8th Nov 2007 07:01
Punch Taverns PLC08 November 2007 PUNCH TAVERNS PLC("Punch" or "the Group") Preliminary Results for the 52 weeks to 18 August 2007 Passionate about our pubs Punch Taverns plc, the UK's leading pub operator of over 8,400 leased, tenantedand managed pubs, today announces preliminary results for the 52 weeks ended 18August 2007 Highlights Financial Results (before exceptional items) • Group revenue up 10% to £1,705 million (2006: £1,546 million) • EBITDA up 9% to £664 million (2006: £606 million) • Profit before tax up 13% to £282 million* (2006: £250 million) • Basic earnings per share up 13% to 84.4p (2006: 74.9p) • Proposed final dividend of 10.2p, bringing the total dividend for the year to 15.3p, representing an increase of 14% (2006: 13.4p) Financial Results (after exceptional items) • Profit before tax up 8% to £305 million (2006: £281 million) • Basic earnings per share up 11% to 104.9p (2006: 94.9p) Operational • Continue to pursue the creation of the highest quality pub estate • Like for like pub contribution for the leased business increased 2.7%; like for like sales for the core managed estate rose by 3.5% • Average profit per pub up by 11% in the leased business and up 15% in the managed business • 563 pubs transferred from managed to leased in the current year, following 74 completed in 2006 • Disposal of 986 non-core smaller pubs; 178 pubs acquired (including 82 Mill House Inns) • Continued investment with £202 million spent on enhancing over 1,500 pubs across the estate • Integration of acquired businesses completed and synergies extracted • Matthew Clark joint venture further expands Group capabilities and retailer support • Completion of £825 million refinancing in July at an effective rate of 6.4%, ahead of current debt market tightening * Inclusive of profit on disposal of non-current assets of £3.0 million (2006:£1.4 million) Giles Thorley, Chief Executive of Punch Taverns plc, commented "This has been a year of intense activity, significant operational change andbusiness improvement for the Group. We are continuing to further improve thequality of our estate whilst maintaining the robust nature of the businessmodel. We are pleased to have once again delivered a strong set of resultsdespite the challenges of the last quarter of the year. "The completion of our integration programme leaves us in our best ever shapefrom which to further develop the business and capitalise on the opportunitiesopen to us. Whilst the sector is experiencing a degree of uncertainty and isnot without its short term challenges, we remain confident about the long termfuture prospects for the business." 8 November 2007 Enquires; 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 PRELIMINARY RESULTS FOR THE 52 WEEKS TO 18 AUGUST 2007 OVERVIEW The financial year ended 18 August 2007 has been one of significant change andbusiness improvement for Punch Taverns. We have delivered substantialimprovements in quality and profitability with growth in EBITDA per pub of 11%and 15% in the leased and managed estates respectively, reflecting the largestand one of the best quality pub estates in the country. Delivering this position has required unprecedented levels of activity. Thecorporate strategy behind the acquisition of the Spirit Group has beensuccessfully executed. Of the 1,830 directly managed pubs acquired, 400 weresold, 637 converted from managed to leased (including 74 last year and 563 inthe current year) with the remaining 793 pubs retained as managed. In addition,we acquired 178 pubs (including 82 Mill House Inns), disposed of 986 non-coresmaller pubs and completed over 1,500 individual pub investment schemes,investing £202 million, to improve the quality of experience offered to ourcustomers. All this activity has once again enhanced the quality of our estateleaving us with some 7,561 leased pubs and 887 managed pubs as at 18 August2007. Our strategy remains to assist and support our retailers and pub managers tomaximise the trading opportunity for them and their pubs. To further improve theservice given to our pubs, our field and central support teams have beencompletely refocused over recent months. Furthermore, we have successfullyrenegotiated contracts with most of our major suppliers onto more beneficialterms to reflect our high quality estate. The reorganisation and integration of field and central support teams hasalready resulted in significant cost reductions with in year managed overheadsavings in excess of £14 million. Further managed overhead savings areanticipated for 2008. Against this backdrop of intense operational activity, our business hascontinued to perform well and all of our key financial measures have improved.Across the year, like for like profits within our leased business were up by2.7% and like for like sales within our core managed estate were up by 3.5%.This level of performance was