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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 |
TIDMGNK
RNS Number : 9198X
Greene King PLC
30 November 2017
INTERIM RESULTS FOR THE 24 WEEKS TO 15 OCTOBER 2017
Hot Features
Premium
Group Adjusted Statutory Adjusted Basic Dividend Return
revenue profit profit earnings earnings per on capital
before before per share(1,2) per share share employed(2)
tax(1,2) tax
GBP1,031.4m GBP127.9m GBP123.7m 33.0p 31.2p 8.8p 9.0%
-1.2% -8.0% +33.7% -8.3% +30.5% 0.0% -0.4%pts
------------ ---------- ---------- ---------------- ----------- --------- -------------
HIGHLIGHTS(2)
Business highlights
-- Further outperformance from Local Pubs, Pub Partners and Brewing & Brands in a challenging first half
-- Strong cost mitigation: on track to deliver GBP40-45m of cost savings
-- Brand optimisation delivering return on investment over 25%; Fayre & Square to be debranded by year end as part of our plan to reduce our value food exposure
-- Spirit refinancing under way: new facility agreed, bond prepayment announced
-- Pub Company volume trends improved post period end after GBP10m investment in value, service and quality
Financial summary
-- Pub Company like for like sales -1.4%, Pub Partners LFL net profit +1.5% and Brewing & Brands own-brewed volume +0.3%
-- Operating profit before exceptional and non-underlying items(1,2) of GBP188.4m, -7.5% below last year
-- Strong cash flow and balance sheet supporting attractive and sustainable dividend; dividend per share maintained at 8.8p
-- 4.2x net debt to EBITDA(1,2) ; fixed charge cover 2.3x; securitisation headroom in excess of 30%
-- Group return on capital employed(2) of 9.0%, well ahead of weighted average cost of capital
Rooney Anand, chief executive officer
"The first half was challenging for our managed pubs, but our actions to strengthen performance have produced an improvement since the period end. We have committed additional investment to enhance the customer experience, including being more competitive on price, having more team members available at key times and strengthening local marketing activity. Pub Partners and Brewing & Brands again outperformed the market, generating cash for the group and raising the profile of Greene King.
"We will continue to benefit from our ability to generate significant cost savings and to improve investment returns to over 25% from rebranded pubs. Greene King is a strong, competitive business with industry-leading brands, a strong and flexible balance sheet, a sustainable dividend and an excellent track record of outperforming in challenging conditions. We are adapting our strategy to ensure we continue to sustain our long-term competitiveness, strong cash generation and attractive returns to shareholders."
FOR FURTHER INFORMATION
Greene King Rooney Anand, chief Tel: 01284
plc executive officer 763222
Kirk Davis, chief
financial officer
Finsbury Alastair Hetherington Tel: 0207
251 3801
Philip Walters
Further information is available at www.greeneking.co.uk or on Twitter using @greeneking
There will be a presentation for analysts and investors at 9.45am at Deutsche Bank, 1 Great Winchester St. London, EC2N 2DB.
The conference will also be accessible by phone: 0808 109 0700 UK Toll Free; +44 (0) 20 3003 2666 Standard International Access. Conference ID: Greene King
HEADLINE GROUP RESULTS
24 weeks H117 H118 YOY Change Total revenue GBP1,044.3m GBP1,031.4m -1.2% * Pub Company GBP855.9m GBP837.0m -2.2% * Pub Partners GBP93.6m GBP92.1m -1.6% * Brewing & Brands GBP94.8m GBP102.3m +7.9% Group operating profit before exceptional and non-underlying items(1,2) GBP203.7m GBP188.4m -7.5% * Pub Company GBP154.5m GBP136.9m -11.4% * Pub Partners GBP43.7m GBP43.6m -0.2% * Brewing & Brands GBP14.8m GBP14.8m 0.0% Group operating profit GBP176.5m GBP172.1m -2.5% Group profit before tax and exceptional and non-underlying items(2) GBP139.0m GBP127.9m -8.0% Group profit before tax GBP92.5m GBP123.7m +33.7% Basic EPS 23.9p 31.2p +30.5% Adjusted basic EPS(1,2) 36.0p 33.0p -8.3% Dividend per share 8.80p 8.80p 0.0% Core capital expenditure(2) GBP56.5m GBP60.0m +GBP3.5m Net debt GBP2,200.1m GBP2,118.9m -GBP81.2m Net cash flow from operations GBP125.9m GBP96.9m -GBP29.0m Free cash flow(2) GBP42.4m GBP10.6m -GBP31.8m ------------------------------------- ------------ ------------ -----------
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 (APM) that are considered critical to aid the understanding of the group's performance. Key measures are explained on page 29 of this announcement.
NOTES FOR EDITORS
-- Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs around 40,000 people across its main trading businesses; Pub Company, Pub Partners and Brewing & Brands.
-- At the end of the period, it operated 2,903 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,758 were retail pubs, restaurants and hotels, and 1,145 were tenanted, leased and franchised pubs. Its leading retail brands and formats include Hungry Horse, Farmhouse Inns, Chef & Brewer and the Greene King Local Pubs estate. 82% 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.
BUSINESS REVIEW
It was a challenging first half of the year with the UK consumer spending more cautiously and unprecedented cost pressures impacting on the pub sector. Pub Company traded below the market due in part to its exposure to value food, our estate being more exposed to the poor August and September weather, increased competitor discounting and our decision to defer brand optimisation capital expenditure in the previous financial year.
In response, we initiated specific actions to improve Pub Company competitiveness. The plan includes additional promotional activity and known value item pricing, strengthened local activity plans and targeted additional labour investment at key trading occasions. While it is still early days, through this GBP10m investment in value, service and quality (VSQ), we have seen encouraging signs of success with the food cover trend improving by 1.3%pts and drink volumes by 2.6%pts in the last six weeks.
In the period, Local Pubs continued to outperform the market and we saw strong growth from Farmhouse Inns. Its carvery model benefitted from the poorer weather in August and September but its performance also partly reflects the success of our brand optimisation programme, which overall is generating a return on investment (ROI) in excess of 25%. This programme is on track and we continue to expect to debrand Fayre & Square by the end of the year, as part of our plans to reduce our exposure to value food.
Pub Company net promoter score (NPS) was ahead of last year by 6.4%pts and the food quality score was up 2.5%pts. We expect our additional labour investment to maintain this positive momentum as we continue to improve the customer experience.
Both Pub Partners and Brewing & Brands were less affected by external factors and outperformed their markets, generating significant cash, providing additional purchasing scale and enhancing the reputation of the Greene King brand.
We expect to mitigate GBP40-45m of the GBP60m cost headwinds in the full year. This programme consists of additional synergies over the GBP35m target, procurement savings and a full review of the cost base.
The Spirit debenture refinancing is under way and we have made good progress. We have signed a new bank facility to fund the internal transfer of pubs from the Spirit debenture and given notice of prepayment of the Spirit class A1, A6 and A7 bonds on the next repayment date at the end of December. This eliminates the cash sweep and margin step-up contained within the Spirit debenture and increases the flexibility around our pub estate.
PERFORMANCE SUMMARY
Total revenue was GBP1,031.4m, -1.2% below last year. Operating profit before exceptional and non-underlying items(1,2) was GBP188.4m, -7.5% below last year. The operating margin before exceptional and non-underlying items was 18.3%, down -1.2%pts on last year due to increased cost headwinds affecting Pub Company margins. As a result, Return on Capital Employed(2) (ROCE) fell -0.4%pts to 9.0%.
Profit before tax and non-underlying and exceptional items(1,2) was GBP127.9m, -8.0% below last year, while adjusted earnings per share(1,2) were 33.0p, down -8.3% on last year.
Pub Company delivered like-for-like (LFL) sales(1,2) of -1.4%. Total sales were GBP837.0m, -2.2% below last year, impacted by disposals made over the last 18 months. Pub Company operating profit was GBP136.9m, and the operating profit margin was down -1.7%pts to 16.4%.
Pub Partners revenue was GBP92.1m, down -1.6% on last year and operating profit was GBP43.6m, -0.2% below last year, as a result of disposals made in the last 12 months. However, the operating profit margin was up 0.6%pts to 47.3% and average EBITDA per pub(1,2) was up 5.0% to GBP42k. Pub Partners LFL net profit was up 1.5% compared with last year.
Brewing & Brands revenue was up 7.9% to GBP102.3m while operating profit was in line with last year at GBP14.8m and the operating profit margin was down -1.1%pts.
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 (APM) that are considered critical to aid the understanding of the group's performance. Key measures are explained on page 29 of this announcement.
Net debt was GBP2,118.9m, an increase of GBP44.4m compared with the position at the year end, resulting in net debt to EBITDA(1,2) of 4.2x. We believe our strong cash generation and balance sheet strength provide the flexibility and security for shareholders through an economic cycle and we expect our net debt to EBITDA ratio to remain relatively stable in the medium term and to reduce in the longer term.
