24th Apr 2008 07:01
Punch Taverns PLC24 April 2008 PUNCH TAVERNS PLC("Punch" or "the Group") Interim Results for the 28 weeks to 1 March 2008 Enhanced quality of estate drives profit improvement Punch Taverns plc, the UK's leading pub operator of over 8,400 leased, tenantedand managed pubs, today announces interim results for the 28 weeks ended 1 March2008. Highlights Financial Results (before exceptional items) • Results reflect 9% reduction in size of estate, following non-core divestments in 2007 • Profit before tax increased 1% to £133 million (2007: £132 million) • Basic earnings per share up 1% to 39.0p (2007: 38.5p) • Interim dividend up 8% to 5.5p (2007: 5.1p) • Strong cash generation with free cash flow before investment of £129 million (2007: £55 million) • Strong balance sheet, increased interest cover to above 2.0x, no refinancing requirements before December 2010 at the earliest Statutory Results (after exceptional items)* • Profit before tax of £109 million (2007: £138 million) • Basic earnings per share of 32.7p (2007: 42.9p) Operational Performance • Quality of estate continues to improve o Average EBITDA per pub up 10% in the leased estate o Licensees continue to perform well with average licensee profitability up 11% to £40k o Average EBITDA per pub up 4% in the managed estate o Continued investment with £84 million spent on enhancing over 950 pubs across the leased and managed estates • On target to achieve c.£10m of cost savings in the current financial year * Full analysis of exceptional items are shown in note 3 to the FinancialStatements Giles Thorley, Chief Executive of Punch Taverns plc, commented "It is testament to the operational and estate strategy implemented over thepast two years that we have delivered underlying profit growth with asignificantly smaller estate. This strong performance has been achieved despitea weaker trading environment across the industry. "Measured on both a company EBITDA per pub basis and licensee profitabilitymetrics our estate is of significantly higher quality than this time last year.Moreover, the Group's finance is secure, long-term and at a fixed rate,underpinning the financial stability of the Group. "Whilst we remain cautious over short-term trading conditions for the sector, weare confident that we are well positioned as we move into a more positiveenvironment over the summer months and pass the anniversary of the smoking bansin England and Wales." 24 April 2008 Enquiries: Punch Taverns plc Today: 020 7457 2020Giles Thorley, Chief Executive Thereafter: 020 7255 4002Phil Dutton, Finance Director College Hill Tel: 020 7457 2020Justine WarrenMatthew Smallwood Forward-looking statements This report may contain certain statements about the future outlook for Punch.Although we believe our expectations are based on reasonable assumptions, anystatements about future outlook may be influenced by factors that could causeactual outcomes and results to be materially different. INTERIM RESULTS FOR THE 28 WEEKS TO 1 MARCH 2008 OVERVIEW Delivering underlying profit growth during a period of challenging trading istestament to the operational and estate strategy that has been implemented overthe past two years. The interim period comprises 28 weeks from 19 August 2007 to 1 March 2008,during which time we have generated profit before tax of £133m, beforeexceptional items, representing an increase of 1% with an average estate sizesome 9% smaller than the prior year. Basic earnings per share beforeexceptional items have similarly risen 1% to 39.0p. In view of this performanceand our strong cash generation we will make an interim dividend payment of 5.5pper ordinary share, an increase of 8% on last year. Following a satisfactory start to the financial year, trading in the secondquarter was more subdued. Like for like trading has continued broadly in linewith the levels reported at the time of the Interim Management Statement inJanuary following the impact of the smoking ban over the winter months. Likefor like contribution for the leased business is down 2.0% for the 28 weekperiod under review, whilst like for like sales for the core managed estatedeclined by 2.8%. The market These interim results reflect the more challenging market conditions being facedby the sector in recent months. The lack of general consumer confidence and thepressures from increases in fuel, energy, food and alcohol duty ahead ofinflation, coupled with rising pressure on mortgage payments has impacted thelevel of disposable income available to spend on leisure activities for some ofour pub customers. The pressures on disposable income are unlikely to ease forthe remainder of the financial year. The ban on smoking in enclosed public places which took effect in Wales on 2April 2007 and England on 1 July 2007 has, as expected, impacted upon