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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Greene King Plc | LSE:GNK | London | Ordinary Share | GB00B0HZP136 | ORD 12.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 849.20 | 849.00 | 849.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMGNK
RNS Number : 5700D
Greene King PLC
27 June 2019
LEI: 213800R9N5F2WRMGTR50
27 June 2019
PRELIMINARY RESULTS FOR THE 52 WEEKS TO 28 APRIL 2019
Hot Features
Premium
Group revenue Adjusted Statutory Adjusted Dividend Net debt: Return
profit before profit before basic earnings per share(3) EBITDA(1,2) on capital
tax(1,2) tax per share(1,2) employed(2,3)
GBP2,216.9m GBP246.9m GBP172.8m 64.5p 33.2p 4.0x 8.5%
1.8% 1.6% -12.5% 2.9% Flat -0.2x 0.1%pts
-------------- --------------- --------------- ---------------- -------------- ------------- ---------------
HIGHLIGHTS(2)
Profit growth through strong LFL sales and ongoing cost mitigation programme
-- Pub Company like-for-like (LFL) sales ahead of the market at +2.9%, driven by effective investments in value, service and quality (VSQ), our four core brand focus and boosted by the good weather and successful World Cup
-- Further improvements made in TripAdvisor and Net Promoter Scores (NPS) -- Pub Company operating margin flat year on year at 15.2%
-- Pub Partners LFL net income +1.5% and LFL net profit -0.3%; Brewing & Brands revenue up 5.8%
-- GBP35m mitigation achieved, limiting cost inflation to GBP14m; adjusted profit before tax(1,2) +1.6% to GBP246.9m
Strong operating cash flow covers debt repayment, core capex and dividends
-- Net debt to EBITDA(1,2) reduced to 4.0x; targeting continued deleveraging
-- Spirit debenture 51% repaid since F17, reducing cost and increasing flexibility of our debt; Greene King securitisation tapped for GBP250m at 3.6%
-- Consistent five to six year capex programme delivering returns of over 30% -- Dividend per share of 33.2p; long-term track record of attractive, sustainable dividend
Clear near-term priorities and ongoing cost mitigation support confidence in full year
-- Trading over the first eight weeks was impacted by the poor weather -- Clear near-term priorities in place to drive sales and efficiencies -- Ongoing mitigation programme to limit net cost inflation to GBP10-20m in F20 -- Further progress made refinancing Spirit debenture since start of new financial year
Nick Mackenzie, chief executive
"Greene King is a great business with a rich heritage, a high-quality estate, a strong portfolio of brands and 38,000 talented team members. Just two months into the job, I have been struck by the amazing pride and passion that our team members have for Greene King and I want to thank them for their continued dedication to providing great experiences for our customers and supporting local communities.
"The business delivered good results last year, regaining trading momentum in Pub Company and returning to market outperformance while fulfilling a strong cost mitigation programme and making further progress refinancing the Spirit debenture. The existing strategy we have in place has led the business through challenging times. I am looking forward to building on Greene King's strong foundations with a focus on innovation, on developing our people and on customer service to further enhance our brands and deliver sustainable growth for our shareholders."
HEADLINE GROUP RESULTS
52 weeks F19 F18 YOY Change Total revenue GBP2,216.9m GBP2,176.7m 1.8% * Pub Company GBP1,799.2m GBP1,767.7m 1.8% * Pub Partners GBP190.1m GBP193.9m -2.0% * Brewing & Brands GBP227.6m GBP215.1m 5.8% Group EBITDA(1) GBP482.0m GBP486.6m -0.9% Group operating profit before exceptional and non-underlying items(1) GBP368.2m GBP373.1m -1.3% * Pub Company GBP272.9m GBP268.2m 1.8% * Pub Partners GBP87.1m GBP91.4m -4.7% * Brewing & Brands GBP27.4m GBP30.7m -10.7% Group profit before tax and exceptional and non-underlying items(1) GBP246.9m GBP243.0m 1.6% Basic EPS(3) 38.9p 59.1p -34.2% Adjusted basic EPS(1) 64.5p 62.7p 2.9% Dividend per share(4) 33.2p 33.2p flat Core capital expenditure(2) GBP119.1m GBP132.3m -GBP13.2m Net debt GBP1,943.3m GBP2,032.3m -GBP89.0m Net cash flow from operations GBP302.7m GBP265.8m GBP36.9m Free cash flow(2) GBP86.1m GBP89.9m -GBP3.8m ----------------------------------------- ------------ ------------ -----------
1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this statement
2. The directors use a number of Alternative Performance Measures (APMs) that are considered critical to aid the understanding of the group's performance. APMs are explained on page 39 of this announcement
3. Deferred tax, goodwill and retained earnings have been restated. As a consequence prior year exceptional and non-underlying tax has been restated impacting basic EPS, diluted EPS and ROCE. See note 4 for further details
NOTES FOR EDITORS
-- Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs around 38,000 people across its main trading divisions; Pub Company, Pub Partners and Brewing & Brands
-- At the end of the financial year, Greene King operated 2,730 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,687 were retail pubs, restaurants and hotels, and 1,043 were tenanted, leased and franchised pubs. Its leading retail brands are Greene King Local Pubs, Chef & Brewer, Farmhouse Inns and Hungry Horse. 81% of the estate is either freehold or long leasehold
-- Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries. Its industry-leading portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best
FOR FURTHER INFORMATION
Greene King plc Nick Mackenzie, chief executive Tel: 01284
Richard Smothers, chief 763222
financial officer
Finsbury Alastair Hetherington / Tel: 0207 251
Philip Walters 3801
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 Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET. The conference will be webcast and can be accessed using the following link: https://webcasting.brrmedia.co.uk/broadcast/5d0a4dc8221579216107e47a
CHAIRMAN'S STATEMENT
OVERVIEW
2018/19 was a year in which Greene King outperformed the market, making the most of the good weather and the World Cup while minimising cost inflation through an ambitious ongoing mitigation programme. Our teams worked hard to improve customer experience, and our executives made further progress in embedding those key processes which are so important to delivering value service and quality on a consistent basis. Excellent progress was made on the refinancing of the Spirit debenture, reducing the cost and increasing the flexibility of our debt. With clear momentum restored to the business over the last year, we are fully focused on delivering our aim of being the best pub and beer company in Britain.
BOARD CHANGES
On 30 April 2019, just after year end, Rooney Anand resigned from the board, leaving Greene King after 14 years as chief executive. Rooney proved himself to be one of the most successful business leaders of our industry and during his tenure the company has been transformed. On behalf of the board and our shareholders I should like to take this opportunity to thank him again for all he has done and wish him well for the future.
After a comprehensive search we were delighted to appoint Nick Mackenzie to the board on 1 May in succession as chief executive. Nick brings with him rich and relevant experience gained from his time at Merlin Entertainments as well as earlier roles at Bass and Allied Domecq. I am confident that he too will prove to be an outstanding leader for the business and drive continued evolution at Greene King.
On the same day we appointed Sandra Turner, an experienced executive from the FMCG and retail industries, to the board as a non-executive director, bringing further weight to our future deliberations.
PERFORMANCE HEADLINES
Group revenue was up 1.8% to GBP2,216.9m, driven by Pub Company LFL sales up 2.9%, and group profit before tax, exceptional and non-underlying items was up 1.6% to GBP246.9m. Statutory group profit before tax fell by 12.5% to GBP172.8m. Adjusted basic earnings per share(1) were up 2.9% to 64.5p whereas basic earnings per share fell 34.2% to 38.9p.
DIVID
The board has recommended a final dividend of 24.4p, reflecting our continued confidence in the long-term prospects for the business. This takes the total dividend for the year to 33.2p, in line with last year. We have a long-term track record of covering our debt amortisation, core capital expenditure and dividend from cash generated from operations(1) and the board continues to target a dividend covered approximately two times by earnings.
PEOPLE
Our success relies on the continuing efforts of the 38,000 talented and dedicated team members within our business. This year they have worked hard to drive momentum back in Pub Company, delivering market-outperforming LFL sales and profit growth in a tough cost environment. I would like to thank everyone for their efforts and their ongoing commitment.
LOOKING AHEAD
I believe that with Nick's fresh approach and extensive experience, coupled with Greene King's strong brands, teams and assets, we are in a good position to deliver on our ambition of becoming the best pub and beer company in Britain whilst continuing to drive strong financial returns. We cannot count on repeating last year's weather, nor a stable economic environment; however, we will remain focused on the needs of our customers, teams and shareholders.
Philip Yea
Chairman
26 June 2019
1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this statement
CHIEF EXECUTIVE'S REVIEW
The group reported good results for the last year, delivering on each of its key priorities to improve underlying sales growth in Pub Company, to develop a more efficient and effective organisation, to further strengthen the capital structure and to protect trading from potential Brexit disruption.
PERFORMANCE SUMMARY
Group revenue was up 1.8% to GBP2,216.9m as strong sales growth in Pub Company and Brewing & Brands offset reduced revenues from the planned rationalisation of our estate as we continue to manage and optimise our portfolio. Group operating profit before exceptional and non-underlying items was down 1.3% to GBP368.2m, impacted by GBP14m net cost inflation. Group net interest costs were reduced by 6.8% to GBP121.3m and group profit before tax, exceptional and non-underlying items was up 1.6% to GBP246.9m.
Pub Company revenue was up 1.8% to GBP1,799.2m with strong LFL sales growth of 2.9% offsetting the 2.5% decrease in the average number of pubs trading. We made good progress in both NPS and TripAdvisor scores. Average weekly take (AWT) was up 4.1% and average EBITDA per trading pub was up 3.3%, reflecting our ongoing estate optimisation programme. Pub Company operating profit was up 1.8% to GBP272.9m and the operating margin was 15.2%, flat year-on-year and up 50 basis points in the second half of the year.
Pub Partners revenue was down 2.0% to GBP190.1m, driven by the 5.0% decrease in the average number of pubs trading. LFL net income was up 1.5%, boosted by higher rental income and beer sales. Average EBITDA per pub was up 1.0% and LFL net profit was down 0.3%, impacted by increased central costs.
Brewing & Brands revenue was up 5.8% to GBP227.6m with total beer volume growth of 0.9% supported by the good weather and the World Cup. Own brewed volume (OBV) was down 3.4% ahead of an ale market down 4.1% (source: BBPA). Operating profit was down 10.7% to GBP27.4m, driven by the estate rationalisation, increased costs and the lower production volumes in our two breweries.
Cash generated from operations(1) of GBP308.6m comfortably covered our scheduled debt repayments, core capital expenditure and dividend payments. Our strong cash generation reduced net debt by GBP89.0m to GBP1,943.3m and net debt to EBITDA to 4.0x.
116 non-core disposals generated net proceeds of GBP75.8m and GBP24.0m was spent on five new builds and five single site acquisitions, of which three will open in the new financial year.
Adjusted basic earnings per share(1) were up 2.9% to 64.5p and the board has recommended a final dividend of 24.4p per share, taking the total dividend for the year to 33.2p, in line with last year.
The business generated a strong ROCE of 8.5% which remains comfortably above our weighted average cost of capital. Our annualised returns on investment in core development capex were over 35%. As part of the Spirit debt refinancing programme, we carried out an estate revaluation during the year which indicated a market value of GBP4.5bn, versus a book value of GBP3.5bn.
TRADING ENVIRONMENT
The number of licensed premises in the UK remains in decline and was down 2.3% in the year to March 2019 (CGA & Alix Partners Market Growth Monitor, May 2019), driven by the continued closure of drink-led pubs but also, more recently, by an acceleration in restaurant closures. Customer demand was strong over the year with LFL sales growth of 1.7%, driven by drink-led pub LFL sales growth of 3.4% and food-led pub LFL sales growth of 1.6%, offset by slower restaurant LFL sales growth of 0.1% (CGA's Coffer Peach Business Tracker, April 2019).
The active management of our large estate and high quality brands enables us to react dynamically to shifting consumer behaviour. We extended the Greene King brand into more food-led pubs this year, helping to improve our drinks offer in those pubs. We also transferred 11 pubs from Pub Company to Pub Partners and four pubs from Pub Partners to Pub Company.
Consumer behaviour and changing demands continue to provide opportunities for dynamic pub operators such as Greene King. Experiential offers are important for customers and this will be particularly significant for pubs as we enter a year without large football tournaments such as the World Cup or the European Championship. Wellbeing remains a key concern for customers with millennials, in particular, seeking healthy food and drink options and placing greater importance on sustainability. The drink premiumisation trend continues, led by the growth of gin-based drinks. Finally, digital innovation continues to give the consumer ever greater choice and convenience through delivery and mobile payment platforms. Digital channels also allow for enhanced engagement between customers and brands, and for experiences to be shared online on customer reviewing platforms.
Despite all these changes, customers still value high quality products, an atmospheric environment, good service and value for money. While we are cognisant of shifting consumer trends and the opportunities they present to us, we also remain focused on providing improvements in the VSQ of our offers, targeting volume-led sales growth and improved brand loyalty.
STRATEGY
Our overall strategic objective is to be the best pub and beer company in Britain. To achieve this, Greene King has pursued a robust strategy, built on five key pillars: building distinct brands that more customers choose; providing offers that deliver compelling value, service and quality; developing engaged and high performing teams; maintaining a well-located and invested estate; and executing prudent financial management. This strategy has led the business successfully through some challenging times and it is on these strong foundations that we will continue to evolve our strategy to drive sustainable growth for our shareholders.
