Essenden Plc : 21st September 2012 - Interim Results

ESSENDEN PLC

("Essenden" or the "Company")

Interim results for the 26 week period ended 1st July 2012

21st September 2012

Strategy has delivered progress in all areas of financial and operational performance

o Like for Like sales up 4.3% on core continuing estate

o Sixfold increase in pre tax profits to £0.78m (2011 : £0.12m)

o EBITDA up 76% to £2.3m (2011: £1.3m)

o 4.3% increase in customer traffic

o Average unit EBITDA up 37% for H1 to £165k (2011: £120k)

o Tenpin ranked No.2 out of 172 retail companies in the UK for exemplary service *

o Close to debt free; 68% reduction since year end to £1.1m (Dec 2011: £3.5m)

*Independently measured by Market Force using standard Net Promoter Score Metric

Enquiries:

Essenden Plc Tel: 020 8879 3932

Nick Basing

Richard Darwin

Strand Hanson Limited Tel: 020 7409 3494

Stuart Faulkner

David Altberg

The last six months performance has started to show the benefit of the radical turnaround steps that we have introduced over the last two and a half years to improve Essenden's business. These measures have created a stronger business, able to withstand the difficult economic conditions.

Turnover for the period was £24.7m. Like for like sales for the 26 week period to 1st July 2012 were up 4.3% for the core continuing estate. These additional sales may have partially benefited from the earlier Easter and the impact of the unseasonably damp conditions in the Spring. However, our relentless focus on customer service and value for money means that the growth has come from footfall rather than from price increases. At the beginning of the year we introduced a simplified and flexible pricing tariff across all sites that has been well received by customers and easy to implement for staff. We are also engaging more with our guests with the addition of a relevant new creative, marketing campaign.

Pre-tax profit increased in the six months to 1st July 2012 to £780,000 from £120,000. For the first half of the year EBITDA increased to £2.3m (2011: £1.3m). In addition to the improvement in sales the business has been able to mitigate the impact of any inflationary cost pressures through further cost saving that have reduced the operational cost base by 4.0% versus H1 2011.

The CVA that we implemented in September 2011, has left no further liabilities with the Company other than a scheduled payment of £123,500 in March 2013 and a potential incentive payment of £325,000 that would be made in March 2014 assuming certain EBITDA targets are met. During the period we operated two sites that were included in the CVA where we made arrangements with the Landlord to continue operations. Discussions are ongoing with other Landlords in the estate to ensure that all our sites have appropriate rents in order to create a sustainable business.

The cash position has been enhanced by the improved operational performance, rigorous capital controls and no further exceptional costs, other than the scheduled CVA payments, during the period. Net debt at the half year was

£1.1m, reduced from £3.5m at Dec 2011. Whilst capital investment during the past 12 months has been very carefully managed as part of the focus on preserving cash, we remain committed to ensure that each unit is modern and well-maintained.

One of my key turnaround priorities is a focus on customer service, which we measure by the well-known metric, Net Promoter Score. We are delighted to report that after 18 months of this initiative, our Company is now ranked

2nd out of 172 UK customer-orientated companies for exemplary service as measured independently by Market Force, our provider, an improvement of 90 places. The initiative has seen real benefits in performance and this has been backed up by a programme of staff engagement. We have introduced a "Junior Board" comprising only teenagers to advise on relevant aspects of the customer experience. Having laid the foundations over the past 18 months, the Board believes that this focus on the customer will drive future business performance and our task is now to drive consistency of standards across all 33 sites. I would wish to add my warmest regard and thanks to all my colleagues at every level for their stellar work and support; they are the best team in my 26 years in the industry.