on-tradebeer sales during the winter months. However, both the Group and our licenseeswere well prepared for the ban and had in the majority of cases completedsmoking solutions ahead of the ban coming into force. Furthermore, the smoking bans have accelerated the pace of change in theindustry with ever more focus on improved retail standards and credible foodoffers. The increase in the rate of decline in on-trade beer sales has nowstabilised and we anticipate that on-trade beer sales will return to moreestablished trends as we move into the summer months and pass the one-yearanniversary of the smoking bans in England and Wales. Estate strategy As at 1 March 2008 we owned 8,449 pubs across the UK, of which 7,581 wereoperated on a leased basis and 868 under direct management. The average estatesize is some 9% smaller than the corresponding period last year following thestrategic disposals completed in 2007. During the 28 weeks under review, we acquired 19 new pubs, transferred 18 frommanaged to leased and sold 18 non-core pubs. Over the past two years the estate strategy has focused on improving the qualityof both the managed and leased estates through the disposal of non-core pubs andthe successful conversion of managed pubs to leased. The result has been a 10%increase in EBITDA per pub for the leased estate and a 4% increase for themanaged estate. Over the past two years this has involved the disposal ofalmost 2,000 non-core pubs and the conversion of over 650 pubs from managed toleased. Leased estate This has been another period of resilient trading for the leased estate, onceagain demonstrating the resilience of this proven model. Overall EBITDA in theleased estate improved by 4% to £259m, with average EBITDA per pub rising 10%over prior year reflecting the fundamentally improved quality of the Group'sleased estate. Our operational strategy continues to be that of supporting our licensees tohelp them grow and develop their businesses as independent entrepreneurs. Thelevel of support provided by Punch is industry leading with over 4,300 licenseetraining days completed during the period, an in-house print and design service,almost 300 beer and cider brands available, expanded wine and spirit ranges andthe completion of over 750 capital developments in conjunction with ourlicensees, with Punch having invested some £46m. Whilst the majority of our licensees have coped well with the changes followingthe smoking ban, some pubs have taken more time to adapt. We are continuing tosupport our licensees where appropriate through the use of rent concessions,specific beer discounting schemes and promotional support. Whilst the level ofrent concessions has increased in the period, they still represent less than 2%of the total rent roll. Despite tougher trading conditions, longer term sustainability measures remainstrong with 235 rent reviews agreed at an average uplift of 6%, 156 leaserenewals with an average uplift of 14% and overdue debt levels remaining atsimilar levels to this time last year. We are also continuing to see stronglicensee investment across the estate. Interest in the assignment market also continues to be strong with 270assignments completed at an average premium of £72k. We are also seeing asignificant increase in the number of new applicants, from more and more diversebusiness backgrounds, that are being attracted into the industry following theintroduction of the smoking ban. The leased model continues to be a resilient and extremely attractive businessmodel that shares the risk and delivers strong returns for both Punch and thelicensee. Average licensee profitability has increased by 11% to £40k and isc.67% above average full time adult worker earnings, which is encouraging. Managed estate Following two years of transformational change within the managed estate inwhich the best 868 pubs were selected from the 1,912 pubs originally acquiredfrom Spirit and Mill House Inns, the estate is now well positioned to maximisefuture growth opportunities. Since the acquisition of the Spirit Group on 5 January 2006 average weekly saleshave risen from £13k to £16k and we have invested in excess of £160m on capitalinvestment in the managed estate. A significant proportion of this spend hasbeen focused on improving back of house service delivery and the front of housecustomer environment. Since acquisition c.80% of the managed estate hasreceived investment and we now have one of the best maintained, highest qualitymanaged estates in the UK. The majority of the benefit of both thereorganisation and investment in Spirit is yet to be realised and thereforeSpirit remains a core part of the Group. The senior management team has been reorganised following the completion of theestate reshaping exercise and the key roles of Retail Director and MarketingDirector have both