4th Jul 2006 07:02
Greene King PLC04 July 2006 PRESS RELEASE 4 July 2006 GREENE KING plc Preliminary results for the 52 weeks ended 30 April 2006 UNDERLYING GROWTH, IMPROVED MARGINS AND SUCCESSFUL ACQUISITIONS DRIVE RECORD RESULTS • Revenue £818.6m, +16% • EBITDA* £229.3m, +20% • Operating profit* £190.9m, +21% • Operating profit margin* 23.3%, +0.9%pts • Profit before tax* £119.6m, +25% • Adjusted earnings per share* 56.0p, +20% • Dividend per share 20.15p, +11% • Strong performance in all divisions: Pub Company, Pub Partners, Brewing Company and Belhaven • Acquisitions fully integrated and delivering targeted synergies • Balance sheet remains strong and flexible - successful, innovative securitisation • Well prepared for smoking bans in Scotland and England • Strong start to the new financial year • Hardys & Hansons - provides excellent opportunity to broaden further the geographical footprint * before exceptional items.All figures include the impact of IFRS Rooney Anand, Greene King chief executive, comments: "There have been significant developments across all areas of Greene King overthe last year and this is reflected in these record results. The resultsdemonstrate our proven strategy that delivers value for shareholders. "The new financial year has started well and our pubs are also benefiting fromthe targeted plans that we put in place for the World Cup. The intrinsic qualityof our assets, combined with the passion and talent of our team, along withrecent acquisitions, give us confidence that there are exciting opportunities todeliver further growth in the future." A copy of the results presentation is available on our website:www.greeneking.co.uk. For further information:Greene King plc Rooney Anand, chief executive Tel: 01284 763222 Ian Bull, finance directorFinancial Dynamics Ben Foster / Charles Watenphul Tel: 020 7831 3113 Chairman's Statement Results I am delighted to be able to report another year of strong profit growth for the52 weeks ended 30 April 2006. These results include contributions fromRidley's, acquired in July 2005 (43 weeks) and Belhaven, acquired in October2005 (30 weeks). Revenue for the year was up 16% at £818.6m and operating profit increased by 21%to £190.9m. Operating profit margin was therefore 23.3%, up 0.9 percentagepoints. Our profit before tax and exceptional items rose by 25% to £119.6m.Over the last twelve years, we have delivered a compound annual growth rate inearnings per share of above 10%; this year our earnings per share have increasedby 20% to 56.0p. At the year end, net debt stood at £1,246.7m and interestcover at 2.7x, figures with which we are very comfortable. Dividend The board recommends a final net dividend of 14.35p per share, which will givean increase of 11% in the total net dividend for the year to 20.15p per share.The final dividend, if approved, will be paid on 11 September to thoseshareholders on the register at the close of business on 4 August. Acquisitions The year saw two acquisitions. In July we purchased Ridley's, based in Essex,with an estate of 73 tenanted / leased pubs; and in October, we acquiredBelhaven, with 97 managed and 185 tenanted / leased pubs, which has given usinstant scale in Scotland. Since the end of the financial year we haveannounced a recommended offer for Hardys & Hansons plc, a leading integrated pubcompany and brewer concentrated in the Midlands, to bring us a further 83managed and 185 tenanted / leased pubs. Board In September 2005, Justin Adams joined us as managing director of our BrewingCompany. He had previously worked for Diageo and Maxxium Worldwide and is wellqualified to drive the further development of our brands and distributionbusiness. Ian Bull joined the board in January 2006 as finance director. He had latterlybeen chief executive of BT Retail Enterprises and brings to bear anothervaluable perspective from outside the brewing and pubs sector. Ian replaced Michael Shallow, who had served the company in this role forfourteen distinguished years. I would like to record my thanks to Michael forhis great service over this long period of transformation and growth. In June 2005, John Brady joined us as a non-executive director. He had been withthe consultants McKinsey & Co for twenty four years and has extensive marketingand retailing experience. Alan Bowkett is retiring as a non-executive at the AGM this year and I wouldlike to extend our thanks to him for the very considerable contribution he hasmade to the board during the last twelve years. People Our business succeeds through all our employees and licensees, who work withgreat effort and skill to serve our customers well. It is they who bring ourpubs and brands to life. I would like to thank them for their passion anddedication over this past year and I hope that, like me, they will feel veryproud of these results. I would also like to welcome our new colleagues fromRidley's and Belhaven. Each time we have made an acquisition, we have benefitedfrom learning from what the businesses have brought to us and by trying toretain better skills and ways of working. We continue to do this and view thefuture with every confidence. Tim BridgeChairman 4 July 2006 Chief Executive's Review I am pleased to be able to report another very strong set of results, continuingour record of consistent growth spanning over 30 years. Revenues were up 16%and profits before tax and exceptional items were up 25%. All divisions tradedwell and contributed fully to this result. Meanwhile, we continued to lay thefoundations for future growth, investing in our pubs, our beer brands and thedevelopment of our people. We continued to respond to, and embrace, changingsocial trends, customers' ever-greater expectations and new regulatory demands. Strategy Greene King's consistent record of enhancing