Interim Results

2nd Dec 2008 07:00



PRESS RELEASE 

2 December 2008

GREENE KING plc 

Interim results for the 24 weeks ended 19 October 2008

Solid performance in a tough environment; sound balance sheet

 and positive actions to meet challenging conditions

24 Weeks	07/08	08/09	Change
Revenue	£445.0m	£445.5m	+0.1%
Operating Profit*	£111.8m	£106.8m	-4.5%
Operating Margin*	25.1%	24.0%	-1.1%pts
Profit before Tax*	£71.6m	£60.7m	-15.2%
Adjusted Earnings per Share*	35.6p	34.0p	-4.5%
Dividend per Share	7.3p	7.3p	n/c

Highlights

* before exceptional items ** Greene King and industry sources, AC Nielsen

Rooney Anand, Greene King chief executive, comments:

"These results cover one of the toughest trading periods for many years. Despite this, our performance has been solid across the business, meeting market expectations and demonstrating yet again the strength of the integrated model and the benefits of our long-term investment. External conditions are likely to worsen in the New Year and so we continue to realign our businesses to reflect the rapidly changing environment and address our cost base to protect our profitability. These actions, combined with prudent investment in the business, a sound balance sheet and healthy cashflows, are further enhancing our relative strength in the industry. This leads me to believe we remain well placed to weather the storm and to continue to advance over the long-term."

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 

Interim results for the 24 weeks ended 19 October 2008

Chairman's statement 

Results

We have produced a robust set of results in what has been one of the most challenging trading periods for some time. A number of external factors have made conditions extremely tough but despite this we have achieved operating profit of £106.8m, down 5% and profit before tax of £60.7m, down 15%*. We generated earnings per share of 34.0p, down 4%.

Dividend

In this difficult trading environment, there are increasing and competing demands on our cash. We have continued to invest in our business whilst at the same time comfortably meeting our debt obligations. Although operating profit was below last year, strong conversion of profit into cash has allowed the board to declare an interim dividend of 7.3p per share, in line with last year. This interim dividend will be paid on 29 January 2009 to those shareholders on the register at the close of business on 30 December 2008.

Disposals

No major acquisitions have been made during the period, although we have continued our long-held policy of disposing of non-core assets to improve the overall quality of our estate. Over the 24 weeks, we disposed of 34 sites for £27.3m with a net profit on disposal of £4.3m. 

People

It is during times like these that the importance of high quality people becomes paramount. Within each of our businesses, there are numerous success stories, despite the tough conditions, and these can invariably be attributed to the dedication, skill and passion of our team and our licencees. 

May I express my sincere thanks to all those who have worked hard to ensure that Greene King continues to be a much admired and respected company. All of our people should feel justifiably proud of their achievements. The environment is likely to become even more challenging in the near future, but I believe that we can look forward to continued success in the long term, thanks to the quality of our team.

Tim Bridge Chairman

1 December 2008

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

  Chief Executive's Review 

I am pleased to report, given the external environment, a solid set of results for Greene King. For the 24 weeks to 19 October 2008, revenue was £445.5m, slightly ahead of last year, operating profit of £106.8m was down 4.5% and profit before tax was £60.7m, 15.2% below last year*. After the full impact of share repurchases in 2007, adjusted earnings per share was down 4.5% at 34.0p. The board has declared an interim dividend, in line with last year, of 7.3p per share.

Trading conditions are the toughest we have known for a long time; the credit crunch has weakened consumer confidence, deeper discounting in the off-trade has encouraged the consumer to stay at home and higher costs have placed operating margins under severe strain. I believe the environment will become even more challenging in the near-term as we are yet to see the full impact on discretionary spend of rising unemployment, increasing negative housing equity and continued high consumer debt levels. 

However, I remain firmly of the view that Greene King can withstand these factors. Our strategic approach has consistently taken a long-term view of the market and within that are certain elements that have stood us in good stead in the past and will help us come through this downturn in a strong position: -

the flexibility of our integrated model combining managed pubs, tenanted pubs and brewing

the high quality of our freehold estate, focused on suburban and residential locations

our geographic focus on the South East and Scotland

strong relationships with our licensees

our high quality and market leading ale brands

focus on profitable sales growth to generate strong cashflows

prudent balance sheet management

strong management team, blending industry experience and knowledge with retail and consumer goods skills

To face the challenges of this economic slowdown, we have implemented a number of specific actions to maintain our strong competitive position in the sector and our attractiveness in the eyes of the consumer, our staff and our licensees: -

restructured our debt to fix rates for the long-term and defer refinancing needs to 2012

targeted projects to focus on costs and cashflows, including working capital 

continued high returning investment in our estate, focusing on value offers like Hungry Horse 

ongoing repositioning toward food, coffee, wine and accommodation

comprehensive restructure of Pub Partners to strengthen the model 

cost reduction and successful switch of fixed to variable costs in Brewing Company

repositioning of large Scottish food-led pubs; transferred to Belhaven management

As a result, I remain confident that Greene King can continue to outperform the market and further distinguish itself from its competitors. We have high quality assets in the shape of our people, our pubs and our brands. We have a sound balance sheet and healthy cashflows. When the going gets tough we have shown in the past that we have the capability and the energy to withstand difficult trading conditions. Whilst the current climate is particularly challenging, I firmly believe we will maintain this tradition and again come through tough trading conditions in a stronger position.

