RNS Number : 6225A
Top Ten Holdings PLC
05 August 2008
Top Ten Holdings Plc
5 August 2008
Results for the year ending 30th March 2008
* Smoking ban and Gambling Act restrictions impact on industry;
* Pre-tax loss of �8.85 million (2007 Profit �2.51 million);
* Impairment charge of �7.0 million, other non-recurring items of �850,000;
* Cost reductions have been achieved in excess of �1.25 million per annum;
* Group remains cash generative;
* Net asset value per share, after significant impairments, is 41p.
CHAIRMAN'S STATEMENT
Introduction
The results for the 52 week period ended 30th March 2008, with revenues down from �30 million to �25 million and a loss before tax,
non-recurring items and impairment charges of �1.0 million compared to �2.7 million of profit last year, reflect the very challenging
environment in which the Group operated during this period.
The smoking ban, which came into effect in Wales on 2 April 2007 and on 1 July 2007 in England, has had a much greater adverse effect on
the bingo industry in England and Wales than had been anticipated based on the earlier experience in Scotland. This was compounded by the
changes in the Gambling laws in September 2007 and, in particular, by the removal of "Section 21" fruit machines from use in licensed bingo
clubs.
Whilst as an industry Bingo is usually resilient in the face of economic adversity the impact of the current economic conditions and the
strong rise in food and fuel prices has undoubtedly hit the spending capacity of our customers.
Results
Revenue was �25.8 million (2007 �30.6m) and the Group made a pre-tax loss of �8.85 million (2007 �2.51m profit) after non-recurring
items and impairment charges of �7.85 million (2007 �166,000). Earnings per share, before non-recurring items, amounts to nil (2007 7.0p ).
The accounts for 2007 have been restated for IFRS accounting rules, which has resulted in the balance sheet showing an increased provision
for deferred tax compared to the figures reported last year.
Non-recurring items relate to profits on property disposals, the costs associated with new banking facilities and impairment charges.
During the year the Group disposed of three smaller or less profitable sites which resulted in a profit on asset sales of �432,000.
Additionally, following the agreement of new banking facilities, referred to below, the Group expensed the loan arrangement fees of �542,000
relating to its previous facilities as non-recurring financing costs.
After a total impairment charge of �7.0 million primarily relating to goodwill arising on previous acquisitions, the net asset value per
share at 30th March 2008 decreased to 41p (2007 71p).
The tax credit of �1.87 million includes a deferred tax credit of �1.26 million and a repayment of corporation tax of �615,000 which is
due to the Group, following the 2007/8 loss.
VAT
The industry has lobbied the Chancellor to reduce the double taxation of bingo clubs by the abolition of VAT on Bingo to bring us into
line with the rest of the gaming industry.
Both the Bingo Association and Top Ten independently have obtained counsel's opinion that VAT should not under EC law be payable on
bingo income. As previously reported we have made claims for some �5.4 million for VAT already paid in respect of bingo income. We have also
stopped paying this element of the VAT. There is a separate, outstanding claim (currently the subject of an awaited VAT Tribunal decision)
for refund of VAT on fruit machine income amounting to �2.6 million. In total, the Group has therefore lodged refund claims amounting to �8
million.
Since July, 2008, the Group has assumed that interval bingo ("MCB") is VAT exempt resulting in a �0.78 million benefit to the 2008
results. The treatment of MCB as VAT exempt was confirmed in a recent VAT Tribunal decision. In addition, the Group has lodged a claim for
the repayment of �3.1 million in respect of the past payment of VAT in relation to MCB. However, this claim is not reflected in the Group's
balance sheet at 30th March 2008. A further claim of �2.3 million in respect of VAT on the main bingo game income has also been made, which
again is not reflected in the balance sheet at 30th March 2008.
A recent VAT Tribunal decision has explicitly confirmed the position taken by the Group in respect of MCB and (implicitly) in respect of
main bingo fees.
HM R & C have appealed against this VAT Tribunal decision (the Rank case) to treat interval bingo income as exempt. Therefore at 30th
March 2008 there is a contingent liability of �786,000 which might arise if this VAT were to become payable.