all the more pleasing as it was achieved despite adifficult final quarter where unprecedented poor weather and flooding restrictedthe trading for many of our pubs. Revenue was £1,705 million, representing an increase of 10% on the previousyear. On a pre-exceptional basis, EBITDA was £664 million, up 9%, profit beforetax increased 13% to £282 million and similarly basic earnings per share rose by13% to 84.4p. In recognition of these results, the Board is recommending a final dividend of10.2p per ordinary share, taking the full year dividend to 15.3p, an increase of14% on last year. The final dividend will be payable on 23 January 2008 toshareholders on the register on 4 January 2008. The successful completion of such a demanding level of activity together withthe delivery of an improved business performance is testament to the hard workand commitment of everyone connected with Punch Taverns. We would particularlylike to congratulate and thank our pub retailers and managers and all of ourstaff and colleagues for their support during the year. OPERATING REVIEW Our operating strategy continues to focus upon delivering a high quality pubexperience to each of our customers. We achieve this through three key attributes: • Passionate about our pubs: continually enhancing the quality of our customers' environment within each pub • Passionate about our people: attracting the best people to run our pubs and constantly striving to deliver high standards of customer experience • Passionate about service: delivering industry-leading training and support to our pubs to ensure we provide the best customer service Passionate about our pubs We have continued to make significant investment in developing the quality ofour estate. Over the last financial year we have completed over 1,500 individual pubinvestment schemes across the leased and managed estates at a total cost of £202million. These schemes are designed to improve the quality of experience andenvironment enjoyed by our customers. Much of this activity has also enabled ourpubs to ensure that appropriate solutions were determined on a site by sitebasis ahead of the smoking ban which was introduced in England (July) and Wales(April) earlier this year. We do not overtly brand our pubs, our objective being to establish a true 'local' in each of our sites. Our focus on maximising the value of each siteallows us to determine the most effective approach to operating each pub. Smaller, lower turnover pubs which lend themselves to a more entrepreneurialmanagement style are independently operated within our leased delivery model.Larger, higher turnover pubs, typically taking on average £16k per week, lendthemselves to the managed model. Passionate about our people Whether a pub is leased or managed, we believe that attracting the best peopleto run our pubs is pivotal in determining the delivery of a high level ofservice to our customers. Within the leased estate, we have received enquiries from over 6,600 applicantsin the year and have let a record 1,800 pubs onto substantive agreements, withthe transfer to lease process attracting some particularly high calibreretailers to Punch. We continue to develop our partnerships with our retailers with over 4,000retailers attending our award-winning training programmes in the year.Demonstrating our commitment to sharing the success of our business with ourretailers, average retailer profitability has improved in line with the improvedquality of the leased estate, up by 9%, to an average of c.£38k per annum. Ourapproach has seen other tangible benefits in terms of lower overdue debt levels,and rental concession levels remain unchanged at c.1% of rent roll. Within the managed estate, we launched an in-house training academy for managersand every pub manager has completed an annual personal development programme. Weconstantly measure our customer service delivery through independent mysterycustomer visits. Across the year, service scores have improved by 5% and foodquality measures have improved by 10%, all due to the efforts of our colleagues. Passionate about service We continually strive to improve the quality of service to our customers andbelieve a key strength of our operating approach is the delivery ofindustry-leading service and support to each of our pubs. Whilst the leased and managed estates are operated separately, our support teamsensure that best practice, key learnings and synergy benefits are shared acrossthe Group. During the year, our field and central support teams have been completelyreorganised to improve the level of service given to each of our pubs. The nextchallenge will be to complete the successful integration of central supportfunctions, such as IT, to achieve further efficiencies and cost savings. Consolidation of buying functions across the two operations has also allowed usto renegotiate virtually all of our major supplier