ARE.L Regulatory News (ARE)

7 Apr 2005 07:00

Arena Leisure PLC07 April 2005 ARENA LEISURE PLC ("ARENA") PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Financial Highlights • Group turnover increased by 9% to £37.3m (2003: £34.3m) • Significant improvement in profit before tax £0.2m (2003 £42.2m loss) • Racecourse turnover increased by 24% to £36.0m (2003: £29.1m) • Racecourse operating profit increased to £7.3m (2003: £7.0m) with underlying increase of 20% allowing for loss of attheraces income and changes to industry funding • Arena Online reported profits of £0.5m (2003: £1.4m) and closed in June 2004 • Group operating profit before exceptional items reduced by 13% to £5.3m (2003: £6.1m) due to closure of Arena Online • Arena's share of At The Races operating loss reduced to £4.6m, including £3m relating to the old attheraces contracts terminated in the first half of 2004 • Tax credit of £5.1m (2003: charge £0.2m) recognised principally in respect of At The Races consortium relief • Fundamental improvement in profit after tax to £5.3m (2003: loss of £42.2m) • Basic and diluted earnings per share 1.5 pence (2003: loss per share 11.7 pence) • Maiden dividend of 0.3p per share proposed • Net debt of £10.5m following capital expenditure of £13.5m (2003: net cash £1.8m) Operating Highlights • Record profits and prize money levels from racecourse operations • Arena is the largest operator of UK horseracing fixtures €315 race meetings held in 2004, an increase of 27% on 2003 (247 race meetings). We operate 25% of industry fixtures • Progress on development of racecourse assets: •Lingfield grandstand redeveloped and reopened •Selected as preferred bidder for Doncaster Racecourse •New racing surfaces installed at Wolverhampton and Southwell •Wolverhampton casino/hotel development - awaiting approval from Government Office • Exited from software development - Arena Online Services closed June 2004 • At The Races re-launched in partnership with British Sky Broadcasting ("BSkyB") on 11 June 2004 and commenced legal proceedings to recover rebates • Windsor redevelopment proposal to be submitted for planning approval in first half 2005 Roger Withers, Arena's Chairman, said today: "I am delighted to report excellent progress at Arena Leisure and amparticularly pleased that we are able to pay to our shareholders a maidendividend. The results have been achieved through concentrating energies ondriving the racecourse business forward and investing in racecourse assets. "We have seen a good start to the financial year, we are currently trading aheadof expectations and we have excellent opportunities for growth and furtherdevelopment of our assets." Ian Penrose, Arena's Chief Executive, added: "2004 was a transformational year for the Arena Leisure. The group continues toaccelerate, with all of our key performance indicators ahead of this time lastyear. We are a growth focused company, seeking to grow organically and, whereappropriate through acquisition. "Arena will continue to invest in its racecourses to improve both the qualityand experience for our widening customer base, and to position the overallbusiness to take advantage of the opportunities that lie ahead following theOffice of Fair Trading investigation into racing and from the impact of changinggaming regulation." - ends - For further information please contact:Ian R Penrose, Chief ExecutiveArena Leisure Plc Tel: 020 7495 2277 David Rydell/Zoe SandersBell Pottinger Corporate & Financial Tel: 020 7861 3232 Chairman's Statement I am delighted to report that Arena Leisure Plc ("Arena") has produced very goodtrading results this year through concentrating its energies on driving itsracecourse business forward and investing in its racecourse assets. We havewithdrawn from our involvement in software development and together with our47.5% partner, British Sky Broadcasting ("BSkyB") have put At The Races, themedia rights company, on a sound business and financial footing. Results for the year ended 31 December 2004The results for the year highlight the significant strides that your Company hasmade. Turnover increased by 9% to £37.3m (2003: £34.3m). Group operating profitbefore exceptional items reduced by 13% to £5.3m (2003: £6.1m) due to closure ofArena Online. After deducting the losses incurred by At The Races, pre-taxprofit amounts to £0.2m compared to a loss of £42.0m in 2003. A tax credit of£5.1m, principally in respect of At The Races consortium relief, brings profitafter tax to £5.3m (2003: £42.2m loss). Basic and diluted earnings per sharewere 1.5 pence (2003: loss per share 11.7 pence). The BoardIan Renton was appointed as the Racing Director in November 2004. He has beenwith Arena since 2001. At the same time, Ian Hogg, Director of Gaming Systemsand Graham Parr, a Non-Executive Director, both resigned to pursue otherbusiness interests. I thank them for their contribution. The Board now consistsof two Executive Directors, two Non-Executive Directors, myself as Chairman,with the Company Secretary who is also our Chief Financial Officer. EmployeesI am grateful to all of our employees for their dedication and hard work overthe last year. It is their focus and determination in the front line of thebusiness that has enabled us to report such good progress this year. DividendI am pleased to announce that following this strong performance, Arena isproposing to pay its maiden dividend. The dividend of 0.3p per share (2003: nilpence), which also reflects the total dividend for the year, will cost £1.1m andis proposed to be paid on 17 June 2005 to all shareholders on the register atthe close of business on 22 April 2005. OutlookArena is increasingly focused on the long-term growth of its racecourse assetsand the distribution of media rights through the increasing variety of