Final Results - Year Ended 31 December 1999

Esporta PLC 9 March 2000 ESPORTA PLC PRO FORMA PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999 Esporta plc, the premium health and fitness club operator, today announces pro forma results for the year ended 31 December 1999. Financial Highlights * Turnover before exceptional items up 36 per cent to £64.0m * Operating profit before exceptional items up 30 per cent to £9.0m * EBITDA before exceptional items up 38 per cent to £16.1m * Headline earnings per share before exceptional items up 37 per cent to 2.63p * Dividend of 0.7p per share John Grieves, Chairman, commented: 'We are currently enjoying a period in which customer demand for new quality health clubs is exceeding supply. Esporta is in a strong position to benefit from the considerable opportunities that this imbalance provides. During the year ended 31 December 1999 the Esporta business continued to make excellent progress driven both by good performance in our existing estate, and by new clubs achieving membership targets in excess of our expectations.' 'The new year has started satisfactorily, with comparable sales up 6 per cent. Our three openings since the start of the year are performing well. We look forward to the future with confidence.' Enquiries: Graham Coles, Chief Executive, Esporta 0171 404 5959 Patrick Henchoz, Managing Director, Esporta 0171 404 5959 Kathy Hannaford / William Cullum, Brunswick 0171 404 5959 For Immediate Release ESPORTA PLC PRO FORMA PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999 Esporta plc was listed on the London Stock Exchange at the beginning of February following the reconstruction of First Leisure Corporation PLC and the separation of its Health and Fitness business. During the year ended 31 December 1999, the Esporta business continued to make excellent progress driven both by good performance in our existing estate, and by new clubs achieving membership targets in excess of our expectations. Before exceptional items, turnover has increased by 36 per cent to £64.0m, operating profit by 30 per cent to £9.0m, and earnings before interest, taxation, depreciation and amortisation (EBITDA) has increased by 38 per cent to £16.1m. Headline earnings per share before all exceptional items increased by 37 per cent to 2.63p. The Board has declared a dividend (to be paid out of 2000 profits) of 0.7p per share in line with our published dividend policy. The continuing strength of the health and fitness market has supported these good results. Our core products, Esporta Health and Fitness and Esporta Health and Racquets, compete at the premium end of this sector, primarily in the family residential market. We believe that the prospects for the premium segment of the market are particularly strong, with members increasingly prepared to invest to ensure that their leisure time is of the highest quality. We have also announced the development of a new premium priced product, Eden, which is targeted at a more mature and affluent customer, providing superb facilities and service in a tranquil, child-free environment. Good progress has also been made toward achieving our stated objective of doubling the estate organically to 46 clubs by the end of 2002. Five clubs were opened in 1999, and are performing well. A further three clubs have opened so far in 2000, bringing the total estate to 26 clubs and total membership to 121,000 members (of which 24 per cent are children), an increase of 39,000 or 48 per cent on our 1998 closing number. Six further sites are unconditionally contracted. We have also exchanged conditional contracts to sell our small non-core club in Bayswater, London. The restructuring during the year has resulted in a strong year-end balance sheet. This healthy financial position, together with the potential to increase profit significantly given the relative immaturity of the estate, will allow Esporta both to develop and grow its existing business and to continue its organic expansion programme. In the months leading up to Esporta's listing and thereafter, we have been establishing the foundations that will allow Esporta to realise its full potential. A new Board has been created to bring together an appropriate blend of skills and experience. Our new Chief Executive is Graham Coles, who joined the First Leisure board as Finance Director in 1992. Graham has been closely involved in the health and fitness business since First Leisure's acquisition of ISL Leisure Limited in 1994. Joining him on the Board as Managing Director is Patrick Henchoz. Patrick was appointed Managing Director of First Leisure's Health and Fitness Division in 1994, and has been instrumental in growing that business to what has now become Esporta plc. The recruitment for the position of Finance Director is progressing well. On an operational level, the other elements of our infrastructure are now well established, and all corporate functions are located in a new Head Office in Wokingham. 