Trading performance
The Group started cutting costs in 2006 in anticipation of the smoking ban but once it became clear that the impact of the smoking ban
was going to be much worse than anticipated the Group embarked on a more aggressive cost reduction plan. I am pleased to report that, at the
present time, the cost base has been reduced by approximately �1.25 million on an annualised basis.
During the year, a major refurbishment was completed at our Mansfield site (one of the largest in the Group). In addition, hand-held,
electronic bingo terminals have been successfully installed in 9 of our clubs, taking the total number of installed terminals over 500.
Further such installations are planned in 2008 /9.
As we reported last year we have been trying to dispose of under performing sites. During the year we sold Boldon, Mexborough and Goole
for � 976,000 and realised a profit of �432,000.
We have shut Morley, Heckmondwike and Wigston where we have determined that it is cheaper than continuing to operate.
We appointed advisers to look at the possibility of a Sale and Leaseback of our major sites but, in the current absence of bank lending
to the commercial property market, this proposal is not cost-effective.
Bank Facilities
During the year it became clear that whilst the Group had not breached covenants there was a possibility that this might happen and we
worked with The Royal Bank of Scotland to agree new facilities.
We now have new facilities which last to 2011 and comprise a �16 Million term loan and a �12.8 mezzanine loan. The interest on the term
loan and the Mezzanine loan is 2 per cent. and 9 per cent. over Libor respectively. Of the 9 per cent payable on the mezzanine loan 7 is
rolled up until the end of the period. In addition the bank took a warrant to subscribe for 10 per cent of the equity of the Company at a
price of 20p per share. The Group incurred professional costs of �184,000 reviewing the banking arrangements and, as set out earlier,
expensed loan arrangement fees of �542,000.
Current trading has been affected by the continuing deterioration in the economic climate, which would have resulted in a breach of a
banking covenant at June, 2008 had our bankers not waived the covenant. We continue to work with our bankers and the bank has indicated both
a willingness to renegotiate future covenants if appropriate and also its continuing support for the business. On this basis, the directors
have prepared the accounts to 30 March 2008 on a going concern basis (see Note 1).
Dividends
The board will not be declaring a dividend.
.
Staff
Top Ten employs 820 people, who have persevered through a difficult period of re-organisation, with enthusiasm and tenacity. I should
like to thank them all for their support.
Outlook
Bingo has historically been robust during times of hardship. The only time that it has been seriously affected was at the introduction
of the National Lottery. The combination of rapidly rising food and energy prices and the current economic environment has had a similar
effect. The Group remains focussed on rebuilding its profitability to an acceptable level although in the current economic climate this may
take several years.
Sir Aubrey Brocklebank
Chairman
Further Information:
Andrew Marshall
Greycoat Communications
Tel: 020 7960 6007
Graham Kerr
Top Ten Holdings plc
Tel : 01727 850 793
Consolidated income statement (unaudited)
for the period ended 30 March 2008
Note 52 weeks ended 30 March 2008 53 weeks ended 1 April 2007
Before Before
non- Non- non- Non-
recurring recurring Total recurring recurring Total
�000 �000 �000 �000 �000 �000
Revenue 2 25,829 - 25,829 30,579 - 30,579
Cost of sales (4,085) - (4,085) (4,922) - (4,922)
Gross profit 21,744 - 21,744 25,657 - 25,657
Other operating income 4 - 432 432 - 194 194
Operating costs (17,603) (7,740) (25,343) (18,532) (360) (18,892)
Administrative expenses (2,949) - (2,949) (2,342) - (2,342)
Operating profit/(loss) 1,192 (7,308) (6,116) 4,783 (166) 4,617
Financial income 3 - - - 17 - 17
Financial expenses 3 (2,194) (542) (2,736) (2,126) - (2,126)
Net financing expense (2,194) (542) (2,736) (2,109) - (2,109)
(Loss)/profit before tax (1,002) (7,850) (8,852) 2,674 (166) 2,508
