2nd Dec 2005 07:01
Wolverhampton& Dudley Breweries PLC02 December 2005 2 December 2005 THE WOLVERHAMPTON & DUDLEY BREWERIES, PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 1 OCTOBER 2005 W&DB is at the heart of thriving local communities across the country with over 2,000 pubs offering a welcoming environment and good value • Record underlying* earnings per share up 11.3% to 84.4 pence (2004: 75.8 pence) - basic earnings per share of 44.3 pence (2004: 66.7 pence). • Total dividend for the year up 10.0% to 38.86 pence per share (2004: 35.32 pence). • Underlying profit before taxation up 16.0% to £90.1 million (2004: £77.7 million). Profit before taxation and after goodwill and exceptionals £47.9 million (2004: £70.2 million). • The Union Pub Company like-for-like sales up 2.8%. • Pathfinder Pubs like-for-like sales up 2.8%. • Turnover and profit growth was achieved in each of the three trading divisions. • Successful integration of Burtonwood PLC, Jennings Brothers PLC and English Country Inns PLC ahead of schedule with expected synergy benefits exceeded. • Successful refinancing of the Group's debt through a £805 million securitisation in August 2005. * The underlying results reflect the performance of the Group before goodwilland exceptional items. The Directors consider that these figures provide auseful indication of the underlying performance of the Group. Ralph Findlay, Chief Executive, commented: "Our results were achieved by continuing to manage cost pressures and improveoperational efficiency, combined with an absolute focus on delivering qualityand value to our customers. As a result, we were able to deliver good organicgrowth whilst acquiring businesses that met our stringent acquisition criteria. "Although weaker consumer confidence has produced more subdued tradingconditions since the year-end, like-for-like sales are marginally positiveagainst strong comparables in both pub divisions and our performance overall isin line with our expectations. Margins remain firm and costs well controlled." ENQUIRIES: The Wolverhampton & Dudley Breweries, PLC Hudson SandlerRalph Findlay, Chief Executive Andrew Hayes / Nick Lyon /Paul Inglett, Finance Director Wendy BakerTel: 020 7796 4133 on Friday 2 December 2005 only Tel: 020 7796 4133 01902 329516 thereafter To access interviews with Ralph Findlay and Paul Inglett, available in video,audio and text, go to www.cantos.com. High quality images for the media toaccess and download free of charge are available from Visual Media Online atwww.vismedia.co.uk Chairman's Statement We have achieved strong results across the business, building upon the progressof the previous financial year. This performance demonstrates that our modeland approach is well suited to the current trading environment, enabling us tomanage cost pressures effectively and to meet increasing customer demand forgood quality outlets and value for money. Our high quality, predominantlyfreehold estate of 2,290 pubs across England and Wales is a strong platform forour continued success. Results Turnover increased by 16.3% to £597.3 million (2004: £513.7 million) as aconsequence of steady increases in like-for-like sales and the acquisitions ofBurtonwood PLC, Jennings Brothers PLC and English Country Inns PLC during thefinancial year, and the acquisition of Wizard Inns Ltd in the prior year.Turnover and profit growth was achieved in each of our three trading divisions. Underlying operating margin increased to 22.7% (2004: 22.0%). Our focus on goodquality freehold community pubs and popular beer brands continues to provide uswith operational flexibility and has enabled us to increase operating marginsdespite the continuing legislative and cost pressures faced by the industry. Underlying profit before taxation increased by 16.0% to £90.1 million (2004:£77.7 million). After goodwill amortisation and exceptional items (includingrefinancing costs primarily relating to the associated redemption ofdebentures), profit before tax was £47.9 million (2004: £70.2 million).Underlying earnings per share increased by 11.3% to 84.4 pence per share (2004:75.8 pence). Basic earnings per share after goodwill amortisation andexceptional items was 44.3 pence per share (2004: 66.7 pence). These results were achieved through the continuing implementation of ourstrategies for delivering organic growth and the successful integration ofacquisitions. Dividend The Board proposes a final dividend of 25.66 pence per share, which brings thetotal dividend for the year to 38.86 pence per share (2004: 35.32 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 2006 to those shareholders on the registerat the close of business on 30 December 2005. Refinancing The Group refinanced its debt in August 2005, replacing existing debentures andbank debt with a £805 million securitisation and a £275 million bank facility.The new financing structure provides greater flexibility for acquisitions,increases the average maturity of the Group's debt and also reduces the cashinterest cost of debt by some £5 million per year. A one-off contribution of £29million was made to The Wolverhampton and Dudley Breweries, PLC final salarypension scheme in September 2005. Legislation The new licensing regime, which has transferred licensing responsibility tolocal authorities and enabled more flexible opening hours, became effective on24 November 2005. In over 95% of cases we have asked for, and received consentto, a modest extension of existing hours. Having implemented the legislation,we are now focused on realising maximum benefit from greater flexibility. Theissue of smoking in public places, and therefore in pubs, is now high on thegovernment's agenda. The government envisages that a partial ban in pubs will beintroduced at some stage in 2007. The current proposals are summarised in theChief Executive's review. We believe that the impact of a ban will be greater on poorly located,uninvested pubs with limited trading opportunities. Our strategy in recent yearshas been to dispose of such pubs