Interim Results 2009

1st Dec 2009 07:00



PRESS RELEASE 

1 December 2009

GREENE KING plc 

Interim results for the 24 weeks ended 18 October 2009

Strong performance in demanding environment; continued progress across all divisions

24 Weeks	08/09	09/10	Change
Revenue	£445.5m	£464.5m	+4.3%
Operating profit*	£106.8m	£103.3m	-3.3%
Operating margin*	24.0%	22.2%	-1.8%pts
Profit before tax*	£60.7m	£62.4m	+2.8%
Adjusted basic earnings per share**	27.3p	22.6p	-17.2%
Dividend per share**	5.9p	5.9p	n/c

 

Highlights

Revenue growth in a demanding environment

Greene King Retail like-for-like sales growth of 4.6% and robust margins

Improving performance trends at Pub Partners

Strong Belhaven performance; 8.9% profit growth

Brewing Company volume and profit growth 

Positive cashflow after debt paydown, investment and dividends

Debt reduced by £211.5m; strong balance sheet 

Steady progress on use of rights issue proceeds:

Acquisition of seven managed pubs in Scotland for £12.7m announced today 

£62m invested in acquisitions and debt buybacks to date

Rooney Anand, Greene King chief executive, comments:

"I am very pleased with our performance in the first half of our financial year. Whilst the environment remains demanding, each one of our businesses has made substantial progress in their respective markets and profit growth has been achieved in Retail, Belhaven and Brewing Company. We have delivered additional value to our customers and offset most of the cost pressures with limited impact on our margins. 

We were a strong business going into the recession and as a result of the actions we have taken, we are well placed to continue to outperform the sector. Although the economic outlook remains uncertain, I am confident we can build on this strong first half performance and continue to deliver value to our shareholders."

* before exceptional items

**08/09 earnings and dividend per share adjusted to reflect the impact of the bonus element of the rights issue in the period

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 Ian Bull, group finance director	Tel: 01284 763222
Financial Dynamics	Ben Foster	Tel: 020 7831 3113

  GREENE KING plc 

Chairman's Statement 

Results

I am pleased once again to be able to report interim results that highlight the strength and resilience of Greene King. Although conditions improved, there were still many pressures and challenges to overcome. We grew our revenue by 4.3% to £464.5m and while our operating profit was 3.3% lower than last year at £103.3m*, our profit before tax and exceptional items was up 2.8% at £62.4m. We achieved earnings per share of 22.6p*, 17.2% down on last year due mainly to the dilution from the rights issue.

Dividend

The board has declared an interim dividend of 5.9p per share, which is in line with the equivalent period last year. Our strong cash generation enables us to continue to pay a healthy dividend to shareholders without limiting other uses of our cash such as investment in the business and debt reduction. This interim dividend will be paid on 29 January 2010 to those shareholders on the register at the close of business on 29 December 2009.

Acquisitions and disposals

We completed the acquisition of eleven, high quality, freehold, managed pubs from Punch Taverns on 1 July for a cash consideration of £30.4m and they are trading well.

Although the commercial property market is less depressed, it is still a difficult market in which to trade assets. However, we have successfully pursued our strategy of disposing of non-core assets and in the period we have sold 56 properties for £14.1m at just above book value.  

People

The foundation of Greene King's success over the years has been its people and I would like to convey my sincere thanks to those working for the company now for their commitment and success through another demanding six months. I am confident that, whatever challenges may exist, our employees and our licensees have the resilience and the resolve to continue delivering outstanding success.

Tim Bridge Chairman

30 November 2009

*As throughout this document, profit figures are shown before exceptional items

  Chief Executive's Review 

In another difficult and highly competitive trading environment, Greene King has delivered a strong performance. For the 24 weeks to 18 October 2009, revenue was £464.5m, 4.3% ahead of the same period last year, operating profit was £103.3m, down 3.3% on last year and profit before tax was £62.4m, 2.8% above last year. Adjusted earnings per share was down 17.2% at 22.6p, due mainly to the impact of the rights issue. The board has declared an interim dividend of 5.9p per share, in line with last year.

It is now over two years since we first saw the signs of a consumer slowdown following the wet summer of 2007, the implementation of the smoking ban in July 2007 and the collapse of Northern Rock. 

Greene King was well positioned going into the recession with: 

A clear and consistent strategy for maximising growth and optimising our asset base 

A high quality, well-invested and well-churned pub estate

Good market positions away from the high street; focused on the South East and Scotland

Market-leading beer and retail brands 

A stable, experienced management team

Healthy operating margins and profit-to-cash conversion

A robust balance sheet with no short-term financing requirements

Having detected the warning signs in the autumn of 2007, we acted quickly and decisively to adapt our offer to consumers to reflect their flight to value, to increase our focus and investment in strategically important growth categories such as food, wine and coffee and to invest additional support for our licensees both in our managed and tenanted businesses. At the same time, a thorough examination of our cost base and a meticulous approach to reducing and then controlling our costs has offset above-inflationary cost pressures and allowed us to deliver the value being demanded by our customers. More recently, we completed a successful rights issue to enable us to make targeted pub acquisitions and buy back debt at a discount to par.

These actions have helped to deliver the strong performance achieved in the first half of the year. Our Retail business has delivered strong like-for-like sales growth, whilst maintaining its industry-leading operating margins. I believe there are still a number of growth opportunities within Retail that we are yet to exploit fully and I therefore remain confident it can continue to perform strongly. Pub Partners has completed the first year of a two-year turnaround programme and we have begun to see some improvements in its key performance indicators including licensee health. Belhaven is on course to deliver another record year, although growth is likely to slow in the second half due to tougher comparatives. Finally, our beer brands in Brewing Company have once again outperformed the market and cemented their position as category leaders in the UK.

