20th May 2005 07:00
Wolverhampton& Dudley Breweries PLC20 May 2005 20 May 2005 THE WOLVERHAMPTON & DUDLEY BREWERIES, PLC INTERIM RESULTS FOR THE 26 WEEKS ENDED 2 APRIL 2005 • Record underlying* earnings per share up 10.2% to 33.6p (2004: 30.5p)• Interim dividend up 10.0% to 13.2p (2004: 12.0p)• Underlying profit before taxation up 13.6% to £36.0m (profit after goodwill and exceptionals up 12.8% to £32.6 million)• Pathfinder Pubs like-for-like sales** up by 3.1%,• The Union Pub Company like-for-like sales** up 3.2%• Integration of Burtonwood PLC completed by the end of March, ahead of schedule and with increased level of synergies• Recommended £67 million cash offer for Jennings Brothers PLC declared wholly unconditional• Our strong performance and market position give us confidence in a satisfactory out-turn for the year in line with our expectations Ralph Findlay, Chief Executive, commented: "The Group has performed strongly in the first-half year. Our ability tointegrate acquisitions quickly and effectively has contributed to this goodoverall performance." "Trading over the Easter bank holiday weekend and since 2 April 2005 has beengood and in line with expectations." * The underlying results reflect the performance of the Group before goodwilland exceptional items. The Directors consider that these figures provide auseful indication of the underlying performance of the Group. ** First half like-for-like sales covers the period for 24 weeks to 19 March2005 excluding the Easter trading period. ENQUIRIES: The Wolverhampton & Dudley Breweries, PLC gcg hudson sandlerRalph Findlay, Chief Executive Andrew Hayes/Nick Lyon/Paul Inglett, Finance Director James BenjaminTel: 020 7796 4133 on Friday 20 May 2005 only Tel: 020 7796 4133 01902 329516 thereafter To access interviews with Ralph Findlay and Paul Inglett, available in video,audio and text, go to www.cantos.com. High quality images for the media toaccess and download free of charge are available from Visual Media Online atwww.vismedia.co.uk Chairman's Statement These strong first-half results reflect the continuing good underlyingperformance of each of our trading divisions, together with the successfulintegration of acquisitions. Our consistent focus on the development of our highquality, mainly freehold pub estates, popular ale brands and tight cost controlhave contributed to turnover and profit growth across all trading divisions. On 27 April 2005 we announced that we had reached agreement on the terms of arecommended cash offer for Jennings Brothers PLC ('Jennings') which valuesJennings at approximately £67 million, including debt to be acquired of £21million. In a separate announcement made today we have declared the offer forJennings wholly unconditional. Jennings operates a high quality estate of 128tenanted pubs in the North of England, and produces a portfolio of quality alebrands. The estate represents a good geographic fit with our existing business,particularly following the acquisition of Burtonwood PLC ('Burtonwood'). Theacquisition is consistent with our strategy to develop both organically andthrough selective acquisitions. Results Group turnover increased by 18.7% and the underlying operating margin wasmaintained, notwithstanding the significant cost increases being faced by thebusiness. Earnings per share before goodwill and exceptional items increased by10.2% to 33.6 pence per share. This increase was the product of a 13.6%increase in profit before taxation, goodwill and exceptional items, offset by aslightly higher effective tax rate and a modest increase in the average numberof shares in issue following the acquisition of Burtonwood on 6 January 2005.Full details of the acquisition of Burtonwood are described in the Financialreview and in note 7 to the accounts. Basic earnings per share (after goodwill and exceptional items) increased by12.6% to 30.4 pence per share. The details of the trading results and