 

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

Greene King Retail

24 weeks	07/08	08/09	Change
Average number of sites trading	798	783	-1.9%
Revenue	£268.2m	£266.3m	-0.7%
EBITDA	£70.0m	£67.8m	-3.1%
Operating profit	£56.5m	£52.3m	-7.4%
Operating profit margin	21.1%	19.6%	-1.5%pts

For the first 24 weeks of this year, Greene King Retail achieved sales of £266.3m, 0.7% below last year and operating profit of £52.3m, down 7.4%. Total like-for-like sales were -1.6%, with food +1.9% and accommodation +3.0%. Food is now 34% of total Retail sales. Within Retail, regional performance has been variable with London achieving the best like-for-like sales growth. 

Given the tough trading conditions, margins have inevitably come under pressure, but remain the best in class. The underlying pub operating margin, excluding the impact of the mainly leasehold Loch Fyne Restaurants, fell 0.6 percentage pts to 20.8%. 

In terms of sales, we have improved the effectiveness of our communication through initiatives such as signage investment and improved database management. Our value offers have been extended, without sacrificing gross margin, via a successful 'Every Day Low Pricing' (EDLP) programme in 113 Local Pubs and in Hungry Horse, further targeted meal deals including 'feed a family of four for £12' and an expansion of our Golden Years offer for the over 60's. We have also seen a stabilisation of performance in some of our wet-led pubs, supported by our continued commitment to sports entertainment.

We have achieved growth in strategically important categories such as food, cask ale, coffee, wine and accommodation. We launched 29 new menus in the period including new offers in Hardy's House, Loch Fyne and across our Locals estate. Like-for-like cask ale sales were up 2.5% and over 550 of our Retail sites have earned Cask Marque status. Our Fairtrade coffee offer is now installed in over 400 pubs, RevPar in Old English Inns has grown 3.5% on the back of our Beds, Baths and Breakfast investment and we have improved our wine offer to customers through direct sourcing, product exclusivity and more competitive pricing. Toward the end of the period, we launched our new and improved soft drinks range.

Cost pressures during the period were challenging although we still managed to offset most of the upward movement. New menus have been engineered and labour productivity has been further enhanced. We have increased our use of e-auctions, further leveraged our purchasing scale across a number of line items and successfully renegotiated cost prices. We have continued the emphasis on fixed and variable costs, including close monitoring of our electricity usage. All of these actions have helped to protect margins during a period of intense cost pressure. 

During the period, we invested £20.3m of expansionary capital, a further £15.4m was invested in maintaining our pubs and £4.3m was spent on repairs from the revenue account. We continue to invest strategically in both the value segment with Hungry Horse and Hardy's House and the premium segment within Destination Inns, Loch Fyne and Premium Locals. We have successfully converted four Greene King pubs to Loch Fyne in the period, in Wokingham, Didsbury, West Kirby and Ascot, and we have opened three other new sites, in Shrewsbury, Cowbridge and Alderley Edge. Since the period end, we have completed a further conversion, in Kenilworth, which includes a 31-bed hotel, and opened the first Loch Fyne in the City of London.

  Estate numbers

We began the financial year with 792 Retail sites. three new Loch Fyne sites were acquired, 11 pubs were sold and seven transferred to Pub Partners. The closing balance was therefore 777 sites, segmented as follows:

	Outlets at period end	Outlets trading on average during period
Destination Pubs	255	257
Local Pubs	476	483
Loch Fyne Restaurants	46	43
Total	777	783

Pub Partners

24 weeks	07/08	08/09	Change
Average number of pubs trading	1,416	1,469	+3.7%
Revenue	£76.6m	£74.8m	-2.3%
EBITDA	£39.5m	£39.0m	-1.3%
Operating profit	£36.7m	£35.8m	-2.5%
Operating profit margin	47.9%	47.9%	n/c

Revenue at Pub Partners, our tenancy/lease division in England and Wales, was down 2.3% at £74.8m, with operating profit down 2.5% to £35.8m. Operating margins were in line with last year at 47.9%. During the period, a total of £5.3m was invested across the Pub Partners estate, an additional £3.3m went on maintenance capex and £1.4m on repairs from the revenue account. An average of 1,469 sites traded over the period. At the start of the financial year, 1,474 pubs were trading, three sites were added from acquisitions, while 25 were sold and seven transferred in from the Retail division. The closing balance was therefore 1,459 pubs.

