LA Fitness plc

Annual Report and Accounts 2004

LA Fitness
Award winning LA Fitness is recognised as the UK’s most
innovative health club operator and market leader when
it comes to providing high quality facilities at an affordable
price, in a convenient location. Positioned at the value
for money segment of the health club market, its business
philosophy is to provide the facilities and the motivation
for people of all ages, shapes and sizes to get as fit as
they realistically can in a vibrant and friendly environment.
Members are encouraged to be themselves and achieve
their personal goals, supported by highly trained and
motivated staff who understand the pressures of the
real world, beyond the walls of a health club.

With 65 clubs in the UK, one in Spain and one in Eire, more
than 200,000 people choose to be members of an LA Fitness
club, meaning the Group continues to be one of Britain’s
fastest growing and most successful health club operators.
Contents
Annual Highlights 2
Directors and Advisors 4
Chairman’s and
Chief Executive’s Review 6
Directors’ Report 10
Report on Corporate Governance 12
Directors’ Report on Remuneration 14
Statement of Directors’ Responsibilities 18
Report of the Independent Auditors
to the Members of LA Fitness plc 19
Consolidated Profit and Loss Account 20
Consolidated Balance Sheet 21
Company Balance Sheet 22
Consolidated Statement of
Total Recognised Gains and Losses 23
Consolidated Reconciliation of
Movements in Shareholders’ Funds 23
Consolidated Cash Flow Statement 24
Notes to the Accounts 25
Notice of Annual General Meeting 42
Financial Timetable 43
Club Directory 44

LA Fitness plc Annual Report and Accounts 2004 1

 Annual Highlights

20%
Turnover up 20%
15%
EBITDA* up 15%
18%
Operating profit* up 18%
to £79.6 million to £19.2 million to £12.3 million
(2003: £66.3 million) (2003: £16.7 million) (2003: £10.4 million)

£9.1m
Pre-tax profits* £9.1 million
9%
Basic earnings per share*
27%
Total dividend up 27%
(2002: £7.2 million) up 9% to 14.9p. to 1.83p (2003: 1.44p)

67clubs
4 new clubs opened
21%
Membership up 21% to
during year, making 200,470 (2003: 165,320)
a total of 67 clubs

* before exceptional items

2 LA Fitness plc Annual Report and Accounts 2004

 A significant year for LA Fitness
for public awards
and achievements including:

The Leisure Property Awards

Best Small Leisure Project

Help the Aged

Living Legend
Business for Age catergory

International Health and

Racquet Sports Association
European Club Operator of the Year

200,470

79.6 165,320
19.2 129,510

88,630
66.3 16.7
49,600

13.1 2000 2001 2002 2003 2004

47.6

Membership Numbers

8.1 67
28.4 66

53

15.2 4.4 37

24

2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004

Annual Turnover (£’m) EBITDA (£’m) Number of LA Fitness clubs

LA Fitness plc Annual Report and Accounts 2004 3

 Directors and Advisors
Directors Registered office Registrars
Peter Alan Jacobs 101 Commercial Road Computershare Investor Services PLC
Non-Executive Chairman•* London E1 1RD PO Box 82, The Pavilions
Bridgwater Road
Frederick Oliver Turok
Bristol BS99 7NH
Chief Executive* Auditors
Richard Taylor ACA KPMG Audit Plc
Altius House Principal Bankers
Finance Director
One North Fourth Street Allied Irish Banks plc
David Turner Cental Milton Keynes St Helen’s
Strategic Development Director Buckinghamshire MK9 1NE 1 Undershaft
Michael Peter Mills FCCA London EC3A 8AB
Non-Executive Director• Barclays Bank Plc
Stockbroker
David John Cohen Robert W. Baird Limited 50 Pall Mall
Non-Executive Director•* Mint House London SW1A 1QA
77 Mansell Street The Royal Bank of Scotland plc
• Members of the Audit and
London E1 8AF 2 Waterhouse Square
Remuneration Committees
138 Holborn
* Members of the London EC1N 2TH
Nominations Committee Principal Solicitors
Berwin Leighton Paisner
Adelaide House Registered Number
Secretary London Bridge London EC4R 9HA 3224406
Graham Taylor MBA, FCCA
Finers Stephens Innocent
179 Great Portland Street
London W1N 6LS

4 LA Fitness plc Annual Report and Accounts 2004

…On behalf of the Board, we again acknowledge
the commitment, hard work and loyalty of our
staff and their great contribution to the business…
Biographical details of the Board of Directors are set out below:
Peter Jacobs (aged 61; appointed 1999)
Peter is a mechanical engineering
graduate from Glasgow University.
He served as Chief Executive of BUPA
between 1991 and 1998, having
previously been Chief Executive Officer of
British Sugar from 1986 and of Berisford
International plc from 1989. Peter was
also the non-executive chairman of
Hillsdown Holdings plc and Healthcall
Limited, as well as a non-executive director
of Allied Domecq plc and Bank Leumi (UK)
Limited. He is currently Chairman of WT
Foods Limited and a non-executive
director of RAF Strike Command.
Fred Turok (aged 49; appointed 1996)
Fred has overall responsibility for the
management of the Group. After an early
career as a physical education teacher,
Fred joined David Lloyd Leisure plc at
its club in Heston, Middlesex in 1985.
In 1990 he left to set up Westminster
Leisure, a partnership with his wife and
Jeremy Taylor, who remains a key member
of LA Fitness‘ Operating Board, which
acquired Westminster health club and
launched Body & Soul, the former name
of the LA Fitness club in Kingston. In 1994
he began working with David Turner.
He joined the Board as one of the
Founders in 1996.
Richard Taylor (aged 46; appointed 1999)
Richard qualified as a chartered
accountant in 1984, while with Newman
& Partners. In 1985, he joined World of
Leather plc serving as its Finance Director
and Company Secretary and in 1995 he
was appointed as Joint Managing Director.
Following UNO plc's acquisition of World
of Leather plc in 1997, Richard served as
UNO plc's Corporate Affairs Director until
September 1998. In 1999 he served as
Operations Director of Owners Provident
plc before joining the LA Fitness Board in
September 1999.
David Turner (aged 58; appointed 1996) David Cohen (aged 62; appointed 1999)
David currently has responsibility for David is the senior independent non-
developing business partnerships executive director. He was senior corporate
and commercial opportunities. broking advisor to SG Securities (London)
On 1 November 2004, David will be Limited (“SG”). Prior to this he was head
relinquishing his executive duties and will of SG’s corporate broking department
remain on the Board as a non-executive which he established in 1993 on joining
director. Having trained as a surveyor, SG from Robert Fleming Securities, where
David opened his first club in 1979 which he was head of corporate broking. He
was one of the first squash clubs to began his career at Simon & Coates, a firm
provide extensive health and fitness club of stockbrokers, becoming a senior partner
facilities. While opening and operating specialising in corporate finance. Following
three further clubs, he specialised in the Chase Manhattan’s acquisition of Simon &
location of projects, the negotiation, Coates, David was appointed head of new
design and building of facilities and the business development, later becoming
creation and monitoring of management head of European investment banking. He
and operational systems. In addition, has extensive corporate finance experience
he acted as a consultant to a number including serving as corporate broking
of organisations, including Blue Circle adviser to David Lloyd Leisure plc until it
Industries plc and the Port of London was taken over by Whitbread plc in 1995.
Authority, the forerunner of the London
Docklands Development Corporation.
In 1994 he joined forces with Fred Turok.
He joined the Board as one of the
Founders in 1996.
Michael Mills (aged 56; appointed 1998)
Michael qualified as a Certified Accountant
in 1974 and has held a number of senior
positions in the brewing and pub retailing
sector. He has worked for Carlsberg, Chef
& Brewer and in 1985 co-founded a pub
company, Cromwell Taverns, holding the
position of Finance Director. In 1987
Cromwell Taverns acquired Grosvenor Inns
which floated on the USM in 1992 on the
acquisition of Slug & Lettuce. Michael left
Grosvenor Inns in 1995 and was a founder
director of the Ambishus Pub Company
plc in 1997 which floated on AIM in that
year, subsequently sold in 2000. In the
period from 2000 to October 2003,
Michael was a director of Jodsal, a venture
capital backed pub company. In August
2003, Michael was appointed Non-
Executive Finance Director of Oi! Bagel,
a venture capital backed takeaway food
operation.
LA Fitness plc Annual Report and Accounts 2004 5
 Chairman’s and
Chief Executive’s Review

…We are enjoying a good start to the

current year and have great confidence
in LA Fitness’ prospects for this year and
beyond as we continue to develop. We
consider that with our proven business
model, defined market position and highly
regarded management team, we will
achieve our future growth potential…

