30 Nov 2016 07:00
INTERIM RESULTS FOR THE 24 WEEKS TO 16 OCTOBER 2016
Group revenue | Adjusted profit before tax1 | Statutory profit before tax | Adjusted earnings per share1 | Basic earnings per share | Dividend per share | Return on capital employed |
£1,044.3m | £139.0m | £92.5m | 36.0p | 23.9p | 8.8p | 9.4% |
+13.8% | +14.6% | +9.0% | +4.3% | -4.0% | +4.1% | In line |
HIGHLIGHTS2
Market outperformance
· Record revenue of £1,044.3m.
· Operating profit before exceptional items1 of £203.7m; all divisions in profit growth.
· Pub Company like-for-like (LFL) sales up 1.3%, ahead of the market3.
· Strong performance from Pub Partners; LFL net income up 4.2%.
Integration continues ahead of schedule
· Synergies expected to be £30m this year; original three year target in two years.
· 'Best of both' Pub Company IT system in over 700 pubs; completion by July 2017.
· 50 brand conversions completed; average sales uplifts of over 30%.
Strong financial metrics and dividend progression
· Strong free cashflow; £42.4m post core capex & dividends, covers scheduled debt repayments.
· 4.2x net debt to EBITDA; flexible and long-term debt financing.
· Dividend per share up 4.1%; continued long-term dividend progression.
· Return on Capital Employed (ROCE) maintained at 9.4%.
Rooney Anand, chief executive officer
"We have delivered market outperformance and strong integration momentum against a backdrop of continued challenging market conditions. Our performance has been driven by growth in all divisions and the synergy benefits from the integration. These have helped to offset increased cost pressures, particularly from the National Living Wage, as well as additional investment in the customer offer to meet higher guest expectations of value, service and quality.
"The full impact of the UK decision to leave the EU remains unclear. Looking ahead, increasing levels of consumer uncertainty, further cost pressures and the changing dynamics of eating out, mean the consumer environment is likely to become more challenging. However, we are confident that the strength of our brands, pubs, people and cash generation leaves us well placed to deliver another year of progress, value creation and returns for our shareholders."
FOR FURTHER INFORMATION
Greene King plc | Rooney Anand, chief executive officer Kirk Davis, chief financial officer | Tel: 01284 763222 |
Finsbury | James Leviton | Tel: 0207 251 3801 |
| Philip Walters |
|
Further information is available at www.greeneking.co.uk or on Twitter using @greeneking
There will be a presentation for analysts and investors at 9.30am at Deutsche Bank, 1 Great Winchester St. London, EC2N 2DB.
The conference will also be accessible by phone: 0808 109 0700 UK Toll Free; +44 (0) 20 3003 2666 - Standard International Access.
Conference ID: Greene King
HEADLINE GROUP RESULTS
24 weeks | H116 | H117 | YOY Change |
Total revenue | £917.7m | £1,044.3m | +13.8% |
- Pub Company | £740.2m | £855.9m | +15.6% |
- Pub Partners | £82.1m | £93.6m | +14.0% |
- Brewing & Brands | £95.4m | £94.8m | -0.6% |
Group operating profit before exceptional items | £180.2m | £203.7m | +13.0% |
- Pub Company | £137.4m | £154.5m | +12.4% |
- Pub Partners | £36.7m | £43.7m | +19.1% |
- Brewing & Brands | £14.7m | £14.8m | +0.7% |
Group operating profit | £167.0m | £176.5m | +5.7% |
Group profit before tax & exceptional items | £121.3m | £139.0m | +14.6% |
Group profit before tax | £84.9m | £92.5m | +9.0% |
Basic EPS | 24.9p | 23.9p | -4.0% |
Adjusted1 basic EPS | 34.5p | 36.0p | +4.3% |
Dividend per share | 8.45p | 8.80p | +4.1% |
Core capital expenditure | £66.1m | £56.5m | -14.5% |
Net debt | £2078.7m | £2,200.1m | +5.8% |
Net cash flow from operations | £119.6m | £125.9m | +5.3% |
Free cash flow | £13.3m | £42.4m | +218.8% |
1. Adjusted measures exclude the impact of exceptional items as detailed in note 3 to the financial statements.
2. The directors use a number of Alternative Performance Measures (APM) that are considered critical to aid the understanding of the group’s performance. Key measures are explained in the glossary on page 25 of this announcement.
3. Coffer Peach Tracker 24 weeks to 16 October 2016.
NOTES FOR EDITORS
· Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs around 43,000 people across its main trading businesses; Pub Company, Pub Partners and Brewing & Brands.
· At the end of the half year, it operated 3,029 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,823 were retail pubs, restaurants and hotels, and 1,206 were tenanted, leased and franchised pubs. Its leading retail brands and formats include Hungry Horse, Farmhouse Inns, Chef & Brewer, Flaming Grill and the Greene King Local Pubs estate. 84% of the estate is either freehold or long leasehold.
· Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries, and is the UK's leading cask ale brewer and premium ale brewer. Its industry leading portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.
BUSINESS REVIEW
During the first half of the year, we achieved record results by delivering growth across all divisions, progressing the Spirit integration ahead of schedule and underpinning our robust and flexible balance sheet. As a result, we were able to deliver further growth in dividends to our shareholders.
PERFORMANCE SUMMARY
Total revenue grew 13.8% to a record £1,044.3m, the first time we have passed £1bn revenue in the first half of the year. Operating profit before exceptional items was £203.7m, up 13.0%. This growth was driven by a combination of underlying growth, the benefits of capital investment, seven additional weeks of Spirit trading and £13.2m of synergies from the integration. All divisions achieved profit growth in the period. The operating margin before exceptional items was 19.5%, down ten basis points (bps) on last year, reflecting the higher contribution from Pub Company.
Profit before tax and exceptional items was up 14.6% to £139.0m while adjusted earnings per share grew 4.3% to 36.0p, reflecting the new shares issued at the time of the Spirit acquisition.
ROCE was 9.4%, comfortably above our weighted average cost of capital and in line with last year. ROCE improved in both Pub Partners and Brewing & Brands and ROCE growth remains a key financial target for both the company and management.
Following the securitisation tap in May which raised additional funds for general use and to settle interest rate swap liabilities, net debt to EBITDA rose from 3.9x at the previous financial year end to 4.2x at the end of the first half, as expected. We believe our strong cash generation and balance sheet strength provide the flexibility and security for shareholders through an economic cycle and we expect our net debt to EBITDA ratio to reduce in the medium term.
As a result of the underlying performance of the business and our confidence in the future, the board has declared an interim dividend of 8.8p, an increase of 4.1% on the first half last year, maintaining our long-term progressive dividend policy.
ENVIRONMENT
Consumer spending on eating out is ahead of last year1, although much of this is being driven by the supply of new branded eating out sites, improving the convenience and choice for consumers. At the same time, eating at home has become more attractive due to the twin drivers of grocery food deflation and the growth of branded takeaway and delivery businesses. There are also demand challenges with higher consumer expectations for value, service and quality, which are mainly impacting the value food sector, the on-going digitalisation of leisure and the demand for healthier options.
However, we believe pubs can maintain their market share of eating out and drinking out and that Greene King remains well positioned to outperform. Pubs will need to retain their relevance and innovate at the same pace as other sectors of the market and we will continue to focus on making our pubs the best in the sector and the best placed to capitalise on the opportunities that growing eating out and drinking out markets can generate.