Taxation 5 918 957 1,875 (650) 50 (600)
(Loss)/profit for the period (84) (6,893) (6,977) 2,024 (116) 1,908
(Loss)/profit per share - 7 (27p) 7p
Pence
Consolidated balance sheet (unaudited)
as at 30 March 2008
Note Group
2008 2007
�000 �000
Non-current assets
Property, plant and equipment 22,451 25,135
Intangible assets 11,457 16,889
Other financial assets - 401
Other non-current assets 10,837 11,418
44,745 53,843
Current assets
Inventories 447 488
Trade and other receivables 584 750
Cash and cash equivalents 1,319 1,645
Assets classified as held for resale 324 -
Tax repayment 615 -
3,289 2,883
Total assets 48,034 56,726
Current liabilities
Interest bearing loans and borrowings 8 (1,798) (619)
Trade and other payables (3,382) (2,818)
Tax payable - (308)
Other financial liabilities (81) -
(5,261) (3,745)
Non-current liabilities
Interest-bearing loans and borrowings 8 (27,624) (28,935)
Provisions (80) -
Deferred tax liabilities (4,495) (5,904)
(32,199) (34,839)
Total liabilities (37,460) (38,584)
Net assets 10,574 18,142
Equityattributable to equity holders of the
parent
Share capital 5,101 5,101
Share premium 8,879 8,879
Other reserves (58) 280
Retained earnings (3,348) 3,882
Total equity 10,574 18,142
Group cash flow statement (unaudited)
for the period ended 30 March 2008
52 weeks to 53 weeks to
30 Mar 08 1 Apr 07
�000 �000
Cash flows from operating activities
(Loss)/profit for the period (6,977) 1,908
Adjustments for:
Depreciation, amortisation and 9,037 1,669
impairment
Financial income - (17)
Financial expense 2,736 2,126
Gain on sale of property, plant and (432) (194)
equipment
Taxation (1,875) 600
2,489 6,092
Decrease/(increase) in trade and 166 177
other receivables
Decrease/(increase) in inventories 41 (64)
Increase/(decrease) in trade and 504 419
other payables
Increase in provisions and employee 80 -
benefits
3,280 6,624
Tax paid (622) (640)
Net cash from operating activities 2,658 5,984
Cash flows from investing activities
Proceeds from sale of property, plant 1,102 677
and equipment
Interest received - 17
Acquisition of subsidiary, net of - (871)
cash acquired
Acquisition of property, plant and (1,314) (1,943)
equipment
Net cash from investing activities (212) (2,120)
Cash flows from financing activities
Proceeds from new loan - 900
Interest paid (2,194) (2,126)
Repayment of borrowings - (2,121)
Repayment of finance lease (323) (224)
liabilities
Dividends paid (255) (367)
Net cash from financing activities (2,772) (3,938)
Net decrease in cash and cash (326) (74)
equivalents
Cash and cash equivalents at 1 April 1,645 1,719
Cash and cash equivalents at 30 March 1,319 1,645
Statements of recognised income and expense (unaudited)
For the period ended 30 March 2008
52 weeks to 53 weeks to
30 Mar 08 1 Apr 07
�000 �000
Effective portion of changes in fair (482) 693
value of cash flow hedges
Deferred tax on fair value of cash 144 (208)
flow hedges
Net (expense)/income recognised (338) 485
directly in equity
(Loss)/profit for the period (6,977) 1,908
Total recognised income and expense (7,315) 2,393
for the period
Reconciliation of movement in capital and reserves (unaudited)
Share Share Other Retained Total
capital premium reserves earnings Equity
�000 �000 �000 �000 �000
Balance at 27 March 2006 5,065 8,711 (205) 2,337 15,908
Total recognised income and - - 485 1,908 2,393
expense
Issue of shares 36 168 - - 204
Equity-settled share based - - - 4 4
payment transactions
Dividends - - - (367) (367)
Balance at 1 April 2007 5,101 8,879 280 3,882 18,142
Balance at 2 April 2007 5,101 8,879 280 3,882 18,142
Total recognised income and - - (338) (6,977) (7,315)
expense
Equity-settled share based - - - 2 2
payment transactions
Dividends - - - (255) (255)
Balance at 30 March 2008 5,101 8,879 (58) (3,348) 10,574
Notes
1 Basis of preparation
The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group').
The group financial statements have been prepared and approved by the directors as required by the AIM rules of the London Stock
Exchange that require the group financial statements to be prepared in accordance with International Financial Reporting Standards as
adopted by the EU ('Adopted IFRSs').