media andtechnology platforms both nationally and internationally. We have seen a good start to the financial year, we are currently trading aheadof expectations and we have excellent opportunities for growth and furtherdevelopment of our assets. With your company building on the successes of 2004,and with low levels of bank debt and gearing, we approach the future withconfidence. Roger D WithersChairman7 April 2005 Chief Executive's Statement Strategic OverviewArena's overall objectives are to maximise value for shareholders by improvingthe quality of our venues, so that they can be used 365 days of the year by anincreasing number of people, and to maximise the widespread distribution of ourracing product to bookmakers and the media, both nationally and internationally. As the business grows, we will continue to utilise revenues in a disciplinedmanner facilitating further the growth in your Company. Horseracing VenuesArena operates in a racing industry which is rapidly evolving towards aprosperous future. Racing is the second most popular sport in this country byattendance numbers, attracts widespread television and media coverage andprovides the opportunity for more than £9 billion of bets to be placed annuallyon horseracing across the UK. Arena will continue to invest in its racecourses to improve both the quality andexperience for our widening customer base, and to position the overall businessto take advantage of the opportunities that lie ahead following the Office ofFair Trading investigation into racing and from the impact of changing gamingregulation. Media RightsArena owns a valuable portfolio of media rights. We host 25% of all races run inthe UK. These races generate some £2 billion of betting turnover in the UK andtens of millions of pounds internationally, with over £50 million from the SouthAfrican and Italian markets combined. We will continue to focus and develop ourrelationships with bookmakers. Through our investment in At The Races, we continue to ensure that livebroadcasts of our racing are transmitted to the widest possible audience bothdomestically and internationally. We endeavour to make racing from Arena'sracecourses available to some ten million satellite and cable homes in thiscountry, thereby maximising the appeal from an awareness, sponsorship, viewingand betting opportunity. We value our strategic relationship with BSkyB, a worldleader in innovative multi-channel digital television, in order to accelerateand maximise this strategic objective. Ian R PenroseChief Executive7 April 2005 Review of Operations Overview2004 was a transformational year for the group. The group was returned to profitability and is set to pay its maiden dividend.Our racecourses made record profits, paid record levels of prize money andinvested heavily to ensure that this growth continues. At The Races was launchedon 11 June 2004 following the termination of the previous attheraces mediarights contracts on 29 March 2004 and current trading is ahead of initialexpectations. At The Races has commenced legal proceedings to recover rebatesfrom the racecourses involved. We completed the withdrawal from our involvement in software development withthe closure of Arena Online Services in June 2004. Arena took over the management of Doncaster Racecourse in September 2004, andare the preferred bidders to enter into a joint venture partnership withDoncaster Metropolitan Borough Council to redevelop that racecourse. Racecourse DivisionOur racecourse division has produced very encouraging results in a period ofmajor change and uncertainty in the racing industry. We took early action toaddress the inevitable reductions in income that were going to accrue to ourracecourses as a consequence of the termination of the original attheraces mediarights contract, associated ongoing costs and the removal of industry fundingfor starting stalls. The above items reduced our income for the year by £1.1mand we are pleased that our racecourses delivered operating profits of £7.3m, aneffective underlying increase of 20% and a headline increase of 4% on last year.Prize money paid out at our racecourses during the year increased from £9.1m to£11.6m. We have continued to seek to increase the utilisation of our assets and in 2004,we hosted 315 race meetings, an increase of 68 race meetings (27%) on 2003. Intotal, we staged 2,145 races in 2004, 25% of all races run in the UK (2003:23%). This growth in race meetings is expected to continue into 2005 when,including those run under management at Doncaster, we will stage over 350 racemeetings, approximately 27% of all races to be run in 2005. We are delighted to be working closely with Ascot Racecourse at a time when itis closed for redevelopment. This relationship will enable us to host 13 ofAscot's race meetings on Arena's racecourses during 2005. We also hosted 5 Ascotrace meetings during 2004, the most notable occasion being when we reintroducedNational Hunt racing to Royal Windsor racecourse for the first time in manyyears. All Weather RacingOur investment in All Weather racing continues to increase at an unprecedentedrate. Arena has invested £4.5m in new racing surfaces at Wolverhampton andSouthwell during 2004, following the highly successful £3m polytrack surfaceinstalled at Lingfield Park in 2001. It is strategically important for us toimprove the quality of our racing surfaces, to decrease the likelihood ofabandonments and to improve the racing experience for all our customers.Wolverhampton, with its polytrack surface, has been praised by many in theindustry, as being the best All Weather racing surface in the world. The othercontender for that accolade is Lingfield Park, Arena's third All Weather (andturf) racecourse. We have worked tirelessly to raise the standard and perception of All Weatherracing