shareholder value has been derivedfrom a clear strategy built on a blend of strong asset management andlike-for-like sales and margin growth, augmented by acquisitions which meet ourstrict financial and operational criteria. Belhaven has made an excellent newaddition to the Greene King group, opening up for us an important new market inScotland. Our foundations are our quality assets. Our pubs are mostly in stable communitylocations away from the high street, concentrated in economically resilientregions and overwhelmingly freehold. We do not pursue size as an end in itself,and will continue to divest as well as acquire pubs, in order to enhance theoverall quality level of the estate. To continue to trade our ales at a pricepremium, we consistently invest in the brands. We believe firmly in our business model, which combines the scale required forefficient processes and purchasing with the advantages of integration. Theseadvantages include • the ability to transfer pubs between management and tenancy, thus optimising their contribution over the life cycle • the ability easily to integrate other integrated brewer / pub companies • the customer insights that come from being both buyer and seller • leveraging our trusted heritage brand, Greene King, with both consumers and the trade. However, integration could also carry disadvantages if some parts of thebusiness were not subject to market discipline. Therefore, each of our businessunits is held individually accountable, as a successful stand-alone business inits own right; but each creates more value in combination with the others thanit could alone. The consistency of our strategy, and its execution, has enabled us to achievewell above average earnings per share and dividend growth over many years andprovides significant scope for future increases in shareholder value. Integration Progress The Laurel and Ridley's businesses, acquired in August 2004 and July 2005respectively, have both been fully integrated. Synergies captured from both ofthese deals are in line with our projections. On 2 October 2005 we acquired Belhaven, Scotland's leading integrated pubcompany and brewer, with a 282-strong pub estate and Scotland's number onedraught ale brand, Belhaven Best. As in past acquisitions, we deliberatelyadopted an approach to benefit from the 'best of both worlds'. With Belhaven,we were particularly keen to preserve the business's distinctive Scottishculture. We are continuing to brew at Dunbar, and have sought out areas ofprofitable collaboration between Belhaven and our English business, where itmakes sense to do so. I am delighted that Belhaven's entire top team elected to stay on after theacquisition. I have been greatly impressed by the quality of the Belhavenmanagement team led by Stuart Ross, and the teams in Dunbar and Bury St Edmundsare working very well together. Our synergy target was to achieve a £3m gain in2006/7, rising to £5m by 2008/9, primarily by leveraging Greene King's scale forbuying benefits; synergy capture is on course. Earlier this year, we began introducing Belhaven Best to a number of our pubs inEngland, where it is proving very popular; we anticipate further roll-out. The major challenge for Belhaven during the financial year under review has beenthe introduction of the Scottish smoking ban, and the management team has workedhard to minimise the threats and maximise the opportunities derived from thissignificant change in pub culture. Looking ahead to the English smoking banexpected in England in 2007, our ownership of Belhaven also gives us very usefulinsights into the likely impact and best practice approach to adopt; uniquely,we have visibility of this across all the major sales channels and tradingmodels. Pub Company 52 weeks 2004/5 2005/6 Change % £m £mRevenue £495.9 £516.5 +4%Operating profit £93.8 £102.1 +9%Operating profit margin 18.9% 19.8% +0.9% pts Pub Company, our managed house division in England and Wales, enjoyed anothersuccessful year, with revenue up 4% at £516.5m and operating profit up 9% at£102.1m. The operating profit margin was therefore 19.8%, 0.9 percentage pointsup on the previous year. Total like-for-like sales grew by 1.9%. The growth in the operating profitmargin was achieved despite cost increases associated with energy, wages and SkyTV. Pub Company began the year with 820 pubs. 46 pubs were transferred to PubPartners, while 13 were sold. The closing balance was therefore 761. Theaverage number of pubs trading was 784 as against 801 in the previous year. We organise the Pub Company business so as to tailor central support to housemanagers' different needs in the different trading formats: Outlets at Outlets at 1 May 2005 30 April 2006Hungry Horse Branded pubs with great value food 135 126Real Pubs Unbranded community pubs 357 341Town Local Unbranded town centre and town 171 152 local pubsInns Mix of inns with rooms and 157 142 destination food businessesTotal 820 761 Average weekly revenue per pub was up 6% to £12,670; and the operating profitper pub for the year was up 11% to over £130,000. During the year, we invested £25.7m in 117 property improvement programmes, plus£11.3m on maintenance capex. Food now accounts for 27% of total Pub Company revenue. As part of our ongoingdevelopment cycle, we re-launched 14 menus during the year. In the valuesegment, our Champion core pubs recorded food growth of 6% over the prior year,while at the premium end of the scale, our Town concept saw food growth of 16%.A new initiative this year, with the changes to licensing hours, has been thedevelopment and promotion of food offers targeted at later in the evening;pizzas and hot dogs went on sale at over 200 outlets. Reflecting consumers'increasing adventurousness, we introduced 'deli boards' and a tapas offer. Wehave also sought to reflect