RNS Number:6350Q
LA Fitness PLC
08 October 2003
LA FITNESS PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31 JULY 2003
LA Fitness plc, the market leading provider of conveniently located and
affordably priced health and fitness clubs, today announces its preliminary
results for the year ended 31 July 2003.
Highlights
* Turnover up 39% to #66.3 million (2002: #47.6 million)
* EBITDA* up 27% to #16.7 million (2002: #13.1 million)
* Operating profit* up 12% to #10.4 million (2002: #9.3 million)
* Pre-tax profits* down 8% to #7.2 million (2002: #7.8 million)
* Basic earnings per share* up 13% to 13.7p.
* Final dividend up 25% to 1.0p (2002: 0.80p)
* 14 clubs opened during year (66 clubs open at year end)
* Membership up 28% to 165,320 (2002: 129,510)
* pre-exceptional operating items
Peter Jacobs, Chairman of LA Fitness plc, said:
"The more encouraging trading performance in the final quarter of the financial
year has continued since the year end. With the UK opening programmes of many
of our competitors having been scaled back, there are excellent opportunities
for future development and we consider that our area of the health and fitness
market remains far from saturation. Our particular business model continues to
perform robustly and the availability of quality new sites remains strong. The
Board now believes that in the light of current trading it is appropriate to
re-examine the rate of new club openings beyond July 2004.
"We are confident in our strategy and believe that we are well positioned once
again to grow the business and its profitability and as a result to further
enhance shareholder value."
Enquiries:
LA Fitness plc
Fred Turok, Chief Executive 0207 366 8080
Richard Taylor, Finance Director 0207 366 8080
Carolynne Bull-Edwards, Investor Relations 07973 480736
Chairman's and Chief Executive's Review
We are pleased to present the Group's results for the year ended 31 July 2003.
In our interim statement we reported that the first half of the year had been
particularly challenging for the Group in the face of a significant economic
slowdown. We are encouraged therefore to report that initiatives taken in the
second and third quarters of the financial year are proving successful and, as a
result, the performance of the Group strengthened as the year progressed.
Results
Turnover for the year grew by 39% to #66.3m (2002: #47.6m). Earnings before
interest, tax, depreciation and amortisation (EBITDA) increased by 27% to #16.7m
(before exceptional operating items) against #13.1m in 2002 and operating
profits before exceptional operating items increased by 12% to #10.4m (2002:
#9.3m). Increased interest payable arising from the higher levels of borrowings
throughout the year was the main factor in the 8% fall to #7.2m (2002: #7.8m) in
profits before tax and exceptional operating items.
Before exceptional operating items, basic earnings per share increased by 13% to
13.7p (2002: 12.1p). After exceptional operating items, basic earnings per
share fell to 5.6p (2002: 12.1p).
Of the estate of 66 clubs, 35 clubs were open throughout the last two years.
Like-for-like sales from these older clubs decreased by 2%, principally
influenced by the performance of the non-swimming pool clubs. Joining fees,
which came under pressure in the first half of the year in particular, accounted
for 3% (2002: 4%) of turnover. We continue to work hard on seeking and
developing opportunities for increasing ancillary income from our existing
clubs, in areas such as private training, merchandising and advertising. For
the year ended 31 July 2003, income arising from sources other than membership
subscriptions and joining fees grew by 27% and represented 11% of total income.
During the year, 4 freeholds / long leaseholds were sold and leased back. At
the year end, the Group held a further 2 long leasehold premises which are
expected to be sold and leased back during the first half of the current
financial year.
Operations
During the year we opened 14 new clubs, including the re-location of one of the
original non-swimming pool clubs. At the year end the Group traded from 66
clubs, 64 of which are in the United Kingdom, 1 in Spain and 1 in Eire. The
strength of the Group's brand and the quality of our offering enabled us to
continue to benefit from our successful strategy of recruiting new members prior
to a club opening, providing a solid platform for the speedy achievement of
membership capacity.