Developing multiple channels through which we communicate and sell to our customers are vital to future stability. To support our digital channel, we have now developed and launched a mobile optimised site to enable customers to access our booking engine through mobile devices and have introduced free WIFI across the estate. These developments are increasing the proportion of our business booked from this online channel compared to the call centre. Walk-in customers remain a significant part of the business and to improve this further we have introduced pioneering improvements to our operational system in one pilot site that speed up the customer journey and add new features with a "60 second" service guarantee. The operational team has a clear aim to improve "Games per Stop", a measure of the Tenpin lane reliability for our customers.

Whilst we have turned around the performance of the Company, the economic conditions have continued to place a heavy burden, reinforcing the need for us to have taken bold actions in our time. It is imperative to continue to reduce our fixed cost base. I do not expect the trading environment to improve in the coming months. However, the first six months of this year have given us momentum that has continued into the next quarter (the impact of the Olympics on customer demand has been in line with our expectations). Tenpin bowling and other products are still universal in appeal and we believe have a healthy future as part of today's consumers' leisure spend. The Board continues to support the strategy of re-building the business and remains solely focused on enhancing shareholder value.

Nick Basing

ESSENDEN PLC 2

for the 26 week period ended 1st July 2012

Notes

Unaudited 26 weeks to 1st July 2012

Unaudited 26 weeks to 3rd July 2011
52 weeks to
1st January
2012

£000 £000 £000

Continuing operations:

Revenue 24,660 25,281 49,724

Cost of sales (9,129) (10,061) (19,019)

Gross profit 15,531 15,220 30,705

Administrative expenses:
Profit on disposal - 404 804

Revaluation of investment properties - 420 - Impairment - (89) (4,254) Other administrative expenses (14,068) (14,793) (27,184) Operating profit 1,463 1,162 71

Finance costs (683) (1,042) (1,952)

Finance gains - - 4,090

Profit before taxation 780 120 2,209

Taxation (245) (412) (3,265)

Profit/(loss) and total comprehensive income for

the year 535 (292) (1,056)

Earnings per share

Basic earnings per share 5 2.5p (1.4p) (4.9)p

Diluted earnings per share 5 2.5p (1.4p) (4.9)p

ESSENDEN PLC 3

as at 1st July 2012

Unaudited

1st July 2012

Unaudited
3rd July 2011 1st January 2012

Assets

Non-current assets

Notes £000 £000 £000
Goodwill 11,911 14,989 11,911
Intangible assets 219 172 287
Investment property - 729 -
Property, plant and equipment 23,061 25,887 23,865
Deferred tax asset 2,429 5,527 2,674

Cash and cash equivalents 6 2,354 2,594 1,101

6,342 8,494 6,041

Liabilities

Current liabilities

Financial liabilities (2,816) (6,071) (4,685) Trade and other payables (5,118) (4,494) (5,187) Provisions (962) (844) (962)

(8,896) (11,409) (10,834)

Net current liabilities (2,554) (2,915) (4,793)

Non-current liabilities

Financial liabilities (17,646) (20,604) (16,872) Other non-current liabilities (750) (577) (825) Provisions (3,596) (9,923) (3,708)

(21,992) (31,104) (21,405)

Net assets 13,074 13,285 12,539

Equity

Share capital 214 214 214
Other reserves 81,136 81,118 81,136

Retained deficit (68,276) (68,047) (68,811)

Total equity 13,074 13,285 12,539

ESSENDEN PLC 4

for the 26 week period ended 1st July 2012

Notes

Unaudited 26 weeks to 1st July

2012

Unaudited
26 weeks to
3rd July 2011
52 weeks to 1st
January 2012

£000 £000 £000

Cash flows from operating activities

Cash generated from/(used in) operations 7 2,412 (3) (417)

Interest paid (237) (271) (553)
Net cash from/(used in) operating activities 2,175 (274) (970)

Cash flows from investing activities

Proceeds from sale of investment properties 720 670 1,561
Costs associated with sale of investment properties - - (122) Purchase of property, plant and equipment (195) (717) (516) Purchase of software (15) (26) (278)

