Preliminary Results

2nd Jul 2009 07:00



PRESS RELEASE 

2 July 2009

GREENE KING plc 

Preliminary results for the 52 weeks ended 3 May 2009

Resilient performance in challenging conditions; rights issue

 further strengthens competitive position

52 Weeks	07/08**	08/09	Change
Revenue	£942.3m	£954.6m	+1.3%
Operating profit*	£231.8m	£216.2m	-6.7%
Profit before tax*	£139.4m	£118.5m	-15.0%
Adjusted basic earnings per share	72.6p	66.5p	-8.4%
Adjusted basic earnings per share adjusted for rights issue	58.3p	53.4p

Highlights

Rooney Anand, Greene King chief executive, comments:

"We have delivered a resilient set of results in the face of extremely challenging trading conditions. Notable performances came from Retail, which achieved industry-leading like-for-like sales growth, Belhaven, which is now generating profits 50% above the level on acquisition in 2005, and Brewing Company, which delivered organic volume growth.  

Trading generally improved from December, although cost pressures remain and both economic and political uncertainty are affecting consumer confidence. The funds raised by our recent rights issue will further strengthen our position through selective acquisitions and opportunistic debt reduction, resulting in an enhanced estate, an even stronger capital structure and greater opportunities for growth. We therefore look forward with cautious optimism and believe we have the best assets, brands and people to continue growing our share of the market." 

* before exceptional items, **07/08 adjusted from 53 weeks to 52 weeks for comparative purposes

A copy of the results presentation is available on our website: www.greeneking.co.uk.

For further information:

Greene King plc	Rooney Anand, chief executive Ian Bull, group finance director	Tel: 01284 763222
Financial Dynamics	Ben Foster	Tel: 020 7831 3113

  GREENE KING plc 

Chairman's Statement 

Results

I am pleased to report that, in very demanding trading conditions, we have once more delivered resilient results. This year was tougher than last, yet we managed to grow our revenue by 1.3%** to £954.6m. Faced with significant margin pressures, we generated operating profit of £216.2m*, which was 6.7% below last year. Our profit before tax was £118.5m*, down 15.0% on last year, but ahead of the £115.0m profit forecast at the time of the rights issue. We delivered earnings per share, before exceptional items, of 66.5p, 8.4% below last year. 

Rights issue

On 23 April we announced a 3 for 5 rights issue to raise net proceeds of £207.5m, which will allow us to repurchase some of our securitised debt at significantly below par value and to make selective acquisitions of freehold retail pubs. The rights issue was completed successfully on 29 May when dealing in the new shares began.

Dividend

Although earnings were lower than last year, our ability to convert profit into cash and to manage our balance sheet tightly has allowed the board to recommend a final dividend payment of 15.1p per share, being the equivalent of 18.7p per share before adjusting for the rights issue. This, and the adjusted total dividend of 22.4p per share, are marginally ahead of last year. The final dividend will be paid on 14 September to those shareholders on the register at the close of business on 14 August.

Dividend policy 

Looking ahead, the board expects to pursue a dividend policy which targets a dividend cover of around two times underlying earnings. At this level, we believe we can maintain a balance between the cash requirement of the business to invest capital in our assets and pay down borrowings, and the need to ensure that shareholders will benefit from our strong cashflow and successful growth.

Acquisitions and disposals

We did not make any acquisitions during the financial year, but have announced an acquisition since the year end, having reached an agreement to purchase eleven high quality freehold managed pubs from Punch Taverns for a total consideration of £30.4m. The deal was completed on 1 July.  

Despite a difficult property market in the last twelve months, we have improved the average quality of our estate by successfully disposing of 128 of our non-core assets for £44.2m, realising a net profit of £3.7m against book value. 

People

For our many long-standing employees and licensees, this year will have been as tough as any of us can remember. However, they, and the many talented and hard-working people who have joined the company in recent years, should be proud of what has been achieved. The pressures have been intense at times, but we continue to see positive thinking, tenacity and hard work throughout the business. 

Our strong reputation and continuing success are entirely dependent on everyone's efforts and I would like to express my sincere thanks to you all for your personal contribution. Looking ahead, conditions are likely to remain challenging, but I am confident that the team at Greene King will continue to drive the business forward.

Tim Bridge Chairman

1 July 2009

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

**As throughout this document, 2007/8 rebased to 52 weeks for comparative purposes

Chief Executive's Review 

These results represent a resilient performance by Greene King in what has proved to be one of the toughest trading periods for many years. For the 52 weeks to 3 May 2009, revenue was £954.6m, 1.3% ahead of last year, operating profit was £216.2m, down 6.7% against last year and profit before tax was £118.5m, 15.0% below last year. Adjusted earnings per share were down 8.4% at 66.5p. The board has declared a final dividend of 15.1p per share, marginally ahead of last year, being the equivalent of 18.7p per share before adjusting for the rights issue. 

Our consistent and long-term strategy has stood Greene King in good stead through both prosperous times and recessionary periods. The primary objective of our strategy is to create shareholder value by delivering organic growth across our divisions, augmented by value accretive investment in our core brand and property assets, a selective acquisitions strategy and the disposal of non-core assets.

The execution of the strategy is driven by a number of key elements of the business model including: 

a commitment to both managed and tenanted pubs supported by a leadership position in brewing

a high quality, freehold asset base

a focus on generating profitable sales growth for cash generation and brand stability

a broad geographic spread but with a primary focus on the prosperous South East and resilient Scotland

decentralised business units and flat management structure to stay close to our customers 

In each of our divisions the operating focus is on achieving profitable sales growth and growing market share. This is achieved by three main elements; firstly, providing value for money offers for customers supported by industry leading service and standards; secondly, consistently raising the quality and performance bar of employees, licensee partners and suppliers; and thirdly, rigorously controlling costs to preserve cash and help fund internal investment. 

