RNS Number:8902Q
Arena Leisure PLC
06 September 2005
Arena Leisure Plc
International Financial Reporting Standards
Arena Leisure Plc (Arena) today releases restated financial information prepared
under International Financial Reporting Standards (IFRS) for the year to 31
December 2004. Arena is undertaking the transition to IFRS, as required by EU
directive, along with some 7,000 other companies with shares or debt listed
within the EU. The Group's first published interim accounts under IFRS will be
in respect of the six months ending 30 June 2005, and the first annual Report &
Accounts prepared on this basis will be for the year ending 31 December 2005.
In summary, the impact of IFRS on key reported results for 2004 is as follows:
2004
UK GAAP IFRS
#'000 #'000
Group turnover 36,019 36,019
Profit before interest and taxation * 5,395 5,751
Profit before taxation * 4,644 4,908
Profit attributable to equity shareholders * 5,321 5,585
Basic Earnings per share - continuing operations 1.3 1.4
Basic Earnings per share - continuing and
discontinued operations 1.5 1.5
Net Assets 56,134 57,196
Net Debt (10,460) (10,460)
Gearing 19% 18%
* UK GAAP figures adjusted to reflect presentational changes to the income
statement under IFRS
The information about restatements contained in this document has been prepared
on the basis of IFRS currently in issue and adopted by the EC, that are expected
to apply to 31 December 2005 year ends. However, these are subject to ongoing
review and endorsement by the EC and may be subject to interpretative guidance
issued by the International Financial Reporting Interpretations Committee, and
best practice regarding the interpretation and application of IFRS continues to
develop. New standards may also be issued by the International Accounting
Standards Board for adoption for financial years beginning on or after 1 January
2005. Any or all of these factors could impact upon the Arena Report & Accounts
for the year ending 31 December 2005.
The financial information presented within this document is unaudited.
Basis of preparation
(i) Introduction
For all periods ending on or before 31 December 2004, Arena Leisure Plc (Arena)
has prepared its financial statements in accordance with UK Generally Accepted
Accounting Principles (UK GAAP). However, from 1 January 2005 Arena and all
other European Union (EU) companies listed on a regulated market (about 7,000
companies in total) are required by EU regulation to prepare consolidated
accounts in accordance with International Financial Reporting Standards (IFRS)
as endorsed by the European Commission (EC). The Group's first published interim
accounts under IFRS will be in respect of the six months ending 30 June 2005,
and the first annual Report & Accounts prepared on this basis will be for the
year ending 31 December 2005.
This document presents previously published UK GAAP information for 2004,
restated on an IFRS basis.
The key messages in this information about restatement to IFRS are:
* The transition from UK GAAP does not change any of the cash flows of the
Group, although there are presentational changes.
* The restatement of financial information for 2004 shows the impact of
IFRS is to marginally increase profit attributable to equity shareholders
from #5.3m to #5.6m.
* There is an increase of #1.1m in net assets at 31 December 2004,
principally reflecting the reversal of the 2004 goodwill amortisation
charge under IFRS3 and removal of the dividend creditor for dividend
declared in 2005.
* At this stage, the full financial effect of reporting under IFRS as it
will be applied and reported on in the Group's financial statements for
the year ending 31 December 2005 may be subject to change.
* The move from UK GAAP to IFRS does not impact Group strategy or investment
and commercial decision-making.
(ii) Basis of preparation
The information about restatements contained in this document has been prepared
on the basis of IFRS currently in issue and adopted by the EC, that are expected
to apply to 31 December 2005 year ends. However, these are subject to ongoing
review and endorsement by the EC and standards may be subject to interpretative
guidance issued by the International Financial Reporting Interpretations
Committee (IFRIC), and best practice regarding the interpretation and
application of IFRS continues to develop. New standards may also be issued by
the International Accounting Standards Board (IASB) for adoption for financial
years beginning on or after 1 January 2005. Any or all of these factors could
impact upon the Arena Report & Accounts for the year ending 31 December 2005.
Exemptions taken by Arena Leisure Plc under IFRS 1 'First-Time Adoption of
International Financial Reporting Standards' are explained below under (iv)
'Transition effects'.
