22nd May 2006 07:02
Punch Taverns PLC22 May 2006 PUNCH TAVERNS PLC("Punch" or "the Group") Interim Results for the 28 Weeks ended 4 March 2006 Punch Taverns plc, the operator of over 9,500 pubs throughout the UK, todayannounces interim results for the 28 weeks ended 4 March 2006. All figures havebeen reported under IFRS and prior years restated. Highlights Financial * Group turnover up 53% to £619m (2005: £404m) * EBITDA up 26% to £269m (2005: £214m) * Profit before tax and exceptional items up 13% to £116m (2005: £103m) * EPS up 10% to 35.1p (2005: 31.9p) * Interim dividend increased by 19% to 4.4p (2005: 3.7p) * Acquisition of Spirit comprising 1830 of the highest quality managed pubs Operational * Punch leased estate (7,748 pubs at 4th March) has performed well within a more challenging market - Like for like turnover growth +1% - EBITDA growth of 8% to £232m - 54 pubs acquired, 533 sold - Investment continued with £37m spent on 408 pubs * Spirit managed estate (1,808 pubs at 4th March) acquired and operating successfully - 8 weeks profit contribution in the period - EBITDA of £37m - Same store sales growth +3.2% - Transfer to lease: 459 pubs now announced from likely total of 740 * Following full review of the Spirit estate the disposal of a further 380 managed pubs is now planned. The remaining 680 are high quality managed pubs with an average outlet EBITDA £231k per annum and excellent growth prospects Giles Thorley, Chief Executive of Punch Taverns plc, commented: "This is another excellent result demonstrating the benefit of our acquisitionstrategy combined with strong operational performance. We are delighted with theacquisition of Spirit which brings a new dimension to the Group and continuedgrowth potential. "After some further disposals and lease conversions Punch will own a very highquality managed house estate to complement our highly successful leased estate.These extremely valuable trading divisions are well funded, have very solidinfrastructure, and provide an excellent platform to further grow the value ofthe business." 22 May 2006 Enquiries:Punch Taverns plc Today: 020 7457 2020 Giles Thorley, Chief Executive Thereafter: 020 7868 8903Robert McDonald, Finance Director College Hill Tel: 020 7457 2020 Justine Warren Matthew Smallwood PUNCH TAVERNS INTERIM RESULTS Overview This has been another successful period of growth for Punch Taverns. Our leasingbusiness has been enhanced by the integration of Avebury, acquired last August,and by the sale of some lower quality pubs. In January, we completed theacquisition of Spirit, adding over 1800 directly managed pubs to our estate,increasing our flexibility and future growth prospects considerably. Once again we have delivered a solid set of results for our half year, being a28 week period to 4th March 2006. Accounting on an IFRS basis (against restatedcomparatives) before exceptional items we have generated EBITDA of £269m, anincrease of 26%, whilst PBT of £116m represents growth of 13% in the period.Earnings per share increased by 10% to 35.1p. In view of this continued growthwe intend to make an interim dividend payment of 4.4p per ordinary share, anincrease of 19% on last year. We are very pleased with our acquisition of Spirit. We have identified for sometime an attractive opportunity to acquire smaller managed pubs for conversion toour leased estate. Spirit provides this together with an establishedinfrastructure that can safely manage the conversion process and can be utilisedfor any further similar acquisitions. Our strategy remains to add value to ourpubs by recruiting and supporting the best retailers to deliver customer serviceand good returns, and to use the surplus cash generated to invest in our widerpub estate. This strategy works equally well with leased and with managed pubs,such that the two models are complementary when run in tandem. The Spirit estate is of the highest quality, the management team, the staff andthe services are excellent, and the business continues to perform well. We areahead of schedule on the lease conversion programme, and now expect to convertaround 740 of the managed pubs to lease by August 2007, about six months earlierthan first announced. Since acquisition we have sold 29 Spirit pubs and nowexpect to sell a further 380 over the next six months, following a detailedreview of the estate. This will leave a very high quality, robust estate ofaround 680 managed pubs, which we intend to consolidate into a valuable tradingasset. Leased Estate The Punch leased estate numbered 7,748 pubs at the 4th March, following 54acquisitions and 533 disposals during the course of the 28 weeks. On average,the estate was 4% larger than in the same period last year, representing mainlythe addition of 409 pubs acquired from Avebury in August 2005. The business has performed well in a competitive market, generating EBITDA of£232m in the first half, a growth of 8% on last year. In the like for likeestate, turnover growth was 1.0% and pub profit growth was 2.1%. The morerecently acquired estates of InnSpired and Avebury are fully integrated and havealso contributed well, as expected. We have continued to follow our proven operational strategy in the leased estatewhich, in the 28 weeks to 4th March, saw us: * Recruit 628 new retailers from 3,448 applicants * Provide 5,872 training days for our retailers * Invest £37m in 408 pub developments * Work together with our retailers to relicense the whole estate, almost entirely on more flexible terms than before. Success in our own eyes is one thing, however we are particularly pleased withthe number of awards and plaudits received for our pubs and for Punch from theindustry during the year, which included: * National Innkeeper Training awards for the Plungington Tavern (Licensee Trainer of the Year), and Punch (Innovation in Training, and Best Area Manager Development) * The Publican newspaper Catering Pub of the Year award for The Punch Tavern, and Newcomer of the Year award for the Three Compasses, which was also recognised as Best Community Pub by the Morning Advertiser * The Publican newspaper Pub Company of the Year award for Punch Taverns, for the second time in three years * ALMR award of Business Development Manager of the Year for our BRM Dave Daniel Managed Estate We completed the acquisition of Spirit on 5th January 2006, such that Spiritprovided 8 weeks profit contribution in the period to 4th March. The acquisitionprocess was completed smoothly, and the business has continued to operatesuccessfully and in line with our expectations. On acquisition, Spirit comprised 1,830 pubs, each one directly managed by thecompany. These are high quality pubs, with average outlet EBITDA of £186k pamaking them roughly three times the size of the average Punch leased pub. Theestate has operated under a large number of trading formats, but to the consumeris only lightly branded, with a small number of recognised brands such as Chef &Brewer, John Barras, and Old Orleans. The pubs are distributed throughout theUK, include the very best of the former S&N Retail estate, and are supported byan experienced and well managed infrastructure in Burton upon Trent, nearby tothe head office of Punch. The performance of the managed estate has been strong. EBITDA of £37m wasgenerated in the first 8 weeks of ownership (at the flattest trading time of theyear). In the first 16 weeks of acquisition, to 29th April, same store like forlike sales growth was 3.2% across the estate, or 1.3% on an uninvested basis. In line with our stated strategy on acquisition, we intend to transfer asignificant number of Spirit managed pubs to our leased estate to be run byentrepreneurial independent retailers. So far, we have marketed 212 pubs fortransfer, and have recently announced a second tranche of 247 from a probabletotal of 740. Interest levels have been high, and our first lettings areimminent. We continue to sell individual managed pubs that have greater alternative usevalue - 22 were sold by 4th March, with a further 7 since then. Following theoutcome of our estate review, we now anticipate selling a further 380 pubs inthe next six months, mostly in package sales, some individually. Pubs have beenselected for disposal after careful review, on the basis of their current andprospective trade, and their fit with the remaining estate. The remaining 680 pubs constitute a top quality estate which is streamlined andless complex to operate through three divisions of Value Food, Premium Food, andQuality Locals. Premium Food will include the Chef & Brewer brand. The estate is68% freehold or long lease, with an average outlet EBITDA of £231k pa and astrong growth profile. Our intention is to establish the retained pubs as the highest quality managedhouse estate, run as a separate business within Punch, and managed by anexperienced team drawn mostly from the Spirit management team. Whilst drivingtowards this simultaneously with the lease conversion programme, we aresuccessfully building valuable quality assets in both our leased and manageddivisions. Industry Issues In common with other operators we have found trading conditions in the past 12months to be slightly tougher than in recent years, but our business model isextremely resilient and the majority of our pubs continue to trade well. Licensing changes have now bedded in and pubs are gradually becoming accustomedto the longer more flexible opening hours agreed last November. It is still too early to assess the full impact of the smoking ban introduced inScotland in March but early indications suggest little overall change so far. Weare well advanced with our preparations for a full ban in England and Wales,which we anticipate in Summer 2007. Financial We are, for the first time, reporting these results under IFRS. A detailedstatement of our revised accounting policies, differences from UK GAAP, and theimpact on recently reported results is available on our website. The acquisition of Spirit, with a headline price of £2,679m, resulted ingoodwill of £248m, primarily represented by potential deferred tax and mark tomarket differences on retained loans and swaps. The acquisition was funded through the retention of a long term debenture(£1.25bn), a short term loan (£1.25bn), a convertible bond issue (£275m) and theissue of £75m new equity. The funding increased our net debt to £5,524m,effectively at fixed rates, with interest cover in the period of 2.0x EBITDA.Given our substantial fixed asset base and steady cash generation, we arecomfortable with this level of financial gearing but we will reduce the shortterm element of funding over time