been appointed during the current financial year. We are already seeing significant improvements in product and service qualitymeasures which are scored by an independent market research company, withimprovements in 'mystery customer', 'perfect kitchen' and 'beer experience'scores. Efficiency improvements are also being seen in the areas of day-part service,through increasing breakfast and mid-afternoon sales, and in capacitymanagement, labour control and energy management. Opportunities remain in theseareas and detailed programmes are in place to extract value which will go someway to offsetting the impact of increasing food, energy and regulatory costpressures. The Spirit estate has very strong, award-winning retail concepts such as Chef &Brewer and Wacky Warehouse. The estate is well positioned following thecompletion of the brand rationalisation programme and is now focused on its fourkey operating divisions and is well placed to capture further growth in thecasual dining-out market. The market dynamics of the eating out market continueto look attractive with 2.5% per annum real growth in pub food spend forecast to2012 (source: Mintel). Spirit is well placed to capitalise on this evolvingmarketplace and the changing trends will play to our strengths with continuedgrowth in coffee, wine and soft drinks. In the 28 weeks under review, overall EBITDA for the managed estate was £63mwith £38m spent on capital investment. Average EBITDA per pub has grown by 4%with food representing the largest sales category with an industry leading 39%of turnover in the core managed estate. Financial Statutory profit for the period amounted to £109m before tax of £22m andincluded a net exceptional charge of £17m. The net exceptional chargerepresented one-off primarily redundancy related expenditure of £5m, a £19mcharge on the fair value movement of certain interest rate swaps, less a £7m taxcredit related to these items. Whilst all of our swaps are effective inmatching the cash flows of our floating rate debt, certain swaps do not meet thestrict accounting definition of an effective hedge, resulting in fair valuemovements being taken to the Income Statement as an exceptional item. Thecharge has no cash impact. Matthew Clark, the UK's leading independent drinks wholesaler, in which we havea 50% stake, has continued to perform well since acquisition and contributed£2.1m of post-tax earnings to the Group for the 28 weeks to 1 March 2008. The effective pre-exceptional tax charge in the period of 22% remains below thestandard rate of UK corporation tax due to indexation of acquired asset basecosts, and is expected to be around this level for the full year. The nominal value of gross debt at 1 March 2008 was £4,866m, £56m lower than theyear end position, following the repayment of the remaining bank loans. Ourbalance sheet remains very strong, 100% of our debt is at fixed rates ofinterest at a blended rate of 6.6% and the weighted average life of oursecuritised debt is 19 years. Our interest cover has increased over the periodto above 2.0x (1.9x in the comparative period last year). There is significant headroom in the financial covenants to each of our threesecuritisation structures and we have no need to refinance any of oursecuritised debt. As disclosed in the January Interim Management Statement, we continue to reviewall areas of our business to further maximise efficiency across the Group and,where possible, to mitigate the challenges we face. Long-term supply agreementswith the majority of our key suppliers have helped to mitigate againstsignificant cost price inflation although certain above-inflation cost pressuresremain however, in areas such as energy and utilities. We remain on target toachieve c.£10m of cost savings in the current financial year. Industry issues Despite all of the positive lobbying by the industry bodies, it was extremelydisappointing to see the level of increase of alcohol duty implemented by theExchequer. We were particularly disappointed that the Government fails torecognise the important and beneficial role that the pub and traditional brewersmake to the British economy and the communities that they serve. We wouldencourage the Government to do more to safeguard the future of the local pub atthe heart of our communities, rather than penalising responsible pub goers andlicensees. In the meantime we support the industry's call to ban the Chancellorof the Exchequer from every pub in the land. Licensing reform in Scotland is progressing to an expected implementation inSeptember 2009. We are in good shape with applications for our leased andmanaged pubs in Scotland and have been working closely with the local licensingboards and industry bodies to ensure that our applications are processed ontime. We are continuing to work closely with our Industry body, the