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Luminar Group Hlgs (LMR)

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Thursday 12 May, 2011

Luminar Group Hlgs

Final Results

RNS Number : 4419G
Luminar Group Holdings PLC
12 May 2011
 



 

Luminar Group Holdings plc

Audited condensed consolidated financial information for the year ended 26 February 2011

Luminar Group Holdings plc ("Luminar" or the "Group") is the leading operator of nightclubs in the UK, with 77 nightclubs as at 26 February 2011 trading predominately under the Oceana and Liquid brands.

Key Points:

·    Loss before tax of £1.1m (2010: profit £5.5m) from continuing operations before exceptional items, in line with market expectations.

-    Earnings before interest, tax, depreciation and amortisation of £22.9m from the continuing business.  

·     The rate of sales decline improved during the second half of the year.

-    First half of the year down 20.6% and the second half down 14.7% on a same outlet basis.

-    Total sales of £137.3m (2010: £169.0m).

-    Average sales per customer largely maintained at £12.41 (2010: £12.46).

·     Cash generation has reduced net borrowings by £10.5m to £82.2m (2010: £92.7m).

-    Trading within debt covenant tests at 26 February 2011.

-      Disposed of 16 sites (10 of which were trading sites) generating sales proceeds of £7.4m. 

·     Costs continue to be tightly controlled with savings of £2.8m achieved at head office.

·     Sales for the first 9 weeks of the current year are 13.9% below the prior year on a same outlet basis.

·     Loss after discontinued operations, exceptional items and tax of £188.0m. 

-    Exceptional costs totalling £187.4m, primarily non-cash impairment of specific fixed assets and goodwill.

·    The Banking Group continues to be supportive and has granted a prospective covenant waiver in respect of the financial covenants, which would fall to be tested at the end of May 2011. The Banking Group are continuing to provide flexibility to maintain the Group's liquidity levels until 31 August 2011, whilst they work with Luminar to determine the appropriate basis for a longer term restructuring of the Group's debt arrangements  in light of continued challenging trading conditions.

Simon Douglas, Chief Executive Officer said:

"Whilst the marketplace remains challenging, the business is continuing to focus on operational excellence and responding to customer demands. The results for the year, while disappointing, show some early indications of improvements in like for like trends.  Equally encouraging is the early evidence that initiatives introduced midway through the year appear to be gaining traction and are diversifying our offerings and revenue streams".

12 May 2011

Enquiries

Luminar Group Holdings plc

Tel: 01908 544100

Simon Douglas, Chief Executive Officer


Philip Bowcock, Finance Director




College Hill

Tel: 0207 4572020

Matthew Smallwood


Jamie Ramsay




Note: A copy of this announcement will be available on Luminar's website www.luminar.co.uk

            

Overview

The late night dancing market has continued to be difficult with factors such as the economic environment, high levels of youth unemployment and lower disposable incomes, together with a highly competitive market and severe adverse weather conditions during peak trading periods, contributing to the challenges.

The financial results for the year ended 26 February 2011 reflect these trading conditions. As a result, it has been necessary to impair certain tangible asset values and reduce the level of goodwill that is recognised on the balance sheet.  Since refinancing in December 2010, the Group has maintained its strong relationship with its banking group, comprising Lloyds TSB, Barclays Bank plc and the Royal Bank of Scotland ("Banking Group"), which has continued to support the business, the management and the strategy, as demonstrated by them granting a prospective waiver of the financial covenants, which would fall to be tested at the end of May 2011. In addition, the Banking Group are continuing to provide flexibility to maintain the Group's liquidity levels until 31 August 2011 and agreed to continue dialogue with Luminar and to work together with the Group with a view to agreeing by that date a longer term restructuring of the Group's debt arrangements.  These measures have been necessary to address the impact of severe adverse weather conditions experienced in December combined with the continued deterioration in market conditions which together have placed significant stress on financial covenants.

Despite the challenging trading conditions, the Group has made progress in catering for the demands of our customers through a number of initiatives. This is evidenced by the introduction of cocktails, premium branded drinks, branded sessions and new entertainment such as Jongleurs comedy evenings.

Operational Business Review

As at 26 February 2011, Luminar operated 77 late night venues in 72 towns and cities.  This continues to be the largest estate of its kind in the UK.  Luminar clubs trade under 3 main brands: Oceana, Liquid and Lava & Ignite and we also operate a number of nightclubs outside of these brands. 

Our customers are predominantly in the 18-24 year age group, including many students although with the introduction of new initiatives such as Jongleurs comedy nights, we are attracting a wider audience.

Primary income streams are from the sale of drinks (67.2%) and admission charges on entry (24.9%). 

During the year ended 26 February 2011, we attracted 11 million people to our venues across an estate that has been reduced by 10 clubs.  The sales per customer were marginally down on last year.  The average retail selling price per measured drink (including VAT) was £2.22 across the year, slightly higher than £2.15 in the prior year, with broadly steady levels of consumption. Gross margin was 81.4%, which, in part, can be attributed to the introduction of premium brands into the business, one of a number of initiatives to enhance the customer proposition. 

Overall sales in the continuing business totalled £137.3m in the year, a reduction of 18.8% on the prior year, or 17.5% on a same outlet basis across 73 venues which traded in both years.  There has been an improvement in the rate of decline on the previous year, with the second half showing a 14.7% decline.    

To address our market issue, we are focused on supplementing our core dancing sessions with a wider late night entertainment offering.  During the year, the Group also launched a number of key initiatives aimed at driving the business forward.  These initiatives seek to diversify the offering, improve customer service and value and maximise the return on our assets.  The initiatives include partnering with Jongleurs to run comedy nights across 12 of our clubs, building a corporate sales team with the aim of delivering incremental business, further diversifying the music offering by partnering with Ministry of Sound, introducing quality live acts into clubs and launching our first ever cocktail range throughout the estate.  We are confident that these initiatives pave the way to enable the Group to offer a comprehensive late night entertainment proposition. We are encouraged by early indications that these initiatives are driving footfall and spend per head.         

In view of the challenging market conditions, the Group continues to control costs tightly.  Capital investment was kept to a minimum although during the year we did see the completion of PROJECT.  PROJECT was Luminar's first new night club opening in two and a half years.  PROJECT opened at the Riverside Entertainment Complex in Norwich in March 2010 and, in addition to its unique cutting edge design, this nightclub is fully equipped to cater for Live entertainment, Jongleurs comedy nights and all of the other initiatives envisaged by the management team.       

The results for the year, while disappointing, show some early indications of improvements in like for like trends.  Equally encouraging is the early evidence that initiatives introduced midway through the year appear to be gaining traction and are diversifying our offerings and revenue streams.  

However, despite seeing an improvement in like for like trends during the financial year, given the current economic climate the outlook remains uncertain.  We continue to have a strong relationship with our Banking Group, which has remained supportive despite the challenging environment as described in further detail in the Financial Review.

Current Trading

Current trading remains difficult.  Same outlet sales for the first 9 weeks of the financial year were 13.9% below the same period last year reflecting a continued improvement in like for like trends despite disappointing trading over the Easter and Royal Wedding weekends.    

Strategy Review

In-depth market research undertaken by Luminar in 2010, highlighted a number of key opportunities and reinforced the appropriateness of the operational strategy now at the core of our business. 

There are four key areas where we are concentrating our efforts.

·      Improving our operational template

 

Research shows that customers regard appropriate music as being a key factor for a good night out and that they are developing an increasingly diverse range of musical tastes. This research also indicates that it is important to customers that they are able to attend live performances by well-known acts or artists.

Over the past year, we have significantly improved the quality of the music offering by refreshing our DJ's and introducing a wide variety of quality live acts to perform in our clubs including Calvin Harris and Basshunter.  In addition to mainstream dance sessions and speciality nights offered at a local level, we have partnered with Ministry of Sound to address the diversity of musical tastes.  Ministry of Sound is a world leading dance brand and, in conjunction with them, we are now able to offer a series of events under their well-known dance brands such as Hed Kandi and Dance Nation.   