6 LA Fitness plc Annual Report and Accounts 2004

We are pleased to present the Group’s
results for the year ended 31 July 2004.
The good progress reported in our interim
statement continued throughout the
second half of the financial year and we
have achieved record turnover and profits.
Results
Turnover for the year grew by 20%
to £79.6m (2003: £66.3m). Earnings
before interest, tax, depreciation and
amortisation (EBITDA) increased by 15%
to £19.2m (before exceptional items)
compared to £16.7m in the year ended
31 July 2003 and operating profits before
exceptional items increased by 18% to
£12.3m (2003: £10.4m). Profit before tax
and exceptional items increased by 27%
to £9.1m (2003: £7.2m).
Before exceptional items, basic earnings
per share increased by 9% to 14.9p
(2003: 13.7p). After exceptional items,
basic earnings per share increased to
13.0p (2003: 5.6p).
Of our estate of 67 clubs, 49 clubs were
open throughout the last two years. Like-
for-like sales from these more mature clubs
increased by 4%. We continue to work
hard to seek and develop opportunities
for increasing ancillary income from all
our clubs, in areas such as private training,
merchandising and advertising. For the
year ended 31 July 2004, income arising
from sources other than membership
subscriptions and joining fees grew
by 11% and represented 10.2% of
total income.
One of the original non-swimming pool
clubs was sold during the year, and
negotiations for the disposal of another
such club are advanced. During the year
we completed the sale and leaseback of
our remaining two freehold and long
leasehold premises.
Net debt at 31 July 2004 was £48.6m
(July 2003: £52.9m), of which £42.7m
was net bank debt and the remainder
obligations under finance leases.
The reduction in debt over the last 12
months underlines the cash generative
nature of the business, with operating
cash inflow in the 12 months amounting
to £20.2m. Bank facility headroom and
covenants have improved in line with
this debt reduction.
Operations
During the year we opened 4 new clubs.
At the year end, the Group traded from
67 clubs, 65 of which are in the United
Kingdom, 1 in Spain and 1 in Eire. The
strength of the Group’s brand and the
quality of our offering enabled us to
continue to benefit from our successful
strategy of recruiting new members prior
to a club opening, providing a solid
platform for the speedy achievement
of membership capacity.
Club margins stabilised in the year at
22.9% (2003: 22.6%) generating a gross
profit of £18.2m. Central costs increased
by £1.3m to £5.9m reflecting an
additional investment in senior
management, having created during
the year the new positions of directors
of sales and human resources as well as
three divisional directors. The results also
incorporate higher bonus and incentive
payments to staff at all levels on the
achievement of these record results.
Membership across the Group has
continued to expand at an encouraging
pace. At 31 July 2004, the Group had
200,470 members at the 67 clubs open,
compared with 165,320 at 31 July 2003,
an increase of 21% in the last 12 months.
The 4 clubs that opened during the last 12
months have achieved highly satisfactory
membership growth, averaging
approximately 1,850 members per club at
the year end. Member retention continues
to be a key element contributing to the
success of our business and retention
levels remain in line with our expectations.
More than 80% of new members opt for
an annual membership agreement and the
majority of these members join as a direct
result of recommendations from existing
members, a positive reflection of the
quality of customer service and facilities
to which we aspire.
During the second half of the year,
we invested in a new membership
management system which has been
successfully implemented throughout our
estate. This system provides all our clubs
and central support functions with access
to real-time financial and membership data.
LA Fitness plc Annual Report and Accounts 2004
In addition, we are now able to track and
report on a significant range of member
activities, as a result of which we will be
better placed to identify our members’
needs and benefit from additional revenue
opportunities. The business has already
begun to experience some of the benefits
from the implementation of this system,
and these are expected to grow over time.
Exceptional Charges
As we have previously reported, a VAT
planning scheme that operated during
1998 and 1999 was challenged by HM
Customs and Excise several years ago.
The VAT tribunal issued their ruling after
the year end having found in favour of HM
Customs and Excise. The precise amount
of VAT payable by the Group, together
with associated costs and interest, is still to
be determined, although it is estimated to
be £1.76m. This exceeds the provision
that had been previously provided by
£939,000 although, excluding costs, is
within the range referred to in last year’s
report and accounts. Accordingly, an
exceptional charge has been taken to
the profit and loss account.
Taxation
A full provision has been made for
deferred taxation as required by FRS 19.
The tax rate on profits before exceptional
charges amounts to 32.5% (2003: 21.6%)
of which the cash tax rate payable rate
is 8%.
Dividend
The Board recommends a 30% increase
in the final dividend to 1.3p per ordinary
share (2003: 1.0p) payable on 3
December 2004 to shareholders on the
register on 5 November 2004. The total
dividends for the year (paid and proposed)
amount to 1.83p per ordinary share, an
increase of 27% over the previous year.
The increased dividend reflects the Board’s
confidence in the strength and prospects
of the Group.
7
 …We have identified a pipeline of
excellent potential new sites and
our strong operational cash flows
enable us to continue to open new
clubs without further drawing down
on the significant banking facilities
available to us…

8 LA Fitness plc Annual Report and Accounts 2004

Chairman’s and
Chief Executive’s Review
continued
Expansion
We have currently committed to two
new club openings this year, one of
which is currently under construction.
Commitments to open a further two sites
will be entered into shortly. In addition, a
number of further prime site opportunities
are at various stages of negotiations. The
pipeline of prospective sites remains strong
and this has enabled us to further tighten
our site selection and feasibility criteria
before commitment. We can comfortably
open between 6 and 8 clubs each year
from operating cash flow and have
significant additional bank facilities
available to us should we wish to accelerate
this opening programme further.
The health of the nation
Obesity is now one of the leading killers in
the UK with 60% of the adult population
overweight, of which over one third are
clinically obese. The cost to the country of
this epidemic is escalating rapidly. As a
consequence, the drive by both the
Government and the media to get people
to focus on prevention through exercise is
helping the recruitment and retention of
members at our clubs and we expect this
to increase. As main board members of
the Fitness Industry Association, we
continue to work hard to lobby the
Government for tax and VAT incentives on
gym membership for those companies
and organisations prepared to take
ownership of the health and well-being of
their staff. We are also proactive in driving
the preventative message via our ‘adopt a
school’, ‘adopt a teacher’ and research
and awareness projects.
We will shortly launch a trial stand-alone
weight loss centre adjacent to our club in
Bedford. This centre will provide classes
and weight management courses for those
people who are concerned about their
well-being but may nevertheless be
reluctant to join a health and fitness club.
If the trial proves successful, this concept
has the capability of being rolled-out
throughout the UK.
Board Changes
We announced on 14 September 2004
that in light of recent developments in
corporate governance best practice and in
the interest of effective management of
the Company during its next stage of
development, the Board was changing its
structure. Accordingly, it was decided to
change the balance of Executive and Non-
Executive Directors on the Main Board and
to strengthen the Operating Board which
supports and reports to the Main Board.
David Turner, who earlier this year
assumed the role of part-time Strategic
Development Director having previously
held the position of full-time Property
Director, now wishes to take a less active
role in management. David has agreed
to remain on the Main Board as a
Non-Executive Director with effect from
1 November 2004. Jeremy Taylor,
previously Operations Director, stepped
down from the Main Board of the
Company on 30 September but retained
his position on the Operating Board.
These changes will result in the Main
Board of the Company having two
executive directors, Fred Turok (Chief
Executive Officer) and Richard Taylor
(Finance Director), and four non-executive
directors. The Operating Board will now
comprise the Chief Executive Officer, the
Finance Director and the Directors of
Operations, Commercial Development
and Human Resources.
People
On behalf of the Board, we again
acknowledge the commitment, hard work
and loyalty of our staff and their great
contribution to the business.
LA Fitness plc Annual Report and Accounts 2004
Our recruitment process and high quality
induction and training programmes are a
key feature of the LA Fitness culture and
are vital ingredients in our service to our
members. We enjoy a high retention rate
of senior staff members which is a
reflection of the quality of our working
environment.
Health and Fitness Sector
The key players in the Health and Fitness
sector have been through a period of
ownership change over the last few years
and are now predominantly in the hands
of venture capital funds and private
ownership. The success of the LA Fitness
model and strength of its management
team make it likely that we will play a
significant role in the consolidation process
that we believe will occur within this
sector over the next few years.
Current Trading and Prospects
We are enjoying a good start to the
current year and have great confidence in
LA Fitness’ prospects for this year and
beyond as we continue to develop. We
consider that with our proven business
model, defined market position and highly
regarded management team, we will
achieve our future growth potential. We
have identified a pipeline of excellent
potential new sites and our strong
operational cash flows enable us to
continue to open new clubs without
further drawing down on the significant
banking facilities available to us.
Peter Jacobs Fred Turok
Chairman Chief Executive
13 October 2004
9
 Directors’ Report
The Directors present their annual report and the audited Dividends
financial statements for the year ended 31 July 2004. The Directors recommend that a final dividend of 1.3p per
ordinary share (2003: 1.0p) is paid on 3 December 2004 to
Principal activities and review of business shareholders on the register at close of business on 5 November
2004. An interim dividend of 0.53p per ordinary share
The principal activity of the Group during the year was that of
(2003: 0.44p) was paid in June 2004 to ordinary shareholders
ownership and operation of health and fitness clubs and related
and therefore the total dividend for the year payable to ordinary
activities.
shareholders amounts to 1.83p (2003: 1.44p).
A review of the Group’s business and likely future developments
is contained in the Chairman’s and Chief Executive’s Review on
pages 6 to 9. Directors and directors’ interests
The Directors of the Company during the year together with
their interests in the share capital of the Company, including
Results connected party interests as at 31 July 2004, were as follows:
The profit after taxation for the year amounted to £5,343,000
(2003: £2,292,000). After providing for dividends, the retained
profit for the year was £4,592,000 (2003: £1,702,000). The 31 July 2004 31 July 2003
results for the year ended 31 July 2004 are after an exceptional Ordinary shares of 5p each Ordinary shares of 5p each
item before tax of £939,000 (2003: £3,570,000). Full details of Beneficial Non-beneficial Beneficial Non-beneficial
the exceptional items are provided in note 3 to the accounts. P Jacobs 190,115 - 190,115 -
F Turok 6,399,839 - 6,399,839 -
R Taylor 80,107 - 80,107 -
D Turner 1,514,377 - 2,514,377 924,198
J Taylor 664,196 - 664,196 -
(resigned 30.09.04)

D Cohen 285,116 - 285,116 -

M Mills 114,161 - 114,161 -

10 LA Fitness plc Annual Report and Accounts 2004

There have been no changes in the Directors’ interests between The Group encourages the involvement of employees in its
31 July 2004 and the date of this report. Details of directors’ success through membership of the share option scheme.
options are given on page 17.

Mr D Turner and Mr M Mills retire by rotation and offer Auditors

themselves for re-election at the forthcoming Annual
General Meeting.
Creditor payment policy
The Group supports the better payment campaign of the CBI.
It is the Group’s policy to pay amounts due to all its suppliers in
accordance with the terms of payment agreed with each supplier
at the time of the transaction.
A resolution for the re-appointment of KPMG Audit Plc as
auditors of the Company is to be proposed at the forthcoming
Annual General Meeting.
Annual General Meeting
The notice of the Annual General Meeting to be held on
1 December 2004 is contained within this Annual Report.