British Beer andPub Association (BBPA) on responsible retailing initiatives and are leading theindustry in our approach to reducing our carbon footprint. Spirit Group has nowinstalled smart meters in over 800 outlets and is currently replacing themajority of light bulbs in the managed estate with energy efficient bulbs. Wehave appointed a dedicated carbon team with a remit to reduce our carbonfootprint by 17% by 2010 and have been working hard to engage our teams to takepositive action. Recognising that we are operating in a challenging climate, we have been workingclosely with our licensees to develop new income streams. Punch has beenworking with The Pub Is the Hub, a national initiative supported by HRH ThePrince of Wales, to introduce new facilities in pubs. We now operate pubs withPost Office counters, outlets that serve school meals to local school childrenand pubs that sell fresh produce to customers. This is all part of ourcommitment to ensuring that we protect the position of our pubs at the heart ofthe communities they serve. Strategy Our strategy remains the same. It is our intention to continue to build aportfolio of the highest quality group of pubs in the UK. We have put in placethe infrastructure to enable our assets to perform to the optimum operatingmodel and will continue to seek opportunities to further increase the quality ofour estate and as such, value for shareholders. As part of this process weactively consider acquisition and disposal opportunities that may add furthervalue and we continue to keep all options under review. We continue to have dialogue with HMRC's sector and REIT specialists to discussthe latest developments within the Pubco REIT arena. Whilst Punch benefits froma low cash tax position in the current financial year, we continue to reviewopportunities to minimise our future tax burden, including the possibility ofconversion to the REIT regime. Following the successful completion of the managed to leased programme in whichover 650 managed pubs were successfully converted to a leased operation, wecontinue to review opportunities for further value creation from a limitednumber of additional sites that may be suitable for conversion to the leasedformat. Principal risks and uncertainties The principal risks and uncertainties for the Group have not materially changedfrom those set out within the Business Review of the 2007 Annual Report whichcan be viewed on the Group's website www.punchtaverns.com. Current trading and outlook Trading into the third quarter of the current financial year has continuedbroadly in line with that of the second quarter. Whilst in the short-term,trading conditions into the second half of the financial year are likely toremain challenging given the impact of duty increases and continued pressure ondisposable incomes, trading comparatives are expected to improve as we move intothe summer months and as we pass the first anniversary of the smoking bans inEngland and Wales. Punch benefits from an extremely high quality pub estate, which is largelyfreehold in nature and has the benefit of a prudent long-term financingstructure. Whilst the sector is continuing to experience a degree ofuncertainty, we remain confident about the medium-term future prospects for ourbusiness. We intend to issue an Interim Management Statement on 7 July 2008 which willcontain a further update on trading. CONSOLIDATED INCOME STATEMENTfor the 28 weeks ended 1 March 2008 28 weeks to 1 March 2008 28 weeks to 3 March 2007 Before Exceptional Total Before Exceptional Total exceptional Items exceptional items items (note 3) items (note 3) £m £m £m £m £m £m Revenue 813.5 - 813.5 921.1 - 921.1Operating costs before depreciation (492.4) (4.6) (497.0) (581.5) 7.0 (574.5)and amortisationShare of post-tax profit from joint 2.1 - 2.1 - - -ventures EBITDA1 323.2 (4.6) 318.6 339.6 7.0 346.6Depreciation and amortisation (33.2) - (33.2) (29.4) - (29.4) Operating profit 290.0 (4.6) 285.4 310.2 7.0 317.2Profit on sale of non-current assets 2.2 - 2.2 2.0 - 2.0Finance income 9.1 - 9.1 13.2 - 13.2Finance costs (168.3) - (168.3) (193.6) - (193.6)Movement in fair value of interest - (19.2) (19.2) - (0.7) (0.7)rate swaps Profit before taxation 133.0 (23.8) 109.2 131.8 6.3 138.1UK income tax (charge) / credit (29.2) 7.0 (22.2) (29.9) 5.6 (24.3)(note 4) Profit for the financial period 103.8 (16.8) 87.0 101.9 11.9 113.8attributable to equity shareholders Earnings per share (note 5)Basic (pence) 39.0 32.7 38.5 42.9Diluted (pence) 38.7 32.4 38.0 42.4 Dividend per share paid or proposed 5.5 5.1in respect of the period (pence) Total dividend paid or proposed in 14.6 13.5respect of the period (£m) 1 EBITDA represents earnings before depreciation and amortisation, profit onsale of non-current assets, finance income, finance costs, movement in fairvalue of