continued)
3 Significant accounting policies
The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2008 other than the new standards adopted in the period as set out below.
The following International Accounting Standards ('IAS' or 'IFRS'), issued by the International Accounting Standards Board, and interpretation, issued by the International Financial Reporting Interpretations Committee ('IFRIC'), are effective for the first time in the current financial year and have been adopted by the Group with no significant impact on its consolidated results or financial position:
IFRS 8 "Operating Segments"
Revised IAS 23 "Borrowing Costs"
Amendments to IAS 32 "Financial Instruments: Presentation"
Amendments to IFRS 2 "Share-based Payment - Vesting Conditions and Cancellations"
Improvements to IFRSs (issued by IASB in May 2008)
IFRIC 13 "Customer Loyalty Programmes"
The following IAS is also effective for the first time in the current financial year and has been adopted by the Group with a subsequent impact on the presentation of the financial statements: Amendments to IAS 1 "Presentation of Financial Statements - A Revised Presentation". Comparative information has been re-presented so that it also is in conformity with the revised standard.
4 Estimates
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation and uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2008.
5 Financial risk management
The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2008. During the six months to 30 June 2009, there has been no material change in the risks the Group is exposed to.
Notes to the Condensed Consolidated Interim Financial Statements (Continued)
6 Segment information
The Group only has one operating segment: racecourse operations. This business segment arises in the UK. Additional information on this segment is as follows:
| Six months | Six months | Year | ||||
| ended | ended | ended | ||||
| 30 June 2009 | 30 June 2008 | 31 December 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| £'000 | £'000 | £'000 | ||||
| Revenue | ||||||
| Racecourse operations | 30,878 | 31,189 | 64,825 | |||
| Profit from | ||||||
| Racecourse operations | 2,669 | 2,987 | 6,988 | |||
| Other operating income (see Note 7) | - | 529 | 760 | |||
| Central costs | (1,109) | (1,328) | (2,281) | |||
| Profit from operating activities excluding profit on disposal of the freehold interests in the marina and caravan park at Royal Windsor Racecourse | 1,560 | 2,188 | 5,467 | |||
| Profit on disposal of the freehold interests in the marina and caravan park at Royal Windsor Racecourse | - | - | 1,667 | |||
| Profit from operating activities | 1,560 | 2,188 | 7,134 | |||
| Share of joint venture profit | 17 | 116 | 310 |
7 Other operating income
The severe flooding which occurred in the summer of 2007 resulted in the closure of Southwell Racecourse through to December of that year. Reinstatement work was ongoing on some areas of the Racecourse from that date and the Racecourse became fully operational at the end of July 2008. As a result of the ongoing work, an element of the business interruption insurance claim proceeds received in 2007 amounting to £631,000 was deferred, of which £529,000 was released in the six months to 30 June 2008 and the remaining £102,000 was released in the six months to 31 December 2008.
Other operating income for the year ended 31 December 2008 also includes £1,667,000 relating to the profit on disposal in December 2008 of the freehold interests in the marina and caravan park at Royal Windsor Racecourse and £129,000 relating to a dilution gain in respect of the reduction in the Company's holding in ordinary shares of At The Races from 47.5% to 45.85% in July 2008.
Notes to the Condensed Consolidated Interim Financial Statements (Continued)
8 Finance income and expense
| Six months | Six months | Year | ||||
| ended | ended | ended | ||||
| 30 June | 30 June | 31 December | ||||
| 2009 | 2008 | 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| £'000 | £'000 | £'000 | ||||
| Finance income | ||||||
| Bank interest receivable | 180 | - | 806 | |||
| Other interest receivable | 49 | 152 | 285 | |||
| Derivative liability held for risk management | 178 | - | - | |||
| 407 | 152 | 1,091 | ||||
| Finance expense | ||||||
| Bank interest payable | (650) | (850) | (2,573) | |||
| Finance lease interest | (32) | (29) | (58) | |||
| Amortisation of previous gain on present value of interest-free loans | (177) | (216) | (433) | |||
| Derivative liability held for risk management | - | - | (1,455) | |||
| (859) | (1,095) | (4,519) | ||||
| Net finance expense | (452) | (943) | (3,428) |
9 Income tax expense
The tax charge for the period is £nil (six months to 30 June 2008: £nil and the year to 31 December 2008: £nil) due to the utilisation of Horserace Betting Levy Board capital credits, which are not assessable to tax, and the utilisation of tax losses.
With effect from 1 April 2008, the UK Government enacted a change to the corporation tax rate from 30% to 28%.
10 Earnings per share
Basic earnings per share ('EPS') have been calculated using the weighted average number of shares in issue during the periods. The weighted average number of shares in issue for the six months to 30 June 2009 is 364,202,007 (six months to 30 June 2008: 364,202,007 and the year to 31 December 2008: 364,202,007).
Diluted EPS have been calculated by also including the number of potentially dilutive ordinary shares in the periods. At 30 June 2009 the total number of shares included in the calculation of diluted EPS was nil (at 30 June 2008: 79,000 and at 31 December 2008: nil). Certain employee options have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of specific criteria that had not been met at the end of the period. In addition, certain employee options have also been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the period (i.e. they are out-of-the-money) and therefore would not be dilutive.