Net receipt(repayment) of borrowings 410 (186) (1,649)
Net cash from/(used in) financing activities 114 (229) (1,744)

for the 26 week period ended 1st July 2012

Share capital

Other reserves

Retained

earnings Total equity

£000 £000 £000 £000

Unaudited 26 weeks to 1st July 2012

Balance at 1st January 2012 214 81,136 (68,811) 12,539

Total comprehensive income for the period - - 535 535

Balance at 1st July 2012 214 81,136 (68,276) 13,074

Unaudited 26 weeks to 3rd July 2011
Balance at 2nd January 2011 214 81,118 (67,755) 13,577

Total comprehensive loss for the period - - (292) (292)

Balance at 3rd July 2011 214 81,118 (68,047) 13,285

52 weeks to 1st January 2012
Balance at 2nd January 2011 214 81,118 (67,755) 13,577
Share scheme reserve - 18 - 18

Total comprehensive loss for the period - - (1,056) (1,056)
Balance at 1st January 2012 214 81,136 (68,811) 12,539

ESSENDEN PLC 5

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 1st July 2012 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 1st July 2012 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 1st January 2012, 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 1st January 2012 has been extracted from the financial statements for that period which were approved by the board of directors on 23rd March 2012 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 1st January 2012, as described in those financial statements. This report was approved by the directors on 20th September 2012.

2 Basis of preparation

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 1st July 2012. The comparative financial information is for the Essenden Group for the 26 week period ended 3rd July 2011.

3 Going concern

The Group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over the level of demand for the Group's products. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, 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 1st January 2012.

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Notes (continued)

5 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.

Details of the earnings and weighted average number of ordinary shares used in each calculation are set out below.

Unaudited 26 weeks to 1st July 2012
Unaudited
26 weeks to
3rd July 2011
52 weeks to 1st
January 2012

£000 £000 £000

Earnings attributable to ordinary shareholders 535 (292) (1,056)

Weighted average number of ordinary shares: Number of shares
For basic earnings per share 21,424,740 21,424,740 21,424,740
For diluted earnings per share 21,424,740 21,424,740 21,424,740
Basic earnings per share 2.5p (1.4p) (4.9)p

Diluted earnings per share 2.5p (1.4p) (4.9)p

6 Cash and cash equivalents

Unaudited Unaudited

1st July 3rd July 1st January

2012 2011 2012

£000 £000 £000

Cash and cash equivalents 2,354 2,594 1,101

Bank overdraft (454) (2,000) (2,000) Cash and cash equivalents as reported in the cashflow

statement 1,900 594 (899) Bank loans (3,000) (4,053) (2,590)

Net debt (1,100) (3,459) (3,489)

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Notes (continued)

7 Cash flows from operating activities

Reconciliation of loss for the period to cash generated from/(used in) operations:

Unaudited 26 weeks to 1st July

2012

Unaudited
26 weeks to
3rd July 2011
52 weeks to 1st
January 2012

£000 £000 £000

Profit/(loss) for the period 535 (292) (1,056)

Adjustments for:

Tax 245 412 3,265
Finance gains and costs 683 1,042 (2,138)
Impairment of property, plant and equipment - 89 1,176
Impairment of goodwill - - 3,078
Impairment of intangible assets - - -
Depreciation and amortisation of intangible assets 83 115 252
Depreciation 957 1,098 2,119
Revaluation of investment properties - (420) - Profit on disposal - (404) (804) Changes in working capital:
Decrease in inventories 26 82 113
Decrease in trade and other receivables 206 549 586
Decrease in payables (113) (1,571) (208)

Decrease in provisions (210) (703) (6,800)

Cash generated from/(used in) operations 2,412 (3) (417)

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Notes (continued)

Operating review

Overview

Essenden is the holding company for the tenpin bowling operations of Tenpin Limited. The principal activity of the group comprises the operation of 33 tenpin bowling centres of which the core continuing estate consists of those sites which have security of tenure under the Landlord and Tenant Act.

