ESSENDEN LTD ESSENDEN PLC
("Essenden" or the "Company")
Interim results for the 26 week period ended 29th June 2014
18th September 2014
Essenden plc, a leading UK operator of bowling and family entertainment centres, today announces interim results for the 26 week period ended 29th June 2014 HighlightsSignificant progress in improving current and future operational and financial performance:
o 6.1% Like for Like sales increase for 26 weeks to 29th June 2014
o 9.2% Like for Like sales increase Year to Date
o EBITDA up 9.3% to £3.1m (2013: £2.9m)
o EBITDA margin increase to 12.9% from 11.7%
o Adjusted profit before tax, up 13.1% to £2.0m (2013; £1.8m)
o Average site EBITDA up 17.1% (£30k per site increase in H1 to £205k, 2013: £175k)
o Awarded "Gold" level from Investors in People (first ever in industry)
o Net Promoter Score at a record high of 52% (2013: 34%)
o Colleague satisfaction increase of 10% to 88% (2013: 80%)
o 22% increase in online sales; represents 35% of bowling revenue (2013: 29%)
Nick Basing, Chief Executive, said: "There is now clear evidence that Essenden is a consistently growing company."Enquiries:
Essenden Plc Tel: 020 8879 3932
Nick Basing
Richard Darwin
Cenkos Securities plc Tel: 020 7397 8900
Nicholas Wells
Max Hartley (Corporate Finance) Julian Morse (Sales)
Instinctif Tel: 020 7457 2020
Matthew Smallwood
ESSENDEN PLC
CHIEF EXECUTIVE'S STATEMENT26 week period ended 29th June 2014
I reported at the year end that the business had moved from turnaround to growth. I am pleased that the evidence from the first six months of the new financial year continues to substantiate the progress that we are making. Further improvements to our business made in this reporting period are laying the foundations for a stronger more profitable business.
Turnover for the period was £24.2m (2013: £24.3m). Having closed three sites last year (Milton Keynes, Liverpool, Chester) and one in early 2014 (Grantham), this was a strong overall performance with like for like sales for the 26 week period to 29th June 2014 up 6.1%. The first quarter was particularly favourable, partly offset in Quarter 2 by the impact on trading from the later timing of Easter and the World Cup.
Underpinning our growth are our operational improvements and a more buoyant economy, creating an accelerating trend. The business has now delivered two and a half years of like for like growth. Like for like sales have increased in the 37 weeks to 14th September 2014 by 9.2%.
Adjusted pre-tax profit increased in the six months to 29th June 2014 to £2.0m (2013: £1.8m) up 13.1% compared to the previous year. For the first half EBITDA increased to £3.1m (2013: £2.9m), growth of 9.3%. Site profitability of £205k for H1 is a £30k uplift versus the previous year, an increase of 17.1%. Adjusted Basic Earnings per share were 5.3p (2013: 6.9p); although there was an increase in Essenden's adjusted earnings, this was offset by the increase in number of shares due to the recent restructuring of the Balance Sheet. On a proforma and comparable basis which incorporates the 50.1m shares currently in issue, adjusted earnings per share would be 3.1p (2013:
3.0p).
I am pleased that shareholders gave overwhelming support to the Loan Note conversion in May of this year. This has given the Company a simplified capital structure. The conversion of this unusual debt instrument to shares will assist us in being able to raise funds for expansion as required. The pre-tax loss of (£7.5m) (2013: £1.3m profit) is as a direct result of the implementation of the Loan Note conversion in the period (without the Loan Note conversion, pre tax profit would have been £1.8m (2013 £1.3m)). The exceptional loss of £9.25m reflected the
£6.77m difference between the value that the additional shares were issued at and the value of the Loan Notes on the balance sheet, and £2.48m of associated costs. The business held Net Cash before finance leases of £1.1m at the half year (Dec 2013 : £2.1m), with strong cash generation offset to some extent in this period by the exceptional costs of the Loan Note conversion project. We have renewed our working capital facilities totalling £5m until September 2017, giving us the flexibility we need to continue to invest in the business.
