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Clubhaus shares take a tumble

12.05am 10th September 2001 - Corporate

Clubhaus PLC has announced its interim and second quarter results to 30 June 2001. Among the highlights was the fact that, despite trading impacted by poor weather and economic conditions in Germany, turnover for the six months grew marginally to £19.2 million (2000: £19.0 million). However gross profit was down to £11.2 million (2000: £11.6 million) and gross margin fell to 58% (2000: 61%). The profit before interest, taxation and exceptional charges was £2.0 million (2000: £3.6 million).

An impairment review of carrying values of group properties has led to a £19.7 million write down mainly in respect of the French and German properties – in accordance with FRS 11. Overall membership numbers continued to increase by 34% to 40,400 (2000: 30,000).

Health club fit outs have been completed at Mentmore, The Essex and Mapledurham and planning permission has been granted for the addition of health and fitness facilities at two UK clubs. In Europe, good progress has been made at El Bosque.

Although merger talks have ended there are continuing discussions concerning possible sale of assets and the management is considering ways to address the balance between debt and equity levels.

Commenting on the results and the outlook for the Group, Robert Bourne, Chairman of Clubhaus, said, “Despite the continued popularity of the Country Club format, which resulted in satisfactory performances from the developed clubs and an increase in membership subscription, trading during the first six months has been hit by both poor weather in the first part of the year, which adversely affected the golf side of the business and the difficult conditions experienced in Germany in selling high priced joining fees which was largely due to increased economic uncertainty. The out turn for the year will be affected and it is unlikely that last year’s results will be matched.”

The Chairman’s Statement and the Finance Director’s Review appear below.

Clubhaus PLC www.clubhaus.com

Chairman’s Statement Interim Results: 6 months to 30 June 2001

Review

Despite the continued popularity of the Country Club format, which resulted in satisfactory performances from the developed clubs and an increase in membership subscription, trading during the first six months has been hit by two factors. Poor weather in the first part of the year, which adversely affected the golf side of the business, and difficult conditions were experienced in Germany in selling high priced joining fees, largely due to the increased economic uncertainty. As a result, we ended the period behind budget.

Continued emphasis on the Country Club concept has led to the disposal during the period of two golf only clubs. In addition, the Group is actively seeking to dispose of a further three clubs and has received offers for all of the clubs under consideration. Certain disposals will therefore be completed before the end of the year and will be followed by further disposals of non-operating assets on which progress has been made. Due to the current market for golf only clubs, the likely level of disposal proceeds has led to a provision of £1.7 million being made against the book value of these assets which has been included as an exceptional item in the first half of the year.

In terms of further development potential, planning permission for the addition of health and fitness facilities has now been received at two UK clubs that had previously been at appeal. This now gives the Group a stock of three clubs, in addition to the newly purchased Chartham Park, into which the Country Club concept can be introduced.

Turning to Europe we have made good progress at El Bosque which continues to outperform previous years and at Vichy where a sale agreement for parcels of residential lots has now been signed. In Germany we are in discussion concerning the possible merger of our German clubs with three other clubs to form a new German group. Despite a poor operating performance from Germany, this possibility is seen as a sensible next step to increase the scale of the business and thereby eventually provide an opportunity to realise the level of the Group’s overall investment in Germany.

The health club fit-outs at Mentmore, The Essex and Mapledurham have all been completed successfully during the period. In addition the new clubhouse at Là┬╝dersburg is now open and the purchase of a golf, residential and hotel site in Berlin previously held under option by the Group has been now become unconditional following receipt of outline planning permission.

The results are reported on in more depth below.

Valuation

In accordance with FRS11 “Impairment of Fixed Assets and Goodwill’’ we have reviewed the carrying values of group properties at 30th June 2001 and have made adjustments to the carrying value of certain clubs where we believe there is a permanent diminution in carrying value. Adjustments totalling £19.7 million have been included in the 30th June 2001 results and balance sheet. £18.0 million of this total is in respect of certain German clubs and the French property where, in the current uncertain economic climate a reassessment of the carrying value was felt necessary. As mentioned above, £1.7 million has also been provided in respect of the courses which will be sold.