We continue to monitor the 'vital signs' of our business health. The number of pubs closed has risen slightly from 17 at the beginning of the financial year, to 23 at the period end, pubs with temporary agreements have fallen from 131 at the start of the year to 123 and we have seen a reduction in licensees on 'cash-with-order', despite the more restrictive bank lending environment. Bad debts remain less than 0.5% of sales.

Like-for-like profit was down 3.3% in the period, reflecting a more recent deterioration in the trading environment. Pub Partners' focus in recent months has been twofold; firstly, to ensure ongoing licensee viability in the face of severe pressures on their businesses; and secondly, to improve the effectiveness of our recruitment programme to ensure Greene King maintains its position as the landlord of choice amongst potential licensees. We have supported our licensees in a number of ways to ensure the most effective help for each individual's situation. In the period this totalled £1.8m and covered 320 pubs. Initiatives have included rent concessions, service charge waivers, stock relief, volume and off-invoice discounting and providing our licensees with a range of value lagers, ales and wines, which has been running in almost 200 pubs. 

In terms of recruitment, applicant numbers have held up and the conversion rate from applicant to successful candidate has improved since the start of the year. We have not, however, lowered our selection criteria; in fact, our rigorous selection process and pro-active approach to under-performing licensees has meant an improvement in the overall quality of licensees since last year. We have stepped up our recruitment activities including winning an exclusive contract with the Ministry of Defence, which is providing us with a stream of potential licensee recruits. We have also launched our 'Public Housewives' campaign to attract more females into the industry as potential licensees.

Although we have taken a number of pro-active steps to strengthen the business, the likely continuation of difficult trading conditions will put the existing tenanted/leased model under further strain. Following a strategic review, we have made a series of fundamental changes to Pub Partners in order to create a more sustainable business model for the future - one that allows both Greene King and its licensee partners to make a reasonable long-term return on investment. We have split the estate into two; a core estate and the Independence Pub Company. 

The core estate comprises c 1000 pubs, representing our traditional operating model. We have taken the average number of pubs per regional manager down from 60 to 44 to enable the regional managers to spend more of their time providing business development support. We have also introduced new, more flexible agreements, based on either a three-year tenancy or a ten-year lease.

The Independence Pub Company, comprising c 400 pubs, will benefit from a different approach to the core estate. There will be a range of packages to best suit the needs of each individual pub, including more flexibility with respect to the tie, offering full, partial and completely free-of-tie options. We anticipate that a proportion of these pubs will be transferred back into the core estate over time. Some will remain within Independence but operated under higher levels of flexibility than the core. For the balance, we are actively seeking out alternative use solutions where they may offer the highest value and we will offer a small number of our licensees an option to purchase the freehold.

 

Belhaven

24 weeks	07/08	08/09	Change
Revenue	£58.8m	£63.0m	+7.1%
EBITDA	£15.3m	£16.8m	+9.8%
Operating profit	£13.3m	£14.6m	+9.8%
Operating profit margin	22.6%	23.2%	+0.6%pts

Belhaven has had another strong period. Both managed and tenanted pubs' profits were well ahead of last year whilst brewing achieved profits broadly in line with last year. Total revenue was up 7.1% at £63.0m, operating profit up 9.8% at £14.6m and the operating margin up 0.6 percentage points at 23.2%. The number of pubs trading grew from 321 to 324 and on average 322 pubs were trading during the period.

Managed pubs at Belhaven have continued where they left off in 2007/8 with like-for-like sales up 2.4%. Total growth was boosted by the inclusion of the seven Hungry Horse sites in Scotland that were transferred from Destination Pubs just before the start of the year. Toward the period end, we reopened the Scot's Bonnet in Kilmarnock, the first of these sites to be redeveloped. Since the period end we have redeveloped a further ex-Hungry Horse site in Livingston with Perth and Aberdeen due to reopen before Christmas. Food development has driven our sales performance in managed pubs with 10.8% like-for-like sales growth in the period and food's share of total sales up to 24%. The redevelopment of the ex-Hungry Horse sites is the next stage in our strategy to further reposition this estate toward food, following the recent successful developments in some of our suburban and high street sites. 

As with the English estate, our licensee partners in Scotland have found the economic conditions challenging, although the impact of the credit crunch and the economic slowdown has only recently started to impact on our profitability. We have been providing support to our licensees using a similar tailored approach to that being adopted in England. Our work to help our licensees comply with the new licensing regime in Scotland has been much welcomed and all the main measures of licensee health have held up well.