and respond to demand for more healthy eatingoptions. In Hungry Horse for example, on the Pony Club menu that serves ouryounger customers, information is given to enable parents to make informedchoices about dishes, while also educating the youngsters themselves, andpromoting the '5-a-day' message to encourage consumption of more fruit andvegetables. During the year, Pub Company widened its range of wines, including theintroduction of more new world wines. This was supported by a new range ofmerchandising support, with consistent displays and an increased share of theback bar for wine, and promoting wines by the glass. Our wine sales have grown7%. The Inns division also upgraded its coffee offer in partnership with theItalian coffee brand Segafredo; and we are now piloting a new coffee shopconcept at the Fountain, Cowes. Our Wayside format, within the Inns division, combines the commercial benefitsof a centrally delivered food, liquor and service offer with the individuality,flair and familiar feeling of a locally run and independently owned pub /restaurant. Wayside was a highlight of the year for us, delivering 6%like-for-like sales growth. It is vital that we continue to recruit quality people, with the rightpersonality and attitude, to run our pubs. The proportion of house managervacancies now filled from internal hires is over 50%. To augment this withtop-quality hires from outside the business, we operate a Fast Track programmeto bring in managers from outside the industry, and we recently created the 'Greene King Thing' campaign, a recruitment initiative to identify and attractnew people to a career with us as a publican. The latter initiative is beingcarried out in concert with Pub Partners, which increases its total exposure,and allows us to present to people both an employed and a self-employed routeinto the business. The quality of support given to house managers by their business developmentmanagers is also vital. We invest strongly in the recruitment and developmentof this cadre of managers; and I am particularly pleased that a member of thePub Company team this year won the accolade of Business Development Manager ofthe Year for a managed pub company at the ALMR awards. We have implemented a number of efficiency programmes both to control cost andto free up more time for staff to serve the customer. Automaticbanknote-counting machines, for example, save between one and two man hours aweek at the average pub. We have installed broadband to every pub, whichgreatly speeds up administration and reporting and aids business reviews.Following the sharp rise in energy costs we now have even greater focus onenergy reduction, with a comprehensive programme of energy management kits,smarter metering, tariff management and energy efficiency programmes includingan estate-wide 'turn-it-off' programme. Our preparations for the smoking ban expected in 2007 are well underway. Wehave now categorised all our pubs in terms of both the risk and the competitiveopportunity created by the smoking ban. Plans have already been drawn up for700 locations, and these will be executed over the course of the next ninemonths. Pub Company's 14,000 employees each year service over 50m customer transactions.The quality and consistency of this service, above all else, drives oursuccess. Ongoing training and development of the highest standard is thereforevital. Throughout the pub (including part-time staff) we now have aself-funding bonus scheme for outstanding team performance beyond budgettargets. We have started a mystery guest programme, and all pubs now receive amystery visit at least once every six weeks. The detailed feedback theseproduce has helped deliver a marked increase in customer satisfaction scores;the results also form an element of the House Manager's and Business DevelopmentManager's bonus. Pub Partners 52 weeks 2004/5 2005/6 Change % £m £mRevenue £125.1 £147.0 +18%Operating profit £54.0 £64.1 +19%Operating profit margin 43.2% 43.6% +0.4% Pts Pub Partners, our tenanted and leased pub business in England and Wales,delivered another strong performance. Revenue was up 18% at £147.0m. Operatingprofit increased by 19% to £64.1m representing an operating profit margin of43.6%, up 0.4 percentage points on the previous year. At the start of the year, Pub Partners had 1,244 pubs. During the period, 46pubs transferred in from Pub Company and 73 came from the Ridley's acquisition,while nine were disposed of. The closing balance was therefore 1,354. Theaverage number of pubs trading in Pub Partners over the period was 1,324, asagainst 1,187 the previous year. Like-for-like revenue was up 2.0% and averageoperating profit per pub rose 6% to just over £48,400. We invested £10.4m in the estate, including 18 major redevelopments and 20smaller schemes. Of this, £5.0m related to property improvements and £5.4m tomaintenance capital. In addition, we spent £4.7m on property repairs throughthe revenue account. These sums were augmented by licensees' own investments. Pub Partners strives to remain 'first choice for the licensee'. A key part ofthat is to offer the industry's leading package of infrastructure and support.This manifested itself this year in Greene King taking a lead in managing andfunding the required re-licensing on behalf of its licensees, to enable them tostay focused on maximising their (and our) sales and profits. On an ongoingbasis, the Pub Partners extranet offers an unsurpassed range of useful servicesfrom promotions planning, to advice on gaming machine siting, to regulatory andlegal support. The human approach, however, remains key. We have invested in new technologies,and re-designed processes, to enable our regional managers to spend more timeface-to-face with licensees, assisting them in the development of theirbusiness. Three