6th Sep 2005 12:00
Arena Leisure PLC06 September 2005 Arena Leisure PlcInternational Financial Reporting Standards Arena Leisure Plc (Arena) today releases restated financial information preparedunder International Financial Reporting Standards (IFRS) for the year to 31December 2004. Arena is undertaking the transition to IFRS, as required by EUdirective, along with some 7,000 other companies with shares or debt listedwithin the EU. The Group's first published interim accounts under IFRS will bein respect of the six months ending 30 June 2005, and the first annual Report &Accounts prepared on this basis will be for the year ending 31 December 2005. In summary, the impact of IFRS on key reported results for 2004 is as follows: 2004 UK GAAP IFRS £'000 £'000 Group turnover 36,019 36,019Profit before interest and taxation * 5,395 5,751Profit before taxation * 4,644 4,908Profit attributable to equity shareholders * 5,321 5,585 Basic Earnings per share - continuing operations 1.3 1.4Basic Earnings per share - continuing anddiscontinued operations 1.5 1.5 Net Assets 56,134 57,196Net Debt (10,460) (10,460)Gearing 19% 18% * UK GAAP figures adjusted to reflect presentational changes to the incomestatement under IFRS The information about restatements contained in this document has been preparedon the basis of IFRS currently in issue and adopted by the EC, that are expectedto apply to 31 December 2005 year ends. However, these are subject to ongoingreview and endorsement by the EC and may be subject to interpretative guidanceissued by the International Financial Reporting Interpretations Committee, andbest practice regarding the interpretation and application of IFRS continues todevelop. New standards may also be issued by the International AccountingStandards Board for adoption for financial years beginning on or after 1 January2005. Any or all of these factors could impact upon the Arena Report & Accountsfor the year ending 31 December 2005. The financial information presented within this document is unaudited. Basis of preparation(i) Introduction For all periods ending on or before 31 December 2004, Arena Leisure Plc (Arena)has prepared its financial statements in accordance with UK Generally AcceptedAccounting Principles (UK GAAP). However, from 1 January 2005 Arena and allother European Union (EU) companies listed on a regulated market (about 7,000companies in total) are required by EU regulation to prepare consolidatedaccounts in accordance with International Financial Reporting Standards (IFRS)as endorsed by the European Commission (EC). The Group's first published interimaccounts under IFRS will be in respect of the six months ending 30 June 2005,and the first annual Report & Accounts prepared on this basis will be for theyear ending 31 December 2005. This document presents previously published UK GAAP information for 2004,restated on an IFRS basis. The key messages in this information about restatement to IFRS are: * The transition from UK GAAP does not change any of the cash flows of the Group, although there are presentational changes. * The restatement of financial information for 2004 shows the impact of IFRS is to marginally increase profit attributable to equity shareholders from £5.3m to £5.6m. * There is an increase of £1.1m in net assets at 31 December 2004, principally reflecting the reversal of the 2004 goodwill amortisation charge under IFRS3 and removal of the dividend creditor for dividend declared in 2005. * At this stage, the full financial effect of reporting under IFRS as it will be applied and reported on in the Group's financial statements for the year ending 31 December 2005 may be subject to change. * The move from UK GAAP to IFRS does not impact Group strategy or investment and commercial decision-making. (ii) Basis of preparation The information about restatements contained in this document has been preparedon the basis of IFRS currently in issue and adopted by the EC, that are expectedto apply to 31 December 2005 year ends. However, these are subject to ongoingreview and endorsement by the EC and standards may be subject to interpretativeguidance issued by the International Financial Reporting InterpretationsCommittee (IFRIC), and best practice regarding the interpretation