We believe we are in a stronger position now than we were two years ago, when the initial warning signs of an impending slowdown appeared at the front line of our businesses. The sector is polarising with the weaker players underperforming and reducing investment, whilst the stronger players have healthier profits and cash conversion, are maintaining investment, accelerating market share gains and selectively targeting acquisitions. Within the overall strategy framework, in order to strengthen our position as one of the stronger players, we have continued to realign our businesses. During the last financial year we have: 

reduced our net debt by £46.9m

further repositioned our Retail operations toward growth categories such as food, wine and coffee

continued the repositioning and adaptation of the Pub Partners business model 

reduced Brewing Company's fixed cost base whilst maintaining sector-leading brand investment

grown food sales in Belhaven Retail to 25% of total sales

In addition, our successful rights issue, which completed after the year end, will further strengthen our competitive and financial position. We raised £207.5m to selectively acquire freehold, managed pubs and opportunistically pay down our securitised debt at below par values. Already we have moved forward in both aims, buying back £22.4m of our securitised bonds at 51% of their nominal value and acquiring eleven high quality, freehold, managed pubs from Punch Taverns for £30.4m. We expect to make further progress during the next 12 months. 

Current trading 

Recent trading, particularly in Retail and brewing in both England and Scotland, has been strong. In Retail, not only have our invested food-led businesses continued to perform well, but our wet-led businesses have also been stronger. The benefit of the realignment and adaptation of these businesses continues to come through, supported by the recent warmer and drier weather. After eight weeks of the new year to 28 June, like-for-like sales in Greene King Retail are +5.2% and like-for-like sales in Belhaven Retail are +10.2%. 

Momentum in our brewing businesses has also been sustained. Own-brewed volumes in Brewing Company remain well ahead of the market at +12.1%, helped by the renewed success of Ruddles in the on-trade and the better weather, whilst Belhaven Best volumes in the year-to-date are +9.0%. 

Pub Partners' trends have stabilised and remain in line with the underlying performance from the second half of 2008/09. The actions we have taken to support our licensees are beginning to take effect and we have seen a better volume performance in the last five weeks. 

Greene King Retail

52 weeks	07/08	08/09	Change
Average number of sites trading	801	779	-2.7%
Revenue	£567.7m	£569.5m	+0.3%
EBITDA	£145.1m	£139.8m	-3.6%
Operating profit	£114.3m	£105.6m	-7.6%
Operating profit margin	20.1%	18.5%	-1.6%pts

Greene King Retail achieved sales of £569.5m in the year, 0.3% above last year despite trading in 3% less sites. Operating profit of £105.6m was down 7.6%. After an improved second half, total like-for-like sales were +1.7%, driven by both liquor and food growth, including strong performances from strategically important categories such as cask ale, wine, coffee and soft drinks. Food is now 35% of total Retail sales. Hungry Horse, following its repositioning and upweighted investment programme throughout the last 18 months, achieved like-for-like sales growth of 8.1%. The underlying pub operating margin, excluding the impact of the mainly leasehold Loch Fyne Restaurants, was just 1.2 percentage points down on last year, despite the ongoing machine income decline, fewer sites and above inflationary cost increases. 

Enhanced value-for-money across liquor and food has been the main driver of Retail's sales performance. At Hungry Horse, a fall of 9% in the average price of a main meal over the year drove covers up 14%, whilst the introduction of two meals for £9.95 in Inns turned cover decline into cover growth in the second half of the year. In Loch Fyne, we have steered clear of the two-for-one offers that are common place in the restaurant sector, but have broadened our fixed-price menu offer and introduced regional pricing. Our Local Savers value initiative now covers 77 pubs within the Local Pubs estate. At the end of the first quarter, when we launched Local Savers, we reduced liquor prices on a number of key lines in these pubs by 13%, which led to a subsequent 12% points improvement in like-for-like sales for the rest of the year. All main meals on the Local Savers menu are now at £3.50 or below.

Value is not just about price. We have further improved our customer offers, we continue to invest in our sites, we are recruiting better quality employees and we are improving standards and customer service across the business. For example, our 'Beds, Baths, Breakfasts' investment in Inns has driven market outperformance with REVPAR up 1.5% in the year. All our Retail businesses take part in Mystery Guest programmes and scores have consistently improved during the year and are benchmarking well against competitors. Sport and other big events have also increased in importance as part of our value offer to our customers, with significant uplifts on key dates through well targeted and communicated activities.

As always, we have managed our costs very tightly. Investing in value for the customer has not been at the expense of gross margins, due to improved liquor and food yields and further menu engineering. Our pub operating margins, due to a number of factors, remain industry-leading: wage efficiencies have improved with the total wage cost falling; and we have increased our use of 'smart meters' across the estate to drive outlet electricity usage down 7% this year, partially offsetting much higher rates. 

Raising the calibre of our people has been a further focus for the year. We have improved the quality of our operations teams at area and outlet level, taking advantage of our strong appeal in a weaker employment market. We have also stepped up our training programmes across each of the three businesses within Retail, concentrating on improving the internal talent pool. Almost 40% of new House Manager appointments came through our Rising Star training programmes.