This impairment review does not constitute a full revaluation of the group’s properties as envisaged under FRS15 “Tangible Fixed Assets’’. In line with our accounting policy all of the group’s properties will be revalued at 31 December 2001 and the valuations included in the group’s balance sheet at that date. This valuation will be performed by a firm of independent valuers. Given the difficult trading and uncertain general economic conditions, further adjustments in value may be required to the 30 June values to reflect the state of the market for Country and golf clubs at the valuation date.

Strategy

As shareholders will be aware, your Board has held a number of ongoing discussions aimed at improving the capital base of the Company. These talks have been with various parties and have involved possible merger or acquisitions with other leisure based businesses. Unfortunately due to various factors we have been unable to successfully conclude these talks. This has lead to uncertainty amongst the staff and our members as well as the investors. Therefore we have decided to formally end the talks which may have led to an offer being made for the company. However we continue to be in discussions with several parties concerning the possible sale of assets.

The current capital base of the Group is restrictive and needs to be addressed in the first instance. Debt levels are too high relative to the equity base and this imbalance needs to be corrected before the group can move forward. Disposals are currently in hand and serious consideration is being given to further more extensive asset disposals.

Staff

I would like to take this opportunity to thank all of the Clubhaus staff for their efforts during the past six months especially so during the period of unease and uncertainty.

Conclusion

Difficult trading conditions combined with a trend in the European market place away from high price joining fees has impacted the Group’s trading and asset value in the first half. The out-turn for the year will continue to be affected by these factors and it is unlikely that last year’s results will be matched. Action has been taken to reduce the cost base of the Group. Alongside the asset disposal programme, we continue to assess the best way of fulfilling our previously stated strategic objectives.

Robert Bourne Chairman 5th September 2001

Finance Director’s Review Interim Results: 6 months to 30 June 2001

Financial Results

The following review covers the six months ended 30th June 2001 and the corresponding period in 2000. Included within the interim statement are the results for the three months ended 30th June 2001 and the corresponding period in 2000. The quarterly information has been prepared under the same accounting standards and policies applied to the full year and interim statements. Like-for-like movements do not differ materially from the actual figures quoted below.

Turnover

The Group’s turnover grew marginally to £19.2 million (2000: £19.0 million) for the six months to 30th June 2001. However turnover for the quarter ended 30th June 2001 decreased by 13% to £10.3 million (2000: £11.8 million). The reasons for the movements are discussed below.

The turnover was generated as follows:

Membership Subscriptions. Membership subscriptions increased by 39% for the six months to 30th June 2001 compared to the corresponding period in 2000. Membership numbers increased by 34%, and price increases averaged 5%. This increase in revenue was due to the rollout of the health and fitness programme and was broadly in line with expectations.

Subscriptions rose by 29% comparing the second quarter in 2001 to the second quarter in 2000.

Joining Fees. Joining fees decreased by 70% for the six months to 30th June 2001 compared to the corresponding period in 2000. The reduction comparing the 2nd quarter in 2001 to the corresponding period in 2000 shows a 99% decline. The fall is mainly a result of poor joining fees achieved at the Group’s Clubs in Germany this year compared to the same period last year. The total number of membership sales was only slightly behind budget and joining fees at the Country Clubs in the UK were broadly on target.

Daily Usage Fees. Daily usage fees decreased by approximately 31% for the six months to 30th June 2001 compared to the corresponding period in 2000. Comparing just the second quarter, the decline was 35%. This was partly due to the poor weather conditions and partly expected following the increase in Member numbers across the Group.

Food and Beverage Sales. Sales increased by approximately 17%, when comparing the six month periods and 20% for the second quarter. This is a reflection of the increased number of members and higher yielding non-member usage.

Retail Sales. Retail sales reduced by 21% when comparing the six month periods and 14% for the second quarter. This is a reflection of the reduced daily usage and the change of emphasis on the type of retail operation that the Group is involved in. Lower ticket items with good margins are now the main focus of the Group’s retail policy.

Other revenues. Includes accommodation revenues generated from the enlarged El Bosque, The Fox Club, the new lodge units at Meyrick Park, The Essex and the enlarged Hamburg site. Overall other revenues increased by 82% for the six months.

Gross Profit.

Gross profit decreased to £11.2 million representing a margin of 58% a fall from last year’s 61% margins. The decrease is mainly due to the decrease in joining fees as a component part of the revenues.

Quarter to quarter gross profit decreased again due to the lower joining fee component.