andapplication of IFRS continues to develop. New standards may also be issued bythe International Accounting Standards Board (IASB) for adoption for financialyears beginning on or after 1 January 2005. Any or all of these factors couldimpact upon the Arena Report & Accounts for the year ending 31 December 2005. Exemptions taken by Arena Leisure Plc under IFRS 1 'First-Time Adoption ofInternational Financial Reporting Standards' are explained below under (iv)'Transition effects'.The financial information presented within this document is unaudited. (iii) Status of standards The EC has endorsed without amendment all but one of the 36 internationalaccounting standards that are mandatory from 1 January 2005. The exception is: IAS 39 'Financial Instruments: Recognition and Measurement' The EC has endorsed a version of IAS 39 that has been amended by them from theversion published by the IASB. This amended IAS 39 has carve outs that affectthe parts of IAS 39 relating to requirements for macro hedging and to theso-called fair value option for financial liabilities. The EC has also yet toconsider the adoption for use in the EU of the amendments to IAS 39 'Transitionand Initial Recognition of Financial Assets and Financial Liabilities' that werepublished by the IASB in December 2004. (iv) Transition effects IFRS 1 permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Arenaintends to take the following key exemptions: a) Share-based payment: IFRS 2 has been adopted from the transition date and isonly being applied to equity instruments (for example share options and sharescheme awards) granted on or after 7 November 2002 and not vested on theeffective date of the standard, 1 January 2005. Arena has elected not to take upthe option of full retrospective application of the standard and has not issuedany share options since 7 November 2002. b) Business combinations: IFRS 3 will be applied prospectively from thetransition date to IFRS with no restatement of previous business combinations.Goodwill amortization in 2004 has been written back. Goodwill at 1 January 2004has been held at amortised cost and is subject to annual impairment review. As well as the above exemptions, IAS 31 'Interests in Joint Ventures' allows achoice of equity accounting or proportional consolidation for joint ventures.Arena has chosen to continue to equity account for its investments in jointventures and associated undertakings. (v) Overview of impact The move from UK GAAP to IFRS does not impact upon Arena's strategy orcommercial decisions, nor does make any change to the cash flows of the Group. The most significant changes for Arena in its financial statements for 2004arising from the move to IFRS are: a) the cessation of goodwill amortization. b) recognition of dividends payable in the period in which they are declared. In addition to the above, there are presentational changes arising from the moveto IFRS. The financial statements will be presented in accordance with IAS 1'Presentation of Financial Statements', and the main effects are explained ineach of the following sections. The starting point for the reconciliation of thefinancial statements in this document is UK GAAP, but using the format appliedunder IFRS for 2005 reporting. In summary, the impact of IFRS on key reported results for 2004 is as follows: 2004 UK GAAP Change IFRS £'000 £'000 Group turnover 36,019 - 36,019Profit before interest and taxation * 5,395 356 5,751Profit before taxation ** 4,644 264 4,908Profit attributable to equity shareholders *** 5,321 264 5,585 Basic Earnings per share - continuingoperations 1.3 - 1.4Basic Earnings per share - continuing anddiscontinued operations 1.5 - 1.5 Net Assets 56,134 1,062 57,196Net Debt (10,460) - (10,460)Gearing 19% - 18% * This represents the Group operating profit for 2004 under UK GAAP of £5,347,000 restated for the presentational changes under IFRS which exclude profit from discontinued operations (Arena Online Services Ltd) of £482,000, include the group's share of after tax profit from Joint ventures and associates of £577,000 and include the amortisation charge in respect of goodwill in joint ventures of £47,000.