As a result of our confidence in the longer-term future for Greene King, the board has declared an interim dividend of 8.8p, level with last year.
ENVIRONMENT
As previously highlighted, we are facing unprecedented cost increases of GBP60m this year, including the National Living Wage, business rates, the Apprenticeship Levy and duty increases. At the same time, consumer confidence is subdued, having fallen further during the half year (source: GfK). Disposable income is being squeezed by inflation rising faster than average earnings, while the first interest rate rise in over a decade adds to the financial pressure for the most stretched households. Overall, available household cash is not expected to grow over the next two years (source: Citi).
Consumers are therefore continuing to tighten their belts. Eating out frequency for the three months to October was down -13% on last year, following declines of -3% and -6% in the first two quarters of the calendar year (source: MCA). While the eating and drinking out market is still expected to grow over the longer term, with forecast annual growth in turnover of 1.7% over the next three years, this is being driven by the ongoing increase in food-led outlet supply. Conversely, the number of drink-led outlets is expected to continue to fall (source: MCA Eating Out Report 2017).
Consumer expectations also continue to increase, particularly in relation to the value, service, quality, and environment of the offer. Increased levels of discounting seen from casual dining outlets provide competition for both the mainstream and value segments of our portfolio (source: Horizons) while takeaway aggregators, food delivery companies and supermarkets provide a growing alternative to eating and drinking out. Consumers are also seeking out healthier options in their food and drink options, while the use of digital channels continues to play a key part in getting closer to the consumer and growing market share. We continue to address our healthy food options across all of our brands and during the period launched trials of our Season Ticket and Order and Pay apps.
STRATEGY
While we have already initiated a number of activities to improve our competitiveness, particularly in the eating out market, we believe that market conditions are likely to toughen over the next two to three years.
Therefore, we are now developing more detailed plans to ensure we continue to benefit from the Spirit acquisition while delivering long-term growth and attractive shareholder returns through improving our sustainable competitive advantage in the eating and drinking out markets.
PEOPLE
The greatest asset we have at Greene King is our people, with around 40,000 team members employed across the group. Retaining the best people and developing and investing in them is key to our continued success. We therefore place a keen focus on investment in training and half our team members benefitted from training programmes in the period.
We launched new ways of working, Winning Ways, which we rolled out across the group over the last six months with workshops held at all levels of the business. Winning Ways focuses on our four values: Customer, Team, Respect and Results.
Our award winning apprenticeship programme continued to grow with over 1,000 apprentices joining the business over the first half and another 1,500 expected to join in the second half. Around 60% of our pubs have an apprentice in learning and over 85% have supported at least one apprentice since we started our scheme in 2011.
COMMUNITY
Local communities are at the heart of our business and we remain committed to supporting our neighbourhoods through our charity programme and environmental initiatives.
Our principal charity partner is Macmillan and over the period Greene King raised GBP600k for the partnership, taking our total to date to over GBP3.5m. Funds were raised through our annual Macmillan May events, our sixth World's Biggest Coffee Morning, the 34 team members who cycled 250 miles from London to Paris and, most recently, the 24 team members who climbed Mount Kilimanjaro, marking our biggest ever charity challenge. We are pleased to have won a Fundraising Excellence award for our work with Macmillan Cancer Support.
We held four further Get into Hospitality programmes with the Prince's Trust over the period and so far we have supported over 150 people through the scheme. We also raised GBP100k for Global's Make Some Noise charity through our Summer of Sound campaign with Radio X.
Since the launch earlier in the year of our initiative to send zero waste to landfill by 2020, we have removed over 4,000 general waste bins from Greene King pubs. We recycle 600 tonnes of food waste every month and as a result save over 3,000 tonnes of carbon.
CURRENT TRADING
Following the additional investment in value, service and quality, trading in Pub Company since the period end improved versus the trends seen in the first half. Deposited Christmas day bookings are up 3.0% on last year.
Trading in Pub Partners and Brewing & Brands remains ahead of last year.
PUB COMPANY
24 weeks H117 H118 YOY Change Ave. no. of pubs trading 1,822 1,764 -3.2% Revenue GBP855.9m GBP837.0m -2.2% EBITDA* GBP196.8m GBP180.7m -8.2% Operating profit* GBP154.5m GBP136.9m -11.4% Operating profit margin* 18.1% 16.4% -1.7%pts Ave. EBITDA per pub* GBP108.0k GBP102.4k -5.2% ------------------- ---------- ---------- -----------
*Before exceptional and non-underlying items
Revenue was GBP837.0m, -2.2% below last year. It was a challenging first half for Pub Company with LFL sales down -1.4% against a market down -0.2% (source: Coffer Peach). Slower LFL food sales, focused in the value food segment, were the driver of this underperformance with LFL drink sales broadly in line with last year and LFL room sales up.
Operating profit was GBP136.9m, -11.4% below last year, with the operating margin before non-underlying and exceptional items down -1.7%pts. As well as slower LFL sales, the operating margin was negatively impacted by the unprecedented cost pressures.
Factors impacting on our LFL sales performance included: market underperformance in our value food brands; having 98% of our pubs not fully benefitting from their outdoor space through August and September; competitor discounting reaching a two-year high; and our disciplined capital approach leading to the deferral of brand optimisation capital investment in the previous year.
In response to this, we are investing GBP10m on a series of actions to improve our trading performance. Initiatives include addressing our value proposition and relative price to the market through more targeted promotions and offers, strengthening local marketing activity and adding more labour at the busiest trading times. This has led to early signs of drink volume and food cover recovery. In addition, we are adjusting our brand optimisation programme to reposition the estate more quickly away from the value food segment.
Local Pubs continued to outperform the market, due to its drinks focus, its well invested and located estate, the rebranding of the Taylor Walker estate to Greene King, as well as successful marketing campaigns run over the half year. The Summer of Sound campaign in association with Radio X saw a live on-air pub quiz taking place in over 700 Greene King pubs and a Live at your Local music talent competition, which culminated in a live final at the O2 in London.
Farmhouse Inns delivered a particularly strong performance over the period, helped by the success of our brand optimisation programme and the poorer summer weather.
Our NPS was up 6.4%pts to 57.0% with improvement seen across all brands, while our food quality score increased 2.5%pts to 88.4%. We continue to target improved service and expect the increased investment in labour to further lift guest satisfaction scores across the business.
Digital investment will also be key to driving sales momentum in Pub Company going forward and we recently launched our Season Ticket mobile app, allowing customers to find a local Greene King pub to watch sporting events with the benefit of a promotional drinks offer. Our new Order and Pay app is currently on trial in a small number of pubs with plans to roll it out across the whole business in 2018. We now have over three million fans on Facebook and average web visits driven by our Facebook pages is up 14% leading to a 38% increase in online bookings.
17 pubs have undergone brand conversions in the half year and our optimisation programme drove returns above 25%. We expect to accelerate our brand optimisation programme in the second half, targeting around 70 pubs.
We maintained investment in our core estate, spending over GBP43.0m in the period. Meanwhile, we disposed of nine pubs, completed three Farmhouse Inn new builds and transferred three non-core pubs into Pub Partners. We expect to make between 50 and 60 disposals and build nine new pubs over the full year.
PUB PARTNERS
24 weeks H117 H118 YOY Change Ave. no. of pubs trading 1,210 1,151 -4.9% Revenue GBP93.6m GBP92.1m -1.6% EBITDA* GBP48.4m GBP48.3m -0.2% Operating profit* GBP43.7m GBP43.6m -0.2% Operating profit margin* 46.7% 47.3% +0.6%pts Ave. EBITDA per pub* GBP40.0k GBP42.0k +5.0% ------------------- --------- --------- -----------
*Before exceptional and non-underlying items
Pub Partners is an important element of our business model, generating significant cash for the group, adding purchasing scale, enhancing the Greene King brand and providing flexibility in our estate planning.
It once again performed well with LFL net profit up 1.5%. LFL beer volumes were down, but ahead of a weak beer market, and this was offset by rent improvements and cost savings. On -4.9% fewer pubs on average, EBITDA was down just -0.2%, leading to average EBITDA per pub growing 5.0% to GBP42.0k and the operating margin growing 60 basis points to 47.3%.
We are very clear in our aim to be the preferred partner for the best independent operators in the market. With fewer tenanted pubs available to rent, the competition for talent has increased in the last 12-18 months. We firmly believe we have the pubs, the people and the agreements to attract the best licensees to work with us on developing the best tenanted pub company in Britain.
To optimise our strengths, we focus on doing the simple things well - finding the right licensees, putting them in the right pub, on the right agreement and helping them to deliver the right offer. The simplification of our approach is helped by our strong track record of estate optimisation and our focus on traditional shorter-term tenancies mainly in the mainstream segment of the pub market.