contracts to reflect ourtransformed estate whilst delivering improved service levels and productofferings to our customers. Finally, during the year we acquired a 50% stake in Matthew Clark, the UK'sleading independent drinks wholesaler. Working with our partner, Constellation,we believe we can greatly enhance the wine offer to our pubs, deliveringindustry leading product quality and choice. FINANCIAL REVIEW We continue to see good opportunities for further investment to improve thequality of our pubs either through acquisition or investment in the existingestate. During the year, cash generated from the management of our finances hasfunded further site acquisitions (including Mill House Inns and Matthew ClarkJV) to a value of £139 million (net of acquired debt) and investment in theestate of £202 million. As part of our ongoing assessment of the quality of our estate, 986 pubs - whichwe considered to have less sustainable prospects - were disposed of during theyear. The disposal raised proceeds of £405 million, which was used to pay downbank debt. Our debt strategy continues to leverage the improved quality of our pub estate.94% of our estate is either freehold or long leasehold which forms goodsecurity for the use of debt finance to efficiently fund our business. With theimproved quality and size of our pub estate, we have been able to furtherimprove the efficiency of our debt finance. In July, we successfully refinanced£825 million of debt at an average interest rate of 6.4%, ahead of thetightening debt market which became apparent in August. Of the £1.4 billion debt taken out to fund the Spirit and Mill Houseacquisitions, all but £43 million had been repaid at the year end date, theremainder having been fully repaid since. Year end net debt fell to £4.9 billion (2006: £5.1 billion) representing amultiple of 7.4x (2006: 8.3x) our reported Group EBITDA. The debt amortises overterms extending to 28 years and is all effectively at fixed rates of interest.Interest cover maintained at 2.0x in the year. A net exceptional credit of £54 million was recorded in the year. One-offexpenditure on the completion of the integration and transfer programme amountedto £42 million, offset by a reduction in property liabilities in the acquiredSpirit business of £22 million. Costs of terminating financing arrangementswere £11 million whilst the mark to market of certain interest rate swapsresulted in a credit of £54 million. The tax effect of these items togetherwith the release of various tax provisions gave rise to an exceptional taxcredit of £31 million. The effective tax charge before exceptional items was 20% (2006: 22%), andincluded the benefit of ongoing indexation allowance taxation credits. Tax paidin the year was £19 million, an effective rate of 7%. Operational update and new financial reporting We will issue our first Interim Management Statement on 16 January 2008, tocoincide with our Annual General Meeting. It should also be noted that financial year 2008 will be a 53 week year. STRATEGY Our overriding objective is to continue to maximise the long-term shareholdervalue of the Group. Our strategy to date of investment and acquisition hasdelivered excellent returns for shareholders. We have always believed that the property component of our business is a highlyvaluable constituent of the model. Whilst we are constantly seeking to maximisethe use and the value of the real estate, we will continue to evaluate otherways (including REITs) of extracting the best value from our assets andmaximising shareholder returns. Our current business structure and the use of long term amortising investmentgrade debt has continued to demonstrate its robustness during a period whenfinancial markets have tightened. CORPORATE SOCIAL RESPONSIBILITY Smoke Free We still hold the view that the smoking ban will have a positive effect on theindustry in the medium to long-term. However, it is too early as yet toevaluate any impact of the smoking ban introduced in England and Wales earlierthis year. Our experience from Scotland is that a full year's trading, including the winterperiod when the smoking pub goers resolve will be tested, is needed in order toestablish any long term trends. However, our Scottish pubs have now returned togrowth and we are fully prepared in terms of smoking solutions in our managedand leased businesses in England and Wales. The ban has provided the industry with an opportunity to attract a differentcustomer base which is reflected in the growth in food sales, up by 6% (to 38%of sales) in 2007 within the core managed estate. Moreover we have receivedconsiderable feedback from our retailers about the improved environment and thepositive reaction of customers. Pubs - the home of responsible drinking The British pub is one of the few remaining components which is unique to theUK's social culture and yet it is constantly being put under