At the year end, the Group’s trade creditors represented

approximately 39 days (2003: 42 days), and the Company’s trade By order of the Board
creditors represented approximately 36 days (2003: 39 days).

Substantial shareholdings
As at 29 September 2004, the Company had been notified of the
following substantial interests: Graham Taylor 101 Commercial Road
Company Secretary London E1 1RD

Number of Percentage 13 October 2004

ordinary shares of issued
of 5p each share capital

F Turok (Director) 6,399,839 15.6%

FMR Corp 3,683,307 9.0%
JO Hambro Capital Management Limited 2,203,441 5.4%
Legal & General Group Plc 1,712,536 4.2%
D Turner (Director) 1,514,377 3.7%
SVG Capital plc 1,380,000 3.4%
Pension Services Limited 1,265,000 3.1%
Invesco English and International
Trust plc 1,248,771 3.0%

Employees
The Board recognises that the performance of the Group is
enhanced when employees are kept informed about the
operational and financial progress of the business. Regular
meetings are held with employees at all levels of seniority to
discuss the key issues, with the opportunity for senior executives
to be questioned about matters which concern the employees, as
well as the publication of a monthly employee newsletter.

All employees receive equal opportunities for career

advancement, including training and other forms of education as
appropriate. People with disabilities are, wherever possible, given
the same opportunities for employment, training, career
development and promotion taking into account their individual
abilities and qualifications. Employees who become disabled
during their working life will be retained in employment wherever
possible and given help with rehabilitation and training.

LA Fitness plc Annual Report and Accounts 2004 11

 Report on Corporate Governance
LA Fitness is committed to maintaining
high standards of corporate governance
in line with the Combined Code issued by
the UK Listing Authority in June 1998
which sets out the Principles of Good
Governance and Code of Best Practice.
Review of Corporate Governance
Principles
The Board sets out its review of how the
principles of Corporate Governance have
been complied with and applied
throughout the year.
Board of Directors
The Board had four executive and three
independent non-executive Directors
during the year. On 30 September 2004,
Jeremy Taylor retired from the Board. On
1 November 2004, David Turner, currently
an executive director, will become a non-
executive director. Each Director submits
for re-election at least every three years.
Directors who are appointed during the
year are subject to re-appointment by the
shareholders at the next Annual General
Meeting. There is a clear delineation of
responsibility between the Chairman and
Chief Executive and other executive
Directors. Biographical details of the
Directors are given on page 5.
There are ten regular Board meetings each
year and other ad hoc meetings are held
as required to direct overall Group strategy
and operations. Board meetings follow a
formal agenda covering matters
specifically reserved for decision by the
Board. All Board members are free to
exercise their independent judgements on
items on the agenda as well as on other
issues which they feel appropriate to raise.
All Board papers are sent to Directors in
sufficient time before Board meetings.
12 LA Fitness plc Annual Report and Accounts 2004
These cover key areas of the Group’s affairs
including overall Group strategy,
acquisition and divestment policy,
approval of budgets, major capital
expenditure programmes and significant
transactions and financing issues. The
Board has delegated responsibilities to
standing committees, which it has
established as described below.
There is an agreed procedure for Directors
to take independent professional advice at
the company’s expense without reference
to other Board members. The Company
Secretary is responsible for ensuring that
Board procedures are followed and all
Directors have access to the Company
Secretary. Every Director receives
appropriate training relevant to the
business.
Audit Committee
The Audit Committee is chaired by
Michael Mills and currently comprises
all of the non-executive Directors. The
executive Directors are invited to attend at
the request of the Committee as necessary
for the Committee to conduct its business.
The Company’s auditors attend all
meetings and have direct access to its
Chairman. It meets at least twice a year
and reviews the Group’s financial and
accounting policies, interim and final
results and Annual Report prior to their
submission to the Board together with
management reports on accounting and
internal control matters. The Committee
will review the appointment and Terms of
Reference of the external auditors, their
management letter and considers any
other matters raised by the auditors. It also
monitors the effectiveness of the internal
audit function.
Remuneration Committee
The Remuneration Committee comprises
all of the non-executive directors under
the chairmanship of Peter Jacobs. The
committee’s principal functions are to
make recommendations to the Board in
respect of the Company’s policy on the
remuneration of executive directors and to
determine the specific remuneration
package for each Director. Further details
are set out on pages 14 to 17.
Nominations Committee
The Nominations Committee comprises
two non-executive Directors and the
Chief Executive Officer. The Chairman
of this Committee is David Cohen. The
Committee is responsible for considering
candidates for appointment as Directors.
Relations with Shareholders
The Company undertakes a formal
programme of institutional presentations
on the announcement of its full year and
interim results and copies of the
presentations are available to individual
shareholders on request. The Company
encourages communication with private
shareholders and notice of the AGM is
given at least 20 working days before the
meeting, at which separate resolutions are
proposed on each substantially separate
issue. The Chairman of the Audit
Committee and the Chairman of the
Remuneration Committee will attend the
forthcoming Annual General Meeting.
The Group uses its website
(www.lafitness.co.uk) to provide, among
other things, corporate information that
is of value to shareholders.
…we are now able to track and report on a
significant range of member activities, as a result
of which we will be better placed to identify our
members’ needs and benefit from additional
revenue opportunities. The business has already
begun to experience some of the benefits from
the implementation of this system, and these are
expected to grow over time…
Internal Control
The Board has established an ongoing
process for identifying, evaluating and
managing the significant risks faced by the
Group. The process, which has been in
place for the year under review and up to
the date of approval of the annual report
and accounts, is regularly reviewed by the
Board and accords with the Turnbull
guidance.
The Board has overall responsibility for the
Group’s system of internal control and for
reviewing its effectiveness. However, such
a system is designed to manage, rather
than eliminate, the risk of failure to achieve
business objectives, and can only provide
reasonable and not absolute assurance
against material misstatement or loss.
The Directors have established an
organisational structure with clear
operating procedures, lines of
responsibility and delegated authority to
discharge their responsibility. In particular,
there are clear procedures for:
• Monitoring of business risks on an
ongoing basis with key risks identified
and reported to the Audit Committee
and to the Board;
• Capital investment, with detailed
appraisals, together with clearly defined
authorisation levels and post investment
review;
• Financial reporting, within a
comprehensive financial planning and
accounting framework based on a
budgeting and reporting function, with
budgets and results reviewed at a senior
level in the Company to provide timely
and regular monitoring of financial
performance; and
• Internal audit of adherence to
operational procedures, financial
controls and reporting.
There are also clear procedures for
monitoring the system of internal control.
This process involves:
• Reports from relevant senior executives
concerning the operation of those
elements of the system for which they
are responsible; and
• Reports from the internal audit function
concerning compliance with the Group’s
internal control procedures.
LA Fitness plc Annual Report and Accounts 2004
The Board has reviewed the effectiveness
of the internal control framework for the
period covered by these financial
statements and up to the date of approval
of the Annual Report, through its
committees and the monitoring process
described above, and no material
weakness have been identified.
Going Concern
After appropriate consideration the
directors have a reasonable expectation
that the Group has adequate resources
to continue in operational existence for
the foreseeable future. The financial
statements have therefore been prepared
on the going concern basis.
Compliance Statement
In the opinion of the Directors, the
Company fully complied throughout
the year ended 31 July 2004 with the
provisions of Section 1 of the Combined
Code on Corporate Governance issued
by the Financial Services Authority.
13
 Directors’ Report on Remuneration
Introduction
This report has been prepared in
accordance with the Directors’
Remuneration Report Regulations 2002
(“the Regulations”) which introduced new
statutory requirements for the disclosure of
Directors’ remuneration in respect of
periods ending on or after 31 December
2002. The report also meets the relevant
requirement of the Listing Rules of the
Financial Services Authority and describes
how the Board has applied the Principles
of Good Governance relating to Directors’
remuneration. As required by the
Regulations, a resolution to approve the
report will be proposed at the Annual
General Meeting of the Company at which
the financial statements will be approved.
The Regulations require the auditors to
report to the Company’s members on the
“auditable part” of the Directors’
Remuneration Report and to state whether
in their opinion that part of the report has
been properly prepared in accordance
with the Companies Act 1985 (as
amended by the Regulations). The report
has therefore been divided into separate
sections for audited and unaudited
information.
Unaudited information
Remuneration Committee
The Company has established a
Remuneration Committee which is
constituted in accordance with the
recommendations of the Combined Code.
The members of the committee are
Mr Peter Jacobs, Mr David Cohen and
Mr Michael Mills, who are all independent
non-executive Directors. The committee is
chaired by Mr Peter Jacobs.
None of the Committee has any personal
financial interest in the Company (other
than as shareholders) or conflicts of
interest arising from cross-directorships.
14 LA Fitness plc Annual Report and Accounts 2004
The Committee makes recommendations
to the Board and determines on their
behalf specific remuneration packages
for each of the executive Directors.
No Director plays a part in any
discussion about his own remuneration.
In determining the other executive
Directors’ remuneration for the year the
Committee consulted Mr Fred Turok
(Chief Executive) about its proposals.
Remuneration policy
Executive remuneration packages are
designed to attract, motivate and retain
Directors of the high calibre needed to
progress and develop the Group and to
reward them for enhancing value to
shareholders. The performance
measurement of the executive Directors
and key members of senior management
and the determination of their annual
remuneration package are undertaken by
the Committee. The remuneration of the
non-executive Directors is determined by
the Board.
There are five main elements of the
remuneration package for executive
Directors;
• Basic annual salary (including Directors’
fees) and benefits;
• Annual bonus payments which cannot
exceed 75% (2003: 75%) of basic salary
for executive Directors;
• Share option incentives;
• Pension arrangements; and
• Life assurance and medical expenses
insurance
The Company’s policy is that a substantial
proportion of the remuneration of the
executive Directors should be performance
related. As described below, executive
Directors may earn annual incentive
payments of up to 75% of their basic salary.
Basic salary
An executive Director’s basic salary is
recommended and determined by the
Committee on behalf of the Board prior
to the beginning of each year and when
an individual changes position or
responsibility. In deciding appropriate
levels, the Committee considers the Group
as a whole and by reference to
remuneration levels at other companies in
the leisure and hospitality sectors. Basic
salaries were reviewed in July 2003 with
increases taking effect from 1 August
2003. Executive Directors’ contracts of
service which include details of
remuneration are available for inspection
at any time.
Annual bonus payments
The Committee establishes the objectives
that must be met for each financial year if
a cash bonus is to be paid. The Committee
believes that any incentive compensation
awarded should be tied to the interests of
the Company’s shareholders and that the
principal measure of those interests is
Group profitability (profit before tax and
exceptional items). Performance targets
are set annually as part of the budgeting
process and performance is reviewed
against those targets at the end of the
financial year. The maximum performance
related bonus that can be paid is 75% of
basic annual salary. Incentive payments,
reflecting the profit performance of the
Group for the year ended 31 July 2004,
varied between £nil and £100,000 for the
executive Directors.
Share options
The Group’s Share Option Scheme
(the “Scheme”) is used as a means of
motivating and retaining employees.
The Scheme was introduced in 1999 and
comprises two parts, namely the LA Fitness
Approved Executive Share Option Scheme
(Approved Part) and the LA Fitness
Unapproved Executive Share Option
Scheme (Unapproved Part). The Approved
Part has been approved by the Board of
the Inland Revenue under the provisions
of the Income and Corporation Taxes Act
1988. The Unapproved Part has not been
approved by the Inland Revenue and it is
not intended to apply for approval in
respect of it. Options granted under the
Scheme may generally be exercised
between three and ten years from the date
of grant and all options granted after the
Company’s flotation in October 1999 have
been at market price. The Company’s
policy, which is not subject to the
satisfaction of detailed performance
conditions, is to grant options to Directors
at the discretion of the Committee taking
into account individual performance.
At 31 July 2004 options to subscribe for up
to 766,726 ordinary shares of 5p each
were held by 1 director under the Scheme.
These options are exercisable from dates
commencing on 20 October 2002 and
expiring on 12 June 2013 at prices ranging
between 69.0p and 268.0p per share with
LA Fitness versus FTSE Leisure Sector
350%
300%
250%
200%
150%
100%
50%
0%
Oct-99 Jan-00 Apr-00 Jul-00
LA Fitness
FTSE Leisure
a weighted average of 146.0p. No options
were granted during the year. The exercise
price of the options granted under the
above schemes is equal to the market
value of the Company’s shares at the time
when the options are granted.
The Company does not operate any long-
term incentive schemes other than the
share option schemes described above.
No significant amendments are proposed
to be made to the terms and conditions
of any entitlement of a Director to share
options other than those set out above.
Pension arrangements
Executive Directors are entitled to
individual pension arrangements in the
form of personal pension plans. The
Company makes a contribution of not less
than 4% of basic salary towards funding
each executive Directors’ pension plan. To
the extent that this pension entitlement is
not taken, the surplus is paid as a salary
supplement.
Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02
There are no unfunded pension promises
or similar arrangements for Directors.
Performance graph
As required by the Regulations, the graph
below compares the Company’s total
shareholder return performance with the
FTSE Leisure and Hospitality share index
for each of the past five years.
The FTSE Leisure and Hospitality Share
index has been selected for this
comparison because it is the index most
relevant to gauging the Company’s
relative performance.
Directors’ contracts
It is the Company’s policy that executive
Directors should have contracts with an
indefinite term providing for a maximum
of one year’s notice. All executive Directors
have contracts which are subject to notice
by either party.
Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 July-04
LA Fitness plc Annual Report and Accounts 2004 15
 Directors’ Report on Remuneration
continued
The details of the executive Directors’ contracts are summarised in the table below:

Date of contract Notice period

Fred Turok 26 September 1999 1 year

Richard Taylor 26 September 1999 1 year
Jeremy Taylor (resigned 30 September 2004) 26 September 1999 1 year
David Turner 1 January 2004 3 months

In the event of early termination, a pay in lieu clause provides for the Director’s remuneration package to continue for the notice
period. Such continuation of benefits does not extend to the payment of an annual bonus which may fall due when the Director is
no longer employed by the Company.

Non-executive Directors
The service agreements of the non-executive Directors were each set for an initial three year period and roll annually thereafter. They
are required to submit themselves for re-election every three years and the Board believes this to be appropriate in the Company’s
circumstances. Mr Michael Mills is standing for re-election at the forthcoming 2004 Annual General Meeting. Under their terms of
appointment the non-executive Directors have a six month notice period. Their service agreements were entered into as follows:

Date of contract Notice period

Peter Jacobs 21 September 1999 6 months

Michael Mills 26 September 1999 6 months
David Cohen 21 September 1999 6 months

All non-executive Directors have specific terms of engagement and their remuneration is determined by the Board based on a review of fees
paid to non-executive Directors of similar companies. The basic fee paid to each non-executive Director is summarised in the table below.

External Directorships
The executive Directors are permitted to take external non-executive directorships, to provide them with wider experience for their
own and the Company’s benefit, subject to the approval of the Committee and provided that the time commitment does not impact
on the executive’s duties.

Audited information
The auditors are required to report on the information contained in the remainder of this remuneration report (page 16 to 17).

Directors’ Remuneration

Salary Benefits Year ended Year ended

and fees Bonus Compensation in kind 31 July 2004 31 July 2003
Directors’ Remuneration £’000 £’000 £’000 £’000 £’000 £’000

P Jacobs 30 - - - 30 30
F Turok 250 100 - 1 351 231
D Turner 105 - 120 1 226 142
R Taylor 168 75 - 1 244 171
J Taylor 147 75 - 1 223 161
M Mills 18 - - - 18 18
D Cohen 13 - - - 13 13

731 250 120 4 1,105 766

The fees in respect of the services provided by Mr M Mills are paid to NGI Consultancy Limited.

16 LA Fitness plc Annual Report and Accounts 2004

On 1 January 2004, Mr D Turner’s role changed from full-time property director to part-time strategic development director. At this
time, his remuneration was reduced from £120,000 per annum to £60,000 per annum and he entered into a 1 year contract subject
to 3 months notice. A payment of £120,000 was paid to Mr Turner as compensation for terminating his annual contract.

Directors Pension Contributions

Year ended Year ended

31 July 2004 31 July 2003
£’000 £’000

D Turner 16 5
R Taylor 8 6
J Taylor 4 6

28 17

Directors’ Share Options

Date Exercise Period Exercise At 1 August Granted At 31 July

of grant From To price 2003 during year 2004

R Taylor
Approved scheme 20.10.99 20.10.02 19.10.09 148.5p 20,204 - 20,204

Unapproved scheme 20.10.99 20.10.02 19.10.09 148.5p 20,206 - 20,206

09.11.00 09.11.03 09.11.10 266.0p 26,316 - 26,316
06.04.01 06.04.04 05.04.11 242.0p 31,818 - 31,818
30.04.01 30.04.04 29.04.11 268.0p 68,182 - 68,182
22.05.02 22.05.05 21.05.12 209.5p 200,000 - 200,000
08.01.03 08.01.06 07.01.13 104.0p 100,000 - 100,000
13.06.03 13.06.06 12.06.13 69.0p 300,000 - 300,000

766,726 - 766,726

All share options granted to directors are at the prevailing market price. No other directors currently participate in the share
option scheme.

No options were exercised during the year or the previous year, and there have been no changes in Directors’ options since the
year end. The future exercise of options is not subject to any conditions.

The market price of the ordinary shares at 31 July 2004 was 211.5p. During the year, the shares traded in the range 107p to 219.5p.

By order of the Board

Peter Jacobs
Chairman

13 October 2004

LA Fitness plc Annual Report and Accounts 2004 17

 …Membership across the Group has
continued to expand at an encouraging
pace. At 31 July 2004, the Group had
200,470 members at the 67 clubs open,
compared with 165,320 at 31 July 2003,
an increase of 21% in the last 12 months…

Statement of
Directors’ Responsibilities
Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of
the state of affairs of the Company and Group and of the profit or loss for that period. In preparing those financial statements,
the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained
in the financial statements;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue
in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.

18 LA Fitness plc Annual Report and Accounts 2004

Report of the Independent Auditors
to the Members of LA Fitness plc
We have audited the financial statements
on pages 20 to 41. We have also audited
the information in the Directors’ Report
on Remuneration that is described as
being audited.
This report is made solely to the
Company’s members, as a body, in
accordance with section 235 of the
Companies Act 1985. Our audit work has
been undertaken so that we might state to
the Company’s members those matters we
are required to state to them in an
auditor’s report and for no other purpose.
To the fullest extent permitted by law, we
do not accept or assume responsibility to
anyone other than the Company and the
Company’s members as a body, for our
audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors
and auditors
The Directors are responsible for preparing
the Annual Report and the Directors’
Report on Remuneration. As described on
page 18 this includes responsibility for
preparing the financial statements in
accordance with applicable United
Kingdom law and accounting standards.
Our responsibilities, as independent
auditors, are established in the United
Kingdom by statute, the Auditing Practices
Board, the Listing Rules of the Financial
Services Authority and by our profession’s
ethical guidance.
We report to you our opinion as to
whether the financial statements give a
true and fair view and whether the
financial statements and the part of the
Directors’ Report on Remuneration to be
audited have been properly prepared in
accordance with the Companies Act 1985.
We also report to you if, in our opinion,
the Directors’ Report is not consistent with
the financial statements, if the Company
has not kept proper accounting records, if
we have not received all the information
and explanations we require for our audit,
or if information specified by law or the assurance that the financial statements
Listing Rules regarding directors’ and the part of the Directors’ Report on
remuneration and transactions with the Remuneration to be audited are free from
Group is not disclosed. material misstatement, whether caused by
fraud or other irregularity or error. In
We review whether the statement on
forming our opinion we also evaluated the
pages 12 and 13 reflects the Company’s
overall adequacy of the presentation of
compliance with the seven provisions of
information in the financial statements and
the Combined Code specified for our
the part of the Directors’ Report on
review by the Listing Rules, and we report
Remuneration to be audited.
if it does not. We are not required to
consider whether the Board’s statements
on internal control cover all risks and Opinion
controls or form an opinion on the In our opinion:
effectiveness of the Company’s corporate
governance procedures or its risk and • the financial statements give a true and
control procedures. fair view of the state of affairs of the
Company and the Group as at 31 July
We read the other information contained 2004 and of the profit of the Group for
in the Annual Report, including the the year then ended;
corporate governance statement and the
unaudited part of the Directors’ Report • the financial statements and the part of
on Remuneration, and consider whether the Directors’ Report on Remuneration
it is consistent with the audited financial to be audited have been properly
statements. We consider the implications prepared in accordance with the
for our report if we become aware of any Companies Act 1985.
apparent misstatements or material
inconsistencies with the financial
statements.
KPMG Audit Plc
Basis of audit opinion Chartered Accountants
Registered Auditor
We conducted our audit in accordance
with Auditing Standards issued by the 13 October 2004
Auditing Practices Board. An audit includes
examination, on a test basis, of evidence
relevant to the amounts and disclosures in
the financial statements. It also includes an
assessment of the significant estimates and
judgements made by the directors in the
preparation of the financial statements,
and of whether the accounting policies are
appropriate to the Group’s circumstances,
consistently applied and adequately
disclosed.
We planned and performed our audit
so as to obtain all the information and
explanations which we considered
necessary in order to provide us with
sufficient evidence to give reasonable
LA Fitness plc Annual Report and Accounts 2004 19
 Consolidated Profit and Loss Account
for the year ended 31 July 2004