Current trading and outlook

Since the period end, strong trading across our businesses has continued. After 29 weeks to 22 November, Retail like-for-like sales are +4.7% and Belhaven Retail like-for-like sales are +8.9%. The improved trends seen in Pub Partners in the first half have been maintained in the last 5 weeks. Own-brewed volume growth in Brewing Company continues to slow as expected but remains strong and well ahead of the market at +8.3%. Belhaven Best volumes are now +14.6%.  

Our performance in the first half, and since, highlights our strong competitive position. This remains relevant as, although 2009 proved to be less severe than we had feared, the consumer outlook for 2010 remains uncertain. We will need to be at our best to offset potential issues such as low pay growth, tax increases, rising unemployment, rising interest rates and public sector cut-backs, combined with tougher comparatives in the second half of the year. However, I am confident we will overcome these challenges as we continue to adapt and evolve our operating model, provide industry-leading levels of value, service and quality and keep a tight rein on costs. 

Many companies have already failed to make it through the recession and more are likely to fail. Strong, focused and resilient businesses such as Greene King have prospered and I expect us to continue to do so, as we have a proven strategy, high calibre and motivated people, quality assets and the financial strength and flexibility to deliver another successful year.

Greene King Retail

24 weeks	08/09	09/10	Change
Average number of sites trading	783	774	-1.1%
Revenue	£266.3m	£278.2m	+4.5%
EBITDA	£67.8m	£68.3m	+0.7%
Operating profit	£52.3m	£52.1m	-0.4%
Operating profit margin	19.6%	18.7%	-0.9%pts
EBITDA per site	£86.6k	£88.2k	+1.8%

Greene King Retail achieved sales of £278.2m in the period, 4.5% above last year on 1.1% less sites. Operating profit of £52.1m was down just 0.4%. Like-for-like sales were strong with growth of 4.6%. We continue to reposition Retail towards food with like-for-like food sales growth of 9.2%, taking the sales share from food to 37%. We also achieved drink like-for-like sales growth, whilst declines in machine income moderated. Both Destination and Local Pubs achieved like-for-like sales growth with strongest growth achieved at Hungry Horse, Old English Inns and Premium Locals. Loch Fyne is now fully integrated into Destination Pubs and trading well, particularly since the recent new menu launch.

Our Retail division aims to deliver the best value, service and quality in the sector. We do this via an operational focus on contemporary offers in highly attractive environments delivered by excellent, customer focused employees. Overlaying this is a tight control of costs, ways of working to deliver operational compliance and the ongoing optimisation of the property estate. This consistent, clear approach continues to deliver outperformance.

We constantly seek improvements to our customer offer. On drink, we have agreed a new supply deal with Carlsberg to add value and choice for our customers. By the period end, almost 300 pubs had installed Carlsberg either in addition to or as a replacement for existing lager brands. Standard lager performance since implementation in these pubs is encouraging. On food, we seek to constantly improve the quality of our offer through a combination of great classic and new, contemporary dishes; in Loch Fyne, our re-introduction of favourites such as whitebait, prawn cocktails and 'line-caught' haddock and chips is proving very successful, whilst in Hungry Horse, we have created and launched successful new menu items such as the 'Towering Inferno' burger. We have increased our Sunday focus, improving the quality and value of our roast meals and generating like-for-like food sales growth of over 10%. The £70 AWP jackpot has boosted machine performance. Working closely with our suppliers, we were the first pub operator to fully integrate the new machines, we promoted the new jackpot aggressively and targeted managers to achieve 100% machine refill compliance. 

In order to deliver the value consumers demand, we have once again been ruthless on cost. Gross margins were broadly in line with last year; on drink, we kept a tight grip on yields and managed the product mix more effectively; on food, we generated further scale economies through significant streamlining, product line rationalisation and increased volume. The small decline in operating margin was fully accounted for by net inflationary cost pressures. Electricity prices were 27% higher than last year, although we mitigated one third of this through usage reduction. The National Minimum Wage rose again, but we managed to reduce labour costs as a percentage of sales by 0.5 percentage points, despite the ongoing mix shift toward food sales, on the back of tighter controls, improved labour planning and greater productivity per employee.

We currently employ 15,000 people in Retail and raising the quality of the service we provide to our customers through our frontline staff is a key element of our strategic and operational focus. We are recruiting higher quality house managers; the recession has created a larger talent pool from which to recruit externally and in the period we received 13 external applications for every vacancy at house manager level. At the same time we look to promote talent from within and it is pleasing to see that 46% of our management vacancies were filled by our rising stars. We have also improved the quality and effectiveness of our training; we've added more commercial modules to the programme, upweighted the 'on-site' element of training and used our mystery guest programme to train in the benefits of high quality customer service in the retail environment. As a result, Retail has recently achieved a record average mystery guest score of over 90%.

We continue to improve the quality and attractiveness of our pubs and restaurants through sustained investment in our core estate and targeted acquisitions. We invested £5.9m of expansionary capital, a further £10.6m was invested in maintaining our pubs and £4.2m was spent on repairs from the revenue account. We invested £4.4m in 11 Hungry Horse sites, taking the total number of 'new' Hungry Horse sites to 66. Our 'sparkle' programme in Local Pubs continued apace with 88 refurbishments completed in the period, totalling £4.4m. Since 2006/7, we have now invested in around 50% of our Retail estate, leaving a significant long-term opportunity to continue improving the overall quality of our Retail assets over the next few years. We have successfully integrated the acquired seven Punch sites. We are pleased with their trading since the deal completed on 1 July 2009 and we have recently invested in two sites ahead of the Christmas trading period.  

