TIDMGNK
RNS Number : 8329S
Greene King PLC
28 June 2018
PRELIMINARY RESULTS FOR THE 52 WEEKS TO 29 APRIL 2018
Group revenue Adjusted Statutory Adjusted Dividend Net debt: Return
profit before profit before earnings per share(3) EBITDA(1,2) on capital
tax(1,2) tax per share(1,2) employed(2)
GBP2,176.7m GBP243.0m GBP197.5m 62.7p 33.2p 4.2x 8.5%
-1.8% -11.2% +6.8% -11.4% Flat +0.2x -0.9%pts
-------------- --------------- --------------- ---------------- -------------- ------------- -------------
HIGHLIGHTS(2)
Successful customer investment and cost mitigation
programmes
-- Pub Company like-for-like (LFL) sales -1.2% excluding the
impact of snow, up 20 bps since the half year; improved customer
service scores
-- Driven by investment in value, service and quality (VSQ) and
good Christmas / Easter trading
-- GBP44m cost savings delivered through mitigation programme and Spirit synergies
-- Brand optimisation programme delivered 25% ROI; Fayre & Square fully debranded
-- Pub Partners LFL net profit +0.4%; Brewing & Brands revenue +7.4%
Resilient financial metrics
-- Strong cash generation; GBP89.9m post core capex &
dividends, more than covers debt amortisation
-- Net debt to EBITDA(1,2) 4.2x
-- Well invested and located pub estate; 82% freehold or long leasehold
-- Dividend per share(3) of 33.2p; long-term track record of attractive, sustainable dividend
Strategic priorities to continue driving momentum
-- Improve underlying sales growth in Pub Company
-- Develop a more efficient and effective organisation
-- Further strengthen the capital structure
Current trading and outlook
-- Pub Company LFL sales +2.2% over the last eight weeks, aided
by good weather and sporting fixtures; Pub Partners and Brewing
& Brands trading in line with expectations
-- Strong World Cup trading; 59% of consumers expect to watch an England game at the pub
-- Expect GBP45-50m cost inflation; GBP30-35m cost savings and
targeting Pub Company LFL growth
Rooney Anand, chief executive officer
"We made good progress improving the performance of the business
during the second half of the year, despite a challenging trading
environment. Our investment to improve the customer experience in
our pubs and the focus on our strategic priorities are beginning to
pay off. Positive momentum, both in terms of trading and customer
satisfaction, is returning to our business.
"While it is still early days, this positive momentum has
continued into the new financial year, aided by good weather and
popular sporting events. We remain focused on continuing to drive
top line growth, developing a more efficient organisation and
further strengthening our capital structure to deliver long-term
value creation for our shareholders.
"We expect the trading environment to remain challenging for
some time, but we strongly believe people will continue to choose
the great British pub as the place to enjoy time with friends and
family."
FOR FURTHER INFORMATION
Greene King plc Rooney Anand, chief executive Tel: 01284
officer 763222
Richard Smothers, chief
financial officer
Finsbury Alastair Hetherington / Tel: 0207 251
Philip Walters 3801
Further information is available at www.greeneking.co.uk or on
Twitter using @greeneking
There will be a presentation for analysts and investors at
9.30am at 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
52 weeks F18 F17 YOY Change
Total revenue GBP2,176.7m GBP2,216.5m -1.8%
* Pub Company GBP1,767.7m GBP1,817.4m -2.7%
* Pub Partners GBP193.9m GBP198.8m -2.5%
* Brewing & Brands GBP215.1m GBP200.3m +7.4%
Group EBITDA(1,2) GBP486.6m GBP524.1m -7.2%
Group operating profit before
exceptional and non-underlying
items(1,2) GBP373.1m GBP411.5m -9.3%
* Pub Company GBP268.2m GBP308.1m -13.0%
* Pub Partners GBP91.4m GBP92.8m -1.5%
* Brewing & Brands GBP30.7m GBP31.0m -1.0%
Group operating profit GBP317.0m GBP346.5m -8.5%
Group profit before tax and exceptional
and non-underlying items(2) GBP243.0m GBP273.5m -11.2%
Basic EPS 52.4p 49.0p +6.9%
Adjusted basic EPS(1,2) 62.7p 70.8p -11.4%
Dividend per share(3) 33.2p 33.2p -
Core capital expenditure(2) GBP132.3m GBP126.0m +GBP6.3m
Net debt GBP2,032.3m GBP2,074.5m -GBP42.2m
Net cash flow from operations GBP265.8m GBP299.2m -GBP33.4m
Free cash flow(2) GBP89.9m GBP119.6m -GBP29.7m
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NOTES FOR EDITORS
-- Greene King was founded in 1799 and is headquartered in Bury
St. Edmunds, Suffolk. It currently employs around 39,000 people
across its main trading businesses; Pub Company, Pub Partners and
Brewing & Brands
-- At the end of the financial year, Greene King operated 2,855
pubs, restaurants and hotels across England, Wales and Scotland, of
which 1,745 were retail pubs, restaurants and hotels, and 1,110
were tenanted, leased and franchised pubs. Its leading retail
brands are Greene King Local Pubs, Chef & Brewer, Farmhouse
Inns and Hungry Horse
-- 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
CHAIRMAN'S STATEMENT
OVERVIEW
Greene King is a strong business with an excellent track record
of delivery and resilience in tough market conditions. This has
been a challenging financial year with pressures on both revenue
and margins as consumer confidence remains fragile and a number of
industry-specific input costs continue to rise ahead of headline
inflation. Moreover, adverse weather in the second half and
stronger competition across the year have given us additional
challenges. I am pleased that the investments we made in the
customer offer and other actions taken in the second half are
starting to pay off and that underlying trading is improving. We
are fully focused on delivering our aim of building the best pub
and beer company in Britain.
PERFORMANCE
Group revenue was down 1.8% to GBP2,176.7m and group operating
profit before tax, exceptional and non-underlying items was down
9.3% to GBP373.1m. Group profit before tax rose by 6.8% to
GBP197.5m while group profit before tax, exceptional and
non-underlying items was down 11.2% to GBP243.0m. Adjusted earnings
per share was down 11.4% to 62.7p.
DIVID
While trading this year was below our initial expectations, the
board has recommended a final dividend of 24.4p, reflecting our
confidence in the long-term prospects of the business. This takes
the total dividend for the year to 33.2p, in line with last year.
We have a long-term track record of covering our debt amortisation,
core capital expenditure and dividend from our free cash flow and
the board continues to target a dividend covered approximately two
times by earnings.
PEOPLE
We have 39,000 talented and hard-working team members who are
responsible for the continued success of the business. Under the
leadership of our strong management team, they responded well to
the challenges we are experiencing in the market place and,
supported by the GBP10m investment into value, service and quality,
helped to deliver an improvement in underlying trading in the
second half of the year. I should like to record our thanks for
their effort and commitment.
BOARD CHANGES
In February this year, Richard Smothers joined the board of
Greene King as chief financial officer in succession to Kirk Davis.
Richard has 20 years of experience at blue-chip retail and
consumer-focused companies in senior financial roles. He is a
strong addition to both the board and executive team. I should like
to record the board's thanks to Kirk for his contribution to Greene
King, particularly during the integration of Spirit.
LOOKING AHEAD
We are pleased with the most recent trading performance although
we are aware that we have benefited from better weather and
sporting events. Building pub brands that customers admire remains
central to our strategy and we are focused on providing the
customer with offers that deliver compelling value, service and
quality. We shall maintain our discipline in investing in both our
estate and our people to generate long term value, while continuing
to manage our capital structure prudently. Our aim is that Greene
King will emerge from the current challenging environment stronger
than ever and I look forward to reporting on our progress next
year.
Philip Yea
Chairman
27 June 2018
CHIEF EXECUTIVE'S REVIEW
Greene King has shown its resilience and made good progress on
key initiatives which drove an improvement in the momentum of the
business during a year of unprecedented cost inflation, weak
consumer confidence and increased competition. Snowy weather
impacted trading in the second half of the year but our GBP10m VSQ
customer investment helped to improve underlying Pub Company
trading. Pub Partners delivered another year of increased LFL net
profit while Brewing & Brands grew revenue by 7.4% in a
declining beer market. We have a strong strategy in place to
continue driving momentum in the top line, to mitigate costs and to
deliver value to our customers, our employees, our shareholders and
our communities.
PERFORMANCE SUMMARY
Total revenue was down 1.8% to GBP2,176.7m as a result of the
challenging market conditions and poor weather. EBITDA(1,2) was
GBP486.6m, down 7.2% and operating margin(1,2) decreased 1.5%pts to
17.1%, reflecting the net cost inflation seen in the year as well
as the VSQ investment in Pub Company. Profit before tax,
exceptional and non-underlying items(1,2) was GBP243.0m, in line
with market expectations.
Pub Company revenue was GBP1,767.7m, down 2.7% due to the tough
trading conditions and the 4.4% decrease in the average number of
pubs trading, while average weekly take (AWT) was up 1.6% to
GBP19.6k. Pub Company EBITDA(1,2) was down 10.0% to GBP362.9m and
operating profit margin(1,2) was down 1.8%pts to 15.2% due to the
increased cost pressures, as well as the VSQ investment.
Pub Partners revenue was GBP193.9m, down 2.5% on last year,
driven by the 4.7% decrease in average pubs trading. EBITDA(1,2)
was down 1.7% to GBP101.3m while average EBITDA(1,2) per pub was up
3.1% to GBP88.9k, reflecting our continued estate optimisation.
Brewing & Brands achieved strong revenue growth, up 7.4% to
GBP215.1m driven by increased sales from free trade and exports.
EBITDA(1,2) was down 0.6% to GBP36.0m and operating profit
margin(1,2) was down 1.2%pts to 14.3%, reflecting the change in
product and channel mix.
Free cash flow before disposal proceeds was down 24.8% to
GBP89.9m and our cash generated more than covers our debt service
obligation, core capex expenditure and dividend payments.
Adjusted earnings per share(1,2) was down 11.4% to 62.7p and the
board has recommended a dividend per share of 33.2p, in line with
last year.
The businesses generated a strong return on capital employed
(ROCE) of 8.5% which remains comfortably above our weighted average
cost of capital (WACC).
TRADING ENVIRONMENT
The current trading environment is still characterised by
subdued consumer confidence, intense competition and rising
costs.
Consumer confidence improved slightly since the lows of December
2017, but remains negative (source: GfK) and consumers expect to
continue reducing leisure spend (source: Deloitte Consumer Tracker
Q1 2018). Consumers are keeping a keen eye on costs and continue to
expect more for their money. Other aspects of their behaviour are
changing faster than ever. Spirit-based drinks and breakfast are
growth areas for pubs, as are event-driven customer occasions, both
in terms of key calendar events and in terms of our customers' own
events. Health and diet remain key trends and consumers also favour
brands associated with local and fresh produce. Quick service and
convenience are also important to the consumer and have driven
technological innovation such as Order and Pay apps and the rise of
delivery services.