Through our partnership with Jongleurs, the UK's leading comedy brand, we are operating comedy nights across a number of clubs.  These sessions have opened clubs to a new audience and take place at times when they would otherwise be closed.    

During the year, we have introduced premium drink brands into the business as part of our overall strategy of providing a high quality value for money offering to our customers.  In addition, we have introduced a cocktail offering into clubs for the first time to huge success.  

All of the initiatives outlined have, at their core, a desire to focus heavily on customer service.  We are placing great emphasis on delivering a brand new customer experience programme to engage staff, focusing on the customer's end to end journey from websites to in-club to aftercare.  This revised programme will see a greater focus on customer service training and the introduction of customer satisfaction surveying to understand more about our customers' opinions.

We continue to review our operational template but are reassured that the steps that we have taken are market leading and their appropriateness has been reinforced in recent industry studies [Source: Mintel Report: December 2010].

·      Improving our marketing function

 

We have developed strong partnerships with market leaders in music, comedy and premium drinks brands to make sure our offerings are fashionable and relevant for customers.

We have established a successful student brand in Fuzzy Logic and will shortly be re-launching our urban brand, Vibe.  We have also re-branded our underage events (formerly UK Club Culture or UKCC) to Love Social, which was launched at the end of 2010.

We have centralised promotional activity and run successful nationwide campaigns on key trading nights.  We have also centralised the e-commerce platform delivering a consistent communication message to customers. During the last financial year, we have taken huge strides in communicating with our customers through the use of social media. We have invested in a social media management tool to coordinate and protect our social media activity across the clubs and measure activity. This tool also assists us to enhance the content on our Facebook pages and to capitalise on strong brand / performer associations through exclusive VIP competitions for our customers.

We are now working closely with our search engine optimisation agency to improve the search engine rankings of our websites and drive quality traffic to them. We have brought new customers to our websites through targeted Facebook advertising, specifically identifying people who are familiar to the acts/ brands now taking place at our clubs.

Our digital customer communications has been streamlined by condensing promotional activity into one newsletter with consistent branding across the estate, creating an overall customer view of the communication lifecycle to ensure maximum response rates with minimal attrition.

We will continue to develop strong partnerships, build upon our established brands and create new ones and will further develop our communication platforms to ensure they are relevant for customers. 

·      Driving efficiency at  our Head Office function

 

We have rationalised our head office function saving annual costs of £2.8m against the prior year.  The revised head office structure has a greater emphasis on supporting operations, marketing our offering and developing our partnerships.

We will continue to tightly control central costs and allocate resource sensibly to ensure maximum value is achieved.

·      Improving the use of our assets

 

During the year, we have disposed of 16 sites.  These sites were either non-core or loss making. We continue to refurbish the estate and develop our properties in a cost effective way while ensuring the offering remains modern, market leading and appealing to our customers. 

By expanding the proposition outside of core dancing sessions, we are utilising our assets more than ever. 

We are developing strong working relationships with our landlords and we continue to challenge them hard to ensure that we are achieving value for money across the estate.   We will remain focused on ensuring the estate is appropriately refreshed and utilised to its full potential. 

We have approached each aspect of our strategy by making use of the best information available, seeking to build on fact rather than intuition and developing a professional rigorous methodology. Our strategy will continue to evolve and adapt to our changing market environment.

Financial review

The total revenue and profitability generated by the Group is detailed below:

 

Total operations

 

Revenue#

 

EBITDA*#

 

PBT*#


2011

£m

2010

£m

2011

£m

2010

£m

2011

£m

2010

£m

 

Continuing

 

137.3

 

169.0

 

22.9

 

35.2

 

(1.1)

 

5.5

 

Discontinued**

 

0.4

 

4.6

 

(0.1)

 

(1.5)

 

(0.1)

 

(1.8)

 

Total

 

137.7

 

173.6

 

22.8

 

33.7

 

(1.2)

 

3.7

 

# Includes units disposed of during the year

*Pre-exceptional items

** Reclassified to reflect the composition of discontinued operations at the balance sheet date

 

 

Earnings before interest, tax, depreciation and amortisation ("EBITDA") from continuing operations before exceptional items totalled £22.9m in the year ended 26 February 2011, (£12.3m or 34.9% below the previous year due principally to lower admissions to our clubs).  Depreciation and amortisation was £15.3m (2010: £22.7m) as the investment programme remained modest and fixed asset impairment reduced the asset base.  Net interest costs increased to £8.7m (2010: £7.2m) despite a reduction in debt levels from £140.0m to £91.5m.  This is in part due to us not recognising interest receivable in respect of the loan note to The 3D Entertainment Group Limited ("3DE"), which is now in administration (2010: £0.9m).  In addition, increased interest receivable on deposits in the current year was offset by an increased interest charge as a result of the increase in the effective interest rate on the new facility to 7.8%. 

The loss before tax from continuing operations before exceptional items was £1.1m (2010: profit of £5.5m) and a taxation credit of £0.5m (2010: £nil credit) gave rise to a loss for the year from continuing operations before exceptional items of £0.6m (2010: profit £5.5m).  Loss per share from continuing operations before exceptional costs was 1.1p (2010: EPS 6.7p).  Statutory loss from continuing operations after exceptional items was £184.6m (2010: £98.8m loss), giving rise to loss per share of 183.9p (2010: 119.9p loss).

Exceptional items within continuing operations totalled a net cost of £184.0m after tax for the year ended 26 February 2011 (2010: £104.3m).  This charge followed a review of balance sheet values, triggered by lower profits, and the majority related to impairment of specific asset values.  The major exceptional items contributing to this charge are described in note 7.  The impairment review has also impacted the accounts of the parent company, reducing distributable reserves to a deficit of £155.8m.

Discontinued operations contributed a post-tax loss of £nil plus exceptional costs of £3.4m.  The main element of the exceptional cost was a loss on disposal of discontinued operations.

The Group continues to be cash generative, with a net cash inflow after exceptional items and investing activities of £10.5m for the year (2010: £13.7m).  Control and reduction of expenditure has been strong during the year, with capital expenditure of £5.5m (2010: £4.2m).  The majority of this capital expenditure relates to the development of the PROJECT nightclub in Norwich, for which insurance proceeds were received.

Details of the Group's borrowings are set out in note 1.

The balance sheet includes a current tax liability of £42.8m (2010: £42.8m) in respect of amounts potentially due for tax years since 2004 which remain under discussion with HMRC. 

In view of current trading, the Group continues to conserve cash and in line with Board policy does not recommend a dividend payment at the current time. 

Financial risk management

Taxation

The current approach of the UK tax authorities means that as a large corporate entity we are subject to regular tax audits, which by their very nature are often complex and take many years to complete. We draw a distinction between tax planning for non-commercial reasons, and optimising the tax treatment of commercial transactions, and we only enter into tax planning in respect of the latter.

Funding and liquidity

The Group's cash and debt balances are managed centrally. Liquidity risk is managed through an assessment of short, medium and long-term cash flow forecasts to ensure the adequacy of debt facilities. 

The Group has positive cash flows from operating activities.  Further details on the Group's financing arrangements can be found in note 1.

Interest rate risk

Interest rate risk is being predominately managed through swapping between floating rate debt and fixed rate debt.  This has been achieved through a £34.5m fixed rate swap, a £27.5m fixed rate swap and a £34.5m cap and floor swap.  At the year end, £91.5m of the bank facility was drawn down, of which all was hedged.

Currency risk

The Group operates within the UK and substantially all transactions are denominated in sterling; therefore, the Group does not suffer from a significant concentration of currency risk.

Credit risk

Credit risk is managed on a group basis.  Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to receivables principally recognised on sales of property assets and on income received from sub-lets. The Group does not have a significant concentration of credit risk, and the majority of the Group's revenues are cash based.