Part of our attraction to the best licensees is the innovative training solutions we provide for them. For example, we took 831 delegates through our training programmes in the period. We also provided a suite of training options for our pubs with accommodation, giving licensees development options to build the capability of their teams to deliver exceptional service. Our investment in training has helped to maintain a high average tenure of licensee, at 5 years 10 months. They are also supported by the best Business Development Managers in the sector: after the period end, Yvonne Fraser was named ALMR BDM of the year, becoming the fourth winner from Pub Partners in the last five years of this prestigious award.
As part of our estate optimisation programme, every year we dispose of non-core pubs which are not viable in the long term for Greene King and invest in those pubs with a long-term future. We disposed of 12 pubs over the period and invested GBP12.4m in the core estate. In addition, Pub Partners gained three pubs from Pub Company which are better aligned to a partnership model. For the full year we expect to dispose of 40-50 pubs.
While our focus is on the traditional tenancy agreement, we have a number of alternative agreements to suit particular licensees and particular pubs including commercial free-of-tie leases, tied leases, turnover agreements and franchises. Increasingly, the best licensees are looking to turnover agreements to offer the best alignment of landlord and tenant interest and we therefore anticipate increasing the number of these agreements to around 30% of all agreements in the Pub Partners' estate. At the period end we were at 14%. Extending our agreement flexibility, over the last few weeks we launched our first joint venture agreement, which sees us work in even closer partnership with talented and innovative operators, and our first few hybrid agreements, where we combine elements of a managed pub model with those of a tenanted pub model.
In terms of the market rent only (MRO) option, we have granted two agreements since the Pubs Code went live and expect a further two in the second half of the year. We continue to believe that MRO will not have a material impact on the group.
Finally, with regards to the offer, we continue to roll out food support for licensees and now have 162 pubs ordering food directly through our supply chain, using our expertise and scale to improve our licensees' food offer and profitability while generating additional income for Pub Partners.
BREWING & BRANDS
24 weeks H117 H118 YOY Change Revenue GBP94.8m GBP102.3m +7.9% EBITDA* GBP17.2m GBP17.1m -0.6% Operating profit* GBP14.8m GBP14.8m 0.0% Operating profit margin* 15.6% 14.5% -1.1%pts ------------------- --------- ---------- -----------
*Before exceptional and non-underlying items
Our beer volume was up 0.3% against a total ale market down -3.4% and cask ale market down -5.4%. Our total ale share grew 0.3%pts (Source: BBPA May to September). Revenue growth was 7.9%, driven by the ongoing momentum in the free trade channel, improved trading in the take home channel, growing sales from innovation and increased marketing investment. However, operating profit was unchanged due to increased input costs and changes in sales channel and customer mix.
Our core brands retained their UK market leading positions: Greene King IPA is
the fastest selling cask ale in the on trade; Old Speckled Hen is the UK's no. 1 off-trade premium ale with the highest brand awareness of all premium ales; Abbot Ale is the no. 1 premium cask ale brand; Belhaven Best is the no.1 draught ale in Scotland and the no.4 keg ale in Great Britain; while East Coast IPA is the fastest growing keg ale in the top 15 brands (Source: CGA Brand Index).
Instrumental to our brand awareness is our industry-leading ale brand investment. Greene King IPA is the official beer of England Cricket and the sponsor of championship rugby, while a new contemporary brand identity was rolled out for Abbot Ale Reserve, reinforcing the quality and premium attributes of the Abbot Ale brand.
Innovation also remains central to Brewing & Brands' success. The period saw the launch of a Barmy Army beer to support our sponsorship of England Cricket ahead of this winter's Ashes series and the launch of Citrus IPA, a line extension of Greene King IPA. Old Spooky Hen returned for Halloween and was made available as a gluten-free option following the successful development of gluten-free Greene King IPA and gluten-free Old Speckled Hen last year.
The Craft Academy relocated to London, where it has its own brewery, tap, bar and brew room at the Florence pub in Herne Hill. The beers developed through the scheme won two bronze medals at the 2017 International Beer Challenge awards and are now sold through all Greene King's trade channels.
FINANCIAL REVIEW
INCOME STATEMENT
Revenue was GBP1,031.4m, -1.2% below last year due to tough trading comparatives in quarter one, poor weather in quarter two and the ongoing challenges impacting the value food sector. Pub Company sales were GBP837.0m, accounting for 81% of group revenue. Total revenue in Pub Partners was GBP92.1m and GBP102.3m in Brewing & Brands. Operating profit before exceptional and non-underlying items was GBP188.4m, which was -7.5% below last year. Group operating profit margin before exceptional and non-underlying items was down -1.2%pts on last year to 18.3%, reflecting a -1.7%pts reduction in Pub Company margin to 16.4%. The reduction in Pub Company margin is due to the decline in LFL sales, significant cost pressures previously highlighted and ongoing investment in VSQ.
Net interest costs before exceptional and non-underlying items were GBP60.5m. The interest costs for the full year are expected to be in the region of GBP130m to GBP135m.
Profit before tax, exceptional and non-underlying items was GBP127.9m, -8.0% below last year. The tax charge before exceptional and non-underlying items equated to an effective tax rate of 20.0% (2017: 19.9%).
Basic earnings per share before exceptional and non-underlying items were 33.0p, -8.3% below last year. Statutory profit before tax was GBP123.7m, up 33.7% on last year benefitting from a reduction in exceptional and non-underlying items compared to the previous year.
CASH FLOW AND CAPITAL STRUCTURE
Overall, EBITDA before exceptional and non-underlying items was GBP240.7m, -5.4% below last year.
During the period, the group settled financial liabilities in relation to the Spirit debenture, recognising a net gain of GBP5.1m. The financial guarantee provided by Ambac in respect of a number of Spirit secured bonds was terminated for a cash consideration of GBP12.6m with a further GBP2.2m being paid in respect of consent and other fees. The fair value of this off-market contract liability was initially recognised as part of the acquisition fair values of Spirit Pub Company. An exceptional gain of GBP5.9m, being the difference between the carrying value of the liability and the total cash consideration and fees incurred in order to terminate it, has been recognised. In addition, the GBP27.7m Spirit A3 secured bond was repaid in full at par.
Group net debt at the period end was GBP2,118.9m, an increase of GBP44.4m from the previous year end.
In line with our strategic priorities, our objective is to optimise the strength and flexibility of our balance sheet, and the group has a capital structure aimed at meeting the short-, medium- and longer-term funding requirements of the business. The principal elements of the group's capital structure are our revolving credit facility that was GBP200m drawn at the period end and two long-term asset-backed financing vehicles. At the period end, the Greene King securitisation had secured bonds with a nominal value of GBP1,379.0m and an average life of 10 years, secured against 1,452 pubs with a carrying value of GBP1.7bn. The Spirit debenture had secured bonds with a nominal value of GBP742.0m and an average life of 11 years, secured against 1,000 pubs with a carrying value of GBP1.4bn.
On 27 November, we amended our existing GBP400m revolving credit facility to incorporate an additional GBP350m revolving three year facility taking total bank facilities to GBP750m. The new facility is available to fund the internal acquisition of pubs from the Spirit debenture pool, providing additional liquidity to fund the refinancing of Spirit debenture bonds and related swaps. Pubs released from the Spirit debenture increase our unsecuritised portfolio, improving flexibility.
We have given notice to prepay GBP189m of bonds, namely the Spirit Class A1, A6 and A7 debenture bonds in full on 28 December 2017. This eliminates the cash sweep and 1.5% margin step-up on the GBP160m A6 and A7 bonds which were due to commence from September 2018. Related to this transaction we will also make a one-off payment of GBP43m to terminate the long dated interest rate swaps hedging the prepaid bonds. The immediate effect of these transactions is to reduce the group's cash interest payable by approximately GBP10m per annum, excluding future margin step-up savings.
Our credit metrics remain strong with 95% of our interest costs at a fixed rate and an average cash cost of debt at H1 F18 of 6.3% as expected. Fixed charge cover, on an annualised basis, was maintained at 2.3x and net debt to EBITDA was 4.2x. The Greene King secured vehicle had a free cash flow debt service cover ratio of 1.6x at the period end, giving 30% headroom. The Spirit debenture vehicle had a free cash flow debt service cover ratio of 1.9x, giving 32% headroom.
CAPITAL EXPITURE AND DISPOSALS
We invested in both maintaining and developing our existing estate. Total capital expenditure during the period was GBP82.8m with a further GBP18.6m of expenditure relating to pub repairs and maintenance recorded in the income statement. Core estate capital expenditure was GBP60.0m with a further GBP14.1m invested in acquiring pubs and developing previously acquired pubs. There were three new pub openings during the period. We also invested GBP8.7m in our brand optimisation programme converting 17 pubs.
We disposed of nine pubs in Pub Company, 12 pubs in Pub Partners and three closed pubs, which led to a profit on disposal of GBP1.6m and raised proceeds of GBP16.8m. For the full year we still expect to dispose of between 50 and 60 Pub Company pubs and between 40 and 50 Pub Partners pubs. We expect to raise disposal proceeds in the full year of GBP90m to GBP110m.