Competition for market share is intense, particularly in the
food-led sector, with the overall number of restaurant outlets in
the UK still on the rise, up 16.7% over the last five years, and
food-led pub numbers up 4.7%. Total pub numbers reduced by 10.3%
however, driven by a 16.9% reduction in drink-led pub numbers since
2012 (source: CGA & Alix Partners Market Growth Monitor April
2018). Demand for drink-led pubs is holding up though with LFL
sales growth of 1.7% over the last 12 months versus a decline of
0.4% in pub restaurants and a 0.1% decline in restaurants (source:
Coffer Peach Business Tracker April 2018).
The cost environment remains challenging and while we succeeded
in mitigating GBP44m of the GBP60m gross inflation in the year, we
expect there to be further cost inflation of around GBP45-50m in
the new financial year, driven by the National Living Wage, sugar
tax, utility taxes and business rates. Through the execution of our
strategy outlined below we are targeting a return to LFL sales
growth in the new financial year supported by additional cost
mitigation of GBP30-35m. Through our planned cost savings
programme, we will seek to increase our agility and competitiveness
and be more effective at capturing sales opportunities in our main
markets.
STRATEGY
Our overall vision is to be the best pub and beer company in
Britain and our mission is to be the best for our customers, our
employees, our shareholders and our communities. The five key
pillars of our long-term strategy are to:
1. Build brands that customers admire
We will focus on four brands going forward.
a. The Greene King pub brand has significant untapped provenance
based on 219 years of history and we have redeveloped the brand's
proposition to reflect its ambition to be 'the best pub in the
neighbourhood'. We are extending the brand into more food-led pubs
where appropriate and, in addition, both Pub Partners and Brewing
& Brands will continue to play an important role in supporting
the delivery of the Greene King brand proposition through our
branded tenanted and leased pubs and through our beer range.
b. Chef & Brewer is our country pub brand with its focus on
both the 'chef' and the 'brewer' essential for success. It caters
effectively for customers looking to refuel on a casual basis, as
well as customers treating their visit as a special occasion.
c. Farmhouse Inns is our out-of-town, food-led brand where
families and friends can 'feast together' from either our carvery
offer or our main menu. It is an extremely popular brand with
customers, as shown by the latest MCA Pub Brand Monitor in which
customers placed Farmhouse Inns first across all large pub brands
for food quality, drink quality, friendly service, menu choice and
value for money.
d. Hungry Horse offers 'generous value, every day'. It is
located in both local communities and in destination sites and is
able to cater for a broad set of customer occasions ranging from
adult football watching to family dining due to the average pub
size and internal segmentation of the pub.
All our other pub brands have either been replaced (e.g. Fayre
& Square) or will be subsumed into these four brands over the
course of the new year. This emphasis on four brands will help to
deliver significant business simplification and efficiency
improvements while at the same time allow us to continue tailoring
a pub's offer to local customer needs. Using this simpler brand
structure will help us keep a tighter focus on the four brand
propositions and drive up Net Promoter Scores (NPS) and customer
satisfaction.
2. Provide offers that deliver compelling value, service & quality
Increased consumer expectations, combined with the growth in
alternative dining opportunities such as takeaway and delivery,
mean that all eating and drinking out providers need to deliver
more compelling experiences to customers. We continue to monitor
the success of our GBP10m customer investment as we look to strike
the right balance between the inherent value of a pub brand and the
requirement to target specific customers through promotional
activity. We increased the emphasis on delivering better service
this year, incentivising pub teams on TripAdvisor scores, guest
satisfaction reviews and mystery guest scores which all improved
against the previous year. We also increased the frequency of food
quality benchmarking and we are increasing our focus on drink
quality with an integrated end-to-end plan covering all three of
our businesses.
3. Develop people who exceed expectations
Running pubs is primarily a people business and having a team
that not only meets customer expectations, but consistently exceeds
them, will stand us apart from our peers and create material
competitive advantage. Our 39,000 employees will start to see
changes in the amount, the quality and the effectiveness of their
training programmes over the next two to three years. We are
addressing our recruitment capabilities and skills, investing in
improving core management and front-line service skills, and
focusing on further developing leadership skills throughout the
business.
4. Maintain a well located and invested estate
Our pub estate is 82% freehold or long leasehold and we are
committed to ensuring in both Pub Company and in Pub Partners that
the core estate is well invested (on a five to six year cycle) and
that we constantly improve the overall quality of the estate. We
spent GBP193m in the financial year on our estate, covering core
capital expenditure, new builds, brand conversions and freehold
reversion purchases. We expect to spend between GBP180m and GBP210m
in the new financial year. All investment options create value for
shareholders including delivering normalised core capital
investment returns of 25% and new build returns of 17%. Our new
build programme, which has previously been focused on Farmhouse
Inns, will diversify to include lodges, Chef & Brewer and
specific formats within the Greene King estate. In addition, we
will continue to make a small number of single site acquisitions
and opportunistic freehold reversions. The other important element
of our strategy is to dispose of non-core pubs. This has been a
successful programme to date, having sold 295 pubs over the last
three years raising proceeds of GBP288m at an average multiple of
14x EBITDA. These pubs are mainly tail pubs that we do not believe
have a long-term future within Greene King, but are also 'gold
bricks' where a buyer places a materially higher alternative use
value on a pub.
5. Manage our finances prudently
We have a long-term track record of generating enough cash,
pre-disposals, to cover our debt servicing obligations, our core
capex requirements and our attractive dividend. Our balance sheet
and cash flow management is aimed at continuing this into the
future. As a consequence, we believe a net debt to EBITDA ratio of
between 4 and 4.5x is the right range for our predominantly
freehold estate and strong cash conversion.
PRIORITIES FOR THE NEXT YEAR
To help us deliver on the five key pillars of our long-term
strategy, we have three near-term priorities:
1. Improve underlying sales growth
We are focused on delivering improved LFL sales and ultimately
market outperformance. We will not drive LFL sales at any cost but
seek to strike the right balance between sales growth and margin
delivery. Some of the key activities over the next three years to
help deliver better LFL sales include:
-- clearer brand and price propositions
-- industry-leading VSQ
-- investment in becoming the pub leader in digital
-- optimising our labour deployment
-- maximising event-driven sales opportunities and
-- further estate quality improvement
2. Develop a more efficient and effective organisation
We will continue to operate a diversified but integrated
business model covering managed pubs, tenanted pubs and brewing.
Within this, given the ongoing industry cost pressures and the fast
pace of consumer change, we have to become a more efficient and
effective organisation. Actions to deliver this include:
-- further cost savings programmes
-- a realignment of the Pub Company support centre to match the simpler brand portfolio
-- a simplification of our business systems and processes
-- improved employee engagement to help drive better productivity
3. Further strengthen our capital structure
We have a strong and flexible balance sheet supported by our
relentless focus on generating enough cash, pre-disposals, to cover
our debt service obligations, our core estate capex requirements
and an attractive dividend to our shareholders. To further
strengthen our capital structure and maintain the delivery of this
strategy, we will use our targeted leverage levels to continue to
invest in growth opportunities while looking to complete the
refinancing of the Spirit debenture. Our Spirit refinancing plan
will both reduce the overall cost of debt and increase the
flexibility within our debt platform. Strengthening our capital
structure will help ensure that, in the challenging trading
environment, we can continue to pay attractive dividends and return
dividend cover to around 2x in the longer-term.
PEOPLE
We spent over GBP3m in training and development in the year. We
also launched our new online training platform, available to all
our 39,000 employees, enabling company-wide training on areas such
as safety and compliance, as well as more reactive and targeted
training programmes, such as early stage inductions and social
media training. Around 150,000 courses have been completed on the
platform so far. We also launched Wellbeing Week to raise awareness
about physical and mental health in the workplace and we launched
networks for women and members of the LGBT+ community.
Our continued investment in training and development, together
with our competitive employee benefits scheme, has led to improved
engagement levels and a steady rate of turnover. Our average length
of service for pub general managers is 7.4 years and for kitchen
managers it is 4.5 years. We will seek to improve the future
retention rate through the training initiatives detailed above,
especially a quality induction programme, and greater engagement
with our employees through digital HR and ongoing focus on our
Winning Ways which we launched last year.
The apprenticeship scheme has now supported over 10,000
apprentices with 92% of our pubs having benefited from the
programme and 71% of our pubs with an apprentice currently in
training. The scheme continues to attract high levels of applicants
and 2,700 apprentices joined the scheme this year. We were pleased
to win awards from the National Apprenticeship Service (Top 100
Apprenticeship Employer), East of England Apprenticeship Awards
(Macro Employer of the Year), and the Training Journal (Best
Apprenticeship Programme) in recognition of our investment in
apprentices.
COMMUNITY
Pubs are at the heart of communities across the country and are
a force for good in those communities.
We are extremely proud of our national charity partnership with
Macmillan Cancer Support, which to date has raised over GBP4m with
record fundraising results of over GBP1m over the last year.
We ran eight Get into Hospitality programmes this year in
association with The Prince's Trust and were able to celebrate one
of our first Prince's Trust recruits going on to complete our
apprenticeship programme. A further 20 Prince's Trust recruits are
currently enrolled for an apprenticeship with Greene King.
In addition, this was our fifth year donating to the Pub is the
Hub Communities Fund, supporting rural pubs that want to diversify
their services for the benefit of their local communities.
PUB COMPANY
52 weeks F18 F17 YOY Change
Ave. no. of pubs
trading 1,733 1,812 -4.4%
Revenue GBP1,767.7m GBP1,817.4m -2.7%
EBITDA(1) GBP362.9m GBP403.2m -10.0%
Operating profit(1) GBP268.2m GBP308.1m -13.0%
Operating profit
margin(1) 15.2% 17.0% -1.8%pts
Ave. EBITDA per
pub(1) GBP209.4k GBP222.5k -5.9%
--------------------- ------------ ------------ -----------
1. Before exceptional and non-underlying items
Total Pub Company LFL sales were -1.7% and underlying LFL sales,
adjusting for the impact of snow, were -1.2%. Slower food sales was
the main driver of the negative LFL sales, partially offset by
positive drink and accommodation sales growth. AWT was up 1.6% to
GBP19.6k, reflecting ongoing estate quality improvement.
Operating profit was GBP268.2m, 13.0% or GBP39.9m lower than
last year and the operating margin was down 1.8%pts to 15.2%,
driven primarily by external cost pressures. The fall in operating
profit was due to the 4.4% reduction in the size of the estate, the
fall in LFL sales and the net cost inflation in the year.
In response to the challenging environment and negative LFL
sales performance in the first half of the year, we took the
decision to invest GBP10m in improving our customer offer. The
investment was targeted at three main areas:
1. Strategic price investment in the value segment
2. 'Acting Local' or empowering general managers to invest in
in-pub events, such as high profile pay-per-view boxing and live
music nights
3. Effective labour redeployment at key customer occasions
The investment has shown early signs of success, reflected in
the improvements in underlying LFL sales from -1.4% at the half
year to -1.2% and in guest experience metrics including
TripAdvisor, Guest Satisfaction and Mystery Guest service scores.