through cash generation and disposal proceeds.This reduction has already commenced, with only £1.17bn of the short termfacility in use at 4th March 2006. Non recurring cost of £8.0m was reported in the first half, including £4.4m ofrate variability on underlying Spirit swaps which cannot be hedge accounted. Thenon recurring expenditure of £3.6m primarily related to Spirit and relicensing,and more will be incurred in the second half as the lease conversion programmeaccelerates. In addition, we benefited from an exceptional tax credit of £15m. The effective tax charge of 22% reflects the estimated tax rate for the 52 weeksto 19th August 2006, and is similar to the first half last year. Overall PBT before exceptional items was £116m which gave rise to basic EPS of35.1p on the enlarged share register, a growth of 10%. Diluted EPS of 34.5pincreased by 11% in the year. Summary and Outlook The past six months have been a period of steady progress for the underlyingestate whilst we have successfully moved the Group into a new dimension with theacquisition of Spirit. With this acquisition we have significantly improved thequality of our estate and gained the capacity and skills to develop our businessfurther. While the trading environment presents some ongoing challenges, our strategy ofacquisition, divestment and investment continues to improve the quality of thepubs in our estate. Moreover our management team has the strength and range ofskills to continue to move the business forward. The second half has started well and continued the steady pattern of the firsthalf. We look forward to an active programme for the remainder of the year and asatisfactory outcome with enhanced prospects for continued future growth. CONSOLIDATED INCOME STATEMENTfor the 28 weeks ended 4 March 2006 ------------------------------------------------------------------------------------------------------------------- 28 weeks to 4 March 2006 28 weeks to 5 March 2005(3) Total Non-recurring Before Total Non-recurring Before and non- and non- exceptional recurring exceptional recurring items and items and (note 3) exceptional (note 3) exceptional items items £m £m £m £m £m £m Revenue ------------------------------------------------------------------------------------------------------------------- Continuing 430.4 - 430.4 416.4 12.8 403.6 operations Acquisitions(1) 188.5 - 188.5 - - - ------------------------------------------------------------------------------------------------------------------- Group revenue 618.9 - 618.9 416.4 12.8 403.6 Cost of sales (302.6) - (302.6) (158.6) (5.5) (153.1) ---------------- ------- --------- --------- ------- --------- ---------Gross profit 316.3 - 316.3 257.8 7.3 250.5 Administrative (51.1) (3.5) (47.6) (42.3) (5.5) (36.8) expenses before depreciation and amortisation ---------------- ------- --------- --------- ------- --------- --------- EBITDA(2) ------------------------------------------------------------------------------------------------------------------- Continuing 229.7 (1.9) 231.6 215.5 1.8 213.7 operations Acquisitions(1) 35.5 (1.6) 37.1 - - - ------------------------------------------------------------------------------------------------------------------- Group EBITDA 265.2 (3.5) 268.7 215.5 1.8 213.7 Depreciation (12.0) - (12.0) (6.5) - (6.5) Amortisation (3.1) - (3.1) (0.9) - (0.9) ---------------- ------- --------- --------- ------- --------- ---------Operating profit ------------------------------------------------------------------------------------------------------------------- Continuing 221.8 (1.9) 223.7 208.1 1.8 206.3 operations Acquisitions(1) 28.3 (1.6) 29.9 - - - ------------------------------------------------------------------------------------------------------------------- Group operating 250.1 (3.5) 253.6 208.1 1.8 206.3 profit Profit on sale of 0.4 - 0.4 0.2 - 0.2 property, plant and equipment Finance income 9.0 - 9.0 6.7 0.3 6.4 Finance costs (146.7) (0.1) (146.6) (123.2) (12.9) (110.3) Movement in fair (4.4) (4.4) - - - - value of interest rate swaps Share of post-tax (0.1) - (0.1) - - - loss from joint ventures ---------------- ------- --------- --------- ------- --------- --------- Profit before 108.3 (8.0) 116.3 91.8 (10.8) 102.6 taxation Income tax credit / (8.5) 17.4 (25.9) (29.2) (6.4) (22.8) (expense) (note 4) ---------------- ------- --------- --------- ------- --------- --------- Profit for the 99.8 9.4 90.4 62.6 (17.2) 79.8 financial period attributable to equity shareholders ---------------- ------- --------- --------- ------- --------- --------- Earnings per share (note 5) Basic (pence) 38.8 35.1 25.0 31.9 Diluted (pence) 38.1 34.5 24.4 31.1 Dividend per share 4.4 3.7 paid and / or proposed in respect of the period (pence) Total dividend paid 11.6 9.4 and / or proposed in respect of the period (£m) ---------------- ------- --------- --------- ------- --------- --------- (1) Relates to the acquisition of Spirit Group Holdings Limited, ultimate parentof the Spirit trading companies. The income statement in the current periodincludes 8 weeks of results relating to the acquired Spirit companies (2) EBITDA represents earnings before finance income, finance costs, tax,depreciation, amortisation, profit on sale of property, plant and equipment andshare of post-tax loss from joint ventures (3) As restated for the effect of the transition to International FinancialReporting Standards ("IFRS") - see note 1 CONSOLIDATED INCOME STATEMENT continuedfor the 28 weeks ended 4 March 2006 -------------------------------------------------------------------------------- 52 weeks to 20 August 2005(3) Total Non-recurring Before and non-recurring exceptional and items exceptional items £m £m £m -------------------------------------------------------------------------------- Revenue -------------------------------------------------------------------------------- Continuing operations 782.9 12.8 770.1 Acquisitions(1) - - - -------------------------------------------------------------------------------- Group revenue 782.9 12.8 770.1 Cost of sales (294.9) (5.5) (289.4) --------------------- ------- --------- ---------Gross profit 488.0 7.3 480.7 Administrative expenses before (77.3) (10.1) (67.2) depreciation and amortisation --------------------- ------- --------- ---------EBITDA -------------------------------------------------------------------------------- Continuing operations 410.7 (2.8) 413.5 Acquisitions(1) - - - -------------------------------------------------------------------------------- Group EBITDA 410.7 (2.8) 413.5 Depreciation (11.8) - (11.8) Amortisation (1.7) - (1.7) --------------------- ------- --------- ---------Operating profit -------------------------------------------------------------------------------- Continuing operations 397.2 (2.8) 400.0 Acquisitions(1) - - - -------------------------------------------------------------------------------- Group operating profit 397.2 (2.8) 400.0 Profit on sale of property, - - - plant and equipment Finance income 11.1 0.3 10.8 Finance costs (217.8) (13.8) (204.0) Movement in fair value of - - - interest rate swaps Share of post-tax profits of - - - joint ventures --------------------- ------- --------- ---------Profit before taxation 190.5 (16.3) 206.8 Income tax expense (44.2) (4.6) (39.6) --------------------- ------- --------- ---------Profit for the financial period 146.3 (20.9) 167.2 attributable to equity shareholders --------------------- ------- --------- --------- Earnings per share (note 5) Basic (pence) 58.1 66.4 Diluted (pence) 56.9 65.1 Dividend per share paid and /or 11.3 proposed per share in respect of the period (pence) Total dividend paid and / or 29.4 proposed in respect of the period (£m) --------------------- ------- --------- --------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the 28 weeks ended 4 March 2006 28 weeks 28 weeks 52 weeks to to to 4 March 5 March 20 August 2006 2005 2005 £m £m £m ------------------------------ --------- --------- ---------Actuarial gains on defined benefit pension 15.0 - 1.5 schemes Losses on cash flow hedges (11.4) - - Tax credit related to indexation on revalued 2.0 2.3 2.4 properties Tax on items taken directly to equity (1.1) - (0.5) ------------------------------ --------- --------- ---------Net gain recognised directly in equity 4.5 2.3 3.4 Profit attributable to shareholders 99.8 62.6 146.3 ------------------------------ --------- --------- ---------Total recognised income for the period 104.3 64.9 149.7 attributable to equity shareholders ------------------------------ --------- --------- --------- Effects of changes in accounting policy attributable to equity shareholders: ------------------------------ --------- --------- --------- Net loss on recognition of derivative (68.6) - - financial instruments at fair value on first-time application of IAS 39 ------------------------------ --------- --------- --------- (68.6) - - ------------------------------ --------- --------- --------- CONSOLIDATED BALANCE SHEETat 4 March 2006 4 March 5 March 20 August 2006 2005 2005 £m £m £m --------- --------- --------- Assets Non-current assets Property, plant and equipment 6,982.7 4,004.3 4,292.8 Investment property 0.9 1.0 1.0 Goodwill 516.8 255.8 268.8 Intangible assets 229.6 23.0 27.5 Receivables 6.1 9.7 11.7 Deferred tax asset 157.5 32.2 37.9 Investments in joint ventures 5.3 - - ----------------------------- --------- --------- --------- 7,898.9 4,326.0 4,639.7 Current assets Inventories 16.7 - - Trade and other receivables 130.3 78.4 78.5 Cash deposits used as security for loan 31.8 31.6 202.8 notes Cash and cash equivalents 448.1 143.0 245.7 ----------------------------- --------- --------- --------- 626.9 253.0 527.0 Non-current assets classified as held for 8.1 7.2 6.4 sale ----------------------------- --------- --------- ---------Total assets 8,533.9 4,586.2 5,173.1 ----------------------------- --------- --------- --------- Liabilities Current liabilities Trade and other payables (395.7) (161.3) (206.3) Obligations under finance leases (6.4) (1.1) (1.1) Interest-bearing loans and borrowings (638.4) (273.0) (247.5) Current income tax liabilities (19.0) (34.7) (38.3) Provisions (7.2) (9.3) (7.0) ----------------------------- --------- --------- --------- (1,066.7) (479.4) (500.2) Non-current liabilities Obligations under finance leases (22.7) (9.0) (9.3) Interest-bearing loans and borrowings (5,127.7) (2,718.5) (3,203.3) Convertible bond (237.9) - - Derivative financial instruments (278.0) - - Deferred tax liabilities (400.6) (286.0) (293.0) Retirement benefit obligations (76.2) (9.7) (7.6) Provisions (80.9) (25.8) (25.7) Other liabilities (6.8) (11.8) (11.3) ----------------------------- --------- --------- --------- (6,230.8) (3,060.8) (3,550.2) ----------------------------- --------- --------- ---------Total liabilities (7,297.5) (3,540.2) (4,050.4) ----------------------------- --------- --------- --------- ----------------------------- --------- --------- ---------Net assets 1,236.4 1,046.0 1,122.7 ----------------------------- --------- --------- --------- Shareholders' equity Called up share capital 0.1 0.1 0.1 Share premium 448.4 372.2 373.0 Equity component of convertible bonds 21.0 - - Hedge reserve (70.5) - - Other reserves 3.5 0.5 1.9 Retained earnings 833.9 673.2 747.7 ----------------------------- --------- --------- ---------Total shareholders' equity 1,236.4 1,046.0 1,122.7 ----------------------------- --------- --------- --------- CONSOLIDATED CASH FLOW STATEMENT 28 weeks 28 weeks 52 weeks to to to 4 March 5 March 20 August 2006 2005 2005 £m £m £m -------- -------- -------- Cash flows from operating activities Operating profit 250.1 208.1 397.2 Depreciation 12.0 6.5 11.8 Amortisation of intangibles 3.1 0.9 1.7 Increase in stocks (0.8) - - Decrease in trade and other 24.2 1.5 0.6 receivables Decrease in trade and other payables (94.8) (25.3) (0.2) Difference between pension (0.4) (0.3) - contributions paid and amounts recognised in the income statement Decrease in provisions and other (8.1) (4.2) (9.0) liabilities -------------------------- -------- -------- -------- Cash generated from operations 185.3 187.2 402.1 Income tax paid (21.1) (7.8) (13.5) -------------------------- -------- -------- --------Net cash from operating activities 164.2 179.4 388.6 Cash flows from investing activities Acquisition of subsidiary, net of cash (205.3) (8.6) (69.2) acquired Purchase of property, plant and (93.0) (69.2) (139.1) equipment Proceeds from sale of property, plant 215.5 22.4 29.0 and equipment Proceeds from sale of assets held for 2.2 170.8 170.6 resale Purchase of intangible assets (0.5) (0.5) (0.8) -------------------------- -------- -------- --------Net cash used in investing activities (81.1) 114.9 (9.5) Cash flows from financing activities Net proceeds from issue of ordinary 75.4 5.5 6.3 share capital Proceeds from issue of new loans and 1,201.1 418.4 1,063.9 borrowings Deferred issue costs paid (20.9) (1.2) (11.0) Proceeds from issue of convertible 275.0 - - bonds Costs of issuing convertible bonds (9.3) - - Net proceeds from issue of derivative 50.0 - - financial instruments Repayment of borrowings (1,368.2) (635.9) (974.3) Interest paid (127.7) (109.7) (211.5) Interest received 9.7 5.9 9.0 Repayments of obligations under (1.2) (0.2) (0.4) finance leases Interest element of finance lease (0.6) (0.4) (0.7) rental payments Costs of terminating financing (115.0) (25.1) (25.5) arrangements(1) Decrease / (increase) in cash deposits 171.0 41.4 (129.8) used as security for loan notes Dividends paid (20.0) (15.3) (24.7) -------------------------- -------- -------- --------Net cash used in financing activities 119.3 (316.6) (298.7) -------------------------- -------- -------- --------Net increase / (decrease) in cash and 202.4 (22.3) 80.4 cash equivalents Cash and cash equivalents at beginning 245.7 165.3 165.3 of period -------------------------- -------- -------- --------Cash and cash equivalents at end of 448.1 143.0 245.7 period -------------------------- -------- -------- -------- Cash and cash equivalents consist of: Cash and cash equivalents 448.1 143.0 245.7 Bank overdrafts - - - -------------------------- -------- -------- -------- for the 28 weeks ended 4 March 2006 Cash and cash equivalents comprises cash at bank and in hand. (1) In the current period costs of terminating financing arrangements includeoutflows of £114.6m on the redemption of swaps following the repayment of£525.0m of bank loans on the acquisition of the Spirit group. These costs havebeen reflected in the fair value of assets acquired at the date of acquisition(note 8). NOTES TO THE FINANCIAL STATEMENTS for the 28 weeks ended 4 March 2006 1. ACCOUNTING POLICIES Basis of preparation The interim financial information is unaudited but has been reviewed by theauditors. The Group has previously prepared its financial statements under UK GenerallyAccepted Accounting Principles ("UK GAAP"). Following a directive issued by theEuropean Parliament, the Group is required to prepare its consolidated financialstatements for the year to 19 August 2006 in accordance with InternationalFinancial Reporting Standards ("IFRS"). Accordingly, the interim financial information has been prepared using IFRSaccounting policies consistent with those which management expects to apply inthe Group's first IFRS Annual Report and Financial Statements for the yearending 19 August 2006. These policies are set out on the Group's website(www.punchtaverns.com) in a document which restates the consolidated financialinformation at 22 August 2004 (the opening balance sheet under IFRS) and for the52 weeks to 20 August 2005, in accordance with IFRS. As permitted, the Group hasnot applied IAS 34 "Interim Reporting" in preparing the Interim Results. Inaddition, the Group has taken the exemption within IFRS 1 "First Time Adoptionof IFRS" to apply IAS 32 "Financial Instruments: Presentation and Disclosure"and