Membership numbers across the Group have continued to expand at an encouraging
pace. At 31 July 2003, the Group had 165,320 members at the 66 clubs open,
compared to 129,510 at 31 July 2002, an increase of 35,810 members (28%) in the
last 12 months. The 14 clubs that opened during the last 12 months have
achieved highly satisfactory membership growth, averaging approximately 2,000
members per club at the year end. We consider that member retention continues
to be a key element driving the success of our business and remains in line with
our expectations. The second half of the year has seen an improvement in the
demand for new memberships with approximately 80% of these new members opting
for an annual membership agreement. The majority of new members continue to
join as a direct result of an existing member's recommendation, a positive
acknowledgment of the quality of customer service and facilities that we
provide.
Exceptional Operating Charges
As we have previously indicated, the strategy of the business is to build and
open high quality clubs which provide swimming pools. Some of the earliest LA
Fitness clubs do not have pools and are too small to offer the extensive range
of facilities that we believe are appropriate and necessary to enable us to
present value for money and so compete effectively in the market place.
Accordingly, one such club was closed in the financial year and another one
since the year end. Furthermore, a third non-pool club is scheduled to close in
the first half of the current year and 2 others are being marketed to interested
parties. As a result, the Group has incurred an exceptional operating charge in
respect of an impairment of asset value and closure costs in respect of these
clubs.
As already reported, work commenced earlier this year on the building of a
second club in Spain. Subsequently, building works were halted after the
authorities rescinded previously granted planning consents. As a result the
Group has terminated its agreement to lease. The abortive costs of this project
are shown as an exceptional operating charge in the profit and loss account.
Taxation
A full provision has been made for deferred taxation as required by FRS 19. The
tax charge, after the benefit of over-provisions in prior years, on profits
before exceptional operating charges amounts to 21.6% (2002: 32.6%).
Dividend
The Board recommends a final dividend of 1.0p per ordinary share (2002: 0.8p)
payable on 1 December 2003 to shareholders on the register on 17 October 2003.
The total dividends for the year (paid and proposed) amount to 1.44p per
ordinary share, an increase of 20% over the previous year. The increased
dividend reflects the Board's confidence in the strength and prospects of the
Group.
Funding
In September 2002 our bank facilities were refinanced when the Group put in
place a new committed five-year debt facility of #90m, replacing the existing
facilities of #40m. The new facilities are earmarked to be used to fund the
continuing roll-out of new club openings. The highly competitive terms on which
we negotiated the new facilities attest to the confidence that the banking
syndicate has in our business model.
We announced in November 2002 that due to the economic background at that time,
we were continuing to review the pace of our new club roll-out. As a result, we
opened fewer clubs in the year to 31 July 2003 than originally planned and we
are likely to open no more than 6 clubs in the year to July 2004, comfortably
funded through cash flow.
At the year end, the Group had net bank borrowings of #45.9m representing
gearing of 115% (2002: 84%).
Strategic Development
Due to the further strengthening of our brand and increase in our critical mass,
the Board believes that there are strategic commercial opportunities available
to the Group and, with effect from 1 November 2003, David Turner becomes
Commercial Development Director responsible for pursuing this potential growth
area of the business.
People
The people who work for LA Fitness are its core asset and the team continues to
strengthen in depth. We pride ourselves on the quality of recruitment,
induction and training, which continues to be evidenced by the high retention
rate of senior staff members. It is a credit to, and a measure of, the quality
of our team that in just four years we have managed the growth from 15 to 66
clubs.
We would like to take this opportunity to thank all the LA Fitness team for
their continuing hard work, commitment and enthusiasm which has contributed to
our success to date and will be the platform for our future success.
Current Trading and Prospects
The more encouraging trading performance in the final quarter of the financial
year has continued since the year end. With the UK opening programmes of many
of our competitors having been scaled back, there are excellent opportunities
for future development and we consider that our area of the health and fitness
market remains far from saturation. Our particular business model continues to
perform robustly and the availability of quality new sites remains strong. The
Board now believes that in the light of current trading it is appropriate to
re-examine the rate of new club openings beyond July 2004.
We are confident in our strategy and believe that we are well positioned once
again to grow the business and its profitability and as a result to further
enhance shareholder value.