Unlike much of the pub and restaurant sector, we have maintained a significant level of investment in our Retail business. During the period, we invested £24.6m of expansionary capital, a further £25.1m was invested in maintaining our pubs and £8.1m was spent on repairs from the revenue account. The focus on Hungry Horse has continued, where we have invested c. £10m across 33 developments in the year, whilst we also completed a 'sparkle programme' across 20 pubs in the Locals estate. We converted five Greene King sites to Loch Fyne in the year and opened four other new sites. 

Estate numbers

We began the financial year with 792 Retail sites. Four new Loch Fyne sites were acquired, 18 pubs were sold and a net six transferred to Pub Partners. The closing balance was 772 sites, segmented as follows:

	Outlets at year end	Outlets trading on average during period
Destination Pubs	275	266
Local Pubs	449	468
Loch Fyne Restaurants	48	45
Total	772	779

Pub Partners

52 weeks	07/08	08/09	Change
Average number of pubs trading	1,443	1,445	NC
Revenue	£164.0m	£155.2m	-5.4%
EBITDA	£86.5m	£78.1m	-9.7%
Operating profit	£79.9m	£70.9m	-11.3%
Operating profit margin	48.7%	45.7%	-3.0%pts

Revenue at Pub Partners, our tenancy/lease division in England and Wales, was down 5.4% at £155.2m, with operating profit down 11.3% to £70.9m. Operating margins were 45.7%. During the period, a total of £7.0m was invested across the Pub Partners estate, an additional £6.3m went on maintenance capex and £3.3m on repairs from the revenue account. An average of 1,445 sites traded over the period. At the start of the financial year, 1,474 pubs were trading, three were added from acquisitions, while 92 were sold or closed and a net six were transferred in from the Retail division. The closing balance was therefore 1,391 pubs.

In recognition of the pressures our licensees are facing in the current environment, we have been repositioning and adapting the Pub Partners business model to make it more pragmatic and more agile. In the first half of the year, we split the business into two: in the Core estate we reduced the size of each area to 44 pubs per Business Development Manager (BDM) to get closer to our licensees and to find mutually beneficial solutions more quickly; and in the Independence Pub Company, the flexibility of our agreements is industry-leading. By the year end, we had 12 totally Free of Tie agreements and 46 partially tied agreements, putting Pub Partners firmly in the vanguard of industry business model evolution. During the second half of the year, we also took a prudent view of both inventory values and potential bad debts within the tail-end of the Pub Partners estate, resulting in a P&L charge of £1.9m. Excluding this and investment to strengthen the model, underlying EBITDA per pub was -6.7%. 

The most important element of the tenanted/leased model is licensee quality. During the year we received 1241 applications for our pubs and let 331 pubs, and at the year end there were 495 fully vetted applicants on our database. Our recruitment campaigns are increasingly innovative. Both our Civvy Street and Public Housewives campaigns are proving successful, with the first licensee recruits starting to run their pubs. We continue to offer industry-leading training to new and existing licensees: 137 training courses were held in the year, including 37 'Go for Growth' induction courses. These helped to improve first year licensee retention rates up to 88%. Finally, we launched a specialist tenant trainer programme and we now have 20 licensee trainers providing 'on the job' training to new licensees.

However, for some of our licensees, this support has not been sufficient to offset the unprecedented pressures they have faced. For these, we have provided over £4m of additional financial support during the year, via rent concessions and product discounts. This additional support is not given on the basis of 'charity', but is conditional on our licensees changing elements of their business to increase their consumer appeal. This support includes 'Crunch Time', an initiative to ensure many of our licensees can compete more effectively in the current environment, guaranteeing licensees gross margins on leading products at competitive prices. 120 pubs were fully operational on 'Crunch Time' by the year end, a further 80 have signed up since then and the resulting volume performance of these sites is very encouraging so far. We have also introduced the Pelican Buying Company to our licensees, allowing them to benefit, in terms of supplier accessibility and cost savings, from its economies of scale, and we have upgraded our food and marketing support to licensees by further utilising our Retail infrastructure.

As a result of the various initiatives and investment we and our licensees have been making, the vital signs of licensee health have remained stable through the year. At the year-end, we only had 30 pubs closed for reopening, just 2% of the entire estate, there were 272 licensees on cash-with-order against 245 at the end of last year and 137 temporary agreements against 131 last year. 

We are monitoring developments following the recent Business & Enterprise Committee report. We have been successfully operating a tie for over 200 years with short-term tenancies currently representing 78% of our agreements and long-term leases representing just 22%. Tenancies offer the lowest cost entry route into the pub industry for potential licensees and the model ensures we share in the upside and the downside of an economic cycle with our licensees. We were the first to introduce a Code of Practice in 1998 and it has been continuously evolving since then. Going forward, our business model will continue to adapt in order to ensure Greene King remains appealing and fair to both prospective and existing licensees, whilst delivering attractive returns to our shareholders. 

Belhaven

52 weeks	07/08	08/09	Change
Revenue	£123.7m	£136.0m	+9.9%
EBITDA	£31.1m	£34.9m	+12.2%
Operating profit	£27.0m	£30.2m	+11.9%
Operating profit margin	21.8%	22.2%	+0.4%pts

Belhaven revenues grew 9.9% to £136.0m in the year and Belhaven achieved a record operating profit of £30.2m, growth of 11.9% with increased contributions from all three divisions. Even though there were significant cost pressures in the year, very tight cost control in all businesses helped deliver an operating margin of 22.2%, up 0.4 percentage points. The number of pubs trading grew from 321 to 325 and on average 323 pubs were trading during the period. Despite the demanding conditions and senior management change in the year, the Belhaven team has yet again performed very strongly. However, we remain cautious on the outlook, mainly due to the risk to Scottish public sector employment levels as we move into 2010. 