The full impact of the UK decision to leave the EU remains uncertain. However, we expect the economy to weaken and consumers' discretionary spending to soften going forward. The August Greene King Leisure Spend Tracker, for example, highlighted that 47% of consumers expected the economy to get worse over the next year. Alongside a probable economic slowdown, restrictions on immigration from outside the UK will place further pressures on the hospitality industry.
The current regulatory environment is adding further challenges to the industry through the National Living Wage, the National Minimum Wage, the Apprenticeship Levy and the recent proposed increases in business rates. All these government initiatives will impact on costs and margins within the hospitality industry going forward. We continue to work hard with trade organisations to encourage the government to offset some of the industry impact from these initiatives while, at the same time, we are being proactive in dealing with these external headwinds.
1.Greene King Leisure Spend Tracker
INTEGRATION
The acquisition and subsequent integration of Spirit is a key enabler to delivering our vision to be the best pub company in Britain. We are using a 'best of both' approach to the integration, focusing on optimising the combined systems, brands and teams. At the end of the first half, we remained ahead of the integration schedule.
Progress made in the first half included: -
1. Further synergies captured and we now expect to deliver £30m by the year end and the £35m target by the end of the 2018 financial year.
2. We completed the rollout of the combined pub IT system into the ex-Spirit brands and, since the period end, we began rolling out the new system across the Greene King estate. We expect this to be completed by July 2017.
3. We completed 50 brand conversions, as we started to reduce the number of brands and formats in Pub Company. The majority of the brand conversions were Fayre & Square to Hungry Horse. Overall, we have achieved sales uplifts of more than 30% to date. Looking ahead, we have decided to extend the brand conversion programme from three to four years to allow us to maintain a degree of flexibility over the programme as we continuously assess the changing external environment. We expect to invest a total of £35m to £40m in around 70 brand conversions in this financial year and our current expectations are to invest a further £90m to £120m in the next three years across 210-240 pubs.
4. Since the two retail businesses were formally put together in May, we have made good progress in terms of forming one, fully integrated Pub Company support centre in Burton. The decision to relocate our managed pub business to Burton is not without its challenges, but using our 'best of both' approach, we expect to see, over time, improving growth and returns from Pub Company as a result.
COMMUNITY
Our pubs are at the heart of the community and have a unique opportunity to play an active role in the communities they serve. We understand the importance of operating a sustainable and responsible business and, as an industry leader, it is our duty to set an example by delivering a winning social responsibility programme. During the first half of the year, we achieved further progress: -
· Following a record-breaking 'World's Biggest Coffee Morning', and the launch of our 'Miles for Macmillan' campaign, total funds raised for Macmillan Cancer Support, our national charity partner, now stand at over £2.6m.
· As part of a new £190k investment in our partnership with The Prince's Trust, we ran five 'Get into Hospitality' programmes in Glasgow, Liverpool, London, Manchester and Nottingham, with five more programmes planned for the second half of the year. Of the 63 disadvantaged young people enrolled on the programmes, 50 have been identified for permanent employment with Greene King and 25 are already in post.
· We have donated to the Pub is the Hub Community Services Fund for the fourth year in a row in order to support rural pubs that want to diversify their services for the benefit of local communities.
CURRENT TRADING
Trading in Pub Company since the period end has improved versus the trends seen in the second quarter. Trading in Pub Partners and Brewing & Brands was broadly consistent with that seen in the first half. Our latest Leisure Spend Tracker highlighted that 28% of consumers expect to visit the pub in Christmas week and we are looking forward to another successful festive season with deposited bookings on all key dates up strongly on last year.
PUB COMPANY
24 weeks | H116 | H117 | YOY Change |
Ave. no. of pubs trading | 1,548 | 1,822 | +17.7% |
Revenue | £740.2m | £855.9m | +15.6% |
EBITDA* | £173.5m | £196.8m | +13.4% |
Operating profit* | £137.4m | £154.5m | +12.4% |
Operating profit margin* | 18.6% | 18.1% | -50bps |
Ave. EBITDA per pub* | £112.1k | £108.0k | -3.7% |
*Before exceptional items
Pub Company revenue in the first half grew 15.6% to a record £855.9m, helped by underlying sales growth, particularly in drink and in our mainstream brands and formats, well-targeted capital investment in our core estate and seven weeks' additional benefit from the Spirit acquisition. Operating profit grew 12.4% with the operating margin down 50bps to 18.1% following investment in food quality, customer service and price.
LFL sales grew 1.3% in the period, ahead of the market which was up 0.8%1. Excluding Fayre & Square, which was under-performing the market when we acquired the brand and is currently being debranded, LFL sales would have been up 1.9%. The headline LFL performance softened through the half year as the first quarter benefited from the European Football Championships while the second quarter was up against tough comparatives with last year's Rugby World Cup.
1. Coffer Peach Tracker data
Aside from brand conversions, we have made further progress in developing our five growth pub retail brands: Greene King; Chef & Brewer; Farmhouse Inns; Flaming Grill; and Hungry Horse. We have refreshed the brand propositions and better aligned the operating and support function structures to the brands. We have integrated menus across similar formats and begun the process of replacing non-core formats such as Taylor Walker, John Barras, Meet & Eat and Flame Grill with Greene King branding.
We again focused on our strategic aim of delivering industry-leading value, service and quality. In both food and drink, we increased prices below the market and Retail Price Inflation by extending 'Every Day Low Pricing' and 'Key Value Item' pricing into the Spirit brands and formats and by optimising the balance between core pricing and promotional activity. Examples of enhanced value in the period include the rollout of our Season Ticket loyalty scheme into 104 Flaming Grill pubs and the refocus on 'Big Plate Specials' and 'Rhythm of the Week' activity in Hungry Horse.
By introducing Team Hours, a labour rostering tool, we have been able to deliver improved service through better alignment of labour and sales while, in Old English Inns, we improved outdoor service in the summer by offering reduced menus and building new external serving stations.
We made further progress on quality: we moved all steaks in Chef & Brewer to single breed Black Angus steaks; we added more fresh dishes and healthier options to the Hungry Horse menu; and we upgraded our grill quality and entertainment facilities in Flaming Grill. Third party food quality benchmarking analysis showed further improvement in our relative quality and three of our brands/formats are in the top five industry brands for overall food quality.
We also invested in delivering on our aim to employ the best people in the industry. Our leading apprenticeship programme saw another 1,736 starters in the first half of the year with a further 1,200 expected to start an apprenticeship by the end of the financial year. The current 12-month retention rate of apprenticeship starters is 89%, significantly higher than comparable non-apprentice team members. The benefits of retention are key to delivering consistently high service levels and team turnover fell 1.7%pts in the period.
Owning the best invested pub estate is also a key strategic aim. Our estate continues to be on an average 5-6 year property investment cycle. We invested £16m in the core estate (excluding brand conversions) across 92 schemes, we opened seven new build pubs and expect to add five more pubs in the full year, while we sold seven pubs and expect to sell 69 over the course of the financial year.
We continued to invest in creating an industry-leading digital platform. Consumers want to engage digitally, most importantly to improve the convenience of their experiences, and they are increasingly using mobile technology to achieve this. To capture this opportunity, our digital strategy is currently focused on three areas: bringing all our websites up to date so they can be a stronger platform for mobile engagement; further developing our customer relationship management (CRM) by consolidating, growing and better utilising our database; and increasing our social media presence and reach. Initiatives in the first half included integrating the business onto a single online booking and deposit management system, moving the whole business onto a single CRM communication platform and extending our 'always on' social media approach to 800 pubs. As a result, table bookings grew 67%, CRM subscribers grew 13% and 'fans' of our pub Facebook pages grew 64% to 2.3m.
