RNS Number : 7336I
Top Ten Holdings PLC
24 November 2008
Top Ten Holdings plc: Interim Statement for the period ending 28 September 2008
24th November 2008
Top Ten Holdings plc, is the third largest UK bingo operator with 37 bingo clubs predominantly in the Midlands and North West of
England, and in Wales.
Key Points
* Results impacted by turmoil resulting from the effects of the "Credit Crunch" and commodity inflation.
* Following cost cutting in 2007, the results reflect a drop in overheads of over �600,000 in the first half.
* Total VAT refund claims now amount to �13.2 million.
* In spite of losses, the Group's trading operation was cash generative.
* Net assets of �9.3 million (2007: �23.7 million).
* Current trading: remaining unpredictable in difficult market conditions.
Commenting on the results Sir Aubrey Brocklebank, Chairman, said,
"Events over the last 18 months have seen the Group survive the introduction of the smoking ban, the impact of the Gambling Act and the
current financial turmoil with its inevitable impact on consumer confidence. However the Group continues to make profits and generate cash
at the operational level. The second half of the year may bring further challenges but we enjoy the support of our customers, staff,
suppliers, bankers and shareholders."
For Further Information:
Top Ten Holdings plc 01727 850793
Sir Aubrey Brocklebank, Chairman
Graham Kerr, Chief Executive
Greycoat Communications 020 7960 6007
Andrew Marshall
CHAIRMAN'S STATEMENT
Introduction
The period of 26 weeks ending 28th September 2008, on which the interim results are based, has been one of unprecedented turmoil in the
world's financial markets with considerable falls in property prices. This combined with very high inflation in basic commodities and fuel
has left many of our customers considerably worse off putting pressure on their disposable income. Against this background your board has
managed the business with the generation and conservation of cash as its number one priority.
Results
Operating profits declined to �0.07 million (2007: �1.4 million). Pre-tax losses were �1.36 million (2007: �0.38 million profit) after
taking into account exceptional items which comprised closed site and reorganisation costs. Loss per share was (5.7.p) after exceptional
items (Earnings per share 2007: 1.2p). Net asset value was �9.3 million (2007: �23.7 million).
Whilst it is disappointing to report a loss the group has managed to make a positive cash contribution from operating activities. The
results reflect some but not all of the cost cutting measures instigated last year.
Spend per head is running slightly higher than last year but the number of visits has reduced as customers are making fewer visits per
week due to their own cash constraints.
Disposals
Subsequent to the period, Top Ten sold a closed site realising proceeds of �180,000, equivalent to book value.
Capital Expenditure
Whilst the group has an active capital expenditure programme, in the current economic climate we have done very little beyond normal
repairs and renewals
Internet Bingo
Our internet bingo site www.toptenbingo.com. made a small but useful contribution during the year.
VAT Reclaim
As previously reported we have made VAT refund claims totalling c. �8 million which splits into that claimed in respect of Fruit Machine
income and Bingo income totalling � 2.6 million and �5.4 million respectively. As a result of the Conde Nast case the period over which we
can claim has been extended and further claims have been made for prior periods for an additional �5.2 million.
Rank won its Tribunal claim in respect of interval bingo income but HMRC has appealed this and the case is due to be heard in the High
Court in the first half of 2009.
We have continued to withhold payment of VAT on interval and main stage bingo income and at 28th September there was a contingent
liability for VAT of �2.1 million.
Banking
At 28th September 2008 the Group had net bank debt of �28.4 million. Given the current reduced level of profitability and the depressed
state of the property market this is not considered to be sustainable. The Company is holding constructive discussions with its bankers
about how best to address its financial position.
Prospects
It seems unlikely that we will see any marked improvement in trading until the economy picks up and our customers have more disposable
income. How long this will take is hard to predict but we do not forecast any dramatic changes to the good in the forthcoming year. However
we are encouraged to see that oil and food prices are falling which may ease the liquidity of our customers. We are focussed on maintaining
positive cash flow and retaining the income that we have.