Estate numbers

We began the financial year with 772 Retail sites. Seven pubs were acquired from Punch Taverns, we opened one new Loch Fyne development in Hertford, three pubs were transferred in from Pub Partners and seven sites were sold. The closing balance was therefore 776 sites, segmented as follows:

	Outlets at year end	Outlets trading on average during period
Destination Pubs	320	322
Local Pubs	456	452
Total	776	774

Pub Partners

24 weeks	08/09	09/10	Change
Average number of pubs trading	1,469	1,382	-5.9%
Revenue	£74.8m	£68.8m	-8.0%
EBITDA	£39.0m	£34.3m	-12.1%
Operating profit	£35.8m	£30.9m	-13.7%
Operating profit margin	47.9%	44.9%	-3.0%pts
EBITDA per pub	£26.5k	£24.8k	-6.4%

It was another tough trading period for the tenanted sector of the pub trade, but Pub Partners, our predominantly tenanted division, has shown some encouraging and improved performance trends. For an estate with 5.9% less pubs, revenue was down 8.0% at £68.8m, with operating profit down 13.7% to £30.9m on a 44.9% operating margin. Average EBITDA per pub was down 6.4%. A total of £2.5m was invested across the Pub Partners estate, of which £2.2m was maintenance capex, a further £0.4m was expansionary capex and £1.4m went on repairs through the revenue account. 

Pub Partners' geographic bias to the more prosperous and resilient South East, its high quality estate, its strong licensee relationships through its predominantly tenanted model and the Greene King brand support combine to create significant long-term competitive advantage. However, over the last two years, weaknesses within the tenanted/leased model have been exposed by the economic and consumer downturn. Most importantly, the fact that many of our licensees have lacked a value for money offer to compete against the value delivered in supermarkets and managed pubs, has put pressure on their profitability and viability. As a result, we began adapting the model in response to these issues over 12 months ago and this process has continued throughout the first half of the year. 

Firstly, the benefits from splitting our tenanted estate into 'core' and Independence Pub Company (IPC) have continued through the improved operating focus and flexibility for licensees. There are now 310 pubs trading in IPC, down from 404 12 months ago; a net 12 have returned to 'core', there have been 59 disposals and there are a further 23 pubs closed for disposal. We also plan to return over a third of the remaining IPC pubs back to 'core' by the financial year end. Over 40% of the Pub Partners estate is now operating free of the machine tie and free of tie on wines, spirits and minerals. Secondly, we continued improving our recruitment and training to ensure our pubs are run by the highest quality, most suitable and best trained licensees. Our efforts have generated strong interest in our pubs with an average of over four licensee applications for every vacancy, whilst our retention rate for first-time licensees has improved to 93% from 70% in 2007/8. Thirdly, we have increased support for licensees through product discounts via our 'Crunch Time' initiative, rent concessions and reducing pub numbers for each Business Development Manager (BDM). Financial support for our licensees totalled £3m, which we expect to be broadly matched in the second half of the year.

We are now one year into a two-year turnaround programme. Due to our actions, we are already seeing encouraging improvement in a number of licensee health measures, the 'vital signs' of licensee and company health. Since the start of the financial year, the number of pubs closed for reopening has fallen from 30 to 20, the number of temporary agreements has also fallen, bad debt as a percentage of sales has dropped 40bps to 1.1% and the average tenure of our licensees has risen by three months to three years and eleven months. 

There is still further work to be done and improvements required to adapt our business to a very different trading environment but the progress made over the last twelve months is very encouraging and will lead to a fitter and more dynamic tenanted business model a year from now.

An average of 1,382 pubs traded over the period. At the start of the financial year, 1,391 pubs were trading, three were transferred to Retail and 38 were sold of which 22 were closed pubs. The closing balance was 1,372 pubs trading.

Belhaven

24 weeks	08/09	09/10	Change
Revenue	£63.0m	£72.2m	+14.6%
EBITDA	£16.8m	£18.5m	+10.1%
Operating profit	£14.6m	£15.9m	+8.9%
Operating profit margin	23.2%	22.0%	-1.2%pts

This was another successful trading period for Belhaven. In the first half, revenues grew 14.6% to £72.2m with operating profit up 8.9% to £15.9m. Both Retail and brewing grew profits and, on a per pub basis, tenanted profits were maintained. The operating margin fell 1.2% pts, due mainly to net inflationary cost pressures and changes to the divisional profit mix. The number of pubs trading grew from 325 to 327 and, on average, 326 pubs were trading during the period. 

Sales and profit momentum continued in Belhaven Retail with like-for-like sales growth of +10.1%. Food was again the key driver, with like-for-like sales up 26.4%, but all other income streams achieved like-for-like sales growth. Total food sales were up 40% and food is now 29% of sales, up from less than 10% at the time of the acquisition. In spite of this ongoing mix shift to food, Belhaven Retail operating margins are in line with last year. Our acquisition strategy in Scotland is to selectively target sites that will improve the overall quality of the Retail estate and drive sector consolidation. The acquisition of four pubs from Punch Taverns and seven pubs from Mitchells & Butlers, after the period end, meet these objectives. The Punch pubs have been trading in line with our expectations and we expect trading improvement following planned capital expenditure in the second half of the year.

So far, Belhaven's tenanted division has successfully withstood the economic pressures in Scotland, delivering an industry-leading profit performance and stable licensee health measures. The aim is to be the 'best landlord in Scotland' and the team has worked closely with Pub Partners to reduce the risks to the business in the economic and consumer downturn. Our licensees have a competitive advantage in this sector; their pubs are well invested; they are supplied with an excellent beer portfolio; and they receive a high level of service and support from their BDMs and head office. At the period end, there were four closed pubs and 12 temporary agreements.  

In a Scottish ale market down 3.6% (in the 12 months to July according to AC Nielsen), Belhaven Best volumes grew 15.7%. This outperformance has led to further market share gains. The leading ale brand in Scotland now has a 24.3% share of the ale market, also according to AC Nielsen, almost 10% pts ahead of the next largest brand. With almost 9,000 independent outlets not currently served by our free trade team, there is still a significant long-term growth opportunity for Belhaven Best in Scotland. Profits in brewing were up 19%.