of our regional managers this year reached the finals of ALMR'snon-managed estate Business Development Manager of the Year awards. Over 1,500people attended our training courses this year on subjects ranging frommarketing and finance to cellar management and health & safety. Particularlypopular have been the 'Go for Growth' seminars, which the publican attendstogether with his or her regional manager; these focus on identifying specificimprovements for pubs where sales have not reached expectation; in certain casesGreene King makes 'seed funding' available; the results have been impressive. The 'Share & Save' programme leverages the purchasing scale and infrastructureof Pub Company for the benefit of Pub Partners' licensees; a typical licenseecan save up to £3,000 per annum through the scheme, which includes over 50suppliers. In Pub Partners, as in Pub Company, we are well into our preparations for thesmoking ban expected in England in 2007. All sites have been categorised byrisk / competitive opportunity and we are working proactively with our licenseesto ensure that our approach is optimised on a site-by-site basis. Recognising the importance of food development to the continued growth of ourpartners' businesses, in 2005/6 we launched a programme named 'Food Made Easy'as well as re-launching our successful 'Time for Wine' initiative. Across theboard, standards in food have risen sharply in recent years, and the PubPartners estate can now boast many hundreds of high quality food outlets. Atthe top end of the range, congratulations are due to Tom Kerridge, our licenseeat the Hand in Flowers, Marlow, who was awarded a Michelin star in January. We offer a number of different agreements to ensure the right match for both theindividual pub and the lessee. We do, however, differ from many other industryoperators in that, for the majority of our pubs, we prefer shorter,non-assignable tenancies to longer assignable leases. The shorter tenancy is abetter fit for our high quality and well invested community pubs and provides anumber of advantages for both our tenants and ourselves. For the tenants, itallows a lower cost of entry and commits us to sharing the costs of maintainingthe building. The main benefit for us is that we retain the role of recruiting anew tenant if our existing one decides to leave. These shorter tenanciesaccounted for 79% of our estate. The balance of the agreements are longer-termassignable leases. These play an important role in attracting talented lesseesto those pubs where there is a higher entry cost because they are more food-ledor include letting accommodation. Brewing Company 52 weeks 2004/5 2005/6 Change % £m £mRevenue £86.5 £90.3 +4%Operating profit £17.8 £20.7 +16%Operating profit margin 20.6% 22.9% +2.3% pts Brewing Company produced another strong performance. Against a total beer marketdown 2% and a cask ale market down over 4%, our own-brewed volume grew by 7%,including an increase in cask volume of 4%. Since 2000, Greene King hasincreased its sales of cask ale by over a half, while the overall cask alemarket has declined by a third. All of our lead brands performed strongly over the year with volume sales ofGreene King IPA, Britain's number one cask ale, up by 3%, Old Speckled Hen by10% and Abbot Ale by 5%. Sales were boosted by buoyant Christmas and Eastertrading, our continued strong brand support and activities such as our StGeorge's Day promotion, which went to over 3,000 pubs. Brewing Company's share of the UK cask ale market rose a further 1.6 percentagepoints to 13.7%, according to industry statistics (excluding small 'microbrewers'). One in every seven pints of cask ale served in Britain is thereforea Greene King pint. The performance of our brands led to an increase in revenue of 4% to £90.3m.Operating profit grew by 16% to £20.7m with an increase to the trading margin of2.3 percentage points to 22.9%. This margin improvement was achieved throughthe scale benefits of acquiring Ridley's and the Laurel neighbourhood estatealong with organic sales growth, and a programme of cost efficiencies. Brewing Company serves all major channels, including substantially everysizeable on- and off-trade account in Britain. Almost eight out of every tenbarrels of own-brewed volume are sold through external channels. Sales to otherpub companies grew by 10%. Take home volume grew by 8% and our share of the UKoff-trade ale market rose to 9.4%, according to AC Nielsen figures. Despite very intense price competition, especially in the off-trade, we havemaintained our focus on quality brands, trading at a premium to their category,and taken a measured approach to price promotions. This is also consistent withour commitment to the responsible selling of alcohol. In the take home sector,by the last quarter of the financial year, Old Speckled Hen was selling at an11% price premium to the premium ale category average, and a 38% premium to thepremium lager average, according to AC Nielsen data. New product development continued apace, including the launch of IPA Export; theintroduction of Ruddles Orchard - an extension to the Ruddles brand made withreal apples; and packaging innovation in Old Speckled Hen. The Beer to DineFor, which we launched in 2003, is now stocked in half of all Britishsupermarkets. The key capital expansion of the year was our new bottling plant. We havecontinued to seek further efficiency gains across the whole brewing anddistribution infrastructure, such as the consolidation of all 'picking andpacking' for wines and spirits in a single location. Brewing Company prides itself not only on the quality of its beers, but on theprofessionalism and personalisation of its service. Fine attention to detailwith our customers both internal and external has a material impact on thequality of the