To help us deliver on the five key pillars of our long-term strategy, we have four near-term priorities:
1. Digitally enable commercial leadership to make our team members' lives simpler and our customers' drinking and eating out experiences easier
2. Continue to realign the structure of our business to our strategic aims and invest in our processes and systems to ensure our organisation is efficient and effective
3. Improve pub productivity and efficiency without impacting on service standards to customers or negatively impacting pub team members
4. Continue to actively manage our estate, optimising our managed pubs portfolio around our four core brands and further segmenting the Greene King Locals brand to maximise sales opportunities on the high street and in local communities.
PEOPLE
Our people are our greatest asset, with around 38,000 team members employed across the group. Attracting and retaining the best people and developing and investing in them are critical to our continued success.
We completed a support centre restructure in the first half of the year to better align central Pub Company support to the simplified brand portfolio and to develop a more streamlined and efficient organisation. We spent GBP3m in learning, training and development over the year, focusing particularly on our digital training platform, TAP. Over 300,000 training hours were spent on TAP in the year with over 100,000 courses completed. Induction course compliance was up 5% as a result of the online platform, helping to drive improved service scores in our pubs.
We invested in enhanced staff benefits, including launching a Friends and Family discount scheme, and continued to focus on employee wellbeing, holding our second annual Wellbeing Week and launching Shine, a programme developed to equip our employees with better work-life balance management skills. In addition, we launched 'Your Voice', a communications and engagement forum to improve conversation within the business. The forum will be used to enable the board to engage with employees via its designated non-executive director, Lynne Weedall, who will attend a number of its meetings. We have also partnered with KPMG to provide the 9% of our workforce who are non-UK EU nationals with a tool to help navigate the implications of Brexit.
Our apprenticeship programme continued to grow with over 1,900 apprentices joining the business and more than 560 vacancies being filled through the scheme this year. Over 11,000 apprentices have benefitted from the Greene King apprenticeship programme since its launch in 2011. We were thrilled to receive the Princess Royal Training award for our apprenticeship programme, as well as the Best Apprenticeship Programme award and Best Training Partnership award at the Training Journal Awards. We were also pleased to maintain our position in the top 100 Apprenticeship Employers by Rate My Apprenticeship and All About School Leavers.
Our increased investment in our people and our focus on their wellbeing helped maintain engagement and employee NPS broadly flat at 62% and 68% in spite of the head office restructure carried out. We are rolling out an employee app this summer, through which we expect to improve engagement and employee retention further, and drive cost efficiencies.
COMMUNITY
Our pubs act as hubs for their local communities, offering a place to sit, socialise and make a difference to local services and good causes. The teams at our pubs, together with team members at our offices and breweries, helped raise GBP1.4m this year for our national charity partnership with Macmillan Cancer Support. We are proud to report that this took our total raised to date for Macmillan to over GBP5m.
In January, we launched The Stepping Up Report, in which we committed to creating the best opportunities for individuals from all backgrounds in the hospitality sector. In order to achieve this goal, we set out five ambitions to encourage greater social mobility:
1. Launch 'Releasing Potential', a new employment programme for ex-offenders. Working with the Ministry of Justice, the charity Only A Pavement Away and partners Novus, Clean Sheet and Sodexo, we will support 50 individuals in the first year
2. Deliver a new commitment to support 20,000 apprentices by 2022
3. Become the first hospitality company to sign the Business in the Community Race at Work Charter. This will see the appointment of an Executive Sponsor for Race, working towards the capturing of ethnicity data and acting to support the career progression of ethnic minorities
4. Pledge to increase internal appointments to pub general manager from 64% to 80%
5. Extend our partnership with The Prince's Trust for a fourth year with a target to increase the number of people being offered a permanent role after successful completion of the 'Get Into Hospitality' programme from 61% to 75%.
PUB COMPANY
52 weeks F19 F18 YOY Change Ave. no. of pubs trading(3) 1,711 1,754 -2.5% Revenue GBP1,799.2m GBP1,767.7m 1.8% EBITDA(1) GBP365.8m GBP362.9m 0.8% Operating profit(1) GBP272.9m GBP268.2m 1.8% Operating profit margin(1) 15.2% 15.2% Flat Ave. EBITDA per pub(1,3) GBP213.8k GBP206.9k 3.3% --------------------- ------------ ------------ -----------
Pub Company revenue was up 1.8% despite a 2.5% reduction in the average number of pubs trading from 1,754 to 1,711. LFL sales were 2.9%, ahead of the market, driven by strong drink sales and improving food sales, and AWT was up 4.1% to GBP20.2k. Operating profit was up 1.8% to GBP272.9m resulting in an operating profit margin of 15.2%, flat on the previous year, despite the external cost pressures. This was driven by the strong LFL sales growth and the successful cost mitigation programme.
Since the acquisition of Spirit in 2015, when we operated around 14 brands, we have consolidated our managed pubs portfolio around four key brands. Our focus on Greene King Locals, Chef & Brewer, Farmhouse Inns and Hungry Horse continues to drive sales growth and enhanced customer engagement while delivering economies of scale and efficiencies.
Our programme to improve the VSQ of our offer has boosted LFL volumes significantly. We are targeting more compelling and consistent pricing that our customers can rely on and trust, avoiding the high-low discounting that has been prevalent in the industry. Using labour deployment optimisation software we are making sure that we are resourced more appropriately throughout the week, maximising sales opportunities at busier times. In addition, we have maintained our commitment to investing in training to ensure our team members deliver excellent service more consistently to our customers. We have also improved the quality of our leading dishes and rolled out updated perfect drinks serving guidelines to capitalise on the appetite for premium drinks.
This commitment to enhancing VSQ, along with the focus on our four core brands, led to a 3.5%pt rise in Pub Company NPS to 62.5%, while our average TripAdvisor score was up 4.5% with food, service and value measures all in growth. Our brands rank in top positions for value, food and drink quality, menu choice and service, as voted by customers, with Farmhouse Inns maintaining its position as best for overall pub experience (MCA Pub Brand Monitor Q4 2018).
Our Greene King Local pubs delivered LFL sales up 4.6% with the brand's predominantly drink-led offer benefiting from the good weather and the World Cup. Chef & Brewer, our mid-market food-led pub brand, performed well with particularly strong LFL sales growth of 15.3% over the Easter weekend and strong returns on core capex investment. Farmhouse Inns, our suburban and out of town carvery brand, was negatively impacted by the good weather but saw strong breakfast growth of over 30% as well as improvements in service metrics following a focus on weekend labour deployment. Hungry Horse saw good LFL sales growth, particularly in drinks sales, as we invested more in drinks ranging and sports capability.
Delivering an improved customer experience through digital innovation is important for driving continued growth. Online bookings grew 20% year-on-year while Season Ticket subscribers increased to 200,000, aided by a full app roll out in May to maximise impact during the World Cup. Following a review of our Order & Pay trial, we moved the focus of the roll-out to Hungry Horse where we believe customer behaviour will better align to the app than in Greene King Local pubs. We also invested in digital tools to increase the productivity of our team members, distributing tablets to all Pub Company general managers to make administrative duties easier to complete without distracting them from customer-facing activities.
The ongoing cost mitigation programme was primarily focused on Pub Company and we made good progress delivering sustainable procurement savings, on labour productivity and efficiencies, and reducing non-direct costs.
We maintained a consistent core capex cycle of five to six years in Pub Company and spent GBP88.7m in core capex, covering 192 managed pub developments. Our active estate management programme saw 73 conversions completed, delivering EBITDA returns of 31.3%. We disposed of 46 managed pubs, generating proceeds of GBP26.6m, and we completed five new builds under the Farmhouse Inns brand and added four single site acquisitions, of which three will open in the new financial year. In addition, four pubs were transferred from Pub Partners to Pub Company, delivering an annualised return of 30.2%. We will continue to explore internal transfers as part of our ongoing estate optimisation programme.
PUB PARTNERS
52 weeks F19 F18 YOY Change Ave. no. of pubs trading 1,083 1,140 -5.0% Revenue GBP190.1m GBP193.9m -2.0% EBITDA(1) GBP97.2m GBP101.3m -4.0% Operating profit(1) GBP87.1m GBP91.4m -4.7% Operating profit margin(1) 45.8% 47.1% -1.3%pts Ave. EBITDA per pub(1) GBP89.8k GBP88.9k 1.0% --------------------- ---------- ---------- -----------
In Pub Partners, we have a high quality portfolio of 1,043 mainly drink-led pubs. It generates significant and stable cash flow for the group, adds purchasing scale, enhances the Greene King brand and provides flexibility in our estate planning. The success of Pub Partners is built on our ambition to have the best proposition in the market combined with unrivalled people capability and a focus on optimising value from each of our pubs.
Pub Partners revenue was down 2.0% to GBP190.1m, driven by the 5.0% decrease in the average number of pubs trading. LFL net income was up 1.5%, boosted by higher rental income and beer sales. LFL net profit was down 0.3%, impacted by increased central costs.
The high quality of our Pub Partners estate has been maintained through ongoing estate portfolio management and disciplined capital allocation. We disposed of 70 non-core pubs, generating proceeds of GBP49.1m, added one single site acquisition and we invested GBP18.7m in the core estate. In addition, 11 pubs were transferred from Pub Company to Pub Partners.
We have several different agreement types in place designed to best align the interests of Greene King with those of its licensees and support long and successful tenures. Since the implementation of the Pubs Code in 2016, we have had five licensees take up a Market Rent Only agreement. Meanwhile, our average licensee tenure increased to six years and two months, reflecting the strong relationships we build with our licensees. We were pleased that, when surveyed earlier this year, 87% of our licensees felt confident in their business.
The development of both our licensees and our support teams is critical. We continued to invest in training our licensees, supporting over 1,300 delegates through programmes over the year. We are also working on improving our licensee engagement through more regular listening groups and area meetings. We recently completed a restructure of the support centre, reducing the average number of pubs each Business Development Manager (BDM) is responsible for by 17%.
We continued to improve sales and efficiencies at our licensees' pubs, helping to drive the average EBITDA per pub up 1.0% to GBP89.8k. We are providing 11% of our Pub Partners pubs with food through the Greene King supply chain and 30% are signed up to our digital services package for online purchasing. In addition, 24% of our operators currently use our Sports Club package, delivering customer promotions for sports events.
We were delighted that The Red Lion & Sun in Highgate was awarded the 'Pub of the Year' and 'Best Wine Pub' at the Great British Pub Awards and the Crown in Carlisle was awarded 'Best Turnaround Pub'. In addition, two of our Pub Partners pubs were included in Estrella Damm's Top 100 Restaurants in the UK this year.
BREWING & BRANDS
52 weeks F19 F18 YOY Change Revenue GBP227.6m GBP215.1m 5.8% EBITDA(1) GBP33.2m GBP36.0m -7.8% Operating profit(1) GBP27.4m GBP30.7m -10.7% Operating profit margin(1) 12.0% 14.3% -2.3%pts --------------------- ---------- ---------- -----------
In Brewing & Brands, our proven long-term strategy is to build consumer loyalty to Greene King through consistent investment in our core ale brands and innovative range of seasonal and craft ales. Through this, we continue to win market share and contribute to Greene King's strong returns and cash generation.
Total beer volumes were up 0.9%, boosted by the good weather and successful World Cup, and revenue in Brewing & Brands was up 5.8%, reflecting the stronger sales contribution from foreign beers and the trend towards premium beers. OBV was down 3.4% against an ale market down 4.1% and a cask ale market down 8.1% (source: BBPA, April 2019). Operating profit was down 10.7% and the operating profit margin was down 2.3%pts, reflecting the estate rationalisation, increased costs, the lower production volumes through our breweries and the impact of this on brewing efficiency. As we exited the year, costs were being realigned to these lower volumes.
Greene King's core brands maintained their UK market leading positions. Greene King IPA continues to be the fastest selling top 10 cask ale brand in the on-trade. Abbot Ale saw strong volume growth of 9.6% and remains the number one premium cask ale brand in the on-trade and the fourth largest ale brand in the UK. Old Speckled Hen is the number one premium ale brand in the UK with the highest brand awareness in its category. This year, we launched Low Alcohol Old Speckled Hen and we gained distribution in 1,300 take home outlets and 2,000 pubs, positioning it for strong growth next year. Belhaven Best remains the number one draught ale brand in Scotland and number four keg ale brand in the UK. In addition, East Coast IPA continued its strong growth with total volume growth of 10%, making it the fastest growing of the top 10 ale brands and the 6(th) largest craft beer brand in the UK.
We were appointed the exclusive UK distributor for Estrella Galicia this year, supplying the core brand and its 0.0% abv and gluten-free variants, as well as 1906 Reserva Especial and 1906 Black Coupage.
Our market leading portfolio is underpinned by a disciplined brand investment programme. Greene King IPA continues to be the Official Beer of England Cricket and puts its name to the Greene King IPA Championship in rugby. To mark Belhaven brewery's 300(th) birthday, we are investing in upgrading the visitor experience and relaunched Belhaven's award-winning Twisted Thistle IPA. We also launched a new Greene King brewery website, featuring a 3D virtual tour of the Westgate brewery in Bury St Edmunds.