We remain cautious about the economic outlook in Scotland although, within a challenging economic environment, we have continued confidence that Belhaven will achieve further market share gains in both the beer and pub sectors. It has strong brands, an excellent team, the best customer service in the industry and its focus on the Scottish market gives it a lasting competitive advantage.

Brewing Company

24 weeks	08/09	09/10	Change
Revenue	£41.4m	£45.3m	+9.4%
EBITDA	£11.2m	£11.6m	+3.6%
Operating profit	£9.2m	£9.7m	+5.4%
Operating profit margin	22.2%	21.4%	-0.8%pts

In a UK ale market down 4.7% (in the last 12 months according to the BBPA), Brewing Company has continued winning share with own-brewed volumes up 9.8%. Volumes grew in all external channels (free trade, national on-trade, take home and export) and in Greene King Retail. Revenues grew 9.4% to £45.3m, whilst operating profit also grew, up 5.4% to £9.7m. 

Our strategy remains clear and consistent; to be the best brewer in England through a concentration on three quality core brands, continued sector-leading investment in those brands, a single, efficient brewing production facility and a focused sales resource delivering great value and service to our customers. This has led to our market share of the UK ale market doubling to 8.4% in seven years, Greene King IPA continuing to lead the UK cask ale market and now Old Speckled Hen becoming the UK's leading premium ale brand. To cap a successful 2009 for Brewing Company, we have recently been voted 'National Cask Brewer of the Year' in a poll of c. 10,000 licensee readers of the Morning Advertiser.

Greene King IPA is the UK's largest cask ale. During the period, we continued rolling out our innovative 'Cask Revolution' dispense system and it is now in over 700 pubs across the UK. We invested £1m in the technology and only install the system in quality cask ale outlets that meet strict criteria. We are pleased with both the return on capital and the Greene King IPA rate of sale improvement this investment is generating. At Twickenham, we are now selling almost 6,000 pints of Greene King IPA per hour on match days and our Rugby Union relationships are filtering through the layers of the sport with sponsorship and pouring rights at Wasps, Sale and Harlequins. We have also strengthened customer relationships in our East Anglian heartland, reinforced the brand's Suffolk provenance through a new pump clip and increased regional sponsorships.

Old Speckled Hen is currently celebrating its 30th year and its 10th year as a Greene King brand. In the period following acquisition, the brand has grown every year and is now the UK's leading premium ale brand, according to AC Nielsen, achieving retail sales of over £30m in the off-trade. The brand has won a number of awards, successfully sponsored prime time on Dave TV and is now exported to 45 countries worldwide. Abbot Ale is the UK's no. 2 premium cask ale and the most popular premium cask ale in London. We have begun a £0.5m investment programme in the brand, including sponsoring Friday nights on Dave TV and associating the brand with a number of cask ale quality initiatives in the trade press.

Brewing Company is playing a major role in supporting our licensees in Pub Partners. It has part-financed 'Crunch Time' to help licensees deliver better value on key products to their customers, launched the 'Head Brewers Club' for the top 330 cask licensees and pubs in Pub Partners, it is sponsoring cellar management courses for our licensees and it is providing quality ales and marketing support for a number of licensee-organised beer festivals.

The breadth of the team's customer and channel focus and the intensity with which the brands are driven, have played a major role in this division's success and will continue to ensure Brewing Company will outperform the brewing sector.

Financial Review

In an environment that has continued to be challenging, we are pleased to report further revenue growth of 4.3% to £464.5m, from 3.7% less pubs. Our gross margins have held up well. We have been able to offset a large part of the estimated £8.1m non-wage cost inflation, particularly in drinks and utilities, through our traditional focus on costs and cash and this, with the change in mix across our business, accounts for 1.4 percentage points of the overall margin decline. Operating profit before exceptionals was £103.3m, down 3.3% on last year. Interest costs of £40.9m, including £1.5m of IFRS pension interest, are 11% lower than last year, reflecting our strong positive cash flows, net of capex, and use of proceeds from our successful rights issue. Profit before tax and exceptionals was £62.4m, an increase of 2.8% on last year, delivering earnings per share of 22.6p per share, down 17.2% on last year. 

Positive free cash flow maintained post investments 

Our continued focus on cash has delivered EBITDA of £127.6m which, alongside £14.1m of working capital inflow, gives a strong cash platform. We have continued to pay down debt (ahead of our normal amortisation), invest both maintenance and expansionary capital in the core estate and pay a maintained dividend. We believe that sustaining this balance is the best long term financial strategy for the company, not least in this challenging climate.

Continued investment and disposals 

Our consistent approach in managing our quality assets has been maintained in a balanced and measured fashion with £25.5m of capex across the estate as part of an annual plan to keep capex broadly flat on a comparable estate year-over-year, delivering returns ahead of our cost of capital. We firmly believe that continued investment benefits our estate and the business in both the short and the longer term. At the same time, we have disposed of 56 non-core assets, realising £14.1m net proceeds just above book value. 

As part of the use of the rights issue proceeds, we completed the purchase on 1 July of eleven high quality, freehold, managed pubs from Punch Taverns for a cash consideration of £30.4m. 

Financing and treasury

Our 3 for 5 rights issue, which we announced in April and completed successfully in May, raised £207.2m net proceeds to be used for both targeted acquisitions and opportunistic repurchase of securitised debt. 

Net debt is £1,347.1m, down £211.5m in the period. Disposal proceeds, in addition to our strong core cash flows and the remaining £162m of the rights issue proceeds, leave us with no short term debt drawn against £400m of bank facilities. In fact, we have a cash surplus of £50m. Our bank facilities are available through to April 2012. Our high quality and primarily freehold assets support £1,400m of securitised bonds with a flat debt service profile out to their maturity in 2036 and no step-up in interest costs until March 2012. 