interest rate swaps and UK income tax. 52 weeks to 18 August 2007 Before Exceptional Total exceptional items items (note 3) £m £m £m Revenue 1,704.9 - 1,704.9Operating costs before depreciation and amortisation (1,042.9) (20.3) (1,063.2)Share of post-tax profit from joint ventures 1.6 - 1.6 EBITDA1 663.6 (20.3) 643.3Depreciation and amortisation (56.5) - (56.5) Operating profit 607.1 (20.3) 586.8Profit on sale of non-current assets 3.0 - 3.0Finance income 20.2 - 20.2Finance costs (348.6) (10.9) (359.5)Movement in fair value of interest rate swaps - 54.2 54.2 Profit before taxation 281.7 23.0 304.7UK income tax (charge) / credit (note 4) (57.7) 31.4 (26.3) Profit for the financial period attributable to equity 224.0 54.4 278.4shareholders Earnings per share (note 5)Basic (pence) 84.4 104.9Diluted (pence) 82.6 101.2 Dividend per share paid or proposed in respect of the period 15.3(pence) Total dividend paid or proposed in respect of the period 40.7(£m) 1 EBITDA represents earnings before depreciation and amortisation, profit onsale of non-current assets, finance income, finance costs, movement in fairvalue of interest rate swaps and UK income tax. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the 28 weeks ended 1 March 2008 28 weeks to 28 weeks to 52 weeks to 1 March 3 March 18 August 2008 2007 2007 £m £m £mIncome and expense recognised directly in equity:Actuarial (losses) / gains on defined benefit pension (4.3) 16.5 26.1schemes(Losses) / gains on cash flow hedges (59.2) 12.7 34.0Tax on equity component of convertible bonds - - 9.0Tax credit related to indexation on revalued properties 3.6 3.6 15.3 (59.9) 32.8 84.4Transfers to the income statement:On cash flow hedges 2.0 (3.8) (1.9) (57.9) 29.0 82.5Tax on items taken directly to equity 17.0 (7.7) (17.5)Net (loss) / gain recognised directly in equity (40.9) 21.3 65.0Profit attributable to shareholders 87.0 113.8 278.4Total recognised income for the period attributable to 46.1 135.1 343.4equity shareholders CONSOLIDATED BALANCE SHEETat 1 March 2008 1 March 3 March 18 August 2008 2007 2007 £m £m £mAssetsNon-current assetsProperty, plant and equipment 6,540.2 6,750.7 6,495.5Goodwill 556.2 557.5 556.2Intangible assets 152.7 166.1 157.3Receivables - 0.7 -Retirement benefit assets 20.8 4.5 10.4Deferred tax assets 136.3 180.2 123.7Investments in joint ventures 40.2 - 38.1Other investments 3.5 - 3.5Derivative financial instruments 4.2 6.2 16.1 7,454.1 7,665.9 7,400.8 Current assetsInventories 7.8 9.1 7.9Trade and other receivables 88.1 104.4 101.8Current income tax receivables 2.4 - 37.5Cash deposits used as security for loan notes 14.4 27.1 14.7Cash and cash equivalents 222.7 365.0 267.7 335.4 505.6 429.6Non-current assets classified as held for sale 11.9 10.6 8.2 Total assets 7,801.4 8,182.1 7,838.6 LiabilitiesCurrent liabilitiesTrade and other payables (319.3) (349.4) (364.5)Short term borrowings (61.2) (552.6) (62.2)Current income tax liabilities - (9.9) -Provisions (16.3) (20.2) (18.1) (396.8) (932.1) (444.8) Non-current liabilitiesBorrowings (4,705.1) (4,702.6) (4,771.1)Convertible bonds (259.2) (248.1) (253.1)Derivative financial instruments (172.7) (178.8) (113.0)Deferred tax liabilities (467.7) (495.2) (467.7)Retirement benefit obligations (3.1) (10.2) (3.7)Provisions (32.4) (61.4) (41.7)Other liabilities (7.3) (13.8) (6.6) (5,647.5) (5,710.1) (5,656.9) Total liabilities (6,044.3) (6,642.2) (6,101.7) Net assets 1,757.1 1,539.9 1,736.9 Shareholders' equityCalled up share capital 0.1 0.1 0.1Share premium 454.8 453.4 454.7Equity component of convertible bonds 30.0 21.0 30.0Hedge reserve (55.9) (31.3) (15.2)Other reserves 7.6 5.5 6.3Retained earnings 1,320.5 1,091.2 1,261.0Total shareholders' equity 1,757.1 1,539.9 1,736.9 CONSOLIDATED CASH FLOW STATEMENTfor the 28 weeks ended 1 March 2008 28 weeks to 28 weeks to 52 weeks to 1 March 3 March 18 August 2008 2007 2007 £m £m £mCash flows from operating activitiesOperating profit 285.4 317.2 586.8Depreciation and amortisation 33.2 29.4 56.5Decrease in inventories 0.1 3.3 4.5Decrease in trade and other receivables 14.7 5.3 11.0Decrease in trade and other payables (43.5) (110.6) (74.0)Difference between pension contributions paid and amounts (12.7) (0.4) (2.7)recognised in the income statementDecrease in provisions and other liabilities (11.6) (3.9) (32.6)Share of post-tax profit from joint venture (2.1) - (1.6)Cash generated from operations 263.5 240.3 547.9Income tax received / (paid) 21.1 (10.9) (18.6)Net cash from operating activities 284.6 229.4 529.3 Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired - (21.1) (21.1)Purchase of property, plant and equipment- acquisitions (22.0) (54.3) (81.0)- investments (81.6) (97.6) (202.1)Proceeds from sale of property, plant and equipment 18.6 31.9 369.9Proceeds from sale of other non-current assets 0.7 27.6 