The financial information presented within this document is unaudited.
(iii) Status of standards
The EC has endorsed without amendment all but one of the 36 international
accounting standards that are mandatory from 1 January 2005. The exception is:
IAS 39 'Financial Instruments: Recognition and Measurement'
The EC has endorsed a version of IAS 39 that has been amended by them from the
version published by the IASB. This amended IAS 39 has carve outs that affect
the parts of IAS 39 relating to requirements for macro hedging and to the
so-called fair value option for financial liabilities. The EC has also yet to
consider the adoption for use in the EU of the amendments to IAS 39 'Transition
and Initial Recognition of Financial Assets and Financial Liabilities' that were
published by the IASB in December 2004.
(iv) Transition effects
IFRS 1 permits those companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. Arena
intends to take the following key exemptions:
a) Share-based payment: IFRS 2 has been adopted from the transition date and is
only being applied to equity instruments (for example share options and share
scheme awards) granted on or after 7 November 2002 and not vested on the
effective date of the standard, 1 January 2005. Arena has elected not to take up
the option of full retrospective application of the standard and has not issued
any share options since 7 November 2002.
b) Business combinations: IFRS 3 will be applied prospectively from the
transition date to IFRS with no restatement of previous business combinations.
Goodwill amortization in 2004 has been written back. Goodwill at 1 January 2004
has been held at amortised cost and is subject to annual impairment review.
As well as the above exemptions, IAS 31 'Interests in Joint Ventures' allows a
choice of equity accounting or proportional consolidation for joint ventures.
Arena has chosen to continue to equity account for its investments in joint
ventures and associated undertakings.
(v) Overview of impact
The move from UK GAAP to IFRS does not impact upon Arena's strategy or
commercial decisions, nor does make any change to the cash flows of the Group.
The most significant changes for Arena in its financial statements for 2004
arising from the move to IFRS are:
a) the cessation of goodwill amortization.
b) recognition of dividends payable in the period in which they are
declared.
In addition to the above, there are presentational changes arising from the move
to IFRS. The financial statements will be presented in accordance with IAS 1
'Presentation of Financial Statements', and the main effects are explained in
each of the following sections. The starting point for the reconciliation of the
financial statements in this document is UK GAAP, but using the format applied
under IFRS for 2005 reporting.
In summary, the impact of IFRS on key reported results for 2004 is as follows:
2004
UK GAAP Change IFRS
#'000 #'000
Group turnover 36,019 - 36,019
Profit before interest and taxation * 5,395 356 5,751
Profit before taxation ** 4,644 264 4,908
Profit attributable to equity shareholders *** 5,321 264 5,585
Basic Earnings per share - continuing
operations 1.3 - 1.4
Basic Earnings per share - continuing and
discontinued operations 1.5 - 1.5
Net Assets 56,134 1,062 57,196
Net Debt (10,460) - (10,460)
Gearing 19% - 18%
* This represents the Group operating profit for 2004 under UK GAAP of
#5,347,000 restated for
the presentational changes under IFRS which exclude profit from
discontinued operations (Arena Online
Services Ltd) of #482,000, include the group's share of after tax profit
from Joint ventures and associates of
#577,000 and include the amortisation charge in respect of goodwill in
joint ventures of #47,000.
** This represents the profit before taxation for 2004 under UK GAAP of
#242,000 restated for the
presentational change under IFRS to include the joint venture tax credit
of #4,884,000, so as to reflect the
Group's share of post tax results and to exclude profit from discontinued
operations of #482,000 which under
IFRS is now presented below profit on ordinary activities after tax.
*** This amount is unchanged from previously reported profit attributable to
equity shareholders under
UK GAAP.
The remainder of this paper focuses on the above adjustments to the income
statement, the balance sheet and the cash flow statement arising out of the
adoption of IFRS, and IFRS developments for 2005.