As part of the use of the rights issue proceeds, we repaid £22.4m aggregate principal amount of bonds in the first half, with a weighted average purchase price of £511.3 per £1,000. 

Our overall credit metrics continue to improve, with interest rate hedges in place for 100% of our debt at a blended interest rate of 6%. Fixed charge cover is 2.5x, up from 2.2x at the year end and interest cover is 2.6x from 2.2x at the year end. Net debt to EBITDA is now 5.1x, around the level we intend to maintain as organic cashflow and disposal proceeds are combined with further investment of the rights issue proceeds. Our securitised vehicle has a free cash flow debt service coverage ratio of 1.5x giving comfortable headroom above our covenant level. We have also further strengthened our balance sheet which now has additional capacity and flexibility to support our business strategy and growth.

Dividend maintained

The interim dividend of 5.9p per share is in line with last year, adjusted for the effect of the recent rights issue. The board has adopted a dividend policy targeting dividend cover of around two times underlying full year earnings.

Pensions

The group maintains a defined contribution scheme, open to all new employees. The group's defined benefit schemes are closed to new entrants. The main defined benefit scheme's triennial valuation, as at April 2009, is in progress and due to be completed by July 2010. Under IAS19, and recognising the turbulence in both equity markets and corporate bonds, the net pension liability is a deficit of £98.0m, relatively unchanged from the reported deficit of £91.6m at the year end. Whilst IAS19 valuations do not equate directly with additional funding requirements, we do expect to be able to agree sensible proposals with the trustees to address any deficit.  

Exceptional items

We have recorded £11.2m of exceptional charges, as a result of their nature or size. We continue to review the pubs in the tail of our estate and have recognised an impairment of £18.0m against the net book value of a small proportion of our estate. This, with the charge made last year, represents impairment of 3.5% of NBV, demonstrating the overall quality of our estate, whilst recognising some small adjustments around specific sites. We have also recognised a gain on the £22.4m aggregate principal of bonds purchased in the period together with the corresponding termination of swaps.

Principal risks and uncertainties

The principal risks and uncertainties for the group were set out in the 2008/9 annual report and accounts and can be viewed on our website www.greeneking.co.uk. These have not materially changed. 

Post balance sheet events

As part of the growth strategy outlined in our recent rights issue, we announced on 16 November a further purchase of £7.0m aggregate principal amount of B2 bonds, with a weighted average purchase price of £530.0 per £1,000. The total principal amount of bonds purchased to-date is £29.4m with a weighted average purchase price of £515.8 per £1,000. In addition, we have reached agreement to acquire seven high quality, freehold, managed pubs in Scotland from Mitchells & Butlers for a total consideration of £12.7m.

We have now utilised £62m of the rights issue proceeds and continue to have flexibility to take advantage of further opportunities as and when they arise. 

Rooney Anand

Chief Executive

30 November 2009

  

Unaudited group income statement

for the twenty-four weeks ended 18 October 2009

		24 weeks to 18.10.09				24 weeks to 19.10.08
		Before				Before
		exceptional	Exceptional		exceptional		Exceptional
		items	items	Total	items		items	Total
	Note	£m	£m	£m	£m		£m	£m
Revenue		464.5	-	464.5	445.5		-	445.5
Operating costs	3	(361.2)	(1.1)	(362.3)	(338.7)		(3.0)	(341.7)
Impairment of property, plant and equipment	3	-	(18.0)	(18.0)	-		(38.0)	(38.0)
Disposal of property, plant and equipment	3	-	-	-	-		4.3	4.3
Operating profit	3	103.3	(19.1)	84.2	106.8		(36.7)	70.1
Finance income	3	1.5	10.1	11.6	4.3		-	4.3
Finance costs	3	(40.9)	(2.2)	(43.1)	(50.1)		-	(50.1)
Net finance (costs)/income from pensions		(1.5)	-	(1.5)	(0.3)		-	(0.3)
Profit before tax		62.4	(11.2)	51.2	60.7		(36.7)	24.0
Tax	4	(15.6)	2.1	(13.5)	(15.2)		11.6	(3.6)
Profit attributable to equity holders of parent		46.8	(9.1)	37.7	45.5		(25.1)	20.4
Earnings per share **
- basic	5		18.2 p					12.3 p
- adjusted basic *	5	22.6 p			27.3 p
- diluted	5		18.2 p					12.3 p
- adjusted diluted *	5	22.6 p			27.3 p
Dividend proposed per share in respect of the period **		5.9 p			5.9 p		**

* Adjusted earnings per share excludes the effect of exceptional items.

** 2008 earnings and dividend per share have been adjusted to reflect the impact of the bonus element of the rights issue in the period

 

  Unaudited group statement of comprehensive income

for the twenty-four weeks ended 18 October 2009

			24 weeks to	24 weeks to
			18.10.09	19.10.08
			£m	£m
Profit for the period			37.7	20.4
Other comprehensive income
Cash flow hedges:
Gains/(losses) taken to equity			14.3	(52.1)
Losses/(gains) recycled to income on swap terminations			17.1	(3.2)
Tax on cash flow hedges			(8.8)	15.5
			22.6	(39.8)
Actuarial losses on defined benefit pension schemes			(6.1)	(61.3)
Tax on actuarial losses			1.7	17.2
			(4.4)	(44.1)
Other comprehensive income/(loss) for the period, net of tax			18.2	(83.9)
Total comprehensive income/(loss) for the period, net of tax			55.9	(63.5)

