1st Dec 2006 07:01
Wolverhampton& Dudley Breweries PLC01 December 2006 1 December 2006 THE WOLVERHAMPTON & DUDLEY BREWERIES, PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2006 Highlights • Record underlying* earnings per share up 14.0% to 95.1 pence (2005: 83.4 pence) - basic earnings per share of 95.1 pence (2005: 51.9 pence) • Total dividend for the year up 10.0% to 42.75 pence per share (2005: 38.86 pence) • Underlying* profit before taxation up 13.2% to £101.5 million (2005: £89.7 million) - profit before taxation and after exceptionals £101.5 million (2005: £54.2 million) • Turnover and profit growth in each of the three trading divisions • Average profit per pub in The Union Pub Company up 5.0% • Pathfinder Pubs like-for-like sales up 2.4% for full year; up 3.7% in second half-year • Strong trading since year end - like for like sales up 9.1% in Pathfinder Pubs • Intention to return around £100 million to shareholders in the new financial year, subject to acquisitions • Company name changing to Marston's PLC reflecting national spread of business • New sponsorship deal - Marston's is now the official beer of the England & Wales Cricket Board (The ECB) * The underlying results reflect the performance of the Group before exceptionalitems. The Directors consider that these figures provide a useful indication ofthe underlying performance of the Group. 2005 comparatives have been restated under IFRS. Commenting, Ralph Findlay, Chief Executive, said 'These record results reflect the appeal of our high quality pubs and brands,supported by the successful integration of recent acquisitions. Trading in thenew financial year has been strong, benefiting from good weather. We continue todrive value from our high quality pub estate, beer brands and integrated model.' ENQUIRIES: The Wolverhampton & Dudley Breweries, PLC Hudson Sandler Ralph Findlay, Chief Executive Andrew Hayes/Nick Lyon/Paul Inglett, Finance Director Amy FaulconbridgeTel: 020 7796 4133 on Friday 1 December 2006 only Tel: 020 7796 413301902 329516 thereafter High quality images of the new Marston's PLC name and identity with the ChiefExecutive and Finance Director for the media to access and download free ofcharge, are available from Visual Media Online at www.vismedia.co.uk. To access interviews with Ralph Findlay and Paul Inglett, available in video,audio and text, go to www.cantos.com. Chairman's statement These record results include turnover and profit growth in each of our tradingdivisions, reflecting good organic development and the successful integration ofacquisitions. In a mature, consolidating market we continue to derive value fromour high quality pub estate and our beer brands, whilst benefiting from theoperational flexibility and increased opportunity for investment afforded by ourintegrated business model. Results Turnover increased by 7.1% to £595.5 million (2005: £556.1 million), includingCeltic Inns which was acquired in March 2006 for £43.3 million. Underlying operating margin increased to 25.6% (2005: 24.7%). This goodperformance was achieved, despite significant cost and legislative pressures, bymaximising synergies from acquisitions, transferring smaller managed pubs totenancy, and good cost control. Underlying profit before taxation increased by 13.2% to £101.5 million (2005:£89.7 million). Profit after exceptional items and before tax was £101.5 million (2005: £54.2million). Net cash inflow from operating activities increased by 91.5% to £190.0 million. Underlying earnings per share increased by 14.0% to 95.1 pence per share (2005:83.4 pence). Basic earnings per share after exceptional items were 95.1 penceper share (2005: 51.9 pence). During the year £21.4 million was spent purchasing1.6 million shares of which 516,000 were bought by the Company's employeebenefit trust with the remainder being held as treasury shares. Net debt at the year-end was £893.7 million, resulting in interest cover of 3.0times (2005: 2.9 times). Dividend The Board proposes a final dividend of 28.23 pence per share, which brings thetotal dividend for the year to 42.75 pence per share (2005: 38.86 pence), anincrease of 10.0% on the previous year. The Company has increased dividends byan average of over 10% per annum for a period of more than 30 years andcontinues to adopt a progressive dividend policy. The final dividend, ifapproved, will be paid on 31 January 2007 to those shareholders on the registerat the close of business on 29 December 2006. Share split The Company's shares have increased in value significantly over the last fiveyears and the Board is recommending a 4-for-1 share split, subject to approvalby shareholders, at an Extraordinary General Meeting to be convened on 8 January2007. The Directors believe that the proposed share split will benefitshareholders by further enhancing the liquidity and marketability of theCompany's shares due to the increased number of shares in issue at a lowerprice. Strategy Sector consolidation continued to dominate the headlines in 2006, and during theyear we actively explored a number of opportunities. However, competition foracquisitions has recently pushed pricing to very high levels and, in our view,the opportunity for creating value for our shareholders through acquisition hasbeen limited. We have developed a successful strategy, however, to accelerate our organicdevelopment, particularly in Pathfinder Pubs where we have a good track recordof new pub openings and a pipeline of sites, allowing us to be confident of nextyear's development plan. This strategy includes developing our customer offer aswell as acquiring new sites. Returns from organic development are oftensignificantly more attractive than from large acquisitions, and are achieved atlower risk. We will continue to explore acquisition opportunities, and have a strong balancesheet and good cash flow to enable us to move quickly and decisively whenrequired. In view of our strong financial performance and relatively conservatively gearedbalance sheet, we intend to continue to buy back shares in the market. We areplanning to return around £100 million to shareholders this financial year inaddition to dividends, thereby enhancing earnings, subject to preservingflexibility to make acquisitions if value enhancing opportunities arise. Employees Our success is due to the tremendous contributions made by our employees,whether they work in our pubs, breweries or in support functions. It is clearthat they take great pride in what they do, and I am extremely grateful for alltheir hard work and the difference that they make. Company name We intend to change the Company name to Marston's PLC, subject to shareholderapproval, which is to be sought at an Extraordinary General Meeting on 8 January2007. This change reflects the fact that in recent years we have become anational business, as demonstrated