We were pleased to receive several awards in recognition of our beers and our ongoing innovation in brewing: Low Alcohol Old Speckled Hen won a Monde Silver Award for quality; Twisted Grapefruit IPA was named Beer of the Year at the annual Scottish Beer Awards; Intergalactic won a gold medal at the World Beer Awards; and we won silver awards for Twisted Thistle IPA and Belhaven Black. Yardbird Pale Ale was named the best ale at the Grocer Drink Awards, winning the gold award in the Ale & Others category. In addition, our new head brewer Ross O'Hara qualified as a Master Brewer with the Institute of Brewing and Distilling, making him the youngest Master Brewer in the world.
OUTLOOK
Over the first eight weeks of the new financial year, trading was impacted by the poor weather and LFL sales in Pub Company were below last year's strong comparatives.
Political and consumer uncertainty is likely to continue to weigh on confidence and the cost inflationary environment persists. However, with clear strategic priorities and our ongoing cost mitigation programme in place, we are confident in delivering another year of progress and we are well positioned to continue driving sustainable long-term growth for our shareholders.
The year ahead will be a 53 week year and will see the implementation of IFRS 16 which will affect a number of the reported KPIs. Further information is provided in the financial review and in note 1 of the financial statements.
Nick Mackenzie
Chief executive
26 June 2019
1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this statement
2. The directors use a number of Alternative Performance Measures (APMs) that are considered critical to aid the understanding of the group's performance. APMs are explained on page 39 of this announcement
3. Average trading pubs in Pub Company for F18 have been restated
FINANCIAL REVIEW
INCOME STATEMENT
GBPm 52 weeks 52 weeks
ended 28 ended 29
April 2019 April 2018
-------------------------------------- ------------ ------------
Revenue 2,216.9 2,176.7
Adjusted operating profit(1) 368.2 373.1
Adjusted net finance costs(1) (121.3) (130.1)
Adjusted profit before tax(1) 246.9 243.0
Exceptional and non-underlying items (74.1) (45.5)
-------------------------------------- ------------ ------------
Profit before tax 172.8 197.5
-------------------------------------- ------------ ------------
1. Adjusted measures exclude the impact of exceptional and non-underlying items.
Revenue was GBP2,216.9m, an increase of 1.8% compared to the prior year with strong growth in Pub Company and Brewing & Brands offsetting the planned decline in total pub numbers. Pub Company revenue was up 1.8% to GBP1,799.2m and accounts for 81% of group revenue. Non-core disposals helped AWT per pub rise 4.1% and average EBITDA per pub rise 3.3%. Total revenue in Pub Partners was GBP190.1m, down 2.0% driven by a decline in average trading pubs of 5.0%. Tenanted and leased AWT per pub increased 3.0% and average EBITDA per pub grew 1.0% due to the continuing improvement in the quality of the pub estate. Brewing & Brands grew revenue 5.8% to GBP227.6m with total beer volumes up 0.9%.
GBPm F19 F18 YOY change -------------------------- ----------- ----------- ----------- Pub Company GBP272.9 GBP268.2 1.8% Pub Partners GBP87.1 GBP91.4 -4.7% Brewing & Brands GBP27.4 GBP30.7 -10.7% Corporate GBP(19.2) GBP(17.2) 11.6% -------------------------- ----------- ----------- ----------- Group adjusted operating profit(1) GBP368.2 GBP373.1 -1.3% -------------------------- ----------- ----------- -----------
Operating profit before exceptional and non-underlying items was GBP368.2m, which was a decline of 1.3% on the prior year. Group operating profit margin before exceptional and non-underlying items was down 0.5%pts to 16.6%. Pub Company margin was flat versus the prior year at 15.2% and it was up 0.5% pts in the second half, reflecting the benefits from investments in VSQ and estate optimisation. The decline in group operating margin was driven by the reduction in both the Pub Partners margin from 47.1% to 45.8% and the Brewing & Brands margin from 14.3% to 12.0%.
Pub Company operating margin (%) ---------------------------- F18 reported margin 15.2 Underlying trading 0.5 Investment 0.0 Estate optimisation 0.2 Inflation -2.2 Mitigation 1.5 F19 reported margin 15.2 --------------------- -----
Net interest costs before exceptional and non-underlying items were GBP121.3m, 6.8% lower than last year due to overall lower debt and the impact of refinancing activities in the year.
Profit before tax, exceptional and non-underlying items was GBP246.9m, 1.6% higher than last year.
Basic earnings per share before exceptional and non-underlying items of 64.5p was up 2.9%. Statutory profit before tax was GBP172.8m, down 12.5% versus the prior year.
TAX
The effective rate of corporation tax (before exceptional and non-underlying items) of 19.1% is marginally higher than the UK corporation tax rate of 19.0% due to adjustments for non-deductible expenses, compared to 20.0% in the previous year. This resulted in a tax charge against operating profits (before exceptional and non-underlying items) of GBP47.1m (2018: GBP48.6m). The exceptional and non-underlying tax charge of GBP5.3m (2018: GBP34.4m credit) is discussed under exceptional and non-underlying items.
The group generates revenue, profits and employment that deliver substantial tax revenues for the UK government in the form of VAT, duties, income tax and corporation tax. In the year, total tax revenues paid and collected by the group were GBP550m (2018: GBP580m). The group's tax policy, which has been approved by the board, has the objective of ensuring that the group fulfils its obligations as a responsible UK taxpayer.
The group has recognised an uncertain tax provision of GBP4.1m in respect of the only open corporation tax enquiry relating to tax deductions claimed on capitalised revenue expenditure.
During the year the group completed a full review of deferred tax, as a result of which, in line with IAS 8, the group has restated balances as at 30 April 2017, and restated its financial results for the year ending 29 April 2018. See note 4 for further details.
EXCEPTIONAL AND NON-UNDERLYING ITEMS
Exceptional and non-underlying items were GBP79.4m, consisting of a GBP53.5m charge to operating profit, a GBP20.6m charge to finance costs and a net exceptional and non-underlying tax charge of GBP5.3m. Items recognised in the year included the following:
1. A GBP6.2m charge for employee related costs, which included one off additional defined contribution pensions payments as well as a material restructuring cost associated with changes to management. A further GBP0.4m of legal and professional fees were incurred in relation to group refinancing activities and defending uncertain tax positions
2. A net impairment charge of GBP56.7m (2018: GBP70.4m). Of this total, a net GBP55.0m charge was made against the carrying value of property, plant and equipment
3. A net profit on disposal of property plant and equipment of GBP17.0m (2018: GBP33.0m).
4. A past service cost of GBP4.9m, across both the Greene King and Spirit pension schemes, for guaranteed minimum pension equalisation following the High Court judgment on this issue in relation to the Lloyds Banking Group's defined benefit pension scheme
5. The GBP20.6m charge (2018: GBP10.6m credit) for exceptional and non-underlying finance costs included a GBP5.4m loss (2018: GBP19.2m gain) in respect of the mark-to-market movements in the fair value of interest rate swaps not qualifying for hedge accounting, GBP10.7m costs (2018: GBP11.6m) recycled from the hedging reserve in respect of settled interest rate swap liabilities and a GBP4.1m loss (2018: GBP3.0m profit) on the settlement of financial liabilities
6. The exceptional and non-underlying tax charge of GBP5.3m consisted of a GBP9.2m tax charge in respect of prior years, a GBP4.1m tax charge in respect of the uncertain tax provision explained above, a GBP0.9m charge in respect of deferred tax rate changes, a GBP5.5m credit in respect of non-underlying items and a GBP3.4m credit in respect of other exceptional items.
CASH FLOW AND CAPITAL STRUCTURE
GBPm 52 weeks 52 weeks
ended 28 ended 29
April 2019 April 2018
------------------------------------------------- ------------ ------------
EBITDA(1) 482.0 486.6
Working capital and other movements(2) (35.5) (22.9)
Net interest paid(2) (116.9) (127.1)
Tax paid(2) (21.0) (9.4)
Adjusted cash generated from operations 308.6 327.2
Core capital expenditure (119.1) (132.2)
Net repayment of trade loans/ Other non-cash
movements (0.5) (2.2)
Free cash flow before dividend 189.0 192.8
------------------------------------------------- ------------ ------------
Dividend (102.9) (102.9)
Free cash flow 86.1 89.9
Net disposal proceeds 75.8 117.5
New build/ brand conversion capital expenditure (44.3) (61.0)
Exceptional and non-underlying items/
share issues (5.9) (46.8)
Refinancing items (22.7) (57.4)
------------------------------------------------- ------------ ------------
Change in net debt 89.0 42.2
------------------------------------------------- ------------ ------------
1. EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items
2. Adjusted measures excluding the impact of exceptional and non-underlying items
The group continued to be highly cash generative with free cash flow of GBP86.1m, after funding core capital expenditure of GBP119.1m and dividend payments of GBP102.9m. This is significantly ahead of scheduled debt repayments of GBP52.2m. Net disposal proceeds at GBP75.8m reflected our ongoing programme of estate optimisation and we invested GBP44.3m in five new builds, five single site acquisitions of which 3 are to be converted in F20 and 79 brand conversions.
The group disposed of 41 trading pubs in Pub Company, 69 trading pubs in Pub Partners and six closed pubs, raising proceeds of GBP79.3m, which was partially offset by exiting a small number of leases.
The group continued to make good progress against its strategic aim to further strengthen its capital structure. During the year the group made unscheduled repayments of Spirit secured bonds with a total nominal value of GBP176.0m, recognising a net loss of GBP4.1m. In June 2018 GBP62.3m (30%) of the Spirit A4 secured bond was prepaid and, in September 2018, a further GBP51.9m (25%) of the Spirit A4 secured bond was prepaid. In December 2018 the group, in an open-market transaction, purchased and subsequently cancelled GBP61.8m (39%) of the Spirit A5 secured bond.
Exceptional gains or losses recognised in respect of these transactions amount to the difference between the carrying value of the repaid or cancelled bonds (comprising the nominal value and a fair value premium) and the settlement amount paid (comprising the sum of the nominal value and a prepayment penalty in the case of the A4 bonds, and the clean purchase price paid in the case of the A5 bonds).
The group also partially terminated two interest rate swap contracts in line with the partial prepayments of the A4 and A5 Spirit secured bonds, resulting in cash payments totalling GBP16.6m. A further payment of GBP2.0m was made during the year to eliminate over-hedges on interest rate swap contracts held in respect of the outstanding Spirit secured bonds.
The amount shown under refinancing items in the cash flow table above comprises GBP18.6m (2018: GBP42.6m) attributable to the settlement of derivative liabilities and GBP4.1m (2018: GBP14.8m) of other costs and non-cash movements attributable to refinancing.
Since June 2017 the group has repaid a total of GBP393m of Spirit secured bonds which represents 51% of the nominal value of the Spirit secured debt outstanding at F17 year end.
In February 2019 the group issued an additional GBP250m of secured bonds (class A7) with a fixed coupon of 3.593% out of the Greene King secured financing vehicle in connection with the securitisation of an additional 177 of the group's pubs. The net issuance proceeds were applied to the repayment of revolving credit facility loans, creating capacity to fund the further migration of assets and debt out of the Spirit secured financing vehicle.
Since the year end the group has given notice that it will prepay the remaining 45% (GBP93.5m) of the Spirit A4 secured bond on 28(th) June 2019. The group has also agreed to fully terminate the corresponding interest rate swap contract on this date.
In line with our strategic priorities, the group's objective is to maximise the strength and flexibility of its balance sheet, and to maintain a capital structure which meets the short, medium and long-term funding requirements of the business. The principal elements of the group's capital structure are its GBP750m revolving credit facilities, which were GBP192m drawn at the year end, and two long-term asset-backed financing vehicles.
At the year end the Greene King securitisation had secured bonds with a group carrying value of GBP1,537.5m (2018: GBP1,343.5m) and an average life of nine years (2018: ten years), secured against 1,539 pubs (2018: 1,429 pubs) with a group carrying value of GBP2.0bn (2018: GBP1.3bn). The Spirit debenture had secured bonds with a carrying value of GBP379.5m (2018: GBP563.6m) and an average life of eight years (2018: nine years), secured against 695 pubs (2018: 872 pubs) with a group carrying value of GBP0.8bn (2018: GBP1.0bn).
The group's credit metrics remain strong with 99.6% of net interest costs at a fixed rate, and the group's average cash cost of debt reduced to 5.8% from 6.1% last year. Fixed charge cover increased to 2.3x from 2.2x last year and net debt to EBITDA reduced to 4.0x from 4.2x last year. The Greene King secured vehicle had a free cash flow debt service cover ratio of 1.5x at the year end, giving 27% headroom. The Spirit debenture vehicle had a free cash flow debt service cover ratio of 2.3x giving 44% headroom.
Overall the group's net debt reduced in the year by GBP89.0m to GBP1,943.3m.
BALANCE SHEET
GBPm 28 April 29 April
2019 2018
restated(1)
-------------------------------------- ---------------- ----------------
Goodwill and other intangibles 1,216.9 1,240.2
Property, plant and equipment 3,543.4 3,597.8
Post-employment assets/(liabilities) 31.1 13.6
Net debt (1,943.3) (2,032.3)
Derivative financial instruments (230.0) (241.1)
Other net liabilities (510.2) (505.1)
-------------------------------------- ---------------- ----------------
Net assets 2,107.9 2,073.1
-------------------------------------- ---------------- ----------------
Share capital and premium 300.9 300.7 Reserves 1,807.0 1,772.4 -------------------------------------- ---------------- ---------------- Total equity 2,107.9 2,073.1 -------------------------------------- ---------------- ----------------
1. Deferred tax, goodwill and retained earnings have been restated. See note 4 for further details.
PENSIONS
The group maintains three defined contribution schemes, which are open to all new employees and two defined benefit schemes, which are closed to new entrants and to future accrual.