Sir Aubrey Brocklebank
Chairman
21st November 2008
Condensed consolidated interim income statement (unaudited)
26 weeks to28 Non-recurring 26 weeks to 28 26 weeks to30 52 weeks to30
September2008 September 2008 September2007 March2008
�000 �000 �000 �000 �000
Continuing operations
Revenue 11,580 - 11,580 13,654 25,829
Cost of sales (1,766) - (1,766) (2,181) (4,085)
-------------------- -------------------- -------------------- -------------------- --------------------
-------------- -------------- -------------- -------------- --------------
Gross profit 9,814 - 9,814 11,473 21,744
Operating costs (8,374) - (8,374) (9,092) (17,603)
Administrative expenses (1,128) - (1,128) (1,014) (2,949)
Other operating income 58 - 58 290 432
Other operating expenses - (301) (301) (202) (7,740)
-------------------- -------------------- -------------------- -------------------- --------------------
-------------- -------------- -------------- -------------- --------------
Operating profit 370 (301) 69 1,455 (6,116)
Finance costs (1,427) - (1,427) (1,074) (2,736)
-------------------- -------------------- -------------------- -------------------- --------------------
-------------- -------------- -------------- -------------- --------------
(Loss)/profit before tax (1,057) (301) (1,358) 381 (8,852)
Taxation (85) - (85) (71) 1,875
-------------------- -------------------- -------------------- -------------------- --------------------
-------------- --------------- ------------- --------------- ---------------
(Loss)/profit for the period (1,142) (301) (1,443) 310 (6,977)
-------------------- -------------------- -------------------- --------------------
--------------------
-------------- -------------- -------------- --------------
---------------
(Loss)/profit for the period (1,142) (301) (1,443) 310
(6,977)
attributable to ordinary
shareholders
==================== ==================== ==================== ====================
====================
============= ============= ============= ==============
===========
(Loss)/Earnings per share:
Basic (loss)/earnings per (5.7p) 1.2p (27p)
share
Diluted (loss) /earnings per (5.7p) 1.2p (27p)
share
==================== ======================= ==============================
========== ========
Condensed consolidated interim balance sheet (unaudited)
ASSETS
28 September 2008 30 September 2007 30 March 2008
�000 �000 �000
ASSETS
Non-current assets
Intangible assets 11,386 16,600 11,457
Property, plant and equipment 21,654 25,397 22,451
Other financial assets 124 912 -
Other non-current assets 10,668 11,249 10,837
-------------------- ----------------------------- ------------------------------
------------
43,832 54,158 44,745
-------------------- ---------------------------- --------------------------------
------------ --
Current assets
Inventories 257 480 447
Trade and other receivables 1,512 1,597 584
Cash and cash equivalents 964 1,172 1,319
Assets classified as for 324 - 324
resale
Tax repayment 11 - 615
-------------------- --------------------------- -------------------------------
-------------- --
3,068 3,249 3,289
-------------------- ------------------------------- -------------------------------
---------------
Total assets 46,900 57,407 48,034
-------------------- ------------------------------- -------------------------------
---------------
LIABILITIES
Current liabilities
Interest bearing loans and (2,760) (3,126) (1,798)
borrowings
Trade and other payables (3,199) (915) (3,382)
Tax payable - - -
Other financial liabilities - - (81)
-------------------- -------------------- ------------------------------------
------------------- ----------------- --
(5,959) (4,041) (5,261)
Non-current liabilities
Interest bearing loans and borrowings (26,933) (29,057) (27,624)
Provisions (80) - (80)
Deferred tax liabilities (4,638) (561) (4,495)
-------------------- -------------------- --------------------
---------------- ---------------- -----------------
Total non-current liabilities (31,651) (29,618) (32,199)
-------------------- -------------------- ---------------------------
---------------- ------------- ----------
Total liabilities (37,610) (33,659) (37,460)
-------------------- -------------------- --------------------------------
------------- ----------------- -----
Net assets 9,290 23,748 10,574
==================== ==================== ===============================
============== ===========
EQUITY
Equity attributable to equity holders of the parent
Share capital 5,101 5,101 5,101
