1st Mar 2006 07:03
Arena Leisure PLC01 March 2006 ARENA LEISURE PLC PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2005 RECORD OPERATING PROFITS AND 50% INCREASE IN TOTAL DIVIDEND Arena Leisure Plc ("Arena"), the UK's largest operator of horseracing fixtures,today announced its audited preliminary results for the year ended 31 December2005. Financial highlights • Turnover increased by 9.4% to £40.7m (2004: £37.2m) • Profit from operations increased by 30.0% to £6.7m (2004: £5.2m) • Adjusted profit from operations increased by 21.6% to £6.3m (2004: £5.2m), after adjusting the 2005 result for one-off gains and losses • Arena's share of At The Races' adjusted operating loss reduced by 73.0% to £1.0m (2004: £3.7m) • Profit before tax of £4.5m • Adjusted earnings per share increased by 312% to 1.32p (2004: 0.32p) • Proposed final dividend of 0.2p per share, giving a total dividend of 0.45p per share - an increase of 50% (2004: 0.3p per share) Operating highlights • Record 324 fixtures held in 2005 (2004: 315) at Arena's six owned racecourses, staging 2,172 races representing 25% of all UK horse races • Record attendance at Arena's six owned racecourses up 6.0% to 534,000 (2004: 504,000) • Ladbrokes St Leger successfully managed in September. Annual Doncaster attendances increased by 5.2% to 224,000 (2004: 213,000) • Doncaster Racecourse, home of the St Leger - the oldest classic horserace in the world - acquired in December 2005. Redevelopment work underway to transform it in to a world class leisure and racing destination. • First running of a Grade 1 steeplechase on an Arena course (Lingfield, February 2005) • First ever running of a Group race on an all weather surface (Lingfield, July 2005) • Elevation of the Winter Derby to Group 3 status for 2006 (Lingfield) • 'Photofinish', 'starting stalls' and 'camera patrol' operations brought in-house to improve efficiency and reduce costs • At The Races generated over £1.6m for its racecourse partners in the form of media rights payments Roger Withers, Arena's Chairman, said today: "I am delighted to report on another successful year for Arena, with strongperformances from both our racecourse division and our media rights company, AtThe Races. The results achieved in 2005 confirm the enormous operatingimprovements that have been achieved. "The UK horse racing industry faces a number of challenges in the coming years,most importantly the need to find a commercial replacement for the Levy before2009 and also an acceptable future home for the Tote. Within the ever changingworld of UK horseracing, I am confident that Arena is well placed to capitaliseon the exciting value enhancing opportunities in front of it, to help theindustry as a whole move forward and to continue to deliver a growing profitstream for its shareholders." For further information please contact: Mark Elliott, Chief Executive Arena Leisure Plc Tel: 020-7495-2277 e-mail: [email protected] David Rydell/Zoe Sanders Bell 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 strong performances from both our racecourse division and ourmedia rights company, At The Races ("ATR"). We also acquired the rights toredevelop and operate Doncaster Racecourse, home of the world's oldest classicrace, the St Leger. The results achieved in 2005 confirm the enormous operating improvements thathave been achieved. Turnover increased by 9.4% to £40.7m (2004: £37.2m). Profitfrom operations on the new IFRS basis increased by 30.0% to £6.7m (2004: 5.2m).Adjusting the 2005 result for one-off gains and losses in order to give a moreuseful indication of underlying performance (see note 2 for details), theadjusted profit from operations was £6.3m, a rise of 21.6%. At The Races performed successfully in its first full year of operation sinceits relaunch in June 2004. Arena's share of ATR's adjusted operating loss (seenote 2 for details) reduced dramatically by 73% to £1.0m (2004: £3.7m). Underthe new IFRS accounts presentation, Arena is required to disclose its share ofATR's post tax result, which was a loss of £1.5m (2004: profit £0.6m). Includedwithin the 2005 result is a tax credit for consortium relief of £0.5m (2004:£4.9m) and £0.9m of exceptional costs (2004: £0.9m) representing, in 2005, legalcosts incurred in connection with two legal disputes. In the first case againstthe British Horseracing Board ("BHB"), UK legal history was made when the judgefound in favour of ATR, ruling that the BHB had abused its dominant position.The BHB has since decided to appeal against this ruling, although we remainconfident. In the second case, in which ATR is claiming around a net £30m inoutstanding rebates from the 30 racecourses not currently affiliated to ATRfollowing the termination of media rights agreements in 2004, the court hearingis scheduled to begin on 13 March 2006. ATR remains confident of a positiveoutcome. Overall, profit before tax was £4.5m (2004: £4.9m) and earnings per share fromcontinuing operations were 1.24p (2004: 1.41p). Adjusting for one-off gains andlosses in 2004 and 2005 in order to give a more useful indication of underlyingperformance (see note 4 for details), adjusted earnings per share fromcontinuing operations increased in 2005 by 312% to 1.32p (2004: 0.32p). 2005 was also a year of change for the Company, no more so than on the Board. On1 October 2005, Mark Elliott replaced Ian Penrose as Chief Executive of Arena. Iwould like to thank Ian for the enormous energy and dedication that he broughtto Arena during his time here as Finance Director, Managing Director and ChiefExecutive. Ian has left the Company in a very strong position and he canjustifiably be proud of his achievements here. Mark Elliott is the former Chief Executive of Wembley plc, having previouslybeen its Finance Director. During Mark's seven year tenure on the Board ofWembley, the company operated ten greyhound tracks in the UK and USA and onehorse racing track in the US as well as Wembley Stadium and Wembley Arena and avariety of businesses providing services to UK leisure venues. He thereforebrings a wealth of experience relevant to Arena. On 1 November 2005, Raymond Mould joined the Board as non-executive deputy Chairman. Raymond, a qualified solicitor, has an outstanding track record inthe UK corporate world, particularly in the property development industry. Healso has