PUB PARTNERS
24 weeks | H116 | H117 | YOY Change |
Ave. no. of pubs trading | 1,094 | 1,210 | +10.6% |
Revenue | £82.1m | £93.6m | +14.0% |
EBITDA* | £41.3m | £48.4m | +17.2% |
Operating profit* | £36.7m | £43.7m | +19.1% |
Operating profit margin* | 44.7% | 46.7% | +200bps |
Ave. EBITDA per pub* | £37.8k | £40.0k | +5.8% |
*Before exceptional items
Pub Partners performed strongly in the first half of the financial year. LFL volumes were slightly down but ahead of the UK beer market1, while LFL rent was up, helped by continued capital investment and the growing number of turnover agreements in our estate. Pub Partners operated 10.6% more pubs on average but achieved revenue growth of 14.0% and operating profit growth of 19.1%. Average EBITDA per pub was up 5.8% while LFL net income was up 4.2%. This performance has been helped by the short-term benefit of our non-core disposal strategy of the last few years and the one-off benefit of integration synergies.
1.BBPA May to September UK Total Ale volumes
Our aim is to be the preferred partner for the best independent operators and we will achieve this through focusing on putting the right partners in the right pubs on the right agreement and with the right offer.
1. Right partners - we relaunched our online recruitment campaigns leading to a 34% increase in website traffic and an 81% increase in social media visits. Investment in our partners, including leadership and multi-site training, and apprenticeship support, led to 12 month retention of new licensees of 93%. We took 952 delegates through our Discovery training programme which, after the period end, won Best Licensee Development Training Programme at the BII NITA awards.
2. Right pubs - we continued to dispose of non-core pubs which we do not believe will be viable in the long term and to invest in those pubs with a long-term future. In the period, we sold four pubs and invested in 74 pubs. There are numerous investment opportunities in the ex-Spirit Leased estate delivering strong returns. Most of our investment is targeted at repositioning pubs from value to mainstream or mainstream to premium and driving the food mix within our pubs.
3. Right agreements - we have a well hedged suite of agreements covering commercial free of tie leases, tied leases, tied tenancies, turnover agreements and franchises. We believe turnover agreements are well placed to align landlord and tenant interests, particularly where there is a high food element in the sales mix. Our aim is to get to 30% of all agreements being turnover agreements over the next three years and, at the period end, we had reached 145, or 12.6%.
4. Right offer - we further developed our food support for licensees and we now have 126 pubs ordering food directly through our supply chain with a strong pipeline in place for the rest of the financial year. We also provided enhanced wine support for licensees including food-matching ideas.
Our approach helped some of our pubs and partners become award winners: The Red Lion and Sun in Highgate won Best Wine Pub at the Great British Pub Awards; the Hare & Hounds in King's Heath won Best Live Entertainment at the same awards; and the Crown in Burchetts Green near Maidenhead was awarded a Michelin star for the first time. In addition, we won the ALMR Business Development Manager of the Year award for 2016, Pub Partners' third win in the last four years.
The statutory Pubs Code went live in July and before then we trained over 100 team members to ensure we are as fully compliant with the statutory code as we were with the voluntary code. The main impact on Pub Partners will come from the ability of licensees to take a Market Rent Only (MRO) option, or essentially, a commercial free of tie agreement. After three months of the Pubs Code, we had 24 potential MRO agreements, which is in line with our expectations. We remain of the view that MRO will not have a material impact on the group.
BREWING & BRANDS
24 weeks | H116 | H117 | YOY Change |
Revenue | £95.4m | £94.8m | -0.6% |
EBITDA* | £17.1m | £17.2m | +0.6% |
Operating profit* | £14.7m | £14.8m | +0.7% |
Operating profit margin* | 15.4% | 15.6% | +20bps |
*Before exceptional items
Own-brewed volume fell 3.8% in a cask ale market down 5.4%1 and a total ale market down 3.1%2 as we proactively reduced our exposure to low margin accounts in the on- and off-trade channels, leading to volume declines for Old Speckled Hen and Ruddles. As a result, revenue fell 0.6% to £94.8m. Overhead recovery from higher total volumes helped to drive a 20bps improvement in the operating margin and operating profit up 0.7% to £14.8m.
Our core brands maintained their UK market leading positions: Greene King IPA continues to be the fastest selling cask ale brand3; Old Speckled Hen is still the no.1 premium ale brand4 with the highest prompted awareness of 75%5; Abbot Ale is the no.1 premium cask ale6; while Belhaven Best, Scotland's no.1 draught ale, grew its market share to 36%6.
This was achieved by maintaining our industry-leading brand investment: our sponsorship of the England and Wales Cricket Board included a new television advert starring Alastair Cook, Ben Stokes and Michael Vaughan; we won additional sporting sponsorships across rugby, football and cricket; we became the official beer supplier to the Royal Albert Hall; and we are trialling a new lager brand for the Scottish market called Saltire.
Our beers won numerous medals at both the International Beer Challenge Awards and the Monde Awards including gold medals for Greene King IPA, Old Speckled Hen, Abbot Ale, Belhaven Black and Belhaven Wee Heavy. Finally, we were delighted to win Best Broadcast Advertising Campaign for Greene King IPA's 'To The Pub' campaign at the 2016 Marketing Awards.
1.BBPA May to September UK Cask Ale volumes
2.BBPA May to September UK Total Ale volumes
3.CGA Brand Index 26 weeks to 3 September for brands over 5% distribution
4.CGA Brand Index 26 weeks to 3 September + Nielsen Scantrack 26 weeks to 8 October
5.Cardinal Brand Tracker July 2016
6.CGA Brand Index 26 weeks to 3 September
FINANCIAL REVIEW
INCOME STATEMENT
Revenue was £1,044.3m, an increase of 13.8% compared to the prior year, reflecting the effect of LFL sales growth and a full half-year contribution from Spirit. Pub Company was the main driver of the increase and it now accounts for 82% of group revenue at £855.9m. Total revenue was £93.6m in Pub Partners and £94.8m in Brewing & Brands. Operating profit before exceptional items was £203.7m, an increase of 13.0% on last year. Group operating profit margin before exceptional items was down 10bps to 19.5%, reflecting a higher contribution from the managed estate. Pub Company margin reduced by 50bps from 18.6% to 18.1% due to the impact of increased labour costs, as we invested more in customer service and following the introduction of the National Living Wage, as well as the impact of closure costs incurred as part of our brand conversion programme. This has been partially offset by synergy savings.
Net interest costs before exceptional items were £64.7m. The interest charge for the full year is expected to be in the region of £139m to £142m.
Profit before tax and exceptionals was £139.0m, an increase of 14.6% on last year. The tax charge before exceptional items equated to an effective tax rate of 19.9%.
Earnings per share before exceptional items of 36.0p was up 4.3%. Statutory profit before tax was £92.5m, up 9.0% on last year.
CASHFLOW AND CAPITAL STRUCTURE
Operating cash flows remained strong. We generated free cash flow (FCF) of £42.4m, ahead of our scheduled debt repayments of £25.6m and after our core capital expenditure and dividend payments. Overall, EBITDA before exceptional items was £254.4m.
In May, we successfully issued a £300m A6 bond at a coupon of 4.06%. After settling certain interest rate swap liabilities, net proceeds of £180m were used to pay down borrowings under our shorter dated revolving credit facility.
Since the period end, we have agreed an amendment and extension to our revolving credit facility. The £400m facility now runs to 31 October 2021 and provides shorter-term financing at more favourable pricing than the previous facility.
Group net debt at the period end was £2,200.1m, an increase of £151.7m from the previous year end largely due to the repayment of swap liabilities following our securitised bond issuance.