96% of our pubs in England and Wales received four or five star
ratings this year in food standards. We will draw on the outcomes
of the three initiatives to target further improvements in the
offers of our four brands and continue to drive LFL sales
momentum.
We laid solid foundations for growth in our digital offering.
Our Season Ticket app is live in 750 pubs following an accelerated
roll out in time for the World Cup. The app allows users to find
upcoming sports fixtures and their nearest Greene King Season
Ticket pubs and enables personalised offers and loyalty points. We
signed up a total of 100,000 Season Ticket users in the run up to
the World Cup. Our Order and Pay app is available at 32 Greene King
and Hungry Horse pubs and has had 33,000 downloads so far. We are
learning from these trial sites to improve the app as we look to
roll it out further going forward. In addition, we launched a new
platform onto which all of our pub websites were transferred,
taking the total number of websites we run down from over 500 to
80. It provides us with a cost-effective, user-friendly platform
which will better support Greene King's digital ambitions.
We have an excellent quality estate in Pub Company, achieved
through the active management of our portfolio, primarily selling
pubs at the tail of our portfolio and opportunistically disposing
of a small number of high-end pubs. We disposed of 38 managed pubs
in the year, raising over GBP84m in proceeds, which was above
expectations due to the sale of three high value leasehold pubs.
There were five internal transfers of managed pubs into Pub
Partners where we believe the tenanted model will drive greater
returns on investment. Meanwhile, we completed nine new builds in
the year, mostly under the Farmhouse Inns brand.
Our disciplined approach to investment in our estate saw GBP96m
of maintenance and development capex deployed over the year,
maintaining our 5-6 year core capital investment cycle. We spent
GBP27m on 106 brand conversions and have now fully debranded Fayre
& Square, in line with our strategy of reducing exposure to the
value food segment. Our brand optimisation programme continues to
generate returns of around 25%.
PUB PARTNERS
52 weeks F18 F17 YOY Change
Ave. no. of pubs
trading 1,140 1,196 -4.7%
Revenue GBP193.9m GBP198.8m -2.5%
EBITDA(1) GBP101.3m GBP103.1m -1.7%
Operating profit(1) GBP91.4m GBP92.8m -1.5%
Operating profit
margin(1) 47.1% 46.7% +0.4%pts
Ave. EBITDA per
pub(1) GBP88.9k GBP86.2k +3.1%
--------------------- ---------- ---------- -----------
1. Before exceptional and non-underlying items
In Pub Partners we have a high quality portfolio of 1,100 mainly
drink-led pubs. It generates significant cash for the group, adds
purchasing scale, enhances the Greene King brand and provides
flexibility in our estate planning.
Pub Partners revenue was down 2.5% to GBP193.9m due to the 4.7%
decrease in the average number of pubs trading. Rental income grew
and offset a decline in LFL beer volumes. Operating profit was down
1.5% but operating profit margin was up 0.4%pts at 47.1% benefiting
from estate optimisation, an increase in turnover agreements and
cost savings initiatives.
We have a clear aim to be the preferred partner for the best
independent operators in the market and therefore have an absolute
focus on helping our tenants grow sustainable, successful
businesses.
This starts with maintaining the best tenanted, leased and
franchised pub estate. We have an excellent quality Pub Partners
estate which we have achieved through active management of the
portfolio and disciplined capital allocation. We sold 50 sites in
the Pub Partners portfolio this year, raising GBP35m in disposals
proceeds, and we invested GBP26m in the core Pub Partners estate.
In addition, the estate benefited from the internal transfer of
five managed sites from Pub Company.
We then provide our operators with the right agreement for them.
While our most common agreement is our traditional tenancy
agreement, we also have a number of alternatives to suit particular
licensees and particular pubs. These include commercial
free-of-leases, tied leases, franchises and an increasing number of
turnover agreements. The range and flexibility of our agreements
has enabled us to agree new terms in response to the majority of
Market Rent Only (MRO) requests and we have just four MRO
agreements in place as a result.
Our support to licensees in driving footfall and maximising
profit has resulted in average EBITDA per pub of GBP88.9k this
year, an increase of 3.1%. We are providing 14% of Pub Partners'
pubs with food through the Greene King supply chain and have 142
pubs signed up to our digital services package for online
purchasing. In addition, 190 of our operators currently use our
Sports Club package, delivering customer promotions around sports
events.
Finally, investment in training, for both the licensees and the
support system, is also critical to the success of Pub Partners.
Over 2,000 delegates attended training programmes over the year,
driving a further improvement in the average term of our licensees
to 5 years and 11 months. Last year Yvonne Fraser was named
Business Development Manager (BDM) of the year at the Association
of Licensed Multiple Retailers awards, becoming the fourth winner
from Pub Partners in the last five years of this award, and
reflecting our ongoing commitment to investment in our BDMs.
BREWING & BRANDS
52 weeks F18 F17 YOY Change
Revenue GBP215.1m GBP200.3m +7.4%
EBITDA(1) GBP36.0m GBP36.2m -0.6%
Operating profit(1) GBP30.7m GBP31.0m -1.0%
Operating profit
margin(1) 14.3% 15.5% -1.2%pts
--------------------- ---------- ---------- -----------
1. Before exceptional and non-underlying items
In Brewing & Brands, our proven long-term strategy is to
build consumer loyalty to Greene King through consistent investment
in our core ale brands and innovative range of seasonal and craft
ales. Through this we continue to win market share and contribute
to Greene King's strong returns and cash generation.
Own-brewed volumes (OBV) were down 1.2% with strong growth in
free trade and exports offset by declines elsewhere in the
on-trade. Greene King outperformed the total ale market which was
down 3.7%, thereby increasing its share of the total ale market by
0.2%pts (source: BBPA).
Operating profit was down 1.0% and operating profit margin was
down 1.2%pts, driven by the increased cost of goods sold and
changes in sales channel and customer mix, including the disposals
made over the year across the estate.
Greene King's core brands maintained their UK market leading
positions: Greene King IPA continues to be the fastest selling top
10 cask ale brand in the on-trade; Abbot Ale is the number one
premium cask ale brand and the fourth largest ale brand in the UK;
Old Speckled Hen is the number one premium ale in the UK; Old
Speckled Hen Gluten Free is the fastest selling gluten free ale in
Britain; and Belhaven Best remains the number one draught ale in
Scotland and number four keg ale in the UK. East Coast IPA also had
a strong year, with total volume growth of 39%, making it one of
the top 15 fastest growing keg ales in the UK.
The success of our brands is supported by our dedicated brand
investment programme. Greene King IPA continues to be the official
beer of England Cricket and the official sponsor of the Greene King
IPA Rugby Championship. A new contemporary brand identity was fully
rolled out for Abbot Ale Reserve, reinforcing the quality and
premium attributes of the brand. We launched our largest ever new
brand campaign for Old Speckled Hen: our Seek a Richer Life
television and digital campaign reached over 7.5m consumers over
its first six weeks. The Belhaven brewery celebrates its 300(th)
birthday in 2019 and we will pursue a high profile PR and marketing
campaign to mark the occasion and drive another year of growth for
the brand.
Once again our beers won multiple awards over the year. We
received a Grand Gold prize at the Monde Selection Awards 2018 for
Vintage Heritage Pale Ale, a gold award for Belhaven Twisted Mango
IPA, and silver for Craft Academy's Big Bang. In addition, Vintage
Heritage Fine Ale was shortlisted for the Monde Selection Awards'
Prize of the Jury 2018 for the best product in all beer, water and
soft drinks categories. We were particularly pleased to be the
first UK company to receive the Crystal Prestige Trophy, which is
awarded to businesses that have received Grand Gold, Gold, Silver
or Bronze Awards for 10 consecutive years.
OUTLOOK
Over the first eight weeks of the new financial year LFL sales
in Pub Company were up 2.2%, benefiting from better weather and
strong sporting fixtures as well as the investments we made in the
second half of the year on value, service and quality for our
customers. We are continuing to see strong drink sales growth,
achieving record Pub Company drink sales in May, and we are
starting to see the benefits from the World Cup, as more than half
of consumers expect to watch an England game at the pub. Pub
Partners and Brewing & Brands are trading in line with
expectations. For the new financial year we expect GBP45-50m cost
inflation and we are targeting GBP30-35m cost savings and Pub
Company LFL sales growth.
Rooney Anand
Chief executive officer
27 June 2018
1. Adjusted measures exclude the impact of exceptional and
non-underlying items as detailed in note 3 of this statement.
2. The directors use a number of Alternative Performance
Measures (APMs) that are considered critical to aid the
understanding of the group's performance. APMs are explained on
page XX of this announcement.
FINANCIAL REVIEW
INCOME STATEMENT
GBP million 52 weeks 52 weeks
ended 29 ended 30
April 2018 April 2017
-------------------------------------- ------------ ------------
Revenue 2,176.7 2,216.5
Adjusted operating profit(1) 373.1 411.5
Adjusted net finance costs(1) (130.1) (138.0)
Adjusted profit before tax(1) 243.0 273.5
Exceptional and non-underlying items (45.5) (88.6)
-------------------------------------- ------------ ------------
Profit before tax 197.5 184.9
-------------------------------------- ------------ ------------
1. Adjusted measures exclude the impact of exceptional and
non-underlying items.
Revenue was GBP2,176.7m, a decline of 1.8% compared to the prior
year reflecting lower Pub Company LFL sales, somewhat impacted by
snow, and the impact of the non-core pub disposal programme. Pub
Company was the biggest driver, with revenue down 2.7% to
GBP1,767.7m. Non-core disposals helped AWT per pub rise 1.6%. Pub
Company business accounts for 81% of group revenue. Total revenue
in Pub Partners was GBP193.9m. Tenanted and leased AWT per pub
increased 2.4% and average EBITDA per pub grew 3.1% due to the
continuing improvement in the quality of the pub estate. Brewing
& Brands grew revenue 7.4% to GBP215.1m due to increasing the
number of new customers.
Operating profit before exceptional and non-underlying items was
GBP373.1m, which was a decline of 9.3% on the prior year. Group
operating profit margin before exceptional and non-underlying items
was down 1.5%pts to 17.1%, reflecting a reduction in both Pub
Company margin from 17.0% to 15.2% and Brewing & Brands margin
from 15.5% to 14.3%. The reduction in the Pub Company margin
reflected the group's ongoing investment in value, service and
quality, alongside significant inflationary increases in cost of
goods sold and labour, which were not fully mitigated through
management actions.
Net interest costs before exceptional and non-underlying items
were GBP130.1m, 5.7% lower than last year due in part to the impact
of refinancing activities in the year.
Profit before tax, exceptional and non-underlying items was
GBP243.0m, 11.2% lower than last year.
Basic earnings per share before exceptional and non-underlying
items of 62.7p was down 11.4%. Statutory profit before tax was
GBP197.5m, up 6.8% on last year.