1999 has been a year of intense activity within the business. We have made excellent progress during a period of significant change. This would not have been possible without the commitment and contribution from colleagues at all levels within the business. I thank them all on your behalf. FUTURE STRATEGY As stated in our Listing Particulars published in November 1999, our strategy is to maximise shareholder value using six key growth drivers. * accelerated expansion of the Esporta brand through new club openings; * continued focus on service and facilities to ensure membership loyalty and increased secondary spend; * increased capacity levels through the effective use of space and the promotion of a variety of new membership packages; * exploitation of further segmentation of the premium health and fitness market; * participation in the fitness industry's consolidation; and * exploitation of opportunities in continental Europe. We are making good progress in the implementation of our strategy and we are committed to enhancing shareholder value through the above growth drivers. The Esporta management team continues to believe that its strongly differentiated model and disciplined approach to expansion will provide the keys to unlocking the potential of the health and fitness market. CURRENT TRADING The new year has started satisfactorily, with comparable sales up 6 per cent (including 4 per cent achieved by the more mature units opened in 1998 and prior). Our three openings since the start of the year are performing well. OUTLOOK We are currently enjoying a period in which customer demand for new high quality health clubs is exceeding supply. Esporta is in a strong position to benefit from the considerable opportunities that this imbalance provides. As more facilities are opened, and supply begins to match demand, success will depend upon the delivery of a well-defined and well-differentiated product. We intend to continue making the appropriate investment in our facilities, as well as in human resources, to ensure that we deliver excellent service to our members and excellent returns to our shareholders. We look forward to the future with confidence. John Grieves Chairman OPERATING AND FINANCE REVIEW TRADING Strong trading performance in 1999 was driven both by good progress from our existing estate, and by new clubs achieving membership targets in excess of our expectations. In our existing estate of clubs open at the beginning of 1998, turnover increased by 7 per cent. This includes our mature clubs, those opened prior to 1997, where turnover increased by 4 per cent, comfortably ahead of the rate of inflation. Our ability to achieve real growth, even when clubs reach mature membership levels, is critical to the long-term success of Esporta. In 1999 this objective has been pursued through growth in membership income and through continued investment of capital and management resource to generate further ancillary income. We have also begun to develop specific additional membership categories to reflect the usage patterns at each individual club. Ancillary income now generates just under a quarter of overall revenue, which is well above industry averages, reflecting the strong social aspect to Esporta club membership and the quality of facilities and services offered. Growth in ancillary income has partly offset a small decline in joining fee income following the gradual maturation of our estate. With the exception of the 'Espree' clubs (which is the brand name of two smaller clubs operating in the intensively competitive corporate market) all our formats have contributed to the growth achieved by the existing estate. Our organically-developed business, largely trading under the Esporta brand, continues to perform well in both its tennis and non-tennis formats, and the acquired Riverside estate has made good gains, driven partly by reinvestment to upgrade the quality of facilities provided and partly by the refocusing of its operations. Although our existing estate has made good progress, the greater part of our increase in total turnover has been driven by the full year effect of 1998 openings, and the part-year effect of openings in 1999. Overall, openings in both years are performing well, although within the 1998 group of openings, the Bayswater club, which was a contractual commitment inherited as part of the Riverside acquisition, did not achieve target rates of return. This small club, which does not include a swimming pool, was not part of our core product. Subsequent to the year end it has been conditionally sold to Topnotch Health Clubs plc, for a consideration of £0.7m. Our other 1998 openings, including our adults-only clubs at Islington and Wimbledon, and in particular our very successful family club at Swiss Cottage, are already generating strong returns ahead of our expectations, despite their immaturity. Our 1999 openings are performing in line with our expectations, but