The financial statements are prepared on the historical cost basis except for the revaluation of financial instruments.
Going concern
The unaudited results announced today have been prepared on a going concern basis. As set out below, there are material uncertainties
which may cast significant doubt over the group's ability to continue as a going concern. If the group is unable to agree facilities
(including revised covenants) which meet its future cashflow requirements then the group may be unable to realise its assets and discharge
its liabilities in the normal course of business. We understand that the auditors report in the financial statements will be unqualified but
will be modified to include an emphasis of matter regarding the uncertainties concerning going concern described below.
Background
The directors have prepared future financial forecasts, including cash flow forecasts, for the next twelve months from the date of
approval of these financial statements. As set out within the directors' report the group's performance during 2008 has been adversely
affected by the introduction of the smoking ban in England and Wales and the costs and negative impact of the Gambling Act. The group
breached one of its covenants in June 2008 and the forecasts, based upon current trading, show that the group may not be able to meet some
of the future covenants set out within the banking facilities. Additionally the forecasts include the repayment of �3.1 million in September
2008 for VAT already paid on mechanised cash bingo and assume that income on both mechanised cash bingo and participation fees is VAT
exempt. The forecasts exclude any receipt of VAT repayments in respect of participation fee income and fruit machine income. There are
significant uncertainties surrounding the treatment of VAT on bingo related income (as set out below) which could significantly affect the future receipts and payments of VAT within the forecast period and
would impact the ability of the group to make the forecast capital repayments.
Uncertainty surrounding the treatment of VAT on bingo income
For some years, the bingo industry has been urging reform of the double taxation (VAT and gross profit tax) on bingo income. The trade
association has argued that the tax treatment is not only excessive but unlawful. As a result there is significant uncertainty surrounding
the treatment of bingo income and a number of relevant test cases are currently in progress.
Following the advice of tax counsel, from 1 July 2007 the group has prepared its VAT returns and made VAT payments on the basis that
both mechanised cash bingo and participation fees are exempt from VAT. Additionally the group made claims to HMRC for the repayment of �5.4
million relating to VAT paid on income from mechanised cash bingo and participation fees in earlier periods. The result of a recent VAT
tribunal case between HMRC and another bingo operator confirms the group's position regarding mechanised cash bingo and provides support to
the position adopted on participation fees. However HMRC have appealed the result of the tribunal, indicated that they do not agree with the
group's position and raised a protective assessment. In addition to the claims for mechanised cash bingo and participation fees the group
has an additional claim pending the repayment of �2.6 million relating to VAT on fruit machine income (a VAT Tribunal decision is currently
awaited).
Ultimately if HMRC's interpretation of the legislation were proved correct then the group estimate they would have to make the
additional VAT payments in relation to both mechanised cash bingo and participation fees of �920,000 for the period to 31 March 2008 plus
interest and potentially penalties and approximately �300,000 of additional VAT would be payable on a quarterly basis thereafter. As set out
earlier the directors do not believe these amounts are payable and have not included the payments within their cash flow forecasts. The
current facilities are not sufficient to make these additional payments if payment were demanded in the forecast period. If the directors
were not successful in their claim that participation fees are VAT exempt then their initial analysis shows that a number of games would be
VAT exempt under the gambling for small prizes section of the Gambling Act significantly reducing the amounts which would become payable.
Financial forecasts and bank support
As set out earlier the group breached one of its agreed covenants in June 2008 and the financial forecasts show the group may breach
future covenants. Additionally, significant loan repayments within the forecast period are dependant on the receipt of VAT repayments from
HMRC and proceeds from the sale of properties. The timing of receipts arising from future property sales and VAT repayments are inherently
uncertain. Finally, the forecasts exclude any potential VAT payments for mechanised cash bingo and participation fees if HMRC were
ultimately successful in their interpretation of the legislation.
The bank have waived the covenant breached in June 2008 and indicated their intention to reset future covenants in accordance with the
current forecasts. Additionally, the bank recognises the uncertainty surrounding the timing of receipts from both the claims for overpaid
VAT and property sales and therefore the potential requirement to restructure the capital repayment profile within the facilities in the
future. On this basis the directors consider it appropriate to prepare the financial statements on a going concern basis.
