RNS Number:0912K
Crown Sports PLC
16 April 2003
16 April 2003
CROWN SPORTS PLC
PRELIMINARY RESULTS
Crown Sports PLC, ('Crown Sports' or 'the Company'), the health and fitness club
operator, today announces preliminary results for the year ended 31st December,
2002.
Financial Highlights:
* Turnover up to #37.0m (2001: #31.6m)
* Operating profit (pre exceptional items) at #4.3m (2001: #6.5m)
* Pre-tax loss of #6.1m (2001: pre-tax loss of #14.8m)
* Earnings per share (pre exceptional items) at 0.41p (2001: 1.1p)
* Basic loss per share of 2.5p (2001: 5.9p)
Operational Highlights:
* Agreement reached with Bennelong that:
- Crown Sports focuses on its core Health and Fitness business, and would
dispose of its other businesses;
- the proceeds from the sale of the non-core businesses would be used to
pay down debt;
- the Board would be restructured
* 9.9% Esporta stake sold for #14.5m to retire debt, resulting in book
profit of #2.9m
* Crown Golf sold to Bennelong for #15.4m, using #13.9m to repay further debt
Commenting on the results, Non-Executive Chairman Ray Pierce, said:
"We are focussing on building a successful health and fitness clubs business
from which members, employees and shareholders can profit and enjoy. The
economic environment in which we are operating is hardly helpful, but we are,
nonetheless, achieving satisfactory progress. Last year the management of the
business made significant progress in quickly reducing the operating costs of
the business. As a result the company is now leaner, more focussed and well
positioned in the current trading environment. Once the economic scene is
brighter, I am confident this progress will be reflected in significant
improvements in shareholder value."
For further information, please contact:
Crown Sports Tel: 020 7466 5000 (today only)
Ray Pierce/Martyn Grealey 01926 457 251 (thereafter)
Buchanan Communications Tel: 020 7466 5000
Mark Edwards / Bobbie Swanson
CROWN SPORTS PLC
Chairman's Statement
Year ended 31st December 2002
In a challenging year for the leisure industry and for health and fitness clubs
in particular, I can report that we performed creditably at the operating level,
with profits before exceptional items of #4.3m against #6.5m last year, and an
operating loss of #6.2m (2001: #5.9m) after exceptional items. All of the profit
reduction was in our non-core business with flat health and fitness profits.
Our interim statement last September stated: "Trading looks likely to continue
to be tough for the remainder of the year. However, we are tackling the
conditions realistically and are ensuring costs and overheads are tightly
controlled." This proved to be an accurate diagnosis and by taking action on
costs early we were able to protect operating profits. Mid year, the management
team made significant progress in quickly reducing both the Plc and operating
overheads of the business. As a result the company is now leaner, more focussed
and well positioned in the current trading environment.
The events in the final quarter of 2002 involving the offer for the company by
Bennelong were expensive and potentially disruptive, but we were pleased to
negotiate an agreement that ensured a 40% improvement on the original offer to
those shareholders wanting to accept cash. The 7 pence a share offer also
represented a 280% improvement over the lowest level which the Crown Sports Plc
share price reached during the year. I am also pleased to report that, despite
the potential distraction, the management team continued to focus on operational
matters, thereby ensuring that a creditable financial result was achieved for
the year.
It is also worth restating the key elements of the agreement reached with
Bennelong, namely that:
- the Company would focus on its core Health and Fitness business, and
would dispose of its other businesses;
- the proceeds from the sale of the non-core businesses would be used
to pay down debt;
- the Board would be restructured, creating a more stable environment
for operational management
We have made progress against all of these objectives. We are focussing on
building a successful health and fitness clubs' business which members,
employees and shareholders can profit from and enjoy. The economic environment
in which we are operating is hardly helpful, but we are nonetheless achieving
satisfactory progress. Once the economic scene is brighter, I am confident this
progress will be reflected in significant improvements in shareholder value.