product served to end consumers, and hence to the value of ourbrands. It was therefore particularly pleasing for Brewing Company to be thefirst brewer to be awarded the coveted Cask Marque Distribution Charter. Wealso invested heavily in communicating the 'quality' message by, for example,distributing a free Quality DVD to 26,000 licensees as a cover-mount with thePublican trade magazine. Belhaven 30 weeks 2005/6 £mRevenue £64.8Operating profit £12.5Operating profit margin 19.3% Belhaven's revenue for the 30 weeks since acquisition was £64.8m, converting ata 19.3% margin to £12.5m operating profit. Both the Pubs and Drinks divisionsof Belhaven recorded profit growth. At the time of acquisition, the Belhaven estate consisted of 97 managed and 185tenanted or leased pubs. Five pubs were transferred from managed to tenancywith one transferring the other way. Eight tenanted and three managed pubs havebeen acquired, and three tenanted pubs were sold. At the end of the financialyear there were 96 managed and 194 tenanted or leased pubs. On average sinceacquisition, 97 managed, and 190 tenanted / leased, pubs have been trading. Managed houses continued to deliver strong profit conversion, even before thebeneficial impact of purchasing synergies, despite cost increases in energy,wages and Sky TV. Catering development is an important area of focus. The managed estate deploysdiscrete menus for houses with more a more discerning dining clientele, and anew menu recently introduced into other houses has improved choice, flexibilityand quality. Micro catering facilities have recently been installed in somemanaged and tenanted houses which have insufficient space to allow for expansivefood preparation. Belhaven have also piloted a Coffee Express franchise,within the Foundry, Inverness, which has proved successful in extending tradingin the morning and lunchtime hours; we anticipate further roll-out of theconcept. Belhaven Drinks saw growth in both volume and margin, driven by free tradesales, where Belhaven are particularly strong. Belhaven Best volume was up 9%year-on-year in Scotland; in recent months the brand has been trialled in someof our English managed houses, and the early results have been very encouraging.Belhaven brands are extensively distributed throughout Scotland: nine out ofevery ten barrels of own-brewed volume are sold to outlets outside the Belhavenestate. On 26 March, the Scottish Executive implemented a ban on smoking in enclosedpublic spaces. This represented a major cultural change for Scottish drinkersand a major challenge for the licensed trade, which has responded verypositively. There have been no material compliance or enforcement issuesthroughout the Belhaven tied estate and free trade. Publicans have embracedthe change; managers, tenants and free trade customers have done a great jobimplementing the legislation with the minimum of fuss. In the first 12 weeksfollowing the implementation of the ban, overall trade in the Belhaven managedestate was down 0.3%; within that period, trade in the first four weeks was up5%, with trade in the two subsequent four-week periods (both within the newfinancial year) being down 3% and 1% respectively (giving an overall figure of2.2% down across the first eight weeks of the new financial year). Given thevariability of the results, we retain our view that it is too early toaccurately call the effect of the ban into the future. Belhaven worked hard to provide external facilities for smokers in all its ownpubs where space and neighbourhood issues permitted and, in line with itsreputation as 'Champion of the Independent' (free trade), Belhaven also providedan exceptional level of support to its Scottish customers, to assist them intheir preparations for the ban. Finances The Belhaven acquisition was financed through a combination of a new bankingfacility, where the interest costs were fixed at under 6%; and a 5% shareplacing at 1300p a share (prior to the two-for-one share split effected on 5September). This facility complemented the financing previously in place,including the £600m long-term securitised bond finance and £450m syndicatedfive-year bank loan we had arranged in March 2005. On 8 May this year (since the balance sheet date), a further £550m gross ofbonds were issued as a tap of the original securitisation and used to refinanceexisting bank facilities and to fund the early redemption of debentures. Thisimproves the company's financial flexibility and enhances shareholder value bytaking advantage of longer-term, lower-cost bond finance. While our total debtremains unchanged, the further £550m of bond finance takes the overalloutstanding Greene King bond issuance to £1,137m, backed by approximately 70% ofour pubs, at very advantageous terms, and means that 97% of our debt is now atfixed rate. Our balance sheet remains strong and efficient. Our strength is demonstratedthrough long-term borrowings being secured against high quality freehold assets,interest cover of 2.7x, and fixed charge cover of 2.5x, at year end. We believethis balanced approach is appropriate and will provide flexibility for thefuture. Business and Regulatory Environment The new licensing regime came into effect in November. The company has takenthe necessary steps to ensure that changes to trading hours were maderesponsibly, mindful of the communities we serve. All of our applications weremade on time and, on average, our managed houses are now open for an additionalfour hours a week, relative to before the change. We have also providedextensive support to our tenants in their licensing applications. The impact on our results in the short term is broadly neutral. In the main theeffect of the longer hours has been to spread a similar level of trade over alonger period, with any small increase in total