and invest in higher quality outlets where foodis an important part of the sales mix. As a result, we believe that we are wellplaced to manage any impact on our business from this proposed legislation. Employees This year we welcomed to the Group employees from Burtonwood, Jennings andEnglish Country Inns. The successful and fast integration of these acquisitionshas contributed to our strong performance. I thank all those involved and alsothose who work in our pubs, breweries and support functions for their effortsduring this year. The continuing success of the business is a testament to thetalents and commitment of over 11,000 employees across the Group. Outlook The regulatory and cost issues affecting our industry have been challenging andremain so. We aim to continue to offset rising costs by improving productivity,partly facilitated by the flexibility afforded by our business model whichallows us to reduce costs by transferring smaller managed pubs to tenancy orlease. Weaker consumer confidence has been widely reported, with rising energy costs,higher taxes and greater economic uncertainty putting pressure on discretionaryspend. Against this backdrop, our focus on good community pubs and value formoney is an appropriate strategy. We have a strong balance sheet and relatively conservative gearing which enablesus to consider acquisition opportunities as they arise in a consolidating sectorand are confident about our prospects for the year. David ThompsonChairman Chief Executive's Review Business development Our results were achieved by continuing to manage cost pressures and improveoperational efficiency, combined with an absolute focus on delivering qualityand value to our customers. As a result, we were able to deliver good organicgrowth whilst acquiring businesses that met our acquisition criteria. Acquisitions have contributed to this good financial performance. In June 2004we acquired Wizard Inns, a managed pub estate of 63 pubs situated mainly in theSouth of England. In January this year, we completed the acquisition ofBurtonwood, an operator of a good quality estate of 460 pubs situated mainly inthe North-West of England and North Wales. In May, we acquired Jennings, aNorth-West regional brewer with a tenanted pub estate of 128 excellent pubs. InSeptember, we acquired English Country Inns, which comprises 14 high qualitymanaged food pubs. These acquisitions are consistent with our strategy to invest in good qualityfreehold community pubs. We have clear financial targets for acquisitions: theymust be earnings enhancing and must deliver a return on capital above theweighted average cost of capital for the Group as a whole. A significant contributing factor to the success of these acquisitions is therealisation of synergy benefits. The combined cost savings achieved for thesethree acquisitions exceed £8 million per year, mainly from reduced overheads andbetter purchasing terms. One of the reasons that we were able to exceed ouroriginal targets for cost savings is our well-established integration processensuring the swift absorption of the acquired businesses into the Group. The development of the businesses acquired also contributes to the achievementof return on capital targets. By the end of 2006 we plan to have refurbished 40%of the Wizard Inns estate. We have also acquired the freehold interests of fourWizard Inns leasehold properties. Within the Burtonwood estate, around 100tenants are currently agreeing terms for our 21-year 'Open House' leases. Wehave broadened the range of beers available to Burtonwood and Jennings customersand have extended the distribution of Jennings beers across the rest of theestate. The success of these acquisitions is also due to the operational flexibilityafforded by the integrated model, with benefits to each of our tradingdivisions. We are able to integrate both managed and tenanted pubs and achievewider distribution of our beers. The strength of our balance sheet and relatively conservative gearing will allowus to consider further acquisitions when the opportunity arises, or to returnfurther capital to shareholders. The successful refinancing of the Group's debtthrough a £805 million securitisation has further increased our financialcapacity, as well as reducing future interest payments and extending thematurity of our debt. Licensing Although the implementation of new licensing legislation has been time consumingand costly, the great majority of our pubs are now able to take advantage ofmore flexible opening hours, and in practice most are likely to open for one ortwo extra hours on two to three nights per week. We expect that the impact ofthe new legislation will be modestly beneficial. Smoking The potential ban on smoking in public places will have an impact on the pubsector. The outline proposals distinguish between pubs which serve food, inwhich customers will not be allowed to smoke, and those which do not serve food,in which customers will be allowed to smoke, and it is proposed that the banwill not apply to private members clubs. The potential for separate 'smoke-rooms' will remain the subject of consultation. The timetable forimplementation has been brought forward from 2008 to 2007. The development of pubs as places to enjoy a meal with family and friends hasbeen beneficial to the pub market and has raised standards for customers. Theproposals as presented will require pub operators to choose between having abroad based appeal or to cater for a predominantly drinking and smoking customerbase. We are preparing for the possibility that a ban may eventually be universal, andare introducing smoke-free pubs where there is clear demand. We now have 15smoke-free pubs in the Pathfinder Pubs estate - all pubs with a significant foodtrade - and have seen satisfactory results. Our experience indicates that wellinvested and well located pubs which have a significant food trade will not bematerially affected by a smoking ban. In both managed and tenanted pubs our investment plans are targeted at thefurther