In line with our strategic priorities, our objective is to maximise the strength and flexibility of our balance sheet, and the group has a capital structure aimed at meeting the short, medium and longer-term funding requirements of the business. The principal elements of the group's capital structure are our revolving credit facility that was £175m drawn at the period end and two long-term asset-backed financing vehicles. The Greene King securitisation has secured bonds with a carrying value of £1,416.1m, an average life of 11 years and is secured against 1,542 pubs with a market value of £2.2bn and a carrying value of £1.6bn. The Spirit debenture has secured bonds with a carrying value of £783.3m, an average life of 11 years and is secured against 1,034 pubs with a market value and carrying value of £1.5bn.
Our credit metrics remain strong with 99% of our interest costs at a fixed rate and an average cost of debt of 6.1%. Fixed charge cover was 2.5x in line with the same period last year and interest cover increased slightly to 3.6x from 3.4x. As expected, annualised net debt to EBITDA increased from 3.9x at the year end to 4.2x. Our Greene King secured vehicle had a free cash flow debt service cover ratio of 1.6x at the period end, giving 31% headroom. The Spirit debenture vehicle had a free cash flow debt service cover ratio of 1.9x, also giving headroom of 31%.
CAPITAL EXPENDITURE AND DISPOSALS
We invested in both maintaining and developing our existing estate. Total expenditure during the period was £96.9m. Core estate capital expenditure was £56.5m with a further £15.1m invested in acquiring pubs and developing previously acquired pubs. There were seven new pub openings during the first half. We also invested £23.1m in our brand conversion programme.
We disposed of seven pubs in Pub Company, four pubs in Pub Partners and four closed pubs, which led to a profit on disposal of £1.8m and raised proceeds of £7.5m. For the full year, we still expect to dispose of between 65 and 75 Pub Company pubs and between 50 and 60 Pub Partners' pubs. We expect to raise proceeds of £70m to £85m.
RETURN ON CAPITAL EMPLOYED
The group is focused on delivering the best possible return on assets and on the investments we make. We are focused on capital discipline, coupling targeted investment in new build pubs, single site acquisitions and in developing our existing estate to drive organic growth, with disposals of non-core pubs. This has contributed to maintaining group ROCE at 9.4%, comfortably ahead of the group's cost of capital.
DIVIDEND
The board has declared an interim dividend of 8.8 pence per share, up 4.1%. This will be paid on 20 January 2017 to shareholders on the register at the close of business on 16 December 2016.
PENSIONS
The group maintains three defined contribution schemes, which are open to all new employees, and three defined benefit schemes, which are closed to new entrants and to future accrual.
At 16 October 2016, there were pension and other post-employment liabilities of £115.5m representing an increase of £61.9m since the previous year end. The closing assets of the group's three pension schemes totalled £873.5m and closing liabilities were £987.7m compared to £801.2m and £853.5m at the year end.
The deficit increased due to the effect of reducing gilt rates on the market-derived actuarial assumptions, which is partially offset by returns on scheme assets exceeding expectations.
The next triennial reviews for both the Greene King and Spirit pension schemes will be as at April 2018 and are due by July 2019.
TAX
On 6 June 2016, a formal agreement was reached with HMRC on a number of historical tax positions and on 22 July 2016 the Court of Appeal published its final decision on the Sussex case. As a result, the group settled tax of £20.7m and interest of £12.2m during the period.
We have one remaining open historical position with HMRC, which is an internal property arrangement which we hope to resolve before the end of the current financial year.
EXCEPTIONAL ITEMS
We recorded a net exceptional charge of £37.5m, consisting of a £27.2m charge to operating profit before tax, a £19.3m charge to finance costs and a net exceptional tax credit of £9.0m. The following principal items were recognised in the year: -
1. A £5.8m charge for legal, professional, integration and reorganisation costs following the Spirit acquisition.
2. A net impairment charge of £25.9m was made against the carrying value of certain pubs and other assets. This comprises an impairment charge of £37.6m offset by reversals of previously recognised impairment losses of £11.7m.
3. A net surplus on disposal of property plant and equipment of £1.8m.
4. £19.3m of exceptional finance costs, which includes £27.1m in respect of the mark-to-market movements in the fair value of interest rate swaps not qualifying for hedge accounting and a £12.2m gain on settlement of interest rate swap liabilities.
5. The exceptional tax credit of £9.0m consists of a £4.8m tax credit on exceptional items, a deferred tax credit of £7.0m in respect of the licensed estate, a £2.2m tax charge in respect of prior periods and a £0.6m tax charge in respect of rate changes.
Rooney AnandChief executive officer29 November 2016
Risks and uncertainities
The principal risks and uncertainties facing the group during the period under review and going forwards for the remainder of this year have not materially changed from those set out on pages 34 to 37 of the 2015/2016 annual report and accounts, which can be viewed via the www.greeneking.co.uk website. The risks are summarised as follows:
· Integration of Spirit Pub Company and ability to deliver anticipated synergies
· Continued ability to develop an appealing customer offer that identifies and responds to the fast-changing consumer tastes and to maintain and grow market share
· Consumer confidence in the UK, particularly in light of the referendum vote to leave the European Union and increasing competitor activity
· Significant cyber security breach
· Inability to attract, retain, develop and motivate talented employees and licensees
· Reliance on a number of key suppliers and third party distributors and on our ability to produce, package and distribute our own beers
· Increased regulation and failure to respond to recent changes in regulation
· Failure to respond to the threats to the Pub Partners business posed by the introduction of the 'market rent only' option and the statutory code
· Non-compliance with health and safety legislation
· Inability to meet the funding requirements of the enlarged group
· Liquidity and covenant risk relating to the group's securitisation and other financing arrangements
· Funding requirements of the group's defined benefit schemes
Responsibility statement
The directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS34;
b) the interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R - "indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year"; and
c) the interim management report includes a fair review of the information required by DTR 4.2.8R - "disclosure of related party transactions and changes therein".
On behalf of the board
Philip Yea Rooney Anand
Chairman Chief executive
Unaudited group income statement
for the twenty-four weeks ended 16 October 2016
|
| 24 weeks to 16 Oct 2016 |
| 24 weeks to 18 Oct 2015 | ||||||
|
| Before |
|
|
| Before |
|
| ||
|
| exceptional | Exceptional |
| exceptional | Exceptional |
|
| ||
|
| items | items | Total | items | items | Total |
| ||
| Note | £m | £m | £m | £m | £m | £m |
| ||
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| ||
Revenue |
| 1,044.3 | - | 1,044.3 | 917.7 | - | 917.7 |
| ||
Operating costs | 3 | (840.6) | (3.1) | (843.7) | (737.5) | (11.3) | (748.8) |
| ||
Impairment of property, plant and equipment | 3 | - | (25.9) | (25.9) | - | (12.4) | (12.4) |
| ||
Net profit on disposal of property, plant and equipment | 3 | - | 1.8 | 1.8 | - | 10.5 | 10.5 |
| ||
Operating profit | 3 | 203.7 | (27.2) | 176.5 | 180.2 | (13.2) | 167.0 |
| ||
Finance income | 3 | 0.6 | - | 0.6 | 0.3 | - | 0.3 |
| ||
Finance costs | 3 | (65.3) | (19.3) | (84.6) | (59.2) | (23.2) | (82.4) |
| ||
Profit before tax |
| 139.0 | (46.5) | 92.5 | 121.3 | (36.4) | 84.9 |
| ||
Tax | 4 | (27.7) | 9.0 | (18.7) | (24.3) | 9.4 | (14.9) |
| ||
Profit attributable to equity holders of parent |
|
111.3 |
(37.5) |
73.8 |
97.0 |
(27.0) |
70.0 |
| ||
|
|
|
|
|
|
|
|
| ||
Earnings per share |
|
|
|
|
|
|
|
| ||
- basic | 5 |
|
| 23.9p |
|
| 24.9p |
| ||
- adjusted basic * | 5 | 36.0 p |
|
| 34.5 p |
|
|
| ||
- diluted | 5 |
|
| 23.8p |
|
| 24.8p |
| ||
- adjusted diluted * | 5 | 35.9 p |
|
| 34.3 p |
|
|
| ||
|
|
|
|
|
|
|
|
| ||
Dividend proposed per share in respect of the period |
|
8.80 p |
|
|
8.45 p |
|
|
| ||
* Adjusted earnings per share excludes the effect of exceptional items.