take offset by additionalstaffing costs. Nevertheless we do foresee medium-term benefits from thesechanges. Many of our pubs have responded to customer demand by opening earlieron Sundays. We can now also serve both food and drink later on Friday andSaturday nights to customers who prefer to remain in their local rather thanhaving to travel further afield to nightclubs or late-night restaurants, and tonew customers who have different working hours and lifestyles. Scotland's new licensing regime is due to be implemented in two to three years'time. Extended hours have been in place north of the border since 1976, but theScottish Act follows the recent English changes in introducing a personallicence which is distinct from the premises licence. It also introduces anumber of new regulations dealing with responsible retailing of alcohol. Wewelcome these changes and do not anticipate being materially affected by them. The smoking ban in Scotland was implemented on 26 March this year. Thetransition to smoke-free pubs, bars, restaurants, hotels and clubs has beenremarkably seamless, with very few compliance and enforcement issues. Whilst wehave been pleased with Belhaven's trading since the ban, it is still too earlyto give exact forecasts for the impact: the weather, a change in the timing ofEaster, the novelty factor and the presence of compensatory sales promotionsconspire to make it difficult to isolate the impact of the smoking ban itself.In any case, the ban came into effect in spring; the impact in the winter monthscould be greater. We believe the ban will, over time, bring people back to pubsand attract new customers. The opportunity to develop the food offer isparticularly strong in Scotland, where food sales in the past have formed alower proportion of the total than south of the border. Looking to the smoking ban expected in England in 2007, we believe the GreeneKing estate is well-positioned to both minimise the adverse impact andcapitalise on the opportunities it provides. Over 90% our outlets haveexternal spaces which may be used to accommodate smokers. Our preparations forthe English ban are on track, and we have the benefit of learning lessons fromthe Scottish experience. We do not believe there can be a direct 'read across'from the Scottish ban to predict the impact of the English ban, due todifferences in weather, the proportion of sales accounted for by food, and theprevalence of outside spaces. Outlook Trading in the current financial year has begun well. In the first eight weeks,like-for-like turnover at Pub Partners was up by 1.9%, and Brewing Company's ownbrewed volume was up by 4%. Like-for-like sales in Pub Company were up by 5.3%;in the first four weeks, i.e. before the FIFA World Cup began, the equivalentfigure was 2.5%. In Scotland, following the imposition of the smoking ban, overall like-for-likeretail sales in the first eight weeks of the financial year were down 2.2%year-on-year, which is better than our internal projections. This includes astrong increase in like-for-like food revenue, though machine sales weresignificantly down. For Belhaven's Drinks division, beer sales volumes were 3%ahead of the previous year with the flagship brand, Belhaven Best, up 6%. On 15 June this year we made an agreed offer of £271m for Hardys & Hansons plc,a high quality company that we have long admired, and completion is expected inSeptember. The move is consistent with our strategy to deliver shareholdervalue by augmenting our organic growth with selective acquisitions at the rightprice to improve the overall quality of the group. The deal represents a uniqueopportunity to acquire a leading pub estate in the Midlands, where we have beenunder-represented to date, as well as some strong local brands. We expect toachieve synergies of £3m in the first full year following acquisition, rising to£5m a year thereafter. The leisure industry remains a changing, intensely competitive space and it isonly the dynamic players that will thrive. Within it, the British community pubhas proved remarkably resilient and adaptable over many centuries. Greene Kinghas remained at the heart of this, through both its commitment to the enduringstrengths of the business and continuous innovation to improve customer appeal. These results demonstrate our proven strategy that delivers value forshareholders. The intrinsic quality of our assets, combined with the passionand talent of our team, along with recent acquisitions, give us confidence thatthere are exciting opportunities to deliver further growth in the future. Rooney AnandChief Executive 4 July 2006 Group Income Statementfor the fifty-two weeks ended 30 April 2006 2006 2006 2006 2005 2005 2005 Note Change Before Exceptional Total Before Exceptional Total exceptional items exceptional items items items % £m £m £m £m £m £m Revenue 2 818.6 - 818.6 707.5 - 707.5Operating costs (627.7) 1.3 (626.4) (549.2) 6.1 (543.1)Operating profit 2 190.9 1.3 192.2 158.3 6.1 164.4Finance income 1.0 - 1.0 - - -Finance costs (72.3) - (72.3) (62.6) (14.2) (76.8)Profit before tax 119.6 1.3 120.9 95.7 (8.1) 87.6Tax 4 (36.5) 5.5 (31.0) (29.2) 5.9 (23.3)Profit attributable to 83.1 6.8 89.9 66.5 (2.2) 64.3equity holders Operating profit +21 190.9 158.3before exceptionalitems Profit before tax and +25 119.6 95.7exceptional items Earnings per share - basic 5 +35 60.6p 45.0p- adjusted basic 5 +20 56.0p 46.5p- diluted 5 +34 59.7p 44.4p- adjusted diluted 5 +20 55.2p 45.9p Operating profit / revenue 23.3% 23.5% 22.4% 23.2%Adjusted tax / profit before tax 30.5% 30.5%Adjusted interest 2.7 2.5cover Adjusted earnings per share, operating profit and tax exclude the effect ofexceptional items. Group Balance Sheetas at 30 April 2006 2006 2005 Note £m £m Non current assetsProperty, plant and equipment 1,771.8 1,572.3Goodwill 