in aggregate, as expected, did not generate a profit, reflecting their immature membership levels, and our policy of writing off pre-opening expenses in the month of opening. This group includes our first smaller capacity (30,000 sq ft) Esporta club at Tunbridge Wells, tailored to meet the needs of the smaller local catchment without compromising on the quality and breadth of facilities. The success of this unit has encouraged us to seek further opportunities for development of this format. The 1999 openings also comprised larger capacity Esporta Health and Fitness clubs at Crawley, Bolton and Gloucester, and the Esporta Racquets Golf and Health club located in Dougalston, near Glasgow. The dilutive effect of the anticipated loss generated by the 1999 openings have contributed to an overall reduction in operating margins from 15 per cent to 14 per cent. Whilst the accelerated pace of our development programme, and in particular the increasing proportion of new units being acquired on a leasehold basis, will tend to have a dilutive effect on operating margins over the short term, we are confident that in the long term this development programme will lead to a positive impact on margins. DEVELOPMENT A key element of the Esporta strategy is its organic development programme, with the objective of increasing our estate to 46 clubs by the end of 2002. The five clubs opened in 1999 brought the estate up to 23 clubs. A further three clubs have been opened since the year-end: Esporta Edinburgh is located in a major multiple leisure development; Esporta Northampton is a freestanding club adjacent to Collingtree Golf Course. The Esporta Racquets & Health Club in Oxford is located within the grounds of St Edwards School, with Esporta constructing a multi-purpose sports hall for use by the school. The Oxford development illustrates our ability to find opportunities for development of new Esportas from both traditional and non-traditional routes of site acquisition. In addition to the 26 clubs now open, a further five Esporta clubs are unconditionally contracted. These include: Esporta Health & Fitness clubs at Lichfield (due to open in November 2000), Wolverhampton (December 2000) and Chiswick Park (February 2001). We have also contracted two sites with Comer Homes (the residential developer) in north London, both due to open in October 2000. We are discussing with Comer further possibilities for Esporta development. The primary focus of future development will continue to be the Esporta brand which provides professional and high quality services and facilities in a sociable and informal environment. As in the past, our primary geographic focus will be largely on the provinces, where health club penetration is lower; and where we have an established track record of successful openings. However, where we believe attractive returns are achievable, we will continue to seek development opportunities in London. Our other development product is Eden. The evolution of this brand reflects our strategy to identify under-provided segments in the premium health and fitness market, and to design products to meet their needs. Eden is targeted at the more mature, affluent customer, providing superior levels of service and the highest quality facilities in a relaxing and tranquil child-free environment. Premium rates will be charged, and opportunities for development of new clubs will in the first instance only be sought in the more prosperous parts of the country. Our first Eden is scheduled to open this August in Chislehurst, Kent. FINANCIAL Basis of Accounts Preparation Esporta plc was formed out of the reconstruction of First Leisure Corporation PLC. This reconstruction was completed at the end of January 2000, with the consequence that Esporta plc did not exist as a trading entity prior to that date. The results for the year ended 1999 have been presented on a pro forma basis. By adopting the principles of merger accounting, which the directors believe is necessary to provide meaningful information, the results are presented as if the reconstruction had occurred prior to 1 January 1998. Financing The development of the Esporta health and fitness business historically was primarily financed by interest-bearing loans provided by First Leisure. A substantial proportion of this net debt was capitalised as part of the reconstruction undertaken by First Leisure resulting in the establishment of Esporta plc. The interest cost of £3.8m charged against 1999 profits largely comprises intra-group interest paid to First Leisure prior to this debt capitalisation and therefore does not reflect the current capital structure of Esporta plc. As a result of the debt capitalisation, Esporta was left with notional net borrowings of £22m at the year end. Exceptional Items Exceptional items included in profit comprise three main items: (i) the benefit of VAT exemption arrangements amounting to £3.1m. Under these arrangements, certain membership