Share premium 8,879 8,879 8,879
Share options reserve - 12 -
Other reserve 101 912 (58)
Retained earnings (4,791) 8,844 (3,348)
-------------------- -------------------- ----------------------------
----------------- -------------- --------
Total equity 9,290 23,748 10,574
==================== ==================== ============================
================ ================ =========
Condensed consolidated statement of changes in equity
Share Share Premium Other Reserves Retained Profits
Total
Capital
Equity
�000 �000 �000 �000
�000
Balance at 30 March 2008 5,101 8,879 (58) (3,348)
10,574
Profit/(loss) for the period - - - (1,443)
(1,443)
Changes in fair value of cash - - 148 -
148
flow hedges
-------------------- -------------------- -------------------- --------------------
------------------------
------ -- ---- ----
Total recognised income and 5,101 8,879 90 (4,791)
9,279
expense for the period
Shares issued during period - - - -
-
Dividend - - - -
-
Share Option charge - - 11 -
11
-------------------- -------------------- -------------------- --------------------
------------------------
------ -- ----- ---
Balance at 28 September 2008 5,101 8,879 101 (4,791)
9,290
================ ============== =============== =============== ===============
Condensed consolidated interim cash flow statement (unaudited)
26 weeks to 28 September 2008 26 weeks to 52 weeks to
30 September 2007 30 March
2008
�000 �000
�000
Cash flows from operating activities
(Loss)/profit for period (1,443) 310 (6,977)
Adjustments for:
Share based payment - 1 -
Depreciation , amortisation 1,017 937 9,037
and impairment
Financial income - (1) -
Financial expense 1,427 1,075 2,736
Gain on sale of property, 12 (290) (432)
plant and equipment
Taxation (85) 71 (1,875)
-------------------- --------------------- -----------------------
-
928 2,103 2,489
Decrease/(increase) in 190 9 41
inventories
Decrease/(increase) in trade (650) (847) 166
and other receivables
Increase in trade payables (41) 242 504
Increase in provisions and - - 80
employee benefits
-------------------- --------------------- -----------------------
-
427 1,507
3,280
Taxation repaid/(paid) 603 (314) (622)
----------------------- --------------------- ---------------------
Net cash from operating 1,030 1,193 2,658
activities
-------------------- --------------------- ---------------------
Cash flows from investing activities
Interest received - 1 -
Investment in intangible assets - (15) -
Acquisition of Property, plant and equipment (25) (732) (1,314)
Proceeds from sale of Property, plant and equipment 35 599 1,102
----------------------- ---------------------- ----------------------
Net cash from investing 10 (147) (212)
activities
--------------------- ------------------------ --------------------------
---
Cash flows from financing activities
Repayments of obligations under finance leases (367) (591) (323)
Interest paid (1,028) (1,075) (2,194)
Proceeds from new loan - 402 -
Dividends paid to shareholders - (255) (255)
-------------------- ------------------------- ------------------------
----
Net cash from financing (1,395) (1,519) (2,772)
activities
---------------------- ------------------------- ------------------------
---
Net (decrease)/increase in cash and cash (355) (473) (326)
equivalents
Cash and cash equivalents at beginning of period 1,319 1,645 1,645
-------------------- -------------------------- --------------------------
-------
Cash and cash equivalents at 964 1,172 1,319
end of period
================ ================ ===============
Notes to the condensed consolidated interim financial statements
1 Basis of preparation
The unaudited interim financial statements of Top Ten Holdings plc are for the twenty six weeks ended 28th September 2008 and have been
prepared in accordance with International Financial Reporting Standards (IFRS).
These interim financial statements have been prepared in accordance with the Group's accounting policies under IFRS and have been
prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value.
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise
judgement in the process of applying the Group's accounting policies.
This financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The Group's
statutory financial statements for the period ended 30th March 2008, prepared under IFRS, received an unqualified audit report, did not
contain statements under section 237(2) of the Companies Act 1985 and have been filed with the Registrar of Companies.