development of food offers and making outside trading areas moreattractive. Over 80% of our pubs have such outside trading areas. These plans, together with the fact that we have already disposed of over 900less well-positioned pubs in recent years, should allow us to minimise the risksand maximise opportunities to our competitive advantage. The Union Pub Company - 1,748 leased and tenanted pubs (2004: 1,162 pubs) Turnover increased by 29.7% to £153.3 million, including a £30.2 millioncontribution from Burtonwood and Jennings. Like-for-like sales increased by2.8%. Underlying operating margin increased by 0.4% to 42.5%, and underlyingoperating profit increased by 30.9% to £65.2 million. These strong results benefited from the acquisition of Burtonwood, whichincluded 420 tenanted pubs, and Jennings, which included 128 tenanted pubs. Bothof these estates represent an excellent geographical fit, the North-West beingadjacent to our core trading area. The Burtonwood estate offers considerable scope for development. The estate isalmost entirely freehold and represented by community pubs with tenants on shortterm agreements. There has been strong interest from Burtonwood tenants in our21-year 'Open House' lease, which is assignable, offers high discounts and hascontributed to our good performance since its introduction in 2003. We have alsoseen strong demand for the wider range of products we are able to offerBurtonwood tenants, and in particular for our range of Marston's and Banks'sbeers. The performance of the core estate, which excludes acquisitions, has been gooddespite the considerable resources invested by both licensees and our staff inimplementing the new licensing legislation. The estate now includes over 700pubs let on longer term leases, the majority of which are 'Open House' 21-yearagreements. We expect that demand from Burtonwood tenants will increase thetotal to over 1,000 within three years. We invested £26.4 million last year, including £9.0 million acquiring 23individual pubs and £17.4 million on our existing pubs. This refurbishmentexpenditure includes 260 development schemes designed to broaden the pub offer -involving improvements to kitchens, pub gardens and trading areas, tailored withthe proposed smoking legislation in mind. We aim to provide the maximum possible support to our tenant and lesseepartners. This includes monitoring daily ordering patterns so that we canidentify opportunities to improve performance, and the dedication of 39 BusinessDevelopment Managers each with fewer than 50 pubs each across the estate - alower ratio than most of our competitors, allowing more support to advise ontrading issues and the development of our customers' offers. Pathfinder Pubs - 542 managed pubs (2004: 513 pubs) Turnover increased by 15.3% to £317.4 million, including a £12.7 millioncontribution from Burtonwood managed pubs and English Country Inns. Underlyingoperating margin increased by 0.2% to 20.0%, and underlying operating profitincreased by 16.1% to £63.4 million. Total like-for-like sales increased by 2.8%, a good performance achieved againststrong comparatives which benefited from Euro 2004. Excluding this year'sacquisitions, average sales per week across all Pathfinder Pubs is now £12,000per pub. We will continue to improve the quality of the estate by a combinationof investment in new sites and acquisitions and through our significant pubrefurbishment programme. The organic development of Pathfinder Pubs through new site development, pubacquisition and refurbishment is the cornerstone of our retail strategy. Duringthe year, total capital investment in managed pubs was £56.2 million,representing £18.5 million on new pubs, £31.0 million on pub refurbishment and£6.7 million on acquiring the freehold interests of leasehold assets. While the process of finding new sites and obtaining planning and licensingconsents is time consuming and painstaking, it does generate superior returnsand provides scope for development through freeholds or long leaseholds ratherthan short leaseholds. This year we opened 8 new pubs, all serving food andoffering high levels of service and amenity. We manage our community pubs as individual outlets rather than brands and seelittle value in branding in this segment of the market. This approach helps tokeep costs down and is a contributing factor to our high operating margins. Investment in pub refurbishment is also generating good returns. We completed 52major refurbishment schemes, including a number of former Wizard Inns pubs - theBell & Compass in Charing Cross, London, the Anglers Rest in Walton On Thamesand the Cafe Maximo Bar in Norwich - now converted to a Pitcher & Piano. Pitcher & Piano, now comprising 25 bars, has seen a significant improvement intrading performance following refurbishments this year in Nottingham, Bristol,Tunbridge Wells and two in London. We also opened a new Pitcher & Piano atSouthampton Marina. This coming year will see further developments in London,Swansea, Leeds, York, Harrogate and Reading, as well as the conversion of aformer Wizard Inns pub site and two more new openings. In our community pub estate, we have continued to enhance performance throughthe refurbishment of existing pubs as 'Bostin' Locals', 'Service That Suits' andother operating formats, depending upon the location of the pub. This investmenthas contributed to significant growth in food sales across the estate, withlike-for-like sales growth averaging 7.2% per annum over the last four years,and food sales now accounting for around 30% of total retail turnover. The achieved cash return on incremental investment in pub refurbishment hasconsistently been above 20%, and there remains considerable developmentpotential in the Wizard Inns and English Country Inns estates. We expect Pathfinder Pubs' operating margins to reduce slightly in the comingyear through higher operating costs, mainly related to Sky TV and energy prices.As a consequence, operating costs will increase by approximately £7 million. Wehave recently