and joining fees were exempt from VAT. As anticipated, the Government has withdrawn this benefit as from 1 January 2000, with the result that this benefit will not recur; (ii) costs amounting to £1.0m associated with the reconstruction and reorganisation of Esporta, following its separation from First Leisure, calculated in accordance with FRS3; (iii) a write-down of £1.1m in the asset value of Esporta Bayswater, reflecting the loss we expect to realise on its disposal. Tax The effective rate of tax, excluding the effect of exceptional items charged to the profit and loss account, is 10 per cent. This rate is not representative of the underlying rate of tax going forward due to the effects of the high interest charge. We expect that the effective tax rate for the Company for the future will be several percentage points below the mainstream rate of corporation tax, assuming no material changes in the current tax regime. Earnings per share Earnings per share on an FRS14 basis, i.e. after all exceptional items, were 2.83p. Headline earnings per share, which exclude the exceptional asset impairment, were 3.49p, and after exclusion of all exceptional items were 2.63p. Dividend The Directors have announced a dividend of 0.7 pence per share, amounting to £1.2m, to be paid on 21 April 2000 to shareholders on the register at 24 March 2000. This dividend has been calculated by reference to 1999 pro forma headline earnings, adjusted for the impact of the high level of interest incurred prior to the October 1999 reconstruction, as though the level of borrowings following the reconstruction had applied for the entire year. Since Esporta plc had not acquired its trading assets and distributable reserves as at the end of the financial year, this dividend will be paid as a first interim dividend and accounted for out of 2000 profits. It is expected that a further interim dividend and a final dividend, will also be paid out of 2000 profits. Cash Flow Net cash flow from operating activities was £23.0m. After capital expenditure of £31.6m (of which £28.6m related to new units) and payments for taxation and interest, the net cash outflow before financing was £14.0m. Pro forma consolidated profit and loss account for the year ended 31 December 1999 Before Pro- Before Pro-forma Except- forma Except- Total ional Except- Total ional Excep- 1998 items ional 1999 items tional Note £m £m £m £m £m £m __________________ _____ ________ ________ ______ _______ _______ _______ Turnover 64.0 3.9 67.9 46.9 3.8 50.7 Cost of sales (48.6) (1.9) (50.5) (36.0) (0.8) (36.8) Gross profit 15.4 2.0 17.4 10.9 3.0 13.9 Administrative expenses - normal (6.4) - (6.4) (4.0) - (4.0) - exceptional 2 - (1.0) (1.0) - - - Operating profit 9.0 1.0 10.0 6.9 3.0 9.9 EBITDA 16.1 2.1 18.2 11.7 3.0 14.7 Depreciation 3 (7.1) (1.1) (8.2) (4.8) - (4.8) Operating profit 9.0 1.0 10.0 6.9 3.0 9.9 Net interest payable and similar charges 4 (3.8) (4.1) Profit on ordinary activities before taxation 3 6.2 5.8 Tax on profit on ordinary activities 5 (1.2) (0.3) Profit on ordinary activities after taxation 5.0 5.5 Equity minority interests (0.3) (0.2) Retained profit for the financial year 4.7 5.3 Basic and diluted earnings per ordinary share (FRS 14) 6 2.83p 3.18p Basic and diluted headline earnings per ordinary share (IIMR) 6 3.49p 3.18p Basic and diluted headline earnings per ordinary share before exceptional items 6 2.63p 1.92p Note: EBITDA - Earnings before interest, tax, depreciation and amortisation. The pro forma consolidated profit and loss accounts for the two years ended 31 December 1999 have been presented to illustrate the results of the Esporta Group as if the reconstruction of First Leisure Corporation PLC had taken place prior to 1 January 1998. Pro forma consolidated statement of total recognised gains and losses for the year ended 31 December 1999 Pro- Pro- forma forma 1999 1998 £m £m __________________________________________ ______ ______ ______ Profit for the financial year before exceptional items 4.4 3.2 Exceptional items 1.0 3.0 Tax effect of exceptional items (0.7) (0.9) Total recognised gains and losses relating to the year 4.7 5.3 Pro forma consolidated reconciliation of movement in Shareholders' Funds for the year ended 31 December 1999 Pro- Pro- forma forma 1999 1998 £m £m _________________________________________ _________ ________ ________ Profit for the financial year 4.7 5.3 Acquisition of minority interests 14.9 - Net movement in Shareholders' funds 19.6 5.3 Opening Shareholders' funds 104.4 99.1 Closing Shareholders' funds 124.0 104.4 Pro forma consolidated cash flow statement for the year ended 31 December 1999 Pro- forma Pro- forma 1999 1998 Note £m £m _____________________________________________ ______ ________ ________ Net cash inflow from operating activities 7 23.0 16.5 Return on investments and servicing of finance Interest received 0.7 0.8 Interest paid (4.8) (5.1) (4.1) (4.3) Taxation (1.3) (0.2) Capital expenditure Purchase of