pressure bymisguided challenges. We are strongly of the view that the pub is the bestplace for responsible adults to socialise and enjoy great food, drink andentertainment. We believe that the Government should recognise this and makepositive efforts to protect the pub industry. However, as the largest operator of pubs in the UK, we also recognise ourresponsibility to lead on managing issues such as antisocial behaviour andunderage drinking. There is a need as an industry to ensure that all pubs traderesponsibly and we therefore actively support initiatives such as Challenge 21,Best Bar None and local pub watch schemes. We are also about to introduce arisk assessment review on a pub by pub basis, developed by the British Beer andPub Association for the industry as a whole, and we will continue to workconstructively with local authorities, police forces, Government, industrybodies and our retailers and pub managers to continue to raise standards withinthe industry. The Environment At Punch we fully understand the importance of our role within the environmentand local communities. To that end, we have been working with the CarbonDisclosure Project to improve our carbon footprint across the whole supply chainwith the intention of achieving an estimated carbon base reduction of 17% by2010. We have also appointed a Carbon Manager to look at our energy consumption,understand our energy usage and implement initiatives to reduce consumption inour pub estate. This has included initiatives such as smart metering, improvedinsulation, more efficient boilers, heating controls and low energy lighting.In addition, we are reviewing energy consumption at our head office and haverecycling initiatives throughout the business. In January 2007, we weredelighted to be recognised as finalists for the Environment Agency WaterEfficiency Awards in the Leisure and Tourism Category. The importance of the pub as the centre of the community should not beforgotten. We have long been supporters of HRH The Prince of Wales Pub is theHub initiative aimed at using the community pub, particularly in rural areas, asa focus for local facilities such as shops, post offices and banks. We areworking closely with Pub is the Hub and a number of regional DevelopmentAgencies to implement schemes around the estate. MANAGEMENT CHANGES Punch continues to ensure that we have a management team of the highest calibreto match the aspirations for the success of the business. During the year therehave been a number of changes to the management team. In January, Phil Cox stepped down as Chairman of the Group. Phil was involvedwith Punch prior to flotation in 2002 and has been a major contributor to thesuccess of the business. He was succeeded by Peter Cawdron who has been on theBoard since 2003 and brings a wealth of experience as a Director of GCap Mediaplc, Compass Group plc, ProStrakan plc, Capita Group plc and Johnston Press plc.In April, Deborah Kemp took over from Adrian Fawcett as Managing Director of theleased business and today we are announcing her appointment to the Board.Deborah has been with the Group since 1998 and has extensive experience of boththe property and operations side of the business. In September, we announced the retirement of Robert McDonald as FinanceDirector. Robert, with 25 years of experience in the sector, provided the Groupwith a huge amount of support during the early years as a public company. He hasbeen replaced by Phil Dutton, former Chief Financial Officer of Matalan plc, whojoined the Board as a Non Executive Director in January 2007. Finally, we are today announcing the appointment of a new Board Director. MarkPain joins the Board as an independent Non Executive Director. Mark iscurrently Chief Financial Officer of Barratt Developments plc and was previouslyGroup Finance Director of Abbey National Group PLC. CURRENT TRADING AND OUTLOOK Since the year end, the managed estate has traded broadly in line with lastyear's sales levels with an increased proportion of the sales mix coming fromfood. In the leased estate the growth trends seen in the second half of lastyear have continued into the current financial year. Whilst the sector is experiencing a degree of uncertainty and is not without itsshort term challenges, we remain confident about the long term future prospectsfor our business. Punch benefits from an extremely high quality pub estate and the Group has neverbeen in better shape to face any future challenges. Over the last 18 months thequality of our estate has been significantly transformed, our acquisitions havebeen fully integrated and synergies delivered and there is clear evidence thatthe financial health of our retailers remains robust. We continue to see goodopportunities to grow the business and have an excellent platform in place fromwhich to continue to further develop and progress. Consolidated income statementfor the 52 