a close association with the horseracing industry, owning the 2002Grand National winner Bindaree. He is currently Chairman of London & Stamford Investments and was Executive Chairman of Pillar Property Plc until May 2005 when it was acquired by British Land Plc for £811m. At the same time, John Barnes retired from the Board and I would like to thank him for all of his work at Arena. He had been a Board member since the Company's formation in 1997 and had made an extraordinary contribution to Arena's growth over thattime. Having been on the Arena Board for five years and Chairman for over four years,I have decided now is the right time for me to retire from the Board. I willtherefore leave the Board at the Annual General Meeting ("AGM") on 8 May 2006,handing over the role of Chairman to Raymond Mould. I am extremely privileged tohave been Chairman through a period of such progress for Arena and to leave itfacing a bright future. With Raymond and Mark at the helm, I am satisfied thatArena is in very safe hands as it faces the opportunities and challenges thatlie ahead. I expect also to announce the appointment of a new non-executivedirector on or before the AGM. I am extremely grateful to all of my fellow directors and all of our employeesfor their dedication and hard work over this eventful year and, indeed, thesupport and loyalty they have given me in my years as Chairman. Their focus anddetermination to give every one of our customers the best experience possible isfundamental to the success of the Company and I thank them all for theircommitment. 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 for2005 of 0.2p per share. This will give a total dividend in relation to 2005 of0.45p per share - an increase of 50% over the 0.3p per share declared in 2004.This dividend is proposed to be paid on 12 May 2006 to shareholders on theregister on 31 March 2006. 2006 has started well, with our all weather racecourses performing well. During2006, it is expected that a number of new all weather surfaces will becomeoperational at racecourses around the country. I see this as a tribute to thework that Arena has put in to raising the standards and profile of all weatherracing in this country since we first introduced the Polytrack racing surface in2001 at Lingfield Park. We welcome competition which, I have no doubt, willbring out the best in the Arena team as well as give us opportunities to extendthe role of all weather racing in the UK. In December, Arena was delighted to announce that agreement had been reached foran Arena subsidiary to acquire the rights to redevelop and operate DoncasterRacecourse - the home of the world's oldest classic race, the St Leger - on a99-year lease, commencing upon completion of the redevelopment. Work on theexciting redevelopment has now commenced. The UK horse racing industry faces a number of challenges in the coming years,most importantly the need to find a commercial replacement for the Levy before2009 and also an acceptable future home for the Tote. Within the ever changingworld of UK horseracing, I am confident that Arena is well placed to capitaliseon the exciting value enhancing opportunities in front of it, to help theindustry as a whole move forward and to continue to deliver a growing profitstream for its shareholders. My thanks to you all for your continued support of Arena Leisure. Roger Withers Chairman 28 February 2006 Chief Executive's statement and review of operations It is five months since my appointment to the role of Chief Executive in October2005. In this relatively short period, it has become clear to me that Arenapossesses a wealth of talented people and a range of exciting growthopportunities. I am grateful to the senior management within Arena for theirassistance during this transition period. This review sets out the key eventsthat occurred in 2005 and also gives an indication of the opportunities that lieahead for Arena. Arena owned and operated six racecourses throughout 2005 - Royal Windsor,Lingfield Park, Wolverhampton, Southwell, Worcester and Folkestone. It alsomanaged Doncaster throughout most of 2005, acquiring the rights to redevelop andoperate the racecourse in December 2005. Arena stages around 25% of allhorseracing in the UK. Its skills are very much in venue management, providing agreat product and a high quality of service for its customers. The media rightsassociated with our racing product have great commercial value and it is throughour At The Races joint venture that we seek to derive as much value for theserights as possible. Arena's strategy with regard to these assets and skills is simple - to deliveradded value for its shareholders. We will achieve this through a combination ofthe following: • Deliver consistent profit growth through the greater utilisation of our assets on both race days and the many days in between, and greater efficiency with regard to costs. The record profits achieved in 2005 are a testament to this. • Invest in improved facilities for customers, both in terms of the physical facilities provided at our racecourses, but also in terms of the racing product that we supply to the bookmakers. The development taking place at Doncaster Racecourse illustrates this approach. • Realise value from any surplus or under-utilised assets within the Group. This will primarily relate to the land that Arena owns - over 1,000 acres of freehold land and leases on a further 400 acres. In 2005, Arena disposed of its minority 1% shareholding in Satellite Information Services (Holdings) Limited ("SIS") for a cash consideration of £1.2m and a net profit of £0.8m. SIS provides television pictures, text and voice data from horserace courses and greyhound stadia to licensed betting offices. This shareholding was not core to Arena's operations. Similarly, it is intended that a non-core minority shareholding in a US tote system developer that is a legacy from Arena's software development past will be sold. The proceeds are not expected to be large and a provision has been taken against the carrying value. • Build on our core strengths, adding value through acquisitions where appropriate. Arena is keen to add further horse racecourses, although due to the lack of frequency with which courses become available at realistic prices, such acquisitions will be, by necessity, opportunistic