Outside of third party contracts, volumes in brewing were in line with last year in an on-trade beer market down 8%*. Account gains by our free trade team offset tougher underlying volumes and margins also held up in an extremely competitive environment. Belhaven Best continues to achieve market share gains and remains the leading ale brand in the Scottish on-trade. In partnership with InBev, we have recently launched Belhaven Best in Northern Ireland.

I am pleased to welcome Euan Venters as the new MD of Belhaven, following the planned retirement of Stuart Ross. His arrival, the support of Belhaven's long-serving management team and the strong reputation of our brands will ensure that Belhaven can continue to outperform its competitors in Scotland. 

* AC Nielsen, MAT to Sep 08

Brewing Company

24 weeks	07/08	08/09	Change
Revenue	£41.4m	£41.4m	n/c
EBITDA	£12.3m	£11.2m	-8.9%
Operating profit	£10.4m	£9.2m	-11.5%
Operating profit margin	25.1%	22.2%	-2.9%pts

Own-brewed volumes were down 3.8% in the period, a strong out-performance against an on-trade beer market down 8.4%*. Revenue was £41.4m, in line with last year, helped by a further change in the on-/off-trade mix and selective price increases. EBITDA fell 8.9% to £11.2m. There were two main reasons for this; firstly, fast-rising input costs were not fully offset by cost reduction initiatives; and secondly, lost overhead recovery arising from the strategic withdrawal of volume from certain elements of the wholesale trade, as previously noted in July this year.

Most cost pressure was felt from rising fuel, energy and raw material costs. Our continued programme of efficiency improvements and cost reduction, including reducing fixed costs and switching further fixed costs into variable cost, has helped offset some of these pressures. We have so far delivered the planned savings from this programme on time and to budget, with no loss of service quality to our customers. We continue to believe our single-brewery strategy is the optimum approach to profitably brewing beer in a declining beer market. 

We operate a two-pronged approach to our beer brands. On the one hand, cask ale is one of the unique selling points for the British pub: a product that cannot be bought in a supermarket or an off-licence. As a result, it continues to outperform the UK beer market and we continue to invest behind our cask ale brands. On the other hand, the off-trade is becoming an increasingly important channel for us to direct both marketing and selling resources behind our ale brands. In both the on- and the off-trade, we have again won both volume and value share**.

Our core brands performed well, with Old Speckled Hen, the leading premium ale in take home***, up 6%, driven by its impressive growth in the off-trade. Abbot Ale was broadly in line with last year. Greene King IPA is still, by some margin, the UK's no.1 cask ale* and is now the Official Beer of England Rugby to at least 2012 following an extension to our agreement with the RFU. We have further strengthened our rugby relationships by becoming the sponsor of rugby on Talksport and we have had great success working with Lawrence Dallaglio as an IPA brand ambassador. 

*AC Nielsen, MAT to Sep 08

**AC Nielsen, Greene King & industry sources

***AC Nielsen, MAT to Nov 08 

  Financial review

Investment and disposals

During the period, we continued to invest across all our businesses, spending £54.2m on the existing estate, an increase of over £16m on the same period last year. We believe this is important both for sustained performance and for maintenance of the estate, with £24.1m spent on pub developments with good returns ahead of cost of capital, £20.8m on maintaining the quality of the estate and £6.2m on nine single site acquisitions.

Disposals of both non-core assets and sites inconsistent with our strategy have continued. We have generated proceeds of £27.3m and £4.3m of net profit against book value from the sale of 34 properties and land, despite worsening market conditions.

Positive free cash flow, post investment 

We have continued to focus on generating positive cash flows, alongside our disposals. As a result the group has remained £14m cash flow positive, after funding the increased investment in our existing estate, interest, tax, dividends and property disposals.

Reduced debt, higher facilities and comfortable covenant headroom

As announced at the year end, we successfully finalised terms for a second tap of our whole business securitisation in June, issuing an additional £350m of investment grade bonds to take advantage of longer-term bond finance. This took the total outstanding securitised debt to £1,446m backed by approximately 80% of our pubs. In tandem with the securitisation tap, we also worked with our banking syndicate to simplify our bank borrowings to a four-year, £400m facility, which runs through to 2012.

There are no significant repayments due and no refinancing requirements under either debt facility until 2012. Until then, our only required repayments are the amortisation of the issued bonds, amounting to £23m per year, which are well within our cash flows. All of our debt is now fixed with a blended interest rate of 6%. At the half year, we had drawn £165m of our £400m committed bank facilities. 

Our strong and positive operational cash flows allow us to continue to repay debt as well as to invest in our estate, giving net debt at the half year of £1,591m, a reduction of £14m since the year end.