At 28 April 2019, there was an IAS 19 net pension asset of GBP31.1m representing an improvement of GBP17.5m since the previous year end. The closing assets of the group's two pension schemes totalled GBP865.4m and closing liabilities were GBP834.3m compared to GBP859.2m and GBP845.6m respectively at the previous year end.
The improvement in position is due to contributions made by the group during the year, combined with the net remeasurement gain of GBP17.0m (2018: 21.5m). Included in the remeasurement are key assumptions relating to the discount rate of 2.5% (2018: 2.8%), RPI inflation of 3.3% (2018: 3.1%) and CPI inflation of 2.2% (2018: 2.0%).
Total cash contributions in the year were GBP3.3m.
The triennial reviews for both the Greene King and Spirit pension schemes have now been finalised. The Greene King scheme has an actuarial deficit of GBP25.3m, broadly in line with the last valuation, and the Spirit scheme has an actuarial surplus of GBP11.3m.
RETURN ON CAPITAL EMPLOYED
The group is focused on delivering the best possible returns on its assets and on the investments it makes and on capital discipline, through targeted investment in new build pubs, single site acquisitions and in developing its existing estate to drive organic growth alongside disposals of non-core pubs. ROCE of 8.5% has improved by 10 bps compared to the prior year and remains comfortably ahead of the group's cost of capital.
DIVID
The board has recommended a final dividend of 24.4 pence per share, in line with last year, subject to shareholder approval. This will be paid on 13 September 2019 to shareholders on the register at the close of business on 9 August 2019.
The proposed final dividend brings the total dividend for the year to 33.2 pence per share, in line with last year. This is in keeping with the board's policy of maintaining dividend cover of around two times underlying earnings, while continuing to invest for future growth.
IFRS 16
The new accounting standard is applicable for accounting periods beginning on or after 1 January 2019, and will be applied for the first time by the group for the 53 weeks ending 3 May 2020.
The group has elected to use a modified retrospective approach in valuing the right-of-use asset on a site-by-site basis due to the age and complexity of the estate.
IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings as at 29 April 2019, with no restatement of comparative information.
The following table shows the estimated effect of adopting IFRS 16 on the consolidated balance sheet at 29 April 2019:
GBPm 29 April
2019
-------------------------------------- -------------
Goodwill and other intangibles (102)
Property, plant and equipment 900
Post-employment assets/(liabilities) -
Net debt (1,135)
Derivative financial instruments -
Other net liabilities 267
-------------------------------------- -------------
Net assets (70)
-------------------------------------- -------------
Share capital and premium -
Reserves (70)
-------------------------------------- -------------
Total equity (70)
-------------------------------------- -------------
For the period ending 3 May 2020, the group's operating profit metric will improve by an estimated GBP15m under IFRS 16 as the new depreciation expense is expected to be lower than the IAS 17 operating lease charge; however finance costs are expected to be higher than this, estimated at GBP31m, such that net profit after tax and the underlying earnings metric are expected to be lower compared to the previous IAS 17 reporting basis.
There is no net cash flow impact on application of IFRS 16, although the classification of cash flows will be affected as operating lease payments under IAS 17 are presented as operating cash flows; whereas under IFRS 16, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.
Richard Smothers
Chief financial officer
26 June 2019
Group income statement
for the 52 weeks ended 28 April 2019
2019 2018
=================================== =========================================
Before Exceptional Before Exceptional
exceptional and non- exceptional and non-
and non- underlying and non- underlying
underlying items underlying items
items Total items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
(note 3) (note 3)
(restated(1) (restated(1)
) )
Revenue 2 2,216.9 - 2,216.9 2,176.7 - 2,176.7
Operating costs (1,848.7) (53.5) (1,902.2) (1,803.6) (56.1) (1,859.7)
Operating profit 368.2 (53.5) 314.7 373.1 (56.1) 317.0
Finance income 1.1 - 1.1 1.0 - 1.0
Finance costs (122.4) (20.6) (143.0) (131.1) 10.6 (120.5)
Profit before tax 246.9 (74.1) 172.8 243.0 (45.5) 197.5
Tax 4 (47.1) (5.3) (52.4) (48.6) 34.4 (14.2)
====================== ==== =========== =========== ========= =========== ============ ============
Profit attributable
to equity holders
of parent 199.8 (79.4) 120.4 194.4 (11.1) 183.3
====================== ==== =========== =========== ========= =========== ============ ============
Earnings per share
- basic 5 38.9p 59.1p
- adjusted basic(2) 5 64.5p 62.7p
- diluted 5 38.7p 58.9p
- adjusted diluted(2) 5 64.3p 62.6p
Dividends per share
paid and proposed
in respect of the
period 6 33.2p 33.2p
====================== ==== =========== =========== ========= =========== ============ ============
(1) Exceptional and non-underlying tax has been restated. As a consequence basic and diluted EPS has been restated. See note 4 for further details.
(2) Adjusted basic and diluted earnings per share exclude the effect of exceptional and non-underlying items.
Group statement of comprehensive income
for the 52 weeks ended 28 April 2019
2018
2019 (restated(1)
)
GBPm GBPm
Profit for the period 120.4 183.3
================================================= ====== =================
Other comprehensive income to be reclassified
to the income statement in subsequent periods
Cash flow hedges:
- (Losses)/gains on cash flow hedges taken
to other comprehensive income (21.2) 15.5
- Transfers to income statement on cash flow
hedges 21.9 25.6
Deferred tax on cash flow hedges 0.6 (7.0)
================================================= ====== =================
1.3 34.1
=============================================== ====== =================
Items not to be reclassified to the income
statement in subsequent periods
Remeasurement gains on defined benefit pension
schemes 17.0 21.5
Deferred tax on remeasurement gains (2.9) (3.6)
================================================= ====== =================
14.1 17.9
=============================================== ====== =================
Other comprehensive income for the period,
net of tax 15.4 52.0 ================================================= ====== ================= Total comprehensive income for the period, net of tax 135.8 253.3 ================================================= ====== =================
(1) Exceptional and non-underlying tax has been restated. As a consequence profit for the period and total comprehensive income for the period, net of tax has been restated. See note 4 for further details.
Group balance sheet
as at 28 April 2019
As at As at As at
28 April 29 April 30 April
2019 2018 2017
Note GBPm GBPm GBPm
(restated(1) (restated(1)
) )
Non-current assets
Property, plant and equipment 3,537.0 3,589.2 3,621.9
Intangibles 112.2 124.7 163.7
Goodwill 1,104.7 1,115.5 1,134.6
Financial assets 13.4 13.2 16.3
Derivative financial instruments - 1.5 -
Deferred tax assets 9.5 20.1 22.9
Post-employment assets 13 32.4 13.6 16.8
Prepayments 0.1 0.2 0.2
Trade and other receivables - 0.1 0.1
=================================== ==== ========= ===================== ====================
4,809.3 4,878.1 4,976.5
=================================== ==== ========= ===================== ====================
Current assets
Inventories 51.1 47.7 45.0
Financial assets 9.0 10.5 10.1
Income tax receivable 4 - 10.2 -
Trade and other receivables 89.7 87.5 93.3
Prepayments 32.6 26.3 27.6
Cash and cash equivalents 7 185.3 168.5 443.0
=================================== ==== ========= ===================== ====================
367.7 350.7 619.0
Property, plant and equipment held
for sale 6.4 8.6 5.1
=================================== ==== ========= ===================== ====================
374.1 359.3 624.1
=================================== ==== ========= ===================== ====================
Total assets 5,183.4 5,237.4 5,600.6
----------------------------------- ---- --------- --------------------- --------------------
Current liabilities
Borrowings 8 (66.2) (54.6) (219.7)
Derivative financial instruments 11 (21.7) (20.6) (30.9)
Trade and other payables (408.9) (420.0) (429.3)
Off-market contract liabilities 12 (17.8) (17.9) (21.3)
Income tax payable 4 (13.2) - (12.6)
Provisions 12 (31.3) (29.5) (26.9)
=================================== ==== ========= ===================== ====================
(559.1) (542.6) (740.7)
=================================== ==== ========= ===================== ====================
Non-current liabilities
Borrowings 8 (2,062.4) (2,146.2) (2,297.8)
Derivative financial instruments 11 (208.3) (222.0) (313.9)
Trade and other payables (1.7) (1.8) (1.9)
Off-market contract liabilities 12 (219.2) (228.6) (264.1)
Post-employment liabilities 13 (1.3) - (28.0)
Provisions 12 (23.5) (23.1) (14.6)
(2,516.4) (2,621.7) (2,920.3)
=================================== ==== ========= ===================== ====================
Total liabilities (3,075.5) (3,164.3) (3,661.0)
----------------------------------- ---- --------- --------------------- --------------------
Total net assets 2,107.9 2,073.1 1,939.6
=================================== ==== ========= ===================== ====================
Issued capital and reserves
Share capital 38.7 38.7 38.7
Share premium 262.2 262.0 261.7
Merger reserve 752.0 752.0 752.0
Capital redemption reserve 3.3 3.3 3.3
Hedging reserve (161.6) (158.1) (192.2)
Own shares - (0.5) (0.2)
Retained earnings 1,213.3 1,175.7 1,076.3
=================================== ==== ========= ===================== ====================
Total equity 2,107.9 2,073.1 1,939.6
=================================== ==== ========= ===================== ====================
Net debt 10 1,943.3 2,032.3 2,074.5
=================================== ==== ========= ===================== ====================
(1) Deferred tax, goodwill and retained earnings have been restated. See note 4 for further details.
Group cash flow statement
for the 52 weeks ended 28 April 2019
2019 2018
Note GBPm GBPm
Operating activities
Operating profit 314.7 317.0
Operating exceptional and non-underlying
items 53.5 56.1
Depreciation 105.6 103.7
Amortisation 8.2 9.8
=========================================== =========== ======= ===============
EBITDA(1) 482.0 486.6
Working capital and other movements 9 (41.4) (46.8)
Interest received 0.7 1.0
Interest paid (117.6) (130.2)
Tax paid (21.0) (44.8)
=========================================== =========== ======= ===============
Net cash flow from operating activities 302.7 265.8
=========================================== =========== ======= ===============
Investing activities
Purchase of property, plant and
equipment (163.4) (193.2)
Sale of other investments - 0.3
Advances of trade loans (5.5) (3.4)
Repayment of trade loans 6.1 5.9
Sales of property, plant and equipment 75.8 117.2
Net cash flow from investing activities (87.0) (73.2)
=========================================== =========== ======= ===============
Financing activities
Equity dividends paid 6 (102.9) (102.9)
Issue of shares 0.2 0.3
Purchase of own shares - (0.5)
Payment of derivative liabilities 10 (18.6) (42.6)
Securitised bond issuance 10 250.0 -
Financing costs 10 (15.8) (3.2)
Repayment of borrowings 10 (539.9) (505.2)
Advance of borrowings 10 226.8 187.0
Net cash flow from financing activities (200.2) (467.1)
=========================================== =========== ======= =============== Net increase/(decrease) in cash and cash equivalents 15.5 (274.5) =========================================== =========== ======= =============== Opening cash and cash equivalents 7 168.5 443.0 Closing cash and cash equivalents 7 184.0 168.5 =========================================== =========== ======= ===============
(1) EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items.
GROUP Statement of changes in equity
for the 52 weeks ended 28 April 2019
Share Share Merger Capital Hedging Own Retained Total
capital premium reserve redemption reserve shares earnings equity
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 30 April 2017 (as
previously stated) 38.7 261.7 752.0 3.3 (192.2) (0.2) 1,080.9 1,944.2
Prior year adjustment - - - - - - (4.6) (4.6)
---------------------------- ------- ------- ---------- ---------- ------- -------- ----------- --------
At 30 April 2017 (restated) 38.7 261.7 752.0 3.3 (192.2) (0.2) 1,076.3 1,939.6
Profit for the period
(restated) - - - - - - 183.3 183.3
Other comprehensive
income:
Actuarial gains on
defined benefit pension
schemes (net of tax) - - - - - - 17.9 17.9
Net loss on cash flow
hedges
(net of tax) - - - - 34.1 - - 34.1
============================ ======= ======= ========== ========== ======= ======== =========== ========
Total comprehensive
income - - - - 34.1 - 201.2 235.3
Issue of ordinary share
capital - 0.3 - - - - - 0.3
Release of shares - - - - - 0.2 (0.2) -
Purchase of shares - - - - - (0.5) - (0.5)
Share-based payments
(net of tax) - - - - - - 1.3 1.3
Equity dividends paid - - - - - - (102.9) (102.9)
============================ ======= ======= ========== ========== ======= ======== =========== ========
At 29 April 2018 (restated) 38.7 262.0 752.0 3.3 (158.1) (0.5) 1,175.7 2,073.1
Profit for the period - - - - - - 120.4 120.4
Other comprehensive
income:
Actuarial gains on
defined benefit pension
schemes (net of tax) - - - - - - 14.1 14.1
Net gain on cash flow
hedges
(net of tax) - - - - 1.3 - - 1.3
============================ ======= ======= ========== ========== ======= ======== =========== ========
Total comprehensive
income - - - - 1.3 - 134.5 135.8
Issue of ordinary share
capital - 0.2 - - - - - 0.2
Release of shares - - - - - 0.5 (0.5) -
Transfer (4.8) 4.8 -
Share-based payments
(net of tax) - - - - - - 1.7 1.7
Equity dividends paid - - - - - - (102.9) (102.9)
At 28 April 2019 38.7 262.2 752.0 3.3 (161.6) - 1,213.3 2,107.9
============================ ======= ======= ========== ========== ======= ======== =========== ========
Notes to the accounts
for the 52 weeks ended 28 April 2019
1 Basis of preparation
The consolidated financial statements and preliminary announcement of Greene King plc for the 52 week period ended 28 April 2019 were authorised for issue by the board of directors on 26 June 2019.