in their nature. We will identify appropriate related businesses into which our undoubted skills are transferable. Arena declared its first dividend in 2004 of 0.3p per share, followed by aninterim dividend in 2005 of 0.25p per share. The Board has proposed a finaldividend for 2005 of 0.2p per share, giving a total dividend in relation to 2005of 0.45p per share - an increase of 50%. This dividend is covered approximately2.8 times by Arena's 2005 earnings of 1.24p per share. The Board has determinedthat, based upon the opportunities that lie ahead for Arena, it is prudent tomaintain this level of cover for the foreseeable future. In addition, over aperiod of time, Arena will implement a policy in which around one-third of theanticipated total dividend is declared with the interim results, with thebalance of around two-thirds declared as a final dividend. Racecourse division Arena's six racecourses staged a record of 324 fixtures in 2005 (2004: 315),representing 24% of the UK horse racing fixture list. These fixtures featured atotal of 2,172 races, equating to 25% of the UK total. The increase in fixtureswas attributable to the high number of fixtures held at our three all weathertracks and the staging of a number of flat and national hunt fixturestransferred from Ascot during the latter's redevelopment. Lingfield Park washost to a total of 95 fixtures. Across the six racecourses, total attendance levels increased by 6.0%, reachinga record of 534,000 (2004: 504,000) and, as part of this growth, we aredelighted that we also increased average fixture attendances. Royal Windsordemonstrated the greatest growth with average daily attendance reaching 5,098, a19% increase on 2004, including a record daily attendance of 9,248 on 11 July2005. Efforts were made at all Arena courses to increase the number of corporatecustomers as these represent the customer base that not only generates thehighest spend per head, but also offers a market that we believe has stronggrowth potential. A 17.5% increase to 47,600 corporate customers (2004: 40,500)reflects this focus, as well as the much improved facilities on offer in 2005 atLingfield Park. Arena also operated Doncaster Racecourse throughout 2005 under a managementcontract on behalf of Doncaster Metropolitan Borough Council, staging 29fixtures. Arena was delighted to be involved with both the staging of the StLeger, the world's oldest classic race, and the introduction of Ladbrokes assponsor to the St Leger Festival, thereby greatly enhancing the prestige of boththe meeting and the St Leger itself. Despite the lack of modern facilities atthe course and adverse weather conditions throughout the St Leger Festival,attendances for the year increased by 5.2% to almost 224,000 (2004: 213,000).This is a tribute to Arena's venue management skills and provides a high degreeof confidence that Arena will make a great success of the redeveloped DoncasterRacecourse when it re-opens in 2007. Arena provided record levels of prize money in 2005, with owners benefiting froma 6% increase in prize money to over £12m across Arena's six tracks. Thisincluded significant contributions to fixtures transferred from Ascot, and thefigure would have been higher still if three valuable national hunt days had notbeen lost to bad weather in December. Many of Arena's racing highlights in 2005 took place at the newly refurbishedLingfield Park. This included Arena's first running of a Grade 1 steeplechasewhen the £100,000 transferred Ascot Chase was staged in February, the UK's firstrunning of a Group race on an all weather surface with the transfer of theSilver Trophy from Ascot in July, and the hosting of the Littlewoods Bet DirectWinter Derby which is the centrepiece of the European All Weather Series. Wewere delighted that, as a result of the success of the Winter Derby in recentyears, the International Pattern Committee agreed to elevate the race to Group 3status for 2006, when the £100,000 contest will again prove one of thehighlights of the all weather season. In 2005, Arena entered into its second agreement with BAGS for the distributionof racing pictures to licensed betting offices ("LBOs"). This extends through tothe end of 2009 and is a key agreement for Arena, generating a significantproportion of our turnover. However, in this new agreement, the amount paid for'regional races' decreased. Regional racing provides fixtures that arerestricted to horses with a maximum rating of 45-50. Arena staged over 300regional races in 2004 and 2005 and the new, reduced tariff had a negativeimpact on the level of BAGS income received in 2005 of around £0.6m. Arenacontinues to work with the British Horseracing Board ("BHB") and other sectorsof the racing industry to seek a means by which the current system of regionalraces can be improved. As part of Arena's drive towards greater efficiency and due to the scale of ouroperations as the UK's leading operator of horseracing fixtures, Arena reviewedwhere cost savings could be made and services brought in-house, thereby avoidingthe need for extensive set-up costs on each raceday. As a result, the'photofinish' and 'starting stalls' operations were taken over in 2005 and the'camera patrol' operation taken over in early 2006. In all these areas ofoperation, it was determined that the service could be provided much moreefficiently through the investment in our own, racecourse-based staff andequipment, and this has been achieved without impacting on the quality of theservice provided. In the more traditional areas of racecourse operation, Arena continued to excelwith turf management given its usual high priority. It was just reward for thesmall and dedicated team of ground staff at Folkestone that they were awardedrunner-up status for dual-purpose racecourses (flat and jump) in the Neil WyattGround staff awards. Outside racing, Wolverhampton remained one of the busiest racecourses inBritain. Its hotel operation, the Holiday Inn Garden Court, achieved recordoccupancy levels and, in the second quarter of 2005, achieved the distinction ofbeing awarded the best overall score for guest satisfaction of all hotels withinthe Intercontinental Hotel Group in Europe, Middle East and Africa. Theconference and exhibition business also continued to expand. Both Lingfield Parkand Royal Windsor racecourses held popular