However, until such time as the new covenants are agreed and the proceeds from the sale of property and repayments of VAT are finalised
and received by the group there is material uncertainty which may cast significant doubt over the group's ability to continue as a going
concern. If the group is unable to agree facilities (including revised covenants) which meet its future cashflow requirements then the
group may be unable to realise its assets and discharge its liabilities in the normal course of business.
Other information
The financial information set out above does not constitute the company's statutory accounts for the years ended 30 March 2008 or 1
April 2007. The financial information for 2007 is derived from the statutory accounts for 2007. The auditors have reported on the 2007
accounts; their report was i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The
statutory accounts for 2008 will be finalised on the basis of the financial information presented in this preliminary announcement and will
be delivered to the registrar of companies in due course.
2 Revenue and segmental information
Top Ten Holdings Plc operates in one business segment, being that of a bingo operator and all of the �25.8 million (2007: �30.6 million)
revenue is derived from this sector. The various Bingo Clubs are all located in the United Kingdom which is the only geographical segment
for the group. Further analysis has not been provided on the grounds that all income and expenses are derived from the same segment.
3 Finance income and expense
Recognised in profit or loss
2008 2007
Finance income �000 �000
Bank interest - 17
Total finance income - 17
2008 2007
Finance expense �000 �000
On bank loans and overdraft 2,099 2,048
Hire purchase 95 78
Total finance expense 2,194 2,126
Included within finance expenses are non-recurring items as follows:
2008 2007
�000 �000
Amortisation of loan arrangement fees 542 -
4 Operating profit
Included within other operating income are non-recurring items as follows:
2008 2007
�000 �000
Net gain on disposal of property, plant and 432 194
equipment
Included within operating profit are non-recurring items as follows:
2008 2007
�000 �000
Impairment loss on goodwill 5,309 -
Impairment loss on fixed assets 1,497 -
Impairment loss on other non-current assets 244 -
Reorganisation costs 396 360
Professional fees on financial restructuring 184 -
Other non-recurring expenditure 110 -
7,740 360
Each bingo club has been classified as an independent cash generating unit ('CGU') on the basis that the cash inflows generated are
largely independent of the cash inflows of other bingo clubs.
In accordance with IAS 36 'Impairment' an impairment review has been completed for each separate CGU. The recoverable amount of the
goodwill has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by the
Board and a growth rate of 0% (2007: 4%). The pre-tax discount rate applied to the cash flow projections is 10.7% (2007: 10.7%).
5 Taxation
Recognised in the income statement
2008 2007
�000 �000
Current tax (credit)/expense:
Current period (610) 622
Adjustments for prior periods - (6)
Current tax (credit)/expense (610) 616
Deferred tax (credit)/expense:
Origination and reversal of temporary differences (757) (16)
Tax losses recognised (115) -
Reduction in tax rate (see below) (393) -
Deferred tax credit (1,265) (16)
Tax (credit)/expense in income statement (1,875) 600
The corporation tax rate decreased from 30% to 28% on 6 April 2008.
6 Dividends
The following dividends were recognised during the period:
2008 2007
�000 �000
1.00p (2007: 1.45p) per qualifying ordinary share 255 367
255 367
After the balance sheet date dividends of �nil per qualifying ordinary share (2007: 1p) were proposed by the directors.
7 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 March 2008 was based on the loss attributable to ordinary shareholders of �6,977,000
(2007: profit of �1,908,000) and a weighted average number of ordinary shares outstanding of 25,505,000 (2007: 25,505,000).
No diluted loss per share has been presented for either the current or the prior year as the share options and warrants do not have a
material dilutative effect.
8 Other interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at
amortised cost.
2008 2007
�000 �000
Non-current liabilities
Secured bank loans 27,397 28,326
Finance lease liabilities 227 609
27,624 28,935
Current liabilities
Current portion of secured bank loans 1,120 -
Current portion of finance lease liabilities 678 619
1,798 619
9 Annual General Meeting
The annual general meeting will be held on 24th September 2008 at the Holiday Inn, Crick, Northamptonshire NN6 7XR
This information is provided by RNS
The company news service from the London Stock Exchange
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