On 19 January 2007, the Group sold certain trade and assets of its clubs to the 3DE (an associate of the Group).  Post-completion a transitional service agreement was put in place between the Group and 3DE for the provision of certain services.  3DE went into administration on 26 February 2010 and this process is ongoing.  All debtor trading balances relating to 3DE under the terms of the TSA are fully provided for.  Vendor loan notes of £19.3m (plus accrued interest totalling £5.3m) remains owed to the Group.  At the year end, the loan notes and accrued interest continue to be fully provided for.

Pensions

The Group contributes to a defined contribution pension scheme for qualifying employees.  The Group has no exposure to defined benefit pension schemes.

 Risks and uncertainties

The principal risks and uncertainties that could affect the Group's business are summarised below:

Risks

Internal risks

Covenant compliance and liquidity risk

During the year, the Group signed a revised three year facility of £99m (the "New Facility") with its banking group comprising Lloyds TSB, Barclays Capital and The Royal Bank of Scotland (the "Banking Group").  The New Facility was effective from 8 December 2010.

The New Facility comprises two term loans of £44m and £40m repayable over three years and a revolving credit facility (RCF) of £15m. The weighted average cash interest rate for the New Facility is 7.8%.

The main financial covenants applying to the New Facility are those of leverage (the ratio of Net Debt to EBITDA) and fixed interest cover.  The leverage covenant ratio was set at 3.8 times, reducing to 2.0 times over the life of the New Facility, and the fixed interest cover was set at 1.35 times rising to 1.75 times. 

Severe adverse weather conditions experienced in December combined with the continued deterioration in market conditions since that time have placed significant stress on the financial covenants.  At the February 2011 testing date the Group continued to operate within the required parameters.  However, trading conditions have remained difficult and operating results have been worse than anticipated, such that it appears likely that a covenant breach would arise when next tested at the end of May 2011 and a short term liquidity problem may arise during the Summer months due to scheduled amortisation payments falling due under the New Facility during that period.  Since signing the New Facility the Group has maintained its strong relationship with the Banking Group which has throughout remained supportive of the business, the management and its strategy.  This has been demonstrated by the Banking Group granting a prospective waiver in respect of the financial covenants which would fall to be tested at the end of May 2011. In addition, the Banking Group are continuing to provide flexibility to maintain the Group's liquidity levels until 31 August 2011 and agreed to continue dialogue with Luminar and work together with the Group with a view to agreeing by that date a longer term restructuring of the Group's debt arrangements.

The Directors are of the opinion that the Banking Group will remain supportive and that the ongoing discussions with the Banking Group will result in restructured debt arrangements which will allow the Company and the Group to continue to trade as a Going Concern and secure a more sustainable, longer term debt structure for the Group. Should the discussions with the Banking Group not secure such a longer term solution, the Group is unlikely to be able to operate within the existing terms of the New Facility and it is likely that a breach of the financial covenants would occur at the covenant testing point at the end of August 2011 and future liquidity risk would arise thereafter. In those circumstances, the New Facility could be accelerated and the debt then drawn under the New Facility could be required to be repaid immediately which could result in the business no longer being a going concern.

The Directors have examined all available evidence and have concluded that, although the trading environment is still exceptionally challenging, and there is a risk that discussions with the Banking Group will not result in a successful restructuring of the Group's debt arrangements, in light of the supportive nature of the banking relationship to date, the Directors are satisfied that adequate financial resources will continue to be made available to the Group so as to enable it to continue to trade on a going concern basis.  As a result, the Directors continue to adopt the going concern basis in preparing the Group's and the Company's financial statements. The financial statements do not include the adjustments that would result if the Group and the Company were unable to continue as a going concern.

High proportion of fixed overheads and variable revenues

A significant proportion of the Group's cost base remains relatively constant notwithstanding changes to the level of revenues and therefore any significant changes in the level of the Group's revenues could significantly affect the level of earnings and cash flows.

Significant progress has been made in simplifying and reducing the fixed cost base and this remains an area of focus going forward.

Failure to ensure brands evolve in relation to changes in consumer taste

The market in which the Group operates is subject to changes in fashions and trends and the Group is exposed to the risk that its innovations in venue format and content do not keep up with changes in consumer tastes.  Therefore, the Group continues to monitor closely changes in the marketplace so that it can adapt its offering to protect and secure its revenues.

Major fire

The business has suffered from three major fires since 2000, with the last being in 2005. These resulted in the destruction and closure of the clubs concerned.  Therefore, fire prevention and fire safety are taken very seriously in staff training and internal health and safety reviews.  The Group introduced specific training for all venues in the form of a dedicated 'fire safety week', which aimed to ensure that best practice was maintained throughout the Group. Following the substantial reduction agreed in 2008 to the excess payable by the Group on any one incident, the financial risk posed by any major fires that might be suffered in the future has been significantly reduced.

Health and safety

Health and safety is taken very seriously by the Group, as detailed in the Corporate Social Responsibility statement.  The risk of non-compliance with health and safety legislation is minimised through comprehensive training and an active in-house team who regularly carry out health and safety audits, and review and develop policies and procedures to maintain standards.  Furthermore, the Group carries substantial public and employer's liability insurance cover, in order to minimise the financial impact of any claim that might arise as a consequence of a failure in health and safety regulatory compliance.

Failure of internal control regarding frauds and thefts

The Group is vulnerable to the conventional financial threats faced by all businesses.  Finance and Operations management continue to review, challenge and improve many processes and controls. This process is backed up by internal audit covering both Head Office administration/accounting and the operating venues.

External risks

Interest rate movements

Interest rate risk is being predominately managed through swapping between floating rate debt and fixed rate debt.  This has been achieved through the use of a £50.0m five year fixed rate swap ending August 2010, a £40.0m seven year fixed rate swap ending August 2014 and a £50.0m cap and floor swap.  Elements of these swaps were terminated on the switch from the old facility to the new facility on 8th December 2010 to ensure the new facility is 100% hedged.

Loss of licences

The Group has a dedicated and experienced licensing officer, who monitors all licensing related matters and works closely with the operations management team, local licensing authorities and local police. This is backed up with centralised incident reporting and follow-up, including liaison with licensing authorities for early warning of potential issues.  The Company also has access to specialist external licensing solicitors who provide additional advice as and when required.

Every effort is made to ensure that managers and supervisors are fully conversant with current licensing legislation and their responsibilities under it.  

Uncertainties 

Economic downturn

The principal uncertainty facing the Group is that of continued or worsening economic uncertainty, particularly as it may affect young people.  Whilst there is some evidence at national level that conditions are improving, any recovery remains fragile and there is minimal evidence that it has yet impacted our core market.

Should the spending propensity of young people reduce further, there is a risk that the Group's profitability could worsen to the extent that we are no longer able to meet the requirements placed upon us by our current lenders.  The Board has considered this carefully, please see note 1 for further details on the Group's financing arrangements.

Seasonality and weather

The number of admissions in the Group's venues is considerably increased during holiday periods, especially Christmas and New Year, and over bank holiday periods.  Similarly the admissions and revenue levels are generally lower in the early months of the calendar year and over the summer, compared to during the autumn and spring periods.  The Group's revenues can also be adversely impacted by extremes of weather conditions, which could deter customers from visiting the Group's venues.  Current planning assumes average seasonal weather conditions.

Fluctuations in the commercial property market

At the year end, the Group held 59 of its properties under short leaseholds, which are subject to regular rent reviews. These rent reviews could either increase or remain the same, which could in turn affect the economic viability of any of the Group's units.

The Group also held 18 freehold properties and 5 long leaseholds as at 26 February 2011 and therefore, any changes to the UK property market could lead to changes in the value of the Group's property portfolio. 

The total number of trading units is lower than the total number of leasehold and freehold properties held by the Group. This is due to the fact that some clubs which are combined to trade as a multi venue site  may have individual title deeds for each unit and the inclusion of units in development and sub-let units.

Terrorism

In common with many businesses, the Group's revenues are vulnerable to disruption from acts of terrorism.  Current planning assumes no change in the existing level of threat. The Company has issued documentation based on Home Office guidance to ensure that employees are aware of these issues and what to look out for. In addition, the Company purchases a specific insurance policy to cover risks from terrorist activities.