The auditors report for the period ended 30th March 2008 included a reference in respect of the existence of a material uncertainty
which may cast significant doubt over the group and company's ability to continue as a going concern. The auditors drew attention to this
matter by way of emphasis without qualifying their audit report.
Going concern
The condensed consolidated interim financial statements are prepared on a going concern basis which the directors consider appropriate.
The directors have prepared future financial forecasts, including cash flow forecasts, for the next twelve months from the date of these
interim financial statements. The group's performance during 2008 continues to be adversely affected by the smoking ban in England and
Wales, the costs and negative impact of the Gambling Act and the current economic climate impacting on our customers' disposable income.
The group breached covenants in June and September 2008 and the forecasts, based upon current trading, show that the group is unable to meet
future covenants set out within the banking facilities. The forecasts exclude any receipt of VAT claims submitted by the company or
repayment of VAT withheld by the company. 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.
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).
Notes (continued)
Going concern (continued)
Ultimately if HMRC's interpretation of the legislation were proved correct then the group estimate they would have to make additional
VAT payments in relation to both mechanised cash bingo and participation fees of �1,767,000 covering VAT quarters from 1st July 2007 to 28th
September 2008 plus interest and potentially penalties. 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
The group breached one of its agreed covenants in June 2008 and breached two covenants in September 2008 and the financial forecasts
show the group is likely to breach future covenants. 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 breach in June 2008 and indicated their intention to assist the company in restructuring its
facilities. Additionally, the bank recognises the uncertainty surrounding the timing of receipts from claims for overpaid VAT and therefore
the requirement to restructure the banking facilities. 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 facilities 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 cash flow requirements then the
group may be unable to realise its assets and discharge its liabilities in the normal course of business.
2 Summary of significant accounting policies
The accounting policies used in the interim statement are expected to be consistent with those used in the financial statements for the
52 weeks ended 29th March 2009.
Key accounting policies are summarised below:
a Basis of Consolidation
Subsidiaries
Subsidiaries are entities over which the Company has
power to control the financial and operating
policies
so as to obtain benefits from its activities.
Investments in subsidiary undertakings are accounted
for using the purchase method of accounting. The
cost of an acquisition is measured as the fair value
of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of
exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a
business combination are measured initially at their
fair values at the acquisition date. The excess of
the cost of acquisition over the fair value of the
Company's share of the identifiable net assets
acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the
Company's share of the net assets of the subsidiary
acquired, the difference is recognised directly in
the income statement.
Notes to the condensed consolidated interim
financial statements (continued)
b Revenue Recognition
Revenue results from the operation of bingo clubs,
snooker clubs, and amusement arcades. Bingo revenue
is recorded as the customer stake, less applicable
gaming duties and cash prizes. Revenues from
admission prices, fruit machines, sundry income and
the sale of food and beverages are recorded net of
VAT.
c Goodwill
All business combinations are accounted for by
applying the purchase method. Goodwill represents
amounts arising on acquisition of subsidiaries,
joint ventures and associates. In respect of
business acquisitions goodwill represents the
difference between the cost of acquisition and the
fair value of the net identifiable assets acquired.
Goodwill is allocated to cash generating units and
is tested annually for impairment at a consistent
time each year. Goodwill is stated at cost or
deemed cost less any accumulated impairment losses.
d Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of depreciation and
any provisions for impairment.
The gain or loss arising on the disposal of an asset is determined as the
difference between the disposal proceeds and the carrying amount of the
asset and is recognised in the income statement. The gain or loss arising
from the sale of held for sale assets is included in "other income" or
"other expense" in the income statement.
Depreciation is calculated to write off the cost of the assets less
estimated residual value over their expected useful lives. Depreciation is
provided at the following rates:
Freehold property 2% straight line
Leasehold property Over life of lease
Plant, property and equipment 12.5% - 20% reducing balance
Motor vehicles 25% reducing balance
The carrying values of property, plant and equipment are reviewed for
impairment when there is an indication that they may be impaired.