the development of the business aredescribed in the Chief Executive's review and the Financial review. Dividend The Board has declared an interim dividend of 13.2 pence per share (2004:12.0pence) payable on 24 June 2005 to shareholders on the register at the close ofbusiness on 3 June 2005. This is an increase of 10.0%, and represents acontinuation of the progressive dividend policy adopted by the Company over manyyears. Prospects The industry faces significant regulatory challenges, as described in the ChiefExecutive's review. Additionally, a slow-down in consumer expenditure has beenwidely reported. These factors suggest that pressure on industry margins willcontinue. We believe that our strategy is well suited to these slower market conditions.We will continue to use our strong cash flow to invest in our pub estatesthrough refurbishment, acquisition and site development, with a focus on highquality, value oriented offers in community pubs. Our preference is for goodquality freehold community pubs, which are less vulnerable than those on thehigh street to a potential consumer slow-down. They provide a stable platformfor growth and have delivered a consistent, steady trading performance duringvarying economic cycles. The mix of our business, which includes managed,tenanted and leased pubs as well as beer brands, provides us with operationalflexibility and greater scope to take advantage of opportunities as they arise. Notwithstanding the more uncertain economic climate, our strong performance andmarket position give us confidence in a satisfactory out-turn for the year inline with our expectations. David Thompson Chairman Chief Executive's review The Group has performed strongly in the first half-year. Our ability to integrate acquisitions quickly and effectively has contributed tothis good overall performance. In June 2004 we acquired Wizard Inns, a managedpub estate of 63 pubs situated mainly in the South of England. The pubs are ofgood quality and well situated in neighbourhood and commercial locations. Theintegration into Pathfinder Pubs was completed within ten weeks and theanticipated synergies of at least £2.5 million per year are being slightlyexceeded. The estate has traded satisfactorily and in line with ourexpectations, with like-for-like profit increasing by 4.3% in the firsthalf-year. Since the acquisition three sites have been sold at a profit to book valuerealising £4.7 million, and we have bought the freeholds of the Red Lion,Wendover and Cafe Mango, Sutton. Having completed our review of the estate, 12refurbishments will be completed during the second half of the year. On 6 January 2005, we completed the acquisition of Burtonwood, the operator ofan estate of 460 pubs situated mainly in the North-West of England and NorthWales. The integration of the pubs into The Union Pub Company and PathfinderPubs was completed by the end of March, ahead of schedule, with our originalestimate of synergies of at least £3.0 million per annum now increased to atleast £3.5 million per annum. The estate is a good geographical fit, is almost entirely freehold, and offersscope for development. Of the 40 managed pubs in the estate, we expect totransfer nine to tenancy during the second half-year. The overall reaction fromBurtonwood tenants has been very encouraging and supportive, with positiveendorsement of the wider range of both beer brands and tenancy or leaseagreements available. We are now in the process of reviewing the estate todetermine the suitability of individual pubs for investment and conversion tolease, and within the managed estate, for conversion to our operating formats.The estate has traded satisfactorily and in line with our expectations sinceacquisition. Effective cost management has also contributed to our performance. Operatingmargin of 20.7% was maintained in line with last year despite significantincreases in regulatory costs outside our control. Regulation