Optimising our property estate of just under 1m sq feet continues to be a major focus. There are a number of discussions underway to either restructure leases or return excess space to landlords. These discussions are taking some time with landlords, however we are optimistic about achieving good outcomes. We have seen the benefit of concentrating our resources and capital on fewer more profitable sites during this half year. Capital spend in the first half was £0.9m (2013: £0.2m). We expect to increase spending on a combination of high returning capital projects and site refurbishments in the coming months.
We recently announced a significant new partnership with Bandai Namco to be our new machines supplier. The new contract will result in us acquiring and retaining 100% of the revenues for certain types of machines, and this will improve the overall profitability of our machines estate. Bandai Namco are one of the World's leading games manufacturers, and this contract will give us access to the most recent video releases and a better quality machines estate overall. We have also changed our call centre supplier to Eckoh, thus combining all our telephony services under one contract. We are optimistic about the sales potential that will come from this. Both new contracts will come on stream in Quarter 4 and the transition arrangements are going well.
Operational metrics are continuing to reflect the significant progress we are making. Bowling footfall has increased through technological improvements to our booking system and our focus on yield has also fed through into an improved bowling spend per head, +4.9% year on year. Some of these changes were only implemented in February of this year, so we expect further benefit in the second half of the year. Net promoter score, the external measure of customer loyalty, has reached an all time high of 52% for the half year, (34% in Dec 2013). Games per stop, the test of lane reliability, has also continued to exceed previous record highs. Our investment in technology has driven an increase in the numbers of customers we can contact from our CRM database. Digital sales are up
22% compared to H1 of 2013 and the online channel now represents 35% of bowling revenue (2013: 29%).
ESSENDEN PLC 2
CHIEF EXECUTIVE'S STATEMENT26 week period ended 29th June 2014
I reported last year that improvements in the culture of the business through the relaunch of our core values programme was having a significant impact on the recovery of this business. I am delighted that we have had external validation of this by the award of a Gold standard from Investors In People. Only 7% of companies that are assessed receive this level. The report from Investors In People noted that "it was impressive to see that Tenpin delivered a culture that truly wished to engage and develop people and yet is business driven to achieve bottom line figures". I extend my heartfelt congratulations and thanks to each and every colleague across the country who have together achieved this significant accolade.
In February 2013, we started to consider whether a transformational acquisition in other areas of leisure could enhance shareholder value. Since then, we have examined a number of opportunities and have carried out limited due diligence on several potential acquisitions. During this time, confidence in our tenpin bowling business has grown due to recent record results currently being attained. We feel, therefore, that further expansion in our area of expertise would be more value enhancing than diversification. Given the preceding comments we have concluded that, for the foreseeable future, a transformational acquisition would not enhance shareholder value.
Some of the improvements we have implemented in this first half will have a positive ongoing impact on the future financial performance of our business. We have momentum. I am also pleased that recent trading reflects the progress we have made. Since the end of the first half, trading has been particularly strong, assisted in part by favourable weather conditions. For the 37 weeks to 14th September 2014 Like for Like sales were up 9.2%. We
remain determined to grow our business either organically or through an acquisition. We do not take for granted the recent improvements in the economy and continue to work tirelessly to create a stronger business for customers, colleagues and shareholders.