Unaudited group statement of comprehensive income
for the twenty-four weeks ended 16 October 2016
|
|
| 24 weeks to | 24 weeks to |
|
|
| 16 Oct 2016 | 18 Oct 2015 |
|
|
| £m | £m |
|
|
|
|
|
|
|
|
|
|
Profit for the period |
|
| 73.8 | 70.0 |
|
|
|
|
|
Other comprehensive (loss)/income to be reclassified to the income statement in subsequent periods: |
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
Losses on cash flow hedges taken to other comprehensive income |
|
| (43.4) | (9.5) |
Losses recycled to income statement |
|
| 5.2 | - |
Transfers to income statement on cash flow hedges |
|
| 7.4 | 13.4 |
Tax on cash flow hedges |
|
| 4.7 | (0.8) |
|
|
| (26.1) | 3.1 |
|
|
|
|
|
Items not to be reclassified to the income statement in subsequent periods:
|
|
|
|
|
Re-measurement (losses)/gains on defined benefit pension schemes |
|
| (66.1) | 4.1 |
Tax on re-measurement losses/(gains) |
|
| 11.2 | (0.8) |
|
|
| (54.9) | 3.3 |
|
|
|
|
|
Other comprehensive (loss)/gain for the period, net of tax |
|
| (81.0) | 6.4 |
|
|
|
|
|
Total comprehensive (loss)/income for the period, net of tax |
|
| (7.2) | 76.4 |
Unaudited group balance sheet
as at 16 October 2016
|
|
| As at | As at |
|
|
| 16 Oct 2016 | 1 May 2016 |
| Note |
| £m | £m
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
|
| 3,697.8 | 3,671.3 |
Intangible assets |
|
| 169.7 | 174.6 |
Goodwill |
|
| 1,120.6 | 1,121.9 |
Financial assets |
|
| 15.6 | 16.8 |
Deferred tax assets |
|
| 89.0 | 78.7 |
Prepayments |
|
| 0.3 | 0.3 |
Trade and other receivables |
|
| 0.1 | 0.1 |
|
|
| 5,093.1 | 5,063.7 |
|
|
|
|
|
Current assets |
|
|
|
|
Inventories |
|
| 44.2 | 41.3 |
Financial assets |
|
| 9.9 | 9.8 |
Prepayments |
|
| 27.9 | 27.7 |
Trade and other receivables |
|
| 85.2 | 82.7 |
Cash and cash equivalents | 8 |
| 369.6 | 381.7 |
|
|
| 536.8 | 543.2 |
Property, plant and equipment held for sale |
|
| 5.0 | 2.3 |
|
|
| 541.8 | 545.5 |
|
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings | 8 |
| (234.2) | (210.3) |
Derivative financial instruments | 9 |
| (33.2) | (41.2) |
Trade and other payables |
|
| (420.1) | (424.0) |
Off market contract liabilities |
|
| (22.0) | (22.4) |
Income tax payable |
|
| (20.2) | (30.3) |
Provisions |
|
| (25.1) | (24.7) |
|
|
| (754.8) | (752.9) |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Borrowings | 8 |
| (2,335.5) | (2,219.8) |
Trade and other payables |
|
| (1.6) | (1.5) |
Off market contract liabilities |
|
| (271.7) | (277.5) |
Derivative financial instruments | 9 |
| (337.6) | (399.7) |
Deferred tax liabilities |
|
| (10.0) | (17.9) |
Post-employment liabilities | 10 |
| (115.5) | (53.6) |
Provisions |
|
| (12.2) | (12.7) |
|
|
| (3,084.1) | (2,982.7) |
|
|
|
|
|
Total net assets |
|
| 1,796.0 | 1,873.6 |
|
|
|
|
|
Issued capital and reserves |
|
|
|
|
Share capital |
|
| 38.9 | 38.6 |
Share premium |
|
| 261.0 | 261.0 |
Merger reserve |
|
| 752.0 | 752.0 |
Capital redemption reserve |
|
| 3.3 | 3.3 |
Hedging reserve |
|
| (208.1) | (182.0) |
Own shares |
|
| (0.2) | (0.2) |
Retained earnings |
|
| 949.1 | 1,000.9 |
Total equity |
|
| 1,796.0 | 1,873.6 |
|
|
|
|
|
Net debt | 8 |
| 2,200.1 | 2,048.4 |
Unaudited group cashflow statement
for the twenty-four weeks ended 16 October 2016
|
|
|
| 24 weeks to | 24 weeks to |
|
|
|
| 16 Oct 2016 | 18 Oct 2015 |
|
|
| Note | £m | £m |
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
| 176.5 | 167.0 |
Operating exceptional items |
|
|
| 27.2 | 13.2 |
Depreciation and amortisation |
|
|
| 50.7 | 43.7 |
EBITDA* |
|
|
| 254.4 | 223.9 |
|
|
|
|
|
|
Working capital and non-cash movements |
|
| 7 | (17.1) | (18.2) |
Interest received |
|
|
| 0.6 | 0.3 |
Interest paid |
|
|
| (80.9) | (59.2) |
Tax paid |
|
|
| (31.1) | (27.2) |
Net cashflow from operating activities |
|
|
| 125.9 | 119.6 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
| (96.9) | (86.3) |
Movements in financial assets |
|
|
| 1.3 | 3.0 |
Sales of property, plant and equipment |
|
|
| 7.5 | 39.9 |
Acquisition of subsidiary, net of cash acquired |
|
|
| - | 104.3 |
Net cashflow from investing activities |
|
|
| (88.1) | 60.9 |
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Equity dividends paid |
|
| 6 | (72.9) | (67.1) |
Issue of shares |
|
|
| 0.3 | 0.4 |
Transaction costs for share issue |
|
|
| - | (2.1) |
Payment of derivative liabilities |
|
|
| (116.6) | - |
Securitised bond issuance |
|
|
| 300.0 | - |
Financing costs |
|
|
| (4.9) | - |
Repayment of borrowings |
|
|
| (166.1) | (21.9) |
Advance of borrowings |
|
|
| - | 15.0 |
Net cashflow from financing activities |
|
|
| (60.2) | (75.7) |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
|
| (22.4) | 104.8 |
|
|
|
|
|
|
Opening cash and cash equivalents |
|
|
| 375.9 | 210.3 |
Closing cash and cash equivalents |
|
| 8 | 353.5 | 315.1 |
* EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional items.