This prudent, flexible and efficient approach to our balance sheet, with fixed charge cover at 2.2x leaves us well placed to face the challenging future environment. Our debt facilities have financial covenants which we review regularly and are formally reported every six months and, with a debt service cover ratio of 1.7x at the half year, we are comfortably above the covenant of 1.1x in our securitisation vehicle.

Pensions

The group maintains a defined contribution scheme, open to all new employees, and six defined benefit schemes which are all closed to new entrants. As is usual at the half year, we have updated our consideration of the pension deficit as at the balance sheet date. The pension deficit has increased from £73.8m at 4 May 2008 to £135.0m at 19 October 2008, reflecting the actuarial losses of £61.3m arising from a reduction in the value of the schemes' assets, based on changed market conditions since 4 May 2008. A full valuation of the group's defined benefit pension schemes in accordance with requirements of IAS 19 will be prepared for the financial year ending 3 May 2009. The full triennial revaluation of the main Greene King schemes will be carried out in 2009/10.

Exceptional charges

Certain items are classified as exceptional as a result of their nature or size, and are shown separately to give full visibility of our underlying performance. The net book values of a relatively small number of pubs in the tail of our estate have been impaired by £38m, mainly reflecting specific trading circumstances. 

Further operational restructuring and systems integration work have resulted in a charge of £3.0m. These are in part offset by the £4.3m of net profit on disposed properties.

  Dividend

The board has declared an interim dividend of 7.3 pence per share, in line with last year. The interim dividend will be payable on 29 January 2009 to shareholders on the register on 30 December 2008.

Tax charge 

The pre-exceptional tax charge of 25% has been lowered as the lower corporation tax rate of 28% now applies for the 2008/9 financial year.

Principal risks and uncertainties

The principal risks and uncertainties for the group were set out in the 2007/8 annual report and accounts and can be viewed on our website www.greeneking.co.uk. These have not materially changed except that the impact on our business from the economic downturn has increased. Management actions to address this increased risk have been set out in this statement.

REITS

Given the economic backdrop and the recent Pre-Budget Review and HM Treasury announcements, we have no plans to pursue a conversion to REIT status for the foreseeable future.

Current trading and outlook

Trading conditions in the six weeks up to 30 November have been both challenging and volatile. After 30 weeks, like-for-like sales in Retail are -2.0% and own-brewed volumes are -2.3%. Since the period end, like-for-like profit in Pub Partners has softened slightly and like-for-like sales in Belhaven's managed pubs remain ahead of last year. Due to the level of forward bookings already received across the business, we anticipate that Christmas will bring an uplift relative to current sales. However, we believe external conditions are likely to worsen again in the New Year.

We therefore continue to realign our businesses to reflect the rapidly changing environment and to address our cost base to protect our profitability. These actions, combined with prudent investment in the business, a sound balance sheet and healthy cashflows, are further enhancing our relative strength in the industry. This leads me to believe we remain well placed to weather the storm and to continue to advance over the long-term. 

Rooney Anand

Chief executive

1 December 2008

  

Unaudited Group Income Statement

for the twenty-four weeks ended 19 October 2008

		24 weeks to 19.10.08				24 weeks to 14.10.07
		Before				Before
		exceptional	Exceptional		exceptional		Exceptional
		items	items	Total	items		items	Total
	Note	£m	£m	£m	£m		£m	£m
Revenue		445.5	-	445.5	445.0		-	445.0
Operating costs	3	(338.7)	(3.0)	(341.7)	(333.2)		-	(333.2)
Impairment of property, plant and equipment	3	-	(38.0)	(38.0)	-		-	-
Disposal of property, plant and equipment	3	-	4.3	4.3	-		8.8	8.8
Operating profit	3	106.8	(36.7)	70.1	111.8		8.8	120.6
Finance income		4.3	-	4.3	2.9		1.0	3.9
Finance costs		(50.1)	-	(50.1)	(43.9)		-	(43.9)
Net finance (costs)/income from pensions		(0.3)	-	(0.3)	0.8		-	0.8
Profit before tax		60.7	(36.7)	24.0	71.6		9.8	81.4
Tax	4	(15.2)	11.6	(3.6)	(20.8)		11.7	(9.1)
Profit attributable to equity holders of parent		45.5	(25.1)	20.4	50.8		21.5	72.3
Earnings per share
- basic	5			15.3 p				50.6 p
- adjusted basic	5	34.0 p			35.6 p
- diluted	5			15.3 p				49.8 p
- adjusted diluted	5	34.0 p			35.0 p
Dividend proposed per share in respect of the period		7.3 p			7.3 p

Adjusted earnings per share excludes the effect of exceptional items.