weeks ended 18 August 2007 52 weeks to 18 August 2007 52 weeks to 19 August 2006 Notes Before Exceptional Before Exceptional exceptional items exceptional items items (note 3) Total items (note 3) Total £m £m £m £m £m £m Revenue 2 1,704.9 - 1,704.9 1,546.1 - 1,546.1Operating costs (1,042.9) (20.3) (1,063.2) (939.8) (8.2) (948.0)beforedepreciation andamortisationShare of 1.6 - 1.6 - - -post-tax profitfrom joint venture EBITDA1 2 663.6 (20.3) 643.3 606.3 (8.2) 598.1Depreciation (56.5) - (56.5) (46.1) - (46.1)and amortisation Operating 607.1 (20.3) 586.8 560.2 (8.2) 552.0profit Profit on sale 3.0 - 3.0 1.4 - 1.4of non-currentassetsFinance income 20.2 - 20.2 19.1 - 19.1Finance costs (348.6) (10.9) (359.5) (331.1) (0.1) (331.2)Movement in 3 - 54.2 54.2 - 39.7 39.7fair value ofinterest rateswaps Profit before 281.7 23.0 304.7 249.6 31.4 281.0taxation UK income tax 4 (57.7) 31.4 (26.3) (54.8) 20.6 (34.2)(charge) / credit Profit for the 224.0 54.4 278.4 194.8 52.0 246.8financial periodattributable toequity shareholders Earnings per 5shareBasic (pence) 84.4 104.9 74.9 94.9Diluted (pence) 82.6 101.2 73.6 92.4 Dividend per 6 15.3 13.4share paid orproposed inrespect of theperiod (pence) Total dividend 6 40.6 35.4paid orproposed inrespect of theperiod (£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 52 weeks ended 18 August 2007 52 weeks to 52 weeks to 18 August 19 August 2007 2006 £m £mIncome and expense recognised directly inequity:Actuarial gains on defined benefit pension 26.1 33.8schemesGains on cash flow hedges 34.0 48.8Tax on equity component of convertible bonds 9.0 (9.0)Tax credit related to indexation on revalued 15.3 5.9properties 84.4 79.5Transfers to the income statement:On cash flow hedges (1.9) (13.3) 82.5 66.2Tax on items taken directly to equity (17.5) (20.8)Net gain recognised directly in equity 65.0 45.4Profit attributable to shareholders 278.4 246.8 Total recognised income for the period 343.4 292.2attributable to equity shareholders Effects of changes in accounting policyattributable to equity shareholders:Net loss on recognition of derivative financial - (68.6)instrumentsat fair value on first-time application of IAS 39 - (68.6) Consolidated balance sheetat 18 August 2007 Notes 18 August 19 August 2007 2006 £m £mAssetsNon-current assetsProperty, plant and equipment 6,495.5 6,506.0Goodwill 556.2 537.8Intangible assets 157.3 163.3Receivables - 1.4Retirement benefit assets 10.4 -Deferred tax assets 123.7 190.6Investments in joint ventures 38.1 -Other investments 3.5 -Derivative financial instruments 16.1 5.8 7,400.8 7,404.9Current assets Inventories 7.9 12.2Trade and other receivables 101.8 107.4Current income tax receivables 37.5 -Cash deposits used as security for loan 14.7 15.8notesCash and cash equivalents 267.7 562.4 429.6 697.8Non-current assets classified as held 8.2 28.5for saleTotal assets 7,838.6 8,131.2 Liabilities Current liabilities Trade and other payables (364.5) (443.7)Short-term borrowings (62.2) (85.1)Current income tax liabilities - (15.8)Provisions (18.1) (23.7) (444.8) (568.3)Non-current liabilities Borrowings (4,771.1) (5,128.5)Convertible bonds (253.1) (242.5)Derivative financial instruments (113.0) (189.8)Deferred tax liabilities (467.7) (478.4)Retirement benefit obligations (3.7) (24.7)Provisions (41.7) (65.5)Other liabilities (6.6) (6.9) (5,656.9) (6,136.3)Total liabilities (6,101.7) (6,704.6) Net assets 1,736.9 1,426.6 Shareholders' equity Called up share capital 0.1 0.1Share premium 454.7 452.4Equity component of convertible bonds 30.0 21.0Hedge reserve (15.2) (37.6)Other reserves 6.3 4.3Retained earnings 1,261.0 986.4Total shareholders' equity 7 1,736.9 1,426.6 Consolidated cash flow statementfor the 52 weeks ended 18 August 2007 Notes 52 weeks to 52 weeks to 18 August 19 August 2007 2006 £m £mCash flows from operating activitiesOperating profit 586.8 552.0Depreciation and amortisation 56.5 46.1Decrease in inventories 4.5 0.9Decrease in trade and other receivables 11.0 47.2Decrease in trade and other payables (74.0) (32.8)Difference between pension contributions paid and amounts recognised in the income statement (2.7) (34.0)Decrease in provisions and other liabilities (32.6) (12.0)Share of post-tax profit from joint venture (1.6) -Cash generated from operations 547.9 567.4Income tax paid (18.6) (32.3)Net cash from operating activities 529.3 535.1Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired (21.1) (205.5)Purchase of property, plant and equipment - acquisitions (81.0) (65.1) - investments (202.1) (139.0)Proceeds from sale of property, plant and equipment 369.9 348.7Proceeds from sale of other non-current assets 32.8 479.5Purchase of intangible assets - (2.0)Proceeds from sale of intangible assets 1.9 -Investment in joint venture (36.5) -Proceeds from sale of joint venture - 6.8Net cash generated from investing activities 63.9 423.4Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 