2004 2004 2004 2003

Before Exceptional After After
exceptional items exceptional exceptional
items (note 3) items items
Note £’000 £’000 £’000 £’000

Turnover
Continuing operations 2 79,590 - 79,590 66,283

Cost of sales
Before exceptional items (61,371) - (61,371) (51,284)
Exceptional items 3 - - - (3,570)

(61,371) - (61,371) (54,854)

Gross profit 18,219 - 18,219 11,429

Administrative expenses
Before exceptional items (5,883) - (5,883) (4,572)
Exceptional items 3 - (939) (939) -

(5,883) (939) (6,822) (4,572)

Operating profit from continuing operations

Before exceptional items 2,4 12,336 - 12,336 10,427
Exceptional items 3 - (939) (939) (3,570)

12,336 (939) 11,397 6,857

Interest payable and similar charges 5 (3,273) - (3,273) (3,266)

Profit on ordinary activities before taxation

Before exceptional items 2,4 9,063 - 9,063 7,161
Exceptional items 3 - (939) (939) (3,570)

9,063 (939) 8,124 3,591

Tax on profit on ordinary activities 7
Before exceptional items (2,948) - (2,948) (1,545)
Exceptional items - 167 167 246

(2,948) 167 (2,781) (1,299)

Profit on ordinary activities after taxation 6,115 (772) 5,343 2,292

Dividends paid and proposed on equity shares 8 (751) (590)

Retained profit for the financial year 23 4,592 1,702

Basic earnings per share 9 14.9p 13.0p 5.6p

Diluted earnings per share 9 14.5p 12.7p 5.4p

There is no material difference between the results reported above and those which would be reported on an unmodified
historical cost basis.

The notes on pages 25 to 41 form part of these financial statements.

20 LA Fitness plc Annual Report and Accounts 2004

Consolidated Balance Sheet
at 31 July 2004

2004 2003
Note £’000 £’000 £’000 £’000

Fixed assets
Intangible assets 10 283 303
Tangible assets 11 114,530 109,983

114,813 110,286

Current assets
Stocks 14 407 484
Debtors 15 5,599 5,193
Cash at bank and in hand 29 1,737 44

7,743 5,721

Creditors: amounts falling due within one year 16 (21,698) (19,872)

Net current liabilities (13,955) (14,151)

Total assets less current liabilities 100,858 96,135

Creditors: amounts falling due after more than one year 17 (48,328) (49,435)
Provisions for liabilities and charges 19 (8,298) (6,948)

Net assets 44,232 39,752

Capital and reserves

Called up share capital 20 2,052 2,048
Share premium account 21 25,925 25,895
Other reserves 22 (249) (249)
Profit and loss account 23 16,504 12,058

Equity Shareholders’ funds 44,232 39,752

These financial statements were approved by the Board of Directors on 13 October 2004 and were signed on its behalf by:

F Turok R Taylor
Director Director

The notes on pages 25 to 41 form part of these financial statements.

LA Fitness plc Annual Report and Accounts 2004 21

 Company Balance Sheet
at 31 July 2004

2004 2003
Note £’000 £’000 £’000 £’000

Fixed assets
Tangible assets 12 1,521 1,284
Investments 13 326 326

Current assets 1,847 1,610

Stocks 14 110 193
Debtors* 15 79,060 75,902

79,170 76,095

Creditors: amounts falling due within one year 16 (2,631) (3,222)

Net current assets 76,539 72,873

Total assets less current liabilities 78,386 74,483

Creditors: amounts falling due after more than one year 17 (44,486) (44,315)

Net assets 33,900 30,168

Capital and reserves

Called up share capital 20 2,052 2,048
Share premium account 21 25,925 25,895
Profit and loss account 23 5,923 2,225

Equity Shareholders’ funds 24 33,900 30,168

*Included in debtors is £74,902,000 (2003: £74,775,000) relating to amounts owed by Group undertakings due after
more than one year (note 15).

These financial statements were approved by the Board of Directors on 13 October 2004 and were signed on its behalf by:

F Turok R Taylor
Director Director

The notes on pages 25 to 41 form part of these financial statements.

22 LA Fitness plc Annual Report and Accounts 2004

Consolidated Statement of Total
Recognised Gains and Losses
for the year ended 31 July 2004

2004 2003
£’000 £’000

Profit for the financial year 5,343 2,292

Exchange differences on translation of foreign subsidiary (146) 299

Total recognised gains and losses since last annual report 5,197 2,591

Consolidated Reconciliation of Movements

in Shareholders’ Funds
for the year ended 31 July 2004

2004 2003
Note £’000 £’000

Profit for the financial year 5,343 2,292

Dividends 8 (751) (590)

4,592 1,702

Exchange differences on translation of foreign subsidiary (146) 299

Issue of ordinary share capital 34 45

Net addition to shareholders’ funds 4,480 2,046

Opening shareholders’ funds 39,752 37,706

Closing shareholders’ funds 44,232 39,752

The notes on pages 25 to 41 form part of these financial statements.

LA Fitness plc Annual Report and Accounts 2004 23

 Consolidated Cash Flow Statement
for the year ended 31 July 2004

2004 2003
Note £’000 £’000

Net cash inflow from operating activities 28 20,183 16,085

Returns on investments and servicing of finance 28 (3,632) (3,248)
Taxation (54) (112)
Capital expenditure 28 (10,532) (25,324)
Equity dividends paid (627) (507)

Net cash inflow/(outflow) before financing 5,338 (13,106)

Financing 28 (2,076) 11,432

Increase/(decrease) in cash in the year 3,262 (1,674)

Reconciliation of net cash flow to net debt (see note 29)

Increase/(decrease) in cash in the year 3,262 (1,674)
Cash outflow/(inflow) from movement in debt and finance leases 2,110 (11,387)

Change in net debt resulting from cash flows 5,372 (13,061)

Non-cash transactions (171) 685
New finance leases (929) (3,001)

Movement in net debt during the year 4,272 (15,377)

Net debt at 1 August 2003 (52,901) (37,524)

Net debt at 31 July 2004 29 (48,629) (52,901)

Major non-cash transactions are referred to in note 30 to the financial statements.

The notes on pages 25 to 41 form part of these financial statements.

24 LA Fitness plc Annual Report and Accounts 2004

 Notes to the Accounts
(forming part of the financial statements)

1 Accounting policies

Basis of preparation
The financial statements have been prepared in accordance with applicable accounting standards and under the historical
cost convention. The following accounting policies have been applied consistently in dealing with items which are
considered material in relation to the Group’s financial statements except as noted below.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and all its subsidiaries, as listed
in note 13, made up to 31 July 2004. All investments except for LA Leisure Limited and LA Westminster Limited have been
accounted for on an acquisition basis. Under this method, the results of subsidiary undertakings acquired or disposed of in
the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal.
LA Leisure Limited and LA Westminster Limited have been accounted for using the merger accounting principles set out in
FRS 6 (see note 22). LA Fitness (1998) Limited has been consolidated into the Group financial statements as required by
the quasi-subsidiary principles in FRS 5.

The Group financial statements do not include a separate profit and loss account for the holding Company as permitted by
Section 230(4) of the Companies Act 1985. The amount of Group profit attributable to the members of the holding
Company is shown in note 23 to the financial statements.

Turnover
Turnover comprises the value of goods and services supplied by the Group, exclusive of value added tax. Membership
subscription income is recognised evenly over the membership year. Joining fee income is recognised when received.

Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost of
fixed assets, less their estimated residual value, over their expected useful lives on the following bases:

Freehold and long leasehold property (excluding land) 2% straight line

Short leasehold land and buildings straight line over the life of the lease
Fixtures, fittings and equipment 12.5% straight line or 20% reducing balance
Motor vehicles 25% reducing balance

In accordance with FRS 11, the Directors consider the carrying value of fixed assets for impairment. Any reductions in value
arising from the impairment of fixed assets are charged to the profit and loss account for the year.

Non-capitalisation of interest
Interest costs associated with the capital borrowed to finance the building of new clubs is charged to the profit and loss
account as incurred.

Stocks
Stocks are stated at the lower of standard cost and net realisable value.

Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred.

Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items
for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise
required by FRS 19.