TAX
The effective rate of corporation tax (before exceptional and
non-underlying items) of 20.0% is higher than the standard UK
corporation tax rate of 19.0% due to non-qualifying depreciation,
compared to 19.9% in the previous year. This resulted in a charge
to operating profits (before exceptional and non-underlying items)
of GBP48.6m (2017: GBP54.3m). The exceptional and non-underlying
tax credit of GBP13.6m (2017: GBP21.1m) is discussed under
exceptional and non-underlying items.
The group generates revenue, profits and employment that deliver
substantial tax revenues for the UK government in the form of VAT,
duties, income tax and corporation tax. In the year, total tax
revenues paid and collected by the group were GBP580m (2017:
GBP580m). The group's tax policy, which has been approved by the
board, has the objective of ensuring that the group fulfils its
obligations as a responsible UK taxpayer.
On 16 October 2017 agreement was reached with HMRC regarding an
internal property arrangement, the group's only material unresolved
historical tax position. As a result, the group settled tax of
GBP9.4m and interest of GBP2.1m during the year.
EXCEPTIONAL AND NON-UNDERLYING ITEMS
Exceptional and non-underlying charges were GBP31.9m, consisting
of a GBP56.1m charge to operating profit, a GBP10.6m credit to
finance costs and a net exceptional and non-underlying tax credit
of GBP13.6m. Items recognised in the year included the
following:
1. A GBP5.6m charge for legal, professional and integration
costs following the Spirit acquisition and in relation to group
refinancing activities and defending uncertain tax positions.
2. A net impairment charge of GBP70.4m (2017: GBP58.6m). Of this
total, a net GBP63.3m charge was made against the carrying value of
pubs and other assets.
3. A net surplus on disposal of property plant and equipment of GBP19.7m (2017: GBP3.4m).
4. The GBP10.6m credit for exceptional and non-underlying
finance costs includes a GBP19.2m gain in respect of the
mark-to-market movements in the fair value of interest rate swaps
not qualifying for hedge accounting, GBP11.6m costs recycled from
the hedging reserve in respect of settled interest rate swap
liabilities and a GBP3.0m gain on the settlement of financial
liabilities.
5. The exceptional and non-underlying tax credit of GBP13.6m
consists of a GBP0.2m tax charge on exceptional items, a GBP2.9m
tax credit on non-underlying items, a GBP3.1m tax charge in respect
of prior periods and a GBP14.0m tax credit in respect of the
licensed estate.
CASH FLOW AND CAPITAL STRUCTURE
GBP million 52 weeks 52 weeks
ended 29 ended 30
April 2018 April 2017
------------------------------------------------- ------------ ------------
Adjusted EBITDA(1) 486.6 524.1
Working capital and other movements(2) (22.9) (14.8)
Net interest paid(2) (127.1) (134.9)
Tax paid(2) (9.4) (28.0)
Adjusted cash generated from operations 327.2 346.4
Core capital expenditure (132.2) (126.0)
Dividend (102.9) (100.1)
Net repayment of trade loans/ Other non-cash
movements (2.2) (0.7)
Free cash flow 89.9 119.6
------------------------------------------------- ------------ ------------
Disposal proceeds 117.5 88.6
New build/ brand conversion capital expenditure (61.0) (68.9)
Exceptional and non-underlying items/
share issues (61.6) (48.0)
Payment of derivative liabilities (42.6) (117.4)
------------------------------------------------- ------------ ------------
Change in net debt 42.2 (26.1)
------------------------------------------------- ------------ ------------
1. Adjusted EBITDA represents earnings before interest, tax,
depreciation, amortisation and exceptional and non-underlying
items
2. Adjusted measures excluding the impact of exceptional and non-underlying items
The group continued to be highly cash generative with free cash
flow of GBP89.9m, after funding core capital expenditure of
GBP132.2m and dividend payments of GBP102.9m. This is significantly
ahead of scheduled debt repayments of GBP52.6m. Disposal proceeds
at GBP117.5m reflected our ongoing programme of estate optimisation
and we invested GBP61.0m in nine new builds and 106 brand
conversions.
The group disposed of 38 pubs in Pub Company, 50 pubs in Pub
Partners and four closed pubs, raising proceeds of GBP123.9m which
was partially offset by exiting a small number of leases.
In November 2017 the group amended its existing GBP400m
revolving credit facility to incorporate an additional GBP350m
three-year revolving facility, taking total bank facilities to
GBP750m. The new facility is available to fund the internal
transfer of pubs from the Spirit secured financing vehicle,
improving the group's ability to refinance Spirit secured loan
notes and related interest rate swaps. Pubs released from the
Spirit debenture increase the group's unsecuritised portfolio,
improving flexibility.
During the year the group settled financial liabilities in
relation to the Spirit secured financing vehicle, recognising a net
gain of GBP3.0m. 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 has been recognised, being the difference between
the carrying value of the liability and the total cash
consideration and fees incurred in order to terminate it.
In addition the A1, A3, A6, and A7 Spirit secured bonds were
fully repaid at their par value of GBP216.9m. This eliminates the
cash sweep and 1.5% margin step-up on the GBP160m A6 and A7 bonds
which was due to commence in September 2018.
The group has recognised exceptional losses on early settlement
of GBP4.1m, being the difference between the carrying value of the
bonds and their par value on prepayment. The group also terminated
two interest rate swap contracts for cash consideration of GBP42.6m
in connection with the repayment of these notes, recognising an
exceptional gain of GBP1.2m amounting to the discount received on
termination.
The total cash flow impact of refinancing accounted for GBP14.8m
of the GBP61.6m exceptional/non-underlying cash flow reported.
In line with our strategic priorities, the group's objective is
to maximise the strength and flexibility of its balance sheet, and
maintain 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 its revolving credit
facilities that were GBP277m drawn at the year end and two
long-term asset-backed financing vehicles.
At the year end, the Greene King securitisation had secured
bonds with a carrying value of GBP1,343.5m and an average life of
10 years, secured against 1,429 pubs with a carrying value of
GBP1.7bn. The Spirit debenture had secured bonds with a carrying
value of GBP563.6m and an average life of nine years, secured
against 872 pubs with a carrying value of GBP1.1bn.
The group's credit metrics remain strong with 94.4% of net
interest costs at a fixed rate and an average cash cost of debt of
6.1%. Fixed charge cover slightly reduced to 2.2x from 2.3x last
year and net debt to EBITDA increased slightly to 4.2x from 4.0x
last year. The Greene King secured vehicle had a free cash flow
debt service cover ratio of 1.5x at the year end, giving 28%
headroom. The Spirit debenture vehicle had a free cash flow debt
service cover ratio of 1.9x giving 33% headroom.
Overall our net debt reduced in the year by GBP42.2m to
GBP2,032.3m.
BALANCE SHEET
GBP million 29 April 30 April
2018 2017
-------------------------------------- ---------------- ----------
Goodwill and other intangibles 1,214.4 1,272.5
Property, plant and equipment 3,597.8 3,627.0
Post-employment assets/(liabilities) 13.6 (11.2)
Net debt (2,032.3) (2,074.5)
Derivative financial instruments (241.1) (344.8)
Other net liabilities (495.5) (524.8)
-------------------------------------- ---------------- ----------
Net assets 2,056.9 1,944.2
-------------------------------------- ---------------- ----------
Share capital and premium 300.7 300.4
Reserves 1,756.2 1,643.8
-------------------------------------- ---------------- ----------
Total equity 2,056.9 1,944.2
-------------------------------------- ---------------- ----------
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 29 April 2018, there was an IAS 19 pension asset of GBP13.6m
representing an improvement of GBP24.8m since the previous year
end. The closing assets of the group's two pension schemes totalled
GBP859.2m and closing liabilities were GBP845.6m compared to
GBP888.0m and GBP899.2m respectively at the previous year end.
The improvement in position is due to contributions made by the
group during the year, combined with the impact of changes to
market-based discount rates and inflation assumptions.
Total cash contributions in the year were GBP3.6m for past
service.
The triennial reviews for both the Greene King and Spirit
pension schemes will be as at April 2018 and are due to be
finalised by July 2019.
RETURN ON CAPITAL EMPLOYED
The group is focused on delivering the best possible returns on
its assets and on the investments it makes and is focused on
capital discipline, through targeted investment in new build pubs,
single site acquisitions and in developing its existing estate to
drive organic growth with disposals of non-core pubs. ROCE of 8.5%
has declined 90 bps compared to the prior year primarily due to
lower Pub Company profits. ROCE remains comfortably ahead of the
group's cost of capital.
DIVID
The board has recommended a final dividend of 24.4 pence per
share, in line with last year, subject to shareholder approval.
This will be paid on 14 September 2018 to shareholders on the
register at the close of business on 03 August 2018.
The proposed final dividend brings the total dividend for the
year to 33.2 pence per share, in line with last year. This is in
keeping with the board's policy of maintaining dividend cover of
around two times underlying earnings, while continuing to invest
for future growth.
Richard Smothers
Chief financial officer
27 June 2018
Group income statement
for the fifty-two weeks ended 29 April 2018
2018 2017
=================================== =====================================
Before Before
exceptional Exceptional exceptional Exceptional
and non- and non- and non- and non-
underlying underlying underlying underlying
items items Total items items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
(note 3) (note 3)
Revenue 2 2,176.7 - 2,176.7 2,216.5 - 2,216.5
Operating costs (1,803.6) (56.1) (1,859.7) (1,805.0) (65.0) (1,870.0)
Operating profit 373.1 (56.1) 317.0 411.5 (65.0) 346.5
Finance income 1.0 - 1.0 1.0 - 1.0
Finance costs (131.1) 10.6 (120.5) (139.0) (23.6) (162.6)
Profit before tax 243.0 (45.5) 197.5 273.5 (88.6) 184.9
Tax 4 (48.6) 13.6 (35.0) (54.3) 21.1 (33.2)
===================== ==== =========== =========== ========= =========== =========== =========
Profit attributable
to equity holders
of parent 194.4 (31.9) 162.5 219.2 (67.5) 151.7
===================== ==== =========== =========== ========= =========== =========== =========
Earnings per share
- basic 5 52.4 p 49.0 p
- adjusted basic (1) 5 62.7 p 70.8 p
- diluted 5 52.3 p 48.9 p
- adjusted diluted
(1) 5 62.6 p 70.7 p
Dividends per share
paid and proposed 6 33.20 33.20
in respect of the p p
period
===================== ==== =========== =========== ========= =========== =========== =========
(1) Adjusted basic and diluted earnings per share exclude the
effect of exceptional and non-underlying items.
