27th Apr 2005 07:01
Jennings Brothers PLC27 April 2005 Wednesday 27 April 2005 JENNINGS BROTHERS PLC Possible Recommended Offer / Preliminary Announcement •Shareholders were notified on 11 April 2005 that the Boards of Jennings Brothers PLC ("Jennings") and The Wolverhampton & Dudley Breweries, PLC ("W& DB") were in discussions with a view to W&DB, subject to completing limited due diligence, making a recommended cash offer for Jennings at 430 pence per Jennings ordinary share including the final dividend ("the Offer"). Information on this will be provided in a separate announcement. • In the year ended 26 February 2005, Jennings achieved a thirdsuccessive year of double digit percentage growth in pre-tax profits, a resultof the operating model adopted following the decision in November 2001 toconcentrate on building a high quality business based on leased pubs and theFree Trade. • Normalised profit before tax (excluding profits and losses on the saleof properties) increased by 13.2% to £3.23m (2004: £2.85m) and normalisedearnings per share were 8.9% higher at 20.8p (2004: 19.1p). On a reported basis,pre-tax profit was £3.45m (2004: £2.85m), up 21.0%, and earnings per share were22.9p (2004: 19.1p), up 19.9%. Both normalised and reported bases are statedafter an unchanged goodwill amortisation charge of £0.11m. • In anticipation of agreeing terms for a recommended offer with W&DB asmentioned above, the Board is not proposing a final dividend per ordinary share(2004: 4.3p). Should an offer not be forthcoming or should any such offer failto become unconditional, the Board would envisage proposing an appropriatespecial interim dividend in due course. •Jennings Pubs is the Group's principal business, contributing 67% of Group turnover. Turnover (from rents, the sale of drink and amusement machine income) increased by 7.8% to £12.17m (2004: £11.29m), operating profit (before central operating costs) increased by 13.2% to £6.10m (2004: £5.39m), representing a margin of 50.1% (2004: 47.7%). On a like-for-like basis, based on 110 pubs which traded throughout the comparative period, turnover was up by 3.1% and operating income by 6.9%. •Jennings Drinks turnover increased by 1.3% (first half-year -1.6%; second half-year +4.9%) to £6.03m (2004: £5.95m), generating an operating profit (before central operating costs) of £1.00m (2004: £0.93m). During the year, the brewery produced almost 9 million pints of beer and sales of Jennings' lead brand, Cumberland Ale, increased by 4% to 4 million pints, representing 46% of total brewery production output. John Rudgard, Chairman, stated: "As I remarked last year, Jennings hassuccessfully implemented its strategy to concentrate on growing Jennings Pubsand Jennings Drinks. Our results over the past three years demonstrate that thestrategy has delivered against our objectives. These results reinforce ourdecision to focus on the operation of leased pubs and the Drinks business, whichhas created substantial additional value for shareholders." Enquiries: Jennings Brothers plc 01900-820 310Mike Clayton (Managing Director)David Stevenson (Finance Director) Bankside Consultants LimitedCharles Ponsonby 020-7444 4166 CHAIRMAN'S STATEMENT Possible recommended offer by The Wolverhampton & Dudley Breweries, PLC Shareholders were notified on 11 April 2005 that the Boards of Jennings BrothersPLC ("Jennings") and The Wolverhampton & Dudley Breweries, PLC ("W&DB") were indiscussions with a view to W&DB, subject to completing limited due diligence,making a recommended cash offer for Jennings at 430 pence per Jennings ordinaryshare including the final dividend ("the Offer"). Financial Review In the year ended 26 February 2005, Jennings achieved a third successive year ofdouble digit percentage growth in pre-tax profits, a result of the operatingmodel adopted following the decision in November 2001 to concentrate on buildinga high quality business based on leased pubs and the Free Trade. On turnover up 5.6% to £18.20m (2004: £17.24m), operating profit increased by17.1% to £4.47m (2004: £3.81m). Operating margin improved to 24.5% (2004: 22.1%)as the business continued to benefit from increased scale and prudent control ofthe cost base. Normalised profit before tax (excluding profits and losses on the sale ofproperties) increased by 13.2% to £3.23m (2004: £2.85m) and normalised earningsper share were 8.9% higher at 20.8p (2004: 19.1p). On a