Explanation of IFRS income statement adjustments
The main presentation changes on the face of the income statement are as
follows:
* The share of operating results before interest and tax of joint venture and
associated undertakings are disclosed on the face of the profit and loss account
under UK GAAP and the share of their interest and tax are included in the
respective group figures. A reclassification adjustment has been made to reflect
the Group's share of post tax results as required under IFRS.
The main changes arising as a result of Arena changing its accounting policies
to comply with the requirements of IFRS are as follows:
(i) IFRS 3 'Business Combinations'
Under UK GAAP, on all acquisitions prior to 1 April 1998 Arena immediately wrote
off any positive or negative goodwill to retained earnings. This goodwill was
transferred from reserves to the profit and loss account on any subsequent
disposal of the net assets to which it related. From 1 April 1998, goodwill on
acquisitions was held as an intangible asset in the balance sheet and amortised
over its estimated useful life being 20 years. Only the unamortised portion was
included in the gain or loss recognised in the period of disposal.
Under IFRS, goodwill is considered to have an indefinite life and is not
amortised, but is subject to an impairment review on transition and annually
thereafter.
Arena has taken advantage of the IFRS 1 exemption to apply IFRS 3 prospectively
from the transition date and has established that no adjustments are required to
goodwill arising on previous acquisitions. This means that the carrying amount
of goodwill on the opening IFRS balance sheet is the carrying amount under UK
GAAP at the date of transition to IFRS.
The operating profit impact in 2004 of the move to IFRS is a credit of #354,000,
representing the reversal of the goodwill amortisation charged in the period
under UK GAAP in respect of acquisitions (#307,000) and joint ventures
(#47,000).
(ii) IAS 12 'Income Taxes'
The approach to current tax is similar under UK GAAP and IFRS.
The approach to deferred tax differs under IFRS in comparison with UK GAAP and
IAS 12 adopts the balance sheet liability method to providing for deferred
taxes, which relies on one key principle. When the carrying amount of an asset
is greater than its tax base then the amount of future taxable income flowing
from that asset will exceed the amount that will be allowed as a deduction for
tax purposes. This gives rise to a tax liability in respect of taxes that will
be payable in the future. The same principle applies to a deferred tax asset
that arises in respect of taxes that will be recoverable in the future when the
carrying value of a liability is settled or when brought forward tax losses will
be recovered. In practice, this revised approach under IFRS does not give rise
to significant differences for Arena. No adjustments are therefore required.
(iii) IAS 17 'Leases'
Under UK GAAP, a lease is classified as a finance lease if it transfers
substantially all of the risks and rewards incidental to ownership. Conversely,
it is classified as an operating lease if it does not transfer substantially all
of the risks and rewards incidental to ownership.
Under IFRS, similar conditions apply but IAS 17 requires finance leases for land
and buildings to be split, with the land element generally being classified as
an operating lease. However, if lease payments cannot be allocated reliably then
the entire lease should be classified as a finance lease.
As a consequence of IAS 17, the lease in respect of Worcester racecourse has
been classified as a finance lease and has been capitalised as a fixed asset
with a corresponding finance lease creditor. Future lease payments will be
allocated between capital and interest accordingly.
The impact on operating profit in 2004 of the move to IFRS is a charge to
interest expense of #92,000 and a credit of #2,000 to administrative overhead
costs. The latter being the adjustment of the depreciation charge on the
leasehold asset.
Consolidated income statement IFRS 3 IAS 17
for the year ended 31 December 2004 UK GAAP Goodwill Leases IFRS
#'000 #'000 #'000 #'000
Group turnover 36,019 - - 36,019
Operating costs (23,688) - - (23,688)
--------- -------- ------- -------
Gross profit 12,331 - - 12,331
Administrative costs (7,466) 307 2 (7,157)
Share of post tax results of joint
ventures and associates 577 - - 577
Goodwill amortisation in respect of
joint venture (47) 47 - -
--------- -------- ------- -------
Profit before interest and taxation 5,395 354 2 5,751
Net finance costs (751) - (92) (843)
--------- -------- ------- -------
Profit before taxation 4,644 354 (90) 4,908
Taxation 195 - - 195
--------- -------- ------- -------
Profit on ordinary activities after
taxation 4,839 354 (90) 5,103
Profit from discontinued operations 482 - - 482
--------- -------- ------- -------
Profit for the period attributable to
equity shareholders 5,321 354 (90) 5,585
========= ======== ======= =======
Earnings per share:
Continuing operations Pence Pence
--------- --------
Basic earnings per share 1.3 1.4
Diluted earnings per share 1.3 1.4
Continuing & discontinued operations
Basic earnings per share 1.5 1.5
Diluted earnings per share 1.5 1.5
Explanation of IFRS balance sheet adjustments
The main presentation changes on the face of the balance sheet are as follows:
* Non-current assets - This new balance sheet category comprises fixed assets
and long-term debtors, and splits out goodwill, property, plant and equipment,
investment property, pension assets and tax assets. In addition, investments in
joint ventures and associated undertakings are combined under one heading as
equity accounted investments.