2.3 79.4Proceeds from issue of new loans and borrowings 1,255.0 1,216.0Issue costs paid (6.7) (20.9)Proceeds from issue of convertible bonds - 275.0Costs of issuing convertible bonds - (9.3)Net proceeds from issue of derivative financial instruments - 50.0Net proceeds on redemption of derivative financial instruments 5.8 -Repayment of borrowings (1,745.9) (1,966.5)Interest paid (347.5) (319.1)Interest received 19.6 19.4Repayments of obligations under finance leases (6.9) (4.6)Interest element of finance lease rental payments (1.6) (1.6)Costs of terminating financing arrangements1 (25.7) (115.1)Decrease in cash deposits used as security for loan notes 1.1 187.0Dividends paid 6 (37.4) (31.5)Net cash used in financing activities (887.9) (641.8)Net (decrease) / increase in cash and cash equivalents (294.7) 316.7Cash and cash equivalents at beginning of period 562.4 245.7Cash and cash equivalents at end of period 267.7 562.4 1 In the current period, costs of terminating financing arrangements representspremiums paid to redeem secured loan notes and break costs incurred to cancelswap arrangements associated with these loans on the prepayment of the Aveburysecuritisation on 21 May 2007. In the prior period, costs of terminatingfinancing arrangements include outflows of £114.6m on the redemption of swapsfollowing the repayment of £525.0m of bank loans on the acquisition of theSpirit group. 1. Basis of preparation The figures for the 52 weeks ended 18 August 2007 have been extracted from theaudited financial statements of Punch Taverns plc which have been prepared inaccordance with International Financial Reporting Standards ('IFRS') as adoptedby the European Union. The summary of results does not constitute the fullfinancial statements within the meaning of s240 of the Companies Act 1985. The financial information for the 52 weeks ended 19 August 2006 has beenextracted from the Punch Taverns Annual Report and Financial Statements for thatyear as filed with the Registrar of Companies. The auditors, Ernst & Young LLP, have given an unqualified report under Section235 of the Companies Act 1985, as amended, in respect of the full Groupfinancial statements for both years referred to above. 2. Segmental analysis The primary segmental reporting format is determined to be business segments asthe Group's risks and rates of return are affected predominantly by differencesin the products and services provided. The Group operates in two business segments; a leased estate and a managedestate. Between 19 August 2006 and 18 August 2007, 563 pubs with a fair value of£746.1m have transferred from the managed to the leased estate. The Group operates solely in the United Kingdom and therefore has only onegeographical segment. 2007 Leased Managed Unallocated Total £m £m £m £mRevenue 845.1 859.8 - 1,704.9Operating costs1 (365.9) (677.0) - (1,042.9)Share of post-tax profit from joint ventures - - 1.6 1.6EBITDA1 479.2 182.8 1.6 663.6Depreciation and amortisation (17.5) (39.0) - (56.5)Operating profit before exceptional items 461.7 143.8 1.6 607.1Exceptional items (6.1) (14.2) - (20.3)Operating profit 455.6 129.6 1.6 586.8Profit on sale of property, plant and equipment 1.5 1.2 - 2.7Segment result 457.1 130.8 1.6 589.5Profit on disposal of subsidiaries and joint ventures - - 0.3 0.3Net finance costs - - (339.3) (339.3)Movement in fair value of interest rate swaps - - 54.2 54.2UK income tax expense - - (26.3) (26.3)Profit attributable to shareholders 457.1 130.8 (309.5) 278.4 1 Pre exceptional items. 2006 Leased Managed Unallocated Total £m £m £m £mRevenue 803.3 742.8 - 1,546.1Operating costs1 (367.6) (572.2) - (939.8)EBITDA1 435.7 170.6 - 606.3Depreciation and amortisation (15.3) (30.8) - (46.1)Operating profit before exceptional items 420.4 139.8 - 560.2Exceptional items (3.4) (4.8) - (8.2)Operating profit 417.0 135.0 - 552.0(Loss) / profit on sale of property, plant and equipment (0.1) 2.4 - 2.3Segment result 416.9 137.4 - 554.3Loss on disposal of subsidiaries and joint ventures - - (0.9) (0.9)Net finance costs - - (312.1) (312.1)Movement in fair value of interest rate swaps - - 39.7 39.7UK income tax expense - - (34.2) (34.2)Profit attributable to shareholders 416.9 137.4 (307.5) 246.8 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: 52 weeks to 52 weeks to 18 August 19 August 2007 2006 £m £mOperatingRedundancy, costs to integrate acquisition of subsidiary, licensing reform costsand other related one-off costs (41.8) (8.2)Movement on property liabilities1 21.5 - (20.3) (8.2)Finance costsCost of terminating financing arrangements2 (10.9) (0.1) Movement in fair value of interest rate swaps3 54.2 39.7 Total exceptional items before tax 23.0 31.4TaxTax impact of exceptional items 11.7 (9.4)Adjustments to tax in respect of prior periods4 1.7 15.0Release of tax provision5 2.5 15.0Tax credit in respect of change in tax rate6 15.5 - 31.4 20.6Total exceptional items after tax 54.4 52.0 1 Represents the movement in property liabilities in respect of which therelevant statutory limitation period has expired (credit of £27.9m) andprovision for rent payments following the reversion of eleven onerous leases tothe Group (charge of £6.4m). 