2002 Results
During the second half of 2002 we sold our 9.9% stake in Esporta Plc, using the
proceeds of #14.5m to retire debt and this resulted in a book profit of #2.9m
which is shown in the year-end accounts. Similarly, at the end of 2002 we
agreed to sell Crown Golf to Bennelong for the sum of #15.4m. This transaction
was completed on 8 January, 2003, and #13.9m of the proceeds was used for a
further debt repayment. Assuming the money had been received by 2002 year end
our net debt position would have been #21m, representing a gearing of 41%; a
substantially healthier position than at the end of 2001 when net debt was #47m
(excluding member advances).
As previously noted, our strategy is now to focus on the health and fitness
business and we are therefore in discussions to dispose of both The Winning Line
and Crown Content. It is unfortunate that market conditions have continued to
deteriorate as negotiations have progressed but I am hopeful that these deals
will be concluded in the near future.
These results include significant negative exceptional items relating to the
non-core Crown Golf, The Winning Line and Crown Content businesses. The overall
result, we believe, is that the company's assets are now valued at a realistic
level.
CROWN SPORTS PLC
Chairman's Statement (continued)
Year ended 31st December 2002
Returning to our operating results, turnover increased from #31.6m to #37.0m,
although this included the positive effect of full year operations at the
acquired Axis and Trainstation health and fitness clubs and the negative effect
of franchising food and beverage operations in several clubs. Group operating
profit was #4.3m before exceptional items, compared with #6.5m in 2001.
However, the bulk of the reduction resulted from poor trading performance in The
Winning Line and Crown Content. Crown Golf was down by #0.3m, while the core
business, Dragons, was flat.
In the circular to shareholders dated 9 December,2002, we highlighted a number
of revenue enhancing and cost saving initiatives which we are currently
implementing. Martyn Grealey describes these in more detail in his report and we
expect to be able to report more progress in these areas at our 2003 half-year
announcement.
Outlook
We entered 2003 with a clear vision of what we want to achieve this year. We
will complete the disposal of Crown Content and The Winning Line, turning Crown
Sports Plc into a pure health and fitness operator. We will continue to drive
operational excellence, working hard at maintaining and improving margins,
keeping a careful eye on our cost base and delivering new initiatives aimed at
recruiting and retaining members. We will continue to invest in maintenance and
upgrading the current portfolio of clubs and will benefit from not having any
clubs in development.
The health and fitness sector is experiencing the pressures of relative maturity
and different management skills will be required to return the sector to a
growth path. We expect tough trading conditions throughout 2003 and well into
2004. However, we believe we are well placed to respond successfully to these
pressures because:
- management took early action to significantly reduce the operating
overheads of the business, the benefits of which will flow through into the
current financial year
- of the 22 Dragons clubs that we operate 11 are freeholds and 7 are
long leaseholds. This provides the company with a valuable platform of
tangible assets and a low operating cost base;
- our net debt is down to a manageable #21m, representing a lower gearing
of 41%;
- our management team, with a broad range of experience in other sectors is
experienced in managing in tighter markets;
- our clubs are focussed on meeting and satisfying our customer needs, and are
differentiated from the competition;
- we have a clear strategy and a stable management and Board
We believe that there is still substantial potential for long-term growth in the
health and fitness sector and that growth will be re-established once current
economic uncertainties have been reduced. Our focus will continue to be on
improving our operations, delivering profit growth and improving shareholder
value. The year has started satisfactorily and providing market conditions do
not deteriorate further, we should continue to progress.
Finally, I would like to thank all the staff of Crown Sports Plc for their
contribution to the company's performance during 2002.
Ray Pierce
Chairman
CROWN SPORTS PLC
Chief Executive's Review
Year ended 31st December 2002
The trading environment in 2002 through to the present has thrown up a number of
challenges for both the health and fitness industry and the Crown Sports health
and fitness businesses. Weakening consumer confidence and growing pressure on
consumer spending combined with competitive saturation in certain markets has
created unprecedented industry uncertainty.