tangible fixed assets (31.6) (33.8) Net cash outflow before financing (14.0) (21.8) Financing New loans 38.3 - Repayment of inter-company loans (21.6) - Increase in inter-company loans - 24.2 16.7 24.2 Increase in cash in the year 8 2.7 2.4 Pro forma reconciliation of net cash flow to movement in net debt for the year ended 31 December 1999 Pro- forma Pro- forma 1999 1998 Note £m £m ____________________________________________ _______ _________ ________ Increase in cash in the year 2.7 2.4 Cash inflow from increase in debt (16.7) (24.2) Movement in net debt resulting from cash flows (14.0) (21.8) Net debt at beginning of year (7.8) 14.0 Net debt at end of year 8 (21.8) (7.8) Pro forma consolidated balance sheet for the year ended 31 December 1999 Group Pro- forma Pro- forma 1999 1998 Note £m £m _________________________________________ ________ ________ ________ Fixed assets Tangible assets 166.2 129.2 166.2 129.2 Current assets Stocks 0.6 0.4 Debtors 5.8 5.6 Cash at bank and in hand 16.5 13.8 22.9 19.8 Creditors: amounts falling due within one (25.9) (40.1) year Net current liabilities (3.0) (20.3) Debtors: amounts falling due after one year 1.5 - Total assets less current liabilities 164.7 108.9 Creditors: amounts falling due after more than one year (40.7) (2.5) Net assets 124.0 106.4 Capital and reserves Called up share capital 41.5 41.5 Merger reserve 70.0 55.1 Profit and loss account 12.5 7.8 Equity Shareholders' funds 124.0 104.4 Equity minority interests 9 - 2.0 124.0 106.4 Pro forma notes (forming part of the financial statements) 1 Principal accounting policies The following principal accounting policies have been applied consistently in dealing with items which are considered material to the unaudited pro forma financial statements: Basis of preparation The pro forma financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. Additionally the Group has adopted FRS 13 Derivatives and Other Financial Instruments: Disclosures and FRS 15 Tangible Fixed Assets in these pro forma financial statements. Pro forma financial information The Esporta Group was created on 30 January 2000 by the separation of the undertakings of ISL Leisure Limited and Riverside Limited from First Leisure Corporation PLC to a previously dormant company, Esporta plc. The consideration for the separation was satisfied by the issue to Shareholders of First Leisure Corporation PLC of one ordinary share of 25p each in Esporta plc, credited as fully paid, for each ordinary share previously held in First Leisure Corporation PLC. Since the above reorganisation did not occur until 30 January 2000, the Company was dormant for the year ended 31 December 1999. The pro forma consolidated financial statements have been prepared to present the results of the Group as if the reconstruction and subsequent stock exchange listing had occurred prior to 1 January 1998. The unaudited pro forma information presented comprises the consolidated profit and loss accounts of Esporta plc for each of the two years ended 31 December 1999, the consolidated balance sheets at 31 December 1999 and 31 December 1998 and a pro forma cash flow statement for each of the two years ended 31 December 1999, along with associated notes. The pro forma financial information for the year ended 31 December 1999 is extracted from audited accounts of ISL and Riverside for the fourteen months ended 31 December 1999. The comparative pro forma information for the year ended 31 December 1998 has been compiled using the audited information of ISL and Riverside for the twelve months ended 31 October 1998 and audited accounts for the two months ended 31 December 1998. Profit and loss account information for the two months ended 31 December 1997 is based on management accounts. Due to the significant changes made to the Group's organisational structure and financing arrangements, the trading results, interest and taxation charges incurred by the Group's subsidiaries prior to the reorganisation are not necessarily representative of those likely to be incurred by the Group following the reorganisation. Basis of consolidation The pro forma consolidated financial statements have been prepared in accordance with the principles of merger accounting as set out in Financial Reporting Standard No. 6, 'Acquisitions and Mergers', and Schedule 4A to the Companies Act 1985. By adopting this accounting treatment the Esporta Group presents its pro forma consolidated financial statements so as to show the results of the combined entity as though the combination had occurred prior to 1 January 1998. FRS6 and the Companies Act 1985 set out certain conditions to be met in order that merger accounting may be adopted. Not all of these conditions were met by the reorganisation of ISL Leisure Limited and Riverside Limited to Esporta plc, however the Directors believe that it is necessary to apply merger accounting to present a true and fair view. Had acquisition accounting been applied only post acquisition results would have been reported, and certain adjustments would have been made to fair values. The Directors do not believe that this would give a true and fair view of the results and state of affairs of the Group. It is not practicable to quantify the effect of applying merger accounting rather than acquisition accounting. 