Selling, general, administrative and depreciation overheads before exceptional items

Overhead expenses before exceptional items increased by 14% to £9.1 million from last year. The increase results in part from a rise in the depreciation charge of 78% to £2.5 million. Depreciation and amortisation has increased due to the increased size of the asset base and one off charges at the Group’s club in France.

Quarter to quarter overhead expenses rose by £0.3 million again mainly due to the rise in the depreciation charge.

Exceptional items

The Group has incurred an exceptional charge in the period of £22.8 million which has been included in arriving at the operating loss of £25.3 million. In line with FRS (3) the items have been shown as exceptional due to their materiality. The detailed analysis is shown in note 3 to the accounts. The main items are as follows:

In accordance with FRS11 “Impairment of Fixed Assets and Goodwill’’ we have reviewed the carrying values of group properties at 30th June 2001 and have made adjustments to the carrying value of certain clubs where we believe there is a permanent diminution in carrying value as described in the Chairman’s Statement.

This impairment review does not constitute a full revaluation of the group’s properties as envisaged under FRS15 “Tangible Fixed Assets’’. In line with our accounting policy all of the group’s properties will be revalued at 31 December 2001 and the valuations included in the group’s balance sheet at that date. This valuation will be performed by a firm of independent valuers. Given the difficult trading and uncertain general economic conditions, adjustments in value may be required to the 30 June values to reflect the state of the market for country and golf clubs at the valuation date.

Costs associated with various development projects that had been previously capitalised, including amounts related to the development of an IT system and various costs associated with the aborted acquisitions have also been expensed.

The Group has provided for its investment in and loans to Ask Figaro the online financial and members services company in which it owns 49%.

Finally, the Group has commenced a stringent review of its cost base. This has given rise to the need to pay redundancy payments and the total expected cost has been expensed in these accounts.

Earnings before interest tax depreciation and amortisation

Earnings before interest depreciation tax and amortisation (and excluding exceptional items) decreased to £4.6 million. The decrease in joining fees has affected revenues with the effects of operational gearing reducing earnings.

Net Interest Expense

All interest in the second quarter has been expensed following the capitalisation of £1.0 million of interest in the first quarter, in accordance with FRS 15 “Tangible fixed assets’’.

Loss on Ordinary Activities

The Group made a loss on ordinary activities before taxation of £25.3 million for the half year (2000: £813,000 profit).

Taxes on Income

No provision for tax has been made due to brought forward losses and losses incurred by the Group in the period.

Earnings Per Share

Earnings per share before exceptional items decreased to a loss of 2.6 pence from earnings of 0.4 pence in 2000. After exceptional items, the loss per share is 25.0 pence.

Cash Flow

Cash inflow from operations was £4.8 million, an increase of 54% from 2000. The increase was due to the negative working capital movements in 2000.

Gearing

Gross interest bearing borrowings comprise £60 million Senior Notes due 2009, £7.6 million preference shares due 2003 and £38.5 million of bank debt.

Capital Expenditure

The Group expensed £5.4 million on various capital projects including the development of the health clubs.

Acquisition

The Group completed the purchase of Chartham Park in May. The acquisition of Chartham Park for £3.0 million plus expenses provides scope for further development of the country club concept.

Disposals

The Group disposed of two golf only clubs, Chelsfield Lakes and Stapleford Abbotts, during the period for £6.6 million.

Dividend

No interim dividend is proposed. A preference share dividend has been accrued.

Quantitative and Qualitative Disclosure of Market Risk

The Company is exposed to market risks from changes in exchange rates. Earnings are affected by fluctuations in the value of the pound sterling against foreign currencies. In addition amounts invested in our non-UK subsidiaries are translated at the balance sheet exchange rate.

The Group is exposed to interest rate fluctuations on its bank borrowings. A management programme based around hedging arrangements has been investigated and will be entered into at the right time. These arrangements will have the effect of turning variable rates into fixed rate liability.

Conclusion

A poor trading environment, particularly in the first part of the year, has coincided with difficulties in repeating the success of high priced membership sales in Europe. The Group has an imbalance between its equity base and its debt levels and the immediate aim is to correct this imbalance whilst continuing to manage the business as efficiently as possible.

Rupert Horner, Finance Director, 5th September 2001

       

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