In order to actively manage our position through this difficult period we have
pursued two strategic aims. Firstly, we have focussed on improving the quality
of the members' experience - and in particular the achievement of their personal
goals - in the drive to improve sales and member retention. Secondly, the
management team has worked hard to significantly reduce the operating overheads
of the business.
The Dragons and Fitness Express businesses quickly recognised the changing
conditions last year and as a result reviewed all operating plans, processes and
costs within the business. The outcome was a profit improvement plan developed
mid-year that has, and will continue to be, implemented. The management team
took early and decisive action and as a result we successfully achieved our
objectives of;
- increasing the accountability and focus of the local operational
management teams particularly in the key areas of delivering club sales and
profitability.
- substantially reducing the level of central overhead and club
operating costs. This was achieved through the elimination of layers of
management and low value adding overheads.
- more effective control of capital expenditure.
- improving buying terms by taking advantage of the increased scale
of the health and fitness business. This has resulted in substantial
financial savings and more importantly operational improvements in the way we
manage the business.
Dragons
Dragons operates 22 mid sized health and fitness clubs across England that
provide high quality gym, swimming, spa, racquets and social facilities.
In Dragons we have consolidated our business following the acquisitions made in
2001 and retain our position as one of the leading operators of health clubs in
the UK.
The tough trading conditions resulted in our membership declining by 5% to
51,000 adult members by the end of December 2002. This took place in a
relatively mature estate where the youngest club is almost 3 years old. Turnover
grew by over 15%, including the benefit of full year trading for the Axis and
Trainstation clubs, whilst club operating profits remained flat.
CROWN SPORTS PLC
Chief Executive's Review (continued)
Year ended 31st December 2002
In 2002 we actively pursued our longstanding objective of being the "Friendly
face of health clubs" with a number of member-based initiatives that focussed on
our core values of friendliness, service and the delivery of member results.
These, we believe, reflect the needs of our increasingly mature member base who
use our mid-sized format clubs. At an average size of 20,000 sq ft with a gym,
studio, swimming pool, food and beverage and creche provision, the clubs appeal
to the socially-minded member. Importantly, 15 clubs provide squash facilities
whilst 5 clubs provide tennis. In many clubs these form a core part of our
offering.
In the latter part of the year we introduced the "Dragons Promise", a
results-based programme available to all new members which is showing early,
positive results in the area of member retention and revenue generation. We have
also introduced new longer-term membership categories that are aimed at ensuring
greater member satisfaction and improved retention. which are proving popular
with our new members.
The estate of clubs was further improved with #2.4m invested in improving our
facilities including #0.6m as part of the Trainstation acquisition integration
programme. In addition, major refurbishment projects were undertaken at
Brentwood, Epsom, Lincoln, Maidstone and Western Avenue clubs.
Looking forward, we continue to see tough trading conditions with ongoing
pressure on joining fees and memberships. However we believe that we are well
placed to face up to the difficulties ahead in part due to;
- the full year benefits that the business will enjoy as a result of the
decisive management action taken in the second half of 2002 to significantly
reduce the operating costs of the business
- a high exposure to the more loyal over 35's market
- a high percentage of freehold and long lease properties
- a strong social base due in part to the high racquets usage
In 2003 we will continue to manage our business with a focus on building higher
value and more robust longer term memberships, developing the retention building
"Dragons Promise" programme and striving towards achieving a best in class
operating cost base.
Fitness Express
Fitness Express operates 27 health and fitness clubs on a contract management
basis in Europe and the Middle East
In 2002, Fitness Express maintained its position as the leading operator of
independently owned hotel health clubs, continuing its expansion strategy
through its partners. With over 21,000 paying members in addition to the usage
it attracts from hotel residents, we enjoy a high percentage of usage by the
growing over 40's market.