  Unaudited group balance sheet

as at 18 October 2009

			As at	As at
			18.10.09	3.05.09
		Note	£m	£m
Non current assets
Property, plant and equipment			1,994.9	1,997.3
Goodwill			676.9	673.8
Financial assets			41.1	40.3
Deferred tax assets			59.0	73.3
Prepayments			3.7	4.2
Trade and other receivables			0.2	0.2
			2,775.8	2,789.1
Current assets
Inventories			22.2	21.9
Trade and other receivables			55.7	62.0
Prepayments			9.5	6.9
Cash and cash equivalents			49.9	120.9
			137.3	211.7
			2,913.1	3,000.8
Current liabilities
Borrowings			(34.5)	(38.4)
Derivative financial instruments			(3.9)	(12.7)
Trade and other payables			(202.2)	(195.4)
Income tax payable			(45.9)	(43.3)
			(286.5)	(289.8)
Non current liabilities
Borrowings			(1,362.5)	(1,641.1)
Derivative financial instruments			(97.1)	(131.8)
Deferred tax			(189.1)	(197.6)
Post-employment liabilities			(103.5)	(97.1)
			(1,752.2)	(2,067.6)
			(2,038.7)	(2,367.4)
Total net assets			874.4	643.4
Issued capital and reserves
Share capital			27.1	17.0
Share premium			247.5	247.5
Capital redemption reserve			3.3	3.3
Hedging reserve			(72.3)	(94.9)
Own shares			(6.6)	(17.5)
Retained earnings			675.4	488.0
Total equity			874.4	643.4
Net debt		10	1,347.1	1,558.6

  Unaudited group cashflow statement

for the twenty-four weeks ended 18 October 2009

				24 weeks to	24 weeks to
				18.10.09	19.10.08
			Note	£m	£m
Operating activities
Operating profit				84.2	70.1
Operating exceptional items				19.1	36.7
Depreciation and amortisation				24.3	23.3
EBITDA*				127.6	130.1
Working capital and non-cash movements			9	14.1	8.1
Interest received				1.5	4.3
Interest paid				(45.2)	(53.7)
Tax paid				(12.1)	(14.2)
Net cashflow from operating activities				85.9	74.6
Investing activities
Purchase of property, plant and equipment				(26.0)	(60.9)
Acquisition of trade and assets			7	(31.6)	-
Purchases of other investments				(0.1)	(0.1)
Movements in financial assets				(0.7)	(1.2)
Sales of property, plant and equipment				14.1	27.3
Net cashflow from investing activities				(44.3)	(34.9)
Financing activities
Equity dividends paid			6	(32.5)	(25.1)
Issue of shares				207.3	0.2
Financing costs				(14.9)	(7.3)
Repayment of borrowings				(272.1)	(424.2)
Advance of borrowings				-	349.8
Net cashflow from financing activities				(112.2)	(106.6)
Net (decrease)/increase in cash and cash equivalents				(70.6)	(66.9)
Opening cash and cash equivalents				120.5	90.7
Closing cash and cash equivalents			10	49.9	23.8

*EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional items

  Unaudited statement of change in equity

for the twenty-four weeks ended 18 October 2009

	Share	Share	Merger	Capital	Hedging	Own	Retained	Total
	capital	premium	Reserve	redemption	reserve	shares	earnings
	£m	£m	£m	£m	£m	£m	£m	£m
At 3 May 2009	17.0	247.5	-	3.3	(94.9)	(17.5)	488.0	643.4
Total profit for the period	-	-	-	-	-	-	37.7	37.7
Other comprehensive income	-	-	-	-	22.6	-	(4.4)	18.2
Total comprehensive income	-	-	-	-	22.6	-	33.3	55.9
Rights issue	10.1	-	197.1	-	-	-	-	207.2
Transfer	-	-	(197.1)	-	-	-	197.1	-
Release of shares - share option proceeds	-	-	-	-	-	10.9	(10.8)	0.1
Share based payments	-	-	-	-	-	-	0.3	0.3
Equity dividends paid	-	-	-	-	-	-	(32.5)	(32.5)
			-
At 18 October 2009	27.1	247.5	-	3.3	(72.3)	(6.6)	675.4	874.4

	Share	Share	Merger	Capital	Hedging	Own	Retained	Total
	capital	premium	Reserve	redemption	reserve	shares	earnings
	£m	£m	£m	£m	£m	£m	£m	£m
At 4 May 2008	17.0	247.2	-	3.3	(3.6)	(17.2)	502.0	748.7
Total profit for the period	-	-	-	-	-	-	20.4	20.4
Other comprehensive income	-	-	-	-	(39.8)	-	(44.1)	(83.9)
Total comprehensive income	-	-	-	-	(39.8)	-	(23.7)	(63.5)
Issue of ordinary share capital	-	0.2	-	-	-	-	-	-
Share based payments	-	-	-	-	-	-	1.5	1.5
Tax on share based payments	-	-	-	-	-	-	(1.1)	(1.1)
Equity dividends paid	-	-	-	-	-	-	(25.1)	(25.1)
At 19 October 2008	17.0	247.4	-	3.3	(43.4)	(17.2)	453.6	660.7

  Notes to the accounts

for the twenty-four weeks ended 18 October 2009

 

 

1. Basis of preparation

This interim report has been prepared in accordance with UK listing rules and with IAS 34 'Interim Financial Reporting.

The financial information contained in this interim statement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The figures for the year ended 3 May 2009 have been derived from the statutory accounts of the group for that year with the exception of restatements made as a result of the changes to accounting policies set out below. These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by auditors without qualification or statement under Sections 498(2) and 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

The accounting polices adopted in the preparation of the interim report are consistent with those applied in the preparation of the group's annual report for the year ended 3 May 2009, except for the adoption of new standards and interpretations as noted below:

IFRS 2 - Share-based Payments - Vesting Conditions and Cancellations

The amended standard changes the definition of vesting conditions and prescribes the accounting treatment of an award that is effectively cancelled due to non-vesting conditions not being satisfied. The adoption of the amendment had no impact on the group's results or financial position.

IFRS 7 - Financial Instruments: Disclosure

The amended standard requires additional disclosure about fair value measurement and liquidity risk. The disclosures will be incorporated in the consolidated accounts for the year ended 2 May 2010.