* Current assets - Debtors are analysed into trade and other receivables,
pension assets and tax assets. Short-term investments with original maturity of
three months or less are classified as cash equivalents.
* Current liabilities - Current liabilities are analysed into trade and other
payables, pension liabilities, tax liabilities, borrowings and short-term
provisions.
*Non-current liabilities - Provisions for liabilities and charges are analysed
into short-term provisions and into long-term pension liabilities and tax
liabilities.
The main changes arising as a result of Arena changing its accounting policies
to comply with the requirements of IFRS are as follows:
(i) IFRS 3 'Business Combinations'
The principal differences between UK GAAP and IFRS are explained on page 5. The
goodwill amortisation for 2004 has been reversed resulting in an increase in
goodwill in the balance sheet of #354,000 of which #307,000 relates to
acquisitions and #47,000 relates to associates and joint ventures. No impairment
provision is considered necessary.
(ii) IAS 12 'Income Taxes'
Under UK GAAP, deferred tax is accounted for on the basis of timing differences,
whereas IFRS uses a balance sheet concept of temporary differences. However,
this change has little impact on Arena and no adjustments are required.
(iii) IAS 10 'Events after the balance sheet date'
Under UK GAAP proposed dividends are included the balance sheet as a liability
even though formal declaration has taken place after the balance sheet date,
whereas under IFRS if an entity declares a dividend after the balance sheet
date, the entity must recognise the dividend in the period in which it was
declared.
Arena declared its final dividend in respect of 2004 in April 2005 therefore an
adjustment of #1,084,000 is required to remove the proposed dividend liability
from the balance sheet at 31 December 2004 to be reflected in 2005.
(iv) IAS 17 Leases
The principal differences between UK GAAP and IFRS are explained on page 5.
As a consequence of IAS 17, the lease of Worcester racecourse has been
classified as a finance lease and has been apitalized as a fixed asset with a
corresponding finance lease creditor within liabilities. Future lease payments
will be allocated between capital and interest accordingly.
Consolidated balance sheet
As at 1 January 2005
UK IFRS3 IAS10 IAS17
(December 2004 year end) GAAP Goodwill Dividends Leases IFRS
Assets #'000 #'000 #'000 #'000 #'000
Non - current assets
Property plant and equipment 67,840 - - 1,027 68,867
Goodwill 4,571 307 - - 4,878
Equity accounted investments
(JV's and Associates) (959) - - - (959)
Goodwill in respect of JV 1,327 47 - - 1,374
Loans to JV 2,991 - - - 2,991
Other investments 345 - - - 345
------- -------- --------- -------- -------
76,115 354 - 1,027 77,496
------- -------- --------- -------- -------
Current assets
Inventories 30 - - - 30
Trade and other receivables 3,904 - - - 3,904
Cash and cash equivalents 27 - - - 27
------- -------- --------- -------- -------