We are well prepared for the changes that will be introduced by licensing reformfrom the end of this year. In the vast majority of cases the changes to openinghours sought will be modest but will, we believe, benefit our business. We are also preparing for the impact of a proposed ban on smoking in publicplaces which, if introduced as drafted, will affect pubs from the end of 2008.In Pathfinder Pubs we have already invested significantly in outside tradingareas - mainly on patios and gardens - and will extend this investment programmeover the next two years. We are opening more smoke-free pubs and are currentlyintroducing a policy which will see smoking at the bar prohibited in all of ourmanaged pubs by the end of 2005. We are encouraging our tenants and lessees toadopt similar changes so that across our pub estates we are prepared for thechallenges and opportunities presented by regulatory change. Pathfinder Pubs (comprising 537 managed pubs, 2004: 473 pubs). Turnover andoperating profit from the former Burtonwood estate are not included within thefigures below having been separately identified within the segmental analysis innote 2 to the accounts. Total turnover increased by 19.2% to £143.5 million. Total like-for-like salesincreased by 3.1% in the 24 weeks to 19 March 2005, the last full trading weekbefore the Easter holiday weekend, which fell in the second half-year in 2004. Operating margin was 19.0% compared to 19.5% last year. Gross margin was 0.5%higher than last year, and although the minimum wage increased by 7.8% on 1October 2004, total payroll costs as a percentage of sales were in line withlast year. Operating profit increased by 15.7% to £27.2 million. The investment we are making in our pub estate is generating good returns, withthe cash return on invested capital from both refurbishments and pub acquisitionor new-build pubs exceeding 20%. The majority of our investment is being made inpubs positioned to capture growth in informal dining, including the continuingdevelopment of pubs in both our 'Bostin' Local' and 'Service That Suits'formats. In addition to the integration of 40 pubs from the Burtonwood estate, during thefirst half-year we invested £7.8 million on new-build developments and pubacquisitions and invested £9.9 million on 33 major refurbishments. We invested £5.5 million on purchasing the freeholds of a number of properties,including the Pitcher & Piano bars in Nottingham and Swansea. These investmentsprovide us with greater operational flexibility and the potential for futurecapital appreciation. During the year ended 2 October 2004, 41 smaller pubs were transferred to TheUnion Pub Company, and a further 20 pubs are expected to be transferred duringthe second half of this year. Six pubs were sold at a profit to book values,including three pubs from the Wizard estate. The Union Pub Company (comprising 1,610 pubs, 2004: 1,132 pubs). Turnover andoperating profit from the former Burtonwood estate are not included within thefigures below having been separately identified within the segmental analysis innote 2 to the accounts. Total turnover increased by 10.1% to £62.4 million. Total like-for-like salesincreased by 3.2%. In the 24 weeks to 19 March 2005, the last full trading week before the Easterholiday weekend, which fell in the second half-year in 2004. Operating margin was 43.1% compared to 42.9% last year. Operating profitincreased by 10.7% to £26.9 million. In addition to growth in underlying sales, average profit per pub increased by5.0%. This strong performance is a reflection of the high quality nature of ourestate, the positive impact of the increased number of 21-year leases, and thetransfer of 41 pubs from Pathfinder Pubs in 2004. We now have terms agreed for nearly 600 21-year leases, and our assessment ofthe pubs from the former Burtonwood estate is that up to half of the 429 pubswhich will be operated by The Union Pub Company are