by the growth of the Marston's brands and theacquisition and development of our pub estate across the country. This change of name therefore reflects our development, but it also representsan opportunity to emphasise our tradition, heritage and values, and to betterpromote our pubs across the country. The name change will be effectiveimmediately following shareholder approval. Outlook Detailed plans are in place in preparation for the impending smoking ban inEngland and Wales which is due to come into force during the summer of 2007 inEngland, and possibly earlier in Wales. Our investment plans, both in managedand tenanted pubs, are well advanced. We do not know what the precise impact ofthe ban will be, but as around 90% of our pubs have gardens, patios or outsidetrading areas, our detailed preparation for the ban allows us to targetopportunities and reduce risk. Although we remain cautious because of cost pressures affecting consumers andour own cost base, we are confident that our high quality estate, strong balancesheet, conservative financing and strong cash flow will enable us to continue toexploit opportunities for further profitable growth. David ThompsonChairman Chief Executive's review These strong results include a 7.1% increase in turnover, a 13.2% increase inunderlying profit before tax, and a 14.0% increase in underlying earnings pershare, with turnover and profit increased in each of our trading divisions. This excellent progress demonstrates the value we are able to generate from ourhigh quality estate, beer brands and our integrated model. We also benefitedfrom good weather and the World Cup in the second half-year, and our focus oncontinuous investment and improvement in the quality of our pubs and beerbrands. The introduction of more flexible opening hours as part of the LicensingAct in November 2005 did not have a significant impact on our performance. Business development and strategy The effective and fast integration of acquisitions has contributed to our strongfinancial performance. Our integrated business model has been beneficial inmaking successful acquisitions, and offers opportunities to create additionalvalue. The tenants of Burtonwood, Jennings and Celtic Inns, for example, nowhave access to a wider range of beers, wines and spirits, while at the same timecreating distribution opportunities for our Marston's, Jennings and Banks'sbeers. The Jennings beers, particularly Cumberland Ale, have proved popularacross the business, and are showing strong growth. Our acquisitions have been consistent with a clear strategy of investment inpredominantly freehold community pubs. In the last twelve months, competitionfor acquisitions has become more intense, and fewer potential acquisitions havemet our strict financial and operating criteria. We acquired Celtic Inns inMarch 2006 but, having looked at a number of other transactions since then, webelieve that there is now a reduced opportunity to create real value for ourshareholders through acquisition. Investor demand for freehold pubs withpredictable cash flow has increased substantially, and such pubs are attractinga wider range of investors than was the case historically. Prices have risensuch that investment returns are now comparable to rental yields from investmentproperties. We will continue to explore acquisition opportunities as we are confident thatour integrated model can create greater value from acquisitions than isavailable to others. Nevertheless we have always recognised that organicdevelopment combined with efficient balance sheet management is an equallyimportant element of our strategy. Each of our trading divisions has a well defined plan for organic growth asdescribed below. Underpinning these plans is a clear focus on the quality of ourpub estate and customer offers, as market trends favour well situated pubsoffering good quality food and drink in an attractive environment with highstandards of service. Our estate is well positioned to meet longer term growthin informal dining, and to attract families whilst meeting legislativerequirements as the regulatory environment becomes more challenging. This focus is reflected in the fact that over the last five years the averageturnover of our managed pubs has increased by over 50% and the average profit ofour tenanted estate has also increased by over 50% through a combination ofinvestment and disposal of less well situated pubs. Looking forward, 2007 will see the introduction of a ban on smoking in publicplaces, including pubs. The ban is likely to be in place by summer 2007,possibly earlier in Wales. We are well prepared for this significant change, and by the time the smokingban is introduced we will have invested approximately £20 million in outsideareas, mainly in pub gardens and patios - facilities which are available inaround 90% of our pubs. We are encouraged by the support and interest shown byour tenants and lessees in preparing for the ban's introduction. Based upon theearly evidence from the ban introduced in Scotland in March 2006 and fromIreland where it was introduced in 2004, we anticipate that while there is somerisk to drinks sales and gaming machine income, there is also an opportunity toincrease food sales and attract more customers. Pathfinder Pubs Turnover increased by 4.2% to £330.7 million. Underlying operating margin was19.2% (2005: 19.9%), and underlying operating profit increased by 0.3% to £63.5million. Total like-for-like sales increased by 2.4%, with good summer weather and theWorld Cup contributing to second half-year like-for-like sales growth of 3.7%.Average turnover per pub increased by 10% to £13,200 per week. New site development in Pathfinder Pubs is a key element of our organic growth.Over the last four years we have invested significantly in the specialist skillsrequired to target successfully new pub sites and to manage licensing andplanning processes, with the number of new site openings increasing from 8 in2005 to 12 this year. We have a good pipeline of sites for future development,and next year we expect to open 20 new freehold pubs where we have selected thesite, the design and the customer offer. This development is critical to thecontinuous improvement in the quality of our estate, and in extending ourtrading geography. We also acquired 14 existing trading units for refurbishmentand conversion to one of our operating formats, making a total of 26 new pubsopened this year. New community pubs were opened in Kent, Northamptonshire, Cambridgeshire,Somerset, Hampshire and Durham. These pubs are often built on new housingdevelopments, and typically cost around £2 million per pub to build - they areof better quality than most trading pubs sold in the market, and generate higherreturns. Food sales in new build pubs are generally 50% of total sales,contributing to an 8% increase