The financial information included within this preliminary announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 (the "Act").
The financial information for the 52 week period ended 28 April 2019 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued.
The 2019 Report & Accounts will be posted to shareholders on 6 August 2019 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. The statutory accounts for the period ended 28 April 2019 will be delivered to the Registrar of Companies following the company's Annual General Meeting.
The statutory accounts for the prior financial year, for the 52 week period ended 29 April 2018, have been delivered to the Registrar of Companies, and the auditors have made a report thereon under Chapter 3 of part 16 of the Act. That report was unqualified and did not contain a statement under sections 498(2) or 498(3) of the Act.
The group identified a number of errors within its assessment of deferred tax which date back prior to the earliest prior period presented within these financial statements. See note 4 for further details.
The consolidated financial statements of Greene King plc and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) as required by European Union law and as applied in accordance with the Companies Act 2006.
New accounting standards, amendments and interpretations adopted by the group
The accounting policies adopted are consistent with those of the previous financial year, other than the adoption of new accounting standards discussed below.
The group adopted IFRS 9 Financial Instruments on 30 April 2018 prospectively; therefore the information presented for comparative periods has not been restated and is presented, as previously reported, under IAS 39.
There has been no material impact of applying the revised standard.
The group adopted IFRS 15 Revenue from Contracts with Customers on 30 April 2018 using the modified retrospective approach, without practical expedients.
The group has undertaken a review of its revenue streams under the new standard and has concluded that a large proportion of the revenue is recognised at the point of sale, when the goods or service is provided in its entirety to the customer in return for cash. Based on the group's review, it has concluded that IFRS 15 does not have a material impact on the recognition of revenue, consequently not having a material impact on the consolidated results and financial position. Additional disclosure requirements have been adopted in note 2 for the year ending 28 April 2019.
Standards issued but not yet effective
A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the group has not early adopted them in preparing these consolidated financial statements. The group has the following updates to information provided in the last annual financial statements about the standards issued but not yet effective that may have a significant impact on the group's consolidated financial statements.
Notes to the accounts
for the 52 weeks ended 28 April 2019
1 Basis of preparation (continued)
IFRS 16 Leases
The standard is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 leases and related interpretations.
The group has applied IFRS 16 on 29 April 2019, using the modified retrospective approach. The cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings as at 29 April 2019, with no restatement of comparative information. The group will apply the election consistently to all of its leases.
When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the group can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition.
The group has elected to adopt the following practical expedients on transition to IFRS 16:
- not to reassess contracts to determine if the contract contains a lease and not to separate lease and non-lease elements;
- where an onerous lease provision is in existence, to utilise this provision to reduce the right-of-use asset value rather than undertaking an impairment review;
- to exclude initial direct costs from the measurement of the right-of-use as set; - to apply the portfolio approach where a group of leases has similar characteristics; and - to use hindsight in determining the lease term.
Impact of adoption of IFRS 16 Leases
Balance sheet
As at 28 April 2019, the group's future minimum lease payments under non-cancellable operating leases amounted to GBP1,848m, on an undiscounted basis. On 29 April 2019 the group will recognise a right-of-use lease asset of GBP900m (after adjustments for off market contract liabilities, intangible assets, onerous lease provisions, lease prepayments and accrued lease expenses at 28 April 2019) and a corresponding lease liability of GBP1,135m (non-current GBP1,100m; current GBP35m). A transition adjustment of GBP70m, net of estimated deferred tax of GBP15m, will be recognised as a debit to retained earnings as a result of applying the asset recalculated asset valuation option under the modified retrospective approach.
Operating lease intangibles of GBP102m, off-market contract liabilities of GBP237m and lease prepayments and lease incentives of GBP7m previously recognised in respect of the operating leases will be derecognised and the amount factored into the measurement of the right-of-use asset on transition to IFRS 16.
The provision for onerous lease contracts which was required under IAS 37 of GBP21m will be derecognised and factored into the measurement of the right-of-use assets.
On transition to IFRS 16, the group has elected to adopt the utilisation of onerous lease provision in existence at transition practical expedient. The group will utilise this provision to reduce the right-of-use asset value rather than undertake an impairment review on transition. The right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets, replacing the previous requirement to recognise a provision for onerous lease contracts for the 53 weeks ending 3 May 2020.
No significant impact is expected for the group's finance leases.
Notes to the accounts
for the 52 weeks ended 28 April 2019
1 Basis of preparation (continued)
Income statement
Under IFRS 16 the group will see a different pattern of expense within the income statement, as the IAS 17 operating lease expense is replaced by depreciation and interest charges. For the 53 weeks ending 3 May 2020, the group's operating profit metric will improve by an estimated GBP15m under IFRS 16 as the new depreciation expense is expected to be lower than the IAS 17 operating lease charge; however net finance costs are expected to be higher than this, estimated at GBP31m, such that net profit after tax and the underlying earnings metric are expected to be materially lower compared to the previous IAS 17 reporting basis.
For short--term leases, of 12 months or less, and leases of low-value assets, the group will opt to recognise a lease expense on a straight--line basis as permitted by IFRS 16. The expenses attributable to these leases will continue to be recognised in the income statement as operating lease expenses.
Tax impact on changes to the income statement
The group will follow the accounting treatment and deduct depreciation and interest expense when calculating current tax. The tax deductions are not expected to be materially different compared to the previous IAS 17 reporting basis.
Cash flow statement
There is no net cash flow impact on application of IFRS 16, although the classification of cash flows will be affected as operating lease payments under IAS 17 are presented as operating cash flows, whereas under IFRS 16, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively. The change in presentation as a result of the adoption of IFRS 16 will see an improvement in 2020 of an estimated GBP85m in cash flow generated from operating activities, offset by a corresponding decline
in cash flow from financing activities.
Notes to the accounts
for the 52 weeks ended 28 April 2019
1 Basis of preparation (continued)
Impact on consolidated balance sheet at 29 April 2019 (extract)
The following table shows the estimated effect of adopting IFRS 16 on the consolidated balance sheet as at 29 April 2019:
As reported
at Impact of As at
28 April 29 April
2019 IFRS 16 2019
GBPm GBPm GBPm
----------------------------- ----------------------- ----------------- -------------------
Non-current
assets
Right-of-use
assets - 900 900
Intangible assets 102 (102) -
Deferred tax
asset - 15 15
102 813 915
----------------------------- ----------------------- ----------------- -------------------
Current assets
Trade and other receivables 11 (11) -
Total assets 113 802 915
------------------------------ ----------------------- ----------------- -------------------
Current liabilities
Lease liabilities - (35) (35)
Trade and other payables (5) 5 -
Off-market contract
liabilities (18) 18 -
Provisions (3) 3 -
(26) (9) (35)
----------------------------- ----------------------- ----------------- -------------------
Non-current liabilities
Lease liabilities - (1,100) (1,100)
Off-market contract
liabilities (219) 219 -
Provisions (18) 18 -
(237) (863) (1,100)
----------------------------- ----------------------- ----------------- -------------------
Total liabilities (263) (872) (1,135)
----------------------- ----------------- -------------------
Net assets (150) (70) (220)
------------------------------ ----------------------- ----------------- -------------------
Capital and reserves
Retained earnings (150) (70) (220)
Total equity (150) (70) (220)
------------------------------ ----------------------- ----------------- -------------------
The weighted average incremental borrowing rate applied to lease liabilities was 3.9%.
Notes to the accounts
for the 52 weeks ended 28 April 2019
2 Segment information
The group has three reportable segments that are largely organised and managed separately according to the nature of products and services provided, 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
These are also considered to be the group's operating segments and are based on the information presented to the chief executive, who is considered to be the chief operating decision maker. No aggregation of operating segments has been made.
Transfer prices between operating segments are set on an arm's length basis.
2019 Pub Pub Brewing Corporate Total
Company Partners & Brands operations
GBPm GBPm GBPm GBPm GBPm
Revenue 1,799.2 190.1 227.6 - 2,216.9
------------------------------- ------- -------- -------- --------- ----------
Analysed as follows:
Goods
- Drink 1,000.6 130.5 227.6 - 1,358.7
- Food 720.8 - - - 720.8
------------------------------- ------- -------- -------- --------- ----------
1,721.4 130.5 227.6 - 2,079.5
=============================== ======= ======== ======== ========= ==========
Services
- Other services(1) 77.8 59.6 - - 137.4
------------------------------- ------- -------- -------- --------- ----------
77.8 59.6 - - 137.4
------------------------------- ------- -------- -------- --------- ----------
EBITDA(2) 365.8 97.2 33.2 (14.2) 482.0
------------------------------- ------- -------- -------- --------- ----------
Segment operating profit 272.9 87.1 27.4 (19.2) 368.2
=============================== ======= ======== ======== ========= ==========
Exceptional and non-underlying
operating costs (53.5)
Net finance costs (141.9)
Income tax expense (52.4)
=============================== ======= ======== ======== ========= ========== Net profit for the period 120.4 Balance sheet Segment assets 3,643.1 863.9 395.5 53.7 4,956.2 Unallocated assets(3) 227.2 =============================== ======= ======== ======== ========= ========== Total assets 3,643.1 863.9 395.5 53.7 5,183.4 Segment liabilities (382.0) (44.6) (94.0) (156.3) (676.9) Unallocated liabilities(3) - - - - (2,398.6) =============================== ======= ======== ======== ========= ========== Total liabilities (382.0) (44.6) (94.0) (156.3) (3,075.5) Net assets 3,261.1 819.3 301.5 (102.6) 2,107.9 =============================== ======= ======== ======== ========= ========== Other segment information: Capital expenditure 123.9 18.9 7.9 5.0 155.7 Depreciation and amortisation (92.9) (10.1) (5.8) (5.0) (113.8) =============================== ======= ======== ======== ========= ==========
Notes to the accounts
for the 52 weeks ended 28 April 2019
2 SEGMENT INFORMATION (CONTINUED)
2018 Pub Pub Brewing Corporate Total
Company Partners & Brands operations
(restated(4)
)
GBPm GBPm GBPm GBPm GBPm
Revenue 1,767.7 193.9 215.1 - 2,176.7
---------------------------------- ------- -------- -------- --------- ------------
Analysed as follows:
Goods
- Drink 954.1 133.3 215.1 - 1,302.5
- Food 730.5 - - - 730.5
---------------------------------- ------- -------- -------- --------- ------------
1,684.6 133.3 - - 2,033.0
================================== ======= ======== ======== ========= ============
Services
- Other services(1) 83.1 60.6 - - 143.7
---------------------------------- ------- -------- -------- --------- ------------
83.1 60.6 - - 143.7
---------------------------------- ------- -------- -------- --------- ------------
EBITDA(2) 362.9 101.3 36.0 (13.6) 486.6
================================== ======= ======== ======== ========= ============
Segment operating profit 268.2 91.4 30.7 (17.2) 373.1
================================== ======= ======== ======== ========= ============
Exceptional and non-underlying(4)
operating costs (56.1)
Net finance costs (119.5)
Income tax expense (14.2)
================================== ======= ======== ======== ========= ============
Net profit for the period 183.3
Balance sheet
Segment assets 3,703.9 884.6 395.1 39.8 5,023.4
Unallocated assets(3) 214.0
================================== ======= ======== ======== ========= ============
Total assets 3,703.9 884.6 395.1 39.8 5,237.4
Segment liabilities (392.1) (45.3) (101.4) (157.5) (696.3)
Unallocated liabilities(3) (2,468.0)
================================== ======= ======== ======== ========= ============
Total liabilities (392.1) (45.3) (101.4) (157.5) (3,164.3)
Net assets 3,311.8 839.3 293.7 (117.7) 2,073.1
================================== ======= ======== ======== ========= ============
Other segment information:
Capital expenditure 158.0 23.9 6.8 3.7 192.4
Depreciation and amortisation (94.7) (9.9) (5.3) (3.6) (113.5)
================================== ======= ======== ======== ========= ============
(1) Other services include accommodation, rental and machine income.
(2) EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items and is calculated as operating profit before exceptional and non-underlying items.
(3) Unallocated assets/liabilities comprise cash, borrowings, pensions, net deferred tax, net current tax, derivatives and indirect tax provisions.
(4) Exceptional and non-underlying tax has been restated.
Revenue from services includes rent receivable from licensed properties of GBP53.2m (2018: GBP53.6m).
Notes to the accounts
for the 52 weeks ended 28 April 2019
2 SEGMENT INFORMATION (CONTINUED)
Management reporting and controlling systems
Management monitors the operating results of its strategic business units separately for the purpose of making decisions about allocating resources and assessing performance. Segment performance is measured based on segment operating profit or loss referred to as trading profit in the group's management and reporting systems. Included within the corporate column in the table above are functions managed by a central division.