3,961 - - - 3,961
------- -------- --------- -------- -------
Total assets 80,076 354 - 1,027 81,457
======= ======== ========= ======== =======
Liabilities
Current liabilities
Trade and other payables (10,538) - 1,084 - (9,454)
Short term borrowings (1,843) - - - (1,843)
Current tax payable (5) - - - (5)
-------- -------- --------- -------- --------
(12,386) - 1,084 - (11,302)
-------- -------- --------- -------- --------
Non current liabilities
Other payables - - - (1,403) (1,403)
Long term borrowings (8,644) - - - (8,644)
Accruals & deferred income (2,912) - - - (2,912)
-------- -------- --------- -------- --------
(11,556) - - (1,403) (12,959)
-------- -------- --------- -------- --------
Total liabilities (23,942) - 1,084 (1,403) (24,261)
======== ======== ========= ======== ========
Net Assets 56,134 354 1,084 (376) 57,196
======== ======== ========= ======== ========
Equity
Share Capital 18,075 - - - 18,075
Other reserves 5,417 - - - 5,417
Retained earnings 32,642 354 1,084 (376) 33,704
-------- -------- --------- -------- --------
Total equity 56,134 354 1,084 (376) 57,196
======== ======== ========= ======== ========
Consolidated balance sheet
As at 1 January 2004
UK IAS17
(December 2003 year end) GAAP Leases IFRS
Assets #'000 #'000 #'000
------- -------- --------
Non - current assets
Property plant and equipment 55,834 1,025 56,859
Goodwill 4,878 - 4,878
Equity accounted investments (JV's and
associates) (36,120) - (36,120)
Goodwill in respect of JV - - -
Loans to JV 33,968 - 33,968
Other investments 345 - 345
------- -------- --------
58,905 1,025 59,930
------- -------- --------
Current assets
Inventories 55 - 55
Trade and other receivables 3,176 - 3,176
Blocked bank deposit 1,365 - -
Cash and cash equivalents 1,284 - 1,284
------- -------- --------
5,880 - 4,515
------- -------- --------
Total assets 64,785 1,025 64,445
======= ======== ========
Liabilities
Current liabilities
Trade and other payables (8,964) - (8,964)
Short term borrowings (422) - (422)
Current tax payable (200) - (200)
-------- -------- --------
(9,586) - (9,586)
-------- -------- --------
Non current liabilities
Other payables - (1,311) (1,311)
Long term borrowings (390) - (390)
Accruals & deferred income (2,912) - (2,912)
-------- -------- --------
(3,302) (1,311) (4,613)
-------- -------- --------
Total liabilities (12,888) (1,311) (14,199)
======== ======== ========
Net Assets 51,897 (286) 50,246
======== ======== ========
Equity
Share Capital 18,075 - 18,075
Share premium account 87,625 - 87,625
Other reserves 5,432 - 5,432
Retained earnings (59,235) (286) (59,521)
-------- -------- --------
Total equity 51,897 (286) 51,611
======== ======== ========
Explanation of IFRS cash flow statement adjustments
The move from UK GAAP does change any of the cash flows of the Group although
there are presentational changes.
The IFRS cash flow format is similar to UK GAAP but presents various cash flows
in different categories and in a different order from the UK GAAP cash flow
statement.
