LONDON CLUBS
Chairman's Statement
Introduction
London Clubs has continued to make excellent progress both operationally and in
the reduction of its debt. The benefits of management action carried out over
the last 12 months in the streamlining of our operations to create a more
efficient company are now beginning to be evident. The Group has operated
against the background of uncertainty and conflict in the Middle East and the
distraction and disruption that the unsolicited approach from Stanley Leisure,
which we rejected, brought to both staff and management. I am pleased
therefore to report that the Group has achieved an excellent result for the
financial year.
London Clubs operates with a small flexible team, which has been innovative as
well as cost conscious. The Group has continued to embrace new legislation and
produce new concepts for the future. Our Southend and Brighton casinos were one
of the first to introduce entertainment and themed events, which has broadened
the appeal of these venues to a wider audience. This concept will be extended,
on a broader scale, at 50 St James' where we are partnering with Robert Earl to
create the first casino in London, to combine traditional gaming with both
entertainment and varied catering facilities. The new club will be more focused
towards the broader middle market and will cater to a wider spectrum of
clientele than its predecessor.
London Clubs will continue to innovate and change. We are enhancing our
portfolio with the relocation of the Sportsman Casino to enlarged premises and
the design and development of a new casino in Manchester. We are identifying
other well-located sites in areas outside central London where we believe we
will have a competitive advantage. London Clubs is a traditionally London based
operation and therefore has no restrictions on where it may locate its new
dynamic entertainment led casinos other than the availability of suitable sites.
Results
Turnover for the year rose to £159.5 million (2002: £152.5 million). Improved
trading in both the UK and overseas casinos, significant cost reductions across
the Group, and the collection of prior year debts, have resulted in
substantially increased operating profit before exceptional items to £24.1
million (2002: £0.16 million). Pre exceptional, pre tax profit was up to £8.5
million (2002: £19.8 million loss pre exceptional and associate items).
Earnings per share before exceptional items were 6.4p (2002 : 10.7p loss per
share pre exceptional and associate items).
A formal professional independent valuation of the UK casinos was undertaken at
30 March 2003. This has resulted in a revaluation surplus of £57.4 million,
which has been reflected in the revaluation reserve and is one of the factors
resulting in an increase in Group net assets to £70.8 million (2002: £3.0
million).
Operations
UK
In London, drop levels exceeded our expectations although a slightly lower win
percentage meant that the overall gaming win remained at a similar level to the
prior year. Importantly we did not suffer the same bad debt experience.
Amongst the individual clubs Les Ambassadeurs performed exceptionally, the
Golden Nugget again had a record year and the Sportsman also performed well,
although the Rendezvous was affected by the problems in the Middle East. The
Palm Beach, which has now been sold, increased its contribution to group
profits. Trading at 50 St James suffered the effects of the uncertainty of the
future of the venue, although we confidently expect it to benefit substantially
from the changes that will be made as part of the joint venture with Robert
Earl.
In our two regional casinos in Southend and Brighton we have made good progress
with Brighton performing well in its first full year of operation and Southend
now firmly established as a leading player in that local market. Our regional
casinos have benefited significantly from the experience our management team
have gained overseas where different regulations apply and the emphasis is on
both slot machines and entertainment. These two sites provide the model for our
expansion elsewhere in the UK.
Overseas
Our operations in Egypt including the Ramses Hilton in Cairo and the 'Rendezvous
at the Nile Hilton' have both performed well. The Rendezvous has made a very
promising start whilst the Ramses Hilton has seen higher levels of drop and a
much improved win percentage. The scale of our operation in Taba has been
reduced with the staff and assets relocated to the Nile Hilton.
In South Africa the Emerald Resort is now well established and continues to
improve its contribution. It has given the Group the additional benefit of
running an all inclusive resort, and in particular experience in the management
and operation of a substantial number of slot machines.
Disposal and Joint Venture
Subsequent to the year end the Group disposed of its Palm Beach casino for
£36.25 million having held an auction process to achieve the highest price.
This was completed on 22 May 2003. At the same time, the Group also announced
the sale and lease back of 50 St James's to realise £25 million in cash and a
joint venture with Celebrity Gaming Limited (a company controlled by Robert
Earl) to reposition 50 St James's with new dining and entertainment facilities.
London Clubs retains the gaming licence and, under a management agreement,
retains responsibility for the gaming operations. Celebrity Gaming has
responsibility for the dining, entertainment and promotion of the repositioned
venue. The profits of the joint venture will be shared by London Clubs and
Celebrity Gaming on a 50 : 50 basis.
Together, these two transactions have enabled the Group to reduce debt by
approximately £60 million in line with the plan agreed with the Group's lenders.
Financing Update
Following the year end, the Group has reduced its net debt to approximately £160
million, and has begun negotiations with its principal lender to refinance the
Company's debt facilities. The previous requirement to reduce outstanding
senior debt to £120 million and to raise a further £20 million of subordinated
debt or equity by 1 September 2003 has now been waived by the lenders.
Deregulation
We welcome the Government's continued commitment to deregulation of the casino
gaming industry, although the timing of implementation is still to be agreed.
We will, however, continue to take advantage of the changes in law that have
already taken place, and to make full use of the time available to train our
management and staff in the new disciplines which will be required to operate
successfully casinos in a deregulated environment.
Outlook
Operationally, the Group continues to perform well and the first three months of
the current year have begun very positively. We have developed new templates
for both London and regional casinos, to take advantage of the more relaxed
legislation and intend to apply for new licences in existing permitted areas
over the next year. We will continue to prepare the Group for deregulation, as
and when it happens.