Group statement of comprehensive income
for the fifty-two weeks ended 29 April 2018
2018 2017
GBPm GBPm
Profit for the period 162.5 151.7
======================================================= ================== ==================
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 15.5 (38.5)
- Transfers to income statement on cash flow
hedges 25.6 26.7
Income tax on cash flow hedges - 2.0
Deferred tax on cash flow hedges (7.0) (0.4)
======================================================= ================== ==================
34.1 (10.2)
===================================================== ================== ==================
Items not to be reclassified to the income
statement in subsequent periods:
Re-measurement gains on defined benefit pension
schemes 21.5 37.3
Deferred tax on re-measurement gains (3.6) (7.4)
======================================================= ================== ==================
17.9 29.9
===================================================== ================== ==================
Other comprehensive income for the period,
net of tax 52.0 19.7
======================================================= ================== ==================
Total comprehensive income for the period,
net of tax 214.5 171.4
======================================================= ================== ==================
Group balance sheet
as at 29 April 2018
As at As at
29 April 30 April
2018 2017
Note GBPm GBPm
Note 13
Non-current
assets
Property, plant
and equipment 3,589.2 3,621.9
Intangibles 124.7 163.7
Goodwill 1,089.7 1,108.8
Financial assets 13.2 16.3
Derivative 1.5 -
financial
instruments
Deferred tax
assets 29.7 63.1
Post-employment
assets 13 13.6 16.8
Prepayments 0.2 0.2
Trade and other
receivables 0.1 0.1
================ ============================================================= ================== =========================
4,861.9 4,990.9
================ ============================================================= ================== =========================
Current assets
Inventories 47.7 45.0
Financial assets 10.5 10.1
Income tax
receivable 4 10.2 -
Trade and other
receivables 87.5 93.3
Prepayments 26.3 27.6
Cash and cash
equivalents 7 168.5 443.0
================ ============================================================= ================== =========================
350.7 619.0
Property, plant
and equipment
held for sale 8.6 5.1
================ ============================================================= ================== =========================
359.3 624.1
================ ============================================================= ================== =========================
Total assets 5,221.2 5,615.0
---------------- ------------------------------------------------------------- ------------------ -------------------------
Current
liabilities
Borrowings 8 (54.6) (219.7)
Derivative
financial
instruments 11 (20.6) (30.9)
Trade and other
payables (420.0) (429.3)
Off-market
contract
liabilities (17.9) (21.3)
Income tax
payable 4 - (12.6)
Provisions 12 (29.5) (26.9)
================ ============================================================= ================== =========================
(542.6) (740.7)
================ ============================================================= ================== =========================
Non-current
liabilities
Borrowings 8 (2,146.2) (2,297.8)
Trade and other
payables (1.8) (1.9)
Off-market
contract
liabilities (228.6) (264.1)
Derivative
financial
instruments 11 (222.0) (313.9)
Deferred tax
liabilities - (9.8)
Post-employment
liabilities 13 - (28.0)
Provisions 12 (23.1) (14.6)
(2,621.7) (2,930.1)
================ ============================================================= ================== =========================
Total
liabilities (3,164.3) (3,670.8)
---------------- ------------------------------------------------------------- ------------------ -------------------------
Total net assets 2,056.9 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 (158.1) (192.2)
Own shares (0.5) (0.2)
Retained
earnings 1,159.5 1,080.9
================ ============================================================= ================== =========================
Total equity 2,056.9 1,944.2
================ ============================================================= ================== =========================
Net debt 10 2,032.3 2,074.5
================ ============================================================= ================== =========================
Group cash flow statement
for the fifty-two weeks ended 29 April 2018
2018 2017
Note GBPm GBPm
Operating activities
Operating profit 317.0 346.5
Operating exceptional and non-underlying
items 56.1 65.0
Depreciation 103.7 102.6
Amortisation 9.8 10.0
=========================================== =========== =============== ===========================
EBITDA(1) 486.6 524.1
Working capital and other movements 9 (46.8) (29.2)
Interest received 1.0 1.0
Interest paid (130.2) (148.1)
Tax paid (44.8) (48.6)
=========================================== =========== =============== ===========================
Net cash flow from operating activities 265.8 299.2
=========================================== =========== =============== ===========================
Investing activities
Purchase of property, plant and
equipment (193.2) (194.9)
Sale of other investments 0.3 -
Advances of trade loans (3.4) (6.1)
Repayment of trade loans 5.9 6.3
Sales of property, plant and equipment 117.2 88.6
Net cash flow from investing activities (73.2) (106.1)
=========================================== =========== =============== ===========================
Financing activities
Equity dividends paid 6 (102.9) (100.1)
Issue of shares 0.3 0.8
Purchase of own shares (0.5) (1.6)
Payment of derivative liabilities 10 (42.6) (117.4)
Securitised bond issuance - 300.0
Financing costs 10 (3.2) (7.1)
Repayment of borrowings 10 (505.2) (200.6)
Advance of borrowings 10 187.0 -
Net cash flow from financing activities (467.1) (126.0)
=========================================== =========== =============== ===========================
Net (decrease)/increase in cash
and cash equivalents 10 (274.5) 67.1
=========================================== =========== =============== ===========================
Opening cash and cash equivalents 7 443.0 375.9
Closing cash and cash equivalents 7 168.5 443.0
=========================================== =========== =============== ===========================
(1) EBITDA represents earnings before interest, tax,
depreciation, amortisation and exceptional and non-underlying
items
GROUP Statement of changes in equity
for the fifty-two weeks ended 29 April 2018
Share Share Merger Capital Hedging Own Retained Total
capital premium reserve redemption reserve shares earnings equity
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 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 - - - - - - 151.7 151.7
Other comprehensive
income:
Actuarial gains on
defined benefit pension
schemes (net of tax) - - - - - - 29.9 29.9
Net loss on cash flow
hedges
(net of tax) - - - - (10.2) - - (10.2)
=========================== ======= ======= ========== ========== ======= ======== ============ ========
Total comprehensive
income - - - - (10.2) - 181.6 171.4
Issue of ordinary share
capital 0.1 0.7 - - - - - 0.8
Release of shares - - - - - 1.6 (1.6) -
Purchase of shares - - - - - (1.6) - (1.6)
Share-based payments - - - - - - (0.4) (0.4)
Tax on share-based
payments - - - - - - 0.5 0.5
Equity dividends paid - - - - - - (100.1) (100.1)
=========================== ======= ======= ========== ========== ======= ======== ============ ========
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 - - - - - - 162.5 162.5
Other comprehensive
income:
Actuarial gains on
defined benefit pension
schemes (net of tax) - - - - - - 17.9 17.9
Net gain on cash flow
hedges
(net of tax) - - - - 34.1 - - 34.1
=========================== ======= ======= ========== ========== ======= ======== ============ ========
Total comprehensive
income - - - - 34.1 - 180.4 214.5
Issue of ordinary share
capital - 0.3 - - - - - 0.3
Release of shares - - - - - 0.2 (0.2) -
Purchase of shares - - - - - (0.5) - (0.5)
Share-based payments - - - - - - 1.3 1.3
Equity dividends paid - - - - - - (102.9) (102.9)
At 29 April 2018 38.7 262.0 752.0 3.3 (158.1) (0.5) 1,159.5 2,056.9
=========================== ======= ======= ========== ========== ======= ======== ============ ========
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
1 Basis of preparation
The consolidated financial statements and preliminary
announcement of Greene King plc for the 52 week period ended 29
April 2018 were authorised for issue by the board of directors on
27 June 2018.
The financial information included within this preliminary
announcement does not constitute statutory accounts within the
meaning of Section 435 of the Companies Act 2006 (the "Act").
The financial information for the 52 week period ended 29 April
2018 has been extracted from the statutory accounts on which an
unqualified audit opinion has been issued.
The 2018 Report & Accounts will be posted to shareholders on
2 August 2018 and copies will be available from that date from the
company secretary at the registered office of the company, Westgate
Brewery, Bury St. Edmunds, Suffolk IP33 1QT. The statutory accounts
for the period ended 29 April 2018 will be delivered to the
Registrar of Companies following the company's Annual General
Meeting.
The statutory accounts for the prior financial year, for the 52
week period ended 30 April 2017, have been delivered to the
Registrar of Companies, and the auditors have made a report thereon
under Chapter 3 of part 16 of the Act. That report was unqualified
and did not contain a statement under sections 498(2) or 498(3) of
the Act.
The consolidated financial statements of Greene King plc and its
subsidiaries have been prepared in accordance with International
Financial Reporting Standards (IFRS) as required by European Union
law and as applied in accordance with the Companies Act 2006.
The accounting policies adopted are consistent with those of the
previous financial year. Other than new disclosure requirements in
relation to the changes in liabilities arising from financing
activities (note 10), new standards and interpretations which came
into force during the year did not have a significant impact on the
group's financial statements.
2 Segment information
The group has three reportable segments that are largely
organised and managed separately according to the nature of
products and services provided, distribution channels and profile
of customers. The segments include the following businesses:
Pub Company: Managed pubs and restaurants
Pub Partners: Tenanted and leased pubs
Brewing & Brands: Brewing, marketing and selling beer
These are also considered to be the group's operating segments
and are based on the information presented to the chief executive
who is considered to be the chief operating decision maker. No
aggregation of operating segments has been made.
Transfer prices between operating segments are set on an arm's
length basis.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
2 SEGMENT INFORMATION (CONTINUED)
2018 Pub Pub Brewing Corporate Total
Company Partners & Brands operations
GBPm GBPm GBPm GBPm GBPm
External revenue 1,767.7 193.9 215.1 - 2,176.7
Segment operating profit 268.2 91.4 30.7 (17.2) 373.1
Exceptional and non-underlying
operating costs (56.1)
Net finance costs (119.5)
Income tax expense (35.0)
=============================== ======= ======== ======== ========= ==========
162.5
=============================== ======= ======== ======== ========= ==========
EBITDA (1) 362.9 101.3 36.0 (13.6) 486.6
Balance sheet
Segment assets 3,688.8 874.0 395.1 39.8 4,997.7
Unallocated assets(2) 223.5
=============================== ======= ======== ======== ========= ==========
Total assets 3,688.8 874.0 395.1 39.8 5,221.2
Segment liabilities (392.1) (45.3) (101.4) (157.5) (696.3)
Unallocated liabilities(2) (2,468.0)
=============================== ======= ======== ======== ========= ==========
Total liabilities (392.1) (45.3) (101.4) (157.5) (3,164.3)
Net assets 3,296.7 828.7 293.7 (117.7) 2,056.9
=============================== ======= ======== ======== ========= ==========
Other segment information:
Capital expenditure 158.0 23.9 6.8 3.7 192.4
Depreciation and amortisation (94.7) (9.9) (5.3) (3.6) (113.5)
=============================== ======= ======== ======== ========= ==========
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
2 SEGMENT INFORMATION (CONTINUED)
2017 Pub Pub Brewing Corporate Total
Company Partners & Brands operations
GBPm GBPm GBPm GBPm GBPm
External revenue 1,817.4 198.8 200.3 - 2,216.5
Segment operating profit 308.1 92.8 31.0 (20.4) 411.5
Exceptional and non-underlying
operating costs (65.0)
Net finance costs (161.6)
Income tax expense (33.2)
================================ ======= ======== ======== ========= ==========
151.7
================================ ======= ======== ======== ========= ==========
EBITDA (1) 403.2 103.1 36.2 (18.4) 524.1
================================ ======= ======== ======== ========= ==========
Balance sheet
Segment assets 3,750.5 892.8 394.0 54.8 5,092.1
Unallocated assets(2) 522.9
================================ ======= ======== ======== ========= ==========
Total assets 3,750.5 892.8 394.0 54.8 5,615.0
Segment liabilities (428.3) (46.8) (107.8) (149.6) (732.5)
Unallocated liabilities(2) (2,938.3)
================================ ======= ======== ======== ========= ==========
Total liabilities (428.3) (46.8) (107.8) (149.6) (3,670.8)
Net assets 3,322.2 846.0 286.2 (94.8) 1,944.2
================================ ======= ======== ======== ========= ==========
Other segment information:
Capital expenditure 155.5 20.0 7.2 4.2 186.9
Depreciation and amortisation (95.1) (10.3) (5.2) (2.0) (112.6)
(1) EBITDA represents earnings before interest, tax,
depreciation, amortisation and exceptional and non-underlying items
and is calculated as operating profit before exceptional and
non-underlying items adjusted for the depreciation and amortisation
charge for the period.