Unaudited GROUP statement of changes in equity
for the twenty-four weeks ended 16 October 2016
| Share | Share | Merger | Capital | Hedging | Own | Retained | Total |
| capital | premium | reserve | redemption | reserve | shares | earnings |
|
| £m | £m | £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
|
|
At 1 May 2016 | 38.6 | 261.0 | 752.0 | 3.3 | (182.0) | (0.2) | 1,000.9 | 1,873.6 |
|
|
|
|
|
|
|
|
|
Profit for the period | - | - | - | - | - | - | 73.8 | 73.8 |
Other comprehensive loss | - | - | - | - | (26.1) | - | (54.9) | (81.0) |
Total comprehensive (loss)/ income | - | - | - | - | (26.1) | - | 18.9 | (7.2) |
|
|
|
|
|
|
|
|
|
Issue of share capital | 0.3 | - | - | - | - | - | - | 0.3 |
Release of shares | - | - | - | - | - | - | - | - |
Share-based payments | - | - | - | - | - | - | 2.2 | 2.2 |
Equity dividends paid | - | - | - | - | - | - | (72.9) | (72.9) |
|
|
|
|
|
|
|
|
|
At 16 October 2016 | 38.9 | 261.0 | 752.0 | 3.3 | (208.1) | (0.2) | 949.1 | 1,796.0 |
| Share | Share | Merger | Capital | Hedging | Own | Retained | Total |
| capital | premium | reserve | redemption | reserve | shares | earnings |
|
| £m | £m | £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
|
|
At 3 May 2015 | 27.5 | 259.3 | - | 3.3 | (167.0) | (4.9) | 910.7 | 1,028.9 |
|
|
|
|
|
|
|
|
|
Profit for the period | - | - | - | - | - | - | 70.0 | 70.0 |
Other comprehensive gain | - | - | - | - | 3.1 | - | 3.3 | 6.4 |
Total comprehensive income | - | - | - | - | 3.1 | - | 73.3 | 76.4 |
|
|
|
|
|
|
|
|
|
Issue of share capital | 11.1 | 0.4 | 752.0 | - | - | - | - | 763.5 |
Transaction costs for share issue | - | - | - | - | - | - | (2.1) | (2.1) |
Release of shares | - | - | - | - | - | 4.7 | (4.7) | - |
Share-based payments | - | - | - | - | - | - | 2.2 | 2.2 |
Equity dividends paid | - | - | - | - | - | - | (67.1) | (67.1) |
|
|
|
|
|
|
|
|
|
At 18 October 2015 | 38.6 | 259.7 | 752.0 | 3.3 | (163.9) | (0.2) | 912.3 | 1,801.8 |
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
1 Basis of preparation
The interim condensed consolidated financial statements are prepared in accordance with Disclosure and Transparency rules and with IAS 34 Interim Financial Reporting. The financial information contained in this interim statement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.
The figures for the period ended 1 May 2016 have been derived from the statutory accounts of the group for that year. These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by auditors without qualification, emphasis of matter or statement under Sections 498(2) and 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.
The interim condensed consolidated financial statements for the 24 weeks ended 16 October 2016 and the comparatives to 18 October 2015 are unaudited but have been reviewed by the auditor; a copy of their review report is included at the end of this report.
A combination of the strong operational cashflows generated by the business, and the significant available headroom on its credit facilities, support the directors' view that the group has sufficient funds available to meet its foreseeable working capital requirements. The directors, having also considered the principal risks, have therefore concluded that the going concern basis of accounting remains appropriate.
The accounting policies adopted in the preparation of the interim report are consistent with those applied in the preparation of the group's annual report for the period ended 1 May 2016, except for the adoption of new standards and interpretations applicable as of 2 May 2016.
The Group does not consider that any standards or interpretations issued by the International Accounting Standards Board (IASB), but not yet applicable, will have a significant impact on the financial statements for the 52 weeks ending 30 April 2017.
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
2 Segment information
The group has determined three reportable segments that are largely organised and managed separately according to the nature of products and services provided, brands, distribution channels and profile of customers. The segments include the following businesses:
Pub Company: Managed pubs and restaurants
Pub Partners: Tenanted and Leased pubs
Brewing & Brands: Brewing, marketing and selling beer
Segmental operating profit is profit before exceptional items, finance costs and income tax.
These segments have changed compared to 1 May 2016 as a result of fully integrating the Spirit Pub Company business.
24 weeks to 16 October 2016 |
|
|
|
|
|
| |||||
| Pub | Pub | Brewing | Corporate | Total | ||||||
| Company | Partners | & Brands |
| operations | ||||||
| £m | £m | £m | £m | £m | ||||||
Revenue |
855.9 |
93.6 |
94.8 |
- |
1,044.3 | ||||||
Segment operating profit |
154.5 |
43.7 |
14.8 |
(9.3) |
203.7 | ||||||
|
|
|
|
|
| ||||||
Exceptional items |
|
|
|
| (27.2) | ||||||
Net finance cost |
|
|
|
| (84.0) | ||||||
Income tax charge |
|
|
|
| (18.7) | ||||||
Net profit for the period |
|
|
|
| 73.8 | ||||||
EBITDA* |
196.8 |
48.4 |
17.2 |
(8.0) |
254.4 | ||||||
|
|
|
|
|
| ||||||
|
|
|
|
|
| ||||||
As at 16 October 2016 |
|
|
|
|
| ||||||
|
|
|
|
|
| ||||||
Segment assets | 3,821.0 | 921.2 | 386.5 | 47.6 | 5,176.3 | ||||||
Unallocated assets** | - | - | - | - | 458.6 | ||||||
| 3,821.0 | 921.2 | 386.5 | 47.6 | 5,634.9 | ||||||
|
|
|
|
|
| ||||||
Segment liabilities | (462.5) | (52.3) | (96.7) | (117.4) | (728.9) | ||||||
Unallocated liabilities** | - | - | - | - | (3,110.0) | ||||||
| (462.5) | (52.3) | (96.7) | (117.4) | (3,838.9) | ||||||
Net assets | 3,358.5 | 868.9 | 289.8 | (69.8) | 1,796.0 | ||||||
|
|
|
|
|
|
| |||||
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
2 Segment information (continued)
24 weeks to 18 October 2015 |
|
|
|
|
|
| |||||
| Pub | Pub | Brewing | Corporate | Total | ||||||
| Company | Partners | & Brands |
| operations | ||||||
| £m | £m | £m | £m | £m | ||||||
Revenue |
740.2 |
82.1 |
95.4 |
- |
917.7 | ||||||
Segment operating profit |
137.4 |
36.7 |
14.7 |
(8.6) |
180.2 | ||||||
|
|
|
|
|
| ||||||
Exceptional items |
|
|
|
| (13.2) | ||||||
Net finance cost |
|
|
|
| (82.1) | ||||||
Income tax charge |
|
|
|
| (14.9) | ||||||
Net profit for the period |
|
|
|
| 70.0 | ||||||
EBITDA* |
173.5 |
41.3 |
17.1 |
(8.0) |
223.9 | ||||||
|
|
|
|
|
| ||||||
|
|
|
|
|
| ||||||
As at 1 May 2016 |
|
|
|
|
| ||||||
|
|
|
|
|
| ||||||
Segment assets | 3,790.8 | 917.7 | 384.5 | 55.8 | 5,148.8 | ||||||
Unallocated assets** | - | - | - | - | 460.4 | ||||||
| 3,790.8 | 917.7 | 384.5 | 55.8 | 5,609.2 | ||||||
|
|
|
|
|
| ||||||
Segment liabilities | (435.2) | (45.4) | (84.8) | (174.0) | (739.4) | ||||||
Unallocated liabilities** | - | - | - | - | (2,996.2) | ||||||
| (435.2) | (45.4) | (84.8) | (174.0) | (3,735.6) | ||||||
Net assets | 3,355.6 | 872.3 | 299.7 | (118.2) | 1,873.6 | ||||||
|
|
|
|
|
|
| |||||
* EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptionals.