IAS 39 "Financial Instruments: Recognition and Measurement" prospectivelyonly and not to retrospectively restate prior period comparatives upon adoption.These have been applied from 21 August 2005 and the impact is disclosed in note9. IFRS and International Financial Reporting Interpretations Committee("IFRIC") interpretations are subject to ongoing review and possible amendmentof interpretive guidance and are therefore still subject to change. As a resultit is possible that the information presented here may be subject to changebefore its inclusion in the 2006 annual financial statements, which will be theGroup's first set of financial statements prepared in accordance with IFRS. The interim report, which was approved by the Board of Directors on 22 May 2006,does not constitute statutory accounts within the meaning of section 240 of theCompanies Act 1985. The figures for the period ended 20 August 2005 have been derived from the UKGAAP statutory accounts, which have been filed with the Registrar of Companiesand on which the auditors gave an unqualified opinion and did not make anystatement under sections 237 (2) or (3) of the Companies Act 1985, as restatedfor the transition to IFRS. 2. SEGMENTAL ANALYSIS The Group operates in two business segments; a leased estate and a managedestate. The managed estate segment consists of the Spirit group of companieswhich was acquired on 5 January 2006 and separate disclosure of the turnover andoperating profit of this segment is provided on the face of the incomestatement. 3. NON-RECURRING AND EXCEPTIONAL ITEMS In order to provide a trend measure of underlying performance, profit isadjusted to exclude items which management consider will distort comparability,either due to their significant non-recurring nature or as a result of specificaccounting treatments. Included in the income statement are the following non-recurring and exceptionalitems:----------------------------------- -------- ------- ------- 28 weeks 28 weeks 52 weeks ended ended ended 4 March 5 March 20 August 2006 2005 2005 £m £m £m ----------------------------------- -------- ------- ------- Operating Profits generated from pubs identified for disposal(1) - 4.7 4.7 Redundancy, costs to integrate acquisition of (3.5) (2.9) (7.5) subsidiary and other related one-off costs ----------------------------------- -------- ------- ------- (3.5) 1.8 (2.8) ----------------------------------- -------- ------- ------- Finance income Other(2) - 0.3 0.3 ----------------------------------- -------- ------- ------- - 0.3 0.3 ----------------------------------- -------- ------- ------- Finance costs Secured loan interest(3) (0.1) (1.3) (1.3) Bank loan interest(4) - (3.2) (3.2) Cost of terminating financing arrangements(5) - (8.4) (9.3) ----------------------------------- -------- ------- ------- (0.1) (12.9) (13.8) ----------------------------------- -------- ------- ------- Movement in fair value of interest rate swaps(6) (4.4) - - ----------------------------------- -------- ------- ------- (4.4) - - ----------------------------------- -------- ------- ------- ----------------------------------- -------- ------- ------- Total non-recurring and exceptional items before tax (8.0) (10.8) (16.3) ----------------------------------- -------- ------- ------- ----------------------------------- -------- ------- ------- Tax ----------------------------------- -------- ------- -------Tax impact of exceptional items 2.4 4.4 6.2 Tax charge on terminating financing arrangements(7) - (10.8) (10.8) Release of tax provision(8) 15.0 - - ----------------------------------- -------- ------- ------- 17.4 (6.4) (4.6) ----------------------------------- -------- ------- ------- ----------------------------------- -------- ------- ------- Total non-recurring and exceptional items after tax 9.4 (17.2) (20.9) ----------------------------------- -------- ------- ------- (1) Profits generated from pubs identified for disposal arise from the 545 pubswhich were identified for disposal on acquisition of the InnSpired Group Limitedon 10 September 2004 which were disposed of on 28 January 2005. (2) Funds were held in an escrow account to fund the cost of acquisition ofInnSpired Group Limited. The exceptional interest receivable relates to theproportion of funding relating to the 545 pubs of the total 1,064 pubs acquiredon 10 September 2005 that were subsequently disposed of on 28 January 2005. (3) In the current period interest represents break costs incurred on the earlyredemption of bank loans which were repaid following the acquisition of theSpirit group. In the comparative period interest was incurred on the securedloan notes acquired through the InnSpired group acquisition from date ofacquisition to their subsequent redemption on 21 October 2004. The exceptionalsecured loan note interest charge represents the portion of the loan relating tothe 545 of the total 1,064 pubs acquired that were subsequently disposed of on28 January 2005. (4) A bank facility was drawn down to fund the acquisition of InnSpired GroupLimited. 