Belhaven's retail operations went from strength to strength during the year. By the year end, like-for-like sales were up 5.4%, driven by food like-for-like sales growth of 16.0% and liquor like-for-like sales growth of 2.6%. Total food revenues were up 49% and food is now 25% of total revenues, up from 15% just two years ago. The seven pubs redeveloped as Eating Inns contributed much of the growth, with average weekly sales growth almost doubling post refurbishment. The average return on investment on these pubs is 25%. The rest of the estate achieved like-for-like sales growth of 3.3%, driven by the repositioning of four high street venue sites into more food-led offers, growing post-refurbishment sales 48%.

Whilst conditions for our licensee partners in Scotland remain challenging, we have further increased our support to them, including toward the end of the year reducing the already unrivalled 40 pubs for each BDM to 36. This ensures we maintain very close relationships with our licensees leading to stronger licensee performance and lower potential risk. At year end, we only had six closed pubs and 20 temporary agreements, in line with the position at the start of the year. Tenanted operating profit rose 12.1% in the year, driven by a 7% increase in the number of pubs, like-for-like rental income growth and improved gross margins. 

Yet again Belhaven Best, Scotland's leading ale brand with a 21.5%^ share of the Scottish on-trade ale market, outperformed that market. In an ale market down 9.0%^, Belhaven Best grew its volumes in the year, supported by a return to TV advertising in the final quarter. Industry-leading customer service levels and an attractive brand portfolio combined to help our highly motivated and successful free trade team win further market share through growing their free trade account base without sacrificing margin; in the year, trading profit per barrel grew 1.2%.

^ AC Nielsen, Volume MAT to March 2009

Brewing Company

52 weeks	07/08	08/09	Change
Revenue	£86.8m	£93.9m	+8.2%
EBITDA	£25.1m	£25.4m	+1.2%
Operating profit	£21.2m	£21.2m	NC
Operating profit margin	24.4%	22.6%	-1.8%pts

A stronger second half for Brewing Company drove own-brewed volume growth of 1.8% in the year. This led to significant market share gains in a UK ale market down 5.6%^^. Revenues grew 8.2% to £93.9m, whilst operating profit was unchanged at £21.2m. The margin decline in the year of 1.8 percentage points is mainly a technical issue driven by a decline in internal volumes, which have no associated revenue, but do contribute to Brewing Company trading profit. However, with a £1.5m increase in fuel, energy and raw materials, we were pleased with second half margins being held to within 80bps of last year.

Brewing Company's continued outperformance is driven by a consistent, focused strategy: most importantly, we brew high quality beer from an efficient, single-site brewery; we have a focused brand portfolio, minimising the complexity and cost of a multi-brand strategy; we invest more than any other cask ale brewer; we rigorously attack costs at all levels of the business; we recruit and retain the best people in the market; and we retain an passionate focus on our customers.

Greene King IPA remains the UK's No.1 Cask Ale with a 20.5%^ volume share of the standard cask ale market and the fastest rate of sale of all brands with over 5%^ distribution. During the year, we upgraded our livery and branding to reflect the Suffolk heritage of the brand, we further leveraged our England Rugby sponsorship through Lawrence Dallaglio's role as brand ambassador and we began the roll out of the innovative Cask Revolution font. Old Speckled Hen is the No.1 Premium Ale in the off-trade with a 13.3%^^^ volume share of the premium ale market in multiple grocers. In the year we also launched Old Crafty Hen and both brands won gold medals at the recent international Monde awards. Just after the year end, Old Speckled Hen began sponsoring Prime Time TV on the Dave channel. 

We have continued to both remove cost and switch from fixed to variable cost to improve efficiency. During the year we outsourced our Totton and Crayford depots to Tradeteam. Not only does this make our business model even more efficient, but increased delivery frequencies should improve customer service levels and lower HGV mileage and CO2 emissions will help protect the environment.

^ AC Nielsen On-Trade MAT to March 2009, ^^ BBPA MAT to April 2009, ^^^ AC Nielsen Off-Trade MAT to April 2009

Outlook

I am encouraged by our performance, both last year and through the first few weeks of this year, in what are demanding circumstances. We have strengthened our position within the sector through our resilience, the ongoing realignment of our businesses and, post the year-end, our successful rights issue. Our balance sheet is in good shape, our cashflows are healthy and our profit conversion is strong. We are unique amongst the major companies within our sector in paying down debt, continuing to invest in our business and maintaining dividends to shareholders. Greene King's reputation within the industry ensures our team remains highly motivated to succeed and we continue to attract high calibre people from both within and outside the industry. The future remains uncertain, but I believe we will continue to grow our market share and outperform our competitors, further strengthening our leadership position. 

Rooney Anand

Chief executive

1 July 2009

Financial Review

We are pleased to report revenue grew to £954.6m, in what has been one of the most challenging trading periods for many years. This represents growth of 1.3% over last year, when adjusted for the 53rd week, and broadly flat growth when adjusted for acquisitions last year. The cost environment has been equally difficult. With £12.4m of non-wage inflation, in large part offset by our continued focus on margins, costs and overheads across our businesses, we were able to hold gross margins. With some resilience in operating margin to within 2.0% points of last year, we delivered operating profit of £216.2m, down by 6.7% against last year on a 52 week basis. Interest costs of £97.7m reflect the excellent and positive cash flows, net of capex, from our core business plus the full year effect of acquisitions last year. Profit before tax and exceptional items was £118.5m, delivering adjusted earnings per share of 66.5p per share, down 8.4%.