Nick Basing
ESSENDEN PLC 3
Consolidated Statement of Comprehensive (loss)/incomefor the 26 week period ended 29th June 2014
Notes
Unaudited 26 weeks to
29th June
2014
Unaudited
26 weeks to
30th June
2013
52 weeks to
29th
December
2013
£000 £000 £000
Revenue 24,176 24,256 45,648
Cost of sales (8,334) (8,580) (16,380)
Gross profit 15,842 15,676 29,268
Administrative expenses:
Net impairment (charge)/reversal - (20) 1,382
Other administrative expenses (13,478) (13,679) (25,715)
Operating profit 2,364 1,977 4,935
Finance costs (589) (684) (1,352) Loss and costs on conversion of loan notes 5 (9,250) - - (Loss)/ profit before taxation (7,475) 1,293 3,583
Taxation (433) (280) 4
(Loss)/ profit and total comprehensive
(loss)/income for the year (7,908) 1,013 3,587
Earnings per share | ||||
Basic earnings per share | 6 | (26.7)p | 4.7p | 16.7p |
Adjusted basic earnings per share | 6 | 5.3p | 6.9p | 9.3p |
Adjusted diluted earnings per share 6 3.9p 6.9p 9.3p
ESSENDEN PLC 4
Consolidated balance sheet
as at 29th June 2014
Unaudited 29th June 2014 | Unaudited 30th June 2013 | 29th December 2013 | |
Notes | £000 | £000 | £000 |
Assets | |||
Non-current assets | |||
Goodwill | 11,911 | 11,911 | 11,911 |
Intangible assets | 62 | 154 | 121 |
Property, plant and equipment | 22,791 | 22,015 | 23,095 |
Trade and other receivables | 30 | 174 | 125 |
Deferred tax asset 1,459 1,608 1,891 | |||
36,253 | 35,862 | 37,143 | |
Current assets | |||
Inventories | 907 | 998 | 1,003 |
Trade and other receivables | 2,745 | 2,929 | 3,671 |
Cash and cash equivalents 7 2,080 3,363 4,868 | |||
5,732 | 7,290 | 9,542 | |
Liabilities | |||
Current liabilities | |||
Borrowings | (1,043) | (2,043) | (2,866) |
Trade and other payables | (4,500) | (4,946) | (6,216) |
Provisions (604) (937) (604)
(6,147) (7,926) (9,686)
Net current liabilities (415) (636) (144)
Non-current liabilities
Borrowings (2,197) (17,763) (17,980) Other non-current liabilities (514) (617) (575) Provisions (3,053) (4,141) (3,165)
(5,764) (22,521) (21,720)
Net assets 30,074 12,705 15,279
Equity
Share capital 5 499 214 214
Share premium 22,418 - - Other reserves 81,151 81,151 81,151
Retained earnings (73,994) (68,660) (66,086)
Total equity 30,074 12,705 15,279
ESSENDEN PLC 5
Consolidated cashflow statementfor the 26 week period ended 29th June 2014
Notes
Unaudited
26 weeks to
29th June
2014
Unaudited 26 weeks to 30th June 2013
52 weeks to
29th
December
2013
Cash flows from operating activities
£000 £000 £000
Cash generated from operations 8 2,661 2,550 4,015
Finance costs paid (191) (208) (400)
Net cash from operating activities | 2,470 | 2,342 | 3,615 |
Cash flows from investing activities | |||
Net costs associated with lease surrender | (6) | - | - |
Purchase of property, plant and equipment | (884) | (222) | (641) |
Purchase of software - (12) (38)
Net cash used in investing activities | (890) | (234) | (679) | |
Cash flows from financing activities | ||||
Finance lease principal payments | (43) | (43) | (116) | |
Cash costs on loan note redemption | 5 | (2,575) | - | - |
Drawdown of borrowings | 1,000 | 1,500 | 2,500 |
Repayment of borrowings (2,750) (3,000) (3,250)
Net cash used in financing activities (4,368) (1,543) (866)
Net (decrease)/increase in cash and cash equivalents | (2,788) | 565 | 2,070 | |
Cash and cash equivalents - beginning of period | 7 | 4,868 | 2,798 | 2,798 |
Cash and cash equivalents - end of period | 7 | 2,080 | 3,363 | 4,868 |
for the 26 week period ended 29th June 2014
Share Share Other Retained Total
capital premium reserves earnings
equity
£000 £000 £000 £000 £000
Unaudited 26 weeks to 29th June 2014
Balance at 29th December 2013 214 - 81,151 (66,086) 15,279
Issue of 28,494,904 1p ordinary shares 285 - - - 285
Share premium (note 5) - 22,418 - - 22,418
Total comprehensive loss for the period - - - (7,908) (7,908)
Balance at 29th June 2014 499 22,418 81,151 (73,994) 30,074
Unaudited 26 weeks to 30th June 2013
Balance at 30th December 2012 214 - 81,151 (69,673) 11,692
Total comprehensive income for the period - - - 1,013 1,013
Balance at 30th June 2013 214 - 81,151 (68,660) 12,705
52 weeks to 29th December 2013
Balance at 30th December 2012 214 - 81,151 (69,673) 11,692
Total comprehensive income for the period - - - 3,587 3,587
Balance at 29th December 2013 214 - 81,151 (66,086) 15,279
ESSENDEN PLC 6
Notes
1 General information
Essenden PLC ("Essenden" or the "company") is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office is 3rd Floor, 2-4 St. Georges Road, Wimbledon, London, SW19 4DP. The condensed consolidated interim financial statements of the Group for the 26 week period ended 29th June 2014 comprise the company and its subsidiaries (together referred to as the "group"). The principal activity of the Group comprises the operation of tenpin bowling centres.