545 of the 1,064 pubs acquired were subsequently sold on 28 January2005 with the receipts used to repay a portion of the facility drawn down. Theexceptional bank loan interest represents the interest and fees incurred on theportion of the loan relating to the 545 pubs from acquisition to 28 January 2005when that portion was repaid. (5) In comparative periods the cost of terminating financing arrangementsrepresents premiums paid to redeem secured loan notes acquired through theacquisition of InnSpired Group Limited, break costs incurred to cancel swaparrangements associated with these loans and premiums incurred to redeem securedfloating rate notes as part of the debt restructure on 1 August 2005. (6) Represents the movement in the fair value of interest rate swaps which do not qualify for hedge accounting. (7) The creation of deferred tax assets on the fair value of swaps and loansacquired on the acquisition of InnSpired Group Limited was reversed on thetermination of these financing arrangements, resulting in a non-recurring taxcharge of £10.8m in the prior period. (8) During the period the tax treatment of an onerous contract has been clarified and the associated tax provision has been released resulting in an exceptional tax credit of £15m. 4. TAXATION The effective taxation charge applied in these interim results of 22.3% reflectsthe estimated tax rate for the 52 weeks ending 19 August 2006. The effectiverate of taxation for the comparative period was 22.2%. The total tax charge of £8.5m (March 2005: £29.2m; August 2005: £44.2m) includesa tax credit of £17.4m (March 2005: charge of £6.4m; August 2005: charge of£4.6m) on non-recurring exceptional items. 5. EARNINGS PER ORDINARY SHARE --------------- ------- --- -------- --- ------- --- ------- --- -------- --- ------- 28 weeks to 4 March 2006 28 weeks to 5 March 2005 Continuing operations Earnings Weighted Per Earnings Weighted Per average share average share £m number amount £m number amount of of shares p shares p m m Basic earnings per 99.8 257.3 38.8 62.6 250.5 25.0 share Effect of dilutive - 4.6 (0.7) - 5.9 (0.6) options --------------- ------- --- -------- --- ------- --- ------- --- -------- --- ------- Diluted earnings per 99.8 261.9 38.1 62.6 256.4 24.4 share --------------- ------- --- -------- --- ------- --- ------- --- -------- --- ------- Supplementary earnings per share figures: Basic earnings per 99.8 257.3 38.8 62.6 250.5 25.0 share Effect of: Non-recurring (9.4) - (3.7) 17.2 - 6.9 exceptional items --------------- ------- --- -------- --- ------- --- ------- --- -------- --- -------Basic earnings per 90.4 257.3 35.1 79.8 250.5 31.9 share before non-recurring exceptional items --------------- ------- --- -------- --- ------- --- ------- --- -------- --- ------- Diluted earnings per 99.8 261.9 38.1 62.6 256.4 24.4 share Effect of: Non-recurring (9.4) - (3.6) 17.2 - 6.7 exceptional items --------------- ------- --- -------- --- ------- --- ------- --- -------- --- ------- Diluted earnings per 90.4 261.9 34.5 79.8 256.4 31.1 share before non-recurring exceptional items --------------- ------- --- -------- --- ------- --- ------- --- -------- --- ------- 6. NOTES TO THE CASH FLOW STATEMENT (a) Analysis of changes in net debt--------------- ------- --------- --------- --------- --------- At 20 Acquisitions Cash flow Non cash At 4 August movements March 2005 2006 £m £m £m £m £m --------------- ------- --------- --------- --------- ---------Current assets Cash at bank and in 245.7 - 202.4 - 448.1 hand Cash deposits 202.8 - (171.0) - 31.8 --------------- ------- --------- ---------- --------- ---------Cash and cash 448.5 - 31.4 - 479.9 deposits --------------- ------- --------- --------- --------- --------- Debt Bank loans (1.4) (850.0) (300.8) (2.0) (1,154.2) Secured loans (3,418.7) (1,360.9) 195.7 3.8 (4,580.1) Guaranteed loan (30.7) - (1.1) - (31.8) notes Vendor loan notes - (294.2) 294.2 - - Debt component of - - (265.7) 27.8 (237.9) convertible bonds --------------- ------- --------- --------- --------- --------- (3,450.8) (2,505.1) (77.7) 29.6 (6,004.0) --------------- ------- --------- --------- --------- ---------Net debt per balance (3,002.3) (2,505.1) (46.3) 29.6 (5,524.1) sheet --------------- ------- --------- --------- --------- --------- Cash deposits held at 4 March 2006 are used as security for guaranteed loannotes. Cash deposits at 20 August 2005 include £30.7m used as security forguaranteed loan notes and £172.1m of funds deposited on escrow to fund theredemption of old Punch Taverns Finance B Limited floating rate debt, notsubject to tender offer, on 30 September 2005, together with interest accruingfrom refinancing on 1 August 2005 to redemption. Non-cash movements relate to amortisation of deferred issue costs and premium onloan notes and convertible bonds and the equity component of convertible bonds. 6. NOTES TO THE CASH FLOW STATEMENT continued (b) Cash flows relating to acquisition The following table summarises the cash flows relating to continuing operationsand acquisitions during the current period:---------------------------- -------- ---------- -------- Continuing Acquisitions(1) Total Operations £m £m £m ---------------------------- -------- ---------- --------Cash flows from operating activities 177.8 7.5 185.3 Taxation paid (21.1) - (21.1) Cash flows from investing activities (124.4) 43.3 (81.1) Cash flows from financing activities 1,388.6 (1,269.3) 119.3 ---------------------------- -------- ---------- -------- Of total loans repaid during the period of £1,368.2m, £1,144.1m relates torepayments of bank loans that were acquired through the acquisition of SpiritGroup Holdings Limited. (1) Relates to the acquisition of Spirit Group Holdings Limited, ultimate parentof the Spirit trading companies. Cash flows in the current period include 8weeks of results relating to the acquired Spirit companies. 