505.1 360.0Financial assets 34.0 15.2Derivative financial instruments 1.9 -Prepayments 7.3 8.2Trade and other receivables 0.5 0.3 2,320.6 1,956.0 Current assetsInventories 20.1 14.2Trade and other receivables 38.0 27.9Prepayments 8.6 3.8Derivative financial instruments 1.0 -Cash and cash equivalents 7 30.6 34.4 98.3 80.3 Total assets 2,418.9 2,036.3 Current liabilitiesBorrowings 7 (279.2) (26.0)Derivative financial instruments (3.2) -Trade and other payables (132.4) (112.0)Income tax payable (17.1) (18.5) (431.9) (156.5) Non current liabilitiesBorrowings 7 (998.1) (1,028.6)Derivative financial instruments (17.0) -Deferred tax (155.0) (138.0)Post employment liabilities (55.4) (61.3) (1,225.5) (1,227.9) Total liabilities (1,657.4) (1,384.4) Total net assets 761.5 651.9 Issued capital and reservesShare capital 19.1 18.1Share premium 240.6 192.2Other reserve (10.9) 1.0Own shares (11.1) (10.7)Retained earnings 523.8 451.3Total equity 10 761.5 651.9 Net debt 7 1,246.7 1,020.2 Group Cash Flow Statementfor the fifty-two weeks ended 30 April 2006 2006 2005 Note £m £m Operating activitiesCash flow from operations 11 217.6 208.7Interest received 1.0 -Interest paid (69.2) (62.8)Tax paid (28.9) (9.5)Net cashflow from operating activities 120.5 136.4 Investing activitiesPurchase of property, plant and equipment (77.9) (42.9)Movements in trade loans 4.1 (0.4)Sales of property, plant and equipment 17.9 45.6Acquisition of subsidiaries, net of cash acquired 8 (232.7) (199.6)Net cashflow from investing activities (288.6) (197.3) Financing activitiesEquity dividends paid 6 (27.7) (24.3)Issue of shares 10 51.6 4.7Purchase of own shares 10 (4.8) (3.8)Financing costs (0.1) (7.2)Interest paid - (14.2)Repayment of borrowings (99.0) (600.0)Advance of borrowings 239.7 726.3Net cashflow from financing activities 159.7 81.5 Net (decrease)/increase in cash and cash equivalents (8.4) 20.6 Opening cash and cash equivalents 23.6 3.0Closing cash and cash equivalents 15.2 23.6 Group Statement of Recognised Income and Expensefor the fifty-two weeks ended 30 April 2006 2006 2005 Note £m £m Cashflow hedges: gains taken to equity 4.1 -Pension actuarial gains/(losses) 10.7 (9.0)Tax on items taken directly to equity (4.4) 2.7Tax on benefit relating to share based payments 1.7Net income / (expense) recognised directly in 12.1 (6.3)equity Profit for the period 89.9 64.3 Total recognised income and expense for the period 102.0 58.0attributable to equity shareholders Effect of changes in accounting policy:Implementation of implementation of IAS 32 and IAS 1 (14.8) -39 (attributable to equity shareholders) Notes to the accountsfor the fifty-two weeks ended 30 April 2006 1 Basis of preparation The financial information for the fifty-two weeks ended 30 April 2006 has beenaudited and has been prepared in accordance with International FinancialReporting Standards (IFRS) as required by European Union Law. The accountingpolicies are described in the full 2006 financial statements of Greene King plc. The comparatives for 2005 have been restated from UK Generally AcceptedAccounting Practice (UK GAAP) to comply with IFRS. The group published restatedIFRS financial statements for 2005 together with the group's opening IFRSbalance sheet and reconciliations between UK GAAP and IFRS on its websitewww.greeneking.co.uk on 6 December 2005. In the transition to IFRS the 2005 comparative figures have not been adjustedfor the implementation of IAS32 (Financial Instruments: Disclosure andPresentation) and IAS39 (Financial Instruments: Recognition and Measurement) aspermitted by the transition arrangements in IFRS1 (First time adoption ofInternational Reporting Standards). Instead IAS32 and IAS39 have beenimplemented at 2 May 2005. The impact at 2 May 2005 was as follows: £m Derivative financial instruments net liability recognised 21.1Related deferred tax asset recognized (6.3) 14.8 2 Business segment analysis 2006 Pub Pub Brewing Belhaven Corporate Total Company Partners Company £m £m £m £m £m £m Net assets 1,064.5 703.5 199.4 278.4 (1,484.3) 761.5Revenue 516.5 147.0 90.3 64.8 - 818.6EBITDA* (note 11) 128.2 69.2 24.2 14.9 (7.3) 229.2Operating profit* 102.1 64.1 20.7 12.5 (8.5) 190.9Operating profit* change +9% +19% +16% 2005 Pub Pub Brewing Corporate Total Company Partners Company £m £m £m £m £m Net assets 1,072.9 640.0 174.6 (1,235.6) 651.9Revenue 495.9 125.1 86.5 - 707.5EBITDA* (note 11) 118.3 58.4 21.1 (6.3) 191.5Operating profit* 93.8 54.0 17.8 (7.3) 158.3 * before the effect of exceptional items (note 3) Pub Company covers the results of managed houses, Pub Partners covers theresults of tenanted houses, Brewing Company covers brewing beer, marketing andselling. Belhaven covers the results of our Scottish operation which includesmanaged and tenanted houses and brewing and selling beer. Corporate includes thegroup debt and unallocated central costs, assets and liabilities. 3 Exceptional items 2006 2005 £m £m OperatingIntegration of Laurel Neighbourhood business 1.3 7.3Integration of Ridley's business 2.4 -Integration of Belhaven business 0.5 -Disposal of property, plant and equipment (5.5) (13.4) (1.3) (6.1)FinancingTermination of interest rate swaps and loan facilities - 14.2 Total exceptional items (1.3) 8.1 4 Taxation 2006 2006 2006 2005 2005 2005 Before Exceptional Total Before Exceptional Total exceptional items exceptional items items items £m £m £m £m £m £mIncome taxCorporation tax before 32.7 - 32.7 22.2 - 22.2exceptional itemsRecoverable on exceptional items - (0.8) (0.8) - (6.5) (6.5)Current income tax 32.7 (0.8) 31.9 22.2 (6.5) 15.7Adjustment in respect of prior - (3.3) (3.3) 1.6 (3.4) (1.8)periods 32.7 (4.1) 28.6 23.8 (9.9) 13.9 Deferred taxOrigination and reversal of 3.8 (1.4) 2.4 5.4 4.0 9.4temporary differences Tax charge in the income 36.5 (5.5) 31.0 29.2 (5.9) 