No information about geographical regions has been provided as the group's activities are predominantly domestic.
3 Exceptional AND NON-UNDERLYING items
2019 2018
GBPm GBPm
Included in operating profit (restated(1)
)
Exceptional items
Integration costs and other legal and professional
fees - (3.7)
Net impairment of property, plant and equipment
and brand intangibles (56.7) (70.4)
Defined benefit obligations (4.9) -
Non-underlying items
Employee costs and other legal & professional
fees (6.6) (3.5)
Insurance proceeds 0.6 1.8
Net increase in property lease provisions (4.4) (13.3)
Net profit on disposal of property, plant and
equipment and goodwill 17.0 33.0
Defined benefit obligations 1.5 -
(53.5) (56.1)
Included in financing costs
Exceptional items
(Loss)/gain on settlement of financial liabilities (4.1) 3.0
Fair value movements of derivatives held at
fair value through profit and loss (5.4) 19.2
Interest in respect of uncertain tax positions (0.4) -
Non-underlying items
Amounts recycled from hedging reserve in respect
of settled interest rate liabilities (10.7) (11.6)
Total exceptional and non-underlying items
before tax (74.1) (45.5)
==================================================== ================== ===============
Exceptional tax items
Tax impact of exceptional items 3.4 8.2
Tax impact of uncertain tax positions (4.1) -
Tax credit in respect of the licensed estate - 14.0
Adjustment in respect of prior periods (11.5) (0.4)
Non-underlying tax items
Tax impact of non-underlying items 5.5 2.9
Tax credit in respect of rate change (0.9) -
Adjustment in respect of prior periods 2.3 9.7
Total exceptional and non-underlying tax (5.3) 34.4
==================================================== ================== ===============
Total exceptional and non-underlying items
after tax (79.4) (11.1)
==================================================== ================== ===============
(1) Exceptional and non-underlying tax has been restated.
Notes to the accounts
for the 52 weeks ended 28 April 2019
3 Exceptional AND NON-UNDERLYING items (Continued)
Exceptional and non-underlying operating costs
During the period to 28 April 2019 the group has recognised a net impairment loss of GBP56.7m (2018: GBP70.4m). This is comprised of an impairment charge relating to properties of GBP90.1m (2018: GBP76.1m) and reversal of previously recognised impairment losses of GBP35.1m (2018: GBP12.8m). In addition an impairment charge of GBP1.7m (2018: GBP7.1m) was recognised in relation to intangible assets during the year.
Of the impairment on properties, GBP33.6m 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 GBP20.6m due to a decision taken to exit some sites during the financial year. Impairment reversals have been recognised following an improvement in trading performance and an increase in amounts of estimated future cash flows for previously impaired sites or increases to fair value less costs of disposal. The impairment charge also includes GBP0.2m in respect of properties damaged by fire in the year, and GBP0.6m for de-contamination of a toxic nerve agent at the Salisbury Mill pub.
On 26 October 2018, the High Court issued a judgment in a claim involving Lloyds Banking Group's defined benefit pension schemes. This judgment concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The group has worked with the trustees of the schemes and independent actuaries and estimated the cost of equalising benefits at GBP4.9m. This cost has been recognised in the consolidated income statement as an exceptional item in the 52 weeks ended 28 April 2019 (2018: N/A). Further work will be carried out with the trustees to determine the exact impact and any subsequent changes to this amount in future periods will be treated as a change in actuarial assumption, and as such will be recognised in other comprehensive income.
During the period to 28 April 2019 the group incurred GBP6.2m (2018: GBP1.6m) of non-underlying employee related costs, which includes one off additional defined contribution pensions payments as well as a material restructuring cost associated with changes to management. These costs are associated with a head office and field team restructure to better align the Pub Company support centre and management structures to the simplified brand portfolio and to develop a more efficient organisation. A further GBP0.4m (2018: GBP1.9m) of non-underlying legal and professional fees have been incurred in relation to group refinancing activities and defending uncertain tax positions.
A charge of GBP4.4m (2018: GBP13.3m) has been incurred to increase the property lease provisions relating to onerous lease contracts.
The net profit on disposal of property, plant and equipment and goodwill of GBP17.0m (2018: GBP33.0m) comprises a total profit on disposal of GBP42.0m (2018: GBP62.5m) and a total loss on disposal of GBP25.0m (2018: GBP29.5m).
The pension and post-employment liabilities settlement gain relates to a past service credit, net of fees of GBP1.5m (2018: GBPnil), recognised for the Greene King Pension Scheme as a result of a Pension Increase Exchange exercise. Members who chose to take up their offers will receive no future increases to their pre-1997 pension in payment (excluding GMP pensions), in exchange for an immediate one-off increase in their current pension.
In the year the group received insurance compensation of GBP0.6m (2018: GBP1.8m) to meet the costs of restoring sites damaged by fire, flood or external contamination in a previous year.
Exceptional and non-underlying finance costs
During the period to 28 April 2019 the group settled financial liabilities in relation to the Spirit secured financing vehicle, recognising a net loss of GBP4.1m. In June 2018 GBP62.3m (30%) of the Spirit A4 secured bond was repaid and in September 2018 a further GBP51.9m (25%) of the Spirit A4 secured bond was repaid. In December 2018 the group, in an open-market transaction, purchased and subsequently cancelled GBP61.8m (39%) of the Spirit A5 secured bond. Exceptional gains or losses
Notes to the accounts
for the 52 weeks ended 28 April 2019
3 Exceptional AND NON-UNDERLYING items (Continued)
recognised in respect of these transactions amount to the difference between the carrying value of the repaid or cancelled bonds (comprising the nominal value and a fair value premium) and the settlement amount paid (comprising the sum of the nominal value and a prepayment penalty in the case of the A4 bonds, and the clean purchase price paid in the case of the A5 bonds).
During the prior period a net exceptional gain of GBP3.0m was recognised in respect of the termination of a financial guarantee provided by Ambac, the full repayment of the A1, A3, A6, and A7 Spirit secured bonds at their par value of GBP216.9m, and the termination of two interest rate swap contracts in connection with the repayment of these bonds.
In a prior year the group acquired as part of a business combination derivatives which have subsequently been accounted for at fair value through profit and loss as they were deemed at acquisition not to qualify for hedge accounting. An exceptional loss of GBP5.4m (2018: gain of GBP19.2m) relates to the mark-to-market movement on these derivatives, excluding amortisation of fair value on acquisition which reduces the pre-exceptional finance costs that include interest paid. Mark-to-market movements are considered to be exceptional owing to their volatility and are shown separately to ensure pre-exceptional finance costs are more readily comparable each year. Fair value amortisation is deemed to be a pre-exceptional item as it adjusts swap interest to a market rate.
In previous periods, the group settled a number of its swap liabilities that were hedging cash flows relating to the Greene King A5 bond and floating rate bank loans. These cash flows 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 same period during which the hedged forecast cash flows affect profit or loss. A non-underlying charge of GBP10.7m (2018: GBP11.6m) has been recognised in respect of this during the year.
Exceptional and non-underlying tax
On 29 March 2019 HMRC issued closure notices regarding the single remaining corporation tax enquiry regarding tax deductions claimed on capitalised revenue expenditure. The group has recognised a GBP4.1m exceptional tax charge and associated interest in the period, fully providing for the increased likelihood of exposure, following receipt of closure notices. This resulted in no cash tax impact for the year ended 28 April 2019.
On 16 October 2017 agreement was reached with HMRC regarding an internal property arrangement, a material unresolved historical tax position. As a result the group paid corporation tax of GBP9.4m and interest of GBP2.1m during the prior period.
The GBP14.0m deferred tax in respect of the licensed estate in the prior period arose due to management's revision of its estimate of the residual value of buildings from 80% to 85%.
The adjustment in respect of prior years' tax arises from finalising the tax returns for earlier periods and movements on the licensed estate.
The non-underlying tax credit in respect of the licensed estate in the prior year arises from movements in its tax base cost and indexation.
The Finance Act 2016 reduced the rate of corporation tax from 19% to 17% from 1 April 2020. The rate reduction was substantively enacted at the balance sheet date and is therefore included in these accounts. The net deferred tax asset has been calculated using the rates at which each temporary difference is expected to reverse.
The adjustment in respect of prior years' tax arises from finalising the tax returns for earlier periods and movements on the licensed estate.
Notes to the accounts
for the fifty-two weeks ended 28 April 2019
4 Taxation
2019 2018
======================== ---------------------- -----------------------
Before Before
exceptional Exceptional exceptional Exceptional
and non- and non- and non- and non-
underlying underlying underlying underlying
items items Total items items Total
(restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
Income tax
Corporation tax before
exceptional and non-underlying
items 41.9 - 41.9 38.7 - 38.7
Recoverable on exceptional
and non-underlying items - (5.0) (5.0) - (9.9) (9.9)
================================ =========== =========== ====== ============== =========== ==========
Current income tax 41.9 (5.0) 36.9 38.7 (9.9) 28.8
Adjustments in respect
of prior periods - 7.5 7.5 - (6.5) (6.5)
================================ =========== =========== ====== ============== =========== ==========
41.9 2.5 44.4 38.7 (16.4) 22.3
================================ =========== =========== ====== ============== =========== ==========
Deferred tax
Origination and reversal
of temporary differences 5.2 0.2 5.4 9.9 (15.2) (5.3)
Adjustment in respect
of prior periods - 1.7 1.7 - (2.8) (2.8)
Tax credit in respect
of rate change - 0.9 0.9 - - -
================================ =========== =========== ====== ============== =========== ==========
5.2 2.8 8.0 9.9 (18.0) (8.1)
================================ =========== =========== ====== ============== =========== ==========
Tax charge/(credit)
in the income statement 47.1 5.3 52.4 48.6 (34.4) 14.2
================================ =========== =========== ====== ============== =========== ==========
The group's current tax position of GBP13.2m (2018: GBP10.2m receivable) reflects the amount of tax payable on open tax computations, and expected liabilities in respect of uncertain tax positions of GBP4.1m (2018: GBPnil) which has been recognised in the income statement in the period in respect of tax deductions claimed on capitalised revenue expenditure.
Prior year restatement
The group identified a number of errors within its assessment of deferred tax which date back prior to the earliest prior period presented within these financial statements.
In line with IAS 8, the group has restated balances as at 30 April 2017, and restated its financial results for the period ending 29 April 2018.
The issues identified as at 30 April 2017 were as follows:
A GBP10.0m increase in deferred tax asset (2018: GBP9.5m increase in deferred tax asset) has been recognised in relation to lease premiums. These premiums were paid between Greene King subsidiaries to take on a 15 year lease of new-build property with a restricted amount of the premium paid by the lessee being deductible over the life of the lease.
A GBP6.6m decrease in deferred tax asset (2018: GBP9.5m increase in deferred tax asset) in respect of property, plant and equipment is the result of an incorrect allocation between amounts recoverable for tax purposes on a use or sales basis.
Notes to the accounts
for the 52 weeks ended 28 April 2019
4 Taxation (CONtinued)
A GBP8.3m decrease in deferred tax asset (2018: GBP5.9m decrease in deferred tax asset) which relates to the fair value assessment of interest rate swaps acquired through the Spirit acquisition. The initial deferred tax asset recognised, and related goodwill, was overstated by GBP9.5m, with the adjustment aligning tax and accounting treatment.
A GBP25.5m decrease in deferred tax asset as at 30 April 2017 (2018: GBP22.7m decrease in deferred tax asset) has been recognised which relates to the fair value assessment of the off market liabilities acquired through the Spirit acquisition. The initial deferred tax recognised, and related goodwill, was overstated by GBP16.2m with the adjustment ensuring the correct tax base is used to calculate the deferred tax.
The above adjustments has increased goodwill by GBP25.8m as at 30 April 2017 and 29 April 2018, and decreased retained earnings by GBP4.6m as at 30 April 2017, and increased retained earnings by GBP16.2m as at 29 April 2018.
The prior period basic earnings per share is an increase of 6.7p, with adjusted earnings per share remaining unchanged for the period ending 29 April 2018. There is no cash flow implication arising from these adjustments.
5 Earnings per share
Basic earnings per share has been calculated by dividing the profit attributable to equity holders of GBP120.4m (2018: GBP183.3m) by the weighted average number of shares in issue during the period of 309.9m (2018: 309.9m).
Diluted earnings per share has been calculated on a similar basis taking account of 0.6m (2018: 0.5m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 310.5m (2018: 310.4m). There were nil (2018: nil) anti-dilutive share options excluded from the diluted earnings per share calculations. The performance conditions for share options granted over 2.7m (2018: 2.7m) shares have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end has not been included in the diluted earnings per share calculation.
Adjusted earnings per share excludes the effect of exceptional and non-underlying items and is presented to show the underlying performance of the group on both a basic and diluted basis.