in food sales overall. Community pubs represent the majority of the pubs in our estate, but our highstreet estate is developing well. This year we opened a new Pitcher & Piano inTaunton, and refurbished Pitcher & Piano bars in Cornhill, York, Harrogate andSwansea. Over the last two years the Pitcher & Piano bars have been refurbishedto a contemporary design, and the Pitcher & Piano business has performedstrongly overall. Since the year-end we have opened a new Pitcher & Piano bar inBrighton and have acquired sites for conversion in Derby and Poole. We added three new bars trading as 'Bluu' in Nottingham, Manchester and inHoxton Square London. Bluu is a premium food and late night venue offer operatedby the Pitcher & Piano management team. These developments emphasise the value of a managed estate which includes arange of community pubs and high street bars with different operating styles,giving us greater scope for profitable investment. This year we invested a totalof £34.2 million on pub refurbishment, including a number of pubs from theWizard estate acquired in 2004: the Rack & Tenter, Moorgate, and Pavilion End,Watling Street, both in London; The Sarah Moore, Leigh-on-Sea; the Treasury,Sutton; the Custom House, Romford; the Counting House, Watford and the StationHouse, Chingford. Similarly, from the former Burtonwood estate we re-openedChildwell Abbey, Liverpool; Eastham Ferry, Wirral and The Green Lodge, Hoylake,after significant refurbishments - the last just in time to benefit from theBritish Open Golf Championship. With 459 managed pubs in the estate, Pathfinder Pubs has the scale to competeeffectively on a national basis. We have invested in a single EPOS (ElectronicPoint Of Sale) platform across the estate and in broadband for all pubs. We havealso been consistent and diligent in our investment in training for allemployees. The skill and enthusiasm of our employees are the most importantingredients for success in Pathfinder Pubs. The Union Pub Company Turnover increased by 16.6% to £178.8 million. Underlying operating marginincreased by 2.4% to 44.9%, and underlying operating profit increased by 23.3%to £80.3 million. Average profit per pub increased by 5.0% to £57,400 per pubper year. The Union Pub Company, comprising 1,893 tenanted and leased pubs, includes 63pubs which were part of the Celtic Inns estate acquired in March 2006, and 93smaller managed pubs transferred from Pathfinder Pubs in the second half-year. We have supported tenants and lessees as they manage and develop theirbusinesses in a period of unprecedented change and significant challenges. In2005, they dealt with a major reform of licensing regulation, and got to gripswith the requirements and implications of the new Licensing Act. During 2006they have been preparing for the introduction of the smoking ban in England andWales next year with minimal guidance to date from the Government. At the sametime, they are having to absorb higher energy and labour costs. As a consequence of these challenges, the level of support and advice thatlicensees receive from the pub operating company really makes a difference, andThe Union Pub Company strives to be amongst the best in the industry in offeringsupport and guidance to its tenants and lessees. We were the first majoroperator to volunteer financial and practical support in dealing with licensingreform, and we have again been active and early in advising licensees to prepareproperly for the introduction of the smoking ban, committing investment of over£10 million as a consequence. Over 1,500 licensees so far have agreed investment schemes with us in gardens,patios and food; their response to the challenges and opportunities presented bythe proposed smoking ban has been overwhelmingly positive. This year we launched uniON, a new intranet service for licensees, whichfeatures on-line ordering, promotions, advice on wine choice and personalisedmenus, and an on-line accounting service which saves licensees both time andmoney. Theme nights, fundraising events and sporting competitions are also beingcatered for, including the provision of personalised team shirts and trophies.We will shortly be launching additions to the package so that our businessdevelopment managers can access bespoke business-building kits to provideindividual support for capital expenditure projects, and an interactive planningcalendar, which licensees can use to plan events and pre-order posters. Our in-house training programme, the 'Skills Pool', had a record 1,500attendees. The Skills Pool includes a number of modules including RAPPID (Run aProfitable Pub In Days), wine training, cellar and beer management, hygiene,responsible retailing and knowledge of licensing law. Over 1,300 DVD's of chefskills were requested, reflecting the growing importance of food within theestate. The recruitment of good licensees is fundamental to the continuing success ofThe Union Pub Company. While many prospective licensees are still attracted byletting boards and trade press advertising, more and more are coming via theweb-site (www.tupc.co.uk). In September alone we registered over 40,000 visitorsto The Union Pub Company web-site, indicative of the high level of interest inthe business and in becoming a future tenant or lessee of one of our pubs. The 93 pubs transferred during the second half-year from Pathfinder Pubs havebeen well integrated and will contribute to the continued growth of The UnionPub Company in 2007. We will also benefit from the ongoing extension of longerterm leases across the estate, with at least 1,200 of our pubs being suitablefor leasing to independent operators as opposed to being let under shorter termagreements. We now have around 900 such leases, having introduced this option in2002. The attractions of longer leases for operators include the potential forgreater rewards for the entrepreneurial skills required to build a successfulbusiness and, for our part, we are able to attract better operators by having awider choice of attractive agreements. WDB Brands Turnover increased by 0.7% to £86.0 million. Underlying operating marginincreased by 0.1% to 20.9%, and underlying operating profit increased by 1.1% to£18.0 million. The UK beer market declined by 2% last year. The continuation of long-termtrends including the growth of lager as a proportion of the market and theincreasing consumption of alcohol at home rather than in pubs are reflected inour operating plans. In our pub businesses, we have exploited these trends byinvesting in our food offers and by developing our wines and spirits offers, aproduct category which we increased by around 10% last year. In WDB Brands, we recognise these long term trends by focusing increasingly oncask ale and premium products. Although pubs are facing tough competition fromthe off-trade, cask ale offers pub retailers a