7. RECONCILIATION OF MOVEMENTS IN EQUITY ------------------------------ --------- --------- --------- 28 weeks 28 weeks 52 weeks ended ended ended 4 March 5 March 20 August 2006 2005 2005 £m £m £m ------------------------------ --------- --------- ---------At beginning of period 1,122.7 990.4 990.4 IAS 32 and IAS 39 adjustments (note 9) (68.6) - - ------------------------------ --------- --------- --------- 1,054.1 990.4 990.4 Total recognised income and expense for the 104.3 64.9 149.7 period Issue of share capital 74.1 - - Exercise of share options 1.3 5.5 6.3 Share-based payments 1.6 0.5 1.0 Equity dividends (20.0) (15.3) (24.7) Equity component of convertible bonds 30.0 - - Tax on equity component of convertible bonds (9.0) - - ------------------------------ --------- --------- ---------Total equity at end of period 1,236.4 1,046.0 1,122.7 ------------------------------ --------- --------- --------- During the current period, on 8 December 2005 8,721,000 ordinary shares wereissued for net proceeds of £74.1m and on 14 December 2005 £275.0m of convertiblebonds, due 2010, were issued at par. The convertible bonds bear interest at5.00% per annum and are convertible, at the option of the holder, into ordinaryshares at an exchange price of £11.782 per ordinary share. 8. ACQUISITIONS DURING THE PERIOD Acquisition of subsidiaries: Spirit Group Holdings Limited On 5 January 2006 the Group acquired the entire share capital of Spirit GroupHoldings Limited which operated a managed estate of 1,830 pubs at the date ofacquisition. The acquisition is summarised as follows: ----------------------------------- --------- Provisional fair value £m ----------------------------------- ---------Intangible fixed assets 204.8 Property, plant and equipment 2,829.7 Investments in joint ventures 5.1 Inventories 15.9 Taxation - current 0.6- deferred (3.1) Receivables 81.7 Cash and cash equivalents 234.1 Payables and provisions (445.8) Loans and swaps (2,731.6) ----------------------------------- ---------Net assets acquired 191.4 ----------------------------------- ---------Provisional goodwill arising on acquisition 248.0 ----------------------------------- ---------Total consideration 439.4 ----------------------------------- --------- Consideration satisfied by: Cash 439.4 ----------------------------------- --------- 439.4 ----------------------------------- --------- Due to the proximity of the acquisition to the interim date, the fair valueadjustments contain some provisional amounts. Provisional goodwill of £248.0mincludes £102.3m of deferred tax creditor which gives the opportunity to rollover taxable gains on the acquisition of properties and £222.9m of mark tomarket differences on retained loans and derivative financial instruments. 9. FIRST TIME ADOPTION OF IAS 32 AND IAS 39 The Group has adopted IAS 32 "Financial Instruments: Disclosure andPresentation" and IAS 39 "Financial Instruments: Recognition and Measurement"with effect from 21 August 2005. The Group has taken the exemption available inIFRS 1 "First-time Adoption of International Financial Reporting Standards" notto restate comparatives for both IAS 32 and IAS 39. The principal impact of IAS 32 and IAS 39 on the Group's financial statementsrelates to the recognition of derivative financial instruments at fair value.All derivatives are held on the balance sheet at fair value; the effectiveportion of changes in the fair value of derivatives that are designated andqualify as cash flow hedges are recognised in equity. The gain or loss relatingto the ineffective portion is recognised immediately in the income statement.Amounts accumulated in equity are recycled in the income statement in theperiods when the hedged item will affect profit or loss. Changes in fair value of any derivative instruments that do not qualify forhedge accounting are recognised immediately in the income statement. The adjustments to the opening balance sheet as at 21 August 2005 are asfollows: ------------------------- --------- --------- --------- Opening Effect of Restated balance IAS 32 opening sheet and position at under IFRS IAS 39 21 August 2005 £m £m £m ------------------------- --------- --------- ---------Non-current assets Receivables 11.7 (8.8) 2.9 Deferred tax asset 37.9 29.4 67.3 Current assets Trade and other receivables 78.5 (2.0) 76.5 Current liabilities Trade and other payables (206.3) 2.9 (203.4) Non-current liabilities Derivative financial instruments - (101.4) (101.4) Other liabilities (11.3) 11.3 - ------------------------- --------- --------- ---------Impact on net assets (68.6) ------------------------- --------- --------- --------- 10. DIVIDENDS An interim dividend of 4.4p per share (March 2005: 3.7 pence, August 2005: 7.6pence) was declared by the directors on 22 May 2006 and will be payable on 30June 2006 to shareholders on the register of members on 9 June 2006. Thesefinancial statements do not reflect this dividend payable. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Punch Taverns PLC