transferred 19 smaller pubs to The Union Pub Company and willcontinue to reduce costs elsewhere. WDB Brands Turnover increased by 5.2% to £126.6 million. Underlying operating margin was14.4% (2004: 14.8%), and underlying operating profit increased by 2.2% to £18.2million. Total volumes brewed, excluding non-owned brands, increased by 5.2%, including a14.8% increase in premium ale. This strong performance was driven by growth infree trade, in sales to other pub companies and in sales to the off trade.Within premium ale, Marston's Pedigree and Old Empire contributed to our strongperformance, whilst standard ale - our range of other Marston's, Mansfield,Jennings and Banks's beers - also performed well. WDB Brands has a reputation for being passionate about ale. We concentrate onmarketing and distributing high quality English ales, and as a result of winningthe contract to brew Draught Bass on behalf of InBev UK we are now the largestbrewer of cask beer in the country. We brew Marston's beers, including thefamous Marston's Pedigree, at the Burton Brewery using the traditional BurtonUnion system - hence our claim that Marston's Pedigree is a unique beer. Thisyear we re-opened the Burton brewhouse after a £2 million investment tomodernise the brewery, which will reduce costs and improve our environmentalperformance. The performance of Marston's Pedigree benefited from new packaging for its cansand bottles, giving the product greater shelf impact, and from the continuationof the 'Marston's Don't Compromise' marketing campaign - currently showing onsatellite and terrestrial television. A more recent initiative is the launch of'Cask Force', an incentive scheme aimed at driving improved beer quality basedaround cellar training. The campaign will run until June 2006 when the prizewill be a year's free rent for the winning licensee. The performance of standard ales has also been strong. We achieved good growthin Marston's Smooth, which was launched in 2004 as Marston's FC, and the Banks'sand Mansfield brands performed well with more localised marketing campaigns. The'Banks's Seven Wonders' campaign won 'Best PR Campaign at the Drinks BusinessAwards 2005', and generated excellent local coverage for the brand.Additionally, our timing in producing Marston's Ashes Ale, a limited editionbottled beer, could not have been better. The beer market generally, however, remains challenging with UK ale volumesdeclining by 6.4% last year. We outperformed the market by 11.6%, which is aconsequence of ale being the focus of the WDB Brands business, continuingmarketing support for our brands, dedication to beer quality and service and agreat brand range. Having acquired Jennings - 'the Lakeland Brewery' - we see considerableopportunity to extend distribution of the Jennings range of ales, which have astrong heritage and a unique provenance and to continue to increase our marketshare of the ale market. Current trading Whilst weaker consumer confidence has produced more subdued trading conditionssince the year-end, like-for-like sales are marginally positive against strongcomparables in both pub divisions and our performance overall is in line withour expectations, margins remaining firm and costs well controlled. Ralph FindlayChief Executive Financial review Trading overview Turnover Underlying Margin operating profit (note 1) Restated 2004 Restated 2004 2005 2004 2005 £m 2005 % £m £m £m %Pathfinder Pubs 304.7 275.2 61.3 54.6 20.1 19.8The Union Pub Co. 123.1 118.2 53.5 49.8 43.5 42.1WDB Brands 124.0 120.3 18.0 17.8 14.5 14.8Central costs - - (9.7) (9.3) (1.6) (1.8)Continuing operations 551.8 513.7 123.1 112.9 22.3 22.0Acquisitions 45.5 - 12.3 - 27.0 -Group 597.3 513.7 135.4 112.9 22.7 22.0 2005 has been a year of real progress, with the financial performance andstrength of the Group significantly increased as a result of notableachievements in three main areas: • A strong performance in the underlying business, driven by good like-for-like sales and improved margins. • Acquisitions which have been integrated ahead of schedule and delivered synergy savings in excess of original targets. • A refinancing which has reduced annual cash interest costs by £5 million per year and provided greater financial flexibility. Underlying profit before taxation increased by 16.0% to £90.1 million (2004:£77.7 million). After goodwill amortisation and exceptional items (includingrefinancing costs primarily relating to the associated redemption ofdebentures), profit before tax was £47.9 million (2004: £70.2 million).Underlying earnings per share increased by 11.3% to 84.4 pence per share (2004:75.8 pence). Basic earnings per share after goodwill amortisation andexceptional items was 44.3 pence per share (2004: 66.7 pence). Changes to segmental analysis One of the consequences of the refinancing was a review of the arrangements forinter-divisional transfer terms and the allocation of overheads between thedivisions. In order to ensure that products are supplied from WDB Brands toboth our pub divisions on an arms length market basis, we have adjusted interdivisional transfer terms to reflect current comparable contracts with majornational account customers. This has increased the profit in both PathfinderPubs and The Union Pub Company by £1.0 million and correspondingly reduced theprofit in WDB Brands by £2.0 million. There is no change to the underlying Groupprofitability and the comparative 2004 divisional profits have been restated bysimilar amounts. Following a detailed review of the central overhead structure, we havereallocated certain central overheads to the trading divisions. This has reducedcentral overheads in the year by £8.5 million, with corresponding increases inPathfinder Pubs of £4.8 million, The Union Pub Company of £2.1 million and WDBBrands of £1.6 million. The 2004 comparative divisional profits have beenrestated by similar amounts. Both of the adjustments referred to above are considered to reflect better thetrue profitability of each division and should allow better comparability