unique benefit and point ofdifference compared to all other sector categories in that it is not availableto off-trade customers. Our beer brand range includes Marston's Pedigree, uniquein being brewed using the famous Burton Union system; Jennings Cumberland Alefrom the Lake District; and popular Midlands brands such as Banks's andMansfield, which have a strong local following. Our market share of the premium ale market increased by nearly 1%, with volumeup 3%. WDB Brands is Britain's biggest brewer of premium cask ale and has a 16%share of the draught premium ale market. Marston's Old Empire performedparticularly well, up 9.5%, and Jennings Cumberland Ale increased by 12%. TheBanks's and Mansfield brands performed in line with the standard ale market. Excellent beer quality is a competitive advantage, and it is an area to which wedevote considerable resources. We employ our own Beer Quality Technicians tovisit pubs - ours and those operated by other pub companies or independentoperators who stock our brands - to advise on good cellar management and beerkeeping. This year we launched a new initiative called 'Cask Force' (www.caskforce.co.uk), as a result of which nearly 1,000 people received trainingin their pub, while the prize for the ultimate winners was their rent paid for ayear. The initiative, run jointly with The Morning Advertiser, has just beenlaunched for a second year. New product development this year included the launch of Marston's Smooth in acan, with the Marston's Smooth brand showing strong growth, and the expansion ofan unrivalled seasonal beer programme which has been successful with tenants andfree traders. We maintained our marketing investment at £4.2 million, and were delighted toannounce in August that Marston's is 'the Official Beer of England' in a newsponsorship deal with the ECB, the Cricket Board of England and Wales. Thissponsorship builds on our involvement with cricket and many of the countycricket clubs; for example earlier in the summer Marston's became the OfficialBeer of Surrey Cricket Club, with associated pouring rights. More recently, wehave developed other significant new relationships, including becoming theOfficial Beer of Lords. Current trading Trading in the new financial year has been strong, benefiting from good weather.Our performance in the 8 weeks to 25 November 2006 has been in line withexpectations, with particularly strong like-for-like sales growth of 9.1% inPathfinder Pubs. Ralph FindlayChief Executive Financial review International Financial Reporting Standards (IFRS) These are our first annual results to be prepared under IFRS. Restatedcomparisons for the year ended 1 October 2005 have already been published on ourwebsite www.wdb.co.uk, along with a detailed statement of our revised accountingpolicies. Since that statement, the Group has concluded to recognise allactuarial gains and losses in the statement of recognised income and expensepermitted by IAS 19 (amended) for defined benefit pension schemes, in line withindustry practice. Accounting policies used in the preparation of these accounts are consistentwith the policies adopted on transition, with the exception of IAS 32 and 39 andIFRS 5, which were all effective and have been applied by the Group from 2October 2005. Trading overview Turnover Underlying Margin operating profit (see note 2)-------------- ------- -------- -------- -------- -------- ------- 2006 2005 2006 2005 2006 2005 £m £m £m £m % %-------------- ------- -------- -------- -------- -------- -------Pathfinder Pubs 330.7 317.4 63.5 63.3 19.2 19.9The Union Pub Company 178.8 153.3 80.3 65.1 44.9 42.5WDB Brands 86.0 85.4 18.0 17.8 20.9 20.8Central - - (9.5) (8.6) (1.6) (1.5)-------------- ------- -------- -------- -------- -------- -------Group 595.5 556.1 152.3 137.6 25.6 24.7-------------- ------- -------- -------- -------- -------- ------- This has been another good year with all of the key financial measures showingstrong growth, including a 7.1% increase in turnover, a 10.7% increase inunderlying operating profit, a 13.2% increase in underlying profit before tax,and a 14.0% increase in underlying earnings per share. Total dividends per sharefor the year have increased by 10.0% to 42.75 pence per share, and the dividendis covered 2.2 times by earnings per share. Managed to tenanted transfers We transferred 93 pubs from Pathfinder Pubs to The Union Pub Company during thesecond half of the year. For the majority of the time during the transitionprocess, whilst we were recruiting lessees and tenants for these pubs, theytraded as managed houses and therefore, their trading results have been includedwithin the divisional results of Pathfinder Pubs to aid comparability. Margins The underlying operating margin of the Group increased by 0.9% to 25.6%. Thisincrease was achieved despite significant cost pressures, including a £6 millionincrease in utility costs across the Group. The majority of this increase inutility costs impacted Pathfinder Pubs and was the main reason behind thereduction in the division's margin. Offsetting this was a strong marginperformance in The Union Pub Company, benefiting from the synergies of recentacquisitions and the continued move to longer leases. The results also includeover £1 million of costs relating to the managed to tenanted transfer processmentioned above. Cash flow The net cash inflow from operating activities increased by 91.5% to £190.0million, reflecting the strong underlying cash flow of the business and a numberof one-off cash outflows relating to pensions and the refinancing carried out inthe prior year. Free cash flow, after the payment of interest, tax andmaintenance capital, increased by 365.7% to £114.1 million. Acquisition of Celtic Inns Celtic Inns was acquired on 17 March 2006 for £43.3 million including a cashconsideration of £18.3 million and net debt acquired of £25.0 million. Theacquisition was funded from existing bank facilities. The Celtic Inns'properties have subsequently been independently valued at £31.0 million.Goodwill arising as a result of the acquisition was £16.0 million (see note10a). Capital expenditure We continue to significantly invest in our business to ensure we maintain a pubestate of the highest quality. Total capital expenditure for the Group was £98.9million, of which £60.6 million was spent in Pathfinder Pubs and £27.2 millionin The Union Pub Company. This included an increased spend to £18.3 million onnew site development within Pathfinder Pubs. Our aim is to maximise the returns from our property portfolio and as a resultwe generated disposal proceeds of £36.8 million from the sale of 33 pubs,various unlicensed properties and surplus pieces of land. Treasury, Risk and Internal Controls Net debt at the year end of £893.7 million (see note 8) was slightly higher thanlast year (2005: £871.8 million), primarily