Results of operations

The table below demonstrates the group's performance for the 26 week period to 1st July 2012, compared with the 26 week period to 3rd July 2011.

Continuing operations:

Total

2012 2011

£000 £000

Revenue 24,660 25,281

Cost of sales (9,129) (10,061) Operating costs (5,431) (5,598) Rent (4,580) (5,162) Contribution 5,520 4,460

Centrally allocated overheads (1,034) (1,172) Overheads (1,919) (1,698) Plc overheads (269) (288) EBITDA 2,298 1,302

Depreciation of intangible assets (83) (115) Depreciation of property, plant & equipment (957) (1,098) Operating profit before one-off items 1,258 89
Profit on disposal of investment properties - 404
Revaluation of investment properties - 420

One-off costs (7) (551)

Operating profit before impairments and provisions 1,251 362

Property, plant & equipment impairment - (89) Onerous lease provision released 212 889

Operating profit 1,463 1,162

Net interest excluding loan note interest and notional interest on

provisions (259) (444) Essenden loan note interest (326) (400) Notional interest - onerous lease provisions (98) (198) Profit before tax 780 120

Taxation (245) (412)

Profit/(loss) after tax from continuing operations 535 (292)

Foot notes:

(i) EBITDA represents earnings before interest, tax, depreciation, impairment, non recurring items and net movement on provisions.

Group Performance

Turnover: Turnover for the half year period decreased by £0.6m (2.5%) from £25.3m in H1 2011 to £24.7m in H1

2012 but was in growth of 4.3% on a like for like basis. 33 centres traded fully during this interim period while Bury and Stockport were closed at the end of February 2012 as part of the final steps of the CVA.

Contribution: Contribution increased by £1m (23.8%) from £4.5m in H1 2011 to £5.5m in H1 2012, and contribution margin increased by 4.4% points from 17.6% to 22.3%. The increase in contribution has been generated through

ESSENDEN PLC 9

Notes (continued)

strong sales on a LFL basis while managing labour and operating costs to budget resulting in an improvement in the contribution efficiency. The exit from the CVA sites has also seen a reduction in high fixed costs which has assisted contribution efficiency.

EBITDA: EBITDA increased by £1m (76.4%) from £1.3m in H1 2011 to £2.3m in H1 2012, with EBITDA margin up

4.2% points to 9.3%.

Operating profit: Operating profit increased by £0.3m (25.9%) from £1.2m in H1 2011 to £1.5m in H1 2012. The depreciation charge has decreased by £0.2m from June 2011 but the release from the onerous lease provision has decreased by £0.7m from June 2011. The reduction in the release of the onerous lease provision has been due to the reduction in the provision as at December 2011 after £6m of the provision was released due to the exit from the CVA sites.

Property matters: Tenpin Ltd

No new bowls were opened or acquired in the half year while the Bury and Stockport CVA site closures were finalised in February 2012.

Georgica Holdings Ltd & Georgica (Lewisham) Ltd

During the interim period the Lewisham property sale was completed and the proceeds of £720k received in full. This property had exchanged in 2011 with the risks and rewards of ownership having transferred to the buyer and thus had been accounted for as a disposal in the 2011 Financial Statements. All the investment properties held by these 2 companies have now been sold.

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 1st January 2012.

Risks relating to operations:

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. School holidays are beneficial for the bowling business, which is also affected by the timing of bank holidays.

Following the sale or sale and lease back of all of Tenpin's freehold and long leasehold properties, there is a

relatively high rental charge and so a relatively high fixed cost element to the business which means that financial performance is relatively sensitive to changes in turnover.

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.

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Availability of Interim Report

A copy of these interim results will be available from the Company's registered office during norma! business hours on any weekday at 3' d Floor, 2-4 St. Georges Road, Wimbledon, London, SW19 4DP and can also be downloaded from the Company's website at www.essenden.com.

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