fireworks displays in November,attracting large audiences from the local community. Southwell racecourse wasthe second of Arena's racecourses (after Wolverhampton) to be awarded Investorsin People accreditation. Industry Matters Future Funding of Racing: In 2004, the UK Government passed an Act abolishing the statutory Levy on theunderstanding that an alternative source of funding for the UK horseracingindustry had been found through the BHB selling pre-race data to bookmakers.However, the ruling handed down by the European Court of Justice ("ECJ") inNovember 2004 and upheld by the Court of Appeal in the BHB and Others v WilliamHill in July 2005 prevented the selling of pre-race data as a method of fundingracing. A committee was set up under the chairmanship of Lord Donoughue to investigatean alternative means of funding racing. This committee, the Future Funding ofRacing Review Group ("FFRRG") made an interim report in March 2005 recommendingthat the Levy should remain in place until 2009. FFRRG reported its fullfindings to the Minister for Sport in December 2005, recommending that furtherinvestigation should be conducted into replacing the Levy with a commercialsystem based on the pooling and sale of all racing's rights - pictures andpre-race data - by the racecourses to the bookmakers' central purchasing agentfor the UK and Irish markets. In the event that legal obstacles prevented apurely commercial solution, FFRRG would also investigate the possibilities of ahybrid solution whereby there is some form of statutory backing for a commercialarrangement. There are very many hurdles to be overcome before a commercialmechanism is determined, not least the issue of irrecoverable VAT at 17.5% onany payments made under a commercial arrangement. Currently, such a cost doesnot arise under the statutory Levy system. FFRRG recommended that, in order to implement a commercial arrangement, "Newco"should be set up to be the entity responsible for the collection andredistribution of the funds received through the sale of racing's rights. Newcowould be jointly owned by the UK racecourses and the Horsemen's Group (a groupset up by the Racehorse Owners' association comprising those bodies in racingwhose primary interest in racing's finances lie with prize money). It alsorecommended the combination of the two current bodies dealing with regulationand governance functions into one new body. Arena fully supports both the "Newco" and single governing/regulatory bodyrecommendations. The UK Government is currently considering the FFRRG's report. Gambling Act 2005: The Gambling Act 2005 provides for the relaxation of opening hours for licensedbetting offices and it is the Government's intention to see the fullimplementation of the Gambling Act by the third quarter of 2007. The potentialfor the evening opening of betting shops in the latter part of 2007 should allowfor an expansion of the fixture list to provide further evening racing - a movethat Arena supports and would expect to benefit from. Office of Fair Trading ("OFT"): During 2005 the OFT announced that it was closing its investigation into Britishracing. During the lengthy investigation, the BHB had produced a blueprint forthe future of British racing entitled the Modernisation of British Racing("MBR"). Although the MBR became redundant with the ECJ ruling, a number of itsrecommendations to bring racing into a more commercial era remain valid.Recommendations which continue to be pursued or have already become establishedare: • The establishment of a competitive bidding system whereby racecourses can acquire leasehold fixtures. In the bidding for 2006 fixtures (carried out in June 2005), Arena acquired 66 fixtures on a one-year lease and relinquished 73. This represented an overall improvement in our racing programme due to the higher quality of the new fixtures. A similar bidding process will take place in mid-2006 for 2007 fixtures, when Arena will again seek to improve the quality of its leasehold fixture list. As a result of the likely arrival of new all weather courses in 2006, there will most likely be increased competition for these fixtures, potentially reducing the number that Arena may obtain. • Establishing a system for the distribution of Levy income whereby a racecourse receives income in proportion to the amount of either betting turnover or betting profit that its fixtures generate ("hypothecation"). With the expectation that this system is in place by 2009, it is the intention that the racing industry and bookmakers increase the emphasis on betting revenue in the distribution of income from 2007. • Creation of a "development fund" to incentivise racecourses to put on races which are necessary for the development of young racehorses and the improvement of the thoroughbred. 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 is committed to maximising the value of the media rights licensed to it byits racecourse partners. It achieves this by making its partners' racing productas widely available as possible, both domestically and internationally, therebygrowing the popularity of UK and Irish racing. ATR is not a bookmaker, actinginstead as a facilitator for bets to be placed with its betting partners anddriving ancillary revenues. At The Races generates more than £2m per week inturnover for its betting partners from interactive red button betting on the Skyplatform alone. An interactive betting service is also available on NTL. ATR now has media rights agreements with 29 UK racecourses. This follows theconclusion of a media rights agreement with Doncaster Metropolitan BoroughCouncil in December that gives ATR exclusive domestic and international rightsto at least 25 of Doncaster's transferred fixtures throughout 2006 and early2007 and, from the re-opening of Doncaster Racecourse in time for the LadbrokesSt Leger in September 2007, exclusivity across the entire Doncaster fixturelist. These agreements provide ATR with the exclusive right to broadcast around55% of all UK fixtures. In addition, ATR also has exclusive rights to broadcastracing from all 27 Irish racecourses and thereby over 250 Irish horseracingfixtures a year. In 2005, ATR broadcast more than 1,000 UK and Irish meetings.All of these racecourses have chosen to sign with ATR in order to benefit fromthe widespread exposure of the sport