** This represents the profit before taxation for 2004 under UK GAAP of £242,000 restated for the presentational change under IFRS to include the joint venture tax credit of £4,884,000, so as to reflect the Group's share of post tax results and to exclude profit from discontinued operations of £482,000 which under IFRS is now presented below profit on ordinary activities after tax.*** This amount is unchanged from previously reported profit attributable to equity shareholders under UK GAAP. The remainder of this paper focuses on the above adjustments to the incomestatement, the balance sheet and the cash flow statement arising out of theadoption of IFRS, and IFRS developments for 2005. Explanation of IFRS income statement adjustments The main presentation changes on the face of the income statement are asfollows: * The share of operating results before interest and tax of joint venture andassociated undertakings are disclosed on the face of the profit and loss accountunder UK GAAP and the share of their interest and tax are included in therespective group figures. A reclassification adjustment has been made to reflectthe Group's share of post tax results as required under IFRS. The main changes arising as a result of Arena changing its accounting policiesto comply with the requirements of IFRS are as follows: (i) IFRS 3 'Business Combinations' Under UK GAAP, on all acquisitions prior to 1 April 1998 Arena immediately wroteoff any positive or negative goodwill to retained earnings. This goodwill wastransferred from reserves to the profit and loss account on any subsequentdisposal of the net assets to which it related. From 1 April 1998, goodwill onacquisitions was held as an intangible asset in the balance sheet and amortisedover its estimated useful life being 20 years. Only the unamortised portion wasincluded in the gain or loss recognised in the period of disposal. Under IFRS, goodwill is considered to have an indefinite life and is notamortised, but is subject to an impairment review on transition and annuallythereafter. Arena has taken advantage of the IFRS 1 exemption to apply IFRS 3 prospectivelyfrom the transition date and has established that no adjustments are required togoodwill arising on previous acquisitions. This means that the carrying amountof goodwill on the opening IFRS balance sheet is the carrying amount under UKGAAP at the date of transition to IFRS. The operating profit impact in 2004 of the move to IFRS is a credit of £354,000,representing the reversal of the goodwill amortisation charged in the periodunder UK GAAP in respect of acquisitions (£307,000) and joint ventures(£47,000). (ii) IAS 12 'Income Taxes' The approach to current tax is similar under UK GAAP and IFRS. The approach to deferred tax differs under IFRS in comparison with UK GAAP andIAS 12 adopts the balance sheet liability method to providing for deferredtaxes, which relies on one key principle. When the carrying amount of an assetis greater than its tax base then the amount of future taxable income flowingfrom that asset will exceed the amount that will be allowed as a deduction fortax purposes. This gives rise to a tax liability in respect of taxes that willbe payable in the future. The same principle applies to a deferred tax assetthat arises in respect of taxes that will be recoverable in the future when thecarrying value of a liability is settled or when brought forward tax losses willbe recovered. In practice, this revised approach under IFRS does not give riseto significant differences for Arena. No adjustments are therefore required. (iii) IAS 17 'Leases' Under UK GAAP, a lease is classified as a finance lease if it transferssubstantially all of the risks and rewards incidental to ownership. Conversely,it is classified as an operating lease if it does not transfer substantially allof the risks and rewards incidental to ownership. Under IFRS, similar conditions apply but IAS 17 requires finance leases for landand buildings to be split, with the land element generally being classified asan operating lease. However, if lease payments cannot be allocated reliably thenthe entire lease should be classified as a finance lease. As a consequence of IAS 17, the lease in respect of Worcester racecourse hasbeen classified as a finance lease and has been capitalised as a fixed assetwith a corresponding finance lease creditor. Future