Board Changes

As reported in last year's Annual Report, Stephen Thomas left the Board on 1 March 2010. He was the Chief Executive Officer and founder of Luminar, Robert McDonald (Finance Director) left the Board on 1 June 2010 and Alan Jackson stepped down as Chairman on 13 July 2010.

Simon Douglas joined the Board in March 2010 as Chief Executive Officer ("CEO"). Simon has a strong track record in the leisure and entertainment sector, including various management roles at HMV, Virgin Retail and latterly as CEO in leading the MBO of Zavvi, where he extracted considerable shareholder value from the business.

John Leach joined the board as a Non-Executive Director on 30 April 2010 and became Chairman on 13 July 2010. John has wide experience of both the leisure sector and most recently the City where from 2003 to 2008 he was involved in various roles and latterly as CEO of Hermes Focus Asset Management Limited. Prior to this he was Chairman of Orbis Plc, Waterhall Group Plc and Brent Walker Group, where he was CEO and Finance Director from 1994 to 1998 and Group Finance Director from 1991 to 1994.

Philip Bowcock joined the board as Finance Director on 1 June 2010 from Barratt Developments plc, where he was Group Financial Controller. Prior to this, he held senior finance roles at Tesco and Hilton Group.

Forward-looking statements

Certain statements in this consolidated financial information for the year ended 26 February 2011 are forward-looking.  Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct.  Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Responsibility statements

The Directors' responsibility statements are made in respect of the full Annual Report and financial statements relating to the year ended 26 February 2011 and the Business Review contained in the Annual Report.  Such responsibility statements are not made in relation to the condensed statements set out in this announcement.

The Annual Report and financial statements comply with the United Kingdom's Financial Services Authority Disclosure Rules and Transparency Rules in respect of the requirement to produce an annual financial report.

Each of the Directors, whose names and functions are listed in the Annual Report, confirm that to the best of their knowledge:

·      the group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the group; and

·      the Business Review includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that it faces.

Consolidated Income Statement

for the year ended 26 February 2011


Year ended 26 February 2011

Year ended 25 February 2010

(reclassified **)


 

 

 

Note

Pre-

exceptional

items

£m

Exceptional

items

(note 7)

£m

 

 

Total

£m

Pre-

exceptional

items

£m

Exceptional items

(note 7)

£m

 

 

Total

£m

Continuing operations








Revenue


137.3

-

137.3

169.0

-

169.0









Cost of sales


(25.6)

-

(25.6)

(29.1)

-

(29.1)

Gross profit


111.7

-

111.7

139.9

-

139.9









 

Administrative expenses


 

(104.9)

 

(187.3)

 

(292.2)

 

(127.2)

 

(114.6)

 

(241.8)

Other operating income


0.8

-

0.8

-

-

-

Profit / (loss) from operations

 

 

 

7.6

 

(187.3)

 

(179.7)

 

12.7

 

(114.6)

 

(101.9)









Finance income

3

0.8

-

0.8

1.1

-

1.1

Finance costs

3

(9.5)

(9.5)

(19.0)

(8.3)

-

(8.3)

(Loss)/Profit before taxation


 

(1.1)

 

(196.8)

 

(197.9)

 

5.5

 

(114.6)

 

(109.1)









 

Tax credit / (charge) on  (loss) / profit

 

4

 

0.5

 

12.8

 

13.3

 

-

 

10.3

 

10.3

(Loss)/Profit for the year from continuing operations attributable to equity shareholders


 

 

 

(0.6)

 

 

 

(184.0)

 

 

 

(184.6)

 

 

 

5.5

 

 

 

(104.3)

 

 

 

(98.8)









 

Loss from discontinued operations *

 

 

8

 

 

-

 

 

(3.4)

 

 

(3.4)

 

 

(0.8)

 

 

(23.5)

 

 

(24.3)

(Loss)/Profit for the year attributable to equity shareholders

 

 

 

 

(0.6)

 

 

(187.4)

 

 

(188.0)

 

 

4.7

 

 

(127.8)

 

 

(123.1)









Loss per share from continuing operations

 

6







Basic




(183.9)



(119.9)

Diluted




(183.9)



(119.9)

Loss per share from continuing and discontinued operations

6







Basic




(187.3)



(149.4)

Diluted




(187.3)



(149.4)

 

* The loss from discontinued operations is stated post tax.

** Reclassified to reflect the composition of discontinued operations at the latest balance sheet date

 

The accompanying accounting policies and notes form an integral part of these financial statements.

 

Consolidated Statement of Comprehensive Income

For the year ended 26 February 2011


 

 

26 February 2011

£m

25 February 2010

£m

Loss for the year


(188.0)

(123.1)

Other comprehensive income




Cash flow hedges (net of tax)


(3.7)

(0.5)

Other comprehensive income from the period, net of tax


 

(3.7)

 

(0.5)

Total Comprehensive Income for the year attributable to equity shareholders


 

(191.7)

 

(123.6)

 

Consolidated Balance Sheet

at 26 February 2011

 


 

Note

26 February 2011

£m

25 February 2010

£m

Non-current assets




Goodwill

10

33.8

130.8

Other intangible assets

11

1.8

2.6

Property, plant and equipment

12

124.6

226.9

Other non-current assets


1.5

1.9



161.7

362.2





Current assets




Inventories


1.5

1.5

Trade and other receivables


4.2

5.6

Cash and cash equivalents


9.3

37.3

Monies on deposit


-

10.0

 

Assets classified as held for sale

 

 

15.0

4.5

54.4

2.1



19.5

56.5





Current liabilities




Trade and other payables


(17.7)

(14.1)

Borrowings and loans


(12.5)

-

Current tax liabilities


(42.8)

(42.8)

Deferred income


(0.5)

(0.5)

Provisions


(1.9)

(2.3)



(75.4)

(59.7)

Liabilities classified as held for sale


(6.1)

(0.7)



(81.5)

(60.4)





Net current liabilities


(62.0)

(3.9)





Total assets less current liabilities


99.7

358.3





Non-current liabilities




Borrowings and loans


(79.0)

(139.9)

Derivative financial instruments


                  (7.6)

(13.8)

Deferred income


(5.3)

(6.1)

Obligations under finance leases


(2.7)

(7.9)

Provisions


(2.0)

(2.9)

Deferred tax liabilities


-

(7.9)



(96.6)

(178.5)





Net assets


3.1

179.8





Capital and reserves




Share capital


25.1

131.8

Share premium


25.8

Capital redemption reserve


148.8

42.1

Equity reserve


2.2

1.7

Cash flow hedge reserve


1.9

-

Retained earnings


(200.7)

(21.6)

 

Shareholders' equity


 

3.1

 

179.8

 

The financial statements were approved by the Board of Directors on 11 May 2011.

 

Philip Bowcock

Finance Director

 

Consolidated Cash Flow Statement

for the year ended 26 February 2011

 


 

 

Note

Year ended

26 February 2011

£m

Year ended

25 February 2010

£m

Cash flows from operating activities




Net cash inflow from operations

9

15.5

23.3

Finance costs paid


(7.7)

(8.2)

Tax received


-

2.2



7.8

17.3





Cash flows from investing activities




Purchase of property, plant and equipment


(5.5)

(3.9)

Purchase of intangible assets


-

(0.3)

Net proceeds from sale of property, plant and equipment


 

7.4

 

0.5

Finance income received


0.8

0.1



2.7

(3.6)





Cash flows from financing activities




Repayment of long-term borrowings


(142.5)

(30.0)

Drawdown of new facility (post-issue costs)


94.0

-

Monies withdrawn from / (placed on) deposit


10.0

(10.0)

Net proceeds from issue of shares


-

35.7



(38.5)

(4.3)





Net (decrease)/increase in cash and cash equivalents


 

(28.0)

 

9.4





Cash and cash equivalents at beginning of year


37.3

27.9









Cash and cash equivalents at end of year


9.3

37.3

 

 

Consolidated Net Debt Statement

for the year ended 26 February 2011

 

The movement in net debt in the year was analysed as follows:

 

 

 

 

Year ended

26 February 2011

£m

Year ended

25 February 2010

£m

Decrease/(Increase) in cash in the year

28.0

(9.4)




Cash inflow from increases in debt (post-issue costs)

94.0

-

Cash inflow/(outflow) from monies being placed on deposit

10.0

(10.0)

Cash outflow from repayment of debt

(142.5)

(30.0)




Movement in net debt in the year

(10.5)

(49.4)




Opening net debt

100.6

150.0




Closing net debt *                                                                  

90.1

100.6

 

*The closing net debt figure includes finance leases of £7.9m (2010: £7.9m). 