The financial information for the 26 week period ended 29th June 2014 is unaudited and has not been reviewed by the company's auditors. It does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements of Essenden for the 52 week period to 29th December 2013, which have been prepared in accordance with IFRSs as adopted by the European Union. The financial information of the Group for the 52 week period to 29th December 2013 has been extracted from the financial statements for that period which were approved by the board of directors on 19th March 2014 and have been filed with the Registrar of Companies. The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 434 of the Companies Act 2006.
The accounting policies applied by Essenden in this report are consistent with those of the financial statements of the
Group for the 52 week period to 29th December 2013, as described in those financial statements. This report was approved by the directors on 18th September 2014.
The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim financial reporting" as adopted by the European Union, and incorporate the consolidated results of Essenden and all its subsidiaries for the 26 week period ended 29th June 2014. The comparative financial information is for the Essenden Group for the 26 week period ended 30th June 2013.
3 Going concernThe Group meets its day-to-day working capital requirements with the assistance of its bank facilities. The Group's forecasts and projections take account of reasonably possible changes in trading performance and show that the Group should be able to operate within the level of its current facilities, meet future debt repayments and will continue to comply with its banking covenants for at least the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed consolidated interim financial statements.
4 Accounting estimates
The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 29th December 2013.
ESSENDEN PLC 7
Notes (continued)
5 Loan note conversion to ordinary shares
On the 7th of May 2014 a general meeting of Shareholders and Loan Note holders was held and approved the resolutions to convert 21,424,740 loan notes into 28,494,904 shares. The shares were issued on the AIM stock exchange on 8th May 2014 increasing the company's total issued share capital to 49,919,644 1p ordinary shares.
The fair value of the transaction was determined based on the share price on the date of conversion of the notes and amounted to £22,795,923. The par value of each share is 1p thus the surplus on issue of £22,510,974 was accounted for as share premium less a portion of the expenses on issue of the ordinary shares.
The loss and costs of conversion of the loan notes amount to £9,249,621. The accounting loss on conversion amounted to £6,766,566 being the difference between the fair value on conversion and the book value of the loan notes of £16,029,357. The balance of £2,483,055 consists of the payment of the incentive due on redemption of the notes as well as the legal and professional costs incurred in the whole conversion process. The loss and costs of the loan notes are summarised in the below table:
Number of shares issued 28,495
Price on date of conversion 80p Fair value of share issue 22,796
Book value of loan notes 16,029
Loss on loan note conversion 6,767
Cash costs of loan note conversionLegal and professional fees 179
Loan note incentive 2,150
NI on incentive 246 Total cash costs related to loan note conversion 2,575
Less: Legal and Professional fees allocated to share premium (92)
Income statement costs relating to loan note conversion 2,483
Total loss and costs of loan note conversion 9,250 6 Earnings per share
Basic earnings per share for each period is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. Earnings Per Share is based on the capital structure of Essenden and includes the weighted average of the 28,494,904 ordinary shares issued upon the conversion of the loan notes on 8th May 2014. The total shares in issue at the end of the half year was 49,919,644.
Below is the calculation of the weighted average number of ordinary shares and adjusted earnings per share.