 

  Unaudited Group Balance Sheet

as at 19 October 2008

			As at	As at
			19.10.08	4.05.08
		Note	£m	£m
Non current assets
Property, plant and equipment			2,027.8	2,057.9
Goodwill			673.8	673.8
Financial assets			36.0	34.8
Derivative financial instruments			-	2.7
Deferred tax assets			59.9	28.6
Prepayments			4.7	5.2
Trade and other receivables			0.2	0.2
			2,802.4	2,803.2
Current assets
Inventories			19.7	17.9
Trade and other receivables			54.7	51.7
Prepayments			14.6	13.0
Derivative financial instruments			-	0.7
Cash and cash equivalents			23.8	91.6
			112.8	174.9
			2,915.2	2,978.1
Current liabilities
Borrowings			(42.6)	(60.6)
Derivative financial instruments			(4.3)	(1.0)
Trade and other payables			(203.8)	(198.7)
Income tax payable			(40.3)	(39.5)
			(291.0)	(299.8)
Non current liabilities
Borrowings			(1,572.3)	(1,636.5)
Derivative financial instruments			(56.5)	(7.9)
Deferred tax			(199.7)	(211.4)
Post-employment liabilities		7	(135.0)	(73.8)
			(1,963.5)	(1,929.6)
			(2,254.5)	(2,229.4)
Total net assets			660.7	748.7
Issued capital and reserves
Share capital		7	17.0	17.0
Share premium		7	247.4	247.2
Capital redemption reserve		7	3.3	3.3
Hedging reserve		7	(43.4)	(3.6)
Own shares		7	(17.2)	(17.2)
Retained earnings		7	453.6	502.0
Total equity			660.7	748.7
Net debt		9	1,591.1	1,605.5

  Unaudited Group Cashflow Statement

for the twenty-four weeks ended 19 October 2008

				24 weeks to	24 weeks to
				19.10.08	14.10.07
			Note	£m	£m
Operating activities
Operating profit				70.1	120.6
Operating exceptional items				36.7	(8.8)
Depreciation and amortisation				23.3	21.2
EBITDA*				130.1	133.0
Working capital and non-cash movements			8	8.1	(10.4)
Interest received				4.3	3.9
Interest paid				(53.7)	(47.2)
Tax paid				(14.2)	(12.4)
Net cashflow from operating activities				74.6	66.9
Investing activities
Purchase of property, plant and equipment				(60.9)	(38.7)
Purchases of other investments				(0.1)	-
Movements in financial assets				(1.2)	0.7
Sales of property, plant and equipment				27.3	28.1
Acquisition of subsidiary, net of cash acquired				-	(49.8)
Net cashflow from investing activities				(34.9)	(59.7)
Financing activities
Equity dividends paid			6	(25.1)	(23.7)
Issue of shares			7	0.2	3.6
Purchase of own shares			7	-	(126.4)
Financing costs				(7.3)	(0.1)
Repayment of borrowings				(424.2)	(76.5)
Advance of borrowings				349.8	225.0
Net cashflow from financing activities				(106.6)	1.9
Net (decrease)/increase in cash and cash equivalents				(66.9)	9.1
Opening cash and cash equivalents				90.7	82.7
Closing cash and cash equivalents			9	23.8	91.8

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

Unaudited Group Statement of Recognised Income and Expense

for the twenty-four weeks ended 19 October 2008

			24 weeks to	24 weeks to
			19.10.08	14.10.07
			£m	£m
Cashflow hedges: (Losses)/gains taken to equity			(52.1)	7.3
Cashflow hedges: Losses recycled to income			(3.2)	(2.9)
Actuarial losses on defined benefit pension schemes			(61.3)	(0.4)
Tax on items recognised directly in equity			32.7	(1.2)
Tax on share based payments			(1.1)	(1.5)
Net (expenses)/income recognised directly in equity			(85.0)	1.3
Profit for the period			20.4	72.3
Total recognised income and expense for the period attributable to equity holders of the parent			(64.6)	73.6

  1. Basis of preparation

The interim financial information has been prepared on the basis of the accounting policies set out in the group's statutory accounts for the year ended 4 May 2008. 

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

The financial information contained in this interim statement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The figures for the year ended 4 May 2008 have been derived from the statutory accounts of the group for that year. These published accounts were reported on by auditors without qualification or statement under Sections 237(2) and (3) of the Companies Act 1985 and have been filed with the Registrar of Companies.