LA Fitness plc Annual Report and Accounts 2004 25

 Notes to the Accounts
(forming part of the financial statements)

1 Accounting policies (continued)

Leasing and hire purchase

Assets acquired under finance leases or hire purchase contracts are capitalised as tangible fixed assets and depreciated over
their useful lives. Finance leases are those where substantially all of the risks and benefits of ownership are assumed by the
Group. Obligations under such agreements are included in creditors net of the finance charge. Finance charges and
interest are charged to the profit and loss account in a constant proportion to the remaining balance of the capital
repayments or net obligations outstanding.

Rentals applicable to operating leases where substantially all of the risks and benefits of ownership remain with the lessor
are charged to the profit and loss account on a straight line basis over the life of the lease.

Goodwill
The treatment of goodwill (representing the excess of the fair value of the consideration given over the fair value of the
identifiable net assets acquired) arising on business combinations in respect of acquisitions before 1 August 1998, when
FRS 10 Goodwill and intangible assets was adopted, depended on the circumstances surrounding each individual
acquisition. Goodwill was either written off directly to reserves or, alternatively, was capitalised and amortised to nil by
equal annual instalments over its estimated useful life. When a subsequent disposal occurs any related goodwill previously
written off to reserves is written back through the profit and loss account as part of the profit or loss on disposal.

Goodwill arising on business combinations in respect of acquisitions after 1 August 1998 is capitalised. Positive goodwill is
amortised to nil by equal annual instalments over its estimated useful life not exceeding 20 years. On the subsequent
disposal or termination of a business acquired since 1 August 1998, the profit or loss on disposal or termination is
calculated after charging the unamortised amount of any related goodwill.

Pensions
The Company makes contributions to the personal pension schemes of certain employees. Contributions are charged to
the profit and loss account as they become payable.

Pre-opening expenditure
Pre-opening sales and marketing costs associated with clubs under construction are charged to the profit and loss account
as incurred.

Foreign exchange
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated at the balance sheet date and any exchange differences
arising are taken to the profit and loss account.

The financial statements of foreign subsidiaries are translated in accordance with SSAP 20 using the Net Investment
method, translating balance sheet assets and liabilities and the profit and loss account at the closing rate of exchange.
Gains and losses arising on these translations are taken to reserves, net of exchange differences arising on any related
foreign currency borrowings.

Financial instruments
Hedging interest rate instruments are matched within interest payable over the life of the instruments or relevant interest
period. Interest rate instruments are not recognised in the Balance Sheet. Changes in the fair value of financial instruments
are not recognised in the Profit and Loss Account or Balance Sheet.

26 LA Fitness plc Annual Report and Accounts 2004

2 Segmental information
The Group carried out one class of business, being that of the ownership and operation of health and fitness clubs and
related activities. The table below sets out information for each of the Group’s geographic areas of operation:

2004 2003
United Continental United Continental
Kingdom Europe Total Kingdom Europe Total
£’000 £’000 £’000 £’000 £’000 £’000

Turnover 78,648 942 79,590 65,380 903 66,283

Operating profit/(loss) before

exceptional items 12,368 (32) 12,336 10,504 (77) 10,427

Operating profit/(loss) after

exceptional items 11,429 (32) 11,397 7,181 (324) 6,857

Net assets/(liabilities) 45,476 (1,244) 44,232 41,036 (1,284) 39,752

3 Exceptional items
The exceptional item in the year is in respect of a VAT planning scheme that was successfully challenged by HM Customs
& Excise. Last year’s charge is in respect of the closure and intended closure of under-performing clubs. The charges
comprise the following:

2004 2003
£’000 £’000

Estimated VAT payable 979 -

Interest thereon 383 -
Associated professional fees* 394 -

Total estimated costs 1,756 -

Provision previously held (817) -
Impairment of fixed assets on clubs intended for closure - 2,435
Provisions for fixed asset impairment and closure costs for
clubs closed or committed to close - 1,135

939 3,570

*Included within associated professional fees are £254,000 previously held within prepayments.

LA Fitness plc Annual Report and Accounts 2004 27

 Notes to the Accounts
(forming part of the financial statements)

4 Profit on ordinary activities before taxation

Profit on ordinary activities before taxation is stated after charging/(crediting):

2004 2003
£’000 £’000

Depreciation – owned assets 5,563 8,272

Depreciation – leased assets 1,280 1,274
Amortisation of goodwill 20 16
Auditors’ remuneration
– Audit fees* 55 52
– Non audit fees paid to KPMG Audit Plc and its associates
– Fees in respect of defence of VAT planning scheme 104 96
– Other non-audit fees 106 33
Operating lease rentals:
– Land and buildings 9,795 7,936
– Equipment hire 164 151
Rent receivable (1,013) (854)

*Included in audit fees is £3,500 (2003: £3,000) relating to the Company. In addition to the above, KPMG Audit Plc and its
associates have been paid £nil (2003: £69,000) in relation to tax advice in connection with sale and leaseback transactions.

5 Interest payable and similar charges

2004 2003
£’000 £’000

Interest on bank loans and overdrafts 2,836 2,849

Interest charges on finance leases and hire purchase contracts 437 417

3,273 3,266

6 Directors and employees

Details of payments made to Directors during the year are set out in the Directors’ Report on Remuneration on pages 14
to 17 above. Details of Directors’ share options are shown on page 16.

2004 2003
Staff costs (including Directors) £’000 £’000

Wages and salaries 22,979 20,184

Social security costs 1,945 1,615
Other pension costs 28 60

24,952 21,859

28 LA Fitness plc Annual Report and Accounts 2004

 The average weekly number of persons employed by the Group (including Directors) during the year, analysed by category
was made up as follows:

2004 2003
Number Number

Administration 132 138

Club activities 1,449 1,395

1,581 1,533

7 Taxation

2004 2003
Analysis of charge in the period: £’000 £’000

UK corporation tax
Corporation tax on income for the period 705 -
Adjustments in respect of prior years (173) (125)

Total current tax 532 (125)

Deferred tax
Origination/reversal of timing differences 2,051 1,206
Adjustments in respect of previous years 198 218

Total deferred tax 2,249 1,424

Tax on profit on ordinary activities 2,781 1,299

The current tax charge for the period is lower (2003: lower) than the standard rate of corporation tax in the UK of 30%
(2003: 30%) and includes a credit of £167,000 at 30% (2003: £246,000 at 30%) in respect of the exceptional item
(see note 3). The differences are explained below.

2004 2003
£’000 £’000

Current tax reconciliation

Profit on ordinary activities before tax 8,124 3,591

Current tax at 30% (2003: 30%) 2,437 1,077

Effects of:
Expenses not deductible for tax purposes 319 565
Capital allowances for period in excess of depreciation (2,032) (1,672)
Other short-term timing differences (19) (9)
Tax losses not utilised - 1
Adjustments to rolled-over gains - 38
Adjustments in respect of previous years (173) (125)

Total current tax charge (see above) 532 (125)

LA Fitness plc Annual Report and Accounts 2004 29

 Notes to the Accounts
(forming part of the financial statements)

8 Dividends

2004 2003
£’000 £’000

Interim dividend paid on ordinary shares – 0.53p (2003: 0.44p) 217 180
Final proposed dividend on ordinary shares – 1.30p (2003: 1.0p) 534 410

751 590

9 Earnings per share

2004 2003
Before After Before After
exceptional exceptional exceptional exceptional
items items items items

Basic earnings per share calculations

Profit on ordinary activities after taxation £6,115,000 £5,343,000 £5,616,000 £2,292,000

Weighted average number of shares in issue during the year 41,001,917 41,001,917 40,926,167 40,926,167

Basic earnings per share 14.9p 13.0p 13.7p 5.6p

Diluted earnings per share calculations

Profit on ordinary activities after taxation £6,115,000 £5,343,000 £5,616,000 £2,292,000

Weighted average number of shares in issue and to be issued 42,057,379 42,057,379 42,350,738 42,350,738

Diluted earnings per share 14.5p 12.7p 13.3p 5.4p

10 Intangible fixed assets – Goodwill

Group
£’000

Cost
At 1 August 2003 336
Additions -

At 31 July 2004 336

Amortisation
At 1 August 2003 33
Charge for year 20

At 31 July 2004 53

Net book value

At 31 July 2004 283

At 31 July 2003 303

30 LA Fitness plc Annual Report and Accounts 2004

11 Tangible fixed assets – Group

Freehold and long Short Fixtures,

leasehold land leasehold land fittings & Motor
& buildings & buildings equipment vehicles Total
£’000 £’000 £’000 £’000 £’000

Cost
At 1 August 2003 2,527 94,330 30,969 9 127,835
Foreign exchange movements - (149) (35) - (184)
Additions 53 8,745 5,256 - 14,054
Disposals (2,580) - - - (2,580)

At 31 July 2004 - 102,926 36,190 9 139,125

Depreciation
At 1 August 2003 52 8,073 9,723 4 17,852
Foreign exchange movements - (38) (10) - (48)
Charge for the year - 2,570 4,272 1 6,843
Disposals (52) - - - (52)

At 31 July 2004 - 10,605 13,985 5 24,595

Net book value

At 31 July 2004 - 92,321 22,205 4 114,530

At 31 July 2003 2,475 86,257 21,246 5 109,983

Included above are assets held under finance leases or hire purchase contracts with net book values as follows:

2004 2003
£’000 £’000

Fixtures, fittings and equipment 8,085 9,594

Net obligations under finance lease and hire purchase contracts are secured on the assets concerned.