2 Exceptional items Turnover and operating profit include £3.9m (1998: £3.8m) and £3.1m (1998: £3.0m) respectively reported as exceptional principally relating to membership and joining fee income for certain clubs which, as a result of the legal structure of those clubs, is exempt from VAT. Customs and Excise have introduced legislation, from 1 January 2000, which will render such income subject to VAT. The Directors believe that the resulting VAT charge cannot be passed on to club members and therefore that this element of income is not sustainable. Exceptional administrative expenses of £1m relate to recruitment, redundancy, relocation and reorganisation costs incurred on the creation of Esporta plc and the establishment of a central head office and management structure. Other exceptional cost of sales of £1.1m represents a charge for impairment of one of the Group's properties in accordance with FRS 11, Impairment of Fixed Assets and Goodwill. Since the year end the Group has exchanged conditional contracts for the disposal of this property. 3 Profit on ordinary activities before taxation Profit on ordinary activities before taxation is stated after charging: Pro- Pro- forma forma 1999 1998 £m £m ________________________________________ ___________ ___________ Depreciation of tangible fixed assets - normal 7.1 4.8 - exceptional 1.1 - Rentals payable under operating leases - plant and machinery 0.4 0.3 - land and buildings 3.1 1.6 The remuneration of the auditors for the Group audits for both 1999 and 1998 was £0.1m. Other fees were paid to the auditors and their associates in respect of services carried out in relation to the reorganisation and listing of Esporta plc by First Leisure Corporation PLC. Costs of £0.2m were recharged to the subsidiaries of Esporta plc in respect of these fees. The exceptional charge for depreciation relates to the impairment of one of the Group's properties, as explained in note 2. 4 Net interest payable and similar charges Pro- Pro- forma forma 1999 1998 £m £m ____________________________________________ ________ _________ Interest on loans from former parent undertaking 5.1 5.2 5.1 5.2 Interest capitalised (0.5) (0.3) Interest receivable (0.8) (0.8) 3.8 4.1 5 Tax on profit on ordinary activities Pro- forma Pro- forma 1999 1998 £m £m ________________________________________ _______ __________ UK corporation tax at 30.2 per cent (1998: 31 per cent) on taxable profits for the year - normal 0.5 0.7 - exceptional 0.7 0.9 Group relief received from former group companies - (1.3) 1.2 0.3 The £0.7m tax payable on exceptional items relates to VAT exempt membership and joining fees of £3.1m and allowable costs of £0.9m included within the total exceptional reorganisation costs of £1m. The exceptional fixed asset impairment charge is not allowable for corporation tax. After adjusting for the effects of these exceptional items, the underlying tax rate is 10 per cent. The difference compared with the mainstream corporation tax rate of 30.25 per cent is principally due to capital allowances in excess of depreciation. This timing difference is not expected to reverse in the foreseeable future and therefore no provision has been made for deferred taxation. 6 Earnings per ordinary share The calculation of pro forma basic earnings per share is based on pro forma profit after tax and minority interests. FRS 14 requires that earnings per share is calculated by reference to the weighted average number of shares in issue by the Company during the year as adjusted by the equivalent number of shares in the merged entities of ISL Leisure Limited and Riverside Limited. Therefore an average number of shares of 166,187,530 ordinary shares has been used, which was also the issued share capital at 30 January 2000. Earnings per ordinary share before asset impairments, as based on the recommendations of the Institute of Investment Management and Research (IIMR), is stated below. Earnings per share excluding exceptional items is presented in order to give a better indication of the underlying performance of the Group. This measure is calculated by using earnings before exceptional items and adjusting for the tax effect of these transactions or charges. Exceptional items and the related tax effects are shown in notes 2 and 5 respectively. Pro forma Pro forma Profit for Profit for the Earnings the Earnings financial per financial per year share year share 1999 1999 1998 1998 £m pence £m pence ___________________________ _________ _______ ________ _______ Basic earnings per ordinary share (FRS 14) 4.7 2.83 5.3 3.18 Add back: asset impairments 1.1 0.66 - - Headline earnings per ordinary share (IIMR) 5.8 3.49 5.3 3.18 Deduct: profit derived from other exceptional items (2.1) (1.26) (3.0) (1.81) tax effect of other exceptional items 0.7 0.40 0.9 0.55 Headline earnings per ordinary share excluding exceptional items 4.4 2.63 3.2 1.92 The Company had no share options or convertible shares in issue at 31 December 1999 and therefore diluted earnings per share are equivalent to basic earnings per share. 