 

2. Segment information

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 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

2007/08 (24 weeks)	Retail	Pub	Brewing	Belhaven	Corporate	Total
		Partners	Company			operations
	£m	£m	£m	£m	£m	£m
External revenue	268.2	76.6	41.4	58.8	-	445.0
Segment operating profit (pre-exceptionals)	56.5	36.7	10.4	13.3	(5.1)	111.8
Exceptional items	4.7	1.7	-	-	2.4	8.8
Segment operating profit (post-exceptionals)	61.2	38.4	10.4	13.3	(2.7)	120.6
Net assets	1,262.0	829.1	212.8	307.4	(1,848.5)	762.8
EBIDTA*	70.0	39.5	12.3	15.3	(4.1)	133.0

The group's business operations are divided into four core trading segments which are managed separately.

Retail covers the results of managed houses and restaurants, Pub Partners covers the results of tenanted houses, Brewing Company covers brewing beer, marketing and selling, all predominately in England. Belhaven covers the results of our Scottish operation which includes managed and tenanted houses, and brewing and selling beer. Corporate includes the group debt and any central costs and assets/liabilities

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

 

3. Exceptional items

		24 weeks to	24 weeks to
		19.10.08	14.10.07
		£m	£m
Operating
Financial systems integration		1.6	-
Divisional restructuring		1.4	-
Impairment of property, plant and equipment		38.0	-
Net profit on disposal of property, plant and equipment		(4.3)	(8.8)
		36.7	(8.8)
Financing
Termination of interest rate swaps and loan facilities		-	(1.0)
		36.7	(9.8)

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 19 October 2008 the group has recognised an impairment loss of £38.0m in respect of its licensed estate. The impairment has been recognised in respect of pubs where the net book value has fallen below the higher of value-in-use and fair value less costs to sell.

The net profit on disposal of property, plant and equipment of £4.3m (2007: £8.8m) comprises a total profit on disposal of £8.2m (2007: £11.2m) and a total loss on disposal of £3.9m (2007: £2.4m).

 

4. Current Tax

	24 weeks to 19.10.08				24 weeks to 14.10.07
	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	15.7	-	15.7	19.8		-	19.8
(Recoverable)/ chargeable on exceptional items	-	(0.6)	(0.6)	-		0.3	0.3
	15.7	(0.6)	15.1	19.8		0.3	20.1
Deferred tax
Origination and reversal of temporary differences	(0.5)	(11.0)	(11.5)	1.0		(12.0)	(11.0)
Tax charge in the income statement	15.2	(11.6)	3.6	20.8		(11.7)	9.1

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. 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 (2007: £0.3m charge) on exceptional costs, a deferred tax credit of £1.8m (2007: £1.1m) on indexation of properties, a deferred tax charge of £2.1m (2007: £3.0m) on disposal of properties and a deferred tax credit of £10.6m (2007: £nil) on the impairment of property, plant and equipment.

The Finance Act 2007 reduced the rate of corporation tax from 30% to 28% with effect from 1 April 2008. The effect of the reduced rate is a deferred tax credit of £13.9m in the prior year. This is included within the tax credit of £11.7m shown under exceptional items.

  5. Earnings per share

Basic earnings per share has been calculated by dividing the profit after taxation of £20.4 million (2007: £72.3 million) by the weighted average number of shares in issue of 133.7 million (2007: 142.9 million).

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
	19.10.08	14.10.07	19.10.08	14.10.07
	£m	£m	p	p
Basic	20.4	72.3	15.3	50.6
Exceptionals	25.1	(21.5)	18.7	(15.0)
Adjusted	45.5	50.8	34.0	35.6

Diluted earnings per share has taken account of no (2007: 2.3 million) contingent shares under option.

 

6. Dividends paid

		24 weeks to	24 weeks to
		19.10.08	14.10.07
		£m	£m
Declared and paid in the period
Final dividend for 2008/09 - 18.70p (2006/07: 16.45p)		25.1	23.7

 