withour peer group of companies in the sector. Improved margins The underlying operating margin of the Group improved by 0.7% to 22.7% despitesignificant cost increases. These increases have mainly impacted Pathfinder Pubsand include increases of 7.8% in the National Minimum Wage, £2.5 million inutility costs and £0.8 million in Sky TV costs. Acquisitions Burtonwood was acquired on 6 January 2005 for £167.8 million, includingacquisition costs and £33.8 million of net debt (before any fair valueadjustments). The acquisition was funded from existing bank facilities and theissue of 3.9 million new shares at a market value of £42.7 million. TheBurtonwood tangible fixed assets have subsequently been independently valued at£185.4 million. Negative goodwill arising as a result of the acquisition was£5.5 million (see note 10). Jennings was acquired on 20 May 2005 for £72.9 million, including acquisitioncosts and £24.4 million of net debt (before any fair value adjustments). Theacquisition was funded entirely from existing bank facilities. The Jenningstangible fixed assets have subsequently been independently valued at £66.7million. Goodwill arising as a result of the acquisition was £8.8 million (seenote 11). English Country Inns was acquired on 15 September 2005 for £13.4 million (seenote 12). Estate revaluation surplus 75% of our pub estate was revalued in 2004 resulting in a net £169.5 milliongain with the remaining 25% revalued in this financial year. This has produceda further net gain of £58.5 million - equivalent to an average 27% increasecompared to book values. Refinancing and Pensions The Group completed a major refinancing on 9 August 2005 replacing itsdebentures and bank debt with a £805 million securitisation of 70% of ourmanaged and tenanted estate and a new £275 million bank facility. The new debtstructure has reduced the cash interest cost by £5 million per annum and morethan doubled the average debt maturity to 16 years, whilst maintainingoperational flexibility and significantly increasing our debt capacity. As previously indicated, a one-off contribution of £29 million was made inSeptember 2005 to The Wolverhampton & Dudley Breweries, PLC final salary pensionscheme, reducing the deficit of the combined W&DB, Burtonwood and Jenningsschemes on a FRS 17 basis to £44.9 million (£31.4 million after tax). The overall effect of these transactions will be to reduce interest charged inthe profit and loss account by approximately £1.5 million per year. Thisincludes the £5 million cash saving from refinancing, interest on the one-offpension contribution of £29 million, and the fact that the historical non-cashdebenture fair value accounting adjustments have been eliminated following therefinancing. Balance sheet flexibility Net debt increased by £311.3 million to £871.7 million primarily as a result ofthe acquisitions of Burtonwood and Jennings and the recent refinancing of theGroup's debt. The Group remains conservatively financed relative to the pubsector in general with interest cover of 3.0 times. The new £275 million bankfacility put in place following the refinancing had headroom of £153 million atthe year-end. Taxation The underlying rate of taxation (before goodwill and exceptional items)increased marginally from 29.2% in 2004 to 29.4% in 2005. Exceptional items and goodwill There was a total of £30.2 million of goodwill amortisation and exceptionalitems after tax in the year mainly as a result of refinancing. The main elementswere: • Exceptional restructuring costs relating to the Burtonwood and Jennings acquisitions of £4.7 million. • Exceptional costs of the refinancing of £32.7 million mainly relating to the redemption of the debentures which had coupons at rates significantly above market rates. It should be noted that these costs would have been crystallised on the balance sheet in 2006 as a consequence of moving to IFRS. • Goodwill impairment following fixed asset disposals and amortisation of £8.2 million. • Profit on fixed asset disposals of £4.0 million. • A tax credit of £12.0 million. We have received the full cash benefit of this tax credit in the first quarter of 2006. International Financial Reporting Standards (IFRS) The annual report for the year to 1 October 2005 will be the last prepared underUK accounting standards. The Group's first results reported under IFRS will bethe interim results for 2005/06. In March 2006 we will publish furtherinformation including the 2005 results and balance sheet restated. Preparations for adoption have continued throughout the year and the Boardremains confident that procedures have been put in place to enable a smoothtransition from UK accounting standards. Following adoption of IFRS, the principal changes in accounting treatment areexpected to be for deferred taxation, pensions, share based payments, financialinstruments, goodwill and accrued dividends. There will be no impact on the Group's cash flows or debt covenants, howeverthere will be some changes in the presentation and format of the financialstatements. Paul InglettFinance Director Group profit and loss account 2005 2004 Before Before goodwill and Goodwill goodwill Goodwill exceptionals and Total and and Total exceptionals exceptionals exceptionalsfor the 52 weeks ended 1 October 2005 £m £m £m £m £m £m Turnover Continuing operations 551.8 - 551.8 513.7 - 513.7 Acquisitions 45.5 - 45.5 - - -Total turnover 597.3 - 597.3 513.7 - 513.7Trading expenses (461.9) (13.5) (475.4) (400.8) (12.0) (412.8)Operating profit Continuing operations 123.1 (8.6) 114.5 112.9 (12.0) 100.9 Acquisitions 12.3 (4.9) 7.4 - - -Total operating profit 135.4 (13.5) 121.9 112.9 (12.0) 100.9Fixed asset disposals - 4.0 4.0 - 4.5 4.5Profit on ordinary activities before 135.4 (9.5) 125.9 112.9 (7.5) 105.4interestInterest (45.3) (32.7) (78.0) (35.2) - (35.2)Profit on ordinary activities before 90.1 (42.2) 47.9 77.7 (7.5) 70.2taxationTaxation (26.5) 12.0 (14.5) (22.7) 0.9 (21.8)Profit on ordinary activities after 63.6 (30.2) 33.4 55.0 (6.6) 48.4taxationDividends