23.3statement The tax effect of non-trading exceptionals was nil (2005 - £4.7m) 5 Earnings per share Basic earnings per share has been calculated by dividing the profit attributableto equity holders of £89.9 million (2005 - £64.3 million) by the weightedaverage number of shares in issue during the year (excluding own shares held) of148.4 million (2005 - 143.0 million). Diluted earnings per share has been calculated on a similar basis taking accountof 2.3 million (2005 - 1.8 million) dilutive potential shares under option,giving a weighted average number of ordinary shares adjusted for the effect ofdilution of 150.7 million (2005 - 143.9 million). Adjusted earnings per share excludes the effect of exceptional items and ispresented to show the underlying performance of the group on both a basic anddilutive basis. Adjusted earnings per share Earnings Earnings Basic Basic Diluted Diluted Earnings Earnings Earnings Earnings per per per share per share share share 2006 2005 2006 2005 2006 2005 £m £m p p p p Profit attributable to equity 89.9 64.3 60.6 45.0 59.7 44.4holdersExceptional items (note 3) (6.8) 2.2 (4.6) 1.5 (4.5) 1.5Profit attributable to equity 83.1 66.5 56.0 46.5 55.2 45.9holders before exceptional items 6 Dividends paid and proposed 2006 2005 £m £m Declared and paid in the periodInterim dividend for 2006 - 5.8p (2005 - 5.225p) 8.9 7.4Final dividend for 2005 - 12.925p (2004 - 11.75p) 18.8 16.9 27.7 24.3 Proposed for approval at the AGMFinal dividend for 2006 - 14.35p (2005 - 12.925p) 21.7 18.8Total proposed dividend for 2006 - 20.15p (2005 - 18.15p) 30.6 26.2 Dividends on own shares have been waived. 7 Borrowings 2006 2006 2006 2005 2005 2005 Current Non- Total Current Non- Total Current current £m £m £m £m £m £m Bank overdrafts 15.4 - 15.4 10.8 - 10.8Bank loans - floating rate 199.8 328.8 528.6 - 288.6 288.6Bank loan - fixed rate 2.7 64.6 67.3 2.4 67.3 69.7Bonds 12.9 567.0 579.9 12.6 580.5 593.111.25% Loan from associate 48.0 - 48.0 - 49.1 49.17.75% Debenture - 30.8 30.8 - 30.9 30.9Loan notes 0.4 6.9 7.3 0.2 12.2 12.4Borrowings 279.2 998.1 1,277.3 26.0 1,028.6 1,054.6Cash and cash equivalents (30.6) (34.4)Net debt 1,246.7 1,020.2 8 Acquisitions The group acquired 100% of the voting shares of TD Ridley & Sons Limited,predominantly a tenanted estate, on 4 July 2005. The group also acquired 100% of the voting shares of The Belhaven Group Plc, alisted group consisting of brewery, and managed and tenanted estates, on 2October 2005. Fair value of assets acquired Ridleys Belhaven Total £m £m £m Property, plant and equipment 33.8 139.2 173.0Intangible assets - - -Financial assets - 23.6 23.6Inventories 0.3 2.9 3.2Trade receivables 1.6 7.3 8.9Other receivables/prepayments 0.3 2.9 3.2Cash and cash equivalents 0.2 (10.1) (9.9) Trade payables (1.0) (4.9) (5.9)Other payables/accruals (1.3) (14.5) (15.8)Derivative financial instruments - (0.2) (0.2)Pensions liability (0.6) (5.8) (6.4)Deferred tax (7.4) (10.0) (17.4)Fair value of net assets 25.9 130.4 156.3Goodwill 18.7 126.4 145.1 44.6 256.8 301.4 Satisfied by:Cash 36.7 181.7 218.4Fees 0.3 4.1 4.4 37.0 185.8 222.8Loan notes issued - 6.9 6.9Debt acquired 7.6 64.1 71.7 44.6 256.8 301.4 The fair value of properties acquired was established following a review ofproperties that was carried out by qualified surveyors employed by the company.Retained properties have been revalued at their existing use value andproperties for disposal have been valued at their estimated fair value lesscosts to sell. The value of other current assets and liabilities have beenadjusted to amounts to be realised or paid respectively. 9 Movements in net debt 2006 2005 £m £m (Decrease) / increase in cash and cash equivalents (8.4) 20.6Cash inflow from increase in debt (140.7) (126.3)Financing issue costs 0.1 7.2Increase in net debt resulting from cash flows (149.0) (98.5) Debt acquired - acquisitions (note 8) (71.7) (463.4)Debt issued - acquisitions (note 8) (6.9) (11.4)Non-cash movement in net debt 1.1 (0.3)Increase in net debt (226.5) (573.6)Opening net debt (1,020.2) (446.6)Closing net debt (1,246.7) (1,020.2) 10 Movements in total equity Total £m At 2 May 2005 651.9Effect of adoption of IAS 32 and IAS 39 (note 1) (14.8)At 2 May 2005 (restated) 637.1Issue of share capital 49.4Share option proceeds 2.2Repurchase of own shares (4.8)Actuarial gain 10.7Tax on actuarial gain (3.2)Share based payments 5.0Cash flow hedge gains/(losses) taken to equity 4.1Tax on cash flow hedges (1.2)Profit for the period 89.9Equity dividends (27.7)At 30 April 2006 761.5 11 Cash flows from operations 2006 2005 £m £m Operating profit 192.2 164.4Operating exceptional items (1.3) (6.1)Depreciation 38.3 33.2EBITDA 229.2 191.5 Increase in provision against other financial assets 0.7 0.3(Increase)/decrease in inventories (2.7) 0.2Increase in trade and other receivables (2.1) (1.4)Increase/(decrease) in trade and other payables (4.8) 24.8Other non-cash movement 1.4 -Increase in share based payments 3.1 1.5Difference between defined benefit pension contributions paid and amounts (2.3) (3.1)chargedIntegration costs (4.9) (5.1)Cash flow from operations 217.6 208.7 EBITDA represents earnings before interest, tax, depreciation, amortisation andexceptional items. 12 Dividend payments Subject to the approval of shareholders at the annual general meeting, the netfinal dividend will be paid on 11 September 2006 to shareholders on the registerat the close of business on 4 August 2006. 13 Reports and accounts The 2006 Report & Accounts will be posted to shareholders on 1 August 2006 andcopies will be available from that date from the Company Secretary at theregistered office of the company, Westgate Brewery, Bury St. Edmunds, SuffolkIP33 1QT. - ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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