RETURN ON CAPITAL EMPLOYED
The group is focused on delivering the best possible return on our assets and on the investments we make. We are focused on capital discipline, through targeted investment in new build pubs, single site acquisitions and in developing our existing estate to drive organic growth, alongside disposals of non-core pubs. ROCE of 9.0%, down -0.4% pts from last year, was due to near-term challenges relating to cost headwinds and trading in the period.
DIVID
The board has declared an interim dividend of 8.8 pence per share, which is in line with last year. This will be paid on 19 January 2018 to shareholders on the register at the close of business on 8 December 2017.
TAX
On 16 October 2017 agreement was reached with HMRC regarding our internal property arrangement, our only material unresolved historical tax position, which was fully provided for in the prior period accounts.
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 15 October 2017, there was a net IAS 19 pension asset of GBP11.6m representing an improvement of GBP22.8m since the previous year-end. The closing assets of the group's two pension schemes totalled GBP885.3m and closing liabilities were GBP873.7m compared to GBP888.0m and GBP899.2m respectively at the previous year end.
The improvement was driven by higher than expected asset returns and a small increase in the discount rate used at 15 October 2017, which has reduced the liabilities of the schemes.
The next triennial reviews for both the Greene King and Spirit pension schemes will be as at April 2018 and are due by July 2019.
EXCEPTIONAL AND NON-UNDERLYING ITEMS
We recorded an exceptional and non-underlying items charge of GBP5.6m in the period, consisting of a GBP16.3m charge to operating profit before tax, a GBP12.1m credit to finance costs and a net exceptional and non-underlying tax charge of GBP1.4m. Items recognised in the year included the following: -
1. A GBP3.9m charge for legal, professional, integration and reorganisation costs following the Spirit acquisition.
2. A net impairment charge of GBP14.0m (2016: GBP25.9m) made against the carrying value of our pubs and other assets. This comprises an impairment charge of GBP19.8m offset by reversals of previously recognised impairment losses of GBP5.8m.
3. A net surplus on disposal of property plant and equipment of GBP1.6m (2016: GBP1.8m).
4. GBP12.1m of credits to exceptional and non-underlying finance costs which includes GBP12.5m of credits in respect of the mark-to-market movements in the fair value of interest rate swaps not qualifying for hedge accounting, GBP5.5m costs recycled from the hedging reserve in respect of settled interest rate swap liabilities and a GBP5.1m gain on settlement of financial liabilities.
5. The exceptional and non-underlying tax charge of GBP1.4m consists of a GBP2.4m tax charge on exceptional items and a GBP1.0m tax credit in respect of non-underlying items.
Of the GBP5.6m total exceptional and non-underlying items charge, we incurred cash expenditure of GBP22.8m relating to integration costs, refinancing activity and previously accrued items. These costs were partially offset by the profit on disposal of certain assets and the mark-to-market credit.
GUIDANCE FOR FINANCIAL YEAR 2017/18
We expect total gross cost inflation of around GBP60m and, after our cost mitigation plans of GBP40-45m, we expect net cost inflation of GBP15-20m.
In Pub Company, we anticipate opening c.10 pubs and disposing of 50-60 pubs.
In Pub Partners, we expect to dispose of 40-50 pubs.
The disposals in Pub Company and Pub Partners will continue to improve the quality of the estate while generating cash for other uses across the business.
We expect to raise disposal proceeds of GBP90m to GBP110m in the full year.
We anticipate spending GBP125-140m, excluding brand optimisation capital expenditure, on maintaining and developing our pubs, in order to ensure they remain attractive places for customers to spend their time.
Spend on the brand optimisation programme is expected to total GBP30-40m, out of a total spend over four years of GBP120-150m, and we are targeting EBITDA returns significantly ahead of our cost of capital.
New build capital expenditure is expected to be GBP30-40m and freehold reversion investment is expected to be c. GBP10m.
We expect the interest charge to be in the region of GBP130-GBP135m when taking into account the charge relating to our debt facilities, pensions and provisions, and the in-year benefit from the Spirit refinancing.
The pre-exceptional tax rate is now expected to be c.20% due to the level of non-qualifying depreciation in relation to buildings which are not entitled to tax relief.
Risks and uncertainties
The principal risks and uncertainties facing the group during the period under review and going forwards for the remainder of this year have not materially changed from those set out on pages 34 to 37 of the 2016/2017 annual report and accounts, which can be viewed via the www.greeneking.co.uk website. Elsewhere in this interim report there is more information on the risks associated with the economy, consumer sentiment and the trading performance of the group and, whilst a number of the risks facing the business have increased or broadened in scope since the year end, so too have the mitigation actions being undertaken to deal with them.
The risks are summarised as follows:
-- Failure to adopt the right strategy for the group, and poor execution of the strategy
-- Failure to deliver an appealing customer offer, to identify and respond to fast-changing consumer tastes and habits (including the use of digital media), to respond to increased competition, to price products appropriately and to align the portfolio to the market
-- A weakening economy and softer consumer confidence in the UK, particularly given the last year's general election and as Brexit negotiations unfold. We also face significant cost headwinds, including wage cost inflation as a result of the introduction of the National Living Wage, higher business rates and increased costs of goods.
-- A significant cyber security breach or other loss of data -- Inability to attract, retain, develop and motivate talented employees and licensees
-- Reliance on a number of key suppliers and third party distributors and on our ability to produce, package and distribute our own beers
-- Non-compliance with health and safety legislation and food safety legislation -- Inability to meet the funding requirements of the enlarged group
-- Liquidity and covenant risk relating to the group's securitisation and other financing arrangements
-- Funding requirements of the group's defined benefit schemes
Responsibility statement
The directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS34;
b) the interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R - "indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year"; and
c) the interim management report includes a fair review of the information required by DTR 4.2.8R - "disclosure of related party transactions and changes therein".
On behalf of the board
Philip Yea Rooney Anand Chairman Chief executive
Unaudited group income statement
for the twenty-four weeks ended 15 October 2017
24 weeks to 15 Oct 24 weeks to 16 Oct
2017 2016
================================================ ===============================================
Before Before
Exceptional Exceptional exceptional Exceptional
and and non-underlying and and
non-underlying non-underlying non-underlying
Items Items Total items Items Total
(Note (Note
3) 3)
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 1,031.4 - 1,031.4 1,044.3 - 1,044.3
Operating
costs (843.0) (16.3) (859.3) (840.6) (27.2) (867.8)
Operating
profit 2 188.4 (16.3) 172.1 203.7 (27.2) 176.5
Finance
income 0.4 - 0.4 0.6 - 0.6
Finance costs (60.9) 12.1 (48.8) (65.3) (19.3) (84.6)
Profit before
tax 127.9 (4.2) 123.7 139.0 (46.5) 92.5
Tax 4 (25.6) (1.4) (27.0) (27.7) 9.0 (18.7)
============= ==== ============== ================== ============ ============== ================ ===========
Profit
attributable
to equity
holders
of parent 102.3 (5.6) 96.7 111.3 (37.5) 73.8
============= ==== ============== ================== ============ ============== ================ ===========
Earnings per
share
- basic 5 31.2p 23.9p
- adjusted
basic 36.0
(1) 5 33.0 p p
- diluted 5 31.2p 23.8p
- adjusted
diluted 35.9
(1) 5 33.0 p p
Dividend
proposed 8.80 p 8.80
per share in p
respect
of the
period
============= ==== ============== ================== ============ ============== ================ ===========
(1) Adjusted earnings per share excludes the effect of exceptional and non-underlying items.