as a result of the acquisition ofCeltic Inns in March 2006. The ratio of net debt to EBITDA (earnings beforeinterest, taxation, depreciation and amortisation) was 4.7 times (2005: 5.0times), and interest cover was 3.0 times (2005: 2.9 times). The availableheadroom in our bank facility as at 30 September 2006 was £111 million. The Group reviews its forecast short and medium term cash flows and excess cashis either placed on short term deposit or invested in deposits which arerefundable on demand. Around 90% of the Group's net debt is fixed through having fixed ratesecuritised debt and interest rate swaps. The financial risks faced by the Groupare managed in accordance with Board approved policies and are subject toregular internal review. The banking and securitisation covenants are reviewed throughout the year aspart of the internal reporting process with a focus on ensuring appropriateheadroom is available. Every six months the financial position of the Company inrespect of the securitisation covenants is reported externally to financialinstitutions and made available on the Company's website. Operational compliancewith all securitised covenants is managed and regularly reviewed by thetreasury, risk and internal audit function. We have an ongoing programme to identify key operational and financial risksacross the Group, and where possible to mitigate the potential impact of thoserisks. This programme is managed by the treasury, risk and internal auditfunction. Share repurchases We repurchased 1.1 million shares at a total cost of £14.8 million during theyear. These shares are being held as treasury shares. In addition, the trusteesof the Company's employee benefit trust, Computershare Trustees (C.I.) Limited,also purchased 516,000 ordinary shares in the Company during the year at a totalcost of £6.6 million for the purposes of the Company's Long Term Incentive Plan. Taxation The underlying rate of taxation (before exceptional items) has decreased from29.9% in 2005 to 27.8% in 2006, with both years benefiting from a deferred taxcredit relating to additional indexation allowance available each year. Tax paidin the year was only £4.0 million, mainly reflecting the substantial corporationtax relief in respect of the cost of the major refinancing carried out at theend of the last financial year. Pensions A triennial valuation of our final salary scheme was carried out during theyear. This valuation uses the most recent mortality tables which are based onincreased life expectancy assumptions and which have increased the scheme'sdeficit to £53.1 million before tax (2005: £45.6 million), and £37.2 millionafter tax (2005: £31.9 million), despite positive investment returns. TheCompany has agreed with the pension trustees of the scheme to make additionalcontributions of £7.2 million per annum for nine years in order to eliminate thedeficit. The first of these annual contributions was made just before the yearend in September 2006. Paul InglettFinance Director GROUP INCOME STATEMENTfor the 52 weeks ended 30 September 2006 2006 2005 ------------------------------ ------------------------------ Before Exceptional Total Before Exceptional Total exceptional items exceptional items items items £m £m £m £m £m £m --------------- ------- ------- ------ ------- ------- ------ Revenue 595.5 - 595.5 556.1 - 556.1Operatingexpenses (443.2) - (443.2) (418.5) (2.8) (421.3)-------------- ------- ------- ------ ------- ------- ------Operatingprofit 152.3 - 152.3 137.6 (2.8) 134.8-------------- ------- ------- ------ ------- ------- ------Finance costs - Excluding retirement benefits (51.7) - (51.7) (45.5) (32.7) (78.2) - Retirement benefits (0.4) - (0.4) (2.6) - (2.6) ------- ------- ------ ------- ------- ------ (52.1) - (52.1) (48.1) (32.7) (80.8)Finance income 1.3 - 1.3 0.2 - 0.2-------------- ------- ------- ------ ------- ------- ------Net finance costs (50.8) - (50.8) (47.9) (32.7) (80.6)-------------- ------- ------- ------ ------- ------- ------Profit before taxation 101.5 - 101.5 89.7 (35.5) 54.2Taxation (28.2) - (28.2) (26.8) 11.7 (15.1)-------------- ------- ------- ------ ------- ------- ------Profit for theperiod attributableto equityshareholders 73.3 - 73.3 62.9 (23.8) 39.1-------------- ------- ------- ------ ------- ------- ------All results relate tocontinuing operations Earnings per share: Basic earningsper share 95.1p 51.9p Basic earningsper share beforeexceptional items 95.1p 83.4p Diluted earnings pershare 94.1p 51.2p Diluted earnings pershare before exceptionalitems 94.1p 82.4p GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE for the 52 weeks ended 30 September 2006 2006 2005 £m £mProfit for the period 73.3 39.1--------------------------------- ------ ------Income/(expense) recognised directly in equityCash flow hedges 0.3 -Pension actuarial losses (18.0) (3.0)Unrealised (deficit)/surplus on revaluation of (3.7) 5.8propertiesTax on items taken directly to equity 10.3 1.4--------------------------------- ------ ------Net (losses)/gains not recognised in the income statement (11.1) 4.2 --------------------------------- ------ ------Total recognised income for the period 62.2 43.3--------------------------------- ------ ------ Effect of change in accounting policy: implementationof IAS 32 and IAS 39 (10.6) ---------------------------------- ------ ------ GROUP CASH FLOW STATEMENT for the 52 weeks ended 30 September 2006 2006 2005 -------- -------- £m £mOperating activitiesOperating profit 152.3 134.8Depreciation and amortisation 39.1 38.2--------------------------- -------- --------EBITDA* 191.4 173.0Working capital and non-cash movements 2.6 (53.9)Income tax paid (4.0) (19.9)--------------------------- -------- --------Net cash inflow from operating activities 190.0 99.2--------------------------- -------- -------- Investing activitiesInterest received 1.6 0.5Sale of property, plant and equipment 36.8 14.8Investment in plant and equipment for existing business (71.0) (63.9)Purchase of new pubs/site developments (28.1) (34.2)Movements in non-current assets (2.0) 5.8Acquisition of subsidiaries, net of cash acquired (22.4) (140.1)Repayment of debt of subsidiary upon acquisition (13.7) -Movement in available-for-sale investments (31.8) ---------------------------- -------- --------Net cash outflow from investing activities (130.6) (217.1)--------------------------- -------- -------- Financing activitiesEquity dividends paid (31.0) (27.8)Issue of shares 2.6 2.6Sale of own shares by share trust 0.9 0.3Purchase of treasury shares (14.8) -Purchase of own shares for Long Term Incentive Plan (6.6) -Interest paid (47.5) (50.2)Arrangement costs of new bank facilities - (1.8)(Repayment)/advance of securitised debt (10.1) 805.0Issue costs paid on securitised debt (0.7) (12.5)Advance of loans 43.0 369.1Repayment of loans (14.2) (650.3)Settlement of debentures - (287.9)Repayment of loan notes (0.8) (0.1)Capital element of finance leases repaid (0.1) (0.1)--------------------------- -------- --------Net cash (outflow)/inflow from financing activities (79.3) 146.3--------------------------- -------- --------Net (decrease)/increase in cash and cash equivalents (19.9) 28.4--------------------------- -------- -------- Reconciliation of net cash flow to movement in net debt(Decrease)/increase in cash and cash equivalents in theperiod (19.9) 28.4Increase in available-for-sale investments 31.8 -Cash inflow from increase in debt (17.8) (278.6)--------------------------- -------- --------Change in debt resulting from cash flows (5.9) (250.2)Net debt acquired with subsidiaries (14.2) (65.9)Non-cash movements (1.8) 4.8--------------------------- -------- --------Movement in net debt in the period (21.9) (311.3)Net debt at beginning of period (871.8) (560.5)--------------------------- -------- --------Net debt at end of period (893.7) (871.8)--------------------------- -------- -------- * EBITDA - Earnings before interest, tax, depreciation and amortisation GROUP BALANCE SHEET as at 30 September 2006 2006 2005 ------- ------- £m £mAssets--------Non-current assetsIntangible assets 5.5 3.9Goodwill 148.3 131.0Property, plant and equipment 1,584.0 1,551.0Deferred tax assets 48.9 43.4Other non-current assets 23.1 22.1----------------------------- ------- ------- 1,809.8 1,751.4----------------------------- ------- -------Current assetsInventories 12.8 13.6Assets held for sale 26.2 -Trade and other receivables 50.6 54.0Current tax assets - 5.9Financial assets: available-for-sale investments 31.8 -Cash and cash equivalents 39.8 76.1----------------------------- ------- ------- 161.2 149.6----------------------------- ------- -------Liabilities-------------Current liabilitiesBorrowings (38.6) (53.8)Derivative financial instruments (0.5) -Trade and other payables (108.1) (91.5)Current tax liabilities (11.2) ------------------------------ ------- ------- (158.4) (145.3)----------------------------- ------- -------Non-current liabilitiesBorrowings (926.7) (894.1)Derivative financial instruments (14.3) (0.9)Pension commitments (53.1) (45.6)Deferred tax liabilities (162.6) (161.3)Other non-current liabilities (0.7) (0.8)Provisions (2.0) (2.2)----------------------------- ------- ------- (1,159.4) (1,104.9)----------------------------- ------- ------- Net assets 653.2 650.8----------------------------- ------- -------Shareholders' equityEquity share capital 23.0 22.8Share premium account 187.5 185.1Merger reserve 41.5 41.5Revaluation reserve 311.2 311.2Capital redemption reserve 6.0 6.0Hedging reserve (10.4) -Own shares (21.5) (1.0)Retained earnings 115.9 83.2----------------------------- ------- -------Shareholders' equity 653.2 648.8Minority interest in equity - 2.0----------------------------- ------- -------Total equity 653.2 650.8----------------------------- ------- ------- 1 Accounting policies (a) Basis of preparation The financial information for the period ended 30 September 2006 has beenextracted from the audited financial statements, which have been prepared inaccordance with International Financial Reporting Standards (IFRS) andInternational Financial Reporting Interpretations Committee (IFRIC) and StandingInterpretations Committee (SIC) interpretations adopted by the European Unionand with those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The financial statements have been prepared under the historicalcost convention as modified by the revaluation of land and buildings andderivative financial instruments. Comparative figures have been restated to comply with IFRS. Prior periodconsolidated financial statements were previously prepared in accordance with UKgenerally accepted accounting practice (UK GAAP). The Group's IFRS adoptionstatement, which is available at www.wdb.co.uk, restates the consolidatedfinancial information as at 2 October 2004 (being the date of transition) andfor the period ended 1 October 2005. 2 Segmental reporting The Group has four business segments: The Union Pathfinder Pub WDBPeriod ended 30 September Pubs Company Brands Central Group2006 £m £m £m £m £m--------------------- ------- ------- ------- ------- -------Income statementRevenue 330.7 178.8 131.2 - 640.7Less: sales to other segments - - (45.2) - (45.2)--------------------- ------- ------- ------- ------- ------- 330.7 178.8 86.0 - 595.5 Operating expenses (267.2) (98.5) (68.0) (9.5) (443.2)--------------------- ------- ------- ------- ------- -------Operating profit beforeexceptional items 63.5 80.3 18.0 (9.5) 152.3 Exceptional items - - - - ---------------------- ------- ------- ------- ------- -------Operating profit afterexceptional items 63.5 80.3 18.0 (9.5) 152.3 Finance costs (52.1) Finance income 1.3--------------------- ------- ------- ------- ------- -------Profit before taxation 101.5 Taxation (28.2)--------------------- ------- ------- ------- ------- -------Profit for the periodattributable to equityshareholders 73.3--------------------- ------- ------- ------- ------- ------- Balance sheetSegment assets 707.3 927.2 137.7 78.3 1,850.5 Unallocated assetsDeferred tax assets 48.9Financial assets:available-for-sale 31.8investmentsGroup cash 39.8--------------------- ------- ------- ------- ------- -------Total assets 1,971.0--------------------- ------- ------- ------- ------- ------- Segment liabilities (26.7) (21.9) (35.2) (27.0) (110.8) Unallocated liabilitiesGroup borrowings (965.3)Current tax liabilities (11.2)Pension commitments (53.1)Deferred tax liabilities (162.6)Derivative financial instruments (14.8)--------------------- ------- ------- ------- ------- -------Total liabilities (1,317.8)--------------------- ------- ------- ------- ------- ------- Included in the above are revenue of £5.9m, operating expenses of £4.4m andoperating profit of £1.5m in relation to Celtic Inns which have not been separately analysed. 