that ATR provides. This enhances theiron-course sponsorship and advertising, enhances levy generation and providesthem with payments from ATR via their media rights agreements - agreements thatdirectly relate to the income derived from the broadcast of races to the hosttrack. Given the popularity of UK racing outside the domestic market and ATR'scommitment to grow this further, ATR also derives revenues from an internationalbusiness, broadcasting to over 20 countries through ATR International. Theserevenues come from the established fixed odds betting territories such as theCaribbean and Sri Lanka, and also from existing and emerging pari-mutuel bettingterritories such as Italy, Russia, Eastern Europe and the USA. Through anagreement entered into in March 2005 with the UK Tote, international customersare able to place bets on races from ATR courses which are commingled into theUK Tote pools. To date, more than £10m has been commingled into on-course Totepools through this route. ATR earns a commission on these bets, and ourracecourses also benefit from increased liquidity of the domestic Tote pools. In addition to its UK and Irish coverage, ATR also shows quality racing fromaround the world, including from France, Japan, Australia and the USA. Betweentwo and four US race meetings are currently shown each evening, with ATRgenerating commissions from bets placed with UK bookmakers that are commingledinto the US pools. Overall, ATR experienced significant growth in 2005. ATR's operating loss(before legal costs) was £2.0m. Importantly, within this, over £1.6m was paid oris payable to its racecourse partners in the form of media rights payments. Thisbrings the total generated since ATR's launch in June 2004 to over £2.2m. During 2005, the ATR television channel was officially recognised by theBroadcasters' Audience Research Bureau as the UK and Ireland's most watcheddedicated horseracing channel, with 1.2 million different individuals tuning inevery month to the channel, with an average of 40,000-50,000 people watching atany time during live racing. The channel also had an average daily audiencereach of over 200,000 different individuals. On one day alone, over 360,000different individuals tuned into the channel. ATR's aim of growing the popularity of UK and Irish racing at home and abroad isachieved by the channel being free to view within basic subscription packages.So, rather than its viewers paying an additional subscription, thereby limitingthe racing audience, ATR generates advertising revenue. On an annualised basiscompared to 2004, advertising and sponsorship revenues in 2005 grew by over240%. With effect from 1 January 2006, Sky Media, the advertising sales divisionof BSkyB and the biggest media sales operation within the domestic multichannelmarketplace, was appointed to handle all advertising sales in the UK andIreland. In 2006, it is anticipated that ATR will be able to both grow itsadvertising revenue further and improve the quality of advertising that thechannel attracts. So far in 2006, brand count, which reflects the number ofdifferent advertisers buying airtime on ATR, is up year on year by more than50%. ATR's website, attheraces.com, has established itself as the number two domestichorseracing website, with nearly 300,000 monthly unique users and over 20million monthly page impressions. In January 2006, it streamed over 240,000 liveand archive video streams. The development of ATR's distribution opportunities included the launch of anonline streaming service, "Bet and Watch". This is now available on sixbookmaker partner websites and enables customers to watch high quality videostreaming once they have placed a bet on an ATR broadcast race, with ATR earninga commission. ATR has seen double digit percentage growth of downloaded streamson a monthly basis since launch. Agreements are in place for the rollout of thisproduct across a number of additional bookmaker websites. ATR recently launched an online odds comparison service, Best Odds, thatprovides viewers with a one-stop-shop in which they can see the optionsavailable for the bet they wish to make, place a bet and then proceed to watchracing live. The comparator allows the customer to compare the odds beingoffered by 15 betting partners, including leading fixed odds bookmakers, Totepools and betting exchange Betfair. A key to the long-term growth of ATR is its ability to maximise its revenue fromnew channels of distribution. In 2005, At The Races 3G was launched to apotential audience of six million subscribers on the 3 and Vodafone video mobilenetworks. All the channel's previews, news, analysis and UK and Irishhorseracing content can be seen as a live broadcast with full commentary. ATR isalso part of Sky Mobile TV, a joint venture between Vodafone and BSkyB to bringlive TV to 3G. ATR is one of 19 channels available on the package. Mobile TV isan exciting new proposition and one in which horseracing can achieve a strongaudience. ATR's distribution on mobile platforms will continue to roll outacross all mobile networks, including in Ireland, and the addition of enhancedbetting and research functionality is expected in due course. 2006 has started well for ATR. ATR is in a strong financial and operationalposition and is well positioned to build further on the successes achieved in2005. A key objective will be to secure greater international distribution. Oneof the main ways that this can be achieved is by persuading the UK horseracingindustry of the benefits of extending 48-hour declarations to all UK flatracing. This will allow UK racing to attempt to compete with its internationalcounterparts on a level playing field and thereby maximise the revenue potentialfor UK horseracing in overseas markets. Developments Arena constantly strives to improve the facilities that it provides for itscustomers. Over the last five years, Arena has invested around £24m intoracecourse improvements. These have included new all-weather racing surfaces atWolverhampton, Lingfield and Southwell, major refurbishments of the grandstandsat Lingfield and Folkestone, improved access at Royal Windsor, the purchase oftwo 'giant screens' for added viewing enjoyment, together with a large number ofsmall projects all contributing to the enjoyment of Arena's racing product. This is an ongoing process. In 2005, £0.5m