in this country. In the All Weather season 2004/2005 100 races were worthover £10,000 in prize money (2000/2001 - 28 races), and 40 races were worth aminimum of £20,000 (2000/2001 - 8 races). Winter Derby Day, held recently atLingfield Park attracted a record crowd, paid out an unprecedented £270,000 ofprize money and hosted the highest quality race on an All Weather surface inthis country with prize money of £100,000. The Winter Derby is the leading racein the European All Weather Racing Series, strongly supported by Arena, withraces in France, Sweden, Italy, Germany and Lingfield Park here in the UK. With the encouragement of international competition and continuing increase inthe quality of races run on the All Weather, the standard of horses competing onour All Weather surfaces has never been higher. Continued InvestmentThis investment in the racing surfaces and prize money levels has beensupplemented by our strategy of investing in our racecourses to improve both thequality and the experience for our wider customer base. Lingfield Park hascompleted a £6m investment in the grandstand, atrium, bars, restaurants, paradering, winners enclosure and landscaping to transform this historic racing venue.This represented the third phase in what has been a three year programme toinvest £10m in the racing and spectator facilities at Lingfield Park. We havereceived widespread acclaim for our investment in the polytrack racing surface.It was very encouraging to receive The Times newspaper "New RacecourseRestaurant of the Year Award" for the Trackside restaurant at Lingfield Park. Besides new racing surfaces, Southwell and Wolverhampton racecourses alsoreceived significant investment in creating enhanced food, beverage and bettingfacilities in their respective concourses. In line with Arena's desire to improve horse welfare and health and safetymatters at its racecourses, we have now replaced the tarmac parade rings,winners enclosure (where applicable) and horse walks with rubber blocking atRoyal Windsor, Lingfield Park, Wolverhampton and Southwell Racecourse andinstalled rubber blocking on the horsewalk at Folkestone. To enhance the customer experience, we invested in acquiring one large and onemobile, giant screen. The size and quality of these screens allow the racegoerto follow the action and feel part of it. In addition, we were able to broadcastother sporting events to our racegoers throughout the summer, thereby broadeningthe enjoyment of the social occasion. Industry DevelopmentsAt a time when the sport and business of racing is enjoying a surge ofpopularity and income levels, there are a number of developments in the widerracing industry which should build on these positive foundations. The Office ofFair Trading ("OFT") has been working with the industry to introduce, within thefuture shape and regulation of British horseracing, a greater commercial focus.Two of the key areas where this will apply are: (i) A bidding process will be introduced so that racecourses can increase the number of racing days that they offer (ii) That the returns which are delivered back to the racecourses from off-course betting - for example from betting shops, betting exchanges and internet betting - currently distributed by the Levy Board, are expected to be allocated so on an increasing basis of hypothecation. Hypothecation, put simply, means that a racecourse will receive a proportion of the income that it generates from the off-course betting business. The British Horseracing Board ("BHB") had plans to replace the Horserace BettingLevy Board ("HBLB") with a system of charging for data and as such, persuadedthe Government to proceed with abolishing the HBLB in 2006. The issue of datahas been subject to challenge and the European Court of Justice ("ECJ") foundagainst the BHB's plans. A final ruling on this matter is due by the Court ofAppeal later this summer. With this in mind, a Funding Review Group ("FRG") has been established toconsider the appropriate method to fund racing. The material emphasis hasfocused on the contribution of bookmakers which is currently governed through astatutory mechanism via the HBLB at 10% of gross profits generated by bookmakerson horseracing bets. Their initial recommendation, which has been welcomed bythe Government, is for the HBLB to continue for a maximum of three years, to2009, so that an appropriate funding mechanism can be introduced andtransitional arrangements put into place. The FRG, which consists of Lord Donoughue, Rodney Brack, the Chief Executive ofthe HBLB, Patrick Nixon, Secretary of The Bookmakers' Committee and DavidZeffman, a leading commercial media lawyer, is due to report its finalrecommendations later this year. In the meantime, it would be reasonable toexpect a gradual introduction of increasingly commercial mechanisms in the yearsahead. Racecourse DevelopmentsFollowing a lengthy and detailed planning application and consultation process,Wolverhampton racecourse received planning approval from Wolverhampton CityCouncil in January 2004 for the development of an integrated sports, leisure andgaming destination. The development, which will include the building of a 40,000sq ft casino, doubling the size of the existing hotel to 106 bedrooms, togetherwith the creation of dedicated trainers' and owners facilities at theracecourse, is planned to be the first integrated development of its type in theUK. The planning approval was subsequently 'called in' for review by the GovernmentOffice for the West Midlands, and the Inspector held the Inquiry at the end ofNovember 2004. Arena was strongly represented at the Inquiry with theappropriate professionals and expert witnesses. We are aware that theInspector's report is with the Office of the Deputy Prime Minister and we awaitthe decision in due