(2) Unallocated assets/liabilities comprise cash, borrowings,
pensions, net deferred tax, net current tax, indirect tax
provisions and derivatives.
Management reporting and controlling systems
Management monitors the operating results of its strategic
business units separately for the purpose of making decisions about
allocating resources and assessing performance. Segment performance
is measured based on segment operating profit or loss referred to
as trading profit in the group's management and reporting systems.
Included within the corporate column in the table above are
functions managed by a central division.
No information about geographical regions has been provided as
the group's activities are predominantly domestic.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
3 Exceptional AND NON-UNDERLYING items
2018 2017
GBPm GBPm
Included in operating profit
Exceptional items
Integration costs and other legal & professional
fees (3.7) (10.8)
Net impairment of property, plant and equipment
and brand intangibles (70.4) (58.6)
Non-underlying items
Integration costs and other legal & professional
fees (1.9) -
Employee costs (1.6) (3.7)
Share based payment credit - 3.1
Insurance proceeds 1.8 -
Net profit on disposal of property, plant and
equipment and goodwill 19.7 3.4
Pension and post-employment liabilities settlement
gain - 1.6
(56.1) (65.0)
Included in financing costs
Exceptional items
Gain on settlement of financial liabilities 3.0 12.2
Fair value movements of derivatives held at
fair value through profit and loss 19.2 (23.6)
Non-underlying items
Fair value losses on ineffective element of
cash flow hedges - (0.4)
Amounts recycled from hedging reserve in respect
of settled interest rate liabilities (11.6) (11.8)
Total exceptional and non-underlying items
before tax (45.5) (88.6)
==================================================== =============== ======
Exceptional tax items
Tax impact of exceptional items (0.2) 5.0
Tax credit in respect of the licensed estate 14.0 3.2
Adjustment in respect of prior periods (10.1) (2.7)
Non-underlying tax items
Tax impact of non-underlying items 2.9 2.8
Tax credit in respect of the licensed estate - 6.3
Tax credit in respect of rate change - 4.3
Adjustment in respect of prior periods 7.0 2.2
Total exceptional and non-underlying tax 13.6 21.1
==================================================== =============== ======
Total exceptional and non-underlying items
after tax (31.9) (67.5)
==================================================== =============== ======
Exceptional operating costs
Integration costs are items of one-off expenditure, including
legal and professional fees, the costs of dedicated integration
project teams and redundancy costs, incurred in connection with the
acquisition and integration of Spirit Pub Company which was
finished in the year.
During the period to 29 April 2018 the group has recognised a
net impairment loss of GBP70.4m (2017: GBP58.6m). This is comprised
of an impairment charge relating to properties of GBP76.1m (2017:
GBP77.7m) and reversal of previously recognised impairment losses
of GBP12.8m (2017: GBP19.1m). GBP39.3m 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 GBP24.0m due to a decision taken to exit some
sites during the financial year. Impairment reversals have been
recognised following an improvement in trading performance and an
increase in amounts of estimated future cash flows from previously
impaired sites or increases to fair value less costs of disposal.
In addition an impairment charge of GBP7.1m (2017: GBPnil) was
recognised in relation to intangible assets during the year.
Non-underlying operating costs
In the year the group incurred GBP1.9m non-underlying legal and
professional fees in relation to group refinancing activities and
defending uncertain tax positions.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
3 Exceptional AND NON-UNDERLYING items (CONTINUED)
The net profit on disposal of property, plant and equipment and
goodwill of GBP19.7m (2017: GBP3.4m) comprises a total profit on
disposal of GBP68.4m (2017: GBP38.2m) and a total loss on disposal
of GBP48.7m (2017: GBP34.8m).
In the period the group received insurance compensation of
GBP1.8m (2017: GBPnil) to meet the costs of restoring sites damaged
by fire or flood in a previous period.
The group incurred GBP1.6m (2017: GBP3.7m) of non-underlying
employee costs, which included restructuring costs and costs
associated with changes to key management.
Exceptional and non-underlying finance costs
During the period the group settled financial liabilities in
relation to the Spirit secured financing vehicle, recognising a net
gain of GBP3.0m. 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. 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 A1, A3, A6, and A7 Spirit secured bonds were
fully repaid at their par value of GBP216.9m. The group has
recognised exceptional losses on early settlement of GBP4.1m, being
the difference between the carrying value of the bonds and their
par value on prepayment.
The group also terminated two interest rate swap contracts for
cash consideration of GBP42.6m in connection with the repayment of
these notes, recognising an exceptional gain of GBP1.2m amounting
to the discount received on termination.
During the prior year a number of the group's swap liabilities
were settled at a discount recognising a GBP12.2m exceptional gain.
The swaps concerned were hedging cash flows relating to the Greene
King A5 bond and floating rate bank loans. These cash flows are
still expected to occur and therefore in accordance with IAS 39 the
cumulative losses taken to the hedging reserve will be recycled to
the income statement over the same period during which the hedged
forecast cash flows affect profit or loss. A non-underlying charge
of GBP11.6m (2017: GBP11.8m) has been recognised in respect of this
during the period.
In a prior period the group acquired as part of a business
combination derivatives that are subsequently accounted for at fair
value through profit and loss as they were deemed not to qualify
for hedge accounting. An exceptional gain/(charge) of GBP19.2m
(2017: GBP(23.6)m) relates to the mark-to-market movement on these
derivatives, excluding amortisation of fair value on acquisition
which reduces the pre-exceptional finance costs that include
interest paid. Mark-to-market movements are considered to be
exceptional owing to their volatility and are shown separately to
ensure pre-exceptional finance costs are more readily comparable
each year. Fair value amortisation is deemed to be a
pre-exceptional item as it adjusts swap interest to a market
rate.
Exceptional tax
The GBP14.0m deferred tax in respect of the licensed estate in
the period arose due to management's revision of its estimate of
the residual value of buildings from 80% to 85%.
The exceptional tax credit in respect of the licensed estate in
the prior year relates to impairment.
On 16 October 2017 agreement was reached with HMRC regarding an
internal property arrangement, the group's only material unresolved
historical tax position. Apart from the treatment of repairs, which
is expected to be resolved by the end of the next financial year,
this has been fully provided in the accounts. As a result the group
has settled corporation tax of GBP9.4m and interest of GBP2.1m
during the period.
Non-underlying tax
The tax credit in respect of the licensed estate in the prior
period arises from movements in their tax base cost and
indexation.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
3 Exceptional AND NON-UNDERLYING items (CONTINUED)
The Finance Act Act 2016 reduced the rate of corporation tax
from 19% to 17% from 1 April 2020. The rate reduction was
substantively enacted at the balance sheet date and is therefore
included in these accounts. The net deferred tax asset has been
calculated using the rates at which each temporary difference is
expected to reverse.
4 Taxation
2018 2017
=========================== =====================
Before Before
exceptional Exceptional exceptional Exceptional
and non- and non- and non- and non-
underlying underlying underlying underlying
items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Income tax
Corporation tax before
exceptional and non-underlying
items 38.7 - 38.7 43.3 - 43.3
Recoverable on exceptional
and non-underlying items - (9.9) (9.9) - (11.1) (11.1)
================================ ============== =========== ======= ============= =========== ========
Current income tax 38.7 (9.9) 28.8 43.3 (11.1) 32.2
Adjustments in respect
of prior periods - (6.5) (6.5) - 0.8 0.8
================================ ============== =========== ======= ============= =========== ========
38.7 (16.4) 22.3 43.3 (10.3) 33.0
================================ ============== =========== ======= ============= =========== ========
Deferred tax
Origination and reversal
of temporary differences 9.9 (6.8) 3.1 11.0 (6.2) 4.8
Adjustment in respect
of prior periods - 9.6 9.6 - (0.3) (0.3)
Tax credit in respect
of rate change - - - - (4.3) (4.3)
================================ ============== =========== ======= ============= =========== ========
9.9 2.8 12.7 11.0 (10.8) 0.2
================================ ============== =========== ======= ============= =========== ========
Tax charge/(credit)
in the income statement 48.6 (13.6) 35.0 54.3 (21.1) 33.2
================================ ============== =========== ======= ============= =========== ========
5 Earnings per share
Basic earnings per share has been calculated by dividing the
profit attributable to equity holders of GBP162.5m (2017:
GBP151.7m) by the weighted average number of shares in issue during
the period of 309.9m (2017: 309.4m).
Diluted earnings per share has been calculated on a similar
basis taking account of 0.5m (2017: 0.8m) dilutive potential shares
under option, giving a weighted average number of ordinary shares
adjusted for the effect of dilution of 310.4m (2017: 310.2m). There
were no (2017: nil) anti-dilutive share options excluded from the
diluted earnings per share calculations. The performance conditions
for share options granted over 2.7m (2017: 2.4m) shares have not
been met in the current financial period and therefore the dilutive
effect of the number of shares which would have been issued at the
period end has not been included in the diluted earnings per share
calculation.
Adjusted earnings per share excludes the effect of exceptional
and non-underlying items and is presented to show the underlying
performance of the group on both a basic and diluted basis.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
5 Earnings per share (continued)
Adjusted earnings per share Earnings Basic earnings Diluted earnings
per share per share
2018 2017 2018 2017 2018 2017
GBPm GBPm p p p p
Profit attributable to equity
holders 162.5 151.7 52.4 49.0 52.3 48.9
Exceptional and non-underlying
items (note 3) 31.9 67.5 10.3 21.8 10.3 21.8
=============================== ======= ======= ======= ======= ======== ========
Profit attributable to equity
holders before exceptional
and non-underlying items 194.4 219.2 62.7 70.8 62.6 70.7
=============================== ======= ======= ======= ======= ======== ========
6 Dividends paid and proposed
2018 2017
GBPm GBPm
Declared and paid in the period
Interim dividend for 2018 - 8.8p (2017 - 8.8p) 27.3 27.2
Final dividend for 2017 - 24.4p (2016 - 23.6p) 75.6 72.9
================================================== ===== =====
102.9 100.1
================================================== ===== =====
Proposed for approval at AGM
Final dividend for 2018 - 24.4p (2017 - 24.4p) 75.6 75.6
Total paid and proposed dividend for 2018 - 33.2p
(2017 - 33.2p) 102.9 102.8
================================================== ===== =====
Dividends on own shares have been waived.