suitable for conversion tolease. We anticipate that conversion, together with the associated leasepreparation investment, will be achieved over the next three years and willresult in a substantial uplift in pub performance. During the first half-year we invested £5.7 million on 11 individual pubacquisitions. The return on investment being achieved on pub acquisitions is inline with our targets. We also invested £7.8 million on pub refurbishment. Ourobjective is continuous improvement in the quality of our pub estate, and thisinvestment is an important driver. WDB Brands Total turnover increased by 5.5% to £59.9 million. Operating margin was 15.4%compared to 16.0% last year, and operating profit increased by 1.1% to £9.2million. Our brands have significantly out-performed the UK market in the firsthalf-year. The volume of our core own-brewed brands was 4.3% ahead of last yearin a market down by over 5%. Marston's Pedigree volumes increased by 12.6%, withpremium ale in total (including Old Empire) up by 13.9%, and standard ale(including the Banks's and Mansfield brands) up by 0.2%. We have expanded in the Free Trade market, with turnover up by nearly 7%compared to last year. We also benefited from new distribution agreements withpub companies. In February this year we took on the brewing of Draught Bass atthe Marston's brewery in Burton Upon Trent. We now brew two of the top premiumale brands in the country, and have become the largest brewer of cask beer inthe UK. The acquisition of Jennings represents a good opportunity to develop theJennings brands both in the North West and in our own pub estates. Our success in significantly increasing distribution through other pub companieshas impacted on margins as anticipated. The contribution from new business won,including Free Trade and Contract Services, has offset higher operating costs asa result of increased energy costs. At the same time we have continued to invest in our brands and have currentmarketing campaigns supporting Marston's Pedigree and the Banks's brands. Wealso opened a new brewhouse at the Marston's brewery in April 2005 at a cost ofaround £2 million. Current Trading Trading over the Easter bank holiday weekend and since 2 April 2005 has beengood and in line with expectations. In the 32 weeks ended 14 May 2005, totallike-for-like sales were 3.2% ahead of last year in Pathfinder Pubs, and 3.0%ahead in The Union Pub Company. In WDB Brands, volumes of our own brewed beerbrands were 4.3% ahead of last year. Ralph Findlay Chief Executive Financial review Trading overview Turnover Underlying Margin operating profit (note 2) 2005 2004 2005 2004 2005 2004 £m £m £m £m % %Pathfinder Pubs 143.5 120.4 27.2 23.5 19.0 19.5The Union Pub Co. 62.4 56.7 26.9 24.3 43.1 42.9WDB Brands 59.9 56.8 9.2 9.1 15.4 16.0Central costs - - (8.8) (8.4) (3.2) (3.6)Continuing operations 265.8 233.9 54.5 48.5 20.5 20.7Acquisition of Burtonwood 11.8 - 2.9 - - 24.6 -Group 277.6 233.9 57.4 48.5 20.7 20.7 These are strong Group results, including an 18.7% increase in turnover, an18.4% increase in underlying operating profit, a 13.6% increase in underlyingprofit before tax, and a 10.2% increase in underlying earnings per share. As aconsequence, the dividend per share is increased by 10.0% to 13.2 pence pershare, representing a continuation of our progressive dividend policy. Operating profit after goodwill and exceptional items was up by 14.3%. Profitbefore taxation and after goodwill and exceptional items was up by 12.8%. Basicearnings per share (after goodwill and exceptional items) increased by 12.6% to30.4 pence per share. This good overall performance has been driven by strong like-for-like sales inboth pub divisions, the benefit of the Wizard Inns and Burtonwood acquisitionsand excellent cost control across the Group. These results also includeapproximately £2.5 million of turnover and £0.9 million of operating profit as aresult of Easter falling into