Unaudited 26 weeks to 29th June 2014
Unaudited 26 weeks to 30th June 2013
52 weeks to 29th
December 2013
£000 £000 £000
Operating profit | 2,364 | 1,977 | 4,935 |
Add back amortisation on intangible assets | 59 | 59 | 119 |
Add back other one off items | 41 | 215 | 435 |
Less net onerous lease provision releases | (179) | (245) | (1,627) |
Add/(less) net property, plant & equipment impairment | - | 20 | (1,382) |
ESSENDEN PLC 8
Notes (continued)
Less bank and finance lease interest & charges (285) (257) (498) Less Tax (433) (280) 4
Adjusted earnings attributable to ordinary shareholders 1,567 1,489 1,986
Weighted average number of ordinary shares: Number of shares
For basic earnings per share 29,621,904 21,424,740 21,424,740
For diluted earnings per share 39,770,774 21,424,740 21,424,740
Basic earnings per share (26.7)p 4.7p 16.7p Adjusted basic earnings per share 5.3p 6.9p 9.3p Diluted earnings per share (19.9)p 4.7p 16.7p Adjusted diluted earnings per share 3.9p 6.9p 9.3p
7 Cash and cash equivalentsCash and cash equivalents as reported in the cashflow
Unaudited Unaudited
29th June 30th June 29th December
2014 2013 2013
£000 £000 £000
statement 2,080 3,363 4,868
Bank loans (1,000) (2,000) (2,750)
Net Operating Cash 1,080 1,363 2,118
8 Cash flows from operating activitiesReconciliation of (loss)/profit for the period to cash generated from operations:
Unaudited 26 weeks to 29th
Unaudited 26
weeks to 30th 52 weeks to 29th
June 2014
June 2013
December 2013
£000 £000 £000
(Loss)/profit for the period (7,908) 1,013 3,587
Adjustments for:
Tax 433 280 (4) Finance costs 589 684 1,352
Non cash loss on loan note redemption (note 5) 6,767
Cash costs on loan note redemption (note 5) 2,575
Impairment of property, plant and equipment - 20 (1,382) Amortisation of intangible assets 59 59 119
Depreciation of property, plant and equipment 830 824 1,600
Changes in working capital:
Decrease in inventories 96 11 41 (Increase)/decrease in trade and other receivables (98) 589 320 (Decrease)/increase in payables (503) (690) 15
Decrease in provisions (179) (240) (1,633)
Cash generated from operations 2,661 2,550 4,015
ESSENDEN PLC 9
Notes (continued)
Operating reviewEssenden is the holding company for the tenpin bowling operations of Tenpin Limited. The principal activity of the group comprises the operation of 29 tenpin bowling centres. The table below demonstrates the group's performance for the 26 week period to 29th June 2014, compared with the 26 week period to 30th June 2013.
Results of operations2014 2013
£000 £000
Revenue 24,176 24,256
Cost of sales (8,334) (8,580) Operating costs (5,086) (5,157) Rent (4,743) (4,861) Contribution 6,013 5,658
Centrally allocated overheads (846) (830) Overheads (1,748) (1,700) Plc overheads (304) (278) EBITDA (i) 3,115 2,850
Amortisation of intangible assets (59) (59) Depreciation of property, plant & equipment (830) (824) Operating profit before one-off items 2,226 1,967
Other one-off costs (41) (215)
Operating profit before impairments and provisions 2,185 1,752
Property, plant & equipment impairment - (20) Onerous lease provision released 179 245
Operating profit 2,364 1,977
Loss and costs on conversion of loan notes (9,250) - Net interest excluding loan note interest and notional
interest on provisions (285) (257)
Essenden loan note interest (237) (341) Notional interest - onerous lease provisions (67) (86) (Loss)/profit before tax (7,475) 1,293
Tax (433) (280)
(Loss)/profit after tax (7,908) 1,013
Profit before tax, one-offs, amortisation, impairments
and provisions (ii) 2,000 1,769
Adjusted earnings per share (iii) 5.3p 6.9p
Foot notes:
(i) EBITDA represents earnings before interest, tax, depreciation, impairment, non recurring items and net movement on provisions.