** Unallocated assets/liabilities comprise cash, borrowings, pensions, deferred tax, current tax, VAT provisions and derivatives.
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
3 Exceptional items
|
| 24 weeks to | 24 weeks to |
|
|
| 16 Oct 2016 | 18 Oct 2015 |
|
|
| £m | £m |
|
Operating |
|
|
|
|
Acquisition and integration costs |
| 5.8 | 11.3 |
|
Pension settlement |
| (2.7) | - |
|
Net impairment of property, plant and equipment |
| 25.9 | 12.4 |
|
Net profit on disposal of property, plant and equipment |
| (1.8) | (10.5) |
|
|
| 27.2 | 13.2 |
|
Financing |
|
|
|
|
Gain on settlement of interest rate swap liabilities |
| (12.2) | - |
|
Amounts recycled from hedging reserve in respect of settled interest rate liabilities |
| 5.2 | - |
|
Fair value losses on ineffective element of cash flow hedges |
| 0.5 | 0.4 |
|
Fair value movements of derivatives held at fair value through profit and loss |
| 26.6 | 22.8 |
|
Interest in respect of uncertain tax positions |
| (0.8) | - |
|
|
| 46.5 | 36.4 |
|
|
|
|
|
|
Tax |
|
|
|
|
Tax impact of exceptional items |
| (4.8) | (9.3) |
|
Tax charge in respect of rate change |
| 0.6 | - |
|
Tax credit in respect of the licensed estate |
| (7.0) | 0.3 |
|
Adjustment in respect of prior periods |
| 2.2 | (0.4) |
|
Total exceptional tax |
| (9.0) | (9.4) |
|
|
|
|
|
|
Total exceptional items after tax |
| 37.5 | 27.0 |
|
Exceptional acquisition and integration costs are items of one-off expenditure incurred in connection with the acquisition and integration of Spirit Pub Company.
During the 24 week period to 16 October 2016 the group has recognised a net impairment loss of £25.9m (2015: £12.4m) in respect of its licensed estate. This is comprised of an impairment charge of £37.6m (2015: £40.4m) and a reversal of previously recognised impairment losses of £11.7m (2015: £28.0m). Impairment has been recognised in respect of a small number of pubs and is driven by changes in the local competitive and trading environment at the respective sites, and changes to estimates of fair value less costs of disposal. In addition to this impairment, reversals have been recognised following an improvement in trading performance and an increase in amounts of estimated future cashflows for previously impaired sites.
The net profit on disposal of property, plant and equipment of £1.8m (2015: profit of £10.5m) comprises a total profit on disposal of £8.6m (2015: £21.6m) and a total loss on disposal of £6.8m (2015: £11.1m).
Financing
Following the issue of £300m secured bonds, a number of the group's swap liabilities were settled at a discount recognising a £12.2m exceptional gain. The cash cost of settling this was £116.6m.
The swaps concerned were hedging cashflows relating to the A5 bond and floating rate bank loans. These cashflows are still expected to occur and therefore in accordance with IAS 39 the cumulative losses taken to the hedging reserve will be recycled to the income statement over the remaining life of the bonds. A charge of £5.2m has been recognised in respect of this in the period to 16 October 2016.
During the prior period the group acquired as part of a business combination derivatives that are subsequently accounted for at fair value through profit and loss as opposed to existing derivatives which are designated in hedge relationships.
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
3 Exceptional items (continued)
Exceptional tax
The tax credit in respect of the licensed estate arises from movements in their cost base, including the impact of indexation.
The adjustment in respect of prior periods arises from finalising tax returns for earlier periods and also deferred taxation on revaluation and rolled over gains on the licensed estate. On 6 June 2016 a formal agreement was reached with HMRC on a number of historical tax positions and on 22 July 2016 the Court of Appeal published its final decision on the Sussex case. As a result the group settled tax of £20.7m and interest of £12.2m during the period.
The only other historical position is an internal property arrangement which we expect to resolve before the end of the current financial year.
The Finance (No 2) Act 2015 reduced the rate of corporation tax from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020. The Finance Act 2016 then further reduced the rate of corporation tax to 17% from 1 April 2020. These reductions had all been enacted at the balance sheet date and therefore included in these accounts. The net deferred tax liability has been calculated using the rates at which each temporary difference is expected to reverse.
4 Tax
The tax charge before exceptional items is £27.7m which equates to an effective tax rate of 19.9% which is estimated to be the effective rate before exceptional items for the year ended 30 April 2017. This compares to an effective rate of 20% for the same period last year.
5 Earnings per share
Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £73.8m (2015: £70.0m) by the weighted average number of shares in issue during the period (excluding own shares held) of 309.1m (2015: 281.4m).
Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group.
Adjusted earnings per share | Earnings
| Basic earnings per share | Diluted earnings per share |
|
| |||||||
| 24 weeks to | 24 weeks to | 24 weeks to | 24 weeks to | 24 weeks to | 24 weeks to |
|
| ||||
| 16 Oct 2016 | 18 Oct 2015 | 16 Oct 2016 | 18 Oct 2015 | 16 Oct 2016 | 18 Oct 2015 |
|
| ||||
| £m | £m | p | p | p | p |
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| ||||
|
|
|
|
|
|
|
|
| ||||
Basic | 73.8 | 70.0 | 23.9 | 24.9 | 23.8 | 24.8 |
|
| ||||
Exceptional items | 37.5 | 27.0 | 12.1 | 9.6 | 12.1 | 9.5 |
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| ||||
Adjusted | 111.3 | 97.0 | 36.0 | 34.5 | 35.9 | 34.3 |
|
| ||||
Diluted earnings per share has been calculated on a similar basis taking account of 1.0m (2015: 1.0m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 310.1m (2015: 282.4m).
Treasury shares and shares held by the EBT are excluded from the calculation of weighted average number of shares in issue.