We currently operate 21 health clubs on behalf of our partners in the UK taking
full responsibility for the day to day management of the health club element of
their businesses. Key to our success is the level of client satisfaction with
clear targets being set and achieved in a number of key operational areas
including health and safety where we have developed significant expertise.
CROWN SPORTS PLC
Chief Executive's Review (continued)
Year ended 31st December 2002
In 2002 progress was made with our relationship with the Millennium and
Copthorne group where in addition to integrating the 9 "Le Club" operations in
the UK we also assisted in the group's expansion abroad. During 2002 we opened a
new club in Abu Dhabi and this year we have opened new clubs in Sharjah and
Agadir. In addition we have provided brand management skills and expertise in
the Millennium and Copthorne "Le Club" health clubs in Hannover, Calais and
Paris.
Looking forward we see opportunities for further expansion as our high levels of
expertise in the areas of operations, training and health and safety management
are in demand from independent and chain hotel operators keen to develop their
on site health club facilities.
Crown Golf & other Businesses
The Crown Sports Plc group companies include three further businesses which are
outside of our core activities of health and fitness - these are Crown Golf,
Crown Content and The Winning Line.
Crown Golf is one of the leading owners and operators of golf clubs within the
UK, owning 8 Golf Clubs. This business was sold on 8 January, 2003.
Crown Content is a publishing business based in Melbourne Australia which Crown
Sports Plc acquired in April 2001. The business specialises in Guides,
Newsletters and Books with the emphasis on sports publishing.
The Winning Line was acquired by Crown Sports Plc in April 2001. At that time
the business had two elements - that of sports betting and racehorse syndicated
ownership. Following a review of the business it was decided in 2002 to
terminate the racehorse syndication - all the horses have now been sold. The
business now focuses on specialised sports betting.
Following the sale of Crown Golf, the group is looking at its options for
disposing of its interests in Crown Content and The Winning Line. Going forward
we intend to focus exclusively on our core sector of health and fitness.
Martyn Grealey
Chief Executive
CROWN SPORTS PLC
Group Profit and Loss Account
Year ended 31st December 2002
Before
Before Exceptional Exceptional
Exceptional Exceptional Items Items Total 2001
Items Items Total 2002 Restated Restated Restated
#'000 #'000 #'000 #'000 #'000 #'000
TURNOVER:
Continuing operations 30,793 - 30,793 25,644 - 25,644
Discontinued operations 6,225 - 6,225 5,921 - 5,921
Total turnover 37,018 - 37,018 31,565 - 31,565
Cost of sales (3,644) - (3,644) (3,062) - (3,062)
GROSS PROFIT 33,374 - 33,374 28,503 - 28,503
Administrative expenses (29,732) (10,490) (40,222) (22,726) (12,362) (35,088)
Other operating income 679 - 679 686 - 686
OPERATING PROFIT/ (LOSS):
Continuing operations 2,470 (9,048) (6,578) 4,293 (3,912) 381
Discontinued operations 1,851 (1,442) 409 2,170 (8,450) (6,280)
Total operating profit/ (loss) 4,321 (10,490) (6,169) 6,463 (12,362) (5,899)
Income from fixed asset investments 149 - 149 232 - 232
Amount written back to (written off)
investments - 2,893 2,893 - (7,008) (7,008)
Net interest payable and similar charges (2,243) (776) (3,019) (2,151) - (2,151)
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE
TAX 2,227 (8,373) (6,146) 4,544 (19,370) (14,826)
Tax on loss on ordinary activities (1,021) (1,410)
(LOSS) ON ORDINARY ACTIVITIES AFTER TAX (7,167) (16,236)
Minority interests (3) (66)
LOSS FOR THE FINANCIAL YEAR (7,170) (16,302)
Basic and diluted loss per share (pence) (2.5) (5.9)
Basic and diluted earnings per share 0.4 1.1
(pence) before exceptional items and
investments written off
CROWN SPORTS PLC
Group Balance Sheet
Year ended 31st December 2002
2002 2001 Restated
#'000 #'000
FIXED ASSETS
Concessions, licenses, trademarks and similar rights 1,301 4,931
Goodwill 7,348 11,427
Negative goodwill (1,877) (1,916)
5,471 9,511
Total intangible assets 6,772 14,442