Adjusted earnings per share Earnings Basic earnings Diluted earnings
per share per share
2019 2018 2019 2018 2019 2018
GBPm GBPm p P p p
Profit attributable to equity
holders (restated) 120.4 183.3 38.9 59.1 38.7 58.9
Exceptional and non-underlying
items (note 3) 79.4 11.1 25.6 3.6 25.6 3.7
=============================== ====== ======= ======= ======= ======== ========
Profit attributable to equity
holders before exceptional
and non-underlying items 199.8 194.4 64.5 62.7 64.3 62.6
=============================== ====== ======= ======= ======= ======== ========
Notes to the accounts
for the 52 weeks ended 28 April 2019
6 Dividends paid and proposed
2019 2018
GBPm GBPm
Declared and paid in the period
Interim dividend for 2019: 8.8p (2018: 8.8p) 27.3 27.3
Final dividend for 2018: 24.4p (2017: 24.4p) 75.6 75.6
================================================= ===== =====
102.9 102.9
================================================= ===== =====
Proposed for approval at AGM
Final dividend for 2019: 24.4p (2018: 24.4p) 75.6 75.6
Total paid and proposed dividend for 2019: 33.2p
(2018: 33.2p) 102.9 102.9
================================================= ===== =====
Dividends on own shares have been waived.
Subject to the approval of shareholders at the Annual General Meeting, the final dividend will be paid on 13 September 2019 to shareholders on the register at the close of business on 9 August 2019.
7 cash and cash equivalents
2019 2018
GBPm GBPm
Cash at bank and in hand 126.5 115.9
Short-term deposits 58.8 52.6
Cash and cash equivalents for balance sheet 185.3 168.5
Bank overdrafts (note 8) (1.3) -
============================================ ===== ===========
Cash and cash equivalents for cash flow 184.0 168.5
============================================ ===== ===========
Included within cash at bank and in hand and short-term deposits is GBP67.3m (2018: GBP74.6m) and GBP134.5m (2018: GBP90.4m) held within securitised bank accounts which are only available for use by the Greene King Secured financing vehicle and the Spirit secured financing vehicle respectively.
The Greene King secured financing vehicle comprises Greene King Retailing Parent Limited and its subsidiaries and the Spirit secured financing vehicle comprises Spirit Pubs Debenture Holdings Limited and certain of its subsidiaries.
Interest receivable on cash and short-term deposits is linked to base rate and is received either monthly or in line with the term of the deposit.
Notes to the accounts
for the 52 weeks ended 28 April 2019
8 Borrowings
2019 2018
======= ======== ======= ======== ======== =======
Repayment Current Non- Total Current Non- Total
date current current
GBPm GBPm GBPm GBPm GBPm GBPm
Bank overdrafts On demand 1.3 - 1.3 - - -
Unsecured bank loans
- floating rate:
* Facility A 2021 - 24.3 24.3 - 88.8 88.8
* Facility B 2020 - 165.6 165.6 - 184.3 184.3
Secured debt:
* Issued by Greene King Finance plc 2005 to 2036 53.6 1,483.9 1,537.5 51.3 1,292.2 1,343.5
* Issued by Spirit Issuer plc 2015 to 2036 10.1 369.4 379.5 2.1 561.5 563.6
Obligations under
finance leases 2015 to 2084 1.2 19.2 20.4 1.2 19.4 20.6
========================================== ============== ======= ======== ======= ======== ======== =======
66.2 2,062.4 2,128.6 54.6 2,146.2 2,200.8
========================================== ============== ======= ======== ======= ======== ======== =======
Bank loans - unsecured
The group has available revolving credit facilities totalling GBP750.0m, comprising a GBP400.0m facility (Facility A) available to fund the working capital requirements of the group and other general corporate purposes and a GBP350.0m facility (Facility B) available to fund the internal transfer of pubs from the Spirit secured financing vehicle.
Of the GBP400.0m (2018: GBP400.0m) available under Facility A, GBP25.0m (2018: GBP90.0m) was drawn down at the year end with a carrying value of GBP24.3m (2018: GBP88.8m) which included GBP0.7m (2018: GBP1.2m) of fees.
Of the GBP350.0m (2018: GBP350.0m) available under Facility B, GBP167.3m (2018: GBP187.0m) was drawn down at the year end with a carrying value of GBP165.6m (2018: GBP184.3m) which included GBP1.7m (2018: GBP2.7m) of fees.
Greene King secured financing vehicle
The group has issued various tranches of bonds in connection with the securitisation of pubs operated by Greene King Retailing Limited. The bonds are secured over the properties and their future income streams and were issued by Greene King Finance plc.
In February 2019 the group issued an additional GBP250m of secured loan notes with a fixed coupon of 3.593% (tranche A7) in connection with the securitisation of an additional 177 of the group's pubs. The net issuance proceeds were applied to the repayment of revolving credit facility loans advanced under Facility B.
Spirit secured financing vehicle
Following the acquisition of Spirit Pub Company in 2015, the group has various secured loan notes issued by Spirit Issuer plc. The secured loan notes have been secured by way of fixed and floating charges over various property assets of Spirit Pub Company (Managed) Limited and Spirit Pub Company (Leased) Limited.
In June 2018 the group repaid GBP62.3m (30%) of the outstanding Class A4 secured loan note issued by Spirit Issuer plc and in September 2018 the group repaid a further GBP51.9m (25%) of the Class A4 secured loan note. In conjunction with each of these transactions the group also partially terminated the corresponding interest rate swap contract.
In December 2018 the group, in an open-market transaction, purchased and subsequently cancelled GBP61.8m (39%) of the Class A5 secured loan note issued by Spirit Issuer plc. In conjunction with this transaction the group also partially terminated the corresponding interest rate swap contract.
Notes to the accounts
for the 52 weeks ended 28 April 2019
9 Working capital and non-cash movements
2019 2018
GBPm GBPm
Increase in inventories (3.4) (2.7)
(Increase)/decrease in trade and other receivables (8.3) 7.1
Decrease in trade and other payables (2.5) (3.6)
Decrease in off-market contract liabilities (16.8) (19.6)
Other non-cash movement 0.3 -
Decrease in provisions (3.5) (1.8)
Share-based payments expense 2.0 1.3
Defined benefit pension contributions paid (3.3) (3.6)
Operating exceptional and non-underlying
items (5.9) (23.9)
==================================================== ====== ======
Working capital and other movements (41.4) (46.8)
==================================================== ====== ======
10 Analysis and movements in net debt
As at 29 Financing Changes Other non- As at 28
April 2018 cash flows in fair cash changes April 2019
value
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents
Cash at bank and in hand(1) 168.5 16.8 - - 185.3
Cash and cash equivalents
for balance sheet 168.5 16.8 - - 185.3
Overdrafts - (1.3) - - (1.3)
Cash and cash equivalents
for cash flow 168.5 15.5 - - 184.0
Liabilities from financing
activities
Included in net debt:
- Finance leases (20.6) 0.2 - - (20.4)
- Unsecured bank loans -
floating rate
- Bank loans - Facility
A (88.8) 65.0 - (0.5) (24.3)
- Bank loans - Facility
B (184.3) 19.8 - (1.1) (165.6)
- Securitised borrowing (1,907.1) (6.1) - (3.8) (1,917.0)
====================================== ========== ========== ======= ============ ==========
(2,200.8) 78.9 - (5.4) (2,127.3)
-------------------------------------- ---------- ---------- ------- ------------ ----------
Not included in net debt:
-------------------------------------- ---------- ---------- ------- ------------ ----------
- Derivative financial instruments(2) (241.1) 18.6 (7.5) - (230.0)
-------------------------------------- ---------- ---------- ------- ------------ ----------
Liabilities from financing
activities (2,441.9) 97.5 (7.5) (5.4) (2,357.3)
====================================== ========== ========== ======= ============ ==========
Net debt (2,032.3) 94.4 - (5.4) (1,943.3)
====================================== ========== ========== ======= ============ ==========
(1) Includes short-term deposits.
(2) Includes derivative asset balances.
Notes to the accounts
for the 52 weeks ended 28 April 2019
11 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
28 April 29 April
2019 2018
GBPm GBPm
Interest rate swaps 230.0 241.1
====================== ======== ========
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 market yield curve at the balance sheet date and adjusting for, where appropriate, the group's and counterparty credit risk. The changes in credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships.
The fair value of financial instruments is 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 28 April 2019 was GBP1,969.8m (29 April 2018: GBP1,984.8m) compared to a carrying value of GBP1,917.0m (29 April 2018: GBP1,907.1m).
12 PROVISIONS
Indirect Property Off-market Total provisions
tax provisions leases liabilities GBPm
GBPm GBPm GBPm
At 29 April 2018 24.7 27.9 246.5 299.1
Unwinding of discount element
of provisions - 0.6 11.4 12.0
Provided for during the period 0.7 17.5 - 18.2
Utilised during the period - (13.1) (4.1) (17.2)
Released during the period - (3.5) (16.8) (20.3)
-------------------------------- ---------------- --------- ------------- -----------------
At 28 April 2019 25.4 29.4 237.0 291.8
-------------------------------- ---------------- --------- ------------- -----------------
Provisions have been analysed between current and non-current as follows:
28 April 2019
Indirect Property Off-market Total provisions
tax provision leases liabilities GBPm
GBPm GBPm GBPm
Current 25.4 5.9 17.8 49.1
Non-current - 23.5 219.2 242.7
------------- --------------- --------- ------------- -----------------
25.4 29.4 237.0 291.8
------------- --------------- --------- ------------- -----------------
Notes to the accounts
for the 52 weeks ended 28 April 2019
12 PROVISIONS (Continued)
Off-market contract liabilities are recognised where contracts are at unfavourable terms relative to current market terms on acquisition.
For acquired leases where the current rentals are below market terms, an operating lease intangible asset has been recognised. For other acquired pubs an off-market liability has been calculated as the difference between the present value of future contracted rentals and the present value of future market rate rentals. The liability unwinds against the rental expense so that the income statement charge reflects current market terms
over an average period of 16 years (2018: 17 years).
The provision for property leases has been set up to cover operating costs of vacant or loss-making premises as well as dilapidation requirements. Payments are expected to be ongoing on these properties for an average of 24 years (2018: 23 years).
The off-market contract liabilities and onerous lease provision balances as at 29 April 2019 will transfer to the right-of-use asset, following the adoption of IFRS 16. See basis of preparation - IFRS 16 Leases.
During a previous period the Spirit Pub Company group received VAT refunds of GBP17.9m from HMRC in respect of gaming machines following a ruling involving The Rank Group plc (Rank) that the application of VAT contravened the EU's principal of fiscal neutrality. HMRC successfully appealed the decision in October 2013. However, HMRC did not seek to recover the VAT of GBP17.9m and associated interest of GBP7.5m because it had accepted a guarantee that it would only repay this VAT if Rank's litigation is finally determined in HMRC's favour. Rank's latest appeal was rejected by the Supreme Court in July 2015 and the group is currently awaiting the outcome of related litigation involving Rank and others.
13 PENSIONS
The group maintains two defined benefit schemes; Greene King Pension Scheme, and Spirit (Legacy) Pension Scheme. The pension and other post-employment benefit net asset at 28 April 2019 was GBP31.1m, an improvement of GBP17.5m from the position as at 29 April 2018.
Movements in this (liability)/asset are as follows:
Schemes
Greene King Spirit Total
GBPm GBPm GBPm
Post-employment assets at 29 April 2018 1.5 12.1 13.6
Pension interest income recognised in the income
statement 0.1 0.3 0.4
Past service cost (0.4) (2.8) (3.2)
Re-measurement gains and losses:
Return on plan assets (excluding amounts included
in net expenses) 7.6 20.2 27.8
Changes in demographic assumptions 8.5 3.6 12.1
Changes in financial assumptions (25.5) (22.5) (48.0)
Experience adjustments 3.6 21.5 25.1
=================================================== =========== ====== ======
(4.6) 32.4 27.8
Employer contributions 3.3 - 3.3
Net interest recognised in the income statement - - -
Post-employment (liabilities)/assets at 28 April
2019 (1.3) 32.4 31.1
================================================== =========== ====== ======
The improvement in position is due to contributions made by the group during the year, combined with the net remeasurement gain of GBP17.0m (2018: 21.5m). Included in the remeasurement are key assumptions relating to the discount rate of 2.5% (2018: 2.8%), RPI inflation of 3.3% (2018: 3.1%) and CPI inflation of 2.2% (2018: 2.0%)
Notes to the accounts
for the 52 weeks ended 28 April 2019
13 PENSIONS (Continued)
The triennial reviews for both the Greene King and Spirit pension schemes have now been finalised. The Greene King Scheme has an actuarial deficit of GBP25.3m broadly in line with the last valuation and the Spirit Scheme has an actuarial surplus of GBP11.3m.
14 RELATED PARTY TRANSACTIONS
No transactions have been entered into with related parties during the year.
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 in the group's results.
15 post balance sheet events
Final dividend
A final dividend of 24.4p per share (2018: 24.4p) amounting to a dividend of GBP75.6m (2018: GBP75.6m) was proposed by the directors at their meeting on 26 June 2019. These financial statements do not reflect the dividend payable.
Borrowings and financial instruments
On 11 June 2019 the group gave notice to repay the remaining GBP93.5m outstanding Class A4 secured loan notes issued by Spirit Issuer plc at par on 28 June 2019. The notes have a carrying value of GBP96.4m as at 28 April 2019, of which GBP10.3m is classified as a current liability and GBP86.1m is classified as a non-current liability. The group has also agreed to make a payment of GBP11.4m on 28 June 2019 to fully terminate the corresponding interest rate swap contract.
ALTERNATIVE PERFORMANCE MEASURES
The performance of the group is assessed using a number of alternative performance measures (APMs).