2 Segmental reporting (continued) The Union Pathfinder Pub WDBPeriod ended 1 October 2005 Pubs Company Brands Central Group £m £m £m £m £m--------------------- ------- ------- ------- ------- -------Income statementRevenue 317.4 153.3 124.9 - 595.6Less: sales to other segments - - (39.5) - (39.5)--------------------- ------- ------- ------- ------- ------- 317.4 153.3 85.4 - 556.1 Operating expenses (254.1) (88.2) (67.6) (8.6) (418.5)--------------------- ------- ------- ------- ------- -------Operating profit beforeexceptional items 63.3 65.1 17.8 (8.6) 137.6 Exceptional items - (0.6) (1.3) (0.9) (2.8)--------------------- ------- ------- ------- ------- -------Operating profit afterexceptional items 63.3 64.5 16.5 (9.5) 134.8 Finance costs (80.8) Finance income 0.2--------------------- ------- ------- ------- ------- -------Profit before taxation 54.2 Taxation (15.1)--------------------- ------- ------- ------- ------- -------Profit for the periodattributable to equityshareholders 39.1--------------------- ------- ------- ------- ------- ------- Balance sheetSegment assets 754.1 791.9 125.1 104.5 1,775.6 Unallocated assetsDeferred tax assets 43.4Group cash 76.1Current tax assets 5.9--------------------- ------- ------- ------- ------- -------Total assets 1,901.0--------------------- ------- ------- ------- ------- ------- Segment liabilities (26.8) (21.4) (13.2) (33.1) (94.5) Unallocated liabilitiesGroup borrowings (947.9)Pension commitments (45.6)Deferred tax liabilities (161.3)Derivative financial (0.9)instruments--------------------- ------- ------- ------- ------- -------Total liabilities (1,250.2)--------------------- ------- ------- ------- ------- ------- 3 Exceptional items 2006 2005 £m £mOperating itemsProperty:Profit on disposal of property, plant and equipment - 4.0Impairment of property, plant and equipment followingrevaluation - (1.0)------------------------------------ ------- ------- - 3.0Other:Costs of reorganisation of newly acquired subsidiaries - (4.7)Goodwill impairment following disposals of property, plant andequipment - (1.1)------------------------------------ ------- ------- - (5.8)------------------------------------ ------- -------Non-operating itemsFinance costs:Write-off of unamortised finance cost following refinancing - (4.3)Premium on redemption of debentures - (28.4)------------------------------------ ------- ------- - (32.7)------------------------------------ ------- -------Total exceptional items - (35.5)------------------------------------ ------- ------- 4 Taxation 2006 2005Income statement £m £m------------------------------------ ------- -------Current taxCurrent period 22.9 3.5Adjustment in respect of prior periods (0.5) (1.5)------------------------------------ ------- ------- 22.4 2.0------------------------------------ ------- -------Deferred taxCurrent period 6.1 12.8Adjustment in respect of prior periods (0.3) 0.3------------------------------------ ------- ------- 5.8 13.1------------------------------------ ------- -------Taxation charge reported in the income statement 28.2 15.1------------------------------------ ------- ------- 5 Ordinary dividends on equity shares 2006 2005 £m £m------------------------------------ ------- -------Paid in the periodFinal dividend for 2005 of 25.66p per share (2004: 23.32p) 19.8 16.9Interim dividend for 2006 of 14.52p per share (2005: 13.20p) 11.2 10.1------------------------------------ ------- ------- 31.0 27.0------------------------------------ ------- ------- A final dividend for 2006 of 28.23p per share amounting to £21.8m has beenproposed for approval at the annual general meeting. This dividend will be paid on 31 January 2007 to those shareholders on theregister at close of business on 29 December 2006. 6 Earnings per ordinary share Basic earnings per share is calculated by dividing the profit attributable toequity shareholders by the weighted average number of ordinary shares in issueduring the period, excluding treasury shares and those held in the EmployeeShare Ownership Plan and the Long Term Incentive Plan. Diluted earnings per share is calculated by adjusting the basic earnings pershare to assume the notional exercise of the weighted average number of ordinaryshare options outstanding during the period. The effect of the dilutive optionsis to increase the weighted average number of shares by 0.8 million (2005: 0.9million). Underlying earnings per share figures are presented to exclude the effect ofexceptional items. 2006 2005------------------------------------------------------------------------------------ Weighted Weighted average average number of Per share number of Per share Earnings shares amount Earnings shares amount £m m p £m m p-------------------- ------- ------- ------- ------- ------- -------Basic earnings pershare 73.3 77.1 95.1 39.1 75.4 51.9Diluted earnings pershare 73.3 77.9 94.1 39.1 76.3 51.2------------------- ------- ------- ------- ------- ------- ------- Underlying earningsper share figures: ------- ------- ------- ------- ------- --------------------------Basic earnings pershare beforeexceptional items 73.3 77.1 95.1 62.9 75.4 83.4Diluted earnings pershare beforeexceptional items 73.3 77.9 94.1 62.9 76.3 82.4------------------- ------- ------- ------- ------- ------- ------- 7 Working capital and non-cash movements 2006 2005 £m £m------------------------------------ ------- -------Income from non-current assets (0.4) (0.3)Difference between defined benefit pension contributions paidand amounts charged (10.5) (29.6)Decrease in inventories 1.0 1.5Decrease/(increase) in trade and other receivables 1.4 (0.8)Increase/(decrease) in trade and other payables 12.4 (22.8)Profit on disposal of property, plant and equipment (5.1) (4.0)Impairment of property, plant and equipment followingrevaluation - 1.0Goodwill impairment following disposals of property, plant andequipment - 1.1Impairment of properties prior to transfer to assets held forsale 3.8 ------------------------------------- ------- -------Working capital and non-cash movements 2.6 (53.9)------------------------------------ ------- ------- 8 Analysis of net debt 2006 Cash flow Non-cash flow Acquisition 2005 £m £m £m £m £m-------------------- ------- ------- ------- ------- -------Cash and cashequivalentsCash at bank and inhand 39.8 (36.3) - -- 76.1Bank overdraft (19.2) 16.4 - - (35.6)-------------------- ------- ------- ------- ------- ------- 20.6 (19.9) - - 40.5-------------------- ------- ------- ------- ------- -------Financial assetsAvailable-for-saleinvestments 31.8 31.8 - - --------------------- ------- ------- ------- ------- ------- 31.8 31.8 - - --------------------- ------- ------- ------- ------- -------Debt due within oneyearLoan notes (9.1) 0.8 (0.7) - (9.2)Bank loans 0.2 14.2 - (14.2) 0.2Securitised debt (10.4) 10.1 (11.4) - (9.1)Finance leases (0.1) 0.1 (0.1) - (0.1)-------------------- ------- ------- ------- ------- ------- (19.4) 25.2 (12.2) (14.2) (18.2)-------------------- ------- ------- ------- ------- -------Debt due after oneyearBank loans (154.3) (43.0) (0.2) - (111.1)Securitised debt (772.1) - 10.5 - (782.6)Finance leases (0.2) - 0.1 - (0.3)Preference shares (0.1) - - - (0.1)-------------------- ------- ------- ------- ------- ------- (926.7) (43.0) 10.4 - (894.1)-------------------- ------- ------- ------- ------- ------- (893.7) (5.9) (1.8) (14.2) (871.8)-------------------- ------- ------- ------- ------- ------- Available-for-sale investments represent the Group's holding in a short-terminvestment fund from which cash can be withdrawn on demand and without penalty,and therefore has been classified within net debt. Bank loans due within one year represent unamortised issue costs expected to becharged within 12 months of the balance sheet date. 9 Movements