lease payments will beallocated between capital and interest accordingly. The impact on operating profit in 2004 of the move to IFRS is a charge tointerest expense of £92,000 and a credit of £2,000 to administrative overheadcosts. The latter being the adjustment of the depreciation charge on theleasehold asset. Consolidated income statement IFRS 3 IAS 17for the year ended 31 December 2004 UK GAAP Goodwill Leases IFRS £'000 £'000 £'000 £'000 Group turnover 36,019 - - 36,019Operating costs (23,688) - - (23,688) --------- -------- ------- -------Gross profit 12,331 - - 12,331 Administrative costs (7,466) 307 2 (7,157)Share of post tax results of jointventures and associates 577 - - 577Goodwill amortisation in respect ofjoint venture (47) 47 - - --------- -------- ------- -------Profit before interest and taxation 5,395 354 2 5,751Net finance costs (751) - (92) (843) --------- -------- ------- -------Profit before taxation 4,644 354 (90) 4,908 Taxation 195 - - 195 --------- -------- ------- -------Profit on ordinary activities aftertaxation 4,839 354 (90) 5,103 Profit from discontinued operations 482 - - 482 --------- -------- ------- -------Profit for the period attributable toequity shareholders 5,321 354 (90) 5,585 ========= ======== ======= ======= Earnings per share: Continuing operations Pence Pence --------- --------Basic earnings per share 1.3 1.4Diluted earnings per share 1.3 1.4 Continuing & discontinued operationsBasic earnings per share 1.5 1.5Diluted earnings per share 1.5 1.5 Explanation of IFRS balance sheet adjustments The main presentation changes on the face of the balance sheet are as follows: * Non-current assets - This new balance sheet category comprises fixed assetsand long-term debtors, and splits out goodwill, property, plant and equipment,investment property, pension assets and tax assets. In addition, investments injoint ventures and associated undertakings are combined under one heading asequity accounted investments. * Current assets - Debtors are analysed into trade and other receivables,pension assets and tax assets. Short-term investments with original maturity ofthree months or less are classified as cash equivalents. * Current liabilities - Current liabilities are analysed into trade and otherpayables, pension liabilities, tax liabilities, borrowings and short-termprovisions. *Non-current liabilities - Provisions for liabilities and charges are analysedinto short-term provisions and into long-term pension liabilities and taxliabilities. The main changes arising as a result of Arena changing its accounting policiesto comply with the requirements of IFRS are as follows: (i) IFRS 3 'Business Combinations' The principal differences between UK GAAP and IFRS are explained on page 5. Thegoodwill amortisation for 2004 has been reversed resulting in an increase ingoodwill in the balance sheet of £354,000 of which £307,000 relates toacquisitions and £47,000 relates to associates and joint ventures. No impairmentprovision is considered necessary. (ii) IAS 12 'Income Taxes' Under UK GAAP, deferred tax is accounted for on the basis of timing differences,whereas IFRS uses a balance sheet concept of temporary differences. However,this change has little impact on Arena and no adjustments are required. (iii) IAS 10 'Events after the balance sheet date' Under UK GAAP proposed dividends are included the balance sheet as a liabilityeven though formal declaration has taken place after the balance sheet date,whereas under IFRS if an entity declares a dividend after the balance sheetdate, the entity must recognise the dividend in the period in which it wasdeclared. Arena declared its final dividend in respect of 2004 in April 2005 therefore anadjustment of £1,084,000 is required to remove the proposed dividend liabilityfrom the balance sheet at 31 December 2004 to be reflected in 2005. (iv) IAS 17 Leases The principal differences between UK GAAP and IFRS are explained on page 5. As a consequence of IAS 17, the lease of Worcester racecourse has beenclassified as a finance lease and has been apitalized as a fixed asset with acorresponding finance lease creditor within liabilities. Future lease paymentswill be allocated between capital and interest accordingly. Consolidated balance sheetAs at 