Tangible assets 87,324 87,456
Other investments - 11,589
Total fixed assets 94,096 113,487
CURRENT ASSETS
Stocks 675 877
Debtors 2,698 3,161
Investments 72 72
Cash at bank and in hand 470 2,757
3,915 6,867
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (12,724) (32,584)
NET CURRENT (LIABILITIES) (8,809) (25,717)
TOTAL ASSETS LESS CURRENT LIABILITIES 85,287 87,770
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (31,596) (27,619)
PROVISIONS FOR LIABILITIES AND CHARGES (2, 571) (1,734)
NET ASSETS 51,120 58,417
CAPITAL AND RESERVES
Called up share capital 14,538 14,538
Share premium account 59,826 59,826
Capital redemption reserve 1,250 1,250
Profit and loss account (24,601) (17,301)
SHAREHOLDERS FUNDS 51,013 58,313
Minority interests 107 104
TOTAL CAPITAL EMPLOYED 51,120 58,417
These financial statements were approved by the Board of Directors on the
15 April 2003 and are signed on their behalf by:
R.F. Pierce M Grealey
CROWN SPORTS PLC
Group Statement of Total Recognised Gains and Losses
Year Ended 31st December 2002
2002 2001
#'000 Restated
#'000
Loss for the financial year (7,170) (16,302)
Exchange movements on foreign currency net investments (130) (244)
Total recognised losses relating to the year (7,300) (16,546)
Prior year adjustment (see note 1) (1,734)
Total recognised gains and losses since the last annual report (9,034)
CROWN SPORTS PLC
Reconciliation of movements in Shareholders' funds
Year Ended 31st December 2002
Group
2002 2001
Restated
#'000 #'000
(Loss) for the financial year (7,170) (16,302)
Loss on foreign currency translation (130) (244)
(7,300) (16,546)
Issue of ordinary shares - 12,150
Net (decrease)/increase in Shareholder's funds (7,300) (4,396)
Opening Shareholders' funds (equity) 58,313 62,709
Closing Shareholders' funds (equity) 51,013 58,313
Opening shareholders funds at 1st January 2002 originally #60,047,000 before a
prior year adjustment of #1,734,000.
CROWN SPORTS PLC
Cash Flow Statement
Year Ended 31st December 2002
2002 2001
#'000 #'000
NET CASH FLOW FROM OPERATING ACTIVITIES 5,224 3,018
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Net interest paid (3,325) (2,151)
Dividends paid to preference shareholders - (217)
Dividends paid to equity shareholders by subsidiary (35) (266)
Income from other fixed asset investments 149 232
NET CASH OUTFLOW FROM RESUTNS ON INVESTMENTS AND SERVICING OF
FINANCE (3,211) (2,402)
TAXATION
Cash outflow due to UK Corporation Tax and Australian equivalent (255) -
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire investments - (6,764)
Receipts from sales of fixed asset investments 14,486 -
Payments to acquire tangible fixed assets (3,130) (6,992)
Receipts from sales to tangible fixed assets 21 -
NET CASH INFLOW/(OUTFLOW) FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 11,377 (13,756)
ACQUISITIONS AND DISPOSALS
Costs of acquiring subsidiary undertakings (625) (26,872)
Net cash balances acquired with subsidiary undertakings - 1,183
NET CASH OUTFLOW ACQUISITIONS AND DISPOSALS (625) (25,689)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 12,510 (38,829)
FINANCING
Net cash (outflow)/inflow from bank loans (14,200) 11,784
Net cash outflow from finance leases (597) (510)
Net inflow from members advances - 10
Net inflow from issues of ordinary shares - 20,143
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (14,797) 31,427
DECREASE IN CASH (2,287) (7,402)
CROWN SPORTS PLC
Notes to the Financial Statements
Year Ended 31st December 2002
1. Exceptional items
2002 2001
#'000 #'000
Impairment of Goodwill and other intangible assets 1 6,692 3,075
Impairment of Fixed Assets 2 1,000 8,450
Cost of restructuring of continuing operations 3 428 837
Costs of put option re: The Winning Line 4 870 -
Bid defence costs 5 1,500 -
Exceptional operating items 10,490 12,362
Amounts written back to/(off) trade investments 6 (2,893) 7,008
Refinancing costs on early repayment of loans 7 776 -
Total exceptional items 8,373 19,370
1 A review of the goodwill and other intangible items arising on previous years
acquisitions has led to an impairment provision being made against Crown Golf
(#443k), Crown Content (#5,656k) and The Winning Line(#593k).