7 Reconciliation of Group operating profit to net cash inflow from operating activities Pro- Pro- forma forma 1999 1998 £m £m _____________________________________________________ ________ _________ Group operating profit 10.0 9.9 Depreciation and other amounts written off fixed 8.2 4.8 assets Increase in stocks (0.2) (0.2) Increase in debtors (1.5) (1.9) Increase in creditors 6.5 3.9 Net cash inflow from operating activities 23.0 16.5 The operating cash flows include an inflow of £3.9m in respect of exceptional turnover, as disclosed in Note 1, and an outflow of £0.7m in respect of other exceptional costs. 8 Analysis of movement in net debt Pro forma At 1 Cash At 31 Cash At 31 Januar flow December flow December y 1998 1998 1999 £m £m £m £m £m _________________________ ______ ______ ________ ______ ________ Cash at bank and in hand 11.4 2.4 13.8 2.7 16.5 Overdrafts and intercompany loans 2.6 (24.2) (21.6) 21.6 - 14.0 (21.8) (7.8) 24.3 16.5 Debt due after one year - - - (38.3) (38.3) Net funds/(debt) 14.0 (21.8) (7.8) (14.0) (21.8) The reconstruction of First Leisure Corporation PLC during the year resulted in Esporta plc assuming net debt of £23.0m at 31 October 1999 and the remaining inter-company debt owed by Esporta plc to First Leisure Corporation PLC at this date being capitalised by way of the issue of shares in ISL Leisure Limited to First Leisure Corporation PLC. These adjustments have been reflected in the pro forma consolidated balance sheet at 31 December 1999 and 31 December 1998 as if the reconstruction had occurred prior to 1 January 1998. The movement in net debt between 31 October 1999 and 31 December 1999 of £1.2m reflects cash generated by the Group during this period. 9 Acquisition of minority interest On 19 April 1999, First Leisure Corporation PLC completed its acquisition of ISL Leisure Limited by purchasing the remaining 23 per cent of the Company's ordinary share capital which had previously been held by a minority interest. Consideration for the acquisition was settled by the payment of cash of £12.1m and the issue of loan notes with a value of £2.8m. No goodwill arose on the acquisition. An increase of £12.6m in the carrying value of tangible fixed assets has been recorded on the acquisition in order to reflect the Director's valuation of the fair value of the fixed assets owned by ISL Leisure Limited at the date of acquisition of the minority interest. 10 Borrowing facilities Prior to the reconstruction of First Leisure Corporation PLC on 30 January 2000, the subsidiaries of Esporta plc operated using the credit facilities of First Leisure Corporation PLC. Since this date, the Group has had unsecured overdraft facilities of £10m and unsecured revolving credit facilities of £100m. Interest is payable on amounts drawn down under these facilities at rates which vary with LIBOR. The unsecured revolving credit facility is repayable in November 2003. As set out in note 1, the pro forma consolidated financial statements have been prepared to reflect the results and balance sheet of the Group as if the reorganisation had taken place prior to 1 January 1998. As a result, bank loans of £38.3m included in creditors due after one year reflect the amount of loans drawn down on 31 January 2000 on completion of the reorganisation. 11 Basis of preparation The financial information contained in this preliminary announcement does not constitute statutory accounts. The pro forma results for the years ended 31 December 1999 and 31 December 1998 have been extracted from the Group's pro forma accounts for these years on which the auditors have issued a report stating that in their opinion the pro forma accounts have been properly compiled on the basis set out in the description of principal accounting policies in note 1. The statutory accounts of Esporta plc for the year ended 31 December 1998 have been delivered to the Registrar of Companies and for the year ended 31 December 1999 they will be delivered after the Annual General meeting which is to be held on 16 May 2000. 12 Annual report and financial statements Copies of the 1999 pro forma annual report and financial statements, which will be posted to shareholders on 13 April 2000, may be obtained from the registered office at Trinity Court, Molly Millars Lane, Wokingham, Berkshire, RG41 2PY. A presentation of the pro forma results will be made to analysts on 9 March 2000. Copies of the slides from the presentation are also available from the Company's registered office.

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