paid and proposed (29.9) (25.6)Retained profit for the period 3.5 22.8Earnings per share:Basic earnings per share 44.3p 66.7pBasic earnings per share before goodwill 84.4p 75.8pand exceptionalsDiluted earnings per share 43.8p 65.9pDiluted earnings per share before 83.4p 74.9pgoodwill and exceptionals Group cash flow statement 2005 2004 for the 52 weeks ended 1 October 2005 £m £m £m £mNet cash inflow from operating activities 119.1 148.4Returns on investments and servicing of financeInterest received 0.5 0.6Interest paid (50.2) (34.9)Arrangement cost of new bank facilities (1.8) (2.1)Issue costs paid on securitised debt (12.5) -Net cash outflow from returns on investments and (64.0) (36.4)servicing of financeTaxation (19.9) (21.0)Capital expenditure and financial investmentInvestment in fixed assets for existing pubs (63.9) (61.0)Fixed asset purchase of new pubs/site developments (34.2) (20.9)Sale of tangible fixed assets 14.8 13.5Decrease in trade loans and other investments 5.8 3.5Net cash outflow for capital expenditure and (77.5) (64.9)financial investmentAcquisitionsPurchase of subsidiary undertakings (144.0) (30.3)Net cash acquired with subsidiary undertakings 3.9 7.5Repayment of debt of subsidiary upon acquisition - (68.5)Net cash outflow for acquisition (140.1) (91.3)Equity dividends paid (27.8) (24.1)Cash outflow before financing (210.2) (89.3)FinancingIssue of ordinary share capital 2.6 3.0Purchase of ordinary share capital for cancellation - (8.0)Net sale of own shares from share trust 0.3 1.1Repayment of loan notes (0.1) -Capital element of finance lease payments (0.1) -(Repayment)/advance of loans (281.2) 99.4Settlement of debentures (287.9) -Proceeds from issue of securitised debt 805.0 -Net cash inflow from financing 238.6 95.5Increase in cash in the period 28.4 6.2Reconciliation of net cash flow to movement in netdebtIncrease in cash in the period 28.4 6.2Cash inflow from increase in debt (278.6) (97.3)Change in debt resulting from cash flows (250.2) (91.1)Debt acquired with subsidiaries (65.9) -Non-cash movements 4.8 (0.6)Movement in net debt in the period (311.3) (91.7)Net debt at 3 October 2004 (560.4) (468.7)Net debt at 1 October 2005 (871.7) (560.4) Statement of total Group recognised gains and losses 2005 2004for the 52 weeks ended 1 October 2005 £m £mProfit on ordinary activities after taxation 33.4 48.4Unrealised surplus on revaluation of properties 59.1 171.7Total recognised gains relating to the period 92.5 220.1 Note of Group historical cost profits and losses 2005 2004for the 52 weeks ended 1 October 2005 £m £mProfit on ordinary activities before taxation 47.9 70.2Realisation of property revaluation gains of previous periods 0.3 2.3Difference between the historical cost depreciation and actual 0.8 0.9depreciation on the revalued amountHistorical cost profit before taxation 49.0 73.4Historical cost profit after taxation and dividends 4.6 26.0 Reconciliation of movements in Group shareholders' funds 2005 2004for the 52 weeks ended 1 October 2005 £m £mProfit on ordinary activities after taxation 33.4 48.4Dividends paid and proposed (29.9) (25.6)Profit for the period transferred to reserves 3.5 22.8Revaluation of properties 59.1 171.7Proceeds of ordinary share capital issued for cash 2.6 3.0Ordinary shares issued for Burtonwood acquisition 42.7 -Purchase of own shares for cancellation - (8.0)Net sale of own shares from share trust 0.3 1.1Net addition to shareholders' funds 108.2 190.6Opening shareholders' funds 648.3 457.7Closing shareholders' funds 756.5 648.3 Group balance sheet 2005 2004as at 1 October 2005 £m £mFixed assetsGoodwill 111.3 109.1Negative goodwill (5.4) -Intangible assets 105.9 109.1Tangible assets 1,553.1 1,182.3Investments 21.1 21.2 1,680.1 1,312.6Current assetsStocks 13.6 13.5DebtorsAmounts falling due within one year 60.6 45.0Amounts falling due after more than one year 28.0 -Cash at bank and in hand 76.1 16.2 178.3 74.7Creditors - Amounts falling due within one year (169.5) (138.7)Net current assets/(liabilities) 8.8 (64.0)Total assets less current liabilities 1,688.9 1,248.6Creditors - Amounts falling due after more than one year (895.4) (583.1)Provisions for liabilities and charges (35.0) (17.2) 758.5 648.3Capital and reservesEquity share capital 22.8 21.4Non-equity share capital 0.1 0.1Called-up share capital 22.9 21.5Share premium account 185.1 209.9Merger reserve 41.5 -Revaluation reserve 379.9 321.9Capital redemption reserve 6.0 6.0Profit and loss account 121.1 89.0Shareholders' funds including non-equity interests of £0.1m (2004: £0.1m) 756.5 648.3Equity minority interests 2.0 -Capital employed 758.5 648.3 1. Segmental analysis 2005 Operating Operating Net assets profit before Goodwill profit after goodwill and and goodwill and Goodwill Turnover exceptionals exceptionals exceptionals asset £m £m £m £m £m £mPathfinder Pubs Continuing operations 304.7 61.3 (4.1) 57.2 644.7 37.0 Acquisitions 12.7 2.1 (0.2) 1.9 46.9 0.7 Total 317.4 63.4 (4.3) 59.1 691.6 37.7The Union Pub Company Continuing operations 123.1 53.5 (1.1) 52.4 524.1 20.6 Acquisitions 30.2 11.7 (4.5) 7.2 208.5 3.2 Total 153.3 65.2 (5.6) 59.6 732.6 23.8WDB Brands Continuing operations 124.0 18.0 (0.7) 17.3 95.0 5.3 Acquisitions 2.6 0.2 (0.1) 0.1 4.7 0.8 Total 126.6 18.2 (0.8) 17.4 99.7 6.1Central costs Continuing operations - (9.7) (2.7) (12.4) 44.4 38.3 Acquisitions - (1.7) (0.1) (1.8) 2.7 - Total - (11.4) (2.8) (14.2) 47.1 38.3 597.3 135.4 (13.5) 121.9 1,571.0 105.9Goodwill 105.9Debt, tax and dividends (918.4) 758.5 As a result of the refinancing during the year, the Directors have reconsideredthe inter-divisional transfer terms, to ensure that products are supplied by WDBBrands to other divisions on an arms length market basis. The allocation ofcentral overheads was also considered and revised. Following this review, the operating profit comparatives for each division havebeen restated. This has reduced the profit in Pathfinder Pubs by £3.8m, TheUnion Pub Company by £1.1m, WDB Brands by £3.6m and increased profits in Centralby £8.5m. 