32.8Purchase of intangible assets (1.9) (3.6) -Proceeds from sale of intangible assets - - 1.9Investment in joint venture - - (36.5)Net cash (used in) / generated from investing activities (86.2) (117.1) 63.9 Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 0.1 1.0 2.3Proceeds from issue of new loans and borrowings - 350.0 1,255.0Issue costs paid - (0.3) (6.7)Net proceeds on redemption of derivative financial instruments 0.6 - 5.8Repayment of borrowings (58.6) (448.6) (1,745.9)Interest paid (162.8) (183.7) (347.5)Interest received 7.2 10.8 19.6Repayments of obligations under finance leases (2.3) (2.7) (6.9)Interest element of finance lease rental payments (0.7) (0.8) (1.6)Costs of terminating financing arrangements - (0.2) (25.7)Decrease / (increase) in cash deposits used as security for 0.3 (11.3) 1.1loan notesDividends paid (27.2) (23.9) (37.4)Net cash used in financing activities (243.4) (309.7) (887.9) Net decrease in cash and cash equivalents (45.0) (197.4) (294.7) Cash and cash equivalents at beginning of period 267.7 562.4 562.4 Cash and cash equivalents at end of period 222.7 365.0 267.7 NOTES TO THE FINANCIAL STATEMENTSfor the 28 weeks ended 1 March 2008 1. ACCOUNTING POLICIES Basis of preparation These interim financial statements have been prepared in accordance with theDisclosure and Transparency rules of the Financial Services Authority and withIAS 34 'Interim Financial Reporting' using, on a consistent basis, theaccounting policies set out in the Group's Annual Report and FinancialStatements 2007, and which are expected to apply at 23 August 2008. These interim financial statements are unaudited but have been reviewed by theauditors. The figures for the period ended 18 August 2007 have been extractedfrom the Annual Report and Financial Statements 2007, which have been filed withthe Registrar of Companies and on which the auditors gave an unqualified opinionand did not make any statement under sections 237 (2) or (3) of the CompaniesAct 1985. The interim report, which was approved by the Board of Directors on 23 April2008, does not constitute statutory accounts within the meaning of section 240of the Companies Act 1985. The following new standards, interpretations and amendments to publishedstandards are effective for the Group for the financial year beginning 19 August2007: • Amendment to IAS 1 'Capital Disclosures'• IFRS 7 'Financial Instruments: Disclosure'• IFRIC 10 'Interim Financial Reporting and Impairment'• IFRIC 11 'Group and Treasury Share Transactions' The above new standards, interpretations and amendments to published standardshave had no material impact on the results or the financial position of theGroup for the 28 weeks to 1 March 2008. 2. SEGMENTAL ANALYSIS Leased Managed Joint venture Total £m £m £m £m28 weeks to 1 March 20081:Revenue 450.8 362.7 - 813.5Operating costs (192.3) (300.1) - (492.4)Share of post-tax profit from joint venture - - 2.1 2.1EBITDA 258.5 62.6 2.1 323.2Depreciation and amortisation (10.9) (22.3) - (33.2)Operating profit 247.6 40.3 2.1 290.0 28 weeks to 3 March 20071:Revenue 440.0 481.1 - 921.1Operating costs (191.5) (390.0) - (581.5)EBITDA 248.5 91.1 - 339.6Depreciation and amortisation (9.4) (20.0) - (29.4)Operating profit 239.1 71.1 - 310.2 52 weeks to 18 August 20071:Revenue 845.1 859.8 - 1,704.9Operating costs (365.9) (677.0) - (1,042.9)Share of post-tax profit from joint venture - - 1.6 1.6EBITDA 479.2 182.8 1.6 663.6Depreciation and amortisation (17.5) (39.0) - (56.5)Operating profit 461.7 143.8 1.6 607.1 1 Pre-exceptional items. 3. EXCEPTIONAL ITEMS In order to provide a trend measure of underlying performance, profit ispresented excluding items which management consider will distort comparability,either due to their significant non-recurring nature or as a result of specificaccounting treatments. Included in the income statement are the followingexceptional items: 28 weeks 28 weeks 52 weeks ended ended ended 1 March 3 March 18 August 2008 2007 2007 £m £m £mOperatingRedundancy, costs to integrate acquisition of subsidiary and other (4.6) (14.5) (41.8)related one-off costsMovement on property liabilities1 - 21.5 21.5 (4.6) 7.0 (20.3)Finance costsCost of terminating financing arrangements - - (10.9) Movement in fair value of interest rate swaps2 (19.2) (0.7) 54.2 Total exceptional items before tax (23.8) 6.3 23.0 TaxTax impact of exceptional items 7.0 6.5 11.7Adjustments to tax in respect of prior periods - (0.9) 1.7Release of tax provision - - 2.5Tax credit in respect of change in tax rate - - 15.5 7.0 5.6 31.4 Total exceptional items after tax (16.8) 11.9 54.4 1 In the prior year, represents the movement in the property liabilities inrespect of which the relevant statutory limitation period expired (credit of£27.9m) and provision for rent payments following the reversion of elevenonerous leases to the Group (charge of £6.4m). 