2 Represents premiums in excess of the net book value of loans, borrowings andswap arrangements in relation to the redemption of the Avebury securitisation on21 May 2007 and other refinancing. 3 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 In the current period this represents the recognition of losses previouslynot recognised and adjustments following the finalisation of prior yearcomputations together with changes to tax base cost information in relation toproperty assets. In the comparative period, adjustments to tax in respect ofprior periods represent adjustments to current tax of £8.6m and deferred tax of£6.4m. 5 In the current period, this represents the release of a provision followingthe finalisation of past tax matters. In the comparative period, the taxtreatment of an onerous contract was clarified and the associated tax provisionwas released. 6 A tax credit has been recognised in the period following the enactment oflegislation in July 2007 which lowers the standard rate of corporation tax inthe UK from 30% to 28% with effect from 1 April 2008. 4. Taxation Reconciliation of the total tax charge The effective rate of tax is lower than the full rate of corporation tax. Thedifferences are explained below: 52 weeks to 52 weeks to 18 August 19 August 2007 2006 £m £mProfit on ordinary activities before tax 304.7 281.0Tax at current UK tax rate of 30% (2006: 30%) 91.4 84.3Effects of:Adjustments to tax in respect of prior periods - (0.2)Net effect of expenses not deductible for tax purposes and non-taxable income (2.1) (0.5)Deferred tax credit on indexation of properties (24.7) (20.1)Short-term temporary differences upon which deferred tax is not recognised - 0.7Exceptional tax credits (38.3) (30.0)Total tax expense reported in the income statement 26.3 34.2 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 bonds has been assessed and its impact at18 August 2007 is dilutive (19 August 2006: dilutive on basic earnings and notdilutive on adjusted earnings). Reconciliations of the earnings and weighted average number of shares are setout below: 52 weeks to 18 August 52 weeks to 19 August 2007 2006 Earnings Per share Earnings Per share £m amount £m amount pence penceBasic earnings per share 278.4 104.9 246.8 94.9Effect of dilutive options - (1.2) - (1.6)Effect of dilutive convertible bonds 17.0 (2.5) 12.3 (0.9)Diluted earnings per share 295.4 101.2 259.1 92.4 Supplementary earnings per share figures:Basic earnings per share 278.4 104.9 246.8 94.9Effect of:Exceptional items (54.4) (20.5) (52.0) (20.0)Basic earnings per share before exceptional items 224.0 84.4 194.8 74.9Diluted earnings per share 295.4 101.2 259.1 92.4Effect of:Exceptional items (54.4) (18.6) (52.0) (19.7)Reverse impact of convertible bonds - - (12.3) 0.9Diluted earnings per share before exceptional items 241.0 82.6 194.8 73.6 The impact of dilutive ordinary shares is to increase weighted average shares by3.1 million (August 2006: 4.6 million) for employee share options and 23.3million (August 2006: 15.9 million) for convertible bonds. 52 weeks to 52 weeks to 18 August 19 August 2007 2006 No. (000) No. (000)Basic weighted average number of shares 265,351 259,953Discretionary Share Plan and SAYE scheme 2,157 3,816Long Term Incentive Plan 881 687Deferred Bonus Shares 105 77Potential dilutive impact of convertible bonds 23,341 15,902Diluted weighted average number of shares 291,835 280,435 6. Dividends 52 weeks to 52 weeks to 18 August 19 August 2007 2006 £m £mDeclared and paid during the year:Final dividend for 2006 for the 52 weeks ended 19 August 2006 of 9.0p (2005: 7.6p) 23.9 20.0Interim dividend for the 52 weeks ended 18 August 2007 of 5.1p (2006: 4.4p) 13.5 11.5 37.4 31.5 In addition, the Directors are proposing a final dividend in respect of thefinancial year ended 18 August 2007 of 10.2 pence per share which will absorb anestimated £27.1m of shareholders' funds. Subject to approval at the AGM, it willbe paid on 23 January 2008 to shareholders who are on the register of members on4 January 2008. These financial statements do not reflect this dividend payable,which has still to be approved by the Company's shareholders. 