 

Consolidated Statement of Changes in Shareholders' Equity

for the year ended 26 February 2011

 


Share capital

 

£m

Share premium

 

£m

Capital redemption reserve

£m

Equity reserve

 

£m

Cashflow hedge reserve

£m

Retained earnings

 

£m

Total

 

 

£m

Brought forward at 27 February 2009

 

121.9

 

-

 

42.1

 

1.2

 

-

 

102.1

 

267.3

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

-

 

(123.6)

 

(123.6)

Share-based payment charge

-

-

-

0.5

-

-

0.5

Issue of shares (net of costs)

9.9

25.8

-

-

-

-

35.7

Purchase of shares through Employee Benefit Trust

 

-

 

-

 

-

 

-

 

-

 

(0.1)

 

(0.1)

Carried forward at 25 February 2010

 

131.8

 

25.8

 

42.1

 

1.7

 

-

 

(21.6)

 

179.8









Brought forward at 26 February 2010

131.8

25.8

42.1

1.7

-

(21.6)

179.8

Cancellation of deferred shares

(106.7)

-

106.7

-

-

-

-

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

-

 

(191.7)

 

(191.7)

Recycle hedging reserve under old facility

 

-

 

-

 

-

 

-

 

-

 

12.6

 

12.6

Fair value gains on cashflow hedges in year

 

-

 

-

 

-

 

-

 

1.9

 

-

 

1.9

Share-based payment / share warrants charge

 

-

 

-

 

-

 

0.5

 

-

 

-

 

0.5

Carried forward at 26 February 2011

 

25.1

 

25.8

 

148.8

 

2.2

 

1.9

 

(200.7)

 

3.1

 

 

Notes to the Consolidated Financial Statements

for the year ended 26 February 2011

 

1          Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and International Financial Reporting Interpretations Committee (IFRIC) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs.  The Group has complied with those IFRSs or IFRIC interpretations where the implementation date is relevant to the financial year ended 26 February 2011. No IFRSs or IFRIC interpretations have been early adopted.

The financial statements have been prepared on a historical cost basis, except for non-current assets and disposal groups and investments held for sale measured at their fair value less costs to sell and financial assets and liabilities recorded at fair value.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.

During the year the Group signed the New Facility (being a revised three year facility of £99m) with the Banking Group.  The New Facility became effective from 8 December 2010.

The New Facility comprises two term loans of £44m and £40m respectively , both repayable over three years and a revolving credit facility (RCF) of £15m. The weighted average cash interest rate for the New Facility is 7.8%.

The main financial covenants applying to the New Facility are those of leverage (the ratio of Net Debt to EBITDA as defined in the New Facility Agreement) and fixed interest cover.  The leverage covenant ratio was set at 3.8 times, reducing to 2.0 times over the life of the New Facility, and the fixed interest cover was initially set at 1.35 times rising to 1.75 times. 

Severe adverse weather conditions experienced in December combined with the continued deterioration in market conditions since that time have placed significant stress on the financial covenants.  At the February 2011 testing date, the Group continued to operate within the required parameters.  However, trading conditions have remained difficult and operating results have been worse than anticipated, such that it appears likely that a covenant breach would arise when next tested at the end of May 2011 and a short term liquidity problem may arise during the Summer months due to scheduled amortisation payments falling due under the New Facility during that period.  Since signing the New Facility, the Group has maintained its strong relationship with the Banking Group which has throughout remained supportive of the business, the management and its strategy.  This has been demonstrated by the Banking Group granting a prospective waiver in respect of the financial covenants which would fall to be tested at the end of May 2011. In addition, the Banking Group are continuing to provide flexibility to maintain the Group's liquidity levels until 31 August 2011 and agreed to continue dialogue with Luminar and work together with the Group with a view to agreeing by that date a longer term restructuring of the Group's debt arrangements.

The Directors are of the opinion that the Banking Group will remain supportive and that the ongoing discussions with the Banking Group will result in restructured debt arrangements which will allow the Company and the Group to continue to trade as a Going Concern and secure a more sustainable, longer term debt structure for the Group. Should the discussions with the Banking Group not secure such a longer term solution, the Group is unlikely to be able to operate within the existing terms of the New Facility and it is likely that a breach of the financial covenants would occur at the covenant testing point at the end of August 2011 and future liquidity risk would arise thereafter. In those circumstances, the debt drawn under the New Facility could be required to be repaid immediately which could result in the Company and the Group no longer being a going concern.

The Directors have examined all available evidence and have concluded that, although the trading environment is still exceptionally challenging, and there is a risk that discussions with the Banking Group will not result in a successful restructuring of the Group's debt arrangements, in light of the supportive nature of the banking relationship to date, the Directors are satisfied that adequate financial resources will continue to be made available to the Group so as to enable it to continue to trade on a going concern basis.  As a result, the Directors continue to adopt the going concern basis in preparing the Group's and the Company's financial statements. The financial statements do not include the adjustments that would result if the Group and the Company were unable to continue as a going concern.

The figures and financial information for the year ended 26 February 2011 do not constitute the statutory financial statements for that year. Those financial statements have not yet been delivered to the registrar of companies and include the auditors' report which, whilst unqualified, contains an emphasis of matter in reference to the material uncertainty around Going Concern disclosed above. The auditors' report does not contain a statement under either section 498 (2) or section 498 (3) of the Companies Act 2006.  The statutory financial statements will be published as part of the Annual Report during June 2011 and following approval at the Company's AGM which will be held on 12 July 2011 will be filed at Companies House. 

Impact of new accounting standards

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 26 February 2010:

Amendment to IAS 39, 'Financial instruments: Recognition and measurement', on Eligible hedged items. This amended standard requires the Group to split the fair value of the cap and floor swap between intrinsic and time value, with the time value element no longer eligible to be hedged and therefore potentially increasing volatility in the Income Statement.

The following standards, amendments and interpretations are mandatory for the first time for the current accounting period but have had no impact on the Group's operations:

Amendment to IAS 32, 'Financial instruments: Presentation' on classification or rights issues. This  amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer (effective 1 February 2010).

Amendments to IFRS 2, 'Share-based payments' on group cash-settled transactions.  This amendment incorporates IFRIC 8 and IFRIC 11 into one standard and provides clarification over the definitions included within IFRS2 (effective 1 January 2010).

IFRS 3 (revised), 'Business combinations'.  The main changes to this standard are that directly attributable costs such as advisers' fees and stamp duty will be charged to the income statement, revisions to contingent cash consideration in the period following the acquisition will be recorded in the income statement and any difference between the fair value of the consideration in the buy out of minority interests and the value of their reported minority interest will be recorded against equity rather than goodwill (effective 1 July 2009).

IAS 27 (revised) 'Consolidated and separate financial statements'.  The revised standard requires the impact of all transactions with non-controlling interests to be recorded in equity if there is no change in control and also clarifies the accounting for when control is lost (effective 1 July 2009).

IFRIC 17 'Distributions of non-cash assets to owners'.  This interpretation clarifies the measurements of distributions of non-cash assets in the form of dividends to owners (effective 1 July 2009).

2          Segmental reporting

 

The Group adopted IFRS 8 'Operating segments' in the year ended 26 February 2009.  IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (CODM) to allocate resources to the segments and to assess their performance. We report our segment information on the same basis as our internal management reporting structure, which drives how our company is organised and managed.   