2 Represents the movement in the fair value of interest rate swaps which do notqualify for hedge accounting. Whilst the interest rate swaps are considered tobe effective in matching the amortising profile of existing or planned floatingrate borrowings, they do not meet the definition of an effective hedge due tothe relative size of the mark to market difference of the swap at the date ofacquisition or inception. 4. TAXATION The effective taxation charge applied in these interim results of 22.7%, beforeprofit on sale of non-current assets, exceptional items and share of post-taxearnings from joint ventures, reflects the estimated tax rate for the 53 weeksending 23 August 2008. The effective rate of taxation for the comparativeperiod was 23.0%. The total tax charge of £22.2m (March 2007: £24.3m; August 2007: £26.3m)includes an exceptional tax credit of £7.0m (March 2007: £5.6m; August 2007:£31.4m). 5. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year, excluding those held in the employee share trust,which are treated as cancelled. Diluted earnings per share is calculated by dividing the earnings attributableto ordinary shareholders (after adding back interest on dilutive convertiblebonds) by the weighted average number of ordinary shares outstanding during theyear (adjusted for the effects of dilutive options and dilutive convertiblebonds). The equity portion of the convertible bond has been assessed and its impact isnot dilutive on both basic earnings and adjusted earnings at 1 March 2008 and 3March 2007. At 18 August 2007 its impact was dilutive on both basic earningsand adjusted earnings. Reconciliations of the earnings used in the calculations are set out below: 28 weeks to 1 March 2008 28 weeks to 3 March 2007 52 weeks to 18 August 2007 Per share Per share Per share Earnings amount Earnings amount Earnings amount £m pence £m pence £m pence Basic earnings per share 87.0 32.7 113.8 42.9 278.4 104.9Effect of dilutive - (0.3) - (0.5) - (1.2)optionsEffect of dilutive - - - - 17.0 (2.5)convertible bondsDiluted earnings per 87.0 32.4 113.8 42.4 295.4 101.2share Supplementary earningsper share figures:Basic earnings per share 87.0 32.7 113.8 42.9 278.4 104.9Effect of:Exceptional items 16.8 6.3 (11.9) (4.4) (54.4) (20.5)Basic earnings per share 103.8 39.0 101.9 38.5 224.0 84.4before exceptional itemsDiluted earnings per 87.0 32.4 113.8 42.4 295.4 101.2shareEffect of:Exceptional items 16.8 6.3 (11.9) (4.4) (54.4) (18.6)Diluted earnings per 103.8 38.7 101.9 38.0 241.0 82.6share before exceptionalitems The impact of dilutive ordinary shares is to increase weighted average shares by2.1 million (March 2007: 3.2 million; August 2007: 3.1 million) for employeeshare options and nil (March 2007: nil; August 2007: 23.3 million) forconvertible bonds. 28 weeks to 28 weeks to 52 weeks to 1 March 3 March 18 August 2008 2007 2007 No. (000) No. (000) No. (000) Basic weighted average number of shares 266,125 264,965 265,351Discretionary Share Plan and SAYE scheme 1,637 2,282 2,157Long Term Incentive Plan 304 858 881Deferred Bonus Shares 170 103 105Potential dilutive impact of convertible bonds - - 23,341Diluted weighted average number of shares 268,236 268,208 291,835 6. NET DEBT (a) Analysis of net debt 1 March 3 March 18 August 2008 2007 2007 £m £m £m Secured loan notes (4,583.3) (4,347.3) (4,598.5)Bank loans - (674.1) (43.1)Convertible bonds1 (283.0) (279.3) (281.0)Gross debt (4,866.3) (5,300.7) (4,922.6)Cash and cash equivalents 222.7 365.0 267.7Nominal value of net debt (4,643.6) (4,935.7) (4,654.9) Capitalised debt issue costs 27.5 31.2 29.5Fair value adjustments on acquisition of secured loan notes (171.3) (205.6) (178.9)Fair value of interest rate swaps (168.5) (172.6) (96.9)Balance sheet adjustments to convertible bonds2 18.2 23.0 21.4Finance lease obligations (19.2) (24.1) (21.1)Net debt (4,956.9) (5,283.8) (4,900.9) Balance sheet:Borrowings (4,766.3) (5,255.2) (4,833.3)Convertible bonds (259.2) (248.1) (253.1)Derivative financial instruments (168.5) (172.6) (96.9)Cash deposits used as security for loan notes 14.4 27.1 14.7Cash and cash equivalents 222.7 365.0 267.7Net debt (4,956.9) (5,283.8) (4,900.9) 1 Represents nominal value of convertible bonds of £275m plus subsequentaccretion of liability to redemption value on maturity. 