Investment and disposals

We firmly believe that continuous investment, especially in more challenging times, is important for sustained performance and maintenance of a quality estate. We invested £84.5m in our businesses this year, very slightly lower than the corresponding level of spend last year. This included £31.0m on developments with returns ahead of our cost of capital, £6.4m on single site acquisitions in England and Scotland and £40.1m on ensuring our estate remains in good condition through ongoing repairs and maintenance.

We continually review our portfolio to identify sites for disposal: we aim to sell those of lower quality or limited potential which are not central to our strategy, and those with a higher alternative use value. In a particularly challenging property market during 2008/9, we are pleased to have disposed of 128 sites and other non-trading assets, realising a net exceptional gain of £3.7m against book value and generating cash of £44.2m.

Positive free cash flow post investment

We continue to focus on delivering strong cash flows. EBITDA from operating activities of £267.3m was 3.8% and £10.7m lower than this time last year, based on 52 weeks. Taking into account the disposal proceeds and as a result of strong working capital management holding flat year on year, we generated £46.9m of positive cashflow, after funding interest, dividends and continued investment in the estate. The resilient trading performance and solid cash flows enable us to continue to invest in our businesses, to pay down debt, and to pay dividends.

Dividends

The proposed final dividend of 15.1p per share has been held to give a full year dividend of 22.4p per share, also held flat against the full dividend last year and dividend cover was 2.5x (both adjusted for the effect of the recent rights issue). The board expects to adopt a dividend policy targeting a dividend cover of around two times underlying earnings. This is aimed at ensuring that shareholders continue to benefit from the successful growth and strong cashflows of the group, whilst retaining an appropriate percentage of earnings to maintain investment in the estate and pay down borrowings.

Financing and treasury

Our consistent business strategy and high quality freehold estate supports £1,434m of securitised debt, underpinned by 2032 pubs, representing approximately 80% of our estate. We also have a 5-year syndicated bank borrowing facility of £400m, of which £245m was drawn at the year end and £99m was set aside on short-term deposit. Across both debt structures, there is no refinancing required before March 2012.

At the end of the year, before adjusting for the rights issue, our net debt of £1,558.6m represented a net reduction in debt of £46.9m over last year. With interest rate hedges in place to fix 98% of our debt, we have a strong and efficient balance sheet with a blended interest rate of 6.0%, net debt/EBITDA of 5.8x and fixed charge cover of 2.1x at the year end. Our free cash flow debt service cover ratio of 1.5x in the securitised vehicle means we are comfortably above our covenant levels and have sufficient headroom to continue to be able to financially support our business strategy and growth. 

Pensions

The group maintains a defined contribution scheme, which is open to all new employees, and a number of defined benefit schemes, which are all closed to new entrants. Following a turbulent year with movements in both equity markets and corporate bond yields, the net pension liability under IAS19 now stands at £91.6m. 

Exceptional charges

We have recorded £52.1m of operating exceptional items, as a result of their nature or size, and these are shown separately in the income statement to give full visibility of our underlying business performance. Such charges include costs for operational restructuring in preparing the business for continued challenging times and for systems integration work of £6.0m. These were in part offset by £3.7m of net profit on disposed properties and a £3.7m credit from share based payment schemes which are not going to meet their performance criteria. 

We have also reviewed the pubs in the tail of our estate and have recognised an impairment charge of £53.5m against the net book value of a relatively small number of pubs, an increase of £15.5m from the charge made in our interim accounts.

Post our rights issue, we have cancelled a number of interest rate swaps to maintain our 100% fixed interest profile. They have been treated as ineffective in these accounts, resulting in an exceptional financing charge of £12.1m.

Post balance sheet event - rights issue

Our 3 for 5 rights issue, which we announced in April and completed successfully in May, raised £207.5m net proceeds to be used for both opportunistic repurchase of securitised debt and for targeted acquisitions.

Since the year end, we have purchased £22.4m aggregate principal amount of bonds, with a weighted average purchase price of £511.3 per £1,000 nominal, as the first step in the use of proceeds for securitised debt repurchase. On 9 June, we announced an agreement to acquire eleven high quality, freehold, managed pubs from Punch Taverns PLC, for a total consideration of £30.4m. This was likewise the first step in the use of the rights issue proceeds for targeted acquisitions. 

Together, had the rights issue, bond repurchase and recent acquisition occurred at the start of the 2008/09 year, our net debt at year end would have been £1,373.8m, net debt/EBITDA would have been 5.1x and fixed charge cover would have been 2.4x. 

Ian Bull

Finance director

1 July 2009

Group Income Statement

for the fifty-two weeks ended 3 May 2009

		2009 (52 weeks)				2008 (53 weeks)
	Note	Before exceptional  items	Exceptional items	Total	Before exceptional  items		Exceptional items	Total
		£m	£m	£m	£m		£m	£m
Revenue	2	954.6	-	954.6	960.5		-	960.5
Operating costs		(738.4)	(55.8)	(794.2)	(724.3)		(4.9)	(729.2)
Profit on disposal of property, plant and equipment		-	3.7	3.7	-		9.8	9.8
Operating profit	2	216.2	(52.1)	164.1	236.2		4.9	241.1
Finance income		5.8	-	5.8	16.4		1.0	17.4
Finance costs		(102.6)	(12.1)	(114.7)	(112.0)		-	(112.0)
Net finance (expense)/income from pensions		(0.9)	-	(0.9)	1.4		-	1.4
Profit before tax		118.5	(64.2)	54.3	142.0		5.9	147.9
Tax	4	(29.6)	14.8	(14.8)	(39.7)		16.1	(23.6)
Profit attributable to equity holders of parent		88.9	(49.4)	39.5	102.3		22.0	124.3
Earnings per share
- basic	5			29.5p				89.9p
- adjusted basic	5	66.5p			74.0p
- diluted	5			29.4p				89.7p
- adjusted diluted	5	66.2p			73.8p
Dividends per share (paid and proposed in respect of the period)	6	22.4p			26.0p
Adjusted dividends per share (paid and proposed in respect of the period)	6	21.0p			20.9p