London Clubs' management has gained considerable expertise in the disciplines
that deregulation will require and has substantial experience of running large
slot machine operations and larger style casinos. We will continue to monitor
the progress of the Gaming Bill closely.
The last year has seen the Group make substantial progress in stabilising its
position. Our operations have achieved an excellent result, but financially
there remain some challenges. We have made difficult decisions from which the
Group and shareholders will now benefit and the Group is increasingly well
positioned for the future. Our task now is to exploit that opportunity and
maximise value for shareholders.
Consolidated profit and loss account
for the year ended 30 March 2003
Year Year
ended ended
30 March 2003 31 March 2002
Notes £'000 £'000 £'000 £'000
Turnover 2 159,537 152,528
Operating costs
- Gaming taxation (45,719) (45,171)
- Other (74,363) (90,687)
(120,082) (135,858)
Gross profit 39,455 16,670
Administrative expenses (15,344) (16,511)
Operating profit before exceptional items 2 24,111 159
Exceptional items relating to the Group 3 (3,246) -
Exceptional item relating to associate 3 - (14,587)
Group operating profit / (loss) 7 20,865 (14,428)
Share of operating loss of associate - (6,398)
Exceptional item relating to impairment of 3 - (62,638)
investment in associate
- (69,036)
Share of financing costs of associate - (16,207)
Group net interest payable (15,609) (19,942)
Net interest payable and similar items 5 (15,609) (36,149)
Profit / (loss) on ordinary activities before 2 5,256 (119,613)
taxation
Tax on profit / (loss) on ordinary activities 171 3,065
Profit / (loss) on ordinary activities after 5,427 (116,548)
taxation
Equity minority interests 766 952
Profit / (loss) transferred to / (from) reserves 6,193 (115,596)
Basic earnings / (loss) per share 6 4.2p (78.4)p
Diluted earnings / (loss) per share 6 4.2p (78.4)p
Basic earnings / (loss) per share before 6 6.4p (10.7)p
exceptional items and Aladdin operations
All activities relate to continuing operations
Consolidated balance sheet
as at 30 March 2003
30 March 31 March 2002
2003
£'000 £'000
Fixed assets
Tangible assets 301,540 238,330
Investments 990 990
302,530 239,320
Current assets
Stocks 1,155 1,212
Debtors 16,382 12,542
Cash at bank and in hand 19,939 8,623
37,476 22,377
Creditors: amounts falling due within one year (25,442) (258,493)
Net current assets / (liabilities) 12,034 (236,116)
Total assets less current liabilities 314,564 3,204
Creditors: amounts falling due after one year (243,753) -
Provisions for liabilities and charges - (199)
Net assets 70,811 3,005
Capital and reserves
Called up share capital 7,369 7,369
Share premium account 80,654 80,654
Merger reserve 5,352 5,352
Revaluation reserve 124,921 67,532
Profit and loss account (146,293) (157,636)
Equity shareholders' funds 72,003 3,271
Equity minority interests (1,192) (266)
70,811 3,005
Consolidated cash flow statement
for the year ended 30 March 2003
Notes Year ended Year ended
30 March 31 March
2003 2002
£'000 £'000
Cash flow from operating activities 7 21,189 (1,994)
Returns on investments and servicing of finance (16,533) (20,622)
Taxation (58) 1,240
Capital expenditure and financial investments (2,132) (17,600)
Acquisitions and disposals - (6,419)
Cash inflow / (outflow) before financing 2,466 (45,395)
Financing 9,244 44,583
Increase / (decrease) in cash in the year 11,710 (812)
Reconciliation of net cash flow to movement in net debt
for the year ended 30 March 2003
Year ended Year ended
30 March 31 March
2003 2002
£'000 £'000
Increase / (decrease) in cash in the year 11,710 (812)
Cash inflow from increase in debt (net of issue costs) (9,244) (44,583)
Other non cash changes (1,329) (583)
Translation differences (1,248) 6,046
Movement in net debt in the year (111) (39,932)
Net debt at beginning of year (223,703) (183,771)
Net debt at end of year (223,814) (223,703)
Statement of total recognised gains and losses
for the year ended 30 March 2003
Year ended Year ended
30 March 31 March
2003 2002
£'000 £'000
Profit / (loss) transferred to / (from) reserves 6,193 (115,596)
Exchange gain / (loss) on retranslation of net assets of subsidiary 5,150 (5,726)
undertakings
Unrealised surplus on revaluation of properties 57,389 -
Exchange loss on retranslation of net assets of associated undertaking - (1,196)
Exchange gain on foreign currency loans - 1,196
Tax attributed to exchange gain on foreign currency loans - (359)
Total gains and losses relating to the year 68,732 (121,681)
Reconciliation of movements in equity shareholders' funds
for the year ended 30 March 2003
Year ended Year ended
30 March 31 March
2003 2002
£'000 £'000
Opening equity shareholders' funds 3,271 124,952
Profit / (loss) attributable to equity shareholders 6,193 (115,596)
Exchange gain / (loss) on retranslation of net assets of subsidiary 5,150 (5,726)
undertakings
Unrealised surplus on revaluation of properties 57,389 -
Exchange loss on retranslation of net assets of associated undertaking - (1,196)
Exchange gain on foreign currency loans - 1,196
Tax attributed to exchange gain on foreign currency loans - (359)
Closing equity shareholders' funds 72,003 3,271