2 Represents equity component of convertible bonds less subsequent accretion ofliability to redemption value on maturity for this equity component. (b) Analysis of changes in net debt At Non-cash movements At 18 August 2007 Cash flow 1 March 2008 £m £m £m £mCurrent assetsCash at bank and in hand 267.7 (45.0) - 222.7Cash deposits 14.7 (0.3) - 14.4Cash and cash deposits 282.4 (45.3) - 237.1 DebtBorrowings (4,818.6) 60.9 5.8 (4,751.9)Guaranteed loan notes (14.7) 0.3 - (14.4)Derivative financial instruments (96.9) (0.6) (71.0) (168.5)Debt component of convertible bonds (253.1) - (6.1) (259.2) (5,183.3) 60.6 (71.3) (5,194.0) Net debt per balance sheet (4,900.9) 15.3 (71.3) (4,956.9) Net debt incorporates the Group's borrowings, bank overdrafts, derivativefinancial instruments and obligations under finance leases, less cash and cashequivalents and cash deposits. The cash deposits are used as security for loannotes. Non-cash movements relate to amortisation of deferred issue costs and premium onloan notes and convertible bonds, the equity component of convertible bonds andfair value movement in derivative financial instruments. 7. RECONCILIATION OF MOVEMENTS IN EQUITY 28 weeks ended 28 weeks 52 weeks 1 March ended ended 2008 3 March 18 August 2007 2007 £m £m £mAt beginning of period 1,736.9 1,426.6 1,426.6Total recognised income and expense for the period 46.1 135.1 343.4Exercise of share options - 1.0 2.3Share-based payments 1.3 1.1 2.0Equity dividends (27.2) (23.9) (37.4)Total equity at end of period 1,757.1 1,539.9 1,736.9 8. DIVIDENDS An interim dividend of 5.5 pence per share (2007 interim: 5.1 pence; 2007 final:10.2 pence) was declared by the directors on 23 April 2008 and will be payableon 27 June 2008 to shareholders on the register of members on 6 June 2008.These financial statements do not reflect this dividend payable but do reflectthe final dividend paid for the 52 weeks ended 18 August 2007 of £27.2m. 9. RELATED PARTY TRANSACTIONS Balances arising from transactions with joint ventures During the second half of the prior year the Group acquired fifty percent ofMatthew Clark. The Group had transactions of £0.6m with Matthew Clark duringthe current period (52 weeks to 18 August 2007: £0.1m), all of which was owingto Matthew Clark at the period end (August 2007: £0.1m). During the period, the Group has paid invoices and raised sales invoices onbehalf of Allied Kunick Entertainments Limited which have been recharged via anintercompany account. At 1 March 2008, Allied Kunick Entertainments Limitedowed the Group £0.1m (March 2007: nil, August 2007: £0.1m). At 1 March At 3 March At 18 August 2008 2007 2007 £m £m £mUnsecured loan stock receivable 9.0 8.3 8.6Amounts owed from / (to) joint ventures (0.5) - -Total amounts due from joint ventures 8.5 8.3 8.6 All rights, together with the joint venture partner, to receive interest, havebeen waived. 10. CAPITAL COMMITMENTS Capital commitments contracted, but not provided for by the Group, amounted to£13.7m (March 2007: £17.8m, August 2007: £22.2m). STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors confirm to the best of their knowledge that this condensed set offinancial statements has been prepared in accordance with IAS 34 as adopted bythe European Union, and that the interim management report herein includes afair review of the information required by DTR 4.2.7 and DTR 4.2.8. On behalf of the Board Giles Thorley Phil DuttonChief Executive Finance Director23 April 2008 23 April 2008 Independent review report to Punch Taverns plc Introduction We have been engaged by the Company to review the condensed set of financialstatements in the interim financial report for the 28 weeks ended 1 March 2008which comprises the Consolidated income statement, Consolidated statement ofrecognised income and expense, Consolidated cash flow statement, Consolidatedbalance sheet and the related notes 1 to 10. We have read the other informationcontained in the interim financial report and considered whether it contains anyapparent misstatements or material inconsistencies with the information in thecondensed set of financial statements. This report is made solely to the Company in accordance with guidance containedin ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performedby the Independent Auditor of the Entity' issued by the Auditing PracticesBoard. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our work, for this report,or for the conclusions we have formed. Directors' responsibilities The interim financial report is the responsibility of, and has been approved by,the Directors. The Directors are responsible for preparing the interim financialreport in accordance with the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this interim financial reporthas 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 condensedset of financial statements in the interim financial report based on our review. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the interim financial reportfor the 28 weeks ended 1 March 2008 is not prepared, in all material respects,in accordance with International Accounting Standard 34 as adopted by theEuropean Union and the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority. Ernst & Young LLPBirmingham23 April 2008 -------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Punch Taverns PLC