The net book value of freehold and long leasehold land and buildings comprises:

2004 2003
£’000 £’000

Freehold - 140
Long leasehold - 2,335

- 2,475

LA Fitness plc Annual Report and Accounts 2004 31

 Notes to the Accounts
(forming part of the financial statements)

12 Tangible fixed assets – Company

Short leasehold Fixtures,

land and fittings & Motor
buildings equipment vehicles Total
£’000 £’000 £’000 £’000

Cost
At 1 August 2003 608 1,824 9 2,441
Additions - 690 - 690

At 31 July 2004 608 2,514 9 3,131

Depreciation
At 1 August 2003 193 960 4 1,157
Charge for the year 53 399 1 453

At 31 July 2004 246 1,359 5 1,610

Net book value

At 31 July 2004 362 1,155 4 1,521

At 31 July 2003 415 864 5 1,284

13 Investments

At At
1 August 2003 Additions Provision 31 July 2004
£’000 £’000 £’000 £’000

Company
Cost and net book value of shares in group undertakings 326 - - 326

Details of the Company’s subsidiary companies are as follows:

Nature of Percentage Country of

Subsidiary undertakings business held incorporation

LA Fitness (Luton) Limited Health and Fitness 100% Great Britain

LA Leisure Limited Health and Fitness 100% Great Britain
CS Leisure Plc Dormant 100% Great Britain
LA (Golders Green) Limited Dormant 100% Great Britain
LA Hair & Beauty Limited Investment company 100% Great Britain
LA Westminster Limited Dormant 100% Great Britain
The Rugby Club of St James Limited Dormant 100% Great Britain
LA Health and Fitness Clubs, SL Health and Fitness 100% Spain

32 LA Fitness plc Annual Report and Accounts 2004

 LA Fitness plc exercises day to day control over LA Fitness (1998) Limited (limited by guarantee) a health and fitness
business incorporated in Great Britain, as a result of the Directors of LA Fitness (1998) Limited being either Directors or
employees of LA Fitness plc. The quasi-subsidiary principles contained in FRS 5 have been applied, therefore the results,
assets and liabilities of LA Fitness (1998) Limited form part of the consolidated LA Fitness Group. LA Fitness (1998) Limited
made a loss of £383,000 before tax for the year (2003: nil) and had net liabilities of £362,000 as at 31 July 2004
(2003: net assets of £21,000).

The Company’s investment is in the ordinary share capital of its subsidiaries except for CS Leisure Plc where it also owns
the ‘B’ ordinary shares and the ‘A’ preference shares.

14 Stocks

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Finished goods for resale 407 484 110 193

15 Debtors

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Due within one year

Trade debtors 1 1 - -
Other debtors 277 397 3,797 686
Deferred tax asset - - 53 19
Prepayments and accrued income 5,321 4,795 308 422

5,599 5,193 4,158 1,127

Due after more than one year
Amounts owed by group undertakings - - 74,902 74,775

5,599 5,193 79,060 75,902

The deferred tax asset of £53,000 has been recognised on the basis that there will be sufficient profits in the future against
which to offset it.

LA Fitness plc Annual Report and Accounts 2004 33

 Notes to the Accounts
(forming part of the financial statements)

16 Creditors: amounts falling due within one year

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Bank loans and overdrafts (note 17) - 1,569 327 52

Net obligations under finance leases and hire purchase contracts 2,038 1,941 - -
Trade creditors 5,737 5,427 364 437
Corporation tax 536 219 - 172
Taxes and social security costs 3,462 2,354 95 211
Accruals and deferred income 9,391 7,952 1,311 1,940
Dividends payable 534 410 534 410

21,698 19,872 2,631 3,222

17 Creditors: amounts falling due after more than one year

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Bank loans (see below) 44,486 44,315 44,486 44,315

Net obligations under finance leases and hire purchase contracts 3,842 5,120 - -

48,328 49,435 44,486 44,315

Analysis of loan repayments:

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Bank loans and overdrafts:

Due within one year - 1,569 327 52
Due after 5 years 44,486 44,315 44,846 44,315

44,486 45,884 45,173 44,367

Finance leases and hire purchase contracts:

Due within one year 2,038 1,941 - -
Due between one and two years 2,027 1,903 - -
Due between two and five years 1,815 3,217 - -

5,880 7,061 - -

34 LA Fitness plc Annual Report and Accounts 2004

 Bank loans and overdrafts are secured by a fixed and floating charge over all assets of Group undertakings and an
unlimited multilateral company guarantee given by the Group undertakings to secure the liabilities of each other.

Interest was charged on the bank loans and overdrafts at a rate of 1.0% (plus associated mandatory costs) above LIBOR.

In accordance with FRS 4, bank loans are stated after deduction of £514,000 of arrangement fees which are being
expensed equally over the term of the facility. Costs incurred were £895,000 of which £381,000 has been charged to
the profit and loss account to date.

Net obligations under finance lease and hire purchase contracts are secured on the assets concerned.

18 Financial instruments
The Group’s financial instruments at 31 July 2004 comprised finance leases, cash at bank and various items such as trade
debtors, trade creditors etc., that arise directly from its operations. The main purpose of these financial instruments is to
provide working capital for the Group’s operations. Short term debtors and creditors have been excluded from the
disclosure given below.

The Group has also entered into a ‘collar’ interest rate hedge in order to manage interest rate risk on the Group loan
facility.

The Board regularly monitors risks relating to financial instruments. The main risks arising from the Group’s financial
instruments are interest rate risk and liquidity risk.

The financial assets and liabilities as defined in FRS 13 ‘Derivatives and other financial instruments disclosure’ are set out below.

Financial assets
Financial assets consist of £1,737,000 (2003: £44,000) which represents cash at bank and in hand.

Financial liabilities
The financial liabilities include £5,880,000 (2003: £7,061,000) which represent finance leases with a weighted average
interest rate of 7.0% (2003: 6.3%) and a weighted average outstanding term of 32 months (2003: 46 months). All rates
are fixed for the duration of the agreements.

At the year end the Group had an overdraft facility of £10 million in addition to the £45 million of loans drawn down
(of a total facility of £70 million) with weighted average interest rates of 5.5% and 5.4% respectively. The Directors have
reviewed the scope of those facilities in preparing their comments on the going concern status of the Group set out on
page 13.

Interest rate hedging

On 25 October 2002, the Group entered into a 12 month interest rate ‘collar’ arrangement, for a notional amount of
£35 million, commencing on 12 September 2003. Under the terms of the collar, the LIBOR rate has a floor of 3.92% and
a cap of 5.25%. The fair value of this financial instrument at 31 July 2004 represented an unrecognised gain of nil
(2003: £129,811 loss).

On 13 September 2003, the Group entered into a 12 month interest rate ‘swap’ arrangement, for a notional amount of
£25 million at an interest rate of 5.215% commencing on 12 September 2004. The fair value of this financial instrument
at 31 July 2004 represented an unrecognised gain of £20,250.

LA Fitness plc Annual Report and Accounts 2004 35

 Notes to the Accounts
(forming part of the financial statements)

19 Provisions for liabilities and charges

Deferred Other
taxation provisions Total
£’000 £’000 £’000

Balance at 1 August 2003 5,868 1,080 6,948

Charge for the year 2,249 939 3,188
Transferred to current liabilities - (1,756) (1,756)
Utilised in the year - (82) (82)

Balance at 31 July 2004 8,117 181 8,298

The remaining provision of £181,000 is in relation to provisions for future rental commitments on clubs where there was
a commitment to close at 31 July 2003 (see note 3).

Deferred taxation, which has been provided in full, is as follows:

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Accelerated capital allowances 8,143 5,869 (29) (19)

Other short term timing differences (25) - (24) -
Trading losses (1) (1) - -

Liability/(asset) 8,117 5,868 (53) (19)

20 Share capital

2004 2003
Number Number
of shares £’000 of shares £’000

Authorised
Ordinary shares of 5p each 50,000,000 2,500 50,000,000 2,500

Authorised, Called Up and Fully Paid

Ordinary shares of 5p each 41,047,073 2,052 40,962,218 2,048

The Company operates a share option scheme which comprises two parts, namely the LA Fitness Approved Executive
Share Option Scheme and the LA Fitness Unapproved Executive Share Option Scheme.

36 LA Fitness plc Annual Report and Accounts 2004

 Under the scheme, one Director (details of which are included within the Directors’ Report on Remuneration on pages
14 to 17) and 90 employees held options at 31 July 2004 over 1,646,937 ordinary shares of 5p each (2003: 1,903,268)
as follows:

Date of At Granted Exercised Lapsed At Exercise Period Exercise

grant 1 August 2003 during year during year during year 31 July 2004 From To price (p)

10.08.99 57,580 - (46,974) (3,030) 7,576 10.08.02 09.08.09 41.25

17.08.99 37,882 - (37,882) - - 17.08.02 16.08.09 41.25
20.10.99 48,380 - - (1,715) 46,665 20.10.02 19.10.09 148.50
04.04.00 16,372 - - (2,950) 13,422 04.04.03 03.04.10 339.00
09.11.00 69,554 - - (11,280) 58,274 09.11.03 08.11.10 266.00
06.04.01 131,818 - - (50,000) 81,818 06.04.04 05.04.11 242.00
30.04.01 68,182 - - - 68,182 30.04.04 29.04.11 268.00
23.10.01 126,000 - - (17,000) 109,000 23.10.04 22.10.11 234.00
22.05.02 200,000 - - - 200,000 22.05.05 21.05.12 209.50
08.01.03 100,000 - - - 100,000 08.01.06 07.01.13 104.00
12.02.03 360,000 - - (20,000) 340,000 12.02.06 11.02.13 83.00
13.06.03 687,500 - - (65,500) 622,000 13.06.06 12.06.13 69.00

1,903,268 - (84,856) (171,475) 1,646,937

The market price of the ordinary shares at 31 July 2004 was 211.5p. The shares traded during the year in the range 107p
to 219.5p.

21 Share premium account

£’000

Group and Company

Share premium account at 1 August 2003 25,895
Premium on shares issued on exercise of share options 30

Share premium account at 31 July 2004 25,925

22 Other reserves

£’000

Group
Other reserve at the beginning and end of the year (249)

The above reserve has arisen due to the difference between the nominal value of 3,399,960 and 1,600,000 ordinary shares
of 5 pence each issued to the shareholders of LA Leisure Limited and LA Westminster Limited respectively, and the nominal
value of 1,000 and 160 ordinary shares of £1 each acquired in LA Leisure Limited and LA Westminster Limited respectively
(see note 1).