was spent replacing an outdatedweighing room at Southwell with a new and enlarged building, providing improvedfacilities for jockeys and officials and also owners and trainers, all of whomhave warmly welcomed the improvements. In 2006, work has also started on the construction of a new golf clubhouse atSouthwell to replace the outdated existing building at an estimated cost of£0.6m, and major work has started at Worcester to undertake a refurbishment ofthe grandstand and to provide new stables. The cost of the Worcester project isaround £1.25m. These two projects largely complete the overhaul of thefacilities that Arena has acquired and, as a result, the level of expenditure onmore 'routine' capital projects should now have reached a relatively stablelevel. One further project that started this year is the 'camera patrol' projectmentioned earlier. At a cost of around £1.0m, bringing this important functionin-house will yield cost savings of around £0.25m per year. Over the coming years, assuming that the appropriate planning permissions arereceived, capital expenditure will now be focused on major revenue enhancingprojects. The first of these projects that will come to fruition is theredevelopment of Doncaster Racecourse. Doncaster Racecourse is one of the UK's major racecourses, hosting the openingrace of the flat racing season, as well as the last classic of the season - the229-year old St Leger. The St Leger is currently sponsored by Ladbrokes and isthe oldest classic horserace in the world. Arena had been in discussions with the racecourse's owner, DoncasterMetropolitan Borough Council (the "Council"), for some time and, in 2005,managed the racecourse on its behalf receiving a fee of £0.5m. A redevelopmentof the racecourse was the agreed route forward as, although the racecourseregularly attracts attendances in excess of 200,000 per year to its 29 meetings,in recent years, the facilities have, in places, become somewhat tired anddated. In December, agreement was reached for an Arena subsidiary to acquire the rightsto redevelop and operate Doncaster Racecourse on a 99-year lease, commencingupon completion of the redevelopment. Arena owns 81% of this subsidiary, withthe Council owning the remaining 19%. Importantly, over the first 30 years ofthe racecourse's operation following its redevelopment, Arena will receive 92.5%of the profits, with the Council receiving the balance. This agreement followed the receipt in November 2005 of detailed planningpermission for the redevelopment of the racecourse. The outdated Yorkshire Standand exhibition hall will be demolished and replaced by a state-of-the-artgrandstand and new conference and exhibition facilities. These will provideDoncaster's customers with the quality of accommodation that they should expectfrom such a prestigious racecourse. Elsewhere around the racecourse, there willbe a refurbishment of the adjacent St Leger Stand and construction of a newstable block next to the racecourse and an adjoining new stable lads' hostel. The redevelopment commenced in January 2006 and is expected to last around 19months, with the racecourse re-opening in time for the Ladbrokes St Legermeeting in September 2007. The 2006 St Leger meeting will take place at York,with the majority of Doncaster's remaining fixtures transferred around the Arenagroup. Arena's aim is to return Doncaster Racecourse to its position as one of the UK'spre-eminent racecourses. In total, the redevelopment will cost around £32m, ofwhich Arena will be providing around £28m, mainly in the form of guarantees forbank loans. Following the agreement, Arena will receive no further management fees; insteadincurring costs as the remainder of the racecourse is maintained and staffinglevels begin to increase towards the end of the year in anticipation of there-opening of the racecourse in 2007. Work has also commenced on developing a planning application for a second phasedevelopment - a hotel and residential development on land adjacent to theracecourse. It is hoped that this will be submitted later this year. Arena also looks to develop new or expanded revenue streams from its existingracecourses. Unfortunately, the first such project, a casino and hotel expansionas part of Arena's attempt to maintain and develop its Wolverhampton Racecoursewas rejected in July by the Office of the Deputy Prime Minister, despite supportby Wolverhampton City Council. The development was viewed as negativelyimpacting upon the 'openness' of the Green Belt location in which it issituated. Arena awaited Wolverhampton's revised Unitary Development Plan to seewhether the racecourse would be removed from the Green Belt, therebysignificantly improving the chances of a successful re-application. It nowappears likely that the racecourse is to remain within the Green Belt and so weare currently re-evaluating our options. As a result, we have written off as acharge to operating profit in 2005 £0.4m of the expenditure incurred on theoriginal 'racino' design. Nevertheless, we remain determined to progress with aregeneration of the racecourse involving the expansion of the hotel, togetherwith complementary leisure facilities. The submission of a detailed planning application for a redeveloped grandstandand new hotel at our Royal Windsor Racecourse has been awaiting the outcome of afeasibility report into our financial justification for the development,commissioned by The Royal Borough of Windsor and Maidenhead. This report hasonly recently been completed by the Borough's independent consultants. Thereport, in part necessitated by the considerable sensitivity of development onGreen Belt land, appears broadly supportive of the need for the proposed scheme.We await the Borough's reaction to the report. In the meantime, we will completeour work on the preparation of the detailed planning application in readinessfor its submission shortly. We hope that this development, which is essential tosafeguard this important leisure facility in Windsor, will receive localauthority approval. However, due to a number of factors, Royal WindsorRacecourse is a sensitive site in planning terms and so the processes that mustbe completed in order to present a realistic possibility of achieving fullplanning consent are considerably more onerous than might otherwise be expected.This development, should