7. Analysis of changes in shareholders' equity Group Share Share Other Retained Total capital premium reserves earnings £m £m £m £m £mAt 20 August 2005 0.1 373.0 1.9 747.7 1,122.7Effect of implementing IAS 32 / 39 - - (62.5) (6.1) (68.6)At 21 August 2005 0.1 373.0 (60.6) 741.6 1,054.1Total recognised income and expense for the - - 15.9 276.3 292.2periodShares issued - 74.1 - - 74.1Exercise of share options - 5.3 - - 5.3Share based payments - - 2.4 - 2.4Equity dividends - - - (31.5) (31.5)Equity component of convertible bonds - - 30.0 - 30.0At 19 August 2006 0.1 452.4 (12.3) 986.4 1,426.6Total recognised income and expense for the - - 31.4 312.0 343.4periodExercise of share options - 2.3 - - 2.3Share based payments - - 2.0 - 2.0Equity dividends - - - (37.4) (37.4)At 18 August 2007 0.1 454.7 21.1 1,261.0 1,736.9 8. Changes in net debt At 19 At 18 August Non-cash August 2006 Acquisitions Cash flow movements 2007 £m £m £m £m £mCurrent assetsCash at bank and in hand 562.4 4.8 (299.5) - 267.7Cash deposits 15.8 - (1.1) - 14.7Cash and cash deposits 578.2 4.8 (300.6) - 282.4 DebtBorrowings (5,197.8) (132.4) 491.0 20.6 (4,818.6)Guaranteed loan notes (15.8) (12.4) 13.5 - (14.7)Derivative financial instruments (184.0) (0.1) (5.8) 93.0 (96.9)Debt component of convertible bonds (242.5) - - (10.6) (253.1) (5,640.1) (144.9) 498.7 103.0 (5,183.3)Net debt per balance sheet (5,061.9) (140.1) 198.1 103.0 (4,900.9) 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. 9. Business combinations Acquisition of subsidiaries in the current period: Mill House On 14 September 2006 the Group acquired the entire share capital of Broomco(3708) Limited, the holding company of the Mill House group which operated amanaged estate of 82 pubs at the date of acquisition. From the date of acquisition to the year end, the Mill House group contributed£43.6m to Group revenues and £9.6m to EBITDA. If the acquisition had beencompleted on the first day of the financial year, Group revenues for the yearwould have been £3.4m higher and Group EBITDA would have been £0.8m higher. Allintangible assets were recognised at their respective fair values. The residualexcess over the net assets acquired is recognised as goodwill in the financialstatements. The adjustments applied to the book values of the assets and liabilities of theMill House group in order to present the net assets at fair values in accordancewith Group accounting principles were £16.3m, details of which are in the tablebelow. Acquisition of subsidiaries in the prior period: Spirit Group On 5 January 2006 the Group acquired the entire share capital of Spirit GroupHoldings Limited, on a cash and debt free basis for £2,695.3m, includingacquisition costs of £16.3m, resulting in a total consideration paid of £439.6m.The Spirit group operated a managed estate of 1,830 pubs at the date ofacquisition. From the date of acquisition to the year ended 19 August 2006, the Spirit groupcontributed £744.6m to Group revenues and £171.6m to EBITDA. If the acquisitionhad been completed on the first day of the previous financial year, Grouprevenues for the previous year would have been £480m higher and Group EBITDAwould have been £106m higher. All intangible assets were recognised at theirrespective fair values. The residual excess over the net assets acquired isrecognised as goodwill in the financial statements. 20071 20062 Pre-acquisition Fair value Fair Pre-acquisition Fair value Fair IFRS values adjustments values IFRS values adjustments values £m £m £m £m £m £mGoodwill 19.5 (19.5) - 65.7 (65.7) -Intangible fixed assets 4.2 2.1 6.3 147.6 1.0 148.6Property, plant and equipment 117.2 26.5 143.7 2,277.7 57.8 2,335.5Assets held for resale - 12.0 12.0 - 569.8 569.8Investments in joint ventures - - - 6.8 - 6.8Inventories 0.5 - 0.5 15.9 - 15.9Current taxation - - - 0.6 - 0.6Deferred taxation - (2.3) (2.3) 14.6 (48.1) (33.5)Receivables 2.9 - 2.9 80.8 - 80.8Cash and cash equivalents 4.8 - 4.8 234.1 - 234.1Payables and provisions (12.8) (2.4) (15.2) (434.8) (21.6) (456.4)Loans and swaps (132.4) (0.1) (132.5) (2,625.1) (106.5) (2,731.6)Net assets acquired 3.9 16.3 20.2 (216.1) 386.7 170.6Goodwill 18.4 269.0Consideration 38.6 439.6 Consideration satisfied by:Cash 26.2 439.6Loan notes issued 12.4 -Total consideration 38.6 439.6 1 2007 fair values relate to the acquisition of Broomco (3708) Limited on 14September 2006.2 2006 fair values relate to the acquisition of Spirit Group Holdings Limitedon 5 January 2006. In the current year, the fair value adjustments primarily relate to therevaluation of freehold and leasehold trading properties and the recognition ofdeferred tax liabilities on revalued properties. Included in the £18.4m (August 2006: £269.0m) of goodwill recognised above arecertain intangible assets that cannot be individually separated and reliablymeasured due to their nature. These items include an assembled workforce andoperating synergies. The fair values that were disclosed in the prior year for the Spirit Group werefinalised at 5 January 2007. The impact was to reduce the fair value of netassets acquired by £34.4m due to the recognition of additional deferred taxliabilities on properties following the finalisation of tax base costs. Theupdated numbers have been shown in the table above. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Punch Taverns PLC