LA Fitness plc Annual Report and Accounts 2004 37

 Notes to the Accounts
(forming part of the financial statements)

23 Profit and loss account

£’000

Group
Retained profits at 1 August 2003 12,058
Profit for the year 4,592
Exchange differences on translation of foreign subsidiary (146)

Retained profits at 31 July 2004 16,504

Company
Retained profits at 1 August 2003 2,225
Retained profit for the year 3,914
Exchange differences on translation of foreign subsidiary (216)

Retained profits at 31 July 2004 5,923

The cumulative total of goodwill written off against the consolidated profit and loss account reserve in respect of
acquisitions prior to August 1998 when FRS 10: Goodwill and Intangible Assets was adopted amounts to £146,000
(2003: £146,000).

The profit for the year of the Company before the payment of dividends is £4,665,000 (2003: £293,000).

During the year the Company paid an interim dividend of 0.53p per ordinary share amounting to £217,000
(2003: £180,000) and declared a final dividend of 1.30p per ordinary share amounting to £534,000 (2003: £410,000).

24 Reconciliation of movements in shareholders’ funds

2004 2003
£’000 £’000

Company
Profit for the financial year 4,665 293
Dividends (751) (590)

3,914 (297)

Issue of ordinary share capital 34 45

Exchange differences on translation of foreign subsidiary (216) 397

Net addition to shareholders’ funds 3,732 145

Opening shareholders’ funds 30,168 30,023

Closing shareholders’ funds 33,900 30,168

38 LA Fitness plc Annual Report and Accounts 2004

25 Capital commitments
Capital commitments at the end of the financial year, for which no provision has been made, are as follows:

Group Group Company Company

2004 2003 2004 2003
£’000 £’000 £’000 £’000

Contracted 2,359 4,652 - -

26 Other lease commitments

Annual commitments under non-cancellable operating leases are as follows:

Land and buildings Land and buildings

Group Group Company Company
2004 2003 2004 2003
£’000 £’000 £’000 £’000

Expiry date
Within one year - 36 - -
Between two and five years 302 294 141 141
In more than five years 10,261 9,823 - -

10,563 10,153 141 141

27 Contingent liabilities
The Company has provided cross guarantees to its bankers in respect of the bank borrowings of other Group undertakings.
A contingent liability therefore exists to the extent of the bank borrowings of the other Group undertakings. At the year
end this amounted to £1,926,000 (2003: £1,728,000).

LA Fitness plc Annual Report and Accounts 2004 39

 Notes to the Accounts
(forming part of the financial statements)

28 Gross cash flows

2004 2003
£’000 £’000

Reconciliation of operating profit to net cash inflows from operating activities

Operating profit (after exceptional items) 11,397 6,857
Depreciation, amortisation and impairment charges 6,826 9,562
Increase in debtors (658) (1,442)
Decrease/(increase) in stock 77 (25)
Increase in creditors 1,684 870
Increase in provisions 857 263

Net cash inflow 20,183 16,085

Returns on investments and servicing of finance

Interest paid (3,195) (2,831)
Interest element of finance lease rentals (437) (417)

Net cash outflow (3,632) (3,248)

Capital expenditure
Purchase of tangible and intangible fixed assets (14,319) (30,408)
Receipts from sale of fixed assets 3,787 5,084

Net cash outflow (10,532) (25,324)

Financing
Issue of ordinary share capital 34 45
Capital element of finance lease rentals (2,110) (1,613)
Increase in long-term borrowings - 13,000

Net cash (outflow)/inflow (2,076) 11,432

40 LA Fitness plc Annual Report and Accounts 2004

29 Analysis of net debt

At 1 August Cash Other At 31 July

2003 flow Changes 2004
£’000 £’000 £’000 £’000

Net cash
Cash at bank and in hand 44 1,693 - 1,737
Bank overdrafts (1,569) 1,569 - -

(1,525) 3,262 - 1,737

Debt
Net obligations under finance leases and hire purchase contracts (7,061) 2,110 (929) (5,880)
Loans (44,315) - (171) (44,486)

(51,376) 2,110 (1,100) (50,366)

Net debt (52,901) 5,372 (1,100) (48,629)

30 Major non-cash transactions

During the year the Group entered into new hire purchase contracts with a capital value of £929,000 (2003: £3,001,000).

Other changes in loan balances of £171,000 represent the release of loan arrangement fees as required by FRS 4
(see note 17).

LA Fitness plc Annual Report and Accounts 2004 41

 Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Members of LA Fitness plc will be held at their offices at
101 Commercial Road, London, E1 1RD at 11 a.m. on 1 December 2004 for the following purposes:

ORDINARY BUSINESS
1 To receive and adopt the financial statements for the year ended 31 July 2004, together with Reports of the Directors and
Auditors thereon.

2 To receive and approve the Directors’ Report on Remuneration for the year ended 31 July 2004.

3 To re-elect David Turner as a Director of the Company.

4 To re-elect Michael Mills as a Director of the Company.

5 To declare the final dividend of 1.3p per ordinary share recommended by the Directors in respect of the year ended 31 July 2004.

6 To re-appoint Auditors and authorise the Directors to fix their remuneration special notice having been given pursuant to Section
379 of the Companies Act 1985 (“the Act”) and Section 388(3)(b) of the Act (as amended by S119 CA 1989) of the intention to
propose the following resolution as an ordinary resolution.

SPECIAL BUSINESS
To consider and, if thought fit, to pass the following resolutions, which will be proposed as an ordinary resolution and a special
resolution respectively:

7 That the Directors be and hereby are generally and unconditionally authorised in accordance with Section 80 of the Companies
Act 1985 (“the Act”) to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 80(2)
of the Act) or to grant any right to subscribe for or to convert any security into relevant securities in the Company up to an
aggregate nominal amount of £447,646.35 provided that this authority shall expire five years from the date of the passing of this
resolution save that the Company may before such expiry make offers, agreements or other arrangements which would or might
require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such
offers, agreements or other arrangements as if the authority conferred hereby had not expired.

8 That subject to the passing of the immediately preceding resolution, the Directors be empowered pursuant to Section 95 of the
Act to allot equity securities (within the meaning Section 94(2) of the Act) for cash pursuant to the authority conferred by the
immediately preceding resolution as if sub-section (1) of Section 89 of the Act did not apply to any such allotment (such
authority to be in substitution for all existing authorities granted to the Directors in respect of the allotment of equity securities as
if section 89(1) of the Act did not apply) provided that this power shall be limited to:

(a) the allotment of equity securities in connection with issues by way of rights or other pre-emptive offer in favour of all
holders of a class or classes of equity securities (provided that such issue shall be to ordinary shareholders or shall be
accompanied by an issue on appropriate terms to ordinary shareholders) where the equity securities respectively attributable
to the interest of all holders of securities of each such class are either proportionate (as nearly as may be) to the respective
numbers of equity securities of that class held by them or are otherwise allotted in accordance with the rights conferred on
such equity securities (but subject in either case to such exclusions or other arrangements as the Directors may deem
necessary or expedient to deal with fractional entitlements or legal or practical problems arising under the laws of, or the
requirements of any regulatory body or any stock exchange in, any territory or otherwise howsoever); and

(b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount
of £102,617.68.

and this authority shall expire five years from the date of the passing of this resolution save that the Company may before
such expiry make offers, agreements or other arrangements which would or might require equity securities to be allotted
after such expiry and the Directors may allot equity securities in pursuance of such offers, agreements or other arrangements
as if the power conferred hereby had not expired.

By order of the Board

Graham Taylor Registered Office

Company Secretary 101 Commercial Road
13 October 2004 London E1 1RD

42 LA Fitness plc Annual Report and Accounts 2004

Notes
A member entitled to attend and vote may appoint one or more proxies to attend and, on a poll, vote instead of him or her. A proxy
need not also be a member of the Company. To be effective, a form of proxy, together with a power of attorney or other authority under
which it is executed or a certified copy of such power or authority must be lodged not later than 48 hours before the meeting at the
Company's Registrars, Computershare Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH, and if in default, the
instrument of proxy will not be treated as valid. A form of proxy is enclosed for use if desired. Completion of a form of proxy will not
preclude shareholders from attending and voting at the meeting if he/she subsequently decide to do so.

The Register of Directors’ Interests, together with copies of the Directors’ service agreements, a copy of the share option scheme rules as
proposed to be amended and a copy of the Company’s Articles of Association will be available for inspection during usual business hours
on any weekday (Saturdays and Public Holidays excluded) at the registered office of the Company until 1 December 2004 and at the
place of the Meeting from 10.45 a.m. on 1 December 2004 until the conclusion of the Meeting.

Financial Timetable

Ex-dividend date 3 November 2004

Record date 5 November 2004
Annual General Meeting 1 December 2004
Final dividend 3 December 2004
Interim Results to 31 January 2005 March 2005

LA Fitness plc Annual Report and Accounts 2004 43

 LA Fitness Club Directory

Scotland
Glasgow Milngavie
Livingston

North England
Bury Manchester
Northern Ireland Formby Newark
Leeds Northwich
Armagh Belfast Lincoln Sale
Belfast City Liverpool

Republic of Ireland Central

Dartry Bedford Luton
Birmingham Loughborough
Bury St Edmunds Northfield
Huntingdon Stevenage
Kettering Sutton Coldfield
King’s Heath Warwick
King’s Lynn

West England
East England
Cheltenham Oxford
Cambridge Slough Billericay Thorpe Bay
Newbury Colchester

South England
Brighton Southampton
East Grinstead Tunbridge Wells
Fareham * Woking
Salisbury

London
Aldgate Marylebone
Bayswater New Barnet
Edgware Piccadilly
Ewell Purley
Finchley South Kensington
Golders Green Southgate
Head Office Hallam Street St Paul’s
Highgate Sydenham
London E1 Holborn Victoria
T 020 7366 8080 Isleworth Waldorf
Leadenhall West India Quay
London Wall
Other Locations
Barcelona, Spain

* New Site

44 LA Fitness plc Annual Report and Accounts 2004

Design: Energy Design Studio Ltd
Print: Imprima de Bussy Ltd
LA Fitness plc
101 Commercial Road, London E1 1RD
Tel: 020 7366 8080 Fax: 020 7366 8081
www.lafitness.co.uk