Adjusted earnings per share, operating profit and tax exclude the effect of exceptional items. Adjusted dividend per share reflects the impact of the bonus element of the post year end rights issue.

Group Balance Sheet

as at 3 May 2009

 

				As at	As at
				3 May	4 May
				2009	2008
	Note			£m	£m
Non current assets
Property, plant and equipment				1,997.3	2,057.9
Goodwill				673.8	673.8
Financial assets				40.3	34.8
Derivative financial instruments				-	2.7
Deferred tax assets				73.3	28.6
Prepayments				4.2	5.2
Trade and other receivables				0.2	0.2
				2,789.1	2,803.2
Current assets
Inventories				21.9	17.9
Trade and other receivables				62.0	51.7
Prepayments				6.9	13.0
Derivative financial instruments				-	0.7
Cash and cash equivalents	7			120.9	91.6
				211.7	174.9
Total assets				3,000.8	2,978.1
Current liabilities
Borrowings	7			(38.4)	(60.6)
Derivative financial instruments				(12.7)	(1.0)
Trade and other payables				(195.4)	(198.7)
Income tax payable				(43.3)	(39.5)
				(289.8)	(299.8)
Non current liabilities
Borrowings	7			(1,641.1)	(1,636.5)
Derivative financial instruments				(131.8)	(7.9)
Deferred tax				(197.6)	(211.4)
Post-employment liabilities				(97.1)	(73.8)
				(2,067.6)	(1,929.6)
Total liabilities				(2,357.4)	(2,229.4)
Total net assets				643.4	748.7
Issued capital and reserves
Share capital				17.0	17.0
Share premium				247.5	247.2
Capital redemption reserve				3.3	3.3
Hedging reserve				(94.9)	(3.6)
Own shares				(17.5)	(17.2)
Retained earnings				488.0	502.0
Total equity	8			643.4	748.7
Net debt	7			1,588.6	1,605.5

  Group Cash Flow Statement

for the fifty-two weeks ended 3 May 2009

			2009	2008
			(52 weeks)	(53 weeks)
	Note		£m	£m
Operating activities
Operating profit			164.1	241.1
Operating exceptional items			52.1	(4.9)
Depreciation			51.1	47.1
EBITDA*	2		267.3	283.3
Working capital and non-cash movements	9		(6.4)	(7.3)
Interest received			5.8	16.4
Interest paid			(100.3)	(102.8)
Tax paid			(24.9)	(25.8)
Net cashflow from operating activities			141.5	163.8
Investing activities
Purchase of property, plant and equipment			(95.5)	(98.3)
Purchase of other investments			(0.3)	(0.2)
Movements in financial assets			(6.0)	(0.4)
Sales of property, plant and equipment			44.2	41.4
Acquisition of subsidiaries, net of cash acquired			-	(82.6)
Net cashflow from investing activities			(57.6)	(140.1)
Financing activities
Equity dividends paid	6		(34.9)	(33.5)
Issue of shares	8		0.4	5.3
Purchase of own shares	8		(0.4)	(150.6)
Financing costs			(7.7)	(0.1)
Repayment of borrowings			(361.3)	(101.8)
Advance of borrowings			349.8	265.0
Net cashflow from financing activities			(54.1)	(15.7)
Net increase in cash and cash equivalents			29.8	8.0
Opening cash and cash equivalents			90.7	82.7
Closing cash and cash equivalents			120.5	90.7

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

  Group Statement of Recognised Income and Expense

for the fifty-two weeks ended 3 May 2009

			2009	2008
			(52 weeks)	(53 weeks)
			£m	£m
Cashflow hedges: losses taken to equity			(144.2)	(3.2)
Cashflow hedges: ineffective portion transferred to income statement			12.1	-
Cashflow hedges: losses/(gains) recycled to income on swap terminations			5.3	(8.1)
Actuarial losses on defined benefit pension schemes			(24.5)	(31.3)
Tax on items recognised directly in equity			42.4	12.2
Tax on share based payments			2.2	(4.0)
Net loss recognised directly in equity			(106.7)	(34.4)
Profit for the period			39.5	124.3
Total recognised income and expense for the period attributable to equity holders of parent			(67.2)	89.9

  Notes to the accounts 

for the fifty-two weeks ended 3 May 2009

1 Basis of preparation

The financial information for the fifty-two weeks ended 3 May 2009 has been audited and has been prepared in accordance with International Financial Reporting Standards (IFRS) as required by European Union law. The accounting policies are as described in the full 2008 financial statements of Greene King plc, except for the following:

IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

There is no impact on the current or prior period financial position or results from the adoption of these standards and interpretations.