reported basis, pre-taxprofit was £3.45m (2004: £2.85m), up 21.0%, and earnings per share were 22.9p(2004: 19.1p), up 19.9%. Both normalised and reported bases are stated after anunchanged goodwill amortisation charge of £0.11m. Year end net assets totalled £29.45m (2004: £27.25m), representing a net assetvalue per ordinary share of 277p (2004: 256p), up 8.2%. Net debt at the year endwas £21.18m (2004: £19.83m), with gearing at 72.1% (2004: 72.9%). The interestcharge increased to £1.24m (2004: £0.96m) and was covered a comfortable 3.6x(2004: 4.0x) by operating profit. Dividends In anticipation of agreeing terms for a recommended offer with W&DB as mentionedabove, the Board is not proposing a final dividend per ordinary share (2004:4.3p). Should an offer not be forthcoming or should any such offer fail tobecome unconditional, the Board would envisage proposing an appropriate specialinterim dividend in due course. Business Review Jennings Pubs Jennings Pubs is the Group's principal business, contributing 67% of Groupturnover. At the year end, the estate comprised 128 leased and tenanted pubs inNorthern England, of which 43% are located in Cumbria, 24% in other parts of theNorth West, and 33% in the North East and Yorkshire. Over 50% have a significantfood offering and 20% offer accommodation. 95% are owned freehold by the Group. Turnover (from rents, the sale of drink and amusement machine income) increasedby 7.8% to £12.17m (2004: £11.29m). Operating profit (before central operatingcosts) increased by 13.2% to £6.10m (2004: £5.39m), representing a margin of50.1% (2004: 47.7%). Approximately half the operating profit (before centraloperating costs) derived from rental income, representing a quality and stableincome stream. The average profit per pub (pre-overheads) increased by 9.4%,demonstrating further improvement in the underlying quality of the estate. On a like-for-like basis, based on 110 pubs which traded throughout thecomparative period, turnover was up by 3.1% and operating income by 6.9%. During the year, seven pubs were acquired at a total cost, net of disposal ofsurplus properties attached to acquired pubs, of £3.80m. Five pubs of modestquality were sold, generating proceeds of £1.42m and a profit of £0.22m. Theacquisition programme was smaller than had been intended, because of competitionfor quality outlets. However, since the year end, one more pub has been acquiredand contracts have been exchanged for two pubs. In addition, terms for theacquisition of a further three pubs have been agreed. Ten pub development projects were completed last year, with associated capitalexpenditure of £1.0m. These projects included general refurbishments, theextension of trading areas, and the provision of improved catering facilities.All development projects are undertaken in partnership with the lessee, whoshares in the capital outlay. Of the Group's pubs, 91% are now on Jennings leases with an average period of 15years, which permit the Group and the lessee to share in the value jointlycreated. Levels of licensee turnover in our estate remain at a low level and wehad no vacancies for lessees at the year end. The Group has made good progress towards compliance with the Licensing Act 2003and we expect to have completed all licence applications well ahead of theAugust 2005 deadline. This has been achieved despite delays from the authoritiesin issuing the final documentation until February 2005. Whilst theimplementation of the new licensing regulations is proving a costly exercise formany pub operators, we have been able to maintain costs at a modest level byutilising our in-house legal department and by providing support and advice toour lessee partners we will facilitate their compliance within the timescale. Jennings Drinks Turnover increased by 1.3% (first half year: -1.6%; second half year: +4.9%) to£6.03m (2004: £5.95m), generating an operating profit (before central operatingcosts) of £1.00m (2004: £0.93m). The Direct Sales channel (sales direct to individual outlets predominantlylocated in Cumbria, and therefore affected by a two-thirds increase in Springand Summer rainfall) decreased by 4.4% to £3.48m (2004: £3.64m), representing58% of Jennings Drinks turnover. The National On-Trade channel (sales to other brewers, pubcos and wholesalers)increased turnover by 5.4% to £1.75m (2004: £1.66m), representing 29% ofJennings Drinks turnover. In the