2004 Restated Operating Operating Net assets profit before Goodwill profit after goodwill and and goodwill and Goodwill Turnover exceptionals exceptionals exceptionals assetContinuing operations £m £m £m £m £m £mPathfinder Pubs 275.2 54.6 (9.2) 45.4 583.0 40.1The Union Pub Company 118.2 49.8 0.4 50.2 452.8 22.1WDB Brands 120.3 17.8 (0.1) 17.7 84.8 6.0Central costs - (9.3) (3.1) (12.4) 24.2 40.9 513.7 112.9 (12.0) 100.9 1,144.8 109.1Goodwill 109.1Debt, tax and dividends (605.6) 648.3 2. Goodwill and exceptionals 2005 2004 £m £mOperating items:Goodwill amortisation 7.1 7.0 Exceptional trading expenses:Goodwill impairment following fixed asset disposals 1.1 1.7Impairment of fixed assets following revaluation 0.6 2.2Costs of reorganisation of acquisitions 4.7 1.1 13.5 12.0Non-operating exceptional items:Profit on fixed asset disposals (4.0) (4.5) Interest:Write-off of unamortised finance cost following refinancing 4.3 -Premium on redemption of debentures 28.4 - 32.7 - 42.2 7.5 Interest exceptional items were incurred as part of the debt refinancing inAugust 2005. 3. Taxation 2005 2004 £m £mThe charge to the profit and loss account comprises:Current tax: Corporation tax on profits for the period 1.7 22.0 Adjustment in respect of prior periods (1.5) (0.6) 0.2 21.4Deferred tax 14.3 0.4 14.5 21.8 4. Dividends 2005 2004 £m £mOrdinary sharesInterim paid 13.20p per share (2004: 12.00p) 10.1 8.7Final proposed 25.66p per share (2004: 23.32p) 19.8 16.9Total dividends on ordinary shares 38.86p per share (2004: 35.32p) 29.9 25.6 5. Earnings per share Basic earnings per share is calculated by dividing the profit after tax by theweighted average number of ordinary shares in issue during the period, excludingthose held in the Employee Share Ownership Plan (ESOP). 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 0.9 million (2004: 0.8million). Supplementary earnings per share figures are presented to exclude the effects ofgoodwill amortisation and exceptionals. 2005 2004 Weighted Weighted average average number of Per share number of Per share Earnings shares amount Earnings shares amount £m m p £m m pBasic earnings per share 33.4 75.4 44.3 48.4 72.6 66.7Diluted earnings per share 33.4 76.3 43.8 48.4 73.4 65.9Supplementary earnings per sharefigures:Basic earnings per share before 63.6 75.4 84.4 55.0 72.6 75.8goodwill and exceptionalsDiluted earnings per share before 63.6 76.3 83.4 55.0 73.4 74.9goodwill and exceptionals 6. Estate revaluation At 2 July 2005, 1,341 properties were revalued by independent charteredsurveyors. This has been reflected in the accounts as follows: £mExceptional items:Revaluation loss - charged as an impairment (1.3)Reversal of past impairment loss 0.7Net profit and loss account charge (0.6)Revaluation reserve:Unrealised revaluation surplus 72.1Reversal of past revaluation surplus (13.0)Net revaluation surplus taken to revaluation reserve 59.1 Net increase in shareholders' funds/fixed assets 58.5 7. Securitised debt On 9 August 2005, £805m of secured loan notes were issued in connection with thesecuritisation of 1,592 of the Group's pubs. These are secured over theproperties and their future income streams. Existing debenture and bankingfacilities were repaid from the funds received from the loan notes issued. The securitised debt consists of four tranches with the following principalterms: Tranche £m Interest Principal repayment Expected average Expected maturity period - by instalments life dateA1 236.0 Floating 2005 to 2020 6 years 2012A2 214.0 Fixed/floating 2020 to 2027 14 years 2019A3 200.0 Fixed/floating 2027 to 2032 22 years 2027B 155.0 Fixed/floating 2032 to 2035 14 years 2019 805.0 Interest on the Class A1 notes is payable at three month LIBOR plus a margin of0.55%, stepping up to three month LIBOR plus 1.375% from July 2012. Thesenotes are hedged in full by the Group using interest rate swaps whereby allinterest payments are swapped into fixed interest payable. Interest on the Class A2 notes is payable at fixed interest of 5.1576% untilJuly 2019 and thereafter at three month LIBOR plus a margin of 1.32%. Intereston the Class A3 notes is payable at fixed interest of 5.1774% until April 2027and thereafter at three month LIBOR plus a margin of 1.45%. Interest on theClass B notes is payable at fixed interest of 5.6410% until July 2019 andthereafter at three month LIBOR plus a margin of 2.55%. The carrying value of the secured notes in the Group balance sheet at 1 October2005 was £791.7m, net of deferred issue costs of £13.3m. 8. Reconciliation of operating profit to net cash inflow from operatingactivities 2005 2004 £m £mTotal operating profit 121.9 100.9Goodwill amortisation 7.1 7.0Income from fixed asset investments (0.3) (0.4)Depreciation charge 38.3 32.9Decrease in pension cost provision (30.2) (1.5)Decrease/(increase) in stocks 1.5 (0.5)Increase in debtors (0.8) (3.3)(Decrease)/increase in creditors (20.1) 9.3Exceptional operating charges with no cash impact 1.7 4.0Net cash inflow from operating activities 119.1 148.4 9. Analysis of net debt Non-cash Acquisitions 2005 Cash flow flow £m 2004 £m £m £m £mCashCash at bank and in hand 76.1 59.9 - - 16.2Bank overdraft (35.6) (31.5) - - (4.1) 40.5 28.4 - - 12.1Debt due within one yearLoan stock (9.2) 0.1 (9.2) - (0.1)Bank loans 0.2 - (0.2) - 0.4Securitised debt (9.1) (10.1) 1.0 - -Finance leases (0.1) 0.1 - (0.1) (0.1) (18.2) (9.9) (8.4) (0.1) 0.2Debt due after one yearBank loans (111.1) 281.2 (0.9) (37.0) (354.4)Securitised debt (782.6) (794.9) 12.3 - -Finance leases (0.3) - (0.1) - (0.2)Debentures - 245.0 1.9 (28.8) (218.1) (894.0) (268.7) 13.2 (65.8) (572.7) (871.7) (250.2) 4.8 (65.9) (560.4) Bank loans due within one year represents unamortised issue costs expected to becharged in 2006. 