Consolidated Cash Flow
For the year ended 31 December 2004
UK GAAP No IFRS
2004 Impact 2004
#'000 #'000 #'000
Cash flows from operating activities
Cash generated from operations 7,011 - 7,011
Interest paid (943) - (943)
Tax paid - - -
------- -------- -------
Net cash from operating activities 6,068 - 6,068
Cash flows from investing activities
Interest received 106 - 106
Purchase of property, plant and equipment (13,537) - (13,537)
Proceeds on disposal of property, plant and equipment 82 - 82
Loan to joint venture investment (2,991) - (2,991)
Investment in joint venture (2,025) - (2,025)
Decrease in restricted bank account 1,365 - 1,365
------- -------- -------
Net cash from investing activities (17,000) - (17,000)
Cash flows from financing activities
Net proceeds from new bank loan 8,580 - 8,580
Repayment of borrowings (422) - (422)
------- -------- -------
Net cash from financing activities 8,158 - 8,158
------- -------- -------
Net decrease in cash and cash equivalents (2,774) - (2,774)
Cash and cash equivalents at 1 January 1,284 - 1,284
------- -------- -------
Cash and cash equivalents at 31 December (1,490) - (1,490)
======= ======== =======
Consolidated income statement IFRS 3 IAS 17
for the six months ended 30 June 2004 UK GAAP Goodwill Leases IFRS
#'000 #'000 #'000 #'000
Group turnover 17,995 - - 17,995
Operating costs (12,066) - - (12,066)
--------- -------- ------- -------
Gross profit 5,929 - - 5,929
Administrative costs (3,537) 154 1 (3,382)
Share of post tax results of joint
ventures and associates (3,022) - - (3,022)
Goodwill amortisation in respect of
joint venture (42) 42 - -
--------- -------- ------- -------
Profit before interest and taxation (672) 196 1 (475)
Net finance costs (3) (46) (49)
--------- -------- ------- -------
Profit before taxation (675) 196 (45) (524)
Taxation - - - -
--------- -------- ------- -------
Profit on ordinary activities after
taxation (675) 196 (45) (524)
Profit from discontinued operations 430 - - 430
--------- -------- ------- -------
Profit for the period attibutable to
equity shareholders (245) 196 (45) (94)
========= ======== ======= =======
Consolidated balance sheet
As at 30 June 2004
UK IFRS 3 IAS 17
GAAP Goodwill Leases IFRS
Assets #'000 #'000 #'000 #'000
Non - current assets
Property plant and
equipment 60,932 - 1,026 61,958
Goodwill 4,724 154 - 4,878
Equity accounted investments
(JV's and Associates) (5,688) - - (5,688)
Goodwill in respect of JV 2,497 42 - 2,539
Loans to JV - - - -
Other investments 345 - - 345
------- -------- ------- -------
62,810 196 1,026 64,032
------- -------- ------- -------
Current assets
Inventories 50 - - 50
Trade and other receivables 5,329 - - 5,329
Cash and cash equivalents - - - -
------- -------- ------- -------
5,379 - - 5,379
------- -------- ------- -------
Total assets 68,189 196 1,026 69,411
======= ======== ======= =======
Liabilities
Current liabilities
Trade and other payables (11,256) - - (11,256)
Short term borrowings (1,979) - - (1,979)
Current tax payable - - - -
-------- -------- -------- --------
(13,235) - - (13,235)
-------- -------- -------- --------
Non current liabilities
Other payables - - (1,357) (1,357)
Long term borrowings (390) - - (390)
Accruals & deferred income (2,912) - - (2,912)
-------- -------- -------- --------
(3,302) - (1,357) (4,659)
-------- -------- -------- --------
Total liabilities (16,537) - (1,357) (17,894)
======== ======== ======== ========
Net Assets 51,652 196 (331) 51,517
======== ======== ======== ========
Equity
Share Capital 18,075 - - 18,075
Share premium account 87,625 - - 87,625
Other reserves 5,432 - - 5,432
Retained earnings (59,480) 196 (331) (59,615)
-------- -------- -------- --------
Total equity 51,652 196 (331) 51,517
======== ======== ======== ========
Consolidated Cash Flow
For the six months ended 30 June 2004
UK
GAAP No IFRS
2004 Impact 2004
#'000 #'000 #'000
Cash flows from operating activities
Cash generated from operations 3,595 - 3,595
Interest paid (49) - (49)
Tax paid
------- -------- ------
Net cash from operating activities 3,546 - 3,546
Cash flows from investing activities
Interest received 46 - 46
Purchase of property, plant and equipment (5,840) - (5,840)
Proceeds on disposal of property, plant and equipment 67 - 67
Investment in joint venture (2,025) - (2,025)
Decrease in restricted bank account 1,365 - 1,365
------- -------- -------
Net cash from investing activities (6,387) - (6,387)
Cash flows from financing activities
Net proceeds from new bank loan - - -
Repayment of borrowings (2) - (2)
------- -------- -------
Net cash from financing activities (2) - (2)
------- -------- -------
Net decrease in cash and cash equivalents (2,843) - (2,843)
Cash and cash equivalents at 1 January 1,284 - 1,284
------- -------- -------
Cash and cash equivalents at 31 December (1,559) - (1,559)
======= ======== =======
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