The Group is principally engaged as owner, developer and operator of nightclubs and themed bars in the UK. The CODM has been identified as the Senior Executive Management (SEM) that exercises the day-to-day management function of the Group. Operational and financial information, which is reported at an individual venue level and aggregated on a geographical basis, is received by the CODM on a monthly basis.  As the geographical segments meet the aggregation criteria defined in IFRS 8 and the unit information does not meet the quantitative thresholds as required by IFRS 8, management have judged it appropriate to aggregate the financial information relating to all units into a single reportable segment.

3          Net finance costs

 

Net finance costs relating to continuing operations were as follows:

 


Year ended

26 February 2011

£m

Year ended

25 February 2010

£m

Interest payable on bank borrowings

(8.9)

(7.7)

Interest payable on obligations under finance leases

(0.5)

(0.4)

Amortisation of issue costs of the bank loan (note 18)

(0.1)

(0.2)

Finance costs (pre-exceptional items)

(9.5)

(8.3)

Exceptional finance costs:  Hedge reserve recycled through income statement and recognition of new derivative financial instrument liability upon refinancing

 

 

(9.5)

 

 

-

Finance costs (post-exceptional items)

(19.0)

8.3

Income on bank deposits

Interest on loan to associate

Other interest receivable

Fair value movement on derivatives not hedge accounted for

0.5

-

0.3

-

0.1

0.9

-

0.1

Finance income

0.8

1.1

Net finance costs (pre exceptional items)

(8.7)

(7.2)

Net finance costs (post exceptional items)

(18.2)

(7.2)

 

Finance costs relating to discontinued operations totaled £nil (2010: £nil).

4          Tax on (loss) / profit

 

(a) Analysis of charge in period

 

The taxation charge is based on the loss for the year and represents:

              


Year ended

26 February 2011

 

£m

Year ended

25 February 2010

(reclassified*)

£m

Current tax credit / (charge)



- Continuing operations:



- Current period

-

(3.3)

- Adjustments from prior periods

-

2.1

- Discontinued operations:



   - Current period

0.1

3.3


0.1

2.1




Deferred tax credit



- Continuing operations

13.3

11.5

- Discontinued operations

-

0.7


13.3

12.2

Total taxation credit / (charge)



- Continuing operations

13.3

10.3

- Discontinued operations

0.1

4.0


13.4

14.3

 

 

(b) Tax on items charged / (credited) to equity

 


Year ended

 26 February 2011

£m

Year ended

25 February 2010

£m

Derivative financial instruments

4.9

(0.2)


4.9

(0.2)

The amounts charged (2010: credited) to equity relate to deferred taxation.

(c) Factors affecting tax charge for period

The tax assessed for the period is higher (2010: higher) than the standard rate of corporation tax in the UK. The differences are explained as follows:

 


Year ended

26 February 2011

 

£m

Year ended

25 February 2010

(reclassified*)

£m

Loss on ordinary activities from continuing operations before tax

(197.9)

(109.1)

 

Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 28% (2010: 28%)

 

 

55.4

 

 

30.5

 

Effects of:



Non-deductible exceptional items

(41.4)

(15.2)

Adjustments in respect of the prior year

-

2.1

Remeasurement of tax change in UK tax rate

0.3

-

Depreciation on non-qualifying assets

(1.0)

(7.1)

Total tax credit / (charge) from continuing operations for the year

 

13.3

 

10.3

 

*Reclassified to reflect the composition of discontinued operations at the latest balance sheet date.

5          Dividends

 

As reported in the Interim Report approved on 20 October 2010, the Board did not recommend an interim dividend for the half year ended 26 August 2010.   

6          (Loss) / Earnings per share

 

The basic earnings per share (EPS) is calculated by dividing the earnings attributed to equity shareholders by the weighted average number of shares in issue during the year.  For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two classes of dilutive potential ordinary shares: share options granted to Directors and employees where the exercise price is less than the average market price of the Group's ordinary shares during the year, and the contingently issuable shares under the Group's long-term incentive plan. At the year-end, an assessment is made as to whether the performance criteria for the vesting of awards under the share option schemes of the Group is likely to be met and any potential shares unlikely to be exercised are excluded from the diluted EPS calculation.

An alternative measure of earnings per share has also been presented below, that being earnings per share from continuing operations pre-exceptional items, as the Directors believe that this measure of pre-exceptional earnings from continuing operations is more reflective of the ongoing trading of the Group.

Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below:

 


Year ended 26 February 2011


Loss

£m

Weighted average number of shares (in millions)

Per share amount

(pence)

Basic and diluted EPS




Loss attributable to ordinary shareholders

(188.0)

100.4

(187.3)





Basic and diluted EPS from continuing operations

(184.6)

100.4

(183.9)





Basic and diluted EPS from discontinued operations

(3.4)

100.4

(3.4)





EPS from continuing operations pre-exceptional items




Basic and diluted EPS from continuing operations pre-exceptional items (pre tax)

 

(1.1)

 

100.4

 

(1.1)

 

At 26 February 2011, as the Group is loss-making, any share options in issue are considered to be "anti-dilutive" and as such, the calculation is the same for both basic and diluted earnings per share.

 


Year ended 25 February 2010


(Loss) / Earnings

£m

Weighted average number of shares (in millions)

Per share amount

(pence)

Basic and diluted EPS




Loss attributable to ordinary shareholders

(123.1)

82.4

(149.4)





Basic and diluted EPS from continuing operations

(98.8)

82.4

(119.9)





Basic and diluted EPS from discontinued operations

(24.3)

82.4

(29.5)





EPS from continuing operations pre-exceptional items




Basic and diluted EPS from continuing operations pre-exceptional items (pre tax)

 

5.5

 

82.4

 

6.7

 

At 25 February 2010, as the Group is loss-making, any share options in issue are considered to be "anti-dilutive" and as such, the calculation is the same for both basic and diluted earnings per share.

 

All amounts included in the column headed '(Loss) / Earnings' are taken from the face of the Consolidated Income Statement.

 

7          Exceptional items

 

(a)  Continuing operations

 

The Group incurred exceptional items on continuing operations as follows:

 


Year ended

26 February

2011

 

£m

Year ended

25 February

2010

 

£m

Exceptional items



Impairment of property, plant and equipment

(77.8)

(63.8)

Provision for loss on liquidation of supplier

-

(0.8)

Costs relating to reorganisation and rationalisation

(1.4)

(1.5)

Impairment of goodwill

(97.0)

(41.1)

Impairment of lease premiums

(0.3)

(1.9)

Realised loss on disposal

(2.8)

-

Net movement on provision for onerous lease commitments

(0.3)

(3.5)

Provision against carrying value of memorabilia stock

-

(0.6)

Provision against receivable due from associate

-

(0.7)

Refinancing costs

(7.7)

-

Finance Costs

(9.5)

-

Costs relating to aborted projects

-

(0.7)




Pre-tax exceptional items relating to continuing operations

(196.8)

(114.6)

Tax on exceptional items

12.8

10.3

Post-tax exceptional items relating to continuing operations

(184.0)

(104.3)

 

The impairment of property, plant and equipment of £77.8m (2010: £63.8m) and impairment of lease premiums of £0.3m (2010: £1.9m) reflects the difference between the value in use of the units and their carrying value, or in the case of assets held for sale, the difference between fair value less costs to sell and their carrying value.  An impairment review was triggered on these assets due to the tough trading conditions seen through the year, resulting in reduced profit contributions.

 

Included within refinancing costs of £7.7m are the following related costs, £3.1m associated with breaking hedges, £2m amendment fee, £2.3m professional fees.

 

Costs of reorganisation and rationalisation of £1.4m (2010: £1.5m) primarily relate to redundancy and termination costs incurred in respect of internal restructures.  The prior year costs related mainly to previous restructures.

 

The impairment of goodwill of £97.0m (2010: £41.1m) has arisen following the annual impairment test, which compared the carrying value of units to their recoverable value (their value in use).