it receive planning permission, is expected to cost inthe region of £38m. Following the refurbishment of the main grandstand and provision of a new allweather track within the last three years, it is anticipated that Lingfield ParkRacecourse will submit an outline planning application in March 2006 to demolishtwo redundant stands and to replace them with a new integrated leisure building.This new building, to be known as the Silks, will incorporate improved racingadministration and entertaining facilities, a greatly improved leisure club witha pool, a new 120-bedroom hotel and a new replacement golf clubhouse. Theredevelopment, subject to it receiving planning permission, is expected to costaround £25m and will dramatically improve Lingfield Park, allowing it to competewith the extensive competition from other developing racecourses in thesouth-east region. I am hopeful of a positive outcome as the redevelopment alsoinvolves the removal of numerous smaller buildings from around the racecourseand so will allow the return of a sizeable area of currently developed land backto Green Belt. The process to date has included an extensive consultationexercise, including a recent public exhibition. We will continue to work closelywith all local stakeholders to help ensure that this exciting development hasthe best possible chance of success. Arena Leisure possesses a number of exciting growth opportunities and I amoptimistic that the Company is now well placed to deliver them. Mark Elliott Chief Executive 28 February 2006 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 Notes £'000 £'000 Turnover 2 40,747 37,229Cost of sales (26,235) (24,898) --------- ---------Gross Profit 14,512 12,331Profit on sale of investments 834 -Administrative costs (8,619) (7,157) --------- ---------Profit from operations 2 6,727 5,174Share of post tax results of joint venture 2 (1,529) 617Share of post tax results of associate 17 (40)Write down of investment in associate (315) - --------- ---------Profit before interest and taxation 4,900 5,751 --------- ---------Finance costs (761) (1,035)Finance income 350 192 --------- ---------Net finance costs (411) (843) --------- ---------Profit before taxation 2 4,489 4,908Taxation 3 - 195 --------- ---------Profit on ordinary activities after taxation 4,489 5,103Profit from discontinued operations - 482 --------- ---------Profit for the period attributable to equityshareholders of the parent 4,489 5,585 --------- --------- Earnings per share 4 Pence PenceContinuing operationsBasic earnings per share 1.24 1.41Diluted earnings per share 1.23 1.40 Continuing and discontinued operationsBasic earnings per share 1.24 1.54Diluted earnings per share 1.23 1.53 --------- --------- Changes in shareholder's equity 2005 2004 £'000 £'000 Total recognised income and expense 4,489 5,585Share based payment expense 5 -Issue of new ordinary shares for cash 71 -Dividends paid 5 (1,988) - --------- --------- 2,577 5,585Capital and reserves attributable to equityholders of the Company at the beginningof the period 57,196 51,611 --------- ---------Capital and reserves attributable to equityholders of the Company at the endof the period 59,773 57,196 --------- --------- CONSOLIDATED BALANCE SHEETAT 31 DECEMBER 2005 2005 2004 Notes £'000 £'000Non-current assetsProperty, plant and equipment 70,615 68,867Intangible assets 5,596 4,878 --------- ---------Investment in joint venture:Share of gross assets 3,188 3,795Share of gross liabilities (5,974) (5,052) --------- --------- (2,786) (1,257)Goodwill in respect of joint venture 1,580 1,374Loans to joint venture 3,284 2,991 --------- --------- 2,078 3,108Investment in associate - 298Financial assets - available for sale - 345 --------- ---------Total non-current assets 78,289 77,496 Current assetsInventories 19 30Trade and other receivables 4,785 3,904Cash and cash equivalents 69 27 --------- ---------Total current assets 4,873 3,961 --------- ---------Total assets 83,162 81,457 --------- --------- Current liabilitiesBank overdraft (3,267) (1,517)Trade and other payables (9,368) (9,454)Other financial liabilities (315) (401)Corporation tax liability - (5) --------- ---------Total current liabilities (12,950) (11,377) --------- ---------Non-current liabilitiesFinancial liabilities (7,632) (9,972)Accruals and deferred income (2,807) (2,912) --------- ---------Total non-current liabilities (10,439) (12,884) --------- ---------Total liabilities (23,389) (24,261) --------- --------- Total net assets 59,773 57,196 --------- --------- Capital and reserves attributable to equityholders of the companyShare capital 6 18,100 18,075Share premium 46 -Merger reserve 5,417 5,417Retained earnings 7 36,210 33,704 --------- ---------Total equity 59,773 57,196 --------- --------- CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 Notes £'000 £'000Operating activitiesProfit for the year 4,489 5,585Adjustments for:Depreciation 1,847 1,424Impairment provision - Wolverhampton development 400 -Share based payment expense 5 -Net interest expense 411 843Share of loss/(income) of joint venture 1,529 (617)Share of (income)/loss of associate (17) 40Impairment provision - Trackplay LLC 315 -(Profit)/loss on sale of property, plant and (69) 23equipmentProfit on sale of SIS shares (834) -Goodwill released on allocation of shares in ATR toAscot racecourse - 71Profit on allocation of shares in ATR to Ascotracecourse - (36)Taxation provision released (5) (195) ------- -------Operating profit before changes in working capitaland provisions 8,071 7,138 ------- ------- Increase in trade and other receivables (881) (642)Decrease in inventories 11 25(Decrease)/increase in trade and other payable (1,014) 490 ------- ------- Cash flows from operating activities 6,187 7,011 ------- ------- Investing activitiesPurchases of property, plant and equipment (4,409) (13,537)Sale of property, plant and equipment 184 82Proceeds from sale of SIS shares 1,179 -Loans to joint venture (174) (2,991)Investment in Doncaster Racecourse Management Co Ltd (718) -Investment in joint venture (206) (2,025)Decrease in restricted bank account - 1,365Interest received 231 106 ------- ------- (3,913) (17,000) ------- -------Financing activitiesIssue of ordinary shares 71 -Proceeds from bank and other borrowings - 8,580Repayment of loans (1,326) (422)Repayment of finance lease creditors (14) -Interest paid (725) (943)Dividends paid 5 (1,988) - ------- ------- (3,982) 7,215 ------- -------Decrease in cash and cash equivalents (1,708) (2,774)Net cash and cash equivalents at beginning of year (1,490) 1,284 ------- -------Net cash and cash equivalents at end of year 8 (3,198) (1,490) ------- ------- Notes to the accounts 1. The figures for the year ended 31 December 2004 are based on the accountswhich have been filed with the Registrar of Companies and have been restatedto take into account the changes required under International FinancialReporting Standards ("IFRS") as adopted by the EU. The auditors' report on theaccounts prepared under UK GAAP and filed with the Registrar of Companies wasunqualified and did not contain a statement under Section 237(2)/(3) of theCompanies Act 1985. These accounts do not comprise statutory accounts within themeaning of Section 240. 