course. Royal Windsor racecourse is a beautiful venue set on the banks of the RiverThames. An application for detailed planning consent will be submitted to theRoyal Borough of Windsor and Maidenhead for regeneration proposals to include areplacement grandstand, hotel and other essential improvements to theracecourse. This is a highly sensitive and complex site both in terms of designand planning regulations and as a consequence, detailed discussions have beenongoing over the past two years with all the appropriate bodies. Overall, thediscussions have been constructive and these consultations will continue aheadof the application for detailed planning consent, which is expected to be lodgedin the next three months. Further work on development opportunities around our racecourses continues andwe expect to make further announcements in due course. At The RacesThe new At The Races business has without doubt undergone a fundamental changesince the termination of the original media rights agreement on 29 March 2004.In the weeks following termination both Arena and BSkyB looked very criticallyin deciding how, if at all, we could move forward together, building on thestrengths and experience gained from the original attheraces business. Theresult of these deliberations was to create a business model in which At TheRaces would no longer operate as a bookmaker in its own right, but act as afacilitator for bets to be placed. This change, together with a new managementteam has allowed the business to consolidate and refocus its energies on theworldwide exploitation of its racing broadcast media and to pursue other incomestreams backed by the At The Races brand and the popularity of the channel. Newmedia rights agreements have been negotiated on an individual basis whichdirectly correlate with the income derived from the broadcast of racing fromindividual courses. Racecourses benefit from the widespread exposure of thesport, enhancing their on course sponsorship and advertising, enhancing levygeneration and by receiving royalty payments from At The Races. The change has facilitated a significant reduction in the operating cost basefor At The Races which along with new media rights agreements have transformedits operating performance. At The Races successfully re-launched on 11 June 2004 with exclusive rights tobroadcast racing from 28 UK racecourses and all 27 Irish racecourses. At TheRaces is now available to over 10 million satellite and cable homes in the UKand Ireland on Sky channel 415, Telewest 534 and ntl 908, as well as online atwww.attheraces.com. At The Races' UK fixtures account for over 55% of all UKrace meetings and it has exclusive access to over 250 Irish race meetings ayear. In addition to its UK and Irish coverage, At The Races also shows topquality racing from, amongst others, the USA, Dubai, France and Germany. At The Races is majority owned by its racecourse partners. In addition to Arena,racecourse shareholdings are held by Ascot racecourse and future share issueswill be made to Northern Racing plc, Ripon, Plumpton and Newton Abbotracecourses. At The Races' racecourse shareholder partners consider that to maximise theopportunities available to them, it is vital to be in partnership with BSkyB, aworld leader in innovative multi-channel digital television and importantly,sports broadcasting. We are delighted that BSkyB decided to maintain an equityinterest equal to that of Arena. At The Races has successfully pursued a strategy of being as widely available aspossible, and as a result, is able to monetarise its distribution acrossnumerous revenue streams. These include interactive red button betting, cableand web affiliate revenues, text services, advertising and sponsorship, premiumrate telephony, web audio, commissions received from bets placed with the UKbookmakers via At The Races on US racing and through distribution to leisureoutlets such as pubs and clubs, in the UK and Ireland. At The Races has also recently launched www.attheracescasino.com andwww.attheracespoker.com, both of which are in a formative state but full ofpotential given the cross promotional benefits from the television channel. AtThe Races is also assessing the opportunities which 3G mobile technology offersfor live racing and betting services. Given the popularity of UK racing outside the domestic market, At The Races alsoderives revenues from its international business. These revenues come from theestablished fixed odds territories such as the Caribbean and Sri Lanka, and alsofrom existing and emerging pari-mutuel territories such as Holland, Russia,Eastern Europe and the USA. At The Races has recently launched At The RacesInternational, a thoroughbred only racing channel targeted at betting outlets inpari-mutuel markets. Through the recently announced agreement with the UK Tote,international punters are now able to place bets on races from At The Racescourses which are then commingled back into the UK Tote pools. At The Racesearns a commission on these bets, and our racecourses also benefit from thereturns derived from increased liquidity of the domestic Tote pools. Furtherterritories will be opened up during 2005. Going forward, At The Races is well positioned to capitalise on the success ithas already had in growing revenues and identifying new business opportunitiesand is focused on moving into profit in 2006. The television channel attracted an average daily audience reach of 189,000 inthe fourth quarter of 2004 (2003: 178,000). The average monthly reach in thesame period was 1,045,000 individuals (2003: 1,007,000), peaking in the month ofOctober 2004 at approaching 1.15 million viewers. Interactive sports betting hasrisen from an average of £270,000 a week in the first quarter of 2004 to£707,000 in the first quarter of 2005. The strength of