3 Segmental reporting
The Group has only one business segment, the operation of bingo clubs in England and Wales.
Notes to the condensed consolidated interim financial statements (continued)
4 Taxation
26 weeks to 26 weeks to 52 weeks to
28 September 30 September 30 March
2008 2007 2008
�000 �000 �000
Current tax expense/(credit):
Corporation tax current period - 71 (610)
Current tax expense/(credit) - 71 (610)
Deferred tax expense/(credit):
Origination and reversal of 85 - (757)
temporary differences
Tax losses recognised - - (115)
Reduction in tax rate - - (393)
Deferred tax expense/(credit) 85 - (1,265)
Tax expense/(credit) in income 85 71 (1,875)
statement
5 Earnings per share
The calculation of basic (loss)/earnings per share is based on a (loss)/profit for the period of �(1.44 million) (2007: �0.31 million)
and on 25,505,751 (2007: 25,505,751) ordinary shares, being the weighted average number of ordinary shares in issue during the period.
The loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the purpose of calculating the
diluted loss per share has not been adjusted for the warrants issued during the period amounting to 10% of the issued share capital,
equivalent to 2,833,972 additional ordinary shares. The adjusted loss attributable to ordinary shareholders and the weighted average number
of ordinary shares for the purposes of calculating the diluted adjusted loss per share are identical to those used for the adjusted loss per
share.
6 Dividends
No dividend was proposed (2007: 1p per share totalling �255,056) which was approved at the Annual General Meeting on 24th September
2008.
7 Contingencies
VAT on mechanised cash bingo
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
mechanised cash bingo is exempt from VAT. Additionally the group made claims to HMRC for the repayment of �3.1 million relating to VAT paid
on income from mechanised cash bingo in earlier periods. The result of a recent VAT tribunal case between HMRC and
Notes to the condensed consolidated interim financial statements (continued)
another bingo operator, regarding mechanised cash bingo, confirms the group's position. 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. The directors believe a repayment
of this VAT is highly likely but given the current legal position cannot be virtually certain and so have not recognised the asset or
additional income arising if the repayment were successful. A further claim has been submitted for repayment of �2.2 million relating to VAT
paid on income from mechanised cash bingo as the claims originally submitted were subject to a three year time cap.
Ultimately if HMRC's interpretation of the legislation were proved correct then the directors estimate they would have an additional
liability to VAT on mechanised cash bingo for the period from 1 July 2007 to 28 September 2008 of �1.2 million plus interest and potentially
penalties (less the additional amounts of unrecoverable VAT and GPT already paid).
VAT on participation fees
Additionally the group made claims to HMRC for the repayment of �2.3 million relating to VAT paid on income from participation fees. The
principles of the case are similar to those in the mechanised cash bingo tribunal and ultimately the directors are confident of successfully
pursuing this repayment but have not recognised any asset or recorded the income within these financial statements in relation. If the
directors were not successful in their claim that participation fees are VAT exempt then they would submit a repayment claim based upon the
VAT exemption for gambling for small prizes. Initial analysis demonstrates that a significant proportion of their bingo games from 2007
onwards would be VAT exempt following the increase in limits for gambling for small prizes within the 2005 Gambling Act (implemented in
2007). A further claim has been submitted for repayment of �2.9 million relating to VAT paid on income from participation fees as the
claims originally submitted were subject to a three year time cap.
VAT on fruit machine income
Following a judgment in the European Court, the company has submitted a claim for a refund of �2.6 million of VAT previously paid. A
related case has recently been heard by a VAT tribunal and the decision is awaited. There is no effect on current trading.
8 Interim Statement
This interim statement is unaudited. The interim statement will be sent to shareholders and will also be available from the investor
relations section of the Group's website at www.toptenbingo.com. Copies may be obtained from the Company Secretary, Top Ten Holdings plc,
Unit 8, Verulam Industrial Estate, 224 London Road, St Albans, Hertfordshire AL1 1JF.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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