2. Additional profit disclosure Turnover Profit/(loss) 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Racecourse operations 40,747 37,229 8,421 7,295Central costs - - (2,128) (2,121) ------- ------- ------- -------Turnover and profit from operationsbefore one-off items 40,747 37,229 6,293 5,174 ------- ------- ------- -------One-off items:Racecourse operations:Impairment provision - Woverhamptondevelopment (400) -Central costs:Profit on sale of SIS shares 834 - ------- ------- ------- -------Profit from operations 6,727 5,174 Share of after tax results of:At The Races: ------- ------- ------- -------Operating and finance (1,131) (3,344)Exceptional items (862) (923)Tax credit 464 4,884 ------- ------- ------- ------- (1,529) 617Associate 17 (40)Impairment provision - Trackplay LLC (315) -Net finance costs (411) (843) ------- ------- ------- -------Profit on ordinary activities beforetaxation 4,489 4,908Taxation - 195 ------- ------- ------- ------- 4,489 5,103Discontinued operation - 482 ------- ------- ------- -------Profit for the period 4,489 5,585 ------- ------- ------- ------- 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. Discontinued operations relate to the closure of Arena Online Services Limited(software development). 3. Taxation There is no current year tax charge due to the availability of tax losses. At 31December 2005, corporation tax losses representing trading and non tradinglosses of £54,777,000 (2004: £58,309,000) were available for utilisation infuture years subject to agreement with HM Customs & Revenue. 4. Earnings per share Earnings: 2005 2004 £'000 £'000 Profit for the year - continuing 4,489 5,103Profit for the year - discontinued - 482 --------- --------Profit for the year - continuing and discontinued 4,489 5,585Adjustments:Discontinued operation - Arena Online Services Limited - (482)Impairment provision - Wolverhampton development 400 -Impairment provision - Trackplay LLC 315 -Arena share of At The Races exceptional items 862 923Arena share of At The Races consortium relief (464) (4,884)Profit on sale of SIS shares (834) - --------- --------Adjusted profit for year used in calculation ofadjusted earnings per share 4,768 1,142 --------- -------- An adjusted earnings per share figure is included as, in the opinion of theDirectors, this gives a more useful indication of underlying performance. Weighted average number of shares: 2005 2004 No.'m No.'m Weighted average number of shares used in thecalculation of basic and adjusted EPS 361.52 361.50Dilutive potential of ordinary shares:Employee share options 2.20 2.70 --------- --------Weighted average number of shares used in thecalculation of diluted EPS 363.72 364.20 --------- -------- 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. 5. Dividends 2005 2004 £'000 £'000Final dividend of 0.3 pence (2004:nil) per ordinary shareproposed and paid during the year relating to the previousyear's results 1,084 -Interim dividend of 0.25 pence (2004:nil) per ordinary sharepaid during the year relating to the current year's results 904 - ------- ------Dividends paid in the year 1,988 - ------- ------ The directors have proposed a final dividend of 0.2 pence (2004: 0.3 pence) pershare totalling £728,000 (2004: £1,084,000). This dividend has not been accruedat the balance sheet date. Under IFRS, dividends are shown as a change in shareholders' equity on the basisof cash paid or dividends declared prior to the year end. Previously under UKGAAP, the profit and loss account charge was calculated on an accruals basis,with the proposed final dividend, declared post year end, shown as a charge inthe year to which it related. 6. Share capital Authorised 2005 2005 2004 2004 Number £'000 Number £'000 --------- --------- --------- ---------Ordinary shares of 5p each 429,353,724 21,468 429,353,724 21,468 --------- --------- --------- --------- Issued and fully paid 2005 2005 2004 2004 Number £'000 Number £'000At beginning of the year 361,495,535 18,075 361,495,535 18,075Exercise of employee shareoptions 500,000 25 - - --------- --------- --------- ---------At end of the year 361,995,535 18,100 361,495,535 18,075 --------- --------- --------- --------- 7. Reserves 2004 Share Premium Merger Revaluation Retained account reserve reserve earnings £'000 £'000 £'000 £'000 At 1 January 2004 87,652 5,417 15 (59,521)Profit for the year - - - 5,585Capital reorganisation (87,625) - (15) 87,640 ----------- ---------- --------- --------At 31 December 2004 - 5,417 - 33,704 ----------- ---------- --------- -------- 2005 Share Premium Merger Revaluation Retained account reserve reserve earnings £'000 £'000 £'000 £'000 At 1 January 2005 - 5,417 - 33,704Exercise of employeeshare options 46 - - -Profit for the year - - - 4,489Dividends paid - - - (1,988)Share based payment expense - - - 5 ----------- ---------- --------- --------At 31 December 2005 46 5,417 - 36,210 ----------- ---------- --------- -------- 8. Statement of net debt At 31 December At 31 December 2005 2004 £'000 £'000 Cash and cash equivalents 69 27Bank overdraft (3,267) (1,517) ------------ ------------Net cash and cash equivalents (3,198) (1,490)Bank loans (7,000) (8,000)HBLB loans (644) (970)Finance lease - Worcester Racecourse (303) (1,403) ------------ ------------Closing net debt (11,145) (11,863) ------------ ------------ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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