2 Following a review of the Group property portfolio by the Directors an
impairment provision has been created against the property of Crown Golf
of #1m.
3 Restructuring Costs: The Company streamlined certain of its ancillary
activities and re-positioned its management structure in order to focus on its
core businesses, and includes termination payments made to senior managers and
associated fees arising from these terminations.
4 The sale and purchase agreement completed in April 2001 for the purchase of
70% of The Winning Line included an option for the Group to purchase the
remaining 30% share capital for a minimum price of #870k in April 2003. This
option is cancellable at the option of the owners of these shares only. The
underlying shares have no significant value to the Group.
5 Bid defence costs includes all costs incurred by the Group as a consequence of
the offer for the Group made by Bennelong in the final quarter of 2002.
6 Shares in Esporta Plc were disposed of in July 2002 for #14.5m. These shares
were valued at #11.6m at 31st December 2001 following an impairment provision
of #5.1m. Following the disposal the charge for the impairment was able to be
partially reversed by #2.9m. In 2001 an impairment provision of #1.9m was
also booked on the Group's investment in Clubhaus Plc.
7 Bank facilities of #53m were negotiated in 2002. The total costs incurred in
arranging the facilities amounted to #1.2m. The exceptional charge is the
portion of these costs relating to loans prepaid following receipt of the
proceeds of the sale of shares in Esporta Plc and the proceeds from the sale
of Crown Golf.
CROWN SPORTS PLC
Notes to the Financial Statements (continued)
Year Ended 31st December 2002
2. Loss per share
Earnings per share have been calculated on the net basis on the loss for the
year, after taxation, of #7,170,000 (2001 restated: #16,302,000 loss) using
the weighted average number of ordinary shares in issue of 290,768,000
(2001: 278,349,326).
Diluted earnings per share have been calculated using the weighted average
number of ordinary shares in issue, diluted for the effect of share options.
The diluted weighted average number of ordinary shares is 290,768,000
(2001: 278,593,408).
Basic and diluted earnings per share before exceptional items and amounts
written off investments
2002 2001
Restated
Earnings per ordinary share (pence) 0.4 1.1
Diluted earnings per ordinary share (pence) 0.4 1.1
The profit for the year before exceptional items used in calculating the above
earnings per share has been arrived at as follows:
2002 2001
#'000 #'000
Loss for the year (7,170) (16,302)
Add: exceptional items 8,373 19,369
Tax impact of exceptional items - -
Profit for the year before exceptional items 1,203 3,067
3. Prior year adjustment
The Group has adopted Financial Reporting Standard 19 'Deferred taxation' during
2002. This standard requires full provision to be made for deferred taxation on
most types of timing differences. Adoption has produced a prior year
adjustment, resulting in a reduction in opening reserves at 1 January
2002 of #1.7m and an increase in the loss for 2002 by #0.8m (2001: #1.2m).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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