Subject to the approval of shareholders at the Annual General
Meeting, the final dividend will be paid on 14 September 2018 to
shareholders on the register at the close of business on 3 August
2018.
7 cash and cash equivalents
2018 2017
GBPm GBPm
Cash at bank and in hand 115.9 202.1
Short-term deposits 52.6 83.4
Liquidity facility reserve - 157.5
Cash and cash equivalents for balance sheet 168.5 443.0
Bank overdrafts - -
============================================ =========== ===========
Cash and cash equivalents for cash flow 168.5 443.0
============================================ =========== ===========
Included within cash at bank and in hand and short-term deposits
is GBP74.6m (2017: GBP112.0m) and GBP90.4m (2017: GBP88.9m) held
within securitised bank accounts which are only available for use
by the Greene King Secured financing vehicle and the Spirit secured
financing vehicle respectively.
The Greene King secured financing vehicle comprises Greene King
Retailing Parent Limited and its subsidiaries and the Spirit
secured financing vehicle comprises Spirit Pubs Debenture Holdings
Limited and certain of its subsidiaries.
The Greene King secured financing vehicle's liquidity facility
reserve was fully repaid during the year.
Interest receivable on cash and short term deposits is linked to
base rate and is received either monthly or in line with the term
of the deposit.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
8 Borrowings
2018 2017
======== ======== ======= ======= ======== =======
Repayment Current Non- Total Current Non- Total
date current current
GBPm GBPm GBPm GBPm GBPm GBPm
Liquidity facility
loan On demand - - - 157.5 - 157.5
Unsecured bank loans
- floating rate
* Facility A 2021 - 88.8 88.8 - 168.3 168.3
* Facility B 2020 - 184.3 184.3 - - -
Secured debt:
* Issued by Greene King Finance plc 2036 51.3 1,292.2 1,343.5 48.9 1,343.6 1,392.5
* Issued by Spirit Issuer plc 2036 2.1 561.5 563.6 11.7 765.9 777.6
Obligations under
finance leases 2084 1.2 19.4 20.6 1.6 20.0 21.6
========================================== ========= ======== ======== ======= ======= ======== =======
54.6 2,146.2 2,200.8 219.7 2,297.8 2,517.5
========================================== ========= ======== ======== ======= ======= ======== =======
Unsecured bank loans
In November 2017 the group amended its existing GBP400m
revolving credit facility (Facility A) to incorporate an additional
GBP350m three-year revolving facility (Facility B), taking the
total facilities to GBP750m. Facility B is available to fund the
internal transfer of pubs from the Spirit secured financing
vehicle, improving the group's ability to refinance Spirit secured
loan notes and related interest rate swaps. In December 2017 a
draw-down of GBP187.0m took place under Facility B in connection
with the repayment of certain Spirit secured loan notes.
Spirit secured financing vehicle
In June 2017 the group fully repaid the GBP27.7m Class A3
secured loan note issued by Spirit Issuer plc at par.
In August 2017 a financial guarantee provided by Ambac was
terminated. The guarantee was in respect of the A1, A3 and A5
secured loan notes and two interest rate swaps relating to the A1,
A2 and A6 notes. This resulted in a reduction in the all-in
interest rate applicable to these tranches.
In December 2017 the group fully repaid the GBP29.5m Class A1,
GBP101.3m Class A6 and GBP58.4m Class A7 secured loan notes issued
by Spirit Issuer plc at par. This eliminates the cash sweep and
1.5% margin step-up on the A6 and A7 notes which were due to
commence in September 2018. The group also terminated two interest
rate swaps in relation to the repaid notes.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
9 Working capital and non-cash movements
2018 2017
GBPm GBPm
Increase in inventories (2.7) (3.7)
Decrease/(increase) in trade and other receivables 7.1 (10.4)
(Decrease)/increase in trade and other payables (3.6) 24.4
Decrease in off-market contract liabilities (19.6) (22.0)
Decrease in provisions (1.8) (1.9)
Share-based payments expense 1.3 2.7
Defined benefit pension contributions paid (3.6) (3.9)
Operating exceptional and non-underlying
items (23.9) (14.4)
==================================================== ====== ======
Working capital and other movements (46.8) (29.2)
==================================================== ====== ======
10 Analysis and movements in net debt
As at 30 Financing Changes Other non- As at 29
April 2017 cash flows in fair cash changes April 2018
value
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents
Cash at bank and in hand 285.5 (117.0) - - 168.5
Liquidity facility reserve 157.5 (157.5) - - -
Cash and cash equivalents
for balance sheet 443.0 (274.5) - - 168.5
Overdrafts - - - - -
Cash and cash equivalents
for cash flow 443.0 (274.5) - - 168.5
Liabilities from financing
activities
Included in net debt:
- Finance leases (21.6) 1.0 - - (20.6)
- Liquidity facility loan (157.5) 157.5 - - -
- Unsecured bank loans -
floating rate
- Bank loans - Facility
A (168.3) 80.0 - (0.5) (88.8)
- Bank loans - Facility
B - (183.8) - (0.5) (184.3)
- Securitised borrowing (2,170.1) 266.7 - (3.7) (1,907.1)
=================================== ========== ========== =========== =============== ==========
(2,517.5) 321.4 - (4.7) (2,200.8)
Not included in net debt:
----------------------------------- ---------- ---------- ----------- --------------- ----------
- Derivative financial instruments (344.8) 42.6 59.9 1.2 (241.1)
----------------------------------- ---------- ---------- ----------- --------------- ----------
Liabilities from financing
activities (2,862.3) 364.0 59.9 (3.5) (2,441.9)
=================================== ========== ========== =========== =============== ==========
Net debt (2,074.5) 46.9 - (4.7) (2,032.3)
=================================== ========== ========== =========== =============== ==========
Of the GBP400.0m (2017: GBP400.0m) available under Facility A,
GBP90.0m (2017: GBP170.0m) was drawn down at the year end with a
carrying value of GBP88.8m (2017: GBP168.3m) which included GBP1.2m
(2017: GBP1.7m) of fees. Of the GBP350.0m (2017: GBPnil) available
under Facility B, GBP187.0m (2017: GBPnil) was drawn down at the
year end with a carrying value of GBP184.3m (2017: GBPnil) which
included GBP2.7m (2017: GBPnil) of fees.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
11 Financial instruments
IFRS 13 requires the classification of financial instruments
measured at fair value to be determined by reference to the source
of inputs used to derive fair value.
The following derivative financial liabilities are held at fair
value:
As at As at
29 April 30 April
2018 2017
GBPm GBPm
Interest rate swaps 242.6 344.8
====================== ======== ========
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 29 April 2018 was GBP1,984.8m (30 April 2017:
GBP2,254.0m) compared to a carrying value of GBP1,907.1m (30 April
2017: GBP2,170.1m).
12 PROVISIONS
Indirect Property Off-market Total provisions
tax provisions leases liabilities GBPm
GBPm GBPm GBPm
At 30 April 2017 25.6 15.9 285.4 326.9
Unwinding of discount element
of provisions - 0.5 12.5 13.0
Provided for during the period 0.6 19.2 - 19.8
Utilised during the period - (1.8) (34.4) (36.2)
Released during the period (1.5) (5.9) (17.0) (24.4)
-------------------------------- ---------------- --------- ------------- -----------------
At 29 April 2018 24.7 27.9 246.5 299.1
-------------------------------- ---------------- --------- ------------- -----------------
Provisions have been analysed between current and non-current as
follows
29 April 2018
Indirect Property Off-market Total provisions
tax provision leases liabilities GBPm
GBPm GBPm GBPm
Current 24.7 4.8 17.9 47.4
Non-current - 23.1 228.6 251.7
------------- --------------- --------- ------------- -----------------
24.7 27.9 246.5 299.1
------------- --------------- --------- ------------- -----------------
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
12 PROVISIONS (CONTINUED)
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. The liability unwinds against the rental expense so
that the income statement charge reflects current market terms over
an average period of 17 years (2017: 18 years).
During the year the group settled the financial guarantee
provided by Ambac in respect of a number of Spirit secured bonds
for a cash consideration of GBP12.6m with a further GBP2.2m of
consent and other fees paid (note 3).
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 GBP6.8m because it had accepted a guarantee
that it would only repay this VAT if Rank's litigation is finally
determined in HMRC's favour. Rank's latest appeal was rejected by
the Supreme Court in July 2015 and the group is currently awaiting
the outcome of related litigation involving Rank and others.
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 in the period.
Notes to the accounts
for the fifty-two weeks ended 29 April 2018
13 PENSIONS
The group maintains two defined benefit schemes; Greene King
Pension Scheme, and Spirit (Legacy) Pension Scheme. The pension and
other post-employment benefit net asset at 29 April 2018 was
GBP13.6m, an improvement of GBP24.8m 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 Spirit Total
King
GBPm GBPm GBPm
Post-employment (liabilities)/ assets
at 30 April 2017 (28.0) 16.8 (11.2)
Re-measurement gains and losses:
Return on plan assets (excluding amounts
included in net expenses) 8.1 (23.1) (15.0)
Changes in demographic assumptions relating
to liabilities 2.2 2.9 5.1
Changes in financial assumptions relating
to liabilities 16.3 15.1 31.4
============================================ ============ ============ ============
26.6 (5.1) 21.5
Employer contributions 3.6 - 3.6
Net interest recognised in the income
statement (0.7) 0.4 (0.3)
Post-employment assets at 29 April 2018 1.5 12.1 13.6
============================================ ============ ============ ============
During the year the Spirit scheme entered into a buy-in policy
that provides insurance for a proportion of its pensioner
population.
The improvement in the pension position is driven by a small
increase in the discount rate from 2.7 - 2.8% used at 30 April 2017
to 2.8% used at 29 April 2018 reducing the liabilities of the
schemes. Other key assumptions are in respect of RPI inflation and
CPI inflation which have decreased t0 3.1% (2017: 3.3%) and 2.0%
(2017: 2.2%) respectively.
14 RELATED PARTY TRANSACTIONS
No transactions have been entered into with related parties
during the year.
Greene King Finance plc and Spirit Issuer plc are structured
entities set up to raise bond finance for the group, and as such
are deemed to be related parties. The results and financial
position of the entities have been consolidated in the group's
results.
15 post balance sheet events
Final dividend
A final dividend of 24.4p per share (2017: 24.4p) amounting to a
dividend of GBP75.6m (2017: GBP75.6m) was proposed by the directors
at their meeting on 27 June 2018. These financial statements do not
reflect the dividend payable.