the new At The Racesbusiness is demonstrated when the comparative figures in the fourth quarter of2003 and the first quarter of 2004 occurred in a period when attheraces held therights to 49 UK racecourses. The business formally known as attheraces terminated the media rights agreementwith the Racecourse Association ("RCA") and the 49 racecourses on 29 March 2004as a consequence of a failure to agree revised commercial terms following areduction in the Tote's takeout rate. As a consequence, in August 2004, At TheRaces commenced proceedings to enforce its rights to receive rebates exceeding£50 million. This is scheduled to be heard in the High Court in November 2005. In addition, in April 2004, the OFT ruled that, by selling their rights on acollective basis, the 49 racecourses restricted competition between them whensupplying attheraces and that, as a result, attheraces had to pay more for therights than would have been the case had there been effective competition. TheRCA and the BHB launched an appeal against this decision and this was heard bythe Competition Appeals Tribunal ("CAT") in March 2005. The decision of the CATis expected to be announced later this summer, at which point At The Races willconsider whether to make a further claim if appropriate. Technology ReviewIn line with Arena's strategic aims, Arena Online Services was closed in June2004. TrackplayOur 30% investment in Trackplay, which delivered a broadly break-even position,offers Arena a key strategic international alliance with Scientific GamesCorporation, the world's largest provider of Lottery and Totalisator systems. Ian R PenroseChief Executive7 April 2005 Financial review Results summaryGroup turnover for the year to 31 December 2004 shows a 9% increase to £37.3m(2003: £34.3m) which reflects a 24% increase in turnover from our racecourseoperations to £36.0m (2003: £29.1m) and a 75% reduction in turnover from ourArena Online software development business which was closed during the year. Operating profit from our racecourse operations improved by 4% to £7.3m for theyear (2003: £7.0m) notwithstanding the impact of additional operating costs andreduced income following the withdrawal of industry funding for starting stallsand termination of the old attheraces media rights contract at the end of March2004. Operating profit from the Arena Online gaming technology business, whichclosed during the year, reduced by 66% to £0.5m (2003: £1.4m). As a consequenceof the above, group operating profit before exceptional items reduced by 13% to£5.3m (2003: £6.1m). Central costs remain under control, being broadly static at£2.1m (2003: £2.0m). The group's share of operating losses in relation to At The Races total £4.6mfor the year to 31 December 2004 (2003: £21.2m) and reflect the trading andclosure costs of the old attheraces business during the first half year and there-launch of the new At The Races business model from 11 June 2004. The resultsare in line with expectation. Profit before tax for the year was £0.2m (2003: loss £42.2m). Corporation taxcredits of £5.1m (2003: charge £0.2m) principally reflect the group's share ofconsortium relief tax for 2002 and 2003 within At The Races and bring the profitafter tax to £5.3m for the year (2003: loss £42.2m). Basic and diluted earnings per share were 1.5p (2003: loss per share 11.7p). Racecourse operationsTurnover from racecourse operations increased by 24% to £36.0m in the year(2003: £29.1m), driven largely by the continued growth in the number of racemeetings hosted at the six racecourses currently under the group's ownership.The number of race meetings held during the year increased by 28% to 315, upfrom 247 in the prior year. Headline operating profit (excluding group management charges) increased by£0.3m to £7.3m in the year to 31 December 2004 (2003: £7.0m). During the yearour racecourse business suffered combined operating cost increases and incomereductions of £1.1m, brought about by the withdrawal of industry funding for theoperation of starting stalls, a reduction in media rights income as a result ofthe attheraces contract termination and associated ongoing costs of theprovision of BT fibre optic lines, which were partly funded by attheraces underthe former rights agreement. Adjusting for these changes the underlying growthin operating profit from the racecourses is 20%. On 14 September 2004 the group entered into a short term management agreementwith Doncaster Metropolitan Borough Council to manage Doncaster Racecourse,having previously been selected as the preferred bidder to take over the trackas part of a joint initiative with the Council. Media rightsOn 29 March 2004 attheraces terminated its media rights agreement with the RCAand the 49 racecourses which were party to the contract, including the sixracecourses owned by Arena. Following termination of this agreement, At TheRaces has been broadcasting racing from the group's racecourses under a newmedia rights arrangement in return for rights payments based on a percentageshare of the relevant revenues generated by the broadcasts from the group'sracecourses. This arrangement has enabled the group to resolve its rebateliability under the original contract. Arena has received £0.2m in respect ofrights income for the period following termination to 31 December 2004. At 29 March 2004 the group held within creditors the sum of £3.2m in respect ofdeferred income received under the original contract. This will be released tothe profit and loss account on a straight line basis over the initial five yearperiod of the new contract. Software development (Arena Online Services)Arena Online Services Ltd, the group's software development business was closeddown during the first half year as a consequence of the fundamentalrestructuring of the new At The Races