2 Segment information

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

2009 (52 weeks)	Retail	Pub Partners	Brewing Company	Belhaven	Corporate	Unallocated	Total Operations
	£m	£m	£m	£m	£m	£m	£m
External revenue	569.5	155.2	93.9	136.0	-	-	954.6
Segment operating profit (pre-exceptionals)	105.6	70.9	21.2	30.2	(11.7)	-	216.2
Exceptional items	(27.5)	(17.8)	(1.5)	(5.3)	-	-	(52.1)
Segment operating profit (post-exceptionals)	78.1	53.1	19.7	24.9	(11.7)	-	164.1
Net assets	1,222.0	850.5	201.6	338.7	(1.6)	(1,967.8)	643.4
EBITDA*	139.8	78.1	25.4	34.9	(10.9)	-	267.3

2008 (53 weeks)	Retail	Pub Partners	Brewing Company	Belhaven	Corporate	Unallocated	Total Operations
	£m	£m	£m	£m	£m	£m	£m
External revenue	578.7	167.2	88.5	126.1	-	-	960.5
Segment operating profit (pre-exceptionals)	116.5	81.4	21.6	27.5	(10.8)	-	236.2
Exceptional items	(1.3)	2.7	0.2	0.1	3.2	-	4.9
Segment operating profit (post-exceptionals)	115.2	84.1	21.8	27.6	(7.6)	-	241.1
Net assets	1,246.8	873.1	205.7	331.7	(1.5)	(1,907.1)	748.7
EBITDA*	147.9	88.2	25.6	31.7	(10.1)	-	283.3

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

Unallocated assets / liabilities includes cash, borrowings, pension, net deferred tax, net current tax, and derivatives.

  

3 Exceptional items

		2009	2008
		(52 weeks)	(53 weeks)
		£m	£m
Included in operating profit
Integration of New Century Inns business		-	0.4
Integration of Hardys & Hansons business		-	1.3
Divisional restructuring		2.6	-
Financial systems integration		3.4	1.0
Adjustments to carrying value of goodwill in respect of utilisation of tax losses		-	2.2
Impairment of property, plant and equipment		53.5	-
Share based payment credit		(3.7)	-
Net profit on disposal of property, plant and equipment		(3.7)	(9.8)
		52.1	(4.9)
Included in financing costs
Termination of interest rate swaps and loan facilities		-	(1.0)
Ineffective cash flow hedges - transfer from equity		12.1	-
		64.2	(5.9)

Exceptional divisional restructuring and financial systems integration costs are items of one-off expenditure incurred in connection with the restructuring of certain trading segments within the group and the review of group-wide financial systems.

During the 52 week period to 3 May 2009 the group has recognised an impairment loss of £53.5m in respect of land and buildings within its licensed and unlicensed estates. The impairment has been recognised in respect of properties where the net book value has fallen below the higher of value-in-use and fair value less costs to sell.

The net profit on disposal of property, plant and equipment of £3.7m (2008: £9.8m) comprises a total profit on disposal of £11.1m (2008: £15.4m) and a total loss on disposal of £7.4m (2008: £5.6m).

The share based payments credit results from the reversal of the previously recognised expense of share based payment schemes which are no longer expected to meet their performance criteria.

As a result of the post year-end rights issue and subsequent debt repurchase the cashflow hedges in respect of £148.0m of the group's variable rate borrowings and £22.4m of the securitised debt will cease to be effective. An exceptional cost of £12.1m (2008: £nil) has been recognised in respect of the fair value of interest rate swaps no longer qualifying for hedge accounting. These ineffective swaps have been cancelled since the year end.

  

4 Taxation

	2009 (52 weeks)				2008 (53 weeks)
	Before  exceptional  items	Exceptional  items	Total		Before  exceptional  items	Exceptional  items	Total
	£m	£m	£m		£m	£m	£m
Income tax
Corporation tax before exceptional items	32.3	-	32.3		38.2	-	38.2
Recoverable on exceptional items	-	(1.7)	(1.7)		-	(0.4)	(0.4)
Current income tax	32.3	(1.7)	30.6		38.2	(0.4)	37.8
Adjustment in respect of prior periods	(1.7)	-	(1.7)		(1.0)	-	(1.0)
	30.6	(1.7)	28.9		37.2	(0.4)	36.8
Deferred tax
Origination and reversal of temporary differences	(1.0)	(13.1)	(14.1)		2.5	(15.7)	(13.2)
Tax charge in the income statement	29.6	(14.8)	14.8		39.7	(16.1)	23.6

The tax effect of non-trading exceptionals was a deferred tax credit £3.4m (2008 - £nil).

5 Earnings per share

Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £39.5m (2008: £124.3m) by the weighted average number of shares in issue during the period (excluding own shares held) of 133.7m (2008: 138.3m).

Diluted earnings per share has been calculated on a similar basis taking account of 0.7m (2008: 0.2m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 134.4m (2008: 138.5m). Where the average share price during the year is lower than the option price or the performance conditions of the option had not been met or were not expected to be met the options become anti-dilutive and are excluded from the calculation. The number of options where the average share price was lower than the option price was 2.6m (2008: 3.4m), the number of options that were anti-dilutive as a result of performance conditions not being met was 2.5m (2008: 0.9m).

Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group on both a basic and dilutive basis.