IFRS 8 - Operating Segments

The standard includes revised requirements for the identification, measurement and disclosure of segment information. The group has determined that its operating segments are the same as had previously been disclosed in accordance with IAS 14. The revised disclosures are included within note 2.

IAS 1 - Revised Presentation of Financial Statements

The revised standard introduces the statement of comprehensive income which presents all items of recognised income and expense, either in one single statement, or in two linked statements. The group has elected to present two statements.

IAS 23 - Borrowing Costs (Revised)

The revised standard requires the capitalisation of borrowing costs when such costs relate to an asset that necessarily takes a substantial amount of time to get ready for its intended use of sale. The adoption of the revised standard has had no impact on the group's results or financial position.

  Notes to the accounts

for the twenty-four weeks ended 18 October 2009

 

2. Segment information

2009/10 (24 weeks)	Retail	Pub	Brewing	Belhaven	Corporate	Total
		Partners	Company			operations
	£m	£m	£m	£m	£m	£m
External revenue	278.2	68.8	45.3	72.2	-	464.5
Segment operating profit (pre-exceptionals)	52.1	30.9	9.7	15.9	(5.3)	103.3
Exceptional items	(7.7)	(9.5)	-	(0.7)	(1.2)	(19.1)
Segment operating profit (post-exceptionals)	44.4	21.4	9.7	15.2	(6.5)	84.2
Net finance cost						(33.0)
Income tax expense						(13.5)
Net profit for the period						37.7
Net assets	1,240.4	826.3	194.8	342.5	(1,729.6)	874.4
EBIDTA*	68.3	34.3	11.6	18.5	(5.1)	127.6

2008/09 (24 weeks)	Retail	Pub	Brewing	Belhaven	Corporate	Total
		Partners	Company			operations
	£m	£m	£m	£m	£m	£m
External revenue	266.3	74.8	41.4	63.0	-	445.5
Segment operating profit (pre-exceptionals)	52.3	35.8	9.2	14.6	(5.1)	106.8
Exceptional items	(21.7)	(9.9)	(1.2)	(5.2)	1.3	(36.7)
Segment operating profit (post-exceptionals)	30.6	25.9	8.0	9.4	(3.8)	70.1
Net finance cost						(46.1)
Income tax expense						(3.6)
Net profit for the period						20.4
Net assets	1,233.7	866.0	194.5	331.1	(1,964.6)	660.7
EBIDTA*	67.8	39.0	11.2	16.8	(4.7)	130.1

The group has determined five reportable segments that are largely organised and managed separately according to the nature of products and services provided, brands, distribution channels and profile of customers. The segments include the following businesses:

Retail: Managed houses in England and Wales, as well as Loch Fyne Restaurants.

Pub Partners: Results of tenanted houses predominantly in England.

Brewing Company: Brewing beer, marketing and selling, all predominantly in England.

Belhaven: Our Scottish operation which includes managed and tenanted houses and brewing and selling beer.

Corporate: Includes corporate costs, which relate to central costs and central assets and liabilities.

*EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptionals.

  Notes to the accounts

for the twenty-four weeks ended 18 October 2009

 

3. Exceptional items

		24 weeks to	24 weeks to
		18.10.09	19.10.08
		£m	£m
Operating
Financial systems integration		1.1	1.6
Divisional restructuring		-	1.4
Impairment of property, plant and equipment		18.0	38.0
Net profit on disposal of property, plant and equipment		-	(4.3)
		19.1	36.7
Financing
Net gain on repurchase of securitised debt		(10.1)	-
Termination of interest rate swaps and loan facilities		2.2	-
		11.2	36.7

Exceptional divisional restructuring and financial systems integration costs are items of one-off expenditure incurred in connection with the restructuring of certain trading segments within the group and the review of group-wide financial systems.

During the 24 week period to 18 October 2009 the group has recognised an impairment loss of £18.0m (2008: £38.0m) in respect of its licensed estate. The impairment has been recognised in respect of pubs where the higher of value-in-use and fair value less costs to sell has fallen below the net book value.

The net profit on disposal of property, plant and equipment of £nil (2008: £4.3m) comprises a total profit on disposal of £3.2m (2008: £8.2m) and a total loss on disposal of £3.2m (2008: £3.9m).

 

4. Current Tax

	24 weeks to 18.10.09				24 weeks to 19.10.08
	On profits			On profits
	before			before
	exceptional	Exceptional		exceptional		Exceptional
	items	items	Total	items		items	Total
	£m	£m	£m	£m		£m	£m
Income tax
Corporation tax before exceptional items	16.1	-	16.1	15.7		-	15.7
(Recoverable)/ chargeable on exceptional items	-	(1.2)	(1.2)	-		(0.6)	(0.6)
	16.1	(1.2)	14.9	15.7		(0.6)	15.1
Deferred tax
Origination and reversal of temporary differences	(0.5)	(0.9)	(1.4)	(0.5)		(11.0)	(11.5)
Tax charge in the income statement	15.6	(2.1)	13.5	15.2		(11.6)	3.6

The tax credit of £2.1m shown under exceptional items consists of a current tax credit of £0.3m on exceptional integration costs, a deferred tax credit of £5m on impairment of property plant and equipment, a deferred tax credit of £1.4m on indexation of properties, a deferred tax credit of £0.2m on disposals of properties, a current tax charge of £2.9m on the repurchase of debt, a deferred tax charge of £3.4m and a current tax credit of £4m on termination of interest rate swaps and an exceptional deferred tax charge of £2.5m on share based payments.