(ii) Reconciliation of adjusted profit before tax 2014 2013
£000 £000
Operating profit before one-off items 2,226 1,967
Add back Amortisation of intangible assets 59 59
Net finance costs excluding loan note finance costs
and notional interest on provisions (285) (257)
Adjusted profit before tax 2,000 1,769
ESSENDEN PLC 10
Notes (continued)
(iii) Adjusted earnings per share is calculated as Profit before tax, one offs, amortisation, impairments and provisions per note (ii) divided by the weighted average number of ordinary shares in issue as disclosed in note 6.
Group Performance Turnover: Turnover for the half year period decreased by £0.08m (0.3%) from £24.3m in H1 2013 to £24.2m in H12014 but was in growth of 6.1% on a like for like basis. 30 centres traded during this interim period but Grantham was surrendered back to the landlord at the beginning of March.
Contribution: Contribution increased by £0.36m (6.3%) from £5.7m in H1 2013 to £6.0m in H1 2014, and contribution margin increased by 1.5% points from 23.3% to 24.8%. The strong contribution has been maintained through positive sales on a LFL basis during the half year while managing costs such as labour and utilities by focusing on hours and usage respectively. EBITDA: EBITDA increased by £0.27m (9.3%) from £2.9m in H1 2013 to £3.1m in H1 2014, with EBITDA margin up1.2% points to 12.9% due to the improvement in contribution.
Operating profit: Operating profit increased by £0.39m (19.6%) from £2.0m in H1 2013 to £2.4m in H1 2014. The depreciation and amortisation charges varied slightly from June 2013, while one off costs decreased by £0.2m and there was a £0.066m decrease in the released amount of the onerous lease provision compared to last year. (Loss)/profit before tax: The loss before tax increased by £8.77m, moving from a profit of £1.3m to a loss of £7.5m. This was mainly due to the loss and costs of £9.3m from the redemption of the loan notes and conversion to ordinary shares as explained in note 5.Taxation: The tax charge for the 26 weeks ended 29th June 2014 amounted to £0.4m and arises on a loss before tax of £7.5m. The theoretical tax credit at the tax rate of 21% (2013: 23%) would be £1.6m. The £2m difference between the actual charge and the theoretical credit is due to:
The £1.9m impact of the exclusion of the losses generated in Essenden from a deferred tax perspective as the company has not generated income in the year against which the losses can be utilised,
The £0.1m impact of the decrease of the future tax rate from 2013 (21% down to 20%) which reduces the deferred tax asset and results in a deferred tax charge.
Property matters: Tenpin LtdThe Grantham site, the smallest site in terms of space and revenue, was surrendered back to the landlord on the 4th of March 2014. There have been no other site purchases or disposals during the period.
Risk factors:Summarised below are the principal risks and uncertainties which have been identified by management as facing the Group. There has not been a significant change in the risks and uncertainties facing the Group as reported in the annual financial statements. A more detailed assessment of principal risks and uncertainties is set out in the Operating review of the annual financial statements of Essenden for the 52 week period to 29th December 2013.
Risks relating to operations:ESSENDEN PLC 11
Notes (continued)
Tenpin's bowling business is based exclusively in the UK and so is exposed to UK economic conditions and consumer confidence. As a leisure activity, bowling may be affected by the general level of consumer spending on leisure activities and may also be affected by changing consumer preferences.
The business is subject to seasonal demand variations. Warm weather adversely impacts revenues as does unusual weather conditions such as heavy snow, icy conditions or high winds that discourage people from venturing out. Major sporting events also affect the results of Tenpin and school holidays are beneficial for the bowling business, which is also affected by the timing of bank holidays.
The group relies on key suppliers for certain requirements of the business. In the event that a key supplier ceased to trade or was otherwise unable or unprepared to continue to supply the group it is possible that an adequate alternative source of supply may not be identified in the short term, with a consequent adverse impact on the operation of the business.
Risks relating to financing:The continued availability of the Group's senior debt finance is dependent on continued covenant compliance which is impacted on by operational performance and profit conversion.
Availability of Interim Report
A copy of these interim results will be available from the Company's registered office during normal business hours on any weekday at 3rd Floor, 2-4 St. Georges Road, Wimbledon, London, SW19 4DP and can also be downloaded from
the Company's website at http://www.essenden.com/www.essenden.com.
ESSENDEN PLC 12
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