the first half this year, compared to in thesecond half last year. Maintained Margin The underlying operating margin of the Group was maintained at 20.7% despitesignificant cost increases. These increases have mainly impacted Pathfinder Pubsand include increases of 7.8% in the National Minimum Wage, £1.1 million inutility costs and £0.4 million in Sky TV costs. Strong cashflow Cashflow from operating activities increased by 19.4% to £68.3 million. Freecashflow, after the payment of interest, tax and maintenance capital, increasedby 58.2% to £23.1 million. Acquisition of Burtonwood PLC Burtonwood was acquired on 6 January 2005 for £167.6 million, includingacquisition costs and £33.8 million of net debt (before any fair valueadjustments). The acquisition was funded from existing bank facilities and theissue of 3.9 million new shares at a cost of £42.7 million. The Burtonwood fixedassets have subsequently been independently valued at £185.4 million. Negativegoodwill arising as a result of the acquisition was £6.0 million (see note 7). Estate revaluation surplus Last year, 75% of our pub estate was re-valued in accordance with our accountingpolicy. The remaining 25% is currently in the process of being re-valued. Earlyindications suggest an average 25% increase compared to book values, which isequivalent to a net gain of around £50 million. We anticipate a modestimpairment charge to the profit and loss account, mainly relating to certainleasehold properties. The full results of this revaluation will be included inour 2005 year-end accounts. On the balance sheet, the revaluation gains in 2004 more than offset debt raisedto finance the acquisitions of Wizard Inns and Burtonwood. As a result, balancesheet gearing has fallen to 101.5% as at 2 April 2005 from 103.4% as at 27 March2004. Conservatively financed Despite the recent acquisitions of Wizard Inns and Burtonwood the Group remainsconservatively financed. On a 12-month pro-forma basis to 2 April 2005 the ratioof net debt to EBITDA (earnings before interest, taxation, depreciation andamortisation) was 4.1 times and interest cover 3.2 times. Following our recent acquisitions we are currently reviewing the mostappropriate long term financing structure of the Group with the objective ofincreasing flexibility, lengthening the maturity of our debt, and reducingcosts. Taxation The underlying rate of taxation (before goodwill and exceptional items)increased marginally from 30.3% in 2004 to 30.8% in 2005. Exceptional items and goodwill There was a £1.7 million profit on exceptional items excluding goodwill. Thiscomprised a £2.8 million profit on the sale of fixed assets, a taxation creditof £1.0 million, offset by £2.1 million of costs relating to the reorganisationof Burtonwood. In addition, goodwill amortisation and impairment in the halfyear amounted to £4.1 million (see note 3). Accounting policies and International Financial Reporting Standards There have been no changes to our accounting policies since last year's annualreport. The Annual Report for the year to 1 October 2005 will be the last prepared underUK accounting standards. The Group will report under International FinancialReporting Standards ('IFRS') from the next financial year, with the firstresults due to be announced on this basis being the interim accounts to 1 April2006, including the restatement of comparatives on an IFRS basis. We are currently working with our auditors to confirm the likely impact on ouraccounts. The main areas affected are expected to be deferred taxation,pensions, share based payments, financial instruments, goodwill and accrueddividends. There will be no impact on cash flow or our banking covenants. Paul Inglett Finance Director GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED) for the 26 weeks ended 2 April 2005 26 weeks to 2 April 2005 26 weeks to 27 March 2004 53 weeks to 2 October 2004 Before Goodwill and Before Goodwill and goodwill