1 January 2005 UK IFRS3 IAS10 IAS17(December 2004 year end) GAAP Goodwill Dividends Leases IFRS Assets £'000 £'000 £'000 £'000 £'000 Non - current assetsProperty plant and equipment 67,840 - - 1,027 68,867Goodwill 4,571 307 - - 4,878Equity accounted investments(JV's and Associates) (959) - - - (959)Goodwill in respect of JV 1,327 47 - - 1,374Loans to JV 2,991 - - - 2,991Other investments 345 - - - 345 ------- -------- --------- -------- ------- 76,115 354 - 1,027 77,496 ------- -------- --------- -------- ------- Current assetsInventories 30 - - - 30Trade and other receivables 3,904 - - - 3,904Cash and cash equivalents 27 - - - 27 ------- -------- --------- -------- ------- 3,961 - - - 3,961 ------- -------- --------- -------- ------- Total assets 80,076 354 - 1,027 81,457 ======= ======== ========= ======== ======= Liabilities Current liabilitiesTrade and other payables (10,538) - 1,084 - (9,454)Short term borrowings (1,843) - - - (1,843)Current tax payable (5) - - - (5) -------- -------- --------- -------- -------- (12,386) - 1,084 - (11,302) -------- -------- --------- -------- -------- Non current liabilitiesOther payables - - - (1,403) (1,403)Long term borrowings (8,644) - - - (8,644)Accruals & deferred income (2,912) - - - (2,912) -------- -------- --------- -------- -------- (11,556) - - (1,403) (12,959) -------- -------- --------- -------- -------- Total liabilities (23,942) - 1,084 (1,403) (24,261) ======== ======== ========= ======== ======== Net Assets 56,134 354 1,084 (376) 57,196 ======== ======== ========= ======== ======== EquityShare Capital 18,075 - - - 18,075Other reserves 5,417 - - - 5,417Retained earnings 32,642 354 1,084 (376) 33,704 -------- -------- --------- -------- --------Total equity 56,134 354 1,084 (376) 57,196 ======== ======== ========= ======== ======== Consolidated balance sheetAs at 1 January 2004 UK IAS17(December 2003 year end) GAAP Leases IFRS Assets £'000 £'000 £'000 ------- -------- -------- Non - current assetsProperty plant and equipment 55,834 1,025 56,859Goodwill 4,878 - 4,878Equity accounted investments (JV's andassociates) (36,120) - (36,120)Goodwill in respect of JV - - -Loans to JV 33,968 - 33,968Other investments 345 - 345 ------- -------- -------- 58,905 1,025 59,930 ------- -------- -------- Current assetsInventories 55 - 55Trade and other receivables 3,176 - 3,176Blocked bank deposit 1,365 - -Cash and cash equivalents 1,284 - 1,284 ------- -------- -------- 5,880 - 4,515 ------- -------- -------- Total assets 64,785 1,025 64,445 ======= ======== ======== Liabilities Current liabilitiesTrade and other payables (8,964) - (8,964)Short term borrowings (422) - (422)Current tax payable (200) - (200) -------- -------- -------- (9,586) - (9,586) -------- -------- -------- Non current liabilitiesOther payables - (1,311) (1,311)Long term borrowings (390) - (390)Accruals & deferred income (2,912) - (2,912) -------- -------- -------- (3,302) (1,311) (4,613) -------- -------- -------- Total liabilities (12,888) (1,311) (14,199) ======== ======== ======== Net Assets 51,897 (286) 50,246 ======== ======== ======== EquityShare Capital 18,075 - 18,075Share premium account 87,625 - 87,625Other reserves 5,432 - 5,432Retained earnings (59,235) (286) (59,521) -------- -------- --------Total equity 51,897 (286) 51,611 ======== ======== ======== Explanation of IFRS cash flow statement adjustments The move from UK GAAP does change any of the cash flows of the Group althoughthere are presentational changes. The IFRS cash flow format is similar to UK GAAP but presents various cash flowsin different categories and in a different order from the UK GAAP cash flowstatement. Consolidated Cash FlowFor the year ended 31 December 2004 UK GAAP No IFRS 2004 Impact 2004 £'000 £'000 £'000Cash flows from operating activitiesCash generated from operations 7,011 - 7,011Interest paid (943) - (943)Tax paid - - - ------- -------- -------Net cash from operating activities 6,068 - 6,068 Cash flows from investing activitiesInterest received 106 - 106Purchase of property, plant and equipment (13,537) - (13,537)Proceeds on disposal of property, plant and equipment 82 - 82Loan to joint venture investment (2,991) - (2,991)Investment in joint venture (2,025) - (2,025)Decrease in restricted bank account 