Unaudited group statement of comprehensive income
for the twenty-four weeks ended 15 October 2017
24 weeks 24 weeks
to to
15 Oct 16 Oct
2017 2016
GBPm GBPm
Profit for the period 96.7 73.8
========================================= =================== =================
Other comprehensive income/(loss)
to be reclassified to the income
statement in subsequent periods:
Cash flow hedges
Gains/(Losses) on cash flow hedges
taken to other comprehensive income 10.7 (43.4)
Transfers to income statement
on cash flow hedges 12.9 12.6
Tax on cash flow hedges (3.2) 4.7
========================================= =================== =================
20.4 (26.1)
======================================= =================== =================
Items not to be reclassified to
the income statement in subsequent
periods:
Re-measurement gains/(losses) on
defined benefit pension schemes 21.3 (66.1)
Tax on re-measurement (gains)/losses (3.6) 11.2
========================================= =================== =================
17.7 (54.9)
======================================= =================== =================
Other comprehensive gain/(loss)
for the period, net of tax 38.1 (81.0)
========================================= =================== =================
Total comprehensive income/(loss)
for the period, net of tax 134.8 (7.2)
========================================= =================== =================
Unaudited group balance sheet
as at 15 October 2017
As at As at
15 Oct 30 April
2017 2017
See note
11
Note GBPm GBPm
Non-current assets
Property, plant and equipment 3,631.4 3,621.9
Intangible assets 158.2 163.7
Goodwill 1,105.9 1,108.8
Financial assets 14.4 16.3
Deferred tax assets 36.3 63.1
Post-employment assets 11 17.9 16.7
Prepayments 0.2 0.2
Trade and other receivables 0.1 0.1
================================= ==== ================== =================
4,964.4 4,990.8
================================= ==== ================== =================
Current assets
Inventories 49.7 45.0
Financial assets 10.6 10.1
Income tax receivable 6.1
Prepayments 26.2 27.6
Trade and other receivables 86.4 93.3
Cash and cash equivalents 8 391.1 443.0
================================= ==== ================== =================
570.1 619.0
Property, plant and equipment
held for sale 15.0 5.1
================================= ==== ================== =================
585.1 624.1
================================= ==== ================== =================
Current liabilities
Borrowings 8 (224.3) (219.7)
Derivative financial instruments 9 (29.8) (30.9)
Trade and other payables (420.1) (429.3)
Off market contract liabilities (18.2) (21.3)
Income tax payable (12.6)
Provisions 10 (26.0) (26.9)
================================= ==== ================== =================
(718.4) (740.7)
================================= ==== ================== =================
Non-current liabilities
Borrowings 8 (2,285.7) (2,297.8)
Trade and other payables (1.9) (1.9)
Off market contract liabilities (233.7) (264.1)
Derivative financial instruments 9 (278.2) (313.9)
Deferred tax liabilities (9.8)
Post-employment liabilities 11 (6.3) (27.9)
Provisions 10 (21.6) (14.6)
================================= ==== ================== =================
(2,827.4) (2,930.0)
================================= ==== ================== =================
Total net assets 2,003.7 1,944.2
================================= ==== ================== =================
Issued capital and reserves
Share capital 38.7 38.7
Share premium 262.0 261.7
Merger reserve 752.0 752.0
Capital redemption reserve 3.3 3.3
Hedging reserve (171.8) (192.2)
Own shares (0.5) (0.2)
Retained earnings 1,120.0 1,080.9
================================= ==== ================== =================
Total equity 2,003.7 1,944.2
================================= ==== ================== =================
Net debt 8 2,118.9 2,074.5
================================= ==== ================== =================
Unaudited group cash flow statement
for the twenty-four weeks ended 15 October 2017
24 weeks 24 weeks
to to
15 Oct 16 Oct
2017 2016
Note GBPm GBPm
Operating profit 172.1 176.5
Operating exceptional
and non-underlying items 16.3 27.2
Depreciation and amortisation 52.3 50.7
================================ ==== =================== =====================
EBITDA(1) 240.7 254.4
Working capital and non-cash
movements 7 (43.1) (17.1)
Interest received 0.4 0.6
Interest paid (65.6) (80.9)
Tax paid (35.5) (31.1)
================================ ==== =================== =====================
Net cash flow from operating
activities 96.9 125.9
================================ ==== =================== =====================
Investing activities
Purchase of property,
plant and equipment (82.8) (96.9)
Advances of trade loans (1.9) (1.9)
Repayment of trade loans 3.3 3.2
Sales of property, plant
and equipment 16.8 7.5
Net cash flow from investing
activities (64.6) (88.1)
================================ ==== =================== =====================
Financing activities
Equity dividends paid 6 (75.6) (72.9)
Issue of shares 0.3 0.3
Purchase of own shares (0.5)
Payment of derivative
liabilities (116.6)
Securitised bond issuance 300.0
Financing costs (4.9)
Repayment of borrowings 8 (52.9) (166.1)
Advance of borrowings 8 30.0
================================ ==== =================== =====================
Net cash flow from financing
activities (98.7) (60.2)
================================ ==== =================== =====================
Net decrease in cash and
cash equivalents (66.4) (22.4)
================================ ==== =================== =====================
Opening cash and cash
equivalents 443.0 375.9
Closing cash and cash
equivalents 8 376.6 353.5
================================ ==== =================== =====================
(1) EBITDA represents earnings before interest, tax, depreciation, amortisation, exceptional and non-underlying items.
Unaudited GROUP statement of changes in equity
for the twenty-four weeks ended 15 October 2017
Share Share Merger Capital Hedging Own Retained Total
capital premium reserve redemption reserve shares earnings
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 30 April 2017 38.7 261.7 752.0 3.3 (192.2) (0.2) 1,080.9 1,944.2
Profit for the
period - - - - - - 96.7 96.7
Other comprehensive
income - - - - 20.4 - 17.7 38.1
------------------- ---------- ------- ------- ---------- ------------ --------- -------------- --------------
Total comprehensive
income - - - - 20.4 - 114.4 134.8
Issue of share
capital - 0.3 - - - 0.2 (0.2) 0.3
Purchase of shares - - - - - (0.5) - (0.5)
Share-based
payments - - - - - - 0.5 0.5
Equity dividends
paid - - - - - - (75.6) (75.6)
At 15 October 2017 38.7 262.0 752.0 3.3 (171.8) (0.5) 1,120.0 2,003.7
=================== ========== ======= ======= ========== ============ ========= ============== ==============
Share Share Merger Capital Hedging Own Retained Total
capital premium Reserve redemption reserve shares Earnings
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 May 2016 38.6 261.0 752.0 3.3 (182.0) (0.2) 1,000.9 1,873.6
Profit for the
period - - - - - - 73.8 73.8
Other comprehensive
loss - - - - (26.1) - (54.9) (81.0)
Total comprehensive
(loss)/ income - - - - (26.1) - 18.9 (7.2)
Issue of share
capital 0.3 - - - - - - 0.3
Release of shares - - - - - - - -
Share-based payments - - - - - - 2.2 2.2
Equity dividends
paid - - - - - - (72.9) (72.9)
At 16 October 2016 38.9 261.0 752.0 3.3 (208.1) (0.2) 949.1 1,796.0
===================== ======= ============ ======= ========== ============== ======== ============ =======
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
1 BASIS OF PREPARATION
The interim condensed consolidated financial statements are prepared in accordance with Disclosure and Transparency rules and with IAS 34 Interim Financial Reporting. The financial information contained in this interim statement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.
The figures for the period ended 30 April 2017 have been derived from the statutory accounts of the group for that year. These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by auditors without qualification, emphasis of matter or statement under Sections 498(2) and 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.
The interim condensed consolidated financial statements for the 24 weeks ended 15 October 2017 and the comparatives to 16 October 2016 are unaudited but have been reviewed by the auditor; a copy of their review report is included at the end of this report.
A combination of the strong operational cash flows generated by the business, and the significant available headroom on its credit facilities, support the directors' view that the group has sufficient funds available to meet its foreseeable working capital requirements. The directors, having also considered the principal risks, have therefore concluded that the going concern basis of accounting remains appropriate.
The accounting policies adopted in the preparation of the interim report are consistent with those applied in the preparation of the group's annual report for the period ended 30 April 2017, except for the adoption of new standards and interpretations applicable as of 1 May 2017. To aid comparability, prior year exceptional and non-underlying items (note 3) has been reanalysed to allow a better understanding of the underlying performance of the business, and in line with disclosure in the 2017 annual report.
The preparation of the interim report requires management to make judgements, estimates and assumptions in the application of accounting policies that affect reported amounts of assets and liabilities, income and expense. The estimates and judgements considered to be significant are consistent with those applied in the preparation of the group's annual report for the period ended 30 April 2017, except for the discount rate applied to cash flow projections within impairment calculations which has been revised to 8.0% (30 April 2017: 8.65%).
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
2 SEGMENT INFORMATION
The group has determined three reportable segments that are largely organised and managed separately according to the nature of products and services provided, distribution channels and profile of customers. The segments include the following businesses:
Pub Company: Managed pubs and restaurants
Pub Partners: Tenanted and leased pubs
Brewing & Brands: Brewing, marketing and selling beer
Segmental operating profit is profit before exceptional and non-underlying items, finance costs and income tax.