and exceptionals goodwill and exceptionals exceptionals Total exceptionals Total Total £m £m £m £m £m Turnover Continuing operations 265.8 - 265.8 233.9 - 233.9 513.7 Acquisition 11.8 - 11.8 - - - -Total turnover 277.6 - 277.6 233.9 - 233.9 513.7Trading expenses (220.2) (6.2) (226.4) (185.4) (3.7) (189.1) (412.8)Operating profit Continuing operations 54.5 (4.1) 50.4 48.5 (3.7) 44.8 100.9 Acquisition 2.9 (2.1) 0.8 - - - -Total operating profit 57.4 (6.2) 51.2 48.5 (3.7) 44.8 100.9Fixed asset disposals - 2.8 2.8 - 0.9 0.9 4.5Profit on ordinary activities 57.4 (3.4) 54.0 48.5 (2.8) 45.7 105.4before interestInterest (21.4) - (21.4) (16.8) - (16.8) (35.2)Profit on ordinary activities 36.0 (3.4) 32.6 31.7 (2.8) 28.9 70.2before taxation Taxation (11.1) 1.0 (10.1) (9.6) 0.3 (9.3) (21.8)Profit on ordinary activities 24.9 (2.4) 22.5 22.1 (2.5) 19.6 48.4after taxationDividends paid and proposed (10.1) (8.7) (25.6)Profit for the period 12.4 10.9 22.8transferred to reservesEarnings per share:Basic earnings per share 30.4p 27.0p 66.7pBasic earnings per share before 33.6p 30.5p 75.8pgoodwill and exceptionalsDiluted earnings per share 30.0p 26.7p 65.9pDiluted earnings per share 33.2p 30.1p 74.9pbefore goodwill andexceptionals GROUP CASH FLOW STATEMENT (UNAUDITED) for the 26 weeks ended 2 April 2005 26 weeks to 26 weeks to 53 weeks to 2 April 2005 27 March 2004 2 October 2004 £m £m £m £m £m £mNet cash inflow from operating activities 68.3 57.2 148.4Returns on investments and servicing of financeInterest received 0.3 0.4 0.6Interest paid (22.8) (21.6) (34.9)Arrangement costs of new bank facilities (0.7) (2.0) (2.1)Net cash outflow from returns on investments (23.2) (23.2) (36.4)and servicing of financeTaxation (10.7) (10.4) (21.0)Capital expenditure and financial investmentInvestment in existing business (35.4) (27.7) (61.0)Purchase of new pubs/site developments (19.3) (3.9) (20.9)Sale of tangible fixed assets 8.8 6.5 13.5Decrease in trade loans and other investments 2.3 1.8 3.5Net cash outflow for capital expenditure and (43.6) (23.3) (64.9)financial investmentAcquisitionPurchase of subsidiary undertaking (84.1) - (30.3) Net cash acquired with subsidiary undertaking 5.8 - 7.5Repayment of debt of subsidiary upon - - (68.5)acquisitionNet cash outflow for acquisition (78.3) - (91.3)Equity dividends paid (17.6) (15.4) (24.1)Cash outflow before financing (105.1) (15.1) (89.3)FinancingIssue of ordinary share capital 0.8 2.6 3.0Purchase of ordinary share capital for - (4.7) (8.0)cancellationNet sale of own shares from share trust 0.1 0.9 1.1Capital element of finance lease payments (0.1) - -Advance/(repayment) of loans 117.1 22.4 99.4Net cash inflow from financing 117.9 21.2 95.5Increase in cash in the period 12.8 6.1 6.2Reconciliation of net cash flow to movement innet debtIncrease in cash in the period 12.8 6.1 6.2Cash inflow from increase in debt (116.3) (20.4) (97.3)Change in debt resulting from cash flows (103.5) (14.3) (91.1)Debt acquired with subsidiary (43.8) - -Non-cash movements (7.0) (0.3) (0.6)Movement in net debt in the period (154.3) (14.6) (91.7)Net debt at 3 October 2004 (560.4) (468.7) (468.7)Net debt at 2 April 2005 (714.7) (483.3) (560.4) GROUP BALANCE SHEET (UNAUDITED) for the 26 weeks ended 2 April 2005 2 April 27 March 2 October 2005 2004 2004 £m £m £mFixed assetsGoodwill 105.0 105.0 109.1Negative goodwill (6.0) - -Intangible fixed assets 99.0 105.0 109.1Tangible assets 1,395.2 903.6 1,182.3Investments 22.4 23.0 21.2 1,516.6 1,031.6 1,312.6Current assetsStocks 13.5 13.4 13.5Debtors 49.8 39.5 45.0Cash at bank and in hand 24.9 16.0 16.2 88.2 68.9 74.7Creditors - amounts falling due within one year (126.6) (109.7) (138.7)Net current liabilities (38.4) (40.8) (64.0)Total assets less current liabilities 1,478.2 990.8 1,248.6Creditors - amounts falling due after more than one year (751.6) (506.9) (583.1)Provisions for liabilities and charges (22.3) (16.5) (17.2) 704.3 467.4 