ARE.L Regulatory News (ARE)

Risk type and impact

Mitigation

Development risk

The Group is currently deploying its strategy for the creation of value through maximising the potential utilisation of real estate and land assets. Central to this strategy are a number of planned and active development projects. 

The current major developments are:

• A new hotel and leisure facility at Lingfield Park with construction substantially complete;

• A new hotel extension and casino (subject to securing a licence) at Wolverhampton Racecourse;

• A new hotel and residential development at Doncaster Racecourse;

• Planning application for residential development at Folkestone Racecourse; and

• Planning application for racecourse and associated development at Royal Windsor Racecourse.

In order to mitigate the inherent risks in such a development programme, the Group has or will:

• Undertake detailed feasibility studies in respect of the new developments using highly qualified and experienced consultants to assess the business

potential in each location;

• Choose to work with internationally recognised hotel brands with significant experience and market presence based upon established management contract and franchise models;

• Employ suitably experienced and qualified project managers for each construction project who are dedicated

to delivering the development from planning through to completion; and

• Enter into fixed price contracts with suitably experienced and established building contractors.

Commercial and operational risk

The Group's business is exposed to weaknesses in consumer spend, particularly in the private hospitality segment, and to poor weather conditions during the summer months which can severely impact income and, consequently, profit. In the current economic downturn this risk has had a material impact on the Group's trading.

A significant proportion of the Group's annual income is derived from the statutory Levy on bookmakers' profits from UK horseracing. There is a risk that a replacement for this scheme may have a potentially detrimental impact on income.

A significant proportion of the Group's annual income is derived from its contract for the supply of racing content to Licensed Betting Offices.

Management have taken mitigating actions to protect the Group from current and potential operational risks.

• The operating cost base has been aligned with reduced customer revenue and the operating synergies arising from bringing our catering operation in-house have protected profits;

• The Group has appointed suitably experienced and qualified senior management to oversee and direct the operation and standards of performance across all of Arena's racecourses;

• Appropriate systems and structures are in place to ensure proper training and supervision of staff, and management information systems monitor performance on a regular basis against predetermined targets; and

• The Group has made a significant investment in information technology, covering key business areas and, in particular: reservations, ticketing and points of sale and customer relationship management. These systems are substantially embedded assets with a consequent improvement in the control environment of the Group.

• There is high level of involvement of management in the key industry bodies. The recent settlement of the 2010/11 Levy without recourse to the Secretary of State and the intention of all parties to seek a longer-term solution indicate a reduced risk; and

• The Group enters into long-term contracts for the provision of racing content and has entered into an early agreement for the period from 2012 to 2016, securing this income for the medium term.

Strategic risk

The Group manages a number of strategic risks related to the delivery of value through exploiting its multiple sources of value creation.

• The current credit markets have reduced the availability and increased the cost of additional debt funding which has a potential impact on the Group's ability to source acceptable funding for future development projects; and

• Potential failure to achieve acceptable planning consents, of which the most significant are those at Folkestone Racecourse and Royal Windsor Racecourse, are mitigated by appropriate management actions.

To mitigate this risk the Group has taken the following action:

• Maintaining a close relationship with our current lender, as well as building and maintaining relationships with other potential lenders. In addition, management and the Board continue to consider other alternative sources of investment capital; and

• Detailed planning strategies have been developed in conjunction with a suitably qualified property consultant. Regular meetings are held with local council executives and planning departments and representations are made through the Local Development Framework process.

Health and safety risk

The Group must ensure it adequately satisfies health and safety standards.

The Group takes the following action to ensure the health and safety of Arena employees and customers:

• The Group has employed suitably qualified and experienced health and safety managers to ensure that the Group's health and safety policies are communicated and complied with;

• Each racecourse employs an on-site food safety specialist whose training is overseen by the Group's National Catering Manager. These on-site employees are, in turn, responsible for ensuring all racecourse catering staff receive food hygiene training; and

• From a racing perspective, the Group employs a Health and Safety Manager, who is responsible for communicating controls and procedures across the Group. She is a member of the Racecourse Association's Safety Advisory Group and ensures that industry best practice is implemented across all seven racecourses.