24 weeks to 15 October
2017
Pub Pub Brewing Corporate Total
Company Partners & Brands operations
GBPm GBPm GBPm GBPm GBPm
Revenue 837.0 92.1 102.3 - 1,031.4
============================ ======== ======== ======== ========= ==============
Segment operating
profit 136.9 43.6 14.8 (6.9) 188.4
============================ ======== ======== ======== ========= ==============
Exceptional and
non-underlying items (16.3)
Net finance cost (48.4)
Income tax charge (27.0)
============================ ======== ======== ======== ========= ==============
Net profit for the
period 96.7
============================ ======== ======== ======== ========= ==============
EBITDA(1) 180.7 48.3 17.1 (5.4) 240.7
============================ ======== ======== ======== ========= ==============
As at 15 October
2017
Segment assets 3,763.2 891.1 398.0 45.8 5,098.1
Unallocated assets(2) - - - - 451.4
============================ ======== ======== ======== ========= ==============
3,763.2 891.1 398.0 45.8 5,549.5
Segment liabilities (386.6) (48.0) (112.0) (150.6) (697.2)
Unallocated liabilities(2) - - - - (2,848.6)
============================ ======== ======== ======== ========= ==============
(386.6) (48.0) (112.0) (150.6) (3,545.8)
============================ ======== ======== ======== ========= ==============
Net assets 3,376.6 843.1 286.0 (104.8) 2,003.7
============================ ======== ======== ======== ========= ==============
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
2 Segment information (continued)
24 weeks to 16 October
2016
Pub Pub Brewing Corporate Total
Company Partners & Brands operations
GBPm GBPm GBPm GBPm GBPm
Revenue 855.9 93.6 94.8 - 1,044.3
============================ ======== ======== ======== ========= ==============
Segment operating
profit 154.5 43.7 14.8 (9.3) 203.7
============================ ======== ======== ======== ========= ==============
Exceptional and
non-underlying items (27.2)
Net finance cost (84.0)
Income tax charge (18.7)
============================ ======== ======== ======== ========= ==============
Net profit for the
period 73.8
============================ ======== ======== ======== ========= ==============
EBITDA(1) 196.8 48.4 17.2 (8.0) 254.4
============================ ======== ======== ======== ========= ==============
As at 30 April 2017
Segment assets 3,750.5 892.8 394.0 54.8 5,092.1
Unallocated assets(2) - - - - 522.8
============================ ======== ======== ======== ========= ==============
3,750.5 892.8 394.0 54.8 5,614.9
Segment liabilities (428.3) (46.8) (107.8) (149.6) (732.5)
Unallocated liabilities(2) - - - - (2,938.2)
============================ ======== ======== ======== ========= ==============
(428.3) (46.8) (107.8) (149.6) (3,670.7)
============================ ======== ======== ======== ========= ==============
Net assets 3,322.2 846.0 286.2 (94.8) 1,944.2
============================ ======== ======== ======== ========= ==============
(1) EBITDA represents earnings before interest, tax, depreciation, amortisation, exceptional and non-underlying items.
(2) Unallocated assets/liabilities comprise cash, borrowings, pensions, deferred tax, current tax, indirect tax provisions and derivatives.
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
3 Exceptional and Non-underlying items
24 weeks 24 weeks
to to
15 Oct 16 Oct
2017 2016
GBPm GBPm
Included in operating profit
Exceptional items
Acquisition and integration costs 3.9 5.8
Net impairment of property, plant
and equipment 14.0 25.9
Non-underlying items
Net profit on disposal of property,
plant and equipment, and goodwill (1.6) (1.8)
Pension settlement - (2.7)
======================================== ========================== =================
16.3 27.2
Included in financing costs
Exceptional items
Settlement of financial liabilities (5.1) -
Gain on settlement of interest rate
swap liabilities - (12.2)
Fair value movements of derivatives
held at fair value through profit
and loss (12.5) 26.6
Non-underlying items
Fair value losses on ineffective
element of cash flow hedges - 0.5
Amounts recycled from hedging reserve
in respect of settled interest rate
liabilities 5.5 5.2
Interest in respect of uncertain
tax positions - (0.8)
---------------------------------------- -------------------------- ----------------- Total exceptional and non-underlying items before tax 4.2 46.5 ======================================== ========================== ================= Tax Exceptional items Tax impact of exceptional items 2.4 (4.6) Adjustment in respect of prior periods - 2.2 Tax credit in respect of the licensed estate - (1.0) Non-underlying items Tax impact of non-underlying items (1.0) (0.2) Tax credit in respect of the licensed estate - (6.0) Tax charge in respect of rate change - 0.6 ======================================== ========================== ================= Total exceptional and non-underlying tax 1.4 (9.0) ======================================== ========================== ================= Total exceptional and non-underlying items after tax 5.6 37.5 ======================================== ========================== =================
Exceptional acquisition and integration costs are items of one-off expenditure incurred in connection with the acquisition and integration of Spirit Pub Company.
During the 24 week period to 15 October 2017 the group has recognised a net impairment loss of GBP14.0m (2016: GBP25.9m) in respect of its licensed estate. This is comprised of an impairment charge of GBP19.8m (2016: GBP37.6m) and a reversal of previously recognised impairment losses of GBP5.8m (2016: GBP11.7m). Impairment has been recognised in respect of a small number of pubs and is driven by changes in the local competitive and trading environment at the respective sites, and changes to estimates of fair value less costs of disposal. In addition to this impairment, reversals have been recognised following an improvement in trading performance and an increase in amounts of estimated future cash flows for previously impaired sites.
The net profit on disposal of property, plant and equipment of GBP1.6m (2016: GBP1.8m) comprises a total profit on disposal of GBP23.0m (2016: GBP8.6m) and a total loss on disposal of GBP21.4m (2016: GBP6.8m).
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
3 Exceptional and non-underlying items (continued)
Financing
During the period the group settled financial liabilities in relation to the Spirit secured financing vehicle, recognising a net gain of GBP5.1m. The financial guarantee provided by Ambac in respect of a number of Spirit secured bonds was terminated for cash consideration of GBP12.6m with a further GBP2.2m of consent and other fees paid. The fair value of this off-market contract liability was initially recognised as part of the acquisition fair values of Spirit Pub Company. A gain of GBP5.9m, being the difference between the carrying value of the liability and the total cash consideration and fees incurred in order to terminate it, has been recognised. In addition the A3 Spirit secured bond was fully repaid for its par value of GBP27.7m resulting in a loss on early settlement of GBP0.6m compared to the bond's carrying value.
During the prior period following the issue of GBP300m secured bonds, a number of the group's swap liabilities were settled at a discount recognising a GBP12.2m exceptional gain.
Exceptional tax
On 16 October 2017 agreement was reached with HMRC regarding an internal property arrangement (see note 10). Apart from the treatment of repairs, which we expect to resolve by the end of the financial year, this has been fully provided in prior periods.
The Finance Act 2016 reduced the rate of corporation tax from 19% to 17% from 1 April 2020. The reduction had been enacted at the prior year balance sheet date and was therefore included in those accounts. The net deferred tax liability has been calculated using the rates at which each temporary difference is expected to reverse.
4 Tax
The tax charge before exceptional items is GBP25.6m which equates to an effective tax rate of 20% for the year ended 29 April 2018. This compares to an effective rate of 19.9% for the same period last year.
5 Earnings per share
Basic earnings per share has been calculated by dividing the profit attributable to equity holders of GBP96.7m (2016: GBP73.8m) by the weighted average number of shares in issue during the period (excluding own shares held) of 309.9m (2016: 309.1m).
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.
Earnings Basic earnings Diluted earnings
per share per share
24 weeks 24 weeks 24 weeks 24 weeks 24 weeks 24 weeks
to to to to to to
15 Oct 16 Oct 2016 15 Oct 16 Oct 15 Oct 16 Oct
2017 2017 2016 2017 2016
GBPm GBPm p p p p
Basic 96.7 73.8 31.2 23.9 31.2 23.8
Exceptional
items 5.6 37.5 1.8 12.1 1.8 12.1
============ ======== =========== ======== ======== ======== ========
Adjusted 102.3 111.3 33.0 36.0 33.0 35.9
============ ======== =========== ======== ======== ======== ========
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
5 EARNINGS PER SHARE (continued)
Diluted earnings per share has been calculated on a similar basis taking account of 0.5m (2016: 1.0m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 310.4m (2016: 310.1m). There were 0.5m (2016: nil) anti-dilutive share options excluded from the diluted earnings per share calculation. The performance conditions for share options granted over 2.7m (2016: 2.5m) 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.
Treasury shares and shares held by the EBT are excluded from the calculation of weighted average number of shares in issue.
6 Dividends paid
24 weeks 24 weeks
to to
15 Oct 16 Oct
2017 2016
GBPm GBPm
Declared and paid in the period
Final dividend for 2016/17
- 24.40p (2015/16: 23.60p) 75.6 72.9
================================= ======== ========
7 Working capital and non-cash movements
24 weeks 24 weeks
to to
15 Oct 16 Oct
2017 2016
GBPm GBPm
Increase in inventories (4.7) (2.9)
Decrease/(increase) in trade and
other receivables 8.3 (2.6)
(Decrease)/increase in trade and
other payables (12.7) 11.4
Decrease in off-market contract
liabilities (9.5) (11.8)
Decrease in provisions (0.5) (0.1)
Other non-cash movements (0.2)
Share-based payments 0.5 2.2
Difference between defined benefit
pension contributions paid and amounts
charged (1.7) (2.4)
Operating exceptional and non-underlying
items (22.8) (10.7)
========================================== ================ ========
Working capital and non-cash movements (43.1) (17.1)
========================================== ================ ========
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
8 Analysis and movements in net debt
As at Financing Other As at
30 non- 15
April cash cash Oct 2017
2017 flows changes
GBPm GBPm GBPm GBPm
Cash and cash equivalents
Cash at bank and in hand 285.5 (51.9) - 233.6
Liquidity facility reserve 157.5 - - 157.5
Cash and cash equivalents
for balance sheet 443.0 (51.9) - 391.1
Overdrafts - (14.5) - (14.5)
Cash and cash equivalents
for cash flow 443.0 (66.4) - 376.6
Liabilities from financing
activities
Finance leases (21.6) 0.5 - (21.1)
Liquidity facility loan (157.5) - - (157.5)
Bank loans - floating rate (168.3) (30.0) (0.2) (198.5)
Securitised borrowing (2,170.1) 52.4 (0.7) (2,118.4)
============================ ========= ========= =============== =========
(2,517.5) 22.9 (0.9) (2,495.5)
Net debt (2,074.5) (43.5) (0.9) (2,118.9)
============================ ========= ========= =============== =========
On 28 June 2017 the group repaid the GBP27.7m Class A3 secured loan note issued by Spirit Issuer plc at par.