648.3Capital and reservesEquity share capital 22.6 21.5 21.4Non-equity share capital 0.1 0.1 0.1Called-up share capital 22.7 21.6 21.5Share premium account 252.2 209.5 209.9Revaluation reserve 321.7 152.3 321.9Capital redemption reserve 6.0 5.9 6.0Profit and loss account 101.7 78.1 89.0Shareholders' funds including non-equity interest of £0.1m (2004: £0.1m) 704.3 467.4 648.3Capital employed 704.3 467.4 648.3 NOTES 1 Basis of preparation of accounts The interim accounts have been prepared in accordance with the accountingpolicies as stated in the accounts for the year ended 2 October 2004. The financial information for the year ended 2 October 2004 is extracted fromthe audited financial statements for that year, which have been delivered to theRegistrar of Companies. The auditors' report was unqualified and did not containa statement under Section 237 (2) or (3) of The Companies Act 1985. The auditorshave neither audited nor reviewed the interim accounts. 2 Segmental analysis 2 April 2005 27 March 2004 Operating Operating profit before profit before goodwill and Net goodwill and Net Turnover exceptionals assets Turnover exceptionals assets £m £m £m £m £m £mContinuing operations: Pathfinder Pubs 143.5 27.2 578.9 120.4 23.5 410.2 The Union Pub Company 62.4 26.9 489.0 56.7 24.3 369.1 WDB Brands 59.9 9.2 89.1 56.8 9.1 87.2 Central costs - (8.8) 21.8 - (8.4) 15.1 265.8 54.5 1,178.8 233.9 48.5 881.6Acquisition: Burtonwood 11.8 2.9 183.1 - - - 277.6 57.4 1,361.9 233.9 48.5 881.6Goodwill and exceptionals - (6.2) 99.0 - (3.7) 105.0Debt, tax and dividends - - (756.6) - - (519.2) 277.6 51.2 704.3 233.9 44.8 467.4 2 April 2005 27 March 2004 Operating Operating profit after Goodwill profit after Goodwill goodwill and and Goodwill goodwill and and Goodwill exceptionals exceptionals asset exceptionals exceptionals asset £m £m £m £m £m £mContinuing operations: Pathfinder Pubs 25.6 1.6 38.6 22.4 1.1 32.8 The Union Pub Company 26.2 0.7 21.3 23.3 1.0 22.7 WDB Brands 8.8 0.4 5.6 8.5 0.6 6.9 Central costs (10.2) 1.4 39.5 (9.4) 1.0 42.6 50.4 4.1 105.0 44.8 3.7 105.0Acquisition: Burtonwood 0.8 2.1 (6.0) - - - 51.2 6.2 99.0 44.8 3.7 105.0 NOTES 3 Goodwill and exceptionals 2 April 27 March 2005 2004 £m £mTrading expensesGoodwill amortisation 3.6 3.4Goodwill impairment following fixed asset disposals 0.5 0.3Costs of reorganisation of Burtonwood 2.1 - 6.2 3.7Profit on fixed asset disposals (2.8) (0.9) 3.4 2.8 4 Taxation The taxation charge for the 26 weeks ended 2 April 2005 is calculated byapplying an estimate of the effective tax rate for the year ending 1 October2005. 2 April 27 March 2005 2004 £m £mCurrent tax 7.6 8.8Deferred tax 2.5 0.5 10.1 9.3 5 Interim dividends An interim dividend of £10.1m, being 13.2p per ordinary share and 3.0p perpreference share has been proposed and will be paid on 24 June 2005 to thoseshareholders on the registers at the close of business on 3 June 2005. 6 Earnings per ordinary share 2 April 2005 27 March 2004 Earnings Weighted Per share Earnings Weighted Per share average no. amount average amount of shares no. of shares £m m p £m m pBasic earnings per share 22.5 74.1 30.4 19.6 72.5 27.0Diluted earnings per share 22.5 75.0 30.0 19.6 73.4 26.7 Supplementary earnings per share figuresBasic earnings per share before goodwill 24.9 74.1 33.6 22.1 72.5 30.5and exceptionalsDiluted earnings per share before goodwill 24.9 75.0 33.2 22.1 73.4 30.1and exceptionals Basic earnings per share is calculated by dividing the profit after tax by theweighted average number of shares in issue during the period excluding thoseheld in the Employee Share Ownership Plan. Diluted earnings per share is calculated by adjusting the basic earnings pershare to assume the notional exercise of the weighted average number of ordinaryshare options outstanding during the period. The effect of dilutive options isto increase the weighted average number of shares by 0.9m (2004: 0.9m). Supplemental earnings per