business. The closure followed a wellmanaged wind down process which contributed operating profits of £0.5m for thefull year (2003: £1.4m). Joint venture - At The RacesThe group's share of the operating loss of At The Races is £4.6m for the year to31 December 2004 (2003: £21.2m). This reflects the trading and closure costs ofthe old attheraces business during the first half year and the re-launch of thenew At The Races business model from 11 June 2004. The group's share ofoperating losses, as reported in our interim statement to the half year was£3.0m. Subsequent to the termination of the attheraces media rights agreement on 29March 2004, the business was financially re-structured on 30 April 2004. As partof this re-structuring Arena and Sky Ventures Limited acquired equally theshares and loans previously held by Channel 4 which increased the group'sshareholding in At The Races to 50%. In addition to this, 35 new recoupmentshares were issued to Arena and 20 recoupment shares issued to Sky VenturesLimited in return for the cancellation of the shareholder loans at that point.The recoupment shares entitle Arena and Sky to preferential dividends of £17.5mand £10m respectively in priority to any payment of dividend to any other classof share. This equates to preferential dividend entitlement of £0.5m per share. On 8 October 2004, 158 new ordinary shares were issued to Ascot RacecourseLimited which diluted the ordinary shareholding of Arena and Sky VenturesLimited equally to 47.5%. Further share issues to its other racecourse partnersare anticipated. Following its financial restructuring at the end of April the group has advancedloans of £2.9m to At The Races to fund the cost of reorganisation and workingcapital during the second half year. At 31 December 2004, At The Races held netcash of £2.9m, principally as a result of payments received for tax consortiumrelief, with a further £2.4m receivable in the early part of 2005. With significant cash reserves at the year end and trading in the early part of2005 in line with expectation, the directors of Arena do not anticipate anyfurther funding requirement to At The Races going forward. Associate - TrackplayThe group's share of the loss from its 30% associated company Trackplay LLC forthe year to 31 December 2004 was £0.04m (2003: £0.02m). The charge to the profitand loss account reflects a loss of £0.07m due to the impact of US$ exchangerate movements since 31 December 2003 on the book value of our investment and ashare of operating profit for the year of £0.03m. Goodwill amortisationGoodwill arising on consolidation in respect of the group's racecourse companiesis amortised over a period of 20 years. Goodwill amortisation in respect of theracecourse companies was £0.3m for the year to 31 December 2004 and in line withlast year. On 30 April 2004 the group along with Sky Ventures Limited each acquired 50% ofthe shares held by Channel 4 in attheraces. The transaction gave rise togoodwill of £1.4m on the acquisition which is being amortised over a 20 yearperiod. Under International Financial Reporting Standards, goodwill will no longer beamortised, but will be tested for annual impairment. Capital ExpenditureDuring the year the group has invested £13.5m on capital expenditure and futuredevelopment projects, which is an unprecedented commitment for the group. Thisrepresents a strategic investment in the improvement of existing facilities andfuture development opportunities which we believe will deliver significantbenefits. The overall investment includes the redevelopment of the grandstandand associated facilities at Lingfield Park, new racing surfaces atWolverhampton and Southwell, mobile big screen facilities, maintenance capitalspends and other development projects. Treasury reportAll bank borrowings and financial assets of the group are held in sterling andon floating interest rates. In the current economic climate, and low levels ofdebt, hedging for interest rate risk is not considered appropriate. However, theboard constantly monitors the financial markets to ensure this policy remains inthe group's interest. The group does not face any significant foreign currencyrisk. At 31 December 2004 the group had unutilised bank facilities of £5.5m.Short-term liquidity risk is managed by obtaining and reviewing the adequacy ofbanking facilities. The group does not use derivative financial instruments tomanage risk. Interest is charged on the bank overdraft at 1% over Bank of Scotland base rate.Interest on the revolving credit loan facility is charged at either 1% over Bankof Scotland base rate or 1% over LIBOR. The bank loan and overdraft are securedby a fixed and floating charge on the assets and undertakings of the groupcompanies, and a first legal charge on all the freehold and leasehold propertiesowned by the group. This security is subject to deeds of priority and permittedcharges in favour of the Horserace Betting Levy Board ("HBLB") in respect ofsecurity for interest free loans provided to the group, which total £1.0m at 31December 2004 (2003: £0.8m). Net cash flow from operating activities reduced by £0.8m to £7.0m in the year(2003: £7.8m) which largely reflects the reduction in operating profit due tothe closure of Arena Online. This cash flow along with additional bankborrowings and an increase in interest free loans from the HBLB were used tofinance the major capital improvements and development projects which have takenplace during the year, the acquisition of shares in At The Races from Channel 4,shareholder loans to new At The Races and bank interest payments. Net debt at 31 December 2004 was £10.5m (2003: net cash including blocked bankdeposit £1.8m). This represents gearing of 18.6% (2003: nil) on net assets at 31December of £56.1m (2003: £51.9m) TaxationThe tax credits recognised