At the start of the period the group's revolving credit facility was GBP170m drawn: following advances totalling GBP30m the amount drawn at the period end was GBP200m.
9 Financial instruments
IFRS 13 requires the classification of financial instruments measured at fair value to be determined by reference to the source of inputs used to derive fair value.
The following derivative financial liabilities are held at fair value:
As at As at
15 Oct 30 April
2017 2017
GBPm GBPm
Interest rate swaps 308.0 344.8
====================== ====== ========
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 15 October 2017 was GBP2,214.9m (30 April 2017: GBP2,254.0m) compared to a carrying value of GBP2,118.4m (30 April 2017: GBP2,170.1m).
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
10 PROVISIONS
Indirect Property Off market Total
tax provision leases liabilities provisions
GBPm GBPm GBPm GBPm
At 30 April 2017 25.6 15.9 285.4 326.9
Unwinding of discount
element of provision 0.1 6.1 6.2
Provided for during
the period 0.3 8.1 8.4
Utilised during the
period (0.5) (24.3) (24.8)
Released (1.5) (0.4) (15.3) (17.2)
----------------------- --------------- --------- ------------- ------------
At 15 October 2017 24.4 23.2 251.9 299.5
----------------------- --------------- --------- ------------- ------------
Provisions have been analysed between current and non-current as follows
15 October 2017
Indirect Property Off market Total
tax provision leases liabilities provisions
GBPm GBPm GBPm GBPm
Current 24.4 1.6 18.2 44.2
Non-current 21.6 233.7 255.3
------------- --------------- --------- ------------- ------------
24.4 23.2 251.9 299.5
------------- --------------- --------- ------------- ------------
Off market contract liabilities
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.
Property leases
The provision for property leases has been set up to cover operating costs of vacant or loss making premises as well as dilapidation requirements.
Indirect tax provisions
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 GBP6.5m 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.
In the prior period the group made a provision of GBP1.5m for Stamp Duty Land Tax (SDLT) that could have arisen as a consequence of settling an internal property arrangement implemented in 2012. On 16 October 2017 HMRC agreed that no SDLT was payable so this provision has therefore been released.
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
11 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 15 October 2017 was GBP11.6m, an improvement of GBP22.8m from the position as at 30 April 2017.
The 2017 comparative has been restated to reflect the grossing up of pension assets and liabilities for the separate defined benefit schemes.
Movements in this (liability)/asset are as follows:
Schemes
Greene King Spirit Total
GBPm GBPm GBPm
Post-employment (liabilities)/
assets at 30 April 2017 (27.9) 16.7 (11.2)
Re-measurement gains and losses:
Return on plan assets (excluding
amounts included in net expenses) 13.8 (7.5) 6.3
Changes in financial assumptions
relating to liabilities 6.5 8.5 15.0
=================================== =========== ========== ===========
20.3 1.0 21.3
Employer contributions 1.7 - 1.7
Net interest on pension scheme
obligations (0.4) 0.2 (0.2)
Post-employment (liabilities)/
assets at 15 October 2017 (6.3) 17.9 11.6
=================================== =========== ========== ===========
The improvement in the pension position is driven by higher than expected asset returns, and a small increase in the discount rate from 2.7 - 2.8% used at 30 April 2017 to 2.8 - 2.9% used at 15 October 2017 reducing the liabilities to the schemes. Other key assumptions are in respect of RPI inflation and CPI inflation which have remained consistent at 3.3% and 2.2% respectively.
12 RELATED PARTY TRANSACTIONS
No transactions have been entered into with related parties during the period.
Greene King Finance plc and Spirit Issuer plc are structured entities set up to raise bond finance for the group, and as such are deemed to be related parties. The results and financial position of the entities have been consolidated.
Notes to the accounts
for the twenty-four weeks ended 15 October 2017
13 Post balance sheet events
Interim dividend
An interim dividend of 8.80p per share (2016: 8.80p) amounting to a dividend of GBP27.3m (2016: GBP27.3m) was declared by the directors at their meeting on 29 November 2017. These financial statements do not reflect this dividend payable.
Borrowings
On 27 November 2017, the group amended its existing GBP400 million revolving credit facility to incorporate a new GBP350 million revolving 3 year facility, taking the total facilities to GBP750 million. The new facility is available to fund the internal transfer of pubs from the Spirit debenture improving our ability to refinance Spirit debenture bonds and related swaps.
Furthermore the group has given notice of its intention to prepay GBP189 million of the Spirit class A1, A6 and A7 debenture bonds at par on 28 December 2017; these bonds were classified as non-current liabilities as at 15 October 2017. The group also expects to make a one off payment of GBP43 million to terminate the long dated interest rate swaps relating to these prepaid bonds.
Independent review report to Greene King plc
Introduction
We have been engaged by Greene King plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the twenty four week period ended 15 October 2017 which comprises the Interim group income statement, the Interim group statement of comprehensive income, the Interim group balance sheet, the Interim group cash flow statement, the Interim group statement of changes in equity and the related notes 1 to 13. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 24 week period ended 15 October 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
29 November 2017
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 we believe this provides both management and investors with useful additional information about the group's performance and aids a more effective comparison of the groups 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 on-going business performance against both shorter term budgets and forecast but also against the group's longer term strategic plans. The definition of each APM presented in this report and, also, 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
-------------------------------------- -------------------------------------- --------------------------------------
Group EBITDA Earnings before interest, tax, Group cash flow statement
depreciation, amortisation,
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 statements
non-underlying items (PBTE) exceptional and non-underlying items
-------------------------------------- -------------------------------------- --------------------------------------
Adjusted Basic Earnings per share Earnings per share excluding the Note 5 to the financial statements
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 annualised
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. Note E below
Calculated by dividing annualised
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 Pub investment not expected to Note F below
generate 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 24 week period
in the prior year
for pubs that were trading for the
entirety of both 24 week periods. The
calculations include
figures for acquired Spirit pubs for
a comparable 24 week period in both
the current and comparative
financial year.
-------------------------------------- -------------------------------------- --------------------------------------
Pub Company operating profit before Pub Company operating profit Note 2 to the financial statements
exceptional and non-underlying items excluding exceptional and
non-underlying items
-------------------------------------- -------------------------------------- --------------------------------------
Pub Company EBITDA Pub Company earnings before interest, Note 2 to the financial statements
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 like-for-like net profit Pub Partners' LFL profit includes pub Note H below
growth operating profit and central
overheads but excludes
exceptional items and non-underlying
items.
LFL profit performance is calculated
against a comparable 24 week period
in the prior year
for pubs that were trading for the
entirety of both 24 week periods. The
calculation includes
figures for acquired Spirit pubs for
a comparable 24 week period in both
the current and comparative
financial year.
-------------------------------------- -------------------------------------- --------------------------------------
Pub Partners EBITDA Pub Partners earnings before Note 2 to the financial statements
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 financial statements
exceptional items excluding exceptional and
non-underlying items
-------------------------------------- -------------------------------------- --------------------------------------
Brewing & Brands operating profit Brewing Company operating profit Note 2 to the financial statements
before exceptional items excluding exceptional and
non-underlying items
-------------------------------------- -------------------------------------- --------------------------------------
In addition the group uses the following non-financial KPIs to assess performance against its strategic objectives:
Measure Definition
--------------------------------------- -----------------------------------------------------------------------------
Brewing & Brands OBV growth (%) Year-on-year growth in the volume of sales of beer brewed at our Greene King
and Belhaven
breweries.
--------------------------------------- -----------------------------------------------------------------------------
Pub Company net promoter score (NPS) % Calculated by asking customers how likely they are to recommend the pub on a
scale of 0-10
(10 being the most favourable). The percentage of responses where the score
is 0-6 (brand
detractors is subtracted from the percentage of responses where the score is
9 or 10 (brand
promoters) to give the NPS. Scores of 7 or 8 (passive responses) are
ignored.
--------------------------------------- -----------------------------------------------------------------------------
Team turnover The percentage of leavers against the average headcount over a rolling
annual period, excluding
any student leavers.
