Goals Soccer Centres : to be acquired by Northwind 5s Limited

Goals Soccer Centres PLC

('Goals' or the 'Company')

Goals to be acquired by Northwind 5s Limited

The Board and Management of Goals have worked tirelessly over the past 8 months with their advisers and their lenders to identify and resolve the Company's issues relating to the misdeclaration of VAT and other serious accounting issues, dating back several years. A thorough and rigorous process has been carried out properly and systematically to achieve a final outcome to this very difficult situation.

Every avenue has been fully explored to deliver the best possible outcome for all stakeholders in the business. However, ultimately the only available solution, given the indebtedness of the Company, the unresolved VAT situation and inappropriate accounting, was to accept that the Company needed to delist and for the Company to undertake an accelerated M&A process (AMA Process) to seek a buyer for the business and its assets. The reasons for this are set out below and the Board is today announcing the anticipated completion of this process with the business being acquired by Northwind 5s Limited, a new company backed by Inflexion Private Equity and Soccerworld. The transaction will be effected through a pre-pack administration where administrators, Deloitte LLP, will have been appointed and simultaneously the business and assets of the Company acquired. Through this transaction the livelihoods of the Company's 750 staff will have been secured and Goals' customers will continue to be able to enjoy playing small-sided football at all its centres across the UK and US.

The Board hopes that, once the future of the business of the Company has been protected, it will be able to continue to grow and prosper.

Timeline

In the interests of transparency, and given unsubstantiated comments made in the media by certain parties over the last few months, the Board wishes to give a full account of the processes it has gone through to understand fully the issues that were uncovered that led to this outcome. The Board wanted to put this on record at the earliest opportunity, but it has not been able to do so up until now, due to the confidential nature of the investigations.

VAT issues

In February 2019, the audit of Goals 2018 financial statements was initiated by BDO, who had been appointed the previous summer following the Board's decision to replace the Company's long-term auditors, KPMG. This was their first annual audit of the business. During this process serious issues were identified concerning the accounting treatment of VAT.

The company then engaged both RSM and an independent tax expert to review the VAT situation. Having reviewed the last four years of accounts and transactions in fine detail, these parties reported to the Board that they believed that this misdeclaration amounted to £13.2 million, plus interest and any penalties HMRC deemed appropriate. Although the Company engaged openly with HMRC from late March 2019 and pushed to progress to a resolution of this matter, HMRC have so far declined to give the Board clear guidance. The reasons for this are unclear.

The Company's tax advisers have more recently informed the Board that, given other issues the Company has since uncovered as part of its detailed investigation, HMRC may be able to extend the window of any VAT investigation beyond four years. The amount owing could therefore be very significantly more than £13.2 million.

Inappropriate accounting

In addition to the VAT issues, the audit also identified other areas of inappropriate accounting. A separate team of forensic auditors, hired by the Board, from BDO, consequently carried out a detailed investigation of Goals' historical accounts and the final report was received by the Board in late September 2019.

In parallel with this investigation, an internal investigation was carried out by the Company's new Interim CFO.

These reports identified some very serious issues dating back to 2009. This included the apparent creation of false fixed assets, false revenues and fake invoices. They also identified the wrongful payment of cheques to individuals associated with the Company, in 2014. The Board now believes that the profits of the business may have been overstated by as much as £40 million since 2009.

This series of reports, written by the Company's tax advisers, RSM and an independent tax consultant, BDO and its Interim CFO were only completed in early October. This was due to the complex nature of the work involved and the on-going discovery of new issues. The reports have recently been handed over in full to the relevant regulatory authorities and law enforcement agencies.

As a result of these findings, the expected EBITDA for 2019 is now around £3.8 million excluding significant advisor fees associated with managing the current issues. This takes into account the required changes in accounting methodologies.

Goals bank debt is approximately £30 million, provided by lenders Bank of Scotland. The Company has been in breach of key banking covenants for some months, as previously disclosed. The Board of Goals has therefore been working closely with both its lenders, and its lawyers, BDB Pitmans, throughout this time. The Board was given clear advice in August 2019 that the business appeared to be technically insolvent and that on-going trading was wholly reliant on the support of the Bank of Scotland. As such, the Board was advised that 'creditors' interest' duties had arisen. The Board was therefore required to consider the interests of creditors as well as those of the Company.

The combination of all of these issues means that closing the 2018 books has been complicated by the fact that no historic profit and loss account and balance sheet numbers can be trusted. The Board therefore had no choice but to delist the shares, as current year accounts could not be presented in the allotted timescale.

AMA process and consideration of other options

In the discharge of its fiduciary duties to all stakeholders and in dialogue with the Bank of Scotland, the Board explored all of the possible options to secure the future of the business and/or the Company itself.

The Board, assisted by Canaccord Genuity the Company's NOMAD, approached shareholders to gauge levels of interest in a further fundraising. However, due to the uncertainty relating to the VAT liability, such funding was not forthcoming.

The Board received a preliminary, but highly caveated offer, for the shares of the Company from Sports Direct International Plc. The Board, advised by Canaccord Genuity and assisted by BDB Pitmans LLP, its lawyers, co-operated fully with Sports Direct International Plc and provided them, on a timely basis, with access to the Board members, key personnel, the Bank, all financial information (including financial projections) and other relevant information to permit them to formulate an offer as prescribed by the Takeover Code. Despite this full co-operation and the provision of all relevant information to Sports Direct International Plc, regretfully no offer was made. For the avoidance of doubt, Sports Direct International Plc were, of course, also given the opportunity to participate in the AMA Process.

The Board also engaged Deloitte to advise on all options available to the Company and to plan for the contingency of a possible administration of the Company. The Board concluded in late August 2019, with recommendations from Deloitte, that the only feasible outcome was a sale of the business of the Company and its assets through an AMA Process. This was exacerbated by the uncertain nature of the VAT-related issues and amounts owing to creditors.

Deloitte was engaged by the Company to run the AMA Process with the endorsement of the Bank which is anticipated to conclude today with a pre-pack administration followed by the sale of the Company's business and assets to Northwind 5s Limited.

It is with regret that the funds generated through the sale do not fully compensate even the lenders to the Company.

The Board has already taken steps to preserve the Company's legal rights to compensation from parties who might be liable through negligence or more direct involvement, and entered into standstill agreements with former directors and also with its auditors of 15 years, KPMG. The Board is hopeful that action will be taken to hold those responsible to account, where appropriate. The Board members would be supportive of any such action.

It is very unlikely that shareholders of Goals will receive any value for their shares. This outcome is a matter of deep regret for the Board, but as previously outlined the nature of the inappropriate accounting (going back to at least 2009) and the VAT-related issues means the business has been significantly less profitable than previously believed. At each and every step of the way the Board has done everything in its power in combination with its advisers to ensure that it took steps to deliver the best outcome for the Company and its stakeholders.

31 October 2019

Enquiries

Goals Soccer Centres plc Michael Bolingbroke, Chairman Andy Anson, Chief Executive Officer	01355 234 800
Instinctif Partners Matthew Smallwood Andy Low	020 7457 2020