Borrowings and financial instruments
On 7 June 2018 the group gave notice to repay GBP62.3m (30%) of
the outstanding Class A4 secured loan note issued by Spirit Issuer
plc at 103.3% of its par value on 28 June 2018. The group has also
agreed to make a payment of GBP7.4m on 28 June 2018 to terminate
30% of the corresponding interest rate swap contract.
ALTERNATIVE PERFORMANCE MEASURES
The performance of the group is assessed using a number of
Alternative Performance Measures (APMs).
The group's results are presented both before and after
exceptional and non-underlying items. Adjusted profitability
measures are presented excluding exceptional and non-underlying
items as management believe this provides useful additional
information about the group's performance and aids a more effective
comparison of the group's trading performance from one period to
the next and with similar businesses. Adjusted profitability
measures are reconciled to unadjusted IFRS results on the face of
the income statement with details of exceptional and non-underlying
items provided in note 3.
In addition, the group's results are described using certain
other measures that are not defined under IFRS and are therefore
considered to be APMs. These measures are used by management to
monitor on-going business performance against both shorter-term
budgets and forecasts but also against the group's longer-term
strategic plans. The definition of each APM presented in this
report and where reconciliation to the nearest measure prepared in
accordance with IFRS can be found is shown below.
APMs used to explain and monitor group performance:
Location of reconciliation to GAAP
Measure Definition measure
Group EBITDA Earnings before interest, tax, Group cash flow statement
depreciation, amortisation and
exceptional and non-underlying
items. Calculated by taking operating
profit before exceptional and
non-underlying items and
adding back depreciation and
amortisation.
-------------------------------------- --------------------------------------
Operating profit before exceptional Group operating profit excluding Group income statement
and non-underlying items exceptional and non-underlying items.
-------------------------------------- --------------------------------------
Operating profit margin Operating profit margin is calculated
by dividing operating profit before
exceptional and
non-underlying items by revenue.
-------------------------------------- --------------------------------------
Net interest before exceptional items Group finance costs excluding
exceptional and non-underlying items.
-------------------------------------- --------------------------------------
Profit before tax and exceptional and Group profit before tax excluding Group income statement
non-underlying items (PBTE) exceptional and non-underlying items.
-------------------------------------- --------------------------------------
Adjusted basic earnings per share Earnings per share excluding the Note 5 to the accounts
impact of exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
ROI Return on investment across all our Note A below
core pub businesses. Calculated as
the average incremental
increase in pub EBITDA
post-investment divided by the total
core capex invested in completed
developments.
-------------------------------------- --------------------------------------
Net debt : EBITDA Net debt as disclosed on the group Note B below
balance sheet divided by 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
pre-exceptional operating profit
by periodic average capital employed.
Capital employed is defined as total
net assets excluding
deferred tax balances, derivatives,
post-employment liabilities and net
debt.
-------------------------------------- --------------------------------------
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 52-week period
in the prior year
for pubs that were trading for the
entirety of both 52-week periods. The
calculations include
figures for acquired Spirit pubs for
a comparable 52-week period in both
the current and comparative
financial years.
-------------------------------------- --------------------------------------
Pub Company operating profit before Pub Company operating profit Note 2 to the accounts
exceptional and non-underlying items excluding exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Pub Company EBITDA Pub Company earnings before interest, Note 2 to the accounts
tax, depreciation, amortisation and
exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Pub Company EBITDA per pub Calculated by dividing Pub Company
EBITDA by the average number of pubs
trading in a financial
period.
-------------------------------------- --------------------------------------
Pub Partners LFL net profit growth Pub Partners' LFL profit includes pub Note H below
operating profit and central
overheads but excludes
exceptional items.
LFL profit performance is calculated
against a comparable 52-week period
in the prior year
for pubs that were trading for the
entirety of both 52-week periods. The
calculation includes
figures for acquired Spirit pubs for
a comparable 52-week period in both
the current and comparative
financial year.
-------------------------------------- --------------------------------------
Pub Partners EBITDA Pub Partners earnings before Note 2 to the accounts
interest, tax, depreciation,
amortisation and exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Pub Partners EBITDA per pub Calculated by dividing Pub Partners
EBITDA by the average number of pubs
trading in a financial
period.
-------------------------------------- --------------------------------------
Pub Partners operating profit before Pub Partners operating profit Note 2 to the accounts
exceptional items excluding exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
Brewing & Brands operating profit Brewing & Brands operating profit Note 2 to the accounts
before exceptional items excluding exceptional and
non-underlying items.
-------------------------------------- --------------------------------------
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 G below.
Source 2018 2017
GBPm GBPm
Incremental annualised EBITDA Non-GAAP 15.5 11.8
Total core capital investment in completed
schemes Non-GAAP 50.0 48.2
Return on investment 31.0% 24.5%
B NET DEBT : EBITDA
Source 2018 2017
GBPm GBPm
Group balance
Net debt sheet 2,032.3 2,074.5
------------------ -------------------- ------- -------
EBITDA Cash flow statement 486.6 524.1
------------------ -------------------- ------- -------
Net debt : EBITDA 4.2x 4.0x
C FREE CASH FLOW
Source 2018 2017
GBPm GBPm
EBITDA Cash flow statement 486.6 524.1
Working capital and other movements Note 9 (46.8) (29.2)
Add back: exceptional items Note 9 23.9 14.4
------------------------------------ -------------------- ------- -------
463.7 509.3
--------------------------------------------------------- ------- -------
Tax payments Cash flow statement (44.8) (48.6)
Add back: exceptional tax payments Non-GAAP 9.4 20.6
Add back: impact of changes to
payment regimes Non-GAAP 26.0 -
------------------------------------ -------------------- ------- -------
(9.4) (28.0)
--------------------------------------------------------- ------- -------
Interest received Cash flow statement 1.0 1.0
Interest paid Cash flow statement (130.2) (148.1)
Add back: exceptional interest
paid Non-GAAP 2.1 12.2
------------------------------------ -------------------- ------- -------
(127.1) (134.9)
--------------------------------------------------------- ------- -------
Core capex Note F below (132.2) (126.0)
Net repayment / (advance) of trade
loans Cash flow statement 2.5 0.2
Equity dividends paid Note 6 (102.9) (100.1)
Other non-cash movements Note 10 (4.7) (0.9)
Free cash flow 89.9 119.6
---------------------------------------------------------- ------- -------
D FIXED CHARGE COVER
Source 2018 2017
GBPm GBPm
EBITDA Cash flow statement 486.6 524.1
Operating lease rentals Non-GAAP 90.2 91.0
Add back: off-market lease liability
and other property provisions utilised
in the period Non-GAAP (20.2) (21.2)
Non returning capex Note F below (79.6) (75.7)
---------------------------------------- -------------------- ------ ------
477.0 518.2
------------------------------------------------------------- ------ ------
Net interest paid Cash flow statement 129.2 147.1
Add back: exceptional interest
paid Non-GAAP (2.1) (12.2)
Operating lease rentals Non-GAAP 90.2 91.0
217.3 225.9
------------------------------------------------------------- ------ ------
Fixed charge cover 2.2x 2.3x
E RETURN ON CAPITAL EMPLOYED
Source 2018 2017
GBPm GBPm
Operating profit before exceptional
and non-underlying items Income statement 373.1 411.5
--------------------------------------- ----------------- ------- -------
Average capital employed:
Group balance
Net assets sheet 2,056.9 1,944.2
Add back:
Group balance
Deferred tax assets sheet (29.7) (63.1)
Group balance
Deferred tax liabilities sheet - 9.8
Group balance
Post-employment (assets) / liabilities sheet (13.6) 11.2
Group balance
Derivatives sheet 241.1 344.8
Group balance
Net debt sheet 2,032.3 2,074.5
--------------------------------------- ----------------- ------- -------
Capital employed Non-GAAP 4,287.0 4,321.4
Timing adjustment Non-GAAP 108.3 75.2
Average capital employed Non-GAAP 4,395.3 4,396.6
--------------------------------------- ----------------- ------- -------
ROCE% 8.5% 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 2018 2017
GBPm GBPm
Non-returning capex(1) Non-GAAP 79.6 75.7
Development capex Non-GAAP 52.6 50.3
----------------------------------- -------------------- ----- -----
Core capex Non-GAAP 132.2 126.0
Brand swap and new site investment Non-GAAP 61.0 68.9
Purchase of property, plant and
equipment Cash flow statement 193.2 194.9
----------------------------------- -------------------- ----- -----
(1) non-returning capex also referred to as "maintenance
capex"
G PUB COMPANY LFL SALES
2018 CALCULATIONS Source 2018 2017 YoY%
GBPm GBPm
Reported revenue Note 2 1,767.7 1,817.4 -2.7%
Less: non-LFL revenue Non-GAAP (85.5) (105.4)
-------------------------------------- --------- ------- -------
LFL sales Non-GAAP 1,682.2 1,712.0 -1.7%
-------------------------------------- --------- ------- -------
Snow impact Non-GAAP 8.8 -
-------------------------------------- --------- ------- -------
LFL sales excluding snow impact Non-GAAP 1,691.0 1,712.0 -1.2%
-------------------------------------- --------- ------- -------
2017 CALCULATIONS Source 2017 2016 YoY%
GBPm GBPm
Reported revenue Note 2 1,817.4 1,688.2 +7.7%
Add: Spirit pre-acquisition LFL sales Non-GAAP - 98.3
Less: non-LFL revenue Non-GAAP (119.8) (113.4)
-------------------------------------- --------- ------- -------
LFL sales Non-GAAP 1,697.6 1,673.1 +1.5%
-------------------------------------- --------- ------- -------
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 group LFL sales figures quoted take account of the sales
performance of Spirit pubs that have been owned and operated within
the Spirit business for the full two-year 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 LFL NET PROFIT
2018 CALCULATIONS Source 2018 2017 YoY%
GBPm GBPm
Reported operating profit Note 2 91.4 92.8 -1.5%
Less: other non-LFL adjustments Non-GAAP (5.7) (7.4)
-------------------------------------- --------- ----- -----
LFL net profit Non-GAAP 85.7 85.4 +0.4%
-------------------------------------- --------- ----- -----
2017 CALCULATIONS Source 2017 2016 YoY%
GBPm GBPm
Reported operating profit Note 2 92.8 85.3 +8.8%
Add: Spirit pre-acquisition LFL sales Non-GAAP - 4.6
Less: other non-LFL adjustments Non-GAAP (7.5) (8.7)
-------------------------------------- --------- ----- -----
LFL net profit Non-GAAP 85.3 81.2 +5.0%
-------------------------------------- --------- ----- -----
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 LFL profit figures quoted take account of the profit
performance of Spirit pubs that have been owned and operated within
the Spirit tenanted and leased business for the full two-year
period under review. Therefore to arrive at the LFL net profit
figure for 2016 LFL sales for the seven-week period pre-acquisition
have been included.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UWRURWUANURR
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