--------------------------------------- -----------------------------------------------------------------------------
Team engagement The proportion of respondents who agreed with the following statement: "I
would recommend
Greene King as a great place to work to others".
--------------------------------------- -----------------------------------------------------------------------------
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 F below.
Source H1 2018 2017 H1 2017
GBPm GBPm GBPm
Incremental annualised
EBITDA Non-GAAP 9.9 11.8 2.2
Total core capital investment
in completed schemes Non-GAAP 29.3 48.2 21.5
Return on investment 33.8% 24.5% 10.2%
B. NET DEBT : EBITDA
Source H1 2018 2017 H1 2017
GBPm GBPm GBPm
Group balance
Net debt sheet 2,118.9 2,074.5 2,200.1
------------------ -------------- ------- ------- -------
EBITDA
Cash flow
Reported statement 240.7 254.4
Prior year H2 269.7 273.0
---------------------------------- ------- ------- -------
Annualised EBITDA 510.4 524.1 527.4
---------------------------------- ------- ------- -------
Net debt : EBITDA 4.2x 4.0x 4.2x
---------------------------------- ------- ------- -------
C. FREE CASH FLOW
Source H1 2018 2017 H1 2017
GBPm GBPm GBPm
Cash flow
EBITDA statement 240.7 524.1 254.4
Working capital and other
movements Note 7 (43.1) (29.2) (17.1)
Add back: exceptional
items Note 7 22.8 14.4 10.7
---------------------------- ------------- -------------- ----------------- -----------------
220.4 509.3 248.0
------------------------------------------ -------------- ----------------- -----------------
Cash flow
Tax payments statement (35.5) (48.6) (31.1)
Add back: exceptional
payments Non-GAAP - 20.6 20.7
Add back: impact of changes
to payment regimes Non-GAAP 26.0 -
---------------------------- ------------- -------------- ----------------- -----------------
(9.5) (28.0) (10.4)
------------------------------------------ -------------- ----------------- -----------------
Cash flow
Interest received statement 0.4 1.0 0.6
Cash flow
Interest paid statement (65.6) (148.1) (80.9)
Add back: exceptional
interest paid Non-GAAP 0.0 12.2 13.2
---------------------------- ------------- -------------- ----------------- -----------------
Net interest paid - excluding
exceptional and non-underlying
items (65.2) (134.9) (67.1)
------------------------------------------- -------------- ----------------- -----------------
Core capex Note F below (60.0) (126.0) (56.5)
Net repayment / (advance) Cash flow
of free trade loans statement 1.4 0.2 1.3
Cash flow
Equity dividends paid statement (75.6) (100.1) (72.9)
Other non-cash movements Note 8 (0.9) (0.9) 0.0
Free cash flow 10.6 119.6 42.4
------------------------------------------- -------------- ----------------- -----------------
D. FIXED CHARGE COVER
Source H1 2018 2017 H1 2017
GBPm GBPm GBPm
Annualised EBITDA Note B above 510.4 524.1 527.4
Annualised operating
lease rental payments Non-GAAP 90.6 91.0 89.5
Add back: Annualised
off market lease liability
and other property provisions
utilised Non-GAAP (20.2) (21.2) (24.1)
Annualised non-returning
capex - cash Note F below (77.7) (75.7) (71.7)
------------------------------- ------------- ----------------- ----------------- -----------------
503.1 518.2 521.1
--------------------------------------------- ----------------- ----------------- -----------------
Annualised net interest
paid - excluding exceptional
items See below 133.0 134.9 139.5
Annualised operating
lease rental payments Non-GAAP 90.6 91.0 89.5
------------------------------- ------------- ----------------- ----------------- -----------------
223.6 225.9 229.0
--------------------------------------------- ----------------- ----------------- -----------------
Fixed Charge cover 2.3x 2.3x 2.3x
Annualised net interest
paid
Reported Note C above 65.2 134.9 67.1
Prior year H2 67.8 - 72.4
---------------------------------------------- ----------------- ----------------- -----------------
133.0 134.9 139.5
--------------------------------------------- ----------------- ----------------- -----------------
To remove the impact of the seasonality of the group's business the calculation of fixed charge cover is presented on an annualised basis. The calculation of fixed charge cover shown above for FY 17 has also been updated to more fully reflect the total rental costs of the business, this has not impacted the measure presented.
E. RETURN ON CAPITAL EMPLOYED
Source H1 2018 2017 H1 2017
GBPm GBPm GBPm
Operating profit before
exceptional and non-underlying
items
H1 - reported Income statement 188.4 203.7
Prior year H2 207.8 212.0
--------------------------------------------------- ---------------- --------------- ----------------
Annualised operating
profit before exceptional
and non-underlying items 396.2 411.5 415.7
--------------------------------------------------- ---------------- --------------- ----------------
Average capital employed:
Group balance
Net assets sheet 2,003.7 1,944.2 1,796.0
Add back:
Group balance
Deferred tax assets sheet (36.3) (63.1) (89.0)
Group balance
Deferred tax liabilities sheet - 9.8 10.0
Post-employment (assets)/ Group balance
liabilities sheet (11.6) 11.2 115.5
Group balance
Derivatives sheet 308.0 344.8 370.8
Group balance
Net debt sheet 2,118.9 2,074.5 2,200.1
-------------------------------- ----------------- ---------------- --------------- ----------------
Capital employed Non-GAAP 4,382.7 4,321.4 4,403.4
Timing adjustment Non-GAAP 19.0 75.2 1.4
Average capital employed Non-GAAP 4,401.7 4,396.6 4,404.8
-------------------------------- ----------------- ---------------- --------------- ----------------
ROCE% 9.0% 9.4% 9.4%
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 H1 2018 2017 H1 2017
GBPm GBPm GBPm
Non-returning pub
capex(1) Non-GAAP 37.5 75.7 35.5
Development capex Non-GAAP 22.5 50.3 21.0
------------------------- -------------------- ------- ----- -------
Core capex Non-GAAP 60.0 126.0 56.5
Brand optimisation
and new site investment Non-GAAP 22.8 68.9 40.4
------------------------- -------------------- ------- ----- -------
Purchase of property,
plant and equipment Cash flow statement 82.8 194.9 96.9
------------------------- -------------------- ------- ----- -------
Annualised non-returning
capex:
H1 As above 37.5 35.5
Prior year H2 40.2 36.2
----------------------------------------------- ------- ----- -------
77.7 71.7
---------------------------------------------- ------- ----- -------
(1) Non-returning capex also referred to as "maintenance capex"
G. PUB COMPANY LIKE-FOR-LIKE (LFL) SALES
H1 2018 CALCULATIONS Source 2018 2017 YoY%
GBPm GBPm
Reported Revenue Note 2 837.0 855.9 -2.2%
Less: Other non-LFL revenue Non-GAAP (37.1) (44.9)
-------------------------------------- --------- ------------- ------------------
LFL Sales 799.9 811.0 -1.4%
------------------------------------------------- ------------- ------------------
H1 2017 CALCULATIONS Source 2017 2016 YoY%
GBPm GBPm
Reported Revenue Note 2 855.9 740.2 +15.6%
Add: Spirit pre-acquisition LFL sales Non-GAAP - 98.3
Less: Other non-LFL revenue Non-GAAP (64.6) (57.6)
-------------------------------------- --------- ------------- ------------------
LFL Sales 791.3 780.9 +1.3%
------------------------------------------------- ------------- ------------------
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.
The H1 2017 LFL sales figures quoted takes account of the sales performance of Spirit pubs that have been owned and operated within the Spirit business for the period under review. Therefore to arrive at the LFL sales figure for 2016, LFL sales for the seven week period pre-acquisition have been included.
H. PUB PARTNERS LIKE-FOR-LIKE (LFL) NET PROFIT
H1 2018 CALCULATIONS Source 2018 2017 YoY%
GBPm GBPm
Reported Profit Note 2 43.6 43.7 -0.2%
Less: Other non-LFL adjustments Non-GAAP (2.4) (3.1)
-------------------------------------- --------- ------ -----
LFL Profit 41.2 40.6 +1.5%
------------------------------------------------- ------ -----
H1 2017 CALCULATIONS Source 2017 2016 YoY%
GBPm GBPm
Reported Profit Note 2 43.7 36.7 +19.1%
Add: Spirit pre-acquisition LFL sales Non-GAAP 0.0 4.6
Less: Other non-LFL adjustments Non-GAAP (3.4) (3.4)
-------------------------------------- --------- ------ -----
LFL Profit 40.3 37.9 +6.3%
------------------------------------------------- ------ -----
Non-LFL profit adjustments are in respect of pre-disposal net profit from pubs that were disposed of in the current or prior year.
The H1 2017 LFL profit figures quoted takes account of the profit performance of Spirit pubs that were owned and operated within the Spirit tenanted and leased business for the period under review. Therefore to arrive at the LfL net profit figure for 2016, LFL profits for the seven week period pre-acquisition have been included.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LIFFILELIVID
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November 30, 2017 02:01 ET (07:01 GMT)
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