share figures are presented to exclude the effects ofgoodwill and exceptionals. The Directors consider that the supplementary figuresprovide a useful indication of performance. NOTES 7 Acquisition of Burtonwood PLC On 6 January 2005, the Group acquired 100% of Burtonwood PLC and its whollyowned subsidiaries. The acquisition has been accounted for under acquisitionaccounting principles and is therefore included in the consolidated balancesheet as at 2 April 2005. Fair value adjustments Provisional Book value Revaluations Other fair value £m £m £m £mFixed assets 140.9 44.5 - 185.4Investments 4.1 - - 4.1Stock 1.0 - - 1.0Debtors 4.3 - - 4.3Cash 5.8 - - 5.8Creditors (13.2) - (1.0) (14.2)Loans (15.0) - - (15.0)Debentures (24.6) - (4.2) (28.8)Provisions for liabilities and charges (4.4) - 1.6 (2.8)Net assets acquired 98.9 44.5 (3.6) 139.8 Consideration (including acquisition fees)Cash 84.1Share capital 42.7Loan notes 7.0Total consideration 133.8Negative goodwill arising on consolidation (6.0) The attributed fair values are provisional. The revaluation adjustment reflectsthe valuation of the acquired estate as at 6 January 2005. The valuation wascarried out by independent chartered surveyors, Gillman Jones, on an existinguse basis. No deferred tax has been recognised on the revaluation adjustment asthere are no agreements to sell the assets concerned. The other fair value adjustments reflect the valuation of the Burtonwood pensionscheme and the market value of the Burtonwood debentures at acquisition date.Deferred tax has been recognised on these fair value adjustments. The net cash outflow in respect of the acquisition of Burtonwood PLC was: £mAcquisition of equityCash (84.1)Cash in hand of subsidiary 5.8 (78.3) 8 Reconciliation of operating profit to net cash inflow from operatingactivities 2 April 27 March 2 October 2005 2004 2004 £m £m £mTotal operating profit 51.2 44.8 100.9Goodwill amortisation 3.6 3.4 7.0Income from fixed asset investments (0.1) (0.3) (0.4)Depreciation charge 18.9 15.8 32.9Decrease in pension cost provision (0.6) (0.8) (1.5)Decrease/(increase) in stocks 1.0 (0.9) (0.5)Increase in debtors (0.7) (4.2) (3.3)(Decrease)/increase in creditors (5.7) (0.9) 9.3Exceptional operating charges with no cash impact 0.7 0.3 4.0Net cash inflow from operating activities 68.3 57.2 148.4 NOTES 9 Analysis of net debt 2 April Non- 2 October 2005 Cash flow cash flow Acquisition 2004 £m £m £m £m £mCashCash at bank and in hand 24.9 8.7 - - 16.2Bank overdraft - 4.1 - - (4.1) 24.9 12.8 - - 12.1Debt due within one yearLoan stock (0.1) - - - (0.1)Bank loans 1.1 0.7 - - 0.4Finance leases (0.1) 0.1 (0.1) - (0.1) 0.9 0.8 (0.1) - 0.2Debt due after one yearBank loans (486.6) (117.2) - (15.0) (354.4)Finance leases (0.3) - (0.1) - (0.2)Debenture loans (246.7) - 0.2 (28.8) (218.1)Other loans (6.9) 0.1 (7.0) - - (740.5) (117.1) (6.9) (43.8) (572.7) (714.7) (103.5) (7.0) (43.8) (560.4) Bank loans due within one year represent unamortised issue costs expected to becharged within the next year. 10 Reconciliation of movement in Group shareholders' funds 2 April 27 March 2 October 2005 2004 2004 £m £m £mProfit on ordinary activities after taxation 22.5 19.6 48.4Dividends (10.1) (8.7) (25.6)Profit for the period transferred to reserves 12.4 10.9 22.8Revaluation of properties - - 171.7Proceeds of ordinary share capital issued 43.5 2.6 3.0Purchase of own shares for cancellation - (4.7) (8.0)Net sale of own shares from share trust 0.1 0.9 1.1Net addition to shareholders' funds 56.0 9.7 190.6Opening shareholders' funds 648.3 457.7 457.7Closing shareholders' funds 704.3 467.4 648.3 11 The interim report was approved by the Board on 20 May 2005. 12 Copies of this report have been sent to shareholders and are available to thepublic on request from: The Company Secretary, The Wolverhampton & DudleyBreweries, PLC, PO Box 26, Park Brewery, Wolverhampton, WV1 4NY. 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