in total equity 2006 2005 £m £m------------------------------------ ------- -------Total equity at beginning of the period 650.8 583.6Effect on equity of adoption of IAS 32 and IAS 39 on 2October 2005 (10.6) ------------------------------------- ------- -------Restated total equity at beginning of the period 640.2 583.6------------------------------------ ------- -------Total recognised income and expense for the period 62.2 43.3Dividends paid (31.0) (27.0)Proceeds of ordinary share capital issued 2.6 3.8Merger reserve on Burtonwood acquisition - 41.5Sale of own shares from share trust 0.9 0.3Purchase of treasury shares (14.8) -Purchase of own shares for Long Term Incentive Plan (6.6) -Share based payments 1.0 0.9Tax in relation to share based payments 0.7 2.4Equity minority interests (2.0) 2.0------------------------------------ ------- -------Net movement in total equity 13.0 67.2------------------------------------ ------- -------Total equity at end of the period 653.2 650.8------------------------------------ ------- ------- 10 Acquisitions (a) Celtic Inns On 17 March 2006, the Group acquired 100% of Celtic Inns Holdings Limited andits wholly owned subsidiaries. The acquisition has been accounted for underacquisition accounting principles and is therefore included in the consolidatedbalance sheet as at 30 September 2006. Fair value adjustments Provisional Book value Revaluations Other fair value £m £m £m £m------------------------- ------- -------- ------- -------Property, plant and equipment 26.6 3.5 - 30.1Intangible assets - leasepremiums - 0.9 - 0.9Inventories 0.1 - - 0.1Trade and other receivables 1.4 - - 1.4Cash and cash equivalents 0.1 - - 0.1Bank overdraft (0.9) - - (0.9)Trade and other payables (1.7) - - (1.7)Borrowings (23.3) - (0.9) (24.2)Derivative financialinstruments - - (0.1) (0.1)Deferred tax (0.2) (3.6) 0.4 (3.4)------------------------- ------- -------- ------- -------Net assets acquired 2.1 0.8 (0.6) 2.3------------------------- ------- -------- ------- -------Consideration (includingacquisition fees)Cash 17.6Loan notes 0.7------------------------- ------- -------- ------- -------Total consideration 18.3------------------------- ------- -------- ------- -------Goodwill arising onconsolidation 16.0------------------------- ------- -------- ------- ------- The attributed fair values are provisional. The revaluation adjustment reflects the valuation of the acquired estate as at17 March 2006. The valuation was carried out by independent chartered surveyorsChristie & Co on an open market value basis. Deferred tax on propertyrevaluations has been recognised on acquisition. The other fair value adjustments reflect the elimination of prepaid financecosts on borrowings, the market value of the swap instrument at acquisitiondate, deferred tax in respect of tax losses which are available for offsetagainst future trading profits and deferred tax on the elimination of financecosts. The net cash outflow in respect of the acquisition of Celtic Inns was: £mAcquisition of equityCash 17.6Net overdrafts of subsidiary 0.8----------------------------------------- ------- 18.4 Acquisition of debtImmediate repayment of subsidiary's debt 10.0----------------------------------------- -------Net cash outflow in respect of the acquisition 28.4----------------------------------------- ------- The purchase agreement for Celtic Inns required the immediate repayment ofcertain borrowings, which were included in its balance sheet at the date ofacquisition. The debt repayments have therefore been classified as part of theoverall consideration for the acquisition of Celtic Inns. (b) Other On 6 July 2006, the Group acquired 100% of Bluu Limited. £m------------------------- -------Book value of net liabilities acquired (0.6)Fair value adjustments 1.3Goodwill 1.1------------------------- -------Consideration satisfied by cash 1.8------------------------- ------- Fair value adjustments were made to the value of the acquired estate of £1.7mand deferred tax of (£0.4m). The net cash outflow in respect of the acquisition of Bluu was: £mAcquisition of equityCash 1.8 Acquisition of debtImmediate repayment of subsidiary's debt 3.7----------------------------------------- -------Net cash outflow in respect of the acquisition 5.5----------------------------------------- ------- The purchase agreement for Bluu required the immediate repayment of certainborrowings, which were included in its balance sheet at the date of acquisition.The debt repayments have therefore been classified as part of the overallconsideration for the acquisition of Bluu. 10 Acquisitions (continued) (c) Prior period acquisitions During the period ended 1 October 2005 the Group acquired Burtonwood, Jenningsand English Country Inns. The fair value adjustments stated in the financialstatements for the period ended 1 October 2005 are now confirmed with noadjustment. An additional cash consideration of £2.2m was paid in the period to 30 September2006 in relation to the acquisition of English Country Inns. This increased theGroup's holding in the ordinary share capital of English Country Inns from 85%to 100%, eliminating the minority interest of £2.0m and generating additionalgoodwill of £0.2m. 11 Events after the balance sheet date On 1 December 2006 the Group announced its intention to proceed with afour-for-one share split, subject to shareholder approval at an extraordinarygeneral meeting on 8 January 2007. The nominal value of the shares will changefrom 29.5p to 7.375p. On 1 December 2006 the Company announced it intends to change its name toMarston's PLC, subject to shareholder approval at an extraordinary generalmeeting on 8 January 2007. Notes: a. The contents of this preliminary announcement, which do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985, have been extracted from the audited statutory accounts of the Group for the 52 weeks ended 30 September 2006 which will be filed with the Registrar of Companies in due course. The statutory accounts for the 52 weeks ended 1 October 2005 have been delivered to the Registrar of Companies. The independent auditors' report on these accounts are unqualified and do not contain any statements under Section 237(2) or (3) of the Companies Act 1985. b. Subject to approval of the shareholders at the annual general meeting, the proposed dividend of 28.23 pence per share will be paid on 31 January 2007 to shareholders on the register at the close of business on 29 December 2006. c. The annual report for the year ended 30 September 2006 will be posted to all shareholders in the week commencing 17 December 2006. Copies will be obtainable from Hudson Sandler Limited (020 7796 4133) or from The Company Secretary, The Wolverhampton & Dudley Breweries, PLC, Park Brewery, Bath Road, Wolverhampton, WV1 4NY. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Marstons