National Off-Trade channel (sales to the take-home market includingsupermarkets and off licences), following a 20.3% turnover increase in 2004,turnover increased by 23.1% to £0.80m (2004: £0.65m). During the year, the brewery produced almost 9 million pints of beer and salesof Jennings' lead brand, Cumberland Ale, increased by 4% to 4 million pints,representing 46% of total brewery production output. On 1 November 2004, Jennings launched, on time and in line with budget, itsin-house distribution operation to its own pubs and its Direct Sales channel.The service provides a competitive edge for the Jennings Beer business, with adelivery performance in excess of 98% being consistently achieved which isalready helping us to win new business in the Free Trade. Operating costscurrently remain in-line with the previous third-party contract operation. People In September 2004, John Sands was appointed a non-executive Director. John wasat Pubmaster from 1991 to 2004, as Managing Director (1991-96), as ChiefExecutive Officer (1996-2002), and as Executive Chairman (March 2002-January2004). In this capacity, he was responsible for the management of an estate of3,100 leased and tenanted pubs. In February 2005, Geoff Morrey, was appointed Director of Sales and Marketingand a member of the Executive Committee, succeeding Des Gallagher. Geoff hasextensive free trade sales experience in the brewing industry, having previouslyworked for Guinness and The Wolverhampton & Dudley Breweries, PLC, and was mostrecently Sales Director of Robert Cain, the regional brewer located inLiverpool. Geoff is focussing on the implementation of the Group's growthstrategy for the Jennings Drinks business. The progress achieved in the year reflects the enthusiasm and commitment of theGroup's 98 staff as well as that of the Group's trading partners within JenningsPubs and the support of its many Free Trade customers. On behalf of the Board, Iextend our thanks for everyone's considerable effort this year. Three year review As I remarked last year, Jennings has successfully implemented its strategy toconcentrate on growing Jennings Pubs and Jennings Drinks. Our results over thepast three years demonstrate that the strategy has delivered against ourobjectives: Normalised pre-tax profits are now 127% higher than in 2001-02 and over 50%higher than in 2000 (pre the foot and mouth epidemic); Borrowings have been reduced by around £8 million since the introduction of thecurrent strategy; The business is of a higher quality. Over three years, the average profit perpub has increased by 23%, with around a third of our current estate having beenacquired since 2001; In the Jennings Drinks business, Free Trade sales volumes are 24% higher, withprofits up by 37%, and we have successfully grown sales of our lead CumberlandAle brand by 50%; Jennings Pubs profits are 15% higher than three years ago despite our currentestate having 20% fewer pubs; The business model has been simplified and efficiencies significantly improved.Total operating and overhead costs for the Group remain 5% below 2001-02 levelsand overall operating margin has improved from 13.7% to 24.5%. These results reinforce our decision to focus on the operation of leased pubsand the Drinks business, which has created substantial additional value forshareholders. John RudgardChairman 27 April 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 26 February 2005 Notes 2005 2004 £000 £000 Turnover - continuing 2 18,201 17,240 Cost of sales (11,211) (11,035) --------- -------- Gross profit 6,990 6,205 Operating costs (2,525) (2,392) --------- -------- Operating profit - continuing 2 4,465 3,813 Profit/(loss) on disposal of properties 220 (2) --------- -------- Profit on ordinary activities before interest 4,685 3,811 Net interest payable and similar charges (1,240) (963) --------- --------Profit on ordinary activities before taxation 3,445 2,848 Taxation (1,014) (819) --------- --------Profit for the year 2,431 2,029 Dividends on equity and non-equity shares 4 (268) (714) --------- --------Retained profit for the year 2,163 1,315 --------- -------- Earnings per share: 3 basic 22.9p 19.1pdiluted 22.4p 19.1padjusted 20.8p 19.1p Dividends per share 2.5p 6.7p CONSOLIDATED BALANCE SHEET as at 26 February 2005 2005 Restated 2004 £000 £000Fixed assetsIntangible assets 1,638 1,751Tangible assets 48,694 44,655Investments and loans 1,847 2,004 --------- --------- 