  Notes to the accounts

for the twenty-four weeks ended 18 October 2009

 

4. Current Tax (continued)

The Finance Act 2008 abolished allowances on industrial buildings and hotels on a phased basis. This has resulted in an exceptional credit of £0.7m in the prior year. This is included within the tax credit of £11.6m shown under exceptional items which is also stated after a current tax credit of £0.6m on exceptional costs, a deferred tax credit of £1.8m on indexation of properties, a deferred tax charge of £2.1m on disposal of properties and a deferred tax credit of £10.6m on the impairment of property, plant and equipment.

 

5. Earnings per share

Basic earnings per share has been calculated by dividing the profit after taxation of £37.7 million (2008: £20.4 million) by the weighted average number of shares in issue of 207.0 million (2008: 166.5 million).

The weighted average number of shares in issue for the prior period of 166.5 million has been restated to reflect the bonus element of the rights issue that occurred in the period using a bonus factor of 1.246.

Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group.

Adjusted earnings per share	Earnings		Earnings per share
	24 weeks to	24 weeks to	24 weeks to	24 weeks to
	18.10.09	19.10.08	18.10.09	19.10.08
		£m		p
Basic	37.7	20.4	18.2	12.3
Exceptionals	9.1	25.1	4.4	15.0
Adjusted	46.8	45.5	22.6	27.3

Diluted earnings per share has taken account of nil (2008: nil) contingent shares under option.

 

6. Dividends paid

		24 weeks to	24 weeks to
		18.10.09	19.10.08
		£m	£m
Declared and paid in the period
Final dividend for 2008/09 - 15.1p (2007/08: 15.0p)		32.5	25.1

2008 dividend per share has been restated to reflect the impact of the bonus element of the rights issue in the period.

 

7. Acquisitions

On 8 June 2009, the group acquired a package of eleven pubs from Punch Taverns for total cash consideration of £31.6m. The provisional fair value of the property, plant and equipment acquired was £28.5m. The difference between the consideration paid and the fair value of the assets acquired of £3.1m has been recognised as goodwill, and has arisen as a result of the difference between property portfolio value and fair value-in-use.

  Notes to the accounts

for the twenty-four weeks ended 18 October 2009

 

8. Rights issue

On 29 May 2009, a three-for-five rights issue was completed and 80.8m new ordinary shares with an aggregate nominal value of £10.1m were issued for cash consideration of £207.2m, net of issue costs of £10.9m. The rights issue was effected through a structure which resulted in the excess of the net proceeds received over the nominal value of the share capital issued being transferred to retained earnings.

 

9. Working capital and non-cash movements

		24 weeks to	24 weeks to
		18.10.09	19.10.08
		£m	£m
Increase in provision against financial assets		-	0.1
Increase in inventories		(0.3)	(1.8)
(Decrease)/increase in trade and other receivables		4.2	(2.1)
Increase in trade and other payables		12.5	14.2
Share-based payments expense		(0.1)	1.5
Difference between defined benefit pension contributions paid and amounts charged		(1.2)	(0.4)
Exceptional costs		(1.0)	(3.4)
Working capital and non-cash movements		14.1	8.1

 

10. Analysis and movements in net debt

		As at	As at	As at
		18.10.09	3.05.09	19.10.08
		£m	£m	£m
Cash in hand, at bank*		24.5	21.7	22.5
Short term deposits*		25.4	99.2	1.3
Overdrafts		-	(0.4)	-
Cash and cash equivalents		49.9	120.5	23.8
Current portion of borrowings		(34.5)	(38.0)	(42.6)
Non current portion of borrowings		(1,362.5)	(1,641.1)	(1,572.3)
Closing net debt		(1,347.1)	(1,558.6)	(1,591.1)

*included in cash and cash equivalents on the balance sheet

Movements in net debt
			24 weeks to	24 weeks to
			18.10.09	19.10.08
			£m	£m
Net decrease in cash and cash equivalents			(70.6)	(66.9)
Proceeds - issue of securitised debt			-	(349.8)
Repurchase of securitised debt			11.6	-
Repayment of principal - securitised debt			11.6	10.0
Repayment of principal - loans and loan notes			248.9	414.2
Financing issue costs			-	6.9
Decrease in net debt arising from cash flows			201.5	14.4
Gain on repurchase of securitised debt			10.7	-
Other non cash movements			(0.7)	-
Decrease in net debt			211.5	14.4
Opening net debt			(1,558.6)	(1,605.5)
Closing net debt			(1,347.1)	(1,591.1)

  Notes to the accounts

for the twenty-four weeks ended 18 October 2009

10 Analysis and movements in net debt (continued)

Securitised debt repurchase

During the period securitised debt with a nominal value of £22.4m was repurchased for cash consideration of £11.6m. The gain on repurchase of these bonds was £10.7m which, together with fees of £0.6m, resulted in a net gain on repurchase of £10.1m.

Securitisation tap

In the previous year £349.8 million of bonds (with a nominal value of £350m) were issued as a tap of the original securitisation. The bonds are secured over the properties and their future income streams and were issued by Greene King Finance plc. The funds were used to repay existing bank facilities.

 

11. Post balance sheet events

An interim dividend of 5.9p per share (2008: 5.9p) amounting to a dividend of £12.7m (2008: £9.8m) was declared by the Directors at their meeting on 30 November 2009. These financial statements do not reflect this dividend payable.

Responsibility statement

The directors confirm that to the best of their knowledge:

the condensed set of financial statements has been prepared in accordance with IAS34;

the interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R - "indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year"; and

the interim management report includes a fair review of the information required by DTR 4.2.8R - "disclosure of related party transactions and changes therein".

On behalf of the board

Tim Bridge Rooney Anand

Chairman Chief Executive

  Independent review report to Greene King plc 

Introduction 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 18 October 2009 which comprises the group income statement, group statement of comprehensive income, group balance sheet, group cash flow statement, statement of changes in equity and the related explanatory notes 1 to 11. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. 

Our Responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 18 October 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

Ernst & Young LLP

London

30 November 2009

- ends -

ENDIR XBLLXKFBEFBB

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