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
6 Dividends paid
|
| 24 weeks to | 24 weeks to |
|
| 16 Oct 2016 | 18 Oct 2015 |
|
| £m | £m |
|
|
|
|
Declared and paid in the period |
|
|
|
Final dividend for 2015/16 - 23.60p (2014/15: 21.80p) |
| 72.9 | 67.1 |
7 Working capital and non-cash movements
|
| 24 weeks to | 24 weeks to |
|
| 16 Oct 2016 | 18 Oct 2015 |
|
| £m | £m |
|
|
|
|
(Increase)/decrease in inventories |
| (2.9) | 1.1 |
Increase in trade and other receivables |
| (2.6) | (9.7) |
Increase in trade and other payables |
| 11.4 | 17.8 |
Decrease in off-market contract liabilities |
| (11.8) | (7.8) |
Decrease in provisions |
| (0.1) | (0.7) |
Other non-cash movements |
| (0.2) | - |
Share-based payments |
| 2.2 | 2.2 |
Difference between defined benefit pension contributions paid and amounts charged | (2.4) | (5.0) | |
Exceptional items - acquisition and integration costs |
| (10.7) | (16.1) |
Working capital and non-cash movements |
| (17.1) | (18.2) |
8 Analysis and movements in net debt
|
| As at | As at | As at |
|
| 16 Oct 2016 | 1 May 2016 | 18 Oct 2015 |
|
| £m | £m | £m |
|
|
|
|
|
Cash in hand, at bank* |
| 212.1 | 224.2 | 157.6 |
Liquidity facility reserve* |
| 157.5 | 157.5 | 157.5 |
Cash and cash equivalents for balance sheet |
| 369.6 | 381.7 | 315.1 |
Overdrafts |
| (16.1) | (5.8) | - |
Cash and cash equivalents for cashflow |
| 353.5 | 375.9 | 315.1 |
Current portion of borrowings |
| (60.6) | (47.0) | (45.5) |
Liquidity facility loan |
| (157.5) | (157.5) | (157.5) |
Non-current portion of borrowings |
| (2,335.5) | (2,219.8) | (2,190.8) |
Closing net debt |
| (2,200.1) | (2,048.4) | (2,078.7) |
*included in cash and cash equivalents on the balance sheet
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
8 Analysis and movements in net debt (continued)
Movements in net debt |
|
|
|
|
|
|
| 24 weeks to | 24 weeks to |
|
|
| 16 Oct 2016 | 18 Oct 2015 |
|
|
| £m | £m |
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
| (22.4) | 104.8 |
Repayment of principal - securitised debt |
|
| 25.6 | 21.4 |
Repayment of principal - finance leases |
|
| 0.5 | 0.5 |
Repayment of bank loans |
|
| 140.0 | - |
Securitised bond issuance |
|
| (300.0) | - |
Advances of loans |
|
| - | (15.0) |
Financing issue costs |
|
| 4.9 | - |
Debt acquired |
|
| - | (820.5) |
Increase in net debt arising from cash flows |
|
| (151.4) | (708.8) |
Other non cash movements |
|
| (0.3) | (1.2) |
Increase in net debt |
|
| (151.7) | (710.0) |
|
|
|
|
|
Opening net debt |
|
| (2,048.4) | (1,368.7) |
Closing net debt |
|
| (2,200.1) | (2,078.7) |
During the period the group issued a £300m A6 bond, after settling certain interest rate swap liabilities, net proceeds were used to pay down borrowings under the revolving credit facility.
At the start of the period the groups revolving credit facility was £315m drawn, following repayments totalling £140m the amount drawn at the period end was £175m.
9 Financial instruments
IFRS 13 requires the classification of financial instruments measured at fair value to be determined by reference to the source of inputs used to derive fair value.
The following derivative financial liabilities are held at fair value:
|
|
| As at | As at |
|
|
| 16 Oct 2016 | 01 May 2016 |
|
|
| £m | £m |
|
|
|
|
|
Interest rate swaps |
|
| 370.8 | 440.9 |
The inputs used to calculate the fair value of interest rate swaps fall within Level 2 of the prescribed three level hierarchy in IFRS 13. Level 2 fair value measurements use inputs other than quoted prices that are observable for the relevant asset or liability either directly or indirectly. There were no transfers between levels during any period disclosed.
The fair value of derivative financial liabilities recognised are calculated by discounting all future cash flows by the appropriate market yield and are adjusted to reflect the group's associated credit risk.
The fair value of financial instruments are equal to their book values with the exception of the group's securitised debt. The fair value of the group's securitised debt, based on quoted market prices (Level 1), at 16 October 2016 was £2,245.9m (1 May 2016: £1,915.3m) compared to a carrying value of £2,199.4m (1 May 2016: £1,929.6m).
Notes to the accounts
for the twenty-four weeks ended 16 October 2016
10 PENSIONS
The group's pension and other post-employment benefits liability at 16 October 2016 was £115.5m, an increase of £61.9m from the position as at 1 May 2016.
Movements in this liability are as follows:
|
| £m | £m |
|
|
|
|
Post-employment liabilities at 1 May 2016 |
|
| 53.6 |
Re-measurement gains and losses: |
|
|
|
Changes in financial assumptions relating to liabilities |
| 162.9 |
|
Return on plan assets above expectations |
| (96.8) |
|
|
|
| 66.1 |
|
|
|
|
Employer contributions |
|
| (2.4) |
Settlement gain |
|
| (2.7) |
Interest on pension scheme liabilities |
|
| 0.9 |
|
|
|
|
Post-employment liabilities at 16 October 2016 |
|
| 115.5 |
|
|
|
|
The increase in the pension deficit is driven by the reduction in the discount rate from 3.4% used at 1 May 2016 to 2.6% used at 16 October 2016. Other key assumptions are in respect of RPI inflation which has increased from 3.3% to 3.6% and CPI inflation which has increased from 2.3% to 2.6%.
11 RELATED PARTY TRANSACTIONS
No transactions have been entered into with related parties during the period.
Greene King Finance plc and Spirit Issuer plc are structured entities set up to raise bond finance for the group, and as such are deemed to be related parties. The results and financial position of the entities have been consolidated.
12 Post balance sheet events
Since the period-end, the group has agreed an amendment and extension to the revolving credit facility. The £400m facility runs to 31 October 2021 and provides shorter-term financing at more favourable pricing than the previous facility.
An interim dividend of 8.80p per share (2015: 8.45p) amounting to a dividend of £27.3m (2015: £26.1m) was declared by the Directors at their meeting on 28 November 2016. These financial statements do not reflect this dividend payable.
GLOSSaRY
EBITDA | Earnings before interest, tax, depreciation, amortisation and exceptional items. Calculated by taking operating profit before exceptional items and adding back depreciation and amortisation. |
EBITDAR | Earnings before interest, tax, depreciation, amortisation, rental costs and exceptional items. Calculated by taking operating profit before exceptional items and adding back depreciation, amortisation and rental costs. |
Fixed charge cover | Calculated by dividing EBITDAR less maintenance capex by the sum of net interest on debt and rent. |
Interest cover | Calculated by dividing operating profit before exceptional items by net interest on debt. |
LFL sales | The acquisition of Spirit Pub Company completed on 23 June 2015 and therefore results for the prior year include 17 weeks of trade of the Spirit business. Current year results include 24 weeks of trade for the Spirit business. Pub Company like-for like sales include revenue from the sale of drink, food and accommodation. LFL sales performance is calculated against the comparable 24 week period in the prior year for pubs that were trading in both periods. The calculations include figures for Spirit pubs for comparable 24 week periods in both the current and comparative financial year. |
LFL Net Income | Net income for our tenanted, leased and free-of-tie pubs represents pub EBITDA before property and central administrative expenses. LFL net income performance is calculated against the comparable 24 week period in the prior year for pubs that were trading in both periods. As with LFL sales, these calculations include figures for Spirit pubs for comparable 24 week periods in both the current and comparative financial year. |
OBV | Own-brewed volume. The volume of beer brewed at our Greene King and Belhaven breweries sold in the period. |
ROCE | Return on capital employed is calculated by dividing annualised pre-exceptional operating profit by periodic average capital employed. Capital employed is defined as total net assets excluding deferred tax balances, derivatives, post-employment liabilities and net debt. |
Net debt : EBITDA | Net debt (as disclosed in note 8 to the financial statements) divided by annualised EBITDA. |
Free cash flow | EBITDA less working capital and non-cash movements (excluding exceptional items), tax payments (excluding amounts paid in respect of settlements of historic tax positions), interest payments (excluding payment of interest in respect of tax settlements), core capex and dividends. |
Core capex | Capital expenditure excluding amounts relating to the group's brand swap programme, Spirit integration, other acquisitions and in respect of new build sites. |
Independent review report to Greene King plc
Introduction
We have been engaged by Greene King plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the twenty four week period ended 16 October 2016 which comprises the Interim group income statement, the Interim group statement of comprehensive income, the Interim group balance sheet, the Interim group cash flow statement, the Interim group statement of changes in equity and the related notes 1 to 12. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 24 week period ended 16 October 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
29 November 2016