 

The charges arising from onerous lease commitments of £0.3m (2010: £3.5m) were to recognise the obligation for rent, rates and other property related holding costs on currently vacant or closed units, where the likelihood of assignment of the lease or sub-let of the property is unlikely in the short term.  These units are closed or vacant due to them being unprofitable and unsuitable for re-branding.

 

(b) Discontinued operations

 

The Group incurred exceptional items relating to discontinued operations as follows:

 


Year ended

26 February 2011

 

£m

Year ended

25 February 2010

 

£m

Impairment of property, plant and equipment

(0.1)

(0.3)

Impairment of investment in associate

-

(3.6)

Provision against receivable due from associate

-

(23.7)

Costs relating to reorganisation and rationalisation

(0.2)

-

Net movement on provision for onerous lease commitments

(0.2)

0.3

Realised (loss)/profit on disposals

(2.9)

0.3


(3.4)

(27.0)




 

Costs associated with the disposal of companies:

 



Indemnity provision

-

0.5


-

0.5




Pre-tax exceptional items relating to discontinued operations

 

(3.4)

 

(26.5)

Tax on exceptional items

-

3.0

Post-tax exceptional items relating to discontinued operations

 

(3.4)

 

(23.5)

 

The impairment of property, plant and equipment of £0.1m (2010: £0.3m) reflects the difference between the value in use of the units and their carrying value.

 

In the prior year, a non-cash impairment of £3.6m was recognised against the carrying value of the Group's investment in 3DE, reflecting the fact that the company went into administration on 26 February 2010. A further £23.7m was provided against the carrying value of the vendor loan note and related accrued interest.

 

The credit in relation to the disposal of companies in the prior year of £0.5m related to a release of brought forward provisions, for which the relative amounts are no longer payable, due to the companies disposed of having been placed into liquidation and administration in the prior year.

 

8          Discontinued operations and non-current assets held for sale

 

(a) Results of discontinued operations

 

The results of discontinued operations, which comprise those of the units sold to Cavendish Bars Limited for which the sale completed on 5 April 2010 and other non-core units, either disposed of or held for sale, forming part of

 

the Group's plan to exit from non-core operations, included within the Consolidated Income Statement were as follows:

 

 


Year ended

26 February 2011

Year ended

25 February 2010


£m

£m

Revenue

0.4

4.6

Cost of sales and administrative expenses

(0.5)

(6.4)

Loss before tax pre-exceptional items

(0.1)

(1.8)

Attributable tax credit

0.1

1.0

Loss after tax pre-exceptional items

-

(0.8)

Exceptional items (see note 7)

(3.4)

(26.5)

Attributable tax credit

-

3.0

Loss from discontinued operations

(3.4)

(24.3)

 

(b) Cash flow from discontinued operations

 

The Consolidated Cash Flow Statement includes the following cash flows arising from discontinued operations:

 


Year ended

Year ended


26 February 2011

25 February 2010


£m

£m

Net cash flows from operating activities

(0.1)

(5.3)

Net cash flows from investing activities

2.6

(0.1)


2.5

(5.4)

 

(c) Assets and liabilities of units held for sale

 

As at 26 February 2011, twelve units (2010: five units) were classified as held for sale, of which one (2010: four) of the units was reported within discontinued operations, and the remaining units were reported within continuing operations as they are not part of a disposal group. 

 

The major classes of assets and liabilities comprising the units classified as held for sale were as follows:

 


26 February 2011

25 February 2010


£m

£m

3.7

2.0

Deferred tax assets

0.5

-

Inventories

0.1

-

Trade and other receivables

0.2

0.1

4.5

2.1




Trade and other payables

-

(0.1)

Finance lease creditor

(5.2)

-

Provisions

(0.9)

(0.5)

Deferred tax liabilities

-

(0.1)

Total liabilities classified as held for sale

(6.1)

(0.7)




Net (liabilities)/assets classified as held for sale

(1.6)

1.4

 

The total loss of £10.5m (2010: £1.6m) incurred in writing these assets down to fair value less costs to sell has been included in continuing exceptional items within impairment of property, plant and equipment (see note 7).

 

9             Cash flow from operating activities

 

Reconciliation of net cash inflow from operating activities

 


Year ended

26 February 2011

£m

Year ended

25 February 2010

£m

Profit before taxation - continuing operations

(197.9)

(110.2)

Loss before taxation - discontinued operations

(3.5)

(27.2)

Loss before taxation

(201.4)

(137.4)

Depreciation and amortisation

15.2

22.7

Amortisation of lease premiums

0.1

0.1

Amortisation of issue costs

0.1

0.2

Net impairment of property, plant and equipment

78.2

64.0

Impairment of other intangible assets

0.2

-

Impairment of goodwill

97.0

41.1

Impairment of other non-current assets

0.3

1.9

Impairment of investment in associate

-

3.6

Provision against receivables due from associate

-

24.4

Movement in exceptional provisions

1.0

-

Hedge reserve recycled through income statement and recognition of new derivative financial instrument liability upon refinancing

 

 

9.5

 

 

-

Loss/(Profit) on sale of property, plant and equipment

5.7

(0.5)

Non-cash charges for share-based payments

0.5

0.5

Net finance costs

8.7

7.2


15.1

27.8

Increase/(Decrease) in inventories

(0.1)

0.6

Decrease in receivables

1.5

1.1

Increase/(Decrease) in trade and other payables

1.0

(4.0)

Decrease in provisions

(2.0)

(2.2)

Net cash inflow from operations

15.5

23.3

 

Cash flows from continuing operations

 

To assist in the understanding of cash flows relating to the ongoing business of the Group, the following tables outline the cash flows relating to discontinued operations and exceptional items to be excluded in order to present operating cash flows that relate to the Group's continuing business:


Year ended

26 February 2011

£m

Year ended

25 February 2010

£m

Cash flows from operating activities

7.8

17.3

Add: net cash flows from operating activities - discontinued operations (including exceptional cash items)

 

0.1

 

5.3

Cash flows from operating activities - continuing operations

7.9

22.6

Add: net exceptional cash flows from operating activities - continuing operations

 

5.9

 

2.9

Pre-exceptional cash flows from operating activities - continuing operations

 

13.8

 

25.5

 


Year ended

26 February 2011

£m

Year ended

25 February 2010

£m

Net cash inflow from operations

15.5

23.3

Add: net cash flows from operating activities - discontinued operations (including exceptional cash items)

 

0.1

 

5.3

Net cash inflow from operations - continuing operations

15.6

28.6

Add: net exceptional cash flows from operations - continuing operations

 

5.9

 

2.9

Net pre-exceptional cash inflow from operations - continuing operations

 

21.5

 

31.5

 

10           Goodwill

 

2011

 


£m

Cost


Brought forward at 26 February 2010

183.6

At 26 February 2011

183.6



Accumulated impairment losses


Brought forward at 26 February 2010

52.8

Impairment in the year

97.0

At 26 February 2011

149.8



Carrying amount


At 26 February 2011

33.8

 

2010

 


£m

Cost


Brought forward at 27 February 2009

183.6

At 25 February 2010

183.6



Accumulated impairment losses


Brought forward at 27 February 2009

11.7

Impairment in the year

41.1

At 25 February 2010

52.8



Carrying amount


At 25 February 2010

130.8



 

The majority of the Group's goodwill arose from the acquisition of units from either Allied Leisure plc on 6 December 1999 or from Northern Leisure Plc on 11 July 2000, together with the £8.1m of goodwill that arose on the acquisition of 13 units from The Nightclub Company ("TNC") in 2005, and the £0.6m of goodwill on acquisitions in 2008.

 

No acquisitions occurred during the year giving rise to goodwill additions.

 

A Cash Generating Unit ("CGU") is deemed to be an individual operating unit, as each unit generates profits and cash flows that are largely independent from other units. Where multiple CGU's are acquired as part of a single business combination, the goodwill arising from the business combination is attributed to individual CGU's, but is grouped together. Accordingly, CGU's have been grouped together for the purpose of the annual impairment review of goodwill at total operating segment level.