in the period represent the group's share of receiptsin respect of 2002 and 2003 tax losses surrendered by way of consortium reliefin At The Races and the release of a 2003 tax provision of £0.2m which is nolonger required. There is no current year tax charge due to the availability oftax losses. Consortium relief claims in respect of the At The Races tax losses for 2004 willbe dealt with in the 2005 accounts and are anticipated to reduce accordingly. Capital ReorganisationOn 11 August 2004, the Company obtained court approval for a reduction ofcapital in order to eliminate the deficit on its profit and loss account. As aresult, the Company's share premium account of £87,625,000 was cancelled. DividendsThe board has proposed the payment to shareholders of a maiden dividend of 0.3pper share. Ian R PenroseChief Executive7 April 2005 Consolidated Profit and Loss Account for the Year ended 31 December 2004 Note Total Total Group Group 2004 2003 £'000 £'000 Total Turnover: group and share of joint venture 43,515 44,207Less: Share of joint venture turnover (6,203) (9,905) -------- --------Discontinued operation 1,293 5,208Continuing operations 36,019 29,094 -------- --------Group Turnover 3 37,312 34,302 Cost of Sales -------- --------Discontinued operation (565) (3,044)Continuing operations (23,688) (17,499) -------- -------- (24,253) (20,543)Gross profit -------- --------Discontinued operation 728 2,164Continuing operations 12,331 11,595 -------- -------- 13,059 13,759Administrative expenses -------- --------Discontinued operation (246) (726)Continuing operations (7,159) (6,589) -------- -------- (7,405) (7,315)Exceptional items - continuing operations - (25,717)Goodwill amortisation - continuing operations (307) (308) -------- --------Total administrative expenses (7,712) (33,340) -------- --------EBITDA 7,080 (17,657)Depreciation (1,426) (1,616)Goodwill amortisation (307) (308) -------- -------- Group operating profit -------- --------Discontinued operation 482 1,438Continuing operations 4,865 (21,019) -------- -------- 5,347 (19,581)Share of operating loss in:Joint Venture (4,595) (21,215)Associate (40) (22) Goodwill amortisation in respect of joint venture (47) (226)Goodwill impairment in respect of joint venture - (1,794) -------- --------Total operating profit/(loss): group and share ofjoint ventures and associates 665 (42,838) Income from other fixed asset investments - 307Net interest (payable)/receivable (423) 554 -------- --------Profit/(loss) on ordinary activities before taxation 3 242 (41,977) Tax credit/(charge) on ordinary activities 1 5,079 (200) -------- --------Profit/(loss) on ordinary activities after taxation 5,321 (42,177) Dividend (1,084) - -------- --------Profit/(loss) on ordinary activities after taxation 4,237 (42,177) -------- --------and transferred to/(from) reserves Pence Pence -------- --------Basic earnings/(loss) per share 2 1.5 (11.7)Diluted earnings/(loss) per share 2 1.5 (11.7) All recognised gains and losses are included above. Balance Sheets at 31 December 2004 2004 2003 2004 2003 Group Group Company Company Note £'000 £'000 £'000 £'000Fixed AssetsIntangible assets 4,571 4,878 - -Tangible assets 67,840 55,834 64 45 ------- ------- ------- -------Investments in joint venture:Share of gross assets 3,795 - - -Share of gross liabilities (5,052) - - - ------- ------- ------- ------- (1,257) - - -Goodwill in respect of jointventure 1,327 - - -Arena Leisure Plc loans to jointventure 2,991 - - - ------- ------- ------- ------- 3,061 - - - Investments - in associate 298 338 - -- in other 345 345 48,184 46,159 ------- ------- ------- ------- 3,704 683 48,184 46,159 ------- ------- ------- ------- 76,115 61,395 48,248 46,204Current AssetsStock 30 55 - - ------- ------- ------- -------Debtors - due within one year 3,904 3,176 880 237Debtors - due in more than oneyear - - 13,499 6,845 ------- ------- ------- ------- 3,904 3,176 14,379 7,082 ------- ------- ------- -------Blocked Bank Deposit - 1,365 - 1,365Cash at bank and in hand 6 27 1,284 - 592 ------- ------- ------- ------- 27 2,649 - 1,957 ------- ------- ------- ------- 3,961 5,880 14,379 9,039 Creditors: amounts falling duewithin one year (12,386) (9,586) (6,654) (6,255) ------- ------- ------- -------Net current (liabilities)/assets (8,425) (3,706) 7,725 2,784 ------- ------- ------- -------Total assets less currentliabilities 67,690 57,689 55,973 48,988 Creditors: amounts falling dueafter one year ------- ------- ------- -------Share of gross assets of jointventure - 5,006 - -Share of gross liabilities ofjoint venture - (41,464) - - ------- ------- ------- ------- - (36,458) - -Arena Leisure Plc loans to jointventure - 33,968 -Goodwill in respect of joint - - - -venture ------- ------- ------- ------- - (2,490) - Other (11,556) (3,302) (8,000) - ------- ------- ------- ------- (11,556) (5,792) (8,000) - ------- ------- ------- -------Net assets 56,134 51,897 47,973 48,988 ======= ======= ======= ======= Capital & reserves Called up share capital 18,075 18,075 18,075 18,075Share premium account - 87,625 - 87,625Merger reserve 5,417 5,417 5,417 5,417Revaluation reserve - 15 - 15Profit & loss account 7 32,642 (59,235) 24,481 (62,144) ------- ------- ------- -------Equity Shareholders' Funds 56,134 51,897 47,973 48,988 ======= ======= ======= ======= Group cash flow statement for the Year ended 31 December 2004 Year ended Year ended 31 December 31 December 2004 2003 Note £'000 £'000 Net cash inflow from operatingactivities 4 7,011 7,783 Returns on investment and servicing offinanceInterest received 106 990Interest paid (943) (257)Dividends received - 307 ----------- ---------- (837) 1,040 Capital expenditure and financialinvestmentPurchase of tangible fixed assets (13,537) (2,689)Sale of tangible fixed assets 82 130Loans to joint venture (2,991) (9,135) ----------- ---------- (16,446) (11,694) ----------- ---------- Acquisitions and disposalsInvestment in joint venture (2,025) - ----------- ---------- ----------- ----------Net cash outflow before financing (12,297) (2,871) ----------- ---------- ----------- ----------Management of liquid resources - cashwithdrawn from blocked bank deposit 1,365 9,135 ----------- ----------FinancingInception of loans 8,580 -Repayment of loans (422) (3,476) ----------- ---------- 8,158 (3,476) ----------- ---------- 5 ----------- ----------(Decrease)/increase in cash (2,774) 2,788 ----------- ---------- Notes to the accounts 1. The tax credit of £5.1m recognised in the period represents the group's shareof receipts in respect of 2002 and 2003 tax losses surrendered by way ofconsortium relief in At The Races (£4.9m) and the release of a 2003 taxprovision of £0.2m which is no longer required. There is no current year taxcharge due to the availability of tax losses. Consortium relief claims in respect of the At The Races tax losses for 2004 areanticipated at a reduced level and will be dealt with in the 2005 accounts. 2. The calculation of basic earnings per share is based on the profitafter tax of £5.3m (2003: loss after tax £42.2) and on 361,495,535 (2003:361,495,535) ordinary shares, being the weighted average number of ordinaryshares in issue. The calculation of diluted earnings per share is based on the profit after taxfor the year divided by the weighted average number of shares in issue, adjustedfor outstanding share options capable of being exercised at 31 December 2004. 2004 2003Shares used for calculation of basic EPS 361,495,535 361,495,535Share options capable of exercise at 31 December2004 2,706,472 - --------- ---------Shares used for calculation of diluted EPS 364,202,007 364,495,535 --------- --------- 3. Segmental Information: Turnover Profit/(loss) 2004 2003 2004 2003 £'000 £'000 £'000 £'000Analysis by segment Racecourse operations 36,019 29,094 7,293 7,021Software development 1,293 5,208 482 1,438Central costs - - (2,121) (2,015) Turnover and operating profit beforegoodwill -------- -------- -------- --------amortisation and exceptional items 37,312 34,302 5,654 6,444 -------- -------- Exceptional items - (25,717)Goodwill amortisation - racecourses (307) (308) -------- --------Group operating profit/(loss) 5,347 (19,581) Share of operating loss in:Joint venture (4,595) (21,215)Associate (40) (22) Goodwill amortisation in respect ofjoint venture (47) (226)Goodwill impairment in respect of jointventure - (1,794) Income from other fixed asset - 307investmentsNet interest receivable (423) 554 -------- --------Profit/(loss) on ordinary activitiesbefore taxation 242 (41,977) -------- -------- Operating profit/(loss) is stated before group management charges and incomewithin each segment. Central costs consist principally of expenditure incurredin respect of the management, control and administration of the group. The maincharges relate to directors' pay, other general administrative staff and publicrelations costs. Exceptional items in 2003 relate to provisions against loans toattheraces and exceptional legal and professional fees. Discontinued operations relate to the closure of Arena Online Services Limited(Software development). 4. Reconciliation of operating profit/(loss) to net cash inflow from operatingactivities Year ended Year ended 31 December 2004 31 December 2003 £'000 £'000 Operating profit/(loss) 5,347 (19,581)Depreciation charges 1,426 1,616Amortisation of goodwill 307 308Loss/profit on disposal of tangiblefixed assets 23 (67)Goodwill released on allocation ofshares in At The Races to AscotRacecourse 71 -Profit on allocation of shares in At TheRaces to Ascot Racecourse (36) -Decrease/(increase) in stocks 25 (14)(Increase)/Decrease in debtors (642) 315Increase in creditors 490 539Provision against loans to ATR - 24,667 ------------ ------------Net cash inflow from operatingactivities 7,011 7,783 ------------ ------------ 5. Reconciliation of net cash flow to movement in net debt: Year ended Year ended 31 December 2004 31 December 2003 £'000 £'000 (Decrease)/increase in cash in theperiod (2,774) 2,788Cash (inflow)/outflow from changes indebt (8,158) 3,476 ------------ ------------Change in net debt arising from cashflows (10,932) 6,264 Opening net funds/(debt) excludingblocked bank deposit 472 (5,792) ------------ ------------Closing net (debt)/funds excludingblocked bank deposit (10,460) 472 Blocked bank deposit - 1,365 ------------ ------------Net (debt)/funds including blocked bankdeposit (10,460) 1,837 ------------ ------------ 6. The blocked bank deposit was a restricted cash deposit used to fund thegroup's obligations to attheraces Holdings Limited and its subsidiaries duringthe period to 30 April 2004. The monies were made available to fund payments toracecourses in connection with the acquisition of media rights and to fundArena's share of attheraces working capital requirements. No such facility wasrequired following the financial restructuring of attheraces which took place on30 April 2004. 7. Profit and loss reserve Group Company £'000 £'000 Profit and loss accountAt 1 January 2004 (59,235) (62,144)Profit/(loss) for the year 4,237 (1,015)Capital reorganisation 87,640 87,640 ---------- ----------At 31 December 2004 32,642 24,481 ---------- ---------- 8. The financial information in this statement does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Thefigures for the year ended 31 December 2003 have been extracted from theaccounts which have been filed with the Registrar of Companies. The auditors'report on those accounts was unqualified. The 2004 audited accounts will be sentto shareholders shortly. This information is provided by RNS The company news service from the London Stock Exchange