1,365 - 1,365 ------- -------- -------Net cash from investing activities (17,000) - (17,000) Cash flows from financing activitiesNet proceeds from new bank loan 8,580 - 8,580Repayment of borrowings (422) - (422) ------- -------- -------Net cash from financing activities 8,158 - 8,158 ------- -------- -------Net decrease in cash and cash equivalents (2,774) - (2,774) Cash and cash equivalents at 1 January 1,284 - 1,284 ------- -------- -------Cash and cash equivalents at 31 December (1,490) - (1,490) ======= ======== ======= Consolidated income statement IFRS 3 IAS 17for the six months ended 30 June 2004 UK GAAP Goodwill Leases IFRS £'000 £'000 £'000 £'000 Group turnover 17,995 - - 17,995Operating costs (12,066) - - (12,066) --------- -------- ------- -------Gross profit 5,929 - - 5,929 Administrative costs (3,537) 154 1 (3,382)Share of post tax results of jointventures and associates (3,022) - - (3,022)Goodwill amortisation in respect ofjoint venture (42) 42 - - --------- -------- ------- -------Profit before interest and taxation (672) 196 1 (475)Net finance costs (3) (46) (49) --------- -------- ------- -------Profit before taxation (675) 196 (45) (524) Taxation - - - - --------- -------- ------- -------Profit on ordinary activities aftertaxation (675) 196 (45) (524) Profit from discontinued operations 430 - - 430 --------- -------- ------- -------Profit for the period attibutable toequity shareholders (245) 196 (45) (94) ========= ======== ======= ======= Consolidated balance sheetAs at 30 June 2004 UK IFRS 3 IAS 17 GAAP Goodwill Leases IFRS Assets £'000 £'000 £'000 £'000 Non - current assetsProperty plant andequipment 60,932 - 1,026 61,958Goodwill 4,724 154 - 4,878Equity accounted investments(JV's and Associates) (5,688) - - (5,688)Goodwill in respect of JV 2,497 42 - 2,539Loans to JV - - - -Other investments 345 - - 345 ------- -------- ------- ------- 62,810 196 1,026 64,032 ------- -------- ------- ------- Current assetsInventories 50 - - 50Trade and other receivables 5,329 - - 5,329Cash and cash equivalents - - - - ------- -------- ------- ------- 5,379 - - 5,379 ------- -------- ------- ------- Total assets 68,189 196 1,026 69,411 ======= ======== ======= ======= Liabilities Current liabilitiesTrade and other payables (11,256) - - (11,256)Short term borrowings (1,979) - - (1,979)Current tax payable - - - - -------- -------- -------- -------- (13,235) - - (13,235) -------- -------- -------- -------- Non current liabilitiesOther payables - - (1,357) (1,357)Long term borrowings (390) - - (390)Accruals & deferred income (2,912) - - (2,912) -------- -------- -------- -------- (3,302) - (1,357) (4,659) -------- -------- -------- -------- Total liabilities (16,537) - (1,357) (17,894) ======== ======== ======== ======== Net Assets 51,652 196 (331) 51,517 ======== ======== ======== ======== EquityShare Capital 18,075 - - 18,075Share premium account 87,625 - - 87,625Other reserves 5,432 - - 5,432Retained earnings (59,480) 196 (331) (59,615) -------- -------- -------- --------Total equity 51,652 196 (331) 51,517 ======== ======== ======== ======== Consolidated Cash FlowFor the six months ended 30 June 2004 UK GAAP No IFRS 2004 Impact 2004 £'000 £'000 £'000Cash flows from operating activitiesCash generated from operations 3,595 - 3,595Interest paid (49) - (49)Tax paid ------- -------- ------Net cash from operating activities 3,546 - 3,546 Cash flows from investing activitiesInterest received 46 - 46Purchase of property, plant and equipment (5,840) - (5,840)Proceeds on disposal of property, plant and equipment 67 - 67Investment in joint venture (2,025) - (2,025)Decrease in restricted bank account 1,365 - 1,365 ------- -------- -------Net cash from investing activities (6,387) - (6,387) Cash flows from financing activitiesNet proceeds from new bank loan - - -Repayment of borrowings (2) - (2) ------- -------- -------Net cash from financing activities (2) - (2) ------- -------- -------Net decrease in cash and cash equivalents (2,843) - (2,843) Cash and cash equivalents at 1 January 1,284 - 1,284 ------- -------- -------Cash and cash equivalents at 31 December (1,559) - (1,559) ======= ======== ======= This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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