The group's results are presented both before and after exceptional and non-underlying items. Adjusted profitability measures are presented excluding exceptional and non-underlying items as management believe this provides useful additional information about the group's performance and aids a more effective comparison of the group's trading performance from one period to the next and with similar businesses. Adjusted profitability measures are reconciled to unadjusted IFRS results on the face of the income statement with details of exceptional and non-underlying items provided in note 3.
In addition, the group's results are described using certain other measures that are not defined under IFRS and are therefore considered to be APMs. These measures are used by management to monitor ongoing business performance against both shorter-term budgets and forecasts but also against the group's longer-term strategic plans. The definition of each APM presented in this report and where reconciliation to the nearest measure prepared in accordance with IFRS can be found is shown below.
APMs used to explain and monitor group performance:
Location of reconciliation to GAAP
Measure Definition measure
EBITDA Earnings before interest, tax, Group cash flow statement
depreciation, amortisation and
exceptional and non-underlying
items. Calculated by taking operating
profit before exceptional and
non-underlying items and
adding back depreciation and
amortisation.
-------------------------------------- --------------------------------------
Operating profit before exceptional Group operating profit excluding Group income statement
and non-underlying items exceptional and non-underlying items.
-------------------------------------- --------------------------------------
Operating profit margin Operating profit margin is calculated
by dividing operating profit before
exceptional and
non-underlying items by revenue.
-------------------------------------- --------------------------------------
Net interest before exceptional items Group finance costs excluding
exceptional and non-underlying items.
-------------------------------------- --------------------------------------
Profit before tax and exceptional and Group profit before tax excluding Group income statement
non-underlying items (PBTE) exceptional and non-underlying items.
-------------------------------------- --------------------------------------
Adjusted basic earnings per share Earnings per share excluding the Note 5 to the accounts
impact of exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
ROI Return on investment across all our Note A below
core pub businesses. Calculated as
the average incremental
increase in pub EBITDA
post-investment divided by the total
core capex invested in completed
developments.
-------------------------------------- --------------------------------------
Net debt : EBITDA Net debt as disclosed on the group Note B below
balance sheet divided by EBITDA.
-------------------------------------- --------------------------------------
Free cash flow EBITDA less working capital and Note C below
non-cash movements (excluding
exceptional items), tax payments
(excluding amounts paid in respect of
settlements of historic tax positions
and adjusted for
the impact of HMRC payment regime
changes), interest payments
(excluding payment of interest
in respect of tax settlements), core
capex, dividends and other non-cash
movements.
-------------------------------------- --------------------------------------
Fixed charge cover Calculated by dividing EBITDAR less Note D below
maintenance capex by the sum of
interest paid and rental
costs.
-------------------------------------- --------------------------------------
ROCE % Return on capital employed is Note E below
calculated by dividing operating
profit before exceptional and
non-underlying items by periodic
average capital employed. Capital
employed is defined as
total net assets excluding deferred
tax balances, derivatives,
post-employment liabilities
and net debt.
-------------------------------------- --------------------------------------
Core capex Capital expenditure excluding amounts Note F below
relating to the group's brand swap
programme, Spirit
integration, other acquisitions and
in respect of new build sites.
-------------------------------------- --------------------------------------
Non-returning capex Investment not expected to generate Note F below
incremental revenues for the group.
-------------------------------------- --------------------------------------
APMs used to explain and monitor the performance of the group business segments:
Location of reconciliation to GAAP
Measure Definition measure
Pub Company like-for-like (LFL) sales Pub Company LFL sales include revenue Note G below
growth from the sale of drink, food and
accommodation but exclude
machine income.
LFL sales performance is calculated
against a comparable 52-week period
in the prior year
for core sites that were trading for
the entirety of both 52-week periods.
-------------------------------------- --------------------------------------
Pub Company operating profit before Pub Company operating profit Note 2 to the accounts
exceptional and non-underlying items excluding exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Pub Company EBITDA Pub Company earnings before interest, Note 2 to the accounts
tax, depreciation, amortisation and
exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Pub Company EBITDA per pub Calculated by dividing Pub Company
EBITDA by the average number of pubs
trading in a financial
period.
-------------------------------------- --------------------------------------
Pub Partners LFL net profit growth Pub Partners' LFL net profit includes Note H below
pub operating profit but excludes
exceptional and non-underlying
items (LFL net income), and
allocation of central overheads.
LFL profit performance is calculated
against a comparable 52-week period
in the prior year
for core pubs that were trading for
the entirety of both 52-week periods.
-------------------------------------- --------------------------------------
Pub Partners EBITDA Pub Partners earnings before Note 2 to the accounts
interest, tax, depreciation,
amortisation and exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Pub Partners EBITDA per pub Calculated by dividing Pub Partners
EBITDA by the average number of pubs
trading in a financial
period.
-------------------------------------- --------------------------------------
Pub Partners operating profit before Pub Partners operating profit Note 2 to the accounts
exceptional items excluding exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Brewing & Brands operating profit Brewing & Brands operating profit Note 2 to the accounts
before exceptional items excluding exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Brewing & Brands EBITDA Brewing & Brands earnings before Note 2 to the accounts
interest, tax, depreciation,
amortisation and exceptional
and non-underlying items.
-------------------------------------- --------------------------------------
In addition the group uses the following non-financial KPIs to assess performance against its strategic objectives:
Measure Definition
Employee engagement score (%) The proportion of respondents who agreed with the following statement: 'I
feel engaged and
committed at present' as the statement that most accurately reflects their
current career
intentions.
---------------------------------------
Pub Company net promoter score (NPS) % The percentage of responses where we score 9 or 10 (out of 10) less the
percentage of responses
where we score 0 to 6 (out of 10) to the statement "I am likely to recommend
this pub to a
friend and/ or relative."
---------------------------------------
Pub Partners Licensee Survey The licensee survey is independent research conducted with leased/tenanted
pubs across all
the major pub companies operating in the L&T sector.
---------------------------------------
Brewing & Brands OBV growth (%) Year-on-year growth in the volume of sales of beer brewed at our Greene King
and Belhaven
breweries.
---------------------------------------
Brewing & Brands Service score (%) B&B service score is a measure on percentage of deliveries that are made on
time and in full
across all delivery networks.
---------------------------------------
APM RECONCILIATIONS
A RETURN ON INVESTMENT
Return on investment is calculated by dividing the total annualised up-lift in EBITDA from all core development schemes completed in the financial year by the total amount invested in those schemes.
Total capital investment quoted below is the total spent on schemes completed in the year and is not intended to reconcile to total in-year capital expenditure presented in note G below.
Source 2019 2018
GBPm GBPm
Incremental annualised EBITDA Non-GAAP 13.7 15.5
Total core capital investment in completed
schemes Non-GAAP 38.3 50.0
Return on investment 35.8% 31.0%
B NET DEBT: EBITDA
Source 2019 2018
GBPm GBPm
Group balance
Net debt sheet 1,943.3 2,032.3
------------------ -------------------- ------- -------
EBITDA Cash flow statement 482.0 486.6
------------------ -------------------- ------- -------
Net debt : EBITDA 4.0 4.2
C FREE CASH FLOW
Source 2019 2018
GBPm GBPm
EBITDA Cash flow statement 482.0 486.6
Working capital and other movements Note 9 (41.4) (46.8)
Add back: exceptional and non-underlying
items Note 9 5.9 23.9
----------------------------------------- -------------------- ------- -------
446.5 463.7
-------------------------------------------------------------- ------- -------
Tax payments Cash flow statement (21.0) (44.8)
Add back: exceptional tax payments Non-GAAP - 9.4
Add back: impact of changes to
payment regimes Non-GAAP - 26.0
----------------------------------------- -------------------- ------- -------
(21.0) (9.4)
-------------------------------------------------------------- ------- -------
Interest received Cash flow statement 0.7 1.0
Interest paid Cash flow statement (117.6) (130.2)
Add back: exceptional interest
paid Non-GAAP - 2.1
----------------------------------------- -------------------- ------- -------
(116.9) (127.1)
-------------------------------------------------------------- ------- -------
Core capex Note F below (119.1) (132.2)
Net repayment of trade loans Cash flow statement 0.6 2.5
Equity dividends paid Note 6 (102.9) (102.9)
Other non-cash movements Non-GAAP (1.1) (4.7)
Free cash flow 86.1 89.9
--------------------------------------------------------------- ------- -------
D FIXED CHARGE COVER
Source 2019 2018
GBPm GBPm
EBITDA Cash flow statement 482.0 486.6
Operating lease rentals Non-GAAP 90.1 90.2
Add back: off-market lease liability
and other property provisions utilised
in the period Non-GAAP (21.1) (20.2)
Non-returning capex Note F below (72.6) (79.6)
---------------------------------------- -------------------- ------ ------
478.5 477.0
------------------------------------------------------------- ------ ------
Net interest paid Cash flow statement 116.9 129.2
Add back: exceptional interest
paid Non-GAAP - (2.1)
Operating lease rentals Non-GAAP 90.1 90.2
207.0 217.3
------------------------------------------------------------- ------ ------
Fixed charge cover 2.3 2.2
E RETURN ON CAPITAL EMPLOYED
Source 2019 2018 2017
(restated(1) (restated(1)
) )
GBPm GBPm GBPm
Operating profit before exceptional
and non-underlying items Income statement 368.2 373.1 411.5
------------------------------------- ----------------- ------- ------------ ------------
Average capital employed:
Group balance
Net assets(1) sheet 2,107.9 2,073.1 1,939.6
Add back:
Group balance
Deferred tax assets(1) sheet (9.5) (20.1) (22.9)
Group balance
Post-employment (assets)/liabilities sheet (31.1) (13.6) 11.2
Group balance
Derivatives sheet 230.0 241.1 344.8
Group balance
Net debt sheet 1,943.3 2,032.3 2,074.5
------------------------------------- ----------------- ------- ------------ ------------
Capital employed Non-GAAP 4,240.6 4,312.8 4,347.2
Timing adjustment Non-GAAP 104.3 108.3 75.2
Average capital employed Non-GAAP 4,344.9 4,421.1 4,422.4
------------------------------------- ----------------- ------- ------------ ------------
ROCE 8.5% 8.4% 9.3%
(1) Net assets and deferred tax assets have been restated. See note 4 for further details.
The timing adjustment included in the calculation above is the aggregate adjustment required to reconcile closing capital employed at the balance sheet date and the monthly average capital employed calculated throughout the year.
F CAPITAL INVESTMENT
Source 2019 2018
GBPm GBPm
Non-returning capex* Non-GAAP 72.6 79.6
Development capex Non-GAAP 46.5 52.6
----------------------------------- -------------------- ----- -----
Core capex Non-GAAP 119.1 132.2
Brand swap and new site investment Non-GAAP 44.3 61.0
Purchase of property, plant and
equipment Cash flow statement 163.4 193.2
----------------------------------- -------------------- ----- -----
*non-returning capex also referred to as "maintenance capex".
G PUB COMPANY LFL SALES
2019 CALCULATIONS Source 2019 2018 YoY%
GBPm GBPm
Reported revenue Note 2 1,799.2 1,767.7 +1.8%
Less: non-LFL revenue Non-GAAP (65.1) (82.8)
---------------------- --------- ------- -------
LFL sales Non-GAAP 1,734.1 1,684.9 +2.9%
---------------------- --------- ------- -------
2018 CALCULATIONS Source 2018 2017 YoY%
GBPm GBPm
Reported revenue Note 2 1,767.7 1,817.4 -2.7%
Less: non-LFL revenue Non-GAAP (85.5) (105.4)
---------------------- --------- ------- -------
LFL sales Non-GAAP 1,682.2 1,712.0 -1.7%
---------------------- --------- ------- -------
Non-LFL revenue includes all machine income and the sales from pubs that have not traded for two full financial years. For pubs disposed of in each of the financial years these amounts include all sales prior to disposal; for new pubs acquired or opened during the two-year period these amounts include all post-acquisition sales.
H PUB PARTNERS LFL NET PROFIT AND LFL NET INCOME
2019 CALCULATIONS Source 2019 2018 YoY%
GBPm GBPm
Reported operating profit Note 2 87.1 91.4 -4.7%
Less: other non-LFL adjustments Non-GAAP (7.0) (11.0)
----------------------------------------------- --------- ----- ------
LFL net profit Non-GAAP 80.1 80.4 -0.3%
----------------------------------------------- --------- ----- ------
Add back: Central cost allocation on LFL sites Non-GAAP 20.3 18.6
Add back: Depreciation on LFL sites Non-GAAP 10.0 9.8
----------------------------------------------- --------- ----- ------
LFL net income 110.4 108.8 1.5%
---------------------------------------------------------- ----- ------
2018 CALCULATIONS Source 2018 2017 YoY%
GBPm GBPm
Reported operating profit Note 2 91.4 92.8 -1.5%
Less: other non-LFL adjustments Non-GAAP (5.7) (7.4)
----------------------------------------------- --------- ----- ------
LFL net profit Non-GAAP 85.7 85.4 +0.4%
----------------------------------------------- --------- ----- ------
Add back: Central cost allocation on LFL sites Non-GAAP 19.0 20.0
Add back: Depreciation on LFL sites Non-GAAP 9.6 9.5
----------------------------------------------- --------- ----- ------
LFL net income 114.3 114.9 -0.5%
---------------------------------------------------------- ----- ------
Non-LFL profit adjustments are in respect of pre-disposal net profit from pubs that were disposed of in the current or prior year.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR PGURGQUPBGBQ
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June 27, 2019 02:01 ET (06:01 GMT)
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