 

Adjusted earnings per share	Earnings		Basic earnings per share		Diluted earnings per share
	2009	2008	2009	2008	2009	2008
	£m	£m	p	p	p	p
Profit attributable to equity holders	39.5	124.3	29.5	89.9	29.4	89.7
Exceptional items (note 3)	49.4	(22.0)	37.0	(15.9)	36.8	(15.9)
Profit attributable to equity holders before exceptional items	88.9	102.3	66.5	74.0	66.2	73.8

  

6 Dividends paid and proposed

	2009	2008
	£m	£m
Declared and paid in the period
Interim dividend for 2009 - 7.3p (2008 - 7.3p)	9.8	9.9
Final dividend for 2008 - 18.7p (2007 - 16.45p)	25.1	23.6
	34.9	33.5
Proposed for approval at the AGM
Final dividend for 2009 - 15.1p (2008 - 18.7p)	32.4	25.0
Total proposed dividend for 2009 - 22.4p (2008 - 26.0p)	42.2	34.9
Total adjusted dividend for 2009 - 21.0p (2008 - 20.9p)	42.2	34.9

Dividends on own shares have been waived.

Adjusted dividend per share reflects the impact of the bonus element of the post year end rights issue.

7 Borrowings 

		2009				2008
	Current	Non- current	Total		Current	Non- current	Total
	£m	£m	£m		£m	£m	£m
Bank overdrafts	0.4	-	0.4		0.9	-	0.9
Bank loans - floating rate	-	245.0	245.0		-	500.0	500.0
Bank loans - fixed rate	-	-	-		3.3	58.3	61.6
Securitised debt	21.7	1,396.1	1,417.8		17.0	1,077.6	1,094.6
Loan notes	16.3	-	16.3		39.4	0.6	40.0
Borrowings	38.4	1,641.1	1,679.5		60.6	1,636.5	1,697.1
Cash and cash equivalents			(120.9)				(91.6)
Net debt			1,558.6				1,605.5

  

8 Reconciliation of movements in total equity

	Share	Share	Capital	Hedging	Own	Retained	Total
	capital	premium	redemption	reserve	shares	earnings
	£m	£m	£m	£m	£m	£m	£m
At 4 May 2008	17.0	247.2	3.3	(3.6)	(17.2)	502.0	748.7
Issue of ordinary shares	-	0.3	-	-	-	-	0.3
Release of shares	-	-	-	-	0.1	-	0.1
Repurchase of own shares	-	-	-	-	(0.4)	-	(0.4)
Actuarial loss	-	-	-	-	-	(24.5)	(24.5)
Tax on actuarial loss	-	-	-	-	-	6.9	6.9
Share based payments	-	-	-	-	-	(3.2)	(3.2)
Tax on share based payments	-	-	-	-	-	2.2	2.2
Cash flow hedges
- losses taken to equity	-	-	-	(144.2)	-	-	(144.2)
- ineffective cashflow hedges: transfer to income statement	-	-	-	12.1	-	-	12.1
- losses recycled to income on swap terminations	-	-	-	5.3	-	-	5.3
Tax on cash flow hedges	-	-	-	35.5	-	-	35.5
Profit for the period	-	-	-	-	-	39.5	39.5
Equity dividends paid	-	-	-	-	-	(34.9)	(34.9)
At 3 May 2009	17.0	247.5	3.3	(94.9)	(17.5)	488.0	643.4

9 Working capital and non-cash movements

	2009	2008
	£m	£m
Increase in provision against other financial assets	0.8	0.3
(Increase)/decrease in inventories	(4.0)	0.8
Increase in trade and other receivables	(3.2)	(3.9)
Increase/(decrease) in trade and other payables	8.1	(2.0)
Share based payment expense	0.6	3.4
Difference between defined benefit pension contributions paid and amounts charged	(2.1)	(2.7)
Integration costs	(6.6)	(3.2)
Working capital and non-cash movements	(6.4)	(7.3)

  

10 Movement in net debt

		2009	2008
		£m	£m
Cash at bank and in hand		21.7	24.9
Short term deposits*		99.2	66.7
Overdrafts		(0.4)	(0.9)
Current portion of borrowings		(38.0)	(59.7)
Non current portion of borrowings		(1,641.1)	(1,636.5)
Closing net debt		(1,558.6)	(1,605.5)

* included in cash on the balance sheet

	2009	2008
	£m	£m
Net increase in cash and cash equivalents	29.8	8.0
Proceeds - issue of securitised debt	(349.8)	-
Proceeds - advances of loans	-	(265.0)
Repayment of principal - securitised debt	21.2	16.5
Repayment of principal - loans and loan notes	340.1	85.3
Financing issue costs	7.2	-
Decrease/(increase) in net debt arising from cash flows	48.5	(155.2)
Debt issued for acquisitions	-	(14.4)
Other non cash movements	(1.6)	(0.4)
Decrease/(increase) in net debt	46.9	(170.0)
Opening net debt	(1,605.5)	(1,435.5)
Closing net debt	(1,558.6)	(1,605.5)

11 Dividend payments

Subject to the approval of shareholders at the annual general meeting, the final dividend will be paid on 14 September 2009 to shareholders on the register at the close of business on 14 August 2009.

12 Reports and accounts

The above financial information is derived from the statutory accounts for the period ended 3 May 2009 on which the auditors have issued an unqualified opinion. The information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

The accounts for the period ended 4 May 2008 have been filed with the Registrar of Companies and the auditors of the company made a report thereon under Section 435 of the Companies Act 2006. That report was an unqualified report and did not contain a statement under Section 498 (2) or Section 498(3) of the Act.

The 2009 Report & Accounts will be posted to shareholders on 31 July 2009 and copies will be available from that date from the Company Secretary at the registered office of the company, Westgate Brewery, Bury St. Edmunds, Suffolk IP33 1QT.

- ends -

ENDFR IIFVLDTIFIIA

---

Related Shares:

Greene King