7. Movement in equity

	Share	Share	Capital	Hedging	Own	Retained	Total
	capital	premium	redemption	reserve	shares	earnings
	£m	£m	£m	£m	£m	£m	£m
At 29 April 2007	18.8	243.7	1.4	4.3	(18.9)	584.9	834.2
Total profit for the period	-	-	-	-	-	72.3	72.3
Issue of ordinary share capital	-	2.5	-	-	-	-	2.5
Release of shares - share option proceeds	-	-	-	-	1.1	-	1.1
Repurchase of own shares	(1.6)	-	1.6	-	-	(126.4)	(126.4)
Actuarial loss	-	-	-	-	-	(0.4)	(0.4)
Tax on actuarial loss	-	-	-	-	-	0.1	0.1
Cash flow hedges
- gains taken to equity	-	-	-	7.3	-	-	7.3
- gains recycled to income on
swap terminations	-	-	-	(2.9)	-	-	(2.9)
Tax on cash flow hedges	-	-	-	(1.3)	-	-	(1.3)
Equity dividends paid	-	-	-	-	-	(23.7)	(23.7)
At 14 October 2007	17.2	246.2	3.0	7.4	(17.8)	506.8	762.8
Total profit for the period	-	-	-	-	-	52.0	52.0
Issue of share capital	0.1	1.0	-	-	-	-	1.1
Release of shares - share option proceeds	-	-	-	-	0.6	-	0.6
Repurchase of own shares	(0.3)	-	0.3	-	-	(24.2)	(24.2)
Actuarial loss	-	-	-	-	-	(30.9)	(30.9)
Tax on actuarial loss	-	-	-	-	-	8.7	8.7
Share based payments	-	-	-	-	-	3.4	3.4
Tax on share based payments	-	-	-	-	-	(4.0)	(4.0)
Cash flow hedges
- losses taken to equity	-	-	-	(10.5)	-	-	(10.5)
- losses recycled to income on
swap terminations	-	-	-	(5.2)	-	-	(5.2)
Tax on cash flow hedges	-	-	-	4.7	-	-	4.7
Equity dividends paid	-	-	-	-	-	(9.8)	(9.8)
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
Issue of ordinary share capital	-	0.2	-	-	-	-	0.2
Actuarial loss	-	-	-	-	-	(61.3)	(61.3)
Tax on actuarial loss	-	-	-	-	-	17.2	17.2
Share-based payments	-	-	-	-	-	1.5	1.5
Tax on share-based payments	-	-	-	-	-	(1.1)	(1.1)
Cash flow hedges
- losses taken to equity	-	-	-	(52.1)	-	-	(52.1)
- losses recycled to income on
swap terminations	-	-	-	(3.2)	-	-	(3.2)
Tax on cash flow hedges	-	-	-	15.5	-	-	15.5
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

During the period no shares were repurchased. In 2007 15.4m shares were repurchased for £150.6m cash and subsequently cancelled.

The group's defined benefit pension schemes are discussed within financial review.

  8. Working capital and non-cash movements

		24 weeks to	24 weeks to
		19.10.08	14.10.07
		£m	£m
Increase in provision against financial assets		0.1	0.1
(Increase)/decrease in inventories		(1.8)	0.1
Increase in trade and other receivables		(2.1)	(3.9)
Increase/(decrease) in trade and other payables		14.2	(7.6)
Share-based payments expense		1.5	1.5
Difference between defined benefit pension contributions paid and amounts charged		(0.4)	(0.2)
Exceptional costs		(3.4)	(0.4)
Working capital and non-cash movements		8.1	(10.4)

9. Analysis and movements in net debt

		As at	As at	As at
		19.10.08	4.05.08	14.10.07
		£m	£m	£m
Cash in hand, at bank*		22.5	24.9	21.4
Short term deposits*		1.3	66.7	77.1
Overdrafts		-	(0.9)	(6.7)
Cash and cash equivalents		23.8	90.7	91.8
Current portion of borrowings		(42.6)	(59.7)	(73.7)
Non current portion of borrowings		(1,572.3)	(1,636.5)	(1,607.7)
Closing net debt		(1,591.1)	(1,605.5)	(1,589.6)

*included in cash and cash equivalents on the balance sheet

Movements in net debt
			24 weeks to	24 weeks to
			19.10.08	14.10.07
			£m	£m
Net (decrease)/increase in cash and cash equivalents			(66.9)	9.1
Proceeds - issue of securitised debt			(349.8)	-
Proceeds - advances of loans			-	(225.0)
Repayment of principal - securitised debt			10.0	8.1
Repayment of principal - loans and loan notes			414.2	68.4
Financing issue costs			6.9	0.1
Decrease/(increase) in net debt arising from cash flows			14.4	(139.3)
Debt issued for acquisitions			-	(14.4)
Other non cash movements			-	(0.4)
Decrease/(increase) in net debt			14.4	(154.1)
Opening net debt			(1,605.5)	(1,435.5)
Closing net debt			(1,591.1)	(1,589.6)

Securitisation tap

On 30 June 2008, a further £349.8 million of bonds (with a nominal value of £350m) were issued as a tap of the original securitisation, increasing the number of pubs held in Greene King Retailing Limited to 2,035. 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.

 

10. Post balance sheet events

An interim dividend of 7.3p per share (2007: 7.3p) amounting to a dividend of £9.8m (2007: £10.0m) was declared by the Directors at their meeting on 1 December 2008. These financial statements do not reflect this dividend payable.

 

11. Interim report

The interim report will be posted to shareholders on 23 December 2008. Copies will be available after that date from the Company Secretary, Greene King plc, Westgate Brewery, Bury St Edmunds, Suffolk IP33 1QT.

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

- ends -

ENDIR TTBMTMMTMMRP

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