Peter Jacobs Fred Turok
Chairman Chief Executive
8 October 2003
Consolidated Profit and Loss Account for the year ended 31 July 2003
Note 2003 2003 2003
Before Exceptional After
exceptional operating exceptional
operating items operating
items (note 4) items 2002
#'000 #'000 #'000 #'000
Turnover
Continuing operations 66,283 - 66,283 47,579
Cost of sales
Continuing operations (51,284) - (51,284) (34,293)
Exceptional operating 4 - (3,570) (3,570) -
items
(51,284) (3,570) (54,854) (34,293)
Gross profit 14,999 (3,570) 11,429 13,286
Administrative expenses (4,572) - (4,572) (3,952)
Operating profit
Continuing operations 10,427 - 10,427 9,334
Exceptional operating - (3,570) (3,570) -
items
10,427 (3,570) 6,857 9,334
Interest receivable - - - 22
Amounts written off 5 - - - (495)
investment
Interest payable and (3,266) - (3,266) (1,556)
similar charges
Profit on ordinary
activities before taxation
Continuing operations 7,161 - 7,161 7,800
Exceptional operating - (3,570) (3,570) (495)
items
7,161 (3,570) 3,591 7,305
Tax on profit on ordinary 6 (1,545) 246 (1,299) (2,378)
activities
Profit on ordinary 5,616 (3,324) 2,292 4,927
activities after taxation
Dividends paid and 7 (590) (490)
proposed on equity shares
Retained profit for the 1,702 4,437
financial year
Basic earnings per share 8 13.7p 5.6p 12.1p
Diluted earnings per share 8 13.3p 5.4p 12.0p
Consolidated Balance Sheet at 31 July 2003
2003 2002
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 303 319
Tangible assets 109,983 90,009
110,286 90,328
Current assets
Stocks 484 458
Debtors 5,193 3,738
Cash at bank and in hand 44 149
5,721 4,345
Creditors: amounts falling due within one year (19,872) (15,837)
Net current liabilities (14,151) (11,492)
Total assets less current liabilities 96,135 78,836
Creditors: amounts falling due after more than one year (49,435) (35,869)
Provisions for liabilities and charges (6,948) (5,261)
Net assets 39,752 37,706
Capital and reserves
Called up share capital 2,048 2,043
Share premium account 25,895 25,855
Other reserves (249) (249)
Profit and loss account 12,058 10,057
Equity Shareholders' funds 39,752 37,706
Consolidated Statement of Total Recognised Gains and Losses for the year ended
31 July 2003
2003 2002
#'000 #'000
Profit for the financial year 2,292 4,927
Exchange differences on translation of foreign subsidiary 299 -
Prior year adjustment - (2,522)
Total recognised gains and losses since last annual report 2,591 2,405
Consolidated Reconciliation of Movements in Shareholders' Funds for the year
ended 31 July 2003
2003 2002
#'000 #'000
Profit for the financial year 2,292 4,927
Dividends (590) (490)
1,702 4,437
Exchange differences on translation of foreign subsidiary 299 -
Issue of ordinary share capital 45 -
Net addition to shareholders' funds 2,046 4,437
Opening shareholders' funds 37,706 33,269
Closing shareholders' funds 39,752 37,706
Consolidated Cash Flow Statement for the year ended 31 July 2003
2003 2002
#'000 #'000
Net cash inflow from operating activities 16,085 15,558
Returns on investment and servicing of finance (3,248) (1,286)
Taxation (112) (433)
Capital expenditure (25,324) (27,548)
Acquisitions and disposals - (1,550)
Equity dividends paid (507) (437)
Net cash outflow before financing (13,106) (15,696)
Financing 11,432 18,763
(Decrease) / increase in cash in the year (1,674) 3,067
Reconciliation of net cash flow to net debt
(Decrease) / increase in cash in the year (1,674) 3,067
Cash inflow from movement in debt and finance leases (11,387) (18,763)
Change in net debt resulting from cash flows (13,061) (15,696)
Non-cash transactions 685 -
New finance leases (3,001) (4,004)
Movement in net debt during the year (15,377) (19,700)
Net debt at 1 August 2002 (37,524) (17,824)
Net debt at 31 July 2003 (52,901) (37,524)
Gross cash flows
2003 2002
#'000 #'000
Reconciliation of operating profit to net cash inflows from operating activities
Operating profit (after exceptional operating items) 6,857 9,334
Depreciation, amortisation and impairment charges 9,562 3,768