10. Acquisition - Burtonwood On 6 January 2005, the Group acquired Burtonwood PLC and its wholly ownedsubsidiaries. The acquisition has been accounted for under acquisitionaccounting principles and is therefore included in the consolidated balancesheet as at 1 October 2005. Fair value adjustments Provisional Book value Revaluations Other fair value £m £m £m £mTangible fixed assets 140.9 44.5 - 185.4Investments 2.8 - (0.2) 2.6Stock 1.0 - - 1.0Debtors 5.6 - (0.1) 5.5Cash 5.8 - - 5.8Creditors (13.2) - (1.0) (14.2)Loans (15.0) - - (15.0)Debentures (24.6) - (4.2) (28.8)Provisions for liabilities and charges (4.4) - 1.6 (2.8)Net assets acquired 98.9 44.5 (3.9) 139.5Consideration (including acquisition fees)Cash 84.3Shares 42.7Loan notes 7.0Total consideration 134.0Negative goodwill (5.5) The Company issued its own shares as part of the consideration for Burtonwood.The fair value of the shares issued, based on market price at the date ofacquisition, was recorded as the cost of investment. The £1.2m nominal value ofthe shares issued has been recognised in share capital and the differencebetween nominal and fair value of £41.5m has been recorded as a merger reserve. The attributed fair values are provisional. Any further adjustments will beincluded in next year's financial statements. The revaluation adjustmentreflects the valuation of the acquired estate as at 6 January 2005. Thevaluation was carried out by independent chartered surveyors on an existing usebasis. No deferred tax has been recognised on the revaluation adjustment asthere are no agreements to sell the assets concerned. The other fair value adjustments include the valuation of the Burtonwood pensionscheme and the market value of debentures at acquisition date. Deferred tax hasbeen recognised on these fair value adjustments. The net cash outflow in respect of the purchase of Burtonwood was: £mAcquisition of equityCash 84.3Cash in hand of subsidiary (5.8)Net cash outflow for acquisition 78.5 11. Acquisition - Jennings On 20 May 2005 the Group acquired Jennings Brothers PLC and its wholly ownedsubsidiaries. The acquisition has been accounted for under acquisitionaccounting principles and is therefore included in the consolidated balancesheet as at 1 October 2005. Fair value adjustments Provisional Book value Revaluations Other fair value £m £m £m £mIntangible fixed assets 1.6 - (1.6) -Tangible fixed assets 51.4 15.3 - 66.7Investments 1.7 - - 1.7Stock 0.4 - - 0.4Debtors 2.7 - - 2.7Cash 0.2 - - 0.2Bank overdraft (2.6) - - (2.6)Creditors (4.1) - (3.1) (7.2)Loans (22.0) - - (22.0)Provisions for liabilities and charges (0.9) (0.2) 0.9 (0.2)Net assets acquired 28.4 15.1 (3.8) 39.7Consideration (including acquisition fees)Cash 46.3Loan notes 2.2Total consideration 48.5Goodwill 8.8 The attributed fair values are provisional. Any further adjustments will beincluded in next year's financial statements. The revaluation adjustment inrespect of tangible fixed assets reflects the valuation of the acquired estateas at 20 May 2005. Valuations reflecting onerous leases have been included inprovisions. The pub estate valuation was carried out by independent charteredsurveyors on an existing use basis and the brewery valuation was carried out byindependent chartered surveyors on a depreciated replacement cost basis. Nodeferred tax has been recognised on the revaluation adjustment as there are noagreements to sell the assets concerned. The other fair value adjustments reflect the elimination of goodwill held in theacquired balance sheet, valuation of the Jennings pension scheme and the marketvalue of SWAPs at acquisition date. Deferred tax has been recognised on thesefair value adjustments. The net cash outflow in respect of the purchase of Jennings was: £mAcquisition of equityCash 46.3Cash in hand of subsidiary (0.2)Net cash outflow for acquisition 46.1 12. Acquisition - English Country Inns On 15 September 2005 the Group acquired English Country Inns PLC. Theacquisition has been accounted for under acquisition accounting principles andis therefore included in the consolidated balance sheet as at 1 October 2005. Fair value adjustments Provisional Book value Revaluations Other fair value £m £m £m £mTangible fixed assets 10.2 2.6 - 12.8Stock 0.1 - - 0.1Debtors 1.3 - - 1.3Cash 0.5 - - 0.5Creditors (1.0) - - (1.0) 11.1 2.6 - 13.7Minority interest (1.6) (0.4) - (2.0)Net assets acquired 9.5 2.2 - 11.7Cash consideration (including acquisition fees) 13.4Goodwill 1.7 The attributed fair values are provisional. Any further adjustments will beincluded in next year's financial statements. The revaluation adjustment inrespect of tangible fixed assets reflects the valuation of the acquired pubestate as at 15 September 2005. The valuation was carried out by independentchartered surveyors on an existing use basis. No deferred tax has beenrecognised on the revaluation adjustment as there are no agreements to sell theassets concerned. The net cash outflow in respect of the purchase of English Country Inns was: £mAcquisition of equityCash 13.4Cash in hand of subsidiary (0.5)Net cash outflow for acquisition 12.9 13. Acquisition - Wizard Inns On 14 June 2004 the Group acquired Wizard Inns Limited. The fair valueadjustments stated in the prior year accounts are now confirmed. Notes: a. The contents of this preliminaryannouncement, which do not constitute statutory accounts as defined in Section240 of the Companies Act 1985, have been extracted from the audited statutoryaccounts of the Group for the 52 weeks ended 1 October 2005 which will be filedwith the Registrar of Companies in due course. The statutory accounts for the53 weeks ended 2 October 2004 have been delivered to the Registrar of Companies.The independent auditors' report on these accounts are unqualified and do notcontain any statements under Section 237(2) or (3) of the Companies Act 1985. b. Subject to approval of theshareholders at the annual general meeting, the proposed final dividend of 25.66pence per share will be paid on 31 January 2006 to shareholders on the registerat the close of business on 30 December 2005. c. The annual report for the year ended 1October 2005 will be posted to all shareholders in the week commencing 18December 2005. Copies will be obtainable from Hudson Sandler Limited (020 77964133) 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