 

Impairment of goodwill

 

In assessing whether a write-down of goodwill is required to the carrying value of the related asset, the carrying value of the combined CGUs, is compared with its recoverable amount. The recoverable amount for each CGU, and collectively for the combined CGU's, has been measured based on value in use ("VIU"), with the exception of those units that were held for sale at the balance sheet date, where the recoverable amount for these units has been based on the lower of cost and fair value less costs to sell.

 

For the purposes of the annual impairment review, the recoverable amount has been estimated on the VIU basis.

 

The Group estimates the VIU of its CGUs using a discounted cash flow model ("DCF"), which adjusts the cash flows for risks associated with the assets, and are discounted using a pre-tax rate of 12.9% (2010: 11.4%).

 

The VIU calculations have not included the benefits arising from any future asset enhancement expenditure, as this is not permitted by IAS 36.  The VIU calculations, therefore, exclude any benefits anticipated from future asset enhancing refurbishments, together with the related capital expenditure. 

 

Management have performed the annual impairment review of goodwill as required by IAS 36. As a result, an impairment of £97.0m has been booked in the year to 26 February 2011 (2010: £41.1m).  None of this impairment (2010: £nil) of goodwill was in relation to units held for sale. 

 

Key assumptions

The key assumptions are based upon our own historical experience. The calculation of VIU is most sensitive to the following assumptions:

·      Sales and EBITDA - this is based on reasonable forecasts for the first year. These have then been forecast for years two to seven based on expected sales trends;

·      Discount rate - this reflects the Directors estimate of an appropriate rate of return, taking into account the relevant risk factors; and

·      Growth rate used to extrapolate beyond the budget period and for terminal values - based upon the long-term average growth rate of the UK of 2.2%. Management recognise that the leisure market growth rates fluctuate both above and below this rate.

 

Sensitivity to changes in assumptions

 

The impairment calculation is sensitive to changes in the above assumptions, primarily in relation to EBITDA forecast assumptions, a 5% decrease in forecast EBITDA would result in a further impairment being required of £21.2m.

 

11        Other intangible assets

 

2011

 


Software

 £m

Trademarks

£m

Licences

£m

Total

 £m

Cost





Brought forward at 26 February 2010

5.4

0.1

0.4

5.9

At 26 February 2011

5.4

0.1

0.4

5.9






Amortisation





Brought forward at 26 February 2010

3.2

-

0.1

3.3

Charge

0.6

-

-

0.6

Impairments

0.2

-

-

0.2

At 26 February 2011

4.0

-

0.1

4.1






Net book amount at 26 February 2011

1.4

0.1

0.3

1.8

 

2010

 


Software

 £m

Trademarks

£m

Licences

£m

Total

 £m

Cost





Brought forward at 27 February 2009

5.1

0.1

0.4

5.6

Additions

0.3

-

-

0.3

At 25 February 2010

5.4

0.1

0.4

5.9






Amortisation





Brought forward at 27 February 2009

2.4

-

0.1

2.5

Charge

0.8

-

-

0.8

At 25 February 2010

3.2

-

0.1

3.3






Net book amount at 25 February 2010

2.2

0.1

0.3

2.6

 

12        Property, plant and equipment

 

2011

 


 

 

Freehold land and buildings

£m

 

Long leasehold land and buildings 

£m

 

Short leasehold land and buildings

£m

Fixtures, fittings, furniture and equipment

£m

 

 

 

Motor vehicles

£m

 

 

 

 

Total

£m

Cost







Brought forward at 26 February 2010

54.4

3.7

106.2

319.0

0.9

484.2

Transfers

22.0

15.5

(18.2)

(19.3)

-

-

Additions

-

-

-

5.5

-

5.5

Disposals         

(13.7)

(1.7)

(5.3)

(37.6)

(0.9)

(59.2)

Net transfers to assets held for sale

(16.5)

(5.6)

(0.1)

(17.8)

-

(40.0)

At 26 February 2011

46.2

11.9

82.6

249.8

-

390.5

Depreciation







Brought forward at 26 February 2010

20.8

3.1

46.3

186.2

0.9

257.3

Transfers

1.2

3.6

6.2

(11.0)

-

-

Depreciation charge

1.4

0.3

1.9

11.0

-

14.6

Impairment

4.3

5.4

12.8

45.3

-

67.8

Disposals

(8.2)

(1.7)

(3.8)

(31.3)

(0.9)

(45.9)

Net transfers to assets held for sale

(7.9)

(5.3)

(0.1)

(14.6)

-

(27.9)

At 26 February 2011

11.6

5.4

63.3

185.6

-

265.9

Net book amount at 26 February 2011

 

34.6

 

6.5

 

19.3

 

64.3

 

-

 

124.6

 

2010

 


 

 

Freehold land and buildings

£m

 

Long leasehold land and buildings

£m

 

Short leasehold land and buildings

£m

Fixtures, fittings, furniture and equipment

£m

 

 

 

Motor vehicles

£m

 

 

 

 

Total

£m

Cost







Brought forward at 27 February 2009

54.4

3.7

106.2

319.7

0.9

484.9

Additions

-

-

-

3.8

-

3.8

Disposals         

-

-

-

(0.6)

-

(0.6)

Net transfers to assets held for sale

-

-

-

(3.9)

-

(3.9)

At 25 February 2010

54.4

3.7

106.2

319.0

0.9

484.2

Depreciation







Brought forward at 27 February 2009

4.1

1.3

32.5

137.2

0.9

176.0

Depreciation charge

1.7

0.6

3.2

16.4

-

21.9

Impairment

15.0

1.2

10.6

35.6

-

62.4

Disposals

-

-

-

(0.3)

-

(0.3)

Net transfers to assets held for sale

-

-

-

(2.7)

-

(2.7)

At 25 February 2010

20.8

3.1

46.3

186.2

0.9

257.3

Net book amount at 25 February 2010

 

33.6

 

0.6

 

59.9

 

132.8

 

-

 

226.9

 

The impairment of property, plant and equipment of £67.8m (2010: £62.4m) reflects the difference between the value in use of the units and their carrying value. An impairment review was triggered on these assets due to the continued tough trading conditions seen through the year, resulting in reduced profit contributions. Value in use has been calculated using a post-tax discount rate of 12.9% and a long term growth rate of 2.2%, and has been calculated on an individual unit basis.

During the year, management have transferred assets within categories to best reflect their nature, with no material impact to the depreciation charge. 

 

Assets held under finance leases have the following net book amount: 

 


 26 February 2011

25 February 2010


£m

£m

Cost

7.3

7.3

Accumulated depreciation and impairment losses

(5.4)

(1.0)

Net book value transferred to held for sale

(0.2)

-

Net book amount

1.7

6.3

 

Assets held under finance leases relate to the building component of properties held under long leases. 

 

13        Related party transactions

 

The Group holds a debtor balance with Eminence Leisure Limited of £0.8m in respect of services provided in prior periods.  Eminence Leisure Limited is an associate of the Group and has gone into liquidation.  The debtor balance was fully provided for at 25 February 2010 and remains fully provided at 26 February 2011.

On 19 January 2007 the Group sold certain trade and assets of its units to 3DE.  Post completion on 19 January 2007 a transitional services agreement ("TSA") was in place between the Group and 3DE (an associate of the Group) for the provision of certain services.  Vendor loan notes totalling £19.3m (plus accrued interest totalling £5.3m) remains owed to the Group.  On 26 February 2010, 3DE was placed into administration.  The administration process is ongoing.  From the date of administration, we no longer continue to accrue any interest on the 3DE loan notes and have provided no further services under the TSA.  All debtor balances relating to 3DE were fully provided for in the accounts for the year ended 25 February 2010 and remain fully provided for at 26 February 2011.

During the period, three properties were sold to No Saints Limited.  Stephen Thomas, who resigned from the Board on 1 March 2010, is a director of that company.  The transactions were in the ordinary course of business and at arm's length.  Net sales proceeds of £2.1m were received and the balance outstanding at 26 February 2011 was £nil.

 


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