Increase in debtors (1,442) (931)
Increase in stock (25) (157)
Increase in creditors 870 3,544
Increase in provision 263 -
Net cash inflow 16,085 15,558
Returns on investments and servicing of finance
Interest received - 22
Interest paid (2,831) (1,094)
Interest element of finance lease rentals (417) (214)
Net cash outflow (3,248) (1,286)
Capital expenditure
Purchase of tangible and intangible fixed assets (30,408) (48,620)
Receipts from sale of fixed assets 5,084 21,072
Net cash outflow (25,324) (27,548)
Financing
Issue of ordinary shares 45 -
Repayment - capital element of finance lease rentals (1,613) (237)
Bank loans drawn down 13,000 19,000
Net cash inflow 11,432 18,763
Analysis of net debt
At 1 August Cash Other At 31 July
2002 flow Changes 2003
#'000 #'000 #'000 #'000
Net cash
Cash at bank and in hand 149 (105) - 44
Bank overdrafts - (1,569) - (1,569)
149 (1,674) - (1,525)
Debt
Net obligations under finance leases and hire purchase contracts (5,673) 1,613 (3,001) (7,061)
Loans (32,000) (13,000) 685 (44,315)
(37,673) (11,387) (2,316) (51,376)
Net debt (37,524) (13,061) (2,316) (52,901)
Notes
1. The financial information contained in this announcement does not constitute
statutory accounts within the meaning of section 240 (5) of the Companies
Act 1985 for either of the years ended 31 July 2002 or 2003. The comparative
financial information for the year ended 31 July 2002 has been extracted
from the statutory accounts for that year. The Annual Report and Accounts
for the year ended 31 July 2002 has been filed with the Registrar of
Companies. The auditors' report on those accounts was unqualified and did
not contain any statement under section 237(2) or (3).
2. Turnover and operating profit relate to continuing operations, there being
no discontinued operations in the period.
3. EBITDA, which is defined as earnings before interest, tax, depreciation and
amortisation, has been calculated as follows:
2003 2002
#'000 #'000
Operating profit before exceptional operating items 10,427 9,334
Depreciation and amortisation 6,252 3,768
EBITDA 16,679 13,102
4. The exceptional operating items comprise the following:
2003
#'000
Impairment of fixed assets on clubs intended for closure 2,435
Provisions for fixed asset impairment and closure costs for clubs closed or committed to
close 1,135
3,570
5. The exceptional charge in 2002 relates to the write down in the company's
investment in Interactive Health and Fitness Limited.
6. The taxation charge for the year comprises the following:
2003 2002
#'000 #'000
Corporation tax at 30% (2002: 30%) - 535
Corporation tax over provided in previous years (125) (79)
Deferred tax 1,424 1,922
1,299 2,378
7. The Board is recommending the payment of a final dividend of 1.0p per
ordinary share in respect of the year ended 31 July 2003 on 1 December 2003
to shareholders on the register at 17 October 2003. An interim dividend of
0.44p per ordinary share was paid on 6 June 2003.
8. Earnings per share are based on the profit on ordinary activities after
taxation and calculated as follows:
2003 2003 2002
Before exceptional After
operating items exceptional
operating items
Basic earnings per share calculations
Profit for the year #5,616,000 #2,292,000 # 4,927,000
Weighted average number of shares in issue during
the year 40,926,167 40,926,167 40,853,117
Basic earnings per share 13.7p 5.6p 12.1p
Diluted earnings per share calculations
Profit for the year #5,616,000 #2,292,000 # 4,927,000
Weighted average number of shares in issue and to
be issued 42,350,738 42,350,738 40,963,708
Diluted earnings per share 13.3p 5.4p 12.0p
9. The annual report and accounts for the year ended 31 July 2003 will be sent
to all shareholders in due course and copies will be available from the
Company's registered office at 101 Commercial Road, London E1 1RD. The
Annual General Meeting will take place on 27 November 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
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