Notes to the Condensed Consolidated Interim Financial Statements (Continued)
11 Dividends
The following dividends were declared and paid by the Group:
| Six months | Six months | Year | ||||
| ended | ended | ended | ||||
| 30 June | 30 June | 31 December | ||||
| 2009 | 2008 | 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| £'000 | £'000 | £'000 | ||||
| Final dividend of £nil (2008: 0.30p) per ordinary share approved by the shareholders and paid during the period relating to the previous year's results | - | 1,093 | 1,093 | |||
| Interim dividend of £nil (2008: 0.25p) per ordinary share paid during the period relating to the current year's results | - | - | 910 | |||
| Dividends paid during the period | - | 1,093 | 2,003 |
The Directors have not approved an interim dividend in respect of the six months ending 30 June 2009 (2008: 0.25p per ordinary share totalling £910,000).
12 Property, plant and equipment
During the six months to 30 June 2009, the Group acquired assets with a cost of £7,108,000 (six months to 30 June 2008: £7,333,000 and the year to 31 December 2008: £15,066,000).
The Board considered the carrying value of assets under construction at 30 June 2009 and concluded that there were no indications of impairment and subsequently no impairment loss has been recognised (at 30 June 2008: none and at 31 December 2008: none).
At 30 June 2009, the Group remained committed to purchase property, plant and equipment totalling £1,646,000 (at 30 June 2008: £911,000 and at 31 December 2008: £461,000).
13 Goodwill
At 30 June 2009, the Board considered the carrying value of goodwill and concluded that there were no indications of impairment and subsequently no impairment loss has been recognised (at 30 June 2008: none and at 31 December 2008: none).
14 Loans and borrowings
The movement in loans and borrowings (non-current and current) during the six months ended 30 June 2009 is as follows:
|
Nominal | Face value | Carrying amount | |||||
| interest rate | £'000 | £'000 | |||||
| At 1 January 2009 | 44,303 | 43,388 | |||||
| Repayment of secured bank term loan | LIBOR + 1% | (750) | (750) | ||||
| Drawdown on secured bank term loan | LIBOR + 1% | 5,000 | 5,000 | ||||
| IAS 39 adjustment to present value of interest-free loans | 0% | - | 177 | ||||
| Net increase in finance lease liabilities | 12.74% | 12 | 12 | ||||
| At 30 June 2009 (Unaudited) | 48,565 | 47,827 |
All loans and borrowings are in sterling.
Notes to the Condensed Consolidated Interim Financial Statements (Continued)
15 Share-based payments
The Group operates two share option schemes for employees. Final grants were made under these schemes in 2006. In 2007, the Group established a long-term incentive plan ('LTIP') that provides for annual conditional awards of shares to be made, subject to performance criteria, to key management personnel and senior employees. Further details on the share option schemes and the LTIP are disclosed in the consolidated financial statements as at and for the year ended 31 December 2008.
During the six months ended 30 June 2009, no further awards were made under the LTIP.
The share-based remuneration expense recognised in the six months to 30 June 2009 in respect of these awards is £11,000.
16 Related parties
Directors and key management personnel receive remuneration in the form of wages and salaries, contributions to defined contribution pension plans and share-based payments (see Note 15). Remuneration in respect of Directors and key management personnel for the six months to 30 June 2009 totalled £796,000 (six months to 30 June 2008: £878,000 and the year to 31 December 2008: £1,749,000).
Transactions with the other related parties of the Group in respect of the six months to 30 June 2009 (as disclosed in the consolidated financial statements as at and for the year ended 31 December 2008) are as follows:
| Transaction amount | Balance outstanding | |||||
| Six months | Six months | Year | Six months | Six months | Year | |
| ended | ended | ended | ended | ended | ended | |
| 30 | 30 | 31 | 30 | 30 | 31 | |
| June | June | December | June | June | December | |
| 2009 | 2008 | 2008 | 2009 | 2008 | 2008 | |
| Unaudited | Unaudited | Audited | Unaudited | Unaudited | Audited | |
| Related party and type of transaction | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Racecourse Association | ||||||
| Annual membership fee and related costs | (92) | (126) | (189) | (32) | (14) | (20) |
| Raceday entry and BHA directorship fee | 13 | 6 | 17 | 10 | 4 | 1 |
| British Horseracing Authority | ||||||
| Programme announcements and racing calendar adverts | (10) | (371) | (478) | - | (130) | (84) |
| Conferences and hospitality | 1 | - | 3 | - | - | - |
| At The Races Contribution to picture provision | 885 | 979 | 1,265 | 482 | 634 | 84 |
| Interest receivable on loans | 49 | 153 | 285 | - | - | - |
| Loans | - | - | (14) | 5,014 | 5,132 | 4,965 |
With the exception of the reduction in British Horseracing Authority transactions in the period, which is due to many of these costs now being processed by Weatherbys, there were no significant changes in the related party transactions described in the consolidated financial statements as at and for the year ended 31 December 2008.
Notes to the Condensed Consolidated Interim Financial Statements (Continued)
17 Subsequent event
On 22 July 2009, the Company signed an agreement with Satellite Information Services Limited ('SIS') for the provision of coverage of horse racing content from the Group's seven racecourses into Licensed Betting Offices ('LBOs') in the United Kingdom and Ireland. The agreement will replace the Group's current contract with BAGS at its expiry on 31 December 2011 and has a term of five years to 31 December 2016. Total revenues receivable under the contract over this period are estimated at £106,000,000 which compares to revenues under the existing five-year BAGS contract of an estimated £55,000,000. The Company received an initial advanced payment from SIS of £12,500,000 upon signing the agreement. Further advanced payments of £12,500,000 and £7,000,000 are due on 22 July 2010 and 22 July 2011, respectively, and are dependent upon the provision of appropriate security by the Company. The balance of the estimated revenues will be received by the Group throughout the five year term on a per race basis.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
By order of the Board
| Mark Elliott | Tony Harris |
| Chief Executive | Finance Director |
29 July 2009