52,179 48,410 --------- ---------Current assetsStocks 479 512Debtors 2,018 1,976Cash at bank and in hand 524 95 --------- --------- 3,021 2,583 Creditors: amounts falling due within one year (6,804) (4,845) --------- --------- Net current liabilities (3,783) (2,262) --------- --------- Total assets less current liabilities 48,396 46,148 Creditors: amounts falling due after more than one year (18,092) (18,276) Provision for liabilities and charges (857) (624) --------- --------- 29,447 27,248 --------- ---------Capital and reservesCalled up share capital 2,714 2,714Share premium account 5,469 5,469Revaluation reserve 6,820 6,746Other reserves 7,924 7,888Profit and loss account 6,520 4,431 --------- ---------Shareholders' funds (including non-equity interests) 29,447 27,248 --------- --------- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES as at 26 February 2005 2005 2004 £000 £000 Profit for the year and total recognised gains and losses forthe year 2,163 1,315 Prior year adjustment (note 6) (100) Total gains recognised since last financial statements 2,063 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS as at 26 February 2005 2005 Restated 2004 £000 £000 Profit for the year 2,431 2,029Dividends (268) (714)Retained profit for the year 2,163 1,315ESOP realisations 36 -Net addition to shareholders' funds 2,199 1,315Opening shareholders' funds - as restated (previouslyreported £27,348,000, (2004: £26,033,000)) 27,248 25,933Closing shareholders' funds 29,447 27,248 Comprising:Equity interests 29,397 27,198Non-equity interests 50 50 29,447 27,248 CONSOLIDATED CASH FLOW STATEMENT for the year ended 26 February 2005 Notes Restated 2005 2004 £000 £000Net cash inflow from operating activitiesbefore exceptional items 5(i) 5,158 4,555 Restructuring and exceptional costs - (135) ------- -------Net cash inflow from operating activities 5,158 4,420 Returns on investments and servicing offinanceInterest received 33 32Interest paid (1,162) (1,116)Preference dividend paid (2) (2) ------- ------- Net cash outflow from returns oninvestments (1,131) (1,086)and servicing of finance TaxationCorporation tax paid (632) (793)Capital expenditure and financialinvestmentPurchase of tangible fixed assets (5,240) (5,943)Sale of tangible fixed assets 2,131 1,643Trade loans advanced (450) (482)Repayment of trade loans 696 620 ------- ------- Net cash outflow from capital expenditureand financial investment (2,863) (4,162)AcquisitionsPurchase of subsidiary undertaking (877) -Net cash acquired with subsidiaryundertaking 121 - ------- -------Net cash outflow from acquisitions (756) -Equity dividends paid (723) (691) ------- -------Cash outflow before financing (947) (2,312)FinancingNew bank loans 5(ii) 2,150 4,408Repayment of bank loans 5(ii) (2,409) (1,138)Capital element of finance leases 5(ii) (12) -Employee Share Ownership Plan - sale ofshares 22 11 ------- -------Net cash (outflow)/inflow from financing (249) 3,281 ------- -------(Decrease)/increase in cash in the year 5(iii) (1,196) 969 ------- ------- NOTES TO THE PRELIMINARY ANNOUNCEMENT 1 Basis of preparation The preliminary announcement has been prepared under the historical costaccounting rules modified to include the revaluation of certain land andbuildings and in accordance with approved accounting standards. The principal accounting policies of the Group are set out in the Group's 2004annual report and financial statements. The policies have remained unchangedfrom the previous annual report, apart from the adoption of "UITF 38 -Accounting for ESOP Trusts". The effect of the change on the comparative figuresis shown in note 6 to this preliminary announcement. 2 Segmental information 2005 2004 £000 £000Turnover:Pubs 12,169 11,288Free Trade 6,032 5,952 --------- --------- 18,201 17,240 --------- ---------Operating profit:Pubs 6,099 5,387Free Trade 1,004 931Goodwill amortisation (113) (113) --------- ---------Gross profit 6,990 6,205Central Services - operating costs (2,525) (2,392) --------- --------- 4,465 3,813 --------- --------- Turnover and operating profit on acquisitions for the period is not significant. 3 Earnings per share Earnings per share have been calculated on the earnings for the period dividedby the weighted average number of ordinary shares in issue and ranking fordividend being 10,627,383 (2004:10,618,250). The 20,337 (2004:31,617) sharesheld in the ESOP Trust have been excluded from the calculation. Diluted earningsper share of 22.4p have been calculated using the same weighted average numberof shares as the basic calculation, as adjusted for share options of 234,697shares (2004:Nil). Adjusted EPS has been presented in addition to the earnings per share as definedin FRS 14 since, in the opinion of the Directors, this provides shareholderswith a more meaningful representation of the earnings derived from the Group'sbusiness. The effects of the adjustments required are as follows: 2005 2004 Weighted Weighted average Earnings average Earnings number of per number of per Earnings shares share Earnings shares share £000 £000 Basic earnings pershare 2,429 10,627,383 22.9p 2,027 10,618,250 19.1pProperty disposals (220) - (2.1)p 2 - - ------ ------- ------- ------ -------- ------Adjusted earningsper share 2,209 10,627,383 20.8p 2,029 10,618,250 19.1p ------ ------- ------- ------ -------- ------ 4 Dividends 2005 2004 £000 £000 Preference - paid and payable at 4.55p (2004:4.55p) 2 2Ordinary - interim paid 2.5p (2004: 2.4p) 266 255- final proposed Nil (2004: 4.3p) - 457 --------- --------- 268 714 --------- --------- 5 Notes to the cash flow statement (i) Reconciliation of operating profit to net cash inflow from operatingactivities: 2005 2004 £000 £000 Operating profit before exceptional costs 4,465 3,813Depreciation 678 645Goodwill amortisation 113 113(Profit)/loss on sale of fixed assets excluding properties (9) 2Loss on ESOP shares 14 5Trade loans provisions and allowances (89) 1Decrease/(increase) in stocks 33 (39)(Increase)/decrease in debtors (194) 210Increase/(decrease) in creditors 147 (195) --------- ---------Net cash inflow from operating activities before exceptionalitems 5,158 4,555 --------- --------- The restructuring and exceptional expenditure of £135,000 expended in 2004 wasoriginally included in creditors in 2002 and carried forward to 2003. (ii) Reconciliation of net cash flow to movement in net debt: 2005 2004 £000 £000 (Decrease)/increase in cash in the year (1,196) 969Repayment of bank loans 2,409 1,138New bank loans (2,150) (4,408)Cash outflow from finance leases 12 -Inception of finance leases (66) -Loans acquired with subsidiary (358) - --------- ---------Change in net debt (1,349) (2,301)Net debt at 28 February 2004/2 March 2003 (19,832) (17,531) --------- ---------Net debt at 26 February 2005/28 February 2004 (21,181) (19,832) --------- --------- (iii) Analysis of net debt: As at 29 Cash Acquisition Non cash As at 26 flow February February flows £000 £000 2005 2004 £000 £000 £000 Cash at bankand in hand 95 429 - - 524Overdrafts (243) (1,625) - - (1,868) -------- -------- -------- -------- -------- (148) (1,196) - - (1,344) Bank loans duewithin oneyear (1,784) 13 (358) - (2,129)Bank loans dueafter one year (17,900) 246 - - (17,654)Finance leases - 12 - (66) (54) -------- -------- -------- -------- -------- (19,832) (925) (358) (66) (21,181) -------- -------- -------- -------- -------- 6 Prior year adjustment Comparative figures have been restated to reflect the adoption of "UITF 38 -Accounting for ESOP Trusts" by deducting the investment in own shares againstshareholders' funds. This has resulted in the reclassification of the investmentin own shares of £100,000 at 28 February 2004, from investments to otherreserves. 7 Post balance sheet event On 11 April 2005 shareholders were notified that the Boards of Jennings Brothersplc ("Jennings") and The Wolverhampton & Dudley Breweries, PLC ("W&DB") were indiscussions with a view to W&DB making a recommended cash offer for Jennings at430 pence per Jennings ordinary share including a final dividend. 8 Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The consolidated balance sheet at 26 February 2005 and the consolidated profitand loss account, consolidated cash flow statement and associated notes for the52 weeks then ended have been extracted from the Group's 2005 statutoryfinancial statements upon which the auditors' opinion is unqualified and doesnot include any statement under Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the Registrar ofCompanies. 9 Report and Accounts The